It seems impossible, but on the eve of the Iowa Caucus the once unstoppable ethanol tax credit expired. After three long decades and over $20 billion dollars spent, the relatively quiet expiration of this once sacred tax credit is surprising considering the pitched battles that took place earlier this year between Grover Norquist and Oklahoma Senator Tom Coburn over its repeal.

The fact that the credit expired on the eve of the Iowa Caucus, long considered the political bulwark against repeal, demonstrates just how far politically the credit has fallen. In fact, a survey found that even among Iowa Republican caucus goers, 57% of them favored Republican candidates calling for outright repeal of the credit.

Although the ethanol tax credit was ostensibly created to promote ethanol as a greener form of fuel, the credit has long been criticized by a wide variety of groups as a wasteful special interest tax break. As Citizens for Tax Justice Director Bob McIntyre once explained, the critical problem with subsidizing ethanol is the product itself takes “more energy to make than it saves” and that even with an exorbitant subsidy of $0.50 for every $1 gallon it was still not very competitive.

For their part, ethanol industry representatives admitted defeat, explaining that the ethanol industry had “evolved” and that now was the “right time for the incentive to expire.”

It is also the right time for scores of other tax credits to expire permanently. The ethanol tax credit is 1 of the 53 such provisions – called “extenders” because Congress quietly extends them every couple of years or so for their favored constituencies – which expired at the end of 2011, most of which are handouts to business interests. In a word, they are pork.

Let’s hope the ethanol subsidy’s death is permanent, and a sign that tax sanity is making a comeback in Congress.

Photo of Ethanol Production via  Bread for the World Creative Commons Attribution License 2.0

Our roads, bridges, and transit systems are in decline, and unless lawmakers are cured of their anti-tax phobia, the “fix” could come from education cuts in some states and even more deficit spending at the federal level.

It’s against this backdrop that our friends at ITEP released a first of its kind report on gas taxes last week, titled " Building a Better Gas Tax."  In the report, ITEP shows that state governments are losing $10 billion every year because of their failure to plan for predictable increases in transportation construction costs. Meantime, much of the federal government’s contribution to states’ transport budgets is being paid for with borrowed money because our national gas tax is also stagnant, costing us $23 billion annually. 

Fortunately, there are glimmers of hope that this problem might be addressed responsibly, at least in some states.  Most notable are Maryland, Michigan, and Pennsylvania, where influential lawmakers are planning to push for long overdue gas tax increases when legislative sessions start next month.

By contrast, Oklahoma and Virginia are each led by governors who have announced their intention to cut education funding in order to pay for road and bridge repairs.

ITEP’s report recommends that lawmakers follow the path being considered in Maryland and other states: an immediate gas tax increase, coupled with reform to ensure that the tax can hold up over time alongside rising asphalt and construction costs.  ITEP’s report also urges that states enact low-income relief to offset gas tax payments made by those least able to afford the tax.

The report has already been greeted warmly by the transportation policy community, and has received significant press coverage (and praise from editorial boards) in a number of states where gas taxes are sure to be most relevant in the months ahead, including Maryland, Michigan, and Virginia.

We'll keep you updated on all of these debates as they develop, but in the meantime we encourage you to check out the report at www.itepnet.org/bettergastax and see how your state compares.

Photo of Gas Station via Future Atlas Creative Commons Attribution License 2.0

Unless Congress acts, federal gas and diesel taxes will fall by about 80 percent on September 30.  If this is allowed to happen, spending on our nation’s already inadequate roads and transit systems will likely plummet, and Congress will face massive pressure to make up the difference through deficit spending or rerouting spending from other vital priorities.

Clearly, these outcomes are not ideal.  That’s why extending the gas tax – albeit at low rates – has always been a routine and bipartisan undertaking.  Today, however, the visceral opposition to taxes by many in Congress has led some observers to believe that the debate will be more hostile than usual, and that there is a real possibility – though small – that the gas tax will actually be allowed to expire.  Simply put, there is less and less that is “routine” in our nation’s capital anymore.

