February 28, 2025
Now that the House has made a move toward extending expiring provisions of the Tax Cuts and Jobs Act (TCJA, P.L. 115-97), the conversation has turned to whether that extension could be permanent.
Some Senate Republicans, including Senate Finance Committee Chair Mike Crapo (R-ID), have long pushed for permanent tax reform. And after the House passed its budget resolution setting up tax reform on Tuesday, President Trump came out in support of permanency.
Business leaders are also on board. In a February 26 letter signed by almost 500 national trade associations and state and local chambers of commerce, the U.S. Chamber of Commerce insists the tax cuts should be made permanent to “provide businesses the certainty and stability they need to make the long-term investments that drive growth, accelerate productivity, and increase prosperity.”
Deficit impacts.
The same day, the Tax Foundation released an analysis of the economic impacts of permanent extension. Tax Foundation’s Erica York and Garrett Watson conclude that should individual, estate, and business tax provisions be permanently extended, long-run economic output would, indeed, increase. However, they say, so would the debt-to-GDP ratio — in 2060, that ratio would increase to 205% if calculated dynamically, and 212% conventionally.
Permanent extension would reduce tax revenues by $4.5 trillion over the 10-year budget window, which York and Watson say will result in increased interest payments on debt. “Deficit-financing of the tax cuts thus drives a wedge between the long-run increase in output … and the long-run change in American incomes,” they conclude.
Penn Wharton Budget Model takes the position in a February 27 tax policy brief that “it is generally not possible to enact net tax cuts on a permanent basis through reconciliation.” That’s because deficit-increasing tax policies cannot extend beyond the 10-year budget window.
Nevertheless, Penn Wharton analyzes the impacts of TCJA extensions and other Trump administration tax promises on a temporary and permanent basis — it finds that should the provisions sunset after calendar year 2033, we can expect modest GDP, capital formation, and wage increases. “Under permanence, the signs reverse,” it concludes.
The issue: permanency is linked to larger long-term debt. “To be sure, temporary enhanced depreciation allowances often cause inefficient intertemporal substitution with negligible long-run economic impact. However, the larger federal debt in the case of permanence discourages investment even more,” reads the Penn Wharton brief.
The Committee for a Responsible Federal Budget (CRFB), too, concludes in a February 27 post that “the long-term economic benefits of permanency would likely be more than countered by the long-term economic costs of higher debt.” CRFB adds that a “permanent, thoughtful, and fiscally responsible tax extension and spending cut package would … remove the economic burden of additional debt and add the benefits from cutting certain distorting tax breaks and spending provisions.”
Arnold Ventures’ George Callas explained that good tax policy should be permanent, but it should also be “done in a fiscally responsible way.” Callas, speaking on a February 27 webinar hosted by The Budget Lab at Yale, added that there’s no bar on making permanent tax cuts via reconciliation — they just need to be paid for. And that requires “making choices” as to which cuts to extend, and how to pay for them.
Baseline.
Senate Republicans have been advocating for the use of a “current policy baseline” to pay for the cuts. The Chamber also recommends this approach, calling it a “pathway” for permanent extensions. Under a current policy baseline, it is assumed that all policies in place will continue in future years — even if they are set to expire. Extending current tax cuts scores as $0 under this approach.
But to Callas, the “reality” is that if you enact permanent tax cuts without comparable revenue raisers, Treasury will issue additional debt. That doesn’t “go away” by changing the way you measure it.
“Misunderstanding” has driven the push among some Republicans for the use of a current policy baseline, Callas said. He called it a “myth” that tax cuts are treated unfairly in scoring as compared to spending. In a February 27 post, Callas writes that advocates of a current policy baseline propose “to treat these particular tax cuts differently than any spending program or tax cut has been treated in our history.”
CRFB, likewise, said the “spending bias” claim is a “red herring.” While some spending programs are “considered permanent in CBO’s baseline even though they have or are set to legally expire,” CRFB explained that “these programs are treated differently on the front end.” The TCJA, however, “was not originally treated as permanent and was instead intentionally designed with temporary provisions in order to lower its score,” added CRFB.
And then there’s the question of lawmakers’ appetite for a current policy baseline. The House-passed budget resolution uses a current law baseline. Callas said that’s not because House Speaker Mike Johnson (R-LA) is against a current policy baseline — rather House Republicans “didn’t have the votes.” Representative Dave Schweikert (R‑AZ), for one, has spoken out against the use of a current policy baseline, calling it “intellectually vacuous.”
The use of a current policy baseline for tax reform hasn’t “been tested” in the Senate yet, said Callas. But he noted that Senator Bill Cassidy (R-LA) proposed an amendment to the Senate’s budget resolution — part one of a two-bill approach to immigration, energy, defense, and tax reform — that would have stricken the use of a current policy baseline.
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