BRIEFING ON THE BUDGET
OFFICE OF MANAGEMENT & BUDGET DIRECTOR MITCH DANIELS
February 4, 2002
Dwight D. Eisenhower Executive Office Building
1:02 A.M. EST
DANIELS: We have presented to the Congress today the President's
budget for fiscal '03. It's a budget to win a two-front war.
As you've seen, it commits most of its new spending to the needs
of national defense, the war against terrorism and to a doubling
of spending on what we now term homeland defense.
then to keep total spending under reasonable control by holding
the rest of the government to an increase of only 2 percent.
Consistent with this budget, the President continues to advance
his plans to enhance health care coverage for Americans, prescription
drug coverage in this year and in the future for Medicare beneficiaries;
to move forward with the education of our children, large increases
for both special education and for Title I, for disadvantaged
of these and the recession we have experienced means, as you
know, that we forecast a small deficit for the next two years.
I say "small" in the historical context. This will be the smallest
recession era deficit in the post-war period. And the only one,
of course, that has the additional burden of paying for a war
at the same time.
seeks, as you also know, an economic growth package to put Americans
back to work and return the nation to strong growth as soon
as possible. That is our best long-term hope for a quick return
to large surpluses.
I do commend
to your attention new features of this budget which perhaps
by now you've noticed, but it does attempt to break new ground
and inaugurate a new era of accountability in the stewardship
of taxpayer dollars, both by becoming serious about separating
programs that work and strengthening those, and programs that
don't, for which the dollars now spent could find a better return
for taxpayers elsewhere.
attempts to take very seriously the job of managing day to day
the federal government, something that is very easy, particularly
for the political appointees of any administration to give short
So we appreciate
this opportunity to spend part of this first day of the new
budget here with you and welcome your questions.
You had your problems last year with appropriators who had a
prickly relationship with you. Could you explain why you went
out of your way in this budget to really hammer Congress on
earmark, to a point of actually having some single projects
-- like a wind sled in Ashland, Wisconsin, pictured in the budget?
I mean, do you think this is going to help get things under
DANIELS: We did say last year, we say again this year, that
we think the long time practice of special projects and earmarking
by Congress has gotten out of hand. It's multiplied eight times
in the last four or five years. We now have entire programs
of the federal government for which every penny has been earmarked
for somebody's special pet project.
we're not naive about this, we're not extreme about this. We
do believe that Congress ought to moderate its appetite for
these programs. We're certainly not going to become party to
the practice by repeating or renewing in the budget the projects
the President never asked for and for which he thinks there
might be a better use of the dollars.
This is the first time, as you said, that you did this kind
of management review. Overall, what's your conclusion about
the state of management for the federal government?
DANIELS: The federal government is not a very well managed
enterprise. I don't think this is exactly shocking news. We
don't have all the right incentives in place. And very honestly,
this has not been a point of focus for most administrations
in the past, of either party.
our first MBA President, said as a candidate that he would take
this seriously. He's asked his Cabinet to do that, and he's
given us very specific instructions at the Office of Management
and Budget, to take this part of our three-part assignment perhaps
more seriously than it has been in the past.
done that. We've identified five areas that we believe and scholars
believe are perhaps some of the most problematic, where the
opportunity for improvement is the greatest. And we've been
trying to work every single day -- sometimes tediously -- with
the departments to make some headway, and I think we're beginning
to get some traction.
Can you explain why, if we really are in a war, the President
has not taken the same sort of leadership role that other Presidents
took when we were in wars, and actually offered to cut parts
of the budget that are not related to military spending? Isn't
this really a guns and butter budget?
DANIELS: I'll be pleasantly surprised if other people see
it that way. My sense is probably many folks on the Hill will
find the slowing down of the rest of government to a near halt
at 2 percent growth to be too severe for their own taste.
it's the right balance. There are some very important programs
in the rest of government that ought to go forward. And we can,
as we have proposed to do, make some very substantial increases
in areas like medical research and education, as I mentioned,
if we are discriminating between the programs that work well
and those that don't.
Congress wants to bring us ideas for places to cut still further,
you know that we'll be receptive.
You noted the increases in education in Title I and special
ed. And, yet, the overall education budget growth is quite small
-- I think it's only about .5 percent. Number one, how did you
do that? Did you make cuts elsewhere in that Department? And,
number two, how do you expect that to be received on the Hill?
DANIELS: The Department of Education rose 37 percent two
years ago, 24 percent last year. At that growth rate, it will
eat the entire budget by 2010. So a deceleration is in order.
