The Individual Income Tax Hike Act of 2028
Senate Finance Chairman Orrin Hatch said today that his committee still has “some work to do” in order to bring its tax plan into compliance with the Byrd rule, but that he and his fellow Republicans “have every intention” of making the plan’s business tax cuts permanent.
Well, there’s really only one way to achieve revenue neutrality while cutting taxes on businesses beyond 2027. And that’s by imposing higher taxes on individuals starting in 2028.
The Joint Committee on Taxation estimates that the business provisions in the Senate plan will lose $89.5 billion in revenue in 2027. And that’s not including the $34.0 billion cost of the plan’s international tax reforms. Assuming that the numbers for 2028 and beyond will look like those for 2027 (and in all likelihood, they’ll look worse), this means that Senate Republicans will need to find at least $123.5 billion of pay-fors to comply with the Byrd rule requirement that reconciliation bills can’t add to the deficit beyond the budget window (which here is 10 years).
Where are Senate Republicans going to find the pay-fors? Perhaps the easiest way to plug the hole would be to make repeal of the SALT deduction permanent while letting all the other individual income tax provisions lapse. That would probably make the bill as a whole compliant with the Byrd rule, at least according to JCT’s estimates. (The JCT revenue estimate for the Senate bill doesn’t include a separate line item for SALT, but the revenue gain from repealing itemized deductions for SALT, home equity loan interest, and a handful of others total to $164.2 billion in 2027, and the bulk of that is attributable to SALT.)
Aside from the SALT deduction, there aren’t that many other obvious options. The additional pay-fors on the individual side in the Senate plan are the chained-CPI provision, the disallowance of active pass-through losses in excess of $500,000, and the repeal of personal exemptions. But the first two of those would raise only $48.9 billion combined in 2027, and a permanent repeal of personal exemptions would be, I think, politically toxic if combined with a sunsetting of the increased standard deduction and child tax credit.
So at the end of the day, my bet is that Hatch’s Byrd rule fix will entail a significant increase in the tax liability of upper-middle-income and high-income households who are most likely to claim the SALT deduction (with blue states bearing the brunt of it, but plenty of Republican-represented districts in those states taking a hit too). And however Hatch fills the gap, it’s presumably going to involve tax increases of some sort on the individual side, along with a sunsetting of most or all of the individual income tax cuts on December 31, 2027. Plus, there’s the matter of the $1.5 trillion that the Senate plan will add to the national debt over the next decade, which at some point needs to be paid.
You can write the Republicans’ 2018 campaign slogan already. “Short-Term Tax Relief for Most of Us, Long-Term Tax Hikes for Some of Us, Permanent Tax Cuts for Corporations, More Debt for Our Children and Grandchildren.” Sounds like a real winner.