THE WHITE HOUSE
of the Press Secretary
For Immediate Release July 15, 2003
OMB DIRECTOR JOSH BOLTEN
Dwight D. Eisenhower Executive Office Building
2:33 P.M. EDT
DIRECTOR BOLTEN: Good afternoon.
Thanks to you all for coming. I'll start with a statement and then I'll
be happy to take your questions.
The President's top priorities
are winning the war on terror, protecting the homeland and growing the
economy. He has continued to lead boldly on all of these priorities. The
President has sought and the Congress has approved funds necessary for
the global war on terror and the defense of the homeland. You can be sure
that the President will ask Congress to spend whatever is necessary to
support our troops.
The President also acted in
2001, 2002, and again this year to strengthen the economy, to grow and
create jobs, because the President will not be satisfied until every American
who wants to work can find a job.
Small business owners have new
incentives to invest and create jobs. Workers are already saving more
in their paychecks because of tax relief. And millions of Americans will
receive tax refund checks within weeks because of the 2003 Jobs and Growth
The combination of these and
other policies and strong economic fundamentals like low interest rates,
low inflation and increased confidence have the economy poised for a strong
recovery in the months ahead. It's in this context that we're releasing
today OMB's midsession review.
The purpose of the review is
to update and revise the estimates of receipts, outlays and the deficit
to reflect economic, legislative and other developments since the President's
budget was released in February. As a result of a number of factors, including
weaker than anticipated economic growth in tax receipts and additional
spending for the war on terror, the 2003 deficit is now estimated at $455
billion, up from the $304 billion deficit estimated in February.
The number is projected to increase
to $475 billion in 2004. After 2004, in response to the President's program
to generate strong economic growth and exercise spending restraint, the
deficit is projected to decline dramatically. In fact, by 2006, the deficit
is projected to be half of this year's level in nominal terms. And as
you can see from the chart that's just been put up, even less than half
today's level when measured as a percentage of gross domestic product.
Projections show further declines
beyond 2006. When this projected shrinkage in deficits is taken into account,
the accumulated levels of national debt, as a share of the economy, is
expected to be consistent with the average level over the past half century.
And because interest rates are the lowest in over 40 years, the total
amount of interest the government must pay on that debt in 2003 actually
So although large in nominal
terms, and a legitimate subject of concern, today's deficits are manageable
if -- if -- we continue pro-growth economic policies and exercise serious
Let me place this year's budget
in historical perspective. The most relevant number in measuring deficits
is not the nominal figure. It's the deficit as a percentage of the economy,
or what I just referred to as gross domestic product.
With that in mind, consider
that a $455 billion deficit, while certainly higher than anyone would
like, constitutes 4.2 percent of the economy. This is well below the post-World
War II peak of 6 percent. And, indeed, it's lower than in six of the last
So as a percentage of the overall
economy, the deficit, while higher than average, is nowhere near a record.
When the current administration
took office, the budget was forecast by both the administration and the
Congressional Budget Office to run cumulative surpluses of $5.6 trillion
over the 10 years from 2002 to 2011. These were good-faith estimates that
took into account no collapse in the stock market, no recession, no September
11 attacks, no revelation of corporate scandals, no subsequent spending
or tax changes, no additional homeland security spending, and no war on
By far, the largest single factor
in the change in our budget position has been an economy that has been
weaker than originally projected. As you can see from the chart that's
just been put up, more than half the change in our 2003 budget position,
from projected surplus to deficit, is due to an economy that has not lived
up to April 2001 projections.
The tax cuts proposed by the
President and enacted by Congress are not the problem. They are, and will
be, part of the solution. It's important to understand that without any
of the President's tax cuts, the deficit this year would be at least $278
If you look at the chart, you'll
also see that the combined effect of the three tax relief packages on
the budget balance has been to reduce the surplus by less than a quarter
in 2003, and by only slightly more than that between 2004 and 2008.
