Adding "TRUSTGO" to PAYGO Would Improve the Debt Situation
We have always have been proponents of paying for the costs of policies such as the tax extenders and doc fixes, since doing so would make a significant improvement in the long-term debt situation. Unfortunately, even a strict adherence to pay-as-you-go rules (PAYGO) leaves the debt on a substantial upward path. That path could be improved significantly if lawmakers abide by what we call "TRUSTGO" – that is, making trust funds solvent and ensuring that all trust fund spending is fully paid for without gimmicks, tricks, or general revenue transfers. The Center on Budget and Policy Priorities made the same point in its recent report on the long-term budget outlook.
Currently, at least four federal trust funds are on a road to insolvency: the Highway Trust Fund (HTF) by late August or so, the Social Security Disability Insurance (SSDI) trust fund in 2016 or 2017, the Medicare's Hospital Insurance (HI) trust fund for Part A by 2026, and Social Security's Old Age and Survivors' Insurance (OASI) trust fund between 2033 and 2035.
Making these trust funds solvent will require many hard choices (play our Social Security Reformer to get a sense of them) but would represent a major improvement for the budget.
Based on numbers from the Congressional Budget Office, we've published two possible scenarios for future debt levels. Under the "no offset scenario," which assumes policymakers generally continue current policy without identifying offsets, debt will rise from 74 percent of GDP today to 83 percent by 2024 and 165 percent by 2050. Simply abiding by PAYGO, as we've explained before, would instead result in debt levels of 76 percent of GDP by 2024 and 130 percent by 2050.
Importantly, the PAYGO baseline assumes we continue to spend the full amount on Social Security, transportation, and Medicare even without sufficient trust fund revenue. But if we were to bring spending and revenue in line for each program as its trust fund expired – and not double-count that money toward offsetting other initiatives – the impact would be substantial. By our calculation, debt would rise to 73 percent of GDP by 2024, and ensuring solvency of all the trust funds would stabilize debt around 83 percent of GDP through 2050.
Of course, these debt levels are still too high. As we've pointed out before, stabilizing the debt at post-war record high levels could unnecessarily hinder growth, would leave no flexibility to respond to unforeseen needs (including recessions, natural disasters, or wars), and would leave no room for deterioration in budget projections.
But if policymakers were to abide by PAYGO and then proactively address looming trust fund shortfalls ("TRUSTGO"), it would represent an important starting point toward putting the debt on a sustainable long-term path.