Secretary Paige very much accepts and has stated the view again
this week -- he's awash in money, it's results he doesn't have.
And $50 billion is by far, of course, the largest request ever
for the Department of Education.
As to the
how, new little experimental programs have been proliferating
like rabbits over there. We do propose that 39 of these be wound
up, folded into block grants so that governors and local officials
and school boards can decide how best to use those funds.
Paige is -- this is his request, actually, not something we
forced on him. And he's really going to be a leader, is a leader,
in terms of trying to deliver accountability, trying to deliver
results for the unprecedented billions of dollars that have
been entrusted to him.
Mitch, a general, and then sort of a specific question, totally
unrelated. You said a moment ago if Congress wants to bring
ideas where you can cut further, the question is, would the
tax cuts enacted last year fall into that category. Is that
something you'll listen to? And on a very specific point, what
can you tell us about the aid level to New York City that you
are proposing in this budget? Do you have an exact figure?
DANIELS: Well, aid to New York will eventually total well
over $20 billion. It's not going to be proposed that way in
any one budget, because this is going to be a multi-year project.
It's going to take years to rebuild infrastructure, subway,
perhaps sea wall and other very expensive things. We won't know
for a long time exactly how much it is.
clear, though, that as we deliver on the commitments the President
has made, unprecedented commitments, most of it at 100 percent
federal funding to New York, that the total will run in excess
of the $20-billion figure that was sort of a good-faith guess
by New Yorkers at the outset.
to the tax relief, tax relief is a very, very small factor in
this budget at present -- $38 billion in this year. And now
that we know that we're in a recession year with a struggling
economy, my only wish is that it were more. And I do hope, and
the President hopes, that the stimulus package he continues
to ask for will accelerate part of that tax cut so we can get
more people back to work more quickly.
not an under-taxed society. After the tax relief that the President
has passed, we will remain at very, very high levels, 19 cents
on every dollar in this economy going to the federal government
throughout this entire time period. It would be much higher
than that, were it not for the tax relief of last year.
is not inadequate revenues; they're going up 55 percent over
this time period, even with the President's tax relief in place.
Your budget dips into the Social Security trust fund for the
next 10 years. Is this a signal that this administration has
given up on Social Security reform?
DANIELS: We have no idea, of course, what's going to happen
over 10 years. And we have every reason to hope and try to be
back into large surpluses, surpluses as large or larger as those
that Social Security generates, and maybe before too long.
large surpluses and paying down debt is a very important objective
in this administration. It is simply the case that at the moment,
there are two or three things that do come ahead, even of that
goal. And those are: defeating terror, defending the lives of
Americans, and getting the economy rolling again.
It looks like the budget for the Executive Office of the President
goes down. Can you explain, is the White House, itself, cutting
its own budget, or what is that?
DANIELS: Most of the year-on-year change for the EOP has
to do with the completion of some capital projects that had
been long-scheduled and were done last year over in the East
Wing, as I recall, is where most of that is. But on an apples-to-apples
basis, the budget for the Executive Office of the President
will grow very slightly.
resist pointing out to you that for the second year in a row,
OMB will operate at a flat budget of zero percent increase.
Could you talk about the projected 2003 deficit? What the components
of it are? And when you say the tax cut, $38 billion this year,
you mean this year, 2002, or the new budget?
DANIELS: I mean 2002.
How much of it is the deficit, for instance?
DANIELS: About $94 billion next year. The composition of
next year looks a little like this. You know, let me just point
out to you we could have, easily, a surplus in '03. We could
have a $51-billion surplus if we just sort of held things as
course, that's not acceptable. There is a war to fight and a
homeland to defend, and those are -- those two things, taken
together, will reduce that surplus to about 1 percent of revenues.
And then we do have some growth in the rest of government, and
that brings you down to balance, essentially.
rest is the growth package, the stimulus package that the President
has requested. That accounts for $77 billion of the $80 billion
we forecast to be in the red. And honest people can differ.
There are folks saying to me, principally Republicans, let's
forget the stimulus package, and we'll have a balanced budget;
even in the midst of a recession and a war, it would be a rather
President has made a different choice: to put jobs first. And
frankly, that's -- long-term, that's the best way to get back
into sustained surpluses, is to have a vigorous, early recovery.
You were just saying that you have no idea what's going to happen
in the next 10 years, and this budget talks about abandoning
10 year budget projections, because you think they're folly.
