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30–434 2006

PRESIDENT’S FISCAL YEAR 2007 BUDGET WITH 

OMB DIRECTOR JOSHUA BOLTEN 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

SECOND SESSION 

FEBRUARY 8, 2006 

Serial No. 109–54 

Printed for the use of the Committee on Ways and Means 

( 

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 

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 

DEVIN NUNES, California 

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. 

iii 

C O N T E N T S 

Page 

Advisories announcing the hearing ........................................................................ 2 

WITNESS 

Hon. Joshua B. Bolten, Director, Office of Management and Budget ................. 6 

SUBMISSION FOR THE RECORD 

Embassy of Peru, statement ................................................................................... 49 

(1) 

PRESIDENT’S FISCAL YEAR 2005 BUDGET 

WITH OMB DIRECTOR JOSHUA BOLTEN 

WEDNESDAY, FEBRUARY 8, 2006 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

Washington, DC. 

The Committee met, pursuant to notice, at 4:36 p.m., in room 

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

[The advisory and revised advisory announcing the hearing follow:] 

2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721 

February 01, 2006 

No. FC–17 

Thomas Announces Hearing on the 

President’s Fiscal Year 2007 Budget 

with OMB Director Joshua 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 2007 within the jurisdiction of the Committee on Ways and Means. The hearing will take place on Wednesday, February 8, 2006, in the main Committee hearing room, 1100 Longworth House 

Office Building, beginning at 3:30 p.m. 

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

hearing will be from the Honorable Josh Bolten, Director, Office of Management and 

Budget (OMB). 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: 

President George W. Bush has outlined several budget and tax proposals. The details of these proposals are expected to be released on February 6, 2006, when the 

President is scheduled to submit his fiscal year 2007 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 22, 2006. Finally, please note thatdue to the change in House mail policy, 

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

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

225-1721. 

3 

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 

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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 

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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. 

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

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

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 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721 

February 06, 2006 

FC–12–Revised 

Change in Time for Hearing on 

President’s Fiscal Year 2007 

Budget with OMB Director Joshua Bolten 

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

Means, today announced that the Committee hearing on President Bush’s budget 

proposals for fiscal year 2007 within the jurisdiction of the Committee, previously 

scheduled for 3:30 p.m. on Wednesday, February 8, 2006, in the main Committee 

hearing room, 1100 Longworth House Office Building, will now be held at 4:30 

p.m. 

All other details for the hearing remain the same. (See Full Committee Advisory 

No.FC–17, dated February 1, 2006). 

f 

4 

Chairman THOMAS. This is the Committee’s third speaker in 

line, but second actual. The Chair mentioned this morning our contemplated first speaker, who we did not have an opportunity to discuss the budget with, Secretary of the U.S. Department of the 

Treasury John Snow, because of the Coretta Scott King funeral. We 

will hold that hearing, I believe, on February 15. It is a pleasure 

to welcome the Director of the Office of Management and Budget 

(OMB) once again, Mr. Josh Bolten, to testify before the Committee, and I personally look forward to your testimony. The President has presented a budget proposal that continues to fund the 

Nation’s priorities while reining in spending. It keeps us on the 

path of cutting the deficit in half by 2009. As we know, good fiscal 

policy is never easy, but spending taxpayers’ dollars wisely is always necessary. To that end, I am pleased to say that with a number of my colleagues and Director of OMB, we just came back from 

a bill-signing ceremony for the Deficit Reduction Act that will reduce the deficit by almost $40 billion over the next 5 years. 

It was important legislation, but as a stand alone it is less important. As one of a series of provisions I think it begins to get a little 

bit exciting. The budget outlook is improving, I believe, to a very 

great extent, thanks to the tax policies that have helped to spur 

the economy. Tax receipts in calendar year 2005 were stronger 

than expected. Since May of 2003 when the capital gains and dividends tax relief was enacted, the economy has created 4.7 million 

jobs, unemployment is down to 4.7, and that has not been a level 

that we had achieved since prior to the Republican Convention 

nominating George W. Bush as its candidate for President of the 

United States. The House and Senate are currently in the midst 

of assembling a tax reconciliation package which will hopefully 

maintain some of these tax policies which have made the economy 

as strong as it is. 

With the impending retirement of millions of Baby Boomers, obviously, as was discussed by the President in the State of the 

Union, we must focus on those major entitlements and the way in 

which they are growing in an unsustained manner. The President’s 

budget for fiscal year 2007 outlined ways to reduce the growth of 

Medicare by $36 billion, and I do want to remind my colleagues 

that the recommendations that the President has made are identical to recommendations made by the Medicare Payment Advisory 

Commission, which we rely heavily on in terms of data resources 

for us to make our decisions. Director Bolten, we look forward to 

your testimony and hearing more about the ideas put forth in the 

President’s budget proposal. Prior to calling on you, I want to recognize the gentleman from New York, the Ranking Member, for 

any statement he may wish to make. 

Mr. RANGEL. Thank you, Mr. Chairman. Thank you, Mr. 

Bolten. I am always encouraged in listening to you because I normally feel so despondent with the war going on, the cost of the war, 

and seeing that we are getting tax cuts, and the poor of the community are the ones that are being hurt there. I get despondent 

when I see what the interest is on the debt and how long it is going 

to take to pay it off. But every time I have seen you on television, 

I have been impressed that if we can cut the taxes more and deeper, that the deeper you cut the tax cut, notwithstanding the deficit, 

5 

the more it would spur the economy, and therefore, we will grow 

out of it. So the more we get in debt, the better it is, because it 

just keeps us going and we are stronger. I am certain that I will 

leave here feeling better. But when I am around John Tanner, he 

is so depressing, he even said that if we got into a war with China 

over Taiwan, that we would have to borrow the money from China 

in order to go to war. He is under the impression that even to 

make the tax cut permanent, we have to borrow more money from 

China. But let him say it. I would like to yield to John Tanner. 

Mr. TANNER. Thank you, I think, Mr. Rangel. 

[Laughter.] 

Mr. TANNER. I will try not to be too depressing. I would like 

to ask Director Bolten, if you look back in 2002, when Mitch Daniels came here, he predicted that the debts in 2003 would be $80 

billion; it was $377 billion. 2004 he said it would be $14 billion; it 

was $412 billion. In 2005 he said it would be 61, and it was 318, 

three of the largest dollar amount deficits in the history of the 

country. What concerns some of us is that masking this large dollar 

amount by saying it is no more than a percentage of GDP historically, when we had those historical GDP deficits, we weren’t building on top of a mountain of debt. This Government had has to increase the debt ceiling every year and going to have to again in a 

matter of days to keep up with the borrowing. Do you agree that 

interest is the fastest growing part of the Federal budget? 

Chairman THOMAS. I tell the gentleman that at this stage, any 

response will be rhetorical. This is the opening statement, and the 

gentleman will be pleased to respond during the regular questioning period. 

Mr. TANNER. What concerns us is the additional $50 billion out 

of the tax base that today is going to pay interest, 90 percent of 

which is going to foreign interest, not the United States, more than 

it was just four short years ago. So, with that, Mr. Chairman, I will 

yield back to you, other than to say that this Congress and this administration has borrowed more money faster from overseas than 

any political leadership in the history of the country, and this 

budget that is being presented today only makes it worse. Thank 

you. 

Chairman THOMAS. The Chair appreciates yielding to the 

Chairman, but I believe you meant to yield to the Ranking Member. 

Mr. RANGEL. Son of a gun. We keep forgetting that. 

[Laughter.] 

Chairman THOMAS. I know. I am here to keep the record 

straight. 

Mr. RANGEL. Thank you, Mr. Bolten. I hope that you allow me 

to feel better than I have about this deficit, because if what you 

are going to tell me is going to work for my country, I am going 

home to explain it to the wife and we are going to have a good time 

home too. Thank you so much. 

Chairman THOMAS. Mr. Bolten, your written testimony will be 

made a part of the record. Thank you again for appearing before 

this Committee. You can address the Committee as you see fit in 

an appropriate period of time, and then I am sure the Members are 

6 

anxious, as has already been evident, to ask you some questions, 

which we know you will respond to, and the floor is yours. 

STATEMENT OF THE HONORABLE JOSHUA B. BOLTEN, 

DIRECTOR, OMB 

Mr. BOLTEN. Thank you, Mr. Chairman. I do have a longer 

statement for the record, and given the late hour and the keen interest, which I appreciate, I will attempt a truncated version of my 

statement. Mr. Chairman, Mr. Rangel, other distinguished Members of the Committee, the President’s 2007 budget, which I transmitted to the Congress on the President’s behalf on Monday, meets 

the priorities of the Nation and builds on the progress of the last 

5 years. In directing me in preparing this budget, the President 

told me to give our troops and those who defend our security what 

they need to fight and win the global war on terror, and he emphasized that the 2007 budget must support our pro-growth economic 

agenda. In particular, he said we should maintain our economic 

strength by extending the tax relief that has sealed our economic 

expansion and by aggressively restraining spending. Monday I presented on the President’s behalf a budget that does just that. In 

the past give years our economy suffered a historic series of shocks 

starting with the recession and the terror attacks of 2001, and continuing through the hurricanes last summer. Those events had profound impacts on job creation and on the fiscal outlook. 

Despite these challenges, thanks to the productivity and hard 

work of the American people, our economy is, Mr. Chairman, as 

you emphasized, expanding at a healthy pace. What the chart on 

the screen now shows is that in 2005 the economy grew by an estimated 3.5 percent, the third consecutive year of healthy growth. 

Economic expansion has produced more than 4.7 million new jobs 

since May 2003, reduced unemployment to 4.7 percent and raised 

homeownership to all-time highs. This economic growth would not 

have been possible without the tax relief that you passed and the 

President signed. The tax cuts, which were fully implemented in 

May 2003, have been critical to helping the economy recover from 

the recession and terrorist attacks of 2001, and then helping the 

economy continue expanding despite the hurricanes and high-energy prices of this past year. With the tax cuts fully implemented 

in 2003, the economy responded strongly and tax receipts rebounded. As you can see on the chart now on the screen, receipts 

grew substantially in 2004. In 2005 receipts jumped by a remarkable 14.5 percent, the largest increase in 24 years. These recent 

gains in receipts confirmed that a strong economy is the most important factor in controlling the deficit. 

The chart on the screen now shows our progress in bringing the 

deficit down. Since the President set a goal of cutting the deficit 

in half from its projected peak in 2004 of 4.5 percent, the deficit 

has come down. The final 2004 deficit was 3.6 percent of GDP, and 

fueled by the surge in receipts I just mentioned, the 2005 deficit 

fell further to 2.6 percent of GDP. Although the revenues are projected to continue to rise in 2006, the deficit for the current fiscal 

year is now projected to come in at 3.2 percent of GDP, with 423 

billion in nominal terms, which is more than previously expected. 

This is in significant part due to the unanticipated spending associVerDate Aug 31 2005 06:00 Dec 23, 2006 Jkt 030434 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 E:\HR\OC\30434.XXX 30434
7 

ated with relief and recovery efforts from Hurricanes Katrina and 

Rita. While this increase in the deficit is unwelcome, at 3.2 percent 

of GDP, the projected deficit would be well within historical range 

and smaller than the deficits in 11 of the last 25 years. More importantly, we project that if the policies in the President’s budget 

are adopted, the deficit will return to its downward trajectory. By 

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

projected peak to just 1.4 percent of GDP, well below the 40-year 

average which is reflected by the dotted line on the chart on your 

screens now. That dotted line also reflects roughly the cut-in-half 

target that the President set 2 years ago when he set a goal of cutting the 4.5 percent of GDP deficit in half. 

In order to keep the deficit on this declining path, we must continue to do two things, first keep the economy growing through retaining a low tax environment, and second, restrain spending. With 

respect to the latter, Mr. Chairman, I call your attention to the 

chart that is on the screen now, which shows the success of the 

past year budget season in restraining spending. The President 

asked for and received appropriations bills that kept discretionary 

spending below the level of inflation. Congress delivered that. The 

President’s 2007 budget is asking for the same again this year. The 

President asked last year that the Congress cut non-security 

spending below the previous year’s level in very nominal terms. 

The Congress delivered. The President is asking for the same again 

this year. Last year the President asked for cuts or terminations 

in 154 programs. The Congress delivered 89. The President is asking for a comparable amount this year. Perhaps most important, 

Mr. Chairman, as you emphasized, last year the President asked 

for $54 billion in mandatory savings, the first time since 1997 that 

the Congress will have stepped in and reconciled mandatory savings. Thanks to your work, Mr. Chairman, and many of the other 

members in this room, the Congress delivered and the President 

signed today a bill saving $39 billion over 5 years on the mandatory side of the ledger. 

The President is asking once again this year for savings on the 

mandatory side, this year in the amount of $65 billion over 5 years. 

These efforts to restrain the growth in mandatory spending are 

vital, not just for our near-term deficit reduction efforts, but especially for the long term. The chart now on the screen explains our 

long-term situation. It is our spending and revenues as a percent 

of GDP. The black line represents our revenues, with revenues in 

the out-years held at the historic average of 18.2 percent of GDP. 

The bars represent our spending. Green is mandatory programs, 

principally the entitlement programs of Social Security, Medicare 

and Medicaid. Blue is interest expense, and orange is discretionary 

spending. Toward the end of the next decade, deficits stemming 

largely from entitlement programs such as Social Security and 

Medicare will begin to rise indefinitely as this chart shows. No 

plausible amount of spending cuts and discretionary accounts or 

tax increases could possibly solve this problem. The President has 

shown a willingness to take on these future unfunded obligations 

and to propose long-term reforms. This year’s budget proposes $36 

billion in savings from Medicare, and includes proposals that pave 

the way for additional reforms in the future. As with Social SecuVerDate Aug 31 2005 06:00 Dec 23, 2006 Jkt 030434 PO 00000 Frm 00011 Fmt 6633 Sfmt 6602 E:\HR\OC\30434.XXX 30434
8 

rity and Medicaid, we do not need to cut Medicare, but we do need 

to slow its growth, and this budget begins to do just that. 

In addition, Mr. Chairman, the 2007 budget contains proposals 

to significantly improve the budgetary process. The budget proposes discretionary spending caps, as well as restraints on new 

mandatory spending, and the administration is pleased that the 

congressional leadership is focused on a need for reform of earmarks in the budget process. One way we can address the excessive use of earmarks together is by the Congress giving the President the line-item veto. The 2007 budget also continues our effort 

to improve performance and make sure the taxpayers get the most 

for their money. Using the President’s management agenda, OMB 

measures success not by good intentions or dollars, but by results. 

