[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
THE PRESIDENT'S BUDGET FOR FISCAL YEAR 2002
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, MARCH 1, 2001
__________
Serial No. 107-2
__________
Printed for the use of the Committee on the Budget
Available on the Internet: http://www.access.gpo.gov/congress/house/
house04.html
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COMMITTEE ON THE BUDGET
JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire JOHN M. SPRATT, Jr., South
Vice Chairman Carolina,
PETER HOEKSTRA, Michigan Ranking Minority Member
Vice Chairman JIM McDERMOTT, Washington,
CHARLES F. BASS, New Hampshire Leadership Designee
GIL GUTKNECHT, Minnesota BENNIE G. THOMPSON, Mississippi
VAN HILLEARY, Tennessee KEN BENTSEN, Texas
MAC THORNBERRY, Texas JIM DAVIS, Florida
JIM RYUN, Kansas EVA M. CLAYTON, North Carolina
MAC COLLINS, Georgia DAVID E. PRICE, North Carolina
ERNIE FLETCHER, Kentucky GERALD D. KLECZKA, Wisconsin
GARY G. MILLER, California BOB CLEMENT, Tennessee
PAT TOOMEY, Pennsylvania JAMES P. MORAN, Virginia
WES WATKINS, Oklahoma DARLENE HOOLEY, Oregon
DOC HASTINGS, Washington TAMMY BALDWIN, Wisconsin
JOHN T. DOOLITTLE, California CAROLYN McCARTHY, New York
ROB PORTMAN, Ohio DENNIS MOORE, Kansas
RAY LaHOOD, Illinois JOSEPH M. HOEFFEL III,
KAY GRANGER, Texas Pennsylvania
EDWARD SCHROCK, Virginia RUSH D. HOLT, New Jersey
JOHN CULBERSON, Texas JIM MATHESON, Utah
HENRY E. BROWN, Jr., South Carolina
ANDER CRENSHAW, Florida
ADAM PUTNAM, Florida
MARK KIRK, Illinois
Professional Staff
Rich Meade, Chief of Staff
Thomas S. Kahn, Minority Staff Director and Chief Counsel
C O N T E N T S
Page
Hearing held in Washington, DC, March 1, 2001.................... 1
Statement of Hon. Mitchell E. Daniels, Jr., Director, Office of
Management and Budget.......................................... 7
Prepared statement of:
Hon. Jim Nussle, a Representative in Congress from the State
of Iowa.................................................... 4
Mr. Daniels.................................................. 10
Hon. Ander Crenshaw, a Representative in Congress from the
State of Florida........................................... 69
THE PRESIDENT'S BUDGET FOR
FISCAL YEAR 2002
----------
THURSDAY, MARCH 1, 2001
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10 a.m. in room
210, Cannon House Office Building, Hon. Jim Nussle (chairman of
the committee) presiding.
Members present: Representatives Nussle, Sununu, Hoekstra,
Bass, Gutknecht, Knollenberg, Thornberry, Ryun, Wamp, Fletcher,
Miller, Watkins, Hastings, Schrock, Culberson, Brown, Crenshaw,
Putnam, Kirk, Spratt, Bentsen, Davis, Clayton, Price, Markey,
Clement, Moran, Hooley, Holt, Hoeffel, Baldwin, McCarthy,
Moore, Capuano, and Honda.
Chairman Nussle. The committee will come to order. Today's
full committee hearing is called the Blueprint for New
Beginnings for the President's Budget for Fiscal Year 2002 to
2011. The witnesses for today's hearings will be Mitch Daniels,
the Director of the Office of Management and Budget, and then
this afternoon at 3 p.m. the Honorable Paul O'Neill, Secretary
of the Department of the Treasury.
I ask unanimous consent that all members be allowed to put
their opening statements into the record. Without objection, so
ordered.
The way we would like to conduct this today is that I have
an opening statement that I would like to make, and then I
would invite John Spratt to make an opening statement, and then
we will get right to the director. We welcome you to the
committee, and we are glad you are here.
Let me begin by saying, first of all, that I am happy today
to accept officially the President's budget. We received it in
speech form, of course, on Tuesday night. We actually received
the copy yesterday, and I pronounce it alive and in excellent
condition, based on my first reading.
I believe that we have a solid foundation to begin this
budget process this year. It is a foundation without, or I
should say, it is a foundation that didn't just start Tuesday
night. Those of us that have been laboring on the Budget
Committee on both sides recognize many of the different
concepts in the budget as the President presented it, both in
speech form as well as written form. We are building on a solid
foundation of success of budgets.
We are now in our fifth straight balanced budget, which,
when I first came to Congress, was something that you almost
could not even believe you could audit. To say that you had 5
straight balanced budgets at that moment in time was something
that no one would have believed.
So we start with a very solid foundation.
The way I like to look at budgets is that we are--I compare
them to if you are going to go out and buy a home, if you are
going to go out and build a home, the first you do is you hire
an architect. An architect comes in and does the blueprint,
does the drawing, the architectural drawing. He does not decide
what the paint color is, certainly doesn't decide the draperies
or the appliances that you are going to put in your home,
doesn't necessarily decide the carpeting or the furniture, but
does decide if you are going to have a one-car or two-car
garage, whether you are going to have a basement or an attic,
what exactly the sizes and dimensions are going to be.
That is what the budget is. No, we don't get into the tall
weeds of the specifics of every single policy decision that
occurs, but the outline and the blueprint is something that has
to be solid, and I believe that what we have received from the
President is a very solid foundation and a very solid budget.
It builds on some success in the area of tax relief. The
Congresses of the last couple of years have provided as much as
$316 billion worth of tax relief to the American people. That
will be built upon in this budget with $1.6 trillion worth of
tax relief, tax relief from a tax surplus for the taxpayers who
created it. In fact, today, as we speak, the Ways and Means
Committee is beginning the process of putting together the
first draft of that tax plan. It is not the entire plan, it is
not the entire portion of the budget as the President suggested
it, but it not only fits within this particular budget, but
interestingly enough, it fits within the current budget, the
work that the Ways and Means Committee is doing.
So we are excited that that is happening so that it can
give a shot in the arm to the economy and give money back to
the people who deserve it.
This budget builds upon further debt reduction. I am
excited to let people know that we have, by the end of this
current budget, been able to pay down the national debt. This
is work that we have already done as a committee. We have been
able to pay down the national debt to the tune of $625 billion.
Again, a concept that when I first ran for Congress and came to
Congress, was unbelieved at that moment in time that we could
even begin to pay down the national debt, and it is something
that will be built upon in this budget with $2 trillion of
additional debt repayment. In fact, debt repayment to a sum
that can be accomplished within the term of this next 10-year
budget.
We are going to be improving Medicare by not only setting
aside all of the Medicare Trust Fund, but we have added,
according to the President's budget, $153 billion over 10 years
for modernization in the prescription drug benefit. We are
building on success in setting aside the Social Security Trust
Fund, again, something that the last 3 Congresses have been
able to do, locking up every penny of what will materialize to
be about a $2.6 trillion Social Security surplus.
But there are some other responsible portions of this
budget that I believe are important to highlight. We are
funding America's priorities and there are a number of them
that we have had discussions and have set as priorities from
this particular committee. National defense, bolstering
national defense, but doing so in a responsible way, not just
throwing money at it, not letting, as the President said, the
money drive the strategy, but first setting the strategy and
doing a top-to-bottom review of the Defense Department before
we do more than just make sure that the quality of life of our
soldiers and sailors is taken care of.
This, I would suggest, is a model that all departments
should consider following, and I would commend to the Director
of the Office of Management and Budget, as he has told me so
many times, that he is going to begin to emphasize the ``M''
word in his title, and one of the ways to do that is to do the
review that is being done in the Defense Department. I would
volunteer the Ag Department as the next likely suspect, Mr.
Director, as the next place that you can go forward and begin
work as a top-to-bottom review. Every department needs that
scrutiny, but coming from farm country in Iowa, I think it is
important for us, as we are sitting on the threshold of a new
farm bill, to consider the Agriculture Department next.
In education, we have some exciting news with not only the
additional funding and flexibility, but the continued priority
from this committee that we have had for special education is
continued in this budget.
There are a number of other items, but let me just
highlight one final one, and that is the emergency reserve
reform that is put in this budget. Particularly after
yesterday's earthquake on the West Coast, we see yet again the
need for this country to budget for national disasters and
natural disasters that we know are going to occur. The
President did not know obviously Tuesday night that there was
going to be a natural disaster on the West Coast, but to step
forward in this budget and to say it is a priority, it is
responsible for us to begin budgeting for natural disasters in
this budget, and I think it is an exciting development, and a
$5.6 billion reserve annually for natural disasters in this
budget I believe is important.
What are the Achilles' heels in this budget? I think the
biggest Achilles' heel in this budget is in spending.
Everything fits right now. We have been able to separate the
entire Social Security Trust Fund, all of Medicare, the tax
cuts fit, the spending in this budget is responsible; it has
increased over the increases of the last number of years, but
as we have all seen, spending increases can wedge out a number
of the other priorities quicker than probably any other item in
the budget.
So I believe our Achilles' heel, if there is one in this
budget, is the desire to spend more money than we have. That is
an area that can get us quickly back to where we found
ourselves.
There is a story that I have heard that I think summarizes
what the American people are going through right now with
regard to their Federal Government that I want to just end
with. It is about a common experience that we probably all have
had, walking late into a 7-Eleven store, pumping the gas into
your car and coming in with a $20 billion and having a $15
billion on your gas tank, coming in and also picking up a candy
bar and a can of pop and going to the checkout counter, handing
the clerk a $20 bill, and what happens? What happens next?
Well, the first thing, she gives you your change. That is the
first thing, because she doesn't think that your overpayment
ought to go into the cash register or ought to be given to the
person behind you in line because maybe it belongs to them
somehow, or save it for maybe your next expenditure, or she
doesn't even put it in her favorite charity and there are many
of them that sit outside the 7-Eleven counter, she gives it
back to you. In fact, in Iowa, maybe even in South Carolina,
she would run out into the parking lot to give you your change,
and just like the President said last night, or 2 nights ago,
the American people want their refund, they want their change
back. They are overpaying their taxes, and they deserve that.
We are meeting the priorities of this country and the
overpayment should go back to the people who pay the bills.
[The prepared statement of Chairman Jim Nussle follows:]
Prepared Statement of Hon. Jim Nussle, a Representative in Congress
From the State of Iowa
Today we begin the process of writing the budget for the United
States Congress and ultimately for the American people. Our budget will
serve as a blueprint to guide us through the decisions throughout this
budget cycle. When you think of a blueprint, you think of the document
produced by and architect that will tell you the basic design of the
house, the overall square feet of the house and where the interior
walls will go. Similarly, our budget blueprint will tell us the overall
size of our government and the priorities of the Federal Government.
I believe the first and most important step in writing a budget is
to listen. I spent a considerable amount of time in my congressional
district in Iowa last month listening to my constituents on what their
priorities are for this budget. You know, I get my best ideas directly
from my constituents. It was Iowans who sent me to Washington to
balance the Federal budget. It was Iowans who told me to help stop the
raid on the Social Security system to pay for other government
spending. It was Iowans who told me to reform Medicare and provide a
prescription drug benefit. And it was Iowans who told me our tax code
is too burdensome and too costly.
This week we listened to our new President in an address to the
Joint Session of Congress outline his budget priorities for the next
decade. The President told us his budget would be a responsible budget
that restrains the recent rapid growth in spending. The President
outlined an ambitious plan to virtually wipe out our national debt over
the next 10 years. The President told us that he wants Congress to fund
such critical priorities as improving our educational system,
rebuilding our military and meeting critical health care needs. The
President also said we are overcharging the taxpayers for these
government services and that we ought to return a portion of the tax
surplus to those who created it- the American taxpayers.
I've also spent a lot of time over the past several weeks listening
to my colleagues in the Congress to learn their priorities for the
Federal budget. Like me, my colleagues in Congress from around the
country have spent time in their congressional districts listening to
the priorities of their constituents.
Today our committee will hear the testimony of the President's
Director of the Office and Management and Budget, the Honorable Mitch
Daniels. Director Daniels will provide us with an overview of the
entire budget submitted by President Bush and answer any questions we
may have about this proposal. I want to thank Director Daniels for
taking the time to appear before our committee.
Additionally over the next several weeks, I intend to call before
this committee members of the Bush Administration to discuss the
portions of the budget under their jurisdiction. To date, we have
schedules Secretaries Thompson, Paige, Veneman and Powell. We will also
hear testimony from outside witnesses who are experts in the
corresponding fields.
When it comes to writing this budget, we are continuing the good
work this Congress has done in recent years. While our budget is not
yet written, we do know some of its key elements. Most importantly, our
budget will be the fifth consecutive balanced budget. When I first ran
for Congress, no one thought we could achieve a balanced budget in 1
year let alone 5 in a row. Our budget will continue to pay down the
national debt and add to the more than $625 billion of debt we've
already retired. Our budget will return a portion of the tax surplus to
the American people and add to the more than $300 billion in tax relief
we've already provided since 1997. Finally, our budget will continue to
lock away every penny of Social Security as we have since 1998.
As we move through this process of writing the budget, I want to
make sure we continue this important dialogue. I will keep listening to
my constituents, my colleagues on both sides of the aisle and our
President and his cabinet. I believe this process will result in a
budget that reflects America's priorities, a budget that is real and a
budget that this committee can help enforce throughout the year.
Chairman Nussle. With that, let me recognize my good friend
and colleague, the gentleman from South Carolina and the
Ranking Member of the committee, John Spratt.
Mr. Spratt. Thank you, Mr. Nussle. Let me say on behalf of
my side that we are looking forward to working with you as
Chairman of the committee and congratulate you on your
ascension to this position. Mr. Daniels, we look forward to
working with you, too. We appreciate your coming this morning.
We look forward to a long and fruitful relationship.
We have your budget, so-called, but everybody knows who has
dealt with this budget before that this represents about 10
percent in volume and backup and detail of the real budget, and
so there are a lot of things we can't know until we see the
full budget. We have done the best we could to understand from
this booklet, and I know for you, having been on board just a
matter of weeks, it has been a mighty struggle to get this
done, and we appreciate that.
We are concerned, though, for a couple of reasons. First of
all, this is more than just your typical marginal budget year
where we do some puts and takes. We have surplus projections
now that will almost sweep you off your feet. We have to make
decisions in this budget which will have major implications for
priority allocations throughout the next 10, 15, 20 years,
profound consequences for the future of this country. That is
why we think this ought to be done with profound deliberation,
and we are distressed to know that as we meet today, as we
speak, the Ways and Means Committee is marking up rate cuts
that the President has proposed, the better part of his tax
package, even though we on this Budget Committee have not yet
even scheduled a markup of the budget resolution.
Now, the Chairman spoke about the importance of the budget
process, which began in 1974. We tried then to bring some
coherence to the manner in which Congress appropriates money
and raises revenues, and we said before we undertake to do
either one, we should have a blueprint, we should have an
outline, we call it a budget resolution, and 303(a) of that
budget resolution says that until a budget resolution is passed
for a certain fiscal year, the Congress of the United States,
the House of Representatives in particular, shall not adopt or
consider, bring up any kind of legislation that provides for an
increase or decrease in revenues during the fiscal year covered
by that particular budget.
So it looks like the first thing we are going to do out of
the starting box is defy the most basic provision of the basic
budget law that we are governed by and get the cart ahead of
the horse by considering tax cuts before we have really
considered the budget as a whole, and that is one point I want
to emphasize.
The tax cut proposal you are making is important. There is
a strong case to be made for the American people to get back a
large percentage of what they have been paying as excess to the
government's immediate needs. There are a couple of things,
though, that we would like to say about that.
First of all, these surpluses are projections, and we
shouldn't be swept away by them. Seventy-two percent of the on-
budget surplus that is projected for the next 10 years occurs
in the second 5 years of that 10-year period. They may or may
not pan out. Let us hope they do.
Secondly, we shouldn't delude ourselves or the American
people, because while we sit now on an island of surpluses, we
are surrounded by a sea of debt. There is $5.7 trillion in
statutory debt owed to all accounts, all people and purposes
accumulated over the last 30 or 40 years, and in the
foreseeable future, when the baby boomers begin to retire,
long-term liabilities, as I think you and all of us would have
to honestly agree, we haven't yet adequately provided for. So
we are surrounded by this sea of debt, and we shouldn't get
deluded into thinking that the surpluses we have now are a
permanent state of our condition. Indeed, God has given us 10
years to get ready for the retirement of the baby boomers and
if we don't do it, we will be held accountable by our children
for when we sloughed off on to them the responsibility for
bearing the burden of their retirement.
So that is one of the high callings that we have in the
budget process this year. It is not just to look at the
immediate gratification, but at the long-term needs of this
country. We couldn't do it in the past. We had huge deficits we
were coping with and struggling with. We didn't have the
opportunity to do it. Now that we have the opportunity and the
wherewithal to do it, we have the moral duty to do it as well.
The way we do it is by looking at the budget as a whole, and
the way we proceed is not by ramming this process through, but
by doing it very, very deliberately.
There are certain things in your budget that give me pause.
I am glad to see you say in the final couple of chapters that
you think we need to keep a pay-go rule, you think we need to
impose discretionary spending ceilings, and I agree with you. I
think we need those disciplines. They have helped us get from a
deficit of $290 billion in 1992 to the surpluses we have today.
You don't specify exactly how that is to be done.
One of the devices that we have developed over the last
couple of years between ourselves, both Houses and both parties
have agreed, that we would take the surpluses in Social
Security and Medicare, the HI trust fund, a statutorily created
trust fund, we would take those surpluses and not invade the
surplus and use it to fund government spending, but use it
solely and only to buy up outstanding debt and add to the
national savings. You are proposing something pretty
revolutionary, something that departs from an agreement that we
have reached in the House and the Senate, and a bill that we
had on the House floor only a couple of weeks ago, brought to
the House floor by the Republican leadership who bypassed this
committee because they thought it was so impossible, and that
was a lockbox for Social Security and Medicare. Now you are
saying we should abound in that particular discipline at least
with respect to Medicare. I think you need to bear the burden
of explaining and defending that to us today.
I have other things to say, but I have questions to ask as
well. I am just being a good adversary and a hard-hitter. We
will expect good answers from you, but we also expect to work
with you in all good faith to get this job done.
Mr. Daniels. Thank you, Congressman.
Chairman Nussle. Thank you, Mr. Spratt.
Before we begin, let me just say as well that when we first
met with Director Daniels and projected the time line for
submission of the budget document, there was a lot of concern
whether or not that could be met. The budget director, of
course, very prudently suggested, with the truncated transition
and everything else that was going on, that he wanted to be
realistic about it and I said, well, from our standpoint, we
really hope that the President could meet the deadline of
submitting this first document; interestingly enough, a
document that is very similar to the one that was presented by
President Clinton in 1993, President Bush in 1989, President
Reagan in 1981. It is, in fact, more detailed than those
previous submissions.
I want to compliment you not only on the detail, but on
your timeliness. You have met the deadlines, arbitrary as they
were, and I compliment you on the work that you have done with
all of our members in answering our questions throughout this
period of time. We look forward to that today, and I invite you
now to testify. Your entire statement will be submitted for the
Record, but you may proceed as you see fit. Welcome to the
committee.
STATEMENT OF THE HONORABLE MITCHELL E. DANIELS, JR., DIRECTOR,
OFFICE OF MANAGEMENT AND BUDGET
Mr. Daniels. Mr. Chairman, thanks to you and to Congressman
Spratt and to all of the members of the committee for their
hospitality. I will accept your gracious compliments only in
the name of the people with whom I work, including the
matchless career professionals at OMB, in my judgment, the
finest civil servants the Federal Government has to offer.
I will read excerpts from the testimony I have submitted,
and then gladly engage in the question and answer session with
you.
It is a privilege to be afforded this opportunity to
present on behalf of President Bush his proposed budget for
fiscal year 2002. We earnestly hope that today marks the first
step in producing a good product through a good process: A
sound, responsible budget that matches the Nation's means to
its goals and needs, and a process of cooperation and
constructive give and take that conducts the public's business
in an orderly and admirable manner.
His proposal used as starting points a few basic
principles. First, the conviction expressed by the President 2
nights ago that our national government should be active, but
limited. Accordingly, we are proposing that discretionary
spending continue to grow, but at a more moderate rate than in
the last few years. The President, by offering up his
priorities and policy choices, means to start a healthy debate
about how much to spend on what, and he recognizes that
Congress will have its own, often very different ideas, but he
believes firmly that the total spent must be limited to the
amount he has recommended.
Second, the idea that the budget should become more
transparent and honest than its recent predecessors. We propose
to limit tactical circumventions such as advance appropriations
and bogus emergency spending that has served to evade legal
expenditure limits and to confuse the public about how much its
government is actually spending.
Lastly, the commitment to match the openness and
responsibility we urge on Congress with integrity in the
crafting of our own proposal. We have attempted to ensure that
the assumptions and the data underlying our budget are as
prudent and justifiable as we believe the use of each taxpayer
dollar should be. We have tried to resist the trap of false
precision and provided ample room for the many large
uncertainties that face us in planning for so many dollars over
so many years.
With that preface, let me summarize the proposal. The
President proposes an overall discretionary spending level for
2002 that is reasonable, but restrained. It contemplates
spending growth of 4 percent over 2001, amounting to $26
billion in new budget authority. Four percent is more than the
average American's budget will grow this year, but it is ample
to maintain and extend the useful activities of the Federal
Government.
The reasonableness of this recommendation becomes even more
clear in the context of the recent run-up in Federal spending,
what the Nation's press has variously characterized as a spree,
a binge and an explosion. Discretionary spending has grown by 6
percent per year on average for 3 years, and by 8 percent last
year alone. Taken together, these budgets added $200 billion to
spending above the caps Congress had set for itself. Extended
over 10 years, the next 10 years, continued spending growth at
this 6 percent spree level would add $1.4 trillion in new
spending above and beyond inflationary growth. Thus, the
President's 4 percent proposal comes on top of the largest
spending base in U.S. history.
Three years of large increases have raised the base of
discretionary spending from $534 billion to $635 billion, and
every department of the government has shared in the picnic. In
fact, even after some agency budgets were held steady or even
reduced somewhat to accommodate the President's new priorities,
every department of government will be larger today, often much
larger, than 2 or 3 or 4 years ago. Every department will show
a healthy average increase for the last 4 years, taken
together.
