Press Briefing by Director of the Office of Management and Budget Jim Nussle and Chairman of the Council of Economic Advisers Dr. Ed Lazear on the Mid-Session Review

Business Wire, July 28, 2008

WASHINGTON -- Room 350

Eisenhower Executive Office Building

1:40 P.M. EDT

DIRECTOR NUSSLE: Good afternoon. Thank you for attending. The Mid-Session Review -- or popularly called the MSR -- updates the administration's estimates of receipts, outlays, and deficits or surpluses, to reflect economic, legislative and other changes since the President's FY'09 budget was released back in February.

I'm going to give you some of the highlights of the budgetary changes, and then turn it over to Dr. Lazear for an overview of the economic assumptions. And then we'll take your questions. And as Kristen said, because Dr. Lazear has to leave at 2:00 p.m., I think probably what we'll do is try and focus questions to you first, and then I'll stay behind for a little bit more.

Relative to 2007, the budget deficit for the next two years will be higher before it begins declining, and reaches surplus in 2012. Specifically, for this budget year 2008, the budget deficit is now estimated to be $389 billion, which is $21 billion lower than estimated in February, where it stood at $410 billion.

At 2.7 percent of GDP, gross domestic product, the 2008 deficit is projected to be just slightly above the average of the last 40 years, which is about 2.4 percent of GDP. The MSR provides a snapshot of the budget when Congress left for the July 4th recess, and reflects the enactment of the farm bill and the supplemental appropriations bill.

However, more recent developments such as the Medicare "doc fix," as it's called, or the housing bill, are not fully captured in this MSR. This suggests the final deficit for 2008 will be larger than our current projection of $389 billion.

So to be clear, that means that every dollar that is spent, whether it's spent by the administration or the Democrat Congress, spends beyond the budget and drives the deficit higher. For 2009, the deficit is projected to rise to $482 billion, or 3.3 percent of GDP. This is still below the recent peak of 3.6 percent of GDP in 2004, and it's well below the record deficit of all time, which was 6.0 percent of GDP back in 1983.

The primary reasons that there will be larger deficits in 2008 and 2009 are because of the bipartisan growth package, or stimulus checks, as well as slower economic growth. Earlier this year, the President and Congress, on a bipartisan basis, correctly agreed that action was needed for our economy, and made a deliberate and conscious decision to temporarily increase the deficit in order to get money into the people's hands and spur consumption. The determination was made that getting the economy back on track was a higher priority than immediate deficit reduction.

`To give you context for how the stimulus has impacted the deficit we talk about today, if you somehow could exclude the bipartisan growth package, the deficit would be 1.9 percent of the economy, or about $272 billion, instead of the $389 billion we speak of today. The deficit is projected to fall sharply then after 2009, with deficits in 2010 and '11, only slighter higher than we projected back in February. The President's budget blueprint remains on track to achieve balance with surpluses of $58 billion in 2012, and $29 billion in 2013.

The important point to remember is that near-term deficits are both temporary and manageable if, and only if, we keep spending in check, the tax burden low, and the economy growing. Excessive spending beyond the President's budget plan will make the problem worse. And it already appears that congressional Democrats are lining up to bust through the President's budget, and for that matter, bust through their own budget. They are seeking to add billions in extra spending to the regular appropriations bills, which will drive up the deficit even further. They've already racked up $209 billion in more spending requests than the President. That's why the President has been clear that discretionary spending beyond his reasonable and responsible levels will be met with a veto.

The President has also repeatedly proposed sensible reforms to the automatic entitlement spending that now accounts for almost two-thirds of the budget. Simply raising taxes is no solution and often makes the problems worse. And congressional Democrats plan to pay for all of their big-government spending with the largest tax increase in history. This is anti-growth policy. It will hurt our economy and jobs, and it will have a negative impact on the bottom line for taxpayers, as well as government.

We can drive down the deficit and get to balance if we maintain fiscal responsibility and continue pro-growth policies. The President and congressional Republicans have a plan to do just that, by restraining spending, the passage of the Colombia and Korean trade agreements to help increase job creation, sensible adjustments to achieve savings and important entitlement programs, and the extension of the President's tax relief which will prevent 116 million Americans from facing an average tax increase of $1,800.