My latest column at the Christian Science Monitor discusses the many fiscal pressures that will come to a head at the end of the year. Here’s an excerpt:
Start with our tattered tax code, which now contains a six-pack of temporary tax cuts. The largest are the Bush-era cuts originally enacted in 2001 and 2003 that were scheduled to expire in 2010. Rather than decide their fate, President Obama and Congress extended them another two years.
That legislation also included additional tax cuts championed by Mr. Obama and an estate tax compromise, all of which expire – along with the original tax cuts – at the end of 2012.
Then there’s the dreaded alternative minimum tax. It expired Dec. 31, but Congress for years has passed an annual “patch” preventing the AMT from hitting more middle-class families. A hodgepodge of temporary tax breaks known, tellingly, as the “extenders,” also expired at the end of last year, but many lawmakers and beneficiaries want to bring them back. Various stimulus measures, including the payroll tax holiday and corporate investment incentives, are set to lapse soon, too.
If those six tax-cut packages expire, annual federal tax revenues would rise by about $1 trillion annually, the Congressional Budget Office projects [See correction below]. It’s hard to imagine that lawmakers will actually let that happen. As the CBO itself notes, such a sharp increase would weaken the economy at a time when it’s struggling to recover from the Great Recession.
On the spending side of the ledger, the most egregious example of can-kicking is the formula by which Medicare sets payments for doctors. That formula has called for dramatic cuts for years. But every time those cuts come near, Congress overrides them temporarily, and often “pays for” that by scheduling even bigger cuts in the future. That’s why doctors face a 27 percent cut in payment rates at the end of March and more in years ahead.
And then there are the roughly $1 trillion in across-the-board spending cuts, spread over nine years, that are scheduled to begin next January. Congress didn’t really intend those cuts to happen; instead, they were meant to pressure last year’s “super committee” to find real budget savings. That didn’t occur, and now Washington is rife with speculation that policymakers will flinch from letting the cuts go through, at least until the economy strengthens.
We will also hit the debt limit again late in 2012 or early in 2013. Add it all up, and there’s quite the fiscal showdown looming for later this year.
Correction: That sentence leaves the wrong impression. It makes it sound like the six tax items add up to $1 trillion in annual revenue, but that is not correct (ht Loren A.). My apologies for missing this during editing. Here’s the full explanation from the first draft of my column:
The expiration of those six packages of tax cuts, plus the arrival of some new taxes created in the health reform legislation, would boost tax revenues sharply in the next few years. The Congressional Budget Office projects that tax revenues will increase from $2.3 trillion in fiscal 2011 to $3.3 trillion in 2014 if all these scheduled changes occur. That trillion-dollar increase, a 44 percent gain, would far outstrip the expected 11 percent growth of the economy.
In short, the $1 trillion increase reflects the six tax items, new taxes from health reform, and the growing (we hope) economy. Sorry for the confusion.