Sunday, November 23rd, 2014

The Obameter

Enforce pay-as-you-go (PAYGO) budget rules


"Obama believes that a critical step in restoring fiscal discipline is enforcing pay-as-you-go (PAYGO) budgeting rules which require new spending commitments or tax changes to be paid for by cuts to other programs or new revenue."


Updates

President signed a PAYGO bill, but GOP House changed key Democratic rule

Barack Obama's promise to enforce pay-as-you-go -- or "PAYGO” -- budgeting rules was significantly affected by the Republican takeover of the House during the 2010 elections.

A recap: PAYGO rules have existed in different forms, but the general principle is that they require new spending to be balanced by spending cuts, revenue increases or a combination of the two.

One complication affecting this promise is that two separate provisions go by the name PAYGO.

One is a law Obama signed on Feb. 12, 2010 -- the Statutory Pay-As-You-Go Act of 2010. The legislation increased the public debt limit and instituted a new PAYGO statute. The Office of Management and Budget keeps track of new spending and tax law changes. At the end of the year, OMB checks whether spending increases and tax cuts have been offset by spending cuts or tax increases. If not -- and if Congress doesn't act to make offsetting cuts -- there is an automatic across-the-board spending cut.

However, the law includes lots of exemptions, including a provision that allows Congress to declare the spending as "emergency" and thereby reduce the spending total. "This rarely happens and isn't much of an issue,” said Steve Ellis, vice president of Taxpayers for Common Sense.

The other provision known as PAYGO referred to rules in the House and Senate governing requiring each individual bill to have offsets that ensure the bill doesn't add to the deficit. The Senate rule continues to exist, though it can be waived with the support of 60 Senators (which is not really an additional threshold considering that virtually all significant legislation in the Senate these days requires 60 votes to pass).

The version of PAYGO that governed House actions when the Democrats were in control allowed either spending cuts or revenue increases to be used as offsets for new spending. But after the Republicans won control in the 2010 elections, they instituted a new rule called "cut-as-you-go,” or "CUTGO.”

Under CUTGO, mandatory spending increases can't be offset by tax increases -- only by spending cuts. In addition, CUTGO does not apply to tax cuts, which reduce revenue and, without being offset, worsen the deficit.

CUTGO has been enforced in the House, Ellis said. But he added that as far as deficit reduction goes, "it takes what was already a weak, swiss cheese program and makes it even weaker."

Obama's signing of the statutory PAYGO law earns him partial credit for sticking to his promise, but the procedural rules in the House and Senate -- which have had a bigger impact on the overall spending -- are entirely out of his control. And where those procedural rules are concerned, the House's PAYGO provision was replaced by the GOP with one that runs directly contrary to the vision outlined in Obama's promise. We rate this a Compromise.

Sources:

Committee for a Responsible Federal Budget, blog post, Jan. 5, 2011

PolitiFact, "It's in the new package of House rules," Jan. 7, 2011

Email interviews with Steve Ellis, vice president of Taxpayers for Common Sense, Jan. 5, 2011 and Dec. 18, 2012

Obama's PAYGO record is still mixed

Back in May 2009, we reported on the status of President Obama's efforts to enforce pay-as-you-go budget rules. These policies have existed in different forms over the years, but the general principle is that they require new spending to be balanced by spending cuts, revenue increases or a combination of the two.

At the time, we rated the promise Stalled. Congress had conveniently exempted itself from its own PAYGO rules when it passed the economic stimulus bill by exploiting an "emergency" provision.

It's been more than a year since our last update, so we wanted to see whether anything had changed.

First, a little background. On February 12, 2010, President Obama signed the Statutory Pay-As-You-Go Act of 2010 into law. The legislation increased the public debt limit to $14.2 trillion (from $12.4 trillion) and, more pertinently, instituted a new PAYGO statute. Under this statute, the Office of Management and Budget keeps track of any new spending and tax law changes. Then, at the end of the year, it checks whether spending increases and tax cuts have been offset with spending cuts or tax increases. If not, there is an automatic across-the-board spending cut. The law includes numerous exemptions, including a provision that allows Congress to declare the spending as "emergency" and thereby reduce the spending total.

It is important to note that this PAYGO law is operationally different from the PAYGO rules in the House and the Senate. Waiving the House PAYGO rule, for example, requires a majority vote. Waiving it in the Senate requires the support of 60 Senators. To bypass the PAYGO law, however, Congress would need to pass legislation explicitly directing the President not to enforce mandatory spending cuts for that year. Lawmakers now have to abide by both their own chamber rules as well as general statutory PAYGO.

We'll examine how well the president and Congress have been adhering to the PAYGO principle.

Starting with their own rules, we found that both the House and the Senate regularly waive such requirements. Take the Temporary Extension Act of 2010, signed by President Obama on March 2, 2010. The legislation temporarily increased unemployment benefits and health care subsidies. Section 11 of the bill states that the law is designated "as an emergency for the purposes of pay-as-you-go principles." In short, that means that most of law is exempt from the PAYGO requirement. The Continuing Extension Act of 2010, which included further extensions of expiring programs and which was signed into law on April 15, 2010, included an identical exemption.

As for "statutory PAYGO," the latest OMB "scorecard" suggests that Congress has not violated the PAYGO statute. Jason Peuquet from the Committee for a Responsible Federal Budget, a bipartisan public policy think tank, told us, however, that a "large portion of this so far has come from emergency spending ... so although lawmakers have technically abided by PAYGO, the law exempts trillion of dollars." Indeed, if you add up the many exemptions within the PAYGO law, you'd get anywhere between $2 trillion and $3 trillion in spending and tax cuts over 10 years added to the budget without the requirement that they be offset, Peuquet said.

