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  • Leveling the Budget Playing Field by Fixing A Kinky CBO

    Americans believe in fair play. They believe in equal opportunity, equal treatment under the law, a level playing field. We have so many expressions for this principle in part because it is so important to the American view of right and wrong.

    When it comes to taxing and spending in Washington, however, there’s a longstanding and substantial tilt to the field. With the introduction of House Concurrent Resolution 281, a complete budget plan for fiscal year 2011 introduced by Reps. Jim Jordan (R-OH) and Tom Price (R-GA) on behalf of the House Republican Study Committee, there is finally a remedy to level the playing field.

    The issue is a simple one. Congress debates tax policy and spending policy in terms of revenue and spending baselines provided by the Congressional Budget Office (CBO). Congress also frequently passes bills temporarily changing tax and spending policy. Examples include the scores of tax provisions now up for debate in the “extenders” bill, as well as really big picture spending programs like the highway bill, the farm bill, and the Medicare provision known as “doc fix.” The trouble arises because CBO does not treat expiring tax provisions the same way they treat expiring spending provisions.

    In constructing the 10-year revenue baseline, the CBO assumes that when a tax provision expires, it stays expired. So, for example, when the R&D tax credit expires, CBO assumes Congress will not extend it, and so raises the revenue baseline accordingly. This is an odd assumption since the credit has or would have expired repeatedly over the years, and Congress has always extended it. So CBO’s assumption that expiring provisions stay expired presents a very distorted picture of likely budgetary outcomes.

    In sharp contrast, when spending policies expire, CBO assumes Congress will extend them. So CBO assumes that even though the highway program has expired, the Congress will take some action to continue federal support for the highway program at least at current levels, and so CBO’s spending baseline reflects this assumption. Congress’ actions to extend the highway program temporarily support this assumption.

    CBO’s inconsistent treatment of expiring tax and spending provisions is long-standing but nevertheless indefensible. Since the purpose of the baseline is to reflect what would happen to revenues, spending, and the deficit if current policies are continued, and since policies are almost always extended, CBO should treat expiring tax provisions the same way it treats expiring spending provisions – assume current policy is extended. This is simple fairness. It would also lead to a more accurate budget picture which, given the disastrous state of the nation’s finances, is something some policy makers may not want, but badly need. The approach taken by the Republican Study Committee in H.Con.Res. 281 is a sound one and should be embraced by any Member interested in fairness in the budget process and accuracy in budget forecasts.

    Posted in Energy [slideshow_deploy]

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