Congress to Wipe $3.4 Trillion from PAYGO Scorecard

The legislation to end the current government shutdown and temporarily fund the government would also wipe the current statutory PAYGO scorecard, effectively forgiving $3.4 trillion in 10-year borrowing, further eroding budget enforcement, and leaving annual deficits $150 to $200 billion higher than they would be if PAYGO were enforced.

PAYGO – short for Pay-As-You-Go – was designed to prevent policymakers from adopting policies that would worsen the deficit. The Statutory Pay-As-You-Go (PAYGO) Law, which has been in place since 2010, requires on-budget mandatory spending increases or revenue reductions to be offset, over the course of the year, with mandatory spending reductions or revenue increases.

Every time legislation is enacted that affects mandatory spending or revenue, the Office of Management and Budget (OMB) records the legislation’s budgetary effect on the “PAYGO scorecard.” If the scorecard has a positive balance at the end of the year due to the failure to offset new spending or tax cuts, OMB issues a “sequestration” – an across-the-board spending cut to Medicare (limited to 4%) and certain other mandatory sending programs – which takes place at the beginning of the next year.

Although the PAYGO law has stopped many deficit-financed bills from being considered in the first place, it has not prevented policymakers from adding to the debt. As we’ve explained before, Congress has never allowed the PAYGO sequester to go into effect following an accumulation of deficit-increasing legislation. Instead, Congress has bypassed the sequester in numerous ways, such as by wiping the scorecard clean as they did after enactment of the 2017 Tax Cuts and Jobs Act or delaying when the sequester would hit as they did after enactment of the American Rescue Plan.

Examples of Select Legislation that Added to Debt and How it Circumvented PAYGO

Note: the PAYGO impact often won’t match the total deficit impact due to the use of discretionary spending, off-budget effects, and other differences.

As a result of the borrowing under the recently-enacted reconciliation law (the “One Big Beautiful Bill”), the PAYGO score card should currently have a balance of around $3.4 trillion. Because the scorecard uses 5-year and 10-year averages of costs, CBO has estimated that OMB would be theoretically required to sequester $415 billion worth of spending. This is larger than the entire sequesterable base, and so the actual cut would be closer to $165 billion – including $45 billion for Medicare and $120 billion for other parts of the budget.

The government funding bill under consideration in the House would erase the scorecard and thus prevent this sequester. To avoid adding to the debt, a one-year sequester repeal could have been fully offset by adopting site-neutral payments in Medicare or restoring the top tax rate to 39.6% above $1 million of annual income. Notably, Representative Thomas Massie (R-KY) has submitted an amendment that would remove the PAYGO waiver. Unfortunately, it is not scheduled for a vote.

Instead, policymakers have opted to repeal the sequester without offsets, further eroding budget enforcement and leaving the debt on an unsustainable upward path.