|The White House
President George W. Bush
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For Immediate Release
Office of the Press Secretary
July 30, 2004
Press Briefing on Mid-Session Budget Review by Office of Management and Budget Director Josh Bolten
Dwight DC Eisenhower Executive Office Building
12:05 P.M. EDT
DIRECTOR BOLTEN: Ladies and gentlemen, thank you for coming to this briefing on the administration's mid-session review. I have a short statement, and then I'll be happy to take your questions.
When we released The President's budget for 2005 in February, we highlighted its support for the President's three overriding priorities: winning the war on terror, protecting the homeland, and strengthening the economy. At that time, I also explained how, with continuation of the President's pro-growth economic policies and sound spending restraint, we could meet these national priorities while cutting the deficit in half within five years.
Today, I am pleased to report that because the President's economic policies are working, we are ahead of pace to meet the goal of cutting the deficit in half within five years.
Because the President and the Congress acted and let the American people keep more of their own money to save and invest, our economy is strong and growing stronger. Even with the preliminary estimates of second quarter growth released today, the economy grew at 4.8 percent over the last year, one of the fastest rates of growth in the last 20 years. Economists project further solid growth for the remainder of this year and into 2005.
We have seen the U.S. economy generate more than 1.5 million new jobs since last August, including nearly 1.3 million new jobs since the beginning of this year. Unemployment, interest rates and inflation are all currently below the average rate in each of the last three decades. Gains in investment and household wealth, all of which have been stimulated by tax relief, have also generated greater economic activity than previously expected.
Because of this growing economy, and the President's emphasis on spending discipline, I can report that our budget outlook has improved considerably from just six months ago. In the mid-session review, our projections for the combined deficits this year and next are lower by a total of more than $100 billion. The deficit for 2004 is now estimated at 3.8 percent of GDP, or $445 billion -- a decline of 0.7 percent, as a share of GDP, and $76 billion in nominal terms from our forecast in February.
The deficit projection for 2005 has been reduced by 0.3 percent of GDP, or $32 billion. Further but smaller reductions in the deficit from the February estimates are projected for the years 2006 through 2009. If the economy performs better than the conservative forecasts and cautious estimating assumptions we include for the out years, then deficits could well be below the level projected today.
This improved budget outlook is the direct result of the strong economic growth the President's tax relief has fueled. The mid-session review shows receipts rising above our previous estimates by $76 billion in 2004, and $55 billion in 2005. This year's MSR reverses the recent trend of receipts coming in well below projections due to the economic downturn that began in 2000, and the attacks of September 11th.
As an example, the mid-session review released last year showed the receipts had fallen $80 billion below the levels projected in the fiscal 2004 budget. In contrast, this year's mid-session review projects receipts at $76 billion above their February projected level. In view of the broad-based and sustained economic recovery that we have seen over the last year, it appears that federal revenues are very likely to continue their strong growth in fiscal '04 and '05, and perhaps well beyond.
In addition to reflecting changes in receipts estimates, this mid-session review also includes several changes in our outlay projections. In Social Security, for example, higher cost of living adjustments related to slight increases in projected inflation add $59 billion to our five-year estimates. Similarly for Medicare, the HHS actuaries have increased their estimates for the five-year cost of the entire Medicare program by $67 billion.
Although our budget picture has improved significantly since the release of the President's budget in February, today's deficits remain unwelcome. These deficits are due to an extraordinary confluence of adversity: the stock market downturn that began in 2000 and the subsequent recession that the President inherited as he took office; the terrorist attacks on America and subsequent spending on homeland security and the war on terror; and the crisis in confidence produced by corporate scandals, years in the making.
The most relevant perspective on the deficits is in relation to the size of the nation's economy. By that measure, today's deficit, although unwelcome, is well within historical range. A deficit that is 3.8 percent of GDP, as we now project for this year, would be smaller than the deficits in nine of the last 25 years, and far below the peak deficit of 6 percent reached in 1983. This deficit is also in line with what other industrialized nations are facing today. The U.S. deficit matches the average deficit within the OECD countries, and is below the levels of France, Germany and Japan.
Much more importantly, because of the ongoing effects of the President's pro-growth economic policies, the deficit is headed strongly in the right direction, and improving faster than we anticipated just six months ago. Next year's projected deficit, at 2.7 percent of GDP, would be smaller than those in 14 of the last 25 years. And with the continuation of the President's policies on spending discipline and economic growth, the federal deficit will fall to 1.5 percent of the nation's economic output in 2009 -- well below the 2.2 percent average deficit of the last 40 years, and two-thirds smaller than the peak projected 2004 deficit of 4.5 percent.
