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In February 2010, then-President Barack Obama touted his new pay-as-you-go budget law.
“You can’t spend a dollar unless you cut a dollar elsewhere. This is how a responsible family or business manages a budget. And this is how a responsible government manages a budget, as well,” he said in a weekly White House address explaining the law.
Capitol Hill Democrats, as well as Obama’s Democratic successor in President Joe Biden, are finding out this week how tough that idea can be though, waiving the requirement in the House and hoping Republicans won’t play hardball on it in the Senate.
At issue are potentially significant cuts to Medicare and other government entitlement programs that would be triggered because of the passage of the $1.9 trillion stimulus plan earlier this month. Because that bill did not contain offsetting spending cuts or tax hikes, which would have run contrary to Democrats’ intent to goose the economy, $36 billion in cuts will come from Medicare alone in 2022 unless the waiver is passed.
The House approved the waiver Friday on a 246-175 vote, which saw 29 Republicans join Democrats to pass it. Its fate in the Senate, where Republicans can stop it from coming to a vote by threatening to filibuster it, remains less clear, as Republican Leader Mitch McConnell has yet to state a position.
The irony is both the fiscal stimulus – which passed with only Democratic votes – and the 2010 pay-go law were Democratic priorities, though at different times and in different circumstances.
“Faced with a crisis, Congress must have the flexibility to respond. There is no question that the crisis we face now with COVID-19 and the need to build back better from this pandemic is precisely the kind of emergency that pay-go proponents had in mind then and still do now,” said House Majority Leader Steny Hoyer said Friday in urging the House to approve the waiver.
“My guess is the President is probably not going to be bragging to seniors he meets on the road that he signed into law a bill that threatens cuts to their health care,” said Rep. Jason Smith, the ranking Republican on the House Budget Committee.
The 2010 law set up five- and 10-year “scorecards” where the cumulative deficit impact of laws passed each year by Congress are maintained. A positive balance – an increase in either of the two scorecards – triggers an across-the-board spending cut the next year. That can be avoided, though, by waiving pay-go for legislation that created the balance or simply resetting the scorecards to zero.
The pay-go law – which differs slightly from House and Senate rules also requiring pay-as-you-go financing – was created at the same time as the Simpson-Bowles budget commission as part of an effort by Obama and Democrats to respond to Republican criticisms of the rising national debt. At the end of February 2010 the public debt was almost $8 trillion, versus about $28 trillion now.
Pay-go doesn’t solve underlying budget problems and with lawmakers willing to waive it, its bite is even less fearsome, critics say.
“Notice that adherence to pay-go does not solve any budget problem; pay-go can only stop existing budget problems from getting worse. But Congress cannot avoid spitting the bit on pay-go, so the problem always gets worse,” said Douglas Holtz-Eakin, president of the conservative American Action Forum in a recent newsletter.
Waiving the pay-go law often has bipartisan support, in part because of the popularity of Medicare and lawmakers’ fears that a vote against a waiver will be described as a vote against Medicare. In 2017, Republicans needed a waiver to keep their $1.9 trillion tax cut from also triggering Medicare cuts, to which Democrats agreed.
Both the 2017 tax cut bill and the latest fiscal stimulus bill were passed using a process called budget reconciliation, which allows bills to clear the Senate with 51 votes. But because that process prohibits anything in those bills that doesn’t have a budget effect, pay-go waiver language can’t be included. Hence the need for a follow-up fix.
Medicare cost about $776 billion in 2020. The waiver bill would save $36 billion in cuts from pay-go as well as another estimated $10 billion in cuts under a 2011 budget law pushed by Republicans. The latter cuts were delayed last year because of the pandemic and are supposed to go into effect in April unless waived again.
Democrats, who supported the pay-go waiver in 2017 even as they opposed the tax cuts, hope Republicans will go along with them this time, even though Republicans opposed the latest fiscal stimulus.
“When Republicans used reconciliation to pass tax cuts for the rich, Democrats voted with them to avoid sequestration and protect Medicare and other programs despite our strong opposition to the Tax Cuts and Jobs Act,” said House Budget Chairman John Yarmuth.
“This legislation should have the same outcome, but if Republicans play political games and don’t do their jobs, Medicare and the seniors that depend on it will pay the price.”
