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The White House

Press Briefing by OMB Director Peter Orszag and CEA Chair Christina Romer

Office of the Press Secretary
For Immediate Release                  February 26, 2009
11:07 A.M. EST
DIRECTOR ORSZAG:  Good morning.  The budget that we are releasing this morning fulfills the President's campaign promises to be honest and responsible, to reorient the federal budget towards programs that work and away from those that don't, and to invest in education, promote clean energy, and reduce health care costs.  Unfortunately, those tasks are substantially more difficult because of the pair of trillion-dollar deficits that we are inheriting.
The first trillion-dollar deficit, which is shown on the first chart, is the gap between how much the economy could produce each year and how much it is producing each year, as you see in these estimates.  Both this year and next year there is a GDP gap of roughly $1 trillion.  The purpose of the recovery act was to start to jumpstart the economy and reduce that gap in output.
Christie Romer will be talking at more length about the economic assumptions and how we see the economy evolving over time at the end of my remarks.
The second deficit that we are inheriting is a very significant budget deficit.  Under current policies, and without any policy intervention, our estimates suggest that we would face $9 trillion in budget deficits over the next decade.
The first step in addressing this very deep fiscal hole is honesty.  This budget will not play the games that are typically played, in which you assume that there will never again be a hurricane or disaster; that the alternative minimum tax, which is a second tax system resting alongside the regular income tax, would be allowed to gradually take over the tax code; that the cost of the war in Iraq and Afghanistan will magically disappear overnight.  All told, we are showing $2.7 trillion in costs in this budget that were excluded from previous budgets, and I think that's a mark of the honesty and responsibility contained in this document. 
The next step after you have an honest assessment of where you stand is to start to reorient the federal budget.  And let me be very clear:  As is natural during a transition, we've had six weeks to do what normally takes six months.  This document is an overview.  There will be more detail available in April.  We will then, throughout the year, continue the process of examining what works and what doesn't in the federal budget, and next year we will have that full six- to eight-month timeline to put together our full budget in addition.
So this is an overview.  There is more to come over time as we continue to examine what works and what doesn't. 
We, in this budget, have already, though, identified specific policy interventions that will help to cut the deficit in half over the next four years, so by the end of the President's first term, the deficit will be reduced in half. 
I should say, in response to some media reports that were out this morning, we're being very clear we're not raising the price before a sale.  This is a deficit reduction relative to the deficit that we inherited before the recovery act and before any of our policy interventions.  That deficit will be reduced in half by the end of the President's first term.  So I want to be very clear about that.
How does that happen and how do we get that deficit reduction?  There are four main categories of deficit reduction mechanisms.  The first is that we do expect, in large part because of the recovery act, and also because of the normal business cycle that occurs, that eventually the economy will recover, and you'll hear, again, more about that from Christie Romer.  That does help to reduce the budget deficit.  In addition, as the President campaigned on, we are allowing the high-income tax provisions to expire when they are scheduled to expire at the end of 2010.  And in particular, what that means is that although we are cutting taxes for 95 percent of working families, families making more than a quarter-million dollars a year will be asked to pay more in revenue in taxes in 2011 and thereafter. 
In addition, we are closing down a variety of corporate tax loopholes, including involving international transactions that help to reduce the deficit.
Third, we are winding down the war, and that will reduce costs over time. 
Fourth, we are making government more efficient.  And let me be a little bit more specific in that category as we begin this process of examining what works and what doesn't. 
There is solid evidence suggesting that each dollar spent on program integrity -- that is, making sure that, for example, under the Medicare program, providers are paid only when they are supposed to be paid and not improperly paid -- that $1 in additional program integrity funding yields $1.60 in savings in reduced basically erroneous payments.
There are similar solid evidence with regard to the tax gap, with regard to the Social Security administration.  All told, the budget contains almost $50 billion in reduced errors and improper payments, both on the benefit side and in -- on the revenue side over 10 years.
We are also looking at some things that we strongly support, but that simply don't work.  This administration strongly supports encouraging work among low- and middle-income families.  A big part of that involves the earned income tax credit, which has been a very successful intervention to encourage work among those families.
There is, however, an advanced earned income tax credit, which under 1 percent of those who claim their earned income tax credit utilize, and which is subject to very high error rates.  This budget proposes eliminating it, not because we don't support work incentives for low- and moderate-income workers, but rather because that program simply does not work well.
