Spend, Cut And Borrow – How The GOP Is Heading For Fiscal Calamity

Ain’t them Republicans something?

They just gifted to American businesses (corporate and pass-thrus) a $1.8 trillion tax cut over the next decade—most of it permanent.

And, seemingly, it was as easy as pie to accomplish. That’s because beforehand they had written themselves the equivalent of a parental note to the teacher saying it was OK to borrow $1.5 trillion of the cost.

This meant, in turn, they didn’t have to squeeze K-Street too hard for offsetting “payfors”. And off-setting spending cuts weren’t even on the table.

Moreover, the fiscal ease of it was aided immensely by the fact that they wrote the big revenue-loss hogs on the individual income tax side in disappearing ink—otherwise known as a “sunset”.

For instance, the GOP pols have been talking up a storm about doubling the standard deduction to $24,000 per family and raising the child credit from $1,000 to $2,000. Absolutely pro-working family, that. Woo-woo!

And, yes, while these provisions are operative, they will provide some semblance of tax relief. Among the middle quintile of taxpayers ($55k-$95k), 86% of filers under the Senate-passed bill will get an average tax cut of $1,250 by 2025.

At the same time, the principle measures which deliver this cut are mighty expensive. The child credit will cost $78 billion that year, the new modified seven brackets reduce current law revenue by $166 billion and the doubled standard deduction costs $102 billion—-for a total cost of $346 billion in 2025.

Furthermore, that huge revenue drain is only partially off-set by broad-based “payfors” in the form of the repealed $4,050 personal exemption which “saves” $171 billion and the short-sheeting of the tax bracket indexing mechanism to protect against inflation, which generates $20 billion.

Here’s the thing, however. The $155 billion net cost in 2025 of the five big provisions which broadly effect middle-income taxpayers and deliver the aforementioned $1,250 per household cut, morph into a $35 billion tax increase in 2027 because all these provisions disappear into the sunset save for the bracket indexing squeeze.

So this $190 billion swing toward the black at the end of the 10-year budget envelope helps shoe-horn the bill into the $1.5 trillion deficit allowance.