House Budget Committee - The President's Budget for Fiscal Year 2005

Federal News Service February 3, 2004 Tuesday

February 3, 2004 Tuesday

HEADLINE: HEARING OF THE HOUSE BUDGET COMMITTEE

SUBJECT: THE PRESIDENT'S BUDGET FOR FISCAL YEAR 2005

CHAIRED BY: REPRESENTATIVE JIM NUSSLE (R-IA)

LOCATION: 210 CANNON HOUSE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: PANEL I:

JOSHUA B. BOLTEN, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET;

N. GREGORY MANKIW, CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS;

PANEL II:

PETER R. ORSZAG, PH.D., SENIOR FELLOW, THE BROOKINGS INSTITUTION

BREAK IN TRANSCRIPT

REP. NUSSLE: I thank the gentleman.

Mr. Thornberry.

REP. MAC THORNBERRY (R-TX): Thank you, Mr. Chairman.

Mr. Mankiw, I want to get back to this point Mr. Gutknecht asked about and that you referred to at the end of your statement, because I do think it is a very fundamental issue when you look at budgets as to the economic effect of taxes or borrowing. I have saved an article from last fall written by Robert Samuelson, this copy happened to be in the washingtonpost.com, and it's titled "The Deficit Chicken Hawks." And he argues-he points out at the beginning a variety of Republicans and Democrats are talking about deficits and the problems that they create. And then he goes on to say that almost everything you think you know about budget deficits is wrong or misleading, and talks about their effect on the economy and their effect on tax rates.

But the key is this paragraph, which I want to read, and I want to see whether you agree with Samuelson's opinion. He says, and I quote, "But the biggest misconception about deficits is that by themselves they threaten the economy's long-term vitality. Not true. The real threat is rising government spending. The reason is simple. Government spending must be paid for by either taxes or borrowing. If spending rises too high, economic growth may suffer from either steeper taxes or heftier deficits. Spending is the real culprit." End quote. Now, is that your view and the administration's view as to the dangers that either taxes or spending create?

MR. MANKIW: Yes, I do agree with that. And one of the things that no economist that I know of agrees with is the idea that the government faces a budget constraint. That means that every time you increase spending, you are increasing taxes. If not immediately, then sometime down the road. And that's the sense in which, as I said earlier, that a policy of cutting taxes and spending sort of go hand in hand. Permanent tax cuts is only feasible if it's with spending restraint, and that's precisely why the president has put forward his spending restrained budget in front of you.

REP. THORNBERRY: Well, it seems to me that perhaps we ought to keep our eye on the ball, at least in the opinion of this economist, that the real threat is spending levels rather than deficits.

Mr. Bolten, I want to ask you specifically on the subject of taxes, my understanding is that some of the reductions in taxes which we have passed in previous years are set to expire at the end of this calendar year. I would like to know what those tax cuts are that are set to expire, how many people are affected, if you have those numbers, and how they would be affected if they expire in taxes and those areas are allowed to go back up.

MR. BOLTEN: Mr. Thornberry, there are three specific provisions that expire at the end of this year. They are the child credit-these are tax cuts-the child credit, which expands the credit to $1,000 per child. They are marriage penalty relief, and they are the expansion of the 10 percent bracket. And those provisions, I don't have the exact numbers for you, would be glad to provide them for the record. Maybe one of my colleagues can help me out here with something, but those provisions apply to nearly every taxpayer. Certainly your average family in America, these are the tax cuts that are important to them. They make a huge difference in the tax bill that the average American family faces because a child credit, the marriage penalty and the expansion of the 10 percent bracket hits right at the heart of where the Tax Code hits average American families.

REP. THORNBERRY: I would appreciate, if not now, to know how many taxpayers or what percentage of the taxpayers are affected by each one and how much their tax bill will go up if these tax cuts were allowed to expire.

MR. BOLTEN: We could break that down for you, Mr. Thornberry. But what I would say is that almost every taxpayer in America is affected by at least one of these provisions.

REP. THORNBERRY: Great. Thank you.

Thank you, Mr. Chairman.