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



                         THE PRESIDENT'S BUDGET
                          FOR FISCAL YEAR 2006

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, FEBRUARY 8, 2005

                               __________

                            Serial No. 109-1

                               __________

           Printed for the use of the Committee on the Budget


  Available on the Internet: http://www.access.gpo.gov/congress/house/
                              house04.html

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                        COMMITTEE ON THE BUDGET

                       JIM NUSSLE, Iowa, Chairman
ROB PORTMAN, Ohio,                   JOHN M. SPRATT, Jr., South 
  Vice Chairman                          Carolina,
JIM RYUN, Kansas                       Ranking Minority Member
ANDER CRENSHAW, Florida              DENNIS MOORE, Kansas
ADAM H. PUTNAM, Florida              RICHARD E. NEAL, Massachusetts
ROGER F. WICKER, Mississippi         ROSA L. DeLAURO, Connecticut
KENNY C. HULSHOF, Missouri           CHET EDWARDS, Texas
JO BONNER, Alabama                   HAROLD E. FORD, Jr., Tennessee
SCOTT GARRETT, New Jersey            LOIS CAPPS, California
J. GRESHAM BARRETT, South Carolina   BRIAN BAIRD, Washington
THADDEUS G. McCOTTER, Michigan       JIM COOPER, Tennessee
MARIO DIAZ-BALART, Florida           ARTUR DAVIS, Alabama
JEB HENSARLING, Texas                WILLIAM J. JEFFERSON, Louisiana
ILEANA ROS-LEHTINEN, Florida         THOMAS H. ALLEN, Maine
DANIEL E. LUNGREN, California        ED CASE, Hawaii
PETE SESSIONS, Texas                 CYNTHIA McKINNEY, Georgia
PAUL RYAN, Wisconsin                 HENRY CUELLAR, Texas
MICHAEL K. SIMPSON, Idaho            ALLYSON Y. SCHWARTZ, Pennsylvania
JEB BRADLEY, New Hampshire           RON KIND, Wisconsin
PATRICK T. McHENRY, North Carolina
CONNIE MACK, Florida
K. MICHAEL CONAWAY, Texas

                           Professional Staff

                     James T. Bates, Chief of Staff
       Thomas S. Kahn, Minority Staff Director and Chief Counsel


                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, February 8, 2005.................     1
Statement of:
    Joshua B. Bolten, Director, Office of Management and Budget..     9
Prepared statement of:
    Mr. Bolten...................................................    13

 
                         THE PRESIDENT'S BUDGET
                          FOR FISCAL YEAR 2006

                              ----------                              


                       TUESDAY, FEBRUARY 8, 2005

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:36 a.m. in room 
210, Cannon House Office Building, Hon. Jim Nussle (chairman of 
the committee) presiding.
    Members present: Representatives Nussle, Ryun, Putnam, 
Wicker, Garrett, Diaz-Balart, Ros-Lehtinen, Lungren, Bradley, 
McHenry, Mack, Conaway, McCotter, Portman, Spratt, Moore, 
DeLauro, Edwards, Ford, Capps, Baird, Cooper, Allen, Case, 
McKinney, and Cuellar.
    Chairman Nussle. Good morning, and welcome to this Budget 
Committee hearing on the President's budget for fiscal year 
2006. This is the starting point for the United States Congress 
and its crafting of the budget. We certainly have one of the 
most important discussions that will be held in Congress all 
year long, as we begin to lay out the blueprint for the fiscal 
situation of this government over the next year.
    Today, I am pleased to welcome back our witness, Joshua 
Bolten, who is the President's Director of the Office of 
Management and Budget (OMB), and a friend of this committee and 
someone who has been before us before.
    As it is the tradition, the OMB director sat before the 
committee last year at this time to walk us through the 
President's budget request. So let's take a moment to review 
that discussion and how things have developed since. The 
President submitted his budget yesterday, and Budget Committee 
Chairman Jim Ryun received the budget.
    I don't know if you saw CNN. I am watching CNN as he, you 
know--as Jim gets the budget and it says Budget Committee 
Chairman Jim Ryun gets the budget--and I thought now wait a 
minute, I only went home for the weekend, you know. There has 
already been a coup here at the budget committee. No, actually, 
thank you, Jim, for doing that.
    As I told you, part of the reason I was gone was my 
daughter was competing in Special Olympics, she won the blue 
ribbon, and yes, it was a big deal. So she had--so I thought it 
was very appropriate that a gold medal olympiad got the budget 
for me so that I could be at her event.
    I would gladly yield to the Chairman of the Budget 
Committee, Mr. Ryun.
    Mr. Ryun of Kansas. I would actually like to yield back to 
the chairman. Frankly, I just wanted to comment on the fact 
that you had your priorities right.
    Chairman Nussle. Thank you.
    Mr. Ryun of Kansas. I congratulate you on that.
    [The prepared statement of Jim Ryun follows:]

Prepared Statement of Hon. Jim Ryun, a Representative in Congress From 
                          the State of Kansas

    Mr. Chairman, one of the main reasons that I ran for Congress was 
to help restore fiscal restraint to the Federal spending process. Too 
often, we spend irresponsibly and far beyond our means.
    I am pleased that the budget before us today is based on principles 
of strong fiscal discipline. By holding spending below inflation, this 
budget begins our return to surpluses.
    The President's budget does this, however, without compromising the 
needs of our military or the security of our borders.
    Over the next few weeks, this committee will take a detailed look 
at this plan. As we do this, I implore my colleagues to maintain the 
principles set forth by the President--principles of discipline and 
eliminating waste.
    Mr. Chairman, by presenting us with a budget based on these 
principles, the President has done his job. Now it's time for us to do 
ours.

    Chairman Nussle. Well, I am not sure everyone would suggest 
that, but the budget is very important, and I appreciate that 
you are here to accept that.
    Last year at this time, Director Bolten, you told us that 
the President's economic proposals would help to build on the 
economic recovery of growth that was already under way.
    Now we know the rest of the story, as it goes. Real gross 
domestic product has increased for 13 consecutive quarters with 
the strongest growth in 5 years--one of the strongest sustained 
economic performances in the last 2 decades.
    It doesn't end there though. Over 2.7 million new jobs were 
created over the past year and a half, and the unemployment 
rate has fallen from 6.3 percent to 5.2 percent.
    So while we are going to talk about the big shot Federal 
budget here today. Let us remember that the most important 
budgets to our constituents are the ones that they heartache 
over around their kitchen tables, and those are improving as 
well. Total employment is at a record high; with 140 million 
people working.
    Business equipment investment is at its best rate in 7 
years. Homeownership rates are at their record levels, with new 
home construction at its best pace in over 25 years. The 
private Blue Chip forecasters agree that our economy is in for 
a sustained expansion.
    Last year at this time, Director Bolten, you presented the 
President's proposal to hold to 0.5 percent, all nonhomeland 
security and nondefense spending. Congress held that spending 
to 1.4 percent, according to your numbers, down from a previous 
5-year average of 6.3 percent.
    We didn't get exactly where we wanted to be. We wanted to 
restrain spending even more, but we certainly did a better job 
than I think we had in the last 5 years.
    Last year at this time, you told us the shocking news that 
our budget deficit would be at $521 billion for fiscal year 
2005. You also told us that the President's budget would be 
able to cut that in half by 2009.
    We ended last year with a $412 billion deficit. Let me show 
you a chart with regard to this, that I think is important for 
us to recall. As I say, last year you told us it was going to 
be $521 billion deficit. At the end of last year, we were able 
to reduce that to $412 billion, a $109 billion reduction in 1 
year.
    Now, before anybody--I hear some snickering, that is 
right--snicker away. But there wasn't one person here last year 
in the room who thought that it was going to go down. Everyone 
predicted it was going to go up with the cost of the war, AMT, 
tax relief for Americans, overspending was going to be what 
everyone predicted. Instead, we went in the opposite direction.
    Why did we do that? Because the economy grew; because 
people went to work; because they paid taxes; because they 
dealt with their own home budgets and family budgets; and 
because we were able to limit the growth of spending in 
Washington.
    We have been here before, folks. In the 1990s, we got to a 
surplus because we knew that increasing economic growth, 
increasing economic activity, increasing the amount of money 
that taxpayers control and at the same time limiting the growth 
of spending was a perfect formula to get back to fiscal sanity.
    That is why we adopted the budget we did last year and that 
is why we need some more of that medicine this year.
    So now let us switch gears to this year's budget. Clearly 
the driving force of the President's proposal is to ensure, 
first and foremost, that America's most urgent needs are met.
    Advancing freedom and security at home and abroad; ensuring 
our economy continues its robust growth; the creation of jobs; 
preserving and strengthening America's most critical 
institutions; and doing all of this while continuing on our 
path to cutting Federal deficits. This and these are our 
highest priorities.
    Of course, we must also continue to honor our commitment to 
other domestic priorities such as education, health care, 
veterans benefits, transportation, science, agriculture, and 
the list goes on and on. Everyone has something they want to 
accomplish, and all of it requires spending.
    We have got to recognize that while we build on our efforts 
to meet our priorities, we have to eliminate some of the 
wasteful spending that we have accumulated--largely through 
neglect in the face of enormous increases that we have heaped 
on these programs over the past decade.
    Let us also remember the old adage I have heard--reading 
the newspaper today has been kind of an interesting experience. 
Almost all of the headlines talked about the Bush budget: 
cutting, spending, cutting, gouging, and eliminating. Well, you 
look through the budget and precious little is in the area of 
actual cuts.
    What we see in Washington is the definition of cuts that we 
have got to be real about. A cut in Washington is often a 
decrease of an anticipated increase. People will scream bloody 
murder, as my mother used to say, about how these cuts are 
going to eliminate this and eliminate that. Yes, there are some 
cuts in there. But by and large the way we get our budget under 
control, the medicine that we have prescribed and the medicine 
the President is prescribing is to just slow things down. We 
don't have to grow faster than the rate of inflation. So we 
will continue to meet our priorities, and in all of these 
different categories, but can do so in a restrained way.
    It is no secret that we will also have a whole host of new 
demands in the near future and some pretty substantial 
challenges, including funding transportation and energy bills, 
welfare reform, correcting Medicare's doctor payments and 
working to find a solution for the Social Security shortfall 
that is looming.
    To add to that crowded list, I am sure members will have 
other priorities. So how do we get it all done? Well, again we 
made progress last year. We made some tough decisions and it is 
just the start. We have to continue it. The administration's 
budget takes on some tough but necessary next steps in its 
proposal for slowing spending while insuring that our 
priorities are met. The proposal includes holding all 
nonhomeland and nondefense spending below inflation. Let me say 
that again. If you are not part of the budget that is there to 
secure our homeland and to make sure that we are protecting 
America, you are on the table. We are going to take a look at 
you.
    As the President laid out in much more eloquent language 
than I could ever muster or come up with, the most important 
use of a taxpayer's dollar is in their own pocket, not in our 
pocket here in Washington.
    So every program requires scrutiny to make sure that if we 
are going to take $1 from a taxpayer, it is for a good reason, 
it is for a worthy cause, it is for something that is a proper 
role of the government, something that people cannot do for 
themselves, and for helping people who need help and requiring 
personal responsibility in return. The administration's budget 
takes some tough but necessary next steps in its proposal from 
slowing the spending while ensuring that our priorities are 
met.
    Their proposal includes holding all nonhomeland and 
nondefense spending below inflation. It also looks for savings, 
in the largest part of the Federal budget. Folks, 55 percent of 
our budget is on automatic pilot. I know I am saying that to 
the mirror, because this is to both sides. I am not just 
looking at the Democrats or the Republicans, I am looking at 
everybody. Our budget is 55 percent automatic. We don't control 
it. It just happens.
    Most people back home probably don't realize that. They 
think when we are talking about the budget, we are controlling 
every single last cent, $0.55 on the dollar now, $0.55 out of 
every dollar you send us folks, is spent automatically without 
Congress or the President having anything to say about it.
    We are all, wherever your district might be, whatever side 
you are on, we are all going to have to make some very tough 
decisions, and we would probably not have to make them. They 
are going to be tough politically. Everyone has something that 
they are nervous about. None of us are going to get everything 
we want.
    But the decisions are there, and we are going to have to 
make them. We are going to have to work, and we are going to 
have work to do. The blueprint that we are going to set is 
going to be jam-packed full of needs that are critical for the 
tipped safety and prosperity of our Nation and its citizens--
not just for the upcoming year, but well into the future.
    So, and many of you are already getting a running start. I 
was watching C-SPAN and saw all sorts of press conferences that 
have already started. It is always interesting to me how it 
takes maybe 30 seconds to read this before all of a sudden the 
opinion pages start going and this is only part of the budget. 
I mean, the rest of the tables that we have got that go along 
with it, to actually get your arms around it, stack a lot 
higher. I will get you a copy so you see what we are talking 
about.
    But within 30 seconds, people are holding a press 
conference and lambasting the budget saying, oh yes, this is in 
there, that is in there.
    Look, we know this is what it is. Now, you tell me that 
somebody has already had the opportunity to read all of this 
and come out and criticize it. It is easy to criticize. It is 
the easiest job in Washington to criticize something you 
haven't even read. The plastic is not even off of this thing.
    People can--you know, they can already come out and hold 
their press conference and have all sorts of fancy charts 
saying this is bad, that is bad, gosh, we can't do that. People 
are going to be thrown out in the street, not in my program and 
not in my backyard. That is exactly how we got to the position 
we are in.
    So, if you don't like something, come up with your own. You 
are not allowed in this committee to say no without an 
alternative.
    This is to my colleagues on my side as much as it is to 
anybody. Because I know the Democrats and we have already seen 
them saying no, no, no. They may be the party of no this year 
for all we know.
    Mr. Ford. Mr. Chairman, could I ask you one question.
    If we hadn't read it to criticize it, how did you read it 
to praise it, just out of curiosity?
    Chairman Nussle. The gentleman is out of order. I am sure 
the gentleman will be happy to be given his own time. Thank you 
for interrupting.
    I am speaking to my side now, because I know you are not 
going to have an alternative. On my side, if you don't like it, 
come up with an offset.
    I have heard people already say they don't like the so 
called-cuts in the defense budget. All right, I can understand 
that. I don't like some of the cuts I have seen in the 
agriculture budget. We are all going to have something we don't 
like.
    But you are not allowed to just come out here and criticize 
it and say you don't like it and no is the answer. No is not an 
answer, all right.
    We are going to come up with alternatives and solutions if 
we are to be credible. If you don't like it, whether you are 
the opinion page of a newspaper or you are a Member of 
Congress, that is fine, but come up with your alternative. No 
is not an answer. Nothing is not an answer.
    We need to get hold of this spending that is growing beyond 
our means. We need to do it by setting a fair squeaky-type 
budget and then doing our work to live within its limits.
    I commend the President for setting a strong starting 
point. No, I haven't read every detail of it either, but I know 
something because I know the man, and I have had an opportunity 
to work with his administration. That's why when they set these 
top limits, they mean business, and we need to mean business 
about the top limits.
    The details are up to the Congress. We are the ones that 
hold the purse strings. If we don't like something, we are 
going to change it. That is the way Congress works. But the 
overall agenda that says we are going to protect the homeland, 
we are going to grow economy, we are going to limit spending, 
is something as far as I am concerned is not negotiable.
    It is not negotiable to this Member. I am going to do 
everything I can to ensure that we get our arms around this 
budget deficit and certainly start controlling it. I certainly 
know and hope that members will participate in this process in 
a constructive way. I understand members can say no. Go ahead 
and say it, I just want them to be doing it in a constructive 
way.
    So I welcome you to the committee, Director Bolten.
    This is always one of the fun lively meetings that we have. 
I now would be very happy to turn it over to my friend and 
colleague, John Spratt from South Carolina for any message that 
he would like to make.
    Mr. Spratt. Thank you very much, Mr. Chairman.
    Mr. Bolten, thank you for coming today and presenting the 
budget to us. We look forward to your testimony and the 
questions and the opportunity we will have to put forward to 
you.
    Let me follow up what our chairman has said, and say we on 
this side of the aisle, who represent the working people of 
America--that is what the Democratic Party is about. We are 
glad to see the economy recover--it has been a long time 
coming.
    For 17 million Americans, 7.7 who are still unemployed, 5 
million who have dropped out of the labor market because they 
are discouraged, and 4.4 million who are, working part-time and 
are underemployed would like to be fully employed--for 17 
million Americans, they are still waiting on the recovery.
    Another fact that we have to bear in mind is that even 
though the economy has recovered, the budget has not. If 
anything, it is getting worse. So we have a structural deficit 
on our hands which requires significant policy changes in order 
to bring the deficit down.
    I would like to start first by saying, Mr. Chairman, every 
year we have put up an alternative budget, and we will have one 
this year. Every year for the last several years we have 
incurred less debt and gotten to balance sooner than your 
budget resolution. We will do that again this year.
    Let me go back to where we started, back in the 1990s, and 
first of all, put this chart up to put the budget in 
perspective. I would like to make, first of all, the simple 
point that we can balance the budget. We did it in the 1990s.
    This chart shows that during every year of the Clinton 
administration, from 1993 till the year 2000, the bottom line, 
the budget got better and better and better to the point where 
we had a surplus 5 years ago, a surplus of $236 billion.
    The second President Bush came to office with an advantage 
that no president in recent times had enjoyed, a surplus, a 
budget and surplus, a big-time surplus estimated by your 
office, the OMB at $5.6 trillion over 10 years. Every year 
since, the graph shows it more graphically and dramatically 
than I can state it. The deficit has declined precipitously to 
the point where in 2003, we had a record deficit, $375 billion. 
In 2004, last year, we had another record, $412 billion. The 
Office of Management and Budget acknowledges this year, that 
record will be broken and the record, the deficit for this year 
will be $427 billion.
    The next table or chart sums up in very basic terms, the 
bottom line of the last four budgets presented by the Bush 
administration. When the Bush administration came to Congress 
with their huge tax cuts built into their budget, they assured 
us that their budget would remain in the black, even if we 
adopted those tax cuts. Within a year, they were back. They 
were back again this time asking for an increase in the debt 
ceiling so they could borrow more, an increase of $450 billion 
in 2003.
    The following year, they were back again, this time asking 
for an enormous increase in the debt ceiling, $984 billion. 
Last November, just a couple of months ago before we could 
adjourn Congress, Congress had to pass still another increase 
in the debt ceiling of $800 billion.
    That means that to accommodate the first four budgets of 
the Bush administration, the debt ceiling, the limit on how 
much we can borrow had to be raised three times by a total of 
$2.234 trillion. Blows your mind, $2.234 trillion.
    Last year, looking at this dismal record, the Bush 
administration tried to put the best face they possibly could 
on it. They said they will cut the deficit in half over the 
next 5 years. But if you look at the budget in the near term, 
this year, last year, next year, it is clearly, Mr. Bolten, not 
on that path.
    The deficit goes up this year by $427 billion and barely 
goes down next year to $390 billion, fiscal 2006. But that 
calculation leaves out several important factors, one of which 
is the cost of our deployment in Iraq and Afghanistan, even 
though Secretary Wolfowitz was here last week telling other 
committees that there will be, you should expect, there will be 
a substantial defense supplemental in 2006.
    That is not included at all in your numbers here, even 
though we have been warned by the Defense Department to expect 
it. When the defense supplemental that is likely is factored 
into the budget for 2006, it is almost certain to produce 
another record-breaking deficit. That is why the likely cause 
ought to be included in today's budget, so that we can look at 
the budget and realistically understand what all of the 
expenditures of the government during 2006 are likely to be.
    Broadly speaking, Mr. Bolten, there are two problems with 
the budget before us. One is what it includes and the other is 
what it excludes. This budget increases defense by $19 billion. 
It increases international affairs, it increases homeland 
security. But instead of paying for these increases, merited as 
they may be, it still calls for substantial tax cuts, 
notwithstanding the fact that we have huge gaping deficits. 
Given that arithmetic, there is no mystery why we have huge 
deficits. Here is one simple way of getting at the causes of 
the problem.
    When the Bush administration sold its tax cuts to Congress, 
it projected that revenues from the individual income tax--
which is the largest source of revenue for the Federal 
Government--that revenues from the individual income tax in 
2004 would be $1.118 trillion. As it turned out, revenues for 
2004 from the individual income tax were $804 billion, 
according to the budget numbers you submitted yesterday.
    That means we are $300 billion below what was estimated in 
the way of revenues for that year, and $300 billion happens to 
be about three-fourths of the deficit for that year. Now that 
is back-of-the-envelope accounting, but that shows you that 
revenues are a critical part of this problem.
    The budget that you presented offsets all of these spending 
increases and tax cuts to a small degree, by cuts in nondefense 
discretionary spending; that is education, there is veterans 
health care, that is law enforcement, that is environmental 
protection, that is the National Institutes of Health, that is 
the National Science Foundation, that is the general 
administration of the government, the Federal Bureau of 
Investigation, the Park Service, the courts, and what have you. 
No one can argue, no one can argue that these programs are the 
sources of the deficit because it barely increased over the 
last several years.
    Taken together, they are not big enough any event--about 15 
percent of the budget--to wipe out the deficits that are 
running close to half a trillion dollars, but the cuts you are 
proposing are significant. They take elementary and secondary 
education, for example, and provide $12 billion less than the 
level that was authorized for No Child Left Behind. Cuts like 
this hurt but in the end, they barely make a dent in the 
deficit.
    So the budget is known also for what it excludes. It 
excludes some major items that make the deficit much larger and 
much more intractable and much more tougher to deal with.
    For example, the President is pushing hard, and made it his 
chief agenda initiative for this year in Congress, 
privatization of Social Security, partial privatization, 
personal accounts, call it what you will. You acknowledge the 
cost will be $754 billion, but that is mainly because you shove 
the implementation of it to 2009. By our calculation, over the 
first 10 years, the cost will be 1.4 trillion, the first 10 
years after implementation. The second 10 years, it will be 
another $3.5 trillion, the total additions to the deficit due 
to the privatization proposal now being pushed will be $4.9 
billion over the next 20 years--trillion, excuse me, trillion, 
I can hardly get my tongue around it.
    So that is a major omission in this budget. Now, granted, 
you could say we don't know the form it is going to take, but 
you can't send it up here and not at least footnote it as a 
contingent liability--because if it is not implemented, I don't 
see how we ever put this budget back in balance.
    The realistic war cost, not just in 2006, but in the years 
afterward, CBO has said let us try to get a handle on this. Let 
us assume that the force levels in theater, not in country, in 
theater in CENTCOM, will be reduced to 40,000 troops, about two 
divisions for the next 4 or 5 years after 2006. That number is 
$384 billion by their calculation over the budget timeframe you 
have got here, the cost to repair AMT, the alternative minimum 
tax. You have got a number of tax cuts, the excision of 
retiring tax cuts and some new tax cuts, easily $1.6 trillion, 
$1.7 trillion, $1.8 trillion in tax cuts that you are pushing--
but nowhere is there any mention of the AMT.
    We all know this is a looming problem that will have to be 
dealt with. You haven't even put into this budget what was put 
into the last budget, and that is a 1-year bridge to patch up 
the problem until there is a permanent solution. All of these 
things omitted and left out of your budget, and it comes to $2 
trillion.
    Just for these dissolutions, about $2 trillion, as you 
would well expect, the deficit plummets and as this chart 
shows, the deficit will, according to this calculation, when 
all of those things are included, the deficit will not be cut 
in half over 5 years, it will actually grow with time. Once 
this Social Security privatization is fully implemented, it 
will plummet.
    I don't understand how you can do the arithmetic and put 
that budget back in balance if you implement your Social 
Security proposal because of the $4 trillion that it will add 
to national debt at any time in our lifetime.
    So this budget is not going to put us on a path to 
balancing the budget, not in 5 years, not in 10 years, and not 
in 20 years. It will probably even get worse if it is 
implemented literally. It will put us on a path to endless 
deficits and a Mount Everest in debt.
    It is daunting, Mr. Bolten, to consider where we were 5 
years ago. As we sat here on a surplus of $236 billion. It took 
us 10, 15 years of budget effort to get the deficit down, put 
the budget in surplus for the first time in 30 years. Here we 
are today after 4 years, $2.2 trillion deeper in debt and going 
deeper.
    It is even more daunting to see your budget with spending 
increases and tax cuts and the diversion of payroll taxes, 
which could come to almost $4.9 trillion over the next 20 
years. We don't know where this leads, but we don't think it 
makes a budget better. We think it makes its decidedly worse, 
and I fear even an insolvable, intractable problem.
    So we have great concerns about this. We look forward to 
your testimony and hope we can answer some of the questions we 
put to you, and maybe even allay some of our concerns about, 
the course the budget before us takes us upon.
    Chairman Nussle. Thank you, Mr. Spratt.
    I ask unanimous consent that all members be allowed to put 
a statement, an opening statement in the record. At this point.
    Without objection, so ordered.
    Director Bolten, welcome back to the Budget Committee. We 
are pleased to receive your testimony at this time.

