```

[Senate Hearing 114-247]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 114-247

          CONCURRENT RESOLUTION ON THE BUDGET FISCAL YEAR 2016
=======================================================================

                                HEARINGS

                               before the

                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION
                                __________

 January 28, 2015-CBO'S BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 2015-
                                  2025

   February 3, 2015-THE PRESIDENT'S FISCAL YEAR 2016 BUDGET PROPOSAL

 February 11, 2015-THE COMING CRISIS: SOCIAL SECURITY DISABILITY TRUST 
                            FUND INSOLVENCY

     February 25, 2015-THE COMING CRISIS: AMERICA'S DANGEROUS DEBT

      March 4, 2015-WASTEFUL DUPLICATION IN THE FEDERAL GOVERNMENT

              March 11, 2015-BENEFITS OF A BALANCED BUDGET

           

                                                        S. Hrg. 114-247
 
               CONCURRENT RESOLUTION ON THE BUDGET FY2016

=======================================================================

                                HEARINGS

                               before the

                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

 January 28, 2015-CBO'S BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 2015-
                                  2025

   February 3, 2015-THE PRESIDENT'S FISCAL YEAR 2016 BUDGET PROPOSAL

 February 11, 2015-THE COMING CRISIS: SOCIAL SECURITY DISABILITY TRUST 
                            FUND INSOLVENCY

     February 25, 2015-THE COMING CRISIS: AMERICA'S DANGEROUS DEBT

      March 4, 2015-WASTEFUL DUPLICATION IN THE FEDERAL GOVERNMENT

              March 11, 2015-BENEFITS OF A BALANCED BUDGET

                                     
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   ______

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                          Washington, DC 20402-0001

                                     

                        COMMITTEE ON THE BUDGET

                   MICHAEL B. ENZI, WYOMING, Chairman

CHARLES E. GRASSLEY, Iowa            BERNARD SANDERS, Vermont
JEFF SESSIONS, Alabama               PATTY MURRAY, Washington
MIKE CRAPO, Idaho                    RON WYDEN, Oregon
LINDSEY O. GRAHAM, South Carolina    DEBBIE STABENOW, Michigan
ROB PORTMAN, Ohio                    SHELDON WHITEHOUSE, Rhode Island
PATRICK TOOMEY, Pennsylvania         MARK R. WARNER, Virginia
RON JOHNSON, Wisconsin               JEFF MERKLEY, Oregon
KELLY AYOTTE, New Hampshire          TAMMY BALDWIN, Wisconsin
ROGER F. WICKER, Mississippi         TIM KAINE, Virginia
BOB CORKER, Tennessee                ANGUS S. KING, JR., Maine
DAVID A. PERDUE, Georgia

                 Eric Ueland, Republican Staff Director

                Warren Gunnels, Minority Staff Director

                                  (ii)

                            C O N T E N T S

                               __________

                                HEARINGS

                                                                   Page

January 28, 2015-CBO'S BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 
  2015-2025......................................................     1

February 3, 2015-THE PRESIDENT'S FISCAL YEAR 2016 BUDGET PROPOSAL    71

Febrauary 11, 2015-THE COMING CRISIS: SOCIAL SECURITY DISABILITY 
  TRUST FUND INSOLVENCY..........................................   157

February 25, 2015-THE COMING CRISIS: AMERICA'S DANGEROUS DEBT....   351

March 4, 2015-WASTEFUL DUPLICATION IN THE FEDERAL GOVERNMENT.....   423

March 11, 2015-BENEFITS OF A BALANCED BUDGET.....................   493

                    STATEMENTS BY COMMITTEE MEMBERS

Chairman Enzi....................................................
 1, 
71, 
157, 
351, 
423, 
 493
Ranking Member Sanders...........................................
 2, 
74, 
160, 
353, 
425, 
 499

                               WITNESSES

Bruce Bartlett, Former Deputy Assistant Secretary for Economic 
  Policy, U.S. Department of the Treasury........................
377, 
 379
Mark Blyth, Eastman Professor of Political Economy, Watson 
  Institute for International Studies, Brown University..........
533, 
 536
Carolyn W. Colvin, Acting Commissioner, Social Security 
  Administration.................................................
173, 
 175
Philip R. DeJong, Professor of Economics, Amsterdam School of 
  Economics, Univerity of Amsterdam..............................
285, 
 288
Honorable Gene L. Dodaro, Comptroller General of the United 
  States, U.S. Government Accountability Office..................
428, 
 430
Honorable Shaun Donovan, Director, U.S. Office of Management and 
  Budget.........................................................
76, 
  78
Mark G. Duggan, The Wayne and Jodi Cooperman Professor of 
  Economics, Standford University................................
270-
 272
Douglas W. Elmendorf, Director, Congressional Budget Office......
6, 9
John Engler, President, Business Roundtable, and Former Governor, 
  State of Michigan..............................................
502, 
 504
Lawrence J. Kotlikoff, Professor of Economics, Boston University.
346, 
 360
Kate Lang, Senior Staff Attorney, National Senior Citizens Law 
  Center.........................................................
291, 
 293
Maya MacGuineas, President, Committee for a Responsible Federal 
  Budget.........................................................
517, 
 520
Heather Pfitzenmaier, Director, Young Leaders Programs, The 
  Heritage Foundation............................................
372, 
 374

                         QUESTIONS AND ANSWERS

Questions and Answers............................................
61, 
 220

       CBO'S BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 2015-2025

                              ----------                              - 

                      WEDNESDAY, JANUARY 28, 2015

                              United States Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:00 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Mike Enzi, 
chairman of the committee, presiding.
    Present: Senators Enzi, Crapo, Portman, Toomey, Johnson, 
Ayotte, Wicker, Corker, Perdue, Sanders, Murray, Stabenow, 
Whitehouse, Merkley, Baldwin, King, and Kaine.
    Staff Present: Eric M. Ueland, Republican Staff Director; 
and Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning. I will call to order the first 
Senate Budget Committee hearing of the 114th Congress.
    This morning, we will hear testimony from the Congressional 
Budget Office Director, Doug Elmendorf, as he explains CBO's 
outlook on critical fiscal issues confronting our country.
    Congress is under new management, and so is this committee. 
I am Mike Enzi. I am a Senator from Wyoming. I was first 
elected in 1996. Budgets matter to me. I am an accountant. I 
ran a small business in Wyoming for many years and kept my 
books balanced. I ran for mayor when I was 29 on a balanced 
budget platform and got elected, and then later got elected as 
a State legislator on the same platform. In both roles, one of 
my key jobs was making sure that the city budget, and then the 
State budget, balanced every year. I did not forget that when I 
came to the Senate. My first floor speech was to support a 
Constitutional amendment to balance the budget. After several 
years in the Senate, I finally had a chance to join this 
committee and got to be Chairman earlier this month.
    There is some activity across the nation that we should be 
interested in. There are 24 States that have already passed a 
Balanced Budget Constitutional Convention amendment, and there 
are ten more that are working on it. If 34 states pass it, that 
makes it happen.
    What could that mean? Currently, we spend 3.9 trillion 
dollars--that does not sound like nearly as much as 3,900 
billion dollars, which is what we spend. I think that is easier 
to understand. Twenty-eight-hundred billion of those are checks 
that are automatically written. We do not make any special 
decisions on them. So, that leaves us with 1,100 billion to 
make the decision. Last year, we spent one-and-one-tenths 
trillion, 1,100 billion. The deficit last year was 468 billion. 
So, we spent almost 50 percent more than we took in.
    So, to balance the budget, we would have to make some 
really detrimental decisions. Just trying to balance the budget 
over ten years, which is what we are trying to do in this 
budget, will be a difficult task. Of course, that is all 
related to the debt and interest. It would help if we could 
stay at a mere one-and-seven-tenths percent interest rate.
    This year, I intend to run a Budget Committee dedicated to 
the proposition that we have to confront spending, bringing the 
deficit to an end and ultimately balancing the budget. We are 
currently receiving more revenues than we have received in the 
history of the United States, but we are still spending a lot 
more than our revenues.
    As the first accountant to handle the gavel, the focus for 
me will always be the numbers. What do we spend? Where does 
that spending go? Where does the money we spend come from? Can 
we afford the spending we have? Where can we find the best 
value for the money that comes to Washington and leaves our 
Treasury?
    One thing I learned at an early age, while you can lie 
about the numbers, numbers never lie, and so I will always be 
looking for the numbers--looking at the numbers and, hopefully, 
understanding the numbers to be able to explain to colleagues 
and constituents the facts about our budget and our spending.
    Let me give you an example. I hear repeatedly that the 
Federal Government has trust funds to cover a variety of multi-
decade commitments our government has. But, these trust funds 
are like nothing we know of in the private sector. They do not 
keep resources in trust for beneficiaries to claim in the 
future. Show me the cash. Instead, money sent to Washington for 
trust funds are swapped out for Federal bonds, and the cash 
that you think you can count on is instead spent now on present 
needs. That is why some of our greatest so-called trust funds 
are facing serious difficulties, according to the people 
responsible for them. Without action, we face the prospect of 
beneficiaries suffering significant harm in just a few years. 
So, be careful. If it is a Federal trust fund, do not trust it.
    Runaway spending habits have bred excessive deficits and 
incredible debt. As we meet this morning, our Federal debt 
totals over $18 trillion. That means every man, woman, and 
child--child, even if they were born today--owes over $56,000 
on that debt. Every man, woman, and child owes $56,000 of that 
debt. I remember about three years ago when I was telling the 
people in Wyoming what every man, woman, and child owed, and it 
was over $49,000. It was almost $50,000. Now, we are at 
$56,000.
    Federal spending has hit a record high. Revenues are at an 
historic height, as well. Yet, every year, we run deficits that 
are on track to hit one trillion dollars. The more deficits we 
have, the more debt we owe, the more we add to the tab for 
future Americans as yet unborn. That just does not seem right 
to me. Our budget process lacks transparency. It seems designed 
to confuse. It leaves the general public unsatisfied that their 
concerns have been heard in Washington.
    Over time, I would like this committee to begin work on 
addressing problems with the budget framework that exists so it 
becomes more responsive to the people we serve. Working with 
you and your colleagues, Senator Sanders, I think there are 
good opportunities for bipartisanship here. After all, no one 
likes the budget process we currently have.
    The committee has a significant responsibility. We are 
required by law to produce a budget resolution. Congress has 
not produced a budget resolution since 2009, and it has been 
ten years since the House and Senate agreed together on a 
budget. The law says we should get it done by April 15. As of 
today, there are only 77 days before April 15 for us to get our 
work done. Together with my House counterpart, I am dedicated 
to doing all I can to meet that deadline.
    The committee will act on a budget resolution. We will 
report it out. The Senate will consider it. We will negotiate 
with the House. We will pass a common budget resolution. We 
will write a plan to restore common sense and good budgeting to 
Washington. We will act to control the spending, reduce the 
deficits, and end the debt.
    We will act to restore balance to our budget, certainty to 
the economy, and confidence to our constituents, and in doing 
so, we will take the first necessary step to standing up for 
Americans so that, over time, their share of what we all owe 
can stop growing and start shrinking and people can see more of 
the American dream. They can keep more of what they earn. They 
can save for what they need. They can expect the government to 
help them when it must, while they can accomplish all they 
dream. Our country needs to act. It is time for us to come off 
the sidelines and get the job done to balance the budget.
    Senator Sanders.

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Well, thank you very much, Chairman Enzi. 
Congratulations on your assuming the Chairmanship of this 
important committee, and we are delighted that Director 
Elmendorf is here with us today. We look forward to his 
testimony.
    Mr. Chairman, the good news is that our economy has come a 
very long way since President Bush left office in January 2009. 
At that time, we were hemorrhaging some 800,000 jobs a month, 
our financial system was on the verge of collapse, and the 
deficit was $1.4 trillion. Over the last six years, the economy 
has made substantial progress. During the last reported 
quarter, we saw very strong economic growth of five percent, 
and last month, the economy created another 252,000 jobs. This 
is the 58th straight month of private sector job growth.
    Further, the Federal deficit has been reduced by more than 
two-thirds since 2008 and Federal deficits over the next decade 
are estimated to be about $5.5 trillion lower compared to what 
the CBO projected in 2010. That is more than what the Simpson-
Bowles Fiscal Commission called for just four years ago.
    All of that good news, however, does not tell the full 
story of what is happening in our economy and what is happening 
to the lives of tens of millions of working families in all of 
our States. While we must continue to focus on the Federal 
deficit, we must also be aware that there are other deficits in 
our society that are causing horrendous pain for the vast 
majority of the American people. There are deficits in decent 
paying jobs. There are deficits in infrastructure, deficits in 
income, deficits in equality, deficits in retirement security, 
deficits in education, and deficits in trade.
    Let me briefly make six points. One, the United States 
today is experiencing more income and wealth inequality than 
any major country on earth and more than any time in our 
country since 1929. Today, if you can believe it, the top one-
tenth of one percent own almost as much wealth as the bottom 90 
percent, and one family--the Walton family of Walmart--owns 
more wealth than the bottom 40 percent of Americans. Since 
1999, the typical middle class family has seen its real income 
go down by nearly $5,000. Meanwhile, since the Wall Street 
crash of 2008 were then, 95 percent of all new income has gone 
to the top one percent. In 2013, 25 hedge fund managers made 
more income than 425,000 public school teachers. The simple 
truth is that the rich are becoming much richer while the 
middle class continues a 40-year decline. This committee, Mr. 
Chairman, in my view, must address that issue.
    Two, while unemployment has fallen significantly over the 
last six years, we must be mindful of the fact that real 
unemployment, which includes those people working part-time 
when they want to work full-time and those people who have 
given up looking for work, is not the official 5.6 percent, but 
over 11 percent. Further--and we do not talk about this--youth 
unemployment is close to 17 percent, and African American youth 
unemployment is close to 30 percent. In other words, while we 
have made some progress in reducing unemployment, we still have 
to create millions of decent paying jobs. And, in my view, the 
fastest way to do that is to rebuild our crumbling 
infrastructure--roads, bridges, water systems, wastewater 
plants, rail, et cetera--and we can create millions of jobs 
doing that, and that is an issue that this committee must 
address.
    Three, in a time when millions of Americans are working 
longer hours for low wages, we need to substantially increase 
wages for low- and middle-income workers. Today, the minimum 
wage after adjusting for inflation is about one-third lower 
today than it was in 1968. To equal the purchasing power of 
what the minimum wage was back then, we would have to raise it 
to $10.88 an hour. Furthermore, we have got to reform our 
antiquated overtime regulations. There are supervisors at 
McDonald's who work 60 hours a week and make $27,000 a year and 
they do not get paid time-and-a-half for any overtime. So, I 
think this is an issue that this committee should address.
    And, four, if we are going to lower our deficit, invest in 
our economy to create the jobs that we need and bring about 
more income and wealth equality [sic] in our country, we need 
real tax reform. It is unacceptable that each and every year, 
millionaires, billionaires, and profitable corporations avoid 
$100 billion in taxes by stashing their cash in the Cayman 
Islands and other offshore tax havens. It is unacceptable to me 
that huge profitable corporations, like General Electric, 
Verizon, Bank of America, and Citigroup, have in recent years 
paid nothing in Federal income taxes, and in some cases have 
even gotten huge rebates from the IRS. That is an issue that 
this committee should be addressing.
    Five, at a time when the United States is engaged in an 
extremely competitive global economy, it is unacceptable to 
people throughout this country that millions of our young 
people cannot afford to go to college and are leaving school 
deeply in debt. We have got to address the issue of college 
affordability and make sure that in a competitive global 
economy our kids get the education they need.
    And, last but not least, in the midst of the obscene level 
of wealth and income equality that we are experiencing, the 
United States has by far the highest rate of childhood poverty 
of any major country on earth, and I would trust that there is 
no person on this committee who is happy that 20 percent of our 
kids are living in poverty. Further, millions of seniors and 
disabled people are struggling to put food on the table, and 
over the last six years, as this committee knows, the cost-of-
living adjustments for Social Security have been incredibly 
paltry--zero percent, zero percent, 3.6, 1.7, 1.5, 1.7--not 
keeping up with inflation that our seniors need. According to 
some of the most recent statistics, 20 percent of seniors live 
on an average of just $7,600 a year. In 2013, half of all older 
adults lived on less than $21,000 a year. Bottom line: We have 
got to move aggressively to expand benefits for our Social 
Security beneficiaries.
    The bottom line to me, Mr. Chairman, is when we put people 
to work, when we have the best educated workforce in the world, 
people will be paying more taxes. Our deficit will go down. 
That is, in my view, the way we deal with deficits, and thank 
you very much.
    Chairman Enzi. Thank you, Senator Sanders. I look forward 
to working with you and having some very spirited debates in 
the years to come.
    Our witness this morning is Dr. Doug Elmendorf, the eighth 
Director of the Congressional Budget Office. The CBO serves an 
instrumental role for the Budget Committees. The agency 
provides necessary information important to assessing the 
budget impact of proposals from both the administration and 
Congress. As well, CBO continually examines the state of the 
economy and the budget to keep us apprised of the fiscal 
context in which we operate.
    Dr. Elmendorf has served as Director of the CBO since 2009, 
coming to this Congressional support organization from previous 
stints at CBO, at the Federal Reserve Board, at the Council of 
Economic Advisors, at the Treasury Department, and at the 
Brookings Institution.
    This morning, Director Elmendorf will be talking to us 
about CBO's latest baseline, which is their outlook on the 
economy and the Federal budget over the next ten years. As he 
revealed on Monday, our annual deficit, already too high at 
nearly $500 billion, is expected to grow to a trillion in just 
ten short years. The debt is expected to grow by nine trillion 
over the next decade, and that is without any new programs and 
realizing we are already receiving more revenues than at any 
time in our history. The interest costs, which we must pay but 
which provide no services to Americans, are expected to cost 
five-and-six-tenths trillion dollars. It is clear that our $18 
trillion debt is the anchor which will sink us if we do not 
change course.
    For your information, colleagues, Dr. Elmendorf has let us 
know that he will take about eight minutes with his opening 
statement this morning. Following that, we will turn to 
questions.
    Welcome, Dr. Elmendorf. Please begin.

  STATEMENT OF DOUGLAS W. ELMENDORF, DIRECTOR, CONGRESSIONAL 
                         BUDGET OFFICE

    Mr. Elmendorf. Thank you very much, Chairman Enzi, Senator 
Sanders. My colleagues and I look forward to working with both 
of you and with all the members of the committee in this 
Congress.
    The Federal budget deficit, which has fallen sharply during 
the past few years, is projected to hold steady relative to the 
size of the economy through 2018. Beyond that point, however, 
the gap between spending and revenues is projected to grow, 
further increasing Federal debt relative to the size of the 
economy, which is already historically high.
    Those projections are based on the assumption that current 
laws governing taxes and spending will generally remain 
unchanged, and they are built upon our economic forecast. 
According to that forecast, the economy will expand at a solid 
pace in 2015 and for the next few years, to the point that the 
gap between the nation's output and its potential, or maximum 
sustainable output, will be essentially eliminated by the end 
of 2017.
    Let me address the budget outlook first and then turn to 
the economic outlook.
    We estimate that the deficit for this fiscal year, 2015, 
will amount to $468 billion, slightly less than the deficit for 
2014. At 2.6 percent of GDP, this year's deficit is projected 
to be the smallest relative to the nation's output since 2007, 
but close to the average 2.7 percent of GDP the deficits have 
averaged over the past 50 years.
    Although the deficits in our baseline projections remain 
roughly stable as a percentage of GDP through 2018, they rise 
after that. The deficit in 2025 is projected to be $1.1 
trillion, or 4.0 percent of GDP. And, cumulative deficits over 
the 2016 to 2025 period are projected to total $7.6 trillion.
    We expect that Federal debt held by the public will amount 
to 74 percent of GDP at the end of this fiscal year, more than 
twice what it was at the end of 2007 and higher than in any 
year since 1950. By 2025, in our baseline projections, Federal 
debt rises to nearly 79 percent of GDP.
    When we last issued long-term projections last summer, we 
projected that under current law, debt would exceed 100 percent 
of GDP 25 years from now and would continue on an upward 
trajectory thereafter. That trend could not be sustained. Such 
large and growing Federal debt would have serious negative 
consequences, including increasing Federal spending for 
interest payments, restraining economic growth in the long 
term, giving policy makers less flexibility to respond to 
unexpected challenges, and eventually heightening the risk of a 
fiscal crisis.
    Why will deficits and debt increase relative to the GDP 
under current law? In our projections, outlays rise from a 
little more than 20 percent this year, which is about what 
Federal spending has averaged over the past 50 years, to a 
little more than 22 percent in 2025. Four key factors underlie 
that increase: The retirement of the Baby Boom generation, the 
expansion of Federal subsidies for health insurance, increasing 
health care costs per beneficiary, and rising interest rates on 
Federal debt. Consequently, under current law, spending would 
grow faster than the economy for Social Security, for the major 
health care programs, including Medicare, Medicaid, and 
subsidies offered through insurance exchanges, and for net 
interest costs.
    In stark contrast, mandatory spending other than that for 
Social Security and health care, as well as both defense and 
non-defense discretionary spending, would shrink markedly 
relative to the size of the economy. By 2019, outlays in those 
three categories taken together would fall below the percentage 
of GDP they were between 1998 and 2001, when such spending was 
the lowest since at least 1940, the earliest year for which 
comparable data have been reported.
    Revenues are projected to rise significantly by 2016, 
buoyed by the expiration of several provisions that reduced tax 
liabilities and by the ongoing economic expansion. In our 
projections, based on current law, revenues equal about 18.5 
percent of GDP in 2016 and remain between 18 and 18.5 percent 
throughout the coming decade. Revenues at that level would 
represent a greater share of the economy than their 50-year 
average of about 17.5 percent of GDP, but would still be less 
than outlays by growing amounts over the course of the decade.
    Turning from the budget to the economy, we anticipate that 
increases in consumer spending, business investment, and 
residential investment will drive the economic expansion this 
year and over the next few years. As measured by the change 
from the fourth quarter of the previous year, we expect that 
real GDP will grow by about three percent in 2015 and 2016, and 
by 2.5 percent in 2017. We construct our forecast to be in the 
middle of the distribution of possible outcomes at the time the 
forecast is made, but significant uncertainty surrounds it and 
all economic forecasts.
    The difference between actual GDP and our estimate of 
potential GDP, which is the measure of slack for the whole 
economy, was about two percent of potential GDP at the end of 
2014. During the next few years, we expect actual GDP will rise 
more rapidly than its potential, gradually eliminating that 
slack. By our projections, increased hiring will reduce the 
unemployment rate from 5.7 percent in the fourth quarter of 
last year to 5.3 percent in the fourth quarter of 2017, which 
is close to the natural rate of unemployment, that is, the rate 
arising from all sources except for fluctuations in the overall 
demand for goods and services. That increased hiring will also 
encourage more people to enter or stay in the labor force, 
boosting the labor force participation rate.
    Our projections beyond the next few years are not based on 
estimates of cyclical developments in the economy because we do 
not attempt to predict economic fluctuations that far into the 
future. Instead, those projections are based on estimates of 
underlying factors that affect the economy's productive 
capacity.
    For 2020 through 2025, we project that real GDP will grow 
by an average of 2.2 percent per year, a rate that matches our 
estimate of the potential growth of the economy in those years. 
Potential output is expected to grow much more slowly than it 
did during the 1980s and 1990s, primarily because the labor 
force is anticipated to expand more slowly than it did then. 
Growth in the labor force will be held down by the ongoing 
retirement of the Baby Boom generation, by a relatively stable 
labor force participation rate among working age women after 
sharp increases from the 1960s to the mid-1990s, and by Federal 
tax and spending policies in current law.
    The elimination of slack in the economy will eventually 
remove the downward pressure on the rate of inflation and on 
interest rates that has existed in the past several years. By 
our estimates, the rate of inflation, as measured by the price 
index for personal consumption expenditures, will move up 
gradually to the Federal Reserve's goal of two percent, hitting 
that mark in 2017 and beyond.
    Interest rates on Treasury securities, which had been 
exceptionally low since the recession, will rise considerably 
in the next few years, we expect, but remain lower than they 
were, on average, in previous decades. Between 2020 and 2025, 
the projected interest rates on three-month Treasury bills and 
ten-year Treasury notes are 3.4 percent and 4.6 percent, 
respectively. Interest rates, of course, are volatile, and 
those figures represent CBO's projections of the average rates 
over that period.
    Thank you. I am happy to take your questions.
    [The prepared statement of Mr. Elmendorf follows:]
    
    
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
    
    
    
    
    Chairman Enzi. Thank you, Dr. Elmendorf. You know, 
predictions really are tough, particularly when they are about 
the future.
    Mr. Elmendorf. Yes, Mr. Chairman.
    [Laughter.]
    Chairman Enzi. We appreciate all your effort on that. So, 
we will turn to questions, but let me take a minute to explain 
the process for the committee members before we start.
    Each member will have five minutes to question. I will 
begin with myself and then Senator Sanders. And then following 
the two of us, I will alternate questions between the majority 
and the minority. All members who are in attendance when the 
hearing began will be recognized in the order of seniority. For 
those who arrived after the hearing began, you are on the list 
in the order of arrival. If it comes to your turn on the list 
to be recognized but you are not here, then you will move to 
the bottom of the list and we will turn to the next Senator on 
that side of the aisle to ask questions. When everyone is 
done--when everyone else is done, then I will recognize that 
person for questions.
    With that, Dr. Elmendorf, thank you for your testimony and 
I have a few questions. I am very concerned about the national 
debt. I wake up in the middle of the night concerned about its 
effects. Am I right to believe that a failure to confront our 
debt challenge with a serious plan to reduce deficits could 
only worsen our economic and fiscal health? Congress needs to 
act on deficits sooner, rather than later, is that correct?
    Mr. Elmendorf. I think it is certainly right, Mr. Chairman, 
that the sooner Congress sets a course, decides what sorts of 
policy changes would be appropriate to address the fiscal 
imbalance, then the more gradually those changes can be 
implemented while still achieving whatever particular target 
for deficits and debt you would consider. I think the pace at 
which particular changes are set in motion would depend on your 
and your colleagues' judgments about how quickly benefit 
programs or tax policies could be changed without being too 
disruptive to individuals or firms or State and local 
governments. It would also depend on your assessment of 
economic conditions.
    Chairman Enzi. Thank you. Your analysis finds that the 
interest costs on the national debt will rise dramatically in 
the next decade, from $227 billion this year to $827 billion in 
2025. To me, every dollar spent on interest is another dollar 
we will not be able to use for government services on an 
individual in need or another dollar that will not be available 
to a taxpayer for their own needs. Are the large and growing 
interest costs a problem for us? How conservative were you?
    Mr. Elmendorf. So, Mr. Chairman, the growing interest costs 
are a problem, because, as you say, for any given level of 
spending, they require higher taxes, or for any given level of 
taxes, they require less of some of the sort of spending.
    We were not conservative in our projection of interest 
rates, though. As I say, we make an effort to have all the 
elements of our projection be roughly in the middle of the 
distribution of possible outcomes at the time we set the 
forecast. In fact, market readings of interest rates have 
declined since we set this forecast in place in early December, 
but we think there are both upside and downside risks to the 
interest rates that we project, and we provide in an appendix 
in the report our rules of thumb for you and your colleagues to 
see how much different outcomes for GDP growth or inflation or 
interest rates would affect budget outcomes. And, naturally, 
with a debt as large as our debt is, changes in the interest 
rate that the Treasury pays on that debt can have very large 
effects on the deficit.
    Chairman Enzi. Thank you. One of my concerns with all of 
this is that when I first came to the Senate, I went on a trip 
to Korea with Senator Lieberman, and it was at a time that 
Korea was having some tremendous financial difficulties and the 
International Monetary Fund stepped in to help them and they 
outlined a plan. And, it happened to be election time, too, so 
Senator Lieberman and I got to meet with both of the potential 
leaders for them, and our job was to explain to them the need 
for them to follow the IMF plan exactly to get their debt 
reduced and to stay in line. And, we were so persuasive, they 
immediately went on television and said, ``If I get elected, I 
am going to change every one of those articles.'' Their money 
plunged 18 percent per day for three days and they came back on 
television and said, ``We are going to follow it precisely.''