In a surprising and fortunate twist to this story, Grover Norquist stated flatly recently that a gas tax extension would not violate the no-tax pledge that 277 members of Congress have signed.  This should have already been obvious to anybody who’s taken the time to read Norquist’s 57-word pledge (it clearly applies only to income taxes), but his admission was nonetheless helpful in making that fact known.

Perhaps more surprising, though, was a confession by one of Norquist's employees that allowing the gas tax to fall so quickly would be too disruptive.  You know the situation is serious when even Norquist's group is cautioning against tax cuts.

Less encouraging was Norquist’s recent promise to push for a system in which states could opt-out of the federal Highway Trust Fund, and instead finance their roadways entirely with tax revenues generated inside their borders.  If allowed to happen, this would mark a major retreat from the federal government’s long-running role in helping to maintain our nation’s Interstate highways.

It should go without saying that the Interstate highway system is of immense importance to interstate commerce, and that there is an obvious federal role to be played in ensuring the smooth functioning of that system.  For example, the federal government has always seen to it that large, sparsely populated states are able maintain their expansive highway networks for the good of the national economy.

With this in mind, it should come as little surprise that the organization representing state transportation departments (AASHTO) believes that the federal government's involvement must continue.  As AASHTO representative Jack Basso recently remarked to Stateline, “The real question is can you maintain a national system, given the diversity and the breadth of geography in the country and the population situation, without some kind of national program? I think the answer is ‘No.’”

Unfortunately, while there appears to be a growing consensus that the gas tax should be extended, there's still a possibility that it will be "taken hostage" -- just like the debt ceiling and most of the Bush tax cuts were within the last year.  If that happens, it's very likely that the outcome of the current transportation debate will be much more skewed toward Norquist's priorities than would otherwise be the case.

Photo via Gage Skidmore Creative Commons Attribution License 2.0

A minority of 48 Senators, including three Democrats, blocked passage of a bill on Tuesday that would have repealed several of the tax breaks for oil and gas companies that CTJ described in its recent report on energy and taxes. The Senate bill would have repealed the breaks for the "Big Five" oil companies.

The argument made by the companies has always been that these tax subsidies encourage exploration and extraction in the U.S. CTJ's report explains that the resulting increase in profits goes towards paying shareholders, not towards exploration for oil and gas.

Read CTJ's report on oil and gas tax breaks.

House Speaker John Boehner’s recent comment that Congress should “take a look at” repealing tax subsidies for large oil companies is well-founded.  A new report from Citizens for Tax Justice explains that these subsidies are a particularly poor use of taxpayer funds.

The oil and gas industry argues that their tax breaks encourage them to locate and extract more oil and gas, allowing the industry to increase supply and thus keep energy prices down below the level they would otherwise reach. But whatever one thinks of this argument, it totally falls apart when oil is selling at over $100 a barrel.

Read the report.

After days of wall-to-wall media coverage of its grotesquely misleading, edited clip of USDA official Shirley Sherrod speaking about race, Andrew Breitbart’s blog Big Government is targeting Citizens for Tax Justice.

Breitbart’s bizarre and extraordinary claim is that CTJ, ACORN, The New York Times, the Center for American Progress and a group called Clean Energy Works (of which we were previously unaware) are colluding to deceive the public about tax policies affecting oil and gas companies.  

Breitbart’s argument goes something like this. On July 3, the New York Times published an article saying that oil and gas companies get a whole lot of tax breaks. Then on July 9, CTJ published a report saying that oil and gas companies get a whole lot of tax breaks. Also on July 9, Clean Energy Works sent someone a strategy memo saying that the public needs to know that oil and gas companies get a whole lot of tax breaks.

As Breitbart sees it, surely this can be no coincidence! It doesn’t seem to occur to him that the tax breaks available for fossil fuel production have grown so outrageous — at a time when the world is concerned about carbon emissions and climate change — that hardly a week goes by without somebody somewhere criticizing them. Heck, even President George W. Bush criticized them.

To fill out the conspiracy a little more, Breitbart assumes that any organization that is associated with any of CTJ’s 21 board members, and any progressive organization with an employee cited in the New York Times article, is also involved in this coordinated plan to deceive the public.

