PAYGO Is Not a Reason to Oppose Health Care Reform

Posted March 15, 2010 at 6:13pm

Pay-as-you-go, or PAYGO, is what supposedly forces Congress to offset the cost of doing something new so that it doesn’t make the deficit worse. For the past two decades, PAYGO either was a formal part of the Congressional budget process or, when it expired, was something many immediately and vehemently insisted be reinstated. Editorials promoted it. Budget hawks demanded it. Political parties tried to show it was one of their basic tenets. Democrats and Republicans both supported it. Fights broke out over whether a House or Senate rule requiring PAYGO was as valuable as a statutory change requiring it.

[IMGCAP(1)]PAYGO is also the budget process provision that created extreme interest on the Congressional Budget Office’s cost estimates and what spawned a number of often-questionable theories about what causes spending to fall and revenues to rise so that a proposal would appear to comply with its provisions.

As far as the federal budget is concerned, PAYGO is tradition, ritual, accepted and well-established.

All of this is why I did more than a double take last week when I heard what had to be not only one of the most ridiculous federal budget-related things spoken in quite some time (and that’s saying a great deal), but also something that has to be considered a leading candidate for absurd budget position of the year: That health care reform should be opposed because it’s “only” deficit-neutral, that is, because it complies with PAYGO.

This might be understandable had it been said as part of a discussion about the need to provide more fiscal stimulus or if there was a budget surplus, or if it was made by someone who thinks that, the deficit be damned, health care reform should do more than it now seems destined to do. A health care bill that isn’t deficit-neutral in these cases at least would make theoretical sense.

But that wasn’t the context. The statement was made by someone opposed to health care reform to a group that fervently believed that a legitimate reason to vote no on the bill is because the legislation merely will pay for itself. As the discussion that followed amply illustrated, the feeling was that the bill should include provisions that do much more than just offset its cost and that it should be defeated because it doesn’t.

They wanted more than pay-as-you-go; they wanted pay-as-you-went.

The numbers are beside the point, so let’s get them out of the way quickly. The March 11 CBO estimate of the health care reform bill passed by the Senate is that from fiscal 2010 to 2019, it would reduce the on-budget deficit by $65 billion. Including off-budget programs, the deficit would be reduced by $100 billion. In other words, those who were arguing that the health care reform plan also needs to reduce the deficit might get what they say they want.

But what the people who were making this argument were really saying is that the pay-as-you-go rules aren’t enough. Their position is that new legislation should do more than just pay for itself; it also should pay for the costs of previous revenue and spending changes that were not offset when they were enacted and, therefore, helped create the deficit problem that exists today.

There are three reasons why this very virtuous-sounding argument actually is anything but.

First, PAYGO has worked remarkably well when it has been used. Not only has it changed the debate in the House and Senate so that at least some of the focus has been on whether a new or revised policy was worth the cost, it has also greatly limited what actually has been proposed. As anyone who has been involved in policymaking on Capitol Hill can attest, many, and perhaps even most, ideas never make it off the legislative drawing board because its proponents realize that they won’t be able to meet a PAYGO-like challenge.

Second, new policies shouldn’t have to pay for the failure to offset the costs of those already in place. The fact that there’s a budget deficit doesn’t mean that new challenges shouldn’t and can’t be faced if that can be done without making the budget situation worse.

Third, the notion that some of the spending cuts and revenue increases being proposed as offsets for something like health care reform might instead be used to reduce the existing deficit doesn’t in any sense make it inappropriate to use them for PAYGO. To the contrary, while using them for one obviously eliminates the opportunity for the other, it’s not at all clear that the spending and revenue changes that might be politically acceptable as offsets for a new policy would be just as acceptable if they were used for deficit-reduction purposes.

In other words, the offsets might not actually be available to reduce the deficit anyway. Including the health care offsets in a pure PAYGO/deficit reduction bill debated by the House and Senate would test that. But in the absence of that type of test, using the spending and revenue changes included in health care reform PAYGO purposes is completely legitimate.

Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”