 STATEMENT OF JOSHUA B. BOLTEN, DIRECTOR, OFFICE OF MANAGEMENT 
                           AND BUDGET

    Mr. Bolten. Mr. Chairman, thank you very much.
    Thank you, Mr. Spratt.
    Mr. Chairman, I want to associate myself with your 
excellent opening remarks. I obviously disagree with those that 
Mr. Spratt just made, but I am at least heartened to see that 
there is bipartisan enthusiasm for getting our budget situation 
under control, and I hope we will be able to work together on 
that as much as possible.
    Mr. Chairman, distinguished members of the committee, the 
President's 2006 budget, which was transmitted to the Congress 
yesterday, meets the priorities of the Nation and builds on the 
progress of the last 4 years. We are funding our efforts to 
defend the homeland from attack, we are transforming our 
military and supporting our troops as they fight and win the 
global war on terror. We are helping to spread freedom 
throughout the world. We are promoting high standards in our 
schools so that our children gain the skills they need to 
succeed. We are promoting the pro-growth policies that have 
helped to produce, Mr. Chairman, as you said, millions of new 
jobs and restore confidence in our economy.
    Over the past 4 years, the President and Congress rose to 
meet historic challenges. A collapsing stock market, a 
recession, the revelation of corporate scandals, and, of 
course, the terrorist attacks of September 11, 2001. To meet 
the economy's significant challenges, in each year of the first 
term, the Congress and the President enacted major tax relief 
that fueled recovery, business investment and, most important, 
job creation.
    The strong economic growth unleashed by tax relief is 
reflected in this chart that is on your screen now. Since the 
recession year of 2001, the recession that was on the doorstep 
as the President entered office, economic growth has increased 
in each of the following 3 years. A primary goal of this 2006 
budget is to assure that that economic growth continues.



    A strengthening economy produces rising tax revenues. Last 
year, after declining 3 years in a row, Federal revenue grew by 
nearly $100 billion. That is the 5.5 percent increase you see 
for 2004. Reflecting strong continued growth, we project that 
Federal revenues will grow by an even larger figure this year. 
Those growth figures in revenue reflect full implementation of 
the President's tax cuts which have fueled economic recovery.
    The President and Congress have also devoted significant 
resources to rebuild and transform our military and to protect 
the homeland. In the first term, the defense budget grew by 
more than a third, the largest increase since the Reagan 
administration. To make our homeland safer, the President 
worked with Congress to create the Department of Homeland 
Security and nearly tripled funding for Homeland Security 
governmentwide.
    While committing these necessary resources to protecting 
America, the President and Congress have focused on spending 
restraint elsewhere in the budget. Working together, we have 
succeeded in bringing down the rate of growth in nonsecurity 
discretionary spending, each year of the President's first 
term.
    Mr. Chairman, as you referenced in your remarks, in the 
last budget year of the previous administration, nonsecurity 
discretionary spending grew by 15 percent. That is the green 
bar there. In 2005, such spending will rise only about 1 
percent, thanks to the cooperation of many of the members on 
this committee.



    Because of this increased spending restraint, deficits are 
below what they otherwise would have been. In order to sustain 
our economic expansion, we must exercise even greater spending 
restraint than in the past.
    When the Federal Government focuses on its priorities and 
limits the resources it takes from the private sector, the 
result is a stronger and more productive economy. The 
President's 2006 budget proposes that enhanced restraint.
    As you can see from the chart that is now on your screen, 
the 2006 budget proposes a reduction in the nonsecurity 
discretionary category of the budget. This is the first 
proposed cut in this nonsecurity spending since the Reagan 
administration.
    The budget proposes more than 150 reductions, reforms and 
eliminations in nondefense discretionary programs, saving about 
$20 billion in 2006 alone.
    As a result of this enhanced restraint, overall 
discretionary spending, even after significant increases in 
defense and homeland security, will grow by only about 2.1 
percent. That is less than the projected rate of inflation. In 
other words, under the President's 2006 budget, overall 
discretionary spending will see a reduction in real terms.
    In addition, the budget also proposes savings from another 
set of reforms in mandatory programs, saving about $137 billion 
over the next 10 years. Mr. Chairman, these are the programs 
that you referenced as constituting 55 percent of our budget.
    As you well know, both mandatory and discretionary 
categories of spending are inherently difficult to control, but 
mandatory programs are especially difficult because of what 
referred you to, Mr. Chairman, as their auto pilot feature. The 
administration looks forward to working with the Congress on a 
package of savings in this mandatory category.
    We will also work with Congress on budget process reforms. 
Last year I transmitted to Congress on behalf of the 
administration proposed legislation to establish statutory 
budget enforcement controls. We plan to transmit a similar set 
of proposed statutory controls to establish caps on 
discretionary spending and pay-as-you-go requirement from 
mandatory spending only and a new enforcement mechanism to 
control new unfunded long term obligations.
    The President's budget also proposes that Congress include 
these budget enforcement mechanisms and associated reforms in 
your 2006 budget resolution.
    In addition, the administration proposes other enforcement 
and budget process reforms, such as the line item veto, a 
results commission and a sunset commission. These reforms would 
put in place the tools we need to enforce spending restraint 
and would bring greater accountability and transparency to the 
budgeting process.
    This budget restrains spending in a responsible way by 
focusing on priorities, priorities, principles and performance. 
We were guided by three major criteria in evaluating programs. 
First does the program meet the nation's priorities, the budget 
increases funding to strengthen our armed forces,improve the 
security of our homeland, promote economic opportunity and 
foster compassion.
    Second, does the program meet the President's principles 
for the use of taxpayer resources? If an appropriate Federal 
role could not be identified in a program submission, the 
budget generally proposes to reduce or eliminate its funding.
    Third, does the program produce the intended results? The 
Bush administration is comprehensively measuring the 
effectiveness of the government's programs, and the results are 
helping us make budgeting decision. As part of the President's 
management agenda, the Program Assessment Rating Tool, known to 
many of you as the PART program, was developed to measure the 
performance of all programs. Roughly 60 percent of all Federal 
programs have undergone PART assessments and those scores 
figured into our budgeting process.
    By holding government spending to these accountability 
standards, by focusing on our priorities, and by maintaining 
pro-growth economic policies, we are making progress by 
bringing down the size of the deficit in 2006 and beyond.
    Last year's budget initially projected a deficit of 4.5 
percent of GDP in 2004 or $521 billion. The President set out 
to cut this deficit in half by 2009. Largely because economic 
growth generated stronger revenues than originally estimated 
and because the Congress delivered the spending restraint 
called for by the President, the 2004 deficit came in $109 
billion lower than originally estimated.
    At 3.6 percent of GDP, the actual 2004 deficit, while still 
too large, was well within historical range and smaller than 
the deficits in 9 of the last 25 years. We project the 2005 
deficit to come in at 2.5 percent of GDP or $427 billion. If we 
maintain the policies of economic growth and spending restraint 
reflected in this budget, the deficit is expected to decline in 
2006 and each of the next 4 years.
    In 2006, we project the budget deficit to fall to 3 percent 
of GDP or $390 billion, in 2007 the deficit is protected to 
fall further to 2.3 percent of GDP or $312 billion.
    By 2009, that is the 5-year mark, the deficit is projected 
to be cut by more than half from its originally estimated 2004 
peak to just 1.5 percent of GDP, which is well below the 40-
year historical average deficit of 2.3 percent of GDP and lower 
than the deficit level in all but 7 of the last 25 years.
    Mr. Chairman, the administration intends to submit shortly 
a supplemental appropriations request of approximately $81 
billion. This is primarily to support operations in Iraq and 
Afghanistan for the remainder of the fiscal year.
    The 2006 budget spending and deficit projections fully 
reflect the outlay effects of this supplemental request, as 
well as the prior $25 billion supplemental bill already 
approved by the Congress. However, the budget does not reflect 
the effect of an undetermined but anticipated supplemental 
request for ongoing operations in Iraq and Afghanistan beyond 
2005.
    Mr. Chairman, the published version of the 2006 budget, the 
large documents before you now, also does not reflect the 
effects of transition financing associated with the President's 
proposal to create personal retirement accounts as part of a 
comprehensive plan to permanently fix Social Security.
    As the administration announced last week, the type of 
personal accounts the President is proposing will require 
approximately $664 billion in transition financing over the 
next 10 years with an additional $90 billion in related debt 
service.
    This transition financing would result in a deficit in 2009 
and 2010 of 1.7 percent of GDP. This is still consistent with 
the President's goal to cut the deficit in half by 2009 and 
still well below the 40-year historical average.
    You can see that now on the chart that I have on the screen 
now. The chart we presented yesterday, which shows 2009, 2010 
with the President's Social Security plans included, a deficit 
still down at 1.7 percent of GDP, well below the historical 
average deficit of 3.2 percent of GDP. It is also important to 
remember that this transition financing does not have the same 
effect on national savings and thus on the economy as does 
traditional borrowing. Every dollar the government borrows to 
fund the transition to personal accounts is fully offset by an 
increase in savings represented by the accounts themselves.
    In addition, the transition financing of retirement 
benefits does not represent new debt. These are obligations 
that the government already owes in the form of future 
benefits. Perhaps most important, comprehensive Social Security 
reform that includes personal accounts can eliminate the 
system's current $10.4 trillion in unfunded obligations. Those 
of us who devote our time to thinking about fiscal policy all 
share a common interest in averting this danger. There is no 
task as vital to fiscal policymakers this year than removing 
those unfunded obligations by enacting comprehensive Social 
Security reform.
    Confronting these long-term obligations, combined with our 
near-term budget reduction efforts, will help assure a strong 
economy both now and in the future.
    I look forward to working with the committee and the 
Congress on this budget which meets the priorities of the 
Nation in a fiscally responsible way.
    Thank you, Mr. Chairman. I am happy to take your questions.
    [The prepared statement of Joshua Bolten follows:]

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

    Chairman Nussle, Ranking Member Spratt, and distinguished members 
of the Committee, the President's 2006 Budget, which was transmitted to 
the Congress on Monday, meets the priorities of the Nation and builds 
on the progress of the last 4 years.
    We are funding our efforts to defend the homeland from attack. We 
are transforming our military and supporting our troops as they fight 
and win the Global War on Terror. We are helping to spread freedom 
throughout the world. We are promoting high standards in our schools, 
so that our children gain the skills they need to succeed. We are 
promoting the pro-growth policies that have helped to produce millions 
of new jobs and restore confidence in our economy.
    Over the past 4 years, the President and Congress rose to meet 
historic challenges: a collapsing stock market, a recession, the 
revelation of corporate scandals and, of course, the terrorist attacks 
of September 11th.
    To meet the economy's significant challenges, in each year of the 
first term, Congress and the President enacted major tax relief that 
fueled recovery, business investment, and job creation.
    Recent economic indicators support the case for tax relief. Since 
the recession year of 2001, economic growth has increased in each of 
the following 3 years. A primary goal of this Budget is to assure that 
our economic growth continues.
    A strengthening economy produces rising tax revenues. Last year, 
after declining 3 years in a row, Federal revenue grew by nearly $100 
billion. Reflecting strong continued growth, we project that Federal 
revenues will grow by an even larger figure this year.
    The President and Congress have also devoted significant resources 
to rebuild and transform our military, and to protect our homeland. In 
the first term, the defense budget grew by more than a third, the 
largest increase since the Reagan Administration. To make our homeland 
safer, he worked with Congress to create the Department of Homeland 
Security and nearly triple funding for homeland security government-
wide.
    While committing these necessary resources to protecting America, 
the President and Congress have focused on spending restraint elsewhere 
in the Budget. Working together, we have succeeded in bringing down the 
rate of growth in non-security discretionary spending each year of the 
President's first term. In the last Budget year of the previous 
Administration, non-security discretionary spending grew by 15 percent. 
In 2005, such spending will rise only about 1 percent. Because of this 
increased spending restraint, deficits are below what they otherwise 
would have been.



    In order to sustain our economic expansion, we must exercise even 
greater spending restraint than in the past. When the Federal 
Government focuses on its priorities, and limits the resources it takes 
from the private sector, the result is a stronger, more productive 
economy.
    The President's Budget proposes that enhanced restraint. The 2006 
Budget proposes a reduction in the non-security discretionary category 
of the Budget. This is the first proposed cut in this non-security 
spending since the Reagan administration.
    The Budget proposes more than 150 reductions, reforms, and 
eliminations in non-defense discretionary programs, saving about $20 
billion in 2006 alone.
    As a result of this enhanced restraint, overall discretionary 
spending, even after significant increases in defense and homeland 
security, will grow by only 2.1 percent--less than the projected rate 
of inflation, which is 2.3 percent. In other words, under the 
President's 2006 Budget, overall discretionary spending will see a 
reduction in real terms.
    In addition, the Budget also proposes savings from an additional 
set of reforms in mandatory programs, saving about $137 billion over 
the next 10 years.
    As you well know, both mandatory and discretionary categories of 
spending are inherently difficult to control, but mandatory programs 
are especially difficult because of their ``auto-pilot'' feature. The 
Administration looks forward to working with the Congress on a package 
of mandatory savings.
    We will also work with Congress on budget process reforms. Last 
year, I transmitted to Congress, on behalf of the Administration, 
proposed legislation to establish statutory budget enforcement 
controls. We plan to transmit a similar set of proposed statutory 
controls to establish caps on discretionary spending, a pay-as-you-go 
requirement for mandatory spending only, and a new enforcement 
mechanism to control long-term unfunded obligations. The President's 
Budget also proposes that Congress include these budget enforcement 
mechanisms and associated reforms in the FY 2006 Budget resolution.
    In addition, the Administration proposes other enforcement and 
budget process reforms, such as the line-item veto, a Results 
Commission, and a Sunset Commission. These reforms would put in place 
the tools we need to enforce spending restraint and would bring greater 
accountability and transparency to the budgeting process.
    This Budget restrains spending in a responsible way by focusing on 
priorities, principles, and performance. We were guided by three major 
criteria in evaluating programs:
    First: Does the program meet the Nation's priorities? The Budget 
increases funding to strengthen our Armed Forces, improve the security 
of our homeland, promote economic opportunity, and foster compassion.
    Second: Does the program meet the President's principles for the 
use of taxpayer resources? If an appropriate Federal role could not be 
identified in a program's mission, the Budget generally proposes to 
reduce or eliminate its funding.
    Third: Does the program produce the intended results? The Bush 
Administration is comprehensively measuring the effectiveness of the 
government's programs--and the results are helping us make budgeting 
decisions. As a part of the President's Management Agenda, the Program 
Assessment Rating Tool, or PART, was developed to measure the 
performance of Federal programs. Roughly 60 percent of all Federal 
programs have undergone PART assessments and those scores figured into 
the budgeting process.
    By holding government spending to these accountability standards, 
by focusing on our priorities, and by maintaining pro-growth economic 
policies, we are making progress in bringing down the size of the 
deficit in 2006 and beyond.
    Last year's Budget initially projected a deficit of 4.5 percent of 
Gross Domestic Product (GDP) in 2004, or $521 billion. The President 
set out to cut this deficit in half by 2009. Largely because economic 
growth generated stronger revenues than originally estimated, and 
because the Congress delivered the spending restraint called for by the 
President, the 2004 deficit came in $109 billion lower than originally 
estimated.
    At 3.6 percent of GDP, the actual 2004 deficit, while still too 
large, was well within historical range and smaller than the deficits 
in 9 of the last 25 years. We project the 2005 deficit to come in at 
3.5 percent of GDP or $427 billion. If we maintain the policies of 
economic growth and spending restraint reflected in this Budget, the 
deficit is expected to decline in 2006 and each of the next 4 years.
    In 2006, we project the budget deficit to fall to 3.0 percent of 
GDP, or $390 billion. In 2007, the deficit is projected to fall further 
to 2.3 percent of GDP, or $312 billion.
    By 2009, the deficit is projected to be cut by more than half from 
its originally estimated 2004 peak-to just 1.5 percent of GDP, which is 
well below the 40-year historical average deficit of 2.3 percent, and 
lower than the deficit level in all but seven of the last 25 years.
    The Administration intends to submit shortly a supplemental 
appropriations request of approximately $81 billion, primarily to 
support operations in Iraq and Afghanistan for the remainder of the 
fiscal year.
    The 2006 Budget's spending and deficit projections fully reflect 
the outlay effects of this supplemental request, as well as the prior 
$25 billion supplemental bill already enacted by the Congress. However, 
the Budget does not reflect the effect of an undetermined but 
anticipated supplemental requests for ongoing operations in Iraq and 
Afghanistan beyond 2005.
    The published version of the 2006 Budget also does not reflect the 
effects of transition financing associated with the President's 
proposal to create personal retirement accounts as part of a 
comprehensive plan to permanently fix Social Security. As the 
Administration announced last week, the type of personal accounts the 
President is proposing will require approximately $664 billion in 
transition financing over the next 10 years, with an additional $90 
billion in related debt service. This transition financing would result 
in a deficit in 2009 and 2010 of 1.7 percent of GDP, which is still 
consistent with the president's goal to cut the deficit in half by 
2009, and still well below the 40-year historical average.
    It's important to remember that this transition financing does not 
have the same impact on national savings, and thus on the economy, as 
does traditional borrowing. Every dollar the government borrows to fund 
the transition to personal accounts is fully offset by an increase in 
savings represented by the accounts themselves.



    In addition, the transition financing does not represent new debt-
these are obligations that the government already owes in the form of 
future benefits.
    Perhaps most important, comprehensive Social Security reform that 
includes personal accounts will eliminate the system's current $10.4 
trillion in unfunded obligations. Those of us who devote our time to 
thinking about fiscal policy all share a common interest in averting 
this danger. There is no task as vital to fiscal policymakers this year 
than removing those unfunded obligations by enacting comprehensive 
Social Security reform.
    Confronting these long-term obligations, combined with our near-
term deficit reduction efforts, will help assure a strong economy both 
now and in the future.
    I look forward to working with the committee and the Congress on 
this Budget, which meets the priorities of the Nation in a fiscally 
responsible way.

