The Importance of PAYGO

The Wall Street Journal reports that a package of tax extenders might have a harder time getting by the PAYGO regime. Since the planned offsets were used up in the recent state aid package, Congress will need to find another way to pay for them.

The offsets, mostly involving changes to the foreign tax credit, would have been used to pay for these tax extenders, tax expenditures that are temporary but are routinely extended. The R&D credit, for example, is a "temporary" credit that was put in place during the first Reagan tax cut in 1981.

While it has been argued that giving tax expenditures sunset dates would force lawmakers to look more carefully at them when they came up for extension, that has not been the case in practice. But now with statutory PAYGO in place, legislators have to determine whether it's worthwhile to use up offsets on these tax breaks. Some of the extremely low hanging fruit has already been used on the the aforementioned state aid package, the HIRE Act, and an unemployment benefit extension enacted last November. It's possible the Senate will determine that the offsets will cut too deep and that they are not worth sacrificing for the extenders.

That's perfect.

This is exactly how budgeting is supposed to work. It's all about trade-offs and priorities. If a program or a bill is important, then it should be paid for with less prioritized spending programs or with tax increases. We had none of this in the past decade and the result was clear: numerous deficit-exploding bills and an out-of-control budget. 

This minor tax extender episode demonstrates the importance of a strong PAYGO system. It forces us to take a look at different programs and tax breaks and see what's worth keeping around and what can be "sacrificed" to pay for something else. Granted, this PAYGO system did allow for unpaid stimulus spending, but that means we should strengthen it, not write it off. It is an important tool for making government actually budget, instead of deficit-finance everything.