[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
MID-SESSION REVIEW: BUDGET
OF THE U.S. GOVERNMENT
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, JULY 16, 2003
__________
Serial No. 108-11
__________
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
CHRISTOPHER SHAYS, Connecticut, JOHN M. SPRATT, Jr., South
Vice Chairman Carolina,
GIL GUTKNECHT, Minnesota Ranking Minority Member
MAC THORNBERRY, Texas JAMES P. MORAN, Virginia
JIM RYUN, Kansas DARLENE HOOLEY, Oregon
PAT TOOMEY, Pennsylvania TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington DENNIS MOORE, Kansas
ROB PORTMAN, Ohio JOHN LEWIS, Georgia
EDWARD SCHROCK, Virginia RICHARD E. NEAL, Massachusetts
HENRY E. BROWN, Jr., South Carolina ROSA DeLAURO, Connecticut
ANDER CRENSHAW, Florida CHET EDWARDS, Texas
ADAM PUTNAM, Florida ROBERT C. SCOTT, Virginia
ROGER WICKER, Mississippi HAROLD FORD, Tennessee
KENNY HULSHOF, Missouri LOIS CAPPS, California
THOMAS G. TANCREDO, Colorado MIKE THOMPSON, California
DAVID VITTER, Louisiana BRIAN BAIRD, Washington
JO BONNER, Alabama JIM COOPER, Tennessee
TRENT FRANKS, Arizona RAHM EMANUEL, Illinois
SCOTT GARRETT, New Jersey ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina DENISE MAJETTE, Georgia
THADDEUS McCOTTER, Michigan RON KIND, Wisconsin
MARIO DIAZ-BALART, Florida
JEB HENSARLING, Texas
GINNY BROWN-WAITE, Florida
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, July 16, 2003.................... 1
Statement of:
Hon. Joshua B. Bolten, Director, Office of Management and
Budget..................................................... 8
Prepared statement and additional submission of:
Mr. Bolten:
Prepared statement....................................... 10
Response to Mr. Spratt's question regarding long-term
projections............................................ 16
Response to Mrs. Capps' question regarding the causes for
the drop in Medicare spending.......................... 21
Hon. Robert C. Scott, a Representative in Congress from the
State of Virginia, submission of the macroeconomic analysis
of H.R. 2, the ``Jobs and Growth Reconciliation Tax Act of
2003''..................................................... 36
Hon. Christopher Shays, a Representative in Congress from the
State of Connecticut, submission of the sponsor list of
H.R. 436................................................... 53
MID-SESSION REVIEW:
BUDGET OF THE U.S. GOVERNMENT
----------
WEDNESDAY, JULY 16, 2003
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, Shays, Thornberry,
Ryun, Toomey, Hastings, Portman, Schrock, Hulshof, Tancredo,
Bonner, Garrett, Barrett, Diaz-Balart, Hensarling, Spratt,
Moran, Neal, Scott, Ford, Capps, Thompson, Baird, Cooper,
Emanuel, and Kind
Chairman Nussle. Good morning. Today, we are holding a
hearing to examine the Office of Management and Budget's mid-
session review.
I am pleased to have with us for the first time before the
House Budget Committee the very recently confirmed Director of
OMB, the Office of Management and Budget, Josh Bolten.
Welcome. Congratulations on your confirmation. We welcome
you here today for, I am sure, a spirited discussion about the
fate of our budget and your thoughts on that.
As expected, this mid-session review projects substantial
short-term deficits and sees the economy as not yet in full
recovery. Also as expected, my friends on the other side of the
aisle grabbed onto this story yesterday and waved it around as
proof positive that the Republican-championed tax relief
plunged us into these massive deficits, the likes of which had
never been seen before in our history.
Well, I can read the newspapers just like you can. But let
me remind us of a little bit of that history.
On September 10, 2001, we were running a surplus, a very
large one. We were dealing with the economic challenge of a
recession, and thankfully we passed tax cuts in 2001 to deal
with that recession, making it the mildest in American history,
creating 1.8 million jobs.
So on September 10, while we were running a surplus and
while the economy was struggling to get back on its feet, we
thought we had the world by the tail. And then September 11
occurred, and just like many Congresses and Presidents before
us, we knew we had a job to do. We had a war to deal with. We
had a national emergency to deal with and we had economy that
had just gotten a gut punch like it had never seen before.
So we did whatever it took to protect the economy and to
protect America. And there is not one of us, at least on my
side of the aisle, who would ever shrink from that
responsibility again or regret the decisions we made.
Many of those decisions were made in a bipartisan way, and
appropriately so, because protecting America and protecting our
economy should be bipartisan. But now we have a situation to
deal with. As the very distinguished new director of the Office
of Management and Budget said yesterday, we have deficits and
they are manageable, but now we need to manage them.
They are spending-driven deficits. Every Member of Congress
knows how we got here. Over the past few years our Nation and
economy have been hit with a steady stream of shocks. We fought
and won a war. We continue to fight a war against terrorism
around the world that we intend to win. We had to shore up our
security at home and protect Americans as they work and travel
every day.
Let me show you a chart about some of the work that we have
had to do. In a bipartisan way, we have enacted supplementals,
spending $142 billion since September 11 alone, in order to
shore up and protect America. As you can see from this chart,
we have spent--in addition to the money that we budgeted for
that year--in order to combat terrorism for the emergency. And
we did this while the economy was struggling to recover from
the slowdown in the recession that began in the middle of the
year 2000.
We knew that some of the spending choices we made in the
last 2\1/2\ years would put an immense strain on the budget. We
had to protect America and we had to protect Americans at home
while at the same time promoting policies that would grow the
economy and create jobs. These obligations supercede everything
else that we do here.
Further, these recent spending demands followed several
years of very generous spending in a range of government
programs. Let me show you chart 16 that shows you the 10-year
spending pattern of this Federal Government. As you can see, we
have been more than generous with regard to spending.
Since 1995, government spending has increased by nearly 41
percent--41 percent increase since 1995. Looking at individual
budget categories, education spending has grown 82 percent;
veterans, mandatory spending, 49 percent; Medicare, mandatory
spending, 55 percent; and Medicaid, an astounding 77 percent.
So make no mistake, these deficits are promoted and will
continue as a result of excess spending.
Second, deficits do matter and spending-driven deficits, I
believe, matter even more. And the current deficit is way too
big. I can guarantee you, you will not hear me arguing with
anybody about the size of the deficit being too large, but I
think we have to have a discussion what to do about it.
We can continue to have a great time today pointing fingers
at one another; but I read the articles yesterday, and they
basically said that is all they heard on Capitol Hill yesterday
was finger pointing. We can continue to do that or we can, I
suppose, continue to try and spend our way back to prosperity,
as some of our colleagues might suggest.
I am sorry there are some who are surprised by these
deficits. We all knew in this committee that they were going to
be large. That is why we came up with a plan. That is why we
wrote and passed a budget and that is why we have to stick to
that budget because it will, if we stick to it, get us back to
balance. It is why we passed tax relief to create jobs and
increase revenues to our government.
Let me show you a chart with regard to this fact, payroll
jobs with and without the tax cuts. The tax relief has made a
difference--despite what many critics would say. An estimated
1.8 million more people are working today than there would have
been without the tax relief, according to estimates.
But those things alone are not going to take care of the
deficits. That is just one of the first steps. If these
deficits are truly manageable, then let us manage.
We, all of us, Republicans and Democrats, must control
spending. I intend to stick to the budget and to the levels in
the budget, period. I don't think you can tell me that we can't
offset new initiatives or new spending. From what we have
already seen in this committee from waste, fraud and abuse, it
is very clear that we can.
If Democrats are genuine in their resolve to get back to
balance, I welcome them to help in the Republican-led efforts
to reduce these deficits by slowing the unsustainable rate of
Federal spending growth.
I appreciate Director Bolten being with us here today and I
look forward to your testimony. I welcome you to this fight to
control spending and get us back to a balanced budget and keep
our economy moving forward in a positive way.
And I would like to turn to my friend Mr. Spratt for any
comments he would like to make before we hear from our witness.
Mr. Spratt. Mr. Chairman, I thank you very much.
Mr. Bolten, welcome to your first hearing. We look forward
to working with you. Your reputation precedes you, and it is an
excellent one; and we are glad to see you in the office you are
holding now.
Let me just put a chart up here. It might not be news to
you, but it is worth reminding ourselves from time to time that
deficits need not be the norm. We changed the fiscal policy of
this country in the 1990s. We moved the budget from a deficit
of $290 billion in 1992, a record deficit, to a surplus of $236
billion in the year 2000. Every year after the adoption of the
Clinton budget--every year, the bottom line of the budget got
better to the point where we had the budget in surplus for the
first time in 30 years. It was a phenomenal accomplishment.
Mr. Bush, when he came to office, inherited an advantage
that no President in modern times has had. As you can see from
this chart, in the first fiscal year he was in office, he had a
surplus of $127 billion. We have now seen that surplus
deteriorate in rapid fashion to a deficit this year of $455
billion. And, Mr. Chairman, let me tell you, we are not
surprised. We predicted this.
When you brought out your budget in the year 2001 for 2002,
with the enormous tax cuts, we said simply, ``We think you are
betting the budget on a `blue sky' forecast. If for some reason
these forecasts don't obtain, don't pan out, we are going to
find ourselves right back in the red again and in a big way.''
And unfortunately, and I take no pleasure in it, that is
exactly what has happened.
We had a policy going that was bipartisan at that time. We
both disavowed ever again spending the Social Security surplus,
anything but Social Security benefits. We were going to buy up
outstanding debt, not fund new debt and add to the debt of the
United States. We were going to try to buy down the debt held
by the public and reduce it to zero by 2008 or 2010 as the
first step toward making Social Security solvent.
We have totally lost the trail of what was a truly
conservative economic policy, and somehow or another we have
got to find our way back to that trail.
The second chart shows you, in a simple linear graph that
we are looking right now at the largest deficits in American
history. The sag there in 1992 shows what the previous record
was $290 billion. $455 billion will be an all-time record in
nominal terms, but it only lasts for 1 year. You foresee it is
getting better in the year 2005, and we hope that happens; and
we do note, as politicians, that it happens to be after the
next election.
In addition, we can't forget the forecasting record we have
seen over the last several years. Last year, your predecessor
came here--same time, same report, the mid-session review--and
said the deficit for next year, the deficit for fiscal year
2003 which we now project is $109 billion.
In February, he came back and said, ``We have increased
that deficit; we think it is going to be $309 billion.'' That
was 5 months ago. And now, 5 months later, you come and tell us
it is going to be $455 billion.
So if we are skeptical of your outyear projections, of the
improvement from $475 [billion] to $300 billion in the year
2005, that is because we have been burned before. We have seen
those projections made in the outyears before only to see them
not take place.
If I show you the next chart, what we heard yesterday was a
comparison of these deficits in terms of their relationship to
GDP, sort of diminishing their significance and saying, Well,
these weren't bad; if you look back and compare these deficits
as a percentage of GDP to the past they aren't too badly out of
alignment with past fiscal history.
A couple of things wrong with that: No. 1, that is to make
a norm of a period when we were actually saying, all of us,
both sides of the lines, these deficits aren't acceptable. We
didn't accept them then as acceptable fiscal policy.
In addition, if you go back in the past, the surplus in
Social Security was not a big factor until recent years. We
didn't have a surplus in 1983 in Social Security; we were
scraping bottom. So if you back out Social Security, and it is
off budget, and just look at the on-budget deficits, you can
see that the on-budget deficit for 2003 is going to be 5.7
percent of GDP, the gross domestic product. And that happens to
be the second largest non-Social Security deficit since World
War II.
These are consequential numbers. You can express them
different ways, but there is no way around the fact that these
are mammoth deficits and a matter of serious concern.
The next chart shows the deficit as a percent of GDP--
excuse me the debt, the debt as a percentage of GDP. And you
can see after 8 years of improvement, that it is returning to
historic highs, too, and it has to be a matter of concern.
Chart 7--this is a different way of saying what the
chairman just said. We read a report and we listen to the
chairman's comments, and there is a constant refrain for
spending restraints, we have got to rein in spending. And we
will agree readily that half of the problem, at least, has to
be some kind of restraint on spending if we are really going to
get a grip on the deficit.
But let us look at where the increases in spending have
come over the last three fiscal years under the Bush
administration. In fiscal 2001, if you look at current services
and the increment, the additional spending over and above what
CBO said was required to have current services, and then divide
that by percentage into the different accounts of the budget.
What you find is that in each of 3 years--in each of 3 years,
93-95 percent of additional spending is in the three
categories: defense, traditional defense, DOD; the 9/11
response, New York City and airline response, help to the
airlines; and finally the war in Iraq and the war against
terrorism generally. That is where a large part of the spending
increases come. And I don't know what you are going to do to
diminish that; I am not sure we can.
Most of the members here feel we are running--skating on
thin ice when it comes to homeland security now, we ought to be
spending more. In any event, I don't see how you rein that in.
I am not giving up the effort on spending cuts, but that is
where the increases have come in the last several years.
I don't get any sense in reading your report of yesterday
that you give any culpability to the three tax cuts that this
administration has passed--two substantial tax cuts and one
stimulus tax cut which we both supported. Let me give you a
simple way of looking at what those tax cuts have done to the
deficit, the role they play.
Page 6, chart No. 6--I used this last night on McNeil-
Lehrer, and we can argue about these numbers, but they are
relatively right. If you take all the tax cuts that you
proposed over the period 2002-11, add up their production of
revenue over that period of time and add in the additional debt
service we have to pay because we have a lower surplus due to
the fact that we have cut taxes and reduced revenues, they come
to 3.746 trillion over that period of time, 2002-11.
If you then take the unified deficit--and this is actually
a lower number than you have got because we developed this bar
graph before we got your numbers yesterday--the total deficits
during that period of time, $3.6 trillion. This is back-of-the-
envelope accounting, but the comparability of those two numbers
suggests that the tax cuts have indeed had a major role in
increasing the deficit to the heights we have seen.
One of the things you acknowledged in your report yesterday
is that the estimate of the surplus in 2001, February of 2001,
$5.6 trillion, was overstated. We said then, ``Mr. President,
you are betting the budget on a `blue sky' forecast of the
economy.'' It turns out we were right.
Instead of having a surplus of $5.6 trillion during the
period 2002-11, you now acknowledge that was off by 53 percent
for economic and technical reasons. They aren't broken out, but
basically it was a misestimate of what the surpluses are likely
to be. Forty-seven percent of $5.6 trillion is $2.6 trillion,
and your tax cuts have substantially exceeded the available
surplus. There is no way around it; doing that simple
arithmetic, the tax cuts are a major contribution to the
deficits we are looking at today.
My concern is, if we put up chart 5, as bad as these
deficits seem, $455 billion this year, $575 billion next year,
$1.9 trillion in additional debt over the next 10 years, over
the next 5 years it could turn out to be worse. First of all,
if you take next year's estimate of a deficit of $575 billion,
your estimate, your projection, that does not--excuse me, $475
billion; I don't want to make it any worse than it is you add
to that the cost, unbudgeted, of our deployments in Iraq and
Afghanistan, which are now running at a rate of $5 billion a
month incremental spending, then we could easily have a deficit
over $500 billion, maybe $525 billion.
DOD acknowledges they are coming back at us with a
substantial supplemental sometime in the next fiscal year, so
that $575 [billion] is understated by that factor alone. In
addition, you haven't factored into your survey--and by doing a
5-year forecast instead of a 10-year forecast, you skirt this
issue--the cost of renewing lots of expiring tax provisions
with which--the tax code is now studded as a result of putting
expiration dates and sunsets on most of the tax bills we have
passed over the last 2, or 3 years.
You call for spending restraint. We don't find any specific
cuts in domestic discretion there. We doubt you can do what you
want to do and still increase homeland defense, still increase
defense. And every time we look at the tax agenda that you
present, your administration presents, there is an another
omission.
The Treasury is sending us a warning saying the alternative
minimum tax is a looming problem. It affects 2 to 3 million
taxpayers. Within 10 years, it will affect 39 million
taxpayers. We all know, as politicians, it is politically
inevitable we will have to deal with that problem sometime in
the next 10 years. It will make the marital penalty look like a
donnybrook by comparison.
What does it cost to deal with it? Well, if we wanted to
hold the impact to just 5 to 6 million families, so it wouldn't
hit middle-income families, it would cost $680 billion. If you
want to repeat it, it will cost a $1 trillion. That is nowhere
factored into any of these numbers, but we know it is coming.
Here we are, pushing other tax cuts, but we continually
fail to mention the elephant in the room. The AMT fix will have
to be done sooner or later and has to be factored into the
numbers because of its inevitability.
So those are the problems that we have, just to mention a
few, with what you have projected there, what you have got in
your report.
And let me just end with one particular chart, which is
chart No. 9; and if you can understand this one, we will give
you credit in advanced algebra or something like that. It has
got too many lines here. But when I read your report yesterday,
I didn't find any compelling sense that this is a problem we
had to come together and come to grips with. I still found the
sense that we can grow out of this problem; if we can take it
easy and restrain spending a little bit, we can grow out of
this problem in 2 or 3 years.
I have been here 21 years and I have heard that argument
made before, and the lesson I have learned in 21 years
following this problem is, it hasn't worked. It took Gramm-
Rudman-Hollings, the budget summit in 1990, the Clinton budget
in 1993, the balanced budget agreement in 1997, every one of
those budget plans and the process rules that came with it; it
took all of that bearing down on the problem over a period of
nearly 15 years to finally turn the budget out of deficit and
into surplus.
And there is no plan or process proposed in your report
yesterday and no sense that we need one now, because if we are
lucky, we can grow out of it.
Well, here is what it took, here is what it took to move
the budget from a record deficit of $290 billion to a surplus
of $236 billion in the year 2000; this is what happened in the
Clinton years. If you follow the line, outlays at the top as a
percentage of GDP, you will see that in those years, from 1992
onward, outlays steadily declined as a percentage of GDP.
In addition, however, if you look at the bottom blue line,
you will see that revenues increase as a percentage of GDP.
CBO did an analysis, looking back at what happened over the
1990s, and they said 48 percent of the reason for eradication
of the deficit is due to revenue increases, 52 percent is due
to spending cuts.
To succeed, you have to have a tax strategy, a revenue
strategy and a spending strategy; and I just don't find that
anywhere in the reports you have given us today.
Thank you very much for coming Mr. Bolten, and we look
forward to your testimony we have further questions, but I
wanted to register those concerns with you before we got
started.
