Lieberman Questions for Bolten at Senate Governmental Affairs Committee Hearing

A) Do you believe that deficits matter? Why or why not?

Deficits matter in that they affect the level of the government's publicly held debt and therefore could affect the level of future interest expenditures. As we evaluate deficits, however, we also need to consider the situation in which they occur and their relative size. Nearly all economists note that it is appropriate to run a deficit during times of economic slowdowns or national emergencies. Furthermore, the current deficit -- as a percentage of GDP -- is not large by historical standards and manageable within the overall context of our economy. We have also seen long term interest rates falling to historically low levels, indicating that the current deficit is not leading to the crowding out of private investment.

If, as expected, economic activity is higher as a result of these tax cuts, and if the Congress will join with the President to restrain spending growth, then deficits will be smaller than they are currently forecast. Since deficits also need to be judged in the context of the economy's overall size, a growing economy will enhance our Nation's ability to handle any deficits.

2) In January of 2001, the Congressional Budget Office was projecting a ten year surplus of $5.6 trillion; now, deficits are expected to add up to multiple trillions of dollars over the next ten years.

3) According to the Brookings-Urban Tax Policy Center, the 2003 tax cut gave an average tax cut of over $90,000 to people making over $1 million per year, but only $217 to middle income taxpayers. Do you think this is a good way to distribute tax cuts? Do you think this is a good way to stimulate economic activity when resources are tight? Do you think future tax cuts will be similarly slanted towards upper- income Americans?

The net effect of the tax cuts has been to take millions of families off the tax roles while upper-income taxpayers now pay a greater share of the tax burden. The tax cuts have also meant that the economy continues to grow in the face of repeated and powerful negative economic shocks. If the President proposes additional tax reductions, I expect they will be similarly directed towards strengthening the economy and promoting economic growth and fairness in the tax code.

4) Long-term unemployment across a wide variety of occupations and jobs is very high right now. Many of the these workers have exhausted all of their unemployment benefits. If we were to provide additional unemployment benefits to workers who have exhausted their 39 weeks of benefits, the workers would spend almost all of the money. How would you compare the stimulative effects of unemployment benefits to the stimulative effects of tax cuts for people making over $1 million per year?

Reductions in tax rates are a more certain way to stimulate the economy than extended unemployment benefits. Tax rate reductions do this by increasing disposable income available for consumption; by reducing the disincentives to work, save, and invest; and by reducing the tax burden on small businesses that then have an expanded ability to grow their businesses and hire more workers. And creating jobs for the unemployed is, of course, preferable to extending unemployment benefits.

5) The FY'03 Omnibus Appropriations Bill prohibits the Administration and agencies from establishing, applying, or enforcing any numerical quota for contracting out unless the quota is based on considered research and sound analysis of past activities and is consistent with the stated mission of the executive agency. Will the following questions be considered as part of the research and analysis required by Congress? For each question that will not be considered, please indicate the reasons why it will not be considered.

6) In a 1980 Stanford Law Review article, you wrote about the case of United States v. Snepp, which dealt with enforcing the CIA's secrecy agreement with Mr. Snepp, a former CIA agent. The article supports the idea that decisions about whether to classify documents as "secret" should be made in an appropriate and timely way. Given your interest in this issue, what are your views regarding the impasse during the last six months regarding the declassification and release of the report prepared by the Joint 9/11 Inquiry of the House and Senate Intelligence Committees? Do you believe that the Intelligence community and the Executive Branch have had ample time to do a pre-publication review and make the judgments necessary to property de-classify and release this report? Do you believe that Congress has the right to release, and the public has a right to know, the results of that inquiry into the events of September 11, 2001?

I have not been involved in discussions about the declassification and release of the Joint 9/11 Inquiry of the House and Senate Intelligence Committees. I believe, however, that the Administration has cooperated fully with the Joint Inquiry and that the Administration is doing the same with the 9/11 Commission.

