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Welcome to "Ask the White House" -- an online interactive forum where you can submit questions to Administration officials and friends of the White House. Visit the "Ask the White House" archives to read other discussions with White House officials.

Mark J. Warshawsky
Treasury Assistant Secretary for Economic Policy
May 18, 2006

Mark Warshawsky
Good afternoon, everyone; it’s great to be with you in cyberspace today. I’m pleased to be able to answer you questions about the American economy – a strong economy that I believe will stay on a path of growth thanks, in part, to the fact that President Bush signed an important piece of tax relief legislation yesterday. We’ll talk more about that later, I’m sure! Let’s get started.

Matthew, from Detroit writes:
Why does the country not attempt to reduce the national debt significantly, thus reducing the amount of interest paid on the debt? Less expenditure on interest leaves more for other needs, be it Social Security, War on Terror, Immigration Reform. Also,instead of asking for $3.00 of your tax return to go to campaign financing, why not ask to apply $3.00 to the national debt ?

Mark Warshawsky
Matthew, I share your concern about the national debt but I have some good news on that front: in fiscal year 2005, the U.S. government spent only 1.5 percent of GDP on interest on the national debt. On average, since President Bush took office, we have spent about 1.6 percent of GDP on interest. This is lower than at any time since the mid-1970s.

Your idea to allow taxpayers to apply a portion of their tax payment to reducing the national debt is an intriguing one, but I’m not sure it would work the way you suggest. Changes in the national debt from year to year mostly depend on each year’s deficit (the amount of money the government is spending over the revenues collected). An allocation toward deficit reduction – if structured the same way as the campaign financing option – would not actually increase the amount of dollars you pay in taxes, so the deficit would be the same as before and the change in the national debt would be the same as before, too.

Sarah, from Guymon, OK writes:
Can you briefly explain this administration's economic policies and why that has resulted in growth? How does the current status compare with when Bush came into office five years ago?

Mark Warshawsky
The linchpin of this Administration’s economic policy has been tax relief. In the first few years of the Administration, tax cuts were needed to keep the economy afloat in the face of the recession and slow recovery – and even the threat of deflation -- that stemmed from the collapse of the high-tech stock market bubble. For the medium to long term, tax cuts were needed to encourage work, business formation, and investment. Work and business formation were encouraged by cutting marginal income tax rates; investment was encouraged by reducing the double taxation of corporate profits (through lower taxes on dividends and capital gains).

Although there is still more to do, so far we are very pleased with the results of our economic program. Since the business cycle peak in early 2001, economic growth has been stronger than during the comparable part of the previous business cycle (roughly, 1990-1995). In fact, in the past three years, real GDP growth has averaged 3.9 percent – a rate higher than any three-year period from 1985 through 1997 – and over 5.2 million new jobs have been created.

At 4.7 percent, the unemployment rate is lower than the average of the 1960s, 1970s, 1980s, or 1990s. At the same point in the previous cycle (mid-1995), the unemployment rate was a full percentage point higher, at 5.7 percent. Meanwhile, real hourly compensation – the value of worker pay plus benefits, after inflation -- is up 8.5 percent versus where it was at the business cycle peak in early 2001. During the same period of the previous business cycle, real hourly compensation was up only 2 percent.

Collin, from Indiana writes:
Why are we still fighting over taxes, A national sells tax is still the best way to get the US back on it,s feet and help people like me and all the middle class out. Why is it so hard to do the right thing and lose the IRS once and for all. Collin

Mark Warshawsky
Collin, I appreciate this question. There is no doubt that the tax system needs to be simpler and fairer. Treasury Secretary John Snow often says that, in all his travels as Secretary, he has never encountered anyone who has said “Mr. Secretary, please leave that tax code exactly as it is; don’t change a thing.”

The President believes that it is incredibly important to reform the tax code, and to do it right. But to do it right will take time, debate, and careful consideration on both sides of the aisle in Congress. Historically, the opportunity to fundamentally change the code only comes around every twenty years or so. At this time we must consider all options carefully and be sure that we are creating a more simple and fair tax system for all. I don’t think you’ll ever see the end of the IRS – government will always need to collect revenues to pay for essential public services (for example, national defense and a highway system), but the President’s goal is to have a tax code that is simpler and more fair in the not-too-distant future.