Finally, Breitbart is simply wrong about the tax loopholes in question. He writes:

“The same day that Di Martino [of Clean Energy Works] released his memo, Citizens for Tax Justice (CTJ) released their own defective and dishonest hit piece, titled “What Oil and Gas Companies Extract from the American Public.”   The tax breaks referred to by Di Martino and the CTJ memo, in reality, are the same credits that every American company receives for taxes paid overseas to foreign governments on income earned abroad.”

Wrong. The CTJ report titled What Oil and Gas Companies Extract—from the American Public discusses the top 5 tax loopholes enjoyed by oil and gas companies. These breaks are not “the same credits that every American company receives for taxes paid overseas to foreign governments,” which seems to refer to the foreign tax credit. One of the five loopholes our report criticizes allows oil and gas companies to take the foreign tax credit for what are really royalties (not taxes) paid to foreign governments.

The other four loopholes discussed in the report are not related to the foreign tax credit. They include the deduction for “intangible” costs of exploring and developing oil and gas sources, “percentage depletion” for oil and gas properties, Congress’s decision to redefine “manufacturing” so that oil and gas companies can receive a deduction for domestic manufacturing, and another break for writing off the costs of searching for oil.

Now it’s true that there are some huge problems with the international tax system generally and it’s true that we are more than happy to use the energy industry as an example of those problems, even though they are not confined to the energy industry. CTJ’s recent report on oil drilling and taxes uses the example of Transocean to illustrate the problems with corporate inversions, transfer pricing schemes, and payroll tax avoidance, since Transocean has exploited all three. But this report makes clear that Transocean is just one example of many types of companies that are abusing the rules in these ways.

And, to be fair (although it’s not clear why we should be fair to Andrew Breitbart) the New York Times article did discuss both problems — tax breaks that are specific to oil and gas companies and tax avoidance schemes that are not limited to any particular type of company. But that doesn’t change the fact that oil and gas companies are particularly adept at finding ways to get out of paying their fair share to maintain the society that makes their enormous profits possible.

Given Breitbart’s track record, we’re not particularly surprised that we're being attacked by the blog Big Government. As Franklin D. Roosevelt once said, "I ask you to judge me by the enemies I have made."

A new report from Citizens for Tax Justice describes the biggest tax subsidies enjoyed by oil and gas companies and explains that these subsidies do nothing to encourage energy independence or cleaner energy.

In the wake of the disastrous oil spill in the Gulf of Mexico, the public and the media have turned their attention to some of the subsidies provided through the tax code to BP, the corporation that leased the ill-fated Deepwater Horizon drilling platform. The truth is that oil and gas companies have for years received a bonanza of unjustified tax breaks that serve only to boost profits for their shareholders.

The oil and gas industry is also resisting any taxes that would allow it to pay for its own messes. One proposal under consideration by Congress is an increase in the tax used to fund the Oil Spill Liability Trust Fund, which is currently 8 cents per barrel. Another is reinstating the Superfund Tax which expired in 1995. Both proposals have been met with furious opposition by the petroleum industry, which has spent a reported $340 million on lobbyists in the last 2-1/2 years.

The Senate approved a bill Wednesday that includes an extension of unemployment benefits and COBRA health benefits for unemployed workers through the end of the year, and a short-term extension of Medicaid funding for states and a Medicare "doc fix" (maintaining payments to doctors under Medicare).

The cost of this spending was not offset since it is considered emergency spending to stimulate the economy. But the costs of other provisions in the bill — extensions for $30 billion worth of business tax breaks often called the "tax extenders" — were offset. The biggest revenue-raiser used to offset this costs is a provision to close the "black liquor" loophole. This loophole allows paper-making companies using a carbon-rich by-product as fuel to use a tax credit that is supposed to encourage the use of environmentally-friendly alternative fuels.

But the "black liquor" provision may be used instead in the final health care reform bill. The health care reform bill approved by the House on November 7 of last year (H.R. 3962) included this revenue provision, and the President's recent proposal to bridge the differences between the House and Senate health bills also includes it.

