Republican lawmakers are preparing for a significant fiscal turning point that could arrive as President Trump’s term ends. While they are advocating for the permanent extension of the 2017 tax law, other provisions aimed at aiding everyday Americans are scheduled to expire in 2028.
“This is going to be front and center in the next presidential campaign,” said Rep. Andy Harris (R-Md.), who leads the House Freedom Caucus.
Among the provisions slated to expire are enhancements to the standard deduction and the child tax credit, as well as the elimination of taxes on tips, car loan interest, overtime earnings, and an extra deduction for seniors — all of which are currently part of the House’s broader domestic policy package.
Fiscal conservatives argue that this creates another looming fiscal cliff, much like the expiration of the 2017 tax law itself, which Republicans are currently working to extend before its provisions lapse at the end of this year.
“There’s a total tax cliff in there. There’s about $1.5 trillion worth of taxes that expire in four years, five years, which means what? In five years, they’ll just keep them going. This is why we end up with the same problem,” Rep. Chip Roy (R-Texas) remarked. “It is 100 percent a gimmick to have tax cuts that you’re putting in place for four or five years,” he added.
The Senate is expected to significantly alter the legislation, including potentially redefining budget calculations so that the trillions of dollars in deficit additions caused by extending previous tax breaks are excluded from official projections.
Nevertheless, several senators have voiced support for preserving the core elements of the 2017 Tax Cuts and Jobs Act (TCJA), while allowing more recent tax breaks targeted at families, consumers, and retirees to expire.
“The general feeling of Senate Finance is the TCJA — we need to make that permanent. We need to make the business provisions — the expensing, the R&D provisions — we need to make those permanent. The other things, I think we should discuss it,” said Sen. Ron Johnson (R-Wis.), a member of the Senate Finance Committee.
Sen. John Hoeven (R-N.D.) emphasized the importance of long-term certainty but suggested that not all the expiring tax breaks are guaranteed to stay in the final bill.
“Our intent is to make the tax cuts permanent. Now, something like the child tax credit, with a huge transfer payment aspect to it, I’d have to say that’s something I’d have to check on. Other tax cuts and reductions, depending on score and how the votes come down, that could change,” he noted.
Most of the temporary cuts were initiatives President Trump introduced during his campaign. These proposals targeted distinct voter groups and were introduced quickly and frequently during the lead-up to the election. Reuters reported that seven different tax policies were floated just in the two months before voters headed to the polls.
During a campaign event in Detroit last October, Trump advocated for making interest on car loans fully deductible — a direct appeal to workers in the auto capital of the U.S. In June, while in Las Vegas, he pledged to eliminate taxes on tips, targeting a state dominated by the hospitality industry. He also introduced a caregiver tax credit at a Madison Square Garden rally, aiming to support the millions of New Yorkers caring for relatives.
Many policy experts — on both sides of the ideological divide — have expressed skepticism or outright disapproval of these additional Trump proposals.
“I would prefer those things would be completely off the list,” said Daniel Bunn, head of the conservative-leaning Tax Foundation, in a November interview. “It’s not good policy. It does not move in the same direction that the 2017 reforms work.”
Echoing that view from the other side of the spectrum, William Gale from the liberal Urban-Brookings Tax Policy Center wrote that removing taxes on tips is problematic. “The obvious problem is that the proposals are inconsistent with sound tax policy. The less obvious problem is that exempting tips would not even help the vast majority of low-income workers,” he explained.
Although Senate Republicans seem inclined to maintain a distinction between permanent and temporary tax changes, many are wary of repeating past mistakes by letting certain cuts expire, thus fueling future political battles.
“They’re doing that for only four years, and all of a sudden that stops? I’m not real high on tax policy that expires,” Johnson said in reference to the no-tax-on-tips proposal. “If it’s good enough to include, let’s make it permanent. Let’s have that discussion.”
The Senate does have more leeway than the House, owing to its more favorable budget rules, which may allow up to $5.5 trillion in tax reductions to bypass official scoring.
Still, fiscal hawks in both the House and Senate are worried about the impact of the plan on the national debt — a concern that has contributed to volatility in the bond market and broader financial unease.
Last week, the Congressional Budget Office (CBO) projected that the House version of the bill would swell the deficit by $2.4 trillion over the next ten years.
A subsequent CBO report, requested by Democratic lawmakers, added that interest payments alone stemming from the legislation would amount to $551 billion over a decade — driving the total deficit increase to $3 trillion.
Republican leaders have tried to undermine the CBO’s findings, but discontent over the plan’s costs — and its meager projected economic benefits — has spread through both Capitol Hill and the White House.
The Joint Committee on Taxation (JCT) projected the bill would only lift GDP growth from 1.83 percent to 1.86 percent over the long term, barely above the Federal Reserve’s current 1.8 percent outlook.
“The Democrat inspired and ‘controlled’ Congressional Budget Office (CBO) purposefully gave us an extremely low level of growth, 1.8 percent over 10 years — how ridiculous and unpatriotic is that!” Trump wrote on social media earlier this month.
One JCT forecast shows the plan could shrink the nation’s capital stock by nearly 1 percent during the budget period, which would result in reduced economic output overall.
“The first and second half effects result in a decrease of 0.1 percent on average over the entire budget window,” the JCT reported.
Democrats have pounced on the temporary nature of many Trump-backed tax breaks as proof that the legislation overwhelmingly benefits the wealthy — even though the bill does lock in lower tax rates for those with modest incomes.
“Why is this bill designed to take away some of the benefits that you claim people are going to have?” Rep. Gwen Moore (D-Wis.) asked Treasury Secretary Scott Bessent during a hearing. “The senior tax credit expires. … No taxes on tips expires.”
Though the bill enshrines reduced tax rates for lower earners, projections indicate it will still favor the wealthiest Americans, contributing to greater income inequality.
According to JCT data, half the benefit from the passthrough deduction — worth over $200 billion in 2022 — was claimed by the top 1 percent of earners by adjusted gross income.
{Matzav.com}