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New rule: Pay as you go

John Dimsdale Jan 5, 2007

KAI RYSSDAL: It’s day two of the new Democratic era in Congress. And in the House of Representatives the majority party continues to change the rules of the legislative road. Today it was requiring more disclosure of lawmakers’ pet projects. The ones that are usually hidden deep in massive spending bills. The Democrats also restored a budget rule Congress imposed back in the 1990s, called pay-as-you-go.

Marketplace’s John Dimsdale takes it from there.

JOHN DIMSDALE: The pay-as-you-go rule was sponsored by the new chairman of the House Budget committee, South Carolina Democrat John Spratt. It requires that new spending be matched by either a tax increase or cutting something else in the budget.

JOHN SPRATT: By the same token if you want to cut taxes, and add to the deficit, you’ve got to offset it so that your tax cut will be deficit neutral. That worked during the 1990s.

While fiscal conservatives endorsed the new budget discipline, only one in four Republicans voted for it. GOP House Whip Roy Blunt of Missouri says that’s because pay-as-you-go will make it harder to extend President Bush’s tax cuts.

ROY BLUNT: I think its always a problem when you assume any tax cut reduces revenue, when in fact we’ve had plenty of proof in the last two years that tax cuts produce some of the biggest revenue increases in the history of the country.

Pay-as-you-go will also make it more difficult to repeal the Alternative Minimum Tax. That’s a tax aimed at the wealthy that’s creeping into the middle class. Eliminating the AMT would cost more than $750 billion in lost revenue over 10 years. To make that up, Len Burman of the Tax Policy Center think tank says Congress would most likely have to raise other taxes.

LEN BURMAN: You could pay for eliminating the AMT by raising tax rates under the regular income tax, or you could eliminate the state and local tax deduction. Or you could re-target the AMT so it just affected very-high-income people.

Without an AMT fix this year, one in three taxpayers earning between 75 and a hundred thousand dollars a year will be hit with an extra $3,000 tax bill on average.

In Washington, I’m John Dimsdale for Marketplace.

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