Chairman Nussle. Let me just offer, because we have so many
members here, I understand that both yesterday and today there
has been a lot of concern about the tax cuts and so there is an
opportunity in the Congress to repeal them. And, unfortunately,
H.R. 436, which is the repeal of the tax cuts, to date only has
four cosponsors. So I thought I would help out my good friend
Charlie Rangel by passing around a cosponsorship form for H.R.
436, since there seems to be so much concern about the tax
cuts.
And you, my friends, whoever on either side of the aisle--I
will pass it this direction first--can certainly sign up to
repeal the tax cuts if, in fact, they are so problematic.
Mr. Spratt. Mr. Chairman, you know we supported the child
tax credit. We supported the marital tax mitigation provisions.
We did, however, vote against the complete repeal of the estate
tax; we wanted to reform it and not repeal it. And, in
addition, we proposed the suspension of the implementation of
the upper-bracket tax cuts.
So we not only supported some of those tax cuts, we voted
for them in our own substitutes.
We acknowledge that some tax reduction is needed to get the
economy going. But I am just putting the simple arithmetic
facts to you. You cut taxes by way more than the surplus, and
as a result, we have a gaping deficit.
Chairman Nussle. Well, Dick Gephardt said in Dubuque, IA,
his first act as President would be to repeal the Bush tax
cuts.
And I will leave it here and--leave it right up here on the
table, and if somebody would like to sign up for it, I would be
happy to give that back to my friend Charlie Rangel and let him
know there is support for repeal. Otherwise, it seems to be
more rhetoric than reality.
Mr. Bolten, welcome to the Budget Committee. This is where
we have these kinds of discussions and they are usually done in
a fairly cheerful way, as I hope you will see today. We know
you are a partner in this effort because there is a lot of work
to do; and we look forward to working with you on a number of
these projects. So welcome. Your entire testimony and the
report will be made part of the record, and you may summarize
as you wish.
STATEMENT OF JOSHUA B. BOLTEN, DIRECTOR, OFFICE OF MANAGEMENT
AND BUDGET
Mr. Bolten. Thank you, Mr. Chairman, for that very generous
welcome. And thank you for welcoming me as a partner for this
committee; and I look forward to working with you on both sides
of the aisle in the months ahead.
Mr. Chairman, the President's top priorities are: winning
the war on terror, securing the homeland, and growing the
economy. He has continued to lead boldly on all of these
priorities. The President has sought, and many of you in this
room--in fact, most of you in this room have supported him in
approving the funds necessary for the global war on terror in
the defense of the homeland. I know the members on both sides
of the aisle have been highly supportive in ensuring that we
are able to spend whatever is necessary to support our troops.
The President also acted with Congress in 2001, 2002, and
again this year to strengthen economic growth and create jobs,
because neither the President nor anyone in this room, I am
sure, will be satisfied until every American worker who wants a
job can get one. Small business owners now have new incentives
to invest and create jobs. Workers are already saving more in
their paychecks because of the tax relief and millions of
Americans will receive tax refund checks within weeks because
of the 2003 Jobs and Growth Act. The combination of these and
other policies, and strong economic fundamentals like low
interest rates, low inflation and increasing confidence now
have the economy poised for strong recovery in the months
ahead.
It is in this context that we released yesterday, OMB's
annual mid-session review which, as each of you knows, is
directed toward updating and revising the estimates of
receipts, outlays and the deficit to reflect economic,
legislative and other developments since the release of the
President's budget in February.
As a result of those factors, a number of factors,
including weaker than anticipated economic growth in tax
receipts, additional spending for the war on terror, the
deficit--as, Mr. Chairman, you and Mr. Spratt have noted--is
now estimated to be at $455 billion, well up from the $304
billion estimate released in February.
The number is projected to increase to $475 billion in
2004, after which, in response to the President's program to
generate strong economic growth and exercise spending
restraint, the deficit is projected to decline dramatically. In
fact, by 2006, our projection show the deficit to be half of
this year's level in nominal terms, and as you can see from the
chart that has just been put up on the screen, even less than
half today's level when measured properly as a percentage of
GDP.
With the projected shrinkage in deficits, the accumulated
level of national debt as a percentage of GDP is expected to be
consistent, with the average level over the past half century.
And because interest rates are the lowest over the past 40
years, the total amount of interest the government must pay on
that debt in 2003 actually declines.
So while large in nominal terms and a legitimate subject of
concern, today's deficits are manageable if--and I emphasize
``if''--we continue pro-growth economic policies and exercise
serious spending restraint.
Placing this year's budget deficit in historical
perspective, Mr. Chairman, as you have just done, the most
relevant number in measuring deficits is not the nominal
figure, it is the deficit as a percentage of the overall
economy. With that in mind, a $455 billion deficit, while
certainly higher than anyone would like, constitutes 4.2
percent of GDP, well below the post World War II peak of 6
percent and indeed lower than in 6 of the last 20 years. As a
percentage of GDP, the deficit, properly measured, while higher
than average, is nowhere near a record.
When this administration took office, the budget was
forecast, as you noted, by both the administration and by the
Congressional Budget Office and many outside economists to run
cumulative surpluses of $5.6 trillion over the 10 years from
2002-11. These were good-faith, broadly supported estimates,
Mr. Spratt's warnings to the contrary, that took into account
no collapse in the stock market, no recession, no September 11
terrorist attacks, no revelation of corporate scandals, no
subsequent spending or tax changes, no additional homeland
security spending and no war on terror.
But by far the largest single factor in the changes of our
budget position has been an economy that has been weaker than
originally projected. As you can see from the chart that is
coming up now, more than half the change in our 2003 budget
position from projected surplus to deficit is due to an economy
that has not lived up to April, 2001, expectations.
The tax cuts proposed by the President and enacted by this
Congress are not the problem; they are and will be part of the
solution. It is important to understand that without any of the
President's tax cuts, not 2001, 2002 or 20003, the deficit this
year would be at least $278 billion. The combined effect of the
three tax packages on the budget balance has been to reduce the
surplus by less than a quarter in 2003 and by only slightly
more between 2004 and 2008. Had Congress not enacted the
President's three tax relief packages, moreover, the economy
would be substantially weaker than it is and there would be
substantially greater job losses.
Mr. Chairman, as you pointed out just at the outset of your
remarks, the most effective way to lower future deficits is to
grow the economy, and the tax packages enacted by this Congress
have been very well designed to do that. The key to improving
the budget outlook is healthy and sustained recovery with
strong job creation. Since the submission of the February
budget, prospects for that sustained economic growth have
brightened on several fronts.
We have passage of the Jobs and Growth bill. We have
successful action in Iraq. We have further reduction in short-
term interest rates by the Fed. And we have upturns in consumer
and investor confidence. These developments suggest the economy
is poised to return to healthy and sustained growth, creating
jobs, reducing the unemployment rate and raising incomes.
A healthy economy is essential to an improved budget
outlook, but strong growth alone is not sufficient. It is vital
to exercise discipline over Federal spending growth while still
funding our urgent priorities. Both the President's budget and
the budget adopted by Congress pursuant to action by this
committee fund the priorities of the war on terror and homeland
security while restraining the overall growth of discretionary
spending to 4 percent, about as much as the average family
income is expected to grow next year.
Restoring a balanced budget is an important priority for
this administration, but a balanced budget is not a higher
priority than winning the global war on terror, protecting the
American homeland or restoring economic growth and job
creation. The February budget and congressional action since
then reflect the right priorities for this country. Our
priorities going forward need to continue to include
restoration of strong growth and exercising fiscal restraint.
Mr. Chairman, I am pleased to take your questions.
[The prepared statement of Joshua B. Bolten follows:]
Prepared Statement of Hon. Joshua B. Bolten, Director, Office of
Management and Budget
The President's budget, released in February, focuses on the
challenges posed by three overriding national priorities: winning the
war against terrorism, securing the homeland, and restoring strong
economic growth and job creation. Significant progress has been made in
all three areas.
This mid-session review of the budget revises the estimates of
receipts, outlays, and the deficit to reflect economic, legislative,
and other developments since February. The deficit for 2003 is now
estimated at $455 billion, up from the $304 billion deficit estimated
in February, for the following reasons:
Economic and Other Reestimates. The economic assumptions
for this review, discussed later in the chapter ``Economic
Assumptions,'' reflect weaker-than-anticipated economic growth since
February. Slower growth, lower estimates of wage and salary income, and
other economic factors have reduced receipts from the levels estimated
in the budget. In the interest of cautious and prudent forecasting, the
revised estimates also include a downward adjustment for revenue
uncertainty of $15 billion in 2003, $30 billion in 2004, and $15
billion in 2005. These reestimates in receipts are partially offset by
lower outlays due to revised economic and technical assumptions. The
net effect of all economic and other reestimates is to raise the
projected deficit by $66 billion in 2003 and $95 billion in 2004.
Iraq War. Funding for Operation Iraqi Freedom in
supplemental appropriations enacted in April, including costs for
military action and reconstruction assistance, increases spending by
$47 billion in 2003 and $20 billion in 2004. These estimates do not
reflect what the administration has previously indicated are expected
but undetermined additional costs arising from ongoing operations in
Iraq, extending beyond 2003.
Jobs and Growth Act. Enactment of a jobs and growth bill
that was larger for 2003 and 2004 than proposed in the February budget
raises the projected deficit by $13 billion in 2003 and $36 billion in
2004. Of this increase, $9 billion in 2003 and $11 billion in 2004 is
due to temporary State fiscal assistance included in the final enacted
bill. In later years, the enacted tax relief is smaller than proposed
in the budget, which reduces the deficit projected in those years
relative to the February estimates.
Other Legislation and Policy Changes. Final 2003
appropriations action, non-war related costs in the April supplemental,
extension of the program to help unemployed Americans by providing an
additional 13 weeks of unemployment benefits, and other policy changes
raise spending by $26 billion in 2003, $17 billion in 2004, and smaller
amounts in subsequent years.
The reasons for changes in receipts and spending from the February
budget are discussed further in the ``Receipts'' and ``Spending''
chapters of this Review.
The deficit is projected to increase slightly from $455 billion in
2003 to $475 billion in 2004. As a share of the economy, the projected
deficit remains steady in these 2 years, at 4.2 percent of Gross
Domestic Product (GDP). These deficit levels are well below the postwar
deficit peak of 6.0 percent of GDP in 1983, and are lower than in 6 of
the last 20 years.
TABLE 1. CHANGES FROM THE 2004 BUDGET
[In billions of dollars]
----------------------------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 2008
----------------------------------------------------------------------------------------------------------------
2004 Budget policy deficit -304 -307 -208 -201 -178 -190
Economic and technical reestimates........ -66 -95 -80 -58 -53 -50
Iraqi war supplemental.................... -47 -20 -1 * * *
2003 jobs and growth act.................. -13 -36 1 30 29 24
Other legislation and policy changes\1\... -26 -17 -16 -9 -10 -10
-----------------------------------------------------------------
Total changes......................... -151 -168 -96 -37 -35 -36
Mid-Session Review policy deficit............. -455 -475 -304 -238 -213 -226
----------------------------------------------------------------------------------------------------------------
* $500 million or less.
\1\ Includes debt service on all policy changes.
Even more important, after 2004, the deficit is projected to
decline rapidly in response to the economy's return to healthy and
sustained growth. By 2006, the deficit is cut in half. Chart 1 shows
that the decline is even more pronounced as a share of the economy,
falling from 4.2 percent of GDP in 2003 and 2004 to 1.7 percent of GDP
in 2008.
Budget deficits as a percentage of GDP are projected to be 4.2 in
2003 and 2004, 2.6 in 2005, 1.9 in 2006 1.6 in 2007 and 1.7 in 2008.
Today's deficits reflect an economy in recovery from recession,
increased spending in response to the war on terror and homeland
security needs, and the reversal of a massive surge in individual
income tax collections. Although large in nominal terms and a
legitimate subject of concern, these deficits are manageable if we
continue pro-growth economic policies and exercise serious spending
discipline.
TABLE 2.--CHANGES FROM APRIL 2001 PROJECTION
[In billions of dollars]
----------------------------------------------------------------------------------------------------------------
2002 2003 2004-08
--------------------------------------------------------------
Percent Percent Percent
Amount of total Amount of total Amount of total
change change change
----------------------------------------------------------------------------------------------------------------
April 2001 baseline surplus projection........... 283 - 334 - 2,578 -
Economic and technical reestimates........... -284 64% -418 53% -1,782 44%
Enacted policy:
Tax relief:
2001 tax relief.......................... 41 9% -94 12% -761 19%
2002 stimulus act -52 12% -38 5% 19 -*...
2003 jobs and growth act................. - * -45 6% -280 7%
War, homeland, and other enacted -63 14% -193 24% -723 18%
legislation...............................
Pending budget proposals..................... - * -1 * -506 13%
--------------------------------------------------------------
Total change............................... -441 100% -789 100% -4,034 100%
Mid-Session Review policy deficit................ -158 - -455 - -1,455 -
----------------------------------------------------------------------------------------------------------------
* 0.5 percent or less.
Note: Each change includes associated debt service.
THE TURNAROUND FROM SURPLUS TO DEFICIT
When the administration took office, the budget was forecast by
both the administration and the Congressional Budget Office to run
cumulative surpluses of $5.6 trillion over the 10 years from 2002-11.
These forecasts were good-faith estimates that took into account no
subsequent spending or tax changes, no recession, no collapse in the
stock market, no September 11 terrorist attacks, no revelation of
corporate scandals, no additional homeland security spending, and no
war on terror. As shown in Table 2, the largest factors behind the
subsequent change in surplus estimates are a weaker economy than
originally projected and other reestimates in receipts and outlays,
such as weaker capital gains realizations and higher growth in health
care costs. These reestimates account for 53 percent of the change in
the 2003 budget balance from the $334 billion surplus estimated in the
April 2001 budget to the current estimate of a $455 billion deficit.
By far the largest reestimate from the April 2001 projection has
been in receipts. In the late 1990s, revenue from the individual income
tax surged far above historical rates of growth, due to increased
capital gains realizations from a booming stock market, growth in stock
options and bonus income to high-income taxpayers, and other factors.
At the height of the revenue surge in 2000, total receipts came in
nearly $300 billion above long-term historical trends. This receipts
``bubble'' more than accounted for the $236 billion budget surplus in
that year. The administration's April 2001 projection, like those of
the previous administration, the Congressional Budget Office, and other
forecasters, assumed this level of receipts would continue. The
subsequent reversal of the receipts surge has brought today's receipt
levels far below the original April 2001 estimates.
Policy actions account for the remainder of the change in the
budget outlook since April 2001. The President proposed, and Congress
enacted, three major tax bills in the past two and a half years. The
first tax cut, the Economic Growth and Tax Relief Reconciliation Act of
2001, came just after the economy had entered into recession. Its
immediate tax relief in the summer and the fall of 2001 boosted
consumer demand and helped to ensure the recession was short and
shallow. The second tax cut, the Job Creation and Worker Assistance Act
of 2002, provided incentives for business investment to jump-start the
recovery. This spring, Congress passed the Jobs and Growth Tax Relief
Reconciliation Act of 2003, proposed by the President in January to
strengthen the recovery and accelerate job creation from its current
subpar pace. In 2003, the effects of these three tax cuts account for
23 percent of the change in the budget balance from the original April
2001 projection. Even without these tax cuts, the deficit this year
would be projected at $278 billion and, of course, the economy would
have been even weaker had the tax cuts not been enacted, with
substantially greater job losses.
Policy action on the spending side of the budget has also increased
the deficit. The largest spending increases, in the areas of defense
and homeland security, came in response to the terrorist attacks of
September 11, 2001 and the ensuing wars in Afghanistan and Iraq. The
effects of this and other new spending account for 24 percent of the
change in the budget balance since April 2001.
PROSPECTS FOR THE ECONOMY AND THE BUDGET
The key to improvement in the budget outlook is a healthy recovery
with strong job creation. Since the submission of the budget in
February, prospects for sustained economic growth have brightened on
several fronts:
Passage of the President's jobs and growth tax package
will stimulate consumer spending, improve incentives to work, and
encourage individual and business investment.
Successful action to free the Iraqi people from the regime
of Saddam Hussein has removed uncertainty about the timing and outcome
of the war.
A further reduction in short-term interest rates by the
Federal Reserve last month and historically low long-term rates provide
an attractive climate for investment and a strong housing market.
Upturns in consumer and investor confidence indicate
economic improvement is in the offing.
All of these developments combine to suggest that the economy is
poised to return to healthy and sustained growth creating jobs,
reducing the unemployment rate, and raising incomes.
A healthy economy is essential to an improved budget outlook
because it generates more revenue and reduces the pressure for spending
in unemployment-sensitive programs. But strong growth alone is not
sufficient. It is vital to exercise discipline over Federal spending
growth, keeping new policy action within the framework set by the
President's budget and this year's congressional budget resolution.
Both the budget and the resolution fund the priorities of the war on
terror and homeland security, while restraining the overall growth of
discretionary appropriations to a 4-percent level, consistent with the
average growth in family income. If discretionary spending instead
continued to grow at the average 7.4 percent rate experienced between
1998 and 2003, it would add a cumulative $400 billion to the deficit
over the next 5 years.
Holding discretionary spending to 4 percent growth overall requires
us to make choices, to set priorities, and to exercise fiscal
discipline. Even in priority areas such as homeland security, we must
be sure that funding increases are well spent. The administration's
efforts to assess and improve the performance of Federal programs
across the government, discussed further in the chapter ``Progress
Implementing the President's Management Agenda,'' will help to ensure
that taxpayer dollars are directed to programs that provide the
greatest benefit.
It is important to restrain increases in mandatory as well as
discretionary spending to the levels envisioned by the budget and the
resolution. Proposals for concurrent receipt of military retirement
benefits and veterans' disability compensation, and increases in
highway spending above the levels in the budget, are examples of new
proposals however well-intended that have the potential to undermine
the fiscal framework designed to move the budget toward balance. The
administration renews its call for budget enforcement mechanisms that
will restrain policy action above the limits set forth in the budget
and the resolution.
While we work to improve today's budget position, we must keep in
mind the real fiscal danger: the unsustainable long-term finances of
the nation's two major entitlement programs. Even if the budget were in
balance today, the growth in the future costs of Social Security and
Medicare beyond their dedicated resources would create deficits that
grow ever larger as a share of the economy in the decades to come. The
President is committed to reforming these programs in a way that
modernizes their benefits and restructures their financing to ensure
that they provide benefits not only for those in or near retirement
today, but for generations to come.
The fundamentals of the economy remain sound. With renewed economic
growth, and with judicious stewardship of the people's money, we can
return the budget to a stronger position in the years ahead.
