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President Bush Sends Congress Budget Plan

February 5, 2007 at 2:20 PM EDT

JUDY WOODRUFF: More than $141 billion are targeted for the wars in Iraq and Afghanistan; $91 billion worth of cuts in spending growth are proposed for government health programs; and the president’s tax cuts could become permanent.

Those are just some of the highlights of President Bush’s 2008 $2.9 trillion spending blueprint, delivered to the chairman of the House Budget Committee, John Spratt, and his colleagues just after a cold sunrise this morning on Capitol Hill.

JOURNALIST: Would you say it received a chilly reception on Capitol Hill?

REP. JOHN SPRATT (D), South Carolina: Well, it’s pretty frosty this morning, but we’ll give the president a fair hearing on his budget. We think we probably have different priorities. Hopefully we can converge; we’ll see.

JUDY WOODRUFF: The president’s most ambitious goal: turning the current $244 billion deficit into a projected surplus of $61 billion by 2012.

GEORGE W. BUSH, President of the United States: Today we submit a budget to the United States Congress which shows we can balance the budget in five years without raising taxes.

Our economy is strong because of good policy and because the entrepreneurial spirit is strong. By keeping taxes down, we actually generate strong revenues to the Treasury.

Our priority is to protect the American people. And our priority is to make sure our troops have what it takes to do their jobs. We also have got priorities in national parks, in education, in health care.

JUDY WOODRUFF: As in previous years, the military was a major element in the new spending request, with more than $624 billion allocated for the overall defense budget. This is the first time the administration has included in the budget a projection of the war’s cost: $141 billion for 2008.

The president’s supplemental request for the war’s fiscal year 2007 is $93 billion. If approved, this request would bring total cost of the wars in Iraq and Afghanistan to nearly $700 billion through 2008. For 2009, the president is seeking $50 billion for the war but acknowledges that figure could change.

The president also seeks to make those first-term tax cuts introduced in 2001 and 2003 permanent, at a cost of $1.6 trillion over 10 years. Some of the savings would come from reductions in government benefit programs for the elderly and the poor over the next five years, cutting $66 billion from the growth in Medicare spending and $25 billion from the growth in Medicaid.

Another $12 billion would come from eliminating or sharply reducing 141 domestic programs, including in education. Many of these proposals were rejected by Congress last year. Democrats today called the president’s math unrealistic.

REP. JOHN SPRATT: Not a newfound commitment to fiscal responsibility, but more of the same.

JUDY WOODRUFF: The House Budget Committee will begin reviewing the president’s proposal tomorrow.

Cost of Iraq and Afghanistan wars

Rob Portman
White House Office of Management
We have included for the first time the spending not just for this year, but also the spending for next year, at the account level, and provided justifications for that.

For more on the president's proposals, I am joined by the director of the White House Office of Management and Budget, Rob Portman.

Mr. Portman, thank you for being with us.

ROB PORTMAN, Director, White House Office of Management and Budget: Nice to be on, Judy.

JUDY WOODRUFF: Why include the cost of the wars in Iraq and Afghanistan in the main, annual budget proposal, something the administration hasn't done for the last four years?

ROB PORTMAN: Well, I think it's responsive to the congressional concerns, but also the right thing to do, so the American people, and the press, and Congress sort of have a window into what the spending is.

We have included for the first time the spending not just for this year, but also the spending for next year, at the account level, and provided justifications for that. We also, as was indicated in your story, provided an allowance for 2009. So it's our best estimate of what full war costs would be through the Bush presidency and in '09.

JUDY WOODRUFF: And yet the Democrats are saying $50 billion for beyond '09, that's really not realistic when you look at these other numbers. And the other point people are making is that this overall number is already so much bigger than anything the administration led the American people to believe early on. How do you reconcile that?

ROB PORTMAN: Well, the needs will be determined by the situation on the ground. And it's difficult for us to estimate what it will be. We don't know what the spending will be a few months from now, much less a year from now, because we want to be able to shift tactics.

And we all hope, of course, that the new proposal to add additional brigades will result in not more spending, but less spending. But we just don't know. So this is our best guess. It an estimate; it is just that. And yet we thought it was important to provide more and better information.

