Shortly after the newly Democratic-controlled House was sworn in on Thursday, it held a vote on what rules it wants to play by. Among those rules was one known as “pay-go,” short for pay-as-you-go, requiring any legislation that would increase government spending to also include equal tax increases or budget cuts elsewhere to make up for it. Essentially, it indicates that Democrats put a high priority on keeping the deficit where it is, even as they try to increase government resources in desperately needed areas like infrastructure or health care.
It’s true that the rule can be waived at any time by a majority of lawmakers, or overridden if legislation is designated an “emergency,” allowing big-ticket items to come to the floor for a vote. There is also already a statutory version of pay-go on the books, making the House rule more symbolic than anything else. But therein is the problem.
The pay-go rule gets both politics and economics wrong, and it sends exactly the opposite message that Democrats should be trying to send as they hold a majority in the House for the first time in eight years.
The new House is one with tons of fresh blood and fresh ideas — the average age of all its lawmakers just dropped 10 years, after all. Members are calling for serious consideration of everything from a Green New Deal that would address climate change and create thousands of jobs to “Medicare for all” to give all Americans government-provided health insurance. Those kinds of plans require serious government investment.
No one cares about deficits. Not voters. And certainly not Republicans, who chose to increase the federal deficit steeply with their signature tax cut package.
Having to cover every single cent of such investments either with spending cuts or new taxes is both unnecessary if they’re going to expand the economy in the long run and also almost impossible to pull off politically. Government investment in the right areas — better health care, functioning infrastructure, good education, a quality start in life for all children — is worthwhile, and pays later dividends even if it requires significant upfront outlays. As Josh Bivens, director of research at the Economic Policy Institute, wrote, “It is terrible economics to view federal budget deficits as always and everywhere bad.”
Shelling out lots of government funds on unproductive uses (one could argue that tax cuts that overwhelmingly flow to the wealthy fit such a bill) without offsetting them can, indeed, hamper the economy in the long run. But it’s not a strict rule to be observed in all cases. And it makes little sense for Democrats to force themselves to pay for their priorities upfront when Republicans have rarely deigned to do the same.
Seemingly everyone but Democrats knows this. They are missing the bigger picture: No one cares about deficits. Not voters. And certainly not Republicans, who chose to increase the federal deficit steeply with their signature tax cut package and also voted later to waive the pay-go rule that would have required spending cuts to offset their legislation. (Republicans also waived pay-go to pass tax cuts without paying for them in 2001 and 2003.)
While progressive leaders are promising that lawmakers will waive the pay-go rule when they consider their marquee plans, it’s not a given, which means Democrats just erected a hurdle in front of their own supposed priorities. Just the fact that it has to be waived in the first place creates the perception that they’re making some sort of exception from a baseline expectation to stay away from anything that might increase net government spending.
Perhaps more pressing is that if the economy enters a tailspin, pay-go promises to hamstring any recovery. It’s impossible to know exactly how the economy will perform this year, but there are troubling signs: a sharp slowdown in recent factory growth, for example, and stock market jitters that have some basis in reality given trade wars and China’s economy starting to cool. A recession will come eventually. And when it comes, Congress will need to respond.
The last time we faced a severe recession after years of deficit fearmongering on both sides of the aisle, the 2009 recovery package was far too small and austerity measures were implemented far too quickly afterward, hamstringing our ability to bounce back as quickly as we could — and should — have. We’re still living with the consequences: lower than expected pay growth, and a job market that should have been more favorable to workers years ago. A pay-go rule not only ties Democrats to the wrongheaded idea that government spending should always be offset by cuts or tax increases, making it harder to get the right size of recovery package through, but then stands in the way of later efforts to infuse government resources into a still suffering economy.
The last time we faced a severe recession after years of deficit fearmongering on both sides of the aisle, the 2009 recovery package was far too small and austerity measures were implemented far too quickly afterward.
Democrats just rode back to power in the House campaigning not to tighten the government’s belt, but to think big about what government can do to help everyday Americans. Americans seem keen on government actually doing something about stagnant pay, devastating climate change, worsening inequality, and deep structural fissures like racism and sexism. It’s much harder to adequately address today’s challenges with a budgetary hand tied behind your own back.
So it’s puzzling that Democratic leadership watched the last three years and came away with the lesson that they need to spend time and energy demonstrating that they’re not so-called tax-and-spend Democrats. The fact that three members, Alexandria Ocasio-Cortez, Ro Khanna and Tulsi Gabbard, voted against the rules package because of pay-go, and that progressive leaders Pramila Jayapal and Mark Pocan have promised they’ll introduce a bill to undo it entirely, is at least a good sign that not everyone is willing to go along with that notion and will stand up for the need to spend government resources on large-scale problems.
But that there was a fight over this at all at the very outset of the new Congress is a worrying sign of where some Democrats stand on the economy and what they think voters want. Republicans still control the Senate and the White House, so bold progressive priorities won’t become reality anytime soon. Now is the time to have debates over what Democrats should do if and when they have more power, and our times call for big ideas. They don’t call for tepid steps held back by misguided austerity.
Bryce Covert is an independent journalist writing about the economy. She is a contributing op-ed writer at The New York Times and a contributing writer at The Nation.