Press

AEI Resident Scholar Alan D. Viard Available for Comment on the President’s Newly Released Fiscal 2008 Budget Proposal

By AEI

February 09, 2007

FOR IMMEDIATE RELEASE: February 9, 2007

AEI resident scholar and former Federal Reserve Bank of Dallas economist Alan D. Viard has the following observations about President Bush’s recently released $2.9 trillion budget which extends the 2001 and 2003 tax cuts, cuts discretionary spending and projects a budget surplus by 2012:

  • Federal budget will have a surplus by 2012. The president proposes to bring the federal budget into surplus by fiscal 2012 with lower taxes and lower spending than current policies. According to a January 2007 estimate by the Congressional Budget Office, a surplus in 2012 could also be achieved by simply sticking to current policies, which would involve letting the 2001 and 2003 tax cuts expire at the end of 2010 and raising large amounts of revenue from the Alternative Minimum Tax (AMT). The AMT is a separate tax system that disallows some of the deductions and credits of the regular income tax, but has somewhat lower tax rates; taxpayers must pay AMT if it is larger than their regular tax.
  • Tax cut extension and discretionary spending cuts. The president’s proposal would extend his tax cuts, which are now scheduled to expire at the end of 2010, and cut discretionary spending below the levels provided by current policies. Discretionary spending is annually provided by Congress; about half goes to defense and half to hundreds of other programs, including highways, the FBI, and the national parks. It should be noted that President Bush has proposed cutbacks in discretionary spending before, but Congress has not adopted them and he has not vetoed any spending bills.
  • Costs of the war in Iraq. The president’s regular budget includes Iraq costs for the first time, although costs are listed only through 2009. Prior to the 2008 budget, all expenses related to the Iraq war had been funded through supplemental appropriations.
  • The alternative minimum tax (AMT). More than 20 million taxpayers are projected to pay AMT this year, up from less than 4 million last year. President Bush is proposing to keep most of these people off the AMT in 2007, but is not proposing any relief for later years. If such relief is later provided, as it surely will be, federal revenue will be lower than the budget document indicates, making a surplus harder to achieve.
  • Addressing the “tax gap.” Congressional Democrats have pressed President Bush to take steps to address the “tax gap,” the estimated $300 billion of taxes that are owed, but not paid, each year. The president addresses this issue by proposing that more information be reported to the IRS, but estimates that this measure will yield only $3 billion of additional tax collections in 2012.
  • Cuts in Medicare and Medicaid spending. The president proposes higher Medicare premiums for upper-income retirees and cuts in Medicare and Medicaid payments to doctors and hospitals.
  • A “pay-go” rule for entitlements. The president proposes a “pay-go” rule requiring that any increases in entitlement spending be offset by cuts in other entitlement spending. Entitlements are benefit programs, such as Social Security, Medicare, and Medicaid which automatically pay benefits to eligible recipients and do not require annual funding approval from Congress. Unlike the Democrats’ pay-go rule, this rule would not require that tax cuts be offset. The president also proposes automatic cutbacks in Medicare payments to doctors and hospitals if that program continues to grow rapidly.
  • A cap on discretionary spending. The president also proposes a cap on discretionary spending with automatic across-the-board spending cuts if the cap is breached. The president also asks for a watered-down line-item veto.

AEI resident scholar Alan D. Viard researches tax and budget policy, as well as Social Security. To interview Alan Viard, please contact his assistant at 202.862.5912 – [email protected] or contact him directly at 202.419.5202 – [email protected].

If you have any other questions please contact Veronique Rodman at [email protected] or 202.862.4870.

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