By Brian Baler
Washington is geared up for a big debate over trillions of dollars in tax cuts. It’s going to be long, slow and messy.
As the utter chaos that erupted as lawmakers struggled to write a year-end bill to fund the government demonstrated, the GOP has a tenuous grip on the House. President-elect Donald Trump has a penchant for chaos. And Republicans are at odds over a long list of issues, beginning with whether they should take up tax first this year or immigration.
After weeks of negotiations, it looks like they’ll begin with the border. Here are the big issues they’ll have to resolve when they turn to taxes:
Perhaps the biggest, hardest, and so far unanswered question is how much to spend.
Deficit concerns are running hot in the House, where many Republicans say a tax bill ought to be completely paid for. That’s anathema to party heavyweights like House Ways and Means Chair Jason Smith (R-Mo.) and Senate Finance Chair Mike Crapo (R-Idaho), not least because it would be extremely difficult to find enough offsets to cover the projected $4 trillion cost.
Lawmakers could split the difference, and just pay for part of it. It’s possible they would decide that only certain types of provisions have to be offset.
Crapo says extending current policy, like the tax cuts from Trump’s first term that are set to expire at the end of this year, shouldn’t cost anything. Nor should what he calls “pro-growth” provisions — leaving only new ideas that don’t do much for the economy needing offsets.
Lawmakers haven’t really begun wrestling with this question in earnest, though, and it could take a long time to sort out. But they can at least start hashing out a plan with only a rough idea of how much they’ll ultimately spend.
Back in 2017, when they passed Trump’s plan, it took Republicans months to settle on the original $1.5 trillion price tag for their tax cuts.
The losers
If Republicans decide to pay for at least some of their plans, the question then becomes who’s a winner and who’s a loser — and that’s something seemingly everyone is already focused on, from Capitol Hill, to K Street and beyond.
Republicans have already offered a long list of possibilities: higher tariffs, increasing the college endowment tax, cutting green energy credits, rescinding IRS funding, cutting other government spending, among many others.
There’s a chicken-and-egg quality to the debate though, because it’s hard to know how much they need to raise when they haven’t decided how much to spend. And lawmakers will be subject to furious lobbying by those worried they’re on the menu.
Even once lawmakers settle on the bill’s price tag, Republicans may be tight-lipped about what exactly they have in mind for offsets. Lawmakers typically don’t like to let their proposals, especially ones calling for higher taxes on some people or organizations, to sit out in public for long, for fear opposition will coalesce and sink them.
And there will probably be some surprises. Tax staffers have been known to keep secret payfors in their back pockets that aren’t revealed until virtually the last minute.
Move the goal posts
If Republicans decide not to worry too much about the price tag, one way to paper over the projected hit to the deficit would be to change the yardstick used to measure the cost of their plans.
Normally, bills are compared to what’s in the law now, which would require taking account the cost of extending the expiring tax cuts. But Crapo wants to instead compare it to current policy, which would mean extending them would appear to cost nothing.
That would sidestep the need for big payfors and make it easier to extend the provisions for a long time.
But it would be a budget gimmick that wouldn’t satisfy some deficit hawks, and it could cause procedural problems in the Senate. Republicans have never used a so-called current policy baseline for a major tax bill before, and some experts say it would allow Democrats to poke holes in GOP plans to use a special process known as reconciliation to push their legislation through on a party-line vote.
The Senate’s rules for what may go into reconciliation bills are notoriously arcane. There are restrictions against provisions that don’t cost anything, or where the price is incidental compared to the scale of change they would make. Interpreting the rules is the job of the Senate’s parliamentarian, a little-known figure outside the Capitol who will have a big influence over the shape of Republicans’ plans.
Something shorter
Republicans would like to extend their tax cuts for as long as possible, and 10 years has become the norm. But lawmakers could drastically reduce costs, and the need for payfors, by adopting a shorter extension.
Rolling over the full slate of the 40 or so provisions due to expire would cost roughly $400 billion per year, according to budget analysts. While a shorter extension might reduce sticker shock, it would also seriously disappoint many Republicans.
Smith is already coming out against this idea, saying he wants to re-up them for as long as possible. Lawmakers could also do a combination, where some provisions get longer renewals than others, and maybe some are allowed to expire as scheduled — though there would then be a fight over which ones should get the better treatment.
The budget
Speaking of reconciliation, Republicans can’t use the fast-track procedure without first agreeing on an overall federal budget, and that could be tricky given the focus these days on the deficit.
Budgets used to be a big deal in Congress, with Republicans using them to show, at least on paper, how they’d put the government’s books in order. When former Rep. Paul Ryan (R-Wis.) was running the House Budget Committee, he elevated the annual budget to a glossy, high-profile mission statement for the party.
Lately, though, lawmakers have taken to adopting so-called shell budgets that don’t do much except allow lawmakers to move on to reconciliation. That’s where Republicans appear to be headed, but it’s not certain that everyone will be fine with approving a dummy budget.
Overloading the circuits
Congress’ schedule is packed, and Republicans aren’t necessarily doing themselves any favors by only extending government funding until March. That means they’ll probably have yet another fight over annual appropriations then, even as they’re likely tackling a sweeping immigration plan that could also address energy and defense.