Democrats as slow and hypocritical tax-cutters

What an odd combo...

The Democratic House voted to reduce income taxes on some in the middle- and upper-middle income classes-- by freezing the growth of the Alternative Minimum Tax. (GOOD) But they did it so slowly that it messes up the IRS timetable for producing its forms. (BAD) And it did so by dismissing its campaign promises to observe "paygo" rules-- matching tax cuts with tax increases elsewhere. (UGLY...sort of)

From the AP story in today's C-J...

More than 20 million families will be spared an extra $2,000 tax hit on average after Congress excluded them from a higher alternative tax originally aimed at untaxed multimillionaires.

An eleventh-hour vote on Wednesday to put a one-year freeze on growth of the alternative minimum tax shields many middle- and upper-middle income taxpayers from first exposure to the tax. President Bush plans to sign the bill into law.

But by waiting until the last day of the session, less than a week before Christmas, Congress left in question whether the Internal Revenue Service can adjust its forms in time for the 2008 filing season to begin in mid-January. Delays in processing returns could put off refunds to millions of people needing the extra cash for holiday expenses....

The House vote Wednesday was 352-64, with all the opposition coming from Democrats, led by a group of fiscally conservative Democrats called the Blue Dogs.

This put the "Blue Dogs" in a tough spot-- having to relinquish a key principle (adherence to PAYGO-- a modest form of fiscal discipline) or voting for a middle-class tax increase. Ouch!

I think we can now safely predict one of Mike Sodrel's top three campaign issues against Baron Hill...

But at the end of the day, the adherence to PAYGO was a fig leaf-- or a "farce" as the WSJ pointed out in an op-ed on Monday...

"Democrats are committed to ending years of irresponsible budget policies that have produced historic deficits. Instead of compiling trillions of dollars of debt onto our children and grandchildren, we will restore pay-as-you-go budget discipline."--Speaker Nancy Pelosi, December 12, 2006

Well, as Emily Litella, the half-witted Gilda Radner character on Saturday Night Live, would have put it: "Never mind." Last week Congressional Democrats formally renounced their ballyhooed budget pledge to offset any new tax cuts with other tax increases or spending cuts. We're delighted to see this false promise go, but there's a larger lesson in this failure for the tax and spending battles of 2008.

Senate Democrats gave up on "paygo," as it's called, when they realized they lacked the votes to offset the $50.6 billion cost of protecting more than 20 million middle-class taxpayers from getting whacked by the Alternative Minimum Tax this year. They've spent the year floating all kinds of tax increases to make up the difference. But in the end they passed an AMT relief bill without a penny to pay for it. Paygo is now pay gone.

OK, that's the background. Now for an analysis of the AMT...

We should stress that this is the right decision for the economy and the federal budget. The AMT was never supposed to hit the middle class, and it only does so now because the Democrats who designed it failed to index it for inflation and raised AMT rates under Bill Clinton in 1993....

And now, an analysis of PAYGO...

But paygo shouldn't be allowed to expire without everyone kicking sand on its grave. That's because it has been nothing but a confidence game from the very start. Paygo doesn't apply to domestic discretionary spending, and it doesn't restrain spending increases under current law in entitlements like Medicare and Medicaid. Its main goals are to make tax cutting all but impossible, while letting Democrats pretend to favor "fiscal discipline," a la Ms. Pelosi's boast above.

In fact, the paygo farce has been unfolding all year. Since the day they took the gavel, Democrats have been using gimmick after gimmick to evade it. The Schip bill for health care, for example, includes a spending "cliff" that disguises its actual cost. It assumes spending would rise to $14 billion in 2012, but then pretends the costs would fall to less than half that level in 2013--which just so happens to fall outside the five-year budget scoring window. Some $60 billion in spending over the next 10 years were hidden through this ploy.

Then there is the House farm bill awaiting action in the Senate. That spending marathon includes between $5 billion and $10 billion in fictitious paygo savings by shifting the date of farm aid payments from one year to another. If a Fortune 500 CEO did that sort of thing, he'd be indicted.

And now, to yank the fig leaf from the "Dogs"

House Democrats realize how humiliating this all is, so they're still vowing to make paygo work. Especially embarrassed are the so-called Blue Dog Democrats for whom "fiscal discipline" is a coat of political protection. John Tanner of Tennessee is so upset he says the Senate paygo abdication "is bordering on criminal," and about 30 Blue Dogs are threatening to vote against AMT repeal without offsetting tax increases. They'd have more credibility if they also opposed the various fiscal gimmicks in the Schip and farm bills, not to mention the 2008 Congressional budget outline that exceeded President Bush's budget request by $22 billion.

And finally, an application to presidential politics...

The larger relevance of this episode concerns the 2008 campaign. Hillary Clinton in particular has made paygo a major campaign theme because it makes her sound like a fiscal conservative while helping to justify tax increases. But, lo, guess who was missing on Thursday when the Senate voted 88-5 to ignore paygo on the AMT? None other than the candidate herself, along with Chris Dodd, Joe Biden and Barack Obama. To quote another Saturday Night Live character, "How convenient."