Obameter #34: PAYGO

PAYGO (short for "pay as you go") is the government term for actually coming up with the money to be spent on government programs. It means either cutting spending or raising taxes to pay for any new spending increase or tax cut. It's also one of the most ignored rules in Congress.

The Obama Campaign talked a pretty good game. They invoked PAYGO as an Obama priority, throwing around phrases like "fiscal discipline", "balanced budget", and "surpluses like the 1990s". But since the election there hasn't been a single bill that has strictly followed PAYGO.

First we had the stimulus bill, the whole point of which was to flood the private sector with loose cash. Draining the flood back with higher taxes would have defeated the whole purpose, so it was given an exemption to PAYGO rules.

Then we had SCHIP, the supplement to the Children's Health Insurance Program. To cover it's expense they had benefits fall off after 5 years, but kept the tax hike for 10 years. (It's a tobacco tax, an extra 62¢ a pack. Apparently for irony.) That's not really "pay as you go" in spirit when it takes you twice as long to pay as it does to go, but it technically qualifies under the existing PAYGO rules.

The next big spending bill will be the big, controversial national health care bill. The House version of the bill looks to cost $1.2 trillion, about a third of the total annual budget. If it completely replaces Medicare, Medicaid, and Social Security, that'll just about cover the cost. But not all of Social Security is health-related, that would mean a lot of people (my grandmother and mother-in-law among them) would be facing some serious financial setbacks. I'm around to catch and help my family, but it seems like political suicide for Obama to actually cut all that spending to pay for his new program. I guess we'll just have to wait and see what he does.

The unsure future of PAYGO under Obama let PolitiFact to call the promise stalled rather than broken outright. I predict that breaking this promise is inevitable.

I don't mind that part, though. PAYGO is kind of stupid.

Sometimes there are emergencies that demand heavy spending. Conservatives should remember Reagan's defense spending and how it broke the back of the Soviet Empire, liberals would probably see the Great Depression and the current economic crisis as good examples (I disagree, but now is not the time), and everyone should remember World War 2. Occasionally emergency spending is justified, and PAYGO does not recognize that fact.

Even in stable times, PAYGO encourages zero-sum budgeting when we should be looking to continually cut spending until the national debt is paid down. In essence, PAYGO says not increasing the debt is good enough when, in fact, it's not good enough. Just short of 10% of the annual federal budget is paying the interest on the national debt! That's $360 billion dollars per year for past bad budgeting! We could pay for half of social security, half of total defense spending, or half of the bank bailout with that.

But it's not really the size of the national debt that is the big concern, but the size of the debt relative to the total national economy (GDP). If the debt stays constant but the economy does great, that's just as good. That makes cutting taxes and economic regulation spending in unison better than increasing taxes and such spending in tandem. PAYGO doesn't reflect that, either. A big balanced budget or a small balanced budget are considered equally respectable by it's flawed rules.

Ideally, we'd want to cut taxes a little and cut spending a lot, thus creating a budget surplus and improving the national economy. Debt as a proportion of GDP would drop like a rock.

But that's the opposite of what Obama's been doing. Even if the bailouts are excused as emergency spending for the financial crisis, why pass SCHIP and national health insurance at a time of financial crisis? It not only offends PAYGO, it offends the legitimate goals PAYGO incompetently pursues. That's what I mind.

Obama gets an F- on this one. Worse Than Failure. Could not be more wrong.