This is a partial transcript from "Your World with Neil Cavuto," July 13, 2005, that was edited for clarity.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The 2005 deficit (search) is $94 billion less than previously expected. In other words, revenues are coming in greater than anticipated. It's a sign that our economy is strong, and it's a sign that our tax relief plan, our pro-growth policies are working.


NEIL CAVUTO, HOST: Well, you know, we told you the good news on the economy just yesterday, the president making sure in case you didn't catch the show that you got the news today, that the deficit is coming down and tax revenues are up.

Joining us now from the White House is the man who had a lot to do with that, Josh Bolten, the director of Office of Management and Budget (search).

Director, good to have you.


CAVUTO: I knew it must have been important when The New York Times put it on its front page.

BOLTEN: Didn't see it, Neil. I get my news from you.

CAVUTO: So, the upshot is, tax revenues are up, even though tax rates are down. Explain that phenomenon.

BOLTEN: Well, I think what we have to recognize here is that the president's policies are working, that when you cut tax rates that are too high and put them at a much more reasonable level, you have an opportunity to grow the economy.

And the reason we ended up in a deficit hole in the first place was, we had a very badly flagging economy, which was causing revenues to drop off a cliff. When you get the economy going, revenues come back into the economy, come back into the Treasury, and we have a chance to close our deficit.

CAVUTO: Now, this is something for which you are not responsible, Director, but you know you take the heat because you're the big OMB guy.

But the problem is, Congress gets this extra money, and then spends this extra money and then some. It happened in the early '80s after the Reagan tax cuts and all the revenue they generated. And it seems to be happening again. What are you going to do to stop that?

BOLTEN: Well, if you listened to the president today — you only used a bit of a clip, but I know that you all broadcast the full clip of what the president said.

He said, this shows that the two tracks of the president's policy are working. One is economic growth policies focused on tax relief that bring revenues back into the Treasury. The other prong of the policy is to keep responsible restraints on spending. The president has done that in the budgets he presented.

The budget I presented on his behalf for 2006, just a few months ago, calls for discretionary spending to grow no more than inflation. And, in fact, with the non-security related elements of that, we are actually recommending a cut. So, we need to stick to that.

CAVUTO: But you might be sticking to it by proposing it, but Congress ultimately disposes it. And right now, areas in nondiscretionary spending are running at close to an 8 percent clip. That's three times the level you want to see it grow. What are you going to do?

BOLTEN: Well, we're actually doing pretty well in the Congress, Neil. The House Appropriations Committee has produced bills and the House has passed bills that fall within the limits the president asked for.

They're growing the total discretionary pie no more than the rate of inflation. And they would impose an actual cut on the non-security elements. We have a more difficult time in the Senate, where the situation is always difficult, but I know Chairman Cochran is working there to try to live within the budget resolution.

CAVUTO: But what if they don't, Director? Would the administration say, all right, here comes the veto pen?

BOLTEN: I expect so, yes. I think the president would use the veto pen if the appropriations bills came back substantially ahead of what the president thought was a responsible spending level.

CAVUTO: Well, that would be the first time in his presidency. What is he prepared to cut?

BOLTEN: Well, it's the bills that are coming back from the Congress that we need to see.

I threatened veto on behalf of the president literally dozens of times last year. What gets reported a lot is that the president has never vetoed a bill. What doesn't get reported is, I threaten veto on behalf of the president and the Congress did not send us a bill with that extra spending.

I feel confident that, because we have good, strong support of the leadership, that they're not going to be sending us any bills this year either that the president would need to veto.

CAVUTO: All right.

Josh Bolten, thank you, sir. Appreciate it.

BOLTEN: Nice to be with you.

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