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26–055 PDF 2006

THE PRESIDENT’S BUDGET

FOR FISCAL YEAR 2007

HEARING

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

HEARING HELD IN WASHINGTON, DC, FEBRUARY 8, 2006

Serial No. 109–12

Printed for the use of the Committee on the Budget

(

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

(II)

COMMITTEE ON THE BUDGET 

JIM NUSSLE, Iowa, Chairman 

JIM RYUN, Kansas 

ANDER CRENSHAW, Florida 

ADAM H. PUTNAM, Florida 

ROGER F. WICKER, Mississippi 

KENNY C. HULSHOF, Missouri 

JO BONNER, Alabama 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

THADDEUS G. MCCOTTER, Michigan 

MARIO DIAZ–BALART, Florida 

JEB HENSARLING, Texas 

ILEANA ROS–LEHTINEN, Florida 

DANIEL E. LUNGREN, California 

PETE SESSIONS, Texas 

PAUL RYAN, Wisconsin 

MICHAEL K. SIMPSON, Idaho 

JEB BRADLEY, New Hampshire 

PATRICK T. MCHENRY, North Carolina 

CONNIE MACK, Florida 

K. MICHAEL CONAWAY, Texas 

CHRIS CHOCOLA, Indiana 

JOHN M. SPRATT, JR., South Carolina, 

Ranking Minority Member 

DENNIS MOORE, Kansas 

RICHARD E. NEAL, Massachusetts 

ROSA L. DELAURO, Connecticut 

CHET EDWARDS, Texas 

HAROLD E. FORD, JR., Tennessee 

LOIS CAPPS, California 

BRIAN BAIRD, Washington 

JIM COOPER, Tennessee 

ARTUR DAVIS, Alabama 

WILLIAM J. JEFFERSON, Louisiana 

THOMAS H. ALLEN, Maine 

ED CASE, Hawaii 

CYNTHIA MCKINNEY, Georgia 

HENRY CUELLAR, Texas 

ALLYSON Y. SCHWARTZ, Pennsylvania 

RON KIND, Wisconsin 

PROFESSIONAL STAFF

JAMES T. BATES, Chief of Staff 

THOMAS S. KAHN, Minority Staff Director and Chief Counsel 

(III)

C O N T E N T S

Page 

Hearing held in Washington, DC, February 8, 2006 ............................................ 1

Statement of: 

Joshua B. Bolten, Director, Office of Management and Budget ................... 7

Prepared statement, additional information requested of Mr. Bolten: 

Prepared statement .......................................................................................... 12

Mr. Spratt’s question regarding the deficit .................................................... 18

Mr. Cooper’s question regarding health savings accounts ............................ 36

OMB’s reply to Mr. Hensarling’s question regarding the Federal role 

in hurricane relief ......................................................................................... 48

OMB’s reply to Ms. Schwartz’ question regarding energy policy ................. 55

Mr. Simpson’s question regarding the TRIO Program .................................. 60

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THE PRESIDENT’S BUDGET

FOR FISCAL YEAR 2006

WEDNESDAY, FEBRUARY 8, 2006

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

The committee met, pursuant to call, at 11 a.m. in room 210, 

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

committee) presiding. 

Members present: Representatives Nussle, Crenshaw, Putnam, 

Wicker, Garrett, Barrett, Simpson, Mack, Ryan of Wisconsin, DiazBalart, Hensarling, Ros-Lehtinen, Lungren, Sessions, McHenry, 

Conaway, Spratt, Moore, Neal, DeLauro, Edwards, Baird, Cooper, 

Davis, Jefferson, Allen, Case, Cuellar, and Schwartz. 

Chairman NUSSLE. Good morning. The full Committee on the 

Budget come to order. This is a full committee hearing on the 

President’s budget for fiscal year 2007. I want to thank members 

for their attendance today. As members know we will not have 

votes until after 6:30 p.m. on the floor and so we appreciate you 

coming back for this hearing. 

The hearing will end at 2:30 p.m. today because of the bill signing ceremony for the Deficit Reduction Act at the White House. 

And so the director needs to be able to get back to that so we 

will end it at 2:30 p.m. and try and expedite as many questions 

during that time as possible. 

On Monday, we received the President’s budget request for fiscal 

year 2007 which marks the traditional start of the congressional 

budget planning for the coming year, but as all members know, 

this started in earnest last year with the onset of the challenges 

from Katrina, et cetera. 

We have with us today the director of the administration’s Office 

of Management and Budget (OMB), Josh Bolten, to walk us 

through the President’s proposal. As always, the President’s request is based on OMB’s budget and economic forecast. So one of 

the goals of this hearing is to get a solid understanding of what 

that foundation is, that bases the President’s budget. 

Before we hear from the director, I would like to take just a few 

minutes to review what the Congress’ budget experts, the Congressional Budget Office (CBO), had to see about the budget and outlook for the economy in their report released just a few weeks back, 

since this is the basis for the work that we do here in Congress in 

developing our budget. 

So let me start with the economy and revenues. Over the past 

few years, we have lowered the tax burden on Americans, because 

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it is our fundamental belief that the people back home make much 

better decisions about their daily lives. The decisions they make 

around the kitchen table are to be honored, understood, and respected as they invest in their own businesses, on their farms, with 

their families, and communities, and it is just as an important 

issue than even what the Federal Government can do for them. 

As a result of giving Americans more control over their money, 

we have seen more investment, we have seen more jobs, and we 

have seen greater opportunities for this country. The economy as 

a whole has grown at a strong average of 3.8 percent since the tax 

relief was passed in 2003. 

Over 4.7 million new jobs have been created in the past 21⁄2

years. The unemployment rate has now fallen to 4.7 percent, the 

lowest in years, and we have had 17 straight quarters of growth 

in this economy. As our economy grows, more jobs are created and 

personal incomes increase, which gives people and families more 

ability to make those decisions around their kitchen tables. As a 

direct result of that growth, revenue that comes into Washington 

is on the rise. Again, a phenomenon that many describe, but it appears that few understand—revenues actualy increase to the Federal Government when you reduce taxes, the way we have in the 

past number of years. In fact, we saw revenues coming into the 

Federal Government up 15 percent more than last year alone. A 

15-percent increase is almost an unprecedented level of revenue increase. We lowered the tax burden, told people to keep, spend, invest, and use their own money as they saw fit, and Federal revenues actually went up. 

Let me show you a chart of revenue projections. As you see, coming into 2003, before we made that unprecedented decision and put 

this plan that we have in place, revenues were falling. It was one 

of the first times in American history that we have seen that kind 

of 3-year drop in revenues. And since then, revenues have been on 

track to grow at an average rate of 5.3 percent in the next 5 years 

from what we have already done in the last 3 years. According to 

CBO, assuming that we don’t increase taxes or allow taxes to be 

automatically increased, this trend is set to continue and that is 

good news. 

Of course, that is only half the picture, the challenge that we 

have, I believe, is on the spending side. Over the past few years, 

we have seen a major, necessary, and deliberate shift in our Nation’s spending priorities. We were already faced with ongoing demands in critical domestic areas, such as education, transportation, 

health care—there are many. And now we are facing continuing 

threats of international terrorism, the nearing retirement of baby 

boomers, the growing pressures of inadequate domestic energy supply, and the continuing sky rocketing of medical expenses. 

All of these need and place greater demands on an already 

stretched Federal budget, and it doesn’t get any easier from here. 

Getting control of the budget requires that we understand and 

manage this ongoing shift of balance of our priorities. Last year, we 

set forth a plan to keep a strong growing economy and to create 

jobs while controlling spending both across the board as well as our 

continued progress in reducing mandatory expenses and reducing 

the deficit. We followed that plan and even in the face of an ongoVerDate 0ct 09 2002 14:06 May 04, 2006 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 F:\DOCS\HEARINGS\109TH\109-12\26055.TXT HBUD1 PsN: DICK
3

ing war, debilitating national and natural disasters we made some 

real progress, and we kept our economy pumping along at a robust 

pace. 

As I have noted, we have seen the creation of millions of new 

jobs, unemployment rates at historical lows, and increases in revenues coming into the Federal coffers. We have held our nonsecurity 

discretionary spending to a freeze, tighter than the previous year’s 

1.3-percent growth. Which is small by most people’s measures, but 

certainly a marked improvement from the previous 5-year average 

of growth in the discretionary spending accounts of over 6 percent. 

And just last week, we completed work on the Deficit Reduction 

Act of 2005, which we anticipate the President will sign into law 

later today. This legislation begins the process of reforming the 

very important Federal Government programs which are, I believe, 

the least sustainable programs. And for the first time since the 

Balanced Budget Act, we have in the process saved taxpayers as 

a result of this bill, $40 billion over the next 5 years. 

As a result of all of this, we have also accomplished dramatic deficit reduction in just these past few years. Let me show you a chart 

that demonstrates that. But as OMB tells us today, and we will report, after $200 billion of consecutive deficit reduction, we now 

have a short-term increase of $105 billion in our deficit picture. 

This increase is due to the $85 billion in emergency spending that 

we all provided, to help folks in the gulf coast region following the 

natural disaster of Hurricane Katrina, and the additional $70 billion that the President proposes to fully fund our soldiers in Iraq 

and Afghanistan and provide additional hurricane relief for the future. 

As we know, had our economy not been so resilient, the bump 

in the deficit would have been much worse. Thankfully, we are 

growing at this period of time, and that must continue. These setbacks serve as a pretty solid reminder that controlling the budget 

isn’t a one-stroke fix. It is a long-term, step by step commitment 

that takes resolve, particularly when extraordinary circumstances 

make it difficult. 

Let me turn to the fiscal year 2007 budget. 

So today it gives us not only an opportunity but a challenge in 

crafting this year’s budget. I believe our priorities need to be very 

clear. No. 1, we must support our economy’s continued strong 

growth in job creation. No. 2, we need to ensure that our freedom 

and security is preserved here at home as well as abroad. No. 3, 

we must continue our efforts to reform and strengthen our most 

critical programs and do this all while we are reducing the cost of 

government and reducing deficits. 

Our challenge is also clear. Second guessing is not a plan, and 

political posturing is not a plan. Just complaining and wringing 

your hands is not a plan. We must determine the best course and 

craft a plan, the right plan, so that we can proceed from here, and 

that process begins today. 

On my side of the aisle, we will spend this weekend in conference, to talk about this year’s budget, to talk about our priorities, and I will be making two strong recommendations to my conference. 

4

No. 1, that we go through reconciliation again this year. I realize 

that that will cause some angst for Members. Already we are hearing hand wringing in the newspapers that you can’t control budgets 

during an election year, that you can’t reduce spending, that you 

can’t reform government. 

I dismiss that. I reject that. I believe that part of the challenge 

that we are faced with is the result of us not going through a routine reconciliation process, a routine reform process where we have 

the opportunity to pull weeds out of the garden so that we can ensure that the garden is vibrant and continues to provide the kind 

of fruit that we believe is important, but pulls those weeds that are 

strangling our growth or making it difficult for us to maintain the 

kind of commitment that we have maintained within the budget. 

Reconciliation, even at a nominal amount, is an important process 

to go through constantly to reform our most important projects. 

And No. 2, I am going to make a strong recommendation to our 

conference that we have no new earmarks. I have made this suggestion a number of years in a row, and it has been rejected. It 

may be rejected again this year, but let me tell you, if we are not 

going to go through reform, if we are not going to go through reconciliation, then I don’t believe we should have the opportunity to 

go our taxpayers and tell them all the good things we brought them 

in the form of earmarks. We need to do both. We need to reform 

our important programs, even if it is at a small routine amounts, 

to get us on the kind of path toward reform, and we need to do so 

without adding to the already difficult whole that has been dug as 

a result of the challenges involving our national security as well as 

our natural disasters. 

This week the President presented his plan on his budget request to Congress. Today we have the pleasure of hearing from the 

Office of Management and Budget Director Josh Bolten, who has 

been before our committee and who has given us many opportunities to question him and the outline that he has presented. We look 

forward to your testimony and welcome to the committee. 

Mr. Spratt, I turn to you for any comments you wish to make. 

Mr. SPRATT. Thank you, Mr. Chairman, and Director Bolten, welcome again. Mr. Bolten, you and your boss, Mr. Bush, have the dubious distinction of presiding over a deficit of $423 billion this year, 

the largest in nominal terms, in our Nation’s history. You would 

say it is only a nominal term not as a percentage GDP, and I will 

grant you that. But I have to say that a $423 billion deficit is not 

acceptable and not sustainable. 

Nevertheless, your budgets have run deficits in this range for 

about 4 years and by our calculation, this budget shows no sign of 

deficits abating or disappearing. 

As you can see, as we look out over 5 years, your projections, 

using your numbers, show that the budget will sustain deficits totaling $1.596 trillion. And those projections leave out two very likely and very expensive items. First, the cost of operations in Iraq 

and Afghanistan after this year, other than the $50 billion that you 

will provide in 2007, let’s hope that is enough for 2007. But we are 

spending $120 billion this year. 

5

If you look at what is being provided in this budget as well as 

what was provided in the 2006 defense authorization bill and appropriations bill. 

And secondly, you made no provision after this year for any correction to the alternative minimum tax (AMT) so that it will apply 

only to the existing taxpayers whom it applies, some 5 million taxpayers and not 22 million taxpayers, which is what will happen unless we patch or fix it. This fix of the AMT is inevitable as a matter 

of politics if not policy, and revenues lost to such a fixed amount 

is $844 billion over 10 years. But as I search your budget, I find 

no provision for that revenue impact anywhere in your budget. And 

yet I think it is an inevitable adjustment to the AMT. 

Even without these adjustments, your budgets run deficits of $1.596 trillion over the next 5 years. And when you back out the 

surplus in Social Security, as I think you should, because there is 

a date in that time frame shown on this chart, 2008, which is a 

real milestone in the budget history of this country because that 

is when the baby boomers began to retire. And pretty soon, the 

monies we are setting aside for now in the Social Security trust 

fund will be drawn down. That is why it is called a trust fund. 

These funds are entrusted, obligated and encumbered for a purpose. And when you back out the Social Security trust fund, because it shouldn’t be used as an offset morally or legally, the deficits over the next 5 years amount to $2.841 trillion. 

But we say we see no signs of abatement, disappearance, or approval, we base it on our calculations of the puts and takes, pluses 

and minuses in the budgets you presented to us. When we offset 

your spending cuts against your tax cuts, we find that your budget 

makes the deficit worse, not better, worse by $413 billion over the 

next 5 years. This is not a deficit reduction budget, but a deficit 

worsening budget. That is without making the changes in the 

AMT. Now if you can’t see this, we will be glad to share this chart 

with you just to show we didn’t pull this out of the air. 

When you make the changes that we think are inevitable in the 

AMT and other changes that we think our baseline needs to have 

adjusted in order to realistically reflect the likely future. When 

these changes are made, we plot the deficit over the next 10 years 

along the path shown on the lower sloping curve in the lower righthand corner of this chart, hovering in the range of $300 to $400 

billion for next 7 or 8 years and then going further downward to 

the point where in the year 2015, 10 years from now, it is $550 billion. We will be glad to share these numbers with you. We appreciate your comments on them. Maybe we can refine them. Maybe 

we have done something wrong. I would hope so. But that is what 

we see is the path your budget is taking if it is laid out according 

to what we find in this budget before us. 

We know that you might take exception to these numbers, but 

we know that when the administration has come up previously, you 

have painted a pretty picture for each of the outyears, but here is 

the actual results on the back of an envelope, an easy way to sum 

up last 5 years of budgets presented to us by the Bush administration. 

In order to accommodate those budgets passed by the Bush administration, proposed by the Bush administration, passed by the 

6

Congress, the debt ceiling of the United States has been raised 3 

times and the debt ceiling increases that are pending right now 

and according to the Secretary of Treasury is absolutely urgent. 

When you add those debt ceiling increases over the last 4 years, 

2002, 2003, 2004, the total debt increases come to $3 trillion. 

Now, when we take your projections of this existing budget, and 

run them out with the adjustments that we think are politically realistic, like the AMT, or like some provision for continuing operations in the theaters if not actually in the countries of Afghanistan and Iraq, when we make these adjustments, the next 10 years 

looks equally as bad. This total comes to over $3 trillion in debt, 

which will be a repetition of this period of time so that the legacy 

of your administration, which is surely not one you cherish or 

want, will be an addition to the debt of the United States of $6 trillion. 

I would like to see us—I would like to feel that there is some sort 

of alternate course we can take. The chairman referred to a plan. 

We really haven’t had a collegial effort to come to terms and grips 

with the budget deficit since 1997, since we sat down, Democrats, 

Republicans, the White House, and the Congress to try to negotiate 

a budget that would put us in balance within a couple of years. It 

succeeded to the point where we had a surplus of $236 billion in 

the year 2000. We were standing on the shoulders of budgets that 

had come before us, finishing the job. 

The job before us right now is extremely difficult but if you look 

back at the past; it took Gramm-Rudman-Hollings in 1985, the 

Bush budget summit in 1990, the Clinton budget in 1993 and the 

balanced budget agreement in 1997 to finally subdue the deficit, 

bring it to heel and eradicate it to the point where we had a surplus in the year 2000. I don’t see us moving down that path today. 

But I do so see a situation that is even more dire than it was in 

1997 because of the imminent retirement of the baby boomers and 

the problems we know we are going to experience with Medicare, 

Medicaid, and Social Security. What we should be doing now is 

saving more, not running more debt, so that we can reduce our 

debt service. 

And that reduction with the burden on our economy we can accommodate some of the growth we know will occur in Social Security and Medicare. We are not taking that path, and I think our 

children one day will ask what in the world were our parents 

thinking about when they tacked up so much debt and left it as 

our inheritance. 

Thank you for your testimony today. We look forward to that and 

we would appreciate it if you would address some of these questions in the course of your testimony or in the questions afterwards. Once again, thank you for coming. 

Chairman NUSSLE. Thank you, Mr. Spratt. Director Bolten, welcome back to the Budget Committee and we are pleased to receive 

your testimony. Your written testimony will be made part of the 

record and you may proceed as you wish. 

7

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

OF MANAGEMENT AND BUDGET 

Mr. BOLTEN. Thank you, Mr. Chairman and Mr. Spratt. I appreciate the welcome. 

Mr. Chairman, Mr. Spratt, 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. 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. 

Chairman Nussle made reference to some of them, but they are 

displayed on this chart that is just on your screen now.

The President set four objectives in the 2006 budget. 

