The GOP is considering a desperate measure to pass tax reform, which bodes ill for the nation’s fiscal health.
Partisanship has become so intense that our democracy’s checks and balances are being chipped away one by one.
Last month Republicans in Congress exercised the “nuclear option” of changing Senate rules to confirm Supreme Court nominee Gorsuch with a simple majority of 51 votes instead of 60. That followed a similar move by Democrats in 2013 for nominees to other offices.
According to the Wall Street Journal, some GOP lawmakers now ponder another nuclear strike: eviscerating the Byrd Rule.
The Byrd Rule is a Senate procedure that allows tax and spending bills to pass with only 51 votes instead of 60, provided that they do not add to the federal debt after 10 years. Some GOP lawmakers consider extending that time frame to 15, 20 or even 30 years. This change could be passed by a simple majority of 51 votes; the GOP now has 52.
Such move would reduce the need to seek bipartisan consensus over fiscal matters and make it dramatically easier for Congress to pass fiscally irresponsible bills. Increasing the deficit “temporarily” for 15 to 30 years could be long enough to bankrupt the federal government.
Extending the time frame would allow Republicans to cobble together a tax reform package that increases the federal debt in the first 20 years (instead of 10) but not thereafter. That provides them with more flexibility, as some measures decrease revenues in the early years and then increase them over time. That is the case, for example, of ending the deduction of interest payments from taxable profit and replacing it with expensing capital investments, as the House Republicans have proposed as a means to incentivize investment and accelerate growth.
According to the Tax Policy Center, this important piece of the House GOP plan would cost $1,085 billion in the first 10 years, and generate $1,124 billion in revenue in the next 10 years. With the current Byrd Rule, this measure would need to be bundled with other measures that bring in new revenue immediately. But if the time frame is extended to 20 years, Republicans would not have to worry about bringing in extra revenues because the plan would bring in enough in the final 10 years to cover what it cost in the first 10.
However, it is a double-edged sword. Other measures may have the opposite effect: they can reduce the deficit at first but increase it later. Because of the Byrd Rule, passing tax reform hinges a lot on estimates of the impact of proposals on the public debt. Computing such estimates is a highly technical job that carries great political significance. It is currently the task of the Joint Committee on Taxation (JCT), a nonpartisan group that reports to Congress. That committee is thus likely to become collateral damage of a successful effort to change the Byrd Rule. It is already hard enough to make economic predictions in a 10-year time frame. Beyond that, it becomes divination. The JCT’s 20-year predictions are likely to be mocked by those whose proposals receive a bad score. And as trust in experts plummets, partisanship will become even more virulent.
Lawmakers may try to get around the 15 to 30 years window by passing tax or spending bills that sunset at the end of the time frame, banking on future Congresses to extend them. That is what President Bush did in 2001, but the plan failed because Democrats did not extend the tax cuts for the rich in 2012.
That experience is one motivation to eviscerate the Byrd Rule. Republicans rightly worry that a tax cut that is set to expire within ten years will fail to induce new investments and spur economic growth, their stated goal for tax reform.
With a very long-term time frame, businesses and politicians alike might be more relaxed about the sunset clause. Many things will happen within 20 or 30 years that could make a 2017 tax reform largely irrelevant by the time it sunsets. So businesses might invest as if the tax cuts were permanent. But that is not a sure thing; even a very long-term sunset clause might create economic uncertainty and deter investment.
The move to eviscerate the Byrd Rule is consistent with the strategy of small government zealots: first “starve the beast” by slashing taxes, and worry about the deficit later. They bank on future Congresses to eventually balance the budget by cutting spending rather than hiking taxes back up again.
However, some GOP lawmakers value fiscal responsibility as much as lower taxes. Assuming all Democrats defend the Byrd Rule, it would take only three Republican Senators to block the change.
Will they prevail? Those concerned with the health of our democracy and our public finances should be worried that one more check on the majority’s power may be on the chopping block with the explicit intent of growing the federal debt to pay for tax cuts that will benefit mostly the rich and increase poverty both in the US and in developing countries.