Most of the individual tax cuts in the GOP tax overhaul that became law in December are scheduled to expire after 2025, but Republican lawmakers are expected to try to make them permanent well before that date.
Economists at the Penn Wharton Budget Model released a dynamic analysis Thursday of the economic and budgetary effects of permanently extending the individual tax cuts, and conclude that doing so would create substantial costs: “We project that extending the individual-side (non-business) tax cuts increases government debt by over $5 trillion by 2040 and actually reduces GDP during the first 10 years and beyond.”
The individual taxes that would be made permanent include the reduction of the top tax rate from 39.6 to 37 percent, the increase in the standard deduction to $12,000 for individuals and $24,000 for married couples, the increase in the Child Tax Credit to $2,000, and the 20 percent deduction on the first $315,000 in income from pass-through businesses.
Why would extending these and other individual provisions come at such a high cost? Given the parameters of the Penn Wharton economic model, it’s all about the cost of additional debt: “[T]he potential positive benefits to the size of the economy from extending the individual-side tax cuts are smaller than the negative effects associated with more debt,” the report concludes.
You can read the full analysis here.