As congressional Republicans weigh the benefit of scoring any coming tax reform legislation using a current-policy baseline, which they believe could make deficit-neutral tax reform easier to achieve, critics are blasting the idea as a gimmick that would hide the true cost of tax cuts.
House Republicans’ “A Better Way” tax reform blueprint, released last year, proposed using a current-policy baseline instead of the current-law baseline used by the Congressional Budget Office in its estimates. That document argued that because tax policies that are temporary under current law have traditionally been extended, a current-policy baseline “more closely resembles historical experience.”
A current-policy baseline would also assume that federal revenues are in the range of $400 billion less over 10 years than under a current-law baseline, meaning tax reform negotiators hoping to claim revenue neutrality would have less revenue to make up in order to do so.
House Ways and Means Committee Chair Kevin Brady, R-Texas, told reporters last month that talks were continuing over how to make a current-policy baseline a reality.
A More Honest and Accurate Approach
A current-policy baseline has the support of two Heritage Foundation scholars who echoed the House Republican blueprint by arguing in an August 24 op-ed featured in The Hill that it would be a more accurate approach to scorekeeping.
In the op-ed, Romina Boccia and Adam Michel, both economists at Heritage, acknowledged that a current-policy baseline has its critics but argued that it “is more honest in that it assumes the continuation of tax policy that has been extended on a recurring basis year after year.”
“Using a current policy baseline follows long-standing policy in assuming that Congress will extend expiring tax provisions. Assuming otherwise builds a $460 billion tax increases into the budget baseline. That is the wrong approach,” Boccia and Michel wrote.
The authors recommend that the Senate Budget Committee use a current-policy baseline in its fiscal 2018 budget resolution, and recommend baking other assumptions in as well, including “tax reform proposals currently being discussed” and repeal of the Affordable Care Act.
A ‘Choose Your Own Baseline’ Approach
The Committee for a Responsible Federal Budget (CRFB) also has recommendations for the Senate Budget Committee. In an August 9 letter to committee Chair Michael B. Enzi, R-Wyo., the group urged him to support a current-law baseline and warned against adopting a “choose your own baseline” approach.
Ed Lorenzen, senior adviser for the CRFB, told Tax Analysts that a current-policy baseline would be a roundabout way for Republicans to justify policy choices that increase the federal budget deficit.
"A current-policy baseline would change the measuring stick to assume a tax cut in the baseline, to allow tax reform to increase the deficit without acknowledging or accounting for the fact that tax reform is increasing the deficit,” Lorenzen said. “It is essentially a trick to allow Congress to pass tax reform reducing revenues and claim tax reform is deficit-neutral instead of honestly acknowledging and defending policy choices that increase the deficit.”
The Center on Budget and Policy Priorities also argued in a report released August 16 that using a current-policy baseline would hide the fiscal and distributional impacts of what it estimated as $439 billion in corporate and individual tax cuts that received a temporary extension in 2015 — whether or not tax reform retains those provisions. Under a current-policy baseline, allowing those provisions to expire as scheduled would be scored as raising revenue, the report says.
Budget Resolution Is Key
Switching from a current-law baseline to a current-policy baseline would have to be done through a budget resolution, Lorenzen explained, although he added that for reconciliation purposes, “it isn’t clear whether the Senate parliamentarian would agree that a budget resolution can use a baseline other than the official CBO baseline set out in law.”
A tax lobbyist familiar with the budget discussions speculated that the Budget Committee chairs could use “directed scorekeeping” to estimate tax reform legislation rather than abide by CBO and Joint Committee on Taxation rules. “I’m not sure if he/she could expressly declare a current-policy baseline, but the chair could certainly declare a score that may have been based on a current-policy baseline,” the lobbyist said.
While the Senate has not yet released a fiscal 2018 budget resolution, the House’s budget resolution uses a current-law baseline while also accounting for savings associated with the American Health Care Act (H.R. 1628), House-passed legislation to repeal and replace the ACA that was taken up in the Senate this summer but failed to advance.
The House budget resolution also includes reconciliation instructions that hold the Ways and Means Committee responsible for about one-quarter of the $203 billion in mandatory spending savings accounted for over a decade. According to the resolution, tax reform will be “deficit-neutral on its own,” but some lawmakers have speculated that mandatory spending reductions could be a dial turned up that makes the effort easier.
The House Budget Committee passed its budget resolution in July, but it has not been taken up by the full House yet. The office of House Budget Chair Diane Black, R-Tenn., did not respond to a request for comment from Tax Analysts, but sources suggested the baseline could be amended in the House Rules Committee or on the House floor if lawmakers agree that a current-policy baseline would grease the rails for tax reform.
“Clearly, no budget, no tax reform,” Brady said in July, expressing confidence that a majority of House Republicans would support the budget in order to pave the way for “pro-growth” tax reform.
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