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Budget

Jonathan Weisman
Washington Post Staff Writer
Tuesday, February 8, 2005; 11:00 AM

President Bush delivered a proposed $2.57 trillion budget to Congress on Monday. The budget includes significant cuts in some domestic programs as well as an increase in military spending and international development aid.

Washington Post economics writer Jonathan Weisman was online to discuss President Bush's proposed budget


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The transcript follows.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

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Cherry Hill, N.J.: First, I would like to say how much I enjoyed your interview on C-Span, which I watched this weekend. Second, my question: most readers, including myself, understand that the annual budget deficit is the difference between revenue and expenses. We also understand that the CUMULATIVE budget deficit is the National Debt, which accumulates interest and unltimately must be paid. We also understand that the annual trade deficit is (essentially) the difference between what we export and what we import. However, few readers, and this does not include me, understand what the CUMULATIVE trade defict is, and the implications of ungoing trade deficits. Can you explain? By the way, what is size of the cumulative trade deficit over, let's say, the past 10 years? Thanks

Jonathan Weisman: Gosh, trade is not my thing, so I can't tell you a number for the cumulative trade deficit. That total would be the debt we Americans owe the rest of the world, which would come due when international investors sought to redeem their Treasury bonds, stocks, corporate bonds, U.S. real estate holdings, etc. If they did it all at once, it would be a crisis, but I don't think that will happen.

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Atlanta, Ga.: How can a budget be called "austere" when it proposes a record $2.5 trillion in spending? "Austere" to me means an absolute reduction in total spending, like by 10 or 15 percent...

Jonathan Weisman: Good question. Remember, President Bush's austerity applies mainly to non-defense, non-homeland security domestic spending that is subject to Congress's annual spending bills, commonly known as discretionary spending. That amounts to 18 percent of the $2.5 trillion budget. While the president actually cuts that 18 percent, in dollar terms, the rest of the budget, Social Security, Medicare, Medicaid, defense and a few other cats and dogs would rise, and rise steeply.

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Arlington, Va.: What's the strategy behind the Bush administration proposing to cut farm subsidies? While it's a good idea, the administration isn't going to spend a minute actually working to convince members of Congress to make cuts to this popular program.

Jonathan Weisman: I must say, watching Treasury Secretary John Snow today testifying before the Ways and Means Committee, I get the distinct feeling that the administration has put forward its budget and now wants to return to its previously scheduled program, Social Security. The White House simply cannot have Congress reopen the farm bill, change the Medicaid system, overhaul the Pension Benefit Guarantee Corp, etc., etc., and oh by the way, deliver the most significant change to Social Security since its inception. There simply isn't enough time, let alone political will. So look for the focus to be on Social Security, and the budget will trudge along on its own time.

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Charlottesville, Va.: Mr.Weisman, yesterday President Bush said proposed budget cuts are tied to a program's failure to meet defined goals. What criteria was used to assess these factors? Is the assessment tied to an objective analytical model? Was it universally applied across all budgetary areas and to all programs? How did programs like the faith-based initiatives fare in the goal-to-results area? And defense? Other areas?

Jonathan Weisman: In some programs, the administration produced independent analyses. I'm thinking of studies by the consulting firm Abt Associates on the Even Start literacy program. But mainly, the White House was asking us to trust their judgment. Some of the programs are working well, but they say they just can no longer be afforded. For others, there were no rationales proffered.

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West Lafayette, Ind.: We face large and persistent deficits, even without counting the full costs of the President's new initiatives, military interventions abroad, reforming the AMT, etc.
Further, many commentators are calling the President's cuts (quite modest in the overall scale of the budget) unlikely to be enacted by Congress.

Is there any sense at all among the Republicans in Congress that a solution to the deficit problem must involve some retrenchment on taxes, i.e. tax increases?

