Federal Budget & Tax

Federal Budget & Tax: News Blog Background

Thursday, March 31, 2005

Grassley: SS Compromise May Be Necessary

Yesterday President Bush travelled to Iowa to promote his plan to reform social security. Iowa is the 20th state Bush has visited to promote his plan, which the public is receiving with increasing doubt and skepticism.

Notably Senator Charles Grassley (R-IA) -- who is also Senate Finance Committee Chairman -- said yesterday that there is room for compromise on the size of private incestment accounts. While President Bush is promoting a plan to divert four percentage points of the payroll tax into a private account, Grassley believes the amount is negotiable, and stated he plans to make compromise an issue when the Finance Committee meets on Social Security this summer.

Grassley also noted that even though he is in favor of establishing these accounts, he does not believe they address the problem of social security solvency. He said, "I like personal accounts.... So you have personal accounts as an issue in and of themselves, and then over here, you've got the solvency problem. I want to deal with both of them." The Finance Panel is planning on holding Social Security hearings in April, however no dates have been set yet. For more details on Bush's visit to Iowa and recent Social Security happenings, click here. Also check this Economic Policy Institute briefing paper on how Social Security fits into the Bush budget. The paper, by Max Sawicky, is aptly titled "Collision Course."

Posted by Becky Lewis, 12:12:13 PM

Wednesday, March 30, 2005

Where Do Your Tax Dollars Go?

The National Priorities Project has compiled good state and local data on where your tax dollars go. This publication provides a detailed breakdown of how the government, on average, spent your tax dollars in 2004. There is data for each state and 193 towns, cities and counties. Also, click here to see NPP's assessment of how much the war has cost citizens financially, broken down by state.

Posted by Becky Lewis, 06:07:50 PM

Tuesday, March 29, 2005

Both Sides Speculate About Private Accounts

Following up on last week's Watcher article on Social Security, it appears that speculation among conservatives for private accounts continues to grow. Each week it seems more and more conservative economists and analysts break with the administration's view on personal accounts. To read about it, click here.

Also, see this article in tompaine.com that discusses how millions of disabled workers, spouses, and child beneficiaries would be left out under the privatization plan. The article is by Nancy Cauthen of the National Center for Children in Poverty. Click here to read a Newsday article on the lobbying efforts of labor organizations on behalf of the Social Security program.

Posted by Becky Lewis, 11:27:21 AM

Friday, March 25, 2005

All PART of the Game

Click here to read an OMB Watch op-ed on the administration's Program Assessment Rating Tool (PART). The op-ed discusses that despite the existence of PART, budget decisions are guided more by politics and ideology as opposed to program results. Click here for more information on PART and the Program Assessment and Results Act.

Posted by Becky Lewis, 03:31:00 PM

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

Wednesday, March 23, 2005

Social Security Administration Releases Annual Report

The Social Security and Medicare Boards of Trustees released their 2005 annual report which states that "exhaustion" of the trust fund will occur one year earlier than predicted, or in 2041 as opposed to 2042. The report also finds that the amount of tax revenues taken in will fall below the amount the trust fund will pay out starting in 2017. The SSA originally stated this would happen in 2018. Now, they predict that the Social Security program will need to supplement trust fund receipts with general revenues in order to pay be able to pay people full benefits a year earlier.

The new report also projects a Social Security shortfall of $4 trillion over the next 75 years. This number is up from the $3.7 trillion figure that economists and politicians have been quoting.

Max Sawicky of the Economic Policy Institute notes that the Social Security crisis is not nearly as pressing as the problems being created by our large budget deficits, which were largely due to the administration's tax cuts. These deficits will hinder the government's ability pay for any and all of programs down the road, including Social Security and Medicare. The Congressional Budget Office estimates that in 2042, when the Social Security shortfall will supposedly be 1.37 percent of GDP, the overall budget deficit will be much greater than that --10.7 percent of GDP. Sawicky says,

"While the administration tries to fiddle with a relatively small-scale Social Security shortfall, it is creating overall budget deficits that are burning a hole as far as the eye can see. Instead of focusing on a relatively small and distant problem, the administration would better serve the nation by fixing the much bigger and more immediate problem it has created."

