Notice & Comment

Congress Just Allowed President Trump to Estimate the Official Costs of Tax Reform

Republicans plan to pass a deficit increasing tax-reform proposal, but the Pay-As-You-Go Act (PAYGO) requires that legislation cannot increase the deficit within a five-year or ten-year window.  If legislation would increase the deficit in either window, an offsetting, automatic sequestration would kick in.  Although the non-partisan Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) traditionally estimate the official costs, because of how Republicans wrote the conference report for tax reform, President Trump’s Office of Management and Budget (OMB) could perform the official estimate.

When determining whether legislation from a conference committee would increase the deficit, PAYGO gives the House and Senate Budget Committees the joint authority to estimate the costs.  For the Budget Committees to reserve this power, however, 1) the conference report must include the following statement: “The budgetary effects of this Act, for the purpose of complying with the Statutory Pay-As-You-Go-Act of 2010, shall be determined by reference to the latest statement titled ‘Budgetary Effects of PAYGO Legislation’ for this Act, jointly submitted for printing in the Congressional Record by the Chairmen of the House and Senate Budget Committees, provided that such statement has been submitted prior to the vote on passage in the House acting first on this conference report or amendment between the Houses,” and 2) the Chairmen of the Budget Committees must jointly submit for printing in the Congressional Record a statement titled “Budgetary Effects of PAYGO Legislation,” which shall include an estimate of the budgetary effects of the legislation.  If both conditions are not satisfied, “OMB shall estimate the budgetary effects of that legislation upon its enactment.”

Congress has not satisfied either PAYGO requirement.  In the conference report for tax reform, Congress did not include the statement required by PAYGO or any other reference to the Act.  Additionally, despite Congress including in the conference report a JCT estimate projecting a $1.456 trillion increase in the deficit, Congress did not title the estimate as “Budgetary Effects of PAYGO Legislation.”[1]  Thus, Congress has not fulfilled either PAYGO requirement.  Although there is still time for Congress to submit a correctly titled PAYGO estimate for printing in the Congressional Record, Congress’ failure to include the official PAYGO statement in the conference report triggers the clause that allows OMB to perform the official PAYGO estimate.

If Republicans want to limit a PAYGO sequestration, OMB could ignore the non-partisan JCT estimate and instead use the Department of Treasury’s estimate of tax reform, which claims that the economic growth from tax reform would pay for its costs.  Nevertheless, the Department of Treasury’s recent estimate would not completely avoid a PAYGO sequestration.  Although the Department of Treasury estimates that “total receipts over the 10-year window [would] increas[e] by $300 billion,” it also estimates that “[t]hese increased receipts are primarily collected in the last five years, as full expensing creates growth in early years but results in a deferral of collection of taxes.”  I interpret this to mean that the Department of Treasury is admitting that tax reform would increase the deficit within the five-year window, which would require a PAYGO sequestration.  Nevertheless, the Department of Treasury could make another estimate claiming that tax reform would be deficit neutral in both the 5-year and 10-year window.  Thus, OMB could use this new partisan estimate to avoid a PAYGO sequestration.

[1] Even though the 115th Congress has included CBO and JCT estimates in the Congressional Record, Congress has not used the required “Budgetary Effects of PAYGO Legislation” title since 2011.