As part of these efforts, OMB has introduced a new website called 

Expectmore.gov. Expectmore.gov allows taxpayers to review the 

OMB assessments of nearly 800 Federal programs. You can search 

the programs by rating, topic or key word. I urge you and your 

staffs to make use of this important new resource. Mr. Chairman, 

this management agenda, coupled with the restraint reflected in 

the President’s 2007 budget, will help ensure that taxpayers’ dollars be spent wisely or not at all. I would be pleased to take your 

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 2007 Budget, which I transmitted to the Congress on the 

President’s behalf on Monday, meets the priorities of the Nation and builds on the 

progress of the last five years. 

Before getting to the 2007 Budget, I would like to take a moment to review the 

substantial accomplishments in spending restraint we were able to achieve together 

over the past year. 

Last year’s 2006 Budget set four major objectives: 

First, the President proposed to hold growth in overall discretionary spending 

below the rate of inflation. 

Second, he proposed an actual cut in the non-security portion of discretionary 

spending—the first such proposal since the Reagan Administration. 

Third, he proposed major reductions or eliminations in 154 Government programs 

that were not getting results or not fulfilling essential priorities. 

And fourth, he proposed reforms in mandatory programs to produce $54 billion 

in savings over five years. 

The Congress substantially delivered on all four of these objectives. 

When President Bush gave me guidance on what the 2007 Budget should look 

like, he directed me to build on last year’s progress by focusing on national priorities 

and tightening our belt elsewhere. He told me to give our troops and those who defend our security what they need to fight and win the Global War on Terror. And 

he emphasized that the 2007 Budget must support our pro-growth economic agenda. 

In particular, he said we should maintain our economic strength by extending the 

tax relief that has fueled our economic expansion and by aggressively restraining 

spending. Monday, I presented on the President’s behalf a budget that does just 

that. 

In the past 5 years, our economy suffered an historic series of shocks, starting 

with the recession and the terror attacks of 2001 and continuing through the hurricanes last summer. Those events had profound impacts on job creation and on the 

fiscal outlook. 

Despite these challenges, thanks to the productivity and hard work of the American people, our economy is expanding at a healthy pace. In 2005, the economy grew 

by an estimated 3.5 percent—the third consecutive year of healthy growth. Economic expansion has produced more than 4.7 million new jobs since May 2003, reduced unemployment to 4.7 percent, and raised homeownership to all-time highs. 

9 

This economic growth would not have been possible without the tax relief that you 

passed and the President signed. The tax cuts—which were fully implemented in 

May 2003—have been critical to helping the economy recover from the recession and 

terrorist attacks of 2001—and then helping the economy to continue expanding despite the hurricanes and high energy prices in 2005. 

With the tax cuts fully implemented in 2003, the economy responded strongly and 

tax receipts rebounded. Receipts grew substantially in 2004—by 5.5 percent. In 

2005, receipts jumped by a remarkable $274 billion, or 14.5 percent, the largest increase in 24 years. These recent gains in receipts confirm that a strong economy 

is the most important factor in reducing the deficit. 

Since the President set a goal of cutting the deficit in half from its projected peak 

in 2004 of 4.5 percent of GDP, the deficit has come down markedly. The final 2004 

deficit was 3.6 percent of GDP, and fueled by the surge in receipts, the 2005 deficit 

fell further to 2.6 percent of GDP. 

Although revenues are projected to continue to rise in 2006, the deficit for the current fiscal year is now projected to come in at 3.2 percent of GDP, or in nominal 

terms, $423 billion, which is more than previously expected and is in significant 

part due to the unanticipated spending associated with relief and recovery efforts 

from Hurricanes Katrina and Rita. While this increase in the deficit is unwelcome, 

at 3.2 percent of GDP the projected deficit would be well within the historical range 

and smaller than the deficit in 11 of the last 25 years. 

More importantly, we project that if the policies in the President’s Budget are 

adopted, the deficit will return to its downward trajectory. We forecast a decline in 

the 2007 deficit to 2.6 percent of GDP, or $354 billion. By 2009, the deficit is projected to be cut by more than half from its projected peak to just 1.4 percent of GDP, 

well below the 40-year historical average. 

In order to keep the deficit on this declining path, we must continue to do two 

things: First, keep the economy growing; and second, restrain spending. 

First, the 2007 Budget will support continued economic growth by proposing to 

make permanent the tax relief signed into law by the President in 2001 and 2003. 

Some have argued that we should let the tax relief expire. A tax increase is the 

wrong prescription, not only for the nation’s economic health, but for the Government’s fiscal health as well. 

We are not an under-taxed society. By rejecting tax increases on families and 

small businesses, this budget will help keep the economy on a continuing course of 

job creation and strengthen the foundations for long-term growth. 

The second critical component of deficit reduction is a vigorous policy of spending 

restraint. Similar to last year, the Budget again holds overall discretionary spending 

growth below the rate of inflation. It again proposes a cut in non-security discretionary spending. It calls for major reductions in or total eliminations of 141 Federal 

programs, saving nearly $15 billion. And it continues our efforts to slow the growth 

in spending on mandatory programs, by proposing $65 billion in savings over five 

years. 

These efforts to restrain the growth in mandatory spending are vital—not just for 

our near-term deficit reduction efforts—but especially for the long-term. Toward the 

end of the next decade, deficits stemming largely from entitlement programs such 

as Social Security and Medicare will begin to rise indefinitely. No plausible amount 

of spending cuts in discretionary accounts or tax increases could possibly solve this 

problem. 

The President has shown a willingness to take on these future unfunded obligations and to propose long-term reforms. This year’s Budget proposes $36 billion in 

savings from Medicare, and includes proposals that pave the way for additional reforms in the future. As with Social Security and Medicaid, we do not need to cut 

Medicare, but we do need to slow its growth—and this budget begins to do just that. 

In addition, the 2007 Budget contains proposals to significantly improve the budgetary process. The Budget proposes discretionary spending caps as well as restraints 

on new mandatory spending. The Administration is pleased that the Congressional 

leadership is focused on the need for reform of earmarks in the budget process. One 

way we can address the excessive use of earmarks together is by Congress giving 

the President the line-item veto. 

The 2007 Budget also continues our efforts to improve performance and make 

sure the taxpayers get the most for their money. Using the President’s Management 

Agenda, OMB measures success not by good intentions or by dollars spent, but rather by results achieved. 

As part of these efforts, OMB has introduced a new website called 

Expectmore.gov. ExpectMore.gov allows taxpayers to review the OMB assessments 

of nearly 800 Federal programs. You can search the programs by rating, topic, or 

by a simple keyword search. I urge you and your staffs to use this new resource. 

10 

The management agenda—coupled with the restraint reflected in the President’s 

2007 budget—will help ensure that taxpayer dollars continue to be spent wisely, or 

not at all. 


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Chairman THOMAS. Thank you very much. One of the things 

that I have done—and I recall the very first meeting when this administration came in—was to come and lay in front of you several 

different pieces of paper, one an estimate by the Congressional 

Budget Office, the other an estimate by Office of Management and 

the Budget, and tried to explain that to the degree we begin to try 

to be more in harmony, at least it would make it easier to make 

some of the tough decisions. Perhaps one of the more recent misuses of information was the actual cost to the program of the Medicare Modernization Act based on OMB versus CBO estimates, and 

in fact, it is proving that virtually every month now it is cheaper 

than what had been estimated by virtue of those competitive market forces. But I am looking at the 2006 real GDP estimates of the 

Congressional Budget Office, which was at 3.6, the administration 

at 3.4, and the consensus blue chip at 3.3. Ordinarily the accusation is that the administration tends to wheel out a rosier scenario 

in an effort to make things fit. I think it is interesting to note that 

the administration was below the Congressional Budget Office, and 

also the Congressional Budget Office projects lower inflation than 

the administration and blue chip. 

Clearly, these are the best efforts of professionals. What amazes 

me the most is not that there is a difference—I mean 3.3 to 3.6 is 

the range—but everybody is wrong in terms of estimating the economy, and I am trying to determine if even those people who seem 

to me the most ardent believers—I am sure the gentleman from 

Wisconsin, Mr. Ryan, felt comfortable that he knew that these tax 

cuts would product the kind of significant percentage movement 

that we have seen. But are we really not as well equipped as we 

should be to appreciate the dynamism of the kinds of changes that 

we have been talking about, or is it that we do it so seldom in a 

fundamental way that we are not as good as we think we are in 

projecting what is going to happen? 

Mr. BOLTEN. Mr. Chairman, the record is spotty on projecting 

the effect, especially of tax cuts on the economy. Clearly we underestimated the positive effect that the growing economy was going 

to have on our revenues, especially during this past year, as one 

of the charts I had up showed. We had a revenue surprise on the 

upside last year in excess of $100 billion, which even in our world 

is pretty substantial, the result of which was the deficit came down 

to 2.6 percent of GDP, which is pretty close to the historic average, 

and I think not a bad place to be when you are in the middle of 

a war. The challenge is to try to get the economists and the actuaries to come to some professional agreement on the best way to 

measure the dynamic effect of tax cuts. So, far it has been frustratingly impossible to bring that agreement about. Almost all of them 

agree that the effects are there. One of the things we are doing in 

the administration this year—and you will find buried in Secretary 

Snow’s budget—is a small amount of money to help him create an 

Office of Dynamic Analysis, which I am hopeful will help advance 

both the art and the science of dynamic analysis, and help us 

gauge better something that is not currently well reflected in our 

numbers, and that is, the effect on revenues the tax cuts actually 

have. 

19 

Chairman THOMAS. What it does tell me though is that if in 

fact we have seen this kind of reaction to the decision we made, 

it probably makes sense to continue it rather than to not continue 

it. Is that a fair statement? 

Mr. BOLTEN. I believe it is. 

Chairman THOMAS. I appreciate that. The Chair is mindful of 

the time, and will recognize the gentleman from New York. 

Mr. RANGEL. Thank you, Mr. Chairman. As you know, we have 

to go to the floor. There is a motion that we have to be in attendance on. But did you mention in your opening statement that the 

President asked you to do what as it relates to the troops? You 

mentioned the troops in your—— 

Mr. BOLTEN. I did, sir. I don’t recall the exact words, but it had 

to do with providing the troops what they need to fight and win 

the war on terror. 

Mr. RANGEL. I thought the war on terrorism was off budget. 

Mr. BOLTEN. No. All of our anticipated costs, certainly in 2006 

and almost all of the costs we anticipate for 2007 are included 

there, and it is not just the war fighters in Iraq and Afghanistan 

that are part of this calculation. I think there are a lot of Homeland Security people. There is just the base military. Sustaining a 

good strong military is an important part of—— 

Mr. RANGEL. What part of it, the $350 billion or the 120 billion 

the President will be asking for? Does that come in your budget? 

Mr. BOLTEN. Yes, it is reflected in the documents that you have 

before you. 

Mr. RANGEL. So, the cost of the war and the continued cost of 

the war is projected and it is included in the budget that you will 

be presenting to us? 

Mr. BOLTEN. Yes. The Congress adopted, in its regular 2006 appropriations, a $50 billion supplemental was included in the bills 

that were passed this past year. We anticipate coming forward in 

the next few days with an additional supplemental for 2006. We 

have estimated that for the purposes of the documents before you 

to be about $70 billion. I can’t tell you it will be exactly that, because it hasn’t been finalized. 

Mr. RANGEL. Is that included in the deficit when it comes in in 

the supplemental? 

Mr. BOLTEN. It is included in the deficit estimates that we have 

before you. 

Mr. RANGEL. Now, as it relates to how good the economy is 

doing, is it safe to say that more, millions of more people have gone 

into poverty and have lost their health insurance in the last few 

years, every year that that number increase? 

Mr. BOLTEN. I am sorry? 

Mr. RANGEL. The number of people that have gone into poverty 

in the last few years, during this period of increased economic 

growth, is it also true that the number of people who are without 

health insurance and the number of people that move into poverty, 

that that number also has increased? 

Mr. BOLTEN. I believe it has. 

Mr. RANGEL. Isn’t it true that as it relates to the average working family, that their wages have not kept up with inflation and 

20 

that they have not enjoyed this prosperity that the economy is having? 

Mr. BOLTEN. I believe that in fact total real compensation, after 

taxes, has increased about 7 percent over the course of this President’s term. 

Mr. RANGEL. With all of the people being laid off and the pensions being converted to 410(k)s, isn’t it true that there is a general 

feeling about working people, that they are not feeling that they 

are doing a well as is being projected for the national economy? I 

mean as you go around the country, I mean you hear the same 

thing we hear. Does the average person in the street, average 

working person, believe they are doing as well with economic 

growth as you have stated? 

Mr. BOLTEN. I won’t be a good judge of that, Mr. Rangel. I 

think you and your colleagues will be much better judges of that. 

What I do know, from reading some of the public opinion polls, is 

that there are many people who believe that the economy is not 

doing well, but when you ask them, ‘‘Are you doing well personally,’’ the answers tend to be much stronger. 

Mr. RANGEL. In view of the fact that you are looking at the percentage of the gross national product as it relates to the deficit, do 

you believe that there is a threat to our National security by the 

amount of our debt that is being held by the People’s Republic of 

China? 

Mr. BOLTEN. No. I think we do need to be concerned about rising debt levels, really regardless of who holds that debt. But I believe that—— 

Mr. RANGEL. I like to get to China though because we are depending on her with Iran, we are depending on her with Taiwan, 

we are depending on her with North Korea, and it is kind of hard 

to have when you are telling them what you want them to do, and 

I just wondered from a point of national security, do you think that 

the increasing amount of debt that China is holding could possibly—we should have some concern, not about just the economy, 

but on national security? 

Mr. BOLTEN. I will leave that to others to judge about the national security. What I do know is— 

Mr. RANGEL. I mean as an American, not as Rumsfeld. I mean 

would you feel secure going to the People’s Republic of China and 

telling them what they have to do in Iran, and stay away from Taiwan, and we need you in Russia and North Korea, and you know 

that you owe them trillions of dollars? I mean as an American how 

do you feel? Forget the budget. 

Mr. BOLTEN. The reason why Chinese and other foreign investors are buying U.S. Treasury bills and other debt instruments is 

that they have confidence in the U.S. economy. That confidence is 

well placed and if—— 

Mr. RANGEL. Where else can they do it with the currency being 

underrated as it is? 

Mr. BOLTEN. Mr. Rangel, there are a lot of places around the 

world to invest, but people choose to invest here because they have 

confidence in the U.S. economy. The one thing I would say is that 

if you are concerned about the national security implications of 

21 

people holding our debt, the worse thing to do is undermine their 

confidence in the U.S. economy by raising taxes. 

Mr. RANGEL. I see. So, the more we borrow, the better friends 

we have. I like that. 

Mrs. JOHNSON. [Presiding.] Let me announce to all the Members, that given the hour and the number of Members here, I am 

going to be very tough about the 5 minutes. So, if I pound you 

down, don’t take it personally. It is now my time. First let me say, 

Mr. Bolten, welcome. 

Mr. RANGEL. Take your time. Take all the time you want. 

