Yesterday, the Senate voted once again against beginning debate on a package of tax cuts called the "extenders" for the fourth time this year. The vote was 51-43, and will put off any consideration of the legislation until Congress returns from their August recess on September 8.

The two main holdups are a deadlock between Democrats and Republicans over whether and how to address high gas prices (which is unrelated to the extenders bill), and the continuing debate over whether to pass fiscally responsible legislation. As I wrote yesterday, the first appears to be just election-year shenanigans typical these days in Washington. The second issue, however, is central to the debate over the future of the U.S. government's fiscal health and the economic health of our country.

In the wake of the continuing deterioration of both short and long-term budget deficit projections, yet another increase in the country's credit limit, sustained, disturbingly-large military expenditures with no end in sight, and continued woeful economic performance, it is long past time for Congress and the president to wake up to some fiscal realities.

Despite what the president and some Republicans in Congress would have us believe, the U.S. Treasury is not a bottomless money pit. It's time Congress and the president stop passing fiscal policies like they are on spring break with Mom and Dad's credit card and prioritize policies in a fiscally responsible way. We elect our leaders to make difficult decisions - that's part of the job. But the fiscal policies of the last eight years skirt those choices by pretending we can have our cake and eat it too.

Yet the Bush administration continues to care very little about the impact of current policies on future generations. Once again, they released a Statement of Administration Policy (SAP) opposing the extenders bill because it attempts to comply with pay-as-you-go (PAYGO) rules - because it offsets extension of some tax cuts with different tax increases. And the Republicans in the Senate continue to bury their heads in the sand and fall in line with that ideology. Even the usually respectable and sometimes responsible Sen. Charles Grassley (R-IA), ranking member on the Senate Finance committee, cannot find a compromise that is fiscally responsible (i.e. he won't accept any tax increases). Does Grassley honestly believe we can keep running up debt in the current fiscal environment with no consequences? Does he understand the larger context of the decisions he is making - or more accurately, the ones he is not making?

The Democrats aren't much better. They've talked a good game on fiscal responsibility since taking back Congress in 2006, but when the going gets tough during policy debates or votes on high-priority issues, they lose their gumption. Witness how the Democrats caved last year over the Alternative Minimum Tax debate or the passage this year of the expansion of the G.I. Bill as just a couple of examples. Unfortunately, despite their tough talk, there is little evidence to point to a change this time around.

So, in the end, our nation's fiscal policy comes down to a battle between those willing to look the other way and those who don't know which way to look. Awesome.

The Commerce Department, via the Bureau of Economic Analysis (BEA), released initial ("advance") second quarter GDP figures and revisions to previous quarters' estimates. BEA reports that in the second quarter of this year, the economy grew at a tepid 1.9 percent annual rate. Economic growth was spurred by the economic stimulus payments from the government and strong exports boosted by the declining value of the dollar.

The bureau also revised downward first quarter's growth from 1 percent to a 0.9 percent. Noteworthy is BEA's revision of fourth quarter, 2007 growth: that figure was decreased from a plus 0.6 percent to a negative 0.2 percent.

Given dip into negative territory in Q4 and Q2's less-than-expected growth rate, supporters of a second stimulus package now have additional ammunition to argue for such a package in September. Yesterday, Senate Appropriations Committee chair Robert Byrd (D-WV) released details (CongressDaily, $) of $24 billion stimulus package that he plans to take up in September after the August recess. Also yesterday House Majority Leader Steny Hoyer (D-MD) announced (also CD, $, sorry) a September agenda that included room for a second stimulus package.

BEA: Second Quarter GDP News Release

News Coverage:

• Financial Times: "Weak US growth adds to gloom"
• Washington Post: "U.S. Economic Growth Improves Over First Quarter"
• New York Times: "G.D.P. Grows at Tepid 1.9% Pace Despite Stimulus"

Last night, Senate Majority Leader Harry Reid (D-NV) filed a motion to proceed to a package of tax cuts commonly called the "extenders" for the third time this year. Senate Republicans have blocked consideration of the proposal twice before, insisting that the Senate continue to debate an energy market speculation bill until lawmakers add something dealing with gas prices. While it isn't clear if the Senate will reach the 60 votes necessary to begin debating the bill (the vote is this afternoon), it is certain that time is running out. With only this week left before Congress' typical lengthy August recess, and only three weeks in September before the legislature will likely adjourn for the year, time is of the essence.

