Some Democrats Warn of Loophole in Obama's Pay-As-You-Go Rules

President Obama called on Congress yesterday to enact pay-as-you-go budget rules to help tame a deficit forecast to top $1.8 trillion this year. But even as some Democrats applauded the plan, others complained that it would give a free pass to expensive policies that would sink the nation trillions of dollars deeper into the red over the next 10 years.

The proposal would bar lawmakers from expanding entitlement programs such as Medicare and Social Security, creating programs such as universal health coverage or cutting taxes unless they cover the cost by raising taxes or cutting spending elsewhere. If, by year's end, the White House budget office determined that new initiatives had not been paid for, the president would be required to make across-the-board cuts in entitlement spending.

The proposal is similar to rules that briefly helped the Clinton administration transform big budget deficits into surpluses. Republicans let the law, known as PAYGO, lapse in 2002.

"The pay-as-you-go rule is very simple. Congress can only spend a dollar if it saves a dollar elsewhere," Obama said at a White House ceremony, backed by more than a dozen lawmakers, including House Majority Leader Steny H. Hoyer (D-Md.), who said he would introduce the plan as legislation next week. "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."

One big difference between Obama's proposal and the Clinton-era rules, however, is that Obama would exempt an array of expensive policies currently in effect. For example, lawmakers could extend the tax cuts enacted during the Bush administration past their 2010 expiration date, restrain the growth of the alternative-minimum tax and continue to forestall scheduled payment cuts for Medicare physicians without consequence. All told, those policies would increase annual budget deficits by more than $3.5 trillion over the next decade.

Some independent analysts who support PAYGO rules objected to the loophole. "This is like quitting drinking, but making an exception for beer and hard liquor," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.

And while the proposal found favor in the House, it faced serious obstacles in the Senate, where several key senators said they would oppose it.

"I'm not for waiving PAYGO for $3.5 trillion of items, much of which I think ought to be paid for," said Senate Budget Committee chairman Kent Conrad (D-N.D.). "I don't think at this point we can afford not to pay for those very large expenditures."

Coming one day after Obama vowed to shovel money from the economic stimulus package out the door even more quickly, yesterday's call for fiscal rectitude also drew catcalls from Republicans.

"The president continues to display a frightening ability to say one thing, yet do the exact opposite," said Rep. Tom Price (R-Ga.). "It's frankly insulting that a president who is on a path to bankrupting our government would try to play the role of fiscal hawk."

Obama acknowledged that the public is growing "skeptical" of his handling of the deficit, which has soared as a result of measures aimed at bailing out the banking system and reviving the economy. "But I think everybody understands this is an extraordinary moment," he said.