What do you say to critics who would indicate that you're abandoning
them so that you're not displaying bad news, like what's happening
in Social Security trust fund, or the long-term implications
of policy --
DANIELS: I would say, read the budget. We display these
long-term numbers for those who still find some use in them.
They vary all over the place. You might not notice, but I would
be happy to show you after, that this year's long-term "guesstimate"
is the biggest in history, except for last year's.
If we had
not done one last year, everyone would be astonished to be a
$2.9-trillion long-term surplus forecast.
is, we don't know. Next year, $5.6 trillion could be back, if
the economy is back roaring strong again. We never saw numbers
like that until last year. And I think we're just saying, let's
get real. It is hard enough, as we learned last year, to be
precise about how much money the federal government will take
in one or two years out, let alone 10. And too much attention
to these fantasy numbers, I think, sometimes leads us down some
Based on that line of reasoning, why make the tax cut permanent?
The focus on that is the year 2011. If you're focusing on a
five-year window, why not leave that for the future?
DANIELS: You know, for those who believe that this is an
under-taxed economy -- and the President is not one of those
-- as I pointed out, we will be taxing at record rates, or near-record
rates all through this time period, even if the tax relief stays
those who -- most of its effects, of course, come years from
now. So for those who believe that a good policy in a struggling
economy that's already being taxed at very high rates, that
a good policy is higher taxes, they'll have multiple chances
to make that case.
How have the five-year restructuring plans that agencies --
the work force restructuring plans that agencies are doing or
have done, influenced their budget, this budget? And are all
of the restructuring plans in?
DANIELS: I think all -- we have plans in from each department.
They are of mixed quality, as you might imagine. But at least
we're beginning to get a handle on it. Before last year, the
government didn't know who worked for it, how old those people
were, how long they might be in place before retirement, let
alone what skills they had, let alone whether those skills matched
up with the needs of the new century.
the very fine people in the federal government now hired on
decades ago. So we're at least at the point now of understanding
pretty well who works here, and having some idea about what
kind of work force each department will need. But this is not
going to be a one-year project. And this one -- this initiative
is now driven by Kay James over at OPM.
we've got to make some changes that bring more flexibility to
the federal government, to hire the people it needs, pay them
what they're worth; frankly, to excuse from duty people who
aren't working, or aren't getting the job done, which is nearly
impossible today. Until we get changes like this, the best work
force plans we can write will be really hard to put into place.
How are you going to keep Congress from taking spending even
higher than your already large increase?
DANIELS: This will be a matter to be worked out with Congress.
But the President has been pretty clear that he wants his priorities
funded, and he wants the rest of spending kept under control.
We hope that will be a matter of bipartisan agreement, but if
not, we'll work it out bill by bill.
Yes, I just wanted to follow on that question. A lot of analysts
think that that 2 percent is going to become 6 percent by the
time everything is said and done. It being a reelection year,
is the President willing to use a veto strategy to enforce that
2 percent on discretionary domestic spending outside of homeland
DANIELS: The President is always careful not to talk about
the "V" word, unless he has to. There were three occasions last
year where he had to. And in all cases, his point of view prevailed.
In all cases, last year, without his actually having to veto
a bill. It may well come to that this year. We don't seek it,
we'd rather work this out within the limits that the President
has suggested by being flexible about the purposes to which
the money is put, as long as his basic priorities are funded.
it comes to it, his will to lead in this area is nothing I'm
in doubt about.
On page 13 of the securing America's future, you say: our new
war will be costly, some of this cost will not show up in the
government's books. Number one, what does that mean? And, number
two, how confident are you given that phrase that you can hold
the deficit to $80 billion next year?
DANIELS: Well, one footnote on the deficit figures for this
year and for next year and for the indefinite future, I suppose,
is that there may be additional war-fighting costs required.
We've asked for a contingent amount, as you may have noticed,
for 2003, because we have no way of knowing at this point what
events may bring.
is important to remember that these numbers are prior to the
quite possible increases that may be necessary to sustain operations
like those going on in Afghanistan today.
Can I follow up? What does that mean that some of these costs
will not show up in the government's books?
DANIELS: You know, without hearing the next sentence or
two, I think I can give you the right answer and I think the
point of that is that this will be costly in the private sector,
the things that may well dampen slightly ongoing economic growth
-- and this is in some models now. As you look forward some
of the predictors have moderated their long-term economic growth
in part because they sort of sense terror tax of indirect costs
as we try to make ourselves safer against threats we didn't
use to spend money guarding against.