7) During the early years of regulatory review, OIRA came under heavy criticism from some Members of the Governmental Affairs Committee and others for the way in which OIRA conducted reviews of agency rules. Agency rules would languish at OIRA, sometimes for years, with little or no explanation to the public. In an attempt to address these problems, provisions were incorporated into E.O. 12866, which is the executive order on regulatory planning and review, to assure that regulatory review is timely, fair, accountable, and transparent. Would you commit to notifying and working with me and other interested members of this Committee before the Administration makes any changes to E.O. 12866?

If confirmed as Director, I look forward to having a constructive working relationship with the Committee. I am committed to consulting with the Committee, where appropriate, particularly on matters relating to regulatory review.

8) The Administration has projected defense budgets to increase annually, over the Future Year Defense Program (FYDP), to well over $450 billion a year. In light of projected deficits during the same period, how will such spending be possible? Will you recommend spending reductions in other programs in order to fully fund our national security in such a strict fiscal climate? If so, please specify which programs will be affected. If not, please explain how you will meet the Administration's defense spending targets.

In addition to strengthening the economy, the President's budget has given priority to winning the war against terror and securing the homeland. For the future, the transformation of defense and investments in new technologies will be essential to maintaining the security of the country. Defense spending assumed in the Budget is reasonable and manageable when combined with appropriate restraint throughout the budget.

9) The President proposed significant reductions in funding for the COPS program, Byrne Grants, and Local Law Enforcement Block Grant programs -- programs which local law enforcement officials need in order to reduce crime. State and local officials do not believe these programs -- which are designed to strengthen their overall law enforcement capabilities -- should be cut or merged with programs designed primarily to boost counter terrorism preparedness. What is your view of the relationship between these programs?

I have not yet formed a view on the specifics of individual law enforcement grant programs and their relationship to programs designed primarily for counter-terrorism preparedness. If confirmed, I look forward to working with Administration colleagues and Congress to achieve the proper balance.

10) Broadband deployment must become a national priority. In a soft economic climate with limited prospects for near-term recovery, broadband deployment is a necessary condition for the restoration of capital spending in the information technology sector. As the armed services transform to a "network-centric" force, access to high-speed data communications will also be vital to the military. Crucial technologies will need to be developed and subsequently deployed into the field to resolve the problem of high-speed communication to the war-fighter in remote locations, to bridge the "last-mile to the soldier" gap using wireless communications.

Equally important is private sector investment in research. The Administration has proposed broadening and making permanent the research and experimentation tax credit, which promotes private sector investment in research on advanced technologies such as broadband. The Administration has also worked with Congress on extending the moratorium on Internet access taxes.

11) The President has said that education is one of his highest priorities, and just last year he signed the No Child Left Behind Act into law. Yet at a time when schools are struggling to meet the requirements in the new education law, the President proposed to cut funding for these programs by $90 million in 2003 and $1.2 billion in 2004. What are your plans with regard to education funding? In particular, what is your commitment to providing the funding called for in the No Child Left Behind Act?

I am committed to helping the President carry out his education reform agenda by increasing investments in programs that show the greatest promise for raising student achievement. The 2004 Budget provided a $666 million increase over 2003 for Title I -- the cornerstone of No Child Left Behind -- and a $654 million increase for Special Education Grants to States. Substantial increases are also proposed for other priority programs such as Reading First, Mentoring of Middle School Students and school choice programs.

12) The No Child Left Behind Act calls for comprehensive reform to strengthen public education, improve education standards, and enhance teacher quality. As such, it imposes a number of requirements on states in order to meet these goals. Clearly, there is some confusion and misconception at the state and local level regarding implementation of the Act.

13) Last month the Department of Education proposed a notice regarding revisions to the federal needs analysis methodology for the 2004-2005 school year. Specifically, I am concerned about the changes to the allowance for state and other taxes. These revisions may increase a student's expected family contribution (EFC) under the Pell grant program, and could adversely affect millions of college students across the country. The Department based its notice on tax information provided by the IRS, which in turn, used data from the 2000 tax year. In my view, economic conditions have changed considerably since 2000, making the IRS data on state and local taxes inappropriate for use in determining Pell Grant contributions at this time.

I am further advised that the Department of Education uses IRS data to estimate the allowance provided for State and local taxes. The Department of Education last updated these tables in 1994, using 1988 State tax data. By law, the Secretary is required to update these tables after it reviews the IRS's data.

