Papa's Got A Brand New Bill
Over the past few weeks, passage of an "extenders" bill has become the top priority of Congress. The bill, HR 4213, finally seems to have a definitive shape to it after both Houses of Congress considered a laundry list of provisions for inclusion. The core of the bill includes many extensions on social spending, such as unemployment benefits, COBRA subsidies, and temporarily increased Medicaid reimbursement rates to states. In addition, a five-year "doc fix" has been included in the bill. It also includes the extension of many temporary tax provisions, such as the research and development tax credit and the state sales tax deduction. A fix to the estate tax was also talked about being added to the bill, but it appears that may not be happening.
Overall, the bill's cost is estimated in the $200 billion neighborhood, with a significant chunk of that coming from the social spending. Extensions for unemployment benefits, COBRA, and Medicaid reimbursements will cost about $80 billion, and the doc fix has a price tag of $88.5 billion. The total cost of the tax extenders comes in at about $50 billion.
The bigger problem with this bill is the offsets. So far, House and Senate Democrats have only committed to offsetting the cost of the tax provisions, with the main offset being the taxation of "carried interest" as ordinary income instead of at the lower capital gains rates. Obviously, this is not enough: only paying for the tax provisions would leave about 75% of the bill unpaid for, with the costs of much of it being deemed "emergency spending."
We've seen this move since the passage of statutory PAYGO back in February. In a press release today, CRFB blasted the use of the "emergency spending" tag in relation to stimulus measures, and argued that statutory PAYGO should be strengthened to close the loopholes that allow fiscally irresponsible measures to be pushed through. Using the emergency spending crutch may be politically convenient, but ultimately PAYGO exists so that we don't continue to add to our long term debt.
Fortunately, Republicans and some moderate Democrats are concerned about the lack of offsets, so Congress may need to pay for the whole bill before it gets passed. We obviously encourage lawmakers to work together to find the offsets necessary to do so. As we have said many times before, if Congress wants to enact a short-term stimulus measure, they would make it more effective by paying for it in the long term.