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THE PRESIDENT’S BUDGET

FOR FISCAL YEAR 2004

HEARING

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, FEBRUARY 4, 2003

Serial No. 108–1

Printed for the use of the Committee on the Budget

(

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

(II)

COMMITTEE ON THE BUDGET 

JIM NUSSLE, Iowa, Chairman 

CHRISTOPHER SHAYS, Connecticut, 

Vice Chairman 

GIL GUTKNECHT, Minnesota 

MAC THORNBERRY, Texas 

JIM RYUN, Kansas 

PAT TOOMEY, Pennsylvania 

DOC HASTINGS, Washington 

ROB PORTMAN, Ohio 

EDWARD SCHROCK, Virginia 

HENRY E. BROWN, JR., South Carolina 

ANDER CRENSHAW, Florida 

ADAM PUTNAM, Florida 

ROGER WICKER, Mississippi 

KENNY HULSHOF, Missouri 

THOMAS G. TANCREDO, Colorado 

DAVID VITTER, Louisiana 

JO BONNER, Alabama 

TRENT FRANKS, Arizona 

SCOTT GARRETT, New Jersey 

GRESHAM BARRETT, South Carolina 

THADDEUS MCCOTTER, Michigan 

MARIO DIAZ–BALART, Florida 

JEB HENSARLING, Texas 

GINNY BROWN–WAITE, Florida 

JOHN M. SPRATT, JR., South Carolina, 

Ranking Minority Member 

JAMES P. MORAN, Virginia 

DARLENE HOOLEY, Oregon 

TAMMY BALDWIN, Wisconsin 

DENNIS MOORE, Kansas 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

ROSA DELAURO, Connecticut 

CHET EDWARDS, Texas 

ROBERT C. SCOTT, Virginia 

HAROLD FORD, Tennessee 

LOIS CAPPS, California 

MIKE THOMPSON, California 

BRIAN BAIRD, Washington 

JIM COOPER, Tennessee 

RAHM EMMANUEL, Illinois 

ARTUR DAVIS, Alabama 

DENISE MAJETTE, Georgia 

RON KIND, Wisconsin 

PROFESSIONAL STAFF

RICH MEADE, 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 4, 2003 ............................................ 1

Statement of: 

Hon. Mitchell Daniels, Jr., Director, Office of Management and Budget .... 6

Prepared statement of: 

Mr. Daniels ....................................................................................................... 8

Hon. Artur Davis, a Representative in Congress from the State of Alabama ............................................................................................................... 21

Hon. Adam H. Putnam, a Representative in Congress from the State 

of Florida ....................................................................................................... 22

(1)

THE PRESIDENT’S BUDGET

FOR FISCAL YEAR 2004

TUESDAY, FEBRUARY 4, 2003

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The committee met, pursuant to call, at 10:45 a.m. in room 210, 

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

committee) presiding. 

Members present: Representatives Nussle, Gutknecht, Ryun, 

Hastings, Schrock, Brown, Wicker, Bonner, Franks, Garrett, Barrett, McCotter, Diaz-Balart, Hensarling, Spratt, Moran Baldwin, 

Moore, Lewis, DeLauro, Edwards, Scott, Ford, Capps, Thompson, 

Baird, Cooper, Meek, Davis, Emanuel, and Majette. 

Chairman NUSSLE. Good morning again. This is the full committee hearing of the Budget Committee of the House of Representatives on the President’s budget for fiscal year 2004. 

The witness today will be Mitchell E. Daniels, Director of the Office of Management and Budget. I am pleased to welcome Mitch 

Daniels back to the Budget Committee. I am also pleased to receive 

today the President’s budget of the United States for fiscal year 

2004. 

We are appreciative that you got it to us on time. That is probably more than can be said about the Congress of late with regard 

to getting its work done on time. But we appreciate that you got 

your budget on time to us, and we receive it here today. 

When the President submitted this budget for fiscal year 2004 

yesterday, the underlying question for me was a very simple one. 

Is it fiscally responsible? Is it a fiscally responsible blueprint for 

governing, and does this fiscally responsible blueprint for governing 

deal with the difficult challenges that America faces? From what 

I have read at this point, and based on what I believe is a very 

ambitious agenda laid out by the President in last week’s State of 

the Union address, I believe the answer to these questions is yes. 

Now, I have no doubt that there will be critics of the President 

that will scoff. They will point to the substantial near-term deficits 

that are provided under this budget, deficits that the President and 

his aides have not glossed over at all. Those deficits are troubling. 

Deficits do matter, especially coming just 2 years after when we 

anticipated budget surpluses for as far as the eye can see. 

But we all know what happened and how we got to this point 

in time. Our economy which had slowed dramatically in the year 

2000, slid into recession just as President Bush took office. 

2

Later that year, terrorism struck here on our own soil, further 

challenging our national and economic confidence. Our necessary 

response—rebuilding and shoring up security here at home, and 

taking on terrorism where it breeds overseas—has required a commitment of not only our American will, but our resources. 

I would like to refer you to chart No. 9. There we go. There are 

many factors that contribute to where we are today, but most of 

those factors were beyond the control of the United States Congress, beyond the control of the President of the United States in 

turning these surpluses into deficits. 

You cannot have a discussion about surpluses and deficits and 

forget September 11, 2001. You cannot have a discussion about 

turning surpluses into deficits without recognizing that we had an 

economic recession that went deeper as a result of the terrorist attack in 2001. And yet it seems that for some reason the smallest 

portion of the reason why we might be in deficits, the tax cut that 

was passed—if we all remember, in order to spur the economy of 

2001—we often forget or assume that it was the tax cuts, and the 

tax cuts only, that for some reason has driven us into deficits and 

driven us into the situation that we find ourselves. 

All of the factors that we faced then are still active today. At the 

same time we continue to face increasingly urgent demands in 

areas such as education and health care. Budget deficits are among 

the results, but fiscal responsibility is not just about making the 

numbers add up in a certain way. 

A friend of mine recently said, you know, the Soviet Union had 

a balanced budget. That is true. The Soviet Union was not being 

fiscally responsible. That is obvious. It is fundamentally more 

about governing than just about whether the numbers add up. 

And governing requires striking a balance among competing demands, weighing desires against needs, and facing obligations not 

only on today’s generation but also tomorrow’s. Fiscal responsibility 

requires a plan, requires a budget. 

The House of Representatives and this committee deserves a lot 

of respect and a lot of admiration for doing just that, writing the 

budget. It is not perfect, trust me on that. If it is the budget that 

Jim Nussle would write, it might look slightly different than the 

budget that ends up leaving the committee. 

But it is a compilation of the wants and the needs and the frustrations and the desires of the American people through their representatives. This committee has done its job, and for that it deserves a commendation. Not every committee in Congress has been 

able to write a budget, even the Budget Committee of the Senate. 

So we begin our work to that end today, writing a budget. Today’s budget needs to be written on three principles. We must prevail in the war against terrorism, principle No. 1, committing all 

of the resources necessary for that task. 

Principle No. 2, we must provide for and enhance the security of 

our homeland. This is not a one-time job. It is a permanent and 

ongoing task, especially when we are trying to protect ourselves 

against evil doers, who spend all of their time calculating ways to 

terrorize and kill Americans. 

Both of these, along with the other needs cited above, will require government spending and will result in continued deficits for 

3

a time. But what matters is that we don’t lose control of spending. 

We must not commit to strategies that win the popular support 

today, only to balloon in costs that will be imposed on our own children and grandchildren. 

And I would like to show you chart No. 6. This is what happens 

when you don’t control spending. You can just see here the deficits 

will deepen without spending restraint. You have a deficit under 

the President’s budget, there is no question about that. But if 

spending grows at the rate it has been growing just the average of 

the past 5 years, you can see that we will never get back to balance, but deficits will explode in the outyears. That is why controlling spending is so important to this task. 

The third important principle that we have to build this budget 

on is helping to restore the strength and stability of our economy. 

According to last week’s projection by the Congressional Budget Office, without action this economy will continue to limp along with 

unemployment rates at about 6 percent for the next several years. 

This is not acceptable. It is not acceptable to me. It is obviously not 

acceptable to the President. It is not acceptable to the families who 

are struggling to make ends meet. It takes a growing economy to 

protect jobs and opportunities, which restores Americans’ hope so 

that they can make better lives through their own effort. 

Our current situation is much like the situation that many families throughout the country are facing around their kitchen tables. 

When faced with tough times, they still buy the family groceries for 

the kitchen, but they don’t cover the remodeling of the kitchen. So 

as we begin to construct this year’s budget, we must adhere to the 

same principles that families deal with every day around their 

kitchen tables. We must control spending. Even though we have to 

borrow for emergencies, we must control our spending. 

And with that I would like to turn to my friend, Mr. Spratt, for 

any comments he would like to make. 

Mr. SPRATT. I thank the chairman. Director Daniels, welcome 

back. It is quite a different situation from when you first came here 

2 years ago. Two short years ago the forecasters at the Office of 

Management and Budget, OMB, looked into their crystal balls and 

saw nothing but surpluses for the next 10 years and beyond. All 

together, $5.6 trillion in surpluses were forecasted. 

Now, granted that was an accountant’s or an economist’s construct, but that was the forecast on which you based your economic 

policies, and in particular the tax cut that was enacted in June of 

2001. If I could have chart No. 1. 

During the last 2 years, the situation has deteriorated from a 

surplus, a cumulative surplus, including Social Security, over that 

period of time, of $5.644 trillion, to $3.133 trillion in July when you 

did your mid-session review in 2001. By February that was down 

to 739 billion, by July to 444 billion, and now this February, when 

we factor in your budget policies, the cumulative surplus will not 

be $5.6 trillion; it will be a deficit, a deficit of $2.122 trillion. 

That means in 2 years we have seen a swing in the budget for 

the worse of $7.8 trillion, which is phenomenal. I will ask you later 

if you feel in any way chastened by this whole experience, if there 

have been any lessons that we have learned from it. Do we have 

the charts yet? OK, we got a technical problem. 

4

Chairman NUSSLE. We won’t take that out of your time. 

Mr. SPRATT. The situation we are in now, according to the information you furnished us, using your numbers, is that the cumulative surplus before you implement your policies is $129 billion in 

the red. We have got right now, assuming none of the policies you 

propose were enacted, we have a deficit of $129 billion. That comes 

off of the table in your budget. 

All together, your budget proposals on top of that deficit come to 

$1.993 trillion, and that is how you get the $2.122 trillion cumulative deficit over this 10-year period, 2002–11. 

What is radically different about this year as compared to 2 

years ago is that 2 years ago you could have made the argument, 

and did, that with a surplus apparent of $5.6 trillion, some of it 

should be given back to the American people. 

We didn’t argue with that. What we argued with was whether 

or not we would bet the budget on an accountant’s or an economist’s construct, this blue sky forecast that foresaw deficits this 

large. We said, let’s take it step by step, have smaller tax cuts and 

see if this surplus is really going to materialize. You insisted, the 

administration insisted instead in taking a big bet on the expectation that that surplus could be realized. 

You can call that negligence, miscalculation. What you say today 

in your materials that you have sent us is that you missed the estimation of the surplus by $3.174 trillion. Two years later, looking 

back, you say there never was—the surplus of $5.637 trillion, to 

that extent, to the extent of $3.2 trillion, did not materialize for 

economic reasons. 

You don’t break them down between technical and economic, you 

just say economic reasons. So in a sense, that is a misestimate of 

$3.2 trillion, and it is an acknowledgment that the surplus of $5.6 

trillion, if it ever had any chance of materializing, won’t materialize 

to that extent. It is really about a 2.4, $2.5 trillion surplus. 

Now, the problem that you have got now is that you have more 

than spent already the more than $2.5 trillion adjusted surplus. By 

your own numbers, you spent $129 billion of what is left of a $5.6 

trillion surplus after you adjust it for economic miscalculation. Adjusted for economic miscalculation is $2.463 trillion. You have 

spent, in tax cuts, in stimulus cuts, and in other enacted legislation, mostly for homeland defense and defense, $2.592 trillion, 

which is more than the surplus was in the first place. That is why 

you have got the $129 billion deficit beginning this year. 

Now, what that means is that anything you propose in the way 

of new tax cuts, or anything you propose in the way of new spending initiatives is going to go straight to the bottom line. You can’t 

offset it against the general fund, it has been exhausted, the surplus. You can’t offset it against Social Security, you have fully 

spent and—borrowed and spent the Social Security surplus. You 

can’t offset it against the Medicare surplus. It has been borrowed 

and spent. It goes straight to the bottom line. It gets charged up 

to the deficit. When we charge it to the deficit, we charge it to our 

children. They are the ones that will pay it. 

I don’t see anything in this proposed budget that convinces me 

that the budget will be—that the debt we are accumulating will be 

5

paid before our children inherit the burden of paying it themselves. 

So that is the problem that I have with the budget before us. 

No. 1, we are going forward intentionally now, per your proposal, with additional budget deficits of $2.122 trillion. We are making 

that choice now. This is not a matter of misestimation or something 

like that. We know that every dollar we spend for these additional 

tax cuts or for additional benefits, whatever they may be, will go 

directly to the bottom line. So if we adopt this budget, we are willfully, wantonly and intentionally increasing the deficit by $2.122 

trillion, your number, your budget, and that is the consequence. 

Now, I understand all of the circumstances that give rise to this 

and don’t hold you responsible for all of them. I do think that we 

cut way close to the margin with the initial budget in 2001. But 

let’s leave that behind us as a problem that has already occurred 

and now has to be dealt with. 

What I found troubling about your budget is I don’t see any effort here to deal with it. I don’t see any effort to develop a plan 

that will get us out of the hole that has been dug. Growth won’t 

do it. You are assuming real growth of over 3 percent. I hope we 

attain it. But I can’t imagine that we will get as much real growth 

over and above what you have assumed to take us out of a $2.1 

trillion deficit. 

Defense spending certainly isn’t going to be the solution to it. It 

was in the 1990s. We were able to restrain defense spending after 

the end of the cold war, and that helped us get rid of the deficit. 

But defense spending we all know is going up. In fact, it is understated in this budget, understated in the regular budget and understated also if we have a war. We can’t find anything here even for 

the expedition in Afghanistan now, any extra amount for that. So 

defense is understated in any event. It is going up. It is not coming 

down. It is not going to eradicate the deficit. 

Nondefense spending you budgeted below inflation, around 2 percent a year. But once you will make the adjustments for homeland 

security and for a few favored programs, that means we will have 

to hold other programs to a percent, to 1.5 percent growth over 10 

straight years. If you read any budget history, you will know how 

improbable that is. 

So you have already assumed a lot of constraint on nondefense 

discretionary spending. Deficits are coming back. Before you get 

your hands around this problem, there is no way around it, you 

have got deficits as far out as you forecast. That means more national debt. 

By our calculation the national debt will go up on your proposal 

from $3.540 trillion, debt held by the public, to just over $5 trillion. 

There will be a 50-percent increase. And also by our calculations, 

there will be a 50-percent increase in the debt service, the interest 

paid on the debt owed by the United States of America. 

That becomes, Mr. Director, a new kind of debt, a new kind of 

tax. It is a debt tax that future generations will have to pay just 

to service the debt. And it becomes a real fiscal drag, because people pay taxes and see nothing in return for it. That is one of the 

great benefits that we achieved over the last 10 years. We have 

turned the one of the fastest growing accounts in the budget, interest on the national debt around, and brought it from $250-someVerDate Feb 1 2002 10:59 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 X:\HEARINGS\108TH\108-1\HBU035.002 RYAN PsN: RYAN
6

thing billion down to about $170 billion. That will reverse itself 

under your budget. Interest on the national debt will grow about 

50 percent due to the debt accumulation here over the next 5 years. 

That is going up. So that is not going to help us pay off the deficit 

either. 

Medicare-Medicaid. The question is how much can we contain these two programs. You got about $100 billion each for growth in 

those programs over the next 5 years. They are not likely to be the 

sources of restraint. 

So I am looking here and saying, where is the solution? You have 

got this problem. I think you would acknowledge this is a problem. 

I am sure, knowing you, that you don’t, you don’t enjoy presiding 

over a budget that is accumulating a surplus of $2.1 trillion. So 

where is the solution? And how do we derive a solution, particularly if you go forward with additional tax cuts? 

If I can just have the chart that shows the total tax cuts? Back 

there. These are the tax cuts in the Bush agenda, the 2001 cuts, 

already made, the stimulus package, already done. The January 

2003 growth package on top of that is $615 billion. Making permanent the cuts that were made in June of 2001 is $692 billion, and 

then we think you have to throw in the alternative minimum tax, 

because all of us are going to confront that issue, as the number 

of taxpayers who have to pay the alternative minimum tax rather 

than the posted rate goes from 2 million to 39 million, somewhere 

between 2 and 39, politically there will be no way around it, we 

will have to fix that. 

The total amount of tax reduction, revenue reduction adjusted for debt service comes to $4.4 trillion. That has got to be part of the 

problem. And I think you are worsening the problem and putting 

a solution almost out of reach, making deficits intractable again, 

structural instead of cyclical with the budget proposal you have 

got. 

I look forward to your testimony and to asking you further questions. 

Chairman NUSSLE. Director Daniels, welcome back to the Budget 

Committee, and we are pleased to receive the President’s budget 

and your testimony at this time. 

STATEMENT OF MITCHELL DANIELS, JR., DIRECTOR, OFFICE 

OF MANAGEMENT AND BUDGET 

Mr. DANIELS. I thank the committee as always for the privilege 

of appearing. This week we do present the President’s program for 

the next fiscal year. No such presentation lacks for long-term importance to the Nation’s future, but few in our history have directed the Nation’s public resources at more fundamental challenges. 

The President plans to prosecute the war on terror, as he says, 

‘‘relentlessly.’’ There is no more effective way to protect Americans 

or, as we now say, provide homeland security than to root out terror and stop it before it can reach our shores. The budget provides $380 billion for the war on terror, and the 

continued rebuilding of our national security capabilities. Spending 

on domestic homeland security is also given top priority, with 

spending rising at the fastest percentage rate of any category. 

7

The President’s third priority is to reinvigorate an American 

economy that has grown for 5 straight quarters, but at a rate he 

deems far too slow. To this end, he proposes a major growth and 

jobs plan. 

Below these three overriding objectives, the President urges 

greater spending on a host of essential activities: Veterans’ programs, education of our disadvantaged and disabled children, the 

alleviation of Africa’s AIDS tragedy, research on a pollution-free 

automobile and many others. 

The budget has returned to deficit, a phenomenon that pleases 

no one, but which ought not be misunderstood or overstated. Today’s deficit, while unwelcome, was unavoidable and is manageable. In fact, given a sputtering economy, it reflects appropriate 

economic policy, as the President decided in advocating a bold economic plan. 

The deficit’s origins are no mystery. It was the product of a triple 

witching hour in which recession, war, and the collapse of a stock 

market bubble all coincided, presenting our country and government with a radical change of circumstances. 

Since it has come up, let me pause to dispel a persistent fiction 

or, more accurately, misrepresentation. Note this fact. If there had 

never been a 2001 tax cut, if the President’s opponents had been 

triumphant and no tax relief had been provided to the American 

people, we would still be experiencing triple digit deficits today. Let 

me repeat. If those who opposed tax relief in 2001 had succeeded 

and no bill of any size had ever passed, the 2002 budget would 

have been $117 billion in deficit, and the 2003 shortfall would have 

been $170 billion. 

Even if we had never been attacked and incurred no cost of war 

or recovery from September 11, and no tax relief had become law, 

we still would have gone into deficit. There is no question about 

what got us out of balance. What we should be debating is the 

right way and the right pace for getting back in. 

Deficits are not always unacceptable. The strongest proponents of 

balancing the budget continually make exceptions for war, recession and emergency, exactly the conditions we have experienced simultaneously. In other words, there are times when it is necessary 

for the Federal Government to borrow in order to address critical 

national priorities, and these are such times. 

In proposing an aggressive economic growth plan, the President 

is consciously opting to accept somewhat greater borrowing in order 

to put more Americans back to work. He did so in the knowledge 

that today’s deficit is moderate and manageable, moderate by any 

historical measure. At 2.7 percent of GDP, the 2004 shortfall will 

be smaller than in 12 of the last 20 years and less than half the 

largest deficit in that period. It is manageable, in fact highly so, 

in that the costs of debt service are extraordinarily low. 