First, the President proposed to hold growth and overall discretionary spending below the rate of inflation. Second, he proposed 

an actual cut in the nonsecurity 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, were not fulfilling essential 

priorities. And fourth, he proposed reforms in mandatory programs 

to produce $54 billion in savings over 5 years. 

The Congress substantially delivered on all four of these objectives, as the second column of this summary chart shows. 

I would like to thank you, Mr. Chairman, and members of this 

committee for your leadership and dedication in helping to achieve 

these goals. As you referenced, Mr. Chairman, this was not easy to 

accomplish. It took a lot of hard work from you and a number of 

members in this room. The administration, and I think, the American people, owe you a debt of gratitude. 

When President Bush gave me guidance on what the 2007 budget should look like, he directed me to build on this progress by focusing on national priorities and tightening our belt elsewhere. He 


15a.eps
8

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. 

On 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 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. As the chart on the screen now shows, in 2005, the 

economy grew by a substantial 31⁄2 percent, the third consecutive 

year of healthy growth.

And as you can see on the chart, we project ongoing economic 

strength for the foreseeable future. 

Economic expansion, Mr. Chairman, as you mentioned in your 

opening remarks, has produced more than 4.7 million new jobs 

since May of 2003, reduced unemployment to 4.7 percent, and 

raised home ownership 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 to continue 

expanding despite the hurricanes and high energy prices of 2005. 

With the tax cuts fully implemented in 2003, the economy responded strongly, and tax receipts rebounded. As you can see on 


17a.eps
9

the chart now on the screen, receipts grew substantially in 2004, 

the blue bar there, what that reflects is growth of 51⁄2 percent. In 

2005, receipts jumped by a remarkable $274 billion, or 141⁄2 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.

This chart here shows our progress in bringing down the deficit. 

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


18a.eps 18b.eps
10

projected peak in 2004 of 41⁄2 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 last year, the 2005 deficit fell further to 2.6 percent of GDP. 

Although revenues are projected to continue rising into 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. 

This is more than previously expected and is, in significant part, 

due to 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. 

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

projected peak to just 1.4 percent of GDP, well below the historical 

average, which is represented by the dotted line there. That dotted 

line is also roughly the cut in half line from the point at which the 

President set the goal of cutting the deficit in half 2 years ago. 

In order to keep the deficit on this declining path, we must continue to do 2 things: First, keep the economy growing; second, restrain spending. 

First, the 2007 budget supports 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 have let the tax relief expire. 

A tax increase is the wrong prescription, not only for the Nation’s 

economic health, but for the Treasury’s fiscal health as well. 

We are not an undertaxed 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. That is reflected in the third column on the chart now on your 

screens. It, again, proposes a cut in nonsecurity discretionary 

spending. It calls for major reductions and/or major eliminations of 

141 Federal programs and it continues our efforts to slow the 

growth of spending in mandatory programs by proposing $65 billion in savings over the next 5 years.

11

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. This chart on your screen now displays

government spending and revenues as a percent of our gross domestic product. The black line going across the middle is our revenues which, in the outyears, we project to hold at the historic average of 18.2 percent. The bars represent the different components of 

Federal spending. The green at the bottom is mandatory spending 

made up largely of entitlement programs, and the blue bar is the 

Government’s interest expense. Finally, the orange bar is discreVerDate 0ct 09 2002 14:06 May 04, 2006 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 F:\DOCS\HEARINGS\109TH\109-12\26055.TXT HBUD1 PsN: DICK

20a.eps 20b.eps
12

Government’s interest expense. Finally, the orange bar is discretionary spending. 

Toward the end of the next decade, deficits stemming largely 

from entitlement programs such 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 for 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, Mr. Chairman, that the congressional leadership is focused on the need for reform of earmarks in 

the budget process. As you mentioned in your opening remarks, 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 dollars spent, but by results achieved. As 

part of these efforts, OMB has introduced a new Web site called 

ExpectMore.gov. ExpectMore.gov allows taxpayers to review the 

OMB assessments of neither nearly 800 Federal programs. You can 

search the programs by rating, topic, or a simple keyword. I urge 

you and your staffs to use this new resource. 

This management agenda, coupled with the spending restraint 

reflected in the President’s 2007 budget, will help ensure that taxpayers’ dollars will be spent wisely, or not at all. Mr. Chairman, 

I look forward to your questions. 

[The prepared statement of Joshua Bolten follows:] 

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

MANAGEMENT AND BUDGET

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

Committee, the President’s 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. 

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 5 years. 

The Congress substantially delivered on all four of these objectives. I would like 

to thank Chairman Nussle and the members of this committee for your leadership 

and dedication in helping achieve these goals. 

13

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. 

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 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. 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. 

14

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 Web site 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. 

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.

Chairman NUSSLE. Thank you, Director Bolten. I appreciate your 

testimony, particularly, when it comes to the economy. 

That to me has been probably the best news that we have had, 

is this 17-quarter growth in our economy creating 4.7 million jobs 

in America, which is significant. I can tell you that, and I am sure 

this is true from my colleagues, how many of us go home and hear 

about the concern that our constituents have about jobs leaving our 

country. And we have set ourselves not only—maybe we get too focused on the budget here in this room for obvious reasons, and that 

is appropriate, but reducing the tax burden was not so that we 

could reduce the budget deficit, but it was for us to make a stronger America. That is what this was about. 

Now it is manifested in many different ways. But the most important way it is manifested is the security of families and individuals and people who are holding those jobs and creating those jobs 

and benefiting from those jobs. The fact that it brings in more revenue, the fact that we are able to show, yellow lines and red lines 

and black lines and all that is important. But this was an economic 

policy for our country, not a budget policy, and it is working. 

The interesting thing about this—and I have a feeling, based on 

what I have heard already in the reports, of reactions, some of the 

reactions to the President’s budget came before the President’s 

budget was released. We already had people saying it was a bad 

budget, they didn’t like this, and they didn’t like that. I am a little 

offended that I didn’t get this early release of the budget that appears everyone else did. I thought I was one of the insiders here 

that might get an early copy. But evidently I didn’t get one of those 

early copies, but a lot of other people did. Because all sorts of press 

releases went out simultaneously, even a little bit before the President’s budget came out, complaining about it and second guessing 

it. And I just have to say, I mean, I think what we have seen over 

the last couple of years in particular is we may now know the reason why there is not an alternative to what the President has put 

forward. And it is because at least from what I hear, I don’t hear 

anybody suggesting there is going to be less for education. 

15

Maybe I am mistaken, but I think on the floor, we have heard 

that there should be more for education. I heard on the floor this 

last year there should be more for veterans. I heard on the floor 

this last year that there should be more for health care, and I don’t 

believe that anyone is going to be proposing less for Iraq or 

Katrina. That will be interesting to see if someone is going to be 

proposing less for Katrina. I will wait and find out if my colleagues 

on the other side will be proposing that. 

So there is not less for the programs that they claim are priorities. There will not be less for important priorities such as Katrina 

and Iraq. So it boils down to one thing, higher taxes. Now, the reason that is not put forward as a plan is because they know that 

this is not sustainable, for the very reason that it would hurt the 

economy, which is chugging along at now 15 percent growth to revenue. Which is demonstrative to what that has done for families 

and family budgets. You cannot increase taxes at this time and expect our economy to continue. 

There are many independent economists that have suggested 

that it would do nothing but cause a recession, and cause a challenge to our ability to be attractive as a country for investment and 

job creation. And so we know that is not going to be the answer. 

So while there will be a lot of second guessing and posturing, 

particularly because this is an election year—it seems like its always an election year—I will bet you again we are not going to 

hear an alternative plan. I will just bet you that we won’t hear an 

alternative plan because when it comes right down it to, proposing 

or providing less for these important priorities is not going to be 

sustainable. 

They are going to claim that we are not putting enough in. And 

a tax increase is not something that, my guess, is the Democratic 

Caucus would be able to get even a majority for. 

So my guess is that there will not be an alternative plan. So we 

need to work off the President’s plan, and I believe you have put 

out an outline that is something that we need to work from. We 

need to recognize that there are some assumptions here. We have 

made the commitment as a Congress, cheerfully voting, almost 

unanimously, to support the victims of the natural disasters, and 

of course that is what we would do, that is what we always do. 

We are also going to support our men and women in the field 

during this battle on international terrorism. Those are facts that 

we are going to deal with. 

I really believe that this is the year that we need to make a commitment on no new earmarks and on reconciliation, continuing that 

process. I understand, I have already read in the newspapers and 

some of the journals that we have members who are suggesting 

that you can’t reform Government, you can’t reduce spending, even 

a little bit, in what is an election year. 

That would be to me a what I think is failure. I think that would 

be failure, in my mind. 

I would hope that we don’t as a Congress, or even as a party to 

my own members, do that. I believe even if it is what someone 

might call a small amount, there is nothing small about billions of 

dollars, but small compared to even where the President has suggested, as we did this last year. It is a routine that we have to get 

16

into if we are going to be serious about relieving this unsustainable 

growth curve. 

Let me ask you, last year you proposed 154 programs to be reduced. Congress came through with an elimination of 89 of those 

programs, and now you are proposing 141 programs this year. 

Would you talk about those a little bit? Why are you making 

these proposals? Are these similar to the—I guess it would be close 

to 60 or so that were left off the table last year, are they included 

in this? How do you know get on the list, so to speak? Are these 

from the ExpectMore.gov? Is that where we would find some of the 

criteria that was used to determine whether or not these programs 

were effective? Would you talk about those a little bit? 

Mr. BOLTEN. Sure. Thank you, Mr. Chairman. And thank you for 

your remarks. On the major reductions and terminations that are 

included in this budget, many of them are carryovers from last 

year. The Congress this year I think remarkably effectively stepped 

up and acted on 89 out of the 154 programs that the administration proposed. That is a .578 batting average, which in this league 

isn’t just good it is terrific, particularly given the batting average 

of some previous years. 

What that left on the table was 65 proposals that had not been 

acted on. You will see, in the 141 that we are proposing this year, 

you will see most of those 65 come back on the table. You will also 

see a number of new ones. And the way that proposals made that 

list was a variety of ways, but one important way is the one that 

you mentioned, which is we are increasingly within our budget 

process taking account of performance evaluations of programs. 

We have now gone methodically through over the last several 

years and done objective assessments, we call them PART ratings 

of the various components of Government spending program by 

program, rating them effective, moderately effective, adequate, ineffective, or results not demonstrated, and also a variety of subevaluations within that. 

And we now use those evaluations more and more in the process 

of determining where to put the taxpayer’s dollar. 

Now, a rating doesn’t necessarily determine where the dollars go. 

It may be that an ineffective program ought to be terminated, and 

many are. It may also be that a program is ineffective because we 

haven’t put enough resources into it. So in some rare cases, you 

will find a program that is not performing well actually receiving 

more resources because we believe that can help make the programs effective. 

In all cases, if you go to the ExpectMore.gov Web site you will 

see transparently displayed our candid assessment of the program 

and if we think a program isn’t working well, what we are planning to do to improve it. We don’t claim to have a monopoly on wisdom, in what is effective spending and how to improve it, which is 

why we put it on the Web site for the Congress and for the public 

to comment on and to participate in a very important national debate. Are we spending the taxpayers dollars wisely? 

Mr. COOPER. Mr. Chairman, is the list available that he was just 

describing? 

Mr. BOLTEN. I believe it is. We are publishing a document which 

will include a whole description of each one of the 141, plus the raVerDate 0ct 09 2002 14:06 May 04, 2006 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 F:\DOCS\HEARINGS\109TH\109-12\26055.TXT HBUD1 PsN: DICK
17

tionale for it. If it is not available immediately, it will be available 

shortly and we will make sure it gets to your office. 

Chairman NUSSLE. Thank you. I was particularly pleased this 

year that the President included budgeting for future funding in 

Iraq and Afghanistan. I certainly have never thought it was possible to predict the course of these conflicts, 2, 3, or 4 years down 

the line, but there is an understanding, based on the track record 

that we have had, what the next obligation would be. And I appreciate the fact that part was included. 

I know we have discussed this in the past. And there is no secret 

that, at least between us, that we need to include a reasonable 

amount. Even if we don’t hit it on the nose for that matter, but a 

reasonable estimate is needed. And I think this is a good step to 

put this into the budget. 

Would you talk about the reasonableness of this amount, because, obviously, $50 billion was not enough, as we have budgeted 

in the past for this last year as an example, and together with 

supplementals, it has not been enough in order to meet that challenge. 

Why is $50 billion the amount that the President is putting in 

there? Is that a place holder? Or is there some comfort you can give 

us that that is the amount that will be there at the end of the day 

for the President’s request? 

Mr. BOLTEN. Mr. Chairman, I think it has to be regarded principally as a place holder just as it was last year. We had not, in 

the past, done an allowance of the sort you have just described in 

our budgeting. You did it in the budget resolution last year, including $50 billion in the budget resolution for the ongoing costs of the 

war in Iraq and Afghanistan. We have decided that your approach 

was the preferable one, so we have modified our approach. We are 

including a similar $50 billion allowance for 07 in our budget in 

order to display that number in the budget. 

I could not say right now whether that number is the right number for what we will spend. I don’t think anybody else could say 

candidly either what the spending is likely to be a full year from 

now. It will depend entirely on the facts on the ground. But the 

Congress, having adopted this $50 billion allowance in the past 

year, we accepted the wisdom of that approach. And we have included that $50 billion in as an allowance in our 07 presentation. 

And it is reflected in all of the deficit numbers and so on that 

the chairman—that Mr. Spratt made reference to at the outset. 

Chairman NUSSLE. Thank you. Let me turn to Mr. Spratt. 

Mr. SPRATT. Thank you. Let me show you again, this is—I direct 

you to the chart that we have, chart No. 3, which is our summary 

of the puts and takes as we reconstruct your budget. As we see it, 

for the first 5 years, the renewal of the tax cuts in 2008 and again 

in 2010, will cost in revenues about $285 billion. Does that comport 

with your understanding? 

Mr. BOLTEN. I am not sure I am following the chart as—the $285 

billion is intended to reflect what? 

Mr. SPRATT. The renewal and extension of existing tax cuts that 

were passed in 2001 and 2003. 

Mr. BOLTEN. So the cost so far? 

18

Mr. SPRATT. This would be the cost of renewing them in 2008, 

dividends and capital gains, and 2010 when they expire. 

Mr. BOLTEN. I don’t have—we usually don’t rack up the numbers 

that way, but I don’t have a basis to disagree. 

Mr. SPRATT. OK. The defense supplemental is what we find supplemental to what would be current services for defense, $89 billion, Social Security reform, which you have chosen to put in your 

budget, I think that is doubtful, but, nevertheless, we are trying to 

be consistent with your numbers, we are reconstructing your budget, defense appropriations, the increases in defense appropriations 

you have got for ordinary operations of Government over and above 

current services, the hurricane supplemental for Katrina. We will 

all vote for that, but it is in the budget as a plus. 

Nondefense appropriation cuts, we tally at $115 billion over 5 

years plus mandatory program cuts we tally at $66 billion, a total 

of $182 billion. 

And when we do those puts and takes and adjust for debt service, we get a total effect on the deficit of $413 billion worse than 

current services simply continuing the Government as is, but adjusting each year for inflation. 

Do you see anything there that you would take exception to or 

disagree with? 

Mr. BOLTEN. I don’t think I would rack it up that way at all, in 

other words, you are starting from the artificial current services 

baseline and trying to add some puts and takes. 

Mr. SPRATT. No, I am doing the baseline per the Budget Enforcement Act of 1991 when taxes expire, a renewal of the tax cut 

means that you have to add that as an additional reduction revenue. 

Mr. BOLTEN. Well, Mr. Spratt, let me accept for argument’s sake 

the numbers that you have presented because I sense there is a 

question coming. 

Mr. SPRATT. Would you take these home with you and give us 

a response? We would appreciate it. 

Mr. BOLTEN. Sure. 

[The information requested follows:]

MR. SPRATT’S QUESTION REGARDING THE DEFICIT

Non-defense appropriations cuts, tallied at $115 billion over 5 years plus mandatory program cuts tallied at $66 billion, is a total of $182 billion. When those puts 

and takes adjust for debt service, we get a total effect on the deficit of $413 billion 

worse than current services simply continuing the government as is, but adjusting 

each year for inflation. Do you see anything there that you would take exception 

to or disagree with? Would you take home chart No. 3 and give us a response?

OMB Answer: The President’s Budget would cut the deficit by more than half 

from its projected peak in FY 2004 of 4.5 percent of GDP down to an estimated level 

of 1.9 percent of GDP by FY 2009 if the President’s policies for spending restraint 

and economic growth are implemented. CBO recently provided its own estimates of 

the President’s Budget and forecasts an even larger reduction in the deficit, down 

to 1.3 percent of GDP by FY 2009. 

The figures in the chart display a deficit increase relative to a ‘‘current services’’ 

baseline. This current services baseline also assumes growth in spending and a 

large tax increases by assuming tax relief is not extended. Relative to this baseline, 

the President’s proposals to slow the growth in spending are shown as cuts in 

spending and his proposals to extend tax relief are shown as an increase in the deficit. 

19

The Administration has proposed that the current services baseline be modified 

to remove the bias against tax relief and to assume the extension tax relief. With 

this modified baseline, the extension of tax relief has no impact on the deficit. 

Finally, current scoring methodologies do not take into account the positive economic impact of tax relief. Since the full implementation of the President tax relief 

program in 2003, we have seen strong sustained economic growth. This economic 

growth has brought an increase in revenue to the Treasury. In FY 2005, Federal 

tax collections grew by $274 billion or 14.5 percent.

Mr. SPRATT. OK, secondly, in 2009, the President has made a 

promise, repeated a couple years that he would cut the deficit in 

half, in 2009, which is the last year of his administration is the target year for that to be achieved. 

The problem we have with your claim that you are reaching that 

goal, is that you have no provision which we can find after 2007, 

for the AMT. We are fixing it throughout those years, so that it 

does not affect 22 million or 30 million taxpayers as opposed to the 

45 million taxpayers who are confronted with it today. 

The Congressional Budget Office tells us that the missing number is $844 billion. The lack of a fix for the AMT based on this 

premise, it would be fixed in place, frozen in place in terms of its 

effect to taxpayers, when you go back and make that adjustment 

in revenues, it is $844 billion in that stretch of time. 

In addition, I commend you for putting a place holder in 2007. 

