PAYGO Is Just a Condiment, Not the Main Ingredient

Posted June 22, 2009 at 3:42pm

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.

[IMGCAP(1)]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.

The most important things that should be asked about PAYGO are not what have been asked over the past week or so, that is, to what it would and would not apply and how would it work. In fact, the most critical issue has almost nothing to do with PAYGO at all. The real question is what do we want a federal budget process to accomplish.

This is not as simple a question as it seems. PAYGO was originally intended to make it harder to increase rather than reduce the budget deficit. The plan was to use PAYGO and appropriations caps to keep the White House and Congress from adding to the red ink and allow economic growth to eliminate the deficit in the coming years.

But that’s anything but the only choice for a federal budget process. For example, there could be an outcome-neutral process that can be used to increase or decrease the deficit or surplus depending on what Congress and the president determine is needed each year. This was, in fact, the goal of the Congressional Budget Act, which in 1974 stated no specific overall goals and instead simply set up a budget-writing process for Congress to use.

Other options include a process that requires making annual reductions in the deficit until the budget is balanced, going beyond balance by running a surplus and paying down the national debt, preventing tax increases or Social Security cuts, protecting military spending, and making it easier for Washington to pay for capital projects.

All of these options should sound familiar because they have all been repeatedly proposed, demanded, and debated since PAYGO and many of the other provisions of previous federal budget processes were allowed to expire. But no new budget process has been enacted during this time because no consensus has ever developed over what it should do.

The most important thing to keep in mind when considering the president’s plan is that it is not the main course. In fact, like salt and pepper in everything from cheeseburgers to tofu with mixed vegetables, PAYGO in some form has been included in each of these budget process proposals. It can easily be a part of every discussion and will add some fiscal taste to them all.

But it’s not a meal unto itself. It might work perfectly. It might be the single ingredient needed to transform the very nondescript cheeseburger you get at the typical casual dining chain restaurant into an unforgettable budget eating experience worthy of being featured on “Diners, Drive-ins, and Dives— on the Food Network.

But there’s simply no way to determine that until you first know what you’re attempting to cook.

Stan Collender is a partner at Qorvis Communications and author of “The Guide to the Federal Budget.— His blog is Capital Gains and Games.