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Thursday, March 30, 2006
Everybody Wins With the Ultimate Tax Gimmick
As the 2005 tax reconciliation conference continues to drag on, an interesting and puzzling rumor has emerged that will keep you scratching your head. Typical of three card monte games on the strip in Atlantic City, this most recent gem from Congress is the ultimate budget gimmickry.
The 2005 tax reconciliation bill is at a stand-still because House and Senate GOP leaders are trying to figure out how to squeeze capital gains and dividend tax cuts into the $70 billion filibuster-proof cap set out last year in the budget resolution. But they just can't make the numbers line up. There is this pesky Senate rule that prohibits reconciliation legislation from increasing the deficit outside of the budget window to which the legislation applies - and unfortunately, those capital gains and dividend cuts violate that rule by $31 billion.
Now, Republican leaders, especially in the House, do not want to have to offset that cost by - (gasp) - raising taxes. So what they are proposing is to offset the cost of the first tax cut with, unbelievably, another tax cut! Conferees are rumored to be considering lifting the income limits on conversions of traditional Individual Retirement Accounts (IRAs) to Roth IRAs. Such a change would allow taxpayers (most likely wealthy ones who would have the most to gain) to stock away huge sums of money that would grow tax free for years simply by paying a smaller amount of taxes during the temporary conversion period. This would result in a short-term boost in revenues for the government, but would be a big money-loser in the long run.
Yet that is all the conferees need - a short-term upswing in revenues caused by a tax change favoring the wealthy in the long run to cover the cost of giving away more taxes to the wealthy in the short run. See how everybody wins?
Kudos to the Center on Budget and Policy Priorities, the Committee for a Responsible Federal Budget, the Concord Coalition, and the Committee for Economic Development for highlighting this issue.
Posted by Adam Hughes
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