Politics

Fiscal Hawks Warn GOP Spending Plan Must Reject ‘Budget Gimmick’ That Could Add Trillions To Deficit

(Flickr/Architect of the Capitol)

Conservative fiscal hawks are slamming an untested accounting tactic being pushed by some GOP lawmakers that would allow Congress to borrow trillions of dollars without recognizing the impact in a forthcoming tax and spending bill.

President Donald Trump has asked congressional Republicans to extend tax cuts enacted during his first term that are set to expire at the end of 2025 as part of his first-year legislative agenda. Disagreement between fiscal hawks and other GOP lawmakers about how to score the tax cut extension in a spending bill is hugely consequential to whether Congress will be able to make the 2017 Trump tax cuts permanent — a top priority for the president — and have enough room within strict budget constraints to enact Trump’s other tax priorities first proposed on the campaign trail.

“We’re seeking permanent income tax cuts all across the board,” Trump said during his joint address to Congress on March 6. “And to get urgently needed relief to Americans hit especially hard by inflation, I’m calling for no tax on tips, no tax on overtime, and no tax on Social Security benefits for our great seniors.”

Congressional Republicans’ debate about which accounting tactic to employ to score an extension of the Trump tax cuts threatens to delay passage of the president’s first-year agenda through the budget reconciliation process, which allows Senate Republicans to bypass the filibuster and steer a budget bill through the upper chamber by a simple majority vote.

Members of the Senate Finance Committee are scheduled to meet with Trump at the White House Thursday to discuss implementing the president’s tax priorities in a budget framework currently being negotiated between both chambers.

Top finance Republicans are pushing for a “current policy baseline” approach to officially score a tax cut extension, which would assume extending the expiring tax cuts does not cost anything because they are already current policy. Failure to extend the Trump tax cuts will result in a tax increase for most U.S. households in 2026.

“If you’re not changing the tax code, you’re simply extending current policy — you are not increasing the deficit,” Senate Finance Committee chairman Mike Crapo, a proponent of the current policy baseline, told Fox Business’ Larry Kudlow in January. “The bottom line here is that it’s a $4.3 trillion tax increase, not a $4.3 trillion deficit increase.”

Employing a current policy baseline is facing outright skepticism from fiscal hawks and deficit-concerned budget experts who have panned the scoring approach as a “budget gimmick” that obscures the more than $4 trillion price tag estimated by the Congressional Budget office for renewing the expiring tax cuts for ten years.

“[T]here has never been such a flagrant attempt at disguising the deficit impact of extending trillions in temporary tax cuts as the Senate would accomplish if it succeeds in pushing a current policy baseline as part of reconciliation,” Romina Boccia, director of budget and entitlement policy at the Cato Institute, told the Daily Caller News Foundation in a statement.

“Worse, for Republicans to abuse the budget baseline to pass tax cuts without acknowledging their deficit impact will open the door to Democrats doing the same, but with temporary spending increases that will become permanent features of the budget,” Boccia continued.

The House budget resolution, which passed on Feb. 25 by one vote, used a current-law baseline, which assumes that expiring tax cuts lapse as scheduled and future extensions count as a cost. The tax and spending plan unlocked $4.5 trillion in deficit increases over a ten-year period, which is likely not enough room to make the Trump tax cuts permanent and enact the president’s other tax priorities.

Under that budget blueprint, if congressional Republicans fail to identify $2 trillion in spending cuts, the deficit increase ceiling to enact tax priorities would be reduced to $4 trillion.

The House budget resolution would add between $2.8 trillion and $3.3 trillion to the deficit over a decade, according to the nonpartisan Committee for a Responsible Budget.

Senate Republicans, who have passed a competing resolution of their own, have suggested the House resolution will have to be rewritten to allow for tax cut permanence.

“The bill that they [the House] sent over has to be modified significantly or it won’t fit what all of us want to see get done,” Republican South Dakota Sen. Mike Rounds told reporters Wednesday. “We want permanency to the Tax Cuts and Jobs Act. We want permanency there. It will require the Senate to modify that bill.”

Employing a current policy baseline is the easiest route for congressional Republicans to make the 2017 Trump tax cuts permanent.

Fiscal hawks also argue that using the current policy baseline to officially score an extension of the Trump tax cuts would allow GOP lawmakers to dodge steep spending cuts to pay for an extension since it would cost $0 under that accounting tactic.

“It’s [the current policy baseline] designed to reduce pressure to make spending reductions,” California Republican Rep. Tom McClintock told the DCNF in an interview. “Stupid spending is what drives taxes. It drives debt. It drives inflation. So any budget gimmicks that attempt to reduce the pressure for spending reductions, I’m very scared [of].”

“It obscures the true cost of policies that will increase deficits and debt, making future tax cuts without commensurate spending cuts more likely,” Boccia told the DCNF.

Using the current policy baseline to officially score the Trump tax cuts also appears to face considerable opposition in the House. Speaker Mike Johnson will need near unanimity to steer a tax and spending bill through his chamber given House Republicans’ current 218-214 majority.

“If it’s used as a gimmick to alter the [budget] framework to decrease the amount of deficit reduction, then I think it’s going to get a cold reception from enough House members that would threaten the reconciliation package,” House Freedom Caucus Chair Andy Harris told the DCNF. “We cobbled together a carefully-crafted compromise that made it to 217 votes. I think anything that deviates too widely from that framework will just not succeed in the House.”

Deficit-concerned budget experts are also warning that breaking precedent to employ the current-policy baseline in a tax and spending bill would give Democratic lawmakers justification to create or expand new entitlement programs and claim they have no additional deficit impact the next time they are in power.

“If Republicans justify tax cut extensions by assuming they will continue without cost, Democrats could use the same logic for new or expanded entitlement programs, claiming they have no additional fiscal impact by choosing a more convenient baseline,” Boccia told the DCNF. “This risks turning budget scoring into a political tool rather than an honest assessment of policy costs, further eroding fiscal responsibility in Washington and accelerating national fiscal ruin.

Myles Morell contributed to this report.