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WASHINGTON — President Barack Obama on Tuesday proposed budget rules that would allow Congress to borrow tens of billions of dollars and put the nation deeper in debt to jump-start the administration's emerging health care overhaul.
The "pay-as-you-go" budget formula plan is significantly weaker than a proposal Obama issued with little fanfare last month.
It would carve out about $2.5 trillion worth of exemptions for Obama's priorities over the next decade. His health care reform plan also would get a green light to run big deficits in its early years. But over a decade, Congress would have to come up with money to cover those early year deficits.
Obama's latest proposal for addressing deficits urges Congress to pass a law requiring lawmakers to pay for new spending programs and tax cuts without further adding to exploding deficits projected to total about $10 trillion over the next decade.
If new spending or tax reductions are not offset, there would be automatic cuts in so-called mandatory programs — although Social Security payments and the Medicaid health care program for poor and disabled would be exempt and cuts to Medicare would be sharply limited.
"The 'pay-as-you-go' rule is very simple," Obama said. "Congress can only spend a dollar if it saves a dollar elsewhere."
Last month Obama suggested a tougher plan that would prohibit Congress from swelling the deficit in one year by putting off until later years the tax increases or spending cuts to pay for it.
The requirement for legislation to be financed over the coming decade generally mirrors existing congressional rules and reflects the likelihood that Obama's health care plan will add many billions of dollars to the deficit in the early years. Savings and revenues in later years would have to make up for the initial deficits.
Congress lived under a so-called "pay-go" regime in the 1990s and the early years of this decade. But it didn't stop lawmakers from passing President George W. Bush's landmark 2001 and 2003 tax cuts and big increases in farm subsidies without making the required spending cuts elsewhere. A $127 billion surplus in 2001 subsequently turned into deficits over the next four years of $159 billion, $377 billion, $413 billion and $319 billion.
The rules still exist and lawmakers routinely find ways around them. For example, a bill to effectively double GI Bill education benefits was enacted last year. Congress also regularly waives the rules to pass an annual "patch" to the alternative minimum tax, sparing some 20 million families from a $2,000 tax increase on average.
Still, Democrats profess a faith in pay-as-you-go rules.
"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," Obama said.
In fact, the surpluses of the late 1990s were largely due to a huge influx of tax revenues from a booming economy.
Rep. Dennis Moore, D-Kan., said the House is likely to pass Obama's latest proposal next month. The plan faces far tougher sledding in the Senate, where Budget Committee Chairman Kent Conrad, D-N.D., has expressed serious reservations.
Conrad said Obama's proposal does nothing about the fiscal perils the country already faces, including deficits that the Congressional Budget Office predicts will average nearly $1 trillion a year over the next decade.
"I remain concerned about the potential effect of this proposal on American farmers, seniors and veterans," said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee.
Republicans said new budget rules ring hollow in the wake of the Obama-championed $787 billion stimulus package and other deficit spending. They said legal limits on appropriations should be put into place as they were in the 1990s, though such "caps" were easily evaded when surpluses appeared.
Congress is just ramping up the annual appropriations process, which in the House would award increases averaging 12 percent to non-defense programs. Obama's proposal does not include the comparable "caps" from the 1990s.
"Time after time this year, Democrats have ignored calls for fiscal responsibility," said House GOP leader John Boehner of Ohio. "We don't need more rhetoric and gimmicks. We need action to tackle the tremendous fiscal challenges facing this nation."
Obama's proposal would require future tax cuts to be financed by tax increases elsewhere. But again, he carves out several exceptions, including for an extension of Bush's tax cuts due to expire in 2011 and relief from the alternative minimum tax.
The federal deficit is on pace to explode past $1.8 trillion this year, more than four times last year's all-time high. The record borrowing is credited with pushing up interest rates, which could imperil chances for a recovery later in the year.
