Opinion Editorial | |
| Wednesday, July 29, 1998 | |
Budget Rule Defies common Sense and Tax Cuts |
For some months, House Speaker Newt Gingrich, Republican of Georgia, has been privately fuming about the low estimates of the federal budget surplus coming out of the Congressional Budget Office (CBO). On June 9, he and other members of the House Republican leadership wrote to CBO Director June O'Neill complaining about the CBO's poor forecasting record. Mrs. O'Neill responded on June 23 that CBO was doing a perfectly fine job. But just three weeks later, Mrs. O'Neill in effect conceded Mr. Gingrich's point by releasing a new budget forecast that more than doubled the previously estimated size of the federal budget surplus over the next 10 years, from $700 billion to $1.5 trillion. The larger surplus is about equally due to higher expected revenues and lower spending; $449 billion more of the former and $482 billion less of the latter. Yet ironically, despite the improved budgetary outlook, we are no closer to a tax cut today than we were before the new numbers were released. The reason has to do with the so-called PAYGO rule, a part of the budget law that requires any tax cuts that would enlarge the deficit to be offset either with tax increases or cuts in entitlement programs such as Medicare. The law specifically prohibits paying for tax cuts with reductions in discretionary programs such as defense. The PAYGO rule was originally enacted as part of the 1990 budget deal and was renewed as part of the 1997 budget deal. However, most members of Congress who supported this renewal naturally assumed that if a budget surplus were to emerge, the rule would no longer apply. But here again, the CBO created a serious obstacle. In an October 29, 1997 letter to Senate Budget Committee Chairman Pete Domenici, New Mexico Republican, Mrs. O'Neill ruled that the PAYGO provision would still control tax policy even if the budget were in surplus. The reason is because (and I am not making this up) a surplus is merely a negative deficit. (Does this mean deficits are just negative surpluses?) As a consequence, Congress finds itself shackled by budget rules designed for the sole purpose of reducing budget deficits even when there are surpluses as far as the eye can see. If it wants to cut taxes, the only options are to cut entitlements, waive the rules, or repeal the law. However, given the strenuous opposition of President Bill Clinton and congressional Democrats to any of these alternatives, the effect of the PAYGO rule is to make it virtually impossible to cut taxes by more than a token amount. In a study forthcoming from the Institute for Policy Innovation, budget analyst George Pieler levels devastating criticism at the PAYGO rule. He argues that it virtually guarantees a steady increase in the tax burden, because progressive tax rates cause revenues to rise faster than incomes. Moreover, the rule does almost nothing to restrain government spending because it applies only to new programs. Old ones, like Medicare, are free to rise through the stratosphere automatically, without restraint. Mr. Pieler also believes that the CBO utterly misread the law when it when it redefined surpluses to mean deficits. He points out that the law itself defines the terms "deficit" and "surplus" to mean exactly what everyone thinks they mean; either an excess of spending over revenues or an excess of revenues over spending, respectively. Says Pieler, "If Congress meant 'deficit' to mean 'surplus,' it would not have provided an unambiguous, independent definition of that term." Mr. Pieler concludes that there is no legal obstacle to enacting a tax cut in a time of budget surpluses. It is only a question of political will. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 29, 1998. Home | Support Us | All Issues | Social Security Debate Central | Contact Us |