Friday, January 19, 2024

Washington Uniparty Planning Another Spending Giveaway Under Misnamed “Child Tax Credit”

Stop me if you’ve heard this one before: Both parties in Washington are negotiating to create a giveaway that will blow a bigger hole in our $34 trillion debt. And this giveaway goes above and beyond the bad deal that House Speaker Mike Johnson, R-La., recently cut that will increase spending this fiscal year.

Separate and distinct from the spending negotiations, congressional tax writers are reportedly close to reaching agreement on a tax package, which they may attempt to attach to the spending agreement. (This is how we end up with 4,000-page omnibus bills that nobody reads — because all of Congress’s “backroom deals” get stuck into one massive measure.) The idea of passing a tax cut sounds appealing in theory, but the closer one gets to examining the details, the greater the stench becomes.

‘Tax Package’ Means Spending Spree

Several facets of this reported “tax package” stand out as objectionable to conservatives, starting with its name.

Welfare Spending: One report noted, “Democrats are looking to expand the child tax credit by bumping up the portion that families can receive as a cash payment if they don’t owe any more money to the IRS.” Except that giving cash to people who don’t owe taxes isn’t a “tax cut” — it is an outlay (i.e., welfare) payment.

Democrats beefed up the child “tax credit” as part of their 2021 “stimulus” giveaway during Covid-19. After failing to extend these payments in President Joe Biden’s proposed Build Back Bankrupt legislation, they want to trade an extension of them, albeit at a reduced level from the 2021 parameters, for various corporate expensing provisions that Republicans have prioritized. It’s the typical Washington dynamic whereby both sides agree to vote for the other’s priorities. Or, to put it more bluntly, everyone “wins” — except the taxpayers footing the bill.

Hidden Costs: Various reports claim the package will total anywhere from $50 billion to as much as $100 billion. But because the provisions will only get extended through 2025 (when other provisions of the 2017 Trump tax law expire), the short extension hides the full cost. According to the Committee for a Responsible Federal Budget, a permanent extension of the provisions being discussed would cost about $830 billion for its first 10 years.

Budget Gimmick: To offset some of the costs of the package, lawmakers are reportedly talking about scaling back a Covid-era business tax break. Various press outlets have chronicled how the employee retention tax credit has become riddled with fraud.

Congress 1) allowed businesses to claim the credit without documenting a reduction in revenues (they can merely claim they were affected by government lockdowns) and 2) permitted firms to file claims retroactively through 2025. As a result, a cottage industry of consultants/scammers has emerged instructing businesses on how to claim this giveaway, while taking a cut for themselves in the process.

Congress may use the tax package to tighten eligibility for the credit and/or limit businesses’ ability to file amended returns. Senate Finance Committee Chairman Ron Wyden, D-Ore., recently told reporters that “there is a good argument for using some of those dollars from cleaning up the abuses” to pay for the tax package.

No, there isn’t. To summarize Wyden’s position: Congress created a program that amounted to a recipe for fraud — which it never should have done in the first place — and now wants to use the “savings” from cleaning up (only some of) its own mess to spend even more. Even a first grader could see the absurdity of Wyden’s, and Congress’s, logic.

Time to Cut Spending

By this point, many conservatives might have noted the dynamic nature of revenue reductions. If many tax cuts increase economic growth, which in turn generates additional revenue for the federal government, why all the concern above about the package’s cost?

True, some tax reductions do generate economic growth and additional federal revenue. But not all do, and not all generate enough growth to “pay for themselves” completely. One of the main components of this reported package — an extension/expansion of the child “tax credit” — likely falls into that rubric.

And so, just like Johnson’s spending deal, and like practically every other piece of legislation that has passed in Washington this century, both sides have agreed to ignore the fiscal consequences of their actions: “I won’t talk about your irresponsible giveaway if you don’t talk about mine.” Corrupt bargains like these are why we have $34 trillion in debt — an out-of-control uniparty of Washington spendthrifts obsessed with giving away money our country doesn’t have.

This post was originally published at The Federalist.