In the wee hours of Saturday morning, the House passed, by a margin of 230 to 180, a collection of tax cuts (AKA "extenders"), an estate tax cut, and a minimum wage increase from $5.15 to $7.25. Known as the "trifecta", the bill is now in the lap of the Senate as the House voted and quickly left town for its August recess.

The question now is: Are the "sweeteners" in this bill going to cause enough Democrats to jump ship and vote for an estate tax gutting?

From the Washington Post:

But the maneuvering by House and Senate GOP leaders to package the measures over the objection of some Senate chairmen caused severely bruised feelings. Lawmakers from both parties said last night that the legislation could easily collapse in the Senate, underscoring Democratic contentions that Congress has become dysfunctional.

"It's a risk," said House Majority Leader John A. Boehner (R-Ohio), "but I think it's the only way to proceed."

Democrats were incensed that the GOP leadership would couple the minimum wage hike, the first increase since 1997, with an estate tax cut that would reduce federal revenue by $268 billion over the next decade, to the overwhelming benefit of the country's richest families.

"This is beyond cynical. This is disgraceful," said Rep. Jim McGovern (D-Mass.).

Senate Minority Leader Harry M. Reid (D-Nev.) signaled he would try to scuttle the tax bill next week. "Republicans have made perfectly clear who they stand with and who they are willing to fight for: the privileged few," he said.

House GOP leaders have come up with a new strategy to push a permanent estate tax reduction through Congress by tying it to a minimum wage increase and extension of expiring tax breaks. The House could vote on that package later Friday, along with a final pension overhaul bill that would receive a vote in the Senate only if the chamber first passes the “trifecta” bill. The long-running, deadlocked House-Senate conference on the existing pension bill (HR 2830) would remain open as a fallback.

So putting it on the extenders package of tax cuts was not enough. Now they want to throw in the minimum wage increase. Wonder if anyone thought about the irony of passing an estate tax reduction (which would give people worth more than $5 million more money) in conjunction with an increase to the minimum wage (which still stands at $5.15 per hour and has not been increased in ten years).

Just to note, a minimum wage worker who works full time (40 hour weeks) would have to work for 466.76 straight years without taking a day off to make $5 million - assuming the worker did not need to spend any money at all that is. Maybe by that point Congress will wake up and realize how misplaced their priorities are.

In this installment of my series on the national debt I explain why the national debt matters.

The U.S. government owes a whole bunch of people a whole lot of money. Is this a problem? Well, like most things macroeconomic, the answer depends. Generally speaking, there are two things about which to be concerned when the federal government carries debt.

The first cause for concern is interest rates. When the government borrows money, it borrows from the same marketplace as everybody else in the economy. The U.S. government, however, is a bit different from every other borrower - it borrows massive amounts of money each year. In 2005, it borrowed about $300 billion from the public.

Money can be thought of like any other good in the marketplace; the less there is, the more expensive it becomes. However, instead of calling it "price", the price of money is called the "interest rate." When the government, or any other borrower, obtains funds from the money market, it reduces the quantity of dollars available to everybody else. This drives up the price of borrowing money - interest rates rise.

Now, when theFederal Reserve Board decides that the economy is growing too quickly and fears that rapid inflation will set in, the Fed uses what powers it has to raise interest rates in an attempt to slow the economy down. Conversely, during a recession, when the economy shrinks and unemployment levels increase, the Fed lowers interest rates. The Fed attempts to control the economy through setting interest rates. National debt has the exact same effect on the economy; federal borrowing of money can raise interest rates thereby restraining the growth of the economy.

The second problem of the government carrying debt is the same problem that afflicts anybody who carries debt - it costs money to have debt. For every dollar of debt that the government carries, it has to pay someone for the privilege of owing them money. This cost, as mentioned above, is known as the interest rate.

The U.S. government is bound by law to make payments on the interest on the debt that it owes. The more debt the government carries, the more interest payments it has to make, the less money that could be used to fund other things (or even lower taxes). In 2005, the government spent $184 billion paying interest on the national debt. Consider: non-defense, discretionary spending in 2005 was $465 billion; interest on the national debt represents 40% of that. Consider also that in 2005 the federal government spent a total of $2.5 trillion, and of that amount about 7.5% was spent on paying for interest on the national debt.

