TaxProf Blog

Paul L. Caron
Dean





Friday, June 7, 2024

Weekly SSRN Tax Article Review And Roundup: Speck Reviews The TCJA: Sweeping Changes And An Uncertain Legacy By Gale, Hoopes & Pomerleau

This week, Sloan Speck (Colorado; Google Scholar) reviews William G. Gale (Brookings Institution; Google Scholar), Jeffrey L. Hoopes (North Carolina; Google Scholar) & Kyle Pomerleau (American Enterprise Institute), Sweeping Changes and an Uncertain Legacy: The Tax Cuts and Jobs Act of 2017, 39 J. Econ. Persp. __ (2024).

Sloan-speck

Soon after the President signed the Tax Cuts and Jobs Act in December 2017, the political push began to extend the law’s various time-limited individual and business tax provisions. This push for permanence promises to become more pressing as the 2024 election cycle unfolds—including partisan preparations to deploy the budget reconciliation process under potential majority control of both houses of Congress. The stakes are high: up to $4.6 trillion in foregone revenue, according to estimates by the Congressional Budget Office, as well as the shape and trajectory of the federal income tax system for years to come. A full understanding of these stakes requires context about the TCJA’s past, present, and possible futures. 

In a wide-ranging symposium article, Sweeping Changes and an Uncertain Legacy: The Tax Cuts and Jobs Act of 2017, William Gale, Jeffrey Hoopes, and Kyle Pomerleau survey much of this essential context and elaborate an economics-oriented foundation for making informed and principled policy decisions about the agenda-setting sunsets and transitions that Congress currently faces.

Over the article’s course, Gale, Hoopes, and Pomerleau discuss the TCJA’s putative goals (which they discern as business competitiveness, economic growth, and simplification), the bipartisan policy roots of various TCJA provisions (with a strong domestic focus; the OECD’s efforts on interest expense limitations and international tax reform are discussed only in passing), and the TCJA’s effects on a number of metrics, including private-side administrative costs, taxpayers’ marginal rates, federal revenue over several time horizons, aggregate supply and demand within the domestic economy, and the distribution of tax burdens. Of particular interest is a segment on expert opinion, which presents survey data from a panel of economists. These data generally reinforce the modelling and econometrics research reviewed in the article, painting a pretty grim picture of the TCJA’s bottom-line consequences. The authors’ analysis is both sweeping and nuanced—not an easy balance to strike—and yields a strong sense of the subtle contours and many uncertainties attached to the grand project of evaluating hefty tax legislation followed closely by a global pandemic.

Implicit in Gale, Hoopes, and Pomerleau’s approach are questions about whether policymakers and commentators should consider the TCJA (and, perhaps, tax legislation generally) as a coherent reform plan or a mere collection of individual provisions. If there’s a plan, then holistic evaluation presumably says something that line-by-line assessment does not. By contrast, a broader view might yield less (or nothing), if a law comprises a haphazard amalgam of disparate policy ideas, cobbled together for convenience. Indeed, the plan-collection distinction has particular import when timing varies across different provisions in the same piece of legislation, as in the TCJA. For example, there’s probably a political deal in tethering a partial repeal of the TCJA’s ostensibly-permanent corporate tax rate cuts to the extension of currently sunsetting individual tax reductions. But the linkage between these provisions isn’t a necessary one, and it’s worth considering how these pairings play out from economic and policy perspectives. The TCJA contains enough interlocking parts that pulling politically convenient threads poses some risk of unraveling whatever tapestry exists, perhaps with adverse results regardless of one’s normative priors. As Gale, Hoopes, and Pomerleau indicate, these types of questions are hard but crucial as lawmakers revisit the TCJA.

Indeed, one can read Gale, Hoopes, and Pomerleau’s article as an indirect critique of the reconciliation process and budget scoring more generally. The TCJA’s projected and actual effects deviated substantially from the law’s formal budget score—a determinative constraint when moving a bill through reconciliation. Compounding this problem is the fact that, if the TCJA’s sunsets were structured to maximize political leverage for extension, then nominal revenue numbers at enactment provide incomplete information about the true budgetary cost of legislation. One could imagine numeric adjustments for political probabilities, particularly as they affect revenue beyond the typical ten-year budget window. These might prove no less controversial than, say, the push for dynamic scoring (that accounts for economic growth, among other factors, and that typically lowers the revenue cost of tax cuts) and formulaic allocations of the corporate tax burden among individuals. Gale, Hoopes, and Pomerleau’s work emphasizes the importance of multifaceted analysis and narrative context to revenue projections involving complex legislation.

Finally, one might press further on the TCJA’s ostensible goals and how those goals map onto quantitative post-enactment studies. Gale, Hoopes, and Pomerleau cite simplification as an important aim of the TCJA’s drafters. But conventional simplification metrics operate as something of a mirage for individual taxpayers. Preparation software, such as TurboTax, flattens tax law’s structural complexity and eases computational complexity for many individuals. The direct costs for commercial software did not fall after 2018, and the indirect costs of higher tax bills due to taxpayer-unfavorable errors likely rose. (Application of the tax benefit rule to state-tax refunds under the SALT limitation was notoriously thorny, for example.) Even reducing the number of itemizers offers something of a false hope for simplification. Much of the record-keeping and compliance burden for individual taxpayers lies in negotiations with payroll departments and fringe benefit providers over flexible spending accounts and the like, and these burdens only grew after the TCJA. From this perspective, the TCJA’s enhanced standard deduction is a mote to the beam of myriad fringe benefits associated with employment. Quantifying these antisimplification dynamics is, of course, challenging, and it’s difficult even to arrive at a narrative that accurately represents the problem. Still, a broader conception of simplification would help in negotiations over the TCJA’s fate.

Overall, Gale, Hoopes, and Pomerleau’s article is essential reading for legal scholars of taxation, as well as policymakers, as the TCJA’s myriad sunsets become more salient politically. Regardless of the ultimate legislative outcome, Gale, Hoopes, and Pomerleau’s synthesis provides an excellent structure for normative evaluation of this era in tax reform.

Here’s the rest of this week’s SSRN Tax Roundup:

https://taxprof.typepad.com/taxprof_blog/2024/06/weekly-ssrn-tax-article-review-and-roundup-speck-reviews-the-tcja-sweeping-changes-and-uncertain-leg.html

Scholarship, Sloan Speck, Tax, Tax Daily, Tax Scholarship, Weekly SSRN Roundup | Permalink