The budget shows non-defense discretionary. But what's the figure
that you're using for non-defense, non-homeland security discretionary
that you're keeping at 2 percent? And what would be the comparable
growth of that body of spending over the last few years? How
much are you bringing it down historically?
DANIELS: It's $356 billion and growing, the part we have
now termed "rest of government." Discretionary spending last
year grew by 7 percent, so slightly less than that in non-defense,
and probably slightly less than that for the part we're talking
about, because there were some significant increases the President
recommended even before September 11th in what we now call homeland
defense. So probably coming down from the five or six range
First, I want to make clear, if I can, the $10 billion contingency
fund is not accounted for in any of your numbers -- that is
something you would seek as a supplemental if it were needed?
And, secondly, you mentioned a supplemental, a possible supplemental
this year for the war in Afghanistan. Do you have any sense
of when that would be necessary and how much you would need?
DANIELS: You're correct that the contingent money is not
in the request for next year. We would like for Congress to
vote it this year on a contingent basis, so we wouldn't have
to scramble around and request and debate it if and when the
President needs it. They had offered to do something like that
during the last quarter of last year and, in fact, did in the
one supplemental that we had.
As to the
timing of any supplemental this year, can't tell you. But I
think it's likely. There will be some needs definitely in defense
and quite possibly in the homeland area to get between now and
October 1, the next fiscal year. And I would say it would
be in the early months of the year, if we ask.
You propose an increase in funding for the agencies that compile
economic statistics. Some people have said that part of the
reason for that is the recession could have been avoided if
we'd had better numbers about it before it was obvious. Is that
part of the thinking behind that?
DANIELS: In honesty, I can't say that I've heard quite that
argument made. But it's true, the BLS, I believe, is one of
those you may be thinking of, for which there's an increase.
We simply think they do good work. It's an interesting question,
whether better statistics, better understood might help us at
least move more quickly in the future.
it was very painfully memorable to me that at the time we were
accepting economic forecasts, not just from our own people but
from the 50-plus members of the blue chip index next year, a
recession we now know was already ongoing. And of the -- it
wasn't just the government's estimators and CBO's estimators
-- 52 of the 54 in the Wall Street Journal, I think it is, index,
also missed the recession.
is an interesting question and, yes, anything that would help
us get a handle on events more accurately and more quickly,
that would be a lot of payback.
Can you talk a little bit about the NASA budget, a 4 percent
increase this year, would turn into a 1 percent increase next
year. Does this indicate that there's a lack of support for
human space exploration at NASA? And, if so, why?
DANIELS: I think there's a lot of support for the space
program. NASA is a $15 billion program, but it's had a lot of
problems. It's had enormous overruns, for example, at the space
station last year, and again this year. We suggest the reconfiguration
of the space station. There may be opportunities to make the
international space station even more international and involve
other countries more fully.
sidekick, Sean O'Keefe, is over there now. We look for him to
do a terrific job. But there are some management issues to address
and, if they do that, we'll have a better space program without
Can you tell me the impact of a highway trust cuts that are
made or formula changes?
DANIELS: Yes. This of course is all pursuant to an act of
Congress which mandated the use of a formula. We have no discretion
in this area, we simply follow the formula. And it's a good
idea. It tries to match highway spending to gasoline tax and
other trust fund revenues. It used to be we took in more in
the dedicated taxes than were spent. And it's worked. And we
now spend what comes in.
year there was an overestimate because economists missed the
recession, basically, and we spent $4.5 billion more than the
formula, than an accurate estimate would have produced. So we,
in essence, spent it ahead; now we're going to let revenues
catch up. Over the two year time period, the same amount of
money, essentially, will get spent. We ought to feel I suppose,
good that in a recession year we pulled ahead and advanced $4.5
don't have a lot of sympathy for people who sort of love this
formula when it overpays and don't like this formula when it
corrects itself. You know, it's like playing Monopoly with somebody
who draws the "bank error in your favor" card one time and thinks
they ought to get it every time around the board. It doesn't
work that way.
I'm a little confused about the defense number. If defense is
going up $38 billion and the $10 billion is the amount you may
ask for, but you haven't asked for in this budget?
DANIELS: Think of the base of defense going up $38 billion,
12 percent, and in addition -- in addition -- as Jim's question
pointed out, a contingent amount of $10 billion that would be
used if, and only if, called for by the President to deal with
active hostilities next year.
Would that be scored as emergency money?
DANIELS: It would.
Explain what the emergency response fund is.
