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FAQs on PAYGO

Jul 13, 2020

General PAYGO FAQs

  1. What is PAYGO?
  2. What are the types of PAYGO?
  3. Do PAYGO policies apply to the annual appropriations process?
  4. What are the effects of legislation compared to?

Statutory PAYGO

  1. What is Statutory PAYGO?
  2. Where did Statutory PAYGO come from?
  3. What kind of legislation is subject to Statutory PAYGO?
  4. How is Statutory PAYGO enforced?
  5. How is sequestration calculated?
  6. Who determines what numbers are used on the PAYGO scorecard?
  7. What special considerations influence the budgetary effects of legislation for Statutory PAYGO purposes?
  8. Has Statutory PAYGO sequestration ever happened?
  9. What is the Budget Committee’s role?

House PAYGO Rule

  1. How does the House PAYGO rule differ from the Senate PAYGO rule?

At a Glance: Three Flavors of PAYGO

General PAYGO FAQs

  1. What is PAYGO?

Generally speaking, Pay-As-You-Go—frequently referred to as “PAYGO”—is a rule requiring that new legislation not increase the federal budget deficit or reduce the surplus. If legislation subject to PAYGO increases the deficit through an increase in federal spending or a reduction in revenues, that increase must be offset by increased revenue or reduced spending in other areas.

PAYGO applies to certain new legislation. It does not apply to increases or decreases in spending or revenues that occur automatically under current law. For example, if a recession causes more people to enroll in Medicaid and that increases federal spending, PAYGO would not apply to that increase in spending. Although actions subject to PAYGO cannot make the federal fiscal situation any worse, they can make it better.

  1. What are the types of PAYGO?

The term PAYGO is used to describe different policies, and each one is slightly different.

  • Statutory PAYGO is a policy written into law (it can be changed only through new legislation) that requires deficit neutrality overall in the laws (other than annual appropriations) enacted by Congress and imposes automatic spending reductions at the end of the year if such laws increase the deficit when they are added together.
  • The House PAYGO rule and Senate PAYGO rule are current rules of each House that create obstacles known as “points of order” to the enactment of individual acts of law (other than annual appropriations) that violate PAYGO principles, though they operate somewhat differently.

This FAQ focuses on the two forms of PAYGO most relevant to the House of Representatives, Statutory PAYGO and the House PAYGO rule. An Appendix to this FAQ compares the three different PAYGO policies applicable to legislation at a glance. 

  1. Do PAYGO policies apply to the annual appropriations process?

These policies primarily apply to legislation other than appropriations acts; spending in such laws is also known as “direct” or “mandatory” spending. Generally, enforcement of discretionary spending is accomplished through measures other than PAYGO, such as caps on defense and non-defense discretionary spending. However, certain budgetary effects relating to mandatory programs that are included in annual appropriations legislation may be subject to PAYGO policies.

  1. What are the effects of legislation compared to?

In calculating the effects of legislation for PAYGO purposes, scorekeepers measure its changes to spending or revenues as compared to a “baseline.” The baseline generally assumes that current law will remain in place, but assumes that certain expiring programs and excise taxes will be extended. 

Statutory PAYGO

  1. What is Statutory PAYGO?

The Statutory Pay-As-You-Go Act of 2010 (sometimes called “Statutory PAYGO, ” “Stat PAYGO,” or “SPAYGO”) is a budgetary enforcement mechanism included in Public Law 111-139.  Statutory PAYGO aims to ensure that the legislation passed by Congress and signed by the President does not increase projected deficits. It directs the Office of Management and Budget (OMB) to publish a report that sums up the budgetary effects of all enacted legislation subject to PAYGO. Each year, if the report shows that the legislation subject to PAYGO increased the federal deficit, the law requires the executive branch to cut spending by an amount sufficient to offset that increase.

  1. Where did Statutory PAYGO come from?

The current version of Statutory PAYGO was signed into law on February 12, 2010, but the concept was not a new one. In the 1980s, Congress and the President were unsuccessful at meeting legislative deficit targets. In response, Congress passed the Budget Enforcement Act of 1990, which included a new “pay-as-you-go” rule. A PAYGO requirement was in effect from 1991 to late 2002, when it was effectively terminated.

