By David Morgan
WASHINGTON (Reuters) -Republican hopes of making all of President Donald Trump’s 2017 tax cuts permanent are in jeopardy in Congress, as lawmakers struggle to agree on how to pay for them and Trump’s trade war and immigration crackdown dim the prospect of economic growth.
With an unofficial deadline for House of Representatives passage of Trump’s “one big beautiful bill” barely two weeks away, Republicans are voicing doubts about whether the provisions of the 2017 Tax Cuts and Jobs Act that are set to expire at year-end can be made permanent without ballooning the $36 trillion U.S. debt and $1.9 trillion annual deficit.
Party moderates are pushing back against large-scale cuts to the Medicaid healthcare program that would be necessary to achieve a goal of $2 trillion in offsetting spending cuts over the next decade, while hardliners are demanding that the tax cuts be scaled back if that number can’t be met.
“To fully extend and build upon the 2017 tax cuts, this means that the reconciliation bill must include at least $2 trillion in verifiable savings either through spending reductions or scaling back the size of the tax package,” 32 House Republican hardliners told party leaders in a letter on Wednesday.
Top Republicans argue the tax cuts will help pay for themselves by generating sustained GDP growth of 2.6% that they say will add $2.5 trillion in new revenue over a decade, helped by Trump’s deregulatory moves. Budget analysts call those forecasts overly optimistic, particularly as Trump’s trade war and crackdown on immigration — which will tighten the labor market — threaten to pinch the economy.
Republican lawmakers argued in 2017 that Trump’s tax cuts would pay for themselves by boosting growth, but a review by the nonpartisan Committee for a Responsible Federal Budget found that they added about $1.9 trillion to the national debt.
“We’re in a very different circumstance and a very different fiscal environment than we were then,” said Jonathan Burks, who was a top aide to Republican former House Speaker Paul Ryan when the Trump tax cuts were enacted eight years ago and now works at the Bipartisan Policy Center. “The capacity of the economy to sort of withstand that level of additional debt is a real question mark.”
Burks estimated that Trump’s tax cut proposals, which also include exempting tips, overtime and Social Security benefits, could cost as much as $6 trillion over a decade.
House Speaker Mike Johnson, of Louisiana, told reporters this week that making all of the 2017 tax cuts permanent remains “a governing principle.”
Nine Senate Republicans including Majority Leader John Thune, of South Dakota, vowed in a February letter to Trump that they would not support a temporary extension.
Republicans hold a 53-47 majority in the Senate and a 220-213 edge in the House, and so far have not rebuffed any of Trump’s major requests. The White House did not respond to a Reuters query seeking comment on the prospects for tax permanence.
But even before Wednesday’s letter from hardliners, House Republicans had begun to raise doubts about whether all of the 2017 cuts could be made permanent.
“The president would like that. I think it should be extended. But we’ve got to take a look at what it’s going to cost to do all of this. We did run a $2 trillion deficit. These things are very real,” said Representative Vern Buchanan, of Florida, a senior member of the tax-writing House Ways & Means Committee.
House Majority Leader Steve Scalise, of Louisiana, said lawmakers might simply extend the 2017 tax cuts for another decade, adding, “Once you get this bill passed, we think we will get at least 2.6% economic growth, if not more.”
‘DOESN’T ADD UP’
Democrats say Republicans are pursuing a tax-cut agenda that will only end up harming those who rely on government programs for healthcare and food stamps while deepening the federal deficit.
“The math doesn’t add up, and they just can’t seem to face that. They need to tell the president: we can’t do this and not balloon the deficit, and we can’t do this and not harm people,” said Representative Madeleine Dean, a Pennsylvania Democrat on the House Appropriations Committee, which oversees spending.
Erica York, vice president of federal tax policy at the nonpartisan Tax Foundation, said the economy could grow by 1.1% over the long run as a result of pro-growth sections of the emerging tax package – 100% immediate expensing for machinery and equipment, deductions for research and development costs and cost-recovery for manufacturing facilities.
But the downward impact of Trump’s tariffs and potential retaliation from U.S. trading partners could eliminate those gains.
“They need to have twin goals of being pro-growth and being fiscally responsible,” York said. “It probably means not just a wholesale extension, but looking provision by provision at what’s really geared at growth.”
The Tax Foundation forecasts that extending the 2017 Trump tax cuts permanently could generate about $700 billion in higher revenue from economic activity, a fraction of the $2.5 trillion projected by House Republicans.
“My worry is that when passing the tax cut bill, they’ll just insert some unrealistic assumptions of economic growth and then hope no one comes back later and notices that the growth didn’t come,” said Jessica Riedl, a former Senate Republican aide who is now a senior fellow at the right-leaning Manhattan Institute.
“Ultimately, there’s nothing in the Republican budget that would create growth at the levels they are projecting.”
(Reporting by David Morgan; Editing by Scott Malone and Diane Craft)
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