It has become clear that this new era of surpluses is more
dangerous to the taxpayer than the preceding era of large
deficits. Today's situation calls for more, not less,
leadership, from both the executive and legislative branches,
if fiscal health is to be preserved.
A principal goal of this President and his budget is
dramatic reduction of the national debt. We have embarked on an
historic reversal of the longtime trends of greater levels of
Federal indebtedness with this year's reductions totally well
over $220 billion. The President's budget aims to carry this
program of repayment forward at unprecedented rates. Over the
next 5 years, up to $1 trillion of debt can be repaid with
another $1 trillion or more in the 5 years after that. This
amounts to all the debt that matures in that time period,
essentially all the debt it is financially practicable to
repay. It will bring national debt down to its lowest levels in
a century, drop interest costs from their recent level of 15
cents of the Federal dollar to a mere 2 cents, and bring the
Nation within a few years of total debt elimination.
The President's course toward debt elimination will require
both skillful cash management and fiscal policy. The enormous
surpluses of the years ahead raise the prospect that extra
revenues will exceed retirable debt and lead to the amassing of
large cash balances in government hands and, consequently,
their investment in private assets. In the administration's
view, government ownership of a large piece of the economy is
unacceptable on principle as a threat to freedom and
unacceptable economically as a sure source of inefficiency. We
would hope that this conviction is shared unanimously by the
Congress.
The President's budget, by definition, expresses his
priorities for America. Coming as his first budget submission
following a national political campaign, it incorporates the
commitments he made during that effort. The outlying document
we delivered to the Congress this week sets forth those
initiatives, which I believe have been much discussed and I
will not elaborate further until I receive your questions.
In the new era of surging surpluses, Congress has become
increasingly casual about using devices for escaping the tight
discipline of its self-imposed caps. For instance, it has
become common for the President and Congress to seize on
emergencies or even to declare one where none arguably exists
as an opportunity to pass massive supplemental spending bills.
In the last 3 years, extra spending totaling over $80 billion
has been passed in this way. In 2000 alone, the bill grew to
$46 billion.
Unforeseen emergencies requiring Federal resources will
occur in almost any given year. Pretending they will not and
then adding billions in nonemergency spending when the
inevitable flood, hurricane or crisis does happen is not good
practice. I thank the Chairman for taking note of a remedy or
partial remedy that we have proposed in our budget in the form
of an emergency reserve fund.
The case has been forcefully made by advocates in both
parties that the decade ahead or any like period cannot be
predicted with great confidence. Factors affecting both the
income and outlay sides of the budget sheet can and do shift in
large and often sudden ways. The administration agrees with
this concern and seeks to address it in the long term outlook
of this budget by reserving an enormous sum, fully one-third of
the entire on-budget surplus, for those contingencies that may
arise and those new needs on which the Nation may agree.
It is often pointed out that the over $5 trillion in
expected surpluses on which at present all estimates concur may
not come to pass. Of course, this is almost axiomatic when
short-term forecasts are so rarely on target. The public
discourse is dominated by worries that the actual surpluses
will fall short of the estimates, and this a natural reaction
to the novelty of massive surpluses after a long era of
deficits.
But the data suggests strongly that it is at least as
likely that total surpluses, before policy changes, will come
to more, not less, than today's projection. Along with
forecasting risks, significant uncertainties attach to major
program areas. The best example is national defense where most
observers agree with the President that a fundamental review of
both strategy and needs is urgently needed.
A thorough and honest assessment is now underway led by
Secretary Rumsfeld, and will require some time to complete. No
one can know its outcome as to dollar requirements. It can
range from today's spending levels to amounts substantially
higher. Attempts to maintain farm income, particularly among
smaller producers, have consumed some $21 billion in the last 3
years alone. Again, the exact amounts in the future that may be
spent above today's baseline levels are unknowable. For these
and other reasons, the administration will set aside nearly $1
trillion of the projected surplus as protection against
contingencies and as a reserve for any future spending above
the baseline. The first $153 billion of this fund is targeted
for Medicare reform, including the opportunity for every
Medicare recipient to have access to prescription drug
coverage.
Especially in view of the many large upside unknowns that
could enlarge the available funds, it is clear that the budget
reserves are more than an adequate sum to manage the
unavoidable uncertainties ahead. The most likely eventuality is
that at some future point, Congress will face another moment at
which it becomes obvious that the government is vastly
overfunded, that taxpayers are being overcharged, and that they
should be allowed to keep more of their earnings.
The last part of the President's budget is, of course, his
plan for tax relief. I will not repeat either the tenets or the
arguments for that plan; both are well-known and those
arguments, of course, will continue. I will simply call to the
committee's attention that after growing government spending at
moderate rates, paying down a record amount of the national
debt, fully protecting Social Security funds, and providing tax
relief to working Americans, fully 15 percent of the surplus
remains uncommitted. Given the security of this reserve,
continuing to extract money from workers at today's levels of
taxation would be as unfair as it is unnecessary.
I thank the committee for its hospitality and will welcome
your questions.
Chairman Nussle. Thank you, Director Daniels.
[The prepared statement of Mitchell E. Daniels, Jr.
follows:]
Prepared Statement of Hon. Mitchell E. Daniels, Jr., Director, Office
of Management and Budget
Thank you, Mr. Chairman, it's a privilege to be afforded this
opportunity to present on behalf of President Bush his proposed budget
for fiscal year 2002. We earnestly hope that today marks the first step
in producing a good product through a good process: a sound,
responsible budget that matches the nation's means to its goals and
needs, and a process of cooperation and constructive give-and-take that
conducts the public's business in an orderly, admirable manner.
This proposal took as its starting points a few basic principles.
First, the conviction, expressed by the President Tuesday night,
that our national government should be active but limited. Accordingly,
we are proposing that discretionary spending continue to grow, but at a
more moderate rate than it has in the last few years. The President, by
offering up his priorities and policy choices, means to start a healthy
debate about how much to spend on what, and he recognizes that Congress
will have its own, often different ideas, but he believes firmly that
the total spent must be limited to the amount he has recommended.
Second, the idea that the budget should become more transparent and
honest than its recent predecessors. We propose to return to the spirit
of the Budget Enforcement Act, by working with Congress on a budget
that sets actual limits on spending, followed by appropriations bills
that conform to those limits and pass in a timely fashion. We propose
to limit tactical circumventions, such as advance appropriations and
bogus emergency spending that has served to evade legal expenditure
limits and to confuse the public about how much its government is
actually spending.
Lastly, the commitment to match the openness and responsibility we
urge on Congress with integrity in the crafting of our own proposal. We
have attempted to ensure that the assumptions and data underlying our
budget are as prudent and justifiable as we believe the use of each
taxpayer dollar should be. We have tried to resist the trap of false
precision, and provided ample room for the many large uncertainties
that face us in planning for so many dollars over so many years.
With that preface, let me summarize the proposal we lay before this
committee and the American people beginning today.
ii. reasonable but restrained
The President proposes an overall discretionary spending level for
2002 that is reasonable, but restrained. It contemplates spending
growth of 4 percent over 2001, amounting to $26 billion in new budget
authority. 4 percent is more than the average American's budget will
grow this year, and is ample to maintain and extend the useful
activities of the Federal Government.
The reasonableness of this recommendation becomes even more clear
in the context of the recent runup in Federal spending. In what the
nation's press has variously characterized as a ``spree'', a ``binge'',
and an ``explosion'', discretionary spending has grown by 6 percent per
year on average for 3 years, and by 8 percent last year alone. Taken
together, these budgets added $200 billion to spending above the caps
Congress had set for itself. Extended over 10 years, continuing
spending growth at this 6 percent ``spree'' level would add $1.4
trillion in new spending above and beyond inflationary growth.
Thus, the President's 4 percent proposal comes on top of the
largest spending base in U.S. history. Three years of large increases
have raised the base of discretionary spending from $534 billion to
$635 billion, and every department of the government has shared in the
picnic. In fact, even after some agency budgets were held steady or
even reduced somewhat to accommodate the President's new priorities,
every department of government will be larger today, often much larger,
than 3 years ago. Every department will show a healthy average increase
for the last 4 years taken together.
It has become clear that this new era of large surpluses is more
dangerous to the taxpayer than the preceding era of large deficits.
Today's situation calls for more, not less, leadership from both the
executive and legislative branches if fiscal health is to be preserved.
In addition to insisting on a reasonable overall lid on spending this
year, the President believes that a new set of caps or other limits
must be negotiated between the administration and the Congress for the
years ahead.
iii. debt reduction
A principal goal of this President and his budget is dramatic
reduction of the national debt. We have embarked on an historic
reversal of the long-time trend to greater levels of Federal
indebtedness, with this year's reductions totaling well over $220
billion.
The President's budget aims to carry this program of repayment
forward at unprecedented rates. Over the next 5 years, over $1 trillion
of debt will be repaid, with another trillion or more in the 5 years
after that. This amounts to all the debt that matures in that time
period, essentially all the debt it is financially practicable to
repay. It will bring national debt down to the lowest levels in a
century, drop interest costs from their recent level of 15 cents of the
Federal dollar to a mere 2 cents, and bring the nation within a few
years of total debt elimination.
The rapid retirement of our national debt will soon raise
intriguing practical problems never before contemplated. Are we
prepared to terminate the U.S. Savings Bond program? The programs where
states and localities temporarily house their bond issue proceeds? What
premiums, if any, is it smart to pay to induce bondholders to turn in
their securities ahead of time?
The President's course toward debt elimination will require both
skillful cash management and fiscal policy. The enormous surpluses of
the years ahead raise the prospect that extra revenues will exceed
retireable debt and lead to the amassing of large cash balances in
government hands, and consequently their investment in private assets.
In the administration's view, government ownership of a large piece of
the economy is unacceptable on principle, as a threat to freedom, and
unacceptable economically, as a sure source of inefficiency. We would
hope that this conviction is shared unanimously by the Congress.
iv. new priorities
The President's budget, by definition, expresses his priorities for
America. Coming as his first budget submission following a national
political campaign, it incorporates the commitments he made during that
effort. The outline document we delivered to the Congress this week
sets forth these initiatives with, I hope, sufficient clarity, and I
will highlight only a few this morning:
Education. The budget increases discretionary spending in
the Education Department by 11.5 percent, the largest increase of any
Department, with a particular focus on achievement, accountability,
math and science, and reading.
Defense. It increases defense spending $14. 2 billion,
devoting additional resources to a pay raise, other quality of life
improvements, and R&D.
Medical R&D. It increases NIH by $2.8 billion, the largest
increase in its history, toward the goal of doubling its budget.
Veterans. It increases Veterans' discretionary spending by
$1 billion.
Conservation. It fully funds the Land and Water
Conservation Fund, for the first time, at $900 million and increase
National Parks funding by $100 million this year as a down-payment
toward the elimination of its deferred maintenance backlog.
v. budgeting with the cards face up
In the new era of surging surpluses, Congress has become
increasingly casual about using devices for escaping the tight
discipline of its self-imposed caps. For instance, it has become common
for the President and Congress to seize on emergencies, or even to
declare one where arguably none exists, as an opportunity to pass
massive supplemental spending bills. In the last 3 years, extra
spending totaling over $80 billion has been passed in this way; the
2000 bill alone grew to $46 billion.
Unforeseen emergencies requiring Federal resources will occur in
almost any given year. Pretending that they will not, and then adding
billions in non-emergency spending when the inevitable flood,
hurricane, or crisis does happen, is not good practice.
The President's budget proposes to plan for such contingencies in
the same common sense way that any business would, by setting aside a
reasonable sum for emergency purposes, to be drawn on when legitimate
crises occur. The National Emergency Reserve will be funded with $5.6
billion, an amount equivalent to the historical annual average for such
events. Should true emergency needs for 2002 exceed that figure,
supplemental spending would, of course, remain an option, but given a
typical year, the nation would have provided responsibly in advance for
unanticipated problems, and reduced the likelihood of runaway
``Christmas tree'' legislation.
Similarly, the practice of ``advance appropriations'' has spread
rapidly in recent years. This funding beyond the next fiscal year
likewise has been a means of caps evasion, and has tended to obscure
the real amount of spending taking place in a given year. The Budget
proposes to limit this practice to its proper purposes, primarily the
spreading of funding for large-scale capital projects, as opposed to
routine governmental activities.
Again, the fundamental improvement would simply be to return to the
kind of budgeting familiar to every American business or family, by
determining clearly in advance the total amount that it is prudent to
spend, then debating the best allocation of those funds, and then
making sure to live within those limits through the end of the fiscal
year.
vi. prudence about uncertainties
The case has been forcefully made by advocates in both parties that
the decade ahead, or any like period, cannot be predicted with great
confidence. Factors affecting both the income and outlay sides of the
budget sheet can and do shift in large and often sudden ways.
The administration agrees with this concern, and seeks to address
it in the long-term outlook of this budget by reserving an enormous
sum, fully one-third of the entire on-budget surplus, for those
contingencies that may arise, and those new needs on which the nation
may agree.
It is often pointed out that the over $5 trillion in expected
surpluses on which, at present, all estimates concur, may not come to
pass. Of course, this is almost axiomatic, when even short-term
forecasts are so rarely on target.
The public discourse is dominated by worries that the actual
surpluses will fall short of the estimates, and this is probably a
natural reaction to the novelty of massive surpluses after a long era
of deficits. But the data suggest that it is at least as likely that
total surpluses before policy changes will come to more, not less than
today's projection.
The pattern of recent years has been for all forecasters to
severely underestimate Federal revenues, by amounts as high as $80
billion in a single year. This has not been principally a function of a
strong economy, but rather of persistent underestimates of revenue
growth compared to GDP growth. Looking forward, consistent with our
attempt to utilize conservative budgeting assumptions, OMB has forecast
this critical variable at levels well below its long-term historical
average.
Also overlooked in most commentary about the amount of the
aggregate surplus is the opportunity for the Federal Government to
begin joining the rest of society in demonstrating real productivity
improvement. Hundreds of billions of dollars of efficiency savings are
clearly possible across the Federal structure. Here, too, we have made
the most cautious assumption and projected zero progress. We should
cooperate to pursue these savings with all the vigor with which we
contest our policy differences, and I hope the Congress will join the
administration in a sustained, sincere effort to capture them, and add
them to the available surplus funds.
Along with forecasting risks, significant uncertainties attach to
major program areas. The best example is national defense, where most
observers agree with the President that a fundamental review of both
strategy and needs is urgently needed.
A thorough and honest assessment is now underway led by Secretary
Rumsfeld, and will require some time to complete. No one can know its
outcome as to dollar requirements; it could range from today's spending
levels to amounts substantially higher.
Attempts to maintain farm income, particularly among smaller
producers, have consumed some $21 billion in the last 3 years alone.
This is a troubling trend and a major problem that the Congress will
confront soon, both as to this planting season and as to the years
ahead through a new Farm Bill. Again, the exact amounts that may be
spent above today's baseline levels are unknowable.
For all these and other reasons, the administration will set aside
nearly a trillion of the projected surplus as protection against
contingencies and as a reserve for any future spending above the
baseline. The first $153 billion of this fund is targeted for Medicare
reform.
Especially in view of the many large upside unknowns that could
enlarge the available funds, it is clear that the budget reserves a
more than adequate sum to manage the unavoidable uncertainties ahead.
The most likely eventuality is that, at some future point, Congress
will face another point at which it becomes obvious that the government
is vastly overfunded, that taxpayers are being overcharged and should
be allowed to keep more of their earnings.
The last part of the President's budget is, of course, his plan for
tax relief. I will not repeat either the tenets or the arguments for
the plan; both are well known. I will simply call to the committee's
attention that, after growing government spending at moderate rates,
paying down a record amount of national debt, fully protecting Social
Security funds, and providing tax relief to working Americans, fully15
percent of the surplus remains uncommitted. Given the security of this
reserve, continuing to extract money from workers at today's levels of
taxation would be as unfair as it is unnecessary.
I thank the committee for its hospitality and am prepared to answer
your questions.
Chairman Nussle. My first question goes to the subject of
economic forecasting. One of the statements you made in your
testimony is that, of course, these surpluses are based on that
forecast. How accurate should we consider those forecasts? How
pessimistic are they compared to other forecasts? What comfort
level can you give us with regard to these forecasts? Because
we all know that unfortunately, they are never correct. Much
like the weather report for tomorrow or even next week. It
seems like the Farmer's Almanac gets it right for years in the
future, but for some reason, the weathermen can't get it right
for the next day. But how much comfort can we have in these
forecasts, and why?
Mr. Daniels. Mr. Chairman, I will say I did check the
Farmer's Almanac, first for future GDP forecasts, and
regrettably they are not issuing them, so we had to do our
best.
Obviously, no one can know the future. Certainly not 10
years out. This administration did not invent the convention of
trying to forecast 10 years out. For their own good reasons,
the Congress and past administrations agreed to make that
attempt, and so we honor that. What I can say about that
assumption and other key assumptions is that we have tried to
err on the side of caution and prudence and in contrast to
previous budgets of both political parties, I should say, that
took an optimistic view, at least versus the consensus of their
day.
Our long-term economic forecast is under the blue chip
consensus and consistent with that of CBO. That doesn't mean
that all forecasts cannot be wrong, they could be; only that we
have tried to lean to the side of conservatism. I would also
invite the committee to read those sections of the budget that
treat with an even more powerful assumption in any budget,
dealing with the amount of revenue growth compared to whatever
the level of economic growth turns out to be.
This has been the source of the enormous underestimation of
revenue that has led to the surprising gusher of recent years,
and here, too, we have made, I must say, pessimistic
assumptions about the amount of revenue that is likely to come
in. I will be glad to go through those in detail if any member
should want, but let me just say this--if the revenue growth in
the future simply matched its historical average, simply
matched its 40-year historical average which we forecast it
will not do, although it has for the last 9 straight years, if
it did that, this surplus would grow by $2 trillion.
Chairman Nussle. It has been a goal of mine and a number of
members in a very bipartisan way here on this committee to
reduce the national debt, reduce the debt held by the public.
We have been able to, as I said in my statement as a committee
and as a Congress, accomplish that, to the tune of about $625
billion as of the budget that we are currently operating in.
I want to pay down more debt, and you hold that at about $2
trillion in this particular budget. Why? You mentioned
financially practicable. How much debt is appropriate for our
country to be holding in the opinion and advice of the people
that you work with, in your opinion, and how is that met with
the challenge of the budget that you have presented?
Mr. Daniels. We propose to pay down all the debt that is
fit to pay, I would say if The New York Times is here, and that
is a little over $2 trillion by our estimate that will mature
between now and 2011. That will drive, as I mentioned, the
national debt to levels as a percent of GDP to levels we have
not seen since the 19 teens and rarely seen in American
history.
The interest-carrying cost on the Federal Government, as I
believe I mentioned, would be slashed from its recent level of
14 cents or about a dime today to less than 2 cents. This is a
tremendous achievement for which both political parties,
particularly in the last few years of this--the last few
Congresses deserve, I would say, each party deserves great
credit.
It may be possible to go slightly beyond $2 trillion. In
part, this depends on whether--how the Treasury decides to
manage its cash flow over the next few years. At some point
soon, within a few years, it will no longer make any sense for
them financially or mechanically to continue issuing, for
instance, the 10-year security, which is the benchmark for
financial markets today. It may be possible, on a very limited
basis, to buy in some of the debt before it comes due, but not
on any extensive basis. It has been done so far to the tune of
a fraction of 1 percent of what is outstanding, but as is
widely acknowledged and as Chairman Greenspan pointed out, you
cannot engage in that on a long scale for very long until you
begin paying unwarranted, unacceptable penalty premiums to the
bond holders who will, quite naturally, demand a risk premium
before they will turn over their security ahead of time and
have to reinvest that money in something less secure.
By our estimates, to bring in the remaining debt, that is,
that has not matured by 2011, would call for something like
$150 billion of what I would call wasted premium payments.
These payments would flow to the bank of Japan, to the Bank of
England, to wealthy bond holders. No administration of either
party is going to do that. And what we should be doing instead
is bringing down our debt at the maximum practical rate and
celebrating that enormous success to which, as I said, both
parties have contributed.
Chairman Nussle. Spending in the last Congress, as you know
and as you reported in the nondefense discretionary category,
rose 14 percent and, overall, 8 percent. You mentioned that we
not only cannot sustain that, an opinion that I think I share
and members of both parties share, but in order to hold the
line on spending, in order to hold the line that you have drawn
at 4 percent overall and in order to accomplish that, we are
going to need a partner down in the White House in order to
accomplish that enforcement. It is a partnership that also has
responsibilities here on Capitol Hill. We write the rules, we
can change the rules, so all of the rules that we have are
somewhat arbitrary and therefore flexible.
What commitment are you aware of that the President is
willing to make if we are willing to make the commitment of
writing the budget within this, within this framework or at
least within a small fraction of this framework? What
commitment can we have from the administration with regard to
their willingness to provide enforcement, possibly even as much
as a veto pen, in order to hold the line on spending?
Mr. Daniels. The President's commitment to this level of
spending is pretty firm, and many members of both parties have
had the chance to inquire of him about that over these last few
weeks. I will say that I think we earnestly hope that it never
comes to that. We have brought what we believe is a reasonable
proposal, not for freezes, not for rollbacks; we have not
challenged, on some large scale, the spending of the last few
years. We recognize that some of it was deferred needs, and
much of it undoubtedly could be viewed as a backlog.
The question is, what do we do going forward? We sincerely
tender our proposal to this committee and to the entire
Congress as a constructive and reasonable proposal, somewhat
more moderate in its growth rates than the last few years, a
genuine effort not to throw up some artificial bargaining
number, but to establish a number that we think matches the
Nation's needs with long-term prudence.
So we hope to have a good debate. We know a good debate
will ensue about which priorities will be funded, and the
President is a practical person who knows it is unlikely he
will succeed in every particular, but he is sincere about the
total number, and we hope we have offered a total number that a
majority will find reasonable.
Chairman Nussle. Thank you. Before I turn to my friend, Mr.
Spratt, let me just report to him as well as to the rest of the
members that in a perfect world and in a perfect growing
economy, I would have made a different recommendation to the
leadership and to the Ways and Means Committee with regard to
moving a tax bill. It would have been nice in a perfect world
and a perfect economy to wait until a budget is completed in
order to lay that completely in line. That is not what we are
facing right now, as we all know.
