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THE BROKEN BUDGET PROCESS: 

LEGISLATIVE PROPOSALS 

HEARING 

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD IN WASHINGTON, DC, MAY 31, 2012 

Serial No. 112–26 

Printed for the use of the Committee on the Budget 

( 

Available on the Internet: 

www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=budget 
(II) 

COMMITTEE ON THE BUDGET 

PAUL RYAN, Wisconsin, Chairman 

SCOTT GARRETT, New Jersey 

MICHAEL K. SIMPSON, Idaho 

JOHN CAMPBELL, California 

KEN CALVERT, California 

W. TODD AKIN, Missouri 

TOM COLE, Oklahoma 

TOM PRICE, Georgia 

TOM MCCLINTOCK, California 

JASON CHAFFETZ, Utah 

MARLIN A. STUTZMAN, Indiana 

JAMES LANKFORD, Oklahoma 

DIANE BLACK, Tennessee 

REID J. RIBBLE, Wisconsin 

BILL FLORES, Texas 

MICK MULVANEY, South Carolina 

TIM HUELSKAMP, Kansas 

TODD C. YOUNG, Indiana 

JUSTIN AMASH, Michigan 

TODD ROKITA, Indiana 

FRANK C. GUINTA, New Hampshire 

ROB WOODALL, Georgia 

CHRIS VAN HOLLEN, Maryland, 

Ranking Minority Member 

ALLYSON Y. SCHWARTZ, Pennsylvania 

MARCY KAPTUR, Ohio 

LLOYD DOGGETT, Texas 

EARL BLUMENAUER, Oregon 

BETTY MCCOLLUM, Minnesota 

JOHN A. YARMUTH, Kentucky 

BILL PASCRELL, JR., New Jersey 

MICHAEL M. HONDA, California 

TIM RYAN, Ohio 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin 

KATHY CASTOR, Florida 

HEATH SHULER, North Carolina 

KAREN BASS, California 

SUZANNE BONAMICI, Oregon 

PROFESSIONAL STAFF

AUSTIN SMYTHE, Staff Director 

THOMAS S. KAHN, Minority Staff Director 
(III) 

C O N T E N T S 

Page 

Hearing held in Washington, DC, May 31, 2012 .................................................. 1 

Hon. Paul Ryan, Chairman, Committee on the Budget ................................ 1 

Prepared statement of ............................................................................... 2 

Submissions for the record: 

Heritage Foundation and Brookings Institution article, dated 

July 2008: ‘‘Taking Back Our Fiscal Future’’ ............................... 24 

Washington Post article, dated May 16, 2012, ‘‘Boehner’s Debt 

Ceiling Speech’’ ............................................................................... 48 

Hon. Chris Van Hollen, ranking minority member, Committee on the 

Budget ............................................................................................................ 4 

Prepared statement of ............................................................................... 5 

Submissions for the record: 

Bloomberg article, dated May 28, 2012, ‘‘Debt-Ceiling Deja Vu 

Could Sink Economy’’ ..................................................................... 44 

Americans for Tax Reform’s ‘‘Taxpayer Protection Pledge’’ ............ 48 

Transcript, Douglas Holtz-Eakin posting from YouTube ................ 64 

Alison Acosta Fraser, director, Thomas A. Roe Institute for Economic 

Policy Studies, the Heritage Foundation .................................................... 7 

Prepared statement of ............................................................................... 8 

Douglas Holtz-Eakin, president, American Action Forum ............................ 13 

Prepared statement of ............................................................................... 14 

Henry J. Aaron, senior fellow, economic studies, the Brookings Institution ................................................................................................................. 18 

Prepared statement of ............................................................................... 20 

(1) 

THE BROKEN BUDGET PROCESS: 

LEGISLATIVE PROPOSALS 

THURSDAY, MAY 31, 2012 

HOUSE OF REPRESENTATIVES, COMMITTEE ON THE BUDGET, Washington, DC. 

The committee met, pursuant to call, at 10:05 a.m. in room 210, 

Cannon House Office Building, Hon. Paul Ryan [chairman of the 

committee] presiding. 

Present: Representatives Ryan of Wisconsin, Simpson, Calvert, 

Cole, Price, McClintock, Stutzman, Ribble, Flores, Mulvaney, 

Huelskamp, Young, Van Hollen, Bass, and Bonamici. 

Chairman RYAN. The committee will come to order. So much 

for—we are cutting back on gavels around here. Welcome to House 

Budget Committee. The purpose of today’s hearing is to examine 

the need to restore responsibility and accountability to how Washington spends its taxpayers’ hard earned dollars. The breakdown of 

responsible budgeting is clear, out of control government spending. 

Four consecutive trillion dollar deficits and a crushing burden of 

debt in the years ahead. Both political parties share the blame for 

our fiscal mess. 

I believe it will require both political parties to work together ultimately to find common ground and to right this fiscal ship. Unfortunately, current leaders in the Democratic-controlled Senate and 

the White House have failed to step forward with solutions to 

match the magnitude of our challenges. The United States Senate 

has failed to pass a budget in over 3 years. They didn’t even propose a budget this year or the last year. And the President has 

punted on the key economic and fiscal challenges of our times with 

budgets calling for even more spending, higher taxes and empty 

promises that are quickly becoming broken promises if we don’t fix 

these problems soon. 

This failure of leadership not only undermines America, it undermines the America our children will inherit tomorrow. It also stifles confidence in economic growth today. While budget process reform alone cannot solve our budget problems, we can strengthen 

this process and provide additional tools to help address the enormous budget problems we face. This is a good step in the right direction. Budget process reform alone is not a substitute for the political courage and leadership required to address our core of 

spending and the entitlement challenges. I don’t think there is any 

doubt about the failure of the Federal budget process, but there are 

big differences in opinion on how to tackle these challenges and 

how to address these failures. 
2 

Despite these differences, the ranking member and I were able 

to work out on a bipartisan basis to report out of this committee 

and pass on the floor the Expedited Legislative Line Item Veto and 

Rescissions Act. This committee has also advanced baseline budget 

reform, Budget and Accounting and Transparency Act, the ProGrowth Budgeting Act, and today we continue the committee’s efforts to bring greater transparency to the budget process. 

Mandatory spending, or what we consider autopilot spending, accounts for 60 percent of the Federal budget. Through the Budget 

Control Act passed last summer, Congress has established statutory limits on discretionary spending with enforceable spending 

caps. Implementing similar statutory controls on mandatory spending will help ensure the Federal Government can deliver on its 

promises with sustainable entitlement programs and a sustainable 

fiscal future. 

To that end, committee member John Campbell of California has 

introduced the Spending Control Act. Another criticism of the 

budget process is the failure to account for future consequences of 

today’s decisions. As we develop the budget and consider legislation, we currently focus solely on the 10-year budget window, not 

taking into account the long-term impact of current programs or 

proposed legislation. The sole focus of the 10-year window can also 

lead to accounting gimmicks that perversely worsen our long-term 

budget problems. This is something that was identified in the joint 

effort by the Heritage Foundation and the Brookings Institution, 

two of whom we have representatives from today. 

We need to improve the way Congress budgets in the long term 

and better assess the long-term implications of its policies. 

Mr. Mulvaney has introduced legislation to get that Federal Government to the budget for the long term. And Mr. Chaffetz has introduced a bill to bring greater scrutiny to Federal spending. In addition to these bills, Mrs. Black has introduced legislation to give 

the budget the force of law, Mr. Ribble would reform the process 

to move to a biannual cycle, and Mr. Lankford would remove the 

threat of government shutdowns. 

So just the members of this committee have put forward a robust 

set of proposal to reform and strengthen the budget process. To 

help further advance this budget process reform conversation, we 

welcome three terrific witnesses today. We have Dr. Doug HoltzEakin former CBO director, no stranger to this committee and the 

current President of the American Action Forum and an expert on 

the budget, he is back with us today. 

We have Alison Fraser, Director of the Thomas Roe Institute for 

Economic Policy Studies at The Heritage Foundation. And also no 

stranger to this committee, Henry Aaron, a senior fellow of economic studies at the Brookings Institution. All three bring expertise to this conversation, they have been around these budget debates for a long time and we look forward to your testimony. 

[The prepared statement of Chairman Ryan follows:] 

PREPARED STATEMENT OF HON. PAUL RYAN, CHAIRMAN, COMMITTEE ON THE BUDGET

Welcome all to the House Budget Committee. 

The purpose of today’s hearing is to examine the need to restore responsibility 

and accountability to how Washington spends taxpayers’ hard-earned dollars. 
3 

The breakdown of responsible budgeting is clear: out-of-control government spending; four consecutive trillion-dollar deficits; and a crushing burden of debt in the 

years ahead. 

Both political parties share in the blame for our fiscal mess. 

I believe it will require both political parties to work together to find common 

ground and right this fiscal ship. 

Unfortunately, the current leaders in the Democrat-controlled Senate and at the 

White House have failed to step forward with solutions that match the magnitude 

of our challenges. 

The United States Senate has failed to pass a budget in over three years. They 

didn’t even propose a budget this year or last. And the President has punted on the 

key economic and fiscal challenges of our time—with budgets calling for even more 

spending, higher taxes, and empty promises that are quickly becoming broken promises. 

This failure of leadership not only undermines the America our children will inherit tomorrow, but it also stifles confidence and economic growth today. 

While budget process reform alone cannot solve our budget problems, we can 

strengthen this process and provide additional tools to help address the enormous 

budget problems we face. 

This is a good step in the right direction, but budget process reform is not a substitute for the political courage and leadership required to address our core spending 

and entitlement challenges. 

I don’t think there is any doubt about the failure of the federal budget process, 

but there are big differences of opinion on how to tackle these challenges. 

Despite these differences, the ranking member and I were able to work—on a bipartisan basis—to report out of this committee and pass on the floor the Expedited 

Legislative Line-Item Veto and Rescissions Act. 

This Committee has also advanced the Baseline Reform Act, the Budget and Accounting Transparency Act, and the Pro-Growth Budgeting Act. Today, we continue 

the committee’s efforts to bring greater transparency to the budget process. 

Mandatory spending—or autopilot spending—accounts for 60 percent of the federal budget. Through the Budget Control Act passed last summer, Congress has established statutory limits on discretionary spending with enforceable spending caps. 

Implementing similar statutory controls on mandatory spending will help ensure 

the federal government can deliver on its promises—with sustainable entitlement 

programs and a sustainable fiscal future. To that end, Committee member John 

Campbell of California has introduced the Spending Control Act. 

Another criticism of the budget process is the failure to account for the future consequences of today’s decisions. 

As we develop the budget and consider legislation, we currently focus solely on 

the 10-year window, not taking into account the long-term impact of current programs or proposed legislation. 

This sole focus on the10-year window can also lead to accounting gimmicks that 

perversely worsen our long-term budget problems. 

We must improve the way Congress budgets in the long-term and better assess 

the long-term implications of its policies. 

Mr. Mulvaney has introduced legislation to get the federal government to budget 

for the long-term and Mr. Chaffetz has introduced a bill to bring greater scrutiny 

to federal spending. 

In addition to these bills, Ms. Black has introduced legislation to give the budget 

the force of law, Mr. Ribble would reform the process to move to a biennial cycle, 

and Mr. Lankford would remove the threat of government shutdowns. 

So, just the members of this committee have put forward a robust set of proposals 

to reform and strengthen the budget process. 

To help further advance this budget process reform conversation, we welcome 

three terrific witnesses to the committee today. 

Doug Holtz-Eakin—a former CBO director, the current president of the American 

Action Forum, and an expert on the budget—is back with us today. 

Alison Fraser is the Director of the Thomas A. Roe Institute for Economic Policy 

Studies at the Heritage Foundation. 

And Henry Aaron is a Senior Fellow of Economic Studies at the Brooking Institution. 

All three bring expertise to inform this conversation. Thanks all of you for joining 

us today. 

With that, I yield to the Ranking Member, Mr. Van Hollen. 

Chairman RYAN. And with that, I would like to yield to the ranking member, Mr. Van Hollen. 
4 

Mr. VAN HOLLEN. Thank you very much, Mr. Chairman. I want 

to join the chairman in welcoming all our witnesses today as we 

explore ways to improve the budget process. I do hope that the 

Senate will take up the bill we passed over here in a bipartisan 

basis with respect to expedited rescission and legislative line item 

veto. 

We all agree that we have a budget challenge and a deficit and 

debt challenge, especially over the long term, and we agree that we 

need to fix it. But I think we also agree that the fundamental problem is not the budget process rules. And no bill that simply 

changes the budget process rules is going to solve the underlying 

issue. There is no substitute for making the tough policy issues to 

reduce the deficit in a balanced credible way. And once the President and the Congress develop a consensus on the policies on a 

budget agreement then the policy process reforms can be an effective tool for enforcing its implementation, at least at the margins. 

First you need to deal with the fundamental policy questions. 

Over the last 2 years, many serious bipartisan groups have met 

to examine ways to put our budget back on a path towards balance. 

Each of these groups has agreed that we need to take a balanced 

approach toward deficit reduction that involves a combination of 

spending cuts and cuts to—and revenues generated by eliminating 

tax breaks that are unproductive in many cases in the economy. 

Unfortunately our Republican colleagues continue to oppose the 

balanced approach. Again, 98 percent of our Republican colleagues 

in the House have signed a pledge that says they will not close a 

single corporate tax loophole for the purpose of deficit reduction 

and won’t ask people making more than a million dollars a year 

to contribute one penny more for the purpose of deficit reduction. 

That, of course, leaves only very deep cuts in spending that help 

everybody else rather than a balanced approach asks for shared responsibility. And in an era of divided government, we need to be 

able to make the difficult compromises necessary to get the job 

done. Unfortunately in some parts of this House, compromise has 

become a dirty word. 

Today’s hearing is designed to examine a number of bills put 

forth by our Republican colleagues. Two of them deal with different 

forms of spending caps. Effectively what these bills do is to try and 

enshrine in the law the House Republican budget, the unbalanced 

approach to the budget with all the requirements that it would 

make in terms of cuts ending the Medicare guarantee and other 

very deep cuts and important national investments. 

Interestingly, if you actually passed the bills that have been introduced with respect to the ceiling, they wouldn’t even pass muster—the current fiscal year 2013 budget put forward by Republican 

colleagues wouldn’t meet the test. It would require an automatic 

sequester under the bills that have been submitted. 

Moreover, and I think it is an issue that every member should 

focus on, the effect of these bills would be to take any future economic downturn and risk turning it into a full-fledged recession or 

depression. And we will get into a couple of examples of how it 

would do exactly that and very interested in our witnesses views 

on that, because you have to anticipate these kind of events and 

the bills don’t. They just take a very rigid approach. 
5 

As Mr. Holtz-Eakin observed in testimony when he was the head 

of the CBO speaking about an earlier Deficit Control Act, and I 

quote, ‘‘The target set under the Deficit Control Act, both the original ones and the revised ones were unrealistic in light of the prevailing economic conditions. For that reason and others, actual 

deficits remained above the targets during the years that the law 

was in effect.’’ There is likely, if we don’t make the tough underlying policy decisions that is the likely result here. 

As Peter Orszag recently observed in a Bloomberg column, all 

these things are a super version of SGR, right? We thought we 

were going to solve rising health care costs by putting in effect 

SGR cuts. Every year, this Congress on a bipartisan basis has 

found a way around it. Doing a super-sized version of SGR is not 

a way to resolve our issues. 

And finally, Mr. Chairman, I just want to say a word about sort 

of the Speaker’s latest version of the mother of all sequesters, his 

threat that the United States would not meet its financial obligations. That, of course, would have the effect of immediate deep 

across-the-board cuts, but it would do so in a way that would devastate the economy. And even talking about the United States for 

the first time in its history not meeting its obligations is a reckless 

approach to economic policy and jobs. 

So that is kind of a sequester on steroids, these others are different versions of that. None of them meets the test of making the 

tough policy decisions. So I will end with this, Mr. Chairman: 

These bills, in their current form, are either very dangerous to our 

economy if they were actually to be put into effect and followed because of the fact that they would make much worse any economic 

downturn, or, at best, they are misleading because they create a 

sense that the Congress has done something, people go home and 

they say to their constituents and say we passed a cap on spending, 

don’t worry about it, knowing full well that they won’t be met. 

I don’t know which of those consequences are worse. Although I 

would hate to see another full-fledged economy downturn compounded by bad policies in these bills. Thank you, Mr. Chairman. 

[The prepared statement of Mr. Van Hollen follows:] 

PREPARED STATEMENT OF HON. CHRIS VAN HOLLEN, RANKING MINORITY MEMBER, 

COMMITTEE ON THE BUDGET

Thank you, Mr. Chairman. I welcome the opportunity to explore ways that we 

might be able to improve the budget process. I do hope that the Senate will take 

up the bill that we passed over here, on a bipartisan basis, with respect to expedited 

rescission and the legislative line item veto. 

We all agree that we have a budget challenge, and a deficit and debt challenge— 

especially over the long term. And we agree that we need to fix it. But I think that 

we also agree that the fundamental problem is not the existing budget process 

rules—and no bill that simply changes the budget process rules is going to solve the 

underlying issue. There is no substitute for making the tough policy decisions to reduce the deficit in a balanced, credible way. And once the President and the Congress develop a consensus on the policies of a budget agreement, then the policy 

process reforms can be an effective tool in enforcing its implementation—at least at 

the margins. But first you need to deal with the fundamental policy questions. 

Over the last two years, many serious bipartisan groups have met to examine 

ways to put our budget back on the path towards balance. Each one of these groups 

has agreed that we need to take a balanced approach toward deficit reduction that 

involves a combination of spending cuts and revenues generated by eliminating tax 

breaks that are unproductive, in many cases, in the economy. Unfortunately, our 

Republican colleagues continue to oppose that balanced approach. Again, 98 percent 
6 

of our Republican colleagues in the House have signed a pledge that says that they 

will not close a single corporate tax loophole for the purpose of deficit reduction, and 

they won’t ask people making more than $1 million a year to contribute one penny 

more for the purpose of deficit reduction. That of course leaves only very deep cuts 

in spending that hits everybody else rather than a balanced approach that asks for 

shared responsibility. In an era of divided government, we need to be able to make 

the difficult compromises necessary to get the job done. Unfortunately, in some 

parts of this House, compromise has become a dirty word. 

Today’s hearing is designed to examine a number of bills put forth by our Republican Committee colleagues. Two of them deal with different forms of spending caps. 

Effectively, what these bills do is try to enshrine into law the House Republican 

budget, the unbalanced approach to the budget with all of the requirements that 

it would make in terms of cuts—ending the Medicare guarantee, and other very 

deep cuts in important national investments. Interestingly, if you actually passed 

the bills that have been introduced, the current FY2013 budget put forward by our 

Republican colleagues would fail to comply with the spending caps. The bills would 

require automatic sequester cuts of over $70 billion to the proposed FY2013 Republican budget. 

