[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                            THE PRESIDENT'S
                        FISCAL YEAR 2008 BUDGET

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, FEBRUARY 6, 2007

                               __________

                            Serial No. 110-4

                               __________

           Printed for the use of the Committee on the Budget


                       Available on the Internet:
       http://www.gpoaccess.gov/congress/house/budget/index.html


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
33-751                      WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                        COMMITTEE ON THE BUDGET


             JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut,        PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas                    Ranking Minority Member
LOIS CAPPS, California               J. GRESHAM BARRETT, South Carolina
JIM COOPER, Tennessee                JO BONNER, Alabama
THOMAS H. ALLEN, Maine               SCOTT GARRETT, New Jersey
ALLYSON Y. SCHWARTZ, Pennsylvania    THADDEUS G. McCOTTER, Michigan
MARCY KAPTUR, Ohio                   MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California           JEB HENSARLING, Texas
LLOYD DOGGETT, Texas                 DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon              MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas               PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida                  CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts     K. MICHAEL CONAWAY, Texas
BETTY SUTTON, Ohio                   JOHN CAMPBELL, California
ROBERT E. ANDREWS, New Jersey        PATRICK J. TIBERI, Ohio
ROBERT C. ``BOBBY'' SCOTT, Virginia  JON C. PORTER, Nevada
BOB ETHERIDGE, North Carolina        RODNEY ALEXANDER, Louisiana
DARLENE HOOLEY, Oregon               ADRIAN SMITH, Nebraska
BRIAN BAIRD, Washington
DENNIS MOORE, Kansas
TIMOTHY H. BISHOP, New York

                           Professional Staff

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


                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, February 6, 2007.................     1
Statement of:
    Hon. John M. Spratt, Jr., Chairman, House Committee on the 
      Budget.....................................................     1
    Hon. Paul Ryan, a Representative in Congress from the State 
      of Wisconsin...............................................     3
    Hon. Robert J. Portman, Director, Office of Management and 
      Budget.....................................................     5
        Responses to Congresswoman DeLauro's questions...........    29
        Responses to Congressman Berry's questions...............    50
        Response to Congressman Lungren's questions..............    57
        Response to Congressman Allen's questions................    79
        Response to Congresswoman Kaptur's questions.............    79
Prepared statement of:
    Mr. Portman..................................................    11
    Hon. James P. McGovern, a Representative in Congress from the 
      State of Massachusetts.....................................    74
Additional statements submitted:
    The Interreligious Working Group on Domestic Human Needs.....    75
    Jewish Council for Public Affairs............................    77
    Network, a National Catholic Social Justice Lobby............    78


                THE PRESIDENT'S FISCAL YEAR 2008 BUDGET

                              ----------                              


                       TUESDAY, FEBRUARY 6, 2007

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:00 a.m., in room 
210, Cannon House Office Building, Hon. John M. Spratt, Jr. 
(Chairman of the committee) presiding.
    Present: Representatives Spratt, Ryan, DeLauro, Barrett, 
Cooper, Garrett, Allen, Hensarling, Becerra, Diaz-Balart, 
Doggett, Tiberi, Berry, Smith, Boyd, Lungren, Sutton, Bonner, 
Andrews, Bishop, Etheridge, and Edwards.
    Chairman Spratt. We meet today to receive the President's 
budget. And the bearer of that budget is an old colleague who 
has served here in the House with us, sat on this Committee 
with us, and is not only respected but well like by everyone in 
this Committee room, indeed, on both sides of the aisle of the 
House of Representatives. We do not always agree with the 
budget decisions made by the Bush administration but the 
decision to hire Rob Portman as the Director of the Office of 
Management and Budget was a splendid decision. We look forward 
to working with you. [Applause]
    We honestly welcome you and look forward to working with 
you not just today but over the rest of this year and into the 
future. Hopefully in a search for common ground, so that we can 
put the budget back in the black, back in balance where it 
should be, particularly given the situation we found ourselves 
in American history where the baby boomers are about to retire. 
We should not be incurring, we all agree, the substantial 
deficits that we are today.
    I have to remind you that President Bush inherited a budget 
that was in surplus. A surplus by his own count by $5.6 
trillion from 2002 to 2011. But by the end of 2002 that surplus 
was gone, replaced by deficits as far as our forecasters could 
see. The budget for 2008 acknowledges that this 
administration's deficits will not be restored to balance, at 
least on their watch. It will be in 2012 according to these 
projections. We have our doubts about that.
    The President's budget does reach balance on the far 
horizon, 2012. But we think that is unrealistic for several 
reasons that we hope you will address in your testimony today. 
First of all, there is no fix in your budget for the 
alternative minimum tax after 2007. Now that is a convenient 
assumption, because it generates about $1 trillion in extra 
revenues. But it is also an unlikely assumption because it 
means that there will be about 39 million taxpayers paying the 
extra $1 trillion. Thirty-nine million as opposed to about five 
or six million today, and we think that is politically unlikely 
for you as Republicans and for us as Democrats to allow to 
happen.
    There is a major difference between OMB, your shop, and 
CBO, our shop, in projecting revenues. OMB assumes that 
revenues will continue to grow at seven percent per year. Now, 
CBO is optimistic. They assume that revenue growth will be 5.8 
percent per year. The different is slight, 1.2 percent of GDP, 
but it lowers the deficit by $155 billion. It affects the 
deficit by that much, the difference between you and CBO in 
your revenue assumptions alone affect the deficit by $155 
billion in the target year 2012.
    We have found in your budget some big hits on healthcare 
entitlements: $252 billion in Medicare cuts; $29 billion in 
Medicaid cuts; and we think too little funding for SCHIP, the 
State Children's Health Insurance Program, to be renewed and 
over the next ten years provide the minimal coverage it 
provides for some four million children. We doubt seriously 
that there is enough provision made for all of the existing 
children to be covered, and we think really SCHIP should be 
reaching out to include more children.
    There is a big increase, however, in defense spending to 
$643 billion. That includes a supplemental of $141 billion for 
2008 and it is accompanied for a supplemental of $163 billion 
for 2007. But in 2009, after having a supplemental of $141 
billion one year and $170 billion the previous year, in 2009 
the supplemental for war costs drops to $50 billion and then it 
disappears. Would that it was so, we hope that it happens. But 
we do not think that it is realistic budgeting to assume that 
it drops precipitously from $141 billion to $170 billion to $50 
billion to zero in ten, eleven and twelve.
    You are proud of the fact that there are no tax increases 
in this budget, and I think we should all try to minimize taxes 
on the American public. But there are some user fees, taxes by 
another name. Fees for everything ranging from veterans' 
healthcare to USDA meat inspection. Veterans' healthcare alone, 
the fees you would charge for things like enrollment at 
veterans' hospitals, come to $4.9 billion, not a small item 
over a period of ten years. Meat inspections have been around 
the track repeatedly, like most of these fee requests, and have 
yet to make it to the finish line. So we think it is probably 
fooling yourselves if you think that these fees are going to be 
suddenly accepted this year when they have been rejected in 
previous years.
    There are significant constraints on discretionary 
spending. Now, this strikes us as a bit odd because the source 
of the deficit problem is not discretionary spending, non-
defense discretionary spending. It has not been growing. Today 
it is about 3.6 percent of GDP. It is not the source of today's 
deficit. And a little, a near freeze, which is what you are 
providing. I think you are providing a one percent increase. It 
leaves little funding for initiatives and programs that we 
think are important, like education.
    For the third time in three years this administration is 
requesting a cut in education from $57.5 billion to $56 
billion, a $1.5 billion cut. You may say that is not much. You 
may say, ``We have got to cut spending somewhere and we have 
got to tackle the entitlements.'' We say that the one way to 
make the entitlements more affordable is to make our people 
more productive. And the answer to that is education, job 
training, employment services, particularly in a world of free 
trade that we find ourselves in today. And yet that function, 
Function 500 which goes to education and job training and 
related activities, that function is being cut by $4 billion. 
We find that hard to believe in the face of challenges that we 
have as a country.
    Today is chilly. I got up early with Mr. Ryan, and we went 
and were on C-SPAN. It was cold coming to work. LIHEAP is cut 
by $400 million. We do not see how you can support that at a 
point in time when fuel is so expensive.
    So even with these assumptions though, because as I have 
said you are squeezing a turnip, you can only get so much blood 
out of it, we find the results that you claim unconvincing. And 
as one indication, and of what is happening to the budget as a 
whole, when you look at debt accumulation, the bottom line on 
the back of the envelope over the next several years, if you 
could put up Chart A please. As you will notice Mr. Portman, 
when President Bush came to office the national debt, the gross 
national debt, was $5.7 trillion. That has grown by $3 trillion 
over the last six years to $8.7 trillion today. The debt added 
so far, therefore, is $3 trillion on the watch of this 
administration. The debt that is projected at the end of this 
period of time is $9.5 trillion, based upon the on budget 
deficits that this budget shows, which are about $450 billion a 
year. Add that up and it comes to almost $4 trillion over the 
tenure of this administration, debt service.
    So if we are skeptical it is because we are looking at the 
past performance of the administration, not on your watch, but 
on the President's watch, which has accumulated this mountain 
of debt. The consequences are that net interest has grown from 
$171 billion in the first full fiscal year of the Bush 
administration to $261 billion this year, nearly $100 billion 
that could have been used for other purposes that is not there. 
And when we talk about entitlements, tackling entitlements, we 
think this one has to be one away with first. Because this is a 
truly obligatory item. You can cut Social Security, you can cut 
Medicare, you can adjust them, shim them to fit in the budget. 
But debt service has to be paid or our credit will collapse. So 
we think that this is the first order of business. Before we 
move onto the other entitlements, this has to be dealt with.
    All of these questions are in this period of vigorous 
debate. We look forward to working with you. We hope that we 
can find common ground, but we also find that the differences 
between us are substantial and that is what we would like to 
discuss today.
    Once again, thank you for coming. Thank you for your 
responsiveness. We look forward to your testimony. But first, 
Mr. Ryan would like to make a statement.
    Mr. Ryan. I thank the gentleman from South Carolina. I want 
to just recognize Rob, and welcome to the Committee, former 
Vice Chair of the Committee. And I just want to tell my friend 
from South Carolina, if you think this is cold you ought to 
come back to Wisconsin with me. It was fourteen below zero when 
I got on the plane yesterday, wind chill about negative thirty-
five, so we maybe ought to do one of these meetings back there.
    As always, there will be specific proposals in the 
President's budget that members are going to agree and disagree 
with. We need to have those discussions. And these are the 
critically important decisions and it is our job to make them. 
But this budget lays down some key markers that I 
wholeheartedly support. Number one, the President balances the 
budget without raising taxes. This budget maintains the 
successful pro-growth policies that have fueled the solid, 
sustained economic expansion that has created more than seven 
million new jobs, boosted federal revenues, driven down the 
deficit, and put us on the path to balance. We have seen double 
digit growth in revenues in the past few years, and we are now 
collecting more in taxes as a share of the economy than the 
average of the past forty years. Even CBO, which tends to be 
conservative about revenue estimates, has raised its projection 
of tax receipts for the next two years. Simply put, our budget 
challenge is not that working Americans are sending us too 
little of their hard earned money. It is that the federal 
government is spending too much of it, too fast, to be 
sustained and that is particularly true of our entitlement 
programs.
    In the past two weeks this Committee has had very good 
meetings that the Chairman set forth where we have heard from 
the Comptroller General and the CBO Director, who clearly told 
us that these programs must be reformed in order to survive, 
that they are simply unsustainable as currently structured. And 
this is particularly true of social security, Medicare, and 
Medicaid. If we fail to act in this Committee, these programs 
will impose a crushing burden on both the budget and the 
economy, and will ultimately fail the very people that they are 
intended to help. I appreciate that the President has begun to 
address this in his budget. Congress must also address it in 
ours.
    The President also included several recommendations for 
reforming the way the budget works by making the process more 
transparent and more accountable. This is something we can do 
here in this Committee, hopefully in a bipartisan way. He has 
included the house-passed version of the line item veto that 
members here have worked on, Mr. Cooper, Mr. Cuellar who was 
here before worked on it. He has also incorporated some 
worthwhile earmark reforms as well, which the majority has done 
a good job in bringing forward.
    Finally, I will note that this budget for the first time 
includes the full estimated cost of the War in fiscal year 
2008. And I think that is a testament to the fact that Rob 
Portman is now the Budget Directory. Clearly, this is a central 
issue that Congress will debate this year and we need to know 
what we are dealing with. So it is immensely helpful that these 
costs are included up front rather than later on in 
supplemental requests, and we want to compliment you on this 
new budget transparency.
    In short, critics have tried to dismiss the President's 
budget, in fact before it was even submitted, claiming that it 
rests on rosy scenarios or fuzzy math, that it either does not 
spend enough money or it spends too little, that it is not 
bipartisan enough, that it cuts Medicare, Medicaid, things like 
that. Look, let us just make one thing clear. It does not cut 
entitlements. This saves $96 billion as the proposal. But what 
that means is Medicare, Medicaid, social security, will spend 
more money next year than they spent the year before, more 
money the year after that, and more money there on after. So we 
need to make sure that we really address these issues in a 
truthful way. That when it does actually reduce spending that 
is a cut. But if it increases spending at a slightly lower rate 
that is not a cut.
    So I think it is important that we keep our language clear 
and realistic so that we can come together to solve these 
problems. It is my hope that this Committee will use this 
budget as a starting point, then take the lead and work in a 
bipartisan way to craft the best possible plan to meet our 
nation's needs both in the short run and the long term. I thank 
the Chairman for yielding, and I am just happy to see Director 
Portman here, and welcome Rob.
    Chairman Spratt. Mr. Portman, once again welcome. Before 
turning it over to you though let me ask for a unanimous 
consent that your statement be made part of the record. You can 
summarize as you please. And also I ask for unanimous consent 
for any member who wishes to file a statement, an opening 
statement.
    With that accomplished, Mr. Portman welcome again. The 
floor is yours.

   STATEMENT OF HON. ROBERT J. PORTMAN, DIRECTOR, OFFICE OF 
                     MANAGEMENT AND BUDGET

    Mr. Portman. I will attempt to summarize some of the 
statement that you have before you. First, it is good to be 
back here in the hearing room. I must say, I am not sure I like 
being on this side of the witness table. But it is good to see 
a lot of good friends and former colleagues. I appreciate your 
opening statement, Mr. Chairman, and I hope to have the 
opportunity to address each of those issues that you raised 
during the course of the hearing, some of which I will address 
now.
    I am here before the Committee today to discuss, as you 
say, the President's fiscal year 2008 five-year budget 
proposal. And we have good news for the American people. This 
budget achieves balance, reducing the deficit every year, while 
meeting our nation's priorities. Mr. Chairman and Mr. Ryan, I 
have had a number of conversations with each of you about what 
you are looking for in the President's budget this year and how 
we need to work together to achieve balance.
    I hope you will appreciate some of the changes you see 
reflected in this budget. I hope you will appreciate that 
instead of painting a rosy scenario on revenues to get to 
balance we actually take quite a cautious approach. And I will 
address that in a moment. I hope you will take note that we 
have responded to congressional concerns by showing more war 
costs. For the first time we have included these war 
supplementals as part of the budget in a transparent way. And 
incidentally, all of those war costs are included in the 
calculation of reduced deficits and a balanced budget by 2012. 
I hope you will see that we have changed our projections from 
past year's from a freeze or a cut to include a slight increase 
in non-security, discretionary spending throughout the budget 
window, incidentally consistent with what Congress and 
President have done in the past three years including this 
year. You will also see that we have eliminated some of the 
policies that show budget savings but are unlikely to 
materialize because of congressional opposition. One example 
there, Mr. Chairman, would be one that you all have raised with 
me which is the TSA fees.
    I have had many conversations with Republicans and 
Democrats on this Committee about the issue of the 
unsustainable growth in our entitlements, which is the biggest 
budget challenge we face as a country. This includes important 
programs such as Medicare, Medicaid, and social security. I 
will address this further in a moment, but the progress we are 
making on getting our fiscal house in order short term must not 
distract us from this longer term challenge. Both Mr. Ryan and 
Mr. Spratt addressed that in their opening comments. In this 
budget, we have proposed sensible reforms, primarily in 
Medicare, that are less than a one percent reduction in the 
annual rate of growth, but that do represent an important first 
step in beginning to reduce the unsustainable growth in these 
important programs.
    While restraining spending over all, the President's budget 
also provides new resources for key priorities. Mr. Spratt has 
talked about it increases funding for our national security to 
combat terrorism and protect the homeland. It includes new 
policies to address issues of concern to America's families, 
including educating our children, access to affordable 
healthcare, and reducing energy costs.
    On the whole, we have attempted to give you a credible and 
more realistic plan to maximize our chances of working 
together, as Mr. Spratt has talked about, to achieve balance. 
Over the past two years, we have worked together to reduce the 
deficit by $165 billion. That is a fact. We have been able to 
make progress for two primary reasons. First, because we have 
been blessed with a strong economy that has generated record 
revenues, and second because we have done a better job 
restraining spending, especially keeping non-security spending 
under inflation for the past three years.
    It is exactly these elements, the solid economy and 
reasonable restraint on spending, that can now lead to balance. 
As you will see from this first chart, our budget reduces 
deficits every year and results in a surplus in 2012. In fiscal 
year 2007, as you see, we have projected that the deficit will 
decline to $244 billion. Incidentally, that is a reduction of 
$95 billion since our last estimate in July of 2006. The 
deficit in 2008 falls again to $239 billion. As you will see 
from this chart, the projected fiscal year 2008 deficit is 1.6 
percent as a share of our economy, which is really the key 
measurement of the deficit because it shows the impact of 
government borrowing on economic activity. This projected 
fiscal year 2008 deficit is lower than eighteen of the past 
twenty-five years as a percent of our economy. The deficit then 
continues to decline each year, both in nominal terms and as a 
percent of the economy, until we reach a budget surplus, as you 
will see, of $61 billion in 2012.
    You will recall that three years ago President Bush set out 
a goal of cutting the federal budget deficit in half in five 
years, from its projected peak in 2004. At that time, many 
expressed skepticism this goal could be met. But it was 
actually achieved last September, three years ahead of 
schedule. We will now build on that success and work with you 
to balance the budget within five years.
    To keep our economy vibrant, we continue pro-growth 
policies that have helped to fuel this robust economy. The 2008 
budget continues to support growth, innovation, and investment 
by making permanent the President's tax relief which would 
otherwise expire in 2010. As you can see from this next chart, 
since the tax relief took full effect in 2003 we have seen 
strong and steady job growth with the creation of more than 7.4 
million new jobs. We have also seen a dramatic increase in 
business investment. Productivity is strong. Paychecks are now 
growing. After 2003, the economy not only strengthened but 
federal revenues surged, hitting record levels over the past 
two years.
    The President's 2008 budget uses five-year economic 
projections that are in line with the forecasts by outside 
experts. As you will see from this chart, we assume GDP growth 
will average about three percent over the budget window, 
closely tracking the forecasts of the blue chip outside 
forecasters. This year, incidentally, our 2.7 percent forecast 
is now below most outside forecasts and certainly below market 
expectations.
    As you will see from the next chart, with solid economic 
growth our total receipts are now slightly above the historical 
average of 18.3 percent as a share of the economy. And we 
project these receipts would remain, incidentally, at or above 
the historical average for the entire five-year period.
    We have what I would term a cautious revenue forecast for 
this fiscal year and going forward. We forecast revenue growth 
will be 5.5 percent in fiscal year 2007, and average 5.4 
percent through 2012. Mr. Spratt put out some other numbers a 
moment ago. I think that might be some baseline numbers. But 
when you look at our budget, Mr. Spratt, including our policies 
it is actually not a seven percent growth it is 5.4 over the 
five-year period. You said that compares to 5.6 at CBO. If that 
is the case then we are slightly below where CBO would be. This 
5.4 percent estimate over the five-year period is below the 
forty-year average, which is 7.6 percent incidentally. And it 
is well below the dramatic 11.8 percent we had last year. And 
well below the 14.5 percent growth we had the year before. In 
fact, as members of this Committee know, it is below the actual 
first quarter results for this fiscal year already in, which 
are 8.2 percent over the same period of last year.
    So, as in the past, our revenue projections are produced by 
the career professionals at the Office of Tax Analysis at the 
Department of Treasury. We choose to use them. We are not 
statutorily required to do so, but we have chosen to. And I 
will tell you, Mr. Chairman, and I will tell the Committee this 
morning, as was the case in the past two years we may well find 
that our revenue projections are low. They were about half what 
they ended up being last year, in our projection of six percent 
and actual of 11.8 percent. So, I just want to warn you now 
because I may be back here in the summer with a mid-session 
review and, again, we may see a decline in the deficit as we 
have seen in the last couple years. And I do not want you to 
think that we are doing anything other than depending on these 
career professionals. But the fact is in the first quarter, we 
are at 8.2 percent and our projection is 5.5 percent. So you 
should know that. Incidentally, in the next month, which is 
January, we just got in and we are four billion above where we 
thought we would be. So I think these projections are actually 
quite cautious.
    Even with a cautious forecast on revenues, this budget 
demonstrates that we can achieve balance by 2012 and do so 
without raising taxes. In addition we have plans to more 
effectively and efficiently collect the taxes owed. Our budget 
helps close the tax gap in two ways. First, we improve the 
effectiveness of IRS' activities with a $410 million package of 
new initiatives to enhance enforcement and taxpayer service and 
to improve IRS technology. Second, we include in the budget 
sixteen carefully targeted tax law changes that promote 
compliance while maintaining that important balance between 
taxpayers and taxpayers' rights and their government. These 
changes, Mr. Chairman, are estimated to raise $29 billion over 
the next ten years. So it begins to try to close this tax gap. 
We agree with those members on both sides of the aisle that 
want to approach this tax gap, and we have the most aggressive 
proposal we have ever included to try to do that.
    The 2008 budget proposes to hold the rate of growth for 
non-security discretionary spending to one percent. Mr. Spratt 
said, that is below the rate of inflation. Again, we believe 
this is both fiscally prudent and realistic. As noted earlier, 
Congress and the President have done a better job restraining 
spending in this area over the past few years. In fact, the 
average growth in this area of non-security spending has been 
about one percent over the past three years, including spending 
growth in the long term continuing resolution that the House 
just passed. So under Democrat leadership we just passed a long 
term CR that holds non-security discretionary spending at about 
one percent. We believe we can address our nation's top 
priorities within this level of funding. And we show how to do 
it in our budget.
    Within discretionary spending, the administration closely 
examines each program to determine whether it is a priority or 
not, and whether it is effective, and whether it is producing 
the intended results. Based on these thorough reviews, the 
budget proposes to terminate or reduce 141 discretionary 
programs for a savings of about $12 billion. These reforms will 
help us reduce the deficit and channel resources to higher 
priorities, and more effective programs.
    We are able to make these judgments of how to spend 
taxpayer dollars more wisely in part with the tools developed 
through the President's management agenda. Last year to ensure 
greater government accountability, we launched a new website 
called expectmore.gov, which is shown in this next chart. This 
site includes information for taxpayers on the programs that 
have been assessed for effectiveness using what is called the 
Program Assessment Rating Tool, commonly known as PART. With 
this website, Congress and the President now have an 
unprecedented view into which programs work, which do not, and 
what they are doing to try to improve. It is another way we are 
trying to provide greater transparency, holding ourselves 
accountable and demanding results. With the new and improved 
version of this website we launched yesterday, we now have 
program level information about the performance of nearly one 
thousand federal programs. By the way, this represents, Mr. 
Chairman, ninety-six percent of government and about $2.5 
trillion in federal spending. I encourage members and staff and 
anybody watching today to check out expectmore.gov.
    The President's 2008 budget also outlines a comprehensive 
series of budget reforms that will improve fiscal restraint, 
transparency and accountability in government spending. Mr. 
Ryan talked about this a moment ago, but it includes the 
legislative line item veto. This Committee led the effort on 
this last year, by the way. Mr. Ryan did a lot of work on this 
on a bipartisan basis. Now both the House and the Senate have 
demonstrated by a majority vote that each chamber supports this 
legislation. But allowing Congress to take a second look at 
legislation at the end of the process, we could work together 
to help eliminate unwarranted earmarks and other wasteful and 
unnecessary spending. The budget also proposes discretionary 
spending caps, expanding the PAYGO concept so it applies to 
both discretionary spending and to new mandatory spending.
    The budget contains the President's key reforms to the 
earmarking process as you know, including full disclosure of 
earmarks, putting earmarks in actual legislative language 
rather than committee reports, and cutting the number and 
amount of earmarks by at least half.
    Our budget shows how we can work with you to achieve 
balance by 2012, but that accomplishment will be short lived 
without addressing our long term budgetary challenge, again the 
unsustainable growth in Medicare, Medicaid and Social Security. 
As you can see from this next chart, mandatory spending is 
overwhelming the rest of the budget. In the space of four 
decades, mandatory spending has grown from about twenty-six 
percent of our budget to over half of our budget in 2006. As 
the next chart shows, the current trends are not sustainable. 
Under current law, we estimate that by 2040 spending on these 
and other important programs, plus interest on the debt 
attributable to them, will crowd out all other spending. This 
would mean no spending for homeland security, or defense, or 
education, unless we make the necessary reforms.
    It seems to me, Mr. Chairman, there is now nearly 
universal, bipartisan agreement that the unchecked growth of 
these programs represents real, long term threats to 
beneficiaries, to our federal budget, and to the economy. We 
now face a $32 trillion unfunded obligation in Medicare over 
the next seventy-five years. Our choices without reform will be 
massive benefit cuts, enormous deficits, or huge tax increases. 
The balanced budget is important in part because it positions 
our country to address these looming fiscal challenges. Mr. 
Spratt made this point in his opening comments. But our five-
year budget proposal also makes an important down payment 
towards sensible reform of mandatory spending, reducing 
spending growth by $96 billion over five years. These reforms 
are primarily in the Medicare program, but also in Medicaid and 
other programs. The proposals are very similar to character to 
those this administration has offered in the past, and the 
administration before us, and that many in Congress have 
offered.
    To put these reforms in context, as you can see in the next 
chart, the size of our budget proposal in this area is 
considerably smaller than we have done in the past. In 1997, 
when we joined together Republicans and Democrats again with 
divided government under the Clinton administration to achieve 
balance, you can see what the percentage was of mandatary 
spending, savings as compared to what we are proposing today.
    Although an important first step, the savings in this 
proposal would only reduce the unsustainable annual growth 
rates of mandatory spending by less than one percent. 
Specifically, over ten years the annual growth in Medicare is 
scheduled to be 7.4 percent. All our proposals together would 
reduce that to annual rates of growth of 6.7 percent. However, 
while these proposals deliver relatively small savings in the 
short term, the effects that build over time are substantial. 
The changes we have proposed to Medicare would reduce the 
unfunded obligations of the programs by twenty-five percent 
over the seventy-five year horizon I talked about earlier. $8 
trillion of the $32 trillion unfunded obligation.
    Frankly, under our policies we have laid out for you today 
we can achieve balance within the five-year window without any 
of these mandatory savings. But we would only be digging a 
deeper hole by ignoring it for another year. Balance is not 
coming at the expense of our commitment to seniors and low 
income Americans, quite the opposite. We must begin the reform 
of these programs now in order to protect those very 
commitments. Addressing entitlement spending is the right thing 
to do, because small changes now can have a big impact later. I 
urge the Committee to take a careful look at these reforms.
    As we restrain spending, we are also investing in our 
nation's highest priorities: combating terrorism, protecting 
the homeland, and addressing pocketbook issues that affect the 
standard of living for American families. As Mr. Spratt said, 
the 2008 budget supports our troops fighting terrorism abroad, 
strengthens our military for the future, supports our efforts 
on the diplomatic front, and protects our homeland from attack. 
It invests substantial resources to maintain high levels of 
military readiness and the continued transformation of our 
military to meet the new threats of this century.
    I want to make the next point very clearly because I think 
it is often misunderstood. The cost of the War and all the 
increases in defense spending are reflected in our deficit 
projections. In fact, again, there has been $165 billion 
reduction in our deficit over the last two years even with 
substantial war costs. As noted earlier, the administration 
supports greater transparency and accountability and this 
budget improves the timeliness and specificity of the 
information provided to you and the American public about the 
cost of Iraq, Afghanistan, and the Global War on Terror.
    Within the 2008 budget the administration goes further than 
we have in the past. We show the full cost of war for the rest 
of the President's term. We were providing our request for the 
full cost of the War both in 2007 and in 2008, and for the 
first time including account level detail and justifications. 
Specifically, we were requesting additional resources of $99 
billion for fiscal year 2007 to support Iraq, Afghanistan, and 
the Global War on Terror; $145 billion for fiscal year 2008; 
and an allowance of $50 billion for anticipated war costs in 
fiscal year 2009. The administration welcomes oversight of its 
war spending and we hope these details will help you to more 
fully understand our war related requests. This is a good faith 
effort on our part to be as transparent as possible in what we 
anticipate the needs will be as far out as we can reasonably 
project.
    Mr. Chairman, the budget before you shows that we can 
achieve balance, reducing the deficit every year by keeping the 
economy strong and imposing sensible and realistic spending 
restraint. We are committed to working with you and all members 
of this Committee on both sides of the aisle to ensure that our 
fiscal house is in order for the time all of us will be in 
office, but also for the future. I am optimistic that we can do 
it, cross party lines as the American people expect and 
deserve.
    Mr. Chairman, thank you for your time and I look forward to 
your questions.
    [The prepared statement of Robert J. Portman follows:]