For these two reasons, it makes sense to avoid national debt. There are, of course, many nuances to this discussion, centered around what levels of debt are OK and what are not; when is it better to incur debt than not; and other macroeconomic factors that influence and counteract the effects of a national debt.

(click on image to enlarge)

Next: What is the national debt?

(This is part II of a continuing series on the national debt. Part I can be found here)

The question of whether the Senate will return to consider the estate tax again this year is intimately connected to the fate of the pension conference report.

It appears meeting of the pension conference committee last night was tense and saw lawmakers expressing their frustrations with the current situation. According to media reports, a number of members present were quite forthright in their unhappiness about the House boycott of the meeting and recent events.

Senators Enzi and Kennedy expressed disappointment that House leaders failed to show up and Congressman Charles Rangel (D-NY) wondered, "How in the devil is this small group of people so powerful that they can hold hostage legislation that affects millions of working families?" Sen. Max Baucus (D-MT) and Rep. Robert Andrews (D-NJ) stated the only reason the pension conference has broken down is because of the GOP's efforts to reduce the estate tax.

But by far the most forthright comments came from Sen. Charles Grassley (R-IA):

I don’t know why you wouldn’t have guts enough to come forward and cast a vote [and be very transparent]. Nobody’s going to lose any blood by coming over here and being a man or a woman.

I don’t know what’s up, but I’m a bit shocked that others who were parties to the agreement and who accepted the benefits of the agreement and [were] the beneficiaries of my credibility are so reluctant to live up to it. I’ve kept my word and I will still keep my word even if I am knifed in the back.

It may be difficult for the conferees to repair the damage with only one day left before the House adjourns for the August recess.

Drama continues to unfold on Capitol Hill as the hot summer heat seems to be getting to members of Congress. We posted yesterday of a "showdown" meeting of members of the long-stalled pension reform conference committee that took place last night. But the meeting did not go as conference chairman Sen. Michael Enzi (R-WY) planned as House GOP conferees boycotted the meeting

Enzi called the meeting to force a vote on whether to strip a package of tax cuts (callled "extenders") from the pension bill or not and bring an end to an impasse that has delayed the reform bill in its final stages. But the strategy backfired as only two House conferees, both Democrats, showed up for the meeting. It now appears as though the entire pension reform agreement may be about to collapse. House and Senate leaders are rumored to be taking one more stab at compromise today before the House recesses until September.

The effort to pull out the extenders package is being undertaken in an effort to give the Senate one more chance at passing a roll-back of the estate tax this year. Sen. Majority Leader Bill Frist (R-TN) hopes by holding the popular extenders package until September and adding an estate tax cut to it, he will finally be able to push through another tax cut for the richest of the rich in the Senate. He has failed at three other attempts this year to do so.

More info will be posted here as events play out in Washington today.

The House is unexpectedly expected to vote on a minimum wage bill today. House GOP members are trying to tie the $2.10 minimum wage hike to a health insurance provision affecting small businesses. There is also speculation that Republicans are going to attempt attaching a permanent estate tax cut to the bill.

BNA (subscription required):

House Republicans July 27 appeared close to a deal on a legislative package that would link a minimum wage increase to wage-related sweeteners for business and a plan to allow small businesses to provide health insurance to their workers via association health plans (AHPs), according to lawmakers close to the negotiations.

The package, which would raise the federal minimum wage from $5.15 to $7.25 per hour over two years, also would allow restaurants to use "tip credits" when calculating wage rates for employees and would permit employers to offer a "training wage" for younger workers, the lawmakers said.

A vote on the package could occur as early as July 28, according to several moderate Republicans who have been pressing House Majority Leader John Boehner (R-Ohio) for a vote on the minimum wage before the House adjourns for an August recess.

[...]

Rep. Steve LaTourette (R-Ohio) said lawmakers involved in crafting the package are making a concerted effort to avoid including tax provisions. "Democrats are daring us to put a package up that has tax cuts so that we dare them to vote against the minimum wage. That's the game," he said. "I think that anybody who's expecting poison pills and tax cuts is going to be sadly mistaken."