    Chairman Nussle. Thank you, Director Bolten.
    Let me start by reacting to a statement by my very good 
friend, Mr. Spratt, the ranking member. He said that it 
staggering to consider where we were just 5 years ago when we 
were running surpluses. It is staggering to consider that just 
5 years ago, we were running surpluses.
    But I don't want to go back. I don't want to go back 5 
years. I would love to have surpluses again, because the green 
eyeshades guy in me would love to be able to go home and tell 
my folks, hey, I did it, I balanced the budget.
    But, let us just look at a couple of charts. Let me put up 
chart No. 5. Would I want to do that at the cost of our 
military? Would I want to go back 5 years to where we were in 
our military situation and not defend the country?
    Let us go to chart No. 6. Would I not want to fund Homeland 
Security and protect the country? Of course not. Let us go to 
chart No. 8. Would I not want to pay for the war and combat 
terrorism?
    These are reasons why we are in deficit, folks. How about 
No. 9? Would I not want to grow the economy and put people back 
to work? Do we want to go back 5 years to where we had negative 
growth and a recession and not put money back in people's 
pockets so that they can make those decisions for themselves 
around their kitchen tables? Would I want to go back 5 years 
for that?
    I mean, we can live in the past and say, wouldn't it have 
been nice to live in a surplus world? But we made deliberate 
decisions, in a bipartisan way. As Americans, we said we are 
going to get the economy growing, we are going to protect the 
homeland, we are going to do whatever it takes to prosecute 
this war against the terrorists, that is what we said back 
then.
    Now we are acting, oh I don't know how we got there. I 
don't know how we got to this deficit. Folks, we made 
deliberate decisions and interestingly enough checked the 
voting records. Just about every member of this committee did 
with a glad heart vote for many of those proposals, including 
me. I say it is more important to deal with those problems than 
it is to just run a surplus, and be able to go home and tell 
your mom, dad, your constituents, or your family, my green 
eyeshades are working, I was able to balance the budget. We did 
whatever it took.
    So, yes, it is staggering to look back 5 years, but it is 
also, I think, important to look forward and to say these are 
things are important to do. So let us talk about some much 
these proposals.
    First of all, I would like to know from the Director, what 
are you willing to recommend to the President to enforce this 
budget? I can already tell you what I am hearing--you can 
imagine, if you are hearing it in the newspapers, you are 
hearing it from interest groups, you are hearing it from 
Members of Congress, and you are hearing it from constituents.
    I was on C-SPAN this morning and people were calling in 
already complaining about this program, cut in that program, 
that is gouged, and all sorts of things. What are you willing 
to recommend to the budget in order to enforce the top line of 
this budget? I mean, I think we are going to need some help up 
here.
    There are a number of us that are willing to make some 
tough decisions, but I think we are going to need a little bit 
of help from the administration. What are you willing to 
recommend to the President to enforce the budget that you have 
put up, at least in the top line or enforce the fences that are 
part of making sure that this budget is physically responsible?
    Mr. Bolten. Mr. Chairman, we heard many of the same 
comments a year ago.
    We got the dead-on-arrival comments when the President was 
asking that the overall discretionary budget be kept to 4 
percent growth, that the nondefense element of that be kept to 
1 percent growth, and there were screams of you can't cut this, 
you can't cut that and the budget is dead on arrival.
    Now we didn't get everything that we specifically asked 
for, but what the Congress delivered was, in fact, a budget 
that held overall discretionary growth around 4 percent, and 
the nondefense portion of that, just above 1 percent, as have 
pointed out in your opening remarks.
    So we got what we asked for last year in the big 
perspective, and that came about through effective leadership 
from you, Mr. Chairman, and other key leaders in the Congress. 
It came about from the President's determination that he was 
not going to sign appropriations bills that exceeded the limits 
that he had set. I expect the President will do the same this 
year, and that will be my recommendation to him.
    Chairman Nussle. I didn't hear the--I was kind of hoping. I 
was listening carefully for the V word. I didn't hear the V 
word. Is it possible that depending on exactly how these bills 
come forward, that the V word might be used for the first time 
in this administration's tenure?
    Mr. Bolten. Sure, it could be. The reason you didn't hear 
the V word in what I just said--or you didn't have to hear it 
last year--was that we had great cooperation from the 
leadership in delivering appropriations bills. By the way I 
should say, this includes the leadership of the Appropriations 
Committees.
    We had great cooperation in delivering bills that were 
within the President's limits. I don't anticipate that 
cooperation will break down. But if the President needs to 
enforce his spending limits through the use of the veto, I am 
sure he won't hesitate to do that.
    So far, that has hasn't been necessary. I don't anticipate 
that that will be necessary this year.
    Chairman Nussle. Let me put up chart No. 3.
    Just so people have a chance to see this, because this is 
to me staggering. We are going to talk about--we are going to 
hear a lot. So far the news has been about, you know, cuts, 
cuts, cuts, cuts, cuts, cuts, cuts.
    I just want you to see the total amount of spending. There 
is nothing cut. We are increasing the budget. Every single year 
we have been here, we have been increasing the budget. Let me 
go to chart 4. Because this is the amount that we control. This 
is the discretionary amount. This is where you talk about the 
military, and you talk about some of the programs that were 
illuminated earlier in my friend, Mr. Spratt's comments.
    Look at the discretionary growth. I mean, these are actual 
dollars. You can see what was going on during the late 1990s. 
When we were controlling the budget, and when we were saying, 
look we are going to look for waste, fraud, and abuse. We are 
going to look for programs that aren't working. We are going to 
look for ways to save money.
    You saw how we got the balance in 1999. It is right there 
in black and white. That is by controlling the rate of growth 
and spending. Look what happened when we got to surplus. The 
explosion took place.
    Now, granted, there is a lot of this money that is in 
defense. I am not trying to say that every single dollar here 
we could have saved. But I just want to see the rate of growth 
that we are you can taking about illuminated in just a slightly 
different way. So when I hear people talking about cuts, I just 
want you to remember. In Washington, a cut is described too 
often as a decrease in an anticipated increase, meaning 
somebody wants something.
    It is like my son coming to me and asking for $10, and I 
give him $9. He screams that I gave him, you know, $1 less than 
he wanted, so that is a cut. Well, no, son, first of all, it 
wasn't your money to begin with, and second of all I only gave 
you $5 last week. So you got a $4 increase.
    So just because people want something doesn't mean it is a 
cut. We are meeting our priorities and we are dealing with 
these things. But there are programs that you have highlighted 
and you have suggested that you are going to be sending up for 
the purpose of actual cuts or elimination. So my understanding 
is, from listening to your conference yesterday, that there is 
150 so-called programs. Are you willing to give us--I would 
like to see the list. I would like to see them all together, 
because I know what is going to happen. If you start sending 
one down and the other all--I found out here that there is a 
constituency for everything. Every single thing. There is a 
reason why we spend money on it. Somebody cared about it at one 
point in time or another and had a constituency, a member, or 
whatever that got it in.
    So I think what I would like to suggest is that you send 
them up in a package with your--if I could humbly suggest with 
your justification behind it. So that we see, not only the 
proposal, but we see some sense from OMB what the pluses and 
minuses of the program might be so we can see them taken 
together.
    Is that something that we could be provided?
    Mr. Bolten. Sure, Mr. Chairman.
    We will be glad to do that. We will prepare something for 
you shortly. I appreciate the way you have approached that, 
because you are absolutely right. Every single program has a 
constituency among some part of the population, some member 
somewhere. This budget is all about setting priorities.
    So I appreciate the perspective that you are bringing to 
look at this budget overall, which is what I am presenting 
today, and then I will appreciate the perspective that you take 
to look at this whole package of program savings and reforms--
there are more than 150 of them.
    We will put them together for you in some comprehensive way 
with a justification. I think what you will see is that we are 
trying to make responsible decisions all across the budget. 
Every single one of you will agree that collectively those are 
the kinds of actions we need to make to get our budget 
situation in order.

    (Editor's note: See www.whitehouse.gov/omb/budget/fy2006/pdf/
savings.pdf)

