The Gimmick Republicans Could Use to Avoid a PAYGO Sequestration

by Sam Wice — Monday, Dec. 11, 2017

Republicans plan to pass a deficit increasing tax-reform proposal, but the Pay-As-You-Go Act (PAYGO) would require a sequestration, an automatic reduction in spending, if tax reform increased the deficit.  Republicans could avoid a sequestration by convincing Senate Democrats to support legislation lifting the sequestration.  Democrats, however, might not be willing to compromise on an issue that they believe that Republicans caused.  Nevertheless, Republicans have a gimmick they could unilaterally use to avoid a sequestration.  Specifically, Republicans could use the Treasury Department’s estimate, which claims that the economic growth from tax reform would pay for its costs.

When determining whether legislation from a conference committee would increase the deficit, PAYGO gives the House and Senate Budget Committees the joint authority to estimate the costs.  Although the Budget Committees traditionally use the estimates of the non-partisan Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT), which have estimated that tax reform would increase the deficit by approximately $1 trillion, nothing would prevent the Budget Committees from using the Treasury Department’s estimate.

If the Budget Committees do not want to break precedent by replacing a non-partisan for a partisan estimate, the committees could indirectly use the Treasury Department’s estimate.  PAYGO specifies that if a conference report does not include a costs estimate, the Office of Management and Budget (OMB) shall estimate whether the legislation would increase the deficit.  Therefore, Congress could simply not include the CBO/JCT estimate in the conference report for tax reform and let OMB use the Treasury Department’s estimate to conclude that tax reform would not increase the deficit.  For instance, Republicans could say that to accommodate the 48-hour waiting period between completing a conference report and the Senate voting on legislation, Republicans would file the conference report before CBO/JCT have completed their estimate.  Republicans, however, would still wait to vote on the legislation until CBO/JCT complete their estimate.  This would allow Republicans to minimize the political impact of using the gimmick as the public would not know that OMB was using the gimmick until well after tax reform passes.

Although using the gimmick could irrevocably destroy PAYGO’s effectiveness in controlling budget deficits, it would be consistent with previous Republican actions.  In considering tax reform, Senate Republicans have already voted to waive the Senate rule preventing increases to the deficit and House Republicans have already voted to waive the House rule preventing income tax increases.  Before passing the deficit-increasing Bush tax cuts, Republicans let PAYGO expire.  This expiration avoided sequestration concerns.  Only because Democrats reenacted the law in 2010 do current Republicans have to consider the deficit.  Using the Treasury Department’s estimate would allow Republicans to repeat how they passed the Bush tax cuts by eschewing the fiscal discipline that PAYGO requires.

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About Sam Wice

Sam Wice is a former analyst at the Congressional Budget Office and a former Council Member of the American Bar Association’s Section of Administrative Law and Regulatory Practice. He can be reached at sam.wice[at]outlook.com.

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