Had Congress not enacted the
President's three tax relief packages, moreover, the economy would be
substantially weaker than it is, and there would have been substantially
greater job losses. The most effective way to lower future deficits is
to grow the economy. And the President's tax packages have been well designed
to do precisely that.
It bears repeating that the
key to improving the budget outlook now is a healthy and sustained recovery
with strong job creation. Since the submission of the February budget,
prospects for that sustained economic growth have brightened on several
fronts. We've had the passage of the President's jobs and growth bill,
we've had successful action in Iraq, we've had further reductions in short-term
interest rates, and we've had upturns in consumer and investor confidence.
These developments suggest the economy is poised to return to healthy
and sustained growth, creating jobs, reducing the unemployment rate and
A healthy economy is essential
to an improved budget outlook, but strong growth alone is not sufficient.
It's vital to exercise discipline over federal spending growth, while
still funding our urgent priorities.
Both the President's budget
and the budget adopted by Congress fund the priorities of the war on terror
and homeland security, while restraining the overall growth of discretionary
spending to 4 percent, about as much as the average family income is expected
to grow next year.
Restoring a balanced budget
is an important priority for this administration. But a balanced budget
is not a higher priority than winning the global war on terror, protecting
the American homeland, or restoring economic growth and job creation.
The February budget in action since then reflect the President's priorities,
and those priorities are precisely what the times demand.
I'll be happy to take some of
Q Can you clarify what you just
said, which is, you're saying that without the tax cuts, this year alone,
or combining all three, that you would have a deficit of $278 billion,
this year alone? Is that correct?
DIRECTOR BOLTEN: This year,
correct. And that's fiscal '03.
Q What evidence do you have
to assert that without the tax cut, the job losses would have been worse
and that the economy would have been weaker?
DIRECTOR BOLTEN: It's hard to
point to a particular job that was saved because of the tax cut or not,
but I think all economists will agree that the stimulus that's been put
into the economy from the tax cuts has made a substantial difference,
both in making the recession that we experienced as the President came
into office, one of the shortest and shallowest in history, and also keeping
the economy at least in modest growth levels, giving us a prospect of
growth levels going forward.
Q But this is not about pointing
to one job. You could point to sectors, you could -- I mean, you could
certainly analyze business investment. So, I mean, what you're articulating
is economic theory, but not so much evidence, that the American people
should therefore believe --
DIRECTOR BOLTEN: I don't know
what specific evidence you could point to one way or the other. There's
no anecdote out there. But I think economists agree, and I think you will
have seen in the numbers, that when the kind of stimulus is put into the
economy that we get from the tax cut, that those are reflected in sustaining
the economy in a way that just would not have been possible without it.
Q As a follow-up on that, I
mean, why, then, do you continue -- I'm assuming you don't have dynamic
scoring in this midsession review. I haven't seen the whole thing, but
DIRECTOR BOLTEN: That's correct.
I don't know if you can all hear the question, but we do not have dynamic
scoring reflected in these numbers.
Q And why is that? Why don't
you include that, and are there plans to finally include something like
that in the upcoming budget request for 2005?
DIRECTOR BOLTEN: If we had a
better measure, if we knew how to do dynamic scoring in a way that we
thought could be reliable, I would be very pleased to include it in the
numbers. We have not been able to do so, as of yet. The art and science
of economics is advancing. I'm hopeful that we will, ultimately, be able
to do that, and do that in a way that's in agreement with Congress, because
all economists, I think, will agree very strongly that when you reduce
taxes, put more money back into the economy, that has a feedback effect
in the economy that causes growth and in term increases receipts. And
being able to measure those receipts, to see how much better the government's
fiscal situation is as a result of the tax cuts would be something I'd
very much like to include in the numbers. But we don't include them in
the numbers. So the numbers you are seeing here, I think, are conservative.
Q Is it possible by 2005, by
the budget -- the FY 2005 budget?
DIRECTOR BOLTEN: By the time
we submit an FY 2005 budget, which would be about six months from now,
I don't know.
