Grassley Glum About Finding Offsets for Tax-Cut Extensions

Posted March 15, 2007 at 12:20pm

Senate Finance ranking member Chuck Grassley (R-Iowa) said today that his panel faces a monumental task when attempting to find offsets for extending tax cuts that expire over the next five years.

“It’s an impossible situation that we’re in,” Grassley told the Budget Committee during consideration of the fiscal 2008 budget blueprint submitted by Budget Chairman Kent Conrad (D-N.D.). That blueprint requires future tax-cut extensions to be fully offset under “pay-as-you-go” rules — that is, offset with revenue raisers or mandatory spending cuts.

Grassley said it will cost $916 billion to extend President Bush’s 2001 and 2003 tax cuts, to implement alternative minimum tax relief and renew popular tax breaks that are normally extended on a year-to-year basis.

“The president’s budget contains a package of 16 tax gap measures that [Joint Taxation Committee] scores as raising $5.7 billion over five years,” Grassley said. “The Democrats have identified raisers that amount to $35.6 billion. … That’s only about five percent of the amount that’s needed to make this budget work.”

Conrad countered that the “tax gap” — the difference between taxes paid and taxes owed to the federal government — is one potential source for billions in additional revenues. The chairman has argued that the estimated five-year, $2 trillion tax gap can be shrunk if the Internal Revenue Service were to expand its enforcement initiatives.

“I don’t think civilization is going to end,” Conrad said, pointing to the 1.2 percent difference between the administration’s projected revenues over the five-year window ($14.8 trillion) and the assumptions contained in the chairman’s mark ($15 trillion).

Most of the big-ticket tax and spending assumptions within Conrad’s budget fall within the jurisdiction of Grassley’s Finance Committee, including a $50 billion reserve fund for the State Children’s Health Insurance Program. Since $15 billion for SCHIP is already built into the budget resolution’s baseline, Baucus and Grassley would have to find $35 billion in offsets in order to fully fund Conrad’s SCHIP placeholder.

“The net effect will be a massive tax increase, a deficit, or both,” Grassley concluded.

The Conrad mark does leave the Senate with two paths to circumvent the offset requirements. If, for example, the Finance Committee reports legislation extending AMT relief that is not deficit-neutral, the full Senate can waive the PAYGO rules with a 60-vote supermajority, or the body can agree to designate the bill as an emergency.