I can go on.  For example, in the agricultural side of the budget, we are proposing -- as the President suggested during the campaign -- a variety of changes that will reduce payments for large farms while protecting family farmers.  I'll give you one example.  There is a set of direct payments that are made to farmers that are based just on the amount of land they own, rather than the farming they undertake; 36 percent of farmers receive these payments.  The President is proposing to phase out those payments over time for farms with revenue of more than $500,000 a year.  That would save $10 billion over 10 years.
Another example involves inefficient subsidies through private lenders that support higher-education loans.  The evidence suggests very strongly that the government has a more effective way of providing those types of financial assistance to students.  And we are proposing $50 billion -- actually, technically $48 billion in savings in that area.  I can go on in more length.  But that's the final category of deficit reduction.
All told, there's $2 trillion in deficit reduction contained in this budget, roughly a trillion dollars in reduced spending compared to the current policy path that we are on, and roughly a trillion dollars in additional revenue compared to the current path that we were on.
Finally, while doing that deficit reduction, the budget is focused on three key areas to promote long-term economic performance:  education, energy and health. 
In education, it builds upon the recovery act's investments in early education because the evidence strongly suggests that high-quality early education programs pay off over time.  It supports higher education through an expansion of the Pell grant system and a more reliable funding source for it, along with a dramatic simplification of the application process for those grants.
Currently the application process for Pell grants is more complicated than the tax code, and that complexity seems to discourage many students from even applying in the first place.
In energy, we are committed to reducing our dependence on foreign oil, improving the energy efficiency of the government's own operations by 25 percent by the end of -- by 2013.  Part of that will involve $15 billion a year in energy efficiency investments, so, for example, creating an electricity superhighway that would allow transportation of wind energy from the Dakotas to the population centers where that electricity is needed.  Currently there's not a connection that lets the available wind energy in the Dakotas get to the population centers that need the electricity.  We would invest in things like that. 
That $15 billion a year would be financed in a fiscally responsible way, along with tax relief for working families through a cap and trade program that would be a market-friendly approach to reducing greenhouse gas emissions over time, and thereby addressing global climate change.
And finally, let me turn to health care.  Health care is perhaps the most important driving force in our long-term fiscal gap.  It is already reducing workers' take-home pay to a degree that I think is under-appreciated and unnecessarily large.  At the state government level, it is crowding out a variety of other priorities, including higher education. 
The single most important thing that we could do, and the reason that I am committed to getting this budget done this year, is reform the health system so that we bend the curve on health care costs and thereby put the nation on a sounder long-term fiscal trajectory, and also help working families enjoy higher take-home pay because their employers would not face as large health care insurance costs.
How do we do that?  There is very significant evidence that there are substantial opportunities to improve the efficiency of the health care system.  Just yesterday a new set of research was released from Dartmouth College showing the very substantial variation across parts of the United States in health care costs, without any corresponding improvements in quality or outcomes in the higher spending, more interventionist kinds of approaches.  We seem to have as much as $700 billion a year in health care tests and services that are unnecessary, that don't improve health outcomes, and that just add to costs both for the federal government and for workers without making anyone healthier.
The way to get at that has been started in the recovery act in which we invest in health information technology, we start to better measure what works and what doesn't, and we start to pay for better care rather than more care.  This budget builds upon that by setting up a process in which we want to get health care reform done this year. 
We are putting on the table a significant down payment towards a more efficient health care system.  It includes $634 billion towards health care efficiency, including reducing the overpayments that go to private insurance firms that cover beneficiaries under the Medicare program.  We will introduce a competitive bidding process under which those firms would bid for the business of covering Medicare beneficiaries and would be paid the average of their bids.  That is estimated to save more than $170 billion over 10 years.
So I just want to emphasize, again, while we're reducing the deficit, while we're being honest and responsible in the numbers, we are also investing in these three key areas of education, energy and health care.  And in terms of our long-term fiscal future, the single most important thing we could do is bend the curve on health care costs.
I'm going to turn it over to Christie Romer, the Chair of the Council of Economic Advisers, to talk about our economic outlook.  And then we'll take some Q&A.  Thank you.
CHAIRMAN ROMER:  Well, thank you.  As Peter said, I'm going to take just a minute to discuss the economic assumptions underlying the budget projections, and it will give you a sense of what the administration's economic forecast looks like. 