[...]

Democrats wasted no time in responding to rumors of a minimum wage deal, calling for an up-or-down vote on the wage hike. "Before Congress goes home for August recess, we must have a vote on the House floor to raise the minimum wage to $7.25. But that means a clean bill--a straight up-or-down vote on increasing the minimum wage, without the usual Republican poison pills of attaching tax cuts for the wealthy or other so-called sweeteners for the Republican special interests," House Majority Leader Nancy Pelosi (D-Calif.) said in a statement.

(Recall that Boehner is blocking the Labor-H approps bill from seeing the floor because of the minimum wage amendment that is attached to it. A vote on a standalone minimum wage bill would obviate that amendment, so the House could conceivably be done with its funding work before the end of the fiscal year.)

The conference committee considering the pension bill will hold a vote on whether or not to include a set of tax provisions - know as "extenders" - in the pension bill being considered. By moving the extenders out of the pension bill, the GOP leadership hopes use the extenders as a "sweetener" for an estate tax reduction bill to garner the 60 votes needed overcome a filibuster.

Bloomberg:

Senate and House negotiators will hold a showdown vote today to decide whether to add tax breaks to a measure to overhaul the private U.S. pension system and how many airlines should get extra time to shore up their retirement plans.

Wyoming Senator Michael Enzi, the Republican chairman of the Senate-House conference committee negotiating the issues since March, said lawmakers will vote at 6 p.m. tonight on the two issues, which have been the main roadblocks to agreement on the pension measure.

[...]

The House and Senate differ on whether to renew about two dozen breaks including a popular research credit in the pension measure or use them to attract votes for separate estate tax legislation. They've also been unable to agree on how many airlines will be given extra time to shore up their pension plans.

The Washington Post is reporting on a congressional report which found that the Department of Homeland Security's (no-)bidding system is "prone to abuse."

It's a good thing, then, that Congress is working on a bill that would create a searchable database of all federal government and contracts. Indeed, a database like this would make it easier to identify potential fraudsters.

The multibillion-dollar surge in federal contracting to bolster the nation's domestic defenses in the wake of the Sept. 11, 2001, attacks has been marred by extensive waste and misspent funds, according to a new bipartisan congressional report.

Lawmakers say that since the Homeland Security Department's formation in 2003, an explosion of no-bid deals and a critical shortage of trained government contract managers have created a system prone to abuse. Based on a comprehensive survey of hundreds of government audits, 32 Homeland Security Department contracts worth a total of $34 billion have "experienced significant overcharges, wasteful spending, or mismanagement," according to the report, which is slated for release today and was obtained in advance by The Washington Post.

Washington Post: Homeland Security Contracts Abused

OMB Watch has partnered with the National Taxpayers Union to draft a letter to the Senate in support of making federal department budget justification reports public documents. The completed letter was sent to the Hill yesterday afternoon with the endorsement of 54 organizations.

Budget justifications are currently submitted to the House and Senate appropriations committees to aid in the formulation of the annual federal budget. Currently, some agencies publish their budget justifications online (see Defense and Energy), but the documents are not required to be available.

Sen. Coburn (R-OK) plans to offer amendments to the FY 07 appropriations bills requiring federal departments and agencies to post their budget justifications within 48 hours of being submitted to the appropriations committees.

Thanks to all the organizations who are lending their support to this important effort.

Read the letter

OMB Watch has been working diligently for the past few months to make information on all federal contracts and grants available online in a free, searchable database. We are navigating through the technical challenges, bureaucratic mazes, and overwhelming amount of data to make the database simple, efficient, and user-friendly. But we need your help with a very important part of our work - the name of the website.

We need a name and web address (url) that signifies the importance of this service and captures the public's imagination. We have set up a one-question survey for you to share your thoughts and vote for your favorite candidate. Please take 1 minute to help us out and vote.

