Accounting for Tax Cuts

Creative accounting in the administration's budget proposal:

Trillion-Dollar Gimmick Extending Bush's Tax Cuts Through Sleight of Hand, by David S. Broder, Washington Post: ...The latest ... is ... the Case of the Disappearing Trillion. The tip-off arrived last week in an e-mail from the Center on Budget and Policy Priorities. It is a Washington research organization with a distinctly liberal point of view but a deserved reputation for accuracy in its figures. In this case, the information the center cites ... involves the treatment in the budget of the Bush tax cuts passed by Congress in 2001 and 2003.

Those rate reductions, when enacted, had expiration dates of 2010... The president is urging Congress to make those tax cuts permanent, but his proposal is controversial and has not yet passed. This year, however, the budget the president submitted ... simply assumes that the tax cuts have been made permanent -- and thus includes them in the "baseline" for all future years.

The effect, according to the center's analysis, is that "legislation to make these tax cuts permanent will be scored as having no cost whatsoever." In fact, this analysis says, "The administration's proposal ... would ensure that the cost of continuing the tax cuts ... would never be counted. ... To fail ever to count the cost of the tax cuts ... would represent one of the largest and most flagrant budget gimmicks in recent memory." How large? The Congressional Budget Office scores the cost of making these tax cuts permanent at $1.6 trillion over the next decade. The administration's estimate is somewhat less -- $1.35 trillion.

But, the folks at the OMB told me, it's wrong to claim that they are hiding that cost. They told me ... the ... $1.35 trillion. ... [is] assumed in the baseline... Those last four words conceal more than a trillion dollars worth of lost revenue. But that is not all, my OMB friends argued. If you turn to ... volume called Analytical Perspectives, ... you will also find acknowledgment of the change in the bookkeeping. ...

In fact, it turns out that Bush tried to get Congress to go along with this bookkeeping switch back in 2004, actually submitting legislation to authorize the change. The House refused to accept it. He put it back in his budget last year, with the same result. But this year he's back again, with more urgency, as he presses the case to make these tax cuts permanent. Now that you know exactly how easy it is to find this all explained in the budget, I'm sure you are as reassured as I am about the candor of this administration.

Here's the CBPP Report. In addition to a lot more detail on this issue, at the end of the report data are presented showing that recent tax cuts have caused a loss in tax revenue.