November 7, 2007

But Greater Challenges Lie Ahead
By Richard Kogan and James Horney[1]

In early January, the House of Representatives established a Pay-As-You-Go rule.  The rule prohibits the House from considering any tax or entitlement legislation that would increase projected deficits over the coming ten-year period.  Proposed entitlement increases must be fully offset, or “paid for,” by reductions in existing entitlements or increases in revenues.  Likewise, proposed tax cuts must be fully offset by increases in other taxes or reductions in entitlements.[2]  We have examined the actions of the current House and the prior three Congresses with regard to the financing of entitlement and tax legislation and present our findings below.  We then discuss the importance of continued adherence to the PAYGO rule as well as some reasons that adherence could collapse.

In this analysis we did not examine bills passed by the Senate.  Because the Senate allows even non-germane amendments to be added to bills during floor consideration, cost estimates by the Congressional Budget Office (CBO) are less likely to be available for Senate-passed bills than for House-passed bills.  In addition, the Senate traditionally overlooks, rather than explicitly waives, minor budget violations so we cannot be sure what the non-existence of Senate PAYGO waivers means.  For these two reasons, it is easier to be sure the House has complied with PAYGO than the Senate except in the all-important case of legislation that has been sent to the President; this year, such legislation has complied with PAYGO in every case. 



Our examination of CBO cost estimates leads to four conclusions.

  • The House of Representatives has complied with its new PAYGO rule to date. 

  • The record of compliance stands in contrast to $1.3 trillion in cumulative violations of the PAYGO principle (i.e., $1.3 trillion in deficit-financed tax cuts and entitlement increases for the period 2001-2006) enacted by the previous three Congresses. 

  • Although legitimate questions can be raised about the methods the House has used this year to comply with PAYGO in a few circumstances — such as proposing a “temporary” cost that is offset by permanent savings — House compliance has largely been achieved by finding real offsets, not gimmicks, to pay for entitlement and tax legislation. 

  • House actions to date cast doubt on the notion that the PAYGO rule is primarily intended to stand in the way of tax cuts or to favor “tax and spend” policies.  For example, almost three-fourth of the savings contained in tax and entitlement legislation to date have been entitlement cuts while only one-fourth have been tax increases.  (These proportions are based on the Children’s Health Insurance — SCHIP — bill as the House originally approved it.)

pdf Click here to read the full text PDF of this report  (18pp.)

End Notes:

[1] Significant research was contributed by Kris Cox, Andrew Cleland, and Jon Petkun.

[2] See Appendix 2 for a more detailed description of the House PAYGO rule.  The Senate PAYGO Rule — re-established by the Congressional budget resolution for FY 2008, agreed to on May 17, 2007 — is almost identical to the House PAYGO Rule.

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CBO data show that the House has achieved impressive compliance this year with its new PAYGO rule; it has passed entitlement and tax legislation containing several hundred billion dollars in costs (over ten years) — and has fully offset those costs. In fact, the net effect of the tax and entitlement legislation the House has passed would be a slight reduction in deficits (about $8 billion over ten years).

Only one extremely small bill appears not to have been paid for. The cost of that bill is a minuscule $150,000.

Compliance has very largely been achieved through real offsets, not gimmicks. And three-fourths of the savings have been entitlement reductions, not tax increases.

This year’s record of compliance to date stands in sharp contrast to the record of the last three Congresses, which violated the PAYGO principle by almost $1.3 trillion over the 2001-2006 period.

The biggest test for PAYGO lies ahead, as the extension of expiring tax breaks — such as AMT relief — moves to the top of the Congressional schedule. PAYGO compliance is critical to avoiding an explosion of federal debt over the long term.

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