This is a sentiment echoed widely by economists and policy analysts, many of whom see the large costs of tax cuts and future skyrocketing costs of Medicare as much more serious problems.

For more information see this Washington Post article and this report by the Center on Budget and Policy Priorities. For more from the Social Security Administration, click here.

Posted by Becky Lewis, 06:16:58 PM

Cutting Taxes in a Time of War

Chuck Collins of United for a Fair Economy recently came out with a new op-ed which discusses traditional war-time sacrifice, and why now -- when we are in the midst of ongoing operations in Iraq and Afghanistan -- it is not time to be cutting or scaling back the estate tax, much less other taxes. We are faced with a House and Senate which very recently passed budget blueprints prioritizing defense and homeland security above social welfare programs. Along with this, last thursday the House passed an $81.4 billion emergency supplemental bill to fund our war operations.

Collins' op-ed makes a good point about priorities and sacrifice. Wars are costly, and cutting taxes for the wealthy while increasing war spending does not show that our leaders have the best interests of our country or economy in mind. Collins' article can be read here.

Posted by Becky Lewis, 12:56:36 PM

Tuesday, March 22, 2005

Deficits More Threatening Than Terrorism, Survey Shows

The National Association for Business Economics (NABE) cunducted one of their biannual surveys from February 28th - March 8th of this year. The survey questioned economists, and results showed that a greater percentage of respondents believe the deficit is a greater short-term threat to Americans than terrorism.

In the August 2004 survey, 40 percent of respondents named terrorism as the biggest threat, and 23 percent named the deficit the biggest threat. With 2004 deficit levels hitting a record high ($412 billion) and the President and Congress continuing to try to push through new tax cuts and extend old ones, it appears that many economists now view our deficit as a much more serious matter. In this survey, 27 percent of respondents noted the deficit as the largest threat, and 23 percent noted terrorism. The trade deficit, cited by 15 percent, and energy prices, cited by 11 percent, also rose in importance when compared with results from last August.

Interestingly, 70 percent of respondents felt that Social Security had problems that need to be resolved, and the solution which received the highest rating (3.7 on a 5 point scale) was raising the retirement age. Privatization of the system received a rating of only 2.7. The rest of the results can be seen here.

Posted by Becky Lewis, 03:24:46 PM

Watcher: March 22, 2005

Federal Budget

Posted by Becky Lewis, 10:29:24 AM

Friday, March 18, 2005

House and Senate Pass Budget Resolutions

Yesterday the House and Senate passed their respective budget resolutions for FY 2006. Both votes were very close with the House passing their resolution 218 - 214, and the Senate passing theirs 51 - 49.

One main difference between the two resolutions that could cause problems in conference pertain to cuts in entitlement spending. The House budget resolution includes very steep cuts to medicaid, while the Senate version does not. Yesterday Senators passed an amendment offered by Gordon Smith (R-OR) to strip the budget of Medicaid cuts and instead create a one-year commission to recommend changes in the program. The amendment passed 52 - 48.

While the President's budget proposal laid out $51 billion worth of cuts to entitlement programs, the House proposal upped that amount, calling for $69 billion in spending reductions on entitlements. The Senate bill included $17 billion in entitlement reductions after $14 billion in cuts to Medicaid were removed by Gordon's amendment.

When Congress returns from recess in two weeks the two chambers will conference to square their budget proposals. Two major issues of contention will be their differing levels of entitlement cuts, as well as the fact that the Senate raised the level of discretionary spending for FY06 by $5.4 billion -- to $848.8 billion. These differences, coupled with the fact that the House already had to pacify unhappy conservatives to get enough votes to pass the budget, means there is a chance no resolution will be passed this year.

To read more click here and here.

Posted by Becky Lewis, 02:50:38 PM

Wednesday, March 16, 2005

Feingold's PAYGO Amendment Barely Rejected By Senate

Senator Russ Feingold (D-WI) introduced an amendment to the budget resolution today to fully reinstate pay-as-you-go (PAY-GO) rules. This amendment would require both changes to entitlement spending and any tax cuts to be offset in order to pass by a simple majority in the Senate.

