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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.
July 12, 2006
Yesterday, the White House Office of Management and Budget released its annual mid-year budget update. It covers the current FY2006 through FY2011. OMB's Mid-Session Review reports the deficit is falling faster than projected, a strong economy continues to increase revenues and that spending restraint made a difference. This year's budget deficit is now forecast to be $296 billion, or 2.3 percent of our economy (GDP). This deficit is 30 percent below the Administration's February forecast. Pro-growth policies, combined with on-going efforts to restrain spending, continue to reduce the deficit and will allow us to cut the deficit in half in 2008, a year ahead of the President's goal. While there is good news in the short term budget picture, the greatest threat to our budget continues to come from the unsustainable growth in entitlement programs, like Medicare, Medicaid and Social Security. I look forward to taking your questions.
Joseph, from Georgetown University (Studying in Paris) writes:
Our new projections show revenue growth at 11.4 percent for FY 2006. And we show steady revenue growth through FY2011. So there is no reason it is a one time jump that would somehow reverse itself. To be prudent, we are forecasting that receipts will grow more in line with the historical average going forward, just over 6 percent a year, and this will be more than enough to allow us to meet the President's goal of cutting the deficit in half by 2009. In fact, we now project we'll make that goal a year early -- in 2008.
Critics claimed that the Presidents tax relief would result in significantly deeper deficits. The numbers tell the real story. With two consecutive years of record receipts, it is evident the Bush Administrations economic policies have had a positive effect on the economy, and on the Federal budget. The alternative tax increases would have risked a further economic downturn.
Mary, from Omaha writes:
Curtis, from Boston writes:
Hi Curtis you make a good point. The earlier question from Joseph gets to this point, as well. The key concern should be the economy. This is why we focus on the deficit to GDP ratio. Incidentally, our latest projections show that, as a percentage of GDP, the deficit will be lower than 17 of the past 25 years. When the economy is in full gear, there is more activity and it generates more tax revenue. This can help with the budget deficit IF that revenue growth is also coupled with spending restraint. Yesterdays good news on deficit reduction is largely the result of a stronger economy, remarkable growth in tax revenues and some better fiscal discipline, especially on annual appropriations -- so-called discretionary spending.
Higher tax receipts account for 90 percent of the deficit reduction from our earlier deficit estimates, a point that underscores the importance of economic growth to the Federal budget. The budget and the economy are very much intertwined.
And you are right about the underlying strength of the economy. The Presidents pro-growth policies providing tax relief, opening new export markets, reducing burdensome regulations and promoting innovation have worked and are driving the surge in tax receipts. Since the full implementation of the Presidents tax relief program in 2003, 5.4 million jobs have been created, there have been 18 quarters of consecutive growth, and after-tax income has increased 12.9 percent in inflation-adjusted terms.
Our economy is more robust as a result of the economic policies pursued by the President. And this growth and progress on the budget deficit is particularly impressive in light of the many challenges our country has faced including the 2001 recession, the 9/11 terrorist attacks, the ensuing War on Terror and last years natural disasters that pounded the Gulf Coast, al of which have had major budget impacts.
Mike, from Wayne, PA
First, the President, working with Congress, has held the growth of spending -- outside of entitlements. F Under the President's leadership, we have succeeded in keeping day to day government spending below the rate of inflation. For this kind of spending that isnt for defense or homeland security, we have done even better. Weve kept spending levels frozen. Last year, Congress passed bills that actually went beyond a freeze and slightly reduced spending in this area below the previous year's level.
The Presidents 2007 Budget proposals call for major reductions in or the elimination of 141 programs, saving the taxpayers $15 billion. In addition, the 2007 Budget proposed reforms to entitlement and other mandatory programs that would generate $59 billion in savings over five years. These proposals can build on the success the President and Congress achieved last year in eliminating and reducing 89 programs for $6.5 billion in savings.
The Congress most recently exercised needed spending restraint when passing a fiscally responsible emergency supplemental bill for the Global War on Terror, Hurricane Katrina and avian flu prevention. Congress kept this supplemental spending within the overall limit the President insisted on by excluding nearly $14 billion in non-emergency spending from the final bill. This too was a win for fiscal discipline.
While we still have significantly more work ahead on spending restraint, we have made some progress and we will continue to be vigilant in pressing for spending discipline.
Kim, from Kentucky writes:
The line item veto is one tool that can help eliminate wasteful spending and further reduce the deficit. I believe the line item veto will have a chilling effect on the worst spending preventing the most egregious earmarks from being offered by lawmakers in the first place.
