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THE PRESIDENT’S BUDGET

FOR FISCAL YEAR 2006

HEARING

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, FEBRUARY 8, 2005

Serial No. 109–1

Printed for the use of the Committee on the Budget

(

Available on the Internet: http://www.access.gpo.gov/congress/house/house04.html 
(II)

COMMITTEE ON THE BUDGET 

JIM NUSSLE, Iowa, Chairman 

ROB PORTMAN, Ohio, 

Vice Chairman 

JIM RYUN, Kansas 

ANDER CRENSHAW, Florida 

ADAM H. PUTNAM, Florida 

ROGER F. WICKER, Mississippi 

KENNY C. HULSHOF, Missouri 

JO BONNER, Alabama 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

THADDEUS G. MCCOTTER, Michigan 

MARIO DIAZ–BALART, Florida 

JEB HENSARLING, Texas 

ILEANA ROS–LEHTINEN, Florida 

DANIEL E. LUNGREN, California 

PETE SESSIONS, Texas 

PAUL RYAN, Wisconsin 

MICHAEL K. SIMPSON, Idaho 

JEB BRADLEY, New Hampshire 

PATRICK T. MCHENRY, North Carolina 

CONNIE MACK, Florida 

K. MICHAEL CONAWAY, Texas 

JOHN M. SPRATT, JR., South Carolina, 

Ranking Minority Member 

DENNIS MOORE, Kansas 

RICHARD E. NEAL, Massachusetts 

ROSA L. DELAURO, Connecticut 

CHET EDWARDS, Texas 

HAROLD E. FORD, JR., Tennessee 

LOIS CAPPS, California 

BRIAN BAIRD, Washington 

JIM COOPER, Tennessee 

ARTUR DAVIS, Alabama 

WILLIAM J. JEFFERSON, Louisiana 

THOMAS H. ALLEN, Maine 

ED CASE, Hawaii 

CYNTHIA MCKINNEY, Georgia 

HENRY CUELLAR, Texas 

ALLYSON Y. SCHWARTZ, Pennsylvania 

RON KIND, Wisconsin 

PROFESSIONAL STAFF

JAMES T. BATES, Chief of Staff 

THOMAS S. KAHN, Minority Staff Director and Chief Counsel 
(III)

C O N T E N T S

Page 

Hearing held in Washington, DC, February 8, 2005 ............................................ 1

Statement of: 

Joshua B. Bolten, Director, Office of Management and Budget ................... 9

Prepared statement of: 

Mr. Bolten ......................................................................................................... 13

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THE PRESIDENT’S BUDGET

FOR FISCAL YEAR 2006

TUESDAY, FEBRUARY 8, 2005

HOUSE OF REPRESENTATIVES, COMMITTEE ON THE BUDGET, Washington, DC. 

The committee met, pursuant to call, at 10:36 a.m. in room 210, 

Cannon House Office Building, Hon. Jim Nussle (chairman of the 

committee) presiding. 

Members present: Representatives Nussle, Ryun, Putnam, Wicker, Garrett, Diaz-Balart, Ros-Lehtinen, Lungren, Bradley, 

McHenry, Mack, Conaway, McCotter, Portman, Spratt, Moore, 

DeLauro, Edwards, Ford, Capps, Baird, Cooper, Allen, Case, 

McKinney, and Cuellar. 

Chairman NUSSLE. Good morning, and welcome to this Budget 

Committee hearing on the President’s budget for fiscal year 2006. 

This is the starting point for the United States Congress and its 

crafting of the budget. We certainly have one of the most important 

discussions that will be held in Congress all year long, as we begin 

to lay out the blueprint for the fiscal situation of this government 

over the next year. 

Today, I am pleased to welcome back our witness, Joshua Bolten, 

who is the President’s Director of the Office of Management and 

Budget (OMB), and a friend of this committee and someone who 

has been before us before. 

As it is the tradition, the OMB director sat before the committee 

last year at this time to walk us through the President’s budget request. So let’s take a moment to review that discussion and how 

things have developed since. The President submitted his budget 

yesterday, and Budget Committee Chairman Jim Ryun received 

the budget. 

I don’t know if you saw CNN. I am watching CNN as he, you 

know—as Jim gets the budget and it says Budget Committee 

Chairman Jim Ryun gets the budget—and I thought now wait a 

minute, I only went home for the weekend, you know. There has 

already been a coup here at the budget committee. No, actually, 

thank you, Jim, for doing that. 

As I told you, part of the reason I was gone was my daughter 

was competing in Special Olympics, she won the blue ribbon, and 

yes, it was a big deal. So she had—so I thought it was very appropriate that a gold medal olympiad got the budget for me so that 

I could be at her event. 

I would gladly yield to the Chairman of the Budget Committee, 

Mr. Ryun. 
2

Mr. RYUN OF KANSAS. I would actually like to yield back to the 

chairman. Frankly, I just wanted to comment on the fact that you 

had your priorities right. 

Chairman NUSSLE. Thank you. 

Mr. RYUN OF KANSAS. I congratulate you on that. 

[The prepared statement of Jim Ryun follows:] 

PREPARED STATEMENT OF HON. JIM RYUN, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF KANSAS

Mr. Chairman, one of the main reasons that I ran for Congress was to help restore fiscal restraint to the Federal spending process. Too often, we spend irresponsibly and far beyond our means. 

I am pleased that the budget before us today is based on principles of strong fiscal 

discipline. By holding spending below inflation, this budget begins our return to surpluses. 

The President’s budget does this, however, without compromising the needs of our 

military or the security of our borders. 

Over the next few weeks, this committee will take a detailed look at this plan. 

As we do this, I implore my colleagues to maintain the principles set forth by the 

President—principles of discipline and eliminating waste. 

Mr. Chairman, by presenting us with a budget based on these principles, the 

President has done his job. Now it’s time for us to do ours.

Chairman NUSSLE. Well, I am not sure everyone would suggest 

that, but the budget is very important, and I appreciate that you 

are here to accept that. 

Last year at this time, Director Bolten, you told us that the 

President’s economic proposals would help to build on the economic 

recovery of growth that was already under way. 

Now we know the rest of the story, as it goes. Real gross domestic product has increased for 13 consecutive quarters with the 

strongest growth in 5 years—one of the strongest sustained economic performances in the last 2 decades. 

It doesn’t end there though. Over 2.7 million new jobs were created over the past year and a half, and the unemployment rate has 

fallen from 6.3 percent to 5.2 percent. 

So while we are going to talk about the big shot Federal budget 

here today. Let us remember that the most important budgets to 

our constituents are the ones that they heartache over around their 

kitchen tables, and those are improving as well. Total employment 

is at a record high; with 140 million people working. 

Business equipment investment is at its best rate in 7 years. 

Homeownership rates are at their record levels, with new home 

construction at its best pace in over 25 years. The private Blue 

Chip forecasters agree that our economy is in for a sustained expansion. 

Last year at this time, Director Bolten, you presented the President’s proposal to hold to 0.5 percent, all nonhomeland security and 

nondefense spending. Congress held that spending to 1.4 percent, 

according to your numbers, down from a previous 5-year average 

of 6.3 percent. 

We didn’t get exactly where we wanted to be. We wanted to restrain spending even more, but we certainly did a better job than 

I think we had in the last 5 years. 

Last year at this time, you told us the shocking news that our 

budget deficit would be at $521 billion for fiscal year 2005. You 

also told us that the President’s budget would be able to cut that 

in half by 2009. 
3

We ended last year with a $412 billion deficit. Let me show you 

a chart with regard to this, that I think is important for us to recall. As I say, last year you told us it was going to be $521 billion 

deficit. At the end of last year, we were able to reduce that to $412 

billion, a $109 billion reduction in 1 year. 

Now, before anybody—I hear some snickering, that is right—

snicker away. But there wasn’t one person here last year in the 

room who thought that it was going to go down. Everyone predicted 

it was going to go up with the cost of the war, AMT, tax relief for 

Americans, overspending was going to be what everyone predicted. 

Instead, we went in the opposite direction. 

Why did we do that? Because the economy grew; because people 

went to work; because they paid taxes; because they dealt with 

their own home budgets and family budgets; and because we were 

able to limit the growth of spending in Washington. 

We have been here before, folks. In the 1990s, we got to a surplus because we knew that increasing economic growth, increasing 

economic activity, increasing the amount of money that taxpayers 

control and at the same time limiting the growth of spending was 

a perfect formula to get back to fiscal sanity. 

That is why we adopted the budget we did last year and that is 

why we need some more of that medicine this year. 

So now let us switch gears to this year’s budget. Clearly the driving force of the President’s proposal is to ensure, first and foremost, 

that America’s most urgent needs are met. 

Advancing freedom and security at home and abroad; ensuring 

our economy continues its robust growth; the creation of jobs; preserving and strengthening America’s most critical institutions; and 

doing all of this while continuing on our path to cutting Federal 

deficits. This and these are our highest priorities. 

Of course, we must also continue to honor our commitment to 

other domestic priorities such as education, health care, veterans 

benefits, transportation, science, agriculture, and the list goes on 

and on. Everyone has something they want to accomplish, and all 

of it requires spending. 

We have got to recognize that while we build on our efforts to 

meet our priorities, we have to eliminate some of the wasteful 

spending that we have accumulated—largely through neglect in the 

face of enormous increases that we have heaped on these programs 

over the past decade. 

Let us also remember the old adage I have heard—reading the 

newspaper today has been kind of an interesting experience. Almost all of the headlines talked about the Bush budget: cutting, 

spending, cutting, gouging, and eliminating. Well, you look through 

the budget and precious little is in the area of actual cuts. 

What we see in Washington is the definition of cuts that we have 

got to be real about. A cut in Washington is often a decrease of an 

anticipated increase. People will scream bloody murder, as my 

mother used to say, about how these cuts are going to eliminate 

this and eliminate that. Yes, there are some cuts in there. But by 

and large the way we get our budget under control, the medicine 

that we have prescribed and the medicine the President is prescribing is to just slow things down. We don’t have to grow faster 

than the rate of inflation. So we will continue to meet our prior-
4

ities, and in all of these different categories, but can do so in a restrained way. 

It is no secret that we will also have a whole host of new demands in the near future and some pretty substantial challenges, 

including funding transportation and energy bills, welfare reform, 

correcting Medicare’s doctor payments and working to find a solution for the Social Security shortfall that is looming. 

To add to that crowded list, I am sure members will have other 

priorities. So how do we get it all done? Well, again we made 

progress last year. We made some tough decisions and it is just the 

start. We have to continue it. The administration’s budget takes on 

some tough but necessary next steps in its proposal for slowing 

spending while insuring that our priorities are met. The proposal 

includes holding all nonhomeland and nondefense spending below 

inflation. Let me say that again. If you are not part of the budget 

that is there to secure our homeland and to make sure that we are 

protecting America, you are on the table. We are going to take a 

look at you. 

As the President laid out in much more eloquent language than 

I could ever muster or come up with, the most important use of a 

taxpayer’s dollar is in their own pocket, not in our pocket here in 

Washington. 

So every program requires scrutiny to make sure that if we are 

going to take $1 from a taxpayer, it is for a good reason, it is for 

a worthy cause, it is for something that is a proper role of the government, something that people cannot do for themselves, and for 

helping people who need help and requiring personal responsibility 

in return. The administration’s budget takes some tough but necessary next steps in its proposal from slowing the spending while 

ensuring that our priorities are met. 

Their proposal includes holding all nonhomeland and nondefense 

spending below inflation. It also looks for savings, in the largest 

part of the Federal budget. Folks, 55 percent of our budget is on 

automatic pilot. I know I am saying that to the mirror, because this 

is to both sides. I am not just looking at the Democrats or the Republicans, I am looking at everybody. Our budget is 55 percent 

automatic. We don’t control it. It just happens. 

Most people back home probably don’t realize that. They think 

when we are talking about the budget, we are controlling every single last cent, $0.55 on the dollar now, $0.55 out of every dollar you 

send us folks, is spent automatically without Congress or the President having anything to say about it. 

We are all, wherever your district might be, whatever side you 

are on, we are all going to have to make some very tough decisions, 

and we would probably not have to make them. They are going to 

be tough politically. Everyone has something that they are nervous 

about. None of us are going to get everything we want. 

But the decisions are there, and we are going to have to make 

them. We are going to have to work, and we are going to have work 

to do. The blueprint that we are going to set is going to be jampacked full of needs that are critical for the tipped safety and prosperity of our Nation and its citizens—not just for the upcoming 

year, but well into the future. 
5

So, and many of you are already getting a running start. I was 

watching C–SPAN and saw all sorts of press conferences that have 

already started. It is always interesting to me how it takes maybe 

30 seconds to read this before all of a sudden the opinion pages 

start going and this is only part of the budget. I mean, the rest of 

the tables that we have got that go along with it, to actually get 

your arms around it, stack a lot higher. I will get you a copy so 

you see what we are talking about. 

But within 30 seconds, people are holding a press conference and 

lambasting the budget saying, oh yes, this is in there, that is in 

there. 

Look, we know this is what it is. Now, you tell me that somebody 

has already had the opportunity to read all of this and come out 

and criticize it. It is easy to criticize. It is the easiest job in Washington to criticize something you haven’t even read. The plastic is 

not even off of this thing. 

People can—you know, they can already come out and hold their 

press conference and have all sorts of fancy charts saying this is 

bad, that is bad, gosh, we can’t do that. People are going to be 

thrown out in the street, not in my program and not in my backyard. That is exactly how we got to the position we are in. 

So, if you don’t like something, come up with your own. You are 

not allowed in this committee to say no without an alternative. 

This is to my colleagues on my side as much as it is to anybody. 

Because I know the Democrats and we have already seen them 

saying no, no, no. They may be the party of no this year for all we 

know. 

Mr. FORD. Mr. Chairman, could I ask you one question. 

If we hadn’t read it to criticize it, how did you read it to praise 

it, just out of curiosity? 

Chairman NUSSLE. The gentleman is out of order. I am sure the 

gentleman will be happy to be given his own time. Thank you for 

interrupting. 

I am speaking to my side now, because I know you are not going 

to have an alternative. On my side, if you don’t like it, come up 

with an offset. 

I have heard people already say they don’t like the so called-cuts 

in the defense budget. All right, I can understand that. I don’t like 

some of the cuts I have seen in the agriculture budget. We are all 

going to have something we don’t like. 

But you are not allowed to just come out here and criticize it and 

say you don’t like it and no is the answer. No is not an answer, 

all right. 

We are going to come up with alternatives and solutions if we 

are to be credible. If you don’t like it, whether you are the opinion 

page of a newspaper or you are a Member of Congress, that is fine, 

but come up with your alternative. No is not an answer. Nothing 

is not an answer. 

We need to get hold of this spending that is growing beyond our 

means. We need to do it by setting a fair squeaky-type budget and 

then doing our work to live within its limits. 

I commend the President for setting a strong starting point. No, 

I haven’t read every detail of it either, but I know something because I know the man, and I have had an opportunity to work with 
6

his administration. That’s why when they set these top limits, they 

mean business, and we need to mean business about the top limits. 

The details are up to the Congress. We are the ones that hold 

the purse strings. If we don’t like something, we are going to 

change it. That is the way Congress works. But the overall agenda 

that says we are going to protect the homeland, we are going to 

grow economy, we are going to limit spending, is something as far 

as I am concerned is not negotiable. 

It is not negotiable to this Member. I am going to do everything 

I can to ensure that we get our arms around this budget deficit and 

certainly start controlling it. I certainly know and hope that members will participate in this process in a constructive way. I understand members can say no. Go ahead and say it, I just want them 

to be doing it in a constructive way. 

So I welcome you to the committee, Director Bolten. 

This is always one of the fun lively meetings that we have. I now 

would be very happy to turn it over to my friend and colleague, 

John Spratt from South Carolina for any message that he would 

like to make. 

Mr. SPRATT. Thank you very much, Mr. Chairman. 

Mr. Bolten, thank you for coming today and presenting the budget to us. We look forward to your testimony and the questions and 

the opportunity we will have to put forward to you. 

Let me follow up what our chairman has said, and say we on this 

side of the aisle, who represent the working people of America—

that is what the Democratic Party is about. We are glad to see the 

economy recover—it has been a long time coming. 

For 17 million Americans, 7.7 who are still unemployed, 5 million 

who have dropped out of the labor market because they are discouraged, and 4.4 million who are, working part-time and are underemployed would like to be fully employed—for 17 million Americans, they are still waiting on the recovery. 

Another fact that we have to bear in mind is that even though 

the economy has recovered, the budget has not. If anything, it is 

getting worse. So we have a structural deficit on our hands which 

requires significant policy changes in order to bring the deficit 

down. 

I would like to start first by saying, Mr. Chairman, every year 

we have put up an alternative budget, and we will have one this 

year. Every year for the last several years we have incurred less 

debt and gotten to balance sooner than your budget resolution. We 

will do that again this year. 

Let me go back to where we started, back in the 1990s, and first 

of all, put this chart up to put the budget in perspective. I would 

like to make, first of all, the simple point that we can balance the 

budget. We did it in the 1990s. 

This chart shows that during every year of the Clinton administration, from 1993 till the year 2000, the bottom line, the budget 

got better and better and better to the point where we had a surplus 5 years ago, a surplus of $236 billion. 

The second President Bush came to office with an advantage that 

no president in recent times had enjoyed, a surplus, a budget and 

surplus, a big-time surplus estimated by your office, the OMB at 

$5.6 trillion over 10 years. Every year since, the graph shows it 
7

more graphically and dramatically than I can state it. The deficit 

has declined precipitously to the point where in 2003, we had a 

record deficit, $375 billion. In 2004, last year, we had another 

record, $412 billion. The Office of Management and Budget acknowledges this year, that record will be broken and the record, 

the deficit for this year will be $427 billion. 

The next table or chart sums up in very basic terms, the bottom 

line of the last four budgets presented by the Bush administration. 

When the Bush administration came to Congress with their huge 

tax cuts built into their budget, they assured us that their budget 

would remain in the black, even if we adopted those tax cuts. Within a year, they were back. They were back again this time asking 

for an increase in the debt ceiling so they could borrow more, an 

increase of $450 billion in 2003. 

The following year, they were back again, this time asking for an enormous increase in the debt ceiling, $984 billion. Last November, 

just a couple of months ago before we could adjourn Congress, Congress had to pass still another increase in the debt ceiling of $800 

billion. 

That means that to accommodate the first four budgets of the 

Bush administration, the debt ceiling, the limit on how much we 

can borrow had to be raised three times by a total of $2.234 trillion. Blows your mind, $2.234 trillion. 

Last year, looking at this dismal record, the Bush administration 

tried to put the best face they possibly could on it. They said they 

will cut the deficit in half over the next 5 years. But if you look 

at the budget in the near term, this year, last year, next year, it 

is clearly, Mr. Bolten, not on that path. The deficit goes up this year by $427 billion and barely goes down next year to $390 billion, fiscal 2006. But that calculation 

leaves out several important factors, one of which is the cost of our 

deployment in Iraq and Afghanistan, even though Secretary 

Wolfowitz was here last week telling other committees that there 

will be, you should expect, there will be a substantial defense supplemental in 2006. 

That is not included at all in your numbers here, even though 

we have been warned by the Defense Department to expect it. 

When the defense supplemental that is likely is factored into the 

budget for 2006, it is almost certain to produce another recordbreaking deficit. That is why the likely cause ought to be included 

in today’s budget, so that we can look at the budget and realistically understand what all of the expenditures of the government 

during 2006 are likely to be. 

Broadly speaking, Mr. Bolten, there are two problems with the 

budget before us. One is what it includes and the other is what it 

excludes. This budget increases defense by $19 billion. It increases 

international affairs, it increases homeland security. But instead of 

paying for these increases, merited as they may be, it still calls for 

substantial tax cuts, notwithstanding the fact that we have huge 

gaping deficits. Given that arithmetic, there is no mystery why we 

have huge deficits. Here is one simple way of getting at the causes 

of the problem. 

When the Bush administration sold its tax cuts to Congress, it 

projected that revenues from the individual income tax—which is 
8

the largest source of revenue for the Federal Government—that 

revenues from the individual income tax in 2004 would be $1.118 

trillion. As it turned out, revenues for 2004 from the individual income tax were $804 billion, according to the budget numbers you 

submitted yesterday. That means we are $300 billion below what was estimated in the 

way of revenues for that year, and $300 billion happens to be about 

three-fourths of the deficit for that year. Now that is back-of-theenvelope accounting, but that shows you that revenues are a critical part of this problem. 

The budget that you presented offsets all of these spending increases and tax cuts to a small degree, by cuts in nondefense discretionary spending; that is education, there is veterans health 

care, that is law enforcement, that is environmental protection, 

that is the National Institutes of Health, that is the National 

Science Foundation, that is the general administration of the government, the Federal Bureau of Investigation, the Park Service, 

the courts, and what have you. No one can argue, no one can argue 

that these programs are the sources of the deficit because it barely 

increased over the last several years. 

Taken together, they are not big enough any event—about 15 

percent of the budget—to wipe out the deficits that are running 

close to half a trillion dollars, but the cuts you are proposing are 

significant. They take elementary and secondary education, for example, and provide $12 billion less than the level that was authorized for No Child Left Behind. Cuts like this hurt but in the end, 

they barely make a dent in the deficit. 

So the budget is known also for what it excludes. It excludes 

some major items that make the deficit much larger and much 

more intractable and much more tougher to deal with. 

For example, the President is pushing hard, and made it his 

chief agenda initiative for this year in Congress, privatization of 

Social Security, partial privatization, personal accounts, call it 

what you will. You acknowledge the cost will be $754 billion, but 

that is mainly because you shove the implementation of it to 2009. 

By our calculation, over the first 10 years, the cost will be 1.4 trillion, the first 10 years after implementation. The second 10 years, 

it will be another $3.5 trillion, the total additions to the deficit due 

to the privatization proposal now being pushed will be $4.9 billion 

over the next 20 years—trillion, excuse me, trillion, I can hardly 

get my tongue around it. 

So that is a major omission in this budget. Now, granted, you 

could say we don’t know the form it is going to take, but you can’t 

send it up here and not at least footnote it as a contingent liability—because if it is not implemented, I don’t see how we ever put 

this budget back in balance. 

The realistic war cost, not just in 2006, but in the years afterward, CBO has said let us try to get a handle on this. Let us assume that the force levels in theater, not in country, in theater in 

CENTCOM, will be reduced to 40,000 troops, about two divisions 

for the next 4 or 5 years after 2006. That number is $384 billion 

by their calculation over the budget timeframe you have got here, 

the cost to repair AMT, the alternative minimum tax. You have got 

a number of tax cuts, the excision of retiring tax cuts and some 
9

new tax cuts, easily $1.6 trillion, $1.7 trillion, $1.8 trillion in tax 

cuts that you are pushing—but nowhere is there any mention of 

the AMT. 