Let me start with total production.  We're projecting year-over-year GDP growth of -1.2 percent in 2009.  Like most other forecasters, we anticipate that real GDP will fall significantly in the first quarter of this year.  We expect it to bottom out sometime around mid-year 2009, and begin growing again by the end of the year.
We're forecasting real GDP growth of 3.2 percent for 2010 as a whole, and more robust growth in 2011, 2012 and 2013.
So our forecast reflects the reality that the economy has substantial downward momentum, but it also reflects the administration's assessment that the comprehensive recovery program outlined by the President on Tuesday night will be effective.  As he so plainly said, we will recover.
Growth after 2013 is forecast to settle down to a long-run growth rate of about 2.6 percent, which is roughly the average of the past decade.
Now, even with the comprehensive recovery package, the unemployment rate is forecast to rise in the first half of 2009, just simply because output is continuing to fall.  We anticipate that it will average just over 8 percent for 2009 as a whole.  The unemployment rate will come down, unfortunately, only slightly in 2010, because growth is predicted to be only slightly above trend.  However, it will fall much more rapidly in 2011 and 2012 as the economy grows more rapidly.
Unemployment is assumed to settle down to about 5 percent of the labor force in the longer run, which is, again, about the average for the last decade.
Finally, our forecast for inflation is consistent with our anticipated behavior of output.  Inflation, as measured by the GDP price index, is projected to slow substantially in 2009 to about 1.1 percent and to remain at about that pace in 2010.  It's then forecast to return to about 1.8 percent in the longer run.
Now, as the professional forecasters at my own agency, the Council of Economic Advisers; Peter's, the Office of Management and Budget; and the Treasury, who contributed to the forecast, frequently remind me, we are economists and not soothsayers.  And all forecasts are subject to a substantial margin of error.  And surely in a severe downturn like the current one, which is the result of a once-in-a-century confluence of macroeconomic shocks, usual patterns surely provide less guidance than in more ordinary times.  But we have attempted to base the budget projections on our best estimate of what lies ahead.
DIRECTOR ORSZAG:  Okay, thank you.  Let me also say, before taking questions and answers, many of you had been asking whether I would be blogging at all, and I'm proud to say that the first blog entry is now available on the OMB web site for anyone who is curious.
So, with that, why don't we open it up for questions.
Q    Peter, for those who are making more than $250,000, I understand that they're going to be limited in terms of the itemized deductions for their -- filing their taxes, including charitable contributions.  Considering that at least one-third of charitable organizations last year took a real nosedive, and you have some big names -- the Salvation Army, Goodwill, American Red Cross -- how do you stop the bleeding when it comes to those charitable groups, considering that you're now taking away an incentive to actually contribute?
DIRECTOR ORSZAG:  Well, let me be very clear.  In the recovery act, the President supported -- and contained in the recovery act, there's $100 million to support non-profits and charities as we get through this period of economic difficulty.
In addition, the recovery itself will provide a strong boost not only to charities, but to the overall economy and to the people who contribute to charities.  But I think the real question as you look out over time is the following:  When a middle-income family makes a $1,000 contribution to a charity, they save $150 in their taxes.  When Bill Gates makes that same contribution to that same charity, he saves $3,500 in his taxes.  All we're saying is we think Bill Gates should get a $2,800 tax break -- still a lot larger than a middle-income family -- rather than the $3,500 one.
Q    And to the larger point, is there a concern that you have people -- that the wealthier folks who are providing the jobs, who are spending the money, and also contributing to charitable organizations -- that in some ways they are going to start saving, that they’re not going to give, and that they're going to undermine the success or the progress that you're making?
DIRECTOR ORSZAG:  I really don't think so.  I think what drives charitable contributions is overall economic growth, is other motivations.  It's -- typically, again, it's not done for a tax incentive, but rather out of benevolence or some other related desire. 
And furthermore, if you really wanted to get wonky, if you look at all the provisions in the budget, even from a narrow economic perspective, I think you'll see that there's roughly a wash in terms of the financial incentives for giving to charitable contributions -- to charities.
Q    Kind of a double-header.  You described $634 billion for health care as a down payment.  I guess the question would be, do you guys have a total figure on the cost of health care reform if $634 billion is a down payment? 
