priorities. this threatens the economy and the well-being of american families. we are also called upon to rein in the deficits by addressing these in a matter that is responsible this requires the kind of review of the budget that is ongoing, to remove things that we do not need and make the programs that we do need more efficient. there are billions of dollars we may save this way, but much of this means going after the items that drive the deficits. by reforming the way that government contracts are awarded, we may save $40 billion every year. and there is a badly needed overhaul of the defense contracting system, with hundreds of billions of dollars

in cost overruns, and the cancellation of defense systems in needed for the 21st century. we will also eliminate unwanted subsidies, for the health insurance companies through medicare that will save $177 billion, this is part of the broad reform and i will have more to say about this in the coming days. the deficit will be cut in half and over the next decade, non- defense discretionary spending will reach the lowest level since we began keeping records in 1962. but we must go further. in one step that we must take is restoring the pay as you go rule, or paygo. i called for this in the senate

and the campaign trail. with the support of these legislators, including the speaker of the house, my administration is sending to congress the proposal to bring this rule into law. i hope that the house and senate will pass this quickly. [applause] >> this rule is very simple. congress can only spend $1 did they save a dollar elsewhere. this guy is responsible families and it is no coincidence that this was in place when we moved from record deficits to record surpluses and when this rule was abandoned, we returned to deficits that

doubled the national debt. increases and tax cuts need to be paid for, this is not free. borrowing to finance them is not a sustainable policy. paying for the money that you spend is common sense, that is why this has been so elusive in washington. there have been those leading the charge to restore paygo and many of them are here today. i want to recognize george miller, who introduced the first bill in the house. i want to thank the blue dogs, and their leader, who has been a driving force for this. i want to the knowledge claire

mccaskill, and as i said, i want to acknowledge the speaker of the house and steny hoyer. they are here because they are fully supportive of the efforts. two years ago, a democratic congress put in place rules to restore the principle gut -- but could not pass legislation without the support of the administration. you now have this support. the fact is, there are few people not distressed by deficits. this crosses party lines and ideological lines. but often in the political process, the interests of the few overtake the interests of the many.

the debate of the day is drowning out the people who speak about what we may face tomorrow. that is why this is essential. congress must navigate politics but must be fixed on the horizon -- the fiscal horizon. it will take time and patience to dig out of the hold, and some tough choices. in the face of this challenge, there are many who are skeptical of the collective ability, they are not wrong to feel this way, after years in which we have allowed politics to grow smaller as the challenges became more daunting. and everyone will say that this is an extraordinary moment, we're called upon to restore fiscal responsibility and live to the broader responsibilities that we have.

we have the capacity to change and grow, and solve even the toughest problems. that is why we are here today. i appreciate the work of the people in the room, who have shown a willingness to make hard choices and do the hard work to overcome the challenges of the present. this will be a lift, i think that we can get this done. thank you so much.

[applause] [applause] >> later, members of the blue dog coalition spoke about paygo. we will hear from the co-chair. this is 12 minutes. i have an opening statement and then we will let the others -- they may have statements to make and they will take

questions. if we do not start paying the bills now, we will shortchange the future generations who will face cuts to federal investment with education and health care and national security. to obtain fiscal responsibility, we must return to the rules that brought the federal budget to balance in the 1990's. this coalition has worked to make this a reality. we look forward it to restoring the fiscal discipline to the federal government by enacting paygo into law. >> is not a coincidence that when this was in effect, we were able to have surpluses, and when these what by the wayside, this contributed to the deficits that we are facing. this is a rule that we must

abide by winning comes to difficult decisions on mandatory spending as we undertake health care reform, to cut the deficit in half and get back to the balance as we tried to grow the economy and get more people back to work. it is important to say that this is the first legislation that they have officially transmitted to the congress. we are proud to work closely with obama, since the days of the transition to bring us to today and make certain that this will pass the house, we will work to reinstate this tool. >> we are very pleased with the president's support on this issue. today is a good day. we have suspended many of the philosophies to give the president what he has needed for the economy.

we were always flexible on that with the assurance that he would support these rules. today he is keeping his promise. we are delighted that he is doing this. we will pass the legislation, and we will get back on the pathway of fiscal responsibility. the economy of the nation is at risk. this is an important day that he is reporting on the signature issue. >> will they take this up any time soon? >> we were having some meetings in the white house about what is the next death, and you will see more on this next week. >> the speaker and the leader joined us today at the white house, it is my understanding that the budget committee will take this up on the 18th.

