Statement of Joshua B. Bolten

Statement by Joshua B. Bolten
Director, The Office of Management and Budget

Friday, July 30, 2004

Ladies and Gentlemen, thank you for coming to this briefing on OMB’s annual Mid-Session Review. I’ll begin with a short statement, and then I’ll be happy to take your questions.

When we released the President’s Budget for 2005 in February, we highlighted its support for the President’s three overriding priorities: winning the war on terror; protecting the homeland; and, strengthening the economy. At that time, I also explained how, with continuation of the President’s pro-growth economic policies and sound spending restraint, we could meet these national priorities while cutting the deficit in half within five years.

Today, I am pleased to report that, because the President’s economic policies are working, we are ahead of pace to meet the goal of cutting the deficit in half within 5 years.

Because the President and the Congress acted and let the American people keep more of their own money to save and invest, our economy is strong and growing stronger. Even with the preliminary estimates of second quarter growth released today, the economy grew at 4.8 percent over the last year, one of the fastest rates of growth in the last 20 years. Economists project further solid growth for the remainder of this year and into 2005. We have seen the U.S. economy generate more than 1.5 million new jobs since last August – including nearly 1.3 million jobs since the beginning of this year. Unemployment, interest rates, and inflation are all currently below the average rate in each of the last three decades. Gains in investment and household wealth, all of which have been stimulated by tax relief, have also generated greater economic activity than previously expected.

Because of this growing economy, and the President’s emphasis on spending discipline, I can report today that our budgetary outlook has improved considerably from just six months ago. In the Mid-Session Review, our projections for the combined deficits this year and next are lower by a total of more than $100 billion.

The deficit for 2004 is now estimated at 3.8% of GDP, or $445 billion – a decline of 0.7percent as a share of GDP and $76 billion in nominal terms from our forecast in February. The deficit projection for 2005 has been reduced by 0.3 percent of GDP, or $32 billion. Further, but somewhat smaller reductions in the deficit from the February estimates are projected for the years 2006 through 2009. If the economy performs better than the conservative forecasts and cautious estimating assumptions we include for the outyears, then the deficits could well be below the level projected today.

This improved budget outlook is the direct result of the strong economic growth the President’s tax relief has fueled. The Mid-Session Review shows receipts rising above our previous estimates by $76 billion in 2004 and $55 billion in 2005.

This year’s MSR reverses the recent trend of receipts coming in well below projections due to the economic downturn that began in 2000 and the attacks of September 11, 2001. As an example, the MSR released last year showed that receipts had fallen $80 billion below the levels projected in the FY 2004 Budget. In contrast, this year’s MSR estimates receipts at $76 billion above their February projected level. In view of the broad-based and sustained economic recovery that we have seen over the last year, it appears that federal revenues are very likely to continue their strong growth in fiscal 2004 and 2005 and perhaps well beyond.

In addition to reflecting changes in receipts estimates, this Mid-Session Review also includes several changes in our outlay projections. In Social Security, for example, higher cost of living adjustments related to slight increases in projected inflation add $59 billion to our 5-year estimates. Similarly for Medicare, the HHS actuaries have increased their estimates for the 5-year cost of the entire Medicare program by $67 billion.

Although our budget picture has improved significantly since the release of the President’s Budget in February, today’s deficits remain unwelcome. These deficits are due to an extraordinary confluence of adversity: the stock market downturn that began in 2000, and the subsequent recession that the President inherited as he took office; the terrorist attacks on America, and subsequent spending for homeland security and the War on Terror; and the crisis in confidence produced by corporate scandals years in the making.

The most relevant perspective on the deficit is in relation to the size of the Nation’s economy. By that measure today’s deficit, although unwelcome, is well within historical range. A deficit that is 3.8 percent of GDP, as we now project for this year, would be smaller than the deficits in nine of the last 25 years, and far below the peak deficit figure of 6 percent of GDP reached in 1983. This deficit is also in line with what other industrialized nations are facing today. The U.S. deficit matches the average deficit within the OECD, and is below the levels of France, Germany, and Japan.

Much more importantly, because of the ongoing effects of the President’s pro-growth economic policies, the deficit is headed strongly in the right direction, and improving faster than we anticipated just six months ago. Next year’s projected deficit, at 2.7 percent of GDP, would be smaller than those in 14 of the last 25 years.

And, with the continuation of the President’s policies on spending discipline and economic growth, the federal deficit will fall to 1.5 percent of the nation’s economic output in 2009, well below the 2.2 percent average deficit of the last 40 years -- and two-thirds smaller than the peak projected 2004 deficit of 4.5 percent of GDP.

The events that brought us into deficit are not completely behind us. The war on terror goes on. The recession has long passed, but some industries and workers are still affected. The President remains committed to fighting the war on terror to its successful conclusion, and to continuing strong policies that promote investment, jobs, and growth in every region of the country and in every sector of our economy. The President’s Budget reflects those priorities.

What today’s report demonstrates is that if we sustain the path the President has set for us—the path of pro-growth economic policies and spending restraint--we can meet our nation’s priorities and cut the deficit more than in half within five years.

I’d be pleased to take your questions.