So as a fall-back position I suggested that it needs to be
within the framework of what we are currently operating under
in the current budget, which it does. Therefore, I thought it
was appropriate, and it is appropriate under the same effects,
303, for the Ways and Means Committee to proceed with a tax
bill, particularly since we all know it won't actually arrive
at the President's desk before we have a budget and we have
reconciliation instructions, because the Senate has a little
bit different problem than we have here in the House with a 50-
50 split.
So yes, as a Ways and Means Committee member and as
somebody who is concerned about the budget process, I, too, in
a perfect situation, would have said it would have been nice to
wait for that. We can't wait. We need to send strong signals
now and get the work moving on the tax bill, and that is why I
felt it was important for us to suggest that they continue.
Just as a way of an answer to one of your questions, I thought
I should at least report that.
Mr. Spratt.
Mr. Spratt. Well, I appreciate your position, but as a
matter of budget law, black letter law section 303 is pretty
clear and unequivocal. The tax bill shouldn't come to the Floor
before the budget resolution. There may be tactical reasons,
political reasons, other reasons for doing it, but so far as
the budget process and the black letter law is concerned, it is
a violation of the Budget Act.
Chairman Nussle. Would you yield?
Mr. Spratt. Yes.
Chairman Nussle. Doesn't it also allow, though, if the tax
bill number and if its ramifications are in this current year,
that the current budget does control the--under that same
section, under the black letter of the law?
Mr. Spratt. As I read it, if the fiscal year covered by our
budget resolution, if revenues in that year are reduced, then
we have to have a budget resolution before we have a tax bill.
That is section 303.
Chairman Nussle. Right. But the current budget that we are
operating under, that we adopted as of the last Congress is
controlling, unless or until there is a new budget, and as long
as that is within that number, that is at least my
understanding, according to the legal beagles that we checked
with, that is appropriate, according to the black letter of the
law.
Mr. Spratt. Well, I don't think we need to have this--but
the reconciliation provisions in the last year's budget
resolution are way exceeded by the tax bill you are talking
about, I believe.
Chairman Nussle. Except that we didn't get any--we provided
for an adjustment in that bill that allowed for the update, the
updates that have occurred that occurred last August, that is
part of the budget as well.
Mr. Spratt. In the July update.
Chairman Nussle. July. And that still fits.
Mr. Spratt. Not the January update. They give you another
billion dollars.
Chairman Nussle. No, no, but it still fits within the July
update.
Mr. Spratt. All right.
Chairman Nussle. Thank you.
Mr. Spratt. I still maintain my position, but let us get on
with the hearing.
Chairman Nussle. Yes. That was fun.
Mr. Spratt. Once again, Mr. Daniels, thank you for your
testimony.
Let me show you the way we put your budget together using
your numbers. We did this yesterday, and we are using the
numbers that are in this budget booklet you sent to us.
Your estimate is at the total unified surplus, all accounts
of the budget will be $5,644,000,000, and that is $34 billion
more than CBO projected in its January estimates. We would
deduct from that, in accordance with the lockbox bills we have
had in both Houses supported by both parties, we would back out
of that $2,591,000,000, which is the surplus that will
accumulate in the Social Security Trust Fund over the next 10
years. We would also back out of that, in accordance with the
lockbox bills that we have passed, including one a week ago,
$526 billion for the HI trust fund. That leaves what we call an
available surplus.
If you don't want to invade the trust funds, encroach upon
these dollars which are put there in trust, that leaves
available for our disposition a surplus of $2,527,000,000 of
available surplus.
Now, from that, we would deduct several things: First of
all, by your estimate, your tax cut will cost $1,620,000,000.
Now, as we look at the way you have displayed the effects of
that tax cut in the booklet you have sent up, there is no
entry, next to no entry for the fiscal year 2001, from which we
infer that the tax cut is not retroactive; is that correct?
Mr. Daniels. As submitted, it is identical to the
commitment the President made and is prior to any
retroactivity.
Mr. Spratt. OK. This $1,620,000,000 without retroactivity,
if you put in retroactivity and didn't cut the provisions of
it, you would have to add a bit to that.
Now, we contend that there are certain things in the Tax
Code, popular provisions, that have a limited life when they
expire, the practice in the Congress is almost always to renew
them. If you assume that these extenders, these provisions will
be renewed and extended and we recognize that you extend the
largest one, you make permanent the R&D tax credit, but there
is another $60 billion of expiring tax provisions, and if you
also assume that sooner or later, Congress will be forced
politically to deal with the problem of the AMT, the
alternative minimum tax, simply because when we created this in
1986, we set an income threshold which was not indexed, we are
15 years from that date now, and more and more middle income
couples, taxpayers, are going to be faced with the AMT, which
they don't know about now, but when they find out about it,
they ain't going to like it. Because, in effect, we are saying
here is a benefit, a credit, a deduction, an exclusion, a
preference, you can take this off your taxes. And then they get
to the A&P section and we take back what we have just given
them.
We never intended for that to apply to middle income
families, middle income taxpayers. We will adjust it sooner or
later because we are going from 2 million taxpayers affected by
it to as many as 20 million over the next 10 or 12 years. We
put in a modest amount for fixing the AMT. It could be much
greater. We put in $300 billion for the cost of extenders and
fixing the alternative minimum tax. Then finally, we adjust the
interest rates on the public debt by $400 billion, because if
you use $1.6 trillion to reduce taxes, you will have $1.6
trillion more debt on which to pay interest, and we add $400
billion and, looking at your chart, you have $417 billion debt
adjustment for the policy changes you make, and we think that
is fair.
That leaves, that leaves only $207 billion over the next 10
years to provide for your defense increase, to provide for
Medicare prescription drugs. The other night the President
proposed a Medicare prescription drug proposal for low-income
beneficiaries to which you have assigned a cost of $153
billion. That would eat up just about all of the residual, $207
billion, leaving nothing for defense, education, any number of
other things.
That is why we are concerned about your budget. We think
you are cutting it awfully close to the margins, as close to
the bone as you can possibly come. Are these numbers wrong?
Mr. Daniels. I am delighted to say they are, Congressman. I
appreciate your question, which offers the opportunity I think,
to bring you great reassurance, which I will now do as
concisely as I can. You asked, I am tempted to say all the
right, the big questions, and I think they ought to be treated
fully and fairly. Let us take them in this order.
First of all, the Social Security fund, the President has
made plain on innumerable occasions, the Social Security Trust
Fund is only for Social Security, and as we have illustrated,
$2 trillion more, perhaps a little more, but not much more of
that is available for debt retirement. The rest can be
considered as a further cushion against adversity, can be
considered as potentially some further retirement before we run
into bonus payments to bond holders, but we do not propose to
spend it in this budget.
Secondly, while there is a lot of sentiment we know for a
larger tax cut than $1.6 trillion, and we commend the spirit of
that sentiment, I didn't realize that it was extensive on the
Democratic side. The President has proposed a $1.6 trillion tax
cut. As he said again the other night, some think it is too
big, some think it is too small, but he thinks it is just
right, and we do. So we appreciate the gesture of offering
hundreds of billions more, but that is not our idea.
The AMT is an issue that is out there; we would work with
the Congress if the Congress would prefer to address that
sooner rather than later. You know, we didn't write the AMT.
Mr. Spratt. But don't you agree that it will probably be
addressed? Unless it is going to be repealed, it will have to
be addressed.
Mr. Daniels. It is partially addressed in the proposal we
have made within the 1.6.
Mr. Spratt. Even your joint tax commission said that there
is $200 billion in your proposal that would be denied taxpayers
by the AMT right now, in your proposal alone.
Mr. Daniels. Well, we welcome your concern for the
taxpayers, Congressman. No one would be taxed more, even
through the combination of these provisions, but some at some
point might be denied part or all of the tax relief the
President proposes. That would be too bad, and it is a problem
we could agree to work on. But it need not inflate, at this
time, the total size of the tax plan that he has proposed.
The interest costs you correctly pointed out are fully
accounted for in our budget. This is a little bit of a strange
convention of the way that we budget. We all agree to do it
this way. It presumes it will have a large cash balance, that
we think the government should never have, and they will be
earning interest, but that is a subject I will return to.
We agree with your accounting. That is why in our diagrams
we show a $1.4 trillion reserve for new needs, contingencies
and debt interest; and the 400, you are quite correct, refers
to the debt interest associated with the tax cut.
So now let me try to reassure you as to why there is so
much more room than you have feared.
Let me talk about Medicare. We lay out in our document, I
hope with complete clarity, something that I hope all Members
of Congress will soon come to recognize, certainly the
journalistic community has, there is not a surplus in Medicare.
Medicare costs on an annual basis substantially more than it
takes in in payroll taxes and premiums, and it is a dilution--
perhaps it was an honest confusion, but it is a dangerous
delusion to pretend otherwise.
Over the next decade, viewed charitably, Medicare will cost
$645 billion more than it takes in. On a cash basis, that would
be more like $900 billion.
We sincerely fear that to talk about a surplus is an
invitation to procrastination. I realize in saying this I am
speaking to people on the Republican as well as the Democratic
side, but by no means, no intellectually consistent means, I
think, can it be said that Medicare runs a surplus.
That notwithstanding, if you choose to view it that way, we
have not proposed to spend it. By our accounting at least,
there is at least twice as much, and by CBO's at least three
times as much, money set aside in the contingency reserve as
the alleged Part A surplus. So the answer is, if you want to
persist in this view and do not accept my assessment, the
answer is, don't spend it. Just don't spend it.
Now, here is the most important point of all. In talking
about, as people so very loosely do, locking away and putting
off the table all of Social Security, plus this so-called
Medicare surplus, that comes to over $3 trillion, the question
someone must soon answer is, when it goes off the table, where
does it go? Where does it go? $2 trillion can go to debt
retirement. You might push that up .1, maybe .2. Where does it
go? There is not a mattress big enough.
There is only one place it can go, and that is into private
assets. If it is going to be held, if the government is going
to insist on clutching this money, rather than leaving it with
the people who earned it, it will have to go to private assets.
Now, I am glad to see that this debate is being flushed out
of the shadows and into the open. Let me just cite to you from
yesterday's New York Times an economist, Dr. Krugman, who
disagrees strongly with our budget proposal, and gives his
honest reasons why, but then says the following:
``What is new is Mr. Bush's argument that since about a
third of the Federal Government's debts is, in effect, subject
to early repayment penalties, it would be irresponsible to run
a surplus large enough to pay off the entire national debt.''
He means by 2011. Now it is right, says Dr. Krugman, that this
is maybe an argument against repaying that part of the debt.
But then he goes on to quarrel with our idea of leaving money
with taxpayers, and he gets to the only conceivable point. In
his view, ``The responsible thing for the Federal Government is
to make alternative investments, and if this means that the
Social Security and Medicare Trust Funds must buy stocks and
bonds from the private sector, so be it.''
Now, he has put his finger on the issue. If you push this
money ``off the table'', you have to tell somebody what you are
going to do with it. We say it stays in reserve. If you won't
leave it there, you will have to invest it in General Electric
and Motorola, and we have stated our unequivocal belief that
this would be wrong on principle and wrong economically.
So the right way to draw the pie chart, we insist, is as we
have: $2.6 trillion of Social Security entirely devoted to
Social Security; $600 billion of that as a further reserve; $1
trillion of the on-budget surplus uncommitted, available for
setbacks, available for new needs or emergencies.
Having done that, with all that room as protection, we
believe it would be inexcusable not to provide tax relief to
the overcharged American taxpayer.
I apologize for a lengthy answer, but it was an important
question.
Mr. Spratt. I didn't interrupt because I wanted to give you
the opportunity to have a full and complete answer.
Let me go back to some of the detail you mentioned. Let me
start with this. The President the other night told us, and you
have in your budget booklet, a contingency fund of around $1
trillion.
Mr. Daniels. Yes, sir.
Mr. Spratt. The impression I got listening to the speech
and even reading the language here is this is a cushion fund.
If these projections don't pan out, we can fall back on that
contingency. If we need further spending, we can dip into that
contingency.
If we go back to my chart here, the only reason--the only
way I can come up with $1 trillion is by going to the Social
Security Trust Fund and taking that $600 billion that you won't
spend because you don't have enough debt to retire and redeem--
--
Mr. Daniels. No, sir, that would be incorrect.
Mr. Spratt. OK.
Mr. Daniels. Keep on going.
Mr. Spratt.--and the $527 billion in Medicare's Trust Fund.
Those two together add up to a little over $1 trillion.
Otherwise, how--what is the arithmetic for arriving at $1
trillion?
Mr. Daniels. It is pretty straightforward. You can get to
it easier from the bottom. The 207 you have, the 300 in extra
tax costs that is above and beyond the size of the--I am sorry,
tax relief, above and beyond the size the President asked for
repeatedly, and the $526 billion that you term the Medicare
surplus, which in fact has already been spent on Medicare, but,
as I said before, if you want to imagine that those funds were
not but in fact are some kind of surplus, then the alternative
is not to spend them.
Mr. Spratt. Half of them is the Medicare ``Trust Fund''
money.
Mr. Daniels. Thank you for putting quotes around it.
Mr. Spratt. I did it for emphasis to you, because it is a
statutory account. The people of this country, ever since they
have paid the FICA tax for Medicare, have felt they were paying
their payroll taxes into an account which would be dedicated to
Medicare solely. We created that by law. It is black letter
law. It is not some sort of device that we use for rhetorical
purposes around here.
In fact, let me read you a law, a bill we passed 16 days
ago, what it says: It is the purpose of this Act to prevent the
surpluses of the Social Security and Medicare hospital
insurance trust funds from being used for any purpose other
than providing retirement and health security and to use such
surpluses to pay down the national debt until such time as
Medicare and Social Security reform legislation is enacted.
But you are telling me it would not be just used for reform
purposes. It is part of the cushion that would be used for any
number of purposes to cushion us against an adversity not
foreseen.
Mr. Daniels. I am telling you it is already being spent.
That amount of money, and $645 billion more, will be spent on
Medicare. Now, we can pretend to ourselves that that money
somehow was not devoted to Medicare. We believe that every
penny of Medicare receipts and more should be allocated to that
purpose. We propose to spend more, as I indicated, for a
prescription drug benefit and further modernization of the
plan. But there is an alternative, which is, as I say, if you
want to maintain this, I respectfully say, antiquated view of
the system, then we need not spend that part of the
contingency.
By the way----
Mr. Spratt. This is not antiquated. It is current law. It
is still on the books. I mean, if you are going to abide by the
law until it is changed, this is what the law says.
Mr. Daniels. But that law can change, Congressman. You all
changed it when you decided, because things were not looking
too good for this concept, you decided to move home health
care, presto-change-o, out of Part A, and overnight suddenly
$200 billion of ``surplus'' materialized over 10 years. So, you
know, I am tempted to use stronger language. I would just say I
think this is a confusing way to talk to the public about a
system which we should agree is urgently in need of reform, and
soon. It is in bad fiscal shape, not excellent fiscal shape as
these illusory surpluses suggest.
Honestly, I think the biggest issue is not our good-faith
differences about what this particular budget should look like.
I think the biggest issue is the longer term, the invitation to
procrastination, if we tell ourselves that we are sitting on
some kind of surplus in Medicare, when quite the converse is
true.
Mr. Spratt. Let me go on. We will come back to that.
Chairman Nussle. Let me just inform members there is a vote
on the floor. We are going to continue the hearing during the
vote. Members should be advised to go and vote. We will
continue the line of questioning as the vote is occurring.
So, Mr. Spratt.
Mr. Spratt. Mr. Daniels, let me ask you about some other
numbers, in trying to understand what you are doing with
discretionary. I think you are wise to provide for a reasonable
increase in the discretionary accounts. One of the reasons we
are so far above the caps is I helped negotiate the BBA in
1997. We realized they were unrealistic and tight. They were
set so tight in the last two budget resolutions, they were not
credible.
Mr. Daniels. We appreciated your input, Congressman. You
were one of the first people we consulted. I don't know if we
got the right number or not. But it was trying to be responsive
to input like that we received from you.
Mr. Spratt. Let me express a concern, and you tell me if my
arithmetic is correct. When we look at the accounts you are
going to protect--Education, the Department of HHS--these
accounts would get equal to or more than inflation. The Social
Security Administration, the VA, International Affairs, when we
look at that and then adjust discretionary by 4 percent, it
seems to us, using your baseline, you would have to make about
7 percent cuts in the remaining non-defense discretionary
accounts. Is that consistent?
Mr. Daniels. That is not a calculation I am familiar with,
Congressman.
First of all, we think comparing everything, that to
inflation, is a little risky. The private sector doesn't work
that way. In fact, in the rest of the world these days, thanks
to the steady increase in productivity, a flat budget year to
year represents about a 3 percent increase. So we think--we
don't accept the sort of old convention that anything less than
that should be viewed as a step back.
But let me say this: Quite honestly, budgets are always
about choices. They are about new priorities. The President has
those, and you named each of the most important ones when you
named education and defense and medical research and veterans
and so forth. If you are going to accent some things and not
simply have a sky-is-the-limit approach, then other things are
going to have to take second priority.
We were careful to point out in the budget that, viewed in
the context of the spending increases of the last few years,
every department is substantially larger than it was just 2
years, 3 years, certainly 4 years ago; and this includes those
for which we recommended either flat or even slightly declining
budgets this year.
Mr. Spratt. I don't want to cut you short. Let me give you
for the record our analysis of the likely cuts required in the
non-defense discretionary accounts. We come to 7.1 percent.
That is before carving out a niche for transportation and other
protected programs which, as you know, by virtue of law have
gotten for themselves a place in the budget that is greater
than just an inflationary year-to-year increase.
When you set aside the money required for them that is over
and above the 4 percent increase, you have gotten bigger cuts
than 7.1 percent. We would like to know if our arithmetic, our
analysis of your numbers, would lead to a 7 percent cut in all
other NDD programs?
Mr. Daniels. Well, I will be glad to take your arithmetic
and get back to you quickly and see if there is some way to
reconcile it. It doesn't sound as though it squares with what
we have, but I don't doubt, as I have said on other occasions,
if you torture the data long enough, it will confess, and
perhaps somebody has been working over the data on your side.
Mr. Spratt. If you had a big increase in defense, 050 as we
call it around here, this fall, after the QDR, the Quadrennial
Review has been completed, if you then come forward and say our
defenses are in perilous conditions, we need more money, would
you raise the baseline or require that be taken out of non-
defense programs?
Mr. Daniels. We made no decision either way yet. I think
there are probably multiple ways that could be dealt with. It
would be certainly a feature, of course, of the next budget.
Since I don't know what the Secretary will recommend or what
the review will recommend, I don't know whether it can be
accommodated, which would be our first instinct, frankly. But
it might not prove practical. This is again why we try to be
candid in suggesting that we have to have a very large reserve
against contingencies, this being perhaps the first among
those.
Mr. Spratt. Are you going to tell me you are paying it out
of Medicare?
Mr. Daniels. No, sir.
Mr. Spratt. I will leave it at that. Thank you very much.
Mr. Hoekstra [presiding]. Thank you. Welcome. It is good to
see you. I talked with your staff beforehand, and they
indicated that you had already anticipated where I was going on
my questioning, so we will see.
Mr. Daniels. I didn't want to spoil the surprise, so I
didn't read their memo.
Mr. Hoekstra. That is good.
One of the President's primary areas for increasing
expenditures is the Department of Education. We were excited to
hear when the President began his work on the Department of
Defense that he said he would do a top-down, bottom-up review
of defense priorities, defense issues and those types of things
before you came out with really a complete analysis and a
proposal on what to do in the Department of Defense.
For the last 3 years, the Department of Education has not
been able to get a clean audit. I believe that today they will
again get a qualified opinion from their auditors, something
less than a stellar performance for an agency that we have
entrusted $40 billion to, an agency that also manages the loan
portfolio of somewhere in excess of, I think, $60 to $70
billion. But you have gone forward and proposed an 11 percent
increase in this budget.
How can we be proposing--other than identifying it as a
national priority, how can we put another 11 percent into a
department that over the last 2 to 3 years has clearly
demonstrated that there is a significant amount of waste, fraud
and abuse in the department and still cannot get a clean set of
books?
Mr. Daniels. That is an important and appropriate question,
Congressman. I think the answer to it starts with the fact that
we should make a commitment--the administration should make a
commitment to a very careful review of this and, as Chairman
Nussle suggested, other departments, too. Having produced or
met our responsibility by producing this budget outline, we
will now try to turn our attention to these larger and longer
term questions.
I would distinguish the two, I suppose, in this way. In the
case of defense, the President recognized that it was time,
after probably 50 years without a complete re-look at strategy,
mission and therefore needs, for a look before we leap in the
case of defense spending, and that is under way, as you know.
In the case of education, it was both a first priority with
him and he had some very clear ideas already about what needed
to be done--accountability, reading at an early age and so
forth. So I think that his decision was to move immediately,
that time was wasting, that too many lives were being stunted,
too many children lost along the way, to go into some lengthy
period of study, when he already knew at least the first things
to do.
But I do believe that your point is well made that that
department needs a look, needs to be near the front of the line
in getting a look, and we will commit to do that.
Mr. Hoekstra. You recognize when the department does not
get a clean audit the auditor is telling us that we do not have
a high degree of certainty that the money going into that
department is actually being used for the things that Congress
may have appropriated it for. So the President may be steering
this money into the department for objectives that he believes
are important, that he has identified based on the work that he
has done in Texas, that he has done researching education on a
national basis, but that when you put the money into that
department there is no high degree of certainty that it is
actually going to find its way through the process on the
priorities that you have identified.
Mr. Daniels. I recognize this, sir. Secretary Page
recognizes this, and I think it is undoubtedly already about
the business of identifying areas of mismanagement or
opportunities for efficiency. I urge you really to persist in
your advocacy for a good, close, hard look and to hold us to
it.
Mr. Hoekstra. We are continuing it. We are hoping you
partner with us in that process and that the administration
comes back and puts some benchmarks in place. Again, you came
out of the private sector. You have got experience in the
private sector.
Mr. Daniels. Right.
Mr. Hoekstra. You know that on a board or in the senior
management in the private sector that kind of performance is
totally unacceptable.
Mr. Daniels. Yes.
Mr. Hoekstra. That is what we have had for the last 3
years, and that good bookkeeping is just the benchmark. That is
where you start before you even start taking a look at the
effectiveness of the programs. We would hope that the same
energy that the President and the administration is putting
into making sure we leave no child behind through the programs
and the strategies, that you spend the same time and energy
focused on doing the basics at the Department of Education.
Mr. Daniels. Well, we will need to make the commitment to
leave no dollar behind, too.
