A succession of tweaks and changes to the House Republicans’ tax reform bill since it was first released have resulted thus far in a bill with a cost exceeding Congress's $1.5 trillion limit and would require significant changes if it’s to become law.
The cost of the Tax Cuts and Jobs Act (H.R. 1) moved the bill north of the $1.5 trillion threshold set under the budget resolution chiefly because of an amendment adopted November 6 by Republican members of the House Ways and Means Committee. The provision, changed on a party-line vote, gutted an excise tax on some payments between a U.S.-based corporation and its related foreign corporations.
That provision would have originally raised $154.5 billion over a decade, according to estimates (JCX-47-17) by the Joint Committee on Taxation. The JCT provided updated numbers after the committee passed the November 6 amendment, which estimated that the changes to the corporate excise tax provision slashed the amount of revenue it raised to a mere $7 billion over a decade.
When combined with the other comparatively minor changes to the bill, the JCT said the amendment elevated the bill from a $1.41 trillion tax cut to a $1.57 trillion tax cut. And according to Ed Lorenzen of the Committee for a Responsible Federal Budget (CRFB), an additional $72 billion in off-budget costs described in the initial JCT estimate’s footnotes brings the total cost of the bill to $146 billion over the reconciliation instructions’ limit.
“[It’s] hard to make that up with loose change,” Lorenzen said. “There will need to be fairly significant changes or new offsets to the bill before the committee finishes markup or in a manager’s amendment when the bill is considered by the House.”
Failure to do so could spell procedural trouble for the tax bill once it goes over to the Senate, according to Lorenzen, who said that if the House passes a bill that doesn’t comply with the reconciliation instructions, “there would be a significant risk that the [Senate] parliamentarian would rule that the bill is not eligible for privileged status as a reconciliation bill in the Senate.”
In such a scenario, the Senate wouldn’t even be able to take up the bill for consideration without the 60 votes needed to waive a point of order, he said.
Even though the Senate would still be able to release its own bill later this week and hold markups, the Constitution requires revenue bills to originate in the House, and thus, sooner or later, the Senate will have to take up H.R. 1 as the vehicle for tax reform, at which point the parliamentarian could step in, Lorenzen said.
“It’s not definite that that would be the case, but during healthcare there was an expectation that the House bill could have lost privilege if CBO estimates found that it didn’t achieve the required savings in both the [Health, Education, Labor, and Pension] Committee and Finance Committee jurisdictions,” he added.
And even if House taxwriters do bring the cost of the bill back under $1.5 trillion, Senate taxwriters will still have to wrestle with how to make the bill compliant with the additional set of restrictions imposed by the Senate’s Byrd rule. Among the biggest obstacles posed by that rule is that it prohibits reconciliation legislation from adding to the deficit beyond the budget window, which ends in 2027.
According to a November 7 CRFB blog post, H.R. 1 would add $155 billion in 2028, and thus run afoul of the Byrd rule. Getting around this would likely require lawmakers to sunset or phase out many of the major revenue-losing provisions of the tax bill, but doing so “would undermine much of the purpose of the bill and reduce or reverse any effects it may have on economic growth,” the CRFB said.
Some Republican lawmakers have proposed including repeal of the Affordable Care Act’s individual mandate in the tax reform bill as a way to inject a substantial sum of additional revenue into the tax bill. At a November 7 National Taxpayers Union press conference, Sen. Ted Cruz, R-Texas, said it would be unacceptable for tax reform to cause any taxpayer to face a tax increase, as some early distributional analyses have shown. He recommended using revenue from repeal of the individual mandate to cut individual income taxes even further.
The CBO has estimated that repealing the individual mandate would save more than $400 billion over a decade. Such a strategy, however, could further complicate tax reform negotiations by introducing major healthcare reform elements, and some healthcare experts have warned that simply repealing the mandates without putting additional healthcare reforms in place would dramatically disrupt the health insurance markets.
Asked about including repeal of the individual mandate in tax reform, Ways and Means Committee member Patrick J. Tiberi, R-Ohio, told Tax Analysts November 8, “I’m an advocate.” Tiberi also disputed claims that the tax bill’s cost exceeded the $1.5 trillion limit.
The Congressional Budget Office also released additional estimates November 8 indicating that the $1.41 trillion in reduced revenue from the original version of H.R. 1 would necessitate $259 billion more in interest payments on the national debt over a 10-year period, bringing the 10-year deficit impact of the bill to $1.67 trillion. The CBO noted that that outcome did not reflect any macroeconomic feedback as a result of enacting the bill.
According to Lorenzen, the increased debt service costs won’t factor into determining whether the bill is compliant with the budget reconciliation instructions allowing for a $1.5 trillion cut.
“Although everyone talked about the budget allowing tax reform to increase the deficit, that is actually the amount it can reduce revenues,” he said. “All that matters for purposes of meeting the budget instruction is changes in revenues and spending from refundable tax credits,” Lorenzen said.
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David van den Berg contributed to this article.