In our world of trillion dollar deficits, some fiscal restraint is in order (and has been for decades now). One common-sense solution is a PAYGO, or “Pay-As-You-Go” policy. Put simply, PAYGO rules require any new legislation that increases the deficit to fully offset those deficits by either raising taxes or cutting spending elsewhere so there’s no further additions to our national debt. 

While PAYGO doesn’t incentivize Congress to cut net-spending, it does prevent them from making deficits any worse than they are.

We did have PAYGO rules in place in the U.S. in the past. PAYGO was first implemented in 1990, which expired in 2002, but was restored by the Statutory Pay-As-You-Go Act of 2010. The Senate has a PAYGO rule in place today (implemented in 1993), and the House previously has a PAYGO rule implemented in 2007 that was repealed in 2011. Congress can waive PAYGO for a particular bill with a vote of either 60 Senators, or a majority of the House. The statutory PAYGO law only applies to mandatory spending. 

The Return of PAYGO to the House?

House Speaker and broken-clock Nancy Pelosi has unexpectedly been one of the voices of reason among Democrats in arguing for the implementation of PAYGO in the House, though it’s likely due to self-serving reasons. House Democratic Leaders want to apply PAYGO rules for only the next two years (presumably so they can spend like drunken sailors if they win the presidency in 2020 after presenting themselves as the party of fiscal responsibility for two years).

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Regardless of their motives, two years of fiscal constraint is better than none. Still, the progressive wing of the Democratic Party is coming out swinging, as it would thwart many of their grandiose welfare-state initiatives. 

Ironically,  I’d argue PAYGO rules for the House need to be made stronger than advertised. If PAYGO in the House can be overridden with the same majority vote needed to pass legislation, then PAYGO exists in name only. Nor should these rules only exist for two years. 

Of course, this all boils down to the answer to one pressing question…

Does PAYGO Really Reduce the Deficit?

As already mentioned, only in the sense that it prevents the deficit from growing larger than it otherwise would’ve in absence of PAYGO rules. As economists Veronique de Rugy and David Bieler write for the Mercatus Center, when PAYGO rules were in effect, they did work exactly as intended:

The Office of Management and Budget issued a total of 12 PAYGO scorecard reports from FY 1992-2003. Each report indicated net savings or no increase in the deficit. Consequently, the president issued no sequesters under the PAYGO process. Also, starting in 1992, deficits began to shrink, and there were surpluses each year from 1998-2001. Policy makers use these facts as evidence of the effectiveness of PAYGO in controlling spending. Indeed, one explanation could be that the threat of a sequester acted as a significant deterrent and forced members of Congress to work together to minimize new spending.

Perhaps the strongest evidence in favor of PAYGO is what came immediately after its removal – the Jobs and Growth Tax Relief Reconciliation Act of 2003 (aka the Bush Tax Cuts) and the Medicare Perscription Drug, Improvement, and Modernization Act of 2003 (aka Medicare Part D). While we don’t oppose the Bush tax cuts (or any tax cuts), they would’ve had to have been passed alongside corresponding spending cuts had PAYGO been in effect (and Medicare D would’ve likely never passed).

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The Center on Budget and Policy Priorities ran the math in 2007 on two scenarios: the Bush Tax Cuts being extended as is, and the same cuts being extended but with PAYGO rules mandating accompanying spending cuts. The results are striking, with the national debt as a share of the economy only being half of what it otherwise would be by 2050 (and zero percent of it being attributable to the tax cuts).  If that’s the case, why not apply this standard to all budget items?

While PAYGO is necessary, it’s also not enough. It may prevent Congress from spending even more like drunken sailors – but it’s time for some real fiscal rehab.