PAYGO, short for Pay-As-You-Go, is a federal budget law that requires new legislation affecting taxes or mandatory spending to avoid adding to the projected deficit over five-year and ten-year windows. If Congress enacts laws that collectively increase the deficit and does not offset the cost, the statute triggers automatic across-the-board cuts to non-exempt mandatory programs, a process called sequestration. In practice, Congress has repeatedly used waivers and scorecard resets to keep those cuts from ever taking effect, which is why PAYGO’s real-world bite is more political than mechanical.
Where the Rule Comes From
The current rule is the Statutory Pay-As-You-Go Act of 2010, enacted as part of Public Law 111–139 and signed on February 12, 2010. Earlier versions of the concept existed as internal congressional rules starting with the Budget Enforcement Act of 1990 and expired at the end of fiscal year 2002. The 2010 law converted PAYGO from a congressional practice into a permanent legal obligation with an enforcement mechanism attached, and it remains the governing statute today.1Office of the Law Revision Counsel. 2 USC Chapter 20A – Statutory Pay-As-You-Go
The Two Scorecards
The Office of Management and Budget keeps two running tallies of the budgetary effects of new legislation. One covers a five-year window beginning in the budget year; the other covers a ten-year window. Any law enacted after February 12, 2010, that changes direct spending or revenue is recorded on both.2House Committee on the Budget. What is PAYGO? Statutory PAYGO Rules and Sequestration
OMB does not enter costs year by year as they actually occur. It spreads a law’s total budgetary effect evenly across the years in each window. A bill that costs $10 billion over ten years shows up as $1 billion per year on the ten-year scorecard, even if the real spending is concentrated at the back end. The same law can produce a different average on the five-year scorecard if most of its costs land outside the shorter window.3The White House. Section-by-Section Analysis of the Statutory Pay-As-You-Go Act of 2010
Scorecard balances also carry across sessions of Congress. A new session starts with whatever balance was in place at the end of the previous one, so a deficit-increasing law in one year follows Congress into the next unless something offsets it or lawmakers act to zero it out.4Federal Register. Notice – 2025 Statutory Pay-As-You-Go Act Annual Report
What Counts as Paying for a Bill
To comply with PAYGO, a bill that increases the deficit has to be paired with an offset of equal or greater size. Offsets come in two forms: cuts to existing mandatory spending, or increases in federal revenue. A bill that expands healthcare subsidies might cut agricultural payments or close a tax preference to balance the ledger.
Lawmakers cannot rely on projected economic growth to cover a bill’s cost. They have to point to specific changes that the Congressional Budget Office and the staff of the Joint Committee on Taxation can quantify. A general expectation that a tax cut will pay for itself through higher growth does not satisfy the rule. Each new law is scored on its own and then added to the cumulative scorecard, so any bill that leaves a debit puts pressure on the next one to make up the difference.
What Happens If a Scorecard Shows a Debit
Within 14 days after Congress adjourns to end a session (excluding weekends and holidays), OMB publishes an annual PAYGO report in the Federal Register. If either scorecard shows a debit for the budget year, the President has to issue a sequestration order in that same report. The order cancels enough mandatory spending from non-exempt programs to erase the debit. When both scorecards show a debit, the sequestration amount is based on whichever average is larger.5Office of the Law Revision Counsel. 2 USC 934 – Annual Report and Sequestration Order
The cuts are applied uniformly as a percentage reduction across all non-exempt accounts. OMB calculates the percentage needed to close the gap, and every affected program loses that share of its funding for the fiscal year. There is no negotiation over which programs absorb more or less. The formulaic design is the point: it takes discretion out of the process and is supposed to be painful enough to deter deficit-increasing bills in the first place.
