U.S. Budget Watch is a historical project of the Committee for a Responsible Federal Budget, which provided analysis around the 2008 and 2012 presidential campaigns. This site is not regularly updated.

December 2015

Bush Tax Plan Would Add 50 Percent to Federal Debt | Washington Examiner

 Jeb Bush's plans for tax cuts would add 50 percent to the federal debt over a decade, according to an analysis published Tuesday by an influential Washington research organization.

The Tax Policy Center, a nonprofit think tank, estimated that the former Florida governor would cut taxes for everyone, including by an average of $800,000 for the top 0.1 percent of earners, if he succeeds in his Republican presidential bid.

Bush's plan is to lower individual and corporate tax rates and make up some of the lost revenue by eliminating loopholes, credits and other tax breaks. But the revenue-raising provisions would fall far short of making up the difference, by $6.8 trillion over 10 years, according to the Tax Policy Center. Including interest costs on the new debt, that would amount to more like $8 trillion. The current debt is $18.8 trillion.

"If you were thinking about designing a plan that would embody all of the supply-side elements you could imagine, this plans embodies that pretty well," said Len Burman, an analyst at the Tax Policy Center.

"The big issue with the plan is that it loses a whole lot of revenues," Burman said, explaining that it would be unlikely, politically, that the plan could be adopted as written, even though it represented a "serious tax reform."

Bush campaign representative Allie Brandenburger responded with criticism of Burman's organization. "Given its history of opposing pro-growth tax policies, it is no surprise the liberal Tax Policy Center is misrepresenting Jeb's plan to create 4 percent growth," Brandenburger emailed the Examiner. "Jeb is the only candidate in this race on either side of the aisle who has put forward a serious and substantive plan to overhaul the broken U.S. tax code to help create 19 million new jobs, raise wages and restore opportunity for Americans across the board, and balance the federal budget with a balanced budget amendment."

The Tax Policy Center's estimate of the loss of tax revenue from Bush's tax cuts is roughly twice as large as estimates from the campaign and from the Tax Foundation, another Washington think thank that is more to the right of center.

The Tax Policy Center analysis doesn't include the potential for greater revenues that would come if the tax plan accelerated economic growth. On a call with reporters, Burman said it was not clear if the plan would yield greater economic growth. While lower tax rates and a simplified tax system would be conducive to growth, the added federal debt would lower growth by driving up interest rates and "crowding out" private investment.

Bush has said that his tax cuts would be paired with spending cuts. But an analysis of his entitlement spending reform plans from the Committee for a Responsible Federal Budget placed the total 10-year savings at just $285 billion, far short of the lost tax revenue. Bush currently ranks fifth in the Washington Examiner'presidential power rankings.

Bush's plan would cut the top marginal tax rate from 39.6 percent to 28 percent and the top corporate tax rate from 35 percent to 20 percent. He would lower the tax burden on lower-income families by cutting lower tax rates and nearly doubling the standard deduction. He also would allow businesses to immediately write off investments, and he would eliminate the estate tax.

The result of all those changes is that the average taxpayer would see taxes drop by $2,813. While the bottom fifth of income earners would see their incomes rise 1.4 percent, or $184, the benefits of Bush's plan would increase as income rises. The top 0.1 percent would get a 12 percent boost in take-home pay, or more than $800,000.

The analysis is the first performed by the Tax Policy Center, which says it plans to perform similar analyses for other candidates. The analysis for the plan of Donald Trump, currently atop the polls among GOP candidates, would likely show even greater revenue losses as his plan is similar to Bush's but with lower tax rates. Trump currently ranks second in the Examiner's power rankings.

The organization's score of Mitt Romney's tax plan in 2012 helped provide President Obama with a talking point against the Republican former Massachusetts governor. That analysis found that Romney's tax rate cuts would expand the deficit unless taxes rose for the middle class, a finding that the Obama campaign seized on to accuse Romney of catering to the wealthy.

