Our Dear Leader recently announced that he was shocked by the budget deficits and couldn’t sleep nights thinking about it!  Perhaps sleeping pills are available in the new healthcare plan.  No, but I digress.  In order to begin to whittle away at this deficit, the president has resurrected the PAYGO rule that provides for any additional spending to be covered off by a reduction in another program.  Well, actually it assumes that you can either pay for your spending by reducing spending elsewhere or adjust tax policy to generate new revenue to pay for those same programs.  But of course this would not be a very effective sound bite in the press, so the president left that part of PAYGO go!

First enacted as part of the Budget Enforcement Act of 1990 (which was incorporated as Title XIII of the Omnibus Budget Reconciliation Act of 1990), PAYGO required all increases in direct spending or revenue decreases to be offset by other spending decreases or revenue increases. It was thought that this would control deficit spending. Direct spending largely comprises "entitlement spending," which means that a group of beneficiaries are entitled to a benefit and, without further legislative action, the government must provide that benefit -- hence it is considered to be "mandatory." Only by legislative action can the benefit be either expanded or reduced. In terms of revenue, PAYGO largely is designed to control tax reductions. If revenue is estimated to be reduced through a reduction in tax rates of any kind, that effect on the deficit must be offset either through increased revenue collection elsewhere, or spending reductions of the same amount.

So the president wasn’t quite complete in his pronouncement related to the revenue side of the equation as that would have raised the specter of new taxes and of course, he has promised that 95% of the people will see a tax cut under his administration.  But after everyone got that feel good moment over with, he announced that PAYGO didn’t apply to his healthcare initiative.  The fact that eighteen percent of the US economy is tied to our healthcare system seemed to require this exclusion and would have been inconvenient in limiting the president’s degrees of freedom in exercising his latest budget busting take over.  In fact, up until this point, we had not heard the CBO estimates of the congressional plan and the impact on the overall budget of the country.

Now we really need to understand how duplicitous this approach is in context of our own households.  This is like agreeing with your spouse that you will abide by a budget that balances your income against your spending and then going out and coming home with a new BMW 750 Li.  Of course it would be fun, but spending over $100,000 dollars might break the bank and besides – it doesn’t live up to the spirit of your agreement. What?

No, saying that you will pay as you go for all expenditures and then excluding budget busting initiatives that you want because, well you want them, is simply nonsense.  You can feel good about the intent but the result is still the same – budget deficits as far as the eye can see.  And of course, if you take PAYGO to its logical conclusion, there is simply insufficient discretionary spending and programs to cut to offset these deficits.  As such, those top 5% earners are going to have a lot of taxes to bear or just maybe, everyone will be required to ante up!   If you doubt this, just look at some of the ideas being floated to cover this staggering $1.6 trillion dollar program.

First, there is going to be some savings estimate in the current healthcare system that will generate positive cash flow to the government to cover this program.  Consideration is being given to taxing private health insurance benefits for those of us who have companies that provide this benefit.  And of course there will be mandatory participation with a premium paid for by every person, except those who are considered low income.  Oh, and the fact that forty-four percent of the population pays no income tax will simply offer another entitlement with little to no cost to this same group of people.  How much wealth redistribution can be accommodated before those who are productive and paying taxes begin to rise up and say no more?

So as we consider the implications of PAYGO, Obama-care and the deficit, just go back to that BMW dealer and tell them your budget excludes paying for that car because the rest of your budget is pay-as-you-go.  I can assure you, you probably won’t be GO’ing too long in that speedy new toy!  Just remember that old adage from your parents – do as I say not as I PAYGO!  On second thought, I think it was not as I do!  Well, this president has got that one down cold!