    Chairman Nussle. Next, I would like to ask you to put up 
chart No. 14. This is the mandatory expenditure chart. Because 
I have also heard people suggesting that these are going to be 
the hardest and the most difficult decisions to make. These are 
the automatic spending charts--for again our friends that are 
listening, this is spending decisions that are made 
automatically. Congress doesn't have to vote on them. They just 
occur. The checks just get sent out the door.
    Now, I don't see any cuts in any of those. They are all 
going up. The only one, thankfully, that we had a small dip in 
was net interest there for a little while. But unfortunately 
even now that is going back up, and we will have a chance to 
talk to Chairman Greenspan about that at the appropriate time.
    But what I am getting at here is as I read the budget and 
get a sense for these mandatory programs, they are growing now 
at approximately 5 percent. I want to say 5.6 percent, and what 
you are basically saying is not cut them, but slow it down to 
about 5.5 percent or some percentage slightly lower than that 
growth of 5.6 percent.
    I would like you to just touch on mandatory spending. How 
would you like us to approach this as we go through this? A new 
word that people are going to have to get familiar with out 
there is reconciliation, which means we are going to send 
instructions to committees and say we want you to find savings 
in order to dip that growth curve slightly. Not cut, just try 
to slow it down. Would you touch on the mandatory side of the 
budget?
    Mr. Bolten. Yes, Mr. Chairman, you are absolutely right 
that on the mandatory side of the budget, that is the part of 
the budget with the largest portion of expenditures. You 
referenced about 55 percent today that is growing steadily over 
time in ways that exceed inflation or, in most cases, the 
growth of the economy. You need to divide them into separate 
pieces, and I think the right way to look at this is in the 
different entitlement programs.
    For example, we are carrying in the budget a Medicaid 
proposal that captures net savings of $45 billion, gross about 
$60 billion over 10 years. We have already heard a lot of 
complaints about that, but the effect of those savings is to 
reduce the growth in Medicaid from 7.4 percent per year over 
the budget window to 7.2 percent.
    So you are absolutely right in focusing on the nature of 
what people are calling a cut is really a slight decrease in a 
large increase. Those are really the kinds of costs we need to 
get under control if we are really going to control our budget 
situation.
    Chairman Nussle. Then last I would like to touch on taxes, 
and if I could. I would like to go to chart No. 12. Mr. Spratt 
mentioned--and his chart showed--that top line dip in the 
individual tax that this government is collecting. Thankfully, 
that dip is there.
    That dip in our pocketbook out here around this committee 
table means an increase in the amount of money that is in the 
pockets of Americans that are making decisions around their 
kitchen table, balancing their checkbooks.
    But interestingly enough, what the chart that Mr. Spratt 
did not show you is what happens this year and out into the 
future, look at it go back up? This is with tax cuts being made 
permanent.
    Now, wait a minute, how can this be? What kind of magic is 
going on in this world that you can cut taxes and the amount of 
money that comes into Treasury goes up? Isn't this a miracle? 
Well, let us go to chart No. 11, and I will show you how it 
works. Look at the same dip.
    Now, that dip is in the people who are working. So when 
more people are working, they pay taxes and more money comes 
into the government. When we have a dip in the amount of people 
working, less money comes in. It is the reason why we have 
focused on economic growth, and it is the reason why economic 
growth, together with spending restraint, gets us back into a 
situation that is long term a much more sustainable situation.
    So, I appreciate the fact that you are continuing the 
progress that we have made to make tax relief permanent to 
get--and permanent around Congress is always a misnomer. I 
always think it is funny when people talk about tax cuts being 
permanent. It is more about tax relief being predictable, so 
that people can plan for the future, that is what we are 
saying. We are not saying that anything around here is 
permanent.
    What we are saying is that we want it to be predictable. We 
want people to be able to plan for their future. When people 
have a job and they are able to pay taxes and they are able to 
pay slightly lower, but there are more people actually working. 
It is good for our economy, and that is the reason why taxes 
are rebounding. So could we go back to chart 12?
    If you want to make, as part of your proposal, if your 
answer today or in the future is going to be a tax increase, I 
just want you to look at that. I want to know where it is 
coming from. I want to know who you are going after. With now 
close to 47 percent of our country not paying individual 
Federal income taxes, I want to know where you are going to get 
it from.
    So I understand there are those who have this simple 
answer. Let us just make the rich pay their fair share as the 
bumper sticker said, I think. Unfortunately now, I don't think 
that is going to be enough to get us back to where we are. It 
is going to slow down the economy and that is what is driving 
the train right now.
    So I hope that if you are going to make these kinds of 
simplistic answers, that tax increases are the way to solve 
this--that you get specific and you put your proposal on the 
table.
    It is the same challenge I give to you. I want to increase 
taxes as I give to those who don't like the spending cuts or 
the spending restraint. The simple way of putting it, put up or 
you know the rest of us, shut up. Put up or shut up.
    You have to come forward with the proposal. It is not good 
enough to complain. I thank the Director and I yield to my 
friend, Mr. Spratt.
    Mr. Spratt. Mr. Chairman, let me just join with you on one 
particular chart that you had by showing a bar graph that 
identifies where the spending increases over and above current 
services have occurred over the last fiscal years. The bar 
graph, 90 to 95 percent of all the increases in discretionary 
spending over and above current services occurred in defense, 
homeland security and 9/11.
    Now why is that important? The administration sought almost 
all of these increases. The support for them was on both sides 
of the aisle. So the administration is saying that there is 
runaway spending. They usually use the discretionary spending 
level, but most of this spending was spending that you 
specifically sought and that both sides of the aisle supported, 
and the difference between us primarily was we thought there 
should be a plan by which we pay for these increases. If they 
couldn't be paid for now, we shouldn't shove the tab off onto 
our children. It is a moral as much as a fiscal issue.
    Mr. Bolten, let me go back to some of your charts and say 
the problem I have with them is all these charts require that 
we take the budget you presented as all inclusive. As I 
indicated in my opening statement, there are some major 
omissions in this budget.
    First of all, if we could have chart 3--first of all, the 
realistic assessment of what the war, that is Iraq, 
Afghanistan, North American enhanced security, is likely to 
cost over the next 10-year period, we don't know what it is. We 
know that CBO, being diligent, has tried to model what the 
expenditure is likely to be in order to adjust projections for 
reality. We do know from what Mr. Wolfowitz told us that we 
should expect a substantial supplemental in 2006. Wouldn't you 
agree that your numbers, if they don't include this, 
nevertheless have to be adjusted for these likelihoods in order 
for us to make judgments about whether or not you are closing 
in on your target?
    Mr. Bolten. Mr. Spratt, the answer is yes and I expressly 
said so in my opening statement and we said so in the budget. 
What I do want to point out to you is that we are coming 
forward with a supplemental for 2005 very shortly. In the 
interest of providing as much disclosure as we could about the 
numbers we do know, we did include that $81 billion 
supplemental in the numbers that I presented to you this 
morning.
    Mr. Spratt. The outlay effects in 2006?
    Mr. Bolten. Both in 2005 and 2006. That $81 billion 
supplemental, probably not even half of it will spend out in 
2005 because the likely timing of enactment.
    Mr. Spratt. If you were to baseline $80 billion, the number 
I have there would be off by half. Let us hope it is not that 
substantial. But CBO is assuming that we reduce to two 
divisions, roughly 40,000 troops, by 2006 and maintain that 
steady state for the rest of the time period you have here, and 
they have come up with an estimate of $384 billion.
    Mr. Bolten. The numbers for the 2005 supplemental are in 
the budget and are reflected there both in 2005 and 2006.
    Mr. Spratt. Do you expect that there will be a substantial 
supplemental request in 2006?
    Mr. Bolten. I do. And as I said in my statement and we have 
said in the budget, you do need to add those costs in. Take a 
look at the supplemental when it comes out. What you will see 
is that we are putting a substantial investment into training 
and equipping the Iraqi forces themselves, the military and the 
police, to take over the job that the U.S. military is now 
doing. And our hope and expectation is that over time that will 
reduce----
    Mr. Spratt. It could be a substantial time. We are training 
right now an Iraqi Army of 24,425 troops. The target level has 
been reduced from 36,000 to 24,425. It is hard to believe that 
an army of that size is going to be able to take over 
responsibility for the security of the country when we have 
140, 150,000 American troops well led and well trained and well 
equipped who haven't been able to quell the insurgency 
themselves. We are likely to be there for some time and we are 
likely to be underwriting the construction of those troops. 
There has to be a significant number added in to the 2006, and 
I would guess that is close to $50 billion at least. And if 
that is true, once again you have a budget deficit that is not 
coming down, but going up. And you are not closing in on your 
own stated goal of cutting the deficit in half by 2009.
    Mr. Bolten. Mr. Spratt, I disagree with you. I don't 
necessarily expect the number in 2006 to be that high, 
certainly from an outlay effect of an additional 2006 
supplemental. You are right that we will have significant costs 
going forward. Our hope and expectation is though by the time 
we get to the outyears of this budget window, 2009 and 2010, 
that our supplemental funding requirements will be 
substantially reduced and we will be able to cover all or most 
of what we need to cover in our base defense spending, which is 
also increasing substantially.
    Mr. Spratt. Let us go to the cost of Social Security and 
privatization, which you are assuming in your budget, but you 
moved it to the far end of the budget window and you barely see 
any consequences. Using your numbers for the first 10 years, 
the first 10-year time frame for the budget, you estimated $754 
billion. That is not for full implementation.
    Mr. Bolten. With debt service, yes.
    Mr. Spratt. You would agree that that is an appropriate 
addition assuming that your proposal is adopted as proposed?
    Mr. Bolten. Yes, I agree that is a correct addition. And it 
is also correct what I showed on the last chart that I had up 
on the screen, which is in 2009 and 2010, as the program ramps 
up, we would expect a deficit around 1.7 percent of GDP, 
including the transition financing elements of Social Security. 
And I would not expect that we would see substantially higher 
deficits as a percentage of GDP in the succeeding 5 years as a 
result of that transition financing.
    Mr. Spratt. You have to add $754 billion in several of your 
bottom lines in those years.
    Mr. Bolten. True. I think if we follow the pro-growth 
policies that I was talking about and the chairman was talking 
about, if we exercise the kind of spending restraint across the 
budget that the President's budget proposes, I don't see any 
reason why we shouldn't be in that low deficit category out 
toward the end of this budget window and beyond that leaves 
plenty of room for that additional Social Security transition 
financing.
    Mr. Spratt. What about full implementation then? Once you 
have allowed everyone to divert at least 4 percentage points 
off their payroll tax, their FICA contribution tax into a 
private account, we estimate that with full participation, that 
will amount to an increase in the deficit of $1.4 trillion over 
the first full 10 years of implementation and $3.5 trillion 
over the second 10-year period, so that over 20 years there 
will be a $4.9 trillion increase in the deficit. You don't have 
anything like that factored into here. You leave the impression 
in saying we are going to cut the deficit in half in 5 years 
and it is linear, and in the second 5 years it will continue 
its effect and eventually wipe out the deficit. With that 
occurring and getting bigger and bigger, the Social Security 
privatization initiative in the second 10 and the second 20 
years is deficit forever.
    Mr. Bolten. Mr. Spratt, that first 5-year period we are 
showing in our budget, and I feel confident that we are on the 
right path, and we will get well below 2.3 percent of GDP.
    Mr. Spratt. Well, there is actually nothing in the budget. 
You indicate this could be the cost, but you haven't put that 
number in your budget, have you?
    Mr. Bolten. It wasn't reflected in the budget because the 
budget went to print before any of the proposals were out, but 
I just showed it to you. It comes out at 1.7 percent of GDP in 
2009 and 2010. And I don't see why we couldn't keep it that low 
deficit level in the succeeding 5 years.
    Let me make a point beyond that, because 10 years from now, 
we face a very serious problem in our budgeting from the 
unfunded obligations in our entitlement programs, including 
Social Security. Regardless of what we do now, especially if we 
do nothing now, we are facing a very difficult budget situation 
beginning in 10 years if we don't address the crisis in our 
entitlement programs, including Social Security.
    Let me make one very important point about the transition 
financing associated with these accounts and I alluded to it in 
my opening statement. These are not new costs to the 
government. This is an obligation that the government already 
owes in the form of future benefits. What personal accounts do 
is take these future obligations that the government already 
owes to beneficiaries, bring them forward, let people keep them 
in their own accounts, in accounts that are likely to grow much 
better than the Social Security system can promise. So it is 
very different from adding new spending into the budget. It is 
bringing forward an obligation that the government already 
owes.
    Mr. Spratt. But, Mr. Bolten, you have come to us from 
Goldman Sachs and have been an investment banker. You know that 
this requires the government of the United States to go into 
the capital markets in this country and the world and borrow at 
least $5 trillion more debt than they otherwise would do over 
that time period, over the first 20 years. Surely the fact that 
we are participating to that extent in the private capital 
markets, borrowing $5 trillion, will have an impact.
    In addition, it is debt and it has to be serviced. One 
thing that is obligatory is that we pay the interest on the 
national debt. As you mount up, $4, $5, $6 trillion of 
additional debt to pay the cost of transition, the debt service 
has to be serviced on a current basis and pretty soon it 
eclipses. It wipes out everything else in the budget. I don't 
see how you can shoehorn it into this budget without 
catastrophic consequences.
    Mr. Bolten. I don't accept the numbers that you have used 
there. Beyond that, if you go to Wall Street and talk to some 
of my former colleagues and other analysts there, if they 
thought we were actually going to be putting in place the kinds 
of plans the President is talking about, they would be 
applauding, because what they see is a huge unfunded liability, 
in the $10 trillion range of unfunded liability. And it is in 
the context of comprehensive reform, what we are doing is 
bringing forward the obligations we owe, letting people keep it 
in their own personal accounts. They will regard that as a 
fiscally responsible thing to do. It is.
    Mr. Spratt. In the meantime, we amass trillions of dollars 
of debt and the interest on it has to be paid out of current 
annual budgets. This chart here shows what happened under your 
budget as projected. We will see an increase in the interest 
rates, in the debt service on the national debt of--from $150 
to $350 billion over the time frame we are talking about, and 
that means to the extent that has to be paid something else has 
to be foregone if you are going to balance the budget. That is 
a big wedge in the budget crowding out other things, and that 
is what is going to happen.
    Do you disagree with the calculation that the first 10 
years of full implementation will require the government to 
borrow $1.4 trillion? And the second 10 will require the 
government to borrow another $3.5 trillion?
    Mr. Bolten. Mr. Spratt, I think you have to wait and see 
what the full proposal is. What we have been able to reflect is 
the first several years from the proposal that the President 
put out and no, I do not accept the numbers you put out. I 
think we need to see where the proposals come out and see the 
full balance of the entire proposal to see what the net effect 
on the government's borrowing needs are. One thing we know for 
sure, there is more than a $10 trillion present value unfunded 
liability out there. And each year we wait to address it, we 
are probably adding $600 billion.
    Mr. Spratt. That is one way to state it, but that assumes 
the perpetual cost to the system. If you look at 75 years, the 
cost of making the system solvent in present value terms is 
$3.7 trillion. That is an actuarial number. The Social Security 
Administration publishes it. In the sense of getting all of us 
on the same sheet of music, I think that is the fairest way to 
describe where our liability is. It is daunting enough. You 
don't have to hype it by saying it is going to be $10 trillion.
    Mr. Bolten. I am not trying to hype it, but the right way 
to look at it is on a permanently sustainable basis.
    Mr. Spratt. You know any system we have got around here 
where we say what is this going to cost to have in perpetuity, 
for infinity?
    Mr. Bolten. This is the system we have for Social Security, 
which is putting us on a path toward fiscal disaster and the 
reason where we are today is because we have limited ourselves 
to the 75-year low, because we have limited ourselves to 
looking out over a--what in the Social Security context is a 
relatively short horizon. We go 10 or 20 years down the line 
and we realize we didn't fix it. The President is planning to 
come forward with a proposal that would fix the system 
permanently. That is the right way to look at this system.
    Mr. Spratt. We would ask you once that proposal is put on 
the table to provide us for the record and for our own 
information what it is going to cost in the way of additional 
government borrowing, additions to the national debt and the 
national deficits over the first 10 years and the second 10 
years. We think that the numbers are likely to be pretty close 
to what we are talking about. By our calculation, if the 
numbers we are proposing, the construction that we put on the 
President's proposals is enacted, the date of cash imbalance 
will be moved from 2018 to 2012 and the date of trust fund 
exhaustion will be moved from 2042 to 2031. So what you are 
doing is hastening the onset of the day of reckoning for Social 
Security. You are making the situation closer to a crisis than 
it needs to be or has to be.
    Mr. Bolten. I don't disagree with the dates you put out. 
You need to see the whole proposal. If we do that in the 
context of an overhaul reform of the Social Security system, 
that insolvency date will not occur. We can forget about that 
problem. We may accelerate the date in which the Social 
Security system goes into cash deficit. If that is the price 
for getting comprehensive reform, that fundamentally solves the 
problem permanently going forward. I think that would be a 
great development. I think Wall Street and financial markets 
around the world would consider that a great investment. It is 
the fiscally responsible thing to do.
    Mr. Spratt. One final question, Mr. Bolten. Would you agree 
that the privatization is such that the diversion of these 
funds into private or personal accounts does not by itself 
solve the insolvency problem of Social Security, that something 
else has to be done. And in particular, the President has 
identified his preferred alternative as being something close 
to plan 2, as formulated by the Presidential Commission on 
Social Security. And plan 2 includes a proposal to re-index the 
so-called basic insurance amount, the initial insurance amount 
determined for every beneficiary when he or she retires. Today, 
those income streams are indexed to wages; in other words, once 
you have determined your average monthly income, Social 
Security pays you 92 percent of a certain portion of it, 32 
percent of another portion and then 15 percent of the final 
portion. Those bench points, so to speak, are indexed. Those 
income streams are indexed every year to rise with the rate of 
increase and wages in the rest of the economy.
    What was proposed by the plan two is that the indexation be 
changed from wages to prices which would mean the rate of 
increase would be about half what it is and has been for some 
time. If that is done over a period of 40 to 50 years, the 
replacement ratio that a median average income worker would 
receive retiring at age 65 would decline from 43 percent to 22 
percent. That is a number that is developed in plan 2.
    Do you agree with that? Is this the means by which Social 
Security will be made solvent in the President's plan?
    Mr. Bolten. The details of the President's plan will be 
forthcoming as the consultations with the Congress go forward. 
I can say this, I agree with you that the private accounts, the 
personal accounts do not in themselves solve the full Social 
Security problem. Other reforms will need to be made. What the 
personal accounts do do is make it possible for individual 
retirees to--individual beneficiaries to get a much better 
return on their money, much better than they otherwise would. 
One thing we know for sure about Social Security model 2 from 
the Social Security Administration, almost any of the reform 
plans, is that they will provide beneficiaries a better benefit 
than the Social Security system can now afford to pay. That is 
why Social Security reform is so important.
    Mr. Spratt. Even if the replacement ratio is reduced from 
43 percent to 22 percent for the median worker?
    Mr. Bolten. I don't have any disagreement if this comes 
from the Social Security Administration's own numbers. But what 
their numbers do show is that on their model 2, the benefits 
that future retirees will receive will, A, be higher than what 
current beneficiaries are receiving and, B, will be better than 
what the Social Security system can now afford to pay.
    Mr. Spratt. This assumes private accounts. It assumes a 
rate of return on private accounts. But in any event when the 
actuaries did their analysis, this was a model they used and 
they indicated that this particular mode of computing the 
initial insurance amount would correct the Social Security 
imbalance by 2.07 percent of payroll. The problem is 1.89 
percent of payroll, this more than compensates for that and by 
itself achieves solvency. That seems to me to be an inherent 
feature of the President's proposal and has dire consequences 
of Social Security if you are going to cut in half the 
replacement ratio that the average worker can look forward to 
getting out of Social Security.
    Mr. Bolten. Mr. Spratt, I just caution you to wait and see 
what the full proposal is.
    Mr. Spratt. In the meantime, we turn to model 2 and see 
what they did and this is an integral part of model 2.
    Mr. Bolten. And what you will see in model 2 is that the 
benefit that the beneficiaries will receive in the future is 
substantially better than what the Social Security system can 
now afford to pay.
    Chairman Nussle. We will now recognize members under 
committee rules. Mr. Portman for 5 minutes.
    Mr. Portman. Thank you, Mr. Chairman. And Mr. Director, I 
commend you today for coming forward with a responsible budget. 
I know it wasn't easy to put together, but you have funded our 
critical priorities. And you have made tough decisions to make 
sure we meet this target. And I think we all share reducing the 
deficit in half by 2009. You have also put in place policies 
that promote pro-growth economics and that is critically 
important to keep the economy growing as we see in some of the 
charts.
    I also want to commend you for putting the $81 billion 
supplemental in the budget. Mr. Spratt didn't give you enough 
credit for that because last year Mr. Spratt was critical of 
that not being included, as were some of us. This year you have 
done it. You deserve a little credit for that and we will see 
what happens.
    On the remarkably successful elections that we all 
witnessed about 10 days ago, I for one believe we will not 
continue to have the same commitments we have had and certainly 
none of us know that. For 2006 and 2007, I think it is 
impossible for you to reflect that in the budget, and I respect 
that.
    I want to go back to the impacts of tax relief on our 
economy, but I think it is a credible part of what we are 
talking about today. It is the impact on our economy and the 
impact on tax revenues and the impact on our budget deficit.
    You stated that the long-time tax cuts back in 2001 and 
2002 and 2003 were very important in the strong economy we have 
got now and the strong job growth. I agree with you on that. I 
think the basic budget debate that we have seen here this 
morning that is going to be played out over the next couple of 
months is between those who believe we should get to this 
having a deficit in half over the period between now and 2009 
by increasing taxes, which is basically what my friend Mr. 
Spratt is talking about by not having the tax cuts become 
permanent because that is an increase in taxes, or whether we 
should look where we can reduce spending and basically restrain 
the growth in spending and encourage more economic growth. And 
it is an interesting debate. I think what I would ask for you 
today is give us your thoughts on the specifics on what the 
impact is on tax relief on the budget and looking forward over 
the next 5 years, what would happen if we were to increase 
these taxes?
    Mr. Bolten. Thank you for those remarks and for the credit. 
It is not coming very often these days, so I am especially 
grateful. And I am glad you have raised the importance of the 
tax relief and economic growth, because particularly reflecting 
back to the charts that Mr. Spratt first put up on the screen, 
what is missed there is that as this President entered office 
the economy was entering recession. We had a burst stock market 
bubble, the bubble that had greatly expanded Federal revenues 
burst and the reverse effect was occurring. As huge capital 
gains turned into huge capital losses, revenues plummeted. This 
is the first time this has happened since the 1920s. Since the 
President entered office, we have had three straight years of 
declining Federal revenues, and the principal reason was the 
burst stock market bubble and the recession that the President 
found on the doorstep as he entered office.
    The tax cuts were essential to restoring economic growth in 
this country, and as we have had restored economic growth, we 
have seen revenues rise once again. Last year in 2004 we had 
revenues up by $100 billion. We are projecting even more than 
that for 2005.
    Mr. Portman. Could we see chart 12?
    Mr. Bolten. That is the real key to getting our budget back 
in shape, because what we need to be doing is restraining the 
growth in our spending, at the same time that a growing economy 
helps bring our budget back toward balance. We are projecting, 
by the end of the budget window, that revenues will recover to 
pretty much the historic average of 18 percent of GDP, and that 
is with the President's tax cuts made permanent. In other 
words, by the end of the budget window, with the President's 
tax cuts made permanent, we will be at the historic levels of 
revenues that income and other taxes take away from the 
economy.
    Now there are a lot of people who want to see that line go 
higher. They may want to see us take a larger than historic 
average bite out of the economy through tax revenues. That 
would be a huge mistake. That would send us back in the 
direction that we started out at the beginning of this 
administration, which is a weak economy, which means weak 
Federal revenues, which means a weak Federal budget picture.
    Mr. Portman. So, Mr. Director, you are actually telling us 
where we have chart 12 up there again now showing individual 
taxes actually going up in 2004, 2005 and into your 5 years, 
you are telling us as a percentage of our economy, percentage 
of GDP, despite making the tax relief permanent, we will see a 
larger amount of revenue coming in and a larger percentage of 
our GDP?
    Mr. Bolten. Absolutely correct and it is a crucial point.
    Mr. Portman. Thank you.
    Chairman Nussle. Mr. Moore.
    Mr. Moore. Thank you, Mr. Chairman, and thank you, Mr. 
Director. I learned in September of last year that the death 
gratuity paid to a family of a young person killed in 
Afghanistan and Iraq was $12,000, which I consider a slap in 
the face to a family who has just lost a loved one in the 
service of our country. I filed a bill to increase that death 
gratuity and before the end of the session last year we had 219 
bipartisan cosponsors on that bill. Of course, it died at the 
end of the session and wasn't passed.
    I filed the bill again in January, just last month, we have 
222 cosponsors, that would raise this death gratuity benefit to 
$100,000. I saw the President issued a statement last week, I 
believe, and said he would support this concept and it would be 
funded. My staff and I are going through this and we haven't 
gotten all the way through it.
    Do you know if there is a proposal for funding that 100,000 
death gratuity benefit in this submission?
    Mr. Bolten. Yes, Mr. Moore, and the President does agree 
and we have taken a look at that. It will be reflected in the 
supplemental proposal that is coming forward in the next few 
days so that we can actually begin to address this problem 
immediately. If it were just in the 2006 budget, we have to be 
waiting for the 2006 year. We want to address the problem 
immediately. It will be reflected in the supplemental, and then 
in future years it will be part of the base.
    Mr. Moore. Thank you very much, and I think all of us on 
this committee appreciate the President's support.
    Mr. Chairman asked us in his opening remarks if we don't 
agree with portions of the budget submission that we make our 
own proposal and don't just say no. Mr. Chairman, I appreciate 
what you said and I want to do that.
    I tell the people back home when the President is right, I 
support the President. For example, I voted for the use of 
force resolution based on the intelligence briefings we had. I 
voted for No Child Left Behind because I thought it had some 
good accountability concepts in there. I tell people if the 
President, if I think he is wrong, I will respectfully say Mr. 
