With the Senate passing a fiscal year 2025 budget resolution on April 5 and the House of Representatives passing a separate FY 2025 budget resolution on February 25, some may anticipate federal tax reform legislation to move quickly. However, the distinctions between the Senate and House budget resolution proposals are significant, and with Speaker Mike Johnson only being able to lose three Republican votes, the path to federal tax reform remains unclear. The House and the Senate need to pass identical versions of a budget resolution process to start budget reconciliation, and ultimately complete federal tax reform.
Certain members of the House have already expressed their inability to support the Senate budget resolution. President Donald Trump scheduled a meeting with a group of House Republicans that are critical in passing the Senate’s Budget resolution on April 8. And while Speaker Johnson voiced his confidence on finalizing a budget resolution agreement with the Senate after the meeting, there are still several Republicans who are opposing the resolution, including Reps. Chip Roy (R-Texas) and Andy Ogles (R-Tenn.), indicating there are dozens of others Representatives who also will not support the bill.
House Budget Committee Chair Jodey Arrington (R-Texas), sated the following in a press release on April 5:
“The Senate response was unserious and disappointing, creating $5.8 trillion in new costs and a mere $4 billion in enforceable cuts, less than one day’s worth of borrowing by the federal government. It also sets a dangerous precedent by direct scoring tax policy without including enforceable offsets.
Our nation’s debt and interest death spiral are well underway with world war levels of indebtedness and interest payments exceeding defense spending. We are at a fiscal inflection point and failure to rein in our runaway deficit spending and unsustainable debt could prove catastrophic for our economy, security, and global leadership.”
The significant difference between the Senate and House budget resolution surrounds the scoring methodology being utilized to determine the impact on the federal deficit. The House Budget Resolution bill uses a current law baseline, meaning that they estimated the impact on the federal deficit using the existing laws, including the sunsetting of the designated Tax Cuts and Jobs Act provisions as of Dec. 31, 2025. However, the Senate resolution uses a current policy baseline when projecting the impact their budget resolution proposal would have on the federal deficit, which instead presumes that all policies are extended, acting as if the sunsetting TCJA provisions do not exist and will not impact the federal budget.
Under the House budget resolution, using current law, the amount of deficit added to the federal budget over a 10-year period is estimated to be approximately $3 trillion. However, the difference in choice of scoring allows the Senate budget resolution to appear to only add $1.5 trillion to the federal deficit over a 10-year period. If the Senate Budget resolution was scored using current law baseline, the same scoring system utilized by the House for their budget resolution and the Congressional Budget Office to forecast the federal budget, the estimated federal budget deficit increase is estimated to be between $5,678 or $5,8 trillion based on the Bipartisan Policy Organization and Committee for a Responsible Federal Budget respectively.
The Senate references the 1974 Congressional Budget Act, which governs budget resolution, which provides that it is the chairman of the Senate Budget Committee, currently Senator Lindsey Graham (R-S.C.), who determines the budget baseline used for budget resolutions. In addition, Senator June Thune (R-S.D.) highlighted in his remarks to the Senate floor on April 3 that the most recent use of currently policy baseline was during President Barack Obama’s fiscal year 2013 budget, which assumed $4.5 trillion of expiring tax cuts would be extended in the Democrats’ baseline, matching current policy at that time. And was quoted as stating that “using the current policy baseline is not some bizarre new gimmick.”
The Senate’s use of current policy baseline may allow the impact to the federal budget deficit to appear smaller, but in reality is adding $2.7 trillion more to the federal deficit when compared to the House budget resolution.
As a point of reference, the increase provided in the Senate Budget Resolution estimated to be $5.7 trillion using the current law baseline would exceed the CBO’s 10 year baseline projection for income security programs, including SNAP, earned income credits, supplemental security income, unemployment compensation, and child nutrition estimated to cost $4,032 trillion over the next ten years. In addition, the Senate Budget resolution is over 66% of the expected Medicaid costs budgeted for the next 10 years of $8,579 trillion.
Alternatively, when comparing the debt impact under the current Senate budget resolution to other Senate law recently passed, the debt impact exceeds the 2017 TCJA, 2020 CARES Act, 2021 American Rescue Plan Act and 2021 Bipartisan Infrastructure law combined.
Even without any increase in the federal deficit via a budget resolution, the nonpartisan CBO leader, Director Phillip Swagel, has warned the federal budget is already at a tipping point. At a congressional hearing in February, Swagel noted that under the current law the interest as a percentage of gross domestic product will surpass non-defense discretionary spending in 2024, and will climb to 3.9% in 10 years. In addition, Swagel highlighted that based on the current trajectory, there will not be enough resources to pay the promised benefits of social security in 10 years. This is after significant changes were highlighted in FY 2024 federal budget, where for the first time in history the United States started spending more on debt interest payments than on national defense spending.
To learn more about how the federal budget impacts tax reform listen to Withum’s How Does the Federal Budget Impact Tax Reform where I interviewed the director of the CBO, Phillip Swagel.
Understanding the impact any budget resolution will have on the federal budget is essential when determining whether federal tax reform can occur during the 2025 taxable year. Depending on the federal deficit impact of the budget resolution, the three dozen House members who identify as fiscal hawks could vote against the budget resolution, never allowing for federal tax reform to be considered in the budget reconciliation process. While President Trump and House Speaker Johnson have taken steps to ensure the slim majority is maintained in the House, including withdrawing Rep. Elise Stefanik’s nomination to be U.N. ambassador, the ability to only lose three votes in the House would appear to limit the ability to ignore the fiscal hawks concerns.
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