Chairman Nussle. Thank you for your testimony and for your
words of wisdom and partnership today.
And I am struck by your comment--and I want to go back
because I haven't heard this number before--if we did nothing,
if we didn't cut taxes, we would be in deficit?
Mr. Bolten. Mr. Chairman, we would be in large deficit
today, at least $278 billion in deficit, if none of the tax
cuts had never taken place. And I want to add that that number
does not take into account the very salutary effect that the
tax cuts have had on the economy and, therefore, on Treasury
receipts.
We would be at least $278 billion in the red today without
the tax cuts, probably worse.
Chairman Nussle. I mean I haven't heard that story before.
No one has reported on that. I haven't seen that on the chart.
So if the Rangel bill was adopted, or had been adopted, or
if we had not adopted the tax relief, not only would 1.8
million people not be working today who are currently working,
but we would still be in deficit?
Mr. Bolten. Very deeply in deficit, Mr. Chairman. And I
would add, we would also be in a much worse economic situation.
What caused these deficits in the first place? The
principal reason for the deficit in the first place was very
sluggish economic growth and slow receipts in the Treasury.
Without the tax cuts, we would be in a very similar situation
with little prospect of pulling out, because we would not have
the stimulus in the economy that the tax cuts have already
provided and have a very strong promise of providing in the
months ahead.
Chairman Nussle. Now, I understand that the next argument
that is going to be made though is, well, we can get back to
surplus sooner than 2008 and 2009. Does anyone want to bet the
farm on those numbers?
I hope the argument here today is that doing nothing really
should not have been an option here, and that is why doing
something was so important. And I want to show another chart,
chart No. 9. Not only was cutting taxes important and doing
nothing is not an option, but let us assume for a moment that
we would adopt the Democrat proposals, these first 7 months
with regard to mandatory spending, on the floor of the House.
Just look at what the deficit would have been then.
Look at what the drug bill would have done that they put on
the floor for a trillion dollars. Welfare, unemployment, I
mean, you know, it goes on and on.
Just run through these charts real quick. There is
Medicare. That is the increase, $579 billion increase, to the
deficit. The deficit that we are talking about today, that is
being complained about, is the ``worst in history.'' Let us
adopt the Democratic Medicare proposal and watch it grow.
What is the next one you have got? Well, that is not it. I
was on a roll--welfare, $52 billion added to the deficit. I
know, I am getting a few things off my chest.
So, OK, doing nothing is not an option. I would suggest as
humbly as I can that this kind of excess spending is not an
option and that is why I am arguing as forcefully as I can here
today that you have got to stick to the plan, to the budget. It
has two components. It has growing the economy, as the Director
suggested, so we can get people back to work who are looking
for work, so they can make money and pay taxes. And the second
component is controlled spending.
And I would like to go to that--and I know this is, in the
grand scheme of all these bar charts, not a lot of money. It is
in Iowa. A lot of money--I think it was said in Des Moines, IA,
``a million here and a million there add up to a lot of
money.'' But let us look at the supplemental, just as an
example, $1.9 billion; I am calling for this to be offset.
Back before we were at surplus, we used to offset
supplementals, emergency spending around here, with lower-
priority reductions so that we could build in for the higher-
priority emergencies. And we are only--gosh, please I hope my
mother is not hearing me saying only $1.9 billion--but only in
the grand scheme of all these big numbers we are throwing
around here, I would say, Mr. Director, can we offset, can we
find $1.9 billion of waste, of lower-priority items so that we
can fit this in and not go any deeper and begin the trend
again?
We are not talking about a war. We are not talking about a
national emergency or a terrorism attack. We are back to the
deficits we saw at the time when we had a practice to offset
them.
I know you can't do that. It is obviously Congress' job to
offset, but will you help us try to find the necessary offsets
to offset the supplemental that is before Congress?
Mr. Bolten. Mr. Chairman, we didn't send that supplemental
up with offsets. We would be glad to work with you on that. It
is obviously a difficult and complicated process, especially as
we approach the end of the fiscal year, because we need those
offsets in fiscal year 2003, and that is emergency spending
that we need in 2003 in order to combat fires and hurricanes
and things like that. And I am glad to work with you on that,
and I am glad, in looking forward, to cooperate with you in a
process where, in fact, we do seek offsets for items that go
outside the budget.
And on that subject, Mr. Chairman, I very much welcome the
words of Mr. Spratt, who, when he spoke about restoring
mechanisms--statutory mechanisms to restrain the budget, we are
very much in support of that, and I look forward to working
with the committee on that as well.
Chairman Nussle. Let me take one more minute and suggest
one pet peeve that I have in this regard.
We notoriously--we hope to God it doesn't happen, but we
know it is coming next year--floods, forest fires; it is
terrible to know that they are coming, but we notoriously do
not provide resources ahead of time to budget for that. And so
we then stand at the underfunded FEMA accounts and say, ``Oh,
my gosh, what are we going to do?'' These are so high-priority
emergencies that we have to deal with, we have got to spend
more money, we have to pass a supplemental.
And I would suggest to you, part of the reason we got back
to the practice in the mid-1990s is because I think a forceful
case was made that these are predictable. We don't know exactly
where and when, but we know we are going to help people in
need. That is our job in many of these instances, to help
people who cannot help themselves. And I would hope that not
only we start with a relatively--I had better use that word--
``small'' supplemental while we can, so we set up the practice
for a time when it may be a little more difficult and where we
had more time to plan.
And part of the reason I say this, I don't want to make
455, 456.9 or 460, we don't want to go any deeper is the old
adage when you are in the hole. Spending is what is driving
this, and I want to do whatever we can even on the margins even
when it is relatively small.
Mr. Spratt.
Mr. Spratt. Am I correct in reading your report yesterday
that the current estimate, restated estimate of the surplus
between 2002 and 2011 is actually $2.6 trillion; not $5.6
trillion, as presented and projected in January of 2001, but
$2.6 trillion?
Mr. Bolten. No, Mr. Spratt. I don't think so.
Mr. Spratt. You stated the surplus was overstated by 53
percent because of economic and technical mistakes.
Mr. Bolten. I think that was just in 1 year. But in fact,
the $5.6 trillion surplus was overstated by more than $5.6
trillion if we look at the actual reality of what happened. I
think the 53 percent relates to----
Mr. Spratt. Just 1 year?
Mr. Bolten. Is it 2003--the change that is directly
attributable to the--to economic effects as opposed to either
spending, which was the second largest contributor in 2003, and
the tax cut, which was the last.
Mr. Spratt. Now the tax cut you have got there is actually
the tax cuts passed with the expirations assumed. You have got
31 percent of the problem is due to tax cuts.
That is just for the year 2003?
Mr. Bolten. I think we estimated 23 percent for the year
2003.
Mr. Spratt. That is for tax cuts?
Mr. Bolten. Yes, sir.
Mr. Spratt. I saw a chart that had 31 percent for tax cuts.
Mr. Bolten. Between 2004 and 2008.
Mr. Spratt. For the whole 5-year period of time?
Mr. Bolten. And, Mr. Spratt, we actually did assume
throughout that period that all of the tax cuts in the Jobs and
Growth bill were extended. None are assumed to sunset and all
of the other extensions of tax provisions that were contained
in the President's budget were also extended.
Mr. Spratt. Just 26 percent.
So do these percentage allocations hold over the 10-year
period of time? Are they roughly right for all 10 years?
Mr. Bolten. We didn't run precise numbers over the full 10
years, but I am told that it doesn't change by that much over
the full 10-year period, by the rough--again, back of the
envelope.
Mr. Spratt. Could you give us for the record a pie chart
that shows 2002-11 of how much is diminished of that total pie
due to economic and technical miscalculation and how much has
diminished due to tax relief, tax measures passed and still to
be passed that are part of your agenda?
Mr. Bolten. We will give you what we can that--at least
what we can reliably report on.
[The information referred to follows:]
Mr. Bolten's Response to Mr. Spratt's Question Regarding Long-Term
Projections
The administration mid-session review of the budget updates
estimates of the changes in the April 2001 projection through 2008. We
have limited our estimates to five years due to the high level of
uncertainty in longer term projections. Table 2 in the mid-session
document allocates the change among economic and technical re-
estimates, tax relief, and other legislated changes. Attached is a pie
chart that shows the source of the change by category. The largest
cause was economic and technical re-estimates which accounted for 47
percent of the total. As your requested, we have also attached a table
that shows the distribution between economic and technical re-
estimates.
TABLE 2.--CHANGES FROM APRIL 2001 PROJECTION
[In billions of dollars]
------------------------------------------------------------------------
2002-08
-------------------------
Percent of
Amount total
change
------------------------------------------------------------------------
April 2001 baseline surplus projection........ 3,195 ...........
Economic and technical reestimates:
Economic.............................. -833 ...........
Technical............................. -1,651 ...........
-------------
Subtotal, reestimates............. -2,484 47%
Tax relief:
Enacted policy:
2001 tax cut...................... -897 ...........
2002 stimulus act................. -71 ...........
2003 jobs and growth act.......... -325 ...........
-------------
Subtotal, enacted............. -1,293 25%
Pending tax proposals................. -218 4%
-------------------------
Subtotal, enacted and pending..... -1,511 29%
Other:
War, homeland, and other enacted -979 19%
legislation..........................
Pending spending proposals............ -289 5%
-------------------------
Subtotal, other................... -1,268 24%
Total change.......................... -5,264 100%
Mid-Session Review policy deficit............. -2,069 ...........
------------------------------------------------------------------------
Note: Each change includes associated debt service.
Mr. Spratt. You estimate that in the years 2004 and 2005,
the budget will begin to get better, actually sort of comes
down to a new plateau that is beneath $400 billion. It is the
$230 and $304 billion, I believe, in 2005.
What do you a attribute that to? Is it all economic growth?
Mr. Bolten. No. A great deal of it is economic growth, and
the faltering of economic growth is what created these large
deficits in the first place. So a very large chunk of it is
economic growth.
But we are also assuming a pretty good dose of spending
restraint like was contained in the budget resolution that this
Congress approved.
Mr. Spratt. By our calculation, if we are to have the kind
of growth you appear to assume during that period of time, the
economy has to start growing now, this quarter, at about a 4
percent annual growth rate. And that has to continue in order
to attain a 2.8 percent fourth quarter, over fourth quarter
result.
Do you think the economy right now is growing at 4 percent?
Is there a surge that is happening right now that we are not
aware of?
Mr. Bolten. Mr. Spratt, I think what we have assumed is
roughly for the second half of this year a 3.7 percent growth
rate in the economy. And that----
Mr. Spratt. That will average out to 2.8 percent for the
full year.
Mr. Bolten. Yes.
And that estimate, I am told, is straight down the middle.
Corresponds with what CBO estimates and what the Blue Chip
estimators are estimating has well. So I think it is a sound
and, I understand, relatively conservative estimate.
Mr. Spratt. My time is just about up.
You mentioned that you are game to the idea of having the
budget process rules that we put in the Budget Enforcement Act
of 1991 renewed. In rewriting or extending the PAYGO rule,
would that apply to taxes as well?
Mr. Bolten. Going forward, we would be prepared to consider
that.
Mr. Spratt. Thank you sir.
Chairman Nussle. Mr. Thornberry.
Mr. Thornberry. Thank you Mr. Chairman.
Mr. Bolten, let me add my welcome to this committee. I have
been a member of this committee for about 5 years now, and the
one thing that I continue to be struck by is how rotten we are
at predicting revenue coming in to the government. And if we
could put up chart 1, which is similar to what you were talking
about with Mr. Spratt, if you kind of start at the top and work
your way down, this is what has happened with the downturn
receipts.
The blue is tax relief, and that is a debate we have back
and forth, but ultimately the democratic process runs its
course and a bill is or is not passed, is or is not signed into
law; and so at least tax rates are something within our
control. And obviously part of the downturn in the receipts are
the deliberate result of bills passed by Congress and signed by
the President.
And then the next level down, our spending increases.
Again, we have a debate; that is something within our control.
And a lot of those spending increases in some areas are more
than I would like; other areas, perhaps not as much as I would
like--in homeland security, perhaps. But we have disagreements
and ultimately we take action and there are results.
But then we come to the red. And the red, as your chart
shows and this chart shows, dwarfs everything else. Part of
that is just the flow of the economy, improving or not
improving, or actually going down. But there is even an
element--CBO has testified before to us that even with the
economy performing at a certain level, the revenues coming into
the Federal Government are less than what would be expected of
the economy performing at that level, so it is not just
economic growth.
There seems to be a lot that we don't know and are not very
good at predicting. And I guess what I would like to know--and
I understand you have been in this position a short time--do
you have suggestions about what any of us can do to do better
at predicting, or even budgeting, going into the future?
We know the top things are under our control and the
results are the decisions that we make, but this huge red area
in this chart, which is the result of economic forces that we
can't, at least directly, control, presents us with difficult
problems. Do you have suggestions on what we can do better
again at predicting or at budgeting or to have a little better
estimate in the future?
Mr. Bolten. Mr. Thornberry, I think you are targeting
exactly one of the right problems, which is--a lot of the
misestimates have come on the revenue side, that the very rosy
projections of huge surpluses were radically wrong about
government receipts. And that is an area where we need to
improve our projections.
It is interesting that where the receipts seem to have
fallen off the most is in some corporate taxes, especially in
individual income taxes and capital gains taxes. It seems that
there is a steep fall-off in tax receipts, particularly from
wealthy individuals, unrelated to any tax cut, but I think it
had to do with the stock market collapse, with options and so
on that built up in the late 1990s and the beginning of this
decade.
So it is a real problem in the estimates. It is one that I
think the economic estimators are getting better at, but there
is a great deal of work to do.
One thing we can do is be conservative in our estimates
going forward, and we did that in the mid-session review. We
have inserted into our estimates a plug that is just a guess,
that the estimates may be too optimistic even though we think
we have been conservative. We have inserted a plug into our
numbers of $15 billion in 2003, $30 billion in 2004 and $15
billion in 2005 for precisely the problem you are talking
about, which is an over expectation of revenues.
So we feel we have been on the conservative side of this.
We have got $60 billion in just the first 3 years of our
projections that we have put into the estimates for any
unexpected further shortfall in revenues. And I think we need
to do that going forward until we are better at estimating how
revenues come in.
Mr. Thornberry. I agree. Thank you very much.
Chairman Nussle. Mrs. Capps.
Mrs. Capps. Thank you Mr. Chairman.
And thank you Joshua Bolten, for being here for your first
hearing.
At the last mid-session review a year ago the President
said the fiscal year 2003 budget deficit would be $109 billion.
In January, the President said it would be $304 billion. Today,
in a tour de force of fiscal recklessness, the expected fiscal
year 2003 deficit will be $455 billion. This represents a
stunning 300 percent increase in 12 months.
Despite this, the administration and the Republicans in
Congress have no plan to address the deficit--no real plan. In
fact, the argument is being made that the White House may see
the fiscal damage this causes as an added benefit of this
reckless policy. This is the starve-the-beast strategy
Republican operatives speak of so glowingly. The way to keep
spending down is to keep cutting taxes and drive up the
deficit. Then, the argument goes, there is no way to spend
money on programs and services that the American people ask
for.
These tax cuts do mostly benefit the richest people in the
country. And the programs we underfund--Head Start, Medicare,
education, veterans health--are most important to middle-class
and working families. It is a cynical and destructive strategy
that hurts families today and saddles our children and our
grandchildren.
And my question to you, Mr. Bolten, is a statement that you
are quoted as making that ``these deficits are manageable.'' My
question is, at what level would you consider the deficits to
be unmanageable either in dollar amount or in percentage of
GDP?
Mr. Bolten. There is no fixed answer to that. I don't know
where the situation gets difficult.
Chairman Greenspan was asked the same question yesterday.
He doesn't know where the situation is.
What I can tell you is that the deficits we are
experiencing today, although much larger than we would like
them to be, are manageable.
Where we would see a problem is in long-term interest
rates. And long-term interest rates--from a deficit that is too
large. Long-term interest rates today are at 40- or 50-year
historic lows. So we are not seeing the current deficits
causing a problem in the economy. And I think this needs to
be--whenever we look at the deficit picture as a percentage of
GDP we need to be assessing what is the effect on the economy.
The situation today is indeed manageable, and if our
projections prove correct, and I think as I was just discussing
with Mr. Thornberry, I think they are conservative, going
forward, we will see the deficits declining in just the next
few years to about 1.7 percent of GDP which should put even
less strain on the economy.
Mrs. Capps. But long-term interest rates are long term. And
surely there must be some way to estimate either 5 percent of
GDP or 6 or 10, the point at which you could predict that that
would affect long term--there is no way?
Mr. Bolten. Mrs. Capps, no, I don't think there is. Because
there are so many different factors that affect the economy. We
could be looking at high unemployment and yet a low-growth
rate. We could be looking at high interest rates. So there are
so many different factors at play that I don't think any
economist would hazard a guess at what the right number is. So
what I can tell you is that today a 4.2 percent of GDP deficit,
while much larger than we want, is not causing substantial
damage to the economy.
Mr. Baird. Would the gentlelady yield for a moment? You
answered her earlier by saying that interest rates have not
been impacted by the deficit so, therefore, it must not have a
negative impact. But now you are saying they are unpredictable,
their relationship. Seems inconsistent.
Mr. Bolten. I don't think so. The point I was making was
that when you assess whether a deficit is causing damage to the
economy, you need to look at the whole economic picture. That
means what is the employment level, what is the productivity
level, what are interest rates and so on. This is how the
markets and the economists do it. I think that is how we all
ought to be doing it as we cautiously evaluate what is the
right step to be taking.
Mrs. Capps. Could I reclaim my time? I do want to ask you a
question. I hear you saying there is no ceiling on how big
deficits can get without causing damage.
Mr. Bolten. No, that is not what I said. I said you can't
predict in the abstract exactly what that number is.
Mrs. Capps. I do want to get out the fact that the mid-
session review shows a gross decrease of $25.5 billion in
Medicaid spending for fiscal years 2004-08. I would like you to
explain the causes behind the drop in Medicaid spending.
Mr. Bolten. I don't have those with me at hand. If I could
provide that for you for the record, I will.
Mrs. Capps. Could it be that the States are cutting
Medicaid benefits and tightening eligibility criteria for this
program, and isn't this projected decrease in spending a real
negative effect on Medicaid beneficiaries?
Mr. Bolten. I will give you an answer for the record, Mrs.
Capps.
Mrs. Capps. Thank you.
