[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
  PRESIDENT'S FISCAL YEAR 2007 BUDGET WITH OMB DIRECTOR JOSHUA BOLTEN

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 8, 2006

                               __________

                           Serial No. 109-54

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
THOMAS M. REYNOLDS, New York         JOHN B. LARSON, Connecticut
PAUL RYAN, Wisconsin                 RAHM EMANUEL, Illinois
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
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unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
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                            C O N T E N T S

                               __________

                                                                   Page

Advisories announcing the hearing................................     2

                                WITNESS

Hon. Joshua B. Bolten, Director, Office of Management and Budget.     6

                       SUBMISSION FOR THE RECORD

Embassy of Peru, statement.......................................    49


  PRESIDENT'S FISCAL YEAR 2005 BUDGET WITH OMB DIRECTOR JOSHUA BOLTEN

                              ----------                              


                      WEDNESDAY, FEBRUARY 8, 2006

                  House of Representatives,
                       Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 4:36 p.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory and revised advisory announcing the hearing 
follow:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
February 01, 2006
No. FC-17

                    Thomas Announces Hearing on the

                  President's Fiscal Year 2007 Budget

                    with OMB Director Joshua Bolten

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing on 
President Bush's budget proposals for fiscal year 2007 within the 
jurisdiction of the Committee on Ways and Means. The hearing will take 
place on Wednesday, February 8, 2006, in the main Committee hearing 
room, 1100 Longworth House Office Building, beginning at 3:30 p.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from the Honorable Josh Bolten, 
Director, Office of Management and Budget (OMB). However, any 
individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    President George W. Bush has outlined several budget and tax 
proposals. The details of these proposals are expected to be released 
on February 6, 2006, when the President is scheduled to submit his 
fiscal year 2007 budget to the Congress.
      
    In announcing the hearing, Chairman Thomas stated, ``I look forward 
to Director Bolten's appearance before the Committee and discussing 
details of the President's budget and policy initiatives.''
      

FOCUS OF THE HEARING:

      
    Office of Management and Budget Director Bolten will discuss the 
details of the President's budget proposals that are within the 
Committee's jurisdiction.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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noted above.

                                


ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
February 06, 2006
FC-12-Revised

                     Change in Time for Hearing on

                      President's Fiscal Year 2007

                 Budget with OMB Director Joshua Bolten

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee hearing on President 
Bush's budget proposals for fiscal year 2007 within the jurisdiction of 
the Committee, previously scheduled for 3:30 p.m. on Wednesday, 
February 8, 2006, in the main Committee hearing room, 1100 Longworth 
House Office Building, will now be held at 4:30 p.m.
    All other details for the hearing remain the same. (See Full 
Committee Advisory No.FC-17, dated February 1, 2006).

                                


    Chairman THOMAS. This is the Committee's third speaker in 
line, but second actual. The Chair mentioned this morning our 
contemplated first speaker, who we did not have an opportunity 
to discuss the budget with, Secretary of the U.S. Department of 
the Treasury John Snow, because of the Coretta Scott King 
funeral. We will hold that hearing, I believe, on February 15. 
It is a pleasure to welcome the Director of the Office of 
Management and Budget (OMB) once again, Mr. Josh Bolten, to 
testify before the Committee, and I personally look forward to 
your testimony. The President has presented a budget proposal 
that continues to fund the Nation's priorities while reining in 
spending. It keeps us on the path of cutting the deficit in 
half by 2009. As we know, good fiscal policy is never easy, but 
spending taxpayers' dollars wisely is always necessary. To that 
end, I am pleased to say that with a number of my colleagues 
and Director of OMB, we just came back from a bill-signing 
ceremony for the Deficit Reduction Act that will reduce the 
deficit by almost $40 billion over the next 5 years.
    It was important legislation, but as a stand alone it is 
less important. As one of a series of provisions I think it 
begins to get a little bit exciting. The budget outlook is 
improving, I believe, to a very great extent, thanks to the tax 
policies that have helped to spur the economy. Tax receipts in 
calendar year 2005 were stronger than expected. Since May of 
2003 when the capital gains and dividends tax relief was 
enacted, the economy has created 4.7 million jobs, unemployment 
is down to 4.7, and that has not been a level that we had 
achieved since prior to the Republican Convention nominating 
George W. Bush as its candidate for President of the United 
States. The House and Senate are currently in the midst of 
assembling a tax reconciliation package which will hopefully 
maintain some of these tax policies which have made the economy 
as strong as it is.
    With the impending retirement of millions of Baby Boomers, 
obviously, as was discussed by the President in the State of 
the Union, we must focus on those major entitlements and the 
way in which they are growing in an unsustained manner. The 
President's budget for fiscal year 2007 outlined ways to reduce 
the growth of Medicare by $36 billion, and I do want to remind 
my colleagues that the recommendations that the President has 
made are identical to recommendations made by the Medicare 
Payment Advisory Commission, which we rely heavily on in terms 
of data resources for us to make our decisions. Director 
Bolten, we look forward to your testimony and hearing more 
about the ideas put forth in the President's budget proposal. 
Prior to calling on you, I want to recognize the gentleman from 
New York, the Ranking Member, for any statement he may wish to 
make.
    Mr. RANGEL. Thank you, Mr. Chairman. Thank you, Mr. Bolten. 
I am always encouraged in listening to you because I normally 
feel so despondent with the war going on, the cost of the war, 
and seeing that we are getting tax cuts, and the poor of the 
community are the ones that are being hurt there. I get 
despondent when I see what the interest is on the debt and how 
long it is going to take to pay it off. But every time I have 
seen you on television, I have been impressed that if we can 
cut the taxes more and deeper, that the deeper you cut the tax 
cut, notwithstanding the deficit, the more it would spur the 
economy, and therefore, we will grow out of it. So the more we 
get in debt, the better it is, because it just keeps us going 
and we are stronger. I am certain that I will leave here 
feeling better. But when I am around John Tanner, he is so 
depressing, he even said that if we got into a war with China 
over Taiwan, that we would have to borrow the money from China 
in order to go to war. He is under the impression that even to 
make the tax cut permanent, we have to borrow more money from 
China. But let him say it. I would like to yield to John 
Tanner.
    Mr. TANNER. Thank you, I think, Mr. Rangel.
    [Laughter.]
    Mr. TANNER. I will try not to be too depressing. I would 
like to ask Director Bolten, if you look back in 2002, when 
Mitch Daniels came here, he predicted that the debts in 2003 
would be $80 billion; it was $377 billion. 2004 he said it 
would be $14 billion; it was $412 billion. In 2005 he said it 
would be 61, and it was 318, three of the largest dollar amount 
deficits in the history of the country. What concerns some of 
us is that masking this large dollar amount by saying it is no 
more than a percentage of GDP historically, when we had those 
historical GDP deficits, we weren't building on top of a 
mountain of debt. This Government had has to increase the debt 
ceiling every year and going to have to again in a matter of 
days to keep up with the borrowing. Do you agree that interest 
is the fastest growing part of the Federal budget?
    Chairman THOMAS. I tell the gentleman that at this stage, 
any response will be rhetorical. This is the opening statement, 
and the gentleman will be pleased to respond during the regular 
questioning period.
    Mr. TANNER. What concerns us is the additional $50 billion 
out of the tax base that today is going to pay interest, 90 
percent of which is going to foreign interest, not the United 
States, more than it was just four short years ago. So, with 
that, Mr. Chairman, I will yield back to you, other than to say 
that this Congress and this administration has borrowed more 
money faster from overseas than any political leadership in the 
history of the country, and this budget that is being presented 
today only makes it worse. Thank you.
    Chairman THOMAS. The Chair appreciates yielding to the 
Chairman, but I believe you meant to yield to the Ranking 
Member.
    Mr. RANGEL. Son of a gun. We keep forgetting that.
    [Laughter.]
    Chairman THOMAS. I know. I am here to keep the record 
straight.
    Mr. RANGEL. Thank you, Mr. Bolten. I hope that you allow me 
to feel better than I have about this deficit, because if what 
you are going to tell me is going to work for my country, I am 
going home to explain it to the wife and we are going to have a 
good time home too. Thank you so much.
    Chairman THOMAS. Mr. Bolten, your written testimony will be 
made a part of the record. Thank you again for appearing before 
this Committee. You can address the Committee as you see fit in 
an appropriate period of time, and then I am sure the Members 
are anxious, as has already been evident, to ask you some 
questions, which we know you will respond to, and the floor is 
yours.

   STATEMENT OF THE HONORABLE JOSHUA B. BOLTEN, DIRECTOR, OMB

    Mr. BOLTEN. Thank you, Mr. Chairman. I do have a longer 
statement for the record, and given the late hour and the keen 
interest, which I appreciate, I will attempt a truncated 
version of my statement. Mr. Chairman, Mr. Rangel, other 
distinguished Members of the Committee, the President's 2007 
budget, which I transmitted to the Congress on the President's 
behalf on Monday, meets the priorities of the Nation and builds 
on the progress of the last 5 years. In directing me in 
preparing this budget, the President told me to give our troops 
and those who defend our security what they need to fight and 
win the global war on terror, and he emphasized that the 2007 
budget must support our pro-growth economic agenda. In 
particular, he said we should maintain our economic strength by 
extending the tax relief that has sealed our economic expansion 
and by aggressively restraining spending. Monday I presented on 
the President's behalf a budget that does just that. In the 
past give years our economy suffered a historic series of 
shocks starting with the recession and the terror attacks of 
2001, and continuing through the hurricanes last summer. Those 
events had profound impacts on job creation and on the fiscal 
outlook.
    Despite these challenges, thanks to the productivity and 
hard work of the American people, our economy is, Mr. Chairman, 
as you emphasized, expanding at a healthy pace. What the chart 
on the screen now shows is that in 2005 the economy grew by an 
estimated 3.5 percent, the third consecutive year of healthy 
growth. Economic expansion has produced more than 4.7 million 
new jobs since May 2003, reduced unemployment to 4.7 percent 
and raised homeownership to all-time highs. This economic 
growth would not have been possible without the tax relief that 
you passed and the President signed. The tax cuts, which were 
fully implemented in May 2003, have been critical to helping 
the economy recover from the recession and terrorist attacks of 
2001, and then helping the economy continue expanding despite 
the hurricanes and high-energy prices of this past year. With 
the tax cuts fully implemented in 2003, the economy responded 
strongly and tax receipts rebounded. As you can see on the 
chart now on the screen, receipts grew substantially in 2004. 
In 2005 receipts jumped by a remarkable 14.5 percent, the 
largest increase in 24 years. These recent gains in receipts 
confirmed that a strong economy is the most important factor in 
controlling the deficit.
    The chart on the screen now shows our progress in bringing 
the deficit down. Since the President set a goal of cutting the 
deficit in half from its projected peak in 2004 of 4.5 percent, 
the deficit has come down. The final 2004 deficit was 3.6 
percent of GDP, and fueled by the surge in receipts I just 
mentioned, the 2005 deficit fell further to 2.6 percent of GDP. 
Although the revenues are projected to continue to rise in 
2006, the deficit for the current fiscal year is now projected 
to come in at 3.2 percent of GDP, with 423 billion in nominal 
terms, which is more than previously expected. This is in 
significant part due to the unanticipated spending associated 
with relief and recovery efforts from Hurricanes Katrina and 
Rita. While this increase in the deficit is unwelcome, at 3.2 
percent of GDP, the projected deficit would be well within 
historical range and smaller than the deficits in 11 of the 
last 25 years. More importantly, we project that if the 
policies in the President's budget are adopted, the deficit 
will return to its downward trajectory. By 2009 the deficit is 
projected to be cut by more than half from its projected peak 
to just 1.4 percent of GDP, well below the 40-year average 
which is reflected by the dotted line on the chart on your 
screens now. That dotted line also reflects roughly the cut-in-
half target that the President set 2 years ago when he set a 
goal of cutting the 4.5 percent of GDP deficit in half.
    In order to keep the deficit on this declining path, we 
must continue to do two things, first keep the economy growing 
through retaining a low tax environment, and second, restrain 
spending. With respect to the latter, Mr. Chairman, I call your 
attention to the chart that is on the screen now, which shows 
the success of the past year budget season in restraining 
spending. The President asked for and received appropriations 
bills that kept discretionary spending below the level of 
inflation. Congress delivered that. The President's 2007 budget 
is asking for the same again this year. The President asked 
last year that the Congress cut non-security spending below the 
previous year's level in very nominal terms. The Congress 
delivered. The President is asking for the same again this 
year. Last year the President asked for cuts or terminations in 
154 programs. The Congress delivered 89. The President is 
asking for a comparable amount this year. Perhaps most 
important, Mr. Chairman, as you emphasized, last year the 
President asked for $54 billion in mandatory savings, the first 
time since 1997 that the Congress will have stepped in and 
reconciled mandatory savings. Thanks to your work, Mr. 
Chairman, and many of the other members in this room, the 
Congress delivered and the President signed today a bill saving 
$39 billion over 5 years on the mandatory side of the ledger.
    The President is asking once again this year for savings on 
the mandatory side, this year in the amount of $65 billion over 
5 years. These efforts to restrain the growth in mandatory 
spending are vital, not just for our near-term deficit 
reduction efforts, but especially for the long term. The chart 
now on the screen explains our long-term situation. It is our 
spending and revenues as a percent of GDP. The black line 
represents our revenues, with revenues in the out-years held at 
the historic average of 18.2 percent of GDP. The bars represent 
our spending. Green is mandatory programs, principally the 
entitlement programs of Social Security, Medicare and Medicaid. 
Blue is interest expense, and orange is discretionary spending. 
Toward the end of the next decade, deficits stemming largely 
from entitlement programs such as Social Security and Medicare 
will begin to rise indefinitely as this chart shows. No 
plausible amount of spending cuts and discretionary accounts or 
tax increases could possibly solve this problem. The President 
has shown a willingness to take on these future unfunded 
obligations and to propose long-term reforms. This year's 
budget proposes $36 billion in savings from Medicare, and 
includes proposals that pave the way for additional reforms in 
the future. As with Social Security and Medicaid, we do not 
need to cut Medicare, but we do need to slow its growth, and 
this budget begins to do just that.
    In addition, Mr. Chairman, the 2007 budget contains 
proposals to significantly improve the budgetary process. The 
budget proposes discretionary spending caps, as well as 
restraints on new mandatory spending, and the administration is 
pleased that the congressional leadership is focused on a need 
for reform of earmarks in the budget process. One way we can 
address the excessive use of earmarks together is by the 
Congress giving the President the line-item veto. The 2007 
budget also continues our effort to improve performance and 
make sure the taxpayers get the most for their money. Using the 
President's management agenda, OMB measures success not by good 
intentions or dollars, but by results. As part of these 
efforts, OMB has introduced a new website called 
Expectmore.gov. Expectmore.gov allows taxpayers to review the 
OMB assessments of nearly 800 Federal programs. You can search 
the programs by rating, topic or key word. I urge you and your 
staffs to make use of this important new resource. Mr. 
Chairman, this management agenda, coupled with the restraint 
reflected in the President's 2007 budget, will help ensure that 
taxpayers' dollars be spent wisely or not at all. I would be 
pleased to take your questions.
    [The prepared statement of Mr. Bolten follows:]

