The voices of Tax Policy Center's researchers and staff
Hours after the collapse of the Senate GOP leadership’s health plan, Republicans began to move on. The House began its efforts to write a tax bill when the Budget Committee released a draft budget resolution. The goal: To make that fiscal plan the vehicle for a major tax measure that could pass Congress with no Democratic votes.
However, the House Budget Committee’s fiscal blueprint suffers from many of the same flaws as the congressional effort to replace the Affordable Care Act. It attempts to paper over, but does not really address, deep divisions within the Republican caucus over both taxes and spending. And, like the ACA replacement bills, this draft faces an uphill battle in the House and has little or no chance of being approved by the Senate where, as we have learned, GOP legislative control is tenuous at best.
The plan would combine two goals: tax reform that would not add to the deficit and major cuts in domestic spending. The problem is that many conservatives—and President Trump--prefer a tax cut and many moderate Republicans and all Democrats oppose this budget’s deep reductions in planned domestic spending.
On the spending side, the House budget blueprint calls for nearly $500 billion in Medicare savings over the next decade, and a $1.5 trillion reduction in Medicaid and other health programs. It would cut spending for mandatory safety net programs such as welfare and food stamps by about $200 billion and gradually reduce discretionary spending on domestic programs and foreign aid from $511 billion in 2018 to $424 billion in 2027. At the same time, it would boost military spending from $622 billion in the coming fiscal year to $740 billion in 2027.
These spending cuts already have House Republican moderates grumbling. Some vote counters say that at least 30 will oppose significant reductions in planned safety net spending. That’s more than enough to kill the idea if, as expected, no Democrats support it. Even budget panel chair Diane Black (R-TN) seems unsure about whether the full House will greenlight the budget plan. Rounding up support may be even tougher in the deeply-divided Senate.
The House budget framework calls for the Ways & Means Committee to produce “deficit-neutral tax reform.” It gives the panel substantial flexibility by assuming 2.6 percent economic growth over the period, significantly higher than CBO’s estimate of 1.9 percent.
It also gives the tax panel maximum leeway in what it includes in a tax bill. The budget framework calls only for tax simplification, unspecified individual and corporate rate cuts, a repeal of the Alternative Minimum Tax, and a “transition” to a territorial system that exempts from US tax the income of the foreign subsidiaries of US-based multinationals.
The Ways & Means panel would have to produce $52 billion in deficit reduction over 10 years, about one-quarter of the $200 billion in savings from mandatory safety-net programs called for in the budget resolution. Still, it would be a trivial sum compared to the $47 trillion the government would spend for all programs over the decade.
The Budget Committee’s fiscal framework could be a first step towards passage of a tax bill this year or next. If the budget ever makes it through Congress, that is.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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