President Trump’s proposed Big Beautiful Bill (BBB), which has been getting everyone’s attention of late, is the topic of this episode of The Power of Zero Show.
Host David McKnight points out that the “crown jewel” of the BBB is the extension of the 2017 Trump tax cuts.
The 2017 Tax Cuts and Jobs Act (TCGA) brought about cuts to individual income taxes, corporate taxes, and a dramatic expansion of the estate tax exemption.
While corporate tax cuts were made permanent – going from 35% to 21% – the tax cuts for individuals and estates had an expiration date.
If the status quo stays unchanged, those tax rates will revert back to their 2017 levels on January 1st, 2026.
David goes over how Republicans could make the tax cuts permanents through some outside the box accounting techniques.
Since Republicans don’t have a supermajority in the House or Senate, they would have to rely on a special Senate process known as Budget Reconciliation.
A few fiscal conservatives such as Representative Thomas Massie and David Schweikert, as well as Senator Susan Collins and Rand Paul may not be on board with such an approach…
Their main concern? The fact that making these tax cuts permanent would add between 4.6 and 5.5 trillion dollars to the national debt over the next 10 years.
David addresses the single greatest obstacle preventing Republicans from making the Trump tax cuts permanent: the Bird Roll.
The Bird Roll states that budget reconciliation bills cannot increase the federal deficit beyond the budget window, which is typically 10 years.
In other words, to make the tax cuts permanent, Republicans would have to find a way to pay for them.
Cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly known as the Food Stamps Program), as well as tariffs on imports are how Republicans are trying to go about things.
Some Republicans suggest that the tax cuts won’t increase the national debt over the next decade and beyond, for the fact that they’ll actually spark economic growth.
According to the Congressional Budget Office, the cost of the 2017 tax cuts was $1.9 trillion over an eight-year period, while the tax cuts themselves only increased revenue by about $400 billion.
As David stresses, “The Tax Cuts and Jobs Act of 2017 ended up increasing the debt by about $1.5 trillion, meaning that the tax cuts were in no way self-financing.”
If Trump tax cuts were to be made permanent, it will almost certainly increase the likelihood that taxes will have to skyrocket by the year 2035.
According to a Penn Wharton study, when the country’s debt-to-GDP reaches 200%, we’ve passed the point of no return.
If that were to happen, no combination of raising taxes or reducing spending would arrest the financial collapse of the nation.
Former Comptroller General of the Federal Government, David M. Walker, has even suggested that tax rates could have to double to keep the U.S. solvent.
This means that even if Republicans make the tax cuts permanent, they will have to raise taxes eventually…
For David, this may lead to Congress being forced to raise taxes in dramatic fashion in 2035 in an effort to avoid a financial apocalypse in 2040.
David believes that, if you have the lion’s share of your retirement savings swirling away in tax-deferred accounts like 401(k)s and IRAs, you should take advantage of what’s likely going to be 8 to 10 years more of historically low tax rates.
Mentioned in this episode:
David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track
PowerOfZero.com (free video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David’s Tax-free Tool Kit at taxfreetoolkit.com
