Safety Net and Tax Extender Proposals Are Still Not Paid For
CBO and JCT have released updated cost estimates of the most recent version of the American Jobs and Closing Tax Loopholes Act (H.R. 4213), a bill that is scheduled to be brought to the House floor tomorrow. The bill would cost about $190 billion over the 2010-2020 period, only 30% of which would be paid for (meaning the bill will increase the deficit by $134 billion). Though the deficit spending in the bill is technically exempt from statutory PAYGO it is none-the-less unacceptable and dangerous.
The bill's main components include a year and a half extension of unemployment benefits, the continuation of elevated Medicaid matches to states, a five-year "doc fix," and a package of one-year "tax extenders."
Below is a table with more specifics:
|Provisions in H.R. 4213||2010-2015||2010-2020|
|Extension of Unemployment Benefits||$47||$47|
|Extension of Elevated Medicaid Matches to States||$24||$24|
|COBRA Health Insurance Subsidies||$8||$8|
|3-Year "Doc Fix"||$65||$63|
|Sub-Total Spending Changes||$155||$150|
|Expansion of Build America and Related Bonds||$4||$8|
|One-Year "Tax Extenders" Package||$32||$32|
|Pension Reform Provisions||-$6||-$2|
|Sub-Total Tax Changes||$30||$38|
|Gross Cost of Bill||$185||$188|
|Taxation of Carried Interest as Regular Income||-$13||-$30|
|$0.32/barrel Oil Spill Liability Tax||-$6||-$11|
|Other Revenue Increases||-$8||-$15|
|Net Cost to PAYGO Scorecard||-$158||-$134|
|Addendum: Amount Exempt from PAYGO Requirements||~$140||~$140|
Note: Numbers adjusted to account for timing gimmick between 2015 and 2016; Numbers may not add to totals due to rounding.
Despite increasing the deficit quite significantly, the bill does not appear to violate statutory PAYGO. That's because two types of changes "emergency spending" and "current policy adjustments" (including AMT patches, doc fixes, and the renewal of most of the 2001/2003 tax cuts) are exempt from PAYGO. Since the authors of the bill classified $80 billion as emergency spending (for unemployment, COBRA, and Medicaid matches) and included a 3-year doc fix, they only had to pay for a small portion of the bill.
This may be legal, but its also dangerous. The markets will not let us increase our borrowing by hundreds of billions of dollars at time forever, no matter what type of legal exceptions we make for this borrowing.
We understand that some of these actions are critical -- but they are no more critical than the need to pay for them. Stimulating the economy in the short-term can be accompanied with offsets over the longer-term, so that the economy can receive a near-term boost without further jeopardizing our fiscal footing in the out years.
We've written a lot about this in the past few weeks (see here and here), but it appears that many lawmakers still don't believe these provisions are important enough to offset. The country is currently set to borrow almost $6 trillion over the next decade, but this number could increase to over $12 trillion if current policies continue. Something needs to be done -- but at the very least, we should stop adding to the debt.
Fortunately, there are a few members of Congress who are working to find offsets for this bill. Freshman Congresswoman Kathy Dahlkemper (D-PA), who voted for last year's economic stimulus bill, has said she will likely oppose this package due to its impact on the deficit. Senators Snowe, Collins, and Nelson have also been looking and pushing for more offsets.
As Dahlkemper explained, "it's time to start paying for things... We've done some good things, but one of the best things we could do right now is get control of our fiscal house."
We couldn't agree more.