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.