The Budget Dispute: Is 37 Percent Today the Same As 37 Percent Tomorrow?

It's a simple question, upon which hangs the fate of the nation's economy. Now, why is that?

Photo by Tim Mossholder on Unsplash

The entire U.S. economy is now in the hands of one person, the media say: “Senators are expecting to receive as early as [this] week a consequential decision from their in-house referee that will shape whether Republicans can make President Donald Trump’s expiring tax cuts permanent,” NBC News reports, in a story typical of the press coverage.

Formerly characterized as at the mercy of President Donald Trump or “President” Elon Musk (remember that nonsense?), the fate of the nation’s economy now rests with Senate Parliamentarian Elizabeth MacDonough, in a position commonly described as nonpartisan.

With a 53-47 majority in the Senate, the Republicans cannot overcome a filibuster by Democrats. Hence, they are obliged to use the budget reconciliation process, which requires a simple majority. To pass muster, the Senate bill must not increase the projected deficit in later years.

With most of the 2017 tax rate cuts expiring at the end of this year, failure to renew them would amount to an enormous tax increase. Democrats would love to impose a tax increase, though it would tank the economy. I am not sure that they understand that the tax increase would be so destructive, but I do know that they have an addiction to high tax rates and do not wish Trump a strong economy. As NBC News reports,

Senate budget rules require Republicans to pay for the cost of tax cuts in order to permanently extend them. The Congressional Budget Office, the official scorekeeper on Capitol Hill, has established the cost of extending them is $4.6 trillion over a decade when they expire at the end of 2025.

That’s under the “current law” baseline the Senate has used for decades. But if Republicans are allowed to use a different method, the “current policy” baseline, to set the cost at $0, they can extend the tax cuts, which were enacted in 2017, without paying for them.

Extending the 2017 tax cuts would not cut taxes; it would only avert a massive scheduled tax increase. However, as NBC News notes, the budget rules that the Senate has been using perversely treat projected tax hikes as normal and extension of existing tax cuts as costing money. The rules further ignore the reality that tax-rate cuts increase revenues (by growing the economy) instead of decreasing them.

So, as NBC News reports, the parliamentarian’s decision on whether the use of a current-policy baseline instead of the current-law baseline—with the latter scheduled to raise tax rates at the end of this year—will determine whether the extension of the current tax rates is allowable under the 1974 law that established these procedures: “If Republicans lose the argument and have to stick to the traditional baseline, they may need to give up the goal of making Trump’s tax cuts permanent.”

That, however, is not all there is to it. This particular Senate rule is not in the statutes establishing this complicated budget process. It is simply the way previous Senate majorities have chosen to view budget proposals. A simple majority of the Senate could change that.

NBC News refers to this as the GOP’s “break-glass option,” implying that it is to be used only in an emergency and would shatter something. Senate Democrats are arguing that the current-law baseline has accumulated the sacred status of a holy relic and that the Republicans are barbarians at the gates of their Jerusalem of big government spending:

Sen. Jeff Merkley, D-Ore., the ranking member of the Senate Budget Committee, blasted it as a “partisan gimmick.”

“What Republicans are attempting to do is upend decades of precedent and trample on the laws that govern how Congress budgets,” Merkley said. “Congressional Republicans need to realize that ‘magic math’ does not exist and tax cuts cost money, even if Republicans want to pretend that they don’t. Refusing to measure something doesn’t mean it goes away.”

If Republicans “lose the argument” with the parliamentarian, they are perfectly free to “overturn the parliamentarian’s ruling with a majority vote,” as NBC News accurately reports. Extending the current tax rates is a tax cut only in the money-grubbing minds of senators drunk on the power to spend other people’s money, and it is not “magic math” to say that 37 percent today is 37 percent tomorrow.

The real “magic math” is in the idea that the U.S. economy can withstand a massive and completely unnecessary tax increase.