President, I think there is a better way. And I want to talk to 
you about a better way in at least a portion of this, the 
President's plan for partial privatization of Social Security 
accounts. I will today file a bill that is called the Social 
Security Truth in Budgeting Act in 2005, and this would take 
the radical approach of setting aside into a true trust fund 
Social Security dollars that are paid by American taxpayers for 
Social Security so they wouldn't be used for any purpose other 
than Social Security and I am talking about education and 
health care. And these may be worthwhile programs that all of 
us would want to support, but put aside into a true Social 
Security Trust Fund and couldn't be used for education, for 
health care, tax cuts or anything worthwhile but for Social 
Security. And I wondered if you could support a proposal like 
that. Now does this solve the solvency problem of Social 
Security funding? No, it does not, but it takes several steps 
in the right direction, and I would ask that the administration 
support this concept and that we start being honest with the 
American people about how Social Security monies are presently 
being used.
    Mr. Bolten. Regardless of how we account for it in our 
official books, these are obligations that the government owes, 
and that is why the President is pursuing comprehensive reform 
that puts it on a permanently sustainable basis. Whether we say 
it is actually set aside in a trust fund or whether, in fact, 
the government ends up spending those surplus revenues as it 
has historically, going back well before this administration, 
however you account for it, we do need to solve that problem 
because you are absolutely correct that we have a serious 
problem coming down the pike. In the next decade, we will see 
the Social Security system go into cash deficit, and if we are 
going to address that problem, what we call it is probably a 
lot less important than putting it on a sustainable basis.
    Mr. Moore. I think people in this country think when they 
talk about a trust fund for Social Security that there is 
actually money in a fund, and actually what it is is an 
obligation of the United States Government, which I hope and 
believe we would honor in the future. But it is putting us 
further and further and further, our Nation and our children 
and grandchildren, in debt, and that is what I am concerned 
about and what we need to change.
    I practiced law for 28 years before I came to Congress, and 
under Kansas law, and I think the law in most of the States, 
attorneys are required to have a trust fund to segregate their 
own money from their clients' funds and it is an absolute no-no 
to mix those funds. In fact, you can be disbarred and maybe 
prosecuted for doing that. And I think maybe we should have a 
similar rule here to protect Social Security funds to make sure 
that they are there for the intended purpose in the future and 
not used for every other purpose even if it is a worthwhile 
purpose.
    Again, that doesn't correct the solvency problem, but takes 
several steps in the right direction, and I think that is what 
the American people think is happening now, and we need to be 
honest to tell them that it is not and we want to change it.
    Chairman Nussle. Mr. Putnam for 5 minutes.
    Mr. Putnam. Thank you, Mr. Chairman, and welcome, Mr. 
Bolten. I appreciate the fact that this is a very forthright 
budget that recognizes the need to set priorities, that 
recognizes the reality that there are trade-offs domestically 
for what we are accomplishing abroad, and I appreciate the 
President's willingness to tackle what I consider to be a 
generational issue and that is the long-term solvency of Social 
Security, recognizing that for younger workers and even younger 
Congressmen it will not be there when they are ready to retire.
    If I may talk about that secondary leg of that mandatory 
spending stool now that we are at a point where are over half 
of the Federal budget is on autopilot being driven by mandatory 
spending. If you would comment on the mechanisms that were put 
in place in the Medicare reform bill that would enable us to 
get our arms around long-term Medicare spending challenges in 
the future.
    Mr. Bolten. There were some good mechanisms put in place in 
the bill that the President signed about a year ago, designed 
to basically raise a flag for the President and the Congress 
when it appears that the Medicare system is taking too large a 
share of its revenues out of the General Treasury, because 
there is also a trust fund mechanism in the Medicare system but 
it only covers part of the cost of Medicare. Medicare is paid 
heavily out of the General Treasury with funds that are 
increasing almost geometrically out over time. There are 
mechanisms in the Medicare Modernization Act that give you and 
the President an alert saying that several years from now the 
system is going to be taking, I believe it is more than 40 
percent of its money out of the General Treasury and providing 
a procedure for the President and Congress to step in and deal 
with it at that point. We would have liked to have seen 
stronger measures than that, but you at least have that 
mechanism formally built into the Medicare system.
    There are more important things, though, that I think the 
Medicare bill does and that is that the real problem we face in 
Medicare is also the problem we face in health care, and that 
is the costs in the health care arena are growing substantially 
higher than inflation or even the growth in the economy. Right 
now, our budget projections are that Medicare will grow by 
about 9 percent per year going out in the future. That is far 
higher than we can expect the real economy to grow, and 
ultimately that poses an enormous challenge to the budget. What 
we need to do is be sure that we bring those health care costs 
and Medicare costs with them down in a more reasonable range. 
One of the essential reforms in the Medicare Modernization Act 
was to try to shift over to a more private sector-oriented 
system where it allows plans to compete in providing Medicare 
services. A lot of us have great confidence that that will make 
it possible to provide Medicare services both more efficiently 
and at a higher quality. That is an important reform, so are 
health savings accounts, which push in the same direction, 
letting people choose more on their own--make more of their own 
health care decisions and make more sensible health care 
decisions over time. Better preventive medicine and better 
elimination of all the inefficiencies that we have in the 
health care system.
    Mr. Putnam. I agree and appreciate that. It is vitally 
important that we get our arms around those cost drivers. Let 
me shift gears with the time remaining as someone who had three 
hurricanes pass over my district last summer and was the 
beneficiary of tremendous and thorough FEMA response that was 
well thought out and well executed, recognizing that those 
types of scenarios play out in this country every year.
    What is the administration's approach to budgeting for 
emergencies and to what degree can we plan for those things and 
build them into our budget blueprint?
    Mr. Bolten. We appreciated the opportunity to work with you 
during the hurricane disasters. You were extremely helpful in 
making sure the right relief got to the right place promptly in 
your district and the whole State of Florida that got hit with 
the triple whammy. I would hope we won't see that kind of 
situation again. That was extraordinary, really historically 
anomalous and I express special sympathy to you and the folks 
in your district who were at the intersection of all those 
hurricanes.
    What we try to do with the Federal budget is set aside 
enough for the predictable level of emergencies, so we have 
substantial funding in our FEMA accounts and several other 
emergency accounts. We know there are going to be floods 
somewhere. We know that we are going to have some hurricane 
activity at some point in the next year, the next 2 years. But 
what we try to account for is the level that is normally 
predictable. Last year was not predictable. That was truly 
anomalous. What we would ask the Congress to do, when we make 
the request for that unknown or unpredictable funding, that you 
fully fund us on it. It is an easy place to find savings 
because it is not actually money spent on a known item. It is a 
reserve account, and it is easy to dial that account down in 
favor of accounts where it is spending that a particular 
constituent is asking for.
    What I would ask you and the other members of the committee 
and Congress to do as you look at the appropriations is not 
sacrifice these emergency accounts we have set aside for the 
realistic level of unanticipated needs that we do have.
    Mr. Putnam. I thank the gentlemen and Mr. Chairman.
    Chairman Nussle. Ms. DeLauro for 5 minutes.
    Ms. DeLauro. Thank you, Mr. Chairman. President Bush has 
said that his 2006 budget is a budget that sets priorities. To 
examine the priorities and seeing just who will benefit and who 
will suffer, it is a moral concern in my view. Budgets reflect 
the values and priorities of a family, of a church, an 
organization, a city, State or a Nation. Once we examine the 
priorities reflected in this budget we will find that they are 
the wrong priorities for this Nation and do not reflect the 
values of Americans.
    This institution is about improving people's lives. It is a 
goal that I share with my colleagues, and in fact it is what 
ties us to our serving in this institution.
    This budget runs directly counter to that goal. The 
policies reflect a deepening income inequality and remarkably 
raises the barriers for those who are struggling and working to 
do better. This budget calls for the extension of $1.9 trillion 
in tax cuts primarily to the wealthiest Americans, those making 
over $350,000. It compromises our ability to face our most 
pressing challenges, and it comes at the expense of the social 
safety net that might rescue those who live in poverty. The 
decision to eviscerate Medicaid by $60 billion over 10 years 
will leave many low-income families with nowhere to turn for 
medical care and many seniors with no way to afford long-term 
care; decrease in food stamps by more than 1 billion over 10 
years making it more difficult, even impossible for low income 
families to qualify; funding for low income energy assistance, 
a program crucial to low income families and seniors. Child 
care funding is frozen for the fourth straight year, making it 
more difficult for families who are struggling to find someone 
to care for children while they go to work.
    These are a few examples of the policy decisions that will 
have a devastating effect on real families across this Nation. 
They are not just numbers on a page. These decisions make a 
real difference for families who struggle to feed and care for 
their children. With this budget the President has turned his 
back on these families, and the President talks about a budget, 
this budget will put us on a path for cutting the deficit in 
half is simply not honest, but dishonest. The administration 
has left out key costs, ongoing military operations, 
privatizing Social Security, and when you take a look at the 
long term we are talking about saddling our children and 
grandchildren with the kind of debt that is immoral. The cost 
of the deficit should not be borne by those who are least able 
to afford it.
    Budgets are moral documents, which reflect the values and 
the priorities of this great Nation, and I will quote you the 
Catholic bishops: The obligation to provide justice for all 
means that the poor have is the single most urgent economic 
claim on the conscience of this Nation. And the more that I 
hear this administration's justification for the harsh 
decisions that are in this budget, the more I believe that 
there truly is no justification. This budget is not only 
dishonest, but simply reflects the wrong values and the wrong 
priorities of this great Nation.
    Mr. Chairman, I yield back the balance of my time. I have 
no questions.
    Chairman Nussle. I thank the gentlelady. Mr. Wicker for 5 
minutes.
    Mr. Wicker. Thank you, Mr. Chairman. I want to thank you 
and the administration, Director Bolten, for having the courage 
to come forward with a proposal, which we will see specifics of 
in more detail, concerning Social Security individual accounts. 
And I want to remind members of the committee of a quote from 
Albert Einstein when asked what was the most powerful force on 
the face of the Earth. He answered that the most powerful force 
on the face of the Earth was the power of compound interest. 
And that is what the administration is talking about and that 
is what talented members like Mr. Ryan, who is a member of this 
committee, have been proposing for some time now when it comes 
to giving workers an opportunity to put more of their money in 
individual accounts.
    My friend from Kansas mentioned setting aside Social 
Security money in a way that government spenders couldn't get 
their hands on it. I would submit to you, Mr. Director, and to 
the members of the committee that the best way to do that is to 
put the money in an account controlled by the individual where 
it would be able to accumulate funds and also that great power 
of compound interest, and certainly in that instance the 
government would be prevented from tapping into millions and 
millions of nice locked boxes that individual taxpayers would 
have.
    I understand that the administration is going to come 
forward soon with particulars about individual Social Security 
savings accounts and that details will include the fact that 
the proposal will be entirely voluntary, that individual 
workers now will not have to participate in this at all if they 
do not want to, that it will guarantee at least the same 
benefit that we are promising now with the Social Security 
Administration and the Social Security laws as they are 
currently; that there will be no tax increase involved; that 
there would be no increase in the retirement age; and that the 
goal would be to give workers upon retirement significantly 
more than they are promised now or that they can expect now 
under current law. And I think it is really unconscionable, Mr. 
Chairman, and Mr. Director, for the government to promise a 
Social Security return on investment of approximately 1 to 1-1/
2 percent when we know we can do better. Of course, for some 
individuals, depending on where they live and the demographic 
groups, the return is actually less than that. Sometimes it is 
a minus figure. And when we can do better and give retirees 
more money upon retirement than they are getting now, I think 
we certainly can do that and it is incumbent upon us to do it. 
I think we can do it, Mr. Director, without a cut in benefits. 
I think we can do it without forcing a change in the cost of 
living adjustment, as the ranking member just discussed.
    I think we can do all of these things, make it voluntary, 
give workers more on retirement and save the system in the end. 
How can we do it? Is it the magic the chairman was talking 
about when he said you can cut tax rates and increase tax 
revenue? We have proved that can happen. The magic in this 
proposal will be exactly what Einstein said and I repeat that. 
The most powerful force on the face of the Earth is the power 
of compound interest. I think we need to unleash that for the 
benefit of today's workers so we can do better for them with 
this program.
    Let me ask you, we have been talking about the transitional 
costs. The Vice President said it will cost trillions. The 
question on a lot of people's minds, can we afford these 
transitional costs? The question I would ask you, can we afford 
not to do this? And what is the cost of doing nothing and 
leaving the system as it is currently constituted?
    Mr. Bolten. Mr. Wicker, the best estimate of the cost of 
doing nothing right now is a present value unfunded liability 
of over $10 trillion. So the truth is we cannot afford not to 
take action for comprehensive Social Security reform as the 
President has outlined. And I would add one other thing, and 
that is as we talk about the personal accounts, it is very 
important for people to realize that these are not new costs to 
the government. You are exactly right in saying that if 
somebody is worried about the government taking your money away 
and spending it on something else, the right measure is to give 
people their own money to keep in their own accounts. And that 
is not a new cost to the government. These are benefits that we 
owe later on that we are letting people keep today.
    When you talk about the transition financing cost, cost in 
my judgment is the wrong word. It is a financing element. It is 
a problem of having to deal with a slightly higher deficit as a 
percentage of GDP over the near term. If in fact what that does 
is make it possible for us to provide a better plan for 
retirees, let them keep their own money and permanently solve 
the Social Security fiscal disaster we have on the way, it is 
exactly the right thing to do.
    Chairman Nussle. Mr. Edwards.
    Mr. Edwards. Thank you, Mr. Chairman. If Republican 
colleagues want to privatize Social Security and have the right 
to argue for that, what is real is the Federal Government will 
have to borrow more than $2 trillion in the future to pay for 
that program. That is real.
    Mr. Chairman, in all due respect I think there is not a 
weatherman in America who has been less accurate than some of 
my colleagues in this House about budget projections. You know, 
what the American people are seeing today are some of the same 
architects of the three consecutive largest deficits in 
American history are now telling us it is good news that we all 
have a $412 billion deficit predicted. Keep in mind before this 
administration, the largest deficit in more than 200 years of 
American history was $292 billion in the former Bush 
administration. Now what these same architects of these massive 
deficits are saying, well, our promise is to be able to fight 
the war on terrorism, the war in Iraq and the war in 
Afghanistan and to fund trillion dollar tax cuts and balance 
the budget. Well, that promise didn't turn out to be true. Now 
we are making the new promise. Now over the next 4, 5 years, we 
are going to cut the deficit in half. I predict that promise 
will turn out to be as false as the promise of the last 4 years 
that we would fight a war on terrorism, balance a budget and 
have massive tax cuts. One of the reasons it is going to be 
false is that two of the largest expenditures, the Social 
Security privatization program and the payment for the war in 
Iraq are soon to be zero in this budget. That simply is not 
realistic.
    Let me comment on cutting the deficit in half. To use the 
analogy, that would be like my family saying we used to have a 
surplus. We used to save money every year. But my wife and I 
went on a spending spree for the last 4 years and then racked 
up, you know, $50,000 each of the last 4 years, which for our 
family would be an enormous debt. Kind of like the $412 billion 
debt is to our Nation. We go to our banker and say, Mr. Banker, 
if we can assume some of our largest expenditures for the next 
4 years are going to be zero, we are going to be able to cut 
that $50,000 a year family deficit in half. There is not going 
to be a banker in America that would be impressed with that. I 
think when the American people think about what it means to 
take a $276 billion surplus, just 4 years ago, turn it into a 
$400 billion plus deficit and then to say making a bunch of 
unrealistic assumptions saying you are going to cut it in half, 
I don't think the American people are going to be impressed 
with that and I don't think the markets are going to be 
impressed with that either. Let me say in my opinion, this 
budget is fiscally irresponsible and unfair to millions of 
working people. It is fiscally irresponsible because it will 
lock in massive deficits as far as the eye can see making us 
even more dependent on the Communist Chinese to fund our debt 
and upon other foreign countries to fund our debt. It will 
drown our children and grandchildren in a sea of deficits, and 
that is morally wrong.
    This budget is unfair to working families because it will 
cut nursing home care for seniors, health care for veterans and 
education loans for middle class college students while 
continuing a $200,000 a year tax break for those fortunate 
enough to be making a million dollars a year in dividends. 
Where is the fairness in that?
    Mr. Bolten, my question to you is this, this budget doesn't 
keep up with inflation for veterans health care. So many of the 
veterans I have represented at Fort Hood for the last 14 years, 
40,000 of whom have served in Iraq, are going to have less 
funding in real dollars for health care services at the VA. 
They are going to have to pay $250 a year for an enrollment fee 
if they make over $30,000 a year if they have a spouse and one 
child, and they are going to have to pay more than double for 
prescription drugs. I understand the sacrifice this President 
has asked for our veterans. Specifically, tell me what 
sacrifice this budget asks those Americans making a million 
dollars a year in dividend income this year who received a 
$200,000 tax break because of your proposals.
    Mr. Bolten. Let me talk first about veteran spending, 
because I think the President's record on spending on veterans 
health care has actually been very strong, and if I could ask 
for chart No. 18 up here, what you will see is that the 
President's proposals over the course of his 5 years now have 
resulted in a 47.6 percent increase over 5 years on spending in 
veterans health care, and that includes a substantial increase 
this past year. We believe we are serving a larger number of 
veterans better than they have ever been served before. We are 
asking for an increase in some fees for Category 7 and 8 
veterans, an enrollment fee and increase in their drug copay 
from $7 to $15. I think most ordinary folks would consider that 
still a very reasonable request to be made and one that the 
system ought to be able to bear. But I think the President's 
record on spending of veterans health care is very strong and 
we are doing a good job with those folks.
    Mr. Edwards. You are not keeping up with inflation this 
year in this year's budget.
    Mr. Bolten. I believe we are and we are keeping up with 
what we think the needs are in the veterans medical health care 
system. A nearly 50 percent increase over the last 5 years I 
think is a very substantial increase. And just as importantly, 
I think the Department of Veterans Affairs is doing a good job 
in providing quality care, reducing the waiting time for 
adjudication of appeals and such, and I think they deserve a 
lot of credit rather than criticism for the job they are doing 
for the veterans of this country.
    Second, the tax cuts that you referred to are in large part 
responsible for the restoration of economic growth in this 
country. The reason why we ended up in the deficit situation 
that you are quite properly very concerned about, as are we, 
the principle reason we ended up in that situation is the 
flagging of economic growth, a burst stock market bubble, a 
recession. All of these had a tremendously negative effect on 
our revenue receipts in this country, declined for 3 years in a 
row, and therefore on our budget situation. The key factor that 
will bring this budget back to health along with restraining 
spending is good economic growth. That economic growth comes 
from a variety of factors. One of the reasons why we have had 
the good strong growth in the last few years is precisely 
because of the President's tax cuts, and that includes the 
dividend and capital gains cuts, which most economists will 
tell you are the most effective bang for your buck in restoring 
economic growth.
    Mr. Edwards. You are not asking for any sacrifice for 
people who are making a million dollars a year in dividend 
income.
    Chairman Nussle. Mr. Garrett.
    Mr. Garrett. Thank you, Mr. Chairman. I appreciate your 
work on the budget. I guess it is surmountable. A couple of 
quick points and the last one--first one has already been 
touched a little bit and that is with regard to the veterans. 
You pointed out it was a 50 percent increase in veterans 
spending increase in the last 4, 5 years. It was about a 15 
percent increase in spending just over the prior year. But I do 
hear that charge from the critics and the media already that we 
are cutting spending for veterans. So the short answer to this 
when I go back to speak to veterans groups is to the allegation 
of cutting spending, the answer is, we are not cutting 
spending, is that correct?
    Mr. Bolten. That is correct. In fact, there have been very 
substantial increases over the course of this administration in 
spending on veterans' health care.
    Mr. Garrett. The short answer is as far--and you have 
addressed one issue--is as far as the health care side of the 
equation, I believe we have also reduced the amount of time, 
the amount of waiting time for veterans who are waiting 6 
months or longer for getting health care services over the last 
5 years from--almost a 95 or 99 percent reduction; is that 
correct?
    Mr. Bolten. I don't have the precise details off the top of 
my head, but one of the great accomplishments of Secretary 
Principi during his tenure in the Department of Veterans 
Affairs was to reduce that waiting time dramatically.
    Mr. Garrett. I mean, I fundamentally feel that one of the 
chief responsibilities of the Congress and of the Federal 
Government is to first just protect and defend our borders and 
then to take care of those individuals who are doing the job 
for us now, and in the past as well, because we are not going 
to be able to get a fighting force in the future if we don't 
take care of those who have taken care of us in the past.
    So I think it is fundamental. I think this is a thought 
that is shared from both sides of the aisle. I think the 
administration has stepped up to the plate on that, and so I am 
encouraged to hear we are going to do that in the future.
    The second area, just a quick one, the President has spoken 
with regard to relief, tsunami relief in countries. Now, I have 
not had the ability to go through that entire sealed package up 
there to see how this should be taken care of.
    My belief is this should be taken care of in offsets by 
whatever amount of money we are going to finally provide. Is 
that addressed in the budget, or will that be addressed through 
the supplementals?
    Mr. Bolten. I will save you from going through the sealed 
package. The tsunami relief will be addressed in supplemental 
funding. It is something that is urgently upon us and I expect 
will be part of the package that the administration sends up in 
the next few days.
    Mr. Garrett. Has the administration made any thoughts with 
regards to the offsets for that amount?
    Mr. Bolten. It will be part of a roughly $81 million 
supplemental proposal, principally for the war in Iraq and 
Afghanistan. We have not attempted to propose offsets for any 
part of that.
    We, of course, happily would entertain any suggestions on 
offsets that ought to be taken, but we think our first priority 
is to get the needs met that are saving lives and saving 
communities out where they have been affected by the tsunami.
    Mr. Garrett. Well, since I have a minute here, I will throw 
them out so you can entertain them when you go back, and that 
is that any money that we are going to be providing them should 
be a contribution from this generation and not to a future 
generation. So if we are going to be providing them over $350 
million of assistance, which I think is an appropriate amount 
that we do, that this should be coming from today's citizens 
and not being borne on the backs of our children or future 
children, and, if that would be the case, simply adding to the 
deficit.
    So a simple solution would be for each department to be 
spreading across the board evenly and each department can look 
within its own current fiscal budget to decide where they can 
shave that off their operating from waste, fraud, abuse, or 
otherwise. To each department, simply says that is what their 
contribution of the American government will be to them. So I 
would appreciate if you would consider that.
    That is all. I yield back the remainder of my time.
    Chairman Nussle. I thank the gentleman.
    Mr. Ford for 5 minutes.
    Mr. Ford. Mr. Chairman, thank you. It is good to see you, 
my friend and alma mater mate and neighbor, Director Bolten.
    Let me jump into two things. One, the comments that Chet 
Edwards had, Congressman Edwards had about the veterans' piece. 
I am curious. Your comment was a strong one about what you are 
doing for veterans. I think it is important to note that the 
administration's numbers are $732 million below what it would 
take to keep track with inflation alone.
    That doesn't include Iraqi veterans coming back home. So as 
excited as the administration is about those things, I think it 
is important to keep a lot of this stuff in context.
    What I want to do is just talk briefly about what this does 
to my State. Now, when you consider education, I know we talked 
about increases, and you all are excited about the increases. 
But in my three largest school districts in Tennessee, 
including Memphis in my own district and Nashville where Jim 
Cooper is from in Knox County, You have shortfalls of 36 
million in Memphis, 15 million in Nashville, and 8 million in 
Knox County, or Knoxville.
    All of this is going to be compounded by vocational 
education cuts and the elimination of a TRIO program which has 
helped thousands of kids across Tennessee, and, for that 
matter, the Nation.
    I know the President eloquently said in a meeting with all 
of the Cabinet secretaries--and I believe you were there 
Director Bolten--that the American people want us to spend 
money on programs that work, and I agree. Yet there seems to be 
a disconnect, because you all are cutting programs that are 
working.
    The COPS program, which we in Tennessee have used to hire 
more than 2,300 police officers and sheriffs, appears to be 
working, because crime is down. Now, you may not say COPS had 
something to do with it, but when the economygrows you all 
attribute it to tax cuts, so I am going to assume because more 
cops are on the street and crime is going down that COPS has 
something to do with that.
    You talk about veterans' affairs. I mention it again, 
because of all the things to be cutting--and Chet mentioned it 
so well--forcing people who make more than $30,000 a year to 
pay a $250 fee to get into a drug program.
    I mean, all my friends on the other side, we just know that 
is unfair. It is not night. Your kids, nieces, nephews and 
neighbors over there--I know all of you know somebody that is 
over there from your district or family--it just doesn't seem 
right to me we are doing those kinds of things.
    Not to mention the number of Guard and Reserve members that 
are over there. You have 9,000 from my State. They are all 
concerned about health care. There is a backlog of people 
trying to get appointments at hospitals, the backlog of people 
trying to ensure that they are reimbursed and that payments are 
made. It is just hard for me to believe that we sit here and we 
pretend that somehow or another all this spending that we are 
doing in the President's lean budget is to take care of all 
these things.
    Now, I can respect the fact that your priorities are 
different. As a matter of fact, I think we can all run on those 
things. You all have a set of priorities. We have a set of 
priorities.
    You happen to believe the $2.5 trillion budget is the best 
we can do. And, Mr. Bolten, I imagine or venture to say that 
that comment you just made about veterans is going to be seen 
in my State and some other places--when you say we are doing 
the best we can by veterans and the best we can by servicemen 
