Newsweek - National News, World News, Health, Technology, Entertainment and more... - Newsweek.com

Wealth of Nations

RSS
SPONSORED BY

Authors


Rana Foroohar


Michael Hirsh


Katie Paul


Barrett Sheridan

Categories





Links

Featured Postings

Why Colombia's Stock Market Beat China's

8:01 AM, January 14, 2010 | Comments (0)
If you had any doubt about what Fareed Zakaria calls "the rise of the rest," consider a new Bank of America Merrill Lynch report on the performance of emerging markets over the past decade. If you had invested $100 in -emerging-market stocks on Dec. 31,...

ICBMs Without Nukes: USA's Best New Weapon?

6:10 AM, November 4, 2009 | Comments (14)

India Is Key Player In Afghan Conflict

9:00 AM, October 19, 2009 | Comments (9)

Archives

See All from June
Previous
June 2009
Next
Sun Mon Tue Wed Thu Fri Sat
 123456
78910111213
14151617181920
21222324252627
282930    
       
Full Post
Posted Wednesday, June 10, 2009 2:02 PM

Obama's Pay-Go Flameout

Robert J. Samuelson
If President Obama thought he'd score some easy political points by endorsing new PAYGO legislation to control deficit spending, he was sadly mistaken. Although PAYGO--budget-speak for "pay-as-you-go"--seems to limit Congress' ability to cut taxes or raise spending, the initial reviews were unkind and sometimes harsh.

"This is like qutting drinking, but making an exception for beer and hard liquor," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, an advocacy group.

Don Wolfensberger, head of the Congress Project at the Woodrow Wilson Center noted that 48 percent of Americans already disapprove of Obama's handling of budget deficits (46 percent approve). "Obama will have to convince lawmakers that his own legislative ambitions will not exceed their political will or ability to increase taxes or cut entitlement benefits,"  he said.

Senator Judd Gregg (R-NH) and Congressman Paul Ryan (R-WI), the ranking Republican members of the Senate and House Budget Committees, were predictably critical, arguing that "waving the PAYGO banner has served as a convenient political cover for the majority as it exploits loopholes and continues its big-government spending ways."

But even Senator Kent Conrad (D-ND), chairman of the Budget Committee, was unenthusiastic. PayGo, he said, "does not address the deficits and debt projected under existing policy."

PayGo is one of concepts that sounds great on paper--but means much less in practice. Under the PayGo law that was in effect from 1991 to 2002, Congress was required to pay for any new tax cuts or new entitlement benefits (in say, Social Security or Medicare) by either raising other taxes or cutting other entitlement spending. In theory, this seems a guaranteed way to balance the budget. Obviously, it isn't. The Congressional Budget Office has projected that Obama's budgets would run a collective deficit of about $11 trillion between now and 2019.

Why doesn't PAYGO work? For starters, the Obama proposal has huge loopholes. It would exempt a) renewing the 2001/2003 Bush tax cuts; b) patching the Alternative Minimum Tax (AMT); c) updating doctors' Medicare payments; and d) changing the estate tax. It was these ommissions that inspired MacGuineas' objection. "Exempting these measure from PAYGO would increase the ten-year deficit by over $2.5 trillion," she said. With interest, the figure could be $4 trillion, according to Conrad.

But even without Obama's exceptions, PAYGO is often toothless against budget deficts.

For starters, it applies only to tax cuts and and entitlement spending--programs like Social Security, Medicare, food stamps, agricultural subsidies or unemployment insurance when recipients automatically qualify for benefits by fulfilling eligibility requirements (by being unemployed, for instance). Totally exempted is "discretionary spending" for defense, education, environmental protection and many other programs. In 2008, discretionary spending totaled $1.135 trillion, or 38 percent of federal spending.

Next, normal increases in entitlement spending (more beneficiaries, higher health costs, etc.) also aren't covered. So, for example, most of the increase in Social Security and Medicare spending resulting from the impending retirement of baby boomers doesn't count for PAYGO. All that counts are increased benefit levels from existing legislation: If Congress raised Social Security benefits, those increases would presumably be subject to PAYGO.

Finally, when PAYGO becomes a political nuisance, Congress suspends it. According to analyst Brian Riedl of the conservative Heritage Foundation, Congress waived the requirements repeatedly in the 1990s. "Entitlement spending actually grew faster during the 12 years of PAYGO (1991-2002) than in the 12 previous years (1980-1991)," he says.
Advertisement
You must be a registered user to comment.  Click here to register.  Already a user?  Click here to login.

Member Comments

Posted By: KristinaBrooker (June 22, 2009 at 5:32 PM)

You know I like the fact that my brother (1964) is molesting his two children, helps me with my prefered isolation (Ha).  Hey it's great 911 doesn't work (ha ha ha).  

Fix paying criminals first, it's impossible to talk about any other function until legel is demanded using a GPS device like a phone.

Kristina Brooker 126 395 086

maiden name Thomas (1942, 2002 interference)

Report Abuse
Posted By: austin c (June 12, 2009 at 1:03 PM)

The author did not mention that the new health plan was originally planned (by budget director Peter Orszak) to be covered by two parts, the first part is the increased tax to the high income people by removing charity reduction, the second part is the cap and trade tax to be collected from the "polluters" or the main street America. I have not heard about this plan lately, apparently the cap and trade tax  can not be readily approved by the Senate.

Report Abuse
Posted By: MSPC1950 (June 11, 2009 at 6:03 PM)

Remember Gramm-Rudman Bill in 1985? Balancing a budget for the Federal Government has been a pipedream for the same reason that California is in trouble. People want to take, but loath to give. Other states laugh at California's situation and the way it is not being handled, but the voters are as big a problem as Sacramento.

A significant part of the the deficit we are dealing with is due to the dire economic situation that has been germinating for many years under several administrations ( exacerbated by a war or two in progress) but has now borne its fruit. The economic meltdown brought fears of a recession that was expected to be the mother of all recessions, neigh a depression, that would last as much as a decade. Two administrations developed bailout plans that cost huge amounts of money and generated tremendous controversy. But lo and behold the economic pundits are now saying that the turnaround may be in sight.  So it appears that while the economic downturn has been very painful with many unfortunate, and some deserving victims,  at least we aren't seeing the catastrophe everyone thought would occur as recently as 6 or 7 months ago.

How are we going to pay for this respite, because it cost a lot money. Well, that is what no one wants to do. Pay more taxes, even after the economy has recovered, Hell No. Cut "waste" is the answer, but it is still a case of one man's trash is another mans gold. Hard decisions need to be made and we don't seem to want to make them at either a national or person level. No one wants to see their lifestyle decline and we are not encouraged to accept that either. it would be political suicide. We have only ourselves to blame, but it is great to have politicians ( ours are fine, it's those others we need to kick out) as the scapegoats. It's either those damn Republicans/Conservative politicians or Democrats/ Liberals politicians we never look in the mirror to see the real culprits.

Report Abuse
Show All Comments (5) »