Ways and Means lawmakers are turning over every stone to find a way to square the cost associated with their slated extension of Donald Trump’s tax cuts.
The options under consideration are revealing divisions within the Republican Party.
Some House Republicans have floated changing the baseline that the Congressional Budget Office uses to score the economic impact of tax legislation. Using a current policy baseline instead of a current law baseline would offer instant relief on paper.
“It is an intellectual fraud to say, ‘Let’s ignore the actual law, and let’s just keep doing what we’re doing because it’s convenient,” Rep. David Schweikert, a Ways and Means Republican, told NOTUS this week.
Schweikert is openly defying some of the party’s top leaders on tax negotiations.
Sen. Mike Crapo, chair of the Finance Committee is one of many lawmakers (including Ways and Means Chair Rep. Jason Smith) championing use of the current policy baseline. They argue that because lawmakers plan to extend the tax cuts, projections made on this baseline better reflect reality.
“If you’re not changing the tax code, you’re simply extending current policy — you are not increasing the deficit. The bottom line here is that it’s a $4.3 trillion tax increase, not a $4.3 trillion deficit increase,” Crapo said on Fox Business in January.
“He’s absolutely wrong,” Schweikert said of Crapo’s preference for the current policy baseline. “And it’s disingenuous because every projection of U.S. debt is based on the law. It is not based on our feelings that we like what we’re getting today.”
If the Congressional Budget Office were to use the current law baseline, the on-paper revenue loss from a full extension of the Tax Cuts and Jobs Act is estimated to be $4.5 trillion. Under a current policy baseline the on-paper revenue loss becomes zero.
The logical way to understand the budgetary effects of what Congress does, according to Douglas Elmendorf, director of the Congressional Budget Office from 2009 to 2015, is to make projections against what will happen if lawmakers do nothing — in other words, to use the current law baseline.
“Congress would like to extend the expiring tax cuts without drawing attention to the effect of that extension on the size of budget deficits,” he told NOTUS. “I think they need to face up to that and then make the decision based on that — there’s no way for CBO to help cover that up.”
Estimates made using the current law baseline factor in the expiration of the TCJA, so the revenue loss associated with the extension is officially reflected. A current policy baseline would assume the provisions in the TCJA are extended: The losses would already be baked in. Either way, a full extension will result in trillions of dollars in revenue loss; it’s a question of presentation.
“Once you go down that path, I think you get madness because CBO is supposed to be responding to Congress, not predicting Congress’ behavior,” Elmendorf said. “So the current law is the thing that you can identify that Congress has already done. That’s the appropriate starting point for looking at what would the effect be if Congress does something now and it is illogical and will be confusing, detrimental to Congress’ decision-making, if it tries to get CBO to start building certain expiring things into the baseline.”
Playing with the baseline is only one option Republican lawmakers are considering to fix their deficit problem. They are also looking for dynamic scoring estimates outside of those calculated by the Joint Committee on Taxation and CBO. Ways and Means Rep. Claudia Tenney previously told NOTUS she’d like to see scores beyond these agencies because “they’re very partisan and they’re almost always wrong.”
Rep. Michael Cloud, a member of the House Appropriations Committee and House Freedom Caucus, shared similar concerns with NOTUS.
“They [CBO] have a bad history with getting the numbers right,” he said. “So, we’re gonna have to have other entities look at the numbers as well.”
There are outside organizations — like the Tax Foundation and Penn Wharton Budget Model — who also score economic legislation. Elmendorf said it’s unlikely that estimates from such groups would differ sharply from what is produced by the JCT and CBO.
Ultimately, it comes down to whether Congress’ fiscal conservatives will buy into inventive interpretations of how the tax legislation will impact the federal deficit.
“I’d like to see them have it deficit neutral so that it doesn’t just add to the deficit. But I’m concerned they’re going to cut taxes with the reconciliation bill and increase spending with the omnibus bill, make our deficit worse and then we’re going to end up paying a higher interest rate on our debt because the bond markets will say ‘Hm, they’re not serious,’” Rep. Thomas Massie told NOTUS.
Republicans are also reportedly considering extending the cuts for five years instead of 10, Rep. Chip Roy told reporters. It’s another option that would make it easier for House Republicans to find an appropriate amount of offsets as they try to do a number of seemingly incompatible things: extend the Trump tax cuts, which will cost trillions, while still meeting the requirements of the Byrd rule. They’re tasked with delivering on Trump’s campaign promises (no tax on tips, SALT relief, etc.), all of which cost money, while cutting enough spending to please the conference’s deficit hawks, without whom passage of the bill is impossible.
And they have to find enough fat to trim to meet whatever spending goal they set in the budget resolution, which is behind schedule because the conference cannot come to an agreement on what should be in it.
Lawmakers headed to the White House to discuss the future of the budget and reconciliation deal with Trump on Thursday. They returned to the Capitol with work cut out for them. House Majority Leader Rep. Steve Scalise said they’re currently considering how much projected growth to factor in as savings — another disputable metric.
“I just think it’s optics, right,” said Chuck Marr, the vice president for federal tax policy at the Center on Budget and Policy Priorities. “They’re trying to wish away the cost of $4 trillion, right? They’re trying to make it easy.”
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Violet Jira is a NOTUS reporter and an Allbritton Journalism Institute fellow.