Statutory PAYGO (H.J.Res. 45) would require that new legislation affecting mandatory spending or tax revenue be "budget neutral," or more specifically, that it not increase the deficit. The Statutory PAYGO rule would be enforced through sequestration – or automatic, across-the-board spending cuts.
The bill would require the Office of Management and Budget (OMB) to maintain a PAYGO ledger and to determine at the end of each year whether across-the-board spending cuts would be needed. If the total impact of new mandatory spending and revenue legislation results in a net cost over either a five- or 10-year time frame, then the President would order an across-the-board cut of certain mandatory programs. Expected extensions of certain current policies scheduled to expire – such as middle-income tax cuts, estate tax relief, Alternative Minimum Tax relief, and measures to prevent cuts in Medicare payments to doctors – do not trigger sequestration.
Statutory PAYGO was first put in place with bipartisan support by the Budget Enforcement Act of 1990, and was renewed on a bipartisan basis in 1997. The statute expired in 2002 and was not reauthorized by the Republican majority in Congress. In 2007, Democrats regained the majority in Congress and established PAYGO rules in the House and Senate.