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TaxVox: 
Federal Budget and Economy
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The voices of Tax Policy Center's researchers and staff

Roberton C. Williams
April 23, 2010

Old Tricks: The Senate Budget Committee’s Fiscal Plan

At first glance, the 2011 budget resolution passed along party lines yesterday by the Senate Budget Committee shows signs of fiscal responsibility. Although it would result in a huge budget deficit next year, it promises to pare the deficit from nearly 10 percent of GDP this year to just 3 percent—a sustainable level with expected economic growth—by 2015.

Unfortunately a second glance reveals the resolution’s reliance on old budget tricks. While it would permanently extend the Bush tax cuts for all but the wealthiest taxpayers, the budget plan would patch the alternative minimum tax (AMT) only through next year—with a promise to find future spending cuts or tax increases to cover the cost of extending the patch into 2012 and beyond. Assuming no AMT patch after two years boosts revenue projections by tens of billions of dollars each year. No chump change there. The plan would also extend for just one year all of the traditional extenders—tax provisions kept alive one year at a time—and the American Opportunity tax credit that helps families pay for college. As with the AMT, Congress would have to find offsets to pay for extending those provisions beyond 2011 in order to stick with the planned fiscal discipline.

Come 2012, we all know that Congress will patch the AMT again. No one on the Hill wants to surprise 25 million households with an unexpected tax jump. Where’s the money going to come from to pay for this? The budget resolution already cuts discretionary spending to the bone. There’s little willingness to go after entitlements. That leaves raising other taxes, and we know how popular that is.

Fortunately, the resolution has an answer: “loophole closers and other revenue raisers.” We’ll narrow the tax gap, go after those offshore tax havens and shelters, and hit up the “majority of large corporations” that “paid no income tax in at least one year between 1998 and 2005.” Right. I think we’ve heard that before.

The budget resolution isn’t all bad. It does propose steep cuts in discretionary spending that would reduce the deficit. But most of the promised savings needed to hit the 2015 deficit target will remain suspect until Congress faces up to the beast and cuts actual spending and raises actual taxes.

Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.

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