RESOLVED AND RECONCILED

How the Republican budget plan paves the way for US tax reform

Obsession
"America First"
Obsession
"America First"

Wondering what the House vote on the Congressional Budget Resolution means for US tax reform? You’ve come to the right place. Basically, this: Republicans can come up with a budget-busting tax plan without having to work with the Democrats, sooner than they thought.

Is this what Congress did when it tried to repeal Obamacare?

Republicans are using the same procedure, called reconciliation, to avoid having to win the eight Democratic votes they would likely need to pass the bill with a 60-vote super-majority in the 100-member Senate. Reconciliation is a procedural mechanism originally intended to quickly clean up minor differences in the spending plans proposed by the Senate and the House by setting aside rules that slow the process. Lawmakers quickly learned that, with carefully written legislation, they could also move controversial legislation, like massive tax cuts or an overhaul of the health-care system, through reconciliation.

Didn’t the attempts to repeal health care with reconciliation fail?

Indeed they did. Republicans only have a two-vote margin in the Senate (effectively three, if you include vice president Mike Pence’s ability to cast the tie-breaking vote). If they lose just three votes, they still can’t pass anything. It’s possible the same thing will happen with this tax bill—except that cutting taxes is a far easier sell to Republicans, of course. It’s why they put up with Donald Trump.

What is actually in the budget resolution?

The resolution spells out the top-line numbers for the budget over the next 10 years—which, for reconciliation to be allowed, can’t increase public borrowing. The resolution allows Congress to cut tax revenue by $1.5 trillion over 10 years, and they are going to pay for it by cutting spending $5 trillion over the next decade. All in all, they expect an annual budget surplus by 2026.

There are a couple issues with this: One is that the tax cuts are locked in first, with spending cuts in the years that follow. Congress has a terrible record of delivering spending cuts, which experts say is a sign this resolution will dramatically increase the US debt. That’s especially true because most of the cuts are earmarked for big, popular spending programs like Medicare, Medicaid and Social Security; smaller annual programs have already been cut to 1950s levels in recent years. Numbers aside, however, the political outcome of this is paying for a tax cut for the wealthy by cutting spending on the vulnerable.

Will the tax cuts mainly help the wealthy?

While there is still no tax plan for you to read, the Trump’s White House team and Republican leaders released their “unified framework” (pdf)—a starting point for how their tax plan will go, and analysts have taken a careful look at it. Some it is pretty obvious: If you eliminate the inheritance tax on estates over $5.49 million, it will only benefit people inheriting $5.49 million or more. Some of it is down to how progressive taxes work: When wealthy people pay more taxes proportionally, they gain more when taxes are cut, without changes elsewhere. Some it comes down to cutting corporate taxes: Cuts there tend to benefit investors more than workers.

Many conservatives are excited about the possibility of a huge, across-the-board tax cut juicing the economy. At the same time, many of their leaders have spent years claiming the mantle of deficit hawk and protesting any policy that will raise the debt. One original dividing line was whether tax reform would be deficit neutral—an exercise in increasing efficiency without reducing revenues. This was preferred by leaders in the House, but their decision to embrace the tax-cutting Senate approach signals they have surrendered that particular high ground in order to get any kind of tax cut at all passed.

What’s left to find out?

Everything, really. Like most preliminary documents, both the unified framework and the budget resolution kick the most critical decisions down the road. Republicans face a tightrope wire between who benefits from the tax cuts, and how much of the cuts get paid for versus how much the public will borrow. The more debt in the plan, the harder it will be to win critical votes in the Senate. But paying for the tax cuts by reducing loopholes—such as the deductions for state and local taxes, charitable giving or retirement savings—could alienate lawmakers whose constituents benefit. It’s a very difficult line to walk—and Republican leaders say they will pass their first bill out of the House by November. Do they have the answers they need?

“We don’t know, we don’t know, we don’t know, we don’t know, we don’t know,” Rep. Chris Collins told Bloomberg on Tuesday.


Read next: Donald Trump’s tax plan isn’t going to be a $4,000 windfall for American households

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