It turns out that a seemingly small budget cut to the IRS results in lost tax revenue many times over. Senate Finance Committee ranking member Max Baucus estimated earlier this week that a 1 percent cut to the 2006 IRS budget -- an amount of $100 million -- will actually cost the Treasury roughly $1 billion in lost tax collections.

As Commissioner Mark Everson reported earlier this month, and as a GAO report from 2003 indicated, each dollar spent raises approximately $11 - $13 of revenue. Sen. Baucus stated,

Well Baucus, it may be one way, but there are other ways to keep the deficit down too. One would be to retain the estate tax. Another would be to implement full PAYGO laws. Closing the tax gap is certainly an important goal, but it is one piece in a very large puzzle.

David Cay Johnston reports in this Sunday's New York Times that not only did President Bush break a campaign pledge to veto any tax increase, but the $70 billion tax cut that he signed into law this week increases taxes for 14- to 17-year-old kids saving for college

The $69 billion tax cut bill that President Bush signed this week tripled tax rates for teenagers with college savings funds, despite Mr. Bush's 1999 pledge to veto any tax increase.

Under the new law, teenagers age 14 to 17 with investment income will now be taxed at the same rate as their parents, not at their own rates. Long-term capital gains and dividends that had been taxed at 5 percent will now be taxed at 15 percent. Interest that had been taxed at 10 percent will now be taxed at as much as 35 percent.

[...]

Mr. Bush pledged in 1999 to veto any bill that raised taxes. In response to a question about the tax increase on teenagers in the new legislation, the White House issued a statement Friday that made no reference to the tax increase, but recounted the tax cuts the administration has sponsored and stated that President Bush had "reduced taxes on all people who pay income taxes."

Challenged on that point, the White House modified its statement 21 minutes later to say that Mr. Bush had "reduced taxes on virtually all people who pay income taxes."

Today, President Bush signed the $70 billion Deficit Growth Package (aka Tax Relief Extension Reconciliation Act of 2005) into law. And as he places more debt on the shoulders of our children and grandchildren, he continues to mislead the American people by claiming that the 2003 tax cuts are the cause of the growing economy.

One of the most important decisions we made was to cut the taxes on dividends and capital gains. These cuts were designed to lower the cost of capital and to encourage businesses to expand and hire new workers. And these tax cuts are doing exactly what we expected.

When these cuts were passed in 2003, business investment had been dropping for several years. Since then, business investment has been growing at more than 9 percent a year.

Statements like these are extremely misleading, however. As a Center on Budget and Policy Priorities report points out, statements such as this muddle causation and correlation. Indeed, if the President believes that the 2003 tax cuts caused the economy to expand, then he must also believe that Presdient Clinton’s 1993 tax increase caused even stronger economic growth. Does the president not want a greater economic expansion?

President Bush is slated to sign the $70 billion tax reconciliation bill tomorrow, and this provides as good an opportunity as any to disprove a myth that unfortunately has been floating around the anti-tax ranks for some time now: that tax cuts pay for themselves, or even come close to doing so.

In this superb Washington Post article, Sebastian Mallaby gives a rundown of a list -- too long a list -- of administrative and Congressional GOP leaders who have, at one point or another, uttered the absolutely false statement that tax cuts pay for themselves. Instead, as he points out, this "free-lunch mantra is just plain wrong." The economic growth from tax cuts, can, in the most optimistic of economic assumptions, replace some of the revenue losses, but definitely not all. And they certainly cannot, as Majority Leader Bill Frist (R-TN) has so confidently stated, "result in more money for the government." Cutting off revenue streams cannot logically result in more money for the government. They can boost investment, and boost personal savings rate, but cutting taxes cannot add more money to federal coffers. As Mallaby suggests, lawmakers should start paying attention to economists, because "having the world's best economics research isn't particularly helpful if those same politicians are silly enough to tune it out."

Thursday evening the Senate passed the almost $70 billion tax reconciliation bill, by a vote of 54-44. Sens. Rockefeller (D-WV) and Specter (R-PA) did not vote. Democrats who crossed the aisle to vote with Republicans were Nelson (D-FL), Nelson (D-NE), and Pryor (D-AR). Republicans who crossed the aisle were Snowe (R-ME), Chafee (R-RI), and Voinovich (R-OH).

Voinovich spoke extensively on May 3 on the Senate floor about the fiscal state of the U.S. and about how this is not the time to be continuing to irresponsibly cut taxes. He said:

Some members believe that the solution is to grow the economy out of the problem, that by cutting taxes permanently, the economy will eventually raise enough revenue to offset any current losses to the U.S. Treasury. I respectfully disagree with that assertion.... In November 2005 former Federal Reserve chairman Alan Greenspan testified before the Joint Economic Committee and told Congress: 'We should not be cutting taxes by borrowing.'... Instead of making the tax cuts permanent, we should be leveling with the American people about the fiscally shaky ground we are on.

More on Voinovich's comments can be read in this Washington Post column.

The $70 billion tax measure will extend Bush's cuts to tax rates on dividends and capitol gains through 2010. The bill also provides protection from the alternative minimum tax for 15 million families for this year alone. While this AMT relief does promote fairness within the tax code, it also signifies that Congress has once again failed to come up with a permanent solution for the tax, and has instead passed an expensive and short-term "patch" rather than dealing with the problem once and for all.

