The Republican sweep of the presidency and Congress has transformed what could have been a struggle to merely renew Donald Trump’s tax cuts into a multi-pronged campaign to slash levies in new and bigger ways.
The incoming Republican majorities in the House and Senate mean Trump can enact a tax bill without making concessions to Democrats. Republicans will only be constrained by how much deficit spending the party’s lawmakers and global financial markets can tolerate.
“That is the several trillion-dollar question,” said Rohit Kumar, co-leader of PwC’s national tax office and a former tax policy adviser to Senate Republican leader Mitch McConnell.
Owners of closely held companies and high-net worth families stand to benefit with Congress now more likely to renew expiring provisions in the 2017 law providing a 20% deduction on pass-through business income and an elevated estate tax exemption, said Gordon Gray, a former Republican Senate Budget Committee aide and now executive director of the Pinpoint Policy Institute.
Many Democrats campaigned on a tax-the-rich agenda and advocated paying for other tax cuts by targeting those provisions, as well as rolling back the law’s tax cuts for corporations and individuals making more than $400,000 per year.
Republicans’ election success not only bolsters the 2017 tax cuts but opens the way for consideration of ideas such as further cutting the corporate tax rate and exempting tips from federal income taxes, said Grover Norquist, an influential voice in Republican tax policy debates and president of the conservative group Americans for Tax Reform.
Trump enthusiastically promoted both the corporate-rate reduction and the break for tipped income during the presidential campaign and also promised myriad other tax breaks.
What's Next?
The first thing Republicans will have to negotiate is how large the tax-cut package will be and how much they’re willing to increase a federal deficit that reached $1.83 trillion in the fiscal year that ended Sept 30.
Just extending the expiring tax cuts would drive up deficits by $4.6 trillion over 10 years, and all of Trump’s campaign plans would add as much as $7.75 trillion, according to estimates by the Committee for a Responsible Federal Budget, a nonpartisan fiscal watchdog group.
Stephen Moore, a senior fellow at the Heritage Foundation and informal Trump adviser, said the tax cuts will stimulate economic growth and Republicans can also cancel spending approved under President Joe Biden to help offset the cost of the cuts. Still, the bill is likely to have some level of deficit financing, he said.
That sets up a clash within the GOP between deficit hawks and lawmakers who don’t think revenue losses from tax cuts need to be offset, said Sage Eastman, a Republican strategist and former aide to the House Ways and Means Committee, which has jurisdiction over tax legislation.
Republican Senator Mike Crapo of Idaho, who is in line to chair the Senate Finance Committee, has said “pro-growth” tax policies don’t need to be paid for.
