For Immediate Release
Office of the Press Secretary
July 15, 2003
Press Briefing by OMB Director Josh Bolten
Room 450 Dwight DC Eisenhower Executive Office Building
2:33 P.M. EDT
DIRECTOR BOLTEN: Good afternoon. Thanks to you all for coming.
I'll start with a statement and then I'll be happy to take your
questions.
The President's top priorities are winning the war on terror,
protecting the homeland and growing the economy. He has continued to
lead boldly on all of these priorities. The President has sought and
the Congress has approved funds necessary for the global war on terror
and the defense of the homeland. You can be sure that the President
will ask Congress to spend whatever is necessary to support our
troops.
The President also acted in 2001, 2002, and again this year to
strengthen the economy, to grow and create jobs, because the President
will not be satisfied until every American who wants to work can find a
job.
Small business owners have new incentives to invest and create
jobs. Workers are already saving more in their paychecks because of
tax relief. And millions of Americans will receive tax refund checks
within weeks because of the 2003 Jobs and Growth Act.
The combination of these and other policies and strong economic
fundamentals like low interest rates, low inflation and increased
confidence have the economy poised for a strong recovery in the months
ahead. It's in this context that we're releasing today OMB's
midsession review.
The purpose of the review is to update and revise the estimates of
receipts, outlays and the deficit to reflect economic, legislative and
other developments since the President's budget was released in
February. As a result of a number of factors, including weaker than
anticipated economic growth in tax receipts and additional spending for
the war on terror, the 2003 deficit is now estimated at $455 billion,
up from the $304 billion deficit estimated in February.
The number is projected to increase to $475 billion in 2004. After
2004, in response to the President's program to generate strong
economic growth and exercise spending restraint, the deficit is
projected to decline dramatically. In fact, by 2006, the deficit is
projected to be half of this year's level in nominal terms. And as you
can see from the chart that's just been put up, even less than half
today's level when measured as a percentage of gross domestic product.
Projections show further declines beyond 2006. When this projected
shrinkage in deficits is taken into account, the accumulated levels of
national debt, as a share of the economy, is expected to be consistent
with the average level over the past half century. And because
interest rates are the lowest in over 40 years, the total amount of
interest the government must pay on that debt in 2003 actually
declines.
So although large in nominal terms, and a legitimate subject of
concern, today's deficits are manageable if -- if -- we continue
pro-growth economic policies and exercise serious spending discipline.
Let me place this year's budget in historical perspective. The
most relevant number in measuring deficits is not the nominal figure.
It's the deficit as a percentage of the economy, or what I just
referred to as gross domestic product.
With that in mind, consider that a $455 billion deficit, while
certainly higher than anyone would like, constitutes 4.2 percent of the
economy. This is well below the post-World War II peak of 6 percent.
And, indeed, it's lower than in six of the last 20 years.
So as a percentage of the overall economy, the deficit, while
higher than average, is nowhere near a record.
When the current administration took office, the budget was
forecast by both the administration and the Congressional Budget Office
to run cumulative surpluses of $5.6 trillion over the 10 years from
2002 to 2011. These were good-faith estimates that took into account
no collapse in the stock market, no recession, no September 11 attacks,
no revelation of corporate scandals, no subsequent spending or tax
changes, no additional homeland security spending, and no war on
terror.
By far, the largest single factor in the change in our budget
position has been an economy that has been weaker than originally
projected. As you can see from the chart that's just been put up, more
than half the change in our 2003 budget position, from projected
surplus to deficit, is due to an economy that has not lived up to April
2001 projections.
The tax cuts proposed by the President and enacted by Congress are
not the problem. They are, and will be, part of the solution. It's
important to understand that without any of the President's tax cuts,
the deficit this year would be at least $278 billion.
If you look at the chart, you'll also see that the combined effect
of the three tax relief packages on the budget balance has been to
reduce the surplus by less than a quarter in 2003, and by only slightly
more than that between 2004 and 2008.
