Congress Passes Budget that Revives PAYGO

| | Bookmark and Share

Yesterday, Congress passed the final budget resolution for fiscal year 2008 which foresees $2.9 trillion in spending, including $954 billion for annually appropriated programs. This is $21 billion more than requested by the President's plan, which was criticized by many Democrats and advocates for short-changing human needs services.

PAYGO Rule Revived, But Plans to Waive It for Some Tax Breaks

The effect of the budget resolution on future tax cuts is a little confusing to people who are not budget experts. The budget revives the "pay-as-you-go" rule, or PAYGO, which creates a point of order in the Senate against new entitlement spending or tax breaks that are not paid for. (This can be waived with 60 votes.) At the same time, the budget does assume that Congress will agree to waive PAYGO to spend $180 billion over 5 years on extending some of the Bush tax breaks that are being called middle-class tax breaks (even though they include estate tax reduction for very large estates).

Also in the $180 billion tax cut package are extensions of the child credit, marriage penalty relief, the 10 percent tax rate and a one-year "patch" for the Alternative Minimum Tax (which essentially extends the exemption that keeps most people from paying for the AMT for another year). (Click here for a list of all the Bush tax cuts.) This tax break language originated in the Senate at the behest of Finance Committee chairman Max Baucus (D-MT). The budget plan projects that if Congress followed PAYGO for the next five years, a surplus of $156 billion would appear in fiscal year 2012, but the tax breaks in that year alone would whittle that surplus down to $41 billion.

A "trigger" provision applies to the House, which adds another point of order (besides PAYGO) against tax breaks if the surplus is not still projected to appear a couple years into this five-year period. The Senate was adamant that this provision should not apply to them, apparently because they want to vote for tax breaks regardless of whether there is a surplus that can be used to pay for them. Even if the surplus appears in 2012, it is calculated to include the Social Security surplus, which was never intended to be used to finance tax breaks and should not be seen as money available for that purpose.

Resolution Does Not Raise Taxes

Republican opponents of the budget resolution have been quick to say that it raises taxes. As CTJ has pointed out, the resolution does not raise a cent of taxes but says that any tax cut must be paid for under PAYGO. (Even Baucus's extension of "middle-class" tax breaks would require a waiver of PAYGO). The Republicans are complaining because when they held the majority in Congress they structured their tax breaks to expire after 2010. They know they cannot extend them without increasing the federal budget deficit, which PAYGO is geared to prevent.

Most Responsible Budget in Years

PAYGO is one reason why this is the most responsible budget we've seen in six years. The President has no role to play in the budget plan because it's a resolution (not a law) that Congress uses to set the overall spending level and to create procedural rules that will guide them as they craft bills to meet the targets spelled out in the resolution. However, the administration has threatened that the President may veto individual spending bills that implement the higher spending goals.

Thank you for visiting Tax Justice Blog. CTJ and ITEP staff will soon retire this domain. But ITEP staff are still blogging! You can find the same level of insight and analysis and select Tax Justice Blog archives at our new blog,

Sign Up for Email Digest

CTJ Social Media

ITEP Social Media