Lawmakers have set a precedent that tax reform policies follow a 10-year budget window, but the rule is not set in stone and extending that time frame could have some net benefits.
Federal budget rules exist to ensure that lawmakers take fiscal considerations into account when passing legislation. The majority of budget rules include a window — a set timeframe that is considered when representing the fiscal impact of legislation and in determining whether or not a bill meets federal budget rules.
White House Office of Management and Budget Director Mick Mulvaney has floated the idea that Congress could extend the budget window beyond 10 years as Republicans push for tax and regulatory reform.
“The 10-year window is arbitrary,” Mulvaney told reporters Thursday in a conference room in the Eisenhower Executive Office Building. “Other administrations have done shorter periods. You can do a 5-year window or a 20-year window.”
Extending the 10-year budget window poses some potential benefits to the U.S. economy and businesses. Extending the window for tax reform allows the U.S. to amortize the costs incurred by pushing tax reform over a longer period and allows U.S. businesses to make long-run decisions in how they choose to allocate resources.
President Donald Trump promised to push for tax and regulatory reform once he took office, a promise he has somewhat kept with a few executive orders aimed at repealing Dodd-Frank. Despite the president’s efforts, the onus of passing comprehensive tax reform lies not with the Office of the President, but on Congress, where divisions between Democrats, Republicans and factions within the Republican Party threaten to upend any effort on Republican leadership to push reform to the U.S. tax code. (RELATED: Divide Among GOP IN Congress Isn’t Going Anywhere)
For Republicans to achieve truly pro-growth tax reform — one that spurs rapid, sustained economic growth — they will likely have to use the budget reconciliation process to bypass a filibuster from Senate Democrats. Under the process, bills are not subject to filibuster, which gives the majority party an advantage when trying to pass controversial legislation.
Senate Republicans could hit a few snags when employing this method: negative Congressional Budget Office scoring, backlash from Democrats in Congress and even pushback from moderate Republicans who fear retribution from voters in 2018 for trying to repeal Obamacare. Arguably, the most important obstacle Republican senators face is that reconciliation rules forbid tax reform packages that increase the federal deficit outside the “budget window.”
Cesar Conda, former chief of staff to GOP Sen. Marco Rubio of Florida and assistant for domestic policy to former Vice President Dick Cheney, argues that congressional Republicans should extend the budget window beyond the 10-year horizon. “The 10-year horizon is a self-imposed rule that Congress can easily change,” Conda told The Daily Caller News Foundation.
In his current role as a principal with a consulting firm in Washington, D.C., Conda represents many corporate clients who wish to see long-term changes to the U.S. tax code.
“We represent a bunch of corporate clients and they have the unanimous view that tax reform has to be permanent. The changes have to be permanent so they can make long-term decisions about investment in the workforce and in particular forms of research,” Conda told TheDCNF.
Conda said that in his conversations with lawmakers, he sees Congress as “very close to passing tax reform.” The only hold up appears to be with the controversial border adjustment tax, according to Conda. “If you expand the window out 20 years, that becomes less of a problem.”
Some tax and federal budget experts have the same opinion as Conda.
Adam Michel, a policy analyst at the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation, focuses on tax policy and the federal budget. He argues that in the context of tax reform and passing a bill through the reconciliation budget process, a longer budget window has some tangible benefits. Namely, there are one-time costs incurred with pushing tax reform, and a longer window allows for those to be spread out over time.
“A longer window allows for the accruing of some of the growth effects of tax reform. You see more of the benefits, which can help you get to your deficit neutral marks for reconciliation,” Michel told TheDCNF. “There are also a lot of one-time costs in tax reform and a longer window helps in those regards.
“The longer window helps on spending side if you want to use spending reforms to meet the deficit neutral mark in reconciliation,” Michel told TheDCNF. “Phasing in certain reforms to mandatory spending programs can be phased in over a longer period of time, and it gives you more time to accrue the savings.”
Others in the field are not sold on the idea of extending the window for tax reform. Alan D. Viard, a resident scholar at the American Enterprise Institute, studies federal tax and budget policy. Viard believes that extending the budget window in order to push deficit-financed tax cuts is a fiscally irresponsible decision for lawmakers to consider.
“I don’t think that we, given the fiscal imbalance we are facing, should pass deficit-financed tax cuts. I don’t want to see 10 years of them, let alone 20 or 30,” Viard told TheDCNF. “You could say that going to 20 or 30 years is good because you are taking a longer-run picture of things. That is not really the purpose of what they are doing there. I actually do think it would be good on big tax bills if we did do our projections out longer than 10 years.”
Even with that caveat, Viard does not think, given the perennially-changing nature of Congress, that any tax cuts would be permanent enough to necessitate a horizon longer than 10 years.
“It’s not clear that any tax would last. If you pass a permanent tax cut, it doesn’t last forever. Congress can change it whenever,” Viard told TheDCNF. “I think that the long-run fiscal imbalance is quite severe, so my opinion is that we shouldn’t do deficit tax cuts.”
Two of the leaders of the most influential groups in Washington are urging lawmakers to extend the budget window to at least 25 years. Americans for Tax Reform President Grover Norquist and Club for Growth President David McIntosh wrote an op-ed on June 13 in The Wall Street Journal where they argued the benefits of extending the window.
“If Congress is serious about boosting the economy, it should pass a net tax cut within the extended 25-year budget window,” the pair wrote.
Sen. Pat Toomey of Pennsylvania has argued for a budget window between 20 and 30 years. In an op-ed in TheWSJ in May, Toomey, in-line with Viard’s comments regarding the short-term nature of tax reform, wrote, “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.”
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