And then, there's some money in the budget for, I guess, the possibility of future bailouts.  Did you guys have a formula?  And if so, I guess, what was it for determining the size of that figure, because the previous administration just said that it picked a big number?
DIRECTOR ORSZAG:  Well, let me be -- let's answer that second question first, and be very clear.  The President, time and again, wanted to be responsible in this budget, wanted to err on the side of responsibility rather than fudging the numbers.
There is a placeholder for potential additional financial stabilization efforts in the budget.  We hope that it will not be necessary.  We have no plans to go to Congress at this point to ask for additional money.  And again, the hope is that it will not be necessary.  But just in case it is, the budget includes a placeholder should further stabilization efforts become necessary.
Now, on your first question, on the health care reserve, there are different plans out there.  I think if you look at any of them, this is a very substantial down payment.  We acknowledge that more is necessary and we will work with Congress to fill in any additional resources that are required to finance health care reform.  And again, we want to get it done this year.
Q    Where does primary care fit into the overall health care reform efforts?
DIRECTOR ORSZAG:  Primary care is obviously -- or boosting primary care physicians is obviously one approach that seems to be effective, and the evidence suggests that, for example, a lot of that variation that you see across the United States is correlated with the number of specialist visits that you have and the ratio of specialists to primary care physicians without any corresponding improvement in quality.
There's been a lot of attention paid, both in terms of medical training and in terms of incentives for physicians.  One of the key things that we could be doing, in this budget, we don't want to pretend that we are going to reduce Medicare physician payments by 20 percent next year, which is what previous budgets assumed.  But we are looking to reform the payment system for physicians to encourage quality.  And part of that could involve encouraging primary care physicians.
Q    You want to see more primary care physicians?
DIRECTOR ORSZAG:  I would say the evidence, if you look at the Institute of Medicine and MedPAC and what have you is that primary care physicians provide cost-effective, high-quality care relative to lots of other approaches.
There are many other things, for example, in the recovery act -- there is significant funding for community health centers.  Those have also been shown to be an effective delivery mechanism in the health system.
Q    One for you and then one for Dr. Romer.  Can you work us through a little bit on cap and trade and explain why you don't think that will be a pass-along increase to consumers of utilities, meaning their rates will go up, which could be an indirect effect on their budget?
And to Dr. Romer, can you explain why the economic projections are more bullish, at least in the first couple three years, than CBO or the Blue Chip?
DIRECTOR ORSZAG:  Well, let me answer the question first on cap and trade.  Again, I think what we want -- let's remember what we're trying to accomplish here.  We're trying to reduce dependence on foreign oil, we're trying to address global climate change, and we're trying to do all of that in a fiscally responsible way.
Cap and trade system will have some effects on households.  That's one reason why we are linking the cap and trade program to Making Work Pay, which is a tax credit for working families that would provide relief in their budgets over time.
I think, Christie, if you wanted to handle --
CHAIRMAN ROMER:  So, I think the first thing to say is to point out that we're very much -- we're a little less pessimistic than some forecasts, but I think the crucial thing is we're very much in the same ballpark. 
You certainly mentioned the CBO.  A crucial thing you surely know about the CBO forecast, it is pre-policy.  And if there was ever a time when we think policy is going to contribute something, now is the time.
I think that's also -- comes back to when you think about the private forecasts.  So, say, something like the Blue Chip consensus, it's hard to know how much of the fiscal stimulus is in a given forecast.  The other thing I'd describe, we had a lot of inside information, right?  We knew what the plan was we were going to put in place, and I think that was something I was trying to anticipate, the sense that we knew a recovery -- we had a good sense of what the stimulus package would look like.  But, more fundamentally, we knew what we were planning to do in terms of the financial rescue and feel very strongly that that's something that's going to be very good for getting lending going and job creation.  And the housing plan, which, again, was just announced last week, but we already are seeing is helping homeowners to take advantage of refinancing who couldn't before.  And we think that's going to be helpful to the state of the economy. 
DIRECTOR ORSZAG:  We may have inside information, but we didn't trade on it.  (Laughter.) 
Q    Can I follow up on that?  I mean, you've come out here and for the last couple of days we've been hearing these denunciations of the Bush administration for being dishonest in the way they presented the numbers on the war spending, on the AMT revisions.  It appears, though, that you're taking a very rosy outlook for how the economy is going to come out.  Isn't that another form of trying to guild the lily, so to speak?
