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CBO: Tax Plan Could Cut Medicare By $25 Billion

OMB would be required to order sequestration 15 days from end of session

House Minority Whip Steny Hoyer, D-Md., leaves the Capitol after the last votes of the week on October 5, 2017. (Tom Williams/CQ Roll Call)
House Minority Whip Steny Hoyer, D-Md., leaves the Capitol after the last votes of the week on October 5, 2017. (Tom Williams/CQ Roll Call)

Some members are concerned the GOP tax overhaul would lead to mandatory multi-billion dollar cuts to programs such as Medicare.

There’s not enough mandatory spending up for grabs under current law to execute the full automatic, across-the-board spending cuts to entitlement programs that would be triggered if Republicans push through deficit-increasing tax cuts by year’s end.

That was the message from the Congressional Budget Office Tuesday in a report to House Minority Whip Steny H. Hoyer, D-Md. CBO calculated if the tax package were to add up to $1.5 trillion to the deficit over 10 years as currently expected, automatic cuts required under the 2010 pay-as-you-go law would amount to $136 billion in fiscal 2018. 

The spending cuts, known as a sequester, would be triggered if the tax cuts added to the deficit and lawmakers didn’t vote to “wipe the scorecard clean,” as lawmakers have characterized their action to waive the so-called pay-go law in previous years.

Otherwise, the law requires the Office of Management and Budget to make across-the-board cuts to nonexempt mandatory spending programs if action during a congressional session contributes to the deficit over the five- or 10-year budget window, according to OMB’s annual budget scorecard. The issue was raised by Senate Democrats in October, who warned Democratic support for a pay-go waiver wasn’t guaranteed.

CBO said if lawmakers enacted tax cuts that added $1.5 trillion to the deficit by years’ end, by its calculation, “OMB would be required to issue a sequestration order within 15 days of the end of the session of Congress to reduce spending in fiscal year 2018 by the resultant total of $136 billion.”

Medicare, the largest nonexempt mandatory program, would be cut $25 billion since cuts to the seniors’ health insurance program are limited to 4 percent in any fiscal year under the law. That would leave $111 billion in other nonexempt cuts, affecting programs such as agricultural subsidies, state workforce development grants for individuals with disabilities, and even some mandatory funding streams for the immigration enforcement and border protection agencies.

Hoyer said the spending cuts would be a consequence of GOP tax plans to “provide huge breaks to the wealthiest” while some middle-income families could see tax increases. 

According to CBO, since the nonexempt programs are generally smaller, the entire cut triggered under the pay-go law could not be carried out even after essentially wiping out all nonexempt mandatory spending across the government. The report noted “only between $85 billion to $90 billion, significantly less than the amount that would be required to be sequestered.“ 

This pattern would be repeated in future years as well, CBO said.

“Given that the required reduction in spending exceeds the estimated amount of available resources in each year over the next 10 years, in the absence of further legislation, OMB would be unable to implement the full extent of outlay reductions required by the PAYGO law,” according to the report.

The House tax bill is expected on the floor later this week and the Senate Finance Committee is marking up its version as well. GOP leaders want to send a final product to President Donald Trump’s desk before leaving town in December, meaning if there is no pay-go fix, the cuts would be triggered in January. 

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