        Prepared Statement of Hon. Robert J. Portman, Director,
                    Office of Management and Budget

    Chairman Spratt, Ranking Member Ryan, and distinguished members of 
the Budget Committee, it is good to be back in the hearing room with 
you. Thank you for having me before the Committee today to discuss the 
President's FY 2008 five-year budget proposal. We have good news for 
the American people. The President's 2008 Budget reduces the deficit 
every year and balances the budget by 2012, while meeting our nation's 
priorities.
    Mr. Chairman, and Mr. Ryan, I have had a number of conversations 
with each of you about what you are looking for in the President's 
Budget and how we want to work together to achieve balance. I hope you 
will appreciate that instead of painting a rosy scenario on revenues to 
get to balance, we take a cautious approach. I hope you will take note 
that we have responded to Congressional concerns by showing more war 
costs, and for the first time we have included these war supplementals 
as part of the budget in a transparent way. And all of those war costs 
are included in the calculation of reduced deficits and a balanced 
budget by 2012.
    I hope you'll see that we have changed our projections from past 
years from a freeze or a cut to include a slight increase in non-
security discretionary spending throughout the Budget window, 
consistent with what Congress and the President have actually enacted 
for the past three years. You will also see that we have eliminated 
some policies that show budget savings but are unlikely to materialize 
because of congressional opposition.
    I've had many conversations with Republicans and Democrats on this 
committee about our biggest fiscal challenge: the unsustainable growth 
in entitlement programs, such as Medicare, Medicaid and Social 
Security. I will address this further in a moment, but the progress we 
are making on getting our fiscal house in order short-term must not 
distract us from this longer-term challenge. In this Budget, we've 
proposed sensible reforms, primarily in Medicare, that are less than a 
one percent reduction in the annual rate of growth, but that represent 
an important first step in reducing the unsustainable growth in these 
important programs.
    While restraining spending overall, the President's budget also 
provides new resources for key priorities. It increases funding for our 
national security to combat terrorism and protect the homeland. It 
includes new policies to address issues of concern to America's 
families, including educating our children, access to affordable health 
care, and reducing energy costs.
    On the whole, we have attempted to give you a credible and more 
realistic plan to maximize our chances of working together to achieve 
balance.
    Over the past two years, we have worked together to reduce the 
deficit by $165 billion. We have been able to make progress for two 
primary reasons: first, because we have been blessed with a strong 
economy that has generated record revenues and, second, because we have 
done a better job of restraining spending, especially keeping non-
security spending under inflation for the past three years. It is 
exactly these elements--a solid economy and restraint on spending--that 
can now lead to balance.



    As you can see from this first chart, our budget reduces deficits 
every year and results in a surplus in 2012. In FY 2007, we project 
that the deficit will decline to $244 billion--a reduction of $95 
billion since our last estimate in July 2006. The deficit in 2008 falls 
again to $239 billion. As you can see from this chart, this projected 
FY08 deficit is 1.6 percent as a share of our economy, the key 
measurement of the deficit because it shows the impact of government 
borrowing on economic activity. The projected FY 2008 deficit is lower 
than 18 of the past 25 years, as a percent of our economy. The deficit 
then continues to decline each year, both in nominal terms and as a 
percentage of the economy, until we reach a budget surplus of $61 
billion in 2012.
    You will recall that three years ago, President Bush established 
the goal of cutting the federal budget deficit by half in five years 
from its projected peak in 2004. At the time, many expressed skepticism 
that this goal could be met, but we achieved this goal last September, 
three years ahead of schedule. We will now build on that success and 
work with you to balance the budget within five years.

                         KEEPING ECONOMY STRONG

Pro-growth policies
    To keep our economy vibrant, we continue pro-growth policies that 
have helped fuel our robust economy. The 2008 Budget continues to 
support growth, innovation, and investment by making permanent the 
President's tax relief, which would otherwise expire in 2010.
Economy/Jobs



    As you can see from this chart, since the tax relief took full 
effect in 2003, we have seen strong and steady job growth--with the 
creation of more than 7.4 million new jobs. We've also seen a dramatic 
increase in business investment. Productivity is also strong. And 
paychecks are growing.
Revenue



    After 2003, the economy not only strengthened, but Federal revenues 
surged--hitting record levels over the past two years. The President's 
2008 Budget uses five year economic projections that are in line with 
forecasts by outside experts. As you can see from this chart, we assume 
GDP growth will average about 3 percent over the budget window, closely 
tracking the forecast of the Blue Chip forecasters. This year, our 2.7 
percent forecast is now below most outside forecasts and market 
expectations.



    As you can see from this next chart, with solid economic growth, 
our total receipts are now slightly above the historical average of 
18.3 percent--as a share of the economy--and we project receipts remain 
at or above the historical average for the five-year period.
    We have what I would term a cautious revenue forecast for this 
Fiscal Year, and going forward. We forecast revenue growth will be 5.5 
percent in Fiscal Year 2007 and average 5.4 percent through 2012. This 
is below the 40-year average of 7.6 percent, and well below the 
dramatic 11.8 percent and 14.5 percent revenue growth we've seen for 
the last two years. In fact, it is below the actual first quarter FY 
2007 revenue increase of 8.2 percent over the same period last year. As 
in the past, our revenue projections are produced by the career 
professionals at the Office of Tax Analysis at the U.S. Treasury. And, 
as was the case in the past two years, we may well find that our 
revenue projections are low.
    Even with a cautious forecast on revenues, this Budget demonstrates 
we can achieve balance by 2012 without raising taxes. In addition, we 
have plans to more effectively and efficiently collect the taxes owed. 
Our Budget helps close the tax gap in two ways. First, we improve the 
effectiveness of the IRS' activities with a $410 million package of new 
initiatives to enhance enforcement and taxpayer service and to improve 
the IRS' technology. Second, we include in the Budget 16 carefully 
targeted tax law changes that promote compliance while maintaining an 
important balance between taxpayers and their government. These changes 
are estimated to raise $29 billion over the next ten years.

               SENSIBLE AND REALISTIC SPENDING RESTRAINT

    To keep spending under control, our Budget provides realistic 
spending restraint for the annually appropriated, day-to-day government 
spending that isn't focused on national security. It strengthens our 
efforts to better manage taxpayer resources, and it proposes 
significant budget reforms to eliminate unnecessary and wasteful 
spending. And as noted earlier, it also takes an important first step 
in implementing changes needed to address our long-term challenge: the 
unsustainable growth in entitlement programs.

Domestic Discretionary spending
    The 2008 Budget proposes to hold the rate of growth for non-
security discretionary spending to one percent, below the rate of 
inflation. We believe that this is both fiscally prudent and realistic. 
As noted earlier, Congress and the President have done a better job 
restraining spending in this area over the past few years. In fact, the 
average growth in this area of non-security spending has been about 1 
percent over the past three years, including spending growth in the 
long term continuing resolution that the House just passed. We believe 
we can address our nation's top priorities at this level of funding.
    Within discretionary spending, the Administration closely examines 
each program to determine if it is a priority and whether it is 
effective and producing the intended results. Based on these thorough 
reviews, the Budget proposes to terminate or reduce 141 discretionary 
spending programs for a savings of $12.0 billion in 2008 alone. These 
reforms will help us reduce the deficit and channel resources to higher 
priority and more effective programs. We are able to make these 
judgments of how to spend taxpayer dollars more wisely, in part, with 
tools developed through the President's Management Agenda.
Management/ExpectMore.gov



    Last year, to ensure greater government accountability, we launched 
a new website: ExpectMore.gov--which is shown on this next chart. The 
site includes information for taxpayers on the programs that have been 
assessed for effectiveness using the Program Assessment Rating Tool, 
commonly referred to as the PART. With this website, Congress and the 
public now have an unprecedented view into which programs work, which 
do not, and what they are all doing to improve. It's another way we are 
providing greater transparency, holding ourselves accountable--and 
demanding results.
    With the new and improved version of this website launched 
yesterday, we now have program-level information about the performance 
of nearly 1,000 Federal programs representing about 96 percent of 
government and $2.5 trillion of federal spending. I urge Members and 
staff to check out ExpectMore.gov.

Budget Reforms
    The President's 2008 Budget also outlines a comprehensive series of 
budget reforms that will improve fiscal restraint, transparency and 
accountability in Government spending.
    The President has again proposed a legislative line-item veto. Mr. 
Ryan and this Committee led this effort last year, and both the House 
and Senate have demonstrated by a majority vote that each chamber 
supports this legislation. By allowing Congress to take a second look 
at legislation at the end of the process, we could work together to 
eliminate unwarranted earmarks and other wasteful and unnecessary 
spending.
    The Budget also proposes discretionary spending caps, expanding 
pay-go so it applies to both discretionary and new mandatory spending.
    The Budget contains the President's key reforms to the earmarking 
process, including, 1) full disclosure of all earmarks, 2) putting 
earmarks in actual legislation instead of in report language so they 
can be voted on, and 3) cutting the number and amount of earmarks by at 
least half.

Entitlements
    Our Budget shows how we can work with you to achieve a balanced 
budget by 2012, but that accomplishment will be short-lived without 
addressing our long-term budgetary challenge: the unsustainable growth 
in Medicare, Medicaid, and Social Security.



    As you can see from this next chart, mandatory spending is 
overwhelming the rest of the Budget. In the space of four decades, 
mandatory spending has grown from 26 percent of our budget in 1962 to 
53 percent of our budget in 2006.



    As the next chart shows, the current trends are not sustainable. 
Under current law, we estimate that by 2040, spending on these and 
other important programs, plus interest on the debt, will crowd out all 
other spending--for defense, homeland security, and education--unless 
we make the necessary reforms.
    It seems to me there is now nearly universal, bipartisan agreement 
that the unchecked growth of these programs presents real long-term 
threats to beneficiaries, our federal budget, and the economy. We now 
face a $32 trillion unfunded obligation in Medicare over the 75 year 
horizon. Our choices without reform will be massive benefit cuts, 
enormous deficits and huge tax increases.
    The balanced budget is important, in part, because it better 
positions our country to address these looming fiscal challenges. But 
our five-year budget proposal also makes an important down payment 
toward sensible reform of mandatory spending--reducing spending growth 
by $96 billion over five years. These reforms are primarily in the 
Medicare program, but also in Medicaid and other programs. The 
proposals are similar in character to those this Administration has 
offered in the past.



    To put these reforms in context--as you can see on this next 
chart--the size of our budget proposal is considerably smaller than the 
savings in the Balanced Budget Agreement of 1997, the last we worked 
together on a bipartisan basis to achieve balance.
    Although an important first step, the savings in this proposal 
would only reduce the unsustainable annual growth rates of mandatory 
spending by less than one percent. Specifically, over 10 years the 
annual rate of growth in Medicare would be reduced from 7.4 % to 6.7%. 
However, while these proposals deliver relatively small savings in the 
short-term, the effects that build over time are substantial. The 
changes we have proposed to Medicare would reduce the unfunded 
obligation of the program by 25 percent or $8 trillion over the next 75 
years.
    Frankly, under our policies, we can achieve a balanced budget 
within the five-year window without these mandatory savings, but we 
would only be digging a deeper hole by ignoring it for another year. 
Balance is not coming at the expense of our nation's commitment to 
seniors and low-income Americans--quite the opposite. We must begin the 
reform of these programs now in order to protect those commitments. 
Addressing entitlement spending is the right thing to do because small 
changes now have a big impact later. I urge you to take a careful look 
at these sensible reforms.

                    INVESTING IN CRITICAL PRIORITIES

    As we restrain spending, we're also investing in our nation's 
highest priorities: combating terrorism, protecting the homeland and 
addressing pocketbook issues that affect the standard of living for 
American families.

Global War on Terror
    The 2008 Budget supports our troops fighting terrorism abroad, 
strengthens our military for the future, supports our efforts on the 
diplomatic front, and protects our homeland from attack. It invests 
substantial resources to maintain high levels of military readiness and 
to continue the transformation of our military to meet the new threats 
of the 21st Century.
    I want to make this next point very clearly because I find it is 
often misunderstood. The cost of the war is reflected in the 
Administration's deficit projections. In fact, there has been a $165 
billion reduction in our deficit over the past two years even with 
substantial war costs.
    As noted earlier, the Administration supports greater transparency 
and accountability, and this budget improves the timeliness and 
specificity of the information provided to you and the American public 
about the cost of the war.
    With the 2008 Budget, the Administration goes further than we have 
in the past--we show the full costs of the war for the rest of the 
President's term. We are providing our request for the full costs of 
the war in both FY2007 and 2008--and for the first time including 
account level detail and justifications. Specifically, we are 
requesting additional resources of $99 billion for FY 2007 to support 
Iraq, Afghanistan, and the Global War on Terror, $145 billion for FY 
2008, and an allowance of $50 billion for anticipated war costs in FY 
2009. The Administration welcomes oversight of its war spending, and we 
hope these details will help you more fully understand our war-related 
requests.
    This is our good faith effort to be as transparent as possible in 
what we anticipate the needs will be as far out as we can reasonably 
project.

Education, Health Care, and Energy
    The President's Budget addresses three key issues that are on the 
minds of many American families: the quality and cost of their 
children's education, access to affordable health care, and our 
Nation's dependence on foreign sources of energy from unstable parts of 
the world.
    Regarding our schools, No Child Left Behind (NCLB) is already 
working to achieve the goal of all students performing at or above 
grade level in reading and math by 2014. It has raised student 
achievement for millions of children in schools nationwide. The 2008 
Budget directs more funding to high schools to better prepare our 
students for college or the workplace, and offers new school choice 
options so children in low-performing schools have a chance to attend a 
school where they can learn and succeed. To help low-income families 
afford college, the 2008 Budget substantially increases Pell Grant 
maximum awards.
    The 2008 Budget also improves Americans' access to affordable 
health care through a number of proposals. It proposes a significant 
change in the tax treatment of health care to expand coverage and bring 
greater fairness to the system. With more transparency and competition, 
it will also slow the growth of health care costs, all of which will 
reduce the number of uninsured Americans.
    The Budget includes a number of proposals to increase our energy 
security while improving our environment. As noted in his State of the 
Union speech, the President is proposing to increase the current 
standards for the use of alternative fuels and for fuel economy in 
order to cut our domestic gasoline consumption by 20 percent over the 
next ten years, thereby reducing projected air pollution and CO2 
emissions.
    The Budget also continues the Advanced Energy Initiative to make 
alternative sources of fuel and electrical energy--like cellulosic, 
hydrogen, solar, nuclear and clean coal--more cost-competitive.

                               CONCLUSION

    The Budget before you shows that we can reduce the deficit every 
year and achieve balance in 2012 by keeping the economy strong and 
imposing sensible and realistic spending restraint. We are committed to 
working with all members of the committee to ensure that our fiscal 
house is in order for the time all of us will be in office--but also 
for the future. I am optimistic we can do it--across party lines--as 
the American people expect and deserve.
    Mr. Chairman, thank you for the time, and I look forward to your 
questions.

