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PAYGO Is Just a Condiment, Not the Main Ingredient

The federal budget world has gone a little crazy the past few weeks over the president’s new pay-as-you-go proposal. Some immediately embraced it, as a person who hasn’t eaten in several days and is offered a bacon cheeseburger and fries might do. Others immediately and loudly decried it much like you might expect from a well-fed vegetarian being served that same cheeseburger with bacon. And, like an executive chef at a fine-dining restaurant who differs on the type of oil used to make the fries that go with the burger, still others had problems with some of the components of the administration’s PAYGO proposal.

All of the discussions of the Obama PAYGO proposal are beside the point at this moment. The praise and criticism is roughly the equivalent of talking about that bacon cheeseburger before you decide what type of food you want to eat and which restaurant you want to go to: totally theoretical, having little to do with reality, completely premature, and largely irrelevant.

Let’s start with basics. PAYGO is the part of the Congressional budget process that was put in place to make it harder for the White House and Congress to enact new revenue and mandatory spending changes that increase the deficit. It was not a deficit reduction cure-all. It always only applied to part of what the federal government did: essentially taxes and entitlements. It never applied to appropriations.

And PAYGO was always pay-as-you-go rather than pay-as-you-went. It did not force the president and Congress to reduce the deficit; it only prevented them from increasing it further. PAYGO didn’t apply to an existing tax break or mandatory spending provision that would increase the deficit this year by, say, $100 billion. It was intended to stop a new proposal costing the same amount from being adopted unless it was offset so that there would be no change to the bottom line.

PAYGO has always been very controversial and hardly the budget panacea that its supporters are now claiming it to be. From the moment it went into effect, it was heavily criticized as not applying to enough of the budget, not dealing with the underlying deficit, not allowing appropriations to be used to pay for increases in mandatory spending or decreases in taxes, and not allowing revenue increases to be used to offset increases in appropriations.

PAYGO has also typically triggered what can best be termed a visceral response from those who insisted that tax cuts paid for themselves and shouldn’t have to be offset at all. From the perspective of these critics, PAYGO should never have applied to revenues at all and the fact that it made it harder for tax cuts to be adopted made them ask why anyone thought it was valuable.

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