Broder exposes PAYGO loophole

In the Washington Post, columnist David Broder shows why the recent move to reinstate Pay-As-You-Go budget controls has been built to fail:

It could do just the opposite. The bill says that at the end of the year, if Congress has spent more on new entitlements or tax cuts than it has saved, the president can roll back or sequester the excess. But the Congressional Budget Office, the official scorekeeper, warned in a July 14 memo that, as introduced, the bill might allow spending to increase -- and by a staggering amount.

"In effect," it said, "that rule would allow the Congress to enact legislation that would increase deficits by an amount in the vicinity of $3 trillion over the 2010-2019 period without triggering a sequestration." (more)

UL- "Obama and paygo: Make me be responsible!"

The Union Leader comments on President Obama's push for Pay As You Go rules for federal budgeting, and is far less generous that NH Watchdog about the President's shift towards fiscal responsibility:

The pay-as-you-go rules Obama now says he wants to put back into law always have exceptions for "emergencies." That's how Obama got his "stimulus" spending past the House of Representatives' existing paygo rules. And it is why they won't restore fiscal responsibility. There's always an "emergency" to be exploited.

What Obama is really saying by advocating these rules is that he and Congress don't have the will to curb spending unless made to do so. That's a damning admission for a President who campaigned on a promise to restore fiscal responsibility.

No change in the budget process will stop a Congress or a President determined to spend like drunken sailors. But putting real PAYGO rules in place is a good idea. Vetoing pork-filled appropriations bills would be even better.

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.

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.