Know Your PAYGO

“We like the policy, but we can’t find the funding to pay for it.”

Get used to that line, if you’re not already used to it. Congress’ pay-as-you-go rule, more colloquially known as PAYGO, codifies the common-sense principle that a credit card style of budgeting is a really bad idea. As our good friends at the Center on Budget and Policy Priorities explain:

The pay-as-you-go rule, also known as PAYGO, is designed to encourage Congress to offset the cost of any legislation that increases spending on entitlement programs or reduces revenues so it doesn’t expand the deficit. Under PAYGO, Congress must pay for such legislation by reducing other entitlement spending or increasing other revenues.

PAYGO is a terrific rule to ensure fiscal responsibility, keep deficits relatively under control and put a check on policy that sounds nice but really isn’t necessary.

And it is proving to be a huge pain in the ass for folks advocating all sorts of wonderful and even necessary progressive priorities.

Here’s a real-life example to demonstrate my point. Last week, I was chatting about the recession and economic recovery with a friend. He asked why we don’t just do a green version of the New Deal-era Works Project Administration, which provided roughly 8 million jobs between 1935 and 1943, and was the largest employer in the nation during that time. The conversation went something like this:

Friend: We really need to a do a new, green-focused version of the WPA. That would really get our economy back on track and help show the world we’re serious about tackling climate change.
Me: Yeah, I agree. It’s a great idea. But that’d be pretty expensive. How would Congress pay for it?
Friend: Why should they have to pay for it? It’s investment in the nation’s future!
Me: Well the PAYGO rules say they can’t add to the deficit, which is probably a good thing if we’re thinking about the future. I’m not too interested in paying thousands of dollars a year down the road for debt incurred because of the current generation’s anti-tax mania.
Friend: Can’t they just end the war in Iraq?
Me: It’d be a good start for reducing the deficit, but I doubt it would qualify under PAYGO since that savings is already built into the baseline budget going forward. Plus it wouldn’t be enough on it’s own to fund a big investment project along the lines of what we need.
Friend: No way. We’re pouring a ton of money down that sinkhole in Iraq.
Me: It’s actually not as much money as you’d think. Iraq-Afghanistan combined are about $130 billion, which is nice money but not nearly enough by itself. Heck, the current deficit is TEN TIMES that.
Friend: Really? Just $130 billion?! Didn’t it used to be more?
Me: No. However, the entire Pentagon budget, including the wars, is around $650 billion. Given we spend an insane amount compared to the rest of the world, cutting it in half could have a significant impact on the budget, and hopefully allow us to increase domestic investment eventually. But this almost definitely won’t happen during the recession.
Friend: Ah. I lose track with all these crazy numbers.
Me: Yeah, it is pretty crazy. It’s also pretty sobering. Amazingly, eliminating the entire defense budget would cut the current deficit by less than half.
Friend: Wow. So I guess we need to raise taxes, huh?
Me: Bingo. Revenues as a percentage of GDP are no higher than they traditionally have been in America, despite an expanded portfolio for the federal government. They also are quite low compared to other advanced industrial nations (note: the wikipedia list includes state and local revenue). I think we can increase our revenue by another 5% of GDP, or roughly $700 billion, without seeing dramatic economic harm.
Friend: Great! So let’s just do that then…..
Me: If only it were that easy, to snap our fingers and enact substantial and broad-based revenue raisers. Remember what kind of Congress we’re dealing with here. One major party has declared a holy jihad against any new tax measure (real or imagined), and the other remains afraid to upset rich donors or the teabagger minions. Fer chrissakes, it was like pulling teeth to pass a modest cigarette tax in order to fund health care for poor kids!
Friend: Well, that’s a depressing thought. Seems like it’s really hard to get anything done in this atmosphere.

So what’s my point here? Not to get you all depressed, dear reader, but to make you take a step back and consider about the budget realities standing in the way of important and desirable policy objectives. This is especially important given the increasing deficit concerns among corporate-friendly Blue Dog Dems and Congress’ corresponding commitment to PAYGO. If we are to advance policy that serves the needs of everyday Americans and gets our economy back on track, we must do so with a strategy that properly acknowledges the need to assuage fears over our unsustainable fiscal path.

At Carrots & Sticks, we consider fiscal sustainability to be one of the key facets of our sustainable prosperity platform. Chris and I will continue to examine the consequences, opportunities and strategies to deal with PAYGO and fiscal reality in a series of future posts. Please let us know if you have any questions in the meantime.


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