But CBO also has done a model for predicting the future cost of 

our operations in Iraq, Afghanistan and domestic operations. The 

total of those costs, ongoing operations that are not provided for in 

your budget come to $298 billion, if you use CBO’s model and CBO 

assumes if you begin a drawdown of forces today, there will be a 

linear reduction same slope every year, 4 for 4 or 5 years until 

2010, when we bottom out at 50,000 troops in theater, not necessarily in country. They estimate, if we follow that path, which 

seems to me to be a moderate assumption, the additional cost is 

$298 billion. We don’t find anything for operations in Iraq and Afghanistan after 2007 and we don’t find any fix for the AMT. 

When we go back and make those fixes, you are way off having 

the deficit in 2009. Don’t you think those fixes have to be made to 

make the realistic claim that in 2009, the deficit will be cut in half? 

Mr. BOLTEN. First, on the war costs, we have been explicit in the 

budget that there are likely to be costs for the war in Afghanistan 

and Iraq that are not reflected in the budget. We have not tried 

to make estimates of those. My own view is that trying to make 

an estimate of that is irresponsible at this point. We have included 

the place holder that the chairman referenced at the outset, which 

I think is a good idea for 2007. Trying to make an estimate beyond 

that I think is unwarranted, but we have been explicit there, whatever additional costs are required for the war on terror in Iraq and 

Afghanistan need to be added into our projections on the spending. 

And the President has also been very clear publicly in his instructions to me, whatever we need to spend to support or fighting 

men and women in harm’s way, we will spend. 

Second, on the AMT, we do include in our projections and in our 

deficit estimates a patch of the AMT for the 2006 tax year for 

which people will be paying, filling out their returns in 2007. So 

there is a deficit effect from that patch in 2006 and 2007. At this 

point, the Congress has not adopted even that patch. We have inVerDate 0ct 09 2002 14:06 May 04, 2006 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 F:\DOCS\HEARINGS\109TH\109-12\26055.TXT HBUD1 PsN: DICK
20

cluded it in our recommendation—in our estimates as an assumption for purposes of transparency because we are fairly confident, 

as I imagine you are, that the Congress will adopt that patch this 

year. 

Mr. SPRATT. But as a matter of policy and politics, don’t you 

agree that it will have to be patched basically at 2006 levels and 

2007, 2008, 2009, and on into the future until something is finally 

done about the way it works? 

Mr. BOLTEN. I will let you be the best judge of politics. As a matter of policy I believe that and the administration believes the AMT 

is a misguided system requiring people to file in two different ways 

that needs to be corrected, but that it can be corrected in the context of overall revenue neutral tax reform. 

Now I am a little bit surprised that there is such strength of 

view from those who have championed tax increases who automatically assume that a tax cut will be adopted in the form of the continual patching of the AMT, but that is something we believe can 

be accomplished in the context of revenue neutral overall tax reform, and I think it should be. 

Mr. SPRATT. Revenue neutral tax reform is way back on the 

shelf. We don’t have any expectation, anything like that is about 

to be done. If you take those two numbers, $844 billion for the 

AMT fix and $298 billion for the ongoing operations after 2007, the 

total is over a trillion dollars. And it changes your bottom line considerably and undoes the claim you have made. 

Let me just ask you a couple—the chairman said nobody is calling for a cut in education. For the first time in 17 years last year, 

the President requested a budget for education that was less than 

the prior year. This year, you are requesting, if I read your budget 

correctly, $2.1 billion less than the enacted level for 2006. 

So there is a real cut in education for this year. Furthermore, 

you are killing or requesting the elimination of 42 different programs. 

The President made a bold initiative, announced a bold initiative 

in the State of the Union. We are going to really put tremendous 

effort and energy into math and science education in this country. 

The next day or so, the number was announced that $5.9 billion 

was being allocated to this purpose in the budget. When we got to 

budget to see how the $5.9 billion was spent, what we found was 

that $4.6 billion is allocated to a continuation of the R&D tax credit, which is not an initiative because it has been around 25 years. 

We support it and we will support its renewal, but it is not an initiative. There is nothing new about it, it should be done. That 

leaves $1.3 billion, which is spread over six or seven different agencies, beginning with the Department of Education, but including 

the Department of Energy and the Institute of Standards, for a 

number of different purposes. And when you finally get down to 

what the allocation is to math and science teaching, it is about 

$300 million a year. 

Do you think that—and I could take you through a lot of the 

President’s golden issues the other night like energy is the $1.3 billion the source of the energy initiative the President announced the 

other night? How much money is going to be applied in this budget 

21

for the energy program that the President proposed the other night 

in his State of the Union? 

Mr. BOLTEN. Those are separate numbers, Mr. Spratt. 

I don’t have off the top of my head. One of my colleagues may 

have the amount that is put into the energy initiative, but that is 

added to the roughly $1.3 billion that this year is part of a 10-year 

initiative that will be made available if the President’s budget is 

adopted for promoting math and science research, basic research in 

this country and promoting math and science education, for which 

the allocation in this year’s budget is $380 million. 

On the general education point, Mr. Spratt, what I would point 

out about the President’s education funding, his record over the 

course of his administration is that in totality, between 2001 and 

2006, there has been a 30-percent increase in education funding. 

More importantly——

Mr. SPRATT. No Child Left Behind is the signature program of 

this administration. By our calculation it will be funded under your 

budget if it is adopted and implemented at $15.4 billion less than 

the authorized level, way short of what was promised when the bill 

was passed. 

Mr. BOLTEN. Mr. Spratt, if I had a dollar for every dollar that 

was authorized but not appropriated, I would probably be able to 

do a lot to close the deficit gap. 

The President’s commitment to No Child Left Behind, however, 

I don’t think can reasonably be questioned. No Child Left Behind 

focuses on title 1, those areas where, those children who are most 

at risk of being left behind. There has been more than a 40-percent 

increase in funding in the No Child Left Behind areas over the 

course of the President’s tenure, and even in this tight budget, 

there is a 4.6-percent increase over 2006 in No Child Left Behind 

programs, including a $200 million increase in title 1. 

So what the President is doing, with what is turning out to be 

a very successful education program demanding accountability 

from schools, is leveraging the relatively small proportion that the 

Federal Government contributes to education in this country, to insist on accountability and results, so far it looks like the program 

is working and the President’s financial commitment remains behind that program. 

Mr. SPRATT. One last question. You have got substantial cuts in 

Medicare, $105 billion over 10 years. 

But none of the cuts recommended by MedPAC, your official consultant, experts in Medicare, has been adopted or promoted or 

brought forth by the administration, according to our examination 

of your budget. They have made recommendations about the Medicare incentives you are paying to PPOs and HMO’s, recommendation about risk adjustment for overpayment, for patients who have 

a health profile that doesn’t warrant the amount per capita per 

person you are paying, half a dozen different recommendations that 

total about $49 billion all together. They are nowhere to be found 

in your budget. Why is that? 

The senate adopted some of those $22 billion of those in their 

reconciliation bill, and then backed off in conference. Senator 

Grassley said the other day, if there is going to be anything like 

22

$105 billion in Medicare cuts, some of these cuts have to begin with 

recommendations made by MedPAC. 

Why did you not pick up on those recommendations? 

Mr. BOLTEN. Mr. Spratt, first, on the contrary, of the $36 billion 

in Medicare savings that the President proposes in his budget, and 

let me pause for a moment and emphasize the word savings because the President’s proposals are a moderate reduction in the 

growth rate of Medicare out over the next several years. If all of 

the President’s proposals in this budget on Medicare were adopted, 

the annual growth rate in Medicare would decline from about 7.8 

percent per year to about 7.5 percent per year. 

So I want to emphasize that what the President is proposing is 

a very moderate reduction in the rate of unsustainable growth in 

the Medicare program and ought to be regarded as a down payment on future reform. But within that category in that $36 billion 

that the President has proposed, the majority of the savings that 

we are proposing, in fact, exactly parallel recommendations made 

by the independent MedPac Commission, particularly on the moderate reductions in what is called the market basket that is used 

to calculate the provider’s reimbursement. So we have, in fact, 

adopted a very large measure of the MedPac’s proposals. We 

haven’t adopted all of them. 

Mr. SPRATT. Do you make any provision for physicians’ pay for 

2007? 

Mr. BOLTEN. I believe the recent reconciliation bill did make a 

provision where——

Mr. SPRATT. For 06; but how about 07? 

Mr. BOLTEN. We do not propose a change in law at this point for 

physicians for 07. 

Mr. SPRATT. Thank you very much. 

Chairman NUSSLE. Mr. Garrett. 

Mr. GARRETT. Thank you. Thank you, and I appreciate seeing 

you here again today. Just a couple days ago, just as the budget 

was coming out, I had the opportunity in my district to have a regular meeting with veterans and leaders in my district and around 

the State to address veterans issues, and it was just fortuitous that 

the budget was coming out at that time but we did not obviously 

have the opportunity to punch the numbers. But you might imagine that the normal response at one of these meetings was, well, 

the rumor is that veterans benefits are going to be cut and the 

story is that we are going to be reducing the overall funding for 

veterans; and of course being the Representative, they are saying 

what am I going to do about it. 

Now, my understanding of having a little opportunity to take a 

look at the numbers are the overall figure is $80.6 billion total for 

the VA, $38.5 billion in discretionary, and $42.1 in mandatory entitlement funding. The area that was most of concern to them was 

in the area of medical care. If I am reading the numbers right, is 

that we are seeing a little over an 11-percent increase in overall 

spending on medical care for veterans. 

Could you touch upon that, confirm for me if I am reading the 

numbers correctly there on the medical side and also the overall 

numbers for veterans care out of this budget? 

23

Mr. BOLTEN. Mr. Garrett, you are reading the numbers correctly. 

In medical care the overall proposed increase in spending in this 

07 budget, 06 to 07, is $3.5 billion or an 11.3-percent increase. 

Mr. GARRETT. Overall for the entire veterans? 

Mr. BOLTEN. Overall, the number is 9-point-something, I am 

searching for it. Either 9.4 or 9.8 percent increase overall; 9.8 percent increase in veterans spending overall. 

Mr. GARRETT. The last question on this topic: How does this address the overall issue of obviously we have a lot more veterans 

coming into the system, more folks coming back from overseas 

right now and the projections for the cost going down the road with 

increasing numbers? 

Mr. BOLTEN. We are seeing increased costs in the veterans system. It has gotten much more popular in recent years. Partly the 

Veterans Administration budget is a victim of the Veterans Administration’s success in running an increasingly effective and highquality medical care system, so we are seeing a lot more veterans 

who in past years have gotten their health care elsewhere coming 

into the system. We want to sustain that commitment to providing 

the best possible quality health care to our veterans, but we also 

want to do it on a sustainable financial basis. 

Mr. GARRETT. The second area, changing over to homeland security, it is in homeland security and defense where we will see increasing in spending, whereas nonsecurity areas, a slight decrease. 

The concern I have and expressed this in hearings in the past, is 

the so-called mission creep we see in the area of Homeland Security. It is the job of OMB to try to classify that and define that, 

but I understand there are certain cases that are at the extreme, 

where the Navy is doing certain functions considered not Homeland 

Security, where the Coast Guard is doing some. Then in the practical, to my neck of the woods, what first responders are doing, 

whether that is Homeland Security, or do any of these things simply fall in the category of natural elements of local, municipal, 

county/State government responsibilities? 

On the Federal level there is a whole area with regard to computer issues, as far as computer security. And I can see the idea 

here, this being a Homeland Security issue, but I also see the other 

side of the equation, that this would have fallen prior to 9/11 into 

the category of issues dealing with crime and local law enforcement 

either on the State or Federal level. 

What can you say to reassure me we are not simply seeing a reclassification from the discretionary nondefense, nonhomeland security areas being shifted over into the homeland security area, 

and that is why we continue to see significant increase, I think 

over 25 percent increase over the period of time 9/11 forward in 

Homeland Security funding? Now it is down to a little under 5 percent. Can we sustain these numbers and is OMB doing anything 

to actually rein in and properly classify within that category? 

Mr. BOLTEN. Mr. Garrett, we work hard to try to properly classify the Homeland Security accounts. It is a difficult and technical 

undertaking. You have done a lot to spur us on to higher quality 

in that area and have called a couple of issues to our attention. But 

overall I think we have done a very good job of identifying within 

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land Security, what are legitimate Homeland Security expenses 

and which are not. And you have just raised a couple of examples. 

We will take a close look at them. But right now I think we are 

doing a pretty good job of separating what is and is not Homeland 

Security. 

Where we run into some difficulty and where we have a substantial political problem is precisely in that area of the first responders that you mentioned. Every first responder in this country is, I 

believe, a treasured asset and contributes substantially to the overall security and well-being of the country. That does not mean that 

the Federal Government should take responsibility for funding 

every first responder in the country. We need to focus our limited 

Federal resources on those areas where we believe there is legitimately the highest terrorist threat environment, and we have tried 

to do that in our budget. 

Now, that has disappointed a lot of people in areas that aren’t 

necessarily at the top of the list in terms of terrorist threat, who 

would like to be getting a share of this first responder money. 

There is a fair amount of money still that goes out by formula, but 

we have dialed back on that and we are trying to focus our resources on making sure that what the Federal Government supports is genuinely in the Homeland Security category. We get a lot 

of disagreement and disappointment on that. It is one of the more 

contentious areas we have in our budget. 

I believe we are doing the right thing and I appreciate the efforts 

you have made to push us in that direction. 

Mr. CRENSHAW [presiding]. Mr. Moore is recognized. 

Mr. MOORE. Thank you, Mr. Chairman. Thank you, Mr. Bolten, for being here. We have an $8.1 trillion national debt, we have a 

projected deficit this year of $423 billion. This job, in my mind, is 

about setting priorities for our country and deciding where we are 

going to spend our tax money that taxpayers in this country pay 

into our Treasury. We talk here in D.C., the President and Congress, a lot about values. To me, a budget document is a values 

document because it again sets our priorities and says where we 

place our values, what we value the most. If we value tax cuts the 

very most, that is what we set as a priority. If we value taking care 

of poor children and their health care needs, if we value taking 

care of our veterans when it comes to copays or increasing those 

copays, then we are going to do some of those things as well. 

I think it is important that the American people and all of us be 

truthful with ourselves and everybody else that this is about values. I have 63⁄4 grandchildren right now and I am telling you, Mr. 

Bolten, I am very concerned about passing a debt, an $8.1 trillion 

debt on to my grandkids. To me, passing massive debt to our children and grandchildren is not a family value that we should be 

proud of. And I think when Mr. Nussle, the chairman, earlier said 

well, if you don’t like what we are doing, come up with an alternative, come up with a proposal, well, I don’t think it has to be all 

or nothing. I voted for the President’s first round of tax cuts because at that time we had a $5.6 trillion projected surplus. I voted 

against the next round because things had changed dramatically. 

We no longer had a $5.6 trillion surplus, we were in heavy deficit 

and debt. 

25

And here is my recommendation to Mr. Chairman. He is not here 

to hear this, but I will send a note. I have a bill, H.R. 1574, which 

addresses the estate tax issue. The President and you and others 

are calling for permanent repeal of the estate tax. Again, I don’t 

think it has to be all or nothing. My bill would increase the exception to $31⁄2 million, and $7 million for husband and wife together, 

which will protect almost 99 percent of the estates in this country. 

Yet my billing, according to CBO, would cost less than $200 billion 

in total repeal over the first 10 years, and I understand the permanent repeal is going to explode after 10 years. 

I guess what I want to ask you is this: Isn’t it a fact the deficit for 03 was $378 billion? 

Can I see chart 26, please? Is that correct, Mr. Bolten? 

Mr. BOLTEN. That looks right. 

Mr. MOORE. Is it correct that for 04 the deficit was $412 billion? 

Mr. BOLTEN. Yes. 

Mr. MOORE. For 05 the deficit was $318 billion? 

Mr. BOLTEN. Correct. 

Mr. MOORE. For 06 the projected deficit is $423 billion. 

Mr. BOLTEN. Also correct. 

Mr. MOORE. For those 4 years that would be a total deficit added to our debt of $1.53 trillion dollars, correct? 

Mr. BOLTEN. Yes. 

Mr. MOORE. Could I see chart 2, please? 

This chart, Director Bolten, addresses the national debt limit increases in the past and present and pending. Isn’t it a fact that our 

national debt limit was increased in June 02 by $450 billion? Isn’t 

it correct in May of 03 the deficit limit—the debt limit was increased by an additional $984 billion? Sir? 

Mr. BOLTEN. I believe so, yeah. I would be happy to stipulate to 

the accuracy of the entire chart. 

Mr. MOORE. I would like to hear you talk about this. Isn’t it correct in November of 04 the debt was increased for our country by 

$800 billion? 

Mr. BOLTEN. I believe so, Mr. Moore. 

Mr. MOORE. There is a pending increase for a $781 billion debt 

increase; is that correct? 

Mr. BOLTEN. I believe that is what Secretary Snow indicated in 

a letter. 

Mr. MOORE. I believe that is correct. Thank you. That would 

total in excess of $3 trillion more debt in the last 4 years; isn’t that 

correct? 

Mr. BOLTEN. That is correct. 

Mr. MOORE. According to the chart up here, $3 trillion and $15 

change, whatever, right? 

Mr. BOLTEN. Correct. 

Mr. MOORE. We are going in the wrong direction. I guess we 

could sugar-coat this any way we want to. Isn’t it true if there is 

an increase in veterans spending, we are asking veterans to pay 

more under this budget for copays; isn’t that correct? 

Mr. BOLTEN. We are indeed, Mr. Moore. 

Mr. MOORE. Thank you. Isn’t it also correct that college student 

loans are proposed to be cut or at least frozen? The increases in 

expenses aren’t going to be covered; isn’t that correct? 

26

Mr. BOLTEN. I believe college student loan volume is actually 

projected to go up. 

Mr. MOORE. I am talking about the money of aid to each college 

student who applies. 

Mr. BOLTEN. The administration has proposed in the past increases in Pell grants, if that is what you are referring to. 

Mr. MOORE. No. Thank you. My time is up. 

Mr. CRENSHAW. Mr. Barrett. 

Mr. BARRETT. Thank you, Mr. Chairman. Mr. Bolten, welcome. A 

couple of questions. Let us not talk any specifics, let’s talk about 

some budget reform, trying to get a handle on what is going on; 

$38.8 billion in the Budget Deficit Reduction Act, it is a drop in the 

bucket. But the President is trying to head in that direction also. 

Can we bring the budget to some sound fiscal responsibility without touching mandatories? 

Mr. BOLTEN. Mr. Barrett, in the short run, the answer is perhaps 

yes. If we are very tight with discretionary spending and we don’t 

have another Katrina year, out over the next 5 or 10 years we can 

see a budget picture that would look all right without digging into 

mandatories. The problem is that, as Mr. Spratt and Mr. Moore 

have emphasized in their presentations, we have an enormous debt 

burden looming in the future, which is the product largely of unfunded obligations in our entitlement programs. 