Q The economy is growing about
2.3 or 2.9 percent, depending on the forecasts, this year. You mentioned
that discretionary spending is going to be increasing about 4 percent,
based on the way things look right now. Does that mean that the administration
is satisfied with that level of yearly increase, and it doesn't think
that Congress is spending too much money?
DIRECTOR BOLTEN: We kept the
growth in discretionary spending this year to 4 percent. That's what the
President's '04 budget proposal does, that's what the congressional budget
resolution does. And we're very hopeful that when the Congress finally
finishes its appropriations process this fall that that's where we will
see the number coming out. So we think that's been the right number for
this year, bearing in mind -- bear in mind that their discretionary budget
includes defense spending. So there's a big dose of defense spending in
Going forward, I can't say that
4 percent is necessarily going to be the right number. It's the one we've
baked into our figures for '05, but I can't tell you today that that's
where we will end up.
Q -- number ends up being 5
percent by the end of the year, or something like that, is there a possibility
that the President will resist that effort to increase spending?
DIRECTOR BOLTEN: Oh, yes. The
President will resist efforts to go above the levels agreed to in the
congressional budget resolution or what he presented in his budget.
Q You're saying that you're
cutting the budget deficit in half, but are you proposing actually any
new policies to do that, or are you just crunching the numbers to show
that? And is it time now for some kind of course correction to address
DIRECTOR BOLTEN: The numbers
that you see -- that you saw reflected here and you saw -- I don't know,
Austin, do you want to put the budget numbers back up here -- the decline
as a percentage of GDP, what that includes, in our construction of the
numbers, is the President's policies, as we project them over time. And
it includes, for example, a continuation of the tax cuts that were included
in the jobs and growth bill. So those are all in the numbers.
They show us on a path that
we think is sustainable. We think we've done the right things by making
the tax cuts to restore the economy to growth, because what got us into
the difficult deficit situation in the first place is the flagging growth,
flagging receipts in the economy. We think the best way back is to restore
the economy to growth and restore receipts that correspond to it.
Q Well, you say it's sustainable,
but the 2008 deficit is actually larger than the 2007 deficit. Do you
think if you went beyond 2008, as you did two years ago, we would actually
see the deficit increasing?
DIRECTOR BOLTEN: No, I don't
expect that. I think the numbers -- we haven't worked up all the numbers
beyond 2008. They become increasingly unreliable as we go into the out
years. But there's no reason to expect to see that number going up at
all as we project beyond it.
Q Yes, Josh, you've got -- I
think you're projecting 3.7 percent economic growth next year. Upon what
do you base that? And is that -- is it assumed tax receipts from a faster
growing economy that accounts for the drop in the 2005 deficit?
DIRECTOR BOLTEN: I may call
in some help here from Austin. Jim, tell me -- give me your first question
Q I think you're projecting
3.7 percent --
DIRECTOR BOLTEN: Yes, 3.7 percent
is where our economists put the growth. I think that's straight down the
middle of where both CBO and the blue chip economists are pegging growth
for the second half of the year. So I don't think there's anything exceptional
about that particular estimate. And that estimate, by the way, from economists
across the country, I think is as high as it is, that we would like to
see it higher, but it still is a substantial growth rate.
It's as high as it is precisely
because of the measures that have been taken in the tax cuts, in '01,
'02, and '03.
And now, give me the second
part of your question.
Q The second part was you've
got a substantial drop in the deficit in 2005. Is that based entirely
on the fact that you anticipate much faster economic growth in 2004, and
therefore increased tax receipts?
DIRECTOR BOLTEN: No, no there
are other factors involved, and one of them is the '03 tax cut, which
was specifically designed to give us some punch when we need it, right
now when the economy is flagging. So you see some of the effects of those
are very front-loaded in the economy, which is where they belong, and
you see them dissipating over time.
Q If tax cuts aren't the answer,
can we expect more new tax proposals from the President? If not, have
we reached the point where tax cuts bring a diminishing return?