The model used in the analysis is based on a file of 136,000 tax returns provided by the Internal Revenue Service, the Tax Policy Center said. The group, which includes a number of former staffers for government agencies that performed similar tax analyses, has used and refined the model since 2001.


Rangel, Lone NY Voice Against 'Terrible' Tax Bill, Blasts Colleagues for Picking at 'Crumbs' | Crain's NY Business

 Members of Congress will be home for the holidays, but not before they decorate a Christmas tree with a massive assemblage of tax breaks.

Rep. Charlie Rangel says humbug.

The dean of the New York delegation told Crain's he is "damn sure" he will vote against the package and that his fellow Democrats are settling for “crumbs.”

The cuts were billed as temporary when they first passed in 1988. But the tax-extender legislation has become a Washington tradition that seems to get costlier when renewed every year or two. The latest price tag is more than $700 billion (with a B) over 10 years.

This year’s bill, not yet finalized, could make some of the tax breaks permanent, such as one for research and development that will cost the Treasury $80 billion in the next decade, according to the watchdog Committee for a Responsible Federal Budget.

Most of the city’s representatives in Washington expect to support the package if it includes permanent benefits for poor families, such as the earned-income tax credit, while their counterparts across the aisle get big tax breaks for business.

"The minority should say, 'I'm not going to have that blood on my hands, dammit,'” Rangel said. “Don't count me in. Take out the EITC, take out the child tax credit. These are crumbs compared to what this bill is going to cost.”

Among the city's delegation, all of whom are Democrats except for Daniel Donovan of Staten Island, Rangel is alone in his outright rejection of the plan, according to a Crain’s survey answered by all but three members. Rep. Hakeem Jeffries of Brooklyn said he would not support the bill if it leaves “our most vulnerable communities behind.”

But Rangel said Democrats who support the cuts are falling into a Republican majority's trap to reduce federal revenue.

"This tax package is really obscene, and while people are negotiating for low-income people's credit, what the Republicans are really doing is 'starving the beast' by $700, $800 billion,” Rangel said. “Which means when it comes to discretionary spending, there won't be any money there."

"I don't know why the minority should help the majority to pass this terrible, terrible, terrible, terrible tax bill," he added.

Candidates Should Address National Debt | Cedar Rapids Gazette LTE (IA)

 To the editor:

A few weeks ago I attended an event in Des Moines hosted by POLITICO which brought together community leaders to discuss how economic issues will impact the 2016 Iowa caucuses and presidential election. The event touched on some of the nation’s most important economic issues, including the national debt.

I believe our more than $18 trillion national debt is the most important economic issue facing the nation. The national debt is large and growing and could lead to higher mortgage rates, higher interest rates, and less economic growth. This event was important to help foster discussion on this critical issue, and reinforces the efforts of initiatives like First Budget — a joint effort of the Concord Coalition and the Campaign to Fix the Debt that is raising awareness of the national debt and making solving this problem a high priority for the 2016 presidential candidates. It is essential that Iowans continue to press candidates and ask them to come up with realistic solutions and specific plans to solve important issues like the national debt.

Kim Reem


This New Tax Deal Will Tack $700 Billion onto the National Debt | Money Morning

There's a new tax deal being debated in Congress right now, and it comes with a 10-year price tag of about $700 billion in foregone revenue.

You see, for every tax break that is passed, the budget deficit balloons in order to "finance" that lost revenue.

The new tax deal being debated in Congress comes with a 10-year price tag of about $700 billion. Here's how it's going to make national debt balloon...And this new tax package would extend approximately 50 temporary tax breaks that have either expired or will soon lapse. By combining Republican business breaks with Democratic tax credits for lower-income workers and families, representatives are hoping the new legislation will escape the common partisan roadblocks for which Congress has become notorious.

As it looks right now, the deal will likely pass before Congress breaks for the year.

While it's nice to see everyone at last getting along, we're a little worried about the $700 billion budget deficit…

One Senate aide initially projected the package would cost $500 billion over 10 years, reported The Hillearlier today. But a House aide later set the price tag closer to somewhere between $700 and 800 billion over 10 years, reported The New York Times this morning.

