not just among economists around the public and members of congress alike were pleased to have you peter as the director of the c d o in is an essential part of the budget process as we face the challenges and there are plenty subject to explanation because they are not to be taken as predictions so much as there are benchmarks where we are with perfect current policy any improvement in the deficit is a welcome development to last week's baseline budget estimate from c b l has still not any calls for declaring victory in the surplus in social security is excluded as i think it should be destined for this year's budget it's three hundred sixty two billion otherwise and the consequences for the bottom line going to be enormous c b o is also required to assume that the alternative minimum tax will remain in force and not be adjusted so that the a m t becomes a tax schedule for or tens of millions of american taxpayers most of whom for whom it was never intended if instead the a m t is fixed so that it applies only to upper bracket taxpayers those for whom it was originally intended a loss of revenues between two thousand and  and afghanistan totaling one hundred twenty billion dollars in two thousand and six probably as much as one hundred seventy billion dollars in two thousand and seven seventy billion dollars carry forward the likely understatement at least for the short run these adjustments are made the estimates from c b l become a sobering reminder of how much current policy would have to be changed to return the budget to a fiscally responsible course if not corrected large deficits these large result in a rising mountain of debt so already estimates a total of eight point nine trillion dollars by the end of this year this means there's been a fifty five percent increase in the sat your debt since the bush administration first paragraph in the first chapter it sounds like good news congressional budget office projects that if current laws and current policies remain the same the federal budget will show a deficit of one hundred seventy two billion dollars for two hundred ten for the year two thousand so that's good news no question about it but if you turn the page and read the first paragraph on page two c b o t tells us of two hundred forty nine billion dollars a surplus to a deficit of four hundred seventy six billion dollars debt held by the public at the end of seventeen would climb for nearly forty percent of g d p the ten year cumulative deficit total chairman i cough as i do my opening remarks and have a two three and four year old get a cold about every two three or four weeks scuse me the budget outlook we're considering today first of all i want to welcome  driver of federal spending and the biggest threat to our fiscal and economic health that is in title spending just a week ago we heard from david walker the comptroller of the of general and others that warn us that unless congress takes prompt substantive action to address entitlements will quickly drive us right back into deficit in the situation will just keep getting worse after that so we see good news now it's kind of a calm before the storm and let's just put it into perspective and realize that we have a big storm coming on the horizon and  so the point is that it's not enough for us in congress to only look at war costs or discretionary spending or whether taxes are permanent or not we need to face up to the entitlement problem and we need to do it soon again there was some good news in this report and i don't want to lose sight of that the economy is growing quite well inflation is in check a lot of good things are happening we've had seven point two million jobs created since the last recession but we can't use this report to bury our heads in the stand and we cannot pretend that simply cutting defense spending raising taxes is going to solve the real problem we face we can get to balance in five years and i believe we should and i think we will but we cannot do it with massive tax hikes i believe that we're going to have to make difficult challenges i will try to be quite brief in my opening remarks leave plenty of time for questions especially since chairman spratt mr ryan covered many of the points that i was intending to cover thus making it easier for me the first i have five points to make about the economic and budget outlook and i think interpretating the document that we released requires taking all five points into account the first point is that under the official baseline which as chairman spratt noted reflects current law with regard to  revenue and and spending the budget deficit falls from two hundred forty eight billion dollars last year to one hundred seventy two billion dollars this year that excludes any outlays associated with a likely supplemental appropriation for the ongoing war on terrorism including that spending bring would bring the deficit for two thousand and seven up to a figure of around two hundred billion dollars or so over the next ten years as the first chart shows if the first chart comes up  the budget under the baseline moves into surplus in two thousand and twelve and then remains in surplus through the rest of the budget window that very significant increase around two thousand and twelve which is that sharp upward movement in the line there is specific set of sumption for the future in particular it's strictly interpret the current law so various revenue provisions that are in are scheduled to expire are assumed to expire discretionary spending is assumed to keep pace with inflation but not with population growth or with overall economic growth as a result of those two assumptions revenue rises from eighteen point six percent of the economy this year to over twenty percent by the end of the  projection window that's largely because the alternative minimum tax growth significantly from four million taxpayers last year to thirty three million in two thousand and ten and because of the expiration of various revenue provisions associated with the two thousand and one and two thousand and three tax legislation and discretionary spending falls from seven point eight percent of the economy to five point eight percent of the economy by the end of the budget window if you made an alternative stead of assumptions about the course of future policy and for example assume that discretionary spending excluding the war on terrorism kept pace with overall economic growth and that the two thousand and one and two thousand and three tax provisions were not allowed to expire and that the cumulative deficit of four point two trillion dollars so again as already been noted making different assumptions i think the next slide summarizes those and those are inclusive of the debt service implications of changing policy making  changing policy relative to current law has a significant effect on budgetary outcomes my third point if we can go to the next slide has to do with uncertainty and i think it's very important to realize this year we're expected to spend about two point seven trillion dollars we're expected to bring in revenue about two point five trillion dollars for a deficit of about two hundred billion dollars if we're five percent too high on spending and five percent too low on the revenue projections just so just five percent on each the actual outcome will shift from a deficit of two hundred billion dollars to a surplus of more than fifty billion dollars and the point being that being slightly off on two big numbers can have a very big effect on the difference between those two numbers which is the deficit so there can be very substantial swings in the deficit from relatively minor errors in forecasting big numbers like revenue and spending to try to illustrate that uncertainty this chart shows you the projected budget outcomes under the baseline with the dark blue area representing the most likely outcomes under the that baseline for example in two thousand and ten we projected deficit of about one percent of g d p of the economy but there's a twenty percent probability based on past forecasting errors a three percent deficit or larger and a five percent probability of a three percent surplus or more so i i want to make sure that everyone understands that there is significant  certainty surrounding future budgetary outcomes the fourth point has to do with the changes since last august if we go to the next slide please thank you consistent with the emergence of projected surpluses under the baseline which did not occur last last august there's been a significant improvement in the baseline since last august last august for two thousand and seven through two thousand and sixteen we were projecting a deficit of one point eight trillion dollars we're now projecting a surplus over that period of almost four hundred billion dollars but i want to quickly make two points about that improvement first it has little to do with changes in economic assumptions in fact economic changes by themselves have account for only one hundred seventy three billion dollars of that shaft secondly i have very large chunk of it roughly half has to do with a mechanical implications of our assumptions with regard to discretionary spending by scoring convention what we do is take an active appropriations the base year and project them out in august that base year included one hundred twenty billion dollars in appropriations for the global war on terrorism and a little bit less than sixty billion dollars for domestic relief activities associated primarily with the hurricanes this year so far we only have seventy billion dollars in active with regard to the global war on terrorism and nothing corresponding to that domestic relief activity so in both categories there's basically about fifty billion dollars less in the base year and then project that forward in each year thereafter and you've got about five hundred billion dollars left in defense spending and five hundred billion dollars less and non defense spending which has little to do with the underlying fiscal environment and is instead mostly a mechanical implication of the way that we are instructed to conduct or construct the baseline the other point though is that there is some real improvement as mr ryan noted in the short term some of that has to do with improved  revenue projections over the longer term over the ten year period as it went as a whole much last of the improvement has to do with revenue in fact the net effect on revenue changes since august two thousand and seven six sorry is only fifty seven billion dollars over the ten year window the real improvement extracting from that mechanical discretionary assumption has to do with medicare spending in particular we have four hundred forty five billion dollars less medicare spending over the ten year window than in august two thousand and six of which two hundred sixty five billion comes from medicare part d the prescription drug benefit that and that in turn reflects both lower costs for beneficiary bids are coming it came in fifteen percent lower than last year this year and also a lower out year assumption with regard to the number of beneficiaries who will take up that benefit because we now have more information in real information on beneficiaries it looks like a larger share of beneficiaries