   Statement of The Honorable Joshua B. Bolten, Director, Office of 
                         Management and Budget

    Chairman Thomas, Ranking Member Rangel, and distinguished members 
of the Committee, the President's 2007 Budget, which I transmitted to 
the Congress on the President's behalf on Monday, meets the priorities 
of the Nation and builds on the progress of the last five years.
    Before getting to the 2007 Budget, I would like to take a moment to 
review the substantial accomplishments in spending restraint we were 
able to achieve together over the past year.
    Last year's 2006 Budget set four major objectives:
    First, the President proposed to hold growth in overall 
discretionary spending below the rate of inflation.
    Second, he proposed an actual cut in the non-security portion of 
discretionary spending--the first such proposal since the Reagan 
Administration.
    Third, he proposed major reductions or eliminations in 154 
Government programs that were not getting results or not fulfilling 
essential priorities.
    And fourth, he proposed reforms in mandatory programs to produce 
$54 billion in savings over five years.
    The Congress substantially delivered on all four of these 
objectives.
    When President Bush gave me guidance on what the 2007 Budget should 
look like, he directed me to build on last year's progress by focusing 
on national priorities and tightening our belt elsewhere. He told me to 
give our troops and those who defend our security what they need to 
fight and win the Global War on Terror. And he emphasized that the 2007 
Budget must support our pro-growth economic agenda.
    In particular, he said we should maintain our economic strength by 
extending the tax relief that has fueled our economic expansion and by 
aggressively restraining spending. Monday, I presented on the 
President's behalf a budget that does just that.
    In the past 5 years, our economy suffered an historic series of 
shocks, starting with the recession and the terror attacks of 2001 and 
continuing through the hurricanes last summer. Those events had 
profound impacts on job creation and on the fiscal outlook.
    Despite these challenges, thanks to the productivity and hard work 
of the American people, our economy is expanding at a healthy pace. In 
2005, the economy grew by an estimated 3.5 percent--the third 
consecutive year of healthy growth. Economic expansion has produced 
more than 4.7 million new jobs since May 2003, reduced unemployment to 
4.7 percent, and raised homeownership to all-time highs.
    This economic growth would not have been possible without the tax 
relief that you passed and the President signed. The tax cuts--which 
were fully implemented in May 2003--have been critical to helping the 
economy recover from the recession and terrorist attacks of 2001--and 
then helping the economy to continue expanding despite the hurricanes 
and high energy prices in 2005.
    With the tax cuts fully implemented in 2003, the economy responded 
strongly and tax receipts rebounded. Receipts grew substantially in 
2004--by 5.5 percent. In 2005, receipts jumped by a remarkable $274 
billion, or 14.5 percent, the largest increase in 24 years. These 
recent gains in receipts confirm that a strong economy is the most 
important factor in reducing the deficit.
    Since the President set a goal of cutting the deficit in half from 
its projected peak in 2004 of 4.5 percent of GDP, the deficit has come 
down markedly. The final 2004 deficit was 3.6 percent of GDP, and 
fueled by the surge in receipts, the 2005 deficit fell further to 2.6 
percent of GDP.
    Although revenues are projected to continue to rise in 2006, the 
deficit for the current fiscal year is now projected to come in at 3.2 
percent of GDP, or in nominal terms, $423 billion, which is more than 
previously expected and is in significant part due to the unanticipated 
spending associated with relief and recovery efforts from Hurricanes 
Katrina and Rita. While this increase in the deficit is unwelcome, at 
3.2 percent of GDP the projected deficit would be well within the 
historical range and smaller than the deficit in 11 of the last 25 
years.
    More importantly, we project that if the policies in the 
President's Budget are adopted, the deficit will return to its downward 
trajectory. We forecast a decline in the 2007 deficit to 2.6 percent of 
GDP, or $354 billion. By 2009, the deficit is projected to be cut by 
more than half from its projected peak to just 1.4 percent of GDP, well 
below the 40-year historical average.
    In order to keep the deficit on this declining path, we must 
continue to do two things: First, keep the economy growing; and second, 
restrain spending.
    First, the 2007 Budget will support continued economic growth by 
proposing to make permanent the tax relief signed into law by the 
President in 2001 and 2003. Some have argued that we should let the tax 
relief expire. A tax increase is the wrong prescription, not only for 
the nation's economic health, but for the Government's fiscal health as 
well.
    We are not an under-taxed society. By rejecting tax increases on 
families and small businesses, this budget will help keep the economy 
on a continuing course of job creation and strengthen the foundations 
for long-term growth.
    The second critical component of deficit reduction is a vigorous 
policy of spending restraint. Similar to last year, the Budget again 
holds overall discretionary spending growth below the rate of 
inflation. It again proposes a cut in non-security discretionary 
spending. It calls for major reductions in or total eliminations of 141 
Federal programs, saving nearly $15 billion. And it continues our 
efforts to slow the growth in spending on mandatory programs, by 
proposing $65 billion in savings over five years.
    These efforts to restrain the growth in mandatory spending are 
vital--not just for our near-term deficit reduction efforts--but 
especially for the long-term. Toward the end of the next decade, 
deficits stemming largely from entitlement programs such as Social 
Security and Medicare will begin to rise indefinitely. No plausible 
amount of spending cuts in discretionary accounts or tax increases 
could possibly solve this problem.
    The President has shown a willingness to take on these future 
unfunded obligations and to propose long-term reforms. This year's 
Budget proposes $36 billion in savings from Medicare, and includes 
proposals that pave the way for additional reforms in the future. As 
with Social Security and Medicaid, we do not need to cut Medicare, but 
we do need to slow its growth--and this budget begins to do just that.
    In addition, the 2007 Budget contains proposals to significantly 
improve the budgetary process. The Budget proposes discretionary 
spending caps as well as restraints on new mandatory spending. The 
Administration is pleased that the Congressional leadership is focused 
on the need for reform of earmarks in the budget process. One way we 
can address the excessive use of earmarks together is by Congress 
giving the President the line-item veto.
    The 2007 Budget also continues our efforts to improve performance 
and make sure the taxpayers get the most for their money. Using the 
President's Management Agenda, OMB measures success not by good 
intentions or by dollars spent, but rather by results achieved.
    As part of these efforts, OMB has introduced a new website called 
Expectmore.gov. ExpectMore.gov allows taxpayers to review the OMB 
assessments of nearly 800 Federal programs. You can search the programs 
by rating, topic, or by a simple keyword search. I urge you and your 
staffs to use this new resource.
    The management agenda--coupled with the restraint reflected in the 
President's 2007 budget--will help ensure that taxpayer dollars 
continue to be spent wisely, or not at all.