[The information referred to follows:]
Mr. Bolten's Response to Mrs. Capps' Question Regarding the Causes for
the Drop in Medicare Spending
Under the fiscal year 2004 MSR estimates, Medicaid spending is
estimated to grow at an average rate of 8.1 Percent over the next 5
years compared to the fiscal year 2004 President's budget estimate of
8.7 percent. This growth rate is slightly smaller than was previously
forecast in January. The estimates reflect a combination of anticipated
changed in state Medicaid programs and revised economic assumptions. In
2003-04, medical assistance spending is projected to increase by $9
billion over the January estimates, primarily as a result of the Jobs
and Growth Tax Relief Act of 2003. This legislation gave states
temporary increase in their Federal matching rates.
Chairman Nussle. Thank you. Mr. Hastings.
Mr. Hastings. Thank you, Mr. Chairman. Mr. Bolten, welcome
to what I hope will be a first of many pleasant experiences in
front of the Budget Committee. We have heard today, of course,
a number of reasons why we are running deficits, largely all
because they were unpredictable prior to, I would say 9/11. A
lot of factors came into that. That is been, I think, well-
documented. However, a lot us came to this body thinking that
balancing the Federal budget is a very good policy. And so what
I would like to ask you, just for the record, in view of the
difficulties that we are going through, does the President
still share that goal of having a balanced budget?
Mr. Bolten. Yes, he does.
Mr. Hastings. That is pretty unequivocal. I like to hear
that. In the last exchange that you had with some of the other
Members there, the interests or the issue came up regarding
interest rates, and critics of deficit spending have said over
a long period of time that when you run deficits, that tends to
crowd out the markets and, therefore, interest rates rise. And
yet, I can speak on a personal basis that I have refinanced and
interest rates continue to come down. How do you explain that
phenomena right now? And should there be other considerations
that go into effect when you are looking at the economic impact
when we talk about deficit spending?
Mr. Bolten. Well, that is what I was just beginning to get
into with Mrs. Capps, which is that there are a whole wide
variety of factors in an economy that will affect what interest
rates, what long-term interest rates are going to be. They do
include the level of employment. They include very
significantly the productivity rate, that is the rate by which
we are able to produce more goods with less labor. They include
international factors like growth rates abroad and how
receptive are foreign countries going to be to our exports. So
there are a whole wide variety of economic factors that come
into determining interest rates.
And the main reason we need to be worried about deficits in
the short run is because we need to ensure that they are not
causing substantial upward pressure on those interest rates.
Today with a 4.2 percent of GDP deficit, too large, we are not
seeing that upward pressure on interest rates. And that is why
I have use the world manageable to describe the situation.
Mr. Hastings. Just out of curiosity, I know back in the
'80s the deficit as a percentage of GDP was somewhere around 6
percent. Do you know what they were after the Second World War,
say during the '50s when we were growing up?
Mr. Bolten. Oh, I think immediately after the Second World
War they were very large. The government ran huge deficits
during the war. They fell off after that fairly rapidly. But
let me turn to my colleagues to see if we have a specific
answer.
Mr. Hastings, in the interest of the time of the committee,
we will be able to give you a chart for the record. But during
wartime, traditionally, the numbers have gone well above 6
percent of GDP. That 6 percent peak is just in the last 20, 30
years.
[The information referred to follows:]
Mr. Bolten's Response to Mr. Hastings' Question Regarding the Deficit
as a Percentage of the GDP
The Highest post-war deficit as a percentage of GDP was in 1983, at
6 percent. For most of the 1950s, deficits were below 2 percent of GDP.
During the Second World War, deficits reached over 30 percent of GDP.
The attached table shows deficits as a percent of GDP from 1930 through
the administration's estimate for 2008.
SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS (-) AS PERCENTAGES OF GDP: 1930-2008
[In billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Total
GDP (in ------------------------------- GDP (in -----------------------------
billions billions Surplus
Year of Surplus or Year of or
dollars) Receipts Outlays deficit (- dollars) Receipts Outlays deficit (-
) )
--------------------------------------------------------------------------------------------------------------------------------------------------------
1930..................................... 97.5 4.2 3.4 0.8 1970........................ 1,013.2 19.0 19.3 -0.3
1931..................................... 83.9 3.7 4.3 -0.6 1971........................ 1,081.4 17.3 19.4 -2.1
1932..................................... 67.7 2.8 6.9 -4.0 1972........................ 1,181.5 17.5 19.5 -2.0
1933..................................... 57.6 3.5 8.0 -4.5 1973........................ 1,308.1 17.6 18.8 -1.1
1934..................................... 61.2 4.8 10.7 -5.9 1974........................ 1,442.1 18.3 18.7 -0.4
1935..................................... 69.7 5.2 9.2 -4.0 1975........................ 1,559.8 17.9 21.3 -3.4
1936..................................... 78.5 5.0 10.5 -5.5 1976........................ 1,736.7 17.2 21.4 -4.2
1937..................................... 87.8 6.1 8.6 -2.5 TQ.......................... 454.8 17.9 21.1 -3.2
1938..................................... 89.0 7.6 7.7 -0.1 1977........................ 1,971.3 18.0 20.8 -2.7
1939..................................... 89.0 7.1 10.3 -3.2 1978........................ 2,218.6 18.0 20.7 -2.7
1940..................................... 96.7 6.8 9.8 -3.0 1979........................ 2,503.8 18.5 20.1 -1.6
1941..................................... 114.0 7.6 12.0 -4.3 1980........................ 2,732.1 18.9 21.6 -2.7
1942..................................... 144.2 10.1 24.4 -14.2 1981........................ 3,061.6 19.6 22.2 -2.6
1943..................................... 180.1 13.3 43.6 -30.3 1982........................ 3,228.6 19.1 23.1 -4.0
1944..................................... 209.0 20.9 43.7 -22.8 1983........................ 3,440.5 17.5 23.5 -6.0
1945..................................... 221.3 20.4 41.9 -21.5 1984........................ 3,839.4 17.4 22.2 -4.8
1946..................................... 222.7 17.6 24.8 -7.2 1985........................ 4,136.6 17.7 22.9 -5.1
1947..................................... 234.6 16.4 14.7 1.7 1986........................ 4,401.4 17.5 22.5 -5.0
1948..................................... 256.4 16.2 11.6 4.6 1987........................ 4,647.0 18.4 21.6 -3.2
1949..................................... 271.5 14.5 14.3 0.2 1988........................ 5,014.7 18.1 21.2 -3.1
1950..................................... 273.4 14.4 15.6 -1.1 1989........................ 5,405.5 18.3 21.2 -2.8
1951..................................... 321.0 16.1 14.2 1.9 1990........................ 5,735.6 18.0 21.8 -3.9
1952..................................... 348.8 19.0 19.4 -0.4 1991........................ 5,930.4 17.8 22.3 -4.5
1953..................................... 373.4 18.6 20.4 -1.7 1992........................ 6,218.6 17.5 22.2 -4.7
1954..................................... 378.0 18.4 18.7 -0.3 1993........................ 6,558.4 17.6 21.5 -3.9
1955..................................... 395.2 16.6 17.3 -0.8 1994........................ 6,944.6 18.1 21.1 -2.9
1956..................................... 427.7 17.4 16.5 0.9 1995........................ 7,324.0 18.5 20.7 -2.2
1957..................................... 450.7 17.7 17.0 0.8 1996........................ 7,694.6 18.9 20.3 -1.4
1958..................................... 461.1 17.3 17.9 -0.6 1997........................ 8,185.2 19.3 19.6 -0.3
1959..................................... 492.1 16.1 18.7 -2.6 1998........................ 8,663.9 19.9 19.1 0.8
1960..................................... 518.9 17.8 17.8 0.1 1999........................ 9,137.7 20.0 18.6 1.4
1961..................................... 531.8 17.7 18.4 -0.6 2000........................ 9,718.8 20.8 18.4 2.4
1962..................................... 568.5 17.5 18.8 -1.3 2001........................ 10,021.5 19.9 18.6 1.3
1963..................................... 599.7 17.8 18.6 -0.8 2002........................ 10,337.3 17.9 19.5 -1.5
1964..................................... 641.3 17.6 18.5 -0.9 2003 estimate............... 10,746.4 16.3 20.6 -4.2
1965..................................... 687.9 17.0 17.2 -0.2 2004 estimate............... 11,265.6 16.0 20.2 -4.2
1966..................................... 754.2 17.3 17.8 -0.5 2005 estimate............... 11,828.7 17.2 19.8 -2.6
1967..................................... 813.5 18.3 19.4 -1.1 2006 estimate............... 12,413.4 17.8 19.8 -1.9
1968..................................... 868.4 17.6 20.5 -2.9 2007 estimate............... 13,023.6 18.1 19.8 -1.6
1969..................................... 949.2 19.7 19.3 0.3 2008 estimate............... 13,671.4 18.1 19.8 -1.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 0.05 percent or less.
Note: Budget figures prior to 1933 are based on the administrative budget concepts rather than the unified budget concepts.
Mr. Hastings. Mid-'80s, if my memory serves me correctly.
Well, I just want to say that--I am one of these that don't
like to--I don't think it is good policy to run deficits, but I
do think that the proper measurement, when you do have
deficits, is what is what in relationship to the overall
economy. So I think that is an important point. I do want to
emphasize that.
And I thank you for your time, and again, I hope you have
other pleasant experiences here.
Mr. Bolten. I am enjoying it so far, Mr. Hastings.
Mr. Hastings. Yield back.
Chairman Nussle. Mr. Emanuel.
Mr. Emanuel. Thank you, Mr. Chairman. Thank you Director
Bolten for being here. Using your own numbers, I think I am
doing this right, we are going to have added, or have added
nearly $3 trillion to the Nation's debt and 3 million Americans
have lost their jobs. As we say back in Chicago, such a deal.
And that has been the consequences, whether you want to say it
is taxes, you want to say it is spending, those are the facts.
That is what is there so far. Not that other people won't find
jobs who so lost them, and we may actually begin to turn our
deficit around, but based on your numbers, $3 trillion will
be--nearly $3 trillion will be added to the Nation's debt. And
as of now, in this meeting a net 3 million Americans have lost
their jobs.
Now, I want to read you something from the State of the
Union and have you been in this job a little too early but it
is the President's State of the Union. His quote is, ``We will
not deny, we will not ignore, we will not pass along our
problems to other Congresses, to other Presidents and to
another generations.'' As I look at those 24 words, I have
almost the instinct to ask you who wrote those words for the
President? Because it is really inconsistent with about $455
billion in deficits and almost the lackadaisical approach about
$3 trillion being added to the Nation's debt.
I was struck, as Congressman Spratt was, by the tone in
which--that we will--the lack of urgency about the Nation's
debt being increased. I was struck by it because yesterday in
front of the Financial Services Committee, the Fed chairman had
a very different attitude about the deficit. He says the
deterioration in the unified budget has been mirrored in a
sharp downsizing in Federal saving. Net Federal saving fell
from a high of a positive 2 percent of GDP in 2000 to a
negative two and a half of GDP in the first quarter of 2003.
With little change in the non-Federal domestic saving over this
period, the down sizing in the Federal saving showed into net
national saving which is equal to less than 1 percent of GDP in
the first quarter compared with a recent high of 6.5 percent of
GDP in 1998.
If not reversed over the long haul, such levels of national
saving could eventually impinge on the formation of private
capital that contributed to the improved productivity
performance of the past half-decade.
Now, you are right, in the sense that deficits don't really
matter there. Whether they become as they are now or they
become perceived by the market as structural, that will have an
impact on the interest rates. But there is no doubt that it is
going to have an impact on the savings rate. As Chairman
Greenspan said in his own testimony, there is a sense of
urgency on its impact on savings and what it will do to fund
the growth.
We can all talk about tax cuts. We can all talk about
spending. The fact is if it impinges on savings, we cannot have
the economic growth that is necessary to fund the growth that
we need. I would like to--this is more of a philosophical
question because you do, hopefully--I think you are doing your
job well, serving your President, being loyal to his economic
plan, but the lack of sense of urgency of what these deficits
will do to savings that can fuel economic growth is--I am taken
aback by because I know you have private sector experience, and
you know without private savings, there will be no economic
growth.
Mr. Bolten. Mr. Emanuel, I agree with everything that
Chairman Greenspan said.
Mr. Emanuel. That is a good place to start.
Mr. Bolten. And I think those are all important points. The
administration does have proposals that were included in our
budget to encourage long-term savings in the form of lifetime
savings account and retirement savings account and so on. And
we are going to be very interested to work with you and the
other members to see those adopted. In the short run, in the
short run, our problem is not the savings deficit we have in
the country, our problem is an economy that has been far too
weak. It is that economy that caused the deficits. And that is
the--the policies that the President has put in place are the
ones that have are best suited to get us out of that problem in
the first place.
Mr. Emanuel. Director Bolten, I would agree that you need
to stimulate the economy. It could be accomplished with certain
spending areas that are good for both short-term, as well as
long-term economic growth, but if you look at the tax cuts, no
disrespect meant here, a slight difference of opinion, in 2003
the only piece of that tax cut that was stimulative was the one
that Democrats had offered in the sense of a tax cut
immediately that went into effect right then and there. And
only 10 percent of the $350 billion that was just passed goes
into effect. The bulk in the back end of 2008. You may be
worried, but you are not worried about your projections in 2008
because you are not projecting one. We have one now, 3 million
Americans have lost their jobs.
So with all due respect, tax cuts, yes, they can be helpful
to an economy. And philosophically, yes, they can be helpful in
moving the economy, but if they are not here and now and not in
people's paychecks, which they are not, it is whether they hit
people's paychecks today. Less than 10 percent of the $350
billion tax cut went to the economy in 2003. Fact.
Mr. Bolten. I don't agree with your numbers to begin with,
Mr. Emanuel, but I think the people who will be getting the
checks that are going into the mail at the end of this month
won't agree either. I think there is a substantial stimulative
effect to the tax cuts that have been introduced. There is a
Treasury study came out yesterday showing a 2-percent increase
in GDP as a result of the tax cuts. And I think the right
measures have been taken.
Mr. Emanuel. Director Bolten----
Chairman Nussle. The gentleman's time has expired. If you
have a final question, go ahead.
Mr. Emanuel. It would be a statement, not a question. I
will try to make it as a question. Director, the Fed chairman
noted the importance of the Child Tax Credit yesterday as part
of growing the economy. And I would note that, yes, people who
receive their checks at the end of this month will feel the
impact on that. Unfortunately, 6.5 million families, 12 million
children will be left out. I think they would also like to
participate in this growing economy.
Mr. Bolten. The President supports that.
Mr. Emanuel. Thank you for that.
Chairman Nussle. Mr. Schrock.
Mr. Schrock. Thank you, Mr. Chairman. And welcome from me
as well. You are having a good time now, but it is not over
yet. Let me--I am going to address the tax reduction thing and
ask you a question, but I want to make a comment first.
I heard one of the members a minute ago say that the tax
cuts we have had or the tax cuts for the rich and, of course,
as we get closer to the 2004 elections those will be the 10-
and 20-second sound bytes you will hear over and over again.
But let me tell you what it means to one person that I met. We
bought a place here, I had the carpet changed a while back, a
couple months ago. I had a young man who is the carpet
installer for a carpet company. I was there. It was a Saturday.
He said to me, I hope you don't mind me saying this, but he
says, I think what you guys do down there as far as tax cuts
are absolutely wonderful. A lot of my buddies and I agree. It
is probably going to afford my wife and I the opportunity for
the first time in our lives to buy a house that we haven't been
able to buy. And that story can be told over and over and over
again by a lot of small businesses. So frankly, I think the tax
cuts, if that--he said to me, do I look rich? I said, well, no.
I don't want to be insulting, but no you don't look rich. He
said, it does help a lot of people like me and will continue to
do that.
So what I think the President has done in this Congress
under the current leadership is very, very good for the
economy. And frankly, I think the President is doing a great
job. It is a terrible situation to have to deal with this
stuff. And everybody talks about the surpluses we were going to
have; those were projected. If the sun came out every morning,
everything was rosy, well it didn't. We had some folks on 9/11
who decided they were going to change some of that, plus a lot
of other things. I think, that taken into consideration, we
have to realize we are probably not as bad shape as we could
have been if this President hadn't taken some of the actions he
took.
I know you answered in this your testimony, but I am going
to ask it again because I want everybody to understand. Did the
tax reductions, the tax reduction policies over the last two
and a half years, cause the deficits described in the mid-
session review, and if not, why not? I don't think we can tell
that over and over again enough to make people understand.
Mr. Bolten. The tax cuts adopted in 2001, 2002 and 2003
were a relatively small contributor to the deficit on a static
basis. And the most important thing is that because they do
reduce government receipts somewhat, the most important thing
is though that the principal cause of the large deficits we are
seeing today is a downturn in the economy and attendant much
lower Treasury receipts than we would like to see. And the tax
cuts have been both well-designed looking back and especially
looking forward to restore the economic growth that ultimately
will restore the deficit picture.
Mr. Schrock. And a President, no matter how good he may or
may not be, has no impact on that. I mean they may be the most
brilliant people in the world, but the economy is going to be
cyclical whether a Democrat or Republican is sitting in the
White House. It just happens to be this guy is a Republican and
that is when things started to happen. Am I right or wrong?
Mr. Bolten. Sure. The stock market peaked in early 2000.
The country was entering recession already when the President
took office in early 2001. The corporate scandals that came to
light last year and the year before had been brewing throughout
the 1990s. All of these factors are baked in, regardless of who
was the President, and then we were hit with the shock of
September 11 and the global war on terror. So all of these
things come together to suggest that it is a pretty tough
situation that this country has faced in the last 12\1/2\
years. I would argue that the right measures have been taken to
mitigate the damage caused by the external situation and to
bring us back to a good budget picture.
Mr. Schrock. I would agree with you. According to your
estimates, roughly how much of the deficit do you think
resulted from the economic factors and how much from spending?
Mr. Bolten. If I could have one chart back up, the pie
chart. This one if you will look in--if you are looking at the
year 2003, the year we are now, we see the economy explaining
more than 50 percent of the deficit. And I would emphasize
again that this is a static look. This is not take taking into
account the positive effect that the tax relief has had on the
economy, meaning actually mitigating the deficit picture.
Mr. Schrock. I agree. Thank you very much. Thank you for
being here. Thank you, Mr. Chairman.
Chairman Nussle. Mr. Thompson.
Mr. Thompson. Thank you, Mr. Chairman. Thank you, Mr.
