How the Senate’s baseline budget could make or break tax reform

Tax reform is one of the most important legislative priorities for Congress and the administration this fall. Good tax reform will unleash economic growth, creating greater opportunity and prosperity for all Americans.

One obscure choice by the Senate Budget Committee could make or break tax reform this year. The revenue baseline adopted in the Senate budget resolution will determine whether updating the tax code this year can provide tax relief for the American people. The Senate should choose the appropriate budget baseline to pave the way for pro-growth tax reform.

The Senate Budget Committee is considering options on the pending congressional budget resolution that would have significant ramifications for tax reform. The seemingly innocuous choice of a revenue baseline for the budget resolution will carry dramatic weight over the type of tax reform Congress will ultimately be able to deliver. Where the House fell short in its budget resolution, the Senate now has a chance to establish favorable conditions for tax reform to succeed.

{mosads}The Senate should start with a post-ObamaCare-repeal current policy baseline for the Fiscal Year 2018 budget resolution and should consider lowering the baseline further to accommodate tax reform proposals currently being discussed. Using a current policy baseline, follows long-standing policy in assuming that Congress will extend expiring tax provisions. Assuming otherwise, builds a $460 billion tax increases into the budget baseline. That is the wrong approach.

Some argue that using a current policy baseline is a gimmick that obscures a deficit increasing tax cut that should have to be paid for.

However, a current policy baseline is more honest in that it assumes the continuation of tax policy that has been extended on a recurring basis year after year. Many of the temporary tax provisions, called “extenders” are bad policy and should be allowed to expire (such as tax subsidies to green energy). Others, such as bonus depreciation, alleviate economic distortions in the current income tax code and help businesses invest in America, growing the economy and creating jobs for American workers.

Assuming both the good and the bad temporary provisions will become permanent under the policy baseline allows Congress the ability to keep the good tax policy and eliminate the special interest provision through holistic tax reform, while lowering tax rates for everyone.

Moreover, the Congressional Budget Office’s (CBO) current baseline approach is inconsistent and fundamentally flawed. It treats spending cliffs and tax cliffs differently. When spending expires, as in when the Social Security trust fund runs dry, for example, the CBO assumes Congress really intends for this spending to continue. When tax provisions expire, the CBO assumes Congress really intends for them to expire. This practice biases the budget in favor of tax hikes and spending increases. 

CBO has it backwards. If anything, the budget process should protect the American people from the unchecked growth in the size of government; not build spending increases into the process while erecting barriers to tax relief.

The proposed House budget resolution uses the wrong baseline. To its credit, the baseline makes provision for repeal of the harmful ObamaCare taxes. Yet, the House budget should have also adopted a current policy baseline (post-ObamaCare repeal), rather than making tax reform more difficult by assuming an unrealistic $460 billion tax increase would take place. The Senate should not make the same mistake.

Pro-growth tax reform that provides relief for American families and businesses should be the centerpiece of Congress’ agenda this fall. The House Budget Committee’s proposed budget makes that task considerably more difficult. The Senate can avoid the same mistake by choosing the correct baseline.

Romina Boccia is deputy director of the Roe Institute for Economic Policy Studies at The Heritage Foundation, and Adam N. Michel is a policy analyst.

The views expressed by contributors are their own and are not the views of The Hill.