The House is scheduled to consider H.J. Res. 45, on Thursday, February 4, 2010, under a rule.  The rule provides that the first title of the bill (the debt limit increase) would be considered adopted and agreed to by the House with passage of the rule.  If the rule is passed, an additional vote would be held on the second title of the bill (statutory PAYGO). The rule also provides that if the House does not agree to the second title, then the first title is considered to have failed as well.  H. J. Res. 45 was introduced on April 30, 2009.  On January 28, 2010, the legislation was passed in the Senate, with an amendment, by a vote of 60-39.

Debt Limit Increase Summary

H.J. Res. 45 would increase the current statutory debt limit by $1.9 trillion, from $12.394 trillion to $14.294 trillion.  The 15.3 percent increase would be the third raise since February, 2009, and the largest amount of a one-time debt limit increase in history.

The national debt subject to the statutory limit is currently at $12.36 trillion or 85 percent of Gross Domestic Product.  The current share of the debt is $40,053 for every man, woman, and child in the U.S.  According to reports, the $1.9 trillion increase would allow Democrats to keep spending and borrowing until after November, avoiding another politically difficult vote on the debt until after the Election Day.

Statutory "PAYGO" Summary

The legislation also includes a Senate amendment that would institute new, permanent statutory pay-as-you-go (PAYGO) budgeting requirements for both the House and Senate, with a number of exceptions.  In general, the PAYGO rule would require that bills providing tax relief or new direct spending must be offset by tax increases or mandatory spending reductions.

PAYGO Estimates:  Under the bill, the Chairman of the appropriate House or Senate budget committees (depending on where the bill originates) would establish an estimate of the direct spending effects of a bill prior to its consideration.  The estimate would be requested by the Chairman from the Congressional Budget Office (CBO) and the estimate must be prepared using the CBO baseline.  In the case of a conference report, the Chairmen of the House and Senate Budget Committees would jointly submit an estimate.

The Office of Management and Budget (OMB) would also be required to maintain two PAYGO scorecards displaying the budgetary effects of PAYGO legislation.  If legislation affecting direct spending did not include an estimate from the appropriate Budget Committee chair, the OMB score would be used.

In determining the budgetary effects of legislation, OMB would be required to determine the total effect over five and ten year periods (including the current budget year) and divide the total cost by five or ten years, depending on the applicable scorecard.  The average cost per year would then be applied to each year on the scorecard.  Using this average cost scoring method, legislation that has high estimated costs in the early years with revenue increases in later years could be averaged to lower the apparent cost each year.

Sequestration:  H.J. Res. 45 would require OMB to publish a PAYGO report each year, within 14 days after Congress adjourns.  If the annual report shows a deficit on either PAYGO scorecard for the budget year, OMB and the President would be required to issue a sequestration order that would reduce nonexempt mandatory spending by an amount equal to that year's deficit.  If both scorecards show a different deficit, OMB would be required to offset the larger of the two deficits.

In carrying out a sequestration order, OMB would be required to reduce nonexempt mandatory spending by a uniform percentage.  However, over 150 mandatory programs are exempt from sequestration under the legislation.  According to CBO's analysis of similar legislation, "the threat of sequestration would apply only to relatively modest amounts of mandatory spending because the vast majority of such spending would be exempt from that enforcement (as was the case under the BEA's PAYGO framework).  As a result, any feasible sequestration would not generate enough reductions in spending to offset the costs of major new spending or revenue initiatives."

Baseline Adjustments for Current Policies:  The legislation exempts certain direct spending increases and tax relief from PAYGO rules as follows:

• Legislation to prevent cuts in physician payments under the Medicare's Sustainable Growth Rate (SGR) trigger (the "doc fix").
• Provisions to extend the death tax at 2009 levels ($3.5 million exemption and a 45 percent tax rate) for two years, through December 31, 2011.
• Measures to extend the patch for the Alternative Minimum Tax (AMT) through December 31, 2011.
• Extensions of 2001 and 2003 tax relief for individuals making less than $200,000 or $250,000 for joint filers through December 31, 2011.  This includes 12 specific tax relief extensions, including the 10 percent tax bracket and marriage penalty relief.  This PAYGO exemption would only apply through December 31, 2011.  If these provisions were allowed to expire thereafter it would be another violation of the President's pledge not to raise taxes on families making less than $250,000.

