Balkinization: Taxes, program cuts, and reconciliation: the path forward

Taxes, program cuts, and reconciliation: the path forward

David Super

In two recent posts, I discussed the procedural and political context for efforts to repeal the Affordable Care Act’s revenue provisions and reduce federal spending on health care assistance. This legislation does not, however, exist in a vacuum. It is part of, and interacts with, congressional Republicans’ broader policy agenda centered on steep cuts in taxes and social programs. This post explains how Congress’s procedural rules will shape those initiatives.

In order to preclude a Democratic filibuster in the Senate, Republicans must move their agenda under special rules for “budget reconciliation”. As I explained in more detail last December, reconciliation is possible when Congress approves a concurrent budget resolution for a fiscal year that sets revenue and direct spending targets and instructs specific committees to report out legislation that closes the gap between current law and those targets.

Senate precedent holds that each budget resolution may authorize only one reconciliation bill dealing with direct spending and only one reconciliation bill dealing with revenues; if a reconciliation bill, such as the pending health care proposal, contains both direct spending and revenue provisions, that is the only reconciliation bill allowed. Therefore, as long as the health care bill is in progress, it makes reconciliation procedures unavailable for either additional tax legislation or further reductions in direct spending. This likely explains much of the urgency the Republican leadership has felt to move the highly unpopular health legislation quickly.

The health care legislation has been moving under a budget resolution Congress approved for fiscal year 2017 – the year that is now almost three-quarters over – shortly after convening in January. Once the health care bill is out of the way, Congress can pass a new budget resolution for fiscal year 2018 with reconciliation instructions for other tax and budget cuts, together or separately. (Budget resolutions, like reconciliation bills, are immune from filibusters.)

Thus, as long as Republicans are trying to pass their health care bill, they cannot finalize a budget resolution to authorize reconciliation procedures to pass their tax and programmatic cuts. Conversely, once they give final approval to the 2018 budget resolution, they strip the health care bill of reconciliation status and essentially write its epitaph. (Republicans apparently believe that, if they can win initial Senate passage of their health care bill before finalizing a 2018 budget resolution, any resulting conference agreement would retain reconciliation protection. This far from clear: once Congress has established new targets under a new budget resolution, the old targets no longer apply and hence do not need current law to be "reconciled" with them.)

Although Majority Leader McConnell has expressed a strong desire to move the health care bill through the Senate before the July 4 recess at the end of this week, he really does not have to do so. Many observers believe that Republicans will wait to move their tax and programmatic cuts until after Labor Day – so that Members do not have to defend those proposals to constituents over the August recess – and hence they likely do not need to pass a new budget resolution until then.

In addition to facilitating the enactment of revenue and direct spending legislation, budget resolutions also are important in guiding the appropriations process. When the process moves as intended, Congress approves a budget resolution during the Spring before the start of a fiscal year, setting out the aggregate amount available to be appropriated for discretionary programs. 2 U.S.C. § 632(a). Shortly afterwards the two appropriations committees divide up this amount among their twelve subcommittees (so-called “302(b) allocations”). Id. § 633(b). These allocations determine, for example, how available funds will be divided between programs in the Departments of Labor, HHS and Education, those in the Department of Homeland Security, those in the Departments of Transportation and HUD, etc. Although Members not on the appropriations committees lack any direct role in setting these allocations, at least the allocations give Members some sense of how the funding levels in the first appropriations bills they consider will affect what is left for those at the end.

Without a budget resolution for 2018, and hence without public 302(b) allocations, the leadership is bringing to the House floor the appropriations bills of the subcommittees governing topics that Republicans most favor, such as defense, and giving them generous funding. By the time the final bills come up for consideration, likely to include Labor-HHS-Education and Interior, Environment and Related Agencies, most of the money allowed for discretionary programs will all have been committed elsewhere, forcing deep cuts in those last subcommittees’ bills to avoid automatic across-the-board cuts (“sequestration”).

