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Using the Current Policy Loophole to Hide Tax Cuts Is Dishonest Math—Just Ask Congressional Republicans

Using the Current Policy Loophole to Hide Tax Cuts Is Dishonest Math—Just Ask Congressional Republicans

Prior statements from Republican congressional leaders debunk a budget gimmick they are now considering to hide tax cuts for the wealthy.

President Donald Trump signs an executive order at the U.S. Treasury Department in April 2017. (AP/Alex Brandon)
President Donald Trump signs an executive order at the U.S. Treasury Department in April 2017. (AP/Alex Brandon)

Republican leaders in Congress are considering a budget gimmick known as the current policy baseline, which would enable over $400 billion in tax cuts for the wealthiest Americans and biggest corporations. In defense of opening this loophole, some Republican policymakers and conservative advocates claim that the current policy baseline reflects a more realistic view of the tax code. These claims, however, run directly counter to congressional Republican leaders’ justification for passing the Protecting Americans from Tax Hikes (PATH) Act of 2015, which brought certainty to the tax code by choosing which temporary tax provisions would be made permanent and which would be allowed to expire.

When discussing this 2015 law, all four congressional Republican members of the “big six” now working on a tax overhaul implicitly acknowledged that a current policy baseline would not be used for tax reform. It seems now that these same congressional leaders are considering abandoning this stance. If Speaker of the House Paul Ryan (R-WI), Senate Majority Leader Mitch McConnell (R-KY), and other congressional members of this group reverse their stance on the appropriate baseline for tax reform, they would use this loophole to hide the true budget impact of additional tax cuts for the rich.

Current law versus current policy

The current law baseline reflects what would happen to the federal budget if today’s tax laws were left unchanged, and Congress typically measures the cost of legislation relative to this baseline. When Congress chooses to pass a temporary tax cut, the cost of the tax cut is measured based on the assumption that it will expire as scheduled. If Congress chooses to extend this tax cut, a current law baseline would count this as a new cost.

In contrast, the current policy baseline assumes that temporary tax cuts will continue permanently. Therefore, under the current policy baseline, making a temporary tax cut permanent would appear to have no cost to the budget. However, such an extension would actually increase budget deficits compared with what would happen if the tax cut expired as scheduled under current law. This difference is significant because it means that Congress could use the current policy baseline to disguise tax breaks for the wealthy as sound fiscal policy.

The choice of a budget baseline has major implications for tax legislation. A current policy baseline that extends temporary tax cuts could be $439 billion less than the current law baseline over the next 10 years. This means that Congress could pass a $439 billion tax cut and use this current policy baseline to falsely claim that its legislation is a revenue-neutral tax reform.

The House Budget Committee-approved budget resolution for fiscal year 2018 uses a current law baseline for legislation that it defines as “deficit neutral,  comprehensive tax reform.” The deficit-financed tax cuts enabled by a current policy baseline would dwarf the deficit reduction that the House budget requires elsewhere. The House Budget Committee touts its budget’s requirement for at least $203 billion in deficit reduction from “mandatory savings and reforms”—meaning cuts to programs like Medicare and Medicaid—but the current policy loophole would increase deficits by more than twice as much.

According to the Center on Budget and Policy Priorities, the top-earning 1 percent of the population would receive an average tax cut of $7,720 from the tax cuts built into the current policy baseline, which is nearly 100 times greater than the $80 average tax cut that a middle-class household would receive from these policies. By far the largest of these tax cuts is a benefit known as bonus depreciation, which allows companies to accelerate the rate at which they deduct costs for some of their purchases. If Congress lets these tax cuts expire as scheduled under current law, using a current policy baseline would let Congress enact $439 billion in different tax cuts for the wealthy without congressional scorekeepers treating these cuts as decreasing revenues.