As I said in my opening statement, there is no amount of restraint in discretionary spending, nor is there any plausible 

amount of increases in tax cuts. Even if you thought that was a 

good idea for the economy, there is no plausible amount of tax cuts 

that can possibly close the gap. 

So the answer to your question is in the short run maybe we 

could get away without addressing entitlements. In the longer run, 

it is absolutely impossible to do that. And the problem of addressing entitlements gets harder every year that we wait. 

Mr. BARRETT. Let’s take it another step further. Let me run some 

numbers. Discretionary funding levels from 85 to 2004, that is 20 

years. Had we tied that growth to the Consumer Price Index (CPI) 

we would have saved $165 billion. OK. If we had taken discretionary and automatic spending in that 20-year period and tied it 

to CPI, we would have saved $724 billion. There are a lot of people, 

a lot of them on this committee, that are talking about budget reform. Does it make sense to tie the level of spending—and we are 

all reasonable people, we understand that we are going to have to 

grow government somewhat because of needed services, of population growth and stuff like that—but doesn’t it make sense to tie 

the level of growth to some type of factor; i.e., CPI, to try to get 

a grip on how fast this government is growing? 

Mr. BOLTEN. I certainly agree, Mr. Barrett, that we ought to try 

to impose some kind of restraint on particularly the mandatory 

spending, because at least in the appropriations process, year on 

year, you all can do a budget resolution, the Appropriations Committees can do their work, and if the spending bills are headed toward exceeding what the President believes is good policy for discretionary spending, he can veto those bills. So that element of 

spending is reasonably controllable under the current process. 

27

What is very hard to control is exactly what you are focusing on; 

the mandatory spending. 

So I agree completely there ought to be some mechanisms of control to prevent unsustainable and indefinite growth in the mandatory programs. 

Mr. BARRETT. One last question real quick. We talk about emergency spending. I have put in several budget bills to tighten up the 

language on emergency spending. Too many times you guys send 

us supplementals that some of the things in there I don’t think are 

quite emergencies. Tell me what is your definition, what is the administration’s definition of emergency spending, and do you think 

we need to set up some type of rainy day fund? It is going to happen, we know it. We are going to have a natural disaster, a conflict 

sooner or later. Do we need to set up some type of rainy day fund 

in our overall budget reform that addresses emergency spending? 

Mr. BOLTEN. Mr. Barrett, we do include in different portions of 

our budget an estimate of what sort of rainy day fund is going to 

be needed in a typical year. For example, we include in the FEMA 

budget an average amount for a regular year of disasters. That 

means a few hurricanes and floods of normal proportion. I think 

that is the right thing to do. What that kind of budgeting doesn’t 

take into account is a disaster like Hurricane Katrina. And I believe those are properly handled through the emergency process, 

because if you try to put that kind of spending into your regular 

base, what will happen as the appropriations bill gets done is that 

if it doesn’t happen to be a bad year from the standpoint of disasters, that money will get taken and spent on something else. So 

when we have really big emergencies, I believe we ought to handle 

them through the emergency supplemental process. That is the 

way the administration has done it. We do need to be careful when 

we ask for emergency spending, it truly is an emergency. And we 

appreciate your efforts to try to make sure that emergencies remain actual emergencies. 

Mr. BARRETT. Thank you, Mr. Chairman. 

Mr. CRENSHAW. Mr. Neal. 

Mr. NEAL. Thank you, Mr. Chairman. Mr. Bolten, you earlier 

talked about the expenditures and costs for Iraq. And I think you 

used the word ‘‘responsible.’’ the administration’s position would be 

responsible as to requests for expenditures. 

Mr. BOLTEN. I believe I did. 

Mr. NEAL. How would you characterize your predecessor’s position that the war in Iraq would cost $60 billion? 

Mr. Bolten. I am not familiar with that. 

Mr. NEAL. The Governor of Indiana. He said it would cost $60 

billion. 

Mr. BOLTEN. I know and admire my predecessor. 

Mr. NEAL. You said the administration is taking a responsible 

position with budget projections as it relates to the war in Iraq. He 

said $60 billion. 

Mr. BOLTEN. I am curious of the context. 

Mr. NEAL. It was after the general said we would need 2- to 

300,000 troops and Lawrence Lindsey offered an assessment of 

$300 billion. We are now off about $300 billion now from where Mr. 

Daniels was at the time to where you are at the moment. 

28

Mr. BOLTEN. Well, the one thing I would say——

Mr. NEAL. I am sure you will say something. I am quite positive 

of that. 

Mr. BOLTEN. If you will permit me, Mr. Neal. The one thing I 

would say is to underscore what conversation I had with the Chairman and Mr. Spratt at the outset is that war costs are inherently 

unpredictable, which is why I believe we need to handle them as 

emergencies as they are needed. 

Mr. NEAL. I want to thank you for setting up the next question. 

How might you characterize the position of the former director of 

the Center for Medicaid and Medicaid Services (CMS) suggesting 

that the prescription drug bill was going to cost $400 billion and 

we are at $740 billion and counting? How would you characterize 

that position? 

Mr. BOLTEN. I think CMS’s estimate have turned out to be relatively accurate. 

Mr. NEAL. They are at $648 billion. Mr. Leavitt said the other day he was pleased it was down to $648 billion. Do you consider 

it when you are off by $250 billion to be a reasonable forecast? 

Mr. BOLTEN. I believe the numbers you are referring to when the 

previous director placed his statement was for a 10-year period 

that was from probably 04 to 13 or 05 to 14. The numbers that Secretary Leavitt was referring to are, I believe, a year or two later, 

which are inherently more expensive. Now, estimating the cost of 

a totally new Medicare program is a difficult undertaking. Everybody——

Mr. NEAL. Wasn’t difficult—Mr. Bolten, it was not difficult at 4 

o’clock in the morning here when we voted on it. The projections 

were there. We watched the majority leader move up and down the 

aisle and get the votes at 4 o’clock in the morning. He was certain 

it would cost $400 billion dollars. 

Mr. BOLTEN. I believe their projections are bearing out to be 

pretty close. 

Mr. NEAL. He is cheering for that number. Says it wasn’t as 

much as we thought it would be. 

Mr. BOLTEN. I believe a different time frame than the CBO. 

Mr. NEAL. Do you understand why there might be some reasonable skepticism that some members of the minority party might 

raise about some of these issues? 

Mr. BOLTEN. The budget projection that you are referring to 

came from CBO, but I can appreciate skepticism because it is both 

a science and an art. One thing we know——

Mr. NEAL. You have clearly come down on the side of the art. I 

want to assure you that. Let me ask you a quick follow-up here. 

You stated we are not undertaxed as a society. The budget calls for 

$1.5 trillion in tax cuts over the next 10 years and you clearly don’t 

account for fixing the AMT or interest costs associated with the additional debt. These tax cuts are not offset by similar reductions in 

spending under your budget, so how do you propose to pay for the 

tax cuts? And if you haven’t paid for the tax cuts, doesn’t that 

mean the tax cut is really a loan that will be paid back by Mr. 

Moore’s grandchildren? 

Mr. BOLTEN. I don’t think so, Mr. Neal. First of all, the tax cuts, 

the permanent extension of the President’s tax cuts, are all incorVerDate 0ct 09 2002 14:06 May 04, 2006 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6602 F:\DOCS\HEARINGS\109TH\109-12\26055.TXT HBUD1 PsN: DICK
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porated in our budget projections. That is going out through the period in which they are in effect and even beyond. So all of the numbers that you see for our projections going out through 2011 include the full effect of making the President’s tax cuts permanent. 

We believe that those tax cuts are essential to economic growth 

and we believe that economic growth is essential to sustaining our 

good fiscal position and toward making it possible for everybody in 

society to do well and have a good chance. 

Mr. NEAL. Understanding that the costs of the Iraqi war and the 

Afghanistan war are difficult to gauge, would you say in retrospect 

that it is OK to say that Mr. Daniels’ assumptions were on the low 

side? 

Mr. BOLTEN. I don’t know what assumptions Mr. Daniels was 

making. 

Mr. NEAL. He said $60 billion. 

Mr. BOLTEN. I don’t know what context he was saying it in, Mr. 

Neal. And I am sure——

Mr. NEAL. I want to thank him for the clarity he has brought to 

this topic today, Mr. Chairman. Thank you. 

Mr. CRENSHAW. Thank you. Mr. Simpson is recognized. 

Mr. SIMPSON. Thank you, Mr. Chairman. The light goes on. 

Novel concept. 

I agree with what Mr. Moore said earlier in that a budget really 

is about values. The question is how do we accomplish and get the 

money for those things that we want to spend it on. 

You said during your testimony that the most important aspect 

of reducing the budget deficit was a growing economy. You saw 

that last year. I mean, the machinations we went through trying 

to reduce $39 billion of spending. It is not easy to reduce spending. 

Yet as I look at the numbers, we got $100 billion essentially in additional revenue by doing nothing; by a growing, expanding economy. Seems to me we are never going to get the budget deficit 

under control unless we have a growing and expanding economy. 

So whatever we do to get that economy growing seems to make 

sense. 

The difference seems to come in whether you think reducing 

taxes on the American people and leaving more money in their 

pocket to spend and that to turn over in the economy actually increases the revenue to the Federal Government or decreases it. 

Seems to me on the other side of the aisle they think anytime you 

give a—reduce taxes, that all that does is take away from the revenue that the Federal Government has. 

And it seems to me that there are two things that are absolutely 

true: that at a zero-percent tax rate you get zero revenue; at 100-

percent tax rate you get zero revenue. Somewhere in between there 

is a tax rate which maximizes the revenue and does the least damage to the economy. Where is that; do you know? 

Mr. BOLTEN. Congressman, I wish I did know where that was, 

and I have asked economists that question and every one of them 

has refused to answer that question. I think the right way to look 

at it is the best thing for the economy and for the Treasury is to 

keep taxes at the lowest possible rate that can sustain essential 

spending. And what we need to do is push down on both and make 

sure that the spending we do is only the essential spending the 

30

Government needs to do, and leave the rest back in the economy 

where people can spend it on their own, that will promote economic 

growth, because that growth, if you are concerned about people at 

the bottom end of the income scale, that is the most important 

thing for them, is being able to get a job in a growing economy and 

being able to take advantage of the many opportunities that a 

growing economy will offer. 

Mr. SIMPSON. Seems the me also the President is trying to, instead of reducing the supply of government, reduce the demand of 

government by creating an opportunity society where you have individuals with health savings accounts, increasing their ability to 

keep some of their own money and put them in retirement accounts, where there is less demand on government for the services 

because they make those decisions themselves. Would you say that 

is accurate? 

Mr. BOLTEN. Yes, I believe it is. 

Mr. SIMPSON. One more question I want to ask you specifically. 

In the Army Corps of Engineers’ budget you said that the request 

is for $4.7 billion in discretionary budget authority, a decrease of 

about half a billion dollars. The administration prioritizes six construction projects and transfers money from nonpriority construction projects to the operation and maintenance program. 

The money you transfer from the nonpriority construction 

projects, as you know, many of these projects are multiyear programs. What we found out last year is that in some of them, by 

transferring that money, we were actually going back on a contract 

we had made with someone and the penalty for buyout would have 

cost us more than what we were saving by transferring it. Are we 

sure that the money we are transferring from the nonpriority construction projects won’t cost us in penalties? 

Mr. BOLTEN. I can’t speak to the specifics without having them 

in front of me, but we do indeed try to avoid that kind of situation 

as we put together the priorities in spending for the Corps of Engineers. So you are absolutely right. In some cases by slowing down 

spending or by pausing spending, we actually generate substantially more liability to the government than otherwise would have 

occurred, which is why in the Corps’ budget we have tried to put 

a priority on not having a whole lot of new starts show up but, 

rather, take care of the projects that are already underway and 

take care of the projects that have the highest cost-benefit in particular. 

We have tried to bring as much cost-benefit analysis as possible 

to the Army Corps projects, and I think our budget reflects that. 

Our negotiations with the Appropriations Committees I hope will 

reflect that going forward. 

Mr. SIMPSON. That is what we are trying to do also is not have 

so many starts but finish the projects we have got on the board. 

Appreciate it. 

Mr. CRENSHAW. Mr. Edwards. 

Mr. EDWARDS. Mr. Bolten, I think we all on a bipartisan basis 

want an opportunity society. I think, though, many Americans 

would say that cutting college student loans for middle- and lowincome high-achieving students, borrowing billions of dollars from 

the Communist Chinese to pay for our deficit, and to allow us to 

31

buy more and more goods from the Communist Chinese is really 

a prescription for an opportunity society. 

Mr. Chairman, this budget fails the test of fiscal responsibilities 

and fairness. It burdens our present economy and our children’s future with enormous deficits, including the largest single deficit in 

American history this year, $423 billion. What that means is every 

night when I put my two sons that are 8 and 10 years old to bed, 

they and their generation are burdened with an additional $1 billion debt compared to just one night before. To put that kind of a 

burden on our children and grandchildren, in the view of most 

Americans, is morally wrong. 

This deficit doesn’t just break the record of deficits prior to this administration, it shatters it. In fact, the $423-billion deficit this 

year is $131 billion higher than any deficit in any previous administration in our Nation’s history. It is amazing to me that Chairman Nussle would call that record deficit, quote, dramatic deficit 

reduction. That is not fuzzy math, that is mythical math. For Republicans in Washington to claim that a $423-billion deficit is good news, a sign of, quote, dramatic deficit reduction, 

should frighten American families and businesses who know better. 

I never thought I would hear Republicans, who used to claim the 

mantle of fiscal responsibility, try to minimize the disastrous longterm consequences of a $423-billion deficit in 1 year and an $8.1-

trillion national debt. 

Even worse, they are digging the hole deeper on a partisan basis 

since budgets for the last 5 years have been put together completely on a partisan basis by the Republican leadership and Congress and the White House. In fact, this bill is going to cut taxes 

by $103 billion more than it cuts spending. 

So after all the tough deficit-hawk speeches are through, the fact 

is the Republicans in Washington aren’t willing to even pay for the 

future tax cuts that they are proposing by spending cuts, much less 

try to reduce the national debt or deficit. 

Not only is this budget fiscally irresponsible, it is painfully unfair 

to decent, hardworking families. Just a few days ago Republicans 

in Congress voted to harm children of deadbeat dads by cutting 

child collection programs and to make college less affordable to 

middle- and low-income families by cutting college student loan 

programs by $11.9 billion dollars. What did Chairman Nussle call 

this? Quote: ‘‘pulling the weeds out of the garden.’’ I really don’t 

think helping families with deadbeat dads collect money from that 

deadbeat dad to help those children have a better education and 

the clothes to wear to school and food to eat so they are not hungry 

at school, I really don’t think those children are weeds in the garden, I think they are our Nation’s future. 

Republicans voted to cut health care for the children of low-income working families by cutting the Children’s Health Insurance 

Program (CHIP). Explain that to the 28-year-old widow in central 

Texas, in my part of the country, who lost her husband in a house 

fire a couple of years ago and went to work as a bank clerk to try 

to provide CHIP health insurance for her 3-year-old daughter. 

Now in this budget farmers, seniors, and hardworking families 

already struggling not with the optimism we heard from Mr. 

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tening to—these are people struggling with high prices for gasoline, 

home heating, health care, and prescription drugs. Now they will 

be hit even harder by budget cuts in this program to farm programs, education, health care, and student loan programs. 

Worse yet, perhaps worst of all, this budget would ask retired 

military personnel, retired military officers, to pay $1,000 more a 

year out of pocket for their military retiree health insurance in 

order to pay for a $220,000 tax cut for people making $1 million 

a year in dividend income. Retired military personnel paying 

$1,000 each a year pay the tax cut for just one American, someone 

who might have never served our Nation in uniform. 

I don’t think this budget is fiscally responsible, I don’t think it 

is fair, and I don’t think it reflects the values of the American people. Thank you, Mr. Chairman. 

Mr. CRENSHAW. Mr. Bolten, did you get that question? 

Mr. EDWARDS. Mr. Bolten has plenty of time to express his view. 

I will be very clear there was no question in that statement. 

Mr. CRENSHAW. I don’t know if Mr. Bolten figured that out or 

not. 

Mr. BOLTEN. I got it, Mr. Chairman. 

Mr. CRENSHAW. Let me ask you a question, Mr. Bolten. When we 

talk about deficits, we talk about tax cuts, can you talk a little bit 

about the fact that when we reduce taxes and we let the average 

citizen keep more of what he earns and then that individual gets 

to decide what to do with the money, not the Government but the 

individual, he can spend it, save it, and invest it in his business, 

somehow that seems to generate more revenue. 

For instance, I think when the capital gains taxes were reduced, 

the capital gains tax receipts almost doubled in 3 years. I think a 

lot of people don’t understand how you can actually reduce taxes, 

which reduces the money that people would pay, lets them keep it, 

and somehow when they get to keep it and they get to spend it or 

invest it, then more money comes into the general revenue. 

What would have happened when you look at those deficit numbers, what would happen if we had not put in place some of the 

tax relief that we put in in 2001 and 2003? What do you think the 

state of the economy would be today? 

Mr. BOLTEN. Mr. Chairman, I believe we would be in much worse 

shape today, both economically and fiscally, had those tax cuts not 

been put in place. I am not arguing that every dollar of tax cut produces more than a dollar of revenue. Some people believe that; I 

am not making that case here now. What I am saying is that when 

the Government keeps tax rates low, that generates economic activity, and the overwhelming factor in our fiscal health is how good 

is the economy, because that dictates whether revenues are coming 

in. When we are getting good capital gains revenues, which was 

the reason why we had a spike in revenues and in the Federal 

Treasury position toward the end of the 90s, it is also the reason 

why we had a collapse in revenues in 2000 going into 2001 and into 

2002. That collapse in revenues was not the product of the President’s tax cuts which were either not in effect or barely beginning 

to take effect; that collapse in revenues was directly the product of 

a weak economy and especially collapsing capital gains revenues, 

33

which were inflated during the bubble period at the end of the 90s 

and the deflation was just as hard on the downturn. 

The economic growth in this country is the absolute critical factor in our fiscal health, which is why this President’s budget is focusing on ensuring ongoing economic growth. 

Mr. CRENSHAW. We hear a lot about the deficit, and this year it 

is projected to be $423 billion, which is obviously a lot of money. 

