Federal Budget & Tax

Federal Budget & Tax: News Blog Background

Friday, March 25, 2005

Support for Estate Tax Shaky in Congress

Although no timetable is set for legislation yet, proponents of estate tax repeal will push this year to gather the 60 votes necessary to clear a measure repealing the tax. This is projected to happen despite widespread concerns about an exploding budget deficit; record-low levels of national revenue; very high potential future costs of Medicare liabilities, Social Security reform, and Alternative Minimum Tax reform; as well as the fact that Congress and the President are looking to further cut taxes.

The House has more than enough votes to pass a permanent repeal measure, while the real fight would take place in the Senate to get a supermajority that would back repeal legislation.

A new book on estate tax repeal is out, titled Death by a Thousand Cuts: The Fight Over Taxing Inherited Wealth. Written by Michael Graetz and Ian Shapiro, the book seeks to answer how the estate tax, which has been around since 1916 and is paid by less than the wealthiest two percent of Americans, was voted in 2001 to be phased out through 2010 with broad bipartisan support and almost no coordinated opposition.

The authors of the book, as well as other supporters of the estate tax, believe that estate tax repeal is not only morally irresponsible (because the tax is extremely progressive) but also economically irresponsible. Len Burman, who is authoring a new report, "Options to Reform the Estate Tax," has noted that permanent repeal would result in both a static annual cost of about $50 billion in revenue, as well as a drop in charitable contributions of about $17 billion annually. He also notes in a recent Tax Policy Center Issue Brief that raising the exemption to $3.5 million would cut the number of farms and businesses liable for the tax by 75 percent, to just over 100, with only about 10 small businesses affected.

Given our current deficits, Congress would be wise to consider reform options to the estate tax, as opposed to permanent repeal. When Burman's paper outlining reform options becomes available, it will be posted here.

Posted by Becky Lewis, 01:11:02 PM

Friday, March 04, 2005

CBO Releases Cost Estimates for Bush FY06 Budget

It's been a busy news day for tax and budget news and the last item is the biggest. The Congressional Budget Office has released its estimates for the cost of President Bush's FY06 Budget. The CBO regularly estimates the cost of legislation and policies for the Congress and this report will greatly impact the way the Congressional Budget committees in the House and Senate write their FY06 budget resolutions, slated to be marked up by the committees next week.

In their report, CBO estimates that President Bush's budget would keep deficits about $200 billion each year for the next decade and add over $1.6 trillion to the national debt that would otherwise occur if the policies were not enacted in that time period. CBO predicts a FY05 deficit of $394 billion and FY06 deficit of $332 billion.

CBO also lowers the savings that would result from some of the president's cuts to mandatory spending. Overall, CBO estimates changes to mandatory spending would save $26 billion in FY06, not the $38.7 billion cited by the president. They also lower the estimate for savings in Medicaid and the S-CHIP program from $45 billion to $27 billion - almost half that amount.

The most promienent conclusion in the report is surely that Bush will come up short of his promise to cut the deficit in half by 2009. It projects a deficit in 2009 of $246 billion, fully $40 billion short of Bush's goal. Further, neither Bush's budget nor the CBO report include many expensive future policies likely to be enacted, such as costs for overhauling Social Security ($1 to $2 trillion over 10 years), fixing the Alternative Minimum Tax ($754 billion over 10 years), or supplemental military costs for the wars in Iraq and Afhganistan (currently $82 billion for 2005).

Despite this grim forecast, the administration and Republican leaders in Congress are steadfast in their support of making CBOs projections a reality by extending tax cuts to the wealthy without offsets to pay for them.

Posted by Adam Hughes, 05:13:02 PM

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