Debt deal’s PAYGO law won’t pay out. Here’s how to fix it.

Photo Credit: Getty

In an effort to curb excessive government spending, a provision known as statutory administrative PAYGO (Pay-As-You-Go) has been introduced in the debt ceiling deal struck by House Speaker McCarthy and President Biden. According to this provision, whenever a discretionary regulation increases direct government spending by $1 billion over a period of 10 years or $100 million in a single year, federal regulators will be required to find offsetting spending cuts.

While this regulatory PAYGO requirement is a positive step toward promoting fiscal responsibility, it requires further strengthening to ensure its effectiveness at controlling regulatory costs. Specifically, the current version of the PAYGO provision includes several weaknesses that will undermine its impact.

First, the provision grants excessive waiver authority to the Office of Management and Budget director, making it susceptible to frequent waivers based on political pressure or whim. Specifically, the director can waive the requirement in cases where it is “necessary for the delivery of essential services” or “necessary for effective program delivery.” To close this gaping loophole, waivers should be limited to emergency situations only. Moreover, ideally, small-impact rules and nondiscretionary agency actions (those required by acts of Congress) should be subject to the offset requirement as well.

Another aspect that needs addressing is the absence of a judicial review requirement. Without oversight from the courts, regulators will not be held accountable for non-compliance with the PAYGO provision. Introducing judicial review would add common sense checks-and-balances to the system, discouraging regulators from evading their statutory obligations.

Finally, the current provision includes a sunset clause that means it will expire at the end of 2024. Instead of remaining in force for a limited time period only, the regulatory PAYGO requirement should be made permanent. Doing so would send a strong signal that controlling regulatory costs is an ongoing priority, not just a temporary fly-by-night consideration.

While a PAYGO framework is a productive way to think about how the government can control regulatory costs, the provision in the debt ceiling deal is unlikely to result in significant savings for taxpayers. The excessive waiver authority, lack of judicial review, and short time duration are limitations that will impair its effectiveness.