The House Budget Reconciliation Bill Is a Setup—and a Good One

We have to bear in mind the real purpose of the legislation. Within that limit, it is very good.

The concurrent resolution for the federal budget the House of Representatives Budget Committee passed on Thursday is nothing but a setup—a very good one.

Led by the House Freedom Caucus, the proposed budget includes seven times more spending cuts than the chamber had originally planned.

The bill would set up a path to economic growth, individual liberty, serious tax and budget reform, a slowing of the increases in federal deficits and debt and potentially a reversal, a possible rollback of the metastatic expansion of the federal welfare state, and more.

The bill is far, far better than what the Senate was considering, and now Senate GOP leaders (headed by the ever-wobbly Lindsey Graham of South Carolina) are expressing support for the House bill’s approach. That is a big victory.

The House resolution notes that “mandatory” federal spending has risen rapidly, by 59 percent since 2019, now comprising more than 70 percent of the budget. The bill aspires to cut that spending by an average of $200 billion a year:

It is the goal of this concurrent resolution to reduce mandatory spending by $2 trillion over the budget window. If the combined deficit reduction provided by authorizing committees is below this target, it is the policy of the Committee on the Budget of the House that the instruction provided to the Committee on Ways and Means of the House should be reduced by a commensurate amount to offset the difference.

The legislation directs House committees to alter federal laws by March 27 of this year to cover or improve on the following spending cuts for fiscal years 2025 through 2034 (divide by 10 to figure the average annual reduction for each area):

In addition, the bill would authorize the following increases in spending:

That amounts to a net of approximately $1.2 trillion in cuts from projected levels under current law, over the next 10 years, by my calculations of the numbers specified in the bill. Others say it will be $1.5 trillion.

The legislation would limit increases in the budget deficit to $4.5 trillion over the ten-year period and increase the statutory debt limit to $4 trillion.

This is much less spending-reduction than I think necessary. We should be cutting spending to the 2019 level at most, some $1.7 trillion to $2 trillion per year in cuts. We should then cut more, and then more. This bill, however, is not the place to do that, as I noted here two weeks ago. The purpose of this bill is to enable Congress to extend the tax-rate cuts in the Tax Cuts and Jobs Act of 2019. It accomplishes that.

This budget resolution is a good start toward real spending reform, which the White House is pursuing separately, presumably with input from Republican congressional leaders. The president and DOGE head Elon Musk should look out for all signs of squishiness among the latter and make sure that they get all the cuts they want—and more, just to be on the safe side and to do their best for the American taxpayer. They will not get many more chances at this.

The spending cuts in the reconciliation bill are necessary solely because Congress remains wedded to static projections of the effects of tax legislation, as I have noted in previous articles here and elsewhere.

This bears repeating. Significant tax rate cuts can increase tax revenue instead of decreasing it, and they certainly will do so at current federal taxing levels and have always done so in the past. The requirement that Congress create “revenue-neutral” tax cuts by raising other tax rates or cutting spending does not reflect economic reality. Congress should scrap this requirement and tell the corporate media and other doddering Keynesians to buzz off.

Our allies at Unleash Prosperity (UP) agree:

Kudos to House Republicans for moving quickly on tax cuts. But they are foolishly tethering themselves to an absurdly wrong Congressional Budget Office score that says making the Trump tax cuts permanent will cost more than $4 trillion. These are the same math geniuses who told us in 2017 that the Trump tax cuts would COST $2 trillion, when by the end of 2024, revenues are HIGHER than if we hadn’t passed the tax cut at all.

Moreover, the static-calculation approach is probably not even a statutory requirement, just another scam forcing ever-higher tax rates to finance always-increasing spending, UP notes:

We are told there is no law forcing Republicans to use the crooked scores of the CBO. It’s time to use real-world scoring that takes account of the explosive growth of the economy from Trump’s lower taxes and aggressive deregulation agenda.

I agree completely. Scrap the static-scoring sham and use historical numbers to estimate future revenue changes. This would seem to be something artificial intelligence could do very well.

In any case, UP notes, the Cato Institute has calculated that Congress could easily eliminate the entire fictional increase in the budget deficit projected as resulting from an extension of the TCJA tax rate cuts—by rescinding Joe Biden’s inflationary, economically destructive, budget-busting, completely unnecessary, risibly titled Inflation Reduction Act: “And if anything needs to be paid for, repeal every word of the Biden Inflation Acceleration Act boondoggle—which needs to be restored to reflect its rapidly escalating costs, which Cato now pegs at up to $4.6 trillion.”

Well, let’s wait and see. Maybe that is in the plan down the road, and the currently proposed spending cuts are just the first step. I certainly hope that’s what the White House and House GOP leaders have in mind. There is no need to think about the Senate leaders in this process: one, they are hopeless, and two, the Constitution requires that all budgets originate in the House.

Within the limitations of the static-scoring assumption, the principles the House used in constructing the continuing resolution reflect sound, market-based thinking and the recommendations I have been making in this newsletter since the outset:

The House finds the following: (1) The rate of economic growth has a significant impact on budget deficits. When the rate of gross domestic product (GDP) increases, projected revenue grows with it and deficits decline. Conversely, slower GDP growth can lead to lagging revenues and mounting deficits.

(2) Federal policies affect the economy’s potential to grow and impact economic performance, influencing budgetary outcomes. Consequently, fiscally responsible policies that improve the economy’s long-term growth prospects help reduce the size of budget deficits over a given period.

That is exactly right. As I observe in a forthcoming paper from The Heartland Institute, the only way to increase federal revenues for more than a few months is through economic growth, and the only way to increase economic growth is to reduce tax rates and eliminate all regulations that are not absolutely necessary and those that are not in areas of federal authority explicitly enumerated in the Constitution.

The House’s proposed budget is not meant to complete that work. It is a start—and a good one.