The machinations over this bill appear to be due to the usually shenanigans in Washington. Get this - almost all of the Republican Senators blocking the bill support the content of the extenders bill. In fact, not only have over 300 major U.S. companies weighed in with the full Senate giving their strong support to the Democrats' extenders package, but yesterday, over 2,100 high-tech employees who work on research and development from 74 different companies in 39 states sent all senators a letter indicating their support for the research and development credit, calling themselves "dismayed" that Congress has allowed the credit to expire. The R&D credit is the largest provision in the extenders bill.

Add to that the fact that this package of tax cuts includes an expansion of the Child Tax Credit. The legislation would lower the income threshold that parents must meet to qualify for the refundable portion of the tax credit from $12,050 to $8,500. This change would benefit over 13 million children, according to data from the Tax Policy Center. The Center on Budget and Policy Priorities also points out that many children who stand to benefit come from families with parents who work year round, include individuals with a disability, and/or contribute to a broad range of jobs in critical services that often pay low wages, such as caring for the elderly or teaching young children.

So, let's see. Hundreds of major U.S. companies support the extenders, high-tech employees support it, and a huge grouping of organizations from faith-based groups to labor and child welfare advocates to direct service providers support the Child Tax Credit expansion. Why is the Senate having such a hard time getting the bill passed? Lord knows it isn't because the package increases the deficit (it does increase the deficit, but few in the Senate care about that). What could the reason be? Hmmmm...

Update:
The Senate failed for the third time to invoke cloture on the tax extenders bill by a vote of 53-43.

Joint Economic Committee ranking member Jim Saxton (R-NJ) musters moral fibre to stand up for the downtrodden richest one percent among us to lament the growing burden that increasing shares of income are placing upon this voiceless group. It's true: According recently-released IRS data, while the richest one percent of taxpayers (as measured by adjusted gross income) saw their share of income grow from 20.8 percent to 22.1 percent from 2000 to 2006, they also saw their share income taxes climb from 37.4 to 39.9 in that same time.

Meanwhile, those lucky duckies in the bottom 50 percent of income earners -- those earning less than $31,987 -- had their share of the tax load lifted. From 2000 to 2006, when they saw their share of income decrease from 13.0 percent to 12.5 percent, those earners in the lower half of the income distribution were sticking it to the upper half as they reduced their share of the overall income tax burden from 3.9 percent to 3.0 percent.

Fear not, one-percenters! You can look forward to a lighter income tax burden after Thursday, when the minimum wage skyrockets to $6.55. It won't be long before they catch up to your average hourly income of $660 and share equally in your tax burden.

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The Center on Budget and Policy Priorities has released a new report discussing the oft-cited, and completely false claim that tax cuts pay for themselves. Even though this statement has been refuted many times, by CBPP, by outside academics, and even by President Bush's own Treasury Department, the claim continues to float around.

CBPP does a nice job hammering home the facts again about the impact of tax cuts in a very digestible brief:

The claim that tax cuts "pay for themselves" — i.e., cause so much economic growth that revenues rise faster than they would have without the tax cut — has been made repeatedly in recent years and is one of the many tax policy issues that is likely to receive renewed attention in light of the upcoming election. As explained briefly below, this claim is false. The evidence shows clearly that tax cuts lose revenue.

CBPP: EVIDENCE SHOWS THAT TAX CUTS LOSE REVENUE

The CBO has released a report detailing the effects of indexing the the AMT to inflation (i.e. "patching" it so that fewer households would pay it than otherwise anticipated) and extending the 2001-2003 Bush tax cuts without offsetting the revenue loss.

If the Bush tax cuts are allowed to expire and if the AMT continues its ever-deepening reach into the middle class, the federal debt held by the public will increase from today's 37 percent of GDP to 115 percent in 2050. If AMT is indexed for inflation to limit its impact on the middle class, that debt figure becomes 115 percent in 2050. If the AMT is indexed for inflation and the Bush tax cuts are extended, federal debt held by the public jumps to 190 percent in 2050.

