Supporters of the Tax Cuts and Jobs Act like to describe it as a once-in-a-generation tax overhaul. It is arguably true that it is the most wide ranging tax bill in three decades. But key elements of the TCJA all but guarantee that Congress will be revisiting the tax code again in a few short years. The TCJA may be sweeping but it also may have a short shelf-life.
The first problem is its highly partisan nature. Republicans made no effort to craft a bipartisan bill and no Democrat voted for the measure at any step along the way. Already, liberals are vowing to overturn key business provisions should Democrats regain control of Congress in 2019. On Sunday, even before the TCJA passed, Sen. Bernie Sanders (I-VT) was predicting a future Congress would reverse corporate tax cuts.
As long as President Trump remains in office, Democratic efforts to “repeal and replace” the TCJA likely will fail. But, copying the GOP playbook after passage of the Affordable Care Act, Democrats aim to use the tax bill as a political cudgel to try to regain control of government and, should they get the chance, rewrite the tax laws yet again.
But unlike the ACA, the TCJA explicitly opens the door to a legislative Mulligan. Because it repeals nearly all of its individual tax provisions by 2026, the new law not only encourages Congress to revisit tax policy within eight years, it requires it.
Republicans have described this as a binary choice for a future Congress. They say lawmakers must either extend the individual tax provisions or take the blame for the demise of what they believe will be popular tax changes, such as individual income tax rate reductions and a big increase in the standard deduction.
But Congress will have many more options than that. Of course, we have no idea who will control government in 2025. We do know that Donald Trump will no longer be president, even if he is reelected in 2020. And control of Congress is at best uncertain. Among other things, a major congressional redistricting may occur after the 2020 Census.
As a small thought experiment, imagine that Democrats control the White House and at least one chamber on Capitol Hill in 2025. And imagine the debt has increased to about 90 percent of Gross Domestic Product, a fair assumption after taking into account the lost revenue from the TCJA
With the looming expiration of nearly the entire individual tax code, this future Congress will have an open door to rewrite the tax law in any way it wants. It could, for instance, keep the TCJA’s individual income tax cuts but allow key tax increases, such as curbs on the state and local tax deduction, to expire.
Congress could help pay for those changes by eliminating, or at least rolling back, the TCJA’s special tax treatment for pass-through businesses such as partnerships. Even the GOP-controlled Kansas legislature did just that earlier this year—over the objections of one of the most aggressive anti-tax governors in the country.
Congress could also, in a new-found concern for the growing federal debt, undo some of the TCJA’s corporate tax rate cuts. It could reinvigorate the estate tax. Or, in a burst of ambition, it could enact a Value-Added Tax or a carbon tax. Imagine Democrats presenting US businesses and their congressional allies with a choice—an across-the-board corporate tax rate hike or some form of consumption tax. Are you confident predicting the outcome? I’m not.
In policy terms, eight years is the blink of an eye. And while the TCJA is a big, ambitious change to the tax code, it may also be an historically short-lived one.
