Wednesday, June 07, 2006

Furman on PAYGO

My friend Jason Furman is a smart, reasonable Democratic economist. (Note to my Republican friends: No, that's not an oxymoron.) In response to a previous post, Jason emails me to lobby on behalf of PAYGO rules. While I ponder his arguments, he has graciously allowed me to share them with my blog readers. Here's Jason:

You don't need a lexicographic preference for deficit reduction to join Alan Greenspan, GAO Comptroller David Walker and me in supporting PAYGO rules for tax cuts and spending increases.

You should give sincere thought to this, you would have a positive impact on current debates and do tangible good. Sorry for the long e-mail, but I'm really not trying to score points or to win a debate but to convince you that this is consistent with your beliefs.

Helping to build future support for sensible spending cuts and base broadeners is worthwhile but it's also a bit of a parlor game that looks serious, impresses your friends, assuages your conscience, but doesn't have much immediate impact in improving our fiscal situation -- or keeping it from deteriorating further. (I don't think the parlor game is pointless, see here, just that it's not sufficient.)

In the 1990s, PAYGO was commonsense. Dole and Gingrich supported it -- that's why they proposed Medicare and Medicaid cuts to pay for their tax cuts. Clinton supported it when we had a deficit -- his original prescription drug plan was fully paid for and even the later versions were explicitly contingent on being enacted together with a plan to ensure Social Security solvency. And John McCain, who you traveled on the bus with in 2000, remains a strong supporter of PAYGO.

The 1997 Balanced Budget Act was one product of this consensus. You would be heartened to know that it included about $400 billion in Medicare and Medicaid cuts and $400 billion in gross tax cuts (including capital gains, estate tax, and IRA expansions you would like).

I wouldn't expect you to agree with Alan Greenspan and me that PAYGO should apply to the extension of the tax cuts already enacted. Instead, you could agree with George Bush and the implicit position of the Kerry-Edwards campaign budget that these tax cuts were never intended to be temporary, that not extending them would be a tax increase, and that the baseline should assume they are extended. (Ideally you would put the estate tax in the not yet enacted and thus subject to PAYGO category, but I won't let the good be the enemy of the decent.)

It would be consistent with your philosophy -- and helpful in actual debates going on in Washington and not just on economics blogs -- if you argued that PAYGO should apply to all new tax cuts and spending increases. Admittedly it would put some constraint on tax cuts, but it also might put more pressure on Congress to reduce spending -- since they would need to eat their spinach contemporaneously in order to have their desert.

Our political system needs simple rules to restrain itself and prioritize. Most responsible, good policy types -- liberal and conservative -- believe that PAYGO is one of those simple, easy to understand, black-and-white rules. Put another way, when you're in a hole the first thing to do is stop digging.

Think about it.


P.S. PAYGO won't, of course, reduce the fiscal gap. So even better would be to call for mutual sacrifice, including spending cuts and tax increases that you might not like but have a chance of being enacted. As you wrote in 2000, "More vital than choosing a President with the right tax plan is electing a President with the political courage to change course when events demand it."