Senate Democrats' Budget Plan Would Block Tax Cuts if Not Paid For

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The Senate Budget Committee approved a plan Thursday that would allegedly bring the budget into surplus by 2012. The resolution would also require any extension of the Bush tax cuts or reform of the Alternative Minimum Tax (AMT) to be paid for. The budget resolution is the blueprint for spending and revenues in fiscal year 2008 and also sets goals for a five-year period. The resolution revives a PAYGO requirement, meaning any new entitlement spending or new tax cuts must be offset with either increases in revenue or cuts in spending. The Bush tax cuts were specifically written to expire in 2010 so the baseline used by the Congressional Budget Office also assumes a 2010 expiration. By retaining this assumption and reviving PAYGO, the resolution would force Congress to either let the tax breaks expire in 2010 or come up with money to offset whatever parts of the tax breaks they want to extend.

The budget resolution would allow discretionary programs (programs for which Congress must approve funding each year) to receive $16 billion more than the President's proposed budget in fiscal year 2008. But the President's proposed discretionary funding level is actually a $10 billion cut below what would be needed to keep up with inflation, so the Senate Budget Committee is only suggesting a very modest increase in spending. The budget resolution would also allow for an expansion of the State Children's Health Insurance Program (SCHIP)... if Congress finds a way to pay for it.

Is Requiring a Balanced Budget the Same Thing as Hiking Taxes?

The proposal has been criticized by opponents like the ranking Republican on the Senate Budget Committee, Judd Gregg (R-NH) (who did not oversee any budget improvement during his time as the Budget Chairman). Gregg claims that the proposed resolution is dodging important decisions by not specifying where the extra revenues for SCHIP expansion and other initiatives will come from, but budget resolutions under the Congressional process established in 1974 are not supposed to instruct the appropriations committees or the tax-writing committees exactly what to do. Rather, the resolution is to only provide the overall spending and revenue goals for the committees. Gregg and others are also saying that any requirement that tax cuts be paid for is a tax increase that must be opposed. This logic seems to favor increasing the national debt, and the interest payments on it, indefinitely or making massive (and politically unlikely) cuts in services Americans currently depend on.

In Search of a Free AMT Fix The critics also have attacked the proposal's assumption that revenue will be needed to "fix" the AMT only for two years, when no one really thinks Congress will allow the AMT to revert to current law and start reaching tens of millions of taxpayers. But this is actually consistent with the desire to stick to PAYGO. Any change from current law (and the AMT will reach tens of millions more people under current law) that loses revenue must be offset to avoid increasing deficits. Perhaps the first step in countering these criticisms would be for Congress to fix the AMT in a budget-neutral manner as proposed by Citizens for Tax Justice. The House Democrats will present their budget propsal next week.

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