Accounting ‘Gimmicks’ in G.O.P.’s Tax Overhaul Mask Higher Cost, Deficit Hawks Say

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Such sleights of hand in accounting are more prevalent in the Senate plan, which makes many of its cuts temporary or delays their enforcement. For instance, the Senate bill delays the corporate tax cut, which will fall to 20 percent from 35 percent, by one year for savings of about $100 billion. It also saves about $240 billion by making the individual income tax cuts “temporary” and setting them to expire in 2025.

Other tax breaks are phased in slowly or phased out. Businesses are allowed to fully expense only their capital investments, including equipment purchases, through 2022. And, beginning in 2024, the ability to carry net operating losses forward would be limited as a percent of taxable income. In 2026, research and experimental expenditures would have to be written off gradually, or amortized, rather than immediately deducted, which reduces the revenue hit to the federal budget.

According the nonpartisan Committee for a Responsible Federal Budget, the real cost of the Senate legislation that the Joint Committee on Taxation says will cost $1.41 trillion over a decade would be $2.2 trillion if all the temporary changes were made permanent. The group estimates that the nation’s debt, which has surpassed $20 trillion, would exceed the size of the economy by 2028 under the plan — a level the United States has not reached since World War II.

Republican leaders in Congress and the Trump administration have acknowledged the budget maneuvers, saying they expect the temporary tax cuts to stay in place.

“As a result of the reconciliation process and scoring and the Byrd Rule, there are certain parts of this that expire,” the Treasury secretary, Steven Mnuchin, said on CNBC on Friday. “But we have every expectation that down the road that Congress will extend them.” The Byrd rule refers to restrictions put in place by former Senator Robert C. Byrd of West Virginia that prevent legislation that adds to the deficit in the long-term.

To deficit hawks, underselling the true cost of tax cuts is counterproductive and potentially dangerous for the economy.

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“The gimmicks not only damage the bill’s fiscal credibility but damage the bill’s objectives at the same time,” said Michael A. Peterson, the president and chief executive of the Peter G. Peterson Foundation, an organization that advocates fiscal responsibility.

Another potential pitfall of scattering temporary provisions in the tax code is that it sets up “fiscal cliffs,” in which Republicans and Democrats must find a way to either extend expiring tax cuts or take the political heat for allowing a huge tax increase to take place. The temporary nature of the Bush tax cuts in 2001 led to standoffs in Congress that created uncertainty and, according to some economists, eventually weighed on the economy.

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That could work against Republicans when the time comes that they do not control the House, Senate and White House, and it means that the corporate tax cuts that have been made permanent could be up for negotiation in the future.

“If Democrats are in control, they may extend those tax benefits for individuals and pay for it by raising the corporate rate,” said Howard Gleckman, a senior fellow at the Urban Institute’s Tax Policy Center. “This is an area where business supporters of this bill might want to be a little bit careful about where it’s going to go.”

Some Republican lawmakers are playing down the use of such maneuvers, arguing that they are merely following arcane Congressional rules that require them to make hard choices.

Senator Michael D. Crapo, Republican of Idaho, lamented that the rules did not allow Republicans to consider the “dynamic” effects that he believed tax cuts would have on economic growth when assessing his party’s tax plan.

“I don’t believe dynamic scoring is a gimmick,” Mr. Crapo said, referring to an approach to analyzing the effects of tax cuts, which accounts for the possibility that lower tax rates will promote growth and therefore raise revenue. “The reality is that if we could get agreement to use a fair dynamic score, which I think would be supported by most economists, these issues would go away.”

But others are not yet convinced that the tax plan as it stands is sufficiently fiscally responsible.

“We’re looking globally at the whole thing and trying to do what we can to make it more fiscally palatable,” said Senator Bob Corker, Republican of Tennessee. “For 11 years around here, my big concern has been fiscal issues and I’d love to see us do something that’s very progrowth but I don’t want to throw the fiscal side out.”


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