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23–913 2005

PRESIDENT’S FISCAL YEAR 2006 BUDGET WITH 

OMB DIRECTOR BOLTEN 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

FIRST SESSION 

FEBRUARY 9, 2005 

Serial No. 109–2 

Printed for the use of the Committee on Ways and Means 

( 


ccoleman on PROD1PC71 with HEARING
ii 

COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

ROB PORTMAN, Ohio 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

BOB BEAUPREZ, Colorado 

MELISSA A. HART, Pennsylvania 

CHRIS CHOCOLA, Indiana 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

Allison H. Giles, Chief of Staff 

Janice Mays, Minority Chief Counsel 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


ccoleman on PROD1PC71 with HEARING
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C O N T E N T S 

Page 

Advisory of February 2, 2005 announcing the hearing ........................................ 2 

WITNESS 

Office of Management and Budget, Hon. Joshua B. Bolten, Director ................. 5 

SUBMISSION FOR THE RECORD 

Embassy of Peru to the United States, Eduardo Ferrero, statement ................. 70 


ccoleman on PROD1PC71 with HEARING

ccoleman on PROD1PC71 with HEARING
(1) 

PRESIDENT’S FISCAL YEAR 2006 BUDGET 

WITH OMB DIRECTOR BOLTEN 

WEDNESDAY, FEBRUARY 9, 2005 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:06 p.m., in room 

1100, Longworth House Office Building, Hon. Bill Thomas (Chairman of the Committee) presiding. 

[The advisory announcing the hearing follows:] 


ccoleman on PROD1PC71 with HEARING
2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721 

February 02, 2005 

No. FC–2 

Thomas Announces Hearing on 

President’s Fiscal Year 2006 Budget 

with OMB Director Bolten 

Congressman Bill Thomas (R–CA), Chairman of the Committee on Ways and 

Means, today announced that the Committee will hold a hearing on President 

Bush’s budget proposals for fiscal year 2006 within the jurisdiction of the Committee on Ways and Means. The hearing will take place on Wednesday, February 9, 2005, in the main Committee hearing room, 1100 Longworth House 

Office Building, beginning at 2:00 p.m. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. The witnesses will be the Honorable 

Joshua Bolten, Director, Office of Management and Budget. However, any individual or organization not scheduled for an oral appearance may submit a written 

statement for consideration by the Committee and for inclusion in the printed 

record of the hearing. 

BACKGROUND: 

Since his reelection to a second term in office, President George W. Bush has outlined several budget and tax proposals. The details of these proposals are expected 

to be released on February 7, 2005, when the President is scheduled to submit his 

fiscal year 2006 budget to the Congress. 

In announcing the hearing, Chairman Thomas stated, ‘‘I look forward to Director 

Bolten’s appearance before the Committee and discussing details of the President’s 

budget and policy initiatives.’’ 

FOCUS OF THE HEARING: 

Office of Management and Budget Director Bolten will discuss the details of the 

President’s budget proposals that are within the Committee’s jurisdiction. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘109th Congress’’ from the menu entitled, 

‘‘Hearing Archives’’ (http://waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing for which you would like to submit, and click on the link entitled, 

‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the 

final page, an email will be sent to the address which you supply confirming your 

interest in providing a submission for the record. You MUST REPLY to the email 

and ATTACH your submission as a Word or WordPerfect document, in compliance 

with the formatting requirements listed below, by close of business Wednesday, February 23, 2005. Finally, please note that due to the change in House mail policy, 

the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 


ccoleman on PROD1PC71 with HEARING
3 

Buildings. For questions, or if you encounter technical problems, please call (202) 

225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman THOMAS. Good afternoon. Today’s hearing is the second in a series examining the President’s fiscal year 2006 budget. 

We are honored to have the Office of Management and Budget 

(OMB) Director Joshua Bolten once again testifying before our 

Committee. Thank you for coming and we look forward to your testimony and to your responses to Members’ inquiries. The President 

has presented a budget blueprint that funds the Nation’s priorities 

while reigning discretionary spending and cutting the deficit in half 

by 2009. It will be difficult work, but it is our responsibility to ensure taxpayer dollars are spent wisely. To that end, Congress must 

work to eliminate duplicative and ineffective programs while continuing to pursue policies that enhance individual Americans and 

economic growth. Last year, the economy, as I said yesterday, created 2.2 million jobs, and aftertax income increased nearly 9 percent. Today, the unemployment rate has declined to 5.2 percent. 

This growth is, I think, to a very great extent directly the result 

of Republican tax policies. Our strengthened economy has resulted 

in higher than anticipated Federal revenue, which has helped 

lower the deficit. 

While being mindful of deficits, we must also think about the 

economy of tomorrow, which, of course, is going to be increasingly 

competitive and the battlefield will be trade. Currently, we have a 

government that in many respects was built for the past. The 

President has provided Congress a rare opportunity to fundamentally examine key elements of our governmental structure, including Social Security and the Tax Code, and we should take this opVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00007 Fmt 6633 Sfmt 6602 E:\HR\OC\23913.XXX 23913

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portunity to develop solutions that meet the needs of our aging society and take the opportunity to also address the challenges of the 

21st-century economy. Our Nation can emerge stronger and 

healthier if we approach this assignment responsibly. We can ensure government is prepared to meet its obligations to today’s and 

tomorrow’s workers and as they retire. We can produce changes 

that ensure America is the most attractive place to do business and 

that each American is treated fairly by a simpler tax system. The 

opportunity is ours to address crucial changes to government systems that can move America forward. This Committee should be in 

a place where these great challenges can be discussed and debated 

in a constructive environment. The Chair hopes that that is where 

the Committee will be. Prior to recognizing the gentleman from 

New York, Mr. Rangel, for any comments he may wish to make, 

the Chair wishes to thank the Members for their willingness to 

participate in the orderly fashion that we did yesterday which allowed us to be able to have every Member of the Committee an opportunity to inquire of our witness. The Chair hopes that will be 

possible again today. With that, the gentleman from New York. 

Mr. RANGEL. Thank you, Mr. Chairman. I really welcome you 

to the Committee. After yesterday’s hearing, you have no idea how 

badly we need you to explain how the budget was put together and 

what is in and what is out, because quite frankly, some of us were 

unable to follow the explanations given by the Secretary of the U.S. 

Department of the Treasury. But, since it is your job for the Nation 

and our job to try to fit into the President’s budget what we think 

is a priority, your presence here is so important. So, during the 

questioning, I hope that you will be able to explain why a nation 

at war would not see fit to put into a budget the cost of that war, 

or in addition, why when the President says that his number one 

domestic priority is Social Security and every economist says that 

there are going to be tremendous transitional costs even up to trillions of dollars, why that is not in the budget, and also where there 

are provisions in the Tax Code to try to make certain that everybody that is wealthy pay a minimum tax and to find out through 

no fault of their own they get caught up in this complicated Tax 

Code and pay over $600, $700 billion over 10 years and that relief 

is not in the tax code. We know that there is an explanation for 

this, but we have to be able to explain to our constituents what 

makes this budget so different from a family budget, that if you 

don’t see money for what you want or what you have to get in the 

budget, that you are not going to get it. So, rather than say the 

war has ended, that Social Security is dead on arrival, or to forget 

about it for middle-income voters, we hope you will be able to find 

the language to help us to have a better understanding of where 

the compassion is in this budget. Thank you. 

Chairman THOMAS. With that, Director Bolten, if you have a 

written statement, it will be made a part of the record, without objection, and the Committee is anxious to hear from you in any way 

you see fit for the time you have. 


ccoleman on PROD1PC71 with HEARING
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STATEMENT OF THE HONORABLE JOSHUA B. BOLTEN, 

DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET 

Mr. BOLTEN. I do have a statement, Mr. Chairman, and thank 

you for your hospitality, Mr. Rangel, other distinguished Members 

of the Committee. The President’s 2006 budget, which was transmitted to this 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 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 attacks of September 11. To meet the economy’s significant challenges, in each year of the President’s first term, Congress 

and in particular this Committee and the President enacted major 

tax relief that fueled recovery, business investment, and job creation. The chart that is on the screen right now shows the strong 

economic growth unleashed by the tax relief that you enacted. 

Since the recession year of 2001, economic growth has increased in 

each of the following 3 years. A primary goal of this 2006 budget 

is to assure that our economic growth continues. 

A strengthening economy produces rising tax revenue. 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, the President worked with Congress to create the 

U.S. Department of Homeland Security and nearly tripled 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 of the previous Administration, non-security discretionary spending grew by 15 percent. That is the green bar shown on your screens. In 2005, such 

spending will rise only about 1 percent, reflected by the small yellow bar at the right of the screen. 

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 

2006 budget proposes that enhanced restraint. As you can see from 

this chart, the 2006 budget proposes a reduction in the non-security discretionary category of the budget. It is reflected in the purple bar right there. This is the first proposed cut in non-security 


ccoleman on PROD1PC71 with HEARING
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spending since the Reagan Administration. The budget proposes 

more than 150 reductions, reforms, and eliminations in non-defense 

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, less than the projected rate of 

inflation in 2006 of 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 this Committee well 

knows, 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 proposals this year. 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 will put in place the 

tools we need to enforce spending restraint and will bring greater 

accountability an transparency to the budgeting process. 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? Second, does the program meet the 

President’s principles for the use of taxpayer resources? Is there a 

real Federal role? 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 part of the President’s 

management agenda, the Program Assessment Rating Tool (PART) 

was developed to measure the performance of all Federal programs. 

Roughly 60 percent of all Federal programs have undergone the 

PART and those scores figured into our budgeting process. 

By holding government spending to these accountability standards, by focusing on 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, 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 the budget, the deficit is expected to decline in 2006 and each of the next 4 years. By 2009, the deficit is 

projected to be cut by more than half from its originally estimated 


ccoleman on PROD1PC71 with HEARING
7 

2004 peak, to just 1.5 percent of GDP. This is well below the 40- 

year historical average deficit of 2.3 percent of GDP 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 spending and deficit projections fully reflect the outlay 

effects of this supplemental request. They also fully reflect the 

prior $25 billion supplemental bill passed by the previous Congress. However, the budget does not reflect the effect of undetermined but anticipated supplemental requests for ongoing operations in Iraq and Afghanistan beyond 2006. 

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. If I can 

get the next chart, you will see that reflected on this chart. This 

is still consistent with the President’s goal of cutting the deficit in 

half by 2009 and still well below the 40-year historical average deficit. It is important to remember that this transition financing does 

not have the same impact on national savings, and thus on the 

economy, as does traditional government 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 to the government. 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 

policy makers this year than removing these 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 

full Congress on this budget, which meets the priorities of the Nation in a fiscally responsible way. Thank you very much, Mr. Chairman. I would be happy to take questions. 

[The prepared statement of Mr. Bolten follows:] 

Statement of The Honorable Joshua B. Bolten, Director, Office of 

Management and Budget 

Chairman Thomas, Ranking Member Rangel, 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 

four 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 proVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00011 Fmt 6633 Sfmt 6621 E:\HR\OC\23913.XXX 23913

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moting 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 four 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 three 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 

three 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 

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. 

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: 


ccoleman on PROD1PC71 with HEARING
9 

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 the PART, 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 nine 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 four 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 suppl emental 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 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 ten 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. In addition, the transition financing of retirement benefits does not represent new debtthese 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 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 Congress on this Budget, which 

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


ccoleman on PROD1PC71 with HEARING
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ccoleman on PROD1PC71 with HEARINGInsert 23913A.001 Insert 23913A.002
11 


ccoleman on PROD1PC71 with HEARINGInsert 23913A.003 Insert 23913A.004
12 


ccoleman on PROD1PC71 with HEARINGInsert 23913A.005 Insert 23913A.006
13 

f 

Chairman THOMAS. Thank you very much. As you might expect, much of the discussion with Secretary Snow was over the 

President’s Social Security provisions. You have touched on them 

and we will focus questions, as well. The Chair, however, believes 

that there are some other provisions that if not directly relating to 

retirement, at least tangentially assist individuals in retirement 

that are in the President’s budget that if I don’t ask the question 

in the way I am asking it, probably will not come up in the course 

of this hearing. Frankly, the Chair has said in a number of forums 

that we want to look at an aging society and the question of retirement in a broader way, but clearly, Social Security being one of the 

key factors. So, if the Director would indicate briefly, and Members 

will be asking questions that the Director will not be able to fully 

answer in the timeframe that we have, written responses will be 

circulated among other Members. So, if you would merely begin to 

set the tone of getting Members to understand the full impact of 

the President’s focus on retirement and assistance near retirement 

in the budget, I believe it would be helpful to the discussions. 

Mr. BOLTEN. Mr. Chairman, there are a number of provisions 

in the President’s budget that relate to retirement security. We 

have proposed long-term savings accounts, retirement savings accounts. All of those are reflected in our budget estimates and reflected in the proposals. These are important measures that can be 

taken to assure that people are able to keep more of their own 

money and save it responsibly for their retirement. There are a variety of other measures that have already been adopted, in part 

through your efforts, Mr. Chairman, and this Committee. Health 


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14 

Savings Accounts are in law. We have proposed enhancements for 

them through additional tax benefits for Health Savings Accounts 

to make sure that all of our citizens are able to control more of 

their own health care and make responsible health decisions on 

their own. There are a whole variety of other mechanisms in the 

budget, and you are absolutely right, Mr. Chairman, that don’t get 

much attention but that relate to individual citizens’ ability to control their own finances and to control their own retirement in ways 

that I think are helpful to be brought into the Social Security conversation. 

Chairman THOMAS. One of the directions that I hope the debate 

takes at various times is that as we are looking for ways of addressing health care, both in terms of an immediate or acute need 

or chronic and long-term, that as we try to stress within the premier government program for seniors, Medicare, it is something 

that shouldn’t be initiated at retirement, and that is preventive 

and wellness. Without a health program, either through a health 

savings account or assistance with small employers through new 

structures that I believe are also in the budget, it is very difficult 

for individuals to begin to prepare a lifelong health relationship 

which, in fact, would significantly enhance retirement, as well. We 

won’t go into those details. But, if you begin to look at the budget 

in that fashion there are a number of areas that coordinate together that we hopefully believe will produce an aging society that 

will age even older, but in a comfort level heretofore unseen with 

the finances necessary to have that comfortable retirement. The 

Chair would indicate to the Members that the Chair intends to follow the Gibbons’ Rule. Most of you would be familiar with that. 

Some of the freshmen would not. The former Member from Florida 

initiated a procedure in which the order that the Chair would call 

on Members to question witnesses was based on who was present 

at the fall of the gavel. I can’t believe it was designed to encourage 

attendance. However, there is a secondary effect in which it actually does. As I go down the list of names, if you weren’t called when 

it should have been called, in your opinion, from a seniority point 

of view, it is because I am following the Gibbons’ Rule, and almost 

always the Committee will function by the Gibbons’ Rule and that 

is if you were here when the gavel fell, you will be called in order 

of seniority. With that, the Chair would—— 

Mr. BECERRA. Mr. Chairman, is that something that was articulated by you prior to the commencement of—— 

Chairman THOMAS. It has been the rule for every Congress that 

has been announced and utilized. I almost want to say decades, but 

I don’t want to claim the gentleman from New York and I are that 

old. At least for the last several Congresses that we can remember. 

The gentleman recognizes the gentleman from New York. 

Mr. MCDERMOTT. Mr. Chairman, may I ask a question? 

Chairman THOMAS. Certainly. 

Mr. MCDERMOTT. Would it not be fair to say that the next 

hearing, you would start with that rule, and then go by seniority 

today, since it was not—you didn’t expressly state that prior—— 

Chairman THOMAS. The Chair would have assumed the senior 

Member would have dealt with that, knowing that that is the way 

the Committee has proceeded both under Democratic Chairs and 


ccoleman on PROD1PC71 with HEARING
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Republican Chairs. However, to move forward in a reasonable fashion in which the Chair hopes those Members of the Committee who 

were anticipating being called on sooner than would otherwise 

have been the case need to focus on the gentleman from Washington as the one responsible for that not occurring. The Chair is 

willing to say that for this hearing, we will not follow the Gibbons’ 

Rule, notwithstanding the fact Members were here and ready at 

the time the gavel fell. So, with the understanding that if the sky 

falls, it is on the gentleman from Washington, Mr. McDermott—— 

[Laughter.] 

Mr. RANGEL. It sounds like it is Gibbons. 

Mr. MCDERMOTT. I am going to put my hands up over my 

head. 

Mr. RANGEL. Okay. 

Chairman THOMAS. The Chair would indicate that is one place 

they could be. 

[Laughter.] 

The gentleman from New York. 

Mr. RANGEL. Thank you, Mr. Chairman, and thank you again, 

Mr. Director. Now, would you say that elimination of these entitlements will make your budget problems a lot easier? Are entitlements good for budgets or bad, entitlements, Medicare, Social Security—— 

Mr. BOLTEN. I am sorry, Mr. Rangel. I didn’t follow the question. 

Mr. RANGEL. Do you believe that the elimination of entitlements would have a positive effect on our budget if we just didn’t 

have the Social Security entitlement, the Medicare—— 

Mr. BOLTEN. The elimination—— 

Mr. RANGEL. Just, yes, to have it done by the private sector. 

Would it help? 

Mr. BOLTEN. I am not sure what you mean by the elimination 

of the entitlements. What I can tell you is that the—— 

Mr. RANGEL. I mean wipe them out, eliminate, gone. Private 

sector. Let the free market work its will. Wall Street. Prescription—that is what I mean. 

Mr. BOLTEN. Entitlements are, by far, the biggest fiscal challenge this country faces. 

Mr. RANGEL. You would—— 

Mr. BOLTEN. It is the unfunded liabilities that—I am sorry. 

Mr. RANGEL. You would like to get rid of these big fiscal challenges, wouldn’t you? 

Mr. BOLTEN. I would like to get rid of the unfunded liabilities 

in the entitlements, certainly. 

Mr. RANGEL. Okay. 

Mr. BOLTEN. Not the programs themselves. 

Mr. RANGEL. You have to be better than yesterday, but you are 

getting close already. Now, if, indeed, the Social Security program 

was one of—you have got some dramatic language here, biggest 

saving yet. Anyway, it is a big deal. There is no task as vital to 

fiscal policy makers this year than removing those unfunded obligations by enacting comprehensive Social Security reform. Now, 

how do you expect Americans to believe that this is so important 

when for whatever reason, nothing is included in the budget? You 


ccoleman on PROD1PC71 with HEARING
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would have to be the first to admit that no matter what the President gives us, it is going to have fiscal implications, is that not correct, of hundreds of billions of dollars if not trillions of dollars, and 

yet not one mention is in the budget that is presented to us. Is that 

true? 

Mr. BOLTEN. There are fiscal implications, Mr. Rangel, and 

they are reflected in the last chart that I had up in my presentation, which—— 

Mr. RANGEL. Sir—— 

Mr. BOLTEN. I will put it back on the screen—— 

Mr. RANGEL. Sir, we are not going to vote on your chart. I am 

talking about a budget. Will you submit something—submit it in 

writing. Social Security—is there a dollar next to the cost of this 

dramatic change in Social Security? Is the dollar amount there at 

all? I thought you said it was not. 

Mr. BOLTEN. It is not reflected in the prepared documents that 

you have. 

Mr. RANGEL. That is all I am asking. I would assume, then, 

that it doesn’t appear to be as serious as you said if dollars are not 

there. The other thing that I am concerned about is the Alternative 

Minimum Tax (AMT). Would you admit that the middle-income 

taxpayer has gotten caught into this, people that you and I and the 

President want to have relief, and the President has said that over 

and over? 

Mr. BOLTEN. Sure. The AMT is a—— 

Mr. RANGEL. Very important. 

Mr. BOLTEN. A very complex mechanism for collecting taxes. 

Mr. RANGEL. Yet you know that it costs. There is going to be 

a cost to that, right? We are going to have to borrow money in 

order to give this relief, is that correct? 

Mr. BOLTEN. What the President has called for is fundamental 

tax reform and we believe that the AMT can be reformed in the 

context of overall revenue-neutral fundamental tax reform. 

Mr. RANGEL. Oh, so it won’t cost anything? 

Mr. BOLTEN. In the context of fundamental tax reform, we believe it can be done in a revenue-neutral fashion. 

Mr. RANGEL. You are saying that we, over 10 years, can find 

$700 billion to provide this relief for the American people without 

any lost revenue, to make it revenue neutral? 

Mr. BOLTEN. I think in fundamental tax reform—— 

Mr. RANGEL. That is good by me. 

Mr. BOLTEN. That can all be done. 

Mr. RANGEL. We are moving, then. This is better than yesterday. Now, how about the war? I cannot find anyplace in this budget where anyone is making any sacrifice except our brave fighting 

men and women and veterans. The war has to cost money and 

sooner or later, we will be asked to vote on the cost of the war. 

Some people think the whole thing is going to cost $400 billion. Is 

there anything, any page in the budget that you are presenting to 

the Congress where we can find out what the President or you will 

be asking us to fund? Is the war cost in the budget? 

Mr. BOLTEN. The costs for 2005 are included in the budget figures that are contained in these volumes. They are also included 

in the charts I just presented. That supplemental request has not 


ccoleman on PROD1PC71 with HEARING
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come forward yet to the Congress. It will be coming forward shortly. It is $81 billion. 

Mr. RANGEL. Okay. Now, in a normal family household—— 

Mr. BOLTEN. Mr. Rangel, it is reflected in the documents here. 

Mr. RANGEL. If you are going to ask for something, normally, 

it is in the budget. Here, the war cost is not in the budget. 

Mr. BOLTEN. I think, Mr. Rangel, what I was just trying to say is that the $81 billion that the Administration will be requesting 

shortly is reflected in the budget numbers that are contained in the 

documents before you and in the charts I just showed you. 

Mr. RANGEL. Okay. I am running out of time. You would agree 

that we need to have this done in a bipartisan way, Republicans 

and Democrats? 

Mr. BOLTEN. I would hope so, sir. 

Mr. RANGEL. Are you included in the formulation of the Social 

Security plan that we have not received but the President has? 

Mr. BOLTEN. Am I a part—— 

Mr. RANGEL. Yes. 

Mr. BOLTEN. You mean, am I a participant in the internal policy debate? 

Mr. RANGEL. Yes. 

Mr. BOLTEN. Not the principal one, but I am one of the participants. 

Mr. RANGEL. Do you know of any alive Democrat in the House 

or the Senate that is working with you and the President on this 

issue? 

Mr. BOLTEN. Mr. Rangel, I am sure there are many Democrats 

in both Houses that are prepared to work with the Administration. 