Youre right the President could operate more effectively with the line item veto. Today when a lawmaker loads up a good bill with wasteful spending, the President either has to sign the bill with the bad spending or veto the whole bill that's got necessary and important spending in it. Neither is a good choice.
Thats why we've proposed a line-item veto that the House of Representatives passed notably with bipartisan support. Under this proposal, the President can approve spending that's necessary; highlight spending that's not; and send back the wasteful, unnecessary spending to the Congress for a prompt up or down vote.
Were working closely now with the Senate to move forward on a line item veto, and urging them to vote before the end of July. Wed ask everyone tuning in todays "Ask the White House" to urge their Senator to support the line item veto.
Gregory, from Torrance, CA
As for your second question, I will need to follow up on that specific item, but in the Mid-Session Review, I want you to know we have taken some new steps to better address some of the concerns that have been expressed about how OMB reflects the cost of the war in the budget.
In February our '07 budget proposal included funds for the first time for the global war on terror, the largest part of which is continuing operations in Iraq. This was a $50 billion allowance, again, for Iraq, Afghanistan, and other elements of the war on terror. Now, 6 months later, we're going beyond this, to even show more of these costs. Although we do not know in detail what the war costs will be next year, in 2007, much less beyond 2007, I believe experience does allow us to project with modest confidence approximate amounts. Next year, as part of the Mid-Session Review we add an additional $60 billion to the $50 billion allowance for a total of $110 billion for FY 2007. We believe this to be the best estimate of the total costs next year.
This update also provides for a portion of additional costs anticipated the year after next, so two years from now in 2008, to continue the work in the global war on terror. This will be another $50-billion allowance. This is the first time we've projected these costs this far in advance, and looking this far ahead, I will tell you, is very difficult. There's a lot of uncertainty involved in it. But we do believe that the approach we've taken in the Mid-Session Review strikes the right balance of reasonably anticipating costs without making unreasonable guesses.
Sandy, from Bedminster, NJ
Similarly, the best way to look at government debt is as a share of GDP. And we're seeing the debt to GDP ratio stay roughly constant through 2007 and then fall over the next few years. In fact, the debt in 2006 and beyond is close to the historical average of 35.4% of GDP. By 2011, we expect the ratio to be 34.5% below the historical average.
As for the interest on the debt, in 2006, it represents about 8% of government spending.
By the way, it may be interesting to note that among the other developed G-7 countries, our debt to GDP ratio is slightly higher than Canada and the UK and lower than Japan, Germany, France and Italy.
Benjamin, from Miamisburg, Ohio
This is what's called mandatory or entitlement spending, and it is based on a formula. It includes Medicaid, Medicare, and Social Security. These are critical programs that must be preserved but left unchecked and unreformed, they will effectively overtake the entire federal budget in about 30 years or so. Between 2030 and 2040, entitlement spending will begin squeezing out all other federal spending, including for education, defense, and homeland security.
Last year, the Presidents Budget proposed needed reforms to Medicaid and, with the help of Congress, we saved nearly $5 billion over the next five years in this area. This years Budget proposed similar reductions for Medicare. These reforms and more will be needed in Medicare, Medicaid, and Social Security to keep those important programs solvent and prevent their skyrocketing growth from swamping our nations fiscal health and economy. It is a matter of smart policies to reduce the rate of growth and improve the way the programs work.
The changing demographics of an aging population make it imperative that we preserve these programs by putting them on a sustainable financial footing for future generations. The President has led in this area, and the Administration remains eager to work with Congress both Democrats and Republicans to address these serious challenges in a constructive and bipartisan way.
Robert, from Durham writes:
Bill, from Cincinnati writes:
Truly, a difficult question! Ive enjoyed all of these opportunities to serve.
There was no greater honor than to get to represent the people of the 2nd district of Ohio for more than a dozen years in the House of Representatives. I enjoyed working together with other Members on a bipartisan basis to get things done such as IRS reform, changes to pensions that helped make progress on retirement security, and promoting prevention and education in fighting drug abuse.
At USTR, I got to follow another passion. Opening export markets for American goods and services. I believe this is essential to our long-term economic health.
Finally at OMB, I get to watch out for the peoples money! And work on virtually all issues since OMB is involved in spending decisions and major policy and regulatory decisions.
I have found that public service has a lot of rewards. The biggest negative is not getting to spend more time with my family, who have been great to support me in these jobs.
I really enjoyed participating in today's chat and hope to do it again soon. Thanks for all of your good questions!
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