What is 'PAYGO' and why are the Democrats fighting over it?

With the start of the new Congress on Thursday, Democrats officially took over the House of Representatives. Right off the bat, the party began fighting internally over the basics of its budget process. That might sound wildly arcane, but it's actually a fight that reveals the growing power struggle between the Democratic Party's establishment and its insurgent left wing over the very foundation of the party's economic agenda.

At issue is the so-called "PAYGO" rule, which stands for "pay as you go" and is pretty much what it sounds like: a rule that Congress must pay for its budget decisions as it makes them, rather than pass legislation that increases deficit spending on net. House Speaker Nancy Pelosi and the Democratic Party old guard want to resurrect PAYGO. The party's up-and-coming progressive wing — led by newly-sworn-in Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Rep. Ro Khanna (D-Cali.) — is opposed to the idea.

We can quickly dispense with the economic merits of PAYGO: they're essentially non-existent. Federal deficit spending is a positive good, at least whenever the economy is below full employment, which it basically always is. Setting that aside, the federal government also controls the supply of the currency, meaning a debt crisis is literally impossible. Federal deficit spending at the wrong time might increase inflation, but that's about it.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

There are actually two PAYGO rules. One is merely a point of order for Congress: an internal rule for how the legislature handles debate and what bills it brings up for votes. That's what the Democrats are debating. The other PAYGO rule is an actual federal law.

Both versions of PAYGO have been popping in and out of existence over the last few decades. The federal law was first established in 1990, then allowed to expire in 2002. Congress passed a new PAYGO law in 2010, which remains in effect today. Whenever Congress adjourns, if everything it passed in that session winds up increasing net deficit spending, federal law requires the executive branch to apply across-the-board spending cuts to balance out the numbers.

The congressional rule says that, in the course of its internal deliberations, Congress won't pass bills without making them deficit neutral. And each chamber — the House and the Senate — has its own version of the rule. In 2011, Republicans replaced the House's version of PAYGO with "CUTGO," which requires spending cuts to offset new spending increases, but doesn't require offsets for tax cuts. What Democratic leadership wants to do is ditch CUTGO and go back to the original PAYGO rule for the House of Representatives. The progressives would rather have neither.

That sums up the legislative technicalities. The politics of the PAYGO debate are just as puzzling.

Any federal law passed by Congress and the president can also be waived by Congress and the president. Any internal procedural rule Congress imposes on itself, it can also waive. And this has happened over and over with PAYGO. Versions of the rule were suspended to pass everything — from the GOP's 2017 tax cut package, to the 2012 extension of the Bush tax cuts, to the 2008 bank bailouts, and the Democrats' 2009 economic stimulus.

In other words, both parties are pure opportunists. They tend to pass the PAYGO rules either to concern-troll the opposing party when it holds the White House, or to prove to their own moderates that they're "serious" and "responsible." And both parties have temporarily waived the rules whenever they got in the way of big bills they wanted to pass.

That's the strangest part: The assumption that deficits are always bad, and "paying for" spending is always good, is already ubiquitous across both parties in Washington. As a result, in the unusual circumstance where a congressional majority is willing to pass a bill that's deficit-financed, there's also a congressional majority willing to suspend PAYGO pretty much by definition. Indeed, the Congressional Progressive Caucus straight-up said that Democratic leadership "have committed to us that PAYGO will not be an impediment to advancing key progressive priorities in the 116th Congress." As a result, the Caucus is going to go ahead and support the return of PAYGO.

Progressive opponents make the straightforward point that, even if the rule will be waived in practice, re-instituting PAYGO will make it at least marginally harder for Democrats to pass the big ticket items that are revving up their own base.

Notably, the Democratic Party old guard that supports PAYGO really hasn't bothered arguing for the rule on the merits. Instead, they argue it doesn't really matter, since the Senate still has its own PAYGO rule. Pelosi's office also offered a kind of 11-dimensional chess strategic justification: If Democrats don't impose PAYGO on themselves, and pass deficit increases, the federal PAYGO law will kick in. And it would direct Trump's Office of Management and Budget to impose mandatory cuts on a bunch of different programs, including Medicare, to offset the deficit increase. Democrats would like to avoid that — if offsets must happen, they'd like to make sure they take the form of tax hikes or spending cuts friendly to liberal priorities. The way to do that, Democratic leadership argues, is to pass the offsets themselves by adhering to their own congressional PAYGO rule.

Under that logic, the first goal should be to kill the federal law entirely, which would then make it safe to abandon the Congressional PAYGO rule. And the Congressional Progressive Caucus did say leadership will allow them to propose a bill to that effect. The real test of the leadership's good faith will be if they allow bills eliminating the federal law to move forward.

At any rate, it looks like Democratic leadership will be able to pass the PAYGO rule. The positive spin on the fight is that it's put the merits of the debate front-and-center like never before. But the darker interpretation is that resurrecting PAYGO will give Democratic leadership more centralized control over what bills make their way through the House. And that will allow the party's old guard to keep the rising progressive wing on a tighter leash.