will have other coverage and therefore not take up the medicare benefit in the out years both of those combined reduce the party projections by two hundred sixty five billion dollars my final point on this returns to it being that mr ryan  noted also we go to the final chart please is that over the long term the nation's fiscal imbalance is quite serious it has a lot to do especially with our health care programs medicare and medicaid combined the federal share of medicaid plus medicare amount to four and a half percent of g d p this year they're projected to rise to five point nine percent by the end of the from the budget window in twenty seventeen if over the next forty years health care costs continue to grow as rapidly relative to economic growth as they did over the past forty years one gets that top line shown in this graph medicare and medicaid would amount to twenty percent of the economy by twenty fifty under that projection that's as large as the entire federal share today even if the health care cost growth slowed to one percent faster than economic growth which is the dotted line in the middle those two programs would account for ten percent of the economy it is not too gross an exaggeration to say the central long term fiscal challenge facing the united states is to bend that curve so that cost growth occurs at a slower rate and i would say there is a significant opportunity for us to slow health care cost without impairing innovation and without harming americans health if we can find better ways of making sure that our health care system is cost effective but in light of that curve in particular it is implausible that economic growth alone will eliminate our long term fiscal imbalance and some combination of spending reductions and or revenue increases will be necessary to avoid  very significant fiscal problem that will develop over the medium to long term much of course i was referring to earlier to some of the positive changes in your forecast if you read all you do appendix b you find that c d o has made some major changes which you've touched upon in the so called baseline   now it's two point one trillion dollars chairman spratt between two thousand and seven and two thousand and sixteen we do it over that window because that was the window used in august and the remaining bottom line is a surplus five hundred billion dollars so just in adjusting for the baseline which is a technical adjustment really you've got a substantial adjustment to the to the bottom line and again mr chairman that's only with regard to defense discretionary spending there's also another roughly five hundred billion dollars of basically the same thing on the non defense side so it's a trillion dollars total tickler medicare all you just gave was that there are possibilities given the rate of growth in the medicare program which you have found in looking forward to in years seven to sixteen is a substantial reduction that is five hundred eighty eight billion dollars cumulative cost reduction in medicare but since your last  magnitude those are the most substantial ones but i do want to return for a second to non defense discretionary spending because in addition to the medicare and medicaid reductions that you noted there is also last non defense discretionary spending because we have not had a repeat of the hurricanes spending in two thousand and seven so that also accounts for roughly five hundred billion dollars lower discretionary spending in this baseline all right let me put up our first chart which you see deficit is five hundred some odd billion dollars you're corresponding deficit on page two is four hundred seventy six billion dollars for that point in time that that particular period was mind sending that we're using slightly different assumptions about war  you through some of the changes in policy that we show in table one five that would have a material effect on the two thousand and seventeen outcome so as we show in table one five if one extended the two thousand and one  two thousand and three tax provisions rather than allowing them to expire in two thousand and ten the revenue reduction in twenty seventeen would be three hundred thirty three sorry three hundred thirty billion dollars and there would be additional debt service of ninety four billion dollars so seventeen alone over the ten year window as a whole that that policy change by itself would have a budgetary effect inclusive of debt service of two point two trillion dollars two point two trillion dollars correct due to the renewal of these that is correct ok if you then also extend other expiring tax provisions like the research and experimentation tax credit and other things that are scheduled to expire over the ten year window that's an additional almost five hundred billion dollars and then they'll turn a minimum tax combined with making two thousand and one and two thousand and three tax legislation permanent or extending it past its currently scheduled sunset would raise i  taxpayers going to reach the last year the cost in revenues over a ten year period of time seven through sixteen would be a trillion dollars slightly more than that yes and that's what i had to the two point two trillion dollars due to the extension of the more than i am but you give two different cautious whenever you say something like that well you you give two different you give two different estimates ways of looking at the own growing calls for the war that's correct would you take commanders to describe how you did that and why you did sure we provided two different paths for potential defense spending associated with the global war on terrorism in particular in part because i think there's widespread acknowledgement that there will be some divergence between merely taking the seventy billion dollars that has been enacted thus far and kind of inflating that out into the future so we provide you with two alternative paths one would involve they both involve some in troop levels in the near term and then they phased out at different rates into different levels so in particular under one alternative you wind up with thirty thousand troops involved in those activities by two thousand and ten so a more aggressive phasing out and then the other alternative you wind up with seventy five thousand troops by twenty thirteen under both alternatives there's more spending then under the baseline in the short term and there's less spending by twenty seventeen than in the baseline but under the war over was carried forward to seventy billion dollars appropriated those foreign oh so correct you know under the first alternative that i mentioned in which you wind up with thirty thousand troops there is a net over the ten year window you have the higher cost at the beginning and lower cost at the end and yet i did carry savings of a little bit over three hundred billion dollars under the second alternative where you have a slower phase down and you wind up with a higher troop level relative to the first alternative there's a net budgetary cost including debt service of a little bit over two hundred billion dollars and that's because that your savings don't quite off that the near term cost well in page two when you say that the if you make these assumptions that the path we're looking at is radically changes is not sample under the change in policy that i showed you with discretionary spending excluding the war on terrorism keeping pace with  overall economic growth and with the tax provisions extended and the alternative minimum tax stabilized instead of having a falling deficit and then moving into surplus you have a rising gap to sit as a share of the economy from a little under one and a half percent of the economy this year to more than three percent of the economy by the end of the budget window so the choices we make this year and next year are going to have a profound effect on the outer years determine whether or not we continue on the deficit ridden path we've all been taking or whether we begin to put this budget back in the balance and twenty two are there clearly is even over the ten year window and impacts from changes in policy or from policy choices on budgetary outcomes and i would again note though that what we do over the next ten years has importance but the central long term challenge facing the federal government in terms of budgetary outcomes has to do with that longer term problem involving pattern of revenue growth because we incorporate current law with regard to revenue so expiration of various tax provisions can cause very significant growth rates around those sunset years but if you extracted from that and so for example look at a path that did not allow the sunset to occur what would happen is that we have a somewhat slower revenue growth towards the end of the projection period then towards the beginning for a couple reasons one is that overall economic growth is projected to slow and i think this is a very important point as the workforce enters retirement ages the growth rate of the workforce will slow relative to historical rates and that will slow overall economic growth and that slower overall economic growth will have a dampening effect on revenue growth also in addition to that phenomenon the part of the revenue up tech that we cannot explain based on known factors is assumed after two thousand and eight to revert to more normal historical patterns because that is the traditional way that that is what has tended to happen in the past that these sort of forecast errors or unexplained components tend to revert to more normal patterns relative to the economy as a whole so that is what we assume after two thousand and eight those two factors  may well mean that our revenue growth in the in the out years and you know twenty sixteen and twenty seventeen is slower than that ministrations projections but we'll need to wait and see what their projections are when they release their budget next month like for march  spratt if i could just quickly make one your the five hundred eighty eight billion dollar figure that you mentioned is the change for all mandatory spending which includes the four hundred forty five billion for medicare and then additional spending on medicaid and some others both of i was trying years first let's go back to the medicare savings you talked about use your baseline says that medicare spending is projected to be four hundred forty five billion dollars less than the new law just based on is that right that's correct to break that down again two hundred sixty five billion for part for part d and then the rest of it appears to be concentrated mostly entire day but we're still looking into exactly what is going on between parties in the two hundred sixty five billion dollars savings off the august baseline pardine comes from what exactly the majority of it comes from lower cost per beneficiary and other words lower basically the p d p the prescription drug plans and medicare advantage plans are coming in lower than we projected so that's where of course you can lower prescription drug prices are being reimbursed correct and so you're seeing a downward bend of the growth curve in medicare in the new program part d and medicare advantage then you've previously and then you're roman you said you're roman