DANIELS: Emergency response fund refers to the $40 billion
funded in the last quarter of last year, after 9/11. Incidentally,
we still have -- as of about mid-January, we still have three-quarters
of that money yet to go. We said it would last a while and it
Can you explain the administration's philosophy in terms of
reimbursing the states for homeland security costs and what
the government thinks is acceptable reimbursement?
DANIELS: One of the biggest increases in this budget will
be dollars flowing to states, to fire departments, police departments,
public health infrastructure, others in the so-called first-responder
category. And there will be an additional $3.5 billion in the
-- just the first-responder category alone. So states are going
to be full partners in homeland defense.
And I really
think the biggest issues we're going to face will be their speed
in being able to absorb these funds. I think we're going to
have to be very careful that we don't simply shower the states
with money that can't be productively used when it arrives.
And this would be particularly problematic at a time when a
lot of states are strapped and might be tempted to use it for
things that don't make Americans any safer. But Governor Ridge
is on top of all these issues and I'm sure will manage them
Sir, you talked about the tax cuts that are not going to be
into place for many, many years and there will be plenty of
opportunity for those who disagree with your viewpoint to change
that. But I'm wondering if you could articulate one more time
why you think -- calling for the stimulus as well. Why do you
think putting the tax cuts in the stimulus will be stimulative
now, when many of the tax cuts won't be going into place for
many years and will be accelerated, but there will still be
years out, even though they'll be sooner than they were already
going to be? If you could articulate that again.
DANIELS: Sure, of course. The tax relief in the stimulus
-- at least in the package that was awaiting passage in December
and that the President endorsed -- would have been immediate.
The tax rate, it would have accelerated to the here and now
the reductions in the rate for middle income taxpayers in the
$30,000 and $40,000 brackets, roughly. And, of course, it would
have provided immediate rebate style relief to people even lower
in the income scale.
particular small, relatively small amount of tax relief would
have had -- would have arrived immediately and had immediate
What's the philosophy behind the 2.6 civilian federal pay raise
-- OMB's previous estimate for 3.6?
DANIELS: There's a 2.6 percent recommendation, an increase
in pay for civilian workers. And you didn't ask, but I'll answer
that 4.1 percent for military. We do believe that a distinction
can and should be made between people in harm's way at a time
of war. And, therefore, feel it's entirely appropriate that
there should be some additional compensation for uniform personnel.
to the civilian side, there's a rough equation, called the ECI,
you must be familiar with, and it would have pointed to 3.6,
but that's only a starting point. We decided that it would be
fair and appropriate, at a time when many other Americans have
seen their pay go to zero. And in the private sector, estimates
for increases range from about 1.8 to maybe 3. For those who
are employed, we thought giving back 1 percent or, let's say,
taking 1 percent less than this sort of rule of thumb index
was something that federal employees would feel is fair and
I hope many will feel it's an appropriate thing to do.
just remind you, this is increases at a time when the economy
is in recession and many Americans are seeing zero increase
or even a drop in pay.
Last year, you and many others at OMB said that $4.5 billion
for IT, you weren't sure if that was too much, if it was being
used effectively. And now, in this, you proposed about a 15
percent increase in the IT budget. I mean, is that accounted
for because of an understanding that it wasn't enough or is
there more there?
DANIELS: Okay. You may have mis-spoken, but I think you
said $4.5 -- it's $45 billion last year and it will go to a
little over $50, the way we add it up this year.
I feel pretty good about the step forward in terms of IT. We
have scrubbed down every IT project of any size in the federal
government. And using authority Congress conferred on OMB a
few years ago, in the Clinger-Cohen Act, have stopped certain
projects that don't seem to have a good business case or that
seem to make a bad situation worse by building brand new systems
that can't talk to the systems we have now, that kind of thing.
favor of IT spending if it's done well. One of the five management
initiatives that we have selected, of course, is to use the
tools of e-business to create e-government, make it much easier
for citizens to work with their government, to pay their taxes,
to learn information about what national parks are available
and so forth; to apply for grants or even to learn that they're
eligible in the first place.
done well and spending that pushes us in the direction of a
more efficient government that can work with itself and with
the citizens it serves, great idea.
I just wanted to ask you about the arm-twisting with New York
over the Medicaid formula and where we stand now, based on this
budget and where you see it going from here?
DANIELS: Gee, I don't know. I'm not either a twister or
a twistee in this situation. The federal government picks up
58 percent of all the costs of Medicaid now, national average,
and we think that's about appropriate. And there is, at a time
when states are strapped for cash, there is a push on to, in
essence, get a little revenue-sharing by tampering with the
Medicaid formula. We don't think that's a very good idea, and
hope we'll find other ways to work with the states.
