Sen. Michael D. Crapo, top Republican on the tax-writing Finance Committee, hinted Tuesday at a possible workaround for the ballooning price tag attached to extending the 2017 tax cuts and enacting new tax breaks former President Donald Trump has floated on the campaign trail.
Republicans shouldn’t offset the roughly $4 trillion it would cost to extend to provisions from the 2017 tax law due to expire at the end of next year because it would simply continue current policy, the Idaho Republican said, adding that “pro-growth” tax policies also don’t need to be paid for.
“If you look at history, extending current tax law has never been offset by Congress,” Crapo said, pointing to the New Year’s Day 2013 extension of most of the expiring 2001 and 2003 tax cuts originally enacted under President George W. Bush. “If it’s literally not changing tax policy, I’m just telling you what the precedent that Congress has set is.”
For that 2013 tax law, which averted what lawmakers dubbed the “fiscal cliff” due to so many tax breaks and other provisions expiring at the same time, the Joint Committee on Taxation and Congressional Budget Office estimated it would cost roughly $4 trillion over a decade.
But that’s under a “current law” baseline assuming any extensions of lapsing tax breaks or spending increase the deficit, which is the conventional method that congressional scorekeepers use. Under an alternative “current policy” baseline that instead assumes that any popular expiring items will always be extended, that added cost is instead written off.
So for that fiscal cliff deal at the very end of 2012 — which cleared one day after going over the cliff — the Obama administration cooked up its own current-policy estimate that was blessed by lawmakers: around $630 billion in reduced deficits, not counting lower interest payments on the debt. That was mainly due to allowing the 2001 and 2003 tax cuts to expire for households earning more than $400,000.
Similarly, Crapo said he would make the case that Congress shouldn’t look at extending the expiring provisions as adding to the price tag of a 2025 tax package because an extension would simply continue the status quo. That would allow more room to consider other tax issues and proposals, he said, since a broader package would have a smaller price tag if the older provisions already in the baseline don’t cost anything to extend.
“With regard to the kinds of proposals that are being made by various candidates that are not technically TCJA [Tax Cuts and Jobs Act] items, that doesn’t bother me,” Crapo said, referring to the 2017 tax law. “In fact, I think that we need to be prepared to deal with all aspects of the tax code and even new ideas.”
The stance recalls a policy debate Republicans had in the lead up to passage of the 2017 law and could have implications for any efforts the GOP makes next year to extend the expiring provisions through the budget reconciliation process, if they control the House, Senate and White House.
Lawmakers can choose the baseline used in a reconciliation bill when they adopt the budget resolution setting parameters for the package. Back in 2017, Crapo and others favored the “current policy” baseline, but Senate Republicans ultimately decided to score the tax law based on the more traditional “current law” approach.
Using current policy as the baseline next year would allow lawmakers to wipe out the $4 trillion or so it would cost to extend the 2017 tax law when it came to the bill’s score. Then, presumably, only the incremental cost of new tax or spending ideas — Trump’s plan to exempt tips from taxes, for instance — would count toward reconciliation targets.
Johnson’s first 100 days
Meanwhile on the House side, Speaker Mike Johnson, R-La., pitched his plans for the first 100 days of Congress — if Republicans have a trifecta next year — including a reconciliation package that would extend and expand on the 2017 tax law, cut spending and claw back unspent funds.
The GOP also would use the first 100 days to unwind energy regulations and shrink the size of the federal government, Johnson said at an event hosted by the America First Policy Institute, a policy group founded by former Trump administration officials. He vowed to eliminate “hundreds of thousands” of jobs throughout the federal government.
On the tax front, Johnson said Republicans would restore full upfront deductions of businesses’ research and development investments and deductions for the cost of purchasing equipment and machinery. Both business tax breaks became less generous over time under the 2017 tax law to bring down the total cost of the package.
He also committed to maintaining the current deduction that effectively lowers the tax rate on foreign-derived intangible income. The U.S. Chamber of Commerce and others have urged Congress to maintain the deduction slated to shrink at the end of next year, under the 2017 law.
The speaker name-checked maintaining the standard deduction, which doubled under that law, and a “strong child tax credit,” as GOP tax priorities. He also said he would use the tax code to address illegal immigration and the border but did not share specifics.
Rolling back tax credits established by the Democrat-led 2022 climate and health care budget law would also be on the agenda, Johnson added.
If an all-GOP Washington were to agree on a current policy baseline, for example, instead of a $5 trillion, 10-year deficit-increasing package, $4 trillion of that cost could be eliminated. And then things like repeal of the 2022 law’s green energy credits and other offsets could technically bring the net cost down to zero, or even negative.
As analysts at the left-leaning Center on Budget and Policy Priorities put it in 2017 when Republicans were considering such a move: “A current policy baseline could substantially ease the path for Republicans’ efforts to enact their costly and regressive tax cut plans.”
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