A controversial budget maneuver is gaining steam on Capitol Hill that could help make Donald Trump’s first-term tax cuts permanent while also making room for additional tax break pledges he made on the campaign trail.
But it would push up the national debt by trillions of additional dollars beyond what’s already planned.
The idea is to essentially make the cost of extending the 2017 Tax Cuts and Jobs Act free, at least for accounting purposes. That can be done by assessing changes using a so-called current policy baseline, a bit of Washington arcana with trillions in potential consequences.
But no matter how you count it, extending Trump’s 2017 cuts will add somewhere in the neighborhood of $4 trillion to America’s debt, and fiscal hawks are strenuously objecting, calling it “a massive budget gimmick.”
Speaker of the House Mike Johnson, Senate Majority Leader John Thune, Donald Trump, and JD Vance speak in December at the Army-Navy football game. (Getty Images) ·Kevin Dietsch via Getty Images
The tactic congressional leaders are considering is to count this year’s tax rate as “current policy” and therefore make the cost of extending the rate — at least for the purposes of assessing the bill — zero.
The political appeal is obvious in that such a move could potentially help alleviate a giant math problem facing lawmakers looking to cut taxes as deeply as possible.
But in a recent episode of Yahoo Finance’s Capitol Gains podcast, the architect of those expiring 2017 cuts made clear that either approach would come with trade-offs.
Kevin Brady, former chair of the House Ways and Means Committee, called the current policy approach “a curious way of Washington thinking” but also pointed out it’s clearly a way to more easily make the tax cuts permanent — a key Trump priority.
The political reality is also that there is going to be a need to keep fiscal hawks on board, with Brady predicting a serious deficit reduction number will eventually be needed no matter how it’s counted — comparing the dynamic to “two rock climbers tethered together.”
He said that serious deficit reduction will ultimately be the deciding factor in how big a tax bill is ultimately possible. It’s a balance that Brady’s successor atop the tax-writing committee, Rep. Jason Smith of Missouri, also appears to be balancing.
The maneuver is clearly under increasing consideration, with House Speaker Mike Johnson appearing to warm to the idea this week after House Republicans had previously pushed a different counting approach.
“The policy makes a lot of sense to me,” Johnson told reporters after a meeting at the White House where Trump aides and Senate leaders pushed the tactic.
Johnson said that current policy approach “comports with reality.”
The tactic also has a supporter in Johnson’s top tax deputy, Rep. Smith, who supports the idea but also raised “huge concerns” this week in an interview with Politico about whether the move would eventually pass muster.
Read more: Do I have to pay taxes on my savings account?
This policy debate appears to be coming to a head after a win this week for House Republicans and Trump’s push for “one big, beautiful bill” with a budget resolution that passed in a 217-215 vote.
House Concurrent Resolution 14 lays out a framework and puts aside $4.5 trillion for tax cuts while outlining $1.5 trillion in federal spending cuts to offset at least some of the cost.
If lawmakers adopt the more conservative “current law” approach, that entire $4.5 trillion tax bucket could be filled simply by extending the 2017 law.
But if the tab of that move is counted as zero, then there’s plenty of space to extend the cuts permanently, as well as for things like Trump’s ideas for eliminating taxes on tips, overtime, and Social Security benefits and lowering the corporate tax rate for domestic manufacturers.
President Donald Trump stands before a sign touting his promise of ending taxes on tips during a stop in Nevada in January. (MANDEL NGAN/AFP via Getty Images) ·MANDEL NGAN via Getty Images
But even the smallest estimates of Trump’s overall tax promises — which count well over a dozen distinct ideas — put the deficit impact of his agenda at about $10 billion. The higher-side projections amount to much more: almost $18 trillion in new red ink over the coming decade.
The idea has understandably raised the ire of budget hawks, with one analysis from the nonpartisan Committee for a Responsible Budget calling it “a massive budget gimmick that would justify and allow trillions of dollars of new borrowing.”
The analysis finds that the “current policy” approach could mean an extra $3.4 trillion to $4.6 trillion of deficit increases over the coming decade.
There are multiple ways this counting method could falter. Fiscal hawks in the House — of which there are plenty — could balk and sink the nascent effort.
There is also a concern that the Senate parliamentarian could object to the approach, leading to a possible standoff with Senate leaders who are perhaps most strenuously pushing the idea.
But the recent conversation with former Congressman Brady underlined how keenly President Trump is likely to push any maneuver that will get his additional tax ideas into law and how Congress is likely to try to find any way it can to accommodate him.
“I can tell you from experience,” Brady said, “I didn’t pay so much attention to the president’s tweets each day. I paid attention to his campaign promises because that’s what he was calling me about.”
Ben Werschkul is Washington correspondent for Yahoo Finance.
Every Friday, Yahoo Finance’sRick Newman and Ben Werschkul bring you a unique look at how U.S. policy and government affects your bottom line on Capitol Gains. Watch or listen to Capitol Gains on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
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