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Budget Plan Wipes Out Deficit But Leaves $50 Billion Dilemma

By Lori Montgomery
Washington Post Staff Writer
Thursday, March 29, 2007

House Democrats say their budget blueprint would erase the federal deficit without raising "a single penny" in new taxes. But the proposal, set for a vote today, requires either that millions of middle-class families be hit with higher taxes next spring or that somebody else pay an extra $50 billion.

That stark choice is the result of the inexorable expansion of the alternative minimum tax, a parallel tax structure that adds $6,800, on average, to a family's tax bill. Next month, an estimated 4.2 million Americans will pay the tax. Next spring, that number will balloon to 23 million unless Congress takes action.

Democratic leaders have made overhauling the AMT a top priority, but they have yet to lay out a plan to make up the revenue that would be lost. And their budget blueprint shows proceeds from the tax continuing to swell. Whatever Democrats do, someone is going to wind up paying more taxes, said Paul Ryan of Wisconsin, the ranking Republican on the House Budget Committee.

"If you want an AMT fix, you've got to raise taxes by $50 billion," Ryan said.

The AMT gap is one of several holes in the Democrats' budget plan, a key part of a campaign by the new congressional majority to establish a reputation for fiscal responsibility for the 2008 election. Democrats say their blueprint would devote millions of additional dollars to domestic priorities and erase the deficit without cutting defense or raising taxes. But it would achieve those goals only by resorting to the same kind of accounting gimmicks Democrats have accused President Bush of employing in his latest budget proposal.

For example, House Democrats are promoting a $50 billion, five-year expansion of children's health insurance but have yet to figure out where they'll get money. Instead, they have created a special "reserve fund" that health-care advocates in Congress will be required to fill with an equal amount in tax increases or spending cuts to get their money.

Democrats accused Bush of underestimating the future cost of the war in Iraq, but they plugged his numbers into their budget framework: Under both White House and Democratic budget projections, military operations will cost no more than $50 billion in 2009.

And while House Democrats say they want to preserve key parts of Bush's signature tax cuts, they project a surplus in 2012 only by assuming that all of the cuts expire on schedule in 2010.

The budget plan expresses support for certain cuts, including the expanded child credit and elimination of the marriage penalty and the 10 percent tax bracket, that would require another reserve fund to be filled with hundreds of billions of dollars in tax increases to cover the cost.

House Budget Committee Chairman John M. Spratt Jr. (D-S.C.) acknowledges that last ploy, saying Democrats have three years to figure out how to come up with the money to keep their favorite tax cuts. Under pay-as-you-go budget rules the House adopted in January, new tax cuts or spending increases must be paid for by spending cuts or tax increases elsewhere.

For now, Spratt said, "there is nothing in here that raises taxes. The tax cuts remain in place in 2007, 2008, 2009 and 2010."

That hasn't prevented House Republicans from calculating the cost of not extending the Bush cuts of nearly $400 billion past 2010 and accusing Democrats of advocating "the biggest tax increase in American history," a claim that was noted on signs yesterday at a Republican news conference outside the Capitol.

"I stand here today showing Republicans united in our opposition to the largest tax increase in American history," House Republican leader John A. Boehner of Ohio said. "These are real tax increases that are going to hurt American families."

Budget watchdogs, who praise the Democrats for restoring pay-as-you-go rules, are more sympathetic. Yesterday, the Concord Coalition, a nonpartisan organization devoted to deficit reduction, joined several liberal groups in supporting the Democrats' assertion that their budget does not raise taxes.

"The bottom line is these are the numbers in a pay-go world. Extending tax cuts does have consequences," Concord executive director Robert L. Bixby said. "It doesn't force any tax increases, because the tax increases are embedded in current law."

The same is true of the revenue amassed by the AMT. "I don't think it's a tax increase" if you simply replace the AMT cash by raising taxes elsewhere, Spratt said.

By that reasoning, the Democrats' budget "does not raise a single penny in new taxes," House Majority Leader Steny H. Hoyer (Md.) said yesterday, adding that Republicans who say otherwise "are not telling the truth."

But Ryan, the Wisconsin Republican, said Democrats are "trying to have it both ways. They want the tax cuts and they want to balance the budget. And those things are mutually exclusive unless the Democrats are willing to cut spending."

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