The U.S. House of Representatives is expected to vote on a tax credit bill in the coming week that some experts warn could have an astronomically higher cost than the authors of the bill claim.
The measure includes new business deductions and an increase to the existing Child Tax Credit, all of which would allegedly be offset by eliminating an existing business tax credit. The $78 billion worth of tax breaks in the bill are set to expire at the end of 2025, but some experts believe the measure will be extended beyond its sunset date, leading to the risk of a total cost of as much as $650 billion over 10 years.
The bill passed out of the House Ways and Means Committee on Monday with broad bipartisan support.
“This legislation locks in over $600 billion in proven pro-growth, pro-America tax policies with key provisions that support over 21 million jobs,” House Ways and Means Chair Jason Smith (R-MO) said of the bill, using an estimate based on a longer-term extension of the bill, The Hill reported.
But some tax watchdog groups say the $78 billion price tag touted by proponents of the bill is deceptive.
“Two of the business provisions have to do with the timing of tax payments, so when they are only extended temporarily, the revenue score understates their true cost by assuming the government will make up some of the revenue loss in the out-years. Of course, proponents of these provisions never intend for them to truly expire,” said Joe Hughes, a policy analyst with the Institute on Taxation and Economic Policy, per The Hill.
According to Adam Michel, the director of tax policy studies at the Cato Institute, the true cost of the legislation could be much higher than the $650 billion estimated by the Committee for a Responsible Federal Budget. He said the business tax breaks and the Child Tax Credit together could run as high as $1.4 trillion over 10 years. However, Michel said losses could decline over time as businesses pay taxes on profits from investments incentivized by the tax breaks, potentially reducing the cost by 50 percent, as The Hill reported.
Michel warned that, even at a 50 percent cost, the economic impact on the federal deficit could be drastic.
The slight boost in the Child Tax Credit included in the bill has received support from legislators on both sides of the aisle, though Democrats have said they would have liked a larger increase to help more families.
“Compromise is great, but here it’s the kids that are having to do all of the compromising,” Rep. Lloyd Doggett (D-TX) said. Doggett was one of three Democrats on the committee to vote against the bill.
“It’s far from the proclaimed 50/50 split, which, according to the Chairman’s own words, would give four times as much to corporations than children. Once again, the Committee makes its priority clear, and it’s certainly not children,” Doggett said in a statement.
He pointed out that a single mother struggling to feed her family on an average wage pays an effective tax rate of 20%, while the corporations that stand to benefit from the new tax deductions only pay an effective rate of 8%.
The bill comes on the heels of several near-government shutdowns as Republicans and Democrats fought over the federal deficit in recent months. In fiscal year 2023, the federal government faced the largest annual budget shortfall ever, not including the COVID-19 pandemic years, according to a group of Republican senators.