For Immediate Release
Office of the Press Secretary
August 22, 2001
Press Briefing by
OMB Director Mitch Daniels
10:00 A.M. EDT
MR. DANIELS: I'll make some
very, very brief summary comments, and we'll go straight to
questions. The comments will be brief because, in part,
because so much is already known. This must be what hosting
a movie premier is like when the entire audience has been to the sneak
preview already. So let me just say a few quick things.
The report we've issued this morning
confirms that the nation has entered an era of solid
surpluses. Surpluses on the order of $160 billion, despite
an economy that has been week now for over a year and in decline for
that time. This is the second largest surplus in American
history, in the face of that weak economy, a phenomenon that should
strike all Americans as very positive.
The 10-year forecast that we have
projected is $#.1 trillion, again an astonishing number, vastly more
than the amount of publicly held debt that it will be possible to repay
over that time period. And this number reflects new
commitments since the April budget of $198 billion in the first
installment of the President's program to repair and rebuild our
national defenses, and also a revised increased estimate for Medicare
reform including prescription drug coverage for our senior citizens, up
from $153 billion to $190 billion.
Let me make certain you note that the $153
billion was over 10 years, the $190 billion is over only eight
years. So an upward revision from the area of $15 billion a
year -- (microphone dies) -- (laughter.) Let me roll the
tape back a minute, then.
The $3.1 trillion of surpluses over 10
years is after new commitments since the April budget of $198 billion
as a first installment on defense repair and rebuilding, and $37
billion in an upward revision for Medicare reform and prescription drug
coverages. Again, that new figure of $190 billion divides
only -- over only 8 years as opposed to 10.
In 2002, we forecast a growing, a larger
surplus, $173 billion. I think it's very noteworthy that in
2002, we will pass an important landmark -- interest costs -- the debt
burden on the federal Treasury will drop below a dime on the dollar
down to 9 cents of each dollar of federal revenue. That's
the lowest interest burden in a quarter century since 1976, and it's
headed down very quickly.
Finally, I would simply note that economic
growth is the key to continuing this very strong fiscal
picture. It is growth that produces surpluses, not
vice-versa. And a return to economic growth will be the
focus of the President and the administration in the months ahead.
Economists have agreed unanimously that the single-best hope the
economy has for a quick recovery is the tax relief, which is now in the
process of beginning, but we'll all be very watchful on economic trend
data on which our surpluses, the trust funds of our entitlement
programs, and all our hopes for continued meeting of the nation's
priorities ultimately depends.
Questions? And I'm advising you
to wait for a microphone to ask your question. Down here in
Q The interest-cost
thing -- the year in which there is enough money to repay debt exceeds
redeemable debt is pushed back -- 2010 from 2008, which -- doesn't that
hurt your efforts to reform Medicare and Social Security in terms of
debt paydown --
MR. DANIELS: No, really not at
all. The, I think, very important fact that all the debt
that can practically be repaid, will be repaid within the space of this
budget period, is one that remains very central to our future
success. And it's completely independent of Medicare, as are
the trust funds, themselves, completely independent of the size of
these surpluses. What matters to Medicare is economic growth
that continues to grow those trust funds. They'll grow by
$30-some-billion this year alone, and more fundamentally, reform of
those programs, as the President has proposed.
I'll try to pick people who are close to a
microphone in the back there.
Q I'm confused as
to whether the on-budget surplus is $2 billion or $1
billion. And also, how does -- I'm just not familiar enough
with this -- how does the $3.1-trillion estimate compare to your April
MR. DANIELS: The on-budget
surplus is $2 billion, Francine. We did clarify that because
the Postal Service is losing a lot of money, $1.3 billion this year,
for those who are particularly interested in a precisely accurate
accounting of the Social Security surplus, you wouldn't want to
penalize the Social Security surplus with that $1-billion loss
experienced by the Postal Service. So the on-budget surplus
is $2 billion, but the surplus above and beyond Social Security is $1
On the $3.1 trillion, this reflects the
effects of, first of all, tax relief. Tax relief, as passed
by the Congress, was smaller than that contemplated by the President,
so the effects of tax relief on the April forecast have been brought
down somewhat. It also reflects the new investments I
mentioned in defense and in Medicare in particular.
And what it does show is that there
remains after the government has paid all the debt that it can
practically pay, we continue to see $1-trillion-plus of uncommitted
funds, and these could be used for entitlement reform, growth of
necessary programs, further restoration of defense, and so forth.
