Clinton, Obama vs. pay-go

The two leading Democratic presidential candidates have put congressional leaders in a bind by suggesting they waive budget rules and borrow tens of billions of dollars to boost the economy.

Sens. Hillary Rodham Clinton (D-N.Y.) and Barack Obama (D-Ill.) have backed away from raising taxes or cutting spending — options that would pay for their economic stimulus packages.

{mosads}This means their approaches would violate the pay-as-you-go budget rules that Democrats adopted after winning control of Congress.

Clinton’s package could cost $110 billion. Obama has estimated his proposal at $120 billion.

The Democrats who control Congress are left with a tough choice — either sacrifice their recently acquired boast of fiscal responsibility or snub their own party’s presidential choice.

In past presidential election years, congressional leaders have tried to stay united on big policy questions. But this time around, as the two candidates look to distinguish themselves to a public focused on the economy, they have also presented a tough test for a party trying to portray itself as fiscally responsible.

“This stimulus shouldn’t be paid for,” said Clinton Sunday on NBC’s “Meet the Press.” “[T]he stimulus, by the very nature of the economic problems we’re facing, is going to require an injection of federal funding.”

Austan Goolsbee, Obama’s senior economic policy adviser, said: “There is no such thing as a stimulus package that is immediately offset with tax increases.”

“You have to get the money out the door right away,” he added. “If you put in a plan to raise taxes on one group and give to another group, those increases wouldn’t go into effect for a year.”

Clinton and Obama have taken heed of leading economists who argue that offsets would undermine the positive impact of a stimulus package.

“True economic stimulus, it’s always recognized that it causes a budget deficit,” said Chad Stone, chief economist at the Center on Budget and Policy Priorities, a left-leaning economic think tank.

Stone said offsets would “undermine the purpose of the stimulus” unless enacted several years in the future.

“If you’re paying for it contemporaneously, it absolutely defeats the purpose,” said Stone. “If you pay for it in the budget window five or six years down the road, it’s not a problem.”

Aside from the question of how offsets might dilute the power of a stimulus package, reaching consensus on $100 billion to $130 billion worth of offsetting tax increases and spending cuts would be difficult. Last year, Democratic leaders failed to pass a $50 billion Alternative Minimum Tax (AMT) relief package that included corporate tax increases. The package stalled in the Senate after passing the House.  

Former Treasury Secretary Robert Rubin, a leader in Democratic circles on economic issues, warned at a forum hosted by the Brookings Institution last week that offsets should not stand in the way of a stimulus package.

Taken together, the positions of the Democratic front-runners and respected economists put pressure on congressional leaders to waive pay-go rules in order to pass a stimulus package. But such a decision would not be easy.

A spokesman for House Speaker Nancy Pelosi (D-Calif.) said the details of a stimulus plan remain undecided and pledged that leaders would listen to the concerns of colleagues.

“As we begin to consult with members of our caucus, there is no specific plan that has been developed, but we hope to work in a bipartisan way to pass into law an economic relief package that is timely, targeted and temporary,” said Nadeam Elshami.

Democrats made fiscal responsibility a prominent part of the 2006 campaign agenda.

That promise created problems for Pelosi when she later elected to waive House budget rules to pass AMT relief in December. She was met with a furious outcry from conservative members of her caucus.

At the time, House Democratic leaders promised conservative Blue Dog Democrats that the next tax package to reach the chamber floor would include a mix of tax increases and spending cuts sufficient to pay for its own cost and the cost of last year’s AMT relief.

If Democratic leaders agree this year to move a tax cut-laden economic stimulus package without offsets, they would violate their own budget rules for the second time in a few months.

On the other side of the equation, Democratic leaders realize that voters’ concerns about the economy are becoming politically potent.

“The mood in the country is extraordinarily negative and is driven heavily by real anxiety over the economy,” said Jim Gerstein, executive director of Democracy Corps, a Democratic strategic consulting group. “People are angry about the economy and the difficulty they have keeping up with the rising cost of gas, healthcare and basic things like food.”

Violating congressional budget rules, however, would provide Republicans with a tempting political target. They could argue during this year’s congressional campaigns that the Democrats’ pledge of fiscal responsibility was short lived.

One Democratic aide noted that on three occasions last year House Democrats passed an AMT package fully paid for with other tax increases. The aide also questioned whether Republicans would criticize Democrats for not offsetting the cost of stimulus legislation because the GOP is a champion of tax cuts.

Nevertheless, many Democrats would prefer to avoid losing the mantle of fiscal responsibility so soon after winning control of Congress.

Stone, of the Center on Budget and Policy Priorities, said the budget impact of a stimulus package could be mitigated by passing temporary spending increases and tax cuts.

“The economic and policy arguments are [so] powerful that if you keep stimulus temporary you don’t have to worry about pay-go,” said Stone.

On Monday, Blue Dogs avoided queries about their view of the issue.

Rep. Allen Boyd (D-Fla.), chairman of the Blue Dog Coalition, and Rep. Mike Ross (D-Ark.), the group’s communications chairman, declined to respond to requests for comment.

A spokesman for Rep. Dennis Cardoza (D-Calif.), co-chairman of the Blue Dogs’ political action committee, said his boss did not want to comment until he discussed the issue with colleagues this week.

Members of the House Democratic Progressive Caucus have also put pressure on leaders not to violate budget rules.
Last month, Rep. Lloyd Doggett (D-Texas), a member of the Ways and Means Committee, circulated a letter among liberal colleagues urging Pelosi not to accept an AMT tax relief bill that was not paid for.