The Administration is certainly prepared to work with you or anybody else that is interested in fundamental Social Security reform. 

Mr. RANGEL. But, you don’t know of anyone now? Thank you. 

Mr. BOLTEN. That is not my role, sir. 

Mr. RANGEL. I understand. 

Chairman THOMAS. The Chair believes the gentleman from 

New York did not intend to imply that there were other than alive 

Democrats in the House and the Senate. 

[Laughter.] 

Mr. RANGEL. No, I am talking about Pat Moynihan. Pat Moynihan is a great American, a great Senator—— 

Chairman THOMAS. I understand that. 

Mr. RANGEL. Obviously he has worked very closely with the 

President, however the President communicates with him. But, it 

doesn’t help us in the bipartisanship. 

Chairman THOMAS. The record will reflect that the gentleman 

from New York said, does he know any live Democrats in the 

House or the Senate. 

Mr. RANGEL. As opposed to dead ones. 

[Laughter.] 

Chairman THOMAS. But, the Chair is trying to indicate we don’t 

believe there are any dead Democrats in the House or the Senate. 

Mr. RANGEL. I thought the President—— 

Chairman THOMAS. We believe they are all alive. 

Mr. RANGEL. Thought that Pat Moynihan was still in the Senate. 


ccoleman on PROD1PC71 with HEARING
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Chairman THOMAS. Boy, the current Senators from New York 

would be interested in learning that one. 

Mr. RANGEL. I yield. 

Chairman THOMAS. Does the gentleman from Florida wish to 

inquire? 

Mr. SHAW. Yes. I am reminded of the old-time Louisiana politics, where if you put in Huey Long, it says when he dies, if he 

dies, he would like to be buried in Southern Louisiana so he can 

stay active in politics. 

[Laughter.] 

That was Louisiana. In New York, they keep voting, I am sure. 

I am not positive of that. 

Mr. MCCRERY. I am from North Louisiana. 

[Laughter.] 

Mr. SHAW. Reclaiming my time, I would like to continue this 

discussion that you are having with Mr. Rangel regarding the 

input from Democrats. As I pointed out yesterday to Secretary 

John Snow, the President certainly did put out the invitation. He 

said he wants to work with all the Members of Congress. Any idea 

that comes in with regard to saving Social Security is tremendously 

important. As to date, I asked the Secretary, I said, what Democrat 

have you been able to work with, and he could come up with Alan 

Boyd and that was the only name that he could come up with. So, 

I would like to tell my friend from New York that the door is open 

to all, you, Mr. Levin, anybody on this Committee, as well as anyone on our side of the aisle and your side of the aisle in the U.S. 

Congress. 

Mr. RANGEL. If the gentleman would yield—— 

Mr. SHAW. We are looking for good ideas. I will yield briefly. 

Mr. RANGEL. I met with the President on this and the President told me and a number of other people that what he wanted 

us to do is to wait until he got his Social Security plan together. 

Now, we Democrats want to be cooperative, but we can’t until we 

find out what he and the Republicans are going to bring to us. 

Mr. SHAW. Reclaiming my time—— 

Mr. RANGEL. We are anxious to work with you. 

Mr. SHAW. Reclaiming my time, for the last 6 years that I was 

Chairman of the Subcommittee on Social Security, I was looking 

and reaching out and asking for ideas from your side that never 

came. The only thing that came was criticism. Mr. Bolten, I appreciate your mentioning something that we hear too seldom up here, 

and that is talking about the unfunded liability to today’s workers 

tomorrow for their retirement benefits because that doesn’t show 

up in our budget and that we are on a cash basis here in this country. I think we should start looking more toward capital budgeting 

in many areas that we can start reflecting the obligations that we 

are piling up on tomorrow’s generation, and if we were to do that, 

I think perhaps we might be more responsible. I think we should 

start thinking about going down a dual—two roads, one with the 

accrual type of accounting as businesses do and the other cash, 

which is traditional to municipal accounting. I think this would be 

very, very helpful to a lot of us, not only on how we spend the 

money, whether we lease buildings whether buy buildings or build 

buildings, and a lot of the decisions that we make seem to be 


ccoleman on PROD1PC71 with HEARING
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skewed with the archaic budget process that we have. Have you 

looked into anything like that, of going toward capital budgeting or 

what we should do as to the disclosure of unfunded liabilities, 

which has been going on from the first day of our country? 

Mr. BOLTEN. We have looked at some things, but I have to 

agree with you, Mr. Shaw, that one of the big surprises I had when 

I took over this job a year and a half ago was the extent to which 

we are bound by the accounting conventions on which government 

operates and how that tends to, I think, distort good decisionmaking. I think a move toward capital budgeting would be very 

helpful. We have a couple of proposals in this budget to try to make 

sure that we are not expanding unfunded liabilities outside the 

budget window because that is—when we operate outside the 5- 

year, or it used to be 10-year, budget window, you can do things 

that escape the notice of congressional rules. But, we have proposed some things in the budget that would try to capture the outside the budget window unfunded liabilities, as well, and prevent 

those from growing at the same time. 

Mr. SHAW. I would like to follow up on another thing Mr. Rangel was discussing with you, and that is the question of the AMT. 

It is a growing problem. Of course, the size of the problem, and it 

continues to grow, makes it very difficult for us to find the revenue 

in which to put that it. It is a dinosaur. It should be done away 

with. Charlie threw out the figure of $700 billion. I think he is 

about right on that. But, it is going to be very difficult to find the 

revenue or the adjustments. I know I had the Joint Committee on 

Taxation do a study for me last year in which it was looking at the 

various brackets, how much would you have to raise in the bracket 

to make up the revenue that was lost within that particular bracket, and I was astounded by the figure that came up or the percentage that we would have to adjust the tax rate. Thank you, Mr. 

Chairman. I yield back. 

Chairman THOMAS. I thank the gentleman. Does the gentlewoman from Connecticut wish to inquire? 

Mrs. JOHNSON. Thank you very much. Welcome, Mr. Bolten. 

First of all, let me congratulate you on including in what must be 

in these days a very tight budget about $125 billion to help us address the problem of the uninsured. Indeed, the system is beginning to be unworkable because not everyone has equal access to affordable health insurance. I congratulate you on protecting that interest that the President has long stood by and was eloquent in defense of during the campaign and we intend to present you with 

very good ideas about how to carry through on his commitment. 

Mr. BOLTEN. Congresswoman, we have had a chance to talk 

about that, I know, in person and I know how strongly you feel 

about it. We are glad of your interest in the President’s proposals 

for tax credits and other elements for the uninsured and look forward to working with you. 

Mrs. JOHNSON. Thank you. I also want to say that I am very, 

very proud of the fact that we experienced in 2004 a 4.4-percent 

growth in our GDP, that the last 3 months have seen the fastest 

growth in small business income, the fastest rise in that income 

over the past 10 years, that aftertax income rose 8.9 percent. I 

could go on, but your leadership, this President’s leadership and 


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the Administration’s leadership has given the economy greater 

strength. One area in which you have done that is in the health 

services area, where as a result of the leadership of the President 

and Secretary Thompson, with the close collaboration, I will have 

to say, of the House and Senate, we have put in place resources 

that will, for the first time, enable us to restructure delivery of 

health care services to improve quality and control costs. My question to you is, in your estimates of the cost of Medicare, did you 

anywhere take into account the impact of technology in reducing 

the cost of medical errors, the impact of disease management, and 

the extraordinary capability it gives us to control health care costs? 

Just Pacific Care saved $244 million on disease management, implementing disease management for its Medicare beneficiaries. 

McKesson saved $3,089 per person annually through disease management, reduced emergency room visits 61 percent, reduced hospitalization 66 percent. We have embedded now in Medicare and 

through what Dr. Brailler is doing and the administration is doing, 

are working to embed throughout the health care delivery system 

of America both the technology and most advanced medical knowledge to both improve quality and reduce cost. Is any of that reflected in your estimates? 

Mr. BOLTEN. Congresswoman, I can’t speak for the Medicare 

actuaries of the U.S. Department of Health and Human Services 

who have responsibility for doing the estimates, but I do have a 

strong conviction that whatever estimates we have used have not 

adequately taken account of the kinds of innovations you are talking about. Those are extremely important. Our fiscal crisis is really 

just a reflection of a broader health care financing problem in this 

country, and one of the best ways that we can get a hold of it is 

through the advancing use of technology that you are so interested 

in, health information technology that you worked with Dr. Brailler 

on. I think that we are amply funding those initiatives in this 

budget and we are anxious to work with you to make sure we promote those initiatives because that really is one of the key answers 

to bringing health care costs under control in this country. 

Mrs. JOHNSON. I thank you for in your supplemental for reprogramming the money to Dr. Brailler’s office. It is terribly, terribly important. But, the answer to my question is, no, neither your 

actuaries nor the Congressional Budget Office’s (CBO’s) actuaries 

are taking one penny of these reductions into account and they are 

simply of extraordinary dimensions. I thank you for sticking by 

them and making sure that we will have the resources to do what 

the American people need as well as what Medicare recipients 

need, which is to have access to high-quality health care at an affordable dollar. Thanks. 

Chairman THOMAS. Would the gentlewoman yield briefly with 

the remaining time? 

Mrs. JOHNSON. Yes. 

Chairman THOMAS. I would tell the gentleman, I was pleased 

to see the President has made a very strong statement on electronic medical recordkeeping. He has almost 4 years left on his second term. The disappointing point of reading that section was that 

he hopes that he could achieve this by 2014. Our goal will be to 

hopefully have each of the next 4 years multiplied by two or posVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HR\OC\23913.XXX 23913

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sibly three so that we can accomplish this in a much faster time. 

That is, I think, the basis for a significant change in everything 

that the gentlewoman was discussing. That would be a terrific improvement. Does the gentleman from California wish to inquire? 

Mr. STARK. Yes. Thank you, Mr. Chairman. I would like to deal 

with issues here that deal with credibility of the information that 

we in the Congress receive from the Administration, and I think 

it is important because we are asking a lot of American people to 

rely on the information, particularly empirical information. When 

you cannot depend on the accuracy or the integrity of that information—just a few minutes ago, Mr. Bolten told Mr. Rangel that the 

budget did include the war costs, but his testimony, whoever wrote 

his testimony forgot to point this out, but you said in your testimony, Mr. Bolten, that the budget does not reflect the effect of undetermined but anticipated supplemental requests for ongoing operations in Iraq and Afghanistan beyond 2005. Now, I want to talk 

about Medicare and the drug benefit because I just recall that back 

in February of 2003, at the budget hearing, Chairman Nussle 

asked Secretary Thompson whether his proposal would cost no 

more than $400 billion over the 10-year period. Secretary Thompson said, ‘‘That is correct,’’ and the giant share of it is the prescription drugs. Then in our own club here, Chairman Thomas and the 

debate on June 27 said that the program stays within the reasonable bounds of the $400 billion that we are proposing, and my colleague, Mr. Shaw, said we are putting, in that same debate, $400 

billion into Medicare. Chairman Nussle said we are increasing 

Medicare by $400 billion. It goes on. Congresswoman Johnson said 

that we are going to strengthen Medicare with a $400 billion plan 

that adds prescription drugs and preventive chronic care benefits. 

That was in the press release on February 3. Congressman Dreier 

from California said the program scores at $395 billion—he was 

more accurate—which is within the budget. 

Now, we all know that those numbers were subject to change and there was a $534 billion number that the OMB was working with 

and they had it all along. They never mentioned it to anybody during the debate, but they knew that it was $534 billion, according 

to their experts, not $395 billion. They probably also knew that the 

bill might have failed if they let that information out of the box. 

I wouldn’t suggest for a minute that my good friends on the other 

side of the aisle were lying, but I would suggest that they are awfully gullible if they keep believing the budget projections that the 

Administration brings to us, and that embarrasses all of us, not 

just one side of the aisle or the other, because if we don’t have 

proper information and decent numbers that we can rely on, we are 

apt to make mistakes. If we can’t rely, for instance, on the Social 

Security numbers, which aren’t in the budget, we may ruin Social 

Security just the way we started to ruin Medicare in the Medicare 

bill. What we are really doing is giving a blank check from the 

Treasury to the pharmaceutical companies and insurance plans, 

and so we built up special interests at the expense of the beneficiaries and taxpayers, and that is an expensive way to deliver a 

lousy benefit, which it is, much less than a good benefit. When you 

break the market into small chunks and use private plans with 

higher overhead than Medicare and you prohibit specifically the 


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Secretary from negotiating a better price, you have just given the 

key to the Treasury to the pharmaceutical industry, and that is 

what we did, being reassured time after time after time by the 

OMB, by the Administration, by the CBO, that it was only going 

to cost $400 billion. Well, guess what, yesterday we learned that 

hidden in Mr. Bolten’s budget—hidden, mind you—was the number 

of $913 billion. It is just a projection of the $534 billion, but he 

never mentioned the $534 billion before. So, now the $534 billion 

just creeps into the OMB budget and you have projected out to 

$913 billion and they have got some cockamamie way to bring it 

down to $720 billion, which CBO says they can’t do in theirs. I 

guess the question is, ladies and gentlemen, how can we trust you, 

the Administration, on Social Security when you have got such a 

bad record of hiding the truth on Medicare? 

Chairman THOMAS. The time of the gentleman has expired and 

the Chair would indicate that that response is probably one that 

would be appropriate as a written response. However, the Chair 

recognizes the gentleman from—— 

Mr. STARK. I have one for the record, Mr. Chairman. I would 

submit it. I anticipated—— 

Chairman THOMAS. Without objection, the gentleman has a 

question for the record. 

Mr. STARK. Thank you very much. 

Chairman THOMAS. The gentleman from California is recognized. 

Mr. HERGER. I thank the gentleman. 

Chairman THOMAS. Would the gentleman from California yield 

to the Chair? 

Mr. HERGER. I will. 

Chairman THOMAS. I thank the gentleman for yielding. The 

Chair wishes to place in the record a letter from the CBO dated 

February 9, 2005. It says, ‘‘Dear Mr. Chairman, as per your request, this letter discusses the Congressional Budget Office’s current projection of spending for the Medicare Part D benefit. That 

estimate, which was published in the January 2005 Budget and 

Economic Outlook, is nearly identical to the cost estimate for Part 

D that we prepared in 2003.’’ As far as the CBO is concerned, those 

numbers are virtually the same. As far as the numbers that you 

utilized in terms of the Administration’s position, the Chair would 

ask unanimous consent to place in the record two documents of this 

Committee’s creation based upon numbers that are in the President’s budget. I will briefly go over them and then I would ask Director Bolten to briefly respond as to their accuracy and what they 

really mean. The Chair is very grateful to the gentleman from California for the time. 

On this sheet, it says, cost projections for the Medicare drug benefit from 2006 to 2015. If you will recall, the last budget was over 

the previous 10-year period. That is, you pick up last year and you 

eliminate the out year of 2015 to 2014. The drug program in the 

Medicare Program had a 2-year ramp-up. It is extremely complicated, difficult. So, last year, the first year, was zero, in essence, 

zero cost. Then you added a last year, which is now a full benefit 

cost. What is missing from the $1.191 trillion figure, which is the 

gross spending, is apparently the failure on the part of our colVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00026 Fmt 6633 Sfmt 6602 E:\HR\OC\23913.XXX 23913

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leagues to remember that this is a voluntary program in which 

people choose to sign up, and if so, are subject to beneficiary premiums, unless, of course, they are low-income. That is anticipated 

over the same period of time to bring in $145 billion of revenue, 

which you then subtract from the gross spending. We also for the 

first time elevated seniors as seniors first and low-income second, 

as opposed to the historical pattern of the former majority, and 

that instead of having uneven treatment of seniors at the State 

level through the Medicaid program, we now have a uniform senior 

program that will, in fact, provide us with $134 billion of State 

Medicaid payback for the Federal assumption of that. Since Medicaid is a matching 50 cents or a dollar program between the Federal government and the State program, we have a Federal Medicaid savings of $188 billion from which you subtract from the 

$1.191 trillion. That provides the net spending drug benefit of $724 

million that the gentleman referred to. 

To really compare apples to apples, you then have to examine the 

effect of 2 years of the budget window of a fully functioning program that wasn’t in the previous 10-year period. I am sure the gentleman didn’t intend to assume that 2 years at zero would be compared to 10 years at full cost. If you subtract that figure, which is 

$206 billion, you wind up with a figure of net spending over the 

2004–2013 period of $518 billion, virtually identical to the $511 billion that had been stated by the Administration last year. The 

point being, these are the Administration’s figures, which always 

had different assumptions which produced the differing numbers 

between the CBO and the Office of the Director of OMB. If you did 

the same thing to the CBO numbers, which the CBO has not yet 

done but will do for us in March, I think you will find they will 

have the same discrepancy window, very close to $400 billion. The 

point is, the exercise takes you nowhere, notwithstanding headlines 

that seem quite interesting and anticipatory of a major coup on the 

part of my colleagues on the other side of the aisle. The numbers 

are the same if you do the math fairly and accurately. I apologize 

to the Director. Maybe another Member will give him additional 

time to respond, and the Chairman thanks the gentleman from 

California for his courtesies and will find ways to make it up to 

him. The Chair would then recognize the gentleman from Michigan, Mr. Levin, if he wishes to inquire. 

Mr. LEVIN. Welcome. Why aren’t the Social Security costs of the 

proposed private account plan in the budget? 

Mr. BOLTEN. The President’s proposals are still in the formulation process. He has announced some portion of it, the early years 

of a private account, which he announced last week. That was announced after the budget was put to bed. Because he has announced those, I did include those in my comments and in the 

charts I put before you just now. So, we can now show you at least 

the short-run deficit effect of the President’s proposals for private 

accounts. 

Mr. LEVIN. Those should be—you amended the chart, and by 

the way, the Secretary yesterday was unaware that you were going 

to amend your chart from 1.5 to 1.7, because it is not in the chart 

that is in the budget book, right? You have since amended the 

chart? 


ccoleman on PROD1PC71 with HEARING
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Mr. BOLTEN. That is correct. 

Mr. LEVIN. Okay. So, to be truthful about budgeting, surely the 

first year costs should be added to the deficit, right? 

Mr. BOLTEN. If the President’s plans were adopted, and I think 

we have to wait and see what the full plan is, but what I wanted 

to reflect here was the short-term deficit effect of the creation of 

personal accounts. These would be the accurate numbers from 

what we know now. It would be a 1.7 percent deficit—— 

Mr. LEVIN. That should be reflected in the budget. What is that 

number for the first year that it would be operative, do you know? 

Mr. BOLTEN. You mean the cost of personal accounts in the—— 

Mr. LEVIN. The $740 billion over 10. What is the first—— 

Mr. BOLTEN. It ramps up. My recollection is about $23 billion in 2009, about $56 in 2010. 

Mr. LEVIN. Then it goes up the last years to what? 

Mr. BOLTEN. I don’t have those numbers. 

Mr. LEVIN. According to—— 

Mr. BOLTEN. We can provide that to you, and I think they were 

actually on sheets of presentation when the President made the announcement about his Social Security—the short-term elements of 

it. 

Mr. LEVIN. Yes, because according to the Social Security Admin- istration (SSA), it goes up—this is on a calendar basis—$34 billion, 

and then in the two, four, six, seventh year, $176 billion, and then 

if you add, in increased costs, we are talking about $1 trillion $400 

billion the first 10 years of the plan. I think if we are going to be 

honest, and you are going to be honest about budgets, you should 

include those figures, surely those that are within your budget window. You should revise not only your chart, you should revise the 

budget. 

Mr. BOLTEN. Mr. Levin, we will be glad to provide you revised 

charts when—— 

Mr. LEVIN. How about a revised budget? 

Mr. BOLTEN. I think that all that would need to be reflected is 

the costs in the out years. I think that would provide—— 

Mr. LEVIN. Why don’t you send us a letter saying the dollar figure that should be added. 

Mr. BOLTEN. I would be glad to do that when the President’s 

plan is fully formulated. 

[The information follows:] 

Mr. LEVIN. Well, look, it isn’t formulated fully by any means, 

but that part of it has been discussed by the White House, by some 

unnamed official. I take it that wasn’t you. 

Mr. BOLTEN. No. 

Mr. LEVIN. Look on the last part of your testimony, if you 

would, where you say comprehensive Social Security reform—I 

question that word—that includes personal accounts, private accounts, can eliminate the system’s current $10.4 trillion in unfunded obligations. By the way, that $10.4 trillion is based on infinity. Let me ask you this point blank. Do the private accounts, by 

themselves, would they do anything to reduce the shortfall projected for 2042 or 2052? 

Mr. BOLTEN. In and of themselves, the personal accounts do not 

solve the solvency problem—— 


ccoleman on PROD1PC71 with HEARING
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Mr. LEVIN. It does not solve it. Does it reduce the solvency— 

what is called insolvency—one dollar? 

Mr. BOLTEN. If they are part of—I believe they are an integral 

part of a comprehensive plan. 

Mr. LEVIN. No, no, no. Why don’t you want to answer, no? Why 

do you then talk about integralness? When you are asked a 

straightforward question, would the private accounts by themselves 

address the shortfall projected for 2042 and 2052, is the answer yes 

or no? 

Mr. BOLTEN. Personal accounts in and of themselves don’t address the solvency issue, but they are part of a comprehensive plan 

that does address the solvency issue. 

Mr. LEVIN. I know you have been told to put another clause on, 

but if you put a period before ‘‘but,’’ the answer is no, right? 

Mr. BOLTEN. Mr. Levin, we wouldn’t be proposing the personal 

accounts in the absence of a comprehensive plan, so I don’t—I 

think trying to cut the sentence off before you get to talk about the 

overall plan doesn’t make any sense. 

Mr. LEVIN. There is no comprehensive plan yet. 

Mr. BOLTEN. There will be and I hope we can attract some support. 

Chairman THOMAS. The gentleman’s time has expired. 

Mr. LEVIN. Not on this side. 

Chairman THOMAS. Does the gentleman from Louisiana, Chairman of the Social Security Subcommittee, wish to inquire? 

Mr. MCCRERY. Thank you, Mr. Chairman. Yes. Mr. Bolten, just 

a quick follow-up on Mr. Levin’s question. I believe the right answer is, as designed and proposed by the President, the personal 

accounts do, in fact, have a salutary effect on trust fund payout in 

the out years, isn’t that correct? 

Mr. BOLTEN. Again, Congressman, we need to see the full development of the plan, but the important part about the personal 

accounts from our budget perspective is that although there are 

these short-term financing requirements, it is not a new cost to the 

government. 

Mr. MCCRERY. Right. 

