How Republicans Gamed Budget Rules to Pass Their Tax Cut

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The Senate Finance Committee evaded budget rules with this One Weird Trick. Photo: Mark Wilson/Getty Images

Republicans have not cleared every hurdle in the way of passing a big tax cut. But they seem to have cleared the biggest one: a Senate rule that prohibits using a budget vote to increase the deficit after a decade. The latest version of the Republican tax-cut plan engages in clever gimmicks to avoid the rule, most likely enabling the bill to pass in an environment in which Republicans have persuaded themselves that their political future depends on it.

Republicans will pass their tax cuts through a procedure called budget reconciliation, which allows a bill to pass the Senate with a majority (and, hence, avoid the need for Democratic votes) rather than the normal supermajority. Reconciliation bills have certain restrictions, the most important of which is that they cannot increase the deficit outside the “budget window,” which is currently ten years. Their bill contains huge tax cuts for corporations, and a mix of tax cuts and increases for individuals. Over the next decade, their plan nets out to a $1.5 trillion tax cut. To comply with Senate rules, it has to net out to zero after the decade is out.

Their solution to this problem is to have all the individual tax cuts in their bill expire suddenly after 2025, while the corporate tax cuts — and the increase in individual income taxes — are permanent. On paper, they have passed a gigantic tax increase on most Americans after 2025. But Republicans can say it won’t take effect because Congress will vote to extend the tax cuts then. They are using a hypothetical future vote to get around the deficit neutrality requirement. Republicans will argue that the gigantic tax increase of 2025 they are voting for on paper will never occur because neither party supports it. They have made their numbers add up by attaching a time bomb to the tax system and counting on the opposition to help them defuse it.

It is an audacious gimmicking of the system. It is also a clear evasion of a rule meant to force Congress to only use budget-reconciliation bills for fiscally responsible measures. But it is also likely a successful gimmick, in that it will enable them to pass an unpopular measure (huge corporate tax cuts) that they desperately want, without creating too many immediate victims.

The other time bomb in the Republican plan is that it would repeal the individual mandate, and in so doing precipitate large premium increases in the individual market. But they have an answer for that, too. Both parties are negotiating a bipartisan fix in the Senate to stabilize the individual market. Democrats are threatening to boycott that bipartisan fix — the tax cuts, they warn, “would torpedo Democratic support for the Murray-Alexander compromise.” But this is probably an empty threat. Once the tax cut has been signed, are Democrats going to refuse to support a bill that would help make health care affordable?

The genius of the Republican plan, if they pull it off, is that they are using hostage-taking in a novel fashion. They are using a 50-vote bill to pass the things Republicans care about, and setting up other, 60-vote bills to fix them. The partisan bill adds up on paper because it doesn’t include the cost of the bailout, which they can assume will be bipartisan.

Democrats can complain about this abuse of the rules, but the more productive course is to think of ways of imitating it. For instance: Suppose Democrats win control of Congress and the presidency, but cannot clear a filibuster (and also lack the votes to eliminate it). For instance: What if they decide to pay for an expanded Medicaid or Medicare buy-in plan by imposing a really gigantic tax hike on the rich — higher than even Democrats would like to see? Like a 90 percent top tax rate? Then they can invite Republicans to join them in a follow-up bill to cut that rate back down to a reasonable level.

If the rule is that majority-only bills have to add up, but bipartisan bills can increase the deficit all they want, then you can offload the costs of your bills by creating incentives for the other party to join in. In the short run, Republicans may have figured out a way around budget rules. In the long run, Democrats can do the same thing.

How Republicans Gamed Budget Rules to Pass Their Tax Cut