Yesterday the House and Senate passed their respective budget resolutions for FY 2006. Both votes were very close with the House passing their resolution 218 - 214, and the Senate passing theirs 51 - 49. One main difference between the two resolutions that could cause problems in conference pertain to cuts in entitlement spending. The House budget resolution includes very steep cuts to medicaid, while the Senate version does not. Yesterday Senators passed an amendment offered by Gordon Smith (R-OR) to strip the budget of Medicaid cuts and instead create a one-year commission to recommend changes in the program. The amendment passed 52 - 48. While the President's budget proposal laid out $51 billion worth of cuts to entitlement programs, the House proposal upped that amount, calling for $69 billion in spending reductions on entitlements. The Senate bill included $17 billion in entitlement reductions after $14 billion in cuts to Medicaid were removed by Gordon's amendment. When Congress returns from recess in two weeks the two chambers will conference to square their budget proposals. Two major issues of contention will be their differing levels of entitlement cuts, as well as the fact that the Senate raised the level of discretionary spending for FY06 by $5.4 billion -- to $848.8 billion. These differences, coupled with the fact that the House already had to pacify unhappy conservatives to get enough votes to pass the budget, means there is a chance no resolution will be passed this year. To read more click here and here.

This morning Alan Greenspan testified at a Congressional hearing on the Economics of Retirement. In his testimony before the Senate Special Committee on the Aging, Greenspan restated his support for the creation of private Social Security accounts. He is a proponent of these accounts partly because he believes diverting payroll taxes away from a fund that can be spent by Congress would allow lawmakers to see the true size of the budget deficit, and would pressure them to reduce it. He stated, "We need, in effect, to make the phantom 'lock boxes' around the trust fund real." Senator Clinton (D-NY) responded to these comments with criticism for Mr. Greenspan, whose 2001 testimony to Congress urging tax cuts to avoid a surplus, she said, "helped blow the lid off the lock box." The Bush tax cuts that Greenspan originally supported are currently largely responsible for our record-level budget deficit, and the fact that Congress must now cut spending on domestic programs in order to deal with this deficit. To read more about the hearing, click here.

In creating the budget blueprint for FY 2006, many members of Congress are looking to extend the dividend and capital gains tax cuts, which are slated to expire in 2008. The high costs of these tax provisions will add to our already record-level deficits and have negative long-term economic consequences. Economists at the Congressional Research Service and the Brookings Institution have concluded that extending these tax cuts would add to deficit levels and in fact cancel out many positive effects proponents of the tax cuts state they will have. Click here for more information. While the administration and many Congressional GOP leaders are pushing to extend the dividend and capital gains tax cuts, they continue to ignore a tax problem that is increasingly affecting middle class tax payers: the alternative minimum tax. The alternative minimum tax was originally created to prevent very wealthy people from exploiting tax loopholes and not paying their fair share. However, because the tax is not adjusted for inflation and because it applies mainly to people whose income tax bills are low relative to their income, it is affecting more and more people every year. By 2010 it is estimated that people who make under $100,000 and owe the tax will pay an additional $1,321 in federal income taxes, while alternative tax payers who make between $100,000 and $200,000 will owe an additional $2,592. As an editorial in today's New York Times points out, by 2010, the Bush tax cuts alone will cause an additional 17 million taxpayers to owe the alternative tax. By 2014, "assuming the Bush tax cuts are made permanent, 40 million taxpayers will owe the alternative tax, nearly half of whom would never have faced it but for the tax cuts." While Bush and many members of Congress push to cut taxes for the wealthy by extending the dividend and capital gains tax cuts, they are effectively raising taxes on the middle class. Click here to read the editorial. Click here for another good column from the National Journal on why Bush's proposed tax cuts are unnecessary given the current economic environment.