FreedomWorks

This oped was originally published on January 18, 2007 in the Wall Street Journal

Promising to bring new ideas and a fresh commitment to fiscal discipline, House Democrats launched their new majority by embracing Pay As You Go budgeting -- one of the worst fiscal management tools Republicans ever invented. "Paygo" was first concocted by Richard Darman, George H.W. Bush's budget director, as part of the 1990 budget deal that raised taxes in hopes of reining in the deficit. That version, just like the new House rule, mandated that any change in taxes or entitlements resulting in revenue losses be offset with higher taxes or "cuts" in other entitlement spending.

With such a sensible sounding name, who could be against paygo? Recent history has seen countless efforts to reform the budget process, typically pernicious changes with deceptively reassuring titles. The most infamous was Lyndon Johnson's "Unified Budget" (who could support an un-unified budget?) -- which allowed appropriators to get their hands on payroll tax surpluses, dramatically expanding government spending. Later, the serious-sounding Impoundment Control Act of 1974 allowed a Democratic Congress to strip the executive branch of its ability to rescind or defer spending authority from annual appropriations legislation. Today, President Bush has little choice but to veto an entire spending bill if he opposes even a single earmark, a highly confrontational tactic he has chosen not to employ.

There are only two examples during my 18 years in Washington where the Congress actually reduced domestic discretionary spending from the previous year. The first was the Gramm-Rudman-Hollings Balanced Budget Act of 1985 (GRH), which legislated hard deficit reduction targets and automatic spending sequesters to enforce them. GRH was so successful that Congress amended it in 1987, easing the deficit targets to avoid additional spending reductions. But GRH continued to provide significant fiscal discipline until it was emasculated in 1990.

Domestic discretionary spending fell again with Republican control of Congress in the mid-1990s. We cut spending this time around by disciplining appropriators. It was a clear commitment to fiscal restraint that allowed the GOP leadership, led by the House, to keep spending under the targets established by the Budget Resolution for three consecutive years, FY 1996-1998. We cut outdated domestic programs, sought efficiencies and forced appropriators to make tough choices between competing priorities.

Over time, that commitment to spending discipline was replaced by a commitment to get re-elected at any cost -- and new spending records were set. The Democrats now in charge have promised, to quote Nancy Pelosi, "no new deficit spending, no new bridges to nowhere." But deficit spending is caused by too much spending -- and under the House Democrats' paygo rule, entitlement spending, the lion's share of the federal budget, will grow unabated, as will the massive unfunded liabilities of Medicare and Social Security (currently approaching \$70 trillion), which are not acknowledged under existing budgeting practices. Meanwhile, there are no enforceable caps on domestic discretionary spending -- and thus earmarks, even if restrained as promised, will do next to nothing to promote deficit reduction.

Social Security reforms that turn empty promises into personally owned accounts -- real assets for retirement -- cannot be funded under paygo without massive tax increases or deep reductions in promised benefits. In effect, paygo makes serious entitlement reform politically impossible without a word of debate. Meanwhile, as surplus payroll tax dollars currently diverted into other spending programs continue to disappear, the pressure on the deficit will become insurmountable.

While paygo might restrain Democrat promises to further expand prescription drug benefits under Medicare Part D, its most certain outcome will be massive tax increases. Unlike "mandatory" spending that grows on autopilot, the various Bush tax cuts are set to expire. Democrats, already inclined to oppose lower taxes, will be hard-pressed to find other new tax revenue, or spending offsets from cherished entitlements, that would allow for making the tax provisions permanent.

Two important factors created the budget surpluses of the late 1990s: spending restraint and robust economic growth. Bill Clinton's enormous tax increase generated less than half of the promised new revenue by 1996, but cuts in the capital gains tax and death tax helped make up the difference. More importantly, technological innovation and higher economic growth generated new revenues. These new dollars, coupled with spending discipline, balanced the budget and paid down a substantial portion of the debt.

Pay As You Go has a different history. At Mr. Darman's urging, George H.W. Bush broke his famous 1988 campaign promise and signed on to a deficit reduction package that increased taxes and instituted paygo. The economy tanked, the deficit ballooned and the GOP suffered an electoral rout in 1992. Maybe there's a history lesson in there somewhere.

Mr. Armey, House majority leader from 1995 to 2002, is chairman of FreedomWorks.

(c) Copyright Wall Street Journal. January 18, 2007. All Rights Reserved.