The US House of Representatives Wednesday passed the “pay-as-you-go” (or PAYGO) plan by a bipartisan vote of 265-166. It’s legislation championed by House Budget Committee Chairman John Spratt of South Carolina to strengthen fiscal discipline. “By themselves budget process rules cannot convert deficits into surpluses, but as in the 1990’s they can play a vital role.”Spratt says it controls over-spending and cuts to new tax revenue. “Statutory PAYGO works by reigning both new entitlement spending and new tax cuts. Both tend to be long lasting, they’re easy to pass and hard to repeal, and by insisting on offsets and deficit neutrality for these new policies, PAYGO buffers the bottom line.”
PAYGO requires that new legislation affecting mandatory spending or tax revenue be “budget neutral,” or not increase the deficit. The new statutory PAYGO rule would be enforced through automatic, across-the-board spending cuts.
The bill requires the Office of Management and Budget to maintain a PAYGO ledger and to determine at the end of each year whether spending cuts are needed. “Its terms are complex but at its core it’s a common sense rule that everybody can understand, when you are in deficit don’t make it worse. When you want to spend a dollar, save a dollar. Everyone can understand the common sense logic of this bill.”
If the total impact of new mandatory spending and revenue legislation results in a net cost over either a five- or 10-year time frame, then the President would order an across-the-board cut of certain mandatory programs.
Statutory PAYGO was first put in place with bipartisan support by the Budget Enforcement Act of 1990, and was renewed on a bipartisan basis in 1997. The statute expired in 2002 and was not reauthorized by the Republican majority in Congress.
Spratt says the US budget plunged from a surplus of $236 billion in the year 2000 to a deficit of $413 billion in 2004.
In 2007, Democrats regained the majority in Congress and established PAYGO rules. The bill just passed by the House would make PAYGO statutory.