The enactment of the Republican tax legislation is clearly a
watershed substantively, politically, fiscally, and procedurally. It puts an end to the “noxious but
ineffective” characterization of the new Administration and Congress, a myth
that already had little credibility with anyone who follows health
care, the
environment,
financial
regulation, judicial appointments, or other
fields. It also cuts a huge hole in the
federal budget at a time in the economic cycle when consolidation and shrinking
deficits are more in order. And it
dashes the fairy-tale fantasies of those that imagined that Republican
“moderates” would save us from the new regime’s worst excesses.
With the tax
legislation’s enactment coinciding with the end of the calendar year, this
seemed like a good time to look forward.
This post addresses the immediate future: what 2018 is likely to bring us in
Congress. A subsequent post will ponder
how the extraordinary enactment of the tax legislation could, and should,
change the legislative process.
The Republican
leadership did an impressive job of postponing potentially distracting issues
so that they could move the tax bill. A
great many of those will now reassert themselves with a vengeance, driven
either by the exigencies of governance or the demands of one or another part of
the Republican coalition. For example, a
range of industries have been quietly advancing extreme
anti-environmental
legislation
that could irreversibly
transform
this country.
Fiscal policy
again figures to be important. Before
leaving for Christmas, Congress passed another continuing
resolution, extending appropriations for government functions lacking
permanent funding forward through January 19, 2018. The idea is that Congress and the
Administration will negotiate full-year funding levels by then, allowing
enactment of an omnibus appropriations bill for the fiscal year that started
October 1. In theory, this omnibus
appropriations bill could become the vehicle for moving legislation on several
other pending issues, including relaxation of the “sequestration” caps on discretionary
spending, the reauthorization of the Child Health Insurance Program (CHIP), and
protection of “Dreamers” left exposed to deportation by President Trump’s
rescission of the Deferred Action for Childhood Arrivals (DACA). In practice, these plans may well fall apart.
Republican and
Democratic negotiators reportedly have reached a tentative agreement on the
amount by which they would raise the caps on domestic and defense discretionary
funding this year and next. Since the
sequester first struck in 2013 under the Budget
Control Act of 2011, a widespread recognition that the caps it imposes are
unworkable has driven repeated bipartisan agreements that raised those caps and
offset the costs with cuts in mandatory, or entitlement, spending.
The problem this
year is that negotiators remain far apart on what those mandatory offsets would
be. The relatively painless cuts have
long-since been enacted. With
Republicans seeing this as the year to radically reduce entitlement programs
and Democrats preparing for a broad campaign to defend those programs,
agreement on offsets may prove elusive.
If so, Congress may simply pass a year-long continuing resolution that
continues each program’s funding at last year’s levels with a substantial
across-the-board reduction to bring the totals under the sequester caps. Widespread budget cuts coming so shortly
after the tax legislation seem unlikely to improve the latter’s popularity even
if they are technically unrelated.
Finding spending
offsets also appears likely to be an obstacle to extending CHIP. Although its cost pales relative to that of the
tax law, congressional Republicans have
insisted that it cannot be renewed without offsets in other domestic
spending.
Finally, offsets –
in addition to the Administration’s hostility toward immigration – will be a
major obstacle to granting legal status to Dreamers. On December 15, the Congressional Budget
Office (CBO) estimated that providing legislative relief for the Dreamers would
cost $26.8 billion over ten years, overwhelmingly in health insurance subsidies
and the earned income tax credit (EITC).
The Administration and Republicans in Congress will surely demand
offsetting domestic spending cuts for these costs – in addition to whatever
policy concessions, such as expanding the border wall, they extract. Finding domestic spending offsets for both DACA
restoration and an expensive
border wall will be extremely difficult, all the more so if this is on top
of spending cuts to pay for sequester relief and CHIP reauthorization.
On any or all of
these issues, Democrats could try to reject the framework that domestic
spending – even
continuations of existing programs – requires offsets but that massive
upper-income tax cuts do not (and that the Pentagon’s budget is off-limits in
any event). Doing so, however, would
likely require a willingness trigger a partial government shut-down and the
political skills to persuade the electorate to blame Republicans for that
shut-down. Congressional Republicans
have repeatedly burned themselves in similar maneuvers and many Democrats are
on record opposing government shut-downs for any reason.
