budget number in the c b l report or update released yesterday or daunting to say the least but to fully comprehend the implications of those numbers the bottom line to the budget is important to remind to remember the context in which they emerged a year ago the economy was in freefall job loss was the one seven hundred fourteen thousand per month in the month of january alone americans retirement savings accounts it plunged about two trillion between the first quarter of two thousand and eight in the first quarter of two thousand and the record budget surpluses of january two thousand and one had been converted to record deficits for as far as the eye could see as president obama and this congress began two thousand and nine this was the context this was the economic and fiscal legacy of the previous administration too many americans today still feel the pain of the recession we receive news is a form the testimony dr elmendorf that the economy we believe is out of recession but nevertheless as much work to be done to rebuild the economy and recover full capacity c b s report today confirmed that the actions we have taken over the last year have pulled the colony back from the brink so you have report confirms the g d p will grow in two thousand and ten and beyond and the recovery act has had a positive effect their report also confirms that the recession is taking its toll on the budget bottom line that focusing first on rescuing the economy is meant still for the cost of the budget show up on the bottom line economists agree that it is counterproductive to try to balance the budget in the midst of a deep  recession should not be confused with the long term fiscal challenges we were facing even before the recession began because the long term budget budget situation remains unsustainable as the economy recovers we must increasingly turn our focus objective and that is the role of c e o director and you're doing that very very well so i just simply want to say to you you take a lot of flak over a c b l that a lot of demands of your time this year i don't think i've ever seen a year in which there's more demand cvo challenging economic time and you're handling it very very well i know the people over there are working long hours we want you all to know that we respect that we appreciate it and we think you're handling yourself in a very professional manner might have some some suggestions on how to model things differently but i just simply want to say i think you doing a fantastic job and we appreciate it let me turn to our fiscal crisis now if i might when president  obama took office america was in the midst of a crisis that shook our financial situation to a situation to its core and eclipsed access to credit markets the administration exploited this crisis to pursue a relentless increase in federal spending and the size and reach of the government heading in this direction has made matters much worse for our fiscal future last year congress enact a trillion dollar surplus stimulus excuse me last year congress enacted a trillion dollar stimulus sold with promise that would hold unemployment below eight percent and yet the unemployment rate continues to rise and now stands at the twenty five year high of ten percent we learned that much of the stimulus which was neither targeted timely nor temporary in fact it was just a down payment on government programs let's turn over the tarp tarp was advertizes emergency plan to heal financial markets with eventual returns of the taxpayer it is now become washington's latest slush on c b s budget and economic outlook paints a startling picture of both the year we have left behind and the year we face in the time over the next decade in two thousand and nine congress delivered a one point four trillion dollar deficit the largest in our nation's history and no doubt because of the recession that was made much worse estimates for the current year also are very staggering one point three five trillion dollars deficit and it will our debt will reach over sixty percent of g d p this year under the current policies of our government by twenty twenty c b l projects that our debt will soar to nearly one hundred percent of gross domestic product adding to that yearly interest paid to finance this surge in spending well more than triple in nominal terms from two hundred seven billion dollars in two thousand and ten to seven hundred twenty three billion dollars in two thousand and twenty more troubling than another over one trillion dollar deficit is that there is more to come c b l figures don't include what is likely to come down the pipeline this year from requests for needed war funding for the effort to jam through a new new one trillion dollar health care entitlement to all the other things that are going to happen doc fix and so on and so forth i'm encouraged by the news yesterday that the administration is considering a three year freeze on certain discretionary spending programs we need to see the details and this needs to be enforced was a statutory cap if we're actually going to hold the line on spending it is time to get serious about ending washington's insatiable appetite for increased spending and an expanded government the promise of a discretionary freeze although a step in the right direction is not enough to secure our financial future as astounding as our current budget for short falls all our long term debt projections are profoundly worse the bipartisan peters and pew commission on budget reform warned in its recent report that government spending driven by the growth in health care costs and an aging population will almost certainly bring the debt to crisis levels during the next few decades what is once thought as a scenario that would unfold in the distant future has compounded and become a pressing issue that we must face today we must form reform our largest entitlement programs we used to think we had ten or so years but because of the financial crisis because of the spending binge that we've engaged in and because of the massive deficits and debt we now are confronted with this problem is here now not in ten years we need to do this i propose a systematic way to reform our programs i call it a roadmap for america's future my purpose in putting this legislation up there is not simply to say you know we have it all figured out we've got all the ideas our purpose in putting this out is here's a plan to restore our fiscal future to pay off our debts to fulfill the mission of health and retirement security and make our economy grow so people can have good jobs the purpose of doing this is to encourage others to do the same bring us your plans to solve our entitlement crisis bring us your ideas to actually pay off our debt there is a unique legacy in this country that is about to be severed and that legacy in this country is each generation takes on its challenges so the next generation is better off well as c b l will tell you as every objective statistic will tell you we know for a fact are consigning the next generation to an inferior standard of living that is a fact it's irrefutable i encourage you to challenge that we've got to act and we've got to act now to turn this around so that we can give the next generation this american legacy of having a better future which they will not unless we act sorry for getting a little carried away mr chairman but this is a serious time we appreciate the work of c b l we need to get to work thank you but i couldn't agree more today you pretty filed your testimony and we'll make it part of the record so that you can summarize it but you're the only witness and unless you want to call up some of your colleagues to answer questions we might but you're the only witness today and you should take as much time as you feel about the work that we had c d o been doing during the past year we very much appreciate the support that you both have shown for our work during this past year and in many previous years to the two of you and all members of the committee i appreciate the invitation to talk with you today ten will be about one point three five trillion dollars or more than nine percent of the country's total output that deficit would be only slightly smaller than last year's deficit which was the largest as a share of g since world war two we expect that revenues will grow modestly this year primarily because we expect a slow pace of economic recovery respect that outlays will be about even with last year's level a decline in federal aid t financial sector is offset by increases in spending from the stimulus program and for other purposes debt held by the public will reach eight point eight trillion dollars by the end of this fiscal year or sixty percent of g the largest burden of debt since the early one nine hundred fifty s looking beyond this fiscal year the budget outlook is daunting again under current law cvo projects of the deficit will drop to about three percent of g and thirteen but remain in that neighborhood through two thousand and twenty by that point interest payments alone would cost more than seven hundred billion dollars per year moreover maintaining the policies embodied in current these projections will not be easy it would mean for example allowing all of the tax cuts inactive in two thousand and one and two thousand and three to expire in two thousand and eleven as scheduled and not extending the temporary changes that have kept the alternative minimum tax rate empty from affecting more tax payers but many policy makers have expressed their intention not to let current law unfold as scheduled if instead they extend all of the two thousand and one in two thousand and three tax inflation and made no other changes to revenue or spending the deficit in twenty twenty would be twice the size of the deficit projection the current law debt held by the public would equal eighty seven percent of g d p and be rising rapidly the baseline projections also assume the annual appropriations will rise only with inflation if instead policy makers increased such spending in line with the p which is about what actually happened during the past twenty years the deficit in two thousand and twenty would be two thirds again as large as projected under current law in some the outlook for the federal budget is by leak to be sure forecasts of economic and budget outcomes are highly uncertain actual deficits could be significantly smaller than we project or significantly larger we believe that our projection balances those risks one set of factors contributing to the bleak budget outlook of the financial crisis and severe recession along with the policies implemented in response analysts define the end of a recession as the point at which output begins to expand again by that definition the recession appears to have ended in mid two thousand and nine our ever payroll employment which is fallen by more than seven million since the beginning of the recession has not yet begun to rise again and unemployment rate as you know finished last year at ten percent twice its level of two years earlier unfortunately cvo expects of the pace of economic recovery will be slow in the next few years household spending will be restrained by weak income growth wast wealth and constraints and their ability to borrow investment spending will be slowed by the large number of vacant homes and offices in addition although aggressive action by the federal reserve and the fiscal stimulus package helped moderate the severity of the recession and shorten its duration of support to the economy from those sources expected to win employment will almost certainly increase this year but it will take considerable time for everyone looking for work to find jobs and we project that the unemployment rate will not return to its long run sustainable level of five percent until twenty fourteen thus more of the pain of unemployment from this downturn lies ahead of us and behind us but deep recession and protracted recovery mean under current law lower tax revenues and higher outlays for certain benefit programs c d o estimates that those automatic stabilizers will increase the budget deficit more than two percent of g d p in both twenty ten and twenty eleven in addition cvo projects that last year's fiscal stimulus package will increase the deficit by roughly two percent of g d p this year and by a smaller amounts next year as the economy recovers and the effects of the automatic stabilisers and legislative policies fade away the budget deficit will shrink relative to g d p however as i have noted the projected deficit remains large throughout the decade even under current law of current law is changed in some way that more closely matches current policy as most people see it the amount of government borrowing relative to g d p would be unprecedented in the post world war two period a large and persisten imbalance between federal spending and revenues is apparent in c b o's projections for the next ten years and will be exacerbated in coming decades by the aging of the population and the rising costs of health care that imbalance stems from policy choices made over many years as a result of those choices us fiscal policy is on an unsustainable path to an extent that cannot be solved by minor tinkering the country faces a fundamental disconnect between the services that people expect the government to provide particularly the form of benefits for older americans