Obama Asks Congress For "Paygo" Rules

(AP Photo/Ron Edmonds)
President Obama on Tuesday asked Congress to swiftly approve "paygo" legislation, which would require any new tax cut or entitlement program to be paid for.

"Entitlement increases and tax cuts... are not free, and borrowing to finance them is not a sustainable long-term policy," Mr. Obama said at the White House.

"Paygo" -- or the "pay-as-you-go" system -- requires that any bills designed to cut taxes, or to establish new programs or expand programs, be offset by higher taxes or benefit cuts somewhere else. The law would make automatic cuts in mandatory programs as penalties for violations. The House and Senate adopted paygo principles in their rules in 2007, but they are not enforceable.

"The 'pay-as-you-go' principle is very simple," Mr. Obama said. "Congress can only spend a dollar if it saves a dollar elsewhere. This principle guides responsible families managing a budget."

Mr. Obama was joined at the White House by more than 40 members of Congress there to endorse the paygo law. Moderate and conservative "Blue Dog" Democrats have proposed using paygo rules to pay for the president's health care plan and other proposals, CBS News Political Director Steve Chaggaris reported in Politics Today, CBSNews.com's inside look at the key political stories driving the day.

Government reforms must be accomplished in a fiscally responsible way, the president said, and Washington must rein in the federal government's deficit. Under his administration's policies, the deficit will be cut in half in the next four years, Mr. Obama said.

"The reckless fiscal policies of the past have left us in a very deep hole," he said. "Digging our way out will take time, and patience, and tough choices."

Republican National Committee Chairman Michael Steele said in response to the paygo proposal that it simply means the president and Congress will raise taxes.

"President Obama and Congressional Democrats telling Americans they are committed to budget discipline is like Charles Ponzi telling people to trust him with their money," Steele said in a statement Tuesday. "No one should believe that the political party that brought us a $787 billion stimulus bill that hasn't created any jobs, a $3.5 trillion budget, a $50 billion bankruptcy bailout for GM and a record $1.8 trillion budget deficit this year will cut spending on anything but our national defense to achieve paygo requirements."

The severity of the economic recession has "required extraordinary investments in the short-term," Mr. Obama said, as well as long term solutions to keep the costs of health care, education and energy from crippling the economy.

He said the financial crisis "this administration inherited is still creating painful challenges for businesses and families alike," but that this morning's announcement that several financial institutions are set to pay back $68 billion to taxpayers is a positive sign.

"We're restoring funds to the Treasury where they will be available to safeguard against continuing risks to financial stability," Mr. Obama said. "And as this money is returned, we'll see our national debt lessened by $68 billion - billions of dollars that this generation will not have to borrow and future generations will not have to repay."

Paygo legislation will further relieve the federal government's budgetary stress, the president said, as it did in the 1990's. He pointed out that the Democratic Congress in 2007 did not have the Bush administration's support to pass paygo legislation and said politics has stood in the way of its implementation.

"The fact is, there are few who aren't distressed by deficits," Mr. Obama said. "It's a concern that crosses party lines, geographic boundaries, and ideological divides. But often, in the give and take of the political process, the vested interests of the few overtake the broader interests of the many."

Under the president's paygo plan, the Office of Management and Budget would maintain a ledger to record the average ten-year budgetary effects of all legislation enacted through 2013 that impacts mandatory spending or tax legislation relative to the baseline. Mr. Obama has proposed to exempt some policies from the paygo rules: legislators would not have to pay for increased Medicare payments to physicians, extensions of the Bush administration's tax cuts currently set to expire in 2010, or keeping additional taxpayers from falling under the alternative minimum tax.

"Paying for what you spend is basic common sense," Mr. Obama said. "Perhaps that's why, here in Washington, it has been so elusive."

Below are the president's full prepared remarks:

President Obama: Thank you all for joining us here at the White House. Before I begin, I want to comment briefly on the announcement by the Treasury Department with regard to the Financial Stability Plan.

As you know, through this plan and its predecessor, taxpayer dollars were used to stabilize the financial system at a time of extraordinary stress. These funds were also meant to be investments - and were meant to be temporary. That is why this morning's announcement is important. Several financial institutions are set to pay back $68 billion to taxpayers. And while we know that we will not escape the worst financial crisis in decades without losses to the taxpayers, it is worth noting that in the first round of repayments from these companies, the government has actually turned a profit.

This is not a sign that our troubles are over; far from it. The financial crisis this administration inherited is still creating painful challenges for businesses and families alike. But it is a positive sign. We are seeing an initial return on a few of these investments. We're restoring funds to the Treasury where they will be available to safeguard against continuing risks to financial stability. And as this money is returned, we'll see our national debt lessened by $68 billion - billions of dollars that this generation will not have to borrow and future generations will not have to repay.