Mr. BOLTEN. This is money the government already owes in the 

form of future benefits. Letting people keep it sooner, keep it for 

themselves sooner, is essentially neutral to the government but 

gives the individuals a chance to get a much better return on that 

money than the Social Security system can possibly promise. 

Mr. MCCRERY. Okay. Well, let us talk a little more about that 

aspect, the financing of the accounts. Can you explain why borrowing, why the government borrowing money to fund the personal 

accounts is different from the government borrowing money to pay 

for—let me be careful which subject I pick—— 

Mr. BOLTEN. Unwarranted spending of some non-identified nature. 

Mr. MCCRERY. Yes. Pork-barrel spending. Yes. Can you explain 

the difference? 

Mr. BOLTEN. Yes. Mr. McCrery is raising a very important 

point here, and that is that—in fact, it is why I prefer to refer to 

transition financing rather than transition costs. First is the point 

that I have just alluded to, which is that in creating these personal 


ccoleman on PROD1PC71 with HEARING
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accounts, we allow people to keep more of their money now, so it 

is not a new cost to the government. We are just taking the benefits we need to pay later on, letting people keep it now. Second, 

government borrowing, usually for additional spending, has a net 

negative effect on national savings. There is no net negative effect 

on national savings from borrowing for people to use for personal 

accounts because there is an equality between the borrowing that 

the government does and the money that people set aside in their 

personal accounts, which is itself savings. So, the effect on the 

economy is at worst neutral, and in my judgment, the creation of 

the personal accounts is overwhelmingly positive for the economy. 

Mr. MCCRERY. I understand what you just said and it is, I 

think, perfectly clear. But, why—go one step further. Why is net 

national saving important to the economy? 

Mr. BOLTEN. Well, I am not an economist and I am sure I will 

prove that many times during the course of this hearing, but the 

economists will tell you that the savings rate in the country, that 

the national savings in the country is very important for assuring 

the continued growth that we have seen over the last few years. 

To keep that growth growing, we need to have a good savings rate 

so that investment can carry on and the fruits of investment can 

be properly realized. 

Mr. MCCRERY. So, when you borrow to put money in a personal 

account, you are not affecting the national savings rate. But, if you 

borrow to pay for some spending by the Federal government, then 

you are, in fact, affecting—you are reducing the national savings 

rate. 

Mr. BOLTEN. Correct. 

Mr. MCCRERY. Now let us go to taxes for just a moment, and 

I want to preface this by saying that as a result of 9/11 and the 

recession, going back to Mr. Rangel’s question of who is sacrificing, 

actually, quite a few people sacrificed in that scenario—those who 

lost their jobs, their families, so there were sacrifices made by 

Americans in that. What we try to do as a Congress, and I think 

the President, we have tried to create an economic atmosphere that 

was conducive to creating jobs so those folks who lost their jobs 

could get them back or could get other jobs and their families could 

feel better about their station in life and all those things. How important is it for us to extend the tax cuts that are already in place? 

Particularly, I want you to touch on the dividend and capital gains 

tax relief. 

Mr. BOLTEN. Mr. McCrery, I think it is absolutely crucial that 

we extend the tax cuts that you all have put in place to continue 

the kind of strong growth we are getting in the economy. It is especially important for those at the bottom end of the income spectrum 

because those are the people that suffer the most when we have 

an economic downturn, as they did during the economic downturn 

that greeted the President when he came into office. Dividends and 

capital gains, economists will tell you, are at the top of the list in 

promoting economic growth. 

Chairman THOMAS. The Chair believes that is an excellent first 

paragraph in a written response. 

Mr. BOLTEN. Thank you, Mr. Chairman. 


ccoleman on PROD1PC71 with HEARING
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Chairman THOMAS. Does the gentleman from Michigan, Mr. 

Camp, wish to inquire? 

Mr. CAMP. I do. Thank you, Mr. Chairman. Director Bolten, 

clearly, the economy is on strong ground. When you look at average 

GDP growth last year at over 4 percent, more than two million jobs 

created last year, wages and salaries increased, small business income up, aftertax income increased, what role do you believe that 

tax policy enacted in recent years had on this economic growth in 

terms of our economy and our budget? 

Mr. BOLTEN. The Council of Economic Advisors at the White 

House and the Treasury Department did a study recently in which 

they tried to isolate the effects of the tax cuts that had been enacted over the course of the President’s first term and their conclusion was—I think using cautious estimates—their conclusion was 

that last year, we had three million more jobs and 3.5 percent larger GDP than we would have had without the tax cuts. I think the 

tax cuts have been crucial in bringing us back out of a recession 

and I think they remain crucial for our projections of continued 

strong economic growth out over the rest of the budget window. 

Mr. CAMP. Can we afford to make the 2001 tax cuts on individual rates, capital gains, dividends, permanent and at the same 

time reform Social Security? Can we afford to do that? 

Mr. BOLTEN. My own judgment is that we can’t afford not to 

do that, that the most important thing for our fiscal position is a 

strong and growing economy. What put us in a fiscal hole at the 

start of this administration was primarily a weak economy. We 

now have a strong economy and we have revenues recovering. I 

think the continuation of the tax cuts that you all have put in place 

is crucial for our fiscal position going into the future and it is crucial if we are going to address issues like issues of our unfunded 

liabilities in our entitlement programs like Social Security. 

Mr. CAMP. Do you believe we can do that and still fulfill the 

President’s goal of cutting the deficit in half by 2009? 

Mr. BOLTEN. I believe we can. The last chart I had up there 

showed the deficit declining even with the Social Security financing 

elements included, declining to about 1.7 percent of GDP. That is 

well below the 40-year historic average of 2.3 percent. The estimates that I showed on that chart include an assumption that the 

President’s tax cuts will be continued. Now, we don’t do 10-year 

budgeting any more, but I think if you look out over the next five 

years in a budget window, you will see that trajectory continuing, 

that even with the Social Security financing elements included, we 

can and should have a continuing declining deficit as a percentage 

of our GDP if we have the strong economic growth that the tax cuts 

have helped generate. 

Mr. CAMP. If Congress does nothing to reform Social Security, 

as some of my Democrat friends suggest, how much will it cost ultimately the taxpayer if we delay acting on fixing the program, not 

to mention denying a whole generation of workers choice in their 

retirement options? 

Mr. BOLTEN. The actuaries have estimated that the overall 

present value of the unfunded liability on a permanent horizon is 

$10.4 trillion. That is a hard number for anybody to grasp, I think. 

But, an important element that you have just raised for this adVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 E:\HR\OC\23913.XXX 23913

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ministration and this Congress is that that huge number grows by 

at least $600 billion a year and more each year that we delay in 

addressing the problem. So, it is crucially important to our fiscal 

position that we address this unfunded liability as soon as possible. 

Mr. CAMP. Ultimately, what effect will that have on the economy if we do nothing? 

Mr. BOLTEN. I think the economy will be in serious difficulty— 

it is hard to say when, when the difficulty would come. But, we 

would face a serious financial crisis in this government if we did 

not address these long-term unfunded liabilities. Exactly when the 

crisis would hit us is uncertain because we now enjoy very low interest rates because there is a great deal of investor confidence in 

our economy. If we demonstrated that we were unwilling to take 

on these unfunded liabilities out into the future, I don’t know 

whether that confidence would be sustained, and if the confidence 

goes, so also go the low interest rates. That is why it is very important to act promptly to deal with the unfunded liabilities. 

Mr. CAMP. Thank you. Thank you, Mr. Chairman. 

Chairman THOMAS. I thank the gentleman. Does the gentleman 

from Maryland, Mr. Cardin, wish to inquire? 

Mr. CARDIN. Thank you, Mr. Chairman. Mr. Bolten, it is a 

pleasure to have you before the Committee. 

Mr. BOLTEN. Thank you, sir. 

Mr. CARDIN. I take it that you are in agreement with the Social 

Security actuaries in that there is enough revenue coming into the 

Social Security trust funds and their assets to be able to pay for 

benefits without any reductions for 37 years? 

Mr. BOLTEN. I believe the Social Security actuaries’ estimate 

was through 2042, yes. 

Mr. CARDIN. That is right. In fact, the CBO, I believe, is 10 

years later, that they believe there are enough assets and revenues 

coming in to actually take us to 2052. Of course, in 1996, the actuaries actually told us 2029, so it has improved 13 years solvency 

in the last 8 years without any change in law. The only reason I 

mention that, as I said yesterday to Secretary Snow, I don’t think 

we should rush to make a mistake. I think we have got to get this 

right. Has there ever been a Budget Director who has been able to 

predict 37 years into the future? Are you the first? 

[Laughter.] 

Mr. BOLTEN. If they were my own projections, I would be more 

hesitant about them. They are not. They are the Social Security actuaries’ projections. 

Mr. CARDIN. Right. Okay. Have we ever had an actuary who 

has been accurate that long? I would like to see that. I guess my 

concern, again, is that the administration is very reluctant to go 

beyond 5 years in the budget, and I understand that, even though 

Congress likes to do a little bit further. I just am concerned about 

the decisions that we are trying to make today based upon circumstances so far in the future with so many changes that could 

take place. 

Mr. BOLTEN. Congressman, may I comment on that, and that 

is that, of course, 2042, 2052, it might be 2032, but there is no 

doubt about the direction in which it is headed. 


ccoleman on PROD1PC71 with HEARING
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Mr. CARDIN. There is one part of your testimony that I take 

issue with that I think you could have been more helpful to us in 

this debate, where you talk about the projected deficit for 2005 

under your budget being $427 billion. I think that is wrong because 

you are counting Social Security trust funds. I think every Member 

of this Congress has said and made a commitment that these are 

trust funds and they shouldn’t be commingled with on-budget 

spending. So, why don’t we just get that out of our vocabulary and 

be transparent to the American people, let them know that the 

trust funds are trust funds and we are not going to commingle 

them as we present the budget deficit numbers. We are not going 

to mask the size of our spending. I think that would help us all 

in trying to get a handle on current spending. 

Mr. BOLTEN. Well, what we use our budget deficit figures for 

are to determine what are the current borrowing needs of the government. But, we are not masking it. There is even a table at the 

back of our book which shows exactly what the off-budget and onbudget liabilities are. Budget Directors before me have consistently 

referred to the overall budget, including the Social Security surplus 

that we are now enjoying, and I suspect when the Social Security 

system goes into deficit in the next decade, those numbers will 

have to be included, as well. 

Mr. CARDIN. I would suggest to you that when we were heading 

toward a surplus, in fact, had a surplus in the operating budgets, 

it is a lot easier to be able to do that. Now, when you are bragging 

that you are reducing the deficit by a certain amount over time, 

you are using Social Security surplus funds to equal that number 

and I just think it is wrong to do that because we have a growing 

surplus in Social Security over the next 5 years, whereas you are 

claiming we are having a reduced budget deficit when in reality 

you are using Social Security to mask the size of the deficit. I just 

would urge us all, those of us who believe that we should be paying 

for our current needs today, don’t keep using those Social Security 

trust funds because it is making it more difficult to deal with a 

budget as well as the solution to Social Security. 

Now, the private accounts in Social Security, I am one of those 

who strongly supports encouraging Americans to save more. But, 

by taking the money out of Social Security, I am glad that you acknowledge that that alone hastens insolvencies, does not improve 

the solvency of the system. In order to do that, in order to bring 

about the long-term needs of Social Security, you have got to cut 

benefits, and I think the President has made it clear we are not 

going to increase taxes, so we have got to cut benefits. 

If you could help us with how much we are going to have to cut 

benefits for those who are in private accounts and those who are 

not in private accounts, I know the CBO has estimated that there 

would be as much as an 80-percent reduction in the private accounts when your Social Security benefits, if we get to the expected 

return. If you could provide us with some numbers here today or 

by letter, I would appreciate it. How much of a reduction in benefits individuals who are 54 years old today or 27 years old today 

can expect if they enter a private account or if they don’t enter a 

private account. 


ccoleman on PROD1PC71 with HEARING
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Mr. BOLTEN. Congressman, if you will—I think you should 

await the full articulation of the President’s plan, but the one thing 

I can tell you is that whatever the full details of that plan are, they 

will be able to pay beneficiaries in the future, those, for example, 

who are retiring after 2042, a better benefit than the current Social 

Security system can now pay. 

Mr. CARDIN. Thank you, Mr. Chairman. 

Chairman THOMAS. We will, of course, rely on those same actuaries for those projections. Does the gentleman from Minnesota 

wish to inquire? 

Mr. RAMSTAD. Thank you, Mr. Chairman. Director Bolten, it is 

good to see you here. I think we need to set the record straight. 

There is a lot of hyperbole, as you know, and downright falsehoods 

as to the President’s proposal. There is an attempt that I have seen 

to scare seniors. My 85-year-old father received a mailing that alleged or that stated the voluntary personal accounts would jeopardize his benefits and the benefits of other seniors, retirees and 

near-retirees. I think that is loathsome, that critics are resorting 

to those tactics, those falsehoods, those scare tactics to scare seniors. As I said, I think we need to set the record straight. Let me 

just ask you straight out. For any and all Americans 55 years of 

age or older, will the Social Security system change in any way 

their benefits by adding the option of personal accounts for younger 

workers? 

Mr. BOLTEN. The President has been clear, for that group, no 

change. 

Mr. RAMSTAD. So, the President’s voluntary personal retirement accounts would not change benefits one iota, one penny, for 

any retiree or near-retiree, is that correct? 

Mr. BOLTEN. That is correct, sir. 

Mr. RAMSTAD. I think we need to, as I said, be honest in our 

discourse, and the level of discourse, I have never seen lower as far 

as Social Security is concerned with these, as I said, attempts to 

scare seniors. I think they are very, very unfortunate. Let us at 

least be honest, intellectually honest, as we argue the merits or 

lack thereof of the proposal. I also have seen the critics and heard 

the critics say, with reference to personal accounts, that Social Security voluntary personal accounts will not boost retirement income, but rather reduce it. The critics have described the President’s personal account proposal as workers borrowing against 

their Social Security benefits and then repaying government in the 

form of an automatic benefit reduction at retirement. Certainly, 

this is not an accurate portrayal of the President’s proposal, is it, 

Director Bolten? 

Mr. BOLTEN. I don’t believe it is. 

Mr. RAMSTAD. Would workers be borrowing payroll taxes they 

contribute to Social Security to be repaid with interest later? 

Mr. BOLTEN. I don’t believe that is—I am having trouble actually following what the idea there would be. 

Mr. RAMSTAD. Well, I mean—— 

Mr. BOLTEN. That certainly is not the President’s plan. 

Mr. RAMSTAD. Which underscores my point. Some of these attacks are absolutely ludicrous, they are so preposterous and absurd. Certainly, we need, though, I think, to clarify that the PresiVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 E:\HR\OC\23913.XXX 23913

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dent’s proposal for voluntary accounts is designed to boost retirement income, not to reduce it, as alleged by some critics. 

Mr. BOLTEN. That is correct, certainly well above what the current system now has an ability to pay. 

Mr. RAMSTAD. Given the time value of money and the principle 

of compound interest, I think that should be readily apparent to 

most honest critics, people working on this proposal. Thank you, 

Director Bolten. I will yield back. 

Chairman THOMAS. I thank the gentleman for the contribution 

of time. The Chair recognizes, if he wishes to inquire, the gentleman from Washington, Mr. McDermott. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. Welcome, Director Bolten. Listening to you and Secretary Snow yesterday reminded me that we had been transported back to the days of the 

Delphi Oracle and we were listening to the wizard try and figure 

out what was going on here. Yesterday before the Budget Committee, you said the President is planning on coming forward with 

a proposal to address the funding shortfall that faces Social Security. But, I have a Reuters story this morning that says the White 

House has told lawmakers it has no immediate plans to submit its 

own detailed proposal to Congress for overhauling Social Security. 

A senior Bush Administration official said no final decision has 

been made. If there comes a point where the President needs to 

spell out a specific legislation, he won’t hesitate. Now, I am sure 

you can understand our feeling of being a little at sea about what 

it is you are up here trying to sell. But, you are, I am sure, familiar 

with this article, which was printed in the Wall Street Journal. It 

is a memo from Peter Wehner, one of your friends up in the White 

House, and you are familiar with that memo, are you? 

Mr. BOLTEN. I am not, sir. 

Mr. MCDERMOTT. Well, let me read a little bit for you. I can’t 

imagine you don’t realize what is in here. ‘‘We simply cannot solve 

the Social Security problem with personal retirement accounts 

alone. If we borrow $1.1 to $2 trillion to cover transition costs for 

personal saving accounts and make no changes in wage indexing 

to price indexing, we will have borrowed trillions and will still have 

to confront more than $10 trillion in unfunded liability.’’ Now, my 

colleague, Mr. Cardin, asked you, will there be benefit cuts? Mr. 

Rangel says, why don’t you ask him if he is as clear about people 

under 55 as you are above 55. You say if you are above 55, there 

will be no cuts. Are you saying, or are you willing to say that if 

you are under 55 years of age, there will be no cuts? 

Mr. BOLTEN. Mr. McDermott, you need to wait for the full articulation of the President’s plan—— 

Mr. MCDERMOTT. Well, but when? How long are we going to 

sit up here and discuss ideas that float around? We can all have 

ideas. When are you going to write it down and make a law out 

of it? Franklin Delano Roosevelt brought it up to the Congress. 

Mr. BOLTEN. Well—— 

Mr. MCDERMOTT. Actually, Mrs. Clinton brought up a health 

care plan to the Congress. So, you see, if you bring it up here, you 

might run into some problems, and you can’t use this dodge, well, 

we have to wait until. We are having a hearing on Social Security 

and we know from what is going on in the White House—now, let 


ccoleman on PROD1PC71 with HEARING
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me give you an answer, because I know my time will run out and 

I think you have got a copy, or somebody is going to give you a 

copy of this. It is from the Budget Committee and it shows that 

permanent tax cuts are $11.6 billion, if we extend them. That is 

what it is going to cost over the next 10 years—the next 75 years. 

The tax cut to the top 1 percent is $3.4 trillion—billion—trillion, 

excuse me. Social Security shortfall is $3.7 trillion. Now, if you 

made one simple change in your tax cuts and took it away from the 

top 1 percent, there would be no problem for 75 years in the Social 

Security fund. So, it isn’t hard to solve this if you want to make 

the program solvent, stable. If you want to borrow $2 trillion and 

put us out into the stock market and hope that we can claw back 

enough from people that they will ultimately get some benefit—you 

can’t tell people what they are going to get under your plan because there is no plan. Reuters says it right out of the White 

House. How do you keep selling this to the people? 

Mr. BOLTEN. Mr. McDermott, if what you are proposing is that 

we raise taxes in order to try to cover the Social Security—— 

Mr. MCDERMOTT. No, I just said let the law expire like it is. 

That is not raising taxes. That is just not getting in the way of it. 

You wrote the law that way. That is the way the President wanted 

it, with an expiration date out there 10 years. 

Mr. BOLTEN. Well, however—— 

Mr. MCDERMOTT. We always knew he was lying. He really 

wanted a permanent tax cut, but he couldn’t get it, so he said, let 

us let it go, right? 

Mr. BOLTEN. However you want to characterize it, Mr. 

McDermott, I don’t think tax increases are the answer for solving 

the Social Security problem, particularly within the Social Security—— 

Mr. MCDERMOTT. What is your financing plan, then? There is 

nothing in this budget. 

Chairman THOMAS. The gentleman’s time has expired and the 

Chair would ask unanimous consent that the chart that the gentleman from Washington used would be made a part of the record, 

with the understanding that although it was represented to come 

from the Budget Committee, it says, ‘‘prepared by the Democratic 

staff of the House Budget Committee.’’ 

[The information follows:] 


ccoleman on PROD1PC71 with HEARING
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The Chair would recognize the gentleman from Ohio, if he wishes 

to inquire. 

Mr. MCDERMOTT. Mr. Chairman, could I ask one question? 

Chairman THOMAS. Certainly. 

Mr. MCDERMOTT. This is just a procedural question. We used 

a Power Point today and I brought this on Power Point, but I was 

told that it couldn’t—the staff tried to make it work. Is there a way 

that we are going to be able to use Power Point in this—— 

Chairman THOMAS. I would tell the gentleman that I was desirous of doing that. One of the things that the Director indicated to 

us was that he wanted to use it. We spent the early portion of the 

morning double checking, making sure everything worked. As we 

move forward with this new technology, we are going to be able to 

do it, but the ability to do it instantly is probably going to produce 

a few disasters, so that if Members—— 

Mr. MCDERMOTT. There is a learning curve. 

Chairman THOMAS. Yes, there is a learning curve and we would 

like to do it without public presence because then you will want to 

take the time to get it fixed if it doesn’t come up. If Members in 

the future have material that they wish to present in similar to 

this format, which I think will be very helpful to the Members, we 

need a little bit of lead time to try to see if we can, in fact, make 

it work and that it would be available to us. 

Mr. MCDERMOTT. Thank you. 

Chairman THOMAS. So, it is both the newness of the system 

and the timeliness problem of having it available. 

Mr. POMEROY. Mr. Chairman? 

Chairman THOMAS. The Chair looks forward to many multicolor presentations on the part of the Members with this new wonderful stuff. The gentleman from North Dakota—— 


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Mr. POMEROY. Just a quick procedural issue. The gentleman 

from Washington referenced a memo from the White House, Peter 

Wehner. I also referenced this yesterday and will again in my questions today. I wonder if we might include it—— 

Chairman THOMAS. Without objection, the Chair will also place 

that material in the record. 

[The information follows:] 

Memo on Social Security from Peter Wehner, Director of Strategic 

Initiatives for the Bush Administration 

From: Wehner, Peter H. [mail to: Peter_H._Wehner@who.eop.gov] 

Sent: Monday, January 03, 2005 2:57 PM 

Subject: Some Thoughts on Social Security 

I wanted to provide to you our latest thinking (not for attribution) on Social Security reform. 

I don’t need to tell you that this will be one of the most important conservative 

undertakings of modern times. If we succeed in reforming Social Security, it will 

rank as one of the most significant conservative governing achievements ever. The 

scope and scale of this endeavor are hard to overestimate. 

Let me tell you first what our plans are in terms of sequencing and political strategy. We will focus on Social Security immediately in this new year. Our strategy 

will probably include speeches early this month to establish an important premise: 

the current system is heading for an iceberg. The notion that younger workers will 

receive anything like the benefits they have been promised is fiction, unless significant reforms are undertaken. We need to establish in the public mind a key fiscal 

fact: right now we are on an unsustainable course. That reality needs to be seared 

into the public consciousness; it is the pre-condition to authentic reform. 