There is another perfectly good revenue-raising provision that the Senate can use to offset most of the cost of the "tax extenders." The version of the tax extenders bill approved by the House on December 9 was supported by CTJ and several other progressive organizations because it included several good provisions, including one to close the infamous "carried interest" loophole. U.S. PIRG and CTJ issued a joint press release yesterday stating their disappointment that the Senate has not done the same.

The carried interest loophole allows billionaires managing hedge funds and buyout funds to pay taxes at a lower rate than middle-income workers. The House has passed legislation three separate times to close the carried interest loophole (including the recent House-passed extenders bill), and both of President Obama’s budget plans have proposed to close it. Senator Chuck Schumer (D-NY) was quoted in Congress Daily recently saying that closing the carried interest loophole is "on the table."

Until this loophole is closed, the compensation of these fund managers will continue to be taxed at a rate of 15 percent, the preferential rate for capital gains that is supposed to benefit people who invest their own money, not the people who manage it.

Like the House Democrats, the Senate Democrats plan to offset the cost of the "tax extenders," which is included in the long-term extension of UI and COBRA that they plan to vote on next week. The "tax extenders" are a group of supposedly temporary tax cuts that mostly go to business interests and that Congress extends each year, sometimes retroactively. The extenders themselves are questionable policy, but the fact that Congress wants to pay for them by closing loopholes is a positive development.

The Senate version of the extenders bill would close the "black liquor" loophole, which allows paper companies to take an alternative fuel tax credit for a long-used process that is not environmentally friendly.

The 2005 highway law includes a tax credit for fuel that is a mix of alternative fuel (cellulosic fuel, meaning fuel made from the non-edible parts of plants) and traditional fossil fuel. In 2007, this credit was extended to include fuel used for purposes like manufacturing.

The problem is that certain paper companies already have a process that involves a cellulosic fuel (“black liquor,” a by-product from the pulp-making process), albeit one that is carbon-rich and not something Congress would want to encourage for environmental reasons. These paper companies realized that they could qualify for this new credit if they added fossil fuel to the cellulosic fuel they were already using.

In other words, companies are actually getting paid to add diesel to a relatively dirty fuel that they were already using. This is obviously not what Congress intended when it enacted this tax credit. The Senate is right to close this loophole.

Environmentalists have their eyes on the Senate, where Majority Leader Harry Reid has given several committees a September 28 deadline to mark up climate change legislation. The legislation is expected to include a "cap-and-trade" program, in which companies would need to have allowances to emit greenhouse gases, and the amount of allowances would be capped at a level that would decline for several years.

The House of Representatives passed its version (H.R. 2454, the American Clean Energy and Security Act of 2009) in June. It's clear that America needs to act to reduce the greenhouse gases that contribute to climate change. But it's equally clear that the Senate could do better than the House did in addressing this problem.

President Obama proposed in his first budget that Congress create a cap-and-trade system in which all of the emissions allowances are auctioned off to companies rather than given away for free. The overall amount of allowances would be capped and reduced each year. The revenue raised could be largely used, the President reasoned, for a refundable tax credit that would offset the impact of the resulting higher energy costs for low- and middle-income families.

The House cap-and-trade bill only auctions off 15 percent of the allowances, and the revenue raised would help offset the costs for the poorest fifth of families. So 85 percent of the allowances would not be auctioned off, but neither would they be doled out for free to corporations (not all of them anyway). There would be strings attached for some. For example, local utility companies would initially get almost half of the allowances, but in return they would be required to pass savings onto consumers. Unfortunately, there are many reasons why this is an inefficient way to protect consumers.

The Senate might repeat the House's mistakes. One of the Senate committees with partial jurisdiction over the legislation will be the Finance Committee, whose chairman (Max Baucus of Montana) recently told Congressional Quarterly that the Senate would probably not allocate the emissions allowances all that differently than the House bill does.

The increased costs that middle-income families would see if the House bill becomes law are not gigantic ($235 a year according to the Congressional Budget Office). But Congress needs to decide whether the increased prices paid for energy should go largely towards corporate profits (which seems to be the likely result of the House-passed bill) or be redirected back to consumers.

