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MICHELE NORRIS, host:

And for more on that 134-page budget outline we turn now to Peter Orszag. He's the White House budget director. He joins us from the White House. Welcome back to the program.

Mr. PETER ORSZAG (White House Budget Director): Thank you for having me.

NORRIS: I want to begin by asking you about the pledge to cut the deficit in half by the end of the first term. Can you do that even as the government embarks on these big increases in health care spending and energy programs? The average person will hear this and think that those two things are at odds.

Mr. ORSZAG: Well, not at all. First, with regard to investing in health care and in energy, we have well defined funding sources for both. So with regard to health care, as was already mentioned in the previous story, we have a reserve fund that is a significant down-payment on health care reform. And we will work with Congress to provide any additional resources necessary. With regard to energy, there are key investments that need to be made. But we are proposing funding that through a market-based cap and trade program.

As you move beyond that, we do have significant deficit reduction, which comes basically from four places. First, as the economy recovers, the budget does improve. Second, we would end the tax cuts in 2011 and beyond for high income taxpayers, those making more than a quarter million dollars a year, and also clamp down on some corporate tax provisions that would raise revenue. Third, we would wind down the war, which saves money. And fourth, we have started the process of looking through the federal budget to look for efficiency gains in making the government work better, and there are a variety of things contained in this budget that will save money.

As one example, evidence suggests that each dollar spent at the Department of Health and Human Services, making sure that Medicare providers are only receiving what they're supposed to be receiving, saves $1.60 in erroneous payments. We will invest in those kinds of programs and, hard evidence suggests, save $50 billion over 10 years through those kinds of efforts.

NORRIS: Now, when you tick to those four things, there's one in particular that's some major critics have seized on and that's the increase in the tax rate for families that earn more than $250,000. Lawmakers, even some within in your own party, are worried that you can only keep this pledge to cut the deficit if you extend the increase in the tax rate to a lower income bracket, to people who earn less than $250,000.

Mr. ORSZAG: Well, again, I will just say that we get the deficit down to roughly $533 billion in 2013 while only raising taxes on those making more than a quarter million dollars a year. So I think it's eminent - excuse me -eminently doable.

NORRIS: And you know, some were wondering if that's a promise, that you're going to keep that cap - that quarter million dollar cap.

Mr. ORSZAG: This budget keeps the president's campaign promise that we are only raising taxes above $250,000. And again I want to empathize only in 2011 and thereafter.

NORRIS: Mr. Orszag, we are also hearing on this program today from Republican Senator Judd Gregg, the president's former pick for commerce secretary. And I'd like to play you something that he told us today. Please listen.

Senator JUDD GREGG (Republican, New Hampshire): The budget itself has got some real serious problems, in my opinion, because it's a massive expansion in spending and a massive expansion in taxes. And the real problem is that in the out years, not only does it dramatically increase spending in taxes, but it passes on to our children - the government that can't be afforded.

NORRIS: And he goes on to say a government spending plan that could possibly bankrupt the federal government. How do you respond to Senator Gregg?

Mr. ORSZAG: Well, let's just look at the facts. We're inheriting very substantial deficits, deficits that total under current policies nine trillion dollars over the next decade. We take significant steps to reduce those deficits and achieve two trillion dollars in deficit reduction. That comes roughly half and half: Half from spending reduction - so there is lower spending under this budget than under current policies. And the other half, roughly a trillion dollars from additional revenue - which is what we've already discussed, mostly starting after 2011.

Perhaps more important than all of that, though, is that as you look over time, the single most important driver of our long term fiscal gap is the rate at which health care costs are growing.

And we have substantial improvements in efficiency that are built into the packet - this down payment on health reform. We, already in the Recovery Act, had major investments in health information technology, significant investments in comparative effectiveness research - examining what works and what doesn't -a significant prevention fund so that we can start to fund the efforts that will make people healthier over time. The budget builds on that by also starting to re-orient incentives for providers towards better care, rather than just more care. And also eliminating a very significant subsidy that goes to private insurance firms that offer coverage under Medicare.

NORRIS: Now, I don't have a lot more time with you, but I do want to ask you about something in particular because I keep hearing this, this number: 2011, the year 2011. The budget assumes that GDP growth will bounce back next year in a pretty big way and continue rising after that. You're assuming a return to growth rates that we haven't seen since boom of the 1980s. What happens if the recession lasts even longer - if we don't see that kind of growth? What does that mean for your plan?

Mr. ORSZAG: Well, first let me just say, briefly, that the whole purpose of enacting the Recovery Act was to help speed along an economic recovery. And it is natural after a deep recession…

NORRIS: But there are no guarantees.

Mr. ORSZAG: …as we're experiencing, to have steep growth as you come out of the recession. But clearly to the extent that doesn't happen, the budget situation would be worse. These are our best projections and the situation could wind up being either better or worse than what we're currently projecting. But I guess - again, I want to repeat - the reason that we moved so aggressively on the Recovery Act was to try to accelerate and jump-start the economy out of this deep hole that we're inheriting.

NORRIS: That's White House Budget Director Peter Orszag. Mr. Orszag, thank you very much for speaking with us.

Mr. ORSZAG: Thanks for having me.

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