JUDY WOODRUFF: Do you think it -- you've only been there less than a year as head of the budget office -- do you think it was a mistake not to get those war numbers out sooner?

ROB PORTMAN: Well, when I was on the Budget Committee in the House of Representatives, as vice chairman, I used to complain about not having some of these numbers. Now we're providing them, and now we're getting some of the response saying, "Gee, it's too much." So I'm not quite clear sure where the balance is.

But honestly, I think it's smart for us to provide this information up-front to the best of our ability. Military planners, of course, are nervous about providing too much information, because we just don't know what the actual costs will be.

But this does give Congress a chance to have the kind of oversight they've asked for. It gives us the opportunity to have, again, a window into what our spending priorities would be within the Iraq and Afghanistan conflicts with these requests. And so I think it will lead to, at the end, a better result.

Indefinite tax cuts?

Rob Portman
White House Office Budget and Management
We've had rising wages the last year. We've got 7.4 million new jobs created since 2003. And, in fact, in terms of the burden of taxation, it has shifted it a little more toward higher income taxpayers.

JUDY WOODRUFF: The president's tax cuts, he has made it clear he wants them extended indefinitely. That's the way it looks in this budget. Now, there's a nonprofit group out there -- you're familiar with them -- the Center for Budget and Policy Priorities, nonprofit, nonpartisan group. They're saying that all this really is going to do is widen the gap between the most affluent Americans and everybody else. How do you respond to that?

ROB PORTMAN: Well, I don't think that's true. The president's tax relief from 2001 to 2003 has worked well to get this economy on track. There's an amazing correlation between the full implementation of the tax cuts in 2003 and the growth in our economy, the growth in jobs, the growth in productivity.

That's what's put us in this position, frankly, to be able to balance the budget in five years. We have greater revenues coming in, record revenues the last two years. And what's resulted from the tax relief is actually the burden on higher income taxpayers is now greater; about 66 percent of the burden is now the top 10 percent of taxpayers. Before it was about 64 percent.

So, if anything, what it's done is it's helped get our economy back on track, which has helped all Americans. We've had rising wages the last year. We've got 7.4 million new jobs created since 2003. And, in fact, in terms of the burden of taxation, it has shifted it a little more toward higher income taxpayers.

JUDY WOODRUFF: Well, speaking of those higher revenues, I mean, that's really a lucky condition for the administration. I mean, a lot of this -- I mean aren't you really saying that a good bit of this is out of your control, that you're just benefiting from the fact that there is this growth, that foreigners continue to invest in the United States?

ROB PORTMAN: Well, it's not lucky for the administration. It's fortunate for the American people that we have a strong growing economy.

I think the tax cuts contributed to that. And I think that's why it's so important to keep the tax relief in place. We don't want to risk an economic downturn, just as we are, again, seeing these revenues coming in, seeing more and more people going to work, seeing wages rise, in fact, higher in this recovery than in the recovery in the 1990s.

So we are on a very good track compared to where we were a few years ago, in terms of the fiscal situation. We need to keep spending under control, let the economy grow, and we can get to balance in five years.

JUDY WOODRUFF: Alternative minimum tax, this is expected by I guess everybody to affect millions more, I guess, upper-middle-income taxpayers over the next few years. Almost everybody says it should be remedied. I think you said today the administration thinks it's wrong-headed tax policy, or words to that effect.

If that's the case, why didn't the administration come forward with a comprehensive approach for either doing away with it or changing it dramatically?

ROB PORTMAN: Well, we do think it's misguided tax policy. And we do think there is a need for reform and that's what we call for in our budget. We've for this year, 2007, actually put a patch, so called, into the budget. Congress has not passed one yet, but we think Congress would be likely to.

This is about a $36 billion dollar change in revenues, mostly for 2008. That would take Congress into the end of 2008 before it would have to be patched again to avoid the very impact you're talking about, of the AMT hit more and more middle-income taxpayers.

So we want to work with Congress on it. We think that gives us adequate time to do so. And be...