    Chairman Spratt. Thank you very much for your testimony, 
and as I said, this begins a long debate which we will engage 
in with you and we do so in search for common ground. The tag 
line of your testimony is that you are achieving balance 
without raising taxes. We have a problem with that because the 
alternative minimum tax is, I think you will agree, clearly a 
tax increase. And as we read your budget, after 2007 the AMT is 
in full force and effect, it is not patched, it is not 
mitigated. And according to CBO over a ten-year period of time 
unless it is in some way mitigated or modified the alternative 
minimum tax will go from six million tax filers to 39 million 
tax filers, and the additional revenues raised with it in place 
will be close to $1 trillion, I think it is $1.041 trillion per 
CBO's estimate. Do you not agree that this is a tax increase in 
that it contributes significantly to your ability at this point 
to declare that you will have achieved balance by 2012?
    Mr. Portman. Well, thank you Mr. Spratt. You and I have 
talked about this issue a lot. As you know, in our budget we do 
address it, we do provide a patch that Congress has not yet 
enacted for the 2007 year. It is about a $36 billion change in 
our revenues, mostly in 2008, a reduction in revenues because 
of that. We look forward to working with you on that patch for 
2007. That would give Congress, actually, about twenty months, 
until the end of 2008, to have to take action again to avoid 
the very consequences that you are talking about. So, just to 
be clear, the budget does address AMT in the sense of providing 
this patch. The one we chose to provide, incidentally, is the 
most generous patch that Congress has provided in the past 
which is the past called ``No New Filers.'' So it avoids the 
AMT falling to middle income taxpayers, as you address.
    With regard to the long term, absolutely, it is a huge 
issue we need to address together. What we have said in this 
budget, which we have said in our past budgets, is that we 
believe that AMT does need to be reformed. We believe that it 
is misguided tax policy. And we want to work with you to do 
that. I will take a little issue with your point that we are 
saying that 39 million taxpayers will pay AMT under our budget. 
We do not assume that in our budget. In fact, our budget 
assumes that we will have a revenue neutral correction to AMT, 
and so it would not fall on those taxpayers.
    Chairman Spratt. Your predecessors have testified to the 
same effect, that the AMT will eventually be fixed within the 
context, on a tax neutral basis within the context of the tax 
code. Could you give us some idea of how you would find enough 
loophole closing, exemption repealing tax measures to do 
something that significant? I am not being sarcastic. I do not 
have a rabbit ready to be pulled out of a hat, either, but we 
would like to know your wisdom about how it can be done.
    Mr. Portman. Well, we are looking forward to the rabbit you 
will pull out of the hat when you do your own budget, Mr. 
Chairman, and I am sure it will be interesting. But what we 
have said in the past I think continues to be true, only 
because AMT is now interacting with so much of the tax code. 
Which is it ought to done not as part of some limited loophole 
closing but it ought to be done as part of tax reform, which 
will necessarily involve larger tax issues.
    Chairman Spratt. Factored into your presentation is the 
assumption that AMT will not be fixed after 2007, because the 
incremental revenues that it collects is factored into your 
revenue base. And so if you back that out, I think you back 
yourselves out of being in a balanced condition by 2012.
    Mr. Portman. Well, again, it is an intellectually honest 
position we are taking, which is that those revenues continue 
but that we ought to reform. And I think twenty months is 
enough time for us to get together and do that. I think members 
on this Committee, on both sides of the aisle, believe that the 
AMT, because it is not indexed, is something that ought to be 
reformed.
    Chairman Spratt. But if we neutralize it and you cannot 
claim those revenues, you are not in balance. That is my point. 
Here is a point that CBO made----
    Mr. Portman. No, if we neutralize it we would have the, it 
assumes, you know, implicit in this budget is that those 
revenues would be there. So we still come to balance, the 
question is how we do it.
    Chairman Spratt. Well, that would mean you would raise 
taxes. You said you were going to balance the budget without 
raising taxes, and you----
    Mr. Portman. Well, the alternative minimum tax is current 
law, as you know Mr. Chairman. And again, I look forward to 
seeing your budget in this regard. I did see your budget from 
last year in this regard and I noticed that you did something 
very similar to what we are doing, although you did not patch 
for 2007 because you were not at that point yet. But we are 
patching forward. Congress has not yet provided such a patch, 
but we are assuming that that is good policy to give us time to 
come up with a longer term solution.
    I also believe Mr. Chairman, as I said earlier, that our 
revenue estimate is cautious. And we will see, come this summer 
I suspect I will be back before you just as we were the last 
two summers and saying that the revenues had come in a little 
higher than we expected. Last year it was, again, 100 percent 
higher. And we are going to be in a position to show even lower 
deficits. These kinds of revenues can be used for priorities. I 
would put AMT at the top of that list, in terms of priorities.
    Chairman Spratt. We hope it happens. With respect to the 
percentage growth, the seven percentage point growth is based 
upon the assumption that there are no tax cuts, this is before 
tax cuts in other words. CBO's corresponding number is 5.8 
percent if we are comparing baseline before tax cuts. If you 
adjust both for the tax cuts then your number is 5.6 percent 
growth with tax cuts and theirs is 4.3 percent. There still is 
a substantial difference between you. And as I said earlier, 
the difference between you on that assumption alone is about 
$155 billion in 2017.
    Let me read you what CBO said that concerned us.
    Mr. Portman. Okay.
    Chairman Spratt. Because it goes with the point I am trying 
to make. They said, ``This is a baseline forecast, but keep in 
mind if all of the tax provisions set to expire over the next 
ten years are extended, which is what you propose, and if the 
AMT is indexed for inflation, which is basically what we are 
talking about, the budget outlook for 2017 would change from a 
surplus ten years from now, from a surplus of $249 billion to a 
deficit of $476 billion.'' Big swing. ``And debt held by the 
public would climb to thirty-nine percent, and the ten-year 
cumulative deficit would total $3.2 trillion.'' The two 
assumptions there, fixing the AMT and renewing the tax cuts, 
and you have a totally different world here that this is what 
CBO is projecting to us.
    Mr. Portman. As you know, we take issue with CBO's 
assumptions, as does, by the way, most of the outside forecast 
world. So part of the difference between us and CBO is that CBO 
assumes a different rate of growth of the economy, because they 
assume that labor participation will be lower. Again, our rates 
of growth are consistent with the blue chip forecasters, which 
is an accumulation of private sector forecasters.
    The biggest difference, though, between us and CBO is on 
inflation. About two-thirds of the difference, which is about 
$96 billion in 2012, is because CBO has a rate of inflation 
that is lower than ours. In fact, it is lower than any private 
forecast that I have seen. And because of that difference we 
are going to have different assumptions on economic growth. 
That leads to some differences in 2012 and, of course, even 
bigger differences as you say over the ten-year period. I think 
our assumptions are more realistic. I think they are in line 
with the, again, private sector forecasters who look at the 
economy. I think they are more accurate.
    With regard to the assumptions they are making about our 
budget, I would ask them to look at the budget. In other words, 
the assumption on AMT is not what we are saying in the budget. 
So you can come up with all kinds of numbers but I think what 
we ought to go back to is, you know, what is the most realistic 
projection of growth? We think economic growth that we have 
got, that I showed you up there, of about three percent on 
average is realistic. We think our revenue projection of 5.4 
percent over the five-year period and 5.5 percent this year is 
cautious. We are sticking with it, it is how our budget numbers 
are shown. And I mean my hope, as you know Mr. Chairman, is we 
can get together and at least agree on some of these 
assumptions so that moving forward, you know, we are working 
from the same basic facts about our economy today and looking 
forward in a conservative way. I do not think we ought to have 
a rosy scenario. But I think that if we can get beyond that it 
might be easier for us to come together and show balance 
together.
    Chairman Spratt. It seemed to us in looking at each of the 
criteria, job growth, employment, inflation, GDP growth, all of 
these things, that you are about two-tenths or three-tenths of 
a percentage point of GDP greater than CBO in most of these 
categories. And the bottom line effect of it was substantial, 
as I have said. It is about $155 billion in revenues.
    Let me show you chart two and conclude with this because 
there are a lot of members here who have questions they want to 
ask. This is our concern. And we are not trying to be 
polemical. We are not reaching to make a point. We have put 
Bush policy deficits based upon two broad assumptions. One is 
that you fix the AMT so that it does not affect any more 
taxpayers than it affected in 2006, and the other is that you 
continue war costs per CBO's model through the forecast period 
2017.
    Those two factors have a dramatic impact. They are the 
difference between having a budget that you can stand and 
salute and one that is still in big trouble. And, as I said, 
one is AMT, the other is war costs. This assumes that we will 
begin building down our 225,000 troops deployed in Iraq and 
Afghanistan in a couple of years, that we steadily decline to 
the point where in 2013 there are 75,000 troops in theater. Not 
necessarily in country, but in theater. That may be a bit high, 
it may be a bit low, but that is one of the models that CBO 
gives us. When we factor those two assumptions in there, the 
budget goes south in a hurry and ends up about $400 or $500 
billion dollars in the red at the end of the forecast period. 
That is our concern about your budget, in a nutshell.
    Mr. Portman. Again Mr. Chairman, I appreciate the fact that 
CBO has attempted to make some of these assumptions but they 
are not our assumptions, including on the economy. We think 
CBO's inflation in particular, by the way it is four-tenths of 
a percent lower than us and yet what seems like a small amount, 
and yet it makes a $96 billion difference in 2012. And we think 
we are in the mainstream here and CBO is not. We think CBO does 
a great job, by the way, but in terms of their revenue 
estimates we think their GDP numbers and their inflation are 
not accurate.
    Chairman Spratt. Well, we are concerned that you have 
overstated revenues and understated costs, particularly war 
costs, in the out years beyond 2009.
    Mr. Portman. Well, we should sit down and talk about all 
this because I think we are in line with where, again, private 
forecasters are. And certainly I think we are cautious compared 
to the last three years, where we have reduced the deficit by 
$165 billion over the last two.
    On the war costs, I think that is an interesting assumption 
that there would be 75,000 troops in theater in 2013.
    Chairman Spratt. You would agree the incremental, 
supplemental costs in 2010, 2011 and 2012 is not likely to be 
zero. It is going to be something greater than zero.
    Mr. Portman. Well, again, CBO is saying 75,000 troops in 
2013. That is not our assumption. We do not hope that there 
will be 75,000 troops nor do we assume there will be 75,000 
troops. So, you know, it depends on what your assumptions are. 
On AMT, again, the assumption they are using there is not the 
assumption in our budget.
    Chairman Spratt. Thank you very much.
    Mr. Portman. Thank you, Mr. Chairman.
    Mr. Ryan. There are two directions I want to go into. But 
first, welcome back, Rob. It is great to have you. Revenue 
assumptions, you know both CBO and OMB missed the boat on 
revenues over the last few years. We, both CBO and OMB, you 
know, fell so far short on predicting the revenues that came 
in. And as a consequence, you know, we all were delightfully 
surprised that our deficit has gone down much more because of 
higher revenue growth. How much of the recent deficit reduction 
resulted from the significant growth in tax revenue up until 
now? But more importantly, going forward, how much deficit 
reduction in the President's budget do you depend on future 
revenue growth versus savings in the budget?
    Mr. Portman. That is a great question. When you look at 
what has happened in the last year as an example, about 
seventy-five percent of the reduction in the deficit compared 
to what we had projected, as you say both CBO and OMB were off. 
CBO was closer, by the way. They thought the deficit would be 
lower than we did. But we were both way off. We were about $95 
billion off in July. In other words, the deficit is $95 billion 
lower today for 2007 than we were projecting than the one we 
projected back in July. Seventy-five percent of that is due to 
increased revenues from a healthy economy. About twenty-five 
percent of it, though, is due to, as I said earlier, a little 
better restraint on the spending side.
    And I say publicly a lot, and it really gets picked up, 
Congress is to be commended because in the appropriations 
process you all took some tough votes over the last few years 
to begin to restrain the growth of so called non-security 
spending. And, you know, it is a fact over the three-year it is 
somewhere between 1.1 and 1.2 percent growth in non-security 
spending. This year it is about one percent. So I think it is a 
combination, Mr. Ryan, of both of those. But most of it has 
been driven by revenue up to this point.
    Going forward, however, our projections on revenue, as you 
have noted, are cautious. And so the improvement in our deficit 
is more driven by the spending side than it is by the revenue 
side. You would start from some sort of a baseline, but 5.5 
percent growth this year in the revenues is something that we 
think is cautious. On the spending side we continue to see, 
again, improvement on the long term CR in terms of the non-
security spending and that is of course factored into our 
calculation.
    Mr. Ryan. That is really the key. We, I think, will all 
agree that we cannot keep banking all this high revenue growth, 
that it is going to stay like this forever. So going forward, 
whatever budget we pass we are going to have to pass it on the 
spending side instead of just assuming higher organic revenue 
growth. But the discussion we are going to have this year is 
going to largely talk about taxes and entitlements. And if I 
could pull up the Medicare growth chart, chart number one. I 
think you know which one I am referring to, Jose. The Medicare 
chart that is about to come up is going to show OMB's 
projection of growth.
    Here is the question I have. Over the weekend some of your 
critics have said that the entitlement changes you are 
proposing are necessary to so called ``finance the costs of the 
President's tax cuts.'' This is, you know, pretty darn 
misleading from my perspective, given the fact that we had two 
highly astute witnesses that came here, the Comptroller 
General, the new Director of the CBO. Non-partisan, objective 
people who said even if you let all of the taxes go away, all 
the tax cuts go away, and raise all the taxes, that still won't 
even come close to solving our entitlement problem. The 
question I basically have is, take a look at this chart which 
shows Medicare growth before and after the reform you are 
proposing. If you go to the second chart please, which shows 
Medicaid growth before and after reform, we are showing that in 
your proposal, which these two right here net about $62 billion 
in savings that both of these trend lines are clearly up. I 
mean, you cannot even see the daylight between the Medicaid 
savings. And go back to the last chart, please, the Medicare. 
And there is a slight savings difference in the two trend 
lines. The point is, even if we slightly restrain the growth of 
these entitlements, they are still growing and they are growing 
at an unsustainable rate. So I think you said that with these 
two policies in place carried out to the seventy-five year 
window, which is how we actuarially, you know, judge these 
things, that that only gets us twenty-five percent of the way 
there, of balancing and making solvent Medicaid and Medicare. 
So even if, I guess the question is this. Let us suppose we do 
away with all of the tax cuts. Let us suppose we do what CBO 
assumes, and we get rid of all the 2001 and 2003 tax cuts. We 
forget about the AMT and just let it kick in. Will that solve 
this problem long term? Will that make these entitlements 
solvent?
    Mr. Portman. No, it is not adequate to address the 
shortfall that you show on your chart. It also would put the 
economy at risk. It is our view that when you look at what 
happened in 2003 there was an incredible correlation between 
tax relief being put in place and the increase in production, 
in productivity, in jobs, 7.4 million new jobs since that time 
period, and in wages now going up. So it would be a mistake in 
our view to jeopardize that economic growth, which ultimately 
creates the revenues, which has enabled us to be in this better 
position today. So not only does it not close the gap, it also 
could put at risk some of the very benefits to our economy that 
are letting us have this discussion today about how to get to 
balance, not whether to get to balance.
    Mr. Ryan. So even if we raise taxes on capital gains, raise 
taxes on dividends, raise taxes on all income tax payers, cut 
in half the per child tax credit, bring back the marriage 
penalty, and let the AMT hit about 50 million taxpayers at the 
end of the decade, even if we do all that that still will not 
fix our entitlement problem and still will not balance the long 
term budget?
    Mr. Portman. No, we need to make changes in these programs 
and we can make sensible smart changes in the short term that 
have significant impacts longer term. I talked about the fact 
that these proposals that we have made, you are not very 
impressed with twenty-five percent, I take it, but I am pretty 
impressed. And I look forward to the proposals from both sides 
of the aisle to see how we can further, as they say, bend the 
curve in order to save these programs long term and avoid the 
catastrophic fiscal crash we are going to have if we do not 
make changes, relatively small changes now, to change that 
program. 7.4 percent is the growth projection for Medicare over 
the next ten years. All of our proposals would reduce that to 
6.7 percent, less than a one percentage point reduction. So 
that is what we are proposing in our budget. It is only a first 
step, we acknowledge that. But it is an important first step. 
And we would hope that Congress at a minimum could come 
together with us and figure out ways to begin to address this 
problem Mr. Ryan has so well explained.
    Mr. Ryan. So it seems that, I think you are going to hear 
from both sides of the aisle, everybody is going to say, ``We 
need to balance the budget.'' And I think you will get a near 
unanimous vote on that goal. I guess the question that is 
before all of us is, do we balance the budget at a higher level 
of spending and taxing? Or do we balance the budget at a lower 
level of tax rates and spending? And what is the difference for 
our country, what is the difference for our economy? You have 
picked a side in that debate from your budget, and it appears 
that you are choosing to balance the budget at a lower level of 
spending rather than to balance the budget at a higher level of 
spending. Why did you choose that path and why is that 
materially different both for the economy and for the long run 
fiscal sustainability of our budget?
    Mr. Portman. It is an incredibly important debate because 
it goes to our economic health. The average tax burden on our 
economy, which is measured by the percent of GDP or economy, is 
18.3 percent. That is the forty-year average. As I indicated 
earlier the budget proposal that we are sending forward is 
actually slightly above that average. It will be about 18.5 
percent this year and no time during our five-year budget 
period does it fall below the historical average. So it is not 
that we are under-taxed. And by the way, that includes the 
President's tax relief being continued in 2010. It is that we 
are spending too much. And that is why our budget does in the 
non-security area, again what Congress has done in the last few 
years which is restrain that rate of growth, where all of us 
have a bigger role to play because it is the annually 
appropriated amount. We do spend more on the security side, and 
I think that is necessary given the situation we are in with 
the Global War on Terror. And then finally, we begin the 
process of addressing the unsustainable growth in more than 
fifty percent of our budget now, which is the so-called 
entitlement programs or mandatory spending.
    Going the other way, which is adding more of a tax burden 
to the economy we believe puts at risk some of the same 
economic growth and job growth, again, that has gotten us to 
this point of higher revenues to be able to even talk about a 
balanced budget.
    Mr. Ryan. Well, let me just close by sharing a concern with 
you. And it is a concern, quite frankly, I bring from 
Wisconsin, you know, from a manufacturing state, from a state 
that saw a lot of loss in manufacturing jobs. It is doing 
better now, but still we have a ways to go. And my concern is 
that America's the sole superpower. We are the world's largest 
economy. But we cannot take that for granted anymore. And my 
concern is that in this new era of globalization, with new 
economic challenges and threats from new countries, emerging 
countries like China and India and others, that we cannot just 
take for granted that we can balance the budget at a higher 
level of spending and therefore higher taxes. That we have to 
think about, when we put this budget together, what this means 
to the competitiveness of our economy, what this means to the 
competitiveness of our workers. Should we balance the budget by 
taxing labor and capital and businesses more or less? And those 
decisions will determine how competitive our workers and our 
businesses are in the international marketplace in this new era 
of globalization.
    And so, I simply want to just put out a word of caution 
that, you know, we cannot do it like we used to do it before. 
We used to take for granted our leadership role in the economy. 
We used to take for granted that our children are going to be 
better off than we are, that our standards of living are going 
to automatically increase. We do not have that luxury anymore. 
And so, all I simply want to say is a word of caution that as 
we go through this process of balancing the budget, that we 
focus on the spending side instead of the tax side. Because 
more important than just whether or not people pay more taxes, 
it directly speaks to the competitiveness of our country, of 
our workers, of our companies, and as to whether or not we can 
enjoy ever higher living standards. So I just hope you put that 
in mind as we negotiate and come to an agreement about how we 
balance the budget or not. And with that, I know other people 
want to ask questions, I yield.
    Mr. Portman. Thank you, Mr. Ryan.
    Chairman Spratt. Thank you, Mr. Ryan. I would simply add 
that one way to make our entitlements more affordable is to 
make our people more productive. And that is why we are 
concerned about the cuts in Function 450, job training, 
education. We think that that is a false economy.
    I now recognize the gentle lady from Connecticut, Ms. 
DeLauro.
    Ms. DeLauro. If I could take a moment to talk about our 
children and their healthcare, which seems to be an area that I 
would think, especially those youngsters who are most 
vulnerable, that this would be a shared priority. And it does 
not make any difference what your political persuasion is, that 
we are all looking for the opportunity to increase that 
opportunity for health insurance for our kids.
    Nine million low income children are uninsured today. The 
President's budget fails to provide sufficient funds to the 
SCHIP program to continue to insure the same number of children 
as the program currently insures. And in addition to that, it 
provides no funding to support state efforts to be able to 
cover more children. As I understand this budget, it would 
limit healthcare funding for children and families earning more 
than 200 percent of poverty, even though we have sixteen states 
that in fact cover children and families above this level. 
There are about four and a half million children and families 
earning between 200 and 300 percent of poverty who are either 
uninsured or who depend on public coverage.
    Excluding these families from participating in the SCHIP 
program would leave them without healthcare, would undoubtedly 
increase that number of uninsured children. Now, this brings in 
another piece here. The way the President's budget would fund 
SCHIP is by making $13 billion in new cuts to the Medicaid 
program. That is $13 billion over five years. If you deal with 
the regulatory changes, as I understand it we are going to be 
looking about $25 billion over five years. That comes on the 
heels of $6.9 billion dollars in cuts to Medicaid over five 
years that was part of the Republican reconciliation, package.
    So you have the President's budget not providing enough 
funding to cover health insurance for children currently under 
SCHIP. It does not increase the number who will get insured. 
You cut Medicaid, which covers the poorest kids in this nation. 
So you are pitting poor children against children and families 
that are just above the poverty line. It is hard to figure out 
where the decision making in these two efforts, and how the 
President who talks about wanting to insure more of the 
nation's children and how we can get that coverage.
    My questions here are, to whom are these costs shifted? Do 
you believe that they will be shifted to the states to try to 
help them cover the uninsured? To the providers who serve the 
uninsured? Or will Medicaid beneficiaries have to pay more out 
of their pockets? Do you know what the state by state effect of 
all of these spending cuts will be? And I would just ask you to 
please provide us with a state by state analysis for the 
record. Let me just leave it at that, Mr. Portman and see if we 
can get some answers here.
    [The information requested follows:]

     Responses to Congresswoman DeLauro's Questions for the Record
                         From Director Portman

    Ms. DeLauro: The way the President's budget would fund SCHIP is by 
making $13 billion in new cuts to the Medicaid program. That is $13 
billion over five years. If you deal with the regulatory changes, as I 
understand it we are going to be looking about $25 billion over five 
years. To whom are these costs shifted? Do you believe they will be 
shifted to the states to try to help them cover the uninsured, to the 
providers who serve the uninsured? Or will Medicaid beneficiaries have 
to pay more out of their pocket? Do you know what the state-by-state 
effect of all of these spending cuts will be? Please provide us with a 
state-by-state analysis for the record.
    Answer:
     The Administration remains committed to increasing the 
number of people with access to affordable, quality health insurance 
and health care. The Budget proposes to reform the healthcare market 
place and reduce the ranks of uninsured by removing the tax bias for 
employer-sponsored coverage, establishing association health plans, 
reforming medical liability law, and reauthorizing SCHIP.
     With these reforms, Medicaid will continue to cover 
benefits for Medicaid beneficiaries. Many of the FY 2008 Medicaid 
reforms focus on improving the fiscal integrity of Medicaid. Currently, 
inappropriate financing practices undermine the Federal-State 
partnership and jeopardize the financial stability of Medicaid. The 
Budget would help restore credibility to the Federal-State matching 
system. In general, the Budget does not propose reductions in the 
Federal share of Medicaid payments to States for medical services 
provided to Medicaid beneficiaries.
     Even with these changes, the Medicaid baseline continues 
to grow at a robust average annual rate of more than 7 percent.
     At this time, HHS does not have a state-by-state analysis 
of the Medicaid proposals. When developing Budget estimates, HHS 
actuaries focus on aggregate program estimates and do not break out the 
impact on individual states. We will continue to consider this issue as 
we move forward on our Medicaid proposals.