Moreover, and I think this is an issue that every Member should focus on, the 

effect of these bills would be to take any future economic downturn and risk turning 

it into a full-fledge recession or depression. We will get into a couple of examples 

of how it would do exactly that, and I am very interested in our witnesses’ views 

on that. Because you have to anticipate these kinds of events, and the bills do not— 

they take a very rigid approach. 

As Mr. Holtz-Eakin observed in this testimony when he was head of the CBO, 

speaking about an earlier Deficit Control Act, ‘‘the targets set under the Deficit Control Act, both the original ones and the revised ones, were unrealistic in the light 

of the prevailing economic conditions. For that reason and others, actual deficits remained above the targets during the years that the law was in effect.’’ And it is 

likely that if we don’t make the underlying policy decisions—then that is the likely 

result here. 

As Peter Orszag pointed out in his Bloomberg column, all these things are a super 

version of SGR. We thought we were going to solve rising health care costs by putting into effect SGR cuts. Every year Congress, on a bipartisan basis, has found a 

way around it. Doing a super-sized version of SGR is not a way to resolve our budget challenges. 

And finally, Mr. Chairman, I just want to say a word about the Speaker’s version 

of the mother of all sequesters—his threat that the United States would not meet 

its financial obligations. That, of course, would have the effect of immediate, deeper 

across-the-board cuts—but it would do so in a way that would devastate the economy. And even talking about the United States, for the first time in its history, not 

meeting its obligations is a reckless approach to economic policy and jobs. 

So, that is a sequester on steroids, and these others are versions of that, and none 

of them meets the test of making tough policy decisions. 

I will end with this, Mr. Chairman, these bills in their current form are either 

very dangerous to our economy if they were actually to be put into effect and followed because of the fact that they would make worse any economic downturn. Or, 

at best, they’re misleading because they create a sense that the Congress has done 

something. People go home and they say to their constituents, hey, we passed a cap 

on spending, don’t worry about it, knowing full well that the spending targets won’t 

be met. I don’t know which of those consequences is worse, although I would hate 

to see another full-fledged economic downturn compounded by the mindless sequesters in these bills. 

Chairman RYAN. Sure. Obviously we see things differently. 

Mr. VAN HOLLEN. Talk about the math, the math. 

Chairman RYAN. So as we mention in my opening statement, it 

is not a substitute for getting the right policies, it is an enforcement for making sure that the right policy changes stick. But with 

that, I think we will start with Ms. Fraser and then we will go to 

Dr. Holtz-Eakin and Dr. Aaron. 
7 

STATEMENTS OF ALISON ACOSTA FRASER, DIRECTOR, THOMAS A. ROE INSTITUTE FOR ECONOMIC POLICY STUDIES, THE 

HERITAGE FOUNDATION; DOUGLAS HOLTZ–EAKIN, PRESIDENT, AMERICAN ACTION FORUM; AND HENRY J. AARON, 

SENIOR FELLOW, ECONOMIC STUDIES, THE BROOKINGS INSTITUTION 

STATEMENT OF ALISON ACOSTA FRASER 

Ms. FRASER. Thank you very much. My name is Alison Fraser, 

and I am the director of the Roe Institute for Economic Policy 

Studies at The Heritage Foundation. And the views that I will express today in my testimony are my own and shouldn’t be construed as representing any official position of The Heritage Foundation. There is my disclaimer. 

Thank you very much for having me here to testify before you 

today at this hearing today. I will tell you what you already know, 

which is that congressional and executive oversight of the Federal 

budget are in turmoil. The political aversions to toppling Federal 

overspending, I believe, is enhanced an enabled by the inadequate 

processes that govern the Federal budget. I think two things are 

needed to prevent a European-style fiscal and debt crisis. One, our 

process changes that would require some would say enforce the solution and ensure fiscal results are achieved, and, of course, the robust policies solutions themselves. Today’s hearing on process reform following the House’s budget resolution which contains these 

robust policy visions is in my view particularly welcome. 

The sad fact is that U.S. Federal debt will soon reach economically damaging levels and spending will be the driver of that. The 

big elements of the spending growth stem from the Big Three entitlements, Social Security, Medicare and Medicaid. They compromise approximately 45 percent of the budget today, but, as we 

know, they will experience very fast growth in the future. A variety 

of projections show that it is highly possible, even likely, that the 

U.S. could experience a U.S.—a European style spending and debt 

crisis. 

The problem is that changing courses seems elusive. The process 

which governs the Federal budget has significant weaknesses and 

must be addressed as both an impetus and tool to driving the necessary changes to the budget. In my view, one major gap in the 

budget process today is that mandatory spending is in no way 

budgeted. Thus the Big Three entitlement programs which essentially enjoy open-ended appropriations are allowed to grow on 

budgetary autopilot. Or put another way, the biggest drivers of the 

Federal budget are able to enjoy sort of an automatic first call on 

tax revenues. The problem being then that they squeeze out other 

priorities, whether they are low taxes, strong defense, education 

funding or antipoverty spending. 

Another major gap is the seemingly arbitrary timeline of budget 

window. One-year estimates, of course, are necessary and longer 

term are as well, but from a budget perspective, there is nothing 

crucial or magical about 5 or 10 years. Neither adequately measures whether policies are affordable or as sustainable over a longer 

term time horizon. And indeed, these fixed, shorter-termed time 
8 

frames even incentivize gaming the timing of new policies so they 

seem to stick within their budgetary targets and appear affordable. 

Bringing entitlements in a sense on budget is an important 

change in both the Spending Control Act and BOLT Act. Reviewing 

the budget over the longer time as in the BOLT Act is equally important. 

To be sure, there are tremendous challenges with making longterm budget projections. First of all, they all require a variety of 

assumptions which, together or alone, over the long-term, will all 

be wrong. But it is vital to know the direction of the budget into 

the future and whether, based on today’s knowledge, policies are 

both sustainable and affordable. Projections of this nature have 

been made regularly over the years by a number of departments, 

including the Congressional Budget Office. They are a good road 

markers of the direction that we are in. So the transparency sections of the BOLT Act featuring sustainability reports and regular 

review of long-term spending to me are particularly important as 

is the long-term reconciliation feature. 

I do worry that enforcing spending caps through sequestration 

against long-term projections could be problematic. So a couple of 

possible solutions would be to include some sort of margin of error 

for triggering sequestration itself, and/or a slower phase in to bring 

spending in line with the long-term caps. As for enforcement itself, 

there are very understandable reasons for excluding Social Security, but the program is, in fact, already running permanent deficits. The only way for Congress to ensure spending is sustainable 

is to put all programs in some way on budget, even those that are 

the most sacrosanct, such as Social Security. 

So in conclusion, the nature of the political process together has 

tremendous inertia to ignore our severe spending and debt problems until forced to by outside events. The objective of these bills 

are sound and sorely needed, I feel, to fix the budget process in 

order to provide more transparency, strong spending controls 

across the entire Federal budget, not just a small share, that provides that spending is sustainable over the long-term and to require steps for reining in spending to meet controls. 

In the end, only Congress will decide if and how it will act. But 

I believe it is better to do so in an intentional prudent way as these 

bills would provide rather than in a crisis. Thank you, and I look 

forward to your questions. 

Chairman RYAN. Thank you. 

[The prepared statement of Ms. Fraser follows:] 

PREPARED STATEMENT OF ALISON ACOSTA FRASER, DIRECTOR, THOMAS A. ROE

INSTITUTE FOR ECONOMIC POLICY STUDIES, THE HERITAGE FOUNDATION

My name is Alison Acosta Fraser. I am the Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation. The views I express 

in this testimony are my own, and should not be construed as representing any official position of The Heritage Foundation. 

Congressional and executive oversight of the federal budget are in turmoil. The 

political aversion to tackling federal overspending is enhanced and enabled by the 

inadequate processes that govern the budget. The last time a concurrent budget resolution was passed on time was April 11, 2003. The Senate’s record for failing to 

pass a budget resolution is even more discouraging. The budget process is especially 

inadequate for addressing and managing the long-term affordability and sustainability of fiscal policy. Indeed, much about the process serves to incentivize the 

avoidance of our long-term problems if not to exacerbate them. The biggest drivers 
9 

1 Congressional Budget Office, 2011 Long-Term Budget Outlook, Alternative Fiscal Scenario, 

June 2011 at http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-21-Long-Term— 

Budget—Outlook.pdf. 2http://www.heritage.org/federalbudget/runaway-spending-tax-revenue. There are different 

ways to calculate average historic levels of revenue, spending, and debt. Such averages vary due 

to the time periods covered. In the Heritage Foundation’s Federal Budget in Pictures publication, these averages span 50 years (1959—2008), encompassing post—World War II and pre— 

Great Recession years. www.heritage.org/federalbudget 3 Joseph Antos, Robert Bixby, Stuart Butler, et al., ‘‘Taking Back our Fiscal Future,’’ Brookings Institution and Heritage Foundation, April 2008, http://www.brookings.edu/?/media/research/files/papers/2008/4/fiscal%20future/04—fiscal—future.pdf (accessed May 30, 2012). 

of long-term spending—entitlements—are not subject to annual or even regular 

budget review and they continue sharp growth under budgetary ‘‘auto-pilot.’’ And 

there are other problems with the budget process: from the way the budget window 

can be gamed to the exploitation of emergency spending. 

Two things are needed to prevent a European-style fiscal and debt crisis: process 

changes which require—some would say force—solutions and ensure fiscal results 

are achieved, and the robust policy solutions themselves. Today’s hearing on process 

reform is particularly welcome. 

NEED FOR ACTION

Today, federal spending is at about 23 percent of GDP and debt held by the public 

is approximately 70 percent. When compared to the historical, post—World War II 

average of approximately 20 percent of GDP for federal spending and 44 percent for 

debt held by the public, this growth alone would be cause for concern. But the sad 

fact is that U.S. federal debt soon will explode to economically damaging levels and 

spending will be the primary driver of that explosion. 

Economic growth is materially slowed when debt approaches the size of the economy. But in a world like today’s, where the global economy is increasingly interconnected and global capital markets in particular, it is possible that even this can 

miss the true potential magnitude of a debt and spending driven crisis. There is no 

better evidence than to watch the European budget and debt crises continue to unfold. 

By the end of the decade, debt held by the public will reach 100 percent of GDP. 

After a generation it will reach nearly 200 percent1 and continue to skyrocket thereafter. The driver of this debt is federal spending; in 10 years federal spending will 

be at 22.1 percent of GDP, while revenues will reach 18.3 percent of GDP, essentially at their historical average of 18.1 percent.2 Then the situation deteriorates 

dramatically. By 2035, spending will reach 34 percent of GDP, driven primarily by 

the three major entitlement programs: Social Security, Medicare, and Medicaid. In 

2012, they comprise approximately 45 percent of total federal spending, or 10 percent of GDP, and by 2035 they will reach approximately 16.5 percent of GDP. Left 

alone, they will devour all tax revenues by 2045, assuming the historical level of 

taxation. 

TAKING BACK OUR FISCAL FUTURE

Many budget experts on the right and left have been rightly concerned about our 

grave situation and the lack of substantive legislative progress. One such project, 

Taking Back our Fiscal Future, stemmed from a joint project of the Brookings Institution and the Heritage Foundation. Experts from those and five other organizations across the ideological spectrum worked together for over a year to ‘‘define the 

dimensions and consequences of the looming federal budget problem, examine alternative solutions, and reach agreement on what should be done. Despite our diverse 

philosophies and political leanings, we have found solid common ground.’’ 3

FIXING THE PROCESS

Process reform legislation should include tools to address the major gaps that 

exist today, controlling the growth in spending—including entitlement spending— 

over the both short term and the long term. 

My testimony will focus on the first two of the three bills under discussion today: 

• Spending Control Act, H.R. 3576, which would put enforceable limits on federal 

spending over the 10-year budget window, which would be enforced through sequestration; • Balancing our Obligations for the Long Term (BOLT) Act, H.R. 3580, which 

would focus on the long-term budget picture by putting budget controls on total federal spending over a 30-year period, increase disclosure of the true long-term budget 

picture to Members of Congress and the public; and 
10 

4 U.S. Social Security Administration, ‘‘The 2012 Annual Report of the Board of Trustees of 

the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,’’ 

April 23, 2012, http://www.socialsecurity.gov/OACT/TR/2012/index.html (accessed April 23, 

2012). 

• Review Every Dollar (RED) Act, H.R. 3579, which would make it more feasible 

to control spending by creating reserve accounts for deficit reduction and placing 

new limits on administrative actions which can drive up spending on mandatory 

programs. 

The Spending Control Act starts by tightening the discretionary caps in the Budget Control Act (BCA), and importantly gives more discretion to Congress to set 

budget priorities between security and non-security spending. Both of these are important; the BCA’s total of $2.1 trillion was only a first step toward slowing the 

growth in spending, and more should be done. Indeed, the size of cuts taken in isolation sounds impressive, yet over the 10-year period covered by the BCA, these cuts 

represent merely 4.7 percent of total spending and just over half of the new debt 

projected over the same period. As noted earlier, reforms to the budget process must 

be accompanied by policy changes. The new spending caps in the Act are taken from 

the House-passed budget resolution, which included policy recommendations to committees, which effectively links process to the policy goals and strengthens the budget resolution. Congress should, however, have the discretion to set priorities across 

the entire budget, so removing the firewall between security and non-security 

spending is sound policy. 

One major gap in the budget process today is that direct (or mandatory) spending 

is not budgeted. Thus, the big three entitlement programs—which enjoy essentially 

open-ended appropriations—are allowed to grow on auto-pilot. Put another way, the 

biggest drivers of the federal budget are able to enjoy an automatic ‘‘first call’’ on 

tax revenues, squeezing other priorities—be they strong defense or education. This 

is remarkable in the sense that affording such a budget priority to any program— 

much less such a major one—effectively limits congressional debate on setting national priorities. This is especially problematic for solving our spending and debt crises as it places more budget emphasis on the smallest portion of the budget and 

diverts attention away from the biggest drivers. To address this imbalance, this legislation would cap spending on the major entitlements in two ways. 

First, it places caps on three categories of direct spending: Medicare, Medicaid 

and other health-related spending, and all other direct spending (exempting Social 

Security and net interest). Here too, the caps are set to the levels in the Housepassed budget resolution—further linking program modernization with the enforcement and process side of budgeting. It is unfortunate that Social Security is exempt 

from caps, as it is unsustainable over the decade and beyond.4 The program is already in permanent deficits, which means it is placing a strain on the rest of the 

federal budget by crowding out other spending or—more likely—higher borrowing. 

Exempting Social Security from spending restraint will mean more years of drawing 

on general revenues to cover its deficits and will not require the program reforms 

that are sorely needed to make it solvent and sustainable. Indeed, this seems at 

odds with the intent of the legislation. 

Even with these diverse ideological perspectives, the recommendations in this report included taking entitlement spending off budgetary auto-pilot and budgeting for 

the long term. This paper was published over four years ago. One striking passage 

in the report notes the ‘‘huge problem the candidates are not talking about’’ namely, 

‘‘how to narrow significantly the enormous gap between projected federal spending 

and revenues.’’ Fast forward four years to the 2012 election and an even worse fiscal 

picture. The same flaws in the budget process still exist today, but the urgency for 

solving the fiscal picture is even more imperative. Fixing the process is equally important. 

Second, this legislation would also cap total spending, including both discretionary 

and direct spending, and also requires enforcement should the caps be exceeded. 

Putting the brakes on total spending is essential, as noted earlier, and any limits 

must be enforceable. Federal spending must be evaluated by the sum of its breadth; 

comparisons of one part of the budget or another are simply inadequate unless the 

budget in its entirety is measured and limited. The devil is always in the details 

of just how to enforce such caps. Across-the-board cuts, which are the Act’s mechanism for enforcement, are the most simple to implement, especially quickly. Moreover, there is the semblance of shared sacrifice across all programs. However, they 

are quite a crude tool for de facto policy-setting. This is especially true for complex 

programs like Medicare where such a mechanism can have all manner of unintended consequences, or in the Department of Defense where it can jeopardize efficient and cost-effective management of long-term contracts. Paraphrasing Churchill, 
11 

other cuts have been tried and across-the-board cuts are the worst form * * * except for all the others. 

Areas for Improvement: As noted above, Social Security is exempt from the individual direct spending caps. To set policies which both meet the needs of our citizens and are affordable and sustainable, all programs across the entire federal 

budget should be on a level playing field, open for debate and trade-offs. This should 

include even the most popular or seemingly sacrosanct ones like Social Security. It 

too should be subject to some form of spending restraint—whether part of an individual spending cap or subject to some limit so that all federal programs are 

brought under some form of budget discipline and assessment. Leaving one out— 

no matter how integral it is in our society—paves the way for additional exemptions. As for Social Security itself, eliminating it from a cap simply delays the day 

of reckoning when the trust fund is finally exhausted and solutions will happen one 

way or another. 

The policy results of budget enforcement should be as important as the fiscal 

ones. So, one improvement for sequestration could be to link the particular policy 

proposals included in the budget resolution into sequestration rather than relying 

on sequestration. For example, the phase-in period for moving Medicare to a premium support model could be expedited, or income adjusting for affluent seniors 

could be enhanced. In such a way, the policy changes to modernize these programs 

would be an integral part of enforcement. Similar enforcement could be done for Social Security such as phasing in a retirement age, or further income adjusting for 

affluent retirees. 

Another concern in the legislation is the sheer number of caps it contains: discretionary spending, three individual program caps for entitlements, and a cap on total 

spending. In addition to this, there is a cap on deficits. This adds potentially unnecessary complexity and makes it much harder for budget and program managers to 

anticipate and prepare for sequestration, and conceivably could lead to more than 

one set of sequestration cuts in a given year. These should be addressed in future 

versions of the bill. Additionally, since deficits are the result of spending and revenue levels, the deficit cap would be an impractical one that—as the bill is written— 

would be difficult and problematic to enforce. Since deficits are specified on budget 

resolutions, this seems an unnecessary addition to this bill. 

The Balancing Our Obligations for the Long Term (BOLT) Act has many of the 

same strengths of the Spending Control Act, and some of the same concerns. Its 

strengths lie in the steps it takes to ensure that the entire budget—and federal 

spending in particular—is affordable over the longer term beyond the rather arbitrary 10-year budget window. There are several reasons this is of crucial importance. 

First, lawmakers and the public must know whether existing policies are affordable over both the near term and long term. In past years, the 10-year budget window would show relatively modest increases in spending and stable debt levels. 

However, over the longer term, spending—especially on entitlements—explodes and 

the debt along with it. This was the case, for example, in the last years of the 

George W. Bush Administration where spending growth tapered off and revenues 

grew with a stronger economy which lowered deficits and the debt ratio. But it was 

well known that this was a false sense of security as shown by the annual reports 

of the Medicare and Social Security Trustees and long-term budget projections by 

the CBO and GAO. Lawmakers still did nothing to tackle this huge problem. The 

lack of long-term budget measures in the budget process allowed Congress and the 

Administration to ignore the problem. Exclusive reliance in the budget process on 

shorter-term projections even seemed to incentivize huge increases in federal spending, as in the examples of the Medicare Drug Benefit or universal health care subsidies in the Affordable Care Act, the Farm Bill, or the budget busting SAFETEALU Transportation reauthorization. 

