Pay-go’s promise routinely broken by Washington

The pay-as-you-go rules President Obama is resurrecting as a solution to runaway federal spending have been repeatedly violated by Congress and the White House, allowing hundreds of billions of dollars to be spent without the required spending cuts or tax increases.

After some early successes in the 1990s, the pay-go rules have been waived or gamed for political convenience to the tune of more than $1 trillion in deeper deficits, with most of it coming under President George W. Bush and a Republican Congress.

From hiding new spending in emergency legislation to waiving the rules to canceling the penalties, Congress and the White House became expert at finding ways to avoid draconian spending cuts or tax increases.

Mr. Obama’s budget chief is well aware of the history and its potential impact on the president’s new pledge, calling pay-go rules the “broken window theory of budgeting.”

“Just like broken windows have been shown to increase crime and harm outcomes, if you don’t have important constraints … it leads to a sense that anything is possible in a fiscally irresponsible way and undermines a lot of what we’re trying to do,” White House Of fice of Management and Budget Director Peter R. Orszag said.

But outside analysts say pay-go isn’t broken windows, it’s just broken.

“Pay-go is designed to fail. Congress cancels the enforcement, and even if they didn’t there are virtually no programs that are available to be cut to bring these policies into balance,” said Brian Riedl, a budget analyst at the Heritage Foundation. “It’s unworkable.”

He said the law in place through the 1990s specifically excluded Social Security and anti-poverty programs from the mandatory cuts and prevented cuts in Medicare by more than 4 percent. That leaves too few options for real cutting, if Congress ever were required to live up to its obligations.

Pay-go was created as part of the 1990 budget deal President George H.W. Bush reached with the Democratic Congress - the one that broke his “no new taxes” pledge - and was renewed in the 1993 and 1997 budget deals. The pay-go law expired in 2002, though the Senate maintained its own pay-go rule and the House imposed one on itself when Democrats took control in 2007.

Both the law and the congressional rules were designed to keep Congress from expanding or creating new tax cuts or entitlement programs without finding offsetting spending cuts or tax increases.

The rules were easily waived, but the law itself proved effective - particularly with the threat of sequestration, which meant a mandatory cut to entitlement programs to balance out new spending.

At its most effective, that threat alone kept lawmakers from coming forward with new spending or tax cuts, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

“I’ve talked to many members who were regularly crafting their policies to be pay-go compliant because they knew full well the threat of sequestration was something they didn’t want to bump into,” she said.

For a while, that drastic punishment helped keep new entitlement spending under control, and was at least a part of the reason deficits dropped, according to the Congressional Budget Office, Congress’ official scorekeeper.

But when times improved in the late 1990s, discipline disappeared, and both Congress and the White House regularly began to waive the rules, piling on spending and tax cuts.

Other times, the president or Congress used budget gimmicks to front-load spending or tax cuts, then balance them out with spending cuts in later years. Mr. Riedl said that trick was used when Congress expanded veterans’ benefits and children’s health insurance over the past two years.

The three times pay-go rules have worked - after 1990, 1993 and 1997 - they came as part of budget deals that put both Republicans and Democrats on record as saying cutting the deficit was more important than new spending or new tax cuts. As a result, each side was eager to enforce the rules, figuring it was better to deny the other side its victory.

“You had actual policies in place and then the pay-as-you-go was put in place essentially to lock in the savings,” said James R. Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities. “The Republicans were w orried the Democrats might try to come back and undo the spending cuts, and the Democrats were worried the Republicans would come back later and undo the tax increases.”

The problem for Mr. Obama, analysts say, is that he didn’t go secure that consensus this time around, and now he risks having pay-go become an empty threat.

“It’s not a high bar - it’s not enforcing a budget deal, which is ultimately what we have to do,” Ms. MacGuineas said.

Still, she said there is real value in Mr. Obama’s move, even if it’s only a signal to his own party rank-and-file that their spending wish-lists will not be fulfilled.

“This is a flag in the ground from the administration and the Democratic leadership, almost focused on their own members, saying don’t come to us with new policies that aren’t paid for,” Ms. MacGuineas said.

Mr. Obama’s proposal walks back from some of the principles that governed in the past.

His pay-go rules would not apply to extending some of the Bush tax cuts, to fixing the alternative minimum tax or to increase Medicare doctors’ payments. Mr. Orszag said those changes are bound to be made anyway, and Mr. Horney said without those exemptions, Congress would have just voted to waive the rules in each case, and that would have been the beginning of the end.

“Once you start waiving it, you won’t stop,” he said.

Mr. Riedl at the Heritage Foundation said Mr. Obama could prove he’s serious about the cuts, but only if he and Congress “pledged to never cancel a single sequestration and to avoid all gimmicks and timing shifts that would cover up pay-go violations.”