Before one can understand the new tax reform bill, they must understand the politics surrounding it.

Background

This bill is the first reform of the U.S. tax code since Reagan was in office in 1986. Pair that with it being Trump’s first major legislative victory and one can see why it is considered “a big deal” and was quickly passed by Congress and signed into law. It was passed by the Senate under the Byrd rules, which allows for a simple majority vote for passage (instead of the normal 3/5 super majority requirement) but prevents the bill from increasing the nation’s deficit out of a 10-year window. This caused Congress to make many of the changes to the bill sunset in 2025 so as to prevent the bill from adding to the deficit after that 10th year.

The Impact on the Deficit

Despite the sun-setting provisions, the Joint Committee on Taxation forecasts the bill to add a net of $1.1 trillion (with a T) to the deficit from 2018 through 2027. This number is comprised of $1.46 trillion in lower taxes less $358 billion in increased taxes from the projected economic growth resulting from the tax law changes. The Republicans maintain that the resulting economic growth will be much higher and should more than compensate for any reduction of taxes.

A Raw Deal?

You are forgiven if you have not read the entire bill; however, those who have claim that many provisions are unclear in intent, contain various errors, or will lead to unintended consequences. The way Congress can fix these parts of the bill is through what are called “technical corrections“. However, each correction must have bipartisan support. In the current political climate, that may be hard to achieve. With a 2018 Senate consisting of 51 Republicans and 49 Democrats, if support from the Democrats does not materialize then the Republicans will likely try to smooth the edges through various Treasury Department publications and other guidance. This alternative way could leave taxpayers with the raw end of the deal. Reason being that the Treasury can only smooth out the existing bill, the Congress must change it through technical corrections. One can only hope that there are not too many errors or flaws in the bill.