Pay-go’s prom­ise is rou­tinely bro­ken

The Washington Times Weekly - - Politics - BY STEPHEN DINAN

The pay-as-you-go rules Pres­i­dent Obama is res­ur­rect­ing as a so­lu­tion to ru­n­away fed­eral spending have been re­peat­edly vi­o­lated by Congress and the White House, al­low­ing hun­dreds of bil­lions of dol­lars to be spent without the re­quired spending cuts or tax in­creases.

Af­ter some early suc­cesses in the 1990s, the pay-go rules have been waived or gamed for po­lit­i­cal con­ve­nience to the tune of more than $1 tril­lion in deeper deficits, with most of it com­ing un­der Pres­i­dent Ge­orge W. Bush and a Repub­li­can Congress.

From hid­ing new spending in emer­gency leg­is­la­tion to waiv­ing the rules to can­cel­ing the penal­ties, Congress and the White House be­came ex­pert at find­ing ways to avoid dra­co­nian spending cuts or tax in­creases.

Mr. Obama’s bud­get chief is well aware of the his­tory and its po­ten­tial im­pact on the pres­i­dent’s new pledge, call­ing paygo rules the “bro­ken win­dow the­ory of bud­get­ing.”

“Just like bro­ken win­dows have been shown to in­crease crime and harm out­comes, if you don’t have im­por­tant con­straints [. . . ] it leads to a sense that any­thing is pos­si­ble in a fis­cally ir­re­spon­si­ble way and un­der­mines a lot of what we’re try­ing to do,” White House Of­fice of Man­age­ment and Bud­get Di­rec­tor Peter R. Orszag said.

But out­side an­a­lysts say paygo isn’t bro­ken win­dows, it’s just bro­ken.

“Pay-go is de­signed to fail. Congress can­cels the en­force­ment, and even if they didn’t there are vir­tu­ally no pro­grams that are avail­able to be cut to bring th­ese poli­cies into bal­ance,” said Br ian Riedl, a bud­get an­a­lyst at the Her­itage Foun­da­tion. “It’s un­work­able.”

He said the law in place through the 1990s specif­i­cally ex­cluded So­cial Se­cu­rity and anti-poverty pro­grams from the manda­tory cuts and pre­vented cuts in Medi­care by more than 4 per­cent. That leaves too few op­tions for real cut­ting, if Congress ever were re­quired to live up to its obli­ga­tions.

Pay-go was cre­ated as part of the 1990 bud­get deal Pres­i­dent Ge­orge H.W. Bush reached with the Demo­cratic Congress — the one that broke his “no new taxes” pledge — and was re­newed in the 1993 and 1997 bud­get deals. The pay-go law ex­pired in 2002, though the Se­nate main­tained its own pay-go rule and the House im­posed one on it­self when Democrats took con­trol in 2007.

Both the law and the con­gres­sional rules were de­signed to keep Congress from ex­pand­ing or cre­at­ing new tax cuts or en­ti­tle­ment pro­grams without find­ing off­set­ting spending cuts or tax in­creases.

The rules were eas­ily waived, but the law it­self proved ef­fec­tive — par­tic­u­larly with the threat of se­ques­tra­tion, which meant a manda­tory cut to en­ti­tle­ment pro­grams to bal­ance out new spending.

At its most ef­fec­tive, that threat alone kept law­mak­ers from com­ing for­ward with new spending or tax cuts, said Maya MacGuineas, pres­i­dent of the Com­mit­tee for a Re­spon­si­ble Fed­eral Bud­get.

“Pay-go is de­signed to fail. Congress can­cels the en­force­ment, and even if they didn’t there are vir­tu­ally no pro­grams that are avail­able to be cut to bring th­ese poli­cies into bal­ance,” said Brian Riedl, a bud­get an­a­lyst at the Her­itage Foun­da­tion. “It’s un­work­able.”

“I’ve talked to many mem­bers who were reg­u­larly craft­ing their poli­cies to be pay-go com­pli­ant be­cause they knew full well the threat of se­ques­tra­tion was some­thing they didn’t want to bump into,” she said.

For a while, that dras­tic pu­n­ish­ment helped keep new en­ti­tle­ment spending un­der con­trol, and was at least a part of the rea­son deficits dropped, ac­cord­ing to the Con­gres­sional Bud­get Of­fice, Congress’ offi- cial score­keeper.

But when times im­proved in the late 1990s, dis­ci­pline dis­ap­peared, and both Congress and the White House reg­u­larly be­gan to waive the rules, pil­ing on spending and tax cuts.

Other times, the pres­i­dent or Congress used bud­get gim­micks to front-load spending or tax cuts, then bal­ance them out with spending cuts in later years. Mr. Riedl said that trick was used when Congress ex­panded vet­er­ans’ ben­e­fits and chil­dren’s health in­sur­ance over the past two years.

The three times pay-go rules have worked — af­ter 1990, 1993 and 1997 — they came as part of bud­get deals that put both Repub­li­cans and Democrats on record as say­ing cut­ting the deficit was more im­por­tant than new spending or new tax cuts. As a re­sult, each side was ea­ger to en­force the rules, fig­ur­ing it was bet­ter to deny the other side its victory.

“You had ac­tual poli­cies in place and then the pay-as-yougo was put in place es­sen­tially to lock in the sav­ings,” said James R. Hor­ney, di­rec­tor of fed­eral fis­cal pol­icy at the Cen­ter on Bud­get and Pol­icy Pri­or­i­ties. “The Repub­li­cans were wor­ried the Democrats might try to come back and undo the spending cuts, and the De­moc- rats were wor­ried the Repub­li­cans would come back later and undo the tax in­creases.”

The prob­lem for Mr. Obama, an­a­lysts say, is that he didn’t go se­cure that con­sen­sus this time around, and now he risks hav­ing pay-go be­come an empty threat.

“It’s not a high bar — it’s not en­forc­ing a bud­get deal, which is ul­ti­mately what we have to do,” Ms. MacGuineas said.

Still, she said there is real value in Mr. Obama’s move, even if it’s only a sig­nal to his own party rank-and-file that their spending wish-lists will not be ful­filled.

“This is a flag in the ground from the ad­min­is­tra­tion and the Demo­cratic lead­er­ship, al­most fo­cused on their own mem­bers, say­ing don’t come to us with new poli­cies that aren’t paid for,” Ms. MacGuineas said.

Mr. Obama’s pro­posal walks back from some of the prin­ci­ples that gov­erned in the past.

His pay-go rules would not ap­ply to ex­tend­ing some of the Bush tax cuts, to fix­ing the al­ter­na­tive min­i­mum tax or to in­crease Medi­care doc­tors’ pay­ments. Mr. Orszag said those changes are bound to be made any­way, and Mr. Hor­ney said without those ex­emp­tions, Congress would have just voted to waive the rules in each case, and that would have been the beginning of the end.

“Once you start waiv­ing it, you won’t stop,” he said.

Mr. Riedl at the Her­itage Foun­da­tion said Mr. Obama could prove he’s se­ri­ous about the cuts, but only if he and Congress “pledged to never can­cel a sin­gle se­ques­tra­tion and to avoid all gim­micks and tim­ing shifts that would cover up paygo vi­o­la­tions.”


The leash they need: Peter R. Orszag, di­rec­tor of the Of­fice of Man­age­ment and Bud­get, says pay-as-you-go rules sup­ply im­por tant con­straints to the gov­ern­ment’s im­pulse to over­spend.

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