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Wednesday, June 10, 2009

WIll PAYGO be just be another way to raise taxes?

The Washington Post reports that Congressional Democrats are saying nice things about President Obama's proposed Pay As You Go rules, which would require Congress to pay for increases in spending or cuts in taxes, but object to provisions which would allow current tax rates to stay low:

One big difference between Obama's proposal and the Clinton-era rules, however, is that Obama would exempt an array of expensive policies currently in effect. For example, lawmakers could extend the tax cuts enacted during the Bush administration past their 2010 expiration date, restrain the growth of the alternative-minimum tax and continue to forestall scheduled payment cuts for Medicare physicians without consequence. All told, those policies would increase annual budget deficits by more than $3.5 trillion over the next decade.

Some independent analysts who support PAYGO rules objected to the loophole. "This is like quitting drinking, but making an exception for beer and hard liquor," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.

We discussed PAYGO yesterday. The Clinton era PAYGO rules allowed temporary spending increases to count forever, but didn't allow temporary tax cuts to stay in place. And it didn't allow dynamic scoring, which took into account the increase in overall economic activity brought about by lower taxes. Rigging the system in this way creates a one-way rachet for higher taxes and spending. It's easy to increase the size of government, and very difficult to decrease it.

The Obama PAYGO rules, as outlined, would treat current tax rates as the status quo, and allow Congress to extend relief under the Alternative Minimum Tax or keep the Death Tax off the books, without being charged with a tax cut. It wouldn't make it easier to cut taxes or spending, but it would treat those policy choices under the same rules as tax and spending hikes. The Obama Administration deserves credit making PAYGO a priority, and for structuring it the right way. Let's hope Congress can do the same.

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