First OMB PAYGO Scorecard Puts Congress $64 Billion in the Black. Wait, What?
by Sam Rosen-Amy, 1/26/2011
Good news everyone! In 2010, according to a recent accounting by the Office of Management and Budget (OMB), the bills Congress passed reduced the deficit by $64 billion over the next ten years. Surprised? Thought this past year featured massive deficit-financed bills? That’s because the scorecard, which OMB keeps as part of statutory Pay-As-You-Go (PAYGO), does not include hundreds of billions in spending. Congress essentially told OMB to ignore a few key pieces of legislation, which, if included in the calculation, would bring the year’s cost to $820 billion over ten years.
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PAYGO isn’t a completely useless rule because of these gaps. I think in general, both parties can agree that new spending should be paid for, which is what PAYGO does. Essentially, PAYGO requires offsets for any legislation that increases mandatory spending (i.e. Social Security and Medicare) or decreases revenue (i.e. taxes). If legislators want to cut taxes or raise Social Security benefits, under PAYGO, that money must come from either decreased mandatory spending or increased revenues. In other words, PAYGO does not allow for deficit-financed spending. PAYGO also doesn’t cover discretionary spending, the annual appropriations bills that make up what is commonly referred to as the annual budget.
While both houses of Congress have PAYGO rules (or at least used to), there’s also a PAYGO law, meaning if Congress violates PAYGO in a given calendar year, it’s up to the executive branch to fix the problem through a process known as sequestration. Over the course of the year, OMB keeps a scorecard of all the mandatory spending and revenue bills Congress passes. If, at the end of the year, there’s a net increase to the deficit over either a five- or ten-year window, OMB steps in and issues a sequestration order, which must be signed by the President. The sequestration order enacts across-the-board cuts equal to the amount over-budget on OMB’s scorecard.
So if Congress ended up passing a bunch of deficit-financed bills, including the Bush tax cut deal during the lame duck, how come the President isn’t issuing a sequestration order? In the PAYGO law, there are a couple of exemptions to the PAYGO rules. First, it sets aside certain subjects as outside PAYGO’s scope, including any estate tax bill, a “doc-fix” bill, and the middle-income Bush tax cuts. All of these bills are expensive (and politically popular) extensions of tax cuts or spending programs, and are exempted because it’s tough to offset their large price tags. Last year, Congress passed about $434 billion worth of these so-called “policy adjustments,” mostly due to the extension of the Bush tax cuts, none of which shows up on the PAYGO scorecard.
Congress also created an exemption for “emergency” spending. In theory, emergency spending is for just that, emergencies. If you wanted to quickly create a tax credit for victims of a natural disaster, for instance, you could classify it as emergency spending and not worry about offsetting it. In practice, however, Congress ends up classifying a lot of things as emergencies. This year, bills such as extension of the upper-income Bush tax cuts and extension of unemployment insurance were labeled emergencies. Congress racked up $545 billion in emergency spending this past year, again mostly due to the Bush tax cuts.
If you include these two kinds of exemptions, Congress’ 2010 PAYGO activities will add $820 billion to the debt over the next ten years. But according to the official scorecard, which covered some 97 bills, Congress came out $64 billion in the black (the numbers don’t quite add up because there are a few other exemption types that, when taken into account, work to reduce the deficit). Thus, no sequestration order.
Having all of these exemptions doesn’t mean PAYGO is a useless law. In the first place, the scorecard does clearly label which bills have exemptions, and how much those exemptions are worth. There isn't a lot of retrospective work done at the end of each year, looking back at the costs of the past year's legislative work. In fact, Washington Post blogger Ezra Klein recently complained about the need for a deficit scorecard, to help cut through all the rhetoric by marrying votes with their impact on the deficit. The PAYGO scorecard gets us halfway there.
Second, PAYGO seems to work. Like I said before, most lawmakers agree the spending and revenue changes should be offset, and PAYGO helps them realize that goal. As the scorecard shows, almost all of the major PAYGO legislation Congress passed was offset. The one exception was the tax cut deal (labeled the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act" in the chart above), which was passed over the strenuous objections of many members of Congress, who correctly pointed out how it was fiscally irresponsible. Provisions like extension of unemployment insurance are worthy uses of the exemption, since it's a great automatic stabilizer. But labeling tax cuts for the rich "emergency" spending simply because there isn’t enough political will to pay for them is just bad policy. The PAYGO scorecard helps highlight that for us.