Lawmakers Should Ensure Reconciliation Reduces Debt

With both the Senate and House of Representatives having adopted separate budget resolutions for Fiscal Year (FY) 2025 to facilitate reconciliation legislation, the two chambers will need to agree on a concurrent budget resolution in order to formally begin the reconciliation process. The House budget would allow lawmakers to add $2.8 trillion to deficits before interest costs, which would boost debt to 125 percent of GDP in 2034 compared to the current projection of 117 percent. The Senate’s budget, which is less likely to serve as the starting point, would allow lawmakers to add $517 billion to deficits before interest costs through 2034, though Senate leaders have said the goal would be to fully offset any spending increases. Reporting suggests that Senate leadership is pushing for the adoption of a “current policy baseline” in the final budget resolution.

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

What is distressing is that Congress would support adding a penny to the national debt, let alone upwards of $3 trillion; what is shameless is that many members are pushing for more tax cuts and fewer spending cuts instead of reducing this reckless borrowing.  

The attempt by some senators to adopt the current policy baseline sham that would allow policymakers to circumvent the Byrd-rule restriction on long-term deficit reduction would result in $37 trillion in additional debt over the next 30 years.  

If lawmakers were serious about dealing with our huge fiscal risks, they would adopt a concurrent budget resolution that would:  

1.) Avoid the “current policy gimmick.” Using a current policy baseline to measure the deficit impact of this reconciliation bill would paper over $4 trillion or more of debt in the first decade, allow $37 trillion in long-term borrowing that would otherwise be prohibited by the Byrd rule, and create a terrible precedent for future reconciliation bills.

2.) Expand the savings in the House budget. The agreement to include $2 trillion of savings instructions in the House budget – while not nearly enough – was an important and hard-fought step in the direction of fiscal responsibility. It should be preserved and increased. There are plenty of options to tackle Medicaid gimmicks, reverse costly executive actions, and reduce and reform federal spending in other areas. That out of $86 trillion of projected spending over the budget window, policymakers have only agreed to $2 trillion in cuts, is preposterous and they need to expand the savings.

3.) Reduce Ways & Means borrowing allowance. The House budget allows the Ways & Means Committee to borrow $4.5 trillion through 2034, which is far more than necessary to extend the Tax Cuts and Jobs Act. Congress should reduce that number for Ways & Means and the Senate Finance Committee, given all the areas of the budget where savings could be found that are under the jurisdiction of these committees, including for instance, large parts of the Affordable Care Act, the Inflation Reduction Act energy credits, Medicare, a number of welfare programs, and over $20 trillion of tax expenditures. Moreover, there are many  smart reforms to pare back the deficit impact of TCJA extension.

4.) Set an upper limit on total borrowing allowed (or savings required) in reconciliation. Although lawmakers may choose to set committee instructions that allow for flexibility of the overall package, they should not use this flexibility as an excuse to allow for more borrowing. In addition to committee instructions, the budget should include a separate binding provision putting a definite upper limit on the borrowing or lower limit on savings required in reconciliation. The appropriate limit should result in net deficit reduction given our unsustainable fiscal situation. But with both the House and Senate budgets already going in the opposite direction, it should at least be a cap on total borrowing.

5.) Assume realistic dynamic gains and dedicate them to deficit reduction rather than more borrowing. Thoughtful tax and spending changes can help support stronger economic growth and thus generate additional budgetary savings. But policymakers tend to overstate those gains in order to justify more borrowing. The House budget assumes that the sum of its policies will boost annual growth by 0.8 percent, resulting in $2.6 trillion of dynamic feedback. That estimate is about 11 times as high as most outside modelers and nearly four times as high as the most optimistic estimate of dynamic gains from tax cut extensions of $710 billion.  Overstating economic feedback can lead policymakers to justify more borrowing, which in turn can actually slow economic growth by worsening the debt burden. Policymakers should instead adopt reasonable growth assumption. And they should use the dynamic gains to help address our mounting debt, not justify more borrowing. 

Governing is not easy. Paying for your priorities is even harder. But to fail to do so puts our economy and national security at tremendous risk. Lawmakers should stop making excuses and fake justifications and rise to the important challenge of making our government fiscally responsible.  

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