As this telling article from the Bangor Daily News points out, we are a society with striking differences between the rich and the poor. Minimum wage policy, tax policy, and changes in the demand and supply for skilled employees have exacerbated this income inquality to the point where in 2000, the top 1 percent of wage earners owned 10 percent of the nation's total income. The average income of American families has fallen from 2001 - 2004. The current administration's tax policies are adding to this problem. The article says:

Suppose that the administration's tax cuts, which began in 2001, remain in effect until 2015. Over these 15 years, more than half of the tax cuts - 53 percent - will go to people with incomes in the top 10 percent, according to studies commissioned by The New York Times. And 15 percent of the cuts will go to the top one-tenth of 1 percent of taxpayers. By 2015 the tax cuts, if retained, will provide average yearly tax savings of $23 to taxpayers in the bottom 20 percent. The wealthy will fare better. The top one-tenth of 1 percent of all taxpayers will save an average of $196,000 a year, or a total of $2.9 million over the 15 years. By 2015, the top 1 percent of taxpayers will pay a lower share of total taxes than they did in 2001.

It's time to leave this administration's failed tax policy in the past and develop new policies that will help to raise the quality of life of all Americans across the board.

Today, Secretary Treasury John Snow sent a letter to Finance Committee Chairman (and tax bill conferee) Charles Grassley (R-IA) and Ways and Means Chairman Bill Thomas (R-CA) stating "the Administration's strong support for the extension... of dividends and capital gains tax relief included in the House-passed bill." Both Grassley and Thomas are known to be in favor of this extension as well.

In the letter Snow mentions how this tax cut has helped strengthen the economy since it was passed in 2003. In reality, this costly extension would benefit the very wealthiest in society while adding to the deficit. Furthermore, Snow encourages Congress in the letter to include in the bill a one-year patch for the alternative minimum tax. Including both an AMT patch as well as a tax cut extension in the tax reconciliation bill will prove to be an extremely costly manuever.

The other day Vice President Cheney said before a group of conservatives:

"The evidence is in, it's time for everyone to admit that sensible tax cuts increase economic growth, and add to the federal treasury."

This Washington Post editorial reiterates what most analysts and economists know to be true: tax cuts do not magically pay for themselves, and they do not add revenue to the Tresasury. In fact, no economist has come up with the proof that the adminstration wants -- that tax cuts pay for themselves. In fact, as the Post says, "during the tenure of a fan of dynamic analysis, former White House economist Douglas Holtz-Eakin -- used a variety of different dynamic models and found only small economic effects from the president's tax cuts, a majority of them negative."

Five conferees have been picked from the House for negotiations over the tax reconciliation bill. They are Reps. Dave Camp (R-MI), Pete Stark (D-CA), and Jim McCrery (R-LA), Ways and Means Committee ranking member Charles Rangel (D-NY), and Ways and Means Chairman Bill Thomas (R-CA). The House has five conferees to the Senate's three, which could potentially give House members a leg up in these negotiations. A majority of House members are in favor of extending low rates on capital gains and dividends through 2010.

President Bush's FY 2007 budget includes two proposals that mask the true cost of extending the 2001 and 2003 tax cuts, which Bush claims to be one of his najor goals in 2006. As this Center on Budget and Policy Priorities report states,

One proposal calls on Congress to adopt a new scoring convention that would make the cost of extending the 2001 and 2003 tax cuts disappear; under this proposal, legislation to make these tax cuts permanent would be officially “scored” as having zero cost. The other proposal would promote a dubious technique for assessing tax policy changes that, depending on the assumptions used, could be used to manufacture cost estimates showing various tax-cut proposals as having little or no cost.

In a column in today's Washington Post, David Broder calls this the "Trillion Dollar Gimmick." The OMB's budget itself, Broder highlights, says, "the 2001 Act and 2003 Act provisions were not intended to be temporary, and not extending them in the baseline raises inappropriate procedural roadblocks to extending them at current rates." In other words, if Congress knew the true cost of making those tax cuts permanent, they would possibly have second thoughts in supporting Bush's plan to make those cuts permanent. As Broder says, this is why it is especially important when looking at the President's budget to "Watch what we do, not what we say."

