Hearing of House Committee on the Budget: The President's Budget for Fiscal Year 2006
HEARING OF HOUSE COMMITTEE ON THE BUDGET: THE PRESIDENT'S BUDGET FOR FISCAL YEAR 2006
February 8, 2005
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Mr. Case. Thank you, Mr. Chairman.
Mr. Bolten, I am going to refer to the President's budget, Historical Tables on page 118, which is Federal debt at the end of the year, historical 1940 to 2010, the last 70 years.
Mr. Bolten, I guess what I was listening for in your testimony and what I did not hear was really any mention of the debt. In fact, I actually went so far as to count the number of times you said the word ``debt'' in your testimony. You said it twice.
Going back to the Chair's comment at the very beginning, which was: what do people worry about, what do they have heartache over when they are sitting around the kitchen table at home? Well, when I am home sitting around my kitchen table with my wife Audrey, worrying about household finances, or back in the old simple days where I was running a business and I worried about our business budget with my partners, I worried mainly about debt.
Now I worried about revenues, and I worried about expenses, and I especially worried when revenues and expenses got out of whack with each other, and I worried when expenses exceeded revenues in a particular year, even a particular set of years. But the thing I worried most about was what did it all add up to in the end. How much debt was I carrying?
I worried about debt for two obvious reasons. The first reason I worried was because prolonged debt at excessive levels is a sign of mismanagement, period, not just getting through some bad times. I also obviously worried--and if I could have chart 7, please--about the total amount of interest I was carrying on that debt, because obviously interest has a way, if you don't watch it, of taking over your budget, as you well know.
Looking at the historical levels, of course, I think we are all very well aware at this point that we are carrying the highest level by far of gross Federal debt in our country's history; gross Federal debt referring to all debt, so debt held by the public as well as debt held by government accounts. All debt, the debt that is subject to the debt ceiling, the debt ceiling that we have raised three times in the last couple of years.
Now, you have characterized the President's effort on the deficit not in absolute numbers but by reference to the percent of GDP. We can argue about whether that is proper or not, but so that we are talking about apples and apples rather than apples and oranges, let us not take the total amount of debt--which under your projections if I am not mistaken will increase by 60 percent under this President's budget in the next 5 years, 2010, 2004, 7.3 trillion to 2010 projected $11.1 trillion--that is 60 percent by my calculations--but let us take it from a different angle as a percentage of GDP. See, you have it right on the chart.
Now my understanding--correct me if I am wrong, I don't think I am--is that under this President's budget, by the year 2010 we will see the highest percentage of debt to gross GDP since 1954. If you can track back through that column and tell me the last time you get to 70 percent, I think it is 1954, is that right? That is at the end, obviously, of a very expensive 15-year cycle of two wars--one World War and the Korean War, and then you can see that it dropped off from the 70 percent for 50 years. Even through the Vietnam War we didn't have Federal debt at 70 percent of GDP.
So clearly something is wrong with our debt. I don't hear from this President and from you a recognition of the problems associated with the Federal debt. I don't hear a plan to get us out of long-term debt.
In fact, if you want to go back to the points made by the Ranking Member, Mr. Spratt, you will see that if you add in the items he was talking about--if you add in, for example, interest on the borrowings to jump-start the Social Security plan, I will bet you anything that in the years after 2010, you will see not only a significant increase in Federal debt on an absolute level, but you will see a very significant increase as a percentage of GDP.
So here is the straight question, Mr. Bolten. We are talking about priorities here. I don't think the Federal debt is this President's priority or this administration's priority. Somehow they have just decided to coast on the debt for a while, and it is easy to do because you can cover it up. It is not very sexy to talk about, it is not like vets and destroyers and everything, but it is debt.
So where are the priorities, how are you going to get us out of debt?
Mr. Bolten. Well, Mr. Case, I am glad you have raised that, because that is a matter of great concern to me and the others in the administration who follow these issues.
The relevant measure is as a percent of GDP. Just as it would in any business or family, you worry about your mortgage relative to your overall income. And so the right way to look at this is as a percent of GDP.
Economists also look to the other column in here, which is the debt held by the public is normally considered the relevant measure of the debt, not the debts that the government owes itself, but the debt held by the public. What you see on that column there, which is a very important column, and I am glad you pointed it out--and I appreciate your doing that, because it is a very important measure. What you see right there is the Federal Government's debt to GDP ratio in our projections, basically peaking around 40 percent of GDP and beginning to decline slowly thereafter.
Forty percent is around the modern historic average of debt to GDP. It is also quite a bit less than most of our trading partners internationally. Most of the rest of the industrialized world has debt to GDP ratios much higher. But you are absolutely right to focus on that, because that is what really matters.
Mr. Cooper and I were just talking about Wall Street. By Wall Street--I mean the financial markets. What is the interest rate that is going to be imposed on Federal debt and on ordinary borrowing out there in the economy? Because that is going to have a substantial effect on how our economic growth grows.
When the government's debt to GDP ratio is declining, in other words, if we are at 40, and if we heading down to 39 or 38, that is good news for us, and I think that will be good news for restraining interest rates. So that is something we very much need to keep in mind.
There are two parts to that equation. One of them is the overall debt that we are building up, and the other is how quickly is the economy growing. As long as we are growing the economy faster than we are adding debt to the Federal Government--which it would be great if the amount we were adding were zero--but I think you and I agree we want to keep that number as restrained as we possibly can. But as long as we are growing the economy faster than we are adding debt to the Federal Government as a percent of GDP, I think we are doing a good thing for the Federal budget, and interest rates ought to remain low.
So you are very right to focus on it. That is a ratio that we want to see in a positive direction. I think this budget shows a responsible way to get those numbers in a positive direction.
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