and the tax revenues the people are prepared to send to the government to finance those services that fundamental disconnect will have to be addressed in some way the nation is to avoid serious long term damage to the economy and to the wellbeing of the population the chairman asked me to also specifically refer to some of the charts and in the testimony that we submitted of course we've written outlook of almost two hundred pages that i'm sure you're taking home and poring over in your spare time but we did have several charts in the in the testimony that i brought today that i think are worth attention if one looks at the summary figure one you have that in front of you is a picture of debt held by the public and net interest it's a slightly good thank you the solid line is debt held by the public that picture ranges from two thousand and five up through the two thousand and nine to the left of that vertical line labeled actual and then the next eleven years of our projection debt held by the public which was running about forty percent of g d p before the financial crisis and recession will jump from that forty percent at the end of fiscal year two thousand eight to basically sixty percent at the end of this fiscal year two thousand and ten so in two years we will increase the size of the debt relative to the economy by one half under our projection it continues to rise a little further is roughly stable around sixty five percent of ending a sixty seven percent of g d p again this is under current law which assumes that tax cuts expire a schedule that appropriations keep pace only with inflation  net interest on the debt again expressed as a share of g d p that net interest is actually been quite low last year despite the large debt because interest rates were quite low but we centrally all analysts expect interest rates to rise considerably as the economy recovers and the combination of rising debt and rising interest rates will push debt payments up in nominal dollars we expect them to triple over the next ten years  as a share of g d p to roughly double the next picture we included in the in my testimony today is figure two shows revenues and outlays of the government this picture goes back forty years into the past and then ten years into the future with our projection you can see that outlays have spiked up clearly in the last couple of years are now at their highest level relative to g d p that we have seen decades and are projected to rise again again this is under current law which assumes the expiration of the tax cuts under that current law revenues move up above their long historical level revenues would remain below their historical average throughout the ten year projection period it would be inching up close to it by the end of the ten years and i think there's a third picture which is the picture of the unemployment rate  picture the unemployment rate which i'm not sure where that is but there's a that's so if you that picture you can see the very sharp rise of course the last several years you can see the decline in this picture the decline looks fairly steep the line comes down but of course it is now so far above the long unsustainable level that even at that pace of decline it takes a number of years to come down and you can see in that sense that more of the bulk of that peak actually lies in front of us then behind us to the right side of that projected line and that's the sense in which i think the pain of unemployment going ahead is likely to be greater notwithstanding the fact that we and again i think essentially all of our analysts short term deficits were necessary encumberance they had to be undertaken in order to respond to the so called downturn in the economy but the real concern was that these were necessary from having a large deficit during this downturn i've said a number of occasions that fiscal policy poses two central challenges to macroeconomic stability now the short run challenge in the long run challenge the short run challenge that is that th stimulus will be withdrawn very rapidly over the next few years under current law as the stimulus packages that back swinging as tax rates increase under current law as the automatic stabilisers diminish in importance deficit actually falls very sharply in the next few years and that is a real drawl of stimulus that private demand will have to overcome to move continue to move the economy ahead the other challenge the fiscal policy poses to macroeconomic stability in the long run is the fact that this will stimulus doesn't really ever go away that the budget remains very much out of balance for many years to come but i think it is how one resolves that tension is of course a matter for you and your colleagues i think is a widely held view that the principal damage from budget deficits comes from there being a large period when the economy is at full employment and when they really are crowding out investment in plant and equipment let me let me go back to the three points i made my opening statement and to comment on policies we've taken a year ago at the end of the quarter two thousand and the economy was in deep recession i think we'd all agree that month alone the economy shrank by five point four percent in the previous quarter by contrast the economy in the third quarter of two thousand and nine group about two point two percent nothing each year over but that's a movement in the right direction for sure as windows seven point six percentage point the previous quarter average about job loss of about six hundred thousand fallen in value from a tree in the first quarter to six point two trillion in the fourth quarter fall of one point eight trillion and one year alone by contrast looking over the past year two thousand and retirement savings have risen from five point trillion seven point seven trillion at the end of the fourth quarter all of our developments turned into positive developments over the last year one factor in this turnaround judge the effects of a particular piece of legislation for the entire federal budget because of that we have reported a range of estimates of the facts but we do believe and i've said this a number of occasions as quoting today's testimony that as you said the stimulus package did moderate the severity and shorten the duration of the downturn we estimate that the alleged lation raised to real g d p by one point three percent to three point five percent somewhere within that one point three three four point five percent range during the second half of two thousand and nine to what it would have been without the stimulus i think the last estimate that we provided of the employment effects was in a report that we issued was required by law in november and this was based on the effects to the third quarter estimate to the third quarter was that employment was boosted by between six hundred thousand and one point six million jobs you comment on why that is i think there are several factors one is that we expect overall economic growth to be only moderate in the next few years in the wake of some past deep recessions the third reserve has cut interest rates sharply and there has been pent up demand for housing and for other consumer durable goods and for business investment that has propelled the economy on a fast upward trajectory given the nature of the particular downturn and something in common with some past downturns due to financial crises in our country and others is that that pent up demand is not there in the same way we have more houses than there was current demand for so we think that the economy is likely to gross to grow more slowly and one direct effect of that is so much smaller increases in employment a second factor is that hours worked for people who have jobs has been on a downward trend for decades but it declined fairly sharply in this recession and thus we think as firms need more labor to produce product as the man starts to rise the first me will do is to start to increase the hours of people who are already employed rather than to employ new people that will come later a third factor is that recessions often accelerate restructuring underway in the economy that pushes companies that were struggling to the brink pushes countries or over the brink pushes companies that were doing well perhaps into a dangerous territory and one way that our economy tends to grow and to create jobs is that people move they move to other parts of the country they are that kind of regional migration isn't been an important feature in the past but we think will be harder to accomplish in this recovery because of the problems in the housing sector with us and if they can't minority but a significant minority of people underwater in their homes owing more and mortgages and the houses are currently worth we think they'll have more difficulty going to other locations where jobs are more available i think that will hamper  growth a little bit but the biggest factor again is the first one which is just that with slow economic growth i think that we slow growth in employment and that's a pattern to think consistent in the past we mentioned our report passed for past four recessions those with fast g d p growth have had fast employment growth will slow g d p growth that slow employment growth despite the growth in the debt we've not had what you would normally expect in the way of an increase in debt service not yet because of the low r be economists don't have us in the analytic basis for saying this is the crucial point in terms of debt or deficit it is true that as we push in this country to sixty percent of g at the end of this year and beyond that over the next few years we're moving into territory that most developed countries stay out of we are moving into territory that is unusual in our histor and the experience of other countries that we think of with solid economic situations that raises the risk every step that we go but what precise point you should stop that is not it's not something that has an analytic analytic basis for answering it is true that the numbers that you suggest have been discussed fairly widely i think one thing to note is that our baseline projection is for deficits about three percent of g d p that and the interest payments that you point to are assuming that we have deficits of about three percent of g d p not the next couple of years but beyond that for the rest of the ten year period which are very strong it's not the worst case scenario by any means no in the challenge there is again as i said in my opening remarks that many members have discussed making changes that would increase to us that's relative to our baseline and in particular extending the expiring tax provisions and indexing the alternative minimum tax so in some ways relative to what many people i think believe it would think of as current policy sort of policies we have in place the tax which we have now the deficit we much larger than our official baseline and to get to three percent from there would a very complex has a lot of moving parts in your staff done a very good job of working overtime to put give us estimates but you're currently going the bill on last year's baseline and we now have a new baseline so i think it's just for the sake of accuracy so we know what we're doing have this scored on this year's baseline so i would like to request that you score the health care bill on this year's baseline when you think you could produce a score so that we know what it will cost using the current based on that's a quite reasonable request congressman i don't think i have a very good answer c v s traditional practice across a range of pieces of what just legislation is to continue when legislation is in process to continue scoring at the baseline with which we started that process in particular congress adopted the budget resolution last spring based on our march two thousand and nine baseline projections we've used that for scoring legislation since then even though we updated our outlook for the economy the budget last august and we as a general matter continue to estimate based on that baseline until there was a new budget resolution it is also true that we in response to requests like yours try to provide a parallel estimate if you would based on a more recent baseline and we do that particularly when we have reason to believe that the change in the baseline is consequential for the estimate and then an estimate based on the earlier baseline might be misleading in some way we have not actually updated the health the details of the health baseline so there are baseline forecasts that we've released of course but the details that we need the recalibration of our models to do estimates off this new baseline is a project itself of several weeks to ration that we have not had time to undertake it only after doing that that we could then proceed to try to estimate some particular bill and i'm not sure at that point which health bill you and others would find most interesting but i'm not sure exactly what the timeline is  will probably won't see a score using the new baseline until after this is done if this is done within less than several weeks so that's right and again it takes a several weeks to recalibrate the models and these are the same people i'm afraid estimating the president i understand let me let me you know we've got a lot coming down the pike let me ask you this it's c b s