Concept_Debt_pennies

House Continuing Resolution Sets Stage for Over $300 Billion in Costs

Jan 17, 2018 | Health Care| Other Spending

House Republicans released a draft continuing resolution (CR) last night to extend current levels of discretionary spending through February 16, which would mark over a third of the way into Fiscal Year 2018 without full appropriations. It would also extend the Children’s Health Insurance Program (CHIP) and delay three taxes enacted in the Affordable Care Act. Delaying those taxes would cost $31 billion over the next ten years. If these delays continue to be enacted, they will ultimately add $310 billion to deficits over the next ten years.

The CR also ignores the caps on discretionary spending, using an annualized rate about $6 billion above the caps – $2.4 billion for defense and $3.7 billion for non-defense – while preventing across-the-board spending cuts known as sequestration. Ordinarily, sequestration would enforce the caps by reducing each category of spending. The prior CR that extended funding through January 19 also delayed these cuts.

Given the expensive tax cuts passed last December, Congress should not be adding additional tax cuts to the debt. Furthermore, Congress is still negotiating a large budget deal with large potentially unpaid-for increases in discretionary spending that could cost up to $1.2 trillion once extended. Congress is well on its way to passing most pieces of the package we warned about in December with a total cost of $4 trillion if everything is enacted without offsets and continually extended.

The tax package in the CR includes:

  • A two-year delay of the "Cadillac tax" on high-cost health insurance plans, which is set to go into effect in 2020.
  • A one-year suspension of the health insurer tax, which was suspended last year, went into effect for 2018, and would be suspended again for 2019.
  • A two-year delay of the medical device tax, which came back into effect in 2018 but no tax has been due yet.

Ten-Year Cost of Tax Cuts in the Continuing Resolution

Provision Temporary Cost Permanent Cost
Two-year delay of Cadillac tax (2020 and 2021) $15 billion $105 billion
One-year delay of health insurer tax (2019) $13 billion $185 billion
Two-year delay of medical device tax (2018 and 2019) $4 billion $20 billion
Total $31 billion $310 billion

Source: temporary costs from Joint Committee on Taxation, Congressional Budget Office; permanent costs are CRFB estimates. Permanent cost is approximate and rounded to the nearest $5 billion. Numbers do not add to total due to rounding.

All three provisions were previously delayed in an expensive package of tax cuts passed in December 2015. The mandatory spending and tax cuts in the CR would be exempt from statutory Pay-As-You-Go (PAYGO), meaning that Congress would not need to find offsetting savings and instead the costs will be added to debt. The absence of budget discipline in this short-term extension suggests the longer-term budget deal being negotiated will include further spending increases and tax cuts that add to the deficit.

With the continued use of deficit-financing, gimmicks, and a breakdown in the budget process, policymakers should consider budget process reforms to reign in irresponsibility. We proposed many options as part of the Better Budget Process Initiative.

Of the tax delays, it is most upsetting that Congress is delaying the Cadillac tax, which was signed into law in order to control health spending through taxing certain employer-sponsored insurance plans. As we've pointed out before, the Cadillac tax reduces deficits and has been shown to have effects that reduce private health care spending even before the tax goes into effect. If Congress repeals the Cadillac tax, they should replace it with an alternative cap on the tax exclusion for employer-sponsored health insurance or another provision that produces long-term health savings.

Congress should not continue adding to debt, and these tax cuts should not be added to the continuing resolution without offsets. As Congress continues to negotiate a budget deal, they should identify mandatory savings or additional revenue to offset any costs. They could start with the offset ideas we proposed for sequester relief, but many other options are also available.