Balkinization: What the New Congressional Budget Resolution Means

What the New Congressional Budget Resolution Means

David Super

The House of Representatives yesterday approved the Senate-passed Concurrent Budget Resolution for Fiscal Year 2018. The narrow margin – 216-212 – reflected Republican anxieties both about the impending tax legislation’s consequences for the deficit and about some of the upper-middle-class tax preferences that Republican leaders have discussed trimming to reduce the net cost of the measure. These include the deduction for state and local taxes (SALT) and the exclusion for contributions to 401(k) and similar retirement plans. Because much of the popular media coverage has been rather muddled, this seems a good time to set out where this process stands.

Budget resolutions are not law – they are concurrent resolutions not submitted to the President for signature – but rather allocate important procedural advantages within Congress, chiefly in the Senate.

Growing partisanship, fractures within each of the parties, and the rise of multi-year budget deals have robbed annual budget resolutions of much of the importance they once had in setting the nation’s fiscal priorities. At present, its main function is to authorize “reconciliation” legislation, which are bills that can move through the Senate immune from filibusters and pass with a bare majority. Budget resolutions contain a great deal of additional material, but most of it is not binding. Thus, for example, the language in this budget resolution assuming reductions in the SALT deduction does not commit Congress to enact that into law.

Last winter, Republicans passed a budget resolution for Fiscal Year 2017 that authorized repeal of the Affordable Care Act through reconciliation but ultimately were unable to secure the 50^th vote needed for passage. That resolution expired with the end of Fiscal Year 2017 at the end of last month.

This new budget resolution authorizes reconciliation legislation to cut taxes any time between now and September 30. This budget resolution also allows this reconciliation legislation to authorize leasing of the environmentally delicate coastal plain of the Arctic National Wildlife Refuge for oil and gas drilling.

The House and Senate versions of the Fiscal Year 2018 budget resolution differed in several important respects. In particular, the House version also would have given several committees with jurisdiction over important anti-poverty programs reconciliation instructions to propose deep cuts in those programs to pay for part of the cost of the tax legislation. Theoretically, if these committees failed to report out such legislation, the budget committees could have written it for them and sent it directly to the floor, where only a bare majority would be required to pass in the Senate.

The Senate leadership concluded that mandating deep spending cuts at the same time would needlessly complicate passing upper-income tax cuts: even the draconian cuts the House envisioned would only offset a small part of the cost of the envisioned tax legislation, leaving congressional Republicans still subject to attack for fiscal irresponsibility while adding vulnerability for playing “reverse Robin Hood”. Believing that senators were set on this position, the House leadership opted simply to bring the Senate version up for a vote in the House rather than attempting to call a House-Senate conference committee.

The final budget resolution therefore does not mandate immediate budget cuts. This may seem like good news, but it only postpones the inevitable: tax cuts of anything like the magnitude congressional Republicans are proposing are fiscally unsustainable and will inevitably lead to even deeper cuts to social programs than those that occurred under bipartisan deals during the Obama years. As soon as the tax cuts are enacted, the flock of deficit hawks currently suffering an epidemic of laryngitis will recover and demand “shared sacrifice” to close the resulting hole. Republicans have consistently opposed any net tax increases to reduce deficits, and the most that most Democrats have advocated has been an even split between spending cuts and revenue increases. Even if the Democrats have miraculous success in the next two elections, this still spells deep cuts in vital domestic programs. (Anecdotes of dubious spending of course can still be found, but any substantial, politically feasible excesses in domestic spending were eliminated years ago to pay for earlier tax cuts or in response to sequestration.) The Center on Budget and Policy Priorities has written an informative set of papers illustrating the kinds of spending cuts this tax legislation is likely to yield.