The Senate could accomplish the latter by auctioning off more than 15 percent of the allowances and using the revenue to offset the increased energy costs more effectively for both low- and middle-income families. The Center on Budget and Policy Priorities  points out that refundable tax credits, combined with more use of EBT cards, would be an effective way to deliver the necessary energy refund to the vast majority of low- and middle-income families.

The Senate might not just repeat the House's mistakes. They might even add a few of their own. Baucus told the Daily Tax Report that “Congress could use the money from auctioning allowances to cut taxes: by cutting marginal rates, by cutting capital gains rates, by cutting payroll taxes. Or we could do all of the above.”

To take just one of these ridiculous ideas, the preferential rates that already exist for capital gains and dividends already cost us around $100 billion a year and the vast majority of the benefits go to the richest one percent of taxpayers. Let's hope Senator Baucus sees that relief for consumers is more important than showering more special breaks on wealthy investors.

Does the "cap-and-trade" bill (H.R. 2454, the American Clean Energy and Security Act of 2009) passed out of the House of Representatives in June do enough to protect consumers, or is it too riddled with give-aways to corporate America to be worth enacting? The question of how much the legislation does to protect consumers is a complicated one, but two things are certain. First, if this Congress fails to enact climate change legislation (even imperfect legislation) the consequences could be terrible. Second, when the Senate takes up climate change in September, it will have an opportunity to significantly improve the legislation, as explained by recent reports from the Center on Budget and Policy Priorities.

What the Recent House-Passed Bill Would Do

Under H.R. 2454, companies would need to have allowances to emit greenhouse gases, and the amount of allowances would be capped at a level that would decline for several years. The total level of emissions allowed in 2050 would be only 17 percent of the amount emitted in 2005.

The right to pollute would therefore become scarce, as its supply would decrease, and when the supply of anything decreases, its price generally goes up. Energy from oil, gas or coal and any products made or transported in ways that involve oil, gas or coal would therefore become more expensive. For consumers, the effects of a cap-and-trade system would be similar to those of a carbon tax. The question is whether the extra cash paid by consumers will go towards increased corporate profits or be routed back to the consumers.

For this reason, the President proposed in his first budget that Congress create a cap-and-trade system in which ALL of the emissions allowances are auctioned off to companies rather than given away freely. The revenue raised could be largely used, the President reasoned, for a refundable tax credit that would offset the impact of the resulting higher energy costs for low- and middle-income families.

The bill passed out of the House at the end of June only auctions off 15 percent of the allowances, and the revenue raised would help offset the costs for the poorest fifth of families.

Free Allowances for Utilities -- in Return for Promise to Pass Savings on to Consumers

85 percent of the allowances would not be auctioned off, but neither would they be doled out for free to corporations (not all of them anyway). There would be strings attached for some. For example, local utility companies would initially get almost half of the allowances, but in return they would be required to pass savings onto consumers.

There are many reasons why this is an inefficient way to protect consumers. If it doesn't work, Congress could feel pressure in the future to clamp down on the utilities until it does work. But even if utilities pass savings onto their customers, they would be split between their residential customers and their business customers. As one of the Center on Budget reports explains, the Congressional Budget Office finds that most of the savings for businesses would go to the stockholders, who are very disproportionately among the wealthy.

Better Protection for the Poor

The provisions to shield the poorest fifth of families from the resulting increased energy costs are stronger. An agency within the Energy Department would determine what the average increase in energy costs would be for a family of a given size, after accounting for the offset in costs that will (in theory) be provided by the utilities.

Most families with incomes at 150 percent of the official poverty line or lower would receive a monthly energy refund based on this calculation. Families participating in certain programs (like food stamps) would be automatically enrolled. The monthly refund would usually be delivered through the Electronic Benefit Transfer (EBT) cards that states already use to deliver food stamps and other benefits, further streamlining the administration of the refund.