Just 5 years ago, interest payments took up 15 cents of every 

budget dollar. This year, thanks to the lowest interest rates in 40 

years, it will be just 8 cents. 

A balanced Federal budget is a very high priority for this President. It is not and cannot be the highest priority let alone the only 

one. He does not place it ahead of our national security or the safeVerDate Feb 1 2002 10:59 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 X:\HEARINGS\108TH\108-1\HBU035.002 RYAN PsN: RYAN
8

ty of Americans from domestic terror or a growing, full-employment 

economy. 

If a balanced budget were all that mattered, it would be no great 

trick to accomplish. By either CBO or OMB estimates, all we would 

have to do is stop where we are, hold our spending growth to inflation for the next couple of years. But that would mean no action 

to create jobs, no new action to defend our homeland, no further 

strengthening of our defenses and so forth. The most important objective in this context is economic growth, the wellspring of balanced budgets. 

No one saw the last surplus coming, not 5 years ahead, not 3 

years ahead or even 1. In fact, 4 months into the year of the first 

surplus, both OMB and CBO were still predicting a deficit for that 

year. A strong economy produced that unpredicted surplus and 

only a strong economy can bring a surplus back. 

If we balance our priorities, we will balance our budget in due 

course. Our projections, which incorporate extraordinarily conservative revenue estimates, $55 billion below CBO’s for this year 

alone—those projections see deficits peaking this year and heading 

back down thereafter. To hasten our return to balance, the President proposes to restore the system of spending controls under the 

recently expired Budget Enforcement Act. He asks the Congress to 

pass, along with this year’s budget resolution, a reenacted BEA incorporating 2 years of caps, limiting discretionary spending to the 

4 percent path that would match government’s growth to the 

growth of the American families’ income. That renewed statute 

should also reinstate the so-called PAYGO system that limits the 

budgetary effect of entitlement spending and revenue measures. 

This committee and its counterpart in the other body have the 

first and fundamental role in helping the President decide the Nation’s priorities. You also are the taxpayers’ first line of defense 

against excess or misuse of the dollars which the government takes 

away from them. 

On behalf of the President, thank you for your service here, for 

your leadership and restoring an orderly, effective budget process 

during 2003. 

[The prepared statement of Mitchell Daniels, Jr., follows:]

THE PREPARED STATEMENT OF HON. MITCHELL E. DANIELS, JR., DIRECTOR, OFFICE

OF MANAGEMENT AND BUDGET

Thank you as always for the privilege of appearing. 

This week we are presenting the President’s program for fiscal year 2004. No such 

presentation lacks for long-term importance to our Nation’s future, but few in our 

history have directed the Nation’s public resources at more fundamental challenges. 

The President plans to prosecute the war on terror relentlessly. There is no more 

effective way to protect Americans, or, as we now say, to provide ‘‘homeland security,’’ than to root out terror and stop it before it can reach our shores. The President’s Budget provides $380 billion for the war on terror and the continued rebuilding of our national security capabilities. Spending on domestic homeland security is 

also given top priority, with spending rising at the fastest percentage rate of any 

major category. 

The President’s third priority is to reinvigorate an American economy that has 

grown for five consecutive quarters, but at a rate that he deems far too slow. To 

this end the President proposes a major growth and jobs plan, the third of his Presidency. 

Below these three transcendent objectives, the President urges greater spending 

on a host of essential activities: veterans’ programs, the education of our disadvanVerDate Feb 1 2002 10:59 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6621 X:\HEARINGS\108TH\108-1\HBU035.002 RYAN PsN: RYAN
9

taged and disabled children, the alleviation of Africa’s AIDS tragedy, research on 

a pollution-free automobile, and so on. 

The budget has returned to deficit, a phenomenon that pleases no one, but which 

ought not be misunderstood or overstated. Today’s deficit, while unwelcome, was unavoidable, and is manageable. In fact, given a sputtering economy, it reflects appropriate economic policy, as the President decided in advocating a bold economic plan. 

The deficit’s origins are no mystery. It was the product of a triple witching hour 

in which recession, war, and the collapse of a stock market bubble coincided, presenting our country and government with a radical change of circumstances. 

Let me pause to dispel a persistent fiction, or, more accurately, misrepresentation. 

Note this fact: If there had never been a 2001 tax cut, we would still be experiencing 

triple digit deficits today. Let me repeat: if those who opposed tax relief in 2001 had 

succeeded, and no bill of any size had ever passed, the 2002 budget would have been 

$117 billion in deficit, and the 2003 shortfall would have been $170 billion. 

Even if we had never been attacked, and incurred no costs of war or recovery from 

September 11, and no tax relief had become law, we still would have gone into deficit, as a consequence of the recession and the popped revenue bubble. There is no 

question about what got us out of balance; what we should be debating is the right 

way, and right pace, for getting back in. 

Deficits are not always unacceptable. The strongest proponents of balanced budgets routinely make exceptions for war, recession, and emergency exactly the conditions we have experienced simultaneously. In other words, there are times when it 

is necessary for the Federal Government to borrow in order to address critical national priorities. 

These are such times. In proposing an aggressive economic growth plan, the President was consciously opting to accept somewhat greater borrowing in order to put 

more Americans back to work. 

He did so recognizing that today’s deficit is moderate, and manageable. It is moderate by any historical measure: at 2.7 percent of GDP, the 2004 shortfall will be 

smaller than in 12 of the past 20 years, and less than half the largest deficit in 

that period. It is manageable, in fact highly so, in that the costs of debt service are 

extraordinarily low. Just 5 years ago, interest payments took up 15 cents of every 

budget dollar; this year, thanks to the lowest interest rates in 40 years, it will be 

just 8 cents. 

A balanced Federal budget is a very high priority for this President. It is not, and 

cannot be, the highest priority, let alone the only one. He does not place it ahead 

of our national security, the safety of Americans from domestic terror, or a growing, 

full employment economy. 

If a balanced budget were all that mattered, it would be no great trick to accomplish. By either CBO or OMB estimates, all we would have to do is to stop where 

we are, to hold our spending growth to inflation for the next couple years. But that 

would mean no action to create jobs, no new action to defend our homeland, no further strengthening of our defenses, and so forth. 

The most important objective in this context is economic growth, the wellspring 

of balanced budgets. No one saw the last surplus coming: not 5 years ahead, or 

three, or even one. In fact, 4 months into the year of the first surplus, both OMB 

and CBO were still predicting a deficit for that year. A strong economy produced 

that unpredicted surplus, and only a strong economy can bring a surplus back. If 

we balance our priorities, we will balance our budget in due course. 

The costs of a potential conflict in Iraq are not included in this submission. We 

all fervently hope that no such event will prove necessary, but if it should, we would 

present to the Congress immediately a request for the funds estimated to be required to enable a decisive victory, a secure and compassionate aftermath, and the 

replenishment of stocks and supplies to prewar levels. 

Our projections, which incorporate extraordinarily conservative revenue estimates, see deficits peaking this year and heading back down thereafter. To hasten 

our return to balance, the President proposes to restore the system of spending controls under the recently expired Budget Enforcement Act. He asks the Congress to 

pass, along with this year’s budget resolution, a reenacted BEA incorporating 2 

years of caps limiting discretionary spending to the 4 percent path that would 

match government’s growth to the growth of American family income. That renewed 

statute should also reinstate the so-called PAYGO system that limits the budgetary 

effect of entitlement spending and revenue measures. 

Finally, no discussion of this or any future budget should take place without serious examination of the real fiscal danger facing our Republic. We will debate the 

right level of imbalance for this year and next, as we should. We will argue over 

the right amounts to be employed in defense reconstruction, or economic growth 

measures, or fighting the scourge of AIDS, as we must. But, from a financial standVerDate Feb 1 2002 10:59 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 X:\HEARINGS\108TH\108-1\HBU035.002 RYAN PsN: RYAN
10

point, these are small matters compared to the looming, unfunded liabilities of our 

huge entitlement programs. 

The unfunded promises of Social Security are some $5 trillion, more than the entire national debt outstanding. The figure for Medicare is even more staggering: its 

promises exceed its future receipts by more than $13 trillion, a figure more than 

triple the national debt and 40 times the deficit we will run this year. We cannot 

conceivably tax our way out of this dilemma. Only sustained economic growth, coupled with thoughtful reform of these programs, can secure to future generations the 

same degree of protection, or more, that seniors enjoy today. 

This committee, and its counterpart in the other body, have the first and fundamental role in helping the President determine the Nation’s priorities. You also are 

the taxpayer’s first line of defense against excess or misuse of the dollars which the 

government takes away from them. On behalf of the President, thank you for your 

service here and for your leadership in restoring an orderly, effective budget process 

during 2003.

Chairman NUSSLE. Thank you, Director Daniels. My first question is a pretty simple one. 

How does the President of the United States justify proposing 

running deficits for at least the next 5 years and, very much likely, 

a lot longer? 

Mr. DANIELS. He justifies this by placing a balanced budget high 

on his priority list, but not at the top, Mr. Chairman. As I made 

mention, there is a fairly straightforward path to balance if that is 

all we really cared about—if we cared about it more than the successful prosecution on the war of terror, if we cared about it more 

than further action to spur economic growth in particular. 

Let me show a slide that might help illustrate this. No. 1, everyone here understands the concept of a baseline, and this shows if 

we were to continue government at its present level and inflate 

spending for inflation, but only inflation, and do nothing new, we 

could return to balance within a couple of years. And as I said, if 

this were the sole objective of this administration, if it were the 

wisest course of policy, then there is a course available to us. 

But let us talk about what you would not do. You would not act 

to invigorate the American economy. You would not act to further 

strengthen our defenses or extend the war on terror or build a 

homeland security system. You would not act to improve our Medicare system—genuine catastrophic coverage, more choices, prescription drug coverage—and you would not act on a host of other 

fronts on which the President believes the Nation ought to step forward boldly. You would not continue growing our investment in 

education, you would not attack the tragedy of AIDS in Africa and 

so forth. 

These are the choices the President has made. These are the 

choices that he believes justify the budget he has laid out. 

One last comment: As has been already amply illustrated, the 

course of prediction is a very hazardous one. No one saw a surplus 

coming. No one saw how fast a weak economy, a popped stock market bubble and a terrorist attack would take it away. If we make 

the right choices, particularly if our economy strengthens and 

strengthens quickly, we may see some substantial improvement in 

this picture and well within the 5-year time frame. 

Chairman NUSSLE. Using your chart, it appears that the economic growth package that the President has built into this budget 

certainly gobbles up a lot of the resources that could be used to get 

back to balance. 

11

Let us just jettison that package. Wouldn’t we get back to balance much sooner? 

Mr. DANIELS. One doesn’t know because then you are betting 

that today’s economy will grow and will in fact turn up the revenue 

that we are now projected to. It has been underperforming in that 

respect. That is one reason we at OMB have produced the lowest 

revenue estimate in the field for this year and next. 

The President’s choice, you are quite correct. If all you cared 

about was the accounting and the projection of the Nation’s books 

for the next year or two, you might stay put on the economy we 

have. The President wasn’t satisfied to do that. He is not satisfied 

with employment at the level it is. But those who want to quarrel 

with his program, I think, have some obligation to step forward 

with their own. 

Chairman NUSSLE. With regard to long-term obligations such as 

Medicare and Social Security, is the growth package or growing 

economy not an important factor to the long-term solvency of both 

of those important programs? 

Mr. DANIELS. Yes. Absolutely. Just as there is no way back to 

balance without a strong economy that generates more revenues, 

there is certainly no way to fund even the current promises of Social Security or Medicare without very strong economic growth. 

And if we do intend to modify those programs, it may only make 

that, the need for sustained, long-term, strong economic growth, 

more important. 

Chairman NUSSLE. Why do the budget projections that you provide us from OMB today—why do they not assume or contemplate 

the beneficial effects of an economic growth package in the calculations? Some would refer to that as possibly dynamic scoring. Why 

don’t you use dynamic scoring or why don’t you make an assumption that the economic growth package will actually stimulate economic growth in years to come? 

Mr. DANIELS. As you know, Mr. Chairman, we continue to abide 

by the convention that ignores the effects of changes in tax law or 

fiscal policy. This, we know, is the—is an inaccurate way to approach it. No economist that I know believes that you can lower 

taxes or tax rates or provide new incentives to investment and not 

create some new economic activity and eventually some new revenue to the Federal Government. 

People debate honestly whether that feedback effect is 30 percent 

or 40 percent or more. We know it is not zero. But observing the 

conventions that we found on our arrival, we continue to use that 

here. So any positive effect—any positive effect from any economic 

package that might pass this Congress would be upside to those 

numbers. 

Chairman NUSSLE. Let me move on to what I believe are the important three principles in building a budget. 

First, with regard to our national defense and the war on terrorism, why is there not even an estimate in the budget or a 

placeholder, if you will, for potential war with Iraq? 

Mr. DANIELS. The fundamental reason is that we all hope earnestly there won’t be a war with Iraq and that event could be 

averted today or tomorrow or any day if Saddam Hussein would 

12

simply respond to the 11 years of demands by the world community 

that he disarm. 

If the President is forced to act, we will be ready. And as we have 

in the past, we will come to the Congress for one-time supplemental spending on an order that we think is adequate to cover the 

decision the President may have taken. 

Chairman NUSSLE. Turning quickly to homeland security, what 

is the status of getting the Department of Homeland Security not 

only up and running, but fulfilling a budget commitment within 

this budget in order for it to be successful? What is the status within this budget with regard to homeland security and the new department? 

Mr. DANIELS. We are off to a fast start in that the Senate—and 

the President is very grateful—did confirm Secretary Ridge and the 

first of his fellow appointees. But there is no time to waste. And 

while the President seeks substantial new funds on top of the 

major new commitment already made, let us recall that we doubled 

homeland security spending in 1 year. We will have tripled it in 

just over 3 years if this budget is enacted. 

And while we invest massive new amounts of money in these activities, it is really important and equally important that we organize well and act quickly and decisively. 

So we seek the help of this committee and every other Member 

of Congress in removing obstructions, removing barriers to the new 

department getting organized, moving people, moving dollars to the 

places where they will reduce the risk to Americans the most. 

Chairman NUSSLE. Finally, let me turn to Medicare. 

It appears in this budget proposal that the President is adopting 

the—at least the tactic or contemplates a plan similar to what the 

House of Representatives considered last year, but the details of 

the Medicare proposal were left out. 

Two questions: First of all, is that the contemplation of a package 

that might be similar to what the House of Representatives put in 

its budget in previous years? And No. 2, when might we expect a 

proposal from the President with regard to Medicare and Medicare 

modernization? 

Mr. DANIELS. I think you can expect a proposal within a very 

short time. I think it will bear some similarities to each of the 

plans that was considered in the last Congress, but have its own 

distinctive features, as it must. The President will insist on a plan 

that widens choices for seniors, including the choice to stay exactly 

with the coverage they have if that is their preference; a plan that 

makes—takes careful account of the needs of our poorest seniors 

and protects them and affords them greater coverage that they can 

afford; and also it keeps an eye on the long-term obligations that 

are inherent in the Medicare program so that we do not unduly exacerbate the unfunded liability problem we already face. 

Chairman NUSSLE. Let me end by just suggesting to you that we 

have had a good partnership with regard to holding the line on 

spending, even without a budget, a budget passed as a concurrent 

resolution this last Congress. The House Budget Committee has 

worked very closely with you and with the administration to enforce spending restraint. 

13

Part of the success or failure of the plan that you have proposed 

depends on the successful completion of the process from 2003 fiscal year appropriations. We understand that they are in the final 

throes, if you will, of that negotiation. I would encourage you to 

continue to hold the line on the proposals that the administration 

has made, as well as the House of Representatives, at $751 billion 

for discretionary spending and just report that we hope that that 

is also done in a very timely manner. 

We cannot successfully move on with this budget unless or until 

we are able to complete the appropriations process that was, I believe, irresponsibly thwarted as a result of Senate inaction last 

year. So I would hope you would continue to hold the line in that 

regard. 

Mr. DANIELS. It is the President’s intent, Mr. Chairman, and he 

appreciates your support. 

Chairman NUSSLE. With that, I turn to Mr. Spratt. 

Mr. SPRATT. Thank you, Mr. Chairman. 

Mr. Daniels, you were quoted as saying a couple of weeks ago, 

we have returned to an era of deficits, but we ought not 

hyperventilate about this issue—your word. 

Let me show you a chart that takes my breath away. Maybe I 

am not hyperventilating, but it leaves me a little breathless. And 

that simple table there on the wall, which shows the on-budget 

deficits, the deficits in our basic general fund budget for the next 

5 years, which is the full forecast time frame of your budget—

should be 10, but it is 5. 

But looks what happens. This is why we despair when we look 

at this budget, because we don’t see relief in sight. It stays over 

$400 billion this entire time frame. Starts at 468 and ends at 433, 

just below a half-trillion dollars a year. And the total debt accumulation resulting from that is $2.14 trillion. 

Let me show you again on another chart that I was trying to call 

up, the bridge chart. This is taken from your budget presentation. 

It shows how you restated the surplus for economic adjustments by 

$3.174 trillion, so that the adjusted surplus is $2.463 trillion. 

It further shows that enacted policies taken today already put on 

the books and put into effect, two-thirds of which constitute tax 

cuts, have more than spent the adjusted surplus. You have got $2.5 

trillion actually spent out of an adjusted surplus of $2.4 trillion, so 

much so that at this point in time, the cumulative deficit for the 

next 10 years, 2002–11—that time frame is used to keep it consistent with your original budget—is $129 billion in deficit. 

Now, to get to those big numbers I just showed you before, the 

general fund deficits, the on-budget deficits of 438, $468 billion, 

nearly a half-trillion dollars a year to get there, you have got to implement the policy proposals you are now making. You are standing at a real threshold. If you go forward with those proposals, we 

can have $2.1 trillion in additional debt. If you stop here and hold 

the line here, you can stop at $129 billion. 

So what you are doing, to restate my point, is voluntary. This is 

not something that fell out of the sky. This is not something that 

happened to us. This is a conscious policy decision that is being 

made at this point in time. We are $129 billion in the red right 

now. If you put forward your budget proposals that total up there 

14

on that chart, which come from your budget—they come to a total 

$1.99 trillion. Add that to 129 and you get the $2.1 trillion that you 

are going to add over this time frame. 

So that is your policy choice, correct? 

Mr. DANIELS. At least we have a choice, Congressman. 

And let me start by saying, I don’t know and you don’t know anything about what the effects of this will all be over 10 years. We 

have learned this over a 7-year failed experiment to look out this 

far. Our forefathers were much wiser and never looked out more 

than 3 years and then, for a quarter century, 5 years. 

But the starting point for any such discussion is, none of us 

knows any more than we knew 2 years ago now that we were already in recession, that the stock market bubble would continue to 

deflate, taking revenues with it, nor that we would be at war within 9 months. 

Mr. SPRATT. But one thing we do know, 77 million baby boomers 

are marching to their retirement as we speak. And they begin to 

retire in 2008. We have got a choice now as to whether we prepare 

ourselves for that, which we were trying to do a couple of years ago 

by paying the debt held by the public, or whether we add 42.5 trillion more debt on top of the debt we already owe in preparation 

for their retirement, which would demographically change this 

budget like nothing we have ever seen before. 

Mr. DANIELS. I commend you very much for drawing our attention to that. That is something we speak about at length in the 

budget. It is the real fiscal danger of the long-term health of this 

country and much more so than the outcome in any one fiscal 

year—this one, next one or any time soon. 

But let me go back. You point out that the budget we present 

does include voluntary choices. Indeed it does. And for all the 

speeches I hear when I come here, I never hear a plan different 

than the one the President proposes. And I am still waiting to 

hear, which of the things he wants to do, given the situation we 

are facing, do you believe are unwise, are less important than chasing back toward a balanced budget quicker. It is a legitimate debate, but let us have it. 

Would you not act to spur the economy? I believe you are the cosponsor of a bill that has a greater effect in the first 2 years than 

the one the President has suggested. Would you not act to extend 

the war against terror? Would you not act to strengthen our homeland security? Those are very legitimate points, but those are the 

issues that we ought to move on and join. 

