Obama Tax Plan Would Balloon Deficit, Analysis Finds

By Lori Montgomery
Washington Post Staff Writer
Sunday, August 10, 2008

On the campaign trail, Sen. Barack Obama bashes President Bush for "reckless" economic policies that are "mortgaging our children's future on a mountain of debt." But the Democratic presidential candidate has adopted a key component of Bush's fiscal policy: A novel bookkeeping method that guarantees that the $9.5 trillion national debt will get much bigger.

When Obama promises to cut taxes for the middle class without increasing the deficit, he is measuring his proposals against the large deficits that would result from Bush's plan to extend his signature tax cuts beyond their 2010 expiration date. Because Obama wants to eliminate some of the Bush tax cuts, he would bring more money into the Treasury, permitting him to pay for new programs without increasing the deficit even more.

But under current law, all the tax cuts expire and the deficit disappears completely. Democrats in Congress have vowed to preserve the Bush tax cuts only if they can cover the cost and keep the budget in balance. Measured against current law and against the promises of his fellow Democrats, Obama would rack up huge deficits. According to a recent analysis by the nonpartisan Tax Policy Center, Obama's tax plan would add $3.4 trillion to the national debt, including interest, by 2018.

"Obama has criticized Bush for his fiscal irresponsibility, and now he's using Bush's baseline as a yardstick by which to measure fiscal responsibility," said Leonard E. Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution. "Congress hasn't agreed to extend the Bush tax cuts because they don't have the money to pay for it."

By adopting Bush's bookkeeping system, Obama has frustrated deficit hawks who say government should live within its means, especially given a new White House forecast that the next president will face a record $482 billion deficit during his first year in office. Obama also appears to undercut congressional Democrats who have made pay-as-you-go budgeting a central tenet of their leadership, insisting that new policies should be paid for instead of adding to the nation's debt.

"It's not unreasonable to say, 'We're inheriting a budget that's going to have substantial deficits into the future' . . . But after we've been saying, 'Bush has irresponsible policies we can't afford,' he will be asking us to replace them with different policies we can't afford,' " said a Democratic congressional aide, who spoke on condition of anonymity so he could speak candidly.

Privately, some Democrats acknowledge that they may be forced to follow Obama's lead and abandon their pay-as-you-go pledge if they want to keep the Bush tax cuts that benefit the middle class, including a $1,000 child tax credit, a reduction in the marriage penalty and a new 10 percent tax bracket. Beginning in 2011, those provisions will increase the deficit by at least $100 billion a year unless lawmakers can raise the money elsewhere.

"Leaving some of the tax cuts in place would cost us a small fortune," said Rep. Jim Cooper (D-Tenn.), a member of a group of conservative House Democrats known as the Blue Dogs who have been adamant about following pay-as-you-go rules. "I don't know that any Blue Dog has a good way to pay for that."

Unlike his Democratic colleagues, Obama has never made balancing the budget a priority. He concedes that he would not be able to do it during his first term, and probably not during his second, either.

Obama economic advisor Jason Furman said Obama compares his tax plans to Bush's instead of to current law because it draws a clear distinction with Republican Sen. John McCain, who wants to keep all the Bush tax cuts and add even more. According to the Tax Policy Center, McCain's tax plans would increase the national debt by at least $5 trillion over the next 10 years. McCain has said he would balance the budget through massive spending cuts.

Furman said Obama would consider abandoning Democratic promises to cover the cost of extending the Bush tax cuts if it were part of "a really tough deficit-reduction bill" that significantly improves the nation's grim financial outlook. "President Bush created this problem. We would put in place rules so it never happens again," Furman said. "But a sound budget is based on making realistic promises and sticking to them."

At the heart of the debate is one of the most arcane but fundamentally important concepts in Washington: The budget baseline.

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