We all know this is a looming problem that will have to be dealt 

with. You haven’t even put into this budget what was put into the 

last budget, and that is a 1-year bridge to patch up the problem 

until there is a permanent solution. All of these things omitted and 

left out of your budget, and it comes to $2 trillion. Just for these dissolutions, about $2 trillion, as you would well 

expect, the deficit plummets and as this chart shows, the deficit 

will, according to this calculation, when all of those things are included, the deficit will not be cut in half over 5 years, it will actually grow with time. Once this Social Security privatization is fully 

implemented, it will plummet. 

I don’t understand how you can do the arithmetic and put that 

budget back in balance if you implement your Social Security proposal because of the $4 trillion that it will add to national debt at 

any time in our lifetime. 

So this budget is not going to put us on a path to balancing the 

budget, not in 5 years, not in 10 years, and not in 20 years. It will 

probably even get worse if it is implemented literally. It will put 

us on a path to endless deficits and a Mount Everest in debt. 

It is daunting, Mr. Bolten, to consider where we were 5 years ago. As we sat here on a surplus of $236 billion. It took us 10, 15 

years of budget effort to get the deficit down, put the budget in surplus for the first time in 30 years. Here we are today after 4 years, 

$2.2 trillion deeper in debt and going deeper. 

It is even more daunting to see your budget with spending increases and tax cuts and the diversion of payroll taxes, which could 

come to almost $4.9 trillion over the next 20 years. We don’t know 

where this leads, but we don’t think it makes a budget better. We 

think it makes its decidedly worse, and I fear even an insolvable, 

intractable problem. 

So we have great concerns about this. We look forward to your 

testimony and hope we can answer some of the questions we put 

to you, and maybe even allay some of our concerns about, the 

course the budget before us takes us upon. 

Chairman NUSSLE. Thank you, Mr. Spratt. 

I ask unanimous consent that all members be allowed to put a 

statement, an opening statement in the record. At this point. 

Without objection, so ordered. 

Director Bolten, welcome back to the Budget Committee. We are 

pleased to receive your testimony at this time. 

STATEMENT OF JOSHUA B. BOLTEN, DIRECTOR, OFFICE OF 

MANAGEMENT AND BUDGET 

Mr. BOLTEN. Mr. Chairman, thank you very much. 

Thank you, Mr. Spratt. 

Mr. Chairman, I want to associate myself with your excellent 

opening remarks. I obviously disagree with those that Mr. Spratt 

just made, but I am at least heartened to see that there is bipartisan enthusiasm for getting our budget situation under control, 

and I hope we will be able to work together on that as much as 

possible. 
10

Mr. Chairman, distinguished members of the committee, the 

President’s 2006 budget, which was transmitted to the Congress 

yesterday, meets the priorities of the Nation and builds on the 

progress of the last 4 years. We are funding our efforts to defend 

the homeland from attack, we are transforming our military and 

supporting our troops as they fight and win the global war on terror. We are helping to spread freedom throughout the world. We 

are promoting high standards in our schools so that our children 

gain the skills they need to succeed. We are promoting the progrowth policies that have helped to produce, Mr. Chairman, as you 

said, millions of new jobs and restore confidence in our economy. 

Over the past 4 years, the President and Congress rose to meet 

historic challenges. A collapsing stock market, a recession, the revelation of corporate scandals, and, of course, the terrorist attacks 

of September 11, 2001. To meet the economy’s significant challenges, in each year of the first term, the Congress and the President enacted major tax relief that fueled recovery, business investment and, most important, job creation. 

The strong economic growth unleashed by tax relief is reflected 

in this chart that is on your screen now. Since the recession year 

of 2001, the recession that was on the doorstep as the President entered office, economic growth has increased in each of the following 

3 years. A primary goal of this 2006 budget is to assure that that 

economic growth continues.

A strengthening economy produces rising tax revenues. Last 

year, after declining 3 years in a row, Federal revenue grew by 

nearly $100 billion. That is the 5.5 percent increase you see for 

2004. Reflecting strong continued growth, we project that Federal 

revenues will grow by an even larger figure this year. Those 
11

growth figures in revenue reflect full implementation of the President’s tax cuts which have fueled economic recovery. 

The President and Congress have also devoted significant resources to rebuild and transform our military and to protect the 

homeland. In the first term, the defense budget grew by more than 

a third, the largest increase since the Reagan administration. To 

make our homeland safer, the President worked with Congress to 

create the Department of Homeland Security and nearly tripled 

funding for Homeland Security governmentwide. 

While committing these necessary resources to protecting America, the President and Congress have focused on spending restraint 

elsewhere in the budget. Working together, we have succeeded in 

bringing down the rate of growth in nonsecurity discretionary 

spending, each year of the President’s first term. 

Mr. Chairman, as you referenced in your remarks, in the last 

budget year of the previous administration, nonsecurity discretionary spending grew by 15 percent. That is the green bar there. 

In 2005, such spending will rise only about 1 percent, thanks to the 

cooperation of many of the members on this committee.

Because of this increased spending restraint, deficits are below 

what they otherwise would have been. In order to sustain our economic expansion, we must exercise even greater spending restraint 

than in the past. 

When the Federal Government focuses on its priorities and limits 

the resources it takes from the private sector, the result is a 

stronger and more productive economy. The President’s 2006 budget proposes that enhanced restraint. 

As you can see from the chart that is now on your screen, the 

2006 budget proposes a reduction in the nonsecurity discretionary 
12

category of the budget. This is the first proposed cut in this nonsecurity spending since the Reagan administration. 

The budget proposes more than 150 reductions, reforms and 

eliminations in nondefense discretionary programs, saving about 

$20 billion in 2006 alone. 

As a result of this enhanced restraint, overall discretionary 

spending, even after significant increases in defense and homeland 

security, will grow by only about 2.1 percent. That is less than the 

projected rate of inflation. In other words, under the President’s 

2006 budget, overall discretionary spending will see a reduction in 

real terms. 

In addition, the budget also proposes savings from another set of reforms in mandatory programs, saving about $137 billion over the 

next 10 years. Mr. Chairman, these are the programs that you referenced as constituting 55 percent of our budget. 

As you well know, both mandatory and discretionary categories 

of spending are inherently difficult to control, but mandatory programs are especially difficult because of what referred you to, Mr. 

Chairman, as their auto pilot feature. The administration looks forward to working with the Congress on a package of savings in this 

mandatory category. 

We will also work with Congress on budget process reforms. Last 

year I transmitted to Congress on behalf of the administration proposed legislation to establish statutory budget enforcement controls. We plan to transmit a similar set of proposed statutory controls to establish caps on discretionary spending and pay-as-you-go 

requirement from mandatory spending only and a new enforcement 

mechanism to control new unfunded long term obligations. 

The President’s budget also proposes that Congress include these 

budget enforcement mechanisms and associated reforms in your 

2006 budget resolution. 

In addition, the administration proposes other enforcement and 

budget process reforms, such as the line item veto, a results commission and a sunset commission. These reforms would put in 

place the tools we need to enforce spending restraint and would 

bring greater accountability and transparency to the budgeting 

process. 

This budget restrains spending in a responsible way by focusing 

on priorities, priorities, principles and performance. We were guided by three major criteria in evaluating programs. First does the 

program meet the nation’s priorities, the budget increases funding 

to strengthen our armed forces,improve the security of our homeland, promote economic opportunity and foster compassion. 

Second, does the program meet the President’s principles for the 

use of taxpayer resources? If an appropriate Federal role could not 

be identified in a program submission, the budget generally proposes to reduce or eliminate its funding. 

Third, does the program produce the intended results? The Bush 

administration is comprehensively measuring the effectiveness of 

the government’s programs, and the results are helping us make 

budgeting decision. As part of the President’s management agenda, 

the Program Assessment Rating Tool, known to many of you as the 

PART program, was developed to measure the performance of all 

programs. Roughly 60 percent of all Federal programs have under-
13

gone PART assessments and those scores figured into our budgeting process. 

By holding government spending to these accountability standards, by focusing on our priorities, and by maintaining pro-growth 

economic policies, we are making progress by bringing down the 

size of the deficit in 2006 and beyond. 

Last year’s budget initially projected a deficit of 4.5 percent of GDP in 2004 or $521 billion. The President set out to cut this deficit in half by 2009. Largely because economic growth generated 

stronger revenues than originally estimated and because the Congress delivered the spending restraint called for by the President, 

the 2004 deficit came in $109 billion lower than originally estimated. 

At 3.6 percent of GDP, the actual 2004 deficit, while still too 

large, was well within historical range and smaller than the deficits in 9 of the last 25 years. We project the 2005 deficit to come 

in at 2.5 percent of GDP or $427 billion. If we maintain the policies 

of economic growth and spending restraint reflected in this budget, 

the deficit is expected to decline in 2006 and each of the next 4 

years. 

In 2006, we project the budget deficit to fall to 3 percent of GDP or $390 billion, in 2007 the deficit is protected to fall further to 2.3 

percent of GDP or $312 billion. 

By 2009, that is the 5-year mark, the deficit is projected to be 

cut by more than half from its originally estimated 2004 peak to 

just 1.5 percent of GDP, which is well below the 40-year historical 

average deficit of 2.3 percent of GDP and lower than the deficit 

level in all but 7 of the last 25 years. 

Mr. Chairman, the administration intends to submit shortly a supplemental appropriations request of approximately $81 billion. 

This is primarily to support operations in Iraq and Afghanistan for 

the remainder of the fiscal year. 

The 2006 budget spending and deficit projections fully reflect the outlay effects of this supplemental request, as well as the prior $25 

billion supplemental bill already approved by the Congress. However, the budget does not reflect the effect of an undetermined but 

anticipated supplemental request for ongoing operations in Iraq 

and Afghanistan beyond 2005. 

Mr. Chairman, the published version of the 2006 budget, the 

large documents before you now, also does not reflect the effects of 

transition financing associated with the President’s proposal to create personal retirement accounts as part of a comprehensive plan 

to permanently fix Social Security. 

As the administration announced last week, the type of personal 

accounts the President is proposing will require approximately 

$664 billion in transition financing over the next 10 years with an 

additional $90 billion in related debt service. 

This transition financing would result in a deficit in 2009 and 

2010 of 1.7 percent of GDP. This is still consistent with the President’s goal to cut the deficit in half by 2009 and still well below 

the 40-year historical average. 

You can see that now on the chart that I have on the screen now. 

The chart we presented yesterday, which shows 2009, 2010 with 

the President’s Social Security plans included, a deficit still down 
14

at 1.7 percent of GDP, well below the historical average deficit of 

3.2 percent of GDP. It is also important to remember that this 

transition financing does not have the same effect on national savings and thus on the economy as does traditional borrowing. Every 

dollar the government borrows to fund the transition to personal 

accounts is fully offset by an increase in savings represented by the 

accounts themselves. 

In addition, the transition financing of retirement benefits does 

not represent new debt. These are obligations that the government 

already owes in the form of future benefits. Perhaps most important, comprehensive Social Security reform that includes personal 

accounts can eliminate the system’s current $10.4 trillion in unfunded obligations. Those of us who devote our time to thinking 

about fiscal policy all share a common interest in averting this danger. There is no task as vital to fiscal policymakers this year than 

removing those unfunded obligations by enacting comprehensive 

Social Security reform. 

Confronting these long-term obligations, combined with our nearterm budget reduction efforts, will help assure a strong economy 

both now and in the future. 

I look forward to working with the committee and the Congress 

on this budget which meets the priorities of the Nation in a fiscally 

responsible way. 

Thank you, Mr. Chairman. I am happy to take your questions. 

[The prepared statement of Joshua Bolten follows:] 

PREPARED STATEMENT OF HON. JOSHUA B. BOLTEN, DIRECTOR, OFFICE OF

MANAGEMENT AND BUDGET

Chairman Nussle, Ranking Member Spratt, and distinguished members of the 

Committee, the President’s 2006 Budget, which was transmitted to the Congress on 

Monday, meets the priorities of the Nation and builds on the progress of the last 

4 years. 

We are funding our efforts to defend the homeland from attack. We are transforming our military and supporting our troops as they fight and win the Global 

War on Terror. We are helping to spread freedom throughout the world. We are promoting high standards in our schools, so that our children gain the skills they need 

to succeed. We are promoting the pro-growth policies that have helped to produce 

millions of new jobs and restore confidence in our economy. 

Over the past 4 years, the President and Congress rose to meet historic challenges: a collapsing stock market, a recession, the revelation of corporate scandals 

and, of course, the terrorist attacks of September 11th. 

To meet the economy’s significant challenges, in each year of the first term, Congress and the President enacted major tax relief that fueled recovery, business investment, and job creation. 

Recent economic indicators support the case for tax relief. Since the recession year 

of 2001, economic growth has increased in each of the following 3 years. A primary 

goal of this Budget is to assure that our economic growth continues. 

A strengthening economy produces rising tax revenues. Last year, after declining 

3 years in a row, Federal revenue grew by nearly $100 billion. Reflecting strong continued growth, we project that Federal revenues will grow by an even larger figure 

this year. 

The President and Congress have also devoted significant resources to rebuild and 

transform our military, and to protect our homeland. In the first term, the defense 

budget grew by more than a third, the largest increase since the Reagan Administration. To make our homeland safer, he worked with Congress to create the Department of Homeland Security and nearly triple funding for homeland security government-wide. 

While committing these necessary resources to protecting America, the President 

and Congress have focused on spending restraint elsewhere in the Budget. Working 

together, we have succeeded in bringing down the rate of growth in non-security discretionary spending each year of the President’s first term. In the last Budget year 
15

of the previous Administration, non-security discretionary spending grew by 15 percent. In 2005, such spending will rise only about 1 percent. Because of this increased spending restraint, deficits are below what they otherwise would have been.

In order to sustain our economic expansion, we must exercise even greater spending restraint than in the past. When the Federal Government focuses on its priorities, and limits the resources it takes from the private sector, the result is a stronger, more productive economy. 

The President’s Budget proposes that enhanced restraint. The 2006 Budget proposes a reduction in the non-security discretionary category of the Budget. This is 

the first proposed cut in this non-security spending since the Reagan administration. 

The Budget proposes more than 150 reductions, reforms, and eliminations in nondefense discretionary programs, saving about $20 billion in 2006 alone. 

As a result of this enhanced restraint, overall discretionary spending, even after 

significant increases in defense and homeland security, will grow by only 2.1 percent—less than the projected rate of inflation, which is 2.3 percent. In other words, 

under the President’s 2006 Budget, overall discretionary spending will see a reduction in real terms. 

In addition, the Budget also proposes savings from an additional set of reforms 

in mandatory programs, saving about $137 billion over the next 10 years. 

As you well know, both mandatory and discretionary categories of spending are 

inherently difficult to control, but mandatory programs are especially difficult because of their ‘‘auto-pilot’’ feature. The Administration looks forward to working 

with the Congress on a package of mandatory savings. 

We will also work with Congress on budget process reforms. Last year, I transmitted to Congress, on behalf of the Administration, proposed legislation to establish statutory budget enforcement controls. We plan to transmit a similar set of proposed statutory controls to establish caps on discretionary spending, a pay-as-yougo requirement for mandatory spending only, and a new enforcement mechanism to 

control long-term unfunded obligations. The President’s Budget also proposes that 

Congress include these budget enforcement mechanisms and associated reforms in 

the FY 2006 Budget resolution. 

In addition, the Administration proposes other enforcement and budget process 

reforms, such as the line-item veto, a Results Commission, and a Sunset Commission. These reforms would put in place the tools we need to enforce spending restraint and would bring greater accountability and transparency to the budgeting 

process. 
16

This Budget restrains spending in a responsible way by focusing on priorities, 

principles, and performance. We were guided by three major criteria in evaluating 

programs: 

First: Does the program meet the Nation’s priorities? The Budget increases funding to strengthen our Armed Forces, improve the security of our homeland, promote 

economic opportunity, and foster compassion. 

Second: Does the program meet the President’s principles for the use of taxpayer 

resources? If an appropriate Federal role could not be identified in a program’s mission, the Budget generally proposes to reduce or eliminate its funding. 

Third: Does the program produce the intended results? The Bush Administration 

is comprehensively measuring the effectiveness of the government’s programs—and 

the results are helping us make budgeting decisions. As a part of the President’s 

Management Agenda, the Program Assessment Rating Tool, or PART, was developed to measure the performance of Federal programs. Roughly 60 percent of all 

Federal programs have undergone PART assessments and those scores figured into 

the budgeting process. 

By holding government spending to these accountability standards, by focusing on 

our priorities, and by maintaining pro-growth economic policies, we are making 

progress in bringing down the size of the deficit in 2006 and beyond. 

Last year’s Budget initially projected a deficit of 4.5 percent of Gross Domestic 

Product (GDP) in 2004, or $521 billion. The President set out to cut this deficit in 

half by 2009. Largely because economic growth generated stronger revenues than 

originally estimated, and because the Congress delivered the spending restraint 

called for by the President, the 2004 deficit came in $109 billion lower than originally estimated. 

At 3.6 percent of GDP, the actual 2004 deficit, while still too large, was well within historical range and smaller than the deficits in 9 of the last 25 years. We project 

the 2005 deficit to come in at 3.5 percent of GDP or $427 billion. If we maintain 

the policies of economic growth and spending restraint reflected in this Budget, the 

deficit is expected to decline in 2006 and each of the next 4 years. 

In 2006, we project the budget deficit to fall to 3.0 percent of GDP, or $390 billion. 

In 2007, the deficit is projected to fall further to 2.3 percent of GDP, or $312 billion. 

By 2009, the deficit is projected to be cut by more than half from its originally 

estimated 2004 peak-to just 1.5 percent of GDP, which is well below the 40-year historical average deficit of 2.3 percent, and lower than the deficit level in all but seven 

of the last 25 years. 

The Administration intends to submit shortly a supplemental appropriations request of approximately $81 billion, primarily to support operations in Iraq and Afghanistan for the remainder of the fiscal year. 

The 2006 Budget’s spending and deficit projections fully reflect the outlay effects 

of this supplemental request, as well as the prior $25 billion supplemental bill already enacted by the Congress. However, the Budget does not reflect the effect of 

an undetermined but anticipated supplemental requests for ongoing operations in 

Iraq and Afghanistan beyond 2005. 

The published version of the 2006 Budget also does not reflect the effects of transition financing associated with the President’s proposal to create personal retirement accounts as part of a comprehensive plan to permanently fix Social Security. 

As the Administration announced last week, the type of personal accounts the President is proposing will require approximately $664 billion in transition financing 

over the next 10 years, with an additional $90 billion in related debt service. This 

transition financing would result in a deficit in 2009 and 2010 of 1.7 percent of 

GDP, which is still consistent with the president’s goal to cut the deficit in half by 

2009, and still well below the 40-year historical average. 

It’s important to remember that this transition financing does not have the same 

impact on national savings, and thus on the economy, as does traditional borrowing. 

Every dollar the government borrows to fund the transition to personal accounts is 

fully offset by an increase in savings represented by the accounts themselves.
17

In addition, the transition financing does not represent new debt-these are obligations that the government already owes in the form of future benefits. 

Perhaps most important, comprehensive Social Security reform that includes personal accounts will eliminate the system’s current $10.4 trillion in unfunded obligations. Those of us who devote our time to thinking about fiscal policy all share a 

common interest in averting this danger. There is no task as vital to fiscal policymakers this year than removing those unfunded obligations by enacting comprehensive Social Security reform. 

Confronting these long-term obligations, combined with our near-term deficit reduction efforts, will help assure a strong economy both now and in the future. 

I look forward to working with the committee and the Congress on this Budget, 

which meets the priorities of the Nation in a fiscally responsible way.

Chairman NUSSLE. Thank you, Director Bolten. 

Let me start by reacting to a statement by my very good friend, 

Mr. Spratt, the ranking member. He said that it staggering to consider where we were just 5 years ago when we were running surpluses. It is staggering to consider that just 5 years ago, we were 

running surpluses. 

But I don’t want to go back. I don’t want to go back 5 years. I 

would love to have surpluses again, because the green eyeshades 

guy in me would love to be able to go home and tell my folks, hey, 

I did it, I balanced the budget. 

But, let us just look at a couple of charts. Let me put up chart 

No. 5. Would I want to do that at the cost of our military? Would 

I want to go back 5 years to where we were in our military situation and not defend the country? 

Let us go to chart No. 6. Would I not want to fund Homeland 

Security and protect the country? Of course not. Let us go to chart 

No. 8. Would I not want to pay for the war and combat terrorism? 

These are reasons why we are in deficit, folks. How about No. 9? 

Would I not want to grow the economy and put people back to 

work? Do we want to go back 5 years to where we had negative 
18

growth and a recession and not put money back in people’s pockets 

so that they can make those decisions for themselves around their 

kitchen tables? Would I want to go back 5 years for that? 

I mean, we can live in the past and say, wouldn’t it have been 

nice to live in a surplus world? But we made deliberate decisions, 

in a bipartisan way. As Americans, we said we are going to get the 

economy growing, we are going to protect the homeland, we are 

going to do whatever it takes to prosecute this war against the terrorists, that is what we said back then. 

Now we are acting, oh I don’t know how we got there. I don’t 

know how we got to this deficit. Folks, we made deliberate decisions and interestingly enough checked the voting records. Just 

about every member of this committee did with a glad heart vote 

for many of those proposals, including me. I say it is more important to deal with those problems than it is to just run a surplus, 

and be able to go home and tell your mom, dad, your constituents, 

or your family, my green eyeshades are working, I was able to balance the budget. We did whatever it took. 

So, yes, it is staggering to look back 5 years, but it is also, I 

think, important to look forward and to say these are things are 

important to do. So let us talk about some much these proposals. 

First of all, I would like to know from the Director, what are you 

willing to recommend to the President to enforce this budget? I can 

already tell you what I am hearing—you can imagine, if you are 

hearing it in the newspapers, you are hearing it from interest 

groups, you are hearing it from Members of Congress, and you are 

hearing it from constituents. 

I was on C–SPAN this morning and people were calling in already complaining about this program, cut in that program, that 

is gouged, and all sorts of things. What are you willing to recommend to the budget in order to enforce the top line of this budget? I mean, I think we are going to need some help up here. 

There are a number of us that are willing to make some tough 

decisions, but I think we are going to need a little bit of help from 

the administration. What are you willing to recommend to the 

President to enforce the budget that you have put up, at least in 

the top line or enforce the fences that are part of making sure that 

this budget is physically responsible? 

Mr. BOLTEN. Mr. Chairman, we heard many of the same comments a year ago. 

We got the dead-on-arrival comments when the President was 

asking that the overall discretionary budget be kept to 4 percent 

growth, that the nondefense element of that be kept to 1 percent 

growth, and there were screams of you can’t cut this, you can’t cut 

that and the budget is dead on arrival. 

Now we didn’t get everything that we specifically asked for, but 

what the Congress delivered was, in fact, a budget that held overall 

discretionary growth around 4 percent, and the nondefense portion 

of that, just above 1 percent, as have pointed out in your opening 

remarks. 

