The price of tax cuts and spending hikes: CBO released its long-term budget outlook yesterday. The nonpartisan Congressional Budget Office updated its budget and economic outlook, and it isn’t pretty: CBO projects that the combination of tax cuts and spending hikes enacted by Congress over the past few months will boost the deficit to $804 billion this year and nearly $1 trillion in 2019. It will then top $1 trillion through the rest of the decade, assuming no changes to current law. Largely due to the big fiscal stimulus approved by Congress, CBO projects that the economy will grow by 3.3 percent in 2018 but growth will slow sharply after that. The federal debt will reach nearly 100 percent of GDP by 2028.
Kentucky Governor Matt Bevin will veto his legislature’s budget, and its big tax cuts. The Republican governor focused his objections on the budget, arguing that it does not balance. He told reporters: “The budget has hundreds of millions of dollars in spending that we really can't afford…. Sure, it feels good….But the reality is the money's not there…. And that is not responsible.” He had less to say about a provision that sets a single 5 percent income tax rate for individuals and corporations and raises sales taxes—a mashup that would substantially cut taxes for high-income households but raise them for low- and middle-income taxpayers.
How Utah responded to conformity issues created by the TCJA. The Salt Lake Tribune reports that while the state legislature enacted a 0.05 percent cut in the state income tax rate, it did not nothing to address the TCJA’s repeal of personal exemptions. Because the state links its revenue code to the federal law, the TCJA eliminated the $3,038-per-dependent state tax exemption. That means large lower- and moderate-income households will now pay significantly more in state tax despite the small rate cut.
On tax cuts and teachers. Vox reviews tax history in Oklahoma, and shows how tax cuts for wealthy Oklahomans have contributed to the state’s current teachers strike. The state cut its top income tax rate from 6.65 percent in 2004 to 5 percent in 2018. The Oklahoma Policy Institute estimates that as a result, the state has lost $356 million in annual public education funding since 2004.
In case you missed it yesterday… You can watch the webcast of TPC’s Lubick Symposium on the Tax Cuts and Jobs Act’s administrative challenges here. Panelists share all you ever wanted to know about how Treasury and the IRS will write regulations and other guidance needed to implement the TCJA. You can also read Gene Steuerle’s description of Don Lubick’s contribution to tax policy here.
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