The Republicans' Priority Should Be To Protect Taxpayers

The top priority of Congressional Republicans is to extend the 2017 tax cuts to avoid a $4 trillion tax increase. That should be an easy task. But House Republicans appear to have accepted a budget baseline rule which favors higher spending and taxes, and which could end up forcing them to accept smaller tax cuts or tax increases.

The Budget and Impoundment Control Act of 1974, enacted during Watergate, curbed the President’s power to restrain spending and expanded Congressional control over the budget. The law, and subsequent amendments, rigged the budget process to make it easier to increase spending and harder to reduce taxes.

Under the current budget rules, the revenue and spending baselines are treated differently, favoring higher spending and higher taxes. The revenue baseline is set to follow current law, while the spending baseline is set to follow current policy.

Under the revenue rule, any proposal to extend an expiring tax cut and keep taxes at the current level is scored as a new tax cut, and an increase in the deficit. Under the spending rule, virtually every spending program is extended in the baseline automatically every year, with annual appropriations extended and increased by inflation.

As a result, Congress is told it must pay for extending tax cuts while spending programs increase every year, buried within the baseline, without any visible impact on the deficit. Only in Washington does this budget tomfoolery make sense.

In the real world, extending the 2017 tax cuts does not give anyone a tax cut. No one would pay lower taxes next year if the tax cuts are extended. An extension would merely keep taxes at the same level next year as this year. But millions of taxpayers would pay higher taxes if the tax cuts are not extended. Avoiding a tax increase is not a tax cut, and should not be scored as one.

Douglas Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office, has written extensively on this issue. He believes spending and taxes should be on a level playing field and use the same baseline. A current policy baseline would provide even-handed treatment of taxes and spending and reduce the bias towards spending and higher taxes.

Treasury Secretary Bessent, House Ways and Means Chairman Smith, and Senate Finance Chairman Crapo all support using a current policy baseline, just as Congress did in 2012 when extending the Bush tax cuts. This would allow Republicans to stop fooling around with tax increases and smaller temporary tax cuts and focus their deficit reduction efforts on spending cuts.