Congress implemented two major changes in its first 48 hours under Democratic control. One was a major positive and one is a negative cleverly diguised as fiscal responsibility.

On the bright side, the Congress passed earmark reform which requires sponsors of earmarks to be identified by the committee through which the earmark was inserted.

Jeff Flake (R-AZ) had it right when he said “Bully for the Democrats. They did what we didn’t have the guts to do when it matters.”

While his is a real victory for limited government and returning ethics to the spending process, at the end of the day earmarks represent a very tiny portion of our budget and even eliminating all of them would do almost nothing in the big picture, in which we will be bankrupted by the exploding costs of entitlement programs.

This brings us to the second major change: The imposition of budget “pay-go” rules. While pay-go rules sound good at first, requiring spending increases to be offset by spending cuts elsewhere, the rest of the rules are a disaster.

Pay-go requires that any tax cuts are “paid for” by spending decreases. It excludes increases in existing entitlement programs from needing offsetting spending cuts elsewhere, nor do they apply to the discretionary budget, i.e. items other than existing entitlements, interest, and defense.

In case it isn’t obvious from that description, pay-go is simply the Democrats’ way to make it as difficult as possible to cut taxes. And keep in mind that since the economically spineless President Bush and his worthless prior Republican Congress were only able to pass temporary tax cuts, extending them will fall under these pay-go rules as will any attempt to repeal or minimize the Alternative Minimum Tax (“AMT”).

Since Congress will not be able to find $200 billion a year in savings without modifications to existing entitlement programs (which nobody will touch going into a Presidential election), they will almost certainly not extend the Bush tax cuts which expire in 2011. The same, to a lesser degree, goes for the AMT which takes in nearly $50 billion a year, for a tax that was intended to “catch” a couple dozen millionaires whose deductions kept them from paying taxes for a couple of years in the 1970s.

As we get closer to the time of the tax cuts’ expiration, if businesses and markets don’t see an extension of these tax cuts as being likely, it will deepen and lengthen a recession that we’re likely to be having sometime soon just because we have already had a historically-long expansion cycle.

Here’s the right answer, quote from the Bloomberg story linked above:

“This will have the practical effect of simply raising taxes,” said Representative Paul Ryan of Wisconsin, the top Republican on the chamber’s Budget Committee. “We don’t have a tax revenue problem in Washington — we have a spending problem.”

So, while the Democrat Congress has gone 1 for 2 in terms of passing one excellent budgetary modification and one bad one, in terms of real money their changes are likely to cost American taxpayers many billions of dollars. And that’s before they start actually trying to raise taxes which, if history is any guide and if you take Charlie Rangel at his work, they almost certainly will.

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