#Fiscal_Friday: Three fiscal points to absorb before you start your weekend

August 25th, 2017 at 10:12 am

–Deficit neutral vs. revenue neutral: This is really important and while the distinction is straightforward, I’m seeing some confusion out there. The R’s get this and they’re clearly, though subtly, shifting their rhetoric from rev neutrality to deficit neutrality.

To pass their tax cuts under budget rules that allow them to evade a Senate filibuster, the cuts cannot raise the deficit outside the 10 year budget window. There are two ways to do so. One way, revenue neutrality, is to raise other revenues through base broadening to offset the cost of the rate cuts. The other way to cut taxes and hold the deficit constant is to cut spending. That’s deficit neutrality, and since federal taxes and spending are both progressive, cutting spending to pay for cutting taxes is doubly regressive, as I argue here.

I’ve also argued that, given our demography, climate change, inequality, geopolitics, infrastructure needs, etc., we’re going to need more, not less (and not even the same amount of) revenues going forward – at least, as long as we boomers remain in the system. So revenue neutrality is, in my view, already too low a bar. But deficit neutrality is no bar at all.

–A quick point about the debt ceiling: If you read this blog, then you surely know this already. But just in case, here it is: Congress must raise the debt ceiling to pay for spending they’ve already approved. As the date that the ceiling must be raised approaches, you’ll hear some Republicans argue that raising the debt ceiling is fiscally irresponsible and just encourages more spending. That argument is perfectly analogous to this one: paying your restaurant bill after you’ve eaten is irresponsible and just encourages more dining out.

–This one is particularly technical, but there’s a budget scheme R’s are flirting with that could artificially make their tax cuts look $440 billion cheaper than they really are. The jargon here is that in scoring the cost of their cuts, they’re talking about using a “current policy baseline” versus a “current law baseline.” The reason they’d do so is so they don’t have to come up with a bunch more revenue to pay for expiring tax breaks that they plan to keep in place. Simply assume, contrary to the law, that the cuts remain in place and you don’t have to raise more taxes to pay for them. CBO won’t buy it, but if they try to pull this off in their own scores, we’ll be blowing the whistle.

Here’s the explanation from my CBPP colleagues:

That $439 billion figure represents the cost of extending, through the next decade, dozens of corporate and individual tax provisions that would otherwise expire or have already expired under current law.  A current law baseline reflects their scheduled expiration, so proposals to extend them would cost money.  A current policy baseline, by contrast, assumes that they will remain in effect indefinitely, so proposals to extend them would not lose revenues.  That could help a Republican tax bill appear to be less costly than if it were assessed relative to current law — and could be crucial for hitting a desired revenue target, particularly one that facilitates the use of a privileged, fast-track status in the Senate that would allow the bill to pass without any Democratic support.

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2 comments in reply to "#Fiscal_Friday: Three fiscal points to absorb before you start your weekend"

  1. Elaine Stevens` says:

    The amount of machinations slight of hand stuff, is appalling!

  2. Ken says:

    Repeal the debt ceiling law. We need Congress critters with the backbone to repeal it.

    A debt ceiling is not required by the Constitution. It is from a 1917 statute, and any Congress can change any statute…just pass a new law that does so. Of course, that eliminates a soap box for the deficit hawks to preach from….