Unfortunately, this rational measure that would help reduce deficits substantially was barely beaten back. It lost in a 50-50 vote, with VP Dick Cheney serving as the tie-breaker. Senators who broke with their party and supported the amendment were Chafee (R-RI), Collins (R-ME), Snowe (R-ME), McCain (R-AZ), and Voinovich (R-OH). Jeffords (I-VT), also voted in support of the PAY-GO amendment.

Posted by Becky Lewis, 06:31:15 PM

Tax Cuts v. Medicaid: State-by-State Analysis

The budget resolutions currently under consideration in the House and Senate are in line with the President's priorities and propose cuts to Medicaid as well as the extension of tax cuts. The budget resolutions propose to cut funding for Medicaid by approximately $15 billion over five years, and in the same breath propose costs of $23 billion to extend dividend and capital gains tax breaks.

As the Center for American Progress notes, "The Medicaid cuts would have important implications for states’ budgets and for health care for the poor. At the same time, the budgets under consideration contains tens of billions of dollars in new tax cuts, which would overwhelmingly benefit those best able to make the sacrifices necessary to reduce the deficit." The Center has compiled state-by-state data which shows how the proposed Medicaid cuts would affect individual states. To contrast these cuts, the Center also has data showing the magnitude of the proposed tax cuts in each state. The report can be read here.

Posted by Becky Lewis, 11:37:20 AM

Tuesday, March 15, 2005

Greenspan Testifies Before Committee on the Aging

This morning Alan Greenspan testified at a Congressional hearing on the Economics of Retirement. In his testimony before the Senate Special Committee on the Aging, Greenspan restated his support for the creation of private Social Security accounts. He is a proponent of these accounts partly because he believes diverting payroll taxes away from a fund that can be spent by Congress would allow lawmakers to see the true size of the budget deficit, and would pressure them to reduce it. He stated, "We need, in effect, to make the phantom 'lock boxes' around the trust fund real."

Senator Clinton (D-NY) responded to these comments with criticism for Mr. Greenspan, whose 2001 testimony to Congress urging tax cuts to avoid a surplus, she said, "helped blow the lid off the lock box." The Bush tax cuts that Greenspan originally supported are currently largely responsible for our record-level budget deficit, and the fact that Congress must now cut spending on domestic programs in order to deal with this deficit. To read more about the hearing, click here.

Posted by Becky Lewis, 02:57:40 PM

Commentary on Tax Reform

In a Washington Post op-ed piece, former White House Chief of Staff and current President of the Center for American Progress John Podesta makes an excellent argument for how President Bush succeeded in 2001 in pushing through his tax cut plans and how progressives need to have a better strategy when responding to the President's Tax Reform Panel than was seen in 2001.

In a first step to providing that better strategy, Podesta summarizes the Center for American Progress' alternative tax reform plan. You can read more about the Center's plan here.

Posted by Adam Hughes, 11:26:56 AM

Monday, March 14, 2005

A Closer Look At Extending Tax Cuts

In creating the budget blueprint for FY 2006, many members of Congress are looking to extend the dividend and capital gains tax cuts, which are slated to expire in 2008. The high costs of these tax provisions will add to our already record-level deficits and have negative long-term economic consequences. Economists at the Congressional Research Service and the Brookings Institution have concluded that extending these tax cuts would add to deficit levels and in fact cancel out many positive effects proponents of the tax cuts state they will have. Click here for more information.

While the administration and many Congressional GOP leaders are pushing to extend the dividend and capital gains tax cuts, they continue to ignore a tax problem that is increasingly affecting middle class tax payers: the alternative minimum tax.

The alternative minimum tax was originally created to prevent very wealthy people from exploiting tax loopholes and not paying their fair share. However, because the tax is not adjusted for inflation and because it applies mainly to people whose income tax bills are low relative to their income, it is affecting more and more people every year.

By 2010 it is estimated that people who make under $100,000 and owe the tax will pay an additional $1,321 in federal income taxes, while alternative tax payers who make between $100,000 and $200,000 will owe an additional $2,592.

