House Republicans took the first major step toward passing their ambitious tax reform plan Thursday, but the path ahead remains uncertain and fraught with political and procedural obstacles.
By a vote of 219-206, the House passed a fiscal year 2018 budget resolution that would reduce federal discretionary spending by $200 billion over 10 years.
“This is a budget that reflects our first principles. Freedom. Free enterprise. A government accountable to the people it serves,” Speaker Paul Ryan, R-Wis., said on the House floor. “It is a budget that will help grow our economy and it reins in our national debt.... This is a budget that keeps our responsibilities to our children and our grandchildren.”
It also sets up an inevitable showdown with the Senate, where the 2018 budget resolution under consideration would allow for tax cuts that add $1.5 trillion to the federal deficit over a decade.
The Senate Budget Committee held a markup on its resolution Thursday with the aim of passing it later this month. The House and Senate would then need to negotiate a compromise version that can secure support from a majority in both chambers. In an indication of how challenging that could be, 18 Republicans sided with Democrats against the House resolution on Thursday.
Rep. Matt Gaetz, R-Fla., said Wednesday that he was excited to vote for a “conservative budget.”
“This is the largest reduction in entitlement spending since Newt Gingrich was speaker of the House and it puts us on the path to fiscal responsibility and a budget that not only balances but starts to chip away at our crippling national debt,” he said.
President Trump praised the House vote and urged Congress to pass a budget as soon as possible.
“This resolution is a key step towards Making America Great Again by supporting the Administration’s legislative agenda, as it, among other things, drives economic growth and job creation, creates a pathway to fix our rigged and burdensome tax code and establishes a framework for rebuilding our military and securing the border,” he said in a statement.
Others in the GOP are less enthusiastic about advancing these resolutions that appropriations committees will ultimately have no obligation to follow, but they recognize the procedural necessity of them.
“Look, the budget itself is always a joke. It’s a total joke. It’s not worth the paper that it’s written on,” Sen. Bob Corker, R-Tenn., said this week, according to Politico. “This is a vehicle to begin a debate on tax reform.”
Republicans are gearing up for what could be the most significant reform of the federal tax code in decades, but any tax cuts that benefit the wealthiest tax brackets face stiff resistance from Democrats. As a result, they are laying the groundwork to pass a tax bill through the reconciliation process in order to avoid a filibuster, much as they attempted unsuccessfully with repealing the Affordable Care Act in 2017.
With 52 Republicans in the Senate and Vice President Mike Pence as a potential tiebreaker, it may prove difficult to maintain a majority in support of a tax bill. Corker has already said he would not support tax reform that adds to the deficit, but others in the party insist that a deficit-neutral bill would not have a big enough economic impact.
In order to even try, though, Republicans must first pass a budget resolution that includes reconciliation instructions.
“A budget resolution gives you the ability to have reconciliation protections from a filibuster in the Senate,” said Joshua Gordon, policy director for the Concord Coalition, a nonpartisan group that advocates fiscal responsibility.
However, he said the purpose of reconciliation was originally to give lawmakers flexibility to take tough votes that reduce the deficit.originally to give lawmakers flexibility to take tough votes that reduce the deficit.
“This is a perversion of the budget process…. Deficit-increasing tax cuts are not what the budget process and reconciliation was designed to make easier,” he said.
Budget experts agree that the reconciliation instructions are the most important section of this year’s resolutions to study. Many potential changes to discretionary spending would be superseded by sequestration under the Budget Control Act anyway.
“It’s not at all a document that does anything of legal importance,” said Josh Huder, a senior fellow at Georgetown University’s Government Affairs Institute. “It’s not a law.”
Still, Caroline Bruckner, managing director of the Kogod Tax Policy Center at American University, said the documents are instructive for understanding the majority’s spending priorities.
“It sets the stage for the legislative agenda for the next year and the remainder of this Congress…,” she said. “Establishing those spending targets are going to determine what the appropriations committees’ priorities are.”
According to Joel Friedman, vice president for federal fiscal policy at the Center on Budget and Policy Priorities, the resolutions signal Republicans’ vision for future spending, in this case including deep cuts to Medicaid, Medicare, and Affordable Care Act programs relative to current law.
“It’s an indication of policies that they might otherwise support, but whether or not they’re going to pursue those policies this year, that you can divine from the reconciliation instructions,” he said.
There are some conflicts between the House and Senate in spending targets for different programs, but the most noteworthy is that the Senate version allows for tax cuts that add to the deficit and the House resolution does not.
“The big difference between the two things is in the reconciliation instruction, that the Senate is paving the way for a $1.5 trillion tax cut,” he said.