Mr. Hoekstra. I would hope so.
Great. Thank you very much.
Mr. Daniels. Thank you for your questions.
Mr. Hoekstra. I will yield to Mr. Sununu.
Mr. Sununu. Welcome, Mr. Director. I appreciate your
testimony.
I want to begin by touching on a point made by the ranking
member in discussing the reserve. I at least personally want to
clarify this, and then if you want to add a brief comment,
although I think your comments have already been quite clear.
In the chart that was presented, the ranking member, Mr.
Spratt, showed $200 billion at the bottom of his chart as a
reserve. You made the clear point that he had included and in
part argued for the need for $300 billion in tax cuts above the
President's plan; and, of course, he had also highlighted the
roughly $500 billion coming in Medicare taxes.
So the point I want to be sure is clear is that there was
agreement that in the President's budget there is a $1 trillion
reserve. Because all of these elements added together would
comprise this reserve that is being set aside.
What bothered me most in the discussion was not that
agreement, because I think that is very favorable, but the
suggestion that was made that creating this reserve, $1
trillion, which is hard to really comprehend, but $1 trillion
over the next 10 years, that there was something fiscally
irresponsible about creating this reserve. Setting aside all of
these funds, not to be used initially for any tax relief, not
to be used for any spending program, not to be used for any
other purpose other than to set aside, understanding that the
fact is forecasts are fallible, whether it is from the Farmer'S
Almanac or the OMB Director or anyone else.
Now, that is the point I want to drive home, that this is,
as I understand it, an historic achievement. To the best of
your knowledge, was any such reserve set aside in the previous
administration?
Mr. Daniels. No, sir.
Mr. Sununu. To the best of your knowledge, was any reserve
set aside under the Reagan or Bush administrations?
Mr. Daniels. Not to my knowledge.
Mr. Sununu. By doing so, we are achieving exactly what so
many of the critics of this budget plan suggest needs to be
done, and that is be fiscally prudent, be reasonable, be
balanced in the approach.
Let me get back to a point that you made earlier about
projections, because I think it fits clearly into this same
theme, this same principle or concept of being balanced, of
being fiscally prudent. You talked about projections. You
talked about revenue growth and revenue projections. You
touched on the point very briefly. I want to go through it in
some additional detail.
In the President's budget, what is the approximate average
revenue growth year on year that you have in your projections
over the 10-year period?
Mr. Daniels. Well, let's see, it will be something--let me
do the math in my head here for a second.
We are forecasting economic growth in the 3.1, averaging
3.2 ultimately, over 10 years; and for the first several years
we are forecasting--or assuming, I should say--revenue growth
running as much as 1.5 points below that. So in any given year
revenue growth would be at a rate in the 2s, I suspect. Those
are probably real numbers. Five percent is the number, I am
advised.
Mr. Sununu. Two percent real, 5 percent nominal. The
historic average, as I have seen it--looking at any 10-year
period or the 40-year period you cite, it is actually quite
consistent. The historic average for revenue growth is 7 to 7.5
percent. That is a 2 percent difference in annual revenue
growth that this budget has below the historic average, 2
percent per year compounded. Looking at that figure, I think
you ascribed a figure to that difference over the 10-year
period in which you assumed revenue growth at the historic
average, how much larger would the surpluses be?
Mr. Daniels. $2 trillion.
Mr. Sununu. $2 trillion. That is 33 percent larger--or even
more--35 percent larger than currently forecast?
Mr. Daniels. That is correct. Just to calibrate that for
you, that would match or perhaps overwhelm a full percentage
point lower economic growth throughout the entire time period.
So you could be off by one-third on your economics and have
that offset by the conservatism of this assumption.
I will just give you one other data point.
If revenue grows only with the economy, which it has
consistently exceeded over recent years, given the structure of
the tax system we have now, by the way, in a weak economy or
weakened economy right now it is once again running ahead of
projections, revenue is. But if it only runs with the rate of
economic growth, it would add $750 billion to the 10-year
surplus.
Mr. Sununu. And to be clear that this is not a case of
looking at only periods of economic growth or looking at only
an optimistic scenario, the historic averages that you cite
include recessionary periods, they include periods immediately
preceding tax cuts, include periods immediately preceding tax
increases, which obviously oftentimes have resulted in a
slowing economy. So it doesn't leave out the bad times in order
to arrive at this historic average revenue growth of 7 or 7.5
percent.
Mr. Daniels. No, that is quite correct, Congressman. That
is the reason to reach back 40 years, is to try to incorporate
a fair factoring in of all kinds of situations.
Mr. Sununu. So you are using revenue growth projections
below historic averages. You are creating a reserve of $1
trillion that is not dedicated in any way, that I certainly
would not want to see be used to create bigger government, but
is there, in case projections in one area or another do not pan
out--and now let's talk a little bit about in this context the
tax relief package itself.
Mr. Daniels. Could I just add one thing to your excellent
summation? You might also add the $600 billion of Social
Security surplus not committed in this budget as further
reassurance.
Mr. Sununu. So as a management tool to pay down additional
debt if that is available and, even more important, to be used
to support any costs associated, transition costs associated
with a modernization program or a reform program to reform
Social Security, you have that additional $600 billion. Is that
correct?
Mr. Daniels. That is correct.
Mr. Sununu. Talk briefly about the size of the tax relief
package. Given these projections by my rough estimates, it is
about 30 percent of the total surpluses. I have been corrected.
It is 28 percent.
Mr. Daniels. Twenty-eight percent.
Mr. Sununu. Thank you, Gil. Put that in a context, though,
relative to the tax relief packages under President Kennedy in
1960, under President Reagan in 1981, relative to our current
economy or to current revenue collections.
Mr. Daniels. The tax relief proposal at the size at which
the President has consistently insisted is about one-third the
size relative to the budget or economy of the Reagan proposal
of 1981, more like it is about half the size of the Kennedy
proposal of the '60's. Maybe the easiest way to think about it
is to take note that at this baseline estimate, which may be
low, could easily be low, the Federal Government will take in
$28 trillion of revenue in the next 10 years; and, of that
money, it represents about 6 cents on the dollar. So, viewed as
a refund to taxpayers, the 6 cents will not strike most people
as excessive.
Mr. Sununu. So as a portion of our economy, it is smaller
than the Kennedy package, smaller than the Reagan package, and
in both of those eras we did not have the budget surpluses. In
fact, of course, under Reagan there were deficits.
Mr. Daniels. Right.
Mr. Sununu. So it is more modest. We have a $1 trillion
reserve.
Finally, I want to close by having you talk a little bit
about the debt retirement process, because, again, I think it
is important that we look at these things relative to historic
averages or historic perspective and relative to the size of
our economy. By the end of this year, debt, our public debt, as
a percentage of the economy, of the GDP, will be about 30
percent. Do you know roughly when the last time was that we
achieved that low of a debt burden as a percentage of our
economy?
Mr. Daniels. Actually, I have a chart I would be happy to
display. It is something that, as I said, I think should be
cause for celebration by all members in both parties since all
have contributed to this turnaround. But, to sum it up, at the
end of this decade, we will be down to 6.5 percent of GDP, and
you have to reach back into the decade between 1910 and 1920 to
find an equivalently low percentage. Of course, the difference
is----
Wrong again, Eric. Good chart, though. Put that up a
minute. We like that one.
This is the end of the interest burden on the Federal
budget.
Mr. Sununu. Which clearly corresponds to our debt level.
Mr. Daniels. That is correct. And plummeting from a height
just a little over 15 cents, not many years ago, beginning to
drop now down toward 10, but headed for under 2 at the end of
the budget period.
There you go. So your figure is about correct for now,
Congressman. The year 2000----
Mr. Sununu. This shows in 10-year increments.
Mr. Daniels. Yes, 10-year increments. You have to reach
back here to the second bar from the left and the first two
decades of the last century.
Mr. Sununu. But even if we express concern about the length
of these forecasts and say I really don't want to look out 10
years, the further out we go, the tougher it is to predict, by
my calculations. Or I guess it is data contained in your budget
submission, in just 5 years, by the end of 2006, that debt as a
portion of GDP will be 10 percent, and that is a level that we
have not seen since well before the Second World War, is that
correct?
Mr. Daniels. That is correct, also. This whole era of
surpluses and debt reduction is new to us all. There are some
very intriguing new questions that policymakers will have to
decide, that no one has been thinking about much until
recently. We will soon have to decide, do you want to get rid
of the U.S. Saving Bond Program? If you want to go to zero, you
will have to do that.
Mr. Sununu. Even without addressing that question, in the
next 5 years, given the schedule of debt repayment laid out in
the President's budget, we will take all of the Treasury notes
with maturities between 1 and 5 years out of circulation, is
that correct?
Mr. Daniels. Yes. By every set of assumptions I have seen,
the Treasury will stop issuing most of the instruments with
which we are all familiar within the next 4 or 5 years, some
think much sooner.
Mr. Sununu. And within the 6-year period, or the 7-year
period, before we start accumulating cash surpluses, it would
be possible to take all of the even shorter term maturities,
the 3- and 6-month bills out of circulation. I know for cash
management purposes the Federal Government might not want to do
that, but could you talk a little bit about how that is going
to be addressed by both OMB and Treasury?
Mr. Daniels. Thank you for the question.
I think I should be very guarded, because, first of all,
this will be a call for Treasury. Secondly, I think all of
their options are open at this point; and they would not
appreciate my speculating. So with your permission, I won't--
but you are highlighting one of the very interesting and
somewhat sudden new challenges. These are positive problems to
have as we contemplate the disappearance of national debt as a
material factor in the business of the Federal Government, but
I am not in a position today to give you an answer to the
question.
Mr. Sununu. I appreciate that. I simply wanted to highlight
the point that, even with tax relief programs, even with the
priorities for education and national defense, we bring the
debt down to such a level, not in 10 years, but in 3 to 5
years, a level where we have not been in really our history. We
are paying down debt faster than at any point in our history
and have already done so, $600 billion in the past 4 years, and
all of that considered doesn't include the $1 trillion reserve
that has been set aside to deal with the vagaries of
forecasting.
Mr. Daniels. That is quite correct, Congressman. And as
Chairman Greenspan has pointed out, the problem of the excess
balances, which I referred to earlier, if you take it off the
table, exactly where does it go, that is going to be on us
fairly soon, and there will have to be some decision. Perhaps
many will agree with Professor Krugman and others that it would
be fine for the Federal Government to become an active investor
in the private markets. If so, we ought to start that debate
soon, because it is not a distant issue.
Mr. Sununu. I certainly don't agree with the notion of the
Federal Government buying GE stock or Microsoft stock, and I am
sure Jack Welch and Bill Gates don't either.
Thank you for your time.
Chairman Nussle [presiding]. We are going to go on the 5-
minute rule here. Mr. Bentsen.
Mr. Bentsen. Thank you, Mr. Chairman.
On that note, perhaps, we might want to have the States and
municipalities divest of all their private assets holding as
well. But that is a discussion for another day.
Mr. Daniels, I appreciate your being here. I have a couple
of comments, and I have a number of questions. Looking at the
budget blueprint that you all sent out the other day, it would
appear that the administration is asking us not only to make a
bet on 10-year economic assumptions but, as best I can tell, a
bet on 10-year political assumptions as well as it relates to
offsets. I think that is somewhat of a gamble, and I think we
ought to take a very close look at that.
But I want to go to the discussion with respect to debt and
the trust funds. First, with respect to Social Security, both
with regard to what is in the document specifically, on page
45, where it talks about using the Social Security Trust Fund
surplus to reform the system and to pay down debt until reform
is enacted and the comments made by your colleague, Mr.
Lindsey, this past weekend indicating that perhaps this $600
billion could not be used for debt paydown because debt might
not be available at that time. Thus, it would be used for
reforming the system.
Furthermore, in the Medicare section, regardless of whether
we accept what might be a somewhat specious argument on the
legitimacy of the Hospital Insurance Trust Fund, it certainly
is a legal trust fund and by law, it is invested in non-
negotiable Treasury securities, so it does have that legal
trust structure.
But regardless of getting into that argument, the fact is
that you do in fact explicitly, I think, in your budget
document, spend some of those trust fund moneys on new benefits
or other benefits within the Medicare program or make the
assumption.
The problem that I have got is that it would appear to me
that both of these funds are obligated funds. In fact, that is
the argument we have had in the Congress over the last several
years, longer than that really, since the unified Budget Act of
1965 or 1968. But these are obligated funds to future retirees,
and at some point, those funds have to be repaid.
If you are taking those funds now and spending them on,
quote-unquote, reform, particularly in the Social Security
program, many members of this committee know from the hearings
over the last several years that reform is going to take a
great deal of outside capital to reform. In fact, Martin
Feldstein testified I believe before this committee. Alan
Greenspan and others have said, if you go to a privatization
program like the President has proposed, it is going to take
somewhere to the tune of $1 trillion on top of what the
projected Social Security Trust Fund receipts to make that
reform.
But the fact is, it would appear that in Social Security
and explicitly in Medicare you are taking those otherwise
obligated funds and spending them as new capital infusion into
the system. So you are really double counting those moneys, and
at some point you are going to have to make those up.
There is really only three ways you can do it: You can
raise payroll taxes--and I know the President was pretty clear
about that, that he doesn't want to raise payroll taxes; and I
don't support it. I don't think there is much support in the
Congress for that. You can cut benefits, but I haven't heard
anybody talk about that, or you can add more debt.
Furthermore, while we are talking about the debt going
down, and I am a great proponent of that, we also have to
remember that the gross Federal debt stays relatively constant
over the 10-year period. Now, a lot of that is
intergovernmental transfer debt, but the fact is if you go and
spend some of this money on other programs or even if other
programs would include structural changes in the Medicare-
Social Security program, at some point you are going to have to
roll that intergovernmental debt into the public markets.
So how do you size up the fact that you really are looking
to double-count these moneys? Are you going to cut benefits in
the future through your reforms? Are you going to add more
debt? Mr. Feldstein said we can borrow in the future.
Mr. Daniels. Thank you for your question.
First of all, I get lost in the language of double
counting. We have not proposed anything at this point for the
$600 billion extra remaining except in the Social Security
Trust Fund except to protect it for Social Security only. I
cannot give you a cost estimate for the legislation resulting
from the recommendations of a commission that has not been
appointed yet. We have got great forecasters at OMB, but they
are not up to that.
The $1 trillion figure floats around, but when I have asked
for details on it, the best I can understand is that it may set
an outer boundary. That is to say, if you had such a system and
had it in place tomorrow and everybody subscribed immediately,
it might cost that much. I don't think anybody knows.
Mr. Bentsen. Let me interject. I appreciate that. Most
people in favor of reform have been sketchy on the details. But
we have had testimony from every group, from Heritage to CATO,
left-right, that came in and said you have to have an outside
capital infusion. But the fact is in your budget you say you
are going to spend some of this $2.6 trillion for reform, but
the fact is we also know from the actuaries that that $2.6
trillion is already committed just to get the program to 2037.
So how can you spend it twice?
Mr. Daniels. Well, we haven't proposed to spend it yet. I
think the document quite clearly says it can be viewed in a
variety of ways. It could be that we could use some of it for
further debt reduction. It could be that there will be some
smaller surpluses than we forecast. It could just as easily, I
hasten to add, be more than $2.6. And it is certainly could be
a starting point for the transition costs to reform. I remind
you yet again, there is another $1 trillion by our reckoning
which again could get larger for new needs unspecified.
Mr. Bentsen. With all due respect, that $1 trillion though
includes I believe half a trillion dollars of at least legal
Medicare hospital insurance trusts. As you well know, there are
two programs, there is the Part A program and the Part B
program. The Part A program is funded by the FICA tax, and it
is a legal entity under Federal law as a trust, the proceeds
payout for just that portion of the Medicare program. But that
is allocated to that contingency. So, again, there is a
question of double counting.
Then you are drawing down and explicitly transferring, it
would appear, some of that money to the President's Helping
Hand Program, which is hard to find in your baseline, because
your baseline doesn't match the CBO baseline. It is $200
billion below the CBO baseline for Medicare. But, more
importantly, it is transferring from Part A, a trust fund
program, to what would appear to be Part B, or a discretionary
side program. So it does appear you have double-counted. At
some point you have to make this up.
As I said, there are only three ways you can do it. You can
raise payroll taxes, you can cut benefits, or you can issue
even more debt than you might otherwise have to issue.
Mr. Daniels. I am tempted to say there is apparently a
proud history of transferring things from Part A to somewhere
else in the form of home health care, but, again, I think that
is ancient history.
Mr. Bentsen. Here you are transferring assets as opposed to
obligations.
Mr. Daniels. You have made a legitimate point about the
statutory status of these trust funds, Congressman. My reaction
is that ought to be changed. That ought to be brought current.
The whole idea of Part A, Part B, reflects the era, now
almost half a century old, a completely different era in
medicine, when hospitals were viewed completely discrete and
apart from the rest of health care. Nobody is practicing
medicine that way. This is one of many vestiges in which
Medicare trails the rest of health care. It is not good for
patients; and it is very, very dangerous to the finances of the
Federal Government. So perhaps the right answer is to unify
these trust funds and modernize the legal status.
Chairman Nussle. The gentleman's time has expired.
Mr. Davis.
Mr. Davis. Thank you, Mr. Chairman.
Mr. Daniels, with all due respect, your numbers sound too
good to be true. I hope the problems we have with paying off
the debt that you subscribe to do come to materialize. I truly
do.
The job of this Budget Committee, Mr. Chairman, as you
know, is to rein in the appropriators. That is why this
committee was created.
Chairman Nussle. That is a secret. You are not supposed to
tell anybody about that.
Mr. Davis. Well, the public is watching, Mr. Chairman.
Where I come from, we have a saying that everybody is entitled
to their own opinion but not their own version of the facts,
and the job of this committee is to try to bridge the divide
between the Democratic version of the facts and the Republican
version of the facts.
I am very distressed that as we sit here today to begin our
work that the House tax writing committee is about to take up
and pass an approximately $950 billion tax cut.
Mr. Chairman, this is akin to someone starting an addition
to their home without having a mortgage, without knowing how
much money is going to be available to them to fund this tax
cut versus spending priorities, including the President's
spending priorities, and paying down the debt.
Mr. Chairman, with all due respect, I could not disagree
with you more strongly when you described earlier this tax bill
as a strong signal. This is not a strong signal. This tax bill
is potential law. It is our job as the House of Representatives
to seriously debate that, and we will not do so, we will
abrogate our responsibility if that tax cut moves forward
without this committee even starting our work beyond today.
So I think we are getting all tangled up in the process,
Mr. Daniels, and I think that the actions that are about to
occur with the support of the administration totally belie much
of the good things upon which we would agree and discussed
today.
I would like to have presented to you a letter which has
been signed by 214 Democrats in the House of Representatives,
including many Democrats who voted for virtually every tax cut
that has come before them in the last few years. That letter
simply asks the administration to allow this Congress to
proceed with the development of a budget resolution and an open
and honest debate about the impact of this tax cut on spending
and debt retirement.
What I would like to do is to continue with the questions
that Mr. Spratt posed to you. Regardless of how we describe
this approximate $500 billion in Medicare, whether we use your
terminology or his, the fact of the matter is this money exists
because of a payroll tax that people believe they are paying to
go toward Medicare. So if we subtract that from the figure up
here, the $200 billion, and we also subtract the price tag the
President has attached to his prescription drug plan, my
question to you is, how do we begin to measure the cost and
ability to pay the other priorities the President has
identified?
Many of us share his view about increased spending for
defense, particularly for men and women and their compensation,
education, a national missile defense program. Mr. Spratt has
been a leading supporter of that. The conservation program. We
don't even have retroactivity up there, Mr. Daniels, which is
expensive as well. Could you please give us some guidance on
how we are going to pay for these and still maintain the shared
goal of debt retirement?
Mr. Daniels. Well, first of all, in terms of what people
believe about their Medicare payments, Congressman Davis, a lot
of people still believe that their Social Security payroll
taxes go in a drawer for their benefit in the future, which has
never been the case in 60 years, 70 years. So we have allowed
certain misconceptions, unfortunately, to, I believe, be
prevalent among the American public. I just see this as just
another one of those.
Medicare is not in good shape. That money is not in a
drawer waiting for the future. We need it all just to meet part
of the obligations that Medicare costs today.
I would return to my question: If in fact, standing on the
legalisms and the trust fund status and so forth, you all want
to take that--keep that money aside, then which stocks did you
want to buy? Which piece of the economy? It could be 5 to 10
percent by 2011, if that money is to be truly set aside. I
realize there are some who feel that could be done
appropriately. But that is a very important public policy
debate that needs to be entered into soon if that is your
position.
Mr. Davis. Mr. Daniels, let me interrupt to ask you if it
is fair to say that, under your proposal, using these funds,
however you describe them, from the contingency fund, we ought
to be prepared to use those funds for some purpose other than
Medicare?
Mr. Daniels. No, I don't agree with that.
Mr. Davis. Why would they be included in your contingency
fund then?
Mr. Daniels. Well, we don't allow as how this is the same
money at all, Congressman. I don't know how more candidly to
tell it to you. We have tried to write it out clearly in the
blueprint. But, as I say, if you choose to look at it that way,
then you can reform Medicare from a piece of this, and we do
propose--the only use we propose so far for the new needs fund
is Medicare reform. And then you can simply work with us to
constrain spending and not spend the rest. We will all go home
happy.
Mr. Davis. I know that our time is brief, but could you
give us some numbers that we can associate with some of the
other Bush promises that we put up here, things the President
supports that many of us support--the defense, the education,
the conservation?
Mr. Daniels. Congressman, if I could, I would. You know,
very sincerely, this was an attempt to recognize legitimate
concern that we heard from both sides of the aisle that there
were many uncertainties in the future and we ought not pretend
that we can be precise about them. If I were to put a number on
defense today, it would be a throw of a dart; and it would
belie the instruction the President has given to the Secretary
of Defense to look at this entirely in a strategic and
comprehensive fashion.
So what we have tried to do instead is to consider what we
believe is the sort of outer limits of these things and then to
overreserve against it, as any prudent business might.
Mr. Davis. Mr. Daniels, are we being responsible to take up
this tax cut based on our shared goals about debt retirement,
when all we have is a throw in the dark to associate with the
cost of these defense proposals?
Mr. Daniels. Well, I just said I refused to throw a dart,
but I understand your question. You know, I guess I would ask
it this way: Why is it the taxpayer always comes last? Why is
it always our spending--I say ``our'' now--why is it always
Washington's spending, Washington's programs, Washington's
possible future needs for spending, and if there are any table
scraps left over, then the taxpayers may be entitled to them?
