Joint Committee Baselines and Tax Reform

With the ink not yet dry on the compromise debt-ceiling legislation, some of the principlas are arguing about a key provision that would determine how likely it is that the new Joint Select Committee on Deficit Reduction would address the scheduled expiration of the current individual rate structure, estate tax, and the preferential rates on capital gains and dividends, i.e. the Bush tax cuts.

At issue is a provision bargained for by House and Senate Republicans and widely marketed to skeptical conservatives wary of the deal, prior to the vote.   The provision aims to require the Joint Committee to use the benchmark of current law (rather than current policy) to score the legislation the Committee is required to vote on prior to November 23.

Under Section 301 of the debt-ceiling bill, deep, across-the-board, spending cuts go into effect, beginning in FY 2013, if Congress does not pass into law a proposal that would reduce the deficit by at least $1.2 trillion.  The question is how that $1.2 trillion is measured – - against what benchmark.

Recognizing that it would far too tempting for the Joint Committee to reach the $1.2 trillion figure by measuring from a current policy baseline that assumes low taxes into the future, Republican negotiators insisted that the Congressional Budget Office should be required to use current law in providing estimates for Joint Committee deliberations.  They specifically included a reference to Section 301(a) of the 1974 Budget Act in the debt-ceiling bill.

Now, White House economist Gene Sperling argues on the White House blog that the bargained-for language is not specific enough.   Despite the intent of Republican negotiators, Sperling claims that the Joint Committee can adopt any baseline it chooses by a majority vote.  The legislation may require CBO to provide an estimate based on current law, but the sequestration would not necessarily be triggered under his interpretation, if the Committee reaches the $1.2 trillion figure by some other measure.  Paul Ryan strongly disagrees.

Sperling’s interpretation is nonsensical and it would gut the deficit reducing purpose of the legislation, because there is no bipartisan consensus on any baseline other than current law.  For example, the current policy baseline used by the Administration assumes that taxes will go up on everyone earning over the $200/$250k threshold while the bulk of the Bush tax cuts will be extended.  If the Joint Committee were to use the Adminsitration’s baseline, ironically,  the Joint Committee would not be allowed to count the President’s preferred rate increases towards the $1.2 trillion.  

Would the Adminstration argue against the Joint Committee using its own policy baseline? and what basis does it have for supporting any other benchmark?  If there is no rationale for the baseline, then the whole Joint Committee exercise becomes nothing but smoke and mirrors.

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