Obama touts $1.8 billion 'profit' on bailout

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By Jon Ward

"All paygo says is that if you create a new entitlement, it has to be offset [with cuts]. But Social Security, Medicare, Medicaid and all other entitlements can continue growing on autopilot and nothing will stop that," he said.

The White House acknowledged as much, but the president's budget director, Peter R. Orszag, said paygo will create "a sense of fiscal discipline" that will help ensure that programs like health care expansion, which is expected to cost more than $1 trillion, are offset by spending cuts or tax increases.

"I do strongly believe in the ... broken window theory of budgeting," Mr. Orszag said. "Just like broken windows have been shown to increase crime and harm outcomes, if you don't have important constraints, including a basic principle that if you're already got a hole you don't dig it deeper, which is what paygo embodies, I think it leads to a sense that anything is possible in a fiscally irresponsible way and undermines a lot of what we're trying to do."

Mr. Orszag said that the Medicare Part D reform, which passed in 2003 and expanded coverage for prescription drugs for seniors, would have fallen under paygo rules. Mr. Obama, in a message to Congress, said paygo would also prevent new large tax cuts such as those passed in 2001 and 2003 under President George W. Bush.

Congress in 2007 passed a rule instituting paygo rules but the Bush administration did not support legislation, which is more binding and enforceable.

"Now you have this support," Mr. Obama said.

But Senate Finance Committee Chairman Max Baucus, Montana Democrat, said a law requiring paygo would "put the U.S. agriculture industry and Medicare program at risk of automatic benefit reduction if Congress does not meet the additional requirement."

"Congress already has pay-go requirements in both the House and Senate," said a Baucus aide.

Republicans reacted to the paygo announcement with incredulity.

"We've amassed more debt over the last five months than this country has amassed in the last 200 years. This Congress rammed through a $3.6 trillion budget. So for us to sit here and listen to the White House say that 'we ought to be responsible, we ought to pay for what we're doing' I think lacks just a little bit of credibility," said House Minority Whip Eric Cantor, Virginia Republican.

Sean Lengell contributed to this report.