Cancel the Tax Hike Immediately and Permanently
By Phil Kerpen
The clock is ticking. If Congress fails to act, the average American household will see their tax bill jump by over $3000 at the end of this year. The economic imperative is also a political imperative for Republicans, who campaigned on keeping taxes low, along with deregulation and spending restraint as components of a strong economic growth agenda. But as the calendar turns to March, House and Senate Republicans are still on totally different pages. They need to come together as soon as possible on a tax deal that is both immediate and permanent.
The House budget resolution follows the president’s preference for a big, beautiful bill that would enact the president’s full agenda, including a fulsome extension of his first term tax cuts. The Senate passed a budget resolution with no tax provisions at all, while calling the House version inadequate because it would enable an extension of 7 to 10 years, but not permanent.
Both sides are half right – the Senate is correct that the extension should be permanent, which is critical to encourage investment and growth. Toward that end, the Senate is also right that the tax bill should be scored against a “current policy” baseline that views letting the 2017 bill expire as a tax hike rather than extending it as a tax cut. But the House is right that this is an urgent matter and punting until later in the year will have serious adverse economic and political consequences.
The Senate’s advocacy of a current policy baseline is crucial and well precedented. Like the Trump tax cuts, the Bush tax cuts were originally passed on a temporary basis. They were extended another two years in 2010 before being made mostly permanent in 2012. This was the key argument from the Obama administration in favor of a permanent extension:
“The relevant point of comparison isn’t current law, it is ‘current policy’ – those policies that were in place on December 31st, the day before all of these changes were scheduled to take effect. Different organizations, ranging from the Bowles-Simpson Fiscal Commission to the House Budget Committee, have considered this current policy baseline to be the appropriate reference point, since it measures changes relative to the status quo.”
It has now been nearly eight years since President Trump signed the Tax Cuts and Jobs Act. If it were allowed to expire, every taxpayer would feel a tax hike. Senator Mike Crapo has correctly established following the Obama precedent and using the “current policy” baseline as the Senate Republican position.
Unfortunately, House Republicans are not there yet. Their budget uses a conventional CBO baseline, even though CBO has been wildly wrong on the budgetary impact of the Trump tax cuts. As Art Laffer has demonstrated, those tax cuts paid for themselves in the first two years.
This decision likely constrains the House budget to only a temporary extension, about which Senate Republicans have said: “we will not support a tax package that only provides temporary relief from tax hikes.”
That makes some sense as a negotiating position – except that the Senate just passed a budget that includes zero tax cuts! None at all. That’s too risky. Punting means it might never get done, and every delay creates uncertainty and economic harm.
The House and Senate should put the best parts of their different strategies together and move forward on a big, beautiful bill including permanent Trump tax cuts. And do it immediately.
Mr. Kerpen is president of American Commitment and Unleash Prosperity.