Obama proposes law requiring Congress to find health spending offsets

Washington -- Statutory pay-as-you-go rules that would require lawmakers to find money that covers the full cost of nearly all new entitlement expansions and tax cuts recently received a big push from President Obama.

On June 9, Obama delivered a proposal to Congress that would compel lawmakers to find offsets for health spending increases or other priorities rather than run up deficit spending. Although Democratic leaders have pledged to follow the pay-go principle, the current level of deficits inherited from the previous administration makes a more official legislative commitment necessary, he said.

"In the 1990s, statutory pay-go encouraged the tough choices that helped to move the government from large deficits to surpluses, and I believe it can do the same today," Obama said. "Pay-as-you-go is essential. It requires Congress to navigate the ebb and flow of politics while remaining fixed on that fiscal horizon."

But the president's proposal would allow a pay-go exception for legislation addressing Medicare payments to physicians, meaning lawmakers could increase deficit spending to prevent upcoming doctor cuts. Exceptions also would apply to bills freezing the estate and gift tax, reducing the scope of the alternative minimum tax and extending the tax cuts enacted in 2001 and 2003.

Exempting physician payment measures from the requirements could make it easier for lawmakers to pass a complete overhaul of the payment system. In its fiscal 2010 budget, Congress said the House could exempt up to $38 billion worth of a physician pay boost from Democratic pay-go rules, but no such break is in place on the Senate side.

"President Obama's call today to exempt changes in Medicare physician payments from the pay-go requirements shows that he recognizes that current government budget numbers do not reflect reality," said Joseph M. Heyman, MD, outgoing chair of the AMA Board of Trustees. "The AMA supports the pathway created to permanent reform in the administration's 2010 budget."

House Majority Leader Steny Hoyer (D, Md.) plans to sponsor legislation mirroring the president's statutory pay-go plan. Hoyer's office said he hopes to introduce a bill sometime before the July 4 congressional recess.

Some policy experts and lawmakers support statutory pay-go but are opposed to the exceptions.

Exempting four such massive tax and entitlement items undermines the purpose of lawmakers paying for spending as they go, according to the Committee for a Responsible Federal Budget, a fiscal policy organization based in Washington, D.C. "This is like quitting drinking, but making an exception for beer and hard liquor," said Maya MacGuineas, the organization's president. Obama should strengthen his proposal to cover all new nondiscretionary legislation and should include additional reforms, she said.

Sen. Charles Grassley (Iowa), the top Republican on the Senate Finance Committee, dismissed the Obama proposal as following a failed model from the past.

"When statutory pay-go was in effect in the 1990s, most programs were exempt, and Congress consistently voted to waive the required spending cuts," he said. "This proposal is simply a fig leaf to appease those who say they support fiscal discipline but continue to vote for more spending."

Sen. Kent Conrad (D, N.D.), the Senate Budget Committee's chair, also has reservations about the plan.

Even if the mechanisms are put in place to reinforce pay-go, the president's plan exempts policies that could lead to trillions of dollars in deficit increases, Conrad said. More than $2.5 trillion would be added to the deficit just from extending the 2001 and 2003 tax cuts.

"Given the nation's dire budget outlook, it is crucial that we stay focused on restoring fiscal discipline and that we begin to act now," Conrad said. "But we need a comprehensive approach. And we need to be careful not to adopt measures that inadvertently lock in unsustainable deficit levels for years to come."