and women. I don't think we are, and they don't think we are.
    But that being said, those are your priorities, and I hope 
you are willing to defend them. Because if you give me the 
choice of providing any kind of a break to someone earning over 
$1 million or $2 million in dividend income versus making it 
where veterans don't have to pay a copay or where veterans 
don't have to pay $250 to insure their part of a--or, I should 
say, prescription drug care program, I am going to side with 
the veterans.
    You can call me a liberal. You can call me whatever you 
want to call me, but you are not going to be able to call me 
unfair when it comes to veterans.
    Now your predecessor, our friend Mitch Daniels--remind you, 
he is a new Governor--the first thing he did--Chairman Nussle, 
you talk about taxes--he raised taxes. Why? Because Governors 
can't do what we can do. They can't just borrow indefinitely.
    I have a Governor faced with a big problem called TennCare, 
which we hope CMS and others will give us a little relief on. 
He doesn't have the advantage that we have here. He can't just 
keep borrowing against my kids, who I don't have yet, and their 
kids when they do have them. He has to balance the budget.
    Mitch Daniels, your predecessor, he has learned a sharp, 
stark reality. Now that he is Governor, he has to balance the 
doggone budget. What is he doing? He has to raise taxes.
    Now, I have a question for you, and I know I have done a 
lot of talking here, and you have said a lot of things that 
kind of tickle me a little bit. When you said that the budget--
I think deficit--is a slight decrease and a large increase--I 
am going to use that one, too. But I want to ask you this 
question: Is there such thing as a tax cut that doesn't work? 
Because I am curious, I like tax cuts, too. But at some level, 
I don't know if we are getting the bang for the buck. You may 
say the growth has produced all of that, but we keep spending 
more and more.
    Is there ever an instance where we could find a tax cut, we 
could find a better tax cut, like cutting taxes for 94 percent 
of people in my State who earn under $100,000 a year or the 65 
percent who earn beneath the national median income who aren't 
affected by the $1 million in dividend income which we cut 
taxes on?
    Is there ever such a thing as a tax cut that doesn't work? 
And maybe we should switch and provide tax cuts to those who 
actually need them, whether it be in the form of prescription 
drug care for veterans, education funding for local school 
districts, or even that mom and dad who are working their tails 
off, a tax cut for them who earn $50,000 a year.
    Mr. Bolten. Economists will tell you that tax cuts will 
have a variety of effects depending on what the tax cuts are. 
The tax cuts that Mr. Edwards referred to economists consider 
to be among the most effective in restoring economic growth; 
which actually is the best antipoverty plan we have got--to 
make sure we have a growing economy and people can get jobs.
    Let me point out one fact about the President's tax cuts, 
and that is the effect of them has been to make the Tax Code 
more rather than less progressive. If you take the top 5 
percent of earners in this country, that is, people making more 
than about $140,000 a year, without the President's tax cuts, 
they would be paying about less than 52 percent of the total 
income tax taken in this country. After the President's tax 
cuts, they pay about 54 percent, a little more than 54 percent.
    Mr. Ford. That number is 140,000 or above?
    Mr. Bolten. That's correct.
    Mr. Ford. Ninety-four percent of people in my State make 
less than 100,000, because----
    Mr. Bolten. That is exactly right. Those who are in the 
bottom 50 percent of earners under the President's tax cuts, 
their share of the total--they got a tax cut too--their share 
of the total income tax burden went down from 4-point something 
to 3-point something percent of the total income tax taken in 
this country.
    So the effect of the President's tax cuts, while everybody 
got a cut, was to not make the Tax Code less progressive, it 
was to make the Tax Code more progressive on balance.
    Mr. Ford. Mr. Nussle has been kind--but that doesn't take 
into effect the increases in local and State taxes, I would 
imagine, because my property taxes have gone up in my district. 
All those folks at 50,000 or less who benefited from that tax 
cut are seeing those increases that States have to show.
    I appreciate your answer, but reality is when you pay 
taxes, you don't care who you are paying it to, you have got to 
write the check.
    Mr. Bolten. Well, that is right. I think that is why what 
we are dealing with here is the Federal Income Tax Code, which 
the President has made more progressive, but why I think States 
need to watch their revenues as well. By the way, State 
revenues, along with the economy, are responding very well. The 
State revenues are up.
    Mr. Ford. Mr. Chairman, thank you for the time.
    Chairman Nussle. The gentleman from Florida, Mr. Diaz-
Balart.
    Mr. Diaz-Balart. Thank you very much, Mr. Chairman,
    I am always amazed at what I hear in the press and what I 
hear even today from my dear friends, the Democrats.
    Mr. Bolten, of course, has had to deal with it also all 
day.
    I hear complaints that the deficit is too high, and I share 
that concern. Then sometimes in the same breath, we hear that 
the President is not spending enough. You know, it doesn't take 
rocket science to understand that if you are concerned about 
the deficit, you either have to raise taxes or cut spending.
    What is very interesting for me to hear is that the same 
people who complain about a high deficit then complain about 
not enough spending by this budget.
    I just want to read, Mr. Chairman, something that I got off 
of an Internet Web page. If you will bear with me, it says the 
President is committed to ensuring that all domestic 
discretionary spending, excluding Defense and Homeland 
Security, does not grow any faster than inflation. Continues on 
later to say that this person--obviously the President here--
discretionary spending proposals will be paid for by freezing 
or cutting nonpriority programs. It is paid, the priorities--I 
want to make sure I am not misunderstood here--I may have said 
the President. No. This was a person who was running for 
President. Who every single one, as far as I know, of my 
friends on that side of the aisle supported in the Web page--on 
the Web page it says what I just quoted.
    Yet when the President proposes a budget that actually is 
very--does just that, all of a sudden it is the sky is falling 
again.
    I guess, Mr. Chairman, to again quote a very popular phrase 
by a very well-respected Democratic leader, and paraphrasing a 
little bit my friend, the Democrats--I guess they support 
restrained spending before they oppose it, and in the same 
breath.
    Again, it is just an amazing thing to me to see, for us to 
witness here, live on national TV and in person.
    Mr. Bolten, thank you for your testimony. I think it has 
been extremely enlightening. One of the things that a lot of us 
are concerned about, as well as the President, is to make sure 
that we protect the American taxpayer and the beneficiaries who 
are supposed to receive the benefits. And you and the President 
have implemented a variety of tools to do so, including, again, 
to look for efficiency and effectiveness in the programs.
    One of the most important tools I think that the President 
has implemented is the so-called Program Assessment Rating 
Tool, known as PART. It is obviously to rate the effectiveness 
of the government programs in order to make sure that--to help 
them form management and spending decisions.
    By the way, I want to thank you and others for your 
leadership there, and others like Clay Johnson who we work with 
quite a bit, we harass quite a bit.
    Did this program, PART, play a role in developing this 
budget, number one? Number two is how can Congress better 
utilize that system that you all have spent so much time and 
effort developing to also do a better job in prioritizing our 
spending in the future?
    Mr. Bolten. First of all, Congressman, I know my deputy, 
Clay Johnson, has very much appreciated the opportunity to work 
with you on improving the measures by which the government 
decides what is working and what isn't. That is our PART 
program.
    What we have tried to do is systematically go through all 
the accounts in the budget and do an assessment--what are these 
programs doing, what are they supposed to do, are they meeting 
their objectives--and apply some neutral criteria to these 
analyses.
    We do that with PART ratings. Those are now ever more 
integrated into the budgeting decisions we make. In each of the 
important budgeting decisions that has come up in the course of 
this administration, we have always asked the question, do we 
have a PART score; what is it; what is that telling us about 
the program? For Congress we make those PART ratings available.
    So I encourage you and the other members to draw on those 
ratings as you decide what ought to get funded and what ought 
not to get funded. There are a lot of tough choices to be made 
in a budget like this.
    Mr. Ford referred to a bunch of them that we have to 
decide--well, OK, we can fund a little more here, but that 
means that we have to dial down somewhere else. We have tried 
very hard to make those choices based on which of the programs 
is performing best in accomplishing the objective. That is what 
the PART ratings do, and I thank you for raising it.
    Mr. Diaz-Balart. Thank you, Mr. Chairman.
    Chairman Nussle. I thank the gentleman.
    Mrs. Capps for 5 minutes.
    Mrs. Capps. Thank you, Mr. Chairman.
    Director Bolten, I have a question about the $45 billion in 
Medicaid cuts in this budget. And I am recalling Chairman 
Nussle's son's allowance for these purposes. Let us assume that 
the $5 he gave his son last year was for health care.
    Chairman Nussle. Don't get his hopes up it is going to be 
that high.
    Mrs. Capps. This year his health care allowance costs are 
$10, and he is only given 9. That is what we are talking about 
in the arena of cuts. My question is based on three realities:
    First, spending on the Medicaid program has been growing, 
but a large part of that growth is due to enrollment increases. 
Specifically, enrollment increased by over 8 million, almost 
8.5 million enrollees, between 2000 and 2003. These enrollment 
increases were driven by what you referred to as the recent 
recession and subsequent loss of income and job loss, as well 
as drops in employer-sponsored insurance. And in this case, 
then, Medicaid did exactly the job it is supposed to in such a 
situation, which is to serve as a safety net. Without Medicaid, 
the increase in the number of uninsured would have been very 
much larger than the 5.2 million increase in uninsured we have 
already seen during President Bush's tenure.
    Second, growth in Medicaid spending reflects the overall 
problem of rising health care costs all across the board, which 
is an issue for all health insurance, private and public, and 
not specifically Medicaid. In fact, according to The Urban 
Institute, Medicaid per-capita spending grew at an average 
annual rate of 6.1 percent over 2000 to 2003, far better than 
the private health premiums, which rose over 12 percent 
annually during that same time period.
    So, finally, we are looking at Medicaid cuts as merely 
shifting the costs. The cost will either be shifted to the 
States, or to the beneficiaries who can ill afford them, or to 
providers in the form of lower payment rates.
    My question to you is: Under these spending cuts, to whom 
are you shifting the cuts? Do you envision that States will 
have to pick up more of the costs? Do you expect States to cut 
payment rates to providers, or do you imagine that 
beneficiaries are going to have to pay more out of their own 
pockets?
    I have here the image I would like you to reference, which 
is that of working parents anxious about their children's 
college education, whose own parents are Medicaid recipients in 
nursing homes facing the cuts that this proposal will entail.
    Mr. Bolten. Let me ask for my chart 12 to be put up to show 
the magnitude of the numbers we are talking about. Mrs. Capps, 
what we are looking at here is a situation--the green line is 
the lower line, the just barely lower line. The blue line is 
our current estimate of the trajectory of Medicaid spending.
    If the President's proposals are adopted, we would end up 
at the green line in Medicaid spending. That is a reduction 
from 7.4 percent growth per year to roughly 7.2 percent growth 
per year.
    So we would still propose to meet the expanding 
expectations in Medicaid, but at a slightly reduced rate. Most 
of these savings are expected to come from insisting that the 
States receive the right amount of reimbursement from the 
Federal Government.
    There are a lot of mechanisms there used to dial up the 
reimbursements they get. We are just trying to ensure that the 
Federal Government pays its appropriate share of Medicaid 
funding.
    Much more important than all of this, though, is the 
Medicaid reforms that Governor Leavitt talked about in his 
speech last week. I commend that to you, because I think it was 
a very important speech, and I think it will be a very 
important proposal when it comes out in full detail.
    The purpose of that is to give the States more flexibility 
in how they spend their Medicaid money, because we are not 
making the best use possible of that money that we could. If we 
give the States more flexibility in spending that money, they 
are likely to be much more effective in treating more of the 
most needy people in a more effective way.
    Mrs. Capps. Well, let me just refer to Secretary Leavitt's 
home State of Utah and the flexibility that was used there, 
which meant that in his State, some Medicaid-qualifying adults 
were not even allowed, or are not even under that plan, allowed 
to have their inpatient hospital care covered.
    Does this notion of flexibility that the States are going 
to be able to use--does it mean that they are going to be 
cutting prescription drugs offered to Medicaid recipients or 
low-income pregnant women's prenatal health care, whatever the 
areas that this is being touted as being such a magic bullet 
for?
    Mr. Bolten. Well, I think most Governors will agree that 
the flexibility allows them to target the funds where they are 
most needed to where they are most useful. The system right now 
is relatively hidebound and inflexible and provides funding for 
things that many Governors think are not their highest 
priority. We want them to be able to allocate funds to their 
highest priority.
    Let me mention one other thing that is in the President's 
budget, and that is an effort to make sure that all the kids 
who are eligible for SCHIP funding get signed up. We are 
putting $1 billion into that initiative, I forget over how many 
years, but it is a substantial initiative to get more of the 
kids who are eligible for SCHIP funding signed up. Our budget 
numbers reflect an increasing number of SCHIP members in the 
program that actually expands--expands Medicaid funding 
slightly.
    Mrs. Capps. Thank you, Director.
    Mr. Chairman, if I could just reference. I applauded also 
when I saw SCHIPs funds going up. That is another example of 
shifting costs that is going to come from seniors in nursing 
homes most likely, or some other, because of the huge numbers 
of the costs that are implied--entailed with seniors in nursing 
home cost care, for their care.
    Thank you.
    Chairman Nussle. Yes, Mrs. Capps, since you referenced my 
son, let me just say that we have got to get a handle on the 
costs. I mean if my 14-year-old son's costs were growing faster 
than his growing allowance, I would build me a woodshed, as the 
saying goes, because we want to get a handle on this.
    So I understand that there will be some complaints. But as 
the Director's chart clearly shows, we are going to increase 
the funding. It is a matter of trying to begin to slow the rate 
of growth by finding cost savers, and I understand that you 
believe that is going to be a tough job. It is a tough job, and 
we need to do it. We can't allow it to continue to grow out of 
control.
    Ms. Ros-Lehtinen.
    Ms. Ros-Lehtinen. Thank you very much, Mr. Chairman.
    I am very pleased to be a new member of your committee, and 
I thank you for the opportunity.
    Chairman Nussle. The gentlelady is recognized for half an 
hour.
    Ms. Ros-Lehtinen. Thank you, sir.
    I am also pleased to have Mr. Bolten here, because I have a 
very important constituent in my congressional district in the 
tip, in the southernmost tip of my district, Key West.
    Mr. Bolten's mom resides there, and so I am always treating 
very carefully the children of my constituents.
    Mr. Bolten. In addition to your half hour, that is an extra 
billion.
    Ms. Ros-Lehtinen. There we go, thank you.
    But I wanted to follow up on a statement that you made, Mr. 
Chairman, and my good friend Lois, and that is about the 
coverage that we are giving to needy children. We have got such 
great programs that are included in the President's budget that 
truly do reflect the values of our caring society. The 
President's budget has this cover the kids' program, which is 
$1 billion in grant money over 2 years to help coordinate with 
the Federal, State, and local community and all of these 
programs.
    I think that more should be highlighted about the great 
innovations that are in this President's program. I just wanted 
to highlight that in my district that is going to be very 
important.
    But I am on the International Relations Committee. I wanted 
to ask you about some--two topics related to our committee. One 
is the global HIV/AIDS initiative. I think the budget funds 
this unprecedented program.
    The President's compassion is reflected in the budget 
numbers, and I want to congratulate him for that. He has made 
that one of the centerpieces of our international relations 
cornerstones of this program, and I think that it is 
meritorious of highlighting it that, once again, it is in the 
President's budget. It is $3.16 billion, and I congratulate you 
for that.
    I wanted to ask you about how we know how those funds are 
being implemented, how do we engage success on that? And if we 
have any time left over, on the Millennium Challenge 
Corporation, another innovative program that goes to the very 
poor countries--they need it very much and it is a great 
increase for those countries. That is the best way that we can 
promote freedom and democracy. That is, to make sure that the 
economies of those countries are self-supporting, and we have 
got to help them with their health care problems as well as 
helping them to rise out of poverty.
    I think the President's international affairs budget helps 
us to reach that goal.
    Mr. Bolten. Thank you, Congresswoman. Thank you for raising 
these issues. I am sorry Ms. DeLauro was not here to hear you 
talk about that because these are two initiatives of which the 
President is very proud, and do reflect the great heart that 
America has, and the President's initiatives of promoting 
freedom and development around the world so that we are safer 
at home and people are better off abroad.
    The AIDS program that the President announced, I think, 3 
years ago--and he announced a $15 billion 5-year program to 
combat AIDS internationally--I think it is turning out to be a 
tremendous success. It is a very rough world in which to be 
operating. The Congress has stepped forward and given the 
President ample funding for that. We are ahead of pace to meet 
the President's goal of $15 billion over 5 years.
    You have referenced that we are at almost $3.2 billion in 
this proposed budget. Much more important than the dollars is 
the effect that this program is having on lives. All of the 
reports we have been getting back from the field is that there 
are tens of thousands of people now able to live normal lives 
who are HIV-infected, who are able to live normal and 
productive lives, who are not leaving behind orphans, and, most 
important, are not spreading the disease elsewhere. So there is 
great success out there.
    We have asked Ambassador Tobias, who is the head of our 
operation there, to do his best to give us metrics about how to 
measure the success we are achieving. But I think he and his 
counterpart in the global AIDS fund, Mr. Feacham, are doing a 
terrific job addressing an urgent international crisis in a way 
that does reflect the good heart of the United States and all 
the contributors to the global fund.
    Ms. Ros-Lehtinen. Just quickly in my remaining 5 minutes, 
the Millennium Challenge Corporation.
    Mr. Bolten. The Millennium Challenge Corporation is indeed 
a way to approach foreign aid. The President's proposal was 
that we target our foreign aid to those countries who are 
stepping up in other ways to make sure--that helps ensure that 
the aid is well used. So we are putting our aid money into 
countries that are attacking corruption or are attacking 
mismanagement, and that we know that we are not just pouring 
aid money down a dark well, which has been a criticism of aid 
funding in the past.
    So it is targeting the money where it is likely to be most 
useful and targeting aid money in countries, developing 
countries that are likely to put them on the best path to 
development. It is an innovative approach to foreign aid. The 
President has requested for this year $3 billion in that 
account. That is twice what the Congress appropriated last 
year, so it is one of the biggest increases in this budget for 
this important program of compassion and development.
    The President's goal was to reach $5 billion in funding for 
that program this year. We are slower in the funding than we 
would like. The President is still expecting to meet that goal 
next year. It is very important for these countries. I think it 
is very important for the national security of this country 
that we step up and meet all of our responsibilities overseas 
where we can and where we can be confident that we are making 
good use of those dollars.
    May I take another minute of your 30 to make a comment 
about the President's commitment to oversees development 
assistance? The core development assistance in 2006 under this 
President will have risen to $19.8 billion.
    That is an increase of $8.2 billion over what was enacted 
in just 2002. That is about a 71 percent increase. The 
President's commitment on the national security side and the 
overseas development side has been unprecedented, I think is 
leading the world, and I think we will go a long way toward 
making sure that we are living in the kind of safe world that 
will not require the sorts of war funding that we are now 
having to experience.
    Ms. Ros-Lehtinen. Those dollars are an investment in our 
national security.
    Mr. Bolten. They are.
    Ms. Ros-Lehtinen. Say hi to mom.
    Thank you. Thank you, Mr. Chairman
    Chairman Nussle. I thank the gentlelady.
    Mr. Cooper for 5 minutes.
    Mr. Cooper. Thank you.
    Director Bolten, you have put a very pleasant face on some 
pretty draconian budget cuts. The President's budget really 
depends on one thing. This giant budget project you just 
completed really just depends on one thing; that is, whether 
Wall Street will buy it.
    You mentioned a couple of times today, and I think you 
mentioned yesterday in your press conference, that you feel 
that Wall Street has given it a pretty positive reaction. In 
fact, I think today you even used the word ``applaud,'' applaud 
the idea that our government would continue to be borrowing 
billions and maybe trillions of more money, increasing the 
national debt beyond anything our forefathers could have 
imagined. What worries me about this is that you mentioned Wall 
Street approval.
    It kind of sounds like it is a Good Housekeeping Seal of 
Approval. That worries me because even though Wall Street may 
be happy, I am worried that Main Street probably shouldn't be 
happy, because I am not sure a lot of folks on Main Street 
understand how Wall Street bankers work.
    Now, I used to be an investment banker, you used to be one. 
When you borrow money on Wall Street, it is not like Wall 
Street bankers are loaning you their own money. They are 
loaning you other people's money, right? In this case, even as 
big and as rich as our Wall Street banks are, they wouldn't 
have enough of their own money to loan us all the money that we 
need. They have to go to other sources of capital, right? It 
worries me because Wall Street really doesn't care what 
interest we pay on our borrowings, as long as they find a buyer 
for the bonds, as long as they complete the transaction, right?
    Wall Street isn't being so helpful because they are all 
patriotic. They are good folks and many of them are patriotic. 
I have got nothing against Wall Street, but this is the way 
business works. They would loan money to the worst dictatorship 
on the planet as long as they found a buyer for the debt, 
right?
    So Wall Street really doesn't care who loans us the money 
as long as somebody does, as long as they earn their precious 
fee. So in many ways, the ideal transaction from a Wall Street 
standpoint is to get the Chinese or some other country to buy 
the whole thing, to buy all the bonds in one gigantic private 
placement, as long as they earn their fee.
    Because, Director Bolten, you and I both know on Wall 
Street there is a famous phrase, ``There is no such thing as a 
bad deal, there are only bad fees,'' by which they mean low 
fees.
    I think that should give the average American on Main 
Street a little bit of pause, because when you say that Wall 
Street applauds what you are thinking about doing here, it is 
like throwing red meat to sharks. Of course they are happy. If 
sharks had hands, they would be applauding, but that doesn't 
necessarily make it right.
    This administration could decide to sell Wall Street the 
Lincoln Memorial and the George Washington Monument on our Mall 
to Wall Street, and as long as Wall Street found a buyer, even 
the Chinese, and we were able to put up advertising all over 
it, why then Wall Street would be happy.
    So I would urge you, and also Secretary Snow in your 
statements, to be very careful when you mention Wall Street 
approval or acquiescence or applauding. It doesn't necessarily 
mean what a lot of folks back home might think it would mean, 
because these folks are not about to loan us their own money, 
and they don't really care whether the transaction is good for 
the Nation or not as long as they earn their fee, right?
    Mr. Bolten. Mr. Cooper, you are raising an interesting 
caution, but I think you have misunderstood what I was trying 
to say. I was responding to a question about how Wall Street 
would react. Because, first of all, I can guarantee you that 
the President cares a whole lot more about Main Street than he 
does about Wall Street, just ask him, anytime.
    Second, what is important about how Wall Street reacts to 
the Social Security plan and the additional financing that 
might be needed in the short run for transitional accounts is 
the point that whether Mr. Spratt or somebody was raising--
which was, whether we would get a terrible reaction from the 
financial markets, Wall Street, from this additional borrowing, 
that is, would it cause interest rates to go up? So far we are 
not hearing that concern from the markets. Interest rates have 
not gone up in the course of the past few years.
    Mr. Cooper. Because the Chinese are funding our debt. Never 
have more foreigners funded our debt than they do today.
    Mr. Bolten. Yes, and to some degree it is important that we 
maintain the confidence of both the domestic and international 
markets in what we are doing. But one of the ways we maintain 
that confidence, and in fact the most important way I believe 
we can maintain that confidence--and this is the point I was 
making about Wall Street--the most important way we can 
maintain that confidence is by getting assurance that we are 
getting control of our long-term unfunded liabilities of our 
entitlement programs.
    The reason I say you would get applause is that if adopted 
as part of a comprehensive plan, the personal accounts and the 
rest of the comprehensive plan to address Social Security, if 
we did that, we would be giving both domestic and international 
markets confidence that we can deal with the long-term unfunded 
liabilities in our system with the fiscal danger that we face, 
not the perceived danger from the additional borrowing that 
personal accounts might require. That is why I referred to Wall 
Street, and only for that reason.
    Mr. Cooper. But Mr. Bolten, again you are giving Wall 
Street too much credit. As long as they earn the fee, as long 
as they sell their bonds, those folks will be happy and they 
will get big bonuses at the end of the year. You and I may care 
about substance, but the market doesn't work that way. They 
care about completing the transaction, closing the deal.
    Chairman Nussle. The gentleman's time has expired.
    The gentleman, Mr. Lungren, for 5 minutes.
    Mr. Lungren. Thank you, Mr. Chairman. Thank you for 
inviting me to this battle of the dueling charts. I appreciate 
it.
    Chairman Nussle. You ain't seen nothing yet.
    Mr. Lungren. Mr. Spratt, I want you to know that I 
seriously took into consideration last week--you made a 
reference to my hair, so I went home and got a haircut before I 
saw my mom. So I appreciate that.
    Mr. Spratt. I just thought Congressmen from California knew 
how to grow more hair. That is, I was impressed.
    Mr. Lungren. I listened very carefully to your conclusion 
of your statements where you talked about debt--our national 
debt may be an insoluble or intractable problem. I think I get 
a sense of why you may feel that way and why the folks across 
the country may feel that way.
    I hear the reticence from anybody on either side of the 
aisle to talk about cuts. We do everything we can to say that 
what we are going to do is not cut, can't be considered a cut, 
doesn't look like a cut.
    Well, where I come from, cut is not a four-letter word. The 
American people, it seems to me, are suggesting to us we have 
to get our fiscal house in order. It may, in fact, require us 
to look at some cuts.
    I thank Mr. Cooper for reminding me what it was like when I 
was here before. I feel like Rip van Winkle or maybe it is 
Groundhog Day. I heard these same arguments 16 years ago when 
the President was named Ronald Reagan, and he was being 
castigated for suggesting that we night actually have to 
restrain spending on the one hand and being blamed for the size 
of the deficit on the other.
    I note that Mr. Bolten has suggested that this is the first 
time that we have had nonsecurity discretionary spending 
reduced--you actually used the word--I think you said ``cut,'' 
someone must not have given you the language lesson before you 
came here--since the Reagan administration.
    Ronald Reagan once said that the best example of 
immortality on Earth is a Federal program. I think we are 
seeing that once again. My reflection, having been gone from 
this institution for 16 years and now coming back, is that 
everybody wants to be Santa Claus, no one wants to be Scrooge. 
I guess you are our designated Scrooge here today. Maybe we 
should thank you for that.
    In reference to the question about Federal programs, first 
of all, I would like to ask you two questions:
    The first one is this. Mr. Bolten, do you know, in the last 
16 years since I have been gone, has there been a single 
government program eliminated? If you can't tell me whether 
there has, what I ask is that your staff prepare a list of all 
the Federal programs that have been eliminated over the last 16 
years so that we might have that context to look at your 
proposals here today.
    Mr. Bolten. Mr. Lungren, we will give you that list. It is 
going to be a pretty short list.