I think last year it was projected to be over $400 billion, and it 

came in around I think $319 billion; and the year before that it 

was projected to be over $400 billion. I guess in one sense you are 

not painting rosy scenarios because it seems like for the last 2 

years the deficit has actually been lower than was projected, so 

there is a good opportunity for it to be lower again this year, but 

I don’t know. 

I would like you to talk about deficits in terms of you had a chart 

that shows the deficit both in real dollars then as a percentage of 

GDP. And I know about the time I was born, I think the deficit 

was about $54 billion, and I went back and looked and that actually was 30 percent of the GDP. And that is probably an extreme 

example but the good news is we have come a long way there. You 

showed a chart that showed over 40 years the deficit has averaged 

about 2.3 percent of GDP. I looked, and if you took the last 20 

years, it actually ends up 31⁄2 percent of GDP. So it seems to me 

we are in kind of the historical realm. 

Can you talk about how we should look at the deficit? We have 

got a 21⁄2, $2.7 trillion economy. So $423 billion is obviously a lot 

of money, but as a percentage of that it is right around 3 percent, 

which is kind of where it has been historically. 

How do you look at it? What is the best way for people to look 

at it? Obviously it is large and we need to control spending, but put 

it in perspective, if you would, in terms of how you view the real 

dollars versus the percentage of GDP. 

Mr. BOLTEN. Mr. Chairman, the deficit that we have projected 

for this year is indeed a large one at $423 billion. Nobody believes 

that is good news. But the right way to look at a deficit is indeed 

as a percentage of GDP because that reflects what the resources 

are in this country to pay off the debt that can accumulate from 

those deficits. 

What we find is that if you look historically over the last 40 

years, the average deficit is about 2.3 percent of GDP. If you go to 

the last 20 years, it is actually higher than that, probably up in the 

3 percent range. At 3.2 percent of GDP, the projected deficit we 

have for 2006 would be the 11th largest in the last 25 years. So 

not a good-news story by any means, but not historically out of 

range and not something that either has caused, or I expect will 

cause, surprise in the financial markets, which is a very important 

element here. 

Going back, though, you mentioned our projections. You were 

right that we had projected for 2004 a substantially larger deficit 

than ultimately came in. We projected a deficit about $500 billion 

originally, and it came in at about $412 billion. For 2005 we had 

projected a deficit of $421 billion; it came in at $318 billion dollars, 

thanks in large part to a surge in revenues from a strong economy. 

34

This year we are projecting an up-tick in the deficit, and it is 

more than a substantial move-up in the deficit, which is not surprising when you are in the middle of a war and have suffered the 

most economically disastrous natural disaster in this country’s history. 

What I believe our numbers also show, though, is a very clear 

and credible path to bring that deficit down over time and do much 

better than meet the President’s goal of cutting the deficit in half, 

which as a percentage of GDP would be below 3.2 percent. 

I believe we are in a sustainable range where we are right now 

with respect to our short-term deficits. What is unsustainable is 

what I have been talking about with Mr. Spratt and others is the 

long-term situation. The unfunded obligations in our entitlement 

programs are what make our long-term situation unsustainable 

and we must address those. 

Mr. CRENSHAW. Thank you. Mr. Cooper. 

Mr. COOPER. Thank you, Mr. Chairman and thank the witness. 

I would like the indulgence of my colleagues to see if we couldn’t 

get Chairman Nussle to have Secretary Leavitt and perhaps Director McClellan come before the committee, because I think health 

care issues will be key as we deliberate about the budget. So I 

would urge to have those folks as witnesses. It is my understanding today they are not scheduled as witnesses. 

Second, the list of terminated programs is apparently available 

to no one on the committee, so I would urge you to make it available. 

Mr. BOLTEN. We will, Mr. Cooper. We will have it in a nice printed book that I believe is being printed up. 

Mr. COOPER. Even scratch paper would be nice. Timeliness is 

more important than formatting. 

On the health care issues, I wanted to ask some questions. I 

would agree with you, you are talking about slowing the rate of 

growth of Medicare. I would like to know what alternatives for 

slowing the rate of growth that you considered and discarded in the 

effort to choose the methods that you chose in the budget. 

Mr. BOLTEN. Mr. Cooper, I think that question may be better directed to Secretary Leavitt when and if you are able to have him 

appear before the committee. 

Mr. COOPER. So he made the cut in this process or he made the 

selection of the ways to slow Medicare growth? 

Mr. BOLTEN. Absolutely. All of our recommendations on Medicare 

were done in close coordination with Secretary Leavitt and his entire team, who are the experts on Medicare spending. There are a 

lot of ways to dig in on Medicare costs. We chose the ones that we 

thought were the most promising, at least in the short run, and 

had been, in the case of the market basket savings, had been recommended by MedPac. 

But there are a lot of other ways to go at this problem and my 

expectation is and my hope is that we will continue at this problem 

not just this year but for some years to come. 

Mr. COOPER. Did any of the alternatives that you considered include trimming back the Medicare drug benefit that seems to be so 

expensive and doubtful of popularity with seniors? 

35

Mr. BOLTEN. I don’t think there was any consideration given to 

eliminating the drug benefit, which I believe will turn out to be an 

absolutely critical part of the Medicare program and with pharmaceuticals being a tremendously important and increasingly important part of providing appropriate health care to people. 

What we had before the drug benefit was adopted was a system 

that would pay for a $10,000 heart operation but not pay for the 

$10 dollar pill that would have prevented it. That seems to me a 

situation that everybody should agree could not be sustained. 

Mr. COOPER. If that bill were funded, of course it creates an estimated $10 trillion liability for our Nation, which is almost completely unfunded. I think our colleagues on the other side of the 

aisle know this is true. 

Let me ask about health savings accounts. In the budget their 

estimated cost, I believe, is about $90 billion. Can you give me 

some backup information to help me understand how these would 

work? For instance, the Employee Benefit Research Institute 

(EBRI) says if you save the maximum every year, you would have 

to do that for 30 or 40 years without drawing out any money from 

that account; in other words, not being sick for 30 or 40 years before you would have enough money saved up to meet your expected 

health care needs. That is a long time for people to save the maximum every year for 30 or 40 years before essentially health care 

savings accounts would work. What are your estimates of the viability or the workability of these accounts? 

Mr. BOLTEN. I am not an expert on health savings accounts, but 

I think the description you have just given mischaracterizes the 

way they work. What a health savings account does is makes it 

possible for a person to set aside a modest amount to cover the expenses that are not covered when you purchase a less expensive——

Mr. COOPER. I understand that. The EBRI estimates seniors will 

need on the average of $200,000 to meet their expected health care 

needs. And it is impossible, according to EBRI, to accumulate that 

much money in health savings accounts. 

Mr. BOLTEN. That is $200,000 in uninsured needs? 

Mr. COOPER. Out-of-pocket expenses. In fact, their estimate is 

$230,000. They estimate that the average person who, for example, 

saved for 10 years and never withdrew a penny and paid in the 

maximum every year, they would have an account of $40,000, 

which is so far short of the expected need. This is a very legitimate 

nonpartisan group. 

Mr. BOLTEN. I have to say that just sounds completely out of 

range to me. 

Mr. COOPER. What backup information do you have to show that 

health savings accounts would be adequate for the need? 

Mr. BOLTEN. I would be glad to provide that for the record. But 

what I can tell you from my own experience with a health savings 

account, or even some other folks who have them, is that what the 

health savings account does is make it possible to purchase a much 

less expensive insurance policy, pay the first dollar out of pocket, 

and the health savings account helps you cover those first dollars 

out of pocket, which typically are in the low thousands of dollars 

36

to $3,000, which most people have to pay some out-of-pocket anyway, even under a more expensive health insurance plan. 

Mr. COOPER. I understand that. If you could supply the committee that information to show the workability and the efficiency 

of those accounts, because if we are going to spend $90 billion on 

something, we need to know what the chances are that it would 

work. 

Mr. BOLTEN. Be glad to. I know the experts in whose judgment 

I trust a great deal are very optimistic about the success of these 

health savings accounts, which have already shown some success 

so far, and in particular in making individual health care consumers better consumers. Because in exchange for the lower costs 

they are paying, those first dollars themselves in many cases except for preventive care, they are paying the first dollars themselves and they become better consumers and should improve both 

the price and quality information and substance that is in the 

health care market today. 

[The information requested follows:]

MR. COOPER’S QUESTION REGARDING HEALTH SAVINGS ACCOUNTS

In the president’s budget, the projected cost for health savings accounts will be 

$90 billion. The Employee Benefits Research Institute estimates seniors will need 

on the average $200,000 to meet their expected health care needs. And it is impossible, according to EBRI, to accumulate that much money in health savings accounts. EBRI estimates that the average person will be far short of the expected 

need. What backup information do you have to show that health savings accounts 

would be adequate for the need?

OMB Answer: EBRI’s estimate of $200,000 represents the amount an individual 

would need to pay for premiums and out-of-pocket expenses in retirement. Though 

HSAs can be used to fund these health expenses, the Administration views HSAs 

as a tool to help people save for current and near-term health expenses. They may 

be viewed as a supplement to, but should not be viewed as an alternative to traditional Medicare, the primary source of health care financing for seniors. 

From that perspective, there are several ways in which HSAs provide adequate 

resources for individuals. 

• HSAs must be accompanied by major medical health insurance when established, which protects consumers from unforeseen, necessary medical expenses. 

• Under current law, individuals generally can contribute funds to their HSA 

equal to their deductible. 

• The President’s FY 2007 Budget includes a proposal to increase the maximum 

contribution levels to the out-of-pocket limit of one’s high-deductible health plan. 

This proposal ensures that individuals can contribute enough to their HSAs to meet 

their potential out-of-pocket health care expenses.

Mr. COOPER. I see that my time has expired. Thank you. 

Mr. CRENSHAW. Thank you. Mr. Wicker is recognized. 

Mr. WICKER. Thank you very much. Actually Mr. Simpson is 

such a big linebacker that I have trouble looking at the witness 

through him. So I have moved over. 

Mr. BOLTEN. Sort of a defensive back. 

Mr. WICKER. We are eating into my precious time. 

Mr. Bolten, I have asked the technician to put up a chart that 

you used earlier, ‘‘Progress on Spending Restraint.’’ My colleagues 

on the other side of the aisle know that I have the greatest fondness and affection for them as friends, but it is clear that we have 

major policy differences across the aisle with regard to the budget. 

I have listened intently to the questioners on the Democratic side 

this morning and this afternoon, Mr. Bolten, and I have listened 

in vain for a plan to back up the eloquent rhetoric of my colleagues 

37

in decrying the growing Federal deficits and denouncing the lack 

of fiscal irresponsibility and their asking us to be more fiscally responsible. I have heard questioner after questioner say ‘‘let’s spend 

more on this, let’s spend more on this, let’s grow government at an 

even faster rate on that.’’ And I did hear one proposal for increased 

taxation on the American people, if I heard the questioners right. 

But when it comes to the things that have actually worked and 

we have had accomplished there on the chart, I look at discretionary spending below inflation which the President is asking for 

and which we delivered. We got no help from our friends on the 

Democratic side of the aisle in 2005 on that issue. Nonsecurity cut, 

whether it was in the budget resolution or our appropriation bills, 

the elimination of 89 programs. Basically the Republicans had pretty much to do that all alone. And then it was just last week that 

we were able, finally, to get the reconciliation bill passed; $39 billion in cutting the rate of growth over a 5-year period. I believe we 

had to do that without one single, solitary ‘‘yes’’ vote on the other 

side of the aisle. 

When you look at those choices, Mr. Bolten, in terms of deficit 

reduction what else is there? I guess there would be a cut in homeland security. That would be one alternative in terms of spending 

restraint. Am I right there? 

Mr. BOLTEN. Yes, sir. 

Mr. WICKER. Then I suppose we could cut the Department of Defense at a time when we have servicemen and -women around the 

world in places like Afghanistan and Iraq and fighting international war on terrorism, we could cut that. That would be another alternative, would it not? 

Mr. BOLTEN. Yes, sir. 

Mr. WICKER. What else is there if we don’t cut mandatory growth 

or domestic programs; what else is there? 

Mr. BOLTEN. That leaves the possibility of tax increase. 

Mr. WICKER. Surely does. Let me ask you then to flip over, and 

I have asked the technician to give us ‘‘Strong Job Growth Has Resumed.’’ If we could see that chart, which I clued the technician 

in—there we go. That nice strong growth line from 2003 to 2006, 

had we not had the tax policy in place, do you think that line—

is it your opinion that that line of strong job growth would be that 

strong? 

Mr. BOLTEN. My opinion, Mr. Wicker, is it would not be nearly 

that strong. More importantly, that is the opinion of a number of 

respected economists. 

Mr. WICKER. Exactly. As the Chairman mentioned earlier before 

he had to leave the room, we are not really in this for numbers, 

we are in this to make the lives of Americans better. And in that 

respect I would certainly hate to see us go back to the high-tax 

policies of before and risk having another downturn. 

Let me just ask you, then, one other chart about our entitlement 

growth, ‘‘Current Trends Are Not Sustainable.’’ We see there if we 

don’t take action, that actually the autopilot spending, the mandatory growth itself will exceed revenues if we do not take strong action in those outyears by 2070; is that correct? 

38

Mr. BOLTEN. Actually, by roughly 30 years from now, it would require all Federal revenue just to pay for the mandatory programs 

and the interest on it. 

Mr. WICKER. As I understand it, if we do nothing over the next 

5 years, mandatory spending will grow $570 billion, it won’t 

amount to $570 billion, but it will grow $570 billion over the next 

5 years. The President is proposing that we slow that rate of 

growth by $65 billion. In other words, under the President’s proposal, mandatory spending would still increase by half a trillion 

dollars over the next 5 years. 

Good luck, Mr. Bolten, getting a bipartisan consensus for even 

doing half of that slowing of the rate of growth over the next 5 

years. I welcome the suggestions of our friends on the other side 

of the aisle. I endorse the plea by the chairman of the committee 

that our friends and colleagues come up with a specific comprehensive proposal for deficit reduction and a return to fiscal responsibility, and I think that would be a good starting point to let the 

electorate make a decision in November of this year. 

I thank the chairman. 

Mr. CRENSHAW [presiding]. Mr. Allen. 

Mr. ALLEN. Thank you, Mr. Chairman, I will follow on with Mr. 

Wicker’s suggestion. I do have suggestions for reducing mandatory 

spending, but they are suggestions that the administration has rejected. 

First of all, you said we need restraint on mandatory spending, 

and that is exactly right. The first step in the health care area 

should be to stop the excessive spending on HMOs and PPOs. You 

have got a MedPAC proposal that says we are spending—we are 

contributing—there is $50 billion there in spending we don’t need 

to provide them because they are being overpaid. 

The secondary area of course is prescription drugs, and this is 

really simple. You rightfully praise the Veterans Administration for 

the dramatic improvements in quality and service. 

If I could have chart 7 please, you know, the study done by the 

Democratic staff of the Government Reform Committee. What they 

did is they took the 10 most commonly used drugs by seniors and 

they looked at the 10 leading plans across the country. And this 

is in the aftermath of Secretary Leavitt saying that the decline in 

the projected cost of the part D plan was due because competition 

in the drug benefit was driving down costs. 

Well, frankly, that is ridiculous. You look at the costs, when you 

look at those 10 most commonly used drugs, the Medicare plans 

are charging seniors in America 80 percent more than the price 

available to the VA, they are 60 percent higher than prices available in Canada, they are even higher than the prices on two mail 

order firms. So there is a place where we could dramatically reduce 

price. 

Let me turn to another area in health care. The HSAs that you 

mentioned. There are lots of studies out. The figure I have seen is 

$156 billion over 10 years. That is what the President’s proposal 

would cost, and they weaken, they clearly weaken the existing 

health insurance system because they are moving people away 

from an employer based system to individual insurance policies, 

39

and that could lead, probably would lead to an increase in the 

ranks of the uninsured. 

They have little potential to improve the quality of the health 

care system because they do nothing about the major cost driver. 

You gave an example of first costs. They might make you a little 

bit more cautious about going to the doctor in the first instances, 

but 70 percent of the cost of health care in this country comes from 

10 percent of the population. The population with chronic illnesses 

or major operations. And HSAs are really designed to provide 

health care for people who already have it and who have the resources to put money into another tax shelter, and Milt Friedman’s 

column in the ‘‘New York Times’’ the other day pointed out only 2 

million people in the country have got them and 1 million of those 

people haven’t even put any money into them. So for people with 

money they may work, but they don’t do too much. 

Finally, I want to say—and this is only my second year in the 

committee. But the gap across here is wide. It is a gap in values. 

It is a gap of sort of who we care about. But it is also a gap in 

some areas that we don’t need to have. 

Mr. Crenshaw was talking about, how it’s remarkable, you cut 

taxes and revenues to the government increase, as if the causation 

were clear. Another member of this committee in a prior meeting 

said once the tax cuts have worked. The tax cuts have created 4.7 

million jobs. 

When the Clinton administration in 1993 raised taxes and cut 

spending, no advocate of that proposal I think has ever said the tax 

increases in 1993 created 221⁄2 million jobs because we have a vibrant, dynamic economy. I don’t disagree that some tax cuts can 

be helpful, but the notion that they increase revenues over what 

they would otherwise be is a stretch, and CBO doesn’t buy it. You 

admitted you wouldn’t argue for that position. So my question 

comes to this. 

You said at one point that the effects of the Bush tax cuts, extending the tax cuts, had been factored into the budget. It is true, 

is it not, that when you factored in the continuation of the tax cuts 

that meant you dropped revenue from what it would otherwise be 

if the tax cuts were not continued. 

Mr. BOLTEN. If measured on a static basis or probably even on 

a dynamic basis, yes, although the measurement we do and are obligated now by our rules to do and CBO does is to measure it on 

a static basis without measuring the dynamic effect. I hope at one 

point very soon economists will come to an agreement as to how 

to measure that dynamic effect. But you are correct, the revenues 

would be lower than they otherwise would have been without those 

tax cuts. 

Mr. ALLEN. But remember Douglas Holtz-Eakin ran dynamic 

scoring over a bunch of models over at CBO and came away concluding that it didn’t make much difference, the tax cuts have some 

stimulative effect but nowhere near enough to compensate for the 

loss of revenue from the tax cuts themselves. That was his finding 

and that came out. 

Mr. BOLTEN. Economists are in disagreement about the size of 

what the dynamic effect is, and I am hopeful that they will come 

to some agreement soon. But you are right. I am not arguing that 

40

a dollar of tax cut produces a dollar of tax revenue. I am arguing 

that a dollar of tax cut can do an enormous amount of good for the 

economy, create jobs, put us on a much better long-term sustainable path than we would be on with that tax increase in place. 

