Advancing a Free Society

Budget Tricks

Friday, December 16, 2011

I have been following budget gimmickry in Washington since my days as Assistant General Counsel of the Office of Management and Budget. Some old tricks were largely ended by the adoption of budget “scoring” by the Congressional Budget Office. Admittedly, CBO scoring is partly an exercise in suspension of disbelief – CBO is forced to believe that Congress will actually enact what it says it will enact, and that these measures will have the results that are predicted. But at least all proposals are subjected to the same set of rules, which enables us to compare competing proposals.

There are lots of ways to make CBO scoring more accurate, and if Congress were serious about budgetary transparency it would institute a basement-to-attic reform of the process. But I want to call attention to one gimmick that is especially common and especially pernicious: to use savings or tax increases over a period of years to “pay for” spending or tax cuts in one year. For example, members of Congress of both parties wish to extend the two percent payroll tax holiday for an additional year, at a one-year cost to the Treasury of $120 billion. Democrats propose to “pay for” the one-year stimulus by ten years of increased taxes on high-income persons. Republicans propose to “pay for” the same by ten years of decreased expenditures on such items as federal employee salaries, Medicare benefits for high-income seniors, and higher fees on Fannie Mae and Freddie Mac.

Wholly apart from the merits of any of these proposals, it defeats the purpose of the budgetary rules to spend more in the next year, based on promises to tax more or spend less in the future. Taxes in the future will be needed to pay for expenditures in the future. If these revenues have already been spent – in one year – they will not be available to be spent over the years they are collected. Multi-year financing of single-year programs is just deficit spending under a different name.

The entire purpose of CBO scoring is to constrain Congress’s tendency to confer transient benefits on current voters at the expense of future generations. To treat these “pay as you go” rules as satisfied by imposing costs or sacrifices on future years is contradictory and self-defeating.

(photo credit: jenny.nash712)