Congress Punts On Deficit Decisions... Again

Congress has hit on the perfect way to avoid the problem of a yawning deficit: Hand off the problem to a blue-ribbon panel.

“It isn’t possible to debate and pass a realistic, long-term budget,” says House Majority Leader Steny Hoyer, “until we’ve considered the bipartisan commission’s deficit-reduction plan, which is expected in December. I believe that Congress must take up and vote on that plan.” Conveniently, after the election.

Congress’ refusal to carry out its constitutional duties is one of a number of odd and ominous doings we’re seeing with the budget this week…

  • Treasury Secretary Geithner estimates that taxpayer losses from TARP will total $105 billion. Of course, at one time, he said it would be a moneymaker for taxpayers
  • White House budget chief Peter Orszag is leaving before the summer’s out. We don’t know if he was ever serious about his stated desire to put Fannie and Freddie’s $6.3 trillion in liabilities on the government’s balance sheet. But with him gone, no one will be left to speak up for this notion of honest accounting
  • Back to Steny Hoyer: He says it may not be possible to extend the Bush-era tax cuts for the middle class, not permanently anyway. They expire at the end of this year.

We warned about this last item in the April issue of Apogee Advisory: “Yes, the president is committed to allowing the cuts to expire for households earning $250,000 a year or more. But they go away for everyone else unless Congress passes a new tax law. The lowest bracket of taxpayers would see its rates go up from 10% to 15% – an effective 50% increase. That’s not gonna happen.

“So yes, there will be income tax legislation this year. But will it only hit households above the magic $250,000 threshold? Or will the scramble for revenue hit other people as well? And how soon?”

Evidently, we won’t know until just weeks or even days before the tax cuts expire. The sound you hear is payroll managers everywhere tearing their hair out.

Addison Wiggin
for The Daily Reckoning