normal practice to provide estimates of authorization of appropriations you haven't been able to provide those yet i think mr lewis the ranking member of the appropriations committee has requested this  information particularly in view of you know a freeze when are we going to get the estimates of the appropriations authorized are required in the health care bill that i think is probably easier to achieve before we vote on this what are the appropriations we're talking about here can you put that estimate so that is so we receive that request and we talk with the chairman staff ranking member staff there are in our estimate of the health bills we've included a section that offers our range what we believe to be the appropriation is necessary to finance particular parts of the government that would be responsible for running the insurance exchanges or making changes in medicare and so on those ranges in several categories ranges of five to ten billion dollars and several these categories to do a complete estimate of the appropriations that might be required would be doesn't require doing a baseline sort of  complexity is itself very complicated there are a lot of provisions as you know a couple of thousand pages of legislation that would also take a several weeks it's a completely legitimate question and i would like to provide the answer this is the creation of a new we haven't create a program like this in a generation and so it would i think be helpful if we know just the cost of all the government that's being created here and of all things that i would think would be easier to do is just the discretionary spending you know how many new people we have to hire how many new agencies what's all this new government which is the biggest in a generation going to cost that estimate i would like to think you could probably get hopefully before we vote on was a german short of there's a question about these ranges not very precise but ranges of the parts that would be critical to implementing the legislation the things without which the mandatory spending could not sensibly occur not on the other things that really are subject to future appropriations just right let me get  want to be i want to be mindful of time ok so we're going to six percent of g d p now how we're heading north you know if you use the alternate physical scenario i think we're at eighty five percent by the end of the window which i think is a more realistic measurement of what's going to happen we get about half our debt from foreigners is there a tipping point in your mind using your you know your background academically whereby foreign investors start losing confidence in our ability to turn this thing around i mean greece is having a problem floating their bonds because of their debt to g d p ratios where in your mind do we start hitting that that nexus that tipping point and then one just quick final question i'll have for you so so i don't know i mean of all the things economists have trouble predicting which is almost everything swings investor confidence must be pretty high on that list so it is true we sell most half almost half of our debt is held now overseas that's a large increase from a decade ago  absolutely so at the moment during that crisis money came in interest rates have been quite low as we've said widespread view among analysts that that is ending now that as investors become more willing to take risks again in other investments and as they focus more on the trajectory of u s fiscal policy well they'll be much less willingness to buy treasury securities at current low interest rates but so i think an over time of some flight from treasury securities or flight from dollar assets but how large that risk is or what would trigger it or when it would be triggered it's just beyond our think the op reshow is that we don't have our physical situation under control it gets much worse investors flee if we get this under control by actually reforming government entitlements the budget then the trajectory over the long run is going in the right direction and that would restore confidence i think that that kind of answers itself ok one last thing lots of economists are telling us twenty eleven is going to be a slow down year i see that and a lot of blue chip in a lot of private forecasts i'm i noticed that you have it in yours as well with this new baseline that you're saying we're going to have two point two percent growth this year and then it's going to slow down next year why is that and to what extent is the expiration of the zero one zero three tax cut which occur eleven a contributing factor to the slowdown in our economy that you're projecting for two thousand and eleven so so the numbers i should say that i focus on most are our fourth quarter to fourth quarter changes on that basis we expect g d p real g d p to grow two point one percent this year and two point four percent next year some pickup but less than would be the case you may be looking at a year over year average yeah to go into food and food are you one point nine right so depends what you're looking at the average four year old  quarter into quarter end but in terms of it but the reason i prefer this is because the tax cuts will expire and we think that the on a calendar date we think that will then depress economic growth in the first part of two thousand eleven and relatives would otherwise occur how much you shave off a growth because of the expiring tax cuts on a very rough sense if we were to take those expirations out of our projection we would raise g d p growth over the next couple of years from here say to the end of tw eleven by about one and a half percent q one and a half percent you would have lee that's a if there were if the tax cuts were extended on a permanent basis we've done a different sort of calculation in the paper we released a week or two ago about policies create employment and jobs we look at a set of temporary policies including a temporary extension of those tax provisions temper extension has less to affect on growth right from an income a fact applies if it's permanently extended now these are effects for twenty ten and twenty level we're talking about of course over a longer term the extra borrowing of several trillion dollars over the next decade that would ensue from that change in policy would crowd out investment and would tend to dampen gro over the back half of a ten year window and beyond i've got some technical questions i want to ask you about the freeze proposal questions dealing with on obligated balances and things like that can can i just times give you some stuff in writing that nd you are welcome but it is i think both good news and bad news i think it's kind of appreciate your comments on where we stand right now and some of the actions that we've taken in the last year that have helped stabilize  the financial situation and begin to turn the economy around that is good news the american people though as all of us know that until we start to see new jobs expansion of the economy here at home you really just numbers to people and there but we can be more hopeful that we are beginning to be grow this economy and that is good news but it is daunting the numbers that you present in terms of the deficit again i think some of the this is good news on our part to be tak seriously and i want to just ask a couple questions about one you know how we got here i think that we we don't want to go over a lot of history but i think does help for us to understand what we inherited and the situation and how we got here you did and we know that president obama inherited a one point three trillion dollar deficit for this year it's just about that now even with the additional recovery act the additional seven eight hundred billion dollars that's good news right that it's stable at least didn't go up it was some anticipation that it was going to go up ok again i'm not looking to paint a rosy picture here i just want to say we're trying to keep things somewhat stable but you mentioned  quickly just that the that the revenues are down i mean when you have say that it makes it sound like how did that happen that we don't know that we actually know why revenues were down in the last eight to ten years that's because they were dramatic tax cuts  wealthiest americans is that right there certainly were very substantial tax cuts good share which were received by higher income americans and that is a feature that that is holding down revenues relative to what it was another was absolutely right and if we do maintain the revenue the tax cuts for americans below two hundred thousand dollars family income but not the wealthiest americans would that help the to be able to brings more revenue into the government over the next number of and which was a prescription drug benefit and i was in there here at the time but certainly i think as democrats we we believe that we should extend prescription drug benefits to seniors but we also believe it should be paid for and we believe now it should be paid for but the the notion of how we budget this new health care bill is really very important going forward and how we appreciate your comments about how we are you have to look very very clearly about what the cost is to the health care bill but you in the analysis you've already done in both the house bill and the senate bill and you can't predict which one we will and exactly what is the look like but in both cases you anticipated a reduction in the in the deficit if we act health care reform comprehensive health care reform may not be going as far as you might like or might expect that we could do in dealing with and again you don't create policy understand but in terms of bringing down the deficit but it actually is a is a very clear reduction of over one hundred billion dollars in your estimate so would you say that enacting health care reform would have a positive effect on the deficit yes congresswoman we estimate that both the bill that passed the house and the bill that passed the senate would reduce budget deficits over the next ten years by a one hundred thirty some billion dollars if they on folded as written and would reduce the budget deficits in the subsequent decade again if they unfold as written these reductions are as you say in the direction of reducing deficits they are as you understand a small step in that direction but again i think that appropriately you're very conservative in the way you anticipated savings are at least and that is a good thing we don't want to over anticipate savings but there are some of us who feel like if done well and done right we will actually see even potentially more savings a gain could be very helpful i'll just end by saying there is also a great deal we're taking very seriously the issue of the deficit commission that if not done statutory will be done by executive order to focus on the on the debt and the deficit and on all aspects of the budget is both spending and and tax revenue is all really very important as well as paygo which of course we have we have pushed actively in the house and i assume that you also think that those are again y care about policy but could you comment on might want to and how important it is for us to take it serious by enacting both paygo and senate and house and the commission so i think analysts believe including those the c b s show that the pay go rules and discretionary spending caps and the one nine hundred ninety s did help to restrain policy actions that might otherwise have worsened the budget deficit and they did so particular during the period when attention of policymakers in both parties was focused on the deficit problem at the end of the decade as the deficit problem was temporarily going away then those restraints were widely ignored but during the period when attention was focused on that problem those restraints helped of course all those constraints can do is to prevent or discourage policy actions that make the deficit worse they don't create actions to make the deficit better those sorts of actions are required difficult decisions and commission doesn't will make the need for those difficult decisions it may provide a mechanism for encouraging those decisions to be made we don't have a lot of evidence about that and as you say c sentiment thank you mr chairman first was all due respect to our vice chairman i'm finding it challenging to find any context by which i can call a one point three trillion dollar deficit good news having said that dr elmendorf i thought i awoke t good news yesterday when i read the washington post's obama to propose free zones new york times ahmed to seek spending freeze to trim deficits frankly i was overwhelmed by the headlines and then i read the article and i became underwhelmed first do you have an understanding or have you studied the president's proposal i only know what i read the newspapers congressman as you know the president will release the budget next week and then we will complete and report our analysis of it with dr elmendorf let's see if we're reading the same newspapers the newspapers i read say that the president's proposal will exempt eighty three percent of the budget in the newspapers you read say the same thing so i didn't take notes congressman i am loath to do instant analysis of things that you're telling me i should remember from yesterday's reading of the newspaper what is true is that as you know