Conference negotiations to reconcile the tax cuts bills passed by the House and Senate are expected to begin tomorrow, and Congress hopes to pass a tax cut bill by the Memorial Day recess, although this may prove impossible.

The chart below compares the Senate and House passed tax cut bills. Both are seriously flawed:

• More tax cuts, coming on top of the 2001 Bush tax cut bill with a ten-year cost of over $1.3 trillion, are a mistake.
• Neither bill will act as a short-term job-creating, market boosting stimulus to the economy; both will worsen the long-term fiscal condition, leading to rising deficits and more federal debt. The budget deficit is expected to exceed $300 billion this year – an all time record.
• Both bills will negatively affect state tax revenues, at a time when most states are in their worst fiscal crisis since WWII.
• Both bills rely on the device of phased in cuts and “sunsets” (expiration of tax cuts) to keep the cost down. Given the difficulty of reinstating, or “raising,” a tax upon its sunset, most experts believe that the cuts will be extended making them much, much more costly than stated. Further, all these changing provisions make the tax code even more complex and confusing.
• Both bills give more benefits to higher income taxpayers, at the same time that the services that benefit low- and middle-income taxpayers will be cut to pay for the costs of the tax cuts. See Citizen’s for Tax Justice analyses of the Senate bill and the House bill.

In addition, polling continues to strongly show that most Americans don’t want more tax cuts, especially when program tradeoffs are considered. See analysis of the latest New York Times/CBS News poll.

In a historical context, the proposed tax cut, even at the Senate level of $350 billion over ten years, is huge. This makes it even more outrageous for Congress to use a strategy of fooling the American people, who overwhelmingly express that they don’t want tax cuts at all, by hiding the true cost. The Center on Budget and Policy Priorities estimates that the Senate bill will cost at least $660 billion if the dividend tax cut elimination and two other “temporary” tax cuts are made permanent. The true cost of the House-passed bill, with even more sunsets, is estimated to be at least $1.1 trillion. This is on top of the $1.6 trillion tax cut already enacted in 2001.

The only good thing is found in the Senate bill that gives $20 billion in emergency fiscal relief to the states. However, with the loss of revenue to the states from the federal dividend investment tax cut estimated by the Center on Budget and Policy Priorities at $40 billion, even that is no cause for celebration.

Further, in these bills, the dividend investment tax break is no longer even about “double-taxation,” but actually eliminates any taxation of some corporate profits. Currently, a corporation is taxed on its income, and individuals who invest in company stock are taxed on the dividends they are paid from the corporation’s income. This results in “double taxation.” (Double taxation, by the way, goes on frequently. There are often different taxes for different recipients of goods and services. Congress has just chosen to focus its efforts on corporate “double-taxation.”) The President’s proposal at least follows the “double-taxation” argument logically -- if a corporation hasn’t paid income taxes on its profit, dividends paid from those profits remain taxable (or whatever percentage of the dividend that has not already been taxed). The House and Senate bills, however, do not. To varying degrees, they allow corporate profits to be untaxed as corporate income and as investment dividends. See the Tax Policy Center explanation.

Any way you look at it, these tax bills are fatally flawed. The best that could happen is that Congress is unable to agree on a compromise bill. However, given Congressional energy to pass a tax bill -- any tax bill -- that seems unlikely. What is striking is that the President and Congress are so determined to pass tax cuts over the wishes of so many, including are deficit hawks, conservatives striving for fiscal responsibility, progressives worried about the shrinking human safety net, or just ordinary middle class Americans who are daily seeing a decline in services as states tighten their belts.