Given that, our aim is to introduce market reforms in Social Security and make 

the system permanently solvent and sustainable. 

We intend to pursue the first goal by using our will and energy toward the creation of Personal Retirement Accounts. As you know, our advocacy for personal accounts is tied to our commitment to an Ownership Society—one in which more people will own their health care plans and have the confidence of owning a piece of 

their retirement. Our goal is to provide a path to greater opportunity, more freedom, 

and more control for individuals over their own lives. That is what the personal account debate is fundamentally about—and it is clearly the crucial new conservative 

idea in the history of the Social Security debate. 

Second, we’re going to take a very close look at changing the way benefits are calculated. As you probably know, under current law benefits are calculated by a ‘‘wage 

index’’—but because wages grow faster than inflation, so do Social Security benefits. 

If we don’t address this aspect of the current system, we’ll face serious economic 

risks. 

It’s worth noting that wage indexation was not part of the original design of Social 

Security. The current method of wage indexation was created in 1977, under (you 

guessed it) the Carter Administration. Wage indexation makes it impossible to 

‘‘grow our way’’ out of the Social Security problem. If the economy grows faster and 

wages rise, this produces more tax revenue. But the faster wage growth also means 

that we owe more in Social Security benefits. This has produced a never-ending 

cycle of higher tax burdens, even during periods of robust economic growth. It is 

the classic case of the dog chasing his tail around the tree; he can run faster and 

faster, and never make any progress. 

You may know that there is a small number of conservatives who prefer to push 

only for investment accounts and make no effort to adjust benefits—therefore making no effort to address this fundamental structural problem. In my judgment, that’s 

a bad idea. We simply cannot solve the Social Security problem with Personal Retirement Accounts alone. If the goal is permanent solvency and sustainability—as 

we believe it should be—then Personal Retirements Accounts, for all their virtues, 

are insufficient to that task. And playing ‘‘kick the can’’ is simply not the credo of 

this President. He wants to do what needs to be done for genuine repair of Social 

Security. 

If we duck our duty, it can have serious short-term economic consequences. Here’s 

why. If we borrow $1–2 trillion to cover transition costs for personal savings accounts and make no changes to wage indexing, we will have borrowed trillions and 

will still confront more than $10 trillion in unfunded liabilities. This could easily 

cause an economic chain-reaction: the markets go south, interest rates go up, and 


ccoleman on PROD1PC71 with HEARING
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the economy stalls out. To ignore the structural fiscal issues—to wholly ignore the 

matter of the current system’s benefit formula—would be irresponsible. 

Here’s a startling fact: under current law, an average retiree in 2050 would be 

scheduled to receive close to 40 percent more (in real terms) in benefits than an average retiree today—and yet there are no mechanisms in place to produce the revenue 

to pay out those benefits. No one on this planet can tell you why a 25-year-old person today is entitled to a 40 percent increase in Social Security benefits (in real 

terms) compared to what a person retiring today receives. 

To meet those benefit levels, one option would be to raise the age at which people 

receive benefits. If we followed the formula used when Social Security was first created—make the age at which you receive Social Security benefits above the average 

age of mortality—we’d be looking at raising the benefit age to around 80. That ain’t 

gonna happen. 

Another way to meet those benefit levels is through the traditional Democrat/liberal way: higher taxation. According to the latest report of the Social Security Trustees, the current system’s benefit formula would require some $10 trillion in tax increases over the long term. We’d therefore need to raise the payroll tax almost 20 

percent simply to provide wage-indexed benefit levels to those born this year. 

This will all sound familiar. In the past, the way Congress usually addressed the 

built-in funding problem was by raising payroll taxes (from 2 percent in 1937 to 12.4 

percent today). In fact, Congress has raised Social Security taxes more than 30 

times—but it has never addressed the underlying problem. Avoiding the core issue 

by raising taxes is not the modus operandi of this President. 

The other key point, as you know, is that personal accounts, through the miracle 

of compound interest, will provide workers with higher retirement benefits than 

they are currently receiving from Social Security. 

At the end of the day, we want to promote both an ownership society and advance 

the idea of limited government. It seems to me our plan will do so; the plan of some 

others won’t. 

Let me add one other important point: we consider our Social Security reform not 

simply an economic challenge, but a moral goal and a moral good. We have a responsibility to fulfill the promise of Social Security, not undermine it. And we have 

a duty to ensure that we do not create an inter-generational conflict—which is precisely what will happen if the Social Security system is not reformed. We need to 

retain strong ties between the generations, which is of course a deeply conservative 

belief. 

The debate about Social Security is going to be a monumental clash of ideas— 

and it’s important for the conservative movement that we win both the battle of 

ideas and the legislation that will give those ideas life. The Democrat Party leadership, the AARP, and many others will go after Social Security reform hammer and 

tongs. See today’s silly New York Times editorial (its only one for the day) as one 

example. But Democrats and liberals are in a precarious position; they are attempting to block reform to a system that almost every serious-minded person concedes 

needs it. They are in a position of arguing against modernizing a system created 

almost four generations ago. Increasingly the Democrat Party is the party of obstruction and opposition. It is the Party of the Past. 

For the first time in six decades, the Social Security battle is one we can win— 

and in doing so, we can help transform the political and philosophical landscape of 

the country. We have it within our grasp to move away from dependency on government and toward giving greater power and responsibility to individuals. 

There are of course other important issues dealing with Social Security; for now, 

though, I’ve covered quite enough ground. I wanted to let you know where things 

stand. If you have any questions, or if we can send you anything to clarify our plans 

and respond to critics, just let me know. The President remains flexible on tactics— 

and rock-solid on the principles. But there’s nothing new there. 

In one of his last public acts of an extraordinary public life, the late Democratic 

Senator from New York, Daniel Patrick Moynihan, cochaired the President’s Commission to Strengthen Social Security. In the introduction of its report, Senator 

Moynihan (along with Richard Parsons, his cochair) wrote, ‘‘the time to include personal accounts in such action [reforming Social Security] has, indeed, arrived. The 

details of such accounts are negotiable, but their need is clear.... Carpe diem!’’ 

And so we shall. 

f 


ccoleman on PROD1PC71 with HEARING
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Mr. BRADY. Mr. Chairman? 

Chairman THOMAS. The gentleman from Texas? 

Mr. BRADY. Very quickly, I recognize that this chart is prepared 

by the Democratic staff. The source of it is not clear. Can that be 

clarified before it is put in the record? 

Chairman THOMAS. Who is CBPP? 

Mr. BRADY. Is that the Center for Budget Policy Priorities? 

Mr. MCDERMOTT. The Center on Budget Priorities and something or other, another Washington acronym. I don’t know what it 

means. 

Mr. BRADY. As long as we clarify that this group is deathly opposed to both tax relief and Social Security reform—— 

Chairman THOMAS. Well, the gentleman should have picked 

that up with the scribbling in the lower right-hand corner, which 

indicates where it was faxed from, I assume. 

Mr. LEVIN. I would object to any characterization of the source. 

If you don’t know what CBPP is, we will tell you, but I don’t think 

any of us should characterize—— 

Mr. BRADY. Other than the mumbling on what the PP might 

stand for, I think—— 

Mr. LEVIN. Policy and Priorities. 

Mr. BRADY. Okay. This group is historically opposed to tax relief 

and Social Security reform as proposed—— 

Mr. LEVIN. That is not true. 

Mr. BRADY. I think it is always important—— 

Mr. LEVIN. That is not true. 

Mr. BRADY. To understand the source. That is all. 

Mr. LEVIN. It is just not true. 

Chairman THOMAS. Hope springs eternal, and the President’s 

current opportunity to persuade people means even this group is 

open to possible persuasion. I just wanted to clarify the fact that 

this was not Budget Committee prepared, but by the Democratic 

staff from another source. 

Mr. MCDERMOTT. Mr. Chairman—— 

Chairman THOMAS. The gentleman from Ohio—— 

Mr. MCDERMOTT. Could I just say—— 

Mr. PORTMAN. Thank you, Mr. Chairman. 

Mr. MCDERMOTT. These figures were—Mr. Brady, the figures 

from the Social Security shortfall came from the SSA. These are 

not—they are taken from their data. 

Mr. BRADY. And manipulated by the source. My only point is, 

let us just be open about what the source is and we can all draw 

our own conclusions. 

Chairman THOMAS. The Chair would indicate that the source 

rather than initials would be spelled out in its entirety so that people could understand who they are. 

Mr. BRADY. Mr. Chairman—— 

Chairman THOMAS. The gentleman from Ohio is recognized. 

Mr. PORTMAN. Thank you, Mr. Chairman. I promise not to ask 

that any charts be inserted into the record to avoid any further disruptions to the Committee. I want to start by commending the 

budget. This administration has a lot to be proud of in terms of the 

economic growth we have seen over the last year, and when Mr. 

Bolten was before this Committee previously and before the Budget 


ccoleman on PROD1PC71 with HEARING
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Committee, we weren’t sure, frankly, what the results of the tax 

relief would be, and now we are seeing it, incredible growth over 

the last year. We have also seen 9.2-percent increase in receipts in 

2005. Despite all of the hand-wringing we heard about the 2001, 

2002, 2003 tax relief, that it was going to result in robbing the 

Treasury, we have seen, what, an increase in receipts to the government. 

The budget reflects that going forward. It says we need to promote pro-growth economic policy on the one hand. On the other 

hand, we need to restrain spending, which is the only thing that 

works. We saw this in the late nineties going into this decade. We 

need to restrain our spending and have the economy grow. So, I 

commend you for it. We may have some differences on some specifics, but this is an excellent budget because it does fund our top 

priorities and yet has spending restraint and pro-growth economic 

policies and I think that is the solution for us indeed meeting this 

target of reducing the deficit in half by 2009. 

I was interested in the discussion you had a moment ago, Director Bolten, with Mr. McDermott talking about the fact that you 

guys don’t have all the details yet on your plan and when are you 

going to write it down. I guess you could have said to him, when 

are you going to write your plan down, but then I think he said 

what it is, which is raising taxes. Saying that taxes on the wealthy 

can pay for all of our Social Security fixes, I don’t believe that is 

true. I wonder if you could comment on that quickly, as to whether 

not allowing the tax cuts to continue, in other words, raising taxes 

on the top 1 percent would pay for all the Social Security needs 

over the next decade. 

Mr. BOLTEN. Mr. Portman, I don’t believe they would at all and 

it would also require a relatively radical change from the traditional Social Security system that operates within its own system 

to now drawing revenues out of the regular income tax. 

Mr. PORTMAN. I would also ask you, because there is this assumption, well, gee, just raising taxes on the rich should solve this 

problem. You responded earlier that tax relief has helped grow the 

economy, particularly some tax relief that is pro-growth was, and 

I would put that in that category. What happens with regard to 

taxes as a percentage of our economy? Right now, we are at 16- 

some percent. Let us assume that the President does make permanent his tax relief which is in his budget and provided for. What 

happens in terms of the percentage of taxes as to our economy, our 

GDP? Does it go up or down? It must go down, right? 

Mr. BOLTEN. It goes up—— 

Mr. PORTMAN. It goes up? Interesting. So, we are going to actually have more revenue coming in, and as a percentage of GDP, 

taxes actually go up, even though we make permanent the tax relief you have put in place. 

Mr. BOLTEN. Yes. The budget figures that you will see reflected 

in our documents assume the full permanence of the tax cuts that 

the President proposed and you enacted, and even with those tax 

cuts in place, we see revenues rising steadily up to about 18 percent by the end of the budget window, which is the historic average 

that taxes have taken as a percent of our economy. 


ccoleman on PROD1PC71 with HEARING
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Mr. PORTMAN. So, the notion we are undertaxed, the percentage actually rises during this period that we make the tax relief 

permanent. How about on distribution? Who is paying these taxes? 

I assume from what I am hearing to the side that those who are 

higher-income Americans are paying less of the burden, right? 

Mr. BOLTEN. The tax cuts that you enacted and that the President signed are often considered to have made the Tax Code less 

progressive. The truth is that they have made the Tax Code more 

progressive. 

Mr. PORTMAN. Interesting. So—— 

Mr. BOLTEN. If you—— 

Mr. PORTMAN. Can you give me some numbers on that? 

Mr. BOLTEN. If you take a segment of the population, say the 

top 5 percent of income earners in this country—that is people 

making more than $140,000 a year—in the absence of the President’s tax cuts, they would be paying a little less than 52 percent 

of the overall income tax take of this country. After the President’s 

tax cuts, they pay a little more than 54 percent of the total income 

tax take of this country. The Tax Code, as a result of the changes 

that you and the President have made, has become more, rather 

than less, progressive. Everybody got a tax cut, but the Code is 

more progressive than it used to be. 

Mr. PORTMAN. I appreciate that clarification. I just think as we 

are looking at how to fund our key priorities, including Social Security, and in my view, I think the power of compound interest, having those assets out there building up, is a solution to part of the 

Social Security problem, one we definitely need to allow our young 

people to access. But, we need to look at the tax situation and realize that tax relief has helped to grow this economy. At a minimum, 

we should not be raising taxes. In fact, taxes will grow as a percentage of the economy and those wealthier Americans are paying 

more of the load, not less of the load, under the President’s proposals. I think we need to lay that out. Again, I would commend 

you on the budget. I think it reflects those priorities. I think it will 

enable us to reduce this deficit in half and be sure that Social Security, therefore, is on a more solid footing. I thank you, Mr. Director. 

Mr. BOLTEN. Thank you. 

Chairman THOMAS. I thank the gentleman. Does the gentleman 

from Georgia, Mr. Lewis, wish to inquire? 

Mr. LEWIS. Thank you very much, Mr. Chairman. Mr. Director, 

I want to thank you for being here. Mr. Director, apparently during 

the briefing on the budget on Monday, you told a group that you 

entered this discussion, you entered this debate with a happy spirit. I assume your spirit is still happy. But, how could your spirit 

be so happy with Social Security facing a major crisis, major problems, bankruptcy, as the President put it? I would like for you to 

just elaborate. I want to know your mindset when you talk about 

privatizing Social Security, when you talk about making a choice, 

a decision between making the tax cuts permanent and privatizing 

Social Security. 

Mr. BOLTEN. Mr. Lewis, I don’t believe we face a choice and I 

am very optimistic, A, about the short—and medium-term path 

that we are on if we adopt the President’s pro-growth policies and 

spending restraint. I am very optimistic about the short—and meVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00042 Fmt 6633 Sfmt 6602 E:\HR\OC\23913.XXX 23913

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dium-term deficit path we are on. In the long-run, the serious problem we face is in the unfunded liabilities in our entitlement programs and I am optimistic that the President and this Congress 

will come around on the issue of Social Security to finding a way 

to fix that problem permanently. 

Mr. LEWIS. Is it true that when the President was moving 

around on the stump last week, didn’t he say even with private accounts, this will not fix Social Security for the long run? Why is it 

so sacred? Why is it so special? 

Mr. BOLTEN. Personal accounts, I think, are a tremendous innovation for the Social Security system—— 

Mr. LEWIS. I should have said personal accounts, I guess, but 

it is privatization of Social Security. 

Mr. BOLTEN. The personal accounts are a tremendous innovation for many reasons. One of them is that you are simply letting 

people keep more of their own money and control it themselves, 

pass it on to their heirs, and basically exercise more control over 

their own retirement and receive a better return on their money 

than the Social Security is now able to promise. So, it is a very important innovation for the system, and as part of comprehensive reform, I think it is very good fiscal news for the country, as well. 

Mr. LEWIS. Mr. Director, do you subscribe to the idea, to the 

concept that Social Security is a contract with the American people, 

it is a matter of trust that we promised the American people, going 

back to the New Deal, FDR? So, is this administration proposing 

to violate this sense of trust, this contract? 

Mr. BOLTEN. Oh, I think on the contrary, what this administration is proposing to do is fulfill the trust and the contract. The 

problem we are facing now is that by the time some of our youngest workers are ready to retire, the system will not be able to pay 

the benefits it promises. We need to fix that system. 

Mr. LEWIS. The President said on the stump last week that this 

is not fixing it. You can’t have it both ways. You can’t say you are 

fixing it and then the President is saying it will not fix it, it will 

not make it whole. 

Mr. BOLTEN. I am not sure what comment of the President you 

are referring to, but—— 

Mr. LEWIS. President Bush, because he is the President, and he 

said someplace during the past few days when he was campaigning 

in five or six States that personal accounts, private accounts, would 

not fix the problem or the crisis of Social Security alone. 

Mr. BOLTEN. I don’t know what the exact quote of the President 

is, but I said something similar here just this afternoon, which is 

that in and of themselves, the personal accounts don’t solve the solvency problem of Social Security. But, they are an integral part to 

a comprehensive plan that does fix the system and does ensure 

that our workers get the kind of benefit they expect. 

Mr. LEWIS. You said to some others that you don’t have the 

blueprint, you don’t have the road map, you don’t have the complete plan. How can you bring a piece, a part, however this piece, 

this part is going to fit into the overall plan? 

Mr. BOLTEN. I think the President has kicked off the debate 

with a portion of the proposal, which is the parameters of the personal account. I think a lot of the Members in the past have welVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00043 Fmt 6633 Sfmt 6602 E:\HR\OC\23913.XXX 23913

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comed the opportunity to work with the administration before any 

proposal is in concrete and that is the process that is ongoing now. 

It is a process of back and forth with the Chairman and other 

Members who are interested in Social Security reform. 

Mr. LEWIS. Thank you. Thank you, Mr. Chairman. 

Mr. BOLTEN. Thank you, sir. 

Chairman THOMAS. I thank the gentleman very much. Does the 

gentleman from Arizona, Mr. Hayworth, wish to inquire? 

Mr. HAYWORTH. I do, Mr. Chairman, and I thank you, and to 

Mr. Bolten, welcome to the Committee. I listened with interest to 

my friend from Georgia and I thank him for his comments. Of 

course, he mentioned the historical precedent of President Franklin 

Roosevelt, and at least through some media outlets, we have seen 

that while we describe personal accounts as an innovation, at least 

somewhere early on in the historical record, President Franklin 

Roosevelt spoke of these same types of accounts eventually. I think 

it is perhaps interesting not to view this in a vacuum but to take 

a more comprehensive look at the true history and legacy of Social 

Security and the challenges that even FDR knew we would confront 1 day as a nation that grows and a nation that changes and 

a nation that evolves. 

In fact, let me read this into the record. In an address to Congress on January 17, 1935, this is what President Franklin Roosevelt said, quoting now, ‘‘For perhaps 30 years to come, funds will 

have to be provided by the States and the Federal government to 

meet these pensions.’’ But, after that, he explained, it would be 

necessary to move to what he called, quote, ‘‘voluntary contributory 

annuities by which individual initiative can increase the annual 

amounts received in old age,’’ close quote. So, President Franklin 

Roosevelt made a call in the establishment of Social Security directly anticipating today’s reform agenda. Quoting again from 

President Roosevelt, ‘‘It is proposed that the Federal government 

assume one-half of the cost of the old-age pension plan which ought 

ultimately to be supplanted by self-supporting annuity plans,’’ close 

quote. 

Mr. Bolten, do you have any reason to doubt the authenticity of 

President Franklin Roosevelt’s remarks made in 1935? 

Mr. BOLTEN. No, sir. It actually comes as news to me, but very 

interesting and encouraging news. 

Mr. HAYWORTH. In the spirit of bipartisanship, do you welcome 

that account from the record? 

Mr. BOLTEN. I do, Mr. Hayworth, and I think it reflects that 

over time, and I would hope on a bipartisan basis, that we can recognize the importance that this country has always put on individual initiative, individual ownership, and the power of the marketplace to improve lives everywhere in this country. I think that 

is what personal accounts do promise. 

Mr. HAYWORTH. I thank you, sir, and I have no further questions. I thank the Chair and thank our Director. 

Chairman THOMAS. I thank the gentleman. The gentleman 

from New York indicates to me that he was there and he doesn’t 

remember that quote. 

[Laughter.] 


ccoleman on PROD1PC71 with HEARING
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Does the gentleman from Massachusetts, Mr. Neal, wish to inquire? 

Mr. NEAL. Thank you very much, Mr. Chairman. Mr. Bolten, at 

least ten times in your testimony, you have referenced private accounts. It was only when Mr. Lewis used the word personal account that you kind of came back to personal account. Which one 

is it, a private account or personal account? 

Mr. BOLTEN. We prefer the phrase personal account. 

Mr. NEAL. You prefer the phrase, but the idea is the private account? 

Mr. BOLTEN. It may be a question of vocabulary, but personal 

accounts, I think, is the right way to characterize them because 

these are accounts that are still part of a government system. The 

management would still be in the government. It is not, as some 

would have you—— 

Mr. NEAL. Mr. Bolten, let me ask you, yesterday, Mr. Snow was 

here. He indicated that there were only two ways to balance the 

budget here. He said one of those would be to grow the economy 

and the other was to restrain spending. I think, as a group, I think 

you have come up with a third way, and that is not to include other 

costs within the budget. Are you familiar with Lawrence Lindsey? 

Mr. BOLTEN. I am. 

Mr. NEAL. Do you have a high opinion of him? 

Mr. BOLTEN. Very high. 

Mr. NEAL. Well, do you think he was accurate when he said the 

cost of the war was going to be between $200 and $300 billion? 

Mr. BOLTEN. Well, I don’t know exactly which reference—— 

Mr. NEAL. Well, do you think he was accurate? 

Mr. BOLTEN. I don’t know—— 

Mr. NEAL. Are you headed toward $200 to $300 billion? 

Mr. BOLTEN. The costs of the war are probably headed in that 

direction. 

Mr. NEAL. Well, how come the administration chose to lowball 

the number. 

Mr. BOLTEN. I don’t believe the administration—— 

Mr. NEAL. Oh, they sure did. They said $40 to $60 billion, and, 

in fact, 40 to 60 days, we would be out of there. Where are we 

headed with the cost of the war, Mr. Bolten? Is that discussed at 

all? Are we going to continue to use supplemental requests from 

the administration so that we can masquerade the size of the cost 

of the war and then keep it off-budget? 

Mr. BOLTEN. We are going to continue to use supplemental requests for the cost of the war and that is the sound budgeting thing 

to do because if we do not operate on a supplemental basis, we find 

that those costs are entered into the base of the budget and never 

come out. 

Mr. NEAL. Mr. Bolten, we have discussed the idea of AMT since 

you were a child in Congress. Do you think there is a chance that 

that might be included in budget projections, as well? Is that something we are going to take up, do you think, in the near future? 

