Real cost of bipartisan tax deal hidden, much higher than stated, federal budget watchdog says
The Committee for a Responsible Federal Budget's new estimate of the Wyden-Smith tax deal is $650 billion over 10 years, up from their previous $500 billion projection.
The stated cost of the bipartisan tax proposal released by Sen. Ron Wyden, D-Ore., and Rep. Jason Smith, R-Mo., that is gaining momentum in Congress is "understated," according to a budget watchdog group.
The estimate that House and Senate lawmakers are currently using to consider whether to support or oppose the plan is $79 billion, but that is based only on a one-year timeframe through 2025. The Committee for a Responsible Federal Budget (CRFB) has pointed out that the tax provisions in the Tax Relief for American Families and Workers Act would likely be extended well into the future and instead cost taxpayers $650 billion over the next decade.
Organizations like the Tax Policy Center also recommend using a 10-year budget window for major tax-related changes.
The Child Tax Credit expansion in the bill would cost $33 billion, according to the Joint Committee on Taxation, which was created to examine the "operation, effects, and administration of the Federal system of income and other internal revenue taxes" and report to Congress.
Under Senate Finance Committee Chairman Wyden and House Ways & Means Committee Chairman Smith's proposed legislation, the CTC, specifically, would cost taxpayers $180 billion through 2033, given that the expansion would likely be made permanent by legislators who support the plan.
The CRFB concluded that the JCT estimate of the CTC provision is inaccurate and will end up costing much more. The organization pointed out that the JCT estimate "assumes the current credit is extended beyond its 2025 expiration but does not account for the cost of that extension."
The Wyden-Smith proposal would also includes three business tax breaks, including 100% "bonus depreciation for business equipment purchases, a looser limit on interest deductibility, and full expensing of research and experimentation costs."
The JCT's estimate found that the business provisions would cost $33 billion through 2025 but CRFB reported that the true cost is $525 billion over 10 years.
"These provisions would all be continued through 2025. The deal would also permanently increase the limitations on expensing depreciable assets. Again based on JCT’s score, these provisions would cost about $33 billion as written," the CRFB concluded. "Because these provisions rely in part on changing the timing of tax payments, costs would be far higher on a permanent basis – we estimate more than $525 billion over a decade."
Previously, the watchdog group released an estimate based on the initial draft framework of the entire tax deal, concluding that it would cost more than $500 billion over the next decade.
"The timing-based nature of the corporate tax breaks and inflation indexing of the Child Tax Credit means that the cost of the package is likely understated. Based on our understanding of the package from press reports, the Wyden-Smith package could cost roughly $650 billion over a decade if arbitrary sunsets are abandoned and the policies are made permanent without further offsets," says a new analysis from the CRFB.
"This estimate is rough and is likely to change as further information is made available," the group added.
The House version of the bill passed out of the House Ways and Means Committee. It has not been put to a vote on the House floor yet. The Senate Finance Committee is considering the legislation.
“Today’s strong bipartisan vote in the Ways and Means Committee shows there is a path forward for Republicans and Democrats to come together and deliver tax relief for workers, families, farmers, and small businesses," said Chairman Smith in a statement.
"The Tax Relief for American Families and Workers Act will help America compete and win against countries like China, encourage small businesses to grow and invest in American jobs and opportunity, and save taxpayer dollars by ending a COVID-era policy that has become the poster child for fraud," Smith added.