Since poor working-age adults without children typically do not participate in these other programs or even have a EBT card, they would be helped by an increase in the (very meager) maximum Earned Income Tax Credit (EITC) available for childless adults.

What the Senate Should Do

The increased costs that middle-income families would see if the House bill becomes law are not gigantic ($235 a year according to the Congressional Budget Office). But Congress needs to decide whether the increased prices paid for energy should go largely towards corporate profits (which seems to be the potential result of the House-passed bill) or be redirected back to consumers.

The obvious way to make the latter happen would be to auction off more than 15 percent of the allowances and use the revenue to offset the increased energy costs more effectively for both low- and middle-income families. The Center on Budget points out that refundable tax credits, combined with more use of EBT cards, would be an effective way to deliver the necessary energy refund to the vast majority of low- and middle-income families.

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And this would make for better environmental policy anyway. Families would clearly see the costs of energy rising and have an incentive to curb their energy consumption, even though their total purchasing power would be unchanged.

On May 11, the Treasury Department released its "Green Book" containing new details of the tax changes included in the President's fiscal year 2010 budget proposal. In addition to extending the Bush tax cuts for all but the richest Americans and making permanent many of the tax cuts in the recently enacted economic recovery act, the President would also make many changes that would raise revenue by closing loopholes, blocking tax avoidance schemes and making the tax code more progressive.

A new report from Citizens for Tax Justice examines and describes the significant revenue-raising provisions that are sure to be debated fiercely in the months to come.

Read the report.

The House Energy and Commerce Committee plans to mark up legislation next week that would create a "cap and trade" program to reduce the emission of gases that cause global warming ("greenhouse" gases). While President Obama favors auctioning off permits to pollute and then using the proceeds largely to offset the resulting costs for consumers, the Energy and Commerce Committee seems ready to give a large portion of those permits away to utility companies for free.

Why "Cap and Trade"?

The idea behind a cap and trade program is that the federal government could cap the overall amount of greenhouse gases that can be emitted into the atmosphere (and reduce that cap each year) and allow market forces to determine how the reduction in emissions can be made most efficiently.

For example, if a manufacturer finds that it can eliminate greenhouse gas emissions at its facilities very cheaply, it can then sell permits it doesn't need to another company that finds emissions reductions to be prohibitively expensive. The overall reduction in emissions would probably come with less costs to the overall economy than would be the case if the federal government simply mandated every company to reduce emissions by a set amount.

Impact on Consumers

Greenhouse gases are produced by the burning of fossil fuels like coal to provide electricity, and also by burning fossil fuels like petroleum to transport nearly every product we buy. This means that limiting the overall amount of greenhouse gases that can be emitted into the atmosphere could increase the costs of just about all consumer goods. If implemented properly, this would, in turn, provide new incentives for manufacturers, consumers, and energy companies to become much more energy efficient.

The overall added costs to consumers could be offset through refundable tax credits (an approach favored by President Obama and the House Ways and Means Committee). The result would be that energy and energy-intensive services and products would be more expensive relative to other things, but the overall buying power of consumers would not be diminished. As the Congressional Budget Office has pointed out, this is particularly important for low-income people, because they are forced to spend a larger portion of their income (or all of their income) on consumption and will therefore feel a larger impact.

The CBO has also explained that the cost increases for consumers are likely to occur whether the emissions permits are auctioned off to companies or simply given to the companies for free. Greenhouse gas emitting companies would be able to charge higher prices either way as a result of the cap. President Obama proposed in his budget outline that all of the emissions permits be auctioned to companies so that the resulting revenue can be used largely for a tax rebate (an extension of his Making Work Pay Credit) that would offset the increased costs for consumers.

The Center on Budget and Policy Priorities has analyzed the sorts of steps that can be taken to offset these regressive impacts, which would involve tax rebates for most people but would also require boosting other existing programs for people who would not be reached by tax rebates.

Energy and Commerce Committee Moving in the Wrong Direction

Henry Waxman (D-CA), chairman of the Energy and Commerce Committee, and Edward Markey (D-MA), chairman of the subcommittee handling the issue, have put forth legislative language that currently does not address whether all the permits would be auctioned or not. But media reports indicate that they are currently negotiating language that would give away as much as 40 percent of the permits to utility companies, which would be required to pass on savings to their customers.