Had Congress not enacted the President's three tax relief packages,
moreover, the economy would be substantially weaker than it is, and
there would have been substantially greater job losses. The most
effective way to lower future deficits is to grow the economy. And the
President's tax packages have been well designed to do precisely that.
It bears repeating that the key to improving the budget outlook now
is a healthy and sustained recovery with strong job creation. Since
the submission of the February budget, prospects for that sustained
economic growth have brightened on several fronts. We've had the
passage of the President's jobs and growth bill, we've had successful
action in Iraq, we've had further reductions in short-term interest
rates, and we've had upturns in consumer and investor confidence.
These developments suggest the economy is poised to return to healthy
and sustained growth, creating jobs, reducing the unemployment rate and
raising income.
A healthy economy is essential to an improved budget outlook, but
strong growth alone is not sufficient. It's vital to exercise
discipline over federal spending growth, while still funding our urgent
priorities.
Both the President's budget and the budget adopted by Congress fund
the priorities of the war on terror and homeland security, while
restraining the overall growth of discretionary spending to 4 percent,
about as much as the average family income is expected to grow next
year.
Restoring a balanced budget is an important priority for this
administration. But a balanced budget is not a higher priority than
winning the global war on terror, protecting the American homeland, or
restoring economic growth and job creation. The February budget in
action since then reflect the President's priorities, and those
priorities are precisely what the times demand.
I'll be happy to take some of your questions.
Q Can you clarify what you just said, which is, you're saying
that without the tax cuts, this year alone, or combining all three,
that you would have a deficit of $278 billion, this year alone? Is
that correct?
DIRECTOR BOLTEN: This year, correct. And that's fiscal '03.
Q What evidence do you have to assert that without the tax cut,
the job losses would have been worse and that the economy would have
been weaker?
DIRECTOR BOLTEN: It's hard to point to a particular job that was
saved because of the tax cut or not, but I think all economists will
agree that the stimulus that's been put into the economy from the tax
cuts has made a substantial difference, both in making the recession
that we experienced as the President came into office, one of the
shortest and shallowest in history, and also keeping the economy at
least in modest growth levels, giving us a prospect of growth levels
going forward.
Q But this is not about pointing to one job. You could point
to sectors, you could -- I mean, you could certainly analyze business
investment. So, I mean, what you're articulating is economic theory,
but not so much evidence, that the American people should therefore
believe --
DIRECTOR BOLTEN: I don't know what specific evidence you could
point to one way or the other. There's no anecdote out there. But I
think economists agree, and I think you will have seen in the numbers,
that when the kind of stimulus is put into the economy that we get from
the tax cut, that those are reflected in sustaining the economy in a
way that just would not have been possible without it.
Q As a follow-up on that, I mean, why, then, do you continue --
I'm assuming you don't have dynamic scoring in this midsession review.
I haven't seen the whole thing, but --
DIRECTOR BOLTEN: That's correct. I don't know if you can all hear
the question, but we do not have dynamic scoring reflected in these
numbers.
Q And why is that? Why don't you include that, and are there
plans to finally include something like that in the upcoming budget
request for 2005?
DIRECTOR BOLTEN: If we had a better measure, if we knew how to do
dynamic scoring in a way that we thought could be reliable, I would be
very pleased to include it in the numbers. We have not been able to do
so, as of yet. The art and science of economics is advancing. I'm
hopeful that we will, ultimately, be able to do that, and do that in a
way that's in agreement with Congress, because all economists, I think,
will agree very strongly that when you reduce taxes, put more money
back into the economy, that has a feedback effect in the economy that
causes growth and in term increases receipts. And being able to
measure those receipts, to see how much better the government's fiscal
situation is as a result of the tax cuts would be something I'd very
much like to include in the numbers. But we don't include them in the
numbers. So the numbers you are seeing here, I think, are
conservative.
Q Is it possible by 2005, by the budget -- the FY 2005 budget?
DIRECTOR BOLTEN: By the time we submit an FY 2005 budget, which
would be about six months from now, I don't know.
