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DJ Kerry Budget Plan Has $1 Trillion Tax Footnote
. . By John Godfrey . Of DOW JONES NEWSWIRES .

WASHINGTON (Dow Jones)--Nestled in the budget plan of U.S. Democratic presidential candidate Sen. John Kerry is a footnote worth more than $1 trillion over the next decade.

The issue arose as Kerry embarked on a two-week tour Friday to focus on the economy and his plan to restore fiscal discipline to the federal budget.

Kerry, at a campaign event in Carson, Calif., said his plan includes tax cuts "that will create jobs and provide relief for middle-class families struggling to make ends meet."

But, Kerry said, unlike President George W. Bush, his tax cuts "are paid for without increasing the deficit one single dime."

What Kerry doesn't say is that he isn't paying for Bush's tax cuts either. Specifically, Kerry's tax cut plans assume that more than $1 trillion in tax cuts will be passed by Congress and signed into law by Bush this fall.

Kerry assumes that Bush will get his budget wish and that the tax cuts of 2001 will be made permanent this year. That assumption is marked in campaign documents by a note saying Kerry's budget is "relative to the 'Current Services Baseline' used by the (White House's) Office of Management and Budget". . That assumption helps Kerry's budget plan on two fronts. First, it means that in his own budget plans, Kerry does not have to offset the cost of extending the life of the low- and middle-income tax cuts enacted in 2001. Kerry backs the extension of those breaks, including cuts in income tax rates and an increase in the child tax credit.

Second, Kerry can also claim to "raise" revenue for his other budget proposals by proposing the repeal of tax cuts he is assuming will be enacted under Bush's watch. Kerry is proposing repealing the tax cuts helping only the top 2% of income earners and estates.

Using governmental accounting conventions, Kerry would use the revenue "raised" by this repeal to offset the cost of other tax breaks for health and education.

According to an analysis by the Tax Policy Center, Kerry's tax plans - including the cost of making low- and middle-income tax cuts permanent - would cut federal revenues by $600 billion over the next decade relative to current law.

But, if the cost of making the 2001 tax cuts permanent is simply assumed, the Kerry tax plan looks like it is actually raising $500 billion, according to the Tax Policy Center, a think-tank formed by the Brookings Institution and Urban Institute.

"The Kerry numbers really raise more questions than they answer," according to a memorandum circulated by the Bush-Cheney campaign this week.

The Bush-Cheney memo also says Kerry "simply cannot" increase spending, cut the deficit in half, and increase taxes only on individuals and small businesses earning over $200,000.

The Kerry campaign and congressional Democrats said Kerry's proposals should be judged on a level playing field with Bush's.

They note that in his 2004 budget submission to Congress, Bush assumed that the 2001 tax cuts would be made permanent. Kerry is simply following the president's lead.

"We're taking (the White House) numbers on that," Kerry campaign advisor Roger Altman said Thursday.

The Kerry campaign has said that any new tax cuts or new spending programs enacted in the Kerry administration would have to be matched by either tax increases or spending cuts elsewhere in the budget.

But extending the life of tax cuts begun under the Bush administration would not, Altman and chief policy advisor Jason Furman confirmed Friday.

Robert Bixby, executive director for the Concord Coalition, praised Kerry for raising the issue of deficit reduction, but said Kerry's plan gives mixed results.

"On the tax side, he is more responsible than Bush in that he is making trade-offs" to pay for new programs, Bixby said. But, he said "for the pragmatic deficit hawk, that's irrelevant because he then turns around and spends it," said Bixby.

The bottom line, said Bixby, is that for deficit reduction Kerry and Bush are about the same: "treading water".

-By John Godfrey, Dow Jones Newswires; 202-862-6601; John.Godfrey@dowjones.com .

(END) Dow Jones Newswires