In order to understand the conflict, which seems on the surface quite simple, you have to understand a bunch of things about Congressional process and budgeting. So let’s start with PayGo itself. What it is? #PayGo stands for pay as you go budgeting, a concept that in theory mean that bills Congress pass need to be deficit neutral. That is, each proposed program or law, if it costs money, should also bring in an equal amount of money through either taxes or other budget cuts. This is what’s known among centrists in Washington, D.C., and frankly among most Americans, as ‘fiscal responsibility.’ A balanced budget by the government requires that you bring in as much as you spend.
Well now that I’ve gotten through the basics, here’s what the fight is about. In 2010, the Obama administration and a Democratic Congress passed a law to ensure Congress would be ‘fiscally responsible. Nancy Pelosi was the Speaker in 2010 when Congress passed the statute, and she is proud of being fiscally responsible. This law says that if Congress doesn’t go through a PayGo process for its aggregate spending and taxing in the full fiscal year, the White House’s Office of Management and Budget gets to choose a bunch of programs to cut in a process known as as sequestration. Sequestration is in law. It was a law that sort of made sense at the time, because Obama was President and Democrats didn’t so much mind if a Democratically controlled OMB got to make a bunch of important decisions. But guess what? Trump is now President, which means he’s the one that gets to decide the cuts that happen if Congress doesn’t use a PayGo decision-making process.
Here’s the relevant statute.
If the annual report issued at the end of a session of Congress under subsection (a) shows a debit on either PAYGO scorecard for the budget year, OMB shall prepare and the President shall issue and include in that report a sequestration order that, upon issuance, shall reduce budgetary resources of direct spending programs by enough to offset that debit as prescribed in section 6.
To conform to this law, the House had a rule to emphasize the importance of fiscal responsibility. Rules are different from laws. A law is (usually) a statute that applies to society and must be passed by both houses and signed by the President. A House rule is the mechanism by which the House itself operates, kind of the rules by which you run a meeting (like Roberts Rules of Order). Each body of Congress has its own internal set of rules. For instance, you may have heard of the filibuster in the Senate — that opportunity to block legislation with a small number of votes is a result of a Senate rule, and those rules are rarely changed. House Rules are very different. They are set by majority vote, and can be changed at any time.
The Republicans had a House rule similar #PayGo, but it’s called #CutGo. This rule said essentially that you can never ever raise taxes, and that all new spending has to be offset by other spending cuts. In 2018, Nancy Pelosi and House Democrats said they wanted to emphasize that they, unlike Republicans, were fiscally responsible. So she pledged to go back to the #PayGo rule, both to conform to the 2010 statute and because she’s proud being “fiscally responsibility.” She made another change to emphasize that Democrats, unlike Republicans, were friends of the people. The Republicans had a rule saying that a tax hike required not just a majority vote of House members, but a 60% vote. Pelosi said she would change this rule, and make it apply only to tax hikes that hit the bottom 80% of the taxpaying public. The middle class isn’t going to have their taxes raised under the Democrats! Or so the thinking went.
So that’s where things stood until progressives got involved. We have a law we can’t change without the House, Senate, and the President agreeing. But we also have a rule that the House majority can itself change at any point.
Now this is where it gets a bit weird. You see, the House has a rules package at the beginning of its session. But it also changes its rules pretty much every legislative day through what’s called the Rules Committee. Every time the House puts forward a bill to vote on the floor, it has to first vote on a rule for that bill. Floor time is extremely valuable, because you need floor time to pass a bill. Rules structure how floor time is used, and every rule must go through the Rules Committee. A typical House rule will say ‘here’s the bill that’s being voted on, here’s who gets to talk on the floor, here are the amendments that get a vote, here’s how much time to dedicate, etc.’ But a House rule can also change or waive any other rule at any point, including rules put forward at the beginning of the House term, like #PayGo. The Republicans, for instance, waived their #CutGo rule to pass the Trump tax cuts. And rules are routinely waived or changed when there is legislation for ‘emergencies,’ like war, bailouts, disaster relief, or anything else Congress dubs an emergency.
