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PAYGO and FinReg

June 29, 2010

Registered seer Bruce Bartlett wrote this exactly one month ago regarding PAYGO:

I think it is very unwise to make tax policy in this way. It will create unfairness by picking on industries or taxpayers who are politically unpopular at the moment PAYGO demands a certain amount of new revenue. Such ad hoc tax changes will also inevitably lead to greater tax complexity at a time when the Tax Code is crying out for simplification.

And what happened today?  Scott Brown retracted his vote for the financial reform bill because:

Quite late in the committee’s negotiations, the Congressional Budget Office examined the near-final version of their bill and said that the bill contained about $19 billion in likely costs to taxpayers over time, and so under pay-go laws, that cost would have to be offset. Barney Frank inserted a tax on large banks and hedge funds to cover the cost. And this is what Brown opposes: A tax on banks to pay for the cost of a bill that regulates banks. “If the final version of this bill contains these higher taxes,” Brown wrote, “I will not support it.” Brown believes, not without merit, that banks and hedge funds will pass that tax onto their customers.

Of course, most people are focusing on the fact that Republicans are oh-so-typically opposing anything that looks like a tax, even if the amount is relatively miniscule and to be levied against the banks themselves (corporatists!).  Although it would do these folks to recognize that Brown being less pro-bank here than he is being anti-tax-on-consumers, since that’s who would end up paying the tax anyway, the PAYGO issue could not be more prevalent.  This is exactly the situation Bartlett described a month ago.  And the remedy is not to cut spending out of the bill, but to arbitrarily raise taxes on politically ostracized industries — that just pass those taxes on to consumers — under the justification that it’s not thaaaaaat much money.  Can you see this happening again?  I can.  End PAYGO now.

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