On Monday, the Treasury Department’s Office of Tax Policy released its analysis stating the tax reform about to be finalized in Congress is revenue neutral.
There has been much criticism over the legislation’s sticker price, namely its $1.5 trillion “static” score as permitted under reconciliation instructions and scored by the Joint Committee on Taxation (JCT). Opponents of the Tax Reform have questioned our ability to afford this price.
Treasury shed some very useful light onto this criticism. For example, Treasury observes that even before considering the additional growth and revenue feedback from tax reform, the bill’s JCT static cost overstates the effect on revenue by about one-third, though the fault lies not with JCT but elsewhere.
In general, when a spending program is slated to expire the Congressional Budget Office (CBO) assumes in its spending baseline that Congress is unlikely to let a program it created die. As a result, the renewed program is not considered to raise the deficit or otherwise need to be “paid for.” This results in a current policy baseline.
CBO assumes the opposite for tax provisions: When a tax provision is slated to expire, CBO assumes Congress will let the program it created expire. This results in a current law baseline.
Moving to a current policy tax baseline eliminates about $500 billion of the tax reform’s price. After examining the additional economic growth from the Senate version of the bill, Treasury found that the reform would be essentially deficit neutral.