Testimony
of OMB Director Joshua B. Bolten
Presidents FY 2006 Budget Request
Committee on the Budget
United States House of Representatives
February 8, 2005
Chairman Nussle, Ranking Member Spratt, and distinguished members
of the Committee, the Presidents 2006 Budget, which was transmitted
to the Congress on Monday, meets the priorities of the Nation and builds
on the progress of the last four years.
We are funding our efforts to defend the homeland from
attack. We are transforming our military and supporting our troops as
they fight and win the Global War on Terror. We are helping to spread
freedom throughout the world. We are promoting high standards in our schools,
so that our children gain the skills they need to succeed. We are promoting
the pro-growth policies that have helped to produce millions of new jobs
and restore confidence in our economy.
Over the past four years, the President and Congress rose
to meet historic challenges: a collapsing stock market, a recession, the
revelation of corporate scandals and, of course, the terrorist attacks
of September 11th.
To meet the economys significant challenges, in
each year of the first term, Congress and the President enacted major
tax relief that fueled recovery, business investment, and job creation.
Recent economic indicators support the case for tax relief.
Since the recession year of 2001, economic growth has increased in each
of the following three years. A primary goal of this Budget is to assure
that our economic growth continues.
A strengthening economy produces rising tax revenues.
Last year, after declining three years in a row, federal revenue grew
by nearly $100 billion. Reflecting strong continued growth, we project
that federal revenues will grow by an even larger figure this year.
The President and Congress have also devoted significant
resources to rebuild and transform our military, and to protect our homeland.
In the first term, the defense budget grew by more than a third, the largest
increase since the Reagan Administration. To make our homeland safer,
he worked with Congress to create the Department of Homeland Security
and nearly triple funding for homeland security government-wide.
While committing these necessary resources to protecting America, the
President and Congress have focused on spending restraint elsewhere in
the Budget. Working together, we have succeeded in bringing down the rate
of growth in non-security discretionary spending each year of the Presidents
first term. In the last Budget year of the previous Administration, non-security
discretionary spending grew by 15 percent. In 2005, such spending will
rise only about 1 percent. Because of this increased spending restraint,
deficits are below what they otherwise would have been.
In order to sustain our economic expansion, we must exercise
even greater spending restraint than in the past. When the Federal government
focuses on its priorities, and limits the resources it takes from the
private sector, the result is a stronger, more productive economy.
The Presidents Budget proposes that enhanced restraint.
The 2006 Budget proposes a reduction in the non-security discretionary
category of the Budget. This is the first proposed cut in this non-security
spending since the Reagan Administration.
The Budget proposes more than 150 reductions, reforms,
and eliminations in non-defense discretionary programs, saving about $20
billion in 2006 alone.
As a result of this enhanced restraint, overall discretionary
spending, even after significant increases in defense and homeland security,
will grow by only 2.1 percent less than the projected rate of
inflation, which is 2.3 percent. In other words, under the Presidents
2006 Budget, overall discretionary spending will see a reduction in real
terms.
In addition, the Budget also proposes savings from an
additional set of reforms in mandatory programs, saving about $137 billion
over the next 10 years.
As you well know, both mandatory and discretionary categories
of spending are inherently difficult to control, but mandatory programs
are especially difficult because of their auto-pilot feature.
The Administration looks forward to working with the Congress on a package
of mandatory savings.
We will also work with Congress on budget process reforms.
Last year, I transmitted to Congress, on behalf of the Administration,
proposed legislation to establish statutory budget enforcement controls.
We plan to transmit a similar set of proposed statutory controls to establish
caps on discretionary spending, a pay-as-you-go requirement for mandatory
spending only, and a new enforcement mechanism to control long-term unfunded
obligations. The Presidents Budget also proposes that Congress
include these budget enforcement mechanisms and associated reforms in
the FY 2006 Budget resolution.
In addition, the Administration proposes other enforcement
and budget process reforms, such as the line-item veto, a Results Commission,
and a Sunset Commission. These reforms would put in place the tools we
need to enforce spending restraint and would bring greater accountability
and transparency to the budgeting process.