Vote on the Contracts and Grants Database Name

Supply-siders argue that tax cuts do not cause budget deficits because they create so much economic growth that total tax revenues will increase, even at the lower tax rates. In short: tax cuts pay for themselves.

The Treasury Department released a report today which analyzes the economic effect of President Bush's tax cuts and concludes that tax cuts do not, in fact, pay for themselves.

From page ii of the Office of Tax Analysis, U.S. Department of Treasury's A Dynamic Analysis of Permanent Extension of the President’s Tax Relief:

The analysis reveals that the long-run effects of these policies depend crucially on whether they are financed by lower spending or higher taxes in the future and are sensitive to assumptions on underlying parameters. The issue of how, or even if, these policies need to be financed remains a source of discussion among economists. The analysis presented here suggests these policies will result in substantially more economic activity if they are financed by a future reduction in government spending than if they are financed by future tax increases.

So, there you have it. The only remaining question is: Should the government raise taxes or cut spending?

Things are moving quickly in Congress this week as repeated, desperate attempts to pass a drastic reduction in the estate tax before the end of the year continue to unfold. After failing to attach a permanent cut to the tax to the pensions conference report, House and Senate GOP leaders (lead mostly by Senate Majority Leader Bill Frist (R-TN) and top House tax writer Bill Thomas (R-CA)) are moving forward with plans to remove a set of non-controversial tax cut "extenders" from the pension bill in order to combine them with an estate tax cut. Having been unable to bring the estate tax issue before the Senate on its own merits, legislators are now resorting to manipulating Congress - trying to use long-agreed upon bills to entice out the remaining votes needed.

House Speaker Dennis Hastert (R-IL) announced today that the House will hold a vote later this week on the combined tax package of extensions of the expiring provisions (the "extenders" bill) and a modified estate tax reform before they recess until after Labor Day.

Senate Finance Committee Chairman Chuck Grassley (R-IA) has already spoken out against including anything related to the estate tax in the non-controversial extenders bill and other members of both the House and the Senate are apprehensive of the proposal to remove those non-controversial tax cuts from the pensions conference report in the first place.

New details become available often and we will post any updates or new information, so check back to the Budget Blog often.

For more information: Bloomberg News coverage

"I think it's sufficient to say adding the estate tax to the pension conference report would have jeopardized the pension conference report." She added that the estate tax measure should be considered on its own merits following an effort to "work across the political divide."

[...]

"We need to have a transparent, fully accountable process," she said, adding that it is obvious Republicans need support from Democrats to gain approval of the measure.

...yet this is merely a flesh wound for the campaign to permanently reduce the estate tax. (Paging Dr. Frist...paging Dr. Frist).

From CQ Today:

Senate GOP leaders...might link a compromise estate tax proposal to a package of popular tax cut extensions that could be considered after the August break.

[...]

But Frist vowed to seek another vehicle to move the legislation important to the Republicans’ conservative base.

"I’m committed to a permanent solution to the ‘death tax,’" Frist said.

Staff and lobbyists said one path under consideration is linking the permanent estate tax reduction to a package of tax cut extensions, which include the research-and-development tax credit.

Slashing the estate tax is a really bad thing, and we're doing everything we can to maintain this most equitable and progressive part of federal tax policy. Here's the good news, though: Elections are coming up in November, and this is why Congress is trying so ardently to reduce the estate tax. And, I have reason to believe that when Senate Majority Bill Frist retires in December, we won't be seeing this much focused effort to dismantle the estate tax.

So, keep checking back here for important estate tax updates, and be on the look for a possible Action Alert in a few weeks when the Senate tries to revive estate tax reduction.

Just this morning I stumbled across this enlightening report released earlier this year from the folks up at Syracuse University who run the TRAC database. (For those who don't follow arcane data analysis groups as closely as OMB Watch does, TRAC is the Transactional Record Access Clearinghouse - a data gathering and analysis group that uses the Freedom of Information Act to access and analyze government information. See them at http://trac.syr.edu.)

