Podcast: The Impact of the New Budget Rules in the U.S. House of Representatives

January 11, 2011

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About the Speaker


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In this podcast, we’ll discuss the new budget rules in the U.S. House of Representatives. I’m Michelle Bazie and I’m joined by Jim Horney, the Center’s Director of Federal Fiscal Policy .

1. Jim, last week the new House majority voted to make major changes to their budget rules. What are some of the changes of particular concern?

We have several areas of real concern. First, the new rules will replace the current House “pay-as-you-go” requirement. That requirement meant that any tax cut or entitlement increase must be paid for by a tax increase or an entitlement cut. The change in the rule replaces this requirement with a much weaker, one-sided so-called “cut-as-you-go” rule. The new “cut-go” rule says that increases in mandatory spending would still have to be paid for, but tax cuts would not. So tax cuts would be allowed no matter how much they increase the deficit. Furthermore, increases in mandatory spending could be offset only by reductions in other mandatory spending – not by a measure to raise revenues such as by closing wasteful or unproductive special-interest loopholes.

2. What would that mean in practice?

For example, this means that the House would be barred from continuing a provision that enables many minimum-wage families to receive a full, rather than partial, Child Tax Credit and paying for that by closing wasteful tax breaks for multinational corporations that shelter profits overseas. 

3. Why would that violate the new rules?

Michelle, that’s because the provision expanding the Child Tax Credit for working-poor families counts as spending and hence could not be paid for by closing a tax loophole. Yet the same rules would enable the House to expand tax loopholes for multinational corporations and wealthy investors without paying for those tax breaks at all, because any tax cut, no matter how costly or ill-advised, could now be deficit financed. 

4. You mentioned that there were other areas of concern...

One other area has to do with the fast-track “reconciliation” process which Congress originally used solely to enact deficit-reduction packages. The new rules would stand the reconciliation process as it was originally used on its head. The rules would allow the House to use reconciliation to push through bills that greatly increase deficits as long as the deficit increases result from tax cuts. At the same time, the rules would prohibit the use of reconciliation in the House for legislation that reduces the deficit if that legislation contains a net increase in spending -- no matter how small – even if those costs are more than offset by revenue-raising provisions. 

5. What’s the bottom line?

Simply put, the new rules are irresponsible – especially in light of today’s swollen deficits. Furthermore, the new rules would pave the way for a further widening of the already very large gap between rich and poor. Sadly, these rules suggest that tax cuts, primarily for the wealthy, not deficit reduction, are the true priority of the incoming House leaders— and they are willing to expand deficits to secure them.

Thanks for joining me, Jim.

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