JUDY WOODRUFF: So it's not an urgent problem, in your mind?

ROB PORTMAN: Well, it's urgent enough that we put a patch in place for this year, again, that would take us until the end of 2008. It takes about -- it gives us about 20 months to work together to come up with a longer term solution.

We think it ought to be solved, by the way, Judy, in the context of larger tax reform, because the AMT is so interactive now with the other parts of the tax code, it really requires, we think, more fundamental tax reform. We think that's a good idea for the economy, too.

JUDY WOODRUFF: We don't have much time left, but I do want to ask you about cutting the growth in entitlement programs. You're looking at Medicare, Medicaid, $90 billion, cutting the growth over five years, reducing some of the benefits for people earning over a certain income figure.

I heard you say today that maybe this is the administration's approach, to look at cutting benefits rather than raising taxes. But I want to ask you, why is that a better approach?

ROB PORTMAN: Well, it's not cutting benefits. When you look at what we were proposing in Medicare -- I heard earlier the $66 billion figure -- it reduces the rate of growth of Medicare over the next 10 years from 7.6 percent down to 6.7 percent, so it still is a very steady growth rate.

And for the vast majority of Medicare beneficiaries, it actually reduces their costs, and therefore it enables them to enjoy more benefits under Medicare. For 5.6 percent of the beneficiaries, who have the higher incomes, over $80,000 as an individual or $160,000 as a couple, we do require a little more of the means testing that's already in Medicare.

There would still be a significant federal subsidy for the premium, but a little bit less, and that does make a difference, not just in the first five years, but over time, to help us deal with a $32 trillion unfunded obligation in Medicare.

Everybody acknowledges this is our huge budget problem. And all we're saying is we ought to take one step in the right direction through this budget process to try to address that.

I will tell you that we still get to balance without any of these changes in Medicare or Medicaid, but it's the right thing to do. And so the president is going to continue to talk about that, as well as Social Security and the need for us to work in a bipartisan way to address these problems.

JUDY WOODRUFF: All right, OMB Director Rob Portman, the budget discussion has begun. Thank you very much for being with us.

ROB PORTMAN: Thank you, Judy. Good to be on.

JUDY WOODRUFF: We appreciate it.

A budget of 'deception and debt'

Kent Conrad
D - N.D.
Really, this is a budget of deception and debt, disconnected from reality, that leads America, I think, in just the wrong direction.

Well, now we get some reaction from a leading Democrat. He is Senator Kent Conrad of North Dakota. He is the chairman of the Senate Budget Committee. He joins us from the Capitol tonight.

Senator Conrad, the president is, as you just heard Director Portman saying, he's projecting to balance this budget in a few years, move it to surplus. What's not to like about it?

SEN. KENT CONRAD (D), North Dakota: There are a lot of things not to like. Really, this is a budget of deception and debt, disconnected from reality, that leads America, I think, in just the wrong direction.

Look, they say they balance, but they do it by leaving out things. They leave out fixing the alternative minimum tax. They leave out realistic war cost. I said to them last year, "Why don't you just leave out some more things and claim you balanced the budget earlier?" You know, you can balance any budget if you just leave out things.

Look, the much bigger problem we've got here, Judy, is that this budget is a stay-the-course budget when we absolutely need a course correction. Why? Because we are piling up unprecedented amounts of debt.

We're now financing that debt primarily from the kindness of strangers. We are borrowing this money increasingly from abroad. We have doubled during this administration foreign holdings of U.S. debt, and that all continues and gets worse.

In fact, the president digs the hole deeper right outside the budget window, the five years of his budget. Things turn around, and not for the better, much worse, because he makes all the tax cuts permanent without paying for them. That costs $1.6 trillion dollars over the next 10 years. The president hasn't paid for any of it.

JUDY WOODRUFF: Well, we heard Rob Portman, the budget director, saying that all Americans, in a way, benefit from the health of the economy, the fact that there is this investment.

But I want to specifically turn to something you said. You said that they're not giving us realistic war cost, and yet, for the first time in four years, the administration is plugging in the costs of the war. We're looking at $780 billion, almost $800 billion over a few years' period. Isn't that better than not knowing those numbers?

