Lawmakers have a hugely consequential fiscal decision in the next couple of days: what to do about the plan to eliminate the $1.7 trillion PAYGO bill that just got snuck into the continuing resolution. Never heard of it? You are not alone.
Theoretically, we should be hitting a huge sequester early next year that results from excessive government borrowing. Letting it hit would lead to such large cuts they actually cannot be implemented as designed, so something has to change.
But choosing simply to bypass the sequester as Congress is contemplating would be reckless given our overstretched fiscal condition. Odds are about 97% Congress chooses option two, as it routinely does.
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Nonetheless, with the country facing trillion-dollar interest payments annually, skittish Treasury markets, and fiscal warnings from everyone from the International Monetary Fund to CEOs of some of the largest companies in the world, now would be a good time to change that habit. The incoming administration is laying out some big plans for debt reduction; this would be the perfect place for at least a modest start.
The Statutory Pay-As-You-Go Act was designed to keep changes to revenue and mandatory spending programs from adding to the national debt. Discretionary spending is often limited by spending caps, as it is right now by the fiscal responsibility caps. Social Security is financed through a dedicated payroll tax and its own trust funds. And taxes and most automatic spending policies are governed by the basic principle that we should pay for new policies so they do not add to the national debt, which is what the pay-as-you-go requirements are constructed to enforce.
The process, however, is painfully complicated — as Congress is known to make things. Under the law, relevant legislation is tracked throughout the year with any deficit effects recorded on what is known as the PAYGO scorecard, and then, if at the end of the year the overall effect is to increase deficits over either a 5- or 10-year window, a sequester is scheduled to go into effect the following year. The sequester base is relatively small, consisting mostly of smaller mandatory programs such as farm subsidies, a small chunk of defense spending, and the Crime Victims Fund, among others. It also applies to up to 4% cuts for Medicare.
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One need only look at our exploding debt levels to know the restrictions have not been a success. Congress never lets the sequester go into effect, using a variety of methods from including a waiver along with the law (as it did with the CARES Act), to wiping the scorecard clean after the fact to (as it did on a bipartisan basis after the Tax Cuts and Jobs Act), to pushing the sequester into future years, which is what Congress has done with the American Rescue Plan every year since it was passed, which accounts for the bulk of today’s massive balance.
Even theoretically, there can’t be a $1.7 trillion sequester because the entire sequester base for the cuts is only around $200 billion. And even letting that size sequester hit would cut $45 billion from Medicare and another $155 billion from eliminating the other accounts. So that’s not going to happen.
And like clockwork, a plan simply to wipe clean the $1.7 behemoth is buried on page 102 of the just-released continuing resolution legislation to fund the government for another few months. I will bet you most congressional offices don’t even realize it.
Before Congress rushes to absorb this fiscal scam, it is worth considering how to create the opportunity for more sensible policies.
Let’s just start with baby steps. Instead of including this end-run, lawmakers should come up with a $200 billion package of more reasonable policies that both sides of have supported in the past such as reforming some types of Medicare payments, ending much-abused excessive employee retention credits, closing the electric vehicle leasing loophole, and extending Customs and Border Protection fees. They don’t need to do this now; they can do it in January along with the sequester deadline. If they were really bold, they could do a similar package each year until the $1.7 trillion were paid off.
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Too hard? They could extend the Fiscal Responsibility Act caps for a few more years. Or create a bipartisan fiscal commission. Or even just make an agreement to push the sequester one more time, but that between now and next year’s deadline, they will rebuild the sequester into one that is more workable and something by which they will abide.
And at the very least, they should plan to hold a separate stand-alone vote, rather than some dead-of-night cover-up, and go on record with what they are doing and include a plan for how they intend to do better next time. It is an embarrassingly small ask. No responsible lawmaker can cast a vote to waive what should have been well over a trillion in savings without acknowledging that something is going to have to change.
Maya MacGuineas is the president of the nonpartisan Committee for a Responsible Federal Budget.