Robert J. Samuelson
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Jun 10, 2009 02:02 PM
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.
Rana Foroohar
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Jun 10, 2009 12:27 PM
Despite all its oil wealth, Russia may end up being one of the last countries to emerge from the financial crisis. Not only are its banks in shambles, but just yesterday it put the brakes on a 16 year campaign to join the World Trade Organization. Clearly fed up with having to tick off reform boxes for Western powers, Russia’s Vladimir Putin got petulant and told the WTO that Russia would only join if Belarus and Kazakhstan could tag along, too. Given that these countries haven’t even left the starting bloc on WTO admission talks, it’s likely that Russia’s entry will be much delayed – if in fact it ever happens.
That’s bad news, because Russia desperately needs to diversify its economy away from oil, on which it is totally dependant. It’s debatable whether Russia should ever have been a BRIC – as one economist recently said to me, “You could just as easily have stuck Saudi Arabia in there.” The oil hides all manner of ills – Russia’s debt to GDP ratio and deficit figures don’t look as bad as some other countries at the moment, but the minute that oil prices go down, it all goes out the window. Corruption and inefficiency are endemic, and unemployment is rising (at ten percent officially, but probably much higher, especially in industry heavy towns), and the downturn has sparked a number of protests over recent months – just last week, Putin paid a visit to a small factory town where 400 jobless workers blocked a highway for several hours and put on a big show of browbeating local officials and factory owners for not helping workers.
In fact, it’s the Russia central government that’s chiefly at fault. The country needs a wholesale economic overhaul and reform, even in the energy sector, which is amongst the least efficient in the world. The fact that lots of unconventional natural gas is coming online now in the U.S. and Europe should be all the prompting Russia needs to stay the WTO course. When the world no longer needs its energy, it will have even less patience for Russian petulance.
Katie Paul
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Jun 10, 2009 08:32 AM
It's the Economy, Mahmoud: As Iran gears up for its presidential election, the economy--not Israel, the nuclear program, or social freedom--is taking center stage. Critics say Ahmedinejad has focused on distributing wealth rather than creating it, and accuse him of fudging the numbers to make his record look better.
More Stress, Please: So you thought it was good news when you heard yesterday that 10 banks would be allowed to repay their TARP bailout money? Wrong, according to Elizabeth Warren. She released a simultaneous report questioning the government's figures and calling for new stress tests.
Going, Going, Gone: Russian central bank officials say they may move some of the country's reserves out of U.S. treasuries and into the brand new IMF bonds.
Remote No More: International brands are determined to tap into India's vast--and vastly undeveloped--rural market, even if they have to send out live entertainers to do their infomercials.
