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This post has been updated to present correct percentages in Paragraph 2 

No, this is thankfully not about another company whose accountants decided to pretty the books for the markets. It’s about a more sinister force in the universe…Congress. See, Congress imposed rules upon itself to help balance the books known as “pay as you go” (PAYGO). What that means is that in order to pass tax cuts or new spending Congress has to find the money elsewhere in the budget. Unfortunately, this has only led Congress to shift money from one budget year to the next or employ budgetary tricks to get around the PAYGO rules.

My favorite gambit thus far has been to change the amount that corporations in estimated taxes in certain months. For 2012, Congress mandated the corporations have to pay 114.25% of their normal estimated taxes for the 3rd calendar quarter (July-September) and decrease the 4th calendar quarter payment by the same amount. Basically, that shifts 14.25% of the payments from one fiscal year to another without changing the amount actually collected. Another tax change came about and needed some money (ed: actually it was a 8 month free trade pact with Bolivia, Columbia, Ecuador, and Peru). So Congress, doing what Congress is apt to do, changed that requirement from 114.25% to 114.5% for that particular year to find the money to fund whatever it was that they wanted to do.

Now, Congress has a new gambit and this one makes a complete mockery of the rules (if they were completely mocked before). Basically, according to tax research provider BNA ($$$), Congress will allow an aviation tax to expire as scheduled. Congress will then pass a law that creates a new tax that exactly matches the old one starting one day after the tax expires. Under PAYGO, Congress can count that as new taxes that are able to offset new spending or tax cuts to the tune of $50 billion over 5 years.

‘Creative Accounting’ Contemplated to Fund Popular Tax Cuts

Faced with congressional pay-as-you-go rules and a hefty tax agenda, lawmakers are looking at allowing aviation taxes to expire so that, once reinstated, the levies could be used to offset other priorities including popular tax cuts, lobbyists and congressional staff say. Congress did the same thing a decade ago, allowing the taxes to expire and then later used the revenues from their reinstatement to partially offset the cost of the 1997 tax reconciliation law. An aviation industry representative estimates the plan could produce $50 billion over five years, which could pay for a package of popular tax cuts including the research and development credit. The figure also is close to an estimated $50 billion needed to pay for a one-year patch to keep the alternative minimum tax from ensnaring 23 million taxpayers in 2007. …

I think the PAYGO rules are a great idea as Congress should have to work towards a balanced budget. However, given that it’s Congress the rules are just a PR push and money just gets pushed around with budgetary and accounting tricks to make it look like Congress is doing something. If they are going to make a mockery of the rule, just eliminate it.

Like many things in Washington it makes a good soundbite but has no real substance. Like with health care and tax reform, I wouldn’t hold my breath until Congress actually follows its own rules.