Senator Chafee’s PAYGO Proposal & Automatic Tax Increases
Leading deficit hawk, U.S. Senator Lincoln Chafee today joined with Senator Bill Frist and Senator John McCain to co-sponsor legislation that will help get federal spending under control by establishing a Presidential Line Item Veto. Like Senator Chafee’s proposed Pay-As-You-Go approach to the federal budget, this will help return fiscal responsibility to the federal government and ensure that our legacy to our children is not billions and billions of dollars of debt.We’ll take up the line-item veto a little later. For now, let’s discuss the “pay-as-you go” proposal, also known as PAYGO.
The problem with Senator Chafee’s most recent version of PAYGO was that it placed no limit on the overall increase in Federal spending. It only limited spending on the creation of new programs. PAYGO 2005 didn’t apply to already existing entitlements — or their automatic increases. (According to statistics quoted by Isabel Sawhill of the Brookings Institution, entitlements now account for 53% of the budget, a total that grows each year.)
To meet the requirements of PAYGO, the automatic growth of established entitlements like Medicare and Medicaid (Social Security is defined as “off-budget” and not considered for the purposes of PAYGO) would have to be offset by either yearly tax-increases or yearly cuts in existing programs — real cuts, not just reductions in the rate of growth or limits on new spending.
Brian Riedl of the Heritage Foundation explains why a PAYGO program that ignores entitlement spending would almost certainly force automatic tax increases…
While PAYGO allows current entitlement programs to grow on autopilot, it would likely lead to the expiration of the current tax cuts. Merely retaining the tax relief that Americans now enjoy would, under PAYGO, require 60 votes in the Senate and a waiver in the House. To avoid this supermajority requirement, lawmakers seeking to prevent tax increases would have to either: A) raise other taxes; or B) reduce mandatory spending by a larger amount than has ever been enacted. Option A is still a net tax increase (raising one tax to avoid raising another), and Option B is probably politically unrealistic.