The Joint Committee on Taxation has released its "score" of the estimated "cost" of the tax and unemployment benefits deal between President Obama and Congressional Republicans, and the headline number is that, as Bloomberg News puts it, "The legislation would add $857 billion to the federal debt over 10 years."
Don't let that "10 years" number fool you, though — the $857 billion number includes only costs of two years worth of most of the Bush tax cuts on income. dividends, and capital gains. While those taxes, and the extended unemployment benefits, as well as the two percentage point reduction in payroll tax, are what drew most of the attention, there are a whole bunch of other "extenders" in the tax bill for provisions such as tariffs on imported ethanol and subsidies for domestic ethanol, a "50% tax credit for certain expenditures for maintaining railroad tracks" (that one's for you, Warren Buffett), and a "seven-year-recovery period for certain motorsports racing track facilities." The "Temporary Disaster Relief Provisions" of the post-September 11 New York Liberty Zone are now projected to last through 2020, 19 years after the terrorist attacks.
It's interesting to see how the Joint Committee on Taxation of Congress, which, though ostensibly nonpartisan or bipartisan, is now control of the Democratic majority, scores the capital gains tax provisions. Keeping the top long-term capital gains rate at 15% is predicted to actually gain the government $2.4 billion in revenue in 2012. That rate would expire on December 31, 2012, and the projected increase in the rate is expected to cost the government $1.9 billion in 2013 because of the effect of individuals choosing to realize their capital gains when the rates are lower. Some people, like Ralph Lauren, already sold things this year and locked in the lower capital gains rates. It's significant that even the JCT under Democratic control accepts that, on the capital gains tax, raising the rate means lowering the revenue, and a lower rate means more government revenue, at least for the time around the rate change during which it is possible to shift income forward or back over time.
The other effect of this is that the government's ability to say every two years "Okay everyone, better realize your capital gains now, because the rates might go up next year," and then extend the rate for another two years has a bit of a bait and switch quality to it. It's like one of those Lower Manhattan stores that has an "everything must go final clearance liquidation last days" sale banner out front that's been there for 20 years while they keep unloading new merchandise in the back.
Note: This post is corrected from an earlier version that had the wrong committee name.