CHAIRMAN ROMER:  I think the crucial thing to say is, again, it's -- I reject the premise that we're noticeably rosier.  We certainly are somewhat more optimistic, but certainly nothing out of the ballpark.  The other thing to say is it was -- it was an honest forecast; that looking at the -- working with the professional forecasters throughout the administration and looking at the policies we were putting in place, these were the numbers that came out, and we feel very confident that they're appropriate.
Q    Does the assumption include the $250 billion placeholder for the financial industry?  You just said, you know, we're going -- we knew what we were going to do on the financial rescue.  Is that in the assumption?
CHAIRMAN ROMER:  So again, as Peter so carefully said, that that was -- that's just a contingency.  And we know what the overall plan is.  We know that the President has said he will do what it takes to make sure that our financial system starts lending again for the American people.  So we certainly are predicating on a financial rescue that does the job.  But nothing specifically about any contingency. 
DIRECTOR ORSZAG:  If I could just clarify that.  I think the placeholder is in case the situation deteriorates further and more intervention is necessary.  It's not assumed in the economic projections that --
Q    But that contingency assumes unemployment of above 10 percent, and none of your projections allow for a contingency of that kind.  So essentially you're not assuming that kind of thing that would require the contingency intervention of the bank -- is that true?
DIRECTOR ORSZAG:  We're in a period -- and I'll let Christie talk at more length about it -- but you have to realize we're in a period of significant uncertainty about both the economic -- the economy and financial market stresses.  We wanted to be responsible and err on the side of having numbers that had a contingency or placeholder in it in case that was necessary.  Our best guesses, as Christie just said, suggest economic recovery and unemployment rates, because of the recovery act, that don't reach the levels that you were specifying.  I think we all hope that that doesn't happen.  And in part, that's why we acted with regard to enacting the recovery act so quickly.
CHAIRMAN ROMER:  Can I follow up for one second?  On the rosiness, one of the things, again, for budget and honesty of projections, the long-run growth forecast is very important.  And there, I just wanted to emphasize how completely in the middle of the pack we are -- 2.6 percent real growth is, for example, if you looked at what the members of the FOMC just gave out as their long-run forecast, that's dead-on what they were predicting.
And the other thing, again, just thinking about that number, think about the $271 billion of public investment that we have coming in the American Recovery and Reinvestment Act.  Again, I think it makes it a very plausible number in terms of a sensible long-run growth forecast.
DIRECTOR ORSZAG:  Okay, moving on.
Q    I just want to clarify the total hit for upper-income taxpayers, regardless of the purpose for which you raise it.  You've got a line here:  $636 billion over 10 on upper-income tax provisions for deficit reduction.  You also have $23 billion for (inaudible) as ordinary income.  And then you've got the $317 billion to fund the reserve fund from limiting those tax deductions.
So is it right then, to say, you're going to raise about a trillion dollars over 10 for people making over $250,000?
DIRECTOR ORSZAG:  Well, people are going to be able to slice and dice the numbers in lots of different ways.  I think, again, I want to just emphasize we face a structural deficit going out over time between how much the government is spending and how much revenue is coming in.  Over the past two or three decades, the top 1 percent of Americans have experienced a dramatic increase from 10 percent to more than 20 percent in the share of national income that's accruing to them. 
So we are asking them to pitch in a bit more, after we get out of this -- after we get out of this economic downturn.  You're going to be able to slice and dice the numbers in different ways.  I'm not going to dispute the numbers that you were adding together, but I want to emphasize a big part of that with regard to itemized deductions is dedicated to making the health care system more efficient. 
Q    Peter, you've got $500 billion-plus deficits right through the next 10 years.  And if I'm reading it correctly, an accumulated debt -- not just public but gross size of the debt -- of about $23 trillion by the end of this period. 
How do you justify that to folks in Congress who are sure to, you know, start arguing that those numbers are unrealistic?
DIRECTOR ORSZAG:  Well, let's be very clear.  Again, I want to come back to where I started.  We're inheriting a cumulative deficit over the next decade of $9 trillion.  We have to start the process of working that down.  This budget does that.  It has $2 trillion in deficit reduction over the next decade.  Now, some may want more, some may want less.  I think in some sense we're being hit simultaneously for having things that are too painful, and not doing enough deficit reduction at the same time.  And obviously, you know, it's either one way or another, folks.    