>> is it your understanding that health care is going to fall into this, will this be covered? >> health care reform needs to be deficit neutral and before a proposal would come to the house floor, this would be reinstated. and there is a discussion of including the paygo measure in the reform proposal and we would be working this out over the next couple of weeks but we will start the process of the hearings, and this figure may try to move this to a stand- alone measure. the president has emphasized this, the health care reform proposal will be deficit neutral. once this is not just something that we hope for, that is the language in the resolution, that the house and senate have in their rules.

without a vote to change that, that is the law of congress. >> physicals -- they will need massive tax increases to pay for this? >> all of the ideas for raising revenue on the table, with billions of dollars in savings as it relates to quality, against the volume of health care procedures, we already know that the stake holders, the pharmaceutical companies have provided details into how they will stem the growth, which will result in savings, we do want to say anything further? west is possible to do the health care reform, this has

been scored already and the simple fact is that there is so much waste in the health-care system, $700 billion a year. if we can retrieve this and spend the money we can reform health care without a massive tax increase. >> thank you. >> all that i would say is, it is not rocket science that we have to get the financials in order. to do otherwise is to create problems with foreign creditors and we are in the process of transferring the tax base to interest. we have no investment in infrastructure and human capital.

this is not a dream about how great it would be to balance the budget, this is essential for the economic freedom of all of us. this is a good first step to restoring common sense integrity -- physical integrity and i hope that we get a huge vote in the house and senate because the collective future and the country's future depends on this. >> are there any questions? >> does this extent. existing entitlement spending? >> what are you talking about? >> the discretionary spending for the entitlements -- what does this actually do?

>> this applies to mandatory programs. >> this is the best known mechanism for government spending, and this work very well from 1990 until 2002. that is why we have the surplus under clinton. but when the republican congress allow for this to expire, we began to have the massive deficit problem. what we want to do is restore the fiscal sanity of the bush i and clinton years. this is the first step. this is an important step back to fiscal responsibility. president bush refused to support this and the republican congress refused to support this. this will get us back on the path of responsibility. >> obviously this will offset

tax cuts, -- >> we cannot spend one more dollar unless we pay for this. this will restrain spending. of the 800 bills presented, 792 were in compliance with paygo. this is a very important reform, to get the nation on track. >> there are numerous examples i can give you, first would be the bill that was passed last year, the house passed this twice, paid for, offset, and the senate refused to do this. the other alternative is minimum tax, when this expired, -- they

would not allow you to do this without the offset, spending cuts or revenue. this applies to mandatory spending, not congressional spending. there were also discretionary spending caps and you can do that. you should focus on the more important thing, or eight years, we have had no tools in place to maintain fiscal discipline. congress has known that they cannot do this on their own. one day they will promise tax cuts, with no connection in between these things. this says that there is a connection. >> i will give you a two more examples. let me give you examples of

where we found offsets. we expanded the state health insurance program, by cutting spending that was overcharging by 17%, to the private insurance companies. this was taking people out of traditional medicare. the farm bill was compliant, and there was a nutrition program by cutting spending out of the commodity title, to increase conservation spending. we have done this again and again. to say that we cannot do this, we will be able to hold the feet of the senate to the fire, by having this in statute, rather than attaching these things under emergency supplementals when the lives of the men and women on the frontlines on the

line. >> thank you for your questions. we have to go back to the capital and finished the day. we appreciate you. >> also on tuesday, judd gregg talked about the tarp program on the senate floor. >> i want to talk about two issues, i know the senator wants to continue this discussion. but there are a couple of things of their significance. -- phares significant -- fair significant. -- significance. the number of banks will repay the money that has been put out by the administration. now, when tarp was originally

structured, the understanding was that we would buy assets in banks, or from and that at some time we would get the money back. as taxpayers. and you get back with interest. this is what is happening right now. money is coming back because the banks are restoring fiscal strength, this is coming back with interest of $4.5 billion. this is what will be paid back on the interest, relative to the preferred stock. the financial system was stabilized, during a time of cataclysm -- the cataclysmic time and the investments that remained, with the taxpayer money is being repaid, and the issue becomes, what will we do with the money?

