The Reconciliation Recommendations of the Senate Committee on Finance, the Tax Cuts and Jobs Act, would amend numerous provisions of U.S. tax law. Among other changes, the bill would reduce most income tax rates for individuals and modify the tax brackets for those taxpayers; increase the standard deduction and the child tax credit; and repeal deductions for personal exemptions, certain itemized deductions, and the alternative minimum tax (AMT). Those changes would take effect on January 1, 2018, and would be scheduled to expire after December 31, 2025. The bill also would permanently repeal the penalties associated with the requirement that most people obtain health insurance coverage (also known as the individual mandate).
The legislation would permanently modify business taxation as well. Among other provisions, beginning in 2019, it would replace the structure of corporate income tax rates, which has a top rate of 35 percent under current law, with a single 20 percent rate. The legislation also would substantially alter the current system under which the worldwide income of U.S. corporations is subject to taxation.
The staff of the Joint Committee on Taxation (JCT) estimates that enacting the legislation would reduce revenues by about $1,633 billion and decrease outlays by $219 billion over the 2018-2027 period, leading to an increase in the deficit of $1,414 billion over the next 10 years. A portion of the changes in revenues would be from Social Security payroll taxes, which are off-budget. Excluding the estimated $27 billion increase in off-budget revenues over the next 10 years, JCT estimates that the legislation would increase on-budget deficits by about $1,441 billion over the period from 2018 to 2027. Pay-as-you-go procedures apply because enacting the legislation would affect direct spending and revenues.
JCT estimates that enacting the legislation would not increase on-budget deficits by more than $5 billion in any of the four consecutive 10-year periods beginning in 2028.
Because of the magnitude of its estimated budgetary effects, the Tax Cuts and Jobs Act is considered major legislation as defined in section 4107 of H. Con. Res. 71, the Concurrent Resolution on the Budget for Fiscal Year 2018. It therefore triggers the requirement that the cost estimate, to the greatest extent practicable, include the budgetary impact of the bill’s macroeconomic effects. The staff of the Joint Committee on Taxation is currently analyzing changes in economic output, employment, capital stock, and other macroeconomic variables resulting from the bill for purposes of determining these budgetary effects. However, JCT indicates that it is not practicable for a macroeconomic analysis to incorporate the full effects of all of the provisions in the bill, including interactions between these provisions, within the very short time available between completion of the bill and the filing of the committee report.
CBO and JCT have determined that the tax provisions of the legislation contain no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA).
