For Immediate Release
February 5, 2007

Press Briefing by OMB Director Rob Portman on the President's Fiscal Year 2008 Budget
Room 450
Eisenhower Executive Office Building

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12:04 P.M. EST

DIRECTOR PORTMAN: Well, thank you all for braving the cold and joining us this morning. As you probably know, earlier today the President transmitted to the Congress the FY 2008 five-year budget. It contains good news for the American people. It includes a balanced budget over five years, while meeting the nation's priorities.

It's a credible and more transparent budget. Instead of painting a rosy scenario on revenues to get to balance, we take a cautious approach. We've shown full war costs for the rest of this administration and some of 2009. We've also included these war costs as war supplementals as part of the budget this year, in a more transparent, timely and comprehensive way than ever before. And by the way, all of those war costs are included in our balanced budget calculations.

We changed our projections from past years to include a slight increase in non-security discretionary spending, consistent with what Congress and the President have actually enacted for the past three years.

In our budget we also begin to address our biggest fiscal challenge, the unsustainable growth in entitlement programs such as Medicare, Medicaid and Social Security. Although the fiscal house is getting in order short-term, frankly these looming challenges are the biggest budget problem we face. We take a good first step by proposing sensible reforms, primarily in Medicare, that are less than a 1 percent deduction in the annual rate of growth. Instead of Medicare increasing 7.4 percent per year over the next 10 years, for instance, it would increase 6.7 percent.

While restraining growth overall in spending, the President's budget also provides new resources for key priorities. It increases funding for our national security to combat terrorism and to protect the homeland. It includes new policies to address critical issues that concern America's families, including educating their children, access to affordable health care, and reducing energy costs.

Over the past two years we have worked with Congress to reduce the deficit by $165 billion. We've been able to make progress on this for two primary reasons: first, the strong and growing economy; and second, a little better restraint of non-security spending. It is exactly these elements -- a solid economy and restraint on spending -- that will enable us to achieve a balanced budget.

As you see from this first chart, our budget reduces deficits every year and results in a surplus in 2012. In FY07, we project that deficit will decline to $244 billion, a reduction of $95 billion since our last estimate in July 2006; $244 billion is the difference between total spending of just under $2.8 trillion, and total receipts of just over $2.5 trillion.

The deficit in 2008 falls again. This projected deficit is 1.6 percent, as a percent of our economy, which is really the key measurement, because it shows the impact of government deficits on economic activity. The projected FY08 deficit is lower than 18 of the past 25 years as a percent of our economy. The deficit then continues to decline each year, both in nominal terms and as a percent of the economy until we reach a budget surplus of $61 billion in 2012.

You'll recall that three years ago, President Bush established the goal of cutting the federal budget deficit by half in five years from its projected peak in 2004. At the time, many expressed skepticism this goal could be met. But we achieved the goal last September, three years ahead of schedule. We'll now build on that success and work with Congress to balance the budget within five years.

Again, getting the balance requires keeping the economy strong and sensible and realistic spending restraint. The President's budget is able to achieve both of these goals while funding critical priorities, including our national security.

To keep our economy vibrant, we continue the pro-growth policies that have helped fuel the robust economy and the increased revenues. The 2008 budget continues to support growth, innovation and investment by making permanent the President's tax relief which would otherwise expire in 2010.

In addition to tax policy, the budget will also strengthen our ability to compete in the global economy. It advances the American Competitiveness Initiative to increase our investment in critical basic research, ensures the United States continues to lead the world in innovation, and provides American children with a stronger foundation in math and science. And it will promote the continued opening of new export markets for America's farmers, workers, and service providers.

As you can see from this next chart, since the tax relief took full effect in 2003, we've seen a strong and steady growth in the economy. We've seen steady job growth, with the creation of 7.4 million new jobs since 2003. We've also seen a pretty dramatic increase in business investment during that period. Productivity is strong, paychecks are growing, with real hourly wages growing 1.7 percent in 2006, which is above the average of the late 1990s.

Unemployment remains low at 4.6 percent. Gas prices are down. Inflation remains low. Interest rates have moderated. And the stock market has reached new highs, showing that investors have confidence in America's economic future. And investors should be optimistic. In the most recent quarter, when there was a lot of talk of a slowdown, real GDP grew by a very strong 3.5 percent. The U.S. economy has now grown faster than the G7 industrialized countries for the past four quarters, and remains the envy of the world, in part because of its resilience in the face of some very significant headwinds. A healthy economy is a testament to the work ethic and ingenuity of the American people, but also to the effectiveness of pro-growth policies, including the tax relief.

This chart shows that after 2003 the economy not only strengthened, but federal revenues also surged, hitting record levels in the past two years. The President's 2008 budget uses five-year economic projections that are in line with forecasts by outside experts. As you'll see from this chart, we assume GDP growth will average about 3 percent over the budget window. This closely tracks the forecast of the blue chip forecasters. This year, our 2.7 percent growth you see for 2007 is now below most outside forecasts and market expectations.

