Pay-Go Budget Rules Do Little to Control Spending or Reduce Deficit

President Obama’s plan isn’t like the typical American household budget.


Gretchen Hamel is the executive director of Public Notice, a new independent, bipartisan, nonprofit organization dedicated to providing facts and insights on the effect public policy has on Americans' financial well-being.  

Washington politicians are desperate to prove they aren't out of touch with average Americans. They know the public is more disgusted than ever with the government. A recent CBS News poll found 70 percent of respondents--including 73 percent of independents--are either "dissatisfied" or "angry" with how things are going in Washington. And that anger is largely directed at government overspending. 

Backroom deals, trillion-dollar deficits, pork-laden spending bills, and multibillion-dollar bailouts have left many Americans wondering if Washington can be trusted with their money. 

President Obama has tried to reassure a skeptical public that government "gets it." He has highlighted a new version of an old law, commonly known as "pay-go," as evidence government is ready for responsible budgeting. The president explained, "It's pretty simple. It says to Congress ... You can't spend a dollar unless you cut a dollar elsewhere. This is how a responsible family or business manages a budget. And this is how a responsible government manages a budget, as well." 

Sounds like common sense, right? Unfortunately, pay-go does not actually require Congress to cut a dollar for every dollar it spends. Its rules apply only to a fraction of new spending proposals. For instance, programs in appropriations bills (which make up 40 percent of the budget) are exempt. And it has no application to existing entitlement programs, like Social Security and Medicare, which account for another third of the federal budget. In a best-case scenario, it would allow the baseline collision course to continue. 

Even when pay-go would apply to a new spending bill, Congress has plenty of ways to get around it. "Emergency" spending--like last year's $787 billion stimulus bill--can be determined on an ad hoc basis and is exempt from these rules. 

Congress also uses budget gimmicks to disguise legislation's real costs to get around pay-go. For example, Congress can expand funding for a program for the near term, and then slash or even defund that program in subsequent years to make things "balance." That's exactly what Congress did when pushing through an expansion of the State Children's Health Insurance Program. It increased funding for years 2009 to 2013, but then scheduled a reduction in spending of 65 percent for 2014. This brought down cost estimates, and helped legislators technically comply with the rules, but it's not very likely future legislators will follow through with that scheduled cut. 

If this is how "responsible families" budgeted, as the president suggests, what would their finances look like? They could ignore spending that they had scheduled years before: items like their mortgage and health insurance. When planning their food budget they could front load all the spending to the first six months of the year, and then budget nothing for food for the rest of the year. When something unexpected came up--whether that's a broken window or just a desire for a new pair of shoes--they could declare it necessary because of an "emergency," and then not bother with pinching pennies elsewhere. 

Clearly, this would be a disaster for a family trying to control its spending. 

And it will be equally ineffective for Congress. Pay-go has been included in the rules of the House since 2007. Since that time the deficit exploded from $161 billion to $1.6 trillion. These rules failed to stop that. 

The president also failed to tell listeners the full story about how pay-go works. It doesn't only say Congress can cut a dollar for every dollar spent. It also says Congress can raise taxes to comply. And that's exactly what the American people should expect: Politicians uninterested in cutting spending will use the rules to justify tax hikes. 

President Obama was right about one thing: "It's easy to get up in front of the cameras and rant against exploding deficits. What's hard is actually getting deficits under control."