Bolten for being here. I would like to get back to something
that Mr. Spratt brought up that was the issue of the Budget
Enforcement Act. In your report, you actually mention that the
administration supports extension of the now expired Budget
Enforcement Act but in manners that are consistent with the
President's budget proposal. Given the fact that without the
tax cuts, the deficit would be, you know, roughly a little less
than half of what it is today, I guess I have trouble
understanding what bringing back the act consistent with the
President's spending proposal actually means, given that PAYGO
is a major component of that. And if you have--and the leader
on the other side, Mr. DeLay, on the floor of the House already
stated that he believes there are some more needs and budget
room for even greater tax cuts, and there is no PAYGO that goes
along with it, so it seems somewhat contradictory. If you could
answer that. And also let me know, is the administration going
to be pushing, in the fiscal year 2005, budget reenactment of
the Budget Enforcement Act?
Mr. Bolten. Consistent with the President's budget, we mean
going forward, beyond the President's budget, we would, of
course, what is already out there, we would be prepared to look
at the imposition of the cap, PAYGO and the caps that were----
Mr. Thompson. So we could actually be in greater deficit
and greater debt than we were today before you consider budget
enforcement enactment?
Mr. Bolten. I don't think that is necessarily true. But we
are--actually, I will very much look forward to working with
members on both sides of this committee in the year ahead. As
we prepare the 2005 budget--in answer to your second question,
as we prepare the 2005 budget, to see what we can agree on in
terms of new budget enforcement mechanisms. I think they are
very useful and they are important.
Mr. Thompson. So will the administration then be asking for
reenactment of the Budget Enforcement?
Mr. Bolten. I can't tell you specifically what will be in
the 2005 budget proposal now, we are still a ways off from
that. But my own inclination would be to work with you to try
to see that we can put something in there.
Mr. Thompson. If Members try to bring that about before the
2005 budget, you would be willing to work with us and be
supportive of that?
Mr. Bolten. We will work with you before then.
Mr. Thompson. Appreciate that very much. One other thing on
your report, several points indicate that deficits would be
manageable if we were to exercise serious spending controls.
But then it also states that the largest spending increases
have been in the area of defense and homeland security. And
given the, I think, terrible news that we heard this week that
the cost of $5 billion a month between Iraq and Afghanistan and
that seems like things are still pretty unpredictable there and
depending upon what happens in Liberia, these costs that you
state as the largest spending increases and already stated
today as the top priority, may actually grow. So does that mean
that the only serious spending control that we see will be in
the nondefense discretionary programs?
Mr. Bolten. Well, what I can tell you is that the President
will spend what is necessary to defend the country and the
homeland and to support our troops. And my expectation is he
would have support from both sides of the aisle in doing that.
Beyond that----
Mr. Thompson. That is not the question. The question is
where will the serious spending controls be focused?
Mr. Bolten. Well, we will have--we will be looking at very
hard at the nondefense, nonhomeland portion of the budget, but
we also need to look at the whole budget. We need to be serious
as well about defense and homeland security to be sure that we
are spending the people's money wisely. The one thing you can
be sure of though, that if the spending is actually related to
our national defense, and if it is related to supporting our
troops in the field, the President will insist on spending what
is necessary, and I expect he would have a lot of support up
here to do that.
Mr. Thompson. But I am assuming we will also look at
appropriate expenditures there, we are going to make the right
financial--the right fiscal choice there is as well.
Mr. Bolten. I hope so.
Mr. Thompson. Well, we hope so. Hope we get a little
greater commitment than just hope. Thank you.
Chairman Nussle. Just to report to the gentleman too, there
is a little known or little reported title in the Medicare bill
which is a $33 billion savings proposal that is promoted by
this committee in waste fraud and abuse. So we are starting the
process and not just the discretionary side, but also on the
mandatory side. Mr. Bonner.
Mr. Bonner. Thank you, Mr. Chairman. Mr. Bolten, welcome. I
am a new Member of Congress. I have only been in office for
about 6\1/2\ months, although I worked up here for about 18
years. So I have had an opportunity during my time in public
service to meet a lot of people back in any district. One in
particular that I met just a couple of days ago told me about
frustration he has had, and I mention this in hopes of
soliciting help out of your office in dealing with waste,
fraud, and abuse.
This gentleman lives in Orange Beach, AL. He has been
fighting cancer and was recently in a hospital where he had a
procedure done. It cost $1,500 and Medicare reimbursed $5,500.
When he contacted the hospital and when he contacted Medicare,
they both said, well, it is really very difficult to fool with
the $4,000 overpayment; so we are just not going to worry about
it.
I worried about it. Because I think that $4,000 here and
$4,000 there eventually adds up to a lot of money. I applaud
our chairman because this committee, just in recent weeks, has
invited Inspectors General from many of the Departments to come
in and help identify other areas of fraud and abuse. So I use
that as an example to ask this question, can we get from the
Office of Management and Budget a commitment, I know this
administration has only been on the job for a little over 2
years and a lot of these are systemic problems that have
occurred in administrations over the decades, but can we get
some assistance from the administration, an assurance that as
we bring to the different departments and agencies, examples of
overpayment and abuse, that you will work with us in Congress
to identify them and to try to put an end to it? Because that
certainly has an effect on the overall level of government
spending.
Mr. Bolten. Absolutely, Mr. Bonner. I know the chairman has
been interested in this subject for some time. We do at OMB
have an initiative on erroneous payments that we are serious
about putting a lot of effort into. A large portion of the
erroneous payments that we have now in the government, which
are estimated in the billions and billions of dollars, do occur
in the Medicare program. We would like to be sure that we get
after those dollars because those are dollars that we need to
spend actually giving people the care they need.
Mr. Bonner. Well, you are right. Chairman Nussle has done
an admirable job on that. I want to publicly thank him for his
efforts on it. I would now like to invite to you come into
the----
Chairman Nussle. You have an extra couple of minutes now
for that too, just so you know.
Mr. Bonner. Thank you, Mr. Chairman. I would like to invite
you into the buzz saw, if you will. As an observer of what has
gone on for the last 6 or 7 months. I find myself sometimes
scratching my head in bewilderment over what I hear from some
of my colleagues in this committee, and on the House floor,
demanding that the tax cuts have just ripped apart our economy
and caused all these high levels of unemployment. And that the
doom of western civilization, as we know it today, is on the
horizon. And yet, amendment after amendment is offered on the
floor and in committees to increase spending. So my question to
you is, if we were to accept some of these amendments that have
been offered over the last 6\1/2\ months that would increase
spending whether it is for homeland security, we are not
spending enough there, or for Medicare, we are not spending
enough there, or for education or for whatever the program,
would not all of these increases in spending also turn around
and increase the deficit that they also decry as being the
worst thing since the creation of this country?
Mr. Bolten. They would, Mr. Bonner. I thought Chairman
Nussle had an exceptionally good chart that details exactly
that in some pretty stark reality.
Mr. Bonner. Thank you, Mr. Chairman. I appreciate the
additional time, but I yield back my remaining time.
Chairman Nussle. Mr. Baird.
Mr. Baird. That is a dapper tie you have.
Chairman Nussle. You got an extra 2 minutes. This is not
hard.
Mr. Baird. Mr. Bolten, what is your understanding of a
lockbox?
Mr. Bolten. To tell the truth, I don't really have an
understanding of what some in the public debate mean by it when
they say a lockbox.
Mr. Baird. The President of the United States of America
ran for office as did many of the members of this institution
promising to put Medicare and Social Security in a lockbox. Is
that your recollection?
Mr. Bolten. The--it is actually not my recollection with
respect to Medicare.
Mr. Baird. Let's take Social Security.
Mr. Bolten. Social Security there was general acceptance
that it is good--it is good practice top off the Social
Security surplus.
Mr. Baird. If that is the case--on page 1, the second
paragraph of your document--the deficit for 2003 is now
estimated at $455 billion. Does that reflect the lockbox that
we all promised to put Social Security trust funds in or is
that including the so-called lockbox to lower the actual
appearance of the deficit?
Mr. Bolten. There is no appearance being played here. The
$455 billion number does include the Social Security surplus,
but that is always been the practice with respect to estimating
the unified deficit. And it is the right measure, I should say,
when assessing what effect is the deficit having on the
economy. That is the purpose for which we are using it.
Mr. Baird. If the Congress were to level with the American
people and honor our pledge it set aside the money in a lockbox
instead of borrowing it for other purposes what would the
deficit be?
Mr. Bolten. The unified deficit would--I am not sure what
you mean.
Mr. Baird. The on-budget deficit.
Mr. Bolten. Again, I am not entirely clear on what you
mean.
Mr. Baird. Let me say it this way: How much are we
borrowing from Social Security, Medicare in your projections?
Mr. Bolten. The concept is not borrowing from Social
Security and Medicare.
Mr. Baird. It is a concept that we debated for hours ad
nauseam in this Congress 2 years ago. And the President talked
about it on the campaign trail, as did many of our own
candidates.
Mr. Bolten. Well, the money that is set aside for Social
Security is an accounting set aside. That moneys there too pay
current and future retirees. If what you are getting at is that
we face a long-term problem with an unfunded liability, I agree
completely. That is an issue that we do need to address going
forward. It is not--it is not the current problem with the
deficit. The current problem with the deficit is one in which
we need to restore economic growth.
Mr. Baird. I can help you out from your own materials, I
believe. It looks to me like in 2004 you are planning to borrow
$164 billion from Social Security, Medicare and the on-budget
deficit projection from your own document would be $639 billion
not, in fact, $4 [billion]--whatever it was--$50 billion. So
actually, the deficit, if we honored or pledged to put Social
Security and Medicare in a lockbox, the deficit exceeds $630
billion is that correct?
Mr. Bolten. I don't see it that way.
Mr. Baird. The President seemed to during his campaign. Let
me ask a second question. Our President seemed to. You
mentioned to Mrs. Capps earlier that interest rates did not
seem to be affected by the current deficits. It is an
interesting economic theory. My understanding is that the
Federal Reserve is largely responsible for setting interest
rates. Is that accurate?
Mr. Bolten. As far as governmental entities that can have
some substantial effect on interest rates, the Fed is the one
that has the strongest hand on the levers.
Mr. Baird. My further understanding is it those rates are
low largely an attempt to stimulate the economy. Were those
rates lowered by the Fed due to actions by the Congress or the
President or was that an independent opinion of the Federal
Reserve Board?
Mr. Bolten. The Fed is highly independent.
Mr. Baird. So if the Democrats or Republicans in the
Congress try to take credit for lowering those interest rates
that would be fallacious would it not?
Mr. Bolten. If the Republicans or Democrats tried to take
credit for Fed action that has an effect on interest rates,
yes. But that would not be a proper thing to do, unless they
have some influence that I am unaware of. But there are a lot
of other factors that affect interest rates. And those include
the kind of spending rates that the President and the Congress
agree on, and those we should, we do and should take
responsibility for.
Mr. Baird. Let me add one other point. We talk about the
deficit. There are choices in how you get into deficit. One
choice might to be spend $50 billion, for example, as we
propose in the Transportation Committee to build roads and
bridges to put people back to work, a tangible public asset
that has value over the long term and employs people today and
really stimulates the economy with a useful resource. The
contrast to that is $50 billion tax cut that goes back to me,
but it is hard to see a direct job created. So I would favor
the former.
When Mr. Bonner talked about the increase in the deficit, I
find it ironic that you mentioned no stimulative effect at all
of the increased spending which I think would have a
stimulative effect but only talked about stimulative effect of
tax cuts. I find that specious. I yield back.
Chairman Nussle. Mr. Hulshof.
Mr. Hulshof. Thank you, Mr. Chairman. Mr. Bolten I have no
talking points. I have no designed questions to put you or the
administration on the spot. I am less interested here today in
assigning blame.
Mr. Bolten. Why should you be different, Mr. Hulshof?
Mr. Hulshof. I have less interest in assigning blame. I am
really more interested in the facts and just a couple of
observations. I guess that is one of the advantages of going
toward the end is hearing other colleagues. And I would say to
my friend from the State of Washington, this whole discussion
about the lockbox, I think inherent, in that, of course, was
the idea that we would not be in a recession, that we would not
have a national emergency, that we would not be engaged in a
war. I know in a number of pieces of legislation, for instance,
to have a Constitutional amendment to balance the budget or
some other enforcement mechanism, we anticipate in times of
emergency that we would relax the rules. And I think, obviously
since September 11, we have taken on a number of those unique
and hopefully once in a lifetime events.
Mr. Bolten. All absolutely true, Mr. Hulshof.
Mr. Hulshof. Also, I want to emphasize a point that Mr.
Schrock made in passing, and I wanted to emphasize that the--we
go back to prior projections and, you know, the $5.6 trillion
projected surplus was just that. It was a guess. I think back
and some of my colleagues that were here, my friend from
Massachusetts, Mr. Neal, we worked on the committee back in
1997, Mr. Neal, we worked in a bipartisan way on the Balanced
Budget Act to have a glide path over the next 5 years, from
1997, to have a balanced budget. We did it, or actually the
American people did it for us, in half the time. So even our
best projections, we saw better results in balancing the
budget. True on-budget surpluses, Mr. Baird, that did not have
to borrow from any trust fund.
And again, so we make these calculated guesses based on the
best information we have available. And ultimately, then we
come back and we get to Monday morning quarterback whether we
or you were right or wrong. In fact, I think back to, I think
now economists, main stream economists, are pretty accurate
when they say that the malaise or the economic recession
actually began in the last quarter in 2000, which was
unanticipated at the time.
So again, we can go back and revisit history and some would
even revise history, but I am more interested really in where
do we go from here? That is why I want to focus just a little
bit on the economic assumptions, specifically on pages 12 and
13. And just before doing that, again, I see my time. I am
trying to see if there is some part of your--the tie has been
taken, but----
Mr. Shays. You can try intelligence.
Mr. Bolten. The chairman's hair looks real good.
Chairman Nussle. Regular order.
Mr. Hulshof. I would also say, again, another quick point
to my friend, and he is my friend, from the State of Washington
regarding interest rates. It was interesting that the rhetoric,
and I wasn't here in 1994 and 1995, I was seeking this seat in
those years and was unsuccessful, but it was interesting that
the political rhetoric that was there was a direct causal
relationship between if you had surpluses and interest rates. I
remember making the arguments if we balance the budget, we will
see a 2-percent cut in the interest rates which will be great
for American families. And I think now economists, and we have
to be honest that there is not that direct link between budget
surpluses or budget deficits and what,in fact, happens with
interest rates. In fact, over a dozen or so interest rate cuts
that have been made since we have gone into a recession.
So again, just a quick observation. You pointed out, again,
I want to make sure this is certain for the record, that over
the second half of 2003, you are projecting about a 3.7 percent
growth rate; is that right, Mr. Bolten?
Mr. Bolten. That is correct.
Mr. Hulshof. Which ultimately translates into about a 2.8
percent increase in the growth rate for the year; is that also
true?
Mr. Bolten. Correct.
Mr. Hulshof. Also, for 2004 and 2005, you also project
somewhat stronger growth; what are those numbers?
Mr. Bolten. I am looking at, if I am looking at the right
line here, we have 3.7 percent and 3.5 percent in 2004 and 2005
as projected growth rates. Again, I think those are entirely
consistent with main stream blue chip economists' forecasts as
well as the CBO.
Mr. Hulshof. Is it true, again, I guess I am going
backwards now, but is it true that Federal Government receipts
have declined? This is the third year in a row that we have
seen government receipts decline?
Mr. Bolten. True.
Mr. Hulshof. The last time that we have had three
consecutive years of government receipts actually going down
was is it true that it was during the period of the Great
Depression?
Mr. Bolten. Yes, 80 years ago, something like that.
Mr. Hulshof. Again, thanks for your presence here today.
Thank you, Mr. Chairman.
Chairman Nussle. Mr. Neal.
Mr. Neal. Thank you, Mr. Chairman.
Mr. Hulshof is my friend, and he is a good guy, but let's
revisit history. Incidently, the gentleman from Missouri seemed
to derive the notion of projections in the previous
administration and then looked to you to give us projections
that probably are more accurate for this administration. But
let me read to you a quote here from February of 2001. It is
called ``A Blueprint for a for New Beginnings, a Responsible
Budget for America's Priorities.'' I believe your office
generated this report. This is the quote, ``In sum there is
ample room the administration's budget to pay off the debt as
far as possible, to reduce taxes for American families, to fund
program priorities and still leave roughly $1 trillion for
Medicare modernization and to meet any other programmatic and
contingency needs as they arise.'' do you continue to agree
with that position?
Mr. Bolten. No. And I don't think anybody else does either.
That was written in February 2001 before the extent of the
stock market collapse was clear, before recession had been
officially declared, although it was probably as Mr. Hulshof
just pointed out, underway at that point, before corporate
scandals came to light, and especially before the September 11
attacks and the war on terror.
Mr. Neal. You no longer agree with that position that was
offered here in the budget projection?
Mr. Bolten. No.
Mr. Neal. OK. Next question.
Mr. Bolten, is it your position this morning, are you
arguing here this morning that these tax cuts where we have
taken $2 trillion from the Federal budgets will pay for
themselves?
Mr. Bolten. In terms of direct in and out of the Federal
Treasury, no. I don't think anybody knows exactly what the
effect is. But no, I am not arguing that.
Mr. Neal. I would assume that you would argue that these
three tax cuts passed since 2001 have been helpful for our
economy? Because I know the talking points that were referenced
earlier which are used by the other side, often say it would
have been worse. So could you clear that up? Do you think they
have been helpful to the economy?
Mr. Bolten. Oh, I think they have been essential to the
economy.
Mr. Neal. OK. What about their effect on the economy over
the long run?
Mr. Bolten. The effect of these tax cuts on the economy
over the long run, I think, should be even more positive than
they have been already, because some of these tax cuts as Mr.
Emanuel was earlier pointing out, do take time to take effect.
But in the both the short, medium, and long run, I think all of
the tax cuts are highly positive for the economy because they
put the incentives where they belong for people to work, save
and invest.
Mr. Neal. Do you have a high opinion of the Joint Tax
Committee here?
Mr. Bolten. Yes, I do.
Mr. Neal. Would you say an extraordinary opinion of Joint
Tax?
Mr. Bolten. I will reserve on that until I hear your
question.
Mr. Neal. Well, I am going to get to that in a moment. That
is how we will close. I compliment the chairman on his tie and
suit, and then we will decide whether we can compliment you on
your answer. You mentioned that the tax cuts have had a static
effect on the deficit of one quarter to one-third. Are you
familiar with the dynamic scoring that has been done by the
Joint Committee on Taxation, on the most recent tax proposal?
Mr. Bolten. I know they have been working on it, but I am
not familiar with the details of it.
