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+
+ - THE PRESIDENT'S BUDGET FOR FISCAL YEAR 2004
+
+[House Hearing, 108 Congress]
+[From the U.S. Government Publishing Office]
+
+
+
+ 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
+
+
+ ______
+
+84-883 U.S. GOVERNMENT PRINTING OFFICE
+ WASHINGTON : 2003
+____________________________________________________________________________
+For Sale by the Superintendent of Documents, U.S. Government Printing Office
+Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
+Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
+
+ COMMITTEE ON THE BUDGET
+
+ JIM NUSSLE, Iowa, Chairman
+CHRISTOPHER SHAYS, Connecticut, JOHN M. SPRATT, Jr., South
+ Vice Chairman Carolina,
+GIL GUTKNECHT, Minnesota Ranking Minority Member
+MAC THORNBERRY, Texas JAMES P. MORAN, Virginia
+JIM RYUN, Kansas DARLENE HOOLEY, Oregon
+PAT TOOMEY, Pennsylvania TAMMY BALDWIN, Wisconsin
+DOC HASTINGS, Washington DENNIS MOORE, Kansas
+ROB PORTMAN, Ohio JOHN LEWIS, Georgia
+EDWARD SCHROCK, Virginia RICHARD E. NEAL, Massachusetts
+HENRY E. BROWN, Jr., South Carolina ROSA DeLAURO, Connecticut
+ANDER CRENSHAW, Florida CHET EDWARDS, Texas
+ADAM PUTNAM, Florida ROBERT C. SCOTT, Virginia
+ROGER WICKER, Mississippi HAROLD FORD, Tennessee
+KENNY HULSHOF, Missouri LOIS CAPPS, California
+THOMAS G. TANCREDO, Colorado MIKE THOMPSON, California
+DAVID VITTER, Louisiana BRIAN BAIRD, Washington
+JO BONNER, Alabama JIM COOPER, Tennessee
+TRENT FRANKS, Arizona RAHM EMMANUEL, Illinois
+SCOTT GARRETT, New Jersey ARTUR DAVIS, Alabama
+GRESHAM BARRETT, South Carolina DENISE MAJETTE, Georgia
+THADDEUS McCOTTER, Michigan RON KIND, Wisconsin
+MARIO DIAZ-BALART, Florida
+JEB HENSARLING, Texas
+GINNY BROWN-WAITE, Florida
+
+ Professional Staff
+
+ Rich Meade, Chief of Staff
+ Thomas S. Kahn, Minority Staff Director and Chief Counsel
+
+
+ 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
+
+
+ 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.
+ 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 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.
+ 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 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-something 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.
+ 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 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 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 disadvantaged 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 standpoint, 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.
+ 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
+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.
+ 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 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----
+ 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
+additional 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 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, 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--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 invented 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 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. 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 social 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 terrorists 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 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 value-based 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 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.
+ 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 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
+President 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.
+ 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
+after-school 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.
+ 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.
+ 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 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 up-front 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----
+ 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.
+ 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 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 day-to-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.
+ 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
+long-term 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 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?
+ 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.
+ 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 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. 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 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 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 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 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
+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 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 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. 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.
+ 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 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.
+ 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 taxpayer 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 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.
+ 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.
+ 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 projected 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.
+ 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?
+ 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 13\1/
+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 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.
+ 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.]
+
+
+