Deficit financing of these tax cuts has a pernicious effect, reducing per capita income by 13 percent in 2050. But, "[b]eyond 2073, projected deficits under those tax policies would become so large and unsustainable that CBO's model cannot calculate their effects."

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CBO: Long-Term Effects of Indexing the Alternative Minimum Tax and Extending the Tax Reductions of 2001 and 2003

Senate Minority Leader Mitch McConnell (R-KY), Senate Finance Committee ranking member Charles Grassley (R-IA), and a pair of their caucus members are promulgating ($) new language on legislation that would extend a bevy of tax cuts for another year (collectively known as "extenders") and a one-year AMT patch. The total cost of the bill would be $130 billion; the AMT portion of the measure is about $62 billion.

The language would partially offset the revenue loss with unspecified "spending reductions and appropriate revenue raisers for new tax relief policy." Not exactly something to pin all your fiscal responsibility dreams on, but consider this is a step forward for Republicans who are generally allergic to shifting the tax burden from one group to another (usually wealthy) group. Although, credit should also be given to Congress members who found a loophole so politically repugnant, that the staunchest of revenue-phobes ([cough] McConnell [cough]) would have a difficult time explaining a "no" vote.

The provision in question closes a loophole by which special taxpayers -- like hedge fund managers -- use offshore tax havens to shelter income. Grassley explains the loophole quite well:

So, if a teacher donated his or her entire salary to a charity, he or she would only be able to claim about half of that as a deduction. Meanwhile, a hedge fund manager who sheltered income in the Grand Caymans would be allowed to claim a deduction for the entire amount of his or her sheltered income.

The Center on Budget and Policy Priorities has released a report from leading economists and budget experts criticing a recent paper from the Brookings Institute and the Heritage Foundation called "Taking Back Our Fiscal Future." From the CBPP press release:

Sixteen leading economists and budget experts issued a major critique today of a recent proposal to address future federal budget deficits through radical changes in budget procedures for Social Security, Medicare, and Medicaid.

These experts, who include a Nobel Laureate in economics, two former Office of Management and Budget Directors, and a former Deputy Director of the Congressional Budget Office, agree that the nation faces large, persistent budget deficits that would ultimately risk significant damage to the economy. They also concur that policymakers should begin now to make the tough choices needed to avert such deficits.

But they believe the methods set forth in "Taking Back Our Fiscal Future" (TBOFF), a recent proposal by some analysts at the Brookings Institution, the Heritage Foundation, and other groups, are misguided. Instead, they believe policymakers should begin the hard work of building consensus on specific spending and tax measures that would start reducing longterm deficits, and they recommend a series of such measures.

So, the Brookings/Heritage paper was signed by 16 "longtime federal budget and policy experts" and now CBPP has released their own report from another 16 prominent and expert folks. Seems like the right-of-centrists and left-of-centrists are gearing up for what could be major reforms to fundamental federal government supports and programs in 2009. Should be quite a fight - stay tuned.

Reports:
CBPP: A Balanced Approach to Restoring Fiscal Responsibility
Brookings/Heritage: Taking Back Our Fiscal Future

Commentary:
Matthew Yglesias (The Atlantic): Fiscal Sanity How?
Matthew Yglesias (The Atlantic): Leninism's Return
Robert Kuttner (The American Prospect): Sensible Budget Wonks Strike Back Against Conservatives
Mark Schmidt (The American Prospect): "Leninist Strategy" 2.0
Matt Lewis (Inclusionist): A Better Way on Long-Term Deficits
Diane Lim Rogers (EconomistMom): But Really, Fiscal Responsibility Is Easier Under a Benevolent Dictatorship

The Tax Policy Center has published a distributional analysis of the recently House-passed Alternative Minimum Tax legislation (H.R. 6275).

The TPC has produced distributional estimates for H.R. 6275, the alternative minimum tax (AMT) patch legislation passed by the House on June 25, 2008. In addition, we have updated our estimates of the number of AMT taxpayers, AMT revenue, and the distribution of AMT liability. Finally, we have published an updated list of 12 key facts and projections about the AMT.