PAYGO: Offsetting Mand. Spending Increases & Tax Cuts

PAYGO Developments

Budget Enforcement: Points of Order, PAYGO, and Sequestration

Senators and Representatives can raise parliamentary objections on the Senate or House Floors to block consideration of legislation that would cause a breach of the total spending levels or revenue floor, or a breach of the committee or subcommittee spending allocations established by that year’s Budget Resolution. These parliamentary “points of order” are used most often to ensure that the 12 annual appropriations bills (containing the 30% of the budget that is “discretionary spending”) remain within their subcommittee allocations.

(In years when the House and Senate have not reached agreement on a Budget Resolution, the House and Senate have sometimes adopted “deeming resolutions” to serve in place of an annual budget resolution for the purposes of establishing enforceable budget levels for the upcoming fiscal year.)

A different type of enforcement tool was established for mandatory spending legislation and tax legislation, and is set forth in the Statutory Pay-As-You-Go Act of 2010 (usually known by the abbreviation “PAYGO”). The 2010 Act is the most recent incarnation of a PAYGO law, first adopted in 1990, aimed at enforcing a rule of budget neutrality for new mandatory spending and revenue legislation.

The objective of PAYGO is to prevent new mandatory spending and revenue legislation from increasing deficits. This is accomplished by effectively requiring that new legislation contain budget offsets to “pay for” new tax cuts or new mandatory spending increases. Budgetary offsets can be provisions that increase revenues or cut mandatory spending, or a combination of the two.

Under the PAYGO statute, the Office of Management and Budget maintains two cumulative “scorecards” of budgetary effects from newly-enacted mandatory spending and revenue legislation. OMB records on the scorecards the estimated effects of new legislation over the first 5 years following enactment of the new legislation, as well as 10 years from enactment.

After a congressional session ends, OMB finalizes the cumulative effect of revenue and mandatory spending legislation on the 5-year and 10-year scorecards; and determines whether a net deficit increase is estimated on either scorecard for the current budget year. If the cumulative effect of legislation is estimated to cause a net deficit in the current budget year, the President is required to issue a “sequestration order” that implements automatic across-the-board cuts in mandatory spending programs sufficient to fully offset the estimated deficit increase in the current budget year.

Note that even if a deficit increase is caused by tax cuts, the remedy is automatic mandatory spending cuts; there are no automatic tax increases.  For an example of how a sequestration order operates, see OMB: The Statutory Pay-As-You-Go Act of 2010 – A Description.

There are exceptions to the PAYGO statute.  First, legislation designated as emergencies are always exempt from PAYGO; they are not placed on either scorecard, and cannot trigger a sequester

Second, Congress can exempt any bill from PAYGO by simply including a provision stating that “the budgetary effects of this section (or bill) shall not be entered on the PAYGO scorecard maintained pursuant to section 4(d) of the Statutory Pay-As-You-Go Act of 2010.”

Finally, the automatic sequestration mechanism, itself, has exemptions. When an “across-the-board” sequester of mandatory spending programs is required, it is not really “across-the-board.” Automatic cuts in the Medicare program are limited to 4% and many other mandatory spending programs are entirely exempted from sequestration including: Social Security, federal retirement, interest payments, most unemployment benefits, veterans’ programs, and low-income programs including Medicaid, food stamps (now called SNAP), children’s health insurance (CHIP), refundable income tax credits, Temporary Assistance for Needy Families (TANF), and Supplemental Security Income (SSI).

Because Medicare cuts are limited and other programs are fully exempted from sequestration, a sequester order can hit the remaining non-exempt mandatory spending programs with severity to wipe out the cumulative PAYGO deficit in the budget year.  The affected mandatory spending programs subject to across-the-board sequestration cuts include farm price supports, vocational rehabilitation basic state grants, mineral leasing payments to States, the Social Services block grant, and many smaller programs.

In addition to the statutory PAYGO mechanism, the Senate has its own PAYGO rule which allows parliamentary objections to block consideration of bills or amendments that would cause deficit increases in the upcoming budget year, over a 6-year period, or over an 11-year period. The rule was first established by a Budget Resolution in 1993 and has been modified and extended by subsequent resolutions. Waiver of the Senate’s PAYGO rule requires 60 votes and, like the statute, sections of bills or entire bills can be excluded from the Senate’s PAYGO scorecard by including an exemption provision.