The report shows that the tax returns of Americans earning over $1 million a year are the least likely to be audited by the IRS. Using the lastest available data from the federal government, TRAC found only 30 out of 180,000 returns showing over $1 million in income in 2004 were audited face-to-face. The report also found that Americans making less than $25,000 per year were six times more likely to be audited face-to-face than those making over $200,000 per year. Even when the more common "correspondence" audits are included, poor taxpayers were still more than twice as likely to be audited.

With the recent news that the IRS intends to drastically reduce its estate and gift tax division, a pattern appears to be emerging out of the government's revenue collection agency - a pattern that indicates it is easier for the rich to avoid paying taxes. Considering wealthy Americans already have both more incentive and more means to manipulate the tax code to their advantage, logic seems to dictate higher income returns should be reviewed more, not less, than low-income ones.

Does the IRS really need to go farther and make it even easier for the rich to cheat on their taxes?

Legislation to create a free, public, searchable database (S. 2590) containing grants and contracts spending information is gaining momentum in the Senate this week. OMB Watch testified in support of this bill at a subcommittee hearing last week of the Homeland Security and Governmental Affairs Committee and this week on Thursday the full HSGAC committee will mark up a consensus version of the bill. The bill is expected to pass the full committee unanimously.

The list of Senators supporting the bill has also increased recently, with 10 cosponsors spread out broadly on the political spectrum. This should certainly help for quick and easy adoption of the bill on the Senate floor. The current cosponsors are below:

Sen George Allen (R-VA)
Sen Tom Carper (D-DE)*
Sen Hillary Clinton (D-NY)
Sen John Cornyn, John (R-TX)
Sen Jim DeMint, Jim (R-SC)
Sen Johnny Isakson, Johnny (R-GA)
Sen John McCain, John (R-AZ)*
Sen Barrack Obama, Barack (D-IL)*
Sen Rick Santorum, Rick (R-PA)
Sen John Sununu (R-NH)

* = original cosponsor

Running out of ways to cut federal taxes, Congress looks to other jurisdictions. A bi-partisan effort to give federal tax breaks to corporations at the expense of the states has gained the attention of the Washington Post editorial board:

The Congressional Budget Office estimates that the Business Activity Tax Simplification Act (BATSA) would drain $1 billion from state government treasuries during its first year in effect and $3 billion a year by 2011 as corporations rejigger their activities to take advantage of this new tax avoidance opportunity. This is an unwise shift of resources from state treasuries to corporate bottom lines -- as the National Governors Association put it, "a federal corporate tax cut using state tax dollars."

[...]

The measure, sponsored by Virginia's Robert W. Goodlatte (R) and Rick Boucher (D), would limit states' ability to impose "business activity" taxes, chiefly corporate income taxes, on out-of-state corporations. It would allow states to tax only businesses with a "substantial physical presence" in the jurisdiction -- not a sensible standard in an Internet era when being there and doing business aren't necessarily one and the same.

As real wages stagnate and as energy prices continue their steep climb, Americans have reached the bottom of their pockets and have found only credit cards. Going into debt is becoming increasingly common as many Americans see their wages fail to keep pace with inflation.

A new survey conducted by Greenberg Quinlin Rosner Research for a consortium of organizations interested in household debt (Center for American Progress, Center for Responsible Lending, National Military Families Association, and the American Association of Retired Persons) found that :an overwhelming majority of Americans, 82%, view household debt as a "serious problem."

The public’s concern over this issue results from perceptions of an economy performing unevenly, from perceptions of rising costs of living, and for a surprising and pressing number, from first-hand experience with excess or unmanageable debt. Despite the prominence of pay-day loan artists and other debt merchants in low-income neighborhoods throughout the country, the public does not see this is as a "lower class" problem, but a growing threat to the American middle class and the American dream.

David Cay Johnston reports in the Sunday New York Times that the IRS has plans to eliminate 157 of the most productive IRS employees. And, those IRS employees are estate tax lawyers and the staff who support their auditing activities.

The federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others.

The administration plans to cut the jobs of 157 of the agency’s 345 estate tax lawyers, plus 17 support personnel, in less than 70 days. Kevin Brown, an I.R.S. deputy commissioner, confirmed the cuts after The New York Times was given internal documents by people inside the I.R.S. who oppose them.

[...]

