The Byrd Rule: Kicking-the-can-down-the-road government

A while ago someone thought it would be a good idea to require that tax or government spending changes (aka budget change) without a sunset provision (an expiration date) be passed with three-fifths Senate majority (or 60 votes).

Technically, a budget change without sunset provision can pass if the opposition doesn’t raise a point of order against the bill (which then requires the 60 votes to overcome), but that rarely happens.

A budget change with a sunset provision, however, can pass with simple majority in the Senate. This rule is referred to as the Byrd Rule. According to this Wikipedia article, it rule originated in 1985 and was modified in 1990.

Since it is rare that Republicans or Democrats hold the 60 votes in the Senate necessary to overcome the point of order, many budget changes get passed with a sunset so it can pass with a simple majority.

Many good-sounding, well-intended actions of government have unintended consequences.

The intention with the Byrd rule was to prevent government from making long-lasting budget changes without a strong majority. If Congress signs-up for something that costs a lot of money, they’d either need to be really sure they want to make that change, ensured by the three-fifths majority, or they’d force to come up for extension or go away.

The Byrd Rule sounds similar to the trick individuals use to keep from making impulse purchases. When you really want something, give yourself a cooling off period and see if you still want it in a week. If so, it’ll be there.

However, the Byrd Rule has a bad unintended consequence.  The Byrd Rule treats tax cuts the same as a spending increase, as having a cost. There’s much wrong with that (like recognizing a revenue reduction as a cost), but the bad consequence is that this builds in automatic, recurring political bargaining chips.

To recap, because of the Byrd rule, tax reductions are usually passed with a simple majority and a sunset provision, instead of being made permanent and risk requiring a three-fifths majority.

As the expiration dates for all the past legislation with sunset provisions approaches, politicians salivate as they get to rehash all the old arguments again and use their approval for extending the goodies as leverage for getting some of their other agendas passed (like raising taxes on select groups).

That’s why the “Bush Tax Cuts” for everyone, keep coming up for renewal. Before the Byrd Rule, Congress would change tax rates and those changes would hold until a future Congress decided to change them again.

The Byrd Rule has resulted in a government that spends a great deal of time deciding whether to kick the can down the road, as was done again last night with the fiscal cliff deal.

For example, without the Byrd Rule, the “Bush tax cuts” would have ceased being referred to as such about 2 years after they were initially passed, at which point they would have become known as the regular tax rates.

That wouldn’t preclude future Congresses from further changing the tax code. But, any change they wished to make would be justified and framed against those rates.

We would be less inclined to confuse the issue by treating the “Bush tax cuts” as temporary changes that cost the government lots of money over the past decade.

The truth is, NOBODY knows if those tax cuts actually cost the government anything. Did you know that Federal income tax collections grew for several years after the passage of the ‘costly’ “Bush tax cuts”, reaching record heights in 2007?

When someone says that the “Bush tax cuts” cost government $X over the past decade, they’re making an assumption that the economy would have happened the same as if the tax rates were never changed, or close to it. But, we have no idea if that assumption is correct.

Tax rates have incentive effects. Lower tax rates can result in more economic activity over time since individuals get to keep more of the value they produce. Higher rates can result in less, because they keep less of it.

What’s the solution? Get rid of the Byrd rule. Let’s stop kicking-the-can down the road.



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