A new analysis of the Republican megabill currently under consideration in the Senate finds that it could be much less costly than previously estimated — as long as you’re willing to ignore the cost of extending the 2017 tax cuts that were set to expire at the end of the year.
Senate Republicans asked the non-partisan Joint Committee on Taxation to score the tax provisions of the reconciliation bill using a “current policy” baseline, a novel accounting method that assumes that maintaining current policies effectively has no cost, regardless of whether the policies were set to expire, and thus is budget neutral.
Under that assumption, the JCT reported this weekend that the tax portions of the Republican megabill would cost just $442 billion over 10 years — a huge drop from the previous estimate, which included a roughly $3.8 trillion cost for extending the 2017 tax cuts.
A malleable number: Senate Finance Chair Mike Crapo, Republican from Idaho, said the JCT score reflects his preferred way of thinking about the 2017 tax cut extension. “Extending the Trump tax cuts prevents a $4 trillion tax increase—this is not a change in current tax policy or tax revenue,” he said in a statement Sunday. “This score more accurately reflects reality by measuring the effects of tax policy changes relative to the status quo.”
Sen. Jeff Merkley of Oregon, the senior Democrat on the Budget Committee, rejected the new score as the product of “magic math.”
“Republicans finally showed their hand, and its completely dishonest,” Merkley said in a statement. “‘Current policy baseline’ is a budget gimmick that is nothing more than smoke and mirrors instead of honest accounting. This bill will add trillions upon trillions of dollars to the national debt to fund tax breaks for billionaires – while Republicans want everyone to think it adds zero.”
Democrats have asked the JCT to release a score of the bill using the more conventional “current law” baseline, which recognizes that many of the 2017 tax cuts are set to expire at the end of 2025. Eliminating that expiration dramatically alters projections for tax revenues over the next 10 years.
Tax and budget experts typically rely on the current law baseline. Maya MacGuineas, president of the fiscally conservative Committee for a Responsible Federal Budget, said the current policy baseline amounts to little more than a “gimmick” that threatens to produce legislation that is “an affront to logic, consistency and sound principles of budgeting.”
“The TCJA was scored as temporary back in 2017 in order to keep its reported costs down,” she said in a statement Monday. “The current bait and switch doesn’t make $3.8 trillion of borrowing disappear, it just hides the cost from the public.”
Senate tweaks to the bill: The Senate altered some tax provisions in the bill in an effort to reduce costs, reducing the generosity of some notable components that were passed by the House in May. As congressional reporter Jamie Dupree notes, the Senate reduced the cost of policies that would eliminate federal income taxes on tips and on overtime pay by placing a cap on the amount of income that can be exempted and by phasing out the tax break at higher income levels.
Workers would be able to avoid taxes only the first $25,000 in tip income, an allowance that starts phasing out at $150,000 a year in total income. For overtime pay, the Senate capped the amount that could be claimed at $12,500, and the tax break also starts phasing out at $150,000 in earnings.
The changes lower the cost of those elements in the bill. The cost of the “no tax on tips” provision falls from $39.6 billion in the House version to $30.7 billion in the Senate, and the cost of the “no tax on overtime” provision drops from $124 billion to $89.3 billion, according to the JCT.
Other provisions of the bill that saw tweaks include the proposed deduction for auto loan interest, the cost of which fell from $58 billion in the House version to $31 billion in the Senate, and new rules for expensing manufacturing costs, which dropped from $148 billion to $141 billion, per Andrew Lautz of the Bipartisan Policy Center.
For many of the other major tax provisions, the switch in baselines did the work of reducing costs, even where lawmakers tweaked some of the related details. For example, per Politico’s Benjamin Guggenheim, extending the personal income tax cuts in the 2017 bill would cost an estimated $2.2 trillion in the conventional analysis, but that cost is sharply reduced to $83 billion in the new JCT analysis, which looks only at the ways the Senate altered the existing rules moving forward. Similarly, the cost of extending and expanding the Child Tax Credit is estimated to be about $800 billion, but that cost falls to $124 billion in the new JCT score.
The bottom line: Republicans may hope to use the current policy baseline to obscure much of the cost of the bill as understood in conventional analysis. Still, the JCT score does tell us that the new provisions in the tax portions of the reconciliation bill would cost an estimated $442 billion, bringing the total cost of the tax component to about $4.2 trillion over 10 years when analyzed on a current law basis.