Estimations for the cost of extending the Trump tax cuts have gone up every year, and it’s not exactly clear why, according to an analysis by the Committee for a Responsible Federal Budget (CRFB), a Washington think tank.
Extending the expiring provisions in former President Trump’s tax cuts is slated to cost more than $4 trillion by 2028, according to current Joint Tax Committee and Congressional Budget Office projections. That’s compared to around $3 trillion when the law was passed, marking an increase of roughly 33 percent, more than what would be expected from growth in the economy and inflation alone, the report argues.
“While inflation and economic growth explain some of the difference, the costs of the tax cuts as a share of GDP have increased by about 30 percent (0.3 percentage points) since 2018,” budget researchers said.
The reason for the deficit boost isn’t immediately clear, but the CRFB said it could be due to tax evasion on one of the revenue expanders in the 2017 law, as well as abuse on the Trump pass-through deduction.
“Increased investment in equipment and tax avoidance efforts involving [state and local tax] cap workarounds and abuse of the 20 percent pass-through deductions have clearly played a role,” the researchers wrote.
Pass-through entities are businesses structured as partnerships and S-corporations that allow owners to claim their income on their personal tax returns, as opposed to filling out specific business returns.
Last year, the IRS set up an entirely new department in its large business and international divisions to go after uncollected taxes held by pass-throughs and complex partnerships, given an influx in pass-through filings and previous drop in corporate audits.
“The larger compliance effort … will center on adding more attention on high-income and high-wealth individuals, partnerships and large corporations that have seen sharp drops in audit rates during the past decade,” the IRS said in a statement last year.