Dems fall into their own Pay-Go trap

Earlier this year, Barack Obama and Congressional Democrats celebrated the signing of their new pay-go rules that require Congress to explicitly fund any new legislation.  Since then, they have gone 0-3 in complying with their own legislation, choosing to extend unemployment benefits through borrowing rather than redirect already-allocated funds for the purpose.  Politico reports that the Democrats have finally run out of rope on Pay-Go:

The short-term unemployment benefits bill, which was headed toward final passage in the House on Thursday night, also includes the COBRA health program and a Medicare reimbursement adjustment known as the “doc fix.” The bill bypassed pay-as-you-go rules because it was designated as a temporary “emergency” spending plan.

But now Democrats are stuck.

They have been unable to move a longer-term one-year extension of these programs, passed earlier this session, because they already blew the revenues they had expected to use for this bill. Senate and House Democrats must now find a politically acceptable way to pay for the bill.

The tax money for the original bill was a special tax credit known as “black liquor” on biofuels, but Democrats moved those funds to help pay for the health care reform bill.

One Senate Republican says the Democrats blew it by allocating that $24 billion tax provision to the health care bill because now they have no long-term solution to extending unemployment benefits for jobless Americans. And the multibillion-dollar “doc fix” on Medicare reimbursement cuts remains a long-term problem.

“Frankly it was fiscally imprudent … to have taken those offsets that basically were agreed upon in the Senate, had been passed in the Senate, had been supported on a bipartisan basis and then were removed and used for health care reform in order to have more spending in that legislation,” said Sen. Olympia Snowe (R-Maine). “We had an agreement, and they should have made that sacrosanct in that legislation.”

Sacrosanct? That’s actually a good word, considering the sanctimonious posturing that accompanied Pay-Go’s passage last February. The party running Congress has given us two straight years of trillion-dollar-plus deficit spending, when they could have applied Pay-Go through normal fiscal discipline all on their own.  Instead, both before and after its passage, Democrats spent imaginary money in order to reinforce real power.

Now, as Politico points out, the road gets rougher.  Not only do Democrats have to deal with their own push to create more permanent long-term jobless benefits, but they also have a budget coming up.  They can’t spend $3.8 trillion on $2.4 trillion in revenues any longer, not with their Pay-Go rule standing in the way.  They have three choices: cut spending to match revenues, raise taxes to match spending, or waive Pay-Go yet again.

We can skip the first option, because Democrats won’t cut spending after running it up the last three budget cycles.  If they raise taxes, they’ll have to do it when they pass the budget — which is due at the end of September, just before the midterms.  How would Democrats do in the election if they passed a $1.3 trillion tax hike?  Most likely, they’ll simply waive Pay-Go, which will give Republicans a huge rhetorical club with which to beat incumbents in the midterms, but won’t be as politically suicidal as massive tax hikes.

Or — and this is the most likely outcome — Democrats won’t pass a budget at all.  They’ll issue continuing resolutions to keep funding the government at the same rate as FY2010 and wait until after the midterms to pass massive tax increases or waive Pay-Go.  Republicans should prepare themselves for this tactic, and remind voters that a Democratic Congress and a Democratic President have no excuses whatsoever to fail to pass a budget on time.