    So, that is some of my background, and you noted my concern 
about the debt and we have discussed the problem of the large 
and growing interest costs. But, what about the debt itself? Is 
debt at the levels projected in the report a danger to the 
country and my grandkids' future, and could you explain that.
    Mr. Elmendorf. Yes, Mr. Chairman. Under normal economic 
conditions, when the Federal Government borrows more money, it 
is making it more difficult for other people to borrow money 
and, thus, tends to crowd out some capital investment. And, it 
is capital investment that helps over time to boost GDP and to 
boost wages and incomes.
    So, on an ongoing basis--again, under normal economic 
circumstances--the high level of debt that we have is reducing 
wages and incomes relative to what they would otherwise be. We 
are still on an upward path of wages and income, but we would--
with less debt, we would be on a stronger upward path.
    Also, as we have said a number of times, there are risks 
associated with high levels of debt. You cannot tell just when 
that risk might hit. But, for example, if there were another 
financial crisis or severe recession or international events to 
which you and your colleagues wanted to respond with government 
resources, the more debt you have going into that kind of 
situation, the harder it is for you to respond. Additionally, 
there is a risk of a fiscal crisis in which investors would 
become unwilling to hold Treasury debt, except at 
extraordinarily high interest rates.
    There is no way for our economists to predict what level of 
debt might cause such a crisis to occur, and other countries 
that have gotten into that sort of situation have gotten there 
through a variety of circumstances. So, we do not know of any 
particular tipping point, but we think the risk is higher, the 
higher the level of debt is relative to the size of the 
economy.
    Chairman Enzi. Thank you, and my time has expired.
    Senator Sanders.
    Senator Sanders. Thank you very much, Mr. Chairman.
    I think, before we go forward and talk about where we want 
to go, it is important to know how we got to where we are 
today, because I hear a lot of my Republican friends saying, 
well, you know, we have got this deficit. We are going to have 
to cut Social Security, Medicare, Medicaid, education, 
nutrition, infrastructure, whatever. But, I think it is 
important to know how we got to where we are.
    Dr. Elmendorf, am I correct in remembering that in January 
of 2009 [sic], when President Clinton left office, we had a 
$236 billion surplus?
    Mr. Elmendorf. That sounds right, Senator.
    Senator Sanders. Okay, and that the CBO projected a ten-
year budget surplus of $5.6 trillion?
    Mr. Elmendorf. Yes, Senator.
    Senator Sanders. Well, I think, Mr. Chairman, we might want 
to figure out how we went from projections of a huge surplus 
into significant deficits.
    Dr. Elmendorf, is it fair to say that one of the reasons we 
saw that transition is that under President Bush, we went to 
war in Iraq and Afghanistan, but we forgot to pay for those 
wars, that important part?
    Mr. Elmendorf. Well, the forgetting, I cannot speak to, 
Senator--
    Senator Sanders. Well--
    Mr. Elmendorf. --but relative to CBO's projections in early 
2001, the high levels of defense spending was a significant 
factor in why the deficit was much--
    Senator Sanders. Well, I asked that question as maybe the 
major deficit hawk on this committee. See, I did not vote to go 
to that war in Iraq. I did not go to war in Iraq.
    Now, what about the tax cuts that were initiated by 
President Bush? Did they have any impact on the deficit?
    Mr. Elmendorf. Yes, a very large effect, Senator.
    Senator Sanders. Oh, they did have to cut education, when 
families cannot afford to send their kids to college. I think 
that, frankly, that set of priorities does not make sense to 
me.
    Dr. Elmendorf, given the fact, as I think we all know, that 
the wealthiest people in this country have become much 
wealthier in recent years and their tax rates have gone down, 
is it not correct that if we did nothing more than restore the 
income and capital gains tax rates to where they were in 2000 
for the wealthiest two percent of Americans earning $250,000 a 
year or more, that we could raise more than $200 billion over 
the next decade?
    Mr. Elmendorf. Senator, we have not done an estimate of 
that that I know offhand. I certainly agree that the changes 
you describe, a significant amount of additional revenue would 
be collected. But, I think to actually get a specific number, 
you would have to ask for an estimate from the Joint Tax 
Committee--
    Senator Sanders. Okay. Let me ask you this. According to a 
November 2014 CBO report, the income of the wealthiest one 
percent of Americans has risen 200 percent since 1979 at the 
same time that their income tax rates have fallen. Is that a 
fair statement?
    Mr. Elmendorf. Yes, Senator.
    Senator Sanders. Okay. So, I think what the debate that we 
are going to have in this committee, and I think it is going to 
be a very interesting debate, as the Chairman indicates, is one 
of national priorities, and that is that at a time when the 
wealthiest people are doing phenomenally well, when corporate 
profits are at an all-time high, do we ask those people who are 
doing extremely well to start paying their fair share of taxes 
so that we can invest in our economy and reduce the deficit, 
or, in fact, do we continue the war against the working 
families of this country and low-income people by cutting the 
programs that they desperately need, and that is a strong 
philosophical division and I look forward to some very 
interesting debates on that issue.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Next will be Senator Crapo, and then Senator Stabenow.
    Senator Crapo. Thank you, Mr. Chairman.
    And, just briefly, in response to some of the comments of 
Senator Sanders, back in the time frame he was talking about, 
did we not also have a terrorist attack around 9/11?
    Mr. Elmendorf. Yes, Senator.
    Senator Crapo. And, did we not have a stock market crash 
right in that time frame, as well?
    Mr. Elmendorf. We did, Senator.
    Senator Crapo. And, were not both of those events, both on 
the spending and the revenue side, pretty significant to our 
budget circumstances?
    Mr. Elmendorf. Yes, Senator. As I said, the military 
response in the 2000s was a costly one. We are not in a place 
to judge the strategic effect, but certainly it was costly, as 
we describe in our report.
    Senator Crapo. I understand. I just wanted to be sure that 
a little bit more of that picture was painted.
    Let me talk for a minute about the interest issue, which 
Senator Enzi brought up with you. As I understand your report, 
essentially, over the budget window that you are reporting on, 
the interest costs will go from about 6.5 percent today to 
about 13.5 percent at the end of the budget window, is that 
correct?
    Mr. Elmendorf. That is--I guess as a share of total 
spending, Senator--
    Senator Crapo. Yes.
    Mr. Elmendorf. --that sounds right to me.
    Senator Crapo. Yes. I think that would be as a share of 
total spending.
    Mr. Elmendorf. Yes.
    Senator Crapo. And, just to give that number a little bit 
of perspective, that means that in about four or five years, 
the share of total spending that interest represents will 
exceed the share of total spending that our defense spending 
represents, is that correct?
    Mr. Elmendorf. Yes, Senator.
    Senator Crapo. And, by the end of the budget window, it 
will exceed that by a significant amount.
    Mr. Elmendorf. Yes, Senator, that is right.
    Senator Crapo. And, as we look at seeing the interest costs 
alone on our debt rising to such an increasing level of our 
overall spending capacity, does that not crowd out all other, 
not just defense, but all other kinds of spending options that 
the Congress has?
    Mr. Elmendorf. Well, it can either reduce other spending or 
lead to higher tax revenue or lead to a larger deficit for some 
period of time. But, you are right, Senator, that it makes 
those other choices more difficult, so larger--
    Senator Crapo. So, we either have to raise taxes or cut 
spending elsewhere.
    Mr. Elmendorf. Yes.
    Senator Crapo. Or, figure out a way to reduce interest 
costs, which would be where I want to go next. It seems to me 
that we should talk for a minute about the impact of the debt 
on our GDP. Your report indicates that the potential output and 
GDP growth after 2017 will be noticeably less than the average 
growth of the 1980s and 1990s, and also that the debt 
increasing as a percentage of GDP in the latter half of the 
decade to levels--it will increase to levels that are higher 
than they have been since 1950, is that correct?
    Mr. Elmendorf. That is right.
    Senator Crapo. My question is, what effect does that 
increasing debt have on our economy and our potential output 
and GDP?
    Mr. Elmendorf. So, as the economy continues to improve and 
moves along in the second half of the coming decade, that 
higher--that level of debt will lead to lower capital 
investment and lower incomes than would be the case if debt 
were lower, all else equal.
    Senator Crapo. The fact is, the debt is a drag on the 
economy.
    Mr. Elmendorf. When the economy is functioning normally, 
Senator. As I suggested in my earlier answer, in periods when 
the economy is constrained by shortfall of demand for goods and 
services like we have had the last several years, then 
government borrowing is a stimulus to the economy. But, over 
longer periods of time, when the economy tends to be closer to 
full employment, then large debt is a drag on the economy.
    Senator Crapo. If I am understanding what you are saying, 
you are saying that stimulus spending in the short term can 
boost economic strength, but in the long term, because it is 
added to the debt, it is not taxed and paid for, then it 
becomes a drag, is that correct?
    Mr. Elmendorf. Yes. That is right, Senator.
    Senator Crapo. I guess my question basically is, can we 
simply spend ourselves into prosperity on a continuous basis 
with borrowed money?
    Mr. Elmendorf. Umm--
    Senator Crapo. Can we just continue to drive the debt up 
and use that short-term stimulative impact of borrowed money to 
keep ourselves always in a positive economic posture?
    Mr. Elmendorf. No, Senator. It is not feasible to 
continually have debt rising relative to the size of the 
economy, because eventually, people will become more skeptical 
about the government's ability and willingness to pay that.
    Senator Crapo. And then we face the question as to whether 
they are willing to buy our debt.
    Mr. Elmendorf. Yes. That is right, Senator, at some point.
    Senator Crapo. And there, I know, have been a number of 
economists who have tried to find that tipping point. You 
indicated that we really do not know when it is. But, can we 
have any kind of general ideas?
    Mr. Elmendorf. Senator, we really do not know. I think the 
best thing we can say is that the United States has rarely had 
Federal debt as large relative to the economy as it is now and 
as we project it to be over the coming decades under current 
law, and, thus, we are in mostly uncharted territory, and that 
is part of why there is a risk. But, because it is uncharted 
territory for us, economists just do not have much to offer 
about what might happen when.
    Senator Crapo. Well, I would just say--I know my time is 
running out--I am one of those who thinks that the risk is very 
high and that we are in very dangerous uncharted territory. 
And, we continue to get the answer that we cannot take the 
fiscally responsible steps that we need to take on both the tax 
and the spending side of the budget because we need to continue 
to stimulate this difficult economy with stimulative spending 
on borrowed money in order to make it strong. My point in my 
questions to you was just that there comes a time, and I think 
the time is here, when we have got to recognize that we cannot 
just continue the stimulative spending theory at the cost of 
continuing to drive up this massive debt. Thank you.
    Chairman Enzi. Senator Stabenow.
    Senator Stabenow. Thank you very much, Mr. Chairman, and 
congratulations. I am looking forward to working with you.
    Lots to talk about, and it really does come down to a 
difference in approach about how you grow the economy. I would 
just say to my good friend who just spoke that we really have 
not been using a stimulative approach now for a few years. We 
have been doing sequestration and cutting and not funding 
infrastructure and watching student loan debt go up and not 
investing in things. So, it is an interesting debate.
    I guess what I would say is that we, in real simple terms, 
we should do what works and we should look at the past to know 
what works. I was around in the House of Representatives in the 
1990s under the Clinton administration when we balanced the 
budget for the first time in 30 years. I had only been there 
six months, and so I thought it was pretty good, after six 
months, I had balanced the budget. But, it was because of an 
arrangement that asked those at the top to pay a little more 
and also to invest in education and innovation and, basically, 
a middle class economy.
    Then we went to a different approach under the Bush 
administration, saying, let us give it all to those at the top, 
two different large trickle-down tax cuts to the wealthiest 
Americans hoping it would trickle down to everybody else. In 
the meantime, we all know about the wars that were not paid 
for. Go to war, do not pay for it. The President says, go 
shopping, because consumer spending is obviously very 
important--if you have a job and money in your pocket. A whole 
range of things happened, including not watching Wall Street, 
the biggest collapse since the Great Depression, and we saw 
what happened.
    So, President Obama comes in and, again, turns around and 
says, we are going to protect American jobs in the auto 
industry and manufacturing and we are going to make sure we do 
not lose making those things in America. We have asked the top 
to pay a little bit more. There was an outcry the world would 
end. Instead, we have brought down the yearly deficit more than 
two-thirds. The economy is growing again.
    And, now, the question is, is everybody going to benefit 
from that or just those at the top, and that goes to the 
question, I believe, of investing in education and innovation 
and creating a way to stop the deficits that, frankly, Senator 
Sanders talked about, which focus on blocking opportunities for 
people who work hard to get into the middle class.
    And, in your report, Director Elmendorf, you talked about, 
of course, consumer spending, and people cannot spend if they 
do not have money in their pocket, and if they do not have a 
job that pays well, they are not going to have money in their 
pocket. So, my question to you goes to a different way of 
looking at this in terms of how do we have resources? How do we 
make sure we are responsible, we are paying for the things that 
we are doing as a country, but do it in a way that does not 
hurt folks that are trying very hard to get into that middle 
class.
    One way is to ask those who are abusing the system through 
tax loopholes to pay their fair share for public services, 
individuals or businesses. On the business side, I have a bill 
called the Bring Jobs Home Act that just addresses one small 
policy, that basically says if you pick up and move the 
factory, the taxpayers are not going to pay for the move. It 
ought to be simple to pose that. We know about inversions. We 
know about other techniques, as well as individuals.
    So, my question to you, Director Elmendorf, is if we 
actually closed those loopholes, both on the individual and the 
business side, so that everyone was contributing to the public 
services they benefit from, like breathing the air and drinking 
the water and driving on the roads and all of the other things 
that we, as Americans, benefit from, what impact would that 
have on tax receipts?
    Mr. Elmendorf. Well, Senator, if you reduced or eliminated 
certain deductions or exclusions from income or tax credits or 
other tax expenditures, as many of them are known, then that 
would raise revenue, all else equal. How much effect it would 
have on revenue, of course, would depend on the specifics of 
the provisions that you changed and on whether there were 
changes in tax rates or other elements of tax provisions that 
were altered. So, the specific outcomes would depend on the 
specific policy choices.
    Senator Stabenow. Taking inversions as an example, or the 
fact that we have seen over the years--when Senator Conrad was 
here, he always showed us the picture in the Cayman Islands, I 
think, it was up to 18,000 businesses that had the same 
address, in the same building. Making sure that they at least 
had to pick different buildings in the United States, what are 
we talking about in terms of savings that we could put into 
rebuilding our roads and infrastructure and investing in our 
children's schools?
    Mr. Elmendorf. Yes. So, Senator, we highlight the role of 
tax expenditures in the revenue chapter of the outlook, 
because, as you know, they are very large in magnitude but do 
not necessarily get the scrutiny in the budget process that 
spending programs of comparable magnitude receive. By our 
estimates, the total tax expenditures for the individual income 
tax, the payroll tax, and corporate income taxes is about $1.5 
trillion in 2015 alone. That is almost as much money as is 
collected by the individual income tax. It is a lot more than 
is spent on any of the largest government programs.
    So, there is a tremendous amount of money which is being 
used by the Federal Government to support particular 
individuals or particular activities, and that is up to you and 
your colleagues to decide whether you think all those things 
are appropriate, just as that is the case for other tax 
provisions and for spending programs and so on. But, we did try 
to bring--make sure that--
    Senator Stabenow. Thank you.
    Mr. Elmendorf. --people are aware of the magnitude.
    Senator Stabenow. And, Mr. Chairman, I hope we will have 
that--
    Chairman Enzi. Your time--
    Senator Stabenow. Yes. I hope we will have that discussion. 
I am not advocating we close every one of the--change that tax 
policy, but $1.5 trillion in spending through the tax code 
seems to me a worthy place for us to scrutinize, as well. Thank 
you.
    Chairman Enzi. Senator Ayotte.
    Senator Ayotte. Thank you very much.
    I would like to understand the effects of a higher average 
interest rate on the fiscal state of the country. Including if 
interest rates were one percent higher than in your baseline, 
what would that do to the baseline projected deficit over the 
period of 2016 to 2025. And can you tell us how you estimated 
the rise in interest rates here and whether that was a 
conservative estimate or not, because I think it is important 
for the American people to understand that as interest rates go 
up, even by one percentage point, the amount of money we owe 
goes up very dramatically. Could you help us with that, Dr. 
Elmendorf?
    Mr. Elmendorf. Yes, Senator. So, we provide in our report 
rules of thumb to help you and your colleagues understand the 
effects of different economic outcomes, and we estimate that if 
interest rates were one percentage point higher each year 
throughout the coming decade, the deficit would be $1.7 
trillion larger. And, conversely, if interest rates were one 
percentage point lower per year, the deficit would be $1.7 
trillion smaller.
    Our projection of interest rates is not conservative in the 
sense in which I think you mean it. We try to have our 
projections be in the middle of the distribution of possible 
outcomes, recognizing a great deal of uncertainty. But, we try 
to end up with projections for which the upside risks and the 
downside risks are roughly balanced in all of our projection, 
on both the economy and the budget.
    So, we think there is a chance interest rates will be 
higher than we project, but also a chance they will be lower, 
and, in fact, market interest rates in the six weeks since we 
closed this forecast have moved down notably. So, our forecast 
right now, actually, is a little above what the latest reading 
on market interest rates would suggest, although we do not put 
too much weight in any particular reading because interest 
rates are so volatile.
    Senator Ayotte. Obviously, if the interest rates go up one 
percentage, we owe over a trillion dollars more in terms of the 
debt. In terms of looking at the projected outlook, if you 
combine spending for Social Security, major health care 
programs, which would include Medicare, Medicaid, the 
Children's Health Insurance Program, and subsidies for health 
insurance purchased through the exchanges created by the 
Affordable Care Act, and net interest on our national debt, it 
accounts for nearly 85 percent of the total increase in outlays 
over the next decade. Would you agree with that?
    Mr. Elmendorf. That sounds roughly right to me, Senator. I 
do not have that precise calculation. But, we do show in our 
report that the overwhelming share of the rise in outlays is 
concentrated in just this handful of programs.
    Senator Ayotte. As we look at putting our country on a 
fiscally sustainable path, I look at your projected outlook 
where deficits go down, but then they go back up to over 
trillion-dollar deficits in 2025. And so looking at the fiscal 
state of the country in the long term, is there any way we can 
put ourselves on a fiscally sustainable path without 
considering at how we preserve those programs? As you know, the 
Trustees have said, especially for Medicare and Social 
Security, that they will become insolvent. The Disability Fund 
is looking us right in the eye in terms of insolvency. Without 
making some bipartisan reforms to these programs, can we do it 
without looking at those issues?
    Mr. Elmendorf. I think--I think you and your colleagues 
will need to either make significant changes in those large 
programs or significant changes in our tax code--or both. It is 
very hard not to tackle at least one of those, because, as you 
know, under current law, spending on the other government 
programs is shrinking relative to the size of the economy to 
levels that we have not seen in our lifetimes. But, whether you 
would choose to make changes by focusing on these large 
spending programs or by focusing on tax revenues--
    Senator Ayotte. Could you do it--
    Mr. Elmendorf. --that is really up to you, Senator.
    Senator Ayotte. If you did it with tax revenues alone, how 
big is the tax increase?
    Mr. Elmendorf. You would have to do--well, to balance the 
budget, say, in 2025, which the Chairman expressed as his goal, 
we think in 2025 that tax revenues will be about 20 percent 
smaller than spending. You would have to raise--
    Mr. Elmendorf. You would have to cut spending by 20 percent 
or raise revenues by 20 or 25 percent or some combination--
    Senator Ayotte. But, my point is, even as we look at 
balancing over the decade, that still does not address the 
long-term fiscal health, issues of Social Security, Medicare, 
the Disability Fund, really, the long-term viability for people 
who rely on the programs, and also the fiscal sustainability 
for the country. Would you agree with that?
    Mr. Elmendorf. Yes. I think it makes good sense for you to 
be looking further ahead. And, as you know, we provide a long-
term budget outlook once a year that looks beyond the ten-year 
window, because, as you say, some of the significant--the 
pressures that are happening over the coming decade do not end 
in the 11th year or the 12th year. They intensify over time, 
because the Baby Boomers will continue to retire and health 
care spending will continue to grow. So, the problems are long 
term in nature, I think that is absolutely right. And, when we 
look to alternative paths for the budget in our long-term 
budget outlook, we look not just at changes in the first ten 
years. We extrapolate those over longer periods of time.
    Senator Ayotte. Thank you.
    Chairman Enzi. The Senator--yes. Senator Whitehouse.
    Senator Whitehouse. Thank you very much, Chairman, and 
welcome to your Chairmanship. I appreciate working with you.
    Mr. Elmendorf, I think it is important, and I agree with my 
colleagues that we need to address the long-term debt that we 
carry right now. My belief is that solving that problem with 
cuts while in a recession has been proven by experience to be a 
failed strategy. The President has said it is time to turn the 
page, and so maybe it is time to start to look at not just 
supporting the economy immediately, but also beginning to look 
at the long-term debt and deficit issues.
    But, I would urge my colleagues, if they wish to be taken 
seriously on the debt and deficit warnings that they make--that 
this is a high-risk proposition, that this is dangerous to the 
country, that this is unsustainable--then their priorities 
should match the warnings. And, when it is a greater priority 
to protect the folks who make millions of dollars a year and 
who in recent years have paid lower tax rates than truck 
drivers and hospital orderlies and brick masons, it is hard to 
take seriously the warning or the sincerity of the warning. 
When they are asked whether the--when they take the side of the 
big oil companies to protect their subsidies instead of taking 
serious action against the debt, again, it is a matter of 
priorities and it makes it hard to take it seriously.
    We have tried to address the problem of the big 
multinational corporations who get tax advantages from 
offshoring American jobs or from offshoring American 
intellectual property, and we are always stymied and blocked in 
trying to do that. Again, that would help the debt and it would 
help the deficit. And, the relentless opposition we get, again, 
is a signal of priorities.
    And, finally, protecting corporations who pay zero or 
single-digit taxes--zero or single-digit tax rates--many of 
whom are declaring enormous revenues--again, if protecting that 
is a priority above addressing the debt and deficit, it makes 
it hard to take seriously those warnings.
    If discussion of the debt and deficit is nothing more than 
a leverage point, a fulcrum to attack spending programs that 
the Republican Party has long opposed, like Social Security and 
Medicare, we are going to have a problem. But, if we are 
serious about it--and we should be, because we have just heard 
from Director Elmendorf that there is $1.5 trillion that we 
spend through the tax code through all these deals, and we have 
heard from our new Chairman that the actual appropriated 
spending is only $1.1 trillion, we actually spend more out the 
back door of the tax code than we do through appropriations, so 
if you want to look at this as a serious debt and deficit 
problem, to put on your blinders and say, we are only going to 
look at the appropriated spending side and we are never, never, 
never, never, never, never going to look at the revenue side, 
first of all, it does not make you look serious, and second of 
all, it drops the major part of the deficit reduction 
opportunity, the $1.5 trillion part, right out of the toolbox. 
And, I do not think that is sensible, and I do not think that 
is what the American people want, and I do not think that is 
fair.
    So, one last thing on this. You have said before, Dr. 
Elmendorf, that health care is a very big part of our debt and 
deficit problem going out. Is that still true?
    Mr. Elmendorf. Yes, Senator.
    Senator Whitehouse. And, is it not also true that since the 
passage of the Affordable Care Act, the projections for 
Medicare, Medicaid, and other mandatory health programs have 
fallen by $2 trillion for the coming decade--
    Mr. Elmendorf. They have fallen quite a bit, Senator--
    Senator Whitehouse. --in your baseline?
    Mr. Elmendorf. They have fallen quite a bit. I do not have 
those particular numbers--
    Senator Whitehouse. But, $2 trillion is pretty close. If I 
do not have it to the dollar, I am in the right order of 
magnitude.
    Mr. Elmendorf. I think that is right. We made a substantial 
downward revision to our projection of Federal health care 
spending.
    Senator Whitehouse. Twenty-twenty alone is $122 billion in 
reduced anticipated spending.
    Mr. Elmendorf. That sounds right, Senator.
    Senator Whitehouse. Now, does any of that have anything to 
do with any of the programs that were launched by the 
Affordable Care Act?
    Mr. Elmendorf. Well, perhaps, Senator. It is hard for us to 
know, right now. So, when the Affordable Care Act was enacted, 
we built into our baseline projections our best estimate of 
the--at that time of the effects of the Affordable Care Act. 
So, since then, various things have happened--
    Senator Whitehouse. Since my time has run out, let me jump 
to the next question. Secretary Burwell has just announced new 
programs to change the way payments are made. Do you expect 
that that will have a good effect?
    Mr. Elmendorf. I have seen the announcement, Senator. We 
have not had time to study it yet. I am sorry.
    Senator Whitehouse. When you have, would you let us know?
    Thank you, Chairman.
    Chairman Enzi. Senator Corker.
    Senator Corker. Well, thank you, Mr. Chairman. I will say, 
I have never attended a Budget meeting before, and I assume it 
is only on the first day that people make partisan comments, 
and then after that, we move towards trying to solve the 
problem. So, I am looking forward to that.
    Mr. Elmendorf, in your assumptions, you assume that the 
extenders, the tax extenders that we keep extending, will not 
be extended, is that correct?
    Mr. Elmendorf. That is right. We follow current law, 
Senator. Of course, it is not an assessment by us of the 
probabilities of things happening. We follow current law.
    Senator Corker. And you also assume that we are actually 
going to enact SGR as it is written?
    Mr. Elmendorf. Again, we follow current law, in which--
    Senator Corker. No, I understand. I mean, that is what you 
are supposed to do.
    Mr. Elmendorf. Yes.
    Senator Corker. So, in essence, we are probably a trillion 
dollars, at least, on those two topics, worse off than your 
projections say, is that correct?
    Mr. Elmendorf. If Congress were to freeze Medicare's 
payments to doctors, that would raise the deficit by about $130 
billion over the coming decade. And, if you were to extend all 
the expiring tax provisions, that would add about $900 billion 
to the deficit directly, both of them, and then there will be 
interest costs alongside of that, as well.
    Senator Corker. So, as a famous Republican politician once 
said, ``Deficits do not matter,'' but they do matter, do they 
not?
    Mr. Elmendorf. Yes, Senator, they do.
    Senator Corker. And, the reason they matter is they, as you 
have mentioned, once you get to a full recovery, they affect 
economic growth, is that correct?
    Mr. Elmendorf. Yes. They also affect it in weak conditions, 
but in a rather different way.
    Senator Corker. And, so, deficits and debt, over time, 
actually directly affect the standard of living of the American 
people, is that correct?
    Mr. Elmendorf. Yes, Senator.
    Senator Corker. Very directly.
    Mr. Elmendorf. I mean, economists, I think, have a very 
strong view about that. Whether people see that, I think, is 
less clear. But, I think, the effect seems to us to be quite 
strong.
    Senator Corker. So, our inability to somehow figure out a 
way collectively to solve this problem, and being unwilling, if 
you will, to take the steps that most of us know we have to 
take, really is hurting the standard of living of Americans.
    Mr. Elmendorf. I think, over time, the standard of living 
would be higher than otherwise if deficits were small--
    Senator Corker. Thank you. Deficits affect the standard of 
living of Americans. Debt affects the standard of living of 
Americans. Tell me the impact, from your standpoint, of 
increased taxes on the economy and on the standard of living of 
Americans.
    Mr. Elmendorf. Well, so the direct effect, of course, if 
people pay higher taxes, they have less after-tax income. And, 
as you know, Senator, if the government cuts benefits to 
people, then they have less income for that reason, as well. 
That is why this deficit problem is a hard one to confront, 
because people pay taxes and they also receive the benefits, 
and as Senator Ayotte noted, the vast majority of the growth in 
spending on Federal outlays is in benefit programs. And, so, 
you and your colleagues face a difficult set of choices, I 
think.
    Senator Corker. But, the actual, just the net effect of 
taxes themselves, tell me the effect that it has on economic 
growth, increased taxes.
