Obama tackles public doubts on spending

Barack Obama is president, but he's also still a politician.

So after trying to shore up his support on how he's handling the economy with a high-profile pledge on Monday to ramp up the impact of the $787 billion stimulus package, today he's focusing on his weakest area -- federal spending.

With the deficit this year headed to a record $1.8 trillion -- four times the previous high -- Obama outlined new rules that would require Congress to pay for any new tax cuts or spending, including an overhaul of the healthcare system.

He spoke at the White House on what is known as "PAYGO" -- as in pay as you go.

"The 'pay as you go' rule is very simple," he said. "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."

Obama said he is sending Congress a bill to turn the proposals into law.

(His full remarks are below, followed by a White House release on the proposals.)

Obama announced rules -- similar to those used by President Bill Clinton to produce budget surpluses -- that would ban lawmakers from expanding entitlement programs such as Medicare and Social Security, creating new entitlement programs, or cutting taxes unless they are paid for with spending cuts or tax increases. If lawmakers fail to do so, entitlement programs would be automatically cut.

Obama invited members of Congress, including fiscally conservative Democrats in the "Blue Dog Coalition," whose support he needs on healthcare and other parts of his ambitious agenda.

A new Gallup Poll reinforces that while Obama's job overall approval rating remains high at 61 percent, and he gets high marks on his handling of foreign affairs, his disapproval number is at the highest of his presidency, at 34 percent, eroded by increasing doubts on some of his policies. Disapproval of how he is handling the economy has risen from 30 percent in February to 42 percent in late May.

And more Americans now disapprove than approve how he is handling the federal budget deficit (46 percent approval, 48 percent disapproval) and how he is controlling federal spending (45 percent approval, 51 percent disapproval).

"This latest Gallup Poll shows that the US public has significantly differentiated views on various dimensions relating to Obama. Americans are most positive when asked about their basic opinions of Obama as a person. They also are positive when asked to assess his overall job performance, and on aspects of his performance relating to foreign and international issues. Americans have become increasingly less positive about Obama's handling of the economy in recent months, and are most negative when asked to say whether they approve of his handling of the federal deficit and federal spending," Gallup says.
"The good news for Obama is that the public continues to be quite positive when asked to rate him as a person and to rate his overall job performance -- both of which are presumably summaries of Americans' views of their president across all of the ways in which he could be evaluated."

The new poll, conducted May 29-31, has a margin of error of plus or minus 3 percentage points.

OBAMA'S REMARKS

THE PRESIDENT: Thank you. Thank you all for joining us here in 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. And these funds were also meant to be an investment -- and they were meant to be temporary. And that's 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 some losses to taxpayers, it's 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. And I think everybody sees it in their own individual districts. But it is a positive sign. We're seeing an initial return on a few of these investments. We're restoring funds to the Treasury where they'll 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 the banking system -- or, for that matter, running auto companies or other private institutions. So today's announcement is welcome news to me. But I also want to say the return of these funds does not provide forgiveness for past excesses or permission for future misdeeds. It's 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's my view -- and the view of those who are standing behind me today, as well as those in the audience -- 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're confronting the worst recession this country has faced in generations, and 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. And we've 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 of dollars 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 every year. In addition, Secretary Robert 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'll have more to say in the coming days, which will both cut costs and improve care.

So 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, or PAYGO. 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, including the Speaker of the House, my administration is submitting to Congress a proposal to codify this rule into law -- and I hope that the House and Senate will act quickly to pass it. (Applause.)

The "pay as you go" rule is very simple. Congress can only spend a dollar if it saves a dollar elsewhere. And 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're 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's been so elusive. Of course, there have been those in Washington leading the charge to restore PAYGO, and many of them are here today. I want to recognize Congressman George Miller, who introduced the first PAYGO bill in the House. (Applause.) I want to thank the House Blue Dogs and their leader, especially Baron Hill, who has been a driving force in favor of PAYGO. (Applause.) I want to acknowledge Senator Claire McCaskill, who's shown real leadership on this issue in the Senate. (Applause.) And as I said, I want to acknowledge the Speaker of the House, as well as leader Steny Hoyer, who are here because they understand the importance of this principle and are fully supportive of our efforts.

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. I want you all to know you now have that support. (Applause.)

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. And that's 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. And digging our way out of it will take time, patience, and some tough choices. I know that in the face of this historic challenge there are many across this country who are 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've put off difficult decisions; in which we've allowed our politics to grow smaller as our challenges grew ever more daunting.

But 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. 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 our toughest of problems.

And that's at the heart of why we're here. I appreciate the work of the people in this room who've shown a willingness to make hard choices and do the hard work that's essential to overcoming the challenges of the present, while leaving our nation better off in the future. So this is going to be a lift. We know it's going to be tough. I think we can get it done, especially with the extraordinary leadership that is on display here today.

Thank you very much, everybody.

WHITE HOUSE RELEASE

The President will discuss his plan to ensure that the federal government lives within its means and will lay out his commitment to:

· Return to an era of responsible government spending, the President is asking Congress to approve legislation requiring that any new tax cut or entitlement program be paid for. Simply, Congress can only spend a dollar if it saves a dollar somewhere else.

· Put PAYGO back into law, with automatic cuts in mandatory programs as penalties for violations. This will complement and strengthen the Congressional rules and help to bring the government back to a more sustainable budget. The House and Senate adopted pay-as-you-go (PAYGO) principles in their rules in 2007, but the rules can go only so far without a way to enforce them.

· Return to the rules of the 1990s when statutory PAYGO enforced the tough choices that moved the budget from large deficits to surpluses, and the President believes it can help to move us in that direction today.

HOW THE PRESIDENT’S PLAN WORKS

The President’s plan makes clear that, to spend a dollar, Congress must offset the cost. The Office of Management and Budget would maintain a PAYGO ledger that records the average ten-year budgetary effects of all legislation enacted through 2013 that affects mandatory spending or tax legislation relative to the baseline.

There would be exceptions in four areas where current policy differs substantially from current law: (1) Medicare payments to physicians; (2) the estate and gift tax; (3) the AMT; and (4) tax cuts enacted in 2001 and 2003. In those cases, legislation would be entered on the ledger only to the extent that Congress enacted costs that exceed a projection of 2009 policies actually in effect (or for the 2001/2003 tax cuts, policies scheduled for 2010). These exceptions are similar to the treatment of expiring mandatory programs under current PAYGO rules, which do not record costs for simply extending those programs.

If there is a PAYGO cost at the end of a particular year because Congress has not succeeded in paying for all the new costs that it has enacted, the President would be required to issue an order sequestering budgetary resources from certain mandatory programs. The bill exempts other mandatory programs from sequestration, primarily those that were exempted in the first PAYGO statute or similar programs enacted since then.

In 2007, both houses of Congress took important steps toward restoring fiscal discipline by using Congressional rules to restore enforcement of the PAYGO principle. This PAYGO statute is meant to serve as a supplement to these rules, providing an enforcement mechanism, sequestration, that is unavailable without statutory PAYGO.