The New Congress Encourages Automatic Tax Increases to Pay for Unlimited Spending Increases

The new Democratic-led Congress has passed so-called pay-as-you-go (PAYGO) rules that require new spending or new tax-cut legislation to be approved by a 3/5 majority, if the Federal budget deficit is projected to increase because of it. Pay-as-you-go, however, is a misnomer. The Federal budget will continue to increase on autopilot under the House’s version of PAYGO rules. The trick is hidden in the dense prose of this amendment to House rule XXI…

7. It shall not be in order to consider a concurrent resolution on the budget, or an amendment thereto, or a conference report thereon that contains reconciliation directives under section 310 of the Congressional Budget Act of 1974 that specify changes in law reducing the surplus or increasing the deficit for either the period comprising the current fiscal year and the five fiscal years beginning with the fiscal year that ends in the following calendar year or the period comprising the current fiscal year and the ten fiscal years beginning with the fiscal year that ends in the following calendar year.

The problem is that annual spending increases in programs like Social security, Medicare, and Medicaid -- the programs at the heart of the American fiscal crisis -- are approved in a concurrent resolution on the budget that does not make any “changes in law”. Amounts spent on these programs are determined by formulas written into already-passed laws. Entitlement spending will thus continue to grow without limit under PAYGO rules.

PAYGO is not about fiscal responsibility. It is about political cover, intended to allow Congressional Democrats (and the 48 Republicans who voted with them) to say they have no choice under House rules but to vote for individual pieces of legislation that increase taxes. Don’t believe it. Congress had a choice when it voted for PAYGO and it chose a fiscally profligate set of operating rules.

What could have been done instead? Well, if Congress was truly in a fiscally conservative mood, they could have done the obvious -- amend PAYGO to include automatic entitlement increases. Brian Riedl and Alison Acosta Fraser of the Heritage Foundation suggest this extension to PAYGO …

Congress would set multi-year spending targets for entitlement programs covered by PAYGO. If OMB projects that spending will exceed these targets, the president would have to submit reform proposals as part of the annual budget request, and Congress would have to act on those proposals. A similar trigger for Medicare spending was included in the 2003 Medicare prescription drug legislation, and expanding the concept could help Congress address current entitlement spending growth.

Finally, Mr. Riedl and Ms. Fraser also serve reminder that PAYGO-syle rules of any form can only go so far in promoting fiscal responsibility, because fiscal responsibility is more than reducing deficits; it is also choosing to control spending…

PAYGO also focuses on only the budget deficit, rather than the size of government. A strong PAYGO would ensure that new or expanded programs are balanced with other spending cuts or tax increases, but it would not prevent the government from taking a steadily larger share of citizens' paychecks. PAYGO would allow escalating entitlement program costs to push the size of the federal government to nearly 50 percent of GDP by 2050. PAYGO would also promote the expiration of all Bush tax cuts and force millions of Americans to pay the Alternative Minimum Tax. As a result, tax revenues would rise from the historical average of 18.3 percent of GDP to a record 23.7 percent by 2050.