As you'll see from this next chart, with solid economic growth, total receipts for 2006 were slightly above the historical average of 18.3 percent as a share of the economy, and we project receipts remain at this historical average for much of the five-year period, in fact, slightly above the historical average.

We have what I would term a cautious revenue forecast for this fiscal year and going forward. We forecast revenue growth will be 5.5 percent in fiscal year 2007 and average 5.4 percent through 2012. This is below the 40-year average of 7.6 percent and well below the dramatic 11.8 percent and 14.5 percent revenue growth we've seen over the last two fiscal years. In fact, it's below the actual first quarter FY07 revenue increase of 8.2 percent over the same period last year.

As in the past, our revenue projections are produced by the career professionals at the Office of Tax Analysis at the U.S. Department of Treasury. And I will say this morning, as was the case in the past two years, we may well find that our revenue projections are not rosy, but pessimistic.

Even with the a conscious forecast on revenues, this budget demonstrates we can balance by 2012 without raising taxes. In addition, we have plans to more effectively and efficiently collect the taxes owed, help to close the tax gap. Our budget helps close the tax gap in two ways. First, we improve the effectiveness of IRS activities with a $410 million package of new initiatives to enhance enforcement and taxpayer service, and to improve IRS's technology. Second, we include in the budget 16 carefully targeted tax law changes that promote compliance while maintaining an important balance between taxpayers and their government. These tax law changes alone are estimated to raise $29 billion over the next 10 years out of the tax gap.

The success of our growing economy following the enactment of the President's tax relief also underscores exactly why it's important to balance the budget without raising taxes, as others have suggested. By raising taxes, we could put the growth of jobs and our economy at risk. Now is the time instead to focus our energy on spending restraint.

To keep spending under control, our budget provides realistic spending restraint for the annually appropriated day-to-day government spending that isn't focused on national security. It strengthens our efforts to better manage taxpayer resources, and it proposes significant budget reforms to eliminate wasteful and unnecessary spending. And as noted earlier, it also takes an important first step in implementing changes needed to address our long-term challenge, the unsustainable growth in entitlement programs.

The 2008 budget proposes to hold the rate of growth for non-security discretionary spending to 1 percent, well below the rate of inflation. We believe this is both fiscally prudent and realistic. As noted earlier, Congress and the President have done a better job restraining spending in this area over the past few years. In fact, the average growth in this area of non-security spending has been about 1.2 percent for the past three years, including spending growth in the roughly 1 percent range in this long-term continuing resolution the House just passed.

We believe this level of non-security discretionary spending is not only what we've been able to do the last three years, but it's adequate to fund the nation's priorities. One way to judge this restraint is to look at our total government spending as a percent of the economy. We're moving in the right direction. While tax revenues as a percent of the economy are about 18.3 percent, total spending drops from 20.2 percent of the economy in FY 2007 to 18.3 percent in 2012.

One of the ways we're achieving smart spending restraint is by closely examining each federal program to determine if it's a priority, whether it's effective in producing the intended results. Based on these thorough reviews, the budget proposes to terminate or reduce 141 discretionary spending programs, for a savings of $12 billion in 2008. These reforms will help us reduce the deficit and channel resources to higher priorities and more effective programs.

We're able to make these judgments of how to spend taxpayer dollars more wisely in part with tools that we've developed through the President's management agenda. Last year, to ensure greater government accountability, we launched a new website -- here it is -- ExpectMore.gov. The site includes information for taxpayers, and the programs have been assessed for their effectiveness, using the program assessment rating tool, commonly known as "the part." With this website, Congress and the public now have an unprecedented view into which programs work, which do not, and what they're doing to try to improve. It's another way we're providing greater transparency, holding ourselves accountable and demanding results.

With the new and improved version of this website, launched today, we now have program-level information about the performance of nearly 1,000 federal programs, representing 96 percent of government and $2.5 trillion of federal spending. I encourage you to go online and check it out.

With our changes to the functionality, users can now more easily search for programs by their rating or topic, or conduct a key word search. They can also look broadly at how each agency's programs are performing and find detailed evidence to support the program's rating. I want a nod to Clay Johnson, who is here with us this morning, the Deputy Director of OMB for Management, for his good work in leading the charge in the President's management agenda and on launching ExpectMore.gov.

The President's 2008 budget also outlines a comprehensive series of budget reforms that will improve fiscal restraint, transparency, and accountability in government spending. There's been a lot of discussion about earmarks, provisions added by Congress that direct funding to specific recipients or locations without being subject to competition or merit-based selection processes.

Often, these earmarks are not subject to adequate legislative or public scrutiny, and they often lead to wasteful federal spending. Earmarks have grown dramatically, as you know. They've nearly tripled in the last decade. And that's why the President has outlined three key reforms: First, full disclosure of all earmarks; second, putting earmarks in actual legislative language rather than a report language so they can actually get voted on; and third, cutting the number and amount of money provided in earmarks by half by the end of this year.

