welcome back. markets are mixed with consumer staples standing out as one of the leaders of s&p 500, on pace for fourth straight day of gains. let's send it downtown for start of "squawk alley". >> joining me, john along with sara eisen. dow up about 37 points. our top story today is going to be the white house, moments away from officially unveiling president's budget, expected to

include $3.6 billion in cuts. mull mick mulvaney will be holding a briefing in a moment. in the meantime, joining us is former cbo director and treasury for secretary phillip swiggle. good to have you both with us. >> good morning. >> dan, every time we get a budget, obviously, we make all the kaf ycaveats of challenges e it's reality but what strikes you about this initial proposal. >> you know, the budget was really only three numbers, if you will. revenue, discretionary spending and what we call entitlements or mandatory spending. in this budget the president proposes to cut discretionary spending, particularly domestic, and some entitlements, particularly medicaid. but he leaves off the table, as he did during the campaign, social security and medicaid -- or medicare, i'm sorry. of course, interest on the debt you can't cut. so, there are substantial portions of the budget that are

literally off the table, which means pretty big cuts to the rest of the budget and no revenue increases. >> certainly that's keeping mostly within the promises he made during the campaign that there would not be cuts to medicare and social security. >> yeah, that's right. and it just shows how difficult it is to reach a balanced budget if you don't -- if you leave those off the table. you have to have economic growth assumptions that are quite difficult to achieve. >> dan, there's certainly a signal of what the trump administration views as important to invest in here. the military is largely protected, even though aside from that first $43 billion increase, we don't see many increases from there. what else do you see here that the trump administration is investing in? >> well, there are things, creating new funds, for example, for public health initiatives out of hhs. so, if we have public health

emergencies, something like ebola or zika, they're creating funding to do that. so there are some things that are new initiatives. one of the biggest ones they will talk about, certainly, is. brings in spending for paid leave and other things to help working mothers in particular. >> what's interesting about this is people are already calling it dead on arrival when republicans are in control of congress. it reads more, a lot of people are saying, as a mulvaney budget than a trump budget. much more on the side of the ultraconservative wing of the house republicans. what provisions do you think that more mainstream republicans are going to have a hard time with agreeing to politically? >> as dan said, the medicaid cuts are pretty difficult. medicaid has ramped up substantially because of the

affordable care act. there are some states like rhode island that have done a good job with reforms to medicaid but that's a whole policy conversation. i would like to see the administration say, hey, here's the problems with medicaid. here's how we can can fix it and let the numbers flow from that, but start with the policy, start with the rationale and then get to, you know, how it affects the dollars and cents. >> speaking of the dollars and cents, as we await details on the budget from the omb director, we want to turn to kayla who's been looking through line items this morning on capitol hill. good morning to you. >> good morning, carl. the line item that will matter most at least in the legislative near term for members of congress here is going to be that medicaid cut you guys were just talking about. roughly $600 billion is what the budget calls to eliminate from the current budget going forward. this morning paul ryan said he anticipates a great debate taking place on this budget and looks forward to working with members of congress.

yesterday the budget director said the fact that the president supported the american health care act which includes steep cuts to medicaid, means he's on board with the cuts to these programs. the budget director seemed to be anticipating the response from even colleagues of his in the house freedom caucus, like congressman mark meadows who said cutting things like meals on wheels is not something i can get behind. i want to share with you what the budget director told reporters yesterday. we're no longer going to measure compassion by the number of programs or people on them. we'll measure the success of the program by the number of people we can get off those programs. you can expect the budget director to basically talk in those same broad contours today when he takes the podium because some of that reaction has been consistent with what happened and what the criticism was when that skinny budget in march was announced. >> just a question on the health care, and i know you've been following this one closely, doesn't some of those medicaid cuts also take into assumption

that congress can successfully repeal and replace obamacare? >> it does. there is a very large line item that assumes the repeal and replace of obamacare, assuming it happens by 2018. and assuming it is implemented at some point in the near future. the irony or, perhaps, the coincidence or, perhaps, the question around the fact that the add administration is basically imbedding the assumption of the ahca passing in the budget is the fact that the ahca is not going to be the exact bill that ends up getting implemented. tomorrow we're going to get a score from the congressional budget office that puts a little bit of a finer point exactly on how much it expects to be eliminated from medicaid over the life of that bill. how many people, how many fewer people would have insurance under that bill and what the broad effect would be on the american health care consumer. that's going to change the discussion a little bit. clearly, the white house wants to put its numbers in accordance

with the ahca out there before that debate gains a second wind. >> dan, as we await mulvaney, kayla, don't go anywhere, this point about looking at government assistance and trying to measure them -- measure their effectiveness by how many people you can withdrawal from the rolls, people are trying to draw a line between that and '90s era welfare reform. can this be as profound as that? >> i don't know because the details of medicaid reform, as you know, are going to be left mostly to the states, which is something, remember, too, when the cbo scores come out tomorrow, it's -- the assumptions around those scores almost exclusively rely on their assumption about state activity. the baseline that cbo has to use is current law. they assume more people -- more states will expand, in fact, up to 9 million of the people they say won't receive coverage.