So we got what we asked for last year in the big perspective, and 

that came about through effective leadership from you, Mr. Chairman, and other key leaders in the Congress. It came about from 

the President’s determination that he was not going to sign appro-
19

priations bills that exceeded the limits that he had set. I expect the 

President will do the same this year, and that will be my recommendation to him. 

Chairman NUSSLE. I didn’t hear the—I was kind of hoping. I was 

listening carefully for the V word. I didn’t hear the V word. Is it 

possible that depending on exactly how these bills come forward, 

that the V word might be used for the first time in this administration’s tenure? 

Mr. BOLTEN. Sure, it could be. The reason you didn’t hear the V 

word in what I just said—or you didn’t have to hear it last year—

was that we had great cooperation from the leadership in delivering appropriations bills. By the way I should say, this includes 

the leadership of the Appropriations Committees. 

We had great cooperation in delivering bills that were within the 

President’s limits. I don’t anticipate that cooperation will break 

down. But if the President needs to enforce his spending limits 

through the use of the veto, I am sure he won’t hesitate to do that. 

So far, that has hasn’t been necessary. I don’t anticipate that 

that will be necessary this year. 

Chairman NUSSLE. Let me put up chart No. 3. 

Just so people have a chance to see this, because this is to me 

staggering. We are going to talk about—we are going to hear a lot. 

So far the news has been about, you know, cuts, cuts, cuts, cuts, 

cuts, cuts, cuts. 

I just want you to see the total amount of spending. There is 

nothing cut. We are increasing the budget. Every single year we 

have been here, we have been increasing the budget. Let me go to 

chart 4. Because this is the amount that we control. This is the discretionary amount. This is where you talk about the military, and 

you talk about some of the programs that were illuminated earlier 

in my friend, Mr. Spratt’s comments. 

Look at the discretionary growth. I mean, these are actual dollars. You can see what was going on during the late 1990s. When 

we were controlling the budget, and when we were saying, look we 

are going to look for waste, fraud, and abuse. We are going to look 

for programs that aren’t working. We are going to look for ways to 

save money. 

You saw how we got the balance in 1999. It is right there in 

black and white. That is by controlling the rate of growth and 

spending. Look what happened when we got to surplus. The explosion took place. 

Now, granted, there is a lot of this money that is in defense. I 

am not trying to say that every single dollar here we could have 

saved. But I just want to see the rate of growth that we are you 

can taking about illuminated in just a slightly different way. So 

when I hear people talking about cuts, I just want you to remember. In Washington, a cut is described too often as a decrease in 

an anticipated increase, meaning somebody wants something. 

It is like my son coming to me and asking for $10, and I give 

him $9. He screams that I gave him, you know, $1 less than he 

wanted, so that is a cut. Well, no, son, first of all, it wasn’t your 

money to begin with, and second of all I only gave you $5 last 

week. So you got a $4 increase. 
20

So just because people want something doesn’t mean it is a cut. 

We are meeting our priorities and we are dealing with these 

things. But there are programs that you have highlighted and you 

have suggested that you are going to be sending up for the purpose 

of actual cuts or elimination. So my understanding is, from listening to your conference yesterday, that there is 150 so-called programs. Are you willing to give us—I would like to see the list. I 

would like to see them all together, because I know what is going 

to happen. If you start sending one down and the other all—I found 

out here that there is a constituency for everything. Every single 

thing. There is a reason why we spend money on it. Somebody 

cared about it at one point in time or another and had a constituency, a member, or whatever that got it in. 

So I think what I would like to suggest is that you send them 

up in a package with your—if I could humbly suggest with your 

justification behind it. So that we see, not only the proposal, but 

we see some sense from OMB what the pluses and minuses of the 

program might be so we can see them taken together. 

Is that something that we could be provided? 

Mr. BOLTEN. Sure, Mr. Chairman. 

We will be glad to do that. We will prepare something for you 

shortly. I appreciate the way you have approached that, because 

you are absolutely right. Every single program has a constituency 

among some part of the population, some member somewhere. This 

budget is all about setting priorities. 

So I appreciate the perspective that you are bringing to look at 

this budget overall, which is what I am presenting today, and then 

I will appreciate the perspective that you take to look at this whole 

package of program savings and reforms—there are more than 150 

of them. 

We will put them together for you in some comprehensive way 

with a justification. I think what you will see is that we are trying 

to make responsible decisions all across the budget. Every single 

one of you will agree that collectively those are the kinds of actions 

we need to make to get our budget situation in order.

(Editor’s note: See www.whitehouse.gov/omb/budget/fy2006/pdf/savings.pdf)

Chairman NUSSLE. Next, I would like to ask you to put up chart 

No. 14. This is the mandatory expenditure chart. Because I have 

also heard people suggesting that these are going to be the hardest 

and the most difficult decisions to make. These are the automatic 

spending charts—for again our friends that are listening, this is 

spending decisions that are made automatically. Congress doesn’t 

have to vote on them. They just occur. The checks just get sent out 

the door. 

Now, I don’t see any cuts in any of those. They are all going up. 

The only one, thankfully, that we had a small dip in was net interest there for a little while. But unfortunately even now that is 

going back up, and we will have a chance to talk to Chairman 

Greenspan about that at the appropriate time. 

But what I am getting at here is as I read the budget and get 

a sense for these mandatory programs, they are growing now at approximately 5 percent. I want to say 5.6 percent, and what you are 

basically saying is not cut them, but slow it down to about 5.5 per-
21

cent or some percentage slightly lower than that growth of 5.6 percent. 

I would like you to just touch on mandatory spending. How 

would you like us to approach this as we go through this? A new 

word that people are going to have to get familiar with out there 

is reconciliation, which means we are going to send instructions to 

committees and say we want you to find savings in order to dip 

that growth curve slightly. Not cut, just try to slow it down. Would 

you touch on the mandatory side of the budget? 

Mr. BOLTEN. Yes, Mr. Chairman, you are absolutely right that on 

the mandatory side of the budget, that is the part of the budget 

with the largest portion of expenditures. You referenced about 55 

percent today that is growing steadily over time in ways that exceed inflation or, in most cases, the growth of the economy. You 

need to divide them into separate pieces, and I think the right way 

to look at this is in the different entitlement programs. 

For example, we are carrying in the budget a Medicaid proposal that captures net savings of $45 billion, gross about $60 billion 

over 10 years. We have already heard a lot of complaints about 

that, but the effect of those savings is to reduce the growth in Medicaid from 7.4 percent per year over the budget window to 7.2 percent. 

So you are absolutely right in focusing on the nature of what 

people are calling a cut is really a slight decrease in a large increase. Those are really the kinds of costs we need to get under 

control if we are really going to control our budget situation. 

Chairman NUSSLE. Then last I would like to touch on taxes, and 

if I could. I would like to go to chart No. 12. Mr. Spratt mentioned—and his chart showed—that top line dip in the individual 

tax that this government is collecting. Thankfully, that dip is there. 

That dip in our pocketbook out here around this committee table 

means an increase in the amount of money that is in the pockets 

of Americans that are making decisions around their kitchen table, 

balancing their checkbooks. 

But interestingly enough, what the chart that Mr. Spratt did not 

show you is what happens this year and out into the future, look 

at it go back up? This is with tax cuts being made permanent. 

Now, wait a minute, how can this be? What kind of magic is 

going on in this world that you can cut taxes and the amount of 

money that comes into Treasury goes up? Isn’t this a miracle? Well, 

let us go to chart No. 11, and I will show you how it works. Look 

at the same dip. 

Now, that dip is in the people who are working. So when more 

people are working, they pay taxes and more money comes into the 

government. When we have a dip in the amount of people working, 

less money comes in. It is the reason why we have focused on economic growth, and it is the reason why economic growth, together 

with spending restraint, gets us back into a situation that is long 

term a much more sustainable situation. 

So, I appreciate the fact that you are continuing the progress 

that we have made to make tax relief permanent to get—and permanent around Congress is always a misnomer. I always think it 

is funny when people talk about tax cuts being permanent. It is 

more about tax relief being predictable, so that people can plan for 
22

the future, that is what we are saying. We are not saying that anything around here is permanent. 

What we are saying is that we want it to be predictable. We 

want people to be able to plan for their future. When people have 

a job and they are able to pay taxes and they are able to pay slightly lower, but there are more people actually working. It is good for 

our economy, and that is the reason why taxes are rebounding. So 

could we go back to chart 12? 

If you want to make, as part of your proposal, if your answer 

today or in the future is going to be a tax increase, I just want you 

to look at that. I want to know where it is coming from. I want to 

know who you are going after. With now close to 47 percent of our 

country not paying individual Federal income taxes, I want to 

know where you are going to get it from. 

So I understand there are those who have this simple answer. 

Let us just make the rich pay their fair share as the bumper sticker said, I think. Unfortunately now, I don’t think that is going to 

be enough to get us back to where we are. It is going to slow down 

the economy and that is what is driving the train right now. 

So I hope that if you are going to make these kinds of simplistic 

answers, that tax increases are the way to solve this—that you get 

specific and you put your proposal on the table. 

It is the same challenge I give to you. I want to increase taxes 

as I give to those who don’t like the spending cuts or the spending 

restraint. The simple way of putting it, put up or you know the rest 

of us, shut up. Put up or shut up. 

You have to come forward with the proposal. It is not good 

enough to complain. I thank the Director and I yield to my friend, 

Mr. Spratt. 

Mr. SPRATT. Mr. Chairman, let me just join with you on one particular chart that you had by showing a bar graph that identifies 

where the spending increases over and above current services have 

occurred over the last fiscal years. The bar graph, 90 to 95 percent 

of all the increases in discretionary spending over and above current services occurred in defense, homeland security and 9/11. 

Now why is that important? The administration sought almost 

all of these increases. The support for them was on both sides of 

the aisle. So the administration is saying that there is runaway 

spending. They usually use the discretionary spending level, but 

most of this spending was spending that you specifically sought 

and that both sides of the aisle supported, and the difference between us primarily was we thought there should be a plan by 

which we pay for these increases. If they couldn’t be paid for now, 

we shouldn’t shove the tab off onto our children. It is a moral as 

much as a fiscal issue. 

Mr. Bolten, let me go back to some of your charts and say the 

problem I have with them is all these charts require that we take 

the budget you presented as all inclusive. As I indicated in my 

opening statement, there are some major omissions in this budget. 

First of all, if we could have chart 3—first of all, the realistic assessment of what the war, that is Iraq, Afghanistan, North American enhanced security, is likely to cost over the next 10-year period, we don’t know what it is. We know that CBO, being diligent, 

has tried to model what the expenditure is likely to be in order to 
23

adjust projections for reality. We do know from what Mr. Wolfowitz 

told us that we should expect a substantial supplemental in 2006. 

Wouldn’t you agree that your numbers, if they don’t include this, 

nevertheless have to be adjusted for these likelihoods in order for 

us to make judgments about whether or not you are closing in on 

your target? 

Mr. BOLTEN. Mr. Spratt, the answer is yes and I expressly said 

so in my opening statement and we said so in the budget. What 

I do want to point out to you is that we are coming forward with 

a supplemental for 2005 very shortly. In the interest of providing 

as much disclosure as we could about the numbers we do know, we 

did include that $81 billion supplemental in the numbers that I 

presented to you this morning. 

Mr. SPRATT. The outlay effects in 2006? 

Mr. BOLTEN. Both in 2005 and 2006. That $81 billion supplemental, probably not even half of it will spend out in 2005 because 

the likely timing of enactment. 

Mr. SPRATT. If you were to baseline $80 billion, the number I 

have there would be off by half. Let us hope it is not that substantial. But CBO is assuming that we reduce to two divisions, roughly 

40,000 troops, by 2006 and maintain that steady state for the rest 

of the time period you have here, and they have come up with an 

estimate of $384 billion. 

Mr. BOLTEN. The numbers for the 2005 supplemental are in the 

budget and are reflected there both in 2005 and 2006. 

Mr. SPRATT. Do you expect that there will be a substantial supplemental request in 2006? 

Mr. BOLTEN. I do. And as I said in my statement and we have 

said in the budget, you do need to add those costs in. Take a look 

at the supplemental when it comes out. What you will see is that 

we are putting a substantial investment into training and equipping the Iraqi forces themselves, the military and the police, to 

take over the job that the U.S. military is now doing. And our hope 

and expectation is that over time that will reduce——

Mr. SPRATT. It could be a substantial time. We are training right 

now an Iraqi Army of 24,425 troops. The target level has been reduced from 36,000 to 24,425. It is hard to believe that an army of 

that size is going to be able to take over responsibility for the security of the country when we have 140, 150,000 American troops 

well led and well trained and well equipped who haven’t been able 

to quell the insurgency themselves. We are likely to be there for 

some time and we are likely to be underwriting the construction of 

those troops. There has to be a significant number added in to the 

2006, and I would guess that is close to $50 billion at least. And 

if that is true, once again you have a budget deficit that is not coming down, but going up. And you are not closing in on your own 

stated goal of cutting the deficit in half by 2009. 

Mr. BOLTEN. Mr. Spratt, I disagree with you. I don’t necessarily 

expect the number in 2006 to be that high, certainly from an outlay 

effect of an additional 2006 supplemental. You are right that we 

will have significant costs going forward. Our hope and expectation 

is though by the time we get to the outyears of this budget window, 

2009 and 2010, that our supplemental funding requirements will 

be substantially reduced and we will be able to cover all or most 
24

of what we need to cover in our base defense spending, which is 

also increasing substantially. 

Mr. SPRATT. Let us go to the cost of Social Security and privatization, which you are assuming in your budget, but you moved it 

to the far end of the budget window and you barely see any consequences. Using your numbers for the first 10 years, the first 10-

year time frame for the budget, you estimated $754 billion. That 

is not for full implementation. 

Mr. BOLTEN. With debt service, yes. 

Mr. SPRATT. You would agree that that is an appropriate addition assuming that your proposal is adopted as proposed? 

Mr. BOLTEN. Yes, I agree that is a correct addition. And it is also 

correct what I showed on the last chart that I had up on the 

screen, which is in 2009 and 2010, as the program ramps up, we 

would expect a deficit around 1.7 percent of GDP, including the 

transition financing elements of Social Security. And I would not 

expect that we would see substantially higher deficits as a percentage of GDP in the succeeding 5 years as a result of that transition 

financing. 

Mr. SPRATT. You have to add $754 billion in several of your bottom lines in those years. 

Mr. BOLTEN. True. I think if we follow the pro-growth policies 

that I was talking about and the chairman was talking about, if 

we exercise the kind of spending restraint across the budget that 

the President’s budget proposes, I don’t see any reason why we 

shouldn’t be in that low deficit category out toward the end of this 

budget window and beyond that leaves plenty of room for that additional Social Security transition financing. 

Mr. SPRATT. What about full implementation then? Once you 

have allowed everyone to divert at least 4 percentage points off 

their payroll tax, their FICA contribution tax into a private account, we estimate that with full participation, that will amount to 

an increase in the deficit of $1.4 trillion over the first full 10 years 

of implementation and $3.5 trillion over the second 10-year period, 

so that over 20 years there will be a $4.9 trillion increase in the 

deficit. You don’t have anything like that factored into here. You 

leave the impression in saying we are going to cut the deficit in 

half in 5 years and it is linear, and in the second 5 years it will 

continue its effect and eventually wipe out the deficit. With that occurring and getting bigger and bigger, the Social Security privatization initiative in the second 10 and the second 20 years is deficit 

forever. 

Mr. BOLTEN. Mr. Spratt, that first 5-year period we are showing 

in our budget, and I feel confident that we are on the right path, 

and we will get well below 2.3 percent of GDP. 

Mr. SPRATT. Well, there is actually nothing in the budget. You 

indicate this could be the cost, but you haven’t put that number in 

your budget, have you? 

Mr. BOLTEN. It wasn’t reflected in the budget because the budget 

went to print before any of the proposals were out, but I just 

showed it to you. It comes out at 1.7 percent of GDP in 2009 and 

2010. And I don’t see why we couldn’t keep it that low deficit level 

in the succeeding 5 years. 
25

Let me make a point beyond that, because 10 years from now, 

we face a very serious problem in our budgeting from the unfunded 

obligations in our entitlement programs, including Social Security. 

Regardless of what we do now, especially if we do nothing now, we 

are facing a very difficult budget situation beginning in 10 years 

if we don’t address the crisis in our entitlement programs, including Social Security. 

Let me make one very important point about the transition financing associated with these accounts and I alluded to it in my 

opening statement. These are not new costs to the government. 

This is an obligation that the government already owes in the form 

of future benefits. What personal accounts do is take these future 

obligations that the government already owes to beneficiaries, 

bring them forward, let people keep them in their own accounts, in 

accounts that are likely to grow much better than the Social Security system can promise. So it is very different from adding new 

spending into the budget. It is bringing forward an obligation that 

the government already owes. 

Mr. SPRATT. But, Mr. Bolten, you have come to us from Goldman 

Sachs and have been an investment banker. You know that this requires the government of the United States to go into the capital 

markets in this country and the world and borrow at least $5 trillion more debt than they otherwise would do over that time period, 

over the first 20 years. Surely the fact that we are participating to 

that extent in the private capital markets, borrowing $5 trillion, 

will have an impact. 

In addition, it is debt and it has to be serviced. One thing that 

is obligatory is that we pay the interest on the national debt. As 

you mount up, $4, $5, $6 trillion of additional debt to pay the cost 

of transition, the debt service has to be serviced on a current basis 

and pretty soon it eclipses. It wipes out everything else in the 

budget. I don’t see how you can shoehorn it into this budget without catastrophic consequences. 

Mr. BOLTEN. I don’t accept the numbers that you have used 

there. Beyond that, if you go to Wall Street and talk to some of my 

former colleagues and other analysts there, if they thought we were 

actually going to be putting in place the kinds of plans the President is talking about, they would be applauding, because what they 

see is a huge unfunded liability, in the $10 trillion range of unfunded liability. And it is in the context of comprehensive reform, 

what we are doing is bringing forward the obligations we owe, letting people keep it in their own personal accounts. They will regard 

that as a fiscally responsible thing to do. It is. 

Mr. SPRATT. In the meantime, we amass trillions of dollars of 

debt and the interest on it has to be paid out of current annual 

budgets. This chart here shows what happened under your budget 

as projected. We will see an increase in the interest rates, in the 

debt service on the national debt of—from $150 to $350 billion over 

the time frame we are talking about, and that means to the extent 

that has to be paid something else has to be foregone if you are 

going to balance the budget. That is a big wedge in the budget 

crowding out other things, and that is what is going to happen. 

Do you disagree with the calculation that the first 10 years of full implementation will require the government to borrow $1.4 
26

trillion? And the second 10 will require the government to borrow 

another $3.5 trillion? 

Mr. BOLTEN. Mr. Spratt, I think you have to wait and see what 

the full proposal is. What we have been able to reflect is the first 

several years from the proposal that the President put out and no, 

I do not accept the numbers you put out. I think we need to see 

where the proposals come out and see the full balance of the entire 

proposal to see what the net effect on the government’s borrowing 

needs are. One thing we know for sure, there is more than a $10 

trillion present value unfunded liability out there. And each year 

we wait to address it, we are probably adding $600 billion. 

Mr. SPRATT. That is one way to state it, but that assumes the 

perpetual cost to the system. If you look at 75 years, the cost of 

making the system solvent in present value terms is $3.7 trillion. 

That is an actuarial number. The Social Security Administration 

publishes it. In the sense of getting all of us on the same sheet of 

music, I think that is the fairest way to describe where our liability 

is. It is daunting enough. You don’t have to hype it by saying it 

is going to be $10 trillion. 

Mr. BOLTEN. I am not trying to hype it, but the right way to look 

at it is on a permanently sustainable basis. 

Mr. SPRATT. You know any system we have got around here 

where we say what is this going to cost to have in perpetuity, for 

infinity? 

Mr. BOLTEN. This is the system we have for Social Security, 

which is putting us on a path toward fiscal disaster and the reason 

where we are today is because we have limited ourselves to the 75-

year low, because we have limited ourselves to looking out over a—

what in the Social Security context is a relatively short horizon. We 

go 10 or 20 years down the line and we realize we didn’t fix it. The 

President is planning to come forward with a proposal that would 

fix the system permanently. That is the right way to look at this 

system. 

Mr. SPRATT. We would ask you once that proposal is put on the 

table to provide us for the record and for our own information what 

it is going to cost in the way of additional government borrowing, 

additions to the national debt and the national deficits over the 

first 10 years and the second 10 years. We think that the numbers 

are likely to be pretty close to what we are talking about. By our 

calculation, if the numbers we are proposing, the construction that 

we put on the President’s proposals is enacted, the date of cash imbalance will be moved from 2018 to 2012 and the date of trust fund 

exhaustion will be moved from 2042 to 2031. So what you are doing 

is hastening the onset of the day of reckoning for Social Security. 

You are making the situation closer to a crisis than it needs to be 

or has to be. 

Mr. BOLTEN. I don’t disagree with the dates you put out. You 

need to see the whole proposal. If we do that in the context of an 

overhaul reform of the Social Security system, that insolvency date 

will not occur. We can forget about that problem. We may accelerate the date in which the Social Security system goes into cash 

deficit. If that is the price for getting comprehensive reform, that 

fundamentally solves the problem permanently going forward. I 

think that would be a great development. I think Wall Street and 
27

financial markets around the world would consider that a great investment. It is the fiscally responsible thing to do. 

Mr. SPRATT. One final question, Mr. Bolten. Would you agree 

that the privatization is such that the diversion of these funds into 

private or personal accounts does not by itself solve the insolvency 

problem of Social Security, that something else has to be done. And 

in particular, the President has identified his preferred alternative 

as being something close to plan 2, as formulated by the Presidential Commission on Social Security. And plan 2 includes a proposal to re-index the so-called basic insurance amount, the initial 

insurance amount determined for every beneficiary when he or she 

retires. Today, those income streams are indexed to wages; in other 

words, once you have determined your average monthly income, Social Security pays you 92 percent of a certain portion of it, 32 percent of another portion and then 15 percent of the final portion. 

Those bench points, so to speak, are indexed. Those income streams 

are indexed every year to rise with the rate of increase and wages 

in the rest of the economy. 

What was proposed by the plan two is that the indexation be 

changed from wages to prices which would mean the rate of increase would be about half what it is and has been for some time. 

If that is done over a period of 40 to 50 years, the replacement 

ratio that a median average income worker would receive retiring 

at age 65 would decline from 43 percent to 22 percent. That is a 

number that is developed in plan 2. 

Do you agree with that? Is this the means by which Social Security will be made solvent in the President’s plan? 

Mr. BOLTEN. The details of the President’s plan will be forthcoming as the consultations with the Congress go forward. I can 

say this, I agree with you that the private accounts, the personal 

accounts do not in themselves solve the full Social Security problem. Other reforms will need to be made. What the personal accounts do do is make it possible for individual retirees to—individual beneficiaries to get a much better return on their money, 

much better than they otherwise would. One thing we know for 

sure about Social Security model 2 from the Social Security Administration, almost any of the reform plans, is that they will provide 

beneficiaries a better benefit than the Social Security system can 

now afford to pay. That is why Social Security reform is so important. 

