Testimony of OMB Director Joshua B. Bolten
Presidents FY 2005 Budget Request
before
the Committee on Ways and Means
United States House of Representatives
February 11, 2004
Chairman Thomas, Ranking
Member Rangel, and distinguished members of the Committee, the Presidents
2005 Budget, which was transmitted to the Congress on February 2nd, continues
to support and advance three overriding national priorities: winning the
war on terror, protecting the homeland, and strengthening the economy.
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 your support in enacting
this budget into law, 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 you enacted
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, which includes:
-
Nine 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;
-
Continued 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 as well.
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 enactment of
this Budget, we will bring it down. With continuation of the economic
growth policies and sound spending restraint reflected in the Budget we
released last week, 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:
-
Reinstate 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.
-
Measure the long-term unfunded obligations of major entitlement programs
and propose a 60 vote hurdle in the Senate for legislation that would
expand these obligations.
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.
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