numbers a little lower because people are getting coverage elsewhere is that right so if i get to that it's not really that cost growth in you know out in twenty sixteen or twenty seventeen has changed but rather that there's just a lower level right and then take you're not going to based on the moving forward correct ok in addition that factor well enrollment in the very near term has actually been higher than we projected slightly higher we have now more information about other coverage that party beneficiary or medicare beneficiaries have so instead of assuming that eighty seven percent of beneficiaries would take up part we are now in the out years assuming that seventy eight percent would and that leads to lower cost seven seventy eight you said correct ok well you mentioned budget policy alternatives to get to balance which will cost discretionary spending and tax policy there aren't really any alternatives offered  in the entitlement side of the budget in this in this new outlook it seems that something good has happened in medicare it seems that something favorable has happened in part d where you've just been one part of this large entitlement program you've got a savings of two hundred sixty five billion which without coincidence is the new part that involves more competition within the program which is bringing more savings not only to the beneficiary but to the taxpayers is not is that not an area that we can discover more as far as future health care spending direction to go toward a competitive model like the part d program does that not lay sort of a groundwork that perhaps since we were seeing substantial savings in this new competitive model with the entitlement program that that might be a place for more savings to be to get not other parts of these entitlements well again i don't want to jump to conclusions about the cause of the reduction but i would fully agree with you that it's encouraging and and in fact you know to the extent that it's continued could have a material effect on on medicare projections in particular it just seems to me that this is something we need to look at quite a bit more because this is of all of the  good news in this it's all overshadowed by the entitlement explosion but within the entitlements we're seeing less spending because of this new program which is providing a competitive product where providers compete against each other for beneficiaries business and that active competition penalty if we raise income tax rates all across the board on every taxpayer if we bring the death tax back to preach two thousand levels and if we get rid of the lower rates on capital gains and dividends those are all of the the tax cuts you're talking about  if you take a look at casting record in overall revenue let's take a look at one of these components capital gains taxes which i would argue probably has the best macroeconomic feedback effect of any of these tax changes i'm not saying all tax cuts pay for sixty eight percent and so when you take a look at the fact that you know using joint tax numbers off estimating the revenue loss associated with this particular check tax change it makes one think about whether or not your estimates for all the new revenues that would come in with these tax increases are quite there not because it seems like these don't actually take into consideration a realistic assumption on the macro economic feedback effect on some of these tax cuts not all tax cuts are saying it's clear but my fear is that if we just take this money in the bank and say let's raise all these tax rates across the board this money will show up well that's not what happened when we cut the tax rates it didn't we didn't lose as much as we thought we would so i wonder if we're going to gain as much as we think we're going to gain if we let all these tax cuts go away the point i'm trying to make is even if we do this even if we let these tax cuts expire  war is that the way you war costs going out is you just take the last supplemental and you run that through the baseline so the last supplemental was seventy billion dollars in so is that basically the plug you put in for the next five years is that dollars supplemental in a month or two you're redoing the baseline next time around you'll take the seventy out and put the hundred in and carry that out that basically how baseline will be affected would be because they'd both be from the same system that's right that's right that's right that's right  retirement the demographics are such that workforce participation rates will decline therefore that will negatively affect the economy are you using the same assumptions on retirement rates that the models have been using for years are you taking into consideration that people are actually working longer these days that people are working well into their seventies whereas twenty years ago you pretty much retired at sixty five today you retire more at seventy five my question is does that model take into consideration longer work periods for longer work force participation by by this new generation of people you know the generation before the boomers pretty much retired at sixty five these boomers seem to be working a lot longer i'm just i'm just curious whether you've taken into consideration your model or not yes and obviously one can debate how much right a sickly what's happened over the past ten or going back over a longer period of time is workforce participation rates for those in the early sixty's were declining substantially then kind of stabilized and increased over the past ten years rising from sort of the mid forty's to kind of the mid fift for those in their late sixty's workforce labor force participation rates are a lot lower there and the sort of twenty percent or so we assume some additional increase in the production winter but i think the important point is to offset the effect of moving more of the population into those age groups would require and have it have no effect on the overall participation rate you have to get those rates up to the rates for like people in their late fifty's you know seventy percent and that's basically implausible  juxtapose with what the actual deficits were compared to the projected deficits to show the difference between the c b l projections and the actual reality yep partly not to criticize c b l but certainly clarifies that c b l has to live under certain assumptions that simply are not realistic is it fair to say the actual deficit so been on the  whole larger than the short term and long term projections cvo over the past five years over the past five years as a whole if you if you started with the january two thousand and one projections the budget outcomes have certainly been worse than in the sense of much larger deficits than the surpluses that were projected at that time ok and then am i correct also that c d o did a study a year or two ago requested by the republican majority on the dynamic impact of tax cuts and it actually came to the conclusion that one very probable outcome of tax cuts paid for by borrowing money from foreign governments having the chinese and others those tax cuts paid for by borrowing money from foreigners and other groups actually could slow down economic growth is that correct it's possible effects of that tax reduction on that connally will reflect where you're starting you know existing tax rates the type of tax change you make and then how you finance it and financing it for some period of time through additional a countervailing force so a reduction in marginal tax rates for example might encourage more work and more investment and more risk taking and that can boost the economy but then financing it through a deficit reduces national saving that puts a drain on the economy and the net effect of those two forces could be slightly positive or slightly negative typically quite small you believe the generally a dollar in tax cuts to create a do additional revenue to make up for the dollar lost in revenue in tax cut there is no credible evidence suggesting that that's the case thank you i can answer that in a couple different ways there was as you know an economic slowdown that occurred around that time that economic slowdown did have an adverse effect on budgetary outcomes that's why in fact although i would note that most studies that try to directly link the attacks themselves to that economic slowdown suggest that there's not all that much of a connection in part because of the timing of the two  secondarily there's also new spending that's associated with new efforts to better protect the united states including both the global war on terrorism and homeland security efforts and we do provide figures for both homeland security spending and for the global war on terrorism spending in this document and you know combined for two thousand and seven just looking at enacted appropriations that would be more than one hundred billion dollars and surely it's not a deficits as a government but the u s economy where there are estimates that were poised to based upon the loss to our economy there were some it's one of the things about both natural catastrophes and other catastrophes like terrorist attacks is that the human cost is very very substantial most of the analysis that has been done of the sort of overall macroeconomic impact has suggested a much more modest effects from natural disasters and human and tried to do so have suggested relatively modest effects in the context of you know an economy that's now thirteen trillion dollars a year no i don't give a damn about experience but as a tourist destination for the world  many respects oids there was a serious on our economy and i'd like to for the record some of our statistics i don't have them with me today but there's no question that nine eleven changed our country and put a major impact on our budgets as businesses and families but also as a federal government i just want to make sure that we're talking about some of the reasons that we are where we are today certainly have a lot to do with what happens results in warm and again i would say you know there was you can see it in the numbers some material effect on the budget and i would also note on particular areas within the united states your state obviously activities in new york city itself and elsewhere and i just to be president bush's council of economic advisors that the bush tax cuts have not paid for themselves and they will not pay for themselves do you agree with all of the studies that i've seen from credible analysts including the department of treasury suggest that the tax cuts may have helped to spur the economy somewhat in the short term and that that offset some of the cost but that the offset especially over the long term comes nowhere near the cost itself in other words the tax cut do not pay for themselves and only a very small share of their revenue cost is offset from the economic growth the fact of the cuts themselves well appreciate your qualifying your answer by saying credible evidence and i believe that was the term that you used with mr edwards because we've heard plenty of incredible condiment comment within the halls of congress and of course by some of those who observe congress  and feel that the tax cut a look sir will solve all of our problems