Mr. BOLTEN. The President has suggested that it be taken up 

in the context of fundamental tax reform. 


ccoleman on PROD1PC71 with HEARING
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Mr. NEAL. Let me ask you this. Can you assure that 40-yearold that might be listening today or watching today that there will 

be no benefit cut under your privatization plan of Social Security? 

Mr. BOLTEN. What I can assure that 40-year-old is that the current system is unable to pay the benefits—— 

Mr. NEAL. Can you guarantee him that he is going to get and 

derive the same benefit down the road that the current Social Security system promises? 

Mr. BOLTEN. What I can guarantee him is that the current system can’t pay the benefit—— 

Mr. NEAL. Would you suggest, perhaps, that he not invest in 

Enron stock down the road? 

Mr. BOLTEN. I am not even sure whether Enron is still trading, 

but that—— 

Mr. NEAL. Well, I am not sure that it is still trading, either, and 

that is the point. For those that did invest in Enron stock as part 

of their retirement savings—— 

Mr. BOLTEN. Well, if you are suggesting that the personal accounts which are referred—— 

Mr. NEAL. I am suggesting that retirement is a three-legged 

stool, personal savings, private pension, and Social Security. As it 

relates to Enron, only one of the three is probably secure, Social 

Security. 

Mr. BOLTEN. Mr. Neal, if I could finish the sentence, the personal accounts to which I was referring are—— 

Mr. NEAL. Is it private or personal, Mr. Bolten? 

Mr. BOLTEN. It is personal. 

Mr. NEAL. Okay. 

Mr. BOLTEN. The personal accounts to which I was referring 

are ones that do not permit the individual to invest in individual 

stocks. It would be like the Thrift Savings Plan (TSP), which has 

index-based stocks and so on and over time—— 

Mr. NEAL. I would say that is in addition to Social Security. 

Mr. BOLTEN. Historically, those are not risky investments. 

Mr. NEAL. That is in addition to Social Security. It is not as a 

replacement for Social Security. 

Mr. BOLTEN. Well, no, the personal accounts I am talking about 

would be part of a comprehensive Social Security plan. 

Mr. NEAL. When do you think we might anticipate seeing a plan 

here? Yesterday, if you were a Republican Member of the Committee and you asked the Secretary of the Treasury a question, you 

got an answer in the specific. If you were a Member on this side 

and you asked the Secretary a question, we were told there really 

wasn’t a plan yet. 

Mr. BOLTEN. Well, my expectation is that the full details of a 

plan will depend in large part on the consultations with the Congress, including the Chairman. 

Mr. NEAL. Thank you, Mr. Chairman. 

Chairman THOMAS. The gentleman from New York doesn’t remember the President saying we would be out in 40 days, is that 

right? 

[Laughter.] 

Mr. RANGEL. No, I just, in the spirit of bipartisanship, I just 

hope that the Budget Director would clarify what he meant when 


ccoleman on PROD1PC71 with HEARING
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he suggested that the President would be presenting a plan after 

consultation with the Congress. Did you mean Republicans in the 

Congress or—because if we waited for him to get in touch with the 

Democrats, there won’t be a bill. 

Mr. BOLTEN. The President, I know, will be open to working 

with Members of either party who want to participate in a comprehensive Social Security reform plan—— 

Mr. RANGEL. Oh, you are so good. You are much better—it has 

been a much better day with you, I can tell you that. Thank you 

so much. 

Chairman THOMAS. I thank the gentleman. The President is 

willing to work with every live Member of the House and the Senate. 

[Laughter.] 

Does the gentleman from Missouri wish to inquire? 

Mr. HULSHOF. I thank the Chairman. To my friend, Mr. Neal, 

is the TSP a private plan or a personal plan? 

Mr. NEAL. I think it is—do you want an answer? 

Mr. HULSHOF. Sure. 

Mr. NEAL. I think it is quasi-private. 

Mr. HULSHOF. I think, reclaiming my time, as Mr. Bolten suggested—— 

Mr. NEAL. Is that a satisfactory answer, or—— 

Mr. HULSHOF. I think, obviously, the TSP, if, in fact, it is used 

as a model, is something that I think probably—I am not going to 

inquire of all the Members, but each Member of Congress has confidence in that type of model for a plan and I think, again, there 

are many ideas out there. In fact, my friend from North Dakota, 

Mr. Pomeroy, may recall—I am not sure if it was his last visit to 

the Show-Me-State of Missouri, but back in 1998, Mr. Pomeroy, in 

February, you and I shared the stage with the then-President of 

the United States in Kansas City, President Bill Clinton. It was 

styled as the first ever townhall debate on the future of Social Security. Our President at that time talked about the idea of getting 

a better rate of return. In fact, as Mr. Pomeroy probably remembers, as he and I were the only Representatives from the House of 

Representatives there, that the insistence was that we craft a solution sooner rather than later, I think the gentleman recalls. Of 

course, we had some interesting discussion about how to accomplish that. 

Then, I think, Mr. Bolten, I applaud the President. Something 

that really struck home on a personal note during the State of the 

Union last week was as the President talked about if you have a 

5-year-old child, which we do, a 5-year-old and a 2-year-old daughter, you would not wait until my daughter is a senior in high school 

before you begin to start thinking of, well, how are we going to afford college? You obviously want to look ahead and make those necessary decisions as a family. There is this discussion, which I think 

is a bit of a—kind of puts us in the wrong direction when we say, 

well, is it 2042 or is it 2052 and what sort of assumptions are being 

made. I have talked about what Chairman Thomas has brought up. 

The fact is, the baby boomer generation, what year do we generally 

designate as the first year of the baby boomer generation, Mr. 

Bolten? Born in what year? 


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Mr. BOLTEN. I am not sure. I think it is 1948? 

Mr. HULSHOF. Nineteen-forty-six. 

Mr. BOLTEN. Forty-six. Thank you. 

Mr. HULSHOF. We never ask a question unless we know the answer. Early retirement age, even though for younger workers we 

have raised the retirement age, but still for those seniors who 

choose to opt out and take early retirement is what year? It is still 

62. Here is a tougher question for you which I didn’t know the answer to until the SSA actuaries gave us this number. Would you 

care to hazard a guess as to what percentage of senior citizens 

choose to opt out for early retirement? Do you want to hazard a 

guess? 

Mr. BOLTEN. No, I am going to kick that back to you, Mr. 

Hulshof. 

Mr. HULSHOF. Fifty-five percent. Fifty-five percent of senior 

citizens—again, this is obviously something very lawful and legal 

and it is their own choice to do—55 percent of our senior citizens 

choose the age of 62 to opt out of the workforce and then begin to 

rely upon retirement savings through Social Security. So, if my 

math is correct, not fuzzy math, but if take 1946 and you add the 

age of 62, we know that in 3 years, in the year 2008, over half of 

the senior citizen population, those that could be enlisted to help 

us craft a solution, are going to voluntarily choose to take themselves out of the workforce. Again, we can banter about the assumptions and whether money going out in 2018 as far as the 

money that comes in through payroll taxes. I agree with what 

President Clinton said in the Show-Me-State back in 1998. We 

have an obligation to act sooner rather than later. 

I have a technical question for you. My time is running short. I 

have a concern on a specific provision from the administration’s 

proposal regarding power rates and the Power Marketing Administration that, with your permissions, Mr. Bolten, can I submit that 

to you in writing? There are over half of my constituents, over 

400,000 of whom depend upon rural electric co-ops for their power 

source, and so I have a concern, but I will submit that in writing. 

Never one to relinquish time that remains, I also want to applaud 

the White House—oops—for the permanent repeal of the death tax. 

Again, I am honored our former colleague, Jennifer Dunn, passed 

along this effort to me as far as the complete repeal of the death 

tax and I applaud the White House for acknowledging that. Thank 

you, Mr. Chairman. 

Chairman THOMAS. The gentlemen’s time has bountifully expired. Does the gentleman from Louisiana, Mr. Jefferson, wish to 

inquire? 

Mr. JEFFERSON. Thank you, Mr. Chairman. I want to make 

two statements before I ask a question. The first is that it seems 

terribly disingenuous to have remarks made when one states that 

expiring tax ought to be used for a certain purpose to say that it 

is a tax increase is being urged because it is about as nonsensical 

to say that as to say that those who voted for taxes to expire in 

the first place voted for a tax increase at the point of expiration. 

It absolutely make no sense. If those on the other side voted for 

a tax that is going to end at a certain time, they obviously voted 

for it to increase at the end of that period. I think we ought to have 


ccoleman on PROD1PC71 with HEARING
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an open discussion about how we can get at this issue without distorting it with the points at hand. 

Mr. McDermott’s point, also, I would like to kind of give him a 

defense. When he talks about using an expiring tax revenue and 

the retort is that it is a radical departure because we fund Social 

Security with payroll taxes, when the government goes to redeem 

the bonds in the Social Security trust fund that we are now borrowing from, we are going to use moneys from general revenues to 

pay for it. It is not any more radical a departure than Mr. 

McDermott is talking about. 

Now, let me ask two questions, because of all the things that 

aren’t clear about the President’s plan, there is one thing that is 

clear and that is that he does have a structure he has announced 

about the private accounts and one element of these accounts is the 

so-called offset or claw-back that would cut the Social Security benefits for those who refuse to open an individual account. That proposal has created a lot of confusion and misunderstanding and I 

want to clarify it if I can. As I understand it, this proposal would 

reduce your guaranteed Social Security benefit to reflect the smaller amount that you would be contributing to Social Security if you 

open a private account, is that correct? 

Mr. BOLTEN. I believe it is, Mr. Jefferson. 

Mr. JEFFERSON. Okay. 

Mr. BOLTEN. I think it would be pro rata. 

Mr. JEFFERSON. Right. Is it true, then, that the reduction 

would equal the monthly payments that could be financed if your 

private account had been invested at the Treasury rate, which is 

a real annual rate of return, which is to say it is adjusted for inflation, which is approximately 3 percent? 

Mr. BOLTEN. I don’t believe that is the return that is provided 

in Social Security—— 

Mr. JEFFERSON. It was just testified to by Secretary Snow that 

that was the amount. 

Mr. BOLTEN. All right. 

Mr. JEFFERSON. I think it is the amount, so let us assume 

that—— 

Mr. BOLTEN. I will accept his answer as—— 

Mr. JEFFERSON. All right. Does that mean that in order to 

come out ahead, then, that an individual who chooses to open a private account would need to earn a return at least at Treasury rate 

plus administration expenses? That would be correct, wouldn’t it? 

Mr. BOLTEN. I think so, yes. 

Mr. JEFFERSON. Right. I am wondering, then, does the CBO 

believe that the expected—well, let me skip that question. I submit 

to you, then, that if an individual has to have a return of three percent, an adjusted rate of return of 3 percent, that he is going to 

end up at the end of the day with a benefit cut that is going to 

amount to around 70 percent of the benefits he would get if he left 

that money in the system and not invested in private accounts, and 

the only way he makes anything at all on it is that, somehow, he 

gets a return that is greater than 3.3 percent, which is really what 

Treasury is. He has to get a return larger than that. If he only gets 

what Treasury is anticipating, that would be no benefit to the perVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00049 Fmt 6633 Sfmt 6602 E:\HR\OC\23913.XXX 23913

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son and they will suffer a 7 percent reduction in their benefits. Do 

you disagree with that or agree with it? 

Mr. BOLTEN. I think I—I am not sure I am following, but I 

think I do disagree. I think the detriment that—well, that there is 

no detriment that the investor would suffer, that the individual 

beneficiary would suffer from the creation of the personal accounts 

unless the return from the personal accounts was below the return 

that Social Security provides, and let me just check with my folks 

and see if, in fact, it is the Treasury rate of return, because my impression is that it had been lower. Okay. Well, I am confirming 

that you were correct, that Secretary Snow was correct. But, what 

that would mean is that the personal account, in order to be basically a good deal for the beneficiary, would need to beat the Treasury rate of return, which I think over almost any period of 20 years 

in our history—in fact, probably every 20-year period of our history—you will find that investments in a blend of stocks and bonds 

would provide that return. 

Mr. JEFFERSON. The three percent would, in effect, be returned 

to the government, to the Treasury, and anything over that, the individual might be able to keep—would be able to keep. But, something about taking it out of the system, the benefit that the person 

would otherwise get is going to be reduced by seven percent because that is the difference between a return that—if you take the 

high rate of return that SSA is anticipating of 4.6 percent, only 

then do you get the seven percent. If you simply say that it is going 

to be the same as Treasury, that is no benefit to the individual and 

we incurred this transition cost with no benefit for the private accounts is the ultimate point I make. 

Chairman THOMAS. I thank the gentleman for his time. The 

gentleman from Florida? 

Mr. FOLEY. Thank you, Mr. Chairman. Thank you, Mr. Bolten. 

Have you had a chance to look through the archives when Social 

Security was first created to look at the assumption tables that 

were made when they constructed the program? 

Mr. BOLTEN. I have not, but I would be interested and I have 

a suspicion that you have. 

[Laughter.] 

Mr. FOLEY. Well, I haven’t. No, I haven’t, but I am interested, 

because when you look at the longevity table back in 1935, the average age was expected to be 63.5 on your demise. Yet the SSA projected benefits either early at 62 or 65. It would seem to me it 

wasn’t probably a very good investment to pay taxes into a fund 

that it was highly unlikely you would have received any of your residual based on the likelihood you would have died before collection. When I try to figure out the assumptions, and now we are 

seeing people living—it is amazing to me, in the seventies, Willard 

Scott would have maybe one person a week that hit 100 and now 

there are five a day, which is the joy of medicine and it is the bounty of our scientific research. But, the bottom line is, in order to provide benefits, we have to devise a new system, is that correct? 

Mr. BOLTEN. Yes, I believe that is absolutely correct. 

Mr. FOLEY. Now, a lot has been made today about the tax cuts. 

Based on, and remember again 1999 and 2000, the dramatic decline in the stock market, the lack of investor enthusiasm, the 


ccoleman on PROD1PC71 with HEARING
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stalling economy, coupled with September 11, had we not passed 

aggressive tax cuts, what would our budget look like today? What 

would our deficit picture look like today? 

Mr. BOLTEN. I couldn’t give you an exact figure, but I can tell 

you I think our deficit picture would look substantially worse because what led us into the fiscal hole we found ourselves in at the 

beginning of the previous administration, from the beginning of the 

previous administration, was, in fact, rapidly declining receipts as 

a result of the bad economy. The tax cuts were instrumental in 

bringing us out of that recession and ultimately restoring growth 

to our revenues, which after three straight years of declining revenues, we finally got the revenue growth back in 2004. We are expecting even better in 2005. I think we would be in much worse 

fiscal condition were it not for the tax cuts having restored growth 

to the economy. 

Mr. FOLEY. So, it is safe to assume the people that got a perchild tax cut actually spent the money in the economy? 

Mr. BOLTEN. I believe economists will tell you that they did. 

Mr. FOLEY. It is safe to assume that the 15 percent capital 

gains structure has led to the Dow going back into the 10,800 

range again? 

Mr. BOLTEN. I think economists will tell you that the capital 

gains tax reduction and the dividend tax reduction have been crucial in promoting investment. 

Mr. FOLEY. As far as the tax cuts for the top 1 percent, it is 

fair to assume that if that was the policy enunciated by the other 

side, that we just roll back the taxes, those who pay the highest 

taxes and those who would be asked to pay more would not receive 

any additional benefits by their additional contribution to the Social Security trust fund, is that correct? 

Mr. BOLTEN. That is correct. 

Mr. FOLEY. So, they would be asked to fill in a blank using 

their pre-tax income to shoulder the burden, and yet not receive an 

additional amount of money for that additional contribution? 

Mr. BOLTEN. They would, Mr. Foley, and there is one other element I would add, and that is that as a result of the President’s 

tax cuts, the top 1 percent pay a larger share of our total income 

tax take than they did before the tax cuts. Without the tax cuts, 

they would be paying 32.3 percent of the total income tax takes. 

That is just the top 1 percent in this country. After the tax cuts, 

that same group pays 33.7 percent of the total income tax take in 

this country. 

Mr. FOLEY. Thank you. Thank you, Mr. Chairman. 

Chairman THOMAS. I thank the gentleman. Does the gentleman 

from Tennessee, Mr. Tanner, wish to inquire? 

Mr. TANNER. Thank you very much, Mr. Chairman, and welcome, Mr. Director. Since January of 2001, our country has been 

borrowing real money, hard money, at the rate of about $700 million a day. Publicly held debt has gone up $1.02 trillion, or thereabout. If you do the math, it is around $700 million a day. In this 

budget document you present, you anticipate another $1.3 trillion 

of publicly held debt accumulating for a total of over $2 trillion, 

$2.3 trillion in that timeframe. Would you agree with the stateVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00051 Fmt 6633 Sfmt 6602 E:\HR\OC\23913.XXX 23913

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ment that we are borrowing more money faster than at any time 

in our Nation’s history? 

Mr. BOLTEN. I don’t know whether that is correct, but I share 

your concern about that borrowing, which is why I think the spending restraint that is reflected in this budget is so important to pursue. 

Mr. TANNER. Well, this is your budget. I have heard that the 

Members say how strong the economy has been and how we are 

catching on again now, and yet in this budget document you have 

before us, you continue to borrow a little over $700 million a day 

for the length of this document. 

Mr. BOLTEN. There is, unfortunately, a need for continued borrowing, but absent the kind of economic growth that some of the 

other Members were referring to, the need for borrowing, in my 

judgment, would be substantially greater. 

Mr. TANNER. Well, it is your budget and you continue to borrow. If the economy is weak, how bad would it be? You say it is 

strong and growing and vibrant because of tax cuts, and yet you 

continue to borrow over $700 million a day for the length of this 

document. 

Mr. BOLTEN. Oh, I haven’t—— 

Mr. TANNER. When are we ever going to not borrow? 

Mr. BOLTEN. Mr. Tanner, I imagine that if the economy were 

weak, we would not be able to be on a path of reducing that deficit 

as a percent of our overall GDP, and so—— 

Mr. TANNER. Mr. Director, with all due respect, if the economy 

is growing and things are so good, why do we have to project continuing to borrow $700 million a day? This is a budget document 

where you make decisions like this, isn’t it? I looked at your 2003 

budget. As a percentage of GDP, the forecast then for 2005 was a 

0.5 surplus. For 2006, it was a 0.7 surplus, and for 2007, a 0.8 surplus. 2 years later, in your 2005 budget submission, that had deteriorated from a 0.5 plus to a minus three in 2005, from a plus 0.7 

to a minus 2.1 in 2006, and from a 0.8 to a minus 1.8 in 2007. You, 

by your documents, are going in the wrong direction if you see 

what I mean. 

Mr. BOLTEN. I—— 

Mr. TANNER. If things are getting better, why is this picture deteriorating right in front of our eyes according to what you all give 

us? 

Mr. BOLTEN. I do, and precisely what those earlier budgets misestimated was the rate of growth in the economy. Those estimates 

were made at a time when the economy was projected to grow 

much better than it did. We ended up being in a much longer and 

stickier recession than was originally projected at the time those 

estimates were made We now do have growth coming back into the 

economy and that growth is crucial in restoring our fiscal health. 

Mr. TANNER. Let me get to what I really want to—if next year 

it deteriorates as much as it did between 2003 and 2005, I don’t 

know, maybe we have got the wrong deal here. What is really, I 

think, a major concern, and it is right now, it is not years from now 

that we have been debating about, at the end of the last fiscal year, 

would you agree that foreign interest financed about 70 percent of 

last year’s deficit? 


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Mr. BOLTEN. I don’t know if that is accurate. Let me—— 

Mr. TANNER. That is pretty close. That is about right. Since October of last year, it is even higher than that. It is approaching 90 

percent, foreign interest buying our publicly held debt. I can give 

you—that is about right, yes, sir. Now, in 2001, foreigners held 

about 30 percent of our publicly held debt. In 2003, it had risen to 

37. It is now over 40, approaching 44 percent of our publicly held 

debt is held by foreign interests. Does that give you an immediate 

concern, and if not, why? 

Mr. BOLTEN. Well, part of that is a reflection of the strength 

of our economy and confidence in our economy. The—— 

Mr. TANNER. Exactly. 

Mr. BOLTEN. What is very important, then, is that we sustain 

that confidence in our economy of both domestic and international 

investors, and the way we do that is by showing fiscal discipline 

in the short run and dealing with our long-term unfunded liabilities in the long run. 

Mr. TANNER. Yet in your budget documents, the situation is deteriorating, not increasing. Are you aware that on January 26—— 

Chairman THOMAS. The Chairman indicates the gentleman’s 

time has expired. 

Mr. TANNER. The Chinese minister said the U.S. dollar is no 

longer, in our opinion, a stable currency and that they have increased their holdings of our debt over 100 percent in the last 26 

months? Let me tell you, that is the immediacy. You all can talk 

about Social Security in 2042 and I am telling you right now, this 

is an immediate problem. It could explode in our face anytime. 

Thank you, Mr. Chairman. 

Chairman THOMAS. The Chair would urge the gentleman from 

Tennessee to submit that question, if he would, in writing—— 

Mr. TANNER. I will be glad to. 

Chairman THOMAS. And would request the Director to respond 

in writing so that we could have a fuller examination of the issue. 

[The information was not received at the time of printing.] 

Chairman THOMAS. With that, does the gentleman from Texas, 

Mr. Brady, wish to inquire? 

Mr. BRADY. Yes, Mr. Chairman. Thank you. I agree that the 

recipe the President is proposing for balancing the budget in getting back to where we can pay off our debt to keep this economy 

strong, because those two million-plus workers are now paying into 

Social Security, paying into Medicare, paying income taxes, helping 

us create new revenue. 

Then the second part of that recipe is restraining spending and 

Congress needs to do its part. I applaud you, Mr. Director, for with 

the President proposing a sunset commission. Twenty-four States 

have similar Federal sunset—or sunset acts that look to abolish obsolete agencies and eliminate duplication. It is a very thoughtful, 

proven way to really create a situation where there are no sacred 

cows. Every agency has to prove and justify their existence and 

their results to America today, not just what their value was 100 

years ago or 80 years ago, but do they deserve our precious tax dollars today. I am excited about that because here in the House, last 

fall, we showed there was strong bipartisan support for such law 

with over 270 votes in the House when taken to it. I think with 


ccoleman on PROD1PC71 with HEARING
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the President’s strong support, we have got a chance to put a proven tool to work. 

I am convinced in 8 years here, if Washington were a manufacturing plant, we would manufacture spending. That is what we are 

good at and designed to do. If we want to manufacture savings and 

efficiency, we have to retool the plant, and the sunset commission, 

the results commission, the line-item veto, I think are all tools to 

help us get to that point where we are making every buck really 

count for taxpayers. So, Mr. Director, I applaud you for that. 