As an editorial in today's New York Times points out, by 2010, the Bush tax cuts alone will cause an additional 17 million taxpayers to owe the alternative tax. By 2014, "assuming the Bush tax cuts are made permanent, 40 million taxpayers will owe the alternative tax, nearly half of whom would never have faced it but for the tax cuts." While Bush and many members of Congress push to cut taxes for the wealthy by extending the dividend and capital gains tax cuts, they are effectively raising taxes on the middle class. Click here to read the editorial. Click here for another good column from the National Journal on why Bush's proposed tax cuts are unnecessary given the current economic environment.

Posted by Becky Lewis, 06:56:00 PM

Friday, March 11, 2005

Senate Budget Committee Markup

The Senate Chairman’s Mark, which was passed by the Senate Budget Committee 12-10 (a party line vote), proposes spending $2.56 trillion in FY 2006 and $13.8 billion total over the next five years. Despite these levels, the Chairman’s Mark would cut spending for domestic discretionary programs by approximately $207 billion over five years, adjusted for inflation. In 2010 alone, the Center on Budget and Policy Priorities estimates, funding for domestic discretionary programs would be cut by 13 percent. Like the House Committee’s Mark, the Senate version claims that lowering this spending over five years will succeed in halving the deficit. The spending guidelines laid out in the Senate proposal claim to produce a $208 billion deficit in 2010. Unlike the House markup, the Senate proposal includes caps for discretionary spending for 2006, 2007, and 2008. These caps would lock in cuts for spending through 2008, and would prove to be extremely harmful for programs already on the chopping block.

The Senate Mark falls in line with the President’s request and proposes allocating $439 billion for defense and $404.5 billion for non-defense programs. Overall, this amounts to a 2.1 percent increase in spending. The Mark also proposes cuts in mandatory spending of $38 billion over five years. The Senate Finance Committee must make cuts of $15 billion over a five year period, so large cuts to Medicaid are likely.

Like the House budget blueprint, the Senate version will go to the floor sometime next week for 50 hours of debate, likely followed by final passage. Senate debate begins on Monday, at which point there will be a series of tough amendments offered by Senators on topics such as farm payments, budget enforcement rules and oil drilling in the Arctic National Wildlife Refuge. Senator Feingold (D-WI), will most likely offer an amendment to create Pay-go rules requiring offsets for new tax cuts or entitlement spending. Under the Senate Chairman’s Mark, roughly $70 billion in tax cuts for the next five years would not require offsets.

Posted by Becky Lewis, 12:41:48 PM

Thursday, March 10, 2005

House Budget Committee Passes Chairman’s Mark

The House Budget Committee passed the Chairman’s Mark last night on party lines, by a vote of 22-15. While the Chairman’s Mark calls for decreased spending on domestic programs, it actually increases rather than decreases the deficit over time, despite continued statements by Congressional GOP leaders that the deficit will be cut in half by 2009. The Center on Budget and Policy Priorities estimates the House Committee’s proposal would increase the deficit by $126.9 billion. This is largely due to the fact that tax cuts are included in the mark. The House budget proposal cuts programs $216 billion over five years; there are significant reductions in veteran’s benefits, environmental protection, and spending on education. At the same time it proposes increasing spending for defense and international discretionary programs by $202 billion.

The House Budget Committee’s proposal also proposes deeper cuts to Medicaid than the President proposed in his budget. Although the Chairman’s Mark does not specify which mandatory programs should be cut, the Mark does instruct the Energy and Commerce Committee to make reductions of $20 billion over five years to programs under their jurisdiction, one of which is Medicaid. As this Center on Budget and Policy Priorities report states, “These Medicaid cuts are likely to push hard-pressed states to eliminate coverage for a substantial number of low-income people, increasing the ranks of the uninsured and the underinsured.”

Even though national revenues are lower than they have been since the 1950’s, and are helping to build our record-level deficit, the Chairman’s Mark -- like the President’s budget proposal -- suggests passing new tax cuts. The proposal specifically calls for the passage of $106 billion worth of tax cuts over the next five years, and includes an extension of dividend and capital gains tax cuts, which were enacted in 2003 but are slated to expire in 2008. The benefits of these two tax cuts flow overwhelmingly to those with the highest incomes. $45 billion of those tax cuts were set aside to be protected under reconciliation instructions, which is smaller than the $70 billion the Senate endorsed to be protected under reconciliation. The House will more than likely move more than one tax bill this year however; one in the reconciliation process and likely another one outside reconciliation to make the 2001 and 2003 tax cuts permanent.

