Throwing In the ($2 Trillion) Towel?

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.

Comments

[Moon Kil Woong:]

Sadly there is no such thing as fiscal conservative either among Republicans or Democrats. There is only the tax and spend and the don't tax and spend camps. And sadly the don't tax and spend camp is the worse of the two being that it inevitably leads to the US becoming more piss poor than a 3rd world nation.

Apr 20 02:18 AM

[John Lounsbury:]

Moon - - -

I agree with you. If we spend, we must tax. If we cut spending without proper discretion, the economic problems we have now are multiplied. Cleaning up government waste is a surgical job, not a pruning job done with a lopper.

As Diane discusses, Congress seems to want to follow Wall Street to try to address problems with accounting tricks rather than facing up to the real solutions.

Apr 20 08:54 AM

[kelm:]

Well that brightened my day.... I agree that there are no fiscal conservatives. Put another way, I do not believe we have any real leaders in congress who are willing to do what is right irrespective of votes. It will require a full blown fiscal crisis and the replacement of most members of congress to drive change. A full blown crisis will have to be something that pushes the government to insolvency - a dollar collapse would do it. replacement of congress will, unfortunately, likely be caused by large scale populist anger and that rarely leads directly to good government.

Apr 20 11:04 AM

[Allan Frain:]

The choices are 1) Tax, 2) Borrow, 3) Print.

Policy has been moving from #1 to #3 for some time. Raising taxes in a downturn is political suicide and the rest of the world has soured on lending to us. The Democrats were willing to say "we are taking your money to feed the poor", but they are not willing to say "we are taking your money to recapitalize The Banks". Interest rates will not be allowed to rise to the point where borrowing is viable.

That leaves "Print". Helicopter Ben did not get his moniker because he was afraid to print.

Apr 20 01:28 PM

[altaman:]

More Bush bashing at this late date lady? Geez give me a break. Nothing that Obama is doing is either good tax policy or good economic policy. Obama will be remembered as the great wealth destroyer in the history of the USA as he fails to fix the failing financial system while ramming through his wacky socialist policies and "CO2 is bad" pseudo-science ala the Soviet Union.

Apr 20 02:34 PM

[donzelion:]

"Why did President Obama play favorites with the Bush tax cuts over his own?"

He's picking and choosing his battles carefully. Millions of Americans still believe that the Bush tax cuts "worked" - and a few thousand well-paid hypocrites have convinced them that "the problem" is really caused by immigrants, liberals, foreign aid, etc.

Obama will not be able to get very far in terms of fiscal reform without outmaneuvering the attack dogs. Instead of telling these folks that they're stupid and he's smart (e.g., by ramming a substantial fiscal revolution down their throats that is a product of a bunch of Ivy League eggheads), he needs to sell a vision of the problems and solutions to folks generally reluctant to listen to him.

Don't be depressed by his failure to show brilliance - be impressed by the need to promote fiscal prudence far beyond the confines of NYC/DC/etc.

Apr 20 04:49 PM

[rosey99:]

Good article. I think the answer may be as obvious as it is intuitive. We are beset by a multitude of people that believe it is OK to ride off into the sunset, on the backs of their own children.

Fiscal responsibility apparently died with the GI generation, and both political parties are simply appealing to the majority (plurality?) of their constituency. As debt financed tax cuts are merely deferred tax increases, I am forced to consider that an inter-generational transfer of wealth is what both parties have had in mind. Or, if you are in a charitable mood, call it an unintended consequence. Look at all the "teabagging" going on over a mere 3% tax increase. Tea parties (and jesting) aside, when it comes to fiscal issues, the terms "liberal" and "conservative" have lost their meaning, these words now only apply to things like gay marriage, abortion, climate change, and stem cell research.

So. . .Forgive me if I leap to the conclusion that there seems to be a certain degree of consensus in both parties that it is OK to rack up a huge bill and then "skip town." The conservatives of my youth (70s and early 80s) appear to be completely MIA.

The tide may be turning though, if recent demographic trends continue, some interesting info (from Pew Research) is available at:
people-press.org/repor...

The survey results suggest that younger folks are less distrustful of government, and more likely to work together. A stretch I admit, but at least suggesting the possibility for change.

Thanks for a nice article. Eventually we must go down this road. But before that, we must at least start talking about it like adults.

Apr 20 06:03 PM