Republicans have proposed trillions of dollars in tax cuts that are all but impossible to make permanent with the party's slim majorities in the House and Senate. So now, Senate Republicans may use what one budget expert calls "weird accounting" tricks to push through cuts that are controversial even to some in their own party, and which could have huge implications for future policymaking.
In order to pass the budget bill with a simple majority and avoid a filibuster by Senate Democrats, Republicans would have to rely on a process called budget reconciliation. One of the requirements of budget reconciliation is that bills cannot add to the national deficit beyond the budget window, in this case 2034.
But all of the tax cuts and other budget items that Republicans have proposed would be so costly, there's no way to do it within that structure, says Kent Smetters, an economics and public policy professor at the University of Pennsylvania's Wharton School of Business. So Senate Republicans have said when they extend the 2017 tax cuts set to expire this year, they can say it costs $0 to do so because the tax cuts are already "current policy." This so-called current-policy baseline is a major change from the metric that Congress has traditionally used.
Of course, that's not how budgets work. Even if Republicans claim they cost $0, the tax cuts and other proposed budget expenditures would add trillions to national deficits, according to the Penn Wharton Budget Model (PWBM).
"If I have a subscription for eight years to Sports Illustrated, and then I tell my wife, Well, I'm gonna renew it for another 10 years, but it's not gonna cost us anything, because I already have one," says Smetters. "It's kind of a weird accounting to do that, but that's essentially what they're going to try to do."
The House budget reconciliation resolution calls for $1.7 trillion in net spending cuts—which could likely come from Medicaid and SNAP—and $4.5 trillion in net tax cuts, leading to a $2.8 trillion increase in deficits over the next 10 years. That's where the weird accounting comes in: By not counting the cost of extending the 2017 tax cuts—which comes to around $4 trillion over the next eight years, PWBM projects—Republicans hope they can then also afford to add in some more of President Donald Trump's stated policy objectives, like not taxing tips or Social Security payments.
Sen. Mike Crapo (R-Idaho), endorsed the new "current policy" approach last week, saying it "recognizes that extending current law does not change the tax policy, does not reduce tax revenue," according to NBC News.
"They're saying, 'Well, this is our current law…so it's not like this is really costing us more money.' And there's a lot of intellectual problems with that," says Smetters, noting that Democrats could use the precedent for things that Republicans could object to in the future, like extending the lapsed Enhanced Child Tax Credit. "This is almost the nuclear option on budgeting right here. It's pretty darn close to that."
Even other Republicans are taking issue with the GOP's math. Rep. David Schweikert (R-Ariz.), told the Wall Street Journal that the idea is akin to fraud. "Am I giving you enough inflammatory language?" Schweikert said. "I can actually go much further."
Who wins and loses in the budget bill
According to Penn Wharton's calculations, the wealthy will benefit much more than middle- or lower-class Americans if the budget plan goes forward. The largest increases in after-tax income would go to the top income quintile, while everyone else sees "much more modest increases in after-tax income." In the event cuts to Medicaid and other safety nets are used to help offset the tax cuts, the least wealthy Americans may actually lose ground financially in the long term.
This situation could arise since the House's budget resolution doesn't specify exactly where spending cuts will come from; it is more a framework for spending cuts than an actual bill. Instead, it says certain committees must identify where they can make cuts. The bill calls on the Energy and Commerce Committee, which oversees Medicaid, to identify $880 billion in cuts, and for the Education and Workforce Committee, which oversees school funding and child nutrition, to nip $330 billion in spending. Meanwhile, Republicans have called on the Agriculture Committee, which oversees SNAP and farm subsidies, to identify $230 billion in cuts.
The upshot, says Smetters, is that low- and middle-income Americans who depend on those programs could see their benefits reduced over the rest of their lifetimes. And that reduction would wipe out any potential tax cut they could see long term. Exactly what the committees decide to cut is scheduled to be unveiled later this month.
When just looking at the tax cuts themselves, "it looks like everybody's a winner," says Smetters. "But this is only [an] analysis on the tax proposals themselves. What's also required is these mandatory spending cuts."