Mr. Neal. You are not familiar with the details of it. Do
you agree or disagree with their conclusion that these
additional tax cuts, adding to our deficit, will perhaps boost
the economy slightly in the short term but will be harmful in
the long run?
Mr. Bolten. No, I disagree. I know the Joint Tax Committee
has been working, as have economists in many other places, to
come up with a suitable measure so that we can accurately gauge
what the effect of--the dynamic effect of a tax cut is on the
economy. We are working on that ourselves. And I think the art
and science of economics has not yet advanced to the stage
where we can properly capture all the positive effects that the
tax cuts do have on the economy.
Mr. Neal. Do you hold the Joint Tax Committee in high
regard, Mr. Bolten?
Mr. Bolten. I do.
Mr. Neal. Do you agree with the conclusion they have drawn?
Mr. Bolten. I do not.
Mr. Neal. Mr. Bolten, let me ask you this last question. Do
you find it astounding that a political party that based much
of their modern history on fighting communism and deficits
would now adopt a position that deficits don't count?
Mr. Bolten. I might, but I don't think there is a party of
that nature. This administration certainly has never adopted
the posture that deficits do not count. We take the current
deficits very seriously. What I did say is that we believe
these deficits are manageable, given our current economic
situation, and that the tax cuts that contributed in small
measure to those deficits have, in fact, been essential to
restoring economic growth to this economy which is what is
going to be important in the long run in bringing the deficit
down.
Mr. Neal. Mr. Bolten, I look forward to your testimony at
Ways and Means.
Mr. Bolten. Thank you, sir.
Chairman Nussle. Mr. Diaz-Balart.
Mr. Diaz-Balart. Thank you, Mr. Chairman. Mr. Bolten, thank
you for being here. You know, I am really new here. I am just
always amazed at what we hear from our dear friends from the
minority party. All of a sudden, they have this huge interest
in concern for the deficit, and yet at the same time, they say
that their actions are totally different. You know, it is
amazing, you can say anything, but facts don't bear out what
they are saying. They have proposed $890 billion increase to
that deficit that all of a sudden they say they are concerned
about, and yet, not only that, they didn't even support
Chairman Nussle's cut of 1 percent of fraud.
Mr. Neal. Would the gentleman yield?
Mr. Diaz-Balart. I had very little time. So, Mr. Neal, you
just had some time, so let me finish my question. They didn't
even support the 1 percent cut on waste fraud and abuse that
Chairman Nussle proposed. It looks like, again you can say
anything, but the facts don't bear that out. Spending is
clearly, I think, a bit of a problem. You know, you can't lose
weight and continue to eat. You can't lose weight and not only
continue to eat, but continue to eat pancakes and lard as your
diet.
Economist Robert Simulson recently stated, he wrote that
government spending has to be paid for, which is not rocket
science, either through taxes or deficits, and that both can
put burdens on the economy. He argued, therefore, that
government spending is the problem, as some of us have been
saying, and it must be controlled. Do you agree with that
statement or argument, and if so, what specifically is the
administration going to be looking at proposing to control
spending?
Mr. Bolten. I do agree, Mr. Diaz-Balart. And the
administration has already, in its own budget proposals and in
the budget resolution adopted by this committee, I think made a
major step toward exercising some important spending
restraints. I think the chairman's initiatives to pursue waste
fraud and abuse are important, and we are working on our own
end to pursue those as well. And I think you will see in the
budget that we present in 2005, and hopefully beyond, enhanced
measures to try to make sure that we are--we are being as
careful with the taxpayers dollars as we possibly can be.
Mr. Diaz-Balart. Mr. Bolten, I am not really good at math.
So I want to make sure I am not misunderstanding something.
When people who say they are determined about the deficit, but
when they propose $890 billion additional toward that deficit,
can that do anything to get us out of the deficit?
Mr. Bolten. It would make the situation substantially
worse.
Mr. Diaz-Balart. Again, Mr. Chairman, I will not ask for
additional time, even though I do like your tie, by the way.
But I just want--I keep saying and I keep repeating, Mr.
Chairman, what I keep saying, I know that maybe as a new Member
of this Congress and this committee, I am just not used to
hearing and I am not used to hearing it and I am not used to
accepting so much double-talk. You cannot on one side of your
mouth say that you are concerned about deficits, and at the
same time go to the floor of this Congress and argue for $890
billion in increased spending and say that we are cutting when
we are not. Because some of us think, if anything, we are
spending too much.
So Mr. Chairman, begging your indulgence, I know have you
heard me say this time and time again, but I will not sit idly
and just listen to rhetoric which is not at all based on the
facts that are before us. $890 billion in additional spending
was proposed by the other party. They have the right to do so.
Thank God, they have the right to do so. But then don't tell us
that they are the ones that are concerned about the deficit.
Thank you, Mr. Chairman.
Chairman Nussle. Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman. I would like to ask
unanimous consent that the Joint Committee on Taxation scoring
on the Republican tax bill be entered into the record.
Chairman Nussle. Is there objection? Without objection so
ordered.
[The information referred to follows:]
House of Representatives,
May 08, 2003.
Macroeconomic Analysis of H.R. 2, the ``Jobs and Growth Reconciliation
Tax Act of 2003'' Prepared by the Staff of the Joint Committee on
Taxation
The SPEAKER pro tempore. Under a previous order of the House, the
gentleman from California (Mr. THOMAS) is recognized for 5 minutes.
Mr. THOMAS. Mr. Speaker, pursuant to clause 3 (h)(2)(A)(iii) of
rule XIII, I submitted the following macroeconomic impact analysis:
In accordance with House Rule XIII.3(h)(2), this document, prepared
by the staff of the Joint Committee on Taxation (``Joint Committee
staff''), provides a macroeconomic analysis of H.R. 2, the ``Jobs and
Growth Reconciliation Tax Act of 2003.'' The analysis presents the
results of simulating the changes contained in H.R. 2 under three
economic models of the economy. The models employ a variety of
assumptions regarding Federal fiscal policy, monetary policy, and
behavioral responses to the proposed changes in law.
1. DESCRIPTION OF MODELS AND RESULTS FORMAT
(A) Models
The Macroeconomic Equilibrium Growth (``MEG'') model.--This model,
developed by the Joint Committee staff, is based on the standard,
neoclassical assumption that the amount of output is determined by the
availability of labor and capital, and in the long run, prices adjust
so that demand equals supply. This feature of MEG is comparable to a
Solow growth model, described as the ``textbook growth model'' by the
Congressional Budget Office (An Analysis of the President's Budgetary
Proposals for Fiscal Year 2004, March 2003, pp. 28-29) (``CBO'').
Individuals are assumed to make decisions based on observed
characteristics of the economy, including current period wages, prices,
interest rates, tax rates, and government spending levels. Because
individuals do not anticipate changes in the economy or government
finances, this type of behavior is referred to as ``myopic behavior.''
Consumption in MEG is determined according to the life-cycle theory,
which implies that individuals attempt to even out their consumption
patterns during their lifetimes.
MEG differs from a simple neoclassical growth model in that prices
in MEG adjust to equilibrate supply and demand with a delay or lag,
rather than instantaneously. This feature allows the model to simulate
a disequilibrium adjustment path, in which resources may be
underemployed or over-employed (used at an unsustainable rate) in
response to policies that stimulate or depress economic activity. It
also allows an analysis of the effects of differing intervention
policies by the Federal Reserve Board. In this respect, the MEG model
resembles econometric models such as the Macroeconomic Advisers model
and the Global Insight model.
In the MEG simulations in each of the tables below, it is assumed
that the Federal Reserve Board either acts aggressively by raising
interest rates to counteract almost completely any demand stimulus
provided by H.R. 2 (``MEG aggressive Fed response''), or remains
neutral with respect to any changes in fiscal policy, allowing
temporary changes in demand to affect levels of employment and output
(``MEG neutral Fed response'').
The Global Insight (``GI'') econometric model.--Like the MEG model,
this commercially available model is capable of simulating
disequilibrium adjustments to changes in demand. The model is made up
of a set of equations that estimate from historical data the behavioral
coefficients that determine the timing and strength of economic
relationships within the model. Comparable parameters in the MEG and
OLG models are derived from economic research. In many cases this
research is also based on econometric analysis of historical data.
Individuals and firms behave myopically in the GI model. For this
analysis, the Joint Committee staff uses an estimated monetary reaction
function designed to moderate gradually, but not completely offset,
deviations from full employment by lowering or increasing interest
rates. Thus, if the economy is operating near capacity, proposals that
increase employment and accelerate the economy will result in
increasing interest rates.
The overlapping generations life cycle model (``OLG'').--In this
model, individuals are assumed to make consumption and labor supply
decisions with perfect foresight of economic conditions, such as wages,
prices, interest rates, tax rates, and government spending, over their
lifetimes. The OLG model is similar to the type of model described as a
``life cycle model'' by the CBO, ibid.
One result of the perfect foresight assumption is that if a policy
results in an economically unstable outcome, such as increasing
government deficits indefinitely into the future, the model will not
solve. Therefore, to run simulations in this model, it is necessary to
assume that an offsetting budget balancing fiscal policy will be
enacted. In the tables below, it is assumed that either government
spending will be reduced after 2013 to offset the tax cut (``OLG future
government spending offset'') or individual income tax rates will be
increased after 2013 (``OLG future tax rate increase'').
The cut in government spending to offset the costs of a tax cut can
be modeled either as a cut in transfer payments, as is presented here,
or as a cut in ``non-productive government spending.'' The latter
assumption is used in CBO, ibid. The difference between the two
approaches is that consumers are assumed to value transfer payments,
and thus work and save more within the budget window in anticipation of
losing them; but they are assumed not to value non-productive spending,
and therefore do not increase work or savings in anticipation of this
cut. Thus, the anticipation of valued spending cuts results in more
growth in the early years than the anticipation of non-valued spending
cuts.
(B) Results format
Because the exact time path of the economy's adjustment to changes
such as a new tax policy is highly uncertain, the Joint Committee staff
presents results as percent changes during the Congressional budgeting
time frame. In addition, for the MEG and OLG models, which have been
designed to provide long-run equilibrium results, information is
provided about the long run. While it is impossible to incorporate
unknowable intervening circumstances, such as major resource or
technological discoveries or shortages, these models are designed to
predict the long-run effects of policy changes, assuming other,
unpredictable influences are held constant.
Because the MED model is myopic, if the policy simulated is
ultimately a fiscally unstable policy, such as a net decrease in taxes
that produces deficits that grow faster than the rate of growth of the
economy, ``long-run'' is defined as the last period before the model
fails to solve because of this unstable situation. For the OLG
simulations, which incorporate a stabilizing fiscal policy offset,
``long-run'' is defined as the eventual steady-state solution.
2. ESTIMATED MACROECONOMIC EFFECTS OF H.R. 2
The magnitude of the macroeconomic effects generated by these
simulations depends upon a number of assumptions, some of which are
described above, that are inherent in the models used. Several
additional assumptions detailed below.
(A) Assumptions
Effect of tax rate reductions on investment.--Reductions in
marginal tax rates (tax rates on the last dollar of income earned) on
interest, dividend, or capital gains income create incentives for
individuals to save and invest a larger share of their income, as each
additional dollar of investment yields more after-tax income.
Conversely, reductions in the average tax rate on income from capital
provide taxpayers with more after-tax income for the same amount of
investment, reducing their incentive to save and invest. Changes in the
statutory tax rate affect both marginal and average rates of tax on
these sources of income, providing potentially offsetting incentives.
Consistent with existing research, the model simulations assume that on
net, the marginal rate effect is slightly larger than the average rate
effect, and thus decreases in tax rates on capital income increase
savings.
Effect of reductions in the dividend tax rate.--There is general
agreement that dividend taxation reduces the return on investments
financed with new share issues. However, there are two alternative
views regarding the effect of dividend taxation on corporate investment
returns financed with retained earnings. The ``traditional view'' holds
that reductions in dividend taxes would lower the cost of corporate
investment financed with either new share issues or retained earnings,
and thus would provide an incentive for corporations to increase
investment. Alternatively, the ``new view,'' holds that a reduction in
the dividend tax rate would not lower the cost of corporate investment
financed with retained earnings. Under this view, a decrease in the
dividend tax rate would result in an immediate increase in the value of
outstanding stock reflecting the reduction in dividend tax payments,
thus increasing the wealth of the stockholders, and providing an
incentive for additional consumption. The model simulations assume that
half of the corporate sector is in accordance with the traditional view
and half with the new view.
Foreign investment flows.--Increased Federal Government budget
deficits increase the amount of borrowing by the Federal Government.
Unless individuals increase their savings enough to finance completely
the increased deficit, the increase in government borrowing will reduce
the amount of domestic capital available to finance private investment.
This effect is often referred to as the ``crowding out'' of private
business activity by Federal Government activity. A reduction in
national saving may lead to a reduction in domestic investment, and
domestic capital formation, depending on the mobility of international
capital flows. The government and private firms would compete for the
supply of available funds and interest rates would rise to equate the
demand and supply of funds. Returns on foreign investments would accure
mainly to foreigners and would only increase the resources available to
Americans to the extent that higher domestic investment resulted in
higher wages in the United States. The MEG and GI simulations
incorporate an assumption that there would be some in-flow of foreign
capital to the extent that the rate of return on capital is increased
by the tax policy. However, the inflow in foreign capital is not enough
to offset completely the increased Federal borrowing. The OLG
simulations assume there is no inflow of foreign capital.
Effect of tax rate reductions on labor supply.--As in the case of
savings responses, tax rate reductions provide offsetting labor supply
incentives. Reductions in the marginal tax rate on earnings create an
incentive to work more because taxpayers get to keep more of each
dollar earned, making each additional hour of work more valuable; while
reductions in the average tax rate create an incentive to work less,
because they result in taxpayers having more after-tax income at their
disposal for a given amount of work.
Consistent with existing research, the simulations assume that
taxpayers in different financial positions respond differently to these
incentives. Typically, the largest response comes from secondary
workers (individuals whose wages make a smaller contribution to
household income than the primary earner in the household) and other
underemployed individuals entering the labor market. As described
above, labor supply responses are modeled separately for four different
groups in MEG: low income primary earners, other primary earners, low
income secondary earners, and other secondary earners.
Effects of reductions in tax liability on demand.--Generally, any
net reduction in taxes results in taxpayers making more purchases
because they have more take-home income at their disposal. Policies
that increase incentives for taxpayers to spend their income rather
than save it provide a bigger market for the output of businesses. The
amount of economic stimulus resulting from demand side incentives
depends on whether the economy has excess capacity at the time of
enactment of the policy, and on how the Federal Reserve Board reacts to
the policy. If the economy is already producing near capacity, demand-
side policies may, instead, result in inflation, as consumers bid up
prices to compete for a fixed amount of output. If the Federal Reserve
Board believes there is a risk that the policy will result in
inflation, it may raise interest rates to discourage consumption. In
this case, depending on how strongly the Federal Reserve Board reacts,
little, if any increase in spending will occur as a result of would-be
stimulative tax policy. The MEG aggressive Fed response simulation
assumes the Federal Reserve Board completely counteracts demand
stimulus; the MEG neutral Fed response simulation assumes the Federal
Reserve Board ignores the stimulus; and the GI simulation assumes the
Federal Reserve Board partially counteracts demand stimulus. The OLG
simulations have no monetary sector because they assume demand
automatically adjusts to supply through market forces.
(B) Simulation results
Economic Growth.----
TABLE 1.--EFFECTS ON NOMINAL GROSS DOMESTIC PRODUCT
[Percent change in nominal GDP]
------------------------------------------------------------------------
Calendar years
---------------------
2003-08 2009-13
------------------------------------------------------------------------
Neoclassical Growth Model:
MEG--aggressive Fed reaction...................... 0.3 0.2
MEG--neutral Fed reaction......................... 0.9 1.0
Econometric Model:
GI Fed Taylor reaction function................... 1.5 1.2
Life Cycle Model With Forward Looking Behavior:
OLG Reduced Government Spending in 2014........... n.a. n.a.
OLG Increased Taxes in 2014....................... n.a. n.a.
------------------------------------------------------------------------
TABLE 2.--EFFECTS ON REAL GROSS DOMESTIC PRODUCT
[Percent change in nominal GDP]
------------------------------------------------------------------------
Calendar years
---------------------
2003-08 2009-13
------------------------------------------------------------------------
Neoclassical Growth Model:
MEG--aggressive Fed reaction...................... 0.2 -0.1
MEG--neutral Fed reaction......................... 0.3 0.0
Econometric Model:
GI Fed Taylor reaction function................... 0.9 -0.1
Life Cycle Model With Forward Looking Behavior:
OLG Reduced Government Spending in 2014........... 0.2 -0.1
OLG Increased Taxes in 2014....................... 0.2 -0.2
------------------------------------------------------------------------
As shown in Table 1, depending on the assumed Federal Reserve Board
reaction to the policy, the estimated change in Gross Domestic Product
(``GDP'') due to this proposal can range at least from a 0.3 percent
(an average of $43 billion) to a 1.5 percent (an average of $183
billion) increase in nominal, or current dollar GDP over the first 5
years, and 0.2 percent to a 1.2 percent increase over the second 5
years. As shown on Table 2, depending on the assumed Federal Reserve
Board reaction to the policy, and on how much taxpayers anticipate and
plan for the effects of future Federal Government deficits, the change
in real (inflation-adjusted) GDP due to those proposal can range from a
0.2 percent (an average of $18 billion per year) to a 0.9 percent (an
average of $76 billion per year) increase in real GDP over the first 5
years, with a small decrease over the second 5 years.
Investment.----
TABLE 3.--EFFECTS ON CAPITAL STOCK
------------------------------------------------------------------------
Calendar years
---------------------
2003-08 2009-13
------------------------------------------------------------------------
Percent Change in Non-Residential Capital Stock
Neoclassical Growth Model:........................
MEG--aggressive Fed reaction 0.6 0.4
MEG--neutral Fed reaction 0.8 0.6
Econometric Model:................................
GI Fed Taylor reaction function 1.5 0.4
Life Cycle Model With Forward Looking Behavior:...
OLG Reduced Government Spending in 2014 0.1 -0.7
OLG Increased Taxes in 2014 0.1 -0.8
Percent Change in Residential Housing Stock
Neoclassical Growth Model:........................
MEG--aggressive Fed reaction -1.0 -1.5
MEG--neutral Fed reaction -0.8 -1.1
Econometric Model:................................
GI Fed Taylor reaction function -0.5 -1.3
Life Cycle Model With Forward Looking Behavior:...