most spending in the government is now in these mandatory programs discretionary spending is a is us is smaller and one example the defense and security related pieces one is down to less much less you have to have a details of the proposal i would appreciate your analysis if you may or may not recall this from the articles i understand that this is not an immediate freeze something that could take place today and could take place today but it is a freeze promise to take place in the future for twenty eleven is that your understanding from your reading of the proposal yes that's my understanding ok dr elmendorf we don't obviously we don't have the president's budget proposal but we have his ten year budget proposal from last year so i'm trying to figure out what does it mean as i understand it to a three year freeze to seventeen percent of the budget first designer stay in it this is on top of two on the ten percent one year twelve percent the next year i'm going to freeze it for the next three and over a five year budget window so is any really saying my idea of fiscal responsibility is i'm going to propose five percent spending growth a year in these accounts when i actually wanted to spend double digits and i just can't speak to the details of proposal until we have numbers to analyze i like your eighty three and seventeen may well be right but we can't do that calculation well let me try another set of numbers on you again we have the president's ten year spending plan that he submitted last year starts out at almost three point six trillion in f y two thousand and ten it ends up in twenty nineteen at five point two trillion now as i understand the plan he is proposing a two hundred fifty billion dollars savings according to what i understand from the white house i soon don't know that the president will submit another ten year budget plan if you take two hundred fifty billion savings over a ten year period again this is using his last year's budget don't know what is this year's budget but if we applied his proposed so called free to his last year's budget what it appears to me is it's a proposal spending forty four point three percent as opposed to forty five percent again we don't have his number but do you at least recall that the spending trajectory was proposed to go from three point six trail to five point two true i mean i'm not trying to be difficult i don't remember the civics of that calculation but but if your point is that there are two hundred fifty billion dollar estimate is certainly a small share of  project under the baseline which are a good deal smaller than deficit that we projected for the president's budget last year with that qualify as you said i believe in your testimony quote unquote minor tinkering i think it is a small step and i doubt there is a single step that can accomplish the kind of deficit reduction that many well i i think my time's running by i certainly have high hopes for tonight but i fear the president's i'm aware of congress not that i'm aware of the either but i think it's appropriate that they scrutinize the president's recommendation but it needs to be scrutinized against real world history one of my concerns is that as congress moves forward to try to encourage job growth that we may have the effect of producing few jobs and great deficits and i think that is a potential problem with both some of the ideas that have been negative aspects associated with it with foreign bars and reduced standard of living in terms of the national debt alone it doesn't really make any difference whether the debt is affected by tax expenditures or direct expenditures they have the same approach even though it might be politically popular and then last year when we considered the stimulus one of the popular ideas then was what's called a loss carried by and your testimony last january was that the effect of this provision of business spending would probably be small we limited them to small businesses but then the only way apparently we could get an acted and extension of unemployment and cobra benefits in december was to tell the treasury to write checks for thirty three billion dollars this year to businesses and what's called loss carry back and one of those was a bond insure that made bad bets on sub prime mortgages and it got about a billion by itself let me just ask for businesses of various types got those but since a defunct business that didn't have a single employee could get lost carry back and get a check written by the treasury at the treasury write a check to a company that has no employees does that contribute any more than zero to growth and doesn't contribute very much congressman i mean i think there's a longstanding view in the perfect nomics profession that let's not mukerjee that tax changes for business is encouraged types of behavior so much more effective and simply changing cash flow let me move in my final seconds here to the principle republican idea which is that the solution to all our problems is to extend the bush tax cuts which added so much to our moving from surplus to debt shortly after the bush administration took over in the final two pages of your report extending for one year all of the bush tax cuts and the a m t patch for two years that will get us output about ten to forty cents for every dollar that it cost the treasury isn't that right on page twenty five yes that's right congressman and then if we did doing it for one year is that right yes that's right congressman that would cost us to do that about another five trillion dollars wouldn't think extend i think four and a half trillion dollars and i'm right in my head yes congressman thank you so much thank you mr chairman and thank you dr elmendorf for your i think accurate and rationally a sobering report in the report you use the term unsustainable a term which a number of people use in terms of the current budget deficit track and a term i've used myself in and i assume that's in reference to the c b l baseline which we admit the chairman admitted is actually taking into account political realities probably one of the more optimistic scenarios for the budget deficit going forward i'm not sure that there's a complete understanding of the consequences of inaction here in this town  use the term unsustainable can you be a little more specific and describe to us what that what happens if we do nothing we now look at deficits of five hundred billion dollars to a trillion and a half dollars as far as the eye can see what happens i think the particular thing that is unsustainable is to have federal debt constantly rising as a share of g d p because that requires a larger ever larger share of investors portfolios to be occupied by treasury securities and it's some point they will refuse to hold them or will insist on much higher interest rates to do so the thing that's particularly unsustainable is expecting that investors will just constantly pile more and more of their portfolios measures here and abroad in the treasury securities and what can go wrong is that interest rates can spike up when there is a crisis of confidence and there are sentiment about buying the securities changes but even before you hit that crisis point of course what's going wrong in a more subtle less obvious but still very damaging way is that the more of those treasury securities are being held the less that investors will be holding of shares ownership of physical plant and equipment the sorts of things that make our economy more party workers more productive over time and raises incomes over time so what does that mean does that mean then we have much lower g d p growth does that mean that we  the federal government's debt rating gets reduced and we're actually perhaps physically unable to sell the debt at some point i mean i mean what are the what that's all possible i think most observers  expect that the government will act that the unsustainability will be resolved through action not through witnessing some collapse down the road if not literally nothing is done and then eventually something very very bad happens but i think the right number of you is that you and your colleagues will take action and i think i wish it were not true but it is it's i sense that that won't happen until people fully understand that very very bad thing and how very view again is that we're not trying to overly dramatize we're not trying to sugarcoat we're presenting the facts for you and for the american people and then it's up to you all to make whatever decisions you choose to me ok couple more  questions if i can the time that i've got if you said that all right we're going to let spending grow with g d p stay where it is with g d p and we're going to balance this budget on tax increases entirely do you have any sense and throw the health care bill in there s as a tax increase as well do you have any sense for how what kind of tax increases that would require terms of like if you want to so one last or to case if you look at the budget in two thousand and twenty if your goal were to balance the budget in two thousand and twenty our baseline projections a deficit of about seven hundred billion dollars if you extended the two thousand one thousand three tax cuts and tax the a m t the deficit would be about twice that size as i said one point four trillion dollars so by comparison individual income tax revenues and our baseline even before you take account of the fact that this extra cut are two and a half trillion dollars so want to narrow a gap of one point four trillion dollars by increasing a category the baseline size is two point four trillion dollars that requires a very substantial increase and so it's very difficult  even those numbers but i can i say also that number is quite large doing all those changes on the spending side no i'd be quibbling only radical changes in this i understand that but but but i think the point is is that if if we have if you keep spending where it is as a percentage e d p forget the health care bill that increasing it potentially it's a fifty percent sixty percent increase in every single federal tax on every single human being in this country that would take i haven't done the percentage calculat some occasions in the past and requests but it would take a very substantial increase in tax rates n hear my republican friends talk about the importance of trying to rein in spending i would just remind them that under the clinton ministration total spending grew at an average annual rate of three point five percent under the bush administration total spending grew at an average annual no question that we need to take some strong and bold action i i will say also that for all the whining about the reinvestment recovery act i can tell you that from my experience in massachusetts that teachers jobs have been saved police officers jobs have been say firefighters jobs have been saved there is more jobs being created in the construction industry and in some of the high tech industries so we have seen the benefit has it created as many jobs as i would like to know but without it i think we would be in a much bigger mess than we are right now so i find it ironic that the same people who drove this economy into a ditch are now complaining about the size of the tow truck fact the matter is you know we are we are in a mess and some tough measures have to be taken i want to praise the president and i was one of those paper trying to figure out a way to  deal with the deficit with the debt so that it's not thrust on the backs of our kids and our grandkids but one of the things i worry about is what we're spending on defense but specifically war costs i mean we have been fighting wars since two thousand and one and they have been expensive and we have been paying for these wars of funding these wars to emergency supplemental appropriations where there are no  mean hundreds of billions of dollars have been spent but not offset and you know no matter what you think about the war in afghanistan i think the president is making a mistake by trying to increase troops in afghanistan but we're told now they have another emergency supplemental another thirty three or thirty five billion dollars and and it goes on and on and on i mean i think this you know this notion of paying for wars with emergency supplementals and setting i think it's the wrong way to do it but i think it has a devastating impact you know on our on our deficits and our debt i'd appreciate your comments on you know i you know on that subject i'm afraid we're going these wars are going to bankrupt us and prescience and you have to add to that and the point you made earlier about about the stimulus package congressman we agree that relative to what would have occurred without that package there is more g d p and more employment which is a good thing and i think even i'm allowed to say i think that's a good thing yes sir thank you on the cost of the wars again it's a policy choice we to date congress has appropriated about one point one trillion dollars for fighting in afghanistan iraq and related activities and you know how much of that was offset and what you that we pay for is that on our credit card well there's no specific linkage of particular spending decisions to particular revenue raising decisions it's certainly true that the deficits over that period have well exceeded one point one trillion dollars i guess my point is that if you go to