Permanently extending the 2017 tax cuts as Republicans want to do would result in significantly higher budget deficits over the coming decade and soaring national debt over the longer term, according to a newly released analysis by the nonpartisan Congressional Budget Office.
If the tax cuts are made permanent, budget deficits over the decade from 2025 through 2034 would be about $4 trillion larger, excluding interest costs, Congress’s official scorekeeper said. By 2054, that primary deficit would be 3.7% of gross domestic product, or 1.5 percentage points higher than in CBO’s recent baseline projections. Once net interest costs are factored in, the total deficit in 2054 would equal an estimated 12.3% of GDP, 3.8 percentage points higher than under the current scenario without the tax cuts.
Debt held by the public would climb to 214% of GDP over the next 30 years, 47 percentage points higher than the 166% projected in CBO’s baseline, which itself would be a record high, up from a current 99%.
Rep. David Schweikert, an Arizona Republican and chairman of the congressional Joint Economic Committee, requested the analysis and also asked CBO to consider the outlook if interest rates were 1 percentage point higher than in the baseline forecast.
Those borrowing costs would swell the debt significantly. “If interest rates also increased each year until they were higher by 1 percentage point (before accounting for macroeconomic effects), debt held by the public would grow even larger, exceeding 250 percent of GDP in 2054,” CBO Director Phillip Swagel wrote.
CBO also projected that economic growth would be faster for several years after the extension of the tax cuts — but slower over the longer term, when interest rates would also be higher.
Why it matters: Republicans are grappling with the cost of their tax plans — and the requirement under the budget reconciliation process they are using that those costs must be covered beyond the tenth year.
Some in the party are looking to downplay the deficit impact of their plan by vigorously advocating for an accounting approach that would wipe out the official cost of extending the tax cuts by considering them simply an extension of current policy, rather than a renewal of tax cuts set to expire under current law.
“Schweikert and some other Republicans have rebuked this accounting assumption as intellectually fraudulent,” The Hill’s Tobias Burns notes. Budget hawks also decry the “current policy” idea as a gimmick.
The latest CBO analysis confirms that the GOP plan would explode the debt, and Democrats are already using it to reiterate their criticisms of the tax cuts and expensive giveaways to the wealthy. “The playbook couldn’t be clearer: explode the debt with handouts to the ultra-rich, then turn around and use that debt as an excuse to slash health care, gut education, and go after Social Security and Medicare,” Rep. Brendan Boyle, the top Democrat on the House Budget Committee, said in a statement Friday.
The Republican playbook may well also feature attacks on the CBO. Treasury Secretary Scott Bessent slammed CBO’s scoring methodology this week. “Shame on me,” Bessent said on a podcast. “I was in the investment business for 35 years. I talked very confidently that ‘CBO scoring says this.’ And it turns out I didn’t know you-know-what about CBO scoring. When you’re on this side of the wall, you realize how crazy it is.”
Ultimately, the Senate parliamentarian would have to weigh in on whether the “current policy” scoring approach is allowable under the chamber’s budget reconciliation rules. But the CBO analysis may give some lawmakers pause about driving up the debt as projected.
CBO releases budget infographics: On a separate note, CBO this week released a series of four infographics depicting the federal budget, mandatory spending, discretionary spending and revenues for fiscal 2024. You might want to give them a look.