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Thursday, March 28, 2024 | Back issues
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Obama Proposes ‘Pay as You Go’

WASHINGTON (CN) - President Barack Obama submitted a "pay as you go" proposal to Congress on Tuesday that he said would only allow Congress to "spend a dollar if it saves a dollar elsewhere," to stem the use of debt in financing entitlement programs and tax cuts.

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

"Entitlement increases and tax cuts need to be paid for," Obama declared. "They're not free, and borrowing to finance them is not a sustainable long-term policy."

In a phone interview, Alan Viard, a resident scholar with the American Enterprise Institute, a conservative think tank, agreed with Obama that PAYGO is common sense, but called it a "modest step."

"If you're in a hole, you need to stop digging," Viard said in agreement with the bill.

In his speech Obama turned towards history to promote the bill. "It is no coincidence that this rule was in place when we moved from record deficits to record surpluses in the 1990s," he said, "and that when this rule was abandoned, we returned to record deficits that doubled the national debt."

Similar rules have indeed been adopted in the past, sometimes through legislation, and sometimes as internal rules of the Senate or the House.

One such "pay as you go" rule was in effect from 1990 until 2002, although towards the end it was consistently waived by Congress.

"The reckless fiscal policies of the past have left us in a very deep hole," Obama said in what seemed a blow to the George W. Bush administration.

The act would only apply to new laws, so growing demands by aging baby boomers on entitlements that are already written into the law, such as Social Security and Medicare, would not need to be countered by tax increases or other measures.

The PAYGO legislation is also limited to tax legislation and entitlement programs.

Viard from the Enterprise Institute brought up healthcare and permanent middle class tax cuts. "This rule says you would not be able to do those things unless you find offsets," he said.

When asked if this bill runs contrary to the $787 billion stimulus package endorsed by Obama, Viard replied that certain aspects of the package, such as middle class tax cuts, would have been affected. "The stimulus would have required some type of waiver," he said.

But he added that, "It doesn't make sense to pay for a stimulus package," because a stimulus is designed to inject money into the economy.

In his speech, Obama did not seem to think PAYGO conflicts with his spending programs, asserting that he plans to ultimately cut the debt.

In a letter to Congress Tuesday, he wrote, "Both the Budget I have proposed and the Budget Resolution approved by the Congress would cut the deficit in half by the end of my first term."

Obama finished his speech on a note of optimism, saying the United States has the ability to overcome such huge debt. "I think everybody understands 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," he said. "And I know we have the capacity to change, and to grow, and to solve even our toughest of problems."

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