Wednesday, October 27, 2010

Catch of the Day

Jonathan Chait is all over the GOP plan to replace Paygo with "Cutgo." 
Looking ahead to controlling Congress, Republicans again propose to eliminate Paygo, as they did under Bush. But this time they propose to replace it with a different rule, Cutgo, which would require that new spending be offset with spending cuts. That would indeed be an effective way to limit new spending programs. Of course, it would retain the ability to pass tax cuts with no offsets whatsoever. The decision once again reflects the core Republican belief that tax revenues do not need to bear any relationship to expenditures.
I'd only add two things.  One is that it is indeed a budget-neutral change to replace a rule that new spending has to be offset with either taxes or spending cuts with a rule that new spending must be offset with spending cuts.  (Not that I like the rule -- I think budget rules should be neutral about the overall size of the government).  The second is that we'll have to see what the details of prospective Speaker Boehner's actual proposal turn out to be.  Will there be exceptions for GOP-favored programs?  How easy or difficult will it be to waive the rule?  So we really don't know yet whether the that part of it will in fact be deficit-neutral.

On the overall rule, however, Chait is of course correct: Cutgo may be a way for Republicans to achieve some of their goals, but balanced budgets are not one of those goal.  Cutgo should properly be seen as a roadmap to higher deficits.

3 comments:

  1. it is indeed a budget-neutral change to replace a rule that new spending has to be offset with either taxes or spending cuts with a rule that new spending must be offset with spending cuts.

    No, it's not budget-neutral, because (according to Chait) the "Paygo" rules also apply to tax cuts. That is, under "Paygo", any tax cuts must be offset by raising other taxes or cutting spending; but "Cutgo" does not apply to tax cuts, only spending increases.

    So the GOP could follow "Cutgo" rules to a T and still explode the deficit by slashing taxes willy-nilly. (And is there any doubt that this is exactly what would happen if the Congressional GOP had its way?)

    Chait's point is that this is actually consistent with the GOP's fairy-tale worldview that tax cuts always increase rather than decrease revenue; i.e. that we are perpetually on the right side of the Laffer Curve.

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  2. Isn't it, technically, budget neutral?

    Cutgo doesn't say that tax cuts are going to happen; as a rule, it's totally silent on taxes. Thus, the rule may be technically budget neutral.

    However, as Chait, Jonathan, and Andrew all note, the actual effect will be to increase budget deficits. Don't forget, though, that Cutgo doesn't say anything about cuts having to be offset with spending increases. So, we're also adding outside information to the equation.

    I don't mind adding the outside information: Republicans like to cut taxes. They like to cut spending much less. Thus, deficits.

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  3. Andrew,

    I suppose I didn't write very clearly. I'm saying that "Cutgo" has two parts. Part 1, how to fund spending increases, is different than Paygo but (probably) budget neutral. Part 2, how to fund tax cuts, is not. So it's overall not budget neutral.

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