Mr. SPRATT. We did indeed make such a proposal, but it was 

marked by this characteristic. We had short-term stimulus and 

long-term balance. We had a short-term tax cut that put as much 

impetus into the economy right now, in 2003, as we could, $136 billion worth; but we restored—those were short-term so that in the 

long run, as the economy got better, the bottom line of the budget 

would get better, too. Deliberately, by design, it is done that way. 

Yours gets worse. We go out in time. The economy gets better. 

We are assuming pretty robust growth and the bottom line is still 

there; it is still red as it can be. 

Mr. DANIELS. Again, I don’t know and you don’t know. It depends 

entirely on——

15

Mr. SPRATT. I know what I read in your budget forecast, and I 

guess that is your best judgment at this point in time, and you are 

willingly incurring another $2 trillion in debt with the policy 

choices you are making. 

Mr. DANIELS. Again, it makes no claim and takes no credit for 

any economic improvement that might come as a result of a balanced program that the President and many economists he consulted with think is really good not just for the short-term, but the 

long-term problems facing the country. 

Mr. SPRATT. One last question. Do you think it is good fiscal policy to borrow money in order to cover the revenues lost to tax cuts? 

Mr. DANIELS. It depends on what you use it for, Congressman. 

And you know, let us talk a little bit about those revenues that 

either subconsciously, or perhaps consciously—you often talk about 

our ‘‘spending.’’ We ‘‘spend money’’ when we leave more in the 

pockets of the American taxpayer. I am not sure that is how most 

taxpayers think about it. You know that money is not gone. There 

has been very little effect of the President’s 2001 tax relief already. 

He would like to accelerate it into this year because we think it 

would have an important economic effect, but very little of that has 

happened. 

Also, we are still waiting—if it is such a bad idea to leave more 

dollars to the American taxpayer in that way, where are the proposals? Bring them on to repeal it. And by the way, which portions 

would you repeal? The marriage penalty, would you reinstate that? 

Would you not extend greater child credit—tax credits? Would you 

repeal the 10 percent or——

Mr. SPRATT. Before you get to that—you are pushing two addi- tional tax cuts now that total $1.3 trillion in additional revenue 

losses. Leave aside what has already been done. 

Why are you pushing two additional tax cuts of the same size together, that are larger really than the first tax cut, when we don’t 

have any surplus against which to offset it? 

Mr. DANIELS. The President believes that the most important 

thing we can do is put more people to work now. I don’t know, and 

again no one here knows, what the long-term effect would be—the 

static, no-effects, no-feedback figure we have for the first 5 years, 

a little over $400 billion—and he feels that is a reasonable investment if it puts more Americans back to work and eventually begins 

to generate more revenue for the Treasury. 

Mr. SPRATT. Thank you for your testimony. 

Chairman NUSSLE. Mr. Gutknecht. 

Mr. GUTKNECHT. Thank you, Mr. Chairman. 

Mr. Daniels, let me first of all say that it is always tough to be 

the first one out of the box. And I think your job is especially difficult today because in the absence of any other plans, I think all 

Members on both sides of the aisle will tend to be a bit more critical. 

But I must say, this is a tough pill to swallow. And you know 

a lot of things have changed in the last year and a half. I think 

most of the members of this committee and, frankly, the entire 

Congress are proud of the fact that for the last 5 years, we actually 

balanced the budget; we paid down almost half a trillion dollars of 

debt. I think there are still a lot of people here who believe that 

16

this is a very high priority for this committee and, ultimately, for 

the Congress. 

I also believe that the American people have an expectation that 

we will do everything we can to try to eliminate wasteful Washington spending and balance the budget. 

As I look at your budget—and again, I don’t want to be overly 

critical, because I suspect we will probably bounce around, wrestle 

back and forth and have a lot of heated debates in this committee 

and in the Congress; and as we begin to look at the alternatives, 

it may well be that this budget looks better as we go forward. But 

as of today, it is a difficult pill to swallow. 

Essentially what I read in your budget is, you say ‘‘yes’’ to more 

defense, you say ‘‘yes’’ to more homeland security, you say ‘‘yes’’ to 

Medicare reform and prescription drugs and you say ‘‘yes’’ to tax 

relief. I am also heartened by the fact, though, that you talk about 

limiting the growth in the Federal budget to the growth in the average family budget, but I am not certain that your numbers quite 

square with what the average family budget is actually doing out 

there. 

You are talking really about a growth of something like 4.5 percent. The CPI right now is 2.2 percent. There are many families 

in my district that are happy to get a 3-percent increase in their 

family budget. I am sort of curious, how do you come up with this 

family budget? Where is your mythical family budget and how do 

you square that with what I see happening in my district and the 

numbers coming from the Bureau of Labor Statistics? 

Mr. DANIELS. There were a number of measures that we looked 

to when the President gave us this guidance, and they all came in 

around 4 percent. 

I completely agree with you that averages can be misleading, and 

for everyone at that average or above it, there is somebody below 

it. And it is exactly those families the President has in mind when 

he proposes a jobs and growth initiative for this year. But measured a variety of ways—and I will be glad to furnish you some—

we were struck about how they all did center. Most of these are 

forward looking, what is expected this year and next; and when he 

gave us that guidance, we were struck by how consistent a variety 

of approaches are in reaching about 4 percent. 

Mr. GUTKNECHT. Let me just editorialize on another point that 

I have been working on. And I do agree with the administration 

that the time has clearly come, and perhaps it is past due, to actually do something about reforming our Medicare system. And 

frankly, I think we need to do something to make certain that 

those seniors who are currently falling through the cracks have 

something to protect them in terms of the high cost of prescription 

drugs. 

My concern is that the administration continues to refuse to look 

at what I think is one of the fundamental problems, and that is 

that Americans pay far too much for the same prescription drugs 

relative to the rest of the free world. There are plenty of studies 

available, and I would encourage you and OMB and the people at 

FDA and others to take a serious look at what Americans pay for 

those drugs versus what people in Germany, France, Canada, 

17

Japan, Mexico, any of our other trading partners—look at what we 

pay for those drugs versus what they pay. 

If you are serious about doing something about prescription 

drugs, you ought to do something about the price that Americans 

pay. We certainly should pay our fair share, but we pay far more 

than our fair share. 

Let me just say in terms of tax relief: I supported the tax plan, 

and frankly it was a different universe then, but still I thought it 

was the right thing to do then and I believe it is the right thing 

to do now. But I think we should at least acknowledge—and according to the numbers that I have, the average American family 

today—last year, 111 million American taxpayers received an average of $634 worth of tax relief. 

As we go forward, I am not certain—it is going to be very difficult, for me at least, to justify to my constituents that we need 

additional tax relief at a time we are trying to fight a war and we 

are trying to provide prescription drugs and we are trying to improve domestic security. I am not sure my average taxpayer out 

there says, you know, what I really need is another $3 million in 

tax relief. 

I think as we go forward, there is going to be a lot of arguing 

in this committee and in the Congress. It may well be that this 

budget will look a lot better after that has been done, but right now 

it is difficult for us to justify borrowing an extra trillion or 2 trillion, whatever the number is, from our grandchildren in order to 

say ‘‘yes’’ to all of these national priorities. 

I yield back. 

Mr. DANIELS. Fair point, Congressman, and I think that you pose 

it in the right way; that is to say, these are choices. That is what 

a budget is. That is what governing is about. 

It is absolutely true that if one believes—and there were many 

who counseled the President last fall to believe that—let us leave 

well enough alone; the economy is perhaps faltering here and 

there, but it is not bad. Signs are that it is going to improve so lets 

take a chance. There may be Members here who do see it that way. 

If you do, it is true that the deficit for next year would be more 

than a third smaller, would be much, much smaller than we project 

and much smaller than the year we are in, but that is a choice. 

And having studied it very carefully, the President chose jobs and 

economic growth and was not willing to take the chance that, well, 

they could leave well enough or maybe not well enough alone. 

Chairman NUSSLE. Mr. Moran. 

Mr. MORAN. Mr. Daniels, you are a nice guy. I like you personally. 

Mr. DANIELS. Mutual, Congressman. 

Mr. MORAN. Well, don’t be so fast. 

And you are a good, loyal soldier. But the price of that loyalty 

is going to be that you are going to have to accept some responsibility for the worst management of this Nation’s economy in American history. And I say that because the stock market has lost $5 

trillion in value since your President took office. 

And it is not all because of 9/11. As Allan Sloan says in The 

Washington Post today, it fell faster before 9/11 than it has subsequently. This first 2 years is worse than during Herbert Hoover’s—

18

the first 2 years of his administration during which the Great Depression occurred. And yet we have lost more equity value during 

these 2 years. 

Now, what you have chosen to do through your tax cuts and 

other spending, some of which, a small amount of which is fully 

justified in terms of homeland security, but you have reversed $5.6 

trillion of surplus that was estimated for the next 10 years when 

you took office. We now have more than a $2 trillion deficit. So that 

is almost an $8 trillion turnaround, $8 trillion fiscal reversal. And, 

of course, I am using 10-year numbers because many of your tax 

cuts don’t even take effect until 2010. So if you are willing to do 

that, obviously you have looked out 10 years to know what the effect would be. 

Now, what you have done: In total, you proposed that we cut 

$4.4 trillion of revenue in tax cuts. You are proposing that we 

spend all of the Social Security Trust Fund surplus, $2.2 trillion. 

You have got triple-digit deficits for as far as the eye can see. And 

yet, you said, both you and President Bush said, and I am quoting, 

there is a strong, bipartisan consensus to preserve very large surpluses as a threshold condition of public finance. In fact, the President’s budget said that such budget surpluses should be, in quotes, 

‘‘at least the size of the Social Security surplus.’’

Even as recently as last February, the White House Web site 

said we are going to keep the promise of Social Security and keep 

the government from raiding the Social Security surplus. And yet 

when the baby boom generation starts to retire in 2008, doubling 

the number of retirees, you are going to have worked up the public 

debt to $5 trillion, adding $4 trillion more in public debt. 

If that is not the worst economic management, I can’t understand 

what is. And yet you are going to tell me—instead of recognizing 

that when you are in a deep ditch, you stop digging; you are going 

to tell me that we need economic stimulus. And yet your $1.5 trillion tax cut provides only $31 billion of economic stimulus this 

year. 

That is not going to stimulate the economy. What you are doing 

is cutting revenue in outyears where, by your own admission, we 

don’t know what the situation is going to be. It is the least conservative, most risky budget that I have ever seen. And I used to work 

within a Republican administration on the budget many years ago 

and, you know, I really can’t believe this. 

So what I am going to ask you is, doesn’t the Republicans’ current claim that chronic, long-term budget deficits do not harm the 

economy contradict decades of Republican statements to the contrary? Didn’t the Contract With America insist that we amend the 

Constitution to prevent just this kind of multiyear deficits that you 

are now predicting and proposing? 

If you would like to respond, Mr. Daniels. 

Mr. DANIELS. And I still like you. 

First of all, you used the right word when you talked about the 

fact that the surpluses we hope to see were estimated. They were 

estimated. And Congressman Spratt and members of this committee, I think we all agree, we had to be very cautious in accepting those. These are estimates we inherited. They were not inVerDate Feb 1 2002 10:59 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 X:\HEARINGS\108TH\108-1\HBU035.002 RYAN PsN: RYAN
19

vented by this administration. They were just the same as the ones 

that our predecessors and outsiders all saw at the time. 

Mr. MORAN. But you used them for the tax cut, to justify the tax 

cut. 

Mr. DANIELS. Point well made. We used them. However, at that 

time, we said we couldn’t trust them. We thought we should reserve—and we did, $842 billion—some 15 percent of the estimate 

as a buffer, as a protection, in case we were wrong. We didn’t realize how much reserve we needed to take. None of us did. 

Now you talk about the economic performance. The stock market 

decline you are talking about began in March 2000. Industrial production began to go down that year. Unemployment began rising 

that year. The recession was on in the first quarter of 2001. So we 

have to be a little careful where we assign blame, if any is to be 

assigned, for the economic recession, which is the overriding factor, 

along with the collapse of the stock market bubble, in changing 

that estimate from where we hoped it would be to something much 

less than half as big. 

Mr. MORAN. The difference is, we wouldn’t have worsened it with 

the tax cuts. 

Mr. DANIELS. On that score, again I would simply invite you to 

bring a plan forward. The money has not been, in your usage, 

‘‘spent.’’ Almost all of it remains with American taxpayers; and any 

year—this year, next year, any year—that it seems a wise course 

to repeal that tax cut to raise taxes on the American people, if that 

is really the right thing to do for our economy, really the right 

thing to do fiscally, then please propose it and let us have a good, 

honest debate. 

I do want to remind you, when you look more closely, the elements of tax relief that have all—most of the money—are for the 

low bracket, the move to the 10 percent bracket, the repeal of the 

marriage penalty and the increase in the child tax credit. That is 

where all the money is. And if you are not prepared to go after 

that, then I am not sure what your complaint with that bill is. 

Mr. MORAN. The biggest piece of your tax cut is in the elimination of the double taxation on dividends. I don’t want to give myself a tax cut that my kids are going to have to pay for. 

Chairman NUSSLE. The gentleman from Pennsylvania, Mr. 

Toomey. 

Mr. TOOMEY. Thank you, Mr. Chairman. 

And, Mr. Daniels, thank you and thank you for your persistent 

and even valiant effort on behalf of the President to restore some 

kind of fiscal discipline to Federal Government spending. 

I am glad to hear my colleagues on the other side have such a 

passionate concern about the size of the deficit. It gives me hope 

that they will join me in working to try to cut some spending in 

this budget and throughout the appropriation process. 

But while we are talking about deficits, I want to follow up on 

a point, if I could, if we could bring up chart No. 2. I did a little 

quick math here, and it is probably not perfect, but I think I am 

in the right ball park. I looked over the period of time that represents the biggest economic expansion in our Nation’s history, 

from 1983–00 when we produced more wealth, more jobs, had more 

economic growth than ever before in our Nation’s history. With one 

20

minor interruption in about 1991 or so, we had an almost uninterrupted, extraordinary period of economic growth. During that period, if you looked at the average annual deficits in those years, it 

comes out to about 2.7 percent of GDP. 

And I just wanted to ask you, Mr. Daniels, in the budget that 

the President has proposed, what is the deficit as a percentage of 

GDP for next year, approximately? 

Mr. DANIELS. 2.7 percent. 

Mr. TOOMEY. So it is about exactly equal, just about, to the period of the most extraordinary period of sustained economic growth 

we have had. 

Is it in your opinion, during the 17 years of this extraordinary 

growth, would it have been wiser for us to have raised taxes in an 

effort to try to diminish that deficit? And if we had done so, do you 

think we would have the kind of economic growth we had during 

that period? 

Mr. DANIELS. I doubt it, Congressman, just as I doubt that higher taxes now would be good for jobs or good for the economy or also 

good for the budget. Again, it is an honest debate that we can have. 

I think what your chart reflects, and it is accurate, is that there 

is no—there is certainly no correlation anyone can find between 

deficits, at least at that level or surpluses at the level we saw for 

4 years, and an economic outcome. 

Mr. TOOMEY. And further to that point, some argue that when 

you have a deficit—you know, assuming there is a level of spending 

that we can’t get below for a moment, which is another issue; but 

given that, some argue that when you finance it in part with the 

deficit, even at the magnitudes we are talking about, very modest 

magnitudes relative to the size of our economy, that that somehow 

crowds out private investment capital. And my question is, is there 

any evidence that crowds out investment capital and has any more 

deleterious effect on the economy than confiscating that money 

from the private sector through the taxes? 

Mr. DANIELS. No, there is no such evidence. That is not to say 

that there is no level anywhere at any time that might not begin 

to have that effect. 

And again, there is no disagreement that we want to control 

spending, control deficits and move back toward balance. We are in 

agreement with the passionate arguments made here already 

today. But it is certainly so that at the level of deficit we are now 

experiencing, you can’t find any effect on interest rates. And in a 

multi-trillion dollar world capital market, I guess it would be surprising if you did. 

Mr. TOOMEY. It seems to me the evidence does suggest, from a 

variety of economies and long periods of time, it is the total amount 

of government spending which is a better measure of the 

misallocation of capital in our society, because a large portion of it 

is absolutely necessary; but on the margin, what we are doing is 

allocating capital for political purposes and through a political process rather than allowing the free people engaging in the marketplace to allocate capital according to what they need and what 

their desires are. 

So my big concern is that we are growing spending too much. I 

think it is too much spending that is the cause of these deficits. 

21

And I am a little disappointed that this budget proposes that we 

grow spending at a rate that exceeds the expected rate of growth 

of the economy, because if we do that over long periods of time, obviously by definition the government grows in relation to the economy. 

I look particularly at, for instance, what is allocated for the 

Labor, Health and Human Services and Education component. As 

you know, in the period from 1996–02, we doubled the size of that, 

the second largest appropriation bill, I think. And yet, in this budget, it is proposed that that one grows by 3.8-percent higher than 

expected economic growth. 

Are you open to working with Congress to find a way to cut back 

in some of the non-defense, non-homeland security areas, so we 

could trim this back down to a level of total growth that does not 

exceed the total growth of the economy? 

Mr. DANIELS. We always welcome constructive thoughts about 

how we could limit spending and limit deficits. To be honest, although we certainly welcome the concern expressed here about red 

ink and the budget, we tend to wait expectantly for suggestions 

about how we can control spending better. Many of the same folks 

who profess to be distraught about imbalance in the budget are simultaneously very forthcoming with ideas about how to spend more 

money. 

Anyone who thinks we have overlooked something and the President proposed too much spending, please, I will leave my number. 

Mr. TOOMEY. You will get a call. 

Mr. DANIELS. Let me just point out that in last year’s budget, no 

bones about it, the President proposed a lot of new spending, more 

than he ever expected to, more than he would have preferred to, 

9 percent on the discretionary line. Everyone knows what that was 

about. It was about the repair of damage, about the recovery from 

9/11, about rooting out a terrorist haven in Afghanistan, et cetera, 

and building a homeland security network. 

All of us wish we never had to ask for or spend that money. But 

having done so, it is time, and it should be possible for us, to decelerate. We can’t continue at that rate, and I suspect that we will 

hear more from people who think that 4 percent is too little than 

from folks like you who would like to see it come down further. 

Mr. TOOMEY. Thank you. 

Chairman NUSSLE. Let me announce that all members will be 

permitted to put a statement in the record, if I didn’t say that before. I would ask unanimous consent that that be done. 

[The prepared statement of Artur Davis follows:]

PREPARED STATEMENT OF HON. ARTUR DAVIS, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF ALABAMA

Mr. Chairman, Director Daniels, I thank you for the opportunity to offer my remarks on the President’s budget. 

Mr. Chairman, I represent a district that has portions of it lodged in the 19th century and completely forgotten in the context of progress as we know it in United 

States. 

It is the third poorest congressional district in the country. Six of the poorest hundred counties in the United States reside in Alabama’s Seventh District. We have 

a poverty rate that hovers near 40 percent. We have an infant mortality rate that 

is higher than in half the countries of the world. Consider every major index of soVerDate Feb 1 2002 10:59 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6621 X:\HEARINGS\108TH\108-1\HBU035.002 RYAN PsN: RYAN
22

cial misery and persistent poverty, Mr. Chairman, and the Seventh District of Alabama will stand at the top of them. 

My constituents look to the President’s budget to assess the President’s priorities, 

and we are deeply disappointed by what we see. 

Unfortunately, Mr. Chairman when I look at the President’s budget I see that we 

are borrowing trillions of dollars from our children’s future to give away to our Nation’s most fortunate; while taking away the very money that will help working families achieve the American dream. 

I see nothing that can help the impoverished people of my district to lift themselves out of poverty. Instead, the President wants to completely eliminate the Empowerment Zones and the Enterprise Communities that are giving businesses vital 

incentives to locate in Jefferson County, Sumter County, and in nine other Black 

Belt counties desperately needing jobs. This misguided effort will level businesses 

and kill jobs. This budget will depress economic growth for a region already in depression. 

Looking at this budget, I see very little that will help the families who live in 

counties completely cut off from major transportation networks. Instead, we are cutting by $2.5 billion the very transportation funding that will bring the interstates—

and vital industries and jobs—to my struggling district. Without access to highways, 

my district will continue to struggle to attract industry. 