Mr. SPRATT. Even if the replacement ratio is reduced from 43 

percent to 22 percent for the median worker? 

Mr. BOLTEN. I don’t have any disagreement if this comes from 

the Social Security Administration’s own numbers. But what their 

numbers do show is that on their model 2, the benefits that future 

retirees will receive will, A, be higher than what current beneficiaries are receiving and, B, will be better than what the Social 

Security system can now afford to pay. 

Mr. SPRATT. This assumes private accounts. It assumes a rate of 

return on private accounts. But in any event when the actuaries 

did their analysis, this was a model they used and they indicated 

that this particular mode of computing the initial insurance 

amount would correct the Social Security imbalance by 2.07 percent of payroll. The problem is 1.89 percent of payroll, this more 
28

than compensates for that and by itself achieves solvency. That 

seems to me to be an inherent feature of the President’s proposal 

and has dire consequences of Social Security if you are going to cut 

in half the replacement ratio that the average worker can look forward to getting out of Social Security. 

Mr. BOLTEN. Mr. Spratt, I just caution you to wait and see what 

the full proposal is. 

Mr. SPRATT. In the meantime, we turn to model 2 and see what 

they did and this is an integral part of model 2. 

Mr. BOLTEN. And what you will see in model 2 is that the benefit 

that the beneficiaries will receive in the future is substantially better than what the Social Security system can now afford to pay. 

Chairman NUSSLE. We will now recognize members under committee rules. Mr. Portman for 5 minutes. 

Mr. PORTMAN. Thank you, Mr. Chairman. And Mr. Director, I 

commend you today for coming forward with a responsible budget. 

I know it wasn’t easy to put together, but you have funded our critical priorities. And you have made tough decisions to make sure we 

meet this target. And I think we all share reducing the deficit in 

half by 2009. You have also put in place policies that promote progrowth economics and that is critically important to keep the economy growing as we see in some of the charts. I also want to commend you for putting the $81 billion supplemental in the budget. Mr. Spratt didn’t give you enough credit for 

that because last year Mr. Spratt was critical of that not being included, as were some of us. This year you have done it. You deserve a little credit for that and we will see what happens. 

On the remarkably successful elections that we all witnessed 

about 10 days ago, I for one believe we will not continue to have 

the same commitments we have had and certainly none of us know 

that. For 2006 and 2007, I think it is impossible for you to reflect 

that in the budget, and I respect that. 

I want to go back to the impacts of tax relief on our economy, 

but I think it is a credible part of what we are talking about today. 

It is the impact on our economy and the impact on tax revenues 

and the impact on our budget deficit. 

You stated that the long-time tax cuts back in 2001 and 2002 

and 2003 were very important in the strong economy we have got 

now and the strong job growth. I agree with you on that. I think 

the basic budget debate that we have seen here this morning that 

is going to be played out over the next couple of months is between 

those who believe we should get to this having a deficit in half over 

the period between now and 2009 by increasing taxes, which is basically what my friend Mr. Spratt is talking about by not having 

the tax cuts become permanent because that is an increase in 

taxes, or whether we should look where we can reduce spending 

and basically restrain the growth in spending and encourage more 

economic growth. And it is an interesting debate. I think what I 

would ask for you today is give us your thoughts on the specifics 

on what the impact is on tax relief on the budget and looking forward over the next 5 years, what would happen if we were to increase these taxes? 

Mr. BOLTEN. Thank you for those remarks and for the credit. It 

is not coming very often these days, so I am especially grateful. 
29

And I am glad you have raised the importance of the tax relief and 

economic growth, because particularly reflecting back to the charts 

that Mr. Spratt first put up on the screen, what is missed there 

is that as this President entered office the economy was entering 

recession. We had a burst stock market bubble, the bubble that had 

greatly expanded Federal revenues burst and the reverse effect was 

occurring. As huge capital gains turned into huge capital losses, 

revenues plummeted. This is the first time this has happened since 

the 1920s. Since the President entered office, we have had three 

straight years of declining Federal revenues, and the principal reason was the burst stock market bubble and the recession that the 

President found on the doorstep as he entered office. 

The tax cuts were essential to restoring economic growth in this 

country, and as we have had restored economic growth, we have 

seen revenues rise once again. Last year in 2004 we had revenues 

up by $100 billion. We are projecting even more than that for 2005. 

Mr. PORTMAN. Could we see chart 12? 

Mr. BOLTEN. That is the real key to getting our budget back in 

shape, because what we need to be doing is restraining the growth 

in our spending, at the same time that a growing economy helps 

bring our budget back toward balance. We are projecting, by the 

end of the budget window, that revenues will recover to pretty 

much the historic average of 18 percent of GDP, and that is with 

the President’s tax cuts made permanent. In other words, by the 

end of the budget window, with the President’s tax cuts made permanent, we will be at the historic levels of revenues that income 

and other taxes take away from the economy. 

Now there are a lot of people who want to see that line go higher. 

They may want to see us take a larger than historic average bite 

out of the economy through tax revenues. That would be a huge 

mistake. That would send us back in the direction that we started 

out at the beginning of this administration, which is a weak economy, which means weak Federal revenues, which means a weak 

Federal budget picture. 

Mr. PORTMAN. So, Mr. Director, you are actually telling us where 

we have chart 12 up there again now showing individual taxes actually going up in 2004, 2005 and into your 5 years, you are telling 

us as a percentage of our economy, percentage of GDP, despite 

making the tax relief permanent, we will see a larger amount of 

revenue coming in and a larger percentage of our GDP? 

Mr. BOLTEN. Absolutely correct and it is a crucial point. 

Mr. PORTMAN. Thank you. 

Chairman NUSSLE. Mr. Moore. 

Mr. MOORE. Thank you, Mr. Chairman, and thank you, Mr. Director. I learned in September of last year that the death gratuity 

paid to a family of a young person killed in Afghanistan and Iraq 

was $12,000, which I consider a slap in the face to a family who 

has just lost a loved one in the service of our country. I filed a bill 

to increase that death gratuity and before the end of the session 

last year we had 219 bipartisan cosponsors on that bill. Of course, 

it died at the end of the session and wasn’t passed. 

I filed the bill again in January, just last month, we have 222 

cosponsors, that would raise this death gratuity benefit to 

$100,000. I saw the President issued a statement last week, I be-
30

lieve, and said he would support this concept and it would be funded. My staff and I are going through this and we haven’t gotten 

all the way through it. 

Do you know if there is a proposal for funding that 100,000 death 

gratuity benefit in this submission? 

Mr. BOLTEN. Yes, Mr. Moore, and the President does agree and 

we have taken a look at that. It will be reflected in the supplemental proposal that is coming forward in the next few days so 

that we can actually begin to address this problem immediately. If 

it were just in the 2006 budget, we have to be waiting for the 2006 

year. We want to address the problem immediately. It will be reflected in the supplemental, and then in future years it will be part 

of the base. 

Mr. MOORE. Thank you very much, and I think all of us on this 

committee appreciate the President’s support. 

Mr. Chairman asked us in his opening remarks if we don’t agree 

with portions of the budget submission that we make our own proposal and don’t just say no. Mr. Chairman, I appreciate what you 

said and I want to do that. 

I tell the people back home when the President is right, I support 

the President. For example, I voted for the use of force resolution 

based on the intelligence briefings we had. I voted for No Child 

Left Behind because I thought it had some good accountability concepts in there. I tell people if the President, if I think he is wrong, 

I will respectfully say Mr. President, I think there is a better way. 

And I want to talk to you about a better way in at least a portion 

of this, the President’s plan for partial privatization of Social Security accounts. I will today file a bill that is called the Social Security Truth in Budgeting Act in 2005, and this would take the radical approach of setting aside into a true trust fund Social Security 

dollars that are paid by American taxpayers for Social Security so 

they wouldn’t be used for any purpose other than Social Security 

and I am talking about education and health care. And these may 

be worthwhile programs that all of us would want to support, but 

put aside into a true Social Security Trust Fund and couldn’t be 

used for education, for health care, tax cuts or anything worthwhile 

but for Social Security. And I wondered if you could support a proposal like that. Now does this solve the solvency problem of Social 

Security funding? No, it does not, but it takes several steps in the 

right direction, and I would ask that the administration support 

this concept and that we start being honest with the American people about how Social Security monies are presently being used. 

Mr. BOLTEN. Regardless of how we account for it in our official 

books, these are obligations that the government owes, and that is 

why the President is pursuing comprehensive reform that puts it 

on a permanently sustainable basis. Whether we say it is actually 

set aside in a trust fund or whether, in fact, the government ends 

up spending those surplus revenues as it has historically, going 

back well before this administration, however you account for it, we 

do need to solve that problem because you are absolutely correct 

that we have a serious problem coming down the pike. In the next 

decade, we will see the Social Security system go into cash deficit, 

and if we are going to address that problem, what we call it is 

probably a lot less important than putting it on a sustainable basis. 
31

Mr. MOORE. I think people in this country think when they talk 

about a trust fund for Social Security that there is actually money 

in a fund, and actually what it is is an obligation of the United 

States Government, which I hope and believe we would honor in 

the future. But it is putting us further and further and further, our 

Nation and our children and grandchildren, in debt, and that is 

what I am concerned about and what we need to change. 

I practiced law for 28 years before I came to Congress, and under 

Kansas law, and I think the law in most of the States, attorneys 

are required to have a trust fund to segregate their own money 

from their clients’ funds and it is an absolute no-no to mix those 

funds. In fact, you can be disbarred and maybe prosecuted for 

doing that. And I think maybe we should have a similar rule here 

to protect Social Security funds to make sure that they are there 

for the intended purpose in the future and not used for every other 

purpose even if it is a worthwhile purpose. 

Again, that doesn’t correct the solvency problem, but takes several steps in the right direction, and I think that is what the American people think is happening now, and we need to be honest to 

tell them that it is not and we want to change it. 

Chairman NUSSLE. Mr. Putnam for 5 minutes. 

Mr. PUTNAM. Thank you, Mr. Chairman, and welcome, Mr. 

Bolten. I appreciate the fact that this is a very forthright budget 

that recognizes the need to set priorities, that recognizes the reality 

that there are trade-offs domestically for what we are accomplishing abroad, and I appreciate the President’s willingness to 

tackle what I consider to be a generational issue and that is the 

long-term solvency of Social Security, recognizing that for younger 

workers and even younger Congressmen it will not be there when 

they are ready to retire. 

If I may talk about that secondary leg of that mandatory spending stool now that we are at a point where are over half of the Federal budget is on autopilot being driven by mandatory spending. If 

you would comment on the mechanisms that were put in place in 

the Medicare reform bill that would enable us to get our arms 

around long-term Medicare spending challenges in the future. 

Mr. BOLTEN. There were some good mechanisms put in place in 

the bill that the President signed about a year ago, designed to basically raise a flag for the President and the Congress when it appears that the Medicare system is taking too large a share of its 

revenues out of the General Treasury, because there is also a trust 

fund mechanism in the Medicare system but it only covers part of 

the cost of Medicare. Medicare is paid heavily out of the General 

Treasury with funds that are increasing almost geometrically out 

over time. There are mechanisms in the Medicare Modernization 

Act that give you and the President an alert saying that several 

years from now the system is going to be taking, I believe it is 

more than 40 percent of its money out of the General Treasury and 

providing a procedure for the President and Congress to step in 

and deal with it at that point. We would have liked to have seen 

stronger measures than that, but you at least have that mechanism 

formally built into the Medicare system. 

There are more important things, though, that I think the Medicare bill does and that is that the real problem we face in Medicare 
32

is also the problem we face in health care, and that is the costs in 

the health care arena are growing substantially higher than inflation or even the growth in the economy. Right now, our budget projections are that Medicare will grow by about 9 percent per year 

going out in the future. That is far higher than we can expect the 

real economy to grow, and ultimately that poses an enormous challenge to the budget. What we need to do is be sure that we bring 

those health care costs and Medicare costs with them down in a 

more reasonable range. One of the essential reforms in the Medicare Modernization Act was to try to shift over to a more private 

sector-oriented system where it allows plans to compete in providing Medicare services. A lot of us have great confidence that 

that will make it possible to provide Medicare services both more 

efficiently and at a higher quality. That is an important reform, so 

are health savings accounts, which push in the same direction, letting people choose more on their own—make more of their own 

health care decisions and make more sensible health care decisions 

over time. Better preventive medicine and better elimination of all 

the inefficiencies that we have in the health care system. 

Mr. PUTNAM. I agree and appreciate that. It is vitally important 

that we get our arms around those cost drivers. Let me shift gears 

with the time remaining as someone who had three hurricanes 

pass over my district last summer and was the beneficiary of tremendous and thorough FEMA response that was well thought out 

and well executed, recognizing that those types of scenarios play 

out in this country every year. 

What is the administration’s approach to budgeting for emergencies and to what degree can we plan for those things and build 

them into our budget blueprint? 

Mr. BOLTEN. We appreciated the opportunity to work with you 

during the hurricane disasters. You were extremely helpful in making sure the right relief got to the right place promptly in your district and the whole State of Florida that got hit with the triple 

whammy. I would hope we won’t see that kind of situation again. 

That was extraordinary, really historically anomalous and I express special sympathy to you and the folks in your district who 

were at the intersection of all those hurricanes. 

What we try to do with the Federal budget is set aside enough 

for the predictable level of emergencies, so we have substantial 

funding in our FEMA accounts and several other emergency accounts. We know there are going to be floods somewhere. We know 

that we are going to have some hurricane activity at some point 

in the next year, the next 2 years. But what we try to account for 

is the level that is normally predictable. Last year was not predictable. That was truly anomalous. What we would ask the Congress 

to do, when we make the request for that unknown or unpredictable funding, that you fully fund us on it. It is an easy place to find 

savings because it is not actually money spent on a known item. 

It is a reserve account, and it is easy to dial that account down in 

favor of accounts where it is spending that a particular constituent 

is asking for. 

What I would ask you and the other members of the committee 

and Congress to do as you look at the appropriations is not sac-
33

rifice these emergency accounts we have set aside for the realistic 

level of unanticipated needs that we do have. 

Mr. PUTNAM. I thank the gentlemen and Mr. Chairman. 

Chairman NUSSLE. Ms. DeLauro for 5 minutes. 

Ms. DELAURO. Thank you, Mr. Chairman. President Bush has 

said that his 2006 budget is a budget that sets priorities. To examine the priorities and seeing just who will benefit and who will suffer, it is a moral concern in my view. Budgets reflect the values 

and priorities of a family, of a church, an organization, a city, State 

or a Nation. Once we examine the priorities reflected in this budget 

we will find that they are the wrong priorities for this Nation and 

do not reflect the values of Americans. 

This institution is about improving people’s lives. It is a goal that 

I share with my colleagues, and in fact it is what ties us to our 

serving in this institution. 

This budget runs directly counter to that goal. The policies reflect a deepening income inequality and remarkably raises the barriers for those who are struggling and working to do better. This 

budget calls for the extension of $1.9 trillion in tax cuts primarily 

to the wealthiest Americans, those making over $350,000. It compromises our ability to face our most pressing challenges, and it 

comes at the expense of the social safety net that might rescue 

those who live in poverty. The decision to eviscerate Medicaid by 

$60 billion over 10 years will leave many low-income families with 

nowhere to turn for medical care and many seniors with no way 

to afford long-term care; decrease in food stamps by more than 1 

billion over 10 years making it more difficult, even impossible for 

low income families to qualify; funding for low income energy assistance, a program crucial to low income families and seniors. 

Child care funding is frozen for the fourth straight year, making 

it more difficult for families who are struggling to find someone to 

care for children while they go to work. 

These are a few examples of the policy decisions that will have 

a devastating effect on real families across this Nation. They are 

not just numbers on a page. These decisions make a real difference 

for families who struggle to feed and care for their children. With 

this budget the President has turned his back on these families, 

and the President talks about a budget, this budget will put us on 

a path for cutting the deficit in half is simply not honest, but dishonest. The administration has left out key costs, ongoing military 

operations, privatizing Social Security, and when you take a look 

at the long term we are talking about saddling our children and 

grandchildren with the kind of debt that is immoral. The cost of 

the deficit should not be borne by those who are least able to afford 

it. 

Budgets are moral documents, which reflect the values and the 

priorities of this great Nation, and I will quote you the Catholic 

bishops: The obligation to provide justice for all means that the 

poor have is the single most urgent economic claim on the conscience of this Nation. And the more that I hear this administration’s justification for the harsh decisions that are in this budget, 

the more I believe that there truly is no justification. This budget 

is not only dishonest, but simply reflects the wrong values and the 

wrong priorities of this great Nation. 
34

Mr. Chairman, I yield back the balance of my time. I have no 

questions. 

Chairman NUSSLE. I thank the gentlelady. Mr. Wicker for 5 minutes. 

Mr. WICKER. Thank you, Mr. Chairman. I want to thank you and 

the administration, Director Bolten, for having the courage to come 

forward with a proposal, which we will see specifics of in more detail, concerning Social Security individual accounts. And I want to 

remind members of the committee of a quote from Albert Einstein 

when asked what was the most powerful force on the face of the 

Earth. He answered that the most powerful force on the face of the 

Earth was the power of compound interest. And that is what the 

administration is talking about and that is what talented members 

like Mr. Ryan, who is a member of this committee, have been proposing for some time now when it comes to giving workers an opportunity to put more of their money in individual accounts. 

My friend from Kansas mentioned setting aside Social Security 

money in a way that government spenders couldn’t get their hands 

on it. I would submit to you, Mr. Director, and to the members of 

the committee that the best way to do that is to put the money in 

an account controlled by the individual where it would be able to 

accumulate funds and also that great power of compound interest, 

and certainly in that instance the government would be prevented 

from tapping into millions and millions of nice locked boxes that individual taxpayers would have. 

I understand that the administration is going to come forward 

soon with particulars about individual Social Security savings accounts and that details will include the fact that the proposal will 

be entirely voluntary, that individual workers now will not have to 

participate in this at all if they do not want to, that it will guarantee at least the same benefit that we are promising now with the 

Social Security Administration and the Social Security laws as they 

are currently; that there will be no tax increase involved; that 

there would be no increase in the retirement age; and that the goal 

would be to give workers upon retirement significantly more than 

they are promised now or that they can expect now under current 

law. And I think it is really unconscionable, Mr. Chairman, and 

Mr. Director, for the government to promise a Social Security return on investment of approximately 1 to 1-1/2 percent when we 

know we can do better. Of course, for some individuals, depending 

on where they live and the demographic groups, the return is actually less than that. Sometimes it is a minus figure. And when we 

can do better and give retirees more money upon retirement than 

they are getting now, I think we certainly can do that and it is incumbent upon us to do it. I think we can do it, Mr. Director, without a cut in benefits. I think we can do it without forcing a change 

in the cost of living adjustment, as the ranking member just discussed. 

I think we can do all of these things, make it voluntary, give 

workers more on retirement and save the system in the end. How 

can we do it? Is it the magic the chairman was talking about when 

he said you can cut tax rates and increase tax revenue? We have 

proved that can happen. The magic in this proposal will be exactly 

what Einstein said and I repeat that. The most powerful force on 
35

the face of the Earth is the power of compound interest. I think we 

need to unleash that for the benefit of today’s workers so we can 

do better for them with this program. 

Let me ask you, we have been talking about the transitional 

costs. The Vice President said it will cost trillions. The question on 

a lot of people’s minds, can we afford these transitional costs? The 

question I would ask you, can we afford not to do this? And what 

is the cost of doing nothing and leaving the system as it is currently constituted? 

Mr. BOLTEN. Mr. Wicker, the best estimate of the cost of doing 

nothing right now is a present value unfunded liability of over $10 

trillion. So the truth is we cannot afford not to take action for comprehensive Social Security reform as the President has outlined. 

And I would add one other thing, and that is as we talk about the 

personal accounts, it is very important for people to realize that 

these are not new costs to the government. You are exactly right 

in saying that if somebody is worried about the government taking 

your money away and spending it on something else, the right 

measure is to give people their own money to keep in their own accounts. And that is not a new cost to the government. These are 

benefits that we owe later on that we are letting people keep today. 

When you talk about the transition financing cost, cost in my 

judgment is the wrong word. It is a financing element. It is a problem of having to deal with a slightly higher deficit as a percentage 

of GDP over the near term. If in fact what that does is make it possible for us to provide a better plan for retirees, let them keep their 

own money and permanently solve the Social Security fiscal disaster we have on the way, it is exactly the right thing to do. 

Chairman NUSSLE. Mr. Edwards. 

Mr. EDWARDS. Thank you, Mr. Chairman. If Republican colleagues want to privatize Social Security and have the right to 

argue for that, what is real is the Federal Government will have 

to borrow more than $2 trillion in the future to pay for that program. That is real. 

Mr. Chairman, in all due respect I think there is not a weatherman in America who has been less accurate than some of my colleagues in this House about budget projections. You know, what 

the American people are seeing today are some of the same architects of the three consecutive largest deficits in American history 

are now telling us it is good news that we all have a $412 billion 

deficit predicted. Keep in mind before this administration, the largest deficit in more than 200 years of American history was $292 

billion in the former Bush administration. Now what these same 

architects of these massive deficits are saying, well, our promise is 

to be able to fight the war on terrorism, the war in Iraq and the 

war in Afghanistan and to fund trillion dollar tax cuts and balance 

the budget. Well, that promise didn’t turn out to be true. Now we 

are making the new promise. Now over the next 4, 5 years, we are 

going to cut the deficit in half. I predict that promise will turn out 

to be as false as the promise of the last 4 years that we would fight 

a war on terrorism, balance a budget and have massive tax cuts. 

One of the reasons it is going to be false is that two of the largest 

expenditures, the Social Security privatization program and the 
36

payment for the war in Iraq are soon to be zero in this budget. 

That simply is not realistic. 

Let me comment on cutting the deficit in half. To use the analogy, that would be like my family saying we used to have a surplus. We used to save money every year. But my wife and I went 

on a spending spree for the last 4 years and then racked up, you 

know, $50,000 each of the last 4 years, which for our family would 

be an enormous debt. Kind of like the $412 billion debt is to our 

Nation. We go to our banker and say, Mr. Banker, if we can assume some of our largest expenditures for the next 4 years are 

going to be zero, we are going to be able to cut that $50,000 a year 

family deficit in half. There is not going to be a banker in America 

that would be impressed with that. I think when the American people think about what it means to take a $276 billion surplus, just 

4 years ago, turn it into a $400 billion plus deficit and then to say 

making a bunch of unrealistic assumptions saying you are going to 

cut it in half, I don’t think the American people are going to be impressed with that and I don’t think the markets are going to be impressed with that either. Let me say in my opinion, this budget is 

fiscally irresponsible and unfair to millions of working people. It is 

fiscally irresponsible because it will lock in massive deficits as far 

as the eye can see making us even more dependent on the Communist Chinese to fund our debt and upon other foreign countries 

to fund our debt. It will drown our children and grandchildren in 

a sea of deficits, and that is morally wrong. 

