- The Washington Times - Sunday, June 17, 2007

Ever since President Bush unveiled his 2008-12 budget blueprint in February, the White House and congressional Republicans have been pointing to a surplus in 2012 “without raising taxes.” Let’s look at the numbers.

The 2008 budget projected a 2012 “unified” surplus of $61 billion only after it assumed more than $400 billion (2008-12) in tax increases, the majority of which will hit the middle class) and tax-related debt-service savings. “Unified” is the technical term for the 2012 budget balance that will remain after Congress and Mr. Bush’s successor take an estimated $248 billion in Social Security surpluses that year. In 2012 alone, the not-so-hidden tax increase (and debt-service savings) would total $109 billion, according to calculations by the Congressional Budget Office (CBO).

CBO reviewed the entire five-year plan, which, in addition to the assertions about not raising taxes, is based on a slew of spending assumptions. CBO concluded that fiscal year 2012 would actually produce a unified deficit of $31 billion, not the $61 billion surplus projected by the White House.

CBO, as it is compelled to do by law, pretended that those spending assumptions would actually hold. Among the most brazen assumptions is that spending on the global war of terror (at least $150 billion in 2008) would be zero in 2010, 2011, 2012 and presumably forever thereafter. The administration’s standard excuse is that the war-on-terror expenditures are difficult to project. True enough. But when your goal is to project a “unified” surplus five years hence (and four years after you have left office), it is unfair to assume that spending will be zero in 2012. Based on the administration’s five-year forecast for the consumer price index, inflation-adjusted security spending in 2012 will be 14 percent below the 2008 level. This assumption involves the pretense that nominal non-security discretionary outlays will decline every year through 2012 — every year.

What’s more? Let’s pretend that CBO confirmed a balanced budget in 2012. What about the Republican claim that the budget will have been balanced “without raising taxes”? How universal is this assertion? On Feb. 6, in an economic-policy speech about “fiscal responsibility” delivered to mostly middle-class employees at Micron Technologies in Manassas, Va., President Bush said: “I submitted a budget yesterday that says we can balance the budget by 2012 without raising your taxes.” The next day, in prepared testimony before the Senate Budget Committee, Office of Management and Budget Director Rob Portman said: “[T]his budget demonstrates we can achieve balance by 2012 without raising taxes.” At a news conference the following day, House Minority Leader John Boehner said: “I am pleased that the president submitted a plan that will balance the budget over the next five years without raising taxes.” On March 1, at the annual Conservative Political Action Conference, Vice President Dick Cheney said: “Last month the president submitted a budget that continues reducing the deficit each year and balances the budget by 2012 without new taxes.” As recently as June 1, the White House issued a press release asserting that “President Bush’s FY 2008 budget lays out a detailed plan to balance the budget by 2012 without raising taxes.”

There’s a basic problem with this running theme. Mr. Cheney was accurate, using the term “new taxes.” But for the millions upon millions of middle-class families who will be hit with the alternative minimum tax (AMT) for the first time in 2008 and every year thereafter, the AMT surely qualifies as a “new tax” to them.

Nobody expects that the White House and Congress will fail to administer the annual AMT “patch,” which would prevent the number of mostly middle-class families affected by the AMT from increasing to 23.4 million in 2007 from 3.5 million last year. (By 2016, without an AMT “fix,” nearly 50 million taxpayers would be affected by it.) The point is that Mr. Bush’s budget assumes the AMT will, in fact, hit the middle class and generate all the additional tax revenue implicit in the assumption.

Enacted nearly 40 years ago to make sure the wealthy paid at least some “minimum” level of income tax, the AMT (unlike the regular income tax) has never been permanently indexed for inflation. As a result, absent an annual “patch” or a permanent fix, the AMT threatens to ensnare tens of millions of families for whom it was never intended. According to a December 2006 analysis by the Congressional Research Service (CRS), in 2007 the AMT will begin affecting taxpayers (with two children) filing joint returns with an income as low as $66,114. For families with six children, the AMT will begin to bite below $50,000.

When the AMT exceeds the regular income tax, the AMT applies. CRS estimates that married couples with two children under 17 earning $80,000 this year will see their income taxes rise by $1,527. For comparable families earning $100,000 and $150,000, the AMT-related tax increases in 2007 will be $2,527 and $3,027, respectively. The Bush budget assumes these tax increases will be assessed throughout the 2008-12 period, putting the lie to the relentless assertion that the budget will be balanced in 2012 “without raising taxes.”

Patching and fixing the AMT is expensive. By pretending there will be no AMT patch, Mr. Bush’s 2008 budget effectively assumes that these additional revenues will be forthcoming. CBO calculates that indexing the AMT for inflation, coupled with the interactive effect of extending the 2001 and 2003 tax cuts and AMT indexation, would cost $402 billion (2008-12) and an additional $864 billion (2013-17).

The numbers don’t lie. Stop the talk about balancing the budget “without raising taxes.” And that goes for Republicans as well as Democrats.