In the first outline of the legislative agenda House Democrats would pursue if they take the majority in November, Minority Leader Nancy Pelosi has made the public a big promise, vowing to handcuff her party’s progressive ambitions, including in the event that a Democratic president succeeds Donald Trump, by resurrecting the “pay-go” rule that mandates all new spending is offset with budget cuts or tax increases.
Along the way, she is playing into the hands of Republican strategists eager to warn voters that Democrats’ top priority is raising taxes.
Forcing budget offsets for every piece of legislation would make it more difficult for Democrats to pass a host of liberal agenda items, from “Medicare for All” to tuition-free public college. It continues a trend of Democrats caring far more about deficits than Republicans, constraining the activist impulses of liberal policymakers while giving conservatives free rein to blow giant holes in the tax code.
According to Axios, Pelosi “is committed to reviving” pay-go, which she instituted as a standing rule upon taking over the House in 2007. Though she waived the rule to pass the economic stimulus bill responding to the Great Recession, most of the other major legislative initiatives of the early Obama era — including the Affordable Care Act — were paid for. In 2010, Obama took this even further by signing the Statutory Pay As You Go Act. It enables presidents to enforce across-the-board cuts if Congress violates the rule.
When Republicans took over the House, they changed pay-go to “cut-go,” applying offsets only to spending instead of tax cuts, mandating that spending must be offset with budget cuts instead of tax increases. That still left the statutory law, which retained those aspects, but Republicans waived it for the Trump tax cuts. The move was a formalization of the trend: Deficit fears stop Democrats from moving forward on social programs, while Republicans plow ahead with tax cuts when they get to power.
Pelosi’s planned legislative package for the beginning of a potential House takeover would include establishing ethics and lobbying reforms, lowering the costs of health insurance premiums and prescription drugs, and spending $1 trillion for infrastructure investment. The latter two would cost money, and under pay-go it would all have to be offset.
That’s not necessarily a problem — liberals have plenty of ideas for how to raise revenue. But it puts them in a box, having to propose tax increases that Republicans gleefully broadcast. Meanwhile, Republicans, unconcerned with deficits, get to play Santa Claus, without having to match tax cuts with anything unappealing.
Sen. Brian Schatz, D-Hawaii, resisted this dynamic in March when introducing a debt-free college bill, saying, “I don’t play the pay-for game. … I just reject the idea that only progressive ideas have to be paid for. We can work on that as we go through the process, but I think it’s a trap.” Under Pelosi’s standard, that trap would be set as a matter of House rules.
Progressives have grown incensed by Pelosi’s insistence on budget neutrality. “The pay-go thing is an absurd idea now, given the times and given what’s already been done to curry favor with corporate America,” Rep. Raúl Grijalva, D-Ariz., said to The Hill in June. He argues that, unlike Republicans who are happy to cut taxes by $1.5 trillion without offsets, Democrats would try to solve nagging problems with unnecessary shackles. Grijalva called it “irresponsible to try to tie up Congress’s ability to respond to economic downturns or, in the current discussion, to slash programs.”
A new vanguard of economists in Washington, including former Bernie Sanders staffer Stephanie Kelton, has argued that under modern monetary theory, public spending is only constrained when the economy is running at full capacity and inflation starts to rise — which is not remotely the case today. Public deficits, she points out, are just another way of talking about private surpluses. She has warned of the dangers of balanced budgets that take money from the hands of ordinary people, and has made some headway inside Washington. Kelton has been involved in strategy sessions with Senate Democratic Leader Chuck Schumer, D-N.Y., and remains close to Sanders, who would chair the Budget Committee if Democrats take the Senate. But Pelosi has been unmoved.
In a statement, Kelton said that “pay-go is a self-imposed, economically illiterate approach to budgeting.” Republicans, she said, know this, which is why “they have unabashedly used their power to expand deficits and, hence, deliver windfall gains for big corporations and the already well-to-do.”
She continued, “Instead of vowing budget chastity, Democrats should be articulating an agenda that excites voters so that they can unleash the full power of the public purse on their behalf.”