A Spending Sham
"Pay as you go" is a sneaky way of making government bigger.
BY PETE DU PONT
Wednesday, January 24, 2007 12:01 a.m. EST
A fresh new Congress has come to Washington, run by a different party, with different leadership and very different ideas. The new House adopted tougher ethics rules for its members and hopes to get America out of the antiterrorism effort in Iraq; it voted to raise the minimum wage and reduce the interest rates on student loans; and it wants to roll back tax deductions for oil companies and force drug makers to reduce Medicare prescription drug prices.
But the most important goal of the new Democratic congressional majority is establishing a liberal national economic policy: bigger government and higher taxes. Spend more even than the Republicans have been spending (an annual 7.2% increase during the Bush years), and raise rather than lower tax rates.
Making sure that the Bush tax cuts expire in 2010 is the Democrats' most important policy, and easy to accomplish since their expiration is automatic unless the law is changed. That will raise low-income tax rates to 15% from 10% and high-income tax rates to 39.6% from 35%, and--if you assume higher taxes don't depress economic growth--it will generate about $88 billion in annual tax receipt increases by the end of the decade. And if the Congress allows the death tax to be reinstated (its phase-out expires in 2010 too), they will gain another $28 billion each year. For big government advocates, that is real progress.
But a new Congress supportive of increased spending cannot be supportive of increased deficits, so the Democratic House majority reinstated a clever and deceptive wrinkle, something called pay-as-you-go, or "paygo." It specifies that any revenue lost as the result of tax cuts, or any newly enacted entitlement or other spending increase, must be paid for by other spending reductions or tax increases. (House rules require a three-fifths vote for tax increases, but Democrats made sure that requirement can be waived by a simple majority vote.)
Thus the Democrats' plan to reduce the interest rates on some student loans by half, to 3.4% from 6.8%, which would cost about $6 billion over five years, would have to be covered by other spending cuts or tax increases.
Sen. Tom Harkin of Iowa, chairman of the Agriculture Committee, recently introduced a bill to expand the farm subsidy program by mandating that vehicles use 60 billion gallons of ethanol annually by 2030, instead of the current five billion. The current subsidy for farmers producing ethanol is 51 cents a gallon, so that's another $30 billion in farm subsidies to be paid for by tax increases or spending cuts.
Then there is House Ways and Means Committee chairman Charles Rangel's proposal to reduce the large income tax increases being imposed by the Alternative Minimum Tax. Last year some 3.5 million people paid this tax, but since it is not indexed to inflation about 23 million will have to pay it this year unless Congress passes another one-year fix, which last year cost $30 billion in lost tax revenues. Completely eliminating the AMT would cost about $750 billion over the next 10 years, and under paygo Mr. Rangel would have to find some tax increases or spending cuts to include in whatever AMT reduction bill he proposes.
It all sounds good, very fiscally responsible, but paygo is riddled with deceptions. It does not cover spending increases in existing entitlement programs. So, for example, this year's 4.7% Medicaid spending increase and Medicare's 14% (which includes Bush's senior citizens' drug program) spending increase will be unfunded, and health spending will continue to grow unabated.
"Emergency" expenditures are not covered by paygo either; they averaged $22 billion a year in the 1990s, and are $100 billion a year now.
And the new House paygo rule contains the blockbuster of all loopholes: The House can pay for short-term spending increases by promising long-term spending cuts. Paygo requires setting spending amounts for the current fiscal year and five or 10 years from now. So Congress presumably can add another $50 billion to next year's spending and comply with paygo by promising to reduce spending by that amount in 2017.
The truth of the matter is that Paygo is a pipe dream, a spending sham. Neither the Democratic nor the Republican establishment wants it to apply to any appropriation bills or spending program increases, for linking a spending increase to a tax increase is a tough sell.
The Heritage Foundation's new study "The 100 Hour Agenda: The New Congressional Majority's Uneven Proposals" reports that in the dozen years (1990-2002) that the old paygo rules were in effect, Congress "repeatedly passed legislation that prevented OMB from enforcing paygo at all," and that in those years "97 percent of all mandatory spending--all but $31 billion--had been statutorily exempted from any Paygo sequestration."
But of course tax cuts are a different matter, and that is the point of the Democratic paygo plan. The liberal Democratic majority (and those 48 Republican Congressmen who voted with them) will make sure it never applies to spending increases and always applies to tax cuts, so that taxes can never be reduced, spending can always be increased, and big-government liberalism will be restored to its 1960s prominence.
Mr. du Pont, a former governor of Delaware, is chairman of the Dallas-based National Center for Policy Analysis. His column appears once a month
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