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Tuesday, June 9, 2009

Praise for the Obama Administration

We've been pretty hard on the Obama Administration's financial priorities this spring. Here's why:

So we're happy to heap praise on the Administration for its push to restore sane budget principles on Congress, as reported in the Washington Post:

Obama has said since taking office that he would support a push to enact budget rules similar to those that were in effect during the Clinton administration, when big deficits were briefly transformed into surpluses. Obama plans to make good on that promise by proposing his own set of pay-as-you-go initiatives, known as PAYGO, according to congressional sources.

If approved by Congress, the rules would forbid lawmakers from expanding entitlement programs such as Medicare and Social Security, creating new entitlement programs or cutting taxes unless the cost is covered by spending cuts or tax increases. If lawmakers fail to pay for their initiatives, Obama's rules would subject entitlement programs to automatic cuts, said sources who spoke on condition of anonymity because the plan has yet to be announced.

Deficit hawks applauded the move, saying the automatic trigger, known as sequestration, would mark a return to more serious budget restraint.

Of course, it's easier to ask Congress to limit its own spend-thrift ways than to submit smaller budget requests or veto the bloated appropriations bills, but restoring PAYGO would be a great idea.

It's also important that changes in taxes and spending be treated equally. Under current rules, every dollar of new spending is treated as permanent. So if Congress finds one-time revenues for new spending, they can keep spending that money forever without repercussions under PAYGO. But tax cuts, such as the elimination of the Death Tax and relief under the Alternative Minimum Tax, can often only be put in place for ten years. Efforts to keep these tax rates down are treated as new tax cuts, and not an extension of the status quo. It's called the Baseline and its mind-numbingly dull, but very important to how the budget is scored.

The Post reports that President Obama wants to score the lower tax rates as part of the baseline, which makes sense. Let's hope Congress is willing to force itself to live within its means.

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