Budgeting through Footnotes

 This morning, Lori Montgomery of the Washington Post reported on the decision of the Obama administration to incorporate $85 billion in tax breaks from the stimulus package into baseline figures of current policy. By incorporating expansions of the Child Tax Credit and Earned Income Tax Credit into the baseline, the Administration is making the argument that these policies do not need to be paid for. As Montgomery explains:

Technically, the stimulus amended a series of sweeping tax cuts enacted in 2001 during the Bush administration. Obama has repeatedly said he does not expect Congress to cover the enormous cost of maintaining the Bush tax cuts past their 2010 expiration date. And because the stimulus provisions are now part of the Bush tax cuts, Congress shouldn't have to pay for them, either, White House budget documents say.

We find this move quite troubling. For one, any expansion of the Administration’s current policy baseline will drive up the deficit. As we wrote, today, the cost of continuing current policies -- such as renewing the 2001/2003 tax cuts, continuing to patch the AMT, and preventing cuts to physician payments – is already quite high. If not paid for, these three policies alone would add around $3 trillion to the deficit over the next decade.

It is for this reason that we oppose these exemptions. The Administration has argued for them, though, on the basis that they are already a part of current policy. The same cannot be said for the child tax credit or EITC expansion. Both were passed as part of an explicitly temporary economic stimulus bill. At the time, we warned about putting permanent measures in the stimulus, since it could greatly exacerbate our long-term fiscal gap. The administration has gone one step further by actually including some of the measures in the baseline.

 CRFB President Maya MacGuineas was quoted in the Post explaining:

Certainly, when the stimulus discussion was going on, we were very worried there was going to be some kind of bait-and-switch to make the tax cuts permanent. This is a dead-of-night move to very technically slip them into the baseline and have no discussion about whether the country can afford to make these tax cuts permanent without offsetting the costs.

We don’t oppose expanding the EITC or child tax credit, and don’t believe either is bad policy in and of itself. However, any effort to do so must be debated openly, then financed through offsetting tax increases or spending cuts. Not assumed into law through a hidden footnote in an OMB document.