OMB Watch released a statement yesterday afternoon harshly criticizing the Democratically control Congress and the president for abandoning fiscal responsibility in the final hours of 2007 after they entire year was spent adhering to or attempting to adhere to righting our nation's fiscal course. From the statement:

Adding insult to a year of fiscal policy injuries, Congress has abandoned fiscal responsibility by waiving pay-as-you-go (PAYGO) rules in order to pass a one-year patch to the alternative minimum tax (AMT) without offsets. This tax cut adds another $50 billion to an already expanding deficit next year, and will give fewer options for our children and grandchildren to seek solutions to the problems of tomorrow.

While I expect as much from President Bush, this is a huge disappointment from the new Democratic majority in Congress whose number one promise was to uphold pay-as-you-go (PAYGO) rules. So much for promises:

This vote is particularly disappointing as Democrats have gone to great lengths this year to comply with PAYGO rules, particularly on spending. From student loan reforms to expansions of the State Children's Health Insurance Program and Food Stamps, Democrats have negotiated the turbulent fiscal waters of the federal budget responsibly, diligently, even courageously. That is why at this point, after all that work and sacrifice, the compromises and the concessions needed to construct balanced solutions to the AMT problem, it is unacceptable for them to abandon their stated principles of fiscal responsibility because they fear Americans will not accept paying up front for the services and benefits the country demands.

As the statement makes clear, there is plenty of blame to go around in Washington for this policy failure. What an awful way to end 2007.

The omnibus appropriations bill passed by the House last night contains 3,500 pages and over $516 billion in spending. Yet with all that space (and money), Congress could not find enough room for even their own priorities from earlier this year for the Internal Revenue Service (IRS). Specifics of the IRS's funding take from the omnibus show the House has included $2.15 billion for taxpayer services, down slightly from the $2.155 proposed earlier this year, $4.78 billion for enforcement (down from $4.93 billion) and $3.68 billion for operations (down from $3.77 billion). What's more, the House has backed away from a requirement for the IRS to develop a strategic plan to address the tax gap. The total IRS budget request ($10.89 billion) is $203 million below even President Bush's request!. What is going on here?

So, just to review, despite a year in which congressional hearings revealed that the IRS is underfunded, runs a dangerous and wasteful privatization program, and has no strategic plan for addressing the tax gap, Congress decided to give it less money, allow the privatization program to continue, and let the IRS off the hook for developing a strategic plan.

And I wonder why people don't believe in government...

Some interesting research (via Brad Plumer's blog) making the case that the estate tax actually makes the economy more efficient. Here's the abstract:

To what degree should societies allow inequality to be inherited? What role should estate taxation play in shaping the intergenerational transmission of welfare? We explore these questions by modeling altruistically-linked individuals who experience privately observed taste or productivity shocks. Our positive economy is identical to models with infinite-lived individuals where efficiency requires immiseration: inequality grows without bound and everyone's consumption converges to zero. However, under an intergenerational interpretation, previous work only characterizes a particular set of Pareto-efficient allocations: those that value only the initial generation's welfare. We study other efficient allocations where the social welfare criterion values future generations directly, placing a positive weight on their welfare so that the effective social discount rate is lower than the private one. For any such difference in social and private discounting we find that consumption exhibits mean-reversion and that a steady-state, cross-sectional distribution for consumption and welfare exists, where no one is trapped at misery. The optimal allocation can then be implemented by a combination of income and estate taxation. We find that the optimal estate tax is progressive: fortunate parents face higher average marginal tax rates on their bequests.

That's a complicated way of making a common-sense point: having lots of idle rich kids blow their parents' fortunes on parties and expensive shoes probably isn't an optimal use of finite resources. But, as far as I know, nobody really tried proving it in any rigorous way until now.

You could also say the same for dynastic political power (AKA the Bush family), which often goes hand-in-hand with dynastic wealth. That hasn't turned out "optimally."

The newest addition to The View, Whoopi Goldberg, is telling viewers that she wants to repeal the estate tax. Here's EPI's Jared Bernstein on her misinformation campaign.

OMB Watch submitted a Statement for the record to the Senate Finance Committee to accompany the Committee report on yesterday's hearing, "Federal Estate Tax: Uncertainty in Planning Under the Current Law."

The Statement addressed the irregularities of the estate tax under current law facing taxpayers and tax planners as well as the important principles behind the estate tax. We hope the Committee and other policymakers will heed these:

OMB Watch favors an estate tax regime without any of the anomalies, gimmicks, and trap doors embedded in the current law. We strongly believe estate tax reform must not exacerbate the national deficit or force otherwise unnecessary and less progressive tax increases — there are certainly ways to structure a reform that is revenue neutral. We also believe it is crucial for any reform to maintain the important incentive for charitable giving present in the estate tax and honor the national commitment to social and economic mobility and equality of opportunity.

We were particularly encouraged to hear this message echoed in the testimony of Warren Buffett. Perhaps the most important message of the day was driven home by Mr. Buffett: "A meaningful estate tax is needed to prevent our democracy from becoming a dynastic plutocracy."

Today, the Senate Finance Committee heard from Warren Buffett and other witnesses about the merits and demerits of the federal estate tax at a hearing entitled "Uncertainty in Planning Under the Current Law."

Interestingly, BNA's write-up of the hearing summarized the position of the Committee Chair as follows:

The leadership of the Senate Finance Committee agreed Nov. 14 that they should pursue permanent repeal of the estate tax. "The estate tax is complicated and intimidating. It needs serious reform," Senate Finance Committee Chairman Max Baucus (D-Mont.) said at a hearing on the issue. "I support repeal."

In fact, these comments were from Sen. Baucus' opening statement. The reporter did not bother with his conclusory remarks, which went much further. To paraphrase, he said that everyone in the room knows that the federal estate tax will not be repealed, and he appealed to the witnesses for some guidance as to the appropriate exemption and rate levels.

He also made it clear that while action on the estate tax sometime in the next two years was necessary, it is by no means the most pressing item on the nation's tax policy agenda.

CLARIFICATION: The BNA article that we reference in this blog post was published before the end of the estate tax hearing in question as part of BNA's Daily Real Time Updates. While the article was still misleading, it may have been unavoidable due to publishing deadlines. BNA published more complete and improved coverage of the hearing this morning available here ($).