Jonathan Weisman: I think quietly, a lot of Republicans believe the deficit will only be controlled when Republicans and Democrats sit down together at a summit. The GOP will have to offer up some taxes, the Democrats some cherished programs. But the president would have to make that a priority. He has chosen to focus instead on Iraq and Social Security, both of which will make the deficit worse in the short run.

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Washington, D.C.: I'm disappointed that Amtrak is being done away with. Modern countries do things like provide decent train service. We can't find $1 billion for train service for the U.S. but we can spend $200 billion in Iraq. Truly, in this instance, the terrorists have won. They've changed our way of life.

Jonathan Weisman: Under the Bush plan, Amtrak wouldn't be "done away with." Its federal subsidy would be abolished. That would mean Amtrak would have to focus on its profitable routes, mainly the Northeast corridor between DC and Boston, while selling off or liquidating routes that lose money (most of the rest of the country.)

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Harker Heights, Tex.: I've heard Bush has proposed cutting veterans' benefits. Can you outline what they are?

Jonathan Weisman: The veterans cuts were a lot les than I expected. Basically, some veterans would face higher health care premiums.

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Pittsburgh, Pa.: What is the scenario that will occur if the national deficit keeps rising year after year?

Jonathan Weisman: Eventually, the world's investors, especially central bankers in Japan and China, would grow tired of buying billions of dollars of Treasury bonds every day. Without ready buyers, interest rates would shoot up to pull in other investors. There would likely be a big selloff of stocks as investors shift to high-yielding Treasury bonds. The cost of borrowing for your house, your car, etc., would leap and we would lapse into recession, or worse. When that might happen, nobody knows.

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Melbourne, Fla.: Mr. Weisman,

I was wondering whether you had any thoughts as to why the Bush Administration continues to insist that war funding be doled out in supplementals rather than through the budgeting process when they have conceded they know that they are going to be requesting 80 billion soon and 50 billion or more in the next fiscal year? Are there any other reasons for doing this besides the rationale that they are simply requesting what they need as the need arises? Thanks for your reporting.

Jonathan Weisman: Good question. Their rationale is that they have no idea in Feb. 2005 what the military will need in through fiscal 2006, and to make a guess would be signaling to the world our military intentions in Iraq. Not a bad argument, frankly. But Congress, including Republicans, has said we know the cost will be more than zero. Last year, the House put a $25 billion placeholder in its budget, the Senate $50 billion. And it didn't set off panics in the world's capitals.

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Springfield, Ill.: How does this budget set the stage for Bush's Social Security reform? First they want to "clawback" the so-called private accounts, and now they want to cut farm subsidies.

Jonathan Weisman: There are some who believe the budget hurts Bush's chances on Social Security. By picking fights with Republicans on farm subsidies, housing, Medicaid and the like, he may be jeopardizing their support down the road. I disagree. I think the White House will now focus on Social Security and pretty much eave the budget to Congress to do what it wants.

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Washington, D.C.: Do I understand correctly that Bush is trying to cut the budget deficit in half, but by excluding the cost of the war and the tax cuts the national deficit will continue to grow?

Jonathan Weisman: If you look at Congressional Budget Committee estimates for the long-term cost of the war and reforming the Alternative Minimum tax, it suggests President Bush will not be able to cut the deficit in half by 2009. Likewise, Bush did not include the cost of his Social Security plan in his deficit forecast for 2009. Not by coincidence, that would be the first year of the Social Security plan and the year he vows to have the deficit cut in half. The president does include the cost of making his tax cuts permanent in his deficit forecast. But those costs are offset by spending cuts that may be impossibleto extract, such as a five-year freeze in domestic spending.

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To Charlottesville, Va.: Mr. Weisman's response to Charlottesville was incorrect. Actually, determinations that a program is ineffective are arrived at via a comprehensive program evaluation tool called the PART. PARTs for this year's Budget are here.

Jonathan Weisman: I have seen many of the PART evaluations but I don't know if there are 150 of them.