Richard Arenberg, co-author of “Defending the Filibuster: Soul of the Senate,” described the budget resolution as a “blueprint” for appropriations, but the spending caps it sets are often overruled in final budget negotiations.
“These are binding,” he said, “but when Congress binds itself, it can frequently unbind itself at the end of the day.”
In several recent years, Congress has failed to produce a budget resolution at all, but for Republicans desperate for legislative accomplishments, failure may not be an option.
“The truth of the matter is that the major purpose for the FY2018 budget resolution is to provide the optional instructions which allow a tax cut bill to be produced under the reconciliation procedures created in the Budget Act,” said Arenberg, who worked on Capitol Hill for 34 years.
Democrats have seized on the potential for cuts to the entitlement programs under the Senate Finance Committee’s purview based on the draft reconciliation instructions, even though the resolution does not explicitly direct appropriators to reduce the growth of Medicaid spending.
“Your budget has it exactly backward,” Senate Minority Leader Chuck Schumer, D-N.Y., said at a news conference Wednesday. “Instead of cutting taxes for the rich and cutting earned benefits for everybody else, we ought to be making sure that the wealthy pay their fair share so that programs like Medicare and Medicaid and Social Security will be there for this generation and future generations.”
Schumer and his colleagues have sent a letter to President Trump reminding him of his campaign promise not to cut entitlement programs.
“It would betray every pledge of solidarity with working families for the President to sign GOP legislation that devastates Medicare and Medicaid while handing tax cuts to billionaires,” said House Minority Leader Nancy Pelosi, D-Calif.
Sen Bernie Sanders, I-Vt., declared Senate Republicans’ proposed resolution “the most horrific and destructive budget in the history of the United States of America.”
Blasting Republicans over the priorities of their budget and tax plans could be a potent political attack regardless of whether those cuts ever actually materialize.
“Democrats will emphasize the willingness of Republicans in the Congress and President Trump to cut programs like Medicaid, food stamps, and Medicare in order to give a large tax cut to corporations and wealthier individuals,” Arenberg said. “That will happen whether the tax bill succeeds or fails.”
However, Rep. Gaetz argued Medicaid reforms, in particular, are justified because current regulations create a “hammock of entitlement” for healthy adults who just do not want to work.
“We have so many people on Medicaid today who are able-bodied childless adults who could go to work and they choose not to,” he said, “and throughout northwest Florida folks don’t want to get up every day and go to work not only to pay for their own health care but for someone else’s health care who could work, who could volunteer, or who could be enhancing their skills through jobs training.”
Despite howls from House Republicans over the deficit-ballooning Senate resolution, experts expect most to fall in line in order to advance tax reform.
“It’s pretty clear that the House is just going to take the Senate’s instructions,” Gordon said.
“The desire to get a large tax cut into law may induce the House's conservative ‘budget hawks’ to give ground on their normal no deficit increase position,” Arenberg said. “This might lubricate an agreement on a budget resolution.”
If Republicans ultimately fail to pass a tax reform package, which is very much a possibility, fiscal conservatives may come to regret that compromise.
“I think that from a political standpoint, it could create some problems down the line for some deficit hawks,” Bruckner said.
Although September 30 was widely seen as the deadline for Republicans to use reconciliation to repeal the Affordable Care Act, health care advocates have warned that the 2018 budget resolution could still leave the door open to upending many of its provisions. Experts say that is technically possible but politically problematic.
“They can leave it open for both of those,” Huder said.
In order to use reconciliation, though, they would need to combine the tax and health care reforms into one bill.
“Ultimately it becomes a political decision for the Republicans if they think it would help to join together their tax bill and ACA repeal,” Friedman said.
How much flexibility Republicans will have for rolling back Obamacare depends on the final language of the reconciliation instructions. The version being marked up in the Senate Thursday could empower the Senate Finance Committee to enact many of the reforms called for by the GOP’s most recent repeal-and-replace proposal.
“A fair amount of Graham-Cassidy it seems to me could just be passed through the Finance Committee jurisdiction,” Gordon said.
Even if the GOP can come together around a joint budget resolution in the weeks ahead, Arenberg suggested the underlying commitment to pursuing tax reform through reconciliation could come back to haunt them.
“The Republicans are opting to go for a one-party, ‘leave the Democrats out,’ approach on the tax bill, just as they did on the health bill,” he said. “This will likely have a similar effect, solidifying Democratic opposition. Abandoning a bipartisan approach on the front end could turn out to be a fatal error on the tax bill as it was on fixing Obamacare.”