those 9 million aren't receiving coverage now. again, most is left up to states so it's hard to tell how proceed founs it will be. certainly, capping entitlements, capping medicaid and per capita caps are going to be a good experiment in many ways. but its not clear what the effect will ultimately be on workforce and other things you're referring to. >> families are told not to budget based on hope but to budget based on reality. a lot of hope in this budget. hope for 3% growth. hope for ahca passage. to what extent in government is that a problem? >> you know, there is a sense in which a budget, any budget is full of hope and it's the program of the administration. you know, if everything goes right, we get a good tax reform, we get good trade deals, make immigration reform, we can hit 3% growth. does it look like it's going to happen this year or next year? boy, it's hard to see it. i don't mind the hope.

i would just like to see more explanation of how we get from where we are now to 3% growth and all the other good outcomes. >> that's the point everybody has been harping on all morning long on cnbc. you were there as congressional budget director under reagan. eight years into an economic recovery while the fed is raising interest rates and unemployment is at the lowest point since the recession at 4.4%. how optimistic is it to get to 3% growth? >> it's quite optimistic given current economic circumstances, much of which you addressed. economic growth is only two things. it's growth in the workforce and growth in product tift. the assumption, of course here primarily is we'll get more productivity because of investment. so, current workforce growth is slightly positive but productivity has been flat and in some recent quarters a negative. i think 3% is a real reach. >> meanwhile, kayla, you've had some -- you had a good tweet this morning about the savings from deregulation and the

different numbers we're getting from the white house and the hill. >> to be fair, carl, it's one of those ameoeba-like, unquantifiable. the they had been tallying up value for company and workers of obama-era regulations they rolled back so far in this administration. they found $67 billion over the life of those regulations. in the budget, the white house said they expect the savings annually will be between $600 million and $1.2 billion annually. there is a very wide kasim between those two figures. the white house being far more conservative than their colleagues on capitol hill. interestingly, looking in the budget specifically and where they have identified places where they'll have further deregulation, the government wants to lease oil and gas land in alaska on the wildlife refuge for drilling.

they want to sell a bunch of transmission assets, power assets, the government owns. they want to sell half the strategic petroleum reserve. they expect that will raise $16 billion. it's clear they're going item by item at each of the agencies, trying to identify where they can roll back some of these regulations. carl, the environmental criticism has been overshadowed by some of the criticism on the health care side because that's really the nearest term priority for congress. that will grow louder and louder, too. >> to some degree, phillip, it seems like given the level of u.s. crude production and nat gas and shale, i mean, do we really need that much of an spr these days? >> i was just thinking that. there's a sense in which the dakotas are our petroleum reserve. we've seen hydralic fracturing industry can ramp up pretty quickly. i think that's something reasonable in the administration budget. the question of whether we need the petroleum in the salt domes

in louisiana when we can easily tap it in the upper midwest. >> i thought that was sort of interesting. might come as a surprise for the market. i just wonder how realistic that is, dan, at a time where opec, including saudi arabia, where president trump just visited, is trying to balance the market and bring prices down by trying to get rid of the supply glut. it seems like an odd time for the u.s. to flood the market. >> i think that's right. we'll only get market prices for whatever oil we want to sell. more importantly, asset sales, whether they're justified or not, are one-time savings. it doesn't really address the budget problem, primarily the growth in health care costs, and also social security. we might lower the deficit somewhat this year or next but it won't do anything for the long term. >> the omb director mick mulvaney has taken the podium to present president trump's first budget. let's take a listen. >> make a brief statement before we start about things that are probably more important than the numbers.

folks like me sometimes get caught up in the numbers. want to talk very briefly about what happened in manchester, england. the president this morning summed it up emotionally for a lot of us. he just called these people who perpetrated this, one person, evil losers. the president has, i think, 11 or 12. i took my son to his first concert when he was 11 or 12. all of us who have children that age, this is something that hits especially close to home. we stand shoulder to shoulder with our ally and our friends in the uk and also have the victims and their families in our hearts. as we talk about these other things that somehow pail le in comparison. let's talk about the budget. some of you were here yesterday. let's talk about what this is. this is the president's fy2018 budget. the name on the cover is the new

foundation for american greatness. as i read through it over the weekend, as i did -- in fact, we've been working on this before i actually got here, it struck me the title should have been different. the title should have been a taxpayer first budget because that's what this is. and as i was trying to reconcile those two things, it's called the new foundation for american greatness but i want to call it the taxpayer first budget, it struck me that that's what was really new or one of the things that was new about this budget. that we looked at this budget through the eyes of the people who were actually paying the bills. i think for years and years we've simply looked at a budget in terms of the folks who are on the back end of the programs, the recipients of the taxpayer money and we haven't spent nearly enough time focusing our attention on the people who pay the taxes. i got a couple questions today about compassion. compassion needs to be on both

sides of that equation. yes, you have to have compassion for folks receiving federal funds, you also need compassion for folks paying it. that's one thing that's new about the president's budget. what else is new? it's new in that it balances for the first time in at least ten years. the last time we looked, we couldn't find a president obama budget that balanced ever. i think he tried to convince us a couple times that is primary balance, that is balance without payment on debt is balance. we reject that. we get to actual balance on this budget within the continue-yete budget. that's how important it was and is to this president to try to bring some fiscal discipline. again f you're looking through the perspective of the people who pay, you would like to be able to tell that at some point in the foreseeable future you'll be able to balance. previous administration completely gave up on that.