Mrs. JOHNSON. Notice, I was generous with Mr. Rangel’s. I 

agree with your opening statement, with your goals. I also agree 

with the need to slow the rate of growth in Medicare. I would point 

out that in your statement about your goals, I was pleased that you 

pointed out that our deficit is a percent of our GDP, is actually one 

of the lowest, as it turns out, of the industrialized nations. I think 

we are lower than all but one country. That doesn’t mean we don’t 

have to pay attention to the deficit, but it does mean we don’t want 

to retire the deficit at the expense of key programs. One of our key 

programs is certainly Medicare, and we do have to bend the curve. 

In writing the Medicare Modernization Act, we focused on the fact 

that 20 percent of our Medicare recipients spend 80 percent of the 

dollars. We put into place a program that will reduce the cost of 

that 20 percent, and the demonstrations that are out there are 

going to demonstrate that if we manage people with chronic illnesses differently, we can save the program 5 percent. If that 

works, don’t you think that will both slow the rate of growth in 

Medicare and improve the quality? 

Mr. BOLTEN. I believe it would. 

Mrs. JOHNSON. Thank you. In your budget you were absolutely 

silent oh physician reform. By being silent on physician, the reform 

of the physician payment system, you apparently support a reduction of 50 percent in physician fees over the next 6 years, because 

when you combine a 4.4 percent cut in physicians’ fees and the increase in expenses, it comes out to a 50-percent reduction in payment reforms. Have you done an estimate of the number of physicians that will be participating in Medicare in 5 or 6 years under 

those circumstances? 

Mr. BOLTEN. I have not personally, Madam Chairman. I know 

that this is something that the folks at HHS monitor closely, and 

to this point, the reports I understand indicate that there is not 

currently an access problem for physicians in—— 

Mrs. JOHNSON. Thank you, Mr. Bolten. You know, the material 

they use to monitor, the information is generally two-years-old. I 

think any of us know from what our constituents are telling us, 

that unless you already are with your doctor, if you change areas 

or have to go to a specialist, it is hard to get a doctor to take an 

additional Medicare person. I think there is evidence that is going 

to show that in 5 years we are going to have trouble, and if I were 

working for a boss who told me he was going to cut my wages 4.4 

percent for the next 6 years, I wouldn’t work for him very long. So, 

I caution you that this could be a fast trip to disaster. But further, 

you say in your budget that you would like to work with physicians 

to improve efficiency and provide more efficient and high-quality 

22 

services. But you hold their payments to a requirement that no 

other payment is held to. You are going to fund in this budget a 

market basket minus productivity piece for hospitals. That is very 

big money. You are going to pay for that. You don’t say that the 

taxpayers don’t have to carry a piece of that and the beneficiaries 

don’t have to carry a piece of that. 

But in physician payments you say that any adjustment to their 

payments cannot be funded by either beneficiaries or taxpayers. So, 

you have put a very hard mark out on there. You are treating physician payments differently than you are treating any other payments, and you are not addressing the problem of this 50 percent 

cut. Between those two, I think you ought to at least have either 

some good answer to us as why you think this won’t erode Medicare, otherwise, I personally think you are not just eroding Medicare a little bit, you are putting it very decisively on the same track 

that Medicaid is on. I had the privilege of standing with some dentists and congratulating them on provided free dental services for 

children. You know why they are doing that? Because Medicaid in 

my State has not adjusted their reimbursement since 1989, and so 

only 100 out of the thousands of dentists in Connecticut take Medicaid. 

I have used my time to tell you that you are putting Medicare 

on the track of Medicaid, and I hope that you will have some better 

answer for us as we work together this year, than we were able to 

come to last year as to how we put the physicians on the same equitable and fair basis we give the market basket or we don’t as we 

can afford. But you know and I know that technology and cuttingedge medicine that teaches us how to manage chronic illnesses will 

bend the Medicare curve and leave us with a world-class health 

care system that will be a leader in the world community of nations. But going the direction this budget lays out for Medicare will 

destroy Medicare, and with it, the rest of the American health care 

system. We can’t tolerate Medicaid and Medicare. Medicare is making up for Medicaid’s shortcomings at this time, and you have to 

come up with better answers with us this year, and one of them 

ought to be to give us credit for the savings in the drug bill toward 

the physician payment. My time has expired. If you care to respond 

at another time, you will have the opportunity. 

Mr. BOLTEN. Thank you. 

Mrs. JOHNSON. Mr. Stark. 

Mr. STARK. Thank you, Madam Chair. Welcome, Mr. Bolten. I 

want to just talk about these health savings accounts for a minute. 

I am puzzled. As near as I can tell, they don’t help create any new 

insured individuals, and they basically tend to diminish employerbased health benefits, or eliminate them, and shift the cost to individuals. Now, in one of your publications here of your explanations 

for your proposals, you indicate that the costs of the health savings 

account program will be 156 billion over 10 years in terms of lost 

revenue and a few small outlays, and 156,132, to be exact, on page 

27. But I, for the life of me, haven’t found out whether there are 

any savings from these health savings accounts. It is going to cost 

us $156 billion. You agree to that, you wrote it. Where are the savings? What page? 

23 

Mr. BOLTEN. We anticipate that savings will come to the health 

system overall. It may be one of those elements that is hard to—— 

Mr. STARK. Where is it in all this information that you so kindly 

provided us, the budget? 

Mr. BOLTEN. I don’t believe it is broken out separately, but 

the—— 

Mr. STARK. Is it in the appendix? 

Mr. BOLTEN. I don’t believe it is broken out separately, Mr. 

Stark. 

Mr. STARK. Does anybody know what it is, or can you tell me 

what you think—give me a dollar amount of the projected savings 

over—— 

Mr. BOLTEN. No. I wouldn’t have the expertise to do that. 

Mr. STARK. Does anybody on your staff? 

Mr. BOLTEN. It is possible, and we will ask them to respond to 

you for the record, but—— 

Mr. STARK. I can’t believe that you would let any savings slip 

through the cracks when they are so desperately missing from this 

budget. I challenge to suggest to me that you have information 

now, empirical information that would indicate there will be savings from the health savings accounts to the Federal Government. 

Mr. BOLTEN. I believe there is, and we would be glad to provide 

that for the record. 

Mr. STARK. Give me an idea of where they will come from? A 

health savings account fairy that will put them under our pillow 

at night? 

Mr. BOLTEN. One of the ways that health savings accounts are 

expected to achieve savings is through increased consumer awareness. 

Mr. STARK. How does that help the Federal budget? 

Mr. BOLTEN. The Federal budget is always helped when health 

costs in general go down, but the main saving—— 

Mr. STARK. You remember a year when they have gone down? 

Are you old enough to recall a year in which health care costs have 

decreased, 1 year over another? 

Mr. BOLTEN. Under no circumstances do I expect that health 

care costs are actually going to go down. Hopefully, they—— 

Mr. STARK. So, how can you have a savings? Pardon me just a 

minute. I am having a little trouble. How can you have a savings 

when health care costs go up? 

Mr. BOLTEN. You can have lower health care costs than they 

otherwise would have been without the measures in place. What I 

anticipate is that the savings would accrue to the medical care system overall, and would be savings for the beneficiaries of the 

health savings accounts themselves. 

Mr. STARK. Well, that would show up certainly in your estimate 

of tax revenues. Come on. If I am going to have more income, unless—and you are not so slippery as to tell me that you are not 

counting on whatever increased taxes we may pay from our increased revenue. You just showed me all that chart about—nowhere in that increased revenue do you show anything, any increased revenue from the health savings accounts, do you? 

Mr. BOLTEN. It is possible that some of it may be baked into 

our models, but I couldn’t tell you at this point. 

24 

Mr. STARK. Mr. Bolten, I have been flim-flammed by experts, 

mostly from the other side of the aisle, but nonetheless, I challenge 

you, sir, and I hope you wouldn’t want to base your reputation as 

an economist or certainly your staff—I am going to suggest to you 

that there aren’t any savings that you can identify that could qualify for budget savings over the next 10 years from health savings 

accounts. 

Mr. BOLTEN. We will be glad to provide something for the 

record, Mr. Stark. 

Mr. STARK. I dare you. I will look for that, because you would 

have it in here, wouldn’t you, if you—give me an example of other 

savings that you got off here, in the ether, you know, these fairy 

dust savings that you re going to show us later. 

Mr. BOLTEN. Mr. Stark, I am unclear on what kind of thing you 

are looking for. With health savings accounts? 

Mrs. JOHNSON. We are going to move on to Mr. Herger. It is 

a question that has been asked before, and you had an opportunity 

to respond. So, Mr. Herger. 

Mr. HERGER. Thank you, Madam Chairman. I am just looking 

at some statistics here, Mr. Director, just on this line of questioning that the gentleman from California was going over. It has 

Deloitte Center for Health Solutions found that the cost of consumer-driven plans is falling among the 152 major companies it 

surveyed. Consumer-directed plan cost increased by 2.8 percent 

last year, which was only one-third of the increase for traditional 

plans. So, I think the point you were making, they are not going 

down, but they are going up at a much lesser rate, I think is a 

point that is well taken. My question, Mr. Director—first of all, I 

want to thank you for testifying before our Committee today. We 

have had a lot of good news in recent months as it relates to the 

economic vitality of our Nation. In the past 12 months 2 million 

jobs were created. The unemployment is at its lowest level since 

July of 2001. As along-time advocate of the expansion and permanency of section 179, Small Business Expensing, I read the President’s proposal in this area with a great deal of interest. A National Federation of Independent Business report from the end of 

2005 stated that 61 percent of small businessowners reported capital outlays over the preceding 6 months, period, including new 

equipment and vehicle purchases, furniture purchases, existing facilities, expansion and improvement and new facility construction. 

I see this as further evidence that expensing works. My question 

is I would like you to take a moment to explain how this small 

business expansion has contributed to economic growth and will 

continue under the President’s expensing plan. 

Mr. BOLTEN. Mr. Herger, thank you. The President has proposed to raise the limit for expensing for small businesses from 

$100,000 to $200,000, as you are aware. We believe that the provision that was already in law has had a lot to do with an expansion 

in small business investment. That small business investment in 

turn means jobs. About two out of three of the new jobs that have 

been created in this economy over the last few years have been in 

small businesses, and we have seen tremendous job growth since 

the tax cuts, including the original small business expensing provision were adopted in May 2003. In fact, we have seen nearly 5 milVerDate Aug 31 2005 06:00 Dec 23, 2006 Jkt 030434 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HR\OC\30434.XXX 30434
25 

lion new jobs in the economy since then. So, the President hopes, 

in this new proposal, to build on the success of that previous provision, help out small businesses, and most importantly, help create 

jobs for the folks that are looking for them. 

Mr. HERGER. Thank you very much, Mr. Bolten. I think traditional wisdom would have you think that if you would somehow reduce taxes to a group such as small business, somehow revenues 

would decrease. Would you mind responding, as a follow up, to how 

has our stronger economic growth affected Federal revenues? 

Mr. BOLTEN. The principal factor in our fiscal health, above all 

others, is whether or not our economy is sound and growing. There 

are a lot of elements that affect our fiscal health, taxes, spending 

and so on. Nothing is more important to it than strong growth in 

the economy. Tax cuts, we believe, have been an essential element 

in promoting the growth that has restored revenue growth to the 

economy. Last year we saw revenues go up by $274 billion with the 

President’s tax cuts fully implemented. We can’t count on that kind 

of growth going forward. In fact, we have relatively conservative, 

I believe, estimates going forward of about 6 percent year-on-year 

revenue growth going forward. But if we are to achieve even that, 

I think it is crucial that we maintain a low-tax environment. 

Mr. HERGER. Thank you. But the point being, we hear many on 

the other side of the aisle seem to indicate that if somehow we 

allow small business, the American taxpayer to be able to keep 

more of their own money, somehow our revenues area decreased to 

the Federal coffers. Actually, what we see this year—and there is 

an indication that we have seen in a number of the tax reductions 

under Kennedy, under Reagan, under our tax reduction—revenues 

have actually increased rather than gone down to the Federal Government because of the expansion in the economy. 

Mr. BOLTEN. Expansion in the economy is crucial. 

Mr. HERGER. Thank you very much. 

Mrs. JOHNSON. Mr. Levin. 

Mr. LEVIN. Welcome. I think that more and more people think 

about that there is a disconnect regarding Social Security between 

the President’s State of the Union address and your budget. In the 

State of the Union address, there is a reference to a bipartisan 

commission. In your budget document—and there is no discussion—he doesn’t mention the words ‘‘private accounts’’ as I remember it. In your document, which I assume speaks on behalf of the 

President, there is no reference to a bipartisan commission in many 

paragraphs about private accounts, including a budget estimate, 

$712 billion of cost. I won’t ask you how to explain that disconnect, 

two separate paths, but it clearly undercuts the budget document, 

the reference by the President to a bipartisan commission. What it 

signals to everybody is, ‘‘there he goes again,’’ private accounts, 

$712 billion, he is spelling them out in detail. Let me just ask you 

about your data though. You talk about the growth in jobs. How 

many manufacturing jobs have been lost during the same period as 

you talk about growth in employment; do you know? 

Mr. BOLTEN. I believe there has been modest net growth in 

manufacturing jobs in that period. 

Mr. LEVIN. Since the President became President, what has 

been the loss in manufacturing jobs? 

26 

Mr. BOLTEN. Oh, there was substantial losses from the recession that was on the doorstep as the President came into office, 

but—— 

Mr. LEVIN. If you start with the first day until day, there has 

been a loss of manufacturing jobs? 

Mr. BOLTEN. I don’t know that for a fact, but I wouldn’t be surprised if that was true. The recession—— 

Mr. LEVIN. Well, the figure is 3 million. 

Mr. BOLTEN. The recession that was on the doorstep as the 

President entered into office hit very hard on the manufacturing 

sector. 

Mr. LEVIN. Okay. But when you talk about a rebound, the 

total—I mean you can talk about doorstep all you want—the total 

is $3 million loss in manufacturing jobs. 

You also talk about growth. In the last couple of years, what has 

happened to median income in this country? 

Mr. BOLTEN. I believe median income has been relatively flat. 

Mr. LEVIN. Right. 

Mr. BOLTEN. Real compensation, after-tax real take-home compensation, I believe, is up about 7 percent over the course of this 

administration. 

Mr. LEVIN. The average? 

Mr. BOLTEN. Yes. 

Mr. LEVIN. I am talking about median income, Mr. Bolten. That 

is one reason why it is easily explained why most people, when 

they ask are things worse or better in these years, they say worse. 

Private debt is at a record high. 

Mr. BOLTEN. I believe it is. 

Mr. LEVIN. Okay. Let me just ask you, to finish up, about the 

expenditure picture in military. As I understand it, there is a provision for next year in your budget figure, an assumption of $50 

billion for Iraq and Afghanistan, right? 

