On April 10, after a tense overnight period during which about a dozen House Republicans said they would vote against the compromise Congressional Budget Resolution (CBR) that authorizes a Senate filibuster-proof reconciliation bill, the House narrowly approved the Senate-passed compromise budget. The 216-214 vote opens the way for writing a multi-trillion-dollar budget bill that will contain a huge tax package as well as deep spending cuts. Two Republicans joined all the Democrats in voting against the resolution.
As passed by the Senate on April 5 by a 51 to 48 vote, the CBR that the House has now also approved, would impose different spending and tax cut requirements on the House and Senate. The Senate numbers would bind the Senate for purposes of the reconciliation rules that allow the Senate to avoid a filibuster. But the House numbers would remain applicable to the House reconciliation bill writers.
The Senate would work within a spending cut target of a total of $4 billion), although GOP Senators say they would shoot for a much greater level of savings from spending. The House reconciliation bill writers would be required to cut at least $1.5 trillion from federal spending, but would have to hit a $2 trillion target to achieve an authorized tax cut level of $4.5 trillion. Anything short of $2 trillion would lower the tax cut authority.
The Senate CBR provides $1.5 trillion for tax cuts, but that number excludes the cost of extending (making permanent) the expiring tax rules. That is because a tax package would use current policy as the baseline against which to measure the cost of extending (making permanent) expiring individual and estate tax rules. That would, for accounting purposes, zero out the estimated $3.8 to $4.5 trillion cost of extension. The House tax reconciliation instructions use a current law baseline, meaning the $4 trillion cost of extension must be either offset or fit within its overall $4.5 trillion (or less, if spending cuts fall below $2 trillion) tax cut authority.
The Budget Committees will assemble the reconciliation bill by combining individual pieces written by the committees of jurisdiction. That means the House Ways & Means and Senate Finance Committees will write the tax package. Other committees, like the House Energy & Commerce Committee with jurisdiction over the hotly-controversial Medicaid cuts issue, will write other (largely spending) elements of the reconciliation bill.
In addition to provisions to extend expiring individual and estate tax rules—including whether current policy or current law baseline is used, the tax writers must deal with such GOP (Trump) priorities as tax-free tip, Social Security, and overtime pay income; better tax treatment for domestic corporations; and interest deductibility of auto loans. Other high-profile (and expensive) provisions are also in play—proposals like President Trump’s recent call for making all income below $150,000 income-tax-free, a concerted push to repeal the estate tax in its entirety, some kind of tax break for long-term care expenses, and others.
Prospects: Congress’ committees of jurisdiction will immediately begin the hard work of putting together their pieces of the reconciliation bill. President Trump and Congressional leadership want the legislation ready (and passed) as soon as possible—House leadership has identified Memorial Day as its preferred completion date. Senate leaders say they think August is a more realistic target.
There are many areas of controversy and even more that need decisions about scope and size. For example, identifying $1.5 trillion to $2 trillion worth of spending cuts will be a heavy lift—even President Trump recently said he expects “at least $1 trillion.” GOP Senators have been consistently demonstrating their discomfort with a $1.5 trillion to $2 trillion spending cut target. The House fiscal hawks have been insisting on at least that much.
The tax package will have to determine just how much (and/or who gets) tax-free tip and overtime income. A way to make at least some Social Security benefits tax-free has to be fashioned because the rules of reconciliation prevent any direct changes to Social Security in a reconciliation bill. An income tax credit for seniors is one option being considered
The scoring mechanism—current policy in the Senate—also raises serious questions about whether a straightforward extension of expiring tax rules can be done in a reconciliation bill. One of the Byrd Rules (the rules governing a reconciliation bill’s contents) states that every provision in a reconciliation bill must impact federal revenue (in or out). A current policy score that puts the revenue impact of tax rule extension at zero risks a challenge under this Byrd Rule.
Finally, the CBR contains differing provisions to raise the federal debt limit (more on that in the story below). Not only must the differences (the House authorizes a $4 trillion addition to the debt limit while the Senate authorizes a $5 trillion addition to the debt limit) be resolved, but also this has to be done prior to the X Date, the date on which Treasury will be unable to borrow additional funds and thus will not be able to pay all its obligations on a timely basis. The debt limit issue could wind up being a driving force as the reconciliation bill process moves forward.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org; or Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org.