Republicans argue that this bill will spur growth by extending investment tax breaks; in reality this bill will do little to help the average American taxpayer. The "revenue raiser" in this bill is also argued to be little more than an accounting gimmick that will offset some of these costs now, but will come back with a vengance to starve federal coffers once we get beyond the ten-year scope of federal revenue estimates. More on that subject can be read in this CBPP report.

Washington Post: Senate Passes $70 Billion in Tax Cuts

Tax Policy Center: The IRA Conversion Provision in the 2006 Tax Reconciliation Bill

Well, it only took the Republicans in Congress 15 months, but they finally passed the 2005 tax cut reconciliation bill this evening. The House passed the bill last night by a vote of 224 - 185 and the Senate voted 54 - 44 tonight to approve it.

Three Democrats (Ben Nelson (NE), Bill Nelson (FL), and Mark Pryor (AR)) joined 51 Republicans to pass the misguided tax bill that overwhelmingly benefits the super-rich and uses outrageous gimmicks to circumvent common-sense budget rules. Sen. Chafee (R-RI), Snowe (R-ME), and Voinovich (R-OH) joined with 41 Democrats to oppose the bill.

There isn't much left to say about this bill we haven't already said. It's irresponsible, dishonest, immoral, and damaging to the country. Congress should be ashamed.

Last night the House passed the tax reconciliation bill by a vote of 224-185. Fifteen Democrats voted along with Republicans to pass these costly and regressive tax cuts. Two Republicans, Sherwood Boehlert (R-NY) and Jim Leach (R-IA) placed fiscally responsible and compassionate votes by voting against this bill, which will cut almost $70 billion in taxes over the next five years. The Senate is expected to take up the bill today.

An editorial in the Washington Post today makes a succinct point about this bill:

You'll hear the administration and its allies crowing that a recent surge in tax revenue proves that the Bush tax cuts are "working." Capital gains cuts aren't a particularly effective way to stimulate the economy, and while the rise in the stock market coincided with the passage of the cuts in 2003, the evidence of a causal link is weak. In fact, tax revenue (and the stock market) did pretty well in the 1990s, too, with a more responsible fiscal policy. And to the extent that lower taxes on capital gains and dividends have a positive effect on long-term investment and growth, that has to be counterbalanced against the drag on the economy from higher deficits. These tax cuts don't magically pay for themselves. This Congress and administration are putting the nation deeper and deeper in debt to benefit a sliver of the population that doesn't need the help. Someone's going to have to pay for these deficit-financed tax cuts eventually, and it's likely to be your grandchildren.

Washington Post: House Passes $70 Billion Tax Package

BusinessWeek Online: Congress' Playing With Numbers

Washington Post Editorial: Tax Cuts, Again

GOP negotiators for the House and Senate reached a deal yesterday on the nearly $70 billion tax reconciliation measure. The bill extends Bush's deep tax cuts by extending the 15 percent rate on capital gains and dividends, and also includes a one-year patch protecting 15 million Americans from paying the alternative minimum tax. $67 billion of the $69 billion bill will go toward one of those two priorities.

The Tax Policy Center has estimated that middle-income families will see an average tax cut worth $20 from the agreement, while households making over $1 million dollars will see an average cut of $42,000. This agreement comes just a few months after Congress passed a budget reconciliation bill enacting budget cuts that will affect millions of middle- and low-income Americans. It is clear that those budget cuts won't bring down the deficit, as their proponents claimed, but that they will be used to pay for a part of these tax cuts.

The House could consider the bill tonight, and the Senate will likely take it up later this week.

Washington Post: GOP Reaches Deal on Tax Cuts

Center on Budget and Policy Priorities: Fact Sheet on the Tax Agreement

Both the Senate and House are expected to vote on the $70 billion tax reconciliation bill this week, which both extends capital gains and dividends tax rates for two more years, and also provides protection for 15 million families from paying the alternative minimum tax. The tax cuts within the bill, particularly the capital gains and dividends rate extension, would overwhelmingly benefit the wealthiest in society. The Center on Budget and Policy Priorities has estimated that H.R. 4297 would give households with incomes over $1 million an average tax cut of $42,000. These cuts would be on the back of the Budget Reconciliation bill passed by Congress which cut nearly $39 billion from Medicaid, Medicare, student loans, child support enforcement and other services.

Take action!Call you Representative toll-free at 800-459-1887 and tell them to vote NO on the tax cut reconciliation bill.

The Center on Budget and Policy Priorities has come out with a new report called "Reconciliation Tax Cuts Would Average $42,000 for Households With Income Over $1 Million, But Only $20 For Middle-Income Households." I think the title about wraps it up, but here is a telling excerpt from the report anyway:

About 87 percent of the benefits of the reconciliation conference agreement would flow to the 14 percent of households with incomes above $100,000, and 55 percent of the benefits would go to the 4 percent with incomes above $200,000. Households earning more than $1 million a year, which represent only 0.2 percent of all households, would receive 22 percent of the benefits of these tax cuts. In contrast, the three-quarters of households with incomes below $75,000 would receive just 5 percent of the benefits. The 60 percent of households with incomes below $50,000 would receive less than 2 percent of all benefits.