The President has called for eliminating the HOPE VI program, which transforms 

dilapidated housing communities into livable and affordable neighborhoods. In the 

city of Birmingham, the President also proposed to cut the heart out of the Federal 

effort to expand housing opportunities. A HOPE VI project at Tuxedo Court is 

awaiting its last installment of $20 million to transform this urban community into 

a thriving neighborhood. How can the President give over $300 billion to wealthy 

investors (who most certainly have housing they can afford), and not spare $20 million for the mothers, fathers and children of Tuxedo Court? 

How can he not spare any funding for rural housing assistance—a program whose 

funding he completely eliminated? 

While 12 community health clinics have closed in the last 4 years, the President 

proposes some $52 million in rural healthcare initiative cuts, a painful blow in my 

district. In a region where 25 percent of the children have no access to health insurance, the President cuts the Child Health Insurance Program. 

Mr. Chairman, we are cutting taxes by trillions of dollars and creating deficits of 

trillions of dollars. In the next 10 years, we will pay a trillion dollars in interest 

on the Federal debt that this President is creating. And yet, in all of this, the President’s budget is blind to rural America’s more pressing needs. The vulnerable are 

consistently sacrificed, and no where is this more evident than in a district such as 

mine. 

This is unacceptable. We must reorder our priorities during this time of economic 

recession to assist struggling families, struggling businesses, and struggling states. 

In the summer of 1999, Mr. Chairman, then-candidate Bush rebuked his Republican allies in Congress by stating, ‘‘They shouldn’t balance their budget on the 

backs of the poor.’’ I call upon the President now to prove that his words were more 

than election-year rhetoric. Mr. Chairman, I call upon the President to stand up for 

the ones who cannot stand up for themselves and put forward a budget that fairly 

meets the priorities of our great Nation. 

Thank you, Mr. Chairman.

[The prepared statement of Adam Putnam follows:]

THE PREPARED STATEMENT OF HON. ADAM H. PUTNAM, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF FLORIDA

Mr. Chairman, I am pleased that we have convened today to receive the Fiscal 

Year 2004 Budget from the President of the United States. I am humbled and honored to be here today with you, Ranking Member Spratt, and the rest of the Committee, to begin the process of reviewing and passing a budget for our country. I 

would like to thank the Director of the Office of Management and Budget Mitch 

Daniels for joining us to discuss in detail the President’s budget. I am confident that 

with a budget which holds spending growth to 4 percent, the same rate of growth 

as the average American families’ paycheck, we can act in a fiscally responsible 

manner while also giving the President the tools he needs to strengthen America’s 

future at home and abroad. 

‘‘The President has presented a bold plan to fund America’s priorities while maintaining our strength and stability at home and abroad,’’ said Putnam. ‘‘This budget 

reflects two realities. First, we have an obligation to defend our homeland from terVerDate Feb 1 2002 10:59 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6621 X:\HEARINGS\108TH\108-1\HBU035.002 RYAN PsN: RYAN
23

rorists who want to attack us. Second, in order to fight deficits, we need to grow 

the economy and hold the line on spending.’’

This budget will go far to strengthen America’s domestic future. I am pleased with 

the President’s commitment to grow America’s economy. The President has proposed 

a job and growth package that will benefit all Americans, and I am delighted to see 

that this budget would allow over 5 million taxpayers in my home state of Florida 

to have lower income tax bills in 2003. The budget also includes over $7 billion for 

Medicaid programs in Florida. Our state is currently suffering a budgetary crisis 

and these funds will go far to improve access to affordable, high quality health care 

for many Floridians. A quality education for every child has always been a high priority for this President. I am pleased that the President’s budget includes $590.8 

million to raise student achievement in the high poverty school districts of Florida. 

This budget also includes $383 million for Florida’s school lunch program and $510 

million to ensure that Florida meets its responsibilities to schoolchildren with disabilities. 

While the President has shown a strong commitment to enhancing our domestic 

security, he has also presented a budget that lays out a solid, aggressive plan to 

bolster our nation’s strength and stability abroad. This budget makes a clear commitment to provide our Nation with the best trained, best equipped and most efficient military force in the world. The budget provides the newly created Department 

of Homeland Security and related agencies with the resources necessary to protect 

our homeland from terrorist attacks. 

I look forward to Director Daniels’ testimony as I am sure he will provide all of 

us with a clear picture of the President’s budget and its focus on the most urgent 

needs of our country: fighting the war against terror, ensuring that our citizens are 

safe, strengthening and stabilizing our economy, and getting unemployed Americans 

back to work.

Chairman NUSSLE. We have an hour before the memorial service 

begins, and out of respect to that, I am going to try to ride pretty 

hard on the gavel here to get 5 minutes for members. 

Ms. Baldwin. 

Ms. BALDWIN. Thank you, Mr. Chairman. 

Clearly, we come to this 2004 fiscal year budget at a very difficult time. We have talked about many of the factors—our sluggish 

economy, the fact that we are engaged in one war and on the brink 

of potentially another, a return to deficit spending, estimated to be 

around $199 billion in 2003. And in contrast to the opinion of the 

majority perhaps, I don’t see the role that I believe the tax cut of 

2001 plays in that deficit situation. 

Both parties, though, agree that economic growth is essential to 

our recovery. We listen to our favorite economists talk about that 

at the macro level, if you will, and each of us as Members of Congress has a different sort of micro perspective on this. 

I speak with my unemployed constituents. I talk with people who 

are struggling financially right now, those needing to change their 

long-range plans, perhaps return to work after retirement, of no 

longer being able to afford to pay for their kids to get a college education. 

I think Democrats have been clear about what we think will 

jump-start this economy, invigorate it, stimulate that growth that 

we think is the cornerstone of recovery. Our economic package, in 

fact, focused on three critical points, that it needed to be fast acting, temporary and front-loaded, if you will; that it needed to be 

fair in that it reached all Americans, not just the very wealthiest 

of Americans; and it needed to be fiscally responsible, 136 billion 

to your 674 billion, if you will. 

In my estimation, the blueprint, the budget the administration 

has sent us fails to address growth according to all three of these 

tenets that Democrats have regarded as rather central to growth 

24

and recovery. And in fact, this budget sort of hallmarks, or its centerpiece continues to be, tax cuts for the very wealthy, large corporations; and also contains structural or chronic deficits that I 

fear will place the burden and sacrifice squarely on the shoulders 

of hard-working and working-class Americans and the next generation. 

Given what we have before us, I have a couple of questions. It 

seems like this budget has taken off the table some things that 

could be a part of this dialogue that the administration has indicated reflect their values. And, of course, budgeting is a valuebased exercise. If you look at all non-defense appropriations, you 

are left with approximately $300 billion in spending. We have this 

year a $200 billion deficit. 

So that brings us to the question, how much of this budget deficit 

do you intend to draw down or tackle through budget cuts? I would 

ask first in terms of this next year, and certainly ask you a follow 

up if we have time beyond that. 

But given—in this context, I think many of the things that are 

being put on the table are precisely what is going to help us grow 

this economy, what is going to help get kids the education they 

need to be the great work force of the next generation. Your proposed cuts in education and retraining for displaced workers, your 

proposed restructure of Head Start, the threatened cuts in higher 

education funding, all threaten our ability to grow. 

Mr. DANIELS. Well, first of all, we are talking about $400 billion and not $300 billion in non-defense—actually a little more than 

that. But let me say that the President generally agrees with many 

of the priorities you just mentioned. 

You know, I don’t know where the idea of cuts comes from, with 

one exception I will come to. Everything other than defense and 

homeland security grows at 3.8 percent in the proposal that the 

President has made. That is a lot of money on top of the biggest 

base in American history. 

As was mentioned earlier, there has been a tremendous run-up 

over the last few years. So the base of spending of $750 billion 

means that 4-percent increase, $30-plus billion of new money. You 

can do a lot with that amount of money. The President—by making 

choices and differentiating among those things that don’t work or 

have served their purpose. This is the reason he is able to propose 

$1 billion more for Title I for disadvantaged kids, $1 billion more 

for programs for the disabled, IDEA, something that has never 

been proposed by any previous President. 

Yes, there are some programs in education and elsewhere which 

we think probably are not delivering for our kids and we ought to 

take the money from those and put it where it will do a better job. 

Let us be careful to note there is a big difference between slow 

growth, which is what the President proposes—growth off the biggest base we have seen in our history—and cuts; and be careful 

about our language. 

Chairman NUSSLE. Mr. Hastings. 

Mr. HASTINGS. Thank you, Mr. Chairman. 

If I can get my friend from Alabama to lean back. Thank you for 

being here and presenting the President’s budget. Thus far, we 

have heard a great deal about deficits. It is something that we 

25

heard when I was first elected in 1994. And as my friend from 

Pennsylvania mentioned, I am glad that everybody now is concerned about the deficit. Let me weigh in on that issue and mediate 

a different way and just ask for your response to a very quick question. 

Is the President proposing this budget with a deficit simply because he wants to, or because he must do so, so that our Nation 

can fully recover economically and wage the war on terrorism? 

Mr. DANIELS. The answer would be ‘‘B,’’ Congressman. 

As we tried to make plain and as I hoped to in my opening statement, a balanced budget is a high priority. It is an important objective. We shouldn’t lose sight of it, and as the budget contemplates, 

we should start marching back toward it. 

But it cannot be the only priority of government, at least in the 

President’s view. Ahead of it comes a sacred responsibility for the 

physical safety of Americans. And that is manifested both in his 

call for aggressive war on terror where it lives, a strong defense, 

and a homeland defense to protect us against hate that might leak 

through. 

Also, he has made the choice, but it is one we can debate honestly, to try to generate greater growth or at least to have greater 

likelihood of growth. Again, you could have a smaller deficit if you 

were prepared to trust to luck with the economy we have now. The 

other priorities, taken together, are not particularly expensive, but 

many are very important—education and veterans, an initiative 

about AIDS and so forth—and to a large extent they are offset in 

our budget by slowing down and, in some cases, even transferring 

funds for purposes—for programs that don’t work well or purposes 

that may have been served already. 

Mr. HASTINGS. I appreciate that. I am sure we are going to hear 

a great deal more about this as this debate goes on and as we proceed with the budget in this committee. 

I want to focus on an area that I have enjoyed working with you 

on in the last year, and that is specifically the environmental management account within the Department of Energy. And just to repeat, the environmental management account takes care of the 

worst environmental problem we have in this country and that is 

cleaning up the nuclear sites—Hanford in my district, Savannah 

River, Oak Ridge and Idaho. And the legacy of these sites, by the 

way, is the Second World War, which we won, and the cold war, 

which we won, and this is the responsibility for the Federal Government to be involved in that cleanup. 

What the administration proposed last year was to accelerate 

that cleanup. At Hanford alone, for example, accelerating the 

cleanup from 2070 to 2030 saved something like $40 billion, with 

a ‘‘B’’, just at that one site alone. 

My question to you—and by the way, I appreciate the President’s 

proposal that, in fact, increases spending this year again. Is that 

increase a reflection of your confidence in the accelerated cleanup 

thus far, even though we have just started that process? And if 

that is the case, as long as there is progress in the acceleration, 

will the administration continue to support that acceleration in 

funding in future years? 

Mr. DANIELS. Answer is yes. 

26

More than anything, I think the acceleration is a reflection of the 

President’s view that it was simply unacceptable to leave environmental hazards of this magnitude lying around for decades and 

decades. We couldn’t believe the situation we found when we got 

here, when people said, ‘‘Here is our plan. In just 70-odd years, we 

will be done.’’ That is not thinkable. 

So this was a situation where the President was prepared to 

spend more on an environmental imperative. And we, as you mentioned, brought forward the completion of those jobs by decades. 

And we are going to keep going on that. I don’t believe—even if we 

run into trouble at a given site, I don’t believe that it is acceptable 

to go back to the situation we found. 

I might add that there is $5 billion, an unprecedented amount 

of resources, committed to environmental purposes in this budget, 

the highest operating budget the EPA has ever had, up 7 percent. 

It is one of the points of emphasis, much more than most other—

than most departments, along with the Freedom Fuel initiative and 

a variety of others. 

So environmental management at DOE is a big-ticket item, but 

only one of many in the President’s pursuit of a safer and cleaner 

environment. 

Chairman NUSSLE. Mr. Moore. 

Mr. MOORE. Thank you, Mr. Chairman. 

And thank you, Mr. Daniels, for being here. On January 7, there 

was a proposed rule change in the House, and the change allowed 

the House to increase our national debt limit without a separate 

vote. I opposed that, and I said at the time the rule change will, 

quote, ‘‘impose a new tax, a debt tax, a tax equal to the interest 

payments on our $6.2 trillion national debt, a tax that cannot be 

repealed.’’

Today, Mr. Daniels, you are here presenting the President’s fiscal 

year 2004 budget, and the total receipts are stated as $9.2 trillion. 

The total spending is $2.23 trillion. So we are no longer, as you 

have already acknowledged, in surplus, but now we are in deficit 

mode. 

I voted for the President’s tax cut in 2001, and I am not here to 

criticize that. I am not here to really point fingers or try to lay 

blame, but I think we do need to find a way, together as Americans, to get out of this ditch we are getting into; and we are getting 

deeper and deeper right now. 

The debt tax for 2004 is $176.4 billion. And so people understand 

what that really means, to put it in context, the Federal Government spends on education, according to the numbers in the Post 

this morning and, I think, in your budget submission, $85.3 billion 

on education. And yet we spend $174 billion, twice as much as on 

education on our debt tax. 

Mr. MOORE. We spend as a nation $62 billion on veterans benefits, and yet we spend $174 billion on debt tax. 

We spend, according to the Post, $31 billion on environment and 

natural resources, but we spend $174 billion, almost five times as 

much, on debt tax. 

So I think this debt tax, the interest it costs to service the national debt, is very important. And while you say, well, we need to 

27

put it in context, and I agree that we do, I think we need to find 

a way and a plan to get back to balanced budget. 

And I heard you—I was up at 1:30 in the morning flipping channels, I saw on C–SPAN Mitch Daniels was sitting there talking. I 

hope it wasn’t real time last night, I hope it was a rebroadcast. 

Mr. DANIELS. That is why they make 99 channels. 

Mr. MOORE. You were talking, and I heard you saw something 

about we have to consider the fact that—how did you say it? You 

were talking about what I have heard Chairman Greenspan talk 

about. You say there is no real evidence, I believe, that ties the 

cost, the national debt that we have, to interest rates. 

Yet in September of last year, Chairman Alan Greenspan said, 

history suggests that an abandonment of fiscal discipline will eventually push up interest rates, crowd out capital spending, lower 

productivity growth, and force harder choices upon us in the future. 

And I really, in the 4 years I have been in Congress, have somewhat become a disciple of Chairman Greenspan, because I think it 

makes sense. I tell people back home, most Americans live by three 

simple rules most Kansans do. No. 1, don’t spend more money than 

you make; No. 2, pay off your debts; and No. 3, invest in basics in 

the future. 

And people say, well, we do that as a family, why can’t the Federal Government do that? I think we need to get back to that. I 

want to move on to one more thing and ask you a question about 

this. You asked for proposals here, where—and I tell people back 

home, when I agree with the President, I am going say that. When 

I disagree with the President I am going to say that. And I agree 

with parts of the President’s proposal. 

For example, I think a lot of Democrats and Republicans would 

say we need relief from the alternative minimum tax, No. 1. No. 

2, we need accelerated marriage penalty tax relief. And No. 3, I 

think a lot of Democrats would certainly agree with an increase in 

the child tax credit. But one big problem that I have with the 

President’s $674 billion economic stimulus package is this elimination of dividends by corporations, tax on that. 

I don’t have a problem in concept—in fact I think the Republican 

leadership proposed something like that at the end of the last session, but they never brought it up to the floor. I would have supported a partial on that. But the President comes along, the President proposes a total elimination. 

My concern is this, one of my concern is this: No. 1, the cost is 

way over half, $354 billion of the total package I believe. 

But last week, 10 days ago, I called the Department of Revenue—the Kansas Department of Revenue—and I said: If the 

President’s proposal on this dividend tax elimination passes, what 

impact will that have on the Kansas budget? They said it will cost 

$51 million in lost revenues. Now, Kansas is a relatively small 

State. And I will tell you right now, we are in the same fiscal position as about 45, 46 other States. We are looking at a revenue 

shortfall somewhere between $750 million, with an M, not a B like 

we are talking about here, and $1 billion. And we don’t have that 

money. 

I talked to the new Governor. She says, we don’t have $51 million to lose. I guess I would like your comment on that. The PresiVerDate Feb 1 2002 10:59 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 X:\HEARINGS\108TH\108-1\HBU035.002 RYAN PsN: RYAN
28

dent is a former Governor. I hope he is going to empathize with 

the position that a lot of States are in right now. 

Mr. DANIELS. Yes. First, let me thank you for your comments. 

Yours has been a consistently constructive voice, and I know the 

sincerity of your views about keeping as close to balance as we can 

and getting back there, and we will welcome your thoughts about 

doing that. 

I will say one fundamental thing. The best thing for the budget 

of Kansas would be a return to stronger economic growth, and also 

more confidence, more investor confidence. Most States are in the 

fix they are in because, first of all, growth and employment, taxes 

paid began to fall off. And in many cases the biggest fall-off, just 

as for the Federal Government, came from stock market related 

revenues, capital gains and payments for options and bonuses and 

things indirectly related to the stock market. 

So getting the economy going faster again and, in particular, 

strengthening investor confidence would be a good thing for Kansas. And I don’t doubt that there would be a substantial, I hope 

more than compensating offset for the 51 million single point estimate they have for the effect of that change. 

Chairman NUSSLE. Mr. Schrock. 

Mr. SCHROCK. Thank you, Mr. Chairman. Thank you, Mr. Daniels, for being here. There seems to be a common thread going 

through all of this, and that is deficits. Of course I can identify myself completely with what Mr. Gutknecht said, and Mr. Moore just 

stole the rest of my thunder. 

But I am concerned about the deficits as well. And clearly any 

thinking person knows that the tax cuts did not drive us into this 

situation. We simply must have homeland defense. We simply must 

have defense spending. 

During most of the 1990s the Defense Department was pretty 

much decimated, and now we are trying to play catch-up ball. So 

that is something we simply have to address. 

But I want to keep a cap on spending as well. I don’t know if 

it was you or someone else who said the course of prediction is a 

hazardous one. There is no way that we know what is going to happen at noon, well, 1 o’clock today, let alone next year. So that is 

a very valid point. 

The tax cuts, nobody has mentioned that specifically. But I think 

Mr. Moore did very well. I think that the AMT and the child tax 

credit and the marriage tax penalty are three of those that I think 

are absolutely vital. I think the others are going to be subject to 

a great deal of debate, and that is something that I look forward 

to. 

But we need to hold the line on spending. And I think a lot of 

what the President addressed in the State of the Union address is 

going to get a lot of scrutiny over the next several weeks. But those 

three that Mr. Moore mentioned, that I was going to mention had 

he not, I think are the most important tax cuts that we can possibly do for the American people right now. 

Chairman NUSSLE. Mr. Lewis. 

Mr. LEWIS. Thank you, Mr. Chairman. Welcome, Mr. Daniels. 

Welcome. It is good to see you. 

Mr. DANIELS. Likewise. 

29

Mr. LEWIS. Mr. Daniels, in this budget we see and witness a dramatic increase in defense spending. At the same time we see an 

overall freeze on resources for domestic programs across the government. Just a close review of the proposed budget, there is very 

little compassion in this budget. 

This budget calls for reduction in vocation training and afterschool services, and would eliminate 45 programs in the Department of Education alone. 

It also would reduce aid for rural development, would phase out 

a Clinton administration effort to put 100,000 new police officers 

on our Nation’s streets, and eliminate a 10-year old program that 

has demolished and replaced dilapidated public housing, and this 

program is better known as HOPE VI. In my district in the heart 

of the City of Atlanta, this program has been very successful, very 

effective. 

Mr. Daniels, not so much of a question, but I would like for you 

to respond. With this proposed budget, what is your vision? What 

is the vision of the President for America and the world community 

for the next year, the next 5 years, the next 10 years? Where are 

we going as a Nation and as a people with this proposed budget? 

Mr. DANIELS. Very fair and well put question, Congressman. 