Q The economy is growing about 2.3 or 2.9 percent, depending on
the forecasts, this year. You mentioned that discretionary spending is
going to be increasing about 4 percent, based on the way things look
right now. Does that mean that the administration is satisfied with
that level of yearly increase, and it doesn't think that Congress is
spending too much money?
DIRECTOR BOLTEN: We kept the growth in discretionary spending this
year to 4 percent. That's what the President's '04 budget proposal
does, that's what the congressional budget resolution does. And we're
very hopeful that when the Congress finally finishes its appropriations
process this fall that that's where we will see the number coming out.
So we think that's been the right number for this year, bearing in mind
-- bear in mind that their discretionary budget includes defense
spending. So there's a big dose of defense spending in there.
Going forward, I can't say that 4 percent is necessarily going to
be the right number. It's the one we've baked into our figures for
'05, but I can't tell you today that that's where we will end up.
Q -- number ends up being 5 percent by the end of the year, or
something like that, is there a possibility that the President will
resist that effort to increase spending?
DIRECTOR BOLTEN: Oh, yes. The President will resist efforts to go
above the levels agreed to in the congressional budget resolution or
what he presented in his budget.
Q You're saying that you're cutting the budget deficit in half,
but are you proposing actually any new policies to do that, or are you
just crunching the numbers to show that? And is it time now for some
kind of course correction to address the deficit?
DIRECTOR BOLTEN: The numbers that you see -- that you saw
reflected here and you saw -- I don't know, Austin, do you want to put
the budget numbers back up here -- the decline as a percentage of GDP,
what that includes, in our construction of the numbers, is the
President's policies, as we project them over time. And it includes,
for example, a continuation of the tax cuts that were included in the
jobs and growth bill. So those are all in the numbers.
They show us on a path that we think is sustainable. We think
we've done the right things by making the tax cuts to restore the
economy to growth, because what got us into the difficult deficit
situation in the first place is the flagging growth, flagging receipts
in the economy. We think the best way back is to restore the economy
to growth and restore receipts that correspond to it.
Q Well, you say it's sustainable, but the 2008 deficit is
actually larger than the 2007 deficit. Do you think if you went beyond
2008, as you did two years ago, we would actually see the deficit
increasing?
DIRECTOR BOLTEN: No, I don't expect that. I think the numbers --
we haven't worked up all the numbers beyond 2008. They become
increasingly unreliable as we go into the out years. But there's no
reason to expect to see that number going up at all as we project
beyond it.
Q Yes, Josh, you've got -- I think you're projecting 3.7
percent economic growth next year. Upon what do you base that? And is
that -- is it assumed tax receipts from a faster growing economy that
accounts for the drop in the 2005 deficit?
DIRECTOR BOLTEN: I may call in some help here from Austin. Jim,
tell me -- give me your first question again?
Q I think you're projecting 3.7 percent --
DIRECTOR BOLTEN: Yes, 3.7 percent is where our economists put the
growth. I think that's straight down the middle of where both CBO and
the blue chip economists are pegging growth for the second half of the
year. So I don't think there's anything exceptional about that
particular estimate. And that estimate, by the way, from economists
across the country, I think is as high as it is, that we would like to
see it higher, but it still is a substantial growth rate.
It's as high as it is precisely because of the measures that have
been taken in the tax cuts, in '01, '02, and '03.
And now, give me the second part of your question.
Q The second part was you've got a substantial drop in the
deficit in 2005. Is that based entirely on the fact that you
anticipate much faster economic growth in 2004, and therefore increased
tax receipts?
DIRECTOR BOLTEN: No, no there are other factors involved, and one
of them is the '03 tax cut, which was specifically designed to give us
some punch when we need it, right now when the economy is flagging. So
you see some of the effects of those are very front-loaded in the
economy, which is where they belong, and you see them dissipating over
time.
Q If tax cuts aren't the answer, can we expect more new tax
proposals from the President? If not, have we reached the point where
tax cuts bring a diminishing return?