Mr. BOLTEN. Yes. Last year you made an allowance in the budget resolution and in appropriations of $50 billion as basically 

a bridge amount of supplemental—— 

Mr. LEVIN. What do you assume for 2007? 

Mr. BOLTEN. We are repeating that practice this year, so we are 

including an allowance of $50 billion. 

Mr. LEVIN. What do you do for the year after 2007? 

Mr. BOLTEN. We do not carry an allowance into 2008, just as 

the previous resolution—— 

Mr. LEVIN. I mean that is one reason nobody believes the budget. Let me ask you this——your estimate. Second, if you leave Social Security out, do you cut the deficit in half? If you leave the surplus of Social Security out in the next years, 5 years, is the deficit 

cut in half? 

Mr. BOLTEN. Let me make a quick comment about the defense 

spending, the war spending, Mr. Levin, and that is that we very 

clear state in our documents that that $50 billion for 2007 is an 

allowance, and that we anticipate that there are likely to be additional costs beyond that which are unknown at this point and 

therefore not reflected. 

Mr. LEVIN. But you have zero for 2008. Let me ask you then, 

if you would answer the question—— 

27 

Mr. BOLTEN. On Social Security. You mean the on-budget 

versus off-budget deficit? 

Mr. LEVIN. The Social Security surplus is going up right, these 

years? 

Mr. BOLTEN. It is, yes. 

Mr. LEVIN. If you leave that out, do you cut the on-budget deficit in half? 

Mr. BOLTEN. From the 2004 period when the— 

Mr. LEVIN. Yes. 

Mr. BOLTEN. From the 2004 estimates down to 2009. I would 

have to check and see. It is possible that the answer would be no, 

but I am guessing it would be pretty close. 

Mr. LEVIN. Let me just suggest you look at page 333 of your 

budget document, and it makes it utterly clear that you don’t come 

close. So, you are warning about Social Security and the danger to 

it, but you are using that figure to calculate cutting the deficit in 

half, when if you exclude it, you don’t come anywhere close to it, 

and you have zero extra money for Iraq and Afghanistan. That is 

why nobody—why the budget figures are not believed, that you 

have given, as they have been wrong before. 

Mr. BOLTEN. The convention of reporting of an on-budget deficit 

is one that has been carried for quite some time, and I think it is 

the appropriate way to do it, and maybe in another question I will 

have a chance to explain why. 

Mrs. JOHNSON. Mr. McCrery. 

Mr. MCCRERY. Thank you. Director Bolten, you said, I believe 

in response to a question—it may have been in your statement— 

that your projections on revenues as a percent of GDP, are that in 

just a couple more years, they will return to the historic average 

of about 18.2 percent of GDP; is that right? 

Mr. BOLTEN. Within our five-year window we don’t expect quite 

to get there, but it will be pretty close, within a few tenths of a 

point of the 40-year historic average. 

Mr. MCCRERY. Does that assume the tax cuts are made permanent? 

Mr. BOLTEN. It does. 

Mr. MCCRERY. If you go out past the five-year window and the 

tax cuts are made permanent, does it still stay about 18 percent 

of GDP? 

Mr. BOLTEN. Yes, I believe it would. 

Mr. MCCRERY. Well, then, obviously, the question becomes, do 

we need more than 18 percent of GDP to support the Federal Government, even though historically, over many decades, we have 

spent about 18 percent of GDP, on average of about 18, probably 

a little better than that, 18 percent of GDP. You said—or you wrote 

in the Wall Street Journal op-ed, ‘‘No plausible amount of tax increases could possibly close the enormous gap that will be created 

by the unsustainable growth in entitlement programs.’’ Would you 

expound upon that just for a minute? 

Mr. BOLTEN. Sure. If I could have back Chart—it was the 

fourth chart in my original presentation. Well, what the black line 

there represents is about 18.2 percent of GDP as a revenue income. 

What you see is that within a generation, 25, 30 years from now, 

there is simply no plausible amount of tax increase—even if you beVerDate Aug 31 2005 06:00 Dec 23, 2006 Jkt 030434 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 E:\HR\OC\30434.XXX 30434
28 

lieve that the tax increase didn’t cause any significant harm to the 

economy, there is no plausible amount of tax increase that could 

possibly close the gap. The only solution to this problem is to actually dig in on the entitlement programs themselves. 

Mr. MCCRERY. I agree with you, but maybe you could expand 

a little bit more on why that is implausible. What impact, for example, would tax increases of the size necessary, even if you could 

do it, have on the economy? 

Mr. BOLTEN. Oh, I think it would be devastating for the economy. It would certainly be a tax rate that would be historically unprecedented in this economy, and my expectation is that the kinds 

of tax increases we would be talking about to close that gap would 

easily cause a recession if not a depression in this country. 

Mr. MCCRERY. In that case you would get into a downward spiral, don’t you? 

Mr. BOLTEN. Absolutely. 

Mr. MCCRERY. It is like a dog chasing its tail. You keep increasing taxes to get more revenue to satisfy the spending demands, but then the more you increase taxes the less economic 

growth you have or the deeper the recession or the depression gets, 

and you never get there. 

Mr. BOLTEN. Absolutely. 

Mr. MCCRERY. So, I commend you for your op-ed piece and for 

including comments in your statement about the budget as to longrange implications of doing nothing on the spending side of the 

equation. Tax increases are not the answer if we want a society 

that resembles in any meaningful way that that we have become 

accustomed to in this country. So, I commend the President for 

calling for a commission to focus on the spending side of the equation and the entitlement area. I am hopeful that he will, in fact, 

create a true bipartisan commission so that we can work together 

across the aisle, here in Congress and across the country, to solve 

these very, very difficult spending problems that the country faces. 

Mr. BOLTEN. Thank you, Mr. McCrery. 

Mr. MCCRERY. Thank you. 

Mrs. JOHNSON. Mr. Jefferson. 

Mr. JEFFERSON. Good to see you again, Mr. Director. Let me 

ask you this. How much is in your adjusted budget for the Gulf region for the Katrina region recovery? 

Mr. BOLTEN. I do have a chart with what has been appropriated at this point, and what we anticipate in the short term, No. 

14, please. 

Mr. JEFFERSON. Is this in your 2007 budget? 

Mr. BOLTEN. It is reflected in the 2007 budget. In other words, 

the spending from this is reflected in that budget, and it also— 

there is also a reflection on this chart of what it is we anticipate 

coming forward to ask for, but what we anticipate coming to ask 

for is, at this point, just an estimate. What you see up there—I 

can’t quite see it, but I believe it should show about $95 billion in 

total enacted, $96 billion in total enacted aid for the Gulf region. 

That includes $8 billion of tax relief. Then below that what you see 

is what is yet to come. We believe that we need an additional $5.6 

billion in the flood insurance fund, and then the $18 billion number 

there is the number that you see of our estimate at the time we 

29 

put the budget to press of what we expected our supplemental 

spending request that we would be bringing forward shortly would 

be for this year on top of the moneys that have always been appropriated. 

Mr. JEFFERSON. Getting back to your budget document though, 

is this—— 

Mr. BOLTEN. I am sorry, Mr. Jefferson. I should say, to fully respond to your question, I should say that the deficit effect of all of 

those figures that you see on the chart are reflected in the 2007 

documents before you. 

Mr. JEFFERSON. My question is, is there a specific amount in 

the 2007 budget that is provided for for the Gulf region? To me it 

looks like there isn’t anything in there for it. I don’t see anything 

in the 2007 budget for the Gulf region for the Katrina disaster. 

Mr. BOLTEN. On the contrary, all of the figures that you see 

here are accounted for in the 2007 documents, and in addition, 

what—— 

Mr. JEFFERSON. But this is money that has already been 

spent, been approved by the Congress, except for the 18 billion and 

the 5.6 for the insurance. 

Mr. BOLTEN. That is correct. 

Mr. JEFFERSON. That will be coming in a supplemental of some 

kind, correct? 

Mr. BOLTEN. That is correct. The 18 billion will be coming in 

a separate supplemental, although—— 

Mr. JEFFERSON. Wouldn’t I because the in saying that apart 

from what is going to be in the supplemental, there is nothing in 

the 2007 budget for the Gulf region? Would I be correct in saying 

that? 

Mr. BOLTEN. I am sure there is a lot of money in the regular 

base Federal budget that finds its way into the Gulf region, but 

quite properly, the response to the disaster is being handled in 

supplementals, which is the right place to handle it. 

Mr. JEFFERSON. That may be true if it were a true emergency, 

meaning that it had just happened, and we had to make a response 

with a supplemental. I would like to see us take the fact that this 

has already happened and now it is time to plan for the recovery, 

and put money in the budget to do that. That is what confounds 

me a little bit here. I don’t see anything here that anticipates any 

spending here in the Gulf region past what we have already spent 

and what you expect to have in a supplemental. If the answer is, 

well, we don’t plan to spend anything else—and that is an okay answer—I just would like to know whether that is the answer for real 

here. 

Mr. BOLTEN. No, we plan to—the Congress has already appropriated a great deal as shown on the chart, and we do plan to 

spend more. I think the appropriate place to reflect that though is 

in supplemental spending, not trying to carve it out of the very difficult and tight allocations that are in the currents appropriations. 

I think that would put the Gulf at an enormous disadvantage to 

have to compete with—— 

Mr. JEFFERSON. Okay. Do you think it is fair to say that you 

anticipate other supplementals down the road that would address 

some of the outstanding needs that still exist in the area? 

30 

Mr. BOLTEN. I can’t say what additional supplementals will be 

coming. I do know that at the time we went to press $18 billion 

was our estimate for the supplemental that will be coming down 

the road probably in the coming days. 

Mr. JEFFERSON. You do know what has happened to us down 

there in New Orleans—I will just speak about the area that I represent mostly. When we did the allocation of CDBG money just before we left here, initially when it was written up, it provided for 

the entirety of the money to be determined by what the needs 

were, essentially. Then it had an artificial standard of no one area 

could get more than 54 percent of the money, which meant that our 

area ended up, Louisiana ended up getting $6.5 billion, which is a 

lot of money, but compared to Mississippi, $5 billion, it is not a lot, 

given their losses versus ours. So, they are going to use a lot of 

money to bring back housing at 3,500 housing units. We have got 

220,000 housing units that are affected. So, when you divide that 

up, you can see how short we are versus Mississippi. They can 

probably spend 120,000 per house if they want to. We might spend 

27,000 per house. It is just a huge set of issues there. I know you 

understand how big a deal this is for us because it is the only thing 

that matters now because people can’t come back home, business 

can’t be restored, nothing can happen there until we take care of 

the property losses in some way. There is no way it can be taken 

care of locally. I just believe that at this point in time it is something we can plan for as opposed to doing it on an ad hoc basis. 

So, I would—— 

Mrs. JOHNSON. Mr. Johnson. 

Mr. JOHNSON. Thank you, Madam Chairman. Mr. Bolten, we 

seem to have emergencies every year. That is what caused us to 

have problems with the budget last year. I think a lot of us consider a rainy day emergency fund as an answer to hurricane, 

Earthquake or other disaster that might come up, and there is a 

bill out there to create a reserve fund for emergency fund. The upside is we would have a rainy day fund. The down side, of course, 

it might be plundered for everyday spending. What is your opinion 

of some sort of reserve being established for emergencies, and did 

you all discuss that this trip? 

Mr. BOLTEN. From my seat, Mr. Johnson, I would be more concerned about the plunder. We do have some rainy day funds built 

in annually into the budget. For example, the FEMA budget includes a disaster relief fund that is calibrated to provide enough resources to deal with an average disaster year. Every year has some 

hurricanes and flooding and so on, and we build in enough money 

into that account annually to take care of an average year, a noncatastrophic disaster year. In the case of Hurricanes Katrina, Rita, 

Wilma, we had a truly catastrophic situation. I don’t think there 

is any way to plan for that. My concern would be that if we built 

those kinds of numbers into the budget in a rainy day fund, what 

would happen in the years when it doesn’t rain is that that money 

would then be taken and spent elsewhere. So, I think we have the 

right approach in keeping modest rainy day funds in the budget, 

and where we have catastrophic disasters, we deal with them in 

supplementals. 

31 

Mr. JOHNSON. Thank you. You are probably right. You know, 

from now to 2017 or so we will have surplus Social Security taxes, 

and in 2008 or 2009 those surpluses begin to decline, and each succeeding year thereafter. What sort of budget pressures do you see 

in the fiscal window 2007 to 2011, as the Baby Boomers begin to 

turn 62 and take early retirement benefits out of the Social Security system, and do you think the GROW account is an option that 

we might ought to push? 

Mr. BOLTEN. First, the GROW account is something that I 

think is an interesting option. I will leave it to Secretary Snow and 

others to engage with you on the specifics of how we might address 

the problem. The reality is that we do have a surplus, as Mr. Levin 

was pointing out, that is continuing to buildup during these years 

just before the Baby Boomers are fully into retirement, but 2018— 

or it may be 2017 now, Mr. Johnson, I think you have the right 

year—is the year in which the system will slip into deficit, that is, 

that there will be less money coming in than is going out, and that 

is a problem that we can see coming long ahead. It does mean it 

is a problem that is harder to address year by year. So, what it 

means is, while we have these surpluses coming in, and, I believe, 

accurately reflected in our budget documents, because what our 

current budget deficit document should tell us is what are the borrowing needs of the Federal Government, so it accurately reflects 

borrowing needs of the Government. But what it should tell us is 

that we need to get on top of that Social Security problem, as well 

as the Medicare and Medicaid problem, as soon as possible, because it is a lot easier to fix now than 10 or 20 years from now 

when the problem is more visible, but much more desperate. 

Mr. JOHNSON. Thank you. You all are planning on 141 Federal 

programs that you are eliminating or cutting back. Are any of 

those that the administration can eliminate all by themselves without any congressional action? 

Mr. BOLTEN. Among the 141, I don’t believe so, but we have 

tried hard to use our administrative authorities to restrain Government as much as we can. One of the ones I would highlight for you, 

Mr. Johnson, is that we have installed an administrative PAYGO 

process internally in the administration. About 9 months ago I sent 

a memorandum to all of my Cabinet colleagues who are involved 

in putting out regulations, saying, that if you are proposing a regulation that will increase spending in the U.S. Government, I need 

you to propose at the same time an offsetting regulation that will 

create savings. It doesn’t automatically mean the regulation is dead 

if they can’t fully offset it, but our beginning point is, if you want 

to do by regulation something that increases spending in the Government, then we want you, at the same time, to propose savings 

that would offset them. So far I think we have been relatively successful in pursuing those kinds of measures. 

Mr. JOHNSON. Thank you, sir. 

Mr. BOLTEN. Thank you. 

Mr. JOHNSON. Thank you, Madam Chairman. 

Mrs. JOHNSON. Thank you. That does, of course, ignore the 

issue of the quality of the policy change needed. Mr. Tanner? 

