To hide most of the costs of their proposed tax cuts, Senate Republicans are relying on a budget gimmick known as the current policy baseline. This gimmick assumes that Congress has already made enormous temporary tax cuts permanent and has taken responsibility for the costs when in fact they never did so
This weekend, the official revenue estimate for the Senate tax bill from the Joint Committee on Taxation (JCT) showed this gimmick in action. JCT estimates that the Republican bill in the Senate would cost just $441 billion over a decade compared to current policy. That is another way of saying that the legislation would cost $441 billion over a decade if one assumes that the bill’s provisions extending temporary tax cuts cost nothing. The bill actually would cost $4.2 trillion over a decade according to a separate estimate provided by JCT using its normal methods.
JCT’s normal approach is to compare the effects of tax legislation to current law. That is another way of saying that JCT usually follows the commonsense approach of estimating the effects of legislation compared to what would happen if Congress did nothing and we are all subject to whatever tax laws have already been enacted.
Much of this year’s tax package is made up of extensions of tax cuts passed in 2017 that are expiring at the end of this year, so the difference between using the current law baseline and the current policy baseline is enormous. For instance, extending the changes to individual income tax rates and brackets in the 2017 law is estimated to cost only $83 billion over a decade compared to current policy while the exact same policy is estimated to cost about 27 times as much ($2.2 trillion) over a decade compared to current law.
Why are Senate Republicans using this gimmick to make their tax cuts appear to cost far less? One obvious reason is that they want their legislation to appear to the public to be less fiscally irresponsible, but that is only part of it. The other reason relates to the rules that govern when and how they can use a process to pass legislation with budget impacts more easily.
Generally, any U.S. Senator can block legislation (commonly called “filibustering”) unless 60 of the chamber’s 100 members agree to end debate and allow a vote. The “budget reconciliation” process allows Congress to pass certain legislation with a simple majority in the Senate if they have a budgetary impact. Republicans therefore want to use the reconciliation process to enact legislation extending the tax cuts, because they do not have 60 votes in the Senate to overcome a filibuster.
In order to enact a law through the reconciliation process, it must comply with several rules. One of them is that the legislation cannot increase the deficit outside the “budget window,” the 10-year period that lawmakers examine for fiscal questions.
This is one reason why the 2017 Trump tax law was drafted with so many temporary provisions, even though the drafters never really wanted them to expire. If the provisions had been permanent, the 2017 law would have cost more than the rules allowed. Making many of them temporary prevented official budget estimators from projecting that it would increase the deficit outside the 10-year budget window and allowing it to be passed through reconciliation.
But this time around, Senate Republicans are not content with just making the most significant provisions of the tax package temporary. They instead want budget estimators to compare their bill to current policy rather than current law, which would make extending the Trump tax provisions appear to have no cost and therefore no effect on the deficit that would violate the reconciliation rules.
But no matter how much the Senate leadership bends the rules to make their tax cuts palatable on paper, the actual cost – and impact on the deficit – is largely the same when using a current policy baseline. In other words, it’s a move designed to hide the true cost of tax cuts while greasing the political wheels for a reckless bill to be passed.
