Tax Reform Scoring Tactic Risky, Say Experts

As the Senate gears up to consider the “one, big beautiful bill” on tax reform, immigration, defense, energy, and more, budget experts across the political spectrum are becoming increasingly concerned about how that bill’s costs will be accounted for.

Senate Finance Chair Mike Crapo (R-ID) has repeatedly advocated for the use of a “current policy baseline” for tax reform — this methodology assumes that current laws will continue, even if they are set to expire. The result is that extending Tax Cuts and Jobs Act provisions would appear to have zero budgetary impact. It would also pave the way for permanent tax reform, rather than reform limited to the 10-year reconciliation budget window.

Treasury Secretary Scott Bessent also supports the use of a current policy baseline. “I don’t know why we’re calling this extending the tax cuts. It is the current tax policy,” Bessent said on March 6 at the Economic Club of New York.

President Donald Trump, Bessent, and others have emphasized the importance of permanency for tax reform — most easily be achieved with the use of a current policy baseline. “A number of Senate Republicans are on record saying that they won’t support a package without permanency,” said Ernst & Young’s Adam Francis on the firm’s March 14 webinar. Francis added that Finance Committee Republicans met at the White House a day earlier where “President Trump did reportedly back a current policy baseline approach.”

But policy experts ranging from the libertarian Cato Institute to the liberal Center for American Progress (CAP) are highlighting the dangers of what they call “hiding the cost” of TCJA extensions through the use of a current policy baseline.

Here are some of the key concerns they shared during a March 13 panel discussion hosted by the Committee for a Responsible Federal Budget (CRFB).

Failing to recognize deficit impacts. CRFB’s Marc Goldwein contended that using a current policy baseline doesn’t change the underlying cost of tax reform, it just changes how cost is reported. “Congress is now endeavoring to try to add a tremendous amount of money to the debt, but they don’t want to admit it,” said Goldwein.

Regardless of the baseline, extending the TCJA’s expiring tax cuts would add at least $3.5 trillion to the debt, Goldwein explained. Adding in the cost of extending other expiring provisions, like Affordable Care Act credits, would increase the cost to $4 trillion, while bringing back “corporate provisions as they were in 2021” would bring the cost up even further.

Confusion over how spending is scored.

“It’s not the case that spending gets one treatment, and revenue gets a different treatment,” explained the CAP’s Bobby Kogan. “I don’t think anyone is trying to be misleading. I think it comes from lack of education in this area,” he added.

Kogan rebutted the argument brought forth by current policy baseline proponents. Namely, Crapo has lamented that “spending is under current policy baseline that’s intended to protect the spending, so it goes on perpetually,” but that tax extensions are treated differently.

“The key point of any scoring … is that all costs are recognized at some point,” said Kogan, noting the difference in how spending measures are scored when initially adopted.

“The problem isn’t a current policy baseline,” said Arnold Ventures’ George Callas. “The problem is toggling back and forth between different baselines for the purpose of political expedience.”

Callas added that “part of the false narrative” of some Republicans is claiming “well, Obama used a current policy baseline” to extend the Bush tax cuts. “Obama, rhetorically, said it’s a $600 billion tax increase on high incomes,” Callas explained, but the cuts were still scored using a current law baseline.

Setting a dangerous precedent.

Another fear should a current policy baseline used for TCJA tax cut extensions is how future congresses could use that precedent. Callas threw out several examples of what Democrats might seek under this precedent.

They could enact Medicare for All for one year, then “come back and make it permanent and claim that it costs zero,” said Callas. The same could be done with a Green New Deal or universal basic income, he added.

“This really opens Pandora’s box, and it’ll be very hard to close it again,” said Goldwein.

Avoiding tough policy choices.

To Cato Institute’s Romina Boccia, a big issue with using a current policy baseline is “politicians setting themselves up to avoid trade-off considerations.” Boccia explained that by making tax cut extensions appear to cost nothing, Congress frees itself “from having to find offsetting revenue increases” or “offsetting spending reductions.”

In doing so, said Boccia, “real opportunities for fiscal reform are being ignored.” She pointed to several potential offsets that are available to lawmakers, including “closing loopholes in the Tax Code,” “repealing electric vehicle subsidies,” and eliminating the state and local tax deduction for C corporations. And Medicaid reforms to limit the provider tax and equalize reimbursement rates for traditional Medicaid enrollees and expansion enrollees “could save a trillion dollars,” she added.

Giving away leverage to make cuts.

Beyond just avoiding policy choices, deficit hawks are in a weaker position to enact deficit reducing measures into law if a current policy baseline is used for tax reform, said Boccia.

A current law — rather than current policy — baseline gives fiscal conservatives the leverage to say, “We agree with the need to extend these tax cuts. But in order to do so, we also need to offset the deficit impact, and we want to do that by reducing spending in those areas of government that we think are wasteful, improper, inefficient, etcetera,” Boccia explained.

Conversely, a current policy baseline “actually takes that leverage away,” said Boccia, because TCJA extensions are free. She called it “very unwise” for Republicans to give away that leverage after promising spending cuts for years.