New House Rules Will Increase Deficit, Underfund National Priorities

1/11/2011

Whenever a party takes control of one or both houses of Congress, it exercises its prerogative to implement a flurry of new rules and practices. This is generally unremarkable, though in 2011, with the House of Representatives returning to Republican control, the changes are stirring up controversy. Despite claiming to fight for fiscal responsibility and transparency, by tweaking a handful of rules, the Republican majority will end up delivering the opposite.

Whether it’s warping Pay-As-You-Go into Cut-As-You-Go, giving unprecedented power to the Budget Committee chairman, exempting certain bills from rules for expediency’s sake, or making it easier to underfund transportation projects, the new House rules are aimed at cutting federal spending and reducing taxes without consideration of what effects these fiscal policies will have on the federal budget deficit and our national priorities.

Deficit-Limiting PAYGO Turned on Its Head

One important budgetary rule in Congress that has slowed deficit-increasing legislation is the Pay-As-You-Go (PAYGO) rule. PAYGO requires that increases in mandatory spending (spending that does not require annual reauthorization, like Medicare and Social Security) or decreases in revenue must be “paid for.” That is, mandatory spending increases or tax cuts have to be offset with equal mandatory spending cuts or tax increases so that the proposed legislation is deficit neutral. It is important to note that the $1.4 trillion in discretionary spending that funds the functions of the federal government and an assortment of programs is not bound by PAYGO rules.

PAYGO currently exists as both a law and a rule in the House. The House cannot unilaterally abolish PAYGO, but it can change the process by which it enacts spending and tax bills. The now-defunct rule, which the Democratic-led 110th Congress implemented after a Republican-led Congress let the original PAYGO provision expire in 2002, read:

[I]t shall not be in order to consider any bill ... if the provisions of such measure affecting direct spending and revenues have the net effect of increasing the deficit or reducing the surplus.

Under that PAYGO rule, if a bill widened the deficit either through increases in mandatory spending or decreases in tax revenue and did not pay for this change with either higher taxes or lower spending somewhere else, the bill was considered ”out of order.” The bill would then be subject to a “point of order,” which, if raised, could kill it. While a simple majority could override this point of order, it placed a hurdle in front of Congress and forced it to acknowledge that a bill violating the waived point of order would increase the federal budget deficit.

The new House rule significantly changes PAYGO, placing the emphasis on spending cuts as opposed to reducing the federal budget deficit. Instead of stymieing legislation if it increases the deficit, “Cut-As-You-Go (Cut-Go)” only looks at the level of mandatory spending, saying:

…it shall not be in order to consider a bill … if the provisions of such measure have the net effect of increasing mandatory spending.”

Cut-Go uses similar language to PAYGO and has a similar-sounding name, but the differences are crucial. With Cut-Go, tax cuts are exempted from PAYGO rules in the House. Under the new rules, tax cuts do not need to be offset with spending cuts or revenue increases elsewhere in the budget, meaning tax cuts can be “deficit-financed.” This exemption guts half of the accountability inherent in PAYGO, as House lawmakers are now free to vote for unpaid-for tax cuts without acknowledging that they add to the deficit.

At the same time, because Cut-Go applies only to spending levels and not the bottom line, spending increases can no longer by paid for by revenue changes; the Cut-Go rule approved by the House has essentially set a new high-water mark for mandatory spending. The House cannot vote for an increase in mandatory spending without specifically voting to set aside the rule.

Additionally, while the House has freed itself from the tax-related strictures of PAYGO, the Senate has retained its PAYGO rules. The potential for legislative gridlock has now been significantly increased, as the House will likely send the Senate deficit-spurring tax cuts that will require the Senate to overcome a 60-vote hurdle triggered by its PAYGO rules.

Adding to the complexity and the problems created by the House Cut-Go rule is the fact that PAYGO also exists as a law. No matter what the new House rule allows, deficits induced by Congress must either be declared as the result of an emergency – a frequent occurrence – or they will result in automatic, across-the-board spending cuts to designated mandatory spending programs, including Medicare. Tax cuts that are not required to be offset by the House are automatically offset by mandatory spending cuts by law, allowing Congress to avoid the politically painful act of voting on fiscally responsible offsets.

Ryan's Rule

Another potentially harmful rule allows the chair of the House Budget Committee, Rep. Paul Ryan (R-WI), to single-handedly set spending levels for fiscal year (FY) 2011. Usually, spending limits and revenue targets, including allocations of spending to committees, are set in the congressional budget resolution, which the Budget Committee and the full House consider and vote on. However, under the new House rules, Ryan can set these levels by simply submitting them for publication in the Congressional Record. Indeed, Congress will consider this "the completion of congressional action on [an FY 2011] concurrent resolution."

