CHN: Senate Increases Debt Limit and Imposes PAYGO Budget Rule

On January 28 the Senate passed H.J. Res. 45 authorizing an increase to the ceiling on federal borrowing, raising it to $14.3 trillion.  An amendment to the bill passed that imposes a pay-as-you-go (PAYGO) budget rule meant to rein in new spending both on entitlement programs and new tax cuts.  Both votes were along party lines with all Democrats in favor and Republicans opposed.
The federal debt currently stands at $12.3 trillion and is growing rapidly as spending has increased to address the fragile economy and revenues are at a historic low.  The large $1.9 trillion increase in the debt ceiling means that Congress will not be forced to address the politically volatile issue again until 2011, after the midterm elections.

The House, which has been much more supportive of PAYGO, pressed the Senate to pass a statutory PAYGO rule as the condition for approving an increase in the debt limit. Under PAYGO, Congress would keep a scorecard on new entitlement spending and new tax cuts that were not fully offset with other spending cuts and/or taxes increases.  If at the end of the year those actions resulted in adding to the deficit, non-exempt entitlement programs such as Medicare and farm subsidies would have to be cut to offset that deficit.   In addition to exempting programs such as Social Security, the bill exempts from the PAYGO rule extensions of certain low- and middle-income tax cuts that are set to expire at the end of 2010, a two-year extension of the estate tax at the 2009 level, and changes to doctors’ Medicare reimbursement rates.  Congress can also declare an entitlement program like Unemployment Insurance as emergencyspending, in which case it would not have to be offset.  The House, which passed a slightly different version of PAYGO in July is expected to approve H.J. Res. 45 next week.

As a stipulation for allowing H.J. Res. 45 to come to the floor for a vote, Senators Conrad (D-ND) and Gregg (R-NH) negotiated with Majority Leader Reid (D-NV) an agreement that allowed for a vote on their proposal to create a bi-partisan fiscal commission.  The goal of the commission would be to make recommendations to Congress for addressing the debt through entitlement program cuts and/or tax increases.  The Conrad/Gregg commission, composed of 18 members (10 Democrats and 8 Republicans), would have required Congress to take an up-or-down vote (no amendments allowed), requiring a three-fifths majority of both the House and Senate for passage on any recommendations agreed to by 14 members of the commission.  The vote would occur in 2010 after the fall elections.  The amendment failed the 60-vote threshold by a vote of 53-46.

While there is agreement that deficits and the debt need to be addressed, there is not consensus on whether a commission proposing changes that cannot be amended by Congress is the best route to take, nor that this is best timing given the state of the economy.  Further, many Republican members seem unwilling to agree to tax cuts and many Democrats are concerned that entitlement programs would be subject to deep cuts.  However, during the State of the Union the President promised to establish a deficit commission through an executive order that would similarly come up with a plan to reduce deficits.  Members would be composed of 6 Democrats, 6 Republicans and 6 Administration appointees.  The White House has given assurance that any plan that 14 members of the commission agrees to will be sent to Congress for action.

Another amendment failing to garner the necessary 60 votes was sponsored by Senator Thune (R-SD) to terminate the Troubled Asset Relief Program (TARP), enacted over a year ago to aid large banks and financial institutions.  Much of the $700 billion TARP program money has been repaid.  The vote failed 53-45.  The jobs bill passed by the House in December uses $75 billion in repaid TARP funds to offset its cost, and some in the Senate hope to use the offset for their jobs bill.  Others want to keep the TARP program open to potentially provide aid to smaller financial institutions.

Budget and Appropriations
Policy Analyses and Research