Since the deficit has been falling for six consecutive years – from $1.4 trillion in 2009 to $439 billion in 2015 – this $300 billion discrepancy is also a little worrisome. The centrist group Committee for a Responsible Federal Budget has called the emerging package "a fiscally irresponsible bipartisan deal," reported The New York Times on Friday.

So let's have a look at what makes the new tax deal so expensive…

The New Tax Deal Is Pricey Thanks to These 3 Core Provisions

Democrats are pushing for stimulus-era expansions of the Earned Income Tax Credit (EIC) and the Child Tax Credit (CTC), which are scheduled to expire at the end of 2017. They would like to:

  • Decrease the threshold at which someone can claim the refundable portion of the child credit.
  • Expand the maximum Earned Income Tax Credit available to families with at least three children.

Combined, these provisions would cost $100 billion, according to U.S. Treasury estimates.

Democrats' demands aren't stopping there. Part of their new tax deal agenda includes indexing the child credit for inflation. This means that as inflation rises, so does the amount you and I claim for our children.

"If we don't [raise the child credit], within four years or so, 700,000 children fall back into poverty," said Sen. Sherrod Brown (D-OH), a member of the tax-writing Finance Committee.

For their part, Republicans are worried about oversight of fraud with both the EIC and the CTC. So part of what is being negotiated is significant improvements to the programs' verification process – though specifics haven't been given.


The Republicans are also responsible for the new tax deal's costliest provision…


To Keep Expiring Tax Cuts, Congress Considers Another Borrowing Bonanza | WSJ Washington Wire

Congress is contemplating massive borrowing for a year-end bonanza that would make permanent a number of expiring tax cuts. The price tag? $700 billion over the next decade. And this is on top of a year in which Congress already added $245 billion to the debt.

How do we explain to our children that we borrowed more than $1 trillion—counting interest—not because it was a national emergency or to make critical investments in the future but because we just don’t like paying our bills? Oops?

The U.S. fiscal picture doesn’t justify carefree borrowing. The Obama administration likes to emphasize thatdeficits have narrowed, but this year’s deficit is still more than $400 billion. And the deficit is projected to start growing again, quickly, in two years. The national debt is a whopping 74% of the U.S. economy–the highest level it has been other than during World War II and twice the historical average

Yet in the past few years, Congress has borrowed for business tax breaks, highway spending, higher payments to doctors in Medicare, and more

When it came to fixing the “doc fix,” plenty of options to pay for the change were available, such as modernizing Medicare’s cost-sharing structure and reducing overpayments to hospitals and nursing homes. Instead, lawmakers ignored two-thirds of the bill’s price tag and expanded the debt by $140 billion this decade. The sequester relief deal? More gimmicks and a $50 billion price tag. Last week’s bailout of the highway trust fund tacked on an additional $50 billion by resorting to gimmicks, instead of increasing the gas tax or otherwise aligning transportation spending and revenue

And now, tax cuts. Most of the extensions under consideration are sensible enough policy–and their merit is an argument for paying for them. There are plenty of options: closing egregious loopholes such as carried interest, improving tax compliance, all-out tax reform. If lawmakers need a little extra time (even though this deadline has been known for a full year), Congress could extend the tax breaks for one year while developing a comprehensive plan to reform the tax code

All this borrowing chips away at the progress Congress and the president made with their recent mini-budget deals. While far from ideal—the “fiscal cliff” deal that saved $800 billion relied on increasing tax rates instead of reforming the tax code, and the sequester that saved $900 billion focused almost entirely on the discretionary portion of the budget when the problems lie in mandatory spending—it took quite a lot to get even those deals done. Now Congress is poised to give back the bulk of that progress. Instead of building on those small steps to get control of the debt, we would backslide

Achieving bipartisan agreement on paying for things is difficult enough when Republicans favor spending cuts and entitlement reform and Democrats favor tax increases. But the current situation is worse than the usual reluctance to compromise