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    Chairman THOMAS. Thank you very much. One of the things 
that I have done--and I recall the very first meeting when this 
administration came in--was to come and lay in front of you 
several different pieces of paper, one an estimate by the 
Congressional Budget Office, the other an estimate by Office of 
Management and the Budget, and tried to explain that to the 
degree we begin to try to be more in harmony, at least it would 
make it easier to make some of the tough decisions. Perhaps one 
of the more recent misuses of information was the actual cost 
to the program of the Medicare Modernization Act based on OMB 
versus CBO estimates, and in fact, it is proving that virtually 
every month now it is cheaper than what had been estimated by 
virtue of those competitive market forces. But I am looking at 
the 2006 real GDP estimates of the Congressional Budget Office, 
which was at 3.6, the administration at 3.4, and the consensus 
blue chip at 3.3. Ordinarily the accusation is that the 
administration tends to wheel out a rosier scenario in an 
effort to make things fit. I think it is interesting to note 
that the administration was below the Congressional Budget 
Office, and also the Congressional Budget Office projects lower 
inflation than the administration and blue chip.
    Clearly, these are the best efforts of professionals. What 
amazes me the most is not that there is a difference--I mean 
3.3 to 3.6 is the range--but everybody is wrong in terms of 
estimating the economy, and I am trying to determine if even 
those people who seem to me the most ardent believers--I am 
sure the gentleman from Wisconsin, Mr. Ryan, felt comfortable 
that he knew that these tax cuts would product the kind of 
significant percentage movement that we have seen. But are we 
really not as well equipped as we should be to appreciate the 
dynamism of the kinds of changes that we have been talking 
about, or is it that we do it so seldom in a fundamental way 
that we are not as good as we think we are in projecting what 
is going to happen?
    Mr. BOLTEN. Mr. Chairman, the record is spotty on 
projecting the effect, especially of tax cuts on the economy. 
Clearly we underestimated the positive effect that the growing 
economy was going to have on our revenues, especially during 
this past year, as one of the charts I had up showed. We had a 
revenue surprise on the upside last year in excess of $100 
billion, which even in our world is pretty substantial, the 
result of which was the deficit came down to 2.6 percent of 
GDP, which is pretty close to the historic average, and I think 
not a bad place to be when you are in the middle of a war. The 
challenge is to try to get the economists and the actuaries to 
come to some professional agreement on the best way to measure 
the dynamic effect of tax cuts. So, far it has been 
frustratingly impossible to bring that agreement about. Almost 
all of them agree that the effects are there. One of the things 
we are doing in the administration this year--and you will find 
buried in Secretary Snow's budget--is a small amount of money 
to help him create an Office of Dynamic Analysis, which I am 
hopeful will help advance both the art and the science of 
dynamic analysis, and help us gauge better something that is 
not currently well reflected in our numbers, and that is, the 
effect on revenues the tax cuts actually have.
    Chairman THOMAS. What it does tell me though is that if in 
fact we have seen this kind of reaction to the decision we 
made, it probably makes sense to continue it rather than to not 
continue it. Is that a fair statement?
    Mr. BOLTEN. I believe it is.
    Chairman THOMAS. I appreciate that. The Chair is mindful of 
the time, and will recognize the gentleman from New York.
    Mr. RANGEL. Thank you, Mr. Chairman. As you know, we have 
to go to the floor. There is a motion that we have to be in 
attendance on. But did you mention in your opening statement 
that the President asked you to do what as it relates to the 
troops? You mentioned the troops in your----
    Mr. BOLTEN. I did, sir. I don't recall the exact words, but 
it had to do with providing the troops what they need to fight 
and win the war on terror.
    Mr. RANGEL. I thought the war on terrorism was off budget.
    Mr. BOLTEN. No. All of our anticipated costs, certainly in 
2006 and almost all of the costs we anticipate for 2007 are 
included there, and it is not just the war fighters in Iraq and 
Afghanistan that are part of this calculation. I think there 
are a lot of Homeland Security people. There is just the base 
military. Sustaining a good strong military is an important 
part of----
    Mr. RANGEL. What part of it, the $350 billion or the 120 
billion the President will be asking for? Does that come in 
your budget?
    Mr. BOLTEN. Yes, it is reflected in the documents that you 
have before you.
    Mr. RANGEL. So, the cost of the war and the continued cost 
of the war is projected and it is included in the budget that 
you will be presenting to us?
    Mr. BOLTEN. Yes. The Congress adopted, in its regular 2006 
appropriations, a $50 billion supplemental was included in the 
bills that were passed this past year. We anticipate coming 
forward in the next few days with an additional supplemental 
for 2006. We have estimated that for the purposes of the 
documents before you to be about $70 billion. I can't tell you 
it will be exactly that, because it hasn't been finalized.
    Mr. RANGEL. Is that included in the deficit when it comes 
in in the supplemental?
    Mr. BOLTEN. It is included in the deficit estimates that we 
have before you.
    Mr. RANGEL. Now, as it relates to how good the economy is 
doing, is it safe to say that more, millions of more people 
have gone into poverty and have lost their health insurance in 
the last few years, every year that that number increase?
    Mr. BOLTEN. I am sorry?
    Mr. RANGEL. The number of people that have gone into 
poverty in the last few years, during this period of increased 
economic growth, is it also true that the number of people who 
are without health insurance and the number of people that move 
into poverty, that that number also has increased?
    Mr. BOLTEN. I believe it has.
    Mr. RANGEL. Isn't it true that as it relates to the average 
working family, that their wages have not kept up with 
inflation and that they have not enjoyed this prosperity that 
the economy is having?
    Mr. BOLTEN. I believe that in fact total real compensation, 
after taxes, has increased about 7 percent over the course of 
this President's term.
    Mr. RANGEL. With all of the people being laid off and the 
pensions being converted to 410(k)s, isn't it true that there 
is a general feeling about working people, that they are not 
feeling that they are doing a well as is being projected for 
the national economy? I mean as you go around the country, I 
mean you hear the same thing we hear. Does the average person 
in the street, average working person, believe they are doing 
as well with economic growth as you have stated?
    Mr. BOLTEN. I won't be a good judge of that, Mr. Rangel. I 
think you and your colleagues will be much better judges of 
that. What I do know, from reading some of the public opinion 
polls, is that there are many people who believe that the 
economy is not doing well, but when you ask them, ``Are you 
doing well personally,'' the answers tend to be much stronger.
    Mr. RANGEL. In view of the fact that you are looking at the 
percentage of the gross national product as it relates to the 
deficit, do you believe that there is a threat to our National 
security by the amount of our debt that is being held by the 
People's Republic of China?
    Mr. BOLTEN. No. I think we do need to be concerned about 
rising debt levels, really regardless of who holds that debt. 
But I believe that----
    Mr. RANGEL. I like to get to China though because we are 
depending on her with Iran, we are depending on her with 
Taiwan, we are depending on her with North Korea, and it is 
kind of hard to have when you are telling them what you want 
them to do, and I just wondered from a point of national 
security, do you think that the increasing amount of debt that 
China is holding could possibly--we should have some concern, 
not about just the economy, but on national security?
    Mr. BOLTEN. I will leave that to others to judge about the 
national security. What I do know is--
    Mr. RANGEL. I mean as an American, not as Rumsfeld. I mean 
would you feel secure going to the People's Republic of China 
and telling them what they have to do in Iran, and stay away 
from Taiwan, and we need you in Russia and North Korea, and you 
know that you owe them trillions of dollars? I mean as an 
American how do you feel? Forget the budget.
    Mr. BOLTEN. The reason why Chinese and other foreign 
investors are buying U.S. Treasury bills and other debt 
instruments is that they have confidence in the U.S. economy. 
That confidence is well placed and if----
    Mr. RANGEL. Where else can they do it with the currency 
being underrated as it is?
    Mr. BOLTEN. Mr. Rangel, there are a lot of places around 
the world to invest, but people choose to invest here because 
they have confidence in the U.S. economy. The one thing I would 
say is that if you are concerned about the national security 
implications of people holding our debt, the worse thing to do 
is undermine their confidence in the U.S. economy by raising 
taxes.
    Mr. RANGEL. I see. So, the more we borrow, the better 
friends we have. I like that.
    Mrs. JOHNSON. [Presiding.] Let me announce to all the 
Members, that given the hour and the number of Members here, I 
am going to be very tough about the 5 minutes. So, if I pound 
you down, don't take it personally. It is now my time. First 
let me say, Mr. Bolten, welcome.
    Mr. RANGEL. Take your time. Take all the time you want.
    Mrs. JOHNSON. Notice, I was generous with Mr. Rangel's. I 
agree with your opening statement, with your goals. I also 
agree with the need to slow the rate of growth in Medicare. I 
would point out that in your statement about your goals, I was 
pleased that you pointed out that our deficit is a percent of 
our GDP, is actually one of the lowest, as it turns out, of the 
industrialized nations. I think we are lower than all but one 
country. That doesn't mean we don't have to pay attention to 
the deficit, but it does mean we don't want to retire the 
deficit at the expense of key programs. One of our key programs 
is certainly Medicare, and we do have to bend the curve. In 
writing the Medicare Modernization Act, we focused on the fact 
that 20 percent of our Medicare recipients spend 80 percent of 
the dollars. We put into place a program that will reduce the 
cost of that 20 percent, and the demonstrations that are out 
there are going to demonstrate that if we manage people with 
chronic illnesses differently, we can save the program 5 
percent. If that works, don't you think that will both slow the 
rate of growth in Medicare and improve the quality?
    Mr. BOLTEN. I believe it would.
    Mrs. JOHNSON. Thank you. In your budget you were absolutely 
silent oh physician reform. By being silent on physician, the 
reform of the physician payment system, you apparently support 
a reduction of 50 percent in physician fees over the next 6 
years, because when you combine a 4.4 percent cut in 
physicians' fees and the increase in expenses, it comes out to 
a 50-percent reduction in payment reforms. Have you done an 
estimate of the number of physicians that will be participating 
in Medicare in 5 or 6 years under those circumstances?
    Mr. BOLTEN. I have not personally, Madam Chairman. I know 
that this is something that the folks at HHS monitor closely, 
and to this point, the reports I understand indicate that there 
is not currently an access problem for physicians in----
    Mrs. JOHNSON. Thank you, Mr. Bolten. You know, the material 
they use to monitor, the information is generally two-years-
old. I think any of us know from what our constituents are 
telling us, that unless you already are with your doctor, if 
you change areas or have to go to a specialist, it is hard to 
get a doctor to take an additional Medicare person. I think 
there is evidence that is going to show that in 5 years we are 
going to have trouble, and if I were working for a boss who 
told me he was going to cut my wages 4.4 percent for the next 6 
years, I wouldn't work for him very long. So, I caution you 
that this could be a fast trip to disaster. But further, you 
say in your budget that you would like to work with physicians 
to improve efficiency and provide more efficient and high-
quality services. But you hold their payments to a requirement 
that no other payment is held to. You are going to fund in this 
budget a market basket minus productivity piece for hospitals. 
That is very big money. You are going to pay for that. You 
don't say that the taxpayers don't have to carry a piece of 
that and the beneficiaries don't have to carry a piece of that.
    But in physician payments you say that any adjustment to 
their payments cannot be funded by either beneficiaries or 
taxpayers. So, you have put a very hard mark out on there. You 
are treating physician payments differently than you are 
treating any other payments, and you are not addressing the 
problem of this 50 percent cut. Between those two, I think you 
ought to at least have either some good answer to us as why you 
think this won't erode Medicare, otherwise, I personally think 
you are not just eroding Medicare a little bit, you are putting 
it very decisively on the same track that Medicaid is on. I had 
the privilege of standing with some dentists and congratulating 
them on provided free dental services for children. You know 
why they are doing that? Because Medicaid in my State has not 
adjusted their reimbursement since 1989, and so only 100 out of 
the thousands of dentists in Connecticut take Medicaid.
    I have used my time to tell you that you are putting 
Medicare on the track of Medicaid, and I hope that you will 
have some better answer for us as we work together this year, 
than we were able to come to last year as to how we put the 
physicians on the same equitable and fair basis we give the 
market basket or we don't as we can afford. But you know and I 
know that technology and cutting-edge medicine that teaches us 
how to manage chronic illnesses will bend the Medicare curve 
and leave us with a world-class health care system that will be 
a leader in the world community of nations. But going the 
direction this budget lays out for Medicare will destroy 
Medicare, and with it, the rest of the American health care 
system. We can't tolerate Medicaid and Medicare. Medicare is 
making up for Medicaid's shortcomings at this time, and you 
have to come up with better answers with us this year, and one 
of them ought to be to give us credit for the savings in the 
drug bill toward the physician payment. My time has expired. If 
you care to respond at another time, you will have the 
opportunity.
    Mr. BOLTEN. Thank you.
    Mrs. JOHNSON. Mr. Stark.
    Mr. STARK. Thank you, Madam Chair. Welcome, Mr. Bolten. I 
want to just talk about these health savings accounts for a 
minute. I am puzzled. As near as I can tell, they don't help 
create any new insured individuals, and they basically tend to 
diminish employer-based health benefits, or eliminate them, and 
shift the cost to individuals. Now, in one of your publications 
here of your explanations for your proposals, you indicate that 
the costs of the health savings account program will be 156 
billion over 10 years in terms of lost revenue and a few small 
outlays, and 156,132, to be exact, on page 27. But I, for the 
life of me, haven't found out whether there are any savings 
from these health savings accounts. It is going to cost us $156 
billion. You agree to that, you wrote it. Where are the 
savings? What page?
    Mr. BOLTEN. We anticipate that savings will come to the 
health system overall. It may be one of those elements that is 
hard to----
    Mr. STARK. Where is it in all this information that you so 
kindly provided us, the budget?
    Mr. BOLTEN. I don't believe it is broken out separately, 
but the----
    Mr. STARK. Is it in the appendix?
    Mr. BOLTEN. I don't believe it is broken out separately, 
Mr. Stark.
    Mr. STARK. Does anybody know what it is, or can you tell me 
what you think--give me a dollar amount of the projected 
savings over----
    Mr. BOLTEN. No. I wouldn't have the expertise to do that.
    Mr. STARK. Does anybody on your staff?
    Mr. BOLTEN. It is possible, and we will ask them to respond 
to you for the record, but----
    Mr. STARK. I can't believe that you would let any savings 
slip through the cracks when they are so desperately missing 
from this budget. I challenge to suggest to me that you have 
information now, empirical information that would indicate 
there will be savings from the health savings accounts to the 
Federal Government.
    Mr. BOLTEN. I believe there is, and we would be glad to 
provide that for the record.
    Mr. STARK. Give me an idea of where they will come from? A 
health savings account fairy that will put them under our 
pillow at night?
    Mr. BOLTEN. One of the ways that health savings accounts 
are expected to achieve savings is through increased consumer 
awareness.
    Mr. STARK. How does that help the Federal budget?
    Mr. BOLTEN. The Federal budget is always helped when health 
costs in general go down, but the main saving----
    Mr. STARK. You remember a year when they have gone down? 
Are you old enough to recall a year in which health care costs 
have decreased, 1 year over another?
    Mr. BOLTEN. Under no circumstances do I expect that health 
care costs are actually going to go down. Hopefully, they----
    Mr. STARK. So, how can you have a savings? Pardon me just a 
minute. I am having a little trouble. How can you have a 
savings when health care costs go up?
    Mr. BOLTEN. You can have lower health care costs than they 
otherwise would have been without the measures in place. What I 
anticipate is that the savings would accrue to the medical care 
system overall, and would be savings for the beneficiaries of 
the health savings accounts themselves.
    Mr. STARK. Well, that would show up certainly in your 
estimate of tax revenues. Come on. If I am going to have more 
income, unless--and you are not so slippery as to tell me that 
you are not counting on whatever increased taxes we may pay 
from our increased revenue. You just showed me all that chart 
about--nowhere in that increased revenue do you show anything, 
any increased revenue from the health savings accounts, do you?
    Mr. BOLTEN. It is possible that some of it may be baked 
into our models, but I couldn't tell you at this point.
    Mr. STARK. Mr. Bolten, I have been flim-flammed by experts, 
mostly from the other side of the aisle, but nonetheless, I 
challenge you, sir, and I hope you wouldn't want to base your 
reputation as an economist or certainly your staff--I am going 
to suggest to you that there aren't any savings that you can 
identify that could qualify for budget savings over the next 10 
years from health savings accounts.
    Mr. BOLTEN. We will be glad to provide something for the 
record, Mr. Stark.
    Mr. STARK. I dare you. I will look for that, because you 
would have it in here, wouldn't you, if you--give me an example 
of other savings that you got off here, in the ether, you know, 
these fairy dust savings that you re going to show us later.
    Mr. BOLTEN. Mr. Stark, I am unclear on what kind of thing 
you are looking for. With health savings accounts?
    Mrs. JOHNSON. We are going to move on to Mr. Herger. It is 
a question that has been asked before, and you had an 
opportunity to respond. So, Mr. Herger.
    Mr. HERGER. Thank you, Madam Chairman. I am just looking at 
some statistics here, Mr. Director, just on this line of 
questioning that the gentleman from California was going over. 
It has Deloitte Center for Health Solutions found that the cost 
