View all Articles
Commentary By Brian Riedl

Extend Budget Resolution Window for Tax Reform and Fiscal Responsibility

Economics Tax & Budget

Congressional Republicans are reportedly considering transitioning from 10-year budget resolutions to those covering 20 or even 30 years. While this move is being portrayed as a gimmick that would make it easier to enact deficit-boosting tax reforms, extending the baseline would represent a broader step in favor of fiscal responsibility.

The purpose of the annual budget resolution as mandated by the 1974 Congressional Budget Act is for Congress to set yearly revenue and spending targets that are enforced by institutional rules. If Congress wants to cut taxes below the budget’s revenue target, or raise spending above its target, a point of order is triggered against such legislation. Sixty Senate votes are required to bypass such a point of order.  

This enforcement covers the duration of the budget resolution. The last budget resolution’s ten-year spending and revenue targets meant that subsequent legislation would be measured for compliance over a full decade. Thus, a longer budget window generally enforces a longer period of restraint.

Yet there is one situation in which a longer budget window discourages deficit restraint. “Budget reconciliation” is a fast-track process that allows Congress to pass legislation meeting its budget targets without allowing a Senate filibuster. But even if the budget resolution targets make room for deficit-increasing legislation within their time window, a budget reconciliation bill cannot add to the deficit beyond the resolution window. Due to this “Byrd Rule,” named for the late Senator Robert Byrd (D-WV), the deficit-enlarging 2001 and 2003 tax cuts were enacted with ten-year expiration dates, in order to align with the budget resolution window in place at the time.

This brings us to the current tax reform debate.

Republican lawmakers seeking to overhaul the tax code under this fast-track reconciliation process are likely to produce a bill with budget deficits beyond the ten-year window. While they can write a budget resolution with lower revenue targets to accommodate these tax cuts, the Byrd Rule would still require that this deficit-increasing reconciliation legislation expire at the end of budget resolution window.

The Republicans’ solution? Write a 20- or 30-year budget resolution in order to extend the life of deficit-financed tax reforms.

Critics see this as a gimmick to skirt the Byrd Rule and to abuse a reconciliation process that is not supposed to worsen long-term deficits. But there is nothing magical about a ten-year budget window. Budget resolution windows have expanded from one year (1970s), to three years (1980s), to five years (early 1990s), to the current fluctuation between five and ten years (a 1997 law set a minimum window of five years).

Far from an untouchable tradition, a ten-year budget resolution has been enacted only five times (1999, 2001, 2003, 2015, and 2017).

Extending the budget window would support rational tax policy. Lawmakers redesigning the federal tax code should focus on building a more efficient, predictable, permanent system that provides economic benefits over several decades. It makes no economic sense to hold these reforms hostage to their deficit-effect in year eleven, and to force their expiration before they can provide their full benefits.

Nor does a ten-year window accurately reflect the long-term cost of tax reform. The House draft includes transitional costs that decline substantially in future decades. A 20- or 30-year window could assuage deficit-hawks by showing declining tax reform deficits in later years, while moving the expiration date far enough down the road to give the policies time to work. Lawmakers could even tweak the tax reform draft to eliminate the smaller yearly deficit at the end of the extended budget window, eliminating the need for an expiration date.

Regardless of the unique case of tax reform (where a ten-year window does not capture the falling future costs), longer budget windows have traditionally been a tool to extend fiscal responsibility. Most budget-busting bills are introduced outside the reconciliation process, and have costs that persistently grow over time. Subjecting expensive proposals to a 20- and 30-year analysis (complete with points of order against exceeding the extended budget resolution targets) would likely induce sticker shock and prevent their enactment.

Additionally, the longer budget window would emphasize America’s long-term budget challenges. Congressional budget writers typically feel political pressure to show a path to balance within the budget window. A ten-year budget focuses Congress on addressing a national debt that is set to rise from $20 trillion to $30 trillion over the decade. Yet a 30-year budget resolution would force lawmakers to confront a national debt rising to $90 trillion over its time frame (and it could conceivably be double that amount). Stabilizing these catastrophic long-term costs would require Congress to bypass short-term deficit-reduction gimmicks and instead address the real drivers of debt.

Finally, a longer budget window would not repeal the PAYGO law requiring the sum of each year’s mandatory spending and tax revenue legislation to be collectively deficit-neutral over the next five and ten years – the tax reform bill itself would need to include an exemption.

Many of America’s economic and budgetary challenges have resulted from lawmakers focusing on short-term gains rather than long-term costs. Extending the budget window would encourage Congress to responsibly confront America’s long-term challenges, such as restoring fiscal responsibility and building a more rational, permanent tax code.

Brian Riedl is a senior fellow at the Manhattan Institute. Follow him on twitter @Brian_Riedl.

Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, E21 delivers a short email that includes E21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the E21 Morning Ebrief.

Photo from iStock