Tax Reform Coverage is Slowly Improving

As late as a couple of weeks ago, the articles on tax reform never seemed to mention the need to first pass a new budget that would include reconciliation instructions for tax reform. That led me to write a couple of pieces that aimed to better educate the public about the real prospects of tax reform and the procedures that would need to be followed first. The reporting has begun to improve. For example, the piece in The Hill today includes the following observation that I’ve been making all along:

Congress is way behind schedule.

Treasury Secretary Steven Mnuchin initially wanted to pass tax reform by August, but lawmakers have yet to even pass a budget for fiscal year 2018, which would set up the special procedural pathway they need to pass tax reform through the Senate with a simple majority vote.

Stan Collender’s reporting for Forbes has also improved since I critiqued his analysis.

He’s clearer now in conveying the mechanics involved. In fact, he offered a concise explanation of something I feel I should have added to my pieces, which is the possibility of reviving Obamacare repeal by combining it with tax repeal:

Another option — combining tax reform and health care in the same reconciliation bill — will make them both far more difficult to enact for two reasons.

First, a tax/health care reconciliation bill will require that all of the tax provisions from both be combined in a single piece of legislation that would likely be so controversial that it would be incapable of being enacted. Second, the Senate would have to comply with both the health care and tax instructions or the bill wouldn’t meet the reconciliation rules and so would be subject to a filibuster. That would make tax reform totally dependent on the agreement to repeal and replace ACA that so far has been unreachable.

Since I wrote my pieces, the Senate parliamentarian clarified that the 2017 budget reconciliation bill that includes the language for repealing Obamacare will expire on September 30th regardless of whether or not Congress passes a superseding 2018 budget. I hadn’t focused on that likelihood because my purpose was to game out the chances for tax reform, not a zombified Obamacare repeal. But I should have mentioned that the two things could theoretically be combined. Collender did us a service by explaining the vexing problems that would create.

He could have gotten even wonkier and explained why such a bill “would have to comply with both the health care and tax instructions or the bill wouldn’t meet the reconciliation rules.”

Here’s the answer to that from the Center on Budget and Policy Priorities:

How Many Reconciliation Bills May Congress Consider Each Year?

Under Senate interpretations of the Congressional Budget Act, the Senate can consider the three basic subjects of reconciliation — spending, revenues, and debt limit — in a single bill or multiple bills, but it can consider each of these three in only one bill per year (unless Congress passes a second budget resolution). Consequently, in the Senate there can be a maximum of three reconciliation bills in a year, one for each of the basic subjects of reconciliation.

This rule is most significant if the first reconciliation bill that the Senate takes up affects both spending and revenues. Even if that bill is overwhelmingly devoted to only one of those subjects, no subsequent reconciliation bill can affect either revenues or spending because the first bill already addressed them.

The crib notes look like this: the whole reason that Ryan and McConnell set up an unprecedented dual-budget process (passing two budgets in one year) was to get around the rule above. They would treat Obamacare repeal as having occurred in 2016 and tax repeal as having occurred in 2017. This was possible because they never passed a budget in 2016 for Fiscal Year 2017. They wanted the two bills separate for a host of reasons that included the desire for speed on Obamacare repeal and the trickiness of combining them. But they could have combined them, and they still can. After September 30th, combining them will be their only remaining option for repealing Obamacare with 50+1 votes in the Senate because both health care and taxes have impact on spending and revenues, and they can only do one spending/revenue reconciliation bill per fiscal year.

Don’t forget, however, that to create a budget reconciliation bill, Congress first has to pass a budget that provides reconciliation instructions.  No budget, no bill.  In January, the Republicans technically accomplished this by passing a “budget” bill from last year that included nothing other than Obamacare repeal instructions.  But they won’t want to resort to the same trick this year because that would mean they’ll be funding the government through continuing resolutions that don’t change the Obama administration’s priorities.

I’ve tried to make this simple but feel like I am failing in that task.

The takeaway points are that Congress is way behind in passing a budget and may not be able to agree to one. They need to solve that problem before they can even think about passing a tax cut or a tax reform with only 50+1 votes in the Senate. At the moment, they’ll seek to avoid a government shutdown by passing a continuing resolution that keeps Obama’s priorities in place, which is a real loss for them.  If they ever do pass a new budget, they’ll have to decide whether to take another shot at Obamacare repeal or to focus on tax reform. If they attempt to combine the two, it will make tax reform dependent on Obamacare repeal.

Meanwhile, the Bannonites are going to war against Gary Cohn and Steve Mnuchin, and they’ll be pressuring Republicans not to vote for anything that primarily benefits the already rich, which further limits the Republican leadership’s options for pleasing their donor class.

People are just beginning to report on these dynamics but they still tend to focus on secondary hurdles rather than the first one on the track. The GOP needs a budget and yet they’re more focused on disaster relief and the debt ceiling. They still have to reauthorize the children’s health program, the Federal Aviation Authority, and the national flood insurance program before they expire at the end of the month. And they need that continuing resolution to keep the government operating.

The president keeps acting like tax reform is the next thing on the agenda, but that’s not even close to being true.