Competing versions of an overhaul to the tax code crafted by Republicans could be moving in the House and Senate by the end of the week, even as new studies showed the bills growing the national debt, and making some middle-class taxpayers pay more.
After finishing three full days of hearings on Wednesday, the House Ways and Means Committee is expected on Thursday to wrap up consideration of amendments to a bill Republican leaders unveiled last week.
The committee has repeatedly voted along party lines to reject Democratic attempts to restore popular tax breaks that the bill would eliminate to allow for lower rates and collapsed brackets. But committee Chairman Kevin Brady, R-Texas, said Wednesday he will be introducing a rewritten version of the bill that may address complaints raised during the hearing, as well as change the costs of the legislation.
Speaker Paul Ryan, R-Wis., said on Wednesday he expected the full House to pass the bill by the end of next week, but it would need to be reconciled later with whatever the Senate passes. The Senate Finance Committee is working toward releasing its version of the bill, possibly on Thursday, with plans to start debate in committee next week.
Democrats, who are in the minority in both houses, said victories by their party in elections on Tuesday, especially the surge of Democratic voters in Virginia suburbs around Washington, D.C., should be a reason for the GOP to slam on the brakes.
"Middle class suburbs, upper middle class suburbs, are the places that would be crushed in this bill," said Senate Minority Leader Chuck Schumer, D-N.Y. "And the election last night should be a warning to the Republicans. Turn back and work with us on a bipartisan bill."
Ryan had the opposite analysis, telling a breakfast hosted by the Washington Examiner that Republicans were simply fulfilling a promise made in the 2016 election to cut taxes if they were given control of the White House and both chambers in Congress.
"If anything, this puts more pressure on making sure we follow through," Ryan said.
The action comes as a new analysis by the Congressional Budget Office showed the House bill would add nearly $1.7 trillion in debt over 10 years, including $260 billion in interest. A report by the nonpartisan Tax Policy Center, meanwhile, said the bill described by President Trump and Ryan as targeted at the middle class would result in a tax increase for 25% of the population in 2027, and for 31% of those in the middle income group earning $54,700 to $93,200, the increase would average $1,150.
But those figures could be off — with the deficit total being higher but the tax increases lower — because of provisions in the bill that one deficit hawk called gimmicks and that Ryan said were there to prevent delays under Senate rules.
The House bill calls for two tax breaks — a new $300 credit for taxpayers and spouses and accelerated write-offs for business purchases of equipment — to expire after five years. The elimination of those benefits is one of the reasons the Tax Policy Center report, and a similar analysis by the Joint Committee on Taxation released Tuesday, showed a spike in middle-class people paying higher taxes later in the decade.
For example, the Tax Policy Center said in 2018, 90% of people in the middle income group would get a tax cut averaging $1,080, while 9% would get a tax increase averaging $1,010. By 2027, however, the group getting a tax break fell to 67%, while those paying more grew to 31%.
Ryan said that while the bill calls for those benefits to sunset, which would effectively raise taxes by $600 per couple, he did not expect that ever to happen.
"There are some sunsets in this bill which we wish we didn’t have to put in the bill in order to conform with the Senate budget rules," Ryan said. "Those are sunsets that will never occur, we don’t believe they’ll ever occur, we don’t intend for them ever to occur."
Since they are in the bill, however, CBO had to anticipate they would occur. And that produced a lower deficit estimate. CBO's report shows that while increased deficits caused by the tax cuts go from $114 billion next year to $172 billion in 2022, they drop to $95 billion in 2023, for example.
The total cost from lost revenues in the CBO report comes in at $1.4 trillion, an important figure because a budget resolution passed by both chambers last month said a tax bill that increased the debt by $1.5 trillion or less over the coming decade could not be the subject in the Senate of a filibuster, a procedure that would allow Democrats to block the bill with only 41 votes.
"They put in the sunset to comply with limit of $1.5 trillion in borrowing, so the true, astronomical, cost would not be added. The fact that they're using a gimmick to cover up these costs is really a bad thing for the economy," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
The CBO released another report Wednesday estimating that eliminating the mandate that everyone have health insurance, a controversial part of the 2010 Affordable Care Act, would reduce the deficit by $338 billion a fewer people got subsidized coverage through insurance exchanges and Medicaid.
That boost to the deficit is being considered as a possible element in a final tax bill, but it may come with other costs.
Along with budget savings, repealing the mandate would also increase the ranks of the uninsured by 4 million, as healthier people choose to go without coverage. That would premiums for those who remain in exchanges by about 10%, CBO estimated.
Ryan said the plan's actual cost would be lower than CBO's estimate because the CBO was not allowed to take into account the economic growth that tax changes will cause.
"This is not something where we see a big $1.5 trillion deficit occurring over a decade," Ryan said. "We see this tax reform bill moving through the system, getting done, actually creating more jobs, bigger paychecks, faster economic growth. And that faster economic growth will give us a better revenue feedback, so it will put us in a healthier condition fiscally."
But another study that did estimate the "dynamic" effect of tax cuts did not come close to showing them paying for themselves.
The Tax Foundation projected on Friday that the plan would reduce revenues by $1.98 trillion over the coming decade, but economic growth would generate an additional $1 trillion in tax payments. So the plan would still add $989 billion to the debt.