‘Line’ Items: Tax Day Edition

Happy Tax Day – Today is about the consequences of procrastination for the great many waiting until the last minute to file their federal income tax returns. It is also the time when the most consideration is given to the costs and benefits of the federal government. To mark the occasion, CRFB issued a paper examining the top ten tax policy developments of the past year and the Bottom Line filed a “Special 10/40” to accompany it. By the way, you can thank the other government in Washington, DC for the extra weekend to work on your taxes. The District of Columbia’s Emancipation Day was observed on Friday the 15th, prompting the IRS to move the filing deadline up a business day because regulations forbid it to fall on a weekend or holiday.

Debt and Taxes – It is fitting that just ahead of the big day taxes grabbed the limelight. In his major fiscal policy address on Wednesday President Obama refused to again renew the 2001/2003 tax cuts for the wealthiest families when they expire in two years. And the strategy he offered for reducing the national debt included cutting about $1 trillion in spending from the tax code. As it so happens, CRFB offered some excellent guidance just before the speech on how to reduce tax expenditures. CRFB President Maya MacGuineas co-authored a paper with Martin Feldstein and Daniel Feenberg on Capping Individual Tax Expenditure Benefits and CRFB Policy Director Marc Goldwein co-wrote Less is More: The Modified Zero Plan for Tax Reform with Paul Weinstein. And don’t forget CRFB’s Let’s Get Specific paper on tax expenditures. Furthermore, former Federal Reserve Chair Alan Greenspan told Meet the Press Sunday that all the 2001/2003 tax cuts should expire. The debate over the role of revenue in reducing the debt will only get more heated from here on out.

President Goes on Offense – With the enthusiasm of someone who just got a big IRS refund, President Obama laid out an ambitious framework for tackling deficits and debt based on the recommendations of his Fiscal Commission in his big speech. The plan reduces the deficit by $4 trillion in 12 years or less. He argued for putting everything on the table and dealing with all parts of the budget. CRFB praised the remarks and the President’s leadership. This week President Obama will talk about his goals for debt reduction at a series of events across the country.

Gang of Six Continues Work – Like the tax professionals who are swamped this time of year, the bipartisan Gang of Six senators continues its efforts to devise a comprehensive fiscal plan. The group hopes to have something for their colleagues when they return from the two-week spring recess. Senate Budget Committee Chair Kent Conrad (D-ND), a member of the group, aims to unveil his budget resolution shortly after the recess. Group members Mark Warner (D-VA) and Tom Coburn (R-OK) both said Sunday morning that the group is close to an agreement. While some have speculated that the Gang of Six would be supplanted by the group of lawmakers that the President invited to have regular meetings with Vice President Biden starting next month, early indications are that there is no enthusiasm among congressional leaders for this approach. Republicans have yet to name any of their negotiators to the Biden talks. The Democrats named committee chairs and members of party leadership who will likley toe the party line: Senate Appropriations Committee Chair Dan Inouye (D-HI), Senate Finance Committee Chair Max Baucus (D-MT), House Budget Committee Ranking Member Chris Van Hollen (D-MD) and House Assistant Democratic Leader James Clyburn (D-SC).

FY 2011 Budget Finally Resolved – The President signed a resolution funding the federal government for the rest of the fiscal year on Friday, exactly one year after Congress missed a deadline to adopt a budget blueprint and a full six months into the fiscal year. [If only we could be so lax in doing our taxes.] Total discretionary spending for 2011 is set at $1.050 trillion. The whole affair underscored the desperate need for fixing the dysfunctional budget process. The Peterson-Pew Commission on Budget Reform provided a sound blueprint for budget process reform in the report, Getting Back in the Black.

The Other Deadline – April 15 isn’t only the traditional deadline for filing federal income tax returns, it is also the date by which Congress is obligated by statute to adopt a budget resolution for the upcoming fiscal year. The House met the deadline, barely, passing on Friday the FY 2012 budget blueprint crafted by House Budget Committee Chair Paul Ryan (R-WI). The budget reduces the deficit by over $4.4 trillion over ten years. The odds of this passing the Senate are not good and with Congress being on recess for the next two weeks, the deadline has been completely missed. Absent a bipartisan breakthrough, we could be going through the whole drama again.

Limits, Caps and Triggers – Raising the statutory debt limit will be the next big fiscal battle in Washington and it could make the 2011 budget fight look as straightforward as the 1040EZ. Many lawmakers want to pair a debt limit increase with measures to limit spending such as a balanced budget amendment and/or spending caps. Although he prefers a “clean” debt ceiling increase, in his speech President Obama discussed a “debt failsafe” trigger that could possibly be the basis for a compromise. A trigger would kick in if the debt does not fall as far as projected, prompting additional spending or revenue changes to meet the debt target. The Peterson-Pew Commission has done a lot of work on the concept and proposed a trigger mechanism last year in Getting Back in the Black to ensure that fiscal targets are achieved. A new paper from CRFB offers recommendations for how the President's debt failsafe can be improved and implemented. For additional reading, see CRFB’s recent paper on responsibly raising the debt limit.

Key Upcoming Dates

April 18

• Deadline for filing federal income tax returns.

April 21

• Conference Board releases U.S. Leading Economic Indicators for March.
• Weekly unemployment claims data from the Department of Labor.

May 16

• Treasury Secretary Tim Geithner says the statutory debt limit will be reached no later than May 16.

July 8

• Treasury Secretary Geithner says that the U.S. will default on its obligations around July 8 if the statutory debt ceiling is not increased before then.