The hidden costs of the GOP tax cuts

Center on Budget & Policy Priorities - As the Senate continues debating a budget plan that paves the way for a $1.5 trillion tax cut over ten years, the pay-as-you-go (PAYGO) law remains on the books, with potentially big implications for key budget programs.  Under PAYGO, which policymakers first enacted in 1990 and, after it expired, restored in 2010, the President and Congress must offset a tax cut or entitlement expansion with a compensating tax increase or entitlement cut.  A failure to do so triggers automatic spending cuts.

Under the law, were policymakers to enact a $1.5 trillion tax cut this year, as the Republican majority hopes, it would trigger automatic spending cuts to Medicare and a host of other programs by no later than January 15.  While policymakers will likely waive the PAYGO requirement and prevent such automatic cuts from taking effect, PAYGO is a timely reminder that tax cuts aren’t free.

Although many entitlements are exempt from PAYGO’s automatic spending cuts, many are not.  To offset the cost of a $1.5 trillion tax cut, Medicare payments to doctors, hospitals, and insurance plans would be automatically cut 4 percent for each of the next ten years, on top of the 2-percent cuts that those payments are already experiencing under the sequestration triggered by the 2011 Budget Control Act.

In addition, the automatic cuts would bring the complete elimination of more than 150 mandatory payments for farmers, health insurance, the military retirement trust fund, housing, social services, victims of crime, child nutrition, and many others, all lasting a decade.