The events that brought us into deficit are not completely behind us. The war on terror goes on. The recession is long past, but some industries and workers are still affected. The President remains committed to fighting the war on terror to its successful conclusion, and to continuing strong policies that promote investment, jobs, and growth in every region of the country, and in every sector of our economy. The President's budget reflects those priorities.
What today's report demonstrates is that if we sustain the path the President has set for us, the path of pro-growth economic policies and spending restraint, we can meet our nation's priorities and cut the deficit more than in half within five years.
I'd be pleased to take your questions. Yes, sir.
Q Mr. Bolten, were you disappointed with the second quarter GDP numbers? And what reasons would you give for those numbers?
DIRECTOR BOLTEN: The second quarter GDP numbers came in somewhat below our original projections. But, no, the overall outlook, I think, remains very positive. If you look at the full report, what you see is that they revised the first quarter growth estimate up from 3.9 to 4.5 percent. The second quarter came in a 3.0 percent. So if you look out over that full six-month period, which is a better way to look at it -- in fact, a full year is probably the best way to look at it -- if you look out over that six-month period of 3.8 percent growth, that's very good, strong growth. Even this one quarter of 3.0 percent growth would be celebrated in most industrialized countries -- 3.8 percent growth for the first half is strong, and, most important, we're looking forward to even stronger quarters ahead.
If you look behind the numbers that were announced today, you see some very good news. You see export growth is strongly up. You see business investment is strongly up. You see continued strength in the housing sector. Where there was some weakness was on the retail side, and we're very optimistic about that segment, as well, in part because of very recent consumer confidence numbers that are strong. So most economists are looking forward to strong consumer spending in the second half of this year, and very strong growth in the second half of this year. Our economist, and the private sector economists, blue chip economists are expecting continued strong growth in the second half of this year. I think overall, our economic picture looks very strong.
Q Since you attribute economic growth in good part to the tax relief policies of the President, do you anticipate that he will be proposing additional tax incentives in 2005?
DIRECTOR BOLTEN: What the President is pressing for is to make the tax cuts that he proposed and the Congress enacted permanent. We have several of the important tax cuts that are expiring at the end of this year. He's asked the Congress to move on those. And there's a good bit of support for that in the Congress. The three tax cuts that are expiring this year are especially important to middle class taxpayers. They are a larger child credit, marriage penalty relief, and an expanded 10 percent bracket which benefits all lower and middle income taxpayers, especially. It's very important that we keep those tax cuts in place. The President will be pressing for that, hopes the Congress will act on that this year. It's important for the people that are going to get those tax cuts and need to sustain those tax cuts, it's important for the economy.
More broadly, he'll be pressing for continued -- for making permanent all the rest of the tax cuts that he put in place over the last few years, which I think you correctly characterized our view as that those tax cuts deserve much of the credit for the strong economic picture we're looking at today.
You want to follow up?
Q With respect to the extenders, though, as you know, Congress had reached a tentative agreement on a two-year extension of all of the provisions. But the White House reportedly wants five years. If it turns out that, as important as these provisions are to you, that the best you can get is a two-year extension, would the President accept and sign a bill for two-year extenders?
DIRECTOR BOLTEN: Oh, I don't want to do negotiating with Congress from this podium. But what the President has asked for is permanent extension of those three tax cuts. They're operating, for the most part, within a five-year budget window. So we've asked for them to do it for at least five years. I'm optimistic about getting good cooperation from the Congress in that request from the President, because I think everybody on the Hill recognizes that these are not cuts that should be on some sort of toggle switch that they go in and out year-by-year. They should be a permanent part of the tax code.
Q Mr. Bolten, how comfortable are you with the projected spending levels for this year? Is there some belief on the part of your staff that those numbers may, indeed, be too high?
DIRECTOR BOLTEN: You're referring to discretionary spending this year?
DIRECTOR BOLTEN: No, we're comfortable with where we are on spending. Well, let me make sure I understand your question. Are you talking about the legislation that's coming up for '05? Or where the spending -- where actual outlays are occurring in '04?
Q In '04.
DIRECTOR BOLTEN: In '04. Well, it's an interesting, fairly technical question that underlies that. We are comfortable with where we are. We've reflected in the mid-session review report how we think we're doing on outlays. You will find in the report a whole page, in a box up there, in one of the early pages, a discussion of our concerns about how accurately we have been reporting our projections of actual outlays because we -- especially recently, we have a history of anticipating more outlays than actually occur in a year, partly because what we have to rely on is what agencies tell us what they expect to spend and agencies are often -- often expect to spend more than they actually do spend within a particular calendar period.
