The PayGo Bait and Switch

Today is a big day for the Blue Dog Democrats. They’ve spent the first 6 months of this administration supine, voting for whatever spending Barack Obama and Nancy Pelosi told them to. As a result, the federal deficit is approaching $2 trillion – with nothing to show for it. All along, Barack Obama has paid lip service to the Congressional budget rule known as PayGo. Today, with much fanfare, Obama called for PayGo to be enshrined into law. You might cynically point out that it has been a rule in the House since the Democrats retook Congress in 2006, and ask why you should expect it to lead to smaller deficits once it is a law.

You would be right to ask the question. But beyond that, you ought to note that PayGo doesn’t even apply to one major category of spending: discretionary spending. It applies only to direct spending (ie, entitlements such as Social Security and Medicare). And Obama has also specifically asked for 4 exceptions to the rule. As a result, the new ‘PayGo’ has more holes in it than swiss cheese.

The administration will submit a proposal to Congress to codify the rule into law, and Mr. Obama today called for a quick passage in the House and the Senate. The PAYGO rules will apply to new tax cuts and mandatory spending, with four major exemptions – any renewal of the 2001 and 2003 tax cuts, the continued efforts to “patch” the Alternative Minimum Tax, any effort to address physician’s payments in Medicare, and modifying the estate tax.

In addition, discretionary spending – roughly 40% of the federal budget – is not covered by PAYGO.

“This is like quitting drinking, but making an exception for beer and hard liquor,” said Maya MacGuineas, President of the Committee for a Responsible Federal Budget (CRFB). “Exempting these measures from PAYGO would increase the ten-year deficit by over $2.5 trillion dollars. That’s not fiscal responsibility…”

Orszag acknowledged that there are significant exemptions to these PAYGO rules.

“The thrust of current policy embodies, for example, an assumption that we’re not going to allow the alternative minimum tax to take over the tax code,” Orszag said. “It embodies an assumption that at least a significant part of the 2001 and 2003 tax cuts will be extended past their scheduled expiration in 2010. And it embodies an assumption that we’re not going to reduce physician payments by 20 percent arbitrarily in the near future.”

But the CRFB’s MacGuineas said, “It’s pretty simple: if you want to pass a law to increase government spending or cut taxes, you should have to pay for it. No matter whether it is a new law or the continuation of an existing policy. And even doing that won’t be enough to close our fiscal gap. We should be discussing hard discretionary caps, long-term entitlement reform, and tax reform as well. The U.S. government is in a fiscally precarious position; other than borrowing for fiscal stimulus, the government should be focused on reducing the deficit. This policy would merely limit by how much it is permitted to increase.”

So the Democrats’ big new idea for controlling the deficit will actually explode it by more than $2 trillion. Even when they promise fiscal rectitude, they can’t help spending America into oblivion. Because discretionary spending is exempt, Congressional Democrats can enact another $1 trillion porkulus bill, without offsetting a penny. They can permanently increase the baseline for federal spending, and never cut a dime.

And PayGo does nothing to force spending reductions, either. All it does is require that added entitlement spending be offset with spending cuts or tax increases. Care to guess which option Democrats will choose when they attempt to pass nationalized health care?