That strikes me as being unfair.
A better way to think about it really might be, let's
attend to our needs, including all the debt we can practically
retire. Let's put aside an overconservative amount against
future uncertainties, referring that our total surplus here
might well be bigger. It surprised us 5 years in a row being
bigger. It is not an impossible thing. It could keep doing
that.
Why must the taxpayer always wait? Why must the taxpayer
always bring up the tail of the line?
Chairman Nussle. The gentleman's time has expired.
Mr. Gutknecht.
Mr. Davis. If I could respond to his question he responded
to me?
Chairman Nussle. I believe it was a rhetorical question.
Mr. Davis. I don't think it was, Mr. Chairman.
Chairman Nussle. The gentleman's time has expired. There
will be other opportunities to inquire.
The gentleman from Minnesota.
Mr. Gutknecht. Mr. Chairman, first of all, I wanted to
clarify something that I think you said, and that is over the
last 40 years, if you took the 40 years average of growth and
revenue, you are actually below that 40 year average, and if we
exceeded that by some percentage--I want to make sure I am
clear on this--that the revenues could actually be $2 trillion
more over the next 10 years, is that correct?
Mr. Daniels. All they would have to do to make that happen,
sir, is to equal the 40-year average. They have been exceeding
it, as our chart demonstrates, for the last several years, but
I am not even offering a number for that. All they have to do
is equal their 40-year average. But, again, we are trying to be
cautious.
Mr. Gutknecht. So if revenue growth just equals the 40-year
average, we will actually have revenues in excess of $2
trillion more than we are currently using in your budget
projection. Is that correct?
Mr. Daniels. Yes, sir, that is correct.
Mr. Gutknecht. I want to make that clear, because I think
you are being and we are being very conservative in our
estimates.
I want to pay a little bit of tribute to a gentleman that
used to serve on this committee that came to the Congress with
me and others still on the committee, Mark Neumann. A number of
years ago, back in 1995, he began as a former math teacher to
do some regression analysis on his own little computer and
actually did a better job than the Congressional Budget Office
in projecting how much revenue we were going to have. He said
then and we began to work on the numbers together, that if we,
the Federal Government, we the Budget Committee, we the
Congress, could control the rate of growth in Federal spending
to roughly the same as the growth in the average family budget,
in other words, so that the Federal budget didn't grow at a
faster rate than the average family budget, he projected back
in 1995, and again the Congressional Budget Office didn't
exactly share this view, but he said that you would not only
begin to balance the budget very quickly, within a matter of a
couple of years, but you would have a lot of money available in
surpluses to actually do some things we should have done for a
long time.
His recommendation and my recommendation then was, as you
began to create these surpluses by controlling the rate of
growth and spending, that about one-third of it ought to go to
debt repayment, the second third ought to go to Social Security
and Medicare, and about one-third ought to go back to the
people who pay the taxes.
I am somewhat astonished that your formula looks extremely
similar to the plan we talked about 5 or 6 years ago. I want to
congratulate you for that. If anything, it is a little light on
the amount that should go back to the people who pay the taxes.
We are really only talking about 28 percent of the
projected surplus, which I think is conservative, assuming we
can control Federal spending; and I think it will be a little
bit easier with this administration than it was with the past
administration.
But it seems to me really, for the benefit of all of the
members, all of this discussion boils down to two basic simple
questions. The first question is, does anyone believe the
Federal budget ought to grow at a faster rate than the average
family budget? If you do, that is fine. But let's have that
debate.
I think a lot of us believe the Federal budget ought to be
controlled. I think you are right. For too long we have said
the families are the ones that have to tighten their belt.
Because when we start talking about budgeting and saying
everything we spend today is legitimate and every dollar we
spend on behalf of the taxpayers is well spent, I think we all
know that is not true. The truth of the matter is there is an
awful lot of waste in every department.
I will just pick on one that is near and dear to the
Chairman's heart and my heart, the Department of Education. I
think there is a legitimate question, do we need 108,000 people
in the Department of Education today? Is every dollar we are
spending today on education well spent? This is a department
that has failed its audit in I think 3 of the last 3 years. The
Department of Education has failed its own audit. So we know
that there have been literally millions, perhaps more dollars,
that have been wasted.
But the second and I think perhaps just as important a
question is, shouldn't the people who pay the bills get to keep
at least 28 percent of that tax surplus? You know, some people
are going to say, you shouldn't pass the tax cut first. I think
maybe we ought to look out for the taxpayers first.
Because it seems to me one of the goals of this committee
and Congress should be to get the economy moving again, because
we all know this: In a stronger economy, it solves a world of
other problems. Unemployment levels being down, it means we
have less problems with some of our social spending; it makes
less problems for the States. I mean, all the way around,
getting the economy rolling and growing at a better than 3.1
percent rate is something I think everybody ought to be in
favor of; and cutting taxes on working people, on families, on
business people, small business people and, yes, even on big
business people, I think is a good idea. Let them keep the
money. They will spend it smarter than we can.
So I congratulate you and the administration on this
budget. It is well-founded and constructed on simple basic
principles that make sense not only to the majority of Members
of Congress but clearly to the people out there who get up
every day, who work hard, who pay the bills. We are simply
saying 28 percent of that tax surplus ought to go back to you,
and we are going to think about you first. Then the
government--then the Federal Government will have to figure out
ways to tighten its belt.
I yield back the balance of my time.
Chairman Nussle. Thank you.
Mrs. Clayton.
Mrs. Clayton. Thank you, Mr. Chairman.
Thank you, Mr. Daniels, for being here.
Mr. Daniels. Yes, ma'am.
Mrs. Clayton. Two nights ago in the State of the Union the
President raised a question about the size of the tax he
wanted, whether it was too big or too low. He thought it was
just right. He didn't raise a question about fairness, but I
assume he believes his tax plan is fair because he has made the
claim that those who want to move to the middle income level,
this plan will help them.
I want to raise the question of fairness. I want to raise
the question whether the President's tax proposal is fair. I
would like to answer that question, and give you my reason for
answering it. Then, I would like your response.
First, the President's tax proposal is indeed skewed toward
the top 1 percent, where he provides anywhere from 36 to 43
percent. Eighty percent of the taxpayers indeed will receive
about 29 percent. In the case of the 1 percent who receive from
36 to 43 percent, that is larger than their tax liability. In
the case of the 80 percent who receive 39 percent, that is less
than their tax liability.
In defense of the fairness question, often people will
raise questions and respond rhetorically to my question of
fairness. You are now raising the income tax gap card. But a
careful analysis of the impact of that tax package clearly
shows, based on the current census, that the plan offers an
average of $39,000 to the top 1 percent or thereabouts. And,
the President has claimed that it would represent at least
$1,600 to the average taxpayer by year 2006. That amount would
represent 24 times as much to the average taxpayer.
The Treasury Department has reported that the top 1 percent
of the population pays around 20 percent of the Federal taxes
and again, the President claimed that lower income families
would get a higher percentage of the tax based on income.
But when you focus on income, you really fail to recognize
the real tax burden on the poor. It is--indeed, the largest
Federal tax burden on the poor comes from the payroll taxes. So
that is a very limited focus.
Obviously, a family who makes $26,000, two earning, a
family of four, indeed can have their entire income tax
eliminated. So it would be correct to say that is a 100 percent
tax break. But guess what? They didn't owe but about $25 in the
first place. However, that same family would be owing, after
the assessment for the income tax break, about $2,000 or more.
So to suggest that this tax plan is indeed fair is not in
my judgment, correct.
A further analysis would indicate approximately one-third
of the families with children of less than 18 years of age
would not get anything at all. If you look at that one-third,
more than one-half of them are African American families and
again, Hispanic families. Fifty-five percent of them are
African American families, 56 percent indeed are Hispanic.
Therefore, I conclude, Mr. Daniels, that the tax plan is
not fair.
I would like to make reference to a recent statement you
made on nutrition and table scraps. When you think of how much
the very poor will get, that could be applied indeed to what is
happening to the lowest income. Now, if my analysis is indeed
wrong, I would like you to respond.
Further, public housing will be cut by $700 million. The
rural housing program is going to be further cut, because you
say that is duplicative of the CBC. I am from rural America. I
can tell you that we do not have enough housing, and the need
is great.
Further, HUD is being retained at its current level. It is
acknowledged that the President himself wants to have more
ownership. I don't know how you will achieve that goal. But, if
I am wrong on any of these statements, I would like your
response on my assertion that this a very unfair tax bill.
Mr. Daniels. Well, the very broad assertion, Congresswoman,
and I appreciate the opportunity to respond; I couldn't track
each and every statistic. Some of them sound like they come
from a recent analysis about which, or some analyses about
which I would urge you to be careful. They make intriguing
assumptions such as that tax benefits can be conferred on dead
people, and in order to jimmy the numbers up at the top end.
I guess I would simply say the following.
Mrs. Clayton. Dead people?
Mr. Daniels. I am not sure which analysis you were working
from, but some of those that have been cited recently do things
like confer the punitive benefits of the estate tax on the
decedent, which is an interesting way to look at things.
Mrs. Clayton. Very few people I know in the lower income
and moderate income level pay the estate tax.
Mr. Daniels. No, I know, but this how they tilt the
apparent incidence maybe artificially to the other end, but
that may or may not be a part of the analysis from which you
were reading.
I guess I would just say the following: obviously the
President believes deeply that this a very fair proposal.
People who are concerned about the wealthy should take some
consolation from the fact that the wealthiest taxpayers would
pay an even higher percentage of income taxes after this
proposal than they did before.
Mrs. Clayton. Is it written in the President's report from
last year that approximately 1 percent of the taxpayers paid 20
percent of the taxes? Is that an incorrect statement?
Mr. Daniels. Well, that is probably correct. It may be at
least that high. The Treasury report is not by a percentage,
but by--in $100,000 income increments. But I think we all know
that we have what could be called a very lopsided distribution
these days in which, as I recall, something like the top 10
percent pay 60-odd percent of the taxes and that figure would
go up.
Mrs. Clayton. Mr. Daniels, I want to interrupt because my
time is short. How many persons or families would you estimate
would actually get the $1,600 tax break that is proposed, the
average family?
Mr. Daniels. I am sorry, I don't have that number at my
fingertips, but I am sure the Secretary of the Treasury will
when you see him.
Let me just maybe make this general comment, a couple of
general comments. One is that the President is very mindful,
and it always starts, this discussion, by thinking about people
who are trying to make their way up in the world, and he makes
the point repeatedly that it is not simply a matter of the tax
relief a family might get today, but what is the effect on the
next dollar that that person might earn? And you know, here the
data is unassailable. The next dollar earned at very modest
income rates is highly taxed under the system we have and we
ought to try to fix that, and maybe that is something on which
we can agree.
My general comment would be that the fairness question is
one in which there is sincere and deep disagreement, and there
will be that disagreement right up to the point at which
Congress finally acts, I know, one way or another on this bill.
I would say that I take it as my mission obviously to advocate
the President's plan, but my principal mission which I have, I
believe our budget addresses, is to demonstrate that the size
of this tax cut is not an issue. There is more than enough
room, far more than enough room to do it. That leaves the
question you have put: what is the right shape? What are the
ways to ensure fairness, and that is a worthwhile debate, it is
the central debate and one that I know will continue.
Mrs. Clayton. Thank you, Mr. Chairman.
Chairman Nussle. The gentlewoman's time has expired. You
asked two questions about nutrition and housing, if you wanted
to make a comment or response to that before we----
Mrs. Clayton. The housing proposal in your budget
eliminates, I believe $700 million for public housing. It keeps
the housing HUD appropriation level at 2001. That concept is in
contradiction to the President's desire to have homeownership
and to meet the needs of housing.
Mr. Daniels. Secretary Martinez is very confident that we
will be able to continue increasing the number of people served
and units served with these numbers. There are big unspent
balances there, and in addition, with the public housing money,
we are offering 34,000 new vouchers to add to the population
served. This continues the trend begun in the last
administration.
Chairman Nussle. Thank you.
Mr. Thornberry.
Mr. Thornberry. Thank you, Mr. Chairman. Mr. Daniels, we
appreciate you being here. I can't help but reflect that all of
us are at a little bit of a different situation than we have
been in in recent years, not just because of the numbers you
show, but it is, in some ways, on this side of the table, a
little easier and maybe more fun to take shots at a President's
budget. We have had the opportunity on this side of the aisle
to do that with lots of inviting targets over the past few
years, and now the roles are kind of reversed. In previous
years, we have not had a President's budget really taken
seriously, and what we have already heard this morning are some
very serious policy issues being discussed for the first time.
I congratulate you on a budget that is taken seriously and I
think it will be taken seriously all the way through the
process. It is the first time that has happened in quite some
time.
Let me ask you to comment briefly. I don't remember hearing
the question so far. How do you see the economy going now? As
we look at a budget, and certainly we want to be mindful of Mr.
Spratt's comments about being prudent and not being hasty, but
the other side is there is a lot of concern about where we are
headed now and that if we wait too long and if the whole
process takes too long, that the economy may have a chance to
go places we don't want it to go. So there is also some urgency
to get this tax relief out there.
How do you see the economy going?
Mr. Daniels. Obviously, the economy is not what it was. I
don't think anybody yet is prepared to hazard a guess as to how
long the current uncertainty will last or how deep it might
become. We did mark our economic growth estimate for this year
down at the last moment before we had to lock our database, and
it is consistent with current estimates, but those may go down
further.
I would tell you that in terms of the 10-year projections,
this first year is relatively trivial. So whether the right
number for this year turns out to be 2.4 or 2.1, I don't know,
even lower, it wouldn't make a whole lot of difference in terms
of the long-term projections. It would make a lot of
difference, of course, in terms of what we ought to do about
it, and this is where your question, I think, points.
In addition to bringing greater fairness to the Tax Code,
the marriage penalty, the child deductions and so forth, estate
tax, the President has always said that to ensure the
continuity or the long-term extension of our long, long
economic growth period, a reduction in rates was very, very
important, and I think that has been underscored by the wobble
in the economy that clearly began some time last year.
Mr. Thornberry. It seems to me we have at least 3
circumstances coming together which make it such that if we
can't do tax relief now, I don't know when it is ever going to
come. Partly it is the surpluses, partly it is the economic
situation we were just talking about. But the third factor to
me is the level of taxation as a percentage of the economy. I
notice that in your budget submission, you had a chart dealing
with individual income taxes as a share of the economy. Could
you discuss that with us for a second, please?
Mr. Daniels. It is a simple statement of fact, and I
believe we made a larger version of it. An individual--I mean,
taxes total are at near all-time levels as a share of the
economy, and individual taxes as a share of the economy also
are at record levels. If you will forgive the colloquialism, it
is the biggest tax bite in history. One can make of it what one
will, but it does, to some of us, suggest that time for some
relief is at hand.
Mr. Thornberry. We have heard the statement made several
times in the past couple of years that total Federal taxes as a
percentage of the economy were higher than at any time other
than the peak of World War II. But this chart indicates
individual income taxes are the highest ever. Is that correct?
Mr. Daniels. Yes. Higher than that period of World War II.
Mr. Thornberry. Higher than that?
Mr. Daniels. Yes, sir.
Mr. Thornberry. Let me just ask finally a question that
comes up. As we hear some of these fairness arguments go back
and forth, I am reminded that the Joint Economic Committee in
Congress a few years ago conducted a study which found that
well over half of the folks in the top 1 percent bracket are
small business owners, and that, in fact, a lot of small
business owners, rather than incorporate themselves, run their
businesses as a partnership or a sole proprietorship, and that
that has some effect on who the 1 percent is.
Have you all done any look as to the small businesses in
this country and tax relief as to what it may mean for them?
Mr. Daniels. The President has repeatedly made this point,
that a principal reason that there should be relief for all
taxpayers is that--is the one you have just made, that in S
corporations and in proprietorships, we have close to 21
million tax returns filed by those sorts of entities. These are
people trying for personal autonomy, for ownership, to build
businesses; which is where job creation predominantly comes
from in our country, and I think it is sometimes overlooked in
the to and fro about who gets what, and people sort of lump
together under the rubric of the wealthy, both wealthy
individuals, but also millions and millions of enterprises
which only look wealthy when you consider the revenue of the
company.
Mr. Thornberry. Thank you, Mr. Chairman.
Chairman Nussle. Thank you very much.
Mr. Clement.
Mr. Clement. Thank you, Mr. Chairman and Mr. Spratt, and
members of the committee. Congratulations to you, Mr. Daniels,
on your new position.
Mr. Daniels. Thank you, sir.
Mr. Clement. Several of us have been around here for a
while and we remember the days when we had deficits as much as
$290 billion annually, and we don't want to go back to that. We
want to keep having, as the Chairman commented, we have gone
for 5 straight years now with a balanced budget, and we sort of
like that. We don't want to go back to those days.
But we are also very concerned about forecasts, you know. I
have people at home in Tennessee, you know, when you are trying
to forecast 10 years or more, that is a long, long time, and
then wondering, are we going to put ourselves in the same mess,
in the same situation that we had previously. You know, it took
us all the way from George Washington to Ronald Reagan to
accumulate a national debt of $1 trillion, and in 8 years, we
quadrupled that national debt. Now we have an opportunity to
reduce that national debt, eliminate the national debt, and
keep our priorities. I know Chairman Greenspan said as late as
yesterday, he doesn't know the state of the economy, he doesn't
know what is going to happen, and yet from what I have heard
today, we seem to know what is going to happen in the future.
Why would you oppose triggers? When I say ``triggers,'' I
am talking about that if we do have something unforeseen happen
in our economy, whether it be in the United States or
internationally, and it could happen any time internationally,
what is wrong with triggers, just as a protection for the
future for our economy?
Mr. Daniels. Well, I think several things are, Congressman.
Let me, first of all, though, associate once again with your
point that we cannot know the future with precision. We have
tried to respond honestly to that concern, because we share it,
and that is the reason for the extra padding and the extra
cushion that we have attempted to build in here, apart from the
President's priorities.
I think triggers are unnecessary and problematic. In the
first place, at least as presently proposed or initially
proposed, once again, they hold taxpayers hostage to the
spending habits of Congress, and if Congress spends until its
tired and then if it went too far, that would block tax cuts or
even raise taxes, I suppose. I think I would prefer to see it
the other way around. The tax cuts ought to be provided and if
there is more money left than some certain amount, that ought
to trigger a further relief of the taxpayer. I might submit
that as an alternative to what is out there now.
I think there are other good reasons. Predictability is an
important thing in the Tax Code, and businesses plan on it. We
just talked about 21 million of these tax returns that are
really enterprises as opposed to individuals, and trying to
plan in business when your taxes are one of your key business
factors is completely uncertain until the end of a budget cycle
and until a number has fallen out of the great congressional
whirring machine, I would think, cause a lot of problems,
planning problems for business.
We count on--we are hopeful of a positive economic effect
from a steady reduction of tax rates, moderate reduction as the
President has proposed. But part of that, economists would say,
would come from the expectations people have and the rational
behavior they would have, and if it is all uncertain, all
subject to being shot at the pull of a trigger, I think you
would forfeit all of that too.
The President has sometimes pointed out that there is
really two reasons why such a trigger would ever come into
play. One is that Congress spent too much, and one is that the
economy was far too weak. Those are both--those are not reasons
for higher taxes, those are reasons for lower taxes.
Mr. Clement. Well, let me ask you this, then. I know
President Bush really feels very strongly that we should have a
tax cut of $1.6 trillion. You know, a lot of Congressmen have a
lot of ideas also, you know. What if that tax cut goes to $2.5
trillion, or what if we exceed the spending limit? Is he
prepared to move to veto such legislation, or what?
Mr. Daniels. There are a few words that will not pass my
lips this morning, and the ``V'' word I guess is one. But as I
indicated in response to an earlier question also, he really
believes that what he has proposed is reasonable. He wants to
back up the budget committees and try to reinstitute an orderly
process wherein your decisions are implemented and flow through
the rest of the process, and I hope that will happen in a
constructive way and a cooperative way. But he is resolved on
that point, and he has made that plain, and I know he will
continue to.
The rest of your question? I am sorry.
Mr. Clement. Well, I am talking about spending.
Mr. Daniels. Yes, I am sorry, excuse me, a very important
question. There is the danger that the tax cut sparking other
ideas and the President has already put up the stop sign, as
has been widely reported in face-to-face meetings with
representatives of large business, for example, and in many
meetings, I must say, with members of our own party, all of
whom are overflowing with good ideas, the President has told
them he is, in many cases, sympathetic to their ideas, but they
will have to wait and not everything can be done, and there is
a level that he thinks is appropriate, and that is the one that
is in our budget.
So we share your apprehension and would like to work with
Members of Congress to make sure that the tax cut--tax relief
bill, as it progresses, does not get out of hand as obviously
has sometimes happened in the past.
Mr. Clement. Thank you, Mr. Daniels.
Thank you, Mr. Chairman.
Chairman Nussle. Thank you.
Mr. Hastings.
Mr. Hastings. Thank you, Mr. Chairman. Mr. Daniels, thank
you, and congratulations on your appointment.
Mr. Daniels. I appreciate it.
Mr. Hastings. I have to say that I find this hearing and
this process absolutely refreshing. Refreshing from the
standpoint that we have a President, a new President that is
attempting to govern precisely as he campaigned, by talking
about tax relief, by talking about prioritizing spending and
education and defense and saving Social Security. Also, I find
it absolutely refreshing that we are here in this era of
debating the size of tax relief for the American people. I
particularly like your response where you said that we should
probably put the taxpayer first. I think that is a refreshing
idea that we ought to frankly pursue more than anything else.
You mentioned in your opening remarks about the first step
of this process, and I appreciate that very much. What I would
like to focus in on is a concern that I do have, probably from
the standpoint of prioritizing spending, and I want to focus
specifically on the Department of Energy and specifically
within that, the environmental management account, because that
affects certain areas of the country, and obviously it affects
mine, and that is the nuclear sites that we have. We don't have
a figure obviously because you haven't gotten to that point,
but there are rumors floating around that there is a suggested
cut of somewhere around 6 percent. I and others of the Cleanup
Caucus have said to you that exactly the opposite should be
there because the priorities ought to be on cleaning up these
sites.