fight these wars you ought to pay for it because there are impacts that because it impacts very negative negatively on our on our deficits and our debts and this notion that we could fight these wars and not even and not even have to talk about how we pay for them i think is a bad way to do business and again it's really a policy choice that i think that the analytic point that many economists would make is that if it under taking a lasting stream of spending that without paying for that then there was a lasting stream of deficits which is what is very damaging for unusual spikes of spending there was a logic to not bumping up tax rates and bumping it down again to pa that these wars have gone on for quite a long time and they're probably going for a lot longer and so the idea that this is a short term expenditure i don't think is you know you're only not in short you're israel i just the point i'm just trying to make is that when you do these things you don't pay for them you know you're adding to the to our debt and if we're talking about trying to control deficit spending that clearly this issue should be on the table because we've been there since two thousand and one we're going to probably be there a lot longer than anybody wants to admit and we i think we need came out for the state just the other day and we're not going down we're going up we're up to ten point nine percent statewide in my district is even worse that because of the manufacturing that we've got i have for my sixteen counties right now fourteen percent so as when you talk about you know slow growth and job recovery i can see it because every week that i'm home i try to get out across my district and my manufacturers are hanging on by their fingernails right now you know they always turned us in as we were going to be doing for him and i can't really tell him right now and it's pretty tough because you know i hear you talk about these plans that we're not going to see this recovery come quickly because you're absolutely right the flood of these plants are down to thirty two hours to try to save their brother and sister next next to him on each machine they've said you know what what do we do in the down to thirty two hours and a lot of men you've got plant managers that are cleaning bathrooms and the outside contractors no longer working at these plants so you've got more employment but you know when i look at your your testimony today it is very sobering that you know the question when you look back or look out to twenty twenty you look at this massive amount of interest on the debt of seven hundred twenty three billion dollars or with math about two billion dollars per day and when you look in your definition of is that sustainable for this  country to be able to pay two billion dollars a day in interest on that debt you know if we are a large and rich country we can get away with a lot for a while what   twenty one and a half percent interest rate in this country and what was going on and when you had you know were running a lot of land contracts because people couldn't go to the bank and get a loan because there was a made a loan and we're looking at this massive amount of interest it's going to have to be paid by the federal government are we looking at what we're going to be what we stared at back in the late seventy's and early eighty's because you know a lot of businesses out there plan for the future and if you're talking about jobs not being created are going to say there is absolutely no way i'm going to buy that new machine or  add more employees because i'm looking down the road now what federal government's going to be spending and how in the name of sense we're going to borrow money because right now i've got companies you can't borrow getting money right now they actually have no debt they can't get along from a bank so you thought as you know interest rates were particularly elevated nearly one hundred eighty s because inflation was very high so lenders demand they want least as much money back in real terms as they gave out and then they want some real return on top of that so the nominal reported interest rates were very high then but yet that doesn't place it was very high we project that interest rates on the debt will government debt and other interest rates and economy will rise over the next decade not anything like the levels that that were in place then that projection natural it is in this case analogies to individuals or families actually work pretty well if you borrow a lot now and you pay it back later than it's squeezing what you can do later on i think on the other businesses the thing to say is that as the economy recovers and the financial system  strengthens businesses you're talking about should be more able to get credit small businesses in particular on having difficulty getting credit now and that is one of the restraining forces that we describe in our outlook on economic growth the next few years but the healing of the financial system is underway has been actually tremendous improvement over the past year has not yet affected a lot of small businesses but our expectation at the taste of many animals is that it will over the next few years and i'm  i hope you know i hope too because the thing is that we try to give hope to the folks out there that you know are right on the the bubble right now hopefully they're gonna be in business in six months and just were briefly sort of in touch drawn by the the chairman and mr ryan you know i look at these numbers every month about the amount of foreign holdings out there or get you know we're going to five hundred i think it's sixty one billion dollars over the last year alone and you know this is you know watching this go up now that we have a real is three point six trillion dollars out there owned by some place outside the united states that you know it's pretty sobering is this this trend goes on has been the big question you know one of these other places countries is going to say you know what we're noticing the bar on that and then  falls back on the american taxpayer but also on those consumers out there in businesses and that's what i worry about that's when that when that bubble might break we're going to see folks find out that there's you know we're going to borrow the money from the federal government had to just give up those interest rates today but also to look back at a year ago when we were hearing yet again a very sobering story from virtually every economist who recommended that the federal government had to act the debate i felt was more largely around what the size of a recovery package looks like look like what its composition should be and as a new member to congress i really took a lesson from a city that i represent it's the city of lowell massachusetts it was where the industrial  began when the textile industry began to move south it had a dramatic impact on the economy of the of the community and government failed to act and because government failed to act it took decades for that city to  itself out from under the challenges it faced so that very real example really did motivate me and drive my decision to support the recovery package and i think from your testimony today we've seen how important it was we can't imagine where we might have been without taking that very bold action and again also listening to the lessons from the great depression so i've i think you would agree that we had to move and we had to move aggressively you know i can't i can't suggest policy but we do believe that the economy would have lost more jobs and suffered larger declines in g d p with the stimulus package and would have taken many more years we would be looking at a far different scenario today without it in terms of building ourselves back it would have taken longer i have another question though and obviously we all understand the long term challenge of addressing the debt and deficit and so when the president's budget is released we've heard that he plans to propose a three year freeze that we've been talking about on non discretionary non defense discretionary spending and i like my colleagues i'm pleased that he is taking the question of deficit control seriously and i recognize that we're going to have to make some very painful choices that include spending cuts to our priorities but everything has to be on the table since non defense spending is the smallest piece of the spending pie even if we were to cut non defense discretionary spending down to zero we would still face a deficit in the hundreds of billions of dollars would you agree yes that's right non defense spending is also the primary way that government fulfills its responsibilities to the middle class non defense discretionary spending is really just jargon for public schools open to all affordable college educations safe roads and bridges poison and toxic free food and toys and so on so as we have this very important debate i think we in congress will be sure  to protect protect the middle class understanding that we do have to address non discretionary spending as well as all other forms of spending but i have another question that really has to do with the commission in light of the senate's rejection of the commission yesterday do you think we're going to see a negative reaction from the markets i'd rather not predict financial market reactions i think all other things markets tend to react fairly quickly and i think yesterday's set of events over the last day or two not entirely unexpected some of that was built in already some of the reaction is probably already occurred it's difficult to predict if i could go back to your previous point about discretionary spending i think you're absolutely correct that it is a category of spending that people often object to in general terms but when one comes to specific aspects of it there are often are  very strong support for peace is an issue the ones you mention it is the category that funds health research certain to veterans benefits the court system national parks a lot of specific elements that i think many people  eve are an important part of what the government should be doing and that is why in fact over time it has proven difficult to reduce that substantially has a share of g d p because in the end for all of the general objections are a lot of specific things that people want the government to do and that's why the choices that you face are difficult but i agree we have to put everything on the table and then be very you know be very careful about how we move and you're director for being here today and particularly i also want to thank you for you and your office for the work you've done but i think it's the accurate account for counting for the g s sponsored enterprises in the latest long term budget outlook of the spend a moment here first before i ask your question is laying out the history of how they came about and i think probably how you came to that conclusion it was back in july of t secretary determine a couple things that such actions are necessary to provide stability to financial markets be to prevent disruption and the availability of mortgage finance and see protect the taxpayer ultimately they allow the government to effectively take control of those companies their losses to be a systemic risk to the u s financial system but then in september two thousand and eight when the housing market continued to decline secretary paulson basically fire that was ok and the federal housing finance agency placed fannie and fr issued by cvo in january you arrived at this conclusion after considering the following questions who owns the agency who supplies capital who selects managers and who has control over the agency's programs and budget and open alternately concluded the answer those questions was well the federal government and each one of those but since then the treasury has continued to purchase preferred shares in the geo cities as a means to provide them with enough capital to cover their losses initially congress but up two hundred billion dollars is one hundred billion for each entity than last year the treasury raised that potential commitment to four hundred billion and of course on the christmas eve of two thousand and they lifted that cap altogether and now it's basically unlimited in the latest quarterly report fannie mae says quote we expect for the perceivable future the earnings of the company if any will not be sufficient to pay the dividends and this is in your preferred stock as a result future dividend payments actually be effectively refunded from the equity drawn from the trade which i mean it seems to me as tragic pours money in and they take the treasury send the their own money back to us again as dividends now director your counterparts however at the office of management budget o m b and treasury now how disagree with you and your conclusions about fannie they feel that the cost of the pentax bears only equals the cost of the actual cash infusions that been pumped into the g s t and they do not as you do account for the risk to the taxpayer this may be your point on the l they'll have the same but parents that they've had before the budget books are in the budget books so my first question is is there any possible interpretation of the current relationship between the federal government and the g s e's that would allow you to change your opinion or for that matter any reasonable