For weeks, President Trump has been promising that his party’s $1.5 trillion tax cuts would arrive as a “Christmas gift” for the American people. To that end, the bill cleared both houses of Congress today, several days ahead of Christmas. It turns out, though, that Trump may instead wait until after Christmas — specifically, until January — to actually sign the bill.
If he indeed waits, he may give huge new leverage to the fringiest members of the Freedom Caucus to demand major safety-net cuts next year.
It has to do with the quirks of a relatively obscure law called the Statutory Pay-As-You-Go Act of 2010, a.k.a. “PAYGO.”
PAYGO has been on and off the books since the 1990s. In theory, PAYGO was designed to discourage major budget-busting legislation, such as … this tax bill. It says that if Congress enacts net deficit-increasing legislation before it adjourns for the calendar year, then automatic, across-the-board cuts will be triggered the following January.
That would mean if the bill is signed into law on Christmas 2017, automatic cuts begin mid-January 2018.
The cuts would be implemented according to a complicated formula and would include lots of programs beloved by both parties. In the case of this tax bill, they would include a $25 billion cut to Medicare that would take place from January to September 2018. Other programs on the chopping block include Customs and Border Protection, agricultural subsidies and student loans.
Congress can override these cuts, however, by passing a separate bill before they adjourn for the year that effectively says the deficits they’ve created should simply be ignored, and that PAYGO cuts should be waived. This is sometimes called “wiping the PAYGO scorecard clean.”
But wiping the PAYGO scorecard requires 60 votes in the Senate — meaning that at least some Democrats have to get on board with cleaning up the deficit mess Republicans created with their tax cuts.
Democrats have complicated motives on this front.
They could refuse to cooperate in waiving PAYGO, allow Medicare cuts to happen, and try to explain to the public that “GOP tax cuts = Medicare cuts.”
But this is a heavy lift.
Most Americans (and frankly, lots of people on the Hill) have never even heard of PAYGO and don’t know how it works or what it does. The precise connection between the tax bill and Medicare cuts is technical and not easy to convey in a soundbite. Democrats might fear that they, rather than tax-cutting Republicans, would be blamed if draconian cuts to Medicare materialize next month.
Democrats have thus far given mixed messages on whether they will play hardball on the PAYGO cuts.
House Democrats, including Minority Leader Nancy Pelosi (Calif.), suggested in a letter last week that Dems would not go along with the waiver. On ABC’s This Week on Sunday, however, Sen. Chris Van Hollen (D-Md.) conveyed the opposite takeaway: “No, Democrats are not going to allow those cuts to go in place. And it is fact that when Republicans voted for this tax bill that increases the debt by $1.5 trillion, in doing so they automatically triggered this provision that would cut Medicare by $25 billion. Now that we hope that they will join us in turning it off.”
But in any case, there’s still the risk that the Dems may not cooperate. As a result, this morning, National Economic Council Director Gary Cohn said that Trump would sign the bill this year if the year-end spending bill that Congress must pass by Friday includes a provision waiving PAYGO.
If, however, a PAYGO waiver is not in the spending bill, Trump will wait to sign the bill until January 2018, Cohn said. That’s because signing the bill after the New Year buys Congress a lot more time to waive the cuts.
As I mentioned earlier, the PAYGO law says that if Congress enacts net deficit-increasing legislation in a given year and doesn’t wipe the scorecard, then automatic cuts take effect the following calendar January. So, if Trump waits until January 2018 to sign the bill, then PAYGO cuts to Medicare and other programs would not be triggered until January 2019.
That would give lawmakers a full year, rather than just a few days, to whip the votes necessary to wipe the scorecard.
Waiting until January to sign the bill could have big, unintentional implications for which political factions gain or lose power next year.
On the one hand, pushing back when PAYGO cuts would begin reduces Democrats’ leverage. The further we get away from the memory of the tax bill’s passage, the fuzzier the connection between the tax bill and prospective Medicare cuts will appear to the public. And the closer we get to the 2018 election, the more uneasy Dems will become about any brinksmanship regarding a precious program like Medicare.
Thus, the more likely Democrats are to cooperate in cleaning up Republicans’ deficit mess.
On the other hand, putting off the scorecard-waiving deadline also massively empowers the Freedom Caucus.
It means “another year for members to posture and consider how to use a potential sequester for leverage (i.e. conservatives demanding alternative spending cuts to replace it instead of simply waiving it),” said Ed Lorenzen, Committee for a Responsible Federal Budget senior adviser (whose Twitter handle is @CaptainPAYGO).
You may recall that the House Budget Resolution included cuts to Medicare, and the House Freedom Caucus had been disappointed that spending cuts weren’t bigger. So Freedom Caucus members may threaten to just withhold their cooperation and let the PAYGO cuts take effect. More likely, as their votes become increasingly valuable in a possible PAYGO showdown, they’ll extract more concessions from their own party’s leadership.
There’s another reason to think the House Freedom Caucus might grow much, much more powerful late next year, if indeed Trump waits to sign the tax cuts into law until January and congressional leadership can’t get its act together quickly.
In theory, Congress could scramble to wipe the PAYGO scorecard early in 2018, to get it out of the way (as part of an omnibus budget agreement, for example). But lawmakers have a lot of other pressing concerns to deal with in early 2018: DACA, CHIP, debt ceiling, etc. Republican leadership may not have the bandwidth to deal with PAYGO issues, too.
If Congress kicks the can down the road and waits until the last minute (i.e., December 2018) to waive the approaching 2019 PAYGO cuts, and Republicans do badly in the 2018 midterms, Freedom Caucus members may decide that this is their very last, best shot to extract meaningful concessions. And a showdown will follow one year from now, again around the holidays.
What a Christmas gift that will be.