Economic Effects of the Pay-As-You-Go Rule

Publication Date: March 2007

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Aviva Aron-Dine; Robert Greenstein

Research Area: Banking and finance; Economics

Keywords: Economic projections; Federal budget; Fiscal future; Tax code

Type: Report

Abstract:

Supporters of reinstating the PAYGO rule have argued that by containing the size of the nation’s budget problems, PAYGO will improve the long-term economic outlook, as well as the long-term budget outlook. Some opponents of PAYGO, however, contend that PAYGO instead would hurt the economy because it would block Congress from extending the 2001 and 2003 tax cuts without paying for them. For example, White House Office of Management and Budget Director Rob Portman has stated, “we think that if you apply [PAYGO] on the tax side, and say that you cannot extend existing tax relief… that could have a very detrimental impact on our economy…” This analysis compares the economic consequences of adhering to PAYGO with the economic consequences of extending expiring tax cuts without paying for them.