of consumer-driven plans is falling among the 152 major 
companies it surveyed. Consumer-directed plan cost increased by 
2.8 percent last year, which was only one-third of the increase 
for traditional plans. So, I think the point you were making, 
they are not going down, but they are going up at a much lesser 
rate, I think is a point that is well taken. My question, Mr. 
Director--first of all, I want to thank you for testifying 
before our Committee today. We have had a lot of good news in 
recent months as it relates to the economic vitality of our 
Nation. In the past 12 months 2 million jobs were created. The 
unemployment is at its lowest level since July of 2001. As 
along-time advocate of the expansion and permanency of section 
179, Small Business Expensing, I read the President's proposal 
in this area with a great deal of interest. A National 
Federation of Independent Business report from the end of 2005 
stated that 61 percent of small businessowners reported capital 
outlays over the preceding 6 months, period, including new 
equipment and vehicle purchases, furniture purchases, existing 
facilities, expansion and improvement and new facility 
construction. I see this as further evidence that expensing 
works. My question is I would like you to take a moment to 
explain how this small business expansion has contributed to 
economic growth and will continue under the President's 
expensing plan.
    Mr. BOLTEN. Mr. Herger, thank you. The President has 
proposed to raise the limit for expensing for small businesses 
from $100,000 to $200,000, as you are aware. We believe that 
the provision that was already in law has had a lot to do with 
an expansion in small business investment. That small business 
investment in turn means jobs. About two out of three of the 
new jobs that have been created in this economy over the last 
few years have been in small businesses, and we have seen 
tremendous job growth since the tax cuts, including the 
original small business expensing provision were adopted in May 
2003. In fact, we have seen nearly 5 million new jobs in the 
economy since then. So, the President hopes, in this new 
proposal, to build on the success of that previous provision, 
help out small businesses, and most importantly, help create 
jobs for the folks that are looking for them.
    Mr. HERGER. Thank you very much, Mr. Bolten. I think 
traditional wisdom would have you think that if you would 
somehow reduce taxes to a group such as small business, somehow 
revenues would decrease. Would you mind responding, as a follow 
up, to how has our stronger economic growth affected Federal 
revenues?
    Mr. BOLTEN. The principal factor in our fiscal health, 
above all others, is whether or not our economy is sound and 
growing. There are a lot of elements that affect our fiscal 
health, taxes, spending and so on. Nothing is more important to 
it than strong growth in the economy. Tax cuts, we believe, 
have been an essential element in promoting the growth that has 
restored revenue growth to the economy. Last year we saw 
revenues go up by $274 billion with the President's tax cuts 
fully implemented. We can't count on that kind of growth going 
forward. In fact, we have relatively conservative, I believe, 
estimates going forward of about 6 percent year-on-year revenue 
growth going forward. But if we are to achieve even that, I 
think it is crucial that we maintain a low-tax environment.
    Mr. HERGER. Thank you. But the point being, we hear many on 
the other side of the aisle seem to indicate that if somehow we 
allow small business, the American taxpayer to be able to keep 
more of their own money, somehow our revenues area decreased to 
the Federal coffers. Actually, what we see this year--and there 
is an indication that we have seen in a number of the tax 
reductions under Kennedy, under Reagan, under our tax 
reduction--revenues have actually increased rather than gone 
down to the Federal Government because of the expansion in the 
economy.
    Mr. BOLTEN. Expansion in the economy is crucial.
    Mr. HERGER. Thank you very much.
    Mrs. JOHNSON. Mr. Levin.
    Mr. LEVIN. Welcome. I think that more and more people think 
about that there is a disconnect regarding Social Security 
between the President's State of the Union address and your 
budget. In the State of the Union address, there is a reference 
to a bipartisan commission. In your budget document--and there 
is no discussion--he doesn't mention the words ``private 
accounts'' as I remember it. In your document, which I assume 
speaks on behalf of the President, there is no reference to a 
bipartisan commission in many paragraphs about private 
accounts, including a budget estimate, $712 billion of cost. I 
won't ask you how to explain that disconnect, two separate 
paths, but it clearly undercuts the budget document, the 
reference by the President to a bipartisan commission. What it 
signals to everybody is, ``there he goes again,'' private 
accounts, $712 billion, he is spelling them out in detail. Let 
me just ask you about your data though. You talk about the 
growth in jobs. How many manufacturing jobs have been lost 
during the same period as you talk about growth in employment; 
do you know?
    Mr. BOLTEN. I believe there has been modest net growth in 
manufacturing jobs in that period.
    Mr. LEVIN. Since the President became President, what has 
been the loss in manufacturing jobs?
    Mr. BOLTEN. Oh, there was substantial losses from the 
recession that was on the doorstep as the President came into 
office, but----
    Mr. LEVIN. If you start with the first day until day, there 
has been a loss of manufacturing jobs?
    Mr. BOLTEN. I don't know that for a fact, but I wouldn't be 
surprised if that was true. The recession----
    Mr. LEVIN. Well, the figure is 3 million.
    Mr. BOLTEN. The recession that was on the doorstep as the 
President entered into office hit very hard on the 
manufacturing sector.
    Mr. LEVIN. Okay. But when you talk about a rebound, the 
total--I mean you can talk about doorstep all you want--the 
total is $3 million loss in manufacturing jobs.
    You also talk about growth. In the last couple of years, 
what has happened to median income in this country?
    Mr. BOLTEN. I believe median income has been relatively 
flat.
    Mr. LEVIN. Right.
    Mr. BOLTEN. Real compensation, after-tax real take-home 
compensation, I believe, is up about 7 percent over the course 
of this administration.
    Mr. LEVIN. The average?
    Mr. BOLTEN. Yes.
    Mr. LEVIN. I am talking about median income, Mr. Bolten. 
That is one reason why it is easily explained why most people, 
when they ask are things worse or better in these years, they 
say worse. Private debt is at a record high.
    Mr. BOLTEN. I believe it is.
    Mr. LEVIN. Okay. Let me just ask you, to finish up, about 
the expenditure picture in military. As I understand it, there 
is a provision for next year in your budget figure, an 
assumption of $50 billion for Iraq and Afghanistan, right?
    Mr. BOLTEN. Yes. Last year you made an allowance in the 
budget resolution and in appropriations of $50 billion as 
basically a bridge amount of supplemental----
    Mr. LEVIN. What do you assume for 2007?
    Mr. BOLTEN. We are repeating that practice this year, so we 
are including an allowance of $50 billion.
    Mr. LEVIN. What do you do for the year after 2007?
    Mr. BOLTEN. We do not carry an allowance into 2008, just as 
the previous resolution----
    Mr. LEVIN. I mean that is one reason nobody believes the 
budget. Let me ask you this----your estimate. Second, if you 
leave Social Security out, do you cut the deficit in half? If 
you leave the surplus of Social Security out in the next years, 
5 years, is the deficit cut in half?
    Mr. BOLTEN. Let me make a quick comment about the defense 
spending, the war spending, Mr. Levin, and that is that we very 
clear state in our documents that that $50 billion for 2007 is 
an allowance, and that we anticipate that there are likely to 
be additional costs beyond that which are unknown at this point 
and therefore not reflected.
    Mr. LEVIN. But you have zero for 2008. Let me ask you then, 
if you would answer the question----
    Mr. BOLTEN. On Social Security. You mean the on-budget 
versus off-budget deficit?
    Mr. LEVIN. The Social Security surplus is going up right, 
these years?
    Mr. BOLTEN. It is, yes.
    Mr. LEVIN. If you leave that out, do you cut the on-budget 
deficit in half?
    Mr. BOLTEN. From the 2004 period when the--
    Mr. LEVIN. Yes.
    Mr. BOLTEN. From the 2004 estimates down to 2009. I would 
have to check and see. It is possible that the answer would be 
no, but I am guessing it would be pretty close.
    Mr. LEVIN. Let me just suggest you look at page 333 of your 
budget document, and it makes it utterly clear that you don't 
come close. So, you are warning about Social Security and the 
danger to it, but you are using that figure to calculate 
cutting the deficit in half, when if you exclude it, you don't 
come anywhere close to it, and you have zero extra money for 
Iraq and Afghanistan. That is why nobody--why the budget 
figures are not believed, that you have given, as they have 
been wrong before.
    Mr. BOLTEN. The convention of reporting of an on-budget 
deficit is one that has been carried for quite some time, and I 
think it is the appropriate way to do it, and maybe in another 
question I will have a chance to explain why.
    Mrs. JOHNSON. Mr. McCrery.
    Mr. MCCRERY. Thank you. Director Bolten, you said, I 
believe in response to a question--it may have been in your 
statement--that your projections on revenues as a percent of 
GDP, are that in just a couple more years, they will return to 
the historic average of about 18.2 percent of GDP; is that 
right?
    Mr. BOLTEN. Within our five-year window we don't expect 
quite to get there, but it will be pretty close, within a few 
tenths of a point of the 40-year historic average.
    Mr. MCCRERY. Does that assume the tax cuts are made 
permanent?
    Mr. BOLTEN. It does.
    Mr. MCCRERY. If you go out past the five-year window and 
the tax cuts are made permanent, does it still stay about 18 
percent of GDP?
    Mr. BOLTEN. Yes, I believe it would.
    Mr. MCCRERY. Well, then, obviously, the question becomes, 
do we need more than 18 percent of GDP to support the Federal 
Government, even though historically, over many decades, we 
have spent about 18 percent of GDP, on average of about 18, 
probably a little better than that, 18 percent of GDP. You 
said--or you wrote in the Wall Street Journal op-ed, ``No 
plausible amount of tax increases could possibly close the 
enormous gap that will be created by the unsustainable growth 
in entitlement programs.'' Would you expound upon that just for 
a minute?
    Mr. BOLTEN. Sure. If I could have back Chart--it was the 
fourth chart in my original presentation. Well, what the black 
line there represents is about 18.2 percent of GDP as a revenue 
income. What you see is that within a generation, 25, 30 years 
from now, there is simply no plausible amount of tax increase--
even if you believe that the tax increase didn't cause any 
significant harm to the economy, there is no plausible amount 
of tax increase that could possibly close the gap. The only 
solution to this problem is to actually dig in on the 
entitlement programs themselves.
    Mr. MCCRERY. I agree with you, but maybe you could expand a 
little bit more on why that is implausible. What impact, for 
example, would tax increases of the size necessary, even if you 
could do it, have on the economy?
    Mr. BOLTEN. Oh, I think it would be devastating for the 
economy. It would certainly be a tax rate that would be 
historically unprecedented in this economy, and my expectation 
is that the kinds of tax increases we would be talking about to 
close that gap would easily cause a recession if not a 
depression in this country.
    Mr. MCCRERY. In that case you would get into a downward 
spiral, don't you?
    Mr. BOLTEN. Absolutely.
    Mr. MCCRERY. It is like a dog chasing its tail. You keep 
increasing taxes to get more revenue to satisfy the spending 
demands, but then the more you increase taxes the less economic 
growth you have or the deeper the recession or the depression 
gets, and you never get there.
    Mr. BOLTEN. Absolutely.
    Mr. MCCRERY. So, I commend you for your op-ed piece and for 
including comments in your statement about the budget as to 
long-range implications of doing nothing on the spending side 
of the equation. Tax increases are not the answer if we want a 
society that resembles in any meaningful way that that we have 
become accustomed to in this country. So, I commend the 
President for calling for a commission to focus on the spending 
side of the equation and the entitlement area. I am hopeful 
that he will, in fact, create a true bipartisan commission so 
that we can work together across the aisle, here in Congress 
and across the country, to solve these very, very difficult 
spending problems that the country faces.
    Mr. BOLTEN. Thank you, Mr. McCrery.
    Mr. MCCRERY. Thank you.
    Mrs. JOHNSON. Mr. Jefferson.
    Mr. JEFFERSON. Good to see you again, Mr. Director. Let me 
ask you this. How much is in your adjusted budget for the Gulf 
region for the Katrina region recovery?
    Mr. BOLTEN. I do have a chart with what has been 
appropriated at this point, and what we anticipate in the short 
term, No. 14, please.
    Mr. JEFFERSON. Is this in your 2007 budget?
    Mr. BOLTEN. It is reflected in the 2007 budget. In other 
words, the spending from this is reflected in that budget, and 
it also--there is also a reflection on this chart of what it is 
we anticipate coming forward to ask for, but what we anticipate 
coming to ask for is, at this point, just an estimate. What you 
see up there--I can't quite see it, but I believe it should 
show about $95 billion in total enacted, $96 billion in total 
enacted aid for the Gulf region. That includes $8 billion of 
tax relief. Then below that what you see is what is yet to 
come. We believe that we need an additional $5.6 billion in the 
flood insurance fund, and then the $18 billion number there is 
the number that you see of our estimate at the time we put the 
budget to press of what we expected our supplemental spending 
request that we would be bringing forward shortly would be for 
this year on top of the moneys that have always been 
appropriated.
    Mr. JEFFERSON. Getting back to your budget document though, 
is this----
    Mr. BOLTEN. I am sorry, Mr. Jefferson. I should say, to 
fully respond to your question, I should say that the deficit 
effect of all of those figures that you see on the chart are 
reflected in the 2007 documents before you.
    Mr. JEFFERSON. My question is, is there a specific amount 
in the 2007 budget that is provided for for the Gulf region? To 
me it looks like there isn't anything in there for it. I don't 
see anything in the 2007 budget for the Gulf region for the 
Katrina disaster.
    Mr. BOLTEN. On the contrary, all of the figures that you 
see here are accounted for in the 2007 documents, and in 
addition, what----
    Mr. JEFFERSON. But this is money that has already been 
spent, been approved by the Congress, except for the 18 billion 
and the 5.6 for the insurance.
    Mr. BOLTEN. That is correct.
    Mr. JEFFERSON. That will be coming in a supplemental of 
some kind, correct?
    Mr. BOLTEN. That is correct. The 18 billion will be coming 
in a separate supplemental, although----
    Mr. JEFFERSON. Wouldn't I because the in saying that apart 
from what is going to be in the supplemental, there is nothing 
in the 2007 budget for the Gulf region? Would I be correct in 
saying that?
    Mr. BOLTEN. I am sure there is a lot of money in the 
regular base Federal budget that finds its way into the Gulf 
region, but quite properly, the response to the disaster is 
being handled in supplementals, which is the right place to 
handle it.
    Mr. JEFFERSON. That may be true if it were a true 
emergency, meaning that it had just happened, and we had to 
make a response with a supplemental. I would like to see us 
take the fact that this has already happened and now it is time 
to plan for the recovery, and put money in the budget to do 
that. That is what confounds me a little bit here. I don't see 
anything here that anticipates any spending here in the Gulf 
region past what we have already spent and what you expect to 
have in a supplemental. If the answer is, well, we don't plan 
to spend anything else--and that is an okay answer--I just 
would like to know whether that is the answer for real here.
    Mr. BOLTEN. No, we plan to--the Congress has already 
appropriated a great deal as shown on the chart, and we do plan 
to spend more. I think the appropriate place to reflect that 
though is in supplemental spending, not trying to carve it out 
of the very difficult and tight allocations that are in the 
currents appropriations. I think that would put the Gulf at an 
enormous disadvantage to have to compete with----
    Mr. JEFFERSON. Okay. Do you think it is fair to say that 
you anticipate other supplementals down the road that would 
address some of the outstanding needs that still exist in the 
area?
    Mr. BOLTEN. I can't say what additional supplementals will 
be coming. I do know that at the time we went to press $18 
billion was our estimate for the supplemental that will be 
coming down the road probably in the coming days.
    Mr. JEFFERSON. You do know what has happened to us down 
there in New Orleans--I will just speak about the area that I 
represent mostly. When we did the allocation of CDBG money just 
before we left here, initially when it was written up, it 
provided for the entirety of the money to be determined by what 
the needs were, essentially. Then it had an artificial standard 
of no one area could get more than 54 percent of the money, 
which meant that our area ended up, Louisiana ended up getting 
$6.5 billion, which is a lot of money, but compared to 
Mississippi, $5 billion, it is not a lot, given their losses 
versus ours. So, they are going to use a lot of money to bring 
back housing at 3,500 housing units. We have got 220,000 
housing units that are affected. So, when you divide that up, 
you can see how short we are versus Mississippi. They can 
probably spend 120,000 per house if they want to. We might 
spend 27,000 per house. It is just a huge set of issues there. 
I know you understand how big a deal this is for us because it 
is the only thing that matters now because people can't come 
back home, business can't be restored, nothing can happen there 
until we take care of the property losses in some way. There is 
no way it can be taken care of locally. I just believe that at 
this point in time it is something we can plan for as opposed 
to doing it on an ad hoc basis. So, I would----
    Mrs. JOHNSON. Mr. Johnson.
    Mr. JOHNSON. Thank you, Madam Chairman. Mr. Bolten, we seem 
to have emergencies every year. That is what caused us to have 
problems with the budget last year. I think a lot of us 
consider a rainy day emergency fund as an answer to hurricane, 
Earthquake or other disaster that might come up, and there is a 
bill out there to create a reserve fund for emergency fund. The 
upside is we would have a rainy day fund. The down side, of 
course, it might be plundered for everyday spending. What is 
your opinion of some sort of reserve being established for 
emergencies, and did you all discuss that this trip?
    Mr. BOLTEN. From my seat, Mr. Johnson, I would be more 
concerned about the plunder. We do have some rainy day funds 
built in annually into the budget. For example, the FEMA budget 
includes a disaster relief fund that is calibrated to provide 
enough resources to deal with an average disaster year. Every 
year has some hurricanes and flooding and so on, and we build 
in enough money into that account annually to take care of an 
average year, a non-catastrophic disaster year. In the case of 
Hurricanes Katrina, Rita, Wilma, we had a truly catastrophic 
situation. I don't think there is any way to plan for that. My 