Mr. BOLTEN. Thank you, Mr. Brady, and thank you for your 

leadership on the issue. Your work, especially on the sunset commission, was basically the template for the proposals that the 

President has put into his budget this year and we are looking forward to working with you and a lot of other Members in getting 

that enacted. 

Mr. BRADY. Right. Thanks. Same here, as well. In Social Security, there is some talk about just how urgent this is. I think we 

all recognize the baby boomers start to hit in 3 years. After that, 

as has been said repeatedly, for 40 years, we borrowed money from 

the Social Security trust fund. They are in special Treasury notes. 

In 2018, we start paying back those notes. 

It seems to me there is some myth that that has no price to it. It seems to me in that first year, we start paying back about $18 

billion or so, and then it quickly escalates to $100 billion a year, 

then $200 billion a year, then to $300 billion a year, and that 

money doesn’t come from just out of the blue sky. Those dollars 

will compete against health care and education and veterans’ 

issues and all that. So, as we pay that back, there is a real price 

in priorities to pay. 

So, it seems to me we ought to heed the head of the CBO, Mr. 

Holtz-Eakin, who, while people freely use his numbers, forget his 

statement that it is very appropriate that Congress tackle Social 

Security right now because the problems become so urgent so fast 

and have a real impact on lives. Your comment? 

Mr. BOLTEN. It is a very important point, Mr. Brady, and something that is overlooked is that while benefits will continue to be 

paid, of course, once the system goes into cash deficit, currently 

projected at 2018, the government still has to pay for that, make 

up the shortfall. We see really our deficit situation deteriorating 

dramatically once we hit that inflection point. Therefore, the sooner 

we can get to that problem, get it addressed, the better. The problem just gets harder to fix every year that goes by that we don’t 

address it. 

Mr. BRADY. Especially, as you said, at $600 billion a year. I 

know Congresspeople and Senators like to think our words are 

golden, but $600 billion a year is a little too expensive for my 

tastes. We should act this year. Thank you, Mr. Chairman. 

Mr. BOLTEN. Thank you, sir. 

Chairman THOMAS. Does the gentleman from California, Mr. 

Becerra, wish to inquire? 

Mr. BECERRA. Thank you, Mr. Chairman. Director Bolten, 

thank you very much for being here with us. Before I go into the 

line of questioning I would like to really explore, I would like to 

just ask you to reexamine the President’s decision to eliminate 


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funding for the scrapped criminal alien program, which reimburses 

States for the cost of incarcerating and holding for deportation immigrants who have committed crimes in this country. Without the 

money, the President’s action will mean that it will require—the 

President will require cities and counties through local taxes now 

to absorb the cost of what is a failure of the Federal Government 

to enforce immigration laws until these folks can be deported who 

have committed crimes in this country. 

So, our local jails, our State penitentiaries will be filled with individuals who, because the Federal government did not enforce immigration laws, are now stuck in what are State and county facilities, the State and county paying for them, and the Federal government, under the President’s proposal to totally eliminate funding, 

would thereby have to absorb the entire cost. I hope that you will 

reconsider that as we, in fact, are debating today immigration proposals on the floor of the House. 

I wanted to ask you if you will help me follow a line of thought 

I have. If I had a financial advisor, if I had enough money that I 

could pay someone to advise me on the health of my budget, my 

family’s budget, I would think I would want that advisor to give 

me information about all the good and all the bad. But, as I look 

at your budget that you have proposed, and through the chart that 

you presented, you try to make a picture of what is today’s economy look very rosy when, in fact, we have over the last several 

years accumulated the largest budget deficits that we have ever 

seen in this Nation’s history. While the numbers may look good 

with some of those charts and some of those numbers, the reality 

is that we have never faced budget deficits larger than these. 

To not include in your budget proposal the cost of privatizing Social Security, to me is something that as a financial advisor, I 

would never want you to do for my family budget. For you to not 

include the cost of extending the President’s tax cuts that are 

geared mostly to wealthy people that will cost trillions of dollars 

is something I would not want you to do if you were trying to help 

me with my family budget. To not include the $80 billion that the 

President has, in essence, said that he is going to be requesting 

for—additional monies he will be requesting for Afghanistan and 

Iraq is something that I would never expect you to exclude as you 

talk to me about my family budget. 

To me, it seems kind of odd that we are asking the American 

people to believe a budget document that excludes all of these various costs and makes the picture of the economy look much more 

rosy than it is. The question I really wanted to get to was related 

to Social Security and this privatization proposal. My understanding, and please correct me if I am wrong, this coming year, 

the Social Security system will actually have a surplus—it will 

spend less than it takes in—a surplus of some $160 billion, correct? 

Mr. BOLTEN. That is correct. 

Mr. BECERRA. That continues to add up, and fortunately, that 

has been adding up, so that by 2018, the Social Security surplus 

will amount to over $5 trillion, correct? 

Mr. BOLTEN. I don’t know if that is the correct figure, but there 

is a surplus building up in the Social Security trust fund, correct. 


ccoleman on PROD1PC71 with HEARING
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Mr. BECERRA. That is what the actuaries tell us. It will be over 

$5 trillion. Any reason to not believe the actuaries? 

Mr. BOLTEN. I go with the actuaries’ numbers. 

Mr. BECERRA. In fact, under the actuaries’ assumptions and estimates, that surplus in the Social Security trust fund will continue 

to grow until about the year 2027 or 2028, until it is over $6 trillion. Now, this is the question I would like to pose to you. The 

President in his State of the Union Address said, in 2018, Social 

Security will be paying out more than it takes in, and in every year 

afterward will bring a new shortfall bigger than the year before. In 

the year 2027, the government will somehow have to come up with 

an extra $200 billion to keep the system afloat. He thereafter uses 

the word collapsing to talk about Social Security. How can a system that in 2018, the year the President mentions, will have a 

shortfall—have a $5 trillion surplus be considered to be in shortfall, and how could a system that in the year 2027, when the President says will somehow have to find it to keep it afloat, will have 

over $6 trillion in surplus? 

Mr. BOLTEN. Well, the numbers that the President was referring to and—I think the right way to look at it is cash in and cash 

out. 

Mr. BECERRA. Okay. Then what you are saying is we should 

not take into account all the money that is coming in today that 

the President is planning to use out of Social Security’s surplus for 

other than Social Security purposes. 

Mr. BOLTEN. No, no, no. The—— 

Mr. BECERRA. Well, for—— 

Mr. BOLTEN. That money is going into the trust fund. 

Mr. BECERRA. Okay. If it is there, why can’t we count it in the 

year 2018? That is what it is supposed to be for, is it not? 

Mr. BOLTEN. Absolutely, and that is why—— 

Mr. BECERRA. Okay. Then why not include it in that calculation? 

Mr. BOLTEN. If I may for the record, although if I may correct 

one thing, Mr. Becerra, at the outset, you suggested that our budget documents do not reflect the effects of the President’s tax cuts 

or the $81 billion supplemental that is forthcoming. Our budget 

documents—— 

Mr. BECERRA. You put it in the baseline, which hides the actual effects of the tax cuts—— 

Mr. BOLTEN. Our documents—— 

Mr. BECERRA. Which is a very clever way of trying to make the 

tax cuts look like they cost a lot less. 

Chairman THOMAS. The gentleman’s time has expired. 

Mr. BECERRA. Thank you, Mr. Chairman. 

Mr. BOLTEN. The documents do reflect that, Mr. Becerra. 

Chairman THOMAS. The Committee will provide documents and 

perhaps the administration might oblige, as well, in focusing on the 

front-loading that began to occur with the increase in the payroll 

tax beyond the immediate needs in 1983. The paper that is out 

there that will begin to be redeemed in 2018, because the then-current income from the income tax is not adequate, that is the 2018 

point. The 2042 is when the paper that needs to be redeemed will 

be exhausted—— 


ccoleman on PROD1PC71 with HEARING
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Mr. BOLTEN. Will all run out. 

Chairman THOMAS. Which was brought in to try to maintain 

the 100 percent payment, and that is why it kicks down to a determined less than 100 percent. That does need to be illustrated so 

people understand the current structure and the near future structure based upon decisions made in 1983, both to increase the payroll tax and to extend age. Does the gentleman from Wisconsin, Mr. 

Ryan, wish to inquire? 

Mr. RYAN. I do. Thank you, Mr. Chairman. Let me just follow 

up on that point. I think it sort of puts a false perception out there 

that in 2018, we are going to have $5 trillion of surplus sitting in 

a bank account somewhere. Let me just ask you this, Mr. Bolten. 

Will we have that $5 trillion? Where will that $5 trillion be? 

Mr. BOLTEN. It is in the form of—— 

Mr. RYAN. An IOU. 

Mr. BOLTEN. Obligations from the Treasury. It is an IOU—— 

Mr. RYAN. So, there is no cash sitting there in a vault or 

tradable bonds or stocks. We will have to either borrow more 

money, raise taxes, or cut spending to come up with that $5 trillion 

surplus, correct? 

Mr. BOLTEN. Absolutely correct. 

Mr. RYAN. That is important to note. The idea that there is all 

of a sudden a big cash surplus to tap into is just not correct. I 

think a good way of looking at it is if I take money out of my right 

pocket, spend it, and then put an IOU to myself back in my left 

pocket, that is essentially what it is. I have money that is out 

there. I don’t have any new purchasing power, and I just have an 

IOU that I will have to find more money somewhere else to pay 

for. So, the idea that all of a sudden we don’t have to worry about 

this program collapsing for 37 years is really just not accurate. 

I want to get on to some budget reforms. Mr. Bolten, you and I 

have talked about budget process reform quite a bit in the last few 

years. I just wanted to see if you could explain or elaborate to me 

these new enforcement mechanisms you are talking about. Particularly how does the new enforcement mechanism to control longterm unfunded obligations work, and then how do you propose 

doing a line-item veto that meets constitutional muster? 

Mr. BOLTEN. I will start with the latter. The administration has 

proposed before a line-item veto that we believe would pass constitutional muster. It would be statutory. It would basically be a 

deferral of spending by the President that has been enacted by the 

Congress. There is no guarantee it would be constitutional. We believe it would pass constitutional muster and are interested to 

work with the Congress on its enactment or some other line-item 

veto mechanism. We are not stuck on that one in particular, but 

we do think it is important that the President have the authority 

to step into some of these big appropriations bills and take out 

some of the items that would not pass on their own. 

Mr. RYAN. Deferral in that you just won’t send the money out. 

Mr. BOLTEN. Right. 

Mr. RYAN. You will just hang onto the money in the accounts 

and you will have the statutory authority to do that. What happens 

at the end of the year? It goes back? What happens at the end of 

the year in those accounts where you defer the money? 


ccoleman on PROD1PC71 with HEARING
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Mr. BOLTEN. Then the money would just expire—— 

Mr. RYAN. Okay. 

Mr. BOLTEN. So, the power would be effective. 

Mr. RYAN. Your lawyers are telling you that that ought to pass 

muster—— 

Mr. BOLTEN. They believe it would pass constitutional muster. 

As I said, there is no guarantee of that and if somebody has a better idea, we would be happy to entertain it. 

Mr. RYAN. The one thing I think you ought to take a look at 

that we have discussed is just an enhanced recision power, not necessarily in place of this deferral idea, but maybe in addition to, 

which is an expedited procedure whereby the President can pull 

spending items out of a bill, send it back to Congress for an up or 

down vote, just like trade agreements where you have a trigger 

where you can require a vote that takes place in a certain fast period of time, where we have to vote on these individual projects 

that if we voted on these things alone, stand alone, probably 

wouldn’t see the light of day, or a package of these things. So, I 

would encourage you to take a look at that. 

Mr. BOLTEN. A very interesting proposal and we would like to 

work with you on it. 

Mr. RYAN. The unfunded obligations, I am just curious, how 

does that work? 

Mr. BOLTEN. If I may, I will respond to you on the record with 

the details of that. The objective is one that I think you have been 

after for some time, which is to ensure that when Members make 

proposals and the Congress considers proposals that increase the 

long-term unfunded obligation, even though they are outside the 

budget window, if they are outside the budget window, they often 

escape budget enforcement rules. We want to propose a set of rules 

that captures those and charges the increase in the long-term unfunded obligation in the current budget. 

Mr. RYAN. In a present value form? 

Mr. BOLTEN. Yes. 

Mr. RYAN. Yes. Excellent. Thank you. 

Chairman THOMAS. Does the gentleman from Texas, Mr. 

Doggett, wish to inquire? 

Mr. DOGGETT. Thank you, Mr. Chairman. Mr. Bolten, I gather 

you agree with the President’s estimate that the year 2018 will be 

the first year in which Social Security, under current law, will pay 

out more than it takes in? 

Mr. BOLTEN. That is the Social Security actuaries’ estimate, 

yes. 

Mr. DOGGETT. If we adopt the privatization principles for Social 

Security that the President announced in the State of the Union 

Address, that date will be accelerated to the year 2012, will it not? 

Mr. BOLTEN. I don’t know what the acceleration might be, but 

the important part—— 

Mr. DOGGETT. You haven’t calculated that yet? 

Mr. BOLTEN. I have not. 

Mr. DOGGETT. Well, certainly if you take money out of the Social Security trust fund instead of putting money into it, you will 

certainly have this phenomenon of Social Security paying out more 

than it takes in occur at an earlier date, won’t you? 


ccoleman on PROD1PC71 with HEARING
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Mr. BOLTEN. It depends on how the money is accounted for, but 

the important thing—— 

Mr. DOGGETT. I see. It depends on what accounting tools you 

use. 

Mr. BOLTEN. The important part of the personal accounts is 

that if they are part of a comprehensive system, they would prevent the ultimate—they would prevent the reaching of the ultimate 

insolvency date, which is the key element here. 

Mr. DOGGETT. Yes, sir. As far as the changes to benefit calculations that you feel are necessary by changing wage indexing, isn’t 

that based on the basic premise that Social Security benefits are 

too high today and they are getting higher? 

Mr. BOLTEN. The administration has not adopted any specific 

reform that—— 

Mr. DOGGETT. You support that though, don’t you? 

Mr. BOLTEN. The administration has not adopted any specific 

form of—— 

Mr. DOGGETT. Well didn’t the President call that a good blueprint to use this wage indexing approach? 

Mr. BOLTEN. He mentioned it—— 

Mr. DOGGETT. Yes, sir, he mentioned it—— 

Mr. BOLTEN. As one of the possible ways—— 

Mr. DOGGETT. He used the term ‘‘a good blueprint’’ to describe 

it and that is based on the assumption that the benefits that retirees are getting today from Social Security are too high and they are 

scheduled to go even higher. 

Mr. BOLTEN. Well, the important element here is that Social 

Security is currently promising benefits it cannot afford to pay. 

Mr. DOGGETT. So, the administration basically thinks Social 

Security benefits are too high today and are scheduled to go even 

higher and you want to reduce them. Let me ask you specifically, 

as it relates to this privatization plan, if you disagree with the 

statements that White House Senior Official, I guess it is Peter 

Wehner, made in his January 3 e-mail, that as you know has gotten a lot of attention, where he said if we borrow $1 to $2 trillion 

to cover transition costs for personal savings accounts and make no 

changes to wage indexing, the very thing I was asking you about, 

we will have borrowed trillions and will still confront more than 

$10 trillion in unfunded liabilities. This could easily cause an economic chain reaction, the markets go south, interest rates go up, 

and the economy stalls out. Do you agree with Peter about that? 

Mr. BOLTEN. I don’t have a view on his remarks. I have not—— 

Mr. DOGGETT. You don’t have an opinion? You have heard this 

or you have read this before, you know about this—— 

Mr. BOLTEN. Actually, I have not read it, but it actually was 

referred to by one of your colleagues—— 

Mr. DOGGETT. I see. You don’t have an opinion one way or the 

other on this? 

Mr. BOLTEN. Not on Mr. Wehner’s—— 

Mr. DOGGETT. The CBO, sometimes called nonpartisan, all appointed by Republicans, has come up with a risk-adjusted return 

that they say is the better approach to evaluate these privatization 

accounts. I guess the first question I would have for you is, the administration has done a lot of talking around the country about evVerDate Aug 31 2005 02:45 Apr 12, 2006 Jkt 023913 PO 00000 Frm 00059 Fmt 6633 Sfmt 6602 E:\HR\OC\23913.XXX 23913

ccoleman on PROD1PC71 with HEARING
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erything that people are going to get under this privatization account, but it has been pretty quiet about what they are going to 

lose. If someone gets a dollar put into a private account they lose 

a dollar in their guaranteed Social Security account, don’t they? 

Mr. BOLTEN. Yes. 

Mr. DOGGETT. Okay. The question is do they come out better 

or do they come out worse? If you take the calculations that the 

CBO did about the risk-adjusted return, and you consider the administrative costs associated with these private plans, you would 

call it a claw-back, you can call it an offset, but actually the private 

account holder, according to CBO, actually comes out worse than 

if they stick with the traditional Social Security plan and a guaranteed benefit. 

Mr. BOLTEN. I haven’t seen the CBO analysis, but I would be 

inclined, based on your description, to disagree with it, because I 

think that personal accounts do offer an opportunity for a much 

better return than can be offered by whatever Treasury bill—— 

Mr. DOGGETT. If the nonpartisan CBO appointed by Republicans says otherwise, you just disagree with that? 

Mr. BOLTEN. If it is as you described, I do disagree with it and 

I think history disagrees with it, too, because there—— 

Mr. DOGGETT. One quick non-Social Security question, in your 

budget, as you said, there are decisions that have to be made that 

are painful, but I gather one of the painful decisions this administration made, was that you are opposed to continuing the deduction 

for State and local taxes that is in this year’s bill. It is not in your 

budget. 

Chairman THOMAS. The gentleman’s time has expired. You can 

respond in writing if you wish to—— 

Mr. DOGGETT. Just a yes or no? 

Chairman THOMAS. The Chair would indicate that the CBO has 

modeled the Social Security Commission Plan 2 that they used to 

make estimates off of, not the President’s plan. There may be some 

similarities between the President’s plan and the Social Security 

Commission Model 2, but they are not identical, so that the gentleman’s statement is narrowly inaccurate. In terms of a general reflection, we will have to see, because I am quite sure someone will 

ask the CBO to do the President’s plan. 

Mr. DOGGETT. Well, I am sure they will, and I believe that 

risk-adjusted return is what they do to evaluate Railroad Retirement and—— 

Chairman THOMAS. I understand. But, the gentleman indicated 

the President’s plan had been modeled by CBO and—— 

Mr. DOGGETT. The concept in the President’s plan, since—— 

Chairman THOMAS. It was the Social Security Commission Plan 

2—— 

Mr. DOGGETT. Doesn’t have a plan, or the Secretary of Treasury. 

Chairman THOMAS. We have just got to keep the record accurate, that is all. The gentleman from Georgia, Mr. Linder. 

Mr. LINDER. Thank you, Mr. Chairman. Mr. Bolten, nice to see 

you again. Thank you for being here. 

Mr. BOLTEN. Likewise, sir. 


ccoleman on PROD1PC71 with HEARING
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Mr. LINDER. You said that 34 percent of the top 1 percent of 

income earners are going to pay 34 percent of all the taxes after 

the tax cut? 

Mr. BOLTEN. Yes, sir, 33.7 percent. 

Mr. LINDER. Do you know what they paid 25 years ago? 

Mr. BOLTEN. I do not. 

Mr. LINDER. Seventeen percent, when the top marginal tax rate 

was 70 percent. It is becoming more and more progressive every 

time we cut taxes. There is something else to remember about 25 

years ago. We are hearing a lot about all we need to do is tax those 

rich people and it can fix all the problems here today, but 25 years 

ago, the prime rate was 21 percent. Home mortgages were 17 percent. Inflation was 14 percent. Unemployment was double digits. 

The economy was $2.5 trillion. President Reagan dramatically reduced the tax burden. 

10 years after that, interest rates came down 125 basis points a 

year, mortgage rates were down, the economy had doubled in size, 

and the contributions to the Treasury went from $519 billion to 

$1.054 trillion. It seems to work. It worked in 1921. It worked in 

1961. It worked in 1981. As John Kennedy said, a rising tide lifts 

all boats. You had more people working owing to a good economy. 

You had more money coming into the Treasury. I think you are on 

the right course and I look forward to helping you. 

I would like to make one other point. You and I have talked 

about the tax reform proposal that I have been working on. Had 

we had it in place for the last 4 years, we would have had increased revenues in 14 out of 16 of those quarters. Thank you, Mr. 

Chairman. 

Mr. BOLTEN. Thank you, Mr. Linder. 

Chairman THOMAS. I thank the gentleman very much for the 

time. We are attempting to move the Director out by 5:00. I am 

doing everything I can to assure that, but I want to make sure 

Members are heard if they so desire. Does the gentleman from 

North Dakota wish to inquire? 

Mr. POMEROY. I thank the Chairman. Mr. Director, you had a 

wonderful story here today, but then again, you always have a 

wonderful story. In fact, it has been kind of the trend of the administration. I had to actually quote from an address made by the 

President to the Congress, his first State of the Union, our joint 

session, I guess it was titled. ‘‘To make sure retirement savings of 

America’s seniors are not diverted into any other program, my 

budget protects all $2.6 trillion of the Social Security surplus for 

Social Security and for Social Security alone,’’ unquote. Well, we 

know, of course, that every dollar coming in for Social Security is 

being spent on unrelated government programs, and, in fact, you 

as Director have been a record setter—the biggest deficit in the history of the country last year. In fact, the year before that was the 

biggest. You beat that record. This year, you beat your record from 

last year. 

Although you are telling us things are going to get better, there 

are some very notable omissions to the budget you have told us 

about, including you estimate holding discretionary spending at 

level levels. Among other things, you break the farm bill and so 

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jected. You include no spending for Iraq and Afghanistan, even 

though you have admitted several times today you had $81 billion 

additional. That would push the total tab over $300 billion, none 

of which has ever been included in one of your budgets. You admit 

the cost of Social Security borrowing that you are going to have to 

do to privatize the system, even though you admit that that is better than three-quarters of a trillion dollars. You don’t have any 

money in there for fixing the AMT, although you indicate that that 

is something certainly needing attention. So, I expect you are going 

to do her again. I expect you are going to break your own record 

on these deficits in light of the budget you have proposed with the 

liabilities that you have omitted. I would like to move to the discussion on retirement savings and—— 

Mr. BOLTEN. Mr. Pomeroy—— 

Mr. POMEROY. We were talking about—— 

Mr. BOLTEN. Mr. Pomeroy, may I take a moment to correct—— 

Mr. POMEROY. Well, regrettably not. Now, maybe the Chairman will give you additional leave, but I only have 5 minutes to 

work with. 