President Obama promised to enforce pay-as-you-go budget rules. We'll give him points for passing the Statutory Pay-As-You-Go Act of 2010, which so far has been technically adhered to. But the law is riddled with exemptions, and the Congress seems to have a habit of waiving its own PAYGO rules. We'd like to wait and see how Congress and the president respond to recommendations due in December 2010 from the bipartisan deficit commission created by President Obama in February, 2010 before we issue a final ruling. But for now, we're keeping it Stalled.

Sources:

E-mail interview, Jason Peuquet, Committee for a Responsible Federal Budget, June 18, 2010

E-mail interview, Don Wolfensberger, The Woodrow Wilson Center, June 18, 2010

E-mail interview, Brian Riedl, Heritage Foundation, June 18, 2010

The Office of Management and Budget, PAYGO Score Card, accessed July 20, 2010

PolitiFact, Pelosi touts Democrats' revival of 'pay-as-you-go' budget rules, by Louis Jacobson, Feb. 10, 2010

GovTrack.us, Text of H.J. Res 45, accessed June 18, 2010

The Washington Times, Senate breaks rule, OKs jobs bill, by Stephan Dinan, Feb. 25, 2010

The Hill, Obama to sign Hire Act into law today, by Jay Heflin, March 18, 2010

Politico, Obama signs PAYGO into law, Feb. 12, 2010

USA Today, Senate passes jobs bill, waives new spending rules, by John Fritze, Feb. 24, 2010

Republican Caucus, The Illusions of Pay-Go, July 29, 2010

U.S. Government Printing Office, text of H.R. 4691, accessed Aug. 9, 2010

OpenCongress, index page for H.R. 4851, accessed Aug. 9, 2010

Lots of talk, but little action

President Barack Obama talks a good game on pay-as-you-go budget rules. He says he wants to enforce the PAYGO rules, which require that new spending commitments or tax cuts be offset by other program cuts or new tax revenue. He's also said he wants Congress to go beyond its current PAYGO rules by passing a law that would presumably be tougher and more binding.

But as we've seen with PAYGO discussions of the last 20 years, lawmakers pay lip service but little else. Year after year, they have found creative new ways to sidestep it.

In the Obama presidency, there have only been two significant bills that would be subject to PAYGO — the gargantuan economic stimulus bill, which spent $787 billion in federal money to revive the economy, and the children's health insurance bill that passed in early February.

Let's take them one at a time.

Congress exempted the economic stimulus bill from PAYGO because of the very nature of the bill. Its goal was to flood the economy with new money. Advocates said that if the bill required an equal-sized tax increase or cuts in other programs, that would erase the effectiveness of the bill. The goal of a stimulus bill is a net increase in spending to boost the economy. But there would be no net increase if the bill had a PAYGO provision that forced people to pay higher taxes or made Congress cut spending on other programs.

For the children's health insurance bill, Congress followed the PAYGO rule, but with the help of a budgetary trick. The bill fully funded the program for the first five years but then slowed the funding to a trickle for the next five years. But on the revenue side, it relied on a full 10 years of receipts from a 62-cent-per-pack increase in the tobacco tax. Republicans complained that the only way the bill could comply with the pay-as-you-go rule was to rely on a bookeeping gimmick.

Now, let's look at what Obama has done on the issue. He has spoken several times about his support for PAYGO and has urged Congress to pass a law that likely would be stronger than the existing congressional rules. He has said that PAYGO "is the principle that helped transform large deficits into surpluses in the 1990s" (a claim we found to be Half True) and he wants the rule to be strengthened into a law.

"We need to adhere to the basic principle that new tax or entitlement policies should be paid for," he said in his radio address on April 25.

But as the history of PAYGO has shown, talk is a lot cheaper than complying with the rule. Congress was required to follow a PAYGO law during the 1990s but found ways to evade it, usually by ignoring the annual requirement to come up with offsetting cuts or tax increases.

"If Congress wants to pass something bad enough, they will never let a budget rule get in the way," said Brian Riedl, a budget analyst for the conservative Heritage Foundation.

Admittedly, Obama doesn't have direct control over whether Congress complies with its current PAYGO rules. But three months into his presidency, there's little evidence that he is using his executive authority (such as the veto) or the power of the bully pulpit to push for an honest-to-goodness PAYGO commitment. Even if you accept that the economic stimulus bill should not be subject to the rule, we see no evidence that he spoke up about the gimmick in the children's health insurance bill.

We'll be keeping an eye on this one as Obama's health care plan moves through Congress, but so far we've seen little more than lip service. So we rate this promise Stalled.

Sources:

Republican members of the House Energy and Commerce Committee, Nine Great Reasons to Oppose H.R. 2 , Feb. 2, 2009

Congressional Budget Office, Cost Estimate for H.R. 2 , Jan. 13, 2009

Project Vote Smart, President Obama's remarks on signing SCHIP , Feb. 4, 2009

Interviews: Brian Riedl, Heritage Foundation, May 18; James Horney, budget analyst at Center on Budget and Policy Priorities, May 15; Steve Ellis, vice president Taxpayers for Common Sense; Josh Gordon, policy director, Concoard Coalition.