One key policy in Senate Republicans' proposed tax overhaul is that tax cuts for individuals will expire within 10 years, while those for corporations will be permanent.
Senate Republicans say that their intention is for Congress to extend these individual tax cuts, too, so the effect of their expiration shouldn't be included in analyses of the bill. “The expectation, they hope, is always that it stays permanent,” said Sen. James E. Risch (R-Idaho).
But in interviews Wednesday, Senate Republicans also said that it would be wrong to include these tax cuts in the long-term assessment of the bill's effect on the deficit. The sunsetting individual tax cuts were included in the bill so it complies with Senate rules that legislation can be passed with a simple majority only if it doesn't drive up the deficit 10 years after passage.
Take the following interview with Sen. Mike Rounds (R-S.D.):
The Washington Post: You’re confident those tax cuts will stay for individuals beyond 10 years?
Rounds: That’s the intent. We can’t put it in the bill that way because the rules don’t allow us to, but once we do this under reconciliation and it proves itself correct, it would be extremely difficult not to continue.
WP: So if it’s going to be extended, shouldn’t you include it in the 10-year deficit impact?
Rounds: No, you can’t include it — that’s the reason for the 10 year, you can’t do it. Since it’s not in the bill, it’s not included. If you put it in the bill, it wouldn’t fit the 10-year window.
WP: I think a Democrat would then say that the bill is more expensive than it’s being marketed as —
Rounds: Not really, because we’re still talking in the same time frame. What we continue on after that, and the modifications we make after, may very well be significant, based on whether this is as significant as we want it to be. But the intent is once you get rolling on it, it will become permanent.
To critics, the question of when the individual tax cuts expire suggests a contradiction in the core promise of the Republican bill. If the GOP expects these cuts to last beyond the 10-year window called for by their bill, won't the bill's cost exceed $1.5 trillion?
“One of two things will happen: Either they are not extended, and taxes rise on the middle class. Or they are, and they blow the deficit completely up,” Sen. Michael F. Bennet (D-Colo.) said of the individual tax cuts. “There's a complete logical inconsistency in this plan.”
Many Senate Republicans cited President George W. Bush's 2001 tax cuts as a model because, according to the Center for Budget and Policy Priorities, 82 percent of them were later made permanent.
Sen. James Lankford (R-Okla.):
The Post: When do you hope the individual tax cuts in the Republican plan expire? Do you hope they get made permanent?
Lankford: That’s a decision that’s going to have to be made 10 years from now. We did make [the Bush tax cuts] permanent — all but a few — in 2011. I think everybody was a beneficiary of that.
WP: Wouldn’t that increase the deficit impact of the bill?
Lankford: It depends what happens 10 years from now, obviously — what kind of offsets take place, how they make that operate. That's impossible to predict right now, obviously. We made some adjustments in 2011 to be able to make some of those changes, but that all depends on how it’s handled then. But right now, you can’t predict that.
Whether the bill's individual tax cuts wind up going beyond 10 years would have huge ramifications for its long-term impact. Under the GOP plan, individuals receive about 36 percent of the bill's overall benefits within the first 10 years, while businesses and estates receive the rest, said Lily Batchelder, a New York University tax expert who served on President Barack Obama's National Economic Council.
But beyond that 10-year window, assuming the tax cuts for individuals expire, individuals would pay $82 billion more in taxes than they do right now, while corporations would get tax cuts worth $48 billion, she said.
“When Republicans are talking to deficit hawks or they’re trying to meet the procedural rules of the Senate, they say these cuts won’t be extended so they pretended the impact on the deficit is smaller. When they talk to the public, they say the relatively small tax cut for individuals will be permanent,” Batchelder said. “These two arguments cannot coexist simultaneously.”
Some Senate Republicans responded by arguing that because the tax cuts overall would spur growth in the economy, and thus bring in more tax revenue for the federal government, there was no need to worry about the individual taxes driving up the deficit.
“I don’t think so at all,” Sen. James E. Risch (R-Idaho) said when asked whether extending the individual tax cuts would increase the bill's long-term deficit. “The economists we’ve been talking to tell us that this is going to spur an explosion of economic activity that is going to cause a lot more money and a lot more taxes coming in.”
Sen. Susan Collins (R-Maine) said she wasn't sure when exactly the tax cuts for individuals would expire, directing the question to the members of the Finance Committee. But she did say she had filed an amendment so corporate tax cuts wouldn't stay if the individual tax cuts expired.
“My hope is that they will be made to either expire, or continue the same amount of time as the corporate tax cut. I don’t think it makes sense to treat the individual side of the tax cut differently from the corporate side,” Collins said.
But Sen. Bob Corker (R-Tenn.), who has been vocal in his concern about the bill’s effect on the deficit, said he thinks the final tax bill will have the individual tax rates expiring in year eight. Asked whether he hopes the cuts are extended before they expire, Corker said: “I can't say.”
A vote on the bill is expected to be held on the Senate floor as soon as Thursday night.