    Mr. Portman. Thank you, Ms. DeLauro. And I do appreciate 
your question and your interest in this. I would urge you not 
to look at the Medicaid reforms, many of which, again, have 
been offered before not just by this administration but others, 
particularly the reforms to payments which we think are 
appropriate policy along with the SCHIP proposal. These are 
independent proposals. You may disagree with our reforms, but I 
hope you will look at those reforms on their own. We think they 
are the right thing to do regardless of what we do with regard 
to SCHIP.
    With regard to SCHIP, as you know, you are under an 
obligation to reauthorize this year. And so, we decided to put 
into the budget a proposal for reauthorization in essence, or 
at least provide the budgetary window for that. And as a result 
we do not do a straight line, baseline on SCHIP. We increase 
SCHIP. Over the five-year period we add approximately $5 
billion in additional funds to the SCHIP program over, again, 
what we are currently spending.
    So, reauthorization is something that we will work with you 
on. We look forward to it. We are providing more funding. You 
may believe that is not adequate, it sounds like you do not. 
But----
    Ms. DeLauro. It is not when you are not going to be able to 
insure the number of kids that currently are insured and you 
have dealt with your poverty numbers there so that----
    Mr. Portman. Well, let me tell you why we did that.
    Ms. DeLauro [continuing]. And increasing number, and before 
the reforms, dealing with fraud, waste, abuse, you know, we are 
there on that issue.
    Mr. Portman. Okay, well, that is good.
    Ms. DeLauro. But I would hope that the money from any 
reforms would go back into the program and not be placed 
somewhere else.
    Mr. Portman. Well, we should look at it independently 
because we provide more funding. We do target the resources, as 
you say, correctly to those children under 200 percent of 
poverty. And there are some states that currently are using the 
SCHIP, as you know it is an enhanced match, for SCHIP, for 
children above 200 percent of poverty and for some adults. The 
question is, do we go back to our original intent?
    Ms. DeLauro. Are you anticipating that the states are going 
to pick up the cost? Are the states going to have to pick up 
the cost in your equation here? Is that what you----
    Mr. Portman. Well, it depends on what the state does in 
terms of policy. What we are saying is that we should focus on 
those children at or below 200 percent of the federal poverty 
level and then we need to allocate those funds, working with 
you in a way that focuses on those who are most needy, that 
need the help the most. That is our approach.
    Ms. DeLauro. So the states' flexibility, in essence, the 
states' flexibility on this issue are to essentially to have to 
jettison populations who are currently being insured because 
they will have way----
    Mr. Portman. Well, as you know these children would still 
be insured under Medicaid. The question is, would they get the 
enhanced match under SCHIP. And that is a question that 
Congress, when you all originally came up with the SCHIP idea 
you focused it on low income kids. And that is where we are 
trying to get back to, is to the extent that we have limited 
resources, even though we do provide more resources, we believe 
it ought to be more focused on those children under 200 percent 
of poverty.
    Ms. DeLauro. Mr. Portman, it sounds good. It does not work 
in reality. And we are here about the realities of what our 
states are faced with these days. And the realities of the 
number of kids who are going to no longer to be insured, who 
are eligible for these programs. So, thank you very much.
    Mr. Portman. I will get you the information you asked for.
    Ms. DeLauro. Thank you.
    Mr. Portman. I do not have it today on the state by state, 
but I will get you that. Thank you.
    Chairman Spratt. Mr. Barrett?
    Mr. Barrett. Mr. Ambassador, great to see you. Welcome. 
Three quick questions, Rob, and then I am going to leave all 
the time with you to let you answer them. Number one, the 
President wants to cut the number of earmarks by fifty percent. 
Are you talking about cost or are you talking about the number? 
And anything that you have got that you can tell this Committee 
and tell this Congress on how to reform this process. It is 
broken. And we have seen that and we need to know how to fix 
it. I have been wracking my brains, have not come up with 
anything yet. Number two, Rob, we talk about cutting $66 
billion over the Medicare budget, and I am not going to touch 
social security and Medicaid, and I know that is a great start. 
We are actually slowing the growth and trying to be more 
responsible. Is it enough? I mean, when we are facing over 
seventy-five years of $35 trillion unfunded liability, do you 
not think we need to be a little more bold to kind of get a 
grasp on these things in a shorter term rather than a longer 
term? And last, when we are talking about the different 
branches and holding each other accountable, talk to me a 
little bit about a line item veto. I am certainly in favor, I 
think the version that the House passed last year was an 
excellent version. Kind of give me some feedback on your 
thoughts on that and how you think it would certainly help the 
process.
    Mr. Portman. Thank you, Mr. Barrett. Just quickly on 
earmarks, the President has made his proposal. The first part 
of it is actually I think very consistent with what Congress 
has now done. And I applaud the Congress for taking, at least 
on the House side by changing the rules, in the Senate passing 
legislation to deal with more transparency in earmarks for 
people to know who the recipient is, how much money it is, 
where it is going, all these things we think are good changes.
    We would go beyond that and say that these earmarks ought 
to be in the actual statutory language that you vote on. Among 
other things, that gives you the opportunity to look at that 
and decide whether you might want to offer an amendment to 
strike that. As opposed to being in committee reports, where 
about ninety percent of earmarks now reside. The committee 
report, by the way, is also not signed by the President so he 
does not have the opportunity to vote up or down himself 
through a potential veto on that. So the idea would be they 
ought to be in the statutory language, not in the report 
language. I know that is controversial among many, particularly 
the Appropriations Committee, but it seems to us like that is 
part of the transparency effort. The third one is one you also 
mentioned, which is let us cut the number and amount in half. 
And the President has said both the number of earmarks and the 
amount of money represented by earmarks in half. I think that 
is also something that is good policy and doable.
    If you look at what happened this year under the long term 
CR there are virtually no earmarks. There may be a few in 
there, and we are still analyzing that as you are. But I think 
it is possible to reduce by fifty percent with all the 
transparency, improvements in policy. Earmarks have tripled 
over the last ten years, and I think it is something that we 
should be able to do working together.
    The line item veto actually I think complements this very 
well. I have said to some of you, I do not think the 
legislative line item veto will be used much. Why? I think it 
will have a chilling effect. I mean, I think it will result in 
more transparency and therefore less likelihood that 
unnecessary and wasteful spending will end up in earmarks. 
Because members, just as was the case with unfunded mandate 
reform back in the nineties where we essentially said we would 
hold up unfunded mandates to the public and the press, if we do 
the same thing with earmarks through a legislative line item 
veto, again that many of you supported and I appreciate the 
Budget Committee's majority vote on that, bipartisan, I think 
that will have a chilling effect on the kind of bad legislation 
we all believe we need to be more and more cognizant of as we 
get to balance. So I think the President's proposal makes 
sense, not just on its own but as a complement to the earmark 
reform we are talking about.
    Finally, with regard to Medicare, your question is, ``Is it 
enough?'' I said earlier, and I believe this to be true, that 
this has to be bipartisan. And we have to figure out a way to 
come together across party lines to come up with sensible 
reforms to all of these programs: social security, Medicare and 
Medicaid. The proposals in the budget focus on Medicare and to 
a certain extent Medicaid. As Ms. DeLauro said, some of it is 
focused on the payments and fraud and abuse in the current 
system. On the Medicare side, it is focused on provider 
payments. It is also focused on some more means testing in 
Medicare. The beneficiaries, actually, in the Medicare 
proposals we have would see a reduction in their premiums over 
all. 5.6 percent of beneficiaries who make over $80,000 a year 
or $160,000 a year as a couple would see a slight reduction in 
the federal subsidy for their premiums. They would still get a 
subsidy, but it would be reduced slightly. But for every other 
beneficiary, in other words over ninety percent of 
beneficiaries, they would actually see a reduction in their 
premiums under our proposals. Why? Because, as you know, they 
pay twenty-five percent of the Part B premium. The federal 
government pays the other seventy-five percent. And they would 
see a reduction in that amount. So it saves about $6 billion 
for Medicare beneficiaries over the five-year period.
    So there are, I think, ways in which we can go about this 
in our budget that make sense, that actually are positive for 
beneficiaries. But you are absolutely right, we have a bigger 
challenge in front of us as Mr. Ryan's chart showed and as Mr. 
Spratt said. And that is something that we do need to deal 
with. We have taken a first step in that direction. And, again, 
I would encourage Congress at a minimum to work with us on that 
first step. Thank you.
    Mr. Barrett. Thank you, Mr. Ambassador.
    Chairman Spratt. Mr. Cooper?
    Mr. Cooper. Thank you, Mr. Chairman. Ambassador Portman, 
Standard and Poor's is probably the top credit agency in 
America or the world. They projected last summer that the U.S. 
Treasury Bond, the most important financial instrument on the 
planet, will lose its AAA credit rating in 2012. That is the 
year that your budget projections have us reaching a surplus. 
So the question for this Committee is, whom do we believe? 
Standard and Poor's or this administration? Standard and Poor's 
did not just say that we would lose our AAA credit rating in 
2012. They said by the year 2025 the U.S. Treasury Bond would 
achieve junk bond status, below investment grade. That is 
damaging or destroying America's credit. So, why should you 
believe your happy news over Standard and Poor's projections?
    Mr. Portman. Well, Standard and Poor's does not have much 
faith in you all, or apparently in us, to achieve the fiscal 
discipline we have talked about in this budget. They may not 
think we can get to balance in five years. I think we can. You 
and I have talked a lot about this and I have said this before 
to you, privately never publicly. I commend you for the fact 
that you raise these issues. Because what I hear you saying is 
we should at least achieve balance under a unified budget by 
2012. Standard and Poor's may not think we can do that. I think 
we can. But as you know, their real focus is this long term 
challenge and that is what we just talked about: Medicare, 
Medicaid and social security.
    Mr. Cooper. That is the key issue. And I am worried that 
when you spread happy talk about budget balance in five years 
using every trick in the OMB book to try to make that look 
real, and then realizing we have these terrible entitlement 
problems, by not connecting those two you sap congressional 
will to deal with the problem. There are going to be a number 
of headlines today, a number of folks bragging in their 
speeches, ``Oh, we reach balance in five years. We are going to 
have a $61 billion surplus.'' When you and I know that is not 
true because according to your own numbers, if you look at your 
appendix here in the budget, five years out you will achieve a 
superficial surplus of $61 billion by borrowing $248 billion 
from social security trust fund.
    Over the next five year period, according to your budget, 
you will be borrowing $1.2 trillion from the social security 
surplus to make it look like we are reaching towards surplus. 
That does not cut it. That is not realistic. That is taking 
social security trust fund money and spending it for other 
purposes, whether it is the War, whether it is for earmarks. It 
is a $1.2 trillion robbery of the social security trust fund 
and that is one of the fundamental principles of your budget. 
And that is what Standard and Poor's thankfully sees through 
when they understand that we are damaging, possibly destroying, 
America's credit rating with budgets like these.
    Mr. Portman. Well, you are absolutely right that all of us 
budget that way. As you know, this Committee is going to budget 
that way in your budget. The Congressional Budget Office 
budgets that way. Every Republican and Democrat administration 
has done that since 1967 and so, you know, we are all in this 
together. And I just think, you know, again, you make the point 
very, very well. And you make the point we are trying to make: 
at a minimum let us get to balance using the so-called unified 
budget, which is all money in all money out. You make the very 
good point that that does not include the surplus that now 
exists in the social security fund. As you also know, in ten 
short years that surplus begins to dissipate because you do not 
have the amount of payroll taxes coming in to pay the benefits 
going out.
    So, again, all I can say is I apologize if you think I 
disconnected the two. I tried in my testimony and in my answers 
to questions to very much connect the two. In fact, I 
explicitly said, ``We can get to balance without even dealing 
with any of these Medicare or Medicaid issues.'' We can. And we 
have shown you how in our budget. We should not do that. Even 
though we can, it is not the right thing to do because we need 
to deal with these long term issues. You are also absolutely 
right that if you look at our analytical perspectives, or in 
the index as you see, you can find where this is, we show the 
budget in different ways. We show the net operating costs that 
you have done a great job talking about, which shows the 
government's liabilities on an accrual basis. We also go a step 
further, as you know, in this financial report of the United 
States which Jim Cooper has done a good job telling the country 
about. And I encourage everybody to read this. It is on the 
web, it is on our website. Each member was sent a copy by me, 
personally, and also you have got a copy before you this 
morning. That was Jim Cooper's idea, by the way. It also shows 
a Statement of Social Insurance, which is basically our 
unfunded obligations on Social Security, Medicare and Medicaid.
    And, you know, you can look at the budget through a lot of 
different presentations. There are literally a dozen out there 
that I have seen. We use the unified budget, so do you all. 
That means at a minimum we ought to be able to get to balance 
in the next five years.
    Chairman Spratt. Mr. Garrett?
    Mr. Garrett. Greetings, and thank you Ambassador. And I 
appreciate your coming to the Committee today. And I would like 
to commend you, and obviously also your staff, for your job of 
putting together the budget and your presentation today. I 
frankly think it is a, well actually insofar it is at least a 
positive step forward in the right direction. What I think we 
are trying to seek on both sides of the aisle here, and that is 
to get to a balanced budget within the next five years. And I 
look forward to working with your staff and yourself 
personally, and with my colleagues across the aisle to achieve 
that, and to do so in a way that will ensure that people up in 
the northeast, New Jersey and specifically in the great Fifth 
Congressional District of New Jersey where I represent, people 
already pay some of the highest taxes in the country will not 
see an additional tax burden placed on them on the federal 
level.
    You know, every family in America, whether in New Jersey in 
Sussex County or anyplace else in America, they all have to set 
up their own family budget, and they have to set up their 
priorities, and they have to make difficult decisions when they 
make up that family budget. And we are really no different 
here, and you recall when you served on this Committee. We have 
to make those difficult decisions, too. And I hope my friends 
on the other side of the aisle will remember those working 
families that every time we talk, or some of the people talk, 
about raising taxes that means that you are taking a dollar out 
of some family in New Jersey, or maybe in one of their 
districts, out of their budget and sending it down to our 
budget down here.
    Director, I would also like to commend you and also the 
President regarding a topic that this Committee has talked 
about now in the last two hearings that we have held. And that 
is budgeting the cost of Global War on Terror within the budget 
process. As I say, we have had a couple hearings on this 
already and I know that those costs are hard and difficult to 
estimate. But I appreciate the fact that you have included them 
as best you could in this process.
    Just reading the Wall Street Journal yesterday, the front 
page story, it said, and I will just quote very briefly, 
``Since President Bush took office,'' on the front page it says 
this, ``he has boosted annual defense spending by fifty 
percent, including $500 billion over five years for the War, 
doubled spending on homeland security, and at the same time he 
has cut taxes, expanded Medicare to cover prescription drugs, 
approved $100 billion to clean up the Gulf Coast, and signed 
bills to spend a little more each year on domestic spending.'' 
And critics said it could not last and it could not be done, 
and they referred back to the seventies with President Johnson 
when it triggered inflation. But to conclude it says, ``But 
this time it has been nearly painless, inflation in check, the 
federal budget deficit is down from its 2004 peak and it rests 
at nearly historical average of two percent of GDP, and long 
term interest rates are relatively low.''
    So my question, I will leave you to answer these couple of 
questions in the last two minutes, can you assure my 
constituents of the Fifth District of New Jersey that we will 
in fact get to a balanced budget, can in fact get to a balanced 
budget by 2012, not do it by raising taxes? And would you be 
willing, since the other side, well, Mr. Cooper is gone right 
now, to look to additional entitlement reform? Because as Mr. 
Cooper has just laid out, that is the problem area, despite the 
rosy projection of getting to a balanced budget. Would the 
administration be willing to consider even greater reforms in 
those areas to address the issue as Mr. Cooper has raised going 
forward, that that is the area that this Committee and this 
Congress must address long term?
    Mr. Portman. Yes, thank you again for your good comments, 
Scott. And I have laid out already today by the President 
believes it is so important to make permanent the tax relief 
from 2001 and 2003. That is in our budget because we believe it 
is the right policy for America's working families, as you say, 
and for our economy. And the innovation and risk taking and 
entrepreneurial activity that it has generated has helped us to 
create the very increased revenues that let us talk about a 
balanced budget. So, to raise taxes as some have suggested 
seems to us to be exactly the wrong direction. Instead, we 
ought to focus on the spending side and that is what this 
budget does.
    I will also say that with regard to your question on the 
deficit today and where we are relative to the past, today's 
deficit in 2007 is approximately 1.8 percent of our GDP. 
Incidentally, when I first ran for Congress in 1992 it was 4.6 
percent of our GDP. So it is relatively low. The average over 
the years is 2.2 percent or 2.3 percent. The forty year average 
is 2.4 percent, actually. So, instead of 2.4 percent today we 
are at about 1.8 percent. So we have made progress. And we have 
made that progress together. The tax relief has helped to get 
the economy back on its feet. That economy has generated 
greater revenues and we have also done a little better job 
restraining spending. So, you know, it is a good news story in 
terms of the progress we are making. $165 billion in real 
reductions in the deficit over the last two years. But, it is 
not enough. Because we have to continue that to get to balance 
and also address the long term liabilities, which are not 
addressed through a five-year balance or a ten-year balance 
since those problems do not begin to emerge for another ten, 
fifteen, twenty, twenty-five years.
    I showed the thirty-year problem, and such a fiscal 
imbalance that we would have a huge problem on our hands with 
having to either raise taxes dramatically cut benefits 
dramatically, or go deeply into debt. We do not want to take 
any of those three bad choices. Rather, let us make small 
changes now. That is what we have in our budget. It is a first 
step. I acknowledge to you, you know, it is not the solution to 
all of these concerns that have been raised today about the 
unfunded obligations. But it is a first good step, and we hope 
that we can work with you, Mr. Garrett, and others to achieve 
that.
    Chairman Spratt. Mr. Allen?
    Mr. Allen. Thank you, Mr. Chairman. And thank you, Mr. 
Portman, for being here. I am going to restrain myself in all 
the conversation about the role of taxes or tax cuts on the 
economy and revenues because I do want to talk to you about the 
President's planned healthcare proposals. Anytime we work 
through the tax code to affect what kind of coverage people 
get, there are always intended and unintended consequences. And 
many experts looking at the President's plan suggest that it 
winds up with preferences for health savings accounts and also 
high deductible health plans. And therefore, it is likely to 
lead to a decline in employer sponsored coverage. Now, I think 
there are lots of problems with employer based health coverage 
in this country. But the President's plan is pushing people 
away from that kind of group coverage into the individual 
market. And it may well be, and I guess this is one question, 
do you anticipate declines in employer sponsored coverage since 
there would be less incentive for workers to demand it and less 
incentive for employers to provide it? And is it possible that 
if you have declines in employer based coverage, that that 
would offset any gains in the individual market? I would just 
say, the individual market in my state is very, very small and 
the fundamental problem is, if you are sick and if you are old 
you have a much harder time getting it than if you try to get 
coverage through a group policy.
    Mr. Portman. It is a fair question. And, you know, this 
healthcare debate is I think now engaged in a new way because 
of the proposal that we made in the budget regarding the tax 
treatment of healthcare. There should be no disincentive for an 
employer to continue offering just what that employer is 
offering now, for the simple reason, as you know, that the 
employer deduction stays the same. And that has been 
misunderstood by some people. It is a complicated area. But the 
only change that is contemplated in the proposal in the budget 
is that the exclusion from both payroll taxes and income taxes, 
which is like a super deduction, you know, because it gets 
payroll taxes also, would now be available to those people who 
do not get employer based coverage. So, if you are an employer 
in Maine and you are currently offering coverage, you should 
know you get the same tax advantage you get now.
    Having said that, I think there may be some employers who 
will choose, or maybe as you say their employees will choose, 
to go to the private market rather than stay with the employer 
market. Why? Because now that exclusion will be available to 
you whether you work in a place that offers healthcare 
insurance or not. You know, it is very hard to predict. The 
Treasury Department has a model out there, as you know, which 
shows that some people will lose their employer based coverage. 
They also, though, say to answer your final question that the 
net effect will be more people getting insurance coverage 
because think about it. If you are an individual, you now have 
the ability say if you are making about $60,000 a year to get 
about $4500 a year to go out and buy healthcare, so the net 
effect should be more people being insured. And it is really a 
fairness issue.
    Mr. Allen. Let me follow that one up. Because while I 
understand the administration has estimated a net three to five 
million of the nearly 47 million uninsured would get coverage 
under this flat deduction plan, well three to five million out 
of 47 million, especially when the number of uninsured is 
growing at about a million a year under the Bush 
administration, that is not very much. But I would like to know 
how solid that estimate is, you know, what the evidence behind 
it is if you could elaborate on that.
    Mr. Portman. Sure, and what I will do, we will provide you 
all the information the Department of Treasury model provides 
this. There is no, in my view from having looked at this, there 
is not the kind of solid information we would like to have as 
to what employers are likely to do because we have not tried 
this before. But one thing I would say is to cover an 
additional three to five million Americans is a good thing. So 
if that is the net effect, I would think that we as a Congress 
and President should look in that direction. Just by fairness, 
you know? If you get your coverage through an employer, fine. 
You should be able to get your exclusion. But you should also 
be able to get it if you do not have an employer that provides 
it.
    Mr. Allen. But the only addition here is that the thing 
about the group market is it is more in tune with the 
fundamental idea of insurance, that we all share the risk of 
illness or injury. Once you get to the individual market then 
you are leaving people on their own who are not, who are older 
or sicker, have a preexisting condition, or whatever. And that 
is a fundamental problem. What happens to those people who get 
left behind?
    Mr. Portman. Yeah, it is a fair question. Two thoughts on 
that. One, again, as you know this is voluntary so nobody is 
being forced to go into the individual market if the employer 
offers the coverage, which again employers should continue to 
offer for the most part because their benefits have not changed 
at all. Second is if you go to a state like Maine where, at 
least as you indicate the individual market is not as well 
developed, that may be more of a problem. Our healthcare is 
regional, as you know. And in some states actually the 
individual market is starting to develop and to create 
opportunities for people who may have a preexisting condition 
or, as you say, not eligible for Medicare but be an older 
worker that might have a harder time finding coverage. So part 
of this plan is how can we develop that individual market to 
make it more mature so you have the kind of transparency and 
competition you get through an individual market to try to 
reduce healthcare costs over all, for everybody. Finally, part 
of the President's proposal that is in this budget, as you 
know, is to work with the states, states like Maine, to be sure 
that we are focused on what some people might term uninsurable 
Americans. In other words, people that just have a very hard 
time getting health insurance. And that is through these state 
risk pools, which would be part of what Secretary Levitt, who I 
believe is going to talk before this Committee about this very 
issue, is going to be working with states on to try to 
encourage the formation of these kinds of pools. I assume Maine 
has such a risk pool to try to cover some of those folks you 
are talking about who are not likely to find coverage at work, 
or not likely to find coverage in an individual market.
    Mr. Allen. Thank you.
    Mr. Portman. Thank you.
    Chairman Spratt. Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman. Mr. Ambassador, 
Mr. Director, Rob, Friend, thank you, welcome. Good to see you 
here. I would like to start out with an observation, listening 
to my friends from the other side of the aisle I think our 
Chairman is going to have quite a quest. As I understand it, I 
look forward now to seeing the Democrat budget that does not 
borrow from the social security surplus, grants full AMT 
relief, fully funds the War, and pluses up a number of 
discretionary accounts, and then balances. That is a document, 
Mr. Chairman, I will look forward to seeing. I do, however, 
fear the tax burden that that is going to end up placing on 
small businesses and families in the Fifth Congressional 
District of Texas.
    Director Portman, one I want to be one to congratulate you 
and the administration for putting forth this budget. It is 
interesting to me how many people in this city have been 
focused upon balancing our unified budget, and indeed you now 
present one that achieves that. I am happy to celebrate that. I 
wish it was more from spending restraint as opposed to economic 
growth, but I salute it nonetheless.
    Now having said that, I am one who has always viewed the 
deficit to be a symptom and spending the disease so I am happy 
that we will at least in the short term eliminate this 
particular deficit.
    As you know, many still on the other side of the aisle are 
interested in rolling back the pro-growth tax relief that makes 
this balance possible and getting rid of the '01 and '03 tax 
relief. If I did my math correctly in looking at your budget, 
over the five year window the administration is proposing 
expenditures of about $15.3 trillion and the extension of the 
tax relief using static scoring is about $373 billion. So if I 
did my math right, the tax relief to the spending is about two 
and a half percent. Does that look like a pretty solid back of 
the envelope calculation?
    Mr. Portman. Yes, that sounds pretty close.
    Mr. Hensarling. So if you are really trying to achieve 
balance, if you are really concerned about these problems, it 
would seem to me you would want to focus not just on the two 
and a half percent that accounts for tax relief but on the 
ninety-seven and a half percent that accounts for spending.
    As you well know, recently we have had the head of CBO and 
the head of GAO in to testify before our Committee. I do not 
have the transcripts in front of me, but I think hopefully 
everybody would agree that a fair assessment of what they said 
is that the number one fiscal challenge of the nation is to 
reform entitlement spending. Your budget makes some modest 
proposals in that regard. But indeed, can we ever, are you 
serious about the fiscal challenges of this nation? And are you 
being fiscally responsible if you put forth a budget that does 
not have entitlement savings?
    Mr. Portman. I think that is the key challenge we face as a 
country, as I said earlier. And I think that has been confirmed 
by much more knowledgeable and wiser people like Fed Chairman 
Ben Bernanke or some of the other witnesses you mentioned who 
have been before the Committee. This budget does address the 
issue. It is not going to be easy politically for Congress to 
deal with this, never has been. On the other hand, look what we 
did in 1997, the last time we joined hands for a balanced 
budget, we were much more ambitious, frankly. And John Spratt 
was part of that. Some of us, you called me an old colleague 
earlier, so I am old enough to say I was here. And the number 
there was closer to $150 billion. We are talking about a number 
at about $66 billion as a percent of the Medicare program, or a 
percent of entitlements, of course it was significantly more 
because these programs have grown so much in the interim.
    So it is difficult politically, I understand that. But it 
is the right thing to do and it is less than we have challenged 
ourselves to do in the past. In fact, it is less than we did in 
1990 with OBRA or the second OBRA in 1993, as to Medicare, both 
in nominal terms and as a percent of those programs.
    Mr. Hensarling. Director Portman, my time is about to run 
out. Dr. Orszag, who now heads up our CBO, I believe testified 
in our last hearing, even assuming that you let the pro-growth 
tax relief expire, even assuming no AMT relief, that we would 
have to increase taxes by fifty percent on the next generation 
just to balance the budget if we do not reform entitlement 
spending. Has your office looked at that analysis and have you 
reached a conclusion?
    Mr. Portman. We have looked at the testimony by Peter 
Orszag, the new head of the Congressional Budget Office, and we 
may have some differences, as I said earlier, on the 
assumptions. But we agree with the premise, which is that as I 
said earlier, if we do not make sensible changes now that have 
bigger out year changes to these programs to reform them, and 
in some cases improve these programs in terms of the fraud and 
the abuse that is in some of the payments, or right size some 
of the payments, then we will have stark choices. And one will 
be dramatic increases. I do not know if the fifty percent 
increase is exactly where we are. We might be a little higher 
than that, actually, based on our analysis. But it would be 
extremely detrimental to our economy and to the next 
generations that are depending on us to do what is responsible, 
which is to begin the process of changing these programs so 
they are sustainable over the long term.
    I will also say that you will see in our budget not just 
the proposals, those very specific proposals, on the programs 
that are the fastest growing programs and that create the 
biggest fiscal challenge, Medicare in particular with a $32 
trillion unfunded obligation. But we also have in place a 
Medicare trigger in our budget proposal, similar to what 
Congress has already enacted. But with more enforcement so 
instead of having the current trigger, which says that if the 
forty-five percent of general revenue is exceeded for two years 
in a row and it is a six-year projection, and then Congress has 
to take up something without any teeth in it. In other words, 
there is no requirement that Congress do any particular reforms 
of these programs. We actually put in place what would be a 
sequester at that point. I do not think Congress would do that. 
But I think Congress instead would do the right thing, which is 
to make these relatively small reforms in the programs. So we 
not only deal with this issue as you have noted with some very 
specific ideas on our part that begin taking the right steps, 
but we also have this broader budget reform proposal that we 
think could be extremely helpful to Congress to encourage all 
of us to do the right thing for future generations.
    Mr. Hensarling. Thank you, Mr. Chairman.
    Chairman Spratt. Mr. Becerra, if he would hold for one 
second just to comment to what you were saying. Our concern is, 
among other things with the cuts you would make in Medicare, 
why some of those savings are not redirected to other 
healthcare needs, such as the sustainable growth rate factor. 
That is not addressed, I do not believe, in your budget. And 
also, we wonder if it is justifiable in light of the $262 
billion over ten years you are cutting in Medicare to continue 
paying managed care providers under Medicare an amount in 
excess of what the fee for service providers are paid. Just to 
leave those two thoughts with you. Some of the money that is 
saved we think should be used for Medicare and healthcare 
programs. Now, Mr. Becerra?
    Mr. Becerra. Thank you, Mr. Chairman. Mr. Portman, good to 
see you. It is fascinating when we talk about the budget, the 
economy, I know that if you are watching a program about Wall 
Street the picture is very rosy, people are very happy. But 
when you turn on the television and listen to the comments of 
people on Main Street, they seem to be directly opposite of 
what you are hearing on Wall Street. So many people today think 
that the country is on the wrong track. So many people do not 
believe that their financial situation has improved. Many 
people do not see how they are going to afford to send their 
kids to college. Try to buy a house these days in many parts of 
the country. The economic growth has shown that even though we 
have created some jobs, the President is averaging about a, 
well, less than 100,000 a month in job creation when the 
previous President, President Clinton, averaged somewhere about 
250,000 per month. And so, when you take a look at what is 
going on you can begin to understand why people are somewhat 
disbelieving of what they hear. And I want to focus on 
something that I think will only add to that disbelief, the 
lack of trust that the public will have in the way the federal 
government operates especially with regard to the budget.
    The President's budget, as you have testified, shows that 
we are going to continue to diminish the size of the budget 
deficits over the next five years to the point where by 2012 we 
will have a $61 billion surplus. That assumes that we will have 
to use every single cent of what is contributed on a daily 
basis by working Americans to the social security system 
through the trust fund. In 2007, social security will collect 
$190 billion in worker contributions beyond what it needs. That 
surplus, Americans believe, goes into a trust fund. That 
surplus, under the President's budget, is used to offset the 
size of the budget deficit. The actual budget deficit for 2007 
is not just $244 billion as you have said. It is $434 billion. 
But because we are using every single cent of the social 
security trust fund surplus, we can mask the actual size of the 
operating budget surplus. We do that again in 2008. The deficit 
the Bush budget says is $239 billion. Well, without using 
social security monies the actual size of the deficit would be 
$432 billion. In 2009, the administration's budget says we go 
down to $187 billion deficit, still large. But if you take out 
the monies that are being used from social security to diminish 
the size of the deficit, the deficit would be $405 billion. To 
the point that in 2012 when the President's budget projects a 
$61 billion, if you were to take out the money that is being 
used from the social security trust fund to help mask that the 
actual size of the budget, deficit, or surplus is a deficit of 
$194 billion even in 2012.
    And so, when you take $1 trillion, $200 billion or so out 
of social security monies that today the American worker who 
went to his job, her job today, and knows that by the end of 
the month the FICA deduction will be taken out of his or her 
check that says it is going to go for social security and for 
Medicare, everyone believes that that is what they are 
contributing towards. But the reality is that our federal 
budget is operating using every single dime, every single cent 
of the social security money that is being contributed that is 
not needed today for social security.
    And so, when we see these polls that show that Americans 
are very concerned, that they do not believe that we are going 
through very good times, you can understand it when you see how 
difficult it is for them to send their kids to college or to be 
able to buy a new home or believe that the government is going 
to do right by them on social security.
    So, Mr. Portman, I guess my question is how do we in this 
whole truth in budgeting process, as we try to explain it to 
the American public, explain to them why the President does not 
include a long term fix for the alternative minimum tax which 
we know is going to creep up and grab millions of Americans in 
the next few years in new tax bites that they are not 
expecting? How do we explain to the American people that we do 
not forecast in the President's budget the long term costs of 
the Iraq War? I do not believe that any American says that we 
are going to be done in a year or even two. And how do we then 
account to the American public for using every single cent of 
the social security trust fund for things that do not relate to 
social security?
    Mr. Portman. It is interesting to hear the comments from my 
former colleague on the Ways and Means Committee about social 
security. I agree with you. And, again, we have laid that out 
through the Financial Report of the United States I talked to 
you about. I think we should be as transparent as possible on 
the fact that we are using social security trust fund 
surpluses. We have for forty years, as you know. You all will 
in your budget. The Congressional Budget Office does. Democrat 
administrations alike have done this for forty years. And it is 
a, you know, it is a credible approach in the sense that it is 
all the money in and all the money out. You know, what would 
you do with that surplus otherwise? You cannot put it under the 
mattress. That is not what we do under law. But, we should know 
that that is what is happening. And that is all the more reason 
to get to balance. I mean, I guess it would lead me to the 
conclusion that we need to do all we can to restrain spending, 
keep the economy growing, to get to balance. Because that at a 
minimum is where we should be to prepare for the retirement of 
the baby boom generation and the increasing healthcare costs 
that you talked about.
    So I do not disagree with you on that. I do disagree with 
you on the economy. We are blessed with an economy that right 
now is the envy of the world. You know, we have got lower 
unemployment rates than we had during the 1990's. During the 
recovery in the 1990's wages did go up but guess what? Wages 
are going up faster in this recovery than they did in the late 
1990's with that recovery. The consumer confidence numbers came 
out this week, I am sure you saw them, a five-year high in 
consumer confidence. So maybe the polling data in your district 
is a little different. You have very high housing costs I know 
in your district in California and there are certainly 
challenges out there. No question, housing is one of them.
    But we are right now in a situation where we have a strong, 
a growing economy. We need to keep that economy growing. It is 
the economy that has generated these record revenues we talked 
about. I mean, they are record revenues the last two years that 
reduced the deficit along with some better spending restraint 
by $165 billion. That is a fact. And so all I would say is, I 
do not disagree with you at all on the fact that we should be 
telling the American people about the social security surplus. 
I am glad you explained it. I thought you explained it well 
today. I hope I have been transparent about it today. It is 
there. On the other hand, it is all the more reason for us to 
redouble our efforts to keep constraints on the spending side, 
keep the economy moving ahead, which is, you know, the magic 
formula that has gotten us to a better situation today at 1.8 
percent deficits rather than the average of 2.4 percent. Or as 
I said, when I first ran for office 4.6 percent. We are making 
progress. Let us keep making progress and then let us get to a 
surplus. Because when you get to a surplus you deal with the 
debt in a more direct way. You deal with the social security 
surplus and all the other issues that you raised.
    I have already talked about the AMT issue, our budget as 
you know provides for this patch in the first year. That takes 
us out until the end of 2008 before Congress would have to act 
again. We agree with you. It is a major problem. We think it is 
misguided tax policy the way it is not indexed.
    With regard to the costs of war, as you know we are showing 
more than we have before. More importantly, we are showing out 
as far as we can possibly estimate. You can imagine the 
military planners are anxious about what we are showing because 
we are showing costs that will not be incurred, as you know, 
for eighteen months, two years, sometimes three years because 
we are showing costs out beyond this administration. Things 
will change on the ground. We do not know what is going to 
happen. We are very hopeful that the new strategy that the 
President, General Petraeus, and others are engaged in will 
begin to quell the sectarian violence and we will have better 
news. That is our plan. But we do not project that in 
particular with this budget. But we, you know, have a very 
difficult time giving you anything that is not misleading 
beyond the time period that we have provided.
    Chairman Spratt. Mr. Campbell is not here. Mr. Alexander is 
not here. Mr. Diaz-Balart?
    Mr. Diaz-Balart. Thank you very much, Mr. Chairman. 
Ambassador Portman, it is good to see you, sir. I want to first 
thank you for really the service that you are continuing to 
provide your country with just great honor and great integrity, 
and you have our admiration for that and our thanks.
    A couple of questions. A lot of them talked about the 
mandatory spending and I really want to commend you for 
addressing, starting to address this issue of mandatory 
spending. The President a while ago recommended and asked for a 
bipartisan commission or committee of members of Congress to 
try to, with putting everything on the table, try to address 
this long term issue. It was pretty much rejected by the now 
majority party. Is the President, would the President still be 
open to that idea of a bipartisan group of members of Congress, 
with putting everything on the table, with no preconditions, to 
try to see if we can get a better handle on that issue? That is 
question number one, if you will just hold the answers.
    Question number two, I just wanted to make sure that I am 
not confused. I am not the smartest guy in the world, but when 
I heard the presentation and then I later heard our Chairman 
who I clearly a bright an honorable person talk about Medicare 
cuts in your budget. I understood that there are not Medicare 
cuts, that there is a decrease in the increase. I just wanted 
to make sure that I did not get that wrong. Is there less money 
for Medicaid in out years than there is now, which would be a 
cut? Or did I understand you correctly the first time?
    And lastly, we keep talking about, you know, tax cuts. And 
I just want to make sure that I understand what some of those 
tax, the continuation of that tax relief that is in your 
budget. I just want to mention a few of them and make sure 
those are still in there and that those are the ones that you 
are considering that the President is still supporting. For 
example, the Child Tax Credit, is that extended, that tax cut 
per child? Is the marriage penalty relief, is that still 
extended? And if it is not, obviously then ever married couple 
would pay more just because of the fact that they are married. 
Is the college tuition deduction still supported by the 
President? Is the schoolteacher expense deduction still 
supported by the President? I just want to kind of clarify, 
simplify for somebody who is a simpleminded person like me what 
are some of the specific tax cuts that the President is still 
supporting and that is reflected in your budget? And with that 
I will allow you to answer the questions. Thank you. Thank you, 
Mr. Chairman.
    Mr. Portman. Thank you. Good questions, and I appreciate 
your asking about the bipartisan commission idea. As you know, 
the President presented that in the State of the Union a year 
ago. He believes that we should be working on a bipartisan 
basis to try to address these entitlement challenges we face. 
He is absolutely in favor of that. And, you know, I think in an 
election year it was probably hard for Republicans and 
Democrats alike to come together. There was not a whole lot of 
interest expressed by Democrat leadership at that time. Now we 
are beyond that election. There is always another election 
coming, but at least we are not in an election year this year. 
So it seems to us like this is a good year for us to come 
together. There has been some discussion and Chairman Spratt 
has been part of some of these discussions about a working 
group. We are not concerned as much about whether we call it a 
commission or a working group, or even what the precise 
membership is. In other words whether it is outside experts 
that typically a commission would include or whether it is done 
with leaders in Congress. We would support either, and both, 
and would be eager to work with Chairman Spratt, Ranking Member 
Ryan, leadership on both sides of the aisle and both sides of 
the Capitol on a commission or a working group to deal with the 
entitlement issue. And we believe everything should be on the 
table. And frankly, that is a change I think on both sides if 
we were to be able to say, ``No preconditions.'' So I am more 
hopeful than most. Maybe I am naive, but I am more hopeful than 
most both because of the increasing acknowledgment on both 
sides of the aisle of the severity of this problem and because 
of the discussion of coming together in some sort of a forum.
    On your Medicare and Medicaid question, absolutely. The 
Medicare program over the next ten years grows at 7.6 percent. 
Instead with all of the proposals that we have included in our 
budget, it would grow still--I'm sorry 7.4 percent over ten 
years under current projections and instead it would grow at 
6.7 percent. So 7.4 percent versus 6.7 percent would be the 
difference. That still is a healthy rate of growth as an annual 
rate of growth. It is, of course, way higher than inflation. It 
is, of course, higher than the growth of our economy. It is, of 
course, higher than the rest of domestic spending which the 
last three years Congress has kept to around one percent and we 
project going forward. So it is a substantial growth and it is 
a substantial commitment to our seniors. On Medicaid, the 
growth rate is projected to be about 7.3 percent over that 
period of time. All of the proposals in our budget would mean 
there would be a growth of about 7.1 percent. So still, again, 
a substantial growth well beyond inflation, the growth of our 
economy and other domestic spending.
    With regard to the tax relief, you are absolutely right. It 
would include the marriage penalty relief but also child tax 
credit, also expansion of the ten percent bracket. Also, again, 
tax relief that is critically important we think to innovation 
and entrepreneurial activity that has helped create the 
additional investment and jobs to put us in this position today 
of having more revenues and therefore a chance to balance this 
budget. So we would hope that that tax relief could be 
continued rather than raising taxes on America's families and 
on those that are creating opportunities for others that would 
incur if we did not continue that tax relief. So those are all 
measures that would be expiring in 2010 unless Congress acted.
    Chairman Spratt. Mr. Doggett?
    Mr. Doggett. Thank you Mr. Chairman, and Mr. Portman for 
your testimony. Mr. Portman, I want to be sure that I 
understand the request from the administration concerning the 
President's widening of the War in Iraq. As I understand it, 
you have included additional monies in the 2007 war 
supplemental for the additional 21,500 combat troops, but you 
have not included it in the 2008 budget request. And therefore 
the funding for those troops comes to an abrupt halt on 
September 30 of this year. Is that correct?
    Mr. Portman. Mr. Doggett, you are correct. It is in the 
2007 supplemental, but it is not included in the 2008 
supplemental.
    Mr. Doggett. Not in the 2008. So, if we want to continue 
that escalation and widening of the War after September 30 of 
this year, the Administration will be back asking for more 
money if they find that necessary?
    Mr. Portman. You know, I think so. Let me tell you what we 
are proposing in 2008. And, again, as I said earlier----
    Mr. Doggett. Well, let me come back to that at the 
conclusion and let me just----
    Mr. Portman. Because I think it answers your first 
question. If you look at 2008, and we have provided you not 
just the supplemental request but, let me pull those boxes up. 
Here are the justifications that go with this 2008 request. We 
have never done this before. So it is a lot of detail and you 
will have the chance to have oversight and look at it. It is 
basically a straight line projection. In other words, it----
    Mr. Doggett. Yes, sir. I want to talk to you about those 
assumptions.
    Mr. Portman. Yeah.
    Mr. Doggett. But you've answered my question, that come 
September 30 no money is requested by this administration for 
this escalation that it says is going to solve all our problems 
there.
    Mr. Portman. It depends----
    Mr. Doggett. And also with reference----
    Mr. Portman. It depends what is happening at that time, 
that is what my point is. Just to not assume----
    Mr. Doggett. Yes, sir. Well, we are going to talk about 
what is happening at that time next.
    Mr. Portman. Okay.
    Mr. Doggett. But you also did not include in the 
supplemental request, even from now until September 30, the 
dollars for the support of those 21,000 additional troops. 
Which the Congressional Budget Office answered a request from 
our Chairman, Mr. Spratt, last Friday that the true cost of the 
escalation the President has proposed is not $5.6 billion as 
you have requested, but could be as much as $27 billion for 
48,000 more troops. And so, if you get the true cost, again, if 
not enough money has been included here we can expect yet 
another supplemental increase. I realize you brought along a 
few boxes and you sent boxes of papers over to the committees. 
But I think all we have gotten is really just a glossy version 
of what we have had in the past and not the kind of detailed 
accounting that is done with the regular defense budget.
    I think what we are finding is that just as the cost in 
blood and money for the President's invasion of Iraq has 
skyrocketed from what the American people were told at the 
outset, the cost of the President's decision to reject sound 
military advice and the Iraq Study Group findings by escalating 
and widening the War are escalating even before the escalation 
gets under way. Initially, administration officials claimed 
that the expansion would only cost $5.6 billion for 21,000 
troops. We now know that that is not accurate, even though 
there is some debate about how big that increase is. You were 
going to tell me about the flat lining afterwards. We also have 
the new National Intelligence Estimate. And it concludes that 
even after eighteen months, not on September 30 but even after 
eighteen months, the Iraqis will not likely have significantly 
increased their security enough to reach the level that the 
President said they would be at last year. This directly 
conflicts with your budgeting and with Secretary Gates' claim 
that the escalation will only last for a few months. Unless it 
is the administration's intention to simply escalate and then 
leave before the security level that can be provided by the 
Iraqi troops is where the National Intelligence Estimate says 
it will be.
    The Defense Department testified from that same chair to 
the Committee a couple weeks ago that the administration is 
running through money in Iraq at about $10 billion a month. And 
that it does not have even an operational plan, a scenario, or 
a cost analysis for bringing the troops home at anytime in the 
future. In view of that, and the findings of the new National 
Intelligence Estimate that the Iraqis will not be up to the job 
a year and a half from now, to put in $50 billion as the cost 
of the War for the budget that you would be submitting when you 
are sitting in this chair at this time next year to begin in 
September of 2008 is just in conflict with a President who 
stated publicly that he plans to just hand this problem off to 
his successor. And it seems to me that it is as misleading as 
the claims that were made at the outset of the War that the 
total cost of the War including sweeping away the rose petals 
from the streets would not exceed $50 billion.
    I know that you have said much of this is incalculable. 
Certainly the suffering the administration policy caused is 
incalculable. Certainly the loss of our standing in the world 
is incalculable. But is it not grossly misleading to calculate 
that the annual cost of this War for the fiscal year that will 
begin eighteen months from now will be only $50 billion? And 
does this not just represent a continuation of the deceit of 
Congress and the American people concerning what it costs in 
money, not to mention blood, for this widening conflict?
    Mr. Portman. Thank you, Mr. Doggett. I do not know if it 
will make you happy or not but I think I can clarify some of 
your thinking on what we have presented. It is a good faith 
effort, as I said earlier, to try to present more and better 
information. It is not accurate to say, as you did, that it 
does not provide account level information. It does for the 
first time. And so although it is a chapter of the budget, not 
part of the DOD base, which I would argue is the appropriate 
way to present it and I would hope you budgeteers would agree 
on that, it does provide the account level information you 
would expect in the DOD base. We have not done that before.
    Mr. Doggett. So you do provide the O-1s and the M-1s?
    Mr. Portman. Yes.
    Mr. Doggett. Okay, thank you.
    Mr. Portman. I am glad that makes you feel better. Second, 
you say that we are wrong in our estimate of $5.6 billion. We 
are not. We are, again CBO makes very different assumptions 
than we do. One of our assumptions, and it is deliberate, is 
that this is fiscal year 2007. So we do not, under our plan, 
have this increased in brigades. And I will talk about it in a 
second. Some other assumptions that are different----
    Mr. Doggett. Just as to that assumption, so we do them one 
at a time, your assumption is then that the escalation ends on 
September 30?
    Mr. Portman. That is correct.
    Mr. Doggett. Okay.
    Mr. Portman. You had said earlier that it is just a few 
months. That is more than a few months. But it is within this 
fiscal year, through the end of September. Second, you know, 
CBO makes an assumption, I wish they would talk to us first 
before they came out with their assumptions. Because we have 
done a lot of work on this, both DOD and at OMB, scrubbing the 
DOD request. A lot of this comes, as you know, from extensions 
of existing deployments. And they are assuming it would be all 
new troops going over to the region, which is more expensive. 
But we have laid out, you know, again deliberately a plan here 
that does involve extending some of the deployments that are 
currently in the theater. And then finally, you know, in terms 
of the support troops, we believe that the support troops 
currently on the ground can provide more support. And we have a 
way that we can demonstrate that. If CBO had come to us 
earlier, I think it would have been helpful. And also, again, 
some of those troops are not troops coming over with the 
reinforcements but would be extensions of existing deployments.
    So that is the difference in our $5.6 billion figure and 
their figure. But it is an assumption, that this increase in 
brigades, this reinforcement, will over this fiscal year have 
the intended effect. And that is what our military planners 
think.
    I guess the final thing I would just say is, you know, we 
are providing to you and to the American people a lot of detail 
here some of which, and that is one reason why I wanted to talk 
about the straight line, is very difficult to predict. A few 
months from now things will have changed. Two years from now, 
which is where most of the 2008 funding would actually be 
spent, things will have changed a lot. We are hopeful that our 
plan will be successful. We believe that it will be to quell 
some of this sectarian violence, to enable us not to have to 
incur these same costs.
    But what we are giving you in 2008, just so you understand, 
does not reflect that. It reflects a straight line in terms of 
the military operations. The difference, because it is our good 
faith effort to try to give you in a transparent way that 
option. But it is that option. It is $145 versus $170. You 
might ask why. The reason there is that, as you will see in the 
170, we, you and Congress and we, have decided to front load 
more of these costs on what is called reconstitution or reset. 
Instead of putting $50 billion in the bridge, you remember in 
October we put $70 billion in because we added twenty-two or 
twenty-three in terms of reset or reconstitution of equipment 
subject to wear and tear in the theater. That is a decision we 
have made to invest more heavily in that in 2007 than we had 
previously projected. Some of that money will not be spent, as 
you know, for two or three or four years. But in terms of the 
military operations, and there is reset in 2008 as well, again, 
we are providing all of this justification. You can pick it 
apart. You may disagree with it. But I do not want to 
overstate, frankly, what we are presenting you in terms its 
accuracy because it is impossible to predict. Our military 
planners can't----
    Mr. Doggett. Mr. Chairman, thank you for your tolerance but 
this is so very important. I just want to be clear on the very 
first point you made. You are saying that the best judgment of 
yourself, your military planners, Secretary Gates, Vice 
President Cheney, and the whole lot, is that this escalation, 
which has not quite gotten underway yet, will be over before 
September 30 of this year?
    Mr. Portman. What I am saying is, it is not my estimation. 
I am the budget guy and my job is to be sure appropriate 
resources are there for an appropriate request. And what the 
military planners have said is that this is a deliberate policy 
decision on our part, that the additional brigades, the 
reinforcements, would be within this fiscal year.
    Mr. Doggett. So is it a deliberate decision you will not 
need them after September 30? Or that you just want to deceive 
the American people that you will not need them after that by 
not putting any money in?
    Mr. Portman. No, that is our plan.
    Mr. Doggett. Thank you.
    Chairman Spratt. Mr. Tiberi?
    Mr. Tiberi. Thank you, Mr. Chairman. Welcome back, 
Director.
    Mr. Portman. Appreciate it.
    Mr. Tiberi. Good to have you here.
    Mr. Portman. Thank you.
    Mr. Tiberi. As you know, we in the House last month passed 
a new PAYGO rule. In your judgment, what does the effect of 
this rule have on the budgeting process? And more importantly 
to your testimony, long term what in your judgment does this 
new rule have, what effect will it have particularly on the 
next generation? And you have a vested interest as a father of 
three young children, one of whom may, your daughter may be 
here in Congress one day trying to struggle with those issues.
    Mr. Portman. More likely her than the other two.
    Mr. Tiberi. That is right. I know all three of them, that 
is why I mentioned her.
    Mr. Portman. You know, in our budget proposal we take a 
little different approach on the PAYGO side. As we said 
earlier, when you look at the big picture here we are not an 
under-taxed society. Our issue is spending. We have now levels 
of taxation that are above the historical level and we project 
that to continue over the five and ten year period. In terms of 
the spending side, we think it is important to have more 
discipline in the process. The PAYGO that you all passed does 
apply to spending but only to new entitlement spending. In 
other words, it does nothing about the continual problem we 
have talked about at length here today of the unsustainable 
growth in the programs. It does say if you want to add more on 
top of that you would have the find the resources to pay for 
it. It does also not address the day to day government spending 
that is annually appropriated. And I think that would be a 
surprise to a lot of Americans to hear that. But what most 
people think about government spending, the agencies and 
departments and programs that are annually appropriated are not 
subject to PAYGO under the rule that you all passed.
    So I said in my testimony we in effect extend PAYGO to the 
domestic side by having caps on domestic spending, enforceable 
caps which would act like PAYGO. So we go further on the 
spending side. Plus, we have this trigger mechanism for the 
largest fiscal problem we face which is on the Medicare side, 
that if Congress determines that the Medicare program is 
growing at these fast, unsustainable rates then Congress has to 
do something about it. So we take a little different approach. 
We think that if you apply it on the tax side and say that you 
cannot extend existing tax relief, like the tax relief that Mr. 
Diaz-Balart talked about, that that could have a very 
detrimental impact on our economy and on many American 
families. And we think instead we ought to focus on the 
spending side.
    So that is, I guess, the difference in our approaches. We 
do believe in PAYGO. We apply it more broadly on the spending 
side, both on existing, mandatory spending and on the domestic, 
discretionary spending that you all appropriate every year.
    Mr. Tiberi. Switching gears a little bit, Director, as a 
new member of this Committee I noticed a little bit of give and 
take between you and the Chairman and a few other members about 
the budgeting process. And you have been a member of this 
Committee. You have been a member of the House in the minority 
and in the majority. You were a member of the House with a 
Democrat President and Republican President. With respect to 
the budgeting process, whether it be war costs, whether it be 
AMT relief, whether it be other matters that have been talked 
about today, you have gently talked about the fact that 
Republicans and Democrats do the process the same. So are you 
saying that when the, when Mr. Clinton did his budgeting, same 
as this President is doing his budgeting? When the current 
majority was the majority when you were in Congress at the 
beginning of your career are you saying it was done the same?
    Mr. Portman. Yes, I am. And we have talked about different 
approaches to budgeting, how you can look at the obligations of 
the government differently. What we have chosen to do is budget 
on the basis of a unified budget, meaning all of the money in, 
including payroll taxes, and all of the money out. And the 
point that I was making earlier is, at a minimum we ought to be 
able to achieve a balance in terms of that approach to 
budgeting. In other words, be sure that all the funds coming in 
and all the funds going out reach a balance just as happens in 
every American family, every small business in America. You 
have to figure out a way to balance.
    There are ways to look at this that are more like 
businesses, which is an accrual method where you say, ``Gee, 
what are your actual liabilities?'' For instance, retirement of 
our federal employees. Should that be included? And that would 
be sort of the next step as a net operating cost budget. 
Discussion was here today about showing the surplus in social 
security. That is another way you could approach it. And then 
the final one, of many options, would be to look at what our 
obligations are. They are not liabilities because we have the 
ability to change the direction of these programs, and we must 
in my view. But what would it mean if we did not? And that is 
the $32 trillion unfunded obligation in Medicare or the $5 
trillion unfunded obligation over seventy-five years in social 
security.
    So I guess you are absolutely right. This is the way it has 
been done in the past. This is the way I believe, you know, we 
ought to achieve balance together. That would be a first good 
step. But at the same time, we should be more transparent in 
showing these other approaches and other costs. And that is why 
I shared this with you today, which has the operating cost 
approach I just talked about and also has the ability for us to 
look at what they call I think the social insurance long term 
forecast, which is along the lines of the unfunded obligations 
I talked about. So we provided this on our website, omb.gov. It 
is on the Treasury website. I encourage people to look at it 
and understand as best we can provide what the fiscal situation 
is of the United States.
    Mr. Tiberi. Thank you.
    Chairman Spratt. Thank you. Mr. Berry?
    Mr. Berry. Thank you, Mr. Chairman. Mr. Director, I 
appreciate you being here. Also, you will have to forgive my 
cynicism and my having a hard time buying into some of this. My 
first thought is, if we are doing so good how come we are 
broke? We have borrowed $3 trillion under this administration 
and if it gets any better I do not know how we are going to 
stand it. My second thought, and I have told you this, I 
remember your predecessor, or one of your predecessors, coming 
to the blue dogs back in April of 2001 assuring us that if we 
just voted for those tax cuts that the greatest danger would be 
that we would pay off all of the debt and people would not have 
a safe place to invest their money because there would not be a 
U.S. Treasury Bond. Thank God we have avoided that horrible 
situation.
    Now, I want to shift gears just a little bit. I notice you 
have a $15.5 billion decrease in your budget for commodity 
support programs and crop insurance. The question I would like 
to ask you is this, has OMB or anyone else to your knowledge or 
to your ability to discover, and I would not expect you to 
answer this today, ever calculated the value that the American 
people receive by having by more than fifty percent the lowest 
cost for food and fiber of any nation in the world? We spend 
less than half as much money of our disposable income in this 
country of any nation in the world. I believe that farm 
programs contribute to that and they make it possible. Because 
the only justification for a farm program is to have adequate 
production and processing capacity so that the American people 
have a guaranteed, reasonably priced, safe food and fiber 
supply. And there is no other reason to have that.
    I think that over the years we have done a pretty good job. 
The last Farm Bill cost considerably less than the tens of 
billions of dollars less than what it was projected to cost. 
And I question the cut that you have made here as far as our 
national security is concerned. If we do not have the ability 
to feed ourselves and clothe ourselves, well not having enough 
gasoline is a big problem. Not having enough food and clothing 
is a sure enough serious problems. So, like I say, I would not 
expect you to answer that today. But I would like to know if 
anybody has ever looked at it. And if there is an answer to it 
I would like to hear it at some point in the future.
    [The information requested follows:]