    Mr. Elmendorf. Oh, so higher tax rates on work or on saving 
will tend to discourage work and saving, and that would tend to 
reduce economic growth. And, in our modeling of the effects of 
changes in fiscal policy on the economy, we try to capture the 
effects of changes in deficits, but also the effects of changes 
in incentives through the tax code as it affects work and 
saving, and, in fact, transfer programs can have effects on 
incentives, as well, and we try to capture those in our 
modeling, also.
    Senator Corker. So, debt and deficits hurt the standard of 
living of Americans by slowing economic growth, and increased 
taxes on work--and I think you are very specific there, on 
work--affect the standard of living of Americans because they 
also slow economic growth. So, we have quite a challenge, do we 
not?
    Mr. Elmendorf. Yes, Senator.
    Senator Corker. I hope we will come together and figure out 
a way of solving that.
    Have we had a situation, and you project in this budget 
window that net interest spending--and someone has already 
alluded to this--will be more than defense spending--have we 
ever had a situation like that in the history of our country?
    Mr. Elmendorf. I do not think so, Senator, but I can r 
budget window and you look at the mandatory spending component 
which has been put in place by both sides of the aisle, the 
issues relative to debt and deficits--have we ever faced a 
situation like this that you can remember with more difficult 
choices?
    Mr. Elmendorf. No, Senator. I think what is strikingly 
different now from the past discussions of this topic ten, 20 
years ago--at which point the demographic changes, of course, 
were foreseen--what is different now is that our debt is 
already more than--equal to more than 70 percent of GDP, and 
that is a level of debt that we have only seen in this country 
for a few years around the end of the Second World War, and 
that makes the situation quite different from other times at 
which this question has arisen.
    Senator Corker. So, Mr. Chairman, I know everybody is sort 
of staking out their territory today and sort of taking 
potshots. I do look at this Budget Committee as being a serious 
committee and I hope that over the course of the next two 
months, we will figure out a way to come together and actually 
deal with these issues in a way that is meaningful so that our 
lack of action does not continue to hurt the American people. 
Thank you.
    Chairman Enzi. Thank you.
    Next will be Senator King, then Senator Johnson.
    Senator King. Thank you, Mr. Chairman. Welcome to the 
Chairmanship. I look forward to working with you.
    And, Dr. Elmendorf, I just want to thank you for your 
extraordinary service. I have served on this committee now for 
going on three years and you have done such a great job of 
giving us unbiased and very thoughtful and thorough advice. I 
want to thank you for that.
    I think we have got universal agreement around this table 
on one thing, and that is the debt is a problem and the 
interest rate is a looming serious problem. We have all made 
statements about how interest rates, if it goes up one--a one 
percent increase in interest rates costs $180 billion a year, 
and that is going to sink us, and it is money that goes for 
nothing. It does not buy anything. In fact, what it does is buy 
airports in China, because that is where the interest, or a 
significant amount of the interest, is going.
    So, the question is not is debt and deficit a problem, the 
question is how do we deal with it? There are several ways. One 
is the Budget Control Act and the sequester. My problem with 
that, and, I think, one of the most important charts in your 
material is on page 62 that shows the outlays by types of 
expenditures over history, and what that shows is that 
discretionary spending, including defense and non-defense, is 
at virtually an all-time low and headed for certainly an all-
time low as a percentage of the economy. And, yet, most of our 
budget cutting effort around here seems to focus on that 
relatively small target.
    And, the real increases--on page 17 you have a chart of 
what is driving the increases--the real increases are in health 
care and in other mandatory programs. When we are cutting Head 
Start or the defense budget in order to try to solve this debt 
and deficit problem, it is like attacking Brazil after Pearl 
Harbor. It is a vigorous reaction, but it is the wrong target. 
The real growth, if you look at your chart, is in mandatory 
spending, and then there is a fundamental question about 
revenues.
    You mention that the historic level is 17.5 percent. We are 
now at about 18.5. The question that we have to grapple with as 
public officials here is 18.5 percent or 18 percent or 19 
percent, what is the right number, given the demographics of 
America in 2015 through 2030. We cannot keep the commitments we 
have made to people who are retiring and maintain any level of 
discretionary spending without some additional revenues. The 
arithmetic simply does not work.
    And, I think an interesting debate here would be what is 
the right level? Is it 20 percent of GDP? If you add the 
numbers together on your projections, it is 22.3 percent. That 
is 14.2 for mandatory, 5.1 for discretionary, and 3.0 for 
interest. So, anything short of 22.3 percent equals a deficit 
and the problem continues to get worse.
    So, it seems to me we have really got to look at the--and 
be realistic about what is happening, because if we do not deal 
with both the growth of mandatory spending, which is mostly in 
health care, and look at the revenue side, we are on a path 
that there is really no way out, unless the American people 
want us to drive discretionary spending, including national 
security, to zero. That is the direction that we are headed.
    So, I would go back to when President Reagan was President. 
Ten percent of GDP was discretionary spending. We are headed 
for 5.1, in half of what it was when Reagan was President. The 
difference, interestingly, in 1990 between discretionary and 
mandatory was one percent. Nine percent was discretionary, ten 
percent was mandatory. Those two lines are separating 
dramatically and that is the problem.
    But, to think that we can solve it entirely by revenues, I 
think, is unrealistic. To think that we can solve it entirely 
by cutting programs that are benefitting people who we made 
commitments to is unrealistic. There has got to be--somebody 
around here has got to be saying, here is the arithmetic and 
here is how we have to solve this problem.
    If you can find a question in there, Dr. Elmendorf, you are 
better than I.
    [Laughter.]
    Senator King. But, would you agree that the overall 
analysis is that we have got to look at--you know, it is Willie 
Sutton. You have got to go where the money is, and the money is 
in mandatory spending and in revenues based upon the change of 
demographics.
    Mr. Elmendorf. Yes, Senator, we think--we agree with that, 
that given how low discretionary spending is already on track 
to be relative to our historical experience, there seems no way 
around the country agreeing to either cut some of the large 
benefit programs relative to the benefits promised under 
current law, or to increase tax revenues well above the 
historical share of GDP, or to do some combination of those 
changes.
    Senator King. But, on the cutting side, I want to 
emphasize, we do not have to necessarily cut. We have to get 
control of health care costs, which we spend twice as much per 
capita than anybody else in the world. And, if we could just 
control that, it would solve a great deal of this problem. It 
is not necessarily cutting fees to doctors or cutting--you 
know, saying we are not going to pay as much, we have got to 
get at the underlying structural costs that are driving these 
extraordinarily high health care costs.
    Mr. Elmendorf. So, yes, Senator, if there were ways to--
when I refer to cutting benefits in the programs, I mean 
cutting the spending for those benefits. If there are ways to 
provide comparable benefit as viewed by a beneficiary at lower 
cost, then that would help. I think there is widespread 
agreement among analysts that our health care system should 
move in the direction of paying for care, not per unit in the 
way that encourages volume, but by paying for keeping people 
healthy at the lowest possible cost.
    But, once you get beyond that general principle, exactly 
what changes in Federal laws and Federal policies could achieve 
those goals is very unclear, and part of what was put in place 
in the Affordable Care Act is a collection of specific changes 
and also some mechanisms to experiment with other changes, and 
those experiments are underway. But, just which ones will pan 
out and how well is very hard to know at this point.
    Senator King. Thank you, Dr. Elmendorf. I appreciate it.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Johnson.
    Senator Johnson. Thank you, Mr. Chairman.
    Let me provide some of the arithmetic. I have passed out a 
one-page income statement for the United States, for our 
Federal Government, over 30 years. I think that is--if you are 
going to solve a problem, you have to properly define it. When 
we keep talking about a ten-year budget window problem, I think 
we dramatically understate the problem. And, so, what I have 
been doing a lot of work with is your CBO alternate fiscal 
scenario. Rather than--that is always laid out as a percentage 
of GDP, so I have turned it into numbers, and then I have taken 
those numbers and put them onto a one-page income statement to 
highlight really what the problem is. So, I think you have got 
a copy of that income statement there now.
    Mr. Elmendorf. Yes, Senator.
    Senator Johnson. I have highlighted the areas. It is pretty 
stark. Over the next 30 years, Social Security will pay out 
$14.6 trillion more in benefits than it takes in the payroll 
tax, according to CBO. Medicare will pay out $35 trillion more 
in benefits than it takes in the payroll tax over the next 30 
years. And, then, we will pay out to our creditors $71 
trillion. That all totals up to $121 trillion. The entire 
deficit over the next 30 years is $127 trillion.
    Let me just lay out how that occurs by decade. Eight 
trillion dollars the first decade, $31 trillion the second 
decade, $88 trillion the third decade. Now, my little baby girl 
just turned 31, and I can tell you, that went by like that.
    And, just in case people think the alternate fiscal 
scenario is way out there, just way overstates the case, if you 
compare the percentage of spending to GDP versus our 20-year 
average for all the entitlements over the last 20 years, it has 
been about 8.3 percent. Over the next 30 years, according to 
this scenario, it is about 13.5, and everybody is pretty much 
in agreement in terms of the entitlements. Defense, we spent 
$3.9 trillion over the last 20 years. The CBO's alternate 
fiscal scenario says we will spend 3.5, so it is actually under 
the 20-year average. All other spending, we spent about 6.7. 
The alternate fiscal scenario is six percent.
    So, if you look at the past and project to the future, even 
your alternate fiscal scenario shows spending less than we have 
spent over the last 20 years. So, I just want you to comment 
on, is that basically your understanding of what the 30-year 
projection is according to CBO's alternate fiscal scenario?
    Mr. Elmendorf. As you understand, Senator, I cannot 
actually absorb or check all these numbers sitting here--
    Senator Johnson. No, I understand, but--
    Mr. Elmendorf. --but the thrust of your remarks, that the 
big pressure on outlays is coming from Social Security and the 
health care programs, and then because the deficit is an 
accumulating debt, interest on the debt, that is right, 
Senator.
    Senator Johnson. And, so, again, that is--again, I am not 
saying these are the numbers, but largely true. Eight trillion 
dollars the first decade, $31 trillion the second, $88 trillion 
the third, $127 trillion. Quick, put that in perspective. The 
entire net private asset base of America today, every asset 
held by every household, every business large and small, is 
about $106 trillion. So, there is a problem that is completely 
unsustainable, but when we are just focusing on a ten-year 
budget window, somewhere in the $7 to $8 trillion deficit, we 
are not even beginning to understand the real depth of the 
problem, are we?
    Mr. Elmendorf. Senator, no. I think that looking over the 
longer term is very important for you and your colleagues to 
see the real challenges, as Senator Ayotte and others have 
commented. I agree.
    Senator Johnson. So, let me focus in on Social Security, 
because you might be a little bit more familiar with those. The 
$15 trillion in Social Security over the next years, that 
actually breaks down to about $1.5 trillion the first decade, 
about $4 trillion the second decade, about $8 trillion the 
third. Now, what happens when the Social Security Trust Fund 
runs out of money? By law, what happens?
    Mr. Elmendorf. By law, then the benefits can only be paid 
up to the amount of money coming into the fund, which would be 
a good deal less than the benefits that are in current law.
    Senator Johnson. So, the Disability Trust Fund is going to 
run out, according to your current paper here, about 2017. So, 
according to current law, unless we do something, according to 
current law, how much would those benefits be reduced by, 
approximately?
    Mr. Elmendorf. I think it is around a 20 percent cut in 
Disability Insurance benefits in early fiscal year 2017, under 
current law.
    Senator Johnson. And, then, when the Trust Funds run out of 
the retirement benefits, right now, somewhere around 2033, what 
is the projection in terms of reduction--by law, the reduction 
in benefits when we run out of that Trust Fund?
    Mr. Elmendorf. Again, Senator, I think the reduction is on 
the order of about 20 percent relative to current law benefits.
    Senator Johnson. And, again, I appreciate during the 
special conferences we had last December--was it last December? 
I think so. I appreciate the fact that you were very honest in 
your assessment of the value of that Trust Fund. It is an asset 
to the--those U.S. Government bonds are assets to the Trust 
Fund, but they are a liability to the Treasury--
    Mr. Elmendorf. Yes.
    Senator Johnson. And, to consolidate the Federal books, 
that nets to zero, right?
    Mr. Elmendorf. Yes.
    Senator Johnson. So, the Trust Fund has no value to the 
Federal Government, dollar value, correct?
    Mr. Elmendorf. Yes. As you say, it has legal meaning for 
the Trust Fund, but it is--on the Federal Government, taken on 
a consolidated basis, which is the way that we focus on the 
Federal Government, then it nets out to zero.
    Senator Johnson. So, of $15 trillion, we really have 
nothing, really, in the Federal Government to pay those 
benefits even through 2033 other than that accounting, 
bookkeeping transfer from the Trust Fund to the Treasury, who 
then have to go either float more bonds or raise more taxes?
    Mr. Elmendorf. Yes, Senator. What our projection is--you 
know, what we focus on is the unified Federal budget, and the 
sources of funds for benefits in a given year is tax receipts 
in that year or borrowing. And, we show this by focusing not on 
the Trust Funds, but on the projections of outlays and 
revenues, including the ones that you used from our alternative 
scenario.
    Senator Johnson. Thank you. That helps define the problem. 
Thank you.
    Chairman Enzi. Senator Baldwin is not here. Senator Murray.
    Senator Murray. Well, thank you so much, Chairman Enzi, 
Ranking Member Sanders. Chairman Enzi, as the person who held 
that gavel last year, I wish you luck and I am looking forward 
to working with you. I also want to acknowledge my friend, 
Senator Sanders, who I always enjoy working with and who I know 
will do an excellent job on behalf of working families.
    I want to join in thanking our witness today, Dr. Doug 
Elmendorf, for joining us, and wanted also to take a minute to 
thank you for your six years of outstanding service to this 
committee and to Congress and to our country. I am especially 
grateful for the work you put in last year to help Chairman 
Ryan and I reach our two-year budget deal. You and all of your 
hardworking staff, which I really appreciate, have set a 
standard of professionalism and trust and objectivity, and I 
cannot tell you how much that meant to all of us, especially, I 
think, in the recent years when the pressure could not have 
been higher. Your work to provide us with the best information 
you could gather, free of politics or partisanship, was 
absolutely critical.
    Mr. Elmendorf. On their behalf, thank you, Senator.
    Senator Murray. Of course. And to paraphrase, actually, 
Senator Moynihan, all of us in Congress are entitled to our own 
opinions, but you made sure that we were all working off the 
same set of facts, so I really appreciate the work of you and 
all your staff.
    You know, as this committee meets today, our country is in 
a far better position than we were two years ago, if all of us 
will remember. Two years ago, Tea Party Republicans were 
pushing us from one manufactured crisis to the next and we had 
debt limit scares that were unraveling our businesses and the 
markets. We had senseless automatic across-the-board cuts that 
were set to kick in. We were headed towards a completely absurd 
and unnecessary government shutdown, and people across this 
country were really losing faith that their elected officials 
could not get anything done when it came to our budget and to 
our economy.
    But, when we finally came together at the end of last year, 
Chairman Ryan and I were finally able to work with many of you 
on this committee, and I appreciate it, to reach that two-year 
budget deal that prevented another government shutdown, 
restored critical investments in education and research and 
defense and jobs, and reduced the deficit in a balanced and 
responsible way.
    Because of that deal, we were able to pass our bipartisan 
spending bills for the last two fiscal years and work together 
on other economic priorities. Senator Isakson and I, for 
example, passed and got signed into law the bill to expand 
worker training. And, I think Congress was really able to reach 
through the gridlock and dysfunction that was so holding us 
apart and finally move us away from these constant crises that 
were hurting us and killing jobs and really hurting our 
economy.
    Now, I know we have a lot of work left to do, but I want to 
remind us that, across the country, businesses have now added 
11 million new jobs over 58 straight months of job growth. The 
unemployment rate is now under six percent and downward 
trending. The economy grew by over five percent last quarter. 
Health care costs are growing at their lowest rate in almost 50 
years. And, we have reduced the Federal budget deficit by over 
two-thirds since 2009.
    So, I am really hopeful that the new Republican Chairmen in 
the House and the Senate can now build on that bipartisan 
foundation that we set in the last two years and not let it all 
unravel. We all know Republicans control both Chambers of 
Congress now. I want them to know that Democrats are ready to 
continue to work across the aisle on our deficits, fairly and 
responsibly. And, I know on this side, our highest priority 
remains job creation and economic growth that will benefit all 
of our families, not just the wealthiest few, and I am really 
hopeful that Republicans do invite us to the table to work 
towards that goal and do not revert back to the crises of the 
past.
    So, Dr. Elmendorf, I just have a minute left, but I did 
want to ask you, we are heading towards another debt limit 
deadline. Many of us are going to fight back against any 
attempts to hold the economy hostage. I am very worried about 
that. But, I wanted you to talk just a little bit to our 
committee about the value of us in Congress working together to 
avoid those kinds of ``bad old days,'' constant manufactured 
crises. Why is that important for our economy?
    Mr. Elmendorf. Well, Senator, I think it is uncertainty 
about Federal policies, and particularly uncertainty about 
whether the Federal debt obligations will be paid in the way 
that the government has committed to, that kind of uncertainty 
can really hinder businesses' ability to plan for the future 
and to make the investments in capital equipment and to make 
the decisions to hire people that they would otherwise make. 
So, among the considerations, I think, as you and your 
colleagues consider policy changes, I think the greater 
predictability that you can provide to businesses, and also to 
households and to State and local governments, the better that 
would be for economic growth. It is very hard for economists to 
quantify that kind of effect, but we think it is there.
    Senator Murray. Yes. I think that is a good reminder to all 
of us as we head into this year and we are facing debt limit 
deadlines and sequestration that one of the things that we saw 
happen last time was the economy really halt because of the 
uncertainty. So, I think it is a cautionary note to all of us 
to work together and come together and find a path forward and 
bring that certainty back again and not go to another 
manufactured crisis.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    In the order that we have established, I want to welcome 
our newest Senator to the committee and thank him for all the 
work that he has done in the private sector at balancing 
budgets, and so you are next, Senator Perdue.
    Senator Perdue. Well, thank you, Mr. Chairman, but I would 
like to correct you on one thing. If I had ever balanced a 
budget, I would have been fired every single time. We had to 
produce a few more dollars on the positive side than the 
negative side, but thank you. I appreciate the comments so far. 
I appreciate you being here, Dr. Elmendorf.
    I was not prepared for the partisan conversation this 
morning, but let me give you another take on my perspective. We 
have got a crisis. This financial crisis, however you look at 
it, is out of control. Right now, we have the lowest workforce 
participation we have had since 1978. In the last five years 
alone, we have allowed four million women to fall into poverty. 
Two-thirds of small businesses are not hiring or have stopped 
hiring or pulled back hiring because of the Affordable Care 
Act. The middle class is worse off today than they were five 
years ago, by any measure. We have $2 trillion or more stuck in 
foreign banks because of our archaic tax system, and we have $2 
trillion on the balance sheets of the Russell 1000 that are 
stuck there because of the uncertainty coming out of this city. 
We have got a crisis.
    I just have a question, two bookkeeping issues. One, what 
is the total debt today? I understand the net debt is $13 
trillion in your numbers. Talk to me a little bit about the 
Trust Fund debt and why we do not consider that part of our 
responsibility in terms of talking about total debt that we 
eventually, over the next 30 or 40 years, have to make right.
    Mr. Elmendorf. So, the measure of debt that we focus on, 
Senator, is debt held by the public, and we focus on that 
because we look at the Federal Government on a unified basis. 
That was a concept of budgeting that began in the late 1960s. 
It predates CBO.
    Senator Perdue. When we had much lower debt, by the way.
    Mr. Elmendorf. And, by looking at the Federal Government on 
a unified basis, then financial transactions between pieces of 
the government or debts owed between pieces of the government, 
we do not give that priority to. So, in our analysis, we look 
at the total outlays of the Federal Government, the total 
revenues of the Federal Government, and the amount the Federal 
Government has to borrow from the public to fill the gap 
between outlays and revenues. So, we focus on Federal debt held 
by the public, but we also do projections of and report to you 
other concepts of debt, including debt held by the public minus 
financial assets held by the government and gross debt and debt 
subject to limit, which is quite close to gross debt.
    Senator Perdue. So, the 229 interest payment we have this 
year, what would be the total interest if we were paying the 
Trust Fund?
    Mr. Elmendorf. Well, so, as you know, the Trust Fund is 
paid interest. I think our report may have that number, but I 
do not know it offhand. I think about $430 billion.
    Senator Perdue. So, the $18 trillion, which is the current 
gross debt, grows to about $27 trillion, I think, which is 
about--
    Mr. Elmendorf. Yes.
    Senator Perdue. --it is growing at about the rate the GDP 
is growing over the next ten years. I think that is right.
    Mr. Elmendorf. A little faster, I think.
    Senator Perdue. Okay. So, the question then is, if today 
our interest rates were at a historical average, between five 
and six percent, today, we would be paying, by my math, over a 
trillion dollars of interest, and that is just not sustainable. 
So, I would encourage the committee to look at the total 
responsibility we have to our taxpayers in terms of the total 
payment over the next 30 years.
    The second one is I want to talk about the baseline just a 
second. I understand the baseline budgeting process, but that 
works on the assumption that everything we spent last year is 
going to get spent unless there is a cut coming that has 
already been adjudicated, is that correct?
    Mr. Elmendorf. So, our baseline projections mostly follow 
current law, but there are some specific directions to us that 
are written into the Budget Act of 1985.
    Senator Perdue. I am sorry. It is law and not policy, 
right? It is the law that--
    Mr. Elmendorf. It is current law. Again, there are some 
particular exceptions that are dictated to us by other laws in 
constructing the baseline projections. But, it is generally 
current law. So, if a tax provision is scheduled to expire, 
then our projections, in general, have that expiring.
    Senator Perdue. I get nervous when people with numbers talk 
about ``in general,'' so we will have a one-on-one--
    Mr. Elmendorf. I am happy to run some of the--
    Senator Perdue. I know you will. We just do not have time 
now to get into it.
    Is there a possibility, eventually, and what would we have 
to do in this baselining process to actually go in and do a 
zero-based look at this?
    Mr. Elmendorf. It depends what you mean by that, Senator. 
So, we build up our projections piece by piece, and you can--we 
can try to explain to you where those numbers come from, 
starting from zero. I mean, and if you think about 
appropriations, for example, current law has no appropriations 
for fiscal year 2016. That has not happened yet. But, our 
baseline takes the level of funding under the caps. But, the 
Congress, when it thinks about appropriations, I think you and 
your colleagues mostly think about them starting from zero and 
you decide how much you want to provide to something or 
something else. And, I know when CBO makes its own budget 
request to the appropriators, we try to defend the entire $47 
million, starting from zero, and the Appropriations Committee 
can do as it sees fit.
    Senator Perdue. Thank you. I have ten seconds left, so, 
just, is it possible for us to get what Senator Johnson was 
talking about, a good look at years 11 through 30 on Social 
Security, Medicare future liabilities, unfunded liabilities 
with Social Security, Medicare, and pension benefits for 
Federal employees? You make a rough estimate, I know, but can 
we get a good look at that?
    Mr. Elmendorf. Yes, Senator. So, we will send you right 
away our last long-term budget outlook, and then we are happy 
to answer questions about it.
    Senator Perdue. Great. Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator Merkley.
    Senator Merkley. Thank you, Mr. Chair, and I add my 
congratulations on your stewardship of this committee. I look 
forward to working with you and to addressing these big issues.
    If we turn to the Appendix and look at the flow of revenues 
and outlays going back through 1965 up through last year, what 
we see is a substantial and dramatic change. In the year 2000, 
we were running a $2.5 billion surplus, or two-and-a-half--yes. 
And--if I have those numbers right. And, then, we are seeing, 
basically, a big change throughout the eight years that follow, 
and it has often been talked about that the impact of the war 
in Afghanistan and the war in Iraq were big factors, but also 
the cuts that were made in basic core tax rates, often 
benefitting those who are above the middle class in a very 
generous manner. And, now, we are seeing a substantial increase 
in inequality in this country.
    Have you taken and analyzed the impact of the Bush tax cut 
rates on those earning more than $100,000 and their 
contribution to the deficits from year to year and the overall 
debt, and could you give us a little bit of insight on that?
    Mr. Elmendorf. Yes, Senator. So, we have published--it is 
available on our website--the changes in CBO's projections of 
the budget surplus from January 2001 through the current day, 
so for the ten-year window that we were making projections for 
in January 2001. We had projected a surplus at that time over 
the ten years of about $5.5 trillion. The outcomes were a 
deficit of about $6 trillion, so that is a swing of more than 
$11 trillion. About $2 trillion of that is attributable to the 
tax cuts of 2001 and 2003, and then to the extension of those 
cuts in 2010. There was a very large effect of higher 
discretionary spending, and Senator Sanders raised the issue 
earlier about the--and you have--about the spending for the 
wars, and there are other changes in law, and also, of course, 
some errors on our part in projecting the economic conditions 
and technical factors.
    Senator Merkley. Certainly, and those errors can swing 
either direction. But, essentially, that $10 trillion swing was 
the result of key policy decisions, not all of it to the tax 
rates, but a substantial amount.
    If we turn to the issue of health care, and there have been 
several folks who have noted the challenge of the public costs 
of health care, there is also a shift from private costs to 
public costs under the current rules. If we take health care as 
a whole, what are we seeing in terms of core inflation and how 
does that compare, say, to five years ago?
    Mr. Elmendorf. So, total national health care spending has 
been growing much more slowly of late than it had before that, 
and we can see that in both the private sector and in the 
Federal programs.
    Senator Merkley. And, is it accurate to say it is at a 
lower rate now than it has been over, say, the previous 25 
years?
    Mr. Elmendorf. I think that is right, Senator, but I am not 
completely--
    Senator Merkley. Let me turn to college loans. Many of us 
are very concerned about college loans being a source of profit 
to the government, and in your book here, it is laid out as a 
current source of positive revenue, but that may not capture 
the full impact. That may be one year's slice versus an overall 
picture of a loan portfolio. As you analyze a loan portfolio 
and the likelihood of defaults and the interest rates, does it 
come out as a source of profit to the Federal Government?
    Mr. Elmendorf. Well, Senator, under the rules of the 
Federal Credit Reform Act in 1990, we make projections of the 
cost of a loan issued in a given year as the present discounted 
value of all the future flows. And, what we have said, though, 
and maybe this is what you are alluding to, is that we do not 
think that that provides a comprehensive measure of cost, not 
because it does not capture the future effects, but because it 
does not incorporate a cost of the risk the government has 
taken on. But, the baseline projections follow, of course, the 
law established under the Federal Credit Reform Act, and under 
that law, a number of loan programs.
    Chairman Enzi. Senator Portman.
    Senator Portman. Thank you, Mr. Chairman, and to Dr. 
Elmendorf, thank you for being here and for your service. You 
have got a tough job and I appreciate what you do.
    I have been on the Budget Committee in the House and OMB 
Director, and I do not think I have ever been at a hearing 
where we have had kind of more misinformation out there. So, I 
was not going to do this, but I am going to start by asking you 
whether I am correct in this. I have sat here this morning and 
heard how we have got this huge problem that you just outlined. 
By the way, I stayed up and watched you on C-SPAN the night 
before last. That is how boring my life is.
    [Laughter.]
    Mr. Elmendorf. I am sorry, Senator.
    [Laughter.]
    Senator Portman. Where you presented this, and you might 
have thought it would have put me to sleep, but, in fact, it 
kept me up because it was so troubling. We are talking about 
unprecedented levels of debt and deficits. You know, we are 
taking our country into a situation where we are going to have 
a debt as a percent of our economy, as you outlined today and 
as you reported on this, that is unprecedented. We have never 
been there before.
    And, we are sitting here this morning talking about how we 
can spend more and how, gosh, we cannot touch anything. If we 
do not touch anything, we are going to have a devastating 
impact on the people I represent, those middle class families 
that everybody says they care so much about. They are going to 
have about $160,000 a family in debt. That will be the amount 
of debt attributable to them. That is just wrong.