I want to paint a picture, focus more on my site, but when
I say this, the focus is on all the other sites. Savannah
River, Oak Ridge, Hanford, which is my site, Idaho, Rocky Flats
and so forth. In the last 6 years, Savannah River has had their
employment cut by nearly one-half. That is a big driver of
costs, as you know. At my site in Hanford in the last 6 years,
we have reduced employment by about a third obviously a cost.
But yet, with that reduction in manpower, we have accelerated
the cleanup.
Let me tell you what Hanford is all about. You know that
big spike there where the big taxes went up in 1943, that is
when Hanford came about. It became about because of the Second
World War and our need to win the Second World War to develop
the atomic bomb. In fact, the bomb that was developed in
Hanford was the one that was dropped at Nagasaki that finally
led to the surrender of the Japanese. We also won the Cold War
because of the efforts of these sites.
Specifically at my sites, there are 177 underground tanks
that hold 53 million gallons of radioactive and hazardous
material. Sixty-seven of those tanks have leaked. Yesterday we
had an earthquake in Seattle. That rumble was felt all the way
down to Salt Lake, which went right through the Hanford
Reservation. DOE suspended operations out there, went out and
checked the site, they found one tank had gone down a little
bit, they found out it wasn't anything that was serious. But if
any of those tanks were to rupture, this radioactive stuff; you
can't be around it. I mean it is bad thing. So we have to get
on with the cleanup in that regard.
Again, within Hanford, and I want to focus on two projects,
one is the--and these are the two main projects at Hanford. The
first one is the K Basins. That is located 100 yards from the
Columbia River. That is where spent nuclear fuel is sitting. It
was supposed to have been there for a short period of time, but
it has been there for 25 years because of a change in Congress
not to recycle our nuclear fuel. That has to be moved. The
spent fuel there is not leaking into the Columbia River, but it
is breaking down within the basins. That has to be taken care
of. This stuff is not like snow, it is not going to melt, it
has to be moved.
The other big project is the Office of River Protection
that deals with the tanks. What both of these things have in
common in the last several years, we have made some regulatory
changes which I think were good, but also, the contractors that
are doing the job there are based--are incentive-based
contracts and they are incentive-based on milestones,
regulatory milestones that several of the States have. We have
one in Washington State called the Tri Party Agreement. If
those milestones aren't met, you go to court right away, and
probably lose because the EPA and the Department of Ecology
within Washington are involved with these agreements.
The reason that I bring these up is that we have to
continue on, because these are veterans. These sites, all of
these sites, are veterans of World War II and the Cold War.
This Congress and I know this administration feels very
strongly about taking care of veterans.
I guess my question to you is in the prioritization process
that I know you are going to go through when you present us
with the final document, what comfort level can you give us as
to making sure that we can make sure these sites are cleaned up
adequately?
Mr. Daniels. Well, we recognize it as a very high priority,
Congressman, and I will be pleased to work with you and other
interested members of both bodies on this. Secretary Abraham is
very vocal about it. I will tell you quite honestly that
between now and April, there are probably more details to be
filled in in the energy budget than any of the others, in any
other single department, specifically because he is looking for
ways to meet the important needs at the cleanup sites, equally
in terms of the stockpiles we have and their proper security
and stewardship, and these things we have highly prioritized.
Quite honestly, we view them as much higher priorities than for
instance some of the subsidies of corporate research that have
grown a lot in the department in the last few years.
The question is the extent to which and how quickly we can
sort of move from lesser to higher needs.
But we are well aware of this one, and Secretary Abraham is
working on it and we are going to work to help him.
Mr. Hastings. Good. Mr. Daniels, I appreciate very much
that, because as I mentioned, at all of these sites the--what
we are trying to clean up is something that won't go away. The
difficulty with radioactive material is you can't view it,
because if you view it, you have a real problem, but yet that
is what we are dealing with out here and specifically at
Hanford, and the reason that the Office of River Protection is
in place is that we have about 60 percent of the radioactive
material in the country, and yet it is the only site that has
no way to deal with that in a permanent basis. That is the
reason for the Office of River Protection. Thank you very much.
Mr. Daniels. Thank you.
Chairman Nussle. Mr. Moran.
Mr. Moran. Thank you, Mr. Chairman, and good luck, Mr.
Daniels, making this budget and tax cut--don't smile, until I
get through my question--making this budget and tax cut work. I
have to share the skepticism on this side of the aisle, though,
that I think it is problematic, what you are telling us, and
for five reasons, I don't think it is going to work.
The first is the unreliability of these surplus estimates.
CBO has told us that they could be off by as much as 2\1/2\
percent of gross domestic product which, over the next 10
years, is going to average about $10 trillion, so you are
talking about 2\1/2\ trillion over the 5-year period, whereas
John Spratt said, if 72 percent of the tax cut occurs, you
could be off plus or minus by one and a quarter trillion
dollar.
Secondly, the cost of the tax cuts are clearly
underestimated. There is no question but that you do not
include the additional interest costs that are incurred because
you are not using the surplus to pay down debt. You have to add
that additional $400 billion to $500 billion to the cost of a
tax cut, and then you have to deal with AMT. We are not going
to let 27 million American households get stuck with that AMT
by 2010.
Thirdly, the amount of the debt that can be paid down, we
would take issue with that, because the deputy--excuse me, the
Under Secretary for Domestic Finance of the Treasury Department
has written to us. Now, this is the person that was responsible
for debt management in the Treasury Department right up until a
month ago, and he tells us that $3 trillion of the currently
outstanding $3.4 trillion of publicly held debt can be paid
off, so we would rather see that paid off than only two-thirds
of it. If we don't pay it off, our kids get stuck with it.
Fourthly, after 2010, when the baby boom generation
retires, the retirement population doubles and the budget
implodes.
If you are going to do the right thing now, it would seem
that you would reform Social Security, I agree with the
Commission, but they are going to need some money. So you have
to put aside, I am sure you would agree with these numbers, at
least $1 trillion if you are going to set up these individual
retirement security accounts so that people can invest their
own money. You are not going to take it out of current
benefits.
A last reason. Your spending estimates are substantially
understated. Let us talk about defense, which is the major
component now of spending and the one to which your President
has committed himself to substantially increasing.
Your defense budget is 99.97 percent of the Clinton's,
President Clinton's budget, so there is virtually no new money,
but that base does not include the $3.9 billion to carry out
the military retiree health care, which is mandated as a result
of legislation we passed last year, but is not covered in your
budget. Plus, the President sat down in Georgia, Fort Stewart,
and said that he was going to add another $1.4 billion in
military pay, another $400 million in military housing, that is
another $1.8 billion, so now we are up over $5 billion. I
should slow down so we can get all of this down, but that is
not included, and then in addition, I just read in The New York
Times today that he promised another $2.6 billion for new
research and development, about half of which would go to
national missile defense.
So now we are talking about a shortage in the defense
budget of about $8 billion. And we are talking about another
supplemental, which we--has become an annual tradition. So that
new base isn't even included in your defense numbers.
As you know, any kind of base closing process, which is
talked about now, or any of the other ways in which we try to
improve defense takes a long lead time. You haven't even
started the process. I can't imagine how you are going to
maintain the existing level of spending in defense, never mind
maintaining--funding new initiatives. Can you?
Mr. Daniels. Well, I am still smiling.
Let us take them right off the top. I got no debate here
about the unreliability of forecasts. That is why we brought
you, as somebody pointed out, the first budget that ever
admitted it didn't really know the future, admitted and
provided for that with $1 trillion on the on-budget side and
$600 billion on the other side. The CBO estimates, or report
you mentioned is very interesting. It points out under the
disaster scenario, the worst of the worst, $1.6 trillion of
surplus over the time frame, a lot short of what we have, but
imagine that, in the worst case they have proposed, a unified
surplus of $1.6 trillion at the rock bottom. By the way, the
top number is close to 9.
Mr. Moran. As you know, if they are off by even eight-
tenths of a percent, $4 trillion of this surplus shrinks.
Mr. Daniels. Actually, sir, that is not correct, but you
know, the point is valid that there is a very wide range. I am
just letting you know that the range is astonishingly on the
surplus side, given the Electrolux tax collection system we
have today.
Let me talk about the underestimate. I am happy to reassure
you that you are quite right, under our accepted accounting
system, the interest we would not collect actually on these
cash balances, $400 billion is provided for, when you see our
chart with the contingency reserve, it says $1.4. You have
heard me say over and over, $1 trillion is totally uncommitted
money, the $400 million, you are quite correct, is associated
with the tax cut.
You know, AMT, the AMT argument point is a valid and
interesting one, and if this is something Congress wants to
address sooner rather than later, the President will be glad to
do more than we are already proposing. It is interesting to
talk, you know, in terms of sticking X million Americans with
the AMT, some of the people say they want to stick all 103
million taxpayers with no cut at all. You can prevent the
problem that way. That is one way to avert it, but that is not
our way.
This business of how much debt can be paid. The last
estimate from the Treasury Department that this gentleman left
I have here, they issued it in January, is $1.2 trillion of
debt remaining in 2011. That was their way of saying they
didn't believe you ought to send bonus payments to bond holders
and foreign banks in order to accelerate large amounts beyond.
You know, they dabbled a little bit, perhaps we can again.
$30 billion last year, that is less than, far less than 1
percent of the what was outstanding, not talking about taking
in 100 percent of the last pool of Treasuries in the world for
which you would pay an exorbitant, multibillion dollar premium,
you know. This is like somebody who played Go Fish for a nickel
and thinks he can transport that to the World Series of poker,
it will not happen.
You talked about reform of Medicare and Social Security.
Quite agree. It is--in fact, it is our point that we should
move now, not wait and not imagine that it is a good idea to
hold off reforming those programs so that they can be solvent
over the long term.
On the defense spending understated side, the Clinton
budget proposal for--as you know, the Clinton budget for this
year was 297. The baseline they left was 306. Walking out the
door they left a piece of paper, not a budget proposal, that
said 310. You wouldn't probably, as an advocate of defense,
want to implement that budget, because the number for the next
year, 2003, was also 310, and the number for the year after
that was 317. This is an administration, or it was an era, at
least, let me just say, in which defense was underattended and
some repair are probably going to be in order. But our budget
is not the Clinton budget. Finally, it does include health care
and it does include the $4 billion of new spending which the
President pledged in his campaign and honors in this budget is
exactly where the pay, housing and R&D money comes from.
Thank you for--it was more than 5 questions, but they were
good ones.
Mr. Moran. I think you will find that the economic growth
is off by as much as eight-tenths of a percent; 4 trillion of
the surplus does go away.
Mr. Daniels. Well, I will check it. I have about 2 trillion
off for one point. It is a big number. You are quite right. I
think it is not quite the number you have, but it is very
important to remember that. Please do also remember that there
are other variables just as powerful, and we talked about the
one on the revenue side earlier.
Mr. Moran. Thank you. And again, good luck to you.
Mr. Daniels. Thank you very much.
Chairman Nussle. Mr. Kirk.
Mr. Kirk. Well, thank you. I want to take the other tack
about how the tax cut may be understated in costs rather than
overstated. I don't want to disagree with my colleague from
Virginia, because he is my other Congressman, and we do need
some potholes fixed on Glebe Road, and I want to continue that
bipartisan effort.
The President noted that a waitress--I was a waiter--
earning $25,000 ends up losing a half of every additional
dollar earned due to the tax system that we currently have. He
called it the ``toll booth on the highway to the middle
class.'' Reducing her taxes and those of everyone else provides
an incentive to workers to work harder and get more training,
more saving and investment, and, by the way, more Federal
revenues. Martin Feldstein suggests that about a quarter of the
static losses from the marginal rate cut would be made up this
way.
Does the administration's revenue projections take into
account the taxpayer behavior that we reward them when
changing?
Mr. Daniels. No, sir, it doesn't. I would add this to the
list of very conservative assumptions that are in this budget.
It is a long-standing debate about static scoring versus
something else, and we are not pursuing it in this budget. We
are accepting the Washington convention that says that in this
case, $1.6 trillion more would be left with taxpayers and
absolutely nothing would happen.
You know, I don't know what the right answer is,
Congressman Kirk, but that is not it. So this should be treated
as a further upside to the surplus estimates.
Dr. Feldstein, in the account I saw that said $600 billion
was his estimate, so that would be roughly 37 percent----
Mr. Kirk. That is right.
Mr. Daniels.--would come back in revenues. I don't know. I
am guessing it is something north of zero, but zero is the
number we used.
Mr. Kirk. I might suggest that the Washington convention
may be wrong, that it probably certainly is not zero, to lay
down a marker, I think we ought to take a look at that in the
budget resolution.
We met ``Rosy Scenario'' during the Reagan administration
and certainly the blue chip economists now agree that ``Rosy''
has left our midst in your budget. But I wonder if ``Gloomy
Gus'' has taken her place. The concern is that the
responsiveness of Federal receipts to growing GDP may be
dramatically understated. Both Social Security receipts and
personal income tax collections rise faster than the economy,
and you pointed that out in your testimony. One estimate shows
that it rises by 1.04 percent for every 1 percent increase in
GDP. Others say it is as high as 1.18 percent. With the lower
number, a tax cut is barely affordable. With a higher number,
we afford twice the tax cut.
What would you say is your number for the 10-year forecast?
Mr. Daniels. I can just repeat that I believe this is among
many very cautious assumptions. This is probably the most
conservative of all, certainly in terms of its power and the
sensitivity of revenues, and therefore surplus to this figure
if we are low, and you know, you can draw your own conclusions
from the chart that shows that for 9 years in a row, including
the one we are in, revenue growth has outrun GDP growth, and we
are forecasting that in the interest of prudence, that will
suddenly be reserved and that we will spend 7 years below GDP
growth. How much more careful you can get than that, I don't
know.
Mr. Kirk. I want to also commend our ranking democratic
member for some of the political realities he points out in the
upcoming action of the Congress.
One of the things that I worry about that we certainly can
see coming is the long-term outlook for the liabilities of the
Federal Government and the contingent liabilities.
Congressman Hastings talked about nuclear waste and other
contingent liabilities. But we have some pretty firm long-term
liabilities that we understand. Is it your understanding we
face about a $9 trillion unfunded liability in Social Security?
Mr. Daniels. It is on that order, yes, sir.
Mr. Kirk. And about another $9 trillion for Medicare?
Mr. Daniels. Clearly in the ballpark.
Mr. Kirk. Would it be possible in the next budget that you
put out, the one that you have your full hands around, to have
a 20-year projection so we can begin to see the long outyears
when the Social Security and Medicare bills become due?
Mr. Daniels. Yes. Projections that go out even further than
that as far as 75 years, you know, are conventionally made. I
do think that there may be value in looking at what I would
call more relevant time horizons tied closely to the
demographic changes, just so we can just sort of see exactly
where the worst pressure points are and keep very close tabs on
those as they may shift and even worsen.
Mr. Kirk. By worry, Mr. Chairman, is not in this budget,
which I support or in this House, which I think will have some
discipline, it is the other body which has a way of turning tax
bills into Christmas trees and congressional earmarks out the
yingyang. I think a long-term projection showing some of the
liabilities that we know will fall due help restrain the other
body's appetite. Thank you very much.
Chairman Nussle. I thank the gentleman.
Ms. Hooley.
Ms. Hooley. Thank you, Mr. Chairman.
Thank you, Mr. Daniels, for being here.
I have one follow-up question and then some other questions
or comments, and it really goes back to Mr. Davis's question
and to Mr. Spratt's question, when you looked at where you got
this $1 trillion contingency fund and you said well, you took
for all of the other promises, $200 billion, you took the $300
billion from where you weren't going to do the extenders or fix
the AMT, and then you took another $500 billion from the Social
Security Trust Fund--excuse me, the Medicare surplus. And then,
I believe you said to Representative Davis, well, we are not
going to spend any of the Medicare money.
So I have a problem saying, you have a $1 trillion
contingency fund, we are not going to take anything from the
Medicare Trust Fund, and yet, that is how you get your
contingency fund.
Mr. Daniels. Well, I obviously didn't make myself clear and
I apologize. I was trying to help the questioner work from his
mathematics, which is not the mathematics I accept or even the
approach I accept, but I was trying to reconcile the two. I
wasn't taking money from anywhere.
Ms. Hooley. Right. But you were using the $500 billion from
the Medicare as you looked at those numbers.
Mr. Daniels. Well, let me walk you through what I believe
is the common sense and appropriate way. There is $5.6 trillion
beyond our needs for today. We look to see how much could be
spent retiring debt, and that was 2; that left $600 billion
uncommitted on Social Security.
Ms. Hooley. I just want to go through the contingency fund.
Mr. Daniels. I am getting there. The President's tax relief
plan is the size that it is. We attach to it, we assign to it
the so-called foregone interest, and notice, that there is $1
trillion uncommitted there which strikes us as an entirely
appropriate cushion.
Ms. Hooley. And $500 billion of that is Medicare.
I really actually want to go on to some questions about
education.
I appreciate the fact that you want to be more honest and
transparent than your predecessor, and yet when you look at the
Department of Education's budget, it was stated, you stated,
President Bush stated that there was an 11.5 percent increase
over the prior year, and yet if you look at what the budget was
of $42.1 billion in 2001 and you look at the proposed budget,
$44.5 billion, that is a $2.4 billion increase, that doesn't
add up to 11.5 percent, it adds up to 5.7 percent.
Mr. Daniels. Actually it is 5.9. Our document spells that
out two lines below the 11. It just depends which comparison
you make. Congress, of course, has been active in a process, we
think we ought to deactivate.
Ms. Hooley. Well, we may want to deactivate that process
and I don't disagree with you on that, but again, if we are
going to be honest and transparent about the budget, we really
have to look at what that increase is, which is 2.4 billion.
Mr. Daniels. Well, as I say, people can pick the number
they want and we put them both in the document.
Ms. Hooley. Right. One of the things that President Bush
said, and you stated, and it is in this document about they
really want to include our obligation for disability programs,
Individuals with Disability Act, the IDEA program. To get back
to the 40 percent, which is where our obligation is, and when
we make promises, I think we should keep those, it is going to
take us $3 billion a year over the next 5 years to get to
approximately that 40 percent obligation. Yet, if you look at
the budget and all of the things you propose in the budget for
new educational programs, it is $2.4, well short of just what
we need for one single program.
Mr. Daniels. Well, we are quite aware, and very committed
to making progress in terms of the IDEA issue, the unfunded
mandate that it inflicts on the States and the way in which it
can crowd out other education spending. We have incorporated
enough spending to keep up with the growing population of
children identified, which, as you know, is racing ahead of the
overall population of young people. And beyond that, we have
taken a next long step in this direction by liberalizing the--
we propose to liberalize and make flexible $1.2 billion of
other education spending.
States have indicated they would rather use that money or
large portions of it for the purpose you are suggesting as
opposed to that for which it was initially intended. So we
sympathize. You put your finger on an important problem that we
all have to work on. It is a moving target, and getting all the
way to 40 percent is, as you know, an enormously ambitious
undertaking.
Ms. Hooley. It is an ambitious undertaking, but I mean that
obligation goes to your schools and to local communities and if
we want to get there, it is going to take us $3 billion a year,
and in your budget, with $2.4 billion increase, it doesn't even
take care of that one single program, let alone all of the
other initiatives that President Bush has proposed.
Mr. Daniels. Well, Congress has struggled with this and
Congress has never come close to advancing against that 40
percent goal in the past, and we are going to have to work
together to do better than we have in the past.
Ms. Hooley. Right. But there is also no increase in the
budget for this program, although it was mentioned in his
speech and mentioned in his budget and he singled it out, and I
know that you have given some flexibility to some other dollars
which are also needed by our schools and our school districts
when we have crumbling buildings, but you don't give a priority
to this by specifying an amount of money of an increase; is
that correct?
Mr. Daniels. Well, we do not want to dictate to the
Nation's schools whether they would rather take care of their
problems with disability or fix facilities and therefore, we
propose to be consistent with the President's general approach
to give them that opportunity. I think a large percentage of
that $1.2 billion will go as an important increase toward IDEA-
type funding, and we are going to look in future years for ways
to do more of that.
Ms. Hooley. Thank you.
Chairman Nussle. Mr. Brown.
Ms. Brown. Thank you, Mr. Chairman.
Mr. Daniels, thank you very much for being able to bring to
us almost on short notice a document that I think is absolutely
on target to what this Nation needs. In South Carolina, we hear
all about tax cutting, and I am real pleased to be able to come
my first year as a freshman and talk about a budget that is
focused on returning some of those proceeds back to the
citizens of this great Nation. I commend you for taking that
stand and for providing that leadership. I recognize that it is
difficult to start projecting what is going to happen 10 years
from now, but at least the future is going to be there, and we
might as well prepare for it, and without a plan, I can see
that the growth of government will continue to grow, so I
commend you for the insight and for preparing this summary of
the budget and I look forward to working out the details.
When I look at the budget, I recognize there are a lot of
special things that I am concerned about, particularly about
the highways, and I recognize that you addressed some of that.
We would hope that as the growth of those trust funds continues
to increase, that those funds would not be convoluted back into
big government, but go back to the areas that were designated
for roads in the United States. So I would hope that would be
one area that we could continue to work on as we develop the
lockbox for the Social Security and Medicare trust funds.
Mr. Daniels. Thank you, sir.
Chairman Nussle. Mrs. McCarthy.
Mrs. McCarthy. Thank you, Mr. Chairman.
Welcome, Mr. Daniels. I am very new on this committee too,
so this is our debut here.
I want to follow through with my colleague on talking about
education, because that is my other committee, and for the last
4 years, we certainly have been trying to get to the point of
where we can do full funding for IDEA, and it is something that
I know certainly in New York State, if we could do that, it
would certainly help all of the local communities probably to
spend those moneys in other areas.
I guess I need some answers from you on the President's
proposed $2.5 billion increase for the Department of Education.
$1.6 billion, as my colleague had said, is for elementary and
secondary education, and $1 billion is for the Pell grants, I
want to talk about the Pell grants, too. However, after the
budget cut funding by $433 million through the elimination of
one-time projects, which you know, I understand is what the
President wants to do, it only leaves, and these are your
figures, $333 million for higher priorities. I guess that is
where my concern comes in on what are the higher priorities,
special education, school renovation, or after-school programs
being considered a higher priority.
My concern is, and, you know, I have introduced a couple of
bills over the last couple of years for after-school programs,
and I know how expensive those programs are. IDEA alone, as Ms.