indeed to be more specific as it relates to the deficit for the year two thousand and seven i believe the joint committee on taxation has already estimated that the total cost of the bush administration tax cuts in two thousand and seven will be higher than the budget deficit for this year is that an estimate that seems reasonable to  possible the original estimates of the revenue f x associated with the two thousand and one two thousand and three tax provisions including the alternative minimum tax were about two percent of the economy and our projected deficit is about one and a little under one and a half percent of the economy it's either the the tax cuts then amount to either the total amount of the deficit or almost the total amount of the deficit numbers again those were based on the original projections from the joint committee on taxation and just comparing them to this year's deficit without taking into account a potential effect on economic activity and others but if you just did that simple comparison that would be the m b that just the slightest variation in the assumptions can produce very different answers i suppose for example you could assume away this year's deficit if you have to put in place and i want to ask about some of the assumptions that were made by the bush administration back in two thousand and two when they forecast what  this year would look like as a result of all right policies and the i believe that the original estimate was that we were going to be a much better shape this year than we turned out to be you have information on those contrasting estimates sure i should have that original two thousand while what i have is that regional official baseline from two thousand and one  and what that suggested was that in january two thousand and one the projected baseline outcome at that point for fiscal year two thousand and seven was a surplus of five hundred seventy three billion dollars so seventy three billion dollars for this year so even if you subtract out the cost of the war on terrorism that's a pretty wide variance isn't from what we really ended up with that is obviously a significant difference from and i think as we look at framing this budget it will be important to consider not only the federal deficit but the deficits that the policies of the bush administration has created  education health care and other areas for so many american families and to look at what caused this deficit and not to all those who didn't cause the deficit for this problem  mr chairman if i could actually shortly just a second i realize now looking at this table that i might be able to answer mr edwards question directly that revenue legislation that was enacted since two thousand and wine based on the original scoring that legislation amounted amount to over two hundred billion dollars two hundred seventy three billion dollars on including economic and technical changes two hundred twenty one billion dollars just for the legislative changes itself so that that may be the number that you were looking for essentially this continuing discussion of tax relief i believe last week we heard from comptroller walker that although not all tax relief accurate do you agree with control or walker again i do not see this particular statement but then alice says that the congressional budget office the department of treasury and other entities have done suggest reductions in marginal tax rates in general and and where you start from if you're starting from seventy percent or eighty percent rate that's different than if you're starting from thirty five or forty percent you do not pay for themselves in the sense of having an economic growth the fact that offsets their full cost the precise results will depend on how you finance the tax change though i believe i have it now that troll or general said that significant moral rates do pay for themselves and that indeed our capital gains tax because of pay for themselves several times over isn't it indeed true that since we've had the tax relief of zero one and zero three that we have dramatically larger tax  revenues revenues in nominal terms are now higher than they were and two thousand and one is also true that we have the largest amount of tax revenue in nominal terms that we've ever had in our history i think th e one area of agreement that you have with the comptroller and i don't want to put words in your mouth but i think you said something earlier in your testimony that the central fiscal challenge we face as a nation is are rising health care cost curve is a  fair assessment of what you said yes then i also understand you to say that it is possible to bend that growth curve without necessarily degrading our health care quality inaccessibility would you say something along those lines i think that there's an opportunity to do so and and the central challenge is figuring out exactly how that can be done we're not yet in a position to make the changes that would produce that outcome but i think that it is there's hope that it's quality of healthcare for example it wasn't all that many years ago you trip across these things from time to time i recall that medicare was paying up to five times as much for a wheelchair than what the market in the market forces would have cost and they did it because they didn't have competitive bidding and i think we went back and corrected that one but with that being an example of where somebody is getting the same wheelchair the same model from the same manufacturer and it costs less to the taxpayer so it's one small little anecdote but wouldn't seem to suggest that it is possible to find reforms that might save money and not degrade health care it certainly does and perhaps even on a broader scale there's evidence that medicare costs are beneficiary vary a lot factor too across different regions the country in ways that don't correspond to help outcomes raising the possibility that there could be very growth taken out of the system again without without impairing innovation are harming health dr rosenberg returning to the deficit question let's assume for the moment that all your assumptions are right let's assume we allow the tax relief to expire if we don't reform and then this health care cost curve what does the tax burden look like on the next generation say thirty years from now people's  if we wanted to balance the budget thirty years from now if you got a figure forty twenty what's the tax burden it's going to take what is the magnitude of tax increase to be placed on the american people if we do not  fact cost growth continues to grow at about the same rate in the health sector as it did over the past forty years and you finance that entire increase on the revenue side of the budget by the need twenty thirty start be an increase in revenue required of about ten percent of th relative to the current base of about eighteen and a half percent now so a very you know almost more than a fifty percent increase in revenue as a share of the economy fifty percent increase correct roughly eighteen and a half to something closer looking at the point and that was provided on the part d and recognizing they had a better plan that was being offered that much i do know i mean you have to actually i know that's a fact question i have is this does it encourage employees decide we are going to continue to offer this we will surely move out of it what does that do for the culture and out years if that should happen there are provisions in the medicare legislation  incorporate employer based coverage for retiree's but if if there were a significant movement away from that system and into an alternate plan into medicare part d the net effect would depend on slower economic growth assumption for this year because of softness in the housing sector and some other sectors and then economic growth picks up again in two thousand and eight and thereafter we don't try to predict when recessions welker or when things will occur and versus the dollar that we spend let's say on the war on terror or in iraq a war afghanistan those dollars many are spent outside the united states how does the models taking into account the different view because of the multiplier factors you've got to be considerably different for dollars spent outside the united states versus dollars spent internally to generate g d p there's a difference in the short term and the long term in the short term one needs to worry about what kind of different impact on demand domestic demand comes from different spending patterns long term growth assumptions typically focus more on the growth rate of the workforce and how much we're saving and the capital stock and and basically focus on that side of the economy as driving long term growth rather than the demand side which has more to do with multipliers but but i guess my point is that if you're looking top again initial in a situation in the short term where the key where the economy is weak in the key thing is getting more demeanor white goods and services firms could produce c b l has spoken before on the observation that moderate income households may be more likely to spend any dollar that leverage them and higher income households in the short term thank you mr chairman doctors and i'm going to my line of questioning will be relative to the revenue side and let me preface it by saying that i understand that in order project revenues right you have to project interest rates right g n p growth write personal income growth write personal behavior right and if you can do all that that thus far the revenue growth has been in excess of eight percent in this fiscal year i think it's difficult to look at sub patterns within a year because of seasonal factors and you know you get a lot of  action for example there was a lot of action before when people actually file their tax returns in april and we have more information about specific income trends at that point ok so you're sticking with this in spite of the current numbers thus far this year that's correct then the next subsequent year if i have it right you've got a seven percent increase while the increasing growth next year over this year that's because the relief from the alternative minimum  expires under current law and you have a fairly significant fifty or sixty billion dollar increase in anti revenue mostly there a few other smaller factors ok so it's not an economic change not really a tax change and then after that taking aside the tax cuts expiring three point two percent kind of a steady state is that where is not relation to a twenty year average thirty year average whatever again that growth rates going to be lower than during some historical periods because overall economic growth is likely to be lower than in some historical periods because the workforce growth returning to the discussion i had with mr ryan before is projected to slow as more people enter their sixty's basically how much lower is that then and i realize you could pick certain twenty years if you took a thirty year or some substantial period how much lower is that three point two what we give you in chapter two of the document is our long term assumptions relative to historical years relative to say three point two percent over the past forty years and that's mostly because the