The House Moves on the Federal Budget

House Democrats passed a $2.7 trillion budget on Thursday, despite losing a dozen conservative Democrats on the vote. Republicans decried the funding for relying on the expiration of tax cuts to balance the budget. Post staff writer Lori Montgomery was online Friday, March 30 at noon ET to explore the fine print and negotiations and take your questions.

Democrats' Budget Plan Narrowly Passes in House (Post, March 30)

The transcript follows.

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Lori Montgomery:

Good afternoon, everyone. As you may know if you're logged onto this chat, the House and Senate have both approved budget resolutions that would spend more money on domestic programs without cutting defense, raising taxes or adding to the federal deficit. The whole shebang is headed to a conference committee soon after Congress gets back from its Easter break. Looks like we have a few questions about the process, so let's get to it....

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washingtonpost.com: How do you see the issue of the tax cuts playing out in House-Senate negotiations? Do the cuts need to be included for the budget to pass both houses?

Lori Montgomery: The tax cuts are probably the most important issue pending right now. The House budget assumes the cuts expire on schedule in 2010, prompting House Republicans to accuse Democrats of plotting "the biggest tax cut in American history," a line they've repeated pretty much endlessly. And it seems to be working, too, because a dozen conservative Democrats (well, 11 plus Dennis Kucinich) voted against the House budget yesterday.

The Senate, meanwhile, voted to "permanently extend" many of the cuts under pressure from moderate Democrats. Which means their budget makes the cuts "permanent." I'm using quotation marks, because this permanent extension includes only enough money to cover the cost of the cuts for one year. But the cost of the cuts wiped out their projected surplus in 2012, taking away their claim to have balanced the budget.

House leaders aren't keen to follow suit,at least not yet, so it will be interesting to see how they resolve the issue.

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washingtonpost.com: What was the payoff of the anti-earmark rhetoric from earlier in the session? We know the Iraq funding bill has some unrelated projects tacked on; how pork-free is this budget?

Lori Montgomery: At this point, it is totally pork-free, because the pork generally gets added in the Appropriations Committee (among others). What the House and Senate have passed is a budget resolution, which merely provides top-line numbers for spending and revenue. The details -- and any earmarks -- will be filled in later as 11 appropriations bills make their way through Congress.

As for the numbers, both houses have increased cash for domestic programs over the president's request -- by about $18 billion in the Senate and about $25 billion in the House. That money is dedicated mainly to education and veterans' services, among other programs.

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Tysons Corner, Va.: Is there any sense that the Democratic leadership will deal with the country's real fiscal problem: the coming fiscal tsunami from Social Security and Medicare? My hunch is they'd rather not, which makes them no different than the crowd they replaced.

Lori Montgomery: Um, no. The Democratic leadership, like the president, talks endlessly about the looming entitlement problem, defined as the skyrocketing costs of Medicare, Medicaid and Social Security as health care costs rise and the baby boom generation retires. But nobody seems ready to talk seriously about solutions like raising taxes or cutting benefits, all of which are politically painful.

To Bush's credit, the president did offer some benefit cuts in his budget, particularly to Medicare, that would have dramatically reduced the rate of growth in Medicare spending. And Democrats may yet tap some of those ideas.

But most parties agree that the entitlement problem will require a grand bargaining session between congressional leaders and the White House. Some senators are working on setting up such a session, but it isn't getting much traction and most observers think the entitlement issue will be put off until after the 2008 election.

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Helena, Mont.: The tax cuts had a sunset so the Republicans did not have to give the full cost of them at the time they were enacted. If they are made permanent, why wouldn't the full cost have to be given at that time? I think they should be allowed to expire, myself -- this whole thing was too cutesy by half at the time, so if some people's taxes go up in 2010, then they go up.

Lori Montgomery: You're exactly, right, Helena. Republicans added the 2010 sunset so the cuts would appear to be less expensive. Now they argue that the cuts should be extended without corresponding spending cuts or tax increases to cover the cost (about $1.6 trillion over 10 years, if I'm not mistaken).

This is the signal difference between Republicans and Democrats on tax policy right now. Democrats want to extend some of the cuts (particularly the child credit, the marriage penalty relief and the 10 percent tax bracket), but they insist that the revenue lost by extending those cuts has to be made up elsewhere so the nation can start to bring down the budget deficit ($248 billion last year) and pay off the debt (which is rapidly approaching $9 trillion, much of it owed to foreign nations).

Should the cuts be allowed to expire? According to Republicans, the average family would take about a $2,600 hit. And that's why Democrats are finding it so difficult to simply say: They're gone.

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Princeton, N.J.: Republicans claim that Bush's tax cut actually increased tax revenue. We now know that is a lie -- they decreased tax revenue almost a trillion dollars. They claim that letting the cuts lapse would ruin the economy, but that would just put us back into the situation we were in with Clinton, when we had the best economy in history!

Lori Montgomery: It's probably a bit more complicated than that. Most economists agree that the tax cuts did spur the economy at a time when the 2001 terror attacks and the popping of the stock market bubble had left folks feeling low. So it's not clear that getting rid of the cuts would have zero impact on the economy.

On the other hand, as you point out, Princeton, the economy boomed in the wake of the 1993 tax HIKES under Clinton. So it seems unlikely that letting tax rates bounce back to 2001 levels would "ruin" the economy now.

