As published for The Roosevelt Room:

In a largely unnoticed amendment today to legislation raising the debt limit to $14.9 trillion, the Senate voted to impose statutory “Pay-As-You-Go” rules (PAYGO).  The stated intention of the measure is to enforce budget neutrality on new revenue and spending legislation.  It’s simple really.  It establishes a PAYGO Scorecard on which they’ll measure legislation that increases or decreases revenue or spending in relation to the budget baseline.  Sounds like some sorely needed self discipline.  Good for them.  So what’s the catch?  Why the party line vote?

The baseline is what enables Congress and the administration to put a number on the budget surpluses and deficits and tax proposals and spending programs (e.g., Obama’s $787 billion economic recovery plan, or $862 billion according to CBO, whatever).  Now traditionally when folks at OMB or CBO or JCT arrive at that number, they the current law – the baseline – and determine how much the measure will cost or save the US Treasury.  Say your New Year’s resolution was to lose 10 pounds.  You get on the scale to establish your baseline.  You’ve achieved your goal when the number on the scale is 10 pounds.

But reality’s a buzz kill when it comes to Federal fiscal discipline.  When you skip down to Section 7 of the PAYGO rules there’s an innocuous looking provision called Adjustment for Current Policy.  This was an idea that gained popularity with Obama and McCain during the Presidential campaign and amounts to a giant game of “Let’s Pretend.”  Everyone is aware of the 800 pound gorilla in the room in the form of expiring tax cuts.  The adjustment for current policies identifies four areas of the budget where Congress may now play let’s pretend there is no 800 pound gorilla and that tax cuts won’t expire – even though they do.  Let’s pretend every year is 2010.  Congress has now conveniently created a current policy baseline which, it would seem, allow you to make expiring tax relief permanent at no budget cost.  Call it cooking the books or a reality check.  In reality, revenue estimates are always wrong.  Usually very wrong.  CBO already admitted they were $75 million off on the Recovery Act and most of that money hasn’t gone out.

But wait, it gets better.  The Senate PAYGO provision doesn’t establish a new current policy baseline by pretending to extend all the tax cuts that expire at the end of the year.  Why that would include all the Bush tax cuts and everyone knows they went exclusively to the wealthiest among us.  Right, they took care of that.  Section 7(f) provides for the permanent extension of middle class tax cuts to calculate the current policy baseline. They even provide a list right there in the statute of 12 middle class tax cuts that pretend to extend.  Every one a specific provision of a Bush tax bill.  The 10 percent bracket, the 25 and 28 percent bracket, the child credit, the marriage penalty, the adoption credit, the child care credit, education tax credits (title IV of EGTRRA in case you want to cite the specific Bush tax cut).  The list goes on to extend tax relief for capital gains, dividends and the 33 percent bracket unless you have AGI above $200,000 (or $250,000 for joint filers).  They even provide for an adjustment for the personal exemption phase out for those making less than $200,000.

There is a reasonable argument to be made for establishing a current policy baseline.  Policy considerations based, for example, on the idea that the AMT will be imposed on tens of millions of taxpayers it was never intended to affect is absurd.  The budget rules assume the Treasury will collect hundreds of millions of dollars increasingly middle class taxpayers.  It’ll never happen.  Respected tax lawmakers like Jim McCrery have proposed a current policy budget baseline for years. It has not gained much traction for two reasons.  The first is political.  It’s a free pass for the party in charge to ignore traditional budget constraints that have increasingly tied the hands of lawmakers.  Secondly, it’s huge.  The current policy adjustment to the budget baseline amounts to several trillion dollars.  Assuming there is merit to adjusting the budget baseline it’s still a major policy shift that is worthy of an open discussion, not a subsection buried in an amendment to the debt ceiling bill.

But the lengths to which the authors went draft legislation Bushes two major tax relief bills, painstakingly itemize the tax cuts that benefited the middle class, specifically carve out relief that did not is absurd on many levels.  And leaves this conclusion.  Contrary claims by many of the same Democrats who voted for this measure, the middle class benefitted from the Bush tax cuts by your own definition.  Fully 4/5th of the relief in the 2001 and 2003 tax bill went to the taxpayers protected in Section 7(f).  How much?  Roughly equally to the current policy baseline adjustment in the President’s budget next week.