No statutory PAYGO requirements were in effect from late 2002 until 2010, although the House and Senate had internal PAYGO rules covering some of that period. During that time, there was disagreement between Democrats and Republicans over whether PAYGO should apply to direct spending and revenue legislation (favored by Democrats) or just direct spending legislation (favored by Republicans). Presidents George W. Bush and Barack Obama submitted legislative PAYGO proposals to Congress, but legislation was not enacted until February 2010.

  1. What kind of legislation is subject to Statutory PAYGO?

Any legislation enacted after February 12, 2010, that affects direct spending and/or revenues is subject to Statutory PAYGO and recorded for enforcement purposes (see FAQ #3). Note that if an appropriations bill includes provisions affecting direct spending or revenues in years after the budget year, the budgetary effects of those provisions in most cases would be recorded on the PAYGO scorecard. Other types of spending that are excluded from the PAYGO scorecard are summarized in FAQ #11.

  1. How is Statutory PAYGO enforced?

OMB is required to publish and regularly update two PAYGO scorecards. The first PAYGO scorecard summarizes the budgetary effects of PAYGO legislation over the five-year period beginning in the budget year, and the second scorecard summarizes budgetary effects over the ten-year period beginning in the budget year. An addendum—not used for PAYGO enforcement but made available for reference—summarizes the costs of provisions designated as emergency spending. The most recent PAYGO scorecards are available on OMB’s website, and they are updated regularly to reflect enacted legislation.

After Congress adjourns for a session, OMB is required to publish an annual PAYGO report within 14 business days. The annual report is essentially the final PAYGO scorecard for that calendar year and is also posted on OMB’s website. If either the five-year or ten-year PAYGO scorecards show a net cost for the budget year, OMB and the President issue a sequestration order that reduces direct spending by the amount of the cost. If sequestration is necessary, the annual PAYGO report would include the budget accounts impacted and the magnitude of each reduction by account.

  1. How is sequestration calculated?

OMB calculates a “uniform percentage” – meaning a percentage that applies to all applicable programs equally – that would result in outlay savings in the budget year equal to the net cost on the PAYGO scorecard for that year. However, Statutory PAYGO exempts numerous programs from sequestration, including Social Security, veterans’ benefits, Medicaid, the Supplemental Nutrition Assistance Program, and Supplemental Security Income. Most Medicare payments are subject to sequestration, but they cannot be reduced by more than four percent.

  1. Who determines what numbers are used on the PAYGO scorecard?

Under the Act, when legislation is being considered on the House or Senate floor, the Chairs of the House and Senate Budget Committees are to request a PAYGO estimate from CBO, which is generally included in the cost estimate that CBO publishes on their website. The Chairs are then to insert the budgetary effects estimate into the Congressional Record in a statement titled “Budgetary Effects of PAYGO Legislation” before the final vote on the bill’s passage. If the bill is then enacted, this statement establishes the budgetary effects for OMB to use for the purposes of the PAYGO scorecards.

If this process is not followed, OMB produces its own estimate of the budgetary effects for the PAYGO scorecards. 

  1. What special considerations influence the budgetary effects of legislation for Statutory PAYGO purposes?

Statutory PAYGO directs OMB not to count certain types of budgetary effects for the purposes of PAYGO enforcement:

  • Off-budget spending, or spending affecting Social Security and the Postal Service, is excluded.
  • Emergency, or spending and/or revenues designated by Congress under section 4(g) of the Statutory PAYGO Act as necessary for responding to an emergency, is excluded from the PAYGO scorecard for enforcement purposes. However, it is shown separately in the annual OMB PAYGO report for reference.
  • The budgetary effects of certain timing shifts are ignored. For example, if a provision shifts costs from year 10 into year 11—pushing it outside the budget window—the budgetary effects of that timing shift would be ignored for PAYGO enforcement.
  1. Has Statutory PAYGO sequestration ever happened?

