Committee for a Responsible Federal Budget

PAYGO Kudos to the President's Budget

The President's budget follows the important budget principle of PAYGO, responsibly identifying tax and spending offsets sufficient to pay for new spending and tax cuts, and setting aside additional savings for deficit reduction. While we have refuted the President's claim of $1.8 trillion in deficit reduction, the true figure of $930 billion is nothing to sneeze at.

Some parts of the President's budget tie initiatives to specific offsets – an increase in the cigarette tax to fund universal prekindergarten, a one-time tax on foreign income as part of business tax reform to pay for transportation spending, increases in capital gains taxes and a bank tax to pay for middle-class tax cuts.

Proposals Paired With Corresponding Savings
Paired Policy Ten-Year Savings/Costs (-)
Provide universal prekindergarten, other children's initiatives - $90 billion
Increase tobacco taxes and index to inflation  $95 billion
Paired Policy  
Create a second-earner tax credit, increase child care credit, and other individual tax cuts - $275 billion
Increase and reform the taxation of capital gains and impose a tax on large financial institutions $320 billion
Paired Policy  
Additional highway spending - $270 billion
Impose one-time tax on untaxed foreign earnings of U.S. corporations $270 billion
Policies That Are Offset, But Not By Specific Items  
Partially eliminate the sequester  - $590 billion
Extend refundable credits for college, children, and work that expire in 2017 -$165 billion
Replace the Sustainable Growth Rate (SGR) - $155 billion
Net Deficit Reduction, after Paying for New Policies* $930 billion

*Total line includes all other policies in the President's Budget, which both increase and decrease deficits, not listed here.
Source: CRFB calculations based on OMB documents. Savings are costs are measured against a "PAYGO Baseline", which assumes continuation of current law.

President Obama offered other changes that weren't paired with specific sources of savings: repealing part of the sequester, extending some business and refundable credits, and replacing Medicare's Sustainable Growth Rate (SGR) with a compromise worked out last year. While the budget does not identify specific savings to pay for these, it includes enough cuts to mandatory spending and new revenue to offset all of them. For instance, the budget proposes around $500 billion of gross health savings, more than enough to pay for the $155 billion cost of his proposed SGR replacement (and other new initiatives).

While we criticized certain elements of the budget in our blogs and paper as not doing enough to face our long-term budget challenges, the President nonetheless deserves significant credit for putting new ideas and policies on the table with enough offsets to pay for them and putting the debt on a (modest) downward path. While we hope that Congressional budget resolutions due out later this spring will exceed this amount of PAYGO savings, the President has laid an important first marker of budget season.