potential labor force growth rate slows from one point seven percent over the past forty two point seven percent over the next ten and that's the major driver that change ok looking at the effect of tax cuts and so forth since two thousand and three the total revenue increase since the two thousand and three tax has been roughly it was eight percent first year shorter just short of fifteen percent the next just sort of twelve the year after that is that more or less than what c b l projected in two thousand and three for revenue growth after the tax cuts more and it's more do you do you think and i know there's been discussion really that you don't believe at this level that a dollar in tax cuts yields a dollar in additional revenues to match it do you believe that there are some economic behavior factors that were centrally changing behavior on both on for corporations and for individuals that would have some revenue a fact and you can't take those i mean and i'm not saying this is not all projected but in your your charge if you will to do these projections you're not allowed really to take those things into account is that correct they are incorporated now into our baseline and i also should have noted this earlier obviously the primary responsibility for scoring revenue legislation rests with the joint committee on taxation so that's the first point the second point is once read once changes are enacted they are incorporated into our their effects are incorporated into our baseline and then the final point just very briefly is i know that there has been a very significant up example capital gains revenue but i think it's very important to realize lots of factors cause that and you can look at short term gains which are not were not affected by the two thousand and three changes you can look at corporate capital gains which we under projected the growth with the tax cuts and some other time we'll talk about whether we're over projecting the revenue increase from the tax cuts expiring on the c p a i know i've done tax returns when taxes go up the first thing you do is sit down with your client figure out how can we legally avoid paying additional tax and when they go down the first thing you do is sit down with your client and say what opportunities are there to recognize revenue or gains now because the taxes are lower compared to the households who we live primarily on income from their job we're still trying to we don't have the full picture for what's causing both the individual and corporate revenue increases and i should say on the corporate side obviously the share of that hanum me that goes to corporate profits now it is exceptionally high level and has risen significantly and that's obviously a very important contributor try to the corporate side on the individual side  there are many hypotheses being put forward one possibility is for any given level of overall income the larger the share of higher income households the more revenue that would be collected because the overall tax system is progressive and that could be one cause of collecting more revenue than we projected based on economic growth alone but we don't know that yet have those and have the number of high household income risen i mean has that gone up significantly there has been over the past now almost twenty years particularly rapid growth in incomes at the top end of income distribution  and has real income growth has been occurring for americans at all income levels or have we seen inequality increasing again looking over periods of time since for example  need to late one nine hundred seventy s income gains have been much more rapid at the top end of the income distribution than in the middle or the bottom during the one nine hundred ninety s what happened was that the middle versus the bottom tended to stabilize but the top relative to the middle continued to diverged is there anything that we need to do to change our income tax structure i mean as we get this gap grows larger and larger between the high and the low we're losing our middle class well the changes that could or should be made to the tax system are obviously up to you we're just here to provide you with analysis of what different option thank you mr chairman doctors i was great to see you becoming a regular fixture on this committee with thanks for coming today i want to head down a different direction talk a little bit about mandatory spending because that's the elephant in the room that it's breaking the bank and i've got three questions i want to throw him open to you and then give you all the time to answer number one would it be plausible somehow doctored to tie the growth of mandatory spending into some type of standard index like a c p i index or something like that question one question to when we're looking at medic here and i know this from personal experience because my mom and dad recently went on medicare and they're not popper's by any stretch of imagination but they could pay some bills is an arguable that there are people out there that can afford private insurance they can afford to pay for medical bills and number three and i want to kind of tag team moments ranking them question i did not for the record i did not vote for schedule be a thought it was too much too many people to be too expensive but having said that the one thing that's working in this process is private sector is driving some prices down is there some type of relationship between government intervention or government involvement in the health care market and the sky rocketing prices of health care and that's my third one i'll turn it over to you ok thank you  first with regard to a standard index and the mandatory programs by design entitlement programs specify a set of criteria for people to meet and then the spending follows meaning you know anyone who qualifies  and so it's difficult to reconcile that perspective with tying to a specific index you might be able to come up with mechanisms that the criteria would would evolve in response to changes in its i'll give you an example in medicare currently there's something called the sustainable growth rate formula for physicians in which something like that was attempted in which sort of aggregate spending was tried to be pinned down to index it's tied to a basically an index of sort of in kind of inflation and what we've seen there is that in fact this is an important point to note about the baseline to we assume that that system will be fully implemented in the future and that would reduce payments to physicians relative to keeping up with overall health care activities by about two hundred  fifty billion dollars over the next ten years every time there's been a or over the past few years when there's been a scheduled reduction in position payments because of that formula the congress has decided to undo the reduction including last fall so attempts to try to pile an index onto an entitlement program has not necessarily proven to be that successful but but there obviously are other possibilities that could be explored  with regard to medicare as you know part d even though i gather you didn't vote for it does involve some modest means testing within the medicare program which is new and i know that there are various options that could be explored i'm not sure whether you were talking about that in particular but more particularly use just the medicare system in general ok well that that would be one way of reflecting the fact that some people can better afford health insurance coverage than others that's the concept behind it and i'd be happy to talk about other options with you when i got a better sense of exactly where you what you were interested in and then finally  returning to the question that mr ryan asked again we are still parsing out exactly what the causes of the lower bids in the lower cost per beneficiary in medicare part d are but i would note two things one is remember we also have lower cost both in part a and in medicaid which have different structures associated with them so the good news on medical and health care is not limited to part d and then secondly that over long periods of time th cost growth and public programs medicare medicaid have tended to track cost growth in the private sector and private health plans and i think that's actually a very important point we're not we're very unlikely to be able to slow cost growth in medicare and medicaid without a commensurate slowing in overall health care costs in the private sector as a whole i think at this point to answer your question the systems are so interlocked that you can't separate one from the other basically t risk sometimes of categorizing taking data and sort of plugging it into our views we already have some of us might say well the costs are still too high whatever they are because we believe that negotiated prices would be would be lower some believe evidence of a reduced estimate is an indication that competition is working and i want to just run through i'd like to give you some thoughts on what  the kinds of causes that i would hope you consider if you take another and deeper look at this but it seems to me first of all we can get all caught up in changes and part of what's going on it seems to me is that we have better evidentiary basis for for making estimates in the future once a plan has been running for a while but secondly you mentioned that part of the lower cost was because it was because prescription drug plans and medicare advantage plans were coming in at a lower than anticipated rate while the medicare advantage plans certainly are under considerable amount of pressure because med pac and others are saying they're overcharging their beneficiaries and that's creating a bit of a you know some attracting political interest on this side of the for sure you mentioned the different rates of take up but also it seems to me that there may be larger trends in drug prices and consumer behavior going on we may be sort of turning back away from as medium this is worth looking at anyway and there may be some consumers who are turning away from using multiple prescription drugs and maybe the simply the expiration of patents in the greater use of generics is having having effect other other factors that come to your mind that maybe have a bearing that you haven't mentioned in the course of your testimony so far today no i think you touched upon the main lines and that's why it's difficult to conclude or parse out just the fact of competition among the prescription drug plans as opposed to overall trends in health care which you know in two thousand and six we did see a slower what i would like to do is have there's a chart i would like to have put up this one it in the course of your testimony in the course of david walker's testimony we we dealt with this question of tax cuts and whether they pay for themselves and as i recall his testimony he said only in the case of a dramatic drop in the marginal rate you said something like a ninety percent eighty percent to fifty percent would you might you see enough change in behavior that's my recollection of his testimony speaks for itself i comment quickly on the other because again one of the first factor i mentioned is where you start really matters moving from ninety to eighty