The Senate has appointed three conferees to the tax cut negotiations. They are Sens. Charles Grassley (R-IA), Max Baucus (D-MT), and Jon Kyl (R-AZ). The appointment of Kyl, who is an advocate of extending the investment tax cuts, is a sign that the leadership in the Senate supports this as well. Grassley said on Tuesday that the bill will not pass the Senate unless it includes both the alternative minimum tax protection as well as an extension of low rates for capital gains and dividends. Both measures, however, will likely not fit within the $70 billion ceiling which last year's budget resolution protects from the filibuster. Therefore, said Grassley, "The only realistic thing is $70 billion plus offsets."

House tax-writers have stated their opposition to the revenue raisers included in Senate tax legislation, which could make negotiations difficult. Conferees are expected to meet after the President's Day recess.

Today on the hill Senate Democrats tied up legislative business by lining up a series of votes on the tax reconcilation bill that caused other Senate business to be postponed or canceled. According to CNN.com, "The battle began when Democrats decided to use a routine procedure that sends the bill into final negotiations to make political points about President Bush's insistence on continuing tax cuts for investors." Republicans then countered these actions by matching the Democrats' motions one-for-one.

The Democrats' use of Senate rules to prolong debate on the tax bill has frustrated some GOP leaders, and even has some questioning Majority Leader Bill Frist's (R-TN) handling of the situation. Sen. Trent Lott (R-MS) said, "Now the Senate leadership that's responsible for the way we do our business ... needs to get a grip on this situation." He went on to say the Senate "continues to fiddle while Rome burns." Many would argue this is the case on capitol hill more often than not.

Posted by Becky Lewis, 01:42:16 PM



Economic Report of the President Released

February 13 President Bush issued his 2006 Economic Report to Congress. The eleven chapters cover many issue areas including the workforce, retirement savings, the U.S. tax system, and the financial services sector. The chapter on taxation discussed the U.S. tax system's high corporate tax rate and double taxation of corporate profits. This attention reflects the Bush administration's dedication to extending low investment tax rates.

The report mentioned tax reforms that have taken place in other countries, including reducing corporate income rates, reducing taxation of capital income, and introducing flat taxes. It also mentioned two of the recommendations made by the President's Advisory Panel on Federal Tax Reform recommendations -- the Simplified Income Tax (SIT) and Growth and Investment Tax (GIT) -- but stated that each plan would require a large transition and that action on them will not happen any time soon.

In a speech on February 10 before the Conservative Political Action Conference, Majority Leader Bill Frist (R-TN) says he plans to bring estate tax repeal legislation to the floor in May. The Senate had a cloture vote scheduled on the House bill last September, but it was postponed after Hurricane Katrina hit. Lawmakers on both sides of the aisle have expressed skepticism in the past that a vote on full repeal would be able to garner the 60 votes necessary to pass.

Much has been made of the secret computer run published in the Washington Post yesterday that shows detailed and substantial program cuts over the next five years and the contrast between proposed increases for defense and military spending and cuts to pretty much every other domestic investment (read here, here, here, and here).

The computer run shows detailed White House projections over the next five years for spending in a variety of budget categories. This is usually information that is readily available in the budget, but has frequently been suppressed by this administration. the information shows drastic cuts to a variety of programs on the domestic discretionary side outside of defense.

This detailed information is important to have and should have been released with the budget. Yet the scope of the proposed cuts could be seen in the budget release on Monday - it just requires a bit of digging. We reported Monday in our analysis of the budget that by assuming some very conservative and probable increases to the defense and homeland security budgets over the next five years, all other discretionary programs would have to be cut by 16 percent by 2011 under the President's proposed budget caps. (It turns out the actual number is 13 percent, but you get the idea).

At first glance, this appears to be a guns vs. butter budget - proposing sacrificing domestic programs to pay for increases in military budgets because we cannot have both. Yet we can. As Bernard Wasow of the Century Foundation whimsically points out, the real problem with this budget is that it assumes "we must shoehorn size 7 spending needs into a size 5 revenue slipper." The real problem with this budget is that does not address the substantial and continuing gap between federal revenues and federal spending.

