Taxes_1040 Form

Tax Extenders Deal Violates the Budget Act, Adds to Debt

Dec 4, 2014 | Taxes| Budget Process

The House approved last night a deficit-increasing one-year tax extenders package. After a correction by the Joint Committee on Taxation, the updated cost of the bill is $41.6 billion over 10 years. Notably, this cost violates various budget rules, or points of order, which the House waived.  More significantly, the legislation included language excluding costs from statutory pay-as-you-go (PAYGO).

Furthermore, tax extenders are intentionally made temporary to hide their costs when they are repeatedly extended year after year. If the extenders in this bill were extended for the next 10 years, debt as a share of the economy would be 3 percentage points higher by 2024, an increase of $850 billion.

Because the legislation had over $40 billion in costs that were not offset, it violates several budget enforcement provisions.  First, it reduces tax revenue below the current law levels called for in the Ryan-Murray agreement serving as this year's budget. Section 115(b)(3) of the Ryan-Murray budget agreement set revenue levels for the next ten years at the levels in CBO's most recent baseline. The bill violates Section 311 of the Congressional Budget Act, which enforces the budget resolution's totals, because CBO's baseline assumes that those temporary tax breaks remain expired. While the Ryan-Murray agreement did not call for increased revenues as the Senate's FY 2014 budget resolution did, it maintained revenues at current law levels as the House-passed FY 2014 budget did, effectively assuming expired tax breaks would be paid for if renewed

The second and third points of order waived result from the Puerto Rican rum excise tax provision, which, while tax-related, results in new spending. It violates the House "Cut-go" rule prohibiting consideration of legislation with a net increase in mandatory spending over the next five or ten years.  As well the House Rules Committee waived Section 302(f) of the Budget Act, which prohibits consideration of legislation providing new budget authority in excess of a committee's 302(a) allocation.

In addition, when the bill reaches the Senate, the legislation would violate the Senate's PAYGO rule by increasing the deficit both this year and over the next decade, but the provision excluding its costs from being counted for purposes of PAYGO effectively waives the Senate PAYGO rule as well.

Various editorial boards across the country, including the Wall Street Journal and the Washington Post, have already expressed their displeasure with Congress's disregard for budget rules, particularly PAYGO, when it comes to tax extenders.

We urge Congress to offset the tax extenders bill and provide a fast-track process for tax reform. CRFB previously presented a series of offset options in our Paying for Reform and Extension Policies (PREP) Plan. It should not be hard to find offsets that both parties can agree on, and they should take this opportunity to ensure that they find a permanent solution to the extenders sooner rather than later.

For additional budget process resources including specific options for reform, visit our Better Budget Process Initiative home page.