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Stephen S. McMillin
Stephen S. McMillin
Deputy Director, Office of Management and Budget

February 6, 2007

Stephen S. McMillin
Thank you for taking the time to join me today. The country has a lot to be proud of – our economy is strong and growing, and as a result, federal revenues continue to be robust.

The President’s 2008 Budget continues the focus on pro-growth policies that have helped fuel our Nation’s economic expansion. The President’s tax relief helped generate increased economic activity that resulted in strong job creation and record tax receipts in the last two years, even in the face of historic challenges – the 2001 recession, corporate scandals, 9/11, and Hurricane Katrina. Our strong and resilient economy, coupled with spending restraint, has helped cut the deficit in half three years ahead of schedule and put the budget on a path to balance by 2012. But, we cannot afford to be complacent. We have to think about our long-term fiscal health as well and take sensible steps to address our biggest long-term budget challenge -- reforming vital entitlement programs, such as Medicare, Medicaid and Social Security, to ensure they are there for future generations.

I look forward to your questions.

Ryan, from Ardsley, NY writes:
What are the different approaches in which people want to balance the federal budget?

Stephen S. McMillin
The best way to reduce the deficit is through keeping the economy strong and restraining spending. Tax receipts have grown to record levels without increases in tax rates, thanks to a strong economy.

The President’s tax relief reduced taxes for every American income taxpayer, while still generating increased economic activity which led to record tax receipts in the last two years. Coupled with spending discipline that kept non-security discretionary spending growth to one percent, and modest restraint in the growth of entitlement spending, the resulting strong economy has helped cut the deficit in half three years ahead of schedule and put the budget on a path to balance by 2012.

Some favor reducing the deficit by raising taxes, but this can be counterproductive since higher taxes on savings, investment, and small business income could put our recent strong growth at risk.

Robert, from Palo Alto, california writes:
What is the future for the funding of the Office of Science? Is the doubling of the science budget by 2010 still in play?

Stephen S. McMillin
The short answer is yes. A centerpiece of the President’s American Competitiveness Initiative (ACI) is his commitment to doubling the investment in key Federal agencies that support basic research programs in the physical sciences and engineering over the next 10 years. As part of the ACI, the FY08 Budget does include $4.4 billion, a seven-percent increase over last year’s Budget, for the Department of Energy’s (DOE’s) Office of Science.

The Initiative overall commits $50 billion to increase funding for research and $86 billion for research and development tax incentives. The Advanced Competitiveness Initiative will enhance cutting-edge basic research, helping to advance U.S. competitiveness by inspiring a new generation of American innovation through world-leading initiatives in high end computation; bio-energy research centers; fourth generation light sources; and nanotechnology.

Investments in research and development have proved critical to keeping America’s economy strong by generating knowledge and tools upon which new technologies are developed. We are committed to ensuring that the American economy remains the most flexible, advanced, and productive in the world.

Thanks for your question.

john, from Texas writes:
Where do they get money for unbudgeted items like wars or natural disasters? Why is the war not a budget item? What happens to the budget when fuel costs go through the roof? Does the Social Security nest egg show up on the budget?

Stephen S. McMillin
Let me answer the first two together. When large, unanticipated, emergency budget needs arise, sometimes the President will request that Congress pass an emergency supplemental spending bill in order to meet those emergency needs. This is a tool that the President and Congress should use sparingly, so that federal spending and deficits are minimized.

To the extent that the costs of military operations or response to natural disasters can be anticipated, those costs should be reflected in the annual budget so that appropriate spending tradeoffs can be made. In this year’s budget, the President has taken the extraordinary step of including the full cost of the war for the next two years. Beyond this time, projections of war costs are extremely speculative, and of little value.

In addition, the Budget includes funding for the Federal Emergency Management Agency to cover the costs associated with the types of natural disasters that commonly occur in a given year. It is important to budget for these kinds of costs in advance, especially while we still have deficits, since every dollar of additional emergency spending must be borrowed by the Treasury, adding to our national debt.

Regarding fuel costs, this is one of the many expenses that federal agencies incur that can vary greatly from the amount assumed in the budget. When fuel costs are higher than expected, agencies do not typically receive additional funding. Rather, they are expected to manage all of their costs within the funding provided for the year. Other costs may come in lower than expected. If not, the agency must find ways to reduce either fuel use or other expenses in order to carry out their mission with the funds at their disposal.

Lastly, we do include projections for Social Security in our budget. Our budget provides the most comprehensive measure of Federal spending – by showing the difference between all spending and all receipts, we show how much Government spending must be funded by borrowing from the public. And our projections show that important entitlement programs, like Social Security, are not sustainable as currently structured. In about a decade, today’s Social Security surpluses will turn into growing deficits. The President is committed to strengthening entitlement programs to consider different options for strengthening social security and bringing them to the table.

Michael, from Powell, Tn writes:
In the budget priorities, what part of the federal government will be getting the least spending? Thank you.

Stephen S. McMillin
To keep the Budget focused on our Nation’s top priorities while keeping us on the path for a balanced budget within the next five years, the Administration has proposed a package of savings and reforms in both discretionary and mandatory spending. These proposals would help restructure or eliminate programs that are not getting results or not fulfilling essential priorities resulting in savings to taxpayers and improved government services. The list of proposed major reforms and budget savings were guided by criteria that considered whether the programs met the Nation’s priorities, constituted an appropriate use by the Federal government of taxpayer resources, and whether the program produced the intended results.

