Inside D.C.

Tax cuts and Federal Budget 101

At the risk of boring you to tears, I’m going to try and explain what the GOP Congress is up to procedurally as it starts the long legislative/political slog toward any kind of tax “reform,” or more accurately, big tax cuts. You’ve heard about budget resolutions, reconciliation, etc., and I’m guessing 99% of you haven’t a clue what those things are.

Understand the single goal of the GOP is to enact a personal/corporate tax cut package the president will sign and do it before the end of the year if possible.  This gives Republicans both on the Hill and in the White House bragging rights going into 2018 over “reforming” the federal tax system for the first time since 1986.  Let us not forget, 2018 is an election year.

The path to victory least fraught with major procedural hurdles to leap is to use what’s called budget reconciliation.  The House this week took the first step.  It approved on a 219-206 party line vote its version of a FY2018 $1-trillion budget resolution. The Senate resolution was the subject of a two-day Budget Committee markup this week, to be voted on when Congress returns October 16 from its week-long Columbus Day recess.

Budget process lesson one:  A “joint budget resolution” is not a law; it’s the negotiated House-Senate version of a non-binding outline or framework of budget spending priorities, and once approved, it doesn’t require the president’s signature.  It underpins the federal spending process by setting goals or caps for the dozen spending bills that keep that keep the government running.  Congress can – and very likely will – walk away from the joint resolution it eventually approves.

Budget lesson two:  Once a joint resolution with its spending controls is approved, each committee of jurisdiction may receive a “reconciliation directive” from the Budget Committee, instructing the chairs to adjust/cut program spending so it meets the budget spending targets, i.e. reconcile actual program outlays to the budget resolution number.  So, if a committee controls programs that collectively represent $500 million in spending each fiscal year, and the budget committee hits that panel with a “reconciliation directive” to come up with $100 million in savings, the committee starts to whittle away at programs it controls until it comes up with $100 million in cuts/savings to satisfy the directive.  At least that’s the way it’s supposed to happen.

The just-approved House resolution directs all major committees to come up with $203 billion in overall mandatory savings/cuts over the next decade.  So far, the only directives in the Senate bill are for the Senate Finance Committee to find $1.5-trillion in savings over 10 years, i.e. tax cuts, and for the Energy & Natural Resources Committee to find $1 billion in savings to help offset lost federal income/costs from tax cuts. This will be done by allowing oil drilling in the Arctic National Wildlife Refuge. When the two resolutions are married into a single joint resolution, expect the Senate version to prevail on mandatory cuts so all House spending is untouched by reconciliation directives.

Budget lesson three:  The reason Congress must approve a joint budget resolution is to be able to craft a tax cut package through what’s called the “reconciliation” process.  Created by the 1974 Congressional Budget Act, reconciliation allows for expedited consideration of certain qualifying tax, spending and debt limit bills.  This means such bills – in this case, tax cuts – can be approved by a simple majority vote, not the 60-vote “super majority” plaguing most Senate legislation.  Even better for the party in control, Senate reconciliation bills can’t be filibustered and amendments are strictly limited to tax, spending and debt.  Given the GOP controls both chambers and the respective floor consideration processes, if the majority is in solid agreement, there’s no need for any Democrat votes to get tax cuts across the finish line.

There you have it.  The GOP needs to move its tax reform/cuts quickly.  To do that, it must make the procedural path as smooth as possible.  That’s achieved by approving a joint budget resolution which qualifies the tax cut measures to be part of a reconciliation process.  That means simple majority votes, no time-sucking filibusters and only amendments blessed by the GOP leadership.  Easy peasy.