January 16, 2008

PAYGO Divides Dems Crafting Stimulus Plan

House Democratic mantras requiring adherence to budgetary offsets and a "timely, targeted and temporary" response to a possible recession are bumping up against each other, as PAYGO budget rules are again stirring up divisions within the ranks.

"PAYGO could be a problem," said House Financial Services Committee Chairman Barney Frank, D-Mass., who met yesterday with the House Democratic leadership and other committee chairmen involved in the stimulus talks.

As much as $120 billion in spending and tax proposals are under consideration. Spending components could be designated as an "emergency" and not require offsets. And under House rules, new tax or mandatory spending initiatives only have to be paid for over a five-year period.

Frank said that fact might assuage some of his party's budget hawks.

"People understand that it is consistent with PAYGO to spend some up front and offset it a year, two, three years down the road," he said, noting that for any package to be effective it should be approved by "early April at the latest."

Some senior Democrats are clearly arguing PAYGO should not be an obstacle to getting an economic stimulus package out the door quickly. "PAYGO is inconsistent with trying to resolve a recession," said House Ways and Means Committee Chairman Charles Rangel, D-N.Y.

That position runs counter to that of some members of the Blue Dog Coalition, which feels burned by last year's waiver of PAYGO during consideration of the alternative minimum tax patch. "It's time to stick with PAYGO," said Rep. Jim Cooper, D-Tenn. "We saw the exception before; they said that'd be the only one. Now we're already getting into another one. What's next?"

House Majority Whip James Clyburn, D-S.C., said a looming recession could be looked at as an emergency, in which case PAYGO can be waived. "I don't know who would make that declaration, but I certainly would feel that if unemployment continues, if these problems with our markets continue, if we continue to see our economy tanking... that would be an emergency in my definition," he said.

Clyburn said he favors tax rebates of between $300 and $600 for individuals who pay payroll taxes under the Federal Insurance Contribution Act, which applies up to the first $102,000 of gross wages. "Those people are more likely to put the money into the economy where it needs to be put. And that's where this Democrat is, and that's the position I'm going to be arguing," he said.

Rep. Artur Davis, D-Ala., a member of the Ways and Means Committee, said the magnitude of spending and tax initiatives needed to jump-start the economy could not feasibly be offset and remain stimulative. "It would be a phenomenally difficult task to find a pay-for in a stimulus that wouldn't be criticized as having some anti-stimulative impact," Davis said. "There could be part of it we could pay for, but if we're talking about a $120 billion package, to find offsets that would not have potentially anti-stimulative impact would be very, very difficult."

The Blue Dogs are meeting today to discuss PAYGO and the stimulus effort.

Some Blue Dogs, particularly those whose districts have been hit hard by the economic slowdown, are willing to consider exemptions to PAYGO for a stimulus package. "A stimulus package may fall into the category of emergency, in the same way a war would -- we've always made exceptions for that," said Rep. Dennis Cardoza, D-Calif. "In areas of California like mine, you've seen the impact of the mortgage crisis, where home prices in my district, the worst in the country, have dropped over 40 percent in some places. And so when you see those kinds of numbers you know it's a crisis."

Democratic leaders are stressing they want to work with President Bush and Republicans to get a bipartisan deal done quickly. House Speaker Nancy Pelosi is meeting today with Minority Leader John Boehner and Minority Whip Roy Blunt. "The serious problems with our national economy require that we meet without delay to discuss a bipartisan response on behalf of the American people," Pelosi wrote in a letter requesting the meeting. A bicameral leadership meeting with Bush is to take place on Tuesday, although ostensibly the purpose of the meeting is to discuss the president's Middle East trip.

In a letter to Pelosi yesterday, Boehner and Blunt urged that the measure "not become a vehicle for unrelated spending that has no place in an economic stimulus package." They urged "tax increases masked as offsets" required by PAYGO be jettisoned.

Blunt said an area of agreement could include tax rebates, but Republicans also back corporate tax breaks, such as expanded deductions for investments such as plants and equipment. Blunt downplayed the need for expanded unemployment insurance, which Democrats are considering, arguing that many states have low unemployment and existing funds that have not been tapped.

Frank would not go into specifics but appeared optimistic an agreement could eventually be reached. "I think there's a very real possibility of a deal... Nancy [Pelosi] clearly wants one," he said.

-Peter Cohn, CongressDaily, with Christian Bourge contributing

Posted at 9:42 AM
Posted to: Bush Administration, Congress, Economy, House, President Bush
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