After a week off, Members of Congress are starting to make their way back to Washington to start wrangling over the annual spending bills.
Since their departure, much has been learned about the tax cut that they passed just before the Memorial Day recess. Economists say that the tax cut will cost close to $1.8 trillion. The tax cut balloons to more than $2 trillion if you count the interest on the national debt that will not get paid off.
Americans need tax relief and there are some good provisions in this bill. For example, sending a lump-sum rebate of $300 – $600 is good for taxpayers and appeals to many economists. This kind of cash payment could kick-start the economy by enhancing the purchasing power of middle class Americans who are itching to buy a new washer and dryer, or a new set of car tires.
But, like the snake oil of years past, the tax bill may promise more than it can deliver. To hide the total cost of the bill, lawmakers resorted to time-tested budget tricks.
-Major tax cuts in the bill will be phased in slowly. Some of the cuts will only be fully in effect for a few months before provisions in the bill terminate them.
-The estate tax would end in 2010, but would be back in 2011. Only wealthy people who die that year could pass on their fortunes tax-free.
-The tax cut leaves out major tax-cut measures that are likely to pass in the near future, such as the passage of the Research and Experimentation tax credit and efforts to fix the serious problems with the Alternative Minimum Tax.
-A “Born in the 80's” College Tax Credit provides tax credits for college tuition between 2002-2005. Tough luck for students who start college in 2006.
These types of gimmicks will lead to a cost explosion in the tax cut bill. If Congress bows to political pressure to continue the bill's popular provisions past 2011, experts predict that the package could end up costing more than $4 trillion in the ten years after 2011.
A gimmicky tax cut bill and the pork feast in Washington we'll likely see starting in the next few weeks could lead us back to the dark days of deficits, or at least force Congress to dip into the Social Security or Medicare surpluses to pay for our spending and tax cutting addictions.
This could be a record. In the matter of months, record surpluses could become deficits. It's not a record to be proud of.