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Bess Levin

Vanity Fair

February 1, 2018 11:00 AM

Tax Cuts
The G.O.P. Tax Cut Is Draining the Treasury Even Faster Than Expected
America’s burn rate is speeding up—leaving Congress just a few weeks to raise the debt ceiling again.
One of the many things confirmed by the great tax-bill melodrama of 2017 is that Republicans only pretend to care about “fiscal responsibility” when Democrats are in power and tax cuts aren’t on the line. With the opportunity to slash the corporate rate nearly in half, cries of “I won’t endorse a bill that adds one penny to the deficit!” evaporated, and tacking on $1.5 trillion became no big deal. Tax cuts, we will soon be reminded, don’t grow on trees, and the social safety net must be pared back in exchange. For now, though, Republicans are still in the trickle-down honeymoon phase, seeing in every corporate press release more confirmation that America has been made great again. Which makes it somewhat ironic that the Treasury is now burning through its cash reserves at an even more spectacular rate.

According to the nonpartisan Congressional Budget Office, the federal government will run out of money even sooner than expected, thanks to the new tax legislation, which is estimated to lead to a fall in revenue of $136 billion in 2018. A default on debts had originally been forecasted for late March or early April. But now, because of the new withholding tables, “withheld receipts are expected to be less than the amounts paid in the comparable period last year.” That, combined with the fact that the Treasury generally issues a high number of tax refunds in February and March, means that the $272 billion in cash the Department had on hand as of Tuesday will quickly dwindle. If the debt ceiling isn’t increased by the first half of March, the C.B.O. cautioned on Wednesday, “the government would be unable to pay its obligations fully,” and would be forced to delay payments, default on its debts, or both.

Treasury markets are already skittish at the prospect, according to Bloomberg, and the matter may prove contentious in Congress, which is already grappling with an immigration stalemate and another government shutdown vote on February 8. A proposal to raise the debt ceiling may repel G.O.P. deficit hawks, who in the past have pushed for spending cuts before allowing a vote. And Democrats may be equally hesitant to support the measure, particularly if there’s been zero progress on the immigration front. (Donald Trump’s State of the Union address, in which he claimed that the visa lottery and family sponsorships are “deadly loopholes” that allow “criminals and terrorists to enter our country” did not help matters—“He is just setting another bad standard which we have to reject,” House Minority Leader Nancy Pelosi told reporters Wednesday.)

To be fair, the C.B.O. report doesn’t factor in the stratospheric growth Team Trump promised would be spurred by the tax plan, allowing it—per Treasury Secretary Steve Mnuchin—to not only “pay for itself, but . . . pay down debt.” But experts have cast some doubt on that outcome. “That’s wishful thinking,” wrote Bruce Bartlett a former domestic-policy adviser to Ronald Reagan. “So is most Republican rhetoric around tax cutting.”

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