In enacting their tax cuts, Republicans face a fundamental choice: whether to pay for them. The scope of the revenue losses that both House Republicans and President Trump propose would be difficult to offset under any circumstances, and few Republicans have the stomach to justify raising taxes on one group to pay for cutting taxes on another. The quick and ignominious death of Speaker Ryan’s border adjustment proposal shows that. Thus, a “revenue-neutral” tax bill seems off the table.

Some Republicans have been talking instead about a “deficit-neutral” tax cut bill, one that would be paid for with cuts in direct spending programs. With the Medicare plus the Old-Age and Survivors’ portion of Social Security consuming 64% of direct spending and likely off-the-table, cutting the remaining direct spending programs enough to pay for tax cuts of this magnitude would require eviscerating their core functions. As severe as have been the cuts Speaker Ryan has proposed over the years, those cuts have never reached the level that would be required to pay for this tax legislation.

Alternatively, congressional Republicans could enact tax legislation that is not paid for and adds to the deficit (even after its estimated impact is obscured with the “mandatory scoring” they have ordered the Congressional Budget Office and the Joint Committee on Taxation to employ). Although reconciliation’s protections against filibusters were established to facilitate deficit reduction, that assumption was never written into the Congressional Budget Act. As a result, Republicans have repeatedly used reconciliation for tax cuts that dramatically add to the deficit.

The Congressional Budget Act does, however, prohibit measures that increase the deficit in any year beyond those covered by the most recent budget resolution. 2 U.S.C. § 644(b)(1)(E). Thus, when Congress used reconciliation to enact President Bush’s deficit-increasing tax cuts, it had to put an expiration date on most of them so that they would not increase the deficit beyond the ten-year period covered by the applicable budget resolution. Although congressional Republicans strongly pushed for making those tax cuts permanent when that expiration date arrived – and Democrats had little appetite for being accused of raising taxes by not approving an extension – President Obama and congressional Democrats were able to allow some tax cuts for the very wealthiest people to expire as part of a budget deal with Republicans.

Seeking to protect their deficit-expanding tax cuts for as long as possible, some congressional Republicans have suggested extending the period covered by the budget resolution from ten years. Budget resolutions have covered ten-year periods for several decades because both parties recognized that projections beyond that range are too rough to allow coherent budgeting. But the assumption of ten-year budget resolutions, like the assumption that reconciliation was only for deficit reduction, was not written into the Act. So if Republicans decide to pass a fifteen-, twenty-, or even twenty-five year budget resolution, they apparently can use reconciliation to enact tax cuts that increase the deficit by an unlimited amount during that period. One imagines that, as soon as such legislation is signed, they will go back to proclaiming that budget deficits are robbing our children and need to be brought down with spending cuts right away.

Even if Republicans do not decide to pay for their entire tax bill with programmatic cuts, they appear likely to include reconciliation instructions to several committees, requiring them to report out legislation that would slash programs within those committees’ jurisdictions. Committees rarely disregard reconciliation instructions because their chamber’s budget committee can propose budget cuts to reach the reconciliation instruction if the committee of jurisdiction does not.

Looming over all of this is the statutory debt limit, which the federal government appears likely to reach some time between early September and early October. With many Republicans having won seats after attacking Democrats for voting to raise the debt limit, they are loathe to vote to raise it themselves (although not reluctant to vote for tax legislation that will make further increases in the debt limit necessary). Enough Republicans seem likely to play “chicken” with the debt limit that it likely will need Democratic votes to pass. To date, the Democratic leadership has insisted that they will only support a “clean” debt limit bill, one lacking any other substantive provisions. Many influential Republicans, however, are insisting that any debt limit bill include substantial spending cuts. In the end, a “clean” debt limit bill passing with mainly Democratic votes seems most likely, but doing this at the same time deficit-raising tax legislation – and painful budget cuts – are moving could harden positions and increase the risk that the two sides miscalculate. By effectively giving Congress permission to put the debt limit off until September, the Trump Administration has left very little time for any missteps to be corrected.

Posted 8:36 AM by David Super [link]