RIEDL: PAYGO is an unworkable gimmick

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OPINION/ANALYSIS:

President Obama is establishing a reputation for misrepresenting his own policies. He promoted his “stimulus” bill as an immediate, anti-recessionary cash infusion, even though most spending won’t occur until after the recession ends. He titled his budget “A New Era of Responsibility,” even though it doubles the national debt. And he claims his health care reform plan will save money, even though it’s expected to cost up to $1 trillion.

The president also misrepresented his proposal to bring back the Pay-As-You-Go (PAYGO) law that existed in the 1990s. In a White House speech, he defined PAYGO as mandating that “Congress can only spend a dollar if it saves a dollar elsewhere.”

That is simply not true.

For starters, PAYGO exempts discretionary spending - that huge chunk of the federal budget (40 percent) that includes most defense, education, housing, homeland security and transportation spending. Congress could triple the discretionary budget tomorrow without triggering PAYGO. That’s quite a loophole.

Nor does PAYGO apply to the current entitlement-spending baseline. Thus, total entitlement spending can continue growing 6 percent annually without triggering PAYGO. Social Security, Medicare and Medicaid can continue down their path to swallow up the entire federal budget.

What’s left? PAYGO merely says that if Congress wants to grow total entitlement spending faster than the 6 percent annual rate in the baseline, it must raise taxes accordingly. Or, if it wants to reduce net taxes, it must cut entitlement spending accordingly.

That’s all.

Consequently, PAYGO isn’t designed to actually reduce spending or the deficit. It’s not even designed to slow their growth. Even with PAYGO, this year’s 8 percent growth in discretionary spending (the third consecutive year of such growth), and its $110 billion growth in Social Security, Medicare and Medicaid would require zero offsets. Only the creation of a new entitlement program (or tax cut) would have to be offset.

It gets worse.

Because PAYGO requires so little of Congress, one would think compliance is guaranteed. Wrong. PAYGO has already been in place - and ignored - for most of the last two decades.

From 1991 through 2002, PAYGO existed as a statute. The White House would keep a running scorecard of all newly enacted entitlement and tax legislation (allowing one bill to offset another). If, at the end of the year, all tax and entitlement legislation had not offset each other, an automatic series of entitlement-spending cuts (“sequestrations”) would be triggered to offset those costs.

It was never enforced. Over those 12 years, Congress enacted $700 billion in non-offset entitlement expansions and tax cuts, and then cancelled every single sequestration that would have enforced the law. Congress typically waited until the final spending bill of the year, and then simply added a paragraph mandating that PAYGO not be enforced against any past bills.

The result? Entitlement spending actually grew faster after PAYGO’s implementation.

And even if Congress had allowed sequestration cuts to go forward, the law had been gutted into irrelevance. Congress had already mandated that Social Security, anti-poverty spending and nearly all of Medicare could not be sequestered to offset PAYGO violations. That left just $31 billion worth of entitlement programs that could be cut as part of a sequestration.

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