Analysis says Reid’s budget plan contains gimmicks that could result in tax increases

Amanda Carey Contributor
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Senate Majority Leader Harry Reid has said that his debt ceiling bill, in a bow to Republicans, includes no tax increases. But does it really?

An analysis from the Republican Senate Budget Committee staff shows that Reid’s bill includes gimmicks that, if passed, would account for approximately $3.8 trillion in revenue — or tax increases.

The maneuvering is complicated; but when explained properly, it becomes clear.

Reid’s proposal includes a provision that “deems” budget resolutions for fiscal years 2012 and 2013, but Senate Democrats have not yet produced a 2012 budget proposal, much less one for 2013.

Within those anticipated budget resolutions lie the tax increases, according to the analysis, and here is where it gets tricky.

When the Congressional Budget Office scores a proposal, it uses either current policy or current law as its baseline. Reid’s bill is based on current law, which assumes certain tax breaks will expire according to pre-determined scheduled. That is a big deal.

The 2001–2003 Bush tax cuts are set to expire at the end of 2012. And some business tax breaks, “death tax” cuts, and the patch for the Alternative Minimum Tax expire at the end of 2011. Reid’s proposal assumes that Congress will not act to renew or extend those expiring tax breaks. (RELATED: Senate tables Boehner’s debt ceiling plan)

The Alternative Minimum Tax patch is a tax that runs parallel to the regular tax code for high-income Americans. If a taxpayer falls within the right bracket (a high one), he must use the AMT to calculate his federal tax. The AMT targets items that are write-offs or tax-exempt for people in lower income brackets.

Congress acts to “fix” or raise the AMT patch every year, in order to ensure that it does not inadvertently include middle-class families.

Reid’s proposal assumes Congress will not act to fix the AMT at the end of 2011.

All told, the expired tax cuts would cost $3.8 trillion.

According to the Republican staff analysis, the baseline is not the only gimmick in Reid’s proposal, but it could be the worst. (RELATED: Rep. Tim Scott: SC delegation collaborated to pledge ‘no’ votes Thursday)

Another questionable measure is $1 trillion in savings achieved by cutting the defense budgets for the wars in Iraq and Afghanistan. The analysis questions that claim of $1 trillion in savings, saying that the related spending is not even supposed to occur.

Reid’s proposal could come up for a vote as early as Saturday evening. A CBO analysis of the proposal, using the current law baseline, found it would cut $2.2 trillion in ten years. Friday, Republican members of the Senate Budget Committee all signed a letter to Reid, voicing their strong opposition to his plan. (Download the letter here)

Late Friday, the House passed Speaker of the House John Boehner’s Budget Control Act. Shortly thereafter, the Senate voted to table it.
Sen. Jeff Sessions sent a separate letter Friday opposing Reid’s plan. Read below:

Dear Colleague:

There are two significant problems tucked into Senator Reid’s amendment to increase the debt limit that are not in the House proposal.

First, section 301 of the amendment directs the Joint Select Committee to reduce the deficit to 3 percent of GDP which is a weak and insufficient goal. The amendment further states that the Joint Committee “may include recommendations and legislative language on tax reform.” This invites tax increases because, under the baseline of the Congressional Budget Office (CBO) — which assumes more than $3 trillion in tax increases that are scheduled in current law-the deficit will return to 3 percent of GDP in approximately 2015.

Second, Reid’s amendment would “deem” a budget resolution for fiscal years 2012 and 2013 (through the next election). Contrary to the requirements of law, the Senate has refused to adopt a budget for 821 days. Reid’s amendment would give the Democrat majority in the Senate an excuse to not pass a budget for another two years, or 626 days. Without any hearings or debate, section 102 of Senator Reid’s amendment would deem budget allocations for all Senate committees. For most committees, the budget allocation would be set at the CBO baseline. This means none of the authorizing committees would be encouraged to look at the automatic spending increases in their areas and root out inefficiencies and ensure value for the taxpayer dollar. On the revenue side, the deemed budget resolutions would assume the tax increases associated with the expiration of the tax cuts in current law. That means that legislation to extend any of the tax cuts would be harder to enact because it would face a point of order under section 311 of the Budget Act for reducing revenues.

Just two more reasons to reject a bad bill.

Truly yours,
Jeff Sessions
United States Senator