Q Sir, I still have
the question of what was the actual forecast in April for 10 years?
MR. DANIELS: The forecast was 5.6 before
the President's tax relief, and these other programs were subtracted.
Q The prior
administration, if I'm not mistaken, projected paying down the entire
federal debt by about 2011, if I'm not mistaken. Is that
something that you believe we cannot afford now, or is that a conscious
decision, a policy decision that you feel is more prudent to maintain
that and use funds for other programs?
MR. DANIELS: It was never a
serious proposal. It would have involved wiping out the
savings bond programs, state and local bonds, which they're required
investments to protect taxpayers in the states and localities, and it
overlooked the fact that beyond a point, you would be paying exorbitant
premiums, prepayment premiums, to wealthy bond holders, 36 percent of
whom, incidentally, are foreign banks.
So it was never a serious policy proposal,
and upon closer inspection, one finds the happy outcome that between $2
trillion and $2.2 trillion can be paid off. This will pay
debt down to levels we haven't seen in a century or since about 1917,
and this is really the most that I think any administration would ever
finally do in the real world.
Q You list in this
document examples of potential further requirements for spending; among
them are expiring tax provisions, farm bill, so forth. The
document also discusses the fact that the defense number in here is the
first installment. We have never learned the cost of the
future installments. So I'm wondering if you could explain,
given the numbers you have here today, how the President intends to pay
for potential further requirements in these areas, while at the same
time trying to constrain the Congress from spending money?
MR. DANIELS: Outlays on the
baseline that you're looking at go up about 5.5 percent next
year. So it's quite a lot of money; over $100
billion. And that will accommodate a lot of
growth. The Congress will have to decide where that growth
is apportioned, and the President will have the priorities you just
mentioned very high on his list.
But there will be ample room, particularly
if we at last become proficient in Washington at redeploying funds from
obsolete, non-performing and duplicative programs to more important
uses and the uses of tomorrow -- you named several of them.
Q Just to
clarify. The tax bill, as written, terminates in 2010. When
you do your revenue estimates for 2011, do you assume continuation of
the tax bill, or do you assume that it just stops, and, therefore, you
have additional revenue in that year?
MR. DANIELS: By budget
convention, we can only assume those things which are now in
law. And so unless and until it's extended, we won't assume
Q Do you have any
-- can you give some clarification as to how much additional revenue
would be required in that year to keep the tax bill going?
MR. DANIELS: Glen, I'll try
after we're done, but if we've made a projection, I don't have it with
Q If you look at
the tax receipts, the different -- after 2004, you're actually
expecting corporate and individual income taxes to be higher than you
were expecting in April. You're also expecting additional
tax receipts from estate and gift taxes beyond 2005, although the
estate and gift tax will begin being cut dramatically under the tax
bill. Is this dynamic scoring, or exactly how is this change
MR. DANIELS: No, it's not
dynamic scoring, Jonathan. In fact, I think the revenue
estimates we're using are pretty cautious throughout. For instance,
we're only forecasting a little over 3 percent revenue growth next
year. Essentially, what we're seeing for this year, a very
anemic year for revenues. So we've tried to be very careful
on both the economic assumption side and the technical assumption side,
which are supplied by our colleagues at Treasury, to be guarded about
the amount of new revenue coming in.
Q Will you be able
to afford a $33.5 billion in tax credits under the energy bill in this
budget? Can you accommodate that? And also, some
Democrats are saying what about the tax consequences flowing from a
prescription drug benefit bill, is that all affordable?
MR. DANIELS: It is
affordable. The tax credits in at least some versions of the
energy plans in Congress are higher than those that the President
suggested, but I think they'd still be affordable if it's the will of
Congress to move them up there. This $33 billion is not a
small number, but it is a 10-year number and it does phase
in. So particularly the early year consequences of any of
the plans that I've looked at are very small.
And on prescription drugs, once again
there is ample room; it's a high priority of the President's to get to
a comprehensive Medicare reform, including prescription
drugs. And as I've said, we have raised the estimate within
the numbers within this review, raised the estimate
significantly. This comports with the more specific
framework for Medicare reform that the President released last month.
Q One of the
changes since the tax bill was passed, the cost of delaying the payment
of estimated corporate tax was supposed to be $32 billion, and I see in
your calculations today it's $28 billion. What's happened?
MR. DANIELS: Folks at Treasury
believe that some folks will go ahead and pay it in fiscal '01
anyway. Didn't get the memo, I guess, but that's the
answer. The amount of money totally expected in the
corporate revenues is identical.
