Pay-As-You-Go Act: Strengthening Fiscal Responsibility

April 12, 2010

On February 12, 2010, the President took an important step forward in restoring fiscal discipline in Washington by signing into law the Statutory Pay-As-You-Go Act of 2010 (PAYGO).  That Act re-establishes an important budget rule that had been in effect during the 1990s: if legislation would raise the cost of entitlement programs or reduce revenues, it would need to be offset or "paid for" by other entitlement reductions or revenue increases. Put simply, new tax and entitlement legislation must be paid for.

Adherence to the PAYGO rule during the 1990s was critical to fueling the deficit reduction and creating the eventual surpluses of that era. Indeed, if PAYGO was in effect during the first decade of this century, the projected deficit would be $5 trillion smaller over the next decade. By reinstating this rule, the President has made it clear that we cannot afford to dig the fiscal hole we are in any deeper. Along with putting forward a budget with more than $1 trillion in deficit reduction (the most in more than a decade), passing fiscally responsible health care reform that will reduce the rate of health care cost growth over time, and establishing a bipartisan fiscal responsibility and reform commission to tackle our medium- and long-term fiscal problems, PAYGO is a critical part of putting the nation on firmer fiscal footing.

As part of the PAYGO Act, OMB is tasked with publishing five- and ten-year PAYGO scorecards, detailing the cumulative effects of new entitlement and revenue legislation. They can be found here.