The Flawed Economics of the PAYGO Rule

February 18, 2020

Our nation is faced with once-in-a-generation challenges—including devastating climate change, crumbling infrastructure, and crippling household debt—that can only be addressed by bold, progressive policies, many of which require significant government spending. A major impediment to meeting these challenges is the “pay as you go” (PAYGO) rule. The PAYGO rule is a congressional budget rule that requires any legislation that raises spending on entitlement programs or cuts taxes to be offset with either tax increases or spending cuts elsewhere in the budget.

Many opponents of PAYGO note that the procedural requirements impede effective policymaking by holding critical investments hostage to budgetary constraints. Getting policymakers to agree to offsets, especially for ambitious programs, is politically challenging, if not impossible.

Less discussed are the macroeconomic concerns with PAYGO. From an economic perspective, PAYGO is problematic because it perpetuates a reflexively anti-deficit worldview that is analytically flawed and ultimately harmful for the economy.

This fact sheet argues that:

  • The PAYGO rule perpetuates a flawed and overly rigid view of deficit spending; and
  • This flawed understanding of deficit spending leads policymakers to overestimate the risks of non-offset spending and understate its benefits in the current economic climate.