The Pay-as-You-Go Budget Rules
When a pay-as-you-go governmental budget is properly implemented, it can accomplish two things. The first is that it prevents an expansion of the federal government. It also is vital in maintaining a handle on the federal budget deficit. Naturally, for a pay-as-you-go (or PAYGO) budget to succeed, measures need to be in place to enforce the rules.
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History
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The federal Budget Enforcement Act of 1990 created the pay-as-you-go budget and was the law for a time. From 1990 through 1997, the pay-as-you-go budget system was successful. In fact, it was so successful that 1998 brought about a surplus. Fiscal year 2002 saw the expiration of the law. A new version was implemented in fiscal year 2008, but unlike its predecessor, this version was not a law. Rather, it was simply a series of rules that can be overridden in either the House of Representatives or the Senate.
Exceptions
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Critics of the pay-as-you-go plan point out that there are exceptions to the rules, particularly in the area of tax cuts. This means cuts put into place in 2008 can remain in place, even though there are no areas in the budget to pay for them. Trying to remove the tax breaks would be extremely difficult and could negatively affect the economy.
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Tax Cuts
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Part of PAYGO highlights the issue of tax reductions. Tax cuts are designed to help businesses or individuals by taking less money from them. Unfortunately, this affects the budget. If less taxes come in, the budget ends up out of balance. With PAYGO in place, however, tax cuts in one area mean reductions in spending are needed in another area. If there is a tax incentive for a business that results in a tax reduction of $10 million, spending will need to be reduced by $10 million. This illustrates why PAYGO budgeting forces the lines of communication to be open when lawmakers prepare a budget. Without enforcement of the rules, however, there is no method to ensure that the budget remains balanced.
Unexpected Events
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While a PAYGO budget works well in theory, budgets do not operate in a vacuum. A budget might be in place in a pay-as-you-go situation, but if an unexpected event occurs, it can cause the entire budget to be thrown askew. For instance, if a war breaks out during the budget year, its cost will directly affect the budget.
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References
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