CRFB Reacts to Wyden-Smith Tax Cut Deal

Today, Senate Finance Committee Chairman Ron Wyden (D-OR) and House Ways & Means Committee Chairman Jason Smith (R-MO) announced a potential tax cut agreement. Their plan would expand the Child Tax Credit by increasing the refundability cap, phasing in the credit for multiple children concurrently rather than consecutively, and indexing the credit to inflation from 2023 through 2025. Additionally, their plan would revive 100 percent bonus depreciation for equipment purchases and the pre-2022 looser cap on interest deductibility in full while reviving research expensing for domestic research only – all through 2025 – in addition to several smaller tax provisions for Taiwan and disaster relief. The plan would also place a variety of new restrictions on the pandemic-era Employee Retention Tax Credit (ERTC) in an effort to reduce fraudulent and unnecessary payments. 

The plan would reportedly cost about $80 billion over ten years based on the tax breaks being in effect through 2025, and it would be fully offset with the ERTC changes. We estimate the plan would cost more than half a trillion dollars over a decade if the policies were made permanent without further offsets.

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

With our debt approaching record levels, it’s incredibly important that any new policies be fully offset. Chairmen Smith and Wyden deserve praise for doing the hard work to find offsets for this package, which will help codify the principle that all policies – including tax cut extensions – must be paid for to avoid adding to the debt. 

The Chairmen also deserve credit for putting together a thoughtful and targeted package with an offset that goes into effect upfront, avoiding one of the timing gimmicks that is often used of backloading pay-fors. 

Yet even with these offsets, this package will add to the deficit over the next few years and could set the stage for substantially more debt over time. Because of timing issues related to business provisions, the official score significantly understates the plan’s costs. The plan also irresponsibly offers retroactive windfalls that will do nothing to help the economy and indexes provisions to grow over time without an offset that would also grow over time. Unless the objective is pure corporate giveaways, the retroactive provisions should be dropped from this package.

We need to stop the practice of passing temporary tax and spending policies with arbitrary sunsets that exist only to hide the true costs. Policymakers already face nearly $4 trillion of policy expirations at the end of 2025, and this package would lead this cost to grow massively.

We appreciate the decision to pay for this package, strengthening an important principle that Congress should not add more to the national debt. But what is really needed is a plan to comprehensively and responsibly address all major policy expirations, reform our tax code, and slow the unsustainable growth of our national debt.

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For more information, please contact Matt Klucher, Assistant Director for Media Relations, at klucher@crfb.org.