32 

Mr. TANNER. Thank you, Madam Chairman. Thanks, Mr. 

Bolten for coming. I was interested in your PAYGO. Would you recommend that the House of Representatives adopt that as well? 

Mr. BOLTEN. We do support PAYGO on the spending side, yes. 

Mr. TANNER. But not on the revenue side? 

Mr. BOLTEN. No, sir. 

Mr. TANNER. You have said we have tried hard to restrain Government and so forth. Let me ask you you this: why haven’t you 

used the rescission process? 

Mr. BOLTEN. There is a provision in the 1974 Empowerment 

Act that you are referring to that provides for rescission. Our folks 

have researched and been unable to find a single instance in the 

last 30 years when that has been used successfully. It is a—— 

Mr. TANNER. President Clinton used it successfully 111 times 

out of 163 request. 

Mr. BOLTEN. No, sir. I think he did not use the rescission authority under the Empowerment Act. I believe what you may be referring to is that he used the line-item veto, which we have requested again, and the administration would, in parallel with a 

line-item veto, would support a more effective rescission authority, 

because the problem with the rescission authority that is in the law 

today is that whatever we send up is amendable and delayable and 

so on, so neither this President nor any previous President that I 

can find has found that to be a useful vehicle to use. We would like 

to have the line-item veto and we would like to, at the same time, 

have advanced rescission authority. If we can get your support in 

doing that, we would be—— 

Mr. TANNER. I would support a line-item veto with a simple 

majority to override, which we have in Tennessee, which works 

pretty well. Two-thirds to override seems to me to give a minority 

membership in the Congress too much power, and President Lincoln warned against that, as you well know. Getting back to this 

foreign-held debt, it is now 46 percent of the debt not held by the 

Government, by trust funds and so forth. Does it not concern you 

that we are borrowing about 90 percent of our deficit from nonAmerican interests? Is that not of any concern at all to you? 

Mr. BOLTEN. I could see where that is a matter of concern, but 

when the Federal Treasury offers up its debts for sale, it offers up 

its debt for sale to all comers, whether they be from China, from 

the Netherlands, or from the United States. I think the concern 

ought to be with, (A) trying to keep that debt burden as low as possible, and (B) sustaining the kind of economic environment that 

keeps the confidence in our economy, that keeps our debt holders 

purchasing the debt, and purchasing and holding the debt. 

Mr. TANNER. I don’t think it is naive at all to read history to 

the point that people have done something against their own shortterm economic self-interest for a larger geopolitical strategic objective. So, I have had people say that it is naive to believe China 

would do anything that would hurt their economic status in the 

short term. I think it is naive to believe that they wouldn’t if it 

would serve a larger geopolitical interest. Anyway, we can talk 

about that some more. You talk about the macroeconomics for the 

last two of three years have been pretty good. The problem is that 

even in that macro-economically, as you call it, I think, third conVerDate Aug 31 2005 06:00 Dec 23, 2006 Jkt 030434 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 E:\HR\OC\30434.XXX 30434
33 

secutive year of healthy growth, we have in the same period of time 

had to raise the debt ceiling $450 billion in 2002, $994 billion in 

2003, and $800 billion in 2004, and another 781 pending. The problem with that is if we are in a healthy economy, in your words, we 

are borrowing still massive amounts of money. What is happening, 

in my view, is that it is eroding the present tax base. We are now 

paying about, by my calculations, $105 million a day more in interest than we were in 2002. 

The cumulative effect of these massive dollar amounts, year after 

year, although you can talk about percentage of GDP and so forth, 

is degrading the tax base of the money coming here. An additional 

$50 billion a year out of the present tax base—not raising, lowering, anything—is going now to pay interest, 90 percent of that 

going overseas. The amount of money we are sending overseas in 

interest checks—I am sure you know this—is five times the 

amount for an appropriations bill, which one could argue you can 

use for some strategic purpose as you do it, interest is to whoever 

let us have the money as cheaply as we can get it. I don’t know. 

You go on about your budget cutting in—another half—in half by 

2009. None of the things that you all said in 2002 are true, and 

you are already out of line on this one chart that shows the net 

interest paid, that little blue thing. It is already out of whack for 

this year, because the Feds had to raise the interest rates again, 

and every time we do that, of course, as a auction, at the auction 

it goes up too. I just—— 

Mrs. JOHNSON. Mr. Tanner. 

Mr. TANNER. I know I am going on too long. But we need to 

talk some more about this. 

Mr. BOLTEN. Be happy to, Mr. Tanner. 

Mrs. JOHNSON. Mr. Beauprez? 

Mr. BEAUPREZ. Thank you, Madam Chair. Mr. Bolten, thank 

you for being here. I have in front of me an article about the CBO, 

obviously not your shop, but the CBO has recently released information, their budget and economic outlook, and something captured my eye that I wanted to walk through with you. We have 

heard a lot about numbers and projections and what is appropriate 

policy and what is not. Tell me if any of this makes sense. Again, 

this is CBO, so forgive me. In 2003, relative to cap gains tax liabilities, revenue anticipated from the then-existing capital gains tax, 

it was projected by CBO that in 2004 the Federal Government 

would receive $60 billion and $65 billion in 2005, to combine those 

two for a 2-year total of $125 billion. Then, of course, Congress took 

action, reduced the capital gains rates, so new projections needed 

to be created, and those new projections after the tax cuts totaled 

$98 billion for those 2 years, 46 and 52 consecutively. So, a difference from the original estimate to the one after the tax cut of 

about a $27 billion projected loss, if you will, in revenue, the cost 

of the tax cuts. What actually happened, though, is the really interesting part. We now know that instead of a $98 billion total for 

those 2 years, we have actually received about $151 billion. So, instead of a $26 billion cost, we actually got a $27 billion gain over 

the original number, or a $53 billion net difference in budgetary 

projecting. Is that consistent with what you think happened, roughly, without exact numbers? 

34 

Mr. BOLTEN. I cannot comment on the specifics of the CBO article, but, yes, we did see a dramatic increase in capital gains revenues after the capital gains rate was cut. 

Mr. BEAUPREZ. Why? I know we are talking theory, maybe 

other than absolutes, but why? 

Mr. BOLTEN. I will leave it to some of the good economists to 

be able to explain it better, but when the capital gains rates are 

low, people tend to invest, and the economy tends to grow. People 

tend to use their money for productive purposes. When the economy is more productive and people are making more money, they 

pay more of it to the Federal Government. 

Mr. BEAUPREZ. As a guy who has been on the private side, I 

will say it another way. You get what you incentivize, and if you 

incentivize capital formation and capital investment, that is exactly 

what you get. It looks to me like that is, in fact, what we have gotten. It would seem to make sense to keep going. This underscores 

another thing that I did find in some of the information you have 

provided: the need for dynamic scoring. I was intrigued to see that 

you are suggesting inside your 2007 budget a Dynamic Analysis Division within the Treasury Department. Do you want to tell me a 

little bit about that and what your expectation is so that we do not 

have these—I mean, many of us actually think that when we do 

implement good tax policy that there is some benefit. Most people 

in the real world oftentimes make an investment a cost this year 

in anticipation of revenue benefit in succeeding years. That seems 

to make sense to us. Is that roughly the principle that you are 

going after here? 

Mr. BOLTEN. It is, Mr. Beauprez. It has been a frustration for 

me in all of the 2.5 years that I have had this job that we have 

not been able to come around to some sort of consensus view on 

what the right dynamic effects are of tax cuts on the economy and, 

therefore, on Federal revenues. We hope that this new office at the 

Treasury Department will help advance the art and maybe the 

science of dynamic scoring, because I think it is a very important 

element in the public policy debate, which is now frozen with the 

largely static scoring that we are obligated to use in our own budget estimates and that CBO uses in theirs. I am very hopeful about 

the office, and I hope it is something you take up with Secretary 

Snow when he appears before the Committee. 

Mr. BEAUPREZ. I appreciate that, and for the record, every 

budget I ever created in the private side, in the real world, I certainly made those kinds of estimates of what kind of gain for what 

kind of investment cost. I think most of us understand that, and 

I applaud you for it. Last, I would just ask a request. The National 

Renewable Energy Lab is in my district. We are very concerned 

about funding. If someone from your staff could maybe get to my 

office exactly what the anticipated funding levels are within your 

budget for that laboratory, I would very much appreciate it. It is 

a concern of mine. 

Mr. BOLTEN. We will do that, sir. 

Mr. BEAUPREZ. Thank you. I yield back, Madam Chair. 

Mrs. JOHNSON. Thank you. Ms. Tubbs Jones? 

Ms. TUBBS JONES. Thank you, Madam Chairwoman. Good 

afternoon, Mr. Bolten. How are you doing? 

35 

Mr. BOLTEN. How are you? 

Ms. TUBBS JONES. I am doing great. Thanks. I am going to 

jump around a little bit with the 5 minutes that I have. You speak 

to unemployment being at 4.7 percent. Is that correct, sir? 

Mr. BOLTEN. Yes. 

Ms. TUBBS JONES. But that is gauged based on the number of 

people who actually apply for unemployment. Is that correct, sir? 

Mr. BOLTEN. No, I believe it is based on a survey of businesses, 

the 4.7 percent is. I think that is the business survey rather than 

the household survey. 

Ms. TUBBS JONES. So, it is based on—so if I am an employer 

and I employed 10 people last month and this month I have 15 

that means unemployment has gone down if it is based on surveys 

of employers. 

Mr. BOLTEN. I believe—well, I have to say I am not expert on 

this, but I believe the survey is based on a combination of gauging 

both what businesses are offering and have in the way of employment and at the same time the number of people who are seeking 

employment. 

Ms. TUBBS JONES. Seeking employment or have applied for unemployment? I think you—but I tell you what. Rather than waste 

my time, give me a written answer—— 

Mr. BOLTEN. Seeking employment, I am told. 

Ms. TUBBS JONES. Well, that is not true. The unemployment 

figures for the United States of America are based on people applying for unemployment, sir. So you have your people get it straightened out, and we will come back to it later. Let me ask you this 

question: These figures you show here in this chart start actually 

with 2000, right? The projections you make in these—this is your 

chart, right? 

Mr. BOLTEN. They are. 

Ms. TUBBS JONES. Right. Generally, when you do projections, 

projections go out 10 years. Is that a fair statement, most times, 

CBO and all those others go out 10 years? 

Mr. BOLTEN. It has actually been more commonly in the history 

of the United States budget to go 5 years. 

Ms. TUBBS JONES. Well, tell me, have you done projections to 

know what happens in 2012, 2013, and 2014 based on this great 

economy that we have and the impact of tax cuts, sir? 

Mr. BOLTEN. I think we do have some estimates. We do not 

publish a full set of data for those—— 

Ms. TUBBS JONES. So, do they go up or down? 

Mr. BOLTEN. Does what go up or down? 

Ms. TUBBS JONES. Your chart. Your chart says w have strong 

economic growth, it continues. Does the strong economic growth 

continue in 2012, 2013? Are these numbers true when you don’t 

have the war or Katrina included in the budget dollars? 

Mr. BOLTEN. Yes, I believe the strong economic growth is projected to continue out beyond 2011. 

Ms. TUBBS JONES. Can you provide that information to me 

since it is not in the chart and not included in what you have presented? 

36 

Mr. BOLTEN. We would be glad to provide you what our economists assume is likely to be growth in 2012 and beyond, although—— 

Ms. TUBBS JONES. Either you have or you don’t, Mr. Bolten. 

You said you are sure you have 2012 or 2013. Just give me what 

you have, okay, Mr. Bolten? Would that be fair? 

Mr. BOLTEN. We would be glad to provide what we have. 

Ms. TUBBS JONES. Okay. Then, second, the question is: If the 

war is not included in the budget, are these estimates fair when 

in actuality the dollars for the war have a significant impact? 

Mr. BOLTEN. Dollars for the war do have a significant impact, 

and we have said that on the face of all of our budget documents. 

Now, if you are referring—I think you are referring now to the deficit estimates? Is that—— 

Ms. TUBBS JONES. Yes. Not specifically this, but I am saying 

the deficit estimates are higher than they are shown in your chart 

because the war is not included. 

Mr. BOLTEN. If you anticipate ongoing war costs of whatever 

you may anticipate, you have to add those into the deficit estimate. 

Ms. TUBBS JONES. The reality is, whatever the ongoing war 

costs, we are still going to be in a deficit at this juncture as to 

where you look at the deficit. We are not going to cure it. Just like 

you said, we cannot cure the tax—we cannot cure the gap in deficit 

by tax increases. We cannot cure the deficit by not including the 

war in it, can we? 

Mr. BOLTEN. Oh, no— 

Ms. TUBBS JONES. In the budget. 

Mr. BOLTEN. No, no. We have said very clearly that whatever 

the war costs are need to be added on to the projected deficit—— 

Ms. TUBBS JONES. So then these are not true numbers since 

the war is not included. 

Mr. BOLTEN. They are true numbers, plus the war costs, which 

we have been very clear are not—— 

Ms. TUBBS JONES. Anyway, Mr. Bolten, you get my point. Let 

me ask my last question because I know I am running out of time. 

Why isn’t the AMT included as part of the permanent tax proposals 

of the administration? 

Mr. BOLTEN. The President’s tax proposals, the tax cuts of 2001 

and 2003 that were put in place did not affect the AMT, and those 

are the ones we are asking to be made permanent. Now, the—— 

Ms. TUBBS JONES. But the AMT is a tax issue that has the 

greatest impact on the greatest number of Americans in this country. 

Mr. BOLTEN. Oh, I don’t know if I would say that. I think just 

regular tax rates have the greatest impact on the greatest number 

of Americans at this point. 

Ms. TUBBS JONES. Why don’t you talk to some of your taxing 

people. From everyone else that comes to this table, it is said that 

the AMT has the greatest impact on middle-class America and 

those people paying taxes in the United States of America, and 

that to make those permanent would have the greatest impact to 

do all the things you claim all these other taxes that only affect the 

top 1 percent will have. I am at the end of my time. I am going 

37 

to get gaveled, but I would like to have a response at a subsequent 

time. Thank you. 

Mrs. JOHNSON. Mr. Chocola? 

Mr. CHOCOLA. Thank you, Madam Chair. Thank you, Mr. 

Bolten, for being here. Some of our earlier discussion that we had 

about making the tax relief permanent versus tax increases kind 

of reminds of a conversation I had with a constituent yesterday. My 

constituents was suggesting that we should raise taxes, and I said, 

well, let me ask you, if there was a company that had chronic 

losses and increasing debt, had divisions that were unable to pass 

audit, had management that was ineffective in combating waste, 

fraud, and abuse, had insurmountable future unfunded liabilities, 

and their only strategy was a price increase to their customers, 

would you invest in that company? He didn’t think he wanted to 

invest in that company. I don’t think you offer investment advice 

for a profession, but I will ask you. Would you invest in a company 

like that? 