Mr. ALLEN. Fair. So we agree at least that the tax cuts do not 

by themselves cause a revenue increase that is larger than the tax 

cuts themselves. 

I thank you. 

Mr. CRENSHAW. I think they increase revenue, not necessarily 

dollar for dollar. Even this year CBO says if you don’t continue 

them it will have a detrimental impact, so I think we all agree on 

that. 

Mr. Ryan of Wisconsin is recognized. 

Mr. RYAN. I thank you, Mr. Chairman. A couple of things I want 

to set straight and then ask a question of Mr. Bolten. No. 1, we 

keep hearing tax cuts. The tax cuts in 2008, the tax cuts in 2010, 

and yes, the gentleman from Maine did say there is a gulf between 

us. What happens in 2008 and what happens in 2010 are not tax 

cuts. Tax increases, we don’t do anything. 

So there is a difference of opinion. We are simply saying keep 

taxes where they are and don’t increase taxes dramatically. And 

what the other side here is saying is that if we do not increase 

those taxes, that is all of a sudden a tax cut. We are talking about 

holding taxes where they are, and not hitting our—the American 

taxpayer with massive tax increases. Calling that a tax cut is just 

beyond reason in my mind. 

Another important point is the Health Savings Accounts (HSA). 

There is important facts to get straight on health savings accounts. 

As a coauthor of that law, I managed that bill on the floor in 2003 

when we passed that as part of the Medicare law. I remember the 

debate vividly. It was said at the time that this was only going to 

go to healthy and wealthy people, that just the rich and healthy 

people would get HSAs. Well, what are the data we have now 

today? HSAs went from 1 million people having them a year ago 

to 3 million people. Who are those 3 million people? As many as 

45 percent of the people who have HSAs are people who are over 

40 years old. About 30 percent of the people who have HSAs are 

people who earn less than $50,000. More than half of the people 

who have HSAs have some kind of preexisting condition. They are 

no more healthier than anybody else getting traditional insurance. 

But even more exciting than those facts is this: 37 percent of the 

people who have HSAs today, 37 percent of those 3 million people 

are people who did not have health insurance before. They were 

previously uninsured. So what health savings accounts has done is 

priced insurance within reach for people who could otherwise not 

have afforded it. 

The latest survey of HSAs—and over 100 providers are out there 

providing these—is that two-thirds of the people who have HSAs 

have a monthly premium for their catastrophic health insurance of 

about $100—$100 for your health care premium, just imagine that. 

I talked to a couple of Racine farmers in Racine County, Wisconsin the other day who are able to slash their health care premiums by two-thirds. So HSAs are working, and they are helping 

people get insurance. They are helping people who couldn’t get inVerDate 0ct 09 2002 14:06 May 04, 2006 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6602 F:\DOCS\HEARINGS\109TH\109-12\26055.TXT HBUD1 PsN: DICK
41

surance otherwise, and they are helping people who have risky 

health profiles, who are older and who make less money than the 

average worker in America. 

The question I want to get to Mr. Bolten—and I wasn’t just going 

to give a speech. I actually do have a couple questions. No. 1, on 

budget process. Mr. Hensarling and I have been pushing this rock 

up the hill for many years. I am very pleased to see these in here, 

the line-item veto specifically. I was one of the people who more or 

less agreed with the argument about a nondelegation doctrine of 

the Constitution that it would be unconstitutional for the legislative branch to delegate lawmaking authority to the executive 

branch. That is why we came up with the enhanced rescission 

method whereby the President pulls out spending from a bill he 

signs, sends it back to Congress under an expedited procedure 

where then we have an up or down vote, retaining the legislative 

authority but giving the President that sort of scalpel so that he 

could go after wasteful spending. 

Give me your version of the line-item veto. I see some text here 

but not specifically, and what is the constitutional argument you 

make behind your line-item veto and exactly how do you phrase it, 

and then if I have time I have a Medicare question. 

Mr. BOLTEN. I will try to preserve your time, Mr. Ryan, just by 

saying that, first, we really appreciate the efforts that you Mr. 

Hensarling and others have made on budget process reform and we 

wish you well in your Sisyphean task, which I think you may actually be close to getting the rock and keeping it up at the top of the 

hill. 

On the line-item veto our lawyers have constructed a mechanism 

that is based on deferral of spending rather than the actual termination of spending that they believe would pass constitutional muster. I will be glad to provide with you some of the——

Mr. RYAN. Does it involve sending a bill back to the House and 

back to Congress? 

Mr. BOLTEN. I do not believe it does, but I will confirm that for 

you and we will give you a full legal analysis. On enhanced rescission, however, which we would prefer to have the line-item veto, 

enhanced rescission I think could go hand in hand. They need not 

be mutually exclusive. And I think both of those tools would be terrific tools to give the President. For those who are worried about 

earmarks and those who are worried about spending generally, I 

think those would be important tools for the President to have. 

[The information referred to follows:]

The Office of Management and Budget did not respond to this 

query.

Mr. RYAN. Quickly on Medicare, your proposals which do track 

with MedPACS—I serve on the committee on Medicare on Ways 

and Means—you do track mostly the MedPAC recommendations. Is 

it not true though that these proposals would actually lower Medicare beneficiary copays, lower some of their premiums than they 

otherwise would be? 

Mr. BOLTEN. Absolutely they would. But whenever we lower the 

payments that are going to, that the Government makes to providers, we are at the same time lowering beneficiaries’ premiums 

because beneficiaries under most parts of the system pick up a 

42

quarter of the cost. So if we can keep provider costs low, we are 

also keeping beneficiary expenses low. 

Mr. RYAN. Thank you. 

Mr. CRENSHAW. Mr. Case. 

Mr. CASE. Mr. Bolten, I listened carefully to the President’s State 

of the Union message, as we all did, not just for the details but for 

some sign of a commitment to bridging a partisan divide that in 

my view has poisoned this country. And frankly I heard some encouraging words along those lines. Did you in the preparation of 

this budget consult with any Members of the minority party in 

Congress? 

Mr. SIMPSON. Or the majority. 

Mr. CASE. I am getting there. 

Mr. BOLTEN. Yes, I have had conversations with Members on 

both sides on issues of interest to them and their constituents. 

Mr. CASE. So is that yes, you did come up here and consult? 

Mr. BOLTEN. Yes. 

Mr. CASE. How many? 

Mr. BOLTEN. I couldn’t say how many on either side were consulted. I take actually a fair number of calls, just regular phone 

calls coming in from Members of both parties to make cases on, 

usually on items that are of particular interest to their districts. 

Mr. CASE. Was there any kind of systematic outreach to the minority or the majority for that matter on big picture policy items? 

You have made big picture policy calls in this budget, and that is 

what a budget is about. Was there any systematic attempt to seek 

from the minority party some input on the policies relative, for example, to continuation of tax policies or spending cuts or the elimination of specific programs? 

Mr. BOLTEN. Nothing systematic from my standpoint on either 

side. I have been pretty well aware of what the views of most Members are. I have spent a great deal of time not just with the chairman but with Mr. Spratt talking about policy over the last couple 

of years that I have been in this job. This budget is the President’s 

proposal, and it reflects his values. He hopes very much to be able 

to work in a bipartisan way with the Congress on it. But my main 

priority in putting this budget together has been to reflect his principles. 

Mr. CASE. I noted in the budget that there were several notations 

relative to the Budget Enforcement Act of 1990. Does the administration favor reenactment of the Budget Enforcement Act? And I 

want to speak specifically to PAYGO. Has the administration 

changed its position, which I understand at least to be in opposition to PAYGO across the board? 

Mr. BOLTEN. Yes, we do favor reenactment of the Budget Enforcement Act. We do not believe that PAYGO needs to apply to 

taxes as well as mandatory spending. 

Mr. CASE. So you are not willing to put everything on the table 

quite yet? I mean taxes is a given and we can do PAYGO on the 

spending side only. 

Mr. BOLTEN. It is not up to me to take anything off or put anything on the table. I am giving you the President’s position. But 

there are two sides or three sides or however many sides there are 

to that table. 

43

Mr. CASE. But in any event, the President’s position this morning 

as expressed by you today is not to reenact PAYGO as it existed 

under the Budget Enforcement Act, is that right? 

Mr. BOLTEN. Yes. 

Mr. CASE. Can I have chart 3, please? That is pretty hard to see, 

but essentially what it is is your projection of total debt in your 

budget 2005 through 2011. I am correct, again, just to get this 

straight, that we are talking essentially about an increase under 

your budget, the President’s budget, as submitted here today, total 

debt going from about $8.5 trillion to $11.5 trillion in the next 5 

years. Is that correct? 

Mr. BOLTEN. That is correct. 

Mr. CASE. Let me deal with after 5 years, Mr. Bolten, because 

we have had great disagreement in this committee and I suspect 

we will continue to on your decision, the President’s decision, to 

have a 5-year horizon when prior Presidents, I think in both parties, had a much farther horizon out into the future, beyond 5 

years. We had a big debate on that last year. I continue to disagree 

with you on that. But if I can have chart 6, please. 

Mr. BOLTEN. Mr. Case, while you are getting the chart if I can 

say on that question, I think there is legitimate room for debate. 

But I think Presidents of both parties have more traditionally displayed the budget in a 5-year chunk than in a 10-year chunk. 

There have been periods where it has been done in 10 years. I 

think there is a reasonable case to be made on either sides of that. 

Mr. CASE. I think Presidents of both parties have been wrong on 

that case. 

Mr. BOLTEN. All right. 

Mr. CASE. This is your projection, one of the few places in the 

budget where you actually do go out past the 5-year window, and 

this shows your projection as on the effect of the proposals relative 

to tax policy beyond 2011. And essentially what you are showing 

is a $1.67 trillion loss in revenue, period 2007 and 2016, of which 

$280 billion is in the first 5 years. So by my math what we are 

talking about is a decrease in revenues on the tax side of $1.4 trillion after that 5 years is over. It drops off the cliff. And as we all 

know, that is because of the assumption that the tax cuts that are 

scheduled to expire in 2011 do in fact continue beyond. Is that 

right? 

Mr. BOLTEN. That is right. And we do reflect in all of our numbers the continuation of the President’s tax cuts. What those numbers largely reflect are the amount of tax increases that would be 

imposed on the American people if the President’s tax cuts were allowed to expire. 

Mr. CASE. Is it fair to say that in the window beyond 5 years, 

given the spending patterns which do in fact show growth, you are 

just talking about curtailing growth, and the fact that you are in 

fact projecting significant reductions in revenue in the area of $1.4 

trillion after the 5-year window, that we would anticipate a significant increase in the Federal debt after the next 5 years. 

Mr. BOLTEN. No, I don’t think that it would be fair to say that. 

What the next, if we were to display the next 5 years, and I repeat there is reasonable arguments on both sides of that, I think 

44

the next 5 years would actually show continuing relatively low deficit years. There would be an ongoing——

Mr. CASE. I didn’t talk about the deficit. I talked about the debt, 

total debt, including the borrowing from Social Security. 

Mr. BOLTEN. What it would also show, however, over the next 5 

years is an accumulation of debt that is related to the unfunded obligations in our entitlement programs. So the next 5 to 10-year period, as I said earlier, I think from a fiscal standpoint on the face 

looks pretty good. The real crisis that is looming, and it is looming 

10, 15, 20 years down the pike, is a crisis of the unfunded obligations in our entitlement programs. That is where the real crisis is, 

and that is why in the spirit of your opening remarks that the 

President asked in his State of the Union for both parties to come 

together to address this politically very difficult entitlement reform 

problem. 

Mr. CASE. And I agree with that, just to finish that concept. 

Mr. BOLTEN. Thank you, sir. 

Mr. CRENSHAW. Mr. Mack is recognized. 

Mr. MACK. Thank you, Mr. Chairman. Mr. Bolten, good to see 

you, sir. 

Mr. BOLTEN. Thank you, sir. 

Mr. MACK. We worked nights and weekends putting together a 

pithy statement for me to read but I decided instead just to boil 

it down to something my children would understand, and that is 

we take too much, we spend too much, and we regulate too much. 

I came to Washington, I think like most people did when they 

were campaigning, and talked about fiscal discipline, and I know 

we have made some small gains last year and want to see us continue to do that. I think we have to, here in this committee, Mr. 

Chairman, and others, really look at the budget process and really 

take a look at the way we do business here and what this process 

is all about. And there is leaders here that have been on this a lot 

longer than I have been on this committee. But I wanted to lend 

my voice to that. I also wanted to congratulate or thank you for including some of the language you did on Voice of America, especially as it relates to Venezuela. I think that is very important for 

security reasons and also it is our hemisphere and we need to take 

care of our backyard. 

My question is pretty simple. If we were to basically put in a 

spending freeze, kept it at the same level that we had this past 

year, how long would it take before we would wipe out the deficit? 

Mr. BOLTEN. Mr. Mack, are you thinking of a freeze on discretionary spending or overall spending. 

Mr. MACK. Overall spending. 

Mr. BOLTEN. I would imagine that a freeze on overall spending 

would bring our fiscal situation into balance in a very few years. 

I may ask my colleagues to do some quick calculations, but by 2009 

one of my colleagues estimates we would be in complete balance on 

our fiscal picture if we were to freeze both discretionary and the 

mandatory sides of the spending ledger. 

Mr. MACK. But politically that would be hard to do. 

Mr. BOLTEN. It would be very hard to do. We have taken some 

steps in that direction. You have all taken some very important 

steps in that direction with the 2006 budget. The President is askVerDate 0ct 09 2002 14:06 May 04, 2006 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6602 F:\DOCS\HEARINGS\109TH\109-12\26055.TXT HBUD1 PsN: DICK
45

ing for similar kinds of restraint in the 2007 budget. And I think 

step by step, we will put ourselves on a sound path in the short 

to medium run. The longer term problem is unsustainable growth 

in entitlement problems that I was talking about with Mr. Case. 

Mr. MACK. Again thank you and my—hopefully at some point 

down the line I can look my kids in the eyes and say you know 

today we cut spending. Thank you. 

Mr. BOLTEN. I hope you will, sir. 

Mr. CRENSHAW. Mr. Cuellar. 

Mr. CUELLAR. Thank you, Mr. Chairman. Mr. Bolten, again 

thank you for being here with us and again thank you for working 

on this ExpectMore.gov Web page. I think that will be a good start. 

What I want to do is again go back to budget reform, but I am talking about performance based budgeting and having a system that 

instead of going to a Web page for Members, if we could have it 

where it would be a little bit more accessible to the Members. 

I was just looking at the budget a few minutes ago, and my question would be, would you be willing to sit down with myself and 

any member of the committee, to pick any agency, doesn’t matter 

which agency you all want to pick, and I sit on the Agriculture 

Committee. If you want to go to do that it would be fine. They do 

have a couple performance measures. But would you all be willing 

to sit down with us on a pretty quick basis just to come up with 

a format as to what the budget would look like if we actually put 

it with, this is the mission of the agency, these are the goals, here 

are the objectives, here is the money, here is the performance 

measures, and put it in a format that I believe will be more accessible and easier for the Members to look at so that way we can 

have questions as to here is the agency, here is how we are spending the money, this is how I think we ought to be refocusing some 

of these dollars? 

Because I do have some concerns like the Members about the 

cuts in education and health care and agriculture and all that. But 

today I just want to focus on that specific to see if you would assign 

yourself or assign somebody that would be willing to sit down with 

myself and any of the Members to just come up with one format 

and I would prefer to do Agriculture if that would be OK with you, 

but any other agency would be fine. 

Mr. BOLTEN. Be glad to do that, Mr. Cuellar. It is an interesting 

idea. I will recommend to you my Deputy Director for Management, Clay Johnson, whom I believe you know, or at least may 

have met at some point, who was the animating force behind the 

score sheets that we put out, behind the PART program now and 

behind ExpectMore.gov and I think would be a very good person to 

talk to about how we construct our budget, how we display it. 

I don’t know about starting with Agriculture. We might want to 

check with Secretary Johanns to see if he wants to be the guinea 

pig or not. I would be glad to sit down with you on that exercise 

and any other Member that is interested in doing so. 

Mr. CUELLAR. If you want to talk to the Secretary, No. 1. No. 2, 

if we can do this on a quick basis, if he agrees, if not, we can pick 

another agency, but I think for the Members, I think, if we can just 

have a starting point, I think this will go a long way. Because 

46

again I support you on your ExpectMore.gov. That is good for citizens to go and check, that is fine. 

But I am more interested in the budget oversight that the Congress needs to provide, and I think if we put it in a particular format, and I will be happy to interact with you as to some of the 

ideas. 

Mr. BOLTEN. Deputy Director Johnson has spent a lot of time 

with agencies and with a relatively small number of Members who 

were interested in this, I think. I am pleased to see that you are 

interested, I think more should be, in constructing the format for 

our evaluations. If you haven’t had a chance to surf on 

ExpectMore.gov, I think you will be pleasantly surprised at the 

quantity and quality of information that is there. It is a very candid assessment, and I think you may find a lot of what you are 

looking for there because we display more information than you 

would normally put up for the average layperson to read. It actually does give real information for the technical expert. 

Mr. CUELLAR. Right, and I believe the Chairman Nussle and 

ranking members, we had a hearing here last year and Clay Johnson, Mr. Johnson, was here. And I understand that information is 

there. But what I am looking at is to try to package it where we 

can extract really the performance measures and the objectives 

that I think will be useful for the Members so we can have this 

in a more easy format. Mr. Johnson will be perfect. I know him 

very well from Texas. And all I am asking is that we can kind of 

put this in a quick time frame. 

Mr. BOLTEN. I am sure he would be pleased to do that. 

Mr. CUELLAR. Thank you, Mr. Bolten. 

Mr. CRENSHAW. Mr. Hensarling. 

Mr. HENSARLING. Thank you, Mr. Chairman. Mr. Bolten, let me 

start out by complimenting the administration for this budget relative to the historical standards of this city. Proposing a budget 

that only increases Federal spending by a little over 2 percent is 

certainly noteworthy, and I congratulate you for that. 

Obviously your budget has received a lot of criticism from our 

friends on the other side of the aisle principally for its failure to 

call for a large tax increase and for your measures to begin reforming entitlement spending. 

