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What Every American Needs to Know About the Congressional "Pay-For" Game (Part 1)
I know this game. I watched it from the inside.
Back in 2015/16, I served as chief economist (minority staff) on the U.S. Senate Budget Committee. I sometimes helped draft legislation that staffers would then take to other Senate offices, looking for co-sponsors or a commitment from other Senators to vote for the bill. Inevitably, the conversation would go something like this:
Staffer A: “Senator ______ is dropping a $1 trillion infrastructure bill next week, can you get your boss to support it?”
Staffer B: “What’s your pay-for?”
That’s a real exchange from my time in the Senate. Most staffers can tell you right away whether there’s a snowball’s chance in hell of getting their boss on board the moment you answer the pay-for question. Explaining that the spending is “paid for” with a wealth tax on fortunes that exceed $50 million, for example, would be a non-starter for every Republican in Congress but also for many Democrats. Something more palatable, like closing tax loopholes or stepping up IRS enforcement of existing tax laws would tend to garner more support, especially among Democrats. If your response to the pay-for question didn’t immediately close the door on negotiations, the conversation would typically continue:
Staffer B: “What will CBO say?”
That’s how the pay-for game begins. First, tell me how you plan to keep the spending from increasing the deficit. Then, tell me whether the Congressional Budget Office (CBO) will dispute your numbers. In practice, this meant that passing our $1 trillion infrastructure bill in the Senate, required us to (1) find 59 other Senators who would agree to vote not just for the spending but also for the accompanying tax increases; and (2) attain a favorable “score” from CBO, affirming that lawmakers had submitted a credible plan to improve America’s crumbling infrastructure without adding to the fiscal deficit. In our case, the appetite for closing tax loopholes wasn’t there, so the Senate didn’t come anywhere close to passing that bill in 2015. It never even made it out of committee.
Fast forward to 2020.
As COVID thundered onto our shores in early 2020, Congress adopted a new playbook. A sense of wartime urgency had taken hold, and lawmakers knocked a $2.2 trillion CARES Act out of the park with little hesitation or concern for the budgetary impacts of that spending. By December, they belted out another $900 billion. And then in March 2021, Congress stepped up to the plate for a third time, firing off $1.9 trillion in the form of the American Rescue Plan (ARP). All of it added to the fiscal deficit. You could say that the pandemic gave us a yearlong rain delay on the whole “pay for” game.
That rain delay ended when the White House announced that it intended to fully “pay for” the president’s $2.3 trillion American Jobs Plan (AJP) and his $1.8 trillion American Families Plan (AFP). Numerous members of the administration—CEA member Jared Bernstein, Treasury Secretary Janet Yellen, Transportation Secretary Pete Buttigieg, and Commerce Secretary Gina Raimondo—blanketed the airways, stressing the importance of finding ways to offset all $4.1 trillion in proposed spending, pitching it as the “fiscally responsible” way to move forward.
Here’s the way Biden put it when he unveiled the AJP in Pittsburgh on March 31, 2021:
“It’s honest. It’s fiscally responsible. And by the way, as the experts will tell you, it reduces the debt — the federal debt over the long haul.
But let me be clear: These are my ideas on how to pay for this plan. If others have additional ideas, let them come forward. I’m open to other ideas, so long as they do not impose any tax increase on people making less than $400,000.”
A week later, he reiterated that while he was open to negotiating the specific “pay-fors,” he would insist upon fully offsetting the spending.
“I’m willing to listen to that. I’m willing to — I’m wide open to, but we’ve got to pay for this. We got to pay. There’s many other ways we can do it, but I’m willing to negotiate that.”
Later that month, in his first State of the Union address, he reminded the nation that he hoped to work with Congress to pass his deficit-neutral agenda.
“So, how do we pay for my Jobs and Family Plan? I made it clear, we can do it without increasing the deficits.”
Fast forward again.
After months of reaching across the aisle to broker a bipartisan infrastructure deal, the White House is now one step closer to realizing $550 billion in new spending on America’s dilapidated infrastructure. Sticking with the baseball analogy, you might say they put a man on first. Eventually, he might round the bases and make it across home plate. Or he could get thrown out (by House Democrats) or stranded on the bag (as the Senate must now turn to the looming debt ceiling limit and the $3.5 trillion reconciliation bill). Time will tell. And, unlike in the MLB, the legislative game clock is ticking.
Getting that runner on first was something of a heroic feat. To do it, lawmakers had to call another rain delay on the pay-for game.
It’s ironic. For all the time and energy that went into negotiating a deficit-neutral—i.e. fully “paid for”—package, lawmakers ultimately decided that they were more comfortable adding to the deficit than voting for a slew of measures to offset all $550 billion.
So how much of the proposed spending is actually “paid for”?
According to CBO, $294 billion would be offset, leaving $256 billion to fall onto deficits over the next decade. Senator Rob Portman (R-OH), one of the lead authors of the bill, was frustrated by CBO’s analysis. He and Krysten Sinema (D-AZ), another lead negotiator, issued a statement, complaining that CBO had low-balled the revenue estimate, insisting that their “pay-fors” would more than cover the full cost of the bill.
But CBO disagreed, and that was enough to give many Republicans a convenient excuse to oppose the bill. As Newsweek reported:
The 30 Republicans who voted against the infrastructure plan represent 21 states that stand to get billions of relief money from the package. Several cited a report from the nonpartisan Congressional Budget Office that estimated the infrastructure bill could add $256 billion to the federal deficit.
Senator Mike Lee (R-UT) was among the nay votes. He defended his vote by saying:
“As much as half of the pay-fors are just fake.”
In a way, he’s right. Taxes don’t actually pay for spending at the federal level. So every “pay for” is fake in that regard. That’s a core tenet of MMT, but it’s also recognized by some economists who don’t self-identify as MMT scholars.
The truth is, most lawmakers don’t actually care whether they’re voting for so-called “fake” offsets. If they genuinely support the policy, a “pay for” that works on paper (if not in practice) is often good enough to garner support. They understand the pay-for game, so…a wink and a nod.
For example, in my book, I wrote about a passing remark from former Senator Barbara Boxer (D-CA). I was seated on a staff bench in the rear of the Senate chamber, and Senator Boxer had just voted in favor of a “deficit-neutral” amendment during a special session known as vote-a-rama. As she walked past the Senator who authored the amendment, she quipped:
“I voted for your amendment even though your pay-for is bullshit.”
As I wrote in the book:
“I couldn’t have said it better myself. Her point was a simple one. We’ve got a really screwy way of drafting, evaluating, and passing legislation. We pretend that the federal government needs to budget like a household. We think of taxes as something the government needs (i.e. revenue) instead of remembering that taxes are there to subtract spending power from the rest of us so that the government’s own spending doesn’t push the economy beyond its full-employment limit. We hamstring legislation by demanding that the government “pay for” new spending, even when the economy could safely absorb that spending without the need for higher taxes. And we do all of this because we’ve decided that these household budgeting practices somehow serve the public interest. They don’t.”
The public needs to understand what this whole “pay for” game is really about and why—despite appearances—it doesn’t actually result in responsible budgeting practices.
There’s a lot at stake. $3.5 trillion to be exact. That’s money for health care, child care, elder care, education, climate, and more. It’s within reach, but it will take all 50 Senate Democrats to put another runner on base. Once that happens, House Democrats can wave both runners home. If the votes are there, the money will go out. Just as it did during the yearlong rain delay that batted ~$5 trillion into the economy. The votes authorize the spending. The votes are the real pay-fors. Everything else is political theatre masquerading as sound finance.