Q -- -- (inaudible)
MR. DANIELS: Well, it's crucial
if you're into one-year snapshots, maybe. But that's their
best guess, that although that much money is entitled to be held over
into the next week, that some businesses might go ahead and pay it on
the original schedule. And that accounts for the
Q Let me just be
sure I understand what you just said. The Treasury is
assuming that about $5 billion of the corporate tax payments will be
made this year?
MR. DANIELS: I believe that's
correct. We'll double-check that for you. When I
asked this same question, and it's been a few weeks, I think that as
the reason, as opposed to any further reestimate of how much was
finally going to be paid. But $28 billion is the amount now
seen to be moving from year to year.
Q So that -- I know
that you don't like one-year snapshots, but for those people who do
like one-year snapshots, if it were not for the fact that corporations
would be paying taxes earlier than they have to, we would be into the
Social Security surplus this year, is that correct?
MR. DANIELS: Well, first of
all, we're into the Social Security surplus every year. It's
only a question of what we use it for -- do we use it for debt
repayment or for any other purpose. I know you're aware of
Q Let's be more
specific. Payroll taxes, excess payroll taxes would be used
to make these numbers work this year.
DANIELS: Yes. Congress -- and the parentage of
this seems to be lost to history -- but someone in Congress proposed
that delay. As a factor affecting this one-year snapshot,
its' only about half as big, I would note, as the spending run-up of
last December, which raised spending $50 billion over the year 2000.
Now, in retrospect, for those snapshot
aficionados in the audience, I suspect that they now wish that that
explosion in spending last December had been a little more
temperate. And therefore, this year's surplus -- let's
remember we are dealing with the last Clinton budget and the budget
passed in the last Congress when we measure these numbers for 2001.
Q You say these
numbers depend on a return to sustained economic growth. How
will a prolonged economic slowdown affect or change these
numbers? Do you have a specific date when you expect the
economy will be back on track for these numbers to work?
MR. DANIELS: Like most
forecasters, Angela, and our forecasts are in the mainstream of those
that are out there, we are expecting a return to economic growth at the
end of this year or the first of next year, and sort of back on a
reasonable growth track from then on. You shouldn't
overestimate the effect. If these numbers were off by a full
percentage point -- let me be more graphic; let's say they were off by
two full percentage points -- in other words, growth was less than half
what we're forecasting -- you'd still be looking at a surplus next year
well over a $100 billion. So the nation is awash in extra
money, and it's going to be. The real issue we're engaging in are how
to maintain that kind of momentum and, of course, how to apportion that
extra money most prudently for the long-term benefit of working
Q Just a quick
question about the long-term outlook. In 2011, you've got
the various trust funds' debt owed of about $6 trillion, plus
entitlements at about two out of every three dollars going to the
federal government. I was wondering what the administration
thinks about -- does that have any real economic effect for the
country, and does the administration have any plans on addressing those
MR. DANIELS: Your question is a
fundamental one and it's a helpful one because it begins with the
correct premise. All that is in these trust funds is
promises, IOUs, government bonds. They're solemn promises
and they have to be met, but that's what's there, no
cash. And that's why, as now I think all editorialists in
the country have finally come to understand, there is no such thing as
a dip or a raid or a drain.
Yes, the $6 trillion figure you mentioned
should serve as a reminder to all of us of the enormous build-up of
obligations in those programs, and it is precisely the reason that the
President is determined to reform them before the taxpayers of
tomorrow, our children, are forced to redeem them through ruinously
high taxation. So, yes, it's of great importance and it's a
reason that reform of Medicare and Social Security should happen
sooner, not later.
The political process in Washington is not
always good at acting before a crisis is near, but here, with
presidential leadership, let's hope that it does.
Q Though the
overall surplus is the second largest, the actual spending surplus that
you have to work with is relatively small, given what was projected
earlier in the year. What do you, as you look at what some
have called the evaporation of the on-budget surplus, what do you
attribute that to? What are the factors and how would you
spell it out?
MR. DANIELS: Going into this
year, we saw, before the presidential policy applied, about 14 cents on
the federal dollar, about 14 cents as the, let's say, potential
surplus. Of that, about 2 cents has not materialized because
of a weak economy. About 2 cents has been shared with
taxpayers by the President and Congress in a bipartisan way, first for
fairness reasons, but secondly to get about the business of economic
recovery. About a half a cent was used on urgent defense
needs and also farm income support. And the other
one-and-a-half cents was referenced earlier, and it was sort of moved
around the corner -- it's still there. It will be available in fiscal
That leaves about 8 cents on the federal
revenue dollar, a very large surplus. And that's what's
going to be used essentially for debt reduction.