With few exceptions, and there have been some exceptions particularly from the gentleman across my way here, I haven’t seen 

a whole lot or heard a whole lot on constructive suggestions on 

what their plan is. Recently, I saw a GAO study from December 

that says that if we keep discretionary at its historic standards, if 

we fail to reform our entitlement spending, within one generation, 

specifically the year 2040, we are on a collision course to do one 

of two things, either one, increase taxes on the next generation 21⁄2

times or, two, we would have to reduce Federal spending by roughly two-thirds, or essentially the Federal Government would consist 

of Medicare, Medicaid, Social Security and very little else. 

So No. 1, I am curious if your own conclusions, does that study 

paint a fairly accurate picture? 

Mr. BOLTEN. It does, Mr. Hensarling, and I think it was graphically demonstrated in the chart we had up earlier where you see 

the black revenue line. 

47

Mr. HENSARLING. Forgive me, I was a little late and so I missed 

your presentation. 

Mr. BOLTEN. That is all right. 

This chart, what it shows is that when you get out in that range 

of 2040, if you assume Federal revenues remain at roughly constant 18.2 percent of GDP, which is a historic average, by the time 

we got to that date you would need to spend all Federal revenue 

on mandatory programs plus the associated interests, you would 

have no money left over for any of the discretionary spending, including defense, education, housing, veterans, and all of the other 

things, the services that people expect from government. 

Mr. HENSARLING. These are subjective terms, but some on the 

other side of the aisle have described your budget as being unfair, 

irresponsible, and lacking compassion. 

In your judgment, is it fair, is it responsible, is it compassionate 

to more than double taxes on the next generation, or to cut every 

Federal program practically with the exception of the big three entitlements? 

Mr. BOLTEN. No. It would be a very bad legacy to leave to the 

next generation, rich or poor, because they would all end up being 

poor. 

Mr. HENSARLING. There has been some talk here obviously for 

different aspects of budget enforcement, budget process reform. It 

is a subject near and dear to my heart and frankly there has been 

some good ideas on the other side of the aisle as well and I understand that the President, I guess in every budget that he submitted 

he has called on some form of extending the Budget Enforcement 

Act and he does yet again in this budget. But there is a tendency 

in this town when all is said and done that there is more said than 

done. 

I certainly saw the administration become very enthusiastic 

about passing the prescription drug benefit bill. I have yet to see 

that level of enthusiasm replicated for retooling what I view as a 

Washington spending machine into one that would be a savings 

machine for American families. So I guess my question is, tell me 

something encouraging that somebody else besides OMB is going to 

get excited about actually enforcing these budgets and changing 

the budget process. 

Mr. BOLTEN. Well, Mr. Hensarling, I think you should have 

drawn encouragement from the words of the President himself in 

the State of the Union when he explicitly referred to the importance of spending restraint here in Washington, the importance of 

budget process reform, specifically obtaining a line-item veto or as 

I was discussing with Mr. Ryan, coupling that with some enhanced 

rescission process and, most importantly, taking on the problem we 

just talked about, which is entitlement reform and trying to do that 

on a bipartisan basis. 

Mr. HENSARLING. This might be a rhetorical question or maybe 

I can get the answer later, but I believe that already the administration proposed and Congress has enacted close to $100 billion in 

hurricane relief. Now you are asking for another $18 billion in 

supplementals. Some of us want to know what is the proper Federal role in hurricane relief? Where is the accountability? And what 

48

reforms will be enacted so that the factory worker in my district 

in Mesquite, Texas doesn’t have to do this again in 5 years. 

But I see my time is out. But I look forward to maybe getting 

a written answer to that question. Thank you very much. 

[The information referred to follows:] 

OMB’S REPLY TO MR. HENSARLING’S QUESTION REGARDING THE FEDERAL ROLE IN

HURRICANE RELIEF

The Federal Government’s role in hurricane relief is largely spelled out in the 

Stafford Act and provided through the Federal Emergency Management Agency 

(FEMA). This Act recognized that Federal coordination and resources are vital to 

protecting lives and property when state and local resources are overwhelmed. Much 

of FEMA’s assistance is provided through the Disaster Relief Fund, which provides 

direct assistance to victims, and supplements state and local response resources. 

Recognizing that disaster response is a shared responsibility, several FEMA programs have state and local matching requirements. 

FEMA also administers a flood insurance program that is financed by premiums. 

The extensive damages caused by Hurricane Katrina have caused flood insurance 

losses to exceed resources available to this program. To ensure these insured losses 

are covered, the Administration has sought additional resources for this program 

and has proposed reforms to ensure this program is solvent in the future. 

In addition to these two programs, the Federal Government traditionally responds 

to hurricanes with disaster assistance through the Small Business Administration 

(SBA) and to rebuild Federal highways through the Department of Transportation. 

Hurricane Katrina was the most damaging natural disaster in the nation’s history. To assist the region in its recovery, the President also has proposed and signed 

into law tax relief. He has also proposed Community Development Block Program 

(CDBG) grants to assist the regional recovery efforts led by State officials. To protect New Orleans from future hurricanes, the Corps of Engineers is rebuilding levees and making other improvements. 

While FEMA assistance must be provided rapidly, FEMA has a number of control 

mechanisms to ensure that agencies and state and local governments are accountable for FEMA funds. For Hurricane Katrina, the Administration has taken a number of steps. First, to address problems arising from the immediate response to Hurricane Katrina, the President’s Homeland Security Council conducted a lessons 

learned exercise and issued a report on February 23, 2006 that included 125 recommendations. Second, to oversee the rebuilding and recovery effort, the President 

appointed Don Powell as the Federal Coordinator. Third, most Federal assistance 

has been and will be provided through FEMA within the Department of Homeland 

Security (DHS). DHS’s Inspector General has established an Office of Katrina Oversight to conduct audits and reviews to closely monitor the expenditure of disaster 

funds.

Chairman NUSSLE [presiding]. Mr. Davis. 

Mr. DAVIS. Mr. Chairman, I think by now, Mr. Bolten, you have 

some sense of the general flavor to the argument we have over the 

tax cuts. The chairman and my colleagues on the other side of the 

committee room today point out the job creation is up, the GDP is 

up, and they cite that as an example of the success of the Bush 

policies. And you have heard our refrain, that job creation was substantially higher in the 90s, that GDP was substantially higher in 

the 90s and the marginal rates were higher and taxes were a 

greater percentage of GDP. I think you get that underlying dispute. 

So let me try to possibly inject a little bit more evidence into the 

argument. 

Wage growth in the economy, looking at—Mr. Hensarling mentioned the people who work in Mesquite, Texas. Wage growth for 

people in the manufacturing sector and the service sector, what the 

overwhelming majority of people do in this country, is wage growth 

at a higher level or appreciably higher level today, Mr. Bolten, in 

fact in 2004 and 2005 than it was in the 2 years before the Bush 

tax cuts were enacted? 

49

Mr. BOLTEN. The wage growth I believe has been relatively flat 

over that period. 

Mr. DAVIS. Been about the same. Let me turn to another indicium. Several of my colleagues on this side of the aisle talk about 

the value of people having more money to put in their pocket, more 

money to spend. Discretionary income on the part of the of the taxpayer is perhaps best defined by the percentage of his or her income going to paying taxes. 

Looking at wage earners earning less than $150,000 a year, majority of wage earners, is the percentage of their income going to 

the combined State and Federal taxes appreciably less in 2004 and 

2005 than it was in the 2 years prior to the enactment of the Bush 

tax cuts? 

Mr. BOLTEN. Yes, I believe it was. 

Mr. DAVIS. The numbers I have show it is about the same. 

Mr. BOLTEN. Let me offer chart number 32 if I could to illustrate 

the point. I cannot speak to the State burden. This is just the Federal and that is——

Mr. DAVIS. Well, that is the significant part of my question, unfortunately, because the taxpayers’ pocketbooks don’t distinguish 

between State and Federal. They are both taken out of your taxes. 

So again for the sake of time, and I don’t know I will accept that 

as an answer, but do you know if the combined Federal-State burden is less today than in the 2004-2005, than it was before the 

Bush tax cuts? 

Mr. BOLTEN. I can’t speak to the combined burden but what I 

can tell you is that the burden on all taxpayers who are below 50 

percent is lower today than it was before the tax cuts. They are 

paying a lower percentage of the overall tax burden, and all of the 

higher income earning brackets, the top 1, 5, and 10 percent are 


105a.eps
50

paying a larger share of our income tax than they would have been 

without the tax cuts. 

Mr. DAVIS. Let me turn to another measure that most people 

think is important, the rate of savings, again the theory being that 

if people have more money, if they could save more, is the savings 

rate in our economy appreciably higher today than it was before 

the Bush tax cuts? 

Mr. BOLTEN. I don’t have that year-on-year data. The savings 

rates are a matter of concern, which is why——

Mr. DAVIS. Are they higher than they were before the Bush tax 

cuts? 

Mr. BOLTEN. I don’t know. But what I can tell you is that in this 

budget there are a number of proposals to promote enhanced savings in this economy, which is what we need. 

Mr. DAVIS. But just for the sake of time, you would agree with 

me that we can’t document that the overall savings rates are higher than before the tax cuts? And we turn to two other indicia, the 

number of business failures in the economy in 2004 and 2005. Another theory we often here is the tax cuts make it easier for people 

to act on their entrepreneurial instinct. Are the number of business 

failures appreciably better in 2004 and 2005 than it was in the 2 

years before the Bush tax cuts? 

Mr. BOLTEN. I do not know the data, Mr. Davis. 

Mr. DAVIS. Let’s look at the level of new business creation. We 

talk about new job creation. As far as new business creation goes, 

is there an appreciably higher number of new businesses created 

in this economy in 2004 and 2005 than in the 2 years before the 

Bush tax cuts? 

Mr. BOLTEN. I would expect that there are more businesses——

Mr. DAVIS. Do we know? 

Mr. BOLTEN. There are certainly a lot more jobs. The important 

part is that jobs are up dramatically. 

Mr. DAVIS. I understand that. I don’t mean to cut you off but I 

am making a specific point that presumably the evidence ought to 

be somewhat relevant to this argument. 

Let me wrap up. I think you get the point I am making, Mr. 

Bolten. Clearly, the case can be made that there are some good economic things that have happened in the last several years. There 

is an old story about a priest in Philadelphia who went to see boxing matches and he would often see one of the boxers walk in the 

ring and he performed the cross before he would go in to fight. And 

1 day somebody said, well, Father, does that do any good? And he 

said yes, if he knows how to fight. 

Make no mistake. There have been some good things that have 

happened in the economy, but if I can invoke the Ander Crenshaw 

15-second wrap up rule, Mr. Chairman, there have been good 

things in the economy, there have been some less successful things 

in the economy. The challenge for the committee is there is an indisputable consequence from the tax cuts in terms of revenue, in 

terms of drawing money from other discretionary spending, in 

terms of limiting our capacity to cope with mandatory spending crises. Those are indisputable consequences, and there ought to be a 

powerful reason on the other side, in my opinion, for continuing in 

these policies. 

51

And frankly if you look at these important indicia from business 

creation and savings rate to wage growth, the reality is that things 

are not dramatically better. And on this point I was interested in 

seeing Mr. Nussle and Mr. Wicker make the somewhat interesting 

comment that the purpose of our fiscal policy is to make lives better for the American people, and it is a decidedly unconservative 

premise on their part, but even granting that premise, I wonder if 

the real empirical evidence suggests that that is the case. Thank 

you, Mr. Chairman. 

Mr. BOLTEN. Mr. Chairman, may I have one 15-second comment 

to close. 

Chairman NUSSLE. I will give you the same amount of time to 

respond, which was hardly 15 seconds. 

Mr. BOLTEN. I will use only 15, just to say that I don’t agree with 

Mr. Davis’ view of the economy. I think we have a very solid, 

strong economy under way at this point. But if I did agree with his 

view of the economy, I would feel even more strongly that this 

would be exactly the wrong time to raise taxes on the American 

people. 

Chairman NUSSLE. Mr. Lungren. 

Mr. LUNGREN. Thank you, Mr. Chairman. In response to Mr. 

Davis’ question, there ought to be a principle as to why we keep 

tax cuts. It is the principle that it ain’t your money. Taxes are involuntary takings of money from individuals who have earned it in 

some way, shape or fashion. Maybe I have been away from this 

place too long, but when I come here and hear the debate now that 

we can’t afford not to raise taxes because that costs the government something, what concept is that? That an American citizen, 

sitting in their own home, making whatever they make, giving it 

to someone else and in return getting money for the labor that he 

has put in or she has put in and suddenly they are costing the government something because they haven’t given them everything 

they have got. 

Mr. DAVIS. You are guilty of a pre-911 mindset, Mr. Lungren. 

Mr. LUNGREN. I didn’t interrupt you on this. I am just trying to 

get what the principles are down here. 

Mr. Bolten, I admire you greatly and everything you have said, 

but they have beaten you down such that you made a statement 

a minute ago that is extraordinary. When you were talking about 

mandatory spending, you mentioned the area of discretionary 

spending defense. 

Now my reading of the Constitution is the first thing that we are 

required to do on the Federal level is provide defense. And we have 

gotten so far in the Budget Committee that now we consider defense as discretionary and all these other things as mandatory. It 

suggests we really have gone out of control. We now are told that 

the fruit of your labor is not yours, it is the Government’s, and if 

you don’t give them everything you have cost the Government 

something. We have now been told that there is mandatory spending that is going to eat everything up and leave nothing for discretionary spending such as defense. I mean this is Alice in Wonderland. Up is down. Down is up. This is crazy. 

We can talk about budgets all we want. Folks are saying that if 

we don’t keep the tax cuts in—we are saying that if you don’t keep 

52

the tax cuts in or raising taxes, again I was here with Ronald 

Reagan. We put tax cuts in, and I never knew we had to defend 

them out 20 years and say if you don’t get rid of those tax cuts you 

are being somehow dishonorable, you are costing the American 

public something. The idea is we give people tax cuts. That is the 

new rate. So if you are going to go and do something which raises 

them on them, it seems to me that to the average person that is 

an increase in taxes. 

There is two ways to make sure the government gets zero revenues. One is to have a tax rate that is zero, but the other one is 

to have a tax rate that is 100 percent. Because dynamic scoring 

would tell you that if you tax people at 100 percent they ain’t going 

to work. And if they are not going to work, the government gets 

nothing. And the question is where do we find that balance? 

And the big debate between us, the big cleavage that I find here, 

is that you folks think that the American people can bear a larger 

and larger tax burden without doing anything to stifle their creativity, the amount of money they want to take home, the amount 

of work that they are going to do. 

And the point that Mr. Davis was making just a moment ago 

that we ought to talk about how much total taxes people are paying is an important one. But I would draw a slightly different conclusion to Mr. Davis. If we hadn’t had those tax cuts in, no matter 

what the level that they are paying now for the State is, they 

would have paid far more unless you are suggesting that the States 

would automatically charge their folks less because we are charging them more. I mean the fact of the matter is people generally 

feel that they don’t have an obligation to pay us more in taxes. 

And so I come back to this, what are we really going to do to try 

to keep spending down? Because that is what we should be talking 

about here in the budget side. This sounds like the Ways and 

Means Committee when I listen to my friends on the other side. 

They are always talking about raising taxes, but they don’t call it 

that. They want to say, don’t extend the current rates. OK, well, 

don’t extend the current rate because of the budget situation and 

laws that we have. That is called a tax increase as far I am concerned. But you talked about deferrals as one of the processes you 

used. It sounds to me that that is enhanced impoundment. We had 

a little problem with that following the Budget Act. 

So I would ask you a couple questions. One is should we maybe 

be putting more emphasis on the suggestion we have here in this 

body of enhanced rescission because that seems to be the mechanism by which we allow the legislative branch to have a say as 

well? 

And lastly this, why don’t we consider just freezing spending? By 

my calculations, based on the figures you have, by the year 2009 

our receipts would catch up with our outlays. And that is what 

most normal families would do. Why can’t we? I know the political 

requirements are tough. But why don’t we use that as a target? 

My last question is have you suggested the President veto a single spending bill? 

Mr. BOLTEN. Let me take the last one first, Mr. Lungren. I have 

recommended on many occasions that the President veto bills, and 

those recommendations have typically been incorporated in the 

53

statements of administration position that the administration has 

sent up on bills. And in all cases, the Congress has made modifications so that it was not necessary for the President to exercise his 

veto. 

Last year was a very good example in which we threatened on 

many occasions the President’s veto if the President’s spending limits were exceeded. The Congress and appropriators, you among 

many Members, were contributors to ensuring that that the appropriations bills came in at or below the levels that the President requested. And I think last year is a good record because that is a 

year in which at least the nonsecurity elements of spending were 

frozen. 

I will go back to your earlier remark about, I didn’t mean to 

cause you consternation by suggesting that I thought entitlement 

programs are in the normal English sense of the word mandatory 

and that defense is discretionary. On the contrary, when the President gave me instruction on putting this budget together he said 

the top priority is protecting the national security, and that is reflected in this budget. 

Finally, on the budget process issues you mentioned, yes, I think 

it is useful to examine the enhanced rescission processes that Mr. 

Ryan was talking about. I believe and our lawyers believe that we 

can do a line-item veto in a constitutional way, but regardless I 

don’t see any inconsistency in going forward with both proposals at 

once. I think both arrows belong in the President’s quiver in assaulting unnecessary spending. 

Chairman NUSSLE. Ms. Schwartz. 

Ms. SCHWARTZ. Thank you, Mr. Chairman. I have been asked by 

my colleagues to yield and I will only be 30 seconds. I would like 

to yield back just 30 seconds of my time and I will let the chairman 

monitor this, to Mr. Davis, and then I will be happy to make my 

comment and ask my question. 

Mr. DAVIS. I thank the gentlelady for yielding just to briefly address your point, Mr. Lungren, for someone earning over a million 

dollars the average tax cut they receive this year is $103,000. You 

can pare that down to $90,000 and recoup all the Medicaid savings 

that happened in the reconciliation last week, pare it down to 

95,000, recoup the savings in the child support enforcement program. I am always struck by this theory of agony for millionaires, 

have gone from $103 to $95, and I thank the gentlelady for yielding. 

Ms. SCHWARTZ. Thank you. I want to bring up an issue that really we have only barely touched on and I appreciate all the conversation on our side of the aisle has really been about priorities. 

Budgets are about priorities. You have spent your time this morning being very clear about the fact of the priorities of restraining 

spending, particularly in education, health care, and on that being 

the priority of this administration to accept actually I think really 

astounding deficits that many of us on this side of the aisle are 

very concerned about the fiscal irresponsibility of those continuing 

deficits and the huge debt this country is in and the fact that we 

are spending more on our interest payments than we spend on veterans health care and homeland security and education combined. 

54

But set that aside because my side of the aisle has talked about 

that, talked about some of those issues. 

