No New Taxes? Don't Read His Lips
Craig Jennings is a federal fiscal policy fellow and Adam Hughes is the director of federal fiscal policy at OMB Watch.
President Bush is planning on raising taxes, but he won't come out and say it. In fact, he has continued to loudly proclaim he can balance the federal budget by 2012 and not raise taxes one cent. His rhetoric on the budget is misleading, if not outright deceitful, precisely when having an honest discussion is paramount to implementing policies to confront the long-term fiscal challenges our nation faces.
Although he claims that he can balance the budget by 2012 without raising taxes, Bush's 2008 budget calls for increasing taxes on the middle class by $800 billion over the next 10 years. Even more audacious is that those higher tax revenues are financing more tax cuts for the wealthy, especially those making over $1 million annually. If Bush wants to cut taxes for the super wealthy and balance the budget on the backs of the middle class, he should say so, but he doesn't. He buries the plan in the fine print of his budget.
Here's Bush's sleight of hand: Through a "stealth tax" known as the Alternative Minimum Tax (AMT), more and more middle-class taxpayers are being drawn into an alternate taxation universe each year. The extent to which AMT tax liability falls on the middle class is startling. In 2006, 8.6 percent of the AMT was paid by households earning less than $200,000, but in 2010, those households will be responsible for paying 45 percent of it. Under current tax law, 50 percent of households earning $75,000 to $100,000 will be subject to the AMT in 2010, up from 0.7 percent last year.
Congress has acted in the past to prevent the middle class from getting sucked into the AMT black hole, at a cost of about $60 billion per year, and they will do so again in the future. The president’s budget even acknowledges as much. However, the president assumes that, contrary to history and the pronouncements of lawmakers, Congress will allow the AMT’s reach to extend to millions more middle-income taxpayers year after year. Bush’s budget fails to reflect reality by including increased AMT revenue in its calculations to help balance the budget. The reason for this fanciful accounting—a permanent AMT fix could blow a half-trillion dollar hole in Bush's balanced budget plans.
As the Bush budget continues its fantasy road show, massive entitlement obligations are gathering on the horizon. In a few short years, the baby boomers will begin retiring. As they leave the workforce, the financial liabilities of the nation will begin massing at an unprecedented rate.
Government Accountability Office Director David Walker has been touring the country for the past 18 months on his “Fiscal Wakeup Tour,” alerting Americans to the coming fiscal imbalances. The Congressional Budget Office has been issuing reports that unambiguously illustrate the impending budget crunch of the retiring boomers. The House and Senate budget committees have held numerous hearings on the subject in the first few weeks of 2007. Think tanks on the right and the left have written countless papers and proposals on how to model a long-term budget so a fiscal crisis can be avoided. Has President Bush really not noticed?
To put together a comprehensive plan—in whatever form it may take—Congress and the president will have to work together. Congress must also believe it is negotiating with an honest partner. Bush's misleading statements about his budget damage his credibility, while the actual substance of his budget is simply a non-starter for Congress. And since the budget's release, no one in the administration has been willing to put reduction or repeal of the 2001 and 2003 tax cuts on the table, at least not publicly.
Instead, the administration continues to tout the line about balancing the budget and not raising taxes—all the while including a significant tax increase on middle class families in his budget. This is not an honest debate about differing priorities; it is a signal that Bush is still not ready to make the tough decisions necessary to address the nation's fiscal situation. That's not real leadership—it's passing the buck. And it's business as usual in Washington.