Is PayGo the Answer?

PayGo - Pay As You Go

Yesterday, President Obama called for a return to “pay-as-you-go” budget rules (“PayGo” for short.)  Here’s how PayGo is supposed to work in theory.  Every new dollar of government spending is offset by an equal decrease in spending elsewhere in the budget.  Or, alternatively, every dollar of increased spending can be offset by a dollar of new taxes.  It works the same way on the tax cutting side, too.  Every dollar in tax cuts must be offset by an equal cut in spending.

On paper, it sounds like a pretty good idea.  Here’s the problem, though.  It’s been tried before, but Congress and the President always find ways to work around the rules.  For example, Congress lived under PayGo rules in the 1990’s and the early years of this decade.  But that didn’t stop lawmakers from passing George W. Bush’s tax cuts and big spending increases without making offsetting spending cuts elsewhere.  As a result, a budget surplus in 2001 turned into massive budget deficits, and the national debt has continued growing uncontrolled.

Even as President Obama was calling for a return to PayGo rules, he carved out about $2.5 worth of exemptions for his priorities over the next decade.  For example, his healthcare reform plan would be allowed to run big deficits in the early years, on the assumption that Congress would eventually come up with the money to cover those early deficits.

In my opinion, the reason we have such a massive national debt is because too many Presidents and Congresses (both Democrats and Republicans) have adopted the policy of saying “It’s OK to run huge deficits now, as long as we promise to fix them in future years.”  It’s like the saloon that has a sign saying “Free Beer Tomorrow.”  Technically, tomorrow is always a day away, so they never have to give away the free beer.  Likewise, our federal government is always promising to fix the deficits tomorrow, or next year, or “in my second term”, or next decade.  But the “fixing” part never comes…it’s always pushed farther into the future.

PayGo, or “pay as you go” is a great concept, but only if you’re working with a balanced budget to begin with.  Then you have a plan to keep it balanced.  When you’re working with a budget deficit of $1.8 trillion, all PayGo will do is keep you at a budget deficit of $1.8 trillion.  And if you carve out a bunch of exceptions to the rules, it won’t even do that.

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