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America’s economy is growing at a healthy pace, and more Americans are working than ever. In the
face of a series of challenges, including most recently devastating natural disasters, Americans have
stood firm, and America’s economy has demonstrated its strength and resilience time and again.
My Administration has focused the Nation’s resources on our highest priority: protecting our
citizens and our homeland. Working with Congress, we have given our men and women on the
frontlines in the War on Terror the funding they need to defeat the enemy and detect, disrupt, and
dismantle terrorist plots and operations. We continue to help emerging democracies in Afghanistan
and Iraq stand on their own. As the Afghan and Iraqi peoples assume greater responsibility for
their own security and for defeating the terrorists, our troops will come home with the honor they
have earned.
My Administration has responded to major economic challenges by following this vital principle:
the American economy grows when people are allowed to keep more of what they earn, to save and
spend as they see fit. The results are clear.
Since May 2003, when I signed into law major tax relief, America has added more than four and
a half million new jobs. Productivity is high, disposable income is up, household wealth is at record
levels, consumer confidence has climbed, small businesses are expanding, and more Americans own
their homes than at any time in our Nation’s history.
Our economy is the envy of the industrialized world. To build and maintain our competitive
edge, my Administration has a broad agenda to promote America’s long-term economic strength.
We are opening new markets to American-made goods and services through trade agreements. We
are proposing reforms to prevent needless litigation and burdensome regulations. Through major
reforms of our public schools, we are preparing our children to compete and succeed in the global
economy. And my Budget includes an American Competitiveness Initiative that targets funding
to advance technology, better prepare American children in math and science, develop and train
a high-tech workforce, and further strengthen the environment for private-sector innovation and
In our efforts to keep our economy strong and competitive, we will resist calls to raise taxes on
America’s workers, families, and businesses. Unless we act to make tax relief permanent, income
tax rates eventually will rise, the marriage penalty will climb, the child tax credit will be cut, savers
and investors will be hit with higher taxes, and the death tax will come back to life.
With a growing economy, tax receipts are on the rise, helping to bring down the deficit in 2005. To
stay on track to meet my goal of cutting the deficit in half by 2009, we must maintain our pro-growth
policies and insist on spending restraint.
Last year, I proposed to hold overall discretionary spending growth below the rate of inflation—and
Congress delivered on that goal. Last year, I proposed that we focus our resources on defense and
homeland security and cut elsewhere—and Congress delivered on that goal. And also last year, my
Budget proposed major cuts in or eliminations of 154 programs that were not getting results and not
fulfilling essential priorities. Thanks to the work of Congress, we delivered savings to the taxpayer
of $6.5 billion on 89 of my Administration’s recommendations.



The 2007 Budget builds on these efforts. Again, I am proposing to hold overall discretionary
spending below the rate of inflation and to cut spending in non-security discretionary programs
below 2006 levels. My Administration has identified 141 programs that should be terminated or
significantly reduced in size. To help bring greater accountability and transparency to the budget
process, my Budget proposes reforms so that firm spending limits are put in place, and public funds
are used for the best purposes with the broadest benefits.
The 2007 Budget also continues our efforts to improve performance and make sure the taxpayers
get the most for their money. My Administration expects to be held accountable for significantly
improving the way the Government works. In every program, and in every agency, we are measuring
success not by good intentions or by dollars spent, but rather by results achieved.
In the long term, the biggest challenge to our Nation’s fiscal health comes from unsustainable
growth in entitlement spending. Entitlement programs such as Social Security and Medicare are
growing faster than our ability to pay for them, faster than the economy, faster than the rate of
inflation, and faster than the population. As more baby boomers retire and collect their benefits, our
deficits are projected to grow. There will be fewer people paying into the system, and more retirees
collecting benefits. These unfunded liabilities will put an increasing burden on our children and our
grandchildren. We do not need to cut these programs, but we do need to slow their growth. We can
solve this problem and still meet our Nation’s commitment to the elderly, disabled, and poor.
Acting on my recommendations, both houses of Congress have taken an important first step,
passing legislation that would produce $40 billion in savings from mandatory programs and
entitlement reforms—the first such savings in nearly a decade. My Budget builds on this progress
by proposing $65 billion more in savings in entitlement programs.
My Budget also includes proposals to address the longer-term challenge arising from unsustainable
growth in Medicare, while ensuring modern health care for our seniors. In addition, I will continue to
call on Congress to enact comprehensive reform of Social Security for future generations, so that we
return the system to firm financial footing, protect the benefits of today’s retirees and near-retirees,
provide the opportunity for today’s young workers to build a secure nest egg they can call their own,
and assure our children and grandchildren a retirement benefit that is as good as is available today.
As this Budget shows, we have set clear priorities that meet the most pressing needs of the
American people while addressing the long-term challenges that lie ahead. The 2007 Budget will
ensure that future generations of Americans have the opportunity to live in a Nation that is more
prosperous and more secure. With this Budget, we are protecting our highest ideals and building a
brighter future for all.

February 6, 2006

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102