DIRECTOR BOLTEN: What's already
baked into our estimates here is an expectation of the enactment of the
President's full agenda of tax cuts, and that includes his request that
various tax cuts be made permanent. There were some sunsets in the '03
jobs and growth act that we would propose to eliminate, they would be
made permanent. There are other tax cuts that the President already has
on the table in his budget, including one for health insurance. These
are all included already in our estimates.
So we are assuming those going
forward. We are not assuming any other tax cuts going forward, a judgment
about whether that anything additional might be needed will be made at
the right time. We think we're in the right place right now.
Q On page four, you give four
reasons for thinking that the prospects for economic growth have brightened.
You don't talk about a weak dollar. To what extent do you think the weak
dollar is also -- is put in a tail wind behind the economy?
DIRECTOR BOLTEN: My recollection
is that there are two people in the government who are permitted to discuss
the level of the dollar. I'm not one of them. You've come pretty close
-- you've come pretty close to asking a question in the way that I might
want to answer it. But in my maiden outing as OMB Director, I'll probably
pass. You want to try a different question? (Laughter.)
Q That was my question.
DIRECTOR BOLTEN: That was it?
I may be able to get you an answer on that after.
Q In five short months, the
deficit, in terms of the overall economy, has increased from 2.7 percent
of GDP now to 4.2 percent. What assurances can you give us that in the
next five months we're not going to see a further increase beyond what
you've projected here, particularly since there are many things that you
can't include because of the methodology you've used?
DIRECTOR BOLTEN: In terms of
including things, I think most things are -- there's a balance here. We
include some things that aren't necessarily widely considered, and exclude
others. I think these are reasonable estimates that we've put out.
What assurance is there? No
economist can give assurances of anything. But the estimates do seem quite
sound, quite solid, and we're seeing a lot of the evidence today of a
restoration of confidence in the markets, pick up in economic activity,
that should make those projections, I think, quite sound, even if we fall
a little bit short on the economic growth that we're projecting, which,
in answer to a previous question, I said was right down the middle of
where the economists are currently projecting it.
Q Can I follow-up? Your predecessor
had phrased 2.7 percent is small by historical standards. And you're saying
today it's a concern, but it's a manageable concern. Is there a certain
specific percentage of GDP that, were you to reach, you would consider
unmanageable and might, at that point in time, have to either consider
increasing taxes or rescinding existing tax cuts, or even further spending
DIRECTOR BOLTEN: I don't have
a specific number of percentage of GDP that I think would be problematic.
What I do know is that the current 4.2 percent of GDP level is not showing
itself to be problematic in the economy. Where we would see that showing
up would be in long-term interest rates. And we have -- far from seeing
that, we in fact are seeing interest rates at historic lows.
But 4.2 percent of GDP, as I
mentioned in my prepared remarks, is higher than any of us would like
to see. But it is -- it's still lower than six of the last 20 years. And
as we see here, the projection showing it heading straight down. So it's
not causing a problem to the economy now. Exactly what level might cause
a problem, I don't know and wouldn't speculate.
Q You said there's no reason
to expect the deficits to get worse after '08, but as you know, the baby
boomers start retiring in '08, in increasing numbers in each subsequent
year. So are you saying that you expect the added costs of baby boomer
retirements to be more than offset by economic growth and spending restraint
DIRECTOR BOLTEN: I couldn't
say far in the out years. Actually, I think the question was directed
toward the '08 to '13 period, where I think you were thinking about a
-- whoever asked the question -- you were thinking about a 10 year as
opposed to five year window. So my answer was directed toward that additional
five year window.
If you're looking out well beyond
that window, I mean, if you're looking out 20, 30 years, the answer is,
absolutely. We face a serious problem with the unfunded liabilities we
face in our entitlement programs -- Social Security and especially Medicare.
And those need to be addressed. And the President is looking forward to
addressing those with Congress. That's a separate problem from the situation
we're facing today where we're dealing with a situation of a 4.2 percent
of GDP deficit, headed down and looks like it will be staying down in
the short to medium term. The long-term picture does require being addressed
by the President and the Congress.