It is an honest budget.  It's a responsible budget.  And more importantly than what happens over the next five or 10 years, although that is important, I think we are losing sight of the fact that our fiscal future is going to be determined by the rate at which health care costs grow.  And we are taking dramatic action to bend that curve.  That, from my -- I'm going to put on my green eye shades for a second -- that is the single most important thing that we can do.  And I think we're doing as much as -- if you look at the MedPAC suggestions, the Institute of Medicine suggestions, all of the recommendations that have been out there in terms of bringing more efficiency out of the health care system, we're hitting on all cylinders along that dimension.  And that will help not only our budget, but it will help families, too.
Q    Peter, the placeholder for financial industry aid, does that include potential aid to the automakers?  Or would that be budgeted separately that's not part of this projection today?
DIRECTOR ORSZAG:  We have not -- again, we don't have a legislative proposal on this placeholder.  So it is there just in case additional efforts are necessary, and I don't want to start parsing exactly what it would be for, because it's a hypothetical. 
Q    But that could -- that could include aid to the auto industry?
DIRECTOR ORSZAG:  It could, or -- I mean, again, I'm just trying to say, we don't know exactly what if anything will be required, whether it's for broad financial stabilization efforts or in subsectors.  And I just want to keep it at that level of a placeholder that's being done to be responsible, rather than anything with specific proposals behind it at this point.
Q    Thank you.  With regard to energy prices -- and just building on an earlier question -- are there any estimates in terms of how much energy prices might rise either through the cap and trade system or through taking away some of the tax breaks for oil companies in the budget?
DIRECTOR ORSZAG:  Well, let me comment specifically on cap and trade.  We have in this document some principles for what we want to get done; we also have some targets that we would like to reduce carbon dioxide emissions by 14 percent below 2005 levels by 2020, and 83 percent below by 2050.  There are a whole variety of paths and ways of doing that that would finance the $15 billion in energy efficiency investments we want each year, and that would finance Making Work Pay, making that permanent, and then leave additional money. 
But we're going to work interactively with the Congress on the specifics.  We don't have a specific path to getting to the target that we want to, but I'm sure there will be enough there to finance the things that we have identified. 
Q    Is the President committed to making sure the (inaudible) cuts in Medicare physicians' pay does not happen -- is that what you were saying from before?
DIRECTOR ORSZAG:  What I'm saying is, again -- let me be very clear about this.  Previous budgets would assume, because there's something called the sustainable growth rate formula under current law, that in the budgets, to make the numbers look better, that physician payments would be dramatically reduced to levels that may mean that Medicare beneficiaries would have difficulty seeing their doctors.  Congress then would never actually allow that to happen, and each year would fill in the hole, even though it hadn't been budgeted for. 
What we're saying is we're not going to play that game.  We're going to show in the budget the costs of filling in the hole.  But I think rather than just putting the money on the table and saying, here, we'd like to reform the system.  So we want to work with the Congress to get a better system of providing incentives for doctors to provide high-quality care, rather than just more care.  And you'll see that playing out throughout the year.
Q    Peter, talking about being more responsible and honest in the budget, you have this placeholder for $700 billion, but it appears in the budget as $250 billion because you have this projection that you'll recoup a great deal of that money.  Is that really, in light of what you guys are trying to do with this budget, realistic?  You do that also with the TARP funds -- the $700 billion we're already out, did it appear in your budget as a much lower figure?
DIRECTOR ORSZAG:  Yes, and it's not just us; it's the Congressional Budget Office and outside analysts believe, too --
Q    -- you guys are trying to take the lead and do something a little different.
DIRECTOR ORSZAG:  Well, again, I think honest budgeting suggests when you pay a dollar for a financial asset, that doesn't make the government worse off by a dollar.  It's not the same thing as a net cost of a dollar, because you are getting something in exchange for it.  And you then have to do the calculation or do projections -- and I'll say that obviously they're difficult to do, but both CBO analysts and other independent analysts suggest we obviously get something back in exchange; and if you look at estimates of the capital gains and dividends and other things that will be returned to the government over time, and compare it to the up-front costs, that is the proper way of doing budgeting for financial transactions.  Again, it's the way the Congressional Budget Office -- which, since I used to run it, I would say has a very good reputation for doing things honestly and well -- that's the way it does it, and that's the way we're doing it also.