is a lot different than moving from thirty to twenty might i believe t recently came up with a study that suggested that the long term recovery of revenues from the zero one and zero three tax cuts was about in the neighborhood of ten percent going forward cost of the base cost ten percent of the reduction in in in in revenues from the taxes if you look at this chart it seems pretty clear to me given the date we're talking about in zero three you know oil revenues as the as a percentage of the economy fell to about sixteen and a half percent of the lowest i think that's the lowest level in how many years i mean can you help me it's just that that was the lowest level since  sometime in the one nine hundred fifty s to me that chart speaks very clearly that the drop the dramatic drop in receipts as a percentage of the economy has had a good deal to do though i can't quantify it with the zero one and zero three tax cuts and therefore the deficit that resulted from that and is driven in part by those two tax cuts do you have any further elaboration on this chart can you help explain to us that factor the importance of the that factor in any others that may have been had a bearing on that dramatic drop in revenues well i would just note that revenues do tend to decline during an economic downturn and then increased during an economic upturn and that's a normal cyclical pattern and you can see that in that chart to as the c d o made any estimate yet to quantify how much of that decline in revenues was attributable to the tax cuts again excluding the fact that  tax changes may have had on economic activity we do just in a sort of narrow accounting sense have a savior of two hundred twenty one billion dollars for this year tax legislation that was passed since two thousand and one and that's by this year you mean those thousand and seven two thousand and seven and that doesn't include debt service facs from the previous revenue effects thank you very much committee has already discussed this in the past with regard to the global war on terror and the fact that it was discussed here to say already that in the past we've used emergency supplementals repeatedly to fund the war effort and also in this panel in the patterns committee in the past we discussed the problems with that lack of oversight and the real reason why we should rather at least speak of the portion of that to go into regular order so committees can have the oversight process of that so my first question is what can we do if anything if we move in that direction to have more or less supplementals and more of the global war on terror go through the regular order process so to that it would not become part of the eventual continual baseline budget because as you said  heard in the past some of these figures are not likely to continue on and on let me try to draw distinction between baseline and then the budget process that this committee pla key role and with regard to the baseline regardless of whether an appropriation is a regular one or a supplemental if it exists when we can when we construct our baseline it will be inflated out so that distinction doesn't really matter for that purpose  when you then go and set your appropriations totals in as part of the budget process you can make this committee can make an adjustment in the budget resolution you know take to take out a supplemental if you want to are put in additional money and that's not a function of just our baseline but going back to your base by and correct me if i'm wrong and it's going to be included in your baseline regardless of whether it's a supplemental or regardless of whether it's regardless whether it's a supplemental or if it's in regular order as long as it's inactive syria way realizing that some of these programs some supplementals would never be reoccurring that you would have a way to take it out of that your process that the numbers you would come out would be a more realistic you're going forward  question i understand there are set of scoring rules that that that basically govern this and that is what we study of them and how do we change that in order to have that was set by a law that actually now has expired but there's what we try to do in situations like this is provide additional information where you could take that component out add something back in if you wanted to replace it in certain different ways and that's for example what we did with global war on terrorism activities in table one were conversations you had when you spoke to us privately i know you made regard to your staff that you have a great staff and you have many other work they have done in the future and we asked what are some of the things you might want to do to improve upon if you could and i think one of the things is the response time  members requested for scoring was that you can just come in just for a second on that my understanding is that over the past several years there's been a lot of attention paid to responding in a timely fashion to members or class and we are going to increase potentially coming maybe not but can you turn that question around maybe and that is to say for every tax dollar increase that goes to a particular american family necessarily see a dollar increase of services that they get from the government or bring home to my state in new jersey where we get fifty seven cents back on the dollar so every dollar america new jersey family sent to washington we get fifty seven cents back in overall government services what have you if we were to increase taxes in my state in new jersey or a typical american family middle class american family in new jersey by a dollar can you tell us whether that's family witnessed a new jersey would see a commensurate one dollar increase in services from the federal government for the tax increase fifty seven cents back right now and it's been that way for years where we get a dollar back more back because of the time and again it depends how you do the calculations for example how do you how do you compute the benefit to new jersey of having effective defense of the entire nation you can a sort of accounting analysis which which people have done and i'm sure that's where those numbers come from but it's very difficult to take into account things that benefit the nation as a whole and how you sort of parse that out on a state by state basis so i we're talking about the recent of this is the average number of jobs created over the administration for the clinton administration and for the bush administration and everybody is bragging about how well this ministration is doing so we just want to put that up understand the numbers now this is the average over the six years the more recent numbers are up to about one hundred fifty thousand in some recent months which would be a little below average for the previous administration we just want that up there so people would know what we were you know put things in perspective that this year's deficit is understand it doesn't include the expected supplemental for the war that's correct it doesn't include any of the supplementals we understand that the f b i has complained of they're going have to fire f b i agents and to armor justice might have to get rid of prison guards and what not if they don't get supplemental that's not and to the extent you lined up with the nesting appropriations that are about that that would also the fact that the budget outcome ok i agree with the gentleman from north carolina who indicated that i would expect some people to lose their medicare prescription drug coverage in the future it is a very attractive it has been a very attractive benefit but since people can get it on their own it's not as a compelling benefit has been in the past so we have to keep an eye on that number but it's a lower cost because of the lower number of people or because of the lower cost per person it's mostly because the lower cost per person so out of that two hundred sixty five million dollar reduction a little bit more than two hundred billion dollars in because of the lower cost per person the emergency costs like hurricanes since we didn't have many hurricanes this year you're going to project out a lower cost than the year before when we had know some estimate of the likelihood in doing the projections but with regard to domestic spending that one one time again the scoring rule suggests that we just take whatever has been enacted and inflate that requirement and we've heard about the fact that we've got record revenues the nominal amount is higher how many years in the last since since the great depression has the nominal amount of revenues actually gone down i don't have that number off the top of my head but the nominal level going down is relatively rare and would typically be associated with with a recession policy that c b l makes up for they were contained in section two fifty seven of the budget legislation that that it's that section expired but there's now been a long history of applying the rules in a particular way and we continue to follow that long history of baseline construction so it is essentially up to you determine what what economic sanctions you're going to use when different katrina well again in this baseline we don't but i think the broader point is that with regard to the discretionary part of the budget so a little bit above a third of the budget that you all decide upon year by year the baseline is not really a prediction of what you're going to do in the future but rather just some benchmark that inflates the existing year forward period and it doesn't try to predict what you're going to do on homeland security  some shows on what we've done in the past that's correct in basically in the current year it's a very with regard to that part of the budget it's a very simple rule but using using supplementals and projecting that would seem to be to throw off t the future projections well it could not their hand if you look at the pattern of discretionary spending growth over a long period of time are some our assumption in the baseline that it just keeps pace with inflation the other direction because over longer periods of time discretionary spending has tended to rise more rapidly than that than that and then just keeping pace with inflation when you look at the cost of a tax cut you just look at the lost revenue that would be assuming that the economic activity we mean the same and that you've lost that much revenue because of a lower tax rate again the joint committee on taxation is responsible for revenue scoring and and that is they will take into account microeconomic responses so the fact that people may shift the form of compensation in response to tax changes for example but not my acro economic effects we we have in the past taken those macroeconomic effects into account in organizations like c d o to pick the right parameter values and small changes in assumptions can bring very large changes in outcomes so in a dynamic analysis we can present lots of different combinations and that's what we do to give you some sense not only of the likely not conceded but how they vary depending on different assumptions and that's a luxury that's not possible in a single scoring exercise well that's one of the frustrations we have i guess when we