Q Your inflation
forecasts are much more aggressive than Fed policy pretends to like,
and I'm wondering, is this rate of growth inflation administration
policy? Is that the target that the administration would
like to see over the long-term? You're talking --
MR. DANIELS: -- 2-2 for next
year, Jim, or are you talking about a long-term number?
Q Long-term. I think you're talking
over 2 percent for inflation. That's beyond the Fed's time frame.
MR. DANIELS: Well, again, we
try to pick these numbers very carefully with reference to other
forecasters. That one has not struck me as particularly an
outlier at all. It wouldn't -- inflation is not unimportant
in changing the surplus picture, but it's not as big a driver as many
others. So if it turns out to be off, it's not going to
change the picture in any fundamental way. I'd be glad to
have a closer look at it and talk to you afterward.
Q I just wanted to
follow up on the evaporative concept and thank you for breaking it down
to the penny for us; it's helpful for newspaper reporters
here. But as you know --
MR. DANIELS: I was sort of
thinking of the TV people, Bob, when I did that. (Laughter.)
Q As you know,
there are Democrats on the Hill who have, pretty much all summer long,
had a steady drum beat that the Republican administration has
squandered $120 billion in surplus, a drum beat that is expected to
grow louder in the months ahead. And I think Senator Conrad
has said, this presents you with a political fiasco moving into the
fall. What's the counter to that?
MR. DANIELS: Well, the word,
"bunk" comes to mind. I mean, it's interesting, some of the
same people who have loosely thrown around these terms advocated a
larger tax rebate this year than what was actually
provided. And so it's a bit of an argument with themselves
to say that this year's surplus isn't large enough. Many of
them -- most of them, frankly, voted for that expending explosion just
8 months ago that I referred to a little while back.
So I think the fundamental answer, though,
has to be that the -- keep our eye on the big picture. I
mean, this is a recess and you all know what happens at recess; the
kids go out to roughhouse, and a little political horseplay is in
order. But the grown-up conversation this fall ought to be
about how we get growth going again; how we recognize that we have
enormous resources to deal with that the federal government, even at a
time of economic weakness, is taking in vastly more money than it needs
to pay its bills; and the way to sustain that over time is to make sure
that growth returns.
Q Could you talk a
little bit more about the extenders this fall, and are you changing
your position, and is our position one that's essentially advocating a
tax increase now, because some of these extenders will expire this
DANIELS: Right. No, John, there's a little over a
billion dollars of various extenders. The text of the report
of the review emphasizes that we would like to work with Congress to
see most or all of these continued. Again, budget convention
requires that we not assume in our baselines acts that -- of Congress
that haven't occurred yet, so we chose not to do that
here. It's a fairly small number, I think manageable. And
some of these things definitely need to be dealt with.
Q The President's
Social Security Commission is going to meet later today and discuss
private accounts. You said there was $1 trillion in the
future surplus above and beyond Social Security. It would
take at least that much to pay for the President's proposal or expected
proposal of 2 percent private accounts. Are you willing to
make a commitment that that's what that surplus would be used for, to
fund the private accounts?
MR. DANIELS: First, Bob, let me
clarify. What I said was that there is $1 trillion, maybe
$1.1 trillion beyond what is necessary or what is the maximum debt that
we can retire over the time period. About half of that is
extra Social Security receipts, and the other half would be from
With regard to Social Security reform, no
one knows what the transition costs may be. I've heard
numbers as high as the $1 trillion you used, but I don't think anybody
knows that yet, and I think the President wants to await the report of
the commission and work that's going on within the administration
before we can really cost out a plan.
Q I wanted to ask a
sort of simple question. If the growth estimates that the
administration has put forward, which are higher than the consensus
blue chip -- 3.2 percent versus 2.8 -- do not pan out, and you've said
that adjusting the tax cut is off the table, and you've said that
you're not going to dip into the Social Security or Medicare trust
funds, if the good news does not come forward, what are the policy
adjustments that the President would consider to adjust the
administration's policies with real growth?
MR. DANIELS: First of all, let
me say that the 3.2 figure that we have -- and I hasten to add, the
effect of this should not be -- this is the growth figures -- should
not be overstated, it has to be married with technical assumptions
about income composition and so forth, and you get the final product
that matters, which is how much additional revenue do we
forecast. And that number is pretty moderate.