Estate tax lawyers are the most productive tax law enforcement personnel at the I.R.S., according to Mr. Brown. For each hour they work, they find an average of $2,200 of taxes that people owe the government.

Mr. Brown said that careful analysis showed that the I.R.S. was auditing enough returns to catch cheats and that 10 percent of the estate audits brought in 80 percent of the additional taxes. He said that auditing a greater percentage of gift and estate tax returns would not be worthwhile because "the next case is not a lucrative case" and likely to be of relatively little value.

That is a change from six years ago, when the I.R.S. said that 85 percent of large taxable gifts it audited shortchanged the government. The I.R.S. said then that it would hire three more lawyers just to audit taxable gifts of $1 million or more.

Over the last five years, officials at both the I.R.S. and the Treasury have told Congress that cheating among the highest-income Americans is a major and growing problem.

The New York Times: I.R.S. to Cut Tax Auditors

Over the past few months, OMB Watch has been working closely with Sens. Tom Coburn (R-OK) and Barack Obama (D-IL) on a bill to create a free, searchable database available to the public containing information on all federal spending - both grants and contracts. This legislation (S. 2590) continues to move forward in the Senate and OMB Watch remains strongly supportive of it (see the OMB Watch website for more information on the bill and to access previous coverage on this by OMB Watch. You can also read recent media coverage of the effort.)

New Effort for Transparency and Disclosure Underway
To further support transparency and disclosure of budget information, OMB Watch is joining with the National Taxpayers Union to rally support for a legislative effort to require posting of all departmental budget justifications online (excluding any sensitive security information). Budget justifications are contain details of agencies' spending priorities and outline budget allocations from previous years, and are compiled by federal offices and agencies for the congressional appropriations committees in order to help them develop their budgets each year. Currently, there is no way for the public to access these documents and no reason for them not to be available.

Please consider signing-on to this joint letter supporting the disclosure of agency budget justifications. This is a basic good government proposal that will help to bring about a more effective and efficient government.

Deadline for Sign-ons is next Tuesday, July 25 at 6:00 pm. Please email Adam Hughes at ahughes@ombwatch.org to sign your organization on.

In the considerably divided legislative body that is Congress, it is rare to see a bill gain so much positive attention from both sides of the aisle. It has also gained the support of a whole slew of advocacy groups from all stripes of the ideological spectrum. As a staunch proponent of S. 2590, OMB Watch’s Executive Director, Gary Bass, testified before the Senate Homeland Security and Government Affairs Committee Subcommittee on Federal Fiscal Management this week in support of this bill.

But the bill is also gaining a lot of attention in the press as well. See, for instance, these editorials in two of the nation’s most widely-read newspapers.

The Washington Post:

Why doesn't the majority, which pays for all this waste, rise up in revolt against the sheer gluttony of it?

The answer is that the taxpaying majority doesn't care, not least because it is oblivious. But maybe there is hope. In the era of online political organization and Internet search, information on pork-peddling scandals ought to spread faster and more widely.

The Los Angeles Times:

It's hard to find fault with legislation that promotes such transparency - and it's no surprise that there are enthusiasts on both sides of the aisle, including co-sponsors Sens. Barack Obama (D-Ill.), Thomas R. Carper (D-Del.) and John McCain (R-Ariz.). A refreshingly motley combination of interest groups, including Greenpeace, the Heritage Foundation, the Family Research Council and the National Gay and Lesbian Task Force, are also onboard.

UPDATE:
The Christian Science Monitor was another major paper carrying coverage of the effort to enact this legislation:

A Move to Lift the Veil on U.S. Spending

In today’s Washington Post, Robert Samuelson chides President Bush for boasting about a $300 billion deficit, but finishes his column by shifting some of the blame for the atrocious fiscal policies of the Republican Congress and President to the Democrats.

For fiscal 2006, which ends in September, the administration projects a $296 billion deficit; for fiscal 2007, the estimate is $339 billion. How could anyone boast about that? [...]

