Ain't them Republicans something?

They just gifted to American businesses (corporate and pass-thrus) a $1.8 trillion tax cut over the next decade---most of it permanent.

And, seemingly, it was as easy as pie to accomplish. That's because beforehand they had written themselves the equivalent of a parental note to the teacher saying it was OK to borrow $1.5 trillion of the cost.

This meant, in turn, they didn't have to squeeze K-Street too hard for offsetting "payfors". And off-setting spending cuts weren't even on the table.

Moreover, the fiscal ease of it was aided immensely by the fact that they wrote the big revenue-loss hogs on the individual income tax side in disappearing ink---otherwise known as a "sunset".

For instance, the GOP pols have been talking up a storm about doubling the standard deduction to $24,000 per family and raising the child credit from $1,000 to $2,000. Absolutely pro-working family, that. Woo-woo!

And, yes, while these provisions are operative, they will provide some semblance of tax relief. Among the middle quintile of taxpayers ($55k-$95k), 86% of filers under the Senate-passed bill will get an average tax cut of $1,250 by 2025.

At the same time, the principle measures which deliver this cut are mighty expensive. The child credit will cost $78 billion that year, the new modified seven brackets reduce current law revenue by $166 billion and the doubled standard deduction costs $102 billion----for a total cost of $346 billion in 2025.

Furthermore, that huge revenue drain is only partially off-set by broad-based "payfors" in the form of the repealed $4,050 personal exemption which "saves" $171 billion and the short-sheeting of the tax bracket indexing mechanism to protect against inflation, which generates $20 billion.

Here's the thing, however. The $155 billion net cost in 2025 of the five big provisions which broadly effect middle-income taxpayers and deliver the aforementioned $1,250 per household cut, morph into a $35 billion tax increase in 2027 because all these provisions disappear into the sunset save for the bracket indexing squeeze.

So this $190 billion swing toward the black at the end of the 10-year budget envelope helps shoe-horn the bill into the $1.5 trillion deficit allowance.

But it also gives rise to a patent political absurdity. Namely, the 20% corporate rate is made permanent and provides $171 billion of annual relief in 2027---even as taxes on 150 million household filers actually rise by a net $35 billion that year.

If you think that will actually transpire, we have some bargain-priced beach-front property in Tennessee that you might want to look into. And if you think Washington will resolve that staggering political imbalance by repealing the 20% corporate rate, we will throw in some choice wetlands in Arizona!

That is to say, if the 20% corporate rate gets signed into law they will never walk it back because K-Street, Wall Street, and the business PACs own the tax-writing process, as the Senate bill so undisputedly demonstrates.

What that means, of course, is simply that we will have another "fiscal cliff" after 2025 like that of 2013. Back then, the "temporary" Bush tax cuts expired, threatening to monkey-hammer US households with a $500 billion annual tax increase. That threat was removed, of course, when the Bush cuts were permanently extended with overwhelming bipartisan support at a long-run budget cost of trillions.

Needless to say, the same dynamic will be extant this time, as well, meaning that the true cost of the Senate-approved bill is at least $2.2 trillion over the next decade when the sunset gimmick on the household tax cuts is removed and the cost of debt service is added in. And it also means that beyond 2027, the annual cost will approach the same $500 billion per year range that loomed during the last fiscal cliff episode.

Yes, we recognize the proper angle here is that lower income taxation is always and everywhere to be preferred and that the matter at hand is to cut spending and reform runaway entitlements.

We couldn't agree more in principle, but in the realm of fact we are certain the GOP will do absolutely nothing about the big entitlements (social security, Medicare, and Medicaid); and when it comes to spending for defense, veterans, law enforcement, border control and even the $150 billion annual Federal budget for "infrastructure"(highways, mass transit, airports, waterways and ports, sewage treatment plants etc.), the direction will be up, not down.

So we dwell on the Senate tax bill's 2025 fiscal cliff as an empirical matter because we think the total cost of the bill is much greater than $2.2 trillion sans the phony sun-set. Indeed, in the interim years, the run-up in the public debt will far exceed the 10-year total because the bill is so front-loaded and tricked-up.

