The latest version of the Senate tax plan can more or less be summed up in 10 words: temporary tax cuts for families. Permanent tax cuts for corporations.
This is the politically awkward workaround Republicans have settled on in order to move their bill forward with a party-line vote. In the best-case scenario for taxpayers, it’ll be nothing but an on-paper charade meant to satisfy the Senate’s restrictions against bills that add to the long-term deficit. In the worst-case scenario, it could turn into a broad tax hike on middle-class households that in turn pays for perpetual corporate tax reductions.
How did we get here? Republicans are relying on the Senate’s budget reconciliation process to pass their tax plan without Democratic support. But under the chamber’s “Byrd rule,” reconciliation bills can’t add to the deficit outside of Congress’ official budget window. The traditional way to hop over this procedural hurdle is to simply make your tax cuts disappear after 10 years and hope that future lawmakers renew them, à la George W. Bush. But Republicans are also trying to pass massive business tax cuts this time around, and even people who believe that slashing corporate rates will do wonders for the economy generally agree that doing it on a temporary basis is useless, since executives need to make long-term decisions about hiring and investment.
So, as Slate’s Jim Newell presciently wrote last week, this left Republicans with one obvious recourse to fix their Byrd rule issue: make the tax cuts they planned for individuals temporary and most of the corporate cuts permanent. That’s exactly what they’ve done. Almost the entire portion of their bill dealing with individual income taxes is set to expire after 2025.
If that were to actually happen, families would end up paying more in taxes than under current law. The reason for this is that the GOP’s bill changes how the tax code is adjusted for inflation each year by indexing it to the slower-growing chained-consumer price index. That part of their plan doesn’t expire. If all the other cuts in the plan suddenly disappear, many families will find themselves in higher tax brackets without the benefit of, say, a larger standard deduction or child tax credit.
It’s sort of a tax version of Cinderella. When the clock strikes midnight of Jan. 1, 2026, the GOP’s much touted middle-class tax cuts transform into tax hikes. It seems that revenue, along with the money Republicans raise by killing Obamacare’s individual mandate and thus reducing the number of Americans on government funded insurance, will cover the cost of the permanent tax cuts Republicans have planned for corporations, satisfying the Byrd rule.
Republicans will, of course, claim they have no intention of letting this happen, that future Congresses will surely continue to renew the cuts they pass this year. That may be comforting if you’ve had your eyes shut and cotton stuffed in your ears for the past seven years. For the rest of us who’ve been watching post–Tea Party Washington devolve into fundamental dysfunction, it’s not much of a promise.