This year, Republicans agreed to increase discretionary spending by $110 billion but paid for only half that amount. In the 11 months they have controlled Congress, Republicans haven’t passed any significant stand-alone entitlement reforms to reduce spending. They just joined with Democrats to repeal one of the few entitlement changes that had been made, to crop insurance

Meanwhile, Democrats argue that we need new revenues yet are standing behind this plan to cut taxes by $700 billion. Sixty percent of that would go to businesses. Why would they support borrowing for corporate tax cuts over help for, say, and critical new public investments?

As the election approaches, a big budget deal is almost surely out of reach. But surely lawmakers on both side of the aisle could do more than continue to duck hard choices and add to the debt like it will never come due.


Paying for Hillary's Tax-Credit-Palooza | Bloomberg View

 In past presidential elections, candidates hoped to convince voters of their fiscal rectitude. This time, though, fiscal responsibility is out. Tax giveaways are in. 

This puts Hillary Clinton in a straitjacket. She has proposed about $1 trillion in new government spending -- much of it through the tax code. But unlike the Republican candidates, she doesn't claim that tax breaks lead to higher growth and thus pay for themselves. So she's under pressure to show how she'd pay for all the tax credits she is proposing. 

Not only are the Republican candidates offering more generous tax breaks on everything from estates to investment returns. They aren’t even pretending to honor the concept of budget neutrality -- that is, they haven’t identified spending reductions or tax increases elsewhere to offset all the tax cuts they are proposing. 


The Committee for a Responsible Federal Budget, a nonpartisan think tank, has an infographic showing that the seven GOP candidates with tax-cut plans, using conventional scoring, would add a total of $42 trillion to federal deficits over 10 years. 

This election’s sole fiscal hawk, Ohio Governor John Kasich, is finding out the hard way that fiscal probity is out. He's making little headway with his old-fashioned call for a balanced budget and warnings about his rivals' "fantasy tax plans." 

The new outlook is also haunting Clinton, who has targeted one interest group after another with tax-relief gifts. The most recent example: up to $1,200 in credits to reimburse family members for the cost of caring for aging parents. (Say thanks, baby boomers.) That followed an offer of up to $2,500 in tax credits for out-of-pocket health-care costs. (This one's for you, millennials.) 

And those followed her proposals for making college more affordable, including making permanent a generous tax credit for college tuition and other expenses that began under the 2009 stimulus law. The package's price tag: $350 billion over 10 years. 

Clinton also would provide tax credits to help working parents pay for child care. Low-income homeowners who install solar panels would be eligible for a break, as would investors in low-income urban areas. 

For companies, she would provide $1,500 tax credits for each apprentice hired, and an expansion of an existing job credit if businesses hire ex-felons and other marginalized people. She would reward companies with profit-sharing plans with a 15 percent tax credit on the value of bonuses paid out. 

The list goes on. It's so lengthy that Clinton opens herself to charges of mucking up an already over-complicated tax system. Besides, the government already offers a wide array of means-tested grants and loans for college; why is it necessary to use back-door spending to subsidize higher education even more? 

Clinton was not going to forget Big Labor. She offers a tax credit that encourages infrastructure spending, which would provide jobs to union workers. She salami-slices the whole Democratic base -- boomers with aging parents; millennials with college loans; homeowners with costly mortgages; and minorities living in under-served urban areas. Each would get a generous credit. 

She vows to pay for it all, but so far hasn't said exactly how. 

Months ago, Clinton suggested limiting the value of tax deductions for well-off taxpayers, similar to a plan President Barack Obama has offered for several years but that Congress has never seen fit to take up. Obama's plan would cap at 28 percent the value of deductions -- for charitable contributions, payment of state taxes and the like -- that itemizers use to lower their tax bills. If Clinton offered the same idea, she could claim to have "saved" $525 billion over 10 years, which is the score given by Congress's Joint Committee on Taxation. 