as i've said before to the previous administration, if you borrow money -- if i take money from you and i have no intention of ever giving it back, that is not debt. that is theft. if we're going to borrow money from people, we he have to have a plan for how we're going to pay it back. that's what this budget does. that's one of the things that is new about this budget. the next word in the title is foundation. what is the foundation we're trying to build here? i sum it up this way. again, i saw an article a couple weeks ago about what is trumponomics. it's sustained 3% economic growth. everything that we do in this administration, every single time i'm called into the oval office, whether it's on immigration policy, health care policy, tax reform policy, trade policy, budgets and spending, the focus is sustained 3% economic growth. we have been attacked stunningly

by some folks on the left and even in the mainstream that say that's an unreasonable assumption. we should think about how absurd that is to think 3% growth in an american economy to some people is an absurd assumption. is used to be normal. ten years ago it was normal. in fact, it's been normal for the history of the country. the average over the 240-odd years we've been a country has been over 3%. it's certainly been over 3% since world war ii. the 1.9% growth rates the previous administration assumed at the end of their administration, and the 1.3% growth rate for the entire ten-year period the cbo assumes, the congressional budget office assumes, are simply -- we simply reject. that is a pessimistic look at what the potential for this country and for what this country's people is. we reject that pessimism. you know what, we probably should have gone in and assumed

3.5% or 4% growth because that would be aggressive. 3% growth is just getting back to normal. i say it and i say it again, if you're 30 years old watching this and sitting here, you have never had a job as an adult in a healthy american economy. it's either been a recession or slow, sluggish economy stumbling along at less than 2% growth. the difference between 2% growth and 3% growth doesn't sound like much. in fact, i cringe when i hear people say it's only a 1% difference. the difference in that is tangible. 3% economic growth in a healthy american economy, if you don't like your job, you can quit because you know you can go get another job. if you get laid off, you know you can go off and start your own business these are the opportunities people have forgotten about. these are the things, the optimism in the country, the di dine nichl in the country the president is eager to bring back to the country. it's what drives any one of our policies, especially anything

dealing with jobs and the economy. we will bring back 3% economic growth to this country. and those numbers are assumed in this budget. by the way, if you don't, the budget will never balance. if you assume 1.9% growth, my guess is, you'll never see a balanced budget again. so, we refer to accept that's the new normal in this country. 3% is the old normal. 3% will be the new normal again under the trump administration. that is part in parcel, one of the foundations of this budget. along those same lines, the budget also seems to and funds a lot of the president's priorities. weave talked about this since march when we unveiled the budget blueprint national security, obviously, a priority for this president. border security, another priority for him. we can talk at length today if you want to about the details of the additional money we spend in those areas. the total plus up again for the 2018 budget is $54 billion over

the congressional budget office baseline. law enforcement gets a significant increase here. that's both at the federal and the state and local level as we follow through on our efforts to enforce the law. veterans see more money here. naets a classic example of looking at the budget through the eyes of the taxpayer. i put myself in the role of the person who's actually taking the money from you as taxpayer and giving the money to someone else as a benefit. if i could look you in the eye and say, look, i need to take this money from you so i could help this injured vet, i can do that in good conscious, look you in the eye and my guess is you're okay with that. i'm a lot less comfortable to the point of not wanting to look you in the eye to say, i want to take this money to give to this person who isn't disabled but getting a disabled benefit, or this person over here who is supposed to use the money to go to school but isn't actually going or a program that is supposed to encourage you to graduate from college but is only 6% effective.

that's the type of compassion we talk about and that's the type of different perspective we bring to the budget. that's what i like to talk about when we talk about the veterans. people don't mind paying their taxes as long as they know that money isn't being wasted. we increase spending for school choice and paid parental leave making this the first president of either party to propose a paid parental leave program for parents and adoptive parents. $20 billion over the course of the ten-year window. i gave an incorrect number yesterday at $25. veteran school choice, paid parental leave, they're all campaign promises that the president made while he was running for office. that's why i say these numbers are simply the president's policies put onto paper. we took the president's speeches, his priorities, turned them into numbers and it's in the document. does not along the same lines,

not a single thing in here touches social security retirement or medicare. why? because that's what the president said when he was campaigning. that he would not change those things. in fact, i told the story several times of sit negotiate president's office with a list of possible reforms to mandatory what some people call entitlement spending and the president at end of the list go, yes, yes, no, no, no, and the no, no, nos were always social security retirement and medicare. he didn't change those because he promised people he wouldn't. we can do all that and balance at the same time because we look at spending differently. we're no longer going to measure compassion by the number of programs or the number of people on those programs. but by the number of people we help get off of those programs. we're not going to measure compassion by the amount of money we spend but by the number of people we help. and that is how you can get 3% economic growth. that is how you can can balance

