Entry in progress—B.P.
PAYGO (pay-as-you-go) is a term used to refer to financing where budgetary restrictions demand paying for expenditures with funds that are made available as the program is in progress.
The PAYGO or pay-as-you-go rule compels new spending or tax changes to not add to the federal deficit. New proposals must either be “budget neutral” or offset with savings derived from existing funds. The goal of this is to require those in control of the budget to engage in the diligence of prioritizing expenses and exercising fiscal restraint.
An important example of such a system is the use of PAYGO rules in the United States Congress. 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.
In the initial PAYGO regimen, enacted in the Omnibus Budget Reconciliation Act of 1990 (OBRA ‘90), by statutory requirement, any increases in the deficit were to be offset by an across the board “sequestration” of programs. This means an automatic cut in non-exempt mandatory spending programs—this was calculated by the Office of Management and Budget at the end of the year.
Wikipedia: Budget Enforcement Act of 1990
The Budget Enforcement Act of 1990 (Pub.L. 101-508, title XIII; 104 Stat. 1388-573; codified as amended at scattered sections of 2 U.S.C. & 15 U.S.C. § 1022) was enacted by the United States Congress as title XIII of the Omnibus Budget Reconciliation Act of 1990 to enforce the deficit reduction accomplished by that law and revise the budget control process of the Federal Government. The Act created two new budget control processes: a set of caps on annually-appropriated spending, and a “pay-as-you-go” or “PAYGO” process for entitlements and taxes. The law departed from the fixed deficit targets of Gramm-Rudman-Hollings, and imposed no penalty if the deficit for a given year grew outside the Office of Management and Budget “Snapshot” or deficit estimate, provided this budget growth was out of Congress’ control.
C-SPAN Congressional Glossary
The PAYGO or pay-as-you-go rule compels new spending or tax changes to not add to the federal deficit.
New proposals must either be “budget neutral” or offset with savings derived from existing funds.
Safire’s Political Dictionary
By William Safire
Published by Oxford University Press US
pay as you go Withholding taxes from income as it is received, rather than requiring payment later; centuries ago, the way to a balanced budget.
“It is incumbent on every generation,” Thomas Jefferson wrote a friend in 1820, “to pay its own debts as it goes—a principle which, if acted on, would save one-half the wars of the world.” The phrase had earlier occurred as an aphorism in Poor Richard’s Almanack by Benjamin Franklin.
The phrase has had a long economic-political application. Thurlow Weed, a journalist who later became a power in the Republican party, wrote in 1838 about the construction of the Erie Canal: “The Democracy proclaimed itself in favor of the ‘pay as you go’ policy.” John Randolph of Roanoke cried in Congress, “I have found the Philosopher’s Stone! it is contained in four words: “Pay-as-you-go!”
(Oxford English Dictionary)
pay-as-you-go n. and adj. (a) n. a system or the practice of paying costs or charges as they arise; (b) adj. designating an economic policy, customer contract, etc., based on such a practice.
1840 Farmers’ Cabinet 15 May 319/1 *Pay as you go..is the truest economy.
1888 J. BRYCE Amer. Commonw. II. lxvi. 507 ‘Pay as You Go’ Convention!
a1974 R. CROSSMAN Diaries (1977) III. 176 We must therefore really accept pay-as-you-go.
1991 Fiscal Stud. Aug. 58 Given the ‘pay-as-you-go’ nature of National Insurance, retirement pensioners at that time would not have paid this higher rate in full.
6 November 1822, Hampshire Gazette (NH), pg. 4:
Young Bell was a poor boy, commences his life with nothing but health and trade, but he adopted as a sacred maxim, “pay as you go;” and he frequently told me he found little difficulty in sticking to his text; the necessaries of life are few, and industry secures them to every man; it is the elegancies of life that empty the purse; the nicknacks of fashion, the gratification of pride, and the indulgence of luxury, that makes a man poor.
4 May 1841, Vermont Gazette, pg. 3:
The Philosopher’s Stone, “Pay as You Go.”
The following paragraph is from an address delivered by Gen. McDUFFIE before the South Carolina Agricultural Society:
“I have known many men, who were considered bad planters, and who made small crops yet in a series of years have grown wealthy by this very simple rule which I once heard laid down by a friend. He never made large crops, and when asked how he became rich so much faster than his more energetic neighbors, he replied. ‘My neighbors begin at the wrong end of the year. They make their purchases at the beginning of it, on a credit; I make mine at the end of it, and pay down the cash.’ And here I am reminded of a saying of the late John Randolph of Virginia; a man not more remarkable for his genius and eccentricity, than for the profound philosophical truths which sometimes escaped him, like the responses of an inspired oracle. In the midst of one of his splendid rhaposides in the senate of the United States, he paused, and fixing his eye on the presiding officer, exclaimed, ‘Mr. President, I have discovered the philosopher’s stone. It contsists in these four plain English monosyllables: Pay as you go.’ Now I will venture to say, that this is a much nearer approach than alchemy will ever make to the great object of its visionary researches.”
4 February 1895, Dallas (TX) Morning News, pg. 5:
PAY AS YOU GO OR DON’T GO.
The Public Sector: Selected Readings
By John Dixon
Published by Penguin
Pay-As- You-Go v. Funded Schemes  Pay-as-you-go (PAYG) is founded on two assumptions already mentioned: ‘that pensions represent a transfer of resources…
The Political Economy of Demographic Change:
Causes and implications of population trends in Great Britain
By John Ermisch, Policy Studies Institute
Published by Heinemann, 1983
The state pension scheme As in most countries, the British old age pension programme is run on ‘pay-as-you-go’ (PAYG) principles.
The Independent (London)
An uncomfortable retirement: The state pension is under fire from all sides, including Labour, reports Mary Campbell
Monday, 14 March 1994
Some Tories want to ‘privatise’ the state pension altogether. The Borrie commission pamphlet considers this idea - of converting from the current ‘pay-as-you-go’ scheme to a ‘funded’ scheme - at some length, and rejects it.
With PAYG, today’s state pensions are paid out of current national insurance contributions. So today’s earners pay the pensions of yesterday’s earners, relying in turn on the next generation of earners to pay their pensions. By contrast, occupational and private pensions invest each individual’s contributions so that they build up through a working life.
October 21, 1996
A SOCIAL SECURITY LESSON FROM ARGENTINA
Since 1989, Argentina has rapidly introduced revolutionary reforms that have greatly reduced government regulations and controls. Privatization of its social security system is the most important step of the past couple of years. Argentina’s experience demonstrates that, even under very difficult economic circumstances, a nation can successfully convert from a pay-as-you-go (PAYG) social security system to a competitive private pension plan with individual retirement accounts.
A PAYG system taxes workers to pay benefits to currently retired persons.
New York City • Banking/Finance/Insurance • (0) Comments • Sunday, June 14, 2009 • Permalink