This tax bill won’t deliver what its boosters claim it will.
I know you may be tempted to believe that somehow we shouldn’t worry about piling $3 trillion to $5 trillion more onto our enormous debt. I hear stuff like the Congressional Budget Office is underestimating the growth that will come from passing this reconciliation bill: Because the 2017 bill brought in lots of revenue and growth, this one will, too. But even assuming it did bring lots of revenue and growth, this bill is nothing like the Tax Cuts and Jobs Act and, in fact, it makes tax policy worse, not better.
For one thing, it mostly extends provisions that are already in place, so in that sense it’s not really a tax cut to begin with. It lifts the SALT cap and cuts taxes for some special interests in the worst possible way (tax credits and such). It keeps many of the Biden green tax credits. It fails to make permanent the provisions that would boost growth further. Its spending reforms are also weaker than we need.
Yes, the CBO makes mistakes in its projections. But attacking the CBO constantly won’t make the reality go away: This tax bill won’t deliver what its boosters claim it will. That is not a case for not extending the tax provisions that are expiring. It’s a case for extending them, making the pro-growth tax provisions permanent, and cutting spending much more, including implementing serious Medicaid reform now.
By the way, if you don’t trust the CBO or other modelers, look at how markets are reacting to the prospect of being offered a lot more debt to purchase soon. Today, the U.S. Treasury’s $16 billion sale of 20-year bonds saw weak demand, reflecting growing investor concern over the nation’s rising debt. So much for the theory that we can put as much debt for sale out there and it will go.
The auction’s poor reception triggered a drop in stocks and the dollar, while Treasury yields rose. The outcome signals increased anxiety in the bond market about Washington’s worsening fiscal trajectory. (Remember that in some corners of the administration, “liberation day” theory was supposed to help lower interest rates, which would lower the cost of refinancing our debt. It’s not working.)
If you want to complain about the CBO, here is a constructive criticism rather than the nonsense that I am hearing all day long on TV. CBO projections right now have the government’s interest rate never getting above 3.6 percent over 30 years. As Jessica Riedl reminds us, “If rates remain at 4.5%, that adds $40 trillion more to interest costs over 30 years—as much as adding a second Defense Department.” In other words, after years of assuming rates would go up, and they didn’t, the CBO is likely underestimating the growth in interest rates. That’s a super big deal, and it doesn’t help the spendalcoholics in Congress.
Of course, growth could be spectacular if the administration delivers on AI and energy abundance, as it is planning. But it will take time to do. A lot more time than it will take Republicans to add trillions of dollars to the debt and freak out investors. Congress should take this warning seriously.