DIRECTOR BOLTEN: What's already baked into our estimates here is
an expectation of the enactment of the President's full agenda of tax
cuts, and that includes his request that various tax cuts be made
permanent. There were some sunsets in the '03 jobs and growth act that
we would propose to eliminate, they would be made permanent. There are
other tax cuts that the President already has on the table in his
budget, including one for health insurance. These are all included
already in our estimates.
So we are assuming those going forward. We are not assuming any
other tax cuts going forward, a judgment about whether that anything
additional might be needed will be made at the right time. We think
we're in the right place right now.
Q On page four, you give four reasons for thinking that the
prospects for economic growth have brightened. You don't talk about a
weak dollar. To what extent do you think the weak dollar is also -- is
put in a tail wind behind the economy?
DIRECTOR BOLTEN: My recollection is that there are two people in
the government who are permitted to discuss the level of the dollar.
I'm not one of them. You've come pretty close -- you've come pretty
close to asking a question in the way that I might want to answer it.
But in my maiden outing as OMB Director, I'll probably pass. You want
to try a different question? (Laughter.)
Q That was my question.
DIRECTOR BOLTEN: That was it? I may be able to get you an answer
on that after.
Q In five short months, the deficit, in terms of the overall
economy, has increased from 2.7 percent of GDP now to 4.2 percent.
What assurances can you give us that in the next five months we're not
going to see a further increase beyond what you've projected here,
particularly since there are many things that you can't include because
of the methodology you've used?
DIRECTOR BOLTEN: In terms of including things, I think most things
are -- there's a balance here. We include some things that aren't
necessarily widely considered, and exclude others. I think these are
reasonable estimates that we've put out.
What assurance is there? No economist can give assurances of
anything. But the estimates do seem quite sound, quite solid, and
we're seeing a lot of the evidence today of a restoration of confidence
in the markets, pick up in economic activity, that should make those
projections, I think, quite sound, even if we fall a little bit short
on the economic growth that we're projecting, which, in answer to a
previous question, I said was right down the middle of where the
economists are currently projecting it.
Q Can I follow-up? Your predecessor had phrased 2.7 percent is
small by historical standards. And you're saying today it's a concern,
but it's a manageable concern. Is there a certain specific percentage
of GDP that, were you to reach, you would consider unmanageable and
might, at that point in time, have to either consider increasing taxes
or rescinding existing tax cuts, or even further spending restraints?
DIRECTOR BOLTEN: I don't have a specific number of percentage of
GDP that I think would be problematic. What I do know is that the
current 4.2 percent of GDP level is not showing itself to be
problematic in the economy. Where we would see that showing up would
be in long-term interest rates. And we have -- far from seeing that,
we in fact are seeing interest rates at historic lows.
But 4.2 percent of GDP, as I mentioned in my prepared remarks, is
higher than any of us would like to see. But it is -- it's still lower
than six of the last 20 years. And as we see here, the projection
showing it heading straight down. So it's not causing a problem to the
economy now. Exactly what level might cause a problem, I don't know
and wouldn't speculate.
Q You said there's no reason to expect the deficits to get
worse after '08, but as you know, the baby boomers start retiring in
'08, in increasing numbers in each subsequent year. So are you saying
that you expect the added costs of baby boomer retirements to be more
than offset by economic growth and spending restraint each year?
DIRECTOR BOLTEN: I couldn't say far in the out years. Actually, I
think the question was directed toward the '08 to '13 period, where I
think you were thinking about a -- whoever asked the question -- you
were thinking about a 10 year as opposed to five year window. So my
answer was directed toward that additional five year window.
If you're looking out well beyond that window, I mean, if you're
looking out 20, 30 years, the answer is, absolutely. We face a serious
problem with the unfunded liabilities we face in our entitlement
programs -- Social Security and especially Medicare. And those need to
be addressed. And the President is looking forward to addressing those
with Congress. That's a separate problem from the situation we're
facing today where we're dealing with a situation of a 4.2 percent of
GDP deficit, headed down and looks like it will be staying down in the
short to medium term. The long-term picture does require being
addressed by the President and the Congress.
