New 'Paygo' Rules May Put Upward Pressure On US Taxes

by Mike Godfrey, Tax-News.com, Washington

09 January 2007

The US House of Representatives has voted to approve a new rule that could make it harder for Congress to pass tax relief by ensuring that tax cuts do not add to the federal deficit.

The 'pay-as-you-go,' or paygo rule, adopted as part of a package of ethical and budget measures aimed at making the legislative process more transparent, requires that tax cuts have corresponding cuts in government spending or increases in taxes elsewhere to pay for them.

The package also contained measures aimed at curbing the insertion of narrowly-targeted special interest tax breaks known as 'earmarks' into legislation by requiring the publication of the names of lawmakers requesting them.

Democrats have long argued for the restoration of paygo rules, worried that President Bush's policy of cutting taxes combined with escalating military spending is storing up problems for future generations by increasing the federal debt and deficit levels. The ethics and budget package was one of the first actions of the new Congress, sworn in last week.

"This rules package restores fiscal discipline by reinstating the budget rules that helped us produce record budget surpluses in the 1990s and which previously were supported on a bipartisan basis," House Majority Leader Steny H. Hoyer (D - Maryland) said on the House floor last week.

"Our current course threatens our economic as well as our national security. Pay-as-you-go budget rules will help us restore the fiscal discipline that the American people demand," he argued.

While supporting many of the measures in the package, Republicans opposed the new paygo rules, warning that they would give the Democrats a mandate to raise taxes and sanction unnecessary spending.

“If we are serious about balancing our budget, we have to recognize that Washington does not have a revenue problem – it has a spending problem," said Rep. Paul Ryan, the ranking member of the House Budget Committee, who voted against the paygo element of the reforms. "Tax receipts have grown by double-digit percentages over the past two years, thanks to the strong economic and job growth that was sparked by tax relief."

"Unfortunately, the new paygo provisions in the House rules simply pave the way for higher taxes, and they lack teeth when it comes to reducing spending or the deficit.” Ryan added.

“With this rules package, we are making good progress on earmark reforms, but moving in the wrong direction toward tax-and-spend budgeting when it comes to paygo," he cautioned.

Ryan said that the new paygo rules will do little to erode the deficit because they only apply to future spending, not current spending which is growing at "unsustainable" rates.

He also observed that they contain a "huge spending loophole" that enables the House to “pay for” spending in the near term by promising spending cuts down the line.

"This 'buy now, pay later' policy poses serious problems down the road," Ryan warned, concluding that the current rules are a "weak, watered down version of paygo" that make it easy to raise taxes and difficult to reduce them.

Recommended