Q    I have two questions.  One is, can you walk us through what the cost of Afghanistan is, how the war costs work out?  And then, for Dr. Romer, is there a historical precedent in a recession for the GDP swing that you just described, which sounded to me like 4.4 percent from one year to the next -- in previous recessions, is there any historical trends that suggest that that can happen?
DIRECTOR ORSZAG:  So first on the cost of the war, the budget shows the combined cost of operations in Iraq, Afghanistan and any other overseas contingency operations that may be necessary.  For this year, it's a little bit over -- it's $141 billion.  For fiscal year 2010, it's $130 billion.  And thereafter, again, in the spirit of a placeholder in case those costs become necessary, even though we hope they will not be, we have $50 billion a year as a placeholder for those overseas contingency operations.
CHAIRMAN ROMER:  The question on the swing in growth, absolutely.  One of the things, in fact, one of the key relationships that we know is sort of in a normal -- in normal history, the worse the contraction, the faster the recovery.  And I'll just give you one statistic that comes from my previous life, which is a scholar on the Great Depression.  We know GDP fell about 25 percent between 1929 and 1933.  It grew on average about 10 percent a year in the middle years of the 1930s.  So we often think of the recovery from the Great Depression as slow, and it obviously took us a long time to get back, but those kind of surges of GDP growth absolutely are possible.
And so, to some degree -- I mean, one of the things that, again, gets to the nature of the forecast -- it's a little bit surprising that a lot of the other forecasts, given how much we've contracted in the fourth quarter and how much everybody is expecting us to contract in the first quarter, you would naturally tend to expect a more rapid recovery. 
Of course, this isn't a normal time, right?  This is not your run-of-the-mill recession.  It's obviously being caused by some very severe strains in the financial market, so that obviously could have an impact on the usual -- on the usual patterns.  But the kind of swing in growth that we're predicting -- again, and I want to come back -- it's pretty much in line, you know, with a lot of the estimates that are out there.  So it is not anything -- anything dramatic, and certainly what we've seen in previous severe recessions.
The only other thing I would add has to do with sort of turning points, in the sense that we are completely mainstream in the sense of most of the Blue Chip is again predicting that we're going to bottom out sometime in the middle of the year and start growing again, as did Chairman Bernanke.
Q    Since you said that the health care investment is the single most important thing you can do, can you tell us what level -- and this may be getting a little away from your department -- but what level of detail will go to the Hill, since you want to finish that this year?  And is the stimulus package sort of a model, that you had these principles and sort of ideas that you wanted to see incorporated but you didn't put a comprehensive plan together? 
And the second question would be -- I just want you to address -- or both of you -- just the fundamental criticism that you're talking about raising taxes on businesses and investors in a recession.
DIRECTOR ORSZAG:  Well, let me be very clear on that second question.  That's just factually wrong.  We're not doing that.  Any of the revenue changes that we're talking about, whether it's for those making a quarter-million dollars or more, or the itemized deductions that we were talking about before, are in 2011 and thereafter.  So the assertion that we're raising taxes in the midst of a recession is just factually wrong.  And in fact, we just cut taxes as part of the recovery act, which is exactly what is appropriate from a macroeconomic perspective to boost aggregate demand during a downturn.
Now, on the health front, let me be clear on that, too.  We have put down a very significant down payment to get the process started.  You're going to see more and hear more from us next week at the health summit.  And then we want to be right into the legislative process.  We are trying to avoid some of the mistakes of the past and work more interactively with the Congress, rather than coming forward with a fully detailed plan on the benefit side -- and, again, we're putting money on the table and we look forward to working with members of Congress on both sides of the aisle to get this done this year.  I think there's a significant amount of energy in the Congress to get health care done now.
Q    Two questions.  Are you concerned that you're asking Congress to do, like, too much?  Cap and trade, health care reform -- giant things that take a long time to do.  And secondly, you're showing the public debt guide as 67 percent of the economy throughout the 10-year period.  Is that something you think is sustainable, or are you hoping that that will come down as health care reforms are enacted?
DIRECTOR ORSZAG:  Well, first let me answer that second question.  I think the best way of looking at debt in this unusual environment in which we find ourselves, in which the federal government is buying financial assets and issues debt to finance those transactions, is to net out the financial assets that it owns.  And when you look at that, the numbers are lower, as shown in table one of the document.