One add-on that
does seem likely to appear in any appropriations legislation for the rest of
the year is a cancellation of the mandatory spending sequestration that the tax
legislation triggered. The pay-as-you-go
provisions in federal budget process law require automatic cuts in certain
entitlement programs if Congress cuts taxes, or raises mandatory spending,
beyond levels in current law without adequate offsets. The tax legislation runs
radically afoul of these rules, meaning that the Office of Management and
Budget (OMB) is required to order automatic cuts. Although many low-income programs are exempt
from this sequestration, Medicare would be cut 4% and some other programs, like
administration of Pell Grants, would
be zeroed out completely. (This
sequester of mandatory programs for pay-as-you-go violations is distinct from
the sequester of discretionary spending that the Budget Control Act imposed in
2013.) Democrats do not want these cuts
on the merits, and Republicans do not want to be blamed for them, so
legislation waiving this sequestration should face little difficulty.
Looking farther
ahead, House Republicans have made clear that they now intend to pursue
entitlement cuts to offset some of the cost of the tax legislation. They often frame this as “welfare reform”,
which would purge millions from Medicaid, SNAP (food stamps), housing
assistance, and other anti-poverty programs in part with phony “work
requirements.” Speaker Paul Ryan
would like to move these measures as another reconciliation bill, immune from
filibuster and requiring only a bare majority in the Senate. The tax legislation was enacted as the
reconciliation bill for the current fiscal year, 2018. Congressional Republicans can pass a budget
resolution for fiscal year 2019 to provide reconciliation protection for
entitlement-cutting legislation.
Remaining to be seen is whether Senate Republicans share their House
counterparts’ enthusiasm for attacking Medicaid, SNAP, disability benefits, and
even Medicare in the wake of passing unpopular upper-income tax cuts.
Although the news
media is abuzz about the Trump Administration’s supposed populist turn in
proposing infrastructure legislation, this is difficult to take seriously. Although the President’s proposal apparently
depends heavily on funding from state and local governments and the private
sector, it would still carry a substantial price-tag. Congressional Republicans will not move such
legislation without offsets for the cost and staunchly oppose revenue
measures. Congressional Democrats seem
unlikely to support Medicare or food stamp cuts to pay for an infrastructure
proposal that includes selling off public assets to private investors at
bargain prices. And most congressional
Republicans appear to prefer to allocate any entitlement savings they can
extract to deficit reduction or financing tax cuts (which increasingly appear
indistinguishable).
Fitting in here
somewhere will be attention to the statutory debt limit. CBO estimates that it will need to
be raised by late March or early April.
Historically, many Republicans (who happily vote for budget-busting tax
legislation) turn deficit-hawk when it comes time to raise the debt limits,
forcing Republican leaders to pass measures primarily with Democratic
votes. This fall, Democrats repeatedly
warned Republicans not to assume that Democrats would blithely vote for the mammoth
debt limit increases to accommodate the tax bill. If Democrats stand their ground, Republicans may
have great trouble rounding up enough votes to pass a debt limit measure on
their own; if they can, it would only be through stacking the measure with
entitlement cuts (which could cause Senate Democrats to prevent the measure
from coming to a vote). The bruising
effort to secure far-right Republican votes for a bill that can pass the Senate
could well exhaust the political capital of House Speaker Ryan just as it did
that of his predecessor, John Boehner.
Optimists can hope
that this dilemma will drive our radically non-conformist president to do what
President Obama could
not bring himself to do: declare the
debt limit unconstitutional and direct the Treasury to ignore it. As we have just seen, the debt limit provides
absolutely no traction against budget-busting legislation, but it does cause a
great deal of mischief: distracting the
public from the true sources of fiscal problems, empowering irresponsible
lawmakers willing to gamble with the nation’s economic health, and unjustly
embarrassing those willing to cast the hard but necessary votes to raise the
limit and prevent a crisis.