concern would be that if we built those kinds of numbers into 
the budget in a rainy day fund, what would happen in the years 
when it doesn't rain is that that money would then be taken and 
spent elsewhere. So, I think we have the right approach in 
keeping modest rainy day funds in the budget, and where we have 
catastrophic disasters, we deal with them in supplementals.
    Mr. JOHNSON. Thank you. You are probably right. You know, 
from now to 2017 or so we will have surplus Social Security 
taxes, and in 2008 or 2009 those surpluses begin to decline, 
and each succeeding year thereafter. What sort of budget 
pressures do you see in the fiscal window 2007 to 2011, as the 
Baby Boomers begin to turn 62 and take early retirement 
benefits out of the Social Security system, and do you think 
the GROW account is an option that we might ought to push?
    Mr. BOLTEN. First, the GROW account is something that I 
think is an interesting option. I will leave it to Secretary 
Snow and others to engage with you on the specifics of how we 
might address the problem. The reality is that we do have a 
surplus, as Mr. Levin was pointing out, that is continuing to 
buildup during these years just before the Baby Boomers are 
fully into retirement, but 2018--or it may be 2017 now, Mr. 
Johnson, I think you have the right year--is the year in which 
the system will slip into deficit, that is, that there will be 
less money coming in than is going out, and that is a problem 
that we can see coming long ahead. It does mean it is a problem 
that is harder to address year by year. So, what it means is, 
while we have these surpluses coming in, and, I believe, 
accurately reflected in our budget documents, because what our 
current budget deficit document should tell us is what are the 
borrowing needs of the Federal Government, so it accurately 
reflects borrowing needs of the Government. But what it should 
tell us is that we need to get on top of that Social Security 
problem, as well as the Medicare and Medicaid problem, as soon 
as possible, because it is a lot easier to fix now than 10 or 
20 years from now when the problem is more visible, but much 
more desperate.
    Mr. JOHNSON. Thank you. You all are planning on 141 Federal 
programs that you are eliminating or cutting back. Are any of 
those that the administration can eliminate all by themselves 
without any congressional action?
    Mr. BOLTEN. Among the 141, I don't believe so, but we have 
tried hard to use our administrative authorities to restrain 
Government as much as we can. One of the ones I would highlight 
for you, Mr. Johnson, is that we have installed an 
administrative PAYGO process internally in the administration. 
About 9 months ago I sent a memorandum to all of my Cabinet 
colleagues who are involved in putting out regulations, saying, 
that if you are proposing a regulation that will increase 
spending in the U.S. Government, I need you to propose at the 
same time an offsetting regulation that will create savings. It 
doesn't automatically mean the regulation is dead if they can't 
fully offset it, but our beginning point is, if you want to do 
by regulation something that increases spending in the 
Government, then we want you, at the same time, to propose 
savings that would offset them. So far I think we have been 
relatively successful in pursuing those kinds of measures.
    Mr. JOHNSON. Thank you, sir.
    Mr. BOLTEN. Thank you.
    Mr. JOHNSON. Thank you, Madam Chairman.
    Mrs. JOHNSON. Thank you. That does, of course, ignore the 
issue of the quality of the policy change needed. Mr. Tanner?
    Mr. TANNER. Thank you, Madam Chairman. Thanks, Mr. Bolten 
for coming. I was interested in your PAYGO. Would you recommend 
that the House of Representatives adopt that as well?
    Mr. BOLTEN. We do support PAYGO on the spending side, yes.
    Mr. TANNER. But not on the revenue side?
    Mr. BOLTEN. No, sir.
    Mr. TANNER. You have said we have tried hard to restrain 
Government and so forth. Let me ask you you this: why haven't 
you used the rescission process?
    Mr. BOLTEN. There is a provision in the 1974 Empowerment 
Act that you are referring to that provides for rescission. Our 
folks have researched and been unable to find a single instance 
in the last 30 years when that has been used successfully. It 
is a----
    Mr. TANNER. President Clinton used it successfully 111 
times out of 163 request.
    Mr. BOLTEN. No, sir. I think he did not use the rescission 
authority under the Empowerment Act. I believe what you may be 
referring to is that he used the line-item veto, which we have 
requested again, and the administration would, in parallel with 
a line-item veto, would support a more effective rescission 
authority, because the problem with the rescission authority 
that is in the law today is that whatever we send up is 
amendable and delayable and so on, so neither this President 
nor any previous President that I can find has found that to be 
a useful vehicle to use. We would like to have the line-item 
veto and we would like to, at the same time, have advanced 
rescission authority. If we can get your support in doing that, 
we would be----
    Mr. TANNER. I would support a line-item veto with a simple 
majority to override, which we have in Tennessee, which works 
pretty well. Two-thirds to override seems to me to give a 
minority membership in the Congress too much power, and 
President Lincoln warned against that, as you well know. 
Getting back to this foreign-held debt, it is now 46 percent of 
the debt not held by the Government, by trust funds and so 
forth. Does it not concern you that we are borrowing about 90 
percent of our deficit from non-American interests? Is that not 
of any concern at all to you?
    Mr. BOLTEN. I could see where that is a matter of concern, 
but when the Federal Treasury offers up its debts for sale, it 
offers up its debt for sale to all comers, whether they be from 
China, from the Netherlands, or from the United States. I think 
the concern ought to be with, (A) trying to keep that debt 
burden as low as possible, and (B) sustaining the kind of 
economic environment that keeps the confidence in our economy, 
that keeps our debt holders purchasing the debt, and purchasing 
and holding the debt.
    Mr. TANNER. I don't think it is naive at all to read 
history to the point that people have done something against 
their own short-term economic self-interest for a larger 
geopolitical strategic objective. So, I have had people say 
that it is naive to believe China would do anything that would 
hurt their economic status in the short term. I think it is 
naive to believe that they wouldn't if it would serve a larger 
geopolitical interest. Anyway, we can talk about that some 
more. You talk about the macroeconomics for the last two of 
three years have been pretty good. The problem is that even in 
that macro-economically, as you call it, I think, third 
consecutive year of healthy growth, we have in the same period 
of time had to raise the debt ceiling $450 billion in 2002, 
$994 billion in 2003, and $800 billion in 2004, and another 781 
pending. The problem with that is if we are in a healthy 
economy, in your words, we are borrowing still massive amounts 
of money. What is happening, in my view, is that it is eroding 
the present tax base. We are now paying about, by my 
calculations, $105 million a day more in interest than we were 
in 2002.
    The cumulative effect of these massive dollar amounts, year 
after year, although you can talk about percentage of GDP and 
so forth, is degrading the tax base of the money coming here. 
An additional $50 billion a year out of the present tax base--
not raising, lowering, anything--is going now to pay interest, 
90 percent of that going overseas. The amount of money we are 
sending overseas in interest checks--I am sure you know this--
is five times the amount for an appropriations bill, which one 
could argue you can use for some strategic purpose as you do 
it, interest is to whoever let us have the money as cheaply as 
we can get it. I don't know. You go on about your budget 
cutting in--another half--in half by 2009. None of the things 
that you all said in 2002 are true, and you are already out of 
line on this one chart that shows the net interest paid, that 
little blue thing. It is already out of whack for this year, 
because the Feds had to raise the interest rates again, and 
every time we do that, of course, as a auction, at the auction 
it goes up too. I just----
    Mrs. JOHNSON. Mr. Tanner.
    Mr. TANNER. I know I am going on too long. But we need to 
talk some more about this.
    Mr. BOLTEN. Be happy to, Mr. Tanner.
    Mrs. JOHNSON. Mr. Beauprez?
    Mr. BEAUPREZ. Thank you, Madam Chair. Mr. Bolten, thank you 
for being here. I have in front of me an article about the CBO, 
obviously not your shop, but the CBO has recently released 
information, their budget and economic outlook, and something 
captured my eye that I wanted to walk through with you. We have 
heard a lot about numbers and projections and what is 
appropriate policy and what is not. Tell me if any of this 
makes sense. Again, this is CBO, so forgive me. In 2003, 
relative to cap gains tax liabilities, revenue anticipated from 
the then-existing capital gains tax, it was projected by CBO 
that in 2004 the Federal Government would receive $60 billion 
and $65 billion in 2005, to combine those two for a 2-year 
total of $125 billion. Then, of course, Congress took action, 
reduced the capital gains rates, so new projections needed to 
be created, and those new projections after the tax cuts 
totaled $98 billion for those 2 years, 46 and 52 consecutively. 
So, a difference from the original estimate to the one after 
the tax cut of about a $27 billion projected loss, if you will, 
in revenue, the cost of the tax cuts. What actually happened, 
though, is the really interesting part. We now know that 
instead of a $98 billion total for those 2 years, we have 
actually received about $151 billion. So, instead of a $26 
billion cost, we actually got a $27 billion gain over the 
original number, or a $53 billion net difference in budgetary 
projecting. Is that consistent with what you think happened, 
roughly, without exact numbers?
    Mr. BOLTEN. I cannot comment on the specifics of the CBO 
article, but, yes, we did see a dramatic increase in capital 
gains revenues after the capital gains rate was cut.
    Mr. BEAUPREZ. Why? I know we are talking theory, maybe 
other than absolutes, but why?
    Mr. BOLTEN. I will leave it to some of the good economists 
to be able to explain it better, but when the capital gains 
rates are low, people tend to invest, and the economy tends to 
grow. People tend to use their money for productive purposes. 
When the economy is more productive and people are making more 
money, they pay more of it to the Federal Government.
    Mr. BEAUPREZ. As a guy who has been on the private side, I 
will say it another way. You get what you incentivize, and if 
you incentivize capital formation and capital investment, that 
is exactly what you get. It looks to me like that is, in fact, 
what we have gotten. It would seem to make sense to keep going. 
This underscores another thing that I did find in some of the 
information you have provided: the need for dynamic scoring. I 
was intrigued to see that you are suggesting inside your 2007 
budget a Dynamic Analysis Division within the Treasury 
Department. Do you want to tell me a little bit about that and 
what your expectation is so that we do not have these--I mean, 
many of us actually think that when we do implement good tax 
policy that there is some benefit. Most people in the real 
world oftentimes make an investment a cost this year in 
anticipation of revenue benefit in succeeding years. That seems 
to make sense to us. Is that roughly the principle that you are 
going after here?
    Mr. BOLTEN. It is, Mr. Beauprez. It has been a frustration 
for me in all of the 2.5 years that I have had this job that we 
have not been able to come around to some sort of consensus 
view on what the right dynamic effects are of tax cuts on the 
economy and, therefore, on Federal revenues. We hope that this 
new office at the Treasury Department will help advance the art 
and maybe the science of dynamic scoring, because I think it is 
a very important element in the public policy debate, which is 
now frozen with the largely static scoring that we are 
obligated to use in our own budget estimates and that CBO uses 
in theirs. I am very hopeful about the office, and I hope it is 
something you take up with Secretary Snow when he appears 
before the Committee.
    Mr. BEAUPREZ. I appreciate that, and for the record, every 
budget I ever created in the private side, in the real world, I 
certainly made those kinds of estimates of what kind of gain 
for what kind of investment cost. I think most of us understand 
that, and I applaud you for it. Last, I would just ask a 
request. The National Renewable Energy Lab is in my district. 
We are very concerned about funding. If someone from your staff 
could maybe get to my office exactly what the anticipated 
funding levels are within your budget for that laboratory, I 
would very much appreciate it. It is a concern of mine.
    Mr. BOLTEN. We will do that, sir.
    Mr. BEAUPREZ. Thank you. I yield back, Madam Chair.
    Mrs. JOHNSON. Thank you. Ms. Tubbs Jones?
    Ms. TUBBS JONES. Thank you, Madam Chairwoman. Good 
afternoon, Mr. Bolten. How are you doing?
    Mr. BOLTEN. How are you?
    Ms. TUBBS JONES. I am doing great. Thanks. I am going to 
jump around a little bit with the 5 minutes that I have. You 
speak to unemployment being at 4.7 percent. Is that correct, 
sir?
    Mr. BOLTEN. Yes.
    Ms. TUBBS JONES. But that is gauged based on the number of 
people who actually apply for unemployment. Is that correct, 
sir?
    Mr. BOLTEN. No, I believe it is based on a survey of 
businesses, the 4.7 percent is. I think that is the business 
survey rather than the household survey.
    Ms. TUBBS JONES. So, it is based on--so if I am an employer 
and I employed 10 people last month and this month I have 15 
that means unemployment has gone down if it is based on surveys 
of employers.
    Mr. BOLTEN. I believe--well, I have to say I am not expert 
on this, but I believe the survey is based on a combination of 
gauging both what businesses are offering and have in the way 
of employment and at the same time the number of people who are 
seeking employment.
    Ms. TUBBS JONES. Seeking employment or have applied for 
unemployment? I think you--but I tell you what. Rather than 
waste my time, give me a written answer----
    Mr. BOLTEN. Seeking employment, I am told.
    Ms. TUBBS JONES. Well, that is not true. The unemployment 
figures for the United States of America are based on people 
applying for unemployment, sir. So you have your people get it 
straightened out, and we will come back to it later. Let me ask 
you this question: These figures you show here in this chart 
start actually with 2000, right? The projections you make in 
these--this is your chart, right?
    Mr. BOLTEN. They are.
    Ms. TUBBS JONES. Right. Generally, when you do projections, 
projections go out 10 years. Is that a fair statement, most 
times, CBO and all those others go out 10 years?
    Mr. BOLTEN. It has actually been more commonly in the 
history of the United States budget to go 5 years.
    Ms. TUBBS JONES. Well, tell me, have you done projections 
to know what happens in 2012, 2013, and 2014 based on this 
great economy that we have and the impact of tax cuts, sir?
    Mr. BOLTEN. I think we do have some estimates. We do not 
publish a full set of data for those----
    Ms. TUBBS JONES. So, do they go up or down?
    Mr. BOLTEN. Does what go up or down?
    Ms. TUBBS JONES. Your chart. Your chart says w have strong 
economic growth, it continues. Does the strong economic growth 
continue in 2012, 2013? Are these numbers true when you don't 
have the war or Katrina included in the budget dollars?
    Mr. BOLTEN. Yes, I believe the strong economic growth is 
projected to continue out beyond 2011.
    Ms. TUBBS JONES. Can you provide that information to me 
since it is not in the chart and not included in what you have 
presented?
    Mr. BOLTEN. We would be glad to provide you what our 
economists assume is likely to be growth in 2012 and beyond, 
although----
    Ms. TUBBS JONES. Either you have or you don't, Mr. Bolten. 
You said you are sure you have 2012 or 2013. Just give me what 
you have, okay, Mr. Bolten? Would that be fair?
    Mr. BOLTEN. We would be glad to provide what we have.
    Ms. TUBBS JONES. Okay. Then, second, the question is: If 
the war is not included in the budget, are these estimates fair 
when in actuality the dollars for the war have a significant 
impact?
    Mr. BOLTEN. Dollars for the war do have a significant 
impact, and we have said that on the face of all of our budget 
documents. Now, if you are referring--I think you are referring 
now to the deficit estimates? Is that----
    Ms. TUBBS JONES. Yes. Not specifically this, but I am 
saying the deficit estimates are higher than they are shown in 
your chart because the war is not included.
    Mr. BOLTEN. If you anticipate ongoing war costs of whatever 
you may anticipate, you have to add those into the deficit 
estimate.
    Ms. TUBBS JONES. The reality is, whatever the ongoing war 
costs, we are still going to be in a deficit at this juncture 
as to where you look at the deficit. We are not going to cure 
it. Just like you said, we cannot cure the tax--we cannot cure 
the gap in deficit by tax increases. We cannot cure the deficit 
by not including the war in it, can we?
    Mr. BOLTEN. Oh, no--
    Ms. TUBBS JONES. In the budget.
    Mr. BOLTEN. No, no. We have said very clearly that whatever 
the war costs are need to be added on to the projected 
deficit----
    Ms. TUBBS JONES. So then these are not true numbers since 
the war is not included.
    Mr. BOLTEN. They are true numbers, plus the war costs, 
which we have been very clear are not----
    Ms. TUBBS JONES. Anyway, Mr. Bolten, you get my point. Let 
me ask my last question because I know I am running out of 
time. Why isn't the AMT included as part of the permanent tax 
proposals of the administration?
    Mr. BOLTEN. The President's tax proposals, the tax cuts of 
2001 and 2003 that were put in place did not affect the AMT, 
and those are the ones we are asking to be made permanent. Now, 
the----
    Ms. TUBBS JONES. But the AMT is a tax issue that has the 
greatest impact on the greatest number of Americans in this 
country.
    Mr. BOLTEN. Oh, I don't know if I would say that. I think 
just regular tax rates have the greatest impact on the greatest 
number of Americans at this point.
    Ms. TUBBS JONES. Why don't you talk to some of your taxing 
people. From everyone else that comes to this table, it is said 
that the AMT has the greatest impact on middle-class America 
and those people paying taxes in the United States of America, 
and that to make those permanent would have the greatest impact 
to do all the things you claim all these other taxes that only 
affect the top 1 percent will have. I am at the end of my time. 
I am going to get gaveled, but I would like to have a response 
at a subsequent time. Thank you.
    Mrs. JOHNSON. Mr. Chocola?
    Mr. CHOCOLA. Thank you, Madam Chair. Thank you, Mr. Bolten, 
for being here. Some of our earlier discussion that we had 
about making the tax relief permanent versus tax increases kind 
of reminds of a conversation I had with a constituent 
yesterday. My constituents was suggesting that we should raise 
taxes, and I said, well, let me ask you, if there was a company 
that had chronic losses and increasing debt, had divisions that 
were unable to pass audit, had management that was ineffective 
in combating waste, fraud, and abuse, had insurmountable future 
unfunded liabilities, and their only strategy was a price 
increase to their customers, would you invest in that company? 
He didn't think he wanted to invest in that company. I don't 
