PayGo Stick

At some point in the budget debate in Washington you are likely to see a story that pits a few moderate Republicans, including Maine Sens. Olympia Snowe and Susan Collins, against the rest of the party on the question of whether to account for both new spending and tax cuts by offsetting them and keeping the deficit from getting any worse. The majority of the party will claim that only new spending should be offset and that offsetting tax cuts provides a twisted view of the process.

Don’t buy it. The pay-as-you-go provisions (PayGo) in the 1990 Budget Enforcement Act assumed the standard would apply to both spending and tax cuts and, until the recent tax-cut frenzy, it had lots of Republican supporters, including President Bush.

It is worth noting the president came into office assuming PayGo would apply to tax cuts and switched his position later, after the budget surplus that made the cuts easy had disappeared. By his 2006 budget his opposition is clearly stated: “The administration does not support increasing the tax burden on the American people and, therefore, proposes to remove tax legislation from the PayGo calculation.”

But just a couple of years earlier, in his 2002 budget, his attitude was quite different. While being emphatic that spending, not tax cuts, imperiled the surplus – a position that didn’t match spending’s falling percent of gross domestic product – the president’s budget included the following: “Budget limits and restraints have and can continue to limit the growth in government, protect surpluses when needed and achieve debt reduction.” Therefore, “The president also proposes to extend PayGo for entitlement spending and tax legislation.”

PayGo rules are simple. It traditionally has prevented entitlement and tax legislation from increasing the net deficit. An increase in the deficit caused by either spending or tax cuts would trigger an automatic across-the-board cut, or sequestration, in nonexempt appropriations and budget accounts. The process forces members of Congress to justify its decisions to spend more or cut revenues. It forces them to make policy based on their choices and not simply shove the weight on their decisions onto the deficit.

It can be a difficult process, but it is one of three or four reasons the federal government ran a surplus by the late 1990s. No one is talking about a surplus again for a long time; current budgeting will not even meet the president’s goal of cutting the deficit in half in four years. It could, how-ever, if the president would return to supporting the sensible PayGo rules of the recent past.