Cato Expert Discusses House Budget Plan

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.