Hooley has said how much it would cost for that; school
construction we haven't even talked about, repairs. There is
not a school in my district that is not over 60 years old. They
don't have the money to even do repairs, even if they used the
bonds, as the President is suggesting through the State. They
don't have the money. We are taxed out to the limit, and I
guess that is one of the concerns I have, because I keep
hearing each and every one of us have a priority, I guess is
the word, and personally, where I come from, I love tax cuts
and I have always voted for tax cuts. But when we on the
Federal level put these dollars to work, we have an even
playing field.
New York has always sent more money to Washington than we
have ever, ever gotten back, and that will probably always
continue for a long time, unfortunately. But the whole idea of
the Federal Government is the moneys that have been taken in,
spread over this whole country, whether it was education,
whether it was health care, or anything like that.
So basically, what I am trying to figure out, with only
$333 million left over from what the projected budget would be,
God help me, when I came here, I couldn't even say millions or
trillions, because it wasn't in my vocabulary, and now we talk
about $333 million to spend on high priorities for the country.
That is really not that much when we see so many problems
throughout this country. There is probably not a district
around here in this whole country that doesn't need some sort
of school repairs. And the States can't do it, because if they
could, they would have.
May I ask how you respond to that?
Mr. Daniels. I guess I would start by saying that it is
probably noteworthy that you have just come to the committee. I
mean, I had to look also at the incredible run-up in spending,
education being a great example, over the last 3 years.
Education, well before the President's 11 percent or 6 percent,
however one chooses to look at it, increase has enjoyed, if
that is the word, a dramatic ramp-up in recent years. So I
think that has to be borne in mind.
As was pointed out by more than one questioner, there are
big issues whether that money right now is being well spent.
There are issues any time in a public or private organization
that one infuses enormous amounts of new money over the short
time whether that money can be spent wisely. We may need to be
looking at that, as I was urged to do at the Department of
Education.
But I would also point out there is education spending
outside the Department of Education and some of the President's
commitments were honored elsewhere. Some, for instance, the
increase in K-12 or elementary and secondary education is
between 8 and 9 percent inside the department, but it is well
over 10 percent when you count new initiatives elsewhere, like
the National Science Foundation.
Finally, with regard to other needs, school construction
and the rest, again, the States and localities, the school
districts are in the best position to decide which is their
most urgent need, and listening to them, we have decided to opt
for flexibility wherever possible. The needs in your district
would not necessarily match those somewhere else. And I guess
we will tend to as many as we can as fast as we can.
I am tempted to observe that the Federal Government can't
and shouldn't become the plumber of last resort or first resort
for school facilities all over America, and that while it can
help, and it will, we are still 7 cents on the education
dollar, and our most rapid run-up will never be able to meet
all of the needs. Those will always principally be the job of
school boards and localities and governors. But we are
committed to working with you. It is the President's highest
priority.
Mrs. McCarthy. I agree with that, and I do believe that
local schools do have the control and I will say, because I am
on the Education Committee, over the last several years, we
certainly have given more flexibility to the States and to the
schools. I never even understood what used to be said around
here was government-run schools. I don't know one government-
run school. My local schools, believe me, have an iron hand in
that.
But the cost of the run-ups, you know, what you are saying
in the States is obviously because they don't have the money to
do what needs to be done, especially with special education. I
mean it is costing them so much money because we are diagnosing
children younger and earlier, and it is costing a fortune all
the way through. As a nurse, I can say to you, obviously the
earlier we get these young children, the more money we will
save on the top end. Sometimes you do have to invest. But our
schools are falling apart and they do need help, and it doesn't
matter whether it is an urban area or even in my suburban area,
which is considered a very wealthy area. I will debate that on
another day.
Mr. Daniels. OK.
Mrs. McCarthy. Thank you for your time.
Chairman Nussle. Thank you, Ms. McCarthy. You will find
that you have many partners here on this committee when it
comes to special education. It was really this committee in a
bipartisan way that provided the leadership to increase the
funding for IDEA over the last 3 years, and you will find a lot
of friends and supporters are railroaded to that. That is an
area we need to continue to address. I appreciate your line of
questioning.
Mr. Watkins.
Mr. Watkins. Thank you, Mr. Chairman, members of the
committee, and Mr. Daniels, welcome aboard, and I look forward
to working with you. I have not studied every detail, to say
the least, of the overall budget, but I do a little reading on
it, a little nighttime reading, and also I am going to do a lot
of airplane reading when I leave here tomorrow morning to go
back to Oklahoma.
I came to this Congress with a mission, and that mission
has been to try to change the economic livelihood of rural,
depressed areas. I understand that with a lot of my urban city
brothers and sisters, the problems of economics may be not of
their area, but I do know of the rural economic depressed areas
which are not addressed a great deal in this budget.
I represent an area where the per capita income is less
than 50 percent of the national average. Most of my
constituencies have probably less than 40 percent of the
national average. And it has had huge out-migration, which has
gone into a lot of large cities over the years. I have been a
part of that. I had to leave the area 3 times before I was 10
years of age with my family, and it destroyed my family. That
made a burning impression on my life and I have tried to devote
my life to try to provide economic opportunities and job
opportunities in those areas.
This is something that seems to me that has been ignored.
As a result, we keep sending people to the big cities. They
have more problems because our loved ones have to go there. We
have problems because we lose our tax base, we have lost a lot
of our families that will never be able to return. So I have
tried to look at how we stimulate that economic condition.
Now, I just left a committee that Mr. Nussle and I serve
on, Chairman Nussle on Ways and Means add we are going over the
tax bill. We are going through the first phase of the tax bill
on marginal rates which will be about $982 billion, and we need
it. I know we have to stimulate the overall economic conditions
of this country. It may become close to the big R, a recession,
if we don't do something about it.
But there are areas in this country that already and have
long been in recession, and that is in the rural, economically
depressed areas.
Now, I am looking at this budget from several angles, but I
look at one and I say, Mr. Chairman, I know you have some
concern, and we have agriculture. I have two degrees in
agriculture. I am concerned about agriculture, but I know we
cannot save small-town, rural America with just on-farm jobs.
We have to have off-farm jobs in the society that we are living
in in the 21st century. One of the things that has bypassed us,
Mr. Chairman, out in small town rural America, has been the
high technology. I reviewed this, and I know the rural
telephone bank is being projected to be done away with by the
administration. I am not totally against that, but I would like
to offer a substitute for that. I would like for us to look at
how we make, and I am offering some language that, and will be
offering some language hopefully here in this committee, but
also in other legislation, to convert that to information
technology centers or incubators out in those areas.
I have an industry that came to my State that said we could
use 500 more jobs in high tech and I said, hey, let me try to
help this economically rural depressed area, and they said,
well, you don't have the people. I found out when I surveyed,
we do have the people, but not in one town, but in technology
you can spread that out.
So I am going to be trying to work, trying to see if we can
equip some of our small town rural communities so they can be
considered for high-tech jobs. We have people out there who
would like to stay and live and work and raise their families
in those areas.
Now, high-tech industry has basically looked at the larger
cities because there is a pool of people. But yet they are not
as stable a worker as that man or woman out there in the small
town who are there because they want to live there. They are
staying there because there is some acreage and things like
that.
So I hope you will look at that with us. We need that
desperately in rural America. Like I say, over at the Ways and
Means Committee, and I am willing to work through the first
phase of this tax relief package based on only one thing, and
that is that we have a second round of that tax relief that
will be more targeted in trying to help us give some relief for
the marriage penalty, the death tax, also some native American
conditions that are out there, the worst economic conditions.
Do we have a compassionate, conservative attitude? I think
overall, we do. We need to address that. We have a real--I am
willing to work and work and work to try to back, I think, the
President's overall budget package, but there is going to have
to be some of these other things addressed along the way.
So I know my time is basically about up, but I am glad to
be on this committee, and I hope to work with you very closely
on some of these problems that are out there, because we have
to make an investment, just as we are making an investment with
some tax cuts, there are some things we have to tweak out
across America if we are going to--I know would have to look at
the big picture, the overall situation, but there are pockets
across this country where the people are hurting and they need
help and they are crying out for that help from this
administration. So I look forward to working with you and I
hope that you will be willing to help push some of our
thoughts.
But would you look at that on the rural economic depressed
areas of this country?
Mr. Daniels. Yes, sir, absolutely. It is mutual on our
part, and we have enjoyed our previous discussions with you.
There is no stronger advocate for rural America than you, and I
think you know the President has a heart for this too, and if
we can find effective ways working with you, we will.
Mr. Watkins. I hope you will look at maybe how we might
could tweak the rural telephone bank or convert that and try to
move it into information technology so we can wire and equip
some--maybe some of these buildings that are on main street in
some of these small towns that will allow us to have some jobs
in the high-tech area, Mr. Chairman. I hope that is one of the
things--I noticed it when I was reading through it, so I ask
you to help us there, full.
Mr. Daniels. I made a note of the idea. Thank you.
Mr. Watkins. Thank you.
Chairman Nussle. Mr. Moore.
Mr. Moore. Thank you, Mr. Chairman. Mr. Daniels, welcome to
the committee. I am new here as well, so maybe we can struggle
through this together.
Mr. Daniels. Is that why you hung in all this time?
Mr. Moore. Absolutely.
Mr. Daniels. I appreciate you doing it; I thought maybe I
just wasn't much of a draw there for a while.
Mr. Moore. You are much of a draw.
I am from Kansas, and back home people seem to follow three
very simple rules which are not written, and I think people
around this country generally follow these three rules too,
they are just common sense. Number one, don't spend more money
than you make; number two, pay off your debts; and number
three, invest in basic needs for the future. The basic needs
for a family, as I see it, are education, transportation, food,
shelter, clothing, health care, and the basic needs for our
Nation are certainly national defense, Social Security and
Medicare, a transportation system of some sort, and other
things that I think we all would agree on.
People I think around this country don't understand why
Congress can't follow those three simple rules as well. Don't
spend more than you make, and certainly pay off your debts.
Now, when we have the opportunity for the first time in a whole
generation to start to pay down our debts, I think the question
is becoming a little fuzzy here. It is not: Are we going to
have a tax cut or no tax cut, it is: are we going to take a
responsible approach with the $5.6 trillion projected surplus
over the next 10 years, and are we going to use a balanced
approach and have some tax cuts and some significant debt
reduction, and some of the initiatives the President suggested
that I really agree with, like stronger national defense, like
education, like a prescription drug program.
So again, it is not tax cut or no tax cut, and I think
sometimes that gets out of focus here and I think we need to
focus on that.
In fact, the other thing that we have kind of skirted
around and maybe somebody has mentioned here today is the $5.7
trillion number, which is our national debt. We talked about
$5.6, which is projected surplus, but the national debt is $5.7
trillion. And again, I supported a tax cut last year, I intend
to this year, but I think we need to be responsible in those
tax cuts, along with debt reduction.
When you asked the question, why does the taxpayer always
come last, I submit to you, Mr. Daniels, that a $5.7 trillion
national debt is a mortgage on the future of our children and
grandchildren.
I ask the question to you and of the administration, why do
our children and grandchildren come last? I think it is
important, and I am not saying one way or the other that we
take a balanced approach here, and I get very concerned when I
see--I hear your discussion and I understand your concern, and
I have heard Chairman Greenspan, I am on the Financial Services
Committee, and I had a chance to talk to him yesterday. He said
his first priority still, notwithstanding all of the news
reports, but still, is paying down our national debt, and he
said tax cuts, we can afford some now, although he has not
endorsed the President's tax cut plan or any other tax cut
plan.
I guess I would just get down to this: I think there are
some excellent, good reasons why we should look at paying down
debt, and it will accomplish some of the same things you want.
Number one, we had more than $200 billion in interest on your
national debt last year. And we could substantially reduce that
figure if we can start to pay down that debt.
Number two, I think it will keep the interest rates lower,
and most economists I hear from and talk to, including Chairman
Greenspan, say the same thing. And finally, it is absolutely
the right thing to do for future generations in this country,
and I think we owe them that. I guess I would just end up by
saying this, and that was my little speech and I am going to
turn to one question.
I am a sponsor of a bill that has already been mentioned to
you twice or at least the idea, and that is IDEA funding. I
hear your conversation about the local control. In fact, 3
weeks ago, I had the privilege to be invited to the White House
and had a chance to say to President Bush, and I wrote him a
letter on January 5, and I said I hope you will make this a
budget priority, because it is so important, not just to
special needs children, and God knows they deserve it and need
it, but also to every kid in public schools in this country,
because right now in my State and at least in 15 other States,
according to the New York Times 2 weeks ago, 3 weeks ago, there
is a shortfall of revenue. Governor Graves in my State didn't
anticipate that, as did not the legislature, and right now they
are scrambling to find funding for special education.
My point to the President was, I don't want to get our
Nation in that position by taking an--by making an over-
aggressive tax cut and finding we end up short because the
projections didn't come true, and we are scrambling to fund
some of the vital necessities for the people in our country.
If you have any comments, I would appreciate hearing them.
I do appreciate you being here today.
Mr. Daniels. I appreciate all of our comments, Congressman.
I like your three rules. I am from a place not very far from
Kansas and people operate on a similar set of rules there, I
think. I think what, at least for the moment may separate us,
is simply a matter of degree and trying to find the balance,
you spoke of balance. We thought a long and hard time, and the
President gave a lot of reflection to what was an appropriate
balance, given the excess of moneys in versus obligations we
have right now, and we are going to have over the future. So we
have submitted to you what we think is an appropriate balance,
with a lot of protection beyond it. Obviously, you will have to
decide if it is enough, if it is careful enough for you, and we
certainly take the point.
With regard to our long-term obligations, your mention of
the gross debt as it is called as opposed to the publicly held
debt, the gross debt including that which government sort of
owes to itself, it is really a measure of the unfunded
obligations of the future. To me, it is a daily reminder--it is
important to look at. It is a daily reminder that time is
wasting to begin reforming Medicare, to begin reforming Social
Security and not to kid ourselves that this is something that
can wait because we are OK for the present.
Lastly, I would just say that the very best thing we can do
for our children and grandchildren is to ensure a strong
economy, and paying down debt is a very important part of that.
It is a cornerstone of the plan we have brought. But so is
trying to keep tax collection at a level that allows a strong
economy to keep on growing and to--that is the best assurance,
that is the best way to protect Social Security, it is the best
way to protect Medicare, and we cannot take our eye off the
need to do it.
Mr. Moore. Thank you.
Chairman Nussle. Mr. Culberson.
Mr. Culberson. Thank you, Mr. Chairman.
Director Daniels, I have the privilege of representing the
people of West Houston. I succeeded Bill Archer, the former
chairman of the Ways and Means Committee, and our district is
one of the most highly educated, certainly in the State, if not
the Nation. It is a wonderful district to represent. As well
educated and informed as those folks are, I have discovered on
several trips back home to the district after many of the
excellent briefings we have had here on the Budget Committee
that the people of my district are unaware that the government
cannot pay down--pay off early some of the debt that we
currently have. I just want to reiterate, after the comments
that Congressman Moore made and I have heard others make as
well, the President's budget pays off as much of the publicly
held debt as can be paid off without incurring penalties, is
that correct?
Mr. Daniels. Yes, that is correct, Congressman. As I said,
you may be able to push a little further, if so, quite
possibly, that will happen. But that is our best estimate.
Mr. Culberson. We have many people in my district that are
either in retirement funds of various kinds that hold bonds
individually, and I think it is vitally important that all of
us, as we communicate to our constituents and to the Nation in
general, if they are bond holders, anyone who understands the
way bonds work, you cannot pay them off early without incurring
a penalty. What you are telling this committee, and the
President has said the other night in his address to the
Nation, is that his budget will pay off all of the publicly
held debt that can be paid off without incurring a significant
penalty. That is just a vitally important point that the
public, I want to make sure, understands.
Mr. Daniels. I would just say quickly that I don't think
the well-educated and informed citizens of your district or any
district need to feel at all embarrassed that they hadn't
thought about this. This is a new problem.
Mr. Culberson. It is a new problem.
Mr. Daniels. I have done a little digging around and as far
as I can tell, the last time, maybe the only time in our
history that the government confronted this problem, was in the
Cleveland administration of the late 19th century. I commend
for your entertainment at some point some speeches that
President Cleveland made at the time, which but for the fact
that he wrote in better English than we tend to use these days,
could apply to our situation.
Mr. Culberson. Thank you. I also wanted to if I could
compliment our budget chairman, our leadership here in the
House and the Senate, the research that they have done to
determine that indeed the surplus we are discussing today is a
tax surplus, and that it is important that the--I believe all
of us in discussing this surplus use that terminology, because
it is indeed a tax surplus, it is not a budget surplus. Budget
surplus implies that it is extra money that we need to spend.
The surplus, wouldn't you agree that we have today is a direct
result of overcharges to the taxpayers and therefore it is
accurate, whenever we refer to the surplus, that we call it a
tax surplus so the listener understands precisely what it is
and those who might want to edit our words cannot edit it, and
that it is very clear that it is a tax surplus. I wanted to
urge you, if you could, to please use that terminology if you
agree with that reasoning.
Mr. Daniels. I think each person can choose his own
terminology, as long as we can remember where the money comes
from and whose it rightfully is, until someone identifies a
public need that justifies the taking of those funds.
Mr. Culberson. Finally, if I could, Director Daniels, I
wanted to reiterate for the benefit of the listeners, as well
as to ask you to confirm, I know that Chairman Archer shared
with me that he has run the calculations, and Chairman Archer
estimates that the Reagan tax cut, if put in today's dollars,
would be $5.5 trillion, to put the comparison in perspective.
President Bush's tax cut of $1.6 trillion cannot be compared to
the Reagan tax cut, because the Reagan tax cut was far, far
larger and, of course, at that time we did not have a tax
surplus.
Finally, I also wanted to ask if you could also confirm the
estimate that I have heard that the revenues generated by the
Reagan tax cut that during the period of the 1980's, revenues
increased twice, there was a doubling of revenues to the
government as a result of the tax cuts, but that the Congress
at the time increased spending by 3 times, which is the reason
we had the deficits. Would you agree?
Mr. Daniels. Those are roughly the proportions, that is
correct.
Mr. Culberson. So whenever we hear anyone complain about--
try to draw a comparison between what President Bush is so
wisely doing today, paying off all of the available publicly
held debt that can be paid off without incurring penalties, and
that ensuring that the essential functions of the government
are taken care of: military pay raise, readiness, setting aside
contingency funds, that even after taking care of those
contingencies, of course ensuring the solvency of Social
Security and Medicare, that the Bush tax cut of $1.6 trillion
cannot compare to the Reagan tax cut of $5.5 trillion, and that
that tax cut in the 1980's resulted in a doubling of revenue,
but while Congress was tripling spending. But today, under the
Republican leadership in the House and the Senate and under
President Bush's leadership, we are certainly going to hold
spending in line, so that the comparison does not seem to me to
be valid.
Mr. Daniels. Well put, sir.
Mr. Culberson. Thank you very much. I want to thank you for
your leadership and working with you, Director Daniels, and
supporting President Bush in this effort. I saw him succeed in
this in Texas. I served 14 years in the Texas House and watched
Governor Bush succeed in refunding the tax surplus in Texas to
Texas taxpayers and saw the benefit to the Texas economy, and I
look forward to the same result here nationally. Thank you,
sir.
Mr. Daniels. Likewise.
Chairman Nussle. Mr. Capuano.
Mr. Capuano. Thank you, Mr. Chairman.
I am going to try to jump around to something that I hope
hasn't, I don't think, has been discussed. We could sit here
all day long and talk about what debt can and cannot be paid
off, and there would be differences of opinion, so be it. We
can talk all day long about how big the tax cut should be or
shouldn't be; that is all fair and well and good. We can talk
about who should get the tax cut, all day long, all good
discussions.
I actually like the comment you made about Social Security
and Medicare that we are wasting time not fixing it, and I
actually wish you had come in with that first, so that we could
fix it before we started doing things with the budget and tax
cuts. But so be it. We are here today.
There are a couple of areas that are important to my
district and I think important to the country as a whole, and
again, it is awfully hard for me, because I am also new to the
Budget Committee, but I am not new to budgets. I understand,
although I have nothing to compare it against, but all I have
is this, and if there is more to it, I look forward to it
coming. So in the meantime I have to ask questions and try to
figure out what is going on here.
For instance, I am looking at HUD right now, 2\1/2\ pages,
actually two pages, because one page is a graph, and I look and
I read and I see, and I see a small increase coming, but that
increase doesn't come near the amount of money that pretty much
everybody who looks at this thinks we need to simply maintain
the level of services that we currently have. I look at it and
I say to myself, OK, but where is the money going to come from?
I read later on, I see HUD will improve its management
instruments to get some of this money. That is great, that is
wonderful. I hope you do and I hope it works.
I also look down and see I guess a fair amount, I don't
know how much, but a fair amount is going to come from tenancy
incomes that are currently underreported, and they are going to
grab some of that money that is currently given out, and that
is a good idea. If any tenant is underreporting their income,
they should be taken off the rolls, and we definitely should be
doing something about it. But I don't see anything here that
talks about how we are going to do that, whether there is any
money to implement a plan to hire auditors; I know this year
the number of audits have gone through the floor; there are no
audits being done for all intents and purposes, and that is all
well and good. Maybe that is what people want, but I actually
like the idea of people paying their fair share, whatever that
amount is. I don't see a plan here, so I have to wonder how you
can base cuts on something you don't have a plan for. If you
do, again, maybe it will come again and I will see it and I
will ask those questions later.
I look further and I see a $700 million reduction in public
housing capital program, which is interesting when just last
year we were being told that there is a $20 billion unmet
capital needs. I understand that some people don't like public
housing, and I appreciate that, and again, we can have
differences of opinion on that, but most people who say that
they don't like public housing think of it in terms of low
income housing. Somehow, low income people should do something,
I am not sure what, but again, that is another time. In my
world, lowest low income housing is for senior citizens. It is
not for the nonworking poor who are all chiseling our tax
dollars or whatever they are supposed to be doing, it is the
senior citizens, and we are going to be leaving them in
buildings that can't meet code in many States, in many cities
and towns.
I saw in your background you used to work for a city. I was
the mayor of a city as well. We have very strict codes, and I
will not allow senior citizens to live in substandard housing,
and yet we have public housing that is substandard, and we are
not putting the money in to fix it. I say to myself, well,
maybe you are going to come up with the money, maybe I am
wrong. Maybe I am misreading this somewhere.
I read further, I see the drug elimination program is
going. Gee, I thought I was the whacko liberal who wasn't all
worked up about drug elimination, but I guess not. I guess some
other people don't care about it as well. I see later on, I see
evictions are more effective than programs.
