Tax Cuts Extended

The conference committee working on a bill to extend the expiring tax cuts has reached an agreement. The Congress looks set to vote on it over the next few days.

The biggest elements of the deal include keeping the $1000 child tax credit for five more years; keeping the 10% tax bracket for six years; and keeping the provisions that reduced taxes for married people for four years. There was also a one-year extension of the R&D tax credit for corporations, renewal of which is pretty much a regular annual ritual in Congress.

What will this do to the deficit? Here is a chart showing the deficit to the end of this decade before and after this agreement, according to the CBO.

There are still some other changes to the tax code that the Bush administration wants that will push the deficit higher than this forecast of about $400 billion per year, such as reforming the AMT. But now the CBO’s estimate of the budget picture is starting to look slightly more realistic for the rest of this decade.

Finally, note this nice detail from the NYTimes:

Even as they pushed for the cuts that will add to the federal budget deficit, House Republican lawmakers said Wednesday that they hoped to have a vote soon on a constitutional amendment that would require the government to balance the budget by 2010, except if the country is at war.

That proposed amendment has no chance of becoming law, but it would conflict with even the Bush administration’s rosiest goals for reducing the deficit, which is expected to hit $420 billion this year, a record. Mr. Bush has promised only to cut the deficit in half by 2009.

The NYTimes fails to note, however, that last month the CBO estimated that Bush would have failed in this modest goal, even before this new bill made his promise that much less achievable.