So we're comfortable with where we are in the mid-session review report. We took some care with that in this last one because we have a recent history of overestimating how much actually is going to get spent. But it could be that we're still overshooting somewhat, and we may see when we do our final revision of budget numbers -- I guess, we will do that in October, you may see a further down revision to the outlays that actually will have occurred in '04.
Did that get to your question?
Q Yes, thank you.
Q Could you apply the same question to '05 spending?
DIRECTOR BOLTEN: The '05 spending is still before the Congress. We sent up a budget in February on behalf of the President that kept overall discretionary growth below 4 percent, which is roughly the growth in family income in this country. That was the President's goal, keep discretionary spending growth below 4 percent. Within that 4 percent, we asked for a substantial increase in necessary defense spending, about 7 percent; a very substantial increase in homeland security spending, about 10 percent. And what that left for the rest of the budget was spending below 1 percent. So a very tight budget with respect to spending outside of the crucial areas of defense and homeland security.
That is difficult in any environment. It's difficult for the Congress to deal with spending levels in the non-defense, non-homeland areas that are so tight. But to date, we've have very good cooperation from the leadership -- including the leadership of the appropriations committees -- in trying to hit those targets. And I'm very optimistic that as we go into actual appropriating season, we will stay within the limits that the President has asked for.
Q You pointed to fiscal discipline in addition to the higher tax revenues as a reason that this deficit figure is being revised down. And I'm wondering, can you tell me specific measures on the fiscal discipline side that have taken place over the last six months that have contributed to this figure?
DIRECTOR BOLTEN: What's reflected in the mid-session review is the history of where we have been. And the President has consistently brought down discretionary spending, domestic discretionary spending from a growth rate in the last administration -- the last year of the last administration was 15 percent. The President brought it down to 6 percent, then 5 percent, then 4 percent. And importantly, for the budget period you're talking about, looking forward in '05, as I've just mentioned, we proposed less than 1 percent growth in that discretionary spending.
So as we make our projections about what our deficit situation will be for '04 and '05, we incorporate the President's proposals. As I just mentioned, I think we're getting good cooperation from the Congress in hitting the President's targets. And if we do, we will have made substantial progress and done the right thing to make sure that we hit our deficit targets, as well.
Q Just to make sure, when you say you were looking to cut the deficit more than in half in the next five years, does that also include -- is that on the defense side? Is that just the peacetime defense budget? Or does that also include whatever emergency spending you may need for Iraq and Afghanistan?
DIRECTOR BOLTEN: That's a very important question. And the answer is, no, it does not include those numbers. If you look at the mid-session review document, itself, we've been very clear on the face of that document that we have not included numbers and additional dollars for the emergency spending that we will need, we anticipate, in Iraq and Afghanistan.
So as you look at those numbers, what you need to factor in -- and we've made this clear on Capitol Hill, as well as on the face of this document -- you need to factor in that we will need additional spending, at least in the short-term, in both Iraq and Afghanistan. What is included in the mid-session review numbers is the request that the President has already made.
And the President, just a few months ago, made an additional $25 billion request for emergency spending in Iraq for fiscal '05. The Congress has agreed to that; it's included in the Defense appropriations bill, which I don't believe the President has signed yet, but has been passed by the Congress, and the President will be signing it.
So we have included in our numbers that $25 billion. We will need additional money in Iraq and Afghanistan, certainly in '05, maybe even in '06. And so as you look at these numbers, you have to -- you have to factor in that we will need to have that additional military spending in the budget. We do not believe that that additional spending, whatever level it may end up being, in any way jeopardizes our objective of doing better than cutting the deficit in half over the next five years.
Q Two technical questions. What's your starting point on cutting the deficit in half, then? And, also, am I clear that you do not expect any additional spending for Iraq in the '04 fiscal year, beyond the $25 billion you just got?
DIRECTOR BOLTEN: Let me take the second one first. No, we do not expect additional '04 spending. The Congress has made available the $25 billion emergency fund. They have made it available in '04. We have felt that we don't need it in '04, that we have the proper resources that we need in '04. We're happy to have the insurance policy just in case that projection turns out to be wrong, but we think that we hit our '04 targets just about right. The $25 billion will be used in fiscal '05.
And refresh me on the first question -- oh, the starting point.
Q The starting point. And is it percentage or is it dollars?