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New York, N.Y.: What programs' budgets has Bush proposed to reduce? Are there any that would be cut entirely?

Jonathan Weisman: There are too many to enumerate. Some programs to be eliminated: vocational education, , Migrant and Seanonal workers job training, Amtrak subsidies, Responsible Reintegration of Youth Offenders, the Even Start family literacy program, the Advanced Technology Program for high-risk corporate research. The huge Community Development Block grant would be folded, along with 17 other community programs, into a single grant program in the Commerce Department, with a severely constrained budget. The Manufacturing Extension Partnership would be cut more than half. EPA water quality programs would be cut by $170 million. I could go on and on.

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Arlington, Va.: Is there anything in the budget that surprised you?

Jonathan Weisman: I was surprised by how generous the president is being with foreign aid and economic development, considering the austerity of his domestic programs. Funding for AIDS prevention overseas is getting a healthy increase, while housing assistance for people with AIDS at home is being cut.

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Takoma Park, Md.: The idea that the President doesn't know how much we'll spend in Iraq in 2006 is a bald-faced lie. Even the most optimistic estimates are that we'll have at least 50 percent of the current troop levels there through FY 06. By my estimate, that's at least $40B.

As for concealing their military intentions, those are well-known in Iraq -- stay until the Iraqis can fend for themselves. One could make the case that disguising intentions against Iran is important, but not Iraq.

Jonathan Weisman: Yes. But Bush is asking for $80 billion for 2005, on top of the $25 billion already appropriated. We don't know how much of that will be spent, and whatever is left would be a bridge into 2006.

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To Charlottesville: Jonathan Weisman: I have seen many of the PART evaluations but I don't know if there are 150 of them.

You're right. There are over 500.

Jonathan Weisman: Fine

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Washington, D.C.: The federal budget is $2.57 trillion. What is the corresponding budget for state and local governments? Isn't it over $1 trillion? If program costs have shifted from the federal to local governments, isn't it more revealing to look at total spending when assessing the federal budget and its impacts?

Jonathan Weisman: The administration concedes they are shifting some responsibility for Medicaid onto the states, which in turn, say Medicaid costs are pushing them to the fiscal brink. We have done stories looking at total governmental costs and how federal cuts have shifted the tax burden onto state and local governments. We'll do it again.

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Washington, D.C.: A one-third roll back of the President's tax cut would repair Social Security without additional cuts in benefits. However, we haven't heard nearly enough about any proposed plans to address problems in Medicare and Medicaid. These programs are in much more dire financial straits than Social Security. Where in the present budget is this addressed?

Jonathan Weisman: There is a section on Medicaid, but the savings is relatively small compared to the rising costs, $45 billion over 10 years. The cost of Medicare, the biggest problem the government faces, is not addressed at all.

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Arlington, Va.: I have a question. The person in Springfield said that the Administration "wants to 'clawback' the so- called private accounts. I've heard of that before (I think the Canadians have some kind of clawback deal), but it's news to me that the Bush proposal for Social Security has a clawback. Is that true?

Jonathan Weisman: "Claw-back" is a bit of a loaded term. It refers to the Bush proposal to cut Social Security's base benefit -- your Social Security check -- by each dollar you contribute to your private account, plus 3 percent interest over the inflation rate. So if you look at your total Social Security benefit, the sum of your promised benefit and your account, you will only come out better than the current system if your account's investment returns exceed infaltion by 3 percent or more.

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Amtrak: Realistically, having a train system in this country is a good idea -- but it is run so poorly, it's no surprise that they would want to end all subsidies -- I live in atlanta and the only way to get anywhere (Orlando, New Orleans, Chicago, out west) is to first to go to DC -- of course I would always fly or drive, when given those options (unless, of course, I'm going to DC). They could be more competitive, if they were allowed to be, but they're not.

Jonathan Weisman: The idea of cutting off the federal subsidy is to force Amtrak to run more efficiently. There are no guarantees, but if they failed to attract more riders, they would go bankrupt.

