The Concord Coalition is a nonpartisan, grassroots organisation that was founded in 1992 to advocate for fiscal responsiblity “while ensuring Social Security, Medicare, and Medicaid are secure for all generations.” Executive Director Robert Bixby appeared on C-Span‘s Washington Journal last week to talk about their recently completed report which addresses the budgetary impacts of Bush’s and Kerry’s campaign proposals.
Report On Fiscal Policy In Campaign 2004(pdf) finds that while the candidates have different assessments of and approaches towards dealing with fiscal challenges their plans share common weaknesses:
Neither candidate is proposing a balanced budget plan.
Neither candidate sets aside resources for reform of the alternative minimum tax (AMT) beyond 2005.
Neither candidate has publicly stated his assumptions for the ongoing costs of operations in Iraq and Afghanistan.
Neither candidate assumes full extension of several routinely renewed tax breaks that are scheduled to expire.
Neither candidate has proposed a strategy for achieving long-term fiscal sustainability.
The alternative minimum tax (AMT) has been an issue I’ve been keeping an eye on since the first round of tax cuts. Alternative Minimum Tax Will Keep Taking a Bigger Pinch by Albert B. Crenshaw sums up nicely why I feel the D.C. crowd likes to keep the issue in the closet. Robert Bixby in his C-Span interview equated Congressional spending during the Bush years to someone putting groceries on a credit card. Albert Crenshaw says the alternative minimum tax has been their ATM machine for some time.
There are lots of twists and turns to the AMT. The big standard deduction, known formally as the AMT exemption amount, was given a special boost for 2003 and 2004, but falls back to $45,000 for a couple and $33,750 for a single next year. Also, the exemption phases out for high-income taxpayers.
There are two main reasons for the AMT’s expanding reach. First, it is not indexed for inflation, so the exemption has become less and less meaningful. Congress recognizes this problem, which is why the special two-year boost was adopted. Second, the recent cuts in regular tax rates have meant that when taxpayers compare their regular tax to their AMT tax, it’s more likely they will find the AMT higher.
So why doesn’t Congress fix this?
As the rappers say, it all comes down to the money.
At a time when federal deficits are at record levels, the AMT is raising huge amounts of money. The AMT is the government’s ATM — a cash machine.
In fact, the AMT brings in so much money that the Tax Policy Center study calculates that by 2009 it would be cheaper from the government’s point of view to repeal the regular income tax than to repeal the AMT.
Fiscal Ruin on the Horizon by David S. Broder references The Concord Coalition’s finding that “with realistic assumptions but no change in policy, the federal debt will swell by a staggering $5 trillion in the next 10 years.”
He also quotes Stan Collender on the “triple dive” Congress took this year when they recessed “‘having failed to pass the fiscal 2005 budget resolution, all but four of the 13 regular 2005 appropriations and a needed increase in the limit on the national debt’ so the Treasury can sell bonds to our creditors,” a rare event, and one that Collender warned would likely occur in this article for the National Journal. Collender’s October 12th column reflects upon “The Wait-Until-Next-Year strategy” that would likely develop with a Kerry win. “This includes the needed increase in the debt ceiling, most of the remaining fiscal 2005 appropriations, and supplemental appropriations for the continuing military activities in Iraq.”
David Francis in Ripple effects of rising fiscal woes in Washington had this to report on the ramifications of this “triple dive”:
To avert a shutdown of some government functions, the Treasury is expected to borrow money from the pension funds of federal workers until the November lame-duck session of Congress. The Republican-led body may be less embarrassed then by the usual criticism about expanding federal debts. It will probably pass a bill raising the ceiling. Then the Treasury would return the borrowed money to the pension funds with interest.
Most of today’s budget hassle has little immediate impact on the US public. “There will be no financial collapse,” says Martin Sullivan, an economist with Tax Analysts in Arlington, Va. But he adds: “Every dollar of deficit is bad. It reduces capital formation, thereby damaging long-term economic growth.”
