Experts Ponder the Potentially High Cost of Tax Reform Inaction
January 17, 2024
More than 400 tax professionals convened in person and online for the D.C. Bar Taxation Community’s annual Tax Conference on January 10 and 11 for overviews of recent developments in tax law.
The first plenary session gathered a bipartisan panel that explored open concerns before Congress. “Those certainly include the TCJA [Tax Cuts and Jobs Act] legacy, business tax increases, the child tax credit and other family tax-type issues, anti-double taxation for investments in and out of Taiwan, and other issues,” said moderator Janice Mays, managing director of tax policy services for PricewaterhouseCoopers LLP. “There are a lot of other things that a lot of people think are important in this context.”
Eric Oman, deputy chief tax advisor for Republican staff on the House Ways and Means Committee, said that the committee has taken up three bills relating to the taxation of families, small businesses, and supply chain issues. “We have a very strong interest, and the members have a strong interest, in seeing those provisions addressed,” he said.
Alice Lin, tax policy advisor for Democratic staff on the Senate Finance Committee, agreed that significant progress had been made in finding consensus on these issues. “It’s been more than a year now that we’ve been talking, at least broadly, about trying to get to a deal, and I think that in the last few weeks there has been a lot of conversation among all the staff, including between Chairman [Jason] Smith and Chairman [Ron] Wyden, and we have continued to work toward a deal that includes the business provisions, job tax credit, and other provisions, including housing,” she said.
Reflecting on his five years of service, Andrew Grossman, chief tax counsel for Democratic staff on the House Ways and Means Committee, said that it isn’t uncommon for staff to build confidence regarding a bill, only to meet disapproval. “At the end of the day, we report back to them, and sometimes we hit and sometimes we miss,” he said. “There’s been no announcement [of a tax deal] yet, and we’ll see if there is one.”
The TCJA was a major focus of the plenary session “The Future of Tax Reform: 2025 and Beyond” in light of the impending expiration of the 2017 amendment. The looming elections could significantly complicate efforts to complete a comprehensive reform during the expiration period, according to Nadiya Beckwith-Stanley, former special assistant to the president for budget and tax policy at the National Economic Council and associate at Skadden, Arps, Slate, Meagher & Flom LLP.
“When I think about the question of tax reform in 2025 and beyond, my first thought is, of course there’s an election, and that election will sort of set the field of play when it comes to thinking about what's on the table, what’s possible, and who cares about what,” Beckwith-Stanley said.
“If all of the expiring or temporary provisions of the Tax Cuts and Jobs Act were extended into perpetuity starting in 2026, it would be a pretty significant change in federal revenue,” said Kyle Pomerleau, senior fellow at the American Enterprise Institute. He calculated a $360 billion loss in tax revenue in just that year, or a loss of $3.5 trillion between 2026 and 2034 if the cuts were extended.
Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, provided his organization’s calculations regarding the cost of extending the TCJA’s cuts over a longer timeline, saying that the figures would illustrate the difficulty of the coming negotiations.
“When we debated the tax cuts in 2017, [policymakers] gave themselves a target of [reducing revenue by less than] $1.5 trillion over 10 years. If you’re going to extend just the [individual] provisions that expire at the end of 2025, over the subsequent decade it would cost $3.4 trillion,” Goldwein said.
“Assuming that there’s agreement reached on this business and child tax credit deal, such as is discussed in the press, and that goes to the end of 2025, that $3.4 trillion goes up to about $4 trillion. Add on the Affordable Care Act extensions that are about to expire [and] we’re talking almost four-and-a-half trillion dollars,” he added.
And in the unlikely scenario that Congress will get rid of the state and local tax cap, “we’re now talking about $5.5 trillion,” Goldwein said. That cost goes up to $6.5 trillion if Congress decides to bring back the child tax credit from the American Rescue Plan in its entirety.
“This is very expensive. Much more so than in 2017, and during a time in which the fiscal situation is much worse,” Goldwein said, noting that the deficit has risen from $666 billion in 2017 to $2 trillion in 2023. The debt-to-GDP ratio was 76 percent in 2017 and projected to be “well in excess of a hundred,” he added.
“It will be close to or at World War II levels,” he said, going on to say that interest costs were $260 billion in 2017, but could rise to about $3 trillion by 2026 because of the larger underlying debt figures in combination with a rising interest rate. He said that a straight extension of the TCJA would run up against these harsh realities.
Leslie (Les) Samuels, senior counsel at Cleary Gottlieb Steen & Hamilton LLP, said tax practitioners can participate in efforts to steer the future of American taxation through the soon-to-be-launched Tax Reform Project (TRP), an online platform to submit tax proposals.
“Tax practitioners’ contributions have often been left out of the tax legislative process or been involved only toward the end of discussions … TRP will try to bridge this gap and bring tax practitioners’ valuable expertise and insights earlier in the process,” Samuels said.
