A strong PAYGO amendment would require that all new legislation be deficit neutral (or negative) over periods of two and 10 years, as scored by the CBO and approved by the special court's budget office.
This compromise approach would allow for short-term stimulus measures (a nod to Keynesians) but they would have to be offset the next year (a nod to deficit hawks). Congress could renew stimulus spending annually if members thought the money was still needed, but they would be forced to analyze the effectiveness of the spending and defend its necessity each time. Automatic stabilizers already in legislation, such as unemployment insurance, wouldn't have to be offset, so federal revenue and expenditures could remain countercyclical.
Finally, a strong amendment wouldn't provide for any exempted spending, though there would surely be plenty of debate over whether wars should be left out of PAYGO. (Personally, we see value in a PAYGO amendment forcing Congress to carefully consider whether Americans are willing to pay for getting entangled in foreign conflicts.)
"Cut, Cap and Balance" — the agenda advanced by Republicans last year to limit federal spending — is no longer politically possible, and revenue increases have become inevitable. Until the conversation can be refocused on budget reductions, Republicans should insist on institutional reform to prevent future unfunded spending.
With the nation on a path to a sovereign-debt crisis, a constitutional PAYGO is a politically feasible way of achieving the structural change we need.
Anthony Randazzo is the director of economic research at the Reason Foundation. Marc Joffe is the principal consultant of Public Sector Credit Solutions and formerly a senior director at Moody's Analytics.