Obama faces bipartisan deficit skepticism

Congressional skeptics from both parties on Tuesday questioned whether President Obama’s new budget-cutting plan will rein in the skyrocketing deficit.

Republicans immediately pounced on Obama’s call for Congress to codify pay-as-you-go (pay-go) rules that would require Congress to enact tax increases or spending cuts to offset other legislation that would add to the budget deficit.

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“It seems a tad disingenuous for the president and Speaker [Nancy] Pelosi [D-Calif.] to talk about pay-go rules after ramming trillions in spending through Congress proposing policies that create more debt in the first six months of this year than in the previous 220 years combined,” House Minority Whip Eric Cantor (R-Va.) said.

Some Senate Democrats also questioned Obama for proposing that an extension of the 2001 and 2003 Bush tax cuts, which expire next year, be exempted from the tough new pay-go rule.

The exemptions and debt service on them would add up to about $4 trillion in spending a year that would be exempt from pay-go, according to Senate Budget Committee Chairman Kent Conrad (D-N.D.).

“I don't think we can afford to waive all that,” he said. “We've got to pay for this.”

Separately, Sen. Russ Feingold (D-Wis.) questioned whether the tax cuts should be exempted.

"I'm for a strong pay-go plan that doesn't necessarily allow for certain Bush-era tax cuts to be grandfathered in, so I need to take a look at that," he said.

The other items exempt from the president’s proposed law are Medicare payments to physicians, the estate and gift tax and the Alternative Minimum Tax (AMT), which Congress has prevented from being applied to hundreds of thousands of middle-class Americans annually. Healthcare reform would not be exempt from the plan.

Peter Orszag, director of the Office of Budget and Management (OMB), insisted that the exceptions represent existing policy and as a result should not be subject to pay-go law.

The president's plan would allow Congress to offset any increases in spending over 10 years, giving lawmakers a long time to put off the financing of expensive items. It’s also possible a future Congress could overturn a new law, if one is even approved.

Members of the conservative Blue Dog caucus joined Obama for the announcement and hailed the president’s plan.

“Entitlement increases and tax cuts need to be paid for,” Obama said in remarks in the East Room. “They are not free, and borrowing to finance them is not a sustainable long-term policy.”

In setting out his support for a tough pay-go rule, Rep. Baron Hill (D-Ind.), co-chairman for policy of the Blue Dog Coalition, said Obama was keeping his promise to the group after it “suspended” its philosophy to support Obama’s $787 billion stimulus. The House did not subject that measure to pay-go.

The Blue Dogs said Obama’s proposal would be taken up in the House Budget Committee on June 18.

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Pay-go rules have had a tough history in Congress.

Democrats in the House and Senate put pay-go rules in place after winning control of Congress after the 2006 elections. But congressional leaders repeatedly have waived them to pass expensive items, including the $787 billion stimulus bill.

A more stringent pay-go law similar to the one Obama is proposing was in effect during the Clinton administration, but it lapsed under President George W. Bush.

Blue Dogs failed to get Conrad and other Senate budget negotiators to include pay-go legislation in the budget resolution in May. To help mollify the centrist Democrats over the $3.6 trillion budget, Obama voiced support for a pay-go law and Pelosi and House Majority Leader Steny Hoyer (D-Md.) wrote a letter to senators saying that they wouldn't consider most legislation from the upper chamber unless they considered a pay-go bill.

As a result, some said Obama's proposal is another bow to the Blue Dogs, whose support was key to passing the stimulus and the budget and will be essential to healthcare reform. Stan Collender, a partner at Qorvis Communications and former Democratic House budget aide, said the pay-go bill will also help Obama assuage Americans’ concerns that spending has increased by too much too quickly.

“It will further reinforce the president's credentials about being interested in doing something about the deficit when the time comes,” Collender said.

Leonard Burman, director of the Tax Policy Center at the Brookings Institution, said that Obama's pay-go law would help address budget deficits expected to remain above $500 billion annually for the next decade. But Obama and lawmakers still need to do more to rein in spending, especially when they're not subjecting big-ticket items such as the Bush tax cuts and the AMT to the pay-go restrictions.

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“Restoring pay-go is a great start, but they've got way more they need to do to get the budget under control,” Burman said.

Conrad also has expressed concern that a pay-go rule could give more power over the budget baseline used by lawmakers to write the budget to the White House's Office of Management and Budget (OMB) instead of the independent Congressional Budget Office. Under Obama's plan, the OMB would keep track of what spending is subject to the pay-go law and what is exempted.

“I've always been a supporter of statutory pay-go, although, you know, it's obviously challenging if it means that OMB controls all the scoring,” Conrad said.