- Senate Republicans are proposing to cut corporate taxes permanently, but individual tax cuts would be temporary.
- This, along with the decision to include cuts to healthcare spending in the bill, exposes a clear priority in the Republican tax plan.
The Senate Republican tax plan achieves something that is difficult within the context of Senate rules: It would permanently and significantly reduce corporate tax rates, and it can pass the Senate with a simple-majority vote.
Individual taxpayers would not be so lucky: Our tax cuts would be scheduled to expire at the end of 2025.
The plan also would include a significant individual income tax increase – a change to the way tax brackets are indexed to inflation, which would expose more of your income to higher tax rates over time – that would be permanent.
That means, starting in 2026, the plan would impose a tax increase on most families and use that increase to finance a corporate tax cut.
The plan would also lead to a permanent reduction in federal spending on healthcare, relative to current law. This would also be key to financing the corporate tax cuts.
Republicans will say this: Ignore what the charts say about your taxes in 2026. Those tax expirations aren’t real. They’re needed to satisfy budget rules. But we’ll come back later and extend your tax cuts. We promise.
The choice to put corporations’ permanent tax cut into legislation while families get a pinky swear reveals priorities – as does the inclusion of a proposal to reduce healthcare spending that would increase the number of uninsured Americans, which can’t be passed off as a mere budget gimmick.
How the bill pays for its permanent corporate tax cut
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As I wrote Tuesday, the Republican tax plan has to fit inside a box. To comply with the Budget Act of 1974, the bill has to be written so it wouldn’t increase the deficit except within the next 10 years. That’s why Republicans can’t make all the tax cuts permanent – doing so would blow up the deficit far into the future.
But Republicans can make the corporate tax cuts permanent. They’ve made that math work without raising the deficit in the long run.
How? First, the cuts in corporate tax rates come with the elimination of certain business tax deductions, which partly offset the cost of the tax-rate cuts. But despite this, companies would still get a large, permanent tax cut on net.
Second, the permanent tax increase on individuals from the change in the way taxes adjust for inflation raises a surprising amount of money – about $500 billion in the decade starting in 2027.
Third, repealing the individual mandate to carry health insurance sounds like a tax cut, but its main fiscal effect is reducing government spending on healthcare.
This change would lead to about 13 million fewer Americans having health insurance by 2027, according to the nonpartisan Congressional Budget Office. In many cases, those newly uninsured people would be foregoing Medicaid or government-subsidized private insurance – reducing the deficit and freeing up money to finance corporate tax cuts.
So the math adds up to pay for a permanent corporate tax cut because Republicans offset the deficit effects by raising taxes on families and cutting spending on healthcare.
Temporary tax cuts sometimes prove temporary
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Milton Friedman once said, “Nothing is so permanent as a temporary government program.” And conservatives have often applied this adage to tax changes as well – both tax increases and tax cuts.
But we’ve seen evidence over the past few years that temporary tax changes sometimes really are temporary.
The Bush tax cuts of 2001 were temporary because they were passed using the same budgetary procedure Republicans are proposing for this tax bill. And while some of the tax changes were made permanent by Congress in 2012, provisions aimed at higher earners were allowed to expire.
Barack Obama ran for president proposing to establish a permanent “Making Work Pay” credit for lower- and middle-income families. This was established as a temporary program in the 2009 stimulus bill and was not extended.
There would surely be strong political pressure to extend individual income tax cuts when they expire in 2025. But decisions about whether to do so would be subject to political and fiscal considerations.
Until a few months ago, Republicans were eager to warn about the pressure that deficits and rising entitlement costs would put on government budgets in the future. Those pressures would be made worse by a tax package that would add $1.5 trillion to the government debt over a decade. In a few years, they may say it is unaffordable to extend these cuts unless they were packaged with others to entitlement programs like Medicare.
That would be a political negotiation. But one stakeholder would be in an advantaged position: the corporate sector, whose tax cuts would have already been made permanent.