Think you have heard the last of the Republican tax plan that now seems certain to become law? Think again.
Although President Trump is expected to sign the bill after it passed the full House and Senate this week, the debates that it will kick off are just starting—and will probably last for years.
Here are five big issues we still don’t know about the Tax Cuts and Jobs Act of 2017, the GOP’s first major legislative accomplishment under Trump:
1) Technical corrections. One of the downsides of such a rapid trip through Congress is that in their haste, the bill’s writers created loopholes and unintended incentives that need fixing. Democrats will likely be unwilling to help fix any glitches. (The House has to repair one glitch already this week, to make its version identical to a revised Senate version, after the Senate parliamentarian struck some minor provisions that violated budget rules.)
“Tax reform has a lot of technical issues in it,” House Ways and Means Chairman Kevin Brady, R-Texas, said last week. “I would anticipate next year, as we get feedback from changes, (you’ll see technical) corrections issues arise.”
In addition, the work for accountants and tax professionals is just beginning as they labor to understand the law. Payroll managers will have to move quickly to adapt to a new tax regime. And Internal Revenue Service rulings and interpretations based on the new law will last years.
What are the unintended consequences and loopholes in the new law? Will Congress be able to fix them?
Democrats say: This is what happens when you rush an ill-conceived bill through Congress.
Republicans say: Technical corrections are routine for major tax bills.
2) Economic effect. In the Obama years, the economy grew at close to an annual rate of 2 percent a year—slow growth in an expansion. One of the main rationales for the tax bill was to pump up growth, and the plan slashes taxes on corporations and on small businesses and provides new incentives to invest. Yet many economists forecast that the bill will add just a fraction of 1 percent per year over the next 10 years. Stronger economic growth could lead to more jobs and higher wages. Will the new law turbocharge the economy?
Democrats say: Businesses will use their extra money to pay fat-cat shareholders, not invest, and economic effects will be negligible.
Republicans say: Making businesses competitive will result in more investment and stronger growth, which benefits workers.
3) Budget deficit. One of the biggest objections to the tax bill is that it will add to the deficit. The tax cuts are expected to cost roughly $1.5 trillion over 10 years, but estimates that include economic growth show the cuts reducing revenue by between $448 billion and $1.4 trillion. Will the tax changes bust a big hole in government finances, and if so, how big?
Democrats say: The tax bill irresponsibly burdens future generations by adding to the debt.
Republicans say: Forecasts tend to understate economic growth, the real cost will be less than feared, and the bigger problem is government spending.
4) Popular acceptance. By nearly a 2-to-1 margin, the public says it opposes the Republican tax plan. Interestingly, 50 percent of those responding to a recent Monmouth University poll say they expect their taxes to rise, while just 14 percent say they expect their taxes to fall. A recent estimate by Congress’ nonpartisan Joint Committee on Taxation found that just 8 percent of taxpayers would face higher tax bills, while 62 percent would have their taxes cut. That disconnect could exist because opponents are misstating the tax plan’s effect on the middle class. Will the public come to embrace the tax plan?
Democrats say: The public sees through this aid-the-rich campaign and doesn’t like it.
Republicans say: When people see their taxes cut, they will think favorably of the tax plan.
5) Political dividends. The big question in Washington is what this tax plan means for the 2018 elections. Can Republicans hang onto the Senate and House? Or will Democrats take control of the legislative branch and thwart President Trump’s agenda?
Democrats say: Republicans have rammed through an unpopular tax plan that helps the rich, and voters will punish them.
Republicans say: The GOP passed a plan that helps the vast majority of Americans and shows voters that we can govern effectively. Democrats voted in lockstep against tax relief.
Whatever the political outcome, Congress will still have to contend with tax policy in the next few years. Some of the elements of the Republican tax plan expire as early as 2019, so Congress could feel pressure to extend them regardless of who is in control. Most of the tax cuts for individual taxpayers expire in 2025.
