You’ve probably heard about the new House rules regarding spending and tax cuts (CUTGO). What you might not have heard about is how it will more likely lead to deficits than the previous rules under the Democrats (PAYGO). The Concord Coalition has a great article about this called: New House Rules Clear Path for New Deficits. I’m going to focus on one particular rule, which is the removal of tax policy from discussions about the deficit.
In short, the previous rules required spending increases and/or tax cuts to be offset by spending cuts and/or tax increases of an equal $ amount. The new rules require completely removes tax policy from the rule, so now spending increases to be offset by equivalent spending reductions.
Now, they may argue that the true level of taxation is the level of spending, as I did in my previous article G = T. While true, we cannot ignore the fact that tax cuts add to the deficit. With an increased deficit, the government borrows money that could have been used for private investment. Then to pay it off, the government is either going to tax future generations or print money (which devalues everyone’s earnings and has the same effect as a tax). So by taxing and spending, we’re paying once through taxes; by deficit spending, we’re paying twice, once through a reduction in lendable funds and once through taxes later. Tax cuts which are deficit-financed are TCINO (Tax Cuts in Name Only).
Some Congressmembers, such as Ron Paul (R-TX), will argue that tax cuts should be offset by spending cuts, but tax cuts not offset are better than no tax cuts at all. The reason is, of course, that “That money belongs to the people and businesses who earned it, not to the government” and therefore any measure to reduce the amount of money the government takes is good. I have no dispute that the money belongs to those who earned it, but tax cuts which are not offset are worse than no tax cuts at all. What he and others seem to overlook is that when government is adding to the deficit, the question isn’t WHETHER government will take someone’s money and spend it, but FROM WHOM government will take money and spend it. Future generations will have their own problems to solve, and he voted to put an extra burden on them.
If instead, they wanted to require all measures that add to the deficit be offset by spending cuts only, they would have little argument from me. Instead, they have decided that tax cuts which add to the deficit don’t need to be offset at all. That’s not fiscal responsibility, that’s fiscal irresponsibility.