Second, it is possible for individual programs to appear affordable, but when examined in concert with all other spending a different, troublesome picture can 

emerge. When the appalling condition of Social Security and Medicare is added to 

the growing expanse of the federal government, the true picture of federal finances 

is markedly worse. Alternatively, especially important today, the longer-term horizon shows the efficacy of spending reductions. Those that do not tackle entitlement 

programs will do very little to bring the budget in line to where it can be either 

affordable or sustainable. So the objective of this legislation is sound and these 

kinds of changes are sorely needed. 

Lastly, it is possible to game legislation such that it appears to be affordable within the 10-year budget window. The two biggest examples of new programs—the 

Medicare drug benefit and the Affordable Care Act—both employed this gimmick. 

They were affordable according to the criteria established for the legislation within 
12 

the 10-year window. But since each of them back-loaded their new spending, they 

failed the test of sustainable and affordable policy changes over longer-term measures. For example, excess costs for the Medicare Drug Benefit were estimated to approach $8 trillion over the 75-year time horizon, net present value, more than twice 

the debt held by the public at the time the bill was passed. 

The BOLT Act addresses these flaw by first requiring reporting over a long-term 

budget window—an additional 30 years after the end of the 10-year budget window. 

Both the legislative branch, through CBO and GAO, and the executive branch 

through OMB and the President’s own budget submission must present an analysis 

of the long-term budget picture and the sustainability of policy. To be sure, these 

kinds of projections will not be accurate and are based on numerous assumptions 

such as the growth in discretionary spending, needs of defense, interest rates, the 

size and growth of the economy, etc. However, such projections are made regularly 

by the departments named above which present a reasonable picture of future 

spending and finances for lawmakers and the public to gauge whether the budget 

and major policies are sustainable. This first step, disclosure of long-term sustainability in the budget process itself is important so it can be used to guide policy in 

the budget resolution. 

The legislation imposes spending caps over a 30-year period, beginning after the 

10-year budget window closes. Here, caps include the same direct spending categories as the Spending Control Act, in addition to a total spending cap. As noted 

earlier, budgeting only for discretionary spending covers less than half of the budget 

and leaves the biggest drivers of the budget out of annual budget debates. As entitlement spending will automatically grow ever larger, these programs must be 

brought under a formal review process, and thus extending spending caps to them 

will be an important part of constraining spending to affordable levels. These caps 

are set using the same levels of spending as the House-passed FY-2013 budget resolution, again linking policy objectives to fiscal targets. 

Spending is kept under control by long-term reconciliation, a regular review of 

sustainability every five years. Tens of millions of Americans rely on entitlements 

for retirement security, so new changes to these programs should be periodic, allowing seniors to plan and react to changes. If reconciliation and regular review fail 

to keep spending in check, there will be sequestration. These steps are welcome improvements over today’s glaring lack of long-term budgeting. The downgrading of 

the nation’s credit ratings last summer serves as further warning that the debt is 

reaching unsustainable levels and must be addressed. As the long-term budget gap 

is exclusively driven by spending, this legislation is properly focused on spending. 

As noted above, it is important to measure the costs of new legislation over the 

short term, but this alone is an incomplete measure as it allows gaming of the rules 

towards greater spending. Measuring major legislation over the long term is an important step in ensuring sustainable policy. Such formal measures would have 

markedly changed the debate for the Medicare Drug Benefit and the Affordable 

Care Act. 

Improvements: While there are fewer caps than the Spending Control Act, setting 

targets for Medicare, Medicaid and other health, and all other excluding Social Security may set an unnecessary level of detail for budget caps—especially over the 

long term. It is difficult enough to forecast spending over the long run, and requiring enforcement mechanisms at such detailed levels may prove troublesome. It is 

valuable to assess sustainability of individual programs. So one enhancement might 

be to provide additional flexibility to Congress to move resources from one category 

to another. 

The old saw that economists spend their careers explaining why their predictions 

are wrong has some relevance here. Long-term estimates are bound to be wrong. 

So giving some breathing room for the caps and sequestration in particular through 

a small, acceptable margin of error would still incentivize reforms and budget control if done carefully. Ensuring that entitlement programs are not whipsawed by frequent policy changes in response to the annual sustainability report are also important. There should be a balance between the tension needed for urgent steps to rein 

in spending and predictability for those who rely heavily on such programs. 

The Spending Control Act’s shortcoming of excluding Social Security also is 

present in the BOLT Act. 

GENERAL OBSERVATIONS

If it was only rules and procedures that were needed, our severe budget challenges would likely be resolved today. Indeed, existing laws have been ignored, 

whether intentionally as with the Senate, from gridlock, or just plain lack of will 

to address these serious problems. Since the last timely concurrent budget resolu-
13 

5See Alison Acosta Fraser and Brian M Riedl, ‘‘The Deficit Reduction Act: One Small Step 

for the House,’’ Heritage Foundation WebMemo No. 911, November 9, 2005, http:// 

www.heritage.org/research/reports/2005/11/the-deficit-reduction-act-one-small-step-for-thehouse. 

tion was passed (excluding FY 2013), there has only been a concurrent budget resolution in four of out eight years. Reconciliation, the process originally designed to 

help Congress change current law to conform revenue, spending, and debt limit levels to the policies laid out in the budget resolution, has only been used to minor 

effect for deficit reduction in recent years.5

The nature of the political process today has tremendous inertia to ignore our severe spending and debt problems until forced to by outside events. But this approach to governing is the worst way to set policy, as crisis-driven decisions are 

often desperate choices which will fail. The flawed concept of the Supercommittee 

and the equally flawed BCA sequester are good examples. Moreover, crisis-driven 

decisions rarely allow for public discourse, weighing the pros and cons of such 

changes and building support so they are accepted. Congress and the President 

must act with purpose and intent to solve the spending and debt challenges, yet the 

system is sorely inadequate to ensure that all spending over the short term and long 

term is both affordable and sustainable. The objectives of these bills are sound and 

sorely needed: to provide more transparency, strong spending controls across the entire federal budget over the short term and the long term, and to require steps for 

reining in spending to meet those limits. They are important steps to fixing the 

budget process. In the end, Congress itself will decide if it will act. Better if it does 

so in an intentional, prudent way rather as these bills would provide, rather than 

in a crisis. 

Chairman RYAN. Dr. Holtz-Eakin. 

STATEMENT OF DOUGLAS HOLTZ–EAKIN 

Mr. HOLTZ–EAKIN. Chairman Ryan, Ranking Member Van Hollen and members of the committee. 

Chairman RYAN. Pull your mic a little closer. 

Mr. HOLTZ–EAKIN. Thank you again for the privilege to appear 

today, and I look forward to your questions. Let me briefly make 

a couple points at the outset. First, to echo what has already been 

said, the Federal budget process is fundamentally broken. At best, 

when it works, the President submits a budget and the House and 

Senate pass budget resolutions and conference it to a single agreement, but there is in fact no reason why is has to match what the 

President submitted, there is no reason why the amount of spending in mandatory programs has to have any relation to the discretionary programs, and there is no reason why taxes have to match 

spending in any fundamental way. 

So when it works well, it doesn’t produce a fiscal policy, it produces a fiscal outcome, and it is usually bad. At the moment, it is 

not working well at all. As the chairman noted, the Senate is not 

passing budgets at all. The President’s budget submissions can’t 

even get votes in either House of Congress. And we have a demonstrable dangerous fiscal state. As this committee is well aware, we 

already have gross Federal debt that exceeds the size of the U.S. 

economy. We have all the characteristics of countries that get into 

sovereign debt crises, high levels of debt, heavy reliance of shortterm borrowing, a failure to understand fully the obligations that 

the taxpayer faces and then they pop up and we have to pay for 

them. All of this suggests the need for dramatic action in the 

United States. 

The history of countries that have gotten in this situation has actually provided a road map for the right thing to do. In circumstances of bad growth and large debt, the best set of policies 
14 

*The opinions expressed herein are mine alone and do not represent the position of the American Action Forum. I thank Gordon Gray for his assistance. 

are to keep taxes low and reform them to be as pro-growth as possible and to control spending. And the key in controlling spending 

turns out to be government employment, not a real big problem in 

the United States, and transfer programs. And in the United 

States, those transfer programs are the large mandatory spending 

programs, they are the entitlements, Medicare, Medicaid, Social Security and the new Affordable Care Act. So the policy playbook is 

actually apparent, the question is can you design a budget process 

which will be a complement and support that policy process. And 

as everyone here has noted, process is no substitute for getting 

policies right. 

The key features of the pieces of legislation under control today, 

under consideration today, are that they actually put mandatory 

spending on a budget, and that is a necessary complement to getting policies control spending programs which are at the heart of 

addressing the Nation’s problems, so putting mandatory spending 

on a budget is an enormously important step, and having a longterm outlook with mechanisms to force action to keep the policies 

on track is the second key feature. 

There are lots of other details, but there is no substitute for 

doing that. These are examples of fiscal rules, imposing a set of fiscal rules on a Congress is an important step for the United States. 

It has been tried elsewhere around the globe, as I noted in my 

written testimony, the Dutch adopted its spending caps, the 

Swedes adopted spending caps and targets for surplus averaged 

over the business cycle. These kinds of fiscal rules have been 

shown to improve budgetary and economic performance around the 

globe. I applaud the attempt to consider these here and get the 

United States on a better track, both from a policy and process 

point of view, thank you. 

Chairman RYAN. Thank you. 

[The prepared statement of Mr. Holtz-Eakin follows:] 

PREPARED STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, 

AMERICAN ACTION FORUM* 

Chairman Ryan, Ranking Member Van Hollen and members of the Committee, 

I am pleased to have the opportunity to appear today. In this testimony, I wish to 

make a few basic points: 

• The U.S. faces a dramatic threat from the current and projected levels of federal 

debt, driven by ever-increasing mandatory spending; 

• The outlay reductions in the president’s budget proposal or the Budget Control 

Act are dwarfed by the scale and imminence of the problem; 

• The current Congressional budget process is broken, and does not facilitate addressing the threats to the Nation; 

• The legislation contemplated in this hearing have relative strengths and weaknesses, but are clearly designed to introduce greater discipline in the budgeting 

process; 

• In particular, to the extent they involve the adoption of a ‘‘fiscal rule’’ these proposals would be a valuable step toward budgetary practice that would address the 

debt threat and preclude its recurrence; and 

• Budget process reforms are commendable, and to the extent they can precipitate 

action, they should be pursued, but are no substitute for necessary underlying policy 

changes. 

Let me discuss each in turn. 
15 

1 Congressional Budget Office. 2011. The Long-Term Budget Outlook. Pub. No. 4277. http:// 

www.cbo.gov/ftpdocs/122xx/doc12212/06-21-Long-Term—Budget—Outlook.pdf 2 Congressional Budget Office. 2012. An Analysis of the President’s 2013 Budget. http:// 

www.cbo.gov/sites/default/files/cbofiles/attachments/03-16-APB1.pdf 3Flitter, Emily. Reuters. http://www.reuters.com/article/2012/05/21/us-usa-treasurieschina-idUSBRE84K11720120521 

THE THREAT FROM FEDERAL DEBT

The federal government faces enormous budgetary difficulties, largely due to longterm pension, health, and other spending promises coupled with recent programmatic expansions. The core, long-term issue has been outlined in successive 

versions of the Congressional Budget Office’s (CBO’s) Long-Term Budget Outlook.1

In broad terms, the inexorable dynamics of current law will raise federal outlays 

from an historic norm of about 20 percent of Gross Domestic Product (GDP) to anywhere from 30 to 40 percent of GDP. Any attempt to keep taxes at their post-war 

norm of 18 percent of GDP will generate an unmanageable federal debt spiral. 

This depiction of the federal budgetary future and its diagnosis and prescription 

has all remained unchanged for at least a decade. Despite this, lasting action (in 

the right direction) has yet to achieve the force of law. 

In the past several years, the outlook has worsened significantly. 

Over the next ten years, according to the Congressional Budget Office’s (CBO’s) 

analysis of the President’s Budgetary Proposals for Fiscal Year 2013,2 the deficit 

will average over $630 billion over the next ten years. Ten years from now, in 2022, 

the deficit will be 3.0 percent of GDP, roughly $700 billion. As a result of the spending binge, in 2022 debt held by the public will nearly have doubled from its 2008 

level to roughly 80 percent of GDP and will continue its upward trajectory. 

The ‘‘Bad News’’ Future under Massive Debt Accumulation. A United States fiscal 

crisis is now a threatening reality. It wasn’t always so, even though—as noted 

above—the Congressional Budget Office has long published a pessimistic Long-Term 

Budget Outlook. Despite these gloomy forecasts, nobody seemed to care. Bond markets were quiescent. Voters were indifferent. And politicians were positively in denial that the ‘‘spend now, worry later’’ era would ever end. 

Those days have passed. Now Greece, Italy, Portugal, Spain, Ireland, and even 

Britain are under the scrutiny of skeptical financial markets. And there are signs 

that the U.S. is next—as witnessed by the decision of S&P to downgrade the federal 

credit rating. The federal government ran a fiscal 2011 deficit of $1.3 trillion—nearly 9 percent of GDP, as spending remained above 24 percent of GDP and receipts 

remained below 16 percent of GDP. 

How did this happen? First, the U.S. frittered away its time for easier action. It 

was widely recognized that the crunch would only arrive when the baby boomers 

began to retire. Guess what? The very first official baby boomer already chose to 

retire early at age 62, and the number of retirees will rise as the years progress. 

Crunch time has arrived and nothing was done in the interim to solve the basic 

spending problem—indeed the passage of the Medicare prescription drug bill in 

2003 made it worse. 

Second, the events of the financial crisis and recession used up the federal government’s cushion. In 2008, debt outstanding was only 40 percent of GDP. Already it 

is approaching 70 percent and rising rapidly. 

Third, active steps continue to make the problem worse. The Affordable Care Act 

‘‘reform’’ added two new entitlement programs for insurance subsidies and long-term 

care insurance without fixing the existing problems in Social Security, Medicare, 

and Medicaid. 

Financial markets no longer can comfort themselves with the fact that the United 

States has time and flexibility to get its fiscal act together. Time passed, wiggle 

room vanished, and the only actions taken thus far have made matters worse. 

As noted above, in 2022 public debt will have nearly doubled from its 2008 level 

to nearly 80 percent of GDP and will continue its upward trajectory. Already, gross 

federal debt exceeds 100 percent of GDP. Using this measure, research shows that 

a debt-to-GDP ratio of 90 percent or more is associated with the risk of a sovereign 

debt crisis. 

Perhaps even more troubling, much of this borrowing comes from international 

lending sources, including sovereign lenders like China that do not share our core 

values. Rather than reducing this threat, according to news reports the United 

States is facilitating increased indebtedness to China by providing the People’s 

Bank direct access to Treasury markets.3

For Main Street America, the ‘‘bad news’’ version of the fiscal crisis occurs when 

international lenders revolt over the outlook for debt and cut off U.S. access to international credit. In an eerie reprise of the recent financial crisis, the credit freeze 
16 

4 Congressional Budget Office. 2012. Economic Effects of Reducing the Fiscal Restraint That 

Is Scheduled to Occur in 2013. http://www.cbo.gov/sites/default/files/cbofiles/attachments/ 

FiscalRestraint—0.pdf 

would drag down business activity and household spending. The resulting deep recession would be exacerbated by the inability of the federal government’s automatic 

stabilizers—unemployment insurance, lower taxes, etc.—to operate freely. 

Worse, the crisis would arrive without the U.S. having fixed the fundamental 

problems. Getting spending under control in a crisis will be much more painful than 

a thoughtful, pro-active approach. In a crisis, there will be a greater pressure to resort to damaging tax increases. The upshot will be a threat to the ability of the 

United States to bequeath to future generations a standard of living greater than 

experienced at the present. 

Future generations will find their freedoms diminished as well. The ability of the 

United States to project its values around the globe is fundamentally dependent 

upon its large, robust economy. Its diminished state will have security repercussions, as will the need to negotiate with less-than-friendly international lenders. 

The ‘‘Good News’’ Future under Massive Debt Accumulation. Some will argue that 

it is unrealistic to anticipate a cataclysmic financial market upheaval for the United 

States. Perhaps so. But an alternative future that simply skirts the major crisis 

would likely entail piecemeal revenue increases and spending cuts—just enough to 

keep an explosion from occurring. Under this ‘‘good news’’ version, the debt would 

continue to edge northward—perhaps at times slowed by modest and ineffectual ‘‘reforms’’—and borrowing costs in the United States would remain elevated and escalating. 

Profitable innovation and investment will flow elsewhere in the global economy. 

As U.S. productivity growth suffers, wage growth stagnates, and standards of living 

stall. The combination of sluggish income growth and a very large tax burden from 

the debt, assures that the next generation will inherit a standard of living inferior 

to that bequeathed to this one. 

THE NEED FOR ACTION

The federal budget problem demands fundamental reforms to major mandatory 

spending programs—Medicare, Medicaid, Social Security, the Affordable Care Act— 

and would benefit from the improved growth derived from fundamental tax reform. 

Despite this, successive budget proposals by the president are devoid of reform proposals and characterized at best by the type of piecemeal spending cuts and tax increases that invite stagnation. 

Recently, the passage of the Budget Control Act of 2011, its caps on discretionary 

spending, and the formation of the Joint Select Committee on Deficit Reduction represented a commitment to move the nation’s finances in a better direction. 

However, the failure of the Committee to report recommendations to address our 

fiscal challenges has left the United States in a perilous position. It faces the expiration of tax polices most recently extended in 2010 and a sequester that is widely 

judged to be bad policy. The combined effect of these policies, in an unprecedented 

statement from CBO, threatens recession.4

However, the structural budget challenges the nation faces are so pressing and 

significant that they outweigh in terms of their implications for economic output 

even a near-term recession. Clearly something must be done to avoid a downturn, 

but any such undertaking must be paired with reforms to address our fiscal imbalance. 

THE BROKEN BUDGET PROCESS

The Congressional budget process is broken and does not engender regular evaluation of the fiscal health of the federal government. Indeed, the prima facie evidence of its failure is that fact that the president has regularly submitted budgets 

that clearly display a path to a sovereign debt crisis, the U.S. Senate has not adopted a budget resolution in three years, and the Congress as a whole regularly operates without a binding budget resolution—all with no consequence. 