Q Correct me if I'm wrong, but
the only war costs you're including are the money appropriated from the
DIRECTOR BOLTEN: That's correct.
Q -- the latest estimates you're
getting from the Pentagon on the month-to-month costs of the occupation
DIRECTOR BOLTEN: I don't have
anything beyond what Secretary Rumsfeld said in the last couple of days,
which I believe he pegged the monthly cost at $3.9 billion. But we don't
have any good basis to expect that that will be the amount going forward.
There are too many variables. But the premise of your question is right.
The '04 deficit we have projected does not include a figure -- an additional
figure for the costs of ongoing operations in Iraq. A judgment about what
those numbers are will have to be made later. There is about $20 billion,
however, of money that's already been appropriated, that won't actually
spend out until '04, and that is reflected in the numbers.
Q The '04 number could actually
end up being higher.
DIRECTOR BOLTEN: It could.
Q Does it include the prescription
drug benefit and an end to the AMT?
DIRECTOR BOLTEN: The question
was whether the numbers include, our forecasts on Medicare reform and
a prescription drug bill and the AMT. Yes, the answer on the first is,
yes. The numbers that we've projected here and the numbers you'll see
in the midsession review do reflect the $400 billion cost that the President
put in his budget and that is in the congressional budget resolution for
Medicare reform, which is a very important priority both for the President
As to the AMT, there is some
AMT relief incorporated into the estimates, I think going out a little
bit beyond where the jobs and growth bill extended it, but there is no
projection included of a phase-out of the AMT.
Q How fast would the economy
need to grow to eliminate the budget deficit?
DIRECTOR BOLTEN: I don't know.
Austin, any --
MR. SMYTHE: We'll get back to
DIRECTOR BOLTEN: I don't have
a good answer on that. The answer is, we'll get back to you. I don't know
what the exact figures would show. What we do see, though, is that even
on these projections, even by '08, we're getting down to a pretty small
percentage of GDP.
Q You said that the deficit
is not causing harm to the economy. Is your contention that a $455 billion
deficit in a slow economy is not a problem? And to repeat a previous question,
you said, 4.2 percent as a percentage measure of GDP is fine. How much
is too much?
DIRECTOR BOLTEN: As I said,
in the answer to the previous question, I don't know what is too much.
What we do know is that 4.2 percent is not a problem, because if it were
a problem, we would see that in higher long-term interest rates, and we
have the lowest long-term interest rates that we've had in a couple of
you said that's not affecting the economy now. What level -- how much
of a problem is $455 billion?
DIRECTOR BOLTEN: Well, if it's
not reflected in the interest rates, it is not visibly a problem to the
economy. It's higher than we want it to be. We intend to bring it down.
But where we would see the problem to the economy is in the interest rates.
Q To clarify on Iraq, do the
2003 numbers reflect the $3.9 billion a month? And in 2004, were you saying
there's no monthly -- there's no number that you have for 2004, but you
do have $20 billion that could be used.
DIRECTOR BOLTEN: The first part
of your question was correct, that the, for 2003, it does include our
spending on Iraq, which has been appropriated already by the Congress
and spending out, at latest estimate, about $3.9 billion per month. So
for -- through '03, Iraq is covered. We anticipate that about $20 billion
of the '03 money actually -- won't actually get spent until '04. So you
see that money reflected in the '04 deficit.
But beyond that, we have not
included an estimate of the cost of the Iraq war in our '04 estimate,
and I don't expect that we'll be coming out with any estimate or request
to the Congress until much later, when we have a sense of what those costs
Q Without going into the calculus
you can't make, I think in '83 the figure was 6 percent of GDP, and we
did, of course, see outward pressure on interest rates then. Is the economy
fundamentally different, or could we expect that long-term deficit, should
we get to that point in the 6 percent range, might then begin to spike
DIRECTOR BOLTEN: Yes, I think
economists would tell you that there are too many factors involved, that
you couldn't take a mechanical view, that 4.2 percent is okay, but 6 percent
isn't, because there are so many different factors at play in the economy.