This Budget restrains spending in a responsible way by
focusing on priorities, principles, and performance. We were guided by
three major criteria in evaluating programs:
First: Does the program meet the Nations priorities?
The Budget increases funding to strengthen our Armed Forces, improve the
security of our homeland, promote economic opportunity, and foster compassion.
Second: Does the program meet the Presidents principles
for the use of taxpayer resources? If an appropriate Federal role could
not be identified in a programs mission, the Budget generally proposes
to reduce or eliminate its funding.
Third: Does the program produce the intended results?
The Bush Administration is comprehensively measuring the effectiveness
of the governments programs and the results are helping
us make budgeting decisions. As a part of the Presidents Management
Agenda, the Program Assessment Rating Tool, or PART, was developed to
measure the performance of Federal programs. Roughly 60 percent of all
Federal programs have undergone the PART, and those scores figured into
the budgeting process.
By holding government spending to these accountability
standards, by focusing on our priorities, and by maintaining pro-growth
economic policies, we are making progress in bringing down the size of
the deficit in 2006 and beyond.
Last years Budget initially projected a deficit
of 4.5 percent of Gross Domestic Product (GDP) in 2004, or $521 billion.
The President set out to cut this deficit in half by 2009. Largely because
economic growth generated stronger revenues than originally estimated,
and because the Congress delivered the spending restraint called for by
the President, the 2004 deficit came in $109 billion lower than originally
estimated.
At 3.6 percent of GDP, the actual 2004 deficit, while
still too large, was well within historical range and smaller than the
deficits in nine of the last 25 years.
We project the 2005 deficit to come in at 3.5 percent
of GDP or $427 billion. If we maintain the policies of economic growth
and spending restraint reflected in this Budget, the deficit is expected
to decline in 2006 and each of the next four years. In 2006, we project
the budget deficit to fall to 3.0 percent of GDP, or $390 billion. In
2007, the deficit is projected to fall further to 2.3 percent of GDP,
or $312 billion.
By 2009, the deficit is projected to be cut by more than
half from its originally estimated 2004 peakto just 1.5 percent
of GDP, which is well below the 40-year historical average deficit of
2.3 percent, and lower than the deficit level in all but seven of the
last 25 years.
The Administration intends to submit shortly a supplemental
appropriations request of approximately $81 billion, primarily to support
operations in Iraq and Afghanistan for the remainder of the fiscal year.
The 2006 Budgets spending and deficit projections fully reflect
the outlay effects of this supplemental request, as well as the prior
$25 billion supplemental bill already enacted by the Congress. However,
the Budget does not reflect the effect of undetermined but anticipated
supplemental requests for ongoing operations in Iraq and Afghanistan beyond
2005.
The published version of the 2006 Budget also does not
reflect the effects of transition financing associated with the Presidents
proposal to create personal retirement accounts as part of a comprehensive
plan to permanently fix Social Security. As the Administration announced
last week, the type of personal accounts the President is proposing will
require approximately $664 billion in transition financing over the next
ten years, with an additional $90 billion in related debt service. This
transition financing would result in a deficit in 2009 and 2010 of 1.7
percent of GDP, which is still consistent with the presidents goal
to cut the deficit in half by 2009, and still well below the 40-year historical
average.
Its important to remember that this transition
financing does not have the same impact on national savings, and thus
on the economy, as does traditional borrowing. Every dollar the government
borrows to fund the transition to personal accounts is fully offset by
an increase in savings represented by the accounts themselves. In addition,
the transition financing does not represent new debtthese are obligations
that the government already owes in the form of future benefits.
Perhaps most important, comprehensive Social Security
reform that includes personal accounts will eliminate the systems
current $10.4 trillion in unfunded obligations. Those of us who devote
our time to thinking about fiscal policy all share a common interest in
averting this danger. There is no task as vital to fiscal policymakers
this year than removing those unfunded obligations by enacting comprehensive
Social Security reform.
Confronting these long-term obligations, combined with
our near-term deficit reduction efforts, will help assure a strong economy
both now and in the future.
I look forward to working with the committee and Congress
on this Budget, which meets the priorities of the Nation in a fiscally
responsible way.
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