think you offer investment advice for a profession, but I will 
ask you. Would you invest in a company like that?
    Mr. BOLTEN. I would not.
    Mr. CHOCOLA. I didn't think so, but staying on kind of the 
company theme, I used to be a chief executive officer of a 
publicly traded company, and I was subjected to a thing called 
Sarbanes-Oxley. We had to fully and transparently disclose our 
financial obligations, including our long-term unfunded 
liabilities. If you look at the way that the Government 
projects its unfunded liabilities, I think the GAO says it is 
somewhere around $43 trillion. That is not reflected in our 
budget the way we budget today, is it?
    Mr. BOLTEN. It is not, and we would like to put in place 
mechanisms that would reflect it more accurately. You will 
find, Mr. Chocola, in our documents, you will find us 
displaying our estimates of the total unfunded liability, and I 
believe our estimates are even substantially above that $43 
trillion.
    Mr. CHOCOLA. So, you think it is prudent to--I think in 
order to solve a problem, we have a discussion about unfunded 
liabilities, entitlement reform, when you talk in your Wall 
Street Journal editorial about no amount of tax--I am 
paraphrasing, obviously--can really address this problem. It 
would be prudent to solve the problem by first defining the 
problem. Do you agree with that?
    Mr. BOLTEN. Yes.
    Mr. CHOCOLA. I think you address that a little bit in your 
budget reform proposals in the budget, and I will just read--it 
says, ``The President's budget proposals to establish a broader 
enforcement measure to analyze long-term impact of legislation 
on the unfunded obligations of major entitlement programs and 
to make it more difficult to enact legislation that would 
expand the unfunded obligations of these programs over the long 
term.'' You have a couple of suggested mechanisms to address 
that. Would you care to talk about those?
    Mr. BOLTEN. One very important mechanism is one that was 
adopted in the Medicare Modernization Act itself. When that 
bill was passed, what the Congress did was inserted a mechanism 
that was a trigger that when the actuaries projected that 6 
years hence the Federal share of responsibility--the Federal 
share of spending in the Medicare system exceeded 45 percent of 
the total costs of the system, then that would trigger an alert 
by the actuaries to the President. The President would then be 
obligated to send forward proposals to deal with the situation 
to the Congress. That is the provision that is in the law now. 
We are proposing that that provision be strengthened so that 
because the provision as it now exists does not require any 
particular action on the part of the Congress, we are proposing 
that that provision be strengthened so that in the event that 
there is not action to bring the Federal share of Medicare 
below 45 percent of the total cost in the system, that a 
sequester go into place, not unlike the Gramm-Rudman sequester 
that used to be in place, that would take a small percentage 
out of total Medicare spending and that sequesters be in place 
year on year thereafter until the system was brought back at 
least to that 45-percent level. That is not an ideal way to go 
about saving money in the Medicare system, just as Gramm-Rudman 
was not the idea way to do budgeting. But we think it would be 
a very useful device to try to force reform before it gets too 
late to actually undertake any reform.
    Mr. CHOCOLA. I think you also offer point-of-order options 
as well?
    Mr. BOLTEN. Yes, on the regular budget side, outside of the 
Medicare system, yes.
    Mr. CHOCOLA. Okay. Thank you. I yield back, Madam Chair.
    Mrs. JOHNSON. Thank you. I think on the other side now we 
have next Mr. Doggett.
    Mr. DOGGETT. Thank you, Madam Chairwoman. Mr. Bolten, I 
want to go back to the chart that you had up here on the board. 
As I understand it, you had a success rate last year, 154 
programs you identified as either inefficient, wasteful, 
unnecessary, and the Congress agreed with you on 89 of them.
    Mr. BOLTEN. That is correct.
    Mr. DOGGETT. This year you found another 141 programs that 
are unnecessary, wasteful, or inefficient, and you are ready to 
eliminate or substantially reduce them.
    Mr. BOLTEN. Yes, a good portion of the 141 are some of the 
154 that were left over, not acted on last year.
    Mr. DOGGETT. I see. Do you have with you the list of the 89 
inefficient or unnecessary or wasteful, or all three, programs 
that you got eliminated last time?
    Mr. BOLTEN. We do have it. We have an actual book of that. 
I don't have it with me at the table, but we can provide one 
for you.
    Mr. DOGGETT. Do you have the list of the 141 programs you 
want to eliminate this year?
    Mr. BOLTEN. Once again, we do have that. I don't know 
whether it has been distributed, but we will get that to you 
promptly.
    Mr. DOGGETT. You can distribute it here this afternoon?
    Mr. BOLTEN. I don't know if we can actually distribute it 
this afternoon, but we should be able to do that promptly.
    Mr. DOGGETT. Get it to us shortly?
    Mr. BOLTEN. Yes, sir.
    Mr. DOGGETT. Okay. I believe that last year the Department 
that had the largest number of those programs that you included 
at least within your 154 to eliminate was the Department of 
Education. Isn't that correct?
    Mr. BOLTEN. I believe that is correct. I am not certain. 
But there were a large number that were within the Department 
of Education, and a large number of the ones proposed this year 
within that 141 are from the Department of Education.
    Mr. DOGGETT. That really was where I was headed. As best 
you can determine, the Department of Education, I believe, 
leads the way again this year as having the most programs that 
the administration feels are wasteful, inefficient, or 
unnecessary, or all three?
    Mr. BOLTEN. Yes, I think in the case of the Department of 
Education, the concern is that a lot of the programs that we 
are proposing for elimination are programs that are very small, 
duplicative, not showing the kinds of results that other 
programs are, and what we would like to do is take the money 
that is allocated to those programs, we believe relatively 
inefficiently, and use it on more effective programs.
    Mr. DOGGETT. Like tax cuts. But as far as Pell grants are 
concerned that so many students rely on, you have effectively 
frozen them for every year of the administration, haven't you?
    Mr. BOLTEN. We actually proposed an increase in the Pell 
grant amount----
    Mr. DOGGETT. Well, you proposed one last year, but as you 
know, in budget reconciliation there was no increase.
    Mr. BOLTEN. There was not an increase eventually in the 
amount of Pell grants, but I believe the number of Pell grants 
and Pell grant-like programs, the name of which I have now 
forgotten--I may ask one of my colleagues to--Smart grants 
actually went up in the reconciliation bill that was just 
passed.
    Mr. DOGGETT. This year you propose to cut the Perkins 
program, don't you, the Perkins low-interest loans for low- and 
moderate-income students?
    Mr. BOLTEN. Yes.
    Mr. DOGGETT. That is one of the ones you tried to 
substantially reduce last year and were not successful on.
    Mr. BOLTEN. Yes, I believe that will be counted in the 141.
    Mr. DOGGETT. With a growing student population, there will 
be less chance for students to get student financial assistance 
if your budget is adopted. Isn't that correct?
    Mr. BOLTEN. No, sir, I do not believe so.
    Mr. DOGGETT. Well, there is less money to go around. You 
have basically frozen the Pell grants, and you are going to cut 
the Perkins grants.
    Mr. BOLTEN. No, I think the amount of money in the Pell 
grants is frozen, but I think the number of people who can 
become eligible for that I believe is on the rise, and after 
that----
    Mr. DOGGETT. That is absolutely--we are in complete 
agreement on that. In fact, that is my point. We have got many 
more students who need the assistance, are eligible for 
assistance, but not enough money to go around.
    Mr. BOLTEN. No, I believe they will be served, that the 
number of students receiving Federal aid for college has gone 
up year on year----
    Mr. DOGGETT. They may be served, but they will be served at 
a lower level because there is not enough total money available 
for them to get the same amount they would have gotten were it 
not for your budget.
    Mr. BOLTEN. I do not believe that is correct.
    Mr. DOGGETT. Maybe you might supplement then to respond to 
that. I would welcome the further detail. Let me ask you about 
what you say is the next point there, and that is the courage 
to go after these mandatory savings. Is part of that courage 
demonstrated by the decision to eliminate the $255 death 
benefit that has been around through Social Security now almost 
since its origin?
    Mr. BOLTEN. I don't know whether that is included in there.
    Mr. DOGGETT. It is what you have called for under Social 
Security reductions.
    Mr. BOLTEN. Yes, it is part of the program.
    Mr. DOGGETT. In that regard, a widow or widower who would 
have gotten originally a much bigger portion of a death benefit 
to apply to funeral expenses, they have only gotten for the 
last several decades $255. You just proposed to eliminate that 
to them entirely. It may not mean a lot to someone who is about 
to get these huge tax benefits that are being debated on the 
floor as we talk tonight, but to a poor person in Mission, 
Texas, a $255 death benefit is a substantial portion toward the 
payment of funeral expenses.
    Mr. BOLTEN. Congressman, I think we viewed that as 
basically an anachronistic program, which----
    Mr. DOGGETT. You view it as anachronistic? I mean, people 
are still dying down there and----
    Mr. BOLTEN. They certainly are, but $255----
    Mr. DOGGETT. Is a modest amount.
    Mr. BOLTEN. Is a very modest amount. It has been frozen 
since 1952.
    Mr. DOGGETT. Even that modest amount you are willing to 
eliminate at the same time that the tax bill being discussed 
tonight on the floor that I just came from means $32,000 to 
someone who earns $1 million a year. Those are the trade-offs 
that the administration has made in this budget. I thank you, 
sir.
    Mrs. JOHNSON. Thank you. Just to clarify, a point of 
information. In the appropriations bill, as opposed to the 
reconciliation bill, we did fully fund the backlog of Pell 
grants. So, spending on Pell grants went up considerably. Then 
the reconciliation established a new type of Pell grants in the 
Smart grants. So, I just wanted to clarify that. Mr. English?
    Mr. ENGLISH. Thank you. Director Bolten, I am actually 
inspired by the line of questioning that has emerged from my 
colleague from Texas, and so I guess maybe you could clarify it 
since we tend to lose the forest for the trees sometimes. You 
know, have we not, even if the President's budget as presented 
were accepted, have we not effectively grown the Education 
budget since 2001 by about 36 percent? Am I correct with that 
figure?
    Mr. BOLTEN. That may be a little high. I think the total 
will be about 30 percent for 2001 to 2007, overall growth in 
the education programs. But the growth within the programs 
targeted toward the poor is much larger than that, and my guess 
is that within--that you are a little low for our Title I 
programs, for example, which over the course of this 
President's administration will be up, with the adoption of 
this budget, about 40 percent.
    Mr. ENGLISH. Haven't we been effectively growing the 
Department of Education budget by over 5 percent a year since 
2001?
    Mr. BOLTEN. I think that is about the average.
    Mr. ENGLISH. Comparing that to other budget functions and 
other departments, is not the Department of Education since 
2001 perhaps the fastest growing department after Homeland 
Security and Department of Defense?
    Mr. BOLTEN. I don't recall the full table, but the 
Department of Education would be near the top of the list for 
the non-security-related agencies, the non-national security- 
and homeland security-related agencies, and, of course, the 
Department of Veterans Affairs, which has grown substantially 
during the course of this administration.
    Mr. ENGLISH. Well, that puts at ease some of the concerns 
that the gentleman from Texas had awakened in my mind. What I 
would like to do perhaps is maybe change the focus. Director 
Bolten, during the State of the Union message, President Bush 
emphasized the need to control entitlement spending. As you 
know, a great deal of the growth in entitlement spending 
results from a current trend toward early retirement. My 
understanding is that the average American retires at about the 
age of 63. I wanted you to comment, if you are aware of the 
work that the Urban Institute has done to identify barriers to 
encouraging longer work, embedded in programs, important 
programs like Medicare, ERISA, and IRS regulations. I wonder if 
OMB is currently doing anything to evaluate these particular 
programs and regulations to consider possible reforms. Finally, 
has OMB estimated the cost savings that could be achieved if 
some of these institutional barriers to a longer work life 
would be removed?
    Mr. BOLTEN. Mr. English, I don't know that we are doing 
that kind of work. It sounds like the Urban Institute study is 
a very useful one, and I will make sure that we and the 
trustees in particular of the Social Security and Medicare 
systems do take a close look at them, because those are 
precisely the kinds of areas that we do need to take a look at 
if we are going to get fundamental entitlement reform.
    Mr. ENGLISH. I also noted that the President proposed 
creating a commission to examine the full impact of baby-boom 
retirements on Social Security, Medicare, and Medicaid, with 
the understanding that the commission would include Members of 
Congress of both parties and would try to move us back toward 
that bipartisanship that seems to be so elusive in the current 
environment. What details can you provide about the 
composition, the goals, and the expected product of the 
commission?
    Mr. BOLTEN. Mr. English, I cannot provide any details for 
you now. That is something that I think will be forthcoming 
from the White House, but also will depend on the interests of 
the Members on both sides of the aisle as to how they believe 
that such a bipartisan effort should be constructed. The 
message that the President was delivering in that important 
phrase in the State of the Union was an appreciation that the 
desperately needed entitlement reform that we do need to pursue 
is not something that can be pursued alone by one party. It 
does require both sides to buy in. We are hopeful of getting 
cooperation from both sides, and to that end, I think the White 
House will be interested in getting input from Members on both 
sides as to how such a commission ought to be constructed.
    Mr. ENGLISH. Well, I thank you for that, and I yield back 
the balance of my time.
    Mrs. JOHNSON. Mr. Becerra?
    Mr. BECERRA. Thank you, Madam Chair. Mr. Bolten, thanks for 
being here with us.
    Mr. BOLTEN. Thank you.
    Mr. BECERRA. Let me continue along the same lines of Mr. 
English on this issue of Social Security and the reforms that 
are being called for. You just mentioned that reforms cannot be 
pursued alone by one party, and the President did make an 
eloquent call for a bipartisan commission to discuss 
entitlement reform, including Social Security, Medicare, and 
Medicaid. Give me an idea of how it was that the President, to 
your understanding, decided to include in this budget the 
proposal to privatize Social Security or to use moneys from the 
Social Security trust funds to divert them to private accounts 
to the tune of about three-quarters of a trillion dollars over 
the next 10 years.
    Mr. BOLTEN. That is the President's position. We do think 
that is the best proposal. What the budget reflects is the 
President's proposals. It does not mean it is the only position 
that can be brought to the table.
    Mr. BECERRA. So, would it be then your position that the 
President would come into any bipartisan commission with a set 
agenda on what to do on Social Security?
    Mr. BOLTEN. I hope the President would come to the table, 
the administration would come to the table with a set agenda 
with its own proposals. But that does not predetermine what 
other people's agendas are.
    Mr. BECERRA. So, are we to take what is in this budget 
presented by the President to Congress as simply some talking 
points on what the administration would like to do on the 
budget or that it is serious about trying to divert three-
quarters of a trillion dollars in Social Security trust fund 
moneys for private accounts?
    Mr. BOLTEN. Mr. Becerra, I think we are serious about all 
the proposals in the budget, and those are our positions, but 
those are the positions that we present to the Congress for its 
consideration.
    Mr. BECERRA. This joint commission that would be formed, I 
think you mentioned to Mr. English that you are not too 
familiar with how it would be constructed or formulated. You 
wouldn't be able to answer the question as to how the President 
would want it to go about accomplishing its work, would you?
    Mr. BOLTEN. I think that remains to be seen. As I said, it 
is something that I know we are all hoping that Members on both 
sides can come together and come to an agreement on both how to 
construct such a commission and how it ought to go about its 
work.
    Mr. BECERRA. But the President then comes in to this 
commission, if it is ever formed, positioning that Social 
Security should move toward private accounts, as reflected in 
his budget.
    Mr. BOLTEN. That is the President's view, yes.
    Mr. BECERRA. In terms of Social Security, a little bit 
further, moving to a question that was raised by Congressman 
Doggett most recently, by other Members as well, the $255 death 
benefit that is payable to surviving widows upon the death of a 
worker, anachronistic you called it. Tell me how it is that 
$255 to a widow who probably receives no more than about a $960 
benefit in retirement is not important when it comes to 
something as simple, as Mr. Doggett mentioned, as helping bury 
the deceased spouse?
    Mr. BOLTEN. It is obviously very important, and all of the 
benefits might flow, including her benefits as a widow under 
the Social Security system, are important. This particular 
provision, though, has been frozen since 1952----
    Mr. BECERRA. So, eliminate it because----
    Mr. BOLTEN. It is not means tested in any way.
    Mr. BECERRA. So, eliminate it because it has not seen any 
change in 50 years?
    Mr. BOLTEN. Sure. It is not providing any----
    Mr. BECERRA. That is fine. You have given me an answer. I 
am just trying to understand the rationale for removing a 
program that has helped in many cases widows pay for the burial 
expenses of their deceased spouses. You couldn't have found 
some money out of the $721 billion that you are taking out of 
Social Security for privatization to help ensure that you could 
save this $255 benefit for widows of deceased workers?
    Mr. BOLTEN. Well, I mean, you can find money anywhere in 
the budget for anything if you want to.
    Mr. BECERRA. But it was not a priority to say save $255 by 
taking an infinitesimal amount out of the $721 billion over the 
next 10 years that the President plans to dedicate to private 
accounts?
    Mr. BOLTEN. Well, no. It was a low--this particular program 
was a low priority, providing a minimal benefit that costs 
almost as much to administer as it does in the money actually 
going out to people. Which, by the way, I should emphasize is 
not means tested. It is going to----
    Mr. BECERRA. I appreciate your response. Let me ask one 
last question before my time runs. In the process of making a 
number of these cuts, always tough decisions have to be made. 
One of the programs that you decided to eliminate completely 
was funding for the State Criminal Alien Assistance Program, 
and that is moneys provided to States to help pay for the cost 