the budget in ten years. that's how you can borrow money from people without promising and intending to pay it back to them. that's how you can help people take charge of their own lives. that is the part of the budget that deals with the american greatness. so, with that, i'll take questions for a little bit. i know there's a couple. >> is president trump sticking to his campaign promise not to touch medicare or social security retirement benefits, but not medicaid, so how does he intend to square that with his supporters? >> a couple things about medicaid. this is one of my favorite stories to tell about washington spending. keeping in mind, and i know that y'all probably get this, but if you're watching this at home, in washington, d.c., if you spent $100 last year on something, okay, and we spent $100 on it this year on that same thing, in washington, people call that a cut. 100 last year, 100 this year, y'all call it a cut. i've seen several occasions where we spent $100 last year

and $102 this year and many people will still call that a cut. because the budget is hard-wired by the congressional budget office to go up every single year. if the congressional budget office says we spent $100 last year and we're supposed to spend $106 this year, for a lot of people, anything less than $107 is a cut. i've actually heard $106 as a freeze because it simply stays in line with the congressional budget office. a classic example of how washington speaks differently than the world back home. a couple things about medicaid. there are no medicaid cuts in terms of what ordinary human beings would refer to as cuts. we are not spending less money than we spent the year before. we're growing medicaid more slowly over the ten-year budget window than the congressional budget office says we should or says we will under current law. why do we change it? we change those growth rates in medicaid spending because of the american health care act which this president does support.

we said from the very beginning, we support the house efforts. looking forward and are working right now with the senate on working with what their health care bill would look like. we support the american health care act and that does change medicaid. how does it change it? this is something i don't think enough people are talking about. it makes it a lot better and a lot more able to deliver the necessary services to the people who need it. here's how. medicaid is funded in large part by the states. in fact, i was in the state legislature. our second largest line item after k-12 education was medicaid. and we would see this program come down from washington with all these instructions and how to use it and say, goodness gracious, this won't work in south carolina. we happen to think, for example, medicaid is more for an urban poor population than rural poor as freedom natures in south carolina. we would ask the federal government every year, give us more control over how this money gets spent. we think we can do it better. we can provide either the same services to the same number of people cheaper or we can provide better service to more people at

the same amount of money if you let us do it better. the federal government always said no. in the american health care act we say yes and give governors and state legislators more control over medicaid. everyone wants to see those in their state get what they need under medicaid. there's a better way to do it, which is obamacare, which is a failure. in the back, yes, sir. >> you mentioned the previous administration with stagnant growth and the deficit is actually doubled since 2008. a member of that administration, larry summers, went on the attack. i'm curious how you respond to his assessment of the budget. he called it ludicrous and the administration is double counting the tax cut and the benefit of growth. >> i did get a chance to see the piece mr. summers wrote as i was

headed out the door. if larry is hiding in the back, now would be a good time to come out and identify himself. i went back and looked at the economic assumptions that the obama administration made in its first couple of years. and i want to say on a couple different occasions their assumed growth rate was more than 4.5%. keep in mind, this is the first administration in history, okay, to -- it was the first decade, first eight-year period in history not to have a 3% growth rate but they were promising us 4.5%. if larry wants to talk about unreasonable assumptions, we talk about my 3% growth rate and we talk about his 4.5%, we'll talk about who is closer to reality. regarding the double counting, here's one thing a lot of folks have overlooked. we did it on purpose because it's hard to count this and you don't want to make too many assumptions. have you to make assumptions about a budget. you're talking about a document that will look ten years into the future. so it's natural for both

administrations from either party to make some assumptions. one assumption we didn't make is we didn't close any tax gap. the tax gap is the amount of money we should collect in taxes every single year but don't. 2016 that number is $486 billion. almost enough to close the deficit that year. we don't assume an additional penny of that being closed as part of our tax reform. why is that important? there's probably two reasons addition three reasons people don't want to pay tax. number one, they just don't pay tax. there's always a certain number of people who don't want to do that. number two, it's just too hard for them to do it. it's too complicated for them to do it. two reasons. i feel like i'm a monty python sketch. two reasons. if there's two addition if it's a simpler tax code that people are more likely to pay. that makes sense. if you can can really fill out your tax returns on a single piece of paper, you're much more

likely to actually do it. it's also easier for us to see if you're paying the right amount. simpler code is simpler for you to pay which would allow us reasonably to assume a deduction in the tax gap and we don't do a single penny of that. i'm aware of of the criticisms. i would come back and say, there are places we were overly conservative in our counting. we stand by the numbers. we thought the assumption the tax reform would be deficit neutral. we can either assume our tax reform was deficit neutral, we can assume it would reduce the deficit or add deficit. given we're this early in tax reform, we thought middle road was the best way to do it. yes, sir. >> thank you, director. can you characterize the treatment of climate science programs and cuts to those and do you -- do you describe those as a taxpayer waste?