Thank you. First, let me say that, and I recognize that you have 

only had 24 hours to read it. But I do hope that you will be able 

to spend more time with the budget. I think that you will find that 

the comments you just made were selective and not at all representative of the proposal in its entirety. 

Let me go back to the fact that defense spending rises 4.2 percent in this proposal. The rest of government, including all of the 

programs you mentioned, grows at almost the same level, 3.8 percent. I have pulled homeland security out for this purpose. So each 

is growing just a little to one side or the other of the 4 percent family income level that the President told us to aim at. 

Secondly, I think, if this is not a budget that expresses the compassion of the American people and of this President, than he is 

going to fire me, because he was very clear about the importance 

of it doing that. 

Let me just give you a few examples. I think it is important you 

mentioned the world community because America’s compassion, 

this President’s compassion extends beyond our borders. And the 

new initiative for AIDS of course has gotten a lot of attention, very 

large. No attention at all has been paid so far to the new increase 

in famine funding, $200 million of emergency additional money on 

top of the outpouring that the United States provides, as you know, 

well over half of all of the food aid in the world already, and the 

President wants to go further there. 

You single out a couple of programs. And it is true that across 

$2 trillion, we do find some programs that have either run their 

course, like COPS, which was supposed to provide 100,000 policemen, and did, provided 100,000 plus. The HOPE VI program you 

mentioned in housing has served an important purpose. But is 

there a better way to serve it? HOPE VI, like COPS, was supposed 

to end. It was supposed to sunset last September 30, and did. It 

was supposed to demolish 100,000 units, it demolished 115,000. 

30

When we look back, we find that it cost $120,000 a unit to do 

it, whereas the Home block grant available to the same communities, including yours, does it for $80,000. And it took, on average, 

5 years instead of 2 years to get the job done. 

So the idea of bringing down old public housing and replacing it 

with new and better housing is a very important one, and the 

course of compassion is to do it in the best way we can, the fastest 

and most effective way. 

So I would be glad to visit with you further about this. But the 

President was very clear. I haven’t mentioned the new initiatives 

for mentoring of children of prisoners, many of which he mentioned 

at the State of the Union, new ways to express the compassion of 

the American people, but we would like to work with you on it. And 

certainly I would defend this budget passionately as meeting that 

test. 

Mr. LEWIS. Well, thank you very much, Mr. Daniels. I look forward to working with you. 

Chairman NUSSLE. Mr. Brown. 

Mr. BROWN. Thank you, Mr. Chairman. If I can get the chart No. 

3 up, Mr. Chairman. Mr. Daniels, take a look at this chart, as we 

debate the outlines for the past many years and as we try to 

project the future. We have had deficits for a goodly number of 

years. I notice we hit a spike where we had a surplus for a short 

period of time, but with the surplus we were taking, almost 21 percent from the public. 

And we have talked and listened to the debate today over the 

economy and whether you could borrow money to have tax cuts. It 

is not true that if your mother was in the hospital or needed to go 

to the hospital and you didn’t have the money, wouldn’t you borrow 

the money to get her in the hospital? And isn’t it the same if you 

have a sick economy? Shouldn’t we do whatever is necessary in 

order to try to stimulate the economy, and get people back to work? 

We can’t continue to have a 5 percent unemployment for a sustained period of time. We have got to find a way to generate jobs. 

And if we didn’t have the tax cut, what would this chart look like, 

if you tried to project it out for the next 10 years? Are we sufficient 

to run the government say if we wanted to take 22 percent from 

the economy to run government, or is 18 percent a fair number? 

Mr. DANIELS. I don’t know what a fair number is, Congressman. 

But I certainly think that we want to be very careful not to 

strain—to increase taxes so that we damage the economy. I don’t 

know any economist who wouldn’t worry that beyond some point 

you would do that and in the end perhaps have less revenue than 

a growing economy, a strong one would have produced. 

So I am well aware of the averages you are talking about. It is 

true that we had reached levels of taxation never been seen in this 

country, before the 2001 tax cut happened. We were taxing at a 

total level that was unprecedented, individual income taxes were at 

the highest level ever. So I think there was a bipartisan consensus 

that some relief was necessary, and as I have mentioned before, 

much of that relief has not arrived yet. And if there are those who 

either have changed their mind or never believed it was a good 

idea in the first place, would like to go back to higher levels of taxation, then they will have multiple chances to make that argument. 

31

Mr. BROWN. Mr. Chairman, if I can follow through for just a 

minute. We talked about cutting the death tax and the impact that 

is making back in the States. But is that a reason not to cut it, 

if we are having a double tax, which we are? Those people worked 

and paid taxes all of their lives to generate the wealth to leave to 

their children. And should we, in effect, assess another 55 percent 

on top of that? The same way with the dividends. You know, the 

corporations pay that tax and should we in effect have to pay a 

double tax? Is double taxing the American people the right way to 

generate revenue? 

Mr. DANIELS. Obviously the President thinks not. Your question 

does raise an important point that the original whole tax relief of 

2001 was in large part aimed at strengthening the economy over 

time, but also in part correcting certain injustices at least that the 

President saw in the Tax Code, the marriage penalty, for instance, 

and the death tax. 

And likewise, his proposal on the double taxation of dividends is 

as much a fairness and equity proposal as it is a long-term economic growth initiative. But, both of those considerations I know 

entered his thinking in making those suggestions. 

Mr. BROWN. Thank you. 

Chairman NUSSLE. Ms. DeLauro. 

Ms. DELAURO. Thank you very much, Mr. Chairman, and thank 

you, Mr. Daniels. 

Let me just get right to the point. My view of this budget doesn’t 

meet the standard of responsibility or honesty that taxpayers, that 

businesspeople and consumers have a right to expect. 

We have seen our surpluses evaporate in the last 2 years. We now face record deficits. The budget includes nearly $1.5 trillion in 

tax cuts, while it leaves families with no help for health care, child 

care or housing. The budget promises States additional Medicaid 

funding only if they agree to program changes that would severely 

restrict access. The budget doesn’t factor in the costs of the war in 

Iraq, fixing the alternative minimum tax, or Afghanistan. 

The deficits that are caused will lead to increased interest rates, 

and a larger portion of taxpayers’ dollars will go to paying for the 

interest on the debt. 

In essence, if you believe what Alan Greenspan says, and if history suggests that an abandonment of fiscal discipline will eventually push up interest rates, then I think what we are abandoning 

here is fiscal discipline. 

That means homeowners in this country will see a tax, because 

there will be an increase in their interest on their mortgages, there 

will be a tax on small businesses trying to gain access to capital, 

a tax on kids trying to pay back student loans, and people ought 

to know that. They ought to know that from today forward they are 

going to be taxed because of these deficits. 

Let me move to another point, and I will get to my question, 

which is, if you take a look at what has happened here—and my 

colleague before talked about double taxation—if you take a look 

at what dividend tax relief has done here, what we are saying is 

that we are converting income tax into essentially a tax on wages 

only, that the proposals eliminate most of the individual tax on income from capital, interest, dividends, capital gains, and the only 

32

kind of income that is going to be double taxed is going to be wages 

because we are going to subject wages to the full force of the income tax and to the payroll tax. 

And I will quote the Washington Post this morning. It says, ‘‘In 

other words, if you have the money, you can simply invest it and 

watch the tax-free earnings pile up. As a practical matter the taxes 

that would remain would be on those chumps whose sole income 

is from their jobs.’’ Those ‘‘chumps’’ are the hard working men and 

women of this country who are getting nothing from this budget. 

I would like you to address the point on removing from any kind 

of tax obligation, if you will, income from capital and the double 

taxation on workers. Again, that is wages at 10 percent to 15 percent, and they will bear 15.3 payroll tax burden as well. 

Mr. DANIELS. Well, thank you. I welcome your concern for income 

tax payers. Correct me if I am wrong, but I think you voted to keep 

their taxes at the highest levels in history just 2 years ago when 

the President was making exactly this point, and I would welcome 

your joining him to bring the relief forward to this year when it 

could do them and the economy the most good if this has become 

a big concern for you. I think that there are a variety of other 

issues involved here, and I won’t take time to untangle them all. 

But the President’s Medicaid reform, for example, is strictly optional for the States. States who have been asking for more flexibility would have it, but no State would be obliged to take him up 

on the offer of more flexibility and more money. 

Ms. DELAURO. I understand, and if you will pardon me, that Indiana Governor Frank O’Bannon said that the Medicaid proposals 

are alluring in the short run, largely because of the promised upfront money and flexibility, but the potential problems are down 

the road, he said, where the question is, quote, will people come off 

the programs who really need the service? 

I understand this is a State that you are particularly interested 

in, in terms of potential future electoral office. 

Mr. DANIELS. Well, I am interested in that because it is my once 

and future home. But those Governors who don’t believe it would 

work out well in their State are under no obligation whatsoever. 

It is simply a new option, a new choice that they would be free to 

make, and many Governors have been clamoring for that kind of 

choice. 

You know, on the question of interest rates and their possible increase certainly it is something to watch. As I indicated earlier, it 

could well be that at some level a connection between deficits and 

interest rates might show up. It hasn’t in the past. But we ought 

to be watchful. I would just say that at the present time your constituents and everyone else’s are—although the economy has its 

problems interest rates is not one. We have the lowest interest 

rates in 40 years. 

Mortgage payments being refinanced has been one of the great 

blessings, putting much more money in people’s pockets, in fact 

more money than most changes Washington can conceive of. So we 

ought to keep our eye on it, and certainly we ought to try to join 

hands on policies that say that we never do see an increase other 

than the one that a growing economy would——

33

Ms. DELAURO. But if there is more demand on credit, don’t we 

then dry up the pool and the cost of credit goes up? I think that 

is what Mr. Greenspan was talking about. 

Thank you, Mr. Chairman. 

Chairman NUSSLE. I apologize for interrupting, but we want to 

keep things moving. 

Ms. DELAURO. I understand. 

Mr. WICKER. Thank you very much. Mr. Daniels, I want to congratulate you on some excellent testimony this morning, and, Mr. 

Chairman, on a very fine hearing. 

As a brand new member of this committee, I want to observe 

that we are much more technologically advanced on the Budget 

Committee here than the Appropriations Committee where I came 

from. I love the fact that we put the charts up for everyone to see. 

I am going to ask staff, and I have alerted them ahead of time, 

to put up No. 3 of Mr. Daniel’s charts dealing with the effect on 

the deficit of the tax cuts and also the effect on the deficit if the 

tax cuts had not been enacted. I think that is chart No. 3. 

I thought I had given advance notice about this. At any rate, 

while we are searching for that chart, let me just ask you, Mr. Director, when you estimated that there would have certainly been 

deficits had the tax cuts not been enacted, did you use dynamic 

scoring? 

And, you know, the public is listening here. I think sometimes 

we use Washington, D.C. terms. But you have pointed out, and I 

think most members of this committee believe—and the President 

believes—that tax cuts do stimulate jobs, they do improve the economy, and when that happens people pay more taxes and revenues 

are enhanced. 

So my question is about this chart that I am not able to point 

to, did you use dynamic scoring? Did you account for the economic 

impact of tax cuts or no tax cuts? 

Mr. DANIELS. No, sir. We simply stripped it out. No, sir, this very 

simply pretends that the tax cut had been defeated. And, in fact, 

let me point out that there weren’t too many people, as I recall, 2 

years ago who advocated no change at all. There were alternative 

plans for less tax relief. But this imagines a complete defeat for the 

President, no tax relief at all, and we would have had triple digit 

deficits last year and this year and probably next year. It is only 

a way of saying let’s quit looking for blame where there is none. 

The deficit came back directly as a result of the popping of the 

stock market bubble, the recession that we did not know was on 

as we sat here 2 years ago. Some suspected it. I remember very 

clearly in December of 2000, Vice President-Elect Cheney said he 

believed we might be at the edge of recession. He was chastised for 

talking down the economy and so forth. He was dead right. But nobody knew that. And nobody’s model had that. Those two factors, 

plus the cost—the cost directly of 9/11 already exceeds $100 billion. 

You know, Congressman Spratt asked a fair question, do I feel 

chastened? Of course. Who doesn’t? Despite our avowed skepticism 

and our attempts to be cautious and our attempts to leave some 

buffer and all of the rest, we didn’t leave nearly enough for the 

events that history threw at us. 

34

Mr. WICKER. I think that point is well made. We are under terrible time constraints here. But here is the frustration that I have 

of chart like that, which is of course very accurate. 

The President obviously believes—he is convinced—that his tax 

cuts will be beneficial to the economy, and yet you stated to us in 

your testimony today that your office uses the conventional assumption and avoids dynamic scoring. 

Is there a way for your office at least to provide us an alternative 

set of budget assumptions and enable us to see which is more accurate? I mean, I am an advocate of changing the rules around here. 

We have had a discussion about dynamic scoring earlier today, and 

certainly it is hard to be accurate. But it does seem to me that it 

hurts the President’s case when he is firmly convinced, as am I, 

that the tax cuts will be good and will enhance revenues and we 

can’t show it on our budget document. 

Mr. DANIELS. You are right, of course. Let me just say a couple 

of things. One is, we had the shortest and shallowest recession in 

a long, long time, and I could parade a group of eminent economists across this platform, all of whom have said that were it not 

for the tax relief of 2001 it would been much worse, and I think 

that is undoubtedly so. 

Secondly, with regard to scoring, yes, I do believe what we do 

now is unnaturally conservative, disregards any effect from these 

changes, and is therefore for sure inaccurate. 

However, if we were to leap into a new scoring system we would 

be suspected and accused, I am sure, of doctoring the numbers to 

make the President’s proposals look better. So we have not done 

that. We have played by the rules we found. 

I do think that the lead, in terms of some change here, probably 

should rest with a bipartisan or nonpartisan entity. It could be the 

Congressional Budget Office. And the way forward probably is the 

one you suggest, not discarding the old-fashioned static model, but 

presenting an impact statement or an alternative set of projections 

that makes some reasonable estimate of what the real world effects 

would be. 

Chairman NUSSLE. Mr. Edwards. 

Mr. EDWARDS. Mr. Daniels, I respect you as a capable public 

servant who genuinely cares about balancing budgets and fiscal responsibility. I believe you probably would be willing to make deeper 

budget cuts than Members of Congress. But eventually in Federal 

budgeting, as well as in football coaching, we have to judge an administration by its results and not just its personal expressed values. 

Two years ago, when my two sons were just 3 and 5 years old, 

your budget projection said that they would face no national debt 

when they graduated from high school. Now that my two young 

sons are 5 and 7 they will face, according to your numbers, at least 

a $7 trillion national debt on which they will pay interest for the 

rest of their life. They will face that debt before they even finish 

elementary school. 

Now, in the history of the United States there has never been, 

to my knowledge, that type of enormous economic collapse in such 

a short period of time in regard to the Federal budget outlook. And 

I don’t blame you or the administration for all of that; that would 

35

not be fair. But I don’t think reasonable people can deny that the 

proposed $4 trillion in tax cuts don’t exacerbate a very serious deficit situation. 

You know, what we do know from history is that guns and butter 

policies did not work in the Johnson administration in the 1960s, 

that guns and butter policies did not work in the Reagan administration of the 1980s in regard to Federal deficits, and it did not 

work in the last 2 years with this administration when it proposed 

in effect a guns and butter and tax cut policy and still promised 

we could pay down the national debt to zero. 

I guess my conclusion today is that what I am hearing is that 

you are, in effect, genuinely, but in effect asking us to ignore the 

repeated lessons of history and to trust, by faith, the budget analysis of those same analysts that told us just 2 years ago we could 

have our cake and eat it too. We could have a $1 trillion national 

debt, and my two young sons would face a totally debt free country 

in just a few years. 

In all due respect, and it is with great respect, I am not sure I 

am willing to take that kind of risk when the consequence might 

be paid by my sons, the children of these Members of Congress and 

future generations of our children and grandchildren. 

I want to make a few other observations, having listened to the 

testimony and the very able questions on both sides of the aisle. 

In case I don’t leave you time to answer this question verbally, I 

hope you can do so in writing later. 

What should I tell the 12,500 Army soldiers in my district at 

Fort Hood who will soon be deployed to the Iraqi theater? What is 

fair about cutting, by 14 percent, the Impact education funds designed to help their children get a better education here at home 

while mom and dad are in harm’s way fighting against Saddam 

Hussein? What is responsible or compassionate or conservative or 

fair about that policy, especially when one considers, in my same 

district a friend of mine who said he made a million dollars in dividend income last year will not have to pay a dime in taxes on that 

same dividend income in the year that these military school children will receive a reduced education, even while mom and dad 

perhaps are giving their lives for our country? 

In his State of the Union address, President Bush said, and I 

quote, ‘‘This country has many challenges. We will not deny, we 

will not ignore, we will not pass along our problems to other congresses, other presidents, and other generations.’’

You know, I think President Bush was right in that principle, 

and that is frankly why I find this budget to be stunning in its 

level of fiscal irresponsibility. It ignores and denies the real dayto-day consequences of long-term deficit spending. It even goes beyond passing along the deficit problem, the national debt problem 

to our children; it exacerbates that problem by 2, to 4, to $5 trillion. 

If passing a $300 billion deficit this year on to our children is 

good stewardship, I seriously think we need to reconsider the 

meaning of stewardship. And if passing a $300 billion deficit this 

year and adding several, 2 to $4 trillion to our already enormous 

$6 trillion national debt is conservative, then perhaps we need to 

reconsider the definition or meaning of conservative. 

36

In my opinion, this budget breaks faith with our children, who 

will have to pay taxes on this deficit for the rest of their lives, and 

on our seniors by undermining the integrity of the Social Security 

system. 

Mr. DANIELS. I will be glad to write you a letter about Impact 

Aid. But the first thing you can tell—you wouldn’t have to tell the 

folks at Fort Hood—is that this President has raised their pay, 

brought it from a dreadful level when they had been mistreated 

and underpaid for years, and as well as their benefits, their housing, has treated them with the respect that they are due given the 

job that they do and the risks they will take. And the impact of 

that I think dwarfs enormously any impact they will ever feel from 

a program which I will be glad to debate the merits of with you 

on that. 

Mr. EDWARDS. I would appreciate that response on what I think 

is a very important program. They care about their children’s education. 

Chairman NUSSLE. Mr. Bonner. 

Mr. BONNER. Mr. Chairman, Mr. Daniels, this is the first time 

I have had an opportunity to ever ask an OMB Director a question. 

Mr. DANIELS. You have been waiting for years to get at one of 

these people. 

Mr. BONNER. I am a new Member of Congress. I have served for 

less than a month. But I have been on the Hill for almost 18 years. 

I will have to admit that my ears are playing tricks on me to hear 

so many of my friends on the other side express grave concern 

about deficit spending. I wish we had had that during the first 

years of the Reagan administration, the first Bush administration, 

and so on and so forth. I welcome it, quite frankly. 

I would like to ask you two questions very briefly. No. 1, are you 

aware of any bill that has been introduced by any of my colleagues 

on either side that would repeal the tax cut of 2001? 

Mr. DANIELS. No, sir. Not so far. 

Mr. BONNER. Because there has been a great deal of criticism 

about that, how that has exacerbated and made the deficit more 

difficult. I haven’t heard one, and I have, to the contrary, proposed 

and introduced my first piece of legislation. That would make——

Mr. BAIRD. Will the gentleman yield? I believe Mr. Rangel has 

introduced a bill, arguing that until the war has been resolved the 

tax cuts will not move forward. 

Mr. BONNER. Well, I have not had a chance to talk with the gentleman from New York, but I would welcome that opportunity. I 

have introduced a bill that would actually make permanent the tax 

cuts of 2001. How can the people of this country truly plan longterm financing for their own families when we actually have a sunset provision in 2010? 

One comment that I might make, however, and it is not necessarily disappointment in your office, Mr. Daniels, but I would 

welcome an opportunity for your office to help me and my constituents back in south Alabama. You said in your statement that a 

strong economy produced unprecedented surpluses and only a 

strong economy can bring those surpluses back. Our economy in 

the First District of Alabama is tied largely to some of the projects 

37

that the Civil Works Division of the Corps of Engineers has worked 

on. 

