July 2, 2009
By Brian M. Riedl
President Obama is establishing a reputation for misrepresenting
his own policies. He promoted his "stimulus" bill as an immediate,
anti-recessionary cash infusion, even though most spending won't
occur until after the recession ends. He titled his budget "A New
Era of Responsibility," even though it doubles the national debt.
And he claims his health care reform plan will save money, even
though it's expected to cost up to $1 trillion.
The president also misrepresented his proposal to bring back the
Pay-As-You-Go (PAYGO) law that existed in the 1990s. In a White
House speech, he defined PAYGO as mandating that "Congress can only
spend a dollar if it saves a dollar elsewhere."
That is simply not true.
For starters, PAYGO exempts discretionary spending - that huge
chunk of the federal budget (40 percent) that includes most
defense, education, housing, homeland security and transportation>
spending. Congress could triple the discretionary budget tomorrow
without triggering PAYGO. That's quite a loophole.
Nor does PAYGO apply to the current entitlement-spending
baseline. Thus, total entitlement spending can continue growing 6
percent annually without triggering PAYGO. Social Security,
Medicare and Medicaid can continue down their path to swallow up
the entire federal budget.
What's left? PAYGO merely says that if Congress wants to grow
total entitlement spending faster than the 6 percent annual rate in
the baseline, it must raise taxes accordingly. Or, if it wants to
reduce net taxes, it must cut entitlement spending accordingly.
Consequently, PAYGO isn't designed to actually reduce spending
or the deficit. It's not even designed to slow their growth. Even
with PAYGO, this year's 8 percent growth in discretionary spending
(the third consecutive year of such growth), and its $110 billion
growth in Social Security, Medicare and Medicaid would require zero
offsets. Only the creation of a new entitlement program (or tax
cut) would have to be offset.
It gets worse.
Because PAYGO requires so little of Congress, one would think
compliance is guaranteed. Wrong. PAYGO has already been in place -
and ignored - for most of the last two decades.
From 1991 through 2002, PAYGO existed as a statute. The White
House would keep a running scorecard of all newly enacted
entitlement and tax legislation (allowing one bill to offset
another). If, at the end of the year, all tax and entitlement
legislation had not offset each other, an automatic series of
entitlement-spending cuts ("sequestrations") would be triggered to
offset those costs.
It was never enforced. Over those 12 years, Congress enacted
$700 billion in non-offset entitlement expansions and tax cuts, and
then cancelled every single sequestration that would have enforced
the law. Congress typically waited until the final spending bill of
the year, and then simply added a paragraph mandating that PAYGO
not be enforced against any past bills.
The result? Entitlement spending actually grew faster after
And even if Congress had allowed sequestration cuts to go
forward, the law had been gutted into irrelevance. Congress had
already mandated that Social Security, anti-poverty spending and
nearly all of Medicare could not be sequestered to offset PAYGO
violations. That left just $31 billion worth of entitlement
programs that could be cut as part of a sequestration.
The PAYGO law mercifully expired in 2002. Yet Congress brought
it back as a rule in 2007. Instead of sequestrations and
scorecards, the rule simply required that each new
entitlement-expansion or tax-cut bill be deficit-neutral.
The results were the same. After much fanfare, Congress waived
PAYGO every time it proved even slightly inconvenient. The
lawmakers waived it to extend unemployment benefits. They waived it
to create a $63 billion veterans' entitlement. They waived it for
the $787 billion "stimulus" bill. House Speaker Nancy Pelosi,
California Democrat, suggested that PAYGO be waived for any bill
she feels will help the economy.
Even when PAYGO wasn't waived, Congress resorted to gimmicks for
compliance. The lawmakers passed an expansion of the State
Children's Health Insurance Program (S-CHIP) that scored 10 years
of tax increases, but only the first five years of the new
spending. They enacted a farm bill with timing shifts, funding
cliffs and other gimmicks to create the illusion of
deficit-neutrality. Spending skyrocketed and PAYGO was again
exposed as a joke, a fraud and a gimmick.
Which is why Mr. Obama's call to bring back statutory PAYGO
cannot be taken seriously. The same president who made a mockery of
the PAYGO rule on S-CHIP and the "stimulus" bill cannot credibly
claim he will suddenly enforce a PAYGO statute.
In fact, his PAYGO proposal is designed to fail. By walling off
nearly all entitlement programs from any possible sequestration
cuts that would enforce PAYGO, the president statutorily guarantees
that a sizable sequestration cannot occur. So if the massive health
care bill isn't deficit-neutral, a PAYGO sequestration (even if
allowed) may not be able to fully offset the costs later.
Enacting PAYGO is worse than doing nothing. It provides
lawmakers with a convenient talking point and taxpayers with a
false sense of security on budget reform. Better to focus on real
spending caps and other reforms that could actually rein in
spending and deficits.
Riedl is Grover M. Hermann Fellow in Federal Budgetary
Affairs in the Thomas A. Roe Institute for Economic Policy Studies
at The Heritage Foundation.
First Appeared in The Washington Times
President Obama is establishing a reputation for misrepresenting his own policies. He promoted his "stimulus" bill as an immediate, anti-recessionary cash infusion, even though most spending won't occur until after the recession ends. He titled his budget "A New Era of Responsibility," even though it doubles the national debt. And he claims his health care reform plan will save money, even though it's expected to cost up to $1 trillion.
Enterprise & Free Markets Initiative of the Leadership for America Campaign
Brian M. Riedl
Grover Hermann Fellow in Federal Budgetary Affairs
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