The Budget Debate We Could Be Having

Arianna Huffington rightly calls it “the incredible shrinking budget debate.” She’s referring, of course, to the controversey about how much and where we’ll cut federal non-security discretionary spending.

The debate is shrinking — or more precisely, shrunk — for two reasons.

First, as I and many others have said before, it’s focused on a small fraction of the federal budget — and not the parts that are driving the deficit upward, e.g., health care costs, military spending. We could blow away the entire non-security discretionary part and barely make a dent.

Second, the current debate is focused almost entirely on the spending side of the ledger.

Republicans in Congress are dead set against tax increases of any sort. Indeed, on the House side, new rules pave the way for more tax cuts — and without offsets to keep the deficit from rising.

But what about the Democrats?

President Obama says he’ll push against a further extension of the Bush-era tax cuts for families earning more than $250,000 a year and the estate tax changes that benefit only the very wealthy.

But he’s still celebrating the extension of all the other tax cut extensions — an indication, I think, that he won’t back off his campaign promise not to increase taxes on the (generously defined) middle class.

Tax cuts for them represented a far larger portion of the costs of the December compromise than the tax benefits for the wealthy — $485 billion versus $139 billion, according to a Center on Budget and Policy Priorities analysis.

Presumably they’d again cost much more if extended past 2012, when all the cuts are due to expire. And, of course, there’s no way the President will get them extended without agreeing to keep the rest alive — unless the next elections produce a huge party shift in Congress.

So either the deficit soars or spending gets even more savagely cut.

On the positive side, the President would like the corporate tax code simplified. The Tax Foundation reports that the current plethora of deductions, incentives and the like will cost $102 billion this year.

But the President says he’d use the savings to lower the corporate tax rate, not to reduce the deficit. Perhaps because he wants a corporate buy-in and some Republicans at the table. As New York Times columnist Paul Krugman has observed, he has a history of “negotiating with himself” before the bargaining begins.

But that’s not the total story.

The President has gotten unfairly bashed for not incorporating the recommendations of his fiscal commission into his proposed Fiscal Year 2012 budget. But he’s apparently adopted a key part of the framework proposed by commission co-chairmen Erskine Bowles and Alan Simpson.

As CBPP’s top experts explain, the Bowles-Simpson plan skews toward deep program cuts. They’d represent more than two-thirds of savings through 2020, with about 21% coming from non-security discretionary spending.

And the two-to-one ratio is reportedly what we see in the President’s proposed Fiscal Year 2012 budget –or pretty close. Tax Policy Center Director Donald Marron says the revenue side seems somewhat more than one-third.

Why limit tax increases to one-third or so of a deficit reduction plan — especially when the baseline reflects a decade of tax cuts? So far as I know, it’s just an unexplained policy preference.

What if the tax breaks — corporate and individual — were viewed as less important than the needs of low-income people?

The Center for American Progress has an interesting table that pairs the total current costs of some of the safety net programs the House Republicans have targeted with the revenues lost due to some tax breaks that benefit “the wealthy,” including corporations.

It’s an eye-opener, though some of the pairings are, to my mind, a little dicey. We learn, for example, that:

  • Per-year lost revenues due to the recent tax cuts for very wealthy estates would more than pay for early childhood education programs.
  • Eliminating the loophole that allows hedge fund managers to pay taxes on what’s essentially salary income at capital gains rates would yield more than enough revenues to cover homelessness assistance grants.
  • The cost of extending “alcohol fuel,” e.g, ethanol, tax breaks is nearly double the current spending level for community health centers.
  • All the programs CAP identifies could be paid for by the first year of savings from not extending the Bush-era tax cuts for high-income filers.

Huffington concludes that the current budget debate is going to end with “lots of unnecessary suffering” because that’s what “those who control our political debate” have chosen.

I’d like to think she’s wrong, but it’s hard to envision a shift big enough and quick enough to yield a different outcome.

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One Response to The Budget Debate We Could Be Having

  1. [...] I’ve already said, he’s again going to “push against” a further extension of the Bush-era tax [...]

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