    So, everybody is talking today about, okay, we have got 
this big problem, now what do we do about it. Let us look back 
at what happened. How did we get into this problem? And, so, 
everybody has said, including the most recent speaker, my 
friend, Mr. Merkley, he said, I would like you--he said he is 
glad that you affirmed, and I would quote, ``that the very 
significant impact on the deficit was tax cuts for the rich.'' 
Okay, let us talk about that.
    By the way, these tax cuts were supposed to stimulate 
economic growth. That was the idea. It increases savings and 
investment, including capital gains cuts. But, you are on 
report--I looked at it, I got it out earlier today--when 
everybody was saying, it is all about tax cuts for the rich, 
that is how we got into this deficit, this is your June 2012 
report, which I assume you still stand by. This is what I get 
out of that.
    The difference between the projection in 2000 as to what 
the surplus was going to be and where we ended up, you say 27 
percent of that difference was because of the economy, 
basically, the market crash. You say 22 percent was because of 
other spending increases. Net interest was 12 percent. The 
stimulus rebates, AMT patch, ten percent.
    And then you get down to the wars. People talked about the 
wars. Well, it is all about the wars. Look, we did spend more 
on our military and our homeland security after 9/11. That was 
11 percent of it. So, that was not the reason. Yes, it was part 
of the reason, and we can argue that, you know, whether we are 
spending enough on defense or not. I am one who believes there 
is a lot of waste at the Pentagon and there is room to do more 
there, even. But, the fact is, we made a decision as a country 
to respond to those horrific events.
    People said, well, it is because we did not pay for Part D. 
That was three percent of it. And, for those who do not want 
prescription drug coverage for our seniors, that is fine. You 
can say you do not want Part D. You can say, well, we should 
have had it, but it should have been paid for. We can have that 
discussion, but it is three percent.
    Tax cuts, all the tax cuts, you say--and, this is your 
report, okay, this is not me or some partisan potshot--14 
percent of the difference. Fourteen percent. And, by the way, 
tax cuts for the rich--they have been talked about today again 
and again as the reason--how much was that, Mr. Elmendorf?
    Mr. Elmendorf. I am sorry, the tax--
    Senator Portman. Tax cuts for those over 250,000 bucks a 
year.
    Mr. Elmendorf. Right. So, the table shows--
    Senator Portman. It is four percent.
    Mr. Elmendorf. The table shows--
    Senator Portman. Four percent.
    Mr. Elmendorf. The point I made--
    Senator Portman. Four percent.
    Mr. Elmendorf. --was about the--I referred to the tax cuts 
of 2001 and 2003 and their extension in 2010. I do not have it 
in hand and this table does not show the breakdown by income, 
but I assume you have gone back to an original estimate from 
the Joint Tax Committee or something. I do not have that--
    Senator Portman. It is about four percent. And, so--and we 
can argue about that. I would guess that of that four percent, 
there was an economic benefit that exceeded that. That is my 
sense. And, I do not know if you have done that analysis. I 
know you have the ability to look at macroeconomic scoring and 
you do that. Do you have any comment on that?
    Mr. Elmendorf. We have not done that for those tax cuts, to 
my knowledge, Senator.
    Senator Portman. But, if you assume they had any benefit at 
all to the economy, including savings and investment we talked 
about and the reasons it was done, I mean, as you know, after 
all those tax cuts, the percentage that people were paying at 
the top and the burden of taxation increased, not decreased. We 
did a lot of things, including taking about five million people 
off the tax rolls altogether, middle class families and 
families that, frankly, today, even today, need a break. I 
totally agree. I mean, this economy has created a situation 
where wages are not just stagnant, they are going down, and 
where you have the rich are getting richer. That is not good. 
But, to blame it on those tax cuts is just not accurate. Do you 
agree, Dr. Elmendorf?
    Mr. Elmendorf. Well, Senator, as you have explained at 
greater length than I did, there are a lot of contributing 
factors, and we provide the information so that you and your 
colleagues can draw the conclusions you would draw from them. 
It is up to all of you to decide which of these policies you 
think were good ones and which ones you would like to do 
differently in the future. I cannot speak to that.
    But, we did provide this decomposition, and as you said, 
there were a lot of different factors. It was mistakes on our 
part and the economic and technical aspects of the projections. 
It was the effect of the tax cuts of 2001 and 2003. It was the 
effect of higher discretionary spending, partly for defense, 
but not entirely for defense. It was the effect of a lot of 
other changes.
    Senator Portman. I appreciate you providing us whatever 
update you have on that, but I appreciate you also affirming 
the numbers that I gave, because those are consistent with your 
study of this issue. And, look, I totally agree with what 
Senator King said earlier, and Senator King talked about what 
we need to do going forward. Senator Corker, I thought, laid it 
out really well. You know, we have got to figure out how to 
work together as Republicans and Democrats to avoid this coming 
catastrophe.
    You know, sitting right where you are, we had Erskine 
Bowles a couple of years ago at this committee, and he made the 
statement that is one that I always will remember, which is 
this is the most predictable economic crisis we have ever 
faced, if we do not do something about it. You laid that out 
earlier, that it has an impact on today's economy because it 
crowds out other investment and savings. That hurts middle 
class families in America right now, to have this huge and 
growing debt, and, obviously, the interest payments that 
everyone has talked about that they want to try to avoid.
    You also said that this is an issue that does create a risk 
for us, and the risk is that we will have another crisis, and 
that risk is not one that I, personally, think that we ought to 
put our people that we represent through. Instead, we ought to 
deal with this issue and do it in a responsible way.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Kaine.
    Senator Kaine. Thank you, Mr. Chairman, and to Chairman 
Enzi and Senator Sanders, I have high hopes for the committee. 
I look forward to our work together.
    And, Dr. Elmendorf, great job. It is good to have you back 
before us today.
    Mr. Elmendorf. Thank you.
    Senator Kaine. So, you gave us a lot of material, and we 
are all focusing on the things that we are interested in. 
Budgets say a lot about what our priorities are. Sometimes 
our--well, always, our budgets speak more loudly than our words 
in terms of what our priorities are. And, the way I look at our 
priorities, based on your testimony, is essentially this.
    Expenditures as a percentage of GDP, so in 2015, we are 
spending 1.3 percent of GDP on interest payments. That is going 
to increase. We are spending 3.2 percent of GDP on defense. 
That is on a downward path. We are spending 3.3 percent on non-
defense discretionary. That is on a steeper downward path. We 
are spending 4.9 percent of GDP on Social Security. That is on 
an upward path. We are spending 5.1 percent on other Federal 
health care kind of combined programs. That is on an upward 
path. But, the largest expenditure item is tax expenditures, 
and that is 8.1 percent of GDP, and that is also likely on an 
upward path.
    Now, of course, tax expenditures do some good things, just 
like Social Security is good, just like Federal health care 
expenditures are good, or defense or non-defense discretionary. 
But, it is just my hope as we grapple with this budgetary 
challenge that we do not grapple with everything except the 
largest item of expenditures, which is tax expenditures.
    Dr. Elmendorf, there are proposals that have been 
introduced by members of this committee and others to move 
Federal budgeting to a two-year budgeting cycle. I do not know 
if this question was asked before I came in, but you spoke 
briefly about the values of certainty. Would it, in your view, 
be good for the economy if we budgeted on a two-year cycle?
    Mr. Elmendorf. I am not sure, Senator. That is a fair 
question. I do not--we have not thought hard about what the 
answer to that would be. I think it is--as I said, I think 
predictability is a good thing. Whether the two-year budget 
cycle would be a lot more predictable than a one-year cycle 
would depend a bit on how well the Congress actually resolved 
appropriations by the beginning of each of the fiscal years 
when it would have to do that.
    And, I think, from your point of view, the other side of 
the predictability is whether you and your colleagues would 
regret not having an annual opportunity to shift direction of 
various programs and agencies, and we are not in a position to 
judge that, either.
    Senator Kaine. I think there are bills now that have a two-
year budget cycle with one-year appropriations, sort of six of 
the functional areas of government in one year and six in the 
next year so there are continuous appropriations and oversight. 
But, I will take your answer as you have indicated.
    What would the impact on GDP be, generally, of immigration 
reform or trade deals of the kind that are being discussed by 
the administration now, or a major decision by Congress to do 
an infrastructure investment bill?
    Mr. Elmendorf. So, on immigration reform, as you know, 
Senator, we did a careful analysis of the comprehensive 
immigration bill that the Senate took up in 2013 and we thought 
that bill would boost the output of the economy, partly by 
having more people here working, but also over time because 
those additional people would lead to additional capital 
investment and somewhat faster--slightly faster productivity 
growth.
    On infrastructure investment, an increase in government 
investment in physical infrastructure or in human capital or in 
research and development would, all else equal, lead to a 
stronger economy over time. The ``all else equal'' part is 
important, because if one borrows the money to do that 
investment, then that borrowing has a cost itself. So, it would 
depend how that investment was financed.
    And, I am sorry, the--
    Senator Kaine. And trade.
    Mr. Elmendorf. And trade. So, we have not done an analysis 
of the specific trade bills that are being discussed today. As 
a general matter, economists usually conclude that freer 
international trade is good for the overall U.S. economy, 
although not necessarily good for every individual in the 
economy, and even that overall result could be different for 
specific bills, and we just have not looked at the ones that 
are being discussed now.
    Senator Kaine. And then a last question, Dr. Elmendorf, my 
understanding of the CBO's projections is you do not factor 
into future projections any sort of increased expenditures that 
might be necessitated by climate change, is that correct?
    Mr. Elmendorf. We do not specifically incorporate them, 
Senator. We were asked this question--I was asked this question 
at a hearing last year. In an answer to the question for the 
record, we talked a bit about what consequences climate change 
would have. We have done work before on the possible effects on 
the U.S. economy, and then there could be effects on the budget 
through that. It is hard to--in most estimates of the effects 
of climate change on the U.S. economy suggest changes that are 
fairly small relative to the underlying economic growth and 
very small relative to the uncertainty about how big the 
economy will be in ten or 20 or 30 or 40 or 50 years. 
Obviously, for some other countries that are much more 
vulnerable, the effects could be proportionately larger for 
them.
    In terms of the effects on the budget, there is also the 
question about what you and your colleagues might appropriate 
funds to address, but we do not really take that on board in 
our projections in any sense. We take a level of funding that 
you all have agreed to recently and we grow that out according 
to certain algorithms without trying to identify exactly what 
you might choose to spend money on or not spend money on in the 
future.
    Senator Kaine. Thank you. Thank you, Mr. Chairman.
    Chairman Enzi. Thank you, and I want to thank Senator 
Corker, as one of the new members, for being here for the 
entire hearing. I know that he is very busy because he is the 
Chairman of Foreign Relations, as well, and I appreciate your 
participation.
    I would mention that Senator Grassley and Senator Sessions 
are not here because they are on the Judiciary Committee and 
the Judiciary Committee is doing the hearing for the Attorney 
General. The Finance Committee was also meeting, and that is 
where Senator Toomey is and where Senator Portman was for part 
of the discussion.
    Dr. Elmendorf, I want to thank you for your testimony 
today, and for your answers to our questions. They are very 
concise and give people a lot more opportunity with their time 
than we are used to. I want to thank you for your 
professionalism as you served in this job and your economic 
forecasting and your management of 235 people. It is pretty 
amazing, with all the reports that we call on for you to do.
    As information, all Senators' questions for the record are 
due by 6:00 p.m. today, with hard copy delivered to the 
Committee Clerk in Dirksen 624. Under our rules, Dr. Elmendorf 
will have seven days from receipt of the questions to respond 
with answers.
    If there is no further business, the hearing is adjourned.
    Mr. Elmendorf. Thank you.
    [Whereupon, at 11:51 a.m., the committee was adjourned.]
    
    
    
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            THE PRESIDENT'S FISCAL YEAR 2016 BUDGET PROPOSAL

                              ----------                     

                       TUESDAY, FEBRUARY 3, 2015

                              United States Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:03 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Mike Enzi, 
chairman of the committee, presiding.
    Present: Senators Enzi, Grassley, Sessions, Crapo, Graham, 
Portman, Toomey, Johnson, Ayotte, Corker, Perdue, Sanders, 
Wyden, Stabenow, Whitehouse, Warner, Merkley, Baldwin, King, 
and Kaine.
    Staff Present: Eric M. Ueland, Republican Staff Director; 
and Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning. I will call this hearing to 
order.
    Today, we have the testimony from OMB Director Shaun 
Donovan of the President's budget plan for the upcoming 2016 
fiscal year.
    When it comes to the budget, we all know that we have lived 
for too many years with too many blown deadlines, failed 
submissions, heightened crises, and last-second deals. 
Together, both parties, both chambers, and both ends of 
Pennsylvania Avenue have allowed this way of doing business to 
become the new normal for how we operate. It is long past time 
to restore regular order to our budget process, and that begins 
with following the budget timeline laid out in the law.
    Yesterday, after six years, the President's budget was 
released on time. My congratulations to Mr. Donovan, who headed 
up that effort. I appreciate the work you and your team did to 
make that happen. Being on time is a first small step toward 
restoring regular order on the budget and it can help our 
constituents understand a little better what is happening in 
Washington.
    However, our constituents also understand these truths. I 
know it from traveling Wyoming and visiting with people and 
visiting with people around the country. They think we spend 
too much. They think we tax too much. They think we regulate 
too much, that we borrow too much, and their biggest worry is 
that we owe too much.
    Every year since the President took office, he has proposed 
the same approach to the fiscal challenge facing our 
government. He wants to spend more. He wants to tax more. He 
wants to regulate more. He wants to borrow more. And, he wants 
us to owe more and more and more and more. His plans always end 
up with the Americans holding the tab, stuck with the deficits 
and debt as far as the eye can see. And, incidentally, I do not 
like that word ``deficit.'' It gets confused with debt. Deficit 
is our overspending.
    I promised at our first hearing that I would follow the 
numbers, look at the President's budget, and here is what those 
numbers show. First, the tax man cometh. Under the President's 
proposal, taxes head higher, a total of two-and-one-tenths 
trillion dollars higher. This boost comes on top of the one-
and-seven-tenths trillion in taxes he has already imposed 
during his Presidency, and I can tell you that nothing good for 
individuals ever comes from three-and-eight-tenths trillion 
dollars in additional taxes.
    Next, spending explodes. The President wants to add $259 
billion of new spending in the next fiscal year and two-and-
four-tenths trillion over the next ten years. That is a 65 
percent increase in ten years. Let us see. Two-and-one-tenths 
trillion in higher taxes, two-and-four-tenths trillion in 
higher spending. That is still overspending. The President 
hides what he is doing when he talks about reducing the 
deficit. It sounds like the debt will go down. No, the deficit 
is the overspending that we do.
    Did you ever hear of someone being able to buy something 
with the interest they saved? So, the interest payments 
skyrocket. Annual interest costs would more than triple, from 
$229 billion today to $785 billion in 2025, and I think that is 
at a pretty conservative interest rate. Interest remains the 
fastest growing item in the budget, but provides little in the 
way of benefit for our constituents. Did you ever hear of 
anybody being able to spend the interest that they have to pay? 
At the end of his plan, annual interest costs would be larger 
than the President's proposed spending for national defense, 
Medicaid, or the combined total of all non-defense agency 
spending.
    Finally, the President's plan adds $8.5 trillion to the 
debt. Over the next ten years, cumulative overspending would 
amount to five-and-seven-tenths trillion in new debt, with the 
Federal debt climbing to $26.3 trillion in 2025. Based on 
projected population figures, this would mean every man, woman, 
and child in America would owe almost $76,000 in payments on 
President Obama's debt. That is compared to $56,000 per person 
today. That is $20,000 per person more that everybody in 
America is going to owe. I mean, the child that is born today 
gets figured into that same cost, that same debt.
    Altogether, these were not the numbers I was looking for. I 
meant it when I said last week that we must confront spending. 
Bring the overspending to an end and ultimately balance the 
budget. The President's proposal fails on all three elements of 
the mission. I will listen to the administration make its case 
on why it is best to ignore balancing the budget, but with 24 
States already agreeing that the solution is to gather together 
to write a balanced budget requirement into our Constitution 
and with more States thinking about it, this is a mission we do 
not dare duck. Yes, 24 States have already passed a 
Constitutional Convention to balance the budget. More than ten 
others are in the process of passing that same one. Twenty-four 
plus ten is 34. That is enough to have a Constitutional 
Convention and force us to do it.
    We also cannot fail our constituents. Our nation needs a 
larger and more successful middle class, not a larger, more 
intrusive and fiscally foolish Federal Government. The latest 
quarterly GDP figures released Friday--and I do not think GDP 
really means much to the rest of the nation, what they are 
interested in is how much we take in and how much we spend and 
how much more debt that results in--but, the latest quarterly 
GDP figures released Friday demonstrate firmly that in the 
United States, more Federal spending, more Federal 
overspending, called deficits more interest costs and more debt 
do not yield a robust economy.
    Our economy still bobs in the backwater of too slow growth 
while jobless rate edges down and equity markets head up. The 
number of people who are underemployed or have abandoned 
looking for work continues to be too high. As Senator Sanders 
says, we have a deficit of employment. Wages are stagnant. 
Household wealth has collapsed. Too many worry that the 
American dream is no longer theirs and will not be there for 
their children and grandchildren. Failure of our economy to 
recover is the President's record over the last six years. He 
has left too many Americans behind.
    But, in looking ahead, families and individuals need a 
Federal Government with a fiscal plan that helps create the 
climate for good jobs and good wages. Americans need to have 
confidence that there is work to be had, jobs to be found, and 
paychecks to be earned. Most importantly, they need to know 
that a strong and successful future is theirs again all around 
the country.
    It is not too late for the President to join us in making 
the future brighter by submitting a new plan that does not 
mortgage our future to pay for the present. If the President 
changes course, we can work together to ensure that Americans 
have the strongest possible economy, so competition to hire 
employees drives up wages and benefits, so that we have a solid 
economy and an economy in government.
    I said that people do not understand the GDP. They do 
understand spending more than we take in. We maxed out our 
credit cards. We do not have a mortgage payment. Maybe we 
should have a mortgage payment where we monthly pay down some 
of our debt and then use the interest we save to pay down even 
more. That is how people buy houses. I looked at the numbers on 
that. There is no possibility of that at the present time.
    We keep coming up with brilliant ideas for new ways to 
spend to fill in gaps in gifts that we have not been giving. We 
do not really take a look at what we already have and need to 
weed out things that do not work. We pretend everything we do 
is perfection, and with guilty conscience, we try to do more. 
Instead, we should be doing better.
    We have over 250 programs that are no longer in 
authorization, but we continue to spend the money on them, even 
though we do not look at them to see what they do and how they 
operate and what they should be doing and if they even ought to 
exist anymore. That means we have exceeded the time that we 
guaranteed we would pay for them. Last year, we had to vote on 
eleven-hundred billion dollars in spending. I prefer to say 
``eleven-hundred billion''--I think it is more honest than one-
and-one-tenths trillion. We spent $468 billion more than the 
eleven-hundred billion. If you overspend what you can control 
by almost 50 percent, are we not buying like it was a 
department store sale? Colleagues, that is the sort of change 
that Americans really believe in.
    Senator Sanders.

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Mr. Chairman, thank you very much.
    The good news is that our country has made substantial 
economic progress over the last six years since President Bush 
left office. Instead of losing 800,000 jobs a month, as we were 
during the final months of the Bush administration, we are now 
creating some 250,000 jobs a month and are seeing steady job 
growth over the last 58 months. Instead of having a record-
breaking $1.4 trillion deficit, as we did when President Bush 
left office in January 2009, the Federal deficit has been cut 
by more than two-thirds. Six years ago, the world's financial 
system was on the verge of collapse. Today, that is certainly 
not the case.
    While we can be proud of what we have accomplished in the 
last six years, one would be very wrong not to appreciate that 
there is also a lot of very bad news in our economy, especially 
for working families. Most significantly, the simple truth is 
that the 40-year decline of the American middle class 
continues. Real unemployment is not 5.6 percent, it is 11.2 
percent if one includes people who have given up looking for 
work or people who are working part-time when they want to work 
full-time. We do not talk about this issue, but youth 
unemployment today is close to 17 percent, and African American 
youth unemployment is over 30 percent. Real median family 
income has declined by nearly $5,000 since 1999.
    Incredibly, and I ask my colleagues to listen to this, 
despite huge increases in productivity, the median male worker, 
that man right in the middle of the economy, now earns $783 
less than he did 42 years ago, after adjusting for inflation. 
The median female worker now makes $1,300 less than she did in 
2007. Shamefully, we continue to have, by far, the highest rate 
of childhood poverty of any major country on earth.
    In the midst of this tragic decline of America's middle 
class, there is another reality, and this is the main point I 
want to make this morning, and that is that the wealthiest 
people and the largest corporations are doing phenomenally 
well. The result: The United States today has more income and 
wealth inequality than at any time since the Great Depression. 
Today, incredibly, the top one percent own almost as much 
wealth as the bottom 90 percent. Let me repeat that, because I 
think what Senator Enzi was talking about has got to be put 
into the broad context, and that is that the top one-tenth of 
one percent today own almost as much wealth as the bottom 90 
percent. Today, one family, the Walton family of Walmart, owns 
more wealth than the bottom 40 percent of the American people, 
some 120 million Americans.
    In terms of income, what we have seen in recent years is 
that virtually all new income is going to the top one percent. 
Last year, the 25 top hedge fund managers earned more income 
than 425,000 public school teachers, and that gap between the 
very, very rich and everyone else grows wider. The fact of the 
matter is that over the past 40 years, we have witnessed an 
enormous transfer of wealth from the middle class to the top 
one percent. In other words, we are witnessing the Robin Hood 
principle in reverse. We are taking from working people and the 
poor and giving to the very, very wealthy.
    From 1985 to 2013, the share of the nation's wealth going 
to the middle class has gone down from 36 percent to less than 
23 percent. If the middle class had simply maintained the same 
share of our nation's wealth as it did 30 years ago, it would 
have $10.7 trillion more in cumulative wealth than it does 
today.
    While the middle class continues to shrink, while millions 
of Americans are working longer hours for low wages, while 
young people cannot afford to go to college, while children in 
America go hungry, we have seen since 2009 that the top one 
percent has experienced an $11.5 trillion increase in wealth.
    Mr. Chairman, what we are talking about is not just a moral 
issue, it is an economic issue. Seventy percent of our economy 
is based on consumer spending, and when working people do not 
have disposable income, when they are not out buying goods and 
products, we are not creating the jobs that we need.
    The debate that we are having this morning will have a 
profound impact on the lives of the American people. Many of my 
Republican friends are in favor of cutting Social Security, 
cutting Medicare, cutting Medicaid, cutting nutrition programs 
for kids, while providing huge tax breaks for millionaires and 
billionaires. That is their idea of moving the economy forward. 
In my view, on the other hand, if we are serious about 
rebuilding the disappearing middle class, reducing income and 
wealth inequality, and strengthening Social Security, Medicare, 
and Medicaid, we need a budget that creates millions of jobs, 
raises wages, makes college affordable, and demands that the 
wealthiest people start paying their fair share.
    In all of these matters, the President's budget begins to 
move us in the right direction. At a time when almost all of 
the new income gains go to the top one percent and when 
corporate profits are at an all-time high, the President's 
effort to end egregious tax loopholes that benefit the wealthy 
and large corporations while providing tax breaks for working 
families is exactly the right thing to do. At a time when real 
unemployment is over 11 percent, the idea of increasing 
substantially investment in our infrastructure and creating 
hundreds of thousands of jobs is the right thing to do. At a 
time when 20 percent of our kids are living in poverty, the 
President's budget triples the Child Care Tax Credit to $3,000 
per child and makes an additional billion dollars' investment 
in Head Start exactly the right thing to do. At a time when 
more Americans are unable to go to college, the President 
proposes the first two years of community college to be free, 
that is exactly the right thing to do.
    Let me conclude, Mr. Chairman, by saying this. If we are 
serious about figuring out exactly how we are going to pay for 
what this country needs, we might want to take a hard look at 
why major corporation after major corporation in some years 
pays absolutely zero in taxes. From 2008 to 2013, General 
Electric made nearly $34 billion in profit in the United 
States. Not only did it pay nothing in Federal income taxes, it 
received a tax break of nearly--a tax rebate of nearly $3 
billion, and the list goes on and on and on.
    There is a lot to be done. Our job is to protect the middle 
class. Let us get to work doing that.
    Chairman Enzi. Thank you, Senator Sanders.
    Our witness this morning is Shaun Donovan, the 40th 
Director of the Office of Management and Budget. Prior to 
taking the role as head of OMB, Director Donovan served as 
President Obama's first Secretary of Housing and Urban 
Development. Director Donovan has a long public service career, 
both in Federal and local roles, including Commissioner of the 
New York City Department of Housing, Preservation, and 
Development, and as Acting Federal Housing Administration 
Commissioner during the transition between President Clinton 
and President Bush. His private sector experience includes work 
at the Community Preservation Corporation in New York City and 
as a Visiting Scholar at New York University. Director Donovan 
holds both Bachelor's and Master's degrees in public 
administration and architecture from Harvard.
    Director Donovan, as the architect of the administration's 
budget, we look forward to what you have to say.
    For the information of colleagues, Director Donovan will 
take about seven minutes for his opening testimony.
    Director, please begin.

   STATEMENT OF HON. SHAUN DONOVAN, DIRECTOR, U.S. OFFICE OF 
                     MANAGEMENT AND BUDGET

    Mr. Donovan. Chairman Enzi, Ranking Member Sanders, members 
of the committee, thank you for welcoming me here today to 
present the President's 2016 budget.
    To echo your comments, Mr. Chairman, when I met with so 
many of you over the summer, one of the key themes everyone 
echoed was that we needed to get our budget process back into 
regular order, and I truly hope that this on-time budget that I 
am presenting today is the first step toward that regular 
order.
    The budget comes on the heels of a breakthrough year for 
America and builds on our fiscal and economic progress, 
including the fastest job growth since the 1990s and the 
fastest sustained period of deficit reduction in 60 years. The 
budget is a blueprint for the President's vision for middle 
class economics in the 21st century. This means helping working 
families by making their paychecks go further, preparing 
Americans to earn higher wages, and making America the place 
where businesses decide to innovate, grow, and create good, 
high-paying jobs.
    The budget shows that we do not have to choose between 
investing in the middle class and being fiscally responsible. 
First, because we cannot afford a return to mindless austerity, 
the budget proposes to end sequestration, fully reversing it 
for domestic priorities in 2016, matched by equal dollar 
increases for defense. By replacing sequestration with a 
combination of smart spending cuts, program integrity measures, 
and common sense loophole closers, the budget makes room for 
investments in our economy and our national security.
    For example, on the domestic side, where sequestration 
would cut R&D to its lowest level since 2002, adjusted for 
inflation, the budget supports cutting edge research like 
precision medicine, efforts to combat antibiotic resistance, 
and the BRAIN Initiative, which is helping to revolutionize our 
understanding of the human brain.
    Likewise, rather than cutting inflation-adjusted national 
security funding to the lowest level since 2006, the budget 
makes responsible investments to protect our national security, 
restoring readiness and the investment in modernization needed 
to ensure America's continued technological edge.
    I want to emphasize that every investment in the budget, 
including both the discretionary investments made possible by 
reversing sequestration and mandatory and tax changes, are more 
than paid for through spending or tax reforms. For example, the 
budget would provide new and expanded tax credits for middle 
class families and would more than pay for these investments by 
reforming capital gains taxation and making it more costly for 
the biggest financial firms to finance their activities with 
excessive borrowing.
    It also uses one-time revenues from pro-growth business tax 
reform to pay for an ambitious six-year surface transportation 
proposal that will give States and localities the certainty 
they need to invest in infrastructure that will spur innovation 
and accelerate job growth.
    Meanwhile, the budget also achieves $1.8 trillion in 
deficit reduction, primarily by focusing on the key drivers of 
our budget challenges, health care cost growth and inadequate 
revenue levels in the face of an aging population. Building on 
the historically slow rates of health care cost growth in 
recent years that have already significantly improved our 
fiscal outlook, the budget includes roughly $400 billion in 
health savings which grow significantly over time, raising 
about $1 trillion in the second decade.