OLG Reduced Government Spending in 2014 -0.2 -0.1
OLG Increased Taxes in 2014 -0.2 -0.1
------------------------------------------------------------------------
As the results in Table 3 indicate, this policy may increase
investment in non-residential capital in the first 5 years by 0.1
percent to 1.5 percent, while reducing investment in residential
capital by -0.2 percent to -1.0 percent because of the reduced cost of
capital, which is due to the reduction in taxation of dividends and
capital gains, and the temporary bonus depreciation. The investment
incentives for producers' equipment in this proposal are likely to
shift some investment from housing to other capital. The size of the
shift differs between the simulations because of different assumptions
about adjustment costs and savings responses. In the second 5 years,
the sunset of the bonus depreciation provision, combined with the
negative effects of crowding out will slow increases in private
nonresidential investment. The simulations indicate that eventually the
effects of the increasing deficit will outweigh the positive effects of
the tax policy, and the build up of private nonresidential capital
stock will likely decline.
Labor Supply and Employment.----
TABLE 4.--EFFECTS ON EMPLOYMENT PERCENT CHANGE IN EMPLOYMENT
------------------------------------------------------------------------
Calendar years
-------------------------
2003-08 2009-13
------------------------------------------------------------------------
Neoclassical Growth Model:
MEG--aggressive Fed reaction.................. 0.2 0.0
MEG--neutral Fed reaction..................... 0.4 -0.1
Econometric Model:
GI Fed Taylor reaction function............... 0.8 -0.4
Life Cycle Model With Forward Looking Behavior:
OLG Reduced Government Spending in 2014....... 0.2 -0.1
OLG Increased Taxes in 2014................... 0.2 -0.1
------------------------------------------------------------------------
As shown in Table 4, employment may increase from 0.2 percent
(approximately 230,000 new jobs) to 0.8 percent (about 900,000 new
jobs) in the first 5 years, as the effects of the acceleration of
individual rate cuts, and the initial increase in investment prevail.
Employment increases in the first 5 years because of both the positive
labor supply incentive from the individual rate cuts, and the economic
stimulus effect of the proposal taken as a whole. This increase
disappears by the end of the budget period, ranging from 0 percent to
-0.4 percent. The acceleration of the individual tax rate reductions is
effectively a temporary provision relative to present law; thus, the
positive labor supply incentives are temporary.
A substantial portion of the tax cuts in the proposed growth
package, those attributable to the acceleration of the individual
income tax provisions in the Economic Growth and Tax Relief
Reconciliation Act of 2001 (``EGTRRA''), and the bonus depreciation/NOL
carryback combination are temporary (operating from 2003-2006), and
therefore likely to result in modest demand stimulus primarily in the
first 5 years in the myopic models. In the OLG stimulations, in which
individuals foresee the temporary nature of the stimulus, the increase
in consumption is spread across both periods.
3. BUDGETARY EFFECTS
When the macroeconomic effects of a change in tax policy are taken
into account, estimates of the change in receipts due to the proposal
may change. To the extent that a new policy changes the rate of growth
of the economy, it is likely to change the amount of taxable income,
which will have a ``feedback effect'' on receipts. In addition, by
increasing the after-tax return on investments in capital that generate
taxable income, a change in policy may shift investment from non-
taxable or tax-favored sectors, such as the owner-occupied housing
market, into the taxable sector, and thereby increase receipts. The
model simulations indicate that the policy analyzed here is likely to
result in more economic growth in the first 5 years than under current
law, and hence results in less revenue loss than what is predicted
using conventional revenue estimates. As the GDP growth declines in
years 6-10, the revenue feedback also declines.
A change in policy, however, may result in inflation as well as
real economic growth. Inflation causes increases in nominal revenues
(revenues measured in current dollars), without necessarily increasing
the purchasing power of the Federal Government. Conventional budget
analysis is conducted in nominal dollars. To the extent that this
analysis applies equally to revenue and expenditure estimates, this
practice provides a reasonably accurate picture of the effects of
inflation on the Federal budget. However, the Joint Committee staff
analyzes the effects of tax policy on receipts, but not spending.
Reporting revenues due to inflation, without reporting the commensurate
budget effects would present an inaccurate picture of the effects of
the proposal on the entire deficit. Therefore, the Joint Committee
staff provides budgetary analysis in real (inflation-adjusted), rather
than nominal terms. Table 5 shows the percent revenue feedback relative
to the conventional revenue estimate, in real terms.
Even when presented in real terms, revenue feedback analysis alone
may provide an incomplete picture of the effects of tax policy on the
Federal budget. To the extent that the policy results in a net decrease
in Federal receipts, with no offsetting expenditure reductions, the
policy results in an increase in the Federal deficit. Increases in the
Federal deficit generate additional debt service costs.
To determine how changes in tax policy affect the ability of the
government to meet its current and future obligations it is helpful to
compare tax-induced changes in the deficit and GDP. If GDP is growing
faster than the deficit, the fiscal situation is improving, whereas if
the deficit is growing faster, the fiscal situation is worsening. If
deficits are growing faster (slower) than GDP, then the ratio of
Federal debt to GDP would increase (decrease), which implies that
future generations would have less (more) income to consume and invest
after making payments on the debt.
TABLE 5.--EFFECTS ON REAL REVENUES PERCENT FEEDBACK IN REAL REVENUES
RELATIVE TO REAL CONVENTIONAL ESTIMATE
------------------------------------------------------------------------
Calendar years
-------------------------
2003-08 2009-13
------------------------------------------------------------------------
Neoclassical Growth Model:
MEG--aggressive Fed reaction.................. 9.8 3.6
MEG--neutral Fed reaction..................... 27.5 23.4
Econometric Model:
GI Fed Taylor reaction function............... 16.1 11.8
Life Cycle Model With Forward Looking Behavior:
OLG Reduced Government Spending in 2014....... 6.1 3.0
OLG Increased Taxes in 2014................... 5.8 2.6
------------------------------------------------------------------------
Table 5 shows the relationship between the change in receipts
generated using macroeconomic analysis, and the predicted change in
receipts provided by a conventional revenue estimate. A positive
percentage indicates the estimated revenue loss is less when
macroeconomic effects are taken into account than when estimated using
conventional methods. As the simulations indicate, depending on how
much temporary demand stimulus is generated by the proposal, the
revenue feedback could range from 5.8 percent to 27.5 percent in the
first 5 years, and 2.6 percent to 23.4 percent over the 10-year budget
period.
4. DATA SOURCES
All of the macroeconomic models used by the Joint Committee staff
are based primarily on quarterly National Income and Product Account
(``NIPA'') data published by the Bureau of Economic Analysis, U.S.
Department of Commerce. In the MEG model, and to the extent possible in
the commercial models, Joint Committee staff use the forecast for
Federal and State and local government expenditures and receipts
forecast by the Congressional Budget Office (The Budget and Economic
Outlook: Fiscal Years 2004-2013, January 2003) instead of the NIPA
series for these fiscal variables. For purposes of modeling changes in
average and marginal tax rates in the macroeconomic models, the Joint
Committee staff use microsimulation models that are based on tax return
data provided by the Statistics of Income Division of the Internal
Revenue Service (``SOI'').
The Joint Committee staff uses these microsimulation models to
determine average tax rates and average marginal tax rates for the
different sources of income in each model, and to calculate the changes
in these rates due to the proposal. The tax calculator calculates the
change in liability due to the proposal for each record. These changes
are aggregated for use in the macroeconomic models according to the
different levels of disaggregation in each model. In the aggregations,
averages are weighted by the income for each group. The percent change
in average and marginal rates due to this proposal are:
TABLE 6.--PERCENT CHANGE IN TAX RATES DUE TO PROPOSAL
----------------------------------------------------------------------------------------------------------------
Average marginal tax rate on
Average tax ---------------------------------------------------
Year rate on Capital
wages Wages Interest Dividends gains
----------------------------------------------------------------------------------------------------------------
2003........................................... -11 -9 -11 -51 -24
2004........................................... -10 -6 -8 -49 -23
2005........................................... -9 -3 -6 -52 -24
2006........................................... 0 0 0 -48 -23
2007........................................... -1 0 0 -48 -23
2008........................................... 0 0 0 -50 -22
2009........................................... -1 0 0 -47 -22
2010........................................... -1 0 0 -48 -22
2011........................................... -1 0 0 -52 -22
2012........................................... -1 0 0 -50 -21
2013........................................... 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
To obtain information about the effects of proposals affecting
business tax liability, the Joint Committee staff uses a corporate tax
microsimulation model that is similar in structure to the individual
tax model. This data source for the corporate model is a sample of
approximately 140,000 corporate tax returns provided by SOI.
Depending on the requirements of the policy simulation, the
corporate model can be run either on a full cross section of sampled
tax returns, (i.e., one full year, or on a panel of returns constructed
from any combination of tax years in the 1987 through 1998 period).
This panel feature is particularly useful in tracking net operating
losses and credits that can be either carried back or carried forward
to other tax years.
Finally, Joint Committee microsimulation tax calculators are also
used to help assess the effect of a tax proposal on the cost of capital
because some firms are operating at or near a net operating loss
(``NOL'') position, not all of the 50 percent of equipment expenses can
be deducted by each firm each year. A key component of the cost of
capital is the net present value of depreciation deductions. An
increase in the value of the depreciation deduction lowers the cost of
capital. The calculated percent increases in the net present value of
the depreciation deduction due to this proposal are shown below (the
change is different for each of the first 3 years because of the
temporary nature of the bonus depreciation provisions in present law
and in the proposal):
TABLE 7.--EFFECTS ON NET PRESENT VALUE OF DEPRECIATION DEDUCTION
------------------------------------------------------------------------
Percent change from present
Year law
------------------------------------------------------------------------
2003..................................... 8.3
2004..................................... 9.1
2005..................................... 15.4
2006..................................... .005
------------------------------------------------------------------------
5. CONCLUSION
The Joint Committee staff model simulations indicate that H.R. 2
would likely stimulate the economy immediately after enactment by
creating temporary incentives to increase work effort, business
investment, and consumption. This stimulus is reduced over time because
the consumption, labor, and investment incentives are temporary, and
because the positive business investment incentives arising from the
tax policy are eventually likely to be outweighted by the reduction in
national savings due to increasing Federal Government deficits.
Mr. Scott. Thank you.
The first question to the witness is you mentioned the
recession, when did the recession begin?
Mr. Bolten. NBER, which is the official recession declarer,
has put it some time ago, put it at March of 2001. Other
economists have actually put it some months earlier.
Mr. Scott. March 2001.
Mr. Bolten. Yes.
Mr. Scott. OK.
Mr. Bolten. They generally do not go back and revise their
estimates. Other economists have gone back and done revisions
and put the beginning of the recession earlier.
Mr. Scott. You mentioned that the tax cut was a small
portion of the deficit. What is the amount of the 10-year tax
cut? What is the amount of money that is involved in that?
Mr. Bolten. I don't have that off the top of my head.
Mr. Scott. Ten years worth of tax cuts? What is the 10-year
deficit?
Mr. Bolten. Mr. Scott, we projected for this mid-session
review. We projected only out over a 5-year window.
Mr. Scott. OK. One of the things that we are concerned
about is how bad things would have to get before you
acknowledge that somebody doesn't know what they are talking
about. We have heard percentages of the debt compared to the
GDP. I would like to kind of get an idea of how much of our
annual budget is paid for with annual revenue and how much is
paid for with borrowed money on a percentage basis.
Mr. Bolten. I would like to provide that for the record,
Mr. Scott. That is something else I don't know off the top of
my head.
[The information referred to follows:]
Mr. Bolten's Response to Mr. Scott's Question Regarding Annual Revenue
Approximately one-fifth of the 2003 and 2004 budgets are estimated
to be financed by borrowing. By 2008, we estimate that the share of the
budget financed by borrowing will fall to 8 percent. Attached is a
table that shows our estimates of the portion of the budget to be
financed by borrowing each year through 2008.
FISCAL YEAR 2004 MID-SESSION POLICY
[In billions of dollars]
----------------------------------------------------------------------------------------------------------------
Estimate
Actual -----------------------------------------------
2002 2003 2004 2005 2006 2007 2008
----------------------------------------------------------------------------------------------------------------
Total budget outlays.................................... 2,011 2,212 2,272 2,338 2,452 2,573 2,706
Paid for with annual revenue........................ 1,853 1,756 1,797 2,033 2,215 2,360 2,480
Paid for with borrowing from the public (net of 158 455 475 304 238 213 226
financing other than the change in debt held by the
public)............................................
Percent of total budget outlays:
Paid for with annual revenue........................ 92% 79% 79% 87% 90% 92% 92%
Paid for with borrowing from the public............. 8% 21% 21% 13% 10% 8% 8%
-------------------------------------------------------
Total............................................. 100% 100% 100% 100% 100% 100% 100%
----------------------------------------------------------------------------------------------------------------
Mr. Scott. OK. To get the--let me just point out the chart
that we are looking at up here. The comments have been made
about what the Democratic plan is and what the Republican plan
is. This charge separates the rhetoric from the reality.
Democrats voted for the green, Republicans voted for the red.
That is the deficit. Democrats voted for the green; we moved
the deficit into surplus. Republicans voted for the red, and
that is the deficit. To get the budget back in balance, what
percentage would we have to increase the income tax, individual
income tax?
Mr. Bolten. Mr. Scott, my first answer is I don't know. My
second answer is that I think that would be the worst thing to
do, to restore the budget to balance. We could, in fact,
increase taxes this year in an amount that would be equivalent
to the deficit, but that would have such a detrimental effect
on the economy that we would find ourselves in a much worse
situation.
Mr. Scott. I agree with you 100 percent. It took 8 years to
dig us out from a $290 billion deficit, 8 years of hard,
difficult choices, politically unpopular choices, but that's
the green. Now, we are worse than that. So you are right. It
would probably take a long time. But my question was whether or
not we are even going in the right direction. We have--we have
been told that we need to cut spending. How much, what portion
of nondefense discretionary spending would we have to cut in
order to balance the budget?
Mr. Bolten. Oh, in 1 year, we would probably have to
eliminate nondefense discretionary spending to balance the
budget in 1 year. But that is not the----
Mr. Scott. Wait a minute. Say that again.
Mr. Bolten. We would probably have to eliminate nondefense
discretionary spending if you tried to balance the budget in 1
year.
Mr. Scott. Are you saying insofar of deficit right now,
that elimination of all nondefense discretionary spending would
not bring the budget into balance, is that what you just said?
I mean, it is true, I just want to get to you say it again.
Mr. Bolten. Mr. Scott, I am happy to say it again, because
that is clearly not the right sort of prescription.
Mr. Scott. To eliminate all nondefense discretionary
spending, eliminate it all, is not the right thing to do. But
we have been told the problem with the budget is spending.
Mr. Bolten. No, sir. You may have missed most of my
testimony, but----
Mr. Scott. I am sorry, I was listening to the President, so
maybe I should have been listening to you.
Mr. Bolten. You were spending your time much more wisely,
sir. But what I did say was that that the principal cause that
brought us into the deficit situation we are in now is economic
growth that has flagged well below the projected levels. So the
important thing we need to do while we exercise spending
restraints is ensure that we return to a growing economy which
is precisely what the tax cuts that have been enacted by this
Congress over the last two and a half years have been designed
to do.
Mr. Scott. It hasn't worked; is that right?
Mr. Bolten. I think it is, actually.
Mr. Scott. How much worse would it to have to get before we
figure out that it is doesn't work?
Mr. Bolten. Well, I think----
Mr. Scott. Can you put the chart back up there. How much
worse would it have to get before we figured out it didn't
work?
Mr. Bolten [continuing.] Mr. Scott, I think the situation
would actually be a great deal worse today in the absence of
the tax cuts that this Congress has enacted.
Chairman Nussle. Let me announce to my colleagues, we have
votes that will occur in about 20 minutes. And just by perfect
happenstance, we have just the perfect amount of members who
have not asked questions. So this will work out very well. Mr.
Hensarling.
Mr. Hensarling. Thank you, Mr. Chairman. Forgive me, Mr.
Bolten, but I am one of the members who did miss your
testimony. I too am a freshman and have yet to master the art
of being at three places at once. So if some these questions
are redundant, please forgive me. Like my good friend from
Florida, Mr. Diaz-Balart, occasionally, I may be mathematically
challenged. I have heard a lot of questions concerning the tax
relief that we have voted on in the budget. But if I am doing
my math correctly, we voted on a $350 billion tax relief growth
package out of a 10-year, $28.3 trillion budget. If I am doing
the math right, that is about 1.2 percent is the growth package
which would tend to suggest to me that almost 99 percent of the
deficit problem that we are facing now is on the spending side.
Can you tell me if I did the math right there?
Mr. Bolten. You are correct that as a percentage of the
economy, the $350 billion tax cut does come to 1.something
percent.
Mr. Hensarling. So everything that we seemingly hear on
this side of the aisle is focusing on 1.2 percent of the
problem and essentially ignoring 99 percent of the problem? Let
me also ask because people question the growth package tax
reliefs' impact on economic growth. Can you tell me what
percentage of the tax relief that we have passed has actually
made its way into the economy, into the hands of families, into
the hands of small businesses?
Mr. Bolten. I am advised, Mr. Hensarling, that we had $45
billion in fiscal year 2003, and projecting $152 billion in
calendar year 2004.
Mr. Hensarling. So out of the entire growth package, we
have still had a relatively small percentage that has worked
its way through the economy?
Mr. Bolten. I wouldn't say small, but it is--there is still
quite a bit to come. The only thing I would say about it is the
package was crafted to get the money into the economy about as
rapidly as it physically could be done, and we will see in a
few weeks when checks start going out to families with
children.
Mr. Hensarling. I am one member, I believe we all share
this concern, I believe the deficit is a major problem.
However, I tend to be more concerned at the absolute amount of
money that we spend around here. The deficit is simply spending
on a credit card as opposed to paying cash. To me what is most
salient is how much money are we taking away from American
families to pay for the government that we have now. Seems to
me that logically there are several ways that we can reduce
this deficit. Obviously, we hear from our friends on this side
of the aisle that we need to raise taxes to close the deficit.
I believe our paramount responsibility ought to be to promote
economic growth which is one of the reasons I supported the
President's package. And indeed, history does tell us that tax
relief can promote economic growth.
It also seems to me that there is a lot of waste and a lot
of fraud in Washington government and we spend too much time
here, I believe, in deciding how much more money will we throw
at a problem as opposed to what are we getting for our money.
To me it is not a matter of how much money Washington spends,
it is how Washington spends the money.
For example, we have had testimony before this committee
before that $13.3 billion of improper payments were made in
Medicare. If you straight line a $400 billion prescription drug
benefit package over 10 years, bottom line is we just threw
away a third of the cost of the prescription drug program.
