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Please Congress: Make Fiscal Sanity a Priority


January 26, 2024

Sometimes I don’t understand Republicans in the House of Representatives. When they are threatening government shutdowns, they make a great show of saying their highest priority is getting a handle on out-of-control federal spending, reducing the deficit, and bringing down our national debt.

And yet, when an obvious opportunity falls in their lap to reduce federal spending, cut the deficit, and reduce long-term debt—they make a deal with Democrats to spend it on cash outlays to even non-working families and poorly structured tax breaks for business that would do little to generate future growth.

In new legislation to the House floor next week, both parties have seemingly prioritized delivering subsidies to their favored interest groups over the overall fiscal health of our country by pairing an expansion of the child tax credit with the extension of expired tax cuts. How do they pay for this new spending and tax relief? By taking money from the pandemic-era Employee Retention Credit, which is rife with fraud and abuse. Instead of eliminating this program that everyone agrees is a massive waste and banking the savings (a perfect opportunity to reduce the deficit), members of Congress have simply redirected the money toward things donors from both parties want: Democrats get to expand the IRS’s role as a welfare agency and Republicans can satisfy business interests. And who loses out in this grand bargain? Everybody concerned about too much federal spending—that is, most Americans. It’s one thing to reform the tax code to deliver more growth in the long-term. But the tax proposals are only temporary, set to expire in 2025, and retroactive. That means they will largely reward firms for past behavior instead of incentivizing future decisions that will generate more economic growth.

Even worse is the proposed child tax credit expansion, which would let parents claim eligibility based on current or prior year of earnings. This loosening of income requirements would finance less work by low-income parents according to analysis by AEI scholars. Furthermore, as Heritage’s Robert Rector rightly points out, it’s impossible to prevent this money from going to parents in this country illegally—something I know from personal experience running safety net programs in New York. Because of declines in labor force participation, our economy is missing over 2 million workers compared to pre-pandemic levels, driven by an ageing workforce and overly generous federal pandemic aid, and every additional dollar available without working from the government reduces the employment incentives.

Instead of brokering this deal that exchanges bad business breaks for the expansion of welfare programs, Republicans should take this opportunity to fix the broken and corrupt Employee Retention Credit. Eliminating this program and banking the savings would save at least $78 billion (and some analysts say more). If House Republicans are serious about cutting wasteful government spending and reducing the debt, they have an opportunity to practice what they preach.