person conclude that they should not accurately account for in our budget the congressman as you know we're always open to new information we are not open we are not susceptible to persuasion apart from information our judgment as this time as we reiterated in the report we released a couple weeks ago is that fannie and freddie are as you say a finance and controlled by the federal government in a direct enough way that we believe they should be viewed as parts of the government for budget purposes but we do not in the end of course dictate the way the administration actually records the budget for years that are passed but we are continuing including based on discussions with the budget committees to  report to project the financial facts going forward on the basis that we think makes the most sense so you concluded that for the analysis reasons that you laid out that that was a reasonable conclusion place them on budget is basically what you're saying yes absolutely and we if the relationship it well it mattered most for the budget numbers last year because the by our assessment that taking on board those taking absorbing those companies then put the federal government on the hook for the risk the companies bore right but the biggest difference in the budgetary cost was actually for last year looking ahead this year and beyond that cash infusion the way the administration was recorded and our version of the subsidy costs are calculated differently as it turns out at least at the moment but numerical differences there are not that large but it is potentially important beyond the baseline projections in how one would estimate the effects of various changes in what fannie and freddie do or change in their relationship to the federal government which is why we think it's very important that we continue to score them on the basis that we have established and i guess on the last point on the time or expired in light of the your consideration and how it is done in the assumptions that you make as time goes along if things don't turn around over there your number could go up if you were on budget and your interpretation could go up dramatically in light of the litany of trillions of dollars of risk that is exposed correct yes that's correct ok thank you very much thank you congressman mistress three thank you for being here appreciate it very much and i'm glad to what you've had to say this morning i'm glad to hear that some economic indicators indicate that we're beginning to turn around in the economy however we all know that job particular bill but in general we did analyze alternative ways of spring economic growth and job creation and we think that one of the more effective ways or policies that are targeted at that basically give money to firms in response to increases in their payroll and that's what this one does and the that works in two ways really part of that is just that putting money into the spending stream giving more money to workers or to firms  encourage a certain out of extra spending additionally there is this incentive effect if the program is structured right and there are a lot of complexities as you know in that it can create this incentive effect additionally if a policy like that were implemented  we would incorporate its effects in future we would try to estimate the economic effects of it as it was being considered and we would certainly incorporate its effects in our next round of protests line projections but i can't say offhand how much how much difference that makes thank you understand that now on the larger question of the economy i agree we need to have common sense and cooperation fix problems and i wish mr campbell were here because he said where we are  study and that's true it also was unsustainable last year and the year before that and the year before that and during the years that the previous administration was in charge yes that's right and and there was things done then this added to the problem with and here's some of them because in two thousand i came here early on that were only cooperative way to set us on the path to a balanced budget and a shortlist that we picked up in two thousand policies were put in place shortly thereafter in the first bush years that made the problem even worse because we were told than that we could pay off all our debt but where we are today but there were those who said that was not important  vice president cheney said deficits don't matter if he's listening i want him to understand that do matter and that this is the consequences of actions that were taken that's matter to matter to children so my question is this as we look at the broader growth we need a bipartisan approach to game we don't need to partisan issues the rafters can take everyone working together holding hands making tough decisions to replace eight years of partisan politics we can't go back to that if we want to get the job done that will make a difference so the people who live in modest whether they all main street are on a country road started doing some of the same benefits that the people on wall street don't enjoy and we aren't getting jobs so how do we make these things from an economic standpoint so that this economy starts to grow and everyone is able to see the table again rather than sitting in the chair and yet  policy is to encourage overall growth and also to and to ensure as you propose like that that growth be shared in certain ways is very difficult and it is made more difficult by the very large deficits and growing debt that exist under current policies and we are one of the areas that we are plans of a good deal of effort to at c p l in this coming year in fact is working on programs in the income security and education area doing the sorts of analysis that we hope will help you to make decisions in that area an informed way i don't have a cookbook handy with particular recipes to pass you but i do think that doing that well also taking note as you say correctly that the debt matters to address the structural deficit which is better for the u s economy in the long run cutting federal government spending or raising taxes well so raising  taxes depending on how one raises a bomb can have important effects on people's incentives to work and to save and it taxes are raised in a way that discourage work and saving that would have a dampening effect on economic growth that w offset the advantages of less debt similarly government programs on the spending side have effects on incentives to work and to save and the ways in which those programs are changed can have incentive effects as well so i don't think there really is a clean answer that it should be on one side of the budget or the other depends much more i think on adopting policies on either side of the budget that take account not just of the overall effects on the deficit but also the effects on people's incentives who is better for the society what we want our public sector to what we want to not to do and i don't you know i don't think that's a simple answer to that question both employees will spend money they'll buy things that will help create jobs for other people it's really a matter of judgment about what one wants the economy to to be like and how much we want to be in the public sector versus the private sector as the debate which is taking place about run health care to some extent but there isn't a simple economic answer to that question does the private sector employees taxes help pay for the president's position the public sector employee or yes do ok that's right which is worse in the long run crowding out private investment with government borrowing or higher taxes that slow private growth so i think it depends critically on the nature of the taxes and how much they slow private growth and it's not every as you understand very well not every tax increase is the same right every spending cut is the same and it matters very much what specifically you would do in policy terms in this economy if you had to raise taxes what tax would you raise first that you believe would have a positive effect or a less negative effect on the economy i'm sorry congressman i'm not trying to be difficult but have not really thought carefully about ranking pot ranking possible tax increases in that way ok i want to talk a little bit about the pay go rules you mentioned earlier that the pay go rules of the nine hundred ninety s helped and i've heard that too but i've also heard that the pay go rules that we passed last year had so many loopholes and exemptions that they weren't the same as the pay go rules that were in effect in the one nine hundred ninety s is that true so the paper rules yes that the paper rules that you passed last year exempt significant amounts of perspective tax cuts and some of spending increases from the pay go requirements so it would it be more meaningful if we went back to the pay go rules that were in effect in the one nine hundred ninety s in terms of trying to address the structural deficit in the long term yes so if you adopt a paper rule that did not exempt any prospective policy actions that would have a sharper effect on holding down budget deficits ok what if we froze the top line of medicare medicaid social security and the very same discretionary spending that the president announced for tonight's speech for the same time period how much would that saves calculational pam but it's really save a great deal of money i think the policy challenge is to decide if one puts a topline cap on medicare spending what does that mean to medicare beneficiaries who is it that won't get paid amount that would have been paid without that cap ok let's say that you  reduce the benefits to wealthy americans who did pay that money into social security means tested the payouts and did it that way so on so security side  republicans such as i believe senator mccain and others who have said they will support it is somewhat disappointing to me that some of my republican colleagues on this committee who had the majority for twelve years and help their partisan budget passed into law without democratic support led us from the largest surpluses to the largest deficits in american history and perhaps insight into why we have the deficit problem we have today when some of my colleagues would suggest it's not significant that we're going to be able to reduce the deficit by two hundred fifty billion dollars more than it otherwise would be i'm still hopeful we can build some bipartisan support for deficit reduction programs short term and long term because i don't think either party has the political will or the political ability to make the tough choices to get us where we need to be but i do want to go back not focus on the past but i do want to be sure we understand how we got into this so we can figure out how to not drive the car into the ditch again and i'd like to begin with this question in two thousand and one when president bush took office what was c b s projected national debt for the year two thousand and ten the process and i don't know i don't know congressman we don't have that number with  us i'm sorry wasn't it close to zero national debt that seems plausible but so if you could get that for me out appreciate it but as i recall in two thousand and one whe president bush took office cvo was projected at that time we had about a five trillion dollars national debt and there was a projection of about five and a half trillion dollars a surplus of my math tells me that would have been a projection  of having the national debt paid up by the year two thousand and ten and if you could verify those numbers check out escalate that what is the national debt today debt held by the public by the end of this fiscal year we think we've got eight point eight trillion dollars in the total national debt today so if you mean the gross a lot of measures of debt gross debt is on the order of twelve trillion dollars that includes you know debt held by the public and also debt held by other parts of the government like the  instead of the projected situation where we'd have no national debt gross debt by the year two thousand and ten projected when president bush came into office in fact we have a gross debt of about twelve trillion dollars so twelve  proximately a twelve trillion dollar turnaround from what was projected with the policies in place in two thousand and one is a product that i think congressman if the that the numbers that you're thinking about for the two thousand and projection would have referred to debt held by economy and that is the number that we think at the end this year will be about eight point eight trillion dollars and that would have been we think in the neighborhood of zero we will check to be sure wasn't there a projection that there'd be about a five and a half trillion dollar surplus over ten year period if you go back to c b s projections and in two thousand and one that may well be congress and i just don't have a personal recollection of that so instead of a at the very minimum instead of having zero public get this for the record during the twelve years that republicans had a majority on this budget committee and passed the budget resolution without democratic votes did they ever pass through this committee or in the house  budget resolution they passed out of this committee on a partisan basis did they ever passed on the floor of the house or into law a long