Republican leaders are giving assurances to Sen. Susan Collins (R-ME) that their tax bill will not trigger an automatic $25 billion cut to Medicare, after a report from the Congressional Budget office said it could do just that.
Republicans are trying to pass a $1.5 trillion tax cut — which the CBO said could trigger automatic budget cuts across major mandatory spending programs, like Medicare, federal student loans, and agriculture subsidies, and even some funding for customs and border patrol.
It all comes down to the “pay as you go,” or PAYGO, rule, a 2010 law that says all passed legislation cannot collectively increase the estimated national debt.
If Republicans want to pass a tax cut, the law requires they pay for it with mandatory spending cuts. (Inversely, if Congress boosts funding for entitlement programs, it has to increase taxes.)
If Congress violates this law, the Office of Management and Budget, which keeps the deficit scorecard, “would be required to issue a sequestration order within 15 days of the end of the session of Congress to reduce spending in fiscal year 2018 by the resultant total of $136 billion,” the CBO said in a letter to Minority Whip Rep. Steny Hoyer (D-MD).
The way Congress can get around this is by passing a law that wipes the scorecard clean for the year.
Collins, concerned about the possible impact a sequester could have on Medicare, wrote a letter to leadership asking for assurances that the tax bill wouldn’t trigger cuts.
“Critics of tax reform are claiming the legislation would lead to massive, across-the-board spending cuts in vital programs — including a 4-percent reduction in Medicare — due to the Pay-Go law enacted in 2010,” Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan said in a joint statement. “This will not happen.”
Congress can waive the law, the statement continued, and there’s “no reason to believe” they won’t.
A quick primer on the PAYGO law
The CBO’s letter reiterated what we have known for a long time: Republicans are facing a major deficit problem with their tax cut bill.
The Office of Management and Budget keeps an account of every piece of legislation that impacts revenue or mandatory spending. At the end of each calendar year, OMB checks the scorecard — if it increases the estimated deficit, then OMB is required to implement an across-the-board sequestration of mandatory spending programs to offset the cost.
Medicaid, Social Security, food stamps, and all social safety net programs are exempt from this sequestration. But Medicare, the Social Services Block Grant, student loans, and mandatory spending in the Affordable Care Act (other than exchange subsidies and Medicaid expansion), among others, would all be on the chopping block.
Cuts to Medicare are capped at 4 percent, about $25 billion per year, meaning cuts to the other mandatory spending programs would have to make up the difference. Based on Republicans’ current plans to pass a $1.5 trillion tax cut, the CBO calculates that would be about $111 billion in cuts across the board, in addition to the $25 billion cut to Medicare. The OMB can’t pick and choose which programs to cut.
Because the OMB is limited in which programs it can cut from, the CBO estimates this would actually result in $85 billion to $90 billion in cuts.
But Republicans say they will stop this.
How Republicans can stop this sequester from going into effect
Since the CBO report was released in early November, Republicans have been balking at the notion of a sequester.
“No such thing is going to be triggered automatically,” Sen. Pat Toomey (R-PA), who sits on the Senate Budget Committee, told reporters about the CBO’s letter Tuesday.
But the issue hasn’t been talked about much among House and Senate tax writers, according to several lawmakers close to the issue — until now.
Trump has promised again and again to protect Medicare, and it’s always been unlikely Republicans would like an across-the-board sequestration to go into effect.
Because PAYGO is a law, Congress would have to pass another law to change it. They aren’t allowed to do this through budget reconciliation — meaning Republicans would need to get at least 60 votes in the Senate to mitigate this sequestration.
That means both Republicans and Democrats would have to vote for it — putting both parties in an uncomfortable position. It would force deficit hawks in the Republican Party to vote to bypass a law meant to keep the national debt in check, in the name of deficit-busting tax cuts. And for Democrats, the pressure of impending Medicare and federal program cuts would likely be enough to get them on board — even though it’s a budgetary gimmick to make up for a Republican tax bill they don’t want passed.
And even if Congress does pass a law to stop the sequestration, it doesn’t mean this makes the tax bill’s deficit problem go away. Entitlement reform could still be down the line.
“Paul Ryan has said as soon as taxes are done, he’s going to entitlement reform, which is code [for] putting Medicare and Medicaid and the social safety net on the table,” Sen. Ron Wyden (D-OR) said when the CBO released its report. “So certainly this new development with respect to PAYGO indicates that they realize they have serious long-term budget challenges.”
Republicans have shown time and time again that reforming — and cutting — Medicaid and Medicare are among its priorities.
In June, Rep. Tom Cole (R-OK), who sits on the House Budget Committee and is the chair of the appropriations subcommittee that manages health spending, called President Trump’s promise to leave Medicare and Social Security untouched and balance the budget a “fantasy.”
“We have been talking about Medicare and Medicaid reform all the way through,” Cole told Vox then. “I’m not asking the president to abandon his principles. He is the president of the United States. He doesn’t have to sign something. But we shouldn’t abandon ours either.”
Republicans, who are in the midst of passing what is shaping up to be a massive tax cut — in addition to increasing defense spending and non-defense spending — are having a difficult time finding ways to taper the deficit.
Either way, an entitlement overhaul is nigh.