Will budget plan raise taxes? It's in the eye of the beholder

Implications of $2.9 trillion federal blueprint are subject to spin

May 18, 2007|By Joel Havemann | Joel Havemann,LOS ANGELES TIMES

WASHINGTON -- The House and Senate approved yesterday a $2.9 trillion federal budget blueprint that, depending on whom you asked, contained the second-largest tax increase in history or no tax increase at all.

How are such different readings of one document possible? It could happen only in the world of Washington budget-speak, where political spin is at least as important as fiscal reality.

The new budget resolution, the first to make its way through Congress since the Democrats took control in January, in addition to almost $3 trillion in spending, anticipates just under $2.7 trillion in revenues, leaving a projected deficit of about $250 billion.

Everyone agreed on that yesterday - but on little else, especially not on the politically sensitive issue of whether taxes will go up or down or stay the same.

At the heart of the dispute are the huge tax cuts that President Bush pushed through Congress soon after taking office in 2001.

Congress, then controlled by Republicans, approved the cuts but specified that they would expire after 2010 unless Congress extended them - a provision designed to make the size of the cuts more palatable. The GOP has since sought to make the cuts permanent.

Now the Democratic majorities in the House and Senate have voted to let some of the cuts expire - particularly those that benefit the wealthiest taxpayers.

For example, the new budget resolution would allow tax rates on high-income Americans to revert to their pre-2001 levels in 2011.

That's how Republicans can accuse the Democrats of approving big tax increases, while the Democrats can argue that they're just letting stand a law that Republicans created.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said the Democrats' budget would begin to restore "fiscal responsibility" to a budget that was in surplus when Bush took office in 2001 but quickly swung to record deficits because of the deep tax cuts.

The Democratic sponsors of the budget said it would nudge the budget back into surplus by 2012, when revenues were projected to exceed spending by $41 billion.

By itself, the budget - technically a resolution, not a law, so that it takes effect without the president's signature - does not raise or spend a dime. It merely sets targets for Congress to shoot for as it passes spending and tax legislation for the fiscal year that begins Oct. 1. It is this implementing legislation that Bush can sign or veto.

At the same time, the new budget makes an important change in congressional rules, effective immediately.

The budget would re-institute the expired pay-as-you-go rule, which requires that any legislation to increase federal benefit programs be accompanied by provisions - either tax increases or spending cuts - to offset the impact on the deficit.

Still, the most contentious part of the congressional budget was its tax side. Republicans insisted that anything short of full and indefinite extension of the Bush cuts - including lower rates, an enhanced child-care credit and "marriage-penalty" relief - would be felt by American taxpayers as a tax increase in 2011.

"The typical taxpayer is going to say, `Yes, this constitutes a tax hike,'" said Sen. John Thune, a South Dakota Republican.

Democrats responded that their budget - which made room for the extension of many of the tax cuts for lower-income and middle-income taxpayers - could not be construed as raising taxes.

"There's no tax increase here," Conrad said. "There just isn't."

Joel Havemann writes for the Los Angeles Times.

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