Economy & Business

Make the Tax Cuts Permanent

Speaker of the House Paul Ryan speaks at news conference announcing the passage of the “Tax Cuts and Jobs Act” at the Capitol in Washington, November 16, 2017. (Aaron P. Bernstein/Reuters)

Tax reform was passed under reconciliation, which made it a flawed success. To ensure compliance with the Byrd Rule — which prohibits reconciliation bills from increasing the budget deficit past a ten-year window — Republicans made the corporate tax cut permanent but the individual tax cuts temporary. The doubling of the standard deduction, the expansion of the child tax credit, and the lower individual-rate structure all expire after 2025. Since uncertainty about the future discourages businesses from making long-term investments, it is important to have a stable corporate tax rate. But it is neither good policy nor good politics to pass a bill that, absent further congressional action, means Americans’ taxes will rise after eight years. Republicans should bring legislation to the floor that would make the individual tax cuts permanent.

Any such bill would need support from Democratic senators to pass, and ideally would preserve the provisions mentioned above, the benefits of which redound to middle-income earners. If it passes, the GOP will have shepherded through permanent tax relief for most Americans. If it doesn’t, Republicans will have forced Democrats to vote down middle-class tax cuts. We would obviously prefer to see the former, but Republicans staring at the prospect of a bloodbath in the midterms should be happy with either outcome.

When tax reform was being debated, Democrats feigned outrage over the sunset provision for the individual tax cuts. Republicans were actually hiking taxes on middle-class Americans, they said, proving that the GOP cares more about saving money for corporations than helping individuals. If that charge cynically elided the particulars of the reconciliation process, it was also politically potent. The best way to turn the charge on its head is for Republicans to call the Democrats’ bluff and dare them to vote against the permanent tax relief they advocated just months ago.

House speaker Paul Ryan and Senate majority leader Mitch McConnell have already floated the idea, and several legislators are reportedly on board. But some Republicans oppose the idea on the grounds that it will inflate our already ballooning national debt. Supporters of the measure should not respond by insisting that the new tax cut will unleash enough growth to pay for itself. No serious economist believes that. Extending all of the individual-side provisions would, indeed, add hundreds of billions of dollars to the debt. Allowing certain provisions — the scaling down of the alternative minimum tax, the pass-through business deduction — to expire would bring the number down, but not by much.

Yet the cost would be meager compared with the growth of entitlement spending, which is the primary reason our budget is out of balance. Any deal to restore that balance should rest less on tax hikes and more on entitlement reform. Making the tax cuts permanent would improve the chance that when the budget is eventually brought under control, this happens on terms favorable to conservatives. Regardless, no tax relief will hold if entitlement spending continues apace.


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