Moneybox

The Procedural Trick That Might Let Trump Pass Budget-Exploding Corporate Tax Cuts

Mick Mulvaney testifies before Congress
White House budget chief Mick Mulvaney, arguably the leading intellectual light of the Trump administration.

Aaron Bernstein/Reuters

It appears that the Trump administration is warming up to a tricky procedural move that might let the Senate pass permanent tax cuts without bothering to pay for them.

While the White House still doesn’t have a formal tax plan yet, it’s pretty safe to assume that whatever proposal the administration eventually produces will punch a sizable hole in the federal budget. One big reason why is that Donald Trump very badly wants to cut the top corporate tax rate by more than half—it’s been one of the president’s few consistent policy positions since his campaign—but has so far dismissed any of the revenue-raising ideas that might realistically balance out such a reduction.

This all raises a serious legislative problem—namely, Republicans might not be able to make Trump’s tax cuts permanent. GOP leaders are planning to pass their tax package using the budget reconciliation process—the procedural tool that bars filibusters on tax and spending bills, allowing the Senate to approve them on a bare majority vote. Reconciliation is a useful means of trampling over Democratic resistance. But it comes with a catch: By law, Congress can’t use it to enact policies that will raise the federal deficit outside of the budget window, which traditionally only lasts 10 years. The standard way around this restriction, known as the Byrd Rule, is to simply make tax cuts temporary if they increase the deficit, by setting them to expire before the budget frame shuts. That’s why, for instance, the fiscally ill-advised Bush tax cuts sunset during the Obama years.

But the Byrd Rule might not just force Republicans to set a countdown clock on their tax cuts; it could make some ideas, like Trump’s 15 percent corporate rate, essentially impossible to pass at all. As Paul Ryan’s senior tax counsel, George Callas, has noted, even a corporate tax cut lasting just three years would raise the deficit more than a decade later if it wasn’t paid for. That means a cut passed in 2017 would have to expire before Trump’s second term got started—and even Republicans wouldn’t bother with such a preposterous policy. “A plan of business tax cuts that has no offsets, to use some very esoteric language, is not a thing,” Callas said in April. “It’s not a real thing. And people can come up with whatever plans they want. Not only can that not pass Congress, it cannot even begin to move through Congress day one.”

Does that mean Trump’s plans are dead? Not necessarily. Theoretically, Congress could choose to legislate based on a longer budget window—say, one that lasts two or three decades. The tax cuts would still have to expire in the long run, but as Pennsylvania Sen. Pat Toomey noted in a recent Bloomberg op-ed pushing this idea, they’d be good as permanent. Here’s how he explained things:

The governing law, the Budget Act of 1974, forbids a relevant tax bill from increasing the deficit beyond the time frame contemplated in the enabling budget resolution. But it does not limit the duration of that time frame.

Congress has traditionally used a 10-year time frame, but nothing in the law prevents us from using a 20- or even 30-year time frame. A 20- or 30-year tax reform would be as close to permanent as we can get since Congress would be likely to overhaul the tax code within that period anyway.

Now it appears the administration is also embracing Toomey’s open-the-window-wider strategy. On Wednesday, during a House committee appearance, White House budget chief Mick Mulvaney told members that the administration would be kosher with a longer-term budget. Per the Wall Street Journal:

Mr. Mulvaney told a House panel that Congress should be able to extend the window without changing the law. “We are exploring the possibility of also looking a little further out, especially when you start to talk about changes in mandatory spending,” he told lawmakers at a House Budget Committee meeting.

The benefits of changes to mandatory spending often don’t show up within the first decade, he said. “I think it’s a more reasonable way to look at the budget window,” he said.

Later in the hearing, Mulvaney claimed that the administration’s tax plan would eliminate enough deductions and loopholes to be revenue-neutral. In theory, this would eliminate the need for a longer budget window—but I’m guessing the man wants to cover his bases just in case the administration can’t follow through on its flimsy fiscal promise.

The big question about this strategy is whether enough Republicans would actually go for it. On the one hand, it would make deeply irresponsible tax cuts for the wealthy easier to execute. On the other, a longer budget window would also require a score from the Congressional Budget Office potentially showing decades of red ink. And given that some lawmakers seem to sincerely want budget-neutral tax reform, they may be hesitant to embrace the Toomey-Mulvaney strategy.

Still, there’s a procedural trick that might make Trump’s most feckless dreams a reality. And at least a few important people in Washington are taking it seriously.