Mr. BOLTEN. I would not. 

Mr. CHOCOLA. I didn’t think so, but staying on kind of the company theme, I used to be a chief executive officer of a publicly traded company, and I was subjected to a thing called Sarbanes-Oxley. 

We had to fully and transparently disclose our financial obligations, including our long-term unfunded liabilities. If you look at 

the way that the Government projects its unfunded liabilities, I 

think the GAO says it is somewhere around $43 trillion. That is 

not reflected in our budget the way we budget today, is it? 

Mr. BOLTEN. It is not, and we would like to put in place mechanisms that would reflect it more accurately. You will find, Mr. 

Chocola, in our documents, you will find us displaying our estimates of the total unfunded liability, and I believe our estimates 

are even substantially above that $43 trillion. 

Mr. CHOCOLA. So, you think it is prudent to—I think in order 

to solve a problem, we have a discussion about unfunded liabilities, 

entitlement reform, when you talk in your Wall Street Journal editorial about no amount of tax—I am paraphrasing, obviously—can 

really address this problem. It would be prudent to solve the problem by first defining the problem. Do you agree with that? 

Mr. BOLTEN. Yes. 

Mr. CHOCOLA. I think you address that a little bit in your 

budget reform proposals in the budget, and I will just read—it 

says, ‘‘The President’s budget proposals to establish a broader enforcement measure to analyze long-term impact of legislation on 

the unfunded obligations of major entitlement programs and to 

make it more difficult to enact legislation that would expand the 

unfunded obligations of these programs over the long term.’’ You 

have a couple of suggested mechanisms to address that. Would you 

care to talk about those? 

Mr. BOLTEN. One very important mechanism is one that was 

adopted in the Medicare Modernization Act itself. When that bill 

was passed, what the Congress did was inserted a mechanism that 

was a trigger that when the actuaries projected that 6 years hence 

the Federal share of responsibility—the Federal share of spending 

in the Medicare system exceeded 45 percent of the total costs of the 

system, then that would trigger an alert by the actuaries to the 

38 

President. The President would then be obligated to send forward 

proposals to deal with the situation to the Congress. That is the 

provision that is in the law now. We are proposing that that provision be strengthened so that because the provision as it now exists 

does not require any particular action on the part of the Congress, 

we are proposing that that provision be strengthened so that in the 

event that there is not action to bring the Federal share of Medicare below 45 percent of the total cost in the system, that a sequester go into place, not unlike the Gramm-Rudman sequester that 

used to be in place, that would take a small percentage out of total 

Medicare spending and that sequesters be in place year on year 

thereafter until the system was brought back at least to that 45- 

percent level. That is not an ideal way to go about saving money 

in the Medicare system, just as Gramm-Rudman was not the idea 

way to do budgeting. But we think it would be a very useful device 

to try to force reform before it gets too late to actually undertake 

any reform. 

Mr. CHOCOLA. I think you also offer point-of-order options as 

well? 

Mr. BOLTEN. Yes, on the regular budget side, outside of the 

Medicare system, yes. 

Mr. CHOCOLA. Okay. Thank you. I yield back, Madam Chair. 

Mrs. JOHNSON. Thank you. I think on the other side now we 

have next Mr. Doggett. 

Mr. DOGGETT. Thank you, Madam Chairwoman. Mr. Bolten, I 

want to go back to the chart that you had up here on the board. 

As I understand it, you had a success rate last year, 154 programs 

you identified as either inefficient, wasteful, unnecessary, and the 

Congress agreed with you on 89 of them. 

Mr. BOLTEN. That is correct. 

Mr. DOGGETT. This year you found another 141 programs that 

are unnecessary, wasteful, or inefficient, and you are ready to 

eliminate or substantially reduce them. 

Mr. BOLTEN. Yes, a good portion of the 141 are some of the 154 

that were left over, not acted on last year. 

Mr. DOGGETT. I see. Do you have with you the list of the 89 

inefficient or unnecessary or wasteful, or all three, programs that 

you got eliminated last time? 

Mr. BOLTEN. We do have it. We have an actual book of that. 

I don’t have it with me at the table, but we can provide one for 

you. 

Mr. DOGGETT. Do you have the list of the 141 programs you 

want to eliminate this year? 

Mr. BOLTEN. Once again, we do have that. I don’t know whether it has been distributed, but we will get that to you promptly. 

Mr. DOGGETT. You can distribute it here this afternoon? 

Mr. BOLTEN. I don’t know if we can actually distribute it this 

afternoon, but we should be able to do that promptly. 

Mr. DOGGETT. Get it to us shortly? 

Mr. BOLTEN. Yes, sir. 

Mr. DOGGETT. Okay. I believe that last year the Department 

that had the largest number of those programs that you included 

at least within your 154 to eliminate was the Department of Education. Isn’t that correct? 

39 

Mr. BOLTEN. I believe that is correct. I am not certain. But 

there were a large number that were within the Department of 

Education, and a large number of the ones proposed this year within that 141 are from the Department of Education. 

Mr. DOGGETT. That really was where I was headed. As best you 

can determine, the Department of Education, I believe, leads the 

way again this year as having the most programs that the administration feels are wasteful, inefficient, or unnecessary, or all three? 

Mr. BOLTEN. Yes, I think in the case of the Department of Education, the concern is that a lot of the programs that we are proposing for elimination are programs that are very small, duplicative, not showing the kinds of results that other programs are, and 

what we would like to do is take the money that is allocated to 

those programs, we believe relatively inefficiently, and use it on 

more effective programs. 

Mr. DOGGETT. Like tax cuts. But as far as Pell grants are concerned that so many students rely on, you have effectively frozen 

them for every year of the administration, haven’t you? 

Mr. BOLTEN. We actually proposed an increase in the Pell grant 

amount—— 

Mr. DOGGETT. Well, you proposed one last year, but as you 

know, in budget reconciliation there was no increase. 

Mr. BOLTEN. There was not an increase eventually in the 

amount of Pell grants, but I believe the number of Pell grants and 

Pell grant-like programs, the name of which I have now forgotten— 

I may ask one of my colleagues to—Smart grants actually went up 

in the reconciliation bill that was just passed. 

Mr. DOGGETT. This year you propose to cut the Perkins program, don’t you, the Perkins low-interest loans for low- and moderate-income students? 

Mr. BOLTEN. Yes. 

Mr. DOGGETT. That is one of the ones you tried to substantially 

reduce last year and were not successful on. 

Mr. BOLTEN. Yes, I believe that will be counted in the 141. 

Mr. DOGGETT. With a growing student population, there will be 

less chance for students to get student financial assistance if your 

budget is adopted. Isn’t that correct? 

Mr. BOLTEN. No, sir, I do not believe so. 

Mr. DOGGETT. Well, there is less money to go around. You have 

basically frozen the Pell grants, and you are going to cut the Perkins grants. 

Mr. BOLTEN. No, I think the amount of money in the Pell 

grants is frozen, but I think the number of people who can become 

eligible for that I believe is on the rise, and after that—— 

Mr. DOGGETT. That is absolutely—we are in complete agreement on that. In fact, that is my point. We have got many more 

students who need the assistance, are eligible for assistance, but 

not enough money to go around. 

Mr. BOLTEN. No, I believe they will be served, that the number 

of students receiving Federal aid for college has gone up year on 

year—— 

Mr. DOGGETT. They may be served, but they will be served at 

a lower level because there is not enough total money available for 

40 

them to get the same amount they would have gotten were it not 

for your budget. 

Mr. BOLTEN. I do not believe that is correct. 

Mr. DOGGETT. Maybe you might supplement then to respond to 

that. I would welcome the further detail. Let me ask you about 

what you say is the next point there, and that is the courage to 

go after these mandatory savings. Is part of that courage demonstrated by the decision to eliminate the $255 death benefit that 

has been around through Social Security now almost since its origin? 

Mr. BOLTEN. I don’t know whether that is included in there. 

Mr. DOGGETT. It is what you have called for under Social Security reductions. 

Mr. BOLTEN. Yes, it is part of the program. 

Mr. DOGGETT. In that regard, a widow or widower who would 

have gotten originally a much bigger portion of a death benefit to 

apply to funeral expenses, they have only gotten for the last several decades $255. You just proposed to eliminate that to them entirely. It may not mean a lot to someone who is about to get these 

huge tax benefits that are being debated on the floor as we talk tonight, but to a poor person in Mission, Texas, a $255 death benefit 

is a substantial portion toward the payment of funeral expenses. 

Mr. BOLTEN. Congressman, I think we viewed that as basically 

an anachronistic program, which—— 

Mr. DOGGETT. You view it as anachronistic? I mean, people are 

still dying down there and—— 

Mr. BOLTEN. They certainly are, but $255—— 

Mr. DOGGETT. Is a modest amount. 

Mr. BOLTEN. Is a very modest amount. It has been frozen since 

1952. 

Mr. DOGGETT. Even that modest amount you are willing to 

eliminate at the same time that the tax bill being discussed tonight 

on the floor that I just came from means $32,000 to someone who 

earns $1 million a year. Those are the trade-offs that the administration has made in this budget. I thank you, sir. 

Mrs. JOHNSON. Thank you. Just to clarify, a point of information. In the appropriations bill, as opposed to the reconciliation bill, 

we did fully fund the backlog of Pell grants. So, spending on Pell 

grants went up considerably. Then the reconciliation established a 

new type of Pell grants in the Smart grants. So, I just wanted to 

clarify that. Mr. English? 

Mr. ENGLISH. Thank you. Director Bolten, I am actually inspired by the line of questioning that has emerged from my colleague from Texas, and so I guess maybe you could clarify it since 

we tend to lose the forest for the trees sometimes. You know, have 

we not, even if the President’s budget as presented were accepted, 

have we not effectively grown the Education budget since 2001 by 

about 36 percent? Am I correct with that figure? 

Mr. BOLTEN. That may be a little high. I think the total will 

be about 30 percent for 2001 to 2007, overall growth in the education programs. But the growth within the programs targeted toward the poor is much larger than that, and my guess is that within—that you are a little low for our Title I programs, for example, 

41 

which over the course of this President’s administration will be up, 

with the adoption of this budget, about 40 percent. 

Mr. ENGLISH. Haven’t we been effectively growing the Department of Education budget by over 5 percent a year since 2001? 

Mr. BOLTEN. I think that is about the average. 

Mr. ENGLISH. Comparing that to other budget functions and 

other departments, is not the Department of Education since 2001 

perhaps the fastest growing department after Homeland Security 

and Department of Defense? 

Mr. BOLTEN. I don’t recall the full table, but the Department 

of Education would be near the top of the list for the non-securityrelated agencies, the non-national security- and homeland securityrelated agencies, and, of course, the Department of Veterans Affairs, which has grown substantially during the course of this administration. 

Mr. ENGLISH. Well, that puts at ease some of the concerns that 

the gentleman from Texas had awakened in my mind. What I 

would like to do perhaps is maybe change the focus. Director 

Bolten, during the State of the Union message, President Bush emphasized the need to control entitlement spending. As you know, a 

great deal of the growth in entitlement spending results from a 

current trend toward early retirement. My understanding is that 

the average American retires at about the age of 63. I wanted you 

to comment, if you are aware of the work that the Urban Institute 

has done to identify barriers to encouraging longer work, embedded 

in programs, important programs like Medicare, ERISA, and IRS 

regulations. I wonder if OMB is currently doing anything to evaluate these particular programs and regulations to consider possible 

reforms. Finally, has OMB estimated the cost savings that could be 

achieved if some of these institutional barriers to a longer work life 

would be removed? 

Mr. BOLTEN. Mr. English, I don’t know that we are doing that 

kind of work. It sounds like the Urban Institute study is a very 

useful one, and I will make sure that we and the trustees in particular of the Social Security and Medicare systems do take a close 

look at them, because those are precisely the kinds of areas that 

we do need to take a look at if we are going to get fundamental 

entitlement reform. 

Mr. ENGLISH. I also noted that the President proposed creating 

a commission to examine the full impact of baby-boom retirements 

on Social Security, Medicare, and Medicaid, with the understanding that the commission would include Members of Congress 

of both parties and would try to move us back toward that bipartisanship that seems to be so elusive in the current environment. 

What details can you provide about the composition, the goals, and 

the expected product of the commission? 

Mr. BOLTEN. Mr. English, I cannot provide any details for you 

now. That is something that I think will be forthcoming from the 

White House, but also will depend on the interests of the Members 

on both sides of the aisle as to how they believe that such a bipartisan effort should be constructed. The message that the President 

was delivering in that important phrase in the State of the Union 

was an appreciation that the desperately needed entitlement reform that we do need to pursue is not something that can be purVerDate Aug 31 2005 06:00 Dec 23, 2006 Jkt 030434 PO 00000 Frm 00045 Fmt 6633 Sfmt 6602 E:\HR\OC\30434.XXX 30434
42 

sued alone by one party. It does require both sides to buy in. We 

are hopeful of getting cooperation from both sides, and to that end, 

I think the White House will be interested in getting input from 

Members on both sides as to how such a commission ought to be 

constructed. 

Mr. ENGLISH. Well, I thank you for that, and I yield back the 

balance of my time. 

Mrs. JOHNSON. Mr. Becerra? 

Mr. BECERRA. Thank you, Madam Chair. Mr. Bolten, thanks 

for being here with us. 

Mr. BOLTEN. Thank you. 

Mr. BECERRA. Let me continue along the same lines of Mr. 

English on this issue of Social Security and the reforms that are 

being called for. You just mentioned that reforms cannot be pursued alone by one party, and the President did make an eloquent 

call for a bipartisan commission to discuss entitlement reform, including Social Security, Medicare, and Medicaid. Give me an idea 

of how it was that the President, to your understanding, decided 

to include in this budget the proposal to privatize Social Security 

or to use moneys from the Social Security trust funds to divert 

them to private accounts to the tune of about three-quarters of a 

trillion dollars over the next 10 years. 

Mr. BOLTEN. That is the President’s position. We do think that 

is the best proposal. What the budget reflects is the President’s 

proposals. It does not mean it is the only position that can be 

brought to the table. 

Mr. BECERRA. So, would it be then your position that the President would come into any bipartisan commission with a set agenda 

on what to do on Social Security? 

Mr. BOLTEN. I hope the President would come to the table, the 

administration would come to the table with a set agenda with its 

own proposals. But that does not predetermine what other people’s 

agendas are. 

Mr. BECERRA. So, are we to take what is in this budget presented by the President to Congress as simply some talking points 

on what the administration would like to do on the budget or that 

it is serious about trying to divert three-quarters of a trillion dollars in Social Security trust fund moneys for private accounts? 

Mr. BOLTEN. Mr. Becerra, I think we are serious about all the 

proposals in the budget, and those are our positions, but those are 

the positions that we present to the Congress for its consideration. 