Statutory PAYGO sequestration has not occurred since the law was enacted in 2010. (Statutory PAYGO is not the only law that uses a form of sequestration as an enforcement tool, and sequestrations of mandatory spending have occurred every year since 2013 under the Budget Control Act of 2011. For more on Budget Control Act sequestration, see “FAQs on Sequester: An Update for 2020.”)

  1. What is the Budget Committee’s role?

The Budget Committee is responsible for inserting the budgetary effects estimate into the Congressional Record, as described in FAQ #10 and for ensuring that enacted legislation follows the process outlined in FAQ #10. In addition, the Budget Committee monitors the PAYGO scorecard and serves as a resource for members of Congress and Congressional staff on the issue.

House PAYGO Rule

  1. What is the House PAYGO rule? 

The rules of the 116th Congress generally prohibit the House from considering legislation that would increase the deficit or reduce the surplus. Whereas statutory PAYGO is an annual requirement that adds all the measures enacted to a scorecard, the House PAYGO rule applies to each individual measure considered by the House. Clause 10 of Rule XXI establishes a point of order against measures affecting direct spending and revenues that have a net effect of increasing the deficit or reducing the surplus over a six- or eleven-year period. For example, any bill considered in 2020 that increases the deficit during the 2020-2026 or 2020-2030 period would be subject to the point of order.

  1. How is the House PAYGO rule different from Statutory PAYGO?

The PAYGO rule adopted by the House at the beginning of the 116th Congress applies during the consideration of legislation and to each measure individually. The rule establishes a point of order against legislation that increases the deficit or reduces the surplus for either the six-year period (current year, budget year, and the following four fiscal years) or the eleven-year period (current year, budget year, and the following nine fiscal years). The House PAYGO rule applies to all budgetary effects, both on-budget and off-budget. Finally, the rule specifies that estimates of budgetary effects should come from the Budget Committee relative to baseline estimates developed by CBO. 

Statutory PAYGO applies only after legislation is enacted, and enforcement is based on the net budgetary effect of the entire body of enacted legislation that affects the scorecard for a given budget year. Statutory PAYGO applies to only on-budget effects, meaning that any budgetary effects on Social Security and the Postal Service are ignored. Estimates of budgetary effects come from either CBO or OMB, based on whether a certain process was followed before the bill was enacted.

  1. How has the House PAYGO rule evolved since it was first established in 2007?

Over time, House PAYGO has evolved as new rules were adopted for each session of Congress. The original House PAYGO rule in the 110th Congress, established in 2007, was similar to the current one but did not contain any exemptions, such as for emergency spending.

The 111th Congress made several changes to the rule, including adding exemptions and modifying the scoring rules so they align with Statutory PAYGO, which was enacted during the 111th Congress. For example, the House PAYGO rule was amended to consider only on-budget effects.

The 112th Congress replaced the PAYGO rule with a “Cut-As-You-Go” (CUTGO) rule. CUTGO established a point of order against legislation that would increase mandatory spending over the six-year or eleven-year periods. In practice, this change meant that revenue increases could not be used to offset increases in mandatory spending, and revenue decreases would not need to be offset at all.

CUTGO remained in effect until the 116th Congress, when it was replaced with the PAYGO rule in effect today. The current rule is similar to previous versions of the PAYGO rule, but it considers the on-budget and off-budget effects of legislation (together referred to as the “unified budget”).

  1. What is exempt from the House PAYGO rule?

Like Statutory PAYGO, the House PAYGO rule does not apply to discretionary spending and provisions designated as emergency.

  1. How is the House PAYGO rule enforced?

Unless it is waived as described in FAQ #19, the House PAYGO rule is enforced through a point of order on the House floor. In such a case, any member may raise a point of order if the bill or amendment under consideration violates the PAYGO rule. If the point of order is sustained, the bill could no longer be considered.

However, if no member raises the point of order, there is no other enforcement mechanism for the House PAYGO rule.