                          Program Terminations

    The Office of Management and Budget does not track program 
terminations over time separately.
    This administration believes the Nation's priorities can be met in 
a fiscally responsible way. As part of the President's 2005 Budget, 65 
programs were proposed for termination. The Congress concurred and 
ended funding for the following seven programs:

Department of Commerce
Technology Opportunities Program
Department of Education
Eisenhower National Clearinghouse for Math and Science Education
Eisenhower Regional Math and Science Education Consortia
Federal Perkins Loans: Capital Contributions
Regional Technology in Education Consortia
Department of Housing and Urban Development
Public Housing Drug Elimination Program
Department of Justice
Local Law Enforcement Block Grant

    The President's 2006 Budget proposes to substantially reduce or 
terminate more than 150 programs that are not getting results, 
duplicate current efforts or do not fulfill essential priorities. These 
programs and the rationale for reducing or eliminating funding are 
presented in the OMB document Major Savings and Reforms in the 
President's 2006 Budget.

    Mr. Lungren. I would think so. That, you know, just goes to 
the question of the infallibility of Congress and the Federal 
Government itself. We seem to think that once we create a 
program, it must necessarily maintain itself. If you dare stop 
a program, it is because you are making an immoral judgment 
which reflects on our society in a bad way, when in fact we as 
parents make decisions every single day.
    My children are now adults, but when they were growing up I 
didn't give them everything they wanted, nor did I perhaps give 
them everything that they needed, in one sense, because we 
couldn't afford it at the time. No one said I was immoral, nor 
did I believe I was immoral. But to suggest that somehow if we 
come to grips with spending, we are making immoral judgments, 
is a strange way of looking at things, at least in my judgment.
    The other thing I would suggest is that we are the Federal 
Government, not the local government, and there are other 
levels of government that can do some things; that used to be 
known as the principal subsidiarity--as it used to be known in 
Catholic social doctrine--which suggested that that local 
government closest to you would be the one that was most 
effective in performing certain tasks, and that if they 
couldn't do it then you moved up that chain. I have never heard 
that talked about.
    But that brings me to my last questions. I am here because 
of 9/11. That is the reason I came back. Homeland Security, the 
preservation of our country the way it is, it seems to me, is 
the primary obligation of the Federal Government.
    Can you tell me whether this budget reflects that? That is, 
if we only have a finite amount of money, and our number one 
objective is to protect this Nation against terrorism or attack 
in other ways, should not the budget reflect a shift in 
priorities in that direction, number one?
    Number two, with respect to homeland security, can you tell 
me what this budget does, if anything, to deal with the problem 
that has gone unaddressed for over 3 years? And that is the 
problem of interoperability, the failure of our various first 
responders to be able to deal with one another. The costs to 
deal with that problem are large, and I couldn't find whether 
this budget begins to address that. In all the discussion we 
have had about everything else, it seems to me that those are 
the kind of fundamental issues we ought to see reflected in a 
budget.
    Thank you.
    Mr. Bolten. Mr. Lungren, we will get you information about 
the interoperability. But your overall question about the shift 
in priorities is exactly on target. Homeland security wasn't 
even an understood phrase before September 11, and it was not a 
major priority in the budgets of this country. Over the course 
of the budgets since September 11. Over the course of the last 
4 years, this Congress and this President have increased 
Homeland Security funding by more than triple. The President's 
proposal would take it well above triple.
    There is a net increase in proposed Homeland Security 
funding in this budget of close to 8 percent--I am sorry, a 
gross increase of close to 8 percent, offset by some increased 
fees. It does reflect the priorities.
    Now, are we doing everything we need to do as well as we 
need to do it? No, not yet. There is growing expertise in the 
government about how best to go about it. There is an enormous 
range of needs to pursue. But you can be sure that it is at the 
top of the President's and the administration's priority list, 
just as it is at the top of yours.
    Chairman Nussle. The gentleman from Maine,
    Mr. Allen, for 5 minutes.
    Mr. Allen. Thank you, Mr. Chairman. And thank you,
    Mr. Bolten, for being here. In looking over this budget in 
the time we have had, I was struck by several things.
    I would have hoped that this would be a budget that would 
help create a stronger, more competitive economy, and that is 
much more than about tax cuts. I also believe this budget 
should have broadened the prosperity in this country.
    But when I look at it and see that you are proposing new 
tax cuts for the wealthiest people, it is pretty clear that it 
doesn't do that.
    Third, it ought to lead to a better future for our 
children, but we are instead burdening them with debt that they 
very well will have a very hard time digging out of.
    You know, I am just a new member of this committee. You 
know, I haven't been to these sessions before. But when I look 
at this budget and what it does to my home State of Maine, some 
things jump right out. It will weaken Maine's economy, bottom 
line.
    First of all, there is no destroyer in the 2007 budget for 
Bath Iron Works. So there is a gap. The DDX program is being 
delayed, there are fewer ships being organized. We have 6,000 
people there. That will mean a significant loss of jobs.
    Second, the Medicaid program is being reduced. I can assure 
you, that is going to move some people out of nursing homes who 
need to be there. I know what Governors say when they hear the 
words ``flexibility,'' and they hear ``block grants,'' and they 
know it means less money.
    Vocational education is being reduced. Job training is 
being reduced. What that means is that fewer people are going 
to have the opportunity to really become part of this economy.
    The Chairman said at the beginning that a reduction, a cut, 
in Washington is sometimes a reduction in an anticipated 
increase. Well, back home people have a real simple idea: If 
they can't provide the same services year to year, they know 
that services are being reduced. It doesn't matter what the 
number on some piece of paper in Washington is. If they can't 
provide the same services, they are losing ground.
    You talked about tough choices. One of the tough choices 
though, I suspect, that wasn't so tough for this administration 
is whether or not to keep that upper 1 percent, the people who 
earn $350,000 a year or more, to make sure that they keep the 
$89 billion in tax cuts that they will get this year, $89 
billion; make sure they keep that money instead of dealing with 
vocational education or Medicaid or Navy ships or support for 
small businesses, which is going to be harder to get with the 
Manufacturing Extension Partnership being reduced.
    We have some responsibility to each other on the government 
side to try to encourage economic growth. It is not just about 
tax cuts. At one point you said tax revenues take away from the 
economy. Well, I thought that school teachers were part of the 
economy. I thought that police and firefighters were part of 
the economy. I thought the young men and women serving in our 
military are part of the economy. I think this notion that the 
private sector has all the answers, and that is where all the 
energy comes from, is wrong.
    Let me just, if I could, call up chart 11, because I did 
want to touch on the Social Security issue before you finish. 
No, before I get to that, if I could make just one request of 
you.
    The budget, we understand, proposes more than 150 
reductions, reforms and eliminations in nondefense 
discretionary programs, exactly the kinds of programs I was 
just talking about, which would save about 20 billion in 2006 
alone.
    Can you provide this committee, if you don't have it today, 
with a complete list of those 150 programs?
    Mr. Bolten. Yes.
    Mr. Allen. Would you do that?
    Mr. Bolten. At the outset, the Chairman made a similar 
request, that we do it as one full package with an explanation 
for each of the cuts. So I assured the Chairman that we would 
put together a package like that, and we will have it available 
to the committee shortly.
    Mr. Allen. Thank you. Thank you.
    If I could call back chart 11. This is one analysis of what 
happens with the President's Social Security privatization 
plan--reflecting debt as a percentage of gross domestic 
product. The Vice President said the other day that it would 
cost trillions of dollars in new debt, trillions of dollars, in 
order to put Social Security privatization in place.
    You have talked a little bit about Wall Street analysts. 
But, you know, the economic report of the President every year 
has wildly overpromised the number of jobs that would be 
created by these tax cuts. We have all the promises made at the 
outset on Iraq.
    I mean, as you look at this chart, do you see the risk that 
is there in moving toward privatization and having to borrow 
all of that money that you have to borrow inevitably over the 
first couple of decades and beyond? I mean, that money has to 
come from somewhere. It is coming out of the private markets. 
And wouldn't that necessarily mean slower economic growth?
    Mr. Bolten. No. First of all, I am not exactly sure what 
data are used for this chart. But the answer is that
    we face an enormous unfunded liability in our Social 
Security system if we don't do something about it.
    The personal accounts, which, as I have emphasized before, 
are a mechanism that allows people to keep more of the benefits 
they will receive later. To keep the benefit now, let it grow 
faster than it would in the Social Security system and let them 
own it themselves. It is not a new cost to the government, and 
that is why the additional financing that is likely to be 
needed for it, which I don't think is properly reflected in 
that chart, but the additional financing that will be needed 
for it I do not think poses a burden on this economy. And 
especially it does not pose a burden on this economy because it 
is not a reduction in net national savings. It is money that 
the government will, in the short run, have to borrow because 
it is not paying benefits later. In the short run, we will have 
to borrow what goes into these personal accounts, which goes 
into savings. So there is no reduction in that national 
savings, and therefore not the kind of economic effect that you 
would have from normal government spending.
    I am glad you raised the economy overall, though, because 
the tax cuts have been absolutely crucial to the recovery in 
the economy that we have seen over the last several years. Job 
growth was slower in recovery than expected, but it has 
recovered. We had over 2 million new jobs created in the last 
year alone and I think the prospects going forward also look 
good.
    There are a lot of other parts, though, to the President's 
economic plan, and you will see those reflected in this budget. 
That means a responsible energy policy. It means similar 
justice reform, it means open trade policies, it means 
controlling health care costs. All of those things will 
contribute to a better economy. I want to repeat something I 
said earlier. Our best fiscal tool is a growing economy.
    Mr. Allen. Mr. Chairman, if I could just--in response to 
one thing. This is Social Security Administration data analyzed 
by the Center for Budgetary Policy and Priorities, and that is 
why we believe the source is good. But I thank you for your 
time.
    Chairman Nussle. The gentleman from New Hampshire, Mr. 
Bradley.
    Mr. Bradley. Thank you very much, Mr. Chairman. It is 
certainly a pleasure to be on this committee and I am looking 
forward to a very interesting month to 6 weeks ahead of us.
    Mr. Bolten, a pleasure to meet you, I meant for your 
position on agricultural subsidies, and I hope that the $5.7 
billion that we are talking about over the next 10 years is 
just a start.
    Secondly, I think it is very interesting, the whole 
discussion about the top tax bracket and the percentage that is 
paying those taxes. Obviously, if we have gone in the top 5 
percent from 52 to 54 percent, that means that somebody at the 
other end of the spectrum is paying a lesser percent; and it 
must mean in my point of view that the tax package has not only 
become more progressive, but that it has helped middle-income 
Americans because every tax bracket has dropped. There has been 
marriage penalty relief. The child credit has been upped. The 
10 percent tax bracket has dropped. I believe 3 or 4 million 
people off the tax rolls, and the small business expensing 
provisions have helped small businesses grow.
    So my request would be if your staff would be able to 
prepare a couple of charts that would show some of that 
information, that would be very helpful. It is a very important 
story, I think, not only if we look at Chairman Nussle's charts 
11 and 12, that has contributed to increasing revenues and 
increasing jobs, but it also--how it has changed the dynamics 
of who pays.
    My question is if you could touch on some of the budget 
restraint mechanisms, line-item veto, the rescissions 
authority, the importance of those in making sure that a budget 
that we passed actually has the backbone for the President to 
be able to enforce that.
    Mr. Bolten. First of all, Congressman, we can provide you a 
chart. I am looking at one that we don't have on the screen now 
but I think that you will find useful as you look at it. But 
what it does show is that the result of the President's tax 
cuts is that people in all of the upper-income brackets are 
paying a larger share of the total income tax take than they 
would be without the President's tax cuts.