I have reserved my harshest scorn for Republicans, who are (after all) in power. But Democrats aren't much better. The nub of the matter is spending. When Republicans passed the Medicare drug benefit -- the biggest new program in decades -- Democrats actually advocated a more costly version. Whenever anyone suggests curbing spending, Democrats screech: Spare Social Security and Medicare. But Social Security and Medicare are the problem.

Just as Republicans now say their policies have cut deficits, Democrats contend their policies produced budget surpluses from 1998 to 2001. Nonsense. Those surpluses resulted mainly from the end of the Cold War (which lowered defense spending) and the economic boom (which created an unpredicted surge of taxes).

Nonsense, indeed. Mr. Samuelson’s treatment of Democrats with respect to the current fiscal situation omits several critical facts that completely undermine the thesis that Democrats should share blame for the current budget deficit: Democrats support PAYGO, Democrats are willing to raise taxes, and Democrats are not in power.

Firstly, Democrats support fiscally disciplined "pay-as-you-go" rules, or PAYGO; Republicans do not. PAYGO rules require that increases in spending or decreases in revenue be matched with offsetting revenue or spending measures. These rules were in place until 2002; the same year that the federal budget flip-flopped from surplus to deficit.

Republicans have consistently thwarted Democratic attempts to re-implement PAYGO to restore fiscal discipline. The most recent and salient example of how Democrats and Republicans fundamentally differ is the recent Senate Budget Committee passage of Sen. Judd Gregg’s (R-NH) Stop Overspending Act 2006. By a party-line vote, Republicans defeated ranking committee member Sen. Kent Conrad’s (D-ND) attempt to attach a PAYGO amendment to the bill.

Another significant difference between Democrats and Republicans with respect to the budget is the Republicans’ rigid opposition to tax increase (and conversely, their unquenchable thirst for tax cuts). Mr. Samuelson likes to thrash the spending policies of Democrats, but fails to appreciate their preferred tax policies. Mr. Samuelson attributes the surpluses of the 90s to defense spending cuts and a booming economy. While both of these things occurred, you can see on the chart below that defense cuts are only a fraction of the story. Where that red line begins a precipitous drop is the same moment when President Clinton and a Democratic Congress raised taxes in 1993.

And finally, the Democrats control nary a branch of the government. So, it seems quite odd that Mr. Samuelson lays any of the blame of the budget deficit on the Democrats. He cites their support for a more expensive Medicare drug plan - a plan that didn’t pass Congress - as part of the reason why Republicans pass such expensive spending measures and refuse to find revenue sources for those measures. Yet, somehow, because Democrats voice opposition to spending cuts in Medicare and Social Security, - never mind that these two programs are wildly popular among all Americans, red and blue state alike - we are saddled with unending budget deficits. This is a bit of Mr. Samuelson’s logic I truly fail to grasp.

While the economy, as Mr. Samuelson asserts, "has little to do with the White House's economic policies", PAYGO rules and tax policy are fully controlled by the federal government. So, while the Democrats cannot take credit for the booming economy of the 90s, they can take credit for the federal budget policies that lead to the surpluses of the 90s. Blame for the train wreck that is our federal budget can be put squarely on a Republican Congress and President that have no appetite to raise taxes or to implement budget rules that force fiscal discipline.

click on image to englarge

CQ Today is reporting that Senate Budget Committee Chair Judd Gregg (R-NH) doesn’t think he has the votes to overcome a Democratic filibuster of his committee-passed Stop Overspending Act 2006. His measure would implement a bevy of spending-control measures - measures which open up a backdoor to cutting Social Security. Also included in his bill is a version of line-item veto. And, not only is SOS not likely to make it to the Senate floor, but prospects for passage of a separate, standalone line-item veto bill look dim.

Included in CQ Today’s article is this interesting bit from Gregg:

Gregg complained that Democrats are playing election year politics by charging that his plan is aimed at slicing Social Security.

Which is funny because in this same article is this:

Passage of that legislation would be a "political victory" that would not address long-term problems posed by growing entitlement programs, Gregg said.

Growing entitlement programs...hmmm...what could he be referring to? Perhaps the two largest entitlement programs - Social Security and Medicare?