The President has also called on Congress to enact a legislative line-item veto. This would be a powerful tool. It complements the earmark reforms to help the executive and legislative branches work together to strike unwarranted earmarks and other wasteful and unnecessary spending from the budget. Both the House and the Senate have now demonstrated by a majority vote that each chamber supports this legislation. It's time to enact this sensible budget reform.

Our budget also shows how we can work with Congress to achieve a balanced budget by 2012 by dealing with the entitlement issue. Accomplishing a balance would be short-lived without addressing our long-term budgetary challenge, which is the unsustainable growth in these important programs -- Medicare, Medicaid and Social Security.

As you can see from this chart, mandatory spending is overwhelming the rest of the budget. In the space of four decades, mandatory spending -- also called entitlement spending -- has grown from 26 percent of the budget in 1962 to 53 percent of the budget by 2006, and it's growing. As this next chart shows, the current trends are simply not sustainable. Under current law, we estimate that by 2040, as you'll see on this bar chart, spending on these three important programs alone will crowd out all other spending -- no defense spending, no education spending, no homeland security spending -- unless we are willing to make the necessary reforms.

It seems to me there's now near universal and bipartisan agreement that the unchecked growth of these programs presents real long-term threats to beneficiaries, to our federal budget, to our economy. The choices without reform are pretty stark: massive benefit cuts, enormous deficits, or huge tax increases. We should not leave these problems for our children and grandchildren to solve. We now face a $32 trillion unfunded obligation in Medicare over the 75-year horizon.

The balanced budget is important in part because it better positions our country to address these looming fiscal challenges, but our five-year budget proposal also makes an important down payment towards sensible reform of mandatory spending, reducing spending growth by $96 billion over five years. These reforms are primarily in the Medicare program, but also in Medicaid and other programs. The proposals that we are submitting today are very similar in character to what this administration and the prior administration have offered in the past.

To put the reforms in context, you can see from this next chart the size of our budget proposal is considerably smaller than the savings in the balanced budget agreement of 1997 when I was in Congress, and the last time that Congress attempted to balance the budget. Although an important first step, the savings in this proposal would only reduce the unsustainable annual growth rates of mandatory spending by less than one percentage point. Specifically, again, over 10 years, the annual growth of Medicare would be reduced from 7.4 percent to 6.7 percent. However, these proposals do deliver more savings over time. The changes we have proposed to Medicare would reduce the unfunded obligation of the program by almost 25 percent, or $8 trillion, over the 75-year horizon.

Frankly, under the budget we have proposed, we can achieve balance within the five-year window without making any of these mandatory savings changes. But we would only be digging a deeper hole by ignoring it for another year. Balance is not coming at the expense of our nation's commitment to seniors and low-income Americans; quite the opposite. We must begin the reform of these programs now in order to protect those commitments. Addressing entitlement spending is the right thing to do because small changes now can have a big impact later. I urge Congress to take a careful look at these sensible reforms.

As we restrain spending, we're investing in our nation's highest priorities: combating terrorism, protecting the homeland, and addressing pocketbook issues that affect the standard of living for America's families.

The 2008 budget supports our troops fighting terrorism abroad, strengthens our military for the future, supports our efforts on the diplomatic front, and protects our homeland from attack. It invests substantial resources to maintain high levels of military readiness and to continue the transformation of our military to meet the new threats of the 21st century.

I want to make this point very clear, because it's often misunderstood: The cost of the war is reflected in the administration's deficit projections. In fact, there has been a $165 billion decrease in our deficit over the past two years, and that includes all of the war costs that we've incurred during that time.

As noted earlier, the administration supports greater transparency and accountability. And this budget improves the timeliness and specificity of the information provided to Congress and to the American public about the cost of the war.

With the 2008 budget, the administration goes further than we have in the past to show the full cost of the war -- Iraq, Afghanistan and the global war on terror, generally -- for the rest of the President's term. We are providing our requests for the full cost of the war in both FY 2007 and 2008, and for the first time, including account-level detail and justifications. Specifically we're requesting additional resources of $99 billion for FY 2007 to support our troops, $145 billion for 2008, and an allowance of $50 billion for anticipated war costs in 2009.

The administration welcomes oversight of its war spending, and we hope these details will help Congress more fully understand our war-related request. This is our good-faith effort to be as transparent as possible in what we anticipate the needs will be as far out as we can possibly and reasonably project.

The President's budget also addresses three key issues that are on the minds of many American families: the quality and cost of their kid's education, access to affordable health care, and our nation's dependence on foreign sources of energy from unstable parts of the world.