    The budget also raises about $640 billion in net revenue 
for deficit reduction from curbing inefficient high-income tax 
expenditures.
    And, this year's budget again reflects the President's 
support for common sense comprehensive immigration reform along 
the lines of the bipartisan Senate-passed bill. Immigration 
reform would reduce deficits by almost $1 trillion over two 
decades while strengthening Social Security and growing the 
economy.
    As a result of these measures, the budget maintains 
deficits well below the 40-year historical average during every 
year of the budget window. It meets the key test of fiscal 
sustainability, putting debt as a share of the economy on a 
downward path, showing that investments in accelerating growth 
and a strong middle class are compatible with strengthening the 
nation's finances. And, to ensure that our country remains 
strong and prosperous both now and in the future, it makes 
smart investments to give every American the chance to 
contribute to and share in the benefits of growth.
    I look forward to working with Congress and this committee 
in the coming months. Thank you, and I would be glad to take 
your questions.
    [The prepared statement of Mr. Donovan follows:]
    
    
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
    
    
    
    Chairman Enzi. Wow. You did not even come close to seven 
minutes.
    Mr. Donovan. I think I have come under my budgeted time.
    [Laughter.]
    Chairman Enzi. We do appreciate that. Now, we will turn to 
questions.
    Last week, when CBO Director Elmendorf testified, he did a 
good job of simply answering the questions asked by Senators so 
that members on both sides had more questions that they could 
ask and get answers. I hope you will follow that model this 
morning, Director, so that we can all have as much asked and 
answered as possible.
    As a reminder, I will alternate recognition between 
Republican and Democratic Senators, following seniority for 
those who were here when the hearing was gaveled to order. 
After that, I will recognize members based on order of arrival. 
If you are not here when your name is called, I will skip you 
but pencil you in at the end of the question list to be 
recognized after everyone who was in attendance at the gavel 
has the opportunity to ask Director Donovan questions.
    With that, Director, I will begin with my first question. 
You testified that stabilizing the debt as a share of the 
economy and putting it on a declining path is a key test of 
fiscal sustainability. But, debt still goes up every year in 
the President's budget in dollar terms and shows little 
movement as a share of the economy. And, again, that is GDP, 
and I do not think people understand GDP. They do understand 
that we spend more than we take in, even though we are getting 
record revenue. So, why is it a sufficient goal to merely tread 
water on debt as a share of GDP?
    Mr. Donovan. First of all, Senator, I think as any family 
would look at it, their finances are based on what they earn, 
and a key measure of what this country earns--
    Chairman Enzi. Please turn your microphone on.
    Mr. Donovan. I am sorry. Thank you. I apologize. I think, 
like any family in America, the key way they think about their 
finances is based on what they earn, and so GDP is really the 
measure of what this country earns. It is the size of our 
economy. And, most economists on both sides of the aisle really 
think of looking at these numbers as a share of GDP as the 
correct measures.
    The other point I would make is that, as Director Elmendorf 
no doubt testified, under current projections under current 
law, over the next ten years, debt as a share of GDP would grow 
substantially to--in our baseline, we show it growing to almost 
81 percent of GDP. And, so, with this $1.8 trillion of deficit 
reduction that our budget would achieve, we actually help to 
not just stabilize, but also begin to bring down the debt by 
the end of the window, and that is a substantial difference 
from our current path.
    Chairman Enzi. In looking at it, the President's budget 
never reaches balance. At its low point, in 2017, the 
overspending is $463 billion, and that grows steadily from 
there, reaching $687 billion in 2025. To secure the middle 
class and any hope for future generations, we need to pay down 
the debt, and that is not possible with overspending this 
large. Can we pay down the public debt, that is, have the 
dollar amount of debt outstanding be less than the amount in 
the year earlier without balancing the budget?
    Mr. Donovan. Again, Senator, the key metric for fiscal 
sustainability that is not only the measure that we use in the 
administration but that is, I think, widely accepted is that 
deficits below three percent of GDP are critical for long-term 
sustainability. That is a measure that we met for the first 
time this year after record reductions in our deficits, over a 
two-thirds reduction since the President came into office. And, 
that will keep us in every year of the budget window below the 
40-year average for deficits that this country has faced. And, 
so, we think we are hitting that key test of sustainability.
    Chairman Enzi. Okay. Most of the people that I deal with 
think that if you spend more than you take in, that you have 
made a mistake. But, the Analytical Perspectives volume of the 
budget documents has an interesting table on page 32 entitled, 
``Trends in Federal Debt Held by the Public.'' That table shows 
interest costs as a percent of total outlays will increase 
steadily under the President's budget. Can this trend continue 
forever without compromising our ability to provide government 
services?
    Mr. Donovan. I think what the long-term fiscal outlook 
chapter shows, in addition to what I have already said, is that 
we would stabilize the debt as a share of the economy not just 
over the ten-year window, but over the 25-year window, as well.
    And, as I think we all recognize, what we are facing in 
this country is a real demographic challenge with the aging of 
the Baby Boom. The key thing that we need to do to ensure that 
we have long-run fiscal sustainability is focus on health care 
costs. We have seen the lowest growth in health care costs in 
50 years over the last few years. We have many, many measures, 
including over $400 billion in savings from Medicare and 
Medicaid proposed in the budget that increase over time.
    And, we need to recognize that we need to grow our 
workforce and our economy, and immigration reform is perhaps 
the single most important thing we can do there, and that will 
add to the sustainability over Social Security over time. And, 
so, we think we are attacking through this budget the key 
drivers of long-term deficit and debt.
    Chairman Enzi. My time has almost expired. I heard your 
comment about health care costs going down. Last year, I had 
the Head Start folks come to me and complain that their budget 
was being cut seven-and-three-tenths percent instead of two-
and-three-tenths percent. So, I checked on it and found that 
they were keeping most of the money in Washington instead of 
where the kids were and it got reversed and they got all of 
their money. But, what they found was their health care costs 
have gone up so much that they still could not add the kids 
back into the program. So, we have got a lot things we need to 
work on.
    My time has expired. Senator Sanders.
    Senator Sanders. Thank you, Mr. Chairman.
    Mr. Donovan, in case you have not been made aware, we have 
a philosophical divide on this committee of some degree. Many 
of my Republican colleagues believe that what is best for the 
country in the future is basically to cut, cut, cut, cut, cut 
Social Security, Medicare, Medicaid, nutrition, et cetera, et 
cetera. Others of us do not think that that is what is best for 
working families in this country. So, I want to mention 
something to you.
    My staff did some research, and what we found is that it 
turns out that major profitable corporation after major 
profitable corporation not only paid zero in a given year in 
Federal taxes, but, in fact, got rebates from the IRS. Just 
some examples.
    From 2008 through 2013, General Electric made nearly $34 
billion in profits in the U.S., and what was its tax break--
what was its tax burden? Zero. In fact, it received a tax 
refund of nearly $3 billion.
    Verizon, from that same period of time, made over $42 
billion in the U.S. It received tax refunds of $732 million. In 
other words, they did not pay any taxes. They actually got 
rebates.
    Now, I think the President's budget begins to address some 
of these issues. Can you talk to us, in your view, about 
whether or not it is appropriate that one large major 
profitable corporation after another pays zero in Federal 
income taxes?
    Mr. Donovan. Well, Senator, I think we could all agree on a 
bipartisan basis that our current corporate tax code is more 
complicated than it needs to be, that it has a broad range of 
loopholes that create not just unfairness across companies, but 
also, frankly, make our economy less efficient and hold back 
economic growth.
    And, so, we do support, and the budget lays this out, 
reform of our business tax system that would not only make it 
more fair, but in the long run would increase economic growth, 
and we would do that by closing a broad range of loopholes and 
actually lowering the basic rate from 35 percent down to 28 
percent.
    We think a particularly important piece of this is around 
international tax reform. The President has spoken out very 
clearly that the trend of inversions of companies, you know, 
buying small companies overseas and putting a domicile, 
relocating there, is a serious problem. This budget would not 
only close those loopholes to try to stop to the maximum extent 
possible companies moving overseas, it also creates more 
broadly an international tax system which would really make it 
more fair and level the playing field, bringing jobs back to 
the U.S.
    Senator Sanders. Thank you. Mr. Donovan, there will be, I 
suspect, a major debate coming forward on Social Security, and 
I happen to believe not only that we should not cut Social 
Security, but we should expand benefits. I suspect my 
Republican colleagues disagree. But, the first order of 
business done by the House Republicans was to pass a rule which 
could result in a 20 percent reduction in benefits for people 
who receive disability benefits, laying the groundwork for 
either cuts in disability benefits or, in fact, for Social 
Security for older people.
    Your budget did not do that. You did what has been done 11 
times in the past. It is what we call readjust. Social Security 
has enough money to pay all benefits for the next 18 years. You 
simply took money from one account and into the other. Why did 
you do that?
    Mr. Donovan. Well, as you said, Senator, this small 
reallocation of Social Security taxes is the simplest, most 
direct way to ensure that, on a combined basis, both Social 
Security Trust Funds have reserves available through 2033. This 
is a step that has been taken on a bipartisan basis under 
Democrats and Republicans. It has actually been done both ways, 
from Disability to the other Trust Fund and back to Social 
Security. And, so, we think this is the most simple and 
critical way--and remember, these are benefits that have been 
earned by folks paying in over time. We should not put them at 
risk of getting a 19 percent cut in their benefits after they 
paid into the system over their working years.
    Senator Sanders. Okay. Mr. Chairman, my time is almost out. 
I will yield the floor.
    Chairman Enzi. Senator Grassley.
    Senator Grassley. I think the President's budget is an 
ideological statement based on the faith of government making 
decisions as opposed to individuals making decisions. I think 
it is based on a proposition that 535 people here in Congress 
are a heck of a lot smarter than 137 million taxpayers, and 
that gets to the issue of increasing taxes or not.
    Quite frankly, I think the dynamics of the American 
economy--it is going to advance the economy much faster if you 
have 137 million taxpayers decide whether to spend or save and 
how to spend it and how to save it as opposed to those of us 
here in the Congress of the United States and the President of 
the United States making that decision.
    And, it is not a question of bigger government or smaller 
government. It is a question of what does the most to expand 
and grow our economy, because what this country needs is not 
more tax rates, or more taxes. We need more taxpayers. And, 
that is going to happen by the capital investment that 
individuals make, not what the government spends. Private 
investment is going to really grow the economy.
    We have a 50-year average that has said that if you have a 
one-dollar tax increase, it gives license to Congress to spend 
$1.13. That is not going to do anything about the deficit. A 
license to spend more money brings us further into the hole. 
You cannot raise taxes high enough to satisfy the appetite of 
Congress or any President, not just this President, to spend 
money. If a tax increase would go to the bottom line to reduce 
the deficit, that would be one thing. I think we might look 
favorable upon that. But, that is not going to happen.
    And, I think you see that deficits matter. The President's 
budget speaks to deficits mattering. They have consequences, 
because the President's own budget shows that the cost of 
interest is going to go up from a little less than $300 billion 
a year to $800 billion a year.
    So, we have a spending problem, not a taxing problem, and I 
do not see in this budget, and I suppose I could say this even 
about Republican budgets, that there does not seem to be a 
shame in increasing deficits, in this case, under this budget, 
by $8 trillion over a ten-year period of time.
    So, this gets me to what the President has said publicly 
about the middle class. The President seems to believe that we 
need to deficit spend today and for the next ten years in order 
to, in his words, ``invest in initiatives to help the middle 
class.'' However, CBO has analyzed in great detail the long-
term consequences of deficit spending. They found that in 
future years, a growing portion of people's savings will go 
towards buying government debt rather than towards investing in 
productive capital goods. That crowding out of investment would 
reduce the size of the nation's productive capital resources 
that produce economic benefits over time. The smaller capital 
stock would result in lower wages and incomes, making future 
generations worse off. Now, that is not my finding, that is 
CBO's finding.
    So, two questions that you can answer at the same time. 
Does the President think the nonpartisan Congressional Budget 
Office is incorrect in stating that future generations will be 
worse off by taking no action to reduce deficits and debt? And, 
, would not reducing the debt burden of future generations be 
more prudent than ten more years of deficit spending and 
growing debt?
    Mr. Donovan. Senator, we do take the spending and deficits 
and debt seriously. That is why we have taken action over the 
full six years of this President's time in office and achieved 
the fastest deficit reduction since immediately after World War 
II and brought deficits down below our 40-year average. In 
addition, we make further changes in this budget, both on the 
spending side and in other areas, that would reduce our debt by 
$1.8 trillion--our deficits by $1.8 trillion over those ten 
years. And, so, we do take that seriously.
    But, we also take seriously that this country needs to 
invest in the things that are going to grow our middle class. 
We cut taxes for 44 million families by an average of $600 
through this budget, and we do ask that where we have places in 
our tax code that are not only unfair but actually discourage 
economic growth, that we make changes to our tax code, as well, 
whether it is returning to the capital gains rate of 28 percent 
that was effective when President Reagan was in office, or to 
get rid of inefficiencies like the so-called capital gains 
stepped-up basis, where we are actually encouraging families, 
the wealthiest families, to hold assets in unproductive ways, 
and when an average American would have to pay tax on that 
because they could not hold it until their death, we are 
allowing the wealthiest families to basically hold those assets 
and never be taxed for capital gains.
    And, so, we do believe that we need to focus on our 
deficits and debt. We do in this budget. We continue to make 
strong progress like we have over the last few years. But, we 
also recognize that we have to invest in our future, as well.
    Senator Grassley. Thank you, Mr. Chairman.
    Chairman Enzi. Senator Wyden is not here. Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman, and welcome, 
Director Donovan.
    Mr. Donovan. Thank you.
    Senator Stabenow. I have been on this committee for a 
while, and when I think about since 2009, you guys inherited a 
very big hole and have been stepping forward out of that hole 
for the last six years and I want to congratulate you. I 
remember when we were on this committee talking about the 
Simpson-Bowles Commission, a bipartisan commission that said we 
needed to cut $4 trillion in order to be able to get a handle 
on and stabilize the debt as a share of the economy, and step 
by step by step, we are now at $3.3 trillion of the four. I 
would suggest that is pretty good.
    And, the fact that we are now looking at less than two-
thirds of the annual deficit, of what you inherited in 2009--
less than two-thirds--less than two-thirds--I would suggest 
that is pretty good, too.
    Eleven-point-two million jobs--I would like very much to 
have more--and nearly three million last year. But, I could not 
agree with you more that the only way that works is to stop 
talking about trickle-down economics and actually do something 
that makes sure the next steps are laser focused on the middle 
class.
    So, before I ask my question, though, I also want to say 
that we talk a lot about debt and about how we should never 
spend more than we have. I would just suggest, I have a 
mortgage. When something is an important investment, we spend 
more than we have. We have a mortgage for a house. We have a 
car payment. And, as somebody who makes a lot of automobiles, I 
would welcome more people doing that.
    [Laughter.]
    Senator Stabenow. We put our kids through college, 
unfortunately with too much debt on college. Many, many 
colleagues here, colleagues on the other side of the aisle, 
felt going to war twice, and not paying for it, was a priority.
    So, the issue is really how do we manage our debt and move 
forward and not have it overwhelm us. But we certainly set 
priorities for when we--for our families--choose to take on 
debt. So, it is a question of how we manage that.
    I would like to move to the topic of health care and, first 
of all, to congratulate you on adding dollars for medical 
research and the BRAIN Initiative. One of the ways that we can 
bring down costs that will save millions of lives is to focus 
on brain research. One out of five Medicare dollars is spent on 
Alzheimer's--one out of five--one out of five. And, so, I am 
very encouraged and believe we should even be doing more in 
that area.
    And, I want to talk about health care as part of bringing 
down costs. The latest CBO projections show that more Americans 
are finding full-time work and getting health care coverage. We 
know that fewer Americans are going into bankruptcy because of 
medical bills, a good thing. Tax credits that we passed are 
helping people afford coverage. People who already have 
insurance are actually getting what they are paying for now and 
cannot get dropped, and can get coverage even if they have a 
preexisting condition.
    But, we are seeing an ongoing debate, and very soon, we 
will see even more of that here in the Senate, to reverse that, 
stripping insurance coverage from working Americans that will 
increase the debt. The House has voted over 50 times to repeal 
health reform. The Supreme Court is considering whether or not 
to have a process that would put millions of people into health 
care--without health care. So, could you talk about how the 
health care law has helped to drive down Medicare spending as 
well as the health care costs for Americans?
    Mr. Donovan. Senator, I appreciate you focusing on this 
because it really is the single most important focus for, if we 
want to talk about long-run deficits, but also a critical thing 
for middle-class families is affordable health care. And, the 
Affordable Care Act is working. We have now more than ten 
million less--fewer uninsured Americans, and more broadly, 
millions and millions of Americans who had health care before, 
health care insurance, but have actually seen, whether it is 
keeping their kids on their plans, not being kicked out because 
of preexisting conditions, and a broad range of things. So, we 
really have made progress.
    On the fiscal side, what we have seen is the lowest health 
care cost growth in 50 years, and that has already improved our 
long-run fiscal picture dramatically. Just take CBO's numbers, 
where they say, just from improvements we have seen over the 
last few years, we are going to spend $190 billion less on 
Medicare and Medicaid in the year 2020 thanks to the lower 
growth in health care costs that we have already seen.
    I think we can work together on a bipartisan basis to build 
on that. We have $400 billion in Medicare and Medicaid savings 
built into our budget. And, for the first time, we are 
including a permanent SGR, or ``doc fix'' proposal in our bill, 
fully paid for. It builds on bipartisan legislation and it adds 
provisions that would go even further in terms of what we call 
delivery system reform, making sure that we pay doctors and 
hospitals based on the quality of care that they are providing, 
not just the quantity of care that we are providing.
    So, I think this is an area where we have made a great deal 
of progress. More people are covered. They are getting better 
coverage. And, in fact, we can build on that through this 
budget and work that we can do on a bipartisan basis this year.
    Senator Stabenow. Thank you.
    Chairman Enzi. Senator Sessions.
    Senator Sessions. Thank you, Mr. Chairman. I appreciate 
your leadership and look forward to working with you.
    I agree with Senator Sanders that the middle class is 
really hurting. Working Americans today are not doing well. 
Since 2007, the median income in America is down $4,000 for 
income for a family. This is catastrophic. This is absolutely 
one of the most dangerous trends we have seen in some time and 
it has accelerated over the last decade. It has accelerated 
under your President's, our President's watch, Mr. Donovan.
    The problem is your policies. Tax more, spend more, borrow 
more, regulate more, Obamacare more, an immigration policy that 
dominates the market with workers from abroad when we do not 
have enough jobs for American workers, pulling down wages of 
Americans. That is what has caused this problem, in my opinion, 
and that is where we disagree, Senator Sanders. We have got a 
problem, but your ideas will not work. They will never work.
    Now, Mr. Donovan, reckless spending endangers the future of 
the republic. As Mr. Elmendorf has told us, we remain on an 
unsustainable debt course. Let me ask you this simple question. 
Does your budget spend more or less than we agreed to with 
President Obama in the Budget Control Act of 2011?
    Mr. Donovan. Our budget overall reduces spending relative 
to current law--
    Senator Sessions. I just asked a simple question. You work 
for the taxpayers, Mr. Donovan. I am asking you, on their 
behalf, a simple question. Does your budget spend more money 
next year than the current law of the Budget Control Act 
allows?
    Mr. Donovan. Overall, our budget reduces spending compared 
to current law.
    Senator Sessions. Overall, your budget spends $74 billion 
more next year than allowed by current law, is that not true?
    Mr. Donovan. I think what you are focused on, Senator, is 
discretionary spending, and I think that there is broad 
agreement that sequestration--
    Senator Sessions. That is what the Budget Control Act 
covers--
    Mr. Donovan. --that sequestration is hurting our military 
readiness. The Joint Chiefs of Staff testified to that this 
past week. And, it is hurting our ability to invest in the 
things to grow our economy--
    Senator Sessions. You work for the American people, Mr. 
Donovan. I ask you, do you propose spending more money next 
year on discretionary accounts than was agreed to in the Budget 
Control Act, yes or no?
    Mr. Donovan. We are--
    Senator Sessions. Can you not answer that question?
    Mr. Donovan. I believe I have answered it, Senator.
    Senator Sessions. No, you have not answered--
    Mr. Donovan. We are proposing to reverse sequestration, and 
our budget fully pays for those increased investments on the 
discretionary side with mandatory spending reductions and 
cutting wasteful spending in the tax code.
    Senator Sessions. Well, one of the ways you fix a budget 
problem is when you agree to a spending limit, you stick to it. 
So, I am going to ask you one more time, let us just see if we 
can get this straight. The American people need to know. Do we 
spend--do you propose to spend more next year than the Budget 
Control Act would allow?
    Mr. Donovan. We propose to lift the sequestration caps, 
which have been harmful to our military readiness, that have 
been harmful to economic growth. We more than fully pay for 
those with reductions in spending on the mandatory side and 
reducing wasteful spending in the tax code.
    Senator Sessions. So, you intend to spend more than we 
agreed to? That is all I want you to say. Will you say that?
    Mr. Donovan. Our budget proposes--
    Senator Sessions. Why will you not say that?
    Mr. Donovan. --more than 400--
    Senator Sessions. What is it about this that allows you to 
continue in that way?
    Mr. Donovan. Senator, I think there is pretty broad 
bipartisan agreement--
    Senator Sessions. We are going to discuss--
    Mr. Donovan. --that discretionary spending is not driving 
our deficits, and, in fact, our discretionary spending, even 
with the increases on the discretionary side we propose in our 
budget--
    Senator Sessions. So, you will not give--
    Mr. Donovan. --remains--
    Senator Sessions. --the American people for whom you work--
    Mr. Donovan. --remains--
    Senator Sessions. --a simple answer to that question.
    Mr. Donovan. It remains--
    Senator Sessions. I asked you one--
    Mr. Donovan. --at the lowest level as a share of our 
economy--
    Senator Sessions. My time is running out--
    Mr. Donovan. --on record.
    Senator Sessions. Let me ask you one more question. Under 
your statement that you gave us earlier, you said that the 
immigration policies of this President would make Social 
Security more sustainable over time. Now, is it not true that 
everybody in Social Security does not pay in enough money to 
justify the withdrawals that they will take over their 
lifetime, and by adding millions of more people unlawfully here 
to the Social Security rolls, will that not make Social 
Security less sustainable over time than it is today, yes or 
no?
    Mr. Donovan. Just yesterday, the Actuary for the Social 
Security Administration confirmed that the President's 
executive actions that he took late last year would improve the 
prospects for Social Security.
    Senator Sessions. Over what period of time?
    Mr. Donovan. Over the--
    Senator Sessions. Over the life of the individuals? You are 
not counting the times that these individuals would be drawing 
their benefits, Mr. Donovan. You are counting a short-term 
window in which they would pay in, creating a short-term 
surplus of money or additional flow of money, but you are not 
counting when they draw out. It is going to make the Social 
Security hole deeper. It is going to make it harder for us to 
save Social Security and Medicare and you know it. And you are 
suggesting to the American people directly contrary--directly 
different from that and it is wrong.
    Mr. Donovan. Senator, you do not need to take my word for 
it. The Actuary of the Social Security Administration--
    Chairman Enzi. The Senator's time has expired.
    Mr. Donovan. --along with CBO, projects that the actions 
the President took will reduce deficits, not increase them.
    Chairman Enzi. Senator Whitehouse.
    Senator Whitehouse. Thank you very much, Chairman.
    Director Donovan, good to have you here.
    Mr. Donovan. It is good to be here.
    Senator Whitehouse. Could you please tell us a little bit 
about the part of your budget document that is called ``Federal 
Budget Exposure to Climate Risk'' and what you see and 
anticipate in terms of costs that the taxpayers will bear from 
our failure to address the climate change problem.
    Mr. Donovan. Senator, what we tried to do for the very 
first time in this budget is to very specifically quantify, as 
much as possible, what we have seen over a number of years and 
what we expect to see going forward in terms of direct 
increased costs. There are many other areas that are perhaps 
more speculative, more indirect costs, but we tried to focus on 
programs like disaster assistance through FEMA or flood 
insurance. Crop insurance is another area where we have seen 
substantially increased claims as a result of more extreme 
weather.
    And, I think the basic analysis is that it is foolish for 
us not to act and both take further steps to reduce climate 
change, reduce greenhouse gas emissions, but also to prepare 
our communities for the more extreme weather that we are 
seeing. Not only will those save lives, but they will save 
dollars, as well.
    FEMA shows that where we invest in protecting our 
communities, we typically get a four-to-one return in terms of 
future savings relative to the dollars that we spend today. So, 
climate change is a wise fiscal--focusing on climate change is 
a wise fiscal policy, as well as for other reasons.
    Senator Whitehouse. Turning to health care, I think most 
people agree that health care cost is really what is driving 
our long-term debt and deficits. Do you agree with that?
    Mr. Donovan. It is the key measure of what is driving them, 
yes.
    Senator Whitehouse. And, we run a health care system in the 
United States that is grotesquely expensive per capita compared 
to any other industrialized nation. Do you have any 
expectations about what the increases recently announced in 
Medicare, particularly for the amount of the payments in 
Medicare that would be taken off of wasteful and expensive fee-
for-service payments and onto more efficient quality-based 
payments, will result in?
    Mr. Donovan. We have not included in the budget specific 
savings that come out of the delivery system reform 
improvements that--
    Senator Whitehouse. But you expect--
    Mr. Donovan. --Secretary Burwell announced. Those--there is 
significant--if you think about it this way, significant 
potential additional savings, literally hundreds of billions, 
if not trillions, of dollars of long-run savings that could 
come out of those delivery system reforms. Unfortunately, it is 
just too early at this point to be able to reliably include 
those in the budget. So, we have included over $400 billion of 
savings that we think is directly quantifiable, but I think you 
point rightly to the fact that if we keep pushing on delivery 
system reform, the bipartisan SGR, the ``doc fix'' that we have 
included, we have lots of potential to dramatically increase 
savings and lower cost growth in the future.
    Senator Whitehouse. And, finally, with respect to the plan 
that the budget announces to go after offshore parking of funds 
by corporations to avoid American taxation, so-called 
repatriation, your program appears to have three elements to 
it. One, it is mandatory. Two, it is--there is a 14 percent 
opportunity to repatriate the money. And, future efforts to 
park revenues offshore as to avoid taxation will be faced with 
a 19 percent tax. Can you explain why those are important 
policy considerations when we go about dealing with 
repatriation.
    Mr. Donovan. Absolutely. First of all, you are exactly 
right. Unlike the voluntary tax holiday that some have 
proposed, which we oppose, we are proposing a mandatory toll 
charge of 14 percent on the roughly $2 trillion of earnings 
that are overseas and have not been taxed. When you do it as a 
voluntary measure, you encourage future offshoring of profits, 
and, in fact, CBO would likely score that with a substantial 
cost, not revenue.
    Our plan, on the other hand, raises enough money to fund a 
six-year reauthorization of the Highway Trust Fund at 40 
percent higher levels than we are currently funding. So, it is 
a significant opportunity to invest in the middle class and 
infrastructure.
    Second--
    Senator Whitehouse. My time has expired, I am afraid, so I 
will leave the witness hanging. If there is anything you would 
just like to add by way of response--
    Mr. Donovan. I would just say, I think it is critical that 
we have a policy that fixes this system going forward, as well, 
creates a level playing field, and encourages American 
companies to locate here and to bring jobs back here, as well, 
and our system would do that.
    Senator Whitehouse. Thank you.
    Chairman Enzi. Senator Crapo.
    Senator Crapo. Thank you, Mr. Chairman, and thank you, Mr. 
Donovan, for being here today.
    I want to go back to an issue that the Chairman raised with 
you, which is the question of whether this budget helps to 
reduce our national debt, and I believe your answer to that 
question was focused on the size of the debt in relationship to 
the economy, or to GDP, which I understand. I understand the 
argument and I understand the analysis. It is something that we 
have talked about a lot in budget circles over the last few 
years.
