Tax Lawyer's Blog

Congress’ PAYGO or pay-as-you-go rules require that no new spending or new tax changes increase the federal deficit.

In other words, all new proposals must either be budget neutral or be offset with savings derived from existing funds.

The Washington Post editorial board opined in an op-ed piece titled Expiring Tax Cuts – What to do before 2010 drop-dead date:

The looming expiration of the Bush tax cuts offers an opportunity that the Obama administration and the Democratic Congress seem determined to squander. No one is proposing allowing all the tax cuts to expire as scheduled, on Dec. 31, 2010, nor should they. But a rational discussion of tax policy would include thoughtfully weighing which tax cuts to keep in place, which ones to pay for and perhaps even which taxes to increase.

It may not surprise you to learn that this not happening. Instead, Congress is busy figuring out how to best break its own rules — the ones that supposedly require tax cuts to be paid for rather than simply tacked on to the already bulging bill for the next generation. Meanwhile, President Obama has appointed a tax reform panel — a good idea — but counterproductively constrained its mission.

In an ideal world, the House and Senate would stick to their pay-as-you-go rules and offset the costs of any new tax cuts, either by raising other revenue or reducing spending. But the Senate, in its version of the budget resolution, assumes that pay-go rules will be waived to allow extension of the expiring income tax cuts for families making less than $250,000, the estate tax cuts and a temporary fix for the alternative minimum patch.

What’s compelling about all this is not that Congress is prepared to break its own rules – it’s done that many times before – but that President Obama recently sent a letter to Nancy Pelosi  (PDF) urging compliance with Paygo:

Paygo would hold us to a simple but important principle: new tax or entitlement policies should be paid for. Creating a new non-emergency tax cut or entitlement expansion would require offsetting revenue increases or spending reductions.

This could get interesting.

If Congress doesn’t follow suit and accede to Obama’s demand for compliance with Paygo, will the President dust off his veto pen?

Related Posts:

Whose Tax Increase is It? Obama’s or Bush’s?

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