For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
What critics call a budgetary sleight-of-hand could save Republicans almost half a trillion dollars in their upcoming attempt to overhaul the tax system, according to updated Congressional Budget Office estimates.
In the annual outlook issued Jan. 24, the nonpartisan CBO gave new estimates for the costs of two currently temporary provisions in the U.S. tax code: partial expensing of new business equipment and property at a 50 percent rate, and a group of about 50 tax breaks, many aiding alternative energy producers, that have already expired or will within the budget window.
The total? About $446 billion over 10 years. Most of that would be from the expensing provision, at a CBO-estimated $247 billion. The group of tax extenders would cost another $199 billion. If projected interest costs were added in, the combined total would be $517 billion.
That’s up from $426 billion—$500 billion with interest added—that the CBO projected in January of 2016.
But under the House Republicans’ definition of “revenue-neutral tax reform,” the costs of those policies won’t have to be offset, even though they will count as increasing the deficit in a CBO score. The reason? Republicans say that as current policy, they don’t need to be offset with spending cuts or revenue-raisers elsewhere in the budget to remain in place.
The rationale reopens an old debate many Washington tax and budget observers thought had breathed its last in 2015: which baseline to use when measuring the budget impact of proposed tax changes.
In December 2015, the Republican Congress and the then-Democratic White House agreed on a package of so-called tax extenders that enlarged some tax breaks and made almost all of them permanent. That package (H.R. 2029) was projected to deprive the government of about $678 billion in revenues over 10 years compared to current law, or about the same amount that taxes were raised on high-income earners in the 2012 “fiscal cliff” budget negotiations.
Because most of the provisions in the 2015 extenders legislation had been regularly extended on an annual or biennial basis for years, Republicans said the cut in revenues should not be seen as a tax cut.
“The certainty in the tax code—I can’t tell you how many farmers and manufacturers I’ve talked to who said, ‘Wait, you guys in Congress, you pass an extender on December 11th that goes away on December 31st? How on earth can I make decisions in my business with that kind of tax policy coming through Washington?’” said House Speaker Paul D. Ryan (R-Wis.) the day before the bill was approved by the House.
“Finally, for the first time in over a decade, we are providing the certainty to the taxpayers that they need so that they can go out and plan and invest and create jobs. We have a lot of important policy riders in this legislation.”
And that’s one of the problems with the idea of keeping but not offsetting the new round of tax breaks, according to Marc Goldwein, senior vice president of the bipartisan Committee for a Responsible Federal Budget.
“The idea we’d come back for more and add another $450 billion to out debt is really a bit ridiculous,” Goldwein said. The 2015 extenders bill, he said, was touted by lawmakers as “the last extenders bill.”
“This is after everybody said, ‘This is the last,’” he said.
A spokeswoman for the House Ways and Means Committee declined to comment on the record, but pointed out the decision by Republicans to again use “current policy” was made clear in the “A Better Way” compilation of policy ideas issued by House Republicans in 2016.
“House Republicans reject the notion that tax reform should conceal a $400 billion tax increase, and therefore the current law baseline is not the proper standard for determining whether tax reform is revenue neutral. Because an assumption that Congress, in fact, will continue to extend current policy more closely resembles historical experience, House Republicans measure revenue neutrality by reference to a ‘current policy baseline’—i.e., achieving a level of Federal revenues that is approximately $400 billion less over the ten-year window than the current law baseline,” according to the tax portion of “A Better Way.”
At the annual Republican party retreat in Philadelphia Jan. 26, Ryan declined to commit to not increasing budget deficits through legislation in 2017. He said Republicans see faster economic growth and reducing health care costs as helping to ease budget pressures.
“We are fiscal conservatives. What that means is we believe government should not live beyond its means,” Ryan said.
The expensing and remaining extender provisions aren’t the only tax-related proposals that could be used to make it easier for Republicans to achieve a major legislative goal. The CBO outlook also included a $311 billion 10-year cost if major tax portions of the Affordable Care Act—taxes on insurers, medical devices and “Cadillac” insurance plans with high premiums— were repealed instead of only delayed. With interest, that price tag would rise to $351 billion.
Goldwein said that provision could be used to make replacing the ACA easier, depending on how the ACA taxes’ repeal was sequenced. If the tax provisions were left in place in an ACA repeal bill but then were repealed as part of a tax overhaul, the effect would be to lower the bar an ACA replacement bill would have to pass to be deficit-neutral. Republicans could similarly declare they were working from a “current policy” baseline where those taxes weren’t in place and say the costs of scrapping them didn’t have to be offset.
“That would be a huge, unacceptable, budget gimmick,” Goldwein said.
The “A Better Way” document in its tax section said it assumed the ACA taxes would be repealed—not delayed—as part of the effort to overhaul the health care system, but with the costs of repealing them offset by spending cuts. “Thus, this Blueprint envisions a pro-growth tax code without either those Obamacare taxes or other taxes to replace them,” the document said.
To contact the reporter on this story: Jonathan Nicholson in Washington at email@example.com
To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)