Three types of sequestration

Excerpted from CRS:  Sequestration is currently employed as the enforcement mechanism for three budgetary policies.

1. It is included as the enforcement mechanism for statutory limits on defense and non-defense discretionary spending as established by the BCA. In this situation a sequester is used either to deter enactment of legislation violating the spending limits or, in the event that legislation is enacted violating these limits, to automatically reduce discretionary spending to the limits specified in law. (emphasis added)

2. Sequestration is also included in the BCA to enforce the budgetary goal established for the Joint Select Committee on Deficit Reduction. The BCA established an automatic process to reduce spending, beginning in 2013, in the event that a joint committee bill reducing the deficit by at least $1.2 trillion over the period covering FY2012-FY2021 was not enacted by January 15, 2012. (Such a bill was not enacted.) In this case, sequestration was included either to encourage agreement on deficit reduction legislation or, in the event that such agreement was not reached, to automatically reduce spending so that an equivalent budgetary goal would be achieved.  (emphasis added) [Note: The BCA originally stipulated that the annual sequester of non-exempt direct spending would take place only through 2021, but other legislation extended the direct spending sequester through 2025.]

3. Sequestration is included as the enforcement mechanism for the Statutory PayAs-You-Go Act of 2010 (Statutory PAYGO; P.L. 111-139). The budgetary goal of Statutory PAYGO is to prevent new revenue and mandatory spending legislation enacted during a session of Congress from increasing the net deficit (or reducing a net surplus) over either a six-year or 11-year period. The sequester enforces this requirement by either deterring enactment of such legislation or, in the event that legislation has such an effect, automatically reducing spending to achieve the required deficit neutrality. (emphasis added)

Ongoing sequestration of mandatory spending:
Fiscal Year 2013 through 2027

Excerpted from CRS:  “Sequestration” is a process of automatic, largely across-the-board spending reductions under which budgetary resources are permanently canceled to enforce certain budget policy goals. It was first authorized by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA, Title II of P.L. 99-177, commonly known as the Gramm-Rudman-Hollings Act).

Sequestration is…an enforcement tool under the Budget Control Act of 2011 (BCA, P.L. 112-25). Sequestration can also occur under the Statutory Pay-As-You-Go Act of 2010 (Statutory PAYGO, Title I of P.L. 111-139). In either case, certain programs are exempt from sequestration, and special rules govern the effects of sequestration on others. Most of these provisions are found in Sections 255 and 256 of BBEDCA, as amended.

Two provisions were included in the BCA that can result in automatic sequestration:

• Establishment of discretionary spending limits, or caps, for each of FY2012- FY2021. If Congress appropriates more than allowed under these limits in any given year, sequestration would cancel the excess amount.

• Failure of Congress to enact legislation developed by a Joint Select Committee on Deficit Reduction, by January 15, 2012, to reduce the deficit by at least $1.2 trillion. The BCA provided that such failure would trigger a series of automatic spending reductions, including sequestration of mandatory spending in each of FY2013-FY2021, a one-year sequestration of discretionary spending for FY2013, and lower discretionary spending limits for each of FY2014-FY2021. (emphasis added)  [Note: The BCA originally stipulated that the annual sequester of non-exempt direct spending would take place only through 2021, but other legislation extended the direct spending sequester through 2027, most recently the Bipartisan Budget Act of 2018.]

In fact, the Joint Committee did not develop the necessary legislation and Congress did not meet the January 15, 2012, deadline. Thus, automatic spending cuts under the BCA were triggered, with the first originally scheduled for January 2, 2013. P.L. 112-240 subsequently delayed this until March 1, 2013, and President Obama signed a sequestration order on that date.

Under the Statutory PAYGO Act, sequestration is part of a budget enforcement mechanism that is intended to prevent enactment of mandatory spending and revenue legislation that would increase the federal deficit. This act requires the Office of Management and Budget (OMB) to track costs and savings associated with enacted legislation and to determine at the end of each congressional session if net total costs exceed net total savings. If so, a sequestration will be triggered.