The budget process is intended to facilitate a regular and disciplined evaluation 

of the inflow of taxpayer resources and outflow of federal spending. It should enhance the role of the Congress as a good steward of the federal credit rating. It does 

neither because the current process is insufficiently binding. As a result, it easily 

degenerates to the mere adoption of current-year discretionary spending levels, with 

no review of the real problem: the long-term commitments in mandatory spending. 
17 

LEGISLATIVE PROPOSALS FOR PROCESS REFORM

To the extent that process reforms introduce added discipline to governance, and 

contribute to good budgetary outcomes, they should be commended. I believe there 

are elements of each of the three bills considered today that meet that test. 

BALANCING OUR OBLIGATIONS FOR THE LONG TERM ACT OF 2011

As noted above, the U.S. long-term budget challenge is daunting—now more so 

because what was once a truly long-term challenge now confronts in the medium 

term. Indeed, if credit markets observe a continued failure to put in place a credible 

plan to address this challenge, there would likely be near-term implications. 

The BOLT Act should be viewed favorably for its focus beyond the standard budget window. Any meaningful reform to major entitlements may have only modest impact within the 10 year budget window, but are the only sort of reforms that will 

address our looming, spending-driven debt crisis. Some efforts on this issue have 

been made in the past, such as the long-term budget point of order, the codification 

of which is a particularly laudable aspect of this legislation. Strengthening of the 

‘‘Medicare trigger’’ enacted in 2003, but repeatedly ignored by the current administration is also a worthy pursuit. 

I must also note with caution the reliance inherent in this legislation on long-term 

budget projections. Any budget process that is contingent upon a long-term estimate 

of federal finances and a subsequent long-term estimate on how legislation (the compulsory ‘‘fast-track’’ legislation) might alter those finances is fraught with uncertainty. It is simply beyond the scientific capabilities of the budget community to 

project these impacts with great certainty. The need for Congress to consider the 

long-term outlook is undeniable. Assuring that federal finances are sustainable and 

that the debt trajectory is downward are far more important than hitting precise 

projected numerical targets. 

SPENDING CONTROL ACT OF 2011

Any serious approach to budget discipline must include mandatory spending, 

which comprises over half of federal spending. The Budget Control Act, and other 

efforts, principally stemming from this body have put the brakes on discretionary 

spending growth. I would commend any policymaker for rooting out additional savings in discretionary programs, in domestic and defense appropriations, but much 

of the low-hanging fruit has been culled, and undue effort to squeeze less consequential savings from discretionary programs at the expense of a much needed debate on entitlement reforms would likely be unproductive. While praise-worthy for 

staunching the recent discretionary spending binge, the Budget Control Act, in its 

post Super Committee-failure guise, suffers from this flaw. 

The Spending Control Act addresses this flaw by introducing measures to restrain 

direct spending, overall spending, and deficits. I believe the inclusion of mandatory 

spending into any budget process reform regime is critical. While ultimately, we 

must reform the underlying elements of mandatory programs, the desire to establish 

a global budget for mandatory spending, which is essentially what such a cap would 

do, is well intentioned, and would advance the goal of imposing needed reforms to 

these programs. 

REVIEW EVERY DOLLAR ACT OF 2011

Much like the previous two proposals, this legislation addresses the critical driver 

of our budget woes—direct spending. A periodic reassessment, as called for in the 

Review Every Dollar Act, of all federal programs should serve as a catalyst for the 

necessary debate on how to address our mandatory programs. That is the crucial 

first step to reining in the largest and fastest growing federal programs. 

The RED Act also seeks to address other specific flaws in current budget practice 

that are worthwhile efforts. Making explicit the tens of billions in federal transfers 

to the Highway Trust Fund is critical to effectively prioritizing federal spending initiatives. In a time of tight budgets, prioritization must determine funding allocations, and if we are to do so with any fidelity, then the masking of the state of the 

Trust Fund’s finances is a practice that must come to an end. Additional measures 

in the RED are also commendable for their approaches to other such anomalies that 

impede proper budgetary practice. 

THE VALUE OF FISCAL RULES

One way to think of the reforms under consideration today is in the context of 

a federal ‘‘fiscal rule.’’ At present, the federal government does not have a fiscal ‘‘policy.’’ Instead, it has fiscal ‘‘outcomes’’. The House and Senate do not reliably agree 
18 

5http://budgetreform.org/ 

on a budget resolution. Annual appropriations reflect the contemporaneous politics 

of conference committee compromise, and White House negotiation. Often, the annual appropriations process is in whole or part replaced with a continuing resolution. Annual discretionary spending is not coordinated in any way with the outlays 

from mandatory spending programs operating on autopilot. And nothing annually 

constrains overall spending to have any relationship to the fees and tax receipts 

flowing into the U.S. Treasury. The fiscal outcome is whatever it turns out to be— 

usually bad—and certainly not a policy choice. 

I believe that it would be tremendously valuable for the federal government to 

adopt a fiscal rule. Such a rule could take the form of an overall cap on federal 

spending (perhaps as a share of gross domestic product (GDP)), a limit on the ratio 

of federal debt in the hands of the public relative to GDP, a balanced budget requirement, or many others. Committing to a fiscal rule would force the current, disjointed appropriations, mandatory spending, and tax decisions to fit coherently within the adopted fiscal rule. Accordingly, it would force lawmakers to make tough 

tradeoffs, especially across categories of spending. 

Most importantly, it would give Congress a way to say ‘‘no.’’ Spending proposals 

would not simply have to be good ideas. They would have to be good enough to merit 

cutting other spending programs or using taxes to dragoon resources from the private sector. Congress would more easily be able to say, ‘‘not good enough, sorry.’’ 

As documented by the Pew-Peterson Commission on Budget Reform5 other countries have benefitted from adopting fiscal rules. The Dutch government established 

separate caps on expenditures for health care, social security and the labor market. 

There are also sub-caps within the core sectors. 

Sweden reacted to a recession and fiscal crisis by adopting an expenditure ceiling 

and a target for the overall government surplus (averaged over the business cycle). 

Later (in 2000) a balanced budget requirement was introduced for local governments. Finally, in 2003 the public supported a constitutional amendment to limit 

annual federal government spending to avoid perennial deficits. 

A lesson is that, no matter which rule is adopted, it will rise or fall based on political will to institute it and the public’s support for its consequences. 

NECESSARY POLITICAL WILL

All three of the measures being discussed today share the necessary goal of controlling the largest drivers of our spending problem. To the extent that the three 

bills before the Committee impel reforms to our entitlement programs, then I support their passage. However, process reform, no matter how well intentioned or considered is no substitute for the actual reforms needed to address the looming debt 

crisis fueled by federal spending. No statutory spending cap or scheduled sequester 

can replace the needed debate on what a realistic or fair retirement age should be, 

or what the proper federal role in seniors’ health care delivery is. So while I commend the authors of the legislation we are discussing, I would also caution this 

Committee’s membership, as many know, the clock is ticking on the need for that 

broader discussion. 

Thank you. I look forward to your questions. 

Chairman RYAN. Dr. Aaron. 

STATEMENT OF HENRY J. AARON 

Mr. AARON. Thank you very much, and I am very glad to be here. 

I would like to begin with some areas of agreement. 

Chairman RYAN. Pull your mic a little closer. 

Mr. AARON. Sure. I would like to begin with some areas of agreement. There is not a hair’s worth of difference among us on the 

issue of the importance of dealing with the long-term budget challenge that we face. There is not much difference among us on the 

question of whether budget procedures could, in fact, be improved. 

This hearing, however, isn’t about those issues; it is about whether 

these particular bills are the right way to go about dealing with 

those problems. 

The second area of agreement, I think among us, both Ms. Fraser 

and Mr. Holtz-Eakin emphasized in their testimony the problem-
19 

atic nature of any rule that is linked to very long-term projections 

because they are wrong and exact, and if they force actions, they 

are subject to random and capricious errors, and they actually 

place in the hands of technocrats decisions that properly belong in 

the hands of Congress. 

A third area, one that Ms. Fraser emphasized, is that these bills 

contain way too many caps and are unbalanced because they omit 

from their ambit consideration of revenues as part of the fiscal picture. 

Mr. Holtz-Eakin just mentioned an aspect of his testimony that 

I wanted to also emphasize, which is his reference to budget caps 

in European countries. I would like to go on record, maybe bragging a bit, I suggested precisely such a budget cap for U.S. health 

care spending in total 20 years ago in a Brookings volume, I still 

think it is a good idea but that is not what these bills do. What 

these bills do is single out those aspects of health care spending 

that benefit the aged, the disabled and the poor. In that respect, 

they differ fundamentally from the very European proposals to 

which Mr. Holtz-Eakin called attention. 

I would like to echo and repeat a point that Mr. Van Hollen 

made in his opening remarks. I think it is important that none of 

us, I believe, is opposed to procedural reforms in the budget process. The current system is flawed it suffers from many of the shortcomings from which Mr. Holtz-Eakin previously referred. But there 

is also a very clear record of consistent and complete failure of 

budgetary procedural rules to take the place of substantive negotiations on the very policies that comprise the budget and are projected to cause problems in the future. They have never succeeded 

in the past in the United States, there is no reason to think they 

will do so in the future. They are no substitute for the specific substantive negotiations. 

When and as those negotiations yield an agreement on how to 

deal with long-term budget challenges, changes in procedural rules 

can help cement and sustain those agreements. But to date, there 

is no evidence whatsoever that they can bring those agreements 

about. 

I would like in my concluding couple of minutes to focus on what 

I think is perhaps the fundamental problem with the procedural 

rules that are contained in this bill. They call for spending cuts 

that, in my view, are simultaneously mistimed, wrongly calibrated, 

and perversely targeted. They are mistimed because they would be 

triggered just when additional spending is needed to counter weakness in private demand. They are wrongly calibrated because they 

would be largest during the deepest recessions when those expenditures are most needed, and they would be perversely targeted because they would fall most heavily on the jobless and the sick precisely at the time when assistance for those groups is most sorely 

needed. 

I want to conclude by reiterating once again that I am not, in 

any way, urging opposition to procedural reforms in budget process. 

I think they are an important step for this committee to take a 

leadership role in bringing about, but they are no substitute and 

they cannot proceed substantive agreement on the budgetary meas-
20 

1 Bruce and Virginia MacLaury Senior Fellow, the Brookings Institution. The views expressed 

here are my own and do not necessarily reflect those of the trustees, officers, or other staff of 

the Brookings Institution. 

ures necessary to improve the long-term fiscal picture of this country. Thank you. 

Chairman RYAN. Thank you. 

[The prepared statement of Mr. Aaron follows:] 

PREPARED STATEMENT OF HENRY J. AARON, SENIOR FELLOW, 

ECONOMIC STUDIES, THE BROOKINGS INSTITUTION1

MR. CHAIRMAN AND MR. RANKING MEMBER: Thank you very much for inviting me 

to testify today. 

These bills deal in complex ways with the rules that will govern how Congress 

handles budgetary matters in the near and distant future. In my testimony, I shall 

focus primarily on HR 3576 and 3580. I shall emphasize the following points. 

• These bills would establish stringent spending limits. Those limits would force 

spending to be cut far below levels set in laws that Congress has duly enacted and 

the President has signed. These cuts would span the federal budget, cutting spending in myriad programs without debate or vote by members of Congress on the specific cuts involved. 

• The limits on the size of government in HR 3576 and HR 3580 are lower than 

actual expenditures during the administrations of the last five presidents, Republican and Democratic. A variety of forces will tend to increase government spending 

in the future. 

• The bills would set limits on deficits without regard to economic conditions. If 

adopted, they would likely deepen and lengthen recessions. They would increase unemployment and lower earnings and profits at times when the economy was already 

in distress. 

• Although ostensibly aimed a limiting the scope of government, these bills would 

do nothing to curb tax provisions that are the functional equivalent of expenditures 

and that, like direct spending, alter the private allocation of resources. 

• Although ostensibly aimed at limiting deficits, these bills would do nothing to 

inhibit deficit-increasing cuts in tax rates or the creation of new deductions, credits, 

or exclusions. 

• These bills would end the established and benign principle, present in budget 

deals and negotiations for more than two decades and most recently embraced by 

the Bowles-Simpson commission, that programs protecting low income Americans 

should be exempt from sequestration. 

• The bills would limit the size of government and fiscal policy not just for the 

next several years, but into a future no one can foresee. To do so, they must depend 

on projections of economic and political circumstances that are subject to vast uncertainty and enormous discretion by those preparing projections. They thereby cede 

to unelected technicians, who must use opaque assumptions and procedures, power 

over policies that under the Constitution are the responsibilities of members of Congress. 

Government spending, revenues, and the deficit change because of new legislation 

and evolving economic circumstances. Congress enacts legislation. It does not control the economy. 

Spending and revenues change automatically with economic activity. Most taxes 

increase when the economy expands and shrink when the economy contracts. Many 

expenditures vary with economic activity, as well. 

• Spending under Old-Age, Survivors, and Disability Insurance, Medicare, and 

Unemployment Insurance increases when the economy slows. So does spending 

under income- or means-tested programs, such as Medicaid, Temporary Assistance 

to Needy Families, Supplemental Nutrition Assistance. 

• Personal and corporation income taxes, payroll taxes, and many excise taxes 

rise and fall with economic activity. 

These automatic variations in taxes and spending help keep the economy on an 

even keel. When the economy is booming, rising revenues and falling spending tend 

to prevent the economy from overheating. When the economy is declining, falling 

revenues and rising government spending directly support private demand or offset 

its fall. Without automatic stabilizers, the economy would more easily ’overheat’ 

during economic booms. Without automatic stabilizers, the drop in income and increase in unemployment during recession would be more severe than is with them. 
21 

The faster such offsetting effects occur, the better. These stabilizing effects would 

be delayed if anti-recession legislation were enacted only after official statistics signaled economic shifts and only after Congress reacted to such news and resolved 

the inevitable political squabbling about just what to do. The fiscal relief measures 

enacted in 2008 under President George W. Bush and 2009 under President Barack 

Obama, for example, would have done even more good than they did if political disagreements had not delayed them. 

The bills that the Budget Committee is considering today would weaken or reverse portion of the benign fiscal effect of automatic stabilizers traceable to expenditures. They would not prevent tax collections from falling during recession. But both 

the spending and deficit caps would prevent spending from increasing. In fact, they 

would force spending cuts. Those cuts would be mis-timed, wrongly calibrated, and 

perversely targeted. • The spending cuts would be mis-timed because the caps would cut spending just 

when it should be increased—during economic slowdowns. That is when spending 

targeted on the unemployed and the needy automatically increases. That spending 

has two beneficial effects. It helps to maintain demand. And it relieves hardships 

associated with unemployment and falling income. Together with recession-induced 

drops in revenues, rising spending generates budget deficits and boosts the ratio of 

spending to GDP. To cut spending when the economy is weak would be no less 

wrong-headed than it would be to raise tax rates to offset the automatic drop in revenues. To do either because of an arbitrary formula would be folly. • The cuts would be wrongly calibrated because they would be largest during the 

deepest recessions when spending is most needed. It is during deep recessions when 

spending unemployment compensation, pensions, and health and food benefits increases most. It is during deep recessions when such assistance is needed most. • The cuts would be perversely targeted because they would fall most heavily on 

the jobless and the sick. Meanwhile, of course, the automatic stabilizer that would 

be left in place—tax flexibility—would go disproportionately to those who had the 

highest incomes and therefore faced the highest tax rates—those with high wealth 

or income. Please understand, the automatic reduction in tax collections that occurs 

when economic activity slows is a good thing. It also attenuates economic losses. But 

so, too, do automatic increases in government spending. To enact rules that reverse 

either of these automatic responses to declining economic activity would be senseless. Yet, that is just what these bills would do. 

Please understand as well that this indictment of spending and deficit triggers in 

these bills does not depend on the wisdom or lack thereof of the particular stimulus 

legislation enacted at the end of President George W. Bush’s administration or the 

separate law enacted early in President Obama’s administration. I believe that this 

legislation was beneficial, as does the report issued this week by the Congressional 

Budget Office. I also think that the stimulus packages were generally well, although 

not ideally, designed and were too small. Some members of this Committee probably 

agree with those judgments. Some probably do not. But whatever one may think 

about the 2008 and 2009 stimulus packages should have nothing to do with one’s 

view of the legislation on which you are holding hearings today. I speculate that 

few members of this Committee personally believe that it would have been a good 

idea to cut unemployment insurance, Medicaid, defense procurement, agricultural 

supports, and highway construction just when timed to take effect when the financial collapse of 2008 occurred and massive unemployment ensued. I also speculate 

that fewer still would have voted for such cuts. Yet, such cuts would have been 

forced had legislation such as proposed in these bills been enacted by those who a 

decade or two ago sat where you sit now. 

To make matters even worse, the sequestration rule in this bill reserves the largest cuts for those programs that increase when economic activity falls or that were 

considered sufficiently important for Congress to expand faster than inflation. Outlays that are not expanding faster than the consumer price index would be exempt 

from sequesters. 

Programs that rise when unemployment goes up or incomes fall will surely rise 

faster than consumer prices. They will be cut. Spending on programs that Congress 

has deemed important enough to expand will increase faster than the consumer 

price index. They will be cut. 

What is left? Programs that don’t directly help the unemployed or those with falling incomes. Programs that Congress does not think worth increasing. They will not 

be cut. It is hard to imagine a provision more perversely designed to slow economic 

recovery, to harm those most in need of help, and to shift resources from activities 

from high to low priority uses. 

Disagreement about the proper role and size of the federal government is as old 

as our republic and was never deeper than it is today. These bills attempt to settle 
22 

that disagreement through budgetary procedures. They create major, even insuperable, hurdles to raising spending. Simultaneously, they lower current barriers to 

cutting taxes. 

Trying to settle the long-standing and deeply felt disagreements about the proper 

role and size of government in this way is a bit like trying to settle the outcome 

of a football game by telling one team that it has to go twenty yards for a first down 

and the other team that it has to go only ten. Such rules would be laughably unfair 

and one-sided. The same may be said of the cut-go rules. 

This harsh comment in no way contradicts the importance, once the recovery is 

well established and well under way, of bringing the deficit under control. It also 

does not deny that elected officials may be tempted spend the taxpayer’s money irresponsibly if they are not forced to take account of the full costs of that spending. 

But there is a parallel and equally serious danger that elected officials, unless 

forced to take account of the deficit-increasing effects of their actions, use tax cuts 

to pander to their constituents. You ignore either risk at the nation’s peril. 

It is fair and sensible to require sponsors of new spending to show how they will 

pay for what they want to spend. It is equally fair and sensible to require sponsors 

of tax cuts to show how they intend to offset the revenues they will surrender. It 

is neither fair nor sensible to require one, but not the other. 

Nor would it be fair nor sensible for current members of Congress to presume that 

they are sufficiently informed or far-sighted to know what the size or scope of government should be decades hence. The fiscal records of the last five presidents have 

varied widely. In every year Ronald Reagan and George Herbert Walker Bush were 

in office, as well as three of the presidential years of Bill Clinton and of George W. 

Bush, budget outcomes would have failed the spending tests set in HR 3576. In 

every budget year of the presidencies of Ronald Reagan and George Herbert Walker 

Bush, in four of the budget years of Bill Clinton, and in six of the budget years of 

George W. Bush, the deficit tests set in that bill would have triggered sequesters. • Budgets for each president are assumed to begin with the fiscal year after the 

year in which they are inaugurated and to run through the fiscal year in which 

their successor is inaugurated. 

Hard, objective forces drove government spending and deficits during those presidencies. Similar forces will drive spending in the future. Future presidents and Congresses may find it necessary to deploy American military power abroad. They will 

encounter added pension costs for the tens of millions of baby-boomers yet to retire. 

If we are lucky, they will have to cope with added medical spending for a growing 

menu of beneficial diagnostic and therapeutic interventions. Unless we are both 

luckier and wiser than we have an reason to expect, they will have to grapple with 

recessions, financial panics, and natural disasters. No Congress can repeal such 

events. No Congress can foresee when they will happen or how severe they will be. 

It would therefore be profoundly unwise to legislate caps that hamstring what can 

then be done. 

For at least two decades, deficit reduction efforts have been guided by the principle that the burden of closing the deficit should be shouldered by those with adequate incomes—the middle class and the well-to-do—not by the poor, people with 

disabilities, or the elderly, and certainly not primarily by these vulnerable groups. 

This view has been shared by Republicans and Democrats alike. Erskine Bowles 

and Alan Simpson endorsed this principle in the introduction to their draft plan for 

deficit reduction. While the overall plan did not secure the requisite super majority 

laid out in its charter, there has been no indication that committee members rejected this underlying principle. 

Yet these bills would do just that. They would subject to sequester programs that 

serve the poor, such as Medicaid and Supplementary Nutrition Assistance. They 

would, in fact, target these programs for the largest cuts. They would permit longterm pension commitments to be rewritten without explicit debate, based on projections of spending or deficits stretching decades into the future that historically have 

been laughably inaccurate and are, inevitably, subject to manipulation through the 

artful selection of assumptions. 

It is just over a decade since budget analysts, a Federal Reserve chairman, and 

at least a few economists worried—I am not making this up!—that then-anticipated 

budget surpluses would sop up all outstanding government debt and make impossible the management of monetary policy. Those worries now seem risible, but serious people believed them, just as many people now believe that projected deficits 

will materialize. We now see that projections thirteen years ago were unduly rosy. 

We should understand that it is just as easy for current projections, which depend 

on assumptions about events we cannot possibly anticipate, may be unduly bleak. 

The Congressional Budget Office now issues long-term budget projections under 

alternative assumptions. Informed observers understand that these projections are 
23 

highly sensitive to underlying but seldom examined assumptions. For example, if 

health care spending slowed to the rate of growth of income, most of currently projected long-term budget deficits would largely vanish. Let me be clear * * * I think 

such a slowdown in growth of health care spending is unlikely and we shouldn’t 

count on it. But how fast health care spending rises depends sensitively on the 

fruits of future medical research. We can guess, but we cannot know, what will be, 

but has not yet been, discovered. Projections are also sensitive to assumed interest 

rates, labor force participation, and productivity growth. CBO is crystal clear that 

its long-term budget projections are not forecasts, but extrapolations of certain 

trends about variables that no one can forecast accurately. CBO’s projections shape 

public debate, as they should. But they do not, and should not, trigger specific legislative action. HR 3580 would convert these guesses about the future course of 

spending and revenues into action forcing events and goad Congress and the President to act now on projections of spending and deficits as much as forty years in 

the future. 

During the 1980s, the nation faced large and troubling deficits. Members of Congress repeatedly enacted rigid targets for deficit reduction. None worked. Then, 

presidents of both parties and Congress under both Republican and Democratic 

leadership dealt with the substantive cause of deficits. They identified spending that 

Congressional majorities agreed could be cut and taxes that could be increased. 

After those agreements had been struck, but only then, the pay-go procedural 

rules helped members stick by the deal. But those rules applied to both taxes and 

spending. They did not presume to know how much government should spend or tax 

decades into the future. They did not foster budget policy that would deepen recessions. They protected vulnerable populations and did not force them to shoulder the 

burden of deficit reduction. And, until they were repealed, they worked. 

Chairman RYAN. Ms. Fraser, let me start with you, I have got 

this piece from Brookings and Heritage, Taking Back Our Fiscal 

Future I will include in the record without objection. 

[The article follows:] 
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35 
36 
37 
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Chairman RYAN. Joe Antos, Bob Bixby, Stuart Butler, Paul 

Cullinan, Allison Fraser, Bill Galston, Ron Haskins, Julia Isaacs, 

Maya MacGuineas, Will Marshall, Pietro Nivola, Rudy Penner, Bob 

Reischauer, Alice Rivlin, Bell Sawhill, Gene Steuerle, a pretty good 

list, people from both sides of the aisle with specific recommendations on how to improve the budget process, which are encapsulated in these bills we are talking about here. 

I want to look at a certain section which I think had you a lot 

to do with, specifically, there are three recommendations I want 

your take on. First you recommend, and I will read it from the document here, ‘‘Congress and President should enact explicit longterm budgets for Social Security, Medicare and Medicaid that are 
39 

sustainable, set limits on automatic spending growth and have required review every 5 years.’’ Can you tell us about the rationale 

for this recommendation and whether this rationale was shared by 

the bipartisan group of experts that signed this document? 

Second, is this issue, ‘‘the rules for the 5-year window trigger for 

action forcing device that requires explicit decisions when projected 

spending exceeds budgeted amounts.’’ That is basically what Mr. 

Mulvaney’s bill does. Can you discuss how these triggers might 

work in your judgment? 

Ms. FRASER. Yes, thank you very much. 

Chairman RYAN. And then third, third, you can go back if you 

want to, but I just want to in the interest of time pack my question 

pretty quickly here. You recommend, ‘‘The long-run cost of these 

three programs should be visible in the budget at all times and 

considered when decisions are made. The benefits should not be increased either at the 5-year review or in between without insuring 

that they are fully financed, that is the other idea that is in Mr. 

Mulvaney’s bill. Can you talk a bit about a rationale for this recommendation and whether this idea was supported by the bipartisan group of experts? 

Ms. FRASER. Yes, thank you very much. We published this in 

2008 after nearly a year of working together, going over what our 

big concerns are over fiscal policy. And let me just read the two 

bullets where we came to agreement: ‘‘We have unsustainable deficits in the Federal budget which threaten the health and vigor of 

the American economy. The first step towards establishing budget 

responsibility is to reform the budget decision process so that the 

major drivers of the escalating deficits, Social Security, Medicare 

and Medicaid, are no longer on budgetary autopilot.’’ We thought 

this was very important, both from the short-term perspective and 

the traditional 10-year budget window, but also, and more importantly, over the longer term. 

So that is where we came up with the three basic recommendations that we went through. And we spent a lot of time doing this, 

because as you can tell by the individuals associated with this, 

there are a lot of diverse, very diverse ideological opinions and core 

beliefs. But it was a bipartisan view that we have to change course 

and that the biggest threat really is the fact that entitlement 

spending, especially on the Big Three is on budgetary autopilot. 

So with that, we thought it was fundamentally important that 

we change the dynamics, that Congress change the dynamics that 

trade-offs are made in the budgetary process by bringing these 

three entitlement programs on. We do believe that all three of 

them are very important in our society and our culture, but we believe that they have to be transformed and modernized so that they 

are both sustainable and affordable. 

Since they are, in essence, especially Social Security and Medicare, longer term, people rely on—millions of people rely on them 

exclusively in retirement, that there should not be a number of sort 

of whipsawing changes that occur in the same way that could occur 

in discretionary spending. Hence, we thought a regular review of 

say every 5 years that was the suggestion would allow for more 

sustainable or planning kinds of policies that people could rely on, 

policy changes. 
40 

So we didn’t want to see changes that would happen every year 

as in discretionary spending. That is why we recommended sort of 

5-year, 7-year kind of period. 

Again, this is was a bipartisan view. I would say that one of the 

differences is though we all believed that spending is the problem, 

we also believe that we should have a full and very formal overhaul 

of our Tax Code. And we should have a debate about how big we 

want government to be, and we should have a debate about how 

high revenue should be, and there are provisions in there to do 

that. And I would be happy to talk about my views on how big government should be, and we could have a robust discussion about 

that, but that was outside of your three questions. 

So what we thought is by setting a course that everybody could 

agree with about how big government should be, that should involve both the Congress and to the President that we should set 

sort of the track that we should be on, and then have some sort 

of way to keep us on track, hence the regular review. If Congress 

and the President did not come together to ensure that fiscal policy, especially over these biggest drivers was in adherence with 

those benchmarks, then there would be some sort of forcing action 

through a trigger to make sure that that happened. 

Now one of the things that we actually recommended as opposed 

the across-the-board sequestration was having actual policy triggers and there are a number of ways to do that. For example, you 

could increase premiums in Medicare, we could increase income adjusting in Social Security, lots of policy ways to include in the triggers themselves. 

And then lastly, again, I forget your third question. 

Chairman RYAN. Third question, let me get it, it is in the document here, ‘‘the long-run cost of the programs should be visible at 

all times without insuring they are fully financed.’’ Basically, how 

do you think the trigger ought to be worked, that is basically what 

you just got into? 

Ms. FRASER. But if I could add—— 

Chairman RYAN. So it was the policy trigger, I think that the sequester was what Mr. Van Hollen said, what do you think is the 

best trigger? I think you more or less answered that. You are saying the backup ought to be a policy, a predesigned policy trigger 

is what you are basically saying is what the trigger ought to be 

versus, say, a sequester? That was the question. 

Ms. FRASER. That was my recommendation to consider a policy. 

Because a sequester—you all are dealing with what the sequester 

is or is not going to be at the end of the year. And our thoughts 

were, well, let’s have something that we can all agree on in advance that could be ratcheted up. 

Chairman RYAN. Is the thinking that that is a trigger that is 

more likely to stick or that that is a trigger that is more focused 

on these programs, and therefore, it will more likely require actual 

policy prescriptions from Congress before that occurs. So, for instance, we passed our reconciliation package to prevent the sequester in the first year, nothing is happening in the Senate, we have 

the lame duck issue we are going to be dealing with. People can 

speculate as to whether the sequester will or will not occur if it will 

be replaced or not. Is the thinking that a policy trigger is better 
41 

because it is more specific, less across the board, and more directed 

towards the very programs of the drivers of our debt, is that the 

basic rationale? 

Ms. FRASER. Yes. And if I could just elaborate on a point of making sure that there is more transparency in what our long term 

path is. We thought that was especially important, so there is a 

debt limit that is set, but there is never any sort of measure or 

metric as to how high we want the future, our excess obligations 

stemming from some of these programs to be and we thought that 

was especially important. 

Chairman RYAN. That is what where we thought was most intriguing about this. What Mr. Mulvaney, and I will let him speak 

for himself and his bill, a bill that all of us here on the committee 

on this side are behind, is it is all about confident and trajectory. 

Are we getting our trajectory of debt under control, and are we confident that we are going to meet that trajectory. And therefore, to 

the point that some say, well, arbitrary caps on spending in and 

of themselves don’t really give you confidence that you are going 

to meet this trajectory of the debt because that means a future 

Congress at some other time will actually do the right thing, then 

to meet this benchmark. But if we actually are forcing ourselves to 

deal with the drivers of the debt, changing the laws themselves 

that are the cause for this run up in debt, and then putting enforcement mechanisms to make sure that those change in laws actually do continue and persist, then we have confidence that this 

trajectory of debt is under control. 

And by measuring the outcomes in the outyears of this debt, we 

can better send signals to the credit markets, we can better keep 

the integrity of our currency, we can better give seniors, or soonto-be seniors or would-be seniors in their 40s and 50s more confidence that the Federal Government will be able to make its commitment that it is making to people which today has no means of 

making. 

So what we believe this does is this gives us the confidence that 

we will get the debt under control, and it gives us the tools to make 

sure that the changes we need to make are made and continue so 

that government can keep its promises to people, and we can avoid 

a debt crisis from our debt getting out of control, and as a result 

of that, we can have better, fast economic growth, because we are 

removing so much uncertainty from the marketplace. 

Now we limit ourselves to 10, maybe on the second round I will 

ask Dr. Holtz-Eakin I had a question I wanted to as you, but I 

want to be sensitive to members’ time. Mr. Van Hollen. 

Mr. VAN HOLLEN. Thank you, Mr. Chairman. Let me, again, 

thank all the witnesses for their testimony. Let me begin with the 

point that Mr. Aaron made which is that there is agreement that 

we have got to deal with our budget challenges, especially our 

growing long-term budget challenges, and much of the testimony 

was focused on that area of common agreement. As Mr. Aaron also 

pointed out, the purpose of this hearing is to look at three specific 

bills. And when you are looking at bills, I hope everybody would 

agree that details matter because very shortly, this committee will 

be asked to vote up or down on those and then the full House will 

as well. 
42 

I would just point out, Mr. Chairman, this Brookings Heritage 

document, Taking Back Our Fiscal Future, makes a number of 

points in it. I would also just comment on the fact that it says 

‘‘Myth: Cutting taxes will increase revenues,’’ that is on page 5. It 

also discusses other alternative to a trigger that in addition to cutting spending would include revenue increases. I dare say that you 

would be hard pressed to get the individuals—all of the individuals 

who put their names on this to endorse these three bills. In fact, 

I am sure many of them would not endorse the bills that are before 

us because as I said, bills require details, details are important. 

Let’s just talk about some of those details. 

Under this bill, under the bill, the first spending cap bill that 

was put in that would go into effect immediately, I want to make 

the point that it would require immediate sequester in 2013, even 

if we passed the House Republican budget for 2013, the one that 

has already passed the House that goes into effect. You pass the 

first sequester bill that is on the agenda, it would require a $70 

billion outlay cut. So I would like all our witnesses just to very 

briefly say whether they think that is a good idea going into the 

beginning of next year. 

Chairman RYAN. If the gentleman would yield. These bills are in 

December on a different baseline. 

Mr. VAN HOLLEN. Right. 

Chairman RYAN. So new versions of these bills will be changed 

to reflect the latest numbers from the CBO to conform. It will be 

a technical thing. 

Mr. VAN HOLLEN. In fact, you are making my point, Mr. Chairman, which is those numbers change every year. They change 

every year, we have seen them change just in the last year, and 

yet, you are putting in the bill for 10 years a list of assumptions 

and making cuts based off assumptions. As you have just pointed 

out, those assumptions change within 9 months, they change more 

in a year, they change even more in 2 years, and yet you are codifying policies for 10 years. So you are going have that problem 

every single year. 

Now I would like to ask the witnesses to walk through this following scenario, because we have done the math and we are happy 

to share these with others. If you put these bills into effect, the 

House passes it next week, let’s just say the Senate goes off its 

rocker and passes it and the President signs it and then you were 

to have an economic downturn next year, let’s say, of the magnitude we just had. We had double dip recession, this would require cuts in fiscal year 2013 by over $700 billion. And the way this 

is designed, I hope all my colleagues will take a closer look at it, 

it limits the cuts to some of the mandatory programs, but you still 

have to hit the overall spending limit cut and the cut of the deficit 

as a percent of GDP. 

So you have an economic downturn, two things we all know happen, number 1, more people become eligible for some of the programs that are safety net programs, a lot of those are cut under 

the bill, but even with those cuts, some people will get somewhat 

higher benefits. 

Second, you have a big drop in revenue and yet the bill requires 

that you hit the deficit through GDP target. And what gets wiped 
43 

out is discretionary spending. You think the cuts to defense in the 

sequester that we are talking about happening in January are big? 

They would be huge under this bill if you have another economic 

downturn next year. 

So I just want to ask, our witnesses are distinguished economists, I want to ask each of you whether you think that is a good 

public policy. 

Ms. FRASER. Well, in my view, one of the most damaging things 

to the economy is maintaining our current course. And I think one 

the things that can be addressed in this bill is, as you say, when 

we do have a downturn, but I am not projecting that we do have 

a downturn next year. So I think that what we need is policies 

such as are contained in this bill to immediately begin to rein in 

spending because I believe it is the most damaging thing to our future. 

Mr. VAN HOLLEN. Let me just ask you, did you project in 2008 

and 2009 an economic downturn? 

Ms. FRASER. No, sir. 

Mr. VAN HOLLEN. Okay. We can’t project things that are somewhat beyond our control. What we are seeing in Europe is an austerity-only approach taken by some countries that has led to double 

dip recessions. 

Mr. Holtz–Eakin, do you think that is a good policy result? 

Mr. HOLTZ–EAKIN. A wise man once told me, you should budget 

for your problem. No budget will be perfect, but you should have 

a process that solves your biggest problem. Our biggest problem is 

mandatory spending, even if we don’t project downturns, we have 

enormous fiscal problems. That wise man was Henry Aaron. 

Mr. VAN HOLLEN. Go ahead. 

Mr. HOLTZ–EAKIN. And that is why I believe these bills are the 

right thing to do. If, in fact, we revisit something that looks like 

2008 and 2009, I find it unimaginable that a Congress would sit 

and pretend that its hands were cuffed and not respond to the general needs of the American people. 

Mr. VAN HOLLEN. As it turns out we have seen changes between 

the 2011 Republican budget and the 2013 Republican budget that 

would require 70 billion. So I don’t think that changes in the economy are things that we don’t expect. We all know that the economy 

will change in certain ways, and pretending we can freeze in place 

these particular levels obviously have negative consequences. 

Let me ask you, Mr. Holtz-Eakin, a question because you have 

been on the record about this, with respect to something that is 

been talked about very much, another budget issue, which is the 

Speaker’s proposal to once again threaten that the United States 

would not pay its obligations when we hit the debt ceiling. Do you 

think that is productive? 

Mr. HOLTZ–EAKIN. I can’t speak for the Speaker, but you did 

read his remarks very carefully and I did not see that. There was 

a commitment to meet the obligations of the Federal Government 

and not to, in any way, default on its borrowing. And there was a 

principle that increasing the Federal debt limit should be accompanied by comparable dollar amounts of spending cuts or reforms. 

And I believe the central word in that is ‘‘reforms,’’ because that 

goes straight to the mandatory spending programs are at the heart 
44 

of our problems. And once again, that takes the form of a fiscal rule 

that forces the Congress to address the policies which are generating bad outcomes, and I endorse that. 

Mr. VAN HOLLEN. Do you think it is productive to threaten that 

we not raise our debt limit? 

Mr. HOLTZ–EAKIN. I do not believe he said that. And I don’t 

think its productive to announce you are going to default on your 

borrowing and no one has. 

Mr. VAN HOLLEN. Well, I think the record will speak for itself. 

If that is the case and the Speaker has proposed to vote to increase 

the debt limit that would be news, we will have to find out if that 

is the case. 

Would you agree that the—all the discussion surrounding the 

August Budget Control Act that that had some—created uncertainty in the economy and creates some negative effects in the 

economy. 

Mr. HOLTZ–EAKIN. Yes, I do believe there was a real negative impact because for the first time, the American people were close to 

as aware of how dysfunctional the budget process is as this committee is. And that is one of the reasons why I hope similar reforms are made. 

Mr. VAN HOLLEN. All right. I would just ask to put in the record 

some documents from Bloomberg that noted the negative economic 

consequences to the economy as a result of that sort of standoff last 

year. 

[The information follows:] 

[From Bloomberg, May 28, 2012] 

Debt-Ceiling Deja Vu Could Sink Economy 

By BETSEY STEVENSON and JUSTIN WOLFERS

Europe is crumbling. China is slowing. The Federal Reserve is dithering. Yet the 

biggest threat to the emerging U.S. economic recovery may be Congress. 

John Boehner, the leader of the House Republicans, has promised yet another 

fight with the White House over the debt ceiling—the limit Congress has placed on 

the amount the federal government can borrow. 

If this sounds familiar, it’s because we suffered through an identical performance 

last summer. Our analysis of that episode leads to a troubling conclusion: It almost 

derailed the recovery, and this time could be a lot worse. 

Sometime around the end of this year, the federal government will bump up 

against its $16.4 trillion borrowing limit, as a direct result of spending and tax laws 

enacted by Congress. To raise the limit, legislators must pass a separate law. In 

principle, the extra level of approval can serve as a useful mechanism, forcing Congress to debate its priorities. But refusing to raise the limit wouldn’t free the government of its existing spending obligations. Rather, it would leave the government 

with no choice but to default on its debts. 

In other words, congressional Republicans are taking the government’s creditworthiness hostage when they threaten not to increase the debt ceiling. Politically 

advantageous as this may be, it is terrible economics. To understand why, let us 

consider the economic effects of last year’s debt-ceiling debate. If we know our history, perhaps we will not be doomed to repeat it. 

CONFIDENCE DROP

High-frequency data on consumer confidence from the research company Gallup, 

based on surveys of 500 Americans daily, provide a good picture of the debt-ceiling 

debate’s impact (see chart). Confidence began falling right around May 11, when 

Boehner first announced he would not support increasing the debt limit. It went 

into freefall as the political stalemate worsened through July. Over the entire episode, confidence declined more than it did following the collapse of Lehman Brothers 

Holdings Inc. in 2008. After July 31, when the deal to break the impasse was announced, consumer confidence stabilized and began a long, slow climb that brought 
45 

it back to its starting point almost a year later. (Disclosure: We have a consulting 

relationship with Gallup.) 

Businesses were also hurt by uncertainty, which rose to record levels as measured 

by the number of newspaper articles mentioning the subject. This proved far more 

damaging than the regulatory uncertainty on which Republican criticisms of Barack 

Obama’s administration have focused (more on that subject in a Bloomberg View 

editorial today). Employers held back on hiring, sapping momentum from a recovery 

that remains far too fragile. 

Growth in nonfarm payrolls decelerated to an average 88,000 a month during the 

three months of the debt-ceiling impasse, compared with an average of 176,000 in 

the first five months of 2011 (see chart). Payroll growth subsequently recovered and 

has averaged 187,000 jobs a month since. Despite the rebound in job growth, employment is likely still below where it would otherwise have been. 

There are also more visible permanent scars. The sense that the U.S. political system could no longer credibly commit to paying its debts led the credit-rating company Standard & Poor’s to remove the U.S. government from its list of risk-free borrowers with gold-standard AAA ratings. Just as a poor credit score raises the interest rate you pay in the long run, so a worse credit rating will probably raise the 

interest rate on our national debt. 

ECONOMIC SABOTAGE

All told, the data tell us that a debt-ceiling standoff is an act of economic sabotage. The only way to avoid this conclusion is to argue that consumers and employers were reacting to some other economic factors. But the debt ceiling was the dominant economic story at the time. No other news fits the data as well. Although the 

European debt crisis was a rising concern throughout 2011, the real trouble in Europe arose in the period when consumer confidence and employment were recovering. 

The next debt-ceiling battle could be worse, because the stakes are even higher. 

In addition to the threat of default, the U.S. is facing the so-called fiscal cliff: a raft 

of spending cuts and tax increases that will happen at the end of this year unless 

Congress acts to postpone them. Another stalemate would almost certainly plunge 

the economy into a deep recession. Our best alternative—in fact, our only hope— 

is for Congress to set aside partisan politics and work together with a common goal 

of helping our country out of the Great Recession. 

(Betsey Stevenson and Justin Wolfers, both professors at the University of Pennsylvania’s 

Wharton School, are Bloomberg View columnists. The opinions expressed are their own.) 

Mr. VAN HOLLEN. Mr. Aaron, could you just comment on, again, 

the issue of compounding the negative effects of an economic downturn by locking in some of these bills? 

Chairman RYAN. And Henry, try to do it in 39 seconds if you can. 

You will get other time later. 

Mr. AARON. I don’t remember making the statement that Doug 

Holtz-Eakin attributed to me, but I think it makes sense. And it 

underscores the importance of answering a question that posed 

which he did not do. The question that you posed to him was what 

should be done in the face of a serious financial panic and downturn in Europe that threatens to have an effect on the U.S. economy. In that situation, a policy in the United States of cutting 

spending as would be required under this bill because of the likelihood that the ratio of debt to GDP would exceed the ceilings, because the ratio of spending to GDP would exceed the ceilings, 

would, in my view, be utter folly. It would be worse than folly, it 

would be extremely damaging to the economy. The implication I 

think is that members of both parties would understand that, and 

this law would be overridden and wouldn’t have any effect. 

Mr. VAN HOLLEN. Thank you. 

Chairman RYAN. Dr. Price. 

Mr. PRICE. Thank you, Mr. Chairman. And I want to thank the 

witnesses as well for your work in the past and for your testimony 

today, and I think there is some significant agreement, as Dr. 
46 

Aaron mentioned, and hopefully, we can get to that from a policy 

standpoint. I do want to, however, correct the record on the ranking member’s, one of the comments he made in his opening statement, and our friends on the other side continue to do this talking 

about our opposition to closing corporate loopholes for deficit reduction. And the fact of the matter is our budget actually does close 

significant corporate loopholes. What we—— 

Mr. VAN HOLLEN. Mr. Price, if I may, that is not—that is not for 

the purpose of deficit reduction. That is a misstatement. 

Mr. PRICE. I will reclaim my time. 

Mr. VAN HOLLEN. And you are under clarifying my statement, 

you are making a misstatement. 

Mr. PRICE. It is an interesting process, you just embarked upon. 

Mr. VAN HOLLEN. We don’t have the chairman here. 

Mr. SIMPSON. I am in charge. 

Mr. RYAN. Well, we will have Mr. Simpson be in charge. 

Mr. PRICE. I think the response to that is curious and points out 

the fallacy of the statement. We strongly support closing corporate 

loopholes in the Tax Code, strongly. The fact of the matter is, what 

the ranking member does has always added that final clause to it, 

phrase to it for deficit reduction which is something we would gladly do. What we are not in favor is of is increasing revenue, is increasing taxes on either business or hard-working taxpayers across 

this land to chase ever increasing spending, that is what we are 

opposed to. And my friend from Maryland—— 

Mr. VAN HOLLEN. Would the gentleman yield? 

Mr. PRICE. No, no, no. You had your 10 minutes. 

Mr. VAN HOLLEN. But it is a totally accurate statement, you just 

confirmed it. 

Mr. PRICE. With my remaining 3 minutes after correcting the 

record from my friend from Maryland. 

Mr. Holtz–Eakin, I want to address an issue that we dealt with 

on this committee in the past, but I know that you have an interest 

in, and that is the issue of fair value accounting. In an article less 

than a year ago you stated, ‘‘Budget law requires the CBO, Congressional Budget Office, to assume that loans made directly by the 

government earned huge profits with virtually no risk that such assessments could be wrong.’’ 

I think this is one of the areas where the budget process is remarkably flawed and gets us to the wrong answer. So I wonder if 

you might elaborate on why the current system is structured in 

this manner and what perverse spending policies does this structure bring about. 

Mr. HOLTZ–EAKIN. I actually wrote a letter to Chairman Ryan on 

this topic which has sort of my full views on it. The short version 

is that what you want the process to do is reflect the timing and 

scale of obligations that the taxpayers will have to finance. And in 

its origins, the Federal Credit Reform Act did something quite desirable, which took loans, loan guarantees and put them on a level 

budgetary playing field in terms of the timing. At the moment the 

obligations was incurred, these economically equivalent transactions were recorded in the budget. 

What it didn’t do was get the scale right, because it did not reflect fully the risks to which the taxpayers exposed, it took a nar-
47 

row view of risk, the credit risk of the borrower, not the larger 

market risks for changes and interest rates and economic conditions. It is entirely desirable to do that. If it is done that way, they 

will be fully on a level playing field and you wouldn’t have any 

budgetary gain moving from one to the other. We saw, for example, 

in the passage of the Affordable Care Act the use of taking equivalent student loans from the private sector into the public sector at 

an apparent profit as a way to pay for it, and that is an economic 

mirage that you shouldn’t permit. 

Mr. PRICE. And the folks at risk in this process are the taxpayers. 

Mr. HOLTZ–EAKIN. Taxpayers, absolutely 

Mr. PRICE. Our friends are talking about the student loan issue 

that you just raised. I wonder if you would elaborate a little bit in 

just a few remaining seconds about how that issue has been 

pushed, or the risk has been pushed to the taxpayer in that program. 

Mr. HOLTZ–EAKIN. Well, the all new student loans are out of a 

direct loan program where the portfolio was held by the Department of Education. 

Mr. PRICE. All by the government? 

Mr. HOLTZ–EAKIN. All by the government. And we have 

mispriced the risk systematically and we don’t fully understand the 

exposure of the taxpayer to future liabilities out of that portfolio. 

I am deeply concerned about the quality of that portfolio and the 

taxpayer risk embedded in it. 

Mr. PRICE. As we are as well. Thank you, very much. Thank you, 

Mr. Chairman, I yield back. 

Chairman RYAN. Thank you, Ms. Bass. 

Ms. BASS. Thank you. I would like to yield a minute to the ranking member. 

Mr. VAN HOLLEN. I thank you, Ms. Bass, I don’t need a minute, 

I just want to put in the record the so-called taxpayer pledge from 

Grover Norquist, point two that people signed in the supposed any 

net reduction eliminating deductions and credits unless matched 

dollar for dollar by reducing—by further reducing tax rates. You 

don’t—the Republican position, anyone who signs this is taking a 

pledge not to close one tax loophole for the purpose of deficit reduction, just go ask Grover Norquist that is what he said and that is 

what it says on this sheet. 

[The information follows:] 
48 

Chairman RYAN. Since we are throwing time around—— 

Ms. BASS. Hey, wait a minute. I did not yield—— 

Chairman RYAN. Not to rob her time, I just want to ask unanimous consent to include the Speaker’s speech in the record which 

corroborates what Dr. Holtz-Eakin was saying. And I will without 

objections include in the record. 

[The Speaker’s speech follows:] 

[From the Washington Post, May 16, 2012] 

Boehner’s Debt Ceiling Speech 

By EZRA KLEIN

On Tuesday, Speaker John Boehner took the stage at the Peter G. Peterson’s 2012 

Fiscal Summit and outlined his intentions to again threaten the Obama administration with default in order to extract concessions on spending. I wrote a bit about why 

Boehner is adopting this strategy in Wednesday’s Wonkbook. But here’s his full 

speech: 

It’s truly an honor to be with you in the historic Mellon Auditorium. It was here 

in the spring of 1949 that the United States and our closest allies gathered to sign 

the North Atlantic Treaty, giving birth to NATO. 

On that occasion, President Truman declared that people ‘with courage and vision 

can still determine their own destiny. They can choose freedom or slavery.’ 

In our time, all of these great nations face a grave threat to freedom, one from 

within, and that is debt. It is shackling our economies and smothering the opportunities that have blessed us with so much. 

Once again the world looks to the United States for what it always has: an example. It is the example of a free people whose hard work and sacrifice make up the 

sum total of thriving towns and a vibrant economy. It’s a humble government that 

lives within its means and unleashes the potential of first-rate ideas and world-class 

products. It’s a nation never content with the status quo and always on the make. 

I got a glimpse of this example growing up working at my dad’s tavern just outside Cincinnati, and then lived a piece of it running my own small business. 

Instead of this shining example, what does the world now see? 
49 

A president on whose watch the United States lost its gold-plated triple-A rating 

for the first time in our history; 

A Senate, controlled by the president’s party, that has not passed a budget in 

more than three years; 

And, earlier this month, another unemployment report showing that the world’s 

greatest economy remains unable to generate enough jobs to spur strong and lasting 

growth. If you should know one thing about me, it’s that I’m an optimist. Yes, times 

are tough, but our future doesn’t need to be dark. We don’t have to accept a new 

normal where the workplace looks more like a battlefield and families have to endure flat incomes, weak job prospects, and higher prices in their daily lives. 

We have every reason to believe we can come out of this freer and more prosperous than ever. And we will, if we confront our challenges now while we still have 

the ability to do so. 

For the solution to what ails our economy is not government—it’s the American 

people. 

The failure of ‘stimulus’—a word people in Washington won’t even use anymore— 

has sparked a rebellion against overspending, overtaxation, and overregulation. 

Nationwide, we’re seeing a groundswell of support for bold ideas that reject small 

politics, cast off big government, and return us to common sense and first principles—the kind of ideas that will restore prosperity and substantially improve the 

trajectory of our economy. 

In March, as part of our Plan for America’s Job Creators, the House passed an 

honest budget with real spending cuts, pro-growth tax reform, and serious entitlement reform. It’s a far-reaching effort to control government’s worst habits and capitalize on the American people’s best. This budget gets our fiscal house in order 

AND promotes long-term growth. Far from settling for stability, it offers a true path 

to prosperity. 

Various bipartisan commissions and coalitions have devised ambitious plans as 

well. The math and the mix are different, but the goals are mainly the same. 

And of course, there are summits like these that bring together people who just 

get it. Of course, while I’m happy to be here and I’m sure we all enjoy each other’s 

company, we can also agree that we’ve talked this problem to death. 

It’s about time we roll up our sleeves and get to work. 

For all the focus on Election Day, another date looms large for every household 

and every business, and that’s January 1, 2013. 

On that day, without action by Congress, a sudden and massive tax increase will 

be imposed on every American—by an average of $3,000 per household. Rates go 

up, the child tax credit is cut in half, the AMT patches end, the estate tax returns 

to 2001 levels, and so on. 

Now, it gets a little more complicated than that. What will expire on January 1 

is cause for concern—as is what will take effect. That includes: 

Indiscriminate spending cuts of $1.2 trillion—half of which would devastate our 

men and women in uniform and send a signal of weakness; 

Several tax increases from the health care law that is making it harder to hire 

new workers; As well as a slate of energy and banking rules and regulations that 

will also increase the strain on the private sector. But * * * it gets even more complicated than that. Sometime after the election, the federal government will near 

the statutory debt limit. This end-of-the-year pileup, commonly called the ‘fiscal 

cliff,’ is a chance for us to bid farewell—permanently—to the era of so-called ‘timely, 

temporary, and targeted’ short-term government intervention. 

For years, Washington has force-fed our economy with a constant diet of meddling, micromanagement, and manipulation. None of it has been a substitute for 

long-term economic investment, private initiative, and freedom Previous Congresses 

have encountered lesser precipices with lower stakes, and made a beeline for the 

closest lame-duck escape hatch. 

Let me put your mind at ease. This Congress will not follow that path, not if I 

have anything to do with it. 

Having run a business, I know that failing to plan is planning to fail. The real 

pain comes from doing nothing * * * ‘austerity’ is what will become necessary if we 

do nothing now. We’ll wake up one day without a choice in the matter. There’s also 

no salvation to be found in doing anything just to get by, just to get through this 

year. ‘Nothing’ is not an option, and ‘anything’ is not a plan. To get on the path 

to prosperity, we have to avoid the fiscal cliff, but we need to start today. To show 

my intentions are sincere, I’ll start with the stickiest issue, and that of course is 

the debt limit. On several occasions in the past, the debt limit has been the catalyst 

for budget agreements. Last year, however, the president requested a quote-unquote 

‘clean’ debt limit increase—business as usual. 
50 

So last year around this time, I accepted an invitation to address the Economic 

Club of New York. I went up there and said that in my view, the debt limit exists 

in statute precisely so that government is forced to address its fiscal issues. 

Yes, allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without taking dramatic steps to reduce spending and reform the budget process. 

We shouldn’t dread the debt limit. We should welcome it. It’s an action-forcing 

event in a town that has become infamous for inaction. 

That night in New York City, I put forth the principle that we should not raise 

the debt ceiling without real spending cuts and reforms that exceed the amount of 

the debt limit increase. 

From all the way up in Midtown Manhattan, I could hear a great wailing and 

gnashing of teeth. Over the next couple of months, I was asked again and again 

if I would yield on my ‘position,’ what it would take, if I would budge * * * 

Each and every time, I said ‘no’ * * * because it isn’t a ‘position’—it’s a principle. 

Not just that—it’s the right thing to do. When the time comes, I will again insist 

on my simple principle of cuts and reforms greater than the debt limit increase. 

This is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance. 

If that means we have to do a series of stop-gap measures, so be it—but that’s 

not the ideal. Let’s start solving the problem. We can make the bold cuts and reforms necessary to meet this principle, and we must. Just so we’re clear, I’m talking 

about REAL cuts and reforms—not these tricks and gimmicks that have given 

Washington a pass on grappling with its spending problem. 

Last year, in our negotiations with the White House, the president and his team 

put a number of gimmicks on the table. Plenty of thought and creativity went into 

them—things like counting money that was never going to be spent as savings. 

Maybe in another time, with another Speaker, gimmicks like these would be acceptable. 

But, as a matter of simple arithmetic, they won’t work. 

They won’t work, and as I told the president, we’re not doing things that way any- more. What also doesn’t count as ‘cuts and reforms’ are tax increases. Tax hikes destroy 

jobs—especially an increase on the magnitude set for January 1st. Small businesses 

need to plan. We shouldn’t wait until New Year’s Eve to give American job creators 

the confidence that they aren’t going to get hit with a tax hike on New Year’s Day. 

Any sudden tax hike would hurt our economy, so this fall—before the election— 

the House of Representatives will vote to stop the largest tax increase in American 

history. 

This will give Congress time to work on broad-based tax reform that lowers rates 

for individuals and businesses while closing deductions, credits, and special 

carveouts. 

Eyebrows go up all over town whenever I talk about this, but when I say ‘broadbased’ tax reform, I mean it. We need to do it all * * * deal with the whole code, 

personal and corporate it’s fairer and more productive for everyone. 

That’s why our bill to stop the New Year’s Day tax increase will also establish 

an expedited process by which Congress would enact real tax reform in 2013. This 

process would look something like how we handle Trade Promotion Authority, 

where you put in place a timeline for both houses to act. 

The Ways Means Committee will work out the details, but the bottom line is: if 

we do this right, we will never again have to deal with the uncertainty of expiring 

tax rates. 

We’ll have replaced the broken status quo with a tax code that maintains progressivity, taxes income once, and creates a fairer, simpler code. 

And if we do THAT right, we will see increased revenue from more economic 

growth. 

Last fall, when I addressed the Economic Club of Washington, I said that making 

relatively small changes now can lead to huge dividends down the road in terms 

of debt reduction. As we approach the issue of the debt limit again, we need to continue to bear this in mind. 

As you know, we could eliminate all of the unfunded liabilities in Social Security, 

Medicare and Medicaid tomorrow, and the effect within the Congressional Budget 

Office 10-year window could be minimal. 

That’s because changes to these programs take time and are phased-in slowly. 

For example, when Congress last increased the retirement age for Social Security, 

the increase—a mere two years—was scheduled to fully take effect 40 years after 

the law was enacted. Another example: take the House Budget Resolution and its 

assumptions for Medicare reform. Those would not even begin until after 2022. 
51 

Smart and modest changes today mean huge dividends down the line. Now, I can 

already hear the grumbles * * * partisans getting all worked up or people saying, 

eh, let’s wait until after the election. We can’t wait. Employers large and small are 

already bracing for the coming tax hikes and regulations, which freeze their plans. 

The markets aren’t going to wait forever; eventually they’re going to start reacting. We now know that we ignore these warnings at our own peril. 

That’s why the House will do its part to ease the uncertainty surrounding the fiscal cliff. And I hope the president will step up, bring his party’s Senate leaders 

along, and work with us. 

Because if there’s one action-forcing event that trumps all the rest—even the debt 

limit—it’s presidential leadership. Ladies and gentlemen, I believe President Obama 

cares about this country and knows what the right thing to do is. But knowing 

what’s right and doing what’s right are different things. 

The difference between knowing what’s right and doing what’s right is courage, 

and the president, I’m sorry to say, lost his. 

He was willing to talk about the tough choices needed to preserve and strengthen 

our entitlement programs, but he wasn’t ready to take action. 

As it turned out, he wouldn’t agree to even the most basic entitlement reform unless it was accompanied by tax increases on small business job creators. 

We were on the verge of an agreement that would have reduced the deficit by trillions, by strengthening entitlement programs and reforming the tax code with permanently lower rates for all, laying the foundation for lasting growth. 

But when the president saw his former colleagues in the Senate getting ready to 

press for tax hikes, he lost his nerve. The political temptation was too great. He 

moved the goalposts, changed his stance, and demanded tax hikes. We ended up enacting a package with cuts and reforms larger than the hike. But it could have been 

so much more. The letdown was considerable. And, in turn, our nation’s credit rating was downgraded for the first time. 

Well it should also be the last time that happens, which is why I came here today. 

If the president continues to put politics before principle—or party before country, 

as he often accuses others of doing—our economy will suffer and we may well miss 

our last chance to solve this crisis on our own terms. 

But if we have leaders who will lead * * * if we have leaders with the courage 

to make tough choices and the vision to pursue a future paved with growth, then 

we can heal our economy and again be the example for all to follow. I’m ready, and 

I’ve been ready. I’m not angling for higher office. This is the last position in government I will hold. I haven’t come this far to walk away. 

Well, NOW is the time to do the right thing. 

Let’s do it for the right reasons—we don’t need to be dragged kicking and screaming. That’s not the American way. Let’s summon the courage and vision to choose 

freedom, to choose prosperity, and to determine our destiny. 

Then we’ll not only have succeeded in solving this crisis—we’ll be worthy of that 

success. Thank you all. 

Chairman RYAN. Ms. Bass. 

Ms. BASS. I get 2 extra seconds. Thank you for coming today. I 

actually wasn’t going to ask these questions but I did want to follow up on the student loan issue because you mentioned the fact 

when the student loans were pulled away from the private sector 

back to the public sector, that that creates problems. Do you think 

it is better? Should it go back to the private sector? 

Mr. HOLTZ–EAKIN. I personally believe that it would be highly 

desirable to get more private capital involved in the financing of 

student loans, that is an observation number one. The second observation is really the origination process and the monitoring of 

borrowers under the current program troubles me. We have recreated some of the worst aspects of the subprime disaster by having 

those who originate student loans have no stake in their future liability. And so that loan portfolio has terrible incentives embedded 

in it, and my reading of the evidence, and I have done some papers 

on this, is that private lenders do it a better job of keeping those 

who get arrears getting them back current and keeping them out 

of default, that is important part of—— 
52 

Ms. BASS. Let me interrupt you, because I would agree on one 

hand because I think the private sector kind of acted a little bit 

like a loan shark, but let me just say that isn’t it the case that if 

a student defaulted when it was in the private sector, that it was 

Federally guaranteed so that the government would wind up paying if the student defaulted? 

Mr. HOLTZ–EAKIN. Absolutely. The whole goal was to subsidize 

lending to those who were going to institutions of higher education. 

Ms. BASS. So it is not just a question that the liability is taken 

away from the taxpayers if we guarantee it. But let me change subjects since my time is limited. You were saying there was no liability. I am not going to yield because I am running out of time. 

So another question that I would like to ask when there is an 

economic downturn, I think about—and especially coming from 

State government, I think about programs such as unemployment 

compensation, supplemental nutrition assistance program, how the 

they automatically expand to protect the vulnerable. So how would 

statutory limitations in the Spending Control Act, how would that 

affect the ability, especially of a State government to meet the 

folks’ needs because of unemployment? Coming from California, I 

have actually asked each of you if you could briefly, because I am 

steadily watching this clock. 

Mr. HOLTZ–EAKIN. My view is that the virtue of these kinds of 

budget processes, these caps, is they force the Congress to look at 

the policies regularly. In fact, the best evidence of that is the SGR, 

where much to the chagrin of the Congress, every year they have 

to actually look at the Medicare program. Looking at the Medicare 

program every year is a good idea, and thus the policies can be adjusted for economic conditions and any other policy objectives. The 

caps putting it on autopilot is exactly the problem. 

Ms. BASS. So essentially, we would have a cap that would just 

be flexible, and it really wouldn’t be a cap, a cap spending but if 

we needed to increase it, you could do that under the Spending 

Control Act? 

Mr. HOLTZ–EAKIN. You could always change the policies to target 

those in need and still hit the cap or if Congress saw—— 

Ms. BASS. What if the policies didn’t change? So let’s just say unemployment is capped in the State of California, which is where I 

come from, and had to deal with this crisis between 2008 and 2010. 

If unemployment is capped, and we couldn’t issue anymore, what 

happens to those folks? What happens to the women and the children who run out of—they have no more supplemental nutrition 

assistance, what would they do? 

Ms. FRASER. Well, I think that these are overall caps. And You 

have discretionary spending caps. You have various categories of 

caps. I think one of the things that concerns me is that there are 

almost too many caps. When you are talking solely about SNAP 

and talking about unemployment, there is not individual caps for 

these, as I understand it, under any of these bills. 

Ms. BASS. Okay. 

Ms. FRASER. It gives Congress the flexibility to move resources 

from one program to another. 

Ms. BASS. Thank you. 

In my last few seconds, could Mr. Aaron or Dr. Aaron speak? 
53 

Mr. AARON. The effect is catastrophic, and the scenario that Mr. 

Holtz-Eakin and Ms. Fraser have described is unrealistic. What 

would happen would be that need would rise abruptly. Whether action might be taken would depend on where in the legislative cycle 

Congress happened to be. Congress would debate these issues. 

They would hold hearings. There would possibly be filibusters in 

the Senate. There would be delay. 

Ms. BASS. Okay. 

Mr. AARON. The result would be that the needs of people who are 

extremely vulnerable would not be met for extended periods of 

time, and perhaps indefinitely, depending on what action might 

eventually be taken. 

Ms. BASS. Okay. 

Mr. AARON. We have to have a realistic understanding of how 

things would actually play out in moments of crisis. 

Ms. BASS. Thank you. 

I am sorry I was cutting both of you off. I was just real cognizant 

of that big clock. So sorry about that. 

Chairman RYAN. We let it go over because we took some of your 

time. 

Ms. BASS. I appreciate that. 

Chairman RYAN. Mr. McClintock. 

Mr. MCCLINTOCK. Thank you, Mr. Chairman. 

First, I would like to remind the ranking member that the top 

1 percent of income earners earn 17 percent of the income and pay 

37 percent of the income taxes. So if the gentleman were really serious about the rich paying their fair share, he would be arguing 

for a 50 percent cut. Nobody is suggesting that, but we do think 

that as we eliminate loopholes, we should not be raising the overall 

amount that is being paid. 

To my colleague from California, who has just left, I would remind her that at the peak of California’s revenues in early 2008, 

when the State was taking in more money than it had ever taken 

in in its history, it was already running on nearly a $10 billion deficit. That is the problem; a simple inability to say no to reckless, 

irresponsible spending at both the State and Federal level. We run 

deficits in good times as well bad. 

What I would like to do is pose two observations now to the panelists for comment. My observation is that the single biggest problem we have is very simply that we are allowed to spend more than 

we take in, so we do. It is much easier to borrow money from the 

future generation and spend it now than it is to go through the difficult process of saying no to spending or imposing higher and higher taxes. It seems to me the most important single reform that we 

could adopt to bring our spending back into line is a simple balanced budget amendment. That is the first observation. 

The second observation, the second biggest problem that we 

have, is that mandatory spending is not subject to budget appropriations, and I—what happens is we end up arguing over discretionary—whether discretionary spending should be 1.048 trillion or 

1.027 trillion, and completely ignore the $2.7 trillion in mandatory 

spending that is growing like Topsy, and is sinking our country. So 

I certainly applaud the Heritage proposal on that. 
54 

Final point: It seems to me that except for those two problems, 

those two flaws, we have got a pretty good process. I mean, we set 

overall budget parameters, the authorizing committees review 

these programs regularly to determine whether or not they are 

worthy of expenditure, and then the Appropriations Committee decides if we can afford them in the budget. The problem is that process is not being followed. It is being ignored. 

The Senate has not passed a budget in years. Authorizations 

have routinely expired, and we keep shoveling money at them, and 

the appropriators are acting independently of the authorizers. That 

seems to me to be the problem. 

Those are the observations I have drawn for the 3 years that I 

have been here, and I would appreciate your comments on them. 

Ms. FRASER. Yeah. Thank you very much. 

I think that you are absolutely right. One of the biggest problems 

that we have is that we are spending too much. There are a lot of 

pros and cons of the balanced budget amendment that I don’t know 

if we have time to discuss today, but like the bills under consideration today, a balanced budget amendment would force the Congress to begin to address both our resources as well as the amount 

that we are spending. 

And you know, like any process, it needs to be accompanied by 

strong policy changes. So what we are looking at are mechanisms 

that are going to drive policy changes so that we have affordable 

spending and levels of taxation to cover that, whether that is balancing, or whether, as Chairman Ryan indicated, what we are 

doing is to drive down the debt to sustainable levels, especially 

when we consider our global capital markets and so forth. 

I absolutely agree that one of the fundamental problems here is 

that as Congress sets the budget, it is fighting over a smaller and 

smaller share in discretionary spending as entitlement programs 

continue to grow. I think that bringing them in some form so they 

continue to deliver predictable, reliable benefits, bringing them on 

budget in some way is very important. 

Mr. MCCLINTOCK. Since my time is short, may I go to Mr. HoltzEakin for his thoughts on those observations? 

Mr. HOLTZ–EAKIN. Well, I have testified on the balanced budget 

amendment. I applaud the notion of putting mandatory spending 

on a budget, because, in fact, these kinds of fiscal rules give the 

Congress a way to say no. I think that is one of the most succinct 

advantages of this. 

It is important that these things be in law, because the problems 

we have, there is no shortage of information. The CBO puts 

out—— 

Mr. MCCLINTOCK. Let me just cut right to the chase. With those 

two exceptions, the balanced budget amendment and the mandatory spending being brought within the budget process, is there 

really anything wrong with our process except that it is not being 

used? 

Mr. HOLTZ–EAKIN. I believe the other additional improvements 

in this are to force the President to agree with the Congress and 

have the Congress agree between the House and Senate on a budget. We do not do that at the moment, and that is a huge flaw. 

Chairman RYAN. Thank you. 
55 

Mr. Mulvaney. 

Mr. MULVANEY. Thank you, Mr. Chairman. 

I am glad to hear that at least there is a starting point at some 

agreement here across the aisle, and that, as Mr. Aaron put it, at 

least we agree that something has to be done, and that is encouraging. I think that is an advance over where we were probably 2 

years ago when one side was saying, let’s do something about the 

deficit, and the other side was saying, let’s not worry about the deficit. So at least we have made that progress. 

But I think at the end of the day, that is probably not nearly 

enough. We can’t just agree that we are going to have to do something and then not actually do something. 

So I do want to talk a little bit about the BOLT Act, and I want 

to go to Mr. Aaron for a second, who was critical of it at a couple 

of different places. 

Mr. Aaron, I encourage you to consider the fact that the act does 

not completely exclude considerations for revenues or new taxes. It 

doesn’t set caps, and we will talk about caps for a second. I understand you don’t agree with those necessarily, but would you agree 

with me, sir, that there is nothing in the BOLT Act itself that automatically excludes the consideration of additional revenues, closing 

of loopholes, or new taxes? 

Mr. AARON. There is nothing that any law could do to prohibit 

Congress from considering new taxes. Obviously, that is always 

within their prerogatives. The question is whether the procedural 

imperatives in the bill symmetrically and equally deal with the revenue and expenditure sides of the budget, and it doesn’t. 

Mr. MULVANEY. And I can see that perspective. I thought you 

were taking the point that it was sort of like the most conservative 

version of the balanced budget amendment, which would have a 

supermajority necessarily raising taxes. 

Mr. AARON. No. 

Mr. MULVANEY. Okay. So I see that you disagree with the philosophy of it embraced in, for example, the caps. Let’s talk about that. 

And one of the sets of caps in the bill sets total spending at 20 

percent of GDP, which I take it is something you would object to. 

Let me ask you a philosophical question as I sit here and try and 

build bipartisan support for this bill. Would you take it if it was 

25 percent? 

Mr. AARON. No. 

Mr. MULVANEY. How about 30? 

Mr. AARON. I don’t believe that any current Member of Congress 

is sufficiently wise to set a limit on what the size of the Federal 

Government should be regardless of circumstances. I think that is 

a prerogative of Members of Congress to decide that they should 

face the substantive issues involved and not rely on formulas. 

Mr. MULVANEY. That is fine. Let’s exclude war, because I think 

that is something we would all agree on would be an emergency 

situation, or we might have to blow it through a cap. And I will 

just ask you a very simple question. Excluding war, is there any 

size of the Federal Government that would objectionable to you in 

terms of percentage—— 

Mr. AARON. Oh, sure. Lots of sizes of the Federal Government 

that would be objectionable to me. 
56 

Mr. MULVANEY. Give me a number. 

Mr. AARON. No, I won’t give you a number. If you want to give 

me substantive policies, I will deal and respond to them, but I 

think dealing with numbers is an avoidance mechanism. 

Mr. MULVANEY. Well, dealing with numbers—— 

Mr. AARON. Let’s deal with the specific policies involved. Is Social 

Security larger than it should be? Is Medicare larger than it should 

be? Is national defense larger than it should be? Let’s talk about 

policy, and then we can have an informed debate. If we are talking 

about numbers, we are talking about what I regard as a kind of 

mindless abstraction. 

Mr. MULVANEY. Well, unfortunately on the Budget Committee oftentimes what we have to do deal with is numbers. 

Talk about the long-term projections. I understand the objection 

generally, understanding a little bit about how numbers work and 

about basic economics, that it is difficult to anticipate 5 or 10 or 

20 years out. It was difficult to predict at the end of 2007 that we 

would have a recession just a couple of months later. But we do 

it at a certain level every day, don’t we? I mean, we do 75 years, 

for example, with Social Security. It is not accurate, it is not perfect, but would you agree with me that it is better than doing nothing at all and just flying blind on a day-to-day basis? 

Mr. AARON. I believe it is very important and valuable to do longterm projections. Exactly how far out one should look into the future, I think, varies depending on the program and the circumstances. 

With respect to Social Security, it seems to me 75-year projections are valuable. With respect to Medicare, I don’t think they 

make a whole lot of sense because we have no idea what is going 

to be forthcoming in the way of medical technology down the road. 

But still, multiyear, 25, 30-year projections, it seems to me, are extremely valuable. 

What is not valuable is tying or requiring current actions to be 

taken to change the system in response to those projections, because we do know for a fact that historically they have been wrong 

by vast amounts. So as long as Congress is aware of those numbers, is doing those projections, is incorporating them into its debate about what current policy should be, I think you have gone 

exactly the right distance. If you introduce requirements that legislative actions be taken now in response to those projections of the 

distant future, I think you have gone a step too far. 

Mr. MULVANEY. Thank you. 

Thank you, Mr. Chairman. 

Chairman RYAN. Mr. Huelskamp. 

Mr. HUELSKAMP. Thank you, Mr. Chairman. I appreciate the opportunity to ask a few questions here in between committee meetings in another room here. 

First I want to start with—follow up with Mr. Aaron and your 

response to some questions from my colleague here. And you talked 

about numbers avoidance and mindless—what was that word you 

used, mindless—— 

Mr. AARON. I don’t remember exactly what it was. It is in the 

record. 
57 

Mr. HUELSKAMP. I am just trying to follow it. I am just trying 

to follow the numbers. I do have a numbers question for you. 

Mr. AARON. Yes. 

Mr. HUELSKAMP. And given the current projections on growth— 

and I know you indicate that they are usually horrifically wrong. 

They are usually horrifically wrong in the same direction. 

Mr. AARON. That is not true. It can be wrong in either direction. 

We—— 

Mr. HUELSKAMP. It certainly could, but if you look at the projections of our entitlements, they have been horrifically underguessing 

the cost since the beginning, particularly on Medicare. 

Mr. AARON. On Medicare there was a long period in which there 

were severe underestimates. In the case of Social Security, the estimated cost has been more or less on target for about the last 15 

or 20 years. It has varied very little. It has gone up and down. 

Mr. HUELSKAMP. Sure. Sure. 

Mr. AARON. It has moved in both directions, but we are back at 

about where the projections were 20 years ago. 

Mr. HUELSKAMP. Yeah, and I appreciate that. But the issue of 

numbers is pretty important. In your estimation how much longer 

can our Federal Government continue to run $3- to $4 billion deficits every day? How long can that continue to occur, in your opinion? 

Mr. AARON. I think it is, under current economic circumstances, 

on balance beneficial, a serious effort to reduce—— 

Mr. HUELSKAMP. You think it can go on forever then? And the 

question was how long do you think it can go? You think it can go 

on forever then? 

Mr. AARON. I was in process of trying to answer your question. 

The question of whether a deficit is helpful or harmful depends 

on the economic circumstances. Once the economy—the economic 

recovery is well established and well under way, I believe it is of 

urgent importance for Congress to take aggressive measures to reduce Federal budget deficits. An indefinite expansion of the national debt can do enormous harm to this country, could precipitate 

serious economic crisis, and I believe in the end Members of this 

body and the Senate will jointly prevent that from happening. Currently—— 

Mr. HUELSKAMP. Okay. 

Mr. AARON. Currently, in the midst of a recession, an attempt to 

balance the budget, it seems to me, would do considerable harm. 

Mr. HUELSKAMP. Okay. And I agree. I agree. And under the 

President’s budget proposal, it didn’t balance for 75 years. How 

much harm does that do if the President never proposed to ever 

balance the budget in the 75-year window? 

Mr. AARON. I think that if one looks at the projection of the Congressional Budget Office, under current law, under current law, 

you will discover that the budget deficit comes down sharply and 

reaches a very sustainable level. Current law, as opposed to current policy, would entail significant tax increases and spending 

cuts. Current law would not permit Social Security to spend more 

than they have collected. 

Mr. HUELSKAMP. May I interrupt? The President’s budget never 

balances. It never gets to a surplus in 75 years; never, ever. 
58 

Mr. AARON. But the debt-to-GDP ratio comes down. 

Mr. HUELSKAMP. The question as I ask and as you answered 

was, can you run deficits without economic harm? And you said, 

when you have an economic recovery, you should not run deficits. 

I agree with that statement. That was the statement that you gave, 

Mr. Aaron. I am just trying to figure out—— 

Mr. AARON. But I still think we should take aggressive measures 

to reduce the deficit. 

Mr. HUELSKAMP. Okay. I am just trying to get answers. 

Mr. AARON. I am trying to answer. 

Mr. HUELSKAMP. Okay. Well, let me ask it again, if I might. Do 

you think we should ever run a surplus—— 

Mr. AARON. Oh, yes. 

Mr. HUELSKAMP [continuing]. In the next 75 years? How about 

in the next 75 years? Any time do you see an—— 

Mr. AARON. I don’t have a specific date, but there are many circumstances under which a budget surplus would be highly desirable. 

Mr. HUELSKAMP. Okay. I agree with that. And again, the President’s budget proposes to never run a surplus in 75 years, in 75 

years, and the tremendous damage that could do to our economy 

if we don’t look at entitlement spending—a year ago, by the way, 

was the anniversary of a vote in the House on the President’s demand that we have a clean debt limit increase; clean, with no cuts, 

no proposals, and no idea what we are going to do for the next— 

I don’t know what his budget was, still 75 years of null on balance 

as well—but an anniversary, and the House wisely said no including—it was a bipartisan no, that we should do something. 

Do you think that we should do a clean debt limit increase in December again, assuming that is when we hit the debt ceiling again? 

Mr. AARON. I believe the debt ceiling should be completely separate from consideration of spending and revenue decisions. The 

debt ceiling is breached because of decisions that Congress has 

made in the past. If it wishes to change those policies, it should do 

so, but the idea that we are going to not raise the debt ceiling in 

the face of decisions that a majority of Congress has voted on and 

the President has signed seems to me to be to link policies that 

should not be linked. 

Mr. HUELSKAMP. I appreciate that opinion. 

Thank you, Mr. Chairman. 

Chairman RYAN. We have another Member Mr. Campbell, who 

is an author of one of these bills coming, so I will just start round 

two, if that is okay with the panel, if you have the time, in order 

to buy some time for him to come. 

Let me start. I have got a question for—I wanted to ask Dr. 

Holtz-Eakin a question about some CBO baseline issues, but before 

I get into that, I am kind of puzzled at the premise of the arguments used against these reforms, which were derived from this bipartisan working group document. And it kind of goes like this: We 

have a spending-driven debt crisis coming in this country. We all 

know that. It will threaten our economy and put us into an economic meltdown, or a recession, or a slowdown, whatever you want 

to say. And so in order to prepare for that eventuality, we don’t 

want any spending caps so that we can spend more money to fight 
59 

the fire at that time, which, you know, I know a lot of people believe in the demand side argument that is there. 

What we are trying to do here is prevent that from happening. 

What we are trying to do here is address the drivers of this spending-driven debt crisis so that we don’t have a debt crisis, so that 

we don’t have a recession stemming from a debt crisis. That is the 

whole purpose of this. 

And so if you want to look at where we are headed, it is Europe, 

because we are on the same path. That is what austerity is. Austerity is once the crisis has hit, once your yield curve starts going 

nuts, the bond markets have turned on you, massive surgery right 

away, indiscriminate across the board, pull the rug out from current seniors, raise taxes, slow down the economy, youth unemployment rate 21 percent, on, and on, and on. And that is because governments have overspent. Governments had made promises that 

they can’t keep, and now they are broken promises to lots of people. 

But we are trying to preempt that from happening, prevent that 

from happening, by getting at the source of this problem: a spending-driven debt crisis. And what we have learned around here is 

that this process not only is not broken, it is not even working, it 

is not even being used. There is no budget process. There is no 

budget. Haven’t had one for 3 years. And that means we are sticking with the status quo, which means we will have a debt crisis, 

which then, yeah, I suppose if you believe in the Keynesian, you 

know, demand-side stimulus argument, you want to be ready with 

the buckets of spending to throw at the fire. 

But what we want to do is put together a budget process that 

actually works to actually deliver on the fiscal targets to actually 

get Congress to put these reforms in place to prevent that crisis 

from ever occurring in the first place. That is what this is all about. 

And so when we see a working group of people with impressive 

credentials from both sides of the aisle coming to a consensus on 

some natural ideas on how to attack this problem, knowing that it 

is not a substitute for actually passing the laws that fix the problem, but are good backups, good enforcement mechanisms, good 

measurement sticks to make sure that Congress gets on task to actually fix the problem, we see that as productive. We see that as 

a constructive step in the right direction. 

And as I mentioned at the beginning, no one party is going to 

fix this thing on its own. There will have to be, you know, bipartisan agreements at the end of the day here to fix this mess. And 

what we see in front of us is a narrowing window of opportunity 

to do that in before we have a European-like crisis on our doorstep. 

That is the whole point here. 

It is the baseline issue I wanted to get to you, Doug. When you 

were Director of CBO, when you are running the baseline, there 

are times that administrative decisions increase CBO’s estimate of 

spending even though the underlying statute did not change. The 

administration will take actions that they believe they have the authority under the law to do. How does CBO score that action? 

We had a VA issue, or I think they had an actuarial misfire which resulted in a change administratively that resulted in $13 

billion in more direct spending. This year we have got Medicare 

Advantage cuts that are coming, which I think, likely for political 
60 

reasons, a new demonstration project was formed, which has something like $8.35 billion in spending to delay those cuts, which will 

clearly accrue to adverse benefits for people currently on Medicare 

Advantage before the end of the year. How does CBO deal with 

this? 

Mr. HOLTZ–EAKIN. Very straightforwardly. So a concrete example, Medicare Modernization Act passed, the prescription drug bill. 

CBO had a score under my tenure on that bill as it was passed. 

When HHS implemented the bill, they actually implemented a 

tighter formulary than we had anticipated that would come out of 

the bill. As a result, access to high-cost drugs was more limited 

than we expected, and the bill actually turned out to be cheaper, 

and we had to mark down in the baseline the expected Medicare 

outlays to reflect that. And it goes on all the time, in every program. What stands out are ones of large magnitude like the VA. 

Those are relatively unusual. 

Chairman RYAN. Time is up. Let’s go to you, and then we will 

see if Mr. Campbell gets here. 

Mr. VAN HOLLEN. Mr. Chairman, let me again thank the witnesses. Thank you, Mr. Chairman. 

Just to go back to the overall point that the chairman raised 

where there is consensus is that we need to reduce our deficits, especially as they are projected to rise over the long term. That is 

where there is consensus. 

Yes, there is a spending component. We recognize that. There is 

also a revenue component. Apparently our Republican colleagues 

do not recognize that component, at least not as part of the solution, despite the fact that every bipartisan group that has looked 

at that challenge recently has concluded that the way to tackle this 

problem is through a combination of policies that lead to spending 

reductions and policies that will increase the revenue component. 

And putting process bills forward in the absence of an agreement 

on the underlying policy issues is putting the cart before the horse, 

and I think that is what the testimony has been about. 

Mr. Holtz–Eakin, I mean, I would assume—I have some statements you made when you were the Director of the Congressional 

Budget Office, and I think from your testimony today you would 

agree with your earlier statements. 

Let me just read: ‘‘The statutory’’—this was 2004. Quote: ‘‘The 

statutory budget disciplines that expired in 2002, the limits on discretionary spending, and the pay-as-you-go requirement for new 

legislation affecting entitlements and revenue prove to be an effective enhancement of the budget process.’’ 

Do you agree with that? 

Mr. HOLTZ–EAKIN. Yes. 

Mr. VAN HOLLEN. Okay. Do you know that this bill, the first one, 

Mr. Campbell’s bill, eliminates the statutory pay-as-you-go requirement? Are you aware of that? 

Mr. HOLTZ–EAKIN. I am aware of that, but it is a completely different approach. I mean, there are many ways to support the budget—— 

Mr. VAN HOLLEN. I am just saying that, as I understand, you 

agree that it was an effective enhancement to the budget process 

in the past. I am not saying there aren’t others, but you would 
61 

agree then that this legislation eliminates one effective budget-control enhancement. Would you agree with that? 

Mr. HOLTZ–EAKIN. But I would stipulate it adds others. So, I 

mean, that is—— 

Mr. VAN HOLLEN. I know, but they are taking one tool out of the 

toolbox, right? 

Mr. HOLTZ–EAKIN. And again, you have to budget for the circumstances in which you find yourself. PAYGO rules and discretionary caps—I mean, the PAYGO rules in particular stop you from 

making it worse, but there is nothing there that forces the Congress to make it better. 

Mr. VAN HOLLEN. Mr. Holtz-Eakin, I agree with you. Stopping us 

from making it worse is a good thing. I mean, it doesn’t solve the 

problem, but it is a good thing. 

I assume you also continue to agree that these kind of process 

reforms are most effective when there is an agreement on the underlying policies. 

Mr. HOLTZ–EAKIN. I think everyone has said from the outset this 

is not a substitute for better policy. 

Mr. VAN HOLLEN. Mr. Aaron, if you could just elaborate on— 

well, let me just make this point, because, Mr. Chairman, you referred to this document a couple of times. Again, I think—I mean, 

I have looked at this document. I think it is a long way from this 

particular document to the three particular bills, especially the two 

bills that we are talking on, and I would just say—— 

Chairman RYAN. They are not meant to be a complete—all of the 

points of the document. Some of the other bills we passed before—— 

Mr. VAN HOLLEN. Right. 

Chairman RYAN [continuing]. Out of here in that document, 

these are three of the ideas being recommended in the document. 

Mr. VAN HOLLEN. Well, I would—just to be clear, I mean, it 

would be useful, I think, to ask every individual who is on this bipartisan group whether they agree with the three specific bills, because I daresay you would find a lot of Members whose names are 

on here who do not agree with the details, as Mr. Aaron has pointed out, of these bills. But—— 

Mr. AARON. May I say something at this point? 

Mr. VAN HOLLEN. Sure. 

Mr. AARON. As it happens, yesterday afternoon, as I was completing my testimony for this, Isabel Sawhill, who was a colleague 

at Brookings, and who is a signer of that particular document, 

walked by, and we had a brief conversation. I think you will find 

she is not sympathetic with this particular approach. 

In addition, I would like to mention and make available, should 

you wish it, a document that I was a party to that responded to 

the Taking Back Our Fiscal Future document that the chairman 

has mentioned. It, too, was signed by a lengthy roster of very distinguished economists, including one Nobel Prize winner, a former 

director of—a former CEA chairman, and a number of others in 

many ways, I think, as distinguished as the list that signed Taking 

Back Our Fiscal Future. This document indicated why we thought 

the approach taken in this document was flawed, and I would like 

to make it available to the committee, if you wish. 
62 

Chairman RYAN. I would love to see what your board meetings 

at Brookings Institution are like. 

Mr. AARON. Well, I think—— 

Chairman RYAN. That is a big think tank you have got there. 

Mr. AARON. It is worth noting that the Brookings Institution is, 

I think, the only think tank around where you can have senior 

members of staff debate each other, holding different positions, as, 

for example, Alice Rivlin and I do on the issue of the—— 

Chairman RYAN. We enjoyed—I am digressing here. 

Mr. Campbell, I guess, is not going to show up. But we had a 

nice hearing at Ways and Means where Dr. Rivlin and Dr. Aaron 

debated each other on the issue of premium support. So you have 

got all sides of representation over there at Brookings. 

We will just close it out with Mr. Mulvaney. 

Mr. MULVANEY. Thank you, Mr. Chairman. I appreciate the second opportunity to ask just a couple of questions and move away 

from the bills, because one of the other things we get a chance to 

do on this committee is talk generally about ideas and policies, in 

addition to the specifics of bills. And you have heard a couple of 

things mentioned here during the course of today’s discussion that 

I want to touch on very briefly before we go, which is the situation 

in Europe, and then also the debt ceiling. 

Ms. Fraser, I know it is very difficult to sort of sum up the 

causes behind the current situation in Greece, and Ireland, and 

Portugal, and Spain, but is it fair to say that overborrowing by 

those sovereigns, by those governments, is a major contributor to 

what is happening and the difficulties they are experiencing in 

those countries today? 

Ms. FRASER. Yeah. In my view, it is a part of overborrowing. 

They are spending too much. They are borrowing to do it. I think 

they also have large government. But they also don’t have growing 

economies. And that is one of the biggest problems that they face 

right now is how do you rein in spending to stabilize your debt 

when you have a recessionary kind of economy that is not robust. 

And I think that is one of the advantages that we have in this 

Nation when it comes to solving our own problems is that we do 

have the underpinnings of a robust economy even though we are 

not growing at our capacity today. 

Mr. MULVANEY. And I think several of you mentioned the fact 

that if we don’t do something differently—I will paraphrase. I don’t 

want to misquote anybody. Unless we do something differently, we 

may well be facing a similar type of future as to what they are facing in Europe today. 

Dr. Holtz–Eakin, what would it look like in this country when we 

start to go through what Europe is going through today? Tell me 

what that would look like for the folks in this country. 

Mr. HOLTZ–EAKIN. What it would look like is something that 

would make 2008, 2009 pale in comparison. You would have credit 

markets freeze up, inability of private borrowers to get even ordinary financing for their inventories and things like that. Main 

Street America would crumble. And in those moments international lenders would demand of the U.S. changes to the Federal 

budget that would be unpalatable to every American, but about 

which we would have no choice. There would be sharply higher 
63 

taxes and slashes in spending that have nothing to do with 

thoughtful policy. 

Mr. MULVANEY. Thank you for mentioning that, because that is 

the point I am getting at that I don’t think folks grasp back home, 

which is that we are going to get to the point where people don’t 

want to lend us money under the same terms they have been lending us money. We can print it, but that is another debate for another day. But we could get to the point where folks don’t want to 

lend us money at half a percent, or 1 percent, or 25 basis points. 

They are going to ask for much larger spreads, which is exactly 

what is happening in Greece. 

So it comes to one of the overall discussion, Dr. Aaron, of when 

you are faced with that, when you are faced with interest rates of 

6 or 8 or 10 percent, which are numbers that we have incurred as 

a government during my lifetime for our debt, how do you borrow 

your way out of that difficulty? 

Mr. AARON. You don’t. 

Mr. MULVANEY. But one of your criticisms of my BOLT Act was 

it didn’t give you the flexibility that you needed to borrow money 

and to grow the size of the government when you go into a recession. 

Mr. AARON. The United States currently is so far from the situation that I think Doug has correctly described could occur if debt 

piled up for an extended period of time that we are in a completely 

different world. The world we are in right now is one in which the 

United States remains the most secure and reliable borrower in the 

world, in which we are operating well below our economic capacity, 

and in which, in my view, the first and overwhelmingly the most 

important task facing our Nation is to get U.S. workers back on the 

job, to increase employment, to reduce unemployment, to avoid the 

human tragedy that is resulting for millions of people coming out 

of school and not being able to find work. And for that reason the 

first and most important problem is to increase the demand for the 

services of American workers. That should include tax policy that 

encourages private spending. It should include government expenditure that supports demand and provides essential services. 

We are going to return to full employment, and when we do, we 

have got to reverse that engine and begin to get our Federal budget 

under control. 

Mr. MULVANEY. Thank you. 

Mr. AARON. I think it is a key to understand which problem 

comes first and the vital need to solve it. 

Mr. MULVANEY. I appreciate that. 

Finally, Mr. Chairman, I do want to touch very briefly on the 

debt ceiling issue that the ranking member raised. And I always 

enjoy dealing with folks who do pay attention to language and do 

pay attention to details is one of the things that I appreciate about 

the ranking member. And I couldn’t help but notice the details of 

the language that you are using now in the discussions about the 

debt ceiling, which is no longer that this side is threatening to default on our debts, default on our obligations. The language is now 

‘‘meeting our obligations.’’ I think this is sort of taking the veil off 

of the accusations last year that we are going to default on our 

debt. We heard it. We heard that if we didn’t raise the debt ceiling, 
64 

we would default on the debt. And I think we have put the lie to 

that. We are never going to default on our debt, because we have 

plenty of money to pay the debt—to pay our interest obligations. 

Similarly, we are always going to pay our Social Security obligations. We are going to continue to do those things. 

I think it is interesting to hear the language from the opposition 

now who has changed from ‘‘defaulting on our debt’’ to ‘‘meeting 

our obligations.’’ I am interested to hear that language as we go 

through the discussions between now and the end of the year. 

Mr. VAN HOLLEN. Mr. Chairman, if I might, since the gentleman 

referred to a comment I had made. I would like to put in a record 

a transcript of a YouTube posting by Mr. Holtz-Eakin on what 

would happen in the event that we had a—we hit the debt limit, 

including not making full payments of Social Security and zeroing 

out, I might add, defense spending and all other discretionary 

spending, among other things. 

[The information follows:] 

Chairman RYAN. I am sure that the hits will spike now. 

Mr. HOLTZ–EAKIN. Thank you for the advertisement. 

Mr. VAN HOLLEN. Absolutely. I actually hope a lot of people will 

turn to it. It was a well-done tape. 

Chairman RYAN. Thank you for your indulgence. We will conclude it here. The hearing is adjourned. 

[Whereupon, at 11:38 a.m., the committee was adjourned.] 

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