Friday, December 09, 2005

Phony numbers from the House of Representatives

The House of Representatives just approved tax cuts estimated at $95 billion over five years. So much for the much-touted deficit reduction from their earlier approving $51 billion of spending cuts over 5 years.

One thing I don't understand is why they didn't cut taxes by, say, $950 billion over 5 years. After all, the NY Times quotes a Republican House member, Jeb Hensarling of Texas, as saying that "tax relief is part of the deficit solution, not part of the problem."

Even the $95 billion number is phony, however. It includes $31 billion to extend, for just 1 year (not 5) provisions reducing the bite of the alternative minimum tax. Everyone knows, however, that there will be huge pressure to keep on extending the AMT relief year by year.

If we assume that Congress will keep on extending the AMT relief - who knows, but this is probably a better baseline estimate than saying it won't - and if the cost grows a bit each year, we are probably talking more than $200 billion of tax cuts over 5 years, if the House has its way, even leaving aside everything else they want to do.

A broader structural point: deferred adverse changes to current year law that will occur if Congress doesn't act again generally are not credible. Perhaps budgeting estimates should be prepared on the basis that current year law will continue when the law on the books involves deferred and discontinuous adverse changes. (By discontinuous, I mean something that isn't already phasing in at a steady rate.) That would take some of the juice out of sunsetting everything and then continually extending it a year at a time.

8 comments:

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I understand that the cost of doing business goes up continually, but as most households and business's find out there is a limit to the spending and at some time it has to be curtailed. So to does our government have to stop with all the spending and be more responsible with the revenue sources at hand. The give away programs(entitlement)are not doing what was originally intended and need to be evaluated and adjusted accoringly.

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