As this excellent column from Bloomberg.com highlights, there is a gap between the administration's rhetoric and reality when it comes to tackling the long-term budget implications of the rising costs of entitlement spending. Bush spent a lot of time last year making a big deal about the unfunded Social Security liability, and the liability for Medicare is expected to be even greater, with the administration estimating an $11 trillion shortfall.

Despite this stark reality, Bush has no fiscally responsible plan to deal with rising entitlement costs. The Social Security shortfall could be shored up by repealing some of the 2001 and 2003 tax cuts to the wealthy, yet Bush has no interest in doing this. Instead, he continues to push for extending expiring tax breaks, and for eliminating the estate tax, which taxes less than 2 percent of the wealthiest estates in America. The result promises to be a shift in the burden of these costs from the wealthiest in our society onto to everyone else.

Al Hubbard, the director of President Bush's National Economic Council, said in an interview that the president does not support a key measure in the tax reforms submitted by the Advisory Panel on Tax Reform. Specifically, the president has rejected a reform that would tax workers on health insurance benefits valued at $11,500 or more for a family; instead advocating for expanding untaxed health savings accounts and increased deductibility of medical expenses. Expading untaxed health savings accounts would add to the deficit to the tune of $6 billion annually.

Bloomberg.com: "Bush Rejects Proposal to Tax Health-Care Benefits, Hubbard Says"

The release of the President's budget is less than a month away, and Treasury Secretary John Snow has made it clear the budget will "call for sacrifices, no doubt about it." Like last year's "tough budget," this year's slicing and dicing is an attempt by the administration both to appear tough on spending, as well as help them pare the down the deficit -- a whopping $318 billion last year -- even further.

While reducing the deficit is something this administration should focus on, it's important not to forget the major cause of the huge deficits we have seen the over last few years: Bush's 2001 and 2003 tax cuts. Through FY 2005, the Bush tax cuts enacted since 2001 have cost $819 billion. And extending these tax cuts, a move Bush plans to fight for this coming year, would cost $2.1 trillion through 2015. If this administration were truly dedicated to paring down spending and truly willing to ask people to "make sacrifices," they would be less focused on slashing already-meager funding for government programs, and more focused on reducing the hundreds of billions of dollars spent being spent on tax cuts per year ($225 billion last year alone). By focusing on the budget for sacrifices, as opposed to the tax cuts, the administration makes it quite clear that they are more comfortable with taking from low- and moderate-income families than they are with taking from the super-wealthy.

While talking to reporters about the budget yesterday, Snow also mentioned that other priorities for 2006 include passing a pension reform bill, tougher regulatory standards for government-sponsored enterprises such as Fannie Mae or Freddie Mac, and increasing the debt ceiling.

Although the Senate and House have both passed their separate versions of the tax reconciliation bill, Congress has yet to vote on and pass a final measure. One of the major differences between the two bills is that the House passed a two-year extension of low capital gains and dividends rates, while the Senate did not.

Senate Finance Committee Chairman Charles Grassley (R-IA), who pushed for the inclusion of those rates but ultimately was unable to get his way, said yesterday that including those rates in the final version of the tax reconciliation bill will prove to be a major hurdle. Conference negotiations on the bill are expected to get under way once the House returns from recess the week of January 30.

The Internal Revenue Service's taxpayer advocate, Nina Olson, told Congress in the annual report released today that tax refunds sought by hundreds of thousands of poor Americans were denied by the IRS and blocked for years to come. This was done because a computer program run by the criminal investigation division of the IRS selected the returns as part of the questionable refund program. Olson, whose staff looked at a sample of suspected returns, found only one in five to be questionable. Even worse, many of the taxpayers -- whose incomes averaged $13,000 annually -- were not ever told they were suspected of fraud.

Many of the filers were seeking the earned income tax credit (EITC), which is a benefit for the working poor. The average refund sought was $3,500 (compare this amount with the average $103,000 each taxpayer with an income above $1 million received last year thanks to the president's tax cuts). Olson found that of the taxpayers who pressed for their refunds, 66 percent were due all the money they sought, or even more than they had asked for. Perhaps most strikingly, Olson reported to Congress that the IRS is devoting many more resources towards looking into the questionable refunds pursued by the poor -- a $9 billion problem at most -- and far fewer resources towards the $100 billion problem of unreported incomes from many small businesses who deal only in cash.

New York Times: I.R.S. Limited Tax Refunds of Poor, Congress Is Told (1.10.2006)

Washington Post: IRS Froze Refunds, Study Says (1.11.2006)

Last April Congress called for an increase in the debt limit -- the national debt is expected to hit $8,184 billion in mid-February -- however they have yet to act. Lawmakers are expected to take up the issue in February after voting on final tax and budget reconciliation bills, marking the fourth time during President Bush's presidency the debt limit has needed to be raised. In a recent letter to Congress, Secretary of the Treasury John Snow said that unless the debt ceiling is raised by mid-March, "we will be unable to continue to finance government operations."

Raising the debt ceiling has no immediate economic consequences, but instead indicates the instability of Bush and Congress' long-term fiscal policy. In 2010 the national debt is forecasted to be 70 percent of GDP. And pressure for the government to spend will only grow more as baby boomers retire and place new demands on both Social Security and Medicare. As Douglas Holtz-Eakin, former head of the Congressional Budget Office stated,"It's not where we are. It's the trajectory we're on." Lawmakers need to put an end to their reckless spending -- Bush's 2001 and 2003 tax cuts alone are costing the country hundreds of billions of dollars every year -- so that we can put an end to this downward spiral of fiscal irresponsibility.

Here is how the debt limit has been increased during the Bush presidency:

• June 2002: ceiling raised from $5.95 trillion to $6.4 trillion
  
  
• May 2003: ceiling raised to $7.4 trillion
  
  
• November 2004: ceiling raised to $8.184 trillion

Over the past fifty years lawmakers have raised the ceiling over seventy times, however never by the amounts quite like we have seen over the past four years.

The IRS has unveiled a new online tool to help taxpayers determine whether or not they are subject to the alternative minimum tax (AMT). The "AMT Assistant," which is one of a series of steps by the IRS to reduce taxpayer burden, will allow taxpayers to enter their information and get an answer in 5 to 10 minutes. It will be available during the 2006 filing season at www.irs.gov.