AMT, Other Patches Have Cost $968B Since 2000, Bloomberg BNA Analysis Finds

If it feels like Congress has been governing by Band-Aid recently, putting in place a “doc fix” here and “patching” the alternative minimum tax there, it is because it has. The February law that put into place a 10-month extension of the “doc fix”—delaying a scheduled cut in Medicare reimbursement rates to doctors—was the 14th since 2003 and is unlikely to be the last.

But the “doc fix,” which changed the Sustainable Growth Rate formula by which doctors are paid, is only one of several recurring temporary policy fixes that Congress has put in place since 2000, sometimes paid for with offsetting cuts or new revenues elsewhere, but often not. According to calculations by Bloomberg BNA, the cost of temporarily extending just five major policies—the “doc fix,” the AMT “patch,” the estate tax, expiring tax provisions, and the 2001 and 2003 tax cuts since their scheduled expiration in 2010—has totaled $967.7 billion from fiscal years 2000 through 2012.

The analysis was based on scores and estimates by the Congressional Budget Office and the Joint Committee on Taxation of the specific bills that contained the various fixes. The specific laws that contained the extensions were listed in reports by the Congressional Research Service.

‘Lack of Stability.’

The $967.7 billion estimate is of the gross costs of the fixes and does not take into account separate provisions in the bills that would offset the cost of the fixes. It also does not take into account projected costs beyond the current 2012 fiscal year, which would have added substantially to the costs of recent years’ fixes. The estimate also does not include the cost of any resulting increased debt service due to any portions of the patches that were not offset.

While the costs of the individual patches or fixes in previous years have been relatively minor, on a cumulative basis they are substantial. And given projections by the Congressional Budget Office, further extensions are likely to be even more expensive.

Temporary fixes can be a way to split the difference between different party positions, which was one of the reasons for a two-month payroll tax cut/extended jobless benefits/SGR policy extension in December 2011 (Pub. L. No. 112-91), but they can also impose other costs.

“The main downside is the lack of stability that it provides. The whole point of budgeting is to create a framework in which decisions can be made and priorities can get set,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. “And if you’re budgeting by the month, or the minute, or whatever we’re up to now, you decrease stability in a way that has both financial costs and costs to the businesses, the agencies involved, where they can’t get their jobs done.”

Fourteen ‘Doc Fixes': $103.3 Billion.

One of the oldest temporary policies has been delaying the scheduled cuts to reimbursements to doctors who provide services under Medicare. Because lawmakers have often used promised future savings from larger cuts to offset the costs of the near-term patch, the potential cost of future fixes or a permanent solution has increased. The American Medical Association said the February deal (Pub. L. No. 112-96) averted a 27 percent cut in reimbursements but also threatens a 32 percent cut in January 2013.

“People outside of Washington question the logic of spending nearly $20 billion to postpone one cut for a higher cut next year, while increasing the cost of a permanent solution by about another $25 billion,” American Medical Association President Peter Carmel said in a statement Feb. 15.

Counting the costs through the current 2012 fiscal year, the first “doc fix” listed by CRS, Pub. L. No. 108-7, replaced a scheduled 4.4 percent cut in reimbursement rates with a 1.6 percent increase. That was scored as boosting federal spending by $800 million in fiscal 2003 and $48.1 billion through fiscal 2012.

Later doc fixes tended to be smaller, both in cost and over time. In 2008, Congress passed the Medicare Improvements for Patients and Providers Act (Pub. L. No. 110-275) at cost of $5.7 billion in fiscal 2009 and $9.4 billion through 2012. The costs of other fixes, through 2012, ranged from zero in the 2003 prescription drug law (Pub. L. No. 108-173) to $8.1 billion for the 10-month extension enacted in February (Pub. L. No. 112-96).

Through 2012, the projected cost of the fixes totaled about $103.3 billion, according to Bloomberg BNA calculations. But that figure likely understates the cost, as more recent projections extend past 2012. For example, the newest fix was projected to cost $18 billion over the entire 2012-2022 budget window. Also, some extensions were “paid for” with future savings from projected cuts that never materialized.

The cost is expected to only climb over time. The CBO, in its annual outlook in January, said keeping payment rates at their current level through 2022 would cost about $316 billion, or about three times as much as has been spent on the SGR since 2003.

‘Patching’ AMT Cost: $423.7 Billion.

On the tax side, reining in the alternative minimum tax to keep it from extending its reach has been the most expensive of the temporary policies examined. Provisions to keep the AMT, which is not indexed for inflation, from ensnaring more upper-middle-class taxpayers were included in both the 2001 and 2003 tax cut bills (Pub. L. No. 107-16, Pub. L. No. 108-27). Those cost $13.9 billion and $17.8 billion, respectively, through 2005. As time went on, though, the cost of the seemingly annual patch increased as well.