We do put the country back on a fiscally sustainable course over time, over the next five to 10 years, which was the whole purpose of doing it honestly and getting the deficit down to a level in which, for example, that debt that you mentioned is not a growing share of the economy.  And yet, even more important, again, I want to come back to if that's all we did we would then see rising problems thereafter.
The key to getting the economy -- the budget under control even after 10 years is health care, and that's why we want to get health care done this year.
Now, you had asked, is it too much, and I sure hope not.  We face very large problems that need to be addressed and we can't wait to address them.  Again, I'm going to return to what I said at the beginning.  We inherited these twin trillion-dollar deficits.  We've acted rapidly to get the recovery act enacted and money is flowing already under that act.  For example, assistance to states became available -- today is Thursday -- became available yesterday.  And there is more that is already happening to get the money out quickly and wisely.
But we can't just address that crisis; we also have to address these very important issues that have been left unattended for too long, including energy, education and health care.  And that's what this budget tries to do.
Q    On the deficit forecast, it bottoms out in 2013 and then begins to rise again in nominal dollars.  And I'd just like to know if -- I mean, what's going on there?  Is that the growth of entitlements?  And I know you use stabilizing as a percentage of GDP, but is the trend line concerning to you?
And second of all, for Dr. Romer, I wonder if there is -- if you are factoring in any kind of economic impact from the tax increases in 2011?
DIRECTOR ORSZAG:  So let me just say the way economists and most analysts look at deficits is as a share of the economy, and that's what we were trying to stabilize.  As the economy becomes larger it's natural for everything that we're dealing with to get bigger.  And so looking at things as a share of the economy is perhaps the best metric used by professional economists and analysts, and that's what's stable in the out years.
Let me turn to Christie.
CHAIRMAN ROMER:  I think the important thing is certainly to be thinking about what the -- what we expect on net to happen to taxes.  And so as we talk about some of the increases that are in the budget, again, to just emphasize that we had put in the $800 -- the Making Work Pay tax credit.  And certainly that, in our analysis, was anticipated to continue as it is doing in the budget.
So we were factoring in what we thought was going to be happening. 
Q    One technical question, and one overview question.  Treatment of GSE and TARP in this?  And then on the overview, the legitimacy of comparing the savings you guys are making versus the Bush policies, instead of the BEA baseline, where it looks as though you're adding over 10 years about $5 trillion versus saving $2 trillion over 10 years.
DIRECTOR ORSZAG:  So let me deal with -- well, I hope I don't bore everyone else in the room -- but first, the baseline question.  Pretty much I think everyone out in the real world has an understanding of what current policy is, in which tax cuts just don't disappear at the end of 2010 magically, and in which physician payments don't get reduced by 20 percent overnight. 
If you look at outside analysts, whether it's, you know, folks at Brooking -- across the spectrum, when they're asked to evaluate the course that we are on, they use a baseline consistent with what we are using here.  And I think that's the most understandable thing for both the American public and for policy makers.
With regard to TARP and the government-sponsored enterprises -- I again want to emphasize we've had six weeks in office -- there were two scoring differences between the Congressional Budget Office and between OMB.  One was how the TARP was scored; the other was how the GSEs were incorporated into the budget.  Given the limited amount of time, we have changed the way OMB is scoring the TARP transactions, again, to be consistent with what outside analysts believe is the most appropriate scoring methodology.  We have not had time to consolidate the operations of the government-sponsored enterprises into the budget, which means that currently whenever the government injects cash into those enterprises, that would show up in the budget.  As we move into the fiscal year 2011 budget, we will be reevaluating that question. 
I think we have time for one last question.

Q    Can you explain how you can assume cuts in these farm programs when some of these have been around for decades and they have very powerful constituencies in Congress?
DIRECTOR ORSZAG:  Well, I think you're raising -- let's just be clear here -- I think you're raising a fundamental question, which is we're on an unsustainable fiscal course.  There's not a single line in the budget that won't have someone who cares about it very strongly.  And yet, if we allowed those -- all of those lines to persist and grow over time, we would wind up with a fiscal crisis. 
So change is necessary.  The President spoke about this this morning.  We recognize that it is difficult to turn direction, to shift direction in the federal budget, but that's absolutely what we need to do. 
Thank you very much.
END                11:53 A.M. EST