While the House failed to pass the Financial Rescue plan on Monday, they succeeded in passing the initiative to the Senate. The Senate seized the opportunity, and attached their tax plan to the bill, which had been defeated by Blue Dog budget hawks in the House earlier in the session. The Blue Dogs insist on an admirable policy of ‘Pay-Go’, where all new expenditures (outside of Iraq War supplemental funding) must be paid for in revenue increases and all tax breaks must be paid for in program cuts. The ideal is to prevent any increase in the budget deficit, but the supplemental war-funding exception renders their idealism moot. The Senate does not have any Pay-Go rules, and they are willing to deficit spend whenever the mood moves them.
The provisions added to the original bill infuriated fiscally conservative Democrats in the House, who have argued for months that the tax breaks should not be extended at the expense of increasing the federal deficit…
House Majority Leader Steny H. Hoyer (D-Md.) said he and other fiscal conservatives are “angry” about the addition of the tax provisions but unlikely to abandon the package…
…[The Senate] also saw an opportunity to force through the Senate-drafted tax package, even though House leaders earlier had insisted it be accompanied by other tax increases to avoid adding to the deficit.
Most of the tax breaks were of the inoffensive variety, including a property-tax write-off of $1,000 for people too poor to have a need to itemize their income tax returns and incentives for using solar and wind power and plug-in cars. The Blue Dogs opposition to these tax cuts is strictly budgetary and not ideological. They lost that battle when the House failed to pass the bill. They will fold now, as Hoyer makes clear:
“Frankly, we really don’t have much flexibility, and this is important to do,” Hoyer said.
The Blue Dogs were less inclined to support Monday’s rescue package than the New Democrats (although, please note, their caucuses overlap) and more inclined to support it than the Progressives. They can’t really be blamed for the failure of the bill in the House, but they are the caucus that got shafted as a result. I’m happy with that outcome. Whatever your ideological underpinnings, everyone should agree that in this economic environment it is insanity to adhere to a strict policy of Pay-Go. Herbert Hoover tried something along those lines and it didn’t work out.
Having said that, I still have sympathy with their displeasure in adding to the federal deficit through tax cuts. Sympathy, however, is not the same as understanding or agreement. Giving 30 million poor and lower middle class people a $1,000 property-tax write-off is just fine with me. Incentivizing people to install solar panels, windmills, and to buy electric cars is a good idea.
I’m usually happy when the Blue Dogs are unhappy. I won’t say I’m happy in this circumstance exactly, but at least the right people got screwed.