There are many, many problems with this approach. To take just a couple: Less than half of the increased costs that consumers would face as a result of cap and trade would come from higher utility bills. Blunting the effects of cap and trade for electricity would force larger greenhouse gas reductions in other energy-intensive parts of the economy, which might raise the total costs of reducing emissions.

The President was right to propose that 100 percent of greenhouse gas emission permits should be auctioned off rather than given away for free. Hopefully, the cap and trade program that emerges will be much closer to what the President outlined.

Citizens for Tax Justice called uponPresident Obama this week to stand by his message of transparency by finally making "tax expenditure" performance reviews a regular part of the OMB's evaluations of government effectiveness.

Simply put, tax expenditures differ from the rest of the tax code in that they focus on encouraging a specific activity or rewarding a particular group of people, rather than on trying to improve the efficiency, simplicity, or fairness of our tax system.Since tax expenditures are usually enacted with primarily non-tax goals in mind (e.g. encouraging investment, encouraging research and development, encouraging home ownership, etc.) it is important that the government make an effort to gauge their effectiveness in achieving those goals.

But despite calls from the GAO, past Congresses, and outside experts in favor of subjecting tax expenditures to regular performance reviews, the most comprehensive performance measure currently in place, the OMB's Program Assessment Rating Tool (PART), continues to focus narrowly on only traditional spending programs.

Encouragingly, language in the President's recently released budget blueprint suggests that a more comprehensive approach for evaluating the government's performance will be used under the Obama Administration (see. pp.39).It's hard to see how anything approaching true comprehensiveness could ignore the hundreds of billions of dollars the government directs toward programs administered via the tax code.Hopefully, the brief language addressing performance reviews that was included in this blueprint is the first signal that an end is coming to the free-ride thus far enjoyed by tax expenditures.

Read the full statement from CTJ

On February 26, President Obama sent to Congress the blueprint for what could be one of the most progressive federal budgets in generations. The budget calls for national health care reform, expanded education funding, a program to reduce global warming, and several improvements in human needs programs. As a new report from Citizens for Tax Justice explains, it would make the tax code considerably more progressive, and close a number of egregious tax loopholes.

There is, however, a flaw in the budget proposal: It does not raise enough revenue to pay for public services. Instead, its net effect is to cut taxes dramatically.

Opponents of the President have attempted to argue that the budget proposal calls for tax increases that could sink the economy, but this complaint is plainly unfounded. President Bush and his allies in Congress were adamant that lower taxes would lead to an explosion of prosperity, and they enacted tax cuts in 2001, 2002, 2003, 2004 and 2006. Some allies of the former President argue that Congress is now insufficiently focused on tax cuts, but this view seems bizarre and incredible given the sad economic facts all around us.

Indeed, one might reasonably conclude that we could safely allow most of the Bush tax cuts to expire at the end of 2010, as they are scheduled to under current law, without any concern about how this will impact the economy. But President Obama actually proposes to keep most of the Bush tax cuts. Obama's largest proposed tax cut is to re-enact 80 percent of the Bush tax cuts that are scheduled to expire at the end of 2010. Most of this reflects re-enacting the Bush income tax cuts for married couples with incomes below $250,000 and others with incomes below $200,000 (or put another way, for about 98 percent of taxpayers), and permanently reducing the Alternative Minimum Tax (AMT). In addition, Obama proposes to re-enact close to half of the Bush estate tax cut.

On top of re-enacting most of the Bush tax cuts, the Obama budget includes a number of additional tax cuts for families and individuals. (These would be extensions of temporary tax cuts included in the recently passed stimulus law.) It also proposes some questionable business tax cuts.

Partially offsetting its tax-cut proposals, the Obama budget proposes some significant revenue-raising provisions. These include a cap-and-trade program to reduce carbon emissions, a limit on the benefits of itemized deductions for high-bracket taxpayers, and a number of corporate and high-income loophole-closing measures.

Read the Report