Another problem is that President Obama wants to extend the payroll tax holiday that was enacted last year. Since almost half of America pays no income tax anymore, the only way he could give these people a tax cut rather than a welfare check was to cut the payroll tax. Last year, the tax cut wasn’t paid for. That would have made the already insolvent Social Security Trust Fund go broke even sooner. Instead, Congress used an accounting trick and assumed the money lost from the tax cut would be transferred from the Treasury to the Social Security Trust Fund. Unfortunately, that money is all gone too so they just put a heap of IOUs in the account and called it a day.
This year, the House passed the package to extend for one year the payroll tax holiday and paid for it with a variety of spending cuts and user fee increases spread out over the next ten years.
President Obama and the Senate Democrats are trying to pay for it by a tax increase on the very highest income earners.
At this point, the Democrats can’t figure out any way to actually pass legislation to impose this special tax on millionaires. But they want some other compromise to pay for all of this.
Get ready for more budget gimmickry. Lurking in the weeds is a budget gimmick that was set up this summer with the passage of the Budget Control Act (BCA) which raised the debt limit and created the failed super committee.
The Congressional Budget Office (CBO) has estimated that the federal government will spend about $1.1 trillion over the next decade on the operations in Afghanistan and Iraq. That money is built into the baseline.
However, President Obama has already announced that he will be removing combat troops from Afghanistan and Iraq. The CBO will count that as over $490 billion in spending reductions available to use as offsets from what CBO calls Overseas Contingency Operations (OCO).
It is possible to claim this credit as an offset for other spending or deficit reduction in one piece of legislation. Later, all of the money could be restored in a separate bill if Congress and the president decide we need to stay in Afghanistan and Iraq by simply designating it as an emergency. No offsets would be required to restore the funding and all would just be added to the debt.
That’s a way of having your cake and eating it too.
The final weekend of this session of Congress will be interesting and may be very costly.
Keep a close eye out to see if the Senate tries to insert this offset into a compromise bill to allow even more spending in the payroll tax extension bill than the almost $200 billion included now.