There are a bunch of numbers in the budget at one level.
DANIELS: There are a bunch of numbers in the budget -- (laughter.)
I do not quarrel with you're --
I'm just going to need a comment on that, and -- for terrorism.
The Ag budget has terrorism money in it. How much money is dedicated
in this budget proposal toward fighting terrorism? And can you
split it between home and abroad?
DANIELS: Using the definitions, it's an important question,
because this is an area on the one hand which the President
and Governor Ridge are determined to do everything that makes
sense to do. It also, I think, will be an alluring target for
people who would like to redefine their own projects as similarly
So we have
a very explicit definition in the budget. Governor Ridge will
be the Noah Webster of this exercise. We may add items as we
learn more and do more. But all in, about $37 billion associated
with homeland defense, about $8 billion of that in defense,
the rest -- the Defense Department -- that doesn't mean necessarily
internationally; in fact, this is almost entirely spent here
A lot of
money, for example, to protect bases on American soil against
the higher threat of terrorist attack. Then $29 billion, more
or less, in the other departments. Don't be confused if you
see increases that go from $13 in '02 to $25 in '03. That deletes
about $4 billion, $4.7 billion of fee income -- airplane ticket
fees, for instance, that then are spent on security. So we'll
be spending about $29 -- the Department of Defense.
Going back to the IT question, you mentioned e-gov initiatives,
you mentioned the e-gov initiatives. How much -- when you broke
down by agency -- and I don't mean to try to get so specific,
but how much of those e-gov initiatives were put into the budget,
funding for agencies to go forward with them?
DANIELS: Well, there are 24 projects selected from a list
of I think hundreds, initially, and those 24 each has a business
case, each of them will be fully funded. Sometimes we pass the
hat, sometimes a lead agency takes most of the burden. I don't
have a number on the top of my head for what they come to in
did insist that they come at the front of the list, not behind
all the preexisting projects, because these are the President's
initiatives and we can -- we have to avoid the well-known phenomenon
of the existing being the enemy of the new.
Your stimulus proposal, so far as I can tell, is a little general,
it's more general I think even than it was last fall. And could
you comment on why that is? And also, could you just comment
more on your revenue package, generally? Is there much that's
new in there or significant?
DANIELS: The definition of the growth package is kept general,
because the President wants to remain flexible and try to work
something out with Congress. We took, as a proxy, the exact,
however, size and shape of the bipartisan compromise, which
came so close in December. So that's $62 billion of tax relief
and $27 billion of new spending in the first year, in '02.
there are new ideas brought forward that would get us to a truly
stimulative package, one that actually promotes growth in jobs,
the President remains open and willing to look at other ideas.
place where we are specific is, the President does renew the
request for $4 billion in national emergency grants. These we
think ought to be part of any new package. They're flexible,
they're quick, and they allow states to respond in particular
to the job training needs that a recession may aggravate.
of other revenue items, probably the one that is the newest
is a proposed tax credit for education for families who find
themselves trapped in failing schools, and would like to attempt
to have -- like to have assistance with transportation needs
or to otherwise move to a better school district.
On that issue, as far as the education tax credit, could you
explain why there is so much more money set aside for the out-of-pocket
classroom expenses for teachers, versus -- families --
DANIELS: No. (Laughter.) Out-of-pocket classroom expenses?
Right. I mean, we're talking about a substantially higher amount
per year than allowing out-of-pocket --
DANIELS: Oh, the tax -- I'm sorry, as a tax provision.
DANIELS: Yes. Well, I think this is not the first time that
one has been proposed, and as to the estimate, I would direct
you to Treasury if it looks to be a provision that would be
used at a higher rate than we may have guessed in the past.
Can you tell us what you are planning to do at OMB to turn all
the red lights into green lights? And also, what's the difference
between your management approach now on getting efficiency and
so on in government, versus reinventing government in the last
DANIELS: The biggest issue at OMB is probably human capital.
And a very good example that we've talked about a lot is that
in order to do our duty in a new era of accountable government,
we have to be better than we are today at evaluating and measuring
program performance, and better than we are today at working
with departments on their day-to-day management. So I would
single that out the most.
an operating agency, as the other departments are. And so some
of the categories don't fit us very well. But we thought it
was only fair to go ahead and hold ourselves to the same standards
As to reinventing
government, I took that to be a sincere effort to look for different
ways to deliver service. One of our five chosen management emphases
is competitive sourcing, which has certainly been a part of
the reinventing government movement. This is the idea, of course,
that government -- it's the duty of government to see that services
are provided, not necessarily to provide them itself.
would be one, I think, point of commonality with what Vice President
Gore was working hard to do.