Q Correct me if I'm wrong, but the only war costs you're
including are the money appropriated from the supplemental, right?
DIRECTOR BOLTEN: That's correct.
Q -- the latest estimates you're getting from the Pentagon on
the month-to-month costs of the occupation there now?
DIRECTOR BOLTEN: I don't have anything beyond what Secretary
Rumsfeld said in the last couple of days, which I believe he pegged the
monthly cost at $3.9 billion. But we don't have any good basis to
expect that that will be the amount going forward. There are too many
variables. But the premise of your question is right. The '04 deficit
we have projected does not include a figure -- an additional figure for
the costs of ongoing operations in Iraq. A judgment about what those
numbers are will have to be made later. There is about $20 billion,
however, of money that's already been appropriated, that won't actually
spend out until '04, and that is reflected in the numbers.
Q The '04 number could actually end up being higher.
DIRECTOR BOLTEN: It could.
Q Does it include the prescription drug benefit and an end to
the AMT?
DIRECTOR BOLTEN: The question was whether the numbers include, our
forecasts on Medicare reform and a prescription drug bill and the AMT.
Yes, the answer on the first is, yes. The numbers that we've projected
here and the numbers you'll see in the midsession review do reflect the
$400 billion cost that the President put in his budget and that is in
the congressional budget resolution for Medicare reform, which is a
very important priority both for the President and Congress.
As to the AMT, there is some AMT relief incorporated into the
estimates, I think going out a little bit beyond where the jobs and
growth bill extended it, but there is no projection included of a
phase-out of the AMT.
Q How fast would the economy need to grow to eliminate the
budget deficit?
DIRECTOR BOLTEN: I don't know. Austin, any --
MR. SMYTHE: We'll get back to --
DIRECTOR BOLTEN: I don't have a good answer on that. The answer
is, we'll get back to you. I don't know what the exact figures would
show. What we do see, though, is that even on these projections, even
by '08, we're getting down to a pretty small percentage of GDP.
Q You said that the deficit is not causing harm to the
economy. Is your contention that a $455 billion deficit in a slow
economy is not a problem? And to repeat a previous question, you said,
4.2 percent as a percentage measure of GDP is fine. How much is too
much?
DIRECTOR BOLTEN: As I said, in the answer to the previous
question, I don't know what is too much. What we do know is that 4.2
percent is not a problem, because if it were a problem, we would see
that in higher long-term interest rates, and we have the lowest
long-term interest rates that we've had in a couple of generations.
Q Four-hundred-fifty-five-billion-dollars, you said that's not
affecting the economy now. What level -- how much of a problem is $455
billion?
DIRECTOR BOLTEN: Well, if it's not reflected in the interest
rates, it is not visibly a problem to the economy. It's higher than we
want it to be. We intend to bring it down. But where we would see the
problem to the economy is in the interest rates.
Q To clarify on Iraq, do the 2003 numbers reflect the $3.9
billion a month? And in 2004, were you saying there's no monthly --
there's no number that you have for 2004, but you do have $20 billion
that could be used.
DIRECTOR BOLTEN: The first part of your question was correct, that
the, for 2003, it does include our spending on Iraq, which has been
appropriated already by the Congress and spending out, at latest
estimate, about $3.9 billion per month. So for -- through '03, Iraq is
covered. We anticipate that about $20 billion of the '03 money
actually -- won't actually get spent until '04. So you see that money
reflected in the '04 deficit.
But beyond that, we have not included an estimate of the cost of
the Iraq war in our '04 estimate, and I don't expect that we'll be
coming out with any estimate or request to the Congress until much
later, when we have a sense of what those costs will be.
Q Without going into the calculus you can't make, I think in
'83 the figure was 6 percent of GDP, and we did, of course, see outward
pressure on interest rates then. Is the economy fundamentally
different, or could we expect that long-term deficit, should we get to
that point in the 6 percent range, might then begin to spike things
upward?
