Last week Congress was also talking tax cuts and tax reform.  How it ends up could have a big impact on entitlements.  It is expected that the second reconciliation—which hasn’t been written yet until the next year’s budget resolution is adopted for FY 2018—will be used for a tax cut package.  There will likely be some sort of “pay-for” as part of the reconciliation since the nature of the reconciliation is to reduce spending.  Some of that could possibly be dealt with through “dynamic” scoring by Congressional Budget Office (CBO) which would calculate that tax cuts will generate economic activity and that in turn would be assumed as reducing the costs. If that isn’t enough then other budget cuts would be needed.

There is an emerging divide on the revenue side.  Speaker Paul Ryan went before his Republican Senate colleagues last week to discuss his ideas on one of the fundamental parts of the House plan, a border tax that the President has endorsed.  This tax on various products coming across the US border is popular with some conservatives but it’s also opposed by a significant number of Senate Republicans. Senate Finance Committee Chair, Senator Orrin Hatch (R-UT) has gone public with his opposition to parts of the House plan.  He has also indicated that some of the House Republican ideas on tax reform won’t garner even 51 votes in  the U.S. Senate. If that becomes a reality that could be a problem for Speaker Ryan who envisions a border tax that generates more than a trillion dollars.

How tax revenues play out in all of this could have an impact on what happens to entitlements with the conversion of entitlements to block grants used to result in long term revenue (i.e. five years and ten years).

After the Speaker made his presentation several senators were vocal and public with their comments that were critical of the idea of a border text. Senator Tom Cotton (R-AR) denounced the proposal on the Senate floor and other conservative members including Senator David Perdue (R-GA) and Senator Roy Blunt (R-MO) where either outright critical or indicating they had serious reservations.  One of the next key steps will be what the President and the Administration proposes when they come up with their budget in a few weeks.  If a border tax is in their budget it could give some impetus to the idea but it may not have support of some key Administration officials. Ultimately how this is resolved may have a bearing on how much pressure is placed on several entitlements.