DIRECTOR BOLTEN: The starting point that we've always referred to when we've talked about cutting the deficit in half is the peak estimate, the February estimate for the '04 deficit, which was 4.5 percent of GDP, or $521 billion. Now, we have said that the right way to look at the deficit is as a percent of GDP. That's the way the economists look at it. It's the right way to look at a deficit, because what's important about a deficit is how much of the resources of the economy is government borrowing, taking out of the economy, overall. And that's really only properly measured as a percent of GDP, not as a nominal number.
So what we have viewed as the proper target is the 4.5 percent of GDP, and if you cut that in half, it ends up being around 2.2 percent of GDP, which is the 40-year historic average for deficits in this country.
So we've been shooting to bring it below the 40-year historic average. If you want to use nominal numbers, as many people do, because they're simpler, we've also said that we more than meet the goal of cutting that $521 in half, as a nominal number, but economists will tell you that the right way to look at it is as a percentage of GDP.
Q Although you're not forecasting any extra defense spending or any extra Iraq spending in your calculations?
DIRECTOR BOLTEN: We are not. And as I just said, as you look at our numbers, you need to factor in, especially in the short term, additional spending for Iraq and Afghanistan. We don't know what that number is, so we haven't tried to guess at it and stick a number in. But if you're looking out over the five-year period, which is the period of which the President's goal of cutting the deficit in half is designed, I don't think there's any reason to believe that there's a threat to that goal from the additional military spending that we know we need to do, that is not fully reflected in the numbers that you've been presented today.
Let me take another one. Yes, sir.
Q If you compare your forecast to 2003, looking at your Table 6, the deficit is $70 billion higher, or three-tenths of GDP higher, and spending is $160 billion more. So explain how it's improvement in the deficit.
DIRECTOR BOLTEN: Help me out a bit here. You're looking at -- the improvement -- I'm sorry, the improvement in the deficit is from our February projections. And --
Q But isn't a more reasonable measure the reality of 2003?
DIRECTOR BOLTEN: No, I don't think so. I mean, what we're reporting today is what has changed over the last six months. The reality of 2003, we knew six months ago. We knew what we were spending in 2003 when we did our -- what we had spent in 2003 when we did our report. What has changed in the last six months is that we have had stronger growth. We've had a revenue surprise on the upside, for the first time in this administration, from a budget to a mid-session review. So as we report what's changed over the last six months, what we're reporting is that our deficit projections have come very substantially down, which is good news, which we believe that the economic policies that we've put in place have made it possible for our projections, CBO's projections and the private sector projections all to bring the deficit estimates down.
Q But the deficit hasn't come down.
DIRECTOR BOLTEN: No, oh, no. The deficit remains at a level that we think is unwelcome. The good news is that it is much lower than we projected and -- we or any of the other forecasters projected just six months ago, and we believe that that is a product of the strong economic policies that the President has put in place and that the trend will continue.
Looking out into the future, what this revision means is that we're not just on track to meet that goal of cutting the deficit in half, we've well ahead of pace. And it gives us a great deal of comfort that we're pursuing the right policies and we're headed toward bringing this deficit toward a very low number within very few years.
Let me take -- yes, ma'am.
Q Do you think Congress will need to raise the debt limit before the election?
DIRECTOR BOLTEN: I hope so. I'll refer you to the Secretary of Treasury -- the Treasury Department for the latest estimates of when the debt limit will need to be raised. But the latest word I had from the Treasury Department -- and J.D., I'll ask you to correct me on this -- was that the Treasury would hit the limit sometime in early October. So we are hopeful that the Congress will be able to act and raise the debt limit by that time. I would very much hope that members would not play politics with the debt limit. It's something that everyone recognizes needs to be done, and we're looking forward to working with the Congress on getting that done before any sort of difficulties arrive.
Yes, sir, in the back.
Q I'm wondering why -- you speak within -- you say within five years, but the deficit dates in Table 1 shows that you'll actually halve it as a percentage of GDP within three years. And I'm wondering why you're keeping to this five years and not -- I assume it would be something you'd want to boast about. Or are you just building in a wider time frame for mishaps along the way?
DIRECTOR BOLTEN: We try to make all of our estimates conservative, but you are absolutely correct that the numbers shown in the mid-session review do show us on a path toward cutting the deficit in half as a percent of GDP, in less than the five years that the President has set as a goal. But we want to be careful with our goals; plus, this was a goal that the President set some time ago. But we are very optimistic now about meeting that goal, especially since our numbers currently show that we can meet the goal ahead of schedule.
