Well, I said I expected there’d be a lot to piss me off. But I didn’t expect anything new of that sort before Thanksgiving Day. Nor did I expect the Senate’s Democratic leadership to actively contribute.
But here we are with reliable reports that about-to-be-former Senate Majority Leader Harry Reid, some of his colleagues and House Republicans were close to a deal that would, among other things, make 10 of the nominally temporary tax breaks (the so-called tax extenders) permanent law.
The costliest — the research and experimentation tax credit — would become more generous, reflecting changes the House had already passed. So would several other pieces of the package.
Several White House spokespersons told the press that the President would veto the package because, said one, “it would provide permanent tax breaks to well-connected corporations while neglecting working families.”
Capitol Hill staffers reportedly say that queered the deal — at least, for now. But I rather doubt Congressional Republicans and Democratic collaborators will altogether give up on the deal-making.
The “turkey of a tax bill,” as the Coalition on Human Needs called it, would still be a turkey, even if the negotiators decided to placate the President and some high-ranking Democratic objectors by folding in the missing refundable tax credits. Doesn’t seem likely now, but just suppose.
Here are three big, related things that should set off alarm bells.
Revenue Losses. The package that the dealmakers had all but completed would have cost $409 billion over the first 10 years, according to Center on Budge and Policy Priority estimates. Citizens for Tax Justice pegs the cost at $450 billion.
But the cost would actually have been roughly $530 billion, once you tack on the additional interest the federal government would have had to pay because it would have had to borrow more.
All big costs — and all because the dealmakers decided not to offset the tax cuts with any revenue-raisers, spending cuts or some combination of the two. Think how some of that money could be used to shore up under-funded programs that serve the needs of poor and near-poor people.
Fodder for the Spending Slashers. Needless to say (I hope), such large revenue losses would drive up the deficit, if Congress did nothing to curb federal spending more than it already has.
But you can bet that Republicans, who had no problem with the unpaid-for tax cuts, would swiftly revert to insisting on additional, drastic federal spending cuts (except for defense) in order to balance the budget.
The rising deficit — and hence the debt — was one of Congressman Paul Ryan’s primary justifications for his budget plans. They proposed large funding cuts for safety-net programs and others that benefit low-income individuals and families, e.g., Pell grants.
They blew away the Social Services Block Grant and, of course, the Affordable Care Act, thus also the subsidies that enable low and moderate-income people to purchase affordable health insurance. They took stabs at Medicare and Social Security benefits.
So we can expect Republicans to turn the revenues they’d cheerfully forfeited, without a peep about the deficit, into more urgent reasons to slash social programs.
Thoroughgoing Tax Reform Preempted. As you know, Republicans and Democrats, from far-right to far-left, agree that the tax code is ripe for reform.
Differences notwithstanding, they apparently envision a clean-out of a whole lot of special interest and overlapping credits, deductions, deferrals, etc., with at least some of the savings used to offset the cost of other changes, e.g., a lower corporate tax rate. (Whether to use some or all is one of those differences.)
As I said, the “turkey” bill would have made 10 of the extenders permanent in advance of such reform — and without offsetting the revenues lost. This would lower the revenue baseline, i.e., the projected revenues the federal government will collect under current law.
So Congress would effectively get more than $400 billion to use for lowering tax rates and/or preserving some of those dubious special-interest tax breaks without having to find offsets.
A reform plan could thus qualify as revenue-neutral, i.e., one that neither raised nor decreased total revenues collected, only because the extender finesse had already decreased revenues.
For the end result, return to the previous section. And watch what happens after Congress does a last-minute, short-term extender save.