Starting next week, Republicans are moving to pass a fiscal year 2018 budget resolution. The House has a floor vote on the budget planned for Thursday.
In that bill, the GOP will set out so-called reconciliation instructions, including the amount a bill passed through reconciliation can add to the deficit during a specific period of time.
Senate Republicans have reportedly agreed that a tax plan can add $1.5 trillion to the deficit over 10 years, according to The New York Times. That figure may fall after negotiations with the more fiscally conservative House, Lorenzen said.
The House Budget Committee has already approved a budget resolution calling for deficit neutral tax reform. It calls for major spending cuts, a controversial push that could still pass the House.
When the chambers agree on and pass a budget resolution, they can move forward with a tax bill. The potential deficit issues would come into play then.
The framework released by Republicans on Wednesday is an outline missing many key details. The relevant congressional panels — the House Ways and Means Committee and Senate Finance Committee — could make major changes to the plan as they write a bill.
As it stands now, Republicans may need to make changes to avoid a major deficit increase. The CRFB estimates the tax framework would add $2.2 trillion to the deficit over a decade, well over the $1.5 trillion target. Lorenzen cautions that the estimate could change as more details emerge about a potential bill.
Some Republicans, including President Donald Trump‘s top economic advisor Gary Cohn, argue the economic growth generated by the plan will cancel out the lost tax revenue. Better economic output will lead to more tax revenue, proponents of dynamic scoring argue.
“We think we can drive a lot of business back to America, we can drive jobs back to America, we can make ourselves very competitive,” Cohn told CNBC on Thursday morning. “We think we can pay for the entire tax cut through growth over the cycle.”
But for the purpose of congressional rules, growth will not matter in deficit calculations, Lorenzen said.
Republicans have options if it looks like their plan will increase the deficit by too much. They can reduce the amount by which they chop tax rates or close more loopholes to cancel out the cuts.
However, Republican leaders appear set on keeping in place the 20 percent corporate tax rate and changes to individual rates proposed on Wednesday.
Lawmakers could also choose to “sunset” some provisions, meaning they go away after a set period of time and stop adding to the deficit. For instance, the framework proposes an “expensing” provision to allow businesses to write off their capital expenses, which lasts only five years.