Insights and Market Perspectives
NO ONE ON CAPITOL HILL is looking forward to a bitter battle next year over extending the very expensive 2017 Trump tax cuts — which has prompted growing support for using the budget reconciliation process to fast-track the tax cuts through Congress early next year.
WITH KEY PROVISIONS SET TO EXPIRE at the end of next year, the budget reconciliation process — which was used to pass the huge tax cuts in 2017 — may be used if Republicans take Congress and the White House this fall. Only a simple Senate majority — not the traditional 60 votes — would be required to move a bill.
THIS COULD BE THE MOST CONSEQUENTIAL DOMESTIC POLICY ISSUE of the decade, because so many sectors of the economy will be affected — including manufacturing, supply chains, and the “new economy,” AI. But the price tag could cost more than $4 trillion, as the U.S. budget deficit explodes. It’s $34 trillion now and rising fast.
DEMOCRATS USED RECONCILIATION to pass the Affordable Care Act under former President Obama, and used it again to pass President Biden’s economic relief plan and the hilariously named Inflation Reduction Act. Republicans already are working on the next bill; the Ways and Means Committee has appointed working groups that are focusing on which tax cuts should be extended and which ones should be changed.
LOOKING AT THE BIG PICTURE, the issue for Republicans is whether to make some changes — such as a small hike in the 21% corporate tax — and whether to use the bill for deficit reduction. GOP lawmakers already are targeting spending cuts in programs such as funding electric vehicles.
NO ONE CAN AGREE on the economic impact. The Congressional Budget Office estimates that it could increase economic growth but critics point to studies that show the 2017 tax boosted growth very modestly. The CBO projected this month that extending the law through 2034 would cost $4.6 trillion. Without significantly cutting services, the federal debt would balloon to 211% of GDP by 2054, compared to about 100% of GDP right now.
BOTTOM LINE: This issue is about to become dominant in the presidential debates, as Democrats advocate tax hikes on the wealthy to pay for extending some of the Trump provisions — while Republicans will argue that letting some of the tax cuts expire would produce a major headwind for the economy.
IF THE GOP TAKES THE SENATE, HOUSE AND WHITE HOUSE, the Trump tax cuts would need only 50 Senate votes for extension, which would be very likely. If the election is closer, the issue will drag on for most of 2025 — but even in this scenario, many of of the tax cuts — especially on the individual side — will escape major changes.
WHY? Letting the tax cuts expire would be portrayed by opponents as a de facto tax hike — and most politicians don’t want to be associated with a tax hike.
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Could Congress Fast Track the Trump Tax Cuts? – AGF Perspectives - AGF Perspectives
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