The Real Problem With PAYGO | Capital Gains and Games

Bruce Bartlett:

Expecting every new spending programs to be paid for with specific offsets looks very much like a fallacy well known in the trade area. Even those who think it would be desirable for our trade accounts to be balanced in the aggregate know that it would be stupid to expect that our trade with each individual country should be in balance. We necessarily are going to need to import things from countries that we aren't going to be able to sell enough goods and services to in return. But there will also be countries with which the reverse will be true. It's the aggregate trade balance that matters, to the extent that it matters at all, not the bilateral balance with each country.

I think the same is true of the budget. We should be looking at aggregate revenues with reference to aggregate spending. If aggregate revenues are too low then they should be raised as sensibly as possible so as to minimize unfairness and economic distortion. PAYGO works against that goal even though it is motivated by a reasonable desire to avoid increasing the deficit more than necessary.

Instead of PAYGO, I think it would make more sense for Congress to stop ignoring the Budget Act of 1974 and adhere to its rules and procedures. It should set an aggregate target for revenues and expenditures, and pass a budget resolution that enforces caps on spending and floors on revenues. Then there will be no need for PAYGO.

Posted via email from Jim Nichols