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Pay-As-You-Go Act

After years of fiscal recklessness by President Bush and Republicans, President Obama and Congress are committed to getting our budget under control - a crucial part of our plan to strengthen the American economy.  On July 22nd, the House passed the Statutory Pay-As-You-Go Act 2009 (HR 2920) by a vote of 265-166.  This bill requires Congress to offset the costs of tax cuts or increases in entitlement spending with savings elsewhere in the budget.  If the net effect of all legislation enacted during a session of Congress increased the deficit, there would be an across-the-board reduction in certain mandatory programs.  By restoring ‘pay-as-you-go' budget discipline as the law of the land, we are returning to the basic rule for every family budget: you don't spend money you don't have. 

This measure is similar to the PAYGO law Democrats put in place in the 1990s, which helped reverse huge deficits of the Reagan-Bush years, create budget surpluses, and produce an economic boom.  Statutory PAYGO is a crucial step to restore fiscal discipline, force the tough choices on taxes and spending, and begin bringing down the deep deficits that face our nation.  Without reducing the deficit, we won't be able to invest in vital priorities, including health care, education, and clean energy, critical to our economic future.

The Republican-controlled Congress let these rules to expire in 2002, contributing to the dramatic turnaround from a projected surplus of $5.6 trillion to projected deficits of $4.5 trillion.

The bill requires Congress to offset all new policies that reduce revenues or expand entitlement spending over five and ten years; discretionary spending is not subject to PAYGO, and exceptions can be made for emergencies.

This proposal is realistic and enforceable, allowing Congress to maintain a few key widely supported bipartisan current policies without offsets - Medicare physician payments, Alternative Minimum Tax, middle-class tax cuts, and the current estate tax rate.  This will avoid the need to waive the statute to maintain these key policies, which would undercut paygo and doom it to failure.

TOUGH BUDGET CHOICES ON TAXES AND SPENDING

  • Require that all new policies reducing revenues or expanding entitlement spending enacted during a session of Congress be offset over five and ten years.
  • Force a serious examination of wasteful subsidies in the budget and tax loopholes that can be eliminated to offset more worthwhile programs.
  • Force advocates of tax cuts to acknowledge the costs and show how they would pay for them.
  • Require any future extension of upper income tax cuts to be offset.

NEEDED TO ENSURE THAT WE CAN MAKE LONG-TERM INVESTMENTS

  • Ensure that we can afford to fund America's most important priorities consistently for future generations.
  • Exempt any spending on discretionary programs funded in appropriations bills, such as: LIHEAP, WIC, Head Start, Housing assistance, and Pell grants.

REALISTIC AND ENFORCEABLE

  • Allow legislation extending designated current policies to be extended without offsets:
    • Medicare physician payments.
    • Alternative Minimum Tax.
    • Extension of child tax credit, marriage penalty relief and reduction in income tax rates for taxpayers with incomes below $250,000.
    • The current estate tax exemption and rate.
  • Provide for the use of Congressional Budget Office estimates.
  • Include an exemption for legislation designated as emergency, as Congress did in the American Recovery and Reinvestment Act.

TOUGH ENFORCEMENT THAT PROTECTS KEY BENEFITS

  • Establish an enforcement mechanism: with across the board cuts in non-exempt mandatory programs at the end of the year if Congress has not paid for the costs of all new policies enacted during the year.  Certain designated programs are exempt from the sequester, including:
    • Social Security
    • Medicaid
    • Food Stamps
    • Veterans
    • Other programs targeted to low-income families

President Obama and Congressional Democrats have demonstrated a strong commitment to fiscal responsibility:

  • passing a budget that cuts the deficit by two-thirds in four years;
  • passing a clean energy bill that is fully paid for;
  • are working on a fully paid for health care reform bill - the single most important thing we can do to bring down long-term deficits.
  • Since the first day Democrats took control of Congress in 2007, PAYGO has been a rule of the House; with this bill, we will turn PAYGO budget rules into law with enforceable consequences.