Comments on the House and Senate Budget Plans

Dueling budgets are part of an ongoing debate over the best strategy.

The House and Senate Budget Committees released very different budget resolutions this week. The two conflicting proposals come as budget deficits approach $2 trillion, Congress remains at loggerheads over this year’s annual appropriations, Treasury is pursuing “extraordinary measures” to hold off the debt limit, and Trump’s first-term tax cuts are about to expire.

The budget resolution sets spending, revenue, and deficit levels for the relevant Committees to meet. After both chambers agree on the budget, the committees propose policies to achieve the targets, and the final reconciliation package receives the privileged status of only needing 51 votes in the Senate (bypassing the 60-vote filibuster).

The dueling budgets are part of an ongoing debate over the best strategy to pass the Republicans’ top legislative priorities. The Senate, led by Budget Chair Lindsey Graham (R‑SC), is pursuing a two-package reconciliation strategy that starts with immigration, defense, and energy to secure easier early political wins. A second reconciliation bill would address the expiring tax cuts later in the year.

Many in the House, including Ways and Means Chair Jason Smith (R-MO) and Speaker Mike Johnson (R-LA), prefer a one-bill approach that rolls tax and other priorities, including spending cuts, into one package. They rightly argue that splitting up the package increases the chance that tax cuts get punted to the end of the year and increases the likelihood of a temporary or retroactive extension that is not very pro-growth.

The House Budget Committee recently released its draft budget resolution, calling for a minimum of $1.5 trillion in mandatory spending cuts and up to $4 trillion in new borrowing authority. After reviewing the proposal, I released the following statement:

The House budget resolution takes a comprehensive approach to meet the Republicans’ priorities. On tax policy, it provides the Ways and Means Committee a $4.5 trillion allowance to reduce revenue. This is more than enough room for Republicans to pursue a pro-growth tax bill that makes the most important tax cuts permanent. The resolution imposes a modest requirement on Ways and Means to cut a small fraction of the trillions of dollars in loopholes and other spending in the tax code. It should pursue deeper tax expenditure reforms than the resolution requires.

The budget resolution avoids relying on the novel current policy baseline and includes an important statement, requiring Ways and Means to pursue additional deficit reduction if other committees do not meet the target of reducing mandatory spending by $2 trillion. The committee should make this requirement binding.

Instead of reducing spending to offset the entire tax cut, the House plan relies on an overly optimistic $2.6 trillion in higher revenues from assumed faster economic growth. To help meet this aspirational goal, a well-designed tax package that includes permanent business tax cuts, like President Trump’s 15 percent corporate tax rate, full expensing for equipment, and full deductions for structures, will be necessary. Regulatory reform will also help. However, the committee’s growth target is all but impossible under the president’s threatened and imposed tariffs, foreign retaliation, and immigration restrictions. Spending cuts, not assumed future growth, are the only way to shrink the federal government’s burden on American taxpayers.

The Senate’s budget resolution, which passed out of committee, proposes $342 billion in new spending over four years on immigration and defense, offset by unspecified spending cuts. Following the Senate’s budget resolution, I made the following assessment:

The Senate’s budget resolution sets up the American people for continued uncertainty over how much money the federal government will take from them next year. It does this by splitting tax permanence from Republican’s other priorities. The billions in unspecified spending cuts will not reduce taxes but instead, fund new expansions of government spending.

The budget also introduces a novel “current policy” revenue baseline, assuming—outside the binding resolution—that the Trump tax cuts will be extended with no fiscal impact. This sets the stage for no net spending cuts in the next package, letting the government grow on autopilot, effectively raising taxes on future Americans. The Senate budget will make pursuing a permanent, pro-growth tax bill more challenging by cannibalizing the easiest spending cuts for new spending instead of tax relief. This will increase the likelihood a second reconciliation tax bill will be delayed until December or, worse, January, making it impossible for employers and families to plan for the future.

As Cato’s Romain Boccia and Dominik Lett recently summarized:

While the current budget resolution leaves much to be desired, it is undoubtedly a better first salvo than the Senate’s budget proposal, which featured unambitious, vague spending cuts and relied on a flawed current policy baseline (budgeting under the assumption that current tax policy will continue indefinitely, rather than expire as required by statute). House Budget Committee Chairman Arrington should be applauded for his efforts to include real spending restraint to offset tax cut extensions. Disappointingly, it seems like many Republicans were not ready to make the tough choices necessary to put America on the right fiscal track and fully offset tax extensions. With the House Budget Committee beginning its markup today, it’s not too late to course correct and pursue deeper deficit reductions.

You can read reactions from other Cato scholars on the House and Senate budget resolutions here and here.

Republicans can and should pursue a budget resolution that ensures pro-growth tax policy can be made permanent. Ensuring true tax permanence requires a bill that puts the federal budget on a path toward stabilizing the debt so that a future congress does not have to raise taxes to cover the cost of federal spending that remains on an unsustainable growth path.