term reform proposal to reduce the cost of entitlement spending republican leadership passed the largest increase in medicare funding since medicare was created the medicare part the prescription program the largest was that the largest increase in medicare entitlement spending since medicare had been created yet that was the largest increase in the numbers have increased over time based on the cost of providing benefits already written into law in terms of the expansion of benefits that was a very significant expansion and it was enacted without any particular means of paying for it being identified in fact it was passed with that being paid for at all is that correct yes congressman all of that ronnie was borrowed in effect you know how much the in your what does c b l projected ten year cost of the medicare part d prescription program to be that's a good question which i should know the answer to but someone give me a ballpark so i'm not sure congressman the actual cost of coming below c b o's estimate even further below the estimate of the office of the actuary at at the centers for medicare medicaid services but still obviously very substantial amount of money but i don't know what what the ten year number would i've heard the twenty five hundred billion dollars and seven hundred billion dollars over a ten year period is that you think that's a approximate range of cost that in your cost of the the medicare expansion program that was passed without being paid for and passed by republicans when they control of the congress those numbers sound a little high to me for the decade beginning with an accident but we will check for you congressman ok respond to that question ok i think it is somewhere in that least a half a trillion dollar range none of income over three for you congressman i don't have i don't have an assessment of the cost of that over the past decade i know it related fact which may be interesting which is that in the in the deterioration in the budget outcomes over the last decade relative to the projection we made ten years ago about two thirds of that to to ration has come from legislative changes in our nearest nation and about a third has come from economic and technical national debt i believe a good deal more than a trillion dollars congressman more than two trillion dollars perhaps half trillion dollars not including the debts extra debt service that has resulted from it ok you know what the number is with the extra debt service and i don't think we've done that calculation of debt service as you know we have to make effect that is a whole right to do a partial estimate for this piece that we have not done that ok but that when you when you increase the deficit debt service is a real cost of increasing that deficit is that correct minimum of one point five trillion dollars has been added to the national debt as a result of the two thousand one two thousand and three tax cuts and if you had an interest in it could be over two trillion dollars perhaps ok  some of my colleagues in congress just a few weeks ago were proposing a complete repeal of the estate tax and tax some of my colleagues who in this committee talk a great deal on a regular basis  every opportunity about the importance of not adding debt to the next generation and our moral obligation to our children some of those same members who voted for the budgets that led to the largest deficits in american history after they inherited the largest surplus is also supported repealing the estate tax completely do you have a ten year estimate of the cost of a complete repeal of the estate tax we may  t and i realize you're not the director of the ways and means committee so i understand you're not having the exact numbers on all of these questions i would welcome the follow up but some approximate number i think we  appreciate the answers to these questions in writing if you get i have absolutely i have heard numbers as high as seven hundred billion dollars being added to the national debt if we had complete repeal the estate tax does that sound like a ballpark  that i believe that that might be the ballpark number of if we did what some members of this committee who talk about reducing the deficit on a regular basis if we did what they wanted to do i think that would add somewhere between a half a trillion to an extra seven hundred billion dollars to the national debt over a period of time could i just want to do this then could i just ask you for the record in addition answering the questions i've asked if you would also  answer the questions of what the tenure cost would be of other tax proposals that have been made one of them has been reducing the corporate tax rate by perhaps five percent i'd like to know what the increase in the national debt would be if we reduce the capital gains tax by five percent and would you happen to know off the top of your head what the a m t fix a complete a m t permanent particular version of what one might mean by fix i would add would reduce revenue by five hundred fifty eight billion dollars and would also have a debt service cost beyond that over the next decade one hundred twenty five billion dollars  you know we'll be able to tell more specifically when you get the numbers but the bottom line is by my math if you were to pass some of these tax proposals some of the folks would give a lot of deficit hawks speeches but turn into deficit when it comes to the tough decisions to balance a budget if they were to pass all the tax cut proposals that they have recommended you could not only that in response to mr dog it's questions you said that if we were to extend all of the two thousand and one and two thousand and three tax cuts that were passed on the to basis under the guise of being able to do that this could responsibly for those who want to extend all of those permanently is that did i understand as a for a half trillion dollar cost over ten years or was there are different number there yes so if one were to extend expiring tax provisions are you saying from two thousand and two thousand and three and also indexed the a m t for inflation those set of policies together would add about four and a half trillion dollars to deficits over the next ten years ok so including the debt tax no single step is going to bring us back into a balanced budget is that correct i think it is very unlikely that a single step would do that because the magnitude of the gap between spending and revenues is so large that to try to close that gap that that were your goal only through one company to spending or revenues would require radical changes in that company would you would you agree that the proposal that was not ever made or  passed under republican leadership in the congress over the last decade or so the proposal that president obama has put forward now to have a three year spending freeze on nondefense nonsecurity defense spending discretionary spending that that would you agree that that is a significant substantive step forward toward reducing the the national deficit as i've said before it is a step in the direction of reducing  deficit according to the newspaper accounts it is a small step relative to the overall deficit we project over the next ten years but beyond that we just need to wait to see the actual proposal to do our analysis of it you think it could also i think it's a very significant step forward i can understand you in your position you know hesitant to add added to to these steps because you're in your position on a nonpartisan basis and i respect that but don't you think there is some benefit to the there could be some significant benefits to the private market in the capital markets if they were to begin to see congress taking and the president together on a bipartisan bas taking significant steps real steps meaningful steps to get the deficit under control i'd certainly think that bipartisan steps that would change the trajectory of the federal deficit could have a very positive effect on financial markets concerns about where the deficit is headed ok good i want to thank you for answering my questions and the other questions  i would just put forward in writing and in fact if your staff could look at any of the major tax cut proposals that have been proposed by democrats or republicans over the last six months if you could put  the blue book shows the deficit significant deficit was inherited eliminated and we went up to surplus the projected ten year surplus after the year starting in two thousand and one ten of the recession in two thousand and one story we have that the recession started in march of two thousand and one and then you have november of two thousand and one that's accounting or basis these are probably fiscal year ok after the  bush administration came in then the recession started the bush administration did not quote inherit a recession right you know the national bureau of economic research dates business cycles they dated the recession as being in what about nine trillion dollars don't have the numbers at hand but there was a very as you know and as the picture shows very significant deficits during that and i'm not withstanding the fact that the bush administration overspent the budget nine trillion that there net job creation over the past decade has now been essentially the century zero and that's the worst since the great depression we're not eight year period that may well be i'm not sure congressman  we obviously had a very challenging situation where we're trying to create jobs what impact does the fact that over the last eight years we've overspent the budget a trillion dollars in addition states are cutting back significantly what does that do to the challenge we have been trying to stimulate the economy to create jobs makes it harder there's no doubt that in the late one nine hundred ninety s there was discussion about the importance of budget surpluses partly because they put the country in a better position to deal with future needs and by coming into this financial crisis in a recession with a budget that was already in deficit with a substantial amount of outstanding  debt we were not in as good a position to to deal with the needs of people felt then as we would have been if there had been less debt in the p c accumulate in the preceding years and if we spend we were out of the stimulus package back again just to get back up to zero i don't have a specific number congressman but certainly estimates have been that the states the budget shortfalls of the states during this period of several years would be in the hundreds of billions of dollars just for two thousand  alone the national association of state budget officers reports that states made changes in their budget took budget tightening efforts exceeding one hundred billion dollars just in that fiscal year so in the first hundred billion would just get us back up zero in terms of standard so what happens in the in a recession is a such you know is that the government revenues decline spending on certain programs tends to move up that whitens budget deficit has happen in the federal level  state level because a balanced budget rules they can't persist in that way they take actions to offset that so essentially they are forced to take legislative actions that off that a good deal of the automatic stabilisers that would otherwise arise from their budgets  that then reduce their need to raise other taxes or cut other spending and that's part of the challenge because we're shooting at a moving target every time we spend some more money the states are cutting money and it's one of the challenges  have we're trying to get ahead of the curve so we're actually stimulating the economy not just maintaining the bad economy we have it is yesterday mean it sort of did strew that the economy has turned despite the stimulus despite what we think of the positive effect so stimulus that employment rate has risen higher than we expected it to and that we think is a reflection of the depth of the underlying economic problem and that's what efforts to stimulate economic growth and stimulate job creation are trying to push against moore a few questions for you i have an interesting statistic i'd like to share with you and your level of knowledge and  your acuity with numbers is renowned but i'm going to i think i'm going to stump you on this one as you as we've seen congress and it's all too easy to stop me you have a moving train pretty average size of about one hundred fifty freight cars on this train traveling at a pretty average speed of about fifty miles an hour how long does that train travel from the point where the engineer pumps the brakes and says we need to do an emergency stop of this fifty mile an hour moving train so you have something congressman but i think it would take some distance and by some economy is very difficult because of the size of the momentum that they have and so the reality is that in good times we could actually make a few mistakes and still be in pretty good shape because the economy as a r engine will drive that train at fifty miles an hour whether we want to break it or if we happen to enact policies that would actually take you in the wrong direction yes that's right would it surprise you to know that it takes about a mile half to stop that fifty mile an hour traveling train that has about one hundred fifty cars loaded on it i didn't know it was that far and i'm asking and so