The tax-writing House Ways and Means Committee released the highly anticipated 389-page tax portion of "the one big beautiful bill" on May 12. A day later, the committee hosted a markup of the drafted legislative proposal, with Republican and Democratic lawmakers exchanging terse comments. What matters, however, is not the political theater taking place in Washington but the meat and potatoes of the next phase in advancing the Trump agenda on Capitol Hill.
Brass Tax in the Trump Agenda
House Republicans published a partial 28-page text heading into the weekend, providing a sneak peek of some tax-related provisions. When everyone returned from two days of sleeping in, the committee released the full version of the tax portion of the Trump agenda. Suffice it to say, there was something for everyone in the legislative text.
Of course, the bill's centerpiece was a permanent extension of the lower income tax rates from the 2017 Tax Cuts and Jobs Act: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. In recent days, there has been some speculation on whether GOP lawmakers would follow through on the president’s proposal of raising the top tax rate on high-income earners or introduce a millionaire’s tax, but these were not inserted into the written text.
Next on the list was increasing the popular Child Tax Credit by $500 and boosting the standard deduction for couples by $2,000 to $32,000. In another pro-family policy, the tax bill includes a paid family and medical leave tax credit, nudging businesses to provide these plans to staff. Additionally, policymakers established Money Account for Growth and Advancement (MAGA) accounts, a pilot program that starts with $1,000 for these tax-preferred savings instruments.
The legislation also executes a couple of the president's campaign pledges. The bill would temporarily abolish taxes on tips and overtime pay and exempt car loan interest payments for American-made vehicles. While the draft omits eliminating taxes on Social Security benefits, it does feature “enhanced deductions” for seniors by $4,000. Moreover, experts say separate legislation from Rep. Thomas Massie (R-KY) attempts to put the kibosh on taxes on Social Security payments.
A salty issue for both sides of the aisle, particularly for moderate Republicans in the coastal jurisdictions, has been the state and local tax (SALT) deduction. The lower chamber proposed raising the SALT deduction limit from $10,000 to $30,000 for couples earning less than $400,000.
Other notable measures in the legislation:
Increasing the tax rate on investment income earned by university endowments to as high as 21% ($19 billion)
Raising pass-through deductions for eligible businesses to 22% ($819.7 billion)
Boosting the estate and gift tax exemption to $15 million and indexing it to inflation ($211.7 billion)
Repealing electric vehicle tax credits ($191 billion)
Permitting the expensing of factories through 2028 ($147.9 billion)
Overall, the bill proposes to reduce taxes by more than $4 trillion and trim spending by $1.5 trillion over a decade. The federal government's borrowing limit would also be lifted to $4 trillion.
A Trumpian Price Tag
Ways and Means Committee Democrats were handwringing about the tax bill’s cost, accusing their colleagues on the other side of worsening the debt and deficit. People paying attention to the last four years might roll their eyes in the back of their heads over the irony. Still, despite the hypocrisy among some Democratic lawmakers, economists and policy organizations are ringing alarm bells about the price tag associated with the legislation.
The Joint Committee on Taxation (JCT), a nonpartisan congressional committee, was in the spotlight during the May 13 markup hearing. The JCT released a report providing financial estimates of the bill, concluding that the plan would cost $3.7 trillion over ten years. That is because federal revenues would decline by more than $2 trillion through the 2025-2034 budget window.
In what might be a blow to Republicans and a benefit to Democrats, the JCT report determined that the average tax rate for individuals earning less than $15,000 would increase by 0.8%. People making $15,000 to $30,000 and $30,000 to $40,000 would decline by 0.6% and 1.2%, respectively. Americans with incomes of $500,000 to $1 million and $1 million and above would see their average tax rates fall by 3.7% and 2.8%, respectively.
Rep. Lloyd Doggett (D-TX) pounced on these estimates. “I don’t call that prioritizing the working class, wherever you came from, prioritizing the people who are out there providing the services that make America go,” he said.
The JCT is not the only organization that has released projections. A new analysis by the Tax Foundation projected the bill would slash federal tax revenues by about $4 trillion (excluding interest costs). The Committee for a Responsible Federal Budget, an independent policy institution, expects the bill to add more than $5 trillion to deficits over the next decade.
As the legendary Laffer Curve has taught economics students, tax cuts would undoubtedly lead to economic gains that would generate a solid amount of revenue. The committee's tax plan is projected to result in a long-run GDP of 0.6% and 794,000 "hours worked converted to full-time equivalent jobs," according to the Tax Foundation.
It is worth noting that many economists were fiscally bearish on President Donald Trump’s 2017 Tax Cuts and Jobs Act, with the Congressional Budget Office and JCT anticipating a sharp drop in tax receipts. However, as Liberty Nation News has reported, the nonpartisan budget watchdog has been forced to rescore its estimates on a couple of occasions. In fact, during the last fiscal year, tax collections were approximately $500 billion higher than the CBO predicted they would be without the TCJA.
Some conservatives complain that the CBO and JCT rely on a 2% GDP scoring, which House Budget Committee Chairman Jodey Arrington (R-TX) alluded to during the markup hearing. Treasury Secretary Scott Bessent has also griped about this methodology several times, including in an interview with Tucker Carlson earlier this year.
"So, CBO scoring—and for 35 years I was on the other side of the wall, and I would always say, ‘Oh, well, CBO says this’—I didn’t really realize that CBO scoring is a lot like Enron accounting. It’s not real.
“They're well-intentioned people. They just have nonsensical rules. Think about this: when all the scoring is done over a 10-year window, they just assume 1.7 or 1.8% economic growth over the 10 years—and that never moves. Whether you raise taxes or cut taxes—it doesn’t move.”
Historical data show that tax cuts stimulate economic activity and, as a result, bolster tax receipts. The problem is typically that politicians keep spending like drunken sailors.
Where's That Chainsaw?
Progressive activists, lawmakers, and members of the press are howling at the moon about the supposed draconian cuts that Republicans are employing. However, has anyone seen these proposed reductions? If so, they amount to little more than a rounding error. The CBO estimates that federal spending will be about $89.3 trillion over the next ten years. Republicans say they want to cut 1.5%, effectively lowering the tally to $88.1 trillion.
Oh, the humanity! Won’t somebody please think of the children?
Unfortunately, this is why the Laffer Curve garners a bad reputation, because officials who espouse the benefits of this economic doctrine fail to take the next step: grabbing a chainsaw and cutting the budget in half. Will the Republican tax bill worsen the deficit? Likely, but it would have been bad if Washington had left the tax code alone. America’s fiscal health is a no-win situation.
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