Testimony of OMB Director Joshua B. Bolten
Presidents FY 2005 Budget Request
on the Budget
United States House of Representatives
February 3, 2004
Chairman Nussle, Ranking Member Spratt, and distinguished members of the
Committee, the Presidents 2005 Budget, which was transmitted to the
Congress yesterday, continues to support and advance three overriding national
priorities: winning the war on terror, protecting the homeland, and strengthening
The President is committed to spending what is necessary to provide for
our security and restraining spending elsewhere. Since September
11, 2001, more than three-quarters of the increase in the Federal Governments
discretionary spending has been directly related to our response to the
attacks, enhanced homeland security, and the War on Terror. The Presidents
2005 Budget continues this spending trend: significant increases in essential
funding for our security programs, combined with a dramatic reduction in
the growth of discretionary spending unrelated to security. With Congress
help in enacting the budget we transmit today, we will be well on the path
to cutting the deficit in half within five years.
The Presidents Budget:
Increases defense spending by 7 percent to support our men and women
in uniform and transform our military to ensure America has the best
trained and best equipped armed forces in the world;
Increases homeland security spending by nearly 10 percent to strengthen
capabilities created to prevent future attacks; and
Holds the rest of discretionary spending to half of one percent growth
- less than half the rate of inflation - while continuing to increase
funding for key priorities such as the Presidents No Child Left
Behind education reforms.
The Presidents Budget is built on the sensible premise that Government
spending should grow no faster than the average increase in American family
incomes of approximately four percent. This Budget proposes to hold the
growth in total discretionary spending to 3.9 percent and, again, to reduce
the growth in non-defense, non-homeland security spending to half of one
percent, below the rate of inflation. In the last budget year of the previous
administration (2001), discretionary spending unrelated to defense or homeland
security soared by 15 percent. With the adoption of President Bushs
first budget (2002), that growth rate was reduced to six percent; then five
percent the following year; and four percent for the current fiscal year.
The Presidents Budget builds on the pro-growth economic policies
that have laid the foundation for the economic recovery now underway, and
for sustained economic growth and job creation in the years ahead.
The tax cuts Congress passed and were signed into law have been critical
to achieving the Presidents priority of strengthening the economy
and creating jobs. Perhaps the best timed in American history, these tax
cuts deserve much credit for todays brightening economic picture,
consecutive quarters of positive growth through the end of 2003;
The highest quarterly growth in 20 years an 8.2 percent annual
rate in the third quarter of 2003; and the highest growth for any six-month
period in 20 years as well;
Extraordinary productivity growth;
strength in housing starts and retail sales; and
Encouraging signs of renewed business investment.
These indicators suggest that job growth, which typically lags recovery,
should continue to strengthen in the months ahead.
The President will not be satisfied however until every American who wants
a job can find a job. So this Budget supports the Presidents six-point
plan for economic and jobs growth, including making permanent the tax relief
that has fueled our economic recovery.
The sustained growth that this Budget supports will be good news for our
budget picture as well: As the economy improves, Treasury revenues will
Like America itself, the Federal budget has faced extraordinary challenges
in recent years: a stock market collapse that began in early 2000; a recession
that was fully underway in early 2001; revelation of corporate scandals
years in the making; and of course, the September 11th attacks and ensuing
War on Terror.
With Treasury receipts only beginning to reflect a recovering economy
and major ongoing expenditures in Iraq, Afghanistan, and elsewhere in the
War on Terror we still face a projected $521 billion dollar deficit
for the 2004 fiscal year. That size deficit, at 4.5% of GDP, is not historically
out of range. Deficits have been this large or larger in six of the last
25 years, including a peak of 6 percent in 1983.
Under the circumstances that created it, todays deficit is certainly
understandable. But that deficit is also undesirable and unwelcome, and
with Congress help, we will bring it down. With continuation of the
Presidents economic growth policies and sound spending restraint
as reflected in the Budget we are releasing today, our projections show
the deficit will be cut by more than half over the next five years.
This dramatic reduction begins in the fiscal year of this Budget, 2005,
for which we are projecting a deficit of $364 billion, roughly 3.0 % of
GDP. The rapid deficit reductions continue in subsequent years, with our
projections showing the deficit falling to 1.6 percent of GDP by 2009. This
is not only well below half its current 4.5 percent level, it is also well
below the 2.2 percent average deficit during the last 40 years.
This deficit reduction is the combined effect of economic growth and spending
restraint. As the economy recovers, tax receipts as a percentage of GDP
rise to historical levels by the end of the budget window, while spending
restraint keeps outlays flat or slightly declining as a share of GDP.
The spending restraint reflected in this Budget is not automatic. So we
are also proposing new statutory budget enforcement mechanisms, establishing
in law limits on both discretionary and mandatory spending, and requiring
that any increases in spending be paid for by spending offsets. We plan
to transmit legislation to the Congress that has three elements:
caps on discretionary spending for five years through 2009.
A pay-as-you-go requirement limited to new mandatory spending. Any proposed
increase in mandatory spending would have to be offset by a reduction
in mandatory spending. Tax increases could not be used as an offset
and pay-go would not apply to tax legislation.
the long-term unfunded obligations of major entitlement programs and
propose a 60 vote hurdle in the Senate for legislation that would expand
I look forward to working with this Committee to gain enactment of these
proposals to restrain spending.
Finally, the President is keeping his Administration focused on what the
American people care about results. The measure of governments
success is not how much we spend, but rather how much we accomplish. This
Budget includes a scorecard that measures the progress agencies are making
in achieving results, so that the government continues to be accountable
to the taxpayers.
Since President Bush took office, our Nation has confronted a cascading
set of challenges. The President and Congress responded on all fronts, with
tax relief to get the economy going, the largest reorganization of the Federal
Government in 50 years to create a new Department of Homeland Security,
and the largest increases in the defense budget since the Reagan Administration,
to wage and win the War on Terror. The Presidents 2005 Budget builds
on this record of accomplishment. With renewed economic growth and the Congress
cooperation in restraining spending and focusing it on our most critical
priorities, we can accomplish the great goals the President has set for
the country, while dramatically improving our budget situation.