Want to See a Budget Gimmick in Action?

UPDATE: The Senate has passed a bill to extend jobless benefits, a bill which also includes the extension in the homebuyer tax credit and carry-back period for losses.

Recently, the Joint Committee on Taxation (JCT) released estimates on the revenue effects of the “Worker, Homeownership, and Business Assistance Act of 2009,” a bill to extend and modify the homebuyer tax credit and to increase the carry-back period for losses to five years.

PAYGO rules require that any bill not add to the deficit over the 5-year and 10-year periods. To its credit, this bill roughly achieves deficit neutrality over the 10-year budget window. Over the 5-year window, the bill appears to be roughly deficit neutral, but this is only the result of using a budget gimmick.

The increase in required corporate tax payments in July, August, and September of FY 2014 generates over $18 billion in additional revenue, but the clawback takes place immediately after in FY 2015. This makes the bill appear to not add substantially to deficits over the next five years, when in fact the bill simply transfers the gains from an increase in certain corporate taxes to an equal revenue loss only months later.

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To be clear, we fully support Congress's efforts to offset all new spending and tax cuts, especially in light of the current fiscal situation. Given the potential need for further stimulus, we also accept that offsets may need to be spread out over the next decade. But if policymakers are concerned about including too many offsets in the first 5 years, they should vote on that explicitly -- not hide it in a budget gimmick.