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'Pay as you go' budget goes the way of politics

Congress' reluctance to make tough decisions on taxes undercuts the goal of fiscal balance.

December 04, 2007|Noam N. Levey | Times Staff Writer

WASHINGTON — Facing an out-of-whack federal budget and a ballooning debt, congressional Democrats made a simple pledge when they took power in January: If lawmakers increased spending or cut the taxes needed to pay bills, they would find money elsewhere to balance the national checkbook.

But less than a year later, the plans for what was portrayed as a more responsible fiscal future -- enshrined in stringent new budgeting rules -- have collapsed amid a politically explosive debate over taxes.

And as the two parties head into a hotly contested election year, the moment for tough choices and sound fiscal planning appears to have passed, overtaken by political expediency.

"On any given day, it's easier to pass tax cuts and spending increases without paying for them," said Jason Furman, a senior fellow at the nonpartisan Brookings Institution think tank and a former economic advisor in the Clinton White House.

"You get more credit for an exciting new program and a tax cut than for being responsible. . . . And that's exactly what has happened."

Republicans, intent on claiming a mantle of fiscal responsibility, are nonetheless demanding that the pay-as-you-go rules be suspended so that $50 billion in tax relief next year need not be offset by other tax increases.

Senate Democrats, sensitive about accusations that they are eager to raise taxes, are backing away from a precept they once said would be central to their leadership.

And few budget watchers expect that Congress will make the difficult trade-offs to bring down a national debt that tops $9 trillion, or roughly $30,000 for every American.

"I wouldn't bet on fiscal courage," said Robert L. Bixby, executive director of the nonpartisan Concord Coalition, which is a leading advocate of balanced budgets.

"It doesn't seem to win very often."

Bixby is among many deficit hawks who looked on in dismay as President Bush and his allies on Capitol Hill turned the budget surpluses that emerged in the late 1990s into deficits. Tax cuts pushed through early in Bush's first term sapped government revenue. At the same time, Bush signed appropriations bills that boosted federal spending by 25% in just seven years, inflation-adjusted figures indicate.

That in turn produced the record debt. Last year, the interest payments on that debt topped $250 billion, more than was spent in the same period on the wars in Iraq and Afghanistan.

When Democrats assumed the majority on Capitol Hill in January after 12 years of almost complete GOP control, they promised to confront the budget mess head-on, hoping to solidify a reputation for fiscal responsibility that President Clinton had fostered.

"After years of historic deficits, this 110th Congress will commit itself to a higher standard," House Speaker Nancy Pelosi (D-San Francisco) said at her swearing-in ceremony. "Our new America will provide unlimited opportunity for future generations, not burden them with mountains of debt."

The House adopted the pay-as-you-go rule -- known as "paygo" in Washington's abbreviation-rich argot -- the next day. Forty-eight Republicans joined 232 Democrats in backing the proposal; 152 Republicans voted against the package, which also included other new House rules.

In the Senate, where Democrats hold a one-vote majority, the rules were incorporated in the annual budget resolution, which passed 52-47 in March with just two GOP votes.

The paygo rules were based on similar standards worked out in 1990 by congressional Democrats and GOP President George H.W. Bush as the two parties struggled to rein in the huge budget deficits of the Reagan years. The rules were reaffirmed during the Clinton administration. But they were subsequently suspended by lawmakers after helping in the late 1990s to produce the first budget surpluses in three decades.

Today's rules are vulnerable to budgetary gimmickry by allowing offsetting revenue to be counted years into the future. And although Democrats have cut back pork-barrel spending from its heights under the GOP, they continue to tuck millions of dollars in earmarks into spending bills, sparking criticism from budget watchers.

But paygo has forced Congress to make some tough choices.

This fall, Democrats tried to offset the cost of expanding health insurance to millions of children by voting to raise taxes on tobacco products, including a 61-cent-per-pack increase in the federal cigarette tax. Democratic lawmakers also compensated for a $20-billion expansion of the federal student loan program by cutting federal subsidies to loan companies.

Those measures attracted substantial GOP support, although Bush vetoed the children's health insurance expansion, citing his opposition to the tobacco tax.

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