NC Budget and Tax Center

Growing the deficit will lead to immediate cuts to core programs in our communities

Congress follows several deficit-control mechanisms that govern tax and spending decisions in any given year to ensure that the deficit does not increase and spending is arbitrarily constrained.

PAYGO, funding caps and are all in play now that the House and Senate have both voted to grow the deficit by at least $1.4 trillion over the next decade.

Since the tax changes proposed would drive multi-year deficits, they must be offset by the equivalent amount according to the 2010 Statutory Pay As You Go Act (PAYGO).  As the Congressional Budget Office reported before the Senate vote, the Senate Tax plan will trigger automatic cuts to Medicare that would total $25 billion, as well as many other programs including those supporting farms and rural investment and student loans.  See this helpful visual to see the range of programs that could be affected by PAYGO with a Congressional vote to grow the deficit.

Funding caps and sequestration — across-the board and automatic cuts — would also likely be required in the next year.  Despite efforts to lessen the harm of this flawed approach to budgeting in 2013, 2014 and 2015, it is unlikely that there will be the will to take the same approach in 2018, particularly after lawmakers in Congress have voted to grow the deficit.  The result will be accelerating further the historic decline in spending on education, health care, economic development and housing.

For a helpful overview of these statutory deficit-control mechanisms, see this piece by the Center on Budget & Policy Priorities.

NC Budget and Tax Center

Next up in Congress, cuts to programs that deliver opportunity, strengthen economy

Congressional Republicans are rushing to get their tax bill to President Trump’s desk before the end of the year. At the same time most Americans have clearly shown that they are not in favor of this tax bill, and for good reason.

The proposed tax plans in Congress are simply the first of two steps that will hurt millions of low- and middle-income Americans. The first step involves cutting taxes for the richest top 5 percent and major corporations.

The second step, however, entails budget cuts to vital programs that help millions of families and communities across the U.S. While the details of exactly the size and scope of the cuts isn’t immediately clear (beyond those that will be automatic due to sequestration — read more here), GOP leaders have stated publicly their intent to cut programs and services deeply. Here are just a few recent and clear statements around this intent:

“We’re looking very strongly at welfare reform, and that’ll all take place right after taxes, very soon, very shortly after taxes,” – President Trump

“We’ve got a lot of work to do on cutting spending,” – House Speaker Paul Ryan

“The only way you are going to deal with the debt is you have to do two things. … You have got to generate economic growth because growth generates revenue. But you also have to bring spending under control. And not discretionary spending. That isn’t the driver of our debt, … The driver of our debt is the structure of Social Security and Medicare,” – Senator Marco Rubio

Under this tax plan “we will be able to raise more revenues and if not, as a Republican, the answer would be less spending,” – Rep. Jeb Hensarling, Chairman of the House Financial Services Committee

“I have a rough time wanting to spend billions and billions and trillions of dollars to help people who won’t help themselves, won’t lift a finger, and expect the federal government to do everything.” – Senator Orrin Hatch

Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

NC Budget and Tax Center

Memo to Tillis and Burr: Proposed “trigger” in Senate tax bill is flawed, inadequate, and unrealistic

The U.S. Senate is currently debating its tax plan and rushing to vote on it by the end of this week with the hopes of getting tax legislation to President Trump by the end of the year.

One new and concerning development is that some Republicans in the Senate are considering adding a “trigger” to the bill that would reportedly activate tax increases in 2022 if the promised positive economic effects of the bill have not materialized.

It is a sign that legislators are unclear of what the future will hold as the plan is implemented and the full impact of each detail is understood.  Senator Tillis and Senator Burr should be very concerned about this development and oppose moving forward on a major tax overhaul that provides no protections from myriad harm for North Carolinians and is still not fully understood.

According to a new report, the trigger mechanism is deeply flawed and cannot undo the harmful fiscal impact of the bill’s unfinanced tax cuts. The Center on Budget and Policy Priorities points out:

“The details about the trigger mechanism are still emerging.  Under one reported version, corporate tax increases would take effect if revenues in 2022 are below a “target” — the amount that the tax code is expected to generate that year under the tax laws in effect today (that is, before tax cuts take effect), minus the cost of extending a business tax break now in effect that is due to expire under current law.   Under another version, the tax increases would be triggered if economic growth fell below a target rate.  Regardless of the precise criteria, such a trigger mechanism is unlikely to result in tax increases going into effect.

Moreover, the triggered tax increases are limited to $350 billion over a decade, far less than the estimated revenue loss from the pending tax bill.  Thus, even if the trigger took effect, the tax cuts still would fall far short of the standard of not increasing the deficit that various Republican senators have argued the tax bill will meet.”

The report is blunt by concluding that:

“If policymakers are truly concerned about the harmful impact of higher deficits and debt, they should address the problem head on: they should identify the revenues they will raise or the spending they will cut to offset the cost of tax cuts they evidently view as the nation’s highest priority.  That’s how responsible major legislation has been designed in the past.  The landmark 1986 tax reform legislation, for example, raised taxes on some businesses and individuals and cut taxes for others to create a more efficient tax code, without the large revenue losses in the current tax bill.

‘Trigger’ proposals, on the other hand, let policymakers sidestep the hard choices and still try to claim the mantle of fiscal responsibility.”

It is worth noting that Republican Senator Ted Cruz of Texas has said he’s working on a trigger provision that would apply two ways and bring additional cuts if there’s robust growth.

Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

NC Budget and Tax Center

Statement on U.S. Senate Tax Plan from Alexandra Sirota, Budget & Tax Center Director

The tax plan, passed today out of committee, now moves to the U.S. Senate floor. It will deliver the greatest benefit to the rich, raise taxes on many middle- and low-income taxpayers, and grow the federal deficit.  The harm to North Carolina will be felt in every community as an estimated 400,000 North Carolinians lose health insurance and investments are cut that connect people to jobs, connect businesses to markets, and strengthen our economy.  North Carolina’s Congressional delegation must slow down their rush to pass an overhaul of the tax code that benefits so few and ensure that federal tax policy is not paving the way for more harm to our state.