My question is does the administration believe that there
are opportunities within this budget to find savings without
cutting vital government services?
Mr. Bolten. We absolutely do, Mr. Hensarling, and Chairman
Nussle has been a leader in pushing toward the retrieval of
erroneous payments. We are working hard on that within OMB and
within the rest of the President's administration.
Mr. Hensarling. I yield back the balance of my time.
Chairman Nussle. Mr. Moran.
Mr. Moran. Let me wrap up with some points. These are not
new points to any of us on the Budget Committee. Some of them
may be new to you, although I doubt it. Just for the public's
edification, I would like to put up chart 8, it is one that Mr.
Scott is also fond of, just to give you a sense of what you
have to deal with. It is a pretty dramatic chart. Page 8, I am
sure--there is the one.
It shows that one fiscal policy approach worked beginning
in 1993 when President Clinton took office and another has been
a dismal failure at least if you look only at the facts rather
than ideology, and that is what happened beginning in 2001.
Your administration inherited a $5.6 trillion surplus. It is
gone, plus trillions of dollars in addition to that. And you
know, we have heard so many times from my friends on the other
side of the aisle about the need to cut taxes, but really what
President Clinton did was to build on a policy that the first
President Bush began in 1990 of trying to balance the budget
first. And by doing so, he put in motion something that worked
that balanced the budget and in fact we have the strongest
economic growth we ever had. And those people who would have
benefited--those people who paid the most in increased taxes
brought home the most after tax income after there were
marginal incremental increases in their tax rate. And that is
what economic growth can do for you.
Now what we have done here is to create a climate of
deficits as far as the eye can see. And our concern is not only
with the tax cuts that have already been enacted, but in your
mid-session review on page 50 you plan for another $878 billion
of additional tax cuts over the next 10 years. Now that is on
top of, as Mr. Spratt pointed out, tax cuts of $3.7 trillion.
Now you disagree with that, but on the other hand, you
don't disagree, I am sure, that the Congress is going to make
permanent all of the tax cuts that have been enacted today. If
you make those permanent, as I know the White House is going to
urge us to do, and you have included the interest, which any
good accountant or budget officer would do, is $3.7 trillion,
almost identical to the amount of a unified deficit. And in
fact, over 2003-04, the reality is that spending all of the
Social Security Medicare Trust Fund surplus would be
insufficient to meet the deficit to balance the budget even if
we spend nothing on defense and homeland security, which we are
not going to do, and that is Mr. Scott's point.
You know, we keep hearing on the other side of the aisle
about the need to eliminate waste, fraud and abuse. While we
had people testify, what was it, last week, from the major
agencies, none of them agree that these numbers are realistic.
Then we talk about increased spending and it always goes down
to social programs. If we eliminate all the social programs we
are not going to balance the budget. But the worst problem we
have is what we are doing to this country because not only are
we going to be cutting and slashing social programs, but it is
the unequal distribution of these tax cuts. Warren Buffett has
perhaps articulated it best. He said this is a class war but my
class has won. I am going to get hundreds of millions of
dollars benefit from these tax cuts. I am going to wind up with
an effective tax rate of 3 percent, and my secretary is paying
an effective tax rate of 30 percent. How is that fair to have
one-tenth of the wealthiest people in this country get as much
benefit as the bottom 90 percent?
In other words, 90 percent of people may have incomes of
$95,000 or less per year. In total their tax benefit is as much
as the top one-tenth of 1 percent. And that is what I think is
going to erode the real economic strength of this country. The
top 1 percent own 43 percent of the wealth in this country.
That has gone up dramatically and is going to go up more
dramatically with your tax cuts.
And you know, if you don't agree with those facts, then I
would love to hear you say so, but that is what we are faced
with and that is why we are so frustrated, and that is why we
wish you the best but we sure aren't optimistic about the
results of your tenure any more than we are with Mr. Daniels'.
Mr. Bolten. Thank you, Mr. Moran, for making me feel
welcome.
Mr. Moran. Well, I am sure you are nice guy. We have a
responsibility beyond--you are probably a constituent, too. I
always run that risk.
Chairman Nussle. There goes another vote.
Mr. Moran. I have already ticked off most of them. I might
as well do it to Mr. Bolten. Welcome aboard, Mr. Bolten.
Chairman Nussle. If the witness would care to respond, and
then we do have votes that are going to be coming here very
soon.
Mr. Bolten. Mr. Moran, I appreciate the spirit of your
remarks. I do disagree with many of your views on the facts. If
I can get one chart up in particular, it is our chart on upper
income share of the tax burden. This is how the three tax cuts
that have been enacted in the last two-and-a-half years play
out in terms of the share overall tax receipts that people pay.
Those that make more than $100,000 before these three tax cuts
paid 70 percent of all tax receipts. They now pay over 73
percent of all tax receipts. They--further on the numbers and
size of the overall cost of the tax cut, our numbers come out
very different, less than half of the ones you do. I think we
can probably get together, and hopefully in a congenial
environment, and try to reconcile some of those numbers.
But let me go to the broader picture, because there is one
point that you made that I agree with very strongly, and I do
this without any intent to point fingers one way or the other.
But the President did not inherit a $5.6 trillion surplus. The
President inherited an economy headed into recession and headed
fairly sharply into recession. And the budget picture was not
nearly as rosy as the one that was projected before the
President came into office. The President inherited a very weak
economy. Then he had to deal with corporate scandals that had
been brewing for many years, with the September 11 attacks,
with the war in Afghanistan and Iraq. All of these things
combined made for a very different situation than the one we
came in on.
But the point I agree with you very strongly on is that the
strong economic growth that we saw through certainly the latter
part of the 1990s is the key to our budget situation, and that
is why our focus is on restoring the economy to that kind of
strong growth. And our perspective is that the best way to get
back to that growth is through the effective implementation of
the tax cuts that have been enacted so far.
Mr. Moran. Fifteen seconds. That is income taxes. It isn't
estate taxes or other taxes. I know you would agree.
The other reason why our number is different, you know as
well as I do that we are going to make permanent all of those
tax cuts, at least if the composition of the Congress remains
majority Republican. And that is why I think our numbers are
somewhat more valid than the projections you have here, but I
don't want to be argumentative any more than I have been, and I
appreciate your response, and thank you, Mr. Chairman.
Chairman Nussle. Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman. And I want to welcome
our witness as well. At the outset Mr. Spratt has said that his
reputation precedes him and followed that by saying it is a
good reputation, and it is. It is of being bright, capable and,
most important to me and this committee, to have a personal
commitment to good public policy. And there has been a lot of
political rhetoric back and forth today. I wasn't here for all
of it, but I have heard some of it and I appreciate your
response to the last query. But in general, we are delighted
that you are in a position you are in because we all have a
challenge ahead of us.
And I will say briefly in response to my friend Mr. Moran
when you add up everything, including the estate tax, the top
income taxpayers in this country will pay a bigger part of the
burden than they do now after all the Bush tax cuts, the 2001
tax cuts, the 2003 economic growth and jobs package, and it is
something to keep in mind. The top 1 percent is now paying 37
percent of the taxes. If Warren Buffett wants to pay more that
is great. He ought to. But I take my economic advice not from
Warren Buffett and others out there who play with money and
invest, but the entrepreneurs who are going to create those
jobs, and I hope we will keep a focus on that.
I would ask you, Mr. Bolten, if you would comment, which I
know is hard for you to do in the White House, on Mr.
Greenspan's testimony yesterday and specifically whether you
agree with his statement where he said that the $350 billion
tax cut package, the economic growth and jobs package enacted
earlier this year, was helpful and his prediction that those
tax cuts will provide a considerable lift, which were his
words, in the second half of this year to our economy.
Mr. Bolten. I do strongly agree with that.
Mr. Portman. Mr. Greenspan is testifying again today in the
Senate and I am sure he will reiterate that, but the point that
I am trying to make is that these tax relief measures that we
put in place are not static. And Mr. Spratt had a chart up
earlier, I don't know if I have access to the Democrat charts,
indicating that the tax cuts were the cause of the deficit
because it compared the tax cuts with our deficit, which takes
into account not at all the dynamic impact of these tax cuts,
which was true back in the 1960s with John Kennedy. It was true
in the 1980s with Ronald Reagan, even true in the 1990s when
the Republican Congress convinced President Clinton to put some
tax relief in place in addition to the balanced budget
agreement.
I will also say that when I was first running for Congress
in 1992, guess what, as a percentage of our GDP our deficit was
4.7 percent. Today as a percentage of our GDP our deficit even
with these new estimates of, let us say, $460 billion, even
exceeding the numbers that CBO has provided us and OMB has
provided us, is about 4.2 percent of GDP. And I think that is
important to point out because the economists will tell you
whether they are right, left or center that it is a percentage
of our economy that is really important in terms of the impact
on our economy of our deficit.
Is that acceptable? No, it is not. There are two ways to
deal with it. One is keeping spending under control and the
other is growing the economy, and the tax cuts are going to
grow the economy. And to my colleagues on this side of the
aisle, are you for cutting spending and, if so, where? I would
like to hear. We are trying very hard to keep to our budget
that this committee passed on, unfortunately, a partisan basis
which does keep spending under control. And second, how do you
feel about the tax relief?
I know, Mr. Spratt, you were on Fox News last night and you
indicated that you do believe that tax cuts do stimulate the
economy, and that is why you voted for the second tax cut. I
believe that, too. We may differ on how much and which tax cuts
are better or worse. But to say it is static and doesn't have
any impact I think is not accurate. And certainly as Mr. Bolten
has said, he would agree with Mr. Greenspan's testimony
yesterday saying that those tax cuts were helpful in trying to
get this economy going again.
Another question I have for you is about jobs. How much
impact have the economic growth packages and the tax cut in
2001 had on jobs? What would it be like had those tax cuts not
been in place? How many jobs would we have lost?
Mr. Bolten. There have been several analyses of that, Mr.
Portman. The chairman just highlighted one this morning that
showed that the tax cuts saved 1.8 million jobs over the last
year or two.
Mr. Portman. Could we put up chart 3 or chart 4? That is
the 1.8 million that I saw in our packet.
Mr. Bolten. And the Treasury Department yesterday released
a study with numbers roughly in the same range.
Mr. Portman. Chart 4 is the unemployment number and it
shows that instead of a 7.8 percent unemployment we are talking
about unemployment in the 6 percent range if these tax cuts had
not been in place. How about the GDP growth? Do you think it is
stronger than it would have been without the tax cuts?
Mr. Bolten. Yes, absolutely. And the Treasury Department's
study released yesterday, I believe, showed GDP 2 percent
higher than it otherwise would have been.
Mr. Portman. Two percent higher. Thank you very much again
for your testimony today and, more important, what you will do
for this committee over the next year to put together a budget
for the next fiscal year and working with us to try to get
through this deficit.
Chairman Nussle. Go to Mr. Spratt for one question, and
then Mr. Shays will wrap up our hearing with questions.
Mr. Spratt. Mr. Bolten, let me ask you to turn to page 39
in your booklet there on summary table No. 7. This shows
receipts and outlays as a percentage of GDP. Have you got it?
Mr. Bolten. Yes, sir.
Mr. Spratt. If you look under 2004, next year, when we have
the largest deficit in our Nation's history, $475 billion,
revenues at that point are also at a historic low, 16 percent
of GDP, Gross Domestic Product. That is the lowest level since
1950, 16 percent. In order to get from $475 billion in deficit
to about 300 and change in--rather to get to $226 [billion] in
2008, you got to have an increase in the percentage take of the
GDP for taxes of 2 full percentage points. Now 2 percent of GDP
doesn't sound like a lot, but that chart shows that is 2
percent of $13.671 trillion. That comes to at least $270
billion. So all of the improvement in the deficit from 475 down
to 226 is due to this increased amount of revenues stemming
from the fact that we have a systemic change, an increase not
because the economy is getting better but because the tax
system is collecting more. At that point in time by our
calculation enacted tax cuts will reduce taxes as a percentage
of GDP by 1.7 percent each year. So you are assuming that
notwithstanding that reduction, 1.7 percentage points of GDP
due to tax cuts, you will still be able to increase the revenue
take of GDP by 2 full percentage points. How do you do that?
What is the underlying assumption for that significant shift in
tax payments over a relatively short period of time?
Mr. Bolten. I will let one of the experts perhaps after the
hearing go into greater detail with you on this, but I think
the estimate is sound for a couple of reasons. First of all, if
you will look back at 2002, we did move in just 2 years with a
2 percent drop in the revenues as a percentage of GDP.
Mr. Spratt. That was before most of the tax cuts were
implemented.
Mr. Bolten. True, but the really important effect here is
not the tax cuts, it is the mix of what the economy and the
revenues consist of. What we had in the late 1990s and early
part of this decade was a large bubble of Treasury receipts
from not just corporate income tax but from high wage earner
income tax and from capital gains. And we saw those just fall
off very radically with the collapse in the stock market and
with some recovery in the stock market and some substantial
growth in the economy. I think these estimates most economists
will agree are all within the reasonable range. And there is
one additional factor, and that is the bill that you all
enacted, the 2003 bill that you enacted, has a bonus
depreciation provision which allows companies to write off
their depreciation expenses very rapidly in 2003.
Mr. Spratt. As I understand from your numbers, that is one
tax that you are going to cut that you are going to allow to
expire.
Mr. Bolten. That is correct. We have assumed all taxes
extend except for the bonus depreciation which was intended to
be short-term and precisely because we wanted to stimulate the
investment in the short years, in 2003 and 2004. But the result
of that in the numbers is that we see a large drop in revenues
in 2003 and 2004 because they are able to write off that
amount, but then a substantial recovery in the numbers in 2005
and beyond.
Mr. Spratt. Mr. Bolten, is that a lesson to be learned? By
allowing that tax cut to expire, by repealing one of the
substantial tax cuts, you are improving the deficits
substantially by 50 percent?
Mr. Bolten. The lesson applies exclusively, and I mean
exclusively, to accelerated depreciation provisions, which are
designed to move investment from one period where it is
expected back to another.
Mr. Spratt. I won't pursue that. I asked you earlier for a
10-year run out of what your estimate of the diminution
reduction in the surplus due to economical and technical
effects, miscalculation over the 10-year period, 2002-2011 is
and if you could give us that for the record I would appreciate
it. And secondly, if you could break out the economic and
technical effects and explain to us the different elements of
each and how much is economic and how much is technical, we
would like to have that.
Mr. Bolten. To the extent we feel we can provide reliable
estimates we will do that.
Chairman Nussle. We will go to Mr. Shays to wrap things up.
Mr. Shays. Thank you very much, Mr. Chairman. I didn't
think the chairman's tie was all that great, so he said I would
go last. But I wanted to go last as well because I wanted to
hear how my colleagues would respond to your primary point,
that $278 billion--the deficit would be $278 billion if there
had been no tax cut and that still stands. And the bottom line
is there would be a deficit and the reason there would be a
deficit, and you pointed out so eloquently of a slowing economy
and increased government spending, which fits into the fact
that during our time on this committee when we voted out our
budget resolution, our Democratic colleagues added $982 billion
to our budget resolution, nearly a trillion dollars. And it
didn't stop there on the floor of the House.
And if we would put up chart No. 9. And it is interesting
when you look at this chart because zero is baseline, so there
is even increased spending if no bar went up at all. But the
difference between the two packages and our Democratic
colleagues added $890 billion to the overall package on the
floor, or at least attempted to. Now having said that, if you
turn to chart 8--don't put it up yet. Let me just make this
point. My first choice and I would think it would be yours as
well is that we would have tax cuts accompanied by restraint in
spending. And we did have Alan Greenspan come before our
Financial Services Committee and make the point--he urged
restraining Federal spending to protect the national fiscal
health, but he also acknowledged that the tax cuts were
helpful, but he said if it had been accompanied with a
restraint in spending it would have done an even better job.
Now my second choice would be tax cuts in a sluggish
economy even if not accompanied by a restraint in spending. And
the thing that our Democratic colleagues didn't point out in
their chart was when we had deficits under their reign, we had
deficits when times were good. What would have been the outcome
if we hadn't under a Republican Congress restrained spending
brought deficits into surpluses? What would the deficits be
today had we not done that?
Mr. Bolten. I don't have an estimate for you, Mr. Shays,
but the numbers would be substantially larger than they are
today.
Mr. Shays. Clearly they would be off the chart. Let me just
ask then, the other reason I was so eager to stay to the end
wanting to hear your testimony obviously and all of it and to
hear how you responded to the questions, but I would like, Mr.
Chairman, to put in the record a request that you made with
my--to our colleagues. You requested that if they didn't agree
with the tax cuts that they support Mr. Rangel's bill, H.R.
436, to repeal the tax cuts because they were clearly very
critical of the tax cuts. And there is no one on the list. And
I would like to put on the record the sheet as it is and point
out that not one of our Democratic colleagues who said they
didn't like the tax cuts were willing to repeal them.
Chairman Nussle. Without objection.
[The information referred to follows:]
Mr. Shays. And let me finally say to you my Democratic
colleagues are in an awkward position. They support significant
increases in spending but do not acknowledge that ever
increasing spending is growing the deficits. And they criticize
the tax cuts but do not support reinstating the tax cuts.
And go to the last chart and I will ask you a question in
this. My biggest concern is we do have deficits when times are
bad. And this is chart No. 8. Even under this Republican
Congress, we are seeing a significant increase in spending, not
as much as the Democrats would like us to spend. I would like
you to comment about that increased spending. I would like you
to answer how we are making sure that these deficits don't
become institutionalized.
Mr. Bolten. Well, first with respect to the spending, I
think that underscores the importance of the work of this
committee, which I am committed to cooperating in the months
ahead of ensuring that we have sound budget resolutions that
are enforceable, that ensure that we keep as tight a lid as we
possibly can on spending that is not absolutely essential.
Second, the way that we are going to ensure that budget
deficits do not become a permanent part of the fiscal scene is
principally to ensure that we have an economy that is strong,
robust, with plenty of jobs for people who want to work. That
is the most important thing we can do. And the tax cuts which
the Congress enacted and the President signed over the last
two-and-a-half years have been the best measures to ensure that
we get back to that economy that will put us on the right path
toward budget balance.
Mr. Shays. I thank the gentleman and I thank you, Mr.
Chairman.
Chairman Nussle. Mr. Garrett, since you returned, do you
have a quick question? Otherwise--then if there is nothing
further to come before the committee, we thank you for your
testimony. We welcome your partnership and look forward to
working with you. And with that, the committee is adjourned.
[Whereupon, at 12:25 p.m., the committee was adjourned.]