Obama Would Keep Tax Breaks for Working Poor Despite Cost

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said that extending the stimulus package's tax breaks for the working poor amounts to a bait-and-switch.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said that extending the stimulus package's tax breaks for the working poor amounts to a bait-and-switch. (By Chris Kleponis -- Bloomberg News)
  Enlarge Photo    
By Lori Montgomery
Washington Post Staff Writer
Thursday, September 3, 2009

President Obama is proposing to add more than $85 billion to the nation's budget deficits over the next decade to extend two tax breaks for the working poor, a move critics on Wednesday blasted as a violation of Obama's pledge to pay for new policies.

The tax breaks were included in the economic stimulus package Obama signed soon after taking office in January, and are scheduled to expire in 2011. But last week, in its midyear update of the federal budget, the White House said it plans to extend the tax cuts through 2019 without covering the cost by cutting spending or raising taxes elsewhere.

The reason? Technically, the stimulus amended a series of sweeping tax cuts enacted in 2001 during the Bush administration. Obama has repeatedly said he does not expect Congress to cover the enormous cost of maintaining the Bush tax cuts past their 2010 expiration date. And because the stimulus provisions are now part of the Bush tax cuts, Congress shouldn't have to pay for them, either, White House budget documents say.

"Since these two policies . . . represent expansions of tax cuts first enacted in the 2001 tax bill, extension of the policies are incorporated in the baseline projection of current policy," the documents explain in a footnote.

Deficit hawks are appalled. Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, called the move "outrageous" at a time when the nation is facing record budget deficits and the national debt is soaring toward a 50-year high. In addition to breaking Obama's pledge to pay for his policies, she said, it undermines confidence in Democrats' claim that the $787 billion stimulus package was truly a temporary measure aimed solely at reviving the slumping economy.

"Certainly, when the stimulus discussion was going on, we were very worried there was going to be some kind of bait-and-switch to make the tax cuts permanent," MacGuineas said. "This is a dead-of-night move to very technically slip them into the baseline and have no discussion about whether the country can afford to make these tax cuts permanent without offsetting the costs."

Republicans, who have derided the tax breaks as payments to people who do not pay taxes, also were critical.

"It turns out that so-called 'stimulus' really wasn't temporary, and that it was in fact a vehicle to push liberal priorities all along," said Antonia Ferrier, spokeswoman for House Minority Leader John A. Boehner (R-Ohio). "Apparently, the president's pledge to 'pay for' his agenda was nothing more than just a talking point."

Tom Gavin, a spokesman for the White House budget office, defended the move, saying Obama has made no secret of his intention to make permanent the two tax breaks. He argued that Obama's budget has always called for them to be paid for through other budget maneuvers, such as Obama's plan to let some of the Bush tax cuts expire on schedule.

"The President's budget is the most honest budget in many, many years," Gavin said via e-mail. "It is straightforward in how it addresses extending middle-class tax cuts and many other important national priorities."

At issue are two provisions that affect some of the nation's poorest working families. One expands the availability of the $1,000 child credit to families earning as little as $3,000 a year. Under the 2001 tax measure, the credit was available to families earning as little as $12,000 a year. Because those families are unlikely to have a tax bill that could be reduced by the credit, both the 2001 law and the stimulus legislation permitted the government to send them the money.

Expanding the child credit through 2019 would cost about $9 billion a year, according to the nonpartisan Joint Committee on Taxation, adding a total of $74 billion to future deficits. The other stimulus provision, which is much less costly, made similar changes in the availability of the Earned Income Tax Credit for married couples.

The White House proposal has yet to pass the Senate, but the House quietly adopted it in July as part of a measure that specified which policies Congress could extend and which would be subject to strict new pay-as-you-go rules. At the time, House leaders questioned the rationale for extending stimulus provisions without paying for them. "The distinction the White House made was that, unlike [Obama's signature] Make Work Pay [tax cut], these weren't new tax cuts created by the Recovery Act, but were just an expansion of existing tax cuts," according to a House Democratic aide who was not authorized to speak publicly.

The idea struck many people "as being hard to defend," the aide said, but House leaders felt they had to leave them in to attract liberal votes for a measure that would permit the extension of other tax cuts that primarily benefit the wealthy, such as the inheritance tax.

© 2009 The Washington Post Company