One of the exciting things about the prospect of having a Democratic majority in the House of Representatives, is
their pledge to swiftly restore the fiscally responsible PAYGO budget rules. Regardless of the opposition's rhetoric, there are few mechanisms that worked so well to promote fiscal responsibility in our legislation.
For those of you unfamiliar with PAYGO, a little background is in order. PAYGO, in the US Congress, refers to the budget rules that USED to be in place, stating that newly proposed expenditures had to be accompanied by commensurate increases in revenue OR a reduction elsewhere in the budget. If the legislators couldn't do this, then they needed a 60 percent majority vote to override the requirement.
The goal of these rules was to require those in control of the budget to engage in the diligence of prioritizing expenses and exercising fiscal restraint. They appear in the 1990 Budget Enforcement Act that required that, if the Congress wanted to provide a tax cut to their constituents, they actually had to cut spending by a similar amount.
Makes sense, right? If you're going to give the people a nice fat tax cut, then you have to not spend so much of their money. You simply have to spend less from the Treasury because you have less revenue coming in. This basic wisdom was one factor contributing to why the US budget surplus began to increase year after year in the 1990s.
Problem is, it's hard work trying to figure out where you're going to cut spending. And it's also hard work to go back to your contituents and explain why you're cutting some program they value. Which is why some legislators don't like PAYGO rules. Indeed, Republicans, who like to offer tax cuts as a major party plank, expecially didn't like PAYGO, because they'd rather be able to simply cut taxes without incurring the hard work consequences for doing so.
So, when the Republicans took control of the House in 1994, PAYGO was already in their sights. They put forth a number of tortured and outrageous explanations about how it tied their hands and made tax relief difficult or how it encouraged more spending. And under the Republican majority, the PAYGO rules were soon ditched.
Once they were gone, the Republican representatives could have their cake and eat it, too! They could offer nice tax cuts to appease to the wealthy and big business, but not have to exercise basic fiscal discipline of reducing pork barrel spending or cutting spending on other programs to compensate for the drop in revenue resulting from their tax cuts.
Hence, "borrow and spend", which has been the Republican mantra for years now. It's a key part of why we have had record deficit budgets for three years in a row recently and why our national debt is now over $8 trillion dollars and predicted to hit $10 trillion in the red before the end of Bush's second term.
Now, to anyone with a lick of sense, this is simply grossly irresponsible governance. The Republicans try to justify all of this by wringing their hands and declaiming the sad state of politics that leads to all this fiscal irresponsibility all the while pounding their chest and pretending to be fiscal conservatives. But they're the ones that dismantled the very rules that helped to combat this profligacy!
Frequently, of course, we hear the old lie trotted out that cutting taxes results in more tax revenue. Republicans are
desperate to believe this, or at lease have everyone else believe it. But it's just not true. It is a fallacy that has long-since been disproved [
1,
2,
3]. Republicans have made it a cottage industry to try to tease out data that supports this misleading assertion, and have gotten quite good at misinterpreting, misextrapolating and otherwise mishandling financial numbers to be able to bolster their flawed case.
Their rhetoric on this point is so prevalent and so skilled at obfuscating the truth that even Fed Chairman Bernanke recently was
forced to explicitly expose this lie. Tax cuts, he said, if done right, can result in SOME offsetting of the cut by other revenues:
"However, under normal conditions, tax cuts do not wholly pay for themselves."
There you go. Clear as a bell.
Don't count on this to dissuade Republicans, though. They have a lot invested in trying to sell tax cuts as being populist, small government and revenue enhancing. But they are none of these. They are not populist because they tend to overwhelmingly benefit the rich and large corporations. They do not promote small government, as evidenced by our having the largest federal government in decades and huge increases in growth of the federal government in the past few years under Bush Jr. And they are not revenue enhancing because, as the data and Fed Chairman Bernanke state so unequivocally, tax cuts normally result in less revenue to the Treasury, overall.
To be even more brutally honest, no matter what it's called, a Republican-driven "tax cut" isn't a tax cut at all if it's not accompanied by a reduction in spending or increase in revenue from some other source. It's simply a "tax deferment". The spending still goes on, but with
borrowed money instead of immediate tax revenue. That borrowed money has to be paid back in the future. Plus interest. And how do you pay off that debt? You got it: you have to collect taxes in the future to bring in the revenue to do it, raising taxes if necessary.
Hopefully, so the thinking goes among Republicans who play this game, those future tax raises happen on somebody else's watch so they're not blamed for it. Preferably a Democrat is in office when it comes time to pay the piper for the Republicans' fiscal irresponsibility, because then Repubs can blame the Dems once again for being "tax and spend".
Bush Senior found out the hard way that it's not always possible to postpone the reckoning, though. To his chagrin, after telling the country to read his lips, the piper came calling on his watch. And after 8 years of Reagan's playing the borrow-and-spend game, and Bush thinking he could skate off on the thin ice of a new incumbency, he had to eat his famous pledge of "No new taxes" and suport a new tax to pony up the dough to pay for the "voodoo economics" the Republicans had been practicing through the previous decade. And he - and the Republicans - lost the Presidency in large part because they had to "own" the consequences of their fiscal mismanagement.
This whole "borrow and spend" approach to tax cuts is one of the biggest examples of why Republicans are no longer the party of fiscal conservatism and haven't been for some time.
And it's why, as I say, one of the things that really excites me about the Democrats taking control of the House again is their pledge to reinstitute the basic fiscal discipline of PAYGO as one of their first things in office.
You want to cut taxes? Fine! We'd all like to pay fewer taxes, I'm sure. But don't pretend that tax cuts shouldn't have consequences on the spending side. Legislators through the ages have shown they don't have the discipline to rein in pork barrel spending or irresponsible tax cuts without PAYGO rules. So we clearly need the rules.
Republican leadership has certainly shown over the past decade that they are unable to champion basic fiscal responsibility without these rules. They are unwilling to make the tough choices of what spending to cut in order to pay for their tax cuts to the rich.
But they are also unwilling to reinstate the rules, either. A recent effort in the Senate to reinstate the rules was voted down, pretty much on a party-line vote by Republicans. Even when our debt is skyrocketing! And an effort in 2002 to have a PAYGO bill recommitted for consideration was voted down by, yep, Republicans. Among whom was Arizona's own JD Hayworth, demonstrating again his obstruction to fiscally responsible legislation.
So that's one reason I'm looking forward to a Dem-controlled House in the coming year:
Bring back the Democrats, bring back PAYGO and bring back some semblance of fiscal discipline to our Legislature.