What Sequestration Cannot Touch
A large share of federal spending is legally shielded from sequestration under exemptions carried forward from the Balanced Budget and Emergency Deficit Control Act of 1985. Social Security’s Old-Age, Survivors, and Disability Insurance programs are fully exempt. So are all Department of Veterans Affairs programs, including medical care. Medicaid, the Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, and other low-income programs are protected. Federal employee retirement and disability benefits, railroad retirement Tier I benefits, net interest on the debt, refundable tax credits, and unemployment compensation are also off-limits.
Medicare sits in between. It is not fully exempt, but cuts to it are capped at 4 percent of program spending, which for fiscal year 2026 works out to roughly $45 billion.6Congressional Budget Office. Potential Statutory Pay-As-You-Go Effects of a Bill to Provide Reconciliation Pursuant to H. Con. Res. 14 Everything else, a much smaller pool that includes accounts like farm price supports, certain student loan subsidies, customs user fees, and mineral leasing receipts, absorbs the rest. Because so much is shielded, the percentage cut on what remains gets severe fast when the required sequestration is large.
How Congress Keeps Sequestration From Happening
Sequestration under statutory PAYGO has never actually taken effect. Congress has consistently found ways around it, and the techniques are worth knowing because they explain the gap between what the statute says and what happens.
The most common move is to write language into a new law directing OMB not to record its budgetary effects on the scorecards. Sometimes this is done by designating the spending as an emergency requirement, which the statute permits. Other times Congress simply prohibits OMB from scoring the law at all. Either way, the cost never lands on the scorecard.7Congressional Budget Office. Questions About the Statutory Pay-As-You-Go Act of 2010
When debits do build up, Congress can pass legislation that sets both scorecards to zero. That happened at the end of the 118th Congress, when the American Relief Act of 2025 wiped both balances, and again during the first session of the 119th Congress through Public Law 119–37, which zeroed all balances effective upon adjournment.4Federal Register. Notice – 2025 Statutory Pay-As-You-Go Act Annual Report
A subtler technique is legislation that pushes debits from the current budget year into a later year, delaying the trigger without addressing the underlying cost. Congress used this approach for budget years 2019, 2020, 2022, 2023, and 2024.7Congressional Budget Office. Questions About the Statutory Pay-As-You-Go Act of 2010
Supporters of PAYGO argue the law still matters because sidestepping it requires a public vote, which creates political accountability. Critics call the process theater. The record shows a rule that regularly bends when Congress wants it to.
Why the 2025 Reconciliation Bill Is a Real Test
The stakes came into focus in 2025. CBO estimated that a major reconciliation bill moving through Congress would increase deficits by an average of roughly $230 billion per year over the ten-year window. Without a waiver or offset, that projection would trigger a fiscal year 2026 sequestration order requiring $230 billion in cuts from non-exempt mandatory programs.6Congressional Budget Office. Potential Statutory Pay-As-You-Go Effects of a Bill to Provide Reconciliation Pursuant to H. Con. Res. 14
The 4 percent Medicare cap would hold that program’s share to roughly $45 billion. The remaining $185 billion would fall on the much smaller pool of other non-exempt accounts, meaning steep percentage cuts on programs that lack the political weight to protect themselves. The expectation is that Congress will act to prevent the sequestration from actually occurring, but the scale involved makes the 2025–2026 cycle the most consequential test of statutory PAYGO since it was enacted.
PAYGO Is Not the Only Budget Rule
Statutory PAYGO is a federal law that applies to enacted legislation. The House and Senate each maintain separate internal rules that can block bills before they reach the President, and it is easy to confuse them with PAYGO itself.
The Senate enforces a point of order against legislation that increases on-budget deficits over the current year, the budget year, or the five- and ten-year windows. Any senator can raise it, and overriding the objection takes 60 votes.8U.S. Senate Committee on the Budget. Budget Points of Order The House uses a rule called Cut-As-You-Go, or CUTGO, which requires mandatory spending increases to be offset only by equal or greater cuts to mandatory spending; revenue increases do not count. Both rules operate independently of statutory PAYGO, and a bill can satisfy one and fail another.