I think it's actually very situational to what's going on in the economy
on that day, what is the unemployment rate, what is the growth and productivity,
what's going on abroad, how are our export markets. So I don't think you
can apply a mechanical formula and say one number is right and another
number is wrong. What we do know is the 4.2 --
Q -- one number is -- you know,
you're in the danger zone.
DIRECTOR BOLTEN: Yes. What we
do know, though, is that for present purposes, the 4.2 percent of GDP
that our deficit now reflects is not posing a problem to the economy.
Q A lot of the lawmakers on
the Hill are saying that part of the problem with forecasting budgets
is that the tax system doesn't produce a reliable form of revenue. Do
you agree and do you think it can be made more predictable?
DIRECTOR BOLTEN: I suppose there
are a variety of ways to do that. Tell me where you think folks are heading
with that, with --
Q Well, it's hard to say. But
both chairmen and ranking members of budget committees are -- seem to
be moving in that direction. I'm wondering whether tax reform is a long-term
-- is it possible over the long-term?
DIRECTOR BOLTEN: That's something
definitely worth discussing with them, and I'm going to have an opportunity
tomorrow when I appear before the House budget committee to hear from
them directly on that question. And I'm sure they'll be much kinder than
you all have been so far. (Laughter.)
Q To follow-up on Social Security,
if the President gets a second term, is it still his ambition to enact
Social Security reform? And why shouldn't we look at the long-term deficit
picture through 2008 as being the death knell for those ambitions because
of the transition costs?
DIRECTOR BOLTEN: First, it definitely
is on the President's agenda to pursue Social Security reform. It's critical
that we do so. It's one of those problems that can be put off indefinitely
because it's not going to bite for a couple of decades. But the President
has talked about the direction in which he wants to move Social Security.
And he's very committed, very interested in pursuing that through legislation
with the Congress, which will be a substantial undertaking, will require
a major national dialogue and a lot of work with the members of Congress
to accomplish it. So the short answer is, yes, very much on the agenda.
And I don't think that the numbers
I'm announcing today pose a substantial problem for that. If anything,
the numbers I'm announcing today underscore the necessity of making very
important reforms and strengthening in the Social Security system, because
we need to put it on a sound footing to be sure that the promises that
have been made will be promises that can be kept several generations from
The short term isn't the problem.
People at or near retirement today will get all of their Social Security
benefits. But if you look out in the long term, if we stay on the trajectory
we're on, as I said in response to the previous question, the resources
will not be there to support the program. And that's why we need to move
to the kind of system that was suggested by the Social Security Reform
Commission the President appointed last year toward creating an opportunity
for people to set aside some of their own money in personal accounts that
can actually grow in a way that will provide them the sort of benefits
that they can and should expect from a good Social Security system.
Q Just to follow-up, folks in
Washington thought that the best moment to do this was when there were
surpluses, because it's expensive to do. So where will the money come
from? The President would deficit spend, in other words, borrow huge amounts
of money to create a transition to the system that he has in mind?
DIRECTOR BOLTEN: It's easier
to do almost anything legislatively in times of major surplus. So I think
it's probably a truism that legislating on anything that has to do with
money gets harder in periods of deficit. But I don't think that fundamentally
undermines the ability for the President and the Congress to come to some
agreement on Social Security. My own perspective on it is that it actually
underscores the necessity of doing it.
Q It wasn't very long ago that
when people talked about the deficit or balancing the budget, they wanted
to balance the budget for the sake of doing that, for accomplishing that,
for not passing on debt to future generations. Does the President view
the deficit in those terms anymore? And you said it's a goal for the administration.
At what point will the administration propose steps to get back towards
that goal? After the war on terrorism is completed, or when?
DIRECTOR BOLTEN: I mean, I can't
put a timetable on it. I can tell you that it's an important priority.
It's a priority that for the last few years has fallen below the over-arching
priorities of winning the war on terror, protecting the homeland, and
getting the economy to get back to growth.