i think that this should go to reduce the debt. and the administration has been giving lip service to the budget that they have put in place, on average, every year, one trillion dollars, will be doubling the debt, they have been giving lip service and they understand that this cannot be sustained. the secretary of the treasury and the president have said that the proposed budget is not sustainable, because of the debt on the american public cannot be afforded by the children. this goes from 35% of the gdp, to over 82%. the interest on the debt at the end of this budget, this will be $800 billion a year. that is in interest. this will exceed any other major

item in discretionary spending. we will be spending less than that on defense, more on interest than on national defense because of the debt. if the administration is serious, i am not certain that they are because they are just holding press conferences, if they're actually serious, about trying to address this issue, they should immediately take the $65 million that they will get back from the banks of the american taxpayers, the money that we put out as taxpayers and we will get back, they should take the money and apply this to reducing the national debt. this should not be recycled through the financial system. this should be repaid to the taxpayer, by reducing the debt of the united states. this is the only reasonable way to approach this.

this would be a strong signal for the american taxpayer, to show that this administration is serious, but this would be a tremendously strong signal for the world markets, that we were willing to take the money and pay down the debt, this would also follow the proposal of the original bill, and this said that after the financial system was stabilized, any money that is coming in should be used to reduce the deficit and the debt of the united states. this should not be used for new ventures in the private sector, automobile companies or auto insurance companies, this should simply be used to reduce the debt. i hope that they will do this because this what be a good sign, the world markets are becoming suspicious of the debt as we have seen in the number of

instances, the cost of the tenure bill, and also the fact that the chinese leadership in the financial area has expressed concern about the debt of the united states. and this would also be a positive sign for americans that we are going to do something. it is unfair to spend $1 trillion in deficit, to send all of the bills to the children. these young students who are here today, as pages, will find their household has a $130,000 mortgage, this is the bill for the federal debt. there will be a $6,500 interest payment, that they will have to make. the interest that they have to support. this is not appropriate for us to do this, for the young americans and the next

generation. let's take the money and use this as it was originally agreed upon, when it came back into the treasury with interest, we would pay down the debt. why my suspicious that they're giving us live service on the issue of fiscal -- y m my suspicious that they're giving us live service on the issue of this -- why am i suspicious that they're giving us lip service about this. the president of the united states has claimed that they will exercise fiscal discipline out there because of the implementation -- the implications, you will pay for what you do around here. this is hypocrisy. this is inconsistent with everything that has happened, with the spending and the budget.

they are putting holes in paygo loss. -- laws. the presidency has passed -- a democratically controlled, have passed 10 bills that have affected the paygo that are on the books, for $882 billion, and if you throw in the things that they were not able to pass, because we said, that is too much, over one trillion dollars, of instances where this congress, and this president have asked for, and issues that would go around the rules that we already have, that is why

this is swiss cheese. we have a disingenuous statement from the administration that they are suddenly for this. this already exists but we cannot enforce this around here. they say that they are for this, they have gained their own proposal. they say that [inaudible] -- paygo will not apply to the fix and this should not apply to the health care exercise. they have waived this on health care reform. this is a good press event. this will be picked up by the mainstream media as a way to discipline spending, because, they are not going to say that this has been game taht $882

billion has been spent that should have been subject to these rules. this really is a touching and consistent and this is disingenuous, to find faith in paygo when they have been ignoring these rules. they are running up the debt on the american people. creating a system where the government will not be sustainable for the children. if this administration is wanting to do something that is meaningful, in controlling spending, take the $65 billion they are about to get and apply this to reduce the debt. this would be a real action.

i appreciate the courtesy of the senator from north carolina. >> coming up, kathleen sebelius testifies at a hearing about her agency's budget. then "washington journal," with your phone calls. and later, gavel to gavel coverage of teh u.he u.s. house.