A Potential Sequester Under Statutory PAYGO at the End of the 117th Congress

A Potential Sequester Under Statutory PAYGO at the End of the 117th Congress

INSIGHTi

A Potential Sequester Under Statutory
PAYGO at the End of the 117th Congress
October 20, 2022
The most recent statutory PAYGO scorecards, posted by OMB in September 2022, show a “potential
PAYGO” sequester at the end of the current session of Congress that would require across-the-board cuts
to offset a debit of approximately $742 billion. This Insight provides a brief overview of statutory
PAYGO and an explanation of legislative considerations.
In February 2010, the Statutory Pay-As-You-Go Act of 2010 (P.L. 111-139) was enacted establishing a
budget enforcement mechanism commonly referred to as “Statutory PAYGO.” According to Section 2 of
the act, it is generally intended to “enforce a rule of budget neutrality on new revenue and direct spending
legislation” based on the net effect of all such legislation on the deficit over five- and ten-year periods. To
enforce Statutory PAYGO, the Office of Management and Budget (OMB) is required to record the
budgetary effects of newly enacted revenue and direct spending legislation on two separate scorecards:
one that covers a five-year period and one that covers a ten-year period. The budgetary effect of PAYGO
measures is determined by statements inserted into the Congressional Record by the chairmen of the
House and Senate Budget Committees and referenced in the text of the measures. If this procedure is not
followed, the budgetary effect of the measure is determined by OMB. Each year, OMB is required to
issue an annual PAYGO report not later than 14 days (excluding weekends and holidays) after Congress
adjourns to end a session. If the net effect of all PAYGO legislation is an increase in the deficit, the
President must issue a sequestration order, which automatically implements across-the-board cuts to non-
exempt direct spending programs to compensate for the amount of the debit. Section 11 of the act
exempts some direct spending programs and activities from sequestration, such as Social Security and
Medicaid. Medicare is limited to a 4% cut. (To see a list of non-exempt direct spending programs that
would likely be affected by sequestration under Statutory PAYGO, see the OMB report to Congress on the
Joint Committee sequester for FY2023.)
When legislation is enacted that is projected to increase the deficit, the text will often include a provision
exempting the legislation’s budgetary effects from OMB’s PAYGO scorecard. For example, Section
201(a) of P.L. 117-180, stated that “The budgetary effects of this division and each succeeding division
shall not be entered on either PAYGO scorecard maintained pursuant to section 4(d) of the Statutory Pay-
As-You-Go Act of 2010.”
Congressional Research Service
https://crsreports.congress.gov
IN12036
CRS INSIGHT
Prepared for Members and
Committees of Congress

Congressional Research Service
2
When Congress considers legislation pursuant to the reconciliation process, however, such a provision
could be considered extraneous under Section 313(b) of the Congressional Budget Act because it would
not produce a change in outlays or revenues. Therefore, such a provision would potentially be subject to a
point of order that would require the support of 60 Senators for a waiver. A provision concerning the
application of PAYGO to a reconciliation measure could, however, be included in a separate non-
reconciliation legislative vehicle. This was the case, for example, for the 2017 reconciliation bill, often
referred to as the Tax Cuts and Jobs Act (TCJA), which, when enacted was projected to increase the
deficit by $1.46 trillion over the 2018-2027 period. The legislation did not include a PAYGO waiver
within its text, but a provision was included in separate legislation, that was enacted into law on the same
day.
In March 2021, a reconciliation bill, the American Rescue Plan Act, was enacted that was projected to
increase the deficit by approximately $1.856 trillion over the period FY2021-FY2030. In December of
2021, legislation was enacted that removed its budgetary effects from the 2022 PAYGO scorecards, and
added them to the scorecards for 2023. As a consequence, there is currently a debit of $742 billion that
could result in across-the-board cuts due to “Potential PAYGO Sequestration” after the end of the current
session. This potential sequester could be cancelled, postponed, or modified through the enactment of
legislation. This could be done prior to the end of this session or at the beginning of the 118th Congress.

Author Information

Megan S. Lynch
James V. Saturno
Specialist on Congress and the Legislative Process
Specialist on Congress and the Legislative Process

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

IN12036 · VERSION 1 · NEW