We have a number of areas where we don’t have interstate systems, but we have a river system that if it is not managed, if it 

is not maintained appropriately, then we are putting a nail in the 

coffin of hope to those economies there. And I would welcome an 

opportunity, while I am not being critical of the budget, somewhat 

disappointed that I think for the third year in a row this area has 

been cut, to find an avenue of opportunity to work with the administration, to rather than turn those into cuts, into opportunities, because I think that they would truly help pave the way for a lot of 

rural economies, not only in Alabama, but in Mr. Wicker’s State of 

Mississippi and other communities throughout the country. 

Thank you again for this opportunity. 

Mr. DANIELS. Thank you, sir. 

Chairman NUSSLE. Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. Mr. Daniels, it is good to 

see you. You have asked about our plan, and chart No. 5, the one 

that—yeah, that one—that is our plan, the little green there where 

we took a massive deficit and turned it into a surplus. That is a 

result of Democratic leadership that was put in motion without a 

Republican vote. We made the tough choices. It was kept in motion 

with enough of a minority in the House and the Senate to sustain 

the President’s vetoes of Republican plans that would have gotten 

us off track. It was unpopular, but responsible. As a result of making the tough choices we lost 50 seats in the House of Representatives but it was good for the budget, it was good for the economy. 

There are tough choices. This budget doesn’t have any tough 

choices, just excuses. The massive deterioration in the budget, not 

anybody’s fault. There is every indication that nobody thinks that 

there is a problem, and we can still afford massive tax cuts, eliminate the tax on dividends, repeal the estate tax on dead multimillionaires, so that, as was suggested, the Leona Helmsley theory 

of taxation, only little people pay taxes, will be instituted. 

We have a 5-year budget. And the next chart, No. 3—the 5-year 

budget spends Social Security and Medicare and then some. As far 

as the eye can see the whole budget gets worse and worse. We go 

more and more into debt. This stops at 2008, which is interesting, 

because that is the year when those born in 1945 begin retiring. 

And there will be significant strain on Social Security and Medicare, and we will be in the worst possible shape at that time. There 

is no apparent plan to deal with that. So what will be the future 

of Social Security and Medicare? 

You have indicated that there is apparently no contingent plan 

about a war in Iraq. I guess if we go to war we will just add that 

up to more debt, let the next generation pay for it while they deal 

with Social Security and Medicare. 

And even if there is more debt—I guess No. 9—if you can explain 

what effect it is going to have on the debt tax, what more we will 

have to pay on taxes as a result of the national debt. 

Is that 5 minutes? 

Chairman NUSSLE. I believe it was. Do you have any response, 

Mr. Daniels? 

38

Mr. DANIELS. Only to say, you are sitting in the right place, Congressman. This is the right forum for those very debates to happen. 

There are only two ways to move more quickly back to balance 

than we now project. You can raise taxes or you can cut spending, 

and this is the forum for making those proposals. Ultimately, it has 

to produce a budget resolution. 

If you don’t like the one that the President is recommending, or 

the one that your colleagues may carry forward, then that is the 

place to present the tax increases that you believe would lead to 

a positive difference. The President, I would guess, would find that 

a very risky course. Trying to tax our way back to prosperity is a 

pretty dubious enterprise, but honest people can differ. 

Chairman NUSSLE. Mr. Franks. 

Mr. FRANKS. Mr. Daniels, I guess my first comments to you, sir, 

are one of sincere commendation for just your sincerity and your 

clarity of mind before this committee, and it seems clear to me that 

the President has laid out in this budget clear emphasis on the 

need to build the economy and to protect this Nation against the 

specter of terrorism. And now this committee has the grave responsibility to try to meet those priorities in the context of making sure 

that we do not do damage to the future and to the economy 

through deficit spending. 

So with that, I would like to ask you just one incredibly unfair 

and theoretical question, but one that I think is an important one 

for us to consider. 

If the fate of the world depended upon us balancing this budget 

and our focus was on trying to do that through the reduction in 

spending, again an unfair question, what areas would you consider 

to be the most responsible for this committee and this Congress to 

consider in terms of reducing spending to meet a balanced budget? 

Mr. DANIELS. I don’t think there are any unfair questions, Congressman, and I don’t view that one as unfair. I will take you back 

first to the facts I displayed a little earlier on. We can get back to 

balance in pretty short order without cutting anything, without 

cutting anything, simply by maintaining the government where it 

is, doing nothing new for a couple of years. In fact we could let it 

grow with inflation. Anything you found to cut would hasten the 

day of a balanced budget, if that was all that our duty required. 

If times were normal, if the economy were stronger, if there were 

not the threat to lives of Americans, if we weren’t in a war now 

and potentially facing another, that might be something we could 

all agree to do, to make our No. 1 priority, not just one of several. 

It would not be beyond our reach to do that. Under the circumstances the President thinks that would not be a wise choice, 

and I hope most folks will agree. 

Mr. FRANKS. Thank you, sir. 

Chairman NUSSLE. Let me just report to my colleagues that we 

have 5 minutes left, and time for one more inquiry before the memorial service begins. Could I just see—of the members who have 

not yet had an opportunity to speak—what interest there would be 

in recessing the hearing in respect for the memorial service and 

then coming back. Would that work for members? I see a few members that are interested in that. 

39

My understanding is that while it is inconvenient for all of us, 

including Mr. Daniels, you know there is a lot of inconvenience 

that a lot of people have had to go through as a result of the tragedy that happened this weekend. And out of respect to that, I think 

I would really like to recess the hearing out of respect to that memorial service and then come back afterwards if we can do that. 

So, Mr. Ford, you will end our first inquiry, and then we will 

come back after the memorial service. 

Mr. FORD. Thank you, chairman. Mr. Daniels, good to see you. 

There has been a lot of talk here today about what Republicans 

have done over the years and what Democrats have done over the 

years in terms of spending and tax cuts, and one thing we cannot 

deny is that what has traditionally been thought to be a Democratic approach, which is to run deficits up, now seems to be something that Republicans want to do. I know my friend, Mr. Bonner, 

made an excellent point that he finds it ironic that Democrats 

would be urging for us to restrain spending somewhat. I would remind him, as well as all of my colleagues on the other side, that 

some 60 percent of Democrats in this Congress have never been in 

the majority. So to label that or to try to affix that label to most 

of us not only is unfair, it is untrue. 

But let me get to the point which I think is most relevant. Most 

of what we are talking about here, as important as it is and as 

much as it makes to budget experts like you and Mr. Spratt and 

Mr. Nussle and the others on the committee, it is pretty irrelevant 

to most people. 

I think most people sitting at home are wondering, ‘‘what are 

they doing to create more jobs here in my community? What are 

they doing to help make my schools better? What are they doing 

to make sure if I get sick or someone I know gets sick, if he or she 

has to go to the hospital, that they will get treated, and won’t have 

to sign a bunch of papers or go through a bunch of bureaucracy in 

order to have things done?’’

I imagine most Governors are wondering how come the President 

didn’t provide much relief for us in his budget. I know you have 

come back to try to offer some changing of Medicaid formulas and 

so forth. But we all know the best way, as you have told us many 

times in the past, Mr. Daniels, as well as this President, that to 

help consumers the best is to put money right in their pockets. To 

help States the most would be to provide some direct aid. 

You mentioned a few minutes ago that us Democrats, if we are 

so opposed to the President’s budget, then we should have the courage to offer our own. You accused Mr. Scott of either wanting to 

raise taxes or cut spending. 

I might remind you, you work for the President of the United 

States. That is your responsibility, and if you choose to shift it to 

us then you should just admit that you all have failed in 2001 and 

that this budget that you are proposing today won’t accomplish 

much more than what you accomplished 2 years ago, and we would 

be happy to try to assist. 

But the reality is you are borrowing more money to gamble 

again. You borrowed money in 2001 against an estimated or projected surplus. Now you are borrowing money again, as Mr. Spratt 

indicated, against the bottom line which you can’t offset against 

40

Medicare, Social Security. We use all of those big words to say we 

are not really running a debt. 

The reality is we have got this credit card, and we now owe a 

lot more on it than we did 2 years ago. It is estimated we will owe 

even more on it if and when—I hope to have kids, my momma can’t 

wait for me to have kids, so when I have kids, what those kids will 

have to pay on down the line. 

In light of that, you propose a dividends tax reduction. You have 

not proposed much to help, I think, regular folks. As much as I 

think there is some merit to that, I don’t understand how that will 

stimulate much right away. Most economists and people who know 

far more than me, and you being one of them, have all suggested 

that it may be good in the long run, get people investing in companies that actually are producing profits, get people investing in the 

market again.But the reality is what do you do for people who earn 

50 to $60,000 a year? 

I might add, you all use these great numbers. But over half of American tax filers will get back less than a $100 this year under 

the plan. I am just curious, what is going to help create more jobs 

in Memphis, where I represent, and better schools and make hospitals work better, and frankly make this conversation more relevant for people, because all of this stuff is about outer years and 

debt tax. 

I mean, I get a sense of what we are talking about, but at the 

basic level my Governor, who, like Mr. Moore’s Governor, is faced 

with a $400 million debt, not as big as California, New York, Florida, but that is a lot of money where I come from, and we are expected to have a $500 million shortfall next year—what does this 

budget do to help us provide more health care or keep these hospitals open in my State and to keep schools functioning, not at the 

levels they are functioning now but to increase it? 

I might add, you still haven’t funded the No Child Left Behind 

Act, and you all can say it is us but the reality is you all haven’t 

done much to help it either. 

But I would love to hear just a few seconds of response or even 

get a letter from you, Mr. Daniels. 

Mr. DANIELS. It says I have got a minute-four. I think you asked 

the question in the right way, Congressman, the way the President 

does. What must be done for this country? And I have given his 

list of the things he thinks must be done. Many of the things you 

just mentioned are on it. Certainly more jobs is on it, better education is on it, better health care is on it. 

You know, borrowing or a deficit is not a policy of this President. 

It is a consequence of the choices that he believes that we have to 

make in order to make that kind of difference in the lives of average citizens. With regards to the States, some haven’t noticed but 

Federal transfers to States have been going up very fast, 9 percent 

a year for the past 4 years, going up faster than State spending. 

So on a net basis it is helping States with the problems that they 

have encountered. 

Mr. FORD. Mr. Daniels, as you close out, one last thing, maybe 

you can respond in writing. The dividend tax cut, my Governor and 

my mayors in my area say that it could hurt their ability to raise 

money through some of these municipal and other tax-free bonds. 

41

I would love to get your thoughts on what impact you would think 

long term that will have as we try to build new schools and even 

try to do some of these things that the Federal Government doesn’t 

help us much on. 

Mr. DANIELS. Yes, sir. We will write you on that. I would agree 

with you that that particular part of the President’s plan is more 

for the intermediate and long term, not just for the short term. His 

is a more balanced approach. Some say only do things that will affect the next few months, and his proposal was a little broader. 

Chairman NUSSLE. With that, I thank members for their participation in the first part of this. 

We will recess until 2 o’clock, and as I said before to members, 

please keep an eye on the memorial service and we will try and 

also inform members of when the hearing will come back to order, 

but approximately 2 o’clock. 

We stand in recess. 

[Whereupon, at 1 p.m., the committee was recessed, to reconvene 

at 2 p.m., this same day.] 

Chairman NUSSLE. This resumes the hearing on the President’s 

fiscal year 2004 budget, the House Budget Committee. When we 

left off, we were in the process of questioning the witness before 

us today, the very distinguished director of the Office of Management and Budget, Mr. Daniels. I will call on members as they have 

arrived. Mr. Diaz-Balart. 

Mr. MARIO DIAZ-BALART. Thank you very much, Mr. Chairman, 

and I will be brief because as a freshman, I know that one has to 

be careful, one says, the first time someone speaks in committee. 

I want to first thank you, Mr. Chairman, Mr. Daniels, also for your 

presentation. Mr. Chairman, I have to admit that I have learned 

a lot as a freshman in this committee. I have learned not only from 

Mr. Daniels, but I have also learned a lot from the honorable members of the minority party today. I heard today a couple of things 

I thought very interesting. 

As a freshman, I learned today that a 4-percent increase in 

spending, 4-percent growth in the size of government excluding, I 

believe, defense, I learned today that that is a cut. I also learned 

today, Mr. Chairman, that—and this one I have to admit was a 

real eye opening experience. And I hope the other freshmen have 

gotten as much out of this meeting as I have, and particularly 

learning some of the ways of Washington, D.C. For someone like 

me who is new to Washington, D.C. 

I also learned from some of the honorable members of the minority party that when the President proposes that government take 

less money away from the taxpayer, that that is actually an increase in government spending. Mr. Chairman, I also learned that 

today when the President—I want to talk a little bit about Florida—talks about how in Florida residents—about 5 million taxpayers in Florida would have lower income taxes in 2003, how 1.2 

million small business taxpayers could also use their savings to invest in new equipment, expand facilities, hire additional workers; 

how in the case of 1.9 million married couples in Florida would 

benefit from the accelerated reduction of the marriage penalty; how 

1.4 million married couples and single parents in Florida would 

42

benefit from the acceleration of the increase in the child tax credit; 

that those millions of Floridians are rich Floridians. 

Mr. Chairman, I thought I would mention the fact that I learned 

a lot about an incredible amount of millionaires that I was not 

aware that existed in Florida. I learned how—again, I repeat—how 

not taking peoples’ money is increasing government spending. And 

Mr. Chairman, I want to note for the record, note that in the district that I am fortunate and blessed to represent, the people there 

believe that if government increases spending by 4 percent, that is 

not a cut, that is a 4-percent increase. 

For the record, Mr. Chairman, I want to make it very clear that 

the people in the district that I am blessed to represent believe 

that if you let them keep more of their money, Mr. Chairman, that 

is not increased government spending. And for the record, Mr. 

Chairman, I also want to note that many, most, those millions of 

Floridians that would benefit from this program are not rich people. They are hard-working men and women who work awfully 

hard to put the food on their table to pay the mortgage and pay 

their rent. Mr. Chairman, I just want to make sure that at least 

for this district that I am blessed to represent, I set the record 

straight. 

Chairman NUSSLE. I thank the gentleman. 

Mr. Cooper. 

Mr. COOPER. Thank you, Mr. Chairman. As you know, I have had 

the privilege of following budget debates at the Federal level for almost 20 years now. I think most folks back home are confused by 

these hearings. The numbers are too big to even imagine, but they 

want to know whether their government is working for them or 

against them. I am worried, and I realize, Mr. Daniels, you have 

probably the toughest job in the administration, maybe the toughest job in America. 

The criteria used to be for the job that you had to pay for the 

administration’s promises. Then pretty soon, people started pretending they were paying for the promises. And now people don’t 

even pretend to pay for the promises. I had the pleasure of seeing 

two of your predecessors, very distinguished and smooth people before this committee, essentially ruining their reputations by later 

contradicting what they told this committee. Makes me wonder 

whether we should put OMB directors under oath when they come. 

We have heard a lot of happy talk. 

Let me read to you a quotation from one of your predecessors 

that he was only willing to reveal after he retired from public service. And this is a quote. ‘‘I knew we were on the precipice of triple 

digit deficits, a national debt in the trillions and destructive and 

profound dislocations throughout the entire warp and woof of the 

American economy. By then, all the major errors which would 

eventually shatter the Nation’s fiscal stability were apparent. I had 

most of the diagnosis down already. It was only the full and final 

magnitude of the numbers that would materialize later, but I kept 

quiet and tried to work inside. It proved to be of no avail.’’

The administration locked the door on its own disastrous fiscal 

policy jail cell and threw away the key. David Stockman wrote that 

in his book, The Triumph of Politics—it is on page 13—as he reflected on his own prior testimony before this committee. If we 

43

could have slide No. 5 presented, please, entitled ‘‘The Fiscal Opportunity Loss,’’ the President, in his State of the Union—excellent 

State of the Union address, as Chet Edwards already said—we will 

not pass along problems to other Congresses, other Presidents or 

other generations. 

And yet, with the long-term structural budget deficit that we are 

being presented with, it seems to me that is precisely what we 

were doing, and that is what is the greatest risk to your own personal reputation. By putting this debt tax, this debt burden on 

later generations, we are passing the buck to future generations. 

I have been a deficit hawk most of my career. It is very tough to 

achieve what the Clinton administration achieved with that 

graying patch there. The only three consecutive years of budget 

surpluses that we have had since the days of Calvin Coolidge and 

Herbert Hoover. 

While we shouldn’t hyperventilate about the deficits, it is going 

to be remarkably difficult for this Congress—under either party—

to dig our way out of this hole. That is the macro problem. The 

micro level in your budget, and I hate to be parochial, we in the 

Tennessee Valley have an agency called the TVA. And on the very 

last page of your budget, you essentially suggest that by September 

of this year, they need to have a plan to cut their debt in half. 

Well, their debt is large, but for each one billion of debt reduction, that is a 18 percent rate increase or tax on the people of the 

Tennessee Valley. So I hope you will be sparing on the people in 

that seven-State region as you essentially force them to be taxed, 

to dig out of their debt hole when the Federal Government is not 

doing very much to dig out of its debt hole. We have, on the screen 

there, two giant patches of red, and they extend almost as far as 

the eye can see. As you correctly put it, no one can predict much 

beyond a few years ahead. But you know the problems of this body 

and I hope and pray for you that you do not suffer the fate of your 

predecessors because it looks all too likely at this point. 

Mr. DANIELS. Thank you for your solicitude, Congressman, and 

I appreciate it, and I guess I can only say that nothing about this 

job has to do with me or any reputation I might ever have. It is 

about trying to help this President deal with the problems facing 

him, which are different than the problems facing his predecessor 

or his predecessor. And that is what we are gathering about today. 

Recession he inherited, a war no one asked for, created this situation and what we all must be—the business we must all be about 

is how to deal with it best. And I presented his plan, which does 

place some things above the objective, the near-term objective of a 

balanced budget, not many, but a few. We are very receptive of 

other ways to meet the Nation’s needs and do even better than we 

forecast to do here. The micro level, I will say that no one favors 

higher rates for people in the TVA area. They had a plan to reduce 

their debt. This was their stated objective in previous years and 

have for various reasons not acted on it and in fact moved away 

from it. We have called on them to write a new one. And there are 

many, many ways that do not involve rate increases that they 

might first of all avoid take on greater debt which at present they 

would like to do and begin to move down the 25.3 billion that they 

44

piled up. So we would be glad to work with you on that and with 

the interest of the upper-most ratepayers. 

Chairman NUSSLE. Mr. Hensarling. 

Mr. HENSARLING. Thank you Mr. Chairman and thank you Mr. 

Chairman for recessing us so we could witness a very moving memorial and wonderful celebration of heroic life. Mr. Daniels, one of 

the advantages you have as being a member of least seniority in 

your party is, No. 1, you get to sit in front of the chairman so that 

your wife and mother may see you on C–SPAN. Another additional 

advantage you have is you have the opportunity to hear the testimony and questions of many wise and senior members, some of 

which spoke with a lot of passion. I, too, am passionate about 

issues. One of the issues I am passionate about is the American 

family and I want to commend you and the administration for holding the growth in government spending to a level no higher than 

the growth in the family budget. I believe it is a good starting point 

and I believe we have a lot more room to grow however. A friend 

and colleague and fellow Texan earlier today spoke to us about 

learning the lessons of history. I believe it is, indeed, difficult to 

project these deficits 10 years in the future. I believe that economic 

forecasting not unlike auto mechanics is a highly imprecise science. 

Perhaps there may be a little more agreement though on the historical record. Have you looked at the history of what has happened when this Nation has cut marginal tax rates and what that 

impact has been on economic growth and tax revenues? 

Mr. DANIELS. Yes. From time-to-time. 

Mr. HENSARLING. Can you tell us what that impact has been? 

Mr. DANIELS. Typically the impact has been that revenues in 

succeeding years did increase. This was certainly the experience in 

the 1960s, again in the 1980s. 

Mr. HENSARLING. And its impact on economic growth? 

Mr. DANIELS. Revenues increased because economic growth after 

the fact of the tax increases was substantially higher. 

Mr. HENSARLING. I would like to take a look historically also—

I would be curious if you looked at the flip side of the coin and 

what our history has been in the modern era when we have actually raised marginal rates and its impact on deficit reduction. Historically, is it your impression that as we have raised marginal 

rates, that any increased government revenue has been earmarked 

for deficit reduction or is, instead, the government budget continue 

to grow, outpacing both inflation and economic growth? 

