Paul L. Caron

Friday, December 8, 2017

Why the End of This Year Is the Worst Possible Time to Pass Tax Reform

Sam Wice, Why the End of This Year Is the Worst Possible Time to Pass Tax Reform, Yale J. on Reg.: Notice & Comment (2017):

Republicans hope to pass tax reform before Christmas so that they can go back to their constituents over the Winter Holidays and talk about their accomplishments.  However, because of the Pay-As-You-Go Act (PAYGO), passing tax reform at the end of the year would be the worst possible time to pass tax reform as it would lead to an immediate sequestration.

PAYGO generally requires that legislation cannot increase the deficit within a five-year or ten-year window.  About three weeks after Congress ends its 2017 session, the Office of Management and Budget (OMB) has to create a 2017 PAYGO scorecard that aggregates the total budgetary impact of all legislation enacted during the 2017 session of Congress.  If the aggregate cost of non-emergency legislation would increase the deficit in either window, an offsetting automatic sequestration would kick in, requiring up to a $103 billion sequestration per year. Specifically, Medicare could be cut by up to $26 billion and $77 billion in other programs could be eliminated.  For more details, see Alan Cohen’s excellent table detailing the potential cuts and for a complete list of the cuts, see here. ...

[T]here is little reason for Congress to not wait a few weeks to pass tax reform.  By waiting until the beginning of 2018 to pass tax reform, Republicans could buy much more time to negotiate.  The PAYGO scorecard including tax reform would then not take place until the end of the 2018 session of Congress (likely December 2018).  Republicans could use the extended time between passing tax reform and the sequestration to (1) negotiate with Democrats on eliminating the sequestration or (2) pass offsetting deficit reductions such as repealing the Affordable Care Act.  Additionally, waiting for the 2018 PAYGO scorecard would push any sequestration past the 2018 election, limiting the political impact of the sequestration and making it harder for Democrats to explain to the public the link between tax reform and sequestration.

Tax, Tax Policy in the Trump Administration | Permalink