Budget Reconciliation Should Be Used to Reduce the Debt, Not Add to It

Congress is preparing to use budget reconciliation to fast-track consideration of a number of new policies, including, according to press reports, extending many or all of the expiring provisions from the 2017 Tax Cuts and Jobs Act, which will expire at the end of 2025.

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:

The new Congress and Administration will be inheriting a dreadful fiscal situation with near record debt and exploding deficits—the result of reckless fiscal policy choices made by both parties, automatic spending growth, and growing interest payments, along with true national emergencies.

With the debt approaching record levels and interest the second largest budget item, policymakers should be using reconciliation to reduce deficits. At a minimum, they should ensure that reconciliation does not add to the debt relative to current law.

Now is the time for all Members of Congress and the President to end the practice of ongoing fiscal malfeasance and promise the American people that other than for true emergencies, there will be no new borrowing.

It’s been 50 years since the Budget Act created the reconciliation procedure, and in the first half of its existence, lawmakers used reconciliation exclusively for its intended purpose of reducing the deficit. Starting in 2001, reconciliation has instead been used to grow deficits in more than half of the times it’s been deployed.

Given that we could be getting close to a fiscal emergency, there should be no discussion of using reconciliation as a shortcut to add more to the debt.

Ideally, Congress should not only fully offset the cost of any new policies, but it should also include additional offsets as a down payment on putting the debt on a sustainable path. The current Congress passed the Fiscal Responsibility Act, which will save $1 to $2 trillion over a decade, and this success should be built on. (Reminder to Congress—don’t break the FRA caps for this year.) Absent deficit-reducing reconciliation instructions, lawmakers should set the ceiling for net deficit increases at $0 – requiring that any extension of tax cuts be fully offset with spending cuts or new revenue.
  
Extending the expiring parts of the TCJA in full without offsets – let alone adding anything else to it – would increase borrowing by $4.5 trillion over a decade, or $5.6 trillion if you add in the already-expiring corporate provisions. This new borrowing would increase the savings needed to stabilize the debt over a decade by a whopping 50 to 60 percent. We cannot afford to go backwards.

It will be tempting for lawmakers to forgo the important process of coming up with the necessary offsets, claiming it is either too hard, will be paid for by economic growth, that the tax cuts are just a continuation of current policy so they don’t add to the debt, or that there is no cause for concern because the savings will come down the line. These claims are wrong. There are ample amounts of offsets available for lawmakers to use; we’ve already shown $700 billion of bipartisan offsets and will publish more in the coming weeks. President-elect Trump has offered nearly $4 trillion in savings in his campaign promises, and President Biden’s budget last year had over $6 trillion. There are at least 12 different plans from experts on the left, right, and center to responsibly extend the TCJA. With $85 trillion in spending over the next decade, and well over $20 trillion in tax breaks, finding offsets should not be too hard.

While growth will offset some of the revenue loss, it will not come close to covering all of it—estimates range from it covering 1 to 14 percent of the revenue loss. Ideally, the revenue boost from growing the economy should be used to reduce the deficit, not offset the cuts. And extending policies that were intended to expire – and were scored as expiring when they were enacted in 2017 – also clearly adds to our nation’s debt, and attempts to handwave away those costs as current policy are blatant gimmicks. Present projections are that debt-to-GDP will be 125 percent in a decade; that number is projected to increase to 136 percent if tax cuts are not offset. And offsets and tax cuts should be in the same package, or the savings should come first—not the other way around.

This is a tremendous opportunity for lawmakers to do the actual work of budgeting, finding the necessary offsets for their policy proposals, and ultimately reducing projected borrowing. Offsetting costs presents the opportunity for both smaller government and true tax reform. It would be malpractice to squander it with a multi-trillion-dollar debt explosion.

Any lawmaker who votes for a reconciliation deficit number greater than zero will be casting a vote to grow the debt, which is a vote for fiscal negligence at a time where we cannot afford it. 

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For more information, please contact Matt Klucher, Assistant Director for Media Relations, at klucher@crfb.org.