October 22, 2014

PAYGO

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Pay-as-you-go (PAYGO) is a budget process concept holding that any legislation to lower revenues or expand entitlement spending be offset with corresponding revenue increases or entitlement spending cuts. The current statutory PAYGO law was enacted in 2010 and provides for violations to be enforced through cuts in non-exempt spending programs.

While PAYGO is not a deficit reduction tool, it does encourage policymakers to stop digging the hole deeper. By requiring anyone proposing tax cuts or entitlement expansions to answer the question: “How would you pay for it?” -- PAYGO forces an explicit trade-off between spending, taxes and debt, which is exactly the priority setting exercise that the budget process should facilitate.