The Obama Administration and its allies in Congress argue that upcoming tax increases should be prevented for “the middle class” but not for “the rich.”  They say we need toprevent tax increases on the middle class, but that we should not extend the Bush tax cutsfor the rich.

Team Obama and their Congressional allies make a three-stage argument:

1. tax cuts should be paid for;
2. changing the law as Congressional Republicans propose would mean “extending the Bush tax cuts for the rich” and increasing the budget deficit by almost a trillion dollars; and
3. we need to reduce the budget deficit.

Over the past eighteen months the President, Speaker Pelosi, and House Majority Leader Hoyer have repeatedly stressed the first point.  They argue that both spending increases and tax cuts need to be “paid for”:  the resulting deficit increase must be offset with other spending cuts or tax increases.  This view is generally referred to as two-sided pay-as-you-go, or two-sided PAYGO.  In some cases their legislation has abided by this principle:  the deficit effects of the health laws and the recent law giving States $26 B were fully offset using CBO scoring.  In other cases they have ignored the principle:  the deficit effect of the $862 B stimulus law was not offset.

I disagree with two-sided paygo and I disagree with measuring the deficit effects of these tax policies relative to current law.  My point today is not to debate whose version of paygo is right, but instead to demonstrate that those who have set the rules are violating them.  I am applying their logic and their rules to the policy positions they advocate.

Full post here