October 26, 2017

Following a closely watched partisan debate, the House of Representatives on Thursday narrowly adopted a final fiscal year 2018 budget resolution.  Passage of the measure (H Con Res 71), which came on a 216-212 vote, paves the way for congressional Republicans to advance their ambitious tax-reform plans under fast-track procedures.  The somewhat arcane process, known as budget reconciliation, would allow Republicans in the Senate to clear a tax-code rewrite with a simple majority vote (instead of the 60 votes that are typically required to pass most legislation).

The current House tax measure does away with the federal income tax deduction for State and Local Taxes. See how that could impact counties here.

The final budget blueprint, which was approved last week in the upper chamber on a 51-49 vote, tees up consideration of tax-cut legislation that could increase the federal deficit by as much as $1.5 trillion over 10 years.  While Republicans have yet to release the specific details of their tax-reform plan, their previously released framework would shrink the current seven tax brackets into three – 12 percent, 25 percent and 35 percent – with the potential for an additional top rate for the highest-income taxpayers.  The plan also would roughly double the standard deduction while expanding the Child Tax Credit.

Although the GOP plan proposes the elimination of a number of itemized deductions, it would retain tax incentives for home mortgage interest and charitable contributions, as well as tax incentives for work, higher education, and retirement security.  Notably, the proposal does not explicitly call for the repeal of the state and local tax (SALT) deduction, though Republican committee leaders and the White House are looking to eliminate the deduction as a means to help offset the cost of the tax bill.  In response, a coalition of state and local governments, including CSAC, is actively advocating to retain the ability for taxpayers to deduct their state and local taxes.

Looking ahead, House Ways and Means Committee Republicans are planning to release the legislative text of their tax bill on November 1.  A committee markup, followed by House floor action, is expected to occur shortly thereafter.

With regard to discretionary spending, the final fiscal year 2018 budget blueprint includes language that would allow Congress to spend billions of dollars more for defense programs compared to what is officially authorized by the 2011 Budget Control Act (BCA).  In order for that additional defense spending to actually occur, Congress would need to pass a separate deal raising the BCA’s caps.

Notably, the final resolution does not call for additional domestic discretionary spending.  Congressional Democrats, however, have stated that they are only open to raising the BCA’s defense caps if there are commensurate increases in domestic programs.  This matter will likely be addressed in some fashion later this fall, which is when Republicans will need Democratic votes in the Senate to advance a final fiscal year 2018 appropriations package.

Of additional importance to California’s counties, the final version of the budget blueprint jettisons a component of a previously passed House resolution that called for multiple authorizing committees to produce legislation that cuts mandatory spending programs by at least $203 billion over 10 years.  While removal of the House language does not guarantee that Congress will not make cuts to entitlement programs, it does make it highly unlikely that the GOP-led Congress could advance such a bill since the legislation would be subject to a Democratic filibuster in the Senate.