    The question I have, though, is does that really justify a 
budget that continues to, frankly, borrow hundreds of billions 
of dollars every year and to spend that money in an effort to, 
as you indicated, to stimulate the economy and invest in things 
that should help the taxpayers and the people of America but 
never balance. I think my question is this. Is it possible for 
us, or any nation, to simply spend in deficit every year 
perpetually, borrowing money and never balancing, and to keep 
ourselves in a prosperous posture? Can we spend ourself 
perpetually into prosperity on borrowed money?
    Mr. Donovan. So, Senator, I think that, you know, we have 
obviously talked a lot about this issue of what the right 
measure is. I think a different way, maybe, to look at it that 
I think has been key for us in looking at this issue, the most 
important measure of a budget is whether it invests in the 
things that are going to grow our economy going forward and 
meets our obligations to our seniors. I think we do have to 
recognize that we are facing right now an unprecedented 
demographic challenge in terms of the Baby Boom retiring, and I 
think it is particularly important when you look at it in that 
context that over the next not just ten years, but 25 years--
which our budget does--that the key tests of sustainability is, 
first, to make sure that debt as a share of GDP is stabilized 
and is coming down.
    Senator Crapo. So, are you saying, though, that if we have 
our debt in relationship to GDP going down, that we are in a 
sustainable budget posture?
    Mr. Donovan. I think at a time when we are facing 
unprecedented demographic challenges, that that is the key 
fiscal test.
    Second--
    Senator Crapo. Let me go over--because our time is so 
short, I wanted to go over some numbers with you, just to show 
you what I am looking at in this budget. Using your numbers, as 
we look at non-defense discretionary spending, currently, it is 
about 14.9 percent of the Federal spending outlays, and that is 
projected under your budget to drop to just ten percent of 
annual outlays by 2025. If you look at defense discretionary 
spending, which is today about 15.7 percent of annual outlays, 
it is projected to drop to about 10.5 percent of total Federal 
outlays in 2025. But, if you look at interest expenses on our 
spending, which are today about six percent of total Federal 
spending, they are projected to rise--to double, more than 
double, to 12.7 percent of Federal spending in 2025.
    My point is, we are seeing our defense spending, our 
discretionary spending being squeezed, and we are seeing the 
interest on the national debt double over the period of this 
budget window, and that dynamic, it seems to me, is one that 
shows the inability to just continue to mount a national debt 
that will squeeze out the potential spending that you talk 
about that may be needed in other areas. Is that not something 
that we must address by controlling the spending, and, frankly, 
by balancing the budget?
    Mr. Donovan. Well, Senator, I think we agree that it is 
critical that we make progress on the deficit and the debt. We 
have actually made substantial progress during the President's 
time in office. I also think it raises the issue that this is 
something we cannot just look to the spending side, for exactly 
the reasons you just described. We are already at discretionary 
spending levels as a share of the economy that are as low as 
they have been on record, and we think that is where we have to 
look to the revenue side, as well. And, I hope that we can work 
on a bipartisan basis to have a balanced approach to deficit 
reduction.
    Since 2011, we have achieved 80 percent. Four out of every 
five dollars of deficit reduction--and our measure is over $4 
trillion of deficit reduction thus far--four out of five has 
come from spending reductions. And, even with our budget, three 
out of five dollars of deficit reduction would come from 
spending reductions, and so--
    Senator Crapo. Well, thank you--
    Mr. Donovan. --we believe we need to look at both sides of 
this equation, as well.
    Senator Crapo. I understand, and my time is up. I will just 
say, I am a member of the Bowles-Simpson Commission, as you 
know, and worked with others, the Gang of Six and others, to 
try to find a solution here. When we were working on that, the 
national debt was down around $11 trillion. It is $18 trillion 
today, and under the budget window that we are talking about 
here, it is going to go to $26-plus trillion. I just do not see 
how we can make the argument that as long as the economy keeps 
growing, we are okay. I just do not see that we can avoid 
trying to balance our budget and control this debt.
    Chairman Enzi. Senator Warner.
    Senator Warner. Thank you, Mr. Chairman, and Mr. Donovan, 
it is great to see you. It looks like you have made a smooth 
transition from HUD Secretary to OMB Director.
    I want to actually pick up on certain things that Senator 
Crapo said, but maybe with a slightly different tinge.
    First, I want to commend you for getting rid of 
sequestration, which I have always called stupidity on 
steroids--
    [Laughter.]
    Senator Warner. --because, as Senator Crapo pointed out, 
even with sequestration--remove domestic discretionary at the 
end of the time period, it is down to ten percent of spend--it 
would be much lower than that without removing the--getting rid 
of sequestration. And as somebody, again, who still for a few 
more years can pride myself on saying I have been in business 
longer than I have been in politics, investing in business, you 
never--you invest in businesses based on their investment in 
workforce, plant and equipment, and staying ahead of the 
competition. For government, that is education, infrastructure, 
and research. And, our current American business plan is a 
faulty one, and part of that is driven by sequestration. So, I 
commend you for getting rid of that.
    I would argue, though--and I do acknowledge bringing the 
deficit down as a share of GDP is in the appropriate range. I 
do not believe 72 percent debt level at the end of ten is 
sustainable. Again, just a few quick factoids, which I know you 
know, but some of these, I think my colleagues might be 
interested.
    You know, at 18 trillion, 100 basis point, one percent 
increase in interest rates takes $120 billion a year off the 
top. That is greater than the whole Department of Homeland 
Security and Department of Education combined.
    At the end of ten years, even within this budget window--
and this is where, I think, our colleagues on both sides may 
not want to be here at that point--we will be spending more on 
interest than we will on total defense or total domestic 
discretionary.
    And, while I commend--and I believe revenues have to be 
part of the mix. I remember spending a very long New Year's Eve 
with great colleagues, but they were not necessarily the people 
I wanted to spend New Year's Eve with--to fight to get $600 
billion in revenue so that we did not go over the proverbial 
fiscal cliff and go into unknown financial abyss. I might point 
out, we fought all that for $600 billion. We have had two one-
time sources of revenue that have more than topped that number. 
We are at $420 billion in extraordinary profits from the Fed. 
Now, we can argue about Fed policies being good or bad, but I 
do not think anybody thinks those kind of profits are going to 
be able to be projected forever. And, while CBO and OMB count 
the money differently, a bill that you, Senator Crapo, and 
Senator Corker and many others have worked on on the repayments 
on Fannie and Freddie, $220 billion at this point, you booked 
that as revenue. So, if you get rid of those $650 billion-plus 
of extraordinary one-time revenues, our deficits are actually 
worse than the appearance would look at this point.
    Now, where I would differ with many of my colleagues on 
both sides, one, I do believe entitlements have to be taken on. 
I think that has to be a question. But, you have got to get to 
the revenue side, and this is where I may not agree with all of 
the methodologies or all of the spending purposes, but revenues 
have to be part of the mix. CBO has recalculated the numbers, 
and I think Senator Enzi understands, you have got to have a 
reference point, and percent of GDP is what everybody at least 
agrees is the common area.
    Anybody who says, well, we have got to look back at 50-year 
averages--50-year averages on revenues are 17.4 percent--we 
have never balanced the budget on that. And, no matter what you 
cut, with the demographic bulge you pointed out, you are going 
to have to get revenues up. The only time we balanced the 
budget in the last 50 years has been when revenues under the 
new calculation are between 18.8 and 19.9, and you at the end 
of ten get to about 19.3, somewhere in the midpoint.
    So, I think this is a debate that is going to continue. I 
think we have a little bit of breathing room because of hard 
actions you have taken and the Congress has taken. But, anyone 
that thinks that we are going to be able to solve this problem 
without revenues being a significant portion of the mix and 
that any kind of look-back alone basis is going to get us 
there, because even with entitlement reform, we have this 
demographic bulge--so, I am running out of time. I wanted to 
make that statement.
    The quick point I will make is you have raised repatriation 
as a one-time payment for infrastructure. Congressman Delaney 
and Senator Blunt and I are looking at that. I would simply ask 
you to comment on that, as well as there are some more modest 
proposals. We had a bipartisan five-and-five BRIDGE Act last 
year that also dealt with infrastructure financing. And, do you 
think we need to consolidate those infrastructure financing 
programs we have got in a single place?
    Mr. Donovan. So--
    Senator Warner. Maybe you can take it for the record.
    [Laughter.]
    Mr. Donovan. Good. I will be happy to do that.
    Chairman Enzi. Thank you for doing that.
    Senator Graham.
    Senator Graham. Thank you, Mr. Chairman.
    I would expect when we do our budget, and I know we will 
under Senator Enzi's leadership, that you will probably like 
our budget about as much as we like yours.
    [Laughter.]
    Senator Graham. But, at the end of the day, there seems to 
be some common ground here. The idea that sequestration needs 
to be fixed, I agree with you, Mr. Donovan. At the end of the 
sequestration as we have it today under the Budget Control Act, 
what percent of GDP will be spent on defense?
    Mr. Donovan. I do not have that number in front of me. If 
you do, you tell me, but--
    Senator Graham. Well, it depends on who you talk to. 
Between 2.3 percent and 2.7 percent. In terms of historical 
averages since World War II, what have we been spending on 
defense?
    Mr. Donovan. Significantly higher than that.
    Senator Graham. Yes. So, I think that is the--do you agree 
that the threats in the world do not justify going to 2.7, 2.3 
percent?
    Mr. Donovan. We fully agree, and this budget makes clear 
that sequestration is a threat to our military readiness and we 
ought to reverse it.
    Senator Graham. Back to Senator Sessions' questions, you do 
spend more than the Budget Control Act cap. You say you spend--
you account for it by offsetting and mandatory. I think Senator 
Portman may challenge that a bit. But, there is a desire by 
some of us on the committee to replace sequestration, at least 
most of it, with a revenue component and a mandatory reform 
component. I just want to be in the camp of saying that I am 
not going to support a budget that continues to gut the 
military. And, it is just not the military. It is the CDC, the 
NIH, and a lot of other programs. So, I support the idea you 
are trying to achieve. I just do not know if I agree with the 
methodology.
    About the workforce, how many workers do we have per 
retiree today in the workforce?
    Mr. Donovan. Uh--
    Senator Graham. It is three.
    Mr. Donovan. Okay.
    Senator Graham. Okay. When I was born in 1955, it was 16. 
Unless there is a baby boom among 60-year-olds, I think we are 
in trouble. In 20 years, it goes to two. Does that make sense 
to you?
    Mr. Donovan. Absolutely.
    Senator Graham. That we are living longer and having fewer 
children. A lot of Western nations face this problem, is that 
correct?
    Mr. Donovan. Absolutely.
    Senator Graham. Does that not cry out for rational 
immigration reform? Where do the new workers come from?
    Mr. Donovan. I could not agree with you more, Senator.
    Senator Graham. So, those who say, on our side or any other 
side, that we are glutted with workers, you are not looking at 
America the way it is, and you are obviously not running a 
business, because if you are in the business world, you are 
having a hard time getting high-skilled workers. And, if you 
are in the manual labor world, you are having a hard time 
getting workers. So, I just reject the idea that we do not need 
workers. We do. We just need to pick the workers. We need a 
rational way of choosing an economic-based immigration system 
rather than just chaos.
    When we talk about America in the future and the challenges 
we face, probably the biggest challenge domestically is the 
retirement of the Baby Boom population. Do you agree with that?
    Mr. Donovan. Yes, I do.
    Senator Graham. There are about 80 million of us, and that 
is why you need immigration to replace us in the workforce. 
But, is it fairly accurate that by 2042, if nothing changes, we 
will be spending all the money we collect in taxes just to pay 
for the Medicare-Social Security bill?
    Mr. Donovan. Sounds about right.
    Senator Graham. So, just pause for a second. Unless 
something changes, all the money we are going to collect in 
taxes in the future, whether it is 17.5 or 19-point-whatever, 
is going to go to pay for two government programs, Medicare and 
Social Security. There will be no money left to invest in 
infrastructure. There will be money left to invest in the 
military unless you have massive borrowing. Do you agree with 
me that the challenge of our generation is to find a way to 
change that dynamic, to make Medicare and Social Security 
sustainable without taking all the revenue?
    Mr. Donovan. I guess I would put a few caveats on that. 
One, we need to do that in a way that keeps our promises to 
those who have paid into the system--
    Senator Graham. I agree with that. We are not talking about 
divesting people. We are talking about long-term structural 
changes, means-testing benefits, adjusting the age of 
retirement. But, we also need revenue. So, what I am willing to 
do is work with you and other members of the committee to find 
a way to structurally adjust these entitlement programs.
    In terms of revenue, if you took all the money the top one 
percent made, every penny of it, would it balance the budget?
    Mr. Donovan. Uh--
    Senator Graham. The answer is no.
    Mr. Donovan. I do not think that it would--
    Senator Graham. If you took every penny out of the Defense 
Department, would it balance the budget?
    Mr. Donovan. It would not.
    Senator Graham. Okay. So, you are not going to tax your way 
into prosperity and you are not going to cut your way into 
prosperity. You eventually have to reform entitlements to 
sustain an America that is not going to become Greece. Does 
that make sense?
    Mr. Donovan. It does, and, in fact, our budget has $400 
billion of savings in Medicare and Medicaid. And, I could not 
agree with you more that immigration reform is perhaps the 
single most important thing we can do to improve the solvency 
of Social Security going forward. It saves close to a trillion 
dollars over 20 years in terms of reducing deficits.
    Chairman Enzi. Senator Merkley.
    Senator Merkley. Thank you, Mr. Chair, and thank you for 
your presentation, Mr. Donovan.
    If we step back to the central theme of the budget, you are 
laying out a vision in which, right now, under our economy, we 
have high income inequality, high wealth inequality, all new 
income is going to the one percent or a fraction of the one 
percent, and you are saying, and correct me if I am wrong, 
because I want to summarize this, that we can proceed to invest 
more in education, ranging from early childhood right on 
through higher education, we can invest more in infrastructure, 
we can invest more in R&D, and that your budget presents a way 
to pay for these so that you actually have a net decrease in 
the deficit from current law.
    Mr. Donovan. That is absolutely correct.
    Senator Merkley. Well, I want to applaud you and the 
President for laying out a vision that changes the path our 
nation is on right now. Imagine that you have a family, a large 
family of 100 people, and that family is working together, but 
all the income that comes into that family goes to just one 
member of that family. I think the other--the balance of the 
family would feel that that was not an equal opportunity 
arrangement. Would you agree?
    Mr. Donovan. I would.
    Senator Merkley. And, it would be an arrangement in which, 
well, that one member of the family would prosper greatly, but 
everyone else who has basic challenges and hopes and 
opportunities would find those doors or opportunities closing 
because all the revenue from that family is going to just one 
member.
    And, I look at the conversation from my constituents who 
are seeing the incredible inflation in tuition for higher 
education, and they are looking at that and they are saying, 
why is it that our father's generation, our father and mother's 
generation, managed to provide lower-cost higher education to 
us so that we might thrive, the middle class might thrive, and 
that we have been failing in that? And, you are saying we need 
to correct that. We may need to open the doors of opportunity 
to higher education.
    Mr. Donovan. Absolutely right. In fact, the President's 
proposal to make two years of community college free is really 
based on the idea--many thought decades ago that we could not 
make high school universally available. We need to make at 
least two years of community college universally available and 
this is a critical step in terms of doing it, if we are going 
to prepare our workforce for the future.
    Senator Merkley. I had a chance to give a commencement 
speech to three community colleges last year and I think that 
the working class families who were represented there, both 
those who were going through college and the families who came 
to celebrate their graduation, would believe that that was a 
pretty good idea, to open those doors of opportunity wider.
    Mr. Donovan. Absolutely, and, look, it has to begin, as you 
know well, Senator, from the very beginning, whether it is 
quality pre-K programs, ensuring that American families can pay 
for child care. That is why we expand the Child Care Credit up 
to $3,000 per family. So, it is a broad range of investments 
right up through college and training and apprenticeships, 
which are doubled under our budget, that are critical.
    Senator Merkley. And, let me go back to one part of the 
plan and my family of 100 members that I was speaking of, where 
one member of the 100 is getting all of the new revenue that 
the family is generating. But, also, that one member out of the 
100 is getting fabulous tax breaks, and you are proposing that 
some of that wasteful spending in tax giveaways needs to be 
adjusted for a fundamental issue of fairness and to invest 
those revenues instead in a better deal for the middle class.
    Mr. Donovan. That is exactly right. As our tax system 
stands today, there is hundreds of billions of dollars each 
year in capital gains that avoid taxation because of this, the 
current system for what we call stepped-up basis in capital 
gains.
    Similarly, on the capital gains rate, all we are saying is 
let us go back to the 28 percent rate that the country had 
under President Reagan, and we think that that will establish--
those are two steps of many that could begin to establish more 
fairness in the tax code.
    Senator Merkley. Thank you very much.
    Chairman Enzi. Senator Johnson.
    Senator Johnson. Thank you, Mr. Chairman.
    Mr. Donovan, welcome back. I want to spend a little bit of 
time, some short answers on things that I think we agree on. 
You talked about economic growth. Senator Sanders did. That is 
a major component of solving this problem, economic growth, 
correct?
    Mr. Donovan. That is correct.
    Senator Johnson. From 2009 to last fiscal year, can you 
also confirm we have actually increased revenue to the Federal 
Government by $916 billion per year?
    Mr. Donovan. I do not have that number--
    Senator Johnson. Would you agree it went from $2.1 trillion 
to $3 trillion, over $900 billion. Eight-hundred-and-seventy-
four billion of that was just due to meager economic growth. 
Only $42 billion was attributed to that fiscal cliff tax deal. 
So, I am just trying to point out that economic growth really 
does provide the revenue Senator Warner was talking about. We 
need to concentrate on that.
    To personalize this, look, it is important for us to point 
out why debt is such a problem. If you are a family in debt 
over your head, it is kind of hard to grow your personal 
economy, is it not, because the debt collectors are knocking on 
the door and anything past subsistence spending is really spent 
to service the debt, is that correct?
    Mr. Donovan. I guess I would say if you are not investing 
in education and other critical things for your family--
    Senator Johnson. But, if you are in debt over your head--
    Mr. Donovan. --hard to grow your--
    Senator Johnson. --you do not even have the money to invest 
in that, as Senator Graham was talking about, because so much 
of your income is being spent just servicing the debt. I mean, 
is that not what happens with a family? And the same thing is 
true on a national basis.
    Let me ask you one other thing. If you are going to solve a 
problem, is not the first step to solve a problem admitting you 
have one and then properly defining it? Would you agree with 
that?
    Mr. Donovan. I guess I would say our budget does take on 
the key drivers--
    Senator Johnson. I am not talking about your budget--
    Mr. Donovan. --of the long-term debt--
    Senator Johnson. I am just talking about solving your 
problem. You have got to admit you have one and properly define 
it, correct?
    Mr. Donovan. Uh--
    Senator Johnson. Let us go to the charts. I would think 
that we do not have just a ten-year budget window problem, 
although I realize that is what your budget is confined to. We 
have a 30-year demographic problem. You talked about that. The 
Baby Boom generation, we are retiring 3,000 to 10,000 people 
today. We have made all these promises and we really do not 
have a way to pay for them.
    And, by the way, I have to challenge Senator Sanders. We 
want to save Social Security and Medicare. That is our goal. We 
want to save it and make it sustainable for future generations.
    But, this is a chart of the CBO's alternate fiscal scenario 
in terms of deficits over the next 30 years. Does this look 
pretty accurate to you? About $9 trillion--you are saying about 
$8 trillion in the first ten years, which is the budget window 
we are talking about now, but then $31 trillion in the next 
decade, $87 trillion in the third decade, for a whopping total 
of $126 trillion of deficits over the next 30 years. That is 
pretty accurate according to CBO's alternate fiscal scenario, 
correct?
    Mr. Donovan. Well, I think that is before our policy, 
which, as I said earlier--
    Senator Johnson. Well, let us--
    Mr. Donovan. --not just over the ten-year window, but over 
the 25-year window--
    Senator Johnson. Let us talk about the--
    Mr. Donovan. --would stabilize debt as a share of GDP, 
which is, again, this does not measure it as a share of the 
economy. CBO says that the right way to measure it is as a 
share of the economy.
    Senator Johnson. So, now, if you take a look at that $126 
trillion, that is comprised of about $15 trillion of deficits 
in Social Security, about $35 trillion of deficits in the 
Medicare program, and then $71 trillion of interest on the 
debt, okay. So, again, talking to, or responding to what 
Senator Graham was talking about, interest starts dwarfing all 
the other problems.
    Let me go to the next chart here, because I realize these 
are projections, so we really have to kind of compare how 
likely is this, and all I really have to go on is history. So, 
what we have done is we have just taken total Federal spending 
over the last 30 years compared to this 30-year alternate 
fiscal scenario just for reasonableness. So, entitlements over 
the last 30 years, we spent about 7.9 percent of GDP on 
entitlements. We are looking at about $13.3 trillion, and, by 
the way, when I was working with Sylvia Burwell, the White 
House figures about $14 trillion. Defense the last 30 years, 
about 4.1. The alternate fiscal scenario is 3.5. All other 
spending, 6.4 over the last 30 years. The alternate fiscal 
scenario is six. And then, of course, interest is a plug. To 
me, if anything, the alternate fiscal scenario might be 
understating the size of the problem.
    My question to you, in your budget deliberations, are you 
looking at the 30-year problem? And, if you are, what has the 
President included in his budget to address the long-term 
unsustainability of both Social Security and Medicare, because 
those are what drives the debts, which does produce $71 
trillion of interest payment.
    Mr. Donovan. So, the three key things that I think we could 
all agree are really driving these deficits and debt over the 
long term, health care costs, a lack of enough workers, as we 
talked about earlier, relative to the number of retirees that 
we have, and having adequate revenue, and all of these key 
things that we attack in our budget, the impacts grow over 
time. And, so, whether it is the capital gains reforms and 
others that grow substantially in the second decade and beyond, 
immigration reform, which grows from $160 billion of deficit 
reduction in the first decade to $700 billion in the second 
decade and more beyond that, or many of the health care 
changes, the $400 billion in the first decade grows to a 
trillion dollars in the second decade. So, we are absolutely 
focused on making smart choices that would grow in impact over 
time with a focus on the deficit--
    Senator Johnson. You are talking about a trillion and we 
are looking at $126 trillion.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Baldwin.
    Senator Baldwin. Thank you, Mr. Chairman, and Mr. Chairman, 
I would ask that I be allowed to offer a longer statement for 
the record, but I wanted to jump--
    Chairman Enzi. In writing?
    Senator Baldwin. Pardon?
    Chairman Enzi. In writing?
    Senator Baldwin. Yes.
    Chairman Enzi. Without objection.
    Senator Baldwin. The writing does not count against the 
time clock here.
    So, thank you, Director Donovan. I am pleased to see that 
the President's overall budget focuses on an issue that every 
one of us cares about deeply here, which is ensuring that every 
American has a chance to share in the benefits of economic 
growth in this nation.
    Before I get to a couple of specific questions on areas 
relating to that growth, I wanted to outline two areas which I 
believe fall short that have not been given much attention, and 
I hope that our committee will give it great attention as we 
move forward.
    You know, the Great Lakes are 84 percent of North America's 
surface fresh water and over 20 percent of the world's surface 
fresh water, but yet for a second year in a row, the 
administration has recommended cutting funding for the Great 
Lakes Restoration Initiative, this time by $50 million. I know 
for myself and many of the other Senators who represent the 
Great Lakes, this is really a non-starter. We have the warning 
signs all around us right now, whether it is what we saw last 
summer in Toledo, the threat of invasive species, and the Great 
Lakes are such an incredibly important asset. So, I look 
forward to working with the committee on that, but I feel like 
this is a way in which the budget has fallen short.
    Another area that I wanted to just quickly touch on is 
Critical Access Hospitals. You know, rural access to--the 
administration has placed a priority on access to health care, 
yet rural access is a major challenge. Many of us represent 
States with many rural areas, and the economics of rural health 
care are unique. And, the cuts that have been proposed for 
Critical Access Hospitals, I think, will create real harm in 
our communities.
    Now, back to some specifics on ways in which this budget 
can spur economic growth. We have seen the stock market surging 
back in recent years, but wages have remained stagnant, as the 
Ranking Member outlined in his opening remarks, in many cases 
fallen in adjusted dollars. And while this is obviously a huge 
problem in the aggregate, when you listen to the stories of 
hard working families who are trying to get ahead, it is 
heartbreaking.
    In my State, one of the key engines of economic growth, one 
of the key ladders to accessing the middle class is our 
manufacturing economy, our manufacturing sector. And, I was 
pleased to see that there is continued focus in this area in 
the administration's budget proposal. It was two years ago in 
this committee that I offered an amendment on the issue of 
Manufacturing Institutes across the country. It was accepted on 
a voice vote and in our last fiscal year 2015 funding 
legislation. It is now signed into law, authorizing these 
Manufacturing Institutes across the country. I was proud to 
support that effort.
    You also have an initiative called the American Made Scale-
Up Fund to help emerging American made advance manufacturing 
technologies reach commercial scale production in the U.S.
    So, I want to talk--I would like you to talk about the 
seven new Institutes that have been proposed in the President's 
budget. What areas are you going to focus on here? And, 
secondly, can you explain the American Made Scale-Up Fund? How 
does the administration envision this coming about, and how do 
you make sure that it is not duplicative of other existing 
Federal programs?
    Mr. Donovan. Senator, thank you for asking about this. This 
really has been a bright spot in our recovery, more growth in 
manufacturing jobs than we have seen in decades in the U.S. 
And, specifically, thank you for recognizing the great 
bipartisan work that was done--we were very excited about it--
to get these Manufacturing Institutes authorized.
    What this budget would do is provide both discretionary and 
mandatory funding to get up to the full 45 Institutes that the 
President called for initially, and those are the Departments 
of Commerce, Agriculture, Defense, Energy would all be engaged 
in Institutes that are specifically targeted to areas that they 
are working on, whether clean energy, new agricultural 
advances, and others.
    In terms of this Start-Up Fund, what it is really targeted 
to that we have not done in other ways--we do great basic 
research in this country, and, in fact, the budget proposes to 
scale up our investment in basic research. What is missing, we 
think, is a public-private effort that would really take the 
most promising technologies and get them to scale where we 
could really do manufacturing at a scale that would create new 
industries and drive large-scale job growth. So, the idea of 
this Start-Up Fund is to provide a credit subsidy, to use the 
technical term in our budget, that would allow us to raise 
private capital towards these promising technologies and scale 
them up to really put them into practice and create hundreds of 
thousands of jobs.
    Chairman Enzi. Senator Ayotte.
    Senator Ayotte. Thank you, Mr. Chairman.
    I wanted to ask you, does interest do anything for us? The 
interest that we pay, does it do anything productive for us?
    Mr. Donovan. No.
    Senator Ayotte. Okay. So, if it does nothing productive for 
us, are you not concerned at all as we look at the budget 
proposal when we get to 2021, which is not too far off, that we 
are already spending more on interest than defense? We have 
already had the discussion previously that as we look at 2025, 
interest payments essentially are exceeding defense and non-
defense payments. We are in a position where that is a huge 
chunk of 12 percent that does nothing for us, on what we are 
spending that money?
    Mr. Donovan. So, I think the fundamental point you are 
making is that the budget needs to take steps that reduce our 
debt so that interest payments are lower than they would 
otherwise be, and--
    Senator Ayotte. But, my question is, are you concerned at 
all when you look at the over-tripling of the interest doing 
nothing for us over the ten-year window, which, as I 
understand, goes from $229 billion we are spending in interest 
now to $785 billion of doing nothing for the American people--
no infrastructure, no education, no defending the nation, 
nothing?
    Mr. Donovan. And, that is exactly why our budget focuses on 
and achieves $1.8 trillion in deficit reduction--
    Senator Ayotte. Well--
    Mr. Donovan. --and in the long run, puts debt as a share of 
the economy on a--stabilizes it and puts it on a declining 
path.
    Senator Ayotte. Well, let me just make clear for the 
American people that are watching this hearing, that you think 
that stabilizing in a good scenario is tripling-plus our 
interest payments over ten years, getting us in a position 
where we are spending more on interest than we are defending 
the nation, getting us in a position where we are spending more 
on interest than we are on education, infrastructure, 
protecting the environment, and all the other things that the 
Federal Government does. You and I just have a disagreement on 
whether this is a productive way to look at things, and I know 
that the American people will decide themselves on what they 
think about that.