With respect to that last priority,
that last priority is the key one for actually getting the budget back
toward balance, because the reason why -- the principal reason why we
found ourselves with a growing deficit in the last few years is because
of flagging economic growth and reduced tax receipts to the Treasury.
That's what we need to turn around. That's what we need to get back in
order to get us back into balance.
Q Just to clarify, to make sure
I heard you right. On Iraq, based on these numbers you do not foresee
any additional supplemental spending requests coming out for the end of
DIRECTOR BOLTEN: For '03 I don't
anticipate any. But if the situation changes, the President will do what's
necessary to support the troops. Right now it looks like we're almost
exactly on target, that the estimates that were made of what was needed
to keep the operations going in Iraq through the end of this year seemed
to be right on target. So I think that's pretty well set.
It's the '04 numbers that are very uncertain because we're very uncertain
about how the situation there will unfold.
Q You're talking about two sets
of numbers, right, Josh? War and reconstruction? Two different sets of
numbers, the war costs, military costs and the reconstruction costs. We're
talking about two tracks.
DIRECTOR BOLTEN: Yes.
Q Okay. So you just answered
a question about the military spending.
DIRECTOR BOLTEN: Well, actually
the answer applies to both, I think.
Q The issue hasn't really been
addressed so far. You say that this huge deficit won't have much of an
impact on the economy. Still a concern that exists among state and local
governments that this will be a burden that's passed down onto them. I
mean, how do you address that? Obviously, they're going to have to find
a way to pay for their deficits also, and as it grows bigger on the federal
level, it seems like the burden will be passed down to those who have
less ability to pay for it.
DIRECTOR BOLTEN: I'm not sure
I quite follow the argument about passing a burden down. State spending
over the last few years, through the late '90s and into the early part
of this decade, has grown substantially. Now with harder economic times,
they need to cut back just as the federal government needs to lower its
sights. But, for example, in the 2003 jobs and growth act, there was $20
billion included in that as direct aid to the states. That, by the way,
is included in our deficit projections, the numbers that are going out
directly to the states. But I don't think this is a situation of the federal
government passing anything on to the states. The state budgets need to
operate within their own spheres, and I think are perfectly capable of
Q On spending, if I understand
you correctly, you're saying that 4 percent isn't a hard and fast number
beyond 2004. I was wondering, what is the appropriate number or how do
you come up with --
DIRECTOR BOLTEN: I think you
come up with the number -- the first thing you do is you look at the country's
needs. And included in that 4 percent discretionary spending is defense
spending and homeland spending. And the President has said on many occasions,
he will spend what is necessary to prosecute and win the war on terror
and to protect the homeland. So you can't say in advance what the exact
right number is. What I can tell you is that we have baked into our calculations
a -- roughly, the 4 percent growth rate that we've put out in our budget,
that's in the congressional budget resolution for '04. And we've also
estimated that for '05. But I can't tell you today, even for '05, that
that's the right number to arrive at.
Q You noted that you're going
to put another temporary patch on the AMT problem, and that has been the
pattern since it first came up. Why is it more urgent to make permanent
the President's tax cuts 2001, 2002 and 2003 -- I'm sorry, 2001, make
those tax cuts permanent, yet we don't see a permanent fix to the AMT
problem that's undermining the benefits of those tax cuts.
DIRECTOR BOLTEN: I wouldn't
say something is -- one thing is more urgent than the other. We extended
the '03 provisions out because they have been enacted in law. And my expectation
is that certainly the President will argue, and I expect most members
of Congress will agree that when they get to it, the right action for
the government will not be -- when sunsets are hit, will not be to increase
taxes. But that's not to minimize the problem of the AMT. That does still
need to be addressed.
Q Josh, at 2008, we will be
-- you are projecting the economy to be growing at -- smartly. We would
not have any costs from Iraq, I assume, in that number. Yet, we are going
to be running a $226 billion deficit. Do we now have a structural deficit
that will not go away on its own?
