Ryan Opens Door to Tax Reform Through Budget Reconciliation

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By Aaron E. Lorenzo and Jonathan Nicholson

Nov. 19 — Republicans would “clearly consider” using budget reconciliation to advance their plans for overhauling the U.S. tax code, said Rep. Paul D. Ryan (R-Wis.).

Rewriting tax laws remains a top priority for the House Ways and Means Committee, its incoming chairman told Bloomberg BNA Nov. 19, in a brief interview in which he pledged to do everything possible, as soon as possible, to lower tax rates to improve the health of the U.S. economy.

Reconciliation instructions in a congressional budget resolution provide filibuster immunity in the Senate, meaning only 51 votes are needed to pass follow-on legislation that carries out the instructions. The reconciliation maneuver has typically been reserved to pass politically difficult bills, such as the 2010 health care overhaul and tax cuts in 2001.

“That's a tool we'll clearly consider using,” said Ryan, whom the Republican conference ratified as the next Ways and Means chairman on Nov. 19. “It's been used in the past before, and it hasn't been used, so that's something that's an option we'll obviously weigh at the time.”

But the tactic has poisoned one party's ability to work across the aisle with the other in the past, prompting a warning from at least one key Democrat, Senate Finance Committee Chairman Ron Wyden (Ore.).

“I think the key is to make it bipartisan,” Wyden said, “and that obviously is a difficult course if you go to reconciliation.”

Hatch Could Be Convinced

Senate Finance Committee ranking member Orrin G. Hatch (R-Utah) said he would prefer not to take such a course, but nonetheless signaled openness.

“It won't help it, but on the other hand, I think there have got to be some Democrats who are willing to stand up and make some tough choices too,” said Hatch, who will chair the panel in the next Congress. “We've got to do it.”

Two other Senate Finance Committee Democrats, Sens. Tom Carper (Del.) and Debbie Stabenow (Mich.), also expressed unease with Ryan's suggestion. But Sen. Benjamin L. Cardin (D-Md.) said he was optimistic that the process would play out without such theatrics, particularly if agreement on a budget blueprint comes together.

“I think this is all just preliminary stuff,” Cardin said. “The proof in the pudding will be how well we work together.”

Ryan agreed that bipartisanship was a necessary ingredient for revising the tax code, despite refusing to take reconciliation off the table.

“We want to move tax reform into law and that requires bipartisanship,” Ryan said. “But we'll weigh at the time what kind of tools we need to move the bill.”

Push for Dynamic Scoring

Beyond talking about reconciliation, Ryan made no secret of his wish to get more favorable revenue estimates of tax overhaul plans by expanding the use of forecasts that account for the economic effects of policy changes, though he acknowledged limits inherent to such scoring.

“What we simply want to strive for is accuracy in scorekeeping so that we are making very well-informed decisions when it comes to doing tax reform, and having accurate scorekeeping is not pixie dust,” he said. “It's not a magic wand. It is just getting accuracy, and so I agree with the fact that if you could just improve your scorekeeping doesn't mean you get to have everything you want.”

Similarly, Hatch in recent days said dynamic scoring was “no panacea.” A tax rate reduction of less than one percentage point is possible under the rosiest economic estimate tied to tax code changes proposed by the retiring Ways and Means chairman, Rep. Dave Camp (R-Mich.), Hatch said.

That forecast for a $700 billion boost in receipts to the U.S. economy over a decade came from the Joint Committee on Taxation, opposite a low-end estimate of $50 billion for the same period.

To Use or Not to Use

Dynamic analysis isn't required like Congressional Budget Office scores, which critics complain don't factor in behavioral responses to potential legislative changes.

Making use of dynamic scores would help the process, Ryan said, echoing Hatch's earlier remarks in which he effectively said dynamic scoring would provide additional data points for consideration.

“They do it,” Ryan said. “It's just whether we use it or not.”

He kept other plans close to his vest when asked about them, declining to comment on whether he prefers to rewrite tax laws in a way that maintains progressivity and ensures revenue neutrality, for example. Both were tenets of Camp's plan for revamping the tax code.

Ryan said he wants permanency for some of the expired and expiring tax extenders and would like to see those changes take place this year, which would reduce the federal budget baseline and make lowering tax rates easier.

Debate around permanency for some of the long-temporary tax provisions remains ongoing, but Ryan said if such a deal doesn't crystallize, he would push permanency going forward when he takes the Ways and Means gavel on Jan. 6.

To contact the reporters on this story: Aaron E. Lorenzo in Washington at aaron@bna.com and Jonathan Nicholson in Washington at jnicholson@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com