Although having a budget resolution containing “reconciliation instructions” protects Republicans from filibusters and from points of order for adding to the budget deficit during the ten years it covers, it does not eliminate all significant procedural problems with tax cuts. In particular, 2 U.S.C. § 644(b)(1)(E) creates a point of order against any legislation that would increase the deficit during the decade following the period covered by a budget resolution. Because the Act assumes that many rules affecting taxes and direct spending programs that exist in the final year of a budget resolution will continue, the only way to avoid a deficit increase in the second ten years is to sunset the tax cuts before the end of the first ten years. Congressional Republicans did this in 2001 and 2003 with major tax cut legislation and largely won the resulting game of chicken with the Obama Administration when those cuts were due to expire.

Although some interest groups and Republican Members continue to denounce expiring tax cuts – claiming that expiration dates will deny business the certainty to make investments – it appears Republicans will have little choice. At most, they may be able to make permanent a set of tax cuts that lose the same amount of revenue that their tax increases would supply. Thus, interest groups lobbying for making their favoring tax cut permanent are pushing back hard against those trying to eliminate the SALT or 401(k) revenue-raising provisions of the legislation.

Another problem Republicans face is that the ideas they have released would lose far more than the $1.5 trillion over ten years that the budget resolution allows. They likely will close part of this gap by phasing in some of their cuts to conceal the cost during the ten years covered by the budget resolution.

Thus, we could have provisions that slowly phase in, jump up to full force in the ninth year, and then are repealed completely in the tenth. How this is supposed to stimulate business activity is far from clear.

Part of the solution we are likely to see involves various forms of “creative accounting.” They may include provisions allowing the affluent to pre-pay, at a steep discount, taxes that would otherwise become due outside of the ten-year budget window, moving revenues into the accounting period while actually increasing the fiscal irresponsibility of the legislation. In addition, congressional Republicans have directed the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) to estimate tax legislation with “dynamic scoring”: the unproven, indeed largely discredited, supply-side theory that lower tax rates spur increases in economic activity and largely pay for themselves with increased revenues from taxing that activity. They also have installed leadership at both organizations that is receptive to their agenda.

Yet Republicans seem to be trying to have it both ways on dynamic scoring. On the one hand, they are claiming that they actually will not be increasing the deficit by $1.5 trillion because dynamic effects will eliminate most or all of the deficit increase. Yet they also seem to be contemplating various schemes to reach the $1.5 trillion figure only by dynamically scoring a much larger revenue loss. One possibility is to sideline CBO and JCT completely and have the Treasury Department estimate the effects of this legislation using the kinds of outlandish economic assumptions previously seen only from the Heritage Foundation. Getting the Senate parliamentarian to accept this unprecedented contortion would be challenging, but she does serve at their pleasure.

One side note illustrates the cynicism of claims that this legislation will stimulate the economy. Roughly three-quarters of all non-military infrastructure spending in this country is financed by state and local governments. Reducing or eliminating the deduction for state and local taxes will make raising revenues to pay for those activities considerably harder politically. Bond ratings agencies have made clear that they regard any impediments to state and local taxation as substantially increasing the risk of bonds and will downgrade future issues accordingly. Thus, this legislation seems on-track to significantly depressing needed, economically desirable, and job-creating domestic infrastructure spending.

The tax legislation’s prospects are unclear. This legislation is a Republican priority, not by any means just a Trump priority, so even Members that are becoming skeptical of the President are likely to support it. By including drilling in the Arctic Refuge in the plan for the bill, the leadership all but guaranteed the support of Sen. Lisa Murkowski (R-AK). Although some Members feared that repealing the Affordable Care Act could provoke a voter backlash, virtually all Republicans expect that the failure of this tax legislation would cause important donors to sit out the coming election campaign and likely support challenges to the party leadership in both chambers. The budget resolution passed narrowly in the House, but the leadership reportedly gave several Members permission to vote against it to assuage constituents after amassing sufficient votes for passage. And Republicans have made clear that they intend to move this legislation very, very fast, before opposition has time to organize. Finally, the deadline for raising the debt limit, which Democrats had hoped might give them leverage against tax cuts that would swell the National Debt, is now not expected to occur until the Spring.

Posted 8:56 AM by David Super [link]