    The one category that is going down substantially is the 
bottom 50 percent. I didn't have the figure when I answered a 
previous question, but the bottom 50 percent of taxpayers in 
this country, those in the bottom half of income, would, 
without the President's tax cuts, would be paying 4.1 percent 
of the total income tax taken in this country. After the 
President's tax cuts, they pay 3.6 percent of the total income 
tax take in this country.
    Thank you for raising the budget process reforms that I 
alluded to in my opening statement. They are very important. 
You will find them amply discussed in the main budget volume 
that you have in front of you.
    There are several important proposals there that include 
statutory caps on discretionary spending, pay-go for mandatory 
spending. That means if someone wants to propose an increase in 
mandatory spending, that there be an offsetting decrease in 
mandatory spending. It includes some proposals to ensure that 
we are not expanding the unfunded liabilities we have out in 
the future, because it is easy to make proposals that are 
outside the 10-year budget windows that resolutions have 
traditionally operated in, so to make sure that those 
additional expenses are also captured.
    We are also coming forward with a proposal on the line-item 
veto that we have carried in the past. There seems to be 
increasing interest in the Congress in some measure, in some 
sort of measure, whether it is our specific one or not, of 
giving authority to line out a lot of the individual spending 
items that find their way into big appropriations bills.
    Finally, we are proposing a sunset commission and a results 
commission as a way for the Executive and the Congress jointly 
to take a look at our spending programs overall in context, and 
where we can find savings to capture those savings, where we 
find programs that aren't delivering the best results, to 
capture those savings as well. It is a big package of 
proposals, and I think you will see it well reflected here.
    We are glad to provide additional materials as you might 
need.
    Chairman Nussle. Thank you. Thank you, Mr. Bradley.
    Mr. Case for 5 minutes.
    Mr. Case. Thank you, Mr. Chairman.
    Mr. Bolten, I am going to refer to the President's budget, 
Historical Tables on page 118, which is Federal debt at the end 
of the year, historical 1940 to 2010, the last 70 years.
    Mr. Bolten, I guess what I was listening for in your 
testimony and what I did not hear was really any mention of the 
debt. In fact, I actually went so far as to count the number of 
times you said the word ``debt'' in your testimony. You said it 
twice.
    Going back to the Chair's comment at the very beginning, 
which was: what do people worry about, what do they have 
heartache over when they are sitting around the kitchen table 
at home? Well, when I am home sitting around my kitchen table 
with my wife Audrey, worrying about household finances, or back 
in the old simple days where I was running a business and I 
worried about our business budget with my partners, I worried 
mainly about debt.
    Now I worried about revenues, and I worried about expenses, 
and I especially worried when revenues and expenses got out of 
whack with each other, and I worried when expenses exceeded 
revenues in a particular year, even a particular set of years. 
But the thing I worried most about was what did it all add up 
to in the end. How much debt was I carrying?
    I worried about debt for two obvious reasons. The first 
reason I worried was because prolonged debt at excessive levels 
is a sign of mismanagement, period, not just getting through 
some bad times. I also obviously worried--and if I could have 
chart 7, please--about the total amount of interest I was 
carrying on that debt, because obviously interest has a way, if 
you don't watch it, of taking over your budget, as you well 
know.
    Looking at the historical levels, of course, I think we are 
all very well aware at this point that we are carrying the 
highest level by far of gross Federal debt in our country's 
history; gross Federal debt referring to all debt, so debt held 
by the public as well as debt held by government accounts. All 
debt, the debt that is subject to the debt ceiling, the debt 
ceiling that we have raised three times in the last couple of 
years.
    Now, you have characterized the President's effort on the 
deficit not in absolute numbers but by reference to the percent 
of GDP. We can argue about whether that is proper or not, but 
so that we are talking about apples and apples rather than 
apples and oranges, let us not take the total amount of debt--
which under your projections if I am not mistaken will increase 
by 60 percent under this President's budget in the next 5 
years, 2010, 2004, 7.3 trillion to 2010 projected $11.1 
trillion--that is 60 percent by my calculations--but let us 
take it from a different angle as a percentage of GDP. See, you 
have it right on the chart.
    Now my understanding--correct me if I am wrong, I don't 
think I am--is that under this President's budget, by the year 
2010 we will see the highest percentage of debt to gross GDP 
since 1954. If you can track back through that column and tell 
me the last time you get to 70 percent, I think it is 1954, is 
that right? That is at the end, obviously, of a very expensive 
15-year cycle of two wars--one World War and the Korean War, 
and then you can see that it dropped off from the 70 percent 
for 50 years. Even through the Vietnam War we didn't have 
Federal debt at 70 percent of GDP.
    So clearly something is wrong with our debt. I don't hear 
from this President and from you a recognition of the problems 
associated with the Federal debt. I don't hear a plan to get us 
out of long-term debt.
    In fact, if you want to go back to the points made by the 
Ranking Member, Mr. Spratt, you will see that if you add in the 
items he was talking about--if you add in, for example, 
interest on the borrowings to jump-start the Social Security 
plan, I will bet you anything that in the years after 2010, you 
will see not only a significant increase in Federal debt on an 
absolute level, but you will see a very significant increase as 
a percentage of GDP.
    So here is the straight question, Mr. Bolten. We are 
talking about priorities here. I don't think the Federal debt 
is this President's priority or this administration's priority. 
Somehow they have just decided to coast on the debt for a 
while, and it is easy to do because you can cover it up. It is 
not very sexy to talk about, it is not like vets and destroyers 
and everything, but it is debt.
    So where are the priorities, how are you going to get us 
out of debt?
    Mr. Bolten. Well, Mr. Case, I am glad you have raised that, 
because that is a matter of great concern to me and the others 
in the administration who follow these issues.
    The relevant measure is as a percent of GDP. Just as it 
would in any business or family, you worry about your mortgage 
relative to your overall income. And so the right way to look 
at this is as a percent of GDP.
    Economists also look to the other column in here, which is 
the debt held by the public is normally considered the relevant 
measure of the debt, not the debts that the government owes 
itself, but the debt held by the public. What you see on that 
column there, which is a very important column, and I am glad 
you pointed it out--and I appreciate your doing that, because 
it is a very important measure. What you see right there is the 
Federal Government's debt to GDP ratio in our projections, 
basically peaking around 40 percent of GDP and beginning to 
decline slowly thereafter.
    Forty percent is around the modern historic average of debt 
to GDP. It is also quite a bit less than most of our trading 
partners internationally. Most of the rest of the 
industrialized world has debt to GDP ratios much higher. But 
you are absolutely right to focus on that, because that is what 
really matters.
    Mr. Cooper and I were just talking about Wall Street. By 
Wall Street--I mean the financial markets. What is the interest 
rate that is going to be imposed on Federal debt and on 
ordinary borrowing out there in the economy? Because that is 
going to have a substantial effect on how our economic growth 
grows.
    When the government's debt to GDP ratio is declining, in 
other words, if we are at 40, and if we heading down to 39 or 
38, that is good news for us, and I think that will be good 
news for restraining interest rates. So that is something we 
very much need to keep in mind.
    There are two parts to that equation. One of them is the 
overall debt that we are building up, and the other is how 
quickly is the economy growing. As long as we are growing the 
economy faster than we are adding debt to the Federal 
Government--which it would be great if the amount we were 
adding were zero--but I think you and I agree we want to keep 
that number as restrained as we possibly can. But as long as we 
are growing the economy faster than we are adding debt to the 
Federal Government as a percent of GDP, I think we are doing a 
good thing for the Federal budget, and interest rates ought to 
remain low.
    So you are very right to focus on it. That is a ratio that 
we want to see in a positive direction. I think this budget 
shows a responsible way to get those numbers in a positive 
direction.
    Mr. Portman [presiding]. We have to move on. Thank you for 
your answer.
    Since Mr. Nussle left, you all have done these run-on 
questions to me. To be sure that our long-suffering colleagues 
can get these questions answered and to be sure Mr. Bolten 
doesn't have to leave before that happens, let us try to keep 
our questions and answers to 5 minutes.
    Mr. McHenry.
    Mr. McHenry. Thank you, Mr. Chairman. Thank you, Mr. 
Bolten, for being here today.
    I first want to applaud you and the President's bold budget 
this year that looks at eliminating 150 duplication of services 
as well as ineffective programs in the Federal budget. I think 
it is a bold statement that you are looking at mandatory 
spending as well and looking at $130 billion worth of savings 
over 10 years there.
    I want to first ask that you and the President look kindly 
to Congress that would look to expand the number of programs 
that we eliminate or are cut or are duplications of services 
that have outlived their usefulness and are no longer serving 
the people well. I hope you also look kindly upon us here in 
Congress, at least those on the conservative side of Congress, 
that wish to look at controlling mandatory spending as well. I 
think this is a strong start, but I think we need to go 
further.
    Beyond that, I think it is interesting, as far as my first 
budget meeting, to hear the schizophrenia of the left here 
today. You have many great quotes I have listened to from my 
colleagues on the other side of this aisle. There is this great 
schizophrenia. They rave that the President is doing horrific 
things to the budget deficit, and at the same time they are 
crying foul that the budget is being reduced for nondefense, 
nonhomeland security discretionary spending. They are crying 
foul that the President would dare look at cutting ineffective 
programs.
    In fact, the Ranking Member of this committee has a 
wonderful quote in the paper today. It says, ``In the end, 
these cuts barely make a dent in the deficit, but they hurt.''
    Well this is just--I don't know any other way to describe 
it other than schizophrenia. I think it is important to look at 
ways to both reduce the deficit, reduce the size and scope of 
government, and look at ways to better help my constituents at 
home as well as all those here across the United States that 
are being represented today.
    There is also something interesting here that the other 
side won't step forward and say, and that is that they want tax 
increases. If you don't cut government services, if you don't 
cut ineffective programs and you want to reduce the deficit, 
there is only a third way; as Bill Clinton would say, that will 
be to raise revenue by taking more from taxpayers across the 
country.
    We have got a lot of great quotes. Our Ranking Member here 
today said revenues are a critical part of the problem, which 
is a nice way of telling the taxpayers of this country we want 
more from you. We want to take more from you to create more 
government programs and to give more to other people that are 
not willing to do for themselves. So I want to say your budget 
is a strong start.
    As far as Social Security, which as a youngest Member of 
Congress--I retire in 2042, when even the Democrats say that 
the trust fund is exhausted. Even the left will say that.
    I read in the newspaper today that the minority leader here 
in the House refuses to offer a Social Security reform plan.
    My question to you today--as Ms. DeLauro said in her 
opening statement, it is a moral concern, the debt we are 
leaving to our children. So this segues perfectly into 
President Bush's initiative to allow for personal Social 
Security accounts for my generation so that we can fix Social 
Security for generations to come. So my question to you today 
is of those on the other side of the aisle that say that Social 
Security is fundamentally sound. That is a quote that I have 
taken from the newspaper, and they were reciting that like it 
is Scripture. After the values election, I think we might hear 
more from that on the other side of the aisle.
    But I want to ask you, how do you see the Federal budget 
being impacted by, well, by looking at personal Social Security 
accounts? What that will do for revenue generation, what that 
will do in terms of so-called transition costs, which are 
really putting up funded liabilities on the books and being 
honest about the obligation we have in Social Security, if you 
could explain what impact that will have long term for the 
budget. And thank you for being here today.
    Mr. Bolten. Thank you. Thank you, Congressman, and thank 
you for speaking for that younger cohort.
    First of all, we would be happy to work with you on any 
additional spending reductions or even program eliminations or 
reforms, that you and your colleagues have in mind. The budget, 
after all, is just the administration's ideas of where we can 
go to find these savings. And we will give the package that the 
Chairman requested, but we would welcome any additions and 
suggestions and look forward to working with you on it.
    On Social Security, Social Security is not fiscally sound 
as it is currently constituted. There is a huge unfunded 
liability out there which the system cannot now afford to pay. 
Fundamental reform is needed. Each year that we delay in 
pursuing fundamental reform adds to the cost of fixing the 
problem.
    The calculation is that the total unfunded liability on a 
present-value basis is over $10 trillion. That figure has to go 
up by 600 billion or more per year every year that we don't 
address the problem. So it just gets harder to close the gap 
each year that we let go by, even though many people find 
comfort from the fact that today's current retirees or near 
retirees will see no change at all.
    But for those in your generation, in your cohort, we do 
need to make a change. And one of the key changes that we 
should be making is a switch over to personal accounts which 
provide an opportunity for the beneficiary to keep more of 
their own money up front. Invest it in a safe and sound 
investment managed by professional managers in a secure way, 
which can grow much faster than Social Security now promises 
benefits, in a way that does not impose an inordinate financial 
burden on the Federal budget.
    When we move forward personal accounts, when you say you 
can keep some of your money that you are paying now in Social 
Security in your own personal account, what we are saying is 
the government is not going to owe you money later on that you 
are paying in, and therefore we are reducing our liability in 
the long run. We have to recognize that liability more up 
front, but we can do that in a way that we believe will not 
threaten our deficit goals in the short to medium term and will 
put this country in a much better fiscal position in the long 
run.
    Mr. Portman. Thank you, Mr. McHenry.
    Mr. Baird.
    Mr. Baird. Thank you, Mr. Chairman. I thank the gentleman. 
Yesterday at 3 a.m., I was at McChord Air Force Base, welcoming 
our soldiers home from Iraq and Afghanistan. It strikes me when 
we look at the budget and recall the testimony we heard last 
year, last year the budget was estimated to be $1 billion shy 
of the needs of current services for veterans. As I look at 
this budget on page 271, I see admittedly in some categories 
some increases, but in other categories real dollar cuts. What 
I don't see are adequate increases to provide for the increased 
enrollment of veterans into the system, inflation as adjusted 
for health care and the demands of our soldiers and their 
families as they come back from Iraq.
    Frankly, I have got to say that I think parts of this 
budget are dishonest, and I think some of it represents a 
betrayal of promises made to our soldiers.
    I, along with Congresswoman Darlene Hooley and many other 
Members of Congress, believe that as part of the supplemental 
appropriation of $80 billion, we should add at least 1.3 
billion immediately, not wait until 2006, but add it 
immediately to meet the needs of the returning soldiers and 
their families.
    I would sure like to be able to discuss that with the 
administration. If we can send $80 billion over there, we ought 
to be able to spend 1.5 or so here, so that when those soldiers 
come home with prostheses and with mental health challenges and 
the family readjustment issues, we could take care of them. Is 
that something we could work with you on as we look at the $80 
billion supplemental coming up?
    Mr. Bolten. I don't anticipate that that will be part of 
the $80 billion supplemental, but I am sure that Secretary 
Nicholson will be interested to engage with you on what the 
needs are in the veterans' community. We feel we are 
appropriately meeting those needs. I think you were out of the 
room when I put a chart up on the screen that showed that over 
the----
    Mr. Baird. I was present, but what I didn't see in the 
chart is a comparison of enrollment growth and inflation 
growth, medical inflation growth, vis-a-vis the portion you put 
up. I think there was something absent from the chart.
    Mr. Bolten. Well, we will try to provide you additional 
information. But I should say that Secretary Principi and now 
Secretary Nicholson are very proud of the quantity and quality, 
very importantly, of the care.
    Mr. Baird. My question isn't whether you are proud of it or 
not. I think if you run for office on the platform and the 
President runs for office on the platform that the veterans' 
benefits would see cuts in terms of benefits, I think there 
would have been a different outcome.
    Let me move to a couple of other issues.
    Mr. Bolten. Congressman, let me say we are not proposing 
cuts in veterans' services.
    Mr. Baird. In cuts in services? You are absolutely 
committed to providing current level of services to our 
veterans, including new enrollees and including adjustment for 
inflation.
    Mr. Bolten. Congressman, we--if you look at the budget, 
what you see there is increasing expenditures on veterans' 
health care.
    Mr. Baird. I didn't ask about veterans' expenditures, sir. 
I asked about benefits, which was a word you used. Are you 
making a commitment to this body and to the people of the 
United States that will there be no benefit or service cuts to 
our veterans?
    Mr. Bolten. We don't intend any in this budget. I will let 
Secretary Nicholson engage with you on what you think is 
needed. But what I think I will say is that we are confident 
that we are amply meeting the needs of today's----
    Mr. Baird. Let me not go to confidence. It is not a 
subjective process.
    Will you say to us here that if you adjust for inflation, 
additional enrollment and additional demands of the returning 
population from Iraq, Afghanistan and other theaters, this 
budget will not result in long waiting lists, will not result 
in increased costs of service to those people?
    Mr. Bolten. I can't predict how every piece of the budget 
will play out, but what I can tell you is we have amply met the 
needs of our veterans.
    Mr. Baird. Wait, we are rehashing turf.
    Let me bring up another matter, if I may. Could I bring up 
chart 3, Bush Budget Omits 10-year Cost. I would ask the 
gentleman to help us with this a little bit.
    As I look at this, I think there is a real cost that is 
absent. That, I think, we find on page 362 of your budget.
    Here is the question. If--and you can help us add to this 
possibly of the omitted costs. If we were to list how much 
borrowing we are doing from Social Security over the next 10 
years, under your budget, the President's budget, what would 
that amount be, borrowing from the trust fund?
    Mr. Bolten. I think you can probably do the arithmetic as 
quickly as I can. But the bottom of page 362 does show the off-
budget surplus that is being used for government expenditures, 
as it has been for many years.
    Mr. Baird. So correct me if I am wrong. I don't think it 
says it has been for many years. I see an increase in borrowing 
from $155 billion in 2004 to $252 billion in 2010. So I think 
we are adding $100 billion and borrowing from the Social 
Security Trust Fund even as we are claiming to cut the budget 
deficit in half, and that is the first 5 years.
    My guess is maybe that trend goes up. I may be wrong with 
that. It seems to me you are close to borrowing $1 trillion in 
the next 5 years alone, while saying you are cutting the budget 
deficit in half. Does that strike you as inconsistent?
    Mr. Bolten. No. The way the Federal accounts have always 
been kept is to keep account of what the government is taking 
in and spending out, which is what is reflected in those 
deficit numbers. Now, Social Security has been running a 
surplus. For many years the government has been spending that 
surplus, while putting aside, as an accounting mechanism, the 
obligations owed to retirees.
    One of the reasons why we needed to get Social Security 
costs under control is that sometime toward the end of the next 
decade that cash surplus will shift to deficit. As big as you 
saw those numbers going up, they are going down. That is why we 
need----
    Mr. Baird. Let me make two closing points if I may. First 
of all, we stopped borrowing from Social Security in the final 
years of the Clinton administration and actually began to pay 
back on that.
    Second of all, I think it would have been a different 
outcome--it might be a different reception in the public today. 
I said at the outset I think parts of this budget are 
dishonest.
    I would invite President Bush and yourself to travel around 
the country and say we will cut the deficit in half, and part 
of the way we are going to do that is to increase borrowing 
from Social Security from $150 billion to $250 billion every 
single year, over $2 trillion for the next decade. I think that 
would be an honest statement to the American people.
    I yield back my time.
    Mr. Portman. Mr. Mack for 5 minutes.
    Mr. Mack. Thank you, Mr. Chairman. Thank you, Mr. Bolten, 
for being here and for putting up with so many of us. I 
appreciate that very much.
    I guess I want to commend you on the principles that are 
laid out before us. That is, tax relief, cutting the deficit. 
And eliminating or reducing--reforming programs that aren't 
working. I think those are principles that the American people 
would understand and support.
    So although being a freshman member on this committee, and 
I haven't had a chance to look at every page in that budget, 
those are principles that I think are important. In fact, I 
think if you go back to when Congressman Lungren was here and 
Ronald Reagan, they talked about--just a little jab--they 
talked about tax cuts, they talked about stability in taxation 
so people can plan for the future, and they talked about 
reducing the deficit to not burden the future.
    Those are exactly what I see that the President is trying 
to move forward; that we are going to cut the deficit, that we 
are going to continue to have tax cuts so that we can put more 
and more people back to work, and then we are going to 
eliminate programs that don't work.
    I guess I am a little bit curious as to how others think 
and maybe 1 day I will have an opportunity to sit with them on 
a personal basis and find out.
    My question is this. Once, as I hope, that we make the tax 
cuts permanent, are there further tax cuts that could be made 
that will still have an effect of enhancing and growing the 
economy and creating more jobs?
    Mr. Bolten. Congressman, thank you for that statement. 
Undoubtedly there are. They are not contained in this budget. 
There are some extensions of existing tax cuts that are 
contained in this budget, but there are undoubtedly other ways 
that the Tax Code can be adjusted so that we promote economic 
growth.
    The President has called for fundamental tax reform. He has 
appointed an advisory panel that is to report to the Secretary 
of the Treasury by the end of July, their object being to put 
forward proposals designed to make the Tax Code fairer, 
simpler, and more pro-growth. There is plenty of room for 
improvement on all three counts.
    From the budget director standpoint, the most important of 
those is last, the pro-growth elements of the Tax Code. Even on 
a revenue-neutral basis, as the President has asked the panel 
to report back, even on a revenue-neutral basis there is an 
enormous number of improvements that I believe could be made in 
the Tax Code to promote growth in this economy. And I come back 
to the fundamental point that I have raised several times here: 
Our best fiscal tool is a growing economy. If we can do that 
additionally through the Tax Code, hurray for that.
    Mr. Mack. Thank you. Maybe--I will give you an opportunity 
to maybe reiterate what you have said earlier. Being near the 
end of the line, I think everybody has pretty much asked 
everything, that, you know, we are just repackaging at this 
point.
    If you could talk about the significance of the tax cuts on 
job creation and moving this economy from a recession back into 
where we are having the strong growth that we are having now.
    Mr. Bolten. I believe and I think most economists believe 
that the tax cuts deserve a large portion of the credit for the 
good recovery we have had over the last few years. There was a 
study done by the Treasury Department and the Council on 
Economic Advisors at the White House which concluded that the 
tax cuts are responsible for at least 3 million new jobs and 
about 3 and a half percentage points of gross domestic product 
growth in the last several years. That is tremendous, and I 
think that is one of the elements that should give people pause 
when they start talking about increasing taxes above the levels 
that we now have, because our growth is intimately tied to the 
level of taxation that we impose on the economy. A tax increase 
at this point or I would say any point in the foreseeable 
future would turn us in the wrong direction and might in fact 
turn us in the direction of a fiscal problem.
    Mr. Mack. We don't want to go back to the times where the 
tax policies that were such that created the recession. We want 
to continue to move forward. Thank you.
    Mr. Portman. Ms. McKinney.
    Ms. McKinney. Thank you, Mr. Chairman.
    Earlier, it was joked that the chairman might have had his 
priorities straight yesterday, but I think that remains to be 
seen with respect to this administration. The chairman 
mentioned job growth, home ownership and economic growth in his 
remarks. He likened our Nation's budget to our families' 
budget, and that is where I would like to begin today, with the 
families I represent. On home ownership, economic growth, the 
families in my neighborhood and in my district aren't feeling 
the robust economy that you seem to describe in your charts.
    Now the President recently met with some of the Members of 
the Congressional Black Caucus. He even remarked--I read that 
he used some of the CBC issues in his State of the Union 
address, and I would suspect that those issues have been 
reflected in this budget. It seemed to me that the President 
was trying to revive positive images of compassionate 
conservatism.
    I also recognize this administration would like us to 
believe that this budget will provide opportunity for all to 
experience this country's coming prosperity, but, sadly, that 
has not been the case in the past and is not the case today and 
won't be the case tomorrow. A significant chunk of the American 
people have been left behind, and I represent too many 
Americans that have been locked out and left behind.
    According to just about every reputable study, the 
disparity between black quality of life and white quality of 
life is not narrowing nearly as fast as we would like. In fact, 
according to Whole House United for a Fair Economy, the 
National Urban League reports on some indices the black/white 
disparities are worse now than they were at the time of the 
murder of Dr. Martin Luther King, Jr.
    The chairman mentioned home ownership in his opening 
remarks, but according to United for a Fair Economy, it will 
take 1,664 years to close the gap between blacks and whites in 
home ownership rates.
    Mr. Bolten, you call this an economic growth budget, but 
that growth must not leave a significant chunk of America 
behind. What in this budget will reverse the trends of 
increasing disparity in America? Not just that there is 
increasing income disparity overall in our country, but there 
is increasing racial disparity, in infant mortality, family 
wealth and, of course, home ownership. And, two, how can we be 
assured that your priorities include all Americans, that your 
principles insist on opportunity for all Americans, and that by 
your important measure of performance these glaring disparities 
and the trend they represent will be reversed in the budget you 
have submitted to Congress?
    Finally, real homeland security is not just the forward 
projection of one force. Homeland security is also family and 
neighborhood security and health care, education, veterans' 
care, income security and community vitality. Economic 
opportunity ought to mean for all of us, not just the haves and 
the have-mores, as the President described his base. And 
compassion recognizes that we are indeed our neighbor's 
keepers.
    I look forward to your responses on eliminating these 
disparities that I think also threaten our Nation's vital 
security.
    But, in addition, I also would like to mention in your 
testimony you have mentioned PART, Program Assessment Rating 
Tool. I would like to ask you, what is the Defense Department's 
PART score? Is defense spending subjected to PART? The DOD, 
according to the GAO, as you are fully aware, has lost $2.3 
trillion. So in the environment that you have suggested of 
increased defense on spending, obviously, the PART couldn't 
work.
    Thank you, Mr. Chairman.
    Mr. Bolten. Let me start with the last. We do PART defense 
programs. There are substantial savings to be achieved there. 
We are constantly trying to achieve them in an area where we 
spend a large part of our discretionary budget, and I think you 
will have an opportunity to review some of the PART scores and 
see how we are doing. We are trying to be as transparent as 
possible with the way we do our performance assessment ratings.
    Ms. McKinney. You will provide the DOD PART scores for all 
the DOD programs to us?
    Mr. Bolten. For all of those that have been PARTed so far, 
we have those available.
    Ms. McKinney. What percentage of the DOD programs have been 
PARTed?
    Mr. Bolten. I don't know specifically, but in dollar terms 
overall in the government we have PARTed about 60 percent of 
all programs, and I think the defense portion of that is about 
the same.
    Ms. McKinney. And with respect to income to racial 
disparities and your budget addressing those.
    Mr. Bolten. I am sure it was reflected in your conversation 
with the President, his deep concern about racial disparities 
in this country, and I think that is also reflected in a lot of 
his proposals.
    Ms. McKinney. Specifically, you talked about home 
ownership, and the statistic there is 1,664 years to close the 
home ownership gap. What is in your budget that is going to 
address these appalling disparities that in my opinion affect 
our national security and, in fact, homeland security?
    Mr. Bolten. There are proposals in there to promote home 
ownership to help people shift from subsidized public rental 
housing over to home ownership. I think you will see them 
reflected in the budget. The President has been very concerned 
about the home ownership gap. As of today----
    Ms. McKinney. The President didn't even know that the 
Voting Rights Act was going to expire in 2007.
    Mr. Bolten.--the rate of minority home ownership is at the 
highest it has ever been in this country. The gap is not 
closing rapidly enough to your satisfaction nor is it to the 
President's, and that is why the President's proposals are 
trying to close that gap more tightly. In the last couple of 
years, we have seen the highest rate of minority home ownership 
ever in the history of this country, and we are hopeful to see 
that go forward.
    Mr. Portman. Thank you for the full answer. We added a 
couple of minutes there; and, in order to get to everybody, we 
have to have to move on. Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman, I appreciate that.
    Being brand new to Congress and to this committee, you get 
some license to make some incredibly profound statements that 
everybody in the room knows have been made thousands of times. 
With that said and understanding that risk, your three criteria 
for deciding where to spend folks in the back of the room's 
money, for lack of a better phrase, the first one is does the 
program meet the Nation's priorities. The priorities, I think, 
ought to be set with a view toward the Constitution. What is 
the Federal role?
    Your second one says an appropriate Federal role could not 
be identified. I don't know that would separate those two. 
Those are the same in my mind.
    Ms. McKinney, I am not sure that home ownership is 
necessarily a Federal role in this instance. I feel a little 
different in that comment. As we look at what we are doing in 
government, we ought to try to decide on those things that make 
sense, Obviously, national defense and homeland security and 
those kinds of things. But let us pay particular emphasis next 
year when you hear that the idea of a proper Federal role gets 
a better, higher priority within the way the President brings 
up his budget.
    That said, another profound statement, we split your 
numbers and the numbers in the President's budget between 
Federal funds and trust funds. I am an accountant, CPA, by 
background; and I know that the genie is out of the bottle for 
this year's budget. But maybe with the budget process that we 
will go through--my own home budget or businesses that I have 
consulted with, one of the ways you keep that business viable 
is you don't spend more money than you have got.
    In the 2005 budget we are operating under right now, 
Federal funds revenues went up $128 billion. Spending went up 
$176 billion. The budget that you presented today, tax revenues 
are going up $79 billion, and spending is going up $83 billion. 
My thought would be let us keep it at $79 billion. Let us don't 
spend any more funds than we have got coming in.
    2006 is a tough year. It is only $4 billion. 2007, tax 
revenues are going up $115 billion, and spending is estimated 
to go up only $42 billion. Let us try to capture some of that 
in the 2007 budget and do something else with it like pay down 
the debt that everyone is concerned about.
    My colleague, Mr. Moore, talked about using the Social 
Security surpluses. I understand that it is taking money out of 
one pocket and put into the other when we use Social Security 
surpluses to fund current operations. Everyone on our side of 
the aisle thinks that we ought to be doing something about 
Social Security, and personalizing those accounts is one of 
those ideas.
    In the heartland of America, they don't understand this 
budget process. The rank and file folks in Texas, when they 
talk about 6.2 percent coming out of their check, it goes 
somewhere up here that should be safe for them.
    It is all about perception. We have Ward Smith telling us 
to use personal accounts and the abuse of lawsuit reform. I 
think we would make a great statement if you could look the 
public in the eye and say, you know, as a down payment--
whatever the transition costs are going to be, $10 trillion, 
whatever it is, as a down payment on that, we are going to take 
two numbers, either the total surplus, which over 5 years Mr. 
Baird talked about would add $1.4 trillion in surpluses or just 
the increase off the baseline of 05.
    The increase this year is almost $41 billion. Next 5 years, 
that is about $309 billion. That looks like, to the rank and 
file folks in west Texas, a down payment. We would borrow that 
money from the public instead of borrowing it from ourselves. 
It might make our sell a little easier on fixing Social 
Security if were we to make that cosmetic statement. Then we 
are going to set that aside.
    The last thing I will finish with, and you don't need to 
respond because my good friend, Mr. Henry Cuellar, has some 
profound things to say. Nancy Reagan started the Just Say No 
program for drugs. Spending money, other people's money, is a 
darn good aphrodisiac drug. Let us just say no for the next 3 
years or 2 years. Let's say no to new programs, the new 
programs that are in this--throughout this budget, got great 
supporters and great ideas behind it, but they are 6, 8, 10 
months off.
    We are living without them today. Let us figure out a way 
we can say no to new programs and get the existing programs in 
order as kind of a guideline not only for this year's budget 
but maybe over the next couple of years while the President has 
time to do that and say no to new programs. As worthy as they 
may be, as honorable as they may be and the needs they may 
meet, they may not meet a role that the Federal Government 
ought to be funding.
    With that, I yield back.
    Mr. Portman. Thank you, Mr. Conaway.
    Mr. Cuellar.
    Mr. Cuellar. Thank you, Mr. Chairman.
    Mr. Bolten, let me direct your attention to the budget 
process reform that the administration is proposing. I agree 
that budgetary tools should be used to make government more 
efficient, more effective, more accountable. The question that 
arises, of course, when you look at the budgetary tools, what 
type of tools you are going to use, who and how are they going 
to be used, whether by the legislature or the executive branch.
    When I look at the three criteria that the administration 
is proposing, they look awfully familiar. I served in the State 
legislature budgetary committee up there 10 years, and 6 out of 
those years I got to work with the then Governor Bush in that 
particular time. And as I look at this criteria--it is pretty 
much, I guess, a compliment to Texas--it is pretty much a 
blueprint of what we used there.
    But I feel there are some steps that are missing. Because, 
again, we have to have a government that is efficient, 
effective and accountable, but still you have to have that 
compassion because you have to deal with the people's factor 
when you deal with the budget.
    I have two requests. The first request, and I believe it 
was the chairman that made this request when he talked about 
getting some information on those 150 programs. What I would 
ask you to do, as you provide that information, if you can 
provide this information using your three criteria that you 
listed here. That is, when you talk about the 150 programs that 
are proposed to be cut, one, can you provide information to say 
how that particular program doesn't meet the Nation's priority? 
Number two, why is it that that program's mission does not meet 
the appropriate Federal role? And on top of that, list the 
Federal roles that you feel that the administration feels that 
we should be following, the different Federal roles. Finally, 
if you could also provide the performance measures for those 
particular programs that are slated to be cut, that is, the 150 
programs, request number one.
    Request No. 2, who is your lead staff person on performance 
budgeting?
    Mr. Bolten. Deputy Director for Management Clay Johnson is 
the leader for the government on the whole performance 
evaluation process.
    Mr. Cuellar. Could he meet with me on a one-to-one basis so 
we can go over some of these steps?
    Because I like some of the steps, but I think in my 
opinion, in my humble opinion, I think there are a couple of 
steps missing, and I would like to meet with him to talk about 
some of those steps. Because, again, I feel very strongly that, 
for example, there is a suggestion of a sunset commission. I 
agree with that. We have used that successfully for many years.
    On the results commission, I would like to go into some 
details. Because, again, I feel that it belongs to the 
legislature. Congress should provide an oversight, and I feel 
that we should do a lot more on the oversight and especially 
when we look at the performance of the different agencies.
    So there are some steps and some details that I would like 
to go over with you all, and if he has time this week, I would 
like to meet with him this week, if possible.
    Mr. Bolten. I am sure Mr. Johnson would be happy to make 
time for a fellow Texan.
    Mr. Cuellar. From an appointment process to a budgetary 
process, that is a good promotion.
    Mr. Bolten. He is a fine manager. I think you will enjoy 
dealing with him.
    Mr. Cuellar. Mr. Chairman, I yield back my 10 minutes and 7 
seconds.
    Chairman Nussle [presiding]. Mr. Cuellar, if I could, when 
you are done with your investigation and discussion, I would 
like to visit with you and your staff. This may be worth a 
separate hearing on this entire topic where we look at how we 
can make this a more manageable and consistent process within 
the legislative calendar. There may be some other things we 
need to look at, but this may be worth its own hearing to talk 
about a results-based management approach to our program.
    Mr. Cuellar. Mr. Chairman, I would like to do that. If it 
is OK, I would like to meet with the minority staff and the 
majority staff together when we meet with Mr. Johnson, have 
both staff there.
    Chairman Nussle. I think that would be helpful.
    Mr. McCotter for 5 minutes.
    Mr. McCotter. Thank you, Mr. Chairman.
    First, I would like to point out the irony is not lost upon 
me that we are having a budget hearing on Fat Tuesday. I hope 
everybody gets their paczkis later.
    Three questions, and I will try to keep them succinct.
    The first thing is with the Manufacturing Extension 
Partnership Program. I represent a district that borders the 
City of Detroit. In World War II, Detroit was known as the 
arsenal of democracy. Now, during the war on terror, much of 
that arsenal has been disarmed as our manufacturing base 
continues to erode.
    In the proposed 50 percent reduction for the manufacturing 
extension partnership, it is said that there are new operating 
environments in which these MEPs find themselves, that they 
should be more self-sufficient. As the role of these MEPs is to 
help small manufacturers, the new environment they find 
themselves in in my district is that there are fewer people to 
engage in partnerships with because these businesses are 
disappearing and likely never to return. So I would like an 
estimate of what, in the administration's mind, the new 
operating environment is, if my assessment of it is incorrect.
    Secondly, more of a philosophical question, is that we have 
an increase in the screening security user fee or some would 
call it a tax. It strikes me that the protection of life and 
limb is an essential function of government and that the 
government should not ask you to pay a, quote, unquote, user 
fee for the protection of your life and limb, let alone your 
property. And, as we learned on 9/11, it is not a user-specific 
fee, because the airplanes can be used to kill Americans in 
several capacities, not just those utilizing it.
    Furthermore, my concern, especially because Northwest 
Airlines and other airlines form a hub in my district and just 
outside of it, is that the impact of a tax increase according 
to $1.5 billion or a user fee seems a moot point because the 
impact will be extremely detrimental upon any industry and any 
business utilizing that industry in one way, shape or form and 
the jobs related to it. I wonder if that was factored in.
    Thirdly, I am curious to know what the President's initial 
proposals or pronunciations on the Social Security reform is, 
how much of his current position is reflected in the budget.
    Thank you.
    Mr. Bolten. Thank you, Congressman.
    On the MEP program, that is one of the programs you will 
see in the book of the 150 that we present to you shortly, and 
you will see a full justification for that there. Our judgment 
has been that, while it has been a good and useful program for 
many companies, for many manufacturers, they can get many of 
the same services in the private market or elsewhere in their 
communities and that, in the current budget environment, that 
is not where we need to put our largest resources. We still do 
have money in the budget for the MEP program, but we are trying 
to bring that program down and focus on some of the other 
priorities. It is one of the tough decisions in the budget. You 
will see 150 more as you look through there, but these are 
decisions that need to be made if we are going to be using the 
taxpayers' dollar effectively.
    Second, on the TSA user fee, we really have two choices, 
that we can either impose the cost of passenger and baggage 
screening on the people who are flying on the airplanes or we 
can impose the cost on everybody whether they are flying on 
airplanes or not. Where we have the opportunity to put the cost 
on where the service is being used, my judgment, the right 
policy is usually to put it there, which is why we have made 
the proposal that we have, knowing that it is likely to be 
fairly controversial.
    Third and finally, on the budget presentation on Social 
Security, the formal printed documents you have, Congressman, 
do not reflect any transition financing elements from Social 
Security. They went to print before the President's initial 
elements of a proposal were announced last week. But I did show 
in some of the charts that I presented earlier today what the 
deficit effect we would see of that, and I expect that as more 
details of the President's plan come out we will give you 
updated spending and deficit charts to show you what the 
effects would be.
    Chairman Nussle. Mr. Cooper stuck around in order to be 
able to ask a final question.
    Mr. Cooper. Thank you, Mr. Chairman.
    Mr. Bolten, I am worried you are going to be around for 
awhile with this administration, so I want to prick your 
conscience on two issues.
    Mr. Bolten. Are you worried that the administration is 
going to be around or that I am going to be around?
    Mr. Cooper. I am confident they will be.
    First, Pamela Olson testified to this committee last year--
pretty remarkable document. She is a first-rate former civil 
servant and a tax expert. She told us, ``in recent years, the 
Internal Revenue Code has been amended repeatedly with 
provisions intended to encourage or reward or reduce the costs 
of certain favored activities through exclusions, deductions, 
exemptions, special rates and credits.'' Here is the kicker: 
``While the goals of some of the provisions may be admirable, 
they represent uncapped, unverified and, in large measure, 
unverifiable indirect spending programs.'' In other words, the 
worst form of government spending: unmeasurable, 
uncontrollable. And it is barely addressed in our efforts, 
yours or anyone's. So I would hope in future years you could 
take a look at these, because she is quite an expert on these 
topics.
    Another topic is using the Social Security and Medicare 
Trust Funds to hide the true size of the deficit. You know, the 
good stuff in financial documents is always at the end. And you 
discussed with Congressman Baird at page 362 when it says, the 
real deficit in 2005 isn't $427 billion, it is $589 billion, 
unless you use Social Security and Medicare Trust Funds to hide 
the size of it. And the outlook seems to be not a deficit next 
year of $390 but $560. So I think it is quite a problem to use 
the Social Security deficit to--Social Security surplus to hide 
the size of the deficit.
    I want to focus on an editorial in today's Financial Times. 
It is kind of interesting how the leading financial newspapers 
review our handiwork. They say here, in the concluding 
paragraph, a real fiscal conservative would seek to balance the 
budget excluding these trust funds over the economic cycle. 
Alas, Mr. Bush is not such a man. Our President is not such a 
man. And I am not pointing the blame at him, everyone is to 
blame, but that is one of the central challenges of our 
generation and we are not rising to it today.
    Your former boss at Goldman Sachs, or one of them, was 
quoted today as saying, if you are looking at this from abroad, 
you are saying to yourself that, over the last 3 years, there 
has been an absence of any budget discipline in Washington. An 
absence of any budget discipline in Washington. And this is a 
government where the Republicans control the White House and 
the Republicans control the Congress. And let me fault 
Democrats, too. But, together, we have not gotten the job done 
for the country. So hopefully in future months and years we can 
do a better job.
    Thank you.
    Chairman Nussle. Could I borrow that Financial Times for 
just a second? I was noticing that you read the last part. It 
is interesting because the first sentence says, Bush's spending 
cuts are real but far too narrowly focused. So it sounds as 
though they want the administration to go even further, as 
opposed to just suggesting that they were being gratuitously--
providing criticism gratuitously.
    I would ask the question, since you didn't, would the 
administration be open to reforms to the earned income tax 
credit, which is what Pamela Olson was focusing on when she 
talked about how we have spending within tax programs that are 
unverifiable and out of control. If the Congress would consider 
reforming the earned income tax credit, would the 
administration be open to that or is that something 
contemplated by the administration's budget proposal?
    Mr. Bolten. Mr. Chairman, I anticipate in response to that 
question--and, Mr. Cooper, I anticipate that all subjects will 
be on the table for fundamental tax reform, which I am glad to 
see Mr. Cooper has enthusiasm for it. I think it will come in 
handy in the months ahead. Because there is a big task ahead of 
us in making the Tax Code simpler, fairer and more pro growth; 
and going after some of the types of provisions and goals that 
Pamela Olson was talking about is a good place to start.
    Chairman Nussle. And last but not least, let me emphasize, 
your former boss has talked about an absence of discipline with 
regard to spending in Washington. Mr. Spratt suggested that 
most of this increase in spending has been in homeland security 
and national defense. I just asked the question or I lament the 
proposal that was made at the beginning of the hearing. I mean, 
I would love to be able to claim victory and say we balanced 
the budget. I would love to be able to say that we did it by 
tomorrow. I lament, like many people do, wasn't it nice, the 
moments that we had a surplus?
    But the surplus didn't protect us. The surplus wasn't 
growing the economy. The surplus wasn't protecting our borders. 
The surplus didn't prevent 9/11 from occurring. It didn't 
provide us from having to go and defend our freedom around the 
world.
    So it is great to be able to say at the bottom line it is 
in surplus. But what does it get you if your country isn't 
meeting its challenges, defending itself, and that we have an 
economic engine that is creating jobs and opportunities for the 
future?
    So I, like everybody, would love to be able to go home and 
claim victory that we balanced the budget. Because that is the 
most important Holy Grail, but we have to balance it in a way 
that not only talks about the bottom line but talks about a 
balance of priorities. And I believe what the President has 
done in putting this budget forward today that says balance 
means protecting the country; balance means growing the 
economy; balance means making sure we have good intelligence to 
make decisions on our foreign policy; balance means instead of 
taking another dollar from the taxpayer for a government 
program for a role that may or may not be the proper role of 
the Federal Government--before we take one more dollar out of 
your pocket, let us make sure that all of the dollars that are 
already out here are spent wisely.
    That is why I wanted to join with the gentleman from Texas 
when he wanted to talk about the performance of these programs. 
I call it weeding the garden. Always fun to plant the garden, 
but no one ever wants to go in and pull the weeds. We have got 
a lot of weeds in there, and they need pulling. This 
President's budget has begun that process of pulling the weeds. 
It is always tough. It is the toughest work in Washington, to 
go and pull weeds, but we have to start that process.
    Director Bolten, you set this up as well as possible here 
today in beginning this discussion. I wish you all of Godspeed 
in the Senate tomorrow as you carry this message to the other 
body, and we look forward to working with you as we craft the 
budget proposal. You have been here for 4 hours today, and we 
greatly appreciate your willingness to sit here and have this 
conversation with us. Thank you.
    Mr. Bolten. Been a privilege. Thank you.
    Chairman Nussle. If there is nothing further to come before 
the committee, we stand adjourned.
    [Whereupon, at 2:25 p.m., the committee was adjourned.]

                                  
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