I've said repeatedly that I have no interest in managing these banks - or running auto companies or other private institutions, for that matter. So today's announcement is welcome news. But I also want to say: the return of these funds does not provide forgiveness for past excesses or permission for future misdeeds. It is critical that as our country emerges from this period of crisis, that we learn its lessons; that those who seek reward do not take reckless risk; that short-term gains are not pursued without regard for long-term consequences.

At the same time, as we seek greater responsibility from those in the private sector, it is my view - and the view of those here today - that greater responsibility is required on the part of those who serve the public as well.

As a nation, we have several imperatives at this difficult moment in our history. We are confronting the worst recession this country has faced in generations. This has required extraordinary investments in the short-term. Another imperative is addressing long-deferred priorities - health care, energy, education - which threaten the American economy and the well-being of American families. We have begun to tackle these problems as well.

But we are also called upon to rein in deficits by addressing these and other challenges in a manner that is fiscally responsible.

This in part requires the kind of line-by line-review of the budget that is ongoing to remove things that we don't need, and make the programs we do need work more efficiently. There are billions to be saved this way. But much of our effort will entail going after the big ticket items that drive the deficits.

By ending unnecessary no-bid contracts and reforming the way government contracts are awarded, we can save the American people up to $40 billion each year. In addition, Secretary Gates has proposed a badly-needed overhaul of a defense contracting system riddled with hundreds of billions of dollars in cost overruns, and the cancelation of superfluous defense systems unnecessary to combat the threats of the 21st century.

We're also going to eliminate unwarranted subsidies currently lavished on health insurance companies through Medicare, which will save roughly $177 billion over the next decade. And this is part of broader health reform, about which I will have more to say in the coming days, which will both cut costs and improve care.

All told, in the next four years, the deficit will be cut in half. Over the next decade, non-defense discretionary spending will reach its lowest level, as a share of our national income, since we began keeping records in 1962.

But we must go further, and one important step we can and must take is restoring the so-called "pay as you go" rule. This is a rule I championed in the Senate and called for time and again on the campaign trail. Today, with the support of these legislators, my administration is submitting to Congress a proposal to codify this rule in law - and I hope that the House and Senate will act quickly to pass it.

The "pay as you go" principle is very simple. Congress can only spend a dollar if it saves a dollar elsewhere. This principle guides responsible families managing a budget. And it is no coincidence that this rule was in place when we moved from record deficits to record surpluses in the 1990s - and that when this rule was abandoned, we returned to record deficits that doubled the national debt. Entitlement increases and tax cuts need to be paid for. They are not free, and borrowing to finance them is not a sustainable long-term policy.

Paying for what you spend is basic common sense. Perhaps that's why, here in Washington, it has been so elusive.

Of course, there have been those in Washington leading the charge to restore "pay as you go." Many of them are here. I want to recognize Congressman George Miller, who introduced the first PAYGO bill in the House. I also want to thank the House Blue Dogs and their leaders, especially Baron Hill, who has been a driving force in favor of PAYGO. Finally, I want to acknowledge Senator Claire McCaskill, who has shown real leadership on this issue in the Senate.

In fact, two years ago, a new Democratic Congress put in place congressional rules to restore this principle, but could not pass legislation without the support of the administration. Now you have this support.

The fact is, there are few who aren't distressed by deficits. It's a concern that crosses party lines, geographic boundaries, and ideological divides. But often, in the give and take of the political process, the vested interests of the few overtake the broader interests of the many. The debate of the day drowns out those who speak of what we may face tomorrow. That is why "pay as you go" is essential. It requires Congress to navigate the ebb and flow of politics while remaining fixed on that fiscal horizon.

The reckless fiscal policies of the past have left us in a very deep hole. Digging our way out will take time, and patience, and tough choices. And I know that in the face of this historic challenge, there are many across this country skeptical of our collective ability to meet it. They're not wrong to feel that way. They're not wrong to draw this lesson after years in which we have put off difficult decisions; in which we have allowed our politics to grow smaller as our challenges grew ever more daunting.

But this is an extraordinary moment, one in which we are called upon not just to restore fiscal responsibility, but to once again live up to the broader responsibilities we have to one another. And I know that we can summon that sense of shared obligation; that we have the capacity to change, and to grow, and to solve even the toughest of problems.

That is at the heart of why we are here. And I appreciate the work of the folks in this room who have shown a willingness to make the hard choices and do the hard work essential to overcoming the challenges of the present, while leaving our nation better off in the future.

Thank you.

Watch President Obama's comments on "Paygo."

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