So in reality, anything put forward like PayGo is basically symbolic, and all that really matters is who runs the Rules Committee and what he/she had for lunch that day. The Rules Committee used to be nicknamed the “Speaker’s Committee,” because the Speaker stacks the committee with his/her cronies so he/she can control what’s voted on. The head of rules is Jim McGovern, a close ally of Pelosi and a guy with a generally good reputation. McGovern hates PayGo and is in the progressive caucus. But the argument is that if you get rid of PayGo outright without getting rid of the 2010 law, then this automatically kicks sequestration budgetary cutting authority to Trump. If you keep PayGo but just waive it on every bill, then that authority doesn’t go to Trump. (See the update at the bottom for more on this)
Still, a House Rules package that has a PayGo provisions has some meaning, even if it isn’t formally very important. Congress has strong institutional norms, so if you do something one way it establishes a precedent and people generally like to follow precedent so they know what to expect. If PayGo weren’t challenged, House Dem leaders could always just say about laws that aren’t deficit neutral ‘well that increases the deficit and you know how we think about the deficit.’ And that would be the end of that, even if PayGo could be waived in Rules at any moment. On the other hand, if McGovern starts waiving PayGo in Rules, then that becomes the precedent, and everyone will expect going forward that PayGo will just always be waived. It may still be in the House Rules formally, but it’s a dead letter in reality.
What I don’t know are the contours of what McGovern promised, except that ‘progressive priorities’ would not be subject to PayGo rules. Does that mean every bill? Just big ones? Noncontroversial unanimous bills that fix small things but no one cares about? It’s not clear. But then again, the reality here is that it is very unusual for a process reason to stop a bill. Process rationalizations like PayGo are basically only used as political cover.
The Ideological Problem with Fiscal Responsibility
This brings me to part two of this blog post, which is the ideological problem with how we frame fiscal responsibility. In theory, Congress judges whether a bill will cost more than it brings in. But how do we actually know that a bill actually brings in money or costs money in the future? We don’t, because we can’t predict the future. So how does Congress handle this uncertainty? Well, in 1974, Congress hired a bunch of economists at what’s called the Congressional Budget Office to make these projections and evaluate each piece of legislation. CBO is nonpartisan, so in theory, and if the economists had good models, this would seem to solve the problem. Right? Well not exactly.
First of all, CBO is wrong quite often. That’s just life, predicting the future is impossible. Some estimates are better than no estimates, right? Well, once again, not exactly. CBO is wrong in dangerous ways. CBO is full of neoclassical economists, who are basically people trained in doing econometric models using quasi-libertarian assumptions. When they ‘score’ a bill what it means is they are making a long-term guess about the revenue and spending impacts of a piece of legislation. But these determinations — and errors — are highly political. Goldman Sachs’s chief economist is an advisor to CBO. So is that of hedge fund D.E. Shaw. So are executives of bunch of health care corporations. These people have a formal role as a choke point in our legislative process as a sort of ‘voice of God’ telling elected leaders what the costs and benefits of proposed legislation is, even though those costs and benefits are arbitrarily selected based on hidden political assumptions.
Here’s a real tangible error that caused long-term harm. CBO had been making an ideological assumption about monetary policy that since the financial crisis the interest rate paid on Federal debt would return to 5%. But the interest rate stayed at 1–2% for almost a decade. This doesn’t sound like a big deal, except that this assumption made progressive spending seem far more costly than it turned out to be. This has sort of changed as CBO noticed they were catastrophically wrong for years, but that doesn’t repair the damage. Another example is the CBO determining that banking deregulation bills are costless because they don’t have a model for calculating the cost of potential massive bailouts down the right. This is dangerous, and allows people to move legislation that is effectively spending via gambling with a government backstop without having to account for its very real cost. So when you hear something is ‘fully paid for’ just know it means that an economist with a bad model made a guess and is probably wrong.
But even more fundamentally, why do we care about whether a budget is balanced? We didn’t really have this weird fetish over deficits and an accumulating national debt until the 1970s. Until 1974, the House spent money through one committee (Appropriations), and brought in money through a different committee. (Ways and Means). If the government spent more than it taxed, it had to borrow money by issuing debt. If it spent less than it taxed, it retired debt. This debt is managed by a combination of the government’s Treasury department and the government’s bank, which is called the Federal Reserve. The Federal debt is older than the Constitution, so if there are long term problems they haven’t shown up in 200+ years.
So why do people play this game of saying ‘we must reduce the deficit?’ Well that’s an ideological question more than anything else. You might hear that America could go bankrupt, but that is a ridiculous notion. We owe dollars, mostly to ourselves, and we print dollars. America can no more run out of dollars than a bowling alley can run out of strikes.
