Promises to pay for agenda frustrating Democrats in US Congress

Democrats' vow to avoid tax cuts and new government borrowing upon taking control of Congress in January is slowing their agenda for fulfilling some of their campaign promises for better health care coverage and higher wages.

Photo: Promises to pay for agenda frustrating Democrats in US Congress

Democratic promises are in peril because Democrats revived the pay-as-you-go - or pay-go, for short - rule that prevailed during Bill Clinton's presidency and helped produce surpluses instead of deficits on the government's books.

Under the pay-go regimen, legislation to cut taxes or boost federal benefit programs such as health insurance for the poor, elderly or disabled must be "paid for" with tax increases or other benefit cuts. Issuing government bonds to cover the costs is forbidden.

The idea is to prevent lawmakers from piling on debt to finance tax cuts or new spending programs.

There are ways around the rule, but it is already having a dampening impact on lawmakers' appetites for deficit-financed tax cuts and big new spending programs.

"Pay-go really has a disciplining effect," said Senate Budget Committee Chairman Kent Conrad, a Democrat.

On the other hand, the pay-go rule is a huge headache for lawmakers. In most cases, more time and effort is spent figuring out how to pay for legislation than on its underlying purpose.

That the rule is applied differently in the House and Senate adds another complicating wrinkle. In the Senate, the rule can be waived by a supermajority of 60 of the Senate's 100 members. That is already a strategy being considered by Senate Finance Committee Chairman Max Baucus on some of the tougher issues.

"Pay-go provides that you either pay for something or you have to get a supermajority vote," Conrad said. That means "some things will get paid for, some things will get a supermajority vote, some things will go down."

But the House seems to be taking pay-go more seriously and battles with House fiscal purists loom if the Senate waives the rule. House leaders have the option of waiving the rule but have vowed they will not, fearing it might set off a revolt by moderate Democrats.

The dynamics of pay-go have been on ample display on a bill to raise the minimum wage from the current $5.15 (EUR 3.79) to $7.25 (EUR 5.33) an hour. Democrats had hoped to have that signed into law by now.

To overcome Republican opposition to raising the federal pay floor, the Senate attached $8.3 billion (EUR 6.1 billion) worth of business-friendly tax provisions. To offset the tax revenue losses, as required by pay-go, the Senate voted to eliminate some tax loopholes and restrict deferred compensation for corporate executives.

A weeks-long deadlock over the tax provisions broke Friday afternoon as the strong-willed chairmen of the tax-writing committees agreed on a compromise.

Pay-go also forced House Democrats to significantly scale back plans to cut college loan interest rates in half, another key campaign promise. A bill passed in January would cut rates only for the less than one-third of students receiving need-based loans instead of all loan recipients, as originally promised.

The effects of the pay-go rule promise to have more dramatic effects on bigger ticket items such as reforming a hidden middle-class tax increase and easing scheduled cuts in insurance payments to doctors under a health care program for the elderly.

Fixing the alternative minimum tax looms as the most difficult test. The AMT originally was designed to make sure wealthy taxpayers pay at least some tax. But because it was never indexed for inflation, it has begun ensnaring an increasing number of middle-class taxpayers.

Fixing the AMT is terrifically expensive, averaging $50 billion (EUR 37 billion) a year or so.

Such costs have many observers skeptical Congress will be able to stick to its pay-go promises.

"When push comes to shove it's going to be tough" to live within pay-go, said House Majority Leader Steny Hoyer, a Democrat. "We'll have to see, but clearly we want to make a really strong try to do that because we believe the fiscal posture we find our country in is very serious."