What’s the most ambitious federal spending restraint plan circulating in Washington? The winner has yet to be determined, but one contender among the front-runners may surprise some taxpayers.
Republican leaders hope to pass tax reform before the end of the year. That would be much easier to accomplish under reconciliation rules in a budget resolution. To that end, the Senate Republicans released a budget draft today, joining the House GOP and other caucuses who offered their budget visions last July. Elements include:
Tax Reform. The resolution locks in $1.5 trillion for tax reform through reconciliation instructions to the Finance Committee. This will help ease the process for hammering out the details of the framework agreed to by the Trump Administration and Republican Congressional leaders.
Spending. The resolution would rein in federal spending. The Congressional Budget Office’s June baseline that projected spending based on current law, reports that outlays will total $53.1 trillion over the next decade. Relative to that, the Senate’s budget sets spending on a path that is $18.1 trillion lower, totaling $35 trillion. Defense spending would adhere to the levels in the CBO baseline - $6.1 trillion.
Dynamic Scoring. The resolution would require that the CBO and the Joint Committee on Taxation take into account macroeconomic effects when scoring major legislation. This method considers incentives or disincentives resulting from changes in tax rates. Static scoring, by contrast, overestimates revenue gained from tax hikes because it does not account for legal tax avoidance strategies or other behavioral responses to heavier tax burdens.
Reform of the individual rates and doubling of the standard deduction will ease the tax and compliance load for millions of filers. Reforms to the code for businesses of all sizes will provide a significant boost to the economy through job creation and wage growth. The dynamic effect of economic growth will in turn contribute to an increase of government receipts over time.
A key component of the budget resolution is spending restraint. Historically, tax revenues have averaged around 18 percent of GDP while spending has averaged 20 percent of GDP. The Senate resolution would set the budget on a path to balance, with a modest surplus of $79 billion in 2026 and a $197 billion surplus in 2027. There is less top-line spending in the Senate resolution than in the blueprint proposed by the House Budget Committee, or even the plan from the fiscally-conservative Republican Study Committee.