Mr. DANIELS. There have certainly been many occasions in which 

any new incremental revenues were spent. 

Mr. HENSARLING. So is it your opinion, then, that increasing 

marginal revenues is historically proven to be a poor method by 

which to fight deficits? 

Mr. DANIELS. I will just say that I think it would be a poor method in the situation which we find ourselves now this for certain. 

The economy underperforming, higher tax rates—particularly higher tax rates. I think the President believes it would be backwards 

economic policy and probably counter productive. 

Mr. HENSARLING. Mr. Daniels, over the last 5 years, discretionary—Federal discretionary budget has grown an average of 7.2 

percent a year which has outpaced both inflation and economic 

45

growth. Presently, I believe the average American family pays almost 40 cents on the dollar to pay their Federal, State and local 

income taxes. If the Federal discretionary budget continued to grow 

at 7.2 percent and if we continued to have modest economic growth 

without the passage of an economic growth program and since you 

have been asked to look through your crystal ball in the future, 

would you have an opinion on what the tax burden might be on the 

American family 10 and 20 and 30 years in the future? 

Mr. DANIELS. No, not offhand, but I would certainly concur that 

the rate of spending growth that we have experienced in the last 

few years needs to be curtailed as the President has suggested, 

needs to slow down to something much more moderate and that 

particularly when coupled with the pending increases not immediately but 10 and 15 years out and the obligations we have committed to under our entitlement programs would combine to be an 

unsustainable burden on future taxpayers. 

Mr. HENSARLING. Mr. Daniels, I have heard a lot of talk today 

about the deficits. But typically, I have only heard one response to 

them, and that is increasing taxes once again on the American 

family. I would certainly propose for all the members here that 

there is another option and it has a lot to do with cutting Federal 

spending. Thank you, sir. 

Chairman NUSSLE. Mrs. Capps? 

Mrs. CAPPS. As a new member—another new member of our 

Budget Committee, I want to first tell you, Mr. Chairman, what an 

honor it is to serve on this panel. As a committee which sets the 

framework for our fiscal policies, I know we are here to begin to 

make the important choices which address our country’s challenges. I see the budget as a reflection of our priorities, our values, 

if you will. And while we must continue the fight against terrorism, 

we can’t forget our key domestic challenges. I am a nurse and I 

came to Congress after spending two decades working in the public 

schools of my community. As such, I focus my professional life on 

efforts to improve health care, both in my community and now in 

our Nation. Today there are many health care issues in my congressional district and rural and other areas across this country 

that the Federal Government can and should do something about, 

like the growing shortage of doctors and nurses, and millions of 

people without access to health care, millions of seniors without 

ability to get prescription medications, and a public health infrastructure that is stretched beyond capacity which really does impact our homeland security. 

I met just a few minutes ago with a group of representatives of 

one of our Nation’s largest nonprofit health and social service organizations, and I told them I was going to come and ask you some 

questions for them about health care. I have three topics, and I 

hope we can touch on all three, but I want to start on a very significant one, which is the reform of Medicare. This administration 

is pushing private health plans as a panacea to Medicare’s woes. 

We have had private plans in Medicare. And in my district, they 

are not working. Medicare+Choice plans are dropping out of the 

program and cutting back benefits. None of these plans want to 

participate in rural, districts like mine and the premiums are rising faster than Medicare costs. Given all of that, my question to 

46

you is, why these private health plans will be good for the programs for all of our seniors. 

Mr. DANIELS. I think these are probably not the plans that would 

serve seniors under a reform like the President will propose. I will 

observe that the Medicare+Choice plans have been leaving not because seniors don’t like them. Seniors’ customer satisfaction rates 

have been well over 90 percent. They have been leaving because in 

a command and control system, they are losing money at the rates 

that the government has chosen to pay them. 

So I don’t think they are a model, certainly not the way we administered it. I would expect that under a program like the President will propose, you will see a close parallel to one that works 

very well for Federal employees who are served even in small communities and rural areas, are served with a great degree of choice 

about physicians and about the kind of benefits that they—that 

suit them and their family best. And the President is very sensitive 

to the concerns you mentioned. It has to be a plan that works for 

everybody everywhere, and it has to be one that opens many new 

choices while preserving the ones that seniors have now. 

Mrs. CAPPS. Thank you. I am going to look forward to continuing 

that. I want to bring up one issue. I worked very successfully, I believe, in the House and Senate to address our nurse shortage, and 

that situation I am watching because the budget that—Tommy 

Thompson said some good things about it in the Department of 

Health and Human Services budget in brief, but nurse education 

loans actually are going to be cut in the President’s budget, so I 

am going to be watching this. I am also very mindful of Medicare 

payment cuts to Medicare providers. The cut that was 5.4 percent 

last year is now going to be followed up with 4.4 percent. 

In this current budget, you say you want to fix the physician 

problem, but we are hearing from these same people that were in 

my office and also in my district that they are really struggling. So 

I want to know what your views are on Medicare provider payment 

increases during this fiscal year. 

Mr. DANIELS. In particular, the physicians, we think, are not 

being fairly compensated. There is really an arithmetic flaw using 

old data, and I think you are familiar. We think that is the strongest case, probably stronger to be honest, than many of the other 

providers for whom the independent, so-called Med-PAC committee 

has continually given evidence of are being adequately compensated for the moment. But there is an issue with physicians, 

and we are interested in trying to fix it. Let me say a quick thing 

about nurses because it is a very important problem. And we have 

been trying and would respectfully ask your guidance and assistance maybe. 

We have a program called Health Professions grants, which has 

historically been aimed at generating more professionals and also 

getting them to underserved areas. It hasn’t been working very 

well at all. Meanwhile, there is a somewhat parallel program called 

the National Health Service Corps, which seems to do that job very 

well, and in particular, has been, I believe, supporting nursing education. The President, in this budget, also suggests nurse loan forgiveness as another initiative. But we have to find better targeted 

ways to get at this common goal. There are places where we have 

47

all the doctors I think we can use, and too many places where we 

don’t have enough doctors and certainly not enough other professionals. 

Mrs. CAPPS. I do look forward to working with you, and I am 

very cautious about the Health Service Corps as a model because 

it doesn’t deal with bedside nurses. But I hope this is a conversation that we can continue, and I appreciate you being here. 

Chairman NUSSLE. Mr. Garrett, do you have any questions? 

Mr. GARRETT. No. 

Chairman NUSSLE. Mr. McCotter. 

Mr. MCCOTTER. Thank you Mr. Chairman. I just want to touch 

and make sure I understood a couple of the larger ramifications of 

the budget and then a specific question. And bear with me. I am 

new here. Just a simple country lawyer from Detroit. The three—

it seems to me that in addressing what happened before, the 1990s 

were a very good decade for economic growth, but I think it was 

important to remember that you had two engines driving that. The 

prior administration I believe deserve credit for NAFTA, which 

opened up expanding economic opportunities in other markets. And 

I think we saw the final economic expansion of the economy based 

on the concept of the computer. 

And if I am correct on this, as the economy expands from new 

ideas and new initiatives, it can often overexpand on the expectation that it will produce more wealth or more opportunity than it 

really can, and then the market can correct either by stopping at 

that point, or in the case of overexpansion, contracting. 

So therefore, while revenues were increasing in the 1990s, one of 

the three prongs of the problem we are in now is the inherited recession. But in many ways, that was not due to the fiscal policies 

of either the prior administration or this one. It was really due to 

the concepts of NAFTA—and NAFTA and the computer winding up 

its own initial expansion and rush for the economy. 

Secondly, I believe you talked about the war on terrorism. And 

we are in a state of war. We are in a state of war with an enemy 

that does not fight by conventional diplomatic means or military 

means, and it is the kind of war that the better we do, the less we 

are aware of it. And I think spending on things such as homeland 

security, which would be much better perhaps over a 10-year period, say, if we could go back, but right now we cannot go back we 

can only go forward. And I think I understand that. 

And finally, this is where my question comes into you, especially 

in prognostications which are always a risky proposition, September 11, it strikes me that to a certain extent, one of the things 

people have not factored to the effect on the economy is, has anyone noticed or has there been anywhere where I can find out more 

information because I believe there is a direct link between September 11 and what happened in this sense. It makes it much 

more difficult for people to make rational economic forecasts either 

in a family room or a board room or somewhere else because they 

now have to factor in the potential for by the very nature, an unpredictable act of terrorism that could adversely affect the economy. 

So in many ways, much of what we do, either through the budget 

or through any policy, we have to understand that many average 

48

policy believe that at any time, something could happen in this 

country through an act of terrorism—be it biological, chemical or 

other that could throw the economy right back into a recession. 

Where can I find more information, or has anyone done a study of 

that and how people are trying to prepare for that? 

Mr. DANIELS. I think those are pretty profound comments end to 

end, Congressman. And let me react to two or three things you 

said. First of all, I have often said in this room that I think enormous credit is owed to members of both branches during the previous administration and both parties in the Congress for a good 

fiscal outcome that occurred, and that gave us a pretty good starting point for the events that hit us, starting in 2000 and 2001. I 

do believe that. I think, secondly, that you are quite right that we 

need to be careful not to be too Washington-centric in our view of 

a $10.4 trillion economy. Things that are said and done here have 

an effect and can have an important effect, but we ought not imagine that anyone in Washington or any group of people collectively 

run the economy or manage the economy or words like this that 

are too loosely thrown around. 

So yes, I do believe developments in technology, and in a freer 

world, the economy had an awful lot to do with the results that 

were achieved. All that said, I certainly agree with you that we are 

living with uncertainty now. I don’t know exactly where to go for 

a study by the very definition of the problem. There is not precision 

around this subject. But clearly, uncertainty for investors may be 

causing some hesitation. That is not necessarily going to be fixed 

by some spending or taxing decision that we make here. But these 

are the cards we have been dealt, and we want to work with Congress to play this hand out in the best interest of all Americans. 

Chairman NUSSLE. Mr. Emanuel. 

Mr. EMANUEL. Thank you, Mr. Chairman, and thank very much 

for providing time after the service for us to speak. And thank you 

Mr. Director. I have worked on both sides of Pennsylvania Avenue 

albeit a short period of time here. And I know and appreciate the 

tough choices that have to be made in the budget and appreciate 

the last couple of months you had to go through and you look better for the wear of that. And what happened to Al Strivland and 

Leon Panetta through that last 3 months and their competing demands to meet the challenges and struggles that our Nation and 

our families face, both to fund the war on terrorism and our homeland security, to invest in education and health care and the needs 

that our families face here at home, as well as to provide tax cuts 

to hard-working families. 

There is a current debate going on between the parties at the 

White House and the public domain about whether deficits really 

even matter, whether they have an economic impact. I think that 

if you don’t think that deficits matter, and it is a fair debate of 

whether they have a fiscal response. But if you don’t think they 

matter, they also lead to a view that there are no political consequences to deficits, and therefore they lead to an attitude that is 

disrespectful, or it lowers them as you would say on the priority 

list. And just for one fact, the Chicago Tribune noted in its editorial 

yesterday, we spend $171 billion on interest on the Federal debt. 

49

That is more than we spend on education, transportation, and energy conservation initiatives combined. 

So those who think that deficits or building up the national debt 

don’t matter, I would like you to know that even though that $171 

billion is low, it still crowds out and is larger than the combined 

Federal commitment to education transportation and energy conservation. I think regardless of party, everybody agrees all three 

are important to our economic future today and tomorrow. So although they are not politically sexy, and I understand the politics 

around deficits, deficits do matter. There may not be political consequences, but there are surely investment and fiscal consequences 

and they reflect in our values. 

I also want to say and give you a sense that we talked about, 

whether there is a cut or a growth and to pay for this additional 

debt and to pay for the other priorities and you said I think right. 

We need to balance priorities. I believe we need to offer the American people a balanced deal: Targeted tax cuts, investments in education and healthcare, and also an attempt to target and deal with 

our war on terrorism. There are cuts in education investments like 

teacher quality for $173 million that will be cut. The maximum 

Pell grant award will be frozen for the second year in a row at 

$4,000 while everybody agrees higher education costs are soaring. 

Paying for our national debt has consequences for our ability to invest in America’s future. This brings me up to two other points. 

I want to thank you, Mr. Chairman, but I finally heard an economic argument in behalf of repealing the inheritance tax and that 

is we need to repeal it for all these children of millionaires because 

we are going to bequeath them nothing but a debt tax. So they are 

going to need that money from the inheritance tax to pay off that 

debt tax. The administration’s budget refers to the looming problems in Social Security—I think I am quoting directly—the real fiscal danger. 

It is therefore illuminating to me, and they put a flashing red 

light around Social Security and say that is the real fiscal danger 

to examine the size of the administration’s tax cuts relative to the 

size of the Social Security deficit over the next 75 years. According 

to the Social Security actuaries, the deficit and Social Security over 

the next 75 years amount to .72 of GDP. The cost of the administration’s tax cuts including the 2001 tax legislation in the new proposals amounts to between 1.7 and 2.1 percent of GDP. That is 

more than twice the Social Security deficit over the same period of 

time and yet no flashing red light around the real fiscal danger. 

And my question is how can the deficit and Social Security be the 

real fiscal danger to this country when the administration’s tax 

cuts are more than twice as big over the next 75 years and there 

is no warning issued to the consequences and costs associated with 

those deficits? 

Mr. DANIELS. Although I thank you for saying I look better than 

I might, I think you do a real injustice to Leon Panetta. Every time 

I see him, he looks so tan and healthy, I am envious. Things have 

got to get better after you leave this job. Let me associate with two 

or three things you said in answer to your question. Yes, deficits 

do matter. Most emphatically they do. 

50

What we all have to work toward and reach toward is the answer, how much do they matter, how much do they matter compared to other issues, some of them life and death issues that we 

are facing as a country. And governing is about choices, and the 

President welcomes the Congress’ help in working with him to balance the choices we have to make now. Let me say something 

about the debt service we have. We all wish that we had a zero interest payment. It is, however, important to note that, again, 

thanks to the lowest interest rates we have seen in the lifetime of 

most Americans, our interest payment this year will actually be 

lower than the year just finished and will stay in the 8 or 9 cent 

range throughout the time horizon we are looking at here, 8 or 9 

cents of the dollar we spend. I wish it was 6 cents or 5 or 4. And 

if we do the right things and get the right breaks, it could be that. 

But again, that is a sharp contrast of 15 cents just 5 years ago. So 

there is some consolation there. 

Finally on Social Security, I think I see the situation a little differently, although I will be happy to take a look at the mathematics you just ran through, but the present value of the Social Security shortfall is between 5 and $6 trillion, and it is much, much 

larger than the impact of any tax or spending bill we will consider 

right now. The point of that chapter was to say as important these 

matters are, what is the right level of taxation today, by how much 

should spending increase and so forth, there is an issue sitting out 

there for the long-term that is a couple orders of magnitude bigger. 

Mr. EMANUEL. I will send you the material we came up with noting that, and then we can analyze and look at that and continue 

that discussion because I think the choice—as you know, choice reflects values and priorities. And my own view is I just hope when 

we say it is a real fiscal danger, we don’t overlook what we think 

is important versus other areas. 

Mr. DANIELS. That is fair to say, Congressman, and doesn’t mean 

there aren’t other dangers around. I just want to say I am unaware 

of any analysis that says we can conceivably raise taxes high 

enough to cover the unfunded liabilities of Social Security or Medicare, that we would have to raise taxes to unthinkable levels in the 

future to cover those problems. 

Mr. EMANUEL. That isn’t what I was suggesting. 

Chairman NUSSLE. Mr. Davis. 

Mr. DAVIS. Thank you Mr. Chairman, Mr. Daniels, good afternoon. Freshman need to figure out the mikes on these things. Several times you have made a point, but I think is certainly a very 

accurate one. And it is that governing is about choices and governing is about priorities. As I look at the President’s budget, I do 

it in the context of my own district. My district, the Seventh District of Alabama, is one of the poorest districts in the country, but 

it is similar to a lot of districts in the Delta, a lot of districts in 

the rural black belt. These are parts of our country that, frankly, 

regardless of the economic state that we have had in America, they 

lag behind. They have poverty rates that have been chronic. They 

have had unemployment rates that are two or three times the national average. 

I have to confess to you that I am struck as I look at the budget, 

I see an interesting and disturbing pattern when it comes to rural 

51

America. If I could pick just a few choice examples. A $52-million 

cut from rural health initiatives. And when I say ‘‘cut,’’ obviously 

I mean a decrease from the 2002 projected spending levels. The 

empowerment zones that have been so important in revitalizing a 

lot of communities in west Alabama, funding is eliminated all together. The rural community advancement program, $356 million, 

40-percent cut. Throughout this budget, there is, in my mind, a 

shifting of priorities away from rural America. So given what you 

have said about budgets reflecting choices and budgets reflecting 

priorities, to people who live in districts like mine in rural America, 

what does this budget say about the President’s priorities? 

Mr. DANIELS. Well, I think that read fairly and completely, it 

would say that rural America is very high on his priority list. The 

programs you mention are relatively small. I am not saying that 

they are not important and not in some cases effective, but there 

is a lot you didn’t mention. I mean, just to pick one at random, a 

program which has not always found favor, I have to say, in some 

previous Republican administrations, but we try to look at honestly 

and fairly, the Economic Development Administration which provides grants, specifically in high unemployment and high poverty 

areas. We have marked down for a significant increase. 

Last year’s farm bills—much maligned but dramatic increase in 

spending in rural America, I must say—takes full account of the 

needs of the rural south in terms of its emphasis. So I think that 

you know, this President comes from, lives in, rural America, 

knows the people there and connects with them on a personal level 

when he gets the chance. So these issues are very close to his 

heart. Where you see things that could be done better or could be 

touched up, we would invite you to show us where you think would 

be most useful. 

Mr. DAVIS. Let me follow up in that point, Mr. Daniels. I was 

back in my district yesterday, and had a chance to meet with some 

economic development people. And I will tell you that they often 

say to me that the empowerment zones in the enterprise communities that were enacted in the last several years have done two 

important things. No. 1, they have given businesses an incentive 

to come to parts of our country that have often been outside the 

radar screen of a lot of folks in the business community; and second of all, they provided a direct stimulus that has allowed certain 

people to get jobs. 

Again, I will note that funding for that program is eliminated all 

together, if I understand the budget correctly. As a matter of policy, do you agree that programs like the enterprise community can 

provide effective stimulus for rural America, and if you do agree 

with that, can you tell me what the President’s budget is reflecting? 

Mr. DANIELS. They can but they don’t always reflect that record. 

I will be glad to write you a more detailed letter of our view of that 

particular program if you like. But throughout this budget, we 

have been searching for ways to address priorities like this in the 

most effective way. And simply the presence of an appealing title 

or an occasional success story doesn’t always tell us whether this 

is a smart thing to do for all of America. 

52

Mr. DAVIS. Let me follow up on Congresswoman Capps’ question. 

She asked you about an issue that is frankly critical in my district 

also, and it is the question of Medicare reimbursements. You were 

stating that you agreed with Congresswoman Capps that it would 

be appropriate to give doctors back some of the money that has 

been taken away from them because of estimates and problems 

with the Medicare reimbursement formulas. Given that that is 

your conclusion, do you think the Senate did the right thing 2 

weeks ago when it voted down an amendment that would have restored some of the Medicare cutbacks that Congresswoman Capps 

asked about? 

Mr. DANIELS. Well, we have to find the right time and place, and 

it could be soon or it could be on some measure later in this year 

to try to rectify this situation. As I recall, the Senate did act or proposed to act to provide greater payments to physicians as well as 

some hospitals. And we will see what can be worked out in the conference. Whether that is the right time and place to make that adjustment is up to the members of the conference. But sooner or 

later, the President would like to see it taken care of. 

Chairman NUSSLE. Mr. Thompson. 

Mr. THOMPSON. Thank you, Mr. Chairman and Mr. Daniels, for 

being here. I want to thank you for your emphasis on priorities. I 

think that is very important as we set out in this effort to craft a 

budget that is going to work for the entire country. And I don’t 

think anybody disagrees with you on either side of the aisle that 

homeland security and national security are certainly top priorities. 

