How the GOP Tax Bill Could Trigger $25 Billion in Medicare Cuts in 2018

Nov 14 2017

As they look to advance their tax bills, Congressional Republicans will have to work through — or around — a few potentially problematic budget rules. One is the Senate’s Byrd Rule, which says that any legislation passed by a simple majority, as the Republicans plan to do with the tax bill, can’t add to the deficit beyond the 10-year budget window. The other obstacle comes from “Pay As You Go,” or PAYGO, rules that require across-the-board cuts to certain mandatory spending programs when enacted legislation increases the deficit over the course of a year.

Because the GOP tax plan would add $1.5 trillion to the debt over the next decade, those automatic cuts would kick in, meaning that the government would have to slash spending by $150 billion a year for 10 years — including about $25 billion annually from Medicare, plus billions more from agricultural subsidies, Customs and Border Patrol, student loans and other programs.

The full accounting gets a bit more complicated. Because the official PAYGO scorecard shows a positive balance of $14 billion for 2018, spending would only have to be cut by $136 billion next year — but because only certain programs can be cut, that number is impossible to reach, as the Congressional Budget Office explained in a letter Tuesday. Besides the $25 billion from Medicare, the Office of Management and Budget would still need to find $111 billion in other reductions, but CBO estimated that only $85 to $90 billion in cuts are available.

The Senate does have another option, though. It can waive the PAYGO rules and avoid the automatic spending cuts, as it has done in the past, but that would require 60 votes. As The Washington Post’s Heather Long notes, that could give Democrats their only point of leverage in the tax reform process. “Congressional staff on both sides of the aisle admit that it's unlikely Democrats would stand by and allow those painful cuts to popular programs to happen,” Long reports. “But Democratic leaders, including Sen. Minority Leader Charles E. Schumer (D-N.Y.), are well aware they could have leverage in this situation if they can convince the public that it would be Republicans, not them, who would be to blame” for the cuts.

Such a waiver could also threaten the support of some fiscally conservative Republicans. And even if the PAYGO rules are waived again, it’s a safe bet that Democrats and fiscal hawks will continue to warn about the longer-term costs of deficit-financed tax cuts. Many on the left have warned that the GOP tax plan and its increased deficits will lead to renewed GOP calls for cuts to social safety net programs.