This budget is unfair to working families because it will cut 

nursing home care for seniors, health care for veterans and education loans for middle class college students while continuing a 

$200,000 a year tax break for those fortunate enough to be making 

a million dollars a year in dividends. Where is the fairness in that? 

Mr. Bolten, my question to you is this, this budget doesn’t keep 

up with inflation for veterans health care. So many of the veterans 

I have represented at Fort Hood for the last 14 years, 40,000 of 

whom have served in Iraq, are going to have less funding in real 

dollars for health care services at the VA. They are going to have 

to pay $250 a year for an enrollment fee if they make over $30,000 

a year if they have a spouse and one child, and they are going to 

have to pay more than double for prescription drugs. I understand 

the sacrifice this President has asked for our veterans. Specifically, 

tell me what sacrifice this budget asks those Americans making a 

million dollars a year in dividend income this year who received a 

$200,000 tax break because of your proposals. 

Mr. BOLTEN. Let me talk first about veteran spending, because 

I think the President’s record on spending on veterans health care 

has actually been very strong, and if I could ask for chart No. 18 

up here, what you will see is that the President’s proposals over 

the course of his 5 years now have resulted in a 47.6 percent increase over 5 years on spending in veterans health care, and that 

includes a substantial increase this past year. We believe we are 

serving a larger number of veterans better than they have ever 

been served before. We are asking for an increase in some fees for 

Category 7 and 8 veterans, an enrollment fee and increase in their 

drug copay from $7 to $15. I think most ordinary folks would consider that still a very reasonable request to be made and one that 
37

the system ought to be able to bear. But I think the President’s 

record on spending of veterans health care is very strong and we 

are doing a good job with those folks. 

Mr. EDWARDS. You are not keeping up with inflation this year in 

this year’s budget. 

Mr. BOLTEN. I believe we are and we are keeping up with what 

we think the needs are in the veterans medical health care system. 

A nearly 50 percent increase over the last 5 years I think is a very 

substantial increase. And just as importantly, I think the Department of Veterans Affairs is doing a good job in providing quality 

care, reducing the waiting time for adjudication of appeals and 

such, and I think they deserve a lot of credit rather than criticism 

for the job they are doing for the veterans of this country. 

Second, the tax cuts that you referred to are in large part responsible for the restoration of economic growth in this country. The 

reason why we ended up in the deficit situation that you are quite 

properly very concerned about, as are we, the principle reason we 

ended up in that situation is the flagging of economic growth, a 

burst stock market bubble, a recession. All of these had a tremendously negative effect on our revenue receipts in this country, declined for 3 years in a row, and therefore on our budget situation. 

The key factor that will bring this budget back to health along with 

restraining spending is good economic growth. That economic 

growth comes from a variety of factors. One of the reasons why we 

have had the good strong growth in the last few years is precisely 

because of the President’s tax cuts, and that includes the dividend 

and capital gains cuts, which most economists will tell you are the 

most effective bang for your buck in restoring economic growth. 

Mr. EDWARDS. You are not asking for any sacrifice for people who 

are making a million dollars a year in dividend income. 

Chairman NUSSLE. Mr. Garrett. 

Mr. GARRETT. Thank you, Mr. Chairman. I appreciate your work 

on the budget. I guess it is surmountable. A couple of quick points 

and the last one—first one has already been touched a little bit and 

that is with regard to the veterans. You pointed out it was a 50 

percent increase in veterans spending increase in the last 4, 5 

years. It was about a 15 percent increase in spending just over the 

prior year. But I do hear that charge from the critics and the media 

already that we are cutting spending for veterans. So the short answer to this when I go back to speak to veterans groups is to the 

allegation of cutting spending, the answer is, we are not cutting 

spending, is that correct? 

Mr. BOLTEN. That is correct. In fact, there have been very substantial increases over the course of this administration in spending on veterans’ health care. 

Mr. GARRETT. The short answer is as far—and you have addressed one issue—is as far as the health care side of the equation, 

I believe we have also reduced the amount of time, the amount of 

waiting time for veterans who are waiting 6 months or longer for 

getting health care services over the last 5 years from—almost a 

95 or 99 percent reduction; is that correct? 

Mr. BOLTEN. I don’t have the precise details off the top of my 

head, but one of the great accomplishments of Secretary Principi 
38

during his tenure in the Department of Veterans Affairs was to reduce that waiting time dramatically. 

Mr. GARRETT. I mean, I fundamentally feel that one of the chief 

responsibilities of the Congress and of the Federal Government is 

to first just protect and defend our borders and then to take care 

of those individuals who are doing the job for us now, and in the 

past as well, because we are not going to be able to get a fighting 

force in the future if we don’t take care of those who have taken 

care of us in the past. 

So I think it is fundamental. I think this is a thought that is 

shared from both sides of the aisle. I think the administration has 

stepped up to the plate on that, and so I am encouraged to hear 

we are going to do that in the future. 

The second area, just a quick one, the President has spoken with 

regard to relief, tsunami relief in countries. Now, I have not had 

the ability to go through that entire sealed package up there to see 

how this should be taken care of. 

My belief is this should be taken care of in offsets by whatever 

amount of money we are going to finally provide. Is that addressed 

in the budget, or will that be addressed through the 

supplementals? 

Mr. BOLTEN. I will save you from going through the sealed package. The tsunami relief will be addressed in supplemental funding. 

It is something that is urgently upon us and I expect will be part 

of the package that the administration sends up in the next few 

days. 

Mr. GARRETT. Has the administration made any thoughts with 

regards to the offsets for that amount? 

Mr. BOLTEN. It will be part of a roughly $81 million supplemental proposal, principally for the war in Iraq and Afghanistan. 

We have not attempted to propose offsets for any part of that. 

We, of course, happily would entertain any suggestions on offsets 

that ought to be taken, but we think our first priority is to get the 

needs met that are saving lives and saving communities out where 

they have been affected by the tsunami. 

Mr. GARRETT. Well, since I have a minute here, I will throw 

them out so you can entertain them when you go back, and that 

is that any money that we are going to be providing them should 

be a contribution from this generation and not to a future generation. So if we are going to be providing them over $350 million of 

assistance, which I think is an appropriate amount that we do, that 

this should be coming from today’s citizens and not being borne on 

the backs of our children or future children, and, if that would be 

the case, simply adding to the deficit. 

So a simple solution would be for each department to be spreading across the board evenly and each department can look within 

its own current fiscal budget to decide where they can shave that 

off their operating from waste, fraud, abuse, or otherwise. To each 

department, simply says that is what their contribution of the 

American government will be to them. So I would appreciate if you 

would consider that. 

That is all. I yield back the remainder of my time. 

Chairman NUSSLE. I thank the gentleman. 

Mr. Ford for 5 minutes. 
39

Mr. FORD. Mr. Chairman, thank you. It is good to see you, my 

friend and alma mater mate and neighbor, Director Bolten. 

Let me jump into two things. One, the comments that Chet Edwards had, Congressman Edwards had about the veterans’ piece. 

I am curious. Your comment was a strong one about what you are 

doing for veterans. I think it is important to note that the administration’s numbers are $732 million below what it would take to 

keep track with inflation alone. 

That doesn’t include Iraqi veterans coming back home. So as excited as the administration is about those things, I think it is important to keep a lot of this stuff in context. 

What I want to do is just talk briefly about what this does to my 

State. Now, when you consider education, I know we talked about 

increases, and you all are excited about the increases. But in my 

three largest school districts in Tennessee, including Memphis in 

my own district and Nashville where Jim Cooper is from in Knox 

County, You have shortfalls of 36 million in Memphis, 15 million 

in Nashville, and 8 million in Knox County, or Knoxville. 

All of this is going to be compounded by vocational education 

cuts and the elimination of a TRIO program which has helped 

thousands of kids across Tennessee, and, for that matter, the Nation. 

I know the President eloquently said in a meeting with all of the 

Cabinet secretaries—and I believe you were there Director 

Bolten—that the American people want us to spend money on programs that work, and I agree. Yet there seems to be a disconnect, 

because you all are cutting programs that are working. 

The COPS program, which we in Tennessee have used to hire 

more than 2,300 police officers and sheriffs, appears to be working, 

because crime is down. Now, you may not say COPS had something 

to do with it, but when the economygrows you all attribute it to tax 

cuts, so I am going to assume because more cops are on the street 

and crime is going down that COPS has something to do with that. 

You talk about veterans’ affairs. I mention it again, because of 

all the things to be cutting—and Chet mentioned it so well—forcing 

people who make more than $30,000 a year to pay a $250 fee to 

get into a drug program. 

I mean, all my friends on the other side, we just know that is 

unfair. It is not night. Your kids, nieces, nephews and neighbors 

over there—I know all of you know somebody that is over there 

from your district or family—it just doesn’t seem right to me we 

are doing those kinds of things. 

Not to mention the number of Guard and Reserve members that 

are over there. You have 9,000 from my State. They are all concerned about health care. There is a backlog of people trying to get 

appointments at hospitals, the backlog of people trying to ensure 

that they are reimbursed and that payments are made. It is just 

hard for me to believe that we sit here and we pretend that somehow or another all this spending that we are doing in the President’s lean budget is to take care of all these things. 

Now, I can respect the fact that your priorities are different. As 

a matter of fact, I think we can all run on those things. You all 

have a set of priorities. We have a set of priorities. 
40

You happen to believe the $2.5 trillion budget is the best we can 

do. And, Mr. Bolten, I imagine or venture to say that that comment 

you just made about veterans is going to be seen in my State and 

some other places—when you say we are doing the best we can by 

veterans and the best we can by servicemen and women. I don’t 

think we are, and they don’t think we are. 

But that being said, those are your priorities, and I hope you are 

willing to defend them. Because if you give me the choice of providing any kind of a break to someone earning over $1 million or 

$2 million in dividend income versus making it where veterans 

don’t have to pay a copay or where veterans don’t have to pay $250 

to insure their part of a—or, I should say, prescription drug care 

program, I am going to side with the veterans. 

You can call me a liberal. You can call me whatever you want 

to call me, but you are not going to be able to call me unfair when 

it comes to veterans. 

Now your predecessor, our friend Mitch Daniels—remind you, he 

is a new Governor—the first thing he did—Chairman Nussle, you 

talk about taxes—he raised taxes. Why? Because Governors can’t 

do what we can do. They can’t just borrow indefinitely. 

I have a Governor faced with a big problem called TennCare, 

which we hope CMS and others will give us a little relief on. He 

doesn’t have the advantage that we have here. He can’t just keep 

borrowing against my kids, who I don’t have yet, and their kids 

when they do have them. He has to balance the budget. 

Mitch Daniels, your predecessor, he has learned a sharp, stark 

reality. Now that he is Governor, he has to balance the doggone 

budget. What is he doing? He has to raise taxes. 

Now, I have a question for you, and I know I have done a lot of 

talking here, and you have said a lot of things that kind of tickle 

me a little bit. When you said that the budget—I think deficit—

is a slight decrease and a large increase—I am going to use that 

one, too. But I want to ask you this question: Is there such thing 

as a tax cut that doesn’t work? Because I am curious, I like tax 

cuts, too. But at some level, I don’t know if we are getting the bang 

for the buck. You may say the growth has produced all of that, but 

we keep spending more and more. 

Is there ever an instance where we could find a tax cut, we could 

find a better tax cut, like cutting taxes for 94 percent of people in 

my State who earn under $100,000 a year or the 65 percent who 

earn beneath the national median income who aren’t affected by 

the $1 million in dividend income which we cut taxes on? 

Is there ever such a thing as a tax cut that doesn’t work? And 

maybe we should switch and provide tax cuts to those who actually 

need them, whether it be in the form of prescription drug care for 

veterans, education funding for local school districts, or even that 

mom and dad who are working their tails off, a tax cut for them 

who earn $50,000 a year. 

Mr. BOLTEN. Economists will tell you that tax cuts will have a 

variety of effects depending on what the tax cuts are. The tax cuts 

that Mr. Edwards referred to economists consider to be among the 

most effective in restoring economic growth; which actually is the 

best antipoverty plan we have got—to make sure we have a growing economy and people can get jobs. 
41

Let me point out one fact about the President’s tax cuts, and that 

is the effect of them has been to make the Tax Code more rather 

than less progressive. If you take the top 5 percent of earners in 

this country, that is, people making more than about $140,000 a 

year, without the President’s tax cuts, they would be paying about 

less than 52 percent of the total income tax taken in this country. 

After the President’s tax cuts, they pay about 54 percent, a little 

more than 54 percent. 

Mr. FORD. That number is 140,000 or above? 

Mr. BOLTEN. That’s correct. 

Mr. FORD. Ninety-four percent of people in my State make less 

than 100,000, because——

Mr. BOLTEN. That is exactly right. Those who are in the bottom 

50 percent of earners under the President’s tax cuts, their share of 

the total—they got a tax cut too—their share of the total income 

tax burden went down from 4-point something to 3-point something 

percent of the total income tax taken in this country. 

So the effect of the President’s tax cuts, while everybody got a 

cut, was to not make the Tax Code less progressive, it was to make 

the Tax Code more progressive on balance. 

Mr. FORD. Mr. Nussle has been kind—but that doesn’t take into 

effect the increases in local and State taxes, I would imagine, because my property taxes have gone up in my district. All those 

folks at 50,000 or less who benefited from that tax cut are seeing 

those increases that States have to show. 

I appreciate your answer, but reality is when you pay taxes, you 

don’t care who you are paying it to, you have got to write the 

check. 

Mr. BOLTEN. Well, that is right. I think that is why what we are 

dealing with here is the Federal Income Tax Code, which the President has made more progressive, but why I think States need to 

watch their revenues as well. By the way, State revenues, along 

with the economy, are responding very well. The State revenues 

are up. 

Mr. FORD. Mr. Chairman, thank you for the time. 

Chairman NUSSLE. The gentleman from Florida, Mr. Diaz-Balart.

Mr. DIAZ-BALART. Thank you very much, Mr. Chairman, 

I am always amazed at what I hear in the press and what I hear 

even today from my dear friends, the Democrats. 

Mr. Bolten, of course, has had to deal with it also all day. 

I hear complaints that the deficit is too high, and I share that 

concern. Then sometimes in the same breath, we hear that the 

President is not spending enough. You know, it doesn’t take rocket 

science to understand that if you are concerned about the deficit, 

you either have to raise taxes or cut spending. 

What is very interesting for me to hear is that the same people 

who complain about a high deficit then complain about not enough 

spending by this budget. 

I just want to read, Mr. Chairman, something that I got off of 

an Internet Web page. If you will bear with me, it says the President is committed to ensuring that all domestic discretionary 

spending, excluding Defense and Homeland Security, does not grow 

any faster than inflation. Continues on later to say that this person—obviously the President here—discretionary spending pro-
42

posals will be paid for by freezing or cutting nonpriority programs. 

It is paid, the priorities—I want to make sure I am not misunderstood here—I may have said the President. No. This was a person 

who was running for President. Who every single one, as far as I 

know, of my friends on that side of the aisle supported in the Web 

page—on the Web page it says what I just quoted. 

Yet when the President proposes a budget that actually is very—

does just that, all of a sudden it is the sky is falling again. 

I guess, Mr. Chairman, to again quote a very popular phrase by 

a very well-respected Democratic leader, and paraphrasing a little 

bit my friend, the Democrats—I guess they support restrained 

spending before they oppose it, and in the same breath. 

Again, it is just an amazing thing to me to see, for us to witness 

here, live on national TV and in person. 

Mr. Bolten, thank you for your testimony. I think it has been extremely enlightening. One of the things that a lot of us are concerned about, as well as the President, is to make sure that we protect the American taxpayer and the beneficiaries who are supposed 

to receive the benefits. And you and the President have implemented a variety of tools to do so, including, again, to look for efficiency and effectiveness in the programs. 

One of the most important tools I think that the President has 

implemented is the so-called Program Assessment Rating Tool, 

known as PART. It is obviously to rate the effectiveness of the government programs in order to make sure that—to help them form 

management and spending decisions. 

By the way, I want to thank you and others for your leadership 

there, and others like Clay Johnson who we work with quite a bit, 

we harass quite a bit. 

Did this program, PART, play a role in developing this budget, 

number one? Number two is how can Congress better utilize that 

system that you all have spent so much time and effort developing 

to also do a better job in prioritizing our spending in the future? 

Mr. BOLTEN. First of all, Congressman, I know my deputy, Clay 

Johnson, has very much appreciated the opportunity to work with 

you on improving the measures by which the government decides 

what is working and what isn’t. That is our PART program. 

What we have tried to do is systematically go through all the accounts in the budget and do an assessment—what are these programs doing, what are they supposed to do, are they meeting their 

objectives—and apply some neutral criteria to these analyses. 

We do that with PART ratings. Those are now ever more integrated into the budgeting decisions we make. In each of the important budgeting decisions that has come up in the course of this administration, we have always asked the question, do we have a 

PART score; what is it; what is that telling us about the program? 

For Congress we make those PART ratings available. 

So I encourage you and the other members to draw on those ratings as you decide what ought to get funded and what ought not 

to get funded. There are a lot of tough choices to be made in a 

budget like this. 

Mr. Ford referred to a bunch of them that we have to decide—

well, OK, we can fund a little more here, but that means that we 

have to dial down somewhere else. We have tried very hard to 
43

make those choices based on which of the programs is performing 

best in accomplishing the objective. That is what the PART ratings 

do, and I thank you for raising it. 

Mr. DIAZ-BALART. Thank you, Mr. Chairman. 

Chairman NUSSLE. I thank the gentleman. 

Mrs. Capps for 5 minutes. 

Mrs. CAPPS. Thank you, Mr. Chairman. 

Director Bolten, I have a question about the $45 billion in Medicaid cuts in this budget. And I am recalling Chairman Nussle’s 

son’s allowance for these purposes. Let us assume that the $5 he 

gave his son last year was for health care. 

Chairman NUSSLE. Don’t get his hopes up it is going to be that 

high. 

Mrs. CAPPS. This year his health care allowance costs are $10, 

and he is only given 9. That is what we are talking about in the 

arena of cuts. My question is based on three realities: 

First, spending on the Medicaid program has been growing, but 

a large part of that growth is due to enrollment increases. Specifically, enrollment increased by over 8 million, almost 8.5 million enrollees, between 2000 and 2003. These enrollment increases were 

driven by what you referred to as the recent recession and subsequent loss of income and job loss, as well as drops in employersponsored insurance. And in this case, then, Medicaid did exactly 

the job it is supposed to in such a situation, which is to serve as 

a safety net. Without Medicaid, the increase in the number of uninsured would have been very much larger than the 5.2 million increase in uninsured we have already seen during President Bush’s 

tenure. 

Second, growth in Medicaid spending reflects the overall problem 

of rising health care costs all across the board, which is an issue 

for all health insurance, private and public, and not specifically 

Medicaid. In fact, according to The Urban Institute, Medicaid percapita spending grew at an average annual rate of 6.1 percent over 

2000 to 2003, far better than the private health premiums, which 

rose over 12 percent annually during that same time period. 

So, finally, we are looking at Medicaid cuts as merely shifting the 

costs. The cost will either be shifted to the States, or to the beneficiaries who can ill afford them, or to providers in the form of 

lower payment rates. 

My question to you is: Under these spending cuts, to whom are 

you shifting the cuts? Do you envision that States will have to pick 

up more of the costs? Do you expect States to cut payment rates 

to providers, or do you imagine that beneficiaries are going to have 

to pay more out of their own pockets? 

I have here the image I would like you to reference, which is that 

of working parents anxious about their children’s college education, 

whose own parents are Medicaid recipients in nursing homes facing 

the cuts that this proposal will entail. 

Mr. BOLTEN. Let me ask for my chart 12 to be put up to show 

the magnitude of the numbers we are talking about. Mrs. Capps, 

what we are looking at here is a situation—the green line is the 

lower line, the just barely lower line. The blue line is our current 

estimate of the trajectory of Medicaid spending. 
44

If the President’s proposals are adopted, we would end up at the 

green line in Medicaid spending. That is a reduction from 7.4 percent growth per year to roughly 7.2 percent growth per year. 

So we would still propose to meet the expanding expectations in 

Medicaid, but at a slightly reduced rate. Most of these savings are 

expected to come from insisting that the States receive the right 

amount of reimbursement from the Federal Government. 

There are a lot of mechanisms there used to dial up the reimbursements they get. We are just trying to ensure that the Federal 

Government pays its appropriate share of Medicaid funding. 

Much more important than all of this, though, is the Medicaid 

reforms that Governor Leavitt talked about in his speech last week. 

I commend that to you, because I think it was a very important 

speech, and I think it will be a very important proposal when it 

comes out in full detail. 

The purpose of that is to give the States more flexibility in how 

they spend their Medicaid money, because we are not making the 

best use possible of that money that we could. If we give the States 

more flexibility in spending that money, they are likely to be much 

more effective in treating more of the most needy people in a more 

effective way. 

Mrs. CAPPS. Well, let me just refer to Secretary Leavitt’s home 

State of Utah and the flexibility that was used there, which meant 

that in his State, some Medicaid-qualifying adults were not even 

allowed, or are not even under that plan, allowed to have their inpatient hospital care covered. 

Does this notion of flexibility that the States are going to be able 

to use—does it mean that they are going to be cutting prescription 

drugs offered to Medicaid recipients or low-income pregnant women’s prenatal health care, whatever the areas that this is being 

touted as being such a magic bullet for? 

Mr. BOLTEN. Well, I think most Governors will agree that the 

flexibility allows them to target the funds where they are most 

needed to where they are most useful. The system right now is relatively hidebound and inflexible and provides funding for things 

that many Governors think are not their highest priority. We want 

them to be able to allocate funds to their highest priority. 

Let me mention one other thing that is in the President’s budget, 

and that is an effort to make sure that all the kids who are eligible 

for SCHIP funding get signed up. We are putting $1 billion into 

that initiative, I forget over how many years, but it is a substantial 

initiative to get more of the kids who are eligible for SCHIP funding signed up. Our budget numbers reflect an increasing number 

of SCHIP members in the program that actually expands—expands 

Medicaid funding slightly. 

Mrs. CAPPS. Thank you, Director. 

Mr. Chairman, if I could just reference. I applauded also when 

I saw SCHIPs funds going up. That is another example of shifting 

costs that is going to come from seniors in nursing homes most 

likely, or some other, because of the huge numbers of the costs that 

are implied—entailed with seniors in nursing home cost care, for 

their care. 

Thank you. 
45

Chairman NUSSLE. Yes, Mrs. Capps, since you referenced my 

son, let me just say that we have got to get a handle on the costs. 

I mean if my 14-year-old son’s costs were growing faster than his 

growing allowance, I would build me a woodshed, as the saying 

goes, because we want to get a handle on this. 

So I understand that there will be some complaints. But as the 

Director’s chart clearly shows, we are going to increase the funding. 