Regarding our schools, No Child Left Behind is already working to achieve the goal of all students performing at or above grade level in reading and math by 2014. It's raised student achievement for millions of children in schools across our country. The 2008 budget directs more funding to high schools to better prepare our students for college or the work force. It offers new school choice options, so children in low-performing schools can have a chance to attend a school where they can learn and succeed. To help low-income families afford college, the 2008 budget substantially increases the Pell grant maximum awards.

The 2008 budget also improves America's access to affordable health care through a number of proposals. It proposes a significant change in the tax treatment of health care to expand coverage and bring greater fairness to the system. With more transparency and competition, it will also slow the rate of growth of health care costs, all of which will help reduce the number of uninsured Americans.

The budget also provides for an affordable health care initiative with the states, improves access to health care by allowing small businesses and civic and community groups to band together to leverage their bargaining power, and it helps reduce frivolous lawsuits that increase patient's costs.

The budget includes a number of proposals to increase our energy security, while improving our environment. As noted in the State of the Union speech, the President is proposing to increase the current standards for alternative fuels use, and for fuel economy in order to cut our domestic gasoline consumption by 20 percent over the next 10 years, thereby reducing projected air pollution, and projected CO2 emissions.

The budget also continues the Advanced Energy Initiative to make alternative sources of fuel and electrical energy -- like cellulosic, hydrogen, solar, nuclear, and clean coal more cost-competitive.

And in a continued effort to preserve our environment and national treasures, we are proposing today an exciting new plan, called the National Parks Centennial Initiative. This new program will provide up to $3 billion over the next 10 years in new federal and private spending to help achieve new levels of excellence in our national parks.

The budget shows that we can achieve balance by keeping the economy strong and by imposing realistic spending restraint, while investing in our nation's priorities. We are committed to the hard work ahead, to ensure that our fiscal house is in order, for the near-term and for the longer-term. I am optimistic we can do it across party lines, as the American people expect and deserve.

I've just outlined the broad structure of the President's budget and touched on some of the key priorities. Greater detail on every aspect of this budget is available online. If you go to our website, www.omb.gov, you will find lots of detail. In the meantime, I'm happy to try to answer any questions you might have.

Q Why did you decide to switch and put the war spending in the main budget, as opposed to the supplemental? What was your thinking in previous years, and how does that thinking change this year, and why?

DIRECTOR PORTMAN: Thanks for the question. Let me clarify what we've done first. The war spending continues to be supplemental. It is supplemental spending. It is not in the base spending of the Department of Defense or the Department of State. And I think that's appropriate; otherwise, you'd be building into the base very large numbers that, frankly, would be difficult to extract when the war costs do begin to go down, which we all expect to happen and we all hope happens.

However, in the past, we have put our budget forward and then later submitted a supplemental for the year in question -- in other words, our 2007 budget had 2006 war costs a few weeks later provided in a supplemental, without the kinds of justifications that members of Congress have been seeking. So the two big differences are, one, we are moving the supplemental spending request into the budget. Literally a separate chapter of the budget will be supplemental war spending. And second, we're providing a lot more detail, including all of the justifications up front. We are also going out another year, so we're providing full war costs not just for '07, but for '08. And then additionally, we are adding a supplemental amount of $50 billion for '09.

Why did we decide to do it? Because we heard loud and clear from Congress that they were seeking more transparency and more and better information sooner, so they could conduct appropriate oversight. And so we've tried to be responsive to that concern.

There's a balance here, because as you provide more and more information, further and further out, it's very difficult to predict what those costs will be. And you can imagine that our war planners had a difficult time telling the department of -- Management and Budget and also telling the Congress what the costs will be in fiscal year 2008. Much of that spending won't occur for 18 months or two years. On the other hand, we've tried to achieve this balance where we're providing as much information as we can to go beyond that. To provide information for further years I think would be very unwise because it would be very unreliable information that could be misleading. But that's the balance that we tried to achieve, and that's why we changed our approach this year.

Q Why the $50 billion figure in '09? Is that just a place holder, or it's something that's going to happen that's going to cut the war costs by $95 billion?

DIRECTOR PORTMAN: I think we call it an allowance, and it's a notion that we believe there will still be war costs in 2009. We have no idea what those costs will be.

Q But why so small?

DIRECTOR PORTMAN: Well, again -- interesting that you say it's so small. Others have said these war costs are large. What we're trying to do is to show as much of the war costs as possible, as reasonable, as practical. And that's why we're showing full war costs for '07, for '08, and then for '09, we really don't know what the war costs will be, but we think there will be war costs. So we call it an allowance. You called it a place holder. That sounds pretty good. That's more or less what that is for '09.

Q -- in '08 you're approaching something like $700 billion with the war -- can you speak a little bit to what that combination of defense and war spending is going to do to the budget --

DIRECTOR PORTMAN: It's a good question, and I do want to make that clear that we're not just providing these supplemental spending requests; we're also providing, in the actual budget for '08, an increase in the Department of Defense base spending. That increase will be approximately 11 percent from 2007. It's a substantial increase. As you will see, it focuses directly on the issues. We've heard from the military on -- and from members of Congress on both sides of the aisle, and regardless of their opinion about the ongoing military operations in Iraq, and that is readiness.

