House Republicans, in their effort to pave the way to tax reform, are working on $300 billion of tax breaks that, on paper, add to the deficit.
The House last week passed tax break packages for charities and small businesses that, technically, would increase the deficit by more than $80 billion over the next 10 years.
They are set to work on other tax breaks in the weeks ahead, including ones for college savings plans, state and local sales taxes, and more. Altogether, the bills the GOP has introduced would cost the Treasury more than $300 billion, with no plans to replace the revenues, according to the Center for a Responsible Federal Budget.
All are expired temporary provisions known as tax “extenders,” which are usually re-upped year after year.
Although the tax breaks officially widen the deficit, Republicans are pushing ahead because they see them as permanent and valuable features of the tax code and because they eventually will help with a bigger tax-reform effort.
“The whole purpose of this is to give the economy certainty so people can go back to work, we can raise wages, get jobs created,” House Ways and Means Committee Chairman Paul Ryan told reporters Friday.
“A number of these provisions are provisions we all agree on, we all want to see stay in the code, even under a tax reform,” Ryan said. “We see these things as necessary, they’re bipartisan, and we ought to give people certainty.”
Because the provisions are traditionally extended year after year and businesses and people have come to expect them, Republicans say that they’re not new tax cuts, even if they technically are.
That explanation however, was roundly rejected by Democrats this week, who accused Ryan and other Republicans of fiscal irresponsibility.
“They tell us publicly and privately we’ll extend these things for two years and quote unquote not pay for them, but if you dare to try to make them permanent, you better raise taxes on somebody else,” Ryan said of Democrats. “It’s an inconsistent position in my mind.”
Both sides know there is more at stake. If the tax breaks are made permanent, they would reduce the official tax revenue baseline.
Ryan Ellis, the tax policy director at the conservative Americans for Tax Reform, said that the current GOP push “can’t hurt.”
“The ultimate goal here is to align two baselines — the current law baseline which assumes that all extenders are gone forever, and the present policy baseline which assumes that extenders will be around forever,” Ellis told the Examiner. “Obviously, the present policy baseline is the correct one.”
A new official baseline would ease the math of revenue-neutral tax reform. With lower baseline revenue, fewer tax breaks and loopholes would have to be erased to lower tax rates.
Knowing the stakes, House Democrats lit into Republicans for moving the bills this week.
Rep. Sander Levin, D-Mich., Ryan’s counterpart on the House Ways and Means Committee, called the effort “a Republican ploy to get around the hard realities of tax reform.”
“The gist of that ploy: Take a number of provisions separately, make them permanent, and don’t pay a dime for them. The reason: The expectation of needing to raise less revenue in tax reform would allow Republicans to more easily cut tax rates,” Levin said Friday on the House floor.
Democrats noted that Ryan’s predecessor, former Rep. Dave Camp of Michigan, pursued tax reform by first putting out a broader overhaul draft plan. After that plan failed to gain traction, Camp then went about trying to pass legislation making certain extenders permanent.
Richard Neal, a Massachusetts Democrat, said that making extenders permanent now would harm the cause of tax reform “like garlic to a vampire.”
“Baloney!” Ryan said on the floor in response to Democrats’ accusations.
Camp’s experience last year is a cautionary tale for Ryan. In November, Camp and then-Majority Leader Harry Reid, D-Nev., neared a $400 billion tax cut deal that included making some of the biggest and most popular extenders permanent. The Obama administration stepped in at the last minute to threaten a veto, complaining that the proposed deal would leave out tax breaks for low-income earners favored by the president.
The White House again threatened vetoes for both extenders packages passed by the House this week and is likely to do so again in coming weeks.
Nevertheless, both bills passed the House with near veto-proof majorities, meaning that they are candidates to be passed when negotiations begin in earnest.
“Our constituents shouldn’t be held hostage for the lack of the ability for us to get it across the finish line,” Rep. Pat Tiberi, R-Ohio, said Friday.
“I want tax reform in a comprehensive way as bad as anybody. The two aren’t mutually exclusive here.”