But I am one who believes that economic security is also very, very 

important, and I don’t think you have homeland security without 

economic security. And I don’t think we can get there unless all of 

us are willing to make a commitment toward this debt reduction 

and make a commitment to some sort of pay-as-you-go effort when 

we are proposing new programs or when we are increasing funding 

in old programs nor can we get there if we neglect the needs of our 

States, and that has been raised a couple of times today. 

But the truth is that 48 States are in the red right now, they are 

struggling, and everybody in those States are struggling. And what 

we are talking about is not only the priorities, but the values of the 

people that all of us represent. And if that is not the real bottom 

line, it is certainly a big part of the bottom line. And some of the 

people on the committee have mentioned specific programs, but, 

you know, you can take anyone you want. You can talk about the 

500,000 veterans that got a notice in the mail that they are because of budget constraints, they are no longer eligible for veterans 

health care or they are going to have to wait 6 months or a year 

before they can have their first appointment. 

Folks have mentioned education, Pell grants, Impact Aid or the 

full funding of the No Child Left Behind Act and health care is certainly an obvious one, irrespective of where your district lies, rural 

urban or otherwise. And while we may not need to get too excited 

or hyperventilate over this debt that we have, I, for one, believe it 

is something that is very, very important, and I think it was explained well during this hearing, that it is not just a debt, it is a 

debt tax. This is a tax that is going to be imposed on every taxVerDate Feb 1 2002 10:59 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6602 X:\HEARINGS\108TH\108-1\HBU035.002 RYAN PsN: RYAN
53

payer in this country from now on. And if you just do the rough 

math, it is about $2500 per taxpayer. 

So Mr. Chairman, to use your analogy, we are not talking about 

remodeling the kitchen, what this budget does is it spends the food 

budget, and it spends it long before anybody is fed, and that doesn’t 

even take into consideration as you pointed out what cost of war 

might be or some of the spending programs that the President 

talked about in his State of the Union message. 

I think every major economist will tell you, and the models that 

they use for doing their forecasting, I think including CBO and the 

Federal Reserve, are based on the assumption that any expected 

future deficits will increase interest rates. And I think that is a big 

issue, and I hate to beat a dead horse, but everybody has talked 

about that some way or another. 

So the real question for me is how do we recognize the priorities 

and the values of all the people we represent? How do we move to 

repeal this debt tax, a billion dollars a day in interest alone, money 

that just goes away from the priorities and the values that all of 

us on both sides of this dais have talked about? If we don’t do it, 

I am afraid we are headed for a Federal train wreck, and it is going 

to be the local governments in all of our home States that are going 

to be left to clean up the mess from that Federal train wreck. The 

truth is they are all the same taxpayers. Doesn’t matter if they are 

talking about them here or talking about State legislatures in this 

country. It is all the same taxpayers. 

Mr. DANIELS. I quite agree, Congressman. As I pointed out before, to an extent that a lot of people hadn’t noticed, frankly I 

hadn’t until very important questions about State finances came 

up, the transfers from the Federal Government to the States have 

gone up very, very fast. Four years ago, $285 billion. Next year 

$407 billion. It is a 9 percent rate of increase. A lot of it is driven 

by automatic programs like Medicaid, for instance. But a lot of it 

are new decisions that have been made. A lot more in education 

under the last and particularly this President. A lot more in highways and unemployment more recently. 

So let us remember, by the way, that the Federal Government 

doesn’t have any money of its own. It has to take it from the taxpayers. It is all the same taxpayers. So we are taking from the taxpayers of certain States and making life easier for the taxpayers 

of some of their fellow Americans. 

Mr. THOMPSON. If you would allow me to interrupt you for a second: But the difference is, in addition, we are also tacking on this 

horrendous debt that not only the taxpayers are going to be faced 

with, but their children, their grandchildren, our children, our 

grandchildren are going to be faced with. 

Mr. DANIELS. Well, the question is, is it important or not to do 

what—to put this money to the purpose to which we have put it? 

Many, many families, the majority of American families, do take a 

mortgage. They decide that long-term housing is important to 

them, and that is a smart financial decision. 

As I indicated, our Federal mortgage payment is actually as low 

as it has been since 1979, 8 cents on the dollar. We ought to try 

to keep it there. But the fact is, that the burden today is about half 

of what it was just a few years ago. And I try always to give credit 

54

to people in both parties who worked hard during a different set 

of circumstances to get that down. 

So we will continue to pay attention to it and remain very receptive to ideas that won’t hurt the economy and take two steps back 

for one step forward, but that might make that deficit smaller, and 

welcome your ideas in that respect. 

Mr. THOMPSON. Thank you. I look forward to working with you 

on this. And I just—I just can’t believe we can dig our way out of 

this by expanding that debt. It is something that is really troubling 

for all of us. 

Chairman NUSSLE. Next in line would be Mr. Meek. 

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

Director Daniels, it has been a real honor having the opportunity 

to hear you respond to some pointed questions and some questions 

that I am pretty sure that you can answer in your sleep as relates 

to this budget. 

But I wanted to just, I guess, speak for a moment, being a creature from a State legislature—I was in the State senate this time 

last year and served in the State legislature for some 8 years, and 

I can’t help not only read, but speak to my colleagues throughout 

the country in the National Association of State Legislators of some 

of the things that they are facing right now. And the worries, they 

are very worried about this budget that we are putting forth now. 

There are all kind of different, how would you say, descriptions of 

this budget, a wartime budget, a budget of hard times, a budget 

of priorities. But back in the States we are looking at a 50 to $70 billion 

shortfall throughout the country, of them having to make some 

very rough choices. Being a member of the State legislature, serving on appropriations and the budget committee during my 8-year 

period, there was a lot of what I call ‘‘devolution’’ of taxation. 

Here in Washington it is very easy for us to give tax breaks to 

individuals that need to be, whatever the taste may be on either 

side of this table here, for the top 1 percent or the top 2 percent 

or 3 or whatever the case may be. And then at the same time, what 

comes from that, over 50 percent of all Americans, they may receive maybe $100 or $200 back in a tax rebate. So it is a pretty 

good night out at the restaurant. But it is at the cost of their children’s education. 

In looking at the education budget, I can’t help but reflect on the 

kind of pain and suffering educationally and economically that 

many States are going to go through as they look at this. And at 

the end of my—how would you say—statement here, I wanted to 

really—I wanted you to start thinking about in this budget, how 

is it going to help this Nation’s Governors? How is it going to help 

State legislators? How is it going to help local school boards and 

city councils meet their bottom line in being able to provide the 

very necessary services to our country, need it be in a time of war, 

or need it be in a time of nonwar? 

You know, as we look at this, the National Conference of State 

Legislators, they are saying that two-thirds of their States must reduce their budgets by almost $26 billion between now and June 30 

of this year. States have already addressed $41.9 billion in shortfalls as they craft their 2003 budgets. 

55

The news even gets worse as we move on. State legislators see in their 2004 budgets that it is going to be some $65 billion. If I 

said million earlier, I meant billion—billion dollars in shortfalls in 

their 2004 budget. This is really where the rubber meets the road, 

and what you may call in-your-face, last line of defense of people 

asking for dollars. As we make these cuts, as we make $45 billion—if we cut 45 programs in our Education Department right now, as we look at being 

$9 billion below—the Leave No Child Behind Act that we all felt 

very good about, I will tell you that it was a breath of bipartisan 

fresh air in the lungs of many educators and many individuals in 

the States that were looking for some new ideas from the Federal 

Government. And now, seeing in this budget some $199-million 

below the 2000 authorized level, 2002 authorized level, of the 

Leave No Child Behind Act, I am trying to find something good. 

Not to try to be partisan and not trying to be an ‘‘I got you’’ kind 

of person or Congressman, I am trying to find something good that 

I can share with my State legislators, that I can share with my city 

councils and county commissions on what they have to look for out 

of this Federal budget that is good. 

Mr. DANIELS. Well, let me try to help you find it. 

First and foremost, once again, there is nothing the Federal Government can do for State and local governments nearly so important as to create the conditions for stronger economic growth. That 

has been, I think, correctly said. A lot of States during the boom 

era of the late 1990s raised their spending very dramatically, 

maybe in some cases faster than was smart, and have got to back 

up from that now. 

But the basic problem for them, as for the Federal Government, 

is a collapse in revenue, the popping of the bubble, the recession 

that came on us in 2001. And it has done to them just what it did 

to our revenues. 

Mr. MEEK. I am sorry, Director. 

Just one more, Mr. Chairman. 

What happened, not only in my State, but many States, they followed the Federal Government’s lead in trying to stimulate the 

economy, saying that tax breaks to individuals that would hopefully pass them down to hiring more employees and investing more, 

many States bit that hook, Florida for one. 

Spending, when we look at spending, when folks start talking 

about we have to stop spending, I am looking at the Leave No 

Child Behind Act when I hear that, because when it comes down 

to military spending, which—I am on the Armed Services Committee and glad to be there, and looking forward to serving with 

the Members of this Congress as we protect our country—I think 

it is important that we remember that in this debate when we start 

talking about tax cuts, who gets the tax cuts and who doesn’t get 

the tax cuts, and what does it mean to the bottom line of everyday 

Americans. 

But, Director Daniels, I look forward to working with you. 

Chairman NUSSLE. Thank you. 

Mr. Baird. 

Mr. BAIRD. I would like to thank the Chair for reconvening the 

meeting and for giving us the time to participate. 

56

Two years ago the Chair and myself, and many of my colleagues 

across the way and the President himself, spoke a great deal about 

the importance of setting Social Security and Medicare aside in a 

lockbox. 

And if that is the case, I wonder if we might want to adopt a convention among the members of the committee and at the administration level that when we refer to deficits, that we refer to the full 

extent of the on-budget deficit, not the deficit masked by Social Security and Medicare. If we really believe that we should take Social 

Security and Medicare off budget, then we ought to report the deficits as full deficits on budget. 

I wonder if Mr. Daniels would be willing to entertain that suggestion? 

Mr. DANIELS. It doesn’t make a lot of difference to me. I think 

it—the unified budget is probably the proper way to look at the finances of the government. But either measure, you know, has its 

uses. 

Mr. BAIRD. I just think it is important, because if I look at figures of, say, 165—they vary, but that level of deficit, and in fact 

the on-budget deficit is over $480 billion projected for 2004—I 

think there is a substantial difference. 

I have heard my colleagues on the other side say people haven’t 

talked about spending cuts. We need to cut spending. I will agree 

with you on that. But I think we need to put it in a context, and 

I will ask Mr. Daniels if my understanding is correct. 

As I look at your figures in the budget, the on-budget deficit pro- jected for 2004 is $482 billion. The on-budget non-defense discretionary spending is $429 billion. My understanding of that would 

seem to be, if we wanted zero deficit spending and want to have 

the tax cuts that are proposed, we would not only have to cut, but 

would have to eliminate all non-defense discretionary spending. 

Is that an accurate interpretation, given the numbers, not just 

cut, but eliminate all? 

Mr. DANIELS. Well, on your formulation, yes. 

Mr. BAIRD. Given that, I just think we need to be careful about 

your rhetoric, lest we go home and say, folks don’t just want to cut 

spending, we are talking about eliminating all nondiscretionary 

spending. 

Third, maybe I am not hearing correctly, but I have heard my 

colleagues on the other side say that all the members on the Democratic side want to do is talk about tax increases. I would defy you, 

ask you, invite you to cite one single record or statement in the 

record of this hearing all day long where a member of this side of 

the aisle has said we want to increase taxes. 

There has been discussion, and I think fair and sincere discussion, about whether or not when our Nation is at war, when we are 

$480 billion in deficit or heading in that direction, whether or not 

now is the time for the extent of the tax cuts—the full extent of 

the tax cuts that have been proposed by this administration. But 

I have yet to hear anyone from this side of the aisle say they favor 

a tax increase. 

I just think it is fair in the spirit of bipartisanship and 

collegiality and frankly just intellectual honesty, to be careful about 

how we say that. 

57

On the issue of double taxation, I have heard passionate statements by the administration about the need to eliminate the dividend taxation because it is double taxation. 

Mr. Daniels, seven States in this country—interesting States 

they are—face, effectively, double taxation because we are not allowed to deduct our sales tax from our Federal income tax returns. 

Let me share with you what those States are. You probably are 

well aware, But they are interesting States: Texas, the President’s 

own state; Wyoming, the Vice President’s State; Florida, the President’s brother’s State; South Dakota, Tom Daschle’s State; Tennessee, some influential folks in the other body; and Washington 

and Nevada. I may have covered all of them there. 

Essentially, this is an unjust tax. States that have an income tax 

are able to deduct their State income tax when they file their Federal returns. States that have a sales tax are not able to. It seems 

to me that this amounts to double taxation. 

I wonder if you can comment on that, and if you would be willing 

to work with many of us on a bipartisan basis, bicameral, I believe, 

to try to address what I think is a fundamental inequity and what 

amounts to those States subsidizing the Federal Government. 

Mr. DANIELS. Well, we would be more than happy to work with 

you on any matter that—of tax inequity. We have far too many in 

a Tax Code that is way too complex; and the President has suggested acting on one of those areas, but that doesn’t mean that 

there aren’t many more that—and, in fact, whatever else your suggestion may finally turn out to accomplish, I think it stimulated a 

lot of interesting discussion. 

People have stepped forward and said, you know, you have a 

point there, but here is another example and here is another one. 

One day I suppose that we will all try to turn to maybe the hardest 

subject of all: How can we get to a much smaller Tax Code that 

would be fair to everybody? But I appreciate your making that 

point. 

Let me just say one other thing that, in contemplating the—at 

least the immediate deficits we have, whether you measure them 

on a unified basis or on the so-called ‘‘on-budget’’ basis, complete 

repeal—forget postponement. But complete repeal of the 2001 tax 

bill wouldn’t come close to closing the gap—we have illustrated this 

in different ways—wouldn’t even come close; that is, if you reinstated the marriage penalty, put the 10 percent bracket back to 15, 

all of that, you wouldn’t even come close. 

So we just have to recognize that economic events and international events changed our situation fundamentally, and now we 

have got to do the smartest and fairest thing about addressing it. 

Mr. BAIRD. I think you raise a legitimate point. Just to close, I 

think that is what we need to do. We need to say honestly, just on 

our side of the aisle, we need to be honest and say you can repeal 

all of the tax cuts and still not solve the problem. But on the other 

side of the aisle, you also must recognize that you could eliminate 

all discretionary spending and still not solve the problem. 

The question is, how do we go about it in a responsible way? 

Where do we target the tax cuts, and how do we get to some kind 

of balance over the long haul? 

58

Chairman NUSSLE. Mr. Daniels, we have come down to the last 

inquiry of the day. We are saving the best for last. 

So Mrs. Majette. 

Ms. MAJETTE. Good afternoon. Thank you, Mr. Chairman. 

And, Mr. Spratt, I am pleased and honored to serve on this committee with you. 

Director Daniels, I am frankly troubled by the circumstances 

that we face in light of this budget, this 131⁄2 pound document that 

I received yesterday. And frankly, as you indicated earlier, we 

haven’t had nearly enough time to go through it, but I have been 

able to glean a few facts from this incredible document and was 

frankly startled by the deficit projections. 

I know we have had a lot of discussion this morning and this 

afternoon the deficit situation and whether we should use 10-year 

or 5-year forecasts. But either way, I think the numbers are shocking. I am particularly concerned about the impact the proposed 

budget and future budgets will have on our children and grandchildren. I am particularly concerned because, after all, they will 

be the ones responsible for paying the bills that we are refusing to 

pay today, and that, if we accept this budget, we are creating for 

tomorrow. 

This budget not only robs Peter, it fails to pay Paul. When we 

fail to make the investments in our future for education, for basic 

infrastructure and for research and development, what we are creating and what this appears to be is a blueprint for disaster. 

Before we get ready to bill our children and our grandchildren as much as $6,000 a year in taxes just to cover the debt, we must 

take pause. Right now, under the current debt of $6.4 trillion, each 

child under the age of 18, and I have two of them, today would owe 

$80,000. Now, that would be enough to send each one of them to 

Princeton for 2 years of undergraduate study, or almost 3 years at 

Georgetown Law School. That excludes the interest payments. 

Under the Treasury bond rate, the figure would jump to between $125,000 and $139,000 per person over a 30-year period. 

Now, if we add the projected $2.1 trillion in additional debt that 

the budget calls for, the figures jump dramatically. Each member 

of the next generation would then owe $106,000 and would pay between $166,000 and $184,000 over a 30-year period. Is that fiscal 

responsibility? 

But what I really want to know is, if we adopt this budget, how 

are we going to retire the projected $8.5 trillion in debt? How are 

we ever going to pay that back? I think you would agree with me 

that no prudent businessman or woman or consumer would ever 

borrow or lend any amount of money without a clear repayment 

plan. So I ask you, where is ours? What is ours under this projected budget? 

The other issue I would like for you to address, and I guess that 

you have already addressed the first part of it. With respect to my 

district, I represent what some people call suburban Atlanta. It is 

just east of the city of Atlanta, and the CDC is located there. As 

you know, that is the only Federal agency headquartered outside 

of Washington, D.C. 

Now, as recently as last week, the President, in the State of the 

Union address, described the national horrors that could result if 

59

a chemical or biological attack were launched against this country. 

And, furthermore, the budget explicitly states that no Health and 

Human Services activity is now more important than national bioterrorism preparedness. 

Yet, despite the urgency of the situation, the budget cuts the 

funding for the CDC. The President’s budget specifically decreases 

the level of funding for CDC facilities. 

I have toured the CDC facilities, I have seen the state of those 

facilities. Many parts of the facilities are left over from World War 

II. There are holes in the floors and ceilings. Rainwater runs off because of leaks. Scientists’ work is being stored in old refrigerators 

in the hallways. This is not the kind of situation that would lead 

us to have confidence in, nor lead that agency to have the ability 

to continue to be, the guardian of our Nation’s health. 

Moreover, the CDC plays a vital role in protecting all Americans 

from the biological attacks that we pray will not come. Given the 

importance of the role of the CDC in homeland security, can you 

explain why funding for the CDC is being cut? 

Mr. DANIELS. First, it is not being cut, it is going up a couple percent to about $4.2 billion. There is $110 million which was on 

the discretionary side last year that will be funded on the mandatory side this year. So it is a natural confusion again, especially 

when you have only had one day to look at the budget. 

But we will be happy to show you that, apples to apples, there 

is an increase. And the CDC is extremely important for the reasons 

that you gave, maybe more important than before. 

Of course, at NIH and elsewhere in HHS, the President has suggested billions of dollars of new money to research bioterrorism, 

several billion dollars—we estimate it can be as many as 6 over the 

next 10 years—to ensure vaccines and treatments for deadly bioterror threats that we don’t have today. So the commitment there 

is enormous. 

Yes, there is a discussion on the CDC, about how many buildings 

ought to be built, how fast; they have been allowed to deteriorate 

badly over the last decade or so. There are some enormously ambitious plans to build a lot of buildings at once. But we are working 

with them, particularly, to make sure to fund the laboratories and 

the most important research facilities first. And I think when you 

do have the time to see the President’s suggestion in this area in 

its fullness, that you will have confidence in it. 

Mrs. MAJETTE. Thank you. 

Chairman NUSSLE. There is really no hearing that we have this 

year on the Budget Committee that rises to the importance of this 

hearing. We really appreciate the fact that you would spend 5 

hours on the Hill with us here today, Director Daniels, and for you 

understanding the inconvenience of the interruption as a result of 

the memorial service. 

We appreciate your flexibility in the schedule. 

Mr. Spratt. 

Mr. SPRATT. Let me echo what the chairman has said, and thank 

you for your forthright presentation, and also for your forbearance. 

I would like to ask if your staff can assist my staff in getting the 

numbers or values that correspond to charts 3.2 through 3.7 in the 

analytical perspectives. 

60

Mr. DANIELS. Absolutely. 

Chairman NUSSLE. I would also like to thank Mr. Spratt and the 

minority members in particular for helping us, assisting us with 

the organization of the committee. There aren’t many committees 

that go through that process in a bipartisan way, and I want to 

thank you for that. 

And last but not least, I have two constituents here from Iowa 

who are visiting, Conrad and Erik Clement, and more important 

than constituents, they are family. And so we welcome them to the 

Budget Committee. 

And if there is no other business to come before the committee, 

we will stand adjourned. 

[Whereupon, at 3:15 p.m., the committee was adjourned.]

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