>> you tell me. i think the national science foundation last year used your taxpayer money to fund a climate change musical. do you think that's a waste of your money? >> what about climate science addition. >> i'll take that as a yes, by the way. so, you see my point. what i think -- what i think you saw happen during the previous administration is the pendulum went too far to one side. where we're spending too much of your money on climate change and not efficiently. we don't get rid of it. do we target it? yes. do a lot of epa reductions aim focus on climate science? yes. does it mean we're anti-science? absolutely not. we're trying to get things back in order where we can look at the folks who pay taxes and say, look, we want to do climate science but we're not going to do some of the crazy stuff the previous administration did. i will note you didn't say anything about the musical. yes, ma'am.

>> you were talking about making assumptions. what are your assumptions and expectations for the budget in reference to the wall? congress really seems to have come on the record and say they are not in support of funding it. what are your expectations -- >> some folks aren't in support of it, some are very much in support of it. i did read something -- i was really disappointed. i don't know if there were folks here who broked the embargo. i don't think it was anybody here. somebody did. i read the article how we dramatically reduced our and for the wall funding. it's not accurate. the 2017 request was $1.5 billion for border security and $3.0 billion additional. the proposal is twice as much and $4.5 total dhs. a much larger number than 2017. i'm not sure how the person got

the number. let me address your question. we are absolutely dead serious about the wall. in fact, after taking care of national security and the vets, my guess is, it's in the president's top three. in fact, i know for a fact it is. we made that very clear to the folks on the hill that while we did not get as much money as we wanted for border security in the 2017 omnibus, we did get a lot. many of you were here for the presentation i gave on that. we will see increased border security between today and the end of the calendar year. by the same token, we'll continue to press on. we do think there's a role for technology, a role for additional people, all of which we ask for in this 2018 budget request. but it's absolutely a priority for the president. yes, sir. >> you said you reject the premise of the economy not growing at 3%. >> yep. >> did you set the 3% target and then reverse engineer the figures in order to achieve that? >> no. >> give us the math. >> keep in mind, we had --

because there was a lot of numbers that were floated during the campaign, 3, 3.5, 4, 4.5. we didn't start with any of those numbers and worked back. we sat down and did this -- in fact, it was the group, myself, secretary mnuchin, director cohen who is filling the role often filled bit head of the counsel of economic advisers, and what we did is sad down and looked at the cbo baseline numbers and said, okay, what will our tax policy increase gchltd dp by? what are the ranges for that? what will our regulatory policy impact gdp by and what are the ranges for that? what is repealing obamacare do for increasing gdp? the congressional budget office has hard numbers on that. they assume if you repeal obamacare, it will increase gdp because obamacare creates a disincentive to work. so, we went through the methodology item by item and arrived at the 3%.

i also think you'll see that as well in the ramp up to that 3%. we don't assume 3% in year one. our assumption for this year is 2.3, then 2.5, then 3% out. we think it's reasonable and defensive macro economic assumption. digging deeper into the numbers, we also think our numbers regarding the related interest rates and unemployment rates are likewise defensible. we get a lot of questions about productivity and we hear these stories, an interesting story in one the leading newspapers, the times or the post yesterday, about a business in utah that can't find enough people to work. and people say, oh, how are you going to grow the economy at 3%? if we don't -- we're already facing a tight employment market. i'm going to pull the numbers up here so i don't butcher these. as soon as i say that i can't pull the numbers up. the difference between the u6 rate and the u-3 rate is -- i

think the number was in excess of 6 million people. the u-3 is what we call the unemployment rate. the u-6 rate is those folks who are unemployed, okay, they're in the labor force looking for work but they can't find it, plus the people who are marginally attached or working part time for economic reasons. working part time because they can't find full-time work. that difference, that delta is over 6 million people. so, we believe that we should be able to drive u-3 and u-6 together and get those folks into full-time employment. that's one of the ways you get product tift gains. >> u-6, a measure that goes back to 1994, you can have it equal the u-3 measure? >> we think addition in a properly functioning economy, that would be the case. what's the difference? marginally attached and part time against your will. you want to work full time but you're not. you're technically not unemployed because that's not the technical definition of the u-3 unemployment rate but you want to be doing more. you want to be more productive

to go back to economic terms. we believe we bring those people back to the job place. they will end up adding to productivity. >> director mull veia mulvaney,y you came down the escalator and said, we're going to save medicare, medicaid and social security without cuts, have to do it. i recognize he's going to be saving social security retirement but he's not saving social security disability insurance, which benefits more than 10 million americans. so, is the president keeping his promise on that program? >> thank you for that. yes, he absolutely is. the fact it's called a social security disability insurance is -- well, put it to you this way. we propose to do parental paid leave in this budget. the first president of either party to do that. we propose to do that using the tools that already exist through the state unemployment insurance. by the way, i think that's the same way canada does it now. there are a couple states, new york, new jersey, i think california, who already provide

