Partisan Payback Over 'Pay-as-You-Go'

Rep. Charles B. Rangel, head of a key panel, has delayed introducing a bill to overhaul the alternative minimum tax amid worries about giving relief to people who may not feel the benefit, while hitting others with a tax boost that is certain to pinch them. (By Nikki Kahn -- The Washington Post)
By Jonathan Weisman and Lori Montgomery
Washington Post Staff Writers
Thursday, August 2, 2007

When Democrats took control of Congress, they declared that any expansion of government programs would be paid for by tax increases or spending cuts. But now the new pay-as-you-go rules, meant to highlight Democratic efforts at fiscal responsibility, are becoming a potent political target for Republicans.

In recent days, the farm bill, which had bipartisan support, has taken Republican fire over a provision to raise taxes on foreign corporations funneling U.S. profits through offshore tax havens. The expansion of the federal children's health insurance program, passed by the House yesterday, has taken heat over plans to pay for it with tax boosts for tobacco and spending cuts for managed-care companies in Medicare.

And a promised middle-class fix for the alternative minimum tax has stalled because Democrats propose to pay for it with tax increases for the wealthy. Even a proposal to raise taxes on billionaire equity investors who are paying a tax rate of 15 percent has elicited GOP attacks.

For Republicans, pay-as-you-go -- or paygo -- is a new political opportunity.

"They are Democrats, and they create the issues we want them to create -- higher taxes, higher spending, more regulation," said Rep. Tom Cole (R-Okla.), chairman of the National Republican Congressional Committee. "Paygo just makes them get to it quicker."

Fiscal watchdogs, and even deficit-minded Republicans, say the Democrats' struggles show that they are trying to stick to their campaign promise of fiscal integrity after the federal debt ballooned on the GOP's watch. Republicans had it much easier, said G. William Hoagland, a longtime Senate Republican budget aide. They had exempted their political priority -- tax cuts -- from the strictures of pay-as-you-go rules, so they never had to wrestle with finding ways to offset their costs.

"That was the problem for Republicans. They could never see the advantage [of budget controls] because they never saw that deficits mattered," Hoagland said.

But what might be good for the deficit might not be good for Democrats' political livelihood. "In the short term, it's not very politically popular, and it is risky," Hoagland said. "But in the long term, it's good for our children and good for the country."

Last week, the politically popular farm bill nearly came unglued when Democrats agreed to pay for an increase in the minimum food stamp benefit with a $4 billion tax increase on U.S. subsidiaries of foreign companies that reduce their U.S. tax bills by passing profits through international tax havens.

To Republicans eyeing the upcoming election season, the details of the tax increase was not at issue. A tax increase is a tax increase. "We can just say they're raising taxes because people have such a low opinion of the Democratic Congress that they are certainly willing to believe that they are raising their taxes," Cole said.

The House bill passed yesterday to expand the 10-year-old health program insuring children of the working poor would pay for its costs with a tax increase on tobacco -- to the tune of $53.8 billion over the next decade.

House Democrats also plan a variety of cuts for Medicare programs. The biggest cost savings, at $157 billion over a decade, would make federal reimbursements to managed-care plans under Medicare equal to the payments that go to federally run Medicare plans.

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