        Responses to Congressman Berry's Question for the Record
                         From Director Portman

    Question: Now, I want to shift gears just a little bit. I notice 
you have a $15.5 billion decrease in your budget for commodities 
support programs and crop insurance.
    The question I would like to ask you is this: Has OMB or anyone 
else to your knowledge, or to your ability to discover--and I wouldn't 
expect you to answer this today--ever calculated the value that the 
American people receive by having, by more than 50 percent, the lowest 
cost for food and fiber of any nation in the world?
    We spend less than half as much money of our disposable income in 
this country of any nation in the world. I believe that farm programs 
contribute to that and they make it possible, because the only 
justification for a farm program is to have adequate production and 
processing capacity so that the American people have a guaranteed, 
reasonably priced, safe food and fiber supply. And there's no other 
reason to have that.
    I think that over the years we've done a pretty good job. The last 
farm bill cost considerably less, in the tens of billions of dollars 
less, than what it was projected to cost. And I question the cut that 
you have made here as far as our national security is concerned.
    If we don't have the ability to feed ourselves and clothe 
ourselves--not having enough gasoline is a big problem. Not having 
enough food and clothing is a ``sho 'nuff'' serious problem.
    So, like I say, I wouldn't expect you to answer that today, but I 
would like to know if anybody's ever looked at it. And if there is an 
answer to it, I'd like to hear it at some point in the future.
    Answer:
     I can not verify that U.S. food costs are 50 percent lower 
than anywhere else in the world, but I agree with your general 
observations that we have an abundant food supply at very reasonable 
prices. Much of the credit for this accomplishment goes to the 
ingenuity of America's farmers.
     The farm economy continues to be extremely strong, despite 
a reduction in government payments (due to high prices) and higher 
input costs.
     Net cash farm income is forecast to be $66.7 billion in 
2006, following highs of $81.5 billion in 2004 and $81.2 billion in 
2005. The 3-year period 2003-2005 was one of unprecedented income 
creation for the U.S. farm sector.
     Total cash farm receipts are forecast to be $242 billion 
in 2006, the fourth consecutive year that cash receipts have attained a 
new record level.
     The Administration's farm bill proposal is meant to build 
on the current law by reacting to changes in market conditions while 
maintaining a safety net. Comments from 52 listening sessions that the 
Secretary of Agriculture conducted with agricultural producers and 
stakeholders were used to develop the Administration's proposals, which 
address the agricultural sector's concerns.
     The majority of the reduction in commodity spending that 
you cite is not due to policy changes, but the result of high commodity 
prices reducing government spending on commodity support programs. 
However, if actual prices turn out to be lower than estimated, outlays 
will increase automatically above the budget estimates.
     In fact, the Administration's farm bill proposal includes 
a net $5 billion increase over baseline spending for agriculture. The 
proposed reductions in commodity spending will be more than offset by 
increases in spending for other areas such as conservation, energy, and 
rural development.

