PAYGO Annual Report Shows Glaring Exemptions

OMB recently released an annual report on PAYGO, showing the budgetary impacts of PAYGO legislation, current policy exemptions, and exemptions for emergency legislation. The report details the budgetary impact of all legislation passed since February 12, 2010, when the PAYGO law was enacted.

The report notes that sequestration -- across-the-board spending cuts -- will not be necessary given that the positive $64 billion balance on the scorecard. While the scorecard suggests we have reduced the deficit by $64 billion, this number excludes $884 billion of deficit increase exempted from PAYGO. In other words, recent legislation has actually increased the deficit by $820 billion over the next decade.

Of the $884 billion in exemptions, about $434 billion came from current policy adjustments embedded in the PAYGO law (exempting things like the doc fixes and certain portions of the Bush tax cuts to account for current practices by lawmakers) and about $529 billion deemed as "emergency legislation". We've been pointing out all year that PAYGO has holes so big you could fly a jumbo jet through them. Well, this report unquestionably confirms that.

To PAYGO's credit, lawmakers have offset the costs of a numbers of bills put forward, including health reform, the small business aid bill, and financial reform. This is certainly an improvement over the alternative -- for example it meant the health reform was actually projected to reduce the deficit significantly, despite over $1 trillion of new spending.

Unfortunately, the savings from the health care bill have been wiped away many times over by the costs of the recent tax deal and many pieces of emergency legislation, including those with no business receiving an emergency designation.

^{Note: Negative numbers represent increase in deficit. Numbers rounded to nearest billion, and estimates may not add to totals due to rounding.}

So while some lawmakers might point to the $64 billion in PAYGO credits as a success, what we should all be focusing on is the net $820 billion in non-offset spending increases and tax cuts adding greatly to the deficits over the coming decade. We need to do better.

Unfortunately, the new House rules--replacing PAYGO with CUTGO--could even further reduce fiscal discipline in Congress. For more analysis on the recently enacted House rules, see our policy paper here.

Note: This blog has been updated with additional analysis from a previous version.