Press Briefing by OMB Director Mitch Daniels (Text Only)

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 front.

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.

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 forecast?

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 billion.

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 it.

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 me.

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 being foreseen?

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.

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 difference.

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 that, however.

Q Let's be more specific. Payroll taxes, excess payroll taxes would be used to make these numbers work this year.

MR. 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 Americans.

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 issues?

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 '02.

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 year?

MR. 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 general receipts.

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 next year.

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 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 management reform.

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.

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