14) An article in The New York Times on June 19, 2003, reports that White House officials have edited an upcoming report by the Environmental Protection Agency (EPA) to omit evidence and conclusions that human activity is contributing to harmful global warming. According to the article, administration officials deleted references to two important studies regarding the likely human contribution to global warming -- one of them by the highly respected National Research Council -- and replaced them with a skeptical assessment from a study financed in part by the oil industry. According to the article, EPA officials were so troubled by the changes that they preferred to delete the section on global warming altogether rather than include the White House-dictated language which "'no longer accurately represents scientific consensus on climate change'."

In further response to this question, one of OMB's key functions is to coordinate the activities of Executive Branch agencies to avoid inconsistencies and duplication of effort. OMB performs this function on a wide range of issues including budget, legislation, regulations, management, and program performance. I am informed that OMB's role with respect to clearance of the report identified in this question was the same coordinating role that OMB routinely plays on countless other reports, correspondence, testimony, and other documents. It is a role that the OMB career staff has filled consistently for years and that has been strongly supported by recent Presidents of both parties.

15) In 2001, you served as a member of the National Energy Policy Development Group (commonly know as the Energy Task Force). Press reports indicate that members of this task force met frequently with representatives from several energy companies and related interest groups -- many of whom contributed to the Republican Party and the President's 2000 election campaign. Please describe your involvement in this task force and the development of the administration's energy policy. During the development of the energy policy, did you meet with any company or group that had an interest in this policy? If so, with whom did you meet and what was discussed? What role did you play in the decision-making that led to the final energy policy that was released by the task force in 2001?

See answer to question 14.

16) In 2001, the National Republican Congressional Committee offered potential donors the opportunity to attend a series of meetings with several Republican Members of Congress and Bush administration officials -- including you -- to discuss the President's tax cut proposal. These meetings were described as "A Working Session for Business Leaders on President Bush's Tax Cut Plan." In a letter to potential donors House Speaker Hastert stated: "The input from these meetings will be presented as recommendations to the White House and the Congressional Budget Office." The Speaker also added: "It's going to be an historic meeting, and I think your ideas will help lead to the direct tax relief we all want." Did you attend any of these meetings? If so, please describe, in detail, the "input" and "ideas" that you received. With whom did you meet and what did you discuss? How did your participation help shape the shape the President's 2001 tax proposal? Of the "recommendations" from the participants in these meetings that were forwarded to the White House, which were incorporated in either the President's 2001 tax proposal or the final tax bill that was signed into law by the President? Do you think it is appropriate to allow political parties to market meetings with senior White House officials in a manner suggesting that donations will bring the ability to influence policy? Will you permit (1) your name to be used in this manner in the future and/or (2) access to policy meetings with you to be offered in this manner in the future?

See answer to question 14, above. In further response to this question, I do not recall attending any NRCC-sponsored events of the nature described in your question. President Bush has stressed that Executive Branch officials should follow all applicable ethics laws and regulations and adhere to the highest standards of ethical conduct. If confirmed as Director of OMB, I will continue to follow applicable laws and regulations governing political activity and adhere to the highest standards of ethical conduct.

17) Are you aware of the net present value (NPV) accounting estimates of government's entitlement commitments prepared by Dr. Kent Smetters and Dr. Jagadeesh Gokhale, at the Treasury Department, for inclusion in the government FY 2004 budget? What do you know about their estimates, their methodology, and their rationale?

See answer to question 14, above.

18) Did you see these estimates prior to the submission of the Administration's FY 2004 budget? If so, where, when, and in what context?

See answer to question 14, above.

19) Are you aware that, prior to the submission of the FY 2004 budget, these estimates were included in drafts of the Budget?

See answer to question 14, above.

20) Are you aware that these estimates were deleted from the final FY 2004 budget? If so, when did you learn about this?

See answer to question 14, above.

21) The findings of Dr. Smetters's and Dr. Gokhale's net present value analysis, which showed that the Federal Government's long-term budget liabilities are far greater than previously acknowledged, were deleted from the final, printed version of the FY 2004 budget.