    We sit in this Committee meeting and we discuss tax rights 
as if that was the only issue as far as economic growth is 
concerned. And we talk about entitlement reform. And I know 
that you have made those recommendations in your budget. Why do 
you not ever look at how much money we could save if the 
American people received the world market price for 
pharmaceuticals? Why do you not ever consider in your budgets 
reducing, I know you take up reducing expenditures or payments 
to providers, but you never consider reducing payments to 
private insurance companies that provide Medicare Part D and 
the Medicare Plus choice and some of those privately run senior 
citizens' programs. I am curious as to why you do not ever 
consider reducing their payments as well. I would love for you 
to get back to me on that.
    And certainly you are right. We are all in this together. I 
feel like right now that you might have bought a ticket on the 
Titanic. And I am trying not to get on the boat.
    Mr. Portman. Well, thank you Mr. Berry. We will get back to 
you on that lowest cost of food and what is the impact on our 
economy, and how is that benefit, you know, balanced with the 
Farm Bill changes we are recommending. I think Secretary 
Johanns sits before you later this week or next week, and I 
think you are getting an opportunity to get into some of the 
Farm Bill issues with him directly. I will say that in the 
budget, from the budget perspective, if we had taken the 2002 
Farm Bill, which is the most generous farm bill that we have 
passed in this country, and extended it out for five years, or 
for ten years under our budget five years, the baseline 
spending, because of high prices, as you know, would have had a 
lower cost to the budget than we put in. In other words, we 
have added $5 billion over ten years to what would have been 
the 2002 baseline.
    We did that because, as you know, in the Farm Bill proposal 
that Secretary Johanns laid out there are some changes both on 
the commodities side as you indicate but also on some of the 
so-called green box, research and conservation and so on, have 
additional spending. So actually our baseline, and Mr. Spratt 
knows what I am talking about, had to be increased not 
decreased for the Farm Bill because we added another $5 
billion. I do understand your concerns on the commodity 
programs because there are some reforms projected by Secretary 
Johanns in those programs. And again, you will have a chance to 
talk to him about that, about the Rice Program and so on, and 
how that would work. But the Marketing Loan Program, Counter-
Cyclical Program, changes notwithstanding, there is actually 
more money in the budget for our farmers than we would have had 
under the 2002 bill.
    We will work with you on that. I mean, we are going to have 
to work together, as I said with SCHIP, to reauthorize this 
year. And the budget numbers that we put in here we think give 
us some room to be able to work together.
    On the other issues that you raised, I will get back to you 
on some of your specific questions. But I will say on the, you 
said reducing payments to the private insurance businesses in 
Part D, or the, I assume you are referring to Medicare 
Advantage Program under regular Medicare. It is interesting, 
because if you look at what has happened since we passed the 
prescription drug plan, which is Part D, the costs are less 
than we projected. It is less than CBO projected. And remember, 
those costs were considered low. At that time CBO was accused 
by some of being lower than they should be because the 
actuaries at HHS were higher. It turns out even CBO was high. 
And part of the reason for that is that the competition between 
the providers of the prescription drug plans who have to now 
compete against each other as private insurers has resulted in 
lower costs than we expected. As you know, premiums are lower 
than any of us expected. At the time we were talking about $36 
dollar premiums. And now we are in the mid-twenties.
    So the plan has worked pretty well from a fiscal situation, 
from my budget perspective in the sense that it is less costly 
to the American taxpayer. It has also worked well for 
beneficiaries in the sense that their costs are lower than we 
expected that they would be. And I think it is largely because 
of the competition. So I would be hesitant, personally, 
particularly in Part D, to change the way we reimburse people 
on that basis because I think the competition is healthy for 
our seniors. As long as there is transparency information, and 
we can always do a better job and we are providing more of 
that. But seniors have been pretty smart. You know, they have 
beat a path to the lowest cost plans to provide for what they 
need. And so I think that may be a model we should be looking 
at for the rest of Medicare rather than talking about, you 
know, going as you suggest maybe to reducing payments to 
private insurance businesses. Let them compete. Let them 
compete with each other for the business, and maybe that is, 
based on our experience in Part D, an approach that can both 
help the beneficiary and save the federal government some of 
these otherwise difficult challenges we are going to have on 
the entitlement side.
    Mr. Berry. We do not have enough time, but I would take 
great exception to the way you describe that. The reimbursement 
does not go to the people that need the medicine. The 
reimbursement, the money that the government spends goes to the 
insurance companies.
    Mr. Portman. Yeah.
    Mr. Berry. And I do not understand why you could not reduce 
their payments just like you do payments to hospitals and 
doctors and pharmacies.
    Mr. Portman. Well, we will have a longer discussion when 
you have a chance.
    Chairman Spratt. Mr. Smith?
    Mr. Smith. Thank you, Mr. Chairman. And I think we are 
starting to talk a little bit about what I am going to ask 
about, but it is the Farm Bill. And first of all, I do applaud 
your efforts to balance the budget certainly without raising 
taxes and I believe that the key to balancing our budget is 
growing our economy and promoting fiscal responsibility. Also, 
serving on the House Ag Committee I look forward to the Farm 
Bill discussions that we are about to have.
    And we know that farm bills are written to cover current 
economic issues or economic times. And as you know, today's 
conditions are much different from those of the 2002 Farm Bill 
debate. And clearly in 2002 Congress did not anticipate the 
commodity prices we are experiencing today, and I say that 
proudly. But that said, within your projections to balance the 
budget by 2012 do you have room to accommodate fluctuations in 
policies which may be unexpected or unintended? That could be 
within the Farm Bill, that may be with some other policies. Do 
you have any instructive remarks as to what cautions you may 
urge as we look at various policies that may have some 
unintended consequences?
    Mr. Portman. It is a great question. And I think Mr. Berry 
raised some of the same concerns. You know, how do we know what 
this program is going to look like going forward? We rely, as 
we always have, at least I am told we always have, on the USDA 
projections as to what prices are going to be. Right now, as 
you know, there is a high demand, low stocks for a lot of 
commodities including corn, of course, primarily because of 
corn being used more and more for energy. And our ethanol 
plants need more corn. There is substitution going on, as you 
know, so that a soybean farmer is now planting corn for that 
reason, and that raises the price of soybeans. So, the overall 
impact of this is that commodity prices are up and therefore 
our programs, like the Marketing Loan Program or the Counter-
Cyclical Program, are paying out less. And as a result over the 
next five years and ten years based on the assumptions again 
that the Department of Agriculture is making about market 
conditions during that time period they think that our federal 
payments will continue to be relatively low.
    So our proposal actually provides more funding rather than 
that baseline projection, and that is that $5 billion figure I 
talked about earlier. We will see how this all pans out, but 
when you look at, again, the demand right now side of the 
equation and you look at the potential for expanding exports, 
and I worked with Mr. Berry for instance on Turkey. They were 
blocking our rice exports. We worked together and opened up 
that market more. You know, there are so many opportunities out 
there from my previous job as trade representative, we should 
be doing much more exporting of our farm products. We already 
plant one out of every three acres for export. We can do more 
there. We have the most productive farmers in the world. And 
you see the energy demand will not be decreasing. I think it 
will increase based on all projections.
    I think this is adequate, Mr. Smith, to provide what you 
were talking about, which is the fluctuation over the next five 
and ten years. But we will look forward to working with you on 
the Committee jurisdiction, the Ag Committee where you sit you 
are going to have a powerful voice in that. And I know 
Secretary Johanns, again, will be talking about this in more 
detail when he comes before this Committee.
    Mr. Smith. Would you say that the newly proposed farm 
policy might be more stable, more predictable budgetarily?
    Mr. Portman. I think it will be. It will be more market 
based, too. In other words, by taking out some of the price and 
production factors in how the federal government provides its 
subsidy you get to more of a market based system. And I think 
that is good for the consumer, frankly, to Mr. Berry's question 
earlier. I also think that if you look at where some of this 
additional funding is going, which is to provide conservation, 
research, other programs some of which will provide farmers 
more of a sense that there is a safety net, in essence, I think 
it could end up having the impact of being more predictable for 
farmers.
    Again, I know this is a tough issue and there will be 
farmers in your state and elsewhere who will say that the 2002 
bill was a good bill and they would like to continue it. I 
would just say to that, if you look at the baseline, it is 
going to happen with the 2002 bill, we are actually providing, 
based on our estimate as to what will happen, we are actually 
providing more not less funding in this budget to be able to 
leave room for you all to negotiate a good farm bill.
    Mr. Smith. Thank you.
    Chairman Spratt. Mr. Boyd?
    Mr. Boyd. Thank you, Mr. Chairman, and Director Portman I 
know you are glad to get to the end of this table.
    Mr. Portman. I am glad to get to you.
    Mr. Boyd. Thank you. I think, Mr. Chairman, this has been 
very instructive for all of this, certainly in outlining all of 
the challenges and the issues and the problems we face as a 
nation over the short term and long term future. And I firmly 
believe that intelligent people working in good faith, 
operating in good faith, can solve these problems. And I want 
you to know, Mr. Chairman, I put Director Portman in that 
category along with you and the Ranking Member, Mr. Ryan. So I 
am quite optimistic that we can solve these problems.
    I want to just remind some of the members that have spoken 
that the United States of America, the greatest economic 
machine on the face of the earth, has about an eighteen percent 
federal tax rate as percentage of GDP. The total tax burden on 
our citizens is in the mid to high twenties. All the other G8 
nations are in the forties. And so one of the things that made 
us the great nation is that we invest in some infrastructure, 
domestic infrastructure to enable our people to be the great 
economic machine they are.
    We are spending about five percent of our GDP, Director 
Portman as you know, on defense, about two and a half times the 
percentage that the other G8 countries are spending, as an 
average. I want to follow up on a question, a comment, that Mr. 
Tiberi asked earlier. He talked a little bit about PAYGO. Now, 
Mr. Portman as you know there are many of us on this side of 
the aisle that have been pushing hard for the tools in our 
budget that will enable us to get back into balance. And we 
consider PAYGO and spending caps an important part of that. I 
think PAYGO was implemented by this Congress before I got here. 
You were here when it was implemented and then reauthorized on 
a couple of occasions. I think you were also here when the 
majority let it sunset in 2002.
    But I think I heard you say in an answer to Mr. Tiberi's 
question that you would only support PAYGO, or the OMB's 
decision to support PAYGO, only as it relates to mandatory 
spending and not to the tax side? Is that the case?
    Mr. Portman. Yeah, what I talked about was, and I 
appreciate your comment on the discretionary caps, what we said 
is that we would expand the PAYGO concept to deal with not just 
new entitlement spending, which is as you know what the PAYGO 
rules apply to, but also to some of the existing challenges. We 
talked about entitlements. Even if there were new spending 
added to the existing challenge and to the domestic side 
through the application of caps which forces you to deal with 
PAYGO on the domestic side as well. So we would do more on the 
spending side, but we would not apply it to new tax relief or 
to the extension of existing tax relief, which is one of our 
concerns with the current PAYGO as passed by the House, in 
particular the 2010 extension of the tax relief from 2001 and 
2003.
    Mr. Boyd. But I think, I thought that was what I heard you 
say and I am sorry to hear you say that because it is our 
belief that if you use those kind of tools to bring something 
into balance you have to bring, you have to apply it to all of 
the ledger, not just one side of the ledger. And I do not know 
how you can use that as a tool to bring the budget into balance 
just by applying it to the spending side, mandatory spending 
side in this case. Because many of us here are willing to go 
out on the line and say, ``We ought to have discretionary 
spending caps along with PAYGO rules, which should apply to 
across the board.'' And it is my hope that you would recommend 
to the President, if we can bring such a piece of legislation 
to get done. And I think this side of the Capitol, the 
leadership has agreed to work on that. We do not know what will 
happen on the other side of the Capitol, but there is a 
possibility we could do it and use it as a tool to get us into 
balance over a fairly short period of time.
    Mr. Portman. Well, again, we maybe have a little different 
view on applying it particularly, as I said, to the extensions 
like the tax relief that is already in place, that otherwise 
would result in an immediate tax increase on whatever 
individuals or small businesses would be affected by whatever 
parts of the code were not extended. So we think that is not, 
again, the challenge we face as a country. We now have tax 
rates above the historical average. We have spending, 
unfortunately, significantly above the historical average and 
that is where we ought to put more of our energy.
    And I want to, again, you and I talked about this privately 
but I want to commend you. You may not want this commendation. 
But you have focused a lot on that issue, on the spending side, 
in your time here in Congress and particularly on the need for 
us to get control of these unsustainable growth rates in 
entitlements. To us, that is where the problem lies at this 
point. And as an aside I will say one of the concerns I 
personally have with PAYGO is that the way it would apply is 
not just limited on spending, because it is only to new 
entitlement spending, not to discretionary spending, not to 
existing challenges that we face. But also, it seems to me, it 
puts a bias against tax relief and in favor of spending. We 
talked about the Farm Bill a minute ago. You know, the parts of 
the Farm Bill that have to be extended this year because it has 
to be reauthorized are assumed to go forward. In other words, 
if the tax relief ends in 2010 we have pay for it. If the Farm 
Bill is extended beyond 2007 we do not have to pay for it under 
the PAYGO rules. It just seems to me that is exactly the wrong 
emphasis. The emphasis ought to be on where objectively 
speaking we have a bigger problem right now, at least 
historically, which is on the spending side. So I think there 
are some ways we could maybe work together on perfecting, you 
know, some of these rules to make them apply on a more 
evenhanded basis.
    Mr. Boyd. Thank you, Mr. Chairman.
    Chairman Spratt. Mr. Lungren?
    Mr. Lungren. Thank you very much, Mr. Chairman. It is nice 
to see you here, Rob, and I always wondered why you would take 
a job as U.S. Trade Representative between serving on this 
Committee and your present position, but now I understand. For 
the rest of your life you can be called Mr. Ambassador.
    When I hear you talk about your differences of view on 
PAYGO it seems to me there is a basic philosophical difference 
in that at least from my point of view, and I guess you share 
this, there is a difference in terms of government paying 
something out to somebody and government taking something from 
somebody, and that is the essential difference between a tax 
and a payment. And I guess we have reached a position here 
where there are some who argue that they ought to be considered 
the same. Whether you receive or you give, it is the same 
thing. And I was not here when you passed the round of tax cuts 
for the President that will expire. But is it not the case that 
you had to have them expire because of budget rules, 
particularly in the Senate?
    Mr. Portman. That is true. Under the Senate rules there is 
a reconciliation process, so-called, that allows you to pass 
tax relief or other reconciliation of spending or revenue 
proposals by a majority vote rather than the normal sixty vote 
because of the filibuster rules in the Senate. And when you do 
that you are subject to the budget period of ten years.
    So when the tax relief was passed it was passed, in my 
view, because it was the right thing to do for the economy at 
the time. That has proven to be true. If you look at the chart 
we had up earlier on what happened in 2003, there is a direct 
correlation between the implementation of the tax relief and 
the increase in production and productivity and jobs and so on. 
But under the Senate rules it had to be within this time frame.
    Mr. Lungren. The only point I am trying to make is that 
here we are having this argument, and we are talking about 
somehow on our side of the aisle we are robbing from the 
American people, or not getting to a situation of a surplus 
because we want to extend tax cuts that were put into place as 
a result of the fact that there was a majority view in the 
Congress that they were good public policy, and because of 
Senate rules you had to have a limit on them. And now we have 
come up to the limit time and we are talking about whether we 
should extend that same public policy based tax relief and we 
are viewed as if it is a grab for the rich or somehow we are 
destroying the possibility for a surplus. And I do not think 
that that is very well articulated. It happens to be with the 
way they operate in the Senate, where majority rule does not 
rule, where the idea of the filibuster, which the filibuster's 
hoary history is that it was the means by which we stopped the 
Senate from ever passing anti-lynching legislation which passed 
the House a number of times. And yet now it is enshrined in the 
program over there on the other side of the Capitol and we are 
bound by it, and suddenly we are in an argument that, ``Gee, we 
really only thought we ought to extend those tax cuts for 
several years because economically that made sense.'' And that 
is just not the case.
    Secondly, I would like to ask you this. And that is, you 
have as your assumptions that we are going to have an 
unemployment rate over the next number of years below five 
percent. When I served here the first time around, the first 
couple of years before the Reagan proposals of serious tax cuts 
which we have continued forward, we had unemployment rates much 
higher than 4.8 percent, if I am not mistaken. If we were 
sustaining an unemployment rate of 7.5 percent, for instance, 
for the foreseeable future, what would the impact, do you have 
any idea what the impact on the budget outlays would be?

       Responses to Congressman Lungren's Question for the Record
                         From Director Portmani

    Question: After noting the low unemployment level from a strong 
economy, Rep Lungren asked Director Portman what the impact on the 
budget would be if unemployment rose to levels that sustained 
unemployment of 7.5%.
    Answer: If there were to be a recession that raised the 
unemployment rate from it's current level of about 4.5 percent to the 
7.5 percent level (and no recovery, so that the unemployment rate 
remained at that level for the ensuing five years), the estimated 
budget effect would be higher deficits by about $250 billion a year 
over the 2008-12 budget horizon. These deficits effects would 
overwhelming result from lower GDP and incomes, producing lower Federal 
receipts (and higher interest costs to finance the higher deficits). 
The direct impact of higher unemployment on outlays--higher 
unemployment compensation and other unemployment sensitive outlays 
(such as for food stamps and Medicaid) would be a relatively small part 
of this aggregate deficit effect--about $38 billion a year.