Cliff, from Brimfield, Ohio writes:
Director McMillin: Why does the government budget run from October to October instead of From say January to January? Thank You

Stephen S. McMillin
The federal government's use of October 1 as the beginning of the fiscal year is intended to give the Congress sufficient time to complete its work on the budget before the beginning of the year. Prior to 1977, the federal government used a July-June fiscal year. However, in 1974, Congress dramatically reshaped the budget process to include several new steps, including the passage of an annual congressional budget resolution. It was thought at the time that all the necessary work on creating a congressional budget blueprint, and the passage of annual spending bills, could not take place before the beginning of the July 1 fiscal year. So Congress gave itself an extra 3 months each year by moving the date to October 1. Fiscal Year 1976 was the last year that began in July. If you look in the detailed historical tables that accompany the budget, you will see the label "TQ" between 1976 and 1977. This is the "transition quarter", a 3-month budget that allowed the shift from July to October.

But even with this extra time, it is still very common for annual spending bills to be completed after the start of the fiscal year.

Samson, from Ottawa, Canada writes:
Recommendations to the Nation on Reducing U.S. Oil Dependence drilling for oil and gas and to increase the supply of alternative fuels, President George Bush has asked Congress to join him in setting a mandatory fuel standard to require 35 billion gallons of renewable and alternative fuels in 2017 -- nearly five times the current target.

Is the above very important recommendation included in the budget?

Stephen S. McMillin
Yes, it is. The Budget includes a number of proposals to increase our energy security while improving our environment. Specifically, the President is proposing to increase the current standards for alternative fuels use and for fuel economy in order to cut, by 2017, our domestic gasoline consumption by 20 percent and substantially reduce vehicle air pollution and CO2 emissions compared to projections. The Budget also continues research through the Advanced Energy Initiative to improve the reliability of energy supplies to American families and businesses. In addition to the benefits to our energy security, these proposals will reduce the growth of greenhouse gas emissions. Thanks for your question.

Scott, from Camarillo writes:
Why is there such an obsession with earmarks, which represent a relatively small portion of the overall budget and which don't really drive deficits since they are simply congressional directives on the location (not overall amount) of spending, rather than a focus on the real drivers of spending, which are entitlement programs?

Stephen S. McMillin
While it's true many earmarks are relatively small compared to the overall federal budget, they quickly add up to real money. In 2005 alone, there were over 13,000 earmarks in appropriations bills, totaling nearly $18 billion in spending. In some cases, these funds could be better spent on other, most effective programs. In other cases, overall spending could be reduced. But just as important as the overall cost, the process by which Congress allocates these funds is in need of reform -- ensuring greater transparency regarding the sponsors and recipients of earmarks, and ensuring that any earmarks can be subject to a vote in the House or Senate.

We do more than focus on earmarks, however.

This year’s Budget provides a comprehensive approach to tackling Government spending. It builds on this Administration’s record of spending discipline by holding the growth in non-security discretionary spending to one percent, well below the rate of inflation. And it addresses the biggest challenge to our nation’s fiscal health -- entitlement spending and the unsustainable growth in important programs like Medicare, Medicaid, and Social Security.

The 2008 Budget slows spending growth through sensible reforms in entitlement and other mandatory programs, resulting in $96 billion in net savings. We achieve this, in part, by slowing the growth in Medicare from 7.4% annually to 6.7%. Over the long haul, even these modest reforms can reduce Medicare’s unfunded obligations by 25%.

But, there’s still much more to do. The President will continue to lead the country on this issue as he works to educate Americans about the real and dramatic choices we face if we don’t take action soon in this area.

Shehzad, from Saint Louis, Missouri writes:
Please can you explain in simple words the budget priorities of Bush Administration and what are priorities for education and health?

Stephen S. McMillin
The President’s Budget addresses pocketbook issues that affect the standard of living for American families including the quality and cost of education and access to affordable health care.

Regarding our schools, the 2008 Budget builds on the successes of No Child Left Behind (NCLB) in raising student achievement for millions of children in schools nationwide. It increases total funding for NCLB by $1.2 billion, to $24.5 billion, a 41% increase since 2001. The 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 also increases the Pell Grant maximum award to $4,600 this year and to $5,400 by 2012.

This year’s Budget also includes a number of proposals to make health care fairer, more affordable, more accessible and flexible. It proposes a significant change in the tax treatment of health care to expand coverage, increases transparency and competition in the health care insurance market so that consumers have more choices, and slows the growth of health care costs -- all of which will reduce the number of uninsured Americans. The Budget also improves access to health care by allowing small businesses and civic and community groups to band together to leverage their bargaining power in purchasing insurance, and it proposes to reduce frivolous lawsuits that increase patients’ costs.

To learn more about these proposals, see and /stateoftheunion/2007/initiatives/healthcare.html.

Ben, from Kansas City, Missouri writes:
Why has the federal government reduced funding for cancer research?

Stephen S. McMillin
Since 2001, the President has actually increased the annual Federal cancer research and prevention budget by approximately 26 percent. The 2008 Budget maintains our commitment to cancer research and prevention activities. And we’re getting results. In January 2007, the President visited NIH to observe first-hand the discoveries being made by NIH researchers, including the approval of a vaccine that blocks the leading cause of cervical cancer. This is the second consecutive year there is a reduction in cancer deaths in the U.S., and we need to build on this progress.

Stephen S. McMillin
Thanks for sending me your questions and the opportunity to speak with you today.

The President’s FY08 Budget shows that we can achieve balance by keeping the economy strong and by imposing sensible and realistic spending restraint, while investing in our Nation's priorities.

If you would like more information on this year’s Budget, please visit our website at I look forward to talking with you in the future.