reduce the capital gains rate we had to estimate that it was going to cost the federal treasury when everyone knows that it was going to bring in more revenue and in fact it did bring a substantially more revenue than their two effects of the capital gains tax change one is that there can be sort of timing fact with more realizations and therefore in effect on revenue in the very short term and then sort of the longer term effect all of the analysis that i've seen including from greg mankiw you and other you know the former chairman of the council of economic advisors suggest that tax changes of that type when you reduce the tax rate the revenue is reduced over the long term but not by as much as the fact itself because there is some offsets offsetting impact on economic activity and on capital gains realizations that offset though is not given the current tax structure of the united states is typically not large enough to offset the original cost because that's true in every tax category it will depend on  where you start and i don't want to say in every category because there may be exceptions but in general and given the existing tax structure that we have in the united states with existing level of rates that we have united states it is generally tr between forty and forty five percent will get you the exact number and it can still be back here while your world we're talking here due to the number for the the increase in the past six years of our debt thank you dollars what would be the effect if you were in nations decided they didn't want to hold our debt for whatever reason anymore what would be the effect on our country it would depend on the response  ither players in financial markets but if there were a very significant change in the willingness of foreign official entities and other foreign investors to hold are publicly held that one would expect at least some adjustment process and depending on the speed of that withdrawal and the response of other financial market participants it could either go smoothly or abruptly could have any impact on our interest rates in this country it intentionally could yes in what respect interest dollar figures on our national debt last year if you know two hundred and a little about two hundred i'm going to say two hundred twenty billion and look that up right now two hundred twenty seven billion dollars and you have an estimate for what that interest would be on debt that this year approximately two hundred the five hundred thirty five billion dollars correct and the gross is over for four hundred billion dollars that was net interest on publicly held that i was given who's going to end up paying for this those outlays are part of the federal budget and ultimately will have to be financed either through reductions in other spending or increases in revenue were passed along to our children and grandchildren the payers are correct but ultimately that's not sustainable one can't just continue to pass more and more debt onto future generations because ultimately you would have a debt spiral that we are in a substantial debt onto our children and my seven grandchildren right now isn't that correct we as a nation are not saving very much and that means that we are not passing on as much capital to future generations as we could i think it is we do need to remark upon the low level of national savings in the united states which has one of two consequences either it means that will and that's very little in the united states or we have to over here my problem is i come from a different perspective having been gone for sixteen years i was here in the seventy's in the eighty's and do you know the figures on what the average unemployment rate was during the seventy's i don't have it off the top of my head but we can get it for you it's obviously higher than it is today do you have an idea what the average inflation rate was and works seven days a day you have an idea what the tax rates were in the seventy's higher than they are today is there any impact whatsoever on the unemployment rate as a result of lower tax rates to help stimulate a private economy i think it's very difficult to draw that connection for example someone put up a chart earlier about growth rates during the one nine hundred ninety s when tax rates were also job growth rates were also higher than they are today and i think that just there was a chart put up there i think when mr allen was speaking and it talked about the dip that we had in receipts and i'm fortunately the graph apparently didn't take into consideration your testimony because it showed a leveling off of receipts below eighteen percent but seventeen point five or six percent as i understand your testimony revenues measured as a percentage of g d p have grown in the last several years and i believe you stayed here increasing from sixteen point three percent in two thousand and four to seventeen point six percent in two thousand and five to eighteen point four percent in two thousand and six and with the last year was slightly higher than the average point two percent of the past forty years  now that we have information on actual enrollment in part we will be providing an updated estimate of that in the near future range of what we're talking about there rather than give you an incorrect number if we  think immigrants come in it depends in part on the skill next of people coming in that you get more revenue but for example under social security you also then have higher benefits based on work history immigrant but i thought one  and again this fact though tends to be relatively modest because there is some effect on benefits also and it really does also depend on the scale next for example if low wage immigrant  all according to c b s the new england patriots are in the super bowl this weekend because under this sort of baseline analysis when you only look at the past the patriots looked mighty good in fact they looked really good in the first and second quarter of the playoff game but then everything changed so my point is i'm very worried that as interesting as this academic exercise is it really tells us very little about the future  fortunately both parties have reason to question the validity of the baseline y'all don't want to see all the tax cuts repealed we don't want to see other things happen but when for example as you said earlier in your testimony just keeping the level of pain w t the sangh would cost us a trillion dollars that's not reflected in these numbers that shows you the extreme variability of analysis it's interesting to me to what you said that the requirement that c b o do this under an expired law that lives on as an informal practice and i'm not faulting you receive you know i think you've done as well as could be done given the constraints but this is a very poor way of looking at future growth and draggin say the union address you'd have a balanced budget in five years according to your bedtime numbers if we do nothing if congress ceases to exist for five years we'll have a balanced budget in five years to me we're not achieving that with us exercise so i would like to work with you in the coming months to figure out a better way so come up with directing into the future so that we have a more realistic handle on things when you think of any wise right now that we could do this well having grown up in massachusetts and still trying to get over your first comment but i'll there's a lot of different ways of trying to construct a baseline and obviously i think having the budget committees revisit those baseline rules to make to explore whether some updates or tweaks would make sense would be welcome but i would say there has to be a core principle behind the combination of the baseline and the scoring rules which is that the cost of a policy change shows up at some point so it shows that the either when you score the provision and then it can be carried forward in the baseline or it shows up the full cost us the show up at some point and we don't want to situation which costs just disappear from the combination of the baseline and the scoring process so for example one can imagine a system in which a tax change that  was officially temporary would be scored as permanent so an a m t change for one year would be scored as permanent and then from there after that would be included in the baseline that may or may not lead to more clarity about what about future budgetary outcomes but i think what's important is that the cost show up at one point the current system if she's that objective in any alternatives and needs to achieve that objective also even though of course there are different ways of achieving but if you look at your analysis for example under medicaid medicare you assume that we're going to cut physician pay i think it's ten percent next year and again that is wildly unrealistic if you look at congressional behavior and each of the last four years we've always save the doctors at the last minute so many of our assumptions seem to be based on premises like this and by the way this freezing doctor reimbursement under medicare will cost five trillion dollars that's not giving the docs of iraqis that's just freezing reimbursement because the formula under b v a ninety seven is skewed too so to expect a thirty seven percent cut in physician who thinks that's going to happen so i just worry that this is a little bit like the medieval argument how many angels can dance on the head of a pin in my thirty remaining seconds the gross interest that america had to spend last year to service its debt was four hundred six billion dollars that's on page seventy four of your analysis and you point out very helpfully that the rate of growth of interest spending growth interest spending is four times faster than the rate of increase for a noninterest spending that should alarm the members of this committee when if you look at the c r will pass this week that's what four hundred sixty three billion we're going to spend four hundred six billion so it's on interest so repeal that's the tax can never go away unless you build budget surpluses and that's the tax that's growing at a rate four times faster than all other sending so i would urge my colleagues to focus on pages seventy one t put on the baseline process and this and then relatedly the scoring process when provisions that are widely anticipated to be continued are written in the fischel law as being temporary and you could perhaps include the sustainable growth rate formula under medicare in that and perhaps include the revenue provisions in that also i just i know you know this but i think it is worth pointing out that that creates awkwardness regardless of how you either we're going to ignore official law or not ignore it but it's reflected in a different way or we're going to have bass lines like the one that we presented to you today that many observers may not believe are realistic and very just very briefly fact many people who run for congress or other jobs in public life make campaign promises and then when they catch that car they have to try to reconcile their promises with a tax hike for those who promised that they would never raise taxes i'm not going to get into the semantics game revenue if you allow those provisions to expire revenue would