Statutory Pay-Go Now Law

On February 12, President Obama signed into law H.J.Res. 45, legislation creating a statutory pay-as-you-go rule. Congress packaged the pay go rule with an increase in the total federal debt, raising the federal debt limit ceiling by $1.9 trillion--to a total of $14.3 trillion.

The pay-go rule means Congressional legislation creating new spending or tax cuts must be offset through the combination of spending cuts or tax increases elsewhere. Offset requirements can be waived by a supermajority vote. If they are not, automatic spending cuts would be triggered.

Other than the authority to waive the rules, there are four exceptions to the statutory pay-go rules:

• Temporary prevention of scheduled reductions in Medicare reimbursements for doctors.
• A two-year prevention of the alternative minimum tax (AMT) from increasing the number of middle class taxpayers affected.
• A two year reinstatement of the estate tax. The reinstatement is presumed to be based on two years of 2009 rules—i.e., a 45 percent top rate and a $3.5 million per individual exemption, but there is talk in the Senate of increasing the exempt amount and lowering the top rate—but for less than two years.
• A permanent extension of tax rates that apply to middle income tax payers.

NAIFA Staff Contact: Michael Kerley, Senior Vice President – Federal Government Relations, at (703) 770-8155; or Dani Kehoe, NAIFA Outside Counsel.