Under sequestration—triggered either by the BCA or Statutory PAYGO Act—the exemptions and special rules of Sections 255 and 256 of BBEDCA apply. Most exempt programs are mandatory, and include Social Security and Medicaid; refundable tax credits to individuals; and low-income programs such as the Children’s Health Insurance Program, Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, and Supplemental Security Income. Some discretionary programs also are exempt, notably all programs administered by the Department of Veterans Affairs. Also, subject to notification of Congress by the President, military personnel accounts may either be exempt or reduced by a lower percentage.

Special rules also apply to several, primarily mandatory, programs. For example, under Section 256 of BBEDCA, Medicare may not be sequestered by more than 4%. However, under a BCA-triggered sequester, reduction of Medicare is limited to no more than 2%.

Emergency designations under Statutory PAYGO

2018 Final PAYGO Report

  • During the second session of the 115th Congress, one law was enacted with emergency requirements under section 4(g) of the PAYGO Act, 2 U.S.C. 933(g) that had PAYGO effects:

o   Bipartisan Budget Act of 2018, P.L. 115-123.

2017 Final PAYGO Report

  • During the first session of the 115th Congress, two laws were enacted with emergency requirements under section 4(g) of the PAYGO Act, 2 U.S.C. 933(g) that had PAYGO effects; the effects of the provisions in these laws that are designated as emergency requirements appear on the scorecard, but are subtracted before computing the scorecard totals:

o   Emergency Aid to American Survivors of Hurricanes Irma and Jose Overseas Act, Public Law 115-57; and

o   Disaster Tax Relief and Airport and Airway Extension Act of 2017, Public Law 115- 63.

2016 Final PAYGO Report

  • During the second session of the 114th Congress, no laws were enacted with emergency requirements under section 4(g) of the PAYGO Act, 2 U.S.C. 933(g).

2015 Final PAYGO Report

  • During the first session of the 114th Congress, one law was enacted with emergency requirements under section 4(g) of the PAYGO Act, 2 U.S.C. 933(g):

o   Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41.

2014 Final PAYGO Report

  • One law was enacted in the second session of the 113th Congress with an emergency designation under the Statutory PAYGO Act:

o   Veterans Access, Choice, and Accountability Act of 2014, Public Law 113-146.

2013 Final PAYGO Report

  • No legislation was enacted with an emergency designation under section 4(g) of the PAYGO Act, 2 U.S.C. § 933(g), during the first session of the 113th Congress.

2012 Final PAYGO Report

  • There was no legislation designated as emergency legislation under section 4(g) of the PAYGO Act, 2 U.S.C. 933(g) enacted during the second session of the 112th Congress.

2011 Final PAYGO Report

  • There was no legislation designated as emergency legislation under section 4(g) of the PAYGO Act, 2 U.S.C. 933(g) enacted during the first session of the 112th Congress.

2010 Final PAYGO Report

  • Five laws were enacted that contain provisions that received an emergency designation under the Statutory PAYGO Act:

o   Temporary Extension Act of 2010, Public Law 111-144;

o   Continuing Extension Act of 2010, Public Law 111-157;

o   Unemployment Compensation Extension Act of 2010, Public Law 111-205;

o   Act to extend the deadline for Social Services Block Grant expenditures of supplemental funds appropriated following disasters occurring in 2008, Public Law 111-285; and

o   Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Public Law 111-312.

The total costs excluded through emergency designations were $570.1 billion over 2010-2015 and $545.1 billion over 2010-2020. Although shown on the scorecards, the budgetary effects of provisions designated as emergencies are not included in the PAYGO effects shown on the scorecards, as specified by Section 4(g) of the PAYGO Act.