if that fifty mile an hour train that we call the u s economy is doing very well as it was in the one nine hundred ninety s when we were creating twenty two million jobs even some mistakes done by policymakers that economy could absorb and so in the year two thousand at the end of the year two thousand had you been sitting as the director of the congressional budget office you would have been telling us we're looking at you are looking at a five point six trillion dollar deficit over the next ten years and plus this and that's the train that's moving in that direction and force you were not the budget director and in the year two thousand  you're the budget director in two thousand and ten and rather than looking at a budget surplus you are advising this congress and a president that we are all looking at massive budget deficits but those deficits that  massive were created last night or even last year correct that's right as i said in my remarks there is an effect of the financial crisis and the recession and recent policies that is also very important the fact of the underlying is built over a period of many years and so this fast moving train is now moving in the wrong direction on the economy and deficits but somehow we went from a train eight years ago that was heading in the right direction with five and six by five point six trillion dollars and surpluses for ten years to do a deficit or budgets are looking at deficits that are close to a trillion and a half strong in a year and somehow that train turned with some bad policies and obviously bad economic conditions along the way do you think we're beginning to break that down fall stuck in the ditch situation that we've been in in the economy for the last several years certainly we think that the economy has begun to grow again the data for the second half of last year show an expansion of production as i said we think that expansion will be slow and that traditionally employment lags and we think it will mean a particularly weak performance of the labor market for some time but the direction we believe of economic activity is up and we expect that at some point this year that the unemployment rate will start to turn down that employment number jobs will turn up and when you talk about the labor market which should concern us perhaps more than anything else if we're serious economist obviously we'll talk about interest rates and g d p but the most important thing beyond interest rates g d p should be j o b and that's what i'm an american wants to know is a year she has a job that will bring us in revenues tax payments so we can have a robust budget if i could have ch six added to put on the on the screens we were seeing massive job loss a year ago we were receiving word from you and others that we were going to be losing jobs we found out it was close to seven hundred fifty or so thousand jobs that we lost in a month that's about twenty four thousand jobs a day that we americans were losing in this country we're still losing some jobs we actually had some job growth in november of this past year a couple months ago but still on the whole we're still losing but nowhere near that number and as the chart reflects we're beginning to see the end of this trough that we were in this massive ditch that we were in which is good but we still must do we still have to generate more economic activity to really see is break into the plus when it comes to jobs when it comes to our budgets and their deficits turning into surpluses so it's going to take some time for us to get out of that did it is and i think it's right in the crucial point is that he's getting back to zero is not enough because there is a very large pool of people who are currently on employed and other people who are not measures unemployed because they've given up a look for work right now and are not counted in the labor force and it will take a tremendous amount of job creation to put everyone back to work who was looking for would like to have a job and to sort of put graphically what you've just said if we take a look at the chart essentially we saw how things were just going deeper and deeper into a ditch president takes office seven hundred forty one thousand jobs lost another has been done probably by this big economic engine we call the economy whether we're with or without policy initiatives to start to turn around on its own but hopefully some policy initiatives have begin to help to turn that around but whether you say you're liking the blue bars that are leading to less job loss and hopefully at some point job gains those are still jobs lost so you have to add every single bar red and blue together to calculate the number of americans who are out of work who have lost a job and it's not until we pass that zero line and start to break that you will find that we could actually say we've offset one of those americans that represents part of that any of those bars where we can say we're putting people back to work net i think that's exactly right officials to to stick show that the number of jobs increases over time so the short fall relative to what would have occurred without this recession is more than eight million lost it's maybe ten or eleven million is the shortfall that will need to be made up so we essentially are applying the brakes on that economic train that was taking it further and further down into that did we've begun to see those policies break that that fall but it's going t a mile and a half to stop that train it's not going to happen in one day and one year or in one hundred yards it's going to take a mile and a half to stop that economic engine we call the u s economy that was traveling fifty miles an hour with one hundred fifty cars on it straight to the bottom now if i can get chart for up we're seeing that the changes we see the job numbers getting better and we see the economic numbers getting better for the g now let's talk macro economics the economist numbers not the american workers numbers and letters the g d p is getting better which simply means that we're seeing more economic activity which then means that there's more there are more companies in america who are businesses who are willing to hire because i'm selling more i need to produce more if we continue to see the blue bars showing economic growth at some point we're going to start to break that line where we're losing jobs and actually start creating jobs correct yes that's right and we think that might happen soon how soon if you had to add again it's based on an estimate sorry for i think that within a few months one might see some positive numbers as you noted november has been actually revised to be a very small positive change in employment so i think it's possible within a few months and so there there are some breaks in the cloud reasons to be hopeful obviously if you're an american who's lost a job you're not going to be hopeful to you have something in front of you but given the numbers the acronyms that we use up here that economists use the interest rates really we can start talking pretty positively about jobs j o b jobs in the future if we can continue in the right direction and get us out of that break that train that was going fast downward and start to see the economy which has its own locomotion despite what apart from what any congress does or any president does and just let the engine of our business community our business men and women and the hard work and productivity of american workers take hold yes i mean we think the direction is for improvement the concerns that i've expressed i think are shared by many analysts are that the pace of improvement  may be slow enough that many people who are looking for work will still be looking for work for some time but the direction certainly seems to us to be positive at this point i have a chart eight as my last  me there's there is reason for us to try to do whatever we can policy wise to try to move us in the right direction the last thing we need to do is bicker over what happened in the past we need to remember what happened in the past informs what we do into the future and certainly if that train had been moving at fifty miles an hour with one hundred fifty cars on it it wouldn't take and a mile and a half to break that down fall into that economic ditch that we were on but it is important for us to be fiscally responsible as we make policies for the economy and for americans who wish to work when you told that seven hundred forty one thousand americans will lose their job or have lost their job in that month of january two thousand and nine when americans saw two point seven trillion dollars of their retirement savings we raced when we saw the debt national debt more than double in eight years we really were talking about the great recession of the twenty first century and we are now trying to pull ourselves out of that ditch which is the great recession of the twenty first century that we not had some of those safety net provisions in place that franklin delano roosevelt helped institute we might have been in a great recession or a great depression of the twenty first century and so dr moore if i think we're going to be looking for your wife's counsel over the next several months as we try to formulate the next budget for twenty seven for this country and we look forward to working with you as we shoot your patients in responding to some like questions and i see that the gentleman from virginia mr connelly is here and so i will turn to him hollings days because we were so concerned about the deficit the growing debt in retrospect in your opinion is there a veritable evidence that grammar and hollings ultimately led to a balanced budget actually did all the work on that congressman when i was a researcher in economics i think the evidence is mixed i mean i think there is a as you know of course the particular numerical targets that were chosen proved to be unreachable political matter so particular targets not just the first version but the second version not actually here to the other hand i think many analysts would say that that experience did focus a judgment call it's not quite a number you can look up or calculate in which is would be the best kind empirical evidence but i think most people's assessment in this is a position taken by a number of my predecessors as c e o directors and testimony is that it did help to restrain actions that might have worsened the deficit during the period when people were very focused on deficits at the end of the one nine hundred ninety s as the economy was booming and the deficits from the district losses then those constraints were widely ignored but during th period of concern and attention on that problem most analysts believe that that that it those the paygo rules did help to restrain policy actions a bipartisan commission with some enforcement mechanism to make decisions or recommend ation stick do you think you could make a difference and you believe i know this is dicey the viewers know you believe this body has the historically looking at it from a historical point of view the discipline to abide by it and i really can't and shouldn't speculate on the actions that you and your colleagues would take congressman you're no fun at all mr hellman and why i am in other contexts would not think hearing  quite the place to display my that side of me i think the having a commission does not avoid the need for difficult decisions but ultimately you and your colleagues will have to make the question i think the crucial question is whether it creates an environment that encourages such decisions to be put before you went to be made and could such a commission again be efficacious in the factoring positively the the debt the long term de only focused on the spending side it is harder to make changes that is harder to fix this fundamental disconnect between the level of spending that we are becoming accustomed to the level of taxes that we're paying if one focuses on only one piece of the budget because the magnitude of the gap that we see ahead is so large that to close that through one piece of the budget alone would require very radical changes in that particular piece but again it's not our place to say whether what the combination of changes should be and it's not there's no economic reason why one can't focus on one piece or another right just think it's a common judgment that the changes that would require in a particular piece alone would be very very dramatic you know we had a hearing here last week with the panel on the thank you mr chairman for your indulgence thank you thank the gentleman first question dr amador if you've been gracious as usual with the time we appreciate that we will look to you in the future for further testimony and guidance we look forward to hearing from you and unless you wish to add anything for the record we will close this hearing thank you very much concert i've been reminded i want to make sure that we provide for any members who were here or did not have an opportunity to attend who did wish to ask you some questions the opportunity to do so so without objection members who did not have the opportunity to ask questions of dr elmendorf will be given seven days to questions for the record with that director we appreciate testimony and we will close the hearing so this committee now stands adjourned and will be looking forward to seeing you in the future