of incarcerating illegal immigrants in this country. A State 
like mine, California, obviously needs that assistance for the 
lack of Federal response to immigration policy, and I am 
wondering why it is that the President chose to eliminate a 
program which helps pay for the cost of the failures of the 
Federal Government to enforce its immigration laws.
    Mr. BOLTEN. Well, I think the right answer to that problem 
is to effectively enforce the immigration laws, and----
    Mr. BECERRA. But until that happens, what do the States do? 
They are having to incarcerate folks for having committed 
crimes, those individuals being here because the Federal 
Government is failing to enforce its immigration laws.
    Mr. BOLTEN. What is included in this budget is a very 
substantial increase for border enforcement activities----
    Mr. BECERRA. That does not help us if they are already in 
this country committing crimes.
    Mr. BOLTEN. Well, there are people in this country 
committing crimes all over the country, not just in California. 
Many of them are illegal immigrants, many of them not. That is 
traditionally considered a State responsibility. The right 
answer to the underlying problem is that the Federal Government 
should effectively enforce its borders. We believe we are 
putting the resources into this budget to do that.
    Mr. BECERRA. Thank you. Thank you, Madam Chair.
    Mrs. JOHNSON. Thank you. Ms. Hart?
    Ms. HART. Thank you, Madam Chair. Mr. Bolten, thank you for 
taking the time to come before the Committee. I know you have 
had a busy day. I want to compliment the administration on 
continuing to explain the relationship between economic growth 
and low taxes. As someone who has worked in State government 
for 15 years and for 7 of them chaired the tax-writing 
Committee in my State, we saw the exact same thing happen there 
as it happening here. When we give the people their money back, 
they reinvest it in the economy, and we have had a lot of 
success with that. It is wonderful to see the--14.7 percent, I 
guess?
    Mr. BOLTEN. 14.5 percent.
    Ms. HART. 14.5 percent, thank you.
    Mr. BOLTEN. Increase in revenues last year.
    Ms. HART. Increase in revenues as a result of this much 
better policy. That having been said, we still have some 
statistics that we are trying to find create ways to solve, and 
that is the amount of people who do not have health coverage in 
this country. I think the change in the economy, a lot of 
people who are now self-employed, a lot of people who are now 
working for much smaller businesses, the cost of health 
insurance, a lot of factors are involved in that. I know the 
President had mentioned an expansion of health savings account 
in the State of the Union, and I am not familiar with exactly 
in what way he wants to expand them, and I am not sure if you 
have more of those details. But if you do, I would like you to 
share them with us.
    Mr. BOLTEN. I do have some of the details with me, and I 
would be glad to provide additional materials to you. The 
expansions involve permitting people to put more money into the 
health savings account than they have been in the past, also to 
allow a deduction for--just as when your employer in the 
private sector provides you health care, that health benefit of 
the insurance is not subject to taxation.
    Ms. HART. Right.
    Mr. BOLTEN. So the proposal is to treat HSAs, health 
savings accounts, in a parallel way so that the money you put 
in that is excluded from your income for purposes of taxation.
    Ms. HART. It is also already excluded from the employer's 
income if they contribute?
    Mr. BOLTEN. Well, I think it is considered on the 
employer's side an expense of doing business.
    Ms. HART. Okay. So, that is good.
    Mr. BOLTEN. But to give that exclusion to the employee and 
also the portion that relates to the Social Security and 
Medicare taxes that are applied to that level of income.
    Ms. HART. That is good because I have a bill that would 
actually provide that kind of relief to the self-employed 
individual buying insurance. So, it would include any health 
coverage or health savings account contribution then to be not 
taxable.
    Mr. BOLTEN. Yes, and I think the President's proposal would 
be in parallel, at least with respect to health savings 
accounts.
    Ms. HART. Great. I will count on the administration 
supporting my proposal then. One of the things that people have 
said about health savings accounts and I think you may be 
helping to cure by this proposal to expand the amount that an 
individual can contribute to that account is that there won't 
be enough there for the person to cover whatever problems they 
may have. Is there an amount additional that the administration 
has proposed that a person can actually contribute to those 
accounts tax-free?
    Mr. BOLTEN. I am going to ask one of my colleagues for 
assistance here. The amount of contribution will increase from? 
I am told it is the amount of the deductible to the out of 
payment limit.
    Ms. HART. Well, okay. We will have to talk about that 
further after the hearing. Okay. I appreciate that. Just as a 
point of information, I have employers in my district who, when 
I first ran, had asked us to please look at the medical savings 
account law and fix it. Of course, we looked at that when we 
did the Medicare Modernization Act and moved forward with the 
HSAs. One of the complaints I did hear was a concern about 
being so restricted in how much they can contribute to those 
accounts. We have a number of other things available on the 
Federal level that do have those limits like flexible spending 
accounts. I would certainly be willing to work with the 
administration to make sure that we provide the maximum 
flexibility to those kinds of accounts so that people will be 
able to cover different kinds of expenses that they need to for 
their health and well-being. I thank you for your attention to 
that. I yield back.
    Mr. BOLTEN. Thank you, Ms. Hart.
    Mrs. JOHNSON. I would like to recognize Mr. Thompson.
    Mr. THOMPSON. Thank you, Madam Chair. Mr. Bolten, thank you 
very much for being here. Recently the Commerce Department 
released a report stating that the savings rate in this country 
is disappointingly low. As a matter of fact, it is as low now 
as it was during the Great Depression. So, as I read this, it 
indicates that Americans as individuals are a lot like America 
as a country, and they are having a hard time living within 
their means. They are spending much more than they are making. 
Does this trouble you at all?
    Mr. BOLTEN. Yes, we do need to raise the savings rate in 
this country, and the President has proposals in the budget to 
address that.
    Mr. THOMPSON. Well, you have argued that the tax cuts 
actually encouraged private savings and investment. How do you 
reconcile that with the fact that the savings rate is so low?
    Mr. BOLTEN. I don't know if there is any particular way of 
gauging the extent to which a tax cut either raises or lowers 
the savings rate beyond what it otherwise would have been. But 
we do know that if you leave more money in people's pockets, 
they are more likely to have more money available to save.
    Mr. THOMPSON. So, can you give us an idea how the tax cuts 
have actually helped just regular Americans save more money?
    Mr. BOLTEN. Well, I think when you leave a couple of 
thousand dollars in the pocket of an average family of four, 
and with that extra $2,000 it may be that they need to spend 
some of that on their current expenses, but also that may be 
money that they can put aside for their kids' education. So, 
while the savings rate is low, I think it is entirely 
plausible, in fact, likely that in the absence of the tax cuts, 
the savings rate would be even lower.
    Mr. THOMPSON. Not only is it low, it is extremely low, and 
that, coupled with the unbelievably high amount of personal 
debt that most regular Americans are carrying today, I think is 
emblematic of maybe your tax cuts did not do as much as you are 
suggesting that they did. I am troubled by the combination. I 
am troubled by either one of those indicators, but certainly 
the combination of the two, high debt, low savings, I think 
that spells trouble. I have not seen any benefit accruing to 
those folks from these proposals. To shift gears a minute, the 
President said that the AMT should be addressed within the 
context of fundamental tax reform. Can you tell us where in the 
budget that plan for fundamental tax reform can be found?
    Mr. BOLTEN. The Secretary of the Treasury had a commission 
report to him a few months ago on fundamental tax reform. He is 
studying that now. That is a----
    Mr. THOMPSON. There is nothing in the budget that----
    Mr. BOLTEN. No, and I would anticipate further that since 
we are calling for revenue-neutral budget tax reform, then it 
would not substantially affect the numbers that you see in the 
budget.
    Mr. THOMPSON. If there is no plan outlined by the President 
for the fundamental tax reform, how is it that we are to 
believe that the AMT issue is to be fixed?
    Mr. BOLTEN. Well, it can be fixed in the context of 
fundamental tax reform, which----
    Mr. THOMPSON. But it is not there. That is what I am 
saying.
    Mr. BOLTEN. Which we hope and expect will be coming along 
in the months ahead. Bear in mind that the AMT, we are 
assuming, will be patched for the 2006 tax year, for which 
people will be paying taxes in 2007. That has not been yet 
adopted by the Congress.
    Mr. THOMPSON. But even if it is, it is just a 1-year fix.
    Mr. BOLTEN. It is indeed a 1-year fix, and, therefore, when 
people get around to paying their taxes in April of 2007, that 
is the point at which people would begin to----
    Mr. THOMPSON. Are there other tax cuts from 2001 and 2003 
that are not proposed to be made permanent, or is it just AMT?
    Mr. BOLTEN. AMT was not part of the 2001 and 2003 tax cuts.
    Mr. THOMPSON. I didn't ask that. I said, Were any of the 
2001, 2003 tax cuts that were not made to be permanent?
    Mr. BOLTEN. No. The President's position is to make all of 
the----
    Mr. THOMPSON. Make them all permanent.
    Mr. THOMPSON. --2001 and 2003 tax cuts permanent, with the 
exception of, I believe, a bonus depreciation provision that 
was intended to expire.
    Mr. THOMPSON. Yet AMT is not addressed by this 
administration, and this is a tax cut that has already expired. 
It puts in place a problem for about 17 million Americans who 
are going to have to pay more taxes because this was not fixed. 
As you just explained, there is no proposal within this budget 
or no--it is not a priority within this administration and this 
budget to fix AMT on a permanent manner.
    Mrs. JOHNSON. Thank you. Mr. Brady?
    Mr. BRADY. Thank you, Madam Chair. I appreciate Director 
Bolten being here today.
    Mr. BOLTEN. Thank you, sir.
    Mr. BRADY. I think you have some work to do on the budget, 
but I think the President's priorities of supporting our troops 
and winning this war on terror, securing our borders, helping 
families with their health care, which is so expensive, and 
trying to move to energy independence--those back home in Texas 
are the priorities for Texas families, things they want us to 
work on. You know, the one frustration I have is that we do a 
lot of important things in government, but we just seem to 
waste so much money as we do it. I think the best way that we 
can trim the fat from the budget is a proposal that the 
President has endorsed, and you have as well, a sunset 
commission, which, you know, is a very proven method, has 
worked in 24 States. What it does is it puts an expiration date 
on every--as you know, it puts an expiration date on every 
agency and program where they have to justify their existence 
or face elimination. What it does and what States have shown us 
that we have so many programs that duplicate each other. We 
have programs that are now obsolete. Yet we have new 
priorities, such as the war, such as Medicare and Social 
Security and others, that must be funded that we have to look 
at the 500-some different urban aid programs, the 300-some 
different, separate economic development programs, and 90 
different early childhood programs spread across 11 agencies. I 
think it is critical, for us to get to a balanced budget and 
stay there, we have got to find a bipartisan way, proven way, 
thoughtful way where every agency, every department is held 
accountable. A sunset commission has been endorsed by OMB, 
yourself, and the President. Are you still committed to using 
that as a tool to reduce the waste and fraud?
    Mr. BOLTEN. We are indeed, Mr. Brady, and you may not be 
aware, but when this idea was first gaining currency within the 
administration, it was referred to as a Brady commission.
    Mr. BRADY. Well, that is a scary thought.
    [Laughter.]
    Mr. BOLTEN. But we appreciate the work that you have done 
on this. The administration does remain committed to that 
proposal, I think even more so now than in the past, 
particularly as we see a growing number of Members interested 
in that sort of process reform, certainly more so than have 
been interested in the past. I know you have worked with our 
Deputy director for Management, Clay Johnson, on fashioning a 
sunset commission proposal, and we hope it will get serious 
consideration in the Congress this year.
    Mr. BRADY. Thank you, Director. Thank you, Madam Chairman.
    Mrs. JOHNSON. Mr. Emanuel?
    Mr. EMANUEL. Thank you very much. I feel like an Agatha 
Christie novel: ``Then There Were None.'' It is just me and you 
now, that is it. I knew if I waited long enough, I could be the 
Ranking Member, so here it is. My big moment has come.
    [Laughter.]
    Mr. EMANUEL. Thanks for laughing. I like that he laughs. 
You never know if the guy taping will hear you. You know, look, 
we have gone through this. You have been the whole set of 
questions. You had to do Budget Committee today. Let me make a 
set of proposals for bigger cuts. You know, I am not going to 
argue. I think your survivor's benefits cut is stupid. I can 
put a prettier face on it, put some lipstick on it. You want to 
cut survivor benefits for 250 bucks because--you could reform 
it, you can alter it, you can means test it. You made those 
suggestions. You didn't do it. I think it is a stupid idea to 
cut people who just lost their parents for $250. I am not going 
to give it to you any prettier.
    But here are four ideas or five for bigger cuts. A, in the 
health care area, because they are a total waste of taxpayer 
dollars, and you can move it into uninsured, deficit savings, 
anything you want to do. We now pay--and the PPO slush fund, 
close to about $10 billion. We have an overpayment, 107 
percent, versus fee-for-service. That comes to about $30 
billion. We double-pay for education, $5.5 billion. Those are 
just a couple ideas. There are a couple other in what I would 
call in the Medicare area, total--prior to you it was Secretary 
Leavitt made the recommendation $49.2 billion in additional 
cuts, all are corporate welfare. You would have to hit some 
very big contributors. But you are leaving $49.2 billion on the 
table, and I agree with the President in the State of the 
Union. You want to make big cuts. It is a time of belt-
tightening. We got to do belt-tightening. You left $49.2 
billion. I am sending Secretary Leavitt a letter based on 
today's hearing. I am going to cc it and also send it to you. 
Why--the Chair Lady was there. MedPAC is always used as an 
umpire here. The recommendations for $36 billion in cuts for 
Medicare, were all based on one rationale--MedPAC. Med-PAC also 
made recommendations every area I am saying, so you have left 
$49.2 billion in corporate welfare on the table. Could be cut 
today. Bigger reduction in the deficit. You decided not to.
    Second, Mr. Director, in the area of energy, today--I don't 
know how it closed today, but on average, futures in oil have 
been trading somewhere between $66 to $69 a barrel. We pay 
$14.5 billion in corporate subsidies, taxpayer subsidies to big 
oil companies, $2 billion for the ultra-deepwater oil drilling, 
where they are drilling already, and we don't even collect the 
revenue that they owe on royalties. Basically about $16 billion 
you can collect if you eliminate those subsidies. Total--I am 
personally set off on a mission. We are going to find you $100 
billion in additional cuts you guys are too chicken to do. I am 
going to give it to you in a letter and lay them out to you. I 
want to know why you chose to leave those on.
    Now, I don't have a problem if we are going to--you know, 
oil prices, energy prices, cutting it close to about $2.75. But 
by subsidizing oil companies to do their business plan is the 
wrong way to go, especially we are cutting survivor's benefits 
for kids who have just lost a parent and widows. You are 
cutting educational programs, freezing Title I, all the areas 
you could justify--and I am not saying replace. I am saying you 
left by my calculation $60 billion on the table. So, this is 
not a budget of right priorities. Your rhetoric, not mine. I 
will say--one of the things I find that all my colleagues 
compliment this, what you do, these tax cuts have led to this, 
quote-unquote economic boom. What I find fascinating, you 1 day 
will explain to me, because I do know--was that a gavel down?
    Mrs. JOHNSON. No.
    Mr. EMANUEL. Okay. Was that in the nineties we had an 
economy that was growing with a totally different tax 
structure. So, you will one day explain to me how the economy 
grew in the nineties under a different tax code, which you all 
rallied against and railed against as big, big tax increases on 
folks. So, 1 day I would like to have an explanation or a 
discussion of how the nineties economy grew at the level it did 
with the Tax Code and the taxes that we had level there. Last, 
I want to pick up on what my colleague Mr. Thompson said, and 
that is--it relates to the AMT. You did ask for a permanent--
making permanent the tax cuts in 2001 and 2003. But you did let 
the AMT expire, and it does hit middle-class families, and it 
is hitting--I think in 1999 there was 1 million. Today there is 
19 million. Over the next 4 years, it will get up to 30 million 
families--or taxpayers, rather, who will be hit by it. Is there 
any intention to do tax reform? We all read the same papers 
that you read. Basically tax reform isn't getting done this 
year.
    Mrs. JOHNSON. Thank you, Mr. Emanuel, and thank you, Mr. 
Bolten, for your patience and for listening throughout these 
hours. I am sorry. Your time has expired----
    Mr. EMANUEL. But if he is willing to answer the questions, 
we can stay, right?
    Mrs. JOHNSON. You can talk to him after about it, but I am 
going to adjourn the hearing because we have a vote going on, 
and we are down to the last few minutes. Thank you very much 
for your patience and----
    Mr. EMANUEL. Thanks for the dialog.
    Mrs. JOHNSON. --your courtesy and a pleasure to have you. 
Thanks.
    Mr. BOLTEN. Thank you, Madam Chairman.
    [Whereupon, at 6:40 p.m., the hearing was adjourned.]
    [Submission for the record follows:]
         Statement of the Embassy of Peru to the United States
    The Embassy of Peru would like to congratulate the Ways and Means 
Committee of the U.S. House of Representatives for holding a hearing 
and receiving written statements regarding the U.S. President's Fiscal 
Year 2007 Budget.
    We are aware that the Office of Management and Budget (OMB) has 
presented a budget in the framework of the Andean Counterdrug 
Initiative of U.S. $721.5 million ($13 million less than Fiscal Year 
2006). Unfortunately, in said initiative the amount assigned for drug 
cooperation to Peru is U.S. $98.5 million or a proposed reduction of 
more than U.S. $8.42 million in comparison to Fiscal Year 2006 (U.S. 
$106.92 million). Within the full respect for U.S. legislation, the 
Government of Peru would like to express its utmost concern about the 
current tendency of reduction of amounts for bilateral antidrugs 
cooperation with Peru in the U.S. Budget:

