Next year, Republicans, alongside President-elect Trump, are focused on advancing a tax-cut bill in Congress. However, they will face the challenge of figuring out how to finance these cuts without adding to the growing deficit. While Trump and many in the GOP argue that well-structured tax cuts will eventually pay for themselves, fiscal conservatives within the party are calling for corresponding reductions in spending.
The current $36 trillion national debt has become a contentious issue as Republicans begin to discuss a budget that could pave the way for tax cuts. Several options are being considered for covering the costs of tax cuts, starting with tariffs.
Tariffs were a key feature of Trump’s economic approach during his presidency, and he proposed various tariffs on imports, including a 10-20 percent rate on goods and a particularly high 60 percent rate on Chinese products.
Tariffs on imports and cuts to climate provisions are part of the GOP’s plan to fund tax cuts
The Tax Foundation estimates that a 10 percent tariff could generate $300 billion annually. Businesses affected by tariffs may adjust prices or inventory, although the impact on consumer prices has been debated, with studies offering mixed findings.
Another revenue source being explored is cuts to the Inflation Reduction Act (IRA), which would trim climate-related provisions. While a full repeal could save around $369 billion, many Republicans are wary of repealing it completely due to its popularity in some districts.
The Trump administration’s 2017 international tax reform also remains a potential revenue generator. Proposed changes to international business taxes, like adjustments to the Global Intangible Low-Taxed Income (GILTI) rules, are under consideration, though changes may face resistance from industries with conflicting tax interests.
A bipartisan-backed bill earlier this year proposed canceling the employee retention tax credit (ERTC) to fund its initiatives. This pandemic-era credit, which helped businesses retain workers during shutdowns, has become a source of fraud concerns, leading lawmakers to reconsider its future.
Finally, Republicans continue to champion the idea that tax cuts stimulate economic growth and finally pay for themselves. While this “dynamic scoring” approach has been criticized by economists, with many agreeing that growth won’t fully offset revenue losses, it remains a central argument for proponents of tax reduction in Washington.