be higher than if they did not  ok many people outside of this body back in our communities in our states sometimes when you buy this body have done a big poor job of handling the social security particular in particular the first two are those where most of the projected increase occurs reflects both ongoing health care cost growth which exceeds economic growth over the last forty years health care costs  have grown two point five percentage points faster than economic growth and then secondarily aging of the population as the population ages costs go up in both medicare both the health programs and in social security in terms of options for restraining that emerging imbalances in our various different entitlement programs in some senses very simple spending is projected to exceed revenue so you need some combination of lower spending and higher revenue when the combination is really up to you but the precise details are obviously what's important and they are again i think it's really up to the congress and the president to decide the best way forward what i would say is that on the health care side as returning to the discussion we had before there is at least some opportunity for constraining cost growth spending growth you know ways that neither  harms house which is the ultimate objective of those programs and that is and then that i central i think should be a central focus of the effort to find the ways in which we can take  of the health system without impairing health or innovation taking the tell and going back to my previous question about people who run for office making campaign promises but the presidential run coming up in two years a nd some of the candidates are already promising one in particular that every american should have universal health care within six years since our people are such a dominant part of the talk today vision noted and respected when health economists died and went to heaven saint peter let him ask one question he said what we have universal health insurance and st peter said yes but not in my lifetime i think that obviously there are ways of getting to universal health insurance  systems and evaluating the cost is something that we're very active actively engaged on i wouldn't want to characterize the cost as being either insignificant or catastrophic it depends in part on precisely what you do and we're seeing different models emerging from the states massachusetts california and others in terms of how you could at the state level move to a more universal coverage mr chairman if there's no objection by a colleague mister mr grant had one at a track from the law on the books that's about to expire in x number of years three or four years your baseline will soon that will and at that period of time were your projections going forward with one cathy which is that revenues that are dedicated to particular trust funds are assumed to continue generally yes and secondly though but you're looking at a spending program that is authorized and the authorization is going to expire in x the same number of years you'll soon want in that case on the spending side generally that there continued but again there are exceptions on that side also and there are going to play while you treat one as continuing even though the law has expired on the other one you treat differently again and i think the key concept is that the cost show up at some point so for example s chip this coming up for reauthorization when that program is scored even if the reauthorization only applies for five years we will assume that those changes continue out and score those changes so the costs are paid for at some point in that case you know when the when the reauthorization occurs and then those higher levels will be carried out and incorporated into a future baseline one could do the same thing on the revenue side so for example one could say you do a one year we're going to score that as a ten year change and then that will be incorporated into the baseline thereafter the key thing is that the costs show up at some point the existing system basically achieves that there are others and we look forward to working with you on it that could achieve it we need to parse a couple of pieces the cost per beneficiary piece which is the majority of the change resulting in lower government government spending what also have constant beneficial consequences for beneficiaries and other words as the bids come in from the prescription drug plans at lower amounts there can be benefits for consumers also correspondingly there's lower income to the plans that that's because they have figured out that they can offer the plans let me just actually now you know there's one discussion about cost another about confusion and complexity especially at the beginning part of this program there did seem to be concerns about how complicated some of the choices were for senior citizens for beneficiaries to make the comment about hoes not for much question i guess in the end it will be a question of what but since since nineteen eighty one i've been told over and over again you know would be absolutely wonderful to present to the american people but in the end this money we're borrowing more money all the time and when you cut taxes and borrow the money to pay for and actually increase spending it appears to me that that would also stimulate the economy on the short term in a responsible way i don't know of any in this that i'm saying it makes engineers you know you're a responsible about taxes and in expenditures i think there's no question that there's a very broad consensus among analysts economists and others that constraining health care cost growth and in particular raising national saving with both the beneficial over the long term for economic performance things going down because it's always in the eye of the beholder as to which isn't it is important i agree with my colleague from tennessee that the projections are wrong on their face most times you know we can project next quarter we can project pretty good this year next year who our last two years that other side is and mr berry did earlier who reflect back on the projections from the late ninety's which projected trillion dollar surplus is now those were inaccurate it's time they were done but yet we seem to have that kind of cling to them as if they have some authority today and they really don't because the circumstances in which those projections were based didn't turn out to be the reality that we faced it's not good or bad it's just the way it is and in to continue to use those dated projections as some sort of an argument that to support arguments i think is misplaced i agree with mr cooper and his comments that we've got to be careful how we use those broad numbers we're currently spending about twenty percent of g d p on on the federal budget federal spending european countries and scandinavian countries there's been relatively good overall economic performance with higher revenue to g d p ratios but that partially reflects their the mix of revenue that they have five forty where is it that we just we hit the wall i mean if you run a marathon it's like twenty miles where is it that we hit the wall in this number just yeah i mean i can hold you yes obviously but but it again depends another marathon runner i know for for i know from experience that that at at fifty percent of g d p and i don't want to be pinned down to a specific number but at fifty percent of g d p there would be significant economic consequences from raising that much revenue as a share of g d p ok just  so in other words reducing spending and related revenues were somewhere in there we've got a rick again this comes back to why i think we need to bend that health care curve but yes trying to meet the entire projected increase in health care spending solely appropriations and i'm going to moving the direction of farm program and in just a couple questions in this area with this preface is i understand that and and that in terms of the two thousand and seven  commodity price of pork programs mandatory conservative programs crop insurance and in the commodity price pork program again my understanding is that there has been a about a thirty point eight billion dollars drop in and in a fo is took questions this well what is the budget impact if crop prices do not maintain historically high levels and in terms of past projections in a historical context here what bill how long did to be a project crop prices truly high how long did it take until the agriculture market shifted the crop prices and crop prices fell and what was the results in terms of the federal farm support costs so first with regard to cha drives up the cost of sorry if we had lower prices the price support programs go up in cost and i think what we have seen in this baseline relative to august is for example higher corn prices another grange prices driving down the cost of the in particular the commodity credit corp cost which is that i think that roughly thirty billion dollar reduction over ten years that you referred to if prices do not remain high and instead go to you know a lower the cost level would be higher than we project is the impact of the let me just ask a question on the  high price projected on the strong demand for corn based ethanol with all prices gone from seventy five to fifty five any concern that that would drive down the consult in doubts with variety of experts in the agricultural field in order to undertake these projections that there's a little bit of softening in prices relative to current levels that's in bedded in the baseline and in the  example the price per bushel for corn is somewhat lower then than it is for two thousand and seven but i think the underlying structural point that you noted is that we do see significant demand for corn coming from  ol related activities and that's a structural change that is likely keep prices higher than that otherwise be in the absence of that that source of demand like twenty seconds projected you know farm prices are highly second call but i would note that while that you know did happen it may happen again this underlying driver of ethanol related to me and makes it somewhat different than the situation we face in the one thousand nine hundred thank you very much thank you dr thank you strength but you have another question i didn't have another question which chairman just for the record we did find out the revenue increases that in the last in the forty years prior to the bush administration revenues increased thirty eight of those forty years during the bush administration revenues decreased in each of the first three years of the administration the records that were using only went back to one hundred thirty eight were unable to find any time where the revenues actually decreased three consecutive years dealing points so no they didn't reckon we'll show it to your doctor or zach we appreciate very much for being here your diligence answering these questions and we look forward to working with you in particular on the analysis of the president's budget which will be coming on monday we need it as soon as we can possibly get it from you because we're trying to get to the full by we get to february fifteenth out of committee by the fifteenth and