It's been a busy news day for tax and budget news and the last item is the biggest. The Congressional Budget Office has released its estimates for the cost of President Bush's FY06 Budget. The CBO regularly estimates the cost of legislation and policies for the Congress and this report will greatly impact the way the Congressional Budget committees in the House and Senate write their FY06 budget resolutions, slated to be marked up by the committees next week. In their report, CBO estimates that President Bush's budget would keep deficits about $200 billion each year for the next decade and add over $1.6 trillion to the national debt that would otherwise occur if the policies were not enacted in that time period. CBO predicts a FY05 deficit of $394 billion and FY06 deficit of $332 billion. CBO also lowers the savings that would result from some of the president's cuts to mandatory spending. Overall, CBO estimates changes to mandatory spending would save $26 billion in FY06, not the $38.7 billion cited by the president. They also lower the estimate for savings in Medicaid and the S-CHIP program from $45 billion to $27 billion - almost half that amount. The most promienent conclusion in the report is surely that Bush will come up short of his promise to cut the deficit in half by 2009. It projects a deficit in 2009 of $246 billion, fully $40 billion short of Bush's goal. Further, neither Bush's budget nor the CBO report include many expensive future policies likely to be enacted, such as costs for overhauling Social Security ($1 to $2 trillion over 10 years), fixing the Alternative Minimum Tax ($754 billion over 10 years), or supplemental military costs for the wars in Iraq and Afhganistan (currently $82 billion for 2005). Despite this grim forecast, the administration and Republican leaders in Congress are steadfast in their support of making CBOs projections a reality by extending tax cuts to the wealthy without offsets to pay for them.

After testifying before the President's Panel on Tax Reform yesterday, Alan Greenspan received harsh crticism from one prominent Democratic Senator, Paul Krugman, and the New York Times editorial board. First off, Senate Minority Leader Harry Reid (D-NV) said yesterday on CNN's "Inside Politics" that has never been a big fan of Greenspan and criticized his testimony for giving the current administration a pass on deficits while promoting Bush's Social Security Policies. In typical Harry Reid fashion, he flings a zinger at Greenspan, calling him, "one of the biggest political hacks in Washington"read more Then today, op-ed columnist Paul Krugman writes, "In 2001, President Bush and Mr. Greenspan justified tax cuts with sunny predictions that the budget would remain comfortably in surplus. But Mr. Bush's advisers knew that the tax cuts would probably cause budget problems, and welcomed the prospect." Now that we are faced with budget problems, Krugman believes he sees Greenspan trying to provide cover. "And Mr. Greenspan has once again tried to come to the president's aid, insisting this week that we should deal with deficits 'primarily, if not wholly,' by slashing Social Security and Medicare because tax increases would 'pose significant risks to economic growth.'" read the op-ed And to make it three for three, the lead editorial in the New York Times suggests it is depressing it has taken Mr. Greenspan this long to suggest to Congress a tax increase to close the enormous budget deficit. They conclude "That should be a no-brainer, especially since the deficit - now at $412 billion - is largely due to tax cuts that President Bush and Congress have lavished on the most affluent over the past four years." read the editorial

After testifying on the deficit and the economic state of our country yesterday, Alan Greenspan spent this morning as a witness before the President's Advisory Panel on Tax Reform. The panel held their second hearing today, and their third is scheduled to take place in Tampa on tuesday, March 8th. The third hearing will focus how the tax system affects businesses and entrepreneurs; a list of witnesses has not yet been released. At today's hearing Greenspan spoke in favor of a "mixed" tax system that relied upon both consumption and income taxes to bring in national revenue and keep the economy strong. Accoring to Congressdaily, Greenspan indicated "displeasure at the idea of a moving toward a value-added tax, noting that some believe it is too effective a tool for raising taxes. He also indicated that a value-added tax would be too opaque." Also appearing before the panel today were former Treasury Secretary James Baker, who indicated a preference for a consumption tax, and IRS Commissioner Mark Everson. These hearings are meant to serve the panel in their task to provide viable suggestions to Secretary Treasury John Snow on how to reform the federal tax code. Their report will be submitted to Snow no later than July 31st of this year.

Federal Reserve Chairman Alan Greenspan testified before the House Budget Committee yesterday and painted a grim fiscal picture of the current state of the federal government. Greenspan noted decreasing the current deficits would require Congress and President Bush to make difficult political decisions. He said both decreases in spending and paying for future tax cuts would be necessary to tackle the deficit. Greenspan emphasized his long-standing position for the reinstatement of pay-as-you-go rules (PAYGO). These rules, a key aspect of the deficit reduction package that worked well in the 1990s, would require Congress to offset further tax cuts or increases in spending with savings elsewhere in the budget. The Bush administration and many top Republicans in Congress believe PAYGO rules should apply only to new spending. Read more about Greenspans testimony.