The Pentagon has described that $10 billion contingency fund
as a very conservative estimate, considering that the President
has said the war is just beginning, can you explain why that's
a good idea --
DANIELS: It's a figure that we worked out with Secretary
Rumsfeld and his people. I think they're being candid, as we've
tried to be in the document, that we don't know what events
may bring, we don't know what decisions the President may make,
and so it's a large sum of money, admittedly, in a very active
environment. It might not last more than a few months, but at
least it would put some -- if Congress would work with us on
it, it would put some money in place so that in the event that
he had to at quickly, that we could at least get started.
Does it reflect the ballpark figure that the war is costing
about a billion dollars a month, and so it gets us through to
DANIELS: Well, the $10 billion I think we're talking about
here is an '03 number; don't forget that. We would deal with
here to October 1 in another supplemental. But your question
is a good one. We do take as a reference point what is the current
situation costing, and $1 billion a month is more or less the
neighborhood. And so that's how you could come up with a number
like that, that's admittedly just an estimate.
Senator Snowe and Senator Conrad are again talking about some
kind of trigger mechanism that would link new tax -- future
tax cuts and future spending increases to materialization of
surplus or debt reduction or something like that. I'm wondering,
with the expiration of most of the balanced budget provisions,
if this kind of trigger is anything that the White House is
willing to discuss with Congress?
DANIELS: I'll have to see what they're talking about this
time around. But probably not. I think that Chairman Greenspan,
last week, talked about a trigger that would in essence make
a reexamination of spending and taxation, I guess a privileged
motion or something, that Congress would look at it again. Congress
always has the opportunity to do that. They can do this anytime
I indicated earlier, with three-quarters of tax relief coming
only in years four through 10, 60 percent coming in years six
through 10, they'll have -- those who believe we need higher
taxes on an already very heavily taxed economy will have all
kinds of chances to make that case.
Mitch, can you describe the President's general style in putting
together this budget, his first full budget? How many meetings
did you have with him, personally? Did he take any appeals from
-- from any departments or agencies? And how involved was he
in all of --
DANIELS: The President was very involved from the beginning
at the level that I would call presidential. He gave very clear
instructions, as he always does, about what his priorities were,
and about the need, given this is a war, not to stop short.
And as I've sometimes said, that led us in dealing with both
fronts of this war to break ties in the direction of yes. So
if there was any proposal linked to defeating terrorism or to
making Americans more safe at home that had even a reasonable
case for it, we agreed and rolled it into the budget.
also said he wanted an economic growth package, that he was
not prepared to leave that to chance. And, finally, that as
should happen at a time of war, that lesser priorities would
have to be looked at even more clearly. So that was plenty good
marching orders. We took it on and met with him multiple times
so he would know how things were coming together, showed him
some of the potentially controversial items.
an appeals process available, but in the end, our very collegial
and teamwork-oriented Cabinet resolved all its problems. A few
went to the group on which the Vice President and the Secretary
of the Treasury and Andy Card and I and Larry Lindsey sit, but
that's where they all stopped.
-- how many?
DANIELS: Four or five.
What departments --
DANIELS: I think we'll maintain the confidentiality of that.
Last year, you and the President complained a lot about congressional
priorities. But your overriding concern seemed to be that they
stick to the numbers, the overall spending numbers. To what
extent is that going to be the case again this year? You know,
for example, if they start passing appropriations bills on the
domestic front that make it clear they're going to go way over
the number on the defense bill, how will you respond to that?
DANIELS: The President respects the role of Congress as
the keeper of the purse, and on matters whether they're budget-oriented
or otherwise, I think you've seen is always open to compromise
said, I think he will adopt much that same posture as to the
$356 billion in the rest of government category. But if there
are attempts to raid defense for lesser priorities, or to raid
homeland security for lesser priorities, then we'll resist that,
and I think pretty strongly.
So I think
that's the difference between last year and a wartime era.
Could you address the Democratic criticism that by maintaining
fidelity to the tax cut, the President is essentially jeopardizing
the Medicare and Social Security trust fund in ways they would
not be, had the tax cut not been passed, first of all? And then,
because there has been some chatter on Capitol Hill about Enron,
I have an Enron question that relates to you, to follow up.