DIRECTOR BOLTEN: No, I don't
think so. You know, it may well be that by the time we get to 2008 we're
able to move the situation into surplus. The predicate for that, though,
is a strong economy. What created the surplus picture at the end of the
'90s and the beginning part of this decade was a strong economy. The $5.6
trillion projected surplus that was projected in '01 was based on unrealistic
assumptions about how the economy might grow going forward. What we need
to do is restore this economy to robust growth that will make it possible
to bring these numbers down at least this far in the future, and maybe
quite a bit farther.
Q So you're saying that that's
not robust enough growth that you have in your calculations?
DIRECTOR BOLTEN: I'd always
like more robust growth. I think we've made very conservative estimates
in our calculations. I'd love to see more robust growth.
Q Do you have any estimate that would measure how much the prescription
drug benefit plan would add to the unfunded liability of Medicare after
the initial 10 year window?
DIRECTOR BOLTEN: I don't. My
guess is we do have some estimate of that, Austin --
MR. SMYTHE: We haven't developed
a number --
DIRECTOR BOLTEN: We haven't
developed it. I will come back to you, so that you can ask me a question
that I actually have the answers
Q There are some numbers floating
around that are pretty horrific. I guess $2 trillion range --
DIRECTOR BOLTEN: I don't know
what the range is. I do know that as with Social Security, even more so
with Medicare, that we need to address the situation with our entitlements
to reform those programs, strengthen those programs, put them on a sound
financial footing, not for this generation or even the next one, but the
ones beyond it, because the trajectory we're on is not sustainable.
Q You mentioned Social Security
a couple times now. The President's -- at least his first term ends at
the end of 2004. Is he going to -- are you all going to address this issue
before that time?
DIRECTOR BOLTEN: I don't know.
The President has Social Security strengthening on his agenda. If there
is a window of opportunity to pursue it, legislatively, that opens, he
will do that. The last -- obviously, the priorities for the last few years
have been the war on terror, protecting the homeland, and recently, adding
prescription drugs to Medicare. But Social Security remains high on the
list. If a window opens early to do it, I think the President would jump
through that window. But he will seize the opportunity when it arises.
Q This is probably the dumbest
question of the day. Could you please explain why it's more important
to focus on the percentage of GDP when we talk about deficit, as opposed
to a nominal number?
DIRECTOR BOLTEN: The reason
is that that's -- in the agreement of, I think, almost all economists,
and I heard Chairman Greenspan mention it again this morning when he testified
-- which is that that's the way to measure what effect the deficit is
having on the economy as such, because that's the main -- that's the principle
reason, the top reason why we need to be concerned about deficits is because
of the effect that they might have on our overall economy.
And that economy is measured
by GDP. As I said, when we look at the effect of the current deficit on
the economy, we see that it is not having effects on long-term interest
rates. And I think that's how the markets judge it. In other words, the
-- when the markets set interest rates and so on, and they look at a country's
deficit situation and, from there, its debt situation, the calculation
is made based on the relationship of that debt to the overall economy
in determining what sort of interest rates are realistic for that country.
So that's why this is the right measure for us to use right now.
Let me take just one more.
Q Chairman Greenspan also said
that the key to interest rates was that deficits be short-term, and there's
nothing short-term in these deficits. And I wonder if that doesn't raise
more concerns? We've not heard really much in the way of concern or alarm
from you at all, based on the numbers that you're presenting, and I'm
sort of surprised at that. He was much more alarmed with these numbers
than you are -- or concerned.
DIRECTOR BOLTEN: I did express
concern. In fact, I think I specifically said in my remarks, they are
a legitimate subject for concern. The levels we are at now, that is, 4.2
percent of GDP, and the effect that that's having on interest rates, showing
that it is not currently a problem for this economy. But we do need to
be careful about it. And we do need to make sure we are pursuing policies
of growth in the economy, restraint in spending, that are going to ensure
that we have put ourselves on a path that looks more like this.
Thank you all very much.
END 3:16 P.M. EDT