Mr. BECERRA. This joint commission that would be formed, I 

think you mentioned to Mr. English that you are not too familiar 

with how it would be constructed or formulated. You wouldn’t be 

able to answer the question as to how the President would want 

it to go about accomplishing its work, would you? 

Mr. BOLTEN. I think that remains to be seen. As I said, it is 

something that I know we are all hoping that Members on both 

sides can come together and come to an agreement on both how to 

construct such a commission and how it ought to go about its work. 

Mr. BECERRA. But the President then comes in to this commission, if it is ever formed, positioning that Social Security should 

move toward private accounts, as reflected in his budget. 

Mr. BOLTEN. That is the President’s view, yes. 

43 

Mr. BECERRA. In terms of Social Security, a little bit further, 

moving to a question that was raised by Congressman Doggett 

most recently, by other Members as well, the $255 death benefit 

that is payable to surviving widows upon the death of a worker, 

anachronistic you called it. Tell me how it is that $255 to a widow 

who probably receives no more than about a $960 benefit in retirement is not important when it comes to something as simple, as 

Mr. Doggett mentioned, as helping bury the deceased spouse? 

Mr. BOLTEN. It is obviously very important, and all of the benefits might flow, including her benefits as a widow under the Social 

Security system, are important. This particular provision, though, 

has been frozen since 1952—— 

Mr. BECERRA. So, eliminate it because—— 

Mr. BOLTEN. It is not means tested in any way. 

Mr. BECERRA. So, eliminate it because it has not seen any 

change in 50 years? 

Mr. BOLTEN. Sure. It is not providing any—— 

Mr. BECERRA. That is fine. You have given me an answer. I am 

just trying to understand the rationale for removing a program 

that has helped in many cases widows pay for the burial expenses 

of their deceased spouses. You couldn’t have found some money out 

of the $721 billion that you are taking out of Social Security for privatization to help ensure that you could save this $255 benefit for 

widows of deceased workers? 

Mr. BOLTEN. Well, I mean, you can find money anywhere in the 

budget for anything if you want to. 

Mr. BECERRA. But it was not a priority to say save $255 by taking an infinitesimal amount out of the $721 billion over the next 

10 years that the President plans to dedicate to private accounts? 

Mr. BOLTEN. Well, no. It was a low—this particular program 

was a low priority, providing a minimal benefit that costs almost 

as much to administer as it does in the money actually going out 

to people. Which, by the way, I should emphasize is not means 

tested. It is going to—— 

Mr. BECERRA. I appreciate your response. Let me ask one last 

question before my time runs. In the process of making a number 

of these cuts, always tough decisions have to be made. One of the 

programs that you decided to eliminate completely was funding for 

the State Criminal Alien Assistance Program, and that is moneys 

provided to States to help pay for the cost of incarcerating illegal 

immigrants in this country. A State like mine, California, obviously 

needs that assistance for the lack of Federal response to immigration policy, and I am wondering why it is that the President chose 

to eliminate a program which helps pay for the cost of the failures 

of the Federal Government to enforce its immigration laws. 

Mr. BOLTEN. Well, I think the right answer to that problem is 

to effectively enforce the immigration laws, and—— 

Mr. BECERRA. But until that happens, what do the States do? 

They are having to incarcerate folks for having committed crimes, 

those individuals being here because the Federal Government is 

failing to enforce its immigration laws. 

Mr. BOLTEN. What is included in this budget is a very substantial increase for border enforcement activities—— 

44 

Mr. BECERRA. That does not help us if they are already in this 

country committing crimes. 

Mr. BOLTEN. Well, there are people in this country committing 

crimes all over the country, not just in California. Many of them 

are illegal immigrants, many of them not. That is traditionally considered a State responsibility. The right answer to the underlying 

problem is that the Federal Government should effectively enforce 

its borders. We believe we are putting the resources into this budget to do that. 

Mr. BECERRA. Thank you. Thank you, Madam Chair. 

Mrs. JOHNSON. Thank you. Ms. Hart? 

Ms. HART. Thank you, Madam Chair. Mr. Bolten, thank you for 

taking the time to come before the Committee. I know you have 

had a busy day. I want to compliment the administration on continuing to explain the relationship between economic growth and 

low taxes. As someone who has worked in State government for 15 

years and for 7 of them chaired the tax-writing Committee in my 

State, we saw the exact same thing happen there as it happening 

here. When we give the people their money back, they reinvest it 

in the economy, and we have had a lot of success with that. It is 

wonderful to see the—14.7 percent, I guess? 

Mr. BOLTEN. 14.5 percent. 

Ms. HART. 14.5 percent, thank you. 

Mr. BOLTEN. Increase in revenues last year. 

Ms. HART. Increase in revenues as a result of this much better 

policy. That having been said, we still have some statistics that we 

are trying to find create ways to solve, and that is the amount of 

people who do not have health coverage in this country. I think the 

change in the economy, a lot of people who are now self-employed, 

a lot of people who are now working for much smaller businesses, 

the cost of health insurance, a lot of factors are involved in that. 

I know the President had mentioned an expansion of health savings account in the State of the Union, and I am not familiar with 

exactly in what way he wants to expand them, and I am not sure 

if you have more of those details. But if you do, I would like you 

to share them with us. 

Mr. BOLTEN. I do have some of the details with me, and I would 

be glad to provide additional materials to you. The expansions involve permitting people to put more money into the health savings 

account than they have been in the past, also to allow a deduction 

for—just as when your employer in the private sector provides you 

health care, that health benefit of the insurance is not subject to 

taxation. 

Ms. HART. Right. 

Mr. BOLTEN. So the proposal is to treat HSAs, health savings 

accounts, in a parallel way so that the money you put in that is 

excluded from your income for purposes of taxation. 

Ms. HART. It is also already excluded from the employer’s income if they contribute? 

Mr. BOLTEN. Well, I think it is considered on the employer’s 

side an expense of doing business. 

Ms. HART. Okay. So, that is good. 

45 

Mr. BOLTEN. But to give that exclusion to the employee and 

also the portion that relates to the Social Security and Medicare 

taxes that are applied to that level of income. 

Ms. HART. That is good because I have a bill that would actually 

provide that kind of relief to the self-employed individual buying 

insurance. So, it would include any health coverage or health savings account contribution then to be not taxable. 

Mr. BOLTEN. Yes, and I think the President’s proposal would be 

in parallel, at least with respect to health savings accounts. 

Ms. HART. Great. I will count on the administration supporting 

my proposal then. One of the things that people have said about 

health savings accounts and I think you may be helping to cure by 

this proposal to expand the amount that an individual can contribute to that account is that there won’t be enough there for the 

person to cover whatever problems they may have. Is there an 

amount additional that the administration has proposed that a person can actually contribute to those accounts tax-free? 

Mr. BOLTEN. I am going to ask one of my colleagues for assistance here. The amount of contribution will increase from? I am told 

it is the amount of the deductible to the out of payment limit. 

Ms. HART. Well, okay. We will have to talk about that further 

after the hearing. Okay. I appreciate that. Just as a point of information, I have employers in my district who, when I first ran, had 

asked us to please look at the medical savings account law and fix 

it. Of course, we looked at that when we did the Medicare Modernization Act and moved forward with the HSAs. One of the complaints I did hear was a concern about being so restricted in how 

much they can contribute to those accounts. We have a number of 

other things available on the Federal level that do have those limits like flexible spending accounts. I would certainly be willing to 

work with the administration to make sure that we provide the 

maximum flexibility to those kinds of accounts so that people will 

be able to cover different kinds of expenses that they need to for 

their health and well-being. I thank you for your attention to that. 

I yield back. 

Mr. BOLTEN. Thank you, Ms. Hart. 

Mrs. JOHNSON. I would like to recognize Mr. Thompson. 

Mr. THOMPSON. Thank you, Madam Chair. Mr. Bolten, thank 

you very much for being here. Recently the Commerce Department 

released a report stating that the savings rate in this country is 

disappointingly low. As a matter of fact, it is as low now as it was 

during the Great Depression. So, as I read this, it indicates that 

Americans as individuals are a lot like America as a country, and 

they are having a hard time living within their means. They are 

spending much more than they are making. Does this trouble you 

at all? 

Mr. BOLTEN. Yes, we do need to raise the savings rate in this 

country, and the President has proposals in the budget to address 

that. 

Mr. THOMPSON. Well, you have argued that the tax cuts actually encouraged private savings and investment. How do you reconcile that with the fact that the savings rate is so low? 

Mr. BOLTEN. I don’t know if there is any particular way of 

gauging the extent to which a tax cut either raises or lowers the 

46 

savings rate beyond what it otherwise would have been. But we do 

know that if you leave more money in people’s pockets, they are 

more likely to have more money available to save. 

Mr. THOMPSON. So, can you give us an idea how the tax cuts 

have actually helped just regular Americans save more money? 

Mr. BOLTEN. Well, I think when you leave a couple of thousand 

dollars in the pocket of an average family of four, and with that 

extra $2,000 it may be that they need to spend some of that on 

their current expenses, but also that may be money that they can 

put aside for their kids’ education. So, while the savings rate is 

low, I think it is entirely plausible, in fact, likely that in the absence of the tax cuts, the savings rate would be even lower. 

Mr. THOMPSON. Not only is it low, it is extremely low, and 

that, coupled with the unbelievably high amount of personal debt 

that most regular Americans are carrying today, I think is emblematic of maybe your tax cuts did not do as much as you are suggesting that they did. I am troubled by the combination. I am troubled by either one of those indicators, but certainly the combination 

of the two, high debt, low savings, I think that spells trouble. I 

have not seen any benefit accruing to those folks from these proposals. To shift gears a minute, the President said that the AMT 

should be addressed within the context of fundamental tax reform. 

Can you tell us where in the budget that plan for fundamental tax 

reform can be found? 

Mr. BOLTEN. The Secretary of the Treasury had a commission 

report to him a few months ago on fundamental tax reform. He is 

studying that now. That is a—— 

Mr. THOMPSON. There is nothing in the budget that—— 

Mr. BOLTEN. No, and I would anticipate further that since we 

are calling for revenue-neutral budget tax reform, then it would not 

substantially affect the numbers that you see in the budget. 

Mr. THOMPSON. If there is no plan outlined by the President 

for the fundamental tax reform, how is it that we are to believe 

that the AMT issue is to be fixed? 

Mr. BOLTEN. Well, it can be fixed in the context of fundamental 

tax reform, which—— 

Mr. THOMPSON. But it is not there. That is what I am saying. 

Mr. BOLTEN. Which we hope and expect will be coming along 

in the months ahead. Bear in mind that the AMT, we are assuming, will be patched for the 2006 tax year, for which people will be 

paying taxes in 2007. That has not been yet adopted by the Congress. 

Mr. THOMPSON. But even if it is, it is just a 1-year fix. 

Mr. BOLTEN. It is indeed a 1-year fix, and, therefore, when people get around to paying their taxes in April of 2007, that is the 

point at which people would begin to—— 

Mr. THOMPSON. Are there other tax cuts from 2001 and 2003 

that are not proposed to be made permanent, or is it just AMT? 

Mr. BOLTEN. AMT was not part of the 2001 and 2003 tax cuts. 

Mr. THOMPSON. I didn’t ask that. I said, Were any of the 2001, 

2003 tax cuts that were not made to be permanent? 

Mr. BOLTEN. No. The President’s position is to make all of 

the—— 

Mr. THOMPSON. Make them all permanent. 

47 

Mr. THOMPSON. —2001 and 2003 tax cuts permanent, with the 

exception of, I believe, a bonus depreciation provision that was intended to expire. 

Mr. THOMPSON. Yet AMT is not addressed by this administration, and this is a tax cut that has already expired. It puts in place 

a problem for about 17 million Americans who are going to have 

to pay more taxes because this was not fixed. As you just explained, there is no proposal within this budget or no—it is not a 

priority within this administration and this budget to fix AMT on 

a permanent manner. 

Mrs. JOHNSON. Thank you. Mr. Brady? 

Mr. BRADY. Thank you, Madam Chair. I appreciate Director 

Bolten being here today. 

Mr. BOLTEN. Thank you, sir. 

Mr. BRADY. I think you have some work to do on the budget, 

but I think the President’s priorities of supporting our troops and 

winning this war on terror, securing our borders, helping families 

with their health care, which is so expensive, and trying to move 

to energy independence—those back home in Texas are the priorities for Texas families, things they want us to work on. You know, 

the one frustration I have is that we do a lot of important things 

in government, but we just seem to waste so much money as we 

do it. I think the best way that we can trim the fat from the budget 

is a proposal that the President has endorsed, and you have as 

well, a sunset commission, which, you know, is a very proven method, has worked in 24 States. What it does is it puts an expiration 

date on every—as you know, it puts an expiration date on every 

agency and program where they have to justify their existence or 

face elimination. What it does and what States have shown us that 

we have so many programs that duplicate each other. We have programs that are now obsolete. Yet we have new priorities, such as 

the war, such as Medicare and Social Security and others, that 

must be funded that we have to look at the 500-some different 

urban aid programs, the 300-some different, separate economic development programs, and 90 different early childhood programs 

spread across 11 agencies. I think it is critical, for us to get to a 

balanced budget and stay there, we have got to find a bipartisan 

way, proven way, thoughtful way where every agency, every department is held accountable. A sunset commission has been endorsed by OMB, yourself, and the President. Are you still committed to using that as a tool to reduce the waste and fraud? 

Mr. BOLTEN. We are indeed, Mr. Brady, and you may not be 

aware, but when this idea was first gaining currency within the administration, it was referred to as a Brady commission. 

Mr. BRADY. Well, that is a scary thought. 

[Laughter.] 

Mr. BOLTEN. But we appreciate the work that you have done 

on this. The administration does remain committed to that proposal, I think even more so now than in the past, particularly as 

we see a growing number of Members interested in that sort of 

process reform, certainly more so than have been interested in the 

past. I know you have worked with our Deputy director for Management, Clay Johnson, on fashioning a sunset commission proVerDate Aug 31 2005 06:00 Dec 23, 2006 Jkt 030434 PO 00000 Frm 00051 Fmt 6633 Sfmt 6602 E:\HR\OC\30434.XXX 30434
48 

posal, and we hope it will get serious consideration in the Congress 

this year. 

Mr. BRADY. Thank you, Director. Thank you, Madam Chairman. 

Mrs. JOHNSON. Mr. Emanuel? 

Mr. EMANUEL. Thank you very much. I feel like an Agatha 

Christie novel: ‘‘Then There Were None.’’ It is just me and you now, 

that is it. I knew if I waited long enough, I could be the Ranking 

Member, so here it is. My big moment has come. 

[Laughter.] 

Mr. EMANUEL. Thanks for laughing. I like that he laughs. You 

never know if the guy taping will hear you. You know, look, we 

have gone through this. You have been the whole set of questions. 

