By David Morgan
WASHINGTON (Reuters) -A controversial plan by U.S. Senate Republicans to make President Donald Trump’s 2017 tax cuts permanent by ignoring the cost to the deficit is raising warnings from party fiscal hawks and independent analysts of a potential “debt spiral” that could undermine economic growth.
Top Senate Republicans, including Majority Leader John Thune, are determined to make permanent tax cuts due to expire at the end of the year, through a parliamentary maneuver that bypasses Democratic opposition. Because rules prohibit bills from expanding the deficit beyond a 10-year window, they intend to ignore a projected revenue loss of more than $4 trillion by claiming that tax policy would remain unaltered.
The ploy is already running into opposition from enough hardline Republican fiscal conservatives to prevent such a measure from making it through Congress, given that the party holds only a 218-215 majority in the House of Representatives.
“I can’t support that. It’s just a way to break the bank,” said Representative Thomas Massie, a Kentucky Republican who is one of the leading deficit hawks in Congress.
Two other fiscal conservatives, Representatives Victoria Spartz and David Schweikert, signaled opposition as well, while others said they saw the plan as a way to avoid offsetting Trump’s tax priorities with deep spending cuts.
“It’s heresy. They’re being absolutely intellectually disingenuous,” said Schweikert, of Arizona. “This is their way of avoiding making difficult decisions on modernization and changing the spending curve. I view it as absolutely immoral.”
The push for tax permanence is the latest example of Republican readiness to heed Trump’s demands, in a Senate that has confirmed a roster of controversial cabinet secretaries. Trump called for making his tax cuts permanent repeatedly during the 2024 presidential campaign and stepped up pressure on lawmakers last week on social media.
But Republicans have still voiced skepticism about the tax strategy, saying their objective should be to restrain the $36 trillion U.S. debt and preserve social safety net programs being targeted for spending cuts.
Senate Republicans who back permanent tax cuts say that forecasts of mounting debt are ill-conceived or just plain wrong. Thune and eight other Republicans from the tax-writing Senate Finance Committee vowed to Trump in a February 13 letter that they would oppose a temporary extension of the tax cuts.
Congressional Republicans in 2017 argued that the tax cuts would pay for themselves by stimulating economic growth. But the nonpartisan Congressional Budget Office estimates the changes increased the federal deficit by just under $1.9 trillion over a decade, even when including positive economic effects.
Republicans are again forecasting economic growth as part of a formula to pay for the Trump agenda, including separate proposals to eliminate taxes on tips, overtime pay and Social Security benefits.
‘DEBT SPIRAL’
The Committee for a Responsible Federal Budget, or CRFB, a nonpartisan fiscal watchdog, warned that making the tax cuts permanent would mean up to $4.6 trillion in extra deficit increases over the next decade and set a dangerous precedent for future borrowing.
“Over the long run, it may be what puts us into a debt spiral situation. The higher your debt, the higher your interest rates. And the higher your interest rates, the higher your debt,” said Marc Goldwein, senior CRFB policy director.
Rising interest rates mean that the U.S. would be paying ever more to service its debt. Interest payments alone represented more than $1 trillion of the federal government’s $6.7 trillion budget last year.
Senate Republicans are working to revise a budget plan that squeaked through the Republican-controlled House on Tuesday to include permanent tax cuts. Once complete, the revised measure would need to pass the Senate and the House.
The House and Senate need to pass a budget resolution to unlock a parliamentary tool called budget reconciliation, which would allow Republicans to circumvent Democratic opposition and the Senate filibuster in enacting Trump’s priorities later this year.
Part of the Senate’s aim is to revise the House budget bill in a way that can pass the House, where Republicans can afford to lose no more than one vote on legislation Democrats oppose.
“It’s complicated. It’s hard. Nothing about this is going to be easy,” Thune told reporters when asked about Senate plans to alter the House budget blueprint.
“We’ll continue to work on the policy piece of it and try to figure out where we get to 218 in the House and 51 in the Senate.”
Republicans also face two crucial deadlines on government funding and fiscal matters in coming weeks.
They must enact legislation to keep federal agencies open after March 14, when current funding expires. And they must raise the U.S. borrowing limit at mid-year or risk a catastrophic national default.
(Reporting by David Morgan; Editing by Scott Malone and Alistair Bell)
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