Mr. BOLTEN. Understood. I will correct for the record. 

Mr. POMEROY. We have been talking about the top 1 percent 

back at—and we will probably be talking about them a good bit 

more as time goes on, but I want to talk about from an income security and retirement standpoint the modest income households, 

the family of four making $40,000, $50,000, trying to save for retirement. We have a feature in the Code now, it is a savers’ credit, 

and it gives them a matching credit, tax credit, for what they are 

putting into qualifying savings accounts. There have been five million new accounts established in families that make the qualification, the income qualification to use this. 

It is not included in your budget and it goes away at the end of 

this year. You are recommending to Congress that we, in essence, 

let the modest household retirement savings effort lapse. On the 

other hand, you offer something quite different, these lifetime savings accounts, and retirement savings accounts on top of that 

which would allow $5,000 per individual after tax to go in the lifetime savings accounts for every Member of the family. Put it in, 

pull it out whenever you want. Retirement savings accounts, 

$5,000 on top of that. A family of four could conceivably tax shelter 

nearly $50,000 annually if they had that kind of aftertax income. 

So, in my view, the modest income household, the one that is 

having the hardest time saving, they may say to you, but we can’t 

afford to save. We don’t have any discretionary savings left, income 

left. You say, don’t worry. Now you can save $5,000 in lifetime savings accounts per individual, $5,000 in retirement savings. It is, as 

you know, a savings tool that will be beneficial to affluent households, not at all beneficial to modest income households. To have 

you allow the lapse of the credit that helps modest income households while advancing this other one is, I believe, absolutely upside 

down retirement policy. 

If there is only one thing more that you could do to screw this 

up, you advance it with your Social Security plan, because Social 

Security offers a guaranteed retirement annuity. It is going to pay 

every month for life. It is going to adjust for inflation. The average 


ccoleman on PROD1PC71 with HEARING
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Social Security check is $834. Now, how much risk do you want to 

add to an amount that is basically subsistence household income, 

and that is the average, so for some, it is lower. Instead, you move 

into that. You reduce the inflation adjustment and you add risk 

into Social Security. For the modest income household, no additional help in savings and less by way of protection with Social Security. 

Chairman THOMAS. The gentleman’s time has expired. 

Mr. POMEROY. I yield back. 

Chairman THOMAS. That may be a request for a written response or rhetorical, I don’t know which. Do you want a written response? 

Mr. POMEROY. However the Director would like to respond. 

Chairman THOMAS. Great. Does the gentleman from Colorado, 

Mr. Beauprez, wish to be recognized? 

Mr. BEAUPREZ. Thank you, Mr. Chairman. It is good to see 

you, Mr. Bolten. You have been accused of a lot of things here 

today, in fact, recently. I will accuse you and the administration of 

something else, and that is for doing a pretty darn good job. My 

recollection is you inherited a recession that was well underway 

and deepening, Severe Acute Respiratory Syndrome, an event on 9/ 

11/2001, that frankly, I believe, would have crippled and probably 

collapsed most any other nation in the world. Here we sit debating 

over what is the rate of recovery and how much recovery and on 

and on and on. The fact that we are in recovery is a tribute to the 

policies, however accidental or on purpose you have managed to 

put them in place. I think a job well done needs to be passed on 

to the administration, and I will tell you, my folks back home in 

the Seventh District in Colorado recognize that we are on the right 

track and are glad of it. So, my compliments to all in the administration, and since you are the one in front of us today, to you specifically. 

We have heard today and also yesterday a lot of torturing of 

words. Whether it is personal or private, problem or crisis, insolvent or bankrupt, whether the system is awash in cash or maybe 

just fine, thank you, we have heard is it 2042 or 2052, all of those 

are probably going to be debated for a long, long time. As a former 

banker, I will tell you a couple of things that I think are pretty 

clear, though. When I hear unfunded liability, you get my attention, and that is exactly what we have. We hear all this pretense 

that somehow we are not going to pay benefits. We are going to 

pay. We have promised that to not only this generation, but future 

generations, and they have got a right to expect it. The challenge 

in front of us is how. How do we meet that large of a liability? 

I kind of focus-grouped this back home with four people I know 

pretty well, my four children. They are all going to retire right 

around that 2042 year, just before it or just after it. They are quite 

concerned. They understand the concept of an unfunded liability 

and they know very well that the money that went into the trust 

fund, of which they are paying right now in their wages, isn’t 

there. Their name is not on any of it. It is a promise from the Federal government, a promise they would like to see fulfilled, but 

they don’t understand exactly how that is going to happen because 

they heard the same thing I heard from the SSA, that the system 


ccoleman on PROD1PC71 with HEARING
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as it currently exists is unsustainable. That is the challenge in 

front of us, is it not? 

Mr. BOLTEN. It is, indeed. 

Mr. BEAUPREZ. So, what do we do about it? I think there ought 

to be generational fairness. I think what my mother is currently 

enjoying, receiving a check every month from Social Security, I 

think we ought to be able to promise that to the current generation—mine. I think we ought to also be able to promise that to my 

children’s generation and my grandson’s, for that matter, and those 

that come after. So, how do we do it? We just heard a little bit ago 

that apparently Einstein had it wrong. The compound interest isn’t 

the greatest force in the world, that somehow by setting up these 

personal accounts and doing the obvious, investing them in very 

low-risk, sound, safe investments, that somehow it isn’t going to 

work. It does work, doesn’t it? 

Mr. BOLTEN. It does indeed, sir. 

Mr. BEAUPREZ. In fact, we have got a whole lot of proposals 

floating around the Hill right now, and we will see which one or 

ones or combinations thereof end up becoming the bill we try to 

pass, but if I were to suggest that a relatively low-income worker 

making about $20,000 a year could put away a decent little 

amount, part of what they are putting away right now in an account at a predictable rate of interest, like four or 4.5 percent, and 

perhaps exceed their promised Social Security benefit on a monthly 

basis by 75, 80 percent, that would seem to me to be pretty substantial. My children, their generations get that. I commend you, 

Mr. Bolten, and the President for bringing this forward. I look forward to working with you to make it happy. Question, simply, how 

powerful is compound interest? Einstein is dead and gone. We will 

ask the living. 

Mr. BOLTEN. I can’t improve on Einstein, just to quote him, 

saying it is, in fact, the most powerful force we know, and—— 

Mr. BEAUPREZ. Wouldn’t that be the—the challenge is, where 

is the money going to come from to pay this promised benefit? The 

money will come from increasing the earning power, creating the 

wealth to pay the benefit. 

Mr. BOLTEN. A substantial part will come that way, and even 

beyond that, just allowing people to own some of their own retirement, pass it on to their heirs, and also put it in a place where it 

is not easy for the government to get at it and spend it—— 

Mr. BEAUPREZ. Very well said. That is why my immigrant 

grandfather came here for, was to own something. 

Chairman THOMAS. The gentleman’s time has expired. 

Mr. BEAUPREZ. I yield back. Thank you, Mr. Chairman. 

Mr. BOLTEN. Thank you, Mr. Beauprez. 

Chairman THOMAS. Does the gentlewoman from Ohio wish to 

inquire? 

Ms. TUBBS JONES. Thank you, Mr. Chairman. Sir, how are 

you? Good. Let us pick up where he just left off. People want to 

own some of their own retirement. The privatized accounts that are 

being proposed by the President of the United States, as currently 

proposed, will be required to be placed into an annuity and the 

only way I could access it is if I meet a means test, correct? 

Mr. BOLTEN. You know—— 


ccoleman on PROD1PC71 with HEARING
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Ms. TUBBS JONES. That is the testimony of Mr. Snow yesterday, just in case you—— 

Mr. BOLTEN. All right, but I—— 

Ms. TUBBS JONES. Want to be consistent with it. 

Mr. BOLTEN. I think that is upon retirement, yes, that—— 

Ms. TUBBS JONES. Correct. But, prior to retirement, you have 

no entitlement to it, sir. All it is is on a piece of paper saying that 

it is money that you have in an account. So, what I am talking 

about is upon retirement, I then have to place my money in an annuity unless I can meet a means test, is that correct? 

Mr. BOLTEN. Some of the proposals I have seen have said that, 

yes, you would—— 

Ms. TUBBS JONES. Right, and you have—— 

Mr. BOLTEN. In order to ensure that you take it out over a reasonable period of time. 

Ms. TUBBS JONES. I understand the concept, but the reality is 

it must be put into an annuity because you don’t believe that people can take a lump sum and invest it and have money down the 

line. You are not sure that they are capable of doing that, and to 

assure that they have a retirement account, you are forcing them 

into an annuity, is that correct, sir? 

Mr. BOLTEN. Some of the proposals I have seen have had that 

element, yes. 

Ms. TUBBS JONES. Yes. You and your colleagues have been 

good at trying to compare this program, these privatized accounts, 

to a TSP that Members of Congress and other people who work for 

government have access to, is that correct? 

Mr. BOLTEN. Most people have suggested that the private account—the personal accounts, sorry—— 

Ms. TUBBS JONES. I like the word—— 

Mr. BOLTEN. Be structured—yes, I understand—— 

Ms. TUBBS JONES. Similar. 

Mr. BOLTEN. But that the personal accounts be structured in a 

way similar to the TSP. 

Ms. TUBBS JONES. The Thrift Savings Accounts, when I retire—in fact, I don’t have to wait until I retire. I can take my Thrift 

Savings if I take a penalty. But, assume I wait until I retire. I am 

not required to put that money into an annuity, sir, am I? 

Mr. BOLTEN. I don’t believe so. 

Ms. TUBBS JONES. I would suggest that you stop representing, 

you and the President and everybody else in favor of these accounts, representing that they are similar. In fact, with a Thrift 

Savings Account, there is no means test. My name is on it and I 

can pick it up anytime I want to or at retirement, correct, sir? 

Mr. BOLTEN. I believe so. 

Ms. TUBBS JONES. Okay. Thank you. Let me also—I am so 

pleased that so many people are worried about working Americans. 

I am worried about the people in my Congressional district who are 

not working. The conversation is there is 5.5 percent unemployment. There are areas in my Congressional district where the unemployment rate is at 13 percent, and all of those people who are 

unemployed would love to have a job where they could pay taxes 

and raise their children. In fact, all the people in my Congressional 

district are looking at the budget, and you are part of this budget, 


ccoleman on PROD1PC71 with HEARING
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or you can represent some of the budget that the President just 

came out with the other day, right? I am noting for my seniors in 

Ohio, there are cuts of $45 billion to Medicaid. You are aware that 

many States are struggling to pay their share of Medicaid, are you 

not, sir? 

Mr. BOLTEN. I am aware that States are struggling and that is 

the reason why we are proposing some very fundamental reforms 

to Medicaid that would give governors more flexibility in using the 

Medicaid dollars—— 

Ms. TUBBS JONES. But, the budget cuts $45 billion, does it not? 

Mr. BOLTEN. The budget seeks savings in the net range of $45 

billion, reducing the growth—— 

Ms. TUBBS JONES. You call it savings in the net range and I 

call it cuts. Let us move on. It also freezes—— 

Mr. BOLTEN. Ms. Tubbs Jones—— 

Ms. TUBBS JONES. Child care funding for 5 years. It also will 

cause a termination of 300,000 low-income children by 2002 [sic]. 

It also eliminates the TRIO’s program’s Upward Bound, Talent 

Search, Gear Up, and there is one focused on veterans a la TRIO. 

It lowers Pell grants that had been raised and now lowered and 

lowers the eligibility of young people. All of this programming that 

would help people who want to go to work, who want to get out 

of poverty to be a part of a private account are struck by the budget—and that is not the budget, but you have the budget—that has 

been proposed over the next 10 years for people in America. 

All I am saying to you is, you need to speak truth. You need to 

represent to the American people that with tax cuts and with various spending on the war in Iraq and the war in Afghanistan, the 

dollars that are available to do programming to keep the safety net 

going for folks on Social Security, even those that are going to be 

54, 11 months, and 29 days who are locked out of your retirement 

program, as you propose it, are going to have a problem. Thank 

you, Mr. Chairman. 

Chairman THOMAS. The gentlewoman’s time has expired and 

the Chair would indicate to the gentleman from Connecticut and 

the gentleman from Indiana that the gentlewoman from Pennsylvania has the remainder of the time prior to the Committee adjourning unless she wishes to share it with anyone. The Chair recognizes the gentlewoman from Pennsylvania. 

Ms. HART. I am actually tempted to allow the director to use all 

my time to answer the questions that my colleagues on the other 

side of the aisle didn’t allow him to answer, if you would like to 

use the first 30 seconds. 

[Laughter.] 

Mr. BOLTEN. I would gladly take those 30 seconds to say a couple of things. First of all, when Ms. Tubbs Jones talked about Medicaid, we need to understand that this is a program that is growing 

at a rate of 7.4 percent per year in our projections, and what we 

are proposing to do is reduce that rate of growth down to 7.2 percent. But, the most important thing is that we reform the program 

so that the Governors have the flexibility to make effective use of 

all that additional money we are, in fact, putting out. 

Ms. HART. Are you satisfied? 

Mr. BOLTEN. No, but I think—— 


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[Laughter.] 

Ms. HART. Okay. 

Mr. BOLTEN. But, I will have an opportunity to be satisfied in 

the record, I am sure. 

Ms. HART. I am glad to hear that. I appreciate you being here 

and doing this marathon thing with us and I appreciate the time 

from the Chairman. I will have some time that I will give to Mr. 

Chocola, so I am going to go into my statement-slash-question pretty quickly, and that is, first of all, the one phrase that I have not 

heard, or maybe I missed it today, is nest egg. I keep hearing suggestions that people can’t get into that nest egg that would be their 

Social Security personal retirement account any time they want, 

but if you have a nest egg, I certainly hope you don’t want to break 

into it any time you want because it is still growing. Isn’t the goal 

of having a nest egg or a personal retirement account to wait until 

you are retired? 

Mr. BOLTEN. It is, indeed, and it is supposed to be used for retirement, which is why there are the—many of the proposals have 

the provisions that Ms. Tubbs Jones was referring to. 

Ms. HART. The last time I looked, a couple of my retirement accounts actually have a penalty if I withdraw early for that very 

reason. The goal is to incentivize all of the people who are in these 

programs to leave the money there so it grows. That is the whole 

point. The money that would go into Social Security as it is currently wouldn’t be able to be accessed either before retirement, 

right? 

Mr. BOLTEN. True. 

Ms. HART. So, we wouldn’t be changing anything at all as far 

as a person, a worker’s access to that Social Security money if 

we—— 

Mr. BOLTEN. Well, actually, we would be changing something 

very important, because if a worker today dies before they retire, 

they lose all of that money that they have been paying into Social 

Security, whereas a personal account that is in the ownership of 

that person, they can pass that on to their heirs. 

Ms. HART. So, it is actually way better in that your name is on 

it. All of those dollars you pay in over all those years are yours. 

Mr. BOLTEN. It is a real ownership interest and the government 

cannot spend it. 

Ms. HART. I am very pleased to hear that, and actually, since 

I am sort of on the cusp of the people who might not get any 

money, I am really happy to hear about this. Not only that, just 

one quick thing. I was in the airport coming here the other day and 

a 60-year-old Transportation Security Administration worker 

stopped me and said, ‘‘Make sure you get that personal retirement 

account passed.’’ I will now yield my time to Mr. Chocola. 

Mr. CHOCOLA. I thank the gentlewoman for yielding. Director 

Bolten, thanks for being here. Very quickly, in the spirit of having 

the opportunity to answer questions that you were not given the 

opportunity to answer, you were asked previously about the difference between the personal and private, and I think you were 

going to explain why you don’t think this is a private program and 

I would be interested in your answer. 


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Mr. BOLTEN. Thank you for giving me that opportunity. A private account would be one that is simply an investment that you 

control on your own. This is a part of your fundamental retirement. 

Therefore, the TSP that I was discussing with some of your colleagues is the right kind of model in which the government is actually managing your account and ensuring that the investments are 

made in what are broadly considered safe and secure investments 

and that you can’t be using the money to gamble or something like 

that. So, it is not a privatization of the Social Security system. It 

is merely within that system the creation of a personal account 

that you can own and you can direct it toward one of several approved options. 

Mr. CHOCOLA. I see we are running out of time. I thank the 

gentlewoman again for yielding, and Mr. Chairman, I yield back. 

Chairman THOMAS. If the gentlewoman would yield the remainder of her time, the Chair would thank the Director and indicate— 

the gentleman from New York wishes to make a comment. 

Mr. RANGEL. Yes. I want to thank the Director. You really 

acted like you enjoyed being here today and that makes it easier 

for us. 

[Laughter.] 

Mr. BOLTEN. It is always an honor to appear before you, sir. 

Chairman THOMAS. The Chair thanks the gentleman for the 

gracious time. Except for the intervention of the bills, we would 

have been able to have every Member inquire. That is always the 

Chair’s goal. If there are no further questions, the Committee 

stands adjourned. 

[Whereupon, at 5:00 p.m., the hearing was adjourned.] 

[Questions submitted from Mr. Hulshof, Mr. Stark, Mr. Cardin, 

Mr. McDermott, and Mr. Doggett to the Honorable Joshua B. 

Bolten, and his responses follow:] 

Question from Representative Kenny C. Hulshof to the Honorable 

Joshua B. Bolten 

Question: Director Bolten, thank you for your testimony today. After reviewing the President’s budget submission, I am concerned that the Administration’s proposal relating to Power Marketing Administrations, specifically the Southwestern Power Administration, will adversely affect over 

400,000 of my constituents that reside in Missouri’s Ninth District. The rate 

increases that could result from these changes would undoubtedly be 

passed on to consumers. While I understand the Administration’s motives, 

I fear that power consumers in rural areas of my district will be unduly 

burdened by this change. Could you please elaborate on this proposal and 

hopefully alleviate my fears regarding the impact this could have on those 

I represent in Congress? 

Answer: The budget proposes to very gradually, over several years, increase customer rates closer to what other wholesalers in the region charge for their power. 

The proposal’s effect would be moderate because, in most states where power wholesalers buy PMA power, less then five percent of their total power is bought from 

a PMA. The PMA power is blended with other power either generated or purchased 

by the customer and in turn sold to the retail consumer. The blending of the power 

has the effect of diluting the impact that a rate change might have on the retail 

consumer. In addition, because the PMA power sold is typically such a small portion 

of the total retail power sold, the impact of a change is further limited. As a result, 

most households served by a customer receiving PMA power would see an increase 

of about $0.08 per month in 2006 and $0.38 per month in 2007. 

I also should mention several other points about the Administration’s proposal. 

The intent is to allow rate changes only when existing contracts can be modified. 

Under conditions where contracts have not expired or do not allow for a change, no 


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changes would be made. In addition, under the proposal, the rates would change 

very gradually and as fairly as possible to avoid some consumers but not others 

bearing an undue share of the change. Finally, the Administration in no case would 

allow rates to increase by more than 20% in a year. In the instance of your constituents, because about five percent of the power sold in Missouri is from a PMA, I do 

not believe rate changes would be near the 20% limit. Given the modest proposed 

increase that would gradually recapture some of the subsidies extended to PMAs 

over the years, and the overriding need to reduce the deficit, I was disappointed 

that the recent Budget Resolution did not assume the proposal. 

Questions from Representative Fortney Pete Stark to the Honorable 

Joshua B. Bolten 

Question: The budget spends $51 billion/10 on tax breaks for health proposals that primarily benefit people with higher incomes (i.e., the deduction for high-deductible policy premiums and credits to small business 

owners), while cutting $60 billion in Medicaid funds that serve the most 

poor and vulnerable people. How do you justify this reverse Robinhood action? 

Answer: The tax policies you mention benefit individuals of all incomes, not just 

those at the upper end of the income range. In addition to these policies, the 2006 

Budget includes a Health Insurance Tax Credit of $74 billion over 10 years targeted 

to low-income individuals and families that would make health insurance more affordable and accessible. This also includes $4 billion over 10 years in grants to 

states to encourage the development of purchasing pools to make coverage more accessible. 

The Budget includes $15 billion over 10 years in new Medicaid and SCHIP spending to extend coverage. The reductions that you mention refer to the Medicaid program integrity proposals included in the Budget. The FY 2006 Budget includes a 

broad package of program integrity proposals designed to restore the credibility of 

the Federal/State matching system and address other payment concerns. These proposals reduce payment inefficiencies, promote personal responsibility for long term 

care expenses, and curb questionable financing practices that have been used by a 

number of States to avoid the legally determined State matching funds requirements. Even with these changes, Medicaid and SCHIP’s future spending is expected 

to increase at a robust growth rate of over 7 percent over 10 years. 

Question: Can you show me where in the budget the 10-year estimate is 

for Medicare spending for Part D (the new drug coverage that starts next 

year)? There is a five-year number ($344.5 billion) on page 395 of ‘‘Analytical Perspectives.’’ What is the ten-year number? It seems to me that this 

is what happens when the pharmaceutical industry is given a blank check 

from which to draw taxpayer funds. Are you comfortable with this level of 

spending for such a meager benefit? What, if anything, would the Administration support to lower drug prices? 

Answer: The Budget does not report 10-year estimates for the Medicare prescription drug benefit or any other program, but does reflect $343.3 billion in spending 

for the Medicare prescription drug benefit and transitional drug assistance program 

from 2006 to 2010. The Administration is working assiduously to implement the 

drug benefit on January 1, 2006, and expects that private prescription drug plans 

participating in the program will be successful in ensuring that Medicare and its 

beneficiaries get the best prices available for prescription drugs. We have seen no 

evidence that further federal government intervention will likely produce additional 

savings. 

The five-year (2006–2010) net cost of the drug benefit (as on p. 395 of Analytical 

Perspectives) is $343.3 billion. The figure of $344.5 billion is actually a six-year cost, 

as it includes the years 2005–2010. The Office of the Actuary at the Centers for 

Medicare and Medicaid Services (OACT) originally estimated the total net cost of 

the new Medicare drug benefit at $511 billion for the ten-year window of fiscal years 

2004–2013. 

OACT recently re-estimated the cost of the drug benefit, both for the 2004–2013 

period and the FY 2006–2015 budget window. OACT’s current estimate of the FY 

2004–2013 cost is very similar to its original estimate: they found the FY 2004–2013 

net cost to be an estimated $518 billion. The net cost from FY 2006–2015 is estimated to be $724 billion. The table below lays out the original MMA estimates and 

current estimates for the FY 2004–2013 and FY 2006–2015 budget windows: 


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1 Congressional Budget Office, Letter to the Honorable William H. Frist, M.D., January 23, 

2004. 

