To extend Trump's 2017 tax cuts, Republicans seek to overlook the cost

By David Morgan

WASHINGTON (Reuters) - As congressional Republicans try to extend President Donald Trump's 2017 tax cuts, some are considering an unusual plan to make them permanent while avoiding the political pain of massive spending cuts to pay for them: Argue that they will not deepen the federal deficit.

The Republicans who chair the tax-writing committees of the Senate and House of Representatives insist the reductions, which independent analysts estimate would cost more than $4 trillion over the next decade, would not create a real drop in federal revenues if extended beyond this year, because they are already in place.

The cuts, Trump's major legislative accomplishment in his first term, are due to expire at the end of this year and nonpartisan forecasters' current assumptions about the growth of the nation's $36 trillion in debt are based on them doing so. But Republicans in Congress have begun to argue those assumptions are unwarranted.

"Where is the increase in the deficit?" Senate Finance Committee Chairman Mike Crapo told reporters this week. "The revenue to the Treasury is about 17.3% of GDP right now. If we do nothing except extend the act, the revenue next year will be a little higher, the way revenue is coming in."

It remains to be seen just how far Congress can go in ignoring the cost of the Trump tax cuts, while running a deficit that exceeded $1.8 trillion last year, without incurring the wrath of the financial markets.

"Ignoring the added cost of the tax cuts would be another step down the road of fiscally irresponsible policy that we've seen in recent years from both parties," said Shai Akabas of the Bipartisan Policy Center think tank. "It's something that we cannot afford as a country right now."

Two of the three major global credit ratings agencies have stripped the U.S. federal government of its once top-tier rating, citing continued brinkmanship over government shutdowns and the congressionally imposed debt ceiling. Rising yields in the bond market have also revealed investor worries about Trump's economic agenda.

Asked about independent analyses that say the tax cut extension could add $4.8 trillion to the nation's debt over a decade, Crapo, of Idaho, replied: "It's a mathematical calculation based on assumptions that we're saying are invalid."     

House Ways & Means Committee Chairman Jason Smith said he agrees with Crapo. So did House Speaker Mike Johnson.

"I am a believer in the current policy baseline, and I think at the end of the day, we may be able to convince all of our colleagues of that. But we'll see how it goes," Johnson, of Louisiana, told reporters.

The change of assumptions is needed because Republicans -- who hold narrow majorities in both chambers of Congress -- want to pass the tax cuts using a maneuver that bypasses Senate Democrats. Under Senate rules, bills handled in that way cannot add to the federal deficit beyond a 10-year window.

2+2 = 13?

Democrats reject the approach as a gimmick intended to mask the true cost of the Trump tax agenda. 

"It's total B.S. What they're saying essentially is that two-plus-two equals 13," said Brendan Boyle of Pennsylvania, top Democrat on the House Budget Committee. 

A focus on current policy would mark a departure for Congress, which typically assesses the cost of legislation according to changes in law.

Lawmakers also need to avert a partial government shutdown after March 14, when agency funding expires, and find a way by summer to agree on an increase in the federal debt ceiling or risk a catastrophic U.S. default.

PARTY SKEPTICS

Whether the approach will be embraced by enough Republican lawmakers is an open question, especially in the House where deficit hawks are numerous and a narrow 218-215 Republican majority leaves little margin for error.

"It has got a cost to it, and it's up to us to come out with the cuts to offset it," said Representative Ralph Norman, a prominent South Carolina hardline conservative.

Other deficit hawks expressed a more nuanced view, saying the strategy should be rejected if used as a way to avoid painful spending cuts. 

Representative Chip Roy, another leading hardliner, said he could consider the approach. 

"I favor permanent tax cuts," the Texas Republican said. "But if you're going through back door to get permanence and then use that as cover to say that magically this is all paid for, then no. We need cuts."

A budget resolution unveiled on Wednesday by House Budget Committee Republicans estimates a net $4.5 trillion revenue loss for the cuts and Trump's other tax-cut proposals.

The nonpartisan Committee for a Responsible Federal Budget estimates that Trump's full tax agenda, including elimination of taxes on tips, overtime pay and Social Security benefits, could cost between $5 trillion and $11.2 trillion over a decade.

Republicans say the cost would be covered by at least $2 trillion in spending cuts over ten years, elimination of green energy tax incentives and buoyant economic growth that they claim will result from a lighter tax burden, higher fossil fuel production and reciprocal trade.

They made similar arguments in 2017, though the CRFB estimates that round of cuts added about $2.5 trillion to the nation's debt.

House Budget Committee Chairman Jodey Arrington noted that his panel's budget resolution recognizes the cost of the Trump tax cut extension. He said any switch to the policy approach favored by Crapo would occur in the Senate.

"That's an issue that we're going to deal with after this leaves the House," the Texas Republican said. "That's going to be decided in the Senate."

Ultimately, the question may have to be decided by the Senate parliamentarian, the nonpartisan official who referees questions about chamber rules.

(Reporting by David Morgan; Editing by Scott Malone and Alistair Bell)