Yesterday I had a family in my office with their son, who is an 

American soldier just returned from a year in Iraq. And we spent 

a good bit of time, as you might imagine, talking about the war in 

Iraq, about his service to this country and about what he has been 

through. What is interesting to me is that at the end of this conversation many things he said and the parents said and his younger brother, all three sons have chosen ROTC because of their love 

of this country, their commitment to service, but always also to 

help pay for college. Two of them are serving in Iraq. One just 

came back, one is just entering college in May and in August he 

will be put in harm’s way. 

But what is really particularly interesting to me is at the end of 

the conversation one of the parents said to me that did any of us, 

were any of us paying attention, and I will ask you this question, 

paying attention to the fact that while we are engaged in what may 

be important internationally in in fact countries like China where 

we are borrowing most of the money to operate to meet our obligations, are investing in their children’s education in science and 

technology, in energy independence and in their infrastructure? 

And are we worried about what that means to our ability for her 

sons, my sons, Americans to be able to compete in the global marketplace in 20 years if in fact, as this administration said, we are 

not going to make the kind of significant investments in energy 

independence, for one, or in education or health care or some of the 

other things we have talked about. So I wanted you in the time remaining to specifically, because we haven’t talked about it much, 

talk about energy independence. 

I think we were looking for—the President’s State of the Union 

speech was presented to us as being a huge step forward in terms 

of energy independence, and yet not only did those figures not 

point that out that we are not, that it is not going to happen when 

you look at the real numbers you are looking at, in fact the President’s request being less than what was authorized previously for 

research and development and renewable energy and hydrogen and 

fuel efficiency, that in fact its own Secretary of Energy spoke up 

immediately the next day to say the President was just giving an 

example that we might be able to reduce our dependence on foreign 

oil by 75 percent on fossil fuels in particular, and just let me say 

this is a question of priorities. Because last year we actually offered 

and gave the oil industry $14 billion, and yet we are talking about 

a $2.1 billion investment in research and technology on new energy 

sources. So while the other side keeps saying this is about spending 

more money, I would say, and many of us are saying, it is a question of what we are spending our constituents’ tax dollars on. Are 

we going to do it in a way that builds energy independence, builds 

a future for this country and for our young people, or is it going 

to be something that subsidizes the oil industry that, as you may 

know, ExxonMobil alone made $36 billion in profits—not revenues 

but profits last year? People are having a hard time heating their 

homes this winter, paying for gasoline at the pump. What in this 

budget really tells my constituents and all Americans that we are 

really looking toward the future as that mother asked me? 

55

Mr. BOLTEN. It is an important question, and I compliment your 

constituents first on their service but also on the mom’s farsightedness about what the real challenges are in this economy, because 

I think the administration agrees with that. 

On education, the President’s record I believe is strong particularly on the No Child Left Behind education spending. The President’s record over the course of his Presidency is about a 30-percent increase overall in education spending. This year while overall 

spending is down, spending in the No Child Left Behind——

Ms. SCHWARTZ. Could you speak to the energy question, please, 

because you did speak to education before? 

Mr. BOLTEN. On the energy side, first of all, there were some important measures adopted in the Energy Act that this Congress 

adopted last year. But in addition, the President has put a number 

of important proposals into this budget and were mentioned in his 

State of the Union address. His Advanced Energy Initiative constituted a 22-percent increase in funding for a variety of renewable 

energy sources, including increases in hydrogen technology, fuel 

cell technology, biomass is the one that he mentioned in particular, 

solar wind, geothermal. There is also a substantial amount of 

money in the budget to promote clean and safe nuclear power, 

which needs to be part of our overall mix——

Ms. SCHWARTZ. Maybe because time is up and you could provide—there was really quite a big difference of presentation, if you 

will, from what the President said at the State of the Union and 

what the Secretary of Energy and what the dollars that you suggest in terms of what the previous commitment was, what the expectation was in terms of what we would spend this year and what 

the hard dollars are in this budget. So I think that is really important for us to know how much is rhetoric and how much is actually 

going to really help us be able to move forward in this country toward energy and independence. 

Mr. BOLTEN. I will be glad to provide that. I hope you will see—

when the budget proposals are racked up you will see the substantial investment there in the kind of forward looking energy policy 

this country needs. 

[The information referred to follows:] 

OMB’S REPLY TO MS. SCHWARTZ’ QUESTION REGARDING ENERGY POLICY

Since 2001, the Administration has spent nearly $10 billion to develop cleaner, 

cheaper, and more reliable alternative energy sources. As a result, America is on 

the verge of breakthroughs in advanced energy technologies that could transform 

the way we produce and use energy. The 2007 President’s Budget builds on this 

progress, through the Department of Energy’s (DOE) Advanced Energy Initiative 

(AEI) which provides a 22 percent increase in funding for clean-energy technology 

research to change the way we fuel our vehicles and the way we power our homes 

and businesses. Specifically, the 2007 Budget request $2.1 billion for the AEI including $771 million for Energy Efficiency and Renewable Energy programs, $444 million for Fossil Energy programs, $392 million for Nuclear Energy programs, and 

$539 million for Science programs.

Mr. BAIRD. I thank Mr. Bolten for being so generous with your 

time and thank the chairman. I have got a few quick questions to 

ask. I think you mentioned at the start of your remarks, and Mr. 

Lungren echoed this, that if tax cuts currently on the board are not 

extended that is tantamount to a tax increase. 

56

I don’t see in the President’s budget a calculation of the continuation of sales tax deductibility for the seven States that have no 

income tax but do have sales tax. Those States are my home State 

of Washington, the President’s home State of Texas, the Vice President’s home State of Wyoming, the President’s brother’s State of 

Florida and also Tennessee, Nevada, and South Dakota. 

Now, is it the administration’s intent to raise taxes on people 

from those States? 

Mr. BOLTEN. No, I don’t believe so. The question of sales tax deductibility is one that was not part of the President’s original tax 

program. 

Mr. BAIRD. True, but it was passed by the U.S. Congress into law 

and applies this year. And if it is not extended would that be not 

tantamount to a tax increase? 

Mr. BOLTEN. The question of sales tax deductibility I think is one 

that we believe ought to be addressed in the concept of overall fundamental tax reform, which we continue to support. 

Mr. BAIRD. But you chose to target other taxes for extension, did 

you not? And I know the President is a strong advocate of extending capital gains and dividend tax cuts and would imply that if we 

don’t support those then we support a tax increase, but yet in your 

own budget you aren’t supporting extension of the sale tax deductibility. 

Mr. BOLTEN. All that is reflected in the budget for permanent extension is proposals that the President made and were enacted 

2001 and 2003. 

Mr. BAIRD. So the President is not supporting extension of tax 

cuts for the people in those States and that seems to me to be tantamount to supporting an increase in the taxes. I don’t know how 

you avoid it given your logic. 

Mr. BOLTEN. As I said, we think that is an issue that can and 

should be addressed in fundamental tax reform. 

Mr. BAIRD. Well, the taxes on these folks will be increased if we 

don’t extend this. I founded the Congressional Meth Caucus along 

with Chris Cannon and Ken Calvert. It is the number one drug of 

abuse in many counties in this country, and by my calculations, 

and maybe you can correct me if I am wrong, we are looking at a 

$376 million cut to the COPS program, $23.5 million cut to Meth 

Hot Spots, $353 million cut to Safe and Drug Free Schools, complete elimination of Byrne grants, I have to tell you, Mr. Bolten, 

back home my local sheriffs and police officers are reeling at the 

prospects of these cuts. They are fighting a very difficult frontline 

battle. I don’t know if you have been out there and met with these 

folks and seen these meth labs and seen the kids and families destroyed by them. Do you really think we can deal with this problem 

which is tearing up our families and our communities with these 

kind of cuts? 

Mr. BOLTEN. Well, the administration I believe, remains strongly 

committed to addressing the problem of methamphetamine, and 

the programs that you referred to are more general grants to first 

responders that we believe are more in the realm of local responders. 

Mr. BAIRD. I can tell you if you talk to those folks they will tell 

you they can’t make it without these programs. One of the things 

57

I find interesting here is we come to visit with you having just met 

with our local folks. And in addition to hearing from our local police and sheriffs, I just met with school districts. And I can tell you 

the shortfalls in title I funding that don’t meet the demand in title 

I are going to leave some of our schools—and I just had school 

board members and community college presidents and board members here that last 2 days. They are telling me they can’t do it. 

They are telling me they are going to significantly face not just 

hardships. In our State you have a limit on how much your local 

levy can be. If we receive the kind of cuts and shortfalls that these 

folks are looking at, they will not be able to meet the needs of special ed kids and other folks that are covered in Title I. And I just 

would invite you, and I mean this quite sincerely, would invite you 

to meet with some of these folks because they could give you a 

pretty clear picture of demands placed on them by No Child Let 

Behind and other Federal mandates and shortfalls resulting from 

the budget. 

I don’t expect you to answer it, but I can tell you we live in a 

different world sometimes. I go home nearly every weekend and 

these folks tell me, this is what is happening to us on the ground, 

and come back here and it is all rosy. And boy, the dichotomy we 

face is astonishing. So I extend an invitation to come to Longview, 

Washington or Kelso or Centralia, especially when it comes to vocational ed. The elimination of the Perkins program will devastate 

our vocational ed program. I just have to tell you that. You need 

to understand that kids who are trying to get an alternative to the 

college track will not be able to do so or will not be able to keep 

up. 

The final thing I just would mention, the King of Jordan is here 

meeting with President Bush, met with him this morning. He met 

with Members of Congress today. My understanding is that Jordan 

has in it a request for about $200 million in aid. By my estimate, 

that is about one-fifth of what we spend in Iraq in 1 week. Now, 

this is one of the strongest best friends we have in the region. And 

I would urge this committee, Mr. Chairman, and this body, if we 

can’t find $200 million to help the people of Jordan who have been 

steadfast friends to this country, who are a model of a moderate, 

responsible, and a progressive state in that region, I think our priorities are totally out of whack and I would encourage the President to support it, and I hope this committee will put it in the 

budget on both sides. Any comments on that? 

Mr. BOLTEN. Only to say that I know the administration, Secretary Rice, shares the concern about adequately supporting the 

government of Jordan. I can’t say what is in the budget now—I 

can’t say what may be coming forward in the future, but it is a 

matter of substantial concern. 

Mr. BAIRD. Well, we should be able to find one-fifth of 1 week 

of Iraq’s spending to help Jordan out or we have our priorities a 

little crazy in that region. I thank the gentleman. 

I thank the chairman. 

Chairman NUSSLE. Mr. Jefferson. 

Mr. JEFFERSON. Thank you, Mr. Chairman. Light is gone. Mr. 

Chairman. I barely got my light on. I lost 20 seconds. 

Chairman NUSSLE. We are holding it for you. 

58

Mr. JEFFERSON. Thank you, Mr. Chairman. I appreciate the 

chance and Mr. Bolten for waiting as long as you have. 

I am like a lawyer with one client. It is just all about the recovery in my State, and I am concerned about what is happening with 

our Corps of Engineers. In the last year from budget to budget, as 

we read, it is 43 percent overall reduction, critical studies budget 

and 30 percent less for flood control and protection. These are the 

kind of cuts that led to the catastrophe that has occurred in my 

part of the country and that led to the flooding which is largely, 

as you may or may not agree, most studies now show largely manmade as opposed to resulting from a natural disaster. The levees 

failed because the Corps didn’t do the levees right or didn’t maintain them right or design or construct them right. 

And we think there is some responsibility. I heard the question, 

how much responsibility ought the Government have? Well, if it 

were just a natural disaster maybe we could argue that point. But 

if it is actually what we know it now is, a manmade disaster at the 

hands of our Corps and others who didn’t do their job, then we 

have, I think, a different standing here, and so as a consequence 

I am really concerned about the level of support that the Corps 

budget has for these critical issues. And I would like to figure what 

the thinking is of the administration not applying a great deal 

more resources in this area to flood protection. 

Mr. BOLTEN. Mr. Jefferson, I will leave to others in the lessons 

learned exercise and evaluation of what exactly went wrong there. 

The one thing I do know is that it is not a lack of funding that 

caused the problem down in the gulf. Corps of Engineers funding 

during the course of this administration has not declined from the 

previous administration. And when you see the numbers that come 

up in the budget proposals that we have put before you today, the 

cuts that appear in there are the administration stepping in and 

striking out earmarks for programs that do not meet our cost-benefit analysis. 

The real challenge I believe in the area of the Corps of Engineers, where almost every member of this body has some interest 

in a water project in their district, is ensuring that the money we 

do spend goes to the highest priorities like protecting those areas 

most at risk. 

Mr. JEFFERSON. I just say the earmarks that were there were because of underfunding by the Corps on these projects. And the 

Corps usually requests more projects than the administration approves almost all the time. The Corps is lined up with us with respect to what we are requesting more than the administration was. 

And it is just not this administration but it has been happening for 

years. And it is time, we think, to address it. So in this whole 

area——

Mr. BOLTEN. Can I also say, Mr. Jefferson, that on top of the regular 2007 budget that you see presented before you now the administration has also made substantial supplemental requests for funding in the Corps of Engineers of around $3 billion to begin to address the problems that are there now in the gulf. 

Mr. JEFFERSON. We appreciate that. I went to the Netherlands 

with a CODEL just recently where they are operating 20 feet below 

sea level over there with an integrated system of flood control, of 

59

dikes and barriers and various canals and various lock systems and 

so on. And they generate $400 billion in the economy 20 feet below 

sea level. And we are only 4 feet below sea level and people telling 

us it is impossible. It is not impossible if we apply the right commitment to it. 

And let me say one other thing in overall issues of deficits that 

concerns me. We are at a time now where we have enjoyed a strong 

economy. Folks have said here, strong economic growth in last few 

years. And yet we have these huge deficits. A few years ago CBO 

said our problem was largely caused by the bursting of the bubble 

with the stock market, by other economic shocks in the system. 

They now conclude that about 8 percent of what is happening is 

because of the economy, or the deficits I am saying, and the rest 

of it is because of shortages we will be making here in Congress. 

So the economy, the issues about the tax cuts and the rest that we 

have heard here today also, whether we extend taxes and all that, 

seems irrelevant to this whole point because what the economy has 

come back from, wherever it was, and to the extent that taxes had 

anything to do with it they were intended as stimuli and if that 

was the case of doing their job, this is why they were temporary 

in the first place. They weren’t intended to be permanent, they 

were intended to give a jolt. Let’s assume they did their job. Now 

the economy is back together and we are suffering these huge deficits nonetheless, which is, so how do you explain this dichotomy of 

a strong economy and huge deficits at the same time? 

This is a, tough, tough problem we have to face up to here and 

we have to face up to it in ways other than talking blithely about 

the effect of tax cuts. 

Mr. BOLTEN. I would point first partly to some lag effect that as 

the economy recovers there is a little time before the strong revenues start coming back. The economy was starting to recover in 

2003 with the implementation of the last major set of the President’s tax cuts. It wasn’t until 2004 that we saw the economy really 

strengthening and revenues coming back strongly, and then 2005, 

when we had the real spike, good spike in revenues that we experienced then. 

The one thing I would say is that we now have an economy that 

is operating effectively, that is producing jobs, that is reducing the 

unemployment rate, generating home ownership, where business 

investment is strong, and our strong belief is that a tax increase 

on that economy would send us in the wrong direction. 

Now, why are we still in a deficit situation today? There are a 

lot of reasons for that. But the two biggest ones are that we are 

in a war and we are trying to respond to the most catastrophic and 

expensive natural disaster in this country’s history. So those two 

factors alone are a substantial contributor to the deficit situation 

we are in. 

We also need to just get our spending appetite under control here 

in Washington. In the short to medium run, as I have said before, 

I believe our situation looks good if we follow the course that is laid 

out in the President’s budget. 

The real challenge is the one that I have addressed with many 

members here, including, beginning with the chairman, is that our 

long-term fiscal situation is where our real danger lies, and that is 

60

a danger that is produced by the unfunded obligations in our entitlement programs, which is what we must begin to address, I hope 

on a bipartisan basis. 

Mr. JEFFERSON. I hope we can, too. Last thing, I don’t have any 

time left, if you—it is an argument that is circular, if you don’t extend the tax cuts then of course you can afford these unexpected 

costs, the war, and the hurricanes. If you do extend them of course 

then these things become issues that you can say are the reason 

for the deficit. So it is argued, you know, both ways. 

So I frankly think that we can anticipate better what is going on 

with recovery in the gulf and what will be needed there than we 

can with the issues about war. That soon has to be assigned to 

some supplemental idea. But we do know the cost of recovery is 

going to be tremendous down there and we do know that the cost 

of preventing the flood system can be estimated with more certainty than the cost of war. And I hope it would apply different 

standards to this as we go about trying to fix these two sets of 

issues. 

Chairman NUSSLE. Director Bolten, thank you for spending the 

time with the House Budget Committee today. We know you have 

other obligations in front of other committees. We appreciate the 

time you spent with us today and we look forward to working with 

you as we develop the budget for fiscal year 2007. 

Mr. BOLTEN. Thank you for your courtesy, Mr. Chairman. 

[Additional questions submitted for the record:] 

MR. SIMPSON’S QUESTION REGARDING THE TRIO PROGRAM

We know that nearly one-third of the low-income high school graduates who immediately enroll in college were touched by a Federal TRIO program. And, as President Bush recently mentioned in his State of the Union Address, we know that 

America needs to keep expanding its educated labor pool if we are to remain internationally competitive. We also know that Americans, across all demographics of income, location and party affiliation, overwhelmingly support programs like TRIO 

that help low-income and first-generation students go to college. Why then, in the 

face of both clear need and tremendous public support, would the Bush Administration choose to eliminate two effective and popular programs that help low-income 

students attend college?

OMB Answer: The President’s 2007 Budget would continue significant investments in support of low-income high school students through the President’s proposed $1.5 billion High School Reform program. This initiative would provide States 

with flexible funding to support a wide range of effective interventions. In return 

for this flexibility, States would be held accountable for improving student achievement and graduation rates. Under the High School Reform initiative, States may 

support activities similar to those carried out under TRIO programs, as long as they 

deem these strategies to be the most effective means for improving student performance. 

There are also other new or expanded high school activities that are being proposed in the President’s 2007 Budget, including $100 million for Striving Readers 

and $380 million in new funding for programs that are part of America’s Competitiveness Initiative.

Chairman NUSSLE. Thank you. This hearing is adjourned. 

[Whereupon, at 2:05 p.m., the committee was adjourned.]

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