While there is nothing preventing the new Republican House from working with the Democratic Senate to write and adopt an FY 2011 budget resolution, the rule more easily allows the GOP to fulfill its midterm campaign promise to reduce federal spending to "pre-bailout, pre-recovery" FY 2008 levels. It is important to note, though, that these cuts will only come from domestic non-security discretionary spending – representing less than a quarter of total federal spending – and leaves all mandatory (i.e., entitlement programs), defense, and Homeland Security spending untouched.

The larger implication of this rule is that if the House successfully implements these spending cuts over likely Senate opposition, all future budgets will begin from this new, much lower floor. These lower spending levels could seriously hinder implementation of improved food safety and financial reforms, not to mention existing programs that provide a safety net to low- and middle-income families – all the more critical in this high-unemployment economy.

Exempting Legislation from Budget Estimates

A separate House rule provides the chair of the Budget Committee with new powers to adjust estimates of the budgetary impacts of certain legislation. This allows Ryan to simply ignore the budgetary effects of specific, inconvenient deficit-increasing legislation. For instance, the new rules specifically empower Ryan to exempt from budget enforcement rules the fiscal effects of repealing the Affordable Care Act (ACA), the recently enacted health care reform law.

According to the nonpartisan Congressional Budget Office (CBO), repealing ACA will cost nearly $230 billion over the next ten years. That estimate does not include the loss of savings in the out years, which CBO estimated to be nearly a trillion dollars when the president signed ACA into law last March. Additionally, CBO found that some 32 million Americans would forgo health insurance coverage if Congress repeals ACA. Ironically, repealing health care insurance reform will actually lead to increased spending, something congressional Republicans have been hammering the last two years.

The new rules also provide Ryan with the power to ignore budgetary impacts for further extending or making permanent the Bush tax cuts, including further weakening of the estate tax and implementation of potential legislation to provide "small businesses" with a deduction equal to 20 percent of gross income.

The Center on Budget and Policy Priorities (CBPP) points out that this new legislation is likely to define "small businesses" "very expansively," to the point even of covering "a vast swath of firms and wealthy individuals" who are not part of most Americans' definition of a "small business."

Building Few Bridges to Anywhere

One of the provisions of the new House rules could significantly reduce infrastructure spending during the 112th Congress. The rule eliminates the requirement that appropriators fund highway and transit projects at the levels set by the authorization for surface transportation.

Under the old rule, instituted by former Transportation and Infrastructure Chair Bud Shuster (R-PA), House members could bring a point of order against any appropriations bill that spent less than the totals authorized in the surface transportation authorization bill, a reversal of how spending power is usually allocated between authorizers and appropriators on Capitol Hill.

The idea was to "decouple" surface transportation spending from the annual appropriations process. Before institution of the infrastructure point of order, legislators sometimes allowed surpluses to build in the Highway Trust Fund – financed largely by the gas tax – so they could count them against the overall federal deficit.

In recent years, though, lawmakers have authorized more funds than the trust fund had left in it, requiring large infusions of money from the general fund, usually to the tune of billions of dollars. Hence, there was a call for the new rule that allows appropriators to set spending below authorization levels. The problem is that the rule does not create a floor for transportation spending; it does not state that appropriators have to spend all the money in the Highway Trust Fund.

The new rule is reviving fears among infrastructure proponents that lawmakers, at the very least, will again allow money to accumulate in the fund to count against future deficits, or, at the worst, cut transportation funding to decrease deficits. This could have significant ramifications for the nation's infrastructure, which the American Society of Civil Engineers has graded as a "D."

Locking In Spending Cuts

A new spending cut “lockbox” rule that applies to floor amendments makes cuts to appropriations bills easier and provides for a special account in which to collect those cuts. The idea is to make it easier to reduce the overall size of spending bills, but the rule also limits the ability of the House to shift spending from one program to another.

When the House Budget Committee sets overall spending levels, spending bills that exceed those limits are subject to a point of order intended to hinder their passage. However, under previous House rules, appropriators could chose to cut spending in one area and move it to another, which would keep the overall spending level below the Budget Committee cap. Under the new rules, this maneuver would be prevented and it would be harder for House appropriators to cut where they see fit in order to boost funding for another program they deem more effective.

In the end, these rules only apply to how the House conducts its business. While they may make it easier for the new Republican majority in the House to cut spending in their own bills, they will still have to negotiate with the Democratically controlled Senate. It will be up to the two houses to come to an agreement on final spending levels, regardless of the rules each used to arrive at their starting positions, and send bills to the president that he deems acceptable. Nevertheless, the changes to the House rules do show how the new majority sees them: instead of bringing to the House a system that forces its members to make politically difficult choices for the sake of fiscal discipline, the new rules are designed to improve the chances that their ideological agenda – reducing federal revenue and slashing spending – gets written into law.