If too much focus is given to the specific proposed program cuts in the out-years of this budget and not to the fundamental structural imbalance in the federal government, those cuts are just the first of many, many to come.

Recently there have been some interesting op-eds on budget business in the Washington Post. Former CBO head Douglas Holtz-Eakin submitted an op-ed February 5 in which he discussed how increasingly booming entitlement programs need a "fundamental rethinking" that will dictate both the size of government as well as levels of taxation. E.J. Dionne, Jr. discusses in a February 7 column how "tax cutting is now the idol of the Republican shrine," and points out that sane budgeting will never happen unless deficit hawks work to turn popular opinion against this worship of tax cutting. Finally, Robert Samuelson, in a column today, takes a realistic look at receipts and outlays, and the choices that need to be made if we are ever going to achieve a balanced budget.

Some good news was reported yesterday that was overlooked amid the chaos of the president's budget release. The IRS has annouced it will reverse its previous practice and begin notifying taxpayers whose tax returns are being "frozen" under suspicion of tax fraud. The IRS will implement the new procedures this filing season and will take other actions that will seek to address the controversial 'questionable refund program' (QRP) so it does not incorrectly target hundreds of thousands of innocent taxpayer returns.

The program has received pointed criticism from both Republicans and Democrats in Congress after National Taxpayer Advocate Nina Olsen presented her annual report showcasing the problems of the QRP. Shortly after Olsen presented her report to Congress, IRS Commissioner Mark Everson announced he would look into the program. It's nice to see some good news coming out of Washington these days and the office of the National Taxpayer affecting postive changes. Kudos to Ms. Olsen and her staff!

Our initial analysis of the president's budget release is now available. This is just preliminary and there are many more aspects of the budget to comment on. Check back here often for additional updates and information about what's in the FY 2007 budget proposal.

Yesterday the Senate passed the tax reconciliation bill in a 66-31 vote. The bill passes $70 billion in tax cuts, and makes way for conference negotiations with the House. Lawmakers will be facing a difficult conference because of differences that exist between the House and Senate versions of the bill, particularly regarding the extension of the cut in tax rates on capital gains and dividends through 2010. The passage of this bill comes one day after Congress finished work on a $40 billion budget reconciliation bill which cuts entitlement spending in an effort to scale down the deficit. If this tax bill is passed by Congress, however, a net of $30 billion will be added to the deficit.

The major tax provision in this Senate bill blunts the effect of the alternative minimum tax. Democratic lawmakers made several attempts to attach amendments to the bill, but were largely unsuccessful. Sen. Kent Conrad (D-ND) made a noble but fruitless attempt to attach an amendment to offset the tax cuts.

CNN.com: Senate Passes $70 Billion Tax Bill

Washington Post: Senate Passes $70 Billion in Tax Cuts Over 5 Years

Tax Notes Commentary: First, Do No Harm

OMB Watch has written an analysis debunking some of the statements made by President Bush in the 2006 State of the Union address. Be sure to check it out.

In his State of the Union address last night, the President asked Congress to make his 2001 and 2003 taxcuts permanent, and told the American people this would make the economy even stronger. In the very same speech he mentioned efforts to "stay on track to cut the deficit in half by 2009."

There is an obvious disconnect between these two statements. While the President attempts to "cut the deficit in half" by shaving bits and pieces from the already-meager pool of funding available for non-defense discretionary programs, he is advocating an action that will have a cost larger than most people can even wrap their heads around. Making the tax cuts permanent and extending alternative minimum tax relief would have the nation facing large and growing deficits every year for the next ten years. Total deficits, the Congressional Budget Office Estimates, would be between $3.5 and $4 trillion over that period, which hardly indicates that Bush will be cutting budget deficits in half any time soon.

Bush's assertion that he can cut the deficit in half while extending the 2001 and 2003 tax cuts simply does not add up. Last night he spoke of fiscal crisis and "unprecedented strains on the federal government." Those strains are not going to go away, nor will the government's need to spend on both discretionary and entitlement programs. Extending the tax cuts will only drive the country further into debt, and will do nothing to help cyclical budget deficits.

Last night President Bush delivered his annual State of the Union Address. Check back here later in the day for an analysis on the comments Bush made regarding taxes, the budget, and the economy last night.