January 10, 2023
Federal Policy Analyst
January 10, 2023
After an exhausting 15 rounds of votes to elect the Speaker of the House, the Republican majority last night approved a package of rules to determine which legislative goals are attainable for the 118th Congress. Two of the rules will hamper the new Congress’s ability to pass tax legislation in the next two years. One requires a supermajority for legislation that increases income tax rates, and the other requires cuts to mandatory spending programs—like Medicare, Social Security, veterans’ benefits or unemployment insurance—in exchange for changes to the Child Tax Credit or Earned Income Tax Credit that would mostly help low-income families.
The supermajority rule requires the support of three-fifths of the House for any increases in income tax rates for individuals, corporations, and estates and trusts. The rule is unlikely to change much in the 118th Congress, given the position of the GOP majority on taxes. Most Republican members of Congress, including the next chair of the House’s tax-writing committee, have signed a pledge to oppose any tax increases.
While it is unsurprising that Republicans approved this rule, it undermines the stated goal of lowering the debt. In December, the Congressional Budget Office issued a list of options for reducing the deficit, and the largest single provisions were mostly tax increases. While not all of these options would be subjected to the supermajority requirement (which only affects increases specific to income tax rates), there is a clear contradiction in stating that the government should take on less debt while putting tight restraints on the government’s ability to pay for things.
The second rule—known as CUTGO—requires any increases in mandatory spending to be offset with cuts to other mandatory spending. Mandatory spending is spending that has been previously established by Congress and does not require annual appropriations votes. This includes programs like Social Security, Medicare, veterans’ benefits, and unemployment compensation. The CUTGO rule requires that any increases to mandatory spending programs be offset with cuts to other mandatory spending programs. This means that the House cannot even pass increases to these programs that are fully paid for with new revenue, unless they also cut some other program in this category.
The CUTGO rule also makes it harder to enhance proven and effective policies like the Child Tax Credit (CTC) or Earned Income Tax Credit (EITC) because the refundable portions of the credits—the amount that can exceed the income tax a family would otherwise owe—are counted as mandatory spending under the budget scoring rules used by Congress. Making the CTC more accessible to low-income families would curb child poverty and hunger. Fundamentally, this would mean increasing the refundability of the credit. With the new House rule, that would require cutting other essential programs like Social Security or Medicare.
Under current law, many low-income families are unable to receive the full refundable CTC because of income limits and phase-in rates that require households to have a certain amount of money to take advantage of the credit. That is to say, the tax code states that some children’s families are too poor to receive a credit designed to help children. That part of the law was temporarily changed in 2021, allowing all low- and middle-income children to receive the full credit regardless of the earnings of their parents. The temporary enhancement also included an increase in the credit amount and lifted the maximum age for qualifying children to 17 rather than 16.
The expansion was an enormous success, cutting child poverty nearly in half in 2021. Advocates and lawmakers hoping to restore the 2021 expansion, or otherwise improve the CTC or EITC, will now face an even tougher road ahead due to the CUTGO rule. That’s because any such policy will need to be tied to cuts in crucial health and retirement programs or will require the House to waive the CUTGO rule—which some Republicans may see as a betrayal of their agreement with party leadership.