Explaining the President's Proposed 2008 Budget

Stephen S. McMillin, deputy director of the president's Office of Management and Budget, will be online Wednesday, Feb. 14 at 1 p.m. ET discuss the White House's proposed budget for Fiscal Year 2008.

The transcript follows.

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Stephen S. McMillin: Good afternoon (or morning for those of you in the West). My name is Steve McMillin and I am the Deputy Director of the Office of Management and Budget. Among our responsibilities at OMB is the preparation of the President's annual budget, which was released on February 5. I look forward to your questions.

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Los Angeles: President Bush has said that he will set about balancing the budget in five years; however, with the way things are going right now, this seems highly unlikely. With war spending ballooning and entitlement spending through the roof, how can President Bush possibly make good on this particular claim?

Stephen S. McMillin: The best way to reduce the deficit is through keeping the economy strong and restraining spending. Tax receipts have grown to record levels without increases in tax rates, thanks to a strong economy. We are providing substantial increases in spending on national and homeland security in this budget, including the full cost of the war for the remainder of the President's term in office.

Outside the security area we are restraining spending -- for annually appropriated spending that funds basic government operations, we are limiting growth to 1 percent, less than the rate of inflation, and we have proposed reductions in the rate of growth of entitlement programs that will save $96 billion over the next five years. With these policies, we were able to present a budget that reaches balance in five years.

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Hagerstown, Md.: I am a small-business owner in Western Maryland. How much will President Bush's new plan for businesses to provide insurance for all their employees cost me? It sounds like it could put me out business. My employees are already are paid very well because they are specially trained and competition is very strong. How will the proposed tax cuts help me? Details please ... thank you.

Stephen S. McMillin: A clarification first: The President's plan does not require businesses to provide health insurance to their employees. Rather, we reform the tax treatment of spending on health insurance so that people who are not insured through their employer get the same tax benefit as those who are. The President's proposal also will result in lower taxes for about 80 percent of those with employer-provided health insurance.

We also want to make it easier for small businesses to provide coverage to their employees by establishing association health plans. This would allow small employers, civic groups and community organizations to band together and use their purchasing power to negotiate lower-priced coverage for their employees, members and their families. The President also has increased investment expensing tax provisions to help small businesses grow and create more jobs.

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Burke, Va.: Hi Stephen. Why has the Bush administration proposed such small amounts of budget dollars for transportation security over the years? Buried within TSA's multi-billion dollar budget request for 2008 there is only a small amount, $42 million, dedicated to surface transportation (rail, mass transit, trucks, bus, etc.) security.

Stephen S. McMillin: For the most part surface transportation infrastructure is owned and operated by the private sector or state and local governments, so most of the operational expense of securing this sector falls on these entities. The federal government provides intelligence support, regulatory guidance and other technical assistance to the surface transportation sector, and also funds a variety of grants in addition to the $42 million figure you cite. For example, the budget includes a $175 million grant program just for mass transit and passenger rail systems.

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Richmond, Va.: So when do huge budget deficits start affecting an economy? We keep hearing how bad they are, but when do they become bad?

Stephen S. McMillin: It's important to remember that the impact of deficits on the economy depends not just on the size of the deficit but the size of the economy. So most economists believe that the best figure to look at is the deficit as a share of the economy (gross domestic product, or GDP). Over the past 40 years, the federal government ran on average a deficit of 2.4% of GDP, with a high a 6% of GDP in 1983. Today, the deficit stands at 1.9% of GDP and is projected to decline to zero over five years. So as long as we continue to pursue sound budget and economic policies, the deficits we see today should not have a negative effect on the economy.

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Washington, D.C.: Mr. McMillin: Is the Administration committed to paying our annual dues to international organizations, i.e. the U.N., NATO and others? Is this reflected in the 2008 budget?

Stephen S. McMillin: Yes we are, and the 2008 Budget contains $1.354 billion for contributions to international organizations.

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San Francisco: Do not mean to be rude, but what qualifications do you have to be in this job -- a lot of current people seem to be unqualified ... thanks

Stephen S. McMillin: Not rude at all, and I had to face the same questions before the President decided to nominate me and before the Senate decided to confirm me for this job. Early in the Bush Administration, I spent nearly 4 years as an Associate Director at OMB, where I was responsible for the budgets of 6 Cabinet agencies. Before that I worked in the Senate for nearly 12 years, focusing on budget, tax, and appropriations legislation. I also served on the Senate Banking Committee during that time.

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Seattle: The recently submitted budget forecasts annual growth in excess of 2 percent. The 2007 Economic Report of the President forecasts annual growth of 1.7 percent when it comes to Social Security. If you use the budget forecast growth with Social Security, there is no Social Security crisis, and if you use the President's Economic Report numbers with the submitted budget, there is no balanced budget. My question is: Why is the executive branch using two different sets of numbers for its long-run growth projections, each of which gives radically different results?

Stephen S. McMillin: The President's Budget relies on estimates of economic growth that are right in line with private sector forecasters (the Blue Chip). Relying on these estimates, career professionals at the Treasury Department project that federal revenues will grow by about 5.4% per year, well below the 40-year historical average of 7.6%. So we think our projections are reasonable, even cautious. The Social Security Administration relies on an independent team of actuaries to produce their published estimates of the state of Social Security's finances. But even if they were to use the economic assumptions in the budget, Social Security remains insolvent and before long total spending on benefits would exceed the revenues produced by the payroll tax. By acting sooner rather than later, we can ensure that these important programs are there for future generations.

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Columbia, S.C.: How does President's Bush's budget consider expiring tax policies? Are they factored into the budget or predicted to remain?

Stephen S. McMillin: The President's tax relief which was approved by the Congress in 2001 and 2003 is set to expire in 2010. This includes reductions in every marginal tax rate, an expanded child credit, marriage penalty relief, and pro-growth, pro-investment incentives. These policies deliver on average $1,700 of tax relief annually to 115 million American taxpayers. To avoid seeing a tax increase on these 115 million people, the President's Budget proposes to make all of this tax relief permanent. The full cost of this policy is reflected in our deficit projections, showing that we can balance the budget without relying on a tax increase.

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Detroit: From what I have read, the true costs of the war in Iraq are, at the very least, not apparent in the budget. I think this is one of the reasons for the sinking poll numbers of the President -- if from the beginning the costs of the war were apparent and additional taxes were asked for by the administration to cover the costs of the war (rather than pass it down to our children), then I think some of the public anger about the continuing war would have been mitigated.

Stephen S. McMillin: It is true that over time it is difficult to project the course of the war, even more so its cost. That being said, the President's Budget provides full details of the expected costs of the war, which can be found on both the OMB and Department of Defense websites. We have provided thousands of pages of information to the Congress and the public so that our request can be fully understood. We have done this in an effort to be as transparent as possible, and even with these costs included, we project declining deficits every year and a balanced budget after five years.

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Stephen S. McMillin: Thanks so much for your thoughtful questions. I appreciated the opportunity to talk about the budget with you. If you'd like more information, check out www.omb.gov.

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