Tax and Welfare Bill Reveals Washington’s Chronic Debt Delusion

David Ditch /

Among the major pieces of legislation up for grabs in Congress is the inappropriately named “Tax Relief for American Families and Workers Act,” which the powerful House Ways and Means Committee passed Jan. 19 with bipartisan support.

The bill could receive a House floor vote as soon as this week, although there is considerable debate within the GOP caucus.

A Republican-led committee’s producing a “tax relief” package might seem like good news for conservatives. However, important details mean it’s not just flawed, but also the latest example of Washington making the nation’s debt crisis even worse.

The package contains a combination of corporate tax breaks and other provisions affecting individuals, with changes to the child tax credit as a central point of debate.

To offset the cost of the tax credits—91.5% of which is spending done through the tax code and not tax cuts—the bill targets the employee retention credit.

That tax credit is a relic of the COVID-19 pandemic, and its continued existence is both a scam itself and a target for scam artists. Technically, it already has expired, although the IRS continues to receive amended tax returns claiming the credit, causing its cost to explode far beyond initial estimates. Closing the window for retroactive claims ought to be common sense.

Unfortunately, the irresponsible approach that Congress is taking would lock in the scam tax credit’s debt increase and merely change who gets to “benefit” from the cash, rather than just doing the responsible thing and ending the budget-busting scam.

This sort of shell game is business as usual in Washington.

Sometimes, politicos decide to use gimmicks such as phony spending cuts to claim that legislation is balanced or will reduce the deficit.

Other times, there will be passionate demands that legislation is “too important” to budget for, and that worrying about the debt must take a back seat to:

The end result: a $34.1 trillion gross national debt, trillions of dollars of inflationary deficit spending every year, and higher interest rates that are hammering family budgets.

Another problematic part of the tax bill is the number of provisions that expire after just a few years. From an economic perspective, short-term tax cuts are far less effective than long-term tax cuts and reforms when it comes to encouraging job-creating business investment.

Accordingly, the current tax package, due to its retroactive and temporary nature, would have little to no positive effect on economic growth, especially after accounting for inflationary deficit effects.

Fueling the fire of inflation, tens of billions of dollars in “tax” benefits would be in the form of retroactive handouts to these companies. Unless the bill also creates a time machine, it’s impossible for retroactive credits to alter past investment decisions.

Finally, as is often the case, legislators are using children as a shield to deflect criticism of policy flaws, even though children face the heaviest cost of Washington’s adding to the debt.

Instead of proposing true child tax credit reform, 91.5% of the cost goes toward the “refundable” Additional Child Tax Credit—a welfare program that pays money out as opposed to reducing income tax liabilities.

This backdoor welfare expansion also would weaken work requirements. In addition, the bill retains—and puts more money on the table for—a preexisting loophole that can be exploited by illegal immigrants, since individuals can avoid using a Social Security number when filing for the credit.

Rather than rushing to vote on the tax package in its current form, House Republicans should produce a bill that adheres to conservative principles and not simply turn the employee retention credit scam into yet another gimmicky “pay-for.”

Getting rid of the employee retention credit outright would be the first significant deficit-reduction action in many years and potentially signal that the nation’s leaders are willing to do something about our unsustainable federal finances.

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