Medicare Prescription Drug Benefit Outlays Comparison of MMA Scoring to 2006 President’s Budget Estimates ($ in billions) 

MMA Estimates FY 2006 PB 

Estimates 

2004–2013 2004–2013 2006–2015 

Gross benefit outlays 820 849 1,192 

Premium receipts ¥102 ¥102 ¥145 

Receipts from States ¥85 ¥97 ¥134 

Net Medicare Rx outlays 634 650 913 

Net Medicare cost ¥123 ¥132 ¥189 

Net Rx benefit outlays 511 418 724 

Source: CMS, Office of the Actuary 

The new, voluntary Part D benefit offers assistance to all Medicare beneficiaries 

who wish to enroll. The benefit targets extra assistance to low-income beneficiaries, 

many of whom will pay no premium and face only nominal cost-sharing. In addition, 

the Part D benefit ensures that every beneficiary who enrolls is protected against 

very high drug spending. We would also note that the Medicare Modernization Act 

includes incentives for employers to continue offering drug coverage to their retirees. 

For these reasons, the Administration thinks it is inappropriate and inaccurate to 

refer to the Medicare drug benefit as meager. 

The Administration believes that the structure of the Part D benefit—where private health plans will compete to offer affordable drug coverage to Medicare beneficiaries—is the best way to moderate drug prices. 

In a January 23, 2004 letter to the Senate Majority Leader, the Congressional 

Budget Office said that striking the non-interference provision (the one that prohibits the Secretary from negotiating Medicare drug prices) would: 

have a negligible effect on federal spending because CBO estimates that substantial savings will be obtained by the private plans and that the Secretary 

would not be able to negotiate prices that further reduce federal spending to 

a significant degree. Because they will be at substantial financial risk, private 

plans will have strong incentives to negotiate price discounts, both to control 

their own costs in providing the drug benefit and to attract enrollees with low 

premiums and cost-sharing requirements.1

Question: Most of the President’s health agenda seems to be through the 

Department of the Treasury, yet neither the Treasury nor the Department 

of Health and Human Services can explain the net effect of the President’s 

budget proposals or the assumptions behind them. As a representative of 

the only cross-cutting entity, I hope you will be able to provide answers to 

the following questions: 

• Estimated take-up rate for each program and cumulatively by AGI and/or tax 

bracket. 

• Estimates of newly insured for each proposal, as well as the cumulative effect 

and the data source for these estimates. 

• Estimates of the drop in employer-sponsored coverage for each proposal and cumulatively. 

• Estimated out-of-pocket costs, in dollars, for individuals participating in these 

programs. 

• Estimated out-of-pocket costs as a percent of net income for each income bracket. 

• The tax benefit at each income bracket for each proposal, as well as the cumulative tax benefit of these proposals for individuals in each tax bracket. 

Answer: The scoring of tax-related policies included in the Budget is done exclusively by the Department of Treasury. Questions about the detailed assumptions 

used in the scoring are best directed to the office of the Assistant Secretary of Tax 

Policy at Treasury. 

Question: Current law requires deductible limits to be a minimum of 

$1,000 for an individual/$2,000 for a family, and a maximum of $5,000 for 

an individual/$10,000 for a family. However, many plans are not clear about 


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what is covered, which leads to spending that does not count toward either 

the deductible or the out-of-pocket limit. 

• How will consumers know in advance what out-of-pocket costs do and do not 

count toward their policy? 

• What do you estimate the mean and median out-of-pocket costs will be for individuals and families with high-deductible health plans? 

• How are these out-of-pocket costs taken into account in your estimated takeup rates? 

Answer: The scoring of tax-related policies included in the Budget is done exclusively by the Department of Treasury. Questions about the detailed assumptions 

used in the scoring are best directed to the office of the Assistant Secretary of Tax 

Policy at Treasury. 

As is the case with conventional health plans, the high deductible health plan will 

be responsible for communicating the specifics of their coverage to beneficiaries. 

Question: The President claims that HDHPs will control costs, but evidence suggests otherwise. Please answer the following questions: 

• What are your underlying assumptions for this policy and what data are you 

using to support these assumptions? 

• How much will aggregate health care spending be reduced as a result of highdeductible plans? 

• If you project aggregate savings, how much will come from underuse of services 

vs. a reduction in prices vs. ‘‘more careful shopping’’ by patients? What are your 

data sources and assumptions for making such estimates? 

• What are your estimates of necessary vs. unnecessary spending by individuals 

currently? How do you define unnecessary spending? 

• What effect would unmanaged chronic conditions or deferred treatment of illnesses have on future Medicare costs? 

• How many HDHP policyholders are projected to actually use their benefit (vs. 

simply pay premiums for coverage they cannot afford to access) 

Answer: The scoring of tax-related policies included in the Budget is done exclusively by the Department of Treasury. Questions about the detailed assumptions 

used in the scoring are best directed to the office of the Assistant Secretary of Tax 

Policy at Treasury. 

The Budget does not project a decrease in aggregate health spending. The Administration believes that providing consumers with greater choice and responsibility 

for their health care will create incentives for them to purchase services more prudently. This, in turn, will lead to lower health care costs. 

Question: Previous independent analyses from the Academy of Actuaries 

and others have indicated that widespread adoption of HDHPs/HSAs or 

similar policies would dramatically increase premiums for traditional insurance. What does the Administration assume happens to premiums for 

traditional policies? 

Answer: The scoring of tax-related policies included in the Budget is done exclusively by the Department of Treasury. Questions about the detailed assumptions 

used in the scoring are best directed to the office of the Assistant Secretary of Tax 

Policy at Treasury. 

Question: The budget provides $28.5 billion to allow individuals an abovethe-line deduction to offset the cost of premiums for a high-deductible 

health plan sold in conjunction with an HSA. Why is the President proposing a special additional tax break for these plans when even conservative analysts have indicated that the extra tax preference will distort the 

health insurance market? 

Answer: The Administration believes the deduction will encourage individuals to 

purchase high deductible health plans and health savings accounts and to become 

more active participants in purchasing health care services. The deduction provides 

individuals taking advantage of these innovative products the same tax benefit that 

individuals with employer-sponsored health insurance enjoy. In this way, the Administration believes the deduction levels the playing field between employer-sponsored insurance and insurance purchased in the non-group market. 

Question: The President is once again calling for Association Health 

Plans (AHPs) in the budget. This proposal is said to provide for less expensive pooling options because AHPs are exempt from state insurance regulations. However, this also means that they are exempt from consumer protections such as guaranteed issue, rate setting, and limitations on pre-existing condition exclusions. Given these facts, please answer the following: 


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• Which state regulations do you feel health plans should be exempt from and 

why? • Do you anticipate issuers using medical underwriting to refuse to sell an 

HDHP? • Will they be able to charge certain applicants higher premiums, based on their 

health history? • Can they exclude certain body parts or conditions, based on the applicant’s 

health history or history of someone in their family? If so, how will people be 

assured there is an affordable product available on the open market? • How does this effect your enrollment assumptions? • How do the grants to states to operate pooling arrangements interact with 

AHPs? 

Answer: The detailed legislation/regulations to implement this policy have not 

been developed. It is important to the Administration that consumer protections are 

maintained while providing small employers and other groups the opportunity to access more affordable health insurance. The Administration looks forward to working 

with Members of Congress to form the specifics of this proposal. 

Question: The budget mentions a proposal to regulate health insurance 

across state lines, yet state regulations for insurance products differ considerably. 

• What standard is the President proposing for inter-state insurance regulation? • Your documents suggest that you support consumer protections, but no specifics 

are given. Which protections do you propose to drop? Maintain? • How will the Administration protect consumers from a ‘‘race to the bottom,’’ 

where states are forced to accept policies approved in places where consumer 

protections are much less strong? • Which department would have responsibility for this program—Treasury, HHS 

or Labor? • How does this new policy affect your enrollment estimates? 

Answer: The detailed legislation/regulations to implement this policy have not 

been developed. It is important to the Administration that consumer protections are 

maintained while providing small employers and other groups the opportunity to access more affordable health insurance. The Administration looks forward to working 

with Members of Congress to form the specifics of this proposal. 

Question: Does the budget include any savings from malpractice reform? 

How were these savings calculated and what sources support these assumptions? 

Answer: The Administration remains committed to enactment of medical liability 

reform. While these changes will have significant positive economic effects and will 

reduce government expenditures, current scoring practices prevent OMB from reflecting them in the budget. Therefore, the budget does not include savings associated with malpractice reform. 

Question from Representative Benjamin L. Cardin to the Honorable 

Joshua B. Bolten 

Question: Under the proposal that the Administration is considering, you 

have stated that individuals over 55 can expect to see no reduction in their 

benefits. How much of a reduction do you anticipate in the benefits for individuals under 55 who choose private accounts? How much of a reduction 

do you anticipate in the benefits of those who do not opt for private accounts? What effect will your proposal have for surviving spouses and children and for disabled beneficiaries? 

Answer: The President has stated that disability benefits will not be affected by 

reform. 

Under the President’s proposal, retirement benefits would grow relative to today’s 

levels. Future generations of seniors would receive benefits that are at least as high 

as seniors receive today, even after adjusting for inflation. The Pozen proposal referenced by the President would allow for faster overall long-term benefit growth 

than can be paid by current-law Social Security, with lowest-income Americans getting the fastest benefit growth of all, significantly faster than inflation. Mediumwage earners would also receive benefit growth faster than inflation, and the Social 

Security actuary’s analysis of the plan found that low, medium, and high earners 

under the Pozen plan would all receive benefits that are higher than the current 

system can pay. All of these figures exclude income from personal accounts. SSA figures show that expected benefit growth would be even greater for those who choose 

to participate in voluntary personal accounts. 


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Under the President’s proposal, Social Security would for the first time enable 

workers to leave a bequest at the time of their death. Workers choosing a personal 

account could pass the balance on to their spouse should they die before exhausting 

the account. These inherited account balances can significantly increase the benefits 

received by widows. Under current payable benefits, in 2050 roughly 3.9 percent of 

widows would live in poverty. Under progressive benefit growth plus personal accounts, this would be reduced to just 1.1 percent, lifting over 180,000 widows out 

of poverty. This poverty rate is even lower than under currently scheduled benefits, 

which are not affordable. (Data from SSA Office of Policy MINT model). 

Questions from Representative Jim McDermott to the Honorable 

Joshua B. Bolten 

Question: It seems likely that any number of media consultants, public 

relations firms, copy writers and others must be involved in the effort to 

communicate the President’s views on Social Security to the American people. We know from news reports that the Administration pays B that taxpayers are paying B these kinds of firms, and sometimes even journalists, 

to spread the Bush Administration’s message. 

Where do I find this in the budget? 

Secretary Snow says that this budget is transparent. He mentioned it several times at a recent hearing in the Committee on Ways and Means. Where 

do I look to find the names of the Public Relations firms that have been 

hired and how much they’re making? 

I would like a full accounting of the amount of money that the Bush Administration spent or plans to spend on public relations efforts in FY 2004 

through FY 2006. Please detail the purpose of each expenditure and to 

whom contracts were awarded. 

Answer: In his State of the Union Address, President Bush outlined for the nation 

his vision to strengthen and save Social Security. 

The President’s plan calls for reforms that would keep Social Security’s promises 

for today’s seniors and those near retirement; solve the financial problems of the 

current system once and for all; and make Social Security a better deal for younger 

workers by allowing them to set aside part of their payroll taxes in voluntary personal retirement accounts. 

Thanks in large part to the President’s leadership and courage, the national discussion is now focused on the serious problems facing Social Security. Americans 

understand that the current system won’t be there for their children and grandchildren. They understand that action needs to be taken now to keep the promise 

of Social Security alive. 

The Social Security Information Center (SSIC), which is part of Treasury Department’s Office of Public Affairs, communicates both the current demographic challenges facing Social Security and the President’s proposals to permanently fix this 

important system for future generations. The SSIC supports the Department’s strategic goal of promoting economic opportunity and ownership and supporting the Secretary in his role as Managing Trustee of the Social Security trust funds. 

The FY 2005 costs for the Center will be approximately $275,000 to support five 

government employees. The Center was not planned during the development of the 

FY 2005 budget and thus was not included in the FY 2005 materials. The current 

estimates for the FY 2006 costs, based on December 2005 wind down date, are 

$125,000. No funds have been used for outside commentators, consultants, or paid 

advertisements of any kind. 

Question: If Social Security is dismantled and replaced with a system 

that relies on private accounts to fund retirement benefits, as the President has proposed, will the Social Security Administration (SSA) be able to 

send a statement that shows an exact dollar figure that individuals can expect to receive in retirement (as SSA does now), or will the statement show 

a band B a range B of potential benefit levels? Will there be a disclaimer 

anywhere that says that the benefit level is an estimate based on the expected returns of private accounts? Lastly, how accurately can one predict 

investment returns 40 or 50 or 60 years into the future (please give examples of such accurate predictions)? 

Answer: While I disagree with the premise that the President has proposed dismantling Social Security, the President has proposed allowing younger workers the 

choice to voluntarily invest a part of their Social Security taxes in personal accounts. These accounts offer workers increased ownership and control, the ability to 

build a nest egg, and the opportunity to receive higher rates of return than traditional Social Security. The accounts will be managed in a similar way to the Thrift 


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Savings Plan (TSP) Records will be maintained by a central administrator and participants will receive periodic account statements. The combination of the traditional 

benefit and the personal retirement accounts will give younger workers the opportunity to be better off. 

The Social Security Administration’s independent Office of the Chief Actuary’s 

makes projections of the expected return for personal accounts based on historic patterns for equities and corporate bonds and taking into account future expected patterns in equity and bond pricing. The actuaries project the long-term average annual real yield for the stock market will be6.5% in the future. This estimate is similar to the Congressional Budget Office’s estimate of the long-term real return of 

6.8%. This return compares to historical returns of 6.8% since 1871. 

Projections over extended periods of time always carry a degree of uncertainty. 

This is true for long-term investment returns as it is for the finances of the underlying Social Security system. To account for this uncertainty, the Social Security 

Trustees, as well as the office of the actuary, show a range of possible outcomes. 

Even under a wide range of outcomes, however, certain trends are relatively certain. 

For example, the Trustees found that there is a 95%chance that the current Social 

Security program will enter permanent cash deficits at some point between 2013 

and 2023.Thus, while there is uncertainty surrounding the precise details of the projection, there is considerably less so about the fundamental long-term direction of 

the program. Similarly, with stock return projections, there is uncertainty over the 

precise numerical projection, but there is not uncertainty over the fundamental projection that stocks will continue to earn higher long-term returns than the Treasury 

bond rate, which in turn is higher than the internal rate of return that future workers will receive from the traditional Social Security program. 

Question from Representative Lloyd Doggett to the Honorable 

Joshua B. Bolten 

Question: The Administration’s budget does not include continuation of 

the deduction for state and local sales taxes. Does the Administration oppose continuing the deduction? 

Answer: The Administration does not support continuing the deduction for state 

and local sales taxes. However, the Administration recognizes there is a question 

of fairness in allowing State and local income and property taxes to be deductible 

while sales taxes are not deductible. The Administration believes the inconsistency 

of the respective tax treatments can and should be addressed in the context of fundamental tax reform. 

[Submission for the record follows:] 

Statement of Eduardo Ferrero, Embassy of Peru to the United States 

House of Representatives Ways and Means Committee, Hearing on the President’s Fiscal Year 2006 Budget 

The Embassy of Peru congratulates the Ways and Means Committee of the House 

of Representatives for holding a hearing and receiving written statements regarding 

the President’s Fiscal Year 2006 Budget. 

We understand that the Office of Management and Budget (OMB) has presented 

a budget in the framework of the Andean Counterdrug Initiative of US$ 734.5 million ($3.5 million more than Fiscal Year 2005). Unfortunately, in said initiative the 

amount assigned for drug cooperation to Peru is US$ 97 million or a proposed reduction of more than US$ 18 million (¥16%) in comparison to Fiscal Year 2005 (US$ 

115.37 million). 

Within the full respect for U.S. legislation, the Government of Peru would like to 

express its utmost concern about the proposal to reduce the amount for bilateral 

antidrugs cooperation with Peru in the U.S. Budget for Fiscal Year 2006. We see 

this proposed reduction as counter productive, particularly if we take into account 

the significant progress made in the fight against drug-trafficking and the challenges we must face. 

Peru and the United States share the same interest to cooperate against illegal 

drugs as they see this matter as a grave menace to national and hemispheric security. That is the reason why the fight against drug-trafficking has been placed as 

one of the high priorities of the Government of Peru in the last years. Positive results based on this effort are at hand, where close to 30,000 hectares have been 

eradicated in the last three years and almost 14 tons of cocaine and basic paste of 

cocaine have been seized from drug traffickers in the same period. These results 

would have not been achieved without the commitment of our Government and the 


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support provided by the United States. However, to continue with this effort, the 

valuable and important support of the United Stated is needed. 

Furthermore, the reduction of these cooperation funds will have a negative effect 

in the progress we have obtained in the fight against drug-trafficking. Due to the 

success of ‘‘Plan Colombia’’ on the eradication of coca crops, a ‘‘balloon effect’’ has 

developed, where new coca crops have started to grow in neighboring countries. We 

have to realize that from a regional perspective facing this problem will have a negative correlation effect for the interdiction and eradication success in other countries 

of the region. Issues like security, drug trafficking and terrorism are closely related 

and the support of the United States is vital to continue facing together, as partners, these new challenges. 

We believe that the House of Representatives has an important role to play in 

this matter. We also believe it has the power to re-examine the Administration proposal for Fiscal Year 2006 in regard to the Andean Counter Drug Initiative and, 

particularly, the proposed amount assigned for the cooperation with Peru. Therefore, we respectfully request that the proposed anti-drug cooperation funds for Fiscal 

Year 2006 be reconsidered or, at least, the amount provided by the U.S. Congress 

for Fiscal Year 2005 be maintained. 

Co-responsibility is relevant because drug-trafficking affects both countries. We have to stop the demand as well as the supply. 

The U.S. Congress is aware and very supportive of the efforts carried out by Peru 

in the fight against illegal drugs in the Andean Region. In 1991, U.S Congress approved the Andean Trade Preferences Act (ATPA) which was renewed and expanded 

by the Andean Trade Promotion and Drug Eradication Act (ATPDEA) of 2002. 

These U.S. laws have significantly contributed to coca eradication efforts in Peru by 

providing farmers and other populations at risk, with alternative economic activities 

to the highly profitable illegal crops. 

Thanks to the benefits provided by the ATPDEA, in 2004 our exports to the 

United States grew by more than 51.8 %. Textiles and apparel, agro-products and 

gold jewelry lead the expansion of sales to the US, generating thousands of new jobs 

and improving the livelihood of peasants and workers in Peru, especially in rural 

areas. 

Our government is firmly committed to the fight against drug trafficking. It created the National Commission for Development and Life without Drugs (DEVIDA), 

to design, conduct, and supervise the anti-drug policy and rehabilitation programs 

in Peru. 

On January 21, 2005, the Peruvian Government approved an updated version of 

the Peruvian National Strategy to Fight Drugs 2002—2007, which focuses on four 

major actions: 

• Reduction of the drug consumption and rehabilitation 

• Interdiction 

• Alternative development and protection of the environment 

• Eradication and auto eradication of illicit crops 

These four actions have to be sustained in time and executed in a coordinated 

manner. 

It is very difficult to tell a ‘‘cocalero’’, a farmer who grows coca leaves, to cease 

his activities if we do not provide him with an alternative crop. A licit crop may 

generate sufficient profit for him to stop growing coca plants. In the areas where 

coca is grown there is not just one crop that may be harvested, but several like coffee, palm oil, cocoa, cotton, corn, peanuts and fruits. We currently have several 

projects for all these products. 

As stated previously, we have to give farmers a chance to develop alternative 

crops and protect the environment. The production of alternative crops is only feasible if they can be delivered to major markets, either in Peru or abroad, where they 

can be sold. In this regard, the U.S. Government is cooperating in the rehabilitation 

of the important road between Juanjui and Tocache, in the Peruvian rainforest, 

through the U.S. Agency for International Development (USAID). 

As far as the environment is concerned, we know that drug traffickers do not care 

about protecting the environment. All the chemicals used in the elaboration of cocaine and its derivatives, many of them highly toxic, are thrown into the rivers of 

the highlands and jungle of Peru, contaminating clean waters and endangering wild 

flora and fauna. 

Current drug cooperation between the two countries has led to important results 

in the fight against drug trafficking. The efforts of Peruvian authorities have been 

very important, and the projected goals or eradication have been achieved in the 

last two years. As shown in the following chart, in the last three years, almost 


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72 

30,000 hectares of coca crops have been eradicated, either through forced or voluntary eradication. 

Coca Crops Eradication (Hectares) 2002 2003 2004 

Forced eradication 7,134 7,022 7,605 

Voluntary eradication 0 4,291 2,733 

Total 7,134 11,313 10,338 

Source: DEVIDA 

Interdiction 

Alternative development and eradication are not the only actions that our Government has taken to fight against drug trafficking. Our National Police, in cooperation 

with foreign enforcement agencies, have been able to seize great amounts of cocaine 

ready to be shipped to the United States, Mexico and Europe. In comparison to 

2003, there was an increase of 71.69% in the amount of illegal drugs seized in 2004. 

Illegal Drugs (kgs.) 2002 2003 2004 

Seized: 

Basic Paste of Cocaine 10,439 4,366 6,329 

Cocaine 4,129 3,574 7,303 

Total 14,568 7,940 13,632 

Security 

It is undeniable that there is a criminal link between terrorists and drug-traffickers, not only in our country but also in other parts of the world. Illegal profits 

obtained from drug-trafficking may be used to buy weapons, bombs, etc. for terrorists. This ‘‘alliance’’ must be considered a threat to security, not only on a national 

level but on the hemispheric and global arena. Currently, the actions of terrorist 

groups, as well as drug-traffickers are not limited by official borders of countries. 

We must take into account that these groups move and act in less protected places 

where they still feel safe. The way they are organized, they are able to transcend 

those borders, and become a threat to security. We must be prepared to face and 

fight this new threat. 

Due to the new and enormous challenges that we must face in the fight against 

drug trafficking, our Government truly and respectfully considers that anti-drug cooperation should be increased and not reduced. 

The above mentioned positive results in the fight against illegal drugs, based on 

the cooperation between our two countries, prove that there has been important 

progress in the last years. Consequently, we need to continue working together to 

face these challenges with the valuable support of the United States. 

Æ 


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