In fact, the bill passed in the wee hours Saturday morning is riddled with additional gimmicks and non-starters on the "payfor" front. For instance, the 20% corporate AMT (alternative minimum tax) meant nothing to most companies at the 35% statutory rate. Even after exploiting every deduction, deferral, and dodge that high priced tax planners could concoct, most companies faced an effective rate above 20% and therefore didn't have AMT liability.

Still, thanks to effective lobbying by the small phalanx of corporations actually subject to the AMT, it was repealed by the Senate Finance committee bill at a cost of $40 billion over the decade.

Yet at the last minute during Senate floor consideration the corporate AMT was reinstated so that the $40 billion could be used to help fund Senator Collin's restoration of the property tax deduction (capped at $10,000) at a cost of $148 billion over 10 years, among others.

Needless to say, all of the industries in the chart below which were already at or below the 20% effective rate----especially technology and pharmaceutical companies, which make heavy use of the R&D tax credit against regular tax---discovered over the week-end that they had been shanghaied, and that many of the heaviest R&D credit users---Apple, Microsoft,  Pfizer etc---could end up with tax increases.

For that reason, the corporate AMT will be back in the repeal column and the $40 billion will be gone even before the House/Senate conference convenes its first meeting.

Likewise, as written, the bill provides for 100% first-year depreciation through 2023 at a cost of $130 billion. That may temporarily lead to more investments in robots and state of the art warehouse equipment, but it will also fund a lot of corporate aircraft and other follies.

But what it will not do is sunset in 2023---nor will it generate a revenue gain of $30 billion in the out-years when depreciation allowances are purportedly scheduled to revert to current law.

Similarly, the Senate's midnight special continues to include the $318 billion "payfor" owing to the repeal of the individual mandate and fines under ObamaCare.

In a word, we don't buy it because the CBO analysis actually says the provision will result in a loss of $50 billion in ACA fines over the decade, which does make sense, but that this will be offset by $370 billion of reduced Medicaid costs and lower tax credits claimed by ObamaCare exchange participants.

As we said the other day, come again?

The CBO analysis is tantamount to saying that the government is forcing people to take welfare (Medicaid) and free stuff (tax credits) from the ObamaCare exchanges---who don't want it or don't need it.

Needless to say, we'll take the unders on the $370 billion of savings----even as we applaud the Senate for repealing one of the more odious features of ObamaCare.

Our larger point is that the GOP tax bill will put the Federal deficit in the $1 trillion-plus category beginning in FY 2019, as we shall demonstrate in Part 2. And it will remain in that zone through the middle of the next decade waiting for two more giant, red-ink spewing shoes to drop.

To wit, the new Fiscal Cliff being structured into the GOP tax bill will arrive in 2025, while the next recession is virtually certain to arrive considerably before that date. It would be the height of folly, in fact, to otherwise bet on the prospect that the US economy will go upwards of 200 months without a recession and the resulting plunge in Federal receipts.

Stated differently, in the name of imaginary growth---which will not happen from the $1.8 trillion of business cuts as we will also elaborate in Part 2---the GOP is driving straight toward a fiscal calamity.

You would think they might sense that already---since it appears the best they can agree to on Friday's CR expiration and threatened government shutdown is a only a two-week extension.

And perhaps they have also noted that November clocked in as month #101 in the current expansion, making it the third longest in US history and not far behind the 118-month expansion of the 1990s under far more beneficent circumstances.

We mention this because as of November 30, the net Federal debt was up by $880 billion from just one year ago!

That's right. At what the Fed alleges to be "full employment" and what we believe to be a business cycle that is exceedingly weak and long-in-the-tooth, the Federal government's fiscal posture has deteriorated so badly that borrowing is already approaching the $1 trillion annual level.

Yet now the GOP is on the cusp of opening up a new torrent of red ink for tax cuts, defense spending and much else.

It's a fiscal calamity in the making by any other name.