The New Budget Rules: The Revenge of the Bush Tax Cuts.

House Republicans have unveiled new rules that allow budget resolutions to pass with large deficits so long as they come from tax cuts:

Current House rules include a pay-as-you-go requirement that any tax cut or spending increase for a mandatory (i.e., entitlement) program must be offset by cuts in other mandatory spending or increases in other taxes, in order to avoid increasing the deficit. Current rules also bar the House from using budget “reconciliation” procedures — special rules that facilitate speedy action on specified budget legislation — to pass bills that would increase the deficit.

The new rules announced December 22 would replace pay-as-you-go with a much weaker, one-sided “cut-as-you-go” rule, under which increases in mandatory spending would still have to be paid for but tax cuts would not. ... The new rules would stand the reconciliation process on its head , by allowing the House to use reconciliation to push through bills that greatly increase deficits as long as the deficit increases result from tax cuts, while barring the use of reconciliation in the House for legislation that reduces the deficit if that legislation contains a net increase in spending (no matter how small) that is more than offset by revenue-raising provisions.

This is certainly problematic from the point of view of responsible budgeting. The PAYGO rules instituted by the Democrats, though they had some big exceptions (notably on chunks of the Bush tax cuts that Democrats supported), mostly upheld the common-sense provision that new spending or tax cuts that increase the deficit must be offset by tax increases or spending cuts. Now deficits from tax cuts aren't included, making it easier for Republicans to pass their top domestic priority.

The problem for the economy, though, is that tax cuts are not effective if they aren't paid for. The Bush tax cuts, for instance, for instance, hurt economic growth for precisely this reason: Economists, including former Bush White House official Glenn Hubbard, have pointed out that the costs of that debt far overwhelmed the economic benefits of the prior administration's tax cuts.

Still, of course, the recipients of tax cuts are happy to have more money, even if the economy suffers, so it's good politics for the GOP, even if it's terrible policy. That is, however, why I snorted coffee out my nose this morning when I read Greg Mankiw's claim that conservatives prefer to think about economic policy over the long-term. Perhaps he means that conservative policymakers prefer to push costs out to the long-term.

Ironically, these rules changes are inspired by the Bush tax cuts themselves. The cuts were set to expire last year because Republicans passed them under the old reconciliation rules, which require unpaid-for provisions to sunset over a ten-year window. Irked by having to fight that battle last year, Republicans are doing their best to make sure that future unpaid-for tax cuts won't expire on their own.

-- Tim Fernholz

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