We have, as you know, an increase in troop strength in the budget for the five-year period. Beginning in '08, we also have increases in procurement, equipment, training. And so this is to be responsive to the concerns that the military has expressed. And again, you will find, in the halls of Congress on both sides of the aisle, there is -- has been a concern about readiness. We directly address this in the budget, both in the supplemental with regard to the war costs, and significant reset or reconstitution funding there, particularly for equipment that's been subject to wear-and-tear, but also in our base funding for the Department of Defense.

I would also make the point that although this is a substantial commitment to our military and to our troops, it is all included in the numbers you saw earlier, which show declining deficits every year and a balanced budget in the fifth year.

Q If the situation with the entitlements is so critical, than why not accept some tax increases as a way to get the Democrats to go along with spending reforms?

DIRECTOR PORTMAN: Well, the entitlement situation is critical. And, again, the President, by submitting this budget, only takes a first step toward addressing it. But I think it will be interesting to see how this first step is responded to. So far, in my conversations with Democrats and Republicans about the proposal, I've gotten a sense that although there are some immediate negative response that you might predict, there's also a lot of response that says, let's take a look at this, on both sides of the aisle. And so I think this will be an important test to see whether we can move beyond talking about sitting down and move beyond talking about the need to discuss reform of these important programs, to what are some of the solutions. And, clearly, because Medicare is the program that has the largest unfunded obligation -- I mentioned $32 trillion over the 75-year period -- this seems to us to be a good place to start.

In terms of the discussions that the President has talked about, particularly on Social Security, but also on entitlements generally, he's made clear that there will be no preconditions; that all sides should come together and we can talk about these issues, and that there would be no preconditions on our side, nor should there be on the other side. And I think this is exactly the way we must proceed -- it's the only way to proceed.

So to answer your question, I guess I would say, the President is very interested in addressing these issues. He's shown great political courage, and certainly has not shrunk from the challenge of Social Security over the last few years. And he wants to continue to try to work with Congress to address that issue, but also the larger problem of mandatory and entitlement spending.

Q Are there any specific places where he's willing to soften his stance, any compromise areas?

DIRECTOR PORTMAN: Well, by saying there are no preconditions and we should all come to the table and talk, that was a change in position. And by putting into the budget some specific ideas, the President is, again, taking the next step, which is not just the need to discuss, but the need to actually start to put solutions on the table.

Q Mr. Portman, you said there are no preconditions. But in the Cabinet meeting a couple hours ago, the President said no tax increases. That sounds like a precondition.

DIRECTOR PORTMAN: What the President said was, that we can balance the budget in five years without increasing taxes, and that, in fact, to increase taxes would put at risk the economy that's generated the revenues that are largely responsible for putting us in a better fiscal condition. So he was very explicit about that issue, but it was in relation to this proposal.

Q So he would welcome tax increases beyond those five years?

DIRECTOR PORTMAN: No, that's not what he said. I'm just telling you that -- unless I missed something -- I was sitting next to him at that Cabinet meeting -- what he was talking about there was his strong belief that it is incumbent upon us to keep the tax relief in place. It's encouraging innovation, encouraging investment. It's been very responsible, as we saw on those charts, since 2003 for the growth in jobs, the growth in productivity, and the ability for us to see these increased revenues. And it would be exactly the wrong thing to do to put the economy at risk and raise taxes on the American people at this point.

Instead, what we should be doing, restraining spending a little bit better, which is in this budget, and continuing with solid economic growth so that we can, indeed, balance the budget for the American people. It's an exciting opportunity, and we don't need to raise taxes to do it.

Q One final thing, just broadly speaking, beyond entitlements. Is there a percentage of growth for the overall -- to sort of put in plain terms -- $2.9 trillion budget, is that 2 percent higher than last year, or where is the budget sort of in the big picture? How much has it increased?

DIRECTOR PORTMAN: Is it 2.9 percent or is it just over 2.8 percent, Steve? We'll give you 2.9 percent, which is a little growth. What's the percentage growth? The overall growth in the non-security area in this budget is 1 percent. The overall growth in the security area is closer to 6 percent, and the overall growth in the mandatory side, which is about half the budget, is closer to 6 or 7 percent. So, Ned, I think it's about probably a little higher than the GDP growth, which will be about 5.6 percent for this year.

Yes, Keith.

Q You seem in the budget to have assumed very little in the way of AMT relief. I'm wondering why did you do that? Is that very realistic? And also, doesn't it threaten to hamper your efforts to get to a surplus in 2012?

DIRECTOR PORTMAN: Yes, it's a good question. The alternative minimum tax is addressed in this budget. Congress has, in the past, enacted patches to the alternative minimum tax so that it does not hit upper-middle and middle-income taxpayers -- or hit additional upper-middle income or middle-income taxpayers.