It gets even more ridiculous when you start to think about what public debt actually is. Look in your wallet and take out a twenty dollar bill. To you, that’s a bunch of money. It’s an asset that you can spend on stuff or use to pay your taxes. But if you look closely, the bill itself is inscribed with an expression meaning that it is an obligation from the Federal government to the holder of the bill. Yes, that $20 bill to you is a $20 piece of Federal debt. And it has value to you precisely because it is an obligation of the Federal government. There’s trillions of this stuff, in bonds and bills. In fact, the only real difference between a ten dollar bill and a ten dollar bond is that the bond pays an interest rate. Printing money and/or issuing debt is actually super useful for people who need to pay for things in dollars, which is all of us. So saying we have to reduce the debt is dumb for all sorts of reasons. Maybe we do, maybe we don’t, but it’s just a question of whether there’s enough money in circulation and since we’re growing all the time we ought to be printing money all the time.
In other words, money is a made up political commodity. This is a huge deal, and it’s something that fancy people in suits spend a lot of time trying to lie to people about. Because if the truth were to come out that ‘balancing the budget’ is just cover for letting neoclassical economists have a choke hold on how our democratic institutions operate, then the people themselves might want to spend some of it on things like health care or nice things for themselves instead of the wars and bailouts that are somehow always emergencies and exempt from these PayGo rules. Hmm.
So why does Nancy Pelosi want to retain PayGo rules? I don’t really know. I think that a lot of if is her reading of that 2010 statute, and a leeriness of Trump grabbing power and just doing sequestration. But I also suspect it’s ideological. In 1974, as part of the neoliberal revolution, Congress created CBO and the modern budgeting process. (This gets to a rule of thumb I have, which is that everything bad started in the 1970s.) The idea was anti-democratic to its core, based on an assumption that elected leaders must defer to the adults in the room, in this case the very serious economists who understand numbers unlike those fuzzy headed politicians.
Nancy Pelosi, like generations of Democrats before her and including Barack Obama, Bill Clinton, Steny Hoyer, and even some on the left, have a strange allegiance to this school of thinking. Democrats from the 1970s to the early 2000s think that the budget deficit is a report card in which the adults give them good or bad grades. It’s weird and dumb but no one will straight-up just say ‘we can print dollars’ but actually we can and we do all the time.
This isn’t just crazy, there’s a good reason behind it. In the 1990s, balanced budgets seemed to work really well. The Federal government had surpluses, and the economy was awesome (well not in rural America, but ignore that since Democrats always do). Finally, the promise of the 1970s — that if we balance the budget we get a great economy — was here. Pelosi and a generation of Democrats are extremely proud of this moment, and they want to revisit it. Now it wasn’t actually the surplus that caused the underlying economic boom of the 1990s, that boom was caused by a bubble similar to that of the 1920s (which not coincidentally also saw budget surpluses right before a big crash…). But we’ll leave that aside.
The bottom line is, the reason very serious people say we must reduce the deficit is to limit the ability of democratic institutions to make choices over political economy. This is the real function of the Congressional Budget Office, and the real point of PayGo. People like Pelosi, who means well, saw this recipe deliver real wage gains in the 1990s, and so she buys into it. It’s not a crazy theory. It’s wrong and anti-democratic, but not crazy and not borne of ill-intent.
There’s an additional reason why people — not just political leaders — like balanced budget thinking. It frees us from responsibility for making decisions. Just like the ‘independence of the Federal Reserve,’ we can choose to get rid of our obligations as citizens in a democracy if we say that the hard stuff should be determined by men in suits who don’t have to answer to voters. If however we choose to ignore the men in suits, then normal people have to make decisions about trillions of dollars, and wielding power is scary. That’s democracy, but it’s scary. Since the 1970s, Democrats have believed that it is inappropriate for normal non-fancy people to wield real power; normal people can be ornamental elected officials and argue about social questions, but real decision-making about power should be done by businessmen, generals, economists, and so forth. Progressives have largely gone along with this. Progressive members generally went onto committees in Congress that don’t deal with ‘hard’ subjects like money, banks, guns, or spying. They want to go onto committees that address health care, education, kittens, and hugs. This is a subtle deference to power, and it’s an ingrained culture habit.
