Senate GOP moves forward on ‘current policy’ TCJA extension shift

Senate Republicans moved forward on an attempt to shift the way the federal government accounts for extending current rates and deductions set to expire at the end of the year, in order to maintain momentum on passing major tax and economic legislation.

Whether the accounting change, from a “current law” to a “current policy” baseline, will garner enough political support to be adopted by both chambers, and not face an adverse ruling from a key nonpolitical official, remains to be seen. Senate Republicans wrote in much more flexibility with regards to spending cuts, which several House Republicans have publicly criticized.

The budget resolution, passed by the Senate on a 51-48 margin on April 5, does not resolve significant differences between Republicans in the House of Representatives and the Senate, which could result in it failing to garner enough support to advance in the House.

The budgetary maneuver, teased for months and made public with release of the revised budget document on April 2, aims to increase political flexibility around a major tax and economic package Republicans and the Trump administration hope to pass into law this year. It represents a major fork in the road for policymakers as they try to reach a budgetary agreement to serve as a vehicle for trillions of dollars worth of legislative changes around tax and other policy areas. Senate Republicans also aim to change how official budgetary scorekeepers treat extending current tax policy, in order to maximize how many changes they can make in a more specific economic bill to be drafted in coming weeks or months. Most Senate Republicans want the accounting change because it would make it easier to accommodate an extension of the Tax Cuts and Jobs Act (TCJA) expiring rates, Trump campaign promises, and revival of the more generous 163(j) interest deduction calculation, Section 174 R&E expensing, and 100% bonus depreciation.

The accounting change would also make it easier to make the policies in the expected legislative package permanent, though it remains to be seen how Treasury markets would react to longer term deficit concerns.

The shift in the baseline would change how that legislation would be analyzed for cost to government, from current law to current policy. This would allow them to more easily make permanent tax policy, and more tax changes than they might otherwise be able to under the rules of budget reconciliation, a legislative device that allows for a bypass of the typical 60-vote filibuster-proof threshold in the Senate, enabling significant tax and fiscal policy to be made along party lines, but prohibits increases to the budget deficit outside of a 10-year window. While the change could grant them more freedom in drafting tax policy, it may exacerbate concerns over Washington’s ability to control long-term deficits and debt growth, which could increase the U.S.’s cost of borrowing and have negative knock-on effects for both the federal government and private sector.

Whether the current policy path forward will gain approval from both the Senate Parliamentarian Elizabeth MacDonough and House fiscal conservatives remains unclear. Under a current law baseline, the Congressional Budget Office (CBO) estimated last year that extension of the individual income tax cuts, the Section 199A qualified business income deduction, and other significant temporary tax policy set by the TCJA would decrease federal revenue by approximately $4 trillion over 10 years. If the Senate Republican shift to a current policy evaluation succeeds, the CBO estimate of the Senate bill could approach, or even arrive at, no cost to the federal government for the purposes of the budget reconciliation process necessary to circumvent a potential filibuster in the Senate.

The resolution grants Senate Budget Committee Lindsey Graham, R-S.C. flexibility to revise the so-called “scoring” of the legislation “using more realistic assumptions regarding current tax policy.” Senate Budget Committee Democrats immediately disputed whether that shift would be approved by the Senate parliamentarian. Bipartisan meetings with the key procedural official, who can rule whether the budget resolution, and future tax and economic legislation it aims to enable, follows laws governing the process are already underway, though MacDonough has yet to formally rule on the proposed change. Some Republicans in the House and Senate have pushed back on the baseline shift as well, and House Ways and Means Committee Chair Jason Smith, R-Mo., has said he is unsure as to whether enough Republicans would support the shift in the narrowly-divided House of Representatives.

There are other major areas for House and Senate Republicans to work out. Senate committee instructions, necessary for both new spending, tax benefits and spending cuts, are well below instruction amounts in the House budget resolution passed near the end of February. The Senate resolution grants the Finance Committee $1.5 trillion in deficit increases within the 10-year budget window, likely reflecting the size of policy changes Senate Republicans want to make on top of the estimated $4 trillion they’re crediting themselves for a TCJA extension. This provision reflects the $5 trillion to $6 trillion total tax policy budgetary price tag, Senate Finance Committee Chair Mike Crapo, R-Idaho, said in March that he saw the effort rising to. The new resolution’s spending cut guidance for Senate committees is substantially smaller than the $2 trillion topline and $1.5 trillion floor in the House vehicle, another major difference between the two chambers. In total, the new Senate budget would authorize $5.8 trillion in deficit increases, a $4 billion in mandatory savings for government, and a $5 trillion debt ceiling hike, larger than the $4 trillion limit raise in the House version

The Senate resolution does keep the prior instructions for House committees largely intact, a nod to continued substantial differences in concern over deficits and appetite to cut spending between the two chambers, despite the effort to maintain momentum for the economic package through introducing a new resolution. Despite the new Senate budget blueprint, those differences would still need to be resolved.

Multiple House Republicans criticized the blueprint almost immediately after its release.

“The Senate needs to go back to the drawing board and really do the hard work that is required to achieve the consensus similar to ... the process we went through in the House,” Rep. Lloyd Smucker, R-Pa., a senior member of both the House Budget and Ways and Means Committees, told Politico on April 2. “We’ve gone through months of negotiations here in the House and arrived at a bill that is fiscally responsible and that had the support of the entire caucus,” he added.

Rep. Dave Schweikert, R-Ariz., chair of the Ways and Means Committee, said, “I still don’t think we’re being aggressive enough” on reducing the deficit. Schweikert has been outspoken in criticism of attempts to shift accounting of tax cut extensions from current law to current policy. 

The public hesitance from senior Republican tax writers highlights the significant disagreements over the blueprint in which they hope to fill in policy details that still need to be hashed out, much less the actual tax legislative developments themselves. Whether Trump and a critical mass of congressional Republicans endorse the accounting baseline shift and choose to move forward with the change will be a major early decision point for lawmakers in their multitrillion dollar economic debate this year. 

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