It is a matter of trying to begin to slow the rate of growth by finding cost savers, and I understand that you believe that is going to 

be a tough job. It is a tough job, and we need to do it. We can’t 

allow it to continue to grow out of control. 

Ms. Ros-Lehtinen. 

Ms. ROS-LEHTINEN. Thank you very much, Mr. Chairman. 

I am very pleased to be a new member of your committee, and 

I thank you for the opportunity. 

Chairman NUSSLE. The gentlelady is recognized for half an hour. 

Ms. ROS-LEHTINEN. Thank you, sir. 

I am also pleased to have Mr. Bolten here, because I have a very 

important constituent in my congressional district in the tip, in the 

southernmost tip of my district, Key West. 

Mr. Bolten’s mom resides there, and so I am always treating very 

carefully the children of my constituents. 

Mr. BOLTEN. In addition to your half hour, that is an extra billion. 

Ms. ROS-LEHTINEN. There we go, thank you. 

But I wanted to follow up on a statement that you made, Mr. 

Chairman, and my good friend Lois, and that is about the coverage 

that we are giving to needy children. We have got such great programs that are included in the President’s budget that truly do reflect the values of our caring society. The President’s budget has 

this cover the kids’ program, which is $1 billion in grant money 

over 2 years to help coordinate with the Federal, State, and local 

community and all of these programs. 

I think that more should be highlighted about the great innovations that are in this President’s program. I just wanted to highlight that in my district that is going to be very important. 

But I am on the International Relations Committee. I wanted to 

ask you about some—two topics related to our committee. One is 

the global HIV/AIDS initiative. I think the budget funds this unprecedented program. 

The President’s compassion is reflected in the budget numbers, 

and I want to congratulate him for that. He has made that one of 

the centerpieces of our international relations cornerstones of this 

program, and I think that it is meritorious of highlighting it that, 

once again, it is in the President’s budget. It is $3.16 billion, and 

I congratulate you for that. 

I wanted to ask you about how we know how those funds are 

being implemented, how do we engage success on that? And if we 

have any time left over, on the Millennium Challenge Corporation, 

another innovative program that goes to the very poor countries—

they need it very much and it is a great increase for those countries. That is the best way that we can promote freedom and democracy. That is, to make sure that the economies of those coun-
46

tries are self-supporting, and we have got to help them with their 

health care problems as well as helping them to rise out of poverty. 

I think the President’s international affairs budget helps us to 

reach that goal. 

Mr. BOLTEN. Thank you, Congresswoman. Thank you for raising 

these issues. I am sorry Ms. DeLauro was not here to hear you talk 

about that because these are two initiatives of which the President 

is very proud, and do reflect the great heart that America has, and 

the President’s initiatives of promoting freedom and development 

around the world so that we are safer at home and people are better off abroad. 

The AIDS program that the President announced, I think, 3 years ago—and he announced a $15 billion 5-year program to combat AIDS internationally—I think it is turning out to be a tremendous success. It is a very rough world in which to be operating. The 

Congress has stepped forward and given the President ample funding for that. We are ahead of pace to meet the President’s goal of 

$15 billion over 5 years. You have referenced that we are at almost $3.2 billion in this 

proposed budget. Much more important than the dollars is the effect that this program is having on lives. All of the reports we have 

been getting back from the field is that there are tens of thousands 

of people now able to live normal lives who are HIV-infected, who 

are able to live normal and productive lives, who are not leaving 

behind orphans, and, most important, are not spreading the disease elsewhere. So there is great success out there. 

We have asked Ambassador Tobias, who is the head of our operation there, to do his best to give us metrics about how to measure 

the success we are achieving. But I think he and his counterpart 

in the global AIDS fund, Mr. Feacham, are doing a terrific job addressing an urgent international crisis in a way that does reflect 

the good heart of the United States and all the contributors to the 

global fund. 

Ms. ROS-LEHTINEN. Just quickly in my remaining 5 minutes, the 

Millennium Challenge Corporation. 

Mr. BOLTEN. The Millennium Challenge Corporation is indeed a 

way to approach foreign aid. The President’s proposal was that we 

target our foreign aid to those countries who are stepping up in 

other ways to make sure—that helps ensure that the aid is well 

used. So we are putting our aid money into countries that are attacking corruption or are attacking mismanagement, and that we 

know that we are not just pouring aid money down a dark well, 

which has been a criticism of aid funding in the past. 

So it is targeting the money where it is likely to be most useful 

and targeting aid money in countries, developing countries that are 

likely to put them on the best path to development. It is an innovative approach to foreign aid. The President has requested for this 

year $3 billion in that account. That is twice what the Congress appropriated last year, so it is one of the biggest increases in this 

budget for this important program of compassion and development. 

The President’s goal was to reach $5 billion in funding for that 

program this year. We are slower in the funding than we would 

like. The President is still expecting to meet that goal next year. 

It is very important for these countries. I think it is very important 
47

for the national security of this country that we step up and meet 

all of our responsibilities overseas where we can and where we can 

be confident that we are making good use of those dollars. 

May I take another minute of your 30 to make a comment about 

the President’s commitment to oversees development assistance? 

The core development assistance in 2006 under this President will 

have risen to $19.8 billion. 

That is an increase of $8.2 billion over what was enacted in just 

2002. That is about a 71 percent increase. The President’s commitment on the national security side and the overseas development 

side has been unprecedented, I think is leading the world, and I 

think we will go a long way toward making sure that we are living 

in the kind of safe world that will not require the sorts of war funding that we are now having to experience. 

Ms. ROS-LEHTINEN. Those dollars are an investment in our national security. 

Mr. BOLTEN. They are. 

Ms. ROS-LEHTINEN. Say hi to mom. 

Thank you. Thank you, Mr. Chairman 

Chairman NUSSLE. I thank the gentlelady. 

Mr. Cooper for 5 minutes. 

Mr. COOPER. Thank you. 

Director Bolten, you have put a very pleasant face on some pretty draconian budget cuts. The President’s budget really depends on 

one thing. This giant budget project you just completed really just 

depends on one thing; that is, whether Wall Street will buy it. 

You mentioned a couple of times today, and I think you mentioned yesterday in your press conference, that you feel that Wall 

Street has given it a pretty positive reaction. In fact, I think today 

you even used the word ‘‘applaud,’’ applaud the idea that our government would continue to be borrowing billions and maybe trillions of more money, increasing the national debt beyond anything 

our forefathers could have imagined. What worries me about this 

is that you mentioned Wall Street approval. 

It kind of sounds like it is a Good Housekeeping Seal of Approval. That worries me because even though Wall Street may be 

happy, I am worried that Main Street probably shouldn’t be happy, 

because I am not sure a lot of folks on Main Street understand how 

Wall Street bankers work. 

Now, I used to be an investment banker, you used to be one. 

When you borrow money on Wall Street, it is not like Wall Street 

bankers are loaning you their own money. They are loaning you 

other people’s money, right? In this case, even as big and as rich 

as our Wall Street banks are, they wouldn’t have enough of their 

own money to loan us all the money that we need. They have to 

go to other sources of capital, right? It worries me because Wall 

Street really doesn’t care what interest we pay on our borrowings, 

as long as they find a buyer for the bonds, as long as they complete 

the transaction, right? 

Wall Street isn’t being so helpful because they are all patriotic. 

They are good folks and many of them are patriotic. I have got 

nothing against Wall Street, but this is the way business works. 

They would loan money to the worst dictatorship on the planet as 

long as they found a buyer for the debt, right? 
48

So Wall Street really doesn’t care who loans us the money as 

long as somebody does, as long as they earn their precious fee. So 

in many ways, the ideal transaction from a Wall Street standpoint 

is to get the Chinese or some other country to buy the whole thing, 

to buy all the bonds in one gigantic private placement, as long as 

they earn their fee. 

Because, Director Bolten, you and I both know on Wall Street 

there is a famous phrase, ‘‘There is no such thing as a bad deal, 

there are only bad fees,’’ by which they mean low fees. 

I think that should give the average American on Main Street a 

little bit of pause, because when you say that Wall Street applauds 

what you are thinking about doing here, it is like throwing red 

meat to sharks. Of course they are happy. If sharks had hands, 

they would be applauding, but that doesn’t necessarily make it 

right. 

This administration could decide to sell Wall Street the Lincoln 

Memorial and the George Washington Monument on our Mall to 

Wall Street, and as long as Wall Street found a buyer, even the 

Chinese, and we were able to put up advertising all over it, why 

then Wall Street would be happy. 

So I would urge you, and also Secretary Snow in your statements, to be very careful when you mention Wall Street approval 

or acquiescence or applauding. It doesn’t necessarily mean what a 

lot of folks back home might think it would mean, because these 

folks are not about to loan us their own money, and they don’t really care whether the transaction is good for the Nation or not as 

long as they earn their fee, right? 

Mr. BOLTEN. Mr. Cooper, you are raising an interesting caution, 

but I think you have misunderstood what I was trying to say. I was 

responding to a question about how Wall Street would react. Because, first of all, I can guarantee you that the President cares a 

whole lot more about Main Street than he does about Wall Street, 

just ask him, anytime. 

Second, what is important about how Wall Street reacts to the 

Social Security plan and the additional financing that might be 

needed in the short run for transitional accounts is the point that 

whether Mr. Spratt or somebody was raising—which was, whether 

we would get a terrible reaction from the financial markets, Wall 

Street, from this additional borrowing, that is, would it cause interest rates to go up? So far we are not hearing that concern from the 

markets. Interest rates have not gone up in the course of the past 

few years. 

Mr. COOPER. Because the Chinese are funding our debt. Never 

have more foreigners funded our debt than they do today. 

Mr. BOLTEN. Yes, and to some degree it is important that we 

maintain the confidence of both the domestic and international 

markets in what we are doing. But one of the ways we maintain 

that confidence, and in fact the most important way I believe we 

can maintain that confidence—and this is the point I was making 

about Wall Street—the most important way we can maintain that 

confidence is by getting assurance that we are getting control of 

our long-term unfunded liabilities of our entitlement programs. 

The reason I say you would get applause is that if adopted as 

part of a comprehensive plan, the personal accounts and the rest 
49

of the comprehensive plan to address Social Security, if we did 

that, we would be giving both domestic and international markets 

confidence that we can deal with the long-term unfunded liabilities 

in our system with the fiscal danger that we face, not the perceived 

danger from the additional borrowing that personal accounts might 

require. That is why I referred to Wall Street, and only for that 

reason. 

Mr. COOPER. But Mr. Bolten, again you are giving Wall Street 

too much credit. As long as they earn the fee, as long as they sell 

their bonds, those folks will be happy and they will get big bonuses 

at the end of the year. You and I may care about substance, but 

the market doesn’t work that way. They care about completing the 

transaction, closing the deal. 

Chairman NUSSLE. The gentleman’s time has expired. 

The gentleman, Mr. Lungren, for 5 minutes. 

Mr. LUNGREN. Thank you, Mr. Chairman. Thank you for inviting 

me to this battle of the dueling charts. I appreciate it. 

Chairman NUSSLE. You ain’t seen nothing yet. 

Mr. LUNGREN. Mr. Spratt, I want you to know that I seriously 

took into consideration last week—you made a reference to my 

hair, so I went home and got a haircut before I saw my mom. So 

I appreciate that. 

Mr. SPRATT. I just thought Congressmen from California knew 

how to grow more hair. That is, I was impressed. 

Mr. LUNGREN. I listened very carefully to your conclusion of your 

statements where you talked about debt—our national debt may be 

an insoluble or intractable problem. I think I get a sense of why 

you may feel that way and why the folks across the country may 

feel that way. 

I hear the reticence from anybody on either side of the aisle to 

talk about cuts. We do everything we can to say that what we are 

going to do is not cut, can’t be considered a cut, doesn’t look like 

a cut. 

Well, where I come from, cut is not a four-letter word. The American people, it seems to me, are suggesting to us we have to get 

our fiscal house in order. It may, in fact, require us to look at some 

cuts. 

I thank Mr. Cooper for reminding me what it was like when I 

was here before. I feel like Rip van Winkle or maybe it is Groundhog Day. I heard these same arguments 16 years ago when the 

President was named Ronald Reagan, and he was being castigated 

for suggesting that we night actually have to restrain spending on 

the one hand and being blamed for the size of the deficit on the 

other. 

I note that Mr. Bolten has suggested that this is the first time 

that we have had nonsecurity discretionary spending reduced—you 

actually used the word—I think you said ‘‘cut,’’ someone must not 

have given you the language lesson before you came here—since 

the Reagan administration. 

Ronald Reagan once said that the best example of immortality on 

Earth is a Federal program. I think we are seeing that once again. 

My reflection, having been gone from this institution for 16 years 

and now coming back, is that everybody wants to be Santa Claus, 
50

no one wants to be Scrooge. I guess you are our designated Scrooge 

here today. Maybe we should thank you for that. 

In reference to the question about Federal programs, first of all, 

I would like to ask you two questions: 

The first one is this. Mr. Bolten, do you know, in the last 16 

years since I have been gone, has there been a single government 

program eliminated? If you can’t tell me whether there has, what 

I ask is that your staff prepare a list of all the Federal programs 

that have been eliminated over the last 16 years so that we might 

have that context to look at your proposals here today. 

Mr. BOLTEN. Mr. Lungren, we will give you that list. It is going 

to be a pretty short list. 

PROGRAM TERMINATIONS

The Office of Management and Budget does not track program terminations over 

time separately. 

This administration believes the Nation’s priorities can be met in a fiscally responsible way. As part of the President’s 2005 Budget, 65 programs were proposed 

for termination. The Congress concurred and ended funding for the following seven 

programs: 

Department of Commerce 

Technology Opportunities Program 

Department of Education 

Eisenhower National Clearinghouse for Math and Science Education 

Eisenhower Regional Math and Science Education Consortia 

Federal Perkins Loans: Capital Contributions 

Regional Technology in Education Consortia 

Department of Housing and Urban Development 

Public Housing Drug Elimination Program 

Department of Justice 

Local Law Enforcement Block Grant

The President’s 2006 Budget proposes to substantially reduce or terminate more 

than 150 programs that are not getting results, duplicate current efforts or do not 

fulfill essential priorities. These programs and the rationale for reducing or eliminating funding are presented in the OMB document Major Savings and Reforms in 

the President’s 2006 Budget.

Mr. LUNGREN. I would think so. That, you know, just goes to the 

question of the infallibility of Congress and the Federal Government itself. We seem to think that once we create a program, it 

must necessarily maintain itself. If you dare stop a program, it is 

because you are making an immoral judgment which reflects on 

our society in a bad way, when in fact we as parents make decisions every single day. 

My children are now adults, but when they were growing up I 

didn’t give them everything they wanted, nor did I perhaps give 

them everything that they needed, in one sense, because we 

couldn’t afford it at the time. No one said I was immoral, nor did 

I believe I was immoral. But to suggest that somehow if we come 

to grips with spending, we are making immoral judgments, is a 

strange way of looking at things, at least in my judgment. 

The other thing I would suggest is that we are the Federal Government, not the local government, and there are other levels of 

government that can do some things; that used to be known as the 

principal subsidiarity—as it used to be known in Catholic social 

doctrine—which suggested that that local government closest to 
51

you would be the one that was most effective in performing certain 

tasks, and that if they couldn’t do it then you moved up that chain. 

I have never heard that talked about. 

But that brings me to my last questions. I am here because of 

9/11. That is the reason I came back. Homeland Security, the preservation of our country the way it is, it seems to me, is the primary 

obligation of the Federal Government. 

Can you tell me whether this budget reflects that? That is, if we 

only have a finite amount of money, and our number one objective 

is to protect this Nation against terrorism or attack in other ways, 

should not the budget reflect a shift in priorities in that direction, 

number one? 

Number two, with respect to homeland security, can you tell me 

what this budget does, if anything, to deal with the problem that 

has gone unaddressed for over 3 years? And that is the problem of 

interoperability, the failure of our various first responders to be 

able to deal with one another. The costs to deal with that problem 

are large, and I couldn’t find whether this budget begins to address 

that. In all the discussion we have had about everything else, it 

seems to me that those are the kind of fundamental issues we 

ought to see reflected in a budget. 

Thank you. 

Mr. BOLTEN. Mr. Lungren, we will get you information about the 

interoperability. But your overall question about the shift in priorities is exactly on target. Homeland security wasn’t even an understood phrase before September 11, and it was not a major priority 

in the budgets of this country. Over the course of the budgets since 

September 11. Over the course of the last 4 years, this Congress 

and this President have increased Homeland Security funding by 

more than triple. The President’s proposal would take it well above 

triple. 

There is a net increase in proposed Homeland Security funding 

in this budget of close to 8 percent—I am sorry, a gross increase 

of close to 8 percent, offset by some increased fees. It does reflect 

the priorities. 

Now, are we doing everything we need to do as well as we need 

to do it? No, not yet. There is growing expertise in the government 

about how best to go about it. There is an enormous range of needs 

to pursue. But you can be sure that it is at the top of the President’s and the administration’s priority list, just as it is at the top 

of yours. 

Chairman NUSSLE. The gentleman from Maine, 

Mr. Allen, for 5 minutes. 

Mr. ALLEN. Thank you, Mr. Chairman. And thank you, 

Mr. Bolten, for being here. In looking over this budget in the 

time we have had, I was struck by several things. 

I would have hoped that this would be a budget that would help 

create a stronger, more competitive economy, and that is much 

more than about tax cuts. I also believe this budget should have 

broadened the prosperity in this country. 

But when I look at it and see that you are proposing new tax 

cuts for the wealthiest people, it is pretty clear that it doesn’t do 

that. 
52

Third, it ought to lead to a better future for our children, but we 

are instead burdening them with debt that they very well will have 

a very hard time digging out of. 

You know, I am just a new member of this committee. You know, 

I haven’t been to these sessions before. But when I look at this 

budget and what it does to my home State of Maine, some things 

jump right out. It will weaken Maine’s economy, bottom line. 

First of all, there is no destroyer in the 2007 budget for Bath 

Iron Works. So there is a gap. The DDX program is being delayed, 

there are fewer ships being organized. We have 6,000 people there. 

That will mean a significant loss of jobs. 

Second, the Medicaid program is being reduced. I can assure you, 

that is going to move some people out of nursing homes who need 

to be there. I know what Governors say when they hear the words 

‘‘flexibility,’’ and they hear ‘‘block grants,’’ and they know it means 

less money. 

Vocational education is being reduced. Job training is being reduced. What that means is that fewer people are going to have the 

opportunity to really become part of this economy. 

The Chairman said at the beginning that a reduction, a cut, in 

Washington is sometimes a reduction in an anticipated increase. 

Well, back home people have a real simple idea: If they can’t provide the same services year to year, they know that services are 

being reduced. It doesn’t matter what the number on some piece 

of paper in Washington is. If they can’t provide the same services, 

they are losing ground. 

You talked about tough choices. One of the tough choices though, 

I suspect, that wasn’t so tough for this administration is whether 

or not to keep that upper 1 percent, the people who earn $350,000 

a year or more, to make sure that they keep the $89 billion in tax 

cuts that they will get this year, $89 billion; make sure they keep 

that money instead of dealing with vocational education or Medicaid or Navy ships or support for small businesses, which is going 

to be harder to get with the Manufacturing Extension Partnership 

being reduced. 

We have some responsibility to each other on the government 

side to try to encourage economic growth. It is not just about tax 

cuts. At one point you said tax revenues take away from the economy. Well, I thought that school teachers were part of the economy. 

I thought that police and firefighters were part of the economy. I 

thought the young men and women serving in our military are part 

of the economy. I think this notion that the private sector has all 

the answers, and that is where all the energy comes from, is 

wrong. 

Let me just, if I could, call up chart 11, because I did want to 

touch on the Social Security issue before you finish. No, before I 

get to that, if I could make just one request of you. 

The budget, we understand, proposes more than 150 reductions, 

reforms and eliminations in nondefense discretionary programs, exactly the kinds of programs I was just talking about, which would 

save about 20 billion in 2006 alone. 

Can you provide this committee, if you don’t have it today, with 

a complete list of those 150 programs? 

Mr. BOLTEN. Yes. 
53

Mr. ALLEN. Would you do that? 

Mr. BOLTEN. At the outset, the Chairman made a similar request, that we do it as one full package with an explanation for 

each of the cuts. So I assured the Chairman that we would put together a package like that, and we will have it available to the 

committee shortly. 

Mr. ALLEN. Thank you. Thank you. 

If I could call back chart 11. This is one analysis of what happens with the President’s Social Security privatization plan—reflecting debt as a percentage of gross domestic product. The Vice 

President said the other day that it would cost trillions of dollars 

in new debt, trillions of dollars, in order to put Social Security privatization in place. 

You have talked a little bit about Wall Street analysts. But, you 

know, the economic report of the President every year has wildly 

overpromised the number of jobs that would be created by these 

tax cuts. We have all the promises made at the outset on Iraq. 

I mean, as you look at this chart, do you see the risk that is 

there in moving toward privatization and having to borrow all of 

that money that you have to borrow inevitably over the first couple 

of decades and beyond? I mean, that money has to come from somewhere. It is coming out of the private markets. And wouldn’t that 

necessarily mean slower economic growth? 

Mr. BOLTEN. No. First of all, I am not exactly sure what data are 

used for this chart. But the answer is that 

we face an enormous unfunded liability in our Social Security 

system if we don’t do something about it. 

The personal accounts, which, as I have emphasized before, are 

a mechanism that allows people to keep more of the benefits they 

will receive later. To keep the benefit now, let it grow faster than 

it would in the Social Security system and let them own it themselves. It is not a new cost to the government, and that is why the 

additional financing that is likely to be needed for it, which I don’t 

think is properly reflected in that chart, but the additional financing that will be needed for it I do not think poses a burden on this 

economy. And especially it does not pose a burden on this economy 

because it is not a reduction in net national savings. It is money 

that the government will, in the short run, have to borrow because 

it is not paying benefits later. In the short run, we will have to borrow what goes into these personal accounts, which goes into savings. So there is no reduction in that national savings, and therefore not the kind of economic effect that you would have from normal government spending. 

I am glad you raised the economy overall, though, because the 

tax cuts have been absolutely crucial to the recovery in the economy that we have seen over the last several years. Job growth was 

slower in recovery than expected, but it has recovered. We had over 

2 million new jobs created in the last year alone and I think the 

prospects going forward also look good. 

There are a lot of other parts, though, to the President’s economic plan, and you will see those reflected in this budget. That 

means a responsible energy policy. It means similar justice reform, 

it means open trade policies, it means controlling health care costs. 

All of those things will contribute to a better economy. I want to 
54

repeat something I said earlier. Our best fiscal tool is a growing 

economy. 

Mr. ALLEN. Mr. Chairman, if I could just—in response to one 

thing. This is Social Security Administration data analyzed by the 

Center for Budgetary Policy and Priorities, and that is why we believe the source is good. But I thank you for your time. 

Chairman NUSSLE. The gentleman from New Hampshire, Mr. 

