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Budget Resolution Slams Spending and Programs and Opens Tax Fast-Track

The two 2018 budget resolutions adopted in the House and Senate Committees have two broad themes: larger tax reductions and larger budget cuts. The budget resolutions are different in the extent of their cuts with the House version being much grander in its mandatory and entitlement cuts and its cuts to the annual appropriations. Their biggest overall goal, however, is to reach a consensus between the House and Senate on a reconciliation instruction that will allow a fast-track tax cut or reform before the end of this year.

In fact, this year’s budget resolution can be thought of as three tracks: what is allowed in appropriations for 2018, what it calls for in cuts over ten years to both annual appropriations and in entitlement/mandatory spending, and what it requires as far as reconciliations to effect tax revenue and future mandatory/entitlement spending.

The House budget would direct $1.3 trillion in non-defense spending cuts over ten years while allowing defense spending to increase. It also calls for $203 billion in mandatory spending cuts, which are likely to hit some key programs like SSI, and some children’s programs.

For FY 2018, the House envisions cuts in non-defense appropriations that are $5 billion below what was written into the Budget Control Act (BCA) while allowing defense increases that are $72 billion above the BCA cap. But changing these spending caps will require a law change that would have to be signed by the President, unlike the overall budget resolution that is binding only on Congress through agreement.

The House resolution was voted out of the House by a vote of 219 to 206 on Thursday afternoon. No Democrats voted for it, with 15 Republicans joining them.

The Senate has its set of long-term cuts also that are not as deep as the House version but would cause cuts across annual appropriations and entitlements. As far as current, FY 2018 spending, the Senate bill is more generous than the House and, like the House bill, requires a renegotiation of the budget caps under the BCA.

The Senate appropriations for this new fiscal year is on track to allow a slight increase in non-defense spending to $518 billion just a few billion above the current caps. It far exceeds the defense caps of $549 billion by approximately $72 billion. If the Congress fails to amend the budget caps and fails to get the President’s signature, across-the-board cuts would take place in January and since the non-defense spending is not much beyond the current caps, those across-the-board cuts would slam the defense increases House and Senate leaders crave. The other challenge for budget writers is that to get a deal on the budget will require 60 votes—and that means Senate Republicans will have to get some buy-in from Democrats.

The Senate Budget Committee approved the Senate Resolution also on Thursday. Senate Democrats outlined how the Senate resolution would result in long-term cuts, but by the end of the day, both sides in both Houses seemed to acknowledge that the resolution is most important to the reconciliation instruction that will allow for a fast-track tax cut package.

Despite the proposed cuts the resolution would allow for $1.5 trillion tax cut (over ten years). It would not necessarily have to be paid for. The budget resolution would provide for what is called dynamic scoring. Dynamic scoring would bypass the traditional calculations that attempt to calculate the cost of a tax cut. Instead, dynamic scoring would project economic growth that would not increase deficits because it would claim increased economic activity to such an extent that deficits would not occur.

With the Senate is out this week, and the House is gone the week after that, so it is expected that the House and Senate leaders will negotiate one resolution and then debate it on the Senate floor the last week of October. Like the reconciliation to repeal the ACA, this tax cut resolution could last well into 2018 if the Congress fails to reach a deal by the end of this year, as is the Republican leadership goal.

 

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