DANIELS: Well, as I told one of your colleagues earlier,
by now its opponents have blamed the tax cut for everything
except mad cow disease. The long-term stability and safety of
Medicare and Social Security really have nothing to do with
tax relief, except that tax relief, by making a strong economy
more likely, is a very good step, if you are worried about Social
Security and Medicare.
up larger surpluses, we don't change anything about the Medicare
or Social Security trust funds. The same number of benefits
go out, as they will this year. Trust funds grow by exactly
the same amount as they would otherwise. And all we do with
that extra money, of course, is pay down more debt. It's a good
idea, but it won't solve the long-term problems of either Social
Security or Medicare.
If we don't
reform those two programs sometime over the next few years when
the post-war generation retires, it won't matter how much debt
we pay down the meantime, we will not be able to borrow our
way or tax our way into keeping those promises. So reform and
economic growth in the meantime are what really matters.
you've got another question.
I have a follow-up. Senator Hollings, just a few moments ago
up on the Hill, in talking about Ken Lay's decision not to testify,
said this is a cash-and-carry government, specifically referring
to the White House and all of its relationships with Enron and
Ken Lay. He mentioned your name specifically as someone who
had been a paid advisor to Enron. I'm not even sure if that's
true, I haven't seen that -- I wanted to give you a chance to
respond. He also mentioned Larry Lindsey and some others.
DANIELS: Oh, thanks. (Laughter.)
There's the softball, Mitch. Please swing.
DANIELS: I was never an advisor at all, never paid at all.
I had nothing to do with Enron, ever. Never discussed Enron's
business with anybody. You know, I ought to say it this way.
I don't think the fact that a big majority of the members of
the Budget Committee on which the Senator sits, took political
contributions from Enron, impeaches their judgment at all. I
don't believe that for a minute. I think it would be nice if
they extended the same courtesy to others.
The President's budget calls for $190 billion for Medicare reform.
Senate Democrats were told it would cost at least $750 billion
over 10 years for just prescription drug benefit. How are you
planning to deal with those numbers?
DANIELS: Well, that's the biggest number I ever heard, and
they used to throw around numbers like $300 billion. Listen,
I can write you a really lousy Medicare reform for any number
you want. The difference between those numbers and the number
that is in the President's suggestion is, his is actually based
on a very carefully thought-out plan that includes prescription
drugs, coverage for drugs, but also reform of the program, which
we desperately need.
is broken. And in many ways, it endangers patients. And it needs
to be fixed. Now, prescription drug coverage is one of its biggest,
perhaps its biggest defect, but it's only one of many. We can
do a very thorough and major improvement of Medicare for about
$190 billion, and we hope that Congress will seriously engage
with us soon, stop just throwing around kind of round numbers
that sound good, that don't have an ounce of real policy behind
In what way does Medicaid and Medicare endanger the patients?
DANIELS: Well, many patients, you know, are seeing multiple
doctors. It's not a system that has a lot of good systems at
work in it, multiple, sometimes, medications, and by patients
who are not under what we would call sort of integrated or comprehensive
like the Federal Employees' program, which is a pretty good
rough parallel for the one that the President's reform recommends,
would lead to more patients in plans where their care would
be monitored from all angles.
I'm going to fumble a little bit with the wording here, but
a lot of the Republicans who are up in the House -- and there's
such a narrow majority in the House right now for the Republicans
-- what are the early comments coming in? I mean, they've been
elected based on balanced budgets and not going into deficit,
and, you know, small government. And now the White House is
coming out with this budget. Are there any early comments or
how is the White House planning on working with these Republicans?
DANIELS: We've spent a lot of time when them in the run-up
to today, including a lot of time at a couple of their sort
of off-campus retreats last week. And the comments are, in general,
very positive. These people, like their Democratic colleagues,
took an oath that starts with preserve and protect the government
of the United States and the people here.
there is a lot of commitment to doing what it takes to win a
two-front war. And they understand that this President is right
with them in his commitment to being careful fiscally, and that
we're going to be careful about spending for things that don't
involve the public safety, and we're going to get back to economic
growth and big surpluses just as fast as we can. And I think
for most of them, that's just what they wanted to know.
one or two. Yes, go ahead.
If House conservatives succeed in their goal to pass a balanced
budget, what does that tell you about their support for your
budget, and is that a split between the House conservatives
and the White House?
DANIELS: I just don't expect -- it's a hypothetical question,
and I think probably a pretty remote one. I think there will
be a lot of support for the direction the President's leading,
and we appreciate their concern that we get back to balance
as soon as possible. And with economic growth, that will happen.