Monday, November 12, 2007

more "fiscal conservatism" from Congressional Democrats

From the WSJ, an editorial on the Alternative Minimum Tax (AMT) and a Democratic plan to raid the Federal Aviation Administration (FAA) trust fund to pay for their tax reform...

The clock is ticking on the 2007 tax year, and ticking along with it is the political bomb known as the Alternative Minimum Tax that will explode on 20 million middle-income taxpayers if Congress fails to pass relief soon. Trouble is, Democrats need $50 billion to do it, thanks to the "pay as you go" budget rules they imposed on themselves earlier this year.

"Paygo," as it is known, requires that any tax cut be offset by other tax increases or entitlement spending cuts. Take a few seconds to guess how Democrats are now moving to escape this self-imposed straitjacket? If you answered "fiscal trickery," perhaps you once worked on Capitol Hill. And this example is a doozy: We're told that senior Democrats are preparing a raid on the Federal Aviation Administration (FAA) trust fund to offset the AMT assault on the middle class.

Airline excise taxes (on tickets and fuel, among other things) raise about $10 billion a year. Multiply that by the five years in the paygo budget window, and you happen to hit that $50 billion AMT target. Even better for Democrats, this would mean they don't have to take the political heat for raising taxes on anybody else to offset the AMT....

The big problem here is that the aviation excise tax is supposed to be dedicated to . . . aviation. This includes funding FAA operations, as well as modernizing the air traffic control system, which certainly needs it. Conveniently, the airline tax expires in mid-November, which means Congress can use the tax's renewal under its budget rules to apply that $10 billion to offset AMT relief. So amid growing airline flight delays and congestion, Congress may pilfer that airline money and use it instead to solve a political problem of its own making.

Congress will have to come up with some other cash to fund the FAA, of course, and the House is moving to do precisely that this week. It plans to allow general tax revenue to be spent to operate the FAA as of mid-November, since the airline tax won't yet have been reauthorized. That's a very large hint that the FAA ploy will in fact eventually be used as the AMT offset.

The larger point here concerns truth in budgeting. Democrats campaigned on paygo last year as a tool of fiscal discipline, but the airline ruse shows that it is really a driver of fiscal chicanery. Its main goal is to make it all but impossible to cut taxes, thus dooming the Bush tax cuts when they are set to expire after 2010. But in the short term (before the 2008 election), paygo is forcing Democrats to resort to all kinds of budget contortions to disguise their real tax and spending intentions.

They've already included one budget gimmick to evade paygo while they try to expand health care spending as part of the Schip bill. And this week they are working to shift payment dates by a few weeks in the farm bill so that $9 billion of farm aid magically doesn't show up in the paygo budget window. Remarkably, many journalists still treat paygo as if it's a serious policy, rather than a political con.

As for the Democrats, they'd be better off if they junked paygo this year and passed AMT relief without raising taxes. Then they wouldn't have to punish anyone else to avoid raising taxes on their middle class blue-state voters, and they wouldn't have to resort to such fiscal dishonesty as this aviation heist.

Maybe Al Gore will come back soon to remind his Democratic peers about a real "lockbox"...


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