Director of Federal Fiscal Policy
Congress should “dispense [with] the handcuffs of revenue neutrality and pass a real tax cut,” Senator Ted Cruz said this week. As we’ve explained, enacting a tax bill that loses revenue and increases deficits would mark a major break with promises from House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, and other key Republicans that tax reform will be revenue neutral. It also would mark a disturbing turn towards the model of President Bush’s tax cuts of 2001 and 2003. In fact, Senator Cruz recommended not only repeating the Bush tax-cut model but doing so in an even more irresponsible way.
Republican congressional leaders have made clear that they will try to enact a major tax bill with only Republican votes by using the fast-track reconciliation process. A reconciliation bill can pass the Senate with only 51 votes and can’t be filibustered. But under the so-called “Byrd rule,” a reconciliation bill can’t raise deficits outside the “budget window,” typically ten years or less.
The Byrd rule was intended in part to ensure that policymakers didn’t use reconciliation to increase long-term deficits. But in 2001, President Bush and Congress used reconciliation to enact large tax cuts, mainly for the wealthy, that did increase deficits. To get around the Byrd rule, the bill’s tax cuts were set to expire after ten years — even though Republican lawmakers always intended that future policymakers would make these “temporary” tax cuts permanent.
Indeed, more than 80 percent of the 2001 and 2003 tax cuts eventually became permanent. In 2013, CBPP estimated that those tax cuts will be responsible for roughly one-third of the federal debt owed by 2018.
Senator Cruz wants to use the same strategy but make the “temporary” tax cuts last even longer — 20 or 30 years — so they’re effectively permanent:
I believe in enacting tax reform we should look at a 20-year [budget] window or a 30-year window. What does that allow you to do? It allows you to get in and pass a major tax cut. And if it expires 30 years from now, that may not be permanent but it’s pretty darn close.
Moreover, the projected budget surpluses of 2001 that many lawmakers pointed to that year to justify large, revenue-losing tax cuts don’t exist today. (See chart). Deficits have replaced surpluses, and the federal debt as a percent of the economy is expected to grow instead of shrink.
Another round of large, unpaid-for tax cuts would exacerbate long-term fiscal challenges stemming largely from the aging of the population and, in turn, the growth in federal health and retirement programs. And it would generate more demands for cuts in a wide range of government programs. Republican lawmakers (including Cruz) have repeatedly cited the projected growth in debt to justify deep spending cuts that ultimately would affect programs that help families meet basic needs, like Medicaid, as well as investments in areas that help build a stronger economy, like education. To pay for existing federal commitments and address domestic and international challenges will require more revenue, not less.