With the successful but one-sided vote in the House, Congress passed a version of statutory pay-as-you-go budget rules today. It’s not an ideal version of PAYGO, because it allows very costly policies to be exempted. The fact that the bulk of these exempted tax policies are the Bush tax cuts, makes it all the more surprising (based on principle alone) that not a single House Republican supported it. In the Washington Post, Lori Montgomery explains:
The budget that Obama laid out this week would add $8.5 trillion to the debt by 2020, some of it explicitly permitted under the new PAYGO rules. For example, the rules allow Obama to extend tax breaks for the middle class enacted during the George W. Bush administration without covering the cost. Over the next decade, that extension would add $1.3 trillion to the debt by Democratic estimates or as much as $1.9 trillion according to Republicans.
The rules also permit lawmakers to protect taxpayers from the expansion of the alternative minimum tax for two years, lower the estate tax for two years and protect doctors who serve Medicare patients from a scheduled pay cut through 2014.
OK–so it’s not perfect, but a weak PAYGO is still probably better than no PAYGO. Today, the Concord Coalition issued this policy statement supporting even this imperfect version, explaining why the exemptions in the PAYGO rule make it all the more important that other tools of fiscal discipline (including those proposed by the Obama Administration in their budget) serve complementary roles:
Regardless of political reality, the economic reality remains the same. Persistent deficits of the size now projected under the President’s budget would harm the economy, increase our reliance on foreign borrowing, crowd out domestic investments, and lead to a spike in interest costs. Thus, if statutory PAYGO is adopted in the form currently proposed, policymakers must acknowledge the economic consequences of its exemptions and be prepared to deal with them. The cost of these policies will not go away simply because they are exempted from PAYGO. If not paid for now, they will be paid for later at a higher cost in interest payments and a less robust economy. That is why a fiscal commission with a broad mandate to tackle the structural deficit is a logical complement to PAYGO. Moreover, exempting any existing policies from PAYGO does not enact them into law. Legislation must still pass to extend these policies and those who advocate strict compliance with PAYGO can, and should, uphold this principle by voting against any extensions that are not paid for.
Finding a cure for the nation’s dire fiscal outlook will obviously require a lot more than a new budget rule, but enactment of statutory PAYGO would send a very positive signal that the federal government is beginning to take the problem seriously…
The Concord Coalition supports statutory PAYGO and believes that it must be assessed for what it is, not for what it isn’t. PAYGO is not a deficit reduction tool. It is not a spending freeze. It does not apply to discretionary spending or automatic increases in entitlement programs and tax expenditures. Holding PAYGO to a standard that assumes it is intended to do all these things (reduce the deficit, freeze spending, control “pork barrel” appropriations or rein in entitlements) sets up a conclusion that the rule would do no good. That is a false standard. PAYGO’s real value comes from its deterrent effect on entitlement expansions and tax cuts that would widen our structural deficit. This is certainly worth doing, even if other things are left to be done.
It’s basically what I was trying to say in this CNN-Money “panel” on what the President “got right” and “got wrong” in his budget–even though it might seem that my “wrongs” (and my worries) outnumber the “rights.” I feel that the spirit and intent of the legislation (”in theory”) is often good, even if the execution (”in practice”) is far from flawless.