    I wanted to ask you about the solvency--we have talked 
about the demographic problems that we have with Medicare and 
Social Security, and the numbers that I have gotten the 
demographic challenge as we look at it is very immediate. It is 
more than a demographic challenge when it comes to the Social 
Security Disability Fund, because as I understand it, the 
Trustees have said that the fund will be exhausted in 2016, 
which is next year. Does the President's budget do anything to 
address the structural issues or the fact that this Disability 
Fund is going to be fully exhausted next year? And, I am 
worried because the people who really need this, if we ignore 
this, they will only be able to pay them 81 percent of 
disability benefits. Do you do anything about that in the 
budget?
    Mr. Donovan. We are very concerned, as well. The most 
simple, direct step that we can take, a step that has been 
taken many times before under both parties, is a small 
reallocation of the payroll tax, and we ought to take that step 
and make sure that those who have earned these benefits get 
those benefits. In addition--
    Senator Ayotte. I do not mean to interrupt you, because I 
do not have a lot of time, but I just want to be clear: What 
you are doing is basically ignoring the fact that it is 
exhausted and transferring the money?
    Mr. Donovan. Senator--
    Senator Ayotte. Let us just be honest. When you say ``a 
small reallocation,'' that is transferring the money, and yet 
it is a system that already, as we look overall, is going 
insolvent. So, we are transferring the money from one pot to 
another. We are not solving the problem.
    Mr. Donovan. Senator, if you would let me finish, please. 
The combined funds remain solvent until 2033. But, we are 
taking steps. On the disability side specifically, we have a 
number of steps in the budget that will ensure that those who 
actually are due the benefits get those, and a number of pilots 
and other efforts that will ensure that anyone who can work is 
able to. And, so, we do take steps there.
    And, in the longer run on Social Security, again, the 
demographic challenges, comprehensive immigration reform is one 
of the most important steps that we can take to make sure that 
Social Security is solvent going forward.
    Senator Ayotte. As I look at this budget, I do not see 
steps in here that are going to solve this problem by 2016 or 
any real meaningful steps. But since you have just said that 
they are in there, I would like a specific answer to my 
question for the record. Thank you.
    Mr. Donovan. Happy to do that.
    Chairman Enzi. Since Senator Kaine is not here, Senator 
King.
    Senator King. Thank you, Mr. Chairman.
    I would echo a lot of the comments of my colleague from New 
Hampshire and point out that that interest may not do much for 
us, but it is doing great things for the Chinese, who are using 
it to build airports and highways and such.
    I find myself in agreement with both sides of the debate, 
and I would suggest, Mr. Chairman, it would be a useful 
exercise to convene this committee in a workshop to get us all 
together to have the kind of discussion that we are having in 
the context of this hearing about revenues, debt, deficit, 
interest, and threats to the economy. I think we could all 
benefit from sharing those views.
    I agree with my colleagues who talk about debt and deficit. 
We cannot ignore interest. And the fact that has been pointed 
out numerous times today, that even under your projection, CBO 
projections, interest will exceed defense, interest will 
exceed--it will almost equal Social Security, it is a gigantic 
expenditure that really does nothing for us and it is going to 
eat up all the programs that everybody likes. Whether you like 
defense or Head Start or whatever, it is going to crowd those 
programs out. So, I agree with that. I think that is a very--
the debt and the deficit is a serious problem, and to me, 
lowering the deficit is progress, but it is not an answer 
because the hole is still getting deeper. So, I think we really 
need to think about that.
    On the other hand, as Senator Johnson pointed out, the best 
way to get out of this mess is through economic growth, and 
there are several strategies for economic growth that involve 
spending money. Infrastructure is probably the most important 
one. Abraham Lincoln at the age of 23, when he first ran for 
the Illinois legislature, put out a pamphlet talking about 
investing in roads and waterways. There was something called 
the American Plan in the 1800s. Henry Clay was a big advocate. 
And, it was an infrastructure plan, because that is the basis 
upon which the economy depends, and we are doing a woeful job 
of underfunding our infrastructure at this time.
    The other big way to grow the economy is through education. 
The biggest economic stimulus program of the Federal Government 
in the history of the United States was the G.I. Bill after 
World War II, which sent millions of people to college for the 
first time and really expanded--it was the basis for the 
expansion of the middle class. Both of those things involve 
money and expenditures.
    So, how do we get out of the problem? How do we grow the 
economy, make the expenditures that we have to make, at the 
same time, not digging ourselves deeper into the deficit hole? 
And, it seems to me that there are three or four strategies 
that we ought to put together into a comprehensive strategy.
    One is, we do have to look at Federal expenditures and make 
sure they make sense and that they are not duplicative. The 
idea that every Federal expenditure made is perfect and good 
and useful and effective and efficacious just--you know, that 
does not pass the straight face test. So, we have to look at 
that.
    Number two, we have to look at the structural health care 
costs. That is one of the biggest drivers of the deficit, is 
health care costs. It is not National Parks. It is not defense. 
It is the sheer cost of health care costs. This fellow Steven 
Brill has written a whole book about how ridiculously expensive 
it is to be treated in this country, twice as expensive per 
capita as anywhere else in the world. The reason health care 
costs are so expensive is that they are expensive--
    [Laughter.]
    Senator King. --and we need to focus on structural changes, 
which I know the Affordable Care Act does, at least in some 
areas of pilot programs, but that has to be a national 
priority. If we just continue as we are and let health care 
costs, fee-for-service, continue to drive the kind of 
escalation, which, unfortunately, may recover shortly, we will 
never get out of this hole.
    And, then, the next strategy is some kind of revenues. We 
cannot deal with the demographic problem if we do not look at 
revenues. My concern--and I am interested in a Balanced Budget 
Amendment. I think that something that puts some constraint 
makes sense. On the other hand, if you add the Balanced Budget 
Amendment and the No-Tax Pledge, it creates a ratchet effect 
that you will never solve any of these problems and you will 
eventually squeeze out everything else, as you pointed out, 
payments to the elderly.
    There has got to be some relief built into that, and that 
is where I think we need to have some discussion about 
revenues. And, I do not know what the right number is, whether 
it is 19 percent, 20 percent, but we have to take account of 
the fact that we have got this pig in the python, which is the 
retirement of the Baby Boomers, and that is going to end at a 
certain point. By the way, somebody said, in the long run--a 
famous philosopher once said, in the long run, we are all dead. 
But, the demographic reality of the next 25 years has got to be 
dealt with and we cannot just say, well, we are going to 
maintain taxes at historical levels and, therefore, meet all 
the obligations to the national defense and cover the costs of 
our commitments to the elderly.
    So, it seems to me it has got to be a combined strategy of 
acknowledging the problem, number two, smart reductions in 
expenditures, health care cost reductions, revenues, probably 
from tax expenditures, and investments in proven job growth 
strategy, like infrastructure and education.
    I apologize. There is not a question in there, Mr. Donovan. 
I did want to make one point. Congratulations on getting us a 
budget on time. That has not happened before in recent history, 
and I think you are due some credit for that. Thank you.
    Mr. Donovan. Thank you. Mr. Chairman, could I take a 
moment? Is that--
    Chairman Enzi. His time has expired. You can send us your 
answer.
    Mr. Donovan. Happy to do that.
    Chairman Enzi. Senator Corker. We are going to have a vote 
that we are trying to get everything in before.
    Senator Corker. Thank you, Mr. Chairman, and I appreciated 
Senator King's comments. I do want to say, I do not want to 
volunteer to die quickly to solve the Social Security problem--
    [Laughter.]
    Senator Corker. --but I know that is a part of the 
solution. So, to our--
    Senator King. I did not mean it that way.
    [Laughter.]
    Senator Corker. To our OMB head, thank you for bringing the 
budget in on time. I do think the focus on percentage of GDP, 
the 74.2 percent and keeping it steady--what we see happening 
year after year after year is people do not take into account 
things that happened like happened in 2008 and 2009, and so 
even though that is what you project to occur, obviously, that 
is under somewhat rosy circumstances and, likely, things will 
happen in the interim. That is what happens in the world that 
we govern.
    I happen to think that a balanced budget is one that keeps 
our nation strongest. I think that, you know, the greatest 
threat to our national security today is really our inability 
to grapple with these issues.
    The CBO Director was in here saying that, look, debt and 
deficits harm the standard of living of Americans, and yet as 
projected in your budget, that just continues ad infinitum. It 
also slows growth, especially when you get to where we are in 
the cycle, where we are having an almost full recovery. That 
hurts the standard of living of Americans.
    So, basically, the way this budget is laid out, what we are 
doing, if we were to take this up, is we would be hurting the 
standard of living of Americans over time more and more and 
more.
    I am a little disappointed that you guys took a powder, if 
you will, on the highway program. Basically, we have not solved 
one single problem since I have been here--not one. You know, 
we keep kicking the can down the road. I have been here eight 
years. You have been here six. We have not solved one single 
problem.
    And, instead of solving the infrastructure problem, you all 
took some easy money. It probably will not work that way, but I 
do wish that you all had looked at that in a more serious way 
and put it on a steady pattern. And, I think all of us know, 
putting a lot of money quickly into infrastructure, more than 
it has been in the past, usually, candidly, leads to waste and 
not planning things out in an appropriate way.
    Spending has been, over the last 50 years, at 20.1 percent, 
and under current law, mandatory spending will be at 14.2 
percent at the end of ten years, in your budget 14.8, and that, 
obviously, as everyone has said, creates huge problems. For 50 
years, revenues have been 17.4 percent and spending has been at 
20.1. That has been with Republican Congresses, Republican 
Presidents, Democratic Congresses, Democratic Presidents.
    And, so, I actually agree, we have a revenue problem and a 
spending problem. And, as Senator Johnson mentioned, the best 
way to generate revenues is through robust economic growth. 
But, we certainly have a problem on both sides. It is my belief 
that we need to go through in good periods times of balanced 
budgets and actually surpluses, and then in bad times, there 
may be a need to have some deficits. But, what we continue to 
do is bank on deficits forever.
    So, I just have one question. I know this is, generally 
speaking, sort of the wish list, some people might say an 
ideological budget. I do not want to be pejorative when I say 
this, but I saw a large stack of budget documents on a table 
this morning on the front page of one of the papers and I 
thought, you know, how sad, wasteful. I mean, those are all 
going to sort of be in the circular file after today. A lot of 
work, but it is an aspirational budget that is not going to be 
adopted and you know that. It says some things that you would 
like to see happen.
    My question is this. Republicans can pass a budget--have to 
pass a budget, have to pass it in both bodies, and if we do it 
alone, the likelihood is we will nibble at some of these issues 
but we will not solve the problem because the President then 
will override the things that we may put forth. So, for us to 
really deal with these issues with a President who has only two 
years left and has had the opportunity to sort of lay out what 
he would like to see happen, but knows it is not, do you 
discern any desire on the behalf of the administration to sit 
down with all of us and work towards a budget proposal that is 
painful to all, but really solves the problem?
    Mr. Donovan. Senator, absolutely, and, in fact, we 
constructed our budget building on, really, what was a 
bipartisan precedent in Murray-Ryan, which said we know 
discretionary spending is too low. We know that, in the long 
run, that our challenges are on the mandatory and on the 
revenue side. And, what we ought to do--and this is what our 
budget does--is more than fully pay for a dollar-for-dollar 
increase on the defense and non-defense side in discretionary 
spending with reductions on the mandatory and new revenues.
    That is the model that we used. We think it is a model that 
we can build on. It is what got us back to regular order on 
budgeting. It is what helped grow our economy and create more 
jobs, because we got rid of mindless austerity and manufactured 
crises. And, we stand ready, because of the model that we have 
used in our budget, to do exactly that kind of bipartisan 
discussion this year and use it to build on to solve our short-
run and long-term challenges.
    Senator Corker. Thank you, Mr. Chairman.
    Chairman Enzi. Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman.
    Mr. Donovan, thank you, as well, for providing this budget 
on time. I am the rookie here, and the benefit of that is I am 
your last Senator.
    Mr. Donovan. Me, too, Senator.
    Senator Perdue. You have run out of Senators here today.
    I would like to submit a couple of questions later, though, 
in writing.
    I just have one question, and that is the severity of this 
debt and your opinion that it is sustainable at about 95 
percent of GDP. First of all, I personally disagree that GDP 
should be the denominator. I think revenue should be the 
denominator. But, I want to read you a quote and put this in 
context, this question. This is a quote from President Obama, 
June 3, 2008. ``The problem is that the way Bush has done it 
over the last eight years is to take a credit card from the 
Bank of China in the name of our children, driving up our 
national debt from $5 trillion for the first 42 Presidents. 
Bush 43 added $4 trillion by his lonesome, so that we now have 
over $9 trillion of debt that we are going to have to pay back. 
That is $30,000 for every man, woman, and child. That is 
irresponsible.''
    Let me put it in context. In the year 2000, our debt-to-GDP 
was 55 percent of GDP. In 2010--or 2008, actually--we added $4 
trillion to roughly a $6 trillion debt, and since 2008, we 
have--in the last six years, we have added $8 trillion to that 
debt, and this budget takes it up to $26 trillion. You know, 
the problem is, right now, at $18 trillion, if interest rates--
and this is the way--I am really concerned about the forecast 
of interest rates, because if you look at the sensitivity 
analysis and you took interest rates just to the 30-year 
average, we would already be paying close to a trillion dollars 
in interest today. I just do not think that is sustainable on a 
$4 trillion revenue source, roughly.
    And, so, when I look at this thing--and that is one 
problem. The second problem is these future unfunded 
liabilities that Senator Johnson highlights so eloquently and 
we really do not address. You commented a couple times that the 
Social Security-Medicare problem really accelerates in the 
second decade, and I am really concerned that if you look at 
this thing, those $100-plus trillion of liabilities added to 
the $18 trillion we have right now, we can characterize it any 
way you want to, but if you look at it per household, which is 
really the way things get paid in this country, that is over a 
million dollars per household in America today. Frankly, I do 
not personally think that is sustainable. Social Security, 
Medicare and Medicaid, pension benefits for Federal employees, 
and our interest payments, these are all contributors. We have 
talked about it. But, a million dollars per household brings it 
home for me and my constituents.
    So, my question is this. Looking at the second decade and 
the third decade and kicking this can down the road, how should 
we look at a debt that is 95 percent of GDP, some five or six 
times our revenue, as being sustainable?
    And, let me give you one little anecdote. You know, it 
occurs to me that this is a national security issue, Mr. 
Donovan, and I do not say that lightly. Right now, we have 
these treaties with a lot of countries around the world. One of 
those is Taiwan, and that treaty says that if the country of 
Taiwan is invaded by the country of China, we have to go to 
Taiwan and defend Taiwan against China. The problem when 
borrowing this much money every year, to do that, we have to 
borrow the money from China to go to Taiwan and defend Taiwan 
against China. That is an anecdote that is not lost on my 
constituents and they want to know when we are going to balance 
this budget and how we get after the long-term imbalance of 
these mandatory expenditures coming in the second and third 
decade.
    So, my question is simply this. The word ``sustainability'' 
is very tricky. I get it. You said this is sustainable at 95 
and declining. I disagree. I do not think it is sustainable, 
but I would love to get your opinion about why that is 
sustainable, given the vagaries of the capital markets around 
the world and the volatility of interest rates that we have 
seen over the last 30 years.
    Mr. Donovan. So, first of all, Senator, recognize that when 
we came into office, we were facing enormously difficult fiscal 
circumstances and we have brought down the deficit by more than 
two-thirds with a broad set of steps, and that the steps that 
we have already taken have substantially reduced long-run 
deficits and debt, whether it is bringing down health care 
costs, a range of other steps that we have taken on economic 
growth. As I said earlier, we agree that we need to focus on 
those long-term steps, and reducing the growth in health care 
costs--
    Senator Perdue. With the time remaining--I am sorry to 
interrupt, but would you--you still think that 95 percent of 
GDP, that that debt, that that is sustainable. I am talking in 
the second and third decade out here past our projections in 
this budget.
    Mr. Donovan. Our budget is not at 95 percent of GDP. Under 
current law, it would rise up to 81 percent of GDP. Our budget 
changes that, brings it down in the ten-year window to 73 
percent and would actually keep it stabilized throughout the 
25-year window, which is really, as we talked about earlier, 
when these demographic challenges are hitting us most strongly. 
And, that is why I say it is sustainable.
    Senator Perdue. Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator Portman, who used to be in your position.
    Mr. Donovan. As he reminded me at my confirmation hearing. 
Congratulations. You have been nominated to the worst job in 
Washington.
    [Laughter.]
    Mr. Donovan. But, it is also the best.
    Senator Portman. Exactly, and my worst day was the day you 
are experiencing right now.
    [Laughter.]
    Senator Portman. And, then, let me just start by saying you 
are doing a fine job defending a budget that I think is very 
difficult to defend, because I just do not think it comes close 
to meeting the challenge. And, look, I think you have done a 
good job defending it, but I think we have to set the record 
straight on a few things.
    This notion that this budget, as you said earlier, is all 
about--in response to Senator Corker's question--following the 
Ryan-Murray proposal of less mandatory spending and breaking 
the caps and more discretionary spending. It is not. I think, 
perhaps because you wanted the last few years to look good, 
this is the reality, and I will give you the numbers. I am not 
really asking you a question here, because these are what the 
numbers are.
    Spending on the discretionary side actually goes from 6.5 
percent now down to 4.5 percent of GDP. Defense actually goes 
from 3.5 percent down to 2.3 percent. And, I know it makes your 
numbers look better after 2022 and 2023 and 2024. So, it is $2 
trillion in new taxes. It is a trillion dollars in new 
spending. You said in response to several of the questions, 
including Senator Sessions, that, no, mandatory spending is 
less. It is more. It is $885 billion more in mandatory 
spending. I am happy to share the charts with you, but that is 
what it shows.
    So, I like your theory that you say you guys are following, 
but the budget does not meet that standard, and I know we are 
going to have some big differences in these two budgets, but we 
have got to figure this out. I mean, I think it is very obvious 
what the problem is and I think you guys skirt it, and I will 
ask you a bunch of questions.
    One, you are talking about you need to raise more revenue, 
and you do. You have over $2 trillion in new taxes. Over the 
first 50 years--over the last 50 years, is it true that our 
taxes as a percent of GDP have been just under 18 percent? Is 
that about right?
    Mr. Donovan. Roughly right, but as I think it was said 
earlier, at the only time that we balanced our budget, at a 
time our economy was growing quickly, we actually had revenues 
that were up as high as 20 percent. And, so, particularly with 
the demographic challenges we are facing, we think that the 
revenue levels that we have are the right ones.
    Senator Portman. So, just before we had this recession, 
2008, 2009, we had deficits of 1.2 percent of GDP, $161 
billion, and we had 18 percent in revenue to GDP. And, by the 
way, this whole notion that you guys have done so much better 
than you expected to do, the CBO baseline that you inherited in 
2009, which already took into account the recession, as you 
know--in fact, it included all the war funding. In other words, 
it had much higher levels of spending on defense than we have 
actually had. The baseline there that CBO gave you had deficits 
that were half of what have occurred, $3.4 trillion versus $6.7 
trillion. This year's $468 billion deficit is exactly double 
what CBO projected for 2015 during that time.
    So, I mean, I do not think, by the standards that were set 
by the baseline then, again, including the recession taken into 
account and all this war spending, that it is fair to say this 
has been a breakthrough, that everything is going great, we 
have made all this progress. But, look, I think, let us 
continue on these questions, because I think the problem is 
pretty obvious, and I know you know what it is and we all know 
what it is and we are not addressing it.
    So, you take revenue up to 19.7 percent of GDP. Am I 
correct that discretionary spending, what we call other 
mandatory spending, are also falling as a percent of the 
economy over the long term?
    Mr. Donovan. Well, I--
    Senator Portman. That is a yes or no. It is yes. You know 
that. It is falling.
    Mr. Donovan. Well, I think it makes the point that we are 
finding places, particularly on the mandatory side, where we 
are reducing spending, and I think--
    Senator Portman. Well--
    Mr. Donovan. --I wanted to respond to your earlier point 
that, in fact, we are reducing spending on the mandatory side. 
We are making room on the discretionary side, but with $400 
billion of reductions in Medicare and Medicaid, tens of 
billions of dollars in program integrity savings--
    Senator Portman. So, let me just say--
    Mr. Donovan. --crop insurance, a broad range of programs--
    Senator Portman. --on all those health care entitlements, 
which, as you know, is the issue, as well as Social Security 
and interest on the debt, that is where the whole issue is, you 
take it from increasing 105 percent, health care entitlements 
over the next ten years, to increasing 99 percent over the next 
ten years. I mean, obviously that is where the issue is. So, 
discretionary spending goes down. It is 6.5 percent now. For 
all you on both sides of the aisle saying, this is great, we 
are going to do more discretionary spending, it does not have 
more discretionary spending. It has less.
    Mr. Donovan. I--
    Senator Portman. It has less for both defense and non-
defense. Health care entitlements do go from 105 percent to 99 
percent. But, you know, it is 7.8 percent of GDP now. It rises 
to 9.8 percent. I know the discussion earlier was about the 20-
year number. That is really scary, because it is just 
unsustainable.
    So, to sum up, we are heading toward record high tax 
revenues. In fact, on individual revenues under your budget, 
individual tax revenues go to their highest level of GDP ever, 
and, you know, that is just what it is. Near record low 
discretionary levels and falling, other mandatory. So, the 
variables driving the deficit are entirely the record levels of 
debt we are talking about, are entirely these incredibly 
important, vital programs that we have got to save for future 
generations. And, if we do not do that, Mr. Chairman, I am 
afraid we will have let down the people who voted us to 
represent them.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    That, to your relief, concludes our questions for this 
morning.
    [Laughter.]
    Chairman Enzi. I want to thank you for agreeing to testify 
this morning. We appreciate your time here with us as well as 
the work that you have done to submit a budget to for Congress 
by the legal deadline. And, we now get to work on a budget 
resolution by the legal deadline of April 15, and I look 
forward to working with my colleagues on that.
    I want to remind my colleagues that they can turn in 
questions for Director Donovan, but they are due no later than 
6:00 today, and they have to be in writing at the Committee 
Clerk's office, which is Dirksen 624. And, then, I am sure that 
Director Donovan will respond within seven days.
    So, with no further business before the committee, we stand 
adjourned.
    Mr. Donovan. Thank you.
    Chairman Enzi. Thank you.
    [Whereupon, at 12:04 p.m., the committee was adjourned.]
    
    
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  THE COMING CRISIS: SOCIAL SECURITY DISABILITY TRUST FUND INSOLVENCY

                              ----------                              

                      WEDNESDAY, FEBRUARY 11, 2015

                              United States Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:01 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Sessions, Crapo, Graham, 
Toomey, Ayotte, Wicker, Corker, Perdue, Sanders, Stabenow, 
Whitehouse, Merkley, Baldwin, Kaine, and King.
    Staff Present: Eric Ueland, Republican Staff Director; and 
Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning. I will call this hearing to 
order. I would mention that we had some regular chairs taken 
out so there would be room for wheelchairs. Both Senator 
Sanders and I serve on the Health, Education, Labor, and 
Pensions Committee, and we know that the disability community 
is very important and needs to be accommodated. And we will try 
and do that at all the hearings, not just this one.
    The intention of this hearing is to have an open, 
bipartisan discussion on the problems caused once the 
Disability Insurance Trust Fund becomes exhausted. We also want 
to talk about ideas for how Congress and the President might 
work together to address these problems.
    I would mention that I try to get as much information in 
the hearing as possible, and you will note that in the second 
panel, one of the witnesses was a part of the Obama 
administration, and the other is an international expert on 
disability and comes to us with a lot of experience.
    I have to say that I was dismayed to learn from press 
reports and inquiries from off-the-Hill sources and, most 
importantly, senior citizens who rely on Social Security that 
the Democrats on this Committee released a paper accusing us of 
wanting to privatize Social Security. That paper and that 
accusation was not shared with me by other staff or by Senator 
Sanders. I am disappointed in that. We share offices that are 
just across the road from each other, and I hope that we can 
have a little more conversation on some of those things.
    But I want to be clear: No one on this Committee is 
suggesting that we privatize Social Security. No one on this 
Committee would support cutting benefits by 19 percent, which 
is exactly what is going to happen if we do not fix the Social 
Security Disability Insurance Trust Fund. No one supports 
Social Security going bankrupt.
    The Federal Government's primary program to assist the 
disabled will soon be broke, and, regrettably, President Obama 
is not doing anything to ensure that this never, ever happens 
again. His effort to paper over the problem is a classic 
example of Washington ducking a real American need. In this 
case, disabled Americans and workers deserve a long-term 
solution so that the program does not once again flirt with 
disaster and, more importantly, reflect the full ability of the 
disabled to contribute their talents to our country.
    As Budget Chairman, I have the ability to look closely at 
the operations, the functions, the programs, the Federal 
budget. How are they working? What is their impact on our 
budget bottom line? Are there ways to fix what does not work or 
improve the program and help our budget?
    One of the most amazing programs we have which touches so 
many Americans in very critical ways and impresses the world is 
what we do to support the disabled. America is a large-hearted 
country, and in reflection of our caring for some of the 
neediest among us, for almost 60 years the Federal Government 
has operated a Disability Insurance program. The program's 
concept is simple: Employed Americans pay a small tax. In the 
event that they ever become disabled, the program provides them 
support if they can no longer work and earn a living.
    This year, the disability program will benefit up to 11 
million Americans. These beneficiaries are our constituents. 
They had jobs. They paid a tax into the system. Then in some 
way at some point they became disabled; they could no longer 
work or earn a living or support a family. This is where the 
disability program stepped in. It lent an able hand of support 
so that potential income that was lost was in some way offset.
    But now this program is under threat, a threat that it will 
run out of money. And that is not a surprise to anyone except 
maybe the President. The officers of the Government directly 
responsible for the program have been telling the Government 
for years that it will run out of money. In fact, I think they 
started suggesting it in 1994, and they even predicted that it 
would be 2016 that it would run out of money. So this should 
not be any big surprise. Outside analysts of the program have 
been telling the Government for years that it will run out of 
money. The disabled community has been telling the Government 
for years that it will run out of money.
    Maybe I ought to say that one more time. It has been 
predicted. Suddenly the President woke up to the fact this 
year. Perhaps it is because now we know for sure not just that 
we will run out of money but, based on our own Treasury 
Department's figures this month, when it will be broke.
    Let me put this as clearly as possible. No waffle words, no 
Washington word games. By December of next year or early 
January, the program will be broke if we do not fix it. And 
once broke, the law governing the program means that benefits 
for the disabled must be cut or delayed. That is just rotten.
    But that is not all the bad news. Once that fund becomes 
insolvent, our congressional budget experts tell us the program 
will need $352 billion over the next 10 years in order to fully 
pay disability claims. I have a chart up over there that shows 
the fund with money, coming down to a crossover point where it 
does not, and that crossover point, of course, is next 
December. That is less than a year from that crossover.
    For Wyoming alone, this means 13,900 disabled people would 
lose $3 million in benefits. In Vermont, this means that 24,500 
disabled people would have their benefits reduced by $5 
million. And, Senator Sanders, we represent two of the smaller 
States. Looking around the Committee room, millions of 
additional Americans from all our States could see their 
benefit cut.
    In the face of this crisis facing 11 million Americans, 
what does the President propose to guarantee a robust and 
enduring program for them and succeeding generations? He 
proposes a plan that seems to be something but actually turns 
out to be nothing. Instead of thinking about how best the 
disabled--by creating a long-term solution, the best values for 
them and the program, the President has suggested that all we 
need to do is shift payroll tax revenue coming in from other 
programs to cover the shortfall in the disability program. All 
this does is pass the buck to another Congress and another 
President after Barack Obama leaves office.
    We had a President years ago that said, ``The buck stops 
here.'' and we need to stop the buck.
    President Obama's transfer plan runs up the debt we owe to 
pay the retirement benefit Social Security recipients rely on. 
We call it a ``trust fund.'' Do not trust a Federal trust fund. 
