Obama Tax Plan Would Balloon Deficit, Analysis Finds

A baseline is an estimate of spending and revenue expected during a fiscal year under current law. The official baseline is calculated by the Congressional Budget Office, which also has the task of "scoring" legislation so lawmakers can see how much a proposal would cost and how it would change the baseline. CBO makes projections 10 years into the future and updates them three times a year. The next update is due Sept. 9.

Thanks to a profusion of budget gimmicks enacted into law in recent years, the CBO baseline is out of step with reality. For example, it assumes that the alternative minimum tax, an expensive parallel tax structure, will grow to strike millions of taxpayers and bring in billions of additional dollars. Congress is never expected to permit that money to be collected, but lawmakers have balked at taking the tax off the books because doing so would dramatically increase projected deficits.

The CBO baseline also assumes that the Bush tax cuts will expire in December 2010, bringing in even more money. If the law is not changed, the CBO forecasts that the budget will be balanced by 2012.

Four years ago, the Bush administration introduced an alternate baseline that assumes the "extension of all expiring tax provisions" enacted in 2001 and 2003. The tax cuts, the administration wrote, "were clearly not intended to be temporary."

This is not exactly true. Bush never intended the tax cuts to be temporary. But the Republican Congressional leadership couldn't muster the votes to make them permanent because it would have cost far too much money. Even after lawmakers added an expiration date, McCain was one of three GOP senators who voted against the tax cuts.

The expiration date now serves as a trigger that will force Congress to choose among competing priorities: Keep the tax cuts and run up the deficit, or keep the money and raise taxes. It's a wrenching choice that has bedeviled Democrats since they took control of Congress two years ago on a promise to rein in deficit spending.

Changing the baseline to include the tax cuts implies that the decision has already been made. Under the Bush baseline, the White House simply increased its future deficit projections. Both Obama and McCain want to use that standard, and take it a step further by increasing deficit projections to account for a permanent restriction on the alternative minimum tax.

The result would be "deficits far bigger than anything contemplated under current law," said G. William Hoagland, a former budget advisor to GOP Senate leaders.

Robert L. Bixby, executive director of the nonpartisan Concord Coalition, said the Bush baseline may be more realistic politically, but it takes the nation a step away from solving its budget problems.

"We've already got an unsustainable budget situation over the long term. In the short term, we're in a big fiscal hole. So it's really important to hold the line," Bixby said. "The important point is: How much are the policies going to cost? And extending the Bush tax cuts has a cost."