Starting in the 1990s, Congress began putting in place multiple rules and laws referred to as “Pay-as-You-Go,” or “PayGo,” in a misguided attempt to enforce good fiscal policy. In actuality, the only thing these restrictions have enforced is austerity by preventing needed investments and locking in regressive tax cuts. These rules and laws have changed over the years, but still exist in altered forms today and present serious challenges for advancing progressive priorities. Read on to learn more about the different forms of PayGo and why progressives should care about them.
The House PayGo Rule
When Democrats took the House in 2007, they instituted a PayGo rule as part of the House Rules package. This rule stated that increases to spending must be accompanied by either increases in revenue (ex. taxes) or cuts to other programs. This is often referred to as needing a “pay-for.” Democrats mistakenly believed this type of fiscal restraint was an economic necessity, and that the rule would shield them from Republican attacks about the deficit. However, the rule actually causes economic harm by creating a large and unnecessary barrier to bold, progressive legislation that would deliver resources to those who need it most. The rule also did not prevent Republicans from whining about the federal debt in their bad faith attempts to block necessary investments in the wake of the Great Recession.
Unsurprisingly, the rule did not constrain Republicans when they retook the majority in 2011, and instead they replaced the rule with “CutGo,” which simply mandated cuts to essential services and did not require any increase in taxes. This clearly demonstrated that the initial PayGo rule had no meaningful effect on preventing Republicans from pursuing their agenda of tax cuts for the wealthy and cuts to funding for critical public services.
Nevertheless, Democratic leadership brought the PayGo rule back in 2018 over the opposition of Progressives in the House. Fortunately over the last few years, Progressives have successfully advocated for changes to the rule to exempt investments to respond to the COVID-19 pandemic and the climate crisis. Securing this victory was a great example of Progressives wielding their collective power, a mechanism that will likely need to be used again to achieve further reforms to PayGo. The changes implemented in the 117th Congress are important if House Democrats want to pursue the bold agenda the American people elected them to enact, but a real and lasting solution would include a full elimination of the PayGo rule rather than narrow exemptions.
Statutory PayGo
In addition to the rules governing the House, a version of PayGo was also written into law under the Statutory Pay as You Go Act of 2010. As one of several errors that locked in austerity in the early years of the Obama administration, this law did not lead to bipartisan cooperation on budgets or spending, but rather placed arbitrary limits on spending with harsh penalties if Congress did not comply.
Under statutory PayGo, the Office of Management and Budget (OMB) keeps a scorecard of every bill signed into law that makes changes to mandatory spending or revenue. If Congress adjourns at the end of the session with a negative balance on the scorecard, automatic cuts - referred to as “sequestration” -- occur to mandatory programs like Medicare payments, farm price supports, funding for social services, military retiree funding, and other programs.
Unlike the House PayGo rule, statutory PayGo does not have exemptions for COVID-19 related spending or other crises, meaning that Congress must proactively waive PayGo to avoid automatic cuts. This is the case for the American Rescue Plan, which correctly makes massive investments to respond to the pandemic, but will also be scored on the OMB scorecard if Congress does not waive PayGo for that bill. This can be done any time before the end of the session, and a bill to do so has already been introduced in the House, but will face the 60 vote filibuster threshold in the Senate.
How can we fix the PayGo problem?
The simplest solution is to eliminate the House PayGo rule, and repeal statutory PayGo. We’ve already seen progress rolling back part of the House rule, and that work must continue if we’re going to achieve the type of transformative change and public investments this country needs. And Congresswoman Pramila Jayapal has previously introduced legislation to repeal statutory PayGo, a bill which garnered 32 cosponsors in the 116th Congress.
A key lesson from the last Democratic Trifecta was that turning to austerity, and buying the fake concern from Republicans about debt and deficits, resulted in disastrous policy outcomes, particularly for low-income folks and communities of color. It was also disastrous politically as voters punished Democrats at the ballot box for failing to meaningfully improve their lives (see Chapter 1 of the latest Indivisible Guide!). It is beyond clear that procedural hurdles to progressive policy, like PayGo, do nothing to allay the concerns about “fiscal responsibility” because those concerns are just political theater.
PayGo normally does not receive much attention, so your voice can have a big impact. You can make sure your MoCs do not allow automatic cuts to key programs because of statutory PayGo. And if you are represented by a Democrat you can make sure they don’t let counterproductive measures like PayGo block the progressive agenda and hamper an full and equitable economic recovery.