We are proactive in this budget in the sense that although Congress has not passed a patch for this year, we include a patch in the budget. That patch is the most generous version of the patch that Congress has passed, which is a "no new filers" patch. It is for 2007. Although Congress has not passed that yet, it would enable Congress, then, not to have to patch again for about 20 months, until the end of 2008. The cost of that is about $36 billion, incidentally, and most of that is in the FY 2008 numbers.

Going forward, we want to work with Congress to reform the AMT because we believe that it is misguided tax policy. We want to keep it from, again, hitting further down into the tax brackets. We think there's a way to do that, working with Congress. This is what we have proposed in the past five budgets, as you know. This year, I think things might be a little different. I think there's more discussion of the importance of dealing with AMT. I think there's more concern because of the impact of a non-indexed AMT on taxpayers over the next several years.

So I'm hopeful that working with Congress, we can come up with a way to reform AMT. We think it ought to be part of a larger tax reform. It almost has to be, because there's so many interactions now between AMT and the individual income tax code. So we will be looking forward to seeing what the congressional budget proposals are in this regard, but we think it's an issue that we ought to be addressing together.

Q Okay, but doesn't it threaten to sort of really sap a lot of revenues out of your predictions when you do get a fix, or does it need to be done revenue neutral, in your view?

DIRECTOR PORTMAN: Well, implicit in the budget would be revenue neutrality because that's the numbers we show include AMT revenues. But I think we need to see. We'll work with Congress on that. Some members of Congress have proposed elimination without any pay-for's. Others have suggested that there ought to be pay-for's, and we want to work with Congress on that.

I indicated earlier that I believe our revenue projections this year are cautious. I'm saying that, in part, because I don't want those of you who are going to write the story about the rosy scenarios to then, in July, write the story about how we lowered expectations, which is what happened the last couple of years. So I will just tell you I think our expectations on the revenue growth are probably low, and the first-quarter results are in -- 8.2 percent, and we're saying 5.5 percent -- and there's no sign of a slowing economy right now.

So the first quarter growth numbers came in higher than expected. We had not included those in our budget projections, of course, because the budget was put to bed before those numbers came out a week ago. So that's an example, Keith, where there may be additional revenue available that Congress would want to work with to address a pressing issue, like reform of the alternative minimum tax.

Q On the health care proposal of the President, how does a tax expense work out? There's some cost on the tax expense the President -- there's some cost initially, and then it evaporates, or what?

DIRECTOR PORTMAN: I think in the first five years, it's -- there is an impact on the budget. If you look at our numbers, it will show that in the first five years, it is a coster.

Q Is it broken out in the book?

DIRECTOR PORTMAN: Yes, it is. Longer-term, 10 years, it's about revenue neutral.

Q Two questions. First, you're projecting some pretty substantial savings on -- for Medicare reforms and I guess Medicaid reforms. And you talked throughout your presentation about a rosy scenario and a cautious approach. Do you consider this a cautious approach?

And then secondly, you're proposing to limit the kids who are in the SCHIP program to those under 200 percent of poverty. Seventeen states currently allow children in families over that line to be eligible for SCHIP, so what happens to those kids under this budget?

DIRECTOR PORTMAN: Can we take the charts back to the chart on the 1997 balanced budget? Do we have that ability? Thank you.

In terms of caution and prudence, I think that is realistic. I don't know if it's cautious, but I think encouraging Congress to look at the mandatory side of the ledger -- again, more than half of our spending now is in the entitlement area. It is growing faster by far than inflation, faster by far than our GDP numbers, faster than the rest of the domestic spending. It's the fastest growing part of our budget now. And over time, as we noted, it crowds out all other federal spending unless we do something. This assumes that we don't have huge tax increases or huge benefit cuts.

So I don't think it's unrealistic to expect Congress to do something along the lines that the President has proposed. And these proposals are not particularly new or different. You'll see the proposals are similar to what we've proposed before. In fact, it's about doubled our Medicare provisions in our last budget, in terms of the savings over time.

But the proposals are very similar. You look back to the Clinton administration, you'll see some very similar proposals. You've heard from Capitol Hill some Democrats respond that they want to take a look at these proposals, because some of them have made some of the same proposals. One proposal that's a little different in our budget is, there is more on income relating, both in Part B of Medicare and in Part D, otherwise known as means testing. And so for those who are retired and making over $80,000 a year, or $160,000 a year as a couple, would continue to have their premiums subsidized, but not as much, under our proposal. This would affect about 5.6 percent of current beneficiaries, under our proposal. And again, this includes Part B. Some of these proposals have been out there before, but also a little more income-relating or means testing in Part D.

So that's part of the way that we get the savings. It begins, I think, a very important debate as to what is the best way to restrain the rate of the growth of these programs. Nobody is talking about cutting these programs. It's a question of how much the unsustainable rate of growth can be reduced so that it becomes sustainable.

