of OMB Director Joshua B. Bolten
Presidents FY 2006 Budget Request
Committee on Ways and Means
United States House of Representatives
February 9, 2005
Chairman Thomas, Ranking
Member Rangel, 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.
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.
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.
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.
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 of retirement
benefits 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 can
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.
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.