Posted by Becky Lewis, 04:40:10 PM

Republican Opposition to Budget Proposals

Opposition to the outcome of yesterdays House Budget Committee markup started small and is growing significantly among House Republicans. The opposition began with a small group of Republican Study Committee leaders, including Rep. Mike Pence (R-IN), Jeff Flake (R-AZ), and Jeb Hensarling (R-TX). The Republican Study Committee is a House caucus of over ninety conservatives.

Their opposition, which according to this article in The Hill has spread to over forty Republican representatives, is based in the fact that the leadership’s plan is “unenforceable because it does nothing to curtail House leaders' power to waive budget rules for legislation that violates the budget.” The Republican leadership – and especially Budget Committee Chairman Nussle (R-IA) – are worried these “rebels” will vote with the Democrats against the budget when it is brought to the floor next Wednesday. The RSC leaders have the support of many members of the “Tuesday Group,” which is a caucus of about thirty centrist House members. The Tuesday Group is chaired by Reps. Mark Kirk (Ill.) and Charles Bass (N.H.). Their coalition with the RSC is significant because together the membership of the two groups total nearly 120 GOP lawmakers. Their opposition to the budget blueprint put forth by Nussle has significantly spread beyond a few conservative leaders and members of the Budget Committee in the past two days, and is showing that the leadership’s insistence on unwavering support for the Chairman’s Mark have had little effect.

Senate Republicans have also apparently been expressing concern about the budget proposals ahead of them. Today’s New York Times, reports, “the budget was not enough to mollify some Senate Republican moderates, who expressed concern Wednesday about extending the tax cuts at a time when the deficit is at a record high and domestic programs from farm subsidies to veterans' benefits and education are facing steep cuts.” Last year recall that a few key Senators – Voinovich (R-OH), Collins, (R-ME), Chafee (R-RI), and McCain (R-AZ) – were extremely outspoken in their opposition to budget policies which they did not feel were fiscally responsible.

With this year’s budget, Chafee has said, “I've been consistently opposed to tax cuts when at the same time we're not controlling our spending, and I don't think this year will be any different.” Another Senator wary of fiscal irresponsibility, Snowe (R-ME), has said, “Suffice it to say, I do have serious concerns with the fundamental priorities that are being constructed in the budget. It's exacting a high price from some of the programs that are critically important to the future." Senator Coleman (R-MN) is yet another Senator opposed to the budget proposal; however he is opposed more to specific cuts laid out in the budget instead of the costly tax cut proposals. Coleman has gathered signatures of 57 senators to fight for urban renewal grants, which Bush has proposed to cut.

The battle over the budget in the Senate will prove to be very interesting. Republicans have 55 votes in the Senate, which is four more than they would need to pass the budget if everyone voted on party lines. Past budget battles have resulted in Congress being unable to adopt a budget blueprint in two of the last three years; another failure to do this would reflect badly on both the President -- who has been lately stressing the importance of fiscal responsibility -- and Congressional GOP leaders as well.

Posted by Becky Lewis, 03:45:01 PM

Wednesday, March 09, 2005

More Details on House Budget Markup

House Republicans working on the budget have proposed cutting almost $18 billion more in mandatory spending cuts than President Bush requested. The cuts are especially deep in medicaid. They also outlined their plans to provide more for military costs in Iraq and Afghanistan and for fixing the alternative minimum tax, all while setting aside billions of dollars to go towards Bush's tax cuts. Notably, the budget "mark" does not include any caps for discretionary or entitlement program spending. It proposes an overall 2.1 percent discretionary spending increase, however a good chunk of that increase is in areas of defense and homeland security.

The House budget blueprint will most likely go to the floor next Wednesday. For more details check out the House Budget Committee web site here.

Posted by Becky Lewis, 03:33:13 PM

Tax Cuts in the Budget Committee Markups

Today marks the beginning of budget committee markups. Click here for the House Budget Committee Overview of the FY 2006 Budget Resolution. The Senate mark should be available later today.

