The Office of Management and Budget (OMB) released its mid-year budget review on July 13 and trumpeted the lower than expected deficit projections for 2005. The self-congratulatory rhetoric coming out of the White House since has overshadowed true problems down the road. While OMB has lowered its deficit projections for 2005 from $412 billion to $333 billion and continued to claim President Bush is well on his way to cutting the deficit in half by 2009, they continue to omit crucial aspects from their budget analysis and downplay more pressing budgetary concerns beyond 2009. First, the recently released projections to not include a fix to the Alternative Minimum Tax (AMT) after 2005. Many analysts are crediting the expanding reach of the AMT as one of the reasons individual and corporate tax receipts increased so unexpectedly over the last six months. It is widely accepted that Congress will take action soon to restrict the number of Americans who pay the AMT. This will have a profound impact on tax receipts, causing them to fall and in turn increase deficits. For OMB to omit this aspect is misleading and irresponsible. Secondly, as they have done repeatedly, OMB ignores the impact of current policies after the five-year window ending in 2009. According to the White House's own budget calculations released in the president's FY06 budget, if current policies are extended, deficits will begin to climb again after 2009. If these policies continue until the retirement of the baby-boomer generation about a decade later, deficits will skyrocket, reaching double digits as a percentage of GDP. Finally, the mid-year review does not reflect changes to tax policy scheduled to be debated and enacted this fall. Congress agreed to a budget resolution earlier this year calling for $106 billion in additional unpaid-for tax cuts to be passed by year's end. This alone will wipe out the $94 billlion improvement in the deficit OMB is forecasting. Until the White House, and to a certain extent Congress, begin to be more honest and forthright about budget projections and the future effects of changes in tax policy (beyond artificial five- or ten-year windows), budget policy in the U.S. will continue down a dangerous path.

The Treasury Department has told Democratic senator Max Baucus (D-MT) that the $8.184 trillion ceiling on government borrowing will not need to be raised this year, confirming speculation that the improvement in tax receipts seen in 2005 will allow Congress to avoid the politically charged issue for the first year since 2001. Despite this seemingly good news, Baucus called attention to the continually disturbing broader financial picture, noting that the debt limit has been raised four times and over $3 billion since 2002. "In the face of record deficits, the government needs to show more fiscal discipline," Baucus said in a news release. Taxing Internet Porn Speaking of tax receipts, Senator Blanche Lincoln (D-AR) and eight other democratic senators have introduced the Internet Safety and Child Protection Act of 2005 (S.1507), which would impose a 25 percent tax on "Internet pornography transactions." The revenues would be dedicated to a fund to support law enforcers and organizations that combat Internet and pornography-related crimes against children. News Coverage: Arkansas News Bureau Washington Post

Although President Bush and Congressional Republicans have tried to sell the tax breaks in the energy bill as providing support for alternative energy and increased efficiency, the $14.5 billion tax package does not award nearly enough to these endeavors. Instead, 58 percent of this will go to tax breaks for traditional energy industries, including oil, natural gas, coal, electric utilities and nuclear power. This tax package, which was negotiated behind closed doors, will most likely be approved by Congress later this week. Keith Ashdown, vice president of policy at Taxpayers for Common Sense, said, "They've created a complicated scheme of making sure a lot of different profitable energy industries are going to make off like bandits." He also said the tax breaks help companies "pad their bottom line, but it doesn't really create new behavior in the energy industry." Sen. Jeff Bingaman (D-NM) of the Finance Committee commented that he wanted to see more spent on alternative energy and conservation. The $14.5 billion in tax breaks will be partially offset by $3 billion in revenue that the bill will generate. The Joint Committee on Taxation has scored the bill as having a net cost of $11.5 billion over 10 years.

Washington Post: Energy Tax Breaks Total $14.5 Billion (7/28/05)

Taxpayers for Common Sense: Statement on the Energy Bill

Joint Committee on Taxation: Estimated Budget Effects of the Conference Agreement for Title XIII of H.R. 6, the "The Energy Tax Incentives Act of 2005"