President's Advisors Recommend Veto of Unoffset Tax Bill

The White House issued a Statement of Administration Policy (SAP) yesterday in opposition to the extension and expansion of the Research & Experimentation (R&E) tax credit recently passed by the House Ways and Means Committee. The Administration supports the R&E credit, the SAP explains, but opposes the $156 billion unoffset cost of the House proposal. Therefore the President's "senior advisors would recommend that he veto the bill."

As we've previously explained, the R&E credit is one of the largest of over 50 "tax extender" provisions that expired at the end of last year. Extending the current credit permanently would cost $77 billion (before interest), and expanding it as the Ways and Means bill does would cost nearly $160 billion. Adding in the cost of the other extenders Ways and Means proposed to make permanent would increase the total cost to $310 billion, and also making permanent the other expired extenders would raise the total cost to almost $530 billion (or more than $770 billion when bonus depreciation is included).

The graph below shows that debt would climb to 79 percent of GDP by the end of the decade if the current tax provisions are extended, without even considering the expanded credit.

The White House's statement makes the case that these costs should be offset:

By making the R&D credit permanent without offsets, H.R. 4438 would add $156 billion to the deficit over the next 10 years. Moreover, if this same, unprecedented approach of making major traditional tax extenders permanent without offsets were followed for the other traditional tax extenders, it would add $500 billion or more to deficits, wiping out most of the deficit reduction achieved through the American Taxpayer Relief Act of 2013. Last month, House Republicans themselves passed a budget resolution that required offsetting any tax extenders that were made permanent with other revenue measures.

The deficit increase in H.R. 4438 is more than fifteen times the cost of the proposed extension of emergency unemployment benefits, which Republicans are insisting be offset, and more than double the discretionary funding increases for defense and non-defense priorities such as research and development in the Bipartisan Budget Act of 2013, which were offset. House Republicans also are making clear their priorities by rushing to make business tax cuts permanent without offsets even as the House Republican budget resolution calls for raising taxes on 25 million working families and students by letting important improvements to the Earned Income Tax Credit, Child Tax Credit, and education tax credits expire.

In a statement defending its approach, the Ways and Means Committee noted that tax extenders have not traditionally been paid for. However, failing to offset the cost of the extenders would run contrary to all six proposed budgets this year, including the House-passed Republican budget and the Ryan-Murray budget agreement, which functionally serves as this year's budget. Each of these budgets call for revenues at or above CBO's current law baseline, implicitly assuming that all temporary tax breaks are either allowed to expire or are offset with revenue increases elsewhere. Moreover, failing to offset these provisions in the past contributed to today’s high levels of debt. Past precedent is not a good reason for continuing this irresponsible approach to budgeting.

We appreciate the President's support for pay-as-you-go budget rules, which state that Congress needs to offset the costs of any new program or tax cut. We support these rules strongly and believe they should be universally held, not selectively applied. We hope the Administration will be an equally strong advocate for pay-as-you-go rules when it comes to any new spending program or tax cut – whether temporary or permanent – to avoid making a bad debt situation even worse.