Top 10 worst moments in fiscal policy 2010

Home-buyer tax credit extension? Obama-GOP tax deal? Here's my Top 10.

It’s time for Tax Vox’s fourth annual Lump of Coal Award, given to 2010’s worst moments in fiscal policy. Bad law, outrageous rhetoric, and months of inaction made it tough to choose, but here are our Top 10 nominees:

10. A GOP leadership that sees “job-killers’ everywhere. The health bill was a job killer. The financial regulatory bill was a job killer. Even various Democratic efforts to extend provisions of the 2009 stimulus were job killers. This would make them job-killing jobs bills, I suppose. Even after brokering a bipartisan tax deal last week, incoming House speaker John Boehner (R-OH) couldn’t help himself. “It's a good first step,” he said happily, “but…if we actually want to help our economy get back on track and to begin creating jobs, we need to end the job-killing spending binge.” The message discipline is impressive, but enough already.

9. Obama’s tax reform chatter. At least the wonks are talking about it. And we now have a fistful of commissions and studies that could serve as blueprints for reform. President Obama, however, says only that he’d like to have a “conversation” on the subject next year. Note to president: You are running a government, not a salon.

8. Extending the Homebuyer Tax Credit. The first version of the credit expired in late 2009. Instead of giving it the quiet burial it deserved, lawmakers extended and expanded it, then gave buyers more time to claim it. The credit added to the deficit, subsidized high-earners buying bigger houses, and did little more than accelerate purchases that would have happened anyway. The homebuyer credit is a poster child for all that is wrong with the tax code.

7. The baseline battle. Budget baselines make policy wonks salivate but serve only to confuse real people. Did we just get a tax cut or a tax increase? It all depends, it seems, on your baseline. As the well-known budget analyst Johnny Depp says, attempted murder is not so serious when you compare it to murder, but it is quite serious when you compare it to room service.

6. Replacing the Making Work Pay Tax Credit with a payroll tax cut. The new tax law is a windfall for nearly everyone—but not those making less than $20,000. For nearly 50 million low-income working Americans, the new tax break is less generous than the expiring credit. I understand Obama felt the need to recast Making Work Pay, but there must have been a better way.

5. Extending the tax extenders. Want to make $55 billion disappear? Mindlessly continue four dozen special interest tax subsides. I know America’s economic future depends on the NASCAR racetrack owners, ethanol producers, Manhattan real estate developers, and Puerto Rican rum manufacturers who benefit from these give-aways.

4. Obama and his deficit commission. The President created it, but gave it a tiny budget and staff and no access to Treasury or OMB resources. After its chairs made their far-reaching but controversial recommendations to reduce the deficit, Obama said almost nothing. He was, apparently, busy mixing eggnog. I haven’t seen such enthusiasm from the White House since a commission handpicked by President George W. Bush made its own far-reaching tax reform proposals. Bush, I believe, was bike-riding that day.

3. The estate tax. First Congress allowed the tax to expire, granting a windfall to the heirs of billionaires who happened to die this year. Then, by failing to act until a week ago, it created massive uncertainty over what would happen to the levy in 2011 and beyond. Had Congress done nothing, the estate tax would have reverted to relatively tough 2001 rules. Instead, Congress restored the tax in a more generous form than ever before. The heirs of a handful of super-rich estates benefit, and the national debt rises by another $70 billion. Heckuva job all around.

2. Addressing all the expiring Bush-era tax cuts. Well, Congress did it, though it waited ‘til the clock nearly ran out. But who could blame the pols: They’ve only known for a decade that the 2001 tax cuts would expire this year. The issue became a grotesque political football and, in the end, Congress and President Obama agreed to an extension of the law that combined the worst of the Democratic and Republican agendas. And because the deal is again temporary, we get to have the same argument again in two years.

1. The winner is: Senate GOP Leader Mitch McConnell (R-KY), who called the $858 billion tax cut and spending bill he helped engineer a “step in the right direction” toward deficit reduction. Only in Washington can you spin an $858 billion increase in the debt as a step in the direction of deficit reduction. For that bit of high rhetorical legerdemain, Mitch McConnell wins our 2010 Lump of Coal Award with George Orwell Newspeak ribbon.

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