There may be a tough fight coming soon over whether to allow the expiration of a set of income tax cuts for individuals put in place in 2017 ― something that Republicans claim would be disastrous for the U.S. economy.
But an analysis Wednesday from the nonpartisan Congressional Budget Office said that’s just not the case.
The CBO, which acts as Congress’ in-house shop for expertise on budget and economic issues, said letting the cuts expire as scheduled in 2025 would trim only about 0.1% each year on average from the economy from 2025 to 2034.
For comparison, the U.S. economy grew at a 2.8% annual rate in the third quarter of 2024, according to the Bureau of Economic Analysis, close to the 2.9% rate seen in 2023 and the 2.5% pace in 2022.
The CBO’s finding stands in stark contrast to the gloom and doom that Republicans have been saying would result from letting the tax cuts expire. Republicans themselves made the tax cuts temporary in 2017 in order to squeeze them into a larger legislative package that sharply cut corporate tax rates and would not need Democratic votes to pass.
“Taxpayers already face too much uncertainty as they look to work, save and invest in this economic environment,” Sen. Mike Crapo (R-Idaho) said in a committee hearing in September. “And given the litany of tax hike proposals on the table from many of my Democratic colleagues, no area is more uncertain as we head into this election than tax.”
“When it comes to the 2025 tax policy debate, those proposing all these tax increases continue to avoid a fundamental question: Will they allow the Tax Cuts and Jobs Act to expire and inflict multitrillion-dollar tax hikes on the American people?” he said.
Crapo will be the chairman of the Senate’s tax-writing finance committee next year, and a key player in the GOP effort to extend the individual tax cuts.
“We should make [the tax cuts] permanent. If not, at least 10 years,” Rep. Nicole Malliotakis (R-N.Y.) said on Fox News in November. “What I’ve heard from the various stakeholders is, look, we want to invest, we want to expand, we want to grow jobs, but the only way we can do it is if we have some certainty in the tax code so we know what we’re dealing with.”
The CBO said letting the individual tax cuts expire would result in a smaller supply of labor as the incentives to work more were reduced. Some workers would work less immediately in 2026, the office said, but others would not understand the change ― or would assume, as has been the case in the past, that Congress would change the law retroactively to keep taxpayers from being hit with higher tax bills, and would continue to work.
The CBO also said the government saving money by borrowing less to pay for those tax cuts would almost offset the new work disincentive. Less government borrowing would mean more capital available for investment by the private sector.
“Those two effects roughly offset each other,” the office said in its analysis. “As a result, the expiration of the individual income tax provisions of the 2017 tax act does not significantly affect CBO’s projections of real GDP.”
The CBO analysis may also have deflated Republicans’ hope that using a non-standard way of looking at tax cuts — i.e., estimating how much their impact on growth would partially offset the on-paper estimate of tax revenues lost — would prove more favorable.
Because the economic impact would be minimal, the CBO said, such a “dynamic analysis” of the individual tax cuts’ expiration “would be very similar to the conventional estimate,” which would show a $3.7 trillion smaller deficit over 10 years if the cuts sunset as scheduled.
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In 2017, the GOP pointed to the dynamic estimate to claim a lower real-world cost of the tax cuts then, and that idea could be revived next year. But the CBO verdict that the static and dynamic scores of expiration would be similar suggests that a score of the impact of extending them would also be the same either way, too.
Rep. Brendan Boyle (D-Pa.), the top Democrat on the House budget committee, said the CBO’s analysis proves Republicans are lying about the impact of the tax cuts on the budget deficit.
“These tax cuts don’t pay for themselves ― they never have, and they never will,” Boyle said in a statement.