As Republicans on Capitol Hill lay the groundwork for extending the 2017 tax cuts, cracks are already emerging on one of the biggest questions: how to handle the cost.
Extending the tax provisions is estimated to increase the deficit by $5 trillion, according to the nonpartisan Congressional Budget Office. Yet many lawmakers are quick to dismiss or explain away the number, arguing the tax cuts will ultimately help the economy and, subsequently, revenue for the government.
The debate over cost is one of the first major ones lawmakers will need to tackle as they look to extend and potentially build upon the Tax Cuts and Jobs Act of 2017, which raised the standard deduction, lowered income tax rate brackets, and created a deduction for small business income. All of those provisions are set to expire at the end of 2025, although some other changes in the bill, including the 21% corporate tax rate, would continue.
House Majority Leader Steve Scalise, R-La., criticized the CBO, saying the agency doesn't always use dynamic scoring, which would consider both the primary and secondary economic impacts.
"You're looking at a lot of these tax credits, mandates, rules and regulations that add tremendous cost to families in the economy that we're going to be looking at paring back to get the economy back on track," he said in a recent interview with CNBC in the Capitol.
Some top tax leaders, including Sen. Mike Crapo, R-Idaho, the incoming chair of the Senate Finance Committee, have downplayed the $5 trillion estimate, which assumes that the 2017 tax provisions set to expire at the end of 2025 have already done so.
But Crapo has said the tax measures are a continuation of current policy, and preventing taxes from increasing shouldn't be counted as adding to the deficit - and therefore don't need to be paid for.
"If you're just extending current law, we're not raising taxes or lowering taxes, that that is a $4 trillion dollar deficit, that is ridiculous," he said on Fox Business.
Yet a group of deficit hawks are worried about the ballooning deficit, and think any tax package needs to be fully offset.
It's unclear how many lawmakers will be willing to dig in their heels if they feel the package is too costly, but narrow margins in the House and Senate mean that even a few members can effectively hold up the process.
Assuming no Democrats support the GOP bill, Republicans can only lose four senators. Margins in the House are unclear, because a few very close races have yet to be called. Complicating the vote math in the House are President-elect Donald Trump's selection of two House Republicans to join his administration, Reps. Elise Stefanik of New York and Mike Waltz of Florida.
A third Republican, former Rep. Matt Gaetz of Florida, resigned from the House hours after Trump announced he would nominate Gaetz as attorney general on Nov. 13. Senate opposition to Gaetz quickly led to his withdrawal from consideration for AG, but his House seat will remain vacant until it is filled by the winner of a special election.
Another proponent of dynamic scoring, Rep. Chip Roy (R-Texas) said it was critical to ensure the deficit was being addressed through the tax package.
"We need to make sure that it's not only deficit neutral but that, more importantly, that it's actually reducing the deficit," he told reporters on the House steps last week. "So I'm going to be a voice for saying that those need to be factored in."
Other members, like Rep. Greg Murphy, R-N.C., said Congress needs to be "intellectually honest" about which tax cuts increase growth, and whether the government is doing enough to tackle the debt.
"I want everything offset," he told CNBC in the Capitol. "It's killing our nation. It's the greatest silent cancer that we have. And we have to be honest about this. The government has to take in revenues to pay for itself."
But Murphy was noncommittal on whether he would back legislation that increases the deficit.
Rep. Jodey Arrington, R-Texas, who chairs the House Budget Committee, said there are debates within the Republican caucus on how to best score the tax bill to determine how much it will ultimately add to the debt.
"There are lots of opinions on both sides," he told CNBC in the Capitol. "I suspect you will hear people lean more on their concerns about the deficit. You'll have others that will say, 'If we don't grow, we'll never get out of this hole.'"
Negotiations on the tax bill are still in early stages, as are conversations over what revenue raisers to include in the bill.
Many Republicans are supportive of rolling back tax credits for electric vehicles that were a part of outgoing President Joe Biden's Inflation Reduction Act, a sweeping climate and economic package signed into law in 2022.
Yet exactly which clean energy proposals will be rolled back is unclear. Republican leaning congressional districts have benefited from the programs, and 18 lawmakers asked House Speaker Mike Johnson, R-La., in an August letter to preserve some tax credits in the IRA that have already benefited their constituents. Johnson told CNBC that he would need to use "a scalpel, and not a sledge hammer" in selecting what from the package is kept and what is cut.
Republicans are also considering some more unconventional pay-fors, like tariffs, which Trump wants to deploy both as revenue raisers and as geopolitical negotiating tools during his presidency. However, measuring the impact of tariffs could be difficult, because an increase on the price of certain goods from certain industries or countries would likely have unpredictable knock-on effects, like changing consumer habits or triggering retaliatory tariffs.
Lawmakers are also debating whether to add some of Trump's campaign promises to the bill, including eliminating taxes on tipped income, removing the cap on state and local tax deductions and not taxing social security benefits.
Adding any of those measures would increase the cost of the legislation, by decreasing overall revenue for the government.
