#PAYGO: The Austerity Trojan Horse Dividing Progressives and Democrats

Could the future of the Democratic Party rest in the hands on an obscure federal budget rule? Following two years under the Republican administration of President Donald Trump, which saw the GOP government raise the deficit by $1 trillion, House Democrats are surprisingly positioning themselves as the party of fiscal responsibility at the cost of their few populist positions which contributed to their taking back the House. 

As the 116th Congress of the United States begin their reversal of the president’s divisive agenda, new House Majority Leader Nancy Pelosi kept her campaign promise of restoring her 2007 “PayGo” rule, otherwise short for the “pay-as-you-go rule”, which previously meant all legislation increasing mandatory spending (such as federal entitlement programs or tax cuts) — which result in increases to the deficit over the next 10 years — must immediately include other budget cuts or tax increases to avoid deficit spending, which can only be waived with a majority vote.

The rule was quickly met with resistance from progressive politicians, such as Rep. Alexandria Ocasio-Cortez (D-NY), Rep. Ro Khanna (D-CA) and their political advisors, who argued to The Intercept and The Young Turks that such a rule would make it extremely difficult for Democrats to pass populist legislation the likes of “Medicare for All” to tuition-free public college to even tax cuts on the working class, because it ties the government’s hands to budget balancing when swift public investment in the economy is necessary, particularly during times of economic stagnation or downtowns.

“It’s just terrible economics,” Rep. Khanna tweeted, demanding his fellow progressives vote against the rule. “The austerians were wrong about the Great Recession and Great Depression. At some point, politicians need to learn from mistakes and read economic history. PayGo would be a terrible policy that unilaterally disarms the incoming Democratic majority’s ability to govern. Rather than pursue cuts to programs we support, we should stand on our principles and argue that our policies would lead to economic growth.”

“There’s an enormous appetite in the Democratic Party and among all Americans for major public investment to tackle our nation’s major crises: deepening inequality and structural racism and climate disaster,” added Waleed Shahid, the communications director for Khanna’s associate group Justice Democrats, in his recent public statement to The Intercept. “Pelosi and the Democratic Party leadership’s support of Paygo makes actually solving these crises all but impossible. The Democratic Party leadership is unilaterally disarming and shooting themselves in the foot.”

This framing isn’t inaccurate. It’s fair to say the House Democrats are trying to balance two opposing views, where a progressive agenda of deficit spending can somehow co-exist alongside fiscally cautious measures intended to avoid the mistaken spending of the GOP past. There’s nothing inherently wrong with demanding government maintain an accountable, balanced, democratized budget, though Pelosi’s rule could restrict Democrats to the political confines of the 2017 GOP tax cuts which didn’t even follow their own “cut-go” rule, the GOP’s 2011 replacement measure demanding any new spending could only be offset with budget cuts. 

Talk about a total reversal of what each of the parties represents. The improved rule does go back to the 2007 version, though further gridlocks Congress to where only “emergency” labeled economic stimulus packages, such as the one passed in 2009 by President Barack Obama, can bypass this process. Reestablishing PayGo also grants the executive branch further accountability to offset any violations. The Statutory Pay-As-You-Go Act, passed in 2010 under pressure from Blue Dog Democrats, allows the president to enforce across-the-board cuts should Congress violate the rule. Whether the president is willing to enact such a unilateral and unpopular policy, which isn’t uncommon for President Trump, would the GOP’s latest cross to bear.

“The message [Democratic leaders] are sending is that we as a party, Democrats, stand for fiscal discipline,” Stephanie Kelton, a progressive economist with Stony Brook University, said to Vox during the week. “What I hear is that Democrats are willing to prioritize budget outcomes over human ones. This is centrist policy at this point. This throws sand in the gears in the energy behind some of these [progressive policies].”

This isn’t to say the neo-liberals are caving to Republicans entirely. As noted by journalist David Dayen, a reversal of the Trump tax cuts alone could offer the government nearly $3 trillion in potential offsets simply by restoring corporate tax rates to previous standards under Republican Dwight Eisenhower, as well as a reversal on the inheritance/estate taxes, though enforcing hurdles just to spite the GOP is putting the cart before the horse if your true intention is a populist-left agenda only being met halfway. 

While Rep. Ocasio-Cortez can declare the policy “a dark political manoeuvre designed to hamstring progress on healthcare” on Twitter, her leadership in the progressive caucus, such as Rep. Pramila Jayapal (D-WA) secured waivers for their policies such as a Green New Deal and universal healthcare, which is an interesting deal considering no version of Congress has ever even raised a hearing on these issues. “We should first pass policies that have broad public support,” Khanna continued. “Then we can, in our conferences, make sure revenue is raised through taxing the one percent or cutting money for bad wars.”

With the Republicans in control of the Senate and the White House for the next two years, the Democratic party won’t be able to pass any legislation without serious across-the-aisle bipartisanship, though could hurdle politicians eyeing for a shot in 2020. As of now, progressives have been strategically maximizing their power through rules packages, committee appointments, and DNC reforms to best seize control under a new president. Could this be stifled by an inability to invest in new economic growth when their competition was given a blank cheque?

This isn’t just the opinion of a humble lefty newsman, but also the findings of the Economic Policy Institute which released a damning research paper which argues how the Obama administration could have increased their gains during the aftermath of the Great Recession if the PayGo rule didn’t impose unnecessary congestion, which would vindicate concerns of the anti-regulation crowd if they were actually principled. 

“It is terrible economics to view federal budget deficits as always and everywhere bad,” wrote report author Josh Bivens. “If … public spending following the Great Recession had followed the average path of the recoveries of the 1980s, 1990s, and early 2000s,” he continued, “a full recovery with unemployment around 4 percent would have been achieved by 2013.”

If this is the case under the worst economic period since the Great Depression, wouldn’t it make sense for Democrats and Republicans to seize on this potential economic capital? Is framing one another as the fiscally irresponsible, while ignoring such opportunity, irresponsible in itself? “It’s handing the Republicans a talking point every time we seek a waiver [to PAYGO],” Khanna concluded to Vox, citing the study. “We are stuck in their frame of trying to balance budgets. We need to speak the language of growth of progressive policies.”

Related News