As for the matter of whether tax cuts spur enough economic activity to generate sufficient new revenue to replace the money lost to the treasury by cutting taxes in the first place, well -- just about nobody believes that (including this administration, despite public statements to the contrary).

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Washington, D.C.:"According to Republicans, the average family would take about a $2,600 hit." Could you put this into context? And what do you mean by "average family"? It seems irresponsible to just relay this without comment. Thanks.

Lori Montgomery: I don't think there's much disagreement about the assertion that most families benefited from the Bush tax cuts (unless you pay the alternative minimum tax -- but that's a WHOLE different conversation). The question has been: who benefited the most?

I haven't parsed the benefits of the Bush tax cuts lately, but the Tax Policy Center has loads of charts on their web site that can help you tease the issue apart. I think the Republican assertion means exactly what it says: on average, households saved around $2,600 a year in taxes thanks to the various rate reductions, credits and whatnot.

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Re: Helena's Question: Is that $2,600 for the average family (middle 50 percent) or the average amount of the tax increase for any family? I think the arguments largely get lost in political rhetoric, but if someone making $10 million pay an extra $100,000 in taxes, they are subsidizing the increase for a lot of others.

Lori Montgomery: You guys are going to force me to hunt down that Tax Policy Center report, aren't you?

While I'm looking for it, I do remember this: The tax cuts skewed tax COLLECTIONS slightly so that rich people pay a slightly higher percentage of total taxes, which is why conservative budget analysts (and the Bush administration) call them progressive. But the benefits are skewed so that rich people also reap a bigger increase in after-tax income than poor people do, which is why many other economists and tax analysts call them regressive.

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Rockville, Md.: Why does family that has kids get even more tax relief than a family that decides to go childless, and thus do their own part to not overpopulate an already overpopulated planet?

Lori Montgomery: Because our nation's leaders have decided that it's a good idea to encourage people to reproduce. That way, when you retire, there will actually be younger workers around to pay your Social Security and Medicare bills.

But, buck up. With an increasing number of childless households in America, perhaps this will change.

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Princeton, N.J.: I am a mathematician and I believe "the coming fiscal tsunami from Social Security and Medicare" is hogwash. We were told of surpluses "as far as the eye can see" in 2000 and that turned out to be nonsense in five years. How can you expect the same people to accurately predict what the Social Security Trust Fund will be in 20 or 30 years? As far as health care goes, by adopting a vastly more efficient single-payer system (like every wealthy country) we could save enough to get us through the next ten years at least.

Lori Montgomery: You are wise to question the projections. A former GOP Hill aide asked the Congressional Budget Office to calculate exactly how those "surpluses as far as the eye can see" disappeared. From 2001 to 2006, the budget gap swung from a $2.3 trillion projected surplus to an actual deficit of $1.4 trillion, a difference of $3.7 trillion dollars. According to CBO, about $1 trillion was due to tax cuts. Another $1.3 trillion was due to increased spending. But the biggest change of all was "economic and technical corrections." Which means they flat got it wrong to the tune of $1.4 trillion.

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Princeton, N.J.: Sorry to submit so many comments, but the reason the average family's tax bill would go up so much is because the rich families' losses enormously raises the "average."

Lori Montgomery: That may be. But, again, I haven't gotten into the tall grass on the Bush tax cuts lately. Anyone interested in greater detail should check out this Web site.

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Washington, D.C.: I understand that the farm bill went from $84 billion to $126 billion! Is that mostly pork? Where are those extra billions coming from?

Lori Montgomery: Forgive me, I am not up to date on farm bill doings. My understanding is that the budget resolutions would leave the farm bill at approximately the same spending level as last year, but would create a mechanism to allow the farm-inclined in Congress to add money to the program by finding spending cuts elsewhere. In other words, any increase would be subject to the same pay-as-you-go standards that are causing such headaches for the folks who want to keep the tax cuts.

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Princeton, N.J.: Me again, to help out Washington -- what they did was simply add up the savings of each family and divide by the number of families. Poor people who paid no tax got no benefit and would have to pay no more if the cuts were repealed. Rich people would lose a lot. What you should ask is how much the median cost would be. I don't know the answer, but I'm sure it's a lot less than $2,600.

Lori Montgomery: I'm not sure that's true. A quick glance at the web site I posted above shows that 51 percent of joint filers and 75 percent of joint filers with children got a tax break of at least $1,500 in 2006 (by Tax Policy Center estimates).

On the other hand, 28 percent of filers saw ZERO tax benefit, according to the report, so there you go.

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Princeton, N.J.: Ugh, Lori, the reason that the rich are paying a higher percentage of the taxes is because they are acquiring a larger part of the income of the country, not because the cuts are skewed again them. In fact the opposite is true.

Lori Montgomery: I don't think I said the tax cuts were skewed against them. The tax cuts AREN'T skewed against them. The rich ALWAYS pay a higher portion of the taxes because they make a higher portion of the money. I was referring to the change generated by the tax cuts, about which there is a raging debate. Conservatives say: Hey, look, our tax cuts made rich people pay a greater portion of total taxes! That means they were progressive! And liberals say: Horse hockey!The more important measure is after-tax income, and on that score, the rich people are making out like bandits!

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Lori Montgomery: And on that happy note, I must sign off. Thanks for chatting! And I promise to bone up on the tax cut distributional charts before I venture online again!

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