Key Argument Against Applying Pay-As-You-Go To Tax Cuts Does Not Withstand Scrutiny

Publication Date: March 2007

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): James Horney; Richard Kogan

Research Area: Banking and finance; Economics

Keywords: Economic projections; Tax code; Fiscal future

Type: Report

Abstract:

Bush Administration and the Republican leadership of Congress strongly oppose reinstatement of these rules. They justify this opposition, in part, on the claim that applying PAYGO to the extension of expiring tax cuts would be inequitable because the budget baseline rules favor entitlement increases over tax cuts. Backing the baseline rules up with PAYGO would magnify this inequity, PAYGO critics charge. Examination of the baseline rules makes quite clear, however, that this argument is not valid — that the budget rules do not favor entitlement expansions over tax cuts. The general budget rules treat temporary provisions of the tax code exactly the same as temporary provisions of entitlement programs. Moreover, a special rule dealing with cases where an entire entitlement program (such as a farm program) expires does not give an advantage to such programs either.