"Obama will reinstate pay-as-you-go (PAYGO) budget rules, so that new spending or tax cuts are paid for by spending cuts or new revenue elsewhere."-- Obama's Blueprint for Change
By ZACK HALE
As lawmakers agitate over a mounting federal budget deficit, PAYGO is making headlines again. But the version recently introduced in Congress at the behest of the Obama administration contains gaping loopholes that would allow the federal government to continue to spend freely.
In fact, some analysts say the proposed PAYGO rules will actually deepen the deficit.
The bill, which was written mostly by the White House, has been touted by Democrats as a return to fiscal responsibility after eight years of profligate deficit spending by the Bush administration.
House Speaker Nancy Pelosi, D-Calif., has said of the pending legislation: “We will have a PAYGO that will work, that will reduce the deficit and will take us down in terms of the national debt and, therefore, the interest on the federal debt.” Florida Rep. Allen Boyd, a member of the fiscally conservative Blue Dog Democrats, said, “Congress does not have the self discipline to be fiscally responsible if there are not tools in place to make it do so.”
However, the bill bears little resemblance to the PAYGO rules Obama promised on the campaign trail, which he said would ensure that “new spending or tax cuts are paid for by spending cuts or new revenue elsewhere.”
For starters, congressional discretionary spending would remain unfettered; that amounts to about 40 percent of the federal budget. The spending constraints would apply only to expansion of entitlement programs like Medicare, Medicaid and Social Security.
The bill would also afford the government enough leeway to extend the Bush tax cuts, stanch the growth of the alternative minimum tax and stave off scheduled Medicare cuts.
This has led fiscal responsibility advocates like Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, to sound off.
“Talking about extending the tax cuts, fixing the [alternative minimum tax], dropping the Medicare patch -- all without paying for them -- really just leaves you with PAYGO around the margins,” MacGuineas said.
An economic outlook by William Gale and Alan Auerbach for the more left-leaning Brookings Institution said, “Reinstatement of PAYGO rules, as proposed by the administration, would exempt most of the major causes of fiscal deterioration over the next decade.”
Brian Riedl, a government spending expert at the conservative Heritage Foundation who has written extensively about PAYGO, is even more dubious of the bill, which he says is nothing more than political posturing.
PAYGO “is merely a talking point that allows lawmakers to pretend they’re being fiscally responsible without actually lifting a finger to be fiscally responsible,” Riedl said. “The idea that PAYGO will make a dent in the federal budget is ridiculous.”
Overall, it is estimated that these PAYGO exemptions would tack $3.5 trillion onto the deficit over the next decade. This will raise interest rates, create massive debt interest costs and ultimately worsen the economy, Riedl said.
And for budget hawks, that’s the real problem with sidestepping PAYGO.
“It is nothing short of completely negligent to add to the debt without a plan for bringing it back down,” MacGuineas said.
FEBRUARY 17, 2009
Stimulus Ignores PAYGO Aspirations
The $787 billion stimulus signed by Obama was drafted outside PAYGO rules at his direction. The Congressional Budget Office estimates it will increase the 2009 deficit by $185 billion, the 2010 deficit by $399 billion, and the 2011 deficit by $134 billion.
JANUARY 05, 2009
PAYGO Rules Amended To Define Loophole
A change in House rules allows for PAYGO to be circumvented during emergencies that are now defined as "an act of war, an act of terrorism, a natural disaster, or a period of sustained low economic growth."