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Bush meetings with top aids scripted { August 11 2003 }

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AUGUST 11, 2003

No Longer the OMB's Invisible Man
In an exclusive interview, Bush's new budget director Josh Bolten explains why he says the mammoth deficit is "manageable"

As President Bush's new budget director, Joshua B. Bolten faces the unenviable task of tackling a soaring deficit that is projected to hit a record $455 billion this year. Bolten, 48, is well equipped for his new job. He formerly ran the White House policy shop and enjoys an unusually close relationship with the President. He has also put in stints as a Goldman Sachs (GS ) investment banker, a trade lawyer, and a Capitol Hill aide.

He spends what little spare time he has riding his brand-new Harley-Davidson Fat Boy, listening to Bruce Springsteen, and playing classical guitar. He lays claim to the highest score among the Bushies at Camp David's bowling lanes -- 207.

Although Bolten is more of a pragmatist than an idea man, many insiders expect him to become the preeminent member of Bush's revamped economic team. And some Washington veterans think he may end up as the most influential budget director since Richard G. Darman, who served under George H.W. Bush.

But the quiet and unassuming Bolten could not be more different from the sharp-elbowed Darman. The son of a CIA operative, Bolten was almost invisible in his White House post. Yet he wielded enormous power because he had the President's ear. Intensely loyal and protective, Bolten often scripted meetings between Bush and his top aides, laying out the order in which each adviser spoke and controlling who sat where. Says a former Administration aide: "Josh is always a step ahead."

Bolten considers himself an instrument of Bush's philosophy, and if he has a personal agenda, he has kept it well hidden. Among the few issues in which he has expressed an interest: the fight against HIV/AIDS. Like former Treasury Secretary Paul H. O'Neill, Bolten has worked with rock star Bono to raise the visibility of the AIDS crisis in Africa.

On July 29, Bolten sat down with BusinessWeek Washington Senior Writer Rich Miller and Senior Correspondent Howard Gleckman for his first full-blown interview as director of the Office of Management & Budget. He argued that the deficits are manageable as long as spending is contained, said the White House would press for more tax cuts next year, and vowed a renewed push for Social Security reform. Edited excerpts follow. Note, this is an extended, online-only version of the interview that appeared in the August 11, 2003 issue of BusinessWeek.

Q: What do you want to do with the OMB job?
A: I want to get the core missions right. First, to make sure we're spreading good management practices throughout the government. I'm anxious to see that the President's management agenda gets implemented in an effective way. It's unusually politically controversial. But these are very important legacy items.

Second, the core mission on the budget side is to get the balance right. We're living in a world of constrained resources, more constrained than we expected when we came in. That makes the challenge all the more difficult -- balancing the competing interests in a way that makes it possible to meet the priorities.

There's an opportunity to take control of the budget situation, the deficits we now face, in a responsible way. There are opportunities to do that, some with specific measures on fiscal restraint, others relating to budget process. There is a difficult but important opportunity here to do the right thing.

Q: You've called the budget deficit "manageable." How will you manage it?
A: I always said manageable if we continued to pursue policies to promote economic growth and exercised responsible fiscal restraint. We should not be cavalier about the size of the deficit. It's a legitimate concern.

The deficit we are now running is not currently causing economic damage. We would probably see that reflected in interest rates. Even with some spike-up in the last few weeks, we still have historically low rates. But even so, we need to do whatever is possible to make sure that those deficits are on a clear downward path.

Q: You've said you want to hold the increase in discretionary spending to 4%. How?
A: So far, we and Congress are doing a pretty good job of living within that. There are going to be some tough fights in September. But there is a very good possibility that [we] will meet the constraints of the budget.

Going forward, we need a similar kind of discipline and possibly even more. I don't want to say we're locked in [to 4% growth in fiscal year 2005]. We should also be taking a close look at procedural ways to limit growth in spending, [including] some of the measures that used to be in place, like [spending] caps, pay [as you] go [rules], and other creative measures to keep spending in reasonable bounds.

Q: What about a flexible freeze?
A: That's one of the ideas that has floated by. But I don't want to take any off the table. This needs to be a partnership [with] the leadership in Congress.

Q: Fed Chairman Alan Greenspan says we shouldn't run deficits when the economy reaches full employment. Yet your five-year budget plan would do that. How do you justify this?
A: We would like to get to full employment as rapidly as possible. That's the principal motivator behind the tax cuts, to try to create jobs. Sure, we prefer to get the deficit as close to zero as possible when you're approaching full employment. In year five, the deficit will have declined substantially, to roughly 1.5% of GDP. I would rather get that closer to zero. I'm not pessimistic about our prospects.

Q: Of getting it to zero?
A: Ultimately, yes. The key element in doing so is robust economic growth. It's flagging growth, along with the bursting of a stock market bubble, that reversed the rosy projections of surplus and had us heading into deficit.

Q: Senator Kent Conrad (D-N.D.) says this is the last chance to reduce the debt before the baby boomers retire. Your budget doesn't get the debt down. Isn't he right?
A: He's right about the large unfunded liabilities we have coming at us from the retirement of the baby-boom generation in Social Security, Medicare, and Medicaid. I don't think that means the most important issue for us is to get the debt to the lowest possible number today and for the next couple of years.

Trying to ratchet down the debt isn't going to solve the fundamental problem. Social Security and Medicare are structured in a way that our resources ultimately will not be able to pay for them. In the future, the systems are unstable. We need to take a very hard look at their fundamental structure.

Q: Is Social Security reform still on the President's agenda, then?
A: The environment hasn't been ideal to pursue a major change in Social Security, but I think the President will want to pursue it at the earliest opportunity. The President's Social Security Commission presented a range of options for doing so, all of them built around personal accounts.

Q: But how will you pay for the transition to personal accounts now that the budget surplus has disappeared?
A: There are a variety of ways. Some would require substantial borrowing. But a well-structured plan probably will make it possible to pay that back.

Q: In his last budget, the President proposed health-care tax credits and new savings incentives, such as retirement savings accounts. But Congress didn't enact them. Will the Administration renew these in the coming year and in the campaign?
A: Yes. They remain on the President's priority list. We have good prospects of achieving all or most of those.

Q: Many economists see your proposed savings incentives as a step toward a consumption-based tax system. Do you agree?
A: I've never looked at these reforms as part of an ideological agenda. I've looked at them as good reforms that enable people to plan for their retirement in a more rational way.

Q: But is a consumption-based tax system a useful goal?
A: Some economists make that argument. I'll leave it to them to do that.

Q: Some conservatives say that you are not a committed conservative, that you're a pragmatist and a technocrat who's too quick to compromise. Your response?
A: I count myself among the conservatives. The President's objectives are sound conservative objectives, and I view myself as an instrument of his philosophy and policies. If that makes me a technocrat, I wear the badge proudly.

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