The Tax Increase Prevention Act in 2007 (Pub. L. No. 110-166), which only affected fiscal 2008 revenues, cost $50.6 billion, while the AMT provision in the 2009 stimulus law (Pub. L. No. 111-5) is projected to cost $69.8 billion through fiscal 2012, and the two-year patch that was part of the December 2010 compromise that also extended the 2001 and 2003 tax cuts (Pub. L. No. 111-312), was forecast to cost $153.4 billion through 2012.

For the fiscal 2001 through fiscal 2012 period, the AMT patches were calculated to cost $423.7 billion. The CRS, looking at the 10-year scores that extend past 2012, had a slightly lower projected cost, $409.4 billion.

The CBO said in January that indexing the AMT for inflation would cost about twice as much to fix permanently than has already been spent on patches. The CBO estimated it would cost $804 billion over the 2013-2022 period to index the AMT, not including another $133 billion in higher interest costs.

$160.0 Billion Due to Extending ‘Extenders.’

Another perennial is the extension of expiring tax provisions, commonly called “extenders.” While the makeup of extenders—a list of various widely-supported individual and corporate tax breaks—has varied over time, it has become relatively commonplace to reauthorize them on an annual or biennial basis. A CRS report, Certain Temporary Tax Provisions that Expired in December 2009 (“Extenders”), identified five extensions from Dec. 31, 2001, through Dec. 31, 2009. Another extension was made in the December 2010 law that also extended the 2001 and 2003 tax cuts.

The five-year cost for the extenders in 1999’s Tax Relief Extension Act (Pub. L. No. 106-170) totaled about $2.1 billion from fiscal 2000 through fiscal 2009. In the Job Creation and Worker Assistance Act of 2002 (Pub. L. No. 107-147), the cost rose to $12.7 billion through 2012, and rose again to $33.4 billion in the Tax Relief and Health Care Act of 2006 (Pub. L. No. 109-432). The 2009-2012 cost of the extenders provision in the 2009 stimulus bill rose to $40.3 billion, while the latest extension in 2010 totaled $39.9 billion through 2012.

Overall, the extender patches’ cost totaled $160 billion from fiscal 2000 through fiscal 2012, according to Bloomberg BNA calculations.

According to the CBO, further extending the extenders, including a first-year depreciation deduction for business equipment set to expire in 2012, would cost about $78 billion in 2013 alone and $839 billion from 2013 through 2022. That does not include another $173 billion in debt service costs over the same period.

2010 Rate Compromise Cost: $248 Billion.

While the original laws putting in place or accelerating tax cuts in 2001 and 2003 having lapsed, the policies in place have not. In particular, the income tax rates and the estate and gift tax provisions have become potential new recurring patches, as both Democrats and Republicans agree on the need to keep most of the policies intact, with the exception of the high-income rates.

With the December 2010 compromise, the estate tax was extended for two more years after expiring completely in the 2010 tax year. That followed years of gradual decreases after the 2001 law. While the 2010 compromise reinstated the tax, it did so with more generous terms than the original law that was set to be revived in tax year 2011. The cost: $32.6 billion through 2012.

Similarly, the extension of the lower 2001 and 2003 rates, as well as various breaks for married couples and having children, was also patched through 2012. That extension was projected to cost $248 billion through 2012.

According to the CBO, extending both the rate provisions of the 2001 and 2003 tax cuts and the estate and gift tax provisions would cost about $107 billion in 2013. For the entire 2013-2022 budget window, the cost would be $2.84 trillion. Interest cost would add an additional $505 billion.

‘Very Bad Way to Run the Country.’

The patches have occurred while Congress was under both Republican and Democratic leadership and while the White House has been occupied by both a Democrat and a Republican. Yet both parties say the time for temporary fixes has passed.

“I’ve heard reports that there may be some in Congress who want to do just enough to make sure that America avoids defaulting on our debt in the short term, but then wants to kick the can down the road when it comes to solving the larger problem of our deficit,” President Obama said July 5, 2011, during negotiations with the GOP on the federal debt ceiling.

“I don’t share that view. I don’t think the American people sent us here to avoid tough problems. That’s, in fact, what drives them nuts about Washington, when both parties simply take the path of least resistance. And I don’t want to do that here.”

While trying to negotiate a year-long extension on the payroll tax cut/unemployment benefits/SGR fix, House Speaker John Boehner (R-Ohio) told reporters Dec. 19, 2011, “Last week both chambers worked together to pass a full-year bill to fund our government. And I don’t think this issue is any different. It’s time for Congress to do its work. No more kicking the can down the road.”

But expectations are low for an end to temporary patches anytime soon. Indeed, there is bipartisan support for legislation in the House and Senate to delay scheduled cuts in defense spending for one year by making cuts elsewhere (H.R. 3662, S. 2065), potentially creating a “DoD patch.”

“It’s worse now than usual, and yet they realize they can’t stop governing altogether, so they do temporary patches. That’s maybe better than nothing but it’s a very bad way to run the country,” said Alice Rivlin, former CBO director and head of the White House’s Office of Management and Budget in the Clinton administration.

The CRFB’s MacGuineas agreed. “I think the bar just keeps dropping to new lows that you can’t really anticipate,” she said.