(Bloomberg) A Republican senator is building support to change budget rules in order to make temporary tax cuts last for two decades or more, but he has yet to convince a critical figure—House Speaker Paul Ryan.
Ryan says he wants permanent tax cuts, a goal he repeated this week in response to questions about Senator Pat Toomey’s proposal to relax time limits on any cuts that would increase the federal deficit. Beyond Ryan’s skepticism, Toomey’s proposal carries procedural challenges and political risks for the GOP, according to budget experts.
The change would at least double the time frame allowed for enacting tax cuts that add to the deficit—marking a sea change for budget rules and making it easier for the GOP to enact lower rates without any support from Democrats. Republicans control only 52 of the Senate’s 100 seats, and they want to pass a tax bill under a process called reconciliation that allows for a simple-majority vote. Currently, reconciliation rules require that any changes that would add to the deficit outside a 10-year window must be set to expire.
Toomey’s proposal to extend the time horizon to 20 or 30 years has gained the support of influential Republicans including Senate Finance Chairman Orrin Hatch and House Freedom Caucus Chairman Mark Meadows, as well as anti-tax activist Grover Norquist and conservative groups such as the Club For Growth.
“I’m talking to my colleagues all the time about it, including recently more and more House members who, once you walk people through it, they get the logic of this,” Toomey said to reporters Thursday. “The alternative is really weak tax reform.”
Economic Decline
Ryan and others want a permanent tax overhaul that they can only get through a tax bill that pays for itself and doesn’t add to the deficit.
During a press conference earlier this week, the speaker was asked about the push to extend the budget window to 20 or 30 years. “No matter how long the window is, the out years, whatever the out years are in whatever window, have to be revenue neutral or deficit neutral for reconciliation to work,” Ryan said. “That’s why I made the point yesterday that the key components of tax reform need to be permanent” in order to provide long-term certainty to businesses and generate robust economic growth, he said.
The following day, Ryan went a step further. His office sent a press release saying that when it comes to corporate taxes, “a temporary rate cut could actually result in economic decline rather than growth,” citing a study by the Tax Foundation. The study evaluated a 10-year tax cut.
Toomey, a Pennsylvania Republican, said the White House has expressed openness to the idea, adding that President Donald Trump has been promising a tax cut and is “not talking about revenue neutrality.” Toomey has argued that tax cuts that expire after 10 years wouldn’t help businesses, which need a longer time horizon for planning. In Washington, 20 or 25 years is “as close to permanent as you get,” Toomey said.
Treasury Secretary Steven Mnuchin has said that he’s open to considering Toomey’s proposal—if there’s no hope of winning Democrats’ support for a tax plan. Senate Majority Leader Mitch McConnell has said he doesn’t expect any Democratic votes for a tax overhaul.
Leadership Follows
Republicans are still working on the terms of the budget resolution for fiscal 2018, the vehicle they plan to use to advance tax legislation. But they need to finish work on the health-care bill before a tax overhaul can advance.
McConnell, who has also insisted on revenue-neutral tax changes, hasn’t taken a position on the length of the budget window, a spokesman said. A Senate Budget Committee aide said Chairman Mike Enzi is aware of the proposal to extend the window and hasn’t made a decision yet. A House Budget Committee aide said the panel’s plan for the budget is still to use a 10-year window.
Toomey doesn’t seem to be too concerned about Ryan’s lack of support. If enough Republicans endorse the idea, leaders would follow, he said. “If the consensus of the Republican conference in both bodies were to go here, I don’t see why leadership would object,” he said.
The change would require the House and Senate to approve a longer budget window in reconciliation instructions. The 1974 Budget Act just says the window must be at least five years, so it could be extended without violating the law, said Ed Lorenzen, a senior adviser at the Committee For a Responsible Federal Budget. He noted that Congress has shifted it to seven years before, but never lengthened it beyond 10 years.
“Using a longer budget window to try to game budget rules would be unprecedented, and would be a pretty blatant gimmick,” said Lorenzen, a former congressional Democratic policy adviser.
Cutting Medicare
Toomey’s idea is under serious consideration by congressional Republicans, according to a Republican who’s familiar with internal GOP discussions. But the former aide, who asked not to be named because the discussions are private, said it’s unlikely that Toomey’s suggestion would be adopted. If it were, the former aide said, that would signal death for permanent tax reform.
Setting that precedent would also be a gamble for the GOP since Democrats could eventually extend the window for their own goals, according to Lorenzen.
“Any gimmick that can be used to allow deficit-financed tax cuts can be used later to allow deficit-financed spending," Lorenzen said. “You could easily see a new spending program being created for 19 years and sunset after that.”
The move may pose another, more immediate challenge. Republicans have touted the benefits of adopting budgets that seek to balance revenue and spending over the specified time-frame. But if they extend that window to 20 years, it would be “very hard” to achieve balance without cutting Medicare or Social Security, Lorenzen said. That’s difficult to do since spending for those programs is expected to grow substantially in the second decade. Trump has vowed not to cut them.
‘Magic Wands’
Democrats are expected to oppose the tactic. Representative Sander Levin of Michigan, a former Ways and Means chairman, called it a "very bad idea" that smacks of desperation. He said it would suggest that Republicans don’t care about fiscal discipline and "think there are magic wands" for the economy in tax cuts.
The escalating push to change the rules comes amid signs that Republicans are deeply divided on how to raise revenue to pay for the steep individual and corporate tax-rate cuts they want. Ryan-endorsed proposals to impose a border-adjusted tax on imports and to end interest deductibility have struggled to gain traction, and Senate Republicans and the White House have yet to propose alternatives.
But the 47-year-old Ryan seems to be staying the course on a project that is close to his heart, attempting to keep hope alive for the first permanent overhaul of the tax code since 1986—the year, he often says, he got his driver’s license.
—With assistance from Anna Edgerton