Even then, she needs to find about $500 billion in savings to pay for the rest of her free stuff. That's the price of claiming to be fiscally responsible. It's also the price of playing interest-group politics.

Congress Contemplating Massive Deficit-Finance | Washington Examiner

 Congressional negotiators are working on a deal to pass tax breaks that could end up being the biggest legislative addition to the deficit since President Obama's 2009 stimulus.

The negotiations concern a package of potentially dozens of tax breaks for corporations and families. The final mix of tax breaks will be determined by bargaining between congressional Democrats and Republicans and the White House.

Some of the key players, however, have been suggesting that they're working toward a larger bill. "There is a growing appetite to find a substantial and balanced deal," Oregon's Ron Wyden, the ranking Democrat on the Senate Finance Committee, said Thursday.

The package is a grab bag of temporary tax provisions that have expired and that, for the most part, are regularly re-upped each time they expire. For that reason, they're known as "extenders." Most of them ran out at the beginning of this year and won't be available for taxpayers unless they are reinstituted before the year ends.

The bargain could make certain provisions permanent, rather than temporary, which lawmakers have long sought to do with the biggest and most familiar breaks to provide certainty.

But, on paper, the cost would be high. The Committee for a Responsible Federal Budget, a nonprofit group that advocates lowering the federal debt, estimated this week that one possible version of the permanent tax breaks package would cost the Treasury up to $840 billion over 10 years, when interest on the associated debt is taken into account.

That's only on paper, however. Many lawmakers in both parties have chosen to ignore the stated budgetary costs of extending the breaks. The logic for that is they are reinstated every year, so they should be considered the same as permanent tax breaks in the tax code, such as the mortgage interest deduction. That popular tax break loses money for the government every year, but Congress doesn't cut spending or raise taxes to make up the difference.

Rep. Paul Ryan laid out that argument on the House floor in February, back when, as chairman of the House Ways and Means Committee, he was shepherding a permanent extension of charitable tax credit extenders.

"This isn't costing anything, in that we are not lowering someone's taxes. We are just keeping their taxes where they are, and we are preventing them from going up," the Wisconsin Republican said when Democrats criticized GOP lawmakers for adding to the deficit.

"We don't hear all these hues and cries about the deficits when we extend these tax provisions for two years. We don't hear these concerns when we extend current law tax provisions for one year. And we don't hear these concerns about deficits when we retroactively extend it from last year, going forward," Ryan also said. "We only hear these concerns when we are giving people the certainty."

Congress did pass a one-year re-extension of a broad package of extenders late last year, just before the deadline for companies and individuals to claim them on their tax returns.

Marc Goldwein, a senior vice president at the Committee for a Responsible Federal Budget, disagrees with Ryan's logic and believes that the extenders should be offset, he told the Washington Examiner.

But granting that some extenders, such as the research tax break for businesses that has been extended 16 times since 1981, really should be considered part of the baseline, much of what's in consideration should not be.

In Goldwein's estimation, lawmakers are discussing as much as $200 billion in tax breaks that have not been part of current policy until now. That would be enough, Goldwein noted, to provide relief from the sequestration automatic spending cuts for two years, or to cut the corporate tax rate from its current 35 percent to under 30 percent.

One example is a version of the research tax credit that the House passed earlier this year, which included an expansion of the tax credit that doesn't exist currently and would cost an additional $73 billion over 10 years.

Another is one of Democrats' top asks, namely that the Child Tax Credit, which provides $1,000 for child, be indexed for inflation. Currently, rising prices eat into the real value of the credit each year.

Including that measure would add another $73 billion to deficits, according to the Committee for a Responsible Federal Budget.

One example is a version of the research tax credit that the House passed earlier this year, which included an expansion of the tax credit that doesn't exist currently and would cost an additional $73 billion over 10 years.

Another is one of Democrats' top asks, namely that the Child Tax Credit, which provides $1,000 for child, be indexed for inflation. Currently, rising prices eat into the real value of the credit each year.

