Congressional Budget Office (CBO) director Peter Orszag testifying before House Budget Committee on Wednesday:

At this time, given the lack of specificity regarding how the program would be implemented and even what asset classes would be purchased, CBO cannot provide a meaningful estimate of the ultimate net cost of the Administration's proposal. The Secretary would have the authority to purchase virtually any asset, at any price, and sell it at any future date; the lack of specificity regarding how that authority would be implemented makes it impossible at this point to provide a quantitative analysis of the net cost to the federal government.

That's no way to run a government. Let's hope that whatever plan Congress comes up with that it gives the CBO at least a vague notion of how much a Wall Street bailout is going to cost.

Image by Flickr user Criterion used under a Creative Commons license

Budget afficionado Stan Collender says that a $700 billion Wall Street bailout will define the budget and, ultimately, the next president's spending priorities for several years.

That would increase the deficit to $1 trillion or more. (My apologies for the italics, but it's hard not to use them in this situation.) If what's left of the $700 billion is spent in 2010 and activities in Iraq and Afghanistan continue that year, the deficit for two consecutive years could be close to that level.

[...]

But it's also hard to see how the 2001 and 2003 tax cuts, which expire at the end of 2010, get extended as easily or completely as they might have before. In fact, nothing else that might be considered in the next few years has the potential to reduce the dramatically increased deficit by as much as quickly as scaling back on these cuts or letting them expire.

Some provisions, like marriage penalty relief and the $1,000-per-child tax credit, might still be a slam dunk. But others, like the top marginal tax rate, capital gains, dividends, estate and gift taxes, and small business expensing, are clearly in jeopardy now.

I don't know, Stan. One should never underestimate the appetite Republicans have for tax cuts. In their world, there's never a bad time for a tax cut. From a BNA email:

A group of House Republicans proposed Sept. 23 temporarily suspending the capital gains tax as a way to coax capital back into sluggish lending markets and offset the cost of a proposed government bailout of the U.S. financial system.

"We have a liquidity crisis and this would bring as much as a trillion dollars in capital sitting on the sidelines, we believe, back into the market," Rep. Jeb Hensarling (R-Texas), chairman of the Republican Study Committee, told reporters at a press conference.

At least Hensarling just skipped the "tax custs pay for themselves" nonsense and went straight for a bold new baseless assertion.

It strains the imagination to believe that investors are "sitting on the sidelines" because the capital gains tax rate is too high. They didn't seem to mind it in the late 90s when capital gains rates were nearly twice what they are today and the stock market saw a 34% increase from 1997 to 2000. It is my understanding, however, that the stock market has been declining the past year, which means the average investor has been paying nothing in capital gains taxes. In fact, because investors can claim capital losses as an income tax deduction, they have an incentive to gamble on the market as their actual losses will be reduced by the amount their income taxes are reduced. Cutting the cap gains rate to zero might induce even more people to wait until market conditions improve, because the average investor would see his tax bill increase.

Update: Oops. Capital losses are offset gains, and in the event of net capital losses, they are deducted from income. So, the capital gains tax rate does not affect net capital losses, just gains.

Image by Flickr user sea_bass used under a Creative Commons license

We'll be shutting down the BudgetBrigade a bit early today to head off to OMB Watch's 25th Anniversary celebration. Yup, that's right. OMBW is 25 years young this year and we're primed and ready for our quarter life crisis! We're taking some time to celebrate tonight with friends and supporters and remember 25 years of fighting for a more transparent and accountable federal government.

While we are looking back over some of our accomplishments of the last quarter century (and honoring the unsung work of some of our public sector colleagues), we are also looking forward to the challenges we'll face over the next 25 years and beyond.

You will be a key part of overcoming those future challenges, just as you've been crucial to our past accomplishments. Your involvement, along with hundreds of thousands of people just like you has helped to make us the success we are today. So thank you for your commitment to the open and accountable ideals that have helped guide OMBW over the past 25 years.

And if you want to help make sure those ideals continue to be realized, consider making a small donation to OMB Watch in honor of our 25th birthday. Your contribution will join with hundreds of others who want to ensure we are able to continue our mission and the important work we do everyday.

In perusing CBO's latest budget forecast, I am once again taken by the magnitude of the 2001-2003 tax cuts (AKA the Bush tax cuts). But I nearly choked on my Atomic FireBall spicy cinnamon hard candy while reading Table 1-8, "The Budgetary Effects of Selected Policy Alternatives Not Included in CBO's Baseline," because I had forgotten how much more expensive the Bush tax cuts make fixing the Alternative Minimum Tax (AMT).

If the Bust tax cuts expire, it will cost $875 billion (including debt service) to index the AMT for inflation. But, the Bush tax cuts were designed such that the AMT would affect more families and bring in a lot more revenue than it otherwise would. The upshot is that if Congress extends the Bush tax cuts, it will cost $1.6 trillion to and index the AMT for inflation.

The Congressional Budget Office (CBO) has released its update to the Budget and Economic Outlook for Fiscal Years 2008 to 2018.

The report anticipates that at the end of the current fiscal year (Sept. 30), the federal deficit for FY 2008 will be $409 (about 3 percent of GDP), $51 billion more than it predicted in March.

That change is almost entirely the result of higher spending than projected in the March baseline. Much of that spending increase was expected, however, because it results from supplemental appropriations for military operations in Iraq and Afghanistan, which were pending at the time. Added spending for deposit insurance and unemployment benefits also contributes to the increase in overall spending in 2008.

For FY 2009, CBO expects the federal budget deficit to hit $438 billion (also 3 percent of GDP), but this figure does not include an $83 billion reduction in revenue as the result of an expected AMT patch next fiscal year. The anticipated $521 billion deficit would best the deficit record set in FY 2004 by about $108 billion. When the Bush Administration released its Mid Session Review in July, it predicted that the budget deficit would be $389 billion in FY 2008 and $482 billion in FY 2009.

And, CBO reminds in the opening paragraph of the report what fiscal policy makers need to keep their eyes on:

Over the longer term, the fiscal outlook continues to depend mostly on the future course of health care costs as well as on the effects of a growing elderly population.

The Congressional Budget Office (CBO) released their Monthly Budget Review on Friday last week, showing lots of red ink for the federal government in FY 2008.

CBO estimates that the federal budget deficit was $486 billion in the first 11 months of the fiscal year, $212 billion more than the shortfall recorded over the same period last year. CBO anticipates that the government will realize a surplus in September, stemming from quarterly payments of estimated income taxes. The result will be a deficit in the vicinity of $400 billion for the fiscal year.

CBO will release a new estimate of the 2008 deficit and updated baseline projections for fiscal years 2009—2018 on September 9 and we'll be sure to post that release on the BudgetBlog.

CBO: Monthly Budget Review