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The Spending Must Stop

Posted By Curtis Dubay On May 25, 2010 @ 7:53 pm In Economics | Comments Disabled

Congress is at it again, spending more taxpayer money and significantly adding to the deficit in the process. This latest bout of irresponsible spending is $174 billion tacked on to an otherwise necessary bill to extend long-established, mostly sensible tax-reducing provisions known as the “tax extenders [1].”  The legislation, dubbed Stimulus IV by some, is officially called The American Jobs and Closing Tax Loopholes Act of 2010, which either evidences a peculiar form of dark humor or simple political cynicism.

The new spending in the bill arises mostly from extending 4 programs: increased Medicare spending, also known as the doctor fix [2] ($63 billion); continuing the extension of unemployment insurance at 99 weeks ($47 billion); yet another Medicaid bailout [3] for the states ($24 billion); and an extension of COBRA health insurance coverage [4] ($8 billion).

The Heritage Foundation recently posted an analysis of all the provisions – including all the new spending, tax hikes and other bad policy choices – in the tax extenders bill which can be found here [5].

In total, all the overspending will add $134 billion to the deficit [6]. That sum is finally causing some in Congress to gag. Senator Kent Conrad (D-ND) has said that the cost of all the spending is “too high.” [7] Conrad is chairman of the Senate Budget Committee, so he should know.

Conrad’s reluctance to accept more reckless spending by Congress shows some in Washington are starting to wake up to the fact that the American people want an end to all the deficit spending.

Conrad’s hesitation could put the entire bill in jeopardy. That would prevent the spending increases – for now, but it would also further delay the long-overdue passage of the tax extenders – 45 tax-reducing provisions that expire this year. Congress has still not passed them almost 5 full months into 2010, and for the most part they would only be extended through 2010, leaving their status for 2011 still in doubt.

Businesses and individual taxpayers are pressuring Congress to act soon so they can have some assurance in their tax planning for the remainder of the year, and next. Who can blame them? It is long past time for Congress to approve these necessary extensions.

Congress has been slow to pass the extenders in part because it wrongly insists [8] on applying pay-as-you-go (PAYGO) budget rules to their extension.  The issue is pretty simple:  Allowing these provisions to expire imposes a tax hike.  Congress treats their extension as a tax cut.  So in Washington, to avoid a tax hike Congress finds it has to raise taxes.  That’s as crazy as it sounds.  Of course, Congress has no problem waiving PAYGO requirements for all manner of spending by designating the most wasteful spending an “emergency”, but when it comes to tax provisions that are long-held policies it draws the line and requires they be “paid for.”

It gets worse.  After years of this PAYGO folly with respect to the tax extenders whereby taxes have to be raised to avoid a tax hike, Congress has run out of relatively painless taxes to raise, so it has turned to an economically menacing tax hike to offset the cost of the extenders.  It has chosen to reduce the effectiveness of the foreign tax credit that United States businesses that operate overseas use to limit double taxation. This will drive even more jobs overseas [9], despite the protestations to the contrary by its supporters.

Congress should stop the madness and drop the spending hikes in the tax extenders bill. It should then go about its necessary businesses of permanently extending the sound policies in the extenders without the egregious tax hikes to offset them. Doing so would give businesses and individuals the stability they need and prevent yearly tax hikes.  Eliminating this uncertainty and the threat of tax hikes would be real stimulus.

At the same time, removing the spending from the bill would show that Congress finally recognizes what everyone from Greece to California is now painfully aware of: The spending must stop.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/05/25/the-spending-must-stop/

URLs in this post:

[1] tax extenders: http://www.heritage.org/Research/Reports/2009/12/Tax-Hikes-Unnecessary-for-Extension-of-Current-Policy

[2] the doctor fix: http://blog.heritage.org../../../Documents%20and%20Settings/fosterj/Local%20Settings/Temporary%20Internet%20Files/OLKDB/1%29Doctor%20Fix.%20H.R.%204213%20still%20does%20not%20provide%20a%20permanent%20solution%20to%20the%20problem%20of%20low%20Medicare%20reimbursement%20for%20doctors.%20Cleverly,%20Congressional%20leaders%20removed%20this%20costly%20fix%20from%20their%20health%20care%20overhaul%20and%20instead%20have%20kicked%20the%20can%20down%20the

[3] another Medicaid bailout: http://www.heritage.org/Research/Reports/2008/09/State-Medicaid-Reform-First-Before-Payment-Increases

[4] COBRA health insurance coverage: http://www.heritage.org/Research/Reports/2002/04/Why-COBRA-Should-Not-Be-The-Only-Option-For-Displaced-Workers

[5] here: http://www.heritage.org/Research/Reports/2010/05/Routine-Tax-Extenders-Package-Contains-New-Irresponsible-Spending-and-Tax-Hikes

[6] add $134 billion to the deficit: http://www.cbo.gov/ftpdocs/115xx/doc11523/hr4213_LevinLtr.pdf

[7] cost of all the spending is “too high.”: http://online.wsj.com/article/SB10001424052748704026204575266562348185730.html?KEYWORDS=COREY+BOLES

[8] wrongly insists: http://www.heritage.org/Research/Reports/2008/08/Obama-to-CBO-Revenue-Baseline-Nuts-and-Hes-Right

[9] drive even more jobs overseas: http://www.heritage.org/Research/Reports/2009/05/Obama-International-Tax-Plan-Would-Weaken-Global-Competitiveness

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