Major Mandatory Spending Programs Subject to Sequestration

  • Amounts below are FY 2016 resources subject to sequestration in millions of dollars
  • [Click here for an FY 2018 list, with updated amounts of budgetary resources subject to sequestration.]
  • HI (Part A) Trust Fund, 294,785**
  • SMI (Part B) Trust Fund, 283,788**
  • Medicare Prescription Drug Account (Part D), Federal Supplementary Insurance Trust Fund, 22,303**
  • Farm Service Agency, Commodity Credit Corporation Fund, 20,420
  • Crime Victims Fund, 13,657
  • DoD: Concurrent Receipt Accrual Payments to the Military Retirement Fund, 7,572
  • Centers for Medicare and Medicaid Services (CMS) Transitional Reinsurance Program, 6,025
  • CMS Risk Adjustment Program Payments, 5,641
  • Build America Bond Payments, Recovery Act, 4,191
  • Natural Resources Conservation Service, Farm Security and Rural Investment Programs, 3,907
  • Citizenship and Immigration Services, 3,654
  • Dept. of Education, Rehabilitation Services, 3,392
  • Centers for Medicare and Medicaid Services (CMS) Program Management, 2,477
  • Mineral Leasing and Associated Payments, 1,911
  • FDIC Orderly Liquidation Fund, 1,751
  • Social Services Block Grant (which States use to help fund foster care, Meals on Wheels, and other programs, 1,700
  • DoJ Assets Forfeiture Fund, 1,622
  • National Flood Insurance, 1,443
  • Health Care Fraud and Abuse Control Account, 1,341
  • Treasury Forfeiture Fund, 1,283
  • Customs and Border Protection, 1,164
  • Grants for Specified Energy Property in Lieu of Tax Credits, Recovery Act, 1,162
  • Agricultural Marketing Service:  Funds for Strengthening Markets, Income, and Supply, 1,137
  • Western Area Power Administration, Borrowing Authority, Recovery Act, 1,050
  • Prevention and Public Health Fund, 1,000
  • TV Broadcaster Relocation Fund, 1000
  • Federal-aid Highways, 739
  • Patient-Centered Outcomes Research Trust Fund, 676
  • Federal Unemployment Benefits and Allowances, 664
  • Payment to Issuer of Qualified School Construction Bonds, 660
  • Bureau of Consumer Financial Protection Fund, 606
  • CMS State Grants and Demonstrations, 559
  • Federal Aid in Wildlife Restoration, 548
  • Sport Fish Restoration, 414
  • Tennessee Valley Authority Fund, 412
  • September 11th Victim Compensation (general fund), 400
  • DEA Diversion Control Fee Account, 368
  • Promoting Safe and Stable Families, 345
  • Immigration and Customs Enforcement, 322
  • World Trade Center Health Program Fund, 317
  • Animal and Plant Health Inspection Service, 295
  • DoD: National Defense Stockpile Transaction Fund, 294
  • DoD: Surcharge Collections, Sales of Commissary Stores, Defense, 292
  • Affordable Housing Program, 288
  • DoJ: Fees and Expenses of Witnesses, 270
  • Office of Postsecondary Education, 255
  • Unemployment Trust Fund, 251
  • Aviation Security, 250
  • Public Company Accounting Oversight Board, 242
  • Forest Service Permanent Appropriations, 219
  • Securities Investor Protection Corporation, 215
  • Judiciary Filing Fees, 199
  • Abandoned Mine Reclamation Fund, 185
  • Bureau of Land Management, 177
  • National Institute of Food and Agriculture, 145
  • Food and Nutrition Service, SNAP, 144
  • NOAA, Promote and Develop Fishery Products and Research Pertaining to American Fisheries, 144
  • Rivers and Harbors Contributed Funds, 137
  • Bonneville Power Administration Fund, 133
  • Administrative Expenses, Energy Employees Occupational Illness Compensation Fund, 133
  • Railroad Unemployment Insurance Trust Fund, 129
  • Pension Benefit Guaranty Corporation Fund, 127
  • Training and Employment Services, 125
  • Treasury,  Financial Research Fund, 124
  • Community Planning and Development Housing Trust Fund, 120
  • Boat Safety, 108
  • Essential Air Service and Rural Airport Improvement Fund, 102
  • Maritime Oil Spill Programs, 101
  • Travel Promotion Fund, 100
  • Electric Reliability Organization, 100
  • National Science Foundation Education and Human Resources, 100
  • Black Lung Disability Trust Fund, 66
  • Child Nutrition Programs, 58
  • CDC-Wide Activities and Program Support, 57
  • Forest Service Trust Funds, 56
  • Affordable Insurance Exchange Grants, 51
  • H-1 B and L Fraud Prevention and Detection, 45
  • Diplomatic and Consular Programs, 38
  • Food and Nutrition Service Commodity Assistance Program, 21
  • Women, Infants, and Children Nutrition, 1 (most of the program is funded through annual appropriations)

**However, Medicare sequestration is subject to a 2% or 4% sequester limit, depending on the type of sequester.

(Source OMB FY 2016 Report)