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Throwing In the ($2 Trillion) Towel?

April 19th, 2009 . by economistmom

Congress comes back from “spring break” this week and gets back to working on the fiscal year 2010 budget, with the House and Senate coming together in “conference” to work out an agreement between them.  I have to admit I’ve been distracted by various things outside the federal budget over the past few weeks, but a conference call with other budget experts late last week got me to focus on one thing:  that we seem to be (already) throwing in the towel on the Bush tax cuts.  I mean, it’s not just that we appear to be headed toward mindlessly extending the “middle-class Bush tax cuts” without considering that we actually have the opportunity to do something different and maybe more thoughtful and wise (because under current law, the Bush tax cuts all expire at the end of next year).  We’re also saying that we’re willing to trade off those mindless tax-cut extensions for an huge increase in the federal debt (and large tax increases in our kids’ future).

I mean, when the fiscally-responsible Center on Budget and Policy Priorities (CBPP) has this to say about the relative degrees of fiscal discipline in the House versus Senate budget resolutions (emphasis added)…

Both the House and Senate assume that the costs of extending expiring middle-class tax cuts, the current estate tax rules, and relief from the alternative minimum tax (for at least one year in the case of AMT relief) will not have to be paid for. In addition, the House — but not the Senate — provides that under specified circumstances the costs of the extensions will not count for purposes of determining compliance with the pay-as-you-go rule. Under that approach, the House would not have to waive the pay-as-you-go rule for legislation extending those policies unless the legislation also contains other tax cuts that are not fully paid for. Under the Senate approach of not providing any relief from the pay-as-you-go rule, even legislation that only extends the current policies that the plan assumes will not be paid for would require a 60-vote waiver to overcome a pay-as-you-go point-of-order…[T]he House approach to legislation extending specified current policies that are scheduled to expire under current law — which on the surface may appear less fiscally responsible —offers a significantly better chance of limiting the cost of that legislation given the strong support that exists in Congress for extending the current policies without paying for the extensions and likely efforts to add other tax cuts to the legislation without paying for them.

…you know it’s bad.  This is (the liberal-leaning but fiscal-hawkish) CBPP saying that the best we can hope for is that Congress will deficit-finance only about $2 trillion (more precisely referred to in the House budget resolution as $1,848,523,000,000, without any interest costs) in Bush tax cut extensions.  CBPP says that’s the best we can hope for, because the Senate is likely to want to pass and deficit-finance all of the Bush tax cuts (not just the “middle-class” pieces), and then some.  (Oh, by the way, that $2 trillion is the cost just through fiscal year 2019.)

And the Obama tax cuts, such as the permanent extension of the Making Work Pay credit?  Well, there’s simply no room for them with the Bush tax cuts in the door first.  Especially not if, as President Obama proposed, they’d be paid for by raising taxes (or fees) elsewhere (instead of adding to the debt).  The last thing Congress seems to want is fiscally-responsible tax policy.

I still don’t get it.  Why did President Obama play favorites with the Bush tax cuts over his own?  And why is the Democratically-controlled Congress so quick to give those fiscally-irresponsible Bush tax cuts (which they cursed for so many years) a “pass” over the more responsible tax policies of their new President?

It does look like most policymakers and policy experts (even the fiscal hawks) have already thrown in the towel.  I was speechless during that conference call.  I’m less speechless this evening (the glass of wine helps), but probably more realistically depressed.

2 Responses to “Throwing In the ($2 Trillion) Towel?”

  1. comment number 1 by: Blue Dog Staffer

    Despite parliamentary niceties - PayGo rules, Budget Act points of order, etc. - the most consistent position in Congress in recent years has been a lack of appetite for prioritizing.
    The necessity of the Recovery Act aside, in my humble opinion fiscal hawks in the House have made the best go at it the last two years, supporting hundreds of billions in offsets to some of the same tax cuts you mention.
    Would that it were so easy.

    The Senate overwhelmingly passed tax legislation stripped of House-passed offsets:
    http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=1&vote=00415
    And added unoffset tax cuts where it knew fiscal hawks had no leverage:
    http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=2&vote=00213

    Given that experience, is there value in continuing a current law fiction that nearly 90 Senators (and a large majority of the House) oppose?

    Rather than a throwing in of the towel, this is a pre-sobriety “moment of clarity” for a Congress looking itself in the mirror and admitting it has a problem. Time will tell if they have truly hit bottom and can begin to pull the country’s finances out of this tailspin.

  2. comment number 2 by: BlueDog

    I would add that maintaining the current law fiction can actually work AGAINST fiscal discipline by leaving in place various “must pass” bills with strong political support which can be used as a legislative train to carry through new deficit financed tax cuts and spending. Very few members of Congress will vote against and AMT patch or Medicare doctor fix, so those bills become attractive vehicles to attach other goodies that Members are hard pressed to oppose. We can already see this dynamic with Senator Grassley threatening to use the PAYGO rule as leverage to force a more generous estate tax relief bill by refusing to waive paygo for the more limited extension of current policy.

    Sometimes it is better to retreat to higher ground that can be defended than to make a brave stand that is doomed to failure, because once the line is broken there is no defense left. If I thought that there were 218 votes in the House and 51 votes in the Senate against extending the Bush middle class tax cuts, I would agree with sticking with a purist position on the baseline. But I don’t see that, and the real question is whether the political pressure to extend those tax cuts next year is exploited to pass other tax cuts at the same time. fiscal hawks clearly would not want a bill that both extended the Bush tax cuts and enacted some of the Obama tax cuts without offsets, but that is a very real possibiltiy if we try to play chicken with the Bush tax cuts.

    One of the recent failures of budget enforcement was the discretionary spending limtis established in the 1997 budget agreement. Those spending limits were very austere and on paper enforced significant spending restraint. But in reality there were not the votes to sustain that position, so the discretionary caps quickly became irrelevant as everyone knew they would be broken. And once they were broken there was no restraint left. We risk doing the same thing to the PAYGO rule if we aren’t careful.

    One other thought — if Congress passed a budget that relied on the revenues from the expiration of the Bush tax cuts to show a balanced budget in 2014, the Concord Coalition and others would — justifiably — criticize the budget for relying on a blatant budget gimmick. The House budget simply takes that logici of honesty in budgeting and applies it to the PAYGO rule as well as the budget resoltuion.