But taking your question on its face,
Alexis, our 3.2 number is certainly well within the band of the blue
chip. It happens to be the same as last year's most accurate
forecast, which was by the conference board. It happens to be less
than the blue chip's best forecaster of the year before that,
Evans-Carroll, who are at 3.5. So nobody
knows. And we've tried to take the best advice we could in
coming to this number.
If, based on the data we have and the
forecasts we've made, we can and intend to bring a budget for Fiscal
'03 that provides for reasonable spending growth, protects the tax cuts
that are now scheduled from being rated by those who would like to claw
that money back into federal hands, and will allow us to meet the
nation's priorities very well. So that's the import of the
review we put out today.
Q But basically,
you're saying that you're only leaving yourself room in the
spending. That's the only place you would have to adjust.
MR. DANIELS: Well, and
adjustments, you know, can be made there. This is not
unthinkable. But remember that outlays on the -- in the
numbers you're looking at grow by 5.5 percent. There's a lot
of room there in the event that circumstances show us that we have a
little less money to work with.
Q But considering
the reality that you just described on the Hill, how realistic is that
in terms of adjusting spending down below what has become a larger
growth number than the President wanted in the first place?
MR. DANIELS: Well, if you're
asking are we defeatists that things in Washington can't be changed, I
would say that the President's already demonstrated that they
can. And so I'm sure we'll have a spirited budget debate
But I think these are much more likely to
work out well in an era of giant surpluses. We do have, as I
say, a budget that's in great shape, an economy that's not, and I think
that eventually, attention will focus on the real problem and we'll be
able to work together cooperatively.
Q In these times of
economic surpluses, there has been some criticism that the government
isn't investing enough in its own work force, which is facing a human
capital crisis. What's your response to that?
MR. DANIELS: The President has
assigned us as an administration, and OMB in particular, the job of
implementing the most aggressive management agenda probably that
Washington has seen. It will be released very shortly, but
they have -- basic elements are out there already, and human capital is
one of the five leading elements.
So it is quite clear that we need major
changes, that we have too many people in some places, too few probably
in others, and most importantly, a skill mismatch between the work
force, much of which grew up over two and three decades ago, and the
needs of public service today. So this is a very important
issue, and the President has ordered us to move actively on it.
Q And you're still
sticking by the 3.6 percent recommendation for a pay raise?
MR. DANIELS: Yes.
Q Who exactly are
you blaming for the December explosion in spending? The
Clinton White House or the Republican leadership in the Hill?
MR. DANIELS: I'm not inclined,
and I'm sure the President would say the same thing -- talk about blame
at all. We took note of that explosion in the April budget,
but we didn't talk in terms of blame. You know, hindsight's
20/20. But I do simply observe for the benefit of those who
want to know, as one questioner did, what factors went together to
narrow the on-budget surplus that this was the largest of
them. So no blame to be assigned, but it does, I think,
reflect the care that we need to take with spending
increases. They are -- they do tend to be the single-biggest
threat to our future surpluses in fiscal health.
Q The report says
that the administration is prepared where necessary to extend the
principle of restraint to its own high priority
initiatives. And you mentioned delaying effective dates on
some tax proposals and other things. Could you be a little
more specific about which tax proposals you would extend the effective
dates on, and what other initiatives you would be willing to pare back
or delay in order to stay within the budget?
MR. DANIELS: No, Dick; not
today. Because no decisions have been made, and the
President hasn't given us any specific guidance yet. But I
thought a candid statement might be in order that in order to maintain
a balanced policy of large-scale debt reduction on the order of the
Social Security surpluses, protecting tax relief from those who would
raise taxes and take it back and maintaining -- in order to make both
those things possible, maintaining moderate spending growth, that
really all kinds of ideas will need to be on the table. And
that's what that statement meant, and all we can say today.
Q The review says
that training and employment programs are expected to spend more slowly
in 2001 and 2002, but pick up in 2003. I was wondering if
that meant federal employee training programs and why they are expected
to spend more slowly in the next two fiscal years.
MR. DANIELS: I think it refers
not the federal employee training, but to the 140 or 150-some job
training programs that we have spread across the federal
government. We have multiple agencies involved in them and
in the aggregate, it amounts to a lot of money. This is, by
the way, an area that we'll be looking at, I think, for potential
It could be that -- it surely must be that
some of those programs are working very well and ought to be
strengthened, that some of those 100-plus programs are working less
well, and ought to be eliminated so that the funds can be used where
they get the most positive effect.