statewide paid parental leave. they do it through their disability insurance programs. their employment disability. that does not mean parental leave is unemployment and it does not mooef mean parental leave is a disability. it simply moons that program is managed through the infrastructure that already existed at the time it was set up. same is true for social security disability. it is a welfare program for the long-term disabled. it is not what most people will consider to be social security. >> with any of those individuals who presently receive ssdi receive less as a result of this budget? >> i hope so. if there are people getting ssdi who should not be getting it -- >> nose people who should be get, it -- >> no, if people are really disabled and folks who need -- >> how are you going to better determine who is getting it that shouldn't be getting it? so many programs that xis -- >> i could get down in the weeds. one of the proposals we have is how we pick administrative law

judges. i think it's a lifetime appointment on day one. he we try to phase them in. several judges have been accused of abusing the program. your point is an excellent one. we're not kicking anybody off of any program who really needs it. that's not -- we have plenty of money in this country to take care of the people who need help. and we will do dha. we don't have enough money to take care of people, everybody who doesn't need help. we try and look at these programs, again, through the prospective of the people paying for it and say, s.n.a.p., for example, i haven't been asked a question about it, 42 million americans -- i'll take your word for it on 44 million. i think the high was 47. that was during the recession. pre-recession the numbers were as low as 28. it spiked during the recession, which you would expect on a countercyclical prachl like food stamps. during bad economic times more people go on food stamps. it's completely within reason to look although that number, going

from 28 million on food stamps before the recession to 47 at the height. it's 44 or 42 today. yet here we are eight years removed from the end of the recession. we've had economic growth, albeit slow. we're at what we consider to be full employment with the limitations of u-3 and u-6. why is the number still that high? is it possible addition if you're paying for it, isn't it reasonable for you to at least ask the question, are there people on that program who shouldn't be on there? shouldn't it, up to the government to make sure we can look folks who are paying the taxes in the eye and say, you know what, we did everything we could to make sure everybody on ssdi is reasonable disabled. we don't think that's unreasonable. in fact, we think that is the definition of compassionate. a compassion that is balanced between the people who get the benefits and the people who pay them. yes, ma'am. >> can you talk about provisions affecting federal employees and how to strengthen your plans to strengthen the federal government? >> i will -- i'll deal with federal -- let's talk about federal retirement because that's gotten a little -- that's one of our largest changes.

simply put, we try and make federal retirement closer, closer to the private sector. we increased the contribution they make to their 401(k) programs. i think on one program we got rid of a cost of living adjustment that was there. keep in mind, those are folks who will also be participating in social security at the time, which is a cost aliving adjusted. we thought they mp common sense reforms to try and bring the federal government benefit programs closer to the private sector. i'm a federal worker. i have a pension and a 401(k). raise your hand if you're in the pension and private sector? you did? oh, she wanted to ask the next question. we're simply trying to get some common sense back into that

program. we don't think that's an unreasonable thing to do. it's the right thing to do on behalf of the taxpayers. in the back, yes, sir. >> can you talk about the $1.6 billion for brick and mortar security. are we talking about new border wall? replacement wall? how much wall? >> just to be clear, the $1.5 was the request for 2017. $2.6 billion is the request for 2018, reflecting the fact there are 12 months in 2018. only five months in 2017 when we were dealing with that. so, the answer to your question, what are they going to see? all of the above. replacement wall, that would be new wall, that would be land acquisition, that would be infrastructure. you don't automatically magically build a wall in the middle of nowhere. you have to build a road to get there. you often have to run utility services out to it if you're going to do lighting, for example. it's all of the above. part of the president's

commitment. we haven't decided yet on the best kind of wall. i think we're going through competition. either four or eight. depends on how you want to count it, different prototypes in the process of being designed and built right now as we try to figure out what is the most appropriate type of wall will be. we fully expect different barriers will serve best in different areas. >> are you projecting out -- a lot of the budget had to deal with projections as many as ten years out. are you projecting out how much money you're going to need in the following years to complete the president's promise during the campaign? >> we don't -- the way this works. it's a great question. the federal budget is a name only. they call it a budget because they didn't know what else to call it but it has two big pieces to it. it has a spending proposal for the first year. and that's where you get a good bit of detail. and then you have these policies and broader brush sort of

approaches for the next years two three ten. the answer to your question is, yes, we get very specific where we would spend dhs money in 2018. as you go further and further away, we get less specific. we plug in, for example, numbers for dhs. last question. >> i want to ask about the strategic petroleum reserve and the proposal to sell off half of the stocks. how concerned are you that doing that would hurt domestic producers by pressuring prices lower? and does the administration plan to break with its agreement with other ocd nations to keep 90 days' worth of oil supplies in reserves? >> i can't speak to the oecd because i'm not familiar with that. i will tell you we do not believe the proposals we've got will harm the domestic productionability. one of the reasons we believe we can reduce -- if you do it slowly f you telegraph it over the course of time, there's a way to do it without having a

