Taxes & Spending

Pelosi’s PAYGO Ploy

Four years after Democrats campaigned on the promise of using pay-as-you-go budgeting, their record is dismal. Since gaining control of Congress in 2007, they’ve gamed, ignored or employed PAYGO on 32 occasions to justify new spending or tax increases.

Once hailed as a budgetary tool to stop deficit spending, PAYGO has become a gimmick House Speaker Nancy Pelosi (D.-Calif.) has used repeatedly to provide cover to her liberal allies.

“Democrats are committed to fiscal responsibility through pay-as-you-go budgets, so that our children and grandchildren are not saddled with mountains of debt,” Pelosi pledged in 2007.

Pelosi’s rhetoric doesn’t match reality. In fact, since Democrats took office in 2007, the deficit has spiked to $1.5 trillion, up from $160 billion four years ago. That’s nearly a 10-fold increase—and it happened with the PAYGO rule in place.

Pay-as-you-go budgeting is the concept of offsetting, or paying for, new spending or tax cuts with spending reductions or tax increases. It doesn’t apply to all spending, however. In fact, PAYGO covers only new spending on mandatory entitlement programs, about 6% annually. But discretionary spending, or 40% of the budget, is totally exempt.

Republicans let the PAYGO rule lapse in 2002. Seeking to exploit the issue for political purposes and offer a cure for the expanding federal deficit, Democrats pledged to restore it in 2006.

Repeatedly, however, lawmakers have violated PAYGO, or used gimmicks and loopholes, to give the illusion they were acting within the spirit of the rule. PAYGO was waived or ignored 15 times in the 110th Congress and another 17 occasions so far in the 111th Congress.

Examples include major pieces legislation such as the economic stimulus and Obamacare.

President Obama can’t escape criticism either. Despite being a strong supporter of PAYGO, he’s signed legislation that increases spending by $1.4 trillion over 10 years and raises taxes by $447.3 billion, according to an analysis from Rep. Paul Ryan (R.-Wis.), ranking member on the Budget Committee.

Now with Democrats again trotting out PAYGO for campaign purposes, it’s worth asking how the deficit ballooned to $1.5 trillion with the policy in place. Looking at each piece of legislation subject to PAYGO, Ryan found repeated violations. He said PAYGO simply drives higher taxes to chase higher spending.

Take the American Recovery and Reinvestment Act, better known as the economic stimulus. Because it was designated an “emergency,” it was exempt from PAYGO. The Congressional Budget Office, therefore, scored it zero when it really had a deficit impact of $862 billion.

Then there’s the Health Care and Education Reconciliation Act and the Patient Protection and Affordable Care Act. Both were written to give the appearance of reducing the deficit. Even though CBO made that claim, Ryan’s office put the deficit impact at $662 billion. Gimmicks and hidden spending played to the Democrats’ favor, an example of how PAYGO is exploited.

These tricks are nothing new. The Heritage Foundation’s Alison Fraser and Brian Riedl warned in December 2006 that PAYGO would be a sham if Pelosi failed to properly institute it. Nearly four years later, Riedl continues to believe that PAYGO doesn’t make much difference. “Discretionary spending could triple,” he explained, “and Social Security, Medicare and Medicaid could keep growing at their unsustainable rate under PAYGO.”

Ryan, who maintains a PAYGO Tracker on the Budget Committee website, noted that when Democrats failed to adopt a budget resolution this year, PAYGO was their excuse.

“PAYGO has enabled hundreds of billions of dollars in deficit increases,” Ryan said, “mainly due to generous loopholes allowing the majority to satisfy the procedure’s technical requirements, and erect a façade of fiscal responsibility.”

That façade is starting to crumble.

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