Including that measure would add another $73 billion to deficits, according to the Committee for a Responsible Federal Budget.

The Child Tax Credit provision is one that could generate added pushback from conservatives.

Part of the Child Tax Credit is refundable, meaning that if the credit exceeds a filer's tax liability, the government will write them a check. Dan Holler, a representative for the conservative group Heritage Action, said "the concerns that we have are when you start talking about the refundable tax credits in there, because that's essentially spending."

His group, he said, is not concerned about revenue lost from cutting taxes on businesses or individuals. "If it's an actual tax cut, then that's good," he said.


Clinton Hedges on Tax-Cut Plan | WSJ Washington Wire

 Former Secretary of State Hillary Clinton has promised to lower–and not raise–taxes on middle-class Americans, but Sunday she sidestepped a question about whether she would make an iron clad promise not to raise them on people earning less than $250,000 a year.

The front-runner for the Democratic presidential nomination has made middle-class tax breaks a key plank of her domestic agenda, but in an interview with ABC’s “This Week,” she would not commit to a no-new-tax pledge for roughly 97% of wage earners, though she said not raising them on those households “is certainly my goal.”

Republicans and some outside observers have questioned whether Mrs. Clinton can pay for a series of business and middle-class tax cuts, as well as her domestic spending priorities, simply by raising revenue on the wealthiest Americans. Mrs. Clinton has proposed $1 trillion in new spending over the next decade.

Mrs. Clinton wants to expand access to preschool and child-care, make college more affordable and spend roughly $275 billion on roads and other transportation projects. The infrastructure projects would be paid for by changes in the business tax code. She has pledged to raise the necessary revenue from the top 3% of wage earners.

“I have been very specific about how I will pay for each of those,” Mrs. Clinton said on ABC’s “This Week”, noting all the Republican proposals to cut taxes for higher earners that would add to the deficit.

Mrs. Clinton’s focus on lowering taxes creates an implied contrast with her top rival for the Democratic nomination, Vermont Sen. Bernie Sanders, who has called for universal, government-run health care, among other expansions of federal programs. The health-care plan alone could cost roughly $15 trillion over the next decade, requiring new revenue streams. Clinton officials have hinted his presidency would result in new taxes for the middle class.

On Sunday, Mrs. Clinton emphasized her commitment to lowering middle-class taxes, but she also pledged to offset any lost revenue or additional spending in order to prevent the deficit from swelling. The Committee for a Responsible Federal Budget issued a recent report that says Mrs. Clinton has already proposed nearly $1 trillion in new revenue, including a plan to limit deductions for the wealthiest Americans.

“I do come from the Clinton school of economics, and when my husband ended, we had a balanced budget and a surplus,” Mrs. Clinton said Sunday during an interview on ABC’. “It’s is going to take good fiscal responsibility. That’s what I’m promising. But I’m also promising that the wealthy are going to start paying more for their fair share and help to fund some of these investments.”

This Could Be The Last Big Anti-Poverty Effort Of Obama's Presidency | HuffPost Politics

 President Barack Obama and some of his allies are trying to transform an ugly piece of tax legislation into something that gives critical help to millions of low-income Americans.

The gambit hasn't gotten much attention until now. But if it works, the resulting commitment of resources would arguably represent the biggest anti-poverty effort of Obama’s second term.

The legislation is a big bundle of tax breaks that could be worth somewhere between $700 billion and $800 billion over the next 10 years, depending on how negotiations go. To put those numbers in perspective, the high end of that range would approach the projected cost of the Affordable Care Act in its first decade. The package has no offsetting spending cuts or revenue, which means that, at least on paper, it would increase the federal deficit.

Most of the tax breaks are for corporations, and while some have dubious justification, some have no justification at all. Probably the worst and most notorious among them is one that became law relatively recently -- a “bonus depreciation” provision that lets companies write off the full cost of new equipment right away, rather than spreading it out over time. This provision became law in 2009, as part of the Recovery Act, and it was supposed to encourage businesses to invest in production equipment and then hire more workers. There’s no good reason to think it did.

