August 30, 2017

Giving Tax Cuts a Fighting Chance

Will a returning Congress be able to deliver some much-needed tax relief to the American people?

Will a returning Congress be able to deliver some much-needed tax relief to the American people? It seems simple enough, but so is Obamacare repeal, and lawmakers have (so far) managed to bungle that.

One way to avoid doing the same thing when it comes to taxes is to take a simple procedural step: choose the appropriate budget baseline. Sounds wonky, I know, but before your eyes glaze over, consider how this can make — or break — future tax cuts.

When conservatives push for tax cuts, we’re often told they will “cost too much.” Opponents predict humongous deficits if they reduce how much money they extract from us via taxes. Well, that gloom and doom can be made worse by the assumptions they made in the budget resolution.

Those assumptions are in how they construct a baseline — some marker that says the government is expected to take in X amount of money next year, based on how much is currently being spent and taxed. And that’s the sticking point.

Should lawmakers assume they’re going to extend all the expiring tax provisions they extend every year? Of course they should. That means going with the “current policy baseline,” to use the technical term.

And if they don’t? If they act, implausibly, like they won’t extend the tax provisions? That adds $460 billion in tax increases to the budget baseline.

Those increases won’t materialize. But if Congress assumes for budgetary purposes that they will, it makes tax relief that much harder to enact. Why? Because tax-cut opponents can point to a much larger deficit prediction and say, sorry, we can’t afford it. Using the higher baseline could mean almost a half-trillion dollars less in tax cuts over 10 years.

This is, frankly speaking, completely dishonest. But that’s exactly what the House budget committee has done. For all intents and purposes, they’ve assumed that Congress will break with what it does every year and let all those “temporary” tax provisions expire.

The Senate budget committee, however, still has a chance to do the right thing. It can choose the current policy baseline — and quite possibly save tax reform.

Mind you, the tax provisions set to expire are a mix of bad and good. Some, such as subsidies to “green energy” provisions, aren’t good and should be allowed to expire. Others, by contrast, help balance out some of the distortions in our tax code and encourage the kind of investment our economy needs.

But let’s face it — many of these provisions will be renewed again, as they always are. And assuming, quite logically, that they will be? That gives tax relief a fighting chance. Otherwise, any proposed tax cuts will be slapped with an unrealistically high “price tag,” and they’ll never get off the ground.

This whole baseline question underscores just how fundamentally flawed the Congressional Budget Office’s approach is. As tax policy experts Romina Boccia and Adam Michel point out in a recent op-ed for The Hill, CBO treats spending cliffs and tax cliffs differently:

“When spending expires, as in when the Social Security trust fund runs dry, for example, the CBO assumes Congress really intends for this spending to continue. When tax provisions expire, the CBO assumes Congress really intends for them to expire. This practice biases the budget in favor of tax hikes and spending increases.”

No wonder something as simple and straightforward as tax relief never seems to reach the end zone. The field is tilted. Spending more is easy, cutting taxes is hard — and largely because the process makes it that way.

Tax relief is too important for Congress to keep fumbling it. The right package of cuts will unleash economic growth — creating jobs, opportunity and prosperity for all. Why jeopardize that by making the wrong decision on the budget baseline?


Republished from The Heritage Foundation.

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