The Senate’s newly adopted budget blueprint has triggered a fight over the merits of wiping away the cost of tax-cut extensions in a bid to make them permanent — a dispute that could bog down work on a GOP reconciliation package in coming months.
Democrats have attacked Republicans’ decision to use a “current policy” baseline to assume that extending the 2017 tax cuts expiring after this year has no cost since they are just preserving the status quo. Pennsylvania Rep. Brendan F. Boyle, the top Democrat on the House Budget Committee, bluntly labeled that line of reasoning as “bullshit” in a written statement.
House Republicans have voiced similar concerns in softer terms. The absence of deeper spending cuts in the Senate’s reconciliation instructions is a factor, although senators say they aim to achieve close to, if not more than, the House’s $2 trillion-cuts target.
The Senate’s “unserious and disappointing” blueprint “sets a dangerous precedent by direct scoring tax policy without including enforceable offsets,” House Budget Chairman Jodey C. Arrington, R-Texas, said in a statement Saturday.
Senate Majority Leader John Thune, R-S.D., sought to beat back mounting criticism in a floor speech Thursday, saying the use of a current-policy baseline is hardly a novel idea and has been used by both parties in various ways over the years.
“Using the current-policy baseline is not some bizarre new gimmick,” Thune said. “Democrats’ sudden concern for saving money and protecting the character of the Senate is touching. Who would have guessed that the party that was so eager to tear down a fundamental Senate institution mere months ago by killing the Senate filibuster would suddenly develop such a passionate interest in defending the character of the Senate?”
Thune pointed to the 1974 budget law, which governs the reconciliation process, to argue Republicans could use whichever baseline they like because that decision rests with the chairman of the Senate Budget Committee — South Carolina’s Lindsey Graham — rather than with the Senate parliamentarian, who hasn’t given an opinion.
“Determining the baseline is my job, not anybody else’s,” Graham said. While Democrats will probably challenge his decision on the floor, he said, Republicans can prevail with a simple-majority vote. “As long as our people stick together, we’re fine,” he said.
But Senate Minority Leader Charles E. Schumer, D-N.Y., said Republicans “seem ready to detonate the rules of the Senate” by overturning decades of precedent without the parliamentarian’s blessing.
“Republicans spent years preaching about preserving Senate rules and protecting regular order,” Schumer said in a floor speech. “But now that their billionaire tax cuts are on the line, the rules don’t seem to matter for them.”
Thune said Graham’s position is backed up by a 2022 staff report from then-Senate Budget Chairman Bernie Sanders, I-Vt., which said the Budget chair “makes the call on questions of numbers,” which do not have to be official estimates from the Congressional Budget Office and Joint Committee on Taxation.
Some GOP senators were notably queasy about the prospect, however.
Sen. Bill Cassidy, R-La., could be heard arguing with Graham on the floor Thursday night about the departure from historical precedent. Though he ultimately voted for the resolution, Cassidy made clear in a floor speech Friday that he wasn’t happy about the baseline shift.
“It might be within the rules to do so, but it doesn’t mean that it is wise to do so. And to be a conservative is to know that sometimes you don’t open Pandora’s box, even if you can,” Cassidy said.
‘Explodes the deficit’
The difference between a current-policy and a “current law” baseline, which has been the statutory scoring method used by the CBO for 40 years, is profound. Take the dueling sets of House and Senate tax instructions in the new budget blueprint.
The plan would allow the House Ways and Means Committee to increase deficits in their portion of the “big, beautiful” reconciliation bill by no more than $4.5 trillion over the budget’s 10-year timeframe, using a conventional current-law baseline. None of those costs would be allowed to spill over into the second decade under the Senate’s “Byrd rule,” meaning provisions would have to expire or need offsets in those later years.
The Senate’s budget instructions, however, would eliminate that problem after Graham set the baseline for expiring 2017 provisions at zero, eliminating $3.7 trillion revenue losses on paper. That would mean a Senate-drafted tax package could make those provisions permanent without any offsets beyond the 10-year window. From that starting point, the Finance Committee would be instructed to draft a tax package costing up to $1.5 trillion more over a decade.
Only that latter piece of this $5.2 trillion package — designed to accommodate new Trump tax proposals — would be subject to the Byrd rule. The other $3.7 trillion in costs could continue to grow beyond the first decade, becoming part of the official CBO deficit and debt forecasts way out into the future.