  1. What does it mean to “waive PAYGO” in the House?

The House PAYGO rule can be waived in several ways. Bills considered under the suspension of the rules procedure are exempt from any points of order, so a bill that violates PAYGO can advance through that process with a two-thirds supermajority vote.

In addition, the House Rules Committee can report a special rule that waives PAYGO for a certain bill or amendment. In effect, this rule prohibits a member from raising a point of order on legislation that violates PAYGO when the legislation is considered on the House floor.

Finally, the House PAYGO rule can be waived through unanimous consent.

  1. What is the Budget Committee’s role?

The Budget Committee serves as a resource for the members and staff on implementation and enforcement of the House PAYGO rule. Budget Committee staff work closely with staff from the Rules Committee to ensure PAYGO compliance.

In addition, under the latest budget agreement, the Budget Committee has the authority to adjust committees’ budget allocations and top-line aggregates for bills that are compliant with the House PAYGO rule. For example, a bill that does not increase the deficit in either the six- or eleven-year period would likely be compliant with the House PAYGO rule even if it did increase budget authority during one or both of those periods. In that case, the Budget Committee could adjust these budgetary levels to accommodate that higher level of budget authority, thereby enabling the bill to be compliant with other budgetary points of order.

  1. How does the House PAYGO rule differ from the Senate PAYGO rule?

The Senate has its own PAYGO rule. Like the House PAYGO rule, the Senate PAYGO rule promotes deficit neutrality in new legislation. However, there are important differences between the House PAYGO rule and the Senate PAYGO rule. One key difference between House and Senate PAYGO is that Senate PAYGO only evaluates the on-budget effects of legislation. On-budget refers to all federal spending and revenues other than those associated with Social Security and the Postal Service. Those programs are considered off-budget and are excluded for the purposes of Senate PAYGO. In contrast, House PAYGO applies to all federal spending and revenues, which is also referred to as the unified budget.

The relevant time periods also differ between the two chambers. The Senate PAYGO rule requires that legislation cannot increase the deficit in 1) the current year, 2) the budget year, 3) the six-year period including the current year, and 4) the eleven-year period including the current year. For example, any bill considered in fiscal year 2020 could not increase the deficit in 2020, 2021, the 2020-2026 period, or the 2020-2030 period. In contrast, the House PAYGO rule applies only to the six-year and eleven-year periods, each including the current year.

Finally, the Senate tracks the deficit impacts of mandatory spending and revenue legislation on a PAYGO scorecard. New legislation that increases the deficit viewed individually does not necessarily violate the Senate PAYGO rule if previously-enacted legislation tracked on the PAYGO scorecard reduced the deficit enough to at least offset the new legislation’s effects.

At a Glance: Three Flavors of PAYGO

 

 

Statutory PAYGO

House PAYGO Rule

Senate PAYGO Rule

How is it enforced?

A statutory provision requires the executive branch to enforce through sequestration at the end of the year if the PAYGO scorecard shows a balance

Through a point of order on the House floor

Through a point of order on the Senate floor

What does it cover?

Most on-budget spending and revenues

Most unified budget spending and revenues

Most on-budget spending and revenues

What time periods does it cover?

The five-year period beginning with the budget year, and the ten-year period beginning with the budget year (with “budget year” defined to include certain current year effects)

The six-year period beginning with the current year and the eleven-year period beginning with the current year

Current year, budget year, six-year period beginning with the current year, eleven-year period beginning with the current year

Where do the estimates of budgetary effects come from?

CBO, assuming a specified process is followed when legislation is enacted. If not, OMB develops its own estimates

In practice, CBO – with rare exceptions. The House Budget Committee officially determines the budgetary effects.

In practice, CBO – with rare exceptions. The Senate Budget Committee officially determines the budgetary effects.

What is required to waive it?

If OMB finds that sequestration is necessary, an act of Congress is required to prevent or postpone sequestration

Consider the bill under suspension of the rules; obtain unanimous consent to waive it; or, in the case of legislation considered pursuant to a rule that does not already waive it, a majority vote of the House.

A vote of three-fifths of Senators (usually 60)

Issues: