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SAFEGUARDING THE AMERICAN DREAM: 

PROSPECTS FOR OUR ECONOMIC FUTURE 

AND PROPOSALS TO SECURE IT 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

OF THE

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

DECEMBER 17, 2009 

Available via the World Wide Web: http://www.fdsys.gov 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

ROLAND W. BURRIS, Illinois 

PAUL G. KIRK, JR., Massachusetts 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

LINDSEY GRAHAM, South Carolina 

ROBERT F. BENNETT, Utah 

MICHAEL L. ALEXANDER, Staff Director 

RACHEL R. SOTSKY, Legislative Assistant, Office of Senator Lieberman 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

ASHA A. MATHEW, Minority Senior Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

PATRICIA R. HOGAN, Publications Clerk and GPO Detailee 

LAURA W. KILBRIDE, Hearing Clerk 

(III) 

C O N T E N T S 

Opening statements: Page 

Senator Lieberman ........................................................................................... 1 

Senator Collins ................................................................................................. 3 

Senator Voinovich ............................................................................................. 5 

Senator Carper ................................................................................................. 16 

Senator Burris .................................................................................................. 17 

Senator McCain ................................................................................................ 34 

Prepared statements: 

Senator Lieberman ........................................................................................... 43 

Senator Collins ................................................................................................. 46 

Senator Voinovich ............................................................................................. 49 

WITNESSES 

THURSDAY, DECEMBER 17, 2009 

Hon. Kent Conrad, a U.S. Senator from the State of North Dakota ................... 7 

Hon. Judd Gregg, a U.S. Senator from the State of New Hampshire ................. 11 

Hon. Alan Greenspan, Former Chairman of the Federal Reserve ...................... 19 

Hon. David M. Walker, Former Comptroller General of the United States ....... 21 

ALPHABETICAL LIST OF WITNESSES

Conrad, Hon. Kent: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 51 

Greenspan, Hon. Alan: 

Testimony .......................................................................................................... 19 

Prepared statement .......................................................................................... 63 

Gregg, Hon. Judd: 

Testimony .......................................................................................................... 11 

Prepared statement with attachments ........................................................... 56 

Walker, Hon. David M.: 

Testimony .......................................................................................................... 21 

Prepared statement with an attachment ....................................................... 66 

(1) 

SAFEGUARDING THE AMERICAN DREAM: 

PROSPECTS FOR OUR ECONOMIC FUTURE 

AND PROPOSALS TO SECURE IT 

THURSDAY, DECEMBER 17, 2009 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:03 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Joseph I. Lieberman, Chairman of the Committee, presiding. 

Present: Senators Lieberman, Carper, Burris, Collins, McCain, 

and Voinovich. 

OPENING STATEMENT OF CHAIRMAN LIEBERMAN 

Chairman LIEBERMAN. Well, good morning and welcome to this 

hearing. I thank everyone for being here. I particularly want to 

thank our colleagues, Kent Conrad and Judd Gregg, Chairman and 

Ranking Member, respectively, of the Budget Committee. And I 

would say for the purposes of this hearing, I will unofficially designate you as leaders of the rebellion against our national debt. 

Let me say just a few words in opening. Our focus here this 

morning is on our exploding national debt and what we can and 

must do about it. I want to say that the Committee is holding this 

hearing because under our traditional Governmental Affairs jurisdiction, before we came to also be known as the Homeland Security 

Committee, with oversight of all government operations, including 

the Office of Management and Budget (OMB) and, of course, the 

major Budget Committee is the one led by the two gentlemen before us, but we oversee OMB. We hear the nomination of the Director of Office of Management and Budget. And it is part of that jurisdiction that leads us to hold this hearing this morning. 

Look, the facts and numbers of our current national debt, which 

is literally exploding, are so large that I think sometimes they are 

numbing and hard for individuals to appreciate when you think 

that we are now approaching $12 trillion in debt—$12 trillion. The 

Congressional Budget Office (CBO) tells us that we will run at 

least another $9 trillion into debt over the next 10 years. 

If you consider unfunded liabilities related to Medicare, Medicaid, Social Security, and pensions, it totals over $40 trillion. By 

one estimate, this is more than $480,000 of debt per American 

household. It is astounding, and more than being astounding, it 

2 

represents, it seems to me, the most serious threat that our Nation 

faces here at home. 

In some senses, and I want to be careful about this, it is as dangerous a threat as some of the threats we face from foreign enemies and the Islamist extremists who attacked us on September 

11, 2001. Obviously, it is a different kind of threat because they 

aimed to kill us, as they did on September 11, 2001. But they also 

aimed to defeat our way of life, our national strength. And unless 

we do something about the debt, that is exactly what will happen. 

Our country will not be what it has been for the generations before, 

including the one privileged to live in this country and to be Americans today. 

Another consequence will be that we will face economic difficulties that will be, I think, greater than the great recession that we 

are just coming out of. So we have got to do something about this. 

There is, as I suggested at the beginning, finally a rebellion beginning against our national debt, and it is beginning here in Congress, of which Senator Conrad and Senator Gregg have been leaders. But I do think, and I would guess my colleagues feel the same, 

that as I go home to Connecticut, the American people have 

reached a tipping point on this. They are getting it. It may be far 

away. The numbers may be beyond their comprehension. But they 

see that we in Washington are just incapable of dealing with the 

debt, of stopping it. 

It is not because, I would say for the inside, we are evil. It is just 

because, ultimately, we are irresponsible. We like to spend money 

and we do not like to raise taxes. You do not have to be Alan 

Greenspan to know that if you keep doing that over a long period 

of time, you are going to run an unsustainable debt. 

The rebellion has taken specific form in this Congress and—as 

Senator Voinovich and I have done in our so-called Securing America’s Future Economy Commission Act (SAFE Act) and as Senator 

Conrad and Senator Gregg have done in their Bipartisan Task 

Force for Responsible Fiscal Action, which is really the leading vehicle of this rebellion today, with more than 30 Senate cosponsors—it is to create a process, a commission that will bring key decisionmakers from Congress, perhaps the Administration, perhaps 

from the outside together to make the tough decisions in the national interest and then to bring it back to Congress on an up or 

down vote. 

And the reason for this is, I think we have all concluded ourselves that we are not capable of dealing with this problem as 

quickly as we have to deal with it. I am dating myself—but it is 

like the old Walt Kelly ‘‘Pogo’’ cartoon. ‘‘We have met the enemy 

and it is us.’’ And so we have decided it is kind of a congressional 

fiscal 12-step program. We have got to discipline ourselves and the 

way to do it is with a commission. 

And a group of us have said, under the leadership of the gentlemen here, and I am proud to say including about a dozen Democratic senators, we are not going to vote to extend the debt limit 

beyond the $12.1 trillion it is at now unless such a commission, 

such a process to deal with our debt is set up. We have had a partial victory so far in that the House did not approve a $2 trillion 

extension of the debt as it wanted, but $300 billion, which will take 

3 

us to February. But we are still talking and I will be interested to 

hear from Senator Conrad how he feels about that this morning, 

about at least getting a vote for our proposal on a statutory commission before we agree to even a short-term debt. 

So this morning, with our two colleagues at the beginning, with 

Chairman Greenspan and Dave Walker, who are leading the rebellion out in the provinces against the debt, we are going to consider 

what will happen if we do not deal with this and how can we best 

deal with it to literally secure the future of our country. 

I will tell you, one reason why there is such anger at Washington 

today among the American people is, of course, about the economy, 

but it is also because the economic troubles have led most every 

family I know to tighten their belt, to put some money away to 

save some, not spend as much. And yet they watch us and we are 

not doing that. This concern has obviously agitated people, affected 

the current debate over health care reform, and certainly part of 

why I was so concerned about creating a new public government 

insurance option and expanding Medicare at this time. 

Anyway, that is my opening statement. I thank everybody for 

being here and I hope this hearing can help, frankly, to build a rebellion against the national debt to the point where we finally do 

something about it. 

Senator Collins. 

OPENING STATEMENT OF SENATOR COLLINS 

Senator COLLINS. Thank you, Mr. Chairman, for conducting this 

hearing on a matter of such importance to our country. 

I want to join you in commending Senator Conrad and Senator 

Gregg for their extraordinary leadership in this area. As you pointed out, they are not Johnny-come-latelys to this debate. They have 

been sounding the alarm on the fiscal crisis for a long time now. 

Now, I hadn’t thought of them as leading the rebellion, but then 

I thought of Senator Gregg’s State motto, which is ‘‘Live free or 

die,’’ and I guess it is really ‘‘Live free of debt or die.’’ So it is appropriate that they are here today. 

I also want to thank Mr. Greenspan and Mr. Walker for their 

service to our country, for their leadership, and for their participation today. 

Earlier this year, Mr. Walker brought the Concord Coalition’s 

Fiscal Wake-Up Tour to the State of Maine, and I will tell you, the 

numbers are a clarion call to action. To paraphrase the Senator for 

whom this building is named, a trillion here, a trillion there, pretty 

soon you are talking about a real fiscal catastrophe. Nothing underscores the scope of the crisis we face more than the fact that the 

billions of taxpayer money that so concerned Senator Dirksen just 

a few decades ago pale by comparison to the prospect of annual 

deficits exceeding a trillion dollars that we confront today. 

The dire consequences are found in innumerable charts, graphs, 

and spreadsheets. This debate is, however, not just about numbers 

and cold data. It is about our obligation as policy makers and as 

citizens to future generations of Americans. The basic problem is 

that government has promised more than our citizens can afford to 

pay. One columnist has described it as the collision between the 

high and rising demand for government services and the capacity 

4 

of the economy to produce the tax revenues to pay for those demands. 

Historically, Americans have paid about 18 percent of the Gross 

Domestic Product (GDP) in Federal taxes. But with the explosion 

in entitlement spending that is tied to the retirement of the baby 

boom generation, plus interest on the debt, Americans would have 

to pay taxes equal to 34 percent of GDP to keep pace with spending 

25 years from now. Even if that were possible, the remedy would 

do tremendous damage to our economy. It would crush job creation, 

devastate our already battered small business community, and 

dash the aspirations and ‘‘can do’’ spirit of our citizens. Thus, our 

decisionmaking must begin by reconsidering spending that, although popular, simply cannot be justified during this fiscal crisis. 

It is also wishful thinking to think that we can simply grow our 

way out of this problem. The SAFE Commission Act introduced by 

the Chairman and Senator Voinovich and the bill introduced by 

Senators Conrad and Gregg are thoughtful approaches to addressing this crisis. We will hear more about that, so I will not repeat 

in my testimony exactly their approach. 

Let me say, however, that this examination is not merely necessary, it is urgently needed. We simply cannot continue business 

as usual and there is no better evidence of the need for change 

than the budgets that we have recently approved. I opposed the 

budget because I believe it accelerates our journey down the primrose path to fiscal ruin. It projects an enormous increase in spending that will double the public debt in just 5 years. 

This is a moment in history in which we must confront the conflict between what we want and what we can afford. It is time to 

reassess our national priorities to make the hard decisions and to 

set a new course. The budget reform proposals, the thoughtful legislation presented by our colleagues, would begin to move us forward as a Nation in facing our fiscal challenges. 

I do want to say that I believe the legislation could be improved. 

Instead of legislation that would not be amendable, I believe that 

Members of Congress should have some ability to amend the Budget Commission’s recommendations. What I would suggest is that 

ability should not be unlimited and that amendments should be required to be revenue-neutral, not affect the overall balance. 

We can put this country back on track. We can do what needs 

to be done to ensure that future generations of Americans enjoy 

what every American generation has proudly proclaimed as a birthright, and that is the promise of a better quality of life than the 

generations that preceded it. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you very much, Senator Collins. 

Senator Voinovich, you have been so active in this quest for so 

many years, and I know, because you have announced you are retiring after this term, that you have really focused on this as something you want to feel that you have made some progress on before 

you leave public office, after an extraordinary career at many levels 

of government. So I would, with respect, invite you to give an opening statement this morning. 

5 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. Thank you, Mr. Chairman, for holding this 

hearing. After national security, I think the most important issue 

Congress and our Nation faces today is this issue of our debt and 

budgets that are not balanced as far as the eye can see in the future. And as you said, if we do not deal with it, it will affect our 

national security and will have an impact on world peace. So I 

want to thank you for your work and our work on the SAFE Commission. 

I want to thank our panel, the Chairman and Ranking Member 

of the Senate Budget Committee, Senators Conrad and Gregg, for 

your leadership to unite efforts of the Members of the Senate to 

come up with a bill that we can get passed and that will start to 

make a difference. 

The bill would force Congress to fully address our Nation’s fiscal 

crisis. It forces us. It recognizes that, despite all our good intentions, Congress has failed to balance our budgets and stop our rapidly-climbing debt, a $1.4 trillion deficit last year, over $12 trillion 

in terms of our debt limit. 

I think it is really important to point out that the American people, as well as the international community, recognize the fiscal crisis our Nation faces. Everywhere I go around the world, people are 

saying, ‘‘what are you guys doing?’’ Canadians, they have said, ‘‘if 

you do not get your house in order, we are dead, because our economies are intertwined. You must face up to doing something about 

it.’’ 

So our Nation does stand on thin ice and our credit and our creditability are in jeopardy. And it does not take an economist to realize our course is unsustainable. The Federal Government is the 

worst credit card abuser in the world and we are putting everything on the tab of our children and grandchildren. 

So today, we are here to discuss Senator Conrad and Senator 

Gregg’s Bipartisan Task Force. When we had our press conference, 

I told you there was a big smile on my face. That is something I 

have been working on for a long time around here, as Senator 

Conrad and Senator Gregg know. The thing that tickles me is that 

at last count, we have 33 sponsors. That is pretty darn good for the 

U.S. Senate. 

I just heard, though, yesterday that President Obama is considering an Executive Order to create a Bipartisan Debt Commission, 

but I think it is important to recognize that the authority does not 

mandate congressional action. I am going to ask Chairman Greenspan—he was the last one that had a successful commission 

around here—what the differences are between today and when he 

did it in 1983. But the fact is that this fiscal task force should be 

made up of Members of Congress. If we get the 14-vote majority, 

those Members who work their you-know-whats off on that commission and their staffs should know that their hard work is going 

to result in some action and not be dilly-dallied like so many other 

things where people bust their back and nothing happens. 

I know that some Members of Congress say that this should be 

done in regular order, particularly over on the House side. In an 

ideal world, that is what we would do. Unfortunately, for my entire 

time in the Senate, we have not been able to address this crisis. 

6 

Congress is simply not willing or capable of enduring short-term 

pain for long-term gain. You just laid it out. It is the way it is. It 

is the reality. So that is why we need the commission, to provide 

solutions and an expedited procedure for an up-and-down vote so 

the reform proposals do not die in committee or become an exercise 

in political messaging. 

I am fed up with political messaging. We have it all the time on 

both sides of the aisle. And you want to know what? So are the 

American people. They see through it. That is why they are so 

upset with what is going on down here. They have had enough of 

it, and I will not use another word that I might have used because 

this is a hearing. [Laughter.] 

The Conrad-Gregg Fiscal Task Force is an example of bipartisan 

compromise to achieve a productive process to tackle an enormous 

problem. And I hope that this Committee and my colleagues do not 

make the mistake that we too often make, and that is we let the 

perfect get in the way of the good. And that is what I think that 

you guys were able to do. You have put this together. You have 

combined a lot of good ideas. I think the legislation you have put 

together is terrific. I am hoping that it gets the support of the Senate and the House and it is a strong message, I think, to the President that we have got to act now. 

And I think the President and our OMB Director realize it needs 

to be addressed as both a policy and a political issue. And the 

American people are going to want to know it is real, not another 

Saturday night special. We have got people out there across the 

country that are saying to us, ‘‘What are you doing?’’ Some are saying, ‘‘We are losing America.’’ 

I was really upset the other day, and I think, Senator 

Lieberman, you were there when we had the expert on China talking about the fact that the Chinese once looked at us as the 

model—— 

Chairman LIEBERMAN. Right. 

Senator VOINOVICH [continuing]. And now they have concluded 

that we are on our way out. I think that this cannot be the last 

generation of Americans, like Senator Collins said, that they are 

not going to have an opportunity for the same standard of living 

that we have had. And I think that this is a moral issue, a moral 

issue for us and for our country and, quite frankly, as I said, for 

the world. Thank you. 

Chairman LIEBERMAN. Thanks very much, Senator Voinovich. 

Thanks to our colleagues for your patience as the three of us 

really cleared our chests, because it is right in there. 

I want to make clear when I said you were leading a rebellion 

that it is a patriotic rebellion to help the government do what it 

should do. So thanks very much for being here and we will begin 

with Chairman Conrad. 

7 

1The prepared statement of Senator Conrad appears in the Appendix on page 51. 

TESTIMONY OF HON. KENT CONRAD,1 A U.S. SENATOR FROM 

THE STATE OF NORTH DAKOTA 

Senator CONRAD. Thank you, Mr. Chairman, thank you so much 

for holding this hearing. Thank you for your strong leadership on 

this issue. I personally appreciate it very much. 

Senator Collins, to you, as well. You have been a stalwart and 

we very much appreciate it. 

Senator Voinovich, there could not be a more passionate, articulate advocate for taking on the debt of this country than you are 

and you have been, and we thank you for your willingness to partner with us to try to get something done that is in the important 

interest of the country. 

As always, it is good to be with the former Chairman of the 

Budget Committee and my friend, Senator Gregg, to discuss this 

critical issue. 

Senator Lieberman, you have been a leader in the Senate, bringing attention to our long-term fiscal crisis. Along with Senator 

Voinovich, you have introduced the Securing America’s Future 

Economy Commission Act, or SAFE Commission Act, which would 

establish a special process to develop legislation to significantly improve our long-term fiscal condition. 

I believe that you are exactly right, that a special process is required. Those who say, leave it to the regular order, it will not happen. We all know it will not happen. We only need to point to the 

most recent effort on health care reform, which I believe does make 

modest improvements, but it does not fundamentally address the 

long-term imbalances. 

And it is the nature of the beast here. I have been here 23 years. 

If there is anything I am certain of, I am certain that the regular 

order is not going to take on this burgeoning debt. 

As you know, last week, Senator Gregg and I reintroduced our 

proposal for a special process. We call it the Bipartisan Task Force 

for Responsible Fiscal Action. That bill already has the support 

now of 34 of our colleagues—we had another colleague join just last 

night—20 Republicans and 14 Democrats, including Senator 

Lieberman, Senator Murkowski—who is the one that joined just 

yesterday—and Senator Voinovich is a leader, as well. I thank you 

for your support. Thirty-four cosponsors in that short of a period, 

because we just circulated this proposal days ago. I thank all of the 

Members who have signed up, and some of them under pretty 

fierce lobbying by those who do not want to see us proceed in this 

way. 

We have colleagues who are very dug in on the notion that this 

invades their turf and this upsets the normal distribution of responsibilities to the committees of Congress. I would just say to 

those members, I respect the jurisdiction of your committees, but 

even more than that, I believe the threat posed by the debt crisis 

in this country supercedes any commitment to the jurisdiction of 

any specific committee because the committees of jurisdiction have 

had years to face up to this problem and have failed to do so. That 

is a fact. 

8 

1The exhibit referenced by Senator Conrad appears in the Aoppendix on page 51. 

Before I discuss the specifics of the Conrad-Gregg Task Force, 

allow me to take just a moment to discuss how I see our economic 

future and why I think some special process is absolutely essential. 

Nothing short of the economic future of our Nation is at stake. 

Here is Newsweek’s cover story from December 7, 2009. I note 

parenthetically December 7 is Pearl Harbor Day. I hope we do not 

have to have a similar catastrophe before we wake up and face up 

to this problem. The Newsweek cover is titled, ‘‘How Great Powers 

Fall: Steep Debt, Slow Growth, and High Spending Kill Empires— 

and America Could Be Next.’’ 1

If you go inside the magazine and read the article, this is one 

paragraph. ‘‘This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force. If the United States does 

not come up soon with a credible plan to restore the Federal budget 

to balanced over the next 5 to 10 years, the danger is very real that 

a debt crisis could lead to a major weakening of American power. 

We cannot allow that to happen.’’ 

The debt explosion in our country has already begun. The Chairman referenced it, as did Senators Voinovich and Collins. Under 

one 10-year scenario, gross Federal debt could rise to 114 percent 

of our GDP by 2019. That is approaching the record 121 percent 

of GDP debt level reached at the end of World War II. 

I do not know what it is going to take to convince some of our 

colleagues that we have to act and we have to begin to act now. 

If this isn’t a warning sign, if this isn’t an indication that it is imperative that we take on this burgeoning debt, I do not know what 

it would take. But, the longer-term outlook is even more serious. 

Mr. Chairman, according to the CBO and their long-term fiscal 

outlook, over the next 50 years, with rising health care costs, the 

retirement of the baby boom generation, the permanent extension 

of all the 2001 and 2003 tax cuts, the Federal debt could climb to 

more than 400 percent of the GDP. That is totally unsustainable. 

And you do not have to have my word or Senator Gregg’s word 

for it. We have had the head of the CBO tell us that is completely 

unsustainable, and the head of the Government Accountability Office (GAO) when the distinguished David Walker was in that position, who will be testifying before you shortly. We have had testimony from the Secretary of the Treasury in the previous Administration and this Administration. We have had the testimony of the 

Chairman of the Federal Reserve. And you will be hearing from a 

former Chairman of the Federal Reserve a little later in this hearing. No doubt, he would make the same judgment. We have never 

had a debt in this country’s history of 400 percent of the GDP. 

We believe that our task force proposal will work because it is 

based on several key principles. First, it is based on the principle 

of accountability. All of the task force members would be directly 

accountable to the American people. The panel would include 18 

members, 10 Democrats, two of whom would be from the Administration, and eight Republicans. So in terms of Members of Congress, it would be eight Democrats, eight Republicans, two representatives of the Administration. 

9 

It would be made up of currently-serving Members of Congress 

selected by the Democratic and Republican leaders in Congress. 

The Administration officials would be the Treasury Secretary and 

one other official selected by the President. This means the bipartisan leadership at the highest levels of the government would be 

responsible for the panel’s outcome. 

Second, the task force would have broad coverage. Everything 

would be on the table, including spending and revenues. We cannot 

solve this problem, I believe, by looking at only one side of the ledger. 

Third, the task force would follow an expedited process. To minimize politicization of the task force, its recommendations would be 

submitted after the 2010 election. If there is a broad bipartisan 

agreement of the task force members with at least 14 of the 18 

members agreeing, the recommendations would get fast track consideration in the Senate—no amendments, no filibustering. 

I know there are many who are concerned about the no amendment provision. Senator Collins, you referenced it. Let me just say 

there are some who have suggested alternatives, such as actuarially-equivalent amendments. The reason Senator Gregg and I 

reached the conclusion of no amendments is because in watching 

the process here, we have concluded if there are amendments, the 

Republicans will put up an amendment that will say, we will address the deficit but just in one particular way. The Democrats will 

do the same. Everybody will have their amendment to explain to 

their constituents to explain why they did not support the final 

package, and therefore we never get to implementation of an actual 

solution. 

A final vote on the recommendations would occur before the 

111th Congress adjourns. That is what we call the Voinovich Provision. Senator Voinovich, after all this effort, deserves to be here to 

vote, as does Senator Gregg. Senator Gregg has also announced, 

and I lament this, that he is going to be retiring. And he and Senator Voinovich, if we do not vote in the 111th, will not have a 

chance to do something that they have worked so hard to achieve. 

Fourth and perhaps most important, the task force would ensure 

a bipartisan outcome. As I noted, it would take 14 of the 18 task 

force members to agree to report the recommendations to get fast 

track consideration. Final passage would require a three-fifths 

super-majority in both the Senate and the House. And the President would still have to sign the bill, and, of course, he would reserve and preserve his ability to veto. 

So everybody would have to be in. Everybody would have to be 

supportive of a solution. We believe, Senator Gregg and I, that is 

important for the sustainability for whatever is done, because this 

will not be a single year solution or a couple of years of alterations 

of the trajectory. This is going to have to be a long-term strategy 

and plan if it is to succeed. 

We believe this is the best way to accomplish the changes that 

are needed and to maintain them over time. No one party can or 

will do this on its own. It is not going to happen. And if we are 

going to be honest with each other and honest with the American 

people, we have to acknowledge it is going to take a special process 

to get this job done. 

10 

This is the formulation that Senator Gregg and I have come to 

after many months of discussion and negotiation. It is very similar 

in many ways to your SAFE Commission. Both of our proposals require bipartisanship in the task force and in Congress. Both require that everything be on the table. And both guarantee that the 

task force recommendations get a vote. I cannot overemphasize 

that point. We have to structure a circumstance that allows the 

recommendations to get a vote. 

Your proposal would have some private citizens serve on the 

SAFE Commission and require the Commission to hold public town 

hall meetings. Certainly, those are worthy ideas. We held a Budget 

Committee hearing on this topic in November and you testified 

about the SAFE Commission, and we appreciate your testimony. As 

a result of that hearing, Senator Gregg and I made changes to our 

task force that would allow it to benefit from the assistance of 

knowledgeable and reputable citizens as part of an advisory panel. 

These same people could help the task force engage the public and 

build support for the ideas contained in the recommendations. 

One area where our proposals differ is the use of alternative 

ways of budget scoring to evaluate the long-term effects. The discussion about whether there are better ways to evaluate the budgetary effects of legislation is complicated. I personally prefer traditional CBO scoring. But again, I do not think we should let any of 

these issues stand in the way of a resolution. 

The single most important thing we can do in terms of our fiscal 

future is to put in place a process that can lead to a conclusion and 

can lead to the implementation of a solution. 

Chairman Lieberman, the work of any task force like you and I 

have proposed will not just be formidable, but it is critical to our 

country’s future. Thank you and Senator Collins for this opportunity, and again, special thanks to my colleague, Senator 

Voinovich, for his leadership over a very long time on this issue. 

He does not just talk the talk. He has walked the walk, as have 

you, Chairman Lieberman and Senator Collins. And I notice that 

Senator Carper has joined us. He, too, has been somebody, as a 

Member of this Committee and as a member of the Senate Finance 

Committee, who has shown a real willingness to take on this 

threat. 

I have said to my colleagues on many occasions, the debt is the 

threat. That is where we must focus our energy and attention. I 

thank you very much for this opportunity. 

Chairman LIEBERMAN. Thank you, Chairman Conrad, for an excellent opening statement. 

Senator Gregg, great to see you. Thank you for your leadership 

over a long time here. I can see a theme building. We are going 

to win this one for George and Judd. [Laughter.] 

Senator GREGG. I like that. 

Chairman LIEBERMAN. And anyone else who is retiring who 

would like to do something about the debt. 

Senator GREGG. For all our grandchildren, hopefully. 

Chairman LIEBERMAN. Amen. Please proceed. 

11 

1The prepared statement of Senator Gregg with attachments appears in the Appendix on page 

56. 

TESTIMONY OF HON. JUDD GREGG,1 A U.S. SENATOR FROM 

THE STATE OF NEW HAMPSHIRE 

Senator GREGG. Well, thank you, Mr. Chairman. Thank you for 

holding this hearing. Senator Collins, Senator Carper, Senator 

Voinovich, all of you, thank you for your interest in this and for 

your proactive approach to this issue. 

A lot of good statements and thoughts have already been given. 

I just would like to tie together a few. Unfortunately, I am going 

to have to leave after I speak because we are about to confirm the 

Chairman of the Federal Reserve in the Banking Committee and 

I want to make sure I make that vote. 

As you said, Mr. Chairman, I view this issue as the most serious 

issue our Nation confronts after the issue of a terrorist getting a 

weapon of mass destruction and possibly using it against us, because the implications of the numbers that Senator Conrad has 

outlined here in a very stark way are pretty clear. Essentially, we 

will reduce the quality of life of our Nation and of our children and 

our children’s children if we do not do something about the burden 

of the debt that we are passing on to them. 

We are already seeing signs of this. This used to be an issue that 

was over the horizon. No longer. It is coming at us. It is on the horizon. It is closing. We are seeing signs of this in the world community. We are seeing nations which are confronting the problem 

today—Greece, Ireland, potentially Spain, maybe Austria—where 

they basically have run up so much debt as a result of not running 

proper fiscal policy that they are essentially collapsing. 

We have the unique luxury of being able to monetize our debt because we are the world currency. But even that luxury and 

strength cannot confront and stand up to the debt numbers that 

are coming at us. We know that for a fact. And we are being told 

this. We are being told it by independent groups. 

Moody’s just took us and put us on a special list. There are 17 

industrialized nations which they have in a certain category in rating bonds. They have decided that amongst those 17, the United 

Kingdom and America will be put on a special group. They have 

not put us on a warning or a watch list yet, but they have given 

us a new title. I think it is called ‘‘Resilient’’ or something. It is reflecting the fact that they know the problem is coming unless we 

address it, and address it soon. 

The issue, of course, is why do we not do it through regular 

order. I mean, that is our job, is it not? That is what we are paid 

for. That is why the people send us here. And it is pretty obvious 

why we do not do it through regular order, because the political 

system does not allow it to happen. It is just that simple. 

You quoted Pogo. I have used that line a few times myself. Another way to express it is this way. We keep looking around for 

what is the next systemic risk in our economy. The systemic risk 

is the Congress. It is that simple. Because as a very practical matter, what happens here is when you put policy on the table, when 

our side of the aisle, for example, suggests something on Social Security, or your side of the aisle suggests something on tax policy, 

12 

immediately, there is this massive cadre of interest groups out 

there who essentially make their living off of demonizing whatever 

the proposal is, and poisoning the well and making it impossible. 

Sometimes we cannot even get the policy to the start line, but we 

can never get it off the start line when it is big issues like this. 

And so we concluded, Senator Conrad and I, that starting at the 

policy inevitably leads to virtually nothing happening. And so what 

we have to do is set up a procedure that drives policy, and that is 

what we tried to do with this proposal. 

The proposal itself has obviously some differences from your 

SAFE Act and from concepts that are on the House side, but let 

me talk about some of the reasons why we came to the conclusion 

that we should do it the way we have proposed—obviously, nothing 

is written in stone around here, but the concepts. 

At the core of this, the American people have to believe that 

whatever is proposed is absolutely bipartisan and fair. These issues 

are so all-encompassing, they impact every American in such a personal way—Social Security, Medicare, tax policy—that unless you 

do it in a bipartisan, fair way, the American people will reject it. 

They simply will. And so the process of drawing up the policy must 

be seen as fair and bipartisan. 

So a lot of effort was put into the issue of the make-up of the 

commission, what the membership would be, and how the vote 

process would occur, and that is why we have these super-majorities, 14 to report of the 18 people. That means the majority, which 

will be the Democratic Party in this instance because you will have 

eight members from the House and Senate and two members from 

the Administration, and the Minority, which will be eight members 

from the House and the Senate, are assured that neither side can 

game the other. Four people have to be there from the Minority to 

vote for it. So a majority of the Minority basically has to vote for 

the final product, assuming they got into that type of conflict, 

which hopefully they would not. But the purpose is to send a clear 

signal that it has to be fair, it has to be bipartisan, which I think 

is critical to this effort. 

The commission has co-chairmen, one Republican, one Democrat, 

so it is very clear that the purpose is to have bipartisanship. 

Why did we not put outsiders on the commission? Well, that is 

a legitimate point. I mean, how do you handle that? Our conclusion 

was this. We wanted people who had skin in the game, knew the 

process, because this has to be done. The people who reach these 

conclusions have to be able to execute the conclusions, and that 

means we think they should be Members of Congress and members 

of the Administration. 

And the secondary issue which concerned us about the outsider 

issue is who do you pick? I mean, there are so many people who 

have a legitimate right to be on this undertaking, that once you 

start choosing from one group, how do you say no to the next 

group, and you would end up with a massive commission, probably 

unwieldy, and there would be questions about whether or not it 

was going to be fair and bipartisan because these different interest 

groups would bring such issues to the table that would be singular 

in their sense of purpose. So we went with purely Members of Congress and members of the Administration. 

13 

The issue of amendment, that is probably the key issue, in my 

opinion, and I think Senator Conrad explained it. But basically, 

amendments allow Members of Congress to hide in the corners. 

That is what amendments do. You vote for an amendment, then 

you can vote against the final passage. 

The Base Realignment and Closure (BRAC) Commission, which 

we basically track, did not allow amendments, and I think it 

worked because it did not. If there had been amendments, the 

BRAC Commission probably never would have passed. So I do not 

think you can do amendments and have this work. I feel pretty 

strongly about that, because I know that the way the place works, 

people who vote for the amendment did not vote for final passage 

and claimed it is simply because their amendment wasn’t included. 

You have to believe, if you take this route, that the people who 

are sitting on this commission who are going to come to this conclusion are not going to do anything that isn’t bipartisan and fair, and 

it is structured so they cannot. The amendment process will have 

been addressed in the development of the issues and the policies. 

It is, obviously, time to act. Even if we were to put this in place 

today and have this fast time frame, the Voinovich time frame that 

it is concluded by the end of the Congress, that policies that are 

going to correct this are not going to be precipitously undertaken. 

You cannot do that precipitously. It would be too much dislocation 

to the economy. It is going to take probably years for these policies 

to be implemented. Many of them are going to require fairly significant phase-in times. And yet the debt is going to mount all the 

time. So we need to start acting now. 

But as a very practical matter, if we pass this commission today 

or within the near term, we would be sending a message, an unequivocal message to the world that America is going to stand up 

to our problem and we are going to do something about it, and I 

think that would have a massively positive impact on our ability 

to sell our debt, on interest rates in this country, and on our economy generally, because the American people would see that we are 

going to do something and the world would see that we were going 

to do something. 

So I think just the passage of this commission, or this task force, 

would have a hugely positive effect on our Nation’s economic wellbeing, and I thank you very much for your time. 

Chairman LIEBERMAN. Not at all, Senator Gregg. Thanks for the 

time you spent with us. Thanks for an excellent statement. 

I will say for myself—I think you know this, and I think I speak 

for Senator Voinovich, but obviously he will speak for himself—that 

though we have sponsored another proposal, the proposal that you 

and Senator Conrad have put forward is the proposal now. We may 

want to tinker with it, all of us in one way or another, before it 

comes to a vote, but this is the vehicle for finally doing something 

about this, so I appreciate it. 

Normally, we do not ask our colleagues questions. If you have 

time, Senator Conrad, and I do not want to keep Chairman Greenspan and Mr. Walker waiting too much, but I want to suggest to 

my colleagues, maybe we just each take one question to ask of you. 

Senator CONRAD. I am happy to answer any questions you have. 

14 

Chairman LIEBERMAN. OK, good. I realized as I am formulating, 

I am going to try to ask two questions in one. Sorry. [Laughter.] 

I really want to ask you where we are now in the process—some 

people say this commission can be established to do what we want 

to do by Executive Order. Now, of course, the great challenge to 

that is the Executive Order cannot bind Congress to a no-amendment process. The Executive Order can set up a commission very 

much like the commission we are talking about here. So how do 

you evaluate those two ways to achieve our goal? 

Senator CONRAD. Let me say that an Executive Order commission—and the commission in the 1980s to deal with Social Security 

was an Executive Order commission. We ought to acknowledge 

that. I think this is a different time and a different circumstance. 

Then, you had an immediate crisis. And then, you had a special relationship between the Speaker and the President of the United 

States, who were of opposite parties. 

Chairman LIEBERMAN. Right. 

Senator CONRAD. That is a different circumstance than we have 

today. So we chose to have a statutory commission, one that would 

be in law, that would be able to assure—and I think this is the single most important point—that the recommendations get to a vote, 

up or down, in the Congress of the United States. Senator Gregg 

said it well. I think if any structure that is put in place that does 

not assure an up or down vote on the recommendations is highly 

unlikely to succeed. 

With respect to amendments, we chose to have no amendments 

and again, the only way you can do it is in a statutory commission 

because then it is law. In an Executive Order commission, you 

could not restrict the number of amendments. But there are negotiations ongoing to deal with a whole series of issues. 

One possibility on the amendment front is actuarially equivalent 

amendments. So, for example, if the commission said you have to 

save a trillion dollars over 5 years, and it is 50 percent revenue 

and 50 percent spending cuts, or it is 60 percent spending cuts and 

40 percent revenue, whatever it is, that you require amendments 

to be actuarially equivalent, that they would have to meet those 

same metrics, that same amount of savings, that same distribution. 

That would be one way of preventing a gaming of the system and 

still provide an ability to amend. I think Senator Collins was describing in some way an actuarially equivalent approach. So that 

is one possibility. 

Chairman LIEBERMAN. Thanks for that. That is my one question. 

I will say that as I listen to you and think about this, that it is 

clear that the preferable course is a statutory commission because 

then we really create a process. We may come to a point of decision 

where, for some reason, we cannot enact a statutory commission 

through both Houses of Congress, and then we are going to have 

to decide if the President is intending or willing to issue an Executive Order, because of the urgency of the crisis, if that a better way 

to proceed, and if there some way we can try to do what the commission would do to limit amendments. 

I am going to yield to Senator Collins. 

Senator COLLINS. Thank you. 

15 

Senator Conrad, there is a third commission approach that has 

been proposed by our colleagues. I think it is Senators Feinstein 

and Cornyn. They have proposed a commission that would focus on 

the three major entitlement programs—Social Security, Medicare, 

and Medicaid. They argue that those three programs are the big 

cost drivers in the budget and that it would be best to try to have 

a more narrow focus and get a consensus on what to do with those 

three programs. What is your reaction to that approach? 

Senator CONRAD. My reaction is, I think you also have to have 

revenue on the table. And I say that because as I analyze our current revenue system, it is inefficient, it is unfair, and it is hurting 

the competitive position of the country. I say that because by my 

calculations, we are only collecting about 76 percent of what is actually owed under the current system. We have an extraordinarily 

inefficient system that is hemorrhaging revenue to offshore tax havens, to abusive tax shelters, the tax gap. 

I think we are going to have to fundamentally change the tax 

code in light of the world we live in today. Our tax system was constructed at a time we did not have to be worried about the competitive position of the United States. We were so dominant. That is 

no longer the case. 

So many people say, well, if it is revenue, that automatically 

means a tax increase. My own belief is, before you ask anybody for 

a tax increase, we ought to construct a tax system that collects 

most of what is owed in a far more efficient way, in a far more fair 

way, and in a way that enhances the competitive position of the 

country. So I think revenue has to be on the table. 

Finally, what they are suggesting leaves out, of course, is domestic discretionary spending, including defense, and we have found in 

reactions across the country, people want everything on the table. 

They want everything on the table. They simply do not believe that 

there are only a few places where money is being wasted. And you 

know what? I think they are right. 

As Chairman of the Budget Committee, I have often thought 

about writing a book about what I have seen and what I have 

found. I think the American people get it. They know we can do 

a lot better. 

Senator COLLINS. Thank you for your leadership. 

Chairman LIEBERMAN. Thanks you. Senator Voinovich, one question. 

Senator VOINOVICH. As you know, there is some difference of 

opinion in the House, I think, on the SAFE legislation. We have 

about 100 sponsors. But it has been pretty clear that the Speaker 

and the Chairman of the Ways and Means Committee are not enthusiastic about this. Do you believe that this cannot get done 

without the support of the President of the United States? 

Senator CONRAD. Well, we could, just as a factual matter, put in 

place a commission through negotiation, because there are those of 

us who have taken the position we will not vote for any long-term 

extension of the debt without this being included. But as a practical matter, the President, I think, has to be supportive. 

Now, does that mean he has to support every jot and tittle of 

what we have outlined here in the Conrad-Gregg Act? No. Is there 

room for negotiation? Yes. Is it possible that we could find ourVerDate Nov 24 2008 14:50 May 12, 2011 Jkt 56156 PO 00000 Frm 000019 Fmt 06633 Sfmt 06633 P:\DOCS\56156.TXT SAFFAIRS PsN: PAT
16 

selves in a circumstance where we cannot pass a statutory commission, because it would require 60 votes in the U.S. Senate. We have 

34 cosponsors. Thirty-four is not 60. It is also possible, even if we 

passed it in the Senate, that it would not get passed in the House. 

So I think we have to preserve the alternative for some other 

type of commission. My first preference would be another form of 

statutory commission, maybe not a BRAC-like process but at least 

one that would assure us by law that you would get to a vote on 

the recommendations of a commission, and certainly an Executive 

Order commission, properly designed and properly committed to by 

the leadership, including the President, could result in a vote on 

the commission recommendations. 

But I think, by far, the most preferable is a statutory commission, as we have outlined and as you outlined. 

Senator VOINOVICH. And the answer is that the President will 

have to embrace something and take a leadership role for this to 

happen? 

Senator CONRAD. As a practical matter, I find it hard to believe 

that we could get to the end of this process without a President 

being engaged and a President being supportive, and I cannot 

speak for the President. I cannot speak for the leaders in the 

House. I believe there is growing momentum behind this idea. In 

the negotiations I have had with the White House, with colleagues 

in the House, because remember, the Majority Leader there, Mr. 

Hoyer, is a strong supporter of the commission approach. And I 

think there is a growing recognition in the House, Senate, and the 

White House that we confront something here that is going to require a special process. 

Senator VOINOVICH. Thank you. 

Chairman LIEBERMAN. Thanks. Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. I am almost reluctant to try to ask a question. 

Let me just start out by saying thank you so much for your leadership day-to-day of the Budget Committee and all the time and energy that you and Senator Gregg have put into this idea. I know 

it is extraordinary. And to your staffs. Thank you for standing up 

and saying, all right, this is where we draw the line. 

I also want to thank you for showing a fair amount of flexibility 

in taking input and suggestions to modify the original proposal 

that you started off with. 

I am not going to ask you a question. I just want to say, yesterday in this same room, I chaired a hearing of another nature. 

When I was in the House, Charlie Stenholm and I and others sponsored a balanced budget amendment to the Constitution, not one 

that mandated a balanced budget every year, but something that 

actually mandated the President propose a balanced budget and allowed the Congress to unbalance the budget with a three-fifths 

vote, allowed the Congress to raise the debt ceiling with a threefifths vote, but put some emphasis on the President. 

I was struck by Senator Gregg’s comments. He says, it is basically the Congress’s fault that we are in this mess. Well, there is 

plenty of blame to go around, and I would suggest that it is a 

17 

shared responsibility of both the Legislative and the Executive 

Branch. 

The hearing that I held yesterday was on one subject that would 

require a vote on the President’s rescissions, would allow us to defeat the rescissions with a simple majority vote in either the House 

or Senate, and would compel us to vote on a rescission. I am struck 

by one of the themes that comes through your proposal is that it 

gets us to a place where we have to vote, and I think that is part 

of the beauty of it. 

I am mindful, having worked with some of our colleagues in this 

group of 10, five centrist Democrats and five progressives, to try to 

come up with a compromise on the public plan and how to go forward on the health care, that it is hard to get members to spend 

concentrated amounts of time for an extended period of time. It is 

very difficult to do that, as you well know. And in terms of constructing the membership, where it is largely House and Senate 

Members, I would just ask us to keep that in mind. 

There are a number of people who used to serve here, though, 

who know a lot about the budget process, who understand government very well, and frankly, who might have a little more time on 

their hands than we do, and I would ask that we particularly keep 

some of them in mind as possible people to serve here and could 

add a whole lot—not just to the process, but to the outcome, as 

well. Any thoughts on that? 

Senator CONRAD. All of this is delicate in terms of responses I 

might make because we are in a negotiation and I do not want to 

negotiate against myself, especially in public. 

Chairman LIEBERMAN. Don’t. 

Senator CONRAD. So we have been careful to outline what we 

think would be the most effective way to approach this. Are there 

other ways? Yes, there are, and many of those are on the table, and 

I think, without my referencing what I would support, I am flexible. Senator Gregg is willing to be flexible. We are interested in 

getting a result and we are interested in getting a result that can 

actually transfer into this country effectively taking on this debt 

threat. 

Chairman LIEBERMAN. Thanks. Senator Burris, we are just doing 

one question on this round. 

Senator BURRIS. One question? 

Chairman LIEBERMAN. That is all, because I want to get to the 

next panel. 

OPENING STATEMENT OF SENATOR BURRIS 

Senator BURRIS. Thank you, Mr. Chairman. 

I will have a quick question. Is there a conflict between S. 2835 

and S. 1056? You two have a bill, and you two have a bill, Gregg 

and Conrad. Are you all going to merge these, or is there a conflict? 

Senator CONRAD. There is conflict in the sense they are somewhat different approaches, which I outlined in my statement. But 

by and large, they have a lot of commonality, and the commonality 

is it has to be bipartisan, it has to have a special process, it requires a super-majority to advance, and that the President retains 

all of his powers. Those are commonalities. 

18 

There are differences, but really the differences are in nuance 

and membership. We have all Members of Congress and representatives of the Administration. The alternative proposal has some 

outsiders, so I would say that is probably the major difference, 

whether there should be outsiders as members or it should all be 

Members of Congress and representatives of the Administration. 

Senator BURRIS. Senator, I assume that we are trying to do this 

after the 2010 elections and you have a strict timetable and strict 

restrictions. So you are trying to freeze things as they are in your 

proposal going forward so that we will not do any borrowing, and 

you look at how you are going to educate the public to the fact that 

every demand that the citizens are making on the Federal Government cannot be met if we go to this type of process. 

You do know the reason why we have debt, right? It is because 

we believe we have to meet the demand of our citizens and everybody has their little special project that they need and they want 

somebody’s ox to get gored and rather than goring their ox. So I 

just hope any commission that takes this into consideration will 

definitely understand, because I spent half of my life in government, especially on the State level, and we do have balanced budgets. But right now, those balanced budgets are killing all the 

States. Most all of them have deficits and they are running them 

and they do not know how to meet it. That is because of the demand of the citizenry. So please, with all due respect, we have to 

do it, but we have to keep that in mind. 

Senator CONRAD. Yes, I could not agree more, Senator Burris. I 

want to make clear that we recognize debt can be a positive thing. 

The problem is when debt swamps you, and we know that the 

United States can handle its current debt. The problem that we 

confront is where we are headed. Where we are headed is towards 

unsustainable debt, and the goal that we have outlined here is to 

try to prevent that unsustainable debt from becoming a reality. We 

recognize debt financing as healthy for families and for governments up to a point. The problem we confront is we all know that 

we are headed for a circumstance in which, if we stay on the current trend line, we will have a debt that totally swamps us, and 

that is what we have to try to prevent. 

Senator BURRIS. Thank you, Senator. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks, Senator Burris. 

Senator Conrad, thanks very much. You said at one point—I forgot your exact words—that the process, executive and legislative, 

seems to be now responding to what you and those of us who support you are asking for, and honestly, because of all we have said 

about the process, the only reason I believe—well, two reasons. One 

is that the problem, the debt, is getting so serious for our country. 

But the second is that a group of us in the Senate, including 

about a dozen Democrats, have said we are simply not going to 

vote in the next week for a long-term extension of the debt unless 

something is done about this, unless we create a process, unless we 

get a vote on a statutory commission. 

This is unprecedented, and this is why I called it a rebellion. The 

stress level is going to go up and the pressure on all of us is going 

to go up. But this is so critical to our country’s future that I know 

you will remain strong, and I pledge to you my support, as well, 

19 

1The prepared statement of Mr. Greenspan appears in the Appendix on page 63. 

as we go forward. It is only going to take—you mentioned—about 

60 votes to pass this commission. It also takes 60 votes to extend 

our current debt limit, and I think that is going to be very hard 

to obtain before the end of this year, certainly a long-term extension, unless we get some specific response to the request that a 

group of us are asking under your leadership. So I thank you for 

that, and if we stick together, we will make something good happen. 

Senator CONRAD. Let me just say, if I can, there will be no longterm extension of the debt without this being included. Our group 

is resolute and they have held up under a great deal of pressure 

and we are not going to approve any long-term extension of the 

debt without this being addressed. 

Chairman LIEBERMAN. Thank you. 

Senator CONRAD. Thank you. 

Chairman LIEBERMAN. Stay strong. See you soon. 

I am glad now to call the second panel, Alan Greenspan, former 

Chairman of the Federal Reserve, and David Walker, former Comptroller General of the United States of America and now the head 

of the—what do you go by now? 

Mr. WALKER. Mr. Chairman, I am President and CEO of the 

Peter G. Peterson Foundation. 

Chairman LIEBERMAN. The Peterson Foundation. I thank you 

very much. I thank both of you for your patience as we were listening to, and I think being encouraged and learning from—— 

Senator MCCAIN. Mr. Chairman, I am sorry I was not here to 

ask the Senator from North Dakota how you want to have a commission to cut spending and at the same time approve of and vote 

for $4 billion in earmarked pork barrel projects. I am sorry I wasn’t 

here to ask the Senator that. There is a certain amount of a double 

standard there that I strenuously object to. 

Chairman LIEBERMAN. I am sure Senator Conrad is upset that 

you were not here to ask him that question, too. [Laughter.] 

Chairman Greenspan, thanks so much for being here to bring 

your own experience, your voice of authority, all that you know 

about the economy to bear on this urgent problem. You have obviously spoken about it a lot before, but at this moment in this Congress, your voice publicly, I think, really can be very critical, very 

important. So we welcome your testimony at this time. 

Again, there is a time limit up there, but do not feel controlled 

by it. Just speak as long as you want to speak. Now, I say that 

to you because you are not a Senator. [Laughter.] 

Go ahead. Please proceed. 

TESTIMONY OF HON. ALAN GREENSPAN,1 FORMER CHAIRMAN 

OF THE FEDERAL RESERVE 

Mr. GREENSPAN. Thank you very much, Mr. Chairman. I also 

want to thank Ranking Member Collins and Members of the Committee for coming to what I think is one of the most critical hearings in quite a long time. 

For more than two centuries, we have been able to hold the level 

of U.S. Federal debt to well below our capacity to borrow. But for 

20 

the next decade or two, on some reasonable sets of assumptions, 

our borrowing cushion shrinks significantly, threatening to test our 

capacity to raise funds to finance unprecedented deficits. 

The challenge to contain this threat is more urgent than at any 

time in our history, in part because of today’s limited flexibility of 

adjustment, especially of entitlement spending whose constituencies are very well entrenched. Compounding this concern is our 

inability to accurately forecast current services spending. Projecting Social Security 10 or 20 years into the future is not too difficult. It is a defined benefit program whose payments in real terms 

are narrowly defined by law. Similarly, owing to long experience in 

forecasting non-military discretionary budgets, outlay projections in 

this area are also narrowly defined. 

Projections of Medicare and Medicaid, however, are far more 

daunting. Unlike Social Security, these are in-kind entitlements 

whose levels are determined by individuals’ particular medical 

needs. The number of future beneficiaries in, say, 2030 is readily 

predictable, since they are already born. But future per capita benefits are subject to very wide uncertainties. 

Medical technology and pharmacology are advancing rapidly to 

previously unimagined heights. With no meaningful restraint on 

our subsidized fee-for-service medical care system, demand for advanced technologies and drugs is largely without limit. Medicare 

Trustees’ forecast assumptions, especially beyond 10 years, are, of 

necessity, assumptions, not forecasts. 

Short of some form of market price or administrative rationing— 

a political third rail, obviously—ever-rising medical services will 

eventually strain the physical capacity of our economy. Since demand for medical services by its nature is highly inelastic, medical 

services’ share of GDP has no credible immediate upside restraint. 

The simple fact is that we have promised resources which by any 

reasonable projection we will not have, a morally untenable position. Those who will retire in the years ahead depend on government’s promises to plan their future. 

We are not dealing with a simple problem of finance solved with 

the addition of appropriated dollars. It is a physical resource crisis. 

If the dollar share of GDP devoted to medical services is rising, so 

is the share of medical workers in our labor force and medical 

hardware in our capital stock. Importantly, a dollar of the Nation’s 

scarce savings employed to finance new medical technology investment is a dollar not available to fund other critical non-medical 

cutting-edge technologies that enhance our material well-being. 

The health of the population, of course, must take precedence 

over material considerations. An unhealthy population will not be 

productive. But there has to be a point where diversion of real resources to medical services no longer measurably enhances longevity or reduces morbidity. 

Our scope for increasing the size of the overall economic pie to 

resolve our pending crisis is limited by the growth of our labor 

force and growth of productivity. Short of a significant increase in 

immigration, the size of our labor force in 2030 is fixed in a relatively narrow range. And if history is any guide, so is long-term 

productivity growth. 

21 

1The prepared statement of Mr. Walker appears in the Appendix on page 66. 

Since 1870, non-farm productivity gains over 15-year periods has 

rarely strayed outside the range of 1 percent to 3 percent annually, 

averaging slightly more than 2 percent. We and the rest of the developed world are at the cutting edge of technologies. Accordingly, 

we apparently cannot for a protracted period exceed 3 percent productivity growth, presumably because there is a limit to human intelligence, the source of all innovation. 

The recommendation of Senators Conrad and Gregg for a Bipartisan Fiscal Task Force is an excellent idea, and I thought the discussion that was very interestingly expanded earlier this morning 

is clearly going in the right direction and I hope that you succeed. 

I trust any such task force will address the very thorny issue of the 

asymmetrical consequences of too much or too little fiscal restraint. 

In the former case, too much restraint is not a risk and would 

in any event free resources for other initiatives. The dire consequences of a failure to tighten sufficiently to balance our books, 

however, calls for policies that err significantly on the side of restraint. I understand that this is politically extraordinarily difficult 

to do, but our Nation has never before had to confront so formidable a fiscal crisis as is now visible just over the horizon. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you very much, Chairman Greenspan. It is very serious, very somber, and very insightful particularly to hear from you that this really is unprecedented in our history. It is a fiscal crisis the likes of which we have not faced before 

and it challenges us to respond equally in an unprecedented way. 

David Walker, welcome back. We feel like you are a member of 

the family at this Committee. Thank you for the work you have 

done at the Peterson Foundation and really around the country to 

inform the public and, I think, inform what I described earlier as 

a citizens’ rebellion, uprising against the debt. So we welcome your 

testimony now. 

TESTIMONY OF HON. DAVID M. WALKER,1 FORMER 

COMPTROLLER GENERAL OF THE UNITED STATES 

Mr. WALKER. Thank you, Chairman Lieberman, Senator Collins, 

and other Senators. It is truly a pleasure and an honor to be here 

today, especially with Chairman Greenspan, really an honor to be 

here with him on this panel. I can see that now that he is no longer 

the sitting chairman of the Federal Reserve, he is very clear and 

very compelling on his language. You can understand everything 

that he says—— [Laughter.] 

Which is great. And I remember one of his best quotes, which 

was in the critically-acclaimed documentary, ‘‘I.O.USA,’’ which I 

also had the pleasure of being part of, where he said, ‘‘without savings, there is no future,’’ and he is 110 percent right. And rather 

than having savings, we have debt. 

I am from Alabama. I live in Virginia—— 

Chairman LIEBERMAN. And where are you moving? 

Mr. WALKER. Moving to Connecticut, the Constitution State. 

[Laughter.] 

And let me say for the record, I am a rebel with a cause. 

22 

Chairman LIEBERMAN. Good. 

Mr. WALKER. And you and others may be forming the rebellion 

peacefully within this institution and I am helping to lead the effort in the real world outside of Washington’s beltway, and it is 

working, and I will come back to that. 

I have the honor to testify today on behalf of the Center for the 

Study of the Presidency and the Congress on the strategic initiative 

that I happen to co-chair. Ambassador David Abshire is head of 

that institution. There are three co-chairs, former Governor Roy 

Romer from Colorado, also former chairman and CEO Norm Augustine of Lockheed Martin, and then myself. So it is a non-partisan commission, a Democrat, a Republican, and I, myself, for a 

number of years an Independent. 

I would like to commend Chairman Conrad, Senator Gregg, and 

other Senators here, especially Senator Voinovich, Senator Lieberman, for leading the charge here with regard to trying to bring fiscal sanity to this country. We are out of control and we are reaching a precipice, that if we do not take definitive action soon, we 

could pass a tipping point, a loss of confidence on behalf of foreign 

lenders that could have serious adverse consequences for the 

United States, for the American people, and for the world. 

Our challenge is not short-term deficits. Our challenge is not the 

current debt. Our challenge represents the serious structural deficits that are large, known, and growing, that are worse today than 

they were before the recession and the bailouts, and are closer to 

hitting our shores and that threaten to swamp our ship of state. 

As Chairman Greenspan said, for over 200 years, this country 

had a history of not running deficits and accumulating debt unless 

we were at war, faced a depression, or a serious recession. But that 

has changed in recent years. Everybody wants it all and they do 

not want to pay for it. And so they charge the national credit card, 

which at present we do not have a constitutional limit, which we 

should. We have a limit right now on what our credit is. We just 

do not know what it is because the Chinese, the Japanese, and Organization of the Petrol Exporting Countries (OPEC) have not told 

us yet. 

It is important that we recognize that the four factors that contributed to the mortgage-related subprime crisis exist for the Federal Government’s own finances. There are two big differences. The 

numbers are much bigger. The risks are much greater. That is one. 

The second is nobody is going to bail out America. We have to solve 

our own problem, and we need to get started soon. 

Chairman Conrad already noted the December 7, 2009, issue of 

Newsweek. I noted that he took out the part that said ‘‘Cheney in 

2012’’ on the top of it. [Laughter.] 

But in any event—I am not going to comment on that, but in any 

event, it was pretty clear and compelling and that article is an outstanding article. But I think it is important that we can still 

change course. We can be the first republic to stand the test of 

time. But we have to change course because we will not succeed 

unless we do. 

Theodore Roosevelt recognized that sometimes you have to do 

things differently. You need dramatic and fundamental reforms. 

You need to engage in movement politics. I think that is where we 

23 

are here today. Roosevelt recognized that the necessities of time 

and the challenges that we face sometimes require breaking out of 

normal party structures, normal legislative processes in order to 

leap forward. That is where we are today. 

At the Peter G. Peterson Foundation, which I am honored to 

head, we have been engaging in a variety of citizen education engagement efforts and this represents the results of the latest statistically valid public opinion survey. Eighty percent of Americans believe that escalating deficits and debt should be a top priority, secondary only to the economy and jobs, way ahead of health care reform, way ahead of climate change, way ahead of tax cuts, way 

ahead of proliferation of weapons of mass destruction, not that 

those are not legitimate issues, but they are relative priorities. 

Second, two-thirds of Americans believe that Washington is not 

paying enough attention to this issue. 

And third, 70 percent of Americans agree with Senators Conrad 

and Gregg, Lieberman, Voinovich, and others that we need a special commission that will engage the American people with the 

facts and the truth and the tough choices, that will make the case 

that we need to act soon, the benefits of doing so, the risks and 

consequences if we don’t, and that, in addition to that, will result 

in a vote in the Congress of the United States. One bill will not 

solve the problem. One act of Congress will not solve the problem. 

But we must receive a significant reduction in the $60-plus trillion 

in liabilities and unfunded promises that are growing by trillions 

of dollars a year on autopilot. We must do it before we pass the 

tipping point and lose the confidence of our lenders, especially our 

foreign lenders. 

Unfortunately, America is increasingly being mortgaged, and to 

a greater extent, that mortgage is held by foreign lenders. That is 

not in our long-term economic, national security, foreign policy, or 

even domestic tranquility interests over time. At the end of World 

War II, we had debt equal to GDP of 122 percent, but it was all 

owed to Americans. Today, 50 percent or slightly over of public 

debt is held by foreign lenders and growing. We are fortunate that 

they will lend us that money at low interest rates, but on our 

present course, both with regard to fiscal policy and monetary policy, once the economy turns around, we are likely to see higher interest rates. The question is, how much higher? 

I have a lot higher degree of confidence in the Federal Reserve 

to be able to make the changes that they need to make to turn 

around monetary policy than I do fiscal policy, because, quite 

frankly, fiscal policy is out of control. In the last 2 years alone, discretionary spending, if the appropriations bills for 2010 pass, will 

go up 20 percent in a time of no inflation. It is amazing, absolutely 

amazing. 

So we do need a special commission, one that will educate and 

engage the American people and result in a vote in the Congress. 

Some have argued that the commission is not the way to go, that 

the Congress ought to handle it in the regular order. Well, if the 

regular order was working, that would be a valid assertion. 

Some have argued that this is unconstitutional. That ignores the 

fact, in the final analysis, the only votes that count are the votes 

of Senators and Members of Congress and whether or not the 

24 

President signs the bill or vetoes the bill. So all the constitutional 

prerogatives are protected. 

And as everybody has said, everything has to be on the table. 

That is of critical importance in order to achieve a positive outcome. 

In closing, our Nation’s current fiscal path is irresponsible, immoral, and unsustainable. Our children and grandchildren will end 

up picking up the bill while at the same point in time we are reducing relative investments in their future at a time where they 

face increasing competition in an interconnected global economy. 

We are approaching a tipping point in American history. We are 

at a crossroads. We must choose the right path forward. We cannot 

allow America’s future to be worse than its past. 

We must be the first republic to stand the test of time. We owe 

it to ourselves, our country, and our families to do no less. In fact, 

we have a patriotic, fiduciary, and stewardship obligation to do no 

less, and a special commission is the way to go. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks very much, Mr. Walker. That was 

great. 

We will do 7-minute rounds of questions. 

Chairman Greenspan, you said something at the outset of your 

opening statement that I want to invite you to develop a bit. ‘‘For 

more than two centuries, we have been able to hold the level of 

U.S. Federal debt to well below our long-term capacity to borrow. 

But for the next decade or two, on some reasonable sets of assumptions, our borrowing cushion shrinks significantly, threatening to 

test our capacity to raise funds to finance unprecedented deficits.’’ 

That is the end of the quote from you. 

You are obviously not just talking about the statutory debt limit. 

You are talking about our national capacity for borrowing. And I 

wanted to ask you to speak a little bit more about that, because 

obviously if we run up against that, it is as consequential—I suppose even more consequential—than extending the debt limit. Tell 

us more about what you mean. 

Mr. GREENSPAN. We do not know where our borrowing capacity 

is. We have never tested it, never thought about it, never thought 

it was relevant. When you begin to look now at the potential escalation of debt outstanding, not only in the standard current services projections of CBO or anybody else, because that is pretty 

much of a guess in the longer-term years, but what we do know 

is that the range of error that the number can hide is very large. 

And when you see the daily, weekly rise in the net debt to the public, the Federal debt to the public—— 

Chairman LIEBERMAN. Right. 

Mr. GREENSPAN [continuing]. It is on a wholly different track 

than any time we have ever imagined. 

The trouble is that we are going to learn where the ceiling is 

through long-term interest rates beginning to move higher, very 

significant pressures on, for example, the Treasury Department, in 

auctioning its Treasury notes and bills. At that point, we are already beyond the point where simple action will restore balance. 

Because we do not know where that actual borrowing capacity, it 

is essential that we take actions well in advance of anything that 

25 

could occur which would disable the economy, because there is no 

way, as David Walker has been pointing out, to restore the budget 

balance unless we do very drastic things, and these are exceptionally difficult to implement in a democratic society. 

Chairman LIEBERMAN. So the question of borrowing capacity and 

what the limits of America’s borrowing capacity are, is not a question, if I am hearing you correctly, of when it is impossible for 

America to borrow in world markets. It is a question of when the 

interest we have to pay begins to rise so much that it will compromise our standard of living and so much more we value. 

Mr. GREENSPAN. If we ever get to that point, we will see it first 

in rising long-term interest rates—— 

Chairman LIEBERMAN. Right. 

Mr. GREENSPAN [continuing]. Because, clearly, the credit quality 

of any entity tends to be very evident on its ability to market longterm Treasury issues, or any long-term issue, and that when you 

see a particular entity in trouble, like the City of New York—— 

Chairman LIEBERMAN. Right. 

Mr. GREENSPAN [continuing]. What you saw first was they could 

not sell municipal bonds. Then they could not sell intermediate 

notes. And eventually, at the tail end of a process which led almost 

to the cliff of default, they could barely sell overnight issues. We 

are nowhere near there at the moment. 

Chairman LIEBERMAN. Right. 

Mr. GREENSPAN. Indeed, we have time. This is not months or 

quarters. It is years. But once the process is underway, when you 

have a highly inflexible budget situation—the problems begin. 

When we came out of World War II, we knew what was going to 

happen to overall expenditures. 

Chairman LIEBERMAN. Yes. 

Mr. GREENSPAN. We were not going to continue to spend militarily and spending came down very dramatically. We do not have 

that luxury anymore. 

Chairman LIEBERMAN. Take a moment, if you will, and explain 

for people who are listening or watching on TV, if long-term interest rates that the United States has to pay to sustain a debt begin 

to rise, as they will once we reach our borrowing capacity, if we do 

not do anything about it, how is that felt by average families or 

businesses? What happens? 

Mr. GREENSPAN. It is felt across the board, Mr. Chairman. First 

of all, very simply, if you get a rise in long-term Treasury rates, 

mortgage rates will move right with them. And mortgages are an 

$11 trillion market at this stage. 

As rates go up, not only in the out years, which is not our biggest 

issue, but as they gravitate back towards the shorter end of the 

market, the debt servicing costs become a very critical issue. When 

your debt is low, it is a problem when rates go up, but not a big 

one. But when you have very low average debt service rates, as we 

do now, in the context of swinging over to a very large level of outstanding debt that must be serviced, every point of additional interest rate has a very large impact on total spending, which, of 

course, means on the deficit itself. 

Chairman LIEBERMAN. Right. 

26 

Mr. GREENSPAN. And the critical issue that economists worry 

about is the spiral that begins to occur as you begin to get everrising debt and debt service, and as interest rates rise as a consequence of that, the debt service becomes explosive and that goes 

directly into the budget deficit, which makes the deficit begin to 

rise uncontrollably. 

Chairman LIEBERMAN. Higher, right, it is a vicious cycle. And 

just to try to close this round of questioning for myself, as longterm interest rates rise on our debt and mortgage rates rise, that 

obviously has an effect on the real estate sector of our economy, 

both residential and commercial. I presume it also has an effect on 

the capacity of businesses to borrow to sustain themselves, and 

that, in turn, would have an effect on employment, which is to say 

that it would lead to more unemployment. 

Mr. GREENSPAN. Yes, Mr. Chairman. And we could go over item 

after item—— 

Chairman LIEBERMAN. Yes. 

Mr. GREENSPAN [continuing]. In which it would affect it. It also 

would affect equity prices, which are not a small issue in an economy such as ours. So I would be very fearful that the ability of the 

business sector to borrow and invest is reduced, but also remember 

that as the government takes an ever-increasing share of our 

scarce savings—— 

Chairman LIEBERMAN. Right. 

Mr. GREENSPAN [continuing]. There is less of it available for the 

rest of the economy, the market-based economy. And since government has the prior lien, so to speak, on the Nation’s savings, the 

more it draws off, the less there is available in the mortgage market, in housing, for investment, physical investment, and our capacity to produce. So there are so many avenues in which this process, which we have never actually had to observe—— 

Chairman LIEBERMAN. Right. 

Mr. GREENSPAN [continuing]. There are so many avenues that 

this carries that its devastation in eroding the economy over the 

longer run is a frightening expectation. 

Chairman LIEBERMAN. Yes. Well, I thank you. My time is up. 

You see, I think it is very important for us to try to go down that 

road, and even though it is unprecedented, to begin to think about 

what the effects would be on every American, every family, every 

business, and our government, because as we confront what you obviously correctly describe as the very difficult political decisions we 

have to make to turn this around and what we will face if we do 

not do anything is, as you said, devastating compared to the difficulty of the challenges we are going to face to try to avoid that. 

I thank you. 

Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

Mr. Walker, I cannot help but observe the irony that we are having this debate about what to do with the unsustainable debt load 

of this country at a time that we are debating on the Senate floor 

a huge health care bill that is, in essence, creating a new entitlement program that has enormous consequences for our future 

budgets, and that the Chief Actuary for the Center for Medicare 

and Medicaid Services has estimated will actually drive national 

27 

health care spending up, not down. And Chairman Greenspan mentioned in his opening remarks just how important health care 

spending is to this whole debate. 

I know that the Peterson Foundation commissioned the Lewin 

Group to look at the impact of the Senate bill on long-term costs 

for the government. Could you comment on what the analysis 

found and also give us your own views on what we are doing on 

the Senate floor even as we speak? 

Mr. WALKER. Thank you, Senator Collins. It is somewhat ironic. 

Let me just note that the Lewin Group is owned by United Health 

Care, but they are an independent operation. They are not controlled by United Health Care with regard to what they do. The 

people that are there are former CBO people and they do great 

work. Let me also note that their findings are their findings, not 

the Peterson Foundation’s. 

But generally, we have found that the Peterson Foundation believes that fiscally responsible health care reform should meet four 

tests. Number one, it should pay for itself over 10 years. 

Number two, it should not add to deficits beyond 10 years. 

Number three, it should result in a significant reduction in the 

tens of trillions of dollars in unfunded obligations we already have. 

Medicare alone is underfunded $38 trillion and growing. 

And number four, it should result in total health care costs as 

a percentage of GDP that is less after the reform than before the 

reform. In other words, bend total health care cost curve down, not 

up. 

None of the bills meet that. None of them come close on number 

three and number four. Some of them meet it on number one and 

number two, but then the question is will the assumptions that 

they rely upon with regard to cranking down on provider reimbursements and other things actually be realized, because the 

track record in the past is not very good in that regard. 

So I think we need comprehensive health care reform. But frankly, the bill that is being talked about now is a coverage bill, and 

the only reason that people are talking about cost is to pay for coverage. The one thing that could bankrupt America is health care 

cost and we are not doing enough to really, truly be able to reduce 

health care costs as well as the rate of increase. That is where we 

need to keep our eye on the ball, and so far, people are not doing 

that. 

Senator COLLINS. Thank you. I could not agree more with what 

you have just said. 

Chairman Greenspan, you headed a very successful commission 

in 1983 to deal with a looming crisis in the Social Security system. 

Reflecting back on that experience, could you give us any advice as 

we look at the commission model, since you chaired a successful 

model for constraining the costs of a major entitlement program? 

Mr. GREENSPAN. Certain things occurred during that commission 

that were really quite different from previous commissions which 

ended up with a very thick report gathering dust on everybody’s 

shelf. Its recommendations were implemented virtually in full. And 

the reason was that we did several things. 

First of all, it was a commission that was created by President 

Ronald Reagan with Speaker Tip O’Neill’s agreement, and the comVerDate Nov 24 2008 14:50 May 12, 2011 Jkt 56156 PO 00000 Frm 000031 Fmt 06633 Sfmt 06633 P:\DOCS\56156.TXT SAFFAIRS PsN: PAT
28 

mission itself worked for quite a long period of time, but as part 

of the process, we kept the political system wholly informed as to 

what we were doing, so that I would report to President Reagan 

and Jim Baker, who was operating as the key staff person in that 

regard, and Bob Ball, who was a former Social Security Administrator under Lyndon Johnson, reported to Speaker O’Neill. And he 

and I, Ball and I, worked very closely together. 

So, as the various different proposals went forward, the senior 

leadership of the Congress and the Administration were wholly informed so that they could absorb it, react to it, and feed it back 

to the commission so that we did not end up with a report coming 

out at the end that was a ‘‘take it or leave it’’ type of report with 

20 different issues that nobody could think about in a coherent 

manner. And what you avoided from that process were particular 

Congressmen and Senators taking quick positions with respect to 

various aspects of the report without having had time to really 

think them through. So that process kept everyone engaged. 

Then finally, when the agreement was complete and we all 

agreed that it was non-amendable, because it was a very tightly argued commission report, Bob Ball and I went up to the Hill and, 

as the Republican member, I would answer the Republican questions and he would answer the Democratic questions, as we held 

to a unified position, saying, you take it or you leave it. We will 

try to explain it as best we can. But if you try to amend it, it will 

not work. And it turned out to be a reasonably sensible set of recommendations which was overwhelmingly accepted. 

Now, the existing Fiscal Task Force recommendations all have 

some of those qualities right off the bat. In fact, having Senators 

and Congressmen as well as members of the Administration on 

that task force solves the political problem and provides continuous 

updating, which is essential. 

I do not want to comment because I do not really know as much 

as I need to know about the existing structure of what can happen 

in this context. There are many commonalities and there are many 

differences, though. 

Senator COLLINS. Thank you. 

Chairman LIEBERMAN. Thanks, Senator Collins. 

Senator Voinovich, if you would indulge Senator Burris, he has 

got to go over and preside. He has asked for the opportunity to ask 

one question before he goes. 

Senator VOINOVICH. That is OK, but Senator Carper has an appointment, too, and only has one question. 

Chairman LIEBERMAN. OK. Go ahead, Senator Burris. 

Senator BURRIS. Thank you, Senator Voinovich. Thank you, Mr. 

Chairman, mine will be very short. 

I am asking for a personal opinion of these two distinguished 

American citizens. I am just concerned about the commission that 

would be created and whether or not we should do something about 

campaign finance reform in reference to the political process because I do not see us being able to get any control in the financing 

of programs in the Federal Government unless individuals who 

have to run for these offices are not beholden to special interests 

which drive up the costs of government because they want their 

program to be in place. And I just wondered if you all had given 

29 

any thought in the commission as to whether or not campaign finance reform should be a part of this. 

Mr. GREENSPAN. Do you want to take a shot at it or do you want 

me to? 

Mr. WALKER. Do you want to go first, Mr. Greenspan? 

Mr. GREENSPAN. Not particularly. 

Mr. WALKER. All right. I will start. First, I think the Fiscal Future Commission, with everything on the table, which would mean 

statutory budget controls, Social Security, Medicare, Medicaid, 

other spending, tax reform, that is broad enough. I think campaign 

finance would be probably beyond the scope of this. 

I will say this. We need campaign finance reform. There is no 

question about that. 

Senator BURRIS. Well, if you do not get campaign finance reform, 

we are not going to be able to do anything about the deficit and 

the debt because politicians have to run for office. They have got 

to raise money. The only way to raise money is to make commitments to special interests, and special interests then drive this 

whole country. 

Mr. WALKER. Quick comment, Senator. I have got a book coming 

out in January called ‘‘Come Back, America.’’ It talks about policy, 

operational, and political reforms that this country needs, including 

campaign finance. 

Senator BURRIS. Mr. Greenspan. 

Mr. GREENSPAN. We have a sitting House of Representatives and 

a sitting Senate. Irrespective of how they came to office, there are 

some very good people in both bodies and very thoughtful people 

on a lot of the committees. So I agree with David Walker that, 

clearly, campaign finance reform is a critical issue. It has to be resolved. But I do not think it needs to be resolved prior to coming 

to grips with this issue. 

Senator BURRIS. Or part of. 

Mr. GREENSPAN. They are separable issues, really, as far as I can 

see. 

Senator BURRIS. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks, Senator Burris. Senator Carper. 

Senator CARPER. I hadn’t planned to go into this point, but I 

want to start off by saying a word or two on the health care reform 

and the implications that it has for long-term deficit reduction. 

I serve now on the Finance Committee and have had an opportunity to work this year on the issue, and I have said countless 

times—and so has Senator Conrad, who was here earlier—if we do 

not rein in the growth of health care costs as we go through this 

process, we may extend coverage to people who do not have it, but 

we will not be able to sustain that extension of coverage for very 

long. 

A lot of the press coverage on what we have produced focuses on 

issues like death panels and abortions and we are going to cover 

all of the illegal aliens and stuff like that. But there are actually 

a number of reforms. I just want to take a minute just to mention 

some of what I think are the most important things that are part 

of the bill. 

We are trying to replicate what works. One of the things that 

works in delivering health care, better results, less money, is 

30 

health care that is provided by the Cleveland Clinic, Mayo Clinic, 

Geisinger, Intermountain Health, and Kaiser Permanente. They 

get away from fee-for-service and we need to move away from feefor-service. They focus on prevention and wellness. They focus on 

primary care. All the people that they care for have electronic 

health records. They coordinate care in order to address chronic 

diseases. There are a whole lot of smart things that they are doing 

and we are trying to take that health care delivery system and infuse it into Medicare and to Medicaid and to really any other forms 

of health care delivery in our country. 

The other thing that we are trying to do is to create large purchasing pools. We participate in a large purchasing pool, the Federal Employee Health Benefit Plan, eight million people strong. We 

not only get cheap health insurance, but we get reasonably priced 

health insurance because a whole lot of health insurance companies want to compete for our business. It helps drive down the cost 

of the health care that we buy. Our administrative costs are 3 percent of premium dollars, much lower than what most other people 

pay for individual coverage or small business coverage. 

And what we are trying to do is to allow for the creation of large 

purchasing pools in every State, and if States have too small a population to have a large purchasing pool, they create regional purchasing pools across State lines. If we create regional purchasing 

pools, insurance could be sold across State lines to increase competition and the availability of choices. 

Those things very rarely get discussed in the media, but what we 

are trying to do is to replicate what works, and one of the health 

economists who has followed this very closely has said, if you look 

at all the provisions that are actually in the bill bumping up the 

service, restraining the growth of health care costs, he said, you are 

really throwing everything up against the wall and we will see 

what sticks. And my guess is that some of what we are doing will 

stick and some of it will not. 

But that is not my question. I just wanted to mention that. Here 

is what I want to say. It is the same question I asked Senator 

Conrad. The role of who is going to serve on this commission. I am 

sure Senator Lieberman and Senator Collins remember when we 

had Lee Hamilton here, who was good enough to co-chair the 9/11 

Commission, and I asked him, how come you guys were able to get 

so much done? Virtually everything they recommended, we did. 

And for the most part, I think everybody on that commission—nobody was in the Congress. They worked very hard. 

And I said to Lee Hamilton, why were you so successful in presenting to us all these recommendations which we ultimately subscribed to and adopted in toto, and he said it was we had plenty 

of time, we had plenty of time to work with one another, we got 

to know each other, and the vice chair was the former governor of 

New Jersey, Tom Kean. And he said, Tom Kean and I developed 

a sense of trust and confidence in one another and, he said that 

spirit of trust infused the entire commission and it led us to a very 

successful effort and enabled us to speak with one voice, not unlike 

what happened in the commission that Chairman Greenspan led. 

So, a question. In terms of looking for other people to serve on 

the commission beyond members of the House and Senate and one 

31 

or two people named by the Administration, give us a word or two 

on the profile. The idea of people like Bob Dole or Tom Daschle or 

George Miller, folks like that, people who have served—maybe people who have chaired the Budget Committee in the past who have 

a whole lot of knowledge, and a lot of trust and confidence, and understand the politics as well as the policies, your thoughts, please. 

And I again want to thank George Voinovich for yielding. Thank 

you, George. 

Mr. GREENSPAN. I think it is less important who the individual 

members are than the process of the deliberations and how it ultimately is constructed into a report and eventually into legislation. 

There are certain critical things which my experience suggests 

have to be done: Specifically you cannot drop a whole report on everyone’s desk, after secretive deliberative, discussions by some private group. It will go nowhere. And the reason, is that when you 

have a commission, especially for controversial issues, the ideas 

and notions of change have to be absorbed gradually by the Congress. If you force them to react immediately, they will take positions which they may be sorry about, but they will not be able to 

reverse, having taken a commitment, it ends the whole deliberative 

process. 

So I would say it is less important who is on the committee than 

how it functions. 

Senator CARPER. All right. Thank you. Mr. Walker. 

Mr. WALKER. Senator, in my view, without mentioning any 

names, they need to be knowledgeable, respected, credible, and 

committed to making it work, to making best efforts to come up 

with recommendations that actually will be acted on and approved. 

And last, they have to be willing to dedicate the time. 

One of the concerns that I have is what you said before. I think 

for this commission to be successful, it has to do two things. It has 

to educate and engage the American people, representative groups 

of the American people beyond the beltway. That is going to take 

time. And it has to do things with elected officials and others and 

key stakeholders, as well. And so you have to think about can they 

dedicate the time. 

The last thing is, keep in mind, we need nonpartisan solutions. 

A plurality of Americans consider themselves to be political Independents today. The simple truth is—and I have been to 46 States 

in the last 21⁄2 years, I am going to the last four States in the next 

6 months—the simple fact of the matter is, if you have a hard ‘‘D’’ 

or ‘‘R’’ on your sleeve, you are going to be discounted dramatically 

by the American people, no matter who you are and how good you 

are and what your intentions are. That is reality in America today. 

Chairman LIEBERMAN. That is very nice of you to say. [Laughter.] 

Mr. WALKER. I was going to ask the Chairman, who is going to 

answer the Independents’ questions? 

Chairman LIEBERMAN. Well, you did it. Thank you. [Laughter.] 

Senator CARPER. Again, thank you for those responses, and Senator Voinovich, thank you so much for your kindness and for yielding. Thank you. 

Chairman LIEBERMAN. Thanks, Senator Carper. Senator Voinovich 

32 

Senator VOINOVICH. Mr. Greenspan, you have talked about 1983 

and the unusual interpersonal relationships between the President 

and the Speaker of the House and the fact that you kept people informed as you moved along and it worked out. The question I have 

is, compare that period of time—now, you have done it in your testimony, but really, compare that time in terms of the urgency of 

the situation, and I would like the same comment from Mr. Walker. 

In other words, there are some people who say that we do not 

have an urgency today. We can kick the can down the road. We do 

not really have a crisis that needs to be met. I would like the two 

of you to comment on that. 

And the second question is, what do you think it will take to convince the American people, and probably just as important, the 

international community, that we are getting serious about dealing 

with this problem? 

Mr. GREENSPAN. Well, first, let me say that the first act the 1983 

commission implemented was to recognize that Medicare, which 

was part of our mandate, was much too complex to handle, and besides, we had a quarter century before the baby boomers retired 

and we would run into trouble. 

All of the facts that confront us now were available in 1983. This 

crisis is to a very large extent a demographic crisis, where we are 

doubling the number of retirees. We are essentially altering the 

structure of our labor force, because remember, it is not only the 

question of the baby boomers retiring and their impact on the retirement programs, it is the fact that we are losing very productive 

people and a very large cohort of our population is going from work 

to retirement, and we knew that 25 years ago. We could see it coming and we knew the implications, but always it looked too 

daunting to endeavor to come to grips with it. 

Social Security is a defined benefit program which was reasonably resolvable once Claude Pepper, who was a member of that 

commission, said it was inconceivable that we would use general 

revenues to solve the problem that seemed to appear fairly quickly 

in the trust funds. 

Once we had the arithmetic of the Social Security program, I remember Senator Patrick Moynihan, who I miss considerably, said, 

everyone can have their own opinions about policy, but there is 

only one law of numbers and one rule of arithmetic, and to solve 

this problem—meaning the problem back then—we needed either 

to raise payroll taxes or lower benefits. There was no third alternative. If we could get to this problem as succinctly defined as Senator Moynihan defined it, I think we are a good way down the 

road. 

On the second issue—how will the foreigners know when we are 

serious? When the American people know we are serious. It is the 

same evidence and basically they are watching this very closely. 

And indeed, if it were not for the fact that our debt is becoming 

increasingly held abroad for reasons other than the quality of our 

debt. In the case of China, for example, they are trying to maintain 

a competitive position by keeping their exchange rate down, and 

the only way they can do it is to buy U.S. dollar debt. It does not 

help all that much if you are exporting to the United States to buy 

33 

Euros or other currencies. They are building up dollar balances not 

because they want to invest in the United States, but because it 

is the only means by which they can keep their exchange rate at 

a level that keeps their labor force employed. 

At some point, that has to stop, and it will. It will stop because 

the markets will not continue to function in the manner in which 

they are able to do that. 

Mr. WALKER. Senator Voinovich, first, I think the Greenspan 

Commission deserves a tremendous amount of credit, especially 

Chairman Greenspan and Bob Ball for the leadership that resulted 

in the reforms in 1983. But I think we are in a very different situation today. 

In 1983, the checks were not going to go out on time. Within 

weeks, tens of millions of American’s were not going to get their 

Social Security check. There was no option other than to succeed. 

That would have obviously been a politically unacceptable outcome. 

That is not the situation today, but let us explain what is the situation today. First, the trust funds are an accounting device. They 

do not mean the same thing as Webster’s Dictionary. You cannot 

trust them. They are not funded. There is no fiduciary responsibility, all right. If they were a trust fund in the private sector— 

and I used to be Assistant Secretary of Labor for the Employee Retirement Income Security Act (ERISA)—people would be in jail. 

There would be all kinds of fiduciary breaches, prohibited transactions, whatever. 

So let us talk about the reality. The reality is, we are negative 

cash flow in the Hospital Insurance Trust Fund. We are negative 

cash flow in the Disability Insurance Trust Fund for perpetuity, all 

right, without reforms. We are negative cash flow in the Retirement and Survivors Income Trust Fund at least for 2 more years. 

The Medicare program Part A will not be able to pay bills within 

10 years. The Social Security Trust Fund does not go dry for a 

while, but again, what are we doing? We have to end up borrowing 

from the public, mainly from foreign lenders, in order to deal with 

the negative cash flow situation. 

Within 12 years, according to GAO, which I headed for 10 

years—within 12 years, without an increase in interest rates, and 

Chairman Greenspan has talked about the risk there—without an 

increase in interest rates, the single largest line item in the Federal budget will be interest on the Federal debt—not defense, not 

Medicare, not Medicaid, not Social Security. And what do we get 

for that? As we say in the South, shineola. Nothing. Now, that is 

without an increase in interest rates, and these numbers are getting worse every second of every minute of every day. 

So what does it take for people to understand that we are approaching an abyss? Remember Harry and Louise for health care? 

We face Thelma and Louise. We are headed for a fiscal cliff and 

we need to change course before we go over it. It is as simple as 

that. 

Senator VOINOVICH. Thank you. 

Chairman LIEBERMAN. Thanks, Senator Voinovich. Senator 

McCain. 

34 

OPENING STATEMENT OF SENATOR MCCAIN 

Senator MCCAIN. Well, thank you, Mr. Walker. You have given 

me some great lines. [Laughter.] 

I will not give you any credit, either. [Laughter.] 

I am entertained, too, when I see these advocacies for, we are 

going to stop all this spending. We are going to really knuckle 

down here. Two days ago, we passed a bill, six appropriations bills, 

three of them never considered on the floor of the Senate so they 

could be amended, a conference report with a 14 percent increase 

in spending, and they all voted for it, or the majority of them voted 

for it, loaded down with pork-barrel projects—$2.9 million to study 

performance of surgery in outer space. Trekkies are happy all over 

America. So you might as well laugh about it. 

But, we are going to have this commission, but yet we can vote 

at these times for appropriations bill that have a 14 percent increase in spending. Meanwhile, the consumer price index (CPI) is 

minus 1.3 percent. Does anybody have any shame, I wonder? And 

now we have a bill on the floor of the Senate that I am going to 

go and debate today that has $2.5 billion to buy C–17s which everybody knows we neither need nor want—$2.5 billion. 

Let me just ask you a question really quickly, and I know we 

have not got much time. How much difference does this earmarking—by the way, in that last bill, it was $4.3 billion worth of 

earmarks and pork barrel projects. I will not comment on the 

money that was being spent on irritable bowel syndrome. But you 

were here. You saw it. And you saw it grow out of control. Everybody says, well, it is sort of the standard way we do business. It 

is not the standard way we do business. We did not used to have 

these earmarks and pork barrel spending. So what is your view, 

Mr. Walker. 

Mr. WALKER. Senator, several things. One, in a typical year, over 

time, earmarks are about 1 to 2 percent of spending. 

Senator MCCAIN. So, therefore, they do not matter? 

Mr. WALKER. No, they do. That is a lot of money. One to 2 percent of Federal spending is a lot of money. They do matter. I personally think that we need reforms there. There is no question 

about it. 

The other thing is a lot of these earmarks do not have a Federal 

purpose and a number of the earmarks avoid competitive bidding. 

So there are a lot of reasons why they are a problem. 

I think there is more than a little bit of—I could use a lot of 

words, I will say irony—there is more than a little bit of irony that 

people are now wanting to try to get tough when last year, discretionary spending went up 8.3 percent, the Congress’s budget went 

up 10 percent, this year you have already talked about discretionary spending is going up over 10 percent, we have zero inflation over that period of time, and now we are going to get tough. 

It is one thing to spend money on the stimulus or financial rescue 

plans or whatever if they are properly designed, but this is the 

base of government. This is government that will be here for years 

and years. 

I think we not only need a Fiscal Future Commission, which is 

what this hearing is about, I think we need a rebaselining commission. I think we need a separate commission, not comprised of 

35 

elected officials, but of people formerly from the private sector or 

government who have transformational success records to relook at 

the base of government on the spending and the tax side and to 

basically start repositioning things, because you cannot sustain—— 

Senator MCCAIN. Let me ask you three quick questions. One, do 

you see any of this in this health care bill that really means significant cost savings? 

Mr. WALKER. Well, I think there are several things in the health 

care bill that are laudable. One, pilots. There are a number of pilots, and if they prove to be successful, then the Secretary of 

Health and Human Services (HHS)—— 

Senator MCCAIN. So you have seen some? 

Mr. WALKER. Second—but let me close up—— 

Senator MCCAIN. Let me get the second question for you and Mr. 

Greenspan. Do you believe that the returned or unused Targeted 

Asset Relief Program (TARP) funds and the unobligated stimulus 

funds should be spent for further economic stimulus or should be 

returned to the Treasury? 

Mr. GREENSPAN. There are often appropriated funds which do 

not get spent and they automatically return to the Treasury. There 

is no distinction—— 

Senator MCCAIN. Well, as you know, there is a proposal to use 

the unused TARP funds. 

Mr. GREENSPAN. I know. 

Senator MCCAIN. Do you support that? 

Mr. GREENSPAN. No, I do not. 

Mr. WALKER. I agree with the Mr. Greenspan. 

Senator MCCAIN. This is my final question, and you probably do 

not have an answer to it, but maybe you can help us out a little 

bit. In 1970, foreign investors held 5 percent of our debt. Now, it 

is over 50 percent. We have deficits, according to Mr. Walker and 

Alan Greenspan, of $38 trillion in Medicare, and I have forgotten 

the number in Social Security—— 

Mr. WALKER. It is a little over $7 trillion. 

Senator MCCAIN [continuing]. $7 trillion, a $12 trillion deficit, and, of course, $1.5 trillion this year. Given the path we are on, in 

other words, let us say we do not really change anything, at what 

point, Mr. Greenspan, do we have a severe fiscal crisis which requires us to do what we did in the early 1980s, only in spades, 

debase the currency, inflation, etc.? And I know that is a very difficult question, but I think Americans really deserve to know when 

we are going to hit a wall here or at what point this is—we all 

know it is unsustainable, but at what point could we face a severe 

fiscal meltdown in this country? 

Mr. GREENSPAN. Well, in one sense, it almost goes back to the 

very first question you raised today, namely the issue of spending 

seeming to get out of control. In my experiences, spending is contagious. I remember years ago there was a Congressman, H.R. 

Gross, from Iowa who used to get up and say, where is the money 

coming from? 

Now, we also at that time had the, it seems sort of quaint, view 

that government finances should be like household finances. And 

my recollection of the period was such that I remember President 

Eisenhower apologizing to the American people for what would now 

36 

be considered to be a minuscule deficit; indeed, it would not pay 

for the earmarks. And the reason he was apologizing is that the 

culture was that you did restrain. There is no way that I can conceive of that if you have huge amounts of monies being appropriated for anything that people do not want to get into the act 

with a little bit here and a little bit there, because rounding, you 

never see it. 

And I think that we have to get back to a general view that this 

is not a bottomless pit. We have physical resources which cannot 

do all of the things that everyone wants to do. And unless we can 

get some means to go back to a view where it is not the most important thing when you are in Congress to find ways to spend 

money to help your constituents—I think that is critically important, but remember, we have had over 200 years of Congresses in 

which that did not happen. 

I think this has become an extraordinary country, by far the 

most productive in the world. We have had a remarkable democracy. The system works. There is nothing in it which says we have 

to be profligate in spending and creating benefits for constituents. 

They are not really asking for it. 

Senator MCCAIN. And how much time do we have? 

Mr. GREENSPAN. I would say the time frame collapses very quickly if we do nothing. It is not going to be the next 2 years. There 

is no credible scenario. It is out there somewhere in the future. 

Somebody who says they know exactly when it is merely indicates 

that they do not have a clue what is going on. 

The critical triggering point will be in the bond market, and we 

do not yet see that. But when we begin to see that, that is, in fact, 

the canary in the coal mine. 

Senator MCCAIN. And could I just say for the record, what would 

we see in the bond market that would sound this alarm? 

Mr. GREENSPAN. As I indicated earlier, it would show up largely 

in the longer end of the market, meaning 30-year Treasuries and 

10-year notes. Yields would start to move up relative to, say, oneyear Treasury bills so what we call the yield curve would tilt up 

very significantly. That is the first sign that something is emerging, similar to, as I said before, what happened in the City of New 

York. 

Mr. WALKER. You mentioned inflation, Senator. This is very important. You cannot inflate your way out of this problem. You can 

inflate your way out of the burden associated with the $12 trillion 

in current debt. But the problem is not that. The problem is the 

$38 trillion in unfunded obligations for Medicare, the $7-plus trillion for Social Security, that grow faster than inflation, and in the 

case of health care, faster than the economy when the economy 

grows. You have to make tough choices on health care costs, on social insurance reforms, on spending constraints, on tax reforms. 

Tough choices are inevitable. 

Senator MCCAIN. Did you see any of those choices made while 

you were here? 

Mr. WALKER. No. That is why we need a special process. They 

will not be made, in my opinion, Senator, in the regular order because the regular order is dysfunctional. 

37 

Mr. GREENSPAN. I am just saying, unless you alter the day-byday process of governing with our profligate fiscal propensities 

there is not a limit to spending. There is no limit because borrowing money to pay for something seems like a free lunch. And 

in a certain sense, it tends to be. However, there is obviously the 

physical world out there which is responding to all of this. 

And what I like to do often when you talk about budgets is say, 

forget the finance. Think in real terms. How much in the way of 

resources do we have to start with and how do we allocate them 

amongst demands for those resources which exceed the total? 

Every single thing that appears before you are desirable things. In 

other words, you do not pass frivolous bills. What you pass is something for which there is a need. The trouble is, if you add up all 

the needs, all of which are exceptional needs, you have a physical 

requirement that is much larger than our capacity to produce it. 

So there has got to be some forum in which the total demand is 

constrained to the total available supply. 

One of the points I made in my prepared remarks is that this 

notion that we can somehow just expand the economy at will or increase productivity is false. The history of productivity in this country, has been on the cutting edge of technology. That means you 

cannot go faster than we can think. And indeed, what we have seen 

since the data became realistically usable in 1870 is that there is 

a very narrow constraint on innovation turning into productivity 

and growth. We cannot do it any faster, which means we have no 

choice but to find a way to bring down the level of demand of otherwise exceptionally desirable needs of the society. We just do not 

have the resources to do that, and if we try to do it, the system 

breaks down. 

Senator MCCAIN. So in the words of Chairman Mao, it is always 

darkest before it is totally black? [Laughter.] 

I thank you, Mr. Chairman. 

Chairman LIEBERMAN. Even I laughed at that, even though I 

have heard you deliver that line 100 times. [Laughter.] 

It is very apt. If you have time for a few more questions—— 

Mr. GREENSPAN. Sure. 

Chairman LIEBERMAN [continuing]. Because, actually, if Senator 

McCain can stay, you make a fascinating point in here, in your 

opening statement, and you just touched on a part of it, where you 

essentially said we cannot grow ourselves out of this problem, 

which is to say increase the size of the overall economic plan. You 

just mentioned that productivity has certainly historic limits. But 

you mentioned something else fascinating. Short of a significant increase in immigration, the size of our labor force in 2030 is fixed 

in a relatively narrow range. 

So am I hearing you correctly? Forget all the politics of this. 

From an economic point of view, if we had a significant increase 

in America in, obviously, legal immigration, that would be one way 

to grow the economic pie. 

Mr. GREENSPAN. It would be, but I would not have immigration 

policy focused on the economic need to finance a great number of 

things. I mean, I am very strongly supportive of H1–B expansion. 

Chairman LIEBERMAN. Right. 

38 

Mr. GREENSPAN. I have also argued before Senator Schumer’s 

subcommittee that there is a very unusual pattern of our immigration in which we have a very large number of immigrants who are 

high school or less well educated, a significant part of whom are 

illegal, and then we have a remarkably large number, relative to 

our domestic educational system, of Ph.D.’s and better who have 

come to this country and contributed immensely—— 

Chairman LIEBERMAN. Right. 

Mr. GREENSPAN [continuing]. To our economic success. I argued 

that both groups were actually very importantly affecting the economy in a positive way. If we try to send all our illegals home, which 

one would think that is what we ought to do, obviously, with respect to upholding our laws, speaking as an economist, I will tell 

you, we will have a really serious problem. There are 12 million of 

them. 

Chairman LIEBERMAN. It is very significant. I am not suggesting 

that we increase illegal immigration as a way to deal with the debt, 

but it does have those positive economic implications. 

Mr. GREENSPAN. Oh, it certainly does, Mr. Chairman. 

Chairman LIEBERMAN. Let me ask this final question of both of 

you, because we have talked a lot here about the horribles that 

would occur if we do not do anything, if we do not, for instance, 

set up a process such as we have talked about to begin to deal in 

an orderly way, to discipline ourselves with our national debt. 

Let me ask you both to just speculate a little bit on the other 

side of this. Let us assume that we do create a commission. The 

commission does make bipartisan recommendations to Congress for 

the methodical reduction of our national debt down to a much 

lower percentage of GDP, or however we measure it. What are 

some of the positive responses, both within the American economy 

and the global economy, if we are able to achieve that result? 

Chairman Greenspan? 

Mr. GREENSPAN. Well, we saw that when we were running surpluses a decade ago. Real long-term interest rates come down. The 

effectiveness of capital investment is enhanced. You have all of the 

reverse effects of rising real interest rates. And, in fact, the great 

irony is that one of the things that has created a huge difficulty 

for us was precisely that surplus, those surpluses, because they undermined pay-go—— 

Chairman LIEBERMAN. Yes. 

Mr. GREENSPAN [continuing]. That was such an important and 

actually quite effective program. So I want to say there are obviously downsides, but having budgets in balance creates a stability 

for the future which enables people to invest over the longer run. 

It is not an accident, for example, at the turn of the 20th Century, 

we were selling bonds at under 2 percent for 30-, 40-, and 50-year 

maturities, and that was a consequence of having a stable fiscal 

system. But it enabled our infrastructure to be filled with longerterm assets. And the longer the average age of assets in a society, 

other things equal, usually the more productive that society is. 

So whether or not we are talking about balanced budgets or 

whatever, fiscal stability and responsibility has very positive outcomes for a democratic society. 

39 

Chairman LIEBERMAN. And, Mr. Walker, I assume that what 

Chairman Greenspan has described also then feeds through the 

economy in very real and positive ways to individuals, to businesses, to families. I mean, it is likely to, within limits, stimulate 

more economic growth, less unemployment, etc. 

Mr. WALKER. Correct. Simply stated, if we do the right thing, our 

future can be better than our past. If we do not do the right thing, 

our best years may be behind us. What is going on right now is 

that we are mortgaging the future of our children and grandchildren at record rates. At the same point in time, because most 

of the budget is on autopilot on mandatory spending, we are reducing relative investments in the future—basic research, critical infrastructure, other things—at a time where they are going to face 

increasing competition in the world. That is not right. 

Last thing, on immigration, it is not just quantity, it is quality. 

We need to change our immigration policy to focus more on skills 

and knowledge. We cannot compete on wages. We do not want to 

compete on wages because our standard of living will go down. We 

have to compete based on skills, knowledge, productivity, innovation, quality, value added, and that means that we have to be more 

intelligent about our immigration policy and we need to rethink 

what the priorities ought to be as well as the numbers. 

Chairman LIEBERMAN. Well said. Somebody around here suggested, and we have not actually acted on it, that, as you know, 

I forget the percentage, but somewhat close to half of Ph.D.’s, particularly in science, technology, mathematics, in U.S. universities 

are foreign born, foreign nationals, most of whom go home. Somebody around here said we ought to act on it. We ought to put a 

green card on their diploma, assuming that they pass all the other 

tests, security and all the rest, because it is in our interest to keep 

them here because they will contribute remarkably to economic 

growth. 

I thank you. Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

Just a couple of final questions. Chairman Greenspan, one measure that is looked at often is the percentage of Gross Domestic 

Product that our public debt is, and it is obviously going up. It is 

projected to exceed the level that it was at the height of World War 

II. But many of us wonder, what is the appropriate level? What do 

economists believe is a level of debt as measured by a percentage 

of GDP that is acceptable versus worrisome? 

Mr. GREENSPAN. Well, Senator, I thought we did reasonably well 

when the percentage of debt was 20, 30 percent of GDP. I would 

prefer lower than that, but we can tolerate that. The major problem is not so much the level of debt relative to GDP, but what is 

the sustainable deficit, and that is a more complex calculation. But 

I would argue that the lower the debt, the better off we are, because to the extent that the Federal Treasuries are drawing off the 

savings of the society, which are scarce, it leaves less savings for 

the private sector to invest in far more productive investments 

than generally is employed using the savings of the society through 

government functions. 

Senator COLLINS. Thank you. 

Mr. Walker, do you have anything to add on that measure? 

40 

Mr. WALKER. The comment that I would say is there are two 

debt-to-GDP ratios, one of which that economists tend to use, 

which is the public debt-to-GDP. The other is total debt-to-GDP, 

which is what the debt ceiling limit is. We have got to keep in mind 

that the bonds that are in the ‘‘trust funds,’’ are backed by the full 

faith and credit of the U.S. Government. They are guaranteed as 

to principal and interest. They will not be defaulted on, in my view. 

And when you look on that basis, total debt-to-GDP right now is 

about 85 percent. By the end of next year, it will be 95 percent and 

headed up. 

We are the only ones that I know of that have these fictional 

trust funds. We did not have monies sitting in these trust funds 

back at the end of World War II at 122 percent. We were largely 

pay-as-you-go. So I think people ignore trillions of dollars worth of 

debt which is real. It may not be a current demand on the economy, a current crowding out effect, but we owe it and, therefore, 

I think we need to look at both debt held by the public and total 

debt and show both. 

Senator COLLINS. Thank you. 

Finally, Senator Conrad mentioned the importance of everything 

being on the table for the Fiscal Future Commission, and I agree 

with that approach as opposed to the more narrow approach recommended by some of our colleagues. On the other hand, the CBO 

has clearly warned us that to sustain the current projected spending levels would require a level of taxes never before seen in our 

country. I am interested in hearing both of your views on whether 

there is a limit to the level of taxation that can be imposed on our 

economy before it starts having very detrimental consequences. I 

will start with you, Mr. Chairman. 

Mr. GREENSPAN. Well, there is clearly a limit in the sense that 

as tax rates go up, the tax base begins to shrink. And clearly, at 

100 percent taxation, you are not going to have any tax base to 

speak of. So that clearly, you cannot raise revenues indefinitely 

through raising rates. It is not easy to calculate where that is, and 

indeed, when you get to the point where the additional revenues 

are very small as rates go up, you have already probably gone too 

far. 

But it is very clear from the outlook that we have no choice but 

to work from both the spending side and the tax side. As much as 

I dislike the notion, I cannot visualize in any concrete way how we 

can bring down the level of spending to the capacity of our economy 

to function comfortably with it, and if we cannot do that, then 

clearly we have to go to the tax side. But again, we have to be very 

careful there, as well, because it is a different type of constraint. 

The constraint on the spending side is basically political. The constraint on the tax side is mainly, but not wholly, economic. 

Senator COLLINS. Thank you. Mr. Walker. 

Mr. WALKER. Well, a few numbers. For the last 4 years, average 

Federal taxation has been about 18.3 percent of GDP. The highest 

that it has been in history, in recent times, at least, is about 20.6 

percent of GDP. If we do not do anything, it is going to go up to 

40 percent-plus of GDP by 2040 if we all of a sudden continue to 

do what we are doing now and then want to try to balance the 

budget in 2040. If we do not extend the Bush tax cuts, in other 

41 

words, if they all expire, taxes will be 24 percent of GDP within 

the next 10 years or so and moving up. 

My view is that you can solve the problem for less than 24 percent of GDP, that everything has to be on the table, that the problem is primarily a spending problem, but that you are going to 

have to have more revenues because there is a new four-letter word 

that people have to deal with. It is called math. The math does not 

come close to working. You cannot grow your way out. You cannot 

tax your way out. You cannot just cut your way out. You cannot 

inflate your way out. You have to do a number of things. 

We want to keep taxes as low as we can, but here is the key. 

The sooner we act, the lower they can be. So the miracle of 

compounding will work for us. As Albert Einstein said, the most 

powerful force on earth is not nuclear energy, it is the power of 

compounding. And when you are a saver, it works for you. When 

you are a debtor, it works against you. It also means that when 

you act sooner rather than later, the less draconian the changes 

have to be, the less the burdens have to be, the more transition 

time, the better ability to plan. So let us act sooner rather than 

later. Taxes are going up on a lot more people than those making 

$250,000 or more. Why? Math. 

Senator COLLINS. Thank you. 

Mr. Chairman, I want to thank you for an excellent hearing 

today and express my appreciation to our very distinguished witnesses. I have a feeling, if we do the model of the commission that 

had outside members, that we are looking at two people who could 

contribute enormously. So thank you very much, and I thank our 

witnesses. 

Chairman LIEBERMAN. I agree with you, Senator Collins. This 

membership on the commission would be an appropriate punishment for your good behavior over the years and for your excellent 

testimony today. [Laughter.] 

I think we are really on a verge of beginning to try to do something about this. That is a long way from doing something, but I 

think we have a reasonable opportunity here, a reasonable chance 

to begin the process that we are talking about that both of you 

have supported this morning, and then the hard work begins, of 

course. And your voices this morning and for a long time really 

bring us closer to beginning to deal with the problems and then ultimately dealing with it. So I cannot thank you enough for the time 

that you have given us this morning and for the content of your 

comments to us. We appreciate it very much. 

We will keep the record of the hearing open for 10 days for any 

additional statements and questions, but with that, I wish you a 

good day. 

Mr. GREENSPAN. Thank you very much. 

Senator LIEBERMAN. The hearing is adjourned. 

[Whereupon, at 12:35 p.m., the Committee was adjourned.] 

(43) 

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Æ 


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