WASHINGTON – The U.S. House of Representatives today passed by a bipartisan vote of 265-166 legislation championed by House Budget Committee Chairman John Spratt (D-SC) to strengthen fiscal discipline by making the “pay-as-you-go” (PAYGO) principle statutory.

“Statutory PAYGO works because it reins in new entitlement spending and new tax cuts,” said Spratt. “Both tend to be long lasting – easy to pass, hard to repeal. By insisting on offsets and deficit neutrality, PAYGO buffers the bottom-line. Its terms are complex, but at its core, it is a common-sense rule that everyone can understand: when you are in a hole, stop digging.”

PAYGO requires that new legislation affecting mandatory spending or tax revenue be "budget neutral," or not increase the deficit. The new statutory PAYGO rule would be enforced through sequestration – automatic, across-the-board spending cuts. The bill requires the Office of Management and Budget (OMB) to maintain a PAYGO ledger and to determine at the end of each year whether a sequestration would be needed. If the total impact of new mandatory spending and revenue legislation results in a net cost over either a five- or 10-year time frame, then the President would order an across-the-board cut of certain mandatory programs.

Expected extensions of certain current policies scheduled to expire – such as middle-income tax cuts, estate tax relief, Alternative Minimum Tax (AMT) relief, and measures to prevent cuts in Medicare payments to doctors – do not trigger sequestration. Statutory PAYGO was first put in place with bipartisan support by the Budget Enforcement Act of 1990, and was renewed on a bipartisan basis in 1997. The statute expired in 2002 and was not reauthorized by the Republican majority in Congress.

“Without PAYGO, the budget plunged from a surplus of $236 billion in the year 2000 to a deficit of $413 billion in the year 2004,” said Spratt. In 2007, Democrats regained the majority in Congress and established PAYGO rules in the House and Senate.

The bill passed by the House today makes PAYGO statutory, and serves as a complement to the existing PAYGO rules Democrats established in 2007.

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