So in the short term, the recession is the biggest reason for the decline in our projected surpluses. In the long term, the biggest reason is the tax cut.

I think it is further important to understand that, without Social Security and Medicare Trust Fund moneys, the surpluses would be

nonexistent. Now, this chart shows last year we were looking at, without Social Security and Medicare, $2.7 trillion of surplus. Without Social Security and Medicare, this year we would see that we would be $1.1 trillion in the hole.

Surplus Without Social Security and Medicare is Gone

Projections Without Social Security and Medicare Trust Funds. (FY 2002-11)

The consequences of these fiscal mistakes are serious and, unfortunately, long-lasting. Last year we were told that we would be debt free in 2008. Now we see, instead of being debt free, that we will actually be $2.8 trillion in debt. And, of course, consequences flow from those changes.

GOP Fiscal Reversal

From Debt Free to $2.8 Trillion in Debt (in billions) van 3 030 500

3,000

2,500

2,000

1,500

1,000

500

0

Source: CBO

CBO January 2001
Net Debt in 2008

CBO January 2002
Public Debt in 2008

The interest costs for the Federal Government increase by $1 trillion over what we were told last year. Instead of $600 billion of interest cost over the forecast period, we now see interest cost to the Federal Government of over $1.6 trillion. And despite the President's pledge, which was no doubt well intended, not to invade the Social Security Trust Fund, unfortunately we now see that the Social Security Trust Fund will be invaded by over $700 billion. And in addition to that, over $380 billion of Medicare Trust Funds will be used to pay for his tax cut and other expenses of the Federal Government.

Total Federal Interest Costs

Increase by $1 Trillion

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

I believe that is a profound mistake when the first baby-boomers start retiring in just 2008. It seems hard to believe, but that soon the baby-boomers will start to retire, and then our fiscal challenges really begin.

So the question before us now is: What do we do? I do not believe that raising taxes at a time of economic slowdown would be wise. I believe that would only deepen the downturn.

Second, I believe we should pass a stimulus package this year to give lift to the economy.

Third, for the longer term, we should restore the integrity of the trust funds of Social Security and Medicare, and we should do it as quickly as we can.

On a final note, I want to make clear that this debate about budget priorities was never a question of the President being for tax cuts and Democrats being opposed. In fact, last year we proposed in our budget plan a larger tax cut for last year than the President did in his budget proposal. We believed a tax cut of $60 billion last year was important to give lift to the economy. But we proposed substantially smaller tax reductions over the 10 years because we feared the President's proposal endangered Social Security and Medicare.

FY 2001 Stimulus

Where Was the Economic Stimulus in the Bush FY 2002 Budget?

This last chart shows the difference between what we proposed, the $750 billion tax cut, not counting the interest, the associated interest cost. The President's proposal was for $1.6 trillion of tax cut, not counting the associated interest cost.