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Obama Calls for PAYGO   April 25th, 2009
PAYGO means all new spending to be "paid for"       


More observations...

President Obama today called for a return to "PAYGO." "Pay as you Go" means that any new federal spending must be paid for by tax increases or by an equivalent reduction in spending elsewhere in the federal budget.

President Obama is looking to the past to help reduce growing federal budget deficits threatening the country's future.

In his weekly radio and Internet address Saturday, Obama called on Congress to pass a pay-as-you-go legislation, known as PAYGO, that would require new federal spending to be offset by budgetary cuts or tax hikes.

"We need to adhere to the basic principle that new tax or entitlement policies should be paid for," he said, asserting that PAYGO "helped transform large deficits into surpluses in the 1990s. Now we must restore that sense of fiscal discipline."

Of course, as I've often mentioned, there were no real surpluses in the 90's but rather that is just a continuation of the Myth of the Clinton Surplus. The "surplus" wasn't created by reducing spending or paying for spending with new taxes, but by raiding Social Security and other government trust funds.

Ignoring the urban legend of a federal surplus under Clinton, the problem is that if PAYGO is re-instituted as Obama is requesting, this will essentially require massive tax increases. If PAYGO was applied to the Obama stimulus package, federal taxes would have to be increased by $787 billion. Considering the estimated receipts for fiscal year 2009 are $2.7 trillion , an increase of $787 billion would require a 30% tax increase.

PAYGO is a good idea inasmuch as it makes sense that all spending should be "paid for" rather than charged to the federal credit card. However, with a president and Congress like we have now that are preparing to spend us into oblivion, all PAYGO does is demand tax increases. In effect instituting PAYGO would allow Obama to engage in new spending plans that would automatically require tax increases and Obama could say, "I don't want to increase taxes, but the increases are required by PAYGO." It'd be a weak argument, but an argument that would nonetheless provide some political cover to Obama among those that aren't entirely familiar with what's going on.

Consider that just last week Obama, after spending $787 billion on his stimulus bill and proposing an almost $2 trillion dollar deficit for FY2010, asked his cabinet to cut $100 million in spending . This was nothing more than a political joke. Asking for $100 million in cuts after passing and/or proposing about $2.5 trillion in deficit spending over the next two years was nothing more than an insult to the intelligence of voters. To put that in perspective, Obama basically has proposed spending a hundred dollars and then asked for half a penny in cuts. And now he's talking about fiscal responsibility with a straight face?

The reality is that the federal government is spending far too much already. It isn't a question of paying for the new spending--the truth is, we can't afford it. All we can afford is to reduce government spending, not try to increase taxes to keep up with growing government spending.

It is true that it is irresponsible to engage in all this spending and not "pay for it" since that adds to the national debt that we leave for future generations. However, it is also irresponsible to leave future generations with such a massive government bureaucracy that has to be paid for each year. An overwhelmingly large and expensive federal government is just as much a burden to future generations as a crippling national debt.

We don't need to pay for new spending. We need to stop the new spending!

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