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Broder: Pay-Go Law Riddled With Loopholes

By Gene J. Koprowski   |   Thursday, 23 Jul 2009 02:51 PM

The Congress and the White House are touting new pay-as-you-go budget rules as tools of fiscal restraint, but the rules contain loopholes that are likely to result in "staggeringly" larger deficits, writes columnist David Broder in The Washington Post.

"The bill says that at the end of the year, if Congress has spent more on new entitlements or tax cuts than it has saved, the president can roll back or sequester the excess. But the Congressional Budget Office, the official scorekeeper, warned in a July 14 memo that, as introduced, the bill might allow spending to increase — and by a staggering amount," writes Broder.

The rule would allow the Congress to enact legislation that would increase deficits by an amount in the vicinity of $3 trillion by 2019 period without triggering sequestration, the president’s power to stop spending automatically, Broder says.

The reason for this madness is that the bill exempts from pay-go all of the spending involved in Medicare physician payments and all of the revenue dependent on estate and gift taxes, the alternative minimum tax for individuals, and the administration's plan to continue the Bush tax cuts of 2001 and 2003.

"That is not the only giant loophole in this version of pay-go. Unlike the one enacted in 1990, it is not accompanied by any multiyear cap on discretionary spending. That means the 40 percent of the budget reflected in annual appropriations bills for ongoing or new government programs does not have to be paid for," writes Broder.

Broder said Congressional leaders know the truth about "pay-go," but don't care, as acknowledging this will impact their agenda.

A "realistic" appraisal of this legislation came in a hearing of the House Budget Committee from Douglas Holtz-Eakin, a former director of the Congressional Budget Office and an adviser last year to John McCain.

Holtz-Eakin said that rules such as pay-go are no substitute for the genuine political will to solve the problem of runaway budget deficits.

As if that news isn't bad enough, others are saying the financial picture for the federal government and for most investors is going to get worse.

If the Democrats pass healthcare taxes as part of a reform, notes Jim McTague in Barron's, the "highest-taxed Americans" will pay close to 60 percent of all their income for federal, state and local taxes combined.

"Wyoming, anyone?" writes McTague, noting that the state has zero income tax.

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The Congress and the White House are touting new pay-as-you-go budget rules as tools of fiscal restraint, but the rules contain loopholes that are likely to result in "staggeringly" larger deficits, writes columnist David Broder in The Washington Post. "The bill says that...
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