Committee for a Responsible Federal Budget

Ways & Means Committee Keeps Cutting Taxes, Adding to Debt

Sep 17, 2015 | Taxes

The House Ways & Means Committee today approved tax and health breaks costing nearly $420 billion over ten years, or almost $520 billion with interest. Most of these provisions are part of the "tax extenders" that are routinely extended and most recently expired at the end of 2014. These bills would revive and permanently extend the breaks, with the revenue loss added to deficits. Taken together with other tax bills approved by the Ways & Means Committee earlier this year, they would cost about $1 trillion (or $1.2 trillion) with interest.

About two-thirds of the costs arise from the permanent extension and expansion of bonus depreciation. This provision, enacted in 2008 as a temporary stimulus measure and then repeatedly continued, would cost over $280 billion in lost revenue over the next ten years. We've written previously about how bonus depreciation should be treated separately from the rest of tax extenders because its rationale was to provide stimulus when the economy was weak. We've also pointed out that making it permanent is best done in tax reform because of interactions with other parts of the tax code.

Two other provisions being made permanent allow American corporations to defer paying taxes on their overseas profits, and a third continues a deduction for teachers who buy school supplies.

The bills also include two new health-related tax breaks. One would allow consumers to use money saved in various forms of health savings accounts to use the money to buy over-the-counter medication, which they currently can only do with a doctor's prescription. The second would add another religious exemption to the Affordable Care Act.

The table below shows all seven bills, along with links to descriptions of the policies. Tax breaks for businesses make up 98 percent of the cost.

Costs of Permanent Tax Provisions Considered by the House or Ways & Means Committee
Policy Cost (2015-2025) Description
Expand bonus depreciation $281 billion Expansion (~$35 billion)
Extend rule allowing financial companies to defer tax on their overseas income (Subpart F) $78 billion Extension
Extend special depreciation for restaurants and improvements to business property $28 billion Extension
Extend rule allowing corporations to transfer money between international subsidiaries without paying tax $22 billion Extension
Allow health or flexible savings accounts to be used to buy over-the-counter medication without a prescription $7 billion New Policy
Extend and index deduction for teachers who spend their own money on school supplies $2 billion Expansion
Add additional religious exemption to the Affordable Care Act $1 billion New Policy
Subtotal, Cost Approved on September 19 $420 billion  
Cost of 10 provisions approved in February $320 billion  
Cost of estate tax repeal $270 billion  
Total, Cost of the 18 Ways & Means Bills $1 trillion  
Interest costs $200 billion  
Grand Total, Addition to the Debt from Ways & Means bills $1.2 trillion  

Source: Joint Committee on Taxation, Congressional Budget Office, CRFB calculations. Interest numbers are rounded. Because CBO's interest projections are now lower, interest costs in this table are less than in blogs written earlier this year.

The bills approved today, when combined with other bills approved by the Ways & Means Committee, would add $1 trillion to deficits over the next ten years. Not only do these tax breaks worsen the national debt, but they also contradict the Congressional Budget resolution, which assumed that those tax breaks expired or were paid for with other revenue in order to reach balance.

Unfortunately, this story is not new: we wrote nearly the same headline last year, in Cost of Ways & Means Tax Cuts Passes the Trillion Dollar Mark. Our fiscal situation is already on an unsustainable path without adding more to the debt. Rather than repeatedly passing unpaid-for tax cuts, Congress should abide by PAYGO and responsibly find savings to offsets the cost of new legislation.