It appears today that House Republicans are planning to include approximately $48 billion in tax cuts in their budget resolution, while the Senate is supposedly planning to include around $70 billion. While these numbers are significantly lower than Bush's request, they are still extremely costly endeavors in a time when we are facing high cyclical deficits and proposing to cut spending for social programs significantly. A good editorial in today's Washington Post compares the Congressional Budget Committees' action of lowering the amount spent on tax cuts to "the restraint of a dieter who is accustomed to scarfing down three pies a day and wants applause for cutting back to one." This analogy is right on track. Any tax cuts pursued in this budget reconciliation process in conjunction with spending reductions in mandatory programs are costly and contradictory actions that use the guise of deficit reduction to further shrink the role of government and actually result in larger budget deficits.

Click here and here for more information on the tax cuts. Click here for an informative Center on Budget and Policy Priorities report on CBO's recent preliminary analysis of the President's budget policy priorities.

Posted by Becky Lewis, 11:45:03 AM

Tuesday, March 08, 2005

Tax Cuts in Reconciliation; Medicare Estimates Up

Three items of importance:

Last friday the Congressional Budget Office released an updated analysis of the President’s budget for fiscal year 2006, which includes an update of their baseline projections for the 2006-2015 period. In preparing this updated projection, they revised their estimates for Medicare spending. See this document, "Updated Estimates of Spending for Medicare," for details. The CBO's new spending estimate is an increase of almost 50 percent since their last estimate.

Also of importance is today's news that the Senate will set a budget reconciliation tax figure of roughly $71 billion, which is down from the approximately $100 billion Bush proposed spending on tax cuts in his FY 06 budget proposal. See this OMB Watcher article for more information. Senate Republican budget writers are now saying this amount should be sufficient to cover the cost of extending expiring tax provisions through the five-year budget window; however this cost does not address the potential high costs of alternative minimum tax reform. These tax cuts, because they will be completed in reconciliation, will be given as instructions to the Finance Committee to undertake. Reconciliation bills are considered under expedited procedures in the Senate and cannot be filibustered.

Finally, yesterday Senator Hegel (R-NE) introduced a Social Security bill that is based on the creation of private investment accounts. Like the White House, Hegel supports diverting four percentage points of payroll taxes to fund these accounts. Hegel's plan would allow workers under the age of 45 to divert part of their payroll tax contributions for these accounts. Read a transcript of Hegel's speech on his Social Security proposal here. Senate Minority Whip Durbin (D-IL) reiterated the Democratic leadership's stance on Social Security reform by calling any plan with privatization accounts "non-starters" on Meet the Press the other day. Click here for more information.

Posted by Becky Lewis, 12:59:08 PM

Watcher: March 8th, 2005
Federal Budget

Posted by Becky Lewis, 11:33:26 AM

Senate Votes Against Both Minimum Wage Proposals

In yesterday evening's vote on the minimum wage, neither the Kennedy (D-MA) measure nor the Santorum (R-PA) counter-measure gained enough support to pass the Senate. The Kennedy measure, which would have increased the minimum wage by $2.10 over 26 months, was defeated 46 - 49. Perhaps more importantly, the Santorum measure -- which proposed to raise wages $1.10 but also included harmful changes to labor laws -- was defeated 38 - 61.

See this Washington Post article and this OMB Watcher article for more information.

Posted by Becky Lewis, 10:22:16 AM

Monday, March 07, 2005

Tax Cuts Will Not Slash Deficits

Last friday the CBO released their report saying the President's proposal to cut entitlement spending will actually save $11 billion less than the White House had initially projected. On top of this, according to today's CQ update, congressional budget writers are planning to include the estimated costs of Iraq and Afghanistan operations as well as a one year extension of Alternative Minimum Tax relief in the budget. This is significant because the White House ignored each of these items in their budget propsal.

Keeping these expenses -- as well as a deficit reduction goal -- in mind means the five-year tax cut figure in the budget resolution will likely have to decrease from what was originally envisioned by Bush and Congressional GOP leaders. Budget writers are realizing that these expenses, along with expensive tax cuts, will not achieve deficit reduction. Congressional aides are saying the tax cut amount may decrease from $100 billion to about $70 billion. There will be further updates later this week as the House and Senate budget committees mark-up the budget resolutions on wednesday and thursday.

