June 9 (Bloomberg) -- President Barack Obama urged Congress to toughen rules requiring lawmakers to finance the cost of spending initiatives and tax cuts with offsetting savings in the government’s budget.

“We have several imperatives at this difficult moment in our history,” Obama said today at the White House, citing the recession and the need for spending on health care, energy and education. “But we are also called upon to rein in deficits by addressing these and other challenges in a manner that is fiscally responsible.”

The U.S. is facing budget deficits that the administration forecasts will hit a record $1.8 trillion this year and $1.26 trillion in 2010 as the recession reduces tax collections and forces higher government spending on measures to stabilize the economy. Obama is vowing to cut the shortfall in half by the end of his first term while paying for an overhaul of the health- care system and spending more on education and energy initiatives.

Under fire from Republicans for his spending proposals, Obama is seeking to impose a “pay-as-you-go” system on the budget to demonstrate his commitment to fiscal restraint.

Addressing Deficits

“The fact is there are few who aren’t distressed by deficits,” Obama said at the White House as he met with House Democrats concerned about deficits who are known as the Blue Dogs. “We know it’s going to be tough” to get pay-as-you-go ruled enacted into law.

Democrats already have so-called paygo budgeting rules, which they imposed when they took over Congress in 2007. Since then, lawmakers have frequently waived the rules, to the Blue Dogs’ dismay, as their colleagues balked at demands to either raise taxes or cut spending. Obama wants to write the congressional rules into law to make it harder for lawmakers to ignore them.

“If we do not begin paying our bills now we will continue to short change future generations,” Representative Charlie Melancon of Louisiana, one of the 51 members of the Blue Dog coalition, said after the meeting with Obama.

The administration said it didn’t want any new rules to apply to some costly items on lawmakers’ agenda, including cuts to the alternative minimum tax, the estate tax and legislation blocking scheduled cuts in Medicare reimbursements to doctors.

Overhauling Health Care

One of Obama’s major initiatives is revamping U.S. health care. The president has repeatedly said any changes must not add to the budget deficit, a point emphasized by White House Budget Director Peter Orszag at a briefing later.

Health care must be “deficit neutral,” Orszag told reporters. Rising costs for health care are the “core driver” of the government’s deficits, he said.

Whether the new rules are in place before health care legislation is passed is up to lawmakers, Orszag said.

House Majority Leader Steny Hoyer, a Maryland Democrat, said he will introduce the paygo legislation as early as next week. The plan likely will encounter more opposition in the Senate, where Democrats have balked at similar proposals.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said he favors paygo legislation but opposed “waiving paygo for $3.5 trillion worth of items” that would be exempted from the spending rules in the president’s plan.

Entitlements

He said the plan would do little to address the growing spending for Medicare and other entitlement programs that budget experts say represents the No. 1 threat to the government’s long-term financial standing.

“We can’t put off paying for these very large expenditures,” Conrad said, declining to predict whether paygo legislation would pass the Senate.

House Republican Leader John Boehner of Ohio said the call for paygo rules have been ignored in the past. “We don’t need more rhetoric and gimmicks,” Boehner said in a statement. “We need action to tackle the tremendous fiscal challenges facing this nation, including reining in the Democrats’ budget plan for trillion-dollar deficits as far as the eye can see.”

When pay-as-you-go rules were in effect from 1991 to 2002, Congress often refused to enforce the rules, said Brian Riedl, a budget expert at the Heritage Foundation, a conservative research group in Washington.

“Paygo has proven to be more of a talking point than an actual tool for budget discipline,” Riedl said.

Orszag said writing the rules into the law would prevent lawmakers from bypassing the process.

To contact the reporters on this story: Brian Faler in Washington at   or bfaler@bloomberg.net; Roger Runningen in Washington at rrunningen@bloomberg.net

Last Updated: June 9, 2009 15:07 EDT