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Hilton Head Island, S.C. : The Budget does not include estimated "transition" costs for privatization of Social Security, although we have heard and read various figures. Are there also "unknown figures" to continue providing social security benefits for disabled workers and survivors of workers? Why is no one talking about what will happen to that 30 percent of social security recipients?

Jonathan Weisman: No one is talking about the disabled and survivors benefits because we don't know how Bush will address them. The White House has said they will ultimately protect such beneficiaries but they have yet to show us how.

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Washington, D.C.: Historically, how much does the president's proposed budget make it into law?

Jonathan Weisman: Good question. The vast majority of a president's budget makes it into law. He is setting the base spending levels for most of the goverment, and Congress makes only changes at the margins. We reporters focus on the proposals that change the trajectory of the government, but the core of the budget will be enacted.

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Oney Re: Individual Programs: Are some of these programs being reduced not "niche" programs for whose deserving recipients could receive benefits elsewhere? For example, you mention "housing for people with AIDS." If a person with AIDS is too ill or disabled to work, he or she may qualify for benefits through Social Security, much as a person disabled by another chronic illness. Of course, that may increase the number of people receiving benefits through the more general program, but reduce administrative costs and the cost of benefits to an individual who would not otherwise qualify.

Jonathan Weisman: That is the White House's position, that many of these programs are duplicative. There are thousands of programs in the budget, so I cannot vouch for their usefulness.

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Atlanta, Ga.: State Question; Many states have constitutional amendments that they MUST have a balanced budget, so many have no deficits, they must yearly evaluate all programs. This isn't the best way to deal with a budget, but for the government, it seems to be the only way...

Jonathan Weisman: Most state governments must balance their budgets each year. This is why many governors will loudly oppose the shofting of more federal responsibility onto them.

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Reston, Va. -- Please help me answer this farm subsidy Q???: Are we supposed to feel good about the fact Bush is proposing caps on the bloated, absurd, $200 billion farm subsidy program? Bush created this monster, now he wants us to applaud him for cutting back on it? It would be like it I trashed the kitchen, left stuff all over the place and then wanted my wife to be happy for me for cleaning it up.

Jonathan Weisman: You make a point. The 2002 farm law did undo some of the market-based reforms of the Freedom to Farm Act. And Bush took a lot of political heat for signing it. Now he is asking Congress to reopen the farm issue before that law expires. One could argue he should have stuck to his principles when the issue was open for debate.

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Washington, D.C.: Is there any economic evidence that suggests what federal, state, and local government budgets should be as a percentage of GDP (over the long-run)? There must be an optimal point because 100 is too high and 0 is too low, so something in between should be just right.

Jonathan Weisman: There really can't be an optimal level because soe government spending can be useful for the economy while some is just wasted. If the government is making a long-term investment, say, through a truly effective education program, that spending would be helpful. A $40 million cruise missile that explodes has far less impact on long-term economic growth.

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Bethesda, Md.: What's the purpose of a budget if it doesn't include proposed spending in Iraq/Afghanistan or changes in Social Security? That's like my family making a budget and not including our house payment.

Jonathan Weisman: President budgets are always in part political theater. President Bush had to show numbers that made good on his promise to cut the deficit in half. Now he can turn his attention to issues he cares about more.

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Arlington, Va.: How is the President allowed to submit a budget that doesn't include the whole budget, namely the costs of the war in Iraq, his private accounts Social Security proposal, and fixing the alternative minimum tax? At what point will these costs be added in?

Jonathan Weisman: Who is going to stop him? There are going to be plenty of hearings for Democrats to make your point, but ultimately, Congress controls the purse strings, and lawmakers will have to grapple with the items Bush chose to leave out.

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Alexandria, Va.: Why is Rep. Jim Moran (VA-8) no longer on the Budget Committee?

