Tax Analysts Blog

Baseline Blues in Budget Fix

Posted on Aug 1, 2011

Without clarification, the deal on the table as of August 1 makes no sense. If the CBO baseline assumes current law, and under current law the Bush tax cuts expire at the end of 2012, extending the Bush tax cuts will be scored as a revenue LOSS and moves us AWAY from second round deficit reduction targets ($1.5 trillion over 10 years). The Republicans cannot really be voting for this. The baseline will have to be carefully re-adjusted as part of the deal or the Bush tax cuts will disappear without massive offsetting spending increase (in addition to those targets in the proposal). When the final details emerge, carefully review the assumed baseline to see how the Bush tax cuts are treated.

FYI, here is how the Senate Democrats describe the Phase 2 mechanism:

Stage Two: Joint Committee Tasked With Legislating $1.5 Trillion in Deficit Reduction, Paired With Additional Debt Ceiling Increase. A joint, bipartisan committee, made up of 12 members (6 from each Chamber, equally divided between Democrats and Republicans, and appointed by the Majority and Minority Leaders in each Chamber), will be tasked with developing legislation to achieve at least $1.5 trillion in future deficit reduction by Thanksgiving. The committee’s legislation, which can include entitlements and revenues, will be guaranteed an up-or-down Senate vote, without amendments, by December 23.

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