Senate Republicans have reached a deal that would allow for large net tax cuts as part of their budget document, but the agreement does not rule out the possibility of a revenue-neutral tax reform, one that raised as much revenue through elimination of loopholes and economic growth as it lost through lower rates.
Sen. Bob Corker, one of the parties to the deal, said Monday he has no intention of voting for an ultimate Republican tax bill that would add to federal deficits, even though some reports suggested that the deal would lead to the government losing $1.5 trillion in taxes over the next decade.
Instead, the Tennessee Republican said, the mysteriously detail-free deal he announced last week with fellow Budget Committee member Pat Toomey was meant to give "headroom parliamentarian-wise" for GOP senators to negotiate a tax bill within the constraints imposed by the Senate's arcane procedural rules.
"There will be numbers of us, I would think, that would not want to vote for something that they viewed as going to increase the deficit," said Corker, a self-styled fiscal conservative.
In effect, the deal allows Republicans to draw up a bill that loses some revenues, allowing them to pursue many of the policies that they want, such as lowering tax rates on businesses and individuals while also eliminating the estate tax and the alternative minimum tax.
But they wouldn't be allowed to simply add all those cuts, which could total in the multiple trillions, to the deficit. They are limited to what could reasonably be justified in a different method of accounting that included GOP-friendly assumptions about how many new revenues tax reform would bring in. To get all of the cuts they want, the deal forces them to do the politically hard work of eliminating major tax deductions, credits, and loopholes, something some Republicans have suggested they might want to simply avoid in favor of a big tax cut.
The $1.5 trillion mark is "a ceiling, as opposed to a floor," said Bill Hoagland, senior vice president at the Bipartisan Policy Center and a longtime Senate budget staffer.
Writing a budget resolution is the first step toward passing tax legislation, because it unlocks the reconciliation tool that lets a bill advance and pass in the Senate with just 51 votes, allowing Republicans to bypass the filibuster to send legislation to President Trump's desk.
Kevin Brady, the chairman of the House Ways and Means Committee with oversight of taxes, said Monday that he would release tax legislation only after both chambers passed a budget resolution.
So far, intraparty divisions about levels of spending and taxes have held up passage of a budget. Some conservatives want to be assured that the plan for taxes will involve a net tax cut.
By writing a budget that allows for a cut in tax revenues over a 10-year timeframe, the Senate could appease both its tax-cutters and its fiscal hawks at once.
That's because the tax cut would be measured on a "static" basis. That is, the score of the bill's impact on revenues would not take into account the possibility that it could lead to faster economic growth, generating enough additional corporate and individual taxes to offset some of the losses from the tax cut.
At the same time, Republican senators would make use of a "dynamic score" to assess the tax bill's impact including that economic growth.
In theory, there is nothing about the Toomey-Corker budget deal to preclude that, in a dynamic analysis, the tax bill would be scored as raising as much revenue as the current code does. In tax-speak, that would be a "revenue-neutral" bill — one that, on paper, doesn't change overall tax revenues.
The $1.5 trillion figure, which Corker and Toomey have not specifically stated is the target, would be a guess of roughly the absolute biggest net tax cut that could pay for itself, if Republicans included very aggressive assumptions about how much the tax changes could boost the economy and included other very favorable assumptions.
Republicans generally maintain that plausible economic assumptions yield the result that lowering tax rates results in enough additional growth that a significant portion of the revenue losses would be recouped.
"Nobody's ever said -- I haven't said -- that tax cuts are going to pay for themselves," said John Kennedy of Louisiana, another member of the Budget Committee. "But no reasonable person can deny that when you cut taxes it generates economic growth, and you will have some additional tax revenue."
Kennedy then dismissed some conventional economic modeling. "The function lately of most economic forecasting, in my opinion, is to make those late night psychic hotlines look visionary," he quipped.
So how might Republicans get to a $1.5 trillion sum?
This year, Ohio Sen. Rob Portman, a member of the Finance Committee who has long worked on tax reform, suggested a conventional model of the kind used to score tax reform legislation could yield up to $700 billion in revenue from economic feedback, if the bill were optimized to spur economic growth.
The Senate could also get another roughly $500 billion from assuming certain tax breaks currently slated to phase out, including a break for business investment, would never expire. In that accounting, it's not cutting taxes if those revenues wouldn't have been collected in the first place.
If they put those two together, they would be in range of the widely reported $1.5 trillion figure.
Asked Monday for more specificity on the total amount of the tax cut, Toomey simply responded, "we'll have more for you soon."
Such an approach would certainly elicit charges from Democrats that Republicans were making up numbers to justify tax cuts. It would also draw criticism from some outside budget experts.
"For the record, we disagree with those rationales to justify tax reform increasing the deficit under traditional scoring rules," wrote Ed Lorenzon, a Senior Advisor for the Committee for a Responsible Federal Budget. His group has judged that only a $500 billion to $700 billion revenue loss would be justifiable under those assumptions, not $1.5 trillion.
Nevertheless, it could at least get Republicans eager to pass tax legislation all on the same page.
Of course, the amount of revenues from economic feedback would depend on the tax plan actually being one that promotes economic growth. A plan that raised the cost of doing business or discouraged work, for example, would not yield hundreds of billions of dollars in additional savings.
"It depends on the policy," Corker acknowledged.
And a major static tax cut also opens up the possibility that Republicans could simply opt for a tax cut, one that wasn't revenue-neutral in any analysis.
If that were the case, all or some of the provisions that lost revenue over the long-term would have to phase out after a period of years, as was the case for the tax cuts passed under George W. Bush.
Brady said Monday House Republicans "continued to be focused on permanency, or as much of it as we can achieve."
Either way, the Toomey-Corker deal is just the very first step toward a budget in the Senate, let alone one also approved by the House, let alone actual tax legislation.
"We've got a long way to go before we even get to a reconciliation bill in the congress for 2018," said Hoagland.