Rep. Moran says that it is because of term limits. Yet South Carolina congressman Spratt had more seniority that Jim Moran and he kept his place on that committee.

Was Moran forced off the committee in order to make room for the returning Cynthia McKinney of Georgia, who lost her previous position on Foreign Affairs when Denise Majette defeated her in 2002?

Jonathan Weisman: Don't know

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Winthrop, Mass.: Why don't Reporters bring up the real budget deficit more often? The real deficit is the amount of spending and debt payments the general revenues (taxes) fail to cover. They always let the White House and the Congress get away with pretending that the trust fund payments Soc Sec, Medicare, Highway etc are part of general revenue. In fact the budget deficit is about twice as large as often stated, and could top 1 trillion dollars this year. Isn't that important enough for it to be one of, if not the majority of questions asked each federal offical in every interview. Now if we include the intra-structure repairs not being done, that will have to be done, you can add several hundred more Billion to the yearly total. The USA is going bankrupt, and its not being covered by the press.

Jonathan Weisman: The debt held by the public is the one that impacts the economy in the short run, but you are right. Given the debate over Social Security, we should be noting that the president has proposed diverting to other programs $219 billion in Social Security, Medicare and other payroll tax receipts this year, $231 billion in 2006, $242 billion in 2007, $251 billion in 2008 and $261 billion in 2009. We taxpayers are supposed to pay that money back when the Social Security and Medicare systems need it.

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Arlington, Va.: If I pay less into Social Security and get a correspondingly smaller benefit, how is that a clawback? That's like saying if I stop paying for my Washington Post subscription, it's a "clawback" when they cancel my subscription. I thought a pension clawback is when the government seizes part of the principal of my investment account.

Jonathan Weisman: Opponents call it a clawback. Supporters call is a benefit offset. The idea is to make sure those taking the accounts are not unfairly advantaged. But President Bush's Social Security Commission thought that a 3-percent real rate of return was too high a hurdle to clear so they set it at 2 percent. If workers are going to get to choose between sticking with a guaranteed benefit or going for a personal account, they should be clear the risks involved and what they will need to earn to get ahead.

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Alexandria, Va.: Jonathan: Why have you continued to use that Brookings economist with the funny name as a source? It seemed obvious to me that he misled you into making that awful mistake in Thursday's paper that required the big corrections.

Jonathan Weisman: It was an awful mistake, and I take responsibility for it. It was not Peter Orszag's fault. I misunderstood him. He didn't mislead me.

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Iowa: For all the hoopla, it's not likely that the subsidy cap on farm payments will survive. It would most heavily impact cotton and rice farmers, the constituents of the two most powerful Southern members on the Senate Ag Committee. For what it is worth, despite Iowa's farming background, the proposed subsidy cap ($250K) would only affect a handful of Iowa farmers.

Jonathan Weisman: Yes. Thad Cochran (R-Miss.), the chairman of the Senate Appropriations Committee, has already said it won't fly, and he said he says he has the backing of Saxby Chambliss (R-Ga.), the chairman of the Senate Agriculture Committee. Both gentlemen will be representing southern cotton interests, which they say are being unfairly targeted.

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Washington, D.C.: Who would suffer more political damage? If the President vetoed a spending bill or Congress for putting too much/little in said bill?

Jonathan Weisman: Good question and this must be my final answer. In the showdown between Congress and President Clinton in 1995 and 1996, the public seemed to blame Congress for not bowing to Clinton's veto. The sense then was that if the president won't go along with a spending bill, the Congress must find a compromise. I would imagine the same dynamic might be at play today, since the president always has the louder megaphone.

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Fairfax County, Va.: What's this about the government not letting me keep the principal in my personal account? I like the private accounts idea, but the president said I would own it. Was he being misleading last week?

Jonathan Weisman: OK, OK, one last question. You would get to keep the principle in your account plus interest, but those contributions would be offset from your base benefit -- the checks that would still be arriving in the mail -- plus interest.

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