[GRAPHIC] [TIFF OMITTED] T0434A.009


----------------------------------------------------------------------------------------------------------------
                                                                                                        2007sa
               Year                     2002         2003         2004         2005         2006     (requested)
----------------------------------------------------------------------------------------------------------------
In U.S.$                                  142.5          128          116       115.37       106.92         98.5
millions
----------------------------------------------------------------------------------------------------------------

    In times like these, we see this proposed reduction as counter 
productive, particularly if we take into account the significant 
progress made in the fight against drug-trafficking in Peru and the 
challenges we must face.
    On November 17, 2005, the Director of the White House Office of 
National Drug Control Policy (ONDCP), John Walters, made an important 
presentation where he shared some very good news on the results of our 
joint efforts in the fight against drug trafficking. The reduction on 
the cocaine (-17%) and heroin (-22%) purity available in the U.S 
market; as well as the increase in price of both cocaine (+19%) and 
heroin (+30%), mentioned by Mr. Walters, are exactly the type of 
results we are looking for. It is necessary to continue to work and 
fight together to have less drugs available in the streets of the 
United States by attacking the demand and the supply.
    Also, in said presentation it was noted that in the case of Peru, 
as part of the successful strategy in the Andean region, there has been 
a reduction of 20 metric tons of export quality cocaine from 2003 (185 
MT) to 2004 (165 MT).
    These are concrete results that a high ranking official of the U.S. 
Government provides with important data on the fight against illegal 
drugs. These positive results are obtained not only in U.S. territory 
but also in countries such as Peru.
    Peru and the United States have the same interest to cooperate 
against illegal drugs as they see this matter as a grave menace to 
national and hemispheric security. That is the reason why the fight 
against drug-trafficking has been placed as one of the high priorities 
of the Government of Peru since July 2001. Positive results based on 
this effort are at hand, where more than 41,000 hectares have been 
eradicated in the last 4 years and approximately 52 tons of cocaine and 
basic paste of cocaine have been seized from drug traffickers in the 
same period.
    These results would have not been achieved without the commitment 
of our Government and the support provided by the United States. 
However, to continue with this effort, the valuable and important 
support of the United States is needed. Furthermore, any reduction of 
these cooperation funds will have a negative effect in the real 
progress we have obtained in the fight against drug-trafficking. We 
still have to take in account the success of ``Plan Colombia'' on the 
eradication of coca crops, and the ``balloon effect'' it has developed. 
New coca crops have started to grow in neighboring countries. We have 
to realize that from a regional perspective facing this problem will 
have a negative correlation effect for the interdiction and eradication 
success in other countries of the region. Issues like security, drug 
trafficking and terrorism are closely related and the support of the 
United States is instrumental to continue facing together, as partners, 
these new challenges.
    We believe that the House of Representatives has an important role 
to play in this matter. We also believe it has the power to re-examine 
the Administration's Budget proposal for Fiscal Year 2007 in regard to 
the Andean Counterdrug Initiative (ACI) and, particularly, the proposed 
amount assigned for the cooperation with Peru. Therefore, we 
respectfully request that the proposed anti-drug cooperation funds for 
Fiscal Year 2007 be reconsidered or, at least, the amount provided by 
the U.S. Congress for Fiscal Year 2006 be maintained.
    Our joint effort is based on the principle that United States and 
Peru have a shared responsibility in this matter. Drug-trafficking 
affects both countries and we must work together to stop illegal drug 
from reaching the United States. This principle, which is the basis of 
the joint fight against narcotrafficking, has a renewed applicability 
due to the current dimensions, the diversity of methods used in drug 
trafficking and the expansion reached by drug dealers in their crimes 
and related illegal activities such as money laundering, deviation of 
chemical precursors and arms trafficking, as well as other crimes such 
as human trafficking, corruption and terrorism.
    The U.S. Congress is aware and has been very supportive of the 
efforts carried out by Peru in the fight against illegal drugs in the 
Andean Region. In 1991, U.S Congress approved the Andean Trade 
Preferences Act (ATPA) which was renewed and expanded by the Andean 
Trade Promotion and Drug Eradication Act (ATPDEA) of 2002. These U.S. 
laws have significantly contributed to coca eradication efforts in Peru 
by providing and assisting farmers and other populations at risk, with 
alternative economic activities to the highly profitable illegal crops.
    Thanks to the benefits provided by the ATPDEA, in 2005 our exports 
to the United States grew by more than 41.8% compared to the previous 
year. Textiles and apparel, agro-products, like paprika, asparagus, 
mangoes, melons, white onions, watermelons, among others, as well as 
gold jewelry, lead the expansion of sales to the U.S., generating 
thousands of new jobs and improving the livelihood of peasants and 
workers in Peru, especially in rural areas.
    In December 2005, we finalized with the United States the 
negotiations for the Peru Trade Promotion Agreement (PTPA). This 
agreement, which has been applauded by U.S. associations, such as 
National Pork Producers Council, the U.S. Sugar Producers, and the U.S. 
Chamber of Commerce, is an important tool in our efforts to fight 
against drug trafficking and continue with alternative development 
programs in Peru.
    The Government of Peru is firmly committed to the fight against 
drug trafficking. The National Commission for Development and Life 
without Drugs (DEVIDA) was created to design, conduct, and supervise 
the anti-drug policy and rehabilitation programs in Peru.
    The Peruvian Government is currently executing the Peruvian 
National Strategy to Fight Drugs 2002--2007, approved in January 2005, 
which focuses on four major actions:

     Reduction of the drug consumption and rehabilitation

     Interdiction

     Alternative development and protection of the environment

     Eradication and auto eradication of illicit crops

    Farmers in Peru need to be given the opportunity to grow 
alternative products to coca leaf. But not only that, we need to have 
to have an integral approach in this matter: by building roads so they 
may transport their crops to the coast. From there, these crops may be 
sent to Lima, Peru's major market or be exported, and in the latter 
case we have the importance of a PTPA. We need to provide a market for 
these farmers to export their alternative products, such as high 
quality coffee, cocoa, bananas; tropical products that are hardly grown 
in the United States, therefore not competing with U.S. local 
producers.
    If these farmers are not given an alternative crop and a market as 
a destination for their products, they will continue being 
``cocaleros'' coca farmers, with the selfish support of 
narcotraffickers who want to continue with the supply of coca leaf.
    As stated previously, we have to give farmers a chance to develop 
alternative crops and protect the environment. The production of 
alternative crops is only feasible if they can be delivered to major 
markets, either in Peru or abroad, where they can be sold.
    On January 25, 2006 the President of Peru, Alejandro Toledo, with 
the presence of U.S. Ambassador in Peru, inaugurated a road 56 miles 
long between Juanjui and Tocache in the Alto Huallaga Valley in Peru. 
This road, with a cost of U.S. $30 million was financed in part by the 
U.S. Government, through USAID. Even though this is a concrete result 
of the Alternative Development program and the cooperation funds 
between the United States and Peru, these are the funds that are being 
reduced every year.
    There will be 123,000 beneficiaries of 42 towns located at the side 
of said road, which will reduce the trip from Juanjui to Tocache from 
16 to 4 hours. Farmers (many of them former coca growers) will save 
valuable time in transporting their agricultural products to Lima or 
export markets.
    The environment is also negatively affected by drug traffickers. 
Chemicals precursors which are used in the elaboration of cocaine and 
its derivatives, many of them highly toxic, are thrown into the rivers 
of the highlands and jungle of Peru, contaminating clean waters and 
endangering wild flora and fauna.
    The efforts of Peruvian authorities since July 2001 have been very 
important, and the projected goals or eradication have been achieved in 
the last 3 years. As shown in the following chart, in the last 4 years, 
more than 40,000 hectares of coca crops have been eradicated, either 
through forced or voluntary eradication.

                                             Coca Crops Eradication

                         (Hectares)                               2002         2003         2004         2005

Forced eradication                                                  7,134        7,022        7,605        8,957
Voluntary eradication                                                   0        4,291        2,733        3,266
Total                                                               7,134       11,313       10,338       12,223


    Source: DEVIDA

Interdiction
    In regard to interdiction, our National Police and Armed Forces, in 
cooperation with U.S. and other foreign enforcement agencies, have been 
able to seize great amounts of cocaine ready to be shipped to the 
United States, Mexico and Europe.

----------------------------------------------------------------------------------------------------------------
                  Illegal Drugs (kgs.)                        2002         2003         2004         2005
-------------------------------------------------------------------------------------------------------------
Seized:
Basic Paste of Cocaine                                         10,439        4,366        6,329        4,572
Cocaine                                                         4,129        3,574        7,303       11,588
Total                                                          14,568        7,940       13,632       16,160
----------------------------------------------------------------------------------------------------------------

    Furthermore, and important task has been developed in Peru by the 
Financial Intelligence Unit. This Unit, which is parte of the Ministry 
of Economy and Finance, has the following responsibilities:

     Receive and analyze the Report of Suspicious Operations
     Request additional information to the obligated persons
     Request to any public institution all reports, documents, 
background information, and any other document that may be useful in 
their investigation.
     Request of information to any person regarding asset/money 
laundering and terrorism financing
     Transmit to the Public Ministry (for judicial action) the 
detected cases of money laundering and terrorism financing
     Cooperate and participate in joint national and 
international investigations.
     Provide technical assistance.

    Since September 2003, when the Financial Intelligence Unit became 
active, there have been 1,088 reports of suspicious operations that 
have been detected by this Unit. In this same period, this Unit has 
sent 39 reports to the Public Ministry (for judicial action), 19 of 
them involving drug trafficking activities. These reports have 
identified more than U.S. $200 million that may be seized due to their 
illegal origin.
    In the framework of the Annual Plenary Meeting of the Egmont Group, 
in July 2005, the Financial Intelligence Unit of Peru was incorporated 
into the abovementioned group, thanks to the sponsorship of the United 
States and after completely complying with the admission requirements 
established in its norms.
    The Egmont Group, was created in 1995 in Brussels, with the purpose 
of articulating the efforts of the Financial Intelligence Units of 101 
countries in their fight against the asset laundering of activities 
proceeding from the illicit trafficking of drugs, corruption and 
terrorism. It has permitted the Government of Peru to exchange 
financial intelligence information, including the lifting of banking 
secrecy, with all of the UIF members, which has reinforced the actions 
taken by our country in the fight against crimes that generate illicit 
profits.
Regional situation
    Based on the latest events of the Andean region, we would like to 
emphasize that the Government of Peru is respectful of all its 
international commitments in the fight against illegal drugs. Also, our 
country is convinced that the fight against narcotrafficking is the 
best path to obtain development and social peace and stability in our 
country. When narcotrafficking grows it has a negative effect on 
democratic institutions; it expands poverty and social exclusion, 
putting democracy in risk.
Security
    Having drugtraffickers benefit from these illegal activities is 
only a source of destabilization for our country and its democratic 
institutions. It is also a threat to security, not only security in 
Peru but also in this hemisphere. It is well known that these 
transnational criminal organizations that have no borders are 
responsible for these illegal activities.
    We must also have in mind the existing link between 
narcotraffickers and terrorists, and alliance that is well proven, 
particularly in Peru. Terrorism is also a worldwide major threat 
against whom we have to fight together in a coordinated manner.
Conclusion
    Together, our governments must face these enormous challenges in 
the fight against drug trafficking. In order to continue winning 
successful ``battles'' in this war, we truly and respectfully consider 
that United States anti-drug cooperation with Peru should be increased 
and not reduced.
    The outstanding results in the United States and in Peru during the 
last 12 months prove that there has been real progress. Consequently, 
this joint effort, where U.S. support is instrumental, needs to 
continue.

                                 
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