- The Washington Times - Friday, June 26, 2009

White House Office of Management and Budget Director Peter R. Orszag told Congress Thursday that enacting the administration’s PAYGO proposal into law would strengthen budget enforcement and represent an important step along the path toward fiscal responsibility.

But Mr. Orszag and others who testified before the House Budget Committee stressed that much more would need to be done to restore fiscal responsibility over the medium and long terms.

The principle of PAYGO, or pay as you go, would require Congress to offset the costs of a new non-emergency tax cut or entitlement expansion with revenue increases or spending cuts.

Failure to achieve these offsets would trigger the process of sequestration, which would require automatic cuts in nonexempt mandatory programs. Medicare could be sliced up to 4 percent, and the others, such as farm price supports and numerous grants to states, would incur uniform percentage cuts high enough to generate the needed savings.

Entitlement programs exempt from sequestration would include Social Security, veterans’ benefits and programs aimed at low-income households, such as Medicaid.

The PAYGO Act “tells Congress and the administration that their minimum duty is not to make the existing multi-year structural deficit any worse than it already is,” said Mr. Orszag, who added that President Obama is “insistent that health reform be deficit neutral through scoreable offsets.”

The Congressional Budget Office, which would maintain the health reform scorecard, recently estimated that President Obama’s 10-year fiscal blueprint would generate budget deficits averaging more than $900 billion per year, or twice last year’s deficit of $459 billion.

The CBO and the White House both estimate that this year’s deficit will exceed $1.8 trillion, but those forecasts include a $250 billion placeholder for more financial-bailout money that Congress never approved.

Statutory PAYGO rules were in effect from 1991 through 2002, when the U.S. budget moved from then-record deficits to record surpluses. Although sequestration was never invoked, Alice Rivlin, a PAYGO proponent who served as President Clinton’s budget director, has noted that “many of [the administration’s] most cherished ideas could not even be proposed because we could not find a way to offset them under the PAYGO rules.”

Former CBO Director Douglas Holtz-Eakin, who served as John McCain’s economic adviser last year, told the committee that the PAYGO proposals “are far from a comprehensive framework for budgetary enforcement, contain too many loopholes, are needlessly complex and ultimately are unlikely to contribute significantly to improving the fiscal outlook.”

Mr. Holtz-Eakin objected to the fact that the administration has not proposed multiyear spending caps for discretionary spending, which comprises about 40 percent of total budget outlays. The loopholes include the president’s proposal to exempt from PAYGO fixes to the Alternative Minimum Tax, changes to enacted cuts in Medicare’s doctor payments and the extension of numerous 2001 and 2003 middle-class tax cuts, which are scheduled to expire at the end of next year. The 10-year cost of the loopholes is about $3 trillion.

Concerned that a slew of early PAYGO waivers would undermine the law’s long-term effectiveness, Robert Greenstein, executive director of the liberal-oriented Center on Budget and Policy Priorities, told the committee: “It makes no sense to put in place a pay-as-you-go rule that says these extensions must be paid for when everyone knows they will not be.”

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