BCT Editorial – 4/26/07

This page was last updated on April 26, 2007.

Paying as we go; Editorial; Beaver County Times; April 26, 2007.

Below is a detailed critique of the subject editorial.

“Congressional Democrats are trying to restore some sense of fiscal responsibility to the federal budgetary process.

“Whether they succeed in maintaining discipline or crumble to pressure to spend on their pet programs to fulfill campaign promises remains to be seen.

“The Associated Press reports congressional Democrats have revived the pay-as-you-go - or pay-go, for short - rule that prevailed during Bill Clinton’s presidency and helped produce surpluses instead of deficits on the government’s books.”

[RWC] This is a nice rewriting of history, but there were two primary reasons for the short-lived budget surpluses of the late 1990s.

The first reason was the economy. The rapidly growing economy produced large amounts of tax revenue without raising tax rates. This allowed tax receipts to outgrow spending. The same thing has been happening for the last several years.

The second reason was the adversary relationship we usually see when one party is the majority in Congress and the other is in the White House. That is, had Democrats held the majority in Congress for the last six years of the Clinton administration, I can pretty much guarantee the surpluses would not have existed.

The late 1990s budget surpluses were already on the way out before President Bush took office because of the slowing economy that began in 2000.

“Under the pay-go regimen, legislation to cut taxes or boost federal programs must be ‘paid for’ with tax increases or other benefit cuts. Issuing government bonds to cover the costs is forbidden. The AP reports the idea is to prevent lawmakers from piling on debt to finance tax cuts or new spending programs.

“This approach is a welcome change from the borrow-and-spend profligacy of the last seven years when the GOP-controlled Congress, aided and abetted by President Bush, threw pay-go out the window and went on a tax-cutting and spending spree that has saddled future generations of Americans with an unconscionable amount of debt.

“The problem for Democrats is that the ideal of pay-go may crumble before the reality of politics.

“Fixing the alterative minimum tax shows how hard it will be to maintain pay-go.

“The AMT was originally implemented to make sure that wealthy taxpayers paid at least some federal taxes. However, because it is not indexed to inflation, more and more middle-class Americans are being forced to pay the AMT.”

[RWC] As someone who was snared by the AMT several years ago, I can attest it is a horrible tax. In my case, I actually had to pay tax on income I never received. Yes, the previous sentence said what you thought it said. That’s how bad this tax is.

“And the situation is only going to get worse.

“The Tax Policy Center, a joint program run by the Urban Institute and the Brookings Institution, reports that more than 20 million additional taxpayers are threatened with the AMT next filing season if Congress doesn’t act, and they face tax increases averaging $2,000.”

[RWC] While an editorial last week had no problem identifying The Heritage Foundation as “a conservative Washington-based think tank,” this editorial couldn’t muster the same “truth in advertising” when it mentioned the liberal “Urban Institute and the Brookings Institution.”

“The problem for Congress is that fixing the AMT blows a $50 billion hole in the federal budget. To make up for the loss, Congress must either cut spending by that amount or raise taxes or fees.

“That’s just one facet of the budgetary decisions Democrats and Republicans must make to maintain pay-go. The same will have to be done to cut interest rates on student loans, expand health care for poor children, ease scheduled cuts in Medicare payments and on and on.

“For the good of the nation, Democrats must stick to pay-go, and the America people must support them. Tough choices have to be made, but we must stop sticking future generations of Americans with our bills. Pay-go is a start toward paying down that debt.”

[RWC] The problem with this editorial comes when you consider the source and when you consider the primary proponents of “pay-go.”

Regarding the Times, keep in mind its editorials rarely find disagreeable spending except for purely political reasons. With the possible exception of a couple of PA business taxes, Times editorials also convey the idea there’s nothing wrong with total taxes taking on average 32.7% of our paychecks, pensions, et cetera. According to The Tax Foundation, that figure is 31.9% for Pennsylvania.

The idea that Democrats truly care about a balanced budget is like asking me to believe the Earth is flat. As with past talk about a balanced budget amendment, proponents tend to be looking for cover to raise taxes.

Here’s what I mean.

Items in the budget are bogusly identified as discretionary and mandatory. In truth, no spending is mandatory because Congress and the President have the power to change the laws allegedly making the spending mandatory.

Anyway, legislators will simply label additional spending as mandatory and then claim they had no choice but to raise taxes. In other words, big spenders – whether Democrat or Republican – would simply use the law as cover to raise tax rates.

In case you were wondering, national security (including the military), federal law enforcement, et cetera are considered discretionary spending, not mandatory.

Don’t get me wrong. If you’ve read my critiques you know I want a balanced budget, and the best way to get there is to cut spending. The idea you can maintain a balanced budget simply by raising taxes to match spending increases is ridiculous. Inevitably, tax rate increases drag down the economy and this results in lower tax revenue, which would throw a balanced budget out of balance. Assuming you have something like pay-go, what do you think the reaction of Congress and/or the President would be in this case? Since few of these folks are true conservatives, they would likely raise tax rates and simply make the situation worse.