Obama on the Record: ‘Pay As You Go’

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.

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