Borrowing from Abroad to Eliminate ‘Phony Revenue?’
In a welcome break from past policy, the Obama administration last week announced that it will abandon a handful of deceptive budget gimmicks used perennially by the Bush administration to make federal deficits appear much smaller than they actually were.
Among those gimmicks, Bush & Co. would tally the alternative minimum tax as revenue even as everyone knew that Congress tweaks the AMT law each year to prevent millions of families from paying the tax.
(Enacted in 1969, the AMT was targeted to the wealthy, but never indexed for inflation, leaving more and more middle class families to face the tax each year — and leaving Congress with little choice but to intervene or suffer the political consequences. But the intervention doesn’t come cheap, and the annual debate usually features a lot of (not-unjustified) screeching from fiscal hawks about how to offset the tab. The conclusion of this debate, at least recently, is always the same: borrow from abroad to “patch” the AMT, and someone else will pay the tab later.)
Budget watchdogs have cheered the Obama administration’s budget changes, the idea being that the more honest accounting — which will necessarily lead to much higher official deficits — will heighten the pressure on Washington lawmakers to balance the federal budget, thereby stemming our current reliance on borrowing from abroad to run the country.
The AMT change found a receptive audience in Sen. Charles Grassley (R-Iowa), the highest ranking Republican on the Senate Finance Committee, who issued a statement Friday applauding the administration for eliminating the “phony revenue source:”
It’s good to see the White House and more and more Democrats finally recognize AMT revenue as the phony revenue source it is. I’ve sounded the drumbeat since 2001. Some Democrats agreed early on, but the House Democratic leaders held out last year as long as they could. It will be interesting to see whether they agree with the new Democratic president.
The statement makes Grassley out to be a champion of fiscal sobriety. Unmentioned was the fact that he was largely responsible for sticking a $70 billion AMT patch into the $787 billion economic stimulus bill signed by President Obama last week. Of course not one penny of that bill was offset.