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House Budget proposal directs tax writers to produce ‘deficit neutral’ tax reform

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House Budget proposal directs tax writers to produce ‘deficit neutral’ tax reformThe House Budget Committee approved a budget resolution with reconciliation instructions that direct the Ways and Means Committee to report legislation that reforms the tax code and separately reduces the deficit by $52 billion.

The reconciliation instructions call for “deficit-neutral” tax reform and an additional savings of $52 billion. In a surprise move, the budget provides for the Ways and Means Committee to combine its reconciliation legislation with reconciliation bills from 10 other committees, which combined would require reducing the federal deficit by a total of $151 billion. Combining controversial spending cuts with tax reform could make the tax reform process even more difficult, and several Republican senators questioned the approach.

Some lawmakers speculated that the budget’s use of the phrase “deficit-neutral” instead of “revenue-neutral” means Republicans envision paying for revenue-losing tax cuts with spending cuts. But the instructions clearly require that the reform legislation to emerge from the Ways and Means Committee would already save $52 billion. This requirement was also somewhat of a surprise, as tax writers are expected to need every penny in savings to pay for a rate cut, and have even openly considered abandoning revenue neutrality. However, the Ways and Means Committee itself has some jurisdiction over other programs like Medicare, so the $52 million in savings could come from outside the tax code or even include changes in spending or trade that provide money for tax reform.

It is unclear whether the Budget Committee’s resolution can even pass the House in its current form. Many conservatives wanted deeper spending cuts. A vote is not expected until after the August recess. The Senate Budget Committee has not yet released a version of its budget resolution. Both chambers will eventually have to agree on a single budget resolution in order for the reconciliation instructions to be effective.

Reconciliation instructions are considered critical to the tax reform process because Republicans enjoy only a 52-seat majority in the Senate, well short of the 60 needed to overcome filibusters. Reconciliation allows legislation to pass the Senate with simple majority votes.

Contact
Dustin Stamper
Director, Washington National Tax Office
T +1 202 861 4144

Shamik Trivedi

Manager, Washington National Tax Office
T +1 202 521 1511

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