Bradley. 

Mr. BRADLEY. Thank you very much, Mr. Chairman. It is certainly a pleasure to be on this committee and I am looking forward 

to a very interesting month to 6 weeks ahead of us. 

Mr. Bolten, a pleasure to meet you, I meant for your position on 

agricultural subsidies, and I hope that the $5.7 billion that we are 

talking about over the next 10 years is just a start. 

Secondly, I think it is very interesting, the whole discussion 

about the top tax bracket and the percentage that is paying those 

taxes. Obviously, if we have gone in the top 5 percent from 52 to 

54 percent, that means that somebody at the other end of the spectrum is paying a lesser percent; and it must mean in my point of 

view that the tax package has not only become more progressive, 

but that it has helped middle-income Americans because every tax 

bracket has dropped. There has been marriage penalty relief. The 

child credit has been upped. The 10 percent tax bracket has 

dropped. I believe 3 or 4 million people off the tax rolls, and the 

small business expensing provisions have helped small businesses 

grow. 

So my request would be if your staff would be able to prepare 

a couple of charts that would show some of that information, that 

would be very helpful. It is a very important story, I think, not only 

if we look at Chairman Nussle’s charts 11 and 12, that has contributed to increasing revenues and increasing jobs, but it also—how 

it has changed the dynamics of who pays. 

My question is if you could touch on some of the budget restraint 

mechanisms, line-item veto, the rescissions authority, the importance of those in making sure that a budget that we passed actually has the backbone for the President to be able to enforce that. 

Mr. BOLTEN. First of all, Congressman, we can provide you a 

chart. I am looking at one that we don’t have on the screen now 

but I think that you will find useful as you look at it. But what 

it does show is that the result of the President’s tax cuts is that 

people in all of the upper-income brackets are paying a larger 

share of the total income tax take than they would be without the 

President’s tax cuts.
55

The one category that is going down substantially is the bottom 

50 percent. I didn’t have the figure when I answered a previous 

question, but the bottom 50 percent of taxpayers in this country, 

those in the bottom half of income, would, without the President’s 

tax cuts, would be paying 4.1 percent of the total income tax taken 

in this country. After the President’s tax cuts, they pay 3.6 percent 

of the total income tax take in this country. 

Thank you for raising the budget process reforms that I alluded 

to in my opening statement. They are very important. You will find 

them amply discussed in the main budget volume that you have in 

front of you. 

There are several important proposals there that include statutory caps on discretionary spending, pay-go for mandatory spending. That means if someone wants to propose an increase in mandatory spending, that there be an offsetting decrease in mandatory 

spending. It includes some proposals to ensure that we are not expanding the unfunded liabilities we have out in the future, because 

it is easy to make proposals that are outside the 10-year budget 

windows that resolutions have traditionally operated in, so to make 

sure that those additional expenses are also captured. 

We are also coming forward with a proposal on the line-item veto 

that we have carried in the past. There seems to be increasing interest in the Congress in some measure, in some sort of measure, 

whether it is our specific one or not, of giving authority to line out 

a lot of the individual spending items that find their way into big 

appropriations bills. 

Finally, we are proposing a sunset commission and a results 

commission as a way for the Executive and the Congress jointly to 

take a look at our spending programs overall in context, and where 

we can find savings to capture those savings, where we find pro-
56

grams that aren’t delivering the best results, to capture those savings as well. It is a big package of proposals, and I think you will 

see it well reflected here. 

We are glad to provide additional materials as you might need. 

Chairman NUSSLE. Thank you. Thank you, Mr. Bradley. 

Mr. Case for 5 minutes. 

Mr. CASE. Thank you, Mr. Chairman. 

Mr. Bolten, I am going to refer to the President’s budget, Historical Tables on page 118, which is Federal debt at the end of the 

year, historical 1940 to 2010, the last 70 years. 

Mr. Bolten, I guess what I was listening for in your testimony 

and what I did not hear was really any mention of the debt. In fact, 

I actually went so far as to count the number of times you said the 

word ‘‘debt’’ in your testimony. You said it twice. 

Going back to the Chair’s comment at the very beginning, which 

was: what do people worry about, what do they have heartache 

over when they are sitting around the kitchen table at home? Well, 

when I am home sitting around my kitchen table with my wife Audrey, worrying about household finances, or back in the old simple 

days where I was running a business and I worried about our business budget with my partners, I worried mainly about debt. 

Now I worried about revenues, and I worried about expenses, 

and I especially worried when revenues and expenses got out of 

whack with each other, and I worried when expenses exceeded revenues in a particular year, even a particular set of years. But the 

thing I worried most about was what did it all add up to in the 

end. How much debt was I carrying? 

I worried about debt for two obvious reasons. The first reason I 

worried was because prolonged debt at excessive levels is a sign of 

mismanagement, period, not just getting through some bad times. 

I also obviously worried—and if I could have chart 7, please—about 

the total amount of interest I was carrying on that debt, because 

obviously interest has a way, if you don’t watch it, of taking over 

your budget, as you well know. 

Looking at the historical levels, of course, I think we are all very 

well aware at this point that we are carrying the highest level by 

far of gross Federal debt in our country’s history; gross Federal 

debt referring to all debt, so debt held by the public as well as debt 

held by government accounts. All debt, the debt that is subject to 

the debt ceiling, the debt ceiling that we have raised three times 

in the last couple of years. 

Now, you have characterized the President’s effort on the deficit 

not in absolute numbers but by reference to the percent of GDP. 

We can argue about whether that is proper or not, but so that we 

are talking about apples and apples rather than apples and oranges, let us not take the total amount of debt—which under your 

projections if I am not mistaken will increase by 60 percent under 

this President’s budget in the next 5 years, 2010, 2004, 7.3 trillion 

to 2010 projected $11.1 trillion—that is 60 percent by my calculations--but let us take it from a different angle as a percentage of 

GDP. See, you have it right on the chart. 

Now my understanding—correct me if I am wrong, I don’t think 

I am—is that under this President’s budget, by the year 2010 we 

will see the highest percentage of debt to gross GDP since 1954. If 
57

you can track back through that column and tell me the last time 

you get to 70 percent, I think it is 1954, is that right? That is at 

the end, obviously, of a very expensive 15-year cycle of two wars—

one World War and the Korean War, and then you can see that it 

dropped off from the 70 percent for 50 years. Even through the 

Vietnam War we didn’t have Federal debt at 70 percent of GDP. 

So clearly something is wrong with our debt. I don’t hear from 

this President and from you a recognition of the problems associated with the Federal debt. I don’t hear a plan to get us out of 

long-term debt. 

In fact, if you want to go back to the points made by the Ranking 

Member, Mr. Spratt, you will see that if you add in the items he 

was talking about—if you add in, for example, interest on the borrowings to jump-start the Social Security plan, I will bet you anything that in the years after 2010, you will see not only a significant increase in Federal debt on an absolute level, but you will see 

a very significant increase as a percentage of GDP. 

So here is the straight question, Mr. Bolten. We are talking 

about priorities here. I don’t think the Federal debt is this President’s priority or this administration’s priority. Somehow they have 

just decided to coast on the debt for a while, and it is easy to do 

because you can cover it up. It is not very sexy to talk about, it 

is not like vets and destroyers and everything, but it is debt. 

So where are the priorities, how are you going to get us out of 

debt? 

Mr. BOLTEN. Well, Mr. Case, I am glad you have raised that, because that is a matter of great concern to me and the others in the 

administration who follow these issues. 

The relevant measure is as a percent of GDP. Just as it would 

in any business or family, you worry about your mortgage relative 

to your overall income. And so the right way to look at this is as 

a percent of GDP. 

Economists also look to the other column in here, which is the 

debt held by the public is normally considered the relevant measure of the debt, not the debts that the government owes itself, but 

the debt held by the public. What you see on that column there, 

which is a very important column, and I am glad you pointed it 

out—and I appreciate your doing that, because it is a very important measure. What you see right there is the Federal Government’s debt to GDP ratio in our projections, basically peaking 

around 40 percent of GDP and beginning to decline slowly thereafter. 

Forty percent is around the modern historic average of debt to 

GDP. It is also quite a bit less than most of our trading partners 

internationally. Most of the rest of the industrialized world has 

debt to GDP ratios much higher. But you are absolutely right to 

focus on that, because that is what really matters. 

Mr. Cooper and I were just talking about Wall Street. By Wall 

Street—I mean the financial markets. What is the interest rate 

that is going to be imposed on Federal debt and on ordinary borrowing out there in the economy? Because that is going to have a 

substantial effect on how our economic growth grows. 

When the government’s debt to GDP ratio is declining, in other 

words, if we are at 40, and if we heading down to 39 or 38, that 
58

is good news for us, and I think that will be good news for restraining interest rates. So that is something we very much need to keep 

in mind. 

There are two parts to that equation. One of them is the overall 

debt that we are building up, and the other is how quickly is the 

economy growing. As long as we are growing the economy faster 

than we are adding debt to the Federal Government—which it 

would be great if the amount we were adding were zero—but I 

think you and I agree we want to keep that number as restrained 

as we possibly can. But as long as we are growing the economy 

faster than we are adding debt to the Federal Government as a 

percent of GDP, I think we are doing a good thing for the Federal 

budget, and interest rates ought to remain low. 

So you are very right to focus on it. That is a ratio that we want 

to see in a positive direction. I think this budget shows a responsible way to get those numbers in a positive direction. 

Mr. PORTMAN [presiding]. We have to move on. Thank you for 

your answer. 

Since Mr. Nussle left, you all have done these run-on questions 

to me. To be sure that our long-suffering colleagues can get these 

questions answered and to be sure Mr. Bolten doesn’t have to leave 

before that happens, let us try to keep our questions and answers 

to 5 minutes. 

Mr. McHenry. 

Mr. MCHENRY. Thank you, Mr. Chairman. Thank you, Mr. 

Bolten, for being here today. 

I first want to applaud you and the President’s bold budget this 

year that looks at eliminating 150 duplication of services as well 

as ineffective programs in the Federal budget. I think it is a bold 

statement that you are looking at mandatory spending as well and 

looking at $130 billion worth of savings over 10 years there. 

I want to first ask that you and the President look kindly to Congress that would look to expand the number of programs that we 

eliminate or are cut or are duplications of services that have outlived their usefulness and are no longer serving the people well. I 

hope you also look kindly upon us here in Congress, at least those 

on the conservative side of Congress, that wish to look at controlling mandatory spending as well. I think this is a strong start, but 

I think we need to go further. 

Beyond that, I think it is interesting, as far as my first budget 

meeting, to hear the schizophrenia of the left here today. You have 

many great quotes I have listened to from my colleagues on the 

other side of this aisle. There is this great schizophrenia. They rave 

that the President is doing horrific things to the budget deficit, and 

at the same time they are crying foul that the budget is being reduced for nondefense, nonhomeland security discretionary spending. They are crying foul that the President would dare look at cutting ineffective programs. 

In fact, the Ranking Member of this committee has a wonderful 

quote in the paper today. It says, ‘‘In the end, these cuts barely 

make a dent in the deficit, but they hurt.’’

Well this is just—I don’t know any other way to describe it other 

than schizophrenia. I think it is important to look at ways to both 

reduce the deficit, reduce the size and scope of government, and 
59

look at ways to better help my constituents at home as well as all 

those here across the United States that are being represented 

today. 

There is also something interesting here that the other side won’t 

step forward and say, and that is that they want tax increases. If 

you don’t cut government services, if you don’t cut ineffective programs and you want to reduce the deficit, there is only a third way; 

as Bill Clinton would say, that will be to raise revenue by taking 

more from taxpayers across the country. 

We have got a lot of great quotes. Our Ranking Member here 

today said revenues are a critical part of the problem, which is a 

nice way of telling the taxpayers of this country we want more 

from you. We want to take more from you to create more government programs and to give more to other people that are not willing to do for themselves. So I want to say your budget is a strong 

start. 

As far as Social Security, which as a youngest Member of Congress—I retire in 2042, when even the Democrats say that the 

trust fund is exhausted. Even the left will say that. 

I read in the newspaper today that the minority leader here in 

the House refuses to offer a Social Security reform plan. 

My question to you today—as Ms. DeLauro said in her opening 

statement, it is a moral concern, the debt we are leaving to our 

children. So this segues perfectly into President Bush’s initiative to 

allow for personal Social Security accounts for my generation so 

that we can fix Social Security for generations to come. So my 

question to you today is of those on the other side of the aisle that 

say that Social Security is fundamentally sound. That is a quote 

that I have taken from the newspaper, and they were reciting that 

like it is Scripture. After the values election, I think we might hear 

more from that on the other side of the aisle. 

But I want to ask you, how do you see the Federal budget being 

impacted by, well, by looking at personal Social Security accounts? 

What that will do for revenue generation, what that will do in 

terms of so-called transition costs, which are really putting up 

funded liabilities on the books and being honest about the obligation we have in Social Security, if you could explain what impact 

that will have long term for the budget. And thank you for being 

here today. 

Mr. BOLTEN. Thank you. Thank you, Congressman, and thank 

you for speaking for that younger cohort. 

First of all, we would be happy to work with you on any additional spending reductions or even program eliminations or reforms, that you and your colleagues have in mind. The budget, 

after all, is just the administration’s ideas of where we can go to 

find these savings. And we will give the package that the Chairman requested, but we would welcome any additions and suggestions and look forward to working with you on it. 

On Social Security, Social Security is not fiscally sound as it is 

currently constituted. There is a huge unfunded liability out there 

which the system cannot now afford to pay. Fundamental reform 

is needed. Each year that we delay in pursuing fundamental reform adds to the cost of fixing the problem. 
60

The calculation is that the total unfunded liability on a present- value basis is over $10 trillion. That figure has to go up by 600 billion or more per year every year that we don’t address the problem. 

So it just gets harder to close the gap each year that we let go by, 

even though many people find comfort from the fact that today’s 

current retirees or near retirees will see no change at all. 

But for those in your generation, in your cohort, we do need to 

make a change. And one of the key changes that we should be 

making is a switch over to personal accounts which provide an opportunity for the beneficiary to keep more of their own money up 

front. Invest it in a safe and sound investment managed by professional managers in a secure way, which can grow much faster than 

Social Security now promises benefits, in a way that does not impose an inordinate financial burden on the Federal budget. 

When we move forward personal accounts, when you say you can 

keep some of your money that you are paying now in Social Security in your own personal account, what we are saying is the government is not going to owe you money later on that you are paying in, and therefore we are reducing our liability in the long run. 

We have to recognize that liability more up front, but we can do 

that in a way that we believe will not threaten our deficit goals in 

the short to medium term and will put this country in a much better fiscal position in the long run. 

Mr. PORTMAN. Thank you, Mr. McHenry. 

Mr. Baird. 

Mr. BAIRD. Thank you, Mr. Chairman. I thank the gentleman. 

Yesterday at 3 a.m., I was at McChord Air Force Base, welcoming 

our soldiers home from Iraq and Afghanistan. It strikes me when 

we look at the budget and recall the testimony we heard last year, 

last year the budget was estimated to be $1 billion shy of the needs 

of current services for veterans. As I look at this budget on page 

271, I see admittedly in some categories some increases, but in 

other categories real dollar cuts. What I don’t see are adequate increases to provide for the increased enrollment of veterans into the 

system, inflation as adjusted for health care and the demands of 

our soldiers and their families as they come back from Iraq. 

Frankly, I have got to say that I think parts of this budget are 

dishonest, and I think some of it represents a betrayal of promises 

made to our soldiers. 

I, along with Congresswoman Darlene Hooley and many other 

Members of Congress, believe that as part of the supplemental appropriation of $80 billion, we should add at least 1.3 billion immediately, not wait until 2006, but add it immediately to meet the 

needs of the returning soldiers and their families. 

I would sure like to be able to discuss that with the administration. If we can send $80 billion over there, we ought to be able to 

spend 1.5 or so here, so that when those soldiers come home with 

prostheses and with mental health challenges and the family readjustment issues, we could take care of them. Is that something we 

could work with you on as we look at the $80 billion supplemental 

coming up? 

Mr. BOLTEN. I don’t anticipate that that will be part of the $80 

billion supplemental, but I am sure that Secretary Nicholson will 

be interested to engage with you on what the needs are in the vet-
61

erans’ community. We feel we are appropriately meeting those 

needs. I think you were out of the room when I put a chart up on 

the screen that showed that over the——

Mr. BAIRD. I was present, but what I didn’t see in the chart is 

a comparison of enrollment growth and inflation growth, medical 

inflation growth, vis-a-vis the portion you put up. I think there was 

something absent from the chart. 

Mr. BOLTEN. Well, we will try to provide you additional information. But I should say that Secretary Principi and now Secretary 

Nicholson are very proud of the quantity and quality, very importantly, of the care. 

Mr. BAIRD. My question isn’t whether you are proud of it or not. 

I think if you run for office on the platform and the President runs 

for office on the platform that the veterans’ benefits would see cuts 

in terms of benefits, I think there would have been a different outcome. 

Let me move to a couple of other issues. 

Mr. BOLTEN. Congressman, let me say we are not proposing cuts 

in veterans’ services. 

Mr. BAIRD. In cuts in services? You are absolutely committed to 

providing current level of services to our veterans, including new 

enrollees and including adjustment for inflation. 

Mr. BOLTEN. Congressman, we—if you look at the budget, what 

you see there is increasing expenditures on veterans’ health care. 

Mr. BAIRD. I didn’t ask about veterans’ expenditures, sir. I asked 

about benefits, which was a word you used. Are you making a commitment to this body and to the people of the United States that 

will there be no benefit or service cuts to our veterans? 

Mr. BOLTEN. We don’t intend any in this budget. I will let Secretary Nicholson engage with you on what you think is needed. But 

what I think I will say is that we are confident that we are amply 

meeting the needs of today’s——

Mr. BAIRD. Let me not go to confidence. It is not a subjective 

process. 

Will you say to us here that if you adjust for inflation, additional 

enrollment and additional demands of the returning population 

from Iraq, Afghanistan and other theaters, this budget will not result in long waiting lists, will not result in increased costs of service to those people? 

Mr. BOLTEN. I can’t predict how every piece of the budget will 

play out, but what I can tell you is we have amply met the needs 

of our veterans. 

Mr. BAIRD. Wait, we are rehashing turf. 

Let me bring up another matter, if I may. Could I bring up chart 

3, Bush Budget Omits 10-year Cost. I would ask the gentleman to 

help us with this a little bit. 

As I look at this, I think there is a real cost that is absent. That, 

I think, we find on page 362 of your budget. 

Here is the question. If—and you can help us add to this possibly 

of the omitted costs. If we were to list how much borrowing we are 

doing from Social Security over the next 10 years, under your 

budget, the President’s budget, what would that amount be, borrowing from the trust fund? 
62

Mr. BOLTEN. I think you can probably do the arithmetic as quickly as I can. But the bottom of page 362 does show the off-budget 

surplus that is being used for government expenditures, as it has 

been for many years. 

Mr. BAIRD. So correct me if I am wrong. I don’t think it says it 

has been for many years. I see an increase in borrowing from $155 

billion in 2004 to $252 billion in 2010. So I think we are adding 

$100 billion and borrowing from the Social Security Trust Fund 

even as we are claiming to cut the budget deficit in half, and that 

is the first 5 years. 

My guess is maybe that trend goes up. I may be wrong with that. 

It seems to me you are close to borrowing $1 trillion in the next 

5 years alone, while saying you are cutting the budget deficit in 

half. Does that strike you as inconsistent? 

Mr. BOLTEN. No. The way the Federal accounts have always been 

kept is to keep account of what the government is taking in and 

spending out, which is what is reflected in those deficit numbers. 

Now, Social Security has been running a surplus. For many years 

the government has been spending that surplus, while putting 

aside, as an accounting mechanism, the obligations owed to retirees. 

One of the reasons why we needed to get Social Security costs 

under control is that sometime toward the end of the next decade 

that cash surplus will shift to deficit. As big as you saw those numbers going up, they are going down. That is why we need——

Mr. BAIRD. Let me make two closing points if I may. First of all, 

we stopped borrowing from Social Security in the final years of the 

Clinton administration and actually began to pay back on that. 

Second of all, I think it would have been a different outcome—

it might be a different reception in the public today. I said at the 

outset I think parts of this budget are dishonest. 

I would invite President Bush and yourself to travel around the 

country and say we will cut the deficit in half, and part of the way 

we are going to do that is to increase borrowing from Social Security from $150 billion to $250 billion every single year, over $2 trillion for the next decade. I think that would be an honest statement 

to the American people. 

I yield back my time. 

Mr. PORTMAN. Mr. Mack for 5 minutes. 

Mr. MACK. Thank you, Mr. Chairman. Thank you, Mr. Bolten, for 

being here and for putting up with so many of us. I appreciate that 

very much. 

I guess I want to commend you on the principles that are laid 

out before us. That is, tax relief, cutting the deficit. And eliminating or reducing—reforming programs that aren’t working. I 

think those are principles that the American people would understand and support. 

So although being a freshman member on this committee, and I 

haven’t had a chance to look at every page in that budget, those 

are principles that I think are important. In fact, I think if you go 

back to when Congressman Lungren was here and Ronald Reagan, 

they talked about—just a little jab—they talked about tax cuts, 

they talked about stability in taxation so people can plan for the 
63

future, and they talked about reducing the deficit to not burden the 

future. 

Those are exactly what I see that the President is trying to move 

forward; that we are going to cut the deficit, that we are going to 

continue to have tax cuts so that we can put more and more people 

back to work, and then we are going to eliminate programs that 

don’t work. 

I guess I am a little bit curious as to how others think and 

maybe 1 day I will have an opportunity to sit with them on a personal basis and find out. 

My question is this. Once, as I hope, that we make the tax cuts 

permanent, are there further tax cuts that could be made that will 

still have an effect of enhancing and growing the economy and creating more jobs? 

Mr. BOLTEN. Congressman, thank you for that statement. Undoubtedly there are. They are not contained in this budget. There 

are some extensions of existing tax cuts that are contained in this 

budget, but there are undoubtedly other ways that the Tax Code 

can be adjusted so that we promote economic growth. 

The President has called for fundamental tax reform. He has appointed an advisory panel that is to report to the Secretary of the 

Treasury by the end of July, their object being to put forward proposals designed to make the Tax Code fairer, simpler, and more 

pro-growth. There is plenty of room for improvement on all three 

counts. 

From the budget director standpoint, the most important of those 

is last, the pro-growth elements of the Tax Code. Even on a revenue-neutral basis, as the President has asked the panel to report 

back, even on a revenue-neutral basis there is an enormous number of improvements that I believe could be made in the Tax Code 

to promote growth in this economy. And I come back to the fundamental point that I have raised several times here: Our best fiscal 

tool is a growing economy. If we can do that additionally through 

the Tax Code, hurray for that. 

Mr. MACK. Thank you. Maybe—I will give you an opportunity to 

maybe reiterate what you have said earlier. Being near the end of 

the line, I think everybody has pretty much asked everything, that, 

you know, we are just repackaging at this point. 