Jill, from Oxford writes:
I just graduated from college and will take a few weeks off before starting the job hunt. What does the job market look like these days for me and my fellow grads?

Mark Warshawsky
Hi, Jill, thanks for this question. I believe you and your classmates have every reason to be optimistic. I’ve been reading plenty of anecdotal stories lately suggesting that job market for this year’s college grads is the best in years. Cold hard facts confirm that these stories are true. The job market is doing very well. Right now the unemployment rate is 4.7 percent, which is lower than the average for the 1960s, 1970s, 1980s, or 1990s. Payrolls are up 5.2 million since August 2003. The labor market is very strong; you and your friends are graduating at an excellent time.

Andrew, from Houston writes:
Some of my friends would prefer to pay higher taxes in order to pay down the national debt. Do you have a counter to that argument?

Mark Warshawsky
Andrew, I’d like to make sure you understand that although it is against the law to pay less in taxes than legally required, everyone is certainly free to pay more in taxes than the government requires. You and your friends are well within your rights to send additional money to the government if you believe government will spend it better than you would.

That said, I don’t think your ‘donation’ is necessary. Federal revenues are on the rise and are the highest they’ve ever been. We are on track to cut the deficit in half by the time the President leaves office, and deficit reduction is the critical first step toward overall debt reduction.

Marc, from St. Louis, MO writes:
How do tax cuts help the economy?

Mark Warshawsky
Hi, Marc. Your question is short and simple and I think the answer is short and simple as well: Tax cuts help the economy by encouraging work, business formation, and investment. In turn, this drives up the number of jobs, worker pay, and investment income, leading to an increase in the standard of living across the board.

Gregory, from Los Angeles, CA writes:
Mr. Secretary Where does President Bush plan to get the additional money that the nation is not recieving, due to these tax cuts? Gregory

Mark Warshawsky
Thanks for this question, Gregory. I think you speak to a common misunderstanding about government budgets. In short, tax cuts don’t take money away from the nation. Tax cuts simply leave more money in the pockets of the people who earn it. The President and Congress must then work out the best way to spend the tax revenue that comes in.

Another budget reality that may surprise you and others is that tax cuts are perfectly consistent with increasing levels of tax revenues. Federal tax receipts have continued to increase even after the President and Congress lowered your taxes.

We still have a budget challenge and unwelcome deficits, but economic growth is helping to shrink the deficit. With lower tax rates and higher growth, the federal government ran a monthly budget surplus of $118.85 billion last month, with tax receipts at all-time highs. In fact, government receipts are now close to their historic average of about 18% of GDP. The deficit problem at this point is not because of revenues—it is because of spending. That’s why it’s so important that the President is holding the line on the supplemental spending bill now before Congress, and that he is pressing so hard to get a line-item veto which would allow him to veto specific items in the budget that he sees as an unnecessary expense for taxpayers.

Trey, from Houston writes:
How is a tax cut that effectively gives the average American $33 and people that make over $1,000,000 almost $50,000 in tax breaks going to help America? I'd rather pay my $33 and know that the fat-cats are paying their dues too.

Mark Warshawsky
Hi, Trey. The President and his Administration share your belief that taxation should be as fair as possible. That's why he has worked so hard with Congress to get legislation enacted to reduce the tax burden on all families who pay taxes, including the working poor and the middle class. During his first term, Congress enacted three tax acts containing tax relief for America's families. Low and middle-income families have especially benefited from the creation of a new 10-percent-rate bracket and the expansion of the child tax credit to $1,000. These tax cuts reduce the amount of taxes paid both throughout the year through withholding and at the end of year when taxpayers file returns.

Over 5 million taxpayers, including 4 million taxpayers with children, will have their income tax liability completely eliminated in 2006 due to the tax acts enacted during the President's first term. Most of these taxpayers have income under $50,000. Meanwhile taxpayers in the top 1% of the income distribution pay about 35 percent of all income taxes and taxpayers in the top 10% pay about 70 percent of all income taxes.

Mark Warshawsky
Thanks so much for these thoughtful and important questions, everyone. I look forward to our next virtual conversation on "Ask the White House.”

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