Neil Bradley Neil Bradley
Executive Vice President, Chief Policy Officer, and Head of Strategic Advocacy, U.S. Chamber of Commerce
Watson M. McLeish Watson M. McLeish
Senior Vice President, Tax Policy

Published

February 04, 2025

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Perhaps the most important decision impacting how—and for how long—Congress will address the impending 2025 tax cliff will be made during the initial budget resolution process: whether to adopt a “current-law” or “current-policy” baseline.

Under a current-law baseline, preventing the scheduled expiration of key individual, business, and estate tax policies enacted in the 2017 Tax Cuts and Jobs Act (TCJA) would be considered to cost around $4 trillion over 10 years.

A current-policy baseline, on the other hand, would recognize that merely avoiding a scheduled tax increase should not be counted as a new tax cut; only new tax policies or changes to current policy would be considered to have a budgetary impact.

Here are four reasons why it’s imperative that Congress adopt a current-policy baseline.

I. A Current-Policy Baseline Reflects Reality 

A budget baseline should help policymakers measure the effects of proposed changes in spending or tax policy on American families and the economy relative to the status quo, not to expiring provisions or scheduled policy changes that would likely never be implemented.

Consider a family that paid $10,000 in federal taxes for 2025 but for whom, under existing law, tax rates are scheduled to double in 2026, meaning the family would have to pay $20,000 in federal taxes that year. A current-law baseline would assume this scheduled change in the law. But if Congress later decides to increase tax rates by only 50%, using a current-law baseline would count the family as having received a $5,000 tax cut. Of course, in the real world, the family didn’t receive a tax cut at all; they got a $5,000 tax increase.

As lawmakers contemplate tax reform legislation this year, it’s critical to understand that a current-law baseline would assume all the TCJA’s temporary tax provisions will expire on schedule, resulting in a tax increase of roughly $4 trillion over the 10-year budget window if Congress fails to act. Lawmakers should reject the notion that tax reform should conceal a $4 trillion tax increase, and therefore the relevant point of comparison is not current law but current policy.

Because an assumption that Congress will continue to extend current policy more accurately reflects congressional precedent, lawmakers should measure the budgetary effects of tax reform legislation by reference to a current-policy baseline. Like in the example above, assuming otherwise would make it look on paper like extending current policy would give American families and employers a massive tax cut over the next 10 years, when in reality, it would ensure they continue to pay taxes at today’s rates. 

Growing America's Future

Competitive, pro-growth tax policy is essential to grow the economy, raise wages for workers, and improve the standard of living for all Americans. The Chamber’s Growing America’s Future campaign advocates for maintaining a pro-growth tax code to foster a robust U.S. economy that benefits all Americans.

II. A Current-Policy Baseline Would Enable Congress to Make the Temporary Provisions of the TCJA Permanent, Maximizing the Potential for Economic Growth 

If Congress adopts a current-law baseline in its FY 2025 budget resolution, then it is all but certain that most—if not all—of the TCJA’s temporary tax provisions would once again have to be sunset to comply with the Senate’s Byrd rule, under which titles in reconciliation bills cannot increase the deficit in years beyond the usual 10-year budget window. This is because making the TCJA’s temporary provisions permanent would be considered to increase the deficit when measured against current law.

If, on the other hand, Congress were to adopt a current-policy baseline, then lawmakers would have a real chance to deliver permanent tax relief to American families and employers because extending the TCJA’s temporary provisions would not increase the deficit relative to current policy.

Replacing this year’s tax cliff with another one a few years later would only create more uncertainty for American families and employers.

Imagine a company that’s planning to make a major new investment in the United States. One factor it would have to consider is its projected after-tax return on that investment. Now imagine that there’s a major tax cliff scheduled to occur in a couple of years, what should the company do? Plan as if taxes will automatically increase—which would make the investment less worthwhile​ or assume that taxes won’t increase—which would make the investment riskier since this assumption could be wrong)? As the tax cliff approaches, the company may simply decide to wait and see what happens, which, of course, has its own costs.

The uncertainty caused by recurring tax cliffs chills domestic investment and economic growth. Frequent changes to a country’s tax laws reduce stability and can erode competitiveness by making business planning more difficult and increasing uncertainty about future tax liabilities. Conversely, permanent tax policies promote stability and lead to more pronounced economic effects than temporary ones.

If lawmakers give in to perceived budgetary pressures and deliver only a temporary reprieve from the 2025 tax cliff, they will undercut what would otherwise be a powerful economic signal for American businesses to plan, invest, and grow.

III. A Current-Policy Baseline Doesn’t Impede Congress from Addressing Overspending

Some advocates of using a current-law baseline in reconciliation argue that given our current deficit and debt levels, Congress needs to take action to reduce spending. But adopting a current-policy baseline would not in any way impede Congress from using the reconciliation process to reduce spending. On the contrary, adopting a current-policy baseline could facilitate even greater spending reductions because it would provide congressional committees more flexibility to identify spending reductions as they work through the reconciliation process.

Using a current-policy baseline, the budget resolution would not have to include instructions to increase the deficit to accommodate an extension of expiring tax provisions. Instead, the budget resolution could focus on instructing the relevant committees to achieve a deficit-reduction target.

In the past, budget resolutions have instructed committees to achieve rather modest levels of deficit reduction—say, $1 billion—with the understanding that they would find additional savings. This approach ensures that the focus is on deficit reduction, provides flexibility for Congress to come up with additional savings, and protects the reconciliation process from getting derailed by technical violations of the committee allocation rules.

IV. Using a Current-Policy Baseline Would Remove the Current Bias in Favor of Spending Increases and Tax Hikes 

The current rules governing the budget baseline are inconsistent and fundamentally flawed. Most notably, they treat spending cliffs and tax cliffs disparately, with a bias in favor of spending increases and tax hikes. As the Congressional Budget Office (CBO) explains

"Although CBO’s baseline generally reflects current law, including scheduled expiration dates for most tax provisions and some spending programs, the Deficit Control Act directs the agency to follow some rules that may lead to a different result for certain programs. In particular, the act directs the agency to:

  • Assume full funding for benefits under entitlement programs even if the source of that funding is inadequate; 
  • Assume that many mandatory programs (and thus their spending) continue to operate throughout the baseline projection period after their scheduled expiration dates;
  • Assume that excise taxes dedicated to trust funds are extended for the remainder of a projection period at their expiring rate; and 
  • Assume that appropriations grow each year with inflation, starting from the most recent discretionary appropriation, even if the appropriation is for an emergency or is widely viewed as a onetime appropriation."

Because CBO’s cost estimates for legislation affecting mandatory programs are developed in relation to the baseline, the Congress’s reauthorizing an expiring mandatory program often will not be shown as having a cost—even though it would have consequences for a program’s operation—because the program’s continuation is already assumed in the baseline.

Adopting a current-policy baseline would remove this undue bias against tax relief and better protect American taxpayers from the unchecked growth in the size of government.

This year, Congress must act to protect American families and employers from what would be the largest tax increase in U.S. history. Thoughtful tax policy can drive economic growth while improving fiscal responsibility. Lawmakers have the procedural tool at their disposal to do both; now is the time to use it.

About the authors

Neil Bradley

Neil Bradley

Neil Bradley is executive vice president, chief policy officer, and head of strategic advocacy at the U.S. Chamber of Commerce. He has spent two decades working directly with congressional committee chairpersons and other high-ranking policymakers to achieve solutions.

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Watson M. McLeish

Watson M. McLeish

Watson McLeish is senior vice president for Tax Policy at the U.S. Chamber of Commerce, where he serves as the primary adviser on all tax policy-related matters.

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