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The House and Senate will soon vote on a plan to extend certain expiring tax cuts.[1] No offsets will be included in the package - either revenue increases or spending cuts - and none will be allowed as amendments because the bill will be brought up on a take-it-or-leave-it basis through the use of a procedural gimmick.[2] It is estimated that these tax cuts will result in a revenue loss of $146 billion, 90 percent of which will come over the next five years.

Members who vote against this bill because they believe tax cuts should be offset to help rein in the ballooning budget deficit risk being portrayed as “opponents of middle class tax relief.” It is a false accusation. There is no inconsistency in being for extending these tax cuts but against doing so in a way that increases the debt.

Here are a few things The Concord Coalition urges House and Senate members to consider:

· The $146 billion revenue loss from extending these expiring tax breaks is going to be “offset” one way or another. It could be offset by revenue increases elsewhere, or by spending cuts. Instead, it will be offset with higher debt. There is no free lunch.

· Unlike the other forms of offsets, borrowing raises government spending because it results in higher debt service costs, which ironically are paid by the taxpayers who are supposedly getting “middle class tax relief.”

· Congress is no longer “refunding a surplus” to the taxpayers. Circumstances have changed dramatically since these tax cuts were enacted in early 2001. At that time, it was assumed that we had a $5.6 trillion 10-year surplus to work with, that the nation would not be at war, that the Social Security surplus could be set aside, and that even with a big tax cut the public debt could be virtually eliminated by the end of the decade.

· All of those assumptions were wrong. Demanding offsets as a condition of extending these tax provisions would simply recognize today's fiscal realities.

· Many of these tax cuts were accelerated in 2003 to provide fiscal stimulus, but the economy now seems able to stand on its own two feet. As Federal Reserve Board Chairman Alan Greenspan recently observed, “the expansion has regained some traction.” Greenspan's colleague, Fed Governor Edward M. Gramlich told a Capitol Hill budget forum in June, “now that the recovery is well under way, it is important to concentrate on longer-run fiscal policy. Specifically, it is time to bring the budget deficits under control.”

· Since the task at hand is now deficit reduction rather than fiscal stimulus, Congress should extend these tax provisions in a revenue neutral manner - if it does so at all.

· It cannot be said that tax cuts are warranted because we have made the hard choices to bring the deficit under control. The deficit this year is projected to be $422 billion, a record in dollar terms and the highest as a percentage of the economy (3.6 percent) since 1993.

· In the past, deficits of this approximate size led to deficit reduction legislation and budget enforcement rules. When spending discretionary caps and the “pay-as-you-go” rule for tax cuts and entitlement expansions was first adopted in 1990, the budget deficit was 3.9 percent of GDP. In 1993, when these rules were renewed, the deficit was also 3.9 percent of GDP. Yet today, with the deficit at 3.6 percent of GDP, Congress is taking action to deliberately increase the deficit rather than shrink it.

· The fiscal outlook does not brighten much looking beyond this year. Between 2005 and 2009 CBO projects baseline deficits totaling $1.6 trillion. This package of tax cuts, alone, would increase that by roughly 10 percent, including debt service cost.

· Federal revenues are now at the lowest level they have been as a percentage of GDP (16.2 percent) since the early 1950s. Meanwhile, spending is at 19.8 percent of GDP, which is below the average over the past 25 years (21 percent). This suggests that it is revenues, and not spending, that have deviated from recent norms.

· One hundred and forty-six billion dollars is a lot of money, even in Washington. It is about the same amount as projected homeland security spending over the next five years. It would go a long way towards covering the cost of operations in Iraq and Afghanistan, which now require about $55 billion per year.

· Offsets are available. Tax loophole closings and other potential offsets totaling more than $100 billion have already been claimed for both the corporate tax bill and the transportation reauthorization bill. Any such offsets should be used to extend existing tax cuts before using them to help pass new tax cuts or higher spending.

· Alternatively, Congress could reassess the entire range of tax cuts enacted since 2001. In light of the deteriorated fiscal outlook and the fact that the baby boomers' retirement and health care benefits will begin to impact the budget in just four years, it makes sense to offset the extension of some tax cuts by delaying, scaling back, or rescinding others. Doing so would send a very positive signal that Congress is finally prepared to acknowledge that we can't have it all and that choices must be made among competing priorities.

[1] The 10 percent bracket inflation adjustment, certain “marriage penalty” provisions and the $1,000 child tax credit. A one-year extension of alternative minimum tax relief and extension of several other tax preferences such as the research and experimentation tax credit are included as well.

[2] The tax cut extensions will be part of a conference report on a largely unrelated bill. Conference reports cannot be amended.