Exemptions:  In addition to the mandatory spending programs exempted from sequestration and the exceptions made for adjustments in current baseline, the bill would not affect the following spending:

Emergency Legislation:  Mandatory spending provisions designated as emergency legislation would not be scored as having a budgetary effect for the purpose of PAYGO enforcement.

Discretionary Spending:  The bill exempts discretionary spending-approximately 40 percent of federal spending-from being subject to PAYGO budget neutrality requirements.

Debt Limit Increase Background

The statutory national debt limit sets the legal ceiling for how much money the federal government may borrow.  The national debt combines both the total debt held by the public (money owed to U.S. debt holders) and intergovernmental holdings (debt held by the U.S. government in certain trust funds).  According to the Department of Treasury, the current national debt is $12.360 trillion, or approximately $34 billion away from reaching the existing debt ceiling.  According to press reports, the debt limit has to be raised again before March, 2010, in order to keep borrowing at the current rate.

On Thursday, January 28, 2009, the Senate passed a $1.9 trillion or 15.3 percent debt increase by a vote of 60-39, raising the statutory limit to $14.294 trillion without any Republican support.  Prior to that,  Democrats raised the debt limit from $11.315 trillion to $12.104 when they passed the so-called "stimulus" bill almost one year ago, then raised the debt limit again in December 2009 by $290 billion, from $12.104 trillion to $12.394 trillion.  When the Democrats enacted the debt increase in February 2009, they promised that borrowing another trillion dollars would create jobs "immediately" and unemployment would not rise above 8 percent.  However, there were still 85,000 job losses last month and unemployment reached 10 percent.  Over the next ten years, annual deficits average $917 billion every year under the President's budget.

Statutory "PAYGO" Background

Congress first instituted statutory pay-as-you-go (PAYGO) legislation in the Budget Enforcement Act of 1990 (BEA).  The legislation instituted a statutory PAYGO requirement for new mandatory spending and set limits on certain discretionary spending.  Under the law, the President was required to enforce the PAYGO requirements through sequestration, reducing nonexempt mandatory spending.  The statutory PAYGO restrictions under the BEA expired in 2002.

In 2007, the newly elected Democrat Majority enacted their own version of PAYGO restrictions through House rules, which could be, and often were, waived.  At the time, Speaker Nancy Pelosi declared that, "After years of historic deficits, this new Congress will commit itself to a higher standard: pay as you go, no new deficit spending.  Our new America will provide unlimited opportunity for future generations, not burden them with mountains of debt."  However, since that time the Democrat Majority has presided over the most unprecedented spending spree in our nation's history.  Since the Democrat takeover, the national debt has risen by 42 percent from $8.67 trillion in January 2007, to $12.36 trillion in today.  Over the same period, the nation's deficit has exploded by more than ten-fold, from $162 billion in FY 2007 under the Republican's last budget, to an estimated $1.6 trillion in FY 2010.  Rather than reduce deficit spending, Democrats have raised taxes, used loopholes to get around their own PAYGO rules, or simply waived the rule to pass numerous bills.

On July 22, 2009, the House passed similar legislation (H.R. 2920) by a vote of 265-166.  That legislation, however, did not include an increase in the statutory debt limit and was never considered in the Senate.

A CBO score for H.J. Res. 45 was not yet available as of press time. However, a CBO analysis of similar House legislation to establish a statutory PAYGO requirement (H.R. 2920) stated, "CBO estimates that enacting the July 21, 2009, substitute should not be scored with any effects on mandatory spending or revenues because it would not change baseline projections."

In addition, the legislation would increase the maximum amount of statutory debt by $1.9 trillion.

While strongly supporting fiscal responsibility and reducing federal spending, many Members recognize that Democrat's PAYGO gimmicks have done nothing to curb runaway mandatory spending or reduce deficits and debt.  Rather, the Democrats' PAYGO has only been used as guise to increase taxes in the name of fiscal discipline.  Members have expressed various concerns since the Democrats took control in 2007 and promised "no more deficit spending."   Many Members believe that the Democrats' PAYGO standards have failed and done nothing to curb spending or control the deficit.  Concerns Members may have with the Democrats PAYGO include its numerous loopholes, inability to address increased appropriated spending, and tendency to encourage increased taxes.