Digging Holes When We Need It Least

In what is being hailed as a demonstration of bipartisanship, Congress broke its previous commitment to deficit-neutrality and agreed to a bill (HR 3630) that would dig a bigger fiscal hole. The bill, which extends the payroll tax cut, unemployment insurance benefits, and "doc fix" through the end of the year, passed the House by a 293-132 vote and passed the Senate by a 60-36 vote today. 

The payroll tax cut is the one part of the bill that is not offset, but it is also by far the most expensive, costing about $95 billion of the roughly $140 billion cost of the three major provisions. In total, CBO estimates the package expected to increase the deficit by $101 billion in 2012, and by $89 billion from 2012-2022.

The bill is partially offset with a number of policies. On the health side, the doc fix is fully offset with a $5 billion cut to the Prevention and Public Health Fund, a $7 billion reduction in reimbursements to hospitals for bad debts, and a few other policies. Unemployment insurance is offset with an increase in pension contributions for new federal employees and the auctioning of spectrum. In addition, the cost of the UI extension is decreased by reducing the maximum number of weeks a person can collect benefits from 99 to 73 weeks (in states with at least nine percent unemployment).

All of the policies in this bill came from the original House extenders bill in December. It seems the only thing that made this bill bipartisan was simply dropping the remaining offsets that paid for the previous bill. Instead, both parties should have come together to find other agreeable offsets.

We had hoped that Congress would take some step to offset the costs associated with the tax holiday, and the result is disappointing. The main loser in this compromise is not either political party but our future fiscal health, especially if this serves as foreshadowing for December. As we continue to say, "We cannot afford anymore holidays from fiscal responsibility."