DIRECTOR BOLTEN: Yes, I think economists would tell you that there
are too many factors involved, that you couldn't take a mechanical
view, that 4.2 percent is okay, but 6 percent isn't, because there are
so many different factors at play in the economy. I think it's
actually very situational to what's going on in the economy on that
day, what is the unemployment rate, what is the growth and
productivity, what's going on abroad, how are our export markets. So I
don't think you can apply a mechanical formula and say one number is
right and another number is wrong. What we do know is the 4.2 --
Q -- one number is -- you know, you're in the danger zone.
DIRECTOR BOLTEN: Yes. What we do know, though, is that for
present purposes, the 4.2 percent of GDP that our deficit now reflects
is not posing a problem to the economy.
Q A lot of the lawmakers on the Hill are saying that part of
the problem with forecasting budgets is that the tax system doesn't
produce a reliable form of revenue. Do you agree and do you think it
can be made more predictable?
DIRECTOR BOLTEN: I suppose there are a variety of ways to do
that. Tell me where you think folks are heading with that, with --
Q Well, it's hard to say. But both chairmen and ranking
members of budget committees are -- seem to be moving in that
direction. I'm wondering whether tax reform is a long-term -- is it
possible over the long-term?
DIRECTOR BOLTEN: That's something definitely worth discussing with
them, and I'm going to have an opportunity tomorrow when I appear
before the House budget committee to hear from them directly on that
question. And I'm sure they'll be much kinder than you all have been
so far. (Laughter.)
Q To follow-up on Social Security, if the President gets a
second term, is it still his ambition to enact Social Security reform?
And why shouldn't we look at the long-term deficit picture through 2008
as being the death knell for those ambitions because of the transition
costs?
DIRECTOR BOLTEN: First, it definitely is on the President's agenda
to pursue Social Security reform. It's critical that we do so. It's
one of those problems that can be put off indefinitely because it's not
going to bite for a couple of decades. But the President has talked
about the direction in which he wants to move Social Security. And
he's very committed, very interested in pursuing that through
legislation with the Congress, which will be a substantial undertaking,
will require a major national dialogue and a lot of work with the
members of Congress to accomplish it. So the short answer is, yes,
very much on the agenda.
And I don't think that the numbers I'm announcing today pose a
substantial problem for that. If anything, the numbers I'm announcing
today underscore the necessity of making very important reforms and
strengthening in the Social Security system, because we need to put it
on a sound footing to be sure that the promises that have been made
will be promises that can be kept several generations from now.
The short term isn't the problem. People at or near retirement
today will get all of their Social Security benefits. But if you look
out in the long term, if we stay on the trajectory we're on, as I said
in response to the previous question, the resources will not be there
to support the program. And that's why we need to move to the kind of
system that was suggested by the Social Security Reform Commission the
President appointed last year toward creating an opportunity for people
to set aside some of their own money in personal accounts that can
actually grow in a way that will provide them the sort of benefits that
they can and should expect from a good Social Security system.
Q Just to follow-up, folks in Washington thought that the best
moment to do this was when there were surpluses, because it's expensive
to do. So where will the money come from? The President would deficit
spend, in other words, borrow huge amounts of money to create a
transition to the system that he has in mind?
DIRECTOR BOLTEN: It's easier to do almost anything legislatively
in times of major surplus. So I think it's probably a truism that
legislating on anything that has to do with money gets harder in
periods of deficit. But I don't think that fundamentally undermines
the ability for the President and the Congress to come to some
agreement on Social Security. My own perspective on it is that it
actually underscores the necessity of doing it.
Q It wasn't very long ago that when people talked about the
deficit or balancing the budget, they wanted to balance the budget for
the sake of doing that, for accomplishing that, for not passing on debt
to future generations. Does the President view the deficit in those
terms anymore? And you said it's a goal for the administration. At
what point will the administration propose steps to get back towards
that goal? After the war on terrorism is completed, or when?
DIRECTOR BOLTEN: I mean, I can't put a timetable on it. I can
tell you that it's an important priority. It's a priority that for the
last few years has fallen below the over-arching priorities of winning
the war on terror, protecting the homeland, and getting the economy to
get back to growth.