In theory, this and the rest of the business tax breaks are temporary. In reality, they haven't been. Whenever they expire, or are about to expire, corporations demand that Congress extend all of them, and Congress complies. Republicans vote yes. Democrats vote yes. Nobody worries what it does to the deficit. Approval of the “extenders,” as they’ve come to be known, has actually become something of a holiday ritual, since it usually happens just before Congress adjourns for December -- and the Internal Revenue Service is getting ready to print the next year’s tax forms.

The renewals have become so routine that corporations assume they will become law and make financial plans accordingly. But companies still wish they didn’t have to wait for Congress to act and their biggest allies, in the Republican Party, have other reasons to make the tax cuts permanent. By enshrining them in the tax code now, the thinking goes, it will be easier to pass other tax reforms later. To make the business tax cuts permanent, Republicans need votes from congressional Democrats and, of course, they need a signature from the president. That has given liberals, including the one in the Oval Office, a little leverage -- and now that leverage may produce some results.

Back in 2009, when Congress was trying to pump up the economy, it didn’t just create that bonus depreciation tax cut. It also expanded the Child Tax Credit, which gives relief to families with children, and the Earned Income Tax Credit, or EITC, which basically makes small paychecks bigger.

The EITC may sound familiar, because it has a well-deserved reputation as one of the most effective anti-poverty measures around. And while it generates antipathy from some Republicans, who allege (incorrectly) that the program is prone to fraud, it also has a history of moderate bipartisan support -- largely because, to claim the credit, you have to have an income. To Ronald Reagan, probably its best known champion, that made the EITC the antithesis of a welfare giveaway.

Like the bonus depreciation cut, the EITC and Child Tax Credit enhancements were also temporary, though Congress has since extended them twice. All along, Obama, the Democratic leaders in each house, and key allies like Sen. Sherrod Brown (D-Ohio) and Rep. Rosa DeLauro (D-Conn.), have been agitating to make these cuts permanent. In the past, they’ve proposed offsetting the lost revenue with higher taxes on the rich.

That’s not happening in this Congress, so Democrats have also offered what amounts to a trade. They’ll sign off on a package that extends some of corporate tax breaks permanently, as long as it limits or winds down the less defensible ones while making those tax cuts for the working poor and middle class permanent. (The package would likely include a tax credit for education costs, in addition to the enhancements of the Child Tax Credit and EITC.)

The impact for the people who get these tax credits would be considerable. According to calculations by the Center on Budget and Policy Priorities, expiration of the tax credits for the working poor would put 16.4 million people, about half of them children, into or deeper into poverty. And while the improvements are not set to expire for another two years, waiting means risking the outcome of the next election. If Republicans win control of the White House and Congress, they may demand a much higher ransom for extending the EITC and Child Tax Credit. Or they could refuse to do so at all.

The officials and advisers trying to put this deal together from the left aren’t wild about extending the corporate tax cuts, particularly without offsetting spending cuts or revenue. But, they reason, the alternative is to continue the existing charade, with Congress approving these tax cuts year after year -- and adding to the deficit anyway. If the deal works out as some promoters hope, some of the largest and least attractive tax cuts, like bonus depreciation and some shelters for multinational corporations, would remain temporary and require new acts of Congress to extend.

That last part is important. Since the more egregious cuts would no longer come up for renewal as part of much larger packages, with more defensible features, Congress would be more likely to let them expire. That would produce savings, relative to what Congress would do absent a deal. Bonus depreciation alone accounts for more than one-third of the total value of the business extenders.

Or so the argument goes. Groups like the Committee for a Responsible Federal Budget take a very different view, and they have company on both sides of the aisle. They argue that the deal would reaffirm a double-standard conservatives have long favored, in which new spending requires offsets but new tax cuts don't. These critics of the deal also worry that the package will get worse in negotiations, accumulating more corporate giveaways, while making future deficits worse.