But that’s the old way of thinking. When Pelosi announced her intention to re-implement PayGo, there was a revolt. This flashpoint has become about more than just about a symbolic House Rule. Pramila Jayapal and Mark Pocan, who are the heads of the Congressional Progressive Caucus, which is the left-wing part of the Democrats, asked to remove the #PayGo provision from the House rules package. But they also asked for certain committee assignments for progressives on important legislative committees — the ones having to do with guns, money, and war. And they asked to remove the provision that required a 60% threshold to raise taxes.
Pelosi isn’t a deep thinker, and neither are most of these leaders, so they don’t question the deficit mania orthodoxy they grew up with in the 1970s. But Pelosi is also a deal-cutter, so she’s willing to basically let PayGo become a dead letter if not remove it from the House rules entirely. She conceded to Jayapal and Pocan. She offered them slots on important committees, and got rid of the 60% threshold rule on tax hikes. Jim McGovern promised to waive PayGo in the Rules Committee when bills go to the floor. So any symbolic power PayGo has is gone, and it will likely be removed next Congress.
Some people think McGovern might be lying. He’s not. Despite politicians having reputations as dishonest, most usually don’t straight-up lie, they dissemble. And they rarely lie to each other. If McGovern wanted to stop Medicare for All, he can come up with many excuses to do that, including “I’m the head of the Rules Committee, the answer is no.” That’s good enough. So he isn’t lying because he isn’t a liar, but also he doesn’t need to lie.
So the rule is probably meaningless. But that doesn’t mean the fight is over. Because the 2010 law is still on the books, and it cannot be removed by just the House rules package. Jayapal and Pocan have pledged to work on a law to get rid of that (and I’m told they introduced one today). Anyway, that’s where things are. Progressives pretty much got what they wanted. There were a number of political leaders saying ‘hell no vote against the PayGo rules’ and a number of pundits encouraging this fight. I can’t say it’s wrong, since attacking budget balancing orthodoxy is useful. But I will note that it’s a bit of a misplaced focus. Take yes for an answer and move on to the next fight.
That next fight is both repealing that 2010 law, and restructuring CBO so that it is no longer a weird power center floating in Congress with veto power but no accountability to elected leaders. But that’s for another day.
UPDATE: The argument from Pelosi’s staff is that the 2010 statute requires PayGo rules in the House or else the sequester authority passes to Trump’s OMB. I’ve made calls and reread the statute, and I don’t think this is true. First of all, nothing in the statute says anything about House Rules, though there is something in there about needing a determination from the heads of the different budget committees. Second of all, the sequesters are fairly automatic, so Trump doesn’t have much discretion on what to cut (though I’m not as sanguine on Trump adhering to laws as some of the people who have explained this to me.) Third, the only thing that you really need to do deficit spending is a waiver on the PayGo law, which are always a part of negotiations for new taxing and spending laws.
The charitable reading for Pelosi is that having PayGo in the rules is a reminder on every bill that eventually spending that isn’t budget-neutral or emergency spending or otherwise doesn’t have a waiver will cause a sequester at the end of the year. The Republicans, for instance, just forgot about the PayGo statute when they passed their 2017 tax cut and had to scramble to negotiate a waiver. The uncharitable, and frankly more likely reading, is Pelosi just wants PayGo in the House Rules for ideological reasons. Steny Hoyer and Pelosi are emotionally quite attached to ‘fiscal responsibility.’
Either way, this doesn’t really change my analysis, because Pramila and Pocan did get a deal to waive #PAYGO, and the ideological debate is what matters. It’s not like anything is going to be held back because of #PAYGO, that has always been purely a political cover. But opponents of the Rules package had a right to say that it was intrinsically problematic.
There is one scenario in which this #PAYGO House rule makes sense, and that it the following. On every bill, the minority party has the right to offer what’s called a “Motion to Recommit,’ which is essentially a policy that is hard for the majority party to vote down. The GOP used this effectively from 2007–2011 by putting up MTRs that conservatives Dems wanted to vote for. Without #PAYGO, the Republicans can offer MTRs which are unpaid for tax cuts, and a bunch of Dems will want to vote for those. With #PAYGO, those MTRs would be out of order. There are reasons this is a bit silly, like the Dems could pass #PAYGO just for MTRs, but as you are now able to tell, Congressional process is an endless series of annoying procedural spats masking what are political decisions.