Republican efforts on second round of tax cuts face impossible climate

Tax Hot Topics newsletter President Donald Trump and several House Republicans have increased calls in recent week for a second round of tax cuts to follow the Tax Reform and Jobs Act (TCJA) enacted in December. The effort appears unlikely to result in legislative success this year, but could become a major campaign issue for the November mid-term elections. 

Trump said in a recent roundtable discussion that he was pushing House Ways and Means Committee Chair Kevin Brady, R-Texas, to write “phase two” of tax reform. Brady later confirmed that he was working a second bill focused on making the individual tax cuts permanent. 

Nearly all of the individual changes in TCJA are scheduled to expire in 2026 after only eight years. The sunset provisions were added so the bill would comply with reconciliation rules, which allowed Republicans to pass the bill in the Senate without facing 60-vote procedural hurdles. Republicans pledged at the time that they would later extend the individual tax cuts, but it appears unlikely they can achieve this already in 2018.

Republicans only have 51 votes in the Senate, and Democrats are expected to vehemently oppose any extension without significant concessions on the overall bill. Reconciliation cannot be used to make the tax cuts permanent because it would reduce revenues outside the budget window. 

The Republican push for a second round of tax cuts is probably better viewed as part of a campaign push in advance of the 2018 elections. With some polls showing the TCJA gaining in popularity, some Republicans believe it will help their political fortunes to force Democrats to oppose an extension.

The eventual extension of many of the tax cuts is certainly possible in future years. Some of the changes have bipartisan appeal. But the outcome will depend on future election results and deficits. Democrats may also seek to change or roll back certain aspects of both the temporary and permanent tax provisions as early as next year.

Dustin Stamper
Washington National Tax Office
T +1 202 861 4144

Shamik Trivedi
Senior Manager
Washington National Tax Office
T +1 202 521 1511

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