President Donald Trump and Republican lawmakers designed the Tax Cuts and Jobs Act that way, so personal tax cuts would suddenly disappear along with significant corporate cuts. Democrats and Republicans agree that at least some of the tax cuts should be extended. However, how and if the government should pay for these extensions is an open question.
That’s why one of the most important jobs in America is being a scorekeeper. Analysts at the Congressional Budget Office (CBO), the Joint Committee on Taxation, and other groups “score” the costs and savings of various policy options. How much money would a tax on the wealthy bring in? How much would eliminating the mortgage interest deduction save? The answers to these questions will influence tax policy for years to come.
As I saw firsthand during the Biden administration, many things influence these scores. Negotiations over a bipartisan infrastructure bill that Scorekeeper said would raise significant revenue (about $30 billion) to pay for road and bridge repairs could ultimately lead to a deal on virtual currency tax filings. clause has been included. During the 2021 Build Back Better debate, some lawmakers refused to vote on the bill before seeing the score. Once it came in, the scale of its costs was enough to sink the bill for that version.
Particularly in an era of skyrocketing budget deficits, it’s important to know how much government policies cost. But it’s equally important to look at the big picture.
Consider the example of the child tax credit. Because the IRS pays out billions of dollars in benefits to families with children, scorekeeping considers this just a cost. However, it turns out that much of this cost will be recovered by the government in the future. Researchers found that children whose parents received cash assistance were more likely to report higher incomes and pay higher taxes on that income as adults. The problem is that Congress is only focused on the 10-year budget line, so benefits are not considered.
Clean energy is another prime example. The Inflation Control Act introduced hundreds of billions of dollars in tax credits for businesses and consumers to facilitate the energy transition. These investments lead directly to reduced emissions, benefit the environment and save money in the future. But again, in the current budget process, they are only considered as short-term costs.
To be clear, I’m not saying that scorekeepers are giving the wrong numbers. it’s not. However, they have been assigned a very specific task: to create a 10-year revenue forecast. But the policies that “work well” today are not necessarily the best policies for America’s future.
Policy makers need to weigh the overall benefits of action and inaction against their true costs. This is similar to how companies consider new projects through a net present value lens (e.g., balancing the costs of launching a new product line against the benefits of a broader customer base). That’s why I started the Budget Institute at Yale University with former Biden administration colleagues Danny Yagan and Martha Gimbel to inject the big picture into policy discussions in Washington.
Regarding the big debate over the $3 trillion tax cut, Budget Lab’s preliminary analysis concludes that extending deficit-funded tax cuts would lead to higher interest rates for households, making it harder for them to buy homes and cars. Thirty years from now, the U.S. economy will be about $240 billion smaller in today’s dollars. And since these tax cuts benefit the top 10 percent more than twice as much as the bottom 20 percent, extending them would make inequality even worse.
There’s a better approach. A 2025 tax package that raises revenue and prioritizes simplicity could drive long-term growth while saving taxpayers the approximately 200 million hours they spend filing taxes each year. Nearly 40% of filers can fill out their returns in advance, eliminating the need to file taxes at all. Such a system would move the U.S. toward countries like Sweden, where taxpayers would simply have to say “yes” to an app or text message to meet their tax obligations.
The dollar cost of a policy is always an important consideration. But long-term benefits – benefits for children, emissions reductions and tax simplification, to name a few – must be a bigger part of the discussion.
