The Tax Extenders Spectacle Proves Washington Doesn’t Get Deficit Reduction

By allowing $31 billion of tax breaks to expire every year, Congress gives the appearance of lower future deficits. When the deficit was $161 billion four years ago, that would make a difference. Now that it’s $1.4 trillion, it’s a trifle, but Congress still goes through the exercise, just like a drug addict who requires ever increasing doses to get the same high.

With the unemployment rate at 9.7%, any bill that can be turned into a jobs bill is turned into a jobs bill and becomes a magnet for extraneous amendments. So the extenders bill, H.R.4213, was fattened up with a $66 billion extension of long-term unemployment benefits, $29 billion of COBRA health benefits for those unemployed, a $88.5 billion 5-year restoration of the 21% Medicare physician reimbursement cut (another budget gimmick that masks the deficit and more logically belonged on the health reform bill), disaster relief, and pension relief that brought the gross spending increases and tax cuts total to roughly $215 billion. The House “paid for” $56 billion of that with tax increases on U.S. multinationals and on “carried interest,” but House Blue Dog Democrats held up the bill until just before Memorial Day, when the spending add-ons were pared back to bring the net deficit increase over the next 10 years to $54 billion.

Senate Democratic leaders had hoped to pass the House bill without changes before the June 1 expiration of the Medicare physician fix, but senators insisted on holding up the bill to add $24 billion of federal Medicaid assistance to the states demanded by Republican and Democratic governors alike. The $79 billion (including $1 billion of other changes) deficit hike proved too large to swallow, so the bill stalled. The Centers for Medicare & Medicaid Services stopped sending physician reimbursement checks, rather than cut them 21%, until Congress acts. Last week, the Senate cut back the physician fix to just six months, trimmed the unemployment benefit extension, raised the oil spill tax to 49¢/barrel from the current 8¢, and made several other changes to buy votes, lowering the overal deficit impact to $55 billion, but the bill still fell a few votes short of the 60 votes needed to pass. There is no doubt that these expiring tax and benefit provisions will be extended at least temporarily until after November’s election, when they will be extended again. So where’s the deficit reduction?

Meanwhile, those depending upon extended unemployment insurance, Medicare reimbursement, the R&D tax credit, and etc. are out of luck. Many of these policies become ineffective when they’re turned on and off like a water faucet every year just for the sake of a little budget expediency. Economists generally avoid temporary policies if they can because those policies only have maximum effect if people expect them to be permanent. Elected leaders love temporary policies because they get more credit from the voters for reinstating them every year. The only way this charade will end is if some of our elected leaders are unelected for playing these budgetary games.

About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

1 Comment on The Tax Extenders Spectacle Proves Washington Doesn’t Get Deficit Reduction

  1. Republicans are confederates. They still believe in the cotton field theory. Democrats are the union. They are very liberal [liberty]. Republicans are anti minorities. Why do you think they always side with corporations and not ordinary people. Unemployment is insurance that means money was invested into the fund or system. People stop talking about everything and focus on the unemployment payments [Payroll Taxes] for the past 30 years. Where is all that money? Wall Street took it.

Leave a Reply

Your email address will not be published.


*