House and Senate pass budget blueprint, but major differences remain

After a week of public criticism, House Republicans passed the bifurcated budget blueprint sent to them by the Senate on April 5.

Though the budget resolution passed both chambers as of April 10, trillions of dollars’ worth of policy differences remain unresolved, including around taxes. The blueprint, necessary for the process by which Republicans hope to extend current Tax Cuts and Jobs Act rates and deductions due to change or expire at the end of the year, contains completely different instructions for either chamber — including different methods of accounting for extending (and making permanent) the sunsetting portions of the TCJA.

The Senate will try to use a current-policy baseline for judging the budgetary impact of extending the TCJA, instead of the standard current-law baseline (which was used in 2017 and why portions of the law phase out). Senate Republican leaders argue there is precedent around airport excise taxes and how government spending is scored, though several House Republicans have called the shift a gimmick. Still, their vote — by a razor-thin margin of 216-214, with only two Republicans voting against — shows how much political pressure there is on congressional Republicans to deliver a significant economic package.

Despite taking that necessary procedural step, Republicans in each chamber remain a world apart on what to do next. The Senate budget instructions would increase the deficit by $5.7 to $6.9 trillion, according to credible independent analyses, while the House budget path would add an estimated $3.4 trillion to $4 trillion to deficits over 10 years (with government borrowing costs being a key variable).

Committees in the Senate will only have to find $4 billion worth of cuts to government spending over the standard 10-year budget window. House Republicans have instructions to find at least $1.5 trillion in spending cuts over the same timeframe, with a trigger that decreases how much they can keep taxes lower for every dollar they fall below $2 trillion in cuts. The Senate’s instructions do not account for the cost of extending current TCJA personal tax rates, the 199A pass-through deduction, the doubled standard deduction, or more generous international business tax deductions — among other parts of the law that would effectively hike taxes at the beginning of next year. The House’s accounting method — the typical current-law baseline — would be less generous to the effects of extending expiring tax breaks and make them harder to become permanent, though it would cut deficits more than the Senate’s plan. Extending those tax provisions would still add trillions of dollars to real deficits due to lost federal revenue but not be counted for purposes of the parameters of the legislative maneuver congressional Republicans plan to use to bypass the typical 60-vote threshold to advance legislation in the Senate.

The Joint Committee on Taxation — the nonpartisan, official tax policy scorekeeper for Congress — estimated in December that extending the expiring portions of the TCJA would reduce federal revenue by about $3 trillion over a decade, after accounting for macroeconomic benefits. The Congressional Budget Office, the nonpartisan budget scorekeeper for Congress, which provides overall estimates for reconciliation but defers to JCT on tax impact forecasting, estimated that TCJA extension would lower government revenues (and therefore increase deficits) by $3.7 trillion over 10 years. The CBO estimates that the crowd-out effect on private investment caused by increased deficits would effectively cancel out the economic benefits of preventing current tax rates from increasing next year.

Keeping separate instructions for each chamber may help hedge against unexpected challenges from these and other directions. While it’s hard to disintermediate from tariffs that went into effect at the same time, Treasury bond yields surged during the week of April 7, after the Senate passed the blueprint and as the House debated it before passage on April 10. 

Though they still voted to advance the resolution, with some nonpublic assurance from Senate Republican leadership over spending cuts beyond the much lower floor set in the Senate — House Republican fiscal hawks may withhold votes on a final package if it increases deficits as much as the Senate instructions are initially projected to do. The current-policy baseline will also be subject to procedural blocks in the Senate — and possibly the House, which uses a current-law baseline to evaluate tax and spending budgetary impact (though the House sets bespoke rules for legislation). The House version may not face those same headwinds, though navigating the various intraparty constituencies of the House Republican Conference will be difficult, as Republicans can only afford to lose a handful of votes in that chamber due to an unusually narrow majority.

Republican tax policymakers will need to thread dozens of legislative needles to assure various internal and external constituencies — deficit hawks, state and local tax deduction proponents, and supporters of keeping some Inflation Reduction Act energy tax credits, among others — as they write the actual instructions to get through each chamber, before even considering what can pass the other chamber and reconciling those differences.  

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