On February 14, the Center on Budget and Policy Priorities (CBPP) released an interesting report by Joel Friedman and Robert Greenstein on the President's FY 2007 Budget Proposals, Administration Proposals to Hide Tax-Cut Costs. The CBPP report escaped most media attention, but merits consideration as the public increasingly hungers for integrity in government and open, transparent discussions of major issues.
Friedman and Greenstein note that the Administration's budget includes two proposals that appear to be designed to help facilitate extension of the pet tax cuts with smoke-and-mirror tricks that "risk corrupting federal budget rules." Id.
One proposal suggests that Congress adopt a scoring convention that treats the 2001-2003 temporary tax cuts as though they had already been made permanent, thus scoring the cost of making them permanent at zero. In reality, the tax cuts as enacted are slated to expire by 2010, and the cost to make them permanent is approximately $1.6 trillion over the next ten years. This almost-two-trillion-dollar disappearing trick qualifies for a David Copperfield Magician's Recognition award: when you don't like something, wave a magic wand, say the magic words (zero cost scoring) and "Viola, tax cuts for free." There's no rhyme or reason here other than fooling the public.
As the report notes, trying to compare these cuts to the way entitlement costs are calculated is cheating. Entitlement costs are figured at their full cost as if permanent from the beginning, and Congress cannot lower the cost using the sunset gimmick it used to pass the 2001 and 2003 tax cuts. If the rules are changed for these tax cuts after passing the tax cuts but before extending them, it means the costs will never be counted in the budget (but of course, they will be felt in the absence of revenues to fund important programs and in increased borrowing). The report notes that the White House has even said it doesn't want to adopt this new rule for other tax cuts that have not yet been enacted, making clear that its purpose is simply to hide the impact of the cuts on the budget.
The second proposal calls for dynamic analysis of budget projections, to be carried out by a Division of Dynamic Analysis under the Treasury Department's Office of Tax Policy. Instead of comparing one budget to the prior year's budget, the Administration wants the budget, in determining the cost of a change, to take into account the expected impact on the economy. Static budget analysis holds everything constant except the specific item that is being changed, resulting in reasonably comparable budget processes from year to year. But a dynamic budget analysis permits a forecaster to (i) assume rosier scenarios in which other components of the budget outlook are assumed to respond to the budget changes in ways that reduce the otherwise negative impact of the change (or worse case scenarios that increase negative impacts) and (ii) present those fantasies as valid projections.
Dynamic analysis depends on ranges of assumptions made by the analyst, and is only as good as that analyst's ability to see into the future. While dynamic analyses can provide some help in conceptualizing possible consequences of an action and testing the likely ranges of potential outcomes, they are much too crude a tool to be considered accurate predictors of economic response to particular fiscal policies. Worse, they are subject to extraordinary manipulation by an administrative analyst, who will likely be inclined to foresee rosy scenarios from administration-favored fiscal policies and doubtful results from policies favored by opposing parties. Given this Administration's fixation with tax cuts as the solution for every problem (first, when there was a surplus in 2001 and every year later, when we have faced growing deficits), it is likely, as the CBPP authors put it,that "dynamic analysis will be used to bolster assertions that various tax cuts do not reduce revenues but rather pay for themselves by spurring higher levels of economic growth. Although no reputable economist adheres to this notion, it remains an article of faith among some conservative ideologues." The report notes that the use of a new budget division to promote these extreme positions "will serve to distort rather [than] inform important debates about the nation's revenue policies."
Both of these proposals, in other words, appear to enhance the Administration's ability to hide from the public the real cost of tax cut proposals and manipulate public perception about the benefits of tax cuts.
Add to that the deceptive way the budget deals with many discretionary programs in order to meet the Administration's stated goal of halving the federal deficit by 2009. On the surface, the FY 2007 budget appears to support increases in a number of important programs, such as veterans health care and NIH funding, the Peace Corps, and the Women, Infants, and Children's nutrition program. See Years of Deep Cuts Needed to Meet Goal On Deficit, Data Show, by Jonathan Wesiman in the Feb. 9, 2006 Washington Post. Although the publicly released budget blueprint only covers 2007 requests, Weisman reports on his investigation of the 673-page computer printout that details spending levels for the next five years for each federal program. Veterans funding and elementary and secondary education spending would rise in 2007, but then the detailed computer printout shows a continuous slide down to levels below the 2007 budget by 2010, which would be an even greater decrease when inflation is taken into account. Id. While presidential budgets have historically provided detailed financing for every program for the 5 or 10 year budget window covered, the Administration's Fy 2007 budget does not provide details for discretionary programs beyond the 2007 budget. The reason--many of those programs, including ones for which the FY2007 budget would increase funding, will face steep declines through the end of the decade. A Heritage Foundation spokesperson noted that the broad numbers provided "raise serious questions about the legitimacy of the White House deficit projections through the end of the decade. Discretionary spending beyond next year are simply numbers filled in ot make a future deficit look small." Id.
I think Americans are patriotic people who care about their country and are willing to make both personal and financial sacrifices when necessary. The continuing enrollment of young Americans in the armed forces, in spite of the widespread disillusionment with the Iraq and Afghanistan wars, are proof of that. Americans are supportive of a government role in protecting wilderness areas, providing clear air and clean water, ensuring access to health care and old age assistance and, most especially of late, serving as the first responder to natural and unnatural emergencies like Katrina and 9/11. But they want to be told up front and honestly about the real costs and benefits of these important government programs, and they have little patience for cronyism and incompetence. They expect the same honesty about the tax system and fiscal policy. For five years, Congress has debated how much tax cut to provide in terms of the impact of cuts on the federal deficit, but then it has used sunsetting gimmicks to pass cuts that it intends to make permanent, effectively providing itself a hidden detour around the roadblock of excessive deficits that Congress itself established based on its assessment of the problem. If tax cuts can't be passed without calling in some Copperfield magic tricks (and most economists think they cannot), then they shouldn't be passed. Congress should tackle the problems America faces with open and honest consideration of the impacts of its policies. There is no room for creating these new budgeting gimmicks proposed in the FY 2007 presidential budget to permit Congress to pass additional tax cuts on investment income for the extraordinarily wealthy that must be funded by borrowing from the future.
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