dramatic increase on prices. the reason -- by the way, what she's talking about is we proposed to reduce the size of the strangic petroleum reserve put in effect by '70s, maybe early '80s by the time they got funded. we were importing over 6 billion barrels of oil from the middle east. we had limited domestic production. that's why you do it, it was a national security argument. if we're going to rely so heavily on imported oil, there might be a national security, and certainly a national economic argument to not exposing ourselves to risks like the oil shocks we had in the 1970s. that risk goes down dramatically when we have increased domestic production like we do today. in fact, i think you saw congress last year approve for the first time since the 1970s crude oil exports out of this country. we have the opportunity to do that. we also produce more oil because of hydraulic fracing, also

produce more natural gas and other hydrocarbons. we think it's a responsible thing to do. it's no longer necessary. go back to that perception of the taxpayers. i don't need to take this much of your money to bury it in the ground out in west texas someplace for domestic security and national security reasons when we have domestic surpluses -- or supplies like we do. thank you all very much. again, we'll be available for questions. can you reach out to john. s.n.a.p. -- yes, i will. thank you for that. we'll take s.n.a.p. go ahead, what's your -- i thought i answered that question. >> you touched on, it but i have a follow-up from yesterday. you said that you would be phasing in the work requirements. and i was wondering if you could tell us a little more about that process and how quickly you expect that to happen. and also, if you could tell us what you would say to the able bodied americans you reference who are saying, i want to work but i can't find work? >> the answer to your question i'm not familiar with details of how we phase it in over time, so

i apologize. we have to get back to on you that. in terms of what we would say to people is, great, thank you. thank you for wanting to work. because we need you as a nation to do that. so, we are starting on the exact same page. we're going to do everything we can to help you find a job that you are suited to and a job that you can -- you can use to help take care of you yourself and your family. that's not the problem. the folks who are out there, who are on food stamps and want to work, we'll be able to work with them to solve the problem. they are not what's causing the difficulties in s.n.a.p. it's the foek wlks who are on t who don't want to work. that's what we're trying to point out to people. if there's 44 million people on there, eight years removed from the ends of the recession, maybe it's reasonable to ask if there are folks who are on there who shouldn't be. that's a reasonable question to ask. i would even suggest it's a compassionate question to ask. i can assure you f you're in this country and you want to work, there's good news because donald trump is president and

we'll get 3% growth and give you the opportunity to go back to work. appreciate it. >> that's budget director mulvaney showing why he's long been one of the strongest voices on the budget on the hill for many years, defending 3% projection growth. talking about, nice discussion of u-6 and u-3. kayla, as you said before we heard from him, trying to redefine compassion through the eyes of those, as he said, paying the bills. >> this now appears to be the official line of the administration. the official defense in reaction to that criticism perceived or otherwise about the fact that the budget for next year currently proposes some steep cuts to welfare programs that have been going on for a very long time. he said this white house is going to define compassion by the number of people that it brings off of those programs rather than by the size of those programs and says, you need to have compassion for the taxpayer, for the teachers, for the people who are working out there very hard who are ending up footing the bill for a lot of

these. he faced a lot of questions on that front. on medicaid specifically, he sought to clarify this perception the $600 million removed from medicare is a cut. he said it was an increase over time. a very large increase over time. they are just decreasing the amount it will rise by. of course, that is just semantics for a very large number removed from the budget. definitely, trying to come out in a very strong way and define this as a taxpayer first administration, taxpayer first budget. carl? >> it was interesting to hear him talk. really defend that 3% growth number after we just heard the same thing from treasury mnuchin. on this point, one of the strongest points i think he made was rebutting larry summers, former u.s. treasury secretary, who wrote in the washington post that it's phoney math, its not real, they can get to this am birs 3% economic growth.

mulvaney's line back was obama administration projected 4.5%. they were the only administration in history not to get us to 3% growth. in reference to the summers piece, defending the fact that's a pessimistic view of the economy. in trump's world, we'll assume optimism. >> you know, we've seen over the course of the last several decades how hard it is for the u.s. government to actually forecast where the economy will go. the fact that the federal reserve didn't see the financial crisis coming in 2007, the fact this administration believes that the gross domestic product of this country will grow 3% every single year, we'll eventually get there. he said, if you don't believe the economy can get to 3% growth, then you'll never see a balanced budget in your lifetime. so, they are trying to rebutt other naysayers. we've seen in hindsight how difficult that prognostication actually is. >> kayla, our thanks to you for walking us through this important day. also to phillip and dan, who

helped us before we went to mulvaney. let's get to the cnbc group and check in with rick santelli with a special edition of the santelli exchange. >> thanks, carl. i'd like to welcome my special guest, half of the 2010guest, a, former republican senator of wyoming. welcome, senator. >> it's it's good to be back. i've been listening with great interest, quite dazzling, actually. i thought of an old phrase from my law practice. if you torture statistics long enough, eventually, they'll confess. >> now, interpret that more specifically for me. do you think that -- >> when you're talking about you two and three and all this stuff, i was there for 18 year, never saw a single, single projection on economic growth take place. that is a dream world. that's over the rainbow.

the great oz is taking us over the rainbow. that can't possibly be and then to do this and not touch two-thirds of the american budget is a tragedy and two-thirds of the american budget is the cost of health care, forget what the hell you call it and the solvency of social security. leave those two babies off the table and you're just absolutely out of your gourd. >> it sounds like you have questions on the budget. if you think mainstream economists are right. 1.9% is the growth we're going to be having for some time, we will never have a balanced budget. do you agree? >> i do. you can't get there with these projections of economic growth are fantasy.

