Pay go problems

NY Times Caucus Blog:

During the first four months of his administration, President Obama has committed roughly $1 trillion in federal spending – a $787 billion economic recovery package, and $350 billion in money to bail out the nation’s banks. But on Tuesday, Mr. Obama was talking about saving money, not spending it.

Speaking from the East Room of the White House, the president announced he is sending legislation to Congress to restore the 1990s era “pay as you go’’ law, known as Paygo. The law, in effect from 1990 to 2002, required that any new entitlement spending or tax cuts be offset with by entitlement increases or tax cuts.

“The ‘pay as you go’ principle is very simple,’’ Mr. Obama said. “Congress can only spend a dollar if it saves a dollar elsewhere. This principle guides responsible families managing a budget. And it is no coincidence that this rule was in place when we moved from record deficits to record surpluses in the 1990s - and that when this rule was abandoned, we returned to record deficits that doubled the national debt.’’

But critics of Paygo say it is not simple at all. Brian Riedl, a budget analyst at the conservative-leaning Heritage Foundation, said the Paygo law required Congress to make across-the-board cuts in entitlement spending at the end of any year in which the Congressional Budget Office found that Paygo requirements had not been met. He said lawmakers responded each time by passing another bill, waiving the Paygo requirements.

“Paygo is a gimmick,’’ Mr. Riedl said.

Mr. Obama has been under intense pressure from moderate and conservative House Democrats, the so-called “Blue Dogs,’’ to follow Paygo requirements, and an administration official said Tuesday that the lawmakers had been urging the president to throw his weight behind reviving the law. Mr. Obama said Tuesday that House Speaker Nancy Pelosi, the California Democrat, supported the measure; Ms. Pelosi was on the podium with him in the East Room.

Peter Orszag, the administration’s budget director said, “What this is doing is saying we can’t dig the hole any deeper. As is well recognized all this does is prevent the hole from getting deeper — which by the way would be a significant accomplishment.”

But even if Paygo were restored, it would affect only future spending, without putting a dent in the projected $1.8 trillion federal deficit. Republicans ridiculed Mr. Obama’s event, citing the deficit and what they consider runaway spending.

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Joseph Curl at the Washington Times strikes a similar theme.

Mr. Obama's proposed budget would produce a $1.85 trillion deficit this year, more that four times the previous record set just last year by President George W. Bush, and $1.3 trillion next year. Over the next decade, the plan would incur $11.6 trillion in deficits - doubling the national debt, according to the nonpartisan Congressional Budget Office.

But even though it seems a bit too late to try to adopt the guiding principle of "responsible families," the president also may be deploying the wrong template.

The pay as you go - PAYGO, to the crack federal linguists - isn't working so well just now with your run-of-the-mill "responsible family." Americans' credit card debt had risen to $972.7 billion by the end of 2008, creditcards.com reports; the average household is $16,635 in debt. Four out of five homeowners don't use a detailed budget. And one in six is either in foreclosure or behind on house payments.

What's more, every year, Americans pay around $15 billion in penalty fees, according to the Treasury Department. Since the economic meltdown last fall, missed credit card and mortgage payments have damaged credit ratings, which means that people who fall behind can't get a loan to catch up or refinance to bring down costs.

Wait, that does sound like the federal government, after all.

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David Leonhardt at the NY Times tries to blame Bush for much for the debt. I think he omits some facts that would put responsibility on Democrats. Start with Social Security reform which Democrats blacked and by doing so guaranteed a growing deficit.

Then there is the credit crisis caused by the Democrats policy of forcing lenders to loan to people who could not afford the mortgages they were taking out. This led to forclosures and a cascading effect on housing prices that led to more foreclosures and the need to bail out banks and other instutions.

Democrats have always been good at aoiding responsibility for the messes they make. This is one of the biggest messes in history and Leonhardt should not participate in the coverup. Before the effects of the Democrat housing policy begin hammering the economy, the Bush tax cuts were starting to pay for themselves with increased revenue to the treasury. This was sound tax policy that the Democrats opposed and the housing policy and the mess at Fannie and Freddie was irresponsible lendign policy.