One issue that troubles budget watchers on both sides of the political spectrum is the growing tendency of Congress to use budget “gimmicks” to avoid limits on spending or tax cuts. Some analysts say the creative accounting has dramatically contributed to the increase in the number of pork-barrel projects – from 2,000 in 1995 to as many as 10,000 this year. Federal spending is “out of control,” says Brian Riedl, an economist at the conservative Heritage Foundation.
David Broder quotes the Center on Budget and Policy Priorities and the Urban Institute-Brookings Institution Tax Policy Center analyses of the $143 billion tax cuts wherein “households in the middle 20 percent of the income scale — the “middle class” — receive only 9 percent of the benefits. Their average saving will be $162.”
David Francis ends his report on this note:
Critics cite the corporate tax bill in particular as laden with gimmicks. They see it as partly the product of a “feeding frenzy” by company and industry lobbyists seeking tax breaks. The 631-page bill, according to Fair Taxes for All, a coalition of 330 national, state, and local groups, includes tax loopholes for makers of bows and arrows and fishing tackle boxes, NASCAR track owners, brewers and distillers, importers of Chinese ceiling fans, and a host of other special interests.
“An early Christmas gift for corporate fat cats,” says Keith Ashdown of Taxpayers for Common Sense in Washington.
The bill, though, does repeal an export subsidy that the World Trade Organization has ruled to be illegal, closes some corporate tax shelters, and extends some expiring user fees. The WTO provision would end 12 percent tariffs put on 1,600 US export products by the European Union. In theory, the new revenue in the bill almost offsets the reductions from the tax breaks.
In practice, critics say, when the various gimmicks are taken into account – slow phasing in of tax cuts, expiration dates for certain tax cuts likely to be extended, and so on – the package probably will add $80 billion over the next 10 years to the deficit, says Joel Friedman of the CBPP.
One concern about the rising imbalance is what it will mean for Social Security and Medicare. In four years, the first baby boomers will start to retire. “That’s the ultimate problem with the budget situation,” says Collender.
Personal savings rates in this country, according to Bixby in his C-Span interview, are below 2%. US to lose more than 400,000 jobs this year cites a study by Cornell University and the University of Massachusetts for the US-China Economic and Security Review Commission that estimates the number of jobs outsourced to Mexico, China, India and other Asian nations “will be around double those three years ago.” ‘NAFTA-plus’ talks aim for security pact describes how “senior business and political leaders from Canada, the United States and Mexico are joining forces to establish a blueprint for a powerhouse North American trading bloc to take on the world, shielded by a Fortress America-style defence perimeter.”
The trinational task force, which has the full backing of the three governments, has been charged with creating a road map toward a continent-wide customs-free zone with a common approach to trade, energy, immigration, law enforcement and security that would virtually eliminate existing national borders.
John Manley, the former Liberal deputy prime minister, will co-chair the task force and be joined on the panel by William Weld, the former Republican governor of Massachusetts, and Pedro Aspe, a former Mexican finance minister.
The task force will report to the prestigious U.S. Council on Foreign Relations, and received the blessing of Anne McLellan, Canada’s Public Safety Minister, and Tom Ridge, the U.S. Homeland Security Secretary, during a meeting in Ottawa this week.
In summary. The middle class, no matter which of these corporate candidates is elected, will be harshly redefined without their full knowledge or consent. The wealthy will lourde over a useless missile defence system and trinational subjects many of whom will find it impossible to survive the impact of this colossal debt when the house of cards finally collapses.
“Getting control of a ballooning budget deficit requires two things that candidates are loath to discuss – spending cuts (when they would prefer to talk about increases) and tax increases (when they would prefer to talk about cuts). Yet the American people deserve something more from their candidates than an invitation to a free lunch – even if that is what they want to hear.”
Updated 10/17/04 @10:43pm: See Max for his thoughts on David Broder’s article.