Congressional abuse of budget baselines to cut taxes for the rich could be even more egregious than the current policy loophole alone. Romina Boccia and Adam Michel of the Heritage Foundation recently advocated for reducing the revenue baseline by assuming that the Affordable Care Act (ACA) would be repealed, even though repeal efforts are currently stymied in the face of widespread public opposition. Starting in 2017, for example, the ACA changed tax treatment of medical expenses for taxpayers aged 65 and older. Assuming that this policy will be repealed would reduce the revenue baseline by $21 billion over 10 years, in addition to the $439 billion reduction from the current policy baseline. Using a budget baseline that assumes other ACA tax provisions are repealed could lead to far larger tax cuts than even the current policy baseline would enable.

Recent statements prove current law is the only appropriate baseline for taxes

Questions about the appropriate baseline for taxes were more legitimate several years ago than they are today because the tax code used to be full of temporary policies that were widely expected to be made permanent. In recent years, however, lawmakers have permanently resolved these ambiguities by making some provisions permanent and allowing others to expire. The last set of these temporary policies was known as the tax extenders because lawmakers kept extending them on a temporary basis. However, the PATH Act, passed as part of the Consolidated Appropriations Act, resolved the tax extenders by choosing to make several provisions permanent while scheduling others to expire.

Congressional Republican leaders made clear that passing the PATH Act would adjust the baseline they would use for tax reform, which is only true under a current law baseline. If congressional Republicans choose to use the current policy baseline, this supposed accomplishment will mean nothing. Since a current policy baseline already assumes that expiring tax provisions are permanent, making some expiring provisions permanent under the PATH Act would have no effect on the current policy baseline.

Sen. Orrin Hatch (R-UT), chairman of the Senate Finance Committee and member of the big six, stated on the Senate floor that the PATH Act was “putting an end to the repeated tax extenders exercise” and “will adjust the tax and revenue baseline to make conditions vastly more favorable for comprehensive tax reform in the future.” During the negotiations of the PATH Act, Majority Leader McConnell echoed Sen. Hatch’s statements. “If we get a larger tax bill here at the end of the year,” Sen. McConnell said, “we do have a significant positive impact on the baseline for comprehensive tax reform.”

These arguments were not limited to the Senate. Rep. Kevin Brady (R-TX), chairman of the House Committee on Ways and Means and big six member, explained that making tax extenders permanent was “honest scorekeeping” and “identifies what truly are permanent parts of the code.” Speaker Ryan joined the chorus when promoting House bills passed during his first year as speaker, touting making tax extenders permanent as “one of the biggest steps one can take toward rewriting our tax code.” The Washington Examiner reported that Speaker Ryan had previously explained to an audience at the Financial Services Roundtable that making some tax extenders permanent would lower the baseline used for tax reform.

The PATH Act was a compromise. Congressional Democrats and Republicans worked together to determine which temporary tax provisions were worthy of being made permanent. As former Rep. Charles Boustany (R-LA) explained in March 2016, “Things that were left out were left out for a reason. There was not enough consensus to put them in.” And this deal was intended to be the last of its kind. After reaching the bipartisan extenders deal, Rep. Brady stated that the “confusion ends now” over which tax cuts were permanent and which were not. Now, however, it remains to be seen if congressional Republican leadership will stand by its words.


Congress should not hide the cost of their proposed tax cuts through budgetary sleight of hand. Using a current policy baseline instead of a current law baseline would be an unacceptable attempt to rig congressional scorekeeping, making it easier to give tax cuts to the rich while falsely claiming to meet standards of revenue neutrality. Congressional Republicans and Democrats came together in 2015 to determine which tax cuts should be made permanent, and Republicans explained their support in part by pointing to how the plan would affect the current law baseline in the context of tax reform.

Without an honest baseline, there is no honest scorekeeping. Hundreds of billions of dollars in tax cuts for the wealthy and corporations could be falsely described as revenue-neutral tax reform. Using phony numbers would make a mockery of any claims to fiscal responsibility, but those phony numbers will not change the facts about a bill that gives tax cuts to the wealthiest Americans at the expense of working families.

Harry Stein is the director of Fiscal Policy at the Center for American Progress. Alex Rowell is a research associate at the Center.

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Harry Stein

Director, Fiscal Policy

Alex Rowell

Policy Analyst