    Mr. Portman. Well, first, I will get you the answer to that 
question very specifically because we can plug that into the 
economic model. We talked earlier about the fact that it 
includes GDP growth and inflation and so on. But I think again, 
given what has happened over the last five or six years, that 
this unemployment number is a reasonable number. It also 
happens to be in line with the blue chip, which is a 
compilation of a lot of private forecasters' estimates. We are 
at 4.6 percent today. So, you know, frankly we are assuming 
that the unemployment rate will go up, not stay where it is 
today. And there is, you know, there is more sense by 
economists, and I should let them speak and not me, that given 
the flexibility in our labor market that that is, again, their 
estimates, a realistic estimate that we stay in that five 
percent, 4.5 percent range. We have been at the 4.5, 4.6, 4.7 
rate. Now, it is low, relatively low, compared to the last few 
decades it is relatively lower. But we think it is a solid 
projection going forward to be slightly higher by not as high 
as it was, as you indicate, back in the 1980's or late 1970's.
    Chairman Spratt. Thank you, Mr. Lungren. I would simply say 
to the gentleman one of the things upon which the tax cuts in 
'01 and '03 were predicated was that they would still leave us 
with a balanced budget, still leave us in the black. And 
unfortunately, that did not turn out to be the case. I know 
there were lots of intervening events, but that does give you 
reason to review the tax cuts and decide whether or not a 
couple of years from now some should go forward, some should 
not, and some should be modified. We are simply leaving that 
question open. Mrs. Sutton?
    Ms. Sutton. Thank you, Mr. Chairman. Director Portman, 
thank you for your testimony. In your testimony and in here 
today we have heard a lot of discussion about the entitlement 
programs being the biggest fiscal challenge that we are facing. 
And while I appreciate that that is a challenge, you know, to 
be fair would not the costs that we are facing due to some of 
the decisions, the foreign policy decisions of this 
administration to launch and escalate our involvement in Iraq, 
is that not also an enormous fiscal challenge that we are 
facing? Not only now, but into the future with respect to 
veterans' healthcare costs and other needs that we are going to 
deservedly take care of?
    Mr. Portman. First of all, welcome to the Committee, a 
fellow Ohioan. And it is a good question. The costs for Iraq, 
Afghanistan, Global War on Terror over the last two years have 
been substantial. And yet, we have achieved a $165 billion 
reduction in our deficits during that time. So I am not saying 
that they are not, again, substantial costs. And going forward 
we are showing in a more transparent way those costs. But given 
the fact that we have had a solid economy and given the fact 
that we have been able to do a little better job of restraining 
spending in some other areas, we have been able to not just 
absorb those costs but also see a reduction in our deficit year 
to year.
    So, you are right. It is a substantial cost on the 
veterans' side. We show, as you know, in our budget a 
substantial increase in veterans healthcare. We show a 
substantial increase in Defense Department healthcare. We show 
a substantial increase in some of the concerns that have been 
raised by members of this Committee before that we would be 
sure and provide adequate resources for those healthcare needs. 
So, it is in the budget. And again, I think with realistic 
assumptions on the economic situation and the non-security 
spending we can still show declining deficits. And we can get 
to a balance using the unified budget we talked about earlier.
    Ms. Sutton. Director Portman, there is so much more that I 
would like to talk about in terms of veterans healthcare and 
perhaps somebody else on this panel will do that. But I would 
like to shift just for a moment if I could to the issue of 
poverty and the fact that 37 million Americans live in poverty, 
five million more than in 2000. The Department of Agriculture 
classifies 12.6 million families as ``food insecure'' meaning 
that on any given day those families may not be able to buy 
enough food for the whole family.
    Despite that, the President's budget includes a number of 
cuts to programs for low income families including food 
assistance programs; housing programs; provides essentially no 
increase over the 2007 level for housing choice vouchers, which 
of course is the largest low income housing program, despite 
the rising need for affordable housing; also cuts community 
development block grant programs, which by the way of course in 
Ohio are a staple of, you know, economic development for our 
communities among other things to meet the basic needs. This 
budget also cuts funding for low income energy assistance by 
$420 million below the amount needed to keep pace with 
inflation.
    So the question is, so many of these programs are small, 
they are small in budget terms, in the federal budget terms. 
But cutting them has such an important impact in the lives of 
the most needy people who we represent. How do you explain the 
administration's priorities here? And the decision to reduce 
funding for these programs that address families' most basic 
needs for food and shelter while still finding the $2 trillion 
for the tax cut?
    Mr. Portman. Well, if you look at the budget, Ms. Sutton, 
there are a lot of proposals that also increase some funding in 
some of those very areas you talk about. One, as you know 
perhaps in the area of housing, we provide for the ability of 
the community housing authorities to provide more funding for 
the Section 8 vouchers you talked about. We believe that will 
lead to 180,000 low income families, by the way, getting 
vouchers who cannot get them today. That has been held up by 
some in the housing community as a positive thing. In terms of 
the other issues that you address, we continue a strong 
commitment with regard to some of the core issues that relate 
to low income Americans, like Medicaid, we talked earlier about 
SCHIP. We actually provide more funding than under current law. 
It might not be as much as you think we should be providing.
    And then in general on the economy and on poverty, I am 
encouraged by what has happened in the last year. Which is, we 
are seeing now not just higher growth rates in our economy, not 
just higher productivity, but we are actually seeing higher 
wages. And this is hourly wages, which relates to some of the 
very folks you are talking about who are working poor, who are 
punching a time clock every day. And what they are interested 
in is that real wages have increased above inflation. And that 
is now happening. It normally lags in a recovery, and it lagged 
in this recovery. But it is interesting when you compare those 
two previous recoveries, whether it is 1990 or recoveries back 
to the sixties, it has always lagged. And we are a little ahead 
of where we were in 1990 in terms of these, again, hourly wage 
growths above inflation. And so I am hopeful that if this 
recovery is like others, it will continue to see that and that 
that will have a positive impact. Not just, again, the good 
numbers on the economy we talked about, which are not only good 
numbers but better than were projected. 3.5 percent growth this 
first quarter in this fiscal year. And, you know, our estimate 
for the year is 2.7 percent. But also that it is being shared 
more by lower income workers who are seeing their hourly wages 
going up now. So that should continue if this recovery is like 
others.
    Mr. Edwards [presiding]. Mr. Bonner?
    Mr. Bonner. Thank you, Mr. Chairman. Mr. Ambassador, it is 
good to have you back up here. I think I am the last on our 
side to throw a couple questions at you given some of the 
whacks you have gotten during the earlier testimony.
    I asked this question of the new Director of the 
Congressional Budget Office last week and did not get a 
satisfactory answer, so let me ask it of the Director of the 
Office of Management and Budget. If we in Congress allow the 
tax cuts of 2001 and 2003 to expire without further extension, 
is that a tax hike or a tax cut?
    Mr. Portman. That is a tax increase.
    Mr. Bonner. So if with our vote we choose not to extend 
those tax cuts that did create 7.2 million new jobs and a very 
low unemployment rate and other economic indicators that many 
of us believe have moved us in the right direction, if we allow 
those to expire, that will be a tax increase?
    Mr. Portman. Well, it certainly will be for the families 
who are taking advantage of a higher tax credit for children or 
small businesses that are taking advantage of a lower tax rate 
for their growth and expansion. So, you know, to change the 
current tax structure which we believe has contributed to the 
economic expansion would be viewed as a tax increase by those 
who are affected by it. As important to me, from a budget 
perspective, is you really put at risk some of the economic 
growth that has led to these higher wages I talked about, has 
led to more job opportunities you talked about. There are now 
7.4 million new jobs, by the way, since 2003. And it could put 
at risk some of these revenues that we have seen coming in that 
enable us to get to the point of talking seriously about 
balancing the budget.
    Mr. Bonner. Let us shift gears for a moment. You have had 
three impressive positions that I know of on your resume, since 
I have known you. You have been a member of this body, you have 
served with distinction as our trade representative, and now 
continue to serve with distinction at OMB.
    Mr. Portman. Of course, Vice Chair of the Budget Committee 
was the pinnacle for me.
    Mr. Bonner. I can understand why. What we have, following 
up on the question of our colleague from Florida, Mr. Diaz-
Balart, we seem to have a real hard time, and I guess I want to 
ask for your help in convincing the American people of what a 
cut really is. If you see an inflation trend in a program, and 
in fact growth in a program, is there anyplace else, you are 
from the Buckeye State, is there anyplace in Ohio that 
understands an increase in spending and yet that is a cut? That 
is certainly the way it is portrayed here in this city. How 
many of these so-called cuts that you have had to defend and 
answer today are really cuts in the actual programs that you 
have been talking about?
    Mr. Portman. Well, it is a good point. And Mr. Bonner, I 
know you worked here as a senior staff member and now as a 
member, and you have seen over the last few decades this 
discussion take place. And still it is difficult to 
successfully communicate what we are talking about. We are not 
talking about in the area of Medicaid or Medicare a cut at all. 
In fact, the rate of growth is far higher than the rate of 
growth in the economy or inflation or even the rest of the 
domestic spending. And with regard to Medicare, as I said 
earlier, it will grow. It will grow at a healthy clip, about 
7.4 percent over the next ten years if we do nothing and if we 
took all of these proposals we are talking about and 
implemented them it would be still 6.7 percent growth. In 
Medicaid I think the number is, it would grow at 7.2 percent, 
7.7 percent as compared to 7.6 percent if all of our proposals 
were implemented.
    So I think when most Americans hear that they do understand 
that we are talking about a slow in the rate of growth that is 
otherwise unsustainable without, again, huge tax increases, big 
benefit cuts, or going deeply into debt in the future. And the 
out years are pretty scary. I mean, when you look at the 
unfunded obligation over a seventy-five year period or worse 
yet over the infinite horizon, it is time for us as responsible 
public officials to figure out a way to come together and make 
some sensible, relatively small changes now to avoid that 
fiscal challenge becoming a reality in the future.
    Mr. Bonner. Thank you, Mr. Chairman.
    Mr. Edwards. Thank you. Mr. Andrews?
    Mr. Andrews. Thank you, Mr. Chairman. It is good to work 
with my friend from Ohio again in his new capacity. Mr. 
Director, in your testimony you identify the percentage of the 
deficit to GDP as ``the key measurement of the deficit because 
it shows the impact of government borrowing on economic 
activity.'' I tend to agree with your observations. David 
Walker was here ten days ago and released an analysis that says 
that by 2015 the deficit will be about five percent of GDP if 
there were not significant policy changes. You are proposing, 
as I understand it, one significant policy change which is that 
discretionary spending would grow slower than the rate of 
inflation, but you keep the tax cuts in place. And I do not see 
any major entitlement suggestion, I think it was $68 billion 
over five years which is pretty minor in the grand scale of 
things.
    If we adopted the President's budget as submitted, what 
percentage of GDP would the deficit be in 2015?
    Mr. Portman. Mr. Andrews, I will get you that exact number. 
I will tell you in 2012 we would be at a $61 billion surplus 
under a unified basis, and I do not know if, sometimes Mr. 
Walker wisely focuses us more on the so-called out year 
obligations, or sometimes he talks about the net operating 
costs we talked about earlier. So I am not sure which of those 
figures he was using, but under our unified approach that all 
of us use, including Congressional Budget Office, in 2012 we 
would actually be in surplus and then in 2015 we actually go 
further into surplus under our calculations.
    Mr. Andrews. Yeah, if I may come back to this unified 
versus non-unified distinction, though. I think you just said 
this. It is accurate that if you look at the actual operating 
federal budget net of social security we are not in surplus in 
2012 under your proposal, correct? What is the projected social 
security surplus over the next five years in your plan?
    Mr. Portman. I will give you that number in a second. I 
think it is about $160 billion on average per year.
    Mr. Andrews. And how much of that do you apply toward the 
deficit?
    Mr. Portman. Those are, again, based on a unified budget, 
payroll taxes coming in and so we include that as part of the 
unified budget.
    Mr. Andrews. So all of it?
    Mr. Portman. Yeah. Yeah.
    Mr. Andrews. All of it. So none of that, we often use the 
rhetorical fiction here of a social security trust fund, and it 
is a rhetorical fiction. But if there were such a trust fund no 
dollars in the projected social security surplus would be set 
aside to meet future social security obligations under your 
plan, is that correct? Nothing?
    Mr. Portman. Well, it depends how you look at it. I mean, 
if you assume that we are going to have those obligations in 
the future, which is that $5 trillion figure I talked about----
    Mr. Andrews. Well, we are.
    Mr. Portman. Well, then it is being credited toward the 
trust fund. And that is how, you know, again, these relatively 
large numbers in the future are arrived at. The question is, 
what do you do with the surplus when it comes in? Under 
statute, as you know, we are able to invest that in Treasuries 
only.
    Mr. Andrews. It would be an interesting thought if we were 
to treat that surplus the way a defined benefit plan does in 
the corporate world and actually save it against future 
obligations. I think one of the greatest risks in this process 
is that we get fixated on the next five years, which we should. 
But do so to the detriment of embracing the hardest questions 
about what happens in the next ten or fifteen or twenty years. 
And the truth is, there is probably a fairly marginal 
difference between what the two parties would do in the next 
five years. But there is an enormous consequence for not doing 
something about the next fifteen or twenty years in the next 
five years.
    I did want to mention one area, we had this back and forth 
about what a cut is and is not, and inflation adjusted. If I 
read correctly your proposal on the elementary, secondary and 
vocational education accounts, there are in fact cuts in 
absolute dollars, are there not? If I read this correctly, in 
fiscal year 2008 that category would get $38.5 billion, which 
then drops to $37.5 billion in 2009. Am I reading that 
correctly?
    Mr. Portman. I do not think I have the chart that you have 
in front of you, but let me tell you what our numbers are. It 
includes an additional $1.1 billion for Title 1. As you know, 
No Child Left Behind is increased in the President's budget by 
about $1 billion. Part of that is Title 1. There are other 
education programs that again this year, as we have done in 
past years, we believe should be reduced or even terminated.
    Mr. Andrews. I understand, but my time is up. I would just 
ask you to submit for the record the absolute dollars that you 
are proposing for elementary, secondary and vocational 
education in fiscal year 2008 and the absolute dollars you are 
proposing for that category in 2012. If I read it correctly 
they are essentially flat. It is $38.5 billion in 2008, $38.6 
billion in 2012 which, you know, if inflation is two percent in 
those five years and accumulates that is a fifteen to twenty 
percent cut in purchasing power for programs like IDEA and No 
Child Left Behind, if I read that correctly.
    Mr. Portman. Yeah, we do, as you note, we have allocated 
that funding based on what we think are the priorities. And No 
Child Left Behind gets more than $1 billion in new funding 
under our budget because of that, as does Title 1 focusing on 
those kids who need the help most. But you are right, some of 
these other programs, including Voc. Ed. where we do not think 
you get the same value. Again, I encourage people to look at 
expectmore.gov, you can see our analysis of these programs. We 
do not have----
    Mr. Andrews. It just looks like education could expect 
less.gov under the proposal that you are making, that is just 
my observation. Thank you, Mr. Chairman.
    Mr. Edwards. Mr. Bishop?
    Mr. Bishop. Mr. Portman, thank you for your testimony and 
thank you for your endurance. I want to focus also on the issue 
of education and I think you know that in our continuing 
resolution we passed an increase in the Pell Grant maximum to 
$4310 for next year, and so I think all of us are pleased to 
see that the President is also requesting an increase in the 
Pell Grant maximum to $4600. But if I read your tables 
correctly, the estimated cost of increasing the Pell Grant 
maximum to $4600 in 2008 will be $532 million. And that 
unfortunately is offset by zeroing out SEOG, which is now at 
$771 million and you would zero that out which I guess you 
would agree is a cut. And the Perkins revolving fund, the 
President requests that it be recalled. And if I am reading the 
charts correctly that is a $419 million cut for fiscal year 
2008 also bringing that to zero.
    So if I am reading these numbers correctly, to increase the 
Pell Grant maximum to $4600 would require $532 million of 
additional appropriations but it would be done at the expense 
of cutting $1.2 billion out of other student financial aid 
programs. And so my question to you, again if I am reading 
these numbers accurately, is how can anyone suggest that this 
would increase affordability if we are adding $532 million and 
deducting $1.2 billion from the total student aid available 
from the federal government? This is a net loss of $700 million 
and some, so how can we suggest that this is a good thing?
    Mr. Portman. I do not have all the charts that you are 
referring to, but I can tell you that my understanding is that 
by taking the maximum Pell Grant, $4600 per student, which as 
you indicate is a substantial increase in fact over what the 
House just did and the long term CR. Which frankly I had not 
expected to see and was also pleased to see that, because I 
think it is good policy. We make a new and substantial 
commitment. Actually, we take it up to $5400 per student by 
2012. And that is a substantial new commitment for exactly what 
we think is the most important issue, which is low income 
students being able to get access to colleges and universities.
    The SEOG program you talked about, you are absolutely 
right, that is a cut. And although it is a relatively small 
amount compared to the increase in the Pell Grants, and I would 
encourage you to look at those separately. I mean, I think 
those were two different policy issues. We think that the SEOG 
program is based on an antiquated formula and frankly does not 
show results. And again, we talked earlier about performance 
and looking at results, but it is based on a formula as I 
understand from back in the sixties or maybe, I think the 
1960's. It goes primarily to more established schools, 
including some important Ivy League schools, that we think 
would be better served by increasing the federal commitment 
through Pell Grants. It does not go, by the way, to a lot of 
junior colleges or any schools that have been established since 
that time because they are not part of the formula. So we think 
SEOG is a flawed approach as compared the Pell. But the Pell 
Grant increase is substantially more than SEOG. The other ones 
I would have to look at, but I would encourage looking at them.
    Mr. Bishop. And I would just suggest, and I administered 
these programs for a number of years before I came here, and I 
would just suggest that I have an entirely different 
perspective of the utility, if you will, of the SEOG program 
and of the Perkins Loan program. And I know the administration 
a year ago when it requested the recall of the Perkins Loan 
revolving fund made the argument that it was duplicative of the 
guaranteed student loan program that we currently have. And I 
guess what I want to say to you is in the real world that is 
just not true. Most students who borrow a guaranteed student 
loan also borrow a Perkins Loan. Most students who get a Pell 
Grant also get a SEOG. So if what we are looking to do is 
influence individual students' ability to enroll, to add to 
Pell is a good thing. But to do so at the expense of 
eliminating both SEOG and Perkins is taking one step forward 
and five steps back. It will not enhance affordability. It will 
not enhance access. And I would, I mean I very much hope that 
my colleagues here in the Congress will recognize that.
    One other thing, we did look, in the Higher Ed. Committee, 
we looked at the formula by which the campus based programs are 
allocated. We recognize that it is a formula that gives 
preference to well established schools. And we were struggling 
with ways to change that formula. What came out of the Higher 
Ed. Reauthorization that the House passed changed it in some 
ways, perhaps not perfectly, but changed it in some ways and I 
think when we reauthorize again this year we are going to look 
at that. But I guess I just think it is, and I do not want this 
to sound impolite, but it is disingenuous to assert that 
increasing Pell is going to enhance affordability when at the 
very same time we are reducing SEOG, I mean eliminating SEOG 
and eliminating Perkins. Thank you, I have used up my time.
    Mr. Portman. You and I should talk at some point privately 
about this and see where you would prioritize, because 
obviously you have a lot of experience in this area.
    Mr. Bishop. Okay.
    Mr. Portman. Our focus has been, and Secretary Spellings is 
the one to get into the detail and not me, to be sure that 
those low income students who could not otherwise afford 
college really have that opportunity. So it is a more targeted 
approach than what I understand even SEOG, even if it was not 
based on the formula which perhaps advantages more established 
schools would provide in terms of targeting. So I would love to 
talk to you about that when you get a chance.
    Mr. Bishop. Thank you. Thank you, Mr. Chairman.
    Mr. Edwards. Thank you. Mr. Etheridge?
    Mr. Etheridge. Thank you, Mr. Chairman. Mr. Portman, I know 
that you are glad to see me.
    Mr. Portman. Well, I am glad to see you.
    Mr. Etheridge. The end of the line. Thank you for being 
here. I would like to spend just a few minutes after we finish. 
I have a question that relates to firemen. Roughly forty-five 
percent of the firemen who lose their life on the job or by 
heart attack or by stroke. The President signed that bipartisan 
legislation three years ago and my understanding it is still 
hung up in OMB. You and I need to talk and see if we can get 
that out. That is unacceptable when we have hundreds of firemen 
waiting for their benefit. I will not do that here because I 
think we can talk about that in a few minutes.
    Let me just say before I ask my question, so that you will 
know and for the record, prior to coming to the United States 
Congress, I spent nineteen years in business, four years as a 
county commissioner where I chaired the commission for two, ten 
years in the North Carolina General Assembly where I balanced 
four budgets, and eight years as the elected state 
superintendent for the schools of North Carolina. So, some of 
my questions are going to be in agriculture, some in education.
    But you said at the outset I believe, and I want to ask you 
a question on this, you said our highest priority is to protect 
the homeland. I believe that was your actual words. And I look 
at the first responder cuts and I am shocked. Because the cuts 
there are for homeland security at the state level. You can 
argue whether the state ought to fund that. Firefighter 
assistance grants cut by 54.7 percent, Burn grants cut by 37.2 
percent, community oriented policing cut by 94.1 percent.
    Now these are programs that have been cut every year and 
Congress puts them back in. But it bothers me greatly that we 
are making these kind of cuts. Now, one can argue, ``Well, it 
ought to be somewhere else.'' But let me just state for the 
record having served, the reason I mentioned where I had served 
is that I served as a county commissioner in the late seventies 
when they cut out programs. The counties picked them up. I 
chaired the Appropriations Committee at the state level in the 
eighties. When the federal government decided under the Reagan 
administration they were going to cut programs, we picked them 
up at the states. So Mr. Director, if you cut you are going to 
pass it down to someone because the public is still going to 
need certain policing, they are going to need the services. So 
what we are talking about doing is transferring the costs.
    And the final point I want to make because you answer the 
question deals with the education piece, and I want to 
associate myself with the comments made by Mr. Bishop. Because 
under these education cuts, and I want to take them up with the 
Secretary, there are some in here that it makes absolutely, to 
me, I am aghast. Migrant and seasonal farm workers cut. It is 
very little money. But for the children who move, having been a 
superintendent I can tell you they move from county to county. 
They will be lost and get no help. And yet, these are 
investments. These are not expenditures. And I hope we can 
remember this. We talk about making cuts. We are talking about 
investing in our future down the road. If we are going to need 
people to grow and make a difference we have got to invest in 
our infrastructure. Education is a huge piece, and I do not see 
how you invest if you cut out the programs that make a 
difference in the future.
    I hope you will comment on those, because I think that 
those are critical pieces. And I look forward to working with 
you on it because I think those are, it is sort of like a 
farmer eating his seed corn. There will not be a future if you 
do not invest in the next generation because the children who 
are going through our schools today, if we flatline budgets we 
are getting more students coming, I mean, you are not keeping 
up with inflation. You have got new students every year. We had 
the baby boom echoes of the nineties. They are now moving to 
the high schools and ultimately will wind up in college.
    Mr. Portman. Thanks. Let me just quickly if I could try to 
answer a couple of these questions and put it in a little 
perspective I think on the state and local grants. We do have 
some changes, as you indicate. It is a little different than 
what we did last year. One of the things that I was surprised 
to learn when I got to this job was that there is between $5 
and $6 billion sitting in the state and local grant fund right 
now that----
    Mr. Etheridge. Let me interrupt right there. I hate to do 
that. But part of that now, having been there, is there federal 
guidelines that require the states or counties to spend their 
money before they can draw down federal funds? Or you have to 
submit a plan after it has been there, and you have to, 
sometimes it takes as much as eighteen months to two years to 
draw your funds down, as you know.
    Mr. Portman. We are trying to do a better job to deal with 
the red tape or the federal paperwork involved in that and 
spend out that money. So our view, from a management 
perspective because that is part of the title of the job here, 
is to be sure that that $5 to $6 billion is spent and spent 
wisely. And rather than adding more to the existing funding 
there, the though was how do you loosen up some of that funding 
and get it out? We do increase, as you know, funding in some 
areas and reduce it in others. Totaling it all up, we are $4.3 
billion for the state and local first responders. Part of that 
is the $1 billion in the interoperability communication grants. 
And as you know, those are to be awarded in 2007 and they are 
funded through the spectrum auction receipts. So I would 
encourage you to look at that as that $1 billion sometimes is 
not included in there. But that would be----
    Mr. Etheridge. But some of that offset has been here 
before, and you know Congress is not going to pick up some of 
those offsets.
    Mr. Portman. Well, my understanding is that has been 
funded, the part of 2007. And so we do think that given the 
amount of resources that are out there already and given the 
fact that we have changed some of our approach and that we have 
this $1 billion in interoperability communications grants in 
our budget that we can indeed continue to provide for what the 
state and local first responders need.
    As you know, overall we have a big increase in funding in 
the homeland security area. And the question is whether these 
individual grant programs work better or whether it is better 
to do it in a more comprehensive way with more flexibility.
    Same thing on education. I mean, some of these programs, I 
will check now on the migrant farmers program, but as you know 
we have increased education spending working together 
dramatically over the last several years. We have got $13.9 
billion for Title 1 this year, which is a $1.1 or $1.2 billion 
increase. And basically we believe the money ought to go more 
toward the Title 1 focus where there is then flexibility. And 
as an elected state superintendent of education you know that 
issue much better than I do. But what we are hearing is the 
additional flexibility is better than having the federal 
government send money for a specific purpose. And I do not know 
if migrant farm workers is one of those but I suspect that it 
is. So, we take a little different approach.
    Over all, if you look at the funding that we have provided 
it is more than the administration has provided on education 
over the last several year. If enacted, it would be a $5 
billion increase for Title 1, for instance, which is the 
largest increase under any administration since we started, 
again about $1.1 billion this year alone. And more focus on No 
Child Left Behind. But focus on, again, providing the funds to 
the schools and then to have them have more flexibility as to 
how those funds are spent.
    Mr. Etheridge. Thank you. Thank you, Mr. Chairman. I would 
say just one point on that in closing, that if you look at the 
No Child Left Behind they are still about $11 billion short. 
You talk to local units. They are picking up that tab, taking 
money from other areas. When they say it is our program enacted 
I happen to agree with them, having been there, because they 
get caught between a rock and a hard place. And especially 
those units that have substantial numbers of children with 
special needs. They are really caught between a rock and a hard 
place and no place to go, and there might not be state funding, 
or local, or even the federal government is only about seven 
percent, Mr. Chairman, of funding. In some districts, the 
poorer school districts, it is substantially more and they wind 
up being the ones who really are disadvantaged because they 
have more Title 1 children and that money has to go to the 
other places. And I would hope we would take a look at that as 
we move forward. Just remember, we are investing in our future. 
We are not spending money on education. Thank you, Mr. 
Chairman.
    Mr. Edwards. Thank you, Mr. Etheridge. Mr. Portman, I want 
to thank you. I do want to make a few comments and ask a couple 
of questions, and then I think we will be concluded if no other 
members arrive.
    But let me begin by thanking you for your many years of 
distinguished public service in the Congress, Trade 
Representative, now as Director of OMB. The administration is 
fortunate to have you. You are an articulate spokesman for its 
budget and its budget priorities. I also want to commend you 
for emphasizing the importance of dealing with long term 
entitlement costs. I think that is a very serious challenge our 
country faces that your children and mine need us to address, 
and the sooner the better. Frankly, I wish some of our 
Republican colleagues had listened to us a few years ago when 
the largest increase in entitlement spending, at least in the 
Medicare program, in the history of the Medicare program, was 
passed through this Congress with the support of the 
administration. And I think that is certainly one of the 
challenges we face today, is paying for an increase in 
entitlement programs to the tune of hundreds of billions of 
dollars that came from a Republican administration and a 
Republican House and a Republican Senate.
    I want to work, as a father of two young sons, with you on 
a bipartisan basis to make tough choices to balance the budget. 
But I also for that very reason, my concern about the future 
for your children and mine and where we are going to leave them 
in a massive federal debt, I could not be totally quiet today 
and not make a few comments about this budget proposal. Showing 
no disrespect to your presentation of it which has been 
excellent.
    In my opinion this budget proposal is more of the same, 
presented very articulately by you, Mr. Portman, but it is more 
of the same. It is what we heard in 2001, that we can have a 
defense build up, we can balance the budget, and have massive 
tax cuts, and it did not work. And we heard more of the same in 
2002, we could have a defense build up, we could cut taxes, and 
have a balanced budget. And the deficits began the process of 
coming into reality after having had the largest surpluses in 
American history. We heard the same free lunch philosophy in 
2003, 2004, 2005, 2006, and now we are hearing it again. And I 
think the message of the American people on November 7 is they 
want a change. And yet, what I hear in this budget is basically 
more of the same. Promise that we can, for the first time in 
American history, fund a major War by passing and extending 
massive tax cuts, even as we are paying for a defense build up 
which I support.
    It did not work in the 1980's when President Reagan 
promised massive tax cuts, defense build up, and balanced 
budgets. But at least that administration and Mr. Stockman had 
the integrity to say, ``Whoops, we cut taxes too deeply. We had 
better go back and make some corrections so we do not 
overburden our grandchildren.'' Yet twenty years later we come 
along and you and I can go back and read the Congressional 
record. Those who supported the tax cuts and said, ``We can do 
this and we are still going to have a balanced budget.'' Well, 
it did not happen.
    And if I were judging you by the quality of your 
presentation today it would be an A plus. But I think, Mr. 
Portman, if you and I were on a university board, deciding 
whether to continue the employment of a basketball coach who 
has been the coach for the last six years. And that coach came 
to us, and he predicted in his seventh year he was going to 
predict that he would have a twenty-nine wins and one loss 
record, I am not sure that you and I would hire him again based 
solely on his promises for the future. I think we would judge 
the hiring of that basketball coach on the basis of what his 
track record has been.
    And I think a subject far more important than the hiring of 
a basketball coach, that of the budget of the United States, 
and the deficit that we face that is one of the largest 
deficits, the largest deficit in America history in actual 
nominal dollars, I think we should judge the projection of the 
administration for the 2008 budget based on how accurate you 
have been over the last six years. And during that time much of 
that time you were here in Congress, often sitting here at this 
desk. But the reality is that an administration that came in 
with the largest surpluses in American history projecting to 
pay down the national debt missed its projections by over $8 
trillion. And I think given that track record I am not sure we 
would hire a chief financial officer of a corporation that 
missed the mark by that number. I know I would not hire a 
basketball coach for the seventh year if he had record that was 
that far off from what his optimistic projections were.
    And as I checked the numbers, while the administration came 
in debating whether we are paying down the national debt too 
quickly, we have actually added $3 trillion to the national 
debt. And that is not all the administration's fault. But it is 
reality. To me personal responsibility means accepting 
consequences for the impact of decisions we have made. And I in 
good faith want to continue to listen to your presentations on 
the budget in the months ahead, and do want to work together 
and find common ground. We can do that. But I hope you would 
forgive us if some of us are I think fairly so skeptical of the 
projections that we are going to have a balanced budget by the 
year 2012. I do not think you would bet your family nest egg on 
that projection. I know I would not bet my family nest egg on 
that.
    And one point specifically on the issue of cuts. We have 
heard a lot of discussion today and over the last several years 
about what is a cut. To me a cut is if the number of veterans 
receiving healthcare is reduced. A cut is if the number of 
children receiving children's health insurance program 
healthcare services is cut. That is a real cut, even if you 
have increased nominal dollars. We can say we have increased 
funding, but if it has not, if that funding increase has not 
kept up with inflation, has not kept up with the increased 
number of children, or seniors, or veterans in our country, it 
is a cut. It is a cut to real people. It is a cut that hurts 
real people, including veterans and military retirees and 
children who need healthcare. Whether one wants to call it a 
cut or not really does not matter to the people whose services 
are being reduced.
    One thing I would say is not a cut is when you suggest that 
the administration has cut this deficit and then your 
definition, Mr. Portman, was that, ``Well, we have reduced the 
deficit fifty percent below what we projected it to be.'' Now 
keep in mind the administration started out with a huge 
surplus, not a deficit. And projections of surpluses. But I 
would have to use the analogy, that is like my projecting that 
in the year 2007 I am going to gain 100 pounds. But on December 
31 I only gained sixty pounds. I guess I could gloat and say, 
``I lost forty pounds.'' But I did not really lose forty 
pounds. The fact is, I just did not gain as much as I had 
projected I would at the first of the year. And that same kind 
of philosophy can not only lead to obesity in the real world if 
I followed a diet program like that, I think we are going to 
continue to see obese and obscene and seriously threatening 
deficits if we do not see something change from the status quo 
of this promise that despite all good intentions, and I do 
think they have been good intentions from the administration.
    Despite all good intentions we have not been able to fund 
the War in Iraq, fight the War on Terrorism, cut taxes, and 
balance the budget. And your children and mine are going to pay 
the interest on this extra $3 trillion of national debt we have 
built up over the last six years until the day they die.
    Having said all that, I want to work with you to find 
common ground while respecting each other where we do have 
honest differences of opinion, as we do.
    A couple of specific questions, and then I will finish and 
since I carried on and you were gracious enough to listen I 
will be happy to give you time to respond to those comments. 
But let me ask you specifically, the President's budget does 
not propose significant increases, if any at all, in healthcare 
premiums for members of Congress and members of the President's 
cabinet. Yet they propose massive increased healthcare premiums 
for men and women who served our country in the military 
twenty, twenty-five and thirty years. Does the administration 
think that is fair?
    Mr. Portman. To answer that question and your earlier 
question on veterans, as you know we have another healthy 
increase in veterans healthcare, up about $6.1 billion this 
year as compared to, 2008 compared to this year. It is up 
eighty percent, by the way, during this administration. Eighty 
percent increase, which is an unprecedented increase and our 
commitment----
    Mr. Edwards. With, now to be correct for the record, over 
half of that increase came from increases that were initiated 
by Congress on a bipartisan basis, not increases proposed by 
the administration.
    Mr. Portman. Well, once again this year we are proposing 
again substantial increases. And yet, we are able to keep the 
over all domestic spending at the one percent level. This means 
we have set priorities and veterans clearly is a high priority 
with increases of 7.4 percent in medical care for 2008. Again, 
with $2.5 billion dedicated just to that purpose.
    On the fees, as you know, again in our budget this year, we 
have a fee proposal that is a little different this year. 
Unlike last year the receipts from these proposals are 
classified as mandatory, which you should like better, so the 
medical care funding request includes the full resource need 
with no reduction for the new fees. Second is that this only 
applies to higher income veterans and only veterans who do not 
have a service connected health problem. So it is asking those 
veterans who are higher income, who do not have a service 
connected health problem, to pay a little bit more for their 
veterans healthcare which as you know has improved dramatically 
over the last several years.
    Mr. Edwards. Can I ask you about that? The higher income, 
categories seven and eight include veterans making as little 
$29,000 or $30,000 a year. So we are talking about increases in 
fees on veterans whose income might be as low as $30,000 a 
year. Is that the definition of high income veterans?
    Mr. Portman. It is seven to eight, PL seven, eight 
veterans. I do not know what the exact cut off is.
    Mr. Edwards. Okay. I think approximately it is in the 
$30,000 range, depending on whether the veteran is single or 
family. Can I ask you, I know time is limited . We have got a 
vote and we will have to leave here in about six minutes. I 
would like to ask about military retirees, the question that I 
asked.
    Mr. Portman. I am told on that last one that it would be no 
one below a $50,000 income would be affected buy the fees we 
put in the budget this year.
    Mr. Edwards. Well, if you are raising the fees on category 
seven and eight veterans that goes down as low as $30,000 
unless there are other details in the budget that specifically 
override that and say you only pay additional fees if you are 
making over $50,000. We can follow up on that. But let me, with 
limited time let me just ask you about the military retirees.
    Last year the administration proposed and the Republican 
Congress rejected $735 million increase in healthcare premiums 
for military retirees, men and women who served our country 
twenty to thirty years in service, many of those who have 
served in combat. I am glad the Congress rejected the 
administration proposal and I am glad to have helped lead that 
fight. That increase was going to require a $1000 per year 
increase in premiums for retired military officers. Phased in 
over two years it would become a $1000 a year increase in 
healthcare premiums for someone who served our country twenty 
to thirty years in the military. This year's proposal does not 
bring in $735 million, it brings in $1.9 billion. I just 
projected last year's administration proposal out using those 
numbers. That would be nearly a $3000 a year increase in 
healthcare premiums for military retirees.
    Could you give me any specifics? And if you need to follow 
up on specifics we can follow up in the days ahead. But whether 
it is $1000 a year increase or $3000 a year increase on 
military retirees, this budget does not ask that sacrifice from 
members of Congress, or members of the President's cabinet. Yet 
it is asking that sacrifice of people who have served our 
country. And a number of those are people who have served 
already in the Iraq and Afghan wars. I just repeat my question. 
Does the administration this that is fair to ask that kind of 
sacrifice from military retirees who served our country for 
twenty years or longer when it is not asking the same sacrifice 
from the President's cabinet members or members of Congress?
    Mr. Portman. As you know, this is a fee proposal for 
retirees under 65. It, we think, is an appropriate policy 
approach to as you know a dramatic increase in healthcare costs 
and dramatic increase in the commitment by taxpayers to 
retirees' costs. Particularly with regard to our veterans 
program and our defense retirees program, we have seen 
increases above inflation in our funding requests and we will 
see that again this year. And an increase, again, well beyond 
what we have in the other domestic programs we have talked 
about today. We think that this is a, again, consistent program 
with providing for those who need the most help with regard to 
their healthcare because it targets this to lower income 
retirees.
    And I would just say as a general matter, all of the 
concerns you had raised earlier about the fiscal condition and 
the fact that healthcare is a driver of a lot of that, 
Medicare, Medicaid, veterans healthcare, military healthcare, 
we do need to work together and figure out how to assure that 
we are providing the need for those veterans who need the help. 
And I think our budget proposal does that both with regard to 
veterans and military retirees with substantial new resources 
from the American taxpayer. But we also have to figure out how 
to be sure these healthcare costs in general, and I am 
referring to all of our healthcare programs, are continuing to 
go up. That, again, in some cases, as is the case of some of 
these programs, more than double the cost of inflation.
    Mr. Edwards. I appreciate the honest answer. I think 
military healthcare costs truly is a serious issue. We have got 
to deal with it. I would think you are going to find massive 
opposition within the veterans community, the military retiree 
community, and within Congress to actually, you can call it a 
fee but in effect it is a $1.9 billion tax increase on military 
retirees, men and women who have served our country for twenty 
to thirty years. And this is an example of why I think we have 
the $3 trillion increase in the national debt over the last six 
years. The administration makes proposals about both tax cuts 
and spending cuts. The Congress courageously adopts the tax 
cuts but after hearing hundreds of deficit hawk speeches folks 
turn into deficit doves when it comes to making some of the 
touch choices the administration has asked for.
    So that is what we get. So we get the administration's tax 
cuts but not the spending cuts. And that is why your children 
and mine are going to have to pay interest on this $3 trillion 
national debt.
    Mr. Portman. Can I take a moment to respond to that and 
your earlier comments?
    Mr. Edwards. You sure may.
    Mr. Portman. Your thoughtful comments about where we are? 
This is a good example, I guess, is the defense health 
programs. None of this would apply to any active duty 
servicemembers or their families. These fees we are talking 
about would be considerably lower than any of the averages for 
private healthcare plans. This year we are requesting a 6.2 
percent increase in funding in this area. Since this 
administration started, it is a seventy-four percent increase 
in funding for retiree healthcare for Department of Defense. I, 
you know, I just think at some point it is important for us to 
focus on how to in a more bipartisan way look at some of these 
programs that are growing, again, at more than twice inflation 
and figure out, you know, how do we come with a more sensible 
way to deal with them?
    In terms of your comments on, you know, the fact that the 
Congress has only picked up on the tax cuts and not on the 
spending restraint, I gave you credit earlier for doing more on 
spending restraint in the last few years. The numbers that I 
was using, $165 billion reduction in the deficit, is not from 
projections. Those are actual numbers. The deficit has reduced, 
gone down $165 billion in the last two years.
    Mr. Edwards. From what level? From what level to what 
level? How do you get the $165 billion?
    Mr. Portman. No, because we are now at about $244 billion 
on our projection for this year and again I think that is going 
to end up being high.
    Mr. Edwards. And the largest deficit in American history 
prior to this administration was $292 billion, which occurred 
in, what was it, 1992 at the end of the Bush 41 administration. 
So we are within 50 billion of the largest deficit in American 
history despite----
    Mr. Portman. Can you put the debt chart up for a second? As 
some of your colleagues have said, or at least Rob Andrews said 
on your side of the aisle, he agrees that it is the percent of 
GDP that is the key figure. And, again, when I got elected in 
1992 it was 4.6 percent. It was even higher in the 1980's as 
you know, and higher at some other times in our recent history. 
Now we are down to 1.8 percent, well below the growth in the 
economy. And that is significant, not because we have done 
enough because as I have testified today repeatedly we need to 
do more to prepare for what I believe to be our greater fiscal 
challenge. But as a percentage of our economy, which is the key 
measurement, we have made progress. And we have made it 
together. And if we cannot continue that progress then we put 
ourselves in a tough position because of the long term problem.
    This is the debt, you talked about the debt a moment ago. 
And you talked about the fact that when President Bush was 
elected there was a projected decrease in the deficit. And you 
did use the word ``projected'' and I appreciate that. Because 
it never materialized. And it did not not materialize because 
of the tax cuts. By far the primary reason it did not 
materialize, as you know, was because of the recession. And so 
you can have projections, you know, of $2.4 trillion in surplus 
and so on. They do not mean anything if you have the economy 
take a nosedive as it did in 2001 and was on the doorstep when 
he was elected. The tax cuts were put in place and some people 
disagreed with them including you and other members of this 
Committee.
    Mr. Edwards. I certainly did.
    Mr. Portman. But they were put in place not because the tax 
cuts were viewed as the immediate problem to the deficit, but 
because we needed to get the economy back on track in order to 
have, again, the opportunity to be where we are today with 
higher revenues and that is exactly what has happened. If you 
look at it, what has happened is we have got record revenues 
the last two years. We have reduced the deficit because of 
that. We are doing a little better job on spending. And if we 
continue that we will be in better shape.
    If you look here, this is the debt. Again, you may disagree 
with me, but every economist I know, Democrat, Republican or 
non-partisan says the key is what is our debt, which is the 
accumulation of all our deficits, as a percentage of GDP? You 
look at those numbers. Here we are now going down as the 
percent of our GDP this year we should be below the historical 
average and under our proposal we continue to see the debt go 
down because the economy growing at 3 percent the deficit 
growing at 1.8 percent means that the debt is actually going 
down as a percentage of our economy. That is good news.
    Mr. Edwards. You bet. Mr. Portman, let me thank you again. 
You are an articulate spokesman for the administration. We have 
a vote with about four minutes to go. Let me just conclude by 
saying that I am concerned when I hear Republican leaders in 
the administration in effect not gloating but bragging about 
only having a $244 billion deficit. I think that is a, you 
know, almost as large as the largest deficit in American 
history prior to this administration. And if you want to 
compare it to the GDP, if we were to go into recession then 
that percentage of deficit as a percentage of GDP would 
skyrocket and according to the economics I studied all of my 
life when you are having economic growth you should be in a 
surplus situation not in a deficit situation. So someday we are 
going to have a deficit.
    And to have the last word, I will just say that we are just 
going to have to disagree. I think putting a $1.9 billion tax, 
taking that much additional money out of the pockets of men and 
women who served in the military for twenty to thirty years 
when the administration is not asking members of Congress or 
the President's cabinet to make the same kind of sacrifice on 
their healthcare premiums is not keeping faith, is not fair. 
But we will have to disagree on that one.
    You presented your budget very well. I respect your service 
and despite some very serious disagreements, honest 
disagreements, I look forward to working with you. You are a 
great public servant and thank you for being here today.
    And I would like to ask unanimous consent that members who 
did not have the opportunity to ask questions of the witnesses 
be given seven days to submit questions for the record. Without 
objection, so ordered.
    Perhaps by unanimous consent we could do some good things 
here if I did not have to go vote. Thank you, Mr. Portman, for 
being here.
    [The prepared statement of Hon. James P. McGovern follows:]

