Trump and Congress Want To Extend 2017 Tax Cuts. How Will They Pay For It?

President Donald Trump and Republican lawmakers in Congress are moving to extend the 2017 Tax Cuts and Jobs Act, raising the question: will they deal with the $5.5 trillion price tag?

Lawmakers are preparing to extend the TCJA in this year’s budget. The landmark law from Trump’s first administration cut tax rates for corporations and individuals, made taking the standard deduction rather than itemizing tax returns more beneficial, and raised the child tax credit, among other things.

Extending the law will cost the government as much as $5.5 trillion by 2035 compared to letting it expire, according to an analysis by the Treasury Department in January. The cost of the law differs depending on how it is calculated. The Republican budget calls for $4.5 trillion in tax cuts, but the analyses factor in how much more interest the country will accrue on the national debt because of the reduced revenue.

Congressional leaders are reportedly debating several approaches to paying for some of it, including cutting spending and offsetting some of the cost with tariffs raised by President Donald Trump’s trade wars. Even so, extending the tax cuts is likely to increase U.S. spending deficits.

Spending Cuts

Republicans in the House of Representatives on Tuesday approved a budget framework that tasks congressional committees with finding $2 trillion in savings. Of this, $880 billion would likely come mostly from Medicaid, the government’s health insurance program for low-income households. Another $230 billion could come from cutting SNAP, the government program that provides food aid to low-income households.

The spending cuts face opposition from the Democrats, who are in the minority in both chambers of Congress. House minority leader Hakeem Jeffries, a congressman from New York, said no one from his party would support the budget because those with lower incomes depend on programs like Medicaid and SNAP to make ends meet.

Extending the TCJA would mostly benefit the wealthy, with the top 5% of taxpayers by income receiving 45% of the benefits, an analysis from the Urban Institute think tank found.

The budget process is far from complete, and the Senate and House must still agree on its details. If they stay united, Republicans have only a three-vote margin to override House Democrats, complicating their efforts to pass any spending cuts.

Outside of Congress, President Donald Trump’s DOGE task force led by Elon Musk says it has axed $65 billion worth of wasteful spending by canceling contracts and laying off workers, although the accuracy of that total is disputed.

DOGE’s efforts also face legal challenges from unions and others who argue that the Constitution only allows Congress to control spending levels. If confirmed, those spending cuts would go 1.18% toward paying for the tax cuts.

Tariffs

Last week, President Donald Trump said, “lots of money coming in from tariffs” he proposed would help balance the budget.

Tariffs proposed by Trump on the campaign trail could raise $3.8 trillion in revenue for the government over 10 years, according to an analysis by the nonpartisan Tax Foundation.

However, economists found that those tariffs could also have negative effects on the economy, including boosting inflation, eliminating jobs, and slowing economic growth.

Adding to the National Debt

Economists at Morgan Stanley estimated that even with the spending cuts outlined in the bill, the tax cuts would deepen spending deficits by $3.3 trillion over the next 10 years.

Some economic forecasts assume that after all the political wrangling, Congress will pass the tax cuts without any meaningful cuts to spending to make up for it, as it has previously resolved funding dilemmas. That would accelerate federal spending deficits and add to the national debt.

For economists at Deutsche Bank, the most likely outcome is that there will be “no material spending cuts” after all is said and done, the bank’s economics team said in a commentary last week.