With respect to that last priority, that last priority is the key
one for actually getting the budget back toward balance, because the
reason why -- the principal reason why we found ourselves with a
growing deficit in the last few years is because of flagging economic
growth and reduced tax receipts to the Treasury. That's what we need
to turn around. That's what we need to get back in order to get us
back into balance.
Q Just to clarify, to make sure I heard you right. On Iraq,
based on these numbers you do not foresee any additional supplemental
spending requests coming out for the end of the year?
DIRECTOR BOLTEN: For '03 I don't anticipate any. But if the
situation changes, the President will do what's necessary to support
the troops. Right now it looks like we're almost exactly on target,
that the estimates that were made of what was needed to keep the
operations going in Iraq through the end of this year seemed to be
right on target. So I think that's pretty well set.
It's the '04 numbers that are very uncertain because we're very
uncertain about how the situation there will unfold.
Q You're talking about two sets of numbers, right, Josh? War
and reconstruction? Two different sets of numbers, the war costs,
military costs and the reconstruction costs. We're talking about two
tracks.
DIRECTOR BOLTEN: Yes.
Q Okay. So you just answered a question about the military
spending.
DIRECTOR BOLTEN: Well, actually the answer applies to both, I
think.
Q The issue hasn't really been addressed so far. You say that
this huge deficit won't have much of an impact on the economy. Still a
concern that exists among state and local governments that this will be
a burden that's passed down onto them. I mean, how do you address
that? Obviously, they're going to have to find a way to pay for their
deficits also, and as it grows bigger on the federal level, it seems
like the burden will be passed down to those who have less ability to
pay for it.
DIRECTOR BOLTEN: I'm not sure I quite follow the argument about
passing a burden down. State spending over the last few years, through
the late '90s and into the early part of this decade, has grown
substantially. Now with harder economic times, they need to cut back
just as the federal government needs to lower its sights. But, for
example, in the 2003 jobs and growth act, there was $20 billion
included in that as direct aid to the states. That, by the way, is
included in our deficit projections, the numbers that are going out
directly to the states. But I don't think this is a situation of the
federal government passing anything on to the states. The state
budgets need to operate within their own spheres, and I think are
perfectly capable of doing so.
Q On spending, if I understand you correctly, you're saying
that 4 percent isn't a hard and fast number beyond 2004. I was
wondering, what is the appropriate number or how do you come up with --
DIRECTOR BOLTEN: I think you come up with the number -- the first
thing you do is you look at the country's needs. And included in that
4 percent discretionary spending is defense spending and homeland
spending. And the President has said on many occasions, he will spend
what is necessary to prosecute and win the war on terror and to protect
the homeland. So you can't say in advance what the exact right number
is. What I can tell you is that we have baked into our calculations a
-- roughly, the 4 percent growth rate that we've put out in our budget,
that's in the congressional budget resolution for '04. And we've also
estimated that for '05. But I can't tell you today, even for '05, that
that's the right number to arrive at.
Q You noted that you're going to put another temporary patch on
the AMT problem, and that has been the pattern since it first came up.
Why is it more urgent to make permanent the President's tax cuts 2001,
2002 and 2003 -- I'm sorry, 2001, make those tax cuts permanent, yet we
don't see a permanent fix to the AMT problem that's undermining the
benefits of those tax cuts.
DIRECTOR BOLTEN: I wouldn't say something is -- one thing is more
urgent than the other. We extended the '03 provisions out because they
have been enacted in law. And my expectation is that certainly the
President will argue, and I expect most members of Congress will agree
that when they get to it, the right action for the government will not
be -- when sunsets are hit, will not be to increase taxes. But that's
not to minimize the problem of the AMT. That does still need to be
addressed.
Q Josh, at 2008, we will be -- you are projecting the economy
to be growing at -- smartly. We would not have any costs from Iraq, I
assume, in that number. Yet, we are going to be running a $226 billion
deficit. Do we now have a structural deficit that will not go away on
its own?
