When the new House Democratic leadership reinstated “pay-as-you-go” budget requirements in their package of rules changes, some progressives protested. Noting that Republicans have routinely brushed aside pay-go to enact mammoth upper-income tax cuts, progressives asked why Democrats should tie their hands when Republicans would not. Some also equate pay-go with the austerity economics that exacerbated the Great Recession. Some now propose to repeal statutory pay-go rules as well.
These critics are right about the hypocrisy of the 2017 tax law and about austerian economics, but they are wrong about pay-go. Far from being a menace to the progressive agenda, pay-go is vital to making that agenda possible.
Modern pay-as-you-go budget rules originated in the bipartisan Budget Enforcement Act of 1990. They were the brainchild of Rep. Leon Panetta (D-Calif.), whose other major congressional legacy was relentless advocacy for expanding the food stamp program (now SNAP). Rep. Newt Gingrich (R-Ga.) burst onto the national scene leading the opposition to the BEA.{mosads}
Pay-go requires that any legislation reducing revenues or liberalizing programs that do not depend on annual appropriations must pay for itself with corresponding increases in revenues or tightening of direct spending programs. Statutory versions of pay-go enforce this requirement by triggering across-the-board budget cuts to offset any estimated shortfall in legislation’s offsets. It divides these cuts evenly between the defense and non-defense budgets to give both parties incentives to comply. Social Security and several important anti-poverty programs are exempt from these cuts.
Pay-go requirements in the respective chambers’ rules create points of order against legislation with revenue losses or direct spending increases that are not offset. Pay-go rules typically provide for waivers in case of war, recession, or other emergencies.
Preserving and strengthening pay-go makes sense both substantively and politically. Substantively, pay-go plays a constructive role in fiscal management. Deficits are not the economic cyanide that some claim, but neither are our resources unlimited. Pay-go is far superior to other budget control devices.
One alternative had been restraining the gross cost of legislation, without regard to offsets. Efforts to keep the Affordable Care Act’s gross ten-year costs below $1 trillion contributed to many of its implementation problems. Relying solely on pay-go would have avoided these problems as the Act had more than enough offsets.
Without pay-go, Congress faces constant pressure to fritter away public resources on numerous mediocre proposals that, added together, consume the budgetary room needed for major initiatives. Given money’s enormous role in politics, most small- and middle-sized initiatives are likely to be forms of corporate welfare. Ideally, progressives will defeat those bills on the merits. In practice, with many Members now representing marginal seats and anxious to buttress themselves for re-election, this will be hard. Ruling out bills because they are not paid-for is a much easier, less divisive, way to turn back dubious proposals.
Without pay-go, deficits will steadily trend up, eventually presenting opponents of social programs to make pseudo-patriotic calls for “shared sacrifice” that invariably falls hardest on the most vulnerable. Pay-go replaced the arbitrary, and wholly unreasonable, deficit reduction targets that the Gramm-Rudman-Hollings Act established in the 1980s, backed by the threat of sequestration. The Budget Control Act of 2011 brought back rigid deficit targets and led to the sequestration cuts that starved the federal government and slowed the economic recovery despite still-high unemployment.
Indeed, as unjust and hypocritical as it is, the very people who have repeatedly busted the budget with upper-income tax cuts have come extremely close to getting Congress to send a balanced budget constitutional amendment to the states for ratification. A balanced budget amendment would permanently lock in austerian economics: massive budget cuts during recessions with no constraint on irresponsible tax cuts for the rich during booms. It would gut Social Security and Medicare while effectively precluding counter-cyclical programs like unemployment insurance and SNAP. This existential threat to the entire progressive agenda must be taken very seriously.
Pay-go — a commitment not to make the fiscal situation worse — is vastly superior to arbitrary commitments to radical deficit reduction that are the true austerian economics. Unlike pay-go, deficit reduction targets prevent natural increases in counter-cyclical programs during recessions.
Pay-go is not a serious obstacle to major initiatives: These bills, like the Affordable Care Act, have high enough profiles and broad enough support that they can justify the offsets necessary to pay for them. For example, a universal child care assistance program or Medicare-for-All, properly designed, should garner sufficient public support that they could carry a package of loophole-closers or upper-income rate increases to passage. Indeed, pay-go provides the best route to enacting progressive tax increases on the affluent.{mossecondads}
Political considerations, too, counsel retaining pay-go. Although most voters do not genuinely care about deficits, some do. At present, Democrats have a strong claim to be the fiscally responsible party: Democrats pay for their initiatives while Republicans do not. As these voters began to defect, numerous suburban districts became more competitive. Throwing away this advantage in a closely divided electorate is reckless.
Rather than rejecting pay-go, progressives should work to make it stronger. First and foremost, permanent statutes should preclude waivers of the kind that have allowed budget-busting upper-income tax cuts. Statutory pay-go should require super-majorities in both chambers to waive, barring the special rules by which House leaders have brought irresponsible legislation to the floor.
In addition, the enforcement mechanism should be revised to require equal parts spending cuts and suspending upper-income tax preferences, with the spending cuts divided between defense and non-defense accounts as they are now. Experience has shown that the threat of defense cuts do not bring Republicans to the negotiating table when opposition to taxes is their party’s central credo.
Together, these reforms would prevent repetition of the irresponsible tax cuts of 2001, 2003, and 2017 while allowing for popular social initiatives funded by progressive revenue increases.
David A. Super is a professor of law at Georgetown Law. He also served for several years as the general counsel for the Center on Budget and Policy Priorities.