As I said in my prepared remarks, we believe we are well ahead of pace now toward cutting the deficit in half within five years. If we can do it in three years, terrific. I think that will be a major accomplishment, and very good news for not just the U.S. budget but the U.S. economy.
Let me take somebody -- yes, sir. Go ahead.
Q Could you address -- I think it's in here, but I'm not clear on what it says about the Medicare Modernization Act. Is the 10-year cost of that law now higher than you projected or is it still $534 billion?
And, also, if you wouldn't mind addressing the timing of the release of today's report.
DIRECTOR BOLTEN: Let me take the second first. On the timing, we are releasing today because this is when we've been ready to come out with our numbers. Like all of my predecessors who've missed the July 15th date for release of this information, that's been missed 15 of 25 times, I think. So it's not uncommon for the numbers to be released somewhat after that July 15th date. And like them, I would have preferred to do it at July 15th, but we put a higher premium on accuracy and completeness than on timeliness. In the case of this particular data series, we wanted to be sure that we were comfortable with the numbers, some of the issues I've already talked about, about how we're calculating outlays, whether we were correctly assessing how quickly revenues were coming in. We wanted to be sure that we understood all of those numbers and that we were presenting them properly.
The first question was about --
DIRECTOR BOLTEN: Medicare. What you will see in the mid-session review is a projected -- projected Medicare spending that is, I believe it's $67 billion higher than we projected six months ago, over the five-year period. That is a large -- that seems like a large number, but in the context of Medicare, it's actually a relatively modest number, because the Medicare program over that five-year time period is projected to spend somewhere between $1.8 and $1.9 trillion.
So the increase we're talking about is, I think, somewhere between 3 and 4 percent higher spending in Medicare than we'd originally anticipated six months ago. Much of that is accounted for by just technical adjustments, technical corrections, a slightly higher medical inflation rate than we were projecting six months ago.
And so we -- we've reported that number as is. I think for details on the Medicare system, probably best that I direct your questions to the HHS actuaries who provide us this information.
Q How far do you think the $25 billion for Iraq will carry you into '05? And how much more do you think you will need ask for in that fiscal year for Iraq?
DIRECTOR BOLTEN: I'm sorry. I missed --
Q How soon do you think you'll need to go back for more money on Iraq, after the $25 billion is used up? And how much more in '05, do you think you might need?
DIRECTOR BOLTEN: The President has always been clear and always acted on this clear statement that he will provide for the troops whatever they need. So we will be guided by what the field commanders say about how much they need, when they need it. Our current estimate is -- or current planning is that we would intend to go forward to the Congress early next calendar year with a supplemental for the balance of any money that's going to be needed in '05. The $25 billion that the President requested a few months ago was -- expressly at the time that he requested it, he and we made clear that we didn't think that was all of the needs for '05, so we do anticipate going back to the Congress to get additional money for '05. And right now the planning is that we would do that early in calendar '05.
Q Do you have a sense of how much you'll ask for then?
DIRECTOR BOLTEN: I do not.
Q Is there anything in this report that leads you to think about future policy in a different way? In other words, does this suggest to you that there might be more room for future tax cuts than you might have thought six months earlier, or other policy initiatives?
DIRECTOR BOLTEN: That's something for a lot of people to contemplate. My own reaction would be, we're on track. We're moving ahead of pace. But that's not a reason to relax with fiscal discipline. We need to be sure. Even in times of surplus, you want to be sure that you're spending the taxpayer's dollar wisely. We continue to have deficits, even though they're coming down dramatically. And we need to keep our focus on both economic growth and spending restraint -- the twin pillars of the President's approach to the budget. So I do not foresee this report resulting in any dramatic change in the trajectory of policy in this administration. I think what it suggests is that the policies have been wise, well timed, and well implemented. And we ought to stick with them.
Q When you said that you don't believe that additional spending in any way jeopardizes defense -- the deficit reduction, can you flesh that out for us? What assumption -- or what numerical assumption are you running on to be able to say that? Like, how much do you -- are you expecting you won't be needing to spend any more than you already have spent in the last couple of years for the emergency spending?
DIRECTOR BOLTEN: No, what my thought there is about jeopardizing the goal of cutting the deficit in half is that I would not anticipate that we will need to be doing emergency spending out five years from now, that we have short-term emergency needs in Iraq and Afghanistan that will have to be met -- some of which are already accounted for in the budget, as I mentioned; others that will be added on early in '05, as I said in response to Caren's question. But that if you look out over the five-year period, I don't anticipate that there are going to be needs that would jeopardize that medium-term goal of cutting the deficit in half.
Thank you all very much.
END 12:37 P.M. EDT