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Wednesday, June 21, 2006

Pay as you Go.

That sure sounds like a good mantra for reining in profligate spending in Washington, doesn’t it? Who can argue with the logic that you shouldn’t spend it unless you have it? Well, most Americans would agree with that in theory, but not in practice. If we did, very few people would own automobiles, and even fewer would own homes. We spend more than we make on a daily basis.

But instituting steadfast rules would surely limit how much the federal government can spend, right? Well, not according to a Wall Street Journal editorial:

.. in practice all they really do is constrain tax cuts, not new spending.

That's because paygo rules apply only to new or expanded entitlement programs, not to those that already exist and grow automatically with user demand. Thus spending for Medicare, growing this year at an astounding 15% annual rate, would continue to run on autopilot. Ditto for Medicaid. So-called "discretionary" programs (education, Defense) that Congress approves each year are also exempt. Democrats somehow forget to disclose that those notorious "earmarks" stuffed into spending bills are also exempt from paygo.

The real game here is to make tax cutting all but impossible. Under paygo, tax cuts must be offset with either other tax increases or entitlement cuts. This usually means pitting tax cuts against cuts in the likes of Medicare, which is a very hard political sale. Paygo rules are one reason the 2001 tax cut was so paltry and phased-in and thus economically ineffective. Had paygo still been in force, the 2003 tax cuts that have done so much to spur growth and increase federal revenues would never have passed.

Now, on a personal level, I can certainly limit what I spend on discretionary items, but if I chose to exempt some area of expenditure, I’m not really addressing the problem. The same holds true for the federal government. I’m all for paygo rules, as long as they are uniformly applied and enforced. As history tells us, they aren’t, nor will they be.


.: posted by Dave 4:14 PM

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