>> so, we've -- wait, take another issue. what i call the crisis baseline. and after the crisis, mull vainy was right. whether you look at disable the , they jumped up dramatically and stayed up. you said you needed to tackle thicks that aren't part of those issues like social security. so, my question to you is where to you begin? where do you find the glorowthg this group of people just can't work together. >> that's right and they don't intend to. they intend not only to win with the three letters they want to rub the other sides, rub their nose in it on the other side. i'm only saying look, you cannot get there, go read the 67-page report that we put out.

it was signed by five democrats, five republicans and one independent it used words like going broke and shared sacrifice. >> how many voted on your findings and thoughts? >> we had a supermajority. >> but president obama never put it on the agenda. nobody pushed it. it hit everybody. they come up to us on the street, love what you did except for that one part. you mess with their part, they'll jab your eyes out with a salled fork. >> if the people go to the

ballot box almost every other november, if they have issues with taking anything away and the people that pay the taxes that pay the distribution, how do we reconcile this? >> i don't envision the promise land. we had people who said, where is the tipping point and it is very clear. go to 21 trillion. what the hell do you think is going to happen when the debt which is now when it goes to historical rates of five and your xwoipg to spend instead of 260 billion, you're going to pay 700 billion on interest, which sucks it direct ly out of the discretionary budget, which is what everybody loves. infrastructure, education, defense. you're leaving these two

temperatutemples of excess, which is health care and social security and nobody will argue that in 2034, you're going to waddle up to the window and get a check for 23% less. that's 2034 and medicaid trust fund will go down a few years from that and disb b bability insurance out the window and nothing being done with the highway trust fund. give me a break with all the sauce. >> i'll tell you, senator, you pretty much put a face on it. i'd walk away thinking wung thing. if we want to solve these issue, it's going to take a crisis to get action and that is a sad commentary. senator, thank you for take iin the time. >>. >> you are absolutely correct. that will be a tipping point and it will be b a crisis. >> you know what, senator, let's dig into this a bit. how can forget the political class. how can the people and these are complicated issues.

not waiting until that one day and it will be past its target date. the crisis. >> you'll never get there. i learned the hard way. you never get there because the opposition will be using on emotion, fear, guilt and racism. so once you bring out those four wonderful points, emotion, fear, guilt and racism, all facts disappear. you then if you're dealing with immigration and you're talking about anything substantive, you are called a bigot. if you're dealing with veterans issue, i am a veteran. what is a guy who served six months and doesn't know a -- and drawing the same benefit as a combat veteran. give me a break.

this is the away it works. how about the poor? we never touched srk si or food stamped in our report. but what about the guy who can buy your whole damn studio and he gets a heart operation and doesn't even get a bill. who the hell is kidding who? these guys are sucking the system. he owns the whole damn operation, this is nuts. part b premiums on medicare, paid 35% by the beneficiary and the guy in the kitchen is paying the other 65%. is that america? give many me a break. >> senator, thank you again. sarah. back to you. >> that was a lively one, rick. thank you very much. john harwood is at the peterson institute having just spoken about tax reform. >> the big take away was the

secretary saying that the budget was a prelame nair document and the tax reform plan, which -- that show substantial tax cut. he said, well, that's preliminary, we're going to scrub the distribution, don't know how it's going to come out. i asked him about his comment on cnbc saying that people at the top would not get a net tax cut and he said well, our goal is to cut middle class taxes. he would not commit to a zero increase in part because he said some tax cuts like capital gains are worth it for the economy. >> the capital gains tax is

being eliminated as part of the health care reform. that's not really part of -- >> doesn't have to be. >> it doesn't have to be, but i think most people feel that the tax on capital gains is perhaps the most inefficient stax. capital gains are with what increase investment in this country. >> so, long way to go for this budget. for the administration's tax proposal. he said he hoped to do it this year, but mitch mcconnell said look to 2018. >> it's a reason to avoid specific, really. >> yes, and he said that different preferences on the hill might cause the president to do things he wouldn't otherwise do that happen of course with report to medicaid.

>> john, good stuff. thanks to you. our john harwood at the peterson institute talking to the treasury secretary rmt market at a standstill all morning long. tight range. dow up about 38 points. wapner and the half. >> welcome to the halftime report. top trade this hour. why the trump rally has hit a wall and what can get stocks. also with us today is robert of ubs private management. ron is here as well. we want to begin with the markets. the key level investors are watching this hour. 2400 on the s&p.