“The rules require that a budget cannot increase the deficit past 10 years. This Republican budget explodes the deficit past 10 years,” Senate Budget ranking member Jeff Merkley, D-Ore., said on the floor. “But rather than rewriting their budget, Republicans are trying to rewrite the rules.”
‘More realistic benchmark’
Thune in his floor speech said Democrats “basically invented” the use of a current-policy baseline as far back as 1977. He said then-Senate Budget Chairman Edmund Muskie, D-Maine, “used the current budget baseline because he thought it represented a more realistic benchmark.”
Muskie used to prepare budgets using a baseline “tied to existing programs, plus [cost-of-living adjustments], plus demographic changes,” former Rep. Bill Frenzel, R-Minn., testified at a 2005 House Budget Committee hearing.
A Democratic Senate aide countered that while some Muskie-authored budget resolutions set spending levels based on “current services,” the resulting legislation was scored under a traditional current-law baseline “and there is no evidence that it was not.”
Also, Muskie’s proposals were before the 1985 budget law was enacted which set the official current-law baseline, the aide said. That same year, the Byrd rule was enacted, setting the tone for decades of future reconciliation efforts.
It wasn’t until the mid-1990s that lawmakers contemplated using reconciliation to increase deficits, which led to the parliamentarian’s advisory that it was OK so long as costs didn’t continue after the budget window. This maneuver really hit its stride with the 2001 and 2003 tax cuts enacted under President George W. Bush and Republican congressional majorities.
Though the Bush tax cuts were time-limited, the two parties were basically in agreement on extending about four-fifths of the costs — Republicans wanted the whole thing extended, while Democrats wanted to continue the tax cuts for all but the most well-off households.
This got budget experts thinking that it made little sense to assume full expiration of the tax cuts, which falsely inflated the baseline to make it appear deficits would be much smaller in the future.
“With unrealistic assumptions underlying the official baseline, a cottage industry quickly arose among independent budget analysts to produce more ‘realistic’ baselines,” David Kamin, a White House economic official in the Obama and Biden administrations, wrote in a 2015 paper.
Kamin found that as early as 2003 the CBO was providing alternative assumptions about baseline estimates along with current-law projections. The following year, the Bush administration began using adjusted baselines that assumed extensions of all or most of the 2001 and 2003 tax cuts. President Barack Obama’s administration did likewise with its budgets starting in 2009.
In early 2010, Obama and the Democratic Congress agreed on a debt limit increase paired with a statutory “pay-as-you-go” requirement for new spending or tax cuts — with a big set of exemptions, called “adjustments for current policies.” That included permanent tax-cut extensions for individuals making up to $200,000 and households earning up to $250,000, as Obama’s budget called for.
In his Thursday floor speech, Thune pointed to Obama’s fiscal 2013 budget, which assumed extension of the expiring Bush tax cuts, at a $4.5 trillion cost, as part of an “adjusted baseline.”
After Obama won his second term in November 2012, Congress went down to the wire before the year-end expirations and eventually passed a nearly $4 trillion tax package, as scored under a current-law baseline. But the White House touted the measure as actually cutting deficits by over $600 billion, through the expiration of upper-income tax cuts, when measured against a current-policy baseline.
The Democratic aide rejected those examples, saying none of them involved using a current-policy baseline in the budget reconciliation process, “especially with the magnitude they are attempting to with this bill.”
Head Start fix
There’s at least one recent example of something similar attempted on a smaller scale via reconciliation.
Graham pointed to Democrats’ inclusion of language in their fiscal 2022 budget resolution, used to unlock reconciliation for what they initially dubbed the “Build Back Better” reconciliation bill, later referred to as the “Inflation Reduction Act.”
The Biden administration and Democratic majorities wanted to establish an expensive new child care and pre-kindergarten program. But with Head Start — a discretionary program that didn’t continue in the baseline — expiring, kids leaving that program would add to the rolls of the new entitlement Democrats were drafting. The added costs were thought to put the education committees in danger of breaching their reconciliation targets.
That budget resolution included a “scoring rule” directing the CBO to “consider funding for programs under the Head Start Act … to continue at baseline levels.” The language saved about $19 billion, the CBO said, and the House passed the provision. The Senate never took it up, and the early education program was dropped from the ultimately skinnier IRA.
Peter Cohn and Caitlin Reilly contributed to this report.
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