OVERVIEW OF THE PRESIDENT'S 2006 BUDGET

    The 2006 Budget builds on the progress the President and the Congress achieved in meeting the priorities of the Nation during the first term. We are funding efforts to defend the homeland from attack. We are transforming our military and supporting our troops as they fight and win the Global War on Terror. We are helping to spread freedom throughout the world. We are promoting high standards in our schools, so that our children gain the tools they need to succeed. We are promoting the pro-growth policies that have helped to produce millions of new jobs and restore confidence in our economy. And we are taking additional action to enforce spending discipline.

    During his first term, the President worked with the Congress to respond to a stock market collapse, recession, the terrorist attacks of September 11, 2001, and the revelation of corporate scandals. To meet the economy’s significant challenges, in each year the President proposed and signed into law major tax relief that fueled recovery, business investment, and job creation.

    To rebuild and transform our Armed Forces, the President raised spending for our military by more than a third, the largest increase in defense spending since the Reagan Administration. To make our homeland safer, the President created the Department of Homeland Security and nearly tripled funding for homeland security activities.

    These actions had significant consequences for our Nation, and for the Budget. The President committed to spend what was needed to win the War on Terror and protect the homeland and committed to enforce restraint elsewhere. The President and the Congress succeeded in bringing down the rate of growth in non-security discretionary spending each year of his first term. In the last Budget year of the previous Administration, non-security discretionary spending grew by 15 percent. In 2005, such spending will rise only about 1 percent.

    Because of this increased spending restraint, deficits are below what they otherwise would have been. Last year’s Budget projected a deficit of 4.5 percent of Gross Domestic Product (GDP) in 2004, or $521 billion. The President set out to cut that deficit in half by 2009. Largely because economic growth generated stronger revenues than originally estimated, and because the Congress adhered to the spending restraint called for in the President’s Budget, the 2004 deficit came in $109 billion lower than originally estimated. At 3.6 percent of GDP, the actual 2004 deficit, while still too large, was well within historical range and only the 10th biggest deficit in the last 25 years. With continuation of the President’s pro-growth economic policies and responsible spending restraint, we will remain on track to cut the deficit in half by 2009, to a level that is well below the 40-year historical average deficit of 2.3 percent of GDP.

    With a growing economy, tax receipts are rising, which is helping to bring down the deficit as a percentage of GDP. In order to sustain our economic expansion, however, we must exercise even greater spending restraint than in the past. When the Federal Government focuses on its priorities, and limits the resources it takes from the private sector, the result is a stronger, more productive economy.

    When achieved through spending restraint rather than through tax increases, deficit reduction bolsters confidence in America’s economy. This confidence of global capital markets in America brings important advantages to our economy in the form of lower real interest rates and lower borrowing costs, which in turn lead to more investment and more jobs. Keeping America’s fiscal house in order, while holding taxes down, sustains growth and justifies investors’ confidence in the U.S. economy.

    The Administration proposes to tighten spending further this year by limiting the growth in overall discretionary spending, even after significant increases in defense and homeland security, to 2.1 percent—less than the projected rate of inflation. In other words, under the President’s 2006 Budget, overall discretionary spending will see a reduction in real terms. In non-security discretionary accounts, the President proposes to cut spending by nearly 1 percent—the tightest such restraint proposed since the Reagan Administration.

    The Budget also proposes more than 150 reductions and eliminations in non-defense discretionary programs, saving about $20 billion in 2006, and an additional set of reforms in mandatory programs, saving about $137 billion over the next 10 years.

    In restraining spending in the 2006 Budget, the Administration was guided by three major criteria:

    First: Does the program meet the Nation’s priorities? The Budget increases funding to strengthen our Armed Forces, improve our homeland defenses, promote economic opportunity, and foster compassion.

    Second: Does the program meet the President’s principles for appropriate use of taxpayer resources? If an appropriate Federal role could not be identified in a program’s mission, the Budget proposes to reduce or eliminate its funding.

    Third: Does the program produce the intended results? The President’s Management Agenda (PMA) has been in existence for nearly four years. As a part of the PMA's Budget and Performance Integration Initiative, the Program Assessment Rating Tool (PART) measures the success of programs in meeting goals and identifies which are achieving their intended results and which are not. The PART can help determine when two programs that perform similar tasks produce starkly different results—and helps the Administration to reward only those that succeed, thus reducing redundancies in the Federal Government. For programs that have achieved their desired results, and do not merit continued funding, the Administration has recommended eliminations.

    The Budget forecasts that the deficit will continue to decline as a percentage of GDP. In 2005, we project a deficit of 3.5 percent of GDP, or $427 billion. And if we maintain the policies of economic growth and spending restraint reflected in this Budget, in 2006 and each of the next four years, the deficit is expected to decline. By 2009, the deficit is projected to be cut by more than half from its originally estimated 2004 peak—to just 1.5 percent of GDP, which is well below the 40-year historical average deficit, and lower than all but seven of the last 25 years.

    While the Budget projects steady and solid improvement over the five-year budget window, the Nation faces substantial deficit challenges about a decade from now. At that point, when the major effects of the retirement of the Baby Boom generation begin to be felt, deficits are projected to rise indefinitely. That is why it is necessary to act this year to strengthen Social Security. While the program can deliver promised benefits to today’s seniors, it has made promises to young workers that it cannot keep. Social Security’s unfunded obligations total more than $10 trillion, and that figure grows by hundreds of billions of dollars with every year of inaction. This year, the President will work with the Congress on Social Security reform that includes personal accounts and fixes the problem permanently. Such reforms are much-needed, both to provide young workers the opportunity to build a nest egg for retirement, and to take a major step in confronting the long-term fiscal danger posed by the unfunded obligations of our entitlement programs.

HIGHLIGHTS OF PROGRAM INCREASES AND NEW INITIATIVES