Tax plan should not increase debt
The Concord Coalition urges congressional leaders and President Trump to ensure that the proposed tax cuts they propose would not increase the federal debt over the next decade.
"Unfortunately, the new framework for revamping the tax code doesn't contain much new information about how the proposed tax cuts would be financed," said Robert L. Bixby, executive director of The Concord Coalition. "That's the critical question. Elected officials are touting all the goodies in terms of tax cuts and lower rates while leaving the trade-offs hidden and which taxpayers would be affected unspecified. That's hardly a model for legislative responsibility."
"Tax reform is a worthy goal," Bixby said. "There is a rare bipartisan consensus that the tax code is too complicated and economically inefficient. Fixing that problem, however, cannot be considered in isolation from the fact that current fiscal policy is already on an unsustainable path. The tax code, whether reformed or not, needs to bring in sufficient revenue to keep that problem from getting worse. It makes no sense to pursue major tax changes without knowing what the overall spending plan is, and given the huge potential revenue loss from the framework proposals, it would certainly not be the fiscally responsible thing to do."
While the framework suggests that most tax deductions will be eliminated—a positive goal—that would likely not be enough to offset the tax cuts being proposed. The net result would be higher debt and thus a limit on any economic growth gains the administration hopes to get from tax reform in the first place.
Tax deductions, preferences and exclusions—often called "tax expenditures"—make the tax system more inefficient, complex and regressive. Limiting or eliminating them is an essential step in creating a pro-growth tax reform.
Yet the framework also exempts at least two of the largest tax expenditures—the deductions for home mortgage interest and charitable contributions. That, combined with the proposed increase in the standard deduction, would severely limit any potential revenue gains.
Moreover, Congress and the president should not indulge in the rosy fiction that tax cuts pay for themselves through higher economic growth. Doing so could dramatically increase the fiscal crunch in the years ahead. While deficit-financed tax cuts can sometimes be justified to help the economy through a recession, that is hardly the case today.
"Fiscal responsibility is itself a growth agenda," Bixby said. "The debt is already quite high by historical measures and is on an unsustainable path. Tax reform that increases the existing structural budget gap will only make the situation worse by draining the savings and investments needed to make the economy grow."
(The Concord Coalition is a nationwide, non-partisan, grassroots organization advocating generationally responsible fiscal policy)