What that means is very simple. It means that over $2 trillion of trust fund money, Social Security and Medicare Trust Fund moneys, are being used to pay for the tax cuts and to pay for other expenses of the Federal Government. And that has got enormous implications for the future.

The other hard reality is that last year we were told we would be virtually debt-free by 2008. The Congressional Budget Office told us last year by 2008 there would be virtually no debt. Now they are telling us, instead of no debt, we will have nearly as much debt as we have got now, some $2.8 trillion of debt in the year 2008.

GOP Fiscal Reversal

From Debt Free to $2.8 Trillion in Debt

And, of course, that understates the debt because that is the publicly held debt. That does not acknowledge the trust fund debt, and that does not acknowledge what Chairman Greenspan talked to us about the other day as the long-term liabilities over and above the money that is due the trust funds. And that is in the trillions of dollars.

That is one reason I said that in many ways we confront what Enron confronted. Enron's big problem and big vulnerability was the hiding of debt, and in many ways, the Federal Government is doing the same thing, with the same consequences, perhaps, for the country as for the company-that is, financial difficulties that will flow from a failure to fully acknowledge the debt the country is facing.

The consequence of more debt is more interest cost. CBO told us last year we could anticipate some $600 billion in interest costs over the next decade. Now they are telling us it will be $1 trillion more, some $1.6 trillion of interest costs. That means that $1 tril

lion of additional interest costs will not be available for productive purposes, will not be available to increase the defense of the United States, will not be available to improve the homeland security, will not be available to educate our children or build roads or bridges or other worthwhile purposes. Instead, we will be making more interest payments, as at the same time we are taking money out of the trust funds of Social Security and Medicare to pay for other things.

Total Federal Interest Costs

Increase by $1 Trillion

January 2001 versus January 2002 CBO Baseline, FY 2002-2011

The President said in his most recent State of the Union that, "Our budget will run a deficit that will be small in short-term." USA Today pointed out that that is simply not the case. It is not going to be small and short-term. Instead, it is going to be large deficits and over a very extended period, and that is what the next chart shows very clearly, that we now face a decade of red ink.

We, after a lot of effort by many different people, were able to emerge from a long period of deficits and at the end of the 1990's go into surplus, and we were headed for substantial surpluses, and now we have been plunged back into deficit.

And the President says the reason is recession and war, and, of course, in the near term, he is correct. For this year and next year, the biggest reason is recession and war.

But over the decade, the biggest reason is something he is reluctant to talk about. The biggest reason over the next decade for our returns to deficit and debt is because of the tax cut the President proposed and pushed through Congress last year.

In fact, CBO testified that over the next decade, 42 percent of the disappearance of the surpluses is due to the tax cut, 23 percent is due to the economic downturn, 18 percent additional spending that came largely as a result of the attacks on this country on September 11th, 17 percent technical changes, largely underestimations of the cost of Medicare and Medicaid.

Let me just go to the last chart, which shows the results of all this. The result is that the total trust fund surpluses used for tax cuts and other spending programs will total nearly $2.2 trillion over the next decade, $1.65 trillion will be taken from the Social Security Trust Funds and $523 billion from the Medicare Trust Funds to pay for tax cuts and the other expenses of the Federal Government.

Some of us believe that is a profound mistake, given the fact the baby-boom generation starts to retire in just 6 years.

Today we have the opportunity to hear testimony from outside budget experts. Jack Lew, who is currently the Executive Vice President for Operations at New York University, was President Clinton's last Budget Director and someone who enjoyed very high credibility on both sides of the aisle in both chambers. He presided over the budget during a period when the fruits of fiscal discipline practiced during the 1990's were realized, when the budget turned from deficit to surplus, and when we began to pay down the public debt instead of adding to it.

Robert Bixby is the Executive Director of The Concord Coalition, which has a very strong record of advocating and defending fiscal discipline.

We welcome you both. I very much look forward to your testimony, and we will proceed with Mr. Lew.

STATEMENT OF JACOB J. LEW, EXECUTIVE VICE PRESIDENT FOR OPERATIONS, DESIGNATE, NEW YORK UNIVERSITY Mr. LEW. Thank you, Mr. Chairman. It is a pleasure to be here with you today, and I want to join you in wishing my good friend, Senator Domenici, a quick recovery. We are all together hoping that he is going to be better very soon.

I appear today for the first time as a private citizen, and the views I express are accordingly my own. I also learned over the weekend, sitting there with my hand calculator, how much I appreciated the very good work of the OMB career staff over the last 6 years.