WASHINGTON - With the Senate expected to vote this week on the so-called "Trifecta" bill, which includes a permanent reduction in the estate tax, temporary extension of several expiring tax provisions and a new mandatory spending program for mine reclamation along with an increase in the minimum wage, The Concord Coalition reiterated the importance of offsetting the deficit impact of all tax cuts and spending increases. "The real 'trifecta' here is fiscal myopia, budgetary gimmicks and legislative logrolling," Bixby said. "This bill will increase the deficit by $310 billion through 2016, with 83 percent of that coming after 2011 when the budget will be strained by rising entitlement costs. Moreover, the bill continues a pattern of hiding long-term costs by pretending that a number of popular tax breaks will expire after 2007. Then, as an inducement for passing the estate tax reduction which would probably not pass as a stand-alone measure, the bill tacks on an increase in the minimum wage and an assortment of targeted provisions such as a new mandatory spending program for mine reclamation," Bixby said. The centerpiece of the bill is a permanent reduction in the estate tax, which by 2016 will drain more than $62 billion per year in revenues. In an issue brief on the estate tax released before the Senate voted on legislation making estate tax repeal permanent, Concord stated, "Legislation with a lasting impact on revenues, such as permanently repealing or reducing the estate tax, must be considered within the context of future spending obligations. Projected entitlement benefits far exceed the revenues dedicated to pay for them over the long-term. Unless Congress enacts major reforms slowing the growth of entitlement spending, revenues will need to increase well above current levels to meet these obligations. In light of the costs associated with the baby boomers' retirement and health care costs, Congress should defer action on the estate tax and extension of other expiring tax cuts until reforms controlling the growth of entitlement spending are enacted. Doing the opposite puts the cart before the horse." "The refusal of the Senate to permanently eliminate the estate tax should have sent a message about the need to deal with our looming fiscal problems first," said Concord Coalition Policy Director Ed Lorenzen. "Instead, the Congressional leadership is attempting to buy support for their budget strategy by adding other debt-financed tax cuts and a new mandatory spending program with costs well in excess of the new revenues dedicated to the program. This may be a clever legislative strategy, but it is an irresponsible fiscal policy." "Not only has Congress failed to adopt a budget resolution for this year, but passage of the 'trifecta' bill would exceed by about $12 billion the remaining budgetary limits for tax cuts and entitlement increases imposed by last year's budget resolution, " added Bixby. "Budgeting is about making choices among competing priorities, but this Congress appears incapable of making choices or setting priorities."
A recent report issued by the Treasury Department providing a dynamic analysis of proposals to permanently extend the 2001 and 2003 tax cuts illustrate the importance of offsetting the revenue loss from tax cuts. Advocates of reducing the estate tax argue that it will increase economic growth by encouraging savings and increasing capital stock (though the Treasury report acknowledges the evidence on this is uncertain). However, the report noted that "when lower taxes on capital income are financed initially by issuing government debt, private investment is crowded out by an increase in government borrowing," limiting the economic benefit from the tax cuts. "The Treasury report demonstrates that the pay-as-you-go principle is not simply a matter of bookkeeping, but a key element of sound economic policymaking," said Lorenzen. "Unfortunately, the estate tax bill currently being considered by the Senate ignores this lesson and further undercuts any potential economic benefit by adding debt-financed spending and tax cuts to the proposal."
The Concord Coalition is a nonpartisan, grassroots organization dedicated to balanced federal budgets and generationally responsible fiscal policy. Former U.S. Senators Warren Rudman (R-NH) and Bob Kerrey (D-NE) serve as Concord's co-chairs and former Secretary of Commerce Peter Peterson serves as president.
CONTACT: Tristan Cohen (703) 894-6222 [email protected]