Posted by Becky Lewis, 05:46:12 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

Greenspan's Testimony Garners Some Harsh Criticism
After testifying before the President's Panel on Tax Reform yesterday, Alan Greenspan received harsh crticism from one prominent Democratic Senator, Paul Krugman, and the New York Times editorial board.

First off, Senate Minority Leader Harry Reid (D-NV) said yesterday on CNN's "Inside Politics" that has never been a big fan of Greenspan and criticized his testimony for giving the current administration a pass on deficits while promoting Bush's Social Security Policies. In typical Harry Reid fashion, he flings a zinger at Greenspan, calling him, "one of the biggest political hacks in Washington"
read more

Then today, op-ed columnist Paul Krugman writes, "In 2001, President Bush and Mr. Greenspan justified tax cuts with sunny predictions that the budget would remain comfortably in surplus. But Mr. Bush's advisers knew that the tax cuts would probably cause budget problems, and welcomed the prospect."

Now that we are faced with budget problems, Krugman believes he sees Greenspan trying to provide cover. "And Mr. Greenspan has once again tried to come to the president's aid, insisting this week that we should deal with deficits 'primarily, if not wholly,' by slashing Social Security and Medicare because tax increases would 'pose significant risks to economic growth.'"
read the op-ed

And to make it three for three, the lead editorial in the New York Times suggests it is depressing it has taken Mr. Greenspan this long to suggest to Congress a tax increase to close the enormous budget deficit. They conclude "That should be a no-brainer, especially since the deficit - now at $412 billion - is largely due to tax cuts that President Bush and Congress have lavished on the most affluent over the past four years."
read the editorial

Posted by Adam Hughes, 04:21:15 PM

House Backs Most of Bush's Emergency Funding Request

Last month, Bush delivered his request to Congress for emergency supplemental war spending. In his request he asked for an $81.9 billion supplemental bill to be passed for emergency spending purposes (i.e., war efforts in Iraq and Afghanistan). When Defense Secretary Donald Rumsfeld and Secretary of the State Condoleeza Rice testified before Congress, House GOP leaders were uncharacteristically critical of the amount of money Bush had requested, and where this money would go. See this February 17th article for more information.

Despite these criticisms, yesterday House Republicans decided to support giving Bush all but $800 million of what he had requested, approving an $81.1 billion emergency supplemental bill. Perhaps the most controversial expenditure to be approved was $600 million to be spent on the "largest U.S. embassy in the world" to be built in Baghdad. Click here for more information.

Posted by Becky Lewis, 01:48:12 PM

Thursday, March 03, 2005

Greenspan Testifies at Tax Panel Hearing

After testifying on the deficit and the economic state of our country yesterday, Alan Greenspan spent this morning as a witness before the President's Advisory Panel on Tax Reform. The panel held their second hearing today, and their third is scheduled to take place in Tampa on tuesday, March 8th. The third hearing will focus how the tax system affects businesses and entrepreneurs; a list of witnesses has not yet been released.

At today's hearing Greenspan spoke in favor of a "mixed" tax system that relied upon both consumption and income taxes to bring in national revenue and keep the economy strong. Accoring to Congressdaily, Greenspan indicated "displeasure at the idea of a moving toward a value-added tax, noting that some believe it is too effective a tool for raising taxes. He also indicated that a value-added tax would be too opaque."

Also appearing before the panel today were former Treasury Secretary James Baker, who indicated a preference for a consumption tax, and IRS Commissioner Mark Everson. These hearings are meant to serve the panel in their task to provide viable suggestions to Secretary Treasury John Snow on how to reform the federal tax code. Their report will be submitted to Snow no later than July 31st of this year.

Posted by Becky Lewis, 06:10:40 PM

Administration Steers Away From Payroll Tax Diversion

Treasury Secretary John Snow indicated yesterday that the White House would in fact accept a form of Social Security overhall that did not include diverting a portion of payroll taxes into private investment accounts. This is a major shift in the administration's position. Snow said that personal accounts would be part of any Social Security legislation, but that they were open to funding these accounts through means other than the payroll tax. Congressional Democrats have almost unanimously opposed the idea of funding personal accounts with a diversion of payroll taxes.