So I don't think it's unrealistic. I would hope that, again, in a good-faith effort, we can work on both sides of the aisle on this, because both sides of the aisle acknowledge the problem.

What's your second question?

Q On SCHIP, there are 17 states that currently allow kids to go to --

DIRECTOR PORTMAN: On SCHIP, we have to go through the reauthorization process of SCHIP every several years, and this year is the reauthorization year for SCHIP. So we included in the budget a reauthorization number for SCHIP. It includes somewhere between $4 billion and $5 billion in additional spending on the SCHIP program, but it does target this additional spending on children who need the help the most, which is low-income children. And those are children under 200 percent of poverty. We think that's appropriate. We think that is the original intent of the program. And again, that debate will unfold this year as we get into the reauthorization process.

Q Mr. Portman, you talked a second ago about the introduction of some more means testing in the Medicare proposal. And, obviously, although this catches relatively few people at this juncture, presumably, over time, a larger and larger proportion of people would meet these income thresholds, and therefore be drawn into the means testing. Also -- and separately, the budget once again endorses the progressive indexing approach to Social Security benefits. So I wanted to ask you, does this add up to a sort of vision of how to fix the entitlement problem, that in other words, rather than raising taxes to meet the entitlement spending, you proportionately reduce the amount of benefits paid to higher income citizens?

DIRECTOR PORTMAN: I think that's observant, and once again, you are looking beyond maybe where we are in the budget and where we're headed. I don't know if it is a change. In other words, this has been something that Congress has debated for years. There is already means testing in every one of these programs. In the Part D program, as you know, we focused the new resources on prescription drugs on those who needed the help the most. So low-income seniors are given the great bulk of the support under that program. That was something new.

This is, I think, again, not a surprise or a new approach, but I think it's part of what everyone acknowledges who has looked carefully at these programs, part of the long-term solution.

Q Mr. Portman, you said that a reason you included the war costs in the budget is because you heard Congress loud and clear. I wonder, are there any other elements of this budget on which you heard Congress loud and clear, things that you did specifically because Congress has been asking for it?

DIRECTOR PORTMAN: Actually, there are. Our attempt here is to provide a credible, more transparent budget, and one that is more realistic, and so there are a number of different areas where we tried to be responsive. One is showing more war costs in greater detail, sooner in the process. Another is trying to minimize the number of user fees that are in the budget that permit us to spend more in other areas because we can show a savings on a user fee, but that have little chance of being enacted by Congress. Another is some of the so-called mandatory saving programs that the Appropriations Committee is concerned about because we have a savings again in our budget that the appropriators cannot effectuate on their own. And so we have attempted in this budget to reduce or eliminate those kinds of differences between us and the Appropriations Committee. So this is viewed as a more realistic document.

I'll give you a great example of that. When I first started by consultations on the budget, I went to the Hill. I didn't go around the administration. I went first to the Hill to hear what they were looking for. And they were concerned about the fact that we included a user fee in a number of different areas. One was -- the biggest one is in the TSA area, and we had a Transportation Security Administration user fee of about a billion dollars over the five-year period, per year -- a billion dollars per year for the five-year period -- so $5 billion in our previous budgets. And that fee, you will see, is no longer in our budget because the Congress has not shown an interest in funding TSA through such a fee, but we think it's good policy, frankly. So we had tried to be responsive to appropriators and others who have said, this is not a realistic budget.

The second one I'll tell you is our budgets the last couple of years, you will see, have had a freeze in spending outside of security. In fact, for the fiscal years, we've had below a freeze request in our budgets. This budget is a tight budget, as it should be, in the situation we find ourselves in. But it has a 1 percent increase in non-security spending as compared to below a freeze in the year in question, and then a freeze for the out-years.

So it -- and how did 1 percent come about? It came about because we looked back at what Congress has actually done the last few years, including this year, with a Democrat Congress, the long-term continued resolution for this area of spending will be roughly 1 percent.

So war costs, some of the specifics in the budget -- and we'll be happy to give you more detail on that -- we tried to be more realistic in terms of what the spending levels will be for the annual appropriated funds. We've tried to be more realistic and tried to give Congress the ability to use this document as a basis for coming up with a budget that serves the American people's interest.

Q -- 141 programs, are these the same programs this year at the same level of reduction or elimination?

DIRECTOR PORTMAN: They're very similar --

Q And if not, do you have a list of what the 141 programs are for this year versus last year?

DIRECTOR PORTMAN: They are different. Last year it was a little higher number. But they are some of the same programs. Some are relatively small programs. There's a new venture capital fund that was put in legislation for -- I think it's called the Red Venture Capital Fund for NASA. We don't think the government ought to be investing in venture capital. So we propose eliminating that program, as an example. There are some oil and gas tax incentives that we believe are not necessary given the current price of oil and gas, and so we recommend eliminating those in this budget.

