Washington Times

November 7, 2007

Where 'paygo' means you pay  

By Jim McCrery - Quietly, using procedural rules little known or understood outside the Capital Beltway, Democrats in Congress have already laid the groundwork for a $3.5 trillion tax increase — a tax increase that could be devastating for American competitiveness and American jobs. Tomorrow, the House will consider the first down payment on that tax hike.(*)

After they took the majority in both houses of Congress, Democrats were roundly cheered for reinstituting so-called "paygo" budget rules, which ostensibly guarantee fiscal discipline by requiring that any new spending or tax cuts be made up by tax increases or spending cuts elsewhere. In theory, this sounds as if it were a mechanism that will keep the size of government and Americans' tax bills from growing. In reality, it guarantees the largest tax increase in American history. The Democrats' paygo baseline includes revenue from two sources over and above the current tax burden on the American people: the alternative minimum tax (AMT) and the end of the 2001 and 2003 tax cuts, which are scheduled to expire after 2010. Add them together, and that is $3.5 trillion over a 10-year period.

Two weeks ago, the chairman of the Ways and Means Committee, Rep. Charlie Rangel, introduced what he calls the "Mother of All Tax Reforms" and I call the "Mother of All Tax Hikes." The bill, which is endorsed by House Speaker Nancy Pelosi, is fundamentally flawed because each tax reduction will be balanced by a tax increase, leaving the overall $3.5 trillion tax increase intact. Tomorrow, the House will consider a smaller bill to "patch" the AMT for this year, but that bill is based on the same flawed assumption.

The AMT, as many know at this point, was enacted in 1969 in an attempt to get taxes from 155 millionaires who were completely avoiding the federal income tax at that time. Since it was never indexed for inflation, it has crept down the income scale to the point that middle-class folks in some high-tax states are now liable for it. For the past six years, Republicans have protected all but the wealthy from the AMT with a series of "patches." As a result, while the AMT is still on the books, it currently affects only four million taxpayers, bringing in a fraction of the tax revenue that it would under the Democrats' baseline. But under paygo rules, Democrats face a nasty choice: either allow the AMT to expand so that by 2017 it affects nearly 36 million taxpayers, or find $872 billion worth of tax increases elsewhere.

Obviously, neither the AMT nor the expiring 2001 and 2003 tax cuts currently affect the reality faced by most American taxpayers. To most Americans, if you pay less in taxes this year than you did last year, you got a tax cut. If you pay more taxes this year than you did last year, you got a tax increase. That is the "reality baseline" by which we should measure the impact of the Democrats' tax bills. Under the Democrats' plan, though, between the end of the 2001 and 2003 tax cuts and increasing taxes to "fix" the AMT, the reality is that American taxpayers face a $3.5 trillion tax hike.

Take a family with two children. The 2001 tax cuts increased the child tax credit from $500 to $1,000 per child. So our hypothetical family gets $2,000 in child tax credits this year. But the baseline the Democrats are using assumes that the increased child tax credit ends after 2010. So, the Democrats assume that the same family will get only $1,000 worth of child tax credits in 2011—- $500 per child less. To that family, that's a tax increase, plain and simple. But under Democrats' paygo rules, in order to allow that family to continue paying the same level of taxes, Congress must raise taxes elsewhere. That is a tax increase for the country, plain and simple.

The scale of tax increases that Democrats are planning will have a huge negative effect on our economy. Since 1965, federal taxes have averaged approximately 18.2 percent of the gross domestic product (GDP).We have had an unprecedented run of relatively stable prosperity for that time. But the Democrats' plan would increase our taxes to 20.1 percent of our GDP. Real tax reform should begin by deciding what level of taxation is best for our government and our economy, and then designing a modern, efficient tax system to raise that revenue.

Our goal should be to make the a beacon for capital investment and the jobs and economic growth that come with it. Whatever form the Democrats' tax-raising plans are couched in, we need to look at the big picture; and if their plans call for job-killing higher taxes, we should reject them.

Rep. Jim McCrery, Louisiana Republican, is the ranking member on the House Ways and Means Committee.

(*) this op-ed was submitted before House Democrats delayed consideration of H.R. 3996