DIRECTOR BOLTEN: No, I don't think so. You know, it may well be
that by the time we get to 2008 we're able to move the situation into
surplus. The predicate for that, though, is a strong economy. What
created the surplus picture at the end of the '90s and the beginning
part of this decade was a strong economy. The $5.6 trillion projected
surplus that was projected in '01 was based on unrealistic assumptions
about how the economy might grow going forward. What we need to do is
restore this economy to robust growth that will make it possible to
bring these numbers down at least this far in the future, and maybe
quite a bit farther.
Q So you're saying that that's not robust enough growth that
you have in your calculations?
DIRECTOR BOLTEN: I'd always like more robust growth. I think
we've made very conservative estimates in our calculations. I'd love
to see more robust growth.
Q Do you have any estimate that would measure how much the
prescription drug benefit plan would add to the unfunded liability of
Medicare after the initial 10 year window?
DIRECTOR BOLTEN: I don't. My guess is we do have some estimate of
that, Austin --
MR. SMYTHE: We haven't developed a number --
DIRECTOR BOLTEN: We haven't developed it. I will come back to
you, so that you can ask me a question that I actually have the answers
Q There are some numbers floating around that are pretty
horrific. I guess $2 trillion range --
DIRECTOR BOLTEN: I don't know what the range is. I do know that
as with Social Security, even more so with Medicare, that we need to
address the situation with our entitlements to reform those programs,
strengthen those programs, put them on a sound financial footing, not
for this generation or even the next one, but the ones beyond it,
because the trajectory we're on is not sustainable.
Q You mentioned Social Security a couple times now. The
President's -- at least his first term ends at the end of 2004. Is he
going to -- are you all going to address this issue before that time?
DIRECTOR BOLTEN: I don't know. The President has Social Security
strengthening on his agenda. If there is a window of opportunity to
pursue it, legislatively, that opens, he will do that. The last --
obviously, the priorities for the last few years have been the war on
terror, protecting the homeland, and recently, adding prescription
drugs to Medicare. But Social Security remains high on the list. If a
window opens early to do it, I think the President would jump through
that window. But he will seize the opportunity when it arises.
Q This is probably the dumbest question of the day. Could you
please explain why it's more important to focus on the percentage of
GDP when we talk about deficit, as opposed to a nominal number?
DIRECTOR BOLTEN: The reason is that that's -- in the agreement of,
I think, almost all economists, and I heard Chairman Greenspan mention
it again this morning when he testified -- which is that that's the way
to measure what effect the deficit is having on the economy as such,
because that's the main -- that's the principle reason, the top reason
why we need to be concerned about deficits is because of the effect
that they might have on our overall economy.
And that economy is measured by GDP. As I said, when we look at
the effect of the current deficit on the economy, we see that it is not
having effects on long-term interest rates. And I think that's how the
markets judge it. In other words, the -- when the markets set interest
rates and so on, and they look at a country's deficit situation and,
from there, its debt situation, the calculation is made based on the
relationship of that debt to the overall economy in determining what
sort of interest rates are realistic for that country. So that's why
this is the right measure for us to use right now.
Let me take just one more.
Q Chairman Greenspan also said that the key to interest rates
was that deficits be short-term, and there's nothing short-term in
these deficits. And I wonder if that doesn't raise more concerns?
We've not heard really much in the way of concern or alarm from you at
all, based on the numbers that you're presenting, and I'm sort of
surprised at that. He was much more alarmed with these numbers than
you are -- or concerned.
DIRECTOR BOLTEN: I did express concern. In fact, I think I
specifically said in my remarks, they are a legitimate subject for
concern. The levels we are at now, that is, 4.2 percent of GDP, and
the effect that that's having on interest rates, showing that it is not
currently a problem for this economy. But we do need to be careful
about it. And we do need to make sure we are pursuing policies of
growth in the economy, restraint in spending, that are going to ensure
that we have put ourselves on a path that looks more like this.
Thank you all very much.
END 3:16 P.M. EDT
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