You had to do Budget Committee today. Let me make a set of proposals for bigger cuts. You know, I am not going to argue. I think 

your survivor’s benefits cut is stupid. I can put a prettier face on 

it, put some lipstick on it. You want to cut survivor benefits for 250 

bucks because—you could reform it, you can alter it, you can 

means test it. You made those suggestions. You didn’t do it. I think 

it is a stupid idea to cut people who just lost their parents for $250. 

I am not going to give it to you any prettier. 

But here are four ideas or five for bigger cuts. A, in the health 

care area, because they are a total waste of taxpayer dollars, and 

you can move it into uninsured, deficit savings, anything you want 

to do. We now pay—and the PPO slush fund, close to about $10 

billion. We have an overpayment, 107 percent, versus fee-for-service. That comes to about $30 billion. We double-pay for education, 

$5.5 billion. Those are just a couple ideas. There are a couple other 

in what I would call in the Medicare area, total—prior to you it 

was Secretary Leavitt made the recommendation $49.2 billion in 

additional cuts, all are corporate welfare. You would have to hit 

some very big contributors. But you are leaving $49.2 billion on the 

table, and I agree with the President in the State of the Union. You 

want to make big cuts. It is a time of belt-tightening. We got to 

do belt-tightening. You left $49.2 billion. I am sending Secretary 

Leavitt a letter based on today’s hearing. I am going to cc it and 

also send it to you. Why—the Chair Lady was there. MedPAC is 

always used as an umpire here. The recommendations for $36 billion in cuts for Medicare, were all based on one rationale— 

MedPAC. Med-PAC also made recommendations every area I am 

saying, so you have left $49.2 billion in corporate welfare on the 

table. Could be cut today. Bigger reduction in the deficit. You decided not to. 

Second, Mr. Director, in the area of energy, today—I don’t know 

how it closed today, but on average, futures in oil have been trading somewhere between $66 to $69 a barrel. We pay $14.5 billion 

in corporate subsidies, taxpayer subsidies to big oil companies, $2 

billion for the ultra-deepwater oil drilling, where they are drilling 

already, and we don’t even collect the revenue that they owe on 

royalties. Basically about $16 billion you can collect if you eliminate those subsidies. Total—I am personally set off on a mission. 

We are going to find you $100 billion in additional cuts you guys 

are too chicken to do. I am going to give it to you in a letter and 

lay them out to you. I want to know why you chose to leave those 

on. 

49 

Now, I don’t have a problem if we are going to—you know, oil prices, energy prices, cutting it close to about $2.75. But by subsidizing oil companies to do their business plan is the wrong way 

to go, especially we are cutting survivor’s benefits for kids who 

have just lost a parent and widows. You are cutting educational 

programs, freezing Title I, all the areas you could justify—and I am 

not saying replace. I am saying you left by my calculation $60 billion on the table. So, this is not a budget of right priorities. Your 

rhetoric, not mine. I will say—one of the things I find that all my 

colleagues compliment this, what you do, these tax cuts have led 

to this, quote-unquote economic boom. What I find fascinating, you 

1 day will explain to me, because I do know—was that a gavel 

down? 

Mrs. JOHNSON. No. 

Mr. EMANUEL. Okay. Was that in the nineties we had an economy that was growing with a totally different tax structure. So, you 

will one day explain to me how the economy grew in the nineties 

under a different tax code, which you all rallied against and railed 

against as big, big tax increases on folks. So, 1 day I would like 

to have an explanation or a discussion of how the nineties economy 

grew at the level it did with the Tax Code and the taxes that we 

had level there. Last, I want to pick up on what my colleague Mr. 

Thompson said, and that is—it relates to the AMT. You did ask for 

a permanent—making permanent the tax cuts in 2001 and 2003. 

But you did let the AMT expire, and it does hit middle-class families, and it is hitting—I think in 1999 there was 1 million. Today 

there is 19 million. Over the next 4 years, it will get up to 30 million families—or taxpayers, rather, who will be hit by it. Is there 

any intention to do tax reform? We all read the same papers that 

you read. Basically tax reform isn’t getting done this year. 

Mrs. JOHNSON. Thank you, Mr. Emanuel, and thank you, Mr. 

Bolten, for your patience and for listening throughout these hours. 

I am sorry. Your time has expired—— 

Mr. EMANUEL. But if he is willing to answer the questions, we 

can stay, right? 

Mrs. JOHNSON. You can talk to him after about it, but I am 

going to adjourn the hearing because we have a vote going on, and 

we are down to the last few minutes. Thank you very much for 

your patience and—— 

Mr. EMANUEL. Thanks for the dialog. 

Mrs. JOHNSON. —your courtesy and a pleasure to have you. 

Thanks. 

Mr. BOLTEN. Thank you, Madam Chairman. 

[Whereupon, at 6:40 p.m., the hearing was adjourned.] 

[Submission for the record follows:] 

Statement of the Embassy of Peru to the United States 

The Embassy of Peru would like to congratulate the Ways and Means Committee 

of the U.S. House of Representatives for holding a hearing and receiving written 

statements regarding the U.S. President’s Fiscal Year 2007 Budget. 

We are aware that the Office of Management and Budget (OMB) has presented 

a budget in the framework of the Andean Counterdrug Initiative of U.S. $721.5 million ($13 million less than Fiscal Year 2006). Unfortunately, in said initiative the 

amount assigned for drug cooperation to Peru is U.S. $98.5 million or a proposed 

reduction of more than U.S. $8.42 million in comparison to Fiscal Year 2006 (U.S. 

$106.92 million). Within the full respect for U.S. legislation, the Government of Peru 

50 

would like to express its utmost concern about the current tendency of reduction of 

amounts for bilateral antidrugs cooperation with Peru in the U.S. Budget: 


30434a.009
51 

Year 2002 2003 2004 2005 2006 2007sa 

(requested) 

In U.S.$ 142.5 128 116 115.37 106.92 98.5 

millions 

In times like these, we see this proposed reduction as counter productive, particularly if we take into account the significant progress made in the fight against drugtrafficking in Peru and the challenges we must face. 

On November 17, 2005, the Director of the White House Office of National Drug 

Control Policy (ONDCP), John Walters, made an important presentation where he 

shared some very good news on the results of our joint efforts in the fight against 

drug trafficking. The reduction on the cocaine (-17%) and heroin (-22%) purity available in the U.S market; as well as the increase in price of both cocaine (+19%) and 

heroin (+30%), mentioned by Mr. Walters, are exactly the type of results we are 

looking for. It is necessary to continue to work and fight together to have less drugs 

available in the streets of the United States by attacking the demand and the supply. 

Also, in said presentation it was noted that in the case of Peru, as part of the 

successful strategy in the Andean region, there has been a reduction of 20 metric 

tons of export quality cocaine from 2003 (185 MT) to 2004 (165 MT). 

These are concrete results that a high ranking official of the U.S. Government 

provides with important data on the fight against illegal drugs. These positive results are obtained not only in U.S. territory but also in countries such as Peru. 

Peru and the United States have 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 since July 2001. Positive results based on this effort are at hand, where more than 41,000 hectares have been 

eradicated in the last 4 years and approximately 52 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 support provided by the United States. However, to continue with 

this effort, the valuable and important support of the United States is needed. Furthermore, any reduction of these cooperation funds will have a negative effect in the 

real progress we have obtained in the fight against drug-trafficking. We still have 

to take in account the success of ‘‘Plan Colombia’’ on the eradication of coca crops, 

and the ‘‘balloon effect’’ it has developed. 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 instrumental 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’s 

Budget proposal for Fiscal Year 2007 in regard to the Andean Counterdrug Initiative (ACI) 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 2007 be reconsidered or, at least, the amount provided by the 

U.S. Congress for Fiscal Year 2006 be maintained. 

Our joint effort is based on the principle that United States and Peru have a 

shared responsibility in this matter. Drug-trafficking affects both countries and we 

must work together to stop illegal drug from reaching the United States. This principle, which is the basis of the joint fight against narcotrafficking, has a renewed 

applicability due to the current dimensions, the diversity of methods used in drug 

trafficking and the expansion reached by drug dealers in their crimes and related 

illegal activities such as money laundering, deviation of chemical precursors and 

arms trafficking, as well as other crimes such as human trafficking, corruption and 

terrorism. 

The U.S. Congress is aware and has been 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 and assisting 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 2005 our exports to the 

United States grew by more than 41.8% compared to the previous year. Textiles and 

52 

apparel, agro-products, like paprika, asparagus, mangoes, melons, white onions, watermelons, among others, as well as gold jewelry, lead the expansion of sales to the 

U.S., generating thousands of new jobs and improving the livelihood of peasants and 

workers in Peru, especially in rural areas. 

In December 2005, we finalized with the United States the negotiations for the 

Peru Trade Promotion Agreement (PTPA). This agreement, which has been applauded by U.S. associations, such as National Pork Producers Council, the U.S. 

Sugar Producers, and the U.S. Chamber of Commerce, is an important tool in our 

efforts to fight against drug trafficking and continue with alternative development 

programs in Peru. 

The Government of Peru is firmly committed to the fight against drug trafficking. 

The National Commission for Development and Life without Drugs (DEVIDA) was 

created to design, conduct, and supervise the anti-drug policy and rehabilitation programs in Peru. 

The Peruvian Government is currently executing the Peruvian National Strategy 

to Fight Drugs 2002—2007, approved in January 2005, 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 

Farmers in Peru need to be given the opportunity to grow alternative products 

to coca leaf. But not only that, we need to have to have an integral approach in 

this matter: by building roads so they may transport their crops to the coast. From 

there, these crops may be sent to Lima, Peru’s major market or be exported, and 

in the latter case we have the importance of a PTPA. We need to provide a market 

for these farmers to export their alternative products, such as high quality coffee, 

cocoa, bananas; tropical products that are hardly grown in the United States, therefore not competing with U.S. local producers. 

If these farmers are not given an alternative crop and a market as a destination 

for their products, they will continue being ‘‘cocaleros’’ coca farmers, with the selfish 

support of narcotraffickers who want to continue with the supply of coca leaf. 

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. 

On January 25, 2006 the President of Peru, Alejandro Toledo, with the presence 

of U.S. Ambassador in Peru, inaugurated a road 56 miles long between Juanjui and 

Tocache in the Alto Huallaga Valley in Peru. This road, with a cost of U.S. $30 million was financed in part by the U.S. Government, through USAID. Even though 

this is a concrete result of the Alternative Development program and the cooperation funds between the United States and Peru, these are the funds that are being 

reduced every year. 

There will be 123,000 beneficiaries of 42 towns located at the side of said road, 

which will reduce the trip from Juanjui to Tocache from 16 to 4 hours. Farmers 

(many of them former coca growers) will save valuable time in transporting their 

agricultural products to Lima or export markets. 

The environment is also negatively affected by drug traffickers. Chemicals precursors which are 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. 

The efforts of Peruvian authorities since July 2001 have been very important, and 

the projected goals or eradication have been achieved in the last 3 years. As shown 

in the following chart, in the last 4 years, more than 40,000 hectares of coca crops 

have been eradicated, either through forced or voluntary eradication. 

Coca Crops Eradication 

(Hectares) 2002 2003 2004 2005 

Forced eradication 7,134 7,022 7,605 8,957 

Voluntary eradication 0 4,291 2,733 3,266 

Total 7,134 11,313 10,338 12,223 

Source: DEVIDA 

53 

Interdiction 

In regard to interdiction, our National Police and Armed Forces, in cooperation 

with U.S. and other foreign enforcement agencies, have been able to seize great 

amounts of cocaine ready to be shipped to the United States, Mexico and Europe. 

Illegal Drugs (kgs.) 2002 2003 2004 2005 

Seized: 

Basic Paste of Cocaine 10,439 4,366 6,329 4,572 

Cocaine 4,129 3,574 7,303 11,588 

Total 14,568 7,940 13,632 16,160 

Furthermore, and important task has been developed in Peru by the Financial Intelligence Unit. This Unit, which is parte of the Ministry of Economy and Finance, 

has the following responsibilities: 

• Receive and analyze the Report of Suspicious Operations 

• Request additional information to the obligated persons 

• Request to any public institution all reports, documents, background information, and any other document that may be useful in their investigation. 

• Request of information to any person regarding asset/money laundering and terrorism financing 

• Transmit to the Public Ministry (for judicial action) the detected cases of money 

laundering and terrorism financing 

• Cooperate and participate in joint national and international investigations. 

• Provide technical assistance. 

Since September 2003, when the Financial Intelligence Unit became active, there 

have been 1,088 reports of suspicious operations that have been detected by this 

Unit. In this same period, this Unit has sent 39 reports to the Public Ministry (for 

judicial action), 19 of them involving drug trafficking activities. These reports have 

identified more than U.S. $200 million that may be seized due to their illegal origin. 

In the framework of the Annual Plenary Meeting of the Egmont Group, in July 

2005, the Financial Intelligence Unit of Peru was incorporated into the 

abovementioned group, thanks to the sponsorship of the United States and after 

completely complying with the admission requirements established in its norms. 

The Egmont Group, was created in 1995 in Brussels, with the purpose of articulating the efforts of the Financial Intelligence Units of 101 countries in their fight 

against the asset laundering of activities proceeding from the illicit trafficking of 

drugs, corruption and terrorism. It has permitted the Government of Peru to exchange financial intelligence information, including the lifting of banking secrecy, 

with all of the UIF members, which has reinforced the actions taken by our country 

in the fight against crimes that generate illicit profits. 

Regional situation 

Based on the latest events of the Andean region, we would like to emphasize that 

the Government of Peru is respectful of all its international commitments in the 

fight against illegal drugs. Also, our country is convinced that the fight against 

narcotrafficking is the best path to obtain development and social peace and stability in our country. When narcotrafficking grows it has a negative effect on democratic institutions; it expands poverty and social exclusion, putting democracy in 

risk. 

Security 

Having drugtraffickers benefit from these illegal activities is only a source of destabilization for our country and its democratic institutions. It is also a threat to 

security, not only security in Peru but also in this hemisphere. It is well known that 

these transnational criminal organizations that have no borders are responsible for 

these illegal activities. 

We must also have in mind the existing link between narcotraffickers and terrorists, and alliance that is well proven, particularly in Peru. Terrorism is also a worldwide major threat against whom we have to fight together in a coordinated manner. 

Conclusion 

Together, our governments must face these enormous challenges in the fight 

against drug trafficking. In order to continue winning successful ‘‘battles’’ in this 

war, we truly and respectfully consider that United States anti-drug cooperation 

with Peru should be increased and not reduced. 

54 

The outstanding results in the United States and in Peru during the last 12 

months prove that there has been real progress. Consequently, this joint effort, 

where U.S. support is instrumental, needs to continue. 

Æ