If you could talk about the significance of the tax cuts on job creation and moving this economy from a recession back into where 

we are having the strong growth that we are having now. 

Mr. BOLTEN. I believe and I think most economists believe that 

the tax cuts deserve a large portion of the credit for the good recovery we have had over the last few years. There was a study done 

by the Treasury Department and the Council on Economic Advisors 

at the White House which concluded that the tax cuts are responsible for at least 3 million new jobs and about 3 and a half percentage points of gross domestic product growth in the last several 

years. That is tremendous, and I think that is one of the elements 

that should give people pause when they start talking about increasing taxes above the levels that we now have, because our 

growth is intimately tied to the level of taxation that we impose on 

the economy. A tax increase at this point or I would say any point 
64

in the foreseeable future would turn us in the wrong direction and 

might in fact turn us in the direction of a fiscal problem. 

Mr. MACK. We don’t want to go back to the times where the tax 

policies that were such that created the recession. We want to continue to move forward. Thank you. 

Mr. PORTMAN. Ms. McKinney. 

Ms. MCKINNEY. Thank you, Mr. Chairman. 

Earlier, it was joked that the chairman might have had his priorities straight yesterday, but I think that remains to be seen with 

respect to this administration. The chairman mentioned job 

growth, home ownership and economic growth in his remarks. He 

likened our Nation’s budget to our families’ budget, and that is 

where I would like to begin today, with the families I represent. On 

home ownership, economic growth, the families in my neighborhood 

and in my district aren’t feeling the robust economy that you seem 

to describe in your charts. 

Now the President recently met with some of the Members of the 

Congressional Black Caucus. He even remarked—I read that he 

used some of the CBC issues in his State of the Union address, and 

I would suspect that those issues have been reflected in this budget. It seemed to me that the President was trying to revive positive 

images of compassionate conservatism. 

I also recognize this administration would like us to believe that 

this budget will provide opportunity for all to experience this country’s coming prosperity, but, sadly, that has not been the case in 

the past and is not the case today and won’t be the case tomorrow. 

A significant chunk of the American people have been left behind, 

and I represent too many Americans that have been locked out and 

left behind. 

According to just about every reputable study, the disparity between black quality of life and white quality of life is not narrowing 

nearly as fast as we would like. In fact, according to Whole House 

United for a Fair Economy, the National Urban League reports on 

some indices the black/white disparities are worse now than they 

were at the time of the murder of Dr. Martin Luther King, Jr. 

The chairman mentioned home ownership in his opening remarks, but according to United for a Fair Economy, it will take 

1,664 years to close the gap between blacks and whites in home 

ownership rates. 

Mr. Bolten, you call this an economic growth budget, but that 

growth must not leave a significant chunk of America behind. 

What in this budget will reverse the trends of increasing disparity 

in America? Not just that there is increasing income disparity overall in our country, but there is increasing racial disparity, in infant 

mortality, family wealth and, of course, home ownership. And, two, 

how can we be assured that your priorities include all Americans, 

that your principles insist on opportunity for all Americans, and 

that by your important measure of performance these glaring disparities and the trend they represent will be reversed in the budget 

you have submitted to Congress? 

Finally, real homeland security is not just the forward projection 

of one force. Homeland security is also family and neighborhood security and health care, education, veterans’ care, income security 

and community vitality. Economic opportunity ought to mean for 
65

all of us, not just the haves and the have-mores, as the President 

described his base. And compassion recognizes that we are indeed 

our neighbor’s keepers. 

I look forward to your responses on eliminating these disparities 

that I think also threaten our Nation’s vital security. 

But, in addition, I also would like to mention in your testimony 

you have mentioned PART, Program Assessment Rating Tool. I 

would like to ask you, what is the Defense Department’s PART 

score? Is defense spending subjected to PART? The DOD, according 

to the GAO, as you are fully aware, has lost $2.3 trillion. So in the 

environment that you have suggested of increased defense on 

spending, obviously, the PART couldn’t work. 

Thank you, Mr. Chairman. 

Mr. BOLTEN. Let me start with the last. We do PART defense 

programs. There are substantial savings to be achieved there. We 

are constantly trying to achieve them in an area where we spend 

a large part of our discretionary budget, and I think you will have 

an opportunity to review some of the PART scores and see how we 

are doing. We are trying to be as transparent as possible with the 

way we do our performance assessment ratings. 

Ms. MCKINNEY. You will provide the DOD PART scores for all 

the DOD programs to us? 

Mr. BOLTEN. For all of those that have been PARTed so far, we 

have those available. 

Ms. MCKINNEY. What percentage of the DOD programs have 

been PARTed? 

Mr. BOLTEN. I don’t know specifically, but in dollar terms overall 

in the government we have PARTed about 60 percent of all programs, and I think the defense portion of that is about the same. 

Ms. MCKINNEY. And with respect to income to racial disparities 

and your budget addressing those. 

Mr. BOLTEN. I am sure it was reflected in your conversation with 

the President, his deep concern about racial disparities in this 

country, and I think that is also reflected in a lot of his proposals. 

Ms. MCKINNEY. Specifically, you talked about home ownership, 

and the statistic there is 1,664 years to close the home ownership 

gap. What is in your budget that is going to address these appalling disparities that in my opinion affect our national security and, 

in fact, homeland security? 

Mr. BOLTEN. There are proposals in there to promote home ownership to help people shift from subsidized public rental housing 

over to home ownership. I think you will see them reflected in the 

budget. The President has been very concerned about the home 

ownership gap. As of today——

Ms. MCKINNEY. The President didn’t even know that the Voting 

Rights Act was going to expire in 2007. 

Mr. BOLTEN.—the rate of minority home ownership is at the 

highest it has ever been in this country. The gap is not closing rapidly enough to your satisfaction nor is it to the President’s, and 

that is why the President’s proposals are trying to close that gap 

more tightly. In the last couple of years, we have seen the highest 

rate of minority home ownership ever in the history of this country, 

and we are hopeful to see that go forward. 
66

Mr. PORTMAN. Thank you for the full answer. We added a couple 

of minutes there; and, in order to get to everybody, we have to have 

to move on. Mr. Conaway. 

Mr. CONAWAY. Thank you, Mr. Chairman, I appreciate that. 

Being brand new to Congress and to this committee, you get 

some license to make some incredibly profound statements that everybody in the room knows have been made thousands of times. 

With that said and understanding that risk, your three criteria for 

deciding where to spend folks in the back of the room’s money, for 

lack of a better phrase, the first one is does the program meet the 

Nation’s priorities. The priorities, I think, ought to be set with a 

view toward the Constitution. What is the Federal role? 

Your second one says an appropriate Federal role could not be 

identified. I don’t know that would separate those two. Those are 

the same in my mind. 

Ms. McKinney, I am not sure that home ownership is necessarily 

a Federal role in this instance. I feel a little different in that comment. As we look at what we are doing in government, we ought 

to try to decide on those things that make sense, Obviously, national defense and homeland security and those kinds of things. 

But let us pay particular emphasis next year when you hear that 

the idea of a proper Federal role gets a better, higher priority within the way the President brings up his budget. 

That said, another profound statement, we split your numbers 

and the numbers in the President’s budget between Federal funds 

and trust funds. I am an accountant, CPA, by background; and I 

know that the genie is out of the bottle for this year’s budget. But 

maybe with the budget process that we will go through—my own 

home budget or businesses that I have consulted with, one of the 

ways you keep that business viable is you don’t spend more money 

than you have got. 

In the 2005 budget we are operating under right now, Federal funds revenues went up $128 billion. Spending went up $176 billion. The budget that you presented today, tax revenues are going 

up $79 billion, and spending is going up $83 billion. My thought 

would be let us keep it at $79 billion. Let us don’t spend any more 

funds than we have got coming in. 

2006 is a tough year. It is only $4 billion. 2007, tax revenues are 

going up $115 billion, and spending is estimated to go up only $42 

billion. Let us try to capture some of that in the 2007 budget and 

do something else with it like pay down the debt that everyone is 

concerned about. 

My colleague, Mr. Moore, talked about using the Social Security 

surpluses. I understand that it is taking money out of one pocket 

and put into the other when we use Social Security surpluses to 

fund current operations. Everyone on our side of the aisle thinks 

that we ought to be doing something about Social Security, and 

personalizing those accounts is one of those ideas. 

In the heartland of America, they don’t understand this budget 

process. The rank and file folks in Texas, when they talk about 6.2 

percent coming out of their check, it goes somewhere up here that 

should be safe for them. 

It is all about perception. We have Ward Smith telling us to use 

personal accounts and the abuse of lawsuit reform. I think we 
67

would make a great statement if you could look the public in the 

eye and say, you know, as a down payment—whatever the transition costs are going to be, $10 trillion, whatever it is, as a down 

payment on that, we are going to take two numbers, either the 

total surplus, which over 5 years Mr. Baird talked about would add 

$1.4 trillion in surpluses or just the increase off the baseline of 05. The increase this year is almost $41 billion. Next 5 years, that is about $309 billion. That looks like, to the rank and file folks in 

west Texas, a down payment. We would borrow that money from 

the public instead of borrowing it from ourselves. It might make 

our sell a little easier on fixing Social Security if were we to make 

that cosmetic statement. Then we are going to set that aside. 

The last thing I will finish with, and you don’t need to respond 

because my good friend, Mr. Henry Cuellar, has some profound 

things to say. Nancy Reagan started the Just Say No program for 

drugs. Spending money, other people’s money, is a darn good aphrodisiac drug. Let us just say no for the next 3 years or 2 years. 

Let’s say no to new programs, the new programs that are in this—

throughout this budget, got great supporters and great ideas behind it, but they are 6, 8, 10 months off. 

We are living without them today. Let us figure out a way we 

can say no to new programs and get the existing programs in order 

as kind of a guideline not only for this year’s budget but maybe 

over the next couple of years while the President has time to do 

that and say no to new programs. As worthy as they may be, as 

honorable as they may be and the needs they may meet, they may 

not meet a role that the Federal Government ought to be funding. 

With that, I yield back. 

Mr. PORTMAN. Thank you, Mr. Conaway. 

Mr. Cuellar. 

Mr. CUELLAR. Thank you, Mr. Chairman. 

Mr. Bolten, let me direct your attention to the budget process reform that the administration is proposing. I agree that budgetary 

tools should be used to make government more efficient, more effective, more accountable. The question that arises, of course, when 

you look at the budgetary tools, what type of tools you are going 

to use, who and how are they going to be used, whether by the legislature or the executive branch. 

When I look at the three criteria that the administration is proposing, they look awfully familiar. I served in the State legislature 

budgetary committee up there 10 years, and 6 out of those years 

I got to work with the then Governor Bush in that particular time. 

And as I look at this criteria—it is pretty much, I guess, a compliment to Texas—it is pretty much a blueprint of what we used 

there. 

But I feel there are some steps that are missing. Because, again, 

we have to have a government that is efficient, effective and accountable, but still you have to have that compassion because you 

have to deal with the people’s factor when you deal with the budget. 

I have two requests. The first request, and I believe it was the 

chairman that made this request when he talked about getting 

some information on those 150 programs. What I would ask you to 

do, as you provide that information, if you can provide this infor-
68

mation using your three criteria that you listed here. That is, when 

you talk about the 150 programs that are proposed to be cut, one, 

can you provide information to say how that particular program 

doesn’t meet the Nation’s priority? Number two, why is it that that 

program’s mission does not meet the appropriate Federal role? And 

on top of that, list the Federal roles that you feel that the administration feels that we should be following, the different Federal 

roles. Finally, if you could also provide the performance measures 

for those particular programs that are slated to be cut, that is, the 

150 programs, request number one. 

Request No. 2, who is your lead staff person on performance 

budgeting? 

Mr. BOLTEN. Deputy Director for Management Clay Johnson is 

the leader for the government on the whole performance evaluation 

process. 

Mr. CUELLAR. Could he meet with me on a one-to-one basis so 

we can go over some of these steps? 

Because I like some of the steps, but I think in my opinion, in 

my humble opinion, I think there are a couple of steps missing, and 

I would like to meet with him to talk about some of those steps. 

Because, again, I feel very strongly that, for example, there is a 

suggestion of a sunset commission. I agree with that. We have used 

that successfully for many years. 

On the results commission, I would like to go into some details. 

Because, again, I feel that it belongs to the legislature. Congress 

should provide an oversight, and I feel that we should do a lot 

more on the oversight and especially when we look at the performance of the different agencies. 

So there are some steps and some details that I would like to go 

over with you all, and if he has time this week, I would like to 

meet with him this week, if possible. 

Mr. BOLTEN. I am sure Mr. Johnson would be happy to make 

time for a fellow Texan. 

Mr. CUELLAR. From an appointment process to a budgetary process, that is a good promotion. 

Mr. BOLTEN. He is a fine manager. I think you will enjoy dealing 

with him. 

Mr. CUELLAR. Mr. Chairman, I yield back my 10 minutes and 7 

seconds. 

Chairman Nussle [presiding]. Mr. Cuellar, if I could, when you 

are done with your investigation and discussion, I would like to 

visit with you and your staff. This may be worth a separate hearing on this entire topic where we look at how we can make this 

a more manageable and consistent process within the legislative 

calendar. There may be some other things we need to look at, but 

this may be worth its own hearing to talk about a results-based 

management approach to our program. 

Mr. CUELLAR. Mr. Chairman, I would like to do that. If it is OK, 

I would like to meet with the minority staff and the majority staff 

together when we meet with Mr. Johnson, have both staff there. 

Chairman NUSSLE. I think that would be helpful. 

Mr. McCotter for 5 minutes. 

Mr. MCCOTTER. Thank you, Mr. Chairman. 
69

First, I would like to point out the irony is not lost upon me that 

we are having a budget hearing on Fat Tuesday. I hope everybody 

gets their paczkis later. 

Three questions, and I will try to keep them succinct. 

The first thing is with the Manufacturing Extension Partnership 

Program. I represent a district that borders the City of Detroit. In 

World War II, Detroit was known as the arsenal of democracy. 

Now, during the war on terror, much of that arsenal has been disarmed as our manufacturing base continues to erode. 

In the proposed 50 percent reduction for the manufacturing extension partnership, it is said that there are new operating environments in which these MEPs find themselves, that they should 

be more self-sufficient. As the role of these MEPs is to help small 

manufacturers, the new environment they find themselves in in my 

district is that there are fewer people to engage in partnerships 

with because these businesses are disappearing and likely never to 

return. So I would like an estimate of what, in the administration’s 

mind, the new operating environment is, if my assessment of it is 

incorrect. 

Secondly, more of a philosophical question, is that we have an increase in the screening security user fee or some would call it a 

tax. It strikes me that the protection of life and limb is an essential 

function of government and that the government should not ask 

you to pay a, quote, unquote, user fee for the protection of your life 

and limb, let alone your property. And, as we learned on 9/11, it 

is not a user-specific fee, because the airplanes can be used to kill 

Americans in several capacities, not just those utilizing it. 

Furthermore, my concern, especially because Northwest Airlines 

and other airlines form a hub in my district and just outside of it, 

is that the impact of a tax increase according to $1.5 billion or a 

user fee seems a moot point because the impact will be extremely 

detrimental upon any industry and any business utilizing that industry in one way, shape or form and the jobs related to it. I wonder if that was factored in. 

Thirdly, I am curious to know what the President’s initial proposals or pronunciations on the Social Security reform is, how 

much of his current position is reflected in the budget. 

Thank you. 

Mr. BOLTEN. Thank you, Congressman. 

On the MEP program, that is one of the programs you will see 

in the book of the 150 that we present to you shortly, and you will 

see a full justification for that there. Our judgment has been that, 

while it has been a good and useful program for many companies, 

for many manufacturers, they can get many of the same services 

in the private market or elsewhere in their communities and that, 

in the current budget environment, that is not where we need to 

put our largest resources. We still do have money in the budget for 

the MEP program, but we are trying to bring that program down 

and focus on some of the other priorities. It is one of the tough decisions in the budget. You will see 150 more as you look through 

there, but these are decisions that need to be made if we are going 

to be using the taxpayers’ dollar effectively. 

Second, on the TSA user fee, we really have two choices, that we 

can either impose the cost of passenger and baggage screening on 
70

the people who are flying on the airplanes or we can impose the 

cost on everybody whether they are flying on airplanes or not. 

Where we have the opportunity to put the cost on where the service is being used, my judgment, the right policy is usually to put 

it there, which is why we have made the proposal that we have, 

knowing that it is likely to be fairly controversial. 

Third and finally, on the budget presentation on Social Security, 

the formal printed documents you have, Congressman, do not reflect any transition financing elements from Social Security. They 

went to print before the President’s initial elements of a proposal 

were announced last week. But I did show in some of the charts 

that I presented earlier today what the deficit effect we would see 

of that, and I expect that as more details of the President’s plan 

come out we will give you updated spending and deficit charts to 

show you what the effects would be. 

Chairman NUSSLE. Mr. Cooper stuck around in order to be able 

to ask a final question. 

Mr. COOPER. Thank you, Mr. Chairman. 

Mr. Bolten, I am worried you are going to be around for awhile 

with this administration, so I want to prick your conscience on two 

issues. 

Mr. BOLTEN. Are you worried that the administration is going to 

be around or that I am going to be around? 

Mr. COOPER. I am confident they will be. 

First, Pamela Olson testified to this committee last year—pretty 

remarkable document. She is a first-rate former civil servant and 

a tax expert. She told us, ‘‘in recent years, the Internal Revenue 

Code has been amended repeatedly with provisions intended to encourage or reward or reduce the costs of certain favored activities 

through exclusions, deductions, exemptions, special rates and credits.’’ Here is the kicker: ‘‘While the goals of some of the provisions 

may be admirable, they represent uncapped, unverified and, in 

large measure, unverifiable indirect spending programs.’’ In other 

words, the worst form of government spending: unmeasurable, uncontrollable. And it is barely addressed in our efforts, yours or anyone’s. So I would hope in future years you could take a look at 

these, because she is quite an expert on these topics. 

Another topic is using the Social Security and Medicare Trust 

Funds to hide the true size of the deficit. You know, the good stuff 

in financial documents is always at the end. And you discussed 

with Congressman Baird at page 362 when it says, the real deficit 

in 2005 isn’t $427 billion, it is $589 billion, unless you use Social 

Security and Medicare Trust Funds to hide the size of it. And the 

outlook seems to be not a deficit next year of $390 but $560. So 

I think it is quite a problem to use the Social Security deficit to—

Social Security surplus to hide the size of the deficit. 

I want to focus on an editorial in today’s Financial Times. It is 

kind of interesting how the leading financial newspapers review 

our handiwork. They say here, in the concluding paragraph, a real 

fiscal conservative would seek to balance the budget excluding 

these trust funds over the economic cycle. Alas, Mr. Bush is not 

such a man. Our President is not such a man. And I am not pointing the blame at him, everyone is to blame, but that is one of the 
71

central challenges of our generation and we are not rising to it 

today. 

Your former boss at Goldman Sachs, or one of them, was quoted 

today as saying, if you are looking at this from abroad, you are saying to yourself that, over the last 3 years, there has been an absence of any budget discipline in Washington. An absence of any 

budget discipline in Washington. And this is a government where 

the Republicans control the White House and the Republicans control the Congress. And let me fault Democrats, too. But, together, 

we have not gotten the job done for the country. So hopefully in 

future months and years we can do a better job. 

Thank you. 

Chairman NUSSLE. Could I borrow that Financial Times for just 

a second? I was noticing that you read the last part. It is interesting because the first sentence says, Bush’s spending cuts are 

real but far too narrowly focused. So it sounds as though they want 

the administration to go even further, as opposed to just suggesting 

that they were being gratuitously—providing criticism gratuitously. 

I would ask the question, since you didn’t, would the administration be open to reforms to the earned income tax credit, which is 

what Pamela Olson was focusing on when she talked about how we 

have spending within tax programs that are unverifiable and out 

of control. If the Congress would consider reforming the earned income tax credit, would the administration be open to that or is that 

something contemplated by the administration’s budget proposal? 

Mr. BOLTEN. Mr. Chairman, I anticipate in response to that 

question—and, Mr. Cooper, I anticipate that all subjects will be on 

the table for fundamental tax reform, which I am glad to see Mr. 

Cooper has enthusiasm for it. I think it will come in handy in the 

months ahead. Because there is a big task ahead of us in making 

the Tax Code simpler, fairer and more pro growth; and going after 

some of the types of provisions and goals that Pamela Olson was 

talking about is a good place to start. 

Chairman NUSSLE. And last but not least, let me emphasize, 

your former boss has talked about an absence of discipline with regard to spending in Washington. Mr. Spratt suggested that most 

of this increase in spending has been in homeland security and national defense. I just asked the question or I lament the proposal 

that was made at the beginning of the hearing. I mean, I would 

love to be able to claim victory and say we balanced the budget. 

I would love to be able to say that we did it by tomorrow. I lament, 

like many people do, wasn’t it nice, the moments that we had a 

surplus? 

But the surplus didn’t protect us. The surplus wasn’t growing the 

economy. The surplus wasn’t protecting our borders. The surplus 

didn’t prevent 9/11 from occurring. It didn’t provide us from having 

to go and defend our freedom around the world. 

So it is great to be able to say at the bottom line it is in surplus. 

But what does it get you if your country isn’t meeting its challenges, defending itself, and that we have an economic engine that 

is creating jobs and opportunities for the future? 

So I, like everybody, would love to be able to go home and claim 

victory that we balanced the budget. Because that is the most important Holy Grail, but we have to balance it in a way that not 
72

only talks about the bottom line but talks about a balance of priorities. And I believe what the President has done in putting this 

budget forward today that says balance means protecting the country; balance means growing the economy; balance means making 

sure we have good intelligence to make decisions on our foreign 

policy; balance means instead of taking another dollar from the 

taxpayer for a government program for a role that may or may not 

be the proper role of the Federal Government—before we take one 

more dollar out of your pocket, let us make sure that all of the dollars that are already out here are spent wisely. 

That is why I wanted to join with the gentleman from Texas 

when he wanted to talk about the performance of these programs. 

I call it weeding the garden. Always fun to plant the garden, but 

no one ever wants to go in and pull the weeds. We have got a lot 

of weeds in there, and they need pulling. This President’s budget 

has begun that process of pulling the weeds. It is always tough. It 

is the toughest work in Washington, to go and pull weeds, but we 

have to start that process. 

Director Bolten, you set this up as well as possible here today in 

beginning this discussion. I wish you all of Godspeed in the Senate 

tomorrow as you carry this message to the other body, and we look 

forward to working with you as we craft the budget proposal. You 

have been here for 4 hours today, and we greatly appreciate your 

willingness to sit here and have this conversation with us. Thank 

you. 

Mr. BOLTEN. Been a privilege. Thank you. 

Chairman NUSSLE. If there is nothing further to come before the 

committee, we stand adjourned. 

[Whereupon, at 2:25 p.m., the committee was adjourned.]

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