President’s PAYGO Proposal is Unworkable

Brian Riedl /

President Obama today is promoting a Pay-as-You-Go (PAYGO) statute requiring that tax cuts and entitlement expansions be collectively deficit-neutral. Congress is likely to take up the proposal later this month.

Since 2007, Congress has had a PAYGO rule mandating that each new tax and entitlement bill be deficit-neutral. Because it is merely a congressional rule, lawmakers can (and do) waive it easily. By contrast, a PAYGO statute—which existed from 1991 until 2002—would operate differently. Instead of requiring that each tax and entitlement bill be deficit neutral, this law would keep a running scorecard of all enacted bills (allowing one bill to offset another). If, at the end of the year, the net effect of all tax and entitlement legislation was to increase the budget deficit over the next decade, an automatic series of entitlement spending cuts (“sequestrations”) would be triggered to offset those costs.

Yet PAYGO has proven to be more of a talking point than an actual tool for budget discipline. Consider that:

1) PAYGO has never been enforced

2) PAYGO’s design is flawed

Creating a PAYGO law and then blocking its enforcement is inconsistent and hypocritical. And given their recent waiving of PAYGO to pass a massive stimulus bill, there is no reason to believe the current Congress and the President are any more likely to enforce PAYGO than their predecessors were. And even if it were enforced, PAYGO applies to only a small fraction of federal spending (new entitlements). Consequently, PAYGO is merely a distraction from real budget reforms that could rein in runaway spending and budget deficits – such as statutory spending caps.