So there's some new ones, and others we can provide you. If you look at the website I talked about earlier, the OMB.gov website, you will see a list -- is it separately broken out, Steve or Beth, the 141 programs? Will it be?

After your question, it will be. (Laughter.)

Q Today?

DIRECTOR PORTMAN: I don't know if we can get it up today, but we're happy to present that information to you, so just contact us.

Q What assumption do you use on immigration? Do you assume that this is going to be 10 million illegal aliens in the country contributing to Social Security and Medicare? Do you assume there's going to be a comprehensive reform that will change those figures?

DIRECTOR PORTMAN: That's interesting. As you know, the CBO numbers have been interesting on that, what the various reforms would cost. Some have indicated that because of the fees that would go into a new temporary worker program you might see an increase in revenues; others have said a decrease because of the Social Security benefits. We have not attempted to do that in this budget. We have assumed that, from a budget perspective, that there would not be those changes. But we have looked at those CBO analyses, and we're doing some of our own analyses, as well.

Q In terms of getting to the balanced budget by 2012, you mentioned that you can get there without the Medicare savings that you just outlined. In your mind, what would you identify as the key decisions in this document that get you to 2012, the three or four things that you think are the most significant? And just a side question on private accounts -- do you deal with private accounts on this at all? Do you propose that? And was there any discussion about sort of leaving that out to be

-- as a sign of peace to the Democrats?

DIRECTOR PORTMAN: Good question, Mike. I guess if I were to say three or four things -- this won't surprise you -- I would say, again, it comes back to, can you keep a growing economy? I think our projections are very realistic on that front. We're not assuming a huge increase in revenues, as we've seen in the last two years, but we're assuming a steady growth of an economy, and we're assuming some spending restraint, as we have done the last few years, on the non-security side. And then, as you say, we don't need the mandatory savings to achieve balance; however we think it's the right thing to do. So I would say those are the fundamentals.

And although this tax issue has become sort of a political football, if we can show balance by providing for the nation's priorities without raising taxes which put the economy at risk, in our view, that ought to be a priority. And there's no reason that we can't. In a sense, then the burden is on others to show why there is a need for additional spending, other than what we have provided for, including, as I noted, healthy increases in spending on the security side, both for Iraq and Afghanistan, but also for our nation's defense readiness.

So that's what I would say. It's pretty simple; it's how do you keep the economy moving forward -- pro-growth policies -- and then how do you have just reasonable spending restraint? We find ourselves in a very fortunate situation because of strong economy and because of increased progress on restraining non-security spending, we can -- we can achieve balance for the American people. And it's the right thing to do, because it will position us better for the future.

While we're doing that, though, we should also begin the process of restraining this growth rate in the entitlement programs, both because of the long-term challenge, which is mind-boggling -- $32 trillion over 75 years, over $70 trillion over the infinite horizon, just in Medicare, $15 trillion with Social Security -- but also because every year, these programs are crowding out other spending that is considered important, whether it's education or homeland security. So it's the right thing to do. But I'd say that's the trick.

And I think we can get there. I'm really encouraged by what I hear -- when the President talked about a balanced budget at the House Democrat retreat on Saturday, you might have noticed, he got an ovation, because members, I think, on both sides of the aisle, are eager to show constituents, to show the American taxpayer that we can get our fiscal House in order here short-term. It's necessary to do it. Because of these other challenges that we face, it's the right way to go.

Q I've got one more --

DIRECTOR PORTMAN: Oh, private accounts. We do include private accounts in the budget, but as an olive branch, I suppose you could say they are delayed, but also, because we think as a practical matter, probably would not be able to be implemented until 2012. So we delay them from 2010 to 2012. Last year, we delayed them from 2009 to 2010. So we delay them another year. But private accounts are in the budget, and the President continues to believe that this is part of the answer to Social Security, particularly for younger people.

Q On homeland security, there's also been some political changes on the Hill. You've got Robert Byrd at appropriations. They want -- the authorizing committee wants to inspect every container. Would you say that your homeland projections are also low ball, given what Democrats are likely to do to plus things up?

DIRECTOR PORTMAN: I don't know, we'll have to see. We have a healthy increase in homeland security spending. We have our specific ideas as to how that should be spent, including more border security, including more Border Patrol. But it also includes more funds across the board for homeland security. So we will be working closely with the authorizers and the appropriators to try to ensure that the funds that we provided here are properly allocated to best protect the country. But we do provide significant increases in resources.

Q -- to build the fence --

DIRECTOR PORTMAN: There is adequate funding to build 370 miles of fence in the --

Q (Inaudible).

DIRECTOR PORTMAN: Well, it depends if you mean double strand or double fence for 700 -- no. If you mean virtual fence using the SBI net, in other words, having in some places, other than a physical fence, I suppose you could take it out to 700 miles. But there is significant new resources toward border security, including fence. We can give you all that detail if you're interested.

Thank you all.

END 12:59 P.M. EST