Farewell to Spending Discipline

Posted: Dec 23, 2007 12:10 AM
Farewell to Spending Discipline

When Speaker Nancy Pelosi took charge of the House in January, she pledged that Democrats would fight deficit spending and "restore pay-as-you-go [budget] discipline." Amid much fanfare, the new Democratic House passed a "pay-as-you-go" budgeting rule that required Congress to offset any spending increases or tax cuts. On Dec. 19, "pay-go" bit the dust.

On that day, the House passed a bill to protect more than 20 million American households from an increase in the alternative minimum tax -- without offsetting the $50 billion in lost revenue as pay-go promised. The 352-64 House vote followed an 88-5 Senate vote to do the same.

In less than one year, congressional Democrats had abandoned their key to fiscal responsibility -- even with the 2008 election looming, which should make them want to appear effective. And it should be noted that the pay-go rule only survived 11 months because legislators employed budgeting gimmicks -- shifting payments from one year to the next, underestimating the cost of programs or paying less for services -- to prop up the pay-go charade.

"I don't think it's dead," Pelosi spokesman Brendan Daly told me. "It's premature to say so. The speaker is certainly committed to it. The blue dogs [fiscally conservative Democrats] are. I think that we're going to do everything we can to force it on other bills."

Daly noted that House Dems twice passed an AMT-reform bill that met the pay-go rules, but the Senate wouldn't pass them. So House Democrats -- these are my words -- were forced to cave rather than allow a tax increase on the middle-middle and upper-middle class.

The Democrats' failure here is not cause for glee. Sure, there is small satisfaction in watching the party of big spending revealed for what it is. Yet House Democratic staffers can point to new spending bills that never made it to a floor vote because they would have had to find a way to pay for the new programs. The House Budget Committee cites 360 bills passed by the House that complied with pay-go.

Democrats believe that they have made sacrifices in their aim for fiscal responsibility -- and at least they're trying. But they can't climb that hill. Taxpayers for Common Sense found more than $15 billion in earmarks -- pet projects inserted by lawmakers -- in the last two spending bills passed by Congress. The urge to spend trumps any notions of economy.

Besides, it's not as if the Republicans were role models when they sent big-spending bills, like their pork-rich 2002 farm bill, to President Bush for his all-too-ready signature.

Democrats blame Republicans for not supporting the pay-go rule, but Republicans, like Rep. Dan Lungren, R-Calif., see pay-go as a mechanism to force through tax increases, without reducing spending. In the two failed House AMT bills, Democrats didn't try to pay for the AMT reform with cuts. Instead, they chose to raise taxes on hedge fund managers. Lungren noted, "They were arguing that we needed to raise taxes in order to stop a tax increase."

All Washington knows that the AMT was designed to make sure millionaires pay some taxes; it would not apply to today's middle class if it had been indexed to inflation in 1969. Lungren said he can't support a tax increase to stop a tax increase that never should have happened.

What about Democrats who argue that hedge fund managers should not pay higher taxes? Lungren answered, "You've got to talk to Sen. [Chuck] Schumer [D-N.Y.] about that. He discovered most of those hedge fund managers happen to be Democrats." Schumer opposed the two failed House AMT bills because, he argued, it was wrong to pay for AMT reform on the back of one industry. Considering that only five Democrats voted against the bill, Schumer did not face a hard sell.

National Taxpayers Union spokesman Pete Sepp gave pay-go credit for curbing some spending, but noted that it can't tackle the worst problems because it doesn't address entitlement programs like Medicare. "I'm not knocking it completely, but there are lots of factors other than pay-go that have to fit into the equation of fiscal responsibility."

The Republicans have this going for them: As Lungren told me, folks in his district complain that the size of the federal government is too big; they don't complain that they're paying too little in taxes.

Then again, the GOP didn't cut spending when it led Congress.

As for Democrats, their idea of responsibility is to propose tax increases, albeit new taxes which, they purr, only other people -- smokers, hedge fund managers -- will have to pay. For them, it's a big game of pass the new program, hide the tax increase needed to pay for it, pass some budget gimmicks and let the entitlements roll. In one year, despite the use of budgeting gimmicks to keep it afloat, pay-go became a no-go.