Who Would Pay For the House's "Free Lunch" Tax Cuts?

Publication Date: May 2004

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Joel Friedman; Isaac Shapiro

Research Area: Banking and finance; Economics

Keywords: Economic projections; Tax code; Fiscal future; Income diversity

Type: Report

Abstract:

The House of Representatives has adopted three tax-cut bills over the past three weeks, and it is expected to pass another this week. These four bills largely involve provisions that were first enacted in 2001 and then accelerated in 2003. The bills would make permanent the creation of the 10 percent bracket and tax reductions for married couples enacted in 2001 and make permanent a version of the child tax credit that benefits many more upper-income families than the original 2001 measure. The House would also extend relief from the Alternative Minimum Tax for one year.

A fundamental problem with these four bills is that they do not include offsets to pay for their tax cuts. Given the specter of persistent deficits for years to come, it is unwise to be considering tax cuts without paying for them. Nor is it responsible to consider making tax cuts permanent without first enacting long-term AMT relief, because of the distorting effects that the AMT, and its spread to tens of millions of taxpayers, has on cost estimates for other tax cuts. The House bills simply ignore these issues, leaving it to future Congresses and future generations to pick up the tab and grapple with the fiscal challenges that will confront the nation when the baby-boom generation begins to retire.