PAYGO (pay-as-you-go) – Bring It Back Now, But With An Improvement

Monday, April 26, 2010 posted by mattadmin

PAYGO was introduced during President George H.W. Bush’s administration to prevent the government (congress) from spending money it doesn’t have. It forced fiscal discipline during the Clinton administration, but had some drawbacks. President George W. Bush let the bill expire in 2002 after being handed a budget surplus from President Clinton. The government has since created deep tax cuts, entered into wars, and borrowed money for huge stimulus packages after the financial system collapsed. The U.S. national debt is now almost $13 trillion and we need to do something about it!

Over leveraging the nation is not good as it weakens our country and as a result may cost us our AAA rating. We’re basically debasing our currency and putting the stability of the nation at risk. If this trend continues we may be called the Republic of China instead of the United States of America. The “money well” could also run dry as investor may not want to own a piece of the U.S. federal government, especially if we lose our AAA rating. The interest expense alone is a big percentage of the government’s budget and over 50% is now being paid to non U.S. citizens, which is a big change in recent years.

U.S. National Debt Clock

It’s time to bring back PAYGO (pay-as-you-go), but with an improvement. President Clinton had to operate under this law and while it produced budget surpluses, it also prevented certain programs from happening… possibly healthcare reform, Medicare Part D, No Child Left Behind, the Stimulus Acts and other important programs. If we needed these programs is a debate for another day, but let’s at least force congress to be fiscally disciplined like PAYGO, but let’s also leave some room in case important programs are needed and instead of being PAYGO or bust, what about PAYGO 80/20?

“The PAYGO or pay-as-you-go rule compels new spending or tax changes to not add to the federal deficit. New proposals must either be “budget neutral” or offset with savings derived from existing funds.[1] The goal of this is to require those in control of the budget to engage in the diligence of prioritizing expenses and exercising fiscal restraint.” [Source]

PAYGO 80/20 could potentially make the government prioritize old, current, and new programs on both the 80 side and the 20 side of the new equation. This could mean that the government must offset of minimum of 80% of new spending or it could mean that 80% of the budget must be covered by revenue 100% of the time and 20% of the budget could be open for important new laws and reforms. The basic idea in whatever form it takes would make the government fiscally responsible, but allow for compromises in critical situations instead of allowing congress to spend at will like it is able to do today.

The budget deficit in 2010 is estimated to be $1.5/$1.7 trillion. That means we need to spend an additional $1.5 trillion dollars than the government is going to take in with tax revenue, in other words we need to borrow it and expand the national debt further in order to pay for all the government expenses in 2010.

U.S. NATIONAL DEBT CLOCK

U.S. NATIONAL DEBT CLOCK

80/20 might not be correct, but the fact is that President Clinton wanted to introduce some important programs and was not able to do so. Let’s improve upon PAYGO and give some room for only the highest priority programs to fall outside of the strict PAYGO boundaries in order to allow the government some flexibility in case it is truly needed. Maybe it’s PAYGO 95/5 or PAYGO 2.0, but let’s fix this debt crisis!

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