co-authored with Mark Greenberg, Georgetown Center on Poverty, Inequality, and Public Policy During the Presidential campaign, Barack Obama talked about the Making Work Pay tax credit as being an offset to the payroll tax on the first $8,100 of earnings for each worker (6.2% * $8,100 = about $500). During the campaign, Tax Policy Center analyzed the credit in the context of individual earnings – even in the case of married couples. If only one partner worked, we assumed the maximum credit for the couple was $500 and if two partners worked, TPC assumed the maximum credit increased to $1,000. Not so, as it turns out.

Many of the tax cuts in the stimulus bill President Obama signed today are built on the legislative fantasy that they will expire after a year or two. The reality is that Congress and Obama are likely to continue these tax breaks long after the economy recovers. And the price of doing so will be staggering: Making just four of the most popular individual tax cuts in the bill permanent would reduce federal revenues by more than $1.7 trillion from 2010 through 2019. They'd be more than three times more generous than the bill’s spending initiatives, which are expected to cost a mere $500 billion.

The one tax issue that still seems unresolved in the stimulus debate involves a provision that would let businesses convert current losses into cash. The measure would allow a firm that is losing money in today's recession to redo up to five years worth of tax returns. That way it could use those losses to get a refund of some taxes it paid in past years. The ability to carry back these Net Operating Losses for up to five years could be an important boost to cash-strapped companies. Like many individuals, businesses desperately crave cash now. Many cannot borrow in the constipated credit markets, their sales are plummeting, and a little more operating cash may be the difference between having to lay off more workers or keeping them on the job. The NOL carryback is an easy way to get quick money to these businesses.

House-Senate conferees have just about wrapped up a compromise $789 billion stimulus plan that should land on President Obama’s desk by the weekend. While we do not yet have bill language or revenue estimates, published reports suggest that about one-third of the compromise measure is made up of tax cuts. For the most part, the final version of those tax breaks is worse than the initial House proposal. Most troublesome, this measure waters down two important proposals that would have gotten money into the economy rather quickly and instead adds a $70 billion Alternative Minimum Tax patch that will do little to boost spending—the goal of any good stimulus.

The press has widely reported that the difference between Senate and House stimulus bills is mostly about tax cuts (Senate) versus spending (House). That's wrong. The main difference is about who runs the spending programs-the IRS or program agencies In fact, the Senate bill includes some major expansions in spending--notably, subsidies for car and home buyers--and cuts in others, such as aid to state and local governments. The new Senate spending was presented as tax cuts, but that is simply window dressing. The add-ons are spending programs, and particularly ineffective ones at that.

The Senate has made the stimulus worse. At a cost of $130 billion, the bill the Senate passed today added three tax provisions that would do little to boost consumer spending--the key to digging us out of our economic hole The stimulus losers: patching the Alternative Minimum Tax for another year ($70 billion), giving a new tax subsidy to homebuyers ($39 billion), and providing new car buyers with a new tax break ($11 billion).

The compromise stimulus bill likely to win Senate approval attracted a handful of Republican votes by adding tax cuts and trimming spending. Most of the spending cuts came in programs intended to aid states directly, including education assistance. However, with 46 states now in the red, and states expected to run cumulative deficits of more than $350 billion through 2011, that choice seems odd. Keeping state and local governments from raising taxes or laying off workers to meet their balanced budget requirements should be a top priority of any stimulus. Keeping income and sales taxes from rising in the heart of the recession would, at the very least, keep things from getting worse. When the New York Times surveyed economists in December, about two-thirds of economists across the political spectrum endorsed the idea of increasing federal spending to maintain current state budgets or expand education.

We graded many of the provisions in the Congressional stimulus bills, but resisted producing a bottom line. New York Times columnist, David Brooks, however, used our grades to calculate an overall grade point average (GPA) in today’s paper. Brooks calculated, based on our grades, that the Senate plan scores a 2.26 and adds that it's "not exactly the kind of report card you’re proud to take home to momma." Using the Brooks methodology the House plan would earn a 2.4. You wouldn't brag about that either.

The stimulus bill before the Senate would exempt from income tax the first $2,400 of unemployment compensation that people receive in 2009. Because the exclusion reduces their taxable income, higher bracket taxpayers get a bigger break than those with lower incomes. And very low-income households that have no tax liability would get no benefit at all.

I am beginning to understand why the stimulus plan is so bloated with stuff that is so obviously not stimulus. It was designed backwards. Congress and President Obama could have identified a list of those proposals that are both timely and targeted, figured out what they would cost, and assembled them into a stimulus measure. Instead, they are doing what Washington always does with big bills such as this: They first invented, out of whole cloth, a number for the size of the stimulus. Having capped the price at a roughly a trillion dollars, they are now horse trading to choose the individual tax cuts and spending to fit that pre-arranged cost target. As my colleague Bill Gale puts it, first they built the bucket, now they are trying to fill it.