Who’s Afraid of the Budget Deficit?
Democrats shouldn’t put themselves in a fiscal straitjacket.
https://www.nytimes.com/2019/01/03/opinion/house-democrats-budget-deficit.html
On Thursday, the best House speaker of modern times reclaimed her gavel, replacing one of the worst. It has taken the news media a very long time to appreciate the greatness of Nancy Pelosi, who saved Social Security from privatization, then was instrumental in gaining health insurance for 20 million Americans. And the media are still having a hard time facing up to the phoniness of their darling Paul Ryan, who, by the way, left office with a 12 percent favorable rating. But I think the narrative is finally, grudgingly, catching up with reality.
There’s every reason to expect that Pelosi will once again be highly effective. But some progressive Democrats object to one of her initial moves — and on the economics, and probably the politics, the critics are right. The issue in question is “paygo,” a rule requiring that increases in spending be matched by offsetting tax increases or cuts elsewhere.
You can argue that as a practical matter, the rule won’t matter much if at all. On one side, paygo is the law, whether Democrats put it in their internal rules or not. On the other side, the law can fairly easily be waived, as happened after the G.O.P.’s huge 2017 tax cut was enacted.
But adopting the rule was a signal of Democratic priorities — a statement that the party is deeply concerned about budget deficits and willing to cramp its other goals to address that concern. Is that a signal the party should really be sending? The economics of crude, mechanical rules about budget deficits are clear: They’re a really bad idea.
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more background
Why Are Democrats Backing a PAYGO Rule That Will Make Liberal Legislation Harder to Pass?
https://www.pastemagazine.com/articles/2019/01/why-are-democrats-backing-a-paygo-rule-that-will-m.html
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You have likely never heard of PAYGO before. Hell, it's my job to pay attention to politics and I had rarely heard of it before this fight. There is simply no political constituency for this policy outside of the donor class. The billionaires who actually run this country love austerity politics, and they do everything they can to put roadblocks in front of any program that could redistribute some of their wealth.
PAYGO is a perfect example of the broken way the donor class thinks, and any party that considers itself truly liberal would never impose such an arduous rule—especially during a time where we need to make major investments in health care, our economy and in the fight against climate change. The simple fact of the matter is that if we have to pay for the entire fight against climate change up front, then we will lose the battle against the apocalypse.
But how arduous is PAYGO, really? Here's the central problem with figuring out what is going on: Congress can (and has) change or ignore rules at whim. Say that the Green New Deal came up for a vote in the House, Nancy Pelosi could include a provision in the bill that waives the PAYGO rule, and this entire fight would recede into the background. This is likely why Ilhan Omar is backing the rules package, and what she means when she said she received assurances that PAYGO will not be used to stop progressive legislation.
But that still doesn't answer the question of why we need PAYGO in the first place. Why are Democrats seemingly voting to constrain their policy before it has even began? Nancy Pelosi's deputy Chief of Staff explained their position.
The problem is that there is both a PAYGO rule and a PAYGO law. The PAYGO law was passed in 2010 under Pelosi's speakership, and it requires tax cuts and mandatory spending increases to offset any hit to the deficit from a bill that passes. The PAYGO rule is a mechanism in the House that falls along the same lines, but because it is not law, it is less of an obstacle. It seems to be the case that if you bypass the rule, you can bypass the law, but without the rule, you must adhere to the law.
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The bad economics of PAYGO swamp any strategic gain from adopting it
https://www.epi.org/blog/the-bad-economics-of-paygo-swamp-any-strategic-gain-from-adopting-it/
The obscure Congressional budget rule known as PAYGO (“pay as you go”) has burst into the news lately. A PAYGO rule means that any tax cut or spending increase passed into law needs to be offset in the same spending cycle with tax increases or spending cuts elsewhere in the budget. Incoming House Speaker Nancy Pelosi has indicated that the House of Representatives will abide by PAYGO in the next Congress, and this decision has sparked much controversy.
Many Washington insiders assert forcefully that committing to PAYGO rules in the House for the next Congress is good politics. The argument is that it assuages fears of politicians who believe they must make public commitments to lower deficits to avoid being punished by voters who care deeply about this issue. If voters do indeed have strong preferences for reducing deficits, then policymakers—even those who want to use fiscal policy to reduce inequality by expanding public spending and investment—must first commit to PAYGO to convince these voters that budget measures can both reduce inequality and be fiscally “responsible.”
The strength of evidence supporting this political claim is debatable. What’s less debatable is that PAYGO really has hindered progressive policymaking in the not-so-recent past. For example, it was commitments to adhere to PAYGO that led to the Affordable Care Act (ACA) having underpowered subsidies for purchasing insurance and, even more importantly, having a long lag in implementation; the law passed in January 2010 yet the exchanges with subsidies only were up and running by 2014. This implementation lag meant that the ACA’s benefits were not as sunk into Americans’ economic lives by the time a hostile Republican Congress and administration began launching attacks on it following the 2016 elections. It is a real testament to how much better the ACA made life for Americans that it has been stubbornly resistant to these attacks. But it would have been helpful to have a couple more years to have it running smoothly, but that didn’t happen largely because the ACA’s architects wanted to meet PAYGO rules over the 10-year budget window.
Even more fundamentally, it is terrible economics to view federal budget deficits as always and everywhere bad. Making good policy in the future will require that voters be educated on this front. Why not start now? After all, our failure as a society to understand the economics of deficits and debt greatly contributed to the destructive impact of the Great Recession of 2008–09. The stakes of allowing history to repeat itself are high enough that we should take the time to quickly recap the history of how costly irrational deficit-phobia has been.
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