The Limited Relevance of PAYGO

I was checking out some expert testimony on proposals to re-adopt the so-called “statutory ‘pay-as-you-go’ rule” requiring tax cuts or spending increases to have specific offsets (see Alice Rivlin here), but I wound up finding this point from Robert Greenstein to be the most compelling:

While budget rules, such as the pay-as-you-go rule, can be important, actual policy decisions that will be made in the next few months will be far more important in demonstrating a real commitment to begin dealing with the long-term fiscal problem. In particular, the decisions that are made about health reform will be crucial. Whether a statutory pay-as-you-go rule is enacted or not, it is essential for the Congress and the President to demonstrate a commitment to the pay-as-you-go principle by fully paying for the cost of health care reform over the next 10 years. That will require some painful steps, such as adopting politically unpopular changes both in tax laws and in payments to health care providers. But if Congress and the President do not demonstrate that they are willing to take such steps to keep from making an already unsustainable fiscal situation worse, the enactment of a statutory pay-as-you-go rule will ring hollow and will not persuade anyone (including financial markets) that policymakers are willing to deal in a real way with the problems we face. In addition, it is absolutely crucial that the health reform that is enacted produces changes in our health system that begin taking the steps necessary to slow the growth of health care costs systemwide (i.e., in both the public and private sectors). We will never be able to ensure sustainability of the federal budget — or the health of the economy — unless we bring down the growth rate of those costs.

Something that pure budget analysis doesn’t get at on this subject is just the pure politics of it. A lot of people look around and see a world in which we had PAYGO rules in the 1990s and we declining budget deficits and then a small surplus. Then we had a Republican President and suddenly hugely expensive tax cuts — tax cuts that all Republicans and many Democrats voted for — didn’t need to be paid for. We also had a hugely expensive war that all Republicans and many Democrats voted for that didn’t need to be paid for. And PAYGO rules were suspended. Now there are progressive majorities and PAYGO is magically coming back. And aspirations for universal health care are being constrained by the need to pay.

Now, I think it’s a good thing that the administration has committed to pay for its health care proposals. But ultimately it takes two to tango here. And somehow we’ve gotten into a dynamic where not only Republicans, but also a certain number of moderate Democrats, seem to believe that conservative ideas don’t need to be paid for but progressive ideas do. That’s not a sustainable situation.