Those concerns may still cause negotiations to unravel. So could arguments among the bill’s supporters. Congressional Democrats, for example, want the bill to include postponement of the Affordable Care Act’s “Cadillac tax” -- a levy on expensive health insurance policies that economists say helps to hold down health costs, but that is highly unpopular with just about everybody else. The White House opposes that. Tea party Republicans could still stage a revolt, since tax breaks for poor people, even the ones who work, are not especially popular with their supporters.

Still, negotiations over this bill have gotten farther than many people ever expected. Legislation could still pass. And whatever else its effects, that would mean bolstering two programs for the working poor -- at a time when the working poor can use all the help they can get.

Congress is approaching another season of deciding what to do with temporary 'tax extenders' | Christian Science Monitor

 For years, Congress has struggled with what to do with scores of temporary tax breaks that have come to be known as the “tax extenders.”   The usual resolution: Lawmakers fiddle for months. Then, sometime in December, they mindlessly continue the immortal mostly-business tax breaks for another year or two.

Last year, Congress never could agree on what to do, so most of the measures technically expired. But fear not, it’s another December. And this time lawmakers think they have a better idea—restore and extend most of the subsidies, make a bunch of others permanent, and repeal a couple of recent tax hikes in the bargain. The Committee for a Responsible Federal Budget figures that one version of this deal now floating around Capitol Hill would add $850 billion to the debt this decade and $2.3 trillion by 2035.

With neither party much interested in budget discipline these days, lawmakers may fix their extenders problem simply by giving everyone most of what they want.  Politico’s Bernie Becker compares it to the day Oprah gave everyone in her studio audience a car. As she might have screamed, “You get a tax cut. And you get a tax cut. And so do you.”

Republicans want to make permanent several business subsidies. Thus, a working version of the extender compromise would do just that for small business expensing, the research credit, and a handful of others. Those that don’t make the cut would still be temporarily extended. Weirdly, most GOP presidential hopefuls would repeal nearly all of these tax subsidies in their tax reform plans. More on that in a bit.


Democrats want to make permanent some provisions of the Earned Income Tax Credit and the Child Tax Credit that were included in the 2013 fiscal cliff bill but are due to expire in 2018. They also want to expand the EITC to childless adults and make permanent the American Opportunity Tax Credit. Those proposals could find their way into the package as well.

But such an extender bill is not yet a done deal. Among the sticking points: Some Republicans want to bar undocumented immigrants from receiving refundable credits—a non-starter for Democrats. Others want to crack down in what they see as abuse of the EITC. Unions and most Republicans want to repeal the Affordable Care Act’s Cadillac Tax on high-cost employer sponsored health plans and other lawmakers want to dump the ACA tax on medical devices.  The White House may choke on some of those provisions.

If this story seems familiar, that’s because it is. Last year, Congress came down to the wire on an extender bill that also would have made some of these same provisions permanent. At the last minute, the bill collapsed--which makes this year’s effort all the more urgent.

Whatever happens in the next few weeks, keep in mind that the tax reform proposals of most GOP presidential candidates would repeal the very provisions Congress is working so hard to make permanent. It sounds crazy. It is crazy. But it makes perfect sense in the wonderland that is congressional budgeting.

Making these tax breaks a permanent part of the official congressional budget baseline actually makes rate-cutting tax reform easier. Why? Because killing a permanent tax break produces more revenue than killing the temporary version of the same subsidy—more money on paper that could be used to further reduce tax rates. Never mind that it adds hundreds of billions of dollars to the government’s borrowing needs.

The calculation is not so simple for Democrats. The kind of deal being debated this week would give them a win on important refundable tax credits. But adding nearly a $1 trillion to the debt over the next decade would come back to haunt them should a Republican win the White House in 2016. In that event, they can be sure that this same increase in the deficit would be a prime justification for GOP efforts to cut Social Security, Medicaid, and Medicare.

But that’s next year’s problem. For now, everybody wins. Unless you care about the budget deficit.

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