A Tale of Two Committees

The House Ways & Means and Energy & Commerce Committees will mark up their reconciliation proposals tomorrow. The Ways & Means draft includes trillions of dollars in new and expanded tax cuts – some temporary and some permanent – along with some new savings to offset a small portion of them. The proposal would permanently extend and expand the Tax Cuts & Jobs Act (TCJA) while enacting more than a dozen new and expanded tax breaks on a four-year basis between 2025 and 2028. Among the new breaks includes deductions for overtime pay, tip income, and auto loan interest; a $500 increased Child Tax Credit and $1,000 "Maga Accounts" for newborns; an expansion of the standard deduction and additional standard deduction for the elderly; and several expansions and changes to Health Savings Accounts, among others. Among the offsets included are a phase out of Inflation Reduction Act energy credits, an expansion of the deduction limit for executive compensation, increasing the higher education endowment tax, ending the Employee Retention Credit, and limitations to noncitizen eligibility for health insurance subsidies.

The Energy & Commerce Committee, meanwhile, put forward over $900 billion of offsets. The Medicaid proposals include a work requirement, changes to eligibility and determination rules, and restrictions of state financing gimmicks. The committee also proposes to repeal recent vehicle emissions rules, expand spectrum auctions, and codify new program integrity rules related to the Affordable Care Act, among many other changes.

Taken together, the two bills are likely to add trillions of dollars to the debt and set the stage for hundreds of billions or trillions more if expiring provisions are extended.

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:  

The Ways & Means Committee, which oversees $50 trillion of spending and tax breaks over the next decade and was allowed $4.5 trillion in borrowing under reconciliation instructions, still resorted to a plan filled with massive amounts of new borrowing, somewhat hidden by the use of temporary policies. Meanwhile the Energy & Commerce Committee did what needs to be done in a budget and developed a package of actual savings and even exceeded its goal. Unfortunately, the offsets don’t even make a dent in that level of tax cuts, and the package that is unfolding will worsen our debt by trillions.  

The Ways & Means draft isn’t just an extension of the 2017 tax bill – that would be costly enough. It also includes a hodge podge of expensive new tax breaks designed to appeal to special interests and constituencies. Most would worsen tax complexity, distort work and investment choices, and undermine tax efficiency and neutrality.   I remember when tax reform was about simplifying the code and reducing tax breaks. 

To hide the fiscal effects, the Ways & Means Committee is scheduling its new tax breaks to expire after just four years. These arbitrary sunsets serve little purpose beyond masking the deficit impact of permanent tax cuts by pushing them off to a future Congress to recognize. This already cynical gimmick is especially egregious in combination with the plan to use a “current policy baseline” in the Senate to make TCJA extensions look free. Lawmakers want to argue that temporary provisions currently in place should be considered permanent while new temporary provisions should be considered temporary. They want to mix and match baselines to avoid ever having to acknowledge how much they are adding to the debt. And they’re setting up the bait-and-switch for arguing they don’t have to pay for more extensions in four years.

The sheer number of expensive and unpaid for new tax breaks in this bill, all with various phaseouts and complex rules, are a tax accountant's dream and a budgetary nightmare.

As disappointing and irresponsible as the Ways & Means draft is, the Energy & Commerce Committee deserves immense credit for their proposals.

The Energy & Commerce Committee did the hard work of identifying offsets across their jurisdiction – generating over $900 billion of savings from lowering Medicaid costs, expanding spectrum auctions, reforming and cutting energy-related rules and programs, and improving program integrity in the health care system. Among the many tough choices the committee made includes a number of common-sense reforms to restrict state Medicaid gaming. The Energy & Commerce Committee deserves credit where it’s due for not only meeting but exceeding its deficit reduction target.

Yet even with these new offsets, reconciliation is still shaping up to add trillions of dollars to the debt and set the stage for trillions more in future borrowing.

Lawmakers should abandon costly, gimmicky, temporary, and base-narrowing tax giveaways in favor of thoughtful, permanent, base-broadening, and fiscally responsible reforms. Reconciliation should be about reducing deficits, not exploding them.   

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For more information, please contact Matt Klucher, Assistant Director for Media Relations, at klucher@crfb.org.