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Office of the Press Secretary

For Immediate Release July 15, 2003


Room 450
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 Act.

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 declines.

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 spending discipline.

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 20 years.

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 terror.

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 billion.

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 raising income.

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 your questions.

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 there.

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 the deficit?

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 again?

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 restraints?

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 each year?

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 supplemental, right?

DIRECTOR BOLTEN: That's correct.

Q -- the latest estimates you're getting from the Pentagon on the month-to-month costs of the occupation there now?

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.


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 and Congress.

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 generations.

Q Four-hundred-fifty-five-billion-dollars, 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 will be.

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 things upward?

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 now.

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 the year?

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.


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 doing so.

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