SEN. KENT CONRAD: Yes, absolutely. And I give Rob real credit. For the first time -- remember, the administration, until last year, put in zero in every one of their budgets for the war. Last year, they put in $50 billion. And what is the war costing us this year? $163 billion, so more than three times what they told us.

Now, for next year, they're saying over $140 billion, but they're acknowledging that it may well be more. Then the next year, they say $50 billion, but they're telling us behind the scenes it may be much more than that. That's my criticism, in terms of the war.

Look, they have hid the ball from the American people every step of the way. When this war started, the secretary of defense said it was not going to cost more than $50 billion. When he was asked, well, some are saying it could cost as much as $300 billion, he said that that was malarkey or rubbish. And in fact, now we're over $500 billion. So they were off by a factor of 10 to 1.

JUDY WOODRUFF: But my question is, and what you're addressing is that now they are putting those numbers out there.

SEN. KENT CONRAD: For one year. For one year. Look, I don't think there's any serious person that looks at the president's plan -- remember, this is a budget that's supposed to fit the president's policy. And I don't think there's any serious person that says they are fully disclosing the war costs going forward, other than for just next year.

Working with the administration

Kent Conrad
D - N.D.
They're on course to run up the debt another $3 trillion over the next five years, according to this plan.

JUDY WOODRUFF: You also mentioned that they don't fix, in your words, the AMT, the alternative minimum tax, and yet again we just heard from Budget Director Portman that they are putting a patch on it, that they want to work with the Congress to get this done, that it's a priority.

SEN. KENT CONRAD: But that's for one year. That's for one year. And we're talking about a five-year budget. Look, this is the kind of game they have played over and over and over. Will we ever learn?

They have told us repeatedly they weren't going to add to the deficit, they weren't going to be adding to the debt. And they've run up the debt by $3 trillion in six years. They're on course to run up the debt another $3 trillion over the next five years, according to this plan.

So, look, it's easy to say that they're doing certain things. They've said that in the past. You know the proof is in the pudding. We can now look at the record of this administration, and it's crystal clear.

They have consistently -- by a dramatic margin -- understated the war cost. They have consistently understated the effect on deficits and debt of their budget, and unfortunately America is going being to be in deep hock after this administration leaves town.

JUDY WOODRUFF: Well, looking ahead, rather than looking back, are you and other Democrats prepared to work with the administration to come up with a budget that both sides can live with?

SEN. KENT CONRAD: We're eager to do that. Senator Gregg and I of the Budget Committee have proposed even a longer term approach, one to have a group that would be given the responsibility to come up with a long-term plan to address these fiscal imbalances, but one that would require a compromise on both sides.

And what we've gotten back from the administration is from the secretary of Treasury and Mr. Portman, yes, everything is on the table. But what we've gotten back publicly from the vice president and the president is everything is on the table, but the things that we care about, the tax cuts. So that doesn't sound like a compromise to me.

JUDY WOODRUFF: I asked because last year, as you know, a full agreement was not reached. There were continuing resolutions. Both parties bear some responsibility for that, do they not?

And the question is, is that the way to go again? Or does this year, do you and other Democrats commit to reaching some sort of budget agreement, some sort of budget compromise?

SEN. KENT CONRAD: You know, Judy, in this world, I think you know, in your own life, it takes two to compromise.

We have said that we are prepared to go to the table and we are prepared to seriously compromise on all of these issues to achieve a result for the American people. But so far, what we have gotten back from the administration is an unwillingness to compromise on their side in any significant way.

I reach out again tonight and say to this administration: Let's seriously march together and produce a plan that can take this country out of this deficit and debt ditch that so threatens our long-term economic security. Let's do it together. It's the only way that it will happen.

But that means, not only do we have to compromise, but the administration, this Bush administration, you have to compromise, too.

JUDY WOODRUFF: Message delivered, and presumably message heard. Senator Kent Conrad, he's the chairman of the Senate Budget Committee. Thank you very much.

SEN. KENT CONRAD: Thank you, Judy.