In advance of a Senate Appropriations subcommittee markup, opponents of current efforts to prohibit the IRS from outsourcing its collection of outstanding taxes have come out in force. The head of the Association of Credit and Collection Professionals sent a letter to Senate appropriators on July 14 asking them to oppose any amendment that would prohibit the IRS from using any of its fiscal year 2007 funds to hire private debt collectors.

This effort to allow the IRS to continue with a controversial program to outsource its tax collection is shameless and self-motivated. Under the provisions of the program, the companies being used to collect overdue taxes would be allowed to keep 22 - 24 percent of the money they collect.

Thanks to the dedicated effort of Rep. Steve Rothman (D-NJ), the House passed the FY 2007 Transportation-Treasury appropriations bill with an amendment prohibiting the use of any resources to implement the outsourcing program. After hearings on the issue with the Commissioner of the IRS, it was discovered the IRS could expand its enforcement and compliance efforts and collect the same money, but without the almost 25 percent "users fee" imposed by the private collection agencies.

Unfortunately, no Senator offered the Rothman amendment yesterday during the markup of the Senate version of the appropriations bill. The bill will be on the Senate floor tomorrow and if no amendment is offered to stop funding for this ridiculous waste of government resources, the issue will move to a conference commitee on the appropriations bill. It is very likely the Rothman amendment will be stripped at that time.

More to come on this program as the week moves on.

Gary Bass, Executive Director of OMB Watch, testified today in front of the Senate Homeland Security and Government Affairs Committee Subcommittee on Federal Fiscal Management in support of S. 2590, a bill to require the government to create a user-friendly, searchable, online database available to the public containing comprehensive information on all federal spending.

OMB Watch has been supportive of this legislation and has worked closely with the bill's cosponsors (Sens. Tom Coburn (R-OK) and Barrack Obama (D-IL)) over the past month and is very optimistic about the bill passing the Senate.

You can read previous commentary on this bill on the OMB Watch Budget Blog (6.23.06, 6.22.06, 6.21.06, 5.31.06)

You can also read Gary's testimony on the OMB Watch website.

Congress Daily (subscription req'd) is reporting that even if the minimum wage hike amendment in the House Labor-H funding bill is stripped out and put up for a vote in its own bill, Labor-H appropriations would still not see a full floor vote before September.

The measure also faces criticism from both wings of the GOP -- conservatives don't like the numerous earmarks; moderates argue it underfunds education and health programs.

Despite having more money to spread around, Senate Republicans are facing the same problems with their own Labor-HHS bill. The matter is likely to be discussed in a lame-duck session, if not kicked into next year as part of a continuing resolution.

A great article (sub. required) appeared today in the Wall Street Journal sheading light on another trend that can be seen within the new deficit projections released last week by the administration. The Journal reports that the bump in revenues recently actually showcases a growing economic inequality in our country:

While tax revenue is growing far faster than the Bush administration forecast in its budget projections in February, the nation's economy isn't.

What has changed isn't the size of the economy, but how the economic pie is divided. The share of national income going to corporations and the wealthiest individuals, already large, has expanded, while the share going to typical wage earners has shrunk. Because corporations and the wealthy generally pay income tax at higher rates than does the typical wage earner, that shift benefits the federal Treasury.

So the end result of the Bush tax cuts has been that the economy has expanded, but has only benefitted those at the very top of the economic ladder - the people least needing help in times of recession. While many have criticized the administration's policies for having the wrong priorities, now there is actual proof that the administration's policies almost exclusively benefit the wealthy.

According to Congress Daily (subscription req’d), the Senate Appropriations Committee will go to work this week:

...the panel [is] scheduled for a marathon session Thursday to consider legislation funding the lion's share of federal discretionary spending, or nearly 78 percent of the total $872.8 billion allotted to the panel for FY07.

On tap are the Defense, Labor-HHS, Military Construction and Transportation-Treasury measures...

Well, good luck with all that. With only one appropriations bill (Homeland Security) passed by the full Senate, it is unlikely we’ll see a full compliment of spending bills before the end of the fiscal year on September 30th.

Posted by Craig Jennings, 02:00:14 PM

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