OK. Let us evict everybody who gets convicted of a drug
problem. Where are they going to go? Where are they going to
go? More importantly, let us assume we evict somebody who has
some children, what are we going to do with the kids? Where are
they going to go? They have no place to live. They have nobody
to take care of them and they have no social programs anywhere
in this budget being increased to take care of it.
Again, I have no problems convicting and throwing drug
addicts out of public housing, yet it is a dead end. Every time
I turn around on the housing budget, it is a dead end. We are
not going to put money into capital programs, and we are going
to let senior citizens live in substandard housing. But again,
I hope that detail will come and we can go through this at a
later time.
Yesterday we had Mr. Greenspan in the Financial Services
Committee and we were talking about the projections. In his
projections he made it very clear that we are going to have
increased unemployment in the foreseeable future. OK, I
understand we don't like it. Yet, I look here and I see a cut
in the Labor Department. I see no discussion whatsoever about
doing anything about the unemployment insurance fund; I see no
discussion whatsoever about retraining programs; I see no
discussion whatsoever about adult education programs. So I say
to myself, we are going to have millions of people, because we
are going through an economic bump, whatever that is, we are
all trying to fix it, we are all doing the best we can, when
most of the observers, including Mr. Greenspan, thinks we are
going to increase unemployment, yet this document talks nothing
about retraining those unemployed people, it talks nothing
about dealing with them, talks nothing about educating them.
I say to myself, how is this not a dead end? What do I say
to people who don't have jobs? I got to tell you, that doesn't
deal with the people who still don't have jobs. And Mr.
Watkins, I got to tell you, I have to bring him up to Boston
because everything he said I agree with, though don't get me
wrong, I don't come from a rural area, but all of his problems
are very similar. We have pockets in many of our cities that
meet all of those issues, and that is why we worked so closely
last year on empowerment zones trying to get them funded.
During yesterday's discussion also, and I read through
this, our entire economy--that is a little overstatement. A big
chunk of our economy is based on the fact that we are the
leading edge of the world on innovations: medical and robotics
and everything else. It is all based on R&D. It is all based on
R&D. If we don't keep the cutting edge, they can make cars
cheaper in Malaysia than they can here. They can make shoes
cheaper in Central America than they can here. We need to stay
up on R&D, otherwise this economy is going to go down the chute
faster than we can imagine.
Yet I look here and I see some good things here. I love the
continued improvement of the NIH budget, good idea, support it
100 percent. I love the idea of making the R&D tax credit
permanent. Good idea, excellent idea. I like the idea of having
DOD do some more R&D on the missile defense system. Although we
have some differences on deployment, the R&D of it is 100
percent correct, as far as I am concerned.
Yet I look at the NSF budget and it is minuscule,
minuscule. It is embarrassing. The NSF budget is the cutting
edge of all of our R&D. We don't talk about the Energy
Department. R&D gone, gone. I have people who are getting close
to freezing on gas. Fine. Maybe we will drill in Alaska, maybe
we won't, but we need new inventions to make sure that whatever
oil and gas we do have is efficiently used. We are not going to
be doing any R&D or very little of it.
The U.S. Geological Survey, cut out. The Wall Street
Journal itself talks about these things and quotes several
leading Republican members of this House who think that some of
these R&D numbers are, and I quote absurd, absurd.
So I ask a long question. I ask very simply, are we or are
we not committed to future research and development to keep
this country's economy going so that we are ahead of every
other competitor in the world? And if we are, how can you look
at me and tell me that the NSF budget, the energy budget, the
Commerce budget on R&D issues--again, if it is not here, I
would love to see the documents, how can you tell me that that
is a commitment to R&D?
Mr. Daniels. Let me start at the top of your list of
questions, because you asked a number of important ones,
Congressman. I may have missed a couple, but let me get most of
them. The way we wrote our document may have confused you. At
one point in the HUD budget, we assume, as I mentioned earlier,
no unspecified savings from anywhere. If we don't know where
money is coming from, it is not in there. What you saw about
the people concealing their income and so forth is in a section
called ``potential reforms,'' where we think there may be
important opportunities in the future, but we do not assume any
costs for that.
I would also mention that we proposed to give a substantial
increase to the IRS, they have a modernization program going
there. You are quite right, the number of audits is way down,
and the Secretary of the Treasury and Commissioner of IRS are
committed to bringing that into the 21st century. So on that
score, I hope you will find some consolation.
Let me turn to--well, let me mention on the drug
elimination grant, it is just a good example of something. This
program has been there for quite a long time, has a nice title,
we are all in favor of eliminating drugs. It has nothing to
show for itself in terms of results. The Congress has rightly
insisted, and I would say, it is an unmet obligation of this
administration, or our executive branch, to begin attaching
results to all of the things you folks fund. The so-called
Results Act, GPRA of the 1990's, has not been particularly
honored. This is one where there has been measurement and there
is nothing good to show.
Meanwhile, there are dozens of other programs that can get
at the same problem. We are spending $19 billion fighting
drugs, much of it in areas like this. It is not that we are not
committed to that, it is that there are plenty of tools
available to housing authorities in ways that may be more
effective, and it is just a matter of trying to move the money
from the least effective program to the most effective if we
can identify what that is.
R&D is a big issue, and we appreciate your advocacy here. I
would say that R&D budgets generally are up. Again, I encourage
you to look not just at a 1-year snapshot, but 2, 3, 4 years. I
also encourage that we not ever confuse ourselves that
government can lead productivity and technology. It can help
it; certainly at the end of basic research it can make a big
difference. The commitment to the NIH is one of the largest
ones the Congress has made and the President has associated
himself with it, and I think everyone will be quite proud that
it is occurring.
I do hear voices, and yours now eloquent among them, that
say let us be sure that we have balance in our scientific
investments, let us make sure that we are not, in our present
enthusiasm on, for instance, medical research, missing other
opportunities, and we will work with you to try to identify the
areas where we have to make equivalent progress. So thank you
for your questions.
Chairman Nussle. Mr. Honda, you have been very patient, and
welcome to the committee. I haven't had the opportunity
publicly to welcome you, and we welcome you to the committee,
and we are glad you are here. You may inquire.
Mr. Honda. Thank you, Mr. Nussle. I also want to
acknowledge your patience, Mr. Chairman, and welcome Mr.
Daniels here, and thank you for your patience. You are the one
that had to stick it out.
Mr. Daniels. Now I know what those folks who play chess
against a whole roomful people at the same time feel like.
Mr. Honda. Mr. Chairman, I would like to submit a couple of
questions in writing at the end.
Chairman Nussle. Actually, I will ask unanimous consent
that all members have 7 legislative days to submit questions in
writing for the record. Unless there is objection, that is so
ordered, and you may do so.
Mr. Honda. Thank you. For the record, the questions are
regarding INS questions and other questions regarding science
research funding.
Mr. Daniels. Thank you.
Mr. Honda. Mr. Daniels, a lot of discussion was centered
around education and specifically, special education, and then
most recently, Mr. Watkins brought up the issue of FCC funding
being shifted over to Department of Education.
The comments I have, and the question I have is number one,
regarding the E-rate program, which is funded through the
Telecommunications Act of 1996, which is a very specified,
specific funding source which has shown quite a bit of success
over the last 4 or 5 years. The question is, why would
something that is very clear and specific and successful be
shifted into the Department of Education where the funding--the
budget process is up in the air, and then it is mixed also, I
believe, as a block grant. If we are going to keep our promise
and stay focused on the mission of making sure all of our
schools, our classrooms and libraries are completely wired,
which we are about 68 percent wired now, that we must complete
it to 100 percent, and then the next step is making those
schools and classrooms successful through the access.
Mr. Watkins' concern, I think, is also about the equity of
access to information which will provide youngsters with access
to knowledge and, therefore, secure a good education. Why would
we do that?
And then number two, under special education, if we said
under PL 14192 that we will fund 40 percent of the cost of
special education, why don't we just move forward on a very
specific plan over the next 3 or 4 years and do that? Because
when you do that, it pushes out the general fund amendments of
the local school districts who, by law, are required to meet
those needs; it would free those general funds money at a
percentage that will boggle the mind so that they can also
redirect those moneys, and programs are discretionary for them.
Mr. Daniels. With regard to the first question, I can only
say that the President believes that we need a great deal more
flexibility, that it is very difficult--that it is not
difficult for Washington to identify important needs and assign
funding to them, but it is very difficult for Washington to
know, locality by locality, what the right mix is and where
digital technology will be most useful or not.
So I hope, and I am sure that all of us hope, that as these
funds become more fungible and more flexible, that the need to
make sure that all our areas and all our children have access
to modern technology will be addressed by the people best
equipped to address it.
Mr. Honda. To the Chair, just to interrupt you for a
second, the funding is very specific and it is very clear, the
mission is very clear also. But to put it into a grant, block
grant funding, it leaves it up in the air as to what schools
will be using that money for, and it is mixed with other
programs, such as modernization. Now, if we keep that discrete
and use the other funds for the other purposes, at least that
arena will be very clear, it won't be subject to criticism,
because although we say we will give these moneys for local
discretion, and then people turn around later on and say, what
is wrong with our public schools?
Mr. Daniels. I would encourage you to raise this issue with
Secretary Paige, and he may well agree with you, and take pains
to make sure that those funds----
Mr. Honda. I am certainly hopeful, because it is one
program that is very successful, and it promises 100 percent
mission completion.
Mr. Daniels. Thank you for drawing it to our attention.
Mr. Honda. How about special ed?
Mr. Daniels. I don't know how much more to say about
special ed except that we agree completely, that that is an
area where we have to make a lot of progress, it is enormously
expensive to make that progress, particularly when the
objective is receding before us like a mirage. It is very
expensive simply to tread water, I have learned, in terms of--
which we will do, and then we will go further this year in the
way I described.
Next year I think we will go further still. But we are
going to have to work with the Congress. And the supply of
dollars is not inexhaustible, and the supply of good ideas is,
but we all have to work together to reconcile competing
interests. This one, for the President, is a very high priority
and the question is, what are we prepared to do with a little
less of.
Mr. Honda. To the Chair again, if I may, just to respond,
it is a special ed bill, and it is a distinct statute, and in
terms of public policy, if we follow through at the national
level, it will free up quite a bit of general fund
discretionary moneys at the local level, and if we are saying
we want local authority to our school districts, this is one
way that the Federal Government can specifically be helpful
with the law that we impose upon them. So they are faced with
two things. One, they have to obey the law, and once they do
that, they have to fulfill a law with money that is not coming
down sufficiently and they have to cover it with their own. So
they are caught in a Catch-22, not only with the law, but also
with their community members. I think mixing this money with
other funds that were allocated for modernization or putting
them into a block grant funding mechanism will again deter the
mission of PL 94142.
Mr. Daniels. I understand your point, sir. We may have some
philosophical difference in terms of the degree of flexibility
that is appropriate, and in this area the President feels we
should be reaching for greater flexibility in this area where
school-to-school, let alone district to district----
Mr. Honda. As an ex-schoolboard member I understand what
that means, but there are distinct statutes that regulate FCC
funding and also special ed, so those things are distinct.
The other areas that you put block granting money in, I
understand that there is some flexibility, but these two are
very clear in statute.
Mr. Daniels. Thank you for the point.
Chairman Nussle. Thank you, Mr. Honda.
Mr. Price, you have also been very patient. Thank you.
Mr. Price. Thank you, Mr. Chairman.
Mr. Daniels, let me add my congratulations on your
appointment.
Mr. Daniels. Thank you, sir.
Mr. Price. I welcome you to the committee. I must say I
don't really envy you your assignment today, because you have
been asked, as OMB director, to come up here and tell the House
Budget Committee that somehow it is OK to shout through a tax
cut before we have a budget resolution. I would think that
would put considerable strain on not just the budget law, but
on your institutional role, and on this process that was set up
25 years ago to protect fiscal responsibility.
You asked Mr. Davis a rhetorical question. Who, in all of
this, is looking out for the taxpayer. I do want to reassure
you on that score. I think virtually every Member of Congress
believes that tax relief ought to be a component of this
budget. But we do have a debate, it is an honest debate, and I
think you would be well advised not to belittle the debate,
about three critical points. One is, should this tax cut be
voted through before we have a budget resolution? Secondly,
what is the affordable size of the tax cut? And thirdly, what
was a fair distribution of the benefits of the tax cut? Those
are all serious debates that deserve serious engagement.
Now, you have assured us that we can afford a $2 trillion
tax cut. Not only are you saying we can afford it, but we can
still have a $1 trillion contingency fund at the end of the day
to protect us against shaky or unreliable surplus estimates.
And, by the way, the surplus projections that we are dealing
with, as I understand it, two-thirds of those surplus
projections are more than 5 years away. Two-thirds of those
surplus estimates are in that especially uncertain category of
the outyears, beyond year 5.
If I could refer back to the chart that Mr. Spratt had up
here initially, I just want to go back to what I thought you
were saying and ask you to elaborate a bit on the $1 trillion
contingency fund. You are saying that it is made up of $207
billion from our chart that we acknowledge is available, that
another $526 billion is taken from funds borrowed from the
Medicare part A surplus. I must say, your points in some ways
were quite compelling about the financial dilemma of Medicare,
but it seems to me to be a strange response to that dilemma to
then take the part A surplus and put it in a contingency fund
when that is presumably available for other purposes. Then I
guess the rest of the $300 billion is the cost of extenders and
fixing the AMT, which you are acknowledging, needs to be done,
but which does not figure in your budget math. That is where
the $1 trillion comes from.
Now, what are the claims on that $1 trillion? Well, if you
adjusted the appropriations for population as well as for
inflation, that is another $200 billion, and sometimes we need
to do that. For example, with Head Start, if we funded just to
keep it even with inflation, with the number of eligible kids
increasing, then we would have a declining proportion who
would, in fact, be served, and that is also true of law
enforcement, building highways and so forth. So let us say we
wanted to make some adjustments for population as well as for
inflation. That is $200 billion. We have talked already about
the extenders, the AMT, which I think you acknowledged were
desirable, probably inevitable, another $300 billion. If we
went above inflation spending on any of these priority items
that are listed here, prescription drugs, defense, education,
conservation, crime, transportation, on and on. Goodness knows
in my area we need to do better than just maintaining current
effort on building highways and getting transit on line.
You have some of those items where you say you are going to
go above merely adjusting for inflation, and I don't believe
you denied Mr. Spratt's point that that would require the rest
of the discretionary budget to go at about a 7 percent
decrease. I don't know if we can sustain that 7 percent
decrease. There are a lot of items that will make that quite
difficult, and of course, other claims on this $1 trillion
might be in case the surplus doesn't materialize, then that is
designed as a cushion.
So where is the cushion is the question? There seems to be
a lot of potential claims on this $1 trillion. Is this $1
trillion contingency fund real, and what is the range of
possible claims on it?
Mr. Daniels. Well, thank you for the several questions,
sir. First of all, let me say that I hope nothing I said could
be construed as belittling any piece of this debate. I think
you mapped it out pretty well, and let me take it in the three
pieces you broke it into. I have tried to engage as seriously
as possible, and this budget does, with the size, what I would
call the size of the tax cut. And I have insisted today and
will continue to, there is more than enough room, far more than
enough room for the American taxpayer to get some overdue
relief.
The other two pieces of it I think principally should be
left to others, as I had the discussion with the Congresswoman
I believe it was, the discussion about the shape of this tax
cut and what is fair and what is right is one that will
continue on, and I am happy to speak to it as the President
would have us speak, but it is a different one than I think is
my principal responsibility.
As to the tactics, we don't tell the House of
Representatives how to do its business and in what order. I
understand the point that you have made, and I gather that
there will be debate about that and possibly a different view
in the other body.
Let me answer a few of the other questions. Back to that
chart, I know no one wants to put words in my mouth, but I
didn't say, will never say, we are taking money from anywhere.
I think the simplest way to explain it is the way I have here.
I was trying to reconcile that for those who wanted to know how
does it house the same amount of money, and to me it is as
plain as day that there is $1 trillion of the $5.6 trillion
that is utterly uncommitted, and I am not even counting the
$600 billion of Social Security money, which can also be viewed
as further protection. I did not and do not accept, you know,
the addition to the President's tax cut of things he has not
called for. We are prepared to work with the Congress on ways
to deliver tax relief, but he has said steadfastly that it is
$1.6, it is not $1.9 as suggested up there.
Mr. Price. Since we are running out of time, Mr. Daniels,
if I could interrupt you, I was simply repeating what you had
said about the composition of the $1 trillion trying to
reconcile it with this chart. But my main question has to do
with the potential claims on the $1 trillion. Is my list there
accurate, or is there something that we need to know further
there about what the range of those claims might be?
Mr. Daniels. Well, I think that is a very important point
and I like your use of the word ``range.'' I think that is the
way we would have approached it in the business I was a part
of; I think it is the only correct way, and it is exactly the
word I used as we began to think about what is an adequate and
more than adequate reserve. What is the right range when you
look at the variety of possibilities?
We think the right range for Medicare modernization is $153
billion, and that is in the plan now. We don't know the right
answer on defense, we don't know the right answer on
agriculture, which I don't think is on that particular chart,
but when we look at them all together, we believe it is well
short of $1 trillion, and you know, back to the quote which you
recalled I made, it wasn't that no one is looking out for the
taxpayer, I know you do and I know every member of this
committee does every day. But what I said was that it sometimes
seems as though the taxpayer gets considered last, and so to
look at a chart like that and say well, after we have paid for
drugs, paid for defense, paid for education, paid for
conservation, paid for crime, paid for, paid for, paid for all
of these items, maybe there will be something left, and I only
suggested that, you know, that is maybe not the order in which
we ought to take up the competing interests.
Mr. Price. Well, thank you. I know my time has expired, but
with all due respect, nobody is suggesting that the tax cut
comes out of this $1 trillion. This is $1 trillion that is
supposedly going to be there after your $2 trillion tax cut.
Mr. Daniels. Right.
Mr. Price. I think it is only prudent and responsible to
ask, is that $1 trillion real and what are the possible claims
that might be made against it? If it is there as a cushion,
goodness knows we need a cushion with these projections as
shaky as they are, but is that cushion going to really, in the
end, be available to us?
Mr. Daniels. Well, those are very appropriate questions and
I think you framed them in the way we did, and you will have to
judge whether we have been careful enough in this forecast and
whether $1 trillion is cushion enough, in view of the way you
might cost out these other items. As we cost them out
carefully, we think, as I said before, we think we are
overreserved here, but that is a fair debate.
Chairman Nussle. Thank you, Mr. Price.
Mr. Daniels, we have come to the end of the line. You have
been testifying now for approximately 4 hours.
Mr. Daniels. So soon?
Chairman Nussle. We have some votes on the floor, so I
think it is probably a good point in time here to recess.
Mr. Bentsen. Mr. Chairman, what is the record?
Chairman Nussle. I am not sure we have a record; I will
look that up.
Mr. Bentsen. Mr. Chairman, could I make one comment? I was
going to ask a question, but I know we have some votes.
Chairman Nussle. I am a little hesitant to give you the
last word, but I will do it.
Mr. Bentsen. You can always have the last word, Mr.
Chairman.
Mr. Daniels, I just want to make one comment. I have lots
of questions, but we will get time to do that and I will submit
a bunch for the record. But on the comment of the budget and
how the House conducts its business as it sees fit, you have
your responsibility and they have their responsibility. The
other night, I stayed up late working with my 9-year-old
daughter on a report she was doing on James Madison, and read
through this biography of Madison and the forming of the
Constitution and everything, and a discussion of the separation
of powers and the checks and balances which was a major part of
the debate at the constitutional convention.
The fact is that the Bush administration inherited a
fiduciary responsibility on behalf of all of the people of the
United States, and you would certainly make that argument as it
relates to refunding a surplus to the people, et cetera. But
that same fiduciary responsibility applies to how the budget is
constructed, and I don't think you all can just say, well, that
is the House's responsibility, however they want to do it, when
down the road, you have a Commission looking at Social Security
and Medicare and all of these other things. I think you have a
responsibility to the American taxpayers, as do we, that we
don't let the cart get before the horse in how we are going to
do this and find out we are in a jam.
I know we can look back 40 years and say, well, in the 40-
year plain, things weren't so bad, the 1980's notwithstanding.
We also have to look ahead 40 years and you know as well as I
do, 15 years out from today, things don't look so good. There
might not be a Treasury market over the next 15 years, but
there sure will be a Treasury market beyond that when we see
the debt to GDP ratio rise as the baby boomers, everybody
except for Mr. Nussle and I, start to retire.
So I think you all need to think about that going forward.
I appreciate the politics of this and what you do, you need to
do to try and get your package passed, but I think you all need
to think a little bit about that.
Thank you, Mr. Chairman.
Chairman Nussle. I thank you, Mr. Bentsen.
I want to thank you for your testimony on behalf of the
committee, Mr. Daniels. We look forward to working with you
over the next number of weeks as we put together this plan.
Mr. Daniels. Thank you.
Chairman Nussle. The committee will stand in recess until 3
when we will hear the testimony of Secretary of the Treasury,
Mr. O'Neill, as this review of the President's budget
continues. Thank you.
Prepared Statement of Hon. Ander Crenshaw, a Representative in Congress
From the State of Florida
Mr. Chairman, I would like to thank you for holding this hearing,
and Mr. Daniels, I would like to thank you for participating today. As
a new member of the Committee, I look forward to working with you both,
and with my other colleagues here today to set a responsible and fair
course of action for Congress' work this year.
I feel very fortunate to be representing Northeast Florida in
Congress, particularly at this time of great budget surpluses. When I
represented that area in the Florida Legislature, it was not always
under such favorable circumstances, and my work there required very
tough choices. But we prevailed and balanced the spending needs of the
people of Florida with sound fiscal management.
The projected $5.6 trillion surplus does not free Congress or the
President from making tough choices. We still must balance the spending
needs of the nation with fiscal discipline. But, we also have great
opportunities to pay down a still larger portion of the debt, to
prepare for the future, and to give the American people back the money
that they need to pay their own debts and prepare for their own
futures.
The President's address earlier this week set out a very clear
vision for using the surplus in these ways: We will continue to pay
down the debt. We will meet our current spending needs and will shore
up the programs that meet our needs in the future, such as Social
Security and Medicare. And, we will give the American people a refund
with what is left over. I share his vision, and look forward to working
with President Bush and my colleagues here in Congress to follow this
course of action.
[Whereupon, at 2 p.m., the committee was adjourned.]