Get to know ‘Cutgo’

GET TO KNOW ‘CUTGO’…. The “pay as you go” budget policy — aka “Paygo” — was a basic and effective approach. In a nutshell, if policymakers want to increase spending or cut taxes, they have to figure out a way to pay for it. The point is to prevent increases to the deficit by telling officials to “pay as you go.” It helped Clinton eliminate the deficit altogether and deliver some of the largest surpluses ever.

This past decade, Republicans decided Paygo was inconvenient, since they wanted to slash taxes, fight two wars, expand Medicare, and implement No Child Left Behind without paying for any of it. So, they scrapped Paygo and added $5 trillion to the debt.

Democrats brought the idea back last year, and were careful to make sure literally every major Democratic initiative considered since Obama took office, other than the Recovery Act, was fully paid for.

With an incoming House Republican majority, Paygo is once again being eliminated. The Center on Budget and Policy Priorities walks us through the new GOP rules, quietly approved last week. (via Paul Krugman)

House Republican leaders [Wednesday] unveiled major changes to House procedural rules that are clearly designed to pave the way for more deficit-increasing tax cuts in the next two years. These rules stand in sharp contrast to the strong anti-deficit rhetoric that many Republicans used on the campaign trail this fall. While changes in congressional rules rarely get much public attention, these new rules — which are expected to be adopted by party-line vote when the 112th Congress convenes on January 5 — could have a substantial impact and risk making the nation’s fiscal problems significantly worse. […]

The new rules would stand the reconciliation process on its head , by allowing the House to use reconciliation to push through bills that greatly increase deficits as long as the deficit increases result from tax cuts, while barring the use of reconciliation in the House for legislation that reduces the deficit if that legislation contains a net increase in spending (no matter how small) that is more than offset by revenue-raising provisions.

This may sound a little confusing, but it’s pretty simple. Indeed, before the midterm elections, GOP leaders were already outlining the policy they labeled “Cutgo.”

Under Paygo, new spending had to be paid for. Under Cutgo, new spending necessarily has to be offset by cuts to existing spending. That may not sound especially outrageous, but it clears the way for Republicans to keep cutting taxes — which would fall outside Cutgo restrictions — to their hearts’ content, raising the deficit in the process.

It also deliberately shifts the focus. New spending can’t be offset by, say, closing tax loopholes or creating new sources of revenue. Congress would have to offset the costs by cutting spending.

It’s about limiting policymakers’ options to those Republicans consider acceptable — and nothing else. Deficit-raising tax cuts would be fine; deficit-reducing tax increases to pay for programs would be verboten. Tax cuts wouldn’t need to be paid for; spending would need to be paid for.

Reviewing the move, Krugman described GOP leaders: “Yes, they’re frauds.” To disagree is to deny reality.