   Prepared Statement of Hon. James P. McGovern, a Representative in 
                Congress From the State of Massachusetts

    I want to echo the comments made by several of my colleagues and 
the questions Chairman Spratt addressed to Director Portman.
    The budget is a moral document. It is more than just number 
crunching, a set of balance sheets, or even the funding request to keep 
the government running.
    The budget is the annual report by the American government that 
outlines its priorities and commitment to promote and protect the 
common good of the American people.
    Like most of my colleagues, I am a father. Every day I feel blessed 
that my kids are healthy, with plenty to eat, a decent house to live 
in, a good public school to attend, and two parents devoted to their 
welfare.
    Sadly, as we sit comfortably in this hearing room, the USDA and the 
Census Bureau have determined that one out of eight people in the 
United States faces a constant struggle against hunger.
     35 million of our people live in poverty--that's twelve-
and-a-half percent of our population.
    And while children under 18 have the highest rate of poverty of any 
age group in America--17.6 percent--fewer than half of families with 
children poor enough to qualify receive help from the Temporary 
Assistance for Needy Families, or TANF.
     Only half of eligible children are served by Head Start.
    And only one in seven eligible families receives help paying for 
child care so their children can learn and the parents can work.
     More than 14 million school age children are left alone, 
on their own, after school.
    And twelve million children do not receive adequate nutrition each 
and every day of their young lives.
    These are priorities we must address in this budget. The federal 
programs created to address these problems have proven to be 
effective--but inadequate funding has limited their ability to reach 
the families and children they were created to support.
    While many of these programs can be strengthened to improve their 
outreach and accessibility, most fail to reach eligible children and 
families simply because we in Congress fail to fully fund them year 
after year after year.
    At a minimum, I believe we must provide adequate funding for all of 
our most effective food and nutrition programs. These include:
     WIC;
     The Emergency Food Assistance Program, known as TEFAP;
     Food Stamps;
     The Commodity Supplemental Food Program;
     School meals, and not just for the school lunch program, 
but also the school breakfast program, after-school feeding programs, 
and summer child nutrition programs.
    We need to recognize that by failing to make these investments now, 
we will pay the cost tomorrow, not only in future federal budget 
expenditures ranging from health care to law enforcement, but in the 
well-being of our economy and communities.
    Unfortunately, under the budget we are reviewing today:
     Fewer children will receive health insurance;
     Large Medicaid cuts will likely reduce or cause the loss 
of health care for low-income people;
     Fewer households will receive help with high energy costs;
     Fewer working families with children will receive help 
with child care or be able to send their children to Head Start;
     Fewer low-income working families will receive Food 
Stamps;
     Fewer low-income seniors and young children will receive 
nutrition help;
     Fewer social and community services will be provided to 
seniors, children and families in crisis; and
     There will be less housing for older Americans
    These are the federal budget issues that most trouble me. And while 
the pressure created by today's deficits and debt makes it more 
difficult to secure the funds needed to address these basic needs, I 
believe we must choose not to leave our most vulnerable children and 
struggling families further and further behind.
    I have to believe that these are questions that trouble the 
president and Director Portman as much as they disturb me and the 
members of this Committee and this House.
    I hope we can improve upon the choices presented in this budget and 
better address the haunting reality of the neglected and the vulnerable 
in America, especially among our children.
    I thank the Chairman for allowing me to make this statement, and I 
ask unanimous consent to enter into the Record several letters from 
Catholic, Jewish, Protestant, and evangelical religious organizations 
urging Congress to support these priorities and programs.

    [The prepared statement of the Interreligious Working Group 
on Domestic Human Needs follows:]

       Prepared Statement of the Interreligious Working Group on
                          Domestic Human Needs

                A FAITH REFLECTION ON THE FEDERAL BUDGET

    As communities of faith, we are grounded in a shared tradition of 
justice and compassion, and we are called upon to hold ourselves and 
our communities accountable to the moral standard of our Biblical 
tradition. We speak out now because we are concerned about our national 
priorities. The federal budget serves as a fundamental statement of who 
we are as a nation. The decisions we make about how we generate revenue 
and spend resources test our commitment to these values. Thus, we hold 
that the federal budget should be viewed and evaluated through a moral 
lens: does it uphold values that will strengthen our life together as a 
nation and as part of the global community?

                     COMMUNITY AND THE COMMON GOOD

    But seek the welfare of the city where I have sent you and pray to 
the Lord on its behalf, for in its welfare you will have your welfare 
(Jeremiah 29:7, NRSV).
     Our nation's well-being is dependent on the well-being of 
all its members. In order to form a more perfect union, the preamble to 
the U.S. Constitution commits this nation to promoting the general 
welfare. In faith language we would call that the ``common good.'' The 
budget should reflect a commitment to the common good by ensuring that 
the basic needs of all members of society are met. At this time, when 
more than 45 million Americans are uninsured, over 8 million are 
unemployed and over 12 percent live in poverty, additional cuts to 
critical human needs programs cannot be justified.
     Investments in education, job training, work supports, 
healthcare, housing, food assistance and environmental protection 
promote opportunity for all and strengthen families and communities. 
These should be budget priorities.
     Budget decisions must be evaluated not just in the short 
term, but with respect to their long-term effects on our children's 
children, the global community and on all of creation.

             CONCERN FOR THOSE WHO ARE POOR AND VULNERABLE

    Give the king your justice, O God May he judge your people with 
righteousness, and your poor with justice May he defend the cause of 
the poor of the people and give deliverance to the needy (Psalm 72:1-4, 
NRSV).
     Government has special responsibility to care for the most 
vulnerable members of society. All budget decisions and administrative 
procedures must be judged by their impact on children, low-income 
families, the elderly, people with disabilities and other vulnerable 
populations.
     Whatever one's position on the war in Iraq or on the tax 
cuts, these policies are driving the deficit. Attempting to pay off the 
deficit by cutting programs that affect needy populations, when these 
programs did not lead to the deficit, is unjust.

                            ECONOMIC JUSTICE

    Woe to those who make unjust laws, to those who issue oppressive 
decrees, to deprive the poor of their rights and withhold justice from 
the oppressed of my people (Isaiah 10:1-2, NIV).
     God has created a world of sufficiency for all; the 
problem is not the lack of natural and economic resources, but how they 
are shared, distributed and made accessible within society.
     Our government should be a tool to correct inequalities, 
not a means of institutionalizing them. The federal budget should share 
the burdens of taxation, according to one's ability to pay, and 
distribute government resources fairly to create opportunity for all.

                        ENDORSING ORGANIZATIONS

American Baptist Churches USA; American Friends Service Committee; 
        Bread for the World; Call to Renewal; Central Conference of 
        American Rabbis; Church of the Brethren Witness/Washington 
        Office; The Episcopal Church, USA; Evangelical Lutheran Church 
        in America; Friends Committee on National Legislation; Jewish 
        Council for Public Affairs; Mennonite Central Committee U.S. 
        Washington Office; National Advocacy Center of the Sisters of 
        the Good Shepherd; National Council of Churches of Christ in 
        the USA; NETWORK, A National Catholic Social Justice Lobby; 
        Presbyterian Church (U.S.A.) Washington Office; Union for 
        Reform Judaism; Unitarian Universalist Association of 
        Congregations; United Church of Christ Justice & Witness 
        Ministries; The United Methodist Church--General Board of 
        Church and Society; Women of Reform Judaism.

    [The prepared statement of the Jewish Council for Public 
Affairs follows:]

      American Jewish Committee; American Jewish Congress; 
Association of Jewish Aging Services; Association of Jewish 
Family and Children's Agencies; B'nai B'rith International; 
   Hebrew Immigrant Aid Society; Jewish Council For Public 
Affairs ; Jewish Funds for Justice; Jewish Labor Committee; 
Jewish War Veterans of the USA; National Council of Jewish 
 Women; Union of Orthodox Jewish Congregations of America; 
  Union for Reform Judaism; United Jewish Communities; The 
   United Synagogue of Conservative Judaism; The Workmen's 
                                       Circle/Arbeter Ring,
                                                  February 6, 2007.
    Dear Senator/Representative: The Jewish community has long 
demonstrated a commitment to economic and social justice. Our faith 
informs this tradition, and the Torah commands, ``* * * there shall be 
no needy among you * * * If, however, there is a needy person among 
you, do not harden your hearts and shut your hand against such a 
fellow. Rather, you must open your hand and lend that person what he or 
she need'' (Deuteronomy 15: 7-8).
    Driven by this tradition, we have been vigorous in advocating 
policies and programs to fight poverty and to help address the needs of 
disenfranchised vulnerable populations, including the elderly, working 
poor, disabled, youth, and refugees.
    The budgeting process is one of the most important actions taken by 
our government each year. We strongly agree that deficit reduction is 
critical to the economic stability of our country, but we also believe 
it is essential that it be done in a fair and balanced manner. Over the 
past months we have spoken out against cuts that we believed would 
disproportionately hurt those in most need.
    As the budget process for FY2008 begins, we urge you to fight cuts 
that would be harmful to the vulnerable populations we advocate on 
behalf of. Programs such as the Social Services Block Grant, the 
Community Services Block Grant, Food Stamps, State Children's Health 
Insurance Program (SCHIP) and the Low Income Heating Energy Assistance 
Program (LIHEAP) are critical to the elderly, refugees, children and 
persons with disabilities. Please keep these populations in mind as 
Congress develops its budget resolution.
    We believe that budgets are documents which reflect the values and 
priorities of those who create them. With the increase in hunger in 
American households; housing costs rising faster than wages; and more 
than 47 million Americans lacking adequate health care coverage, 
funding for social services to assist these individuals is more 
critical than ever. We urge you to advocate for a budget that reflects 
these realities.
    If you have any questions or for more information, please contact 
the Jewish Council for Public Affairs' Washington Director.
            Sincerely,

                                NATIONAL

American Jewish Committee; American Jewish Congress; Association of 
        Jewish Aging Services; Association of Jewish Family and 
        Children's Agencies; B'nai Brith International; Hebrew 
        Immigrant Aid Society (HIAS); Jewish Council for Public 
        Affairs; Jewish Funds for Justice; Jewish Labor Committee; 
        Jewish War Veterans of the USA; National Council of Jewish 
        Women; Union of Orthodox Jewish Congregations of America; Union 
        of Reform Judaism; United Jewish Communities; The United 
        Synagogue of Conservative Judaism; The Workmen's Circle/Arbeter 
        Ring.

                                 LOCAL

Brownstein Jewish Family Service (Southbury, Connecticut); Community 
        Relations Committee of the Jewish Federation of Western 
        Massachusetts; Community Relations Council of the Jewish 
        Federation of San Antonio; FEGS Health and Human Services 
        System (New York, New York); Flint Jewish Federation; Flushing 
        Jewish Community Council; Indianapolis Jewish Community 
        Relations Council; Jewish Board of Family & Children's Services 
        (New York, New York); Jewish Community Council of the Rockaway 
        Peninsula; The Jewish Community Relations Committee of The 
        Jewish Federation of Greater Los Angeles; Jewish Community 
        Council of Greater Coney Island, Inc.; Jewish Community 
        Relations Council of Greater Boston; Jewish Community Relations 
        Council of Greater Hartford; Jewish Community Relations Council 
        of Greater Washington; Jewish Community Relations Council of 
        the Jewish Federation of Greater Dayton; Jewish Community 
        Relations Council of the Jewish Federation of Greater 
        Philadelphia; Jewish Community Relations Council of the Jewish 
        Federation of South Palm Beach County; Jewish Community 
        Relations Council of Greater Dallas; Jewish Community Relations 
        Council of the Greater Miami Jewish Federation; The Jewish 
        Community Relations Council of Greater Washington; Jewish 
        Community Relations Council of So. New Jersey; Jewish Community 
        Relations Council of St. Louis; Jewish Community Relations 
        Council of UJA Federation of Northern New Jersey; Jewish 
        Community Relations Council of the United Jewish Council of 
        Greater Toledo; Jewish Community Relations Council of the 
        United Jewish Federation of San Diego County; Jewish Family & 
        Children's Service (Tucson, Arizona); Jewish Family & Community 
        Services (Jacksonville, Florida); Jewish Family Service, Inc. 
        (Bridgeport, Connecticut); Jewish Family Service (Houston, 
        Texas); Jewish Family Service (Seattle, Washington); Jewish 
        Family Service of Buffalo & Erie County (Buffalo, New York); 
        Jewish Family Service of Rhode Island; Jewish Family Service of 
        San Diego (San Diego, California); Jewish Family Service of 
        Worcester, Inc. (Worcester, Massachusetts); Jewish Family 
        Services (Baltimore, Maryland); Jewish Family Services 
        (Columbia, South Carolina); Jewish Family Services (Columbus, 
        Ohio); Jewish Family Services (Danbury, Connecticut); Jewish 
        Family Services of Greater Kansas City (Kansas City, Kansas); 
        Jewish Family Services of Silicon Valley (Los Gatos, 
        California); Jewish Family Service of Toledo, Inc. (Toledo, 
        Ohio); Jewish Family Services of York (York, Pennsylvania); 
        Jewish Family & Vocational Service (Louisville, Kentucky); 
        Jewish Federation of Broward County; Jewish Federation of 
        Greater Philadelphia; Jewish Federation of Greater Portland; 
        Jewish Federation of Greater Seattle; Jewish Federation of 
        Metropolitan Chicago; The Jewish Federation of Portland 
        Community Relations Committee; Jewish Federation of Rhode 
        Island; Jewish Federation of Somerset, Hunterdon & Warren, NJ; 
        Jewish Federation of So. NJ; Jewish Federation of St. Joseph 
        Valley; Jewish Federation of Western Massachusetts; Jewish Home 
        at Rockleigh (Rockleigh, New Jersey); Metropolitan Council on 
        Jewish Poverty; New Jersey State Association of Jewish 
        Federations (NJSAJF); Ohio Jewish Communities; Sid Jacobson 
        Jewish Community Center (East Hills, New York); Spokane Area 
        Jewish Family Services (Spokane, Washington); Syracuse Jewish 
        Family Service, Inc. (Syracuse, New York); UJA-Federation of 
        New York; Youngstown Area Jewish Federation.

    [The prepared statement of Network follows:]

   Prepared Statement of Network, a National Catholic Social Justice 
                 Lobby, on the Fiscal Year 2008 Budget

    ``You men and women in public life, called to serve the common 
good, exclude no one from your concerns; take special care of the 
weakest sectors of society.''
                    John Paul II, World Day of Peace, 1997.

    The Catholic Bishops challenge us in ``Economic Justice for All: 
Pastoral Letter on Catholic Social Teaching and the U.S. Economy'' to 
set priorities to serve the needs of those with the least economic 
power.
    NETWORK supports a federal budget built on fairness, economic 
equity and compassion for those who struggle for economic survival. We 
call on legislators to adequately fund programs which guarantee 
sufficient food, child care and healthcare, and adequate housing and 
support for higher education. We call for employment opportunities 
which allow self-respect and the ability to provide for one's family.
    The FY2007 budget is as yet unresolved, likely to end in a 
Continuing Resolution based on FY2006 funding levels, which severely 
cut mandatory programs and appropriated inadequate funding for most 
social programs in the health, housing and education areas. A spending 
cap for FY2007 is matched to the president's budget proposal for this 
year, even more drastically limiting funds available for human needs.
    The Administration continues to praise the strength of the U.S. 
economy. However, the wealth felt in the highest economic brackets and 
the rising tide of the stock market are not having a positive effect on 
the economic stability of most families in the United States. Each of 
the last five years, the Census Bureau Poverty Data have shown that 
increased numbers of families have fallen below the poverty threshold, 
and many have fallen deeper below than in the past. Increasing numbers 
of families struggle to meet basic needs of food, clothing and shelter.
    Tax cuts of 2001, 2003 and 2006, and the billions spent on the wars 
in Iraq and Afghanistan continue to escalate the deficit. This cannot 
be compensated for by cuts in domestic programs. NETWORK opposes such 
devastating cuts to programs which support the human dignity of 
families in need, and which hinder the development of healthy 
communities.
    NETWORK supports taxation which is progressive, expecting those who 
are most able to contribute to the common good to do so. We know that 
Americans do not object to paying for human needs, but the recent tax 
packages suggest just the opposite. They extend tax cuts that benefit 
the wealthiest Americans almost exclusively.

    ``The quality of the national discussion about our economic future 
will affect the poor most of all, in this country and throughout the 
world. The life and dignity of millions of men, women and children hang 
in the balance. Decisions must be judged in light of what they do for 
the poor, what they do to the poor, and what they enable the poor to do 
for themselves. The fundamental moral criterion for all economic 
decisions, policies, and institutions is this: They must be at the 
service of all people, especially the poor.''
     (1986) National Council of Catholic Bishops. Economic 
                                      Justice for All, #24.

    [Responses to Mr. Allen's questions follow:]

       Responses to Congressman Allen's Questions for the Record
                         From Director Portman

    Allen question: The Administration estimates there will be a three 
to five million net reduction in the number of uninsured under its 
health care tax proposal. How solid is that estimate?
    Portman: Estimates of this kind are always problematic because they 
are only estimates. They involve a great many behavioral assumptions 
about employees, employers, and market developments. Treasury does an 
admirable and professional job in developing such estimates using the 
models and data they have available to them.
    That said, I would note two other entities that have developed 
their own estimates. The Lewin Group, for example, estimates that there 
will be a net reduction in the number of uninsured of 9 million, while 
the Congressional Budget Office estimates that the number of uninsured 
would go down by 6.8 million, on net.
    Allen: What happens to the individuals who are unable to purchase 
health insurance?
    Portman: No single proposal or program is going to address 
adequately all the populations of the uninsured because the uninsured 
are a highly diverse group. The Administration is working on a two-
prong strategy to reduce the number of uninsured. The Standard 
Deduction for Health Insurance will make insurance affordable for 
millions of families, many of whom will gain coverage as a result. The 
President has asked the Secretary of Health and Human Services to work 
with Congress and the States on an Affordable Choices initiative to 
reform the health care marketplace. The Affordable Choices initiative 
could subsidize the purchase of private insurance for low-income 
individuals. However, any reform would need to be State-based, budget 
neutral within health care spending, not create a new entitlement. This 
initiative also should not affect savings proposals contained in the 
President's Budget.
    In addition, the Federal government continues to provide health 
insurance through existing programs: Medicare for the elderly and 
certain disabled individuals, Medicaid for low-income children and 
families, and SCHIP for targeted low-income children.

    [Responses to Ms. Kaptur's questions follow:]

      Responses to Congresswoman Kaptur's Questions for the Record
                         From Director Portman

    1. What have been the annual budget surpluses or deficits since 
Fiscal 2002, the first full fiscal year of the Bush Administration?
    As shares of the economy, which from an economic perspective is the 
most relevant presentation, the budget deficits were 1.5% of GDP in 
Fiscal Year 2002, 3.5% in 2003, 3.6% in 2004, 2.6% in 2005, and 1.9% in 
2006. To put these figures in context, the 40-year historical average 
is 2.4 percent. In dollar terms, the deficits were $158 billion in 
2002, $378 billion in 2003, $413 billion in 2004, $318 billion in 2005, 
and $248 billion in 2006. The President's Budget reduces the deficit in 
2008 budget and each year after until balance is reached in 2012.
    2. What is the total amount added to the total public U.S. debt 
during the Administration?
    Since the end of Fiscal Year 2001, federal debt held by the public 
has increased by $1,509 billion. As a percentage of the economy, public 
debt is lower than the average in the 1990s and is in line with 
historical averages.
    3. What percent increase in the national debt is that since the 
Administration first assumed office?
    Since the end of Fiscal Year 2001, and Federal debt held by the 
public has increased by 45.5%. As a percentage of the economy, public 
debt is lower than the average in the 1990s and is in line with 
historical averages.
    4. How much interest is the U.S. Treasury now paying on the 
accumulated debt of the U.S.?
    Federal net interest was $227 billion in Fiscal Year 2006, or about 
1.7 percent of GDP.
    5. What have been the annual amounts since fiscal 2002, and what is 
the percentage change in the amount of interest paid since fiscal 2002?
    Federal net interest was $171 billion in Fiscal Year 2002, $153 
billion in 2003, $160 billion in 2004, $184 billion in 2005, and $227 
billion in 2006. Relative to the overall economy, net interest was 1.6% 
of GDP in 2002, 1.4% in 2003, 1.4% in 2004, 1.5% in 2005, and 1.7% in 
2006. Net interest has increased by 32.6% since 2002.
    6. What was the amount of interest paid on the national debt in 
fiscal 2001, the last fiscal year of the Clinton Administration?
    In Fiscal Year 2001, Federal net interest was $206 billion, or 2.0% 
of GDP, Federal net interest declined for the next two years to $153 
billion in FY 2003. By 2006, net interest as a share of GDP was about 
three tenths of a percentage point lower than in 2001.
    7. What percent increase is the most recent annual interest payment 
compared to the amount paid in fiscal 2001?
    Since Fiscal Year 2001, net interest has increased by 9.9% in 
nominal dollar terms. Relative to the overall economy it has declined 
from 2.0% of GDP to 1.7% of GDP.
    8. Can you tell us for each year from fiscal 2002, what percentage 
of the publicly held national debt has been held by foreign buyers?
    The end of year percentages for Fiscal Years 2002 through 2006 
were: 33.9% in 2002, 37.2% in 2003, 41.9% in 2004, 42.0% in 2005, and 
44.2% in 2006.
    9. Who are these foreign buyers? Are they governments? Are they 
individuals? Are they corporations? What proportion of foreign held 
U.S. public debt is held by each group?
    American investors hold the majority of outstanding Treasury 
securities and both buy and sell those securities daily on the open 
markets by the hundreds of billions of dollars. The official breakdown 
of foreign holdings is provided by the Treasury Department. Assets are 
divided between holdings of foreign official institutions and other 
holders. Official holders include foreign government agencies and 
foreign central banks. Other holders include corporations, individuals, 
mutual funds, and other private investors. There is no further 
breakdown available for the other investors. The total amount of 
foreign holdings of U.S. Treasury securities was approximately $2.2 
billion at the end of 2006. Of that amount, foreign official 
institutions held $1.3 billion.
    10. Can you identify the top five specific foreign purchasers of 
U.S. debt for each fiscal year since fiscal 2002, and if not, why can 
you not identify these individual purchasers?
    Treasury does not provide information about individual purchasers 
of debt. The data in the table below are derived from data in the 
Treasury Department's International Capital System. They show changes 
in the amount of Treasury securities held by the major foreign holders 
by country or area for Fiscal Years 2002 through 2006.
    11. Which firms have served as marketers of U.S. debt instruments 
since fiscal 2002, and how much have each of them been paid in fees 
since fiscal 2002 by fiscal year?
    The Treasury sells U.S. debt instruments directly to institutional 
and individual investors through open auction. The Treasury does not 
charge or pay fees as part of this process.
    12. How much interest on the national debt have we paid to foreign 
holders for each fiscal year since fiscal 2002? Please identify the 
amount by country.
    That information is not available.
    13. If you were to compare the amount of interest paid on the 
national debt on a fiscal year basis and broke it down in total, by 
foreign holdings, and by country of foreign holdings, which federal 
programs could have been funded by each of these groupings?
    Federal programs cannot be funded by interest payments.
    14. In the history of our nation, have we ever paid as much 
interest to foreign creditors as we are at the present time?
    There are no precise data on the amount of interest paid to 
foreigners.
    15. Aren't you concerned about this situation, and what are you 
doing to reduce foreign holdings of U.S. debt instruments?
    The rate of interest on Federal debt has been lower on average 
during the current Administration than at any time in the last three 
decades. The low interest rates reflect the strong demand for Treasury 
securities, and the confidence that lenders, including foreign lenders, 
have in the U.S. economy and the fiscal portion of the Federal 
Government. Any attempt to discourage or reduce foreign purchases of 
Treasury securities would add to Federal interest costs and could shake 
the confidence of foreign and domestic investors in U.S. economic 
policies
    16. Why aren't American investors purchasing these debt 
instruments? Are they unwilling, unable, or are they being pushed out 
by foreign buyers clamoring to own larger and larger pieces of our 
country and government? Because that is exactly what they are doing. 
When you take a loan on your car or on your house, the bank holds the 
title. If we are taking a loan on our country, then someone else could 
ultimately be holding control.
    American investors hold the majority of outstanding Treasury 
securities and both buy and sell those securities daily on the open 
markets by the hundreds of billions of dollars. Purchases of Treasury 
securities are not analogous to taking an equity ownership in the 
United States. Foreign holders of Treasury securities are entitled to 
the principle and the interest those securities provide and nothing 
else. Foreign holders buy these securities because of their safety and 
soundness. The strong demand for Treasury securities demonstrate the 
confidence that foreigners have in the U.S. economy and the Federal 
government's fiscal positions.

    [Whereupon, at 1:40 p.m., the Committee was adjourned.]

                                  
