NCPA - National Center for Policy Analysis


January 25, 2007

The pay-as-you-go, or "paygo" system reinstated by the Democratic Congress is a spending sham that will only lead to bigger government and higher taxes, says Pete du Pont, chairman of the National Center for Policy Analysis and former Governor of Delaware.


  • The Democrats' plan to reduce the interest rates on some student loans by half, to 3.4 percent from 6.8 percent, would cost about $6 billion over five years and have to be covered by other spending cuts or tax increases.
  • A Democratic bill to expand the farm subsidy program by mandating that vehicles use 60 billion gallons of ethanol annually by 2030 will cost another $30 billion in farm subsidies to be paid for by tax increases or spending cuts.
  • Eliminating the Alternative Minimum Tax (AMT) would cost about $750 billion over the next 10 years, and under paygo, would have to find some tax increases or spending cuts to include in whatever AMT reduction bill is proposed.

It all sounds very fiscally responsible, but paygo is riddled with deceptions, says du Pont:

  • Paygo does not cover spending increases in existing entitlement programs; for example, this year's 4.7 percent Medicaid spending increase and Medicare's 14 percent spending increase will be unfunded, and health spending will continue to grow unabated.
  • "Emergency" expenditures are not covered by paygo either; they averaged $22 billion a year in the 1990s, and are $100 billion a year now.

And the new House paygo rule contains the blockbuster of all loopholes: The House can pay for short-term spending increases by promising long-term spending cuts.  So Congress presumably can add another $50 billion to next year's spending and comply with paygo by promising to reduce spending by that amount in 2017.

Source: Pete du Pont, "A Spending Sham,", January 24, 2007.

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