Bush's plan -- backed by many Congressional Republicans -- to allow individuals to put as much as 4 percentage points of their payroll tax contributions into private accounts has been one of the more controversial aspects of the discussion to overhaul Social Security. Opponents think that private accounts would would risk reducing benefits for low-income individuals, and also could result in higher interest rates because the government would need to borrow more to finance transition costs.

In other Social Security news, an article in the New York Times today reports many Americans differ from Bush in their priorities regarding Social Security. A new New York Times/CBS News report showed that 51 percent of Americans believe investing a portion of payroll taxes into private accounts is a bad idea. Sixty-nine percent believed private accounts would be a bad idea if they would result in any benefit reductions, and 45 percent believed that private accounts would actually weaken the retirement system.

Posted by Becky Lewis, 01:51:50 PM

Greenspan Testifies Current Deficits Are Unsustainable
Federal Reserve Chairman Alan Greenspan testified before the House Budget Committee yesterday and painted a grim fiscal picture of the current state of the federal government.

Greenspan noted decreasing the current deficits would require Congress and President Bush to make difficult political decisions. He said both decreases in spending and paying for future tax cuts would be necessary to tackle the deficit.

Greenspan emphasized his long-standing position for the reinstatement of pay-as-you-go rules (PAYGO). These rules, a key aspect of the deficit reduction package that worked well in the 1990s, would require Congress to offset further tax cuts or increases in spending with savings elsewhere in the budget. The Bush administration and many top Republicans in Congress believe PAYGO rules should apply only to new spending.

Read more about Greenspans testimony.

Posted by Adam Hughes, 01:01:41 PM

Wednesday, March 02, 2005

Opposition to Social Security Reform Pays Off

It appears as though all of this talk about a Social Security overhaul is not working in the President's favor. The Washington Post reports today, "President Bush's bid to restructure Social Security may have to wait until next year and might not involve the individual accounts the White House has been pushing hard." Senate Majority Leader Bill Frist (R-TN) expressed these sentiments yesterday, and they are a blow to the administration's obvious efforts over the last few months to market their plans for Social Security privatization.

Many GOP Congressman have been out in the field pushing SS overhaul over the past few weeks, and many are now wary about forging ahead with a politically risky plan that doesn't have a good deal of demonstrated public support. So, it appears that Social Security reform may be put on the back burner for a while. This is due to both the fact that many Democrats have been voicing strong opposition to the private accounts supported by the administration, as well as because Republican lawmakers are extremely divided among themselves as to how to proceed with an overhaul, and whether or not our economy could sustain borrowing trillions of dollars to finance it. To read more about the current hurdles facing a Social Security overhaul, click here.

Posted by Becky Lewis, 12:14:18 PM

Tuesday, March 01, 2005

Take Action on the Budget Resolution

Tell your members of Congress to oppose a budget resolution that would be harmful to many Americans as well as economically irresponsible.

You can take action by clicking here.

Posted by Becky Lewis, 01:36:32 PM

SS Benefits Keep Millions of Seniors Economically Stable

In an op-ed column in today's New York Times, Paul Krugman argues that the GOP leadership's drive to create private Social Security accounts isn't about "finding a way to strengthen Social Security; it's about finding a way to phase out a system that conservatives have always regarded as illegitimate."

Lawmakers will need to find a way to ensure that benefits aren't cut for Social Security recipients in the future, whether or not that includes some form of private accounts. They will need to do so, however, in a way that doesn't place those benefits at risk.

Social Security benefits are currently responsible for keeping 13 million elderly people from living below the poverty line. If those benefits did not exist, almost 50 percent of elderly people would live below the poverty line. If the level of those benefits were to be put at risk through the creation private accounts, some seniors would fare well; however a number of them would end up losing out on thousands of dollars per year, and many household incomes would fall below the poverty line. Click here to see a new report from the Center on Budget and Policy Priorities that outlines the effect of Social Security on poverty among senior citizens. The report provides data on a state-by-state basis.

Posted by Becky Lewis, 11:29:57 AM

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