There are not dollars stashed away anywhere. There are no 
dollars in the Disability Trust Fund, and there are no dollars 
in the Social Security Trust Fund. We actually more accurately 
ought to call it ``accounts payable'' because it is further 
debt. We spent the money.
    Most importantly, it leaves all working Americans and the 
disabled without certainty about the program and unable to 
fully live out their ability to live the American dream. Why do 
I say that? Well, the ability to tap human potential has 
changed dramatically since the program was first created in 
1956. According to a recent article in The Economist, the 
Disability Insurance program's whole design is antiquated. It 
presumes that people, once disabled, cannot work. If they do, 
they usually lose their benefits. Yet lots of people with 
disabilities can work. Wheelchairs did not stop FDR from 
becoming President or Gregg Abbott from becoming the Governor 
of Texas.
    On behalf of those who use it, we need to modernize the 
Disability Insurance program. In the 1950s, when workers were 
doing manual labor and they experienced a debilitating 
condition, many times that was it. They could not work anymore. 
But the work our constituents do has changed as our service and 
knowledge economy has grown significantly during the past six 
decades.
    Thanks to technology, people are also more likely to work 
from home. They have flexible hours and even start their own 
businesses. All of these changes have made it easier for those 
with disabilities to continue working. And studies have shown 
that those with disabilities tend to be happier, healthier, and 
have higher incomes when they are working.
    I have another chart up here, and it shows in 1982 how many 
people had their own labor income as opposed to now and who 
have just the SSI and SSDI income. So it dropped from 23 
percent down to 12 percent, and the reliance increased from 14 
to 25 percent.
    Unfortunately, as the chart on the screen shows, the 
disabled today are less likely to earn income from working than 
ever before. This is true even after Congress passed the 
Americans with Disabilities Act of 1990 mandating changes in 
the workplace intended to facilitate employment for the 
disabled. Buried deep in the President's budget are a few 
programs that might be a grudging acknowledgment there is much 
more to be done to create a disability system that can support 
the ability of disabled Americans to still contribute to our 
workforce.
    I am encouraged by some of the demonstration ideas proposed 
in the President's budget to keep those with disabilities in 
the workforce. However, we need to do more without putting an 
additional burden on our finances. We should be working in 
partnership along with Republicans, Democrats, House and 
Senate, and the President to provide long-term security our 
disabled deserve and the program finances that fit our balance 
sheet. Together we can do better. To protect the most 
vulnerable among us, we should all agree that political 
gamesmanship must not get in the way of our commitment to help 
our constituents who need us the most.
    Senator Sanders.

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Thank you very much, Mr. Chairman.
    Before I get into my remarks, let me respond briefly to 
something that you just said about some of us, and I will take 
that responsibility of suggesting that some of my Republican 
colleagues are looking forward to either cutting Social 
Security or moving to the privatization of Social Security. 
That is exactly what I said. And let me quote to you from the 
Atlanta Journal Constitution, a major newspaper in Georgia, 
from Tom Price, who, as you know, is the chairman--not just any 
Republican; he happens to be chairman of the House Budget 
Committee--from a January 15, 2015, article. I will just 
excerpt some of it. But he says:
    ``On the issue of Social Security, it has indeed been the 
third rail as Tim Chapman mentioned, and I am hopeful of what 
the Budget Committee will be able to do is to begin to 
normalize the discussion and debate about Social Security.''
    Then he goes on to say: ``So all the kinds of things you 
know about--whether it is means testing, whether it is 
increasing the age of eligibility. The kind of choices--whether 
it is providing much greater choices for individuals to 
voluntarily select the kind of manner in which they believe 
they ought to be able to invest their working dollars as they 
go through their lifetime. All those things ought to be on the 
table and discussed.''
    So what he is talking about is looking at cutting benefits 
or moving toward the privatization of Social Security.
    Now, Mr. Chairman, the Social Security Disability Insurance 
program is a life-and-death program for nearly 11 million 
Americans, including more than 1 million veterans and 1.8 
million children. This is a program that American workers have 
paid into. It is an insurance program. This is not charity. 
When Americans pay 6.2 percent of their income in the payroll 
tax, almost 1 percent of that amount goes into the Disability 
Insurance program.
    The average Disability Insurance benefit is less than 
$1,200 a month, and for 30 percent of the beneficiaries, this 
is their entire income. Nobody is getting rich off of 
disability benefits.
    Sadly, on the very first day of the new Congress, House 
Republicans passed a rule that would lay the groundwork for a 
19-percent cut in Social Security Disability Insurance 
benefits. This means, if that cut were to go through, that the 
average benefit of approximately $13,980 a year for a disabled 
person would be cut by $2,600 to $11,324. Does anybody on this 
Committee really believe that a person with a severe 
disability--maybe they are facing a terminal illness, maybe 
they are paralyzed, maybe they have had their legs amputated. 
Does anybody in this room really believe that a disabled person 
in America should be forced to live on $11,324 a year?
    Mr. Chairman, in my view, the debate we are having today is 
nothing more than a manufactured crisis which is part of the 
long-term Republican agenda of trying to cut Social Security. 
And in my view, this is a terrible and dangerous idea.
    Today Social Security has a $2.8 trillion surplus and can 
pay out every benefit owed to every eligible American for the 
next 18 years. That is not the opinion of Bernie Sanders. That 
report comes from the Social Security Trustees.
    Now, because of an aging population, because of more women 
in the workforce, because of an increase in the retirement age, 
there has been an increase in the number of Americans who are 
receiving disability benefits.
    Mr. Chairman, this is not a surprise. This is a demographic 
reality that the Social Security Administration predicted would 
happen back in 1994. The fact that the Social Security 
Disability Insurance program is facing a funding shortfall next 
year is a surprise to absolutely no one. Furthermore, and 
importantly, shortfalls in the Social Security Disability 
Insurance program or the Social Security retirement program are 
nothing new. It has happened 11 times in the past and has 
always been resolved in a simple, non-controversial way and a 
nonpartisan way, and that is by the reallocation of funds 
between the Social Security Retirement Fund and the Social 
Security Disability Fund.
    As this chart shows, reallocation was done in 1968 under 
President Johnson, in 1970 under President Nixon, in 1978, 
1979, and 1980 under President Carter, in 1982, 1983, and 1984 
under President Reagan, in 1994, 1997, and 2000 under President 
Clinton.
    Interestingly--and this is interesting--the 11 times that 
funds were reallocated from one fund to the other, it turns out 
that on five occasions it was the Disability Fund that was 
reallocated to help the Retirement Fund.
    Mr. Chairman, every major senior citizen organization in 
this country, including the AARP--and I, believe their letter 
is on the desks of everybody in this room--including the 
National Committee to Preserve Social Security and Medicare, 
the Alliance for Retired Americans, and many other 
organizations representing over 60 million older Americans, all 
support reallocation and are united in opposition to the rule 
passed by the House Republicans to make reallocation more 
difficult.
    Here is what, very briefly, the AARP letter says, and it is 
up there on the chart: ``To prevent any imminent reductions in 
SSDI benefits, we urge you to rebalance the allocation of 
Social Security payroll taxes between the OASI Trust and the DI 
Trust, as Congress has done with success in the past. Because 
of the SSDI, millions of disabled Americans are able to live 
their lives with dignity and support their families. The 
highest priority in the near term is to ensure that SSDI 
beneficiaries, most of whom are older Americans, are not put at 
risk of a 20-percent benefit cut in the very near future.'' End 
of quote from AARP.
    I am delighted that President Obama proposed this 
reallocation plan in his budget request.
    Mr. Chairman, the Social Security Trust Fund can pay out 
every benefit owed to every eligible American for the next 18 
years. There is no imminent crisis. But I do agree with many of 
my colleagues on both sides of the aisle and with many 
economists that it is terribly important that we do better than 
18 years to make sure that Social Security is there for our 
kids and for our grandchildren. In my view, the best way to 
extend the solvency of the Social Security Trust Fund over the 
long term is to eliminate the cap that currently exists on 
taxable income that goes into the Social Security Trust Fund.
    Right now, in the midst of massive wealth and income 
inequality which we see in our country, a Wall Street CEO who 
makes $20 million a year pays the same amount into Social 
Security as someone who makes $118,500. That is wrong. In 2013, 
I asked the Chief Actuary of the Social Security Administration 
to estimate how long the solvency of Social Security would be 
extended based on legislation that I authored which would apply 
the Social Security payroll tax on income above $250,000, lift 
the cap on all income above $250,000. His answer was that the 
Social Security Trust Fund would be made solvent, Mr. Chairman, 
until 2060--45 years from today.
    And, Mr. Chairman, I would ask unanimous consent to inset 
that letter into the record.
    Chairman Enzi. Without objection.
    Senator Sanders. Thank you.
    [The letter follows:]
    
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
    
   
    
    Senator Sanders. Mr. Chairman, we all know that the huge 
increase in wealth and income inequality in America has seen 
millions of Americans lose a substantial part of their income. 
The middle class is shrinking. In fact, while the wealthiest 
people have become much wealthier, real median family income 
today is almost $5,000 less than it was in 1999.
    Now, this is a tragedy unto itself, but it has also had a 
major impact on Social Security. If income inequality--and this 
is really an amazing fact. If income inequality remained at the 
same level today as it was in 1983, Social Security would have 
$1.1 trillion more than it does today because workers with 
higher income would have contributed more into the system. If 
the payroll tax had simply continued to cover 90 percent of all 
earnings, which it did in 1983, rather than the 83 percent that 
it covers today, the Social Security Trust Fund would be able 
to pay every benefit owed to every eligible American, not just 
for the next 18 years, but for the next 38 years.
    So the bottom line is, short term, we have to do what has 
been done 11 times in the past. Long term, we have to work 
together to make Social Security solvent for our kids and our 
grandchildren. In the midst of massive wealth and income 
inequality in this country, we have got to lift the cap on 
taxable income.
    Thank you.
    Chairman Enzi. Thank you, Senator.
    I just want to have everybody aware that I am keeping track 
of what the House does as well--not that we have to do what the 
House does, but I need to know what they are doing. And I have 
been following their rules, and their rules do not prohibit a 
reallocation, nor does it call for benefit cuts. It does 
include a point of order against reallocation only if the move 
is not accompanied by policies to improve solvency of the 
combined Social Security Trust Fund. And there are a number of 
ways to do that. I mentioned that the President has some in his 
budget. So it will allow reallocation as long as it includes 
savings for the OASDI program, however small. Otherwise, the 
next time that we reach this crisis, we will have about three 
of these funds coming due at the same time, and we will not be 
able to shift the money. So I hope everybody understands that, 
and I want to thank you for your comments.
    For our first panel, our witness is Carolyn Colvin, and she 
has served as the Acting Commissioner of Social Security since 
February 14, 2013. Prior to this designation, she served in a 
number of roles at the Social Security Administration under the 
Clinton administration, including Deputy Commissioner for 
Policy and External Affairs, Deputy Commissioner for Programs 
and Policy, and Deputy Commissioner for Operations.
    Ms. Colvin has also served in a number of other public 
positions in the District of Columbia and Maryland, including 
as Director of Human Services for the District of Columbia. Ms. 
Colvin has graduate and undergraduate degrees in business 
administration from Morgan State University.
    For the information of colleagues, Acting Commissioner will 
take about 5 minutes for her opening statement, followed by 
questions.
    Thank you for being here.

  STATEMENT OF CAROLYN W. COLVIN, ACTING COMMISSIONER, SOCIAL 
                    SECURITY ADMINISTRATION

    Ms. Colvin. Good morning. Chairman Enzi, Ranking Member 
Sanders, members of the Committee, thank you for opportunity to 
discuss the status of the Social Security Disability Insurance 
Trust Fund, our efforts to help people with disabilities 
reenter or stay in the workforce, our Continuing Disability 
Review process, and the steps we have taken to ensure the 
integrity of our disability decisions. My name is Carolyn 
Colvin, and I am Social Security's Acting Commissioner. I have 
served in this position since February 2013.
    The Social Security DI program provides important financial 
protection for workers who paid into the system and now need 
help because they have disabilities. Almost 9 million people 
with disabilities and 2 million of their spouses and children 
are currently receiving benefits from the DI program.
    Realize that these are very modest benefits, $1,165 average 
per month per worker. Because the program is vital to workers 
and their families, we must take steps to ensure its stability 
and avoid deep and abrupt cuts or cessation of benefits for 
individuals with disabilities.
    To this end, the President's fiscal year 2016 budget 
proposes to address the near-term DI reserve depletion by 
reallocating a part, 0.9 percentage points of payroll taxes, 
from OASI to the DI Trust Fund for just 5 years, 2016 through 
2020.
    The temporary reallocation the President proposes will have 
no effect on the overall health of the combined OASI and DI 
Trust Funds, which will remain adequately financed until 2033 
on a combined basis. Nor will it result in a change for workers 
and employers who will continue to pay the same amount of FICA 
taxes they do now.
    The proposal to reallocate existing payroll tax collections 
between the OASI and DI Trust Funds is consistent with past 
congressional action where Congress approved legislation as 
needed for reallocation from DI to OASI or vice versa. These 
are earned benefits. These two funds provide social insurance 
for Americans at all stages of life. The same worker who 
becomes disabled today will become a retiree in the future.
    To strengthen the DI program and ensure its integrity, we 
ask your support for several initiatives. The Social Security 
Act includes incentives to encourage disability beneficiaries 
to return to work by allowing continuation of benefits and 
medical coverage while working or pursuing an employment goal. 
Although these have produced modest success, we want to explore 
new ideas. It is essential that we, including Congress, can 
make evidence-based decisions on innovations to improve the 
ability of individuals with disabilities to succeed in the 
workforce. Conducting demonstration projects is the best way to 
gather the evidence needed to evaluate policy options.
    While our previous demonstrations have shown that 
interventions after individuals qualify for DI benefits can 
yield positive outcomes, earlier interventions may prove more 
effective. Thus, the President's fiscal year 2016 budget 
provides continued support for a multiyear initiative to test 
strategies to help people with disabilities remain and succeed 
in the workforce.
    We appreciate Congress's $35 million appropriation in 
fiscal year 2015 to begin this effort. The budget requests $50 
million in fiscal year 2016 and a legislative proposal 
requesting $350 million over the following 3 fiscal years.
    We take very seriously our stewardship of the DI Trust 
Funds and taxpayers' money. We strive to make the right payment 
to the right person at the right time. We use cost-effective 
Continuing Disability Reviews to determine whether an 
individual continues to be medically qualified. To select cases 
for these reviews, we use predictive models to target cases 
where medical improvement is most likely.
    The President's fiscal year 2016 budget proposes a 
dedicated program integrity fund to support 908,000 full 
medical CDRs, a 15-percent increase over fiscal year 2015. We 
estimate that CDRs conducted in 2016 will yield a return on 
investment of about $9 on average in net Federal savings over 
10 years per $1 budgeted. We use a strict, single national 
definition of disability. When evaluating disability claims, 
every decisionmaker must use the criteria in the act and our 
regulations.
    We have multiple levels of quality reviews to ensure that 
the rules are applied uniformly and correctly. As required by 
law, we review at least a half of initial and reconsideration 
disability allowances before payment is made. These pre-
effectuation reviews allow us to correct any errors before we 
issue a final decision on eligibility. We also extensively 
train and use tools to enable our adjudicators to follow our 
policies accurately and consistently such as a Web-based Claims 
Analysis Tool that helps to ensure policy compliance by 
requiring examiners to follow all the steps in our disability 
claims evaluation process as well as comparative tools and data 
analytics.
    In conclusion, thank you for the opportunity to discuss the 
vitally important DI program and our continued efforts to 
improve its administration. I will be happy to answer any 
questions you have.
    Thank you.
    [The prepared statement of Ms. Colvin follows:]
    
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    Chairman Enzi. Thank you, and thank you very much for your 
statement, and thank you for meeting separately, of course, 
with myself and Senator Sanders yesterday. Some of these 
questions we will have already covered. I was impressed with 
your answers yesterday.
    To start out with questions--and we will have 5-minute 
rounds of questions--the President's budget has proposed 
reallocating the payroll tax to delay the DI Trust Fund 
insolvency. If there were no other changes, does reallocation 
of the payroll tax worsen the Old-Age and Survivors Insurance 
Trust Fund for Social Security retirement?
    Ms. Colvin. I am sorry. Say the last part, please?
    Chairman Enzi. Does the reallocation worsen the Old-Age and 
Survivors Insurance Trust Fund for Social Security retirement?
    Ms. Colvin. I think it is very hard to separate the two 
funds. This is one program. The worker, as you know, pays 6.2 
percent, and a portion goes to the DI Trust Fund and a portion 
to OASI. So I think we really have to think about that in terms 
of one program, because the person, if they become disabled, 
would benefit, and then, of course, when they retire they 
benefit. In fact, many simply transfer from the DI program to 
the--from the OASI program--from the DI program, I am sorry, to 
the OASI program.
    So I think that it is imperative that we see the 
reallocation, which would give us adequate time to look at 
long-term solutions that we need to take.
    Chairman Enzi. How much are we reallocating?
    Ms. Colvin. We are reallocating simply 0.9 percent from the 
OASI Fund to the DI Fund, and that will still allow the program 
to be solvent through 2033.
    Chairman Enzi. Instead of a percent, can you give me 
dollars that are being reallocated?
    Ms. Colvin. I would need to calculate that. I do not have 
the exact amount of dollars. I will give it to you in a minute.
    Chairman Enzi. Okay. The President's budget proposes 
several program integrity initiatives that could produce 
savings. Do you know how much these initiatives would save the 
Disability Insurance Fund before it is exhausted? And can you 
mention any of those suggested programs?
    Ms. Colvin. There are a number of proposals in the 
President's budget. The one that I want to mention first is the 
funding for the Continuing Disability Reviews. As you know, we 
should be doing reviews every 3 years. When people come on the 
rolls, we know that some are likely to improve. And we need to 
be able to do those reviews to determine if they have, in fact, 
improved and are no longer disabled.
    We have been able to determine that for every $1 that we 
spend, we bring back $9 into the program. So I think that is a 
very effective program.
    We also are looking at a number of programs or initiatives 
that we believe would slow down the number of people coming 
onto the rolls. That would be our early intervention programs 
where we would be able to test whether or not supportive 
employment and other types of services would allow people to 
stay in the job market longer. And, of course, we know that 
only about 1 percent of our population go off the rolls now 
because the definition is so strict and we are serving the most 
severely disabled.
    Chairman Enzi. So you will have some suggestions for how to 
do that then, I assume?
    Ms. Colvin. We would certainly look forward to working with 
Congress to come up with solutions that would be bipartisan. I 
think that there have been many proposals proposed. I think we 
do have to be cognizant of the impact on the various 
demographic populations.
    I think one of the things that the President has clearly 
stated is that any proposal really has to strengthen the 
program. It should not reduce benefits. People should be able 
to expect a robust disability benefit or a retirement benefit 
when they need it. But we would be very happy to work with 
Congress on any initiatives.
    Let me mention the figure that you asked for. We would be 
looking at $330 billion in savings over a 5-year period, 
through 2016 to 2020. So I think--does that answer your 
question?
    Chairman Enzi. Can you repeat that number for me again?
    Ms. Colvin. $330 billion over a 5-year period from 2016 to 
2020.
    Chairman Enzi. Thank you. And my next question would take--
we will be submitting questions as well, ones that have more 
detailed numbers than that.
    Ms. Colvin. We would be very happy to provide that.
    Chairman Enzi. Okay.
    [The questions of Chairman Enzi follow:]
   
   
   
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    Chairman Enzi. I will yield the balance of my time.
    Senator Sanders?
    Senator Sanders. Thank you very much, Mr. Chairman, and 
thank you very much, Madam Secretary, for being with us. In 
fact, you are the Acting Commissioner, are you not?
    Ms. Colvin. Yes. I have been acting for 2 years.
    Senator Sanders. You have been acting for 2 years.
    Ms. Colvin. Yes.
    Senator Sanders. Well, I would hope very much that we in 
the Senate will move to confirm you and remove the ``Acting'' 
from your title.
    It is my understanding, Commissioner Colvin, that the 
average Disability Insurance benefit is around $1,150 a month?
    Ms. Colvin. That is correct; $1,165 to be exact.
    Senator Sanders. If, in fact, a 19-percent reduction took 
place, that benefit would be reduced, if my arithmetic is 
correct, to about $11,324. In real human terms, what does this 
mean to a disabled American, maybe somebody with a terminal 
illness, somebody paralyzed, an amputee? What in real life does 
this mean to that person?
    Ms. Colvin. Well, they would really have to think about the 
inadequacy of the existing benefit. We are talking about 30 
percent of the individuals on our rolls for disability who have 
no other income, this--
    Senator Sanders. No other income.
    Ms. Colvin. No other income.
    Senator Sanders. So they would see a 20-percent or a 19-
percent cut in their income.
    Ms. Colvin. Well, certainly 19 percent would take them well 
below the poverty level. We are talking about most at the 
poverty level now, and for about 80 percent of the individuals 
who receive this benefit, about 50 percent would be--they would 
rely on this benefit. So they are already at the edge 
financially, struggling to put food on the table, making 
choices between eating and paying their rent.
    I have worked with this population my entire career. This 
is a population that would like to work. Remember, we are 
talking about workers who have paid into a system, who 
experienced a disability, a severe disability, and find that 
they are no longer able to work.
    Senator Sanders. Commissioner, let me just ask you this: Is 
where we are today in terms of the Disability Insurance Fund, 
is that a surprise to anybody? That is number one. Or was this 
projected many years in the past based on demographic trends? 
And, number two, I know you are not necessarily a historian, 
but you do know that time and time again--in fact, 11 times in 
recent years under Republican and Democratic Presidents--this 
issue was resolved quietly, non-controversially, I think a 
number of times under President Reagan, that as you indicated, 
this is money coming from the worker. Am I correct in saying 
that this issue was dealt with nonpartisanly 11 times in recent 
years?
    Ms. Colvin. That is correct. It has been the mechanism to 
readjust the monies among the trust fund because, in fact, as I 
said, it is the same worker, some portion of their taxes go 
into the Disability Trust Fund and a portion to the retirement, 
but it is the same worker. And so it has been adjusted both 
ways, from DI to retirement and from retirement to DI, the last 
time in 1994.
    Senator Sanders. Right, and as I understand it, with 
virtually no controversy. Is that correct?
    Ms. Colvin. That is my understanding. And, again, this has 
not damaged the health of the combined trust funds. The trust 
funds will still be solvent until 2033.
    Senator Sanders. And, by the way, while we are on that 
subject, am I correct that the Social Security Trustees have 
said that Social Security can pay out every benefit owed to 
every eligible American until 2033? Is that correct?
    Ms. Colvin. That is correct.
    Senator Sanders. All right. Let me ask you this: I have 
proposed on different--some of my colleagues have approached 
the problem in a slightly different way, but I asked the Chief 
Actuary of the Social Security Administration, Mr. Goss, to 
estimate how long the solvency of Social Security would be 
extended based on legislation that I authored which would apply 
the Social Security payroll tax on income above $250,000. Will 
you confirm with me--and I think he is here--that his answer 
was that Social Security would be made solvent until 2060, 45 
years from today? Is that correct?
    Ms. Colvin. That is correct. He is here, but I did see the 
letter, and that is a correct statement.
    Senator Sanders. Thank you very much for the hard work that 
you are doing on behalf of the elderly and the disabled.
    With that, Mr. Chairman, I would yield the floor.
    Chairman Enzi. Thank you.
    Senator Corker?
    Senator Corker. Well, thank you, Mr. Chairman. And I just 
want to go on the record as saying that I do not think any of 
us here, at least in my observation, would want to trade places 
with someone who happens to be on Social Security disability. I 
think all of us want to make sure that people who are in need 
have access. I think it is also--I think everyone here knows of 
the tremendous hardship that people who are living on the 
minimum benefits, if that is their only income, it is very 
difficult.
    And to the Ranking Member's comments, the 1983 reforms that 
were put in place were based on 90 percent of income being 
taxed. Today it is at 83 percent. That is a fact.
    And one of the things that Bowles-Simpson, people working 
in a bipartisan way, had put together was raising it to 90 
percent, but in addition to that, over time gradually 
increasing the age, because people are living longer, using 
chained CPI, and also adjusting the benefits so that the lower-
income benefit more fully from growth and upper-income less.
    And so I would just say that it seems to me there is a way, 
an appropriate way, to deal with this issue and stand ready to 
work with others to make that happen so that this benefit that 
is so important to people will be there.
    As a matter of fact, I will just--it is your understanding, 
ma'am--and thank you for your service in this acting position. 
By the way, have you been put up to be the permanent person?
    Ms. Colvin. My name was submitted in the last session. It 
will be resubmitted this session.
    Senator Corker. Well, I look forward to that.
    Ms. Colvin. Thank you.
    Senator Corker. It is your understanding that the longer we 
wait, even though the program is solvent through for 18 years, 
the longer we wait, it is more difficult to solve the problem, 
isn't it?
    Ms. Colvin. Absolutely. We do need to act promptly. This is 
a very complex problem. I think that changes have to be based 
on scientific evidence, and we certainly have a number of 
research studies that can be made available to you. And so I 
think that through the reallocation, which gives us a temporary 
reprieve, that then gives Congress to find a bipartisan 
solution to this long-term issue.
    Senator Corker. And I realize that because of the way these 
budgets operate these days, this would sort of normally be the 
case. But it is your understanding that the President's 
proposal does not lengthen the solvency of the program. Is that 
correct?
    Ms. Colvin. That is correct. It simply buys some time for 
Congress to come up with a bipartisan solution.
    Senator Corker. And I would hope we would do that.
    It is also your understanding, is it not, that the way the 
President made this proposal regarding disability, it actually 
shortens the solvency of the program, the other portion of the 
program for old-age retirement benefits. Is that correct?
    Ms. Colvin. We looked at 2034. We are talking about one 
year less for the OASDI, yes. But you still have 18 years.
    Senator Corker. That is not very long, is it?
    Ms. Colvin. Well, I would hope it would not take us 18 
years to come to a bipartisan solution.
    Senator Corker. But every year we wait it gets more 
difficult. Is that correct?
    Ms. Colvin. Absolutely.
    Senator Corker. So in many ways, if you think about it, by 
not addressing this issue for all of those citizens who work 
hard all of their lives, what this recommendation actually does 
is lessen those people that are never going to collect 
disability payments, by the grace of God, anyway, will never be 
in a position to have to receive those. In many ways, the ones 
that are working and will only receive their retirement 
benefits are harmed by this proposal. Is that correct?
    Ms. Colvin. I do not believe that. No, I do not think that 
is correct. I think that certainly, as we said, we need to take 
some action now, and I would expect that action would be taken 
well before 2033. So, in fact, we would be able to come up with 
proposals that would strengthen this program and take away the 
need to be concerned about what happens in 2033.
    Senator Corker. But Congress needs to do that pretty 
quickly.
    Ms. Colvin. Congress needs to do that.
    Senator Corker. And it needs to happen fairly quickly to do 
it in a way that is not hugely reshaping. Would you agree?
    Ms. Colvin. I agree. The President has set forth six 
principles that, if you would let me share it with you, I think 
it is important.
    Senator Corker. If you do not mind, I will read those. 
Thank you.
    Ms. Colvin. All right. Thank you.
    Senator Corker. I know it is in the budget.
    Ms. Colvin. Okay.
    Senator Corker. Let me ask you this question: What has 
happened recently is when we have had economic downturns, we 
have had a significant increase in the use of disability 
payments, which speaks to something else happening in the 
program. In other words, all of us want people who deserve 
disability to get it. But when people get it that do not 
deserve it, it actually hurts those very people that are in 
need. So we have seen a change--the economic downturn causes a 
lot more people somehow to be on the disability program.
    We have also seen an appeals process which almost makes it 
look like there are some attorneys that almost create--are 
creating mills, if you will, to cause people to be on the 
program, again, not deserving people in some cases. And my time 
is up, I know, but do you agree that one of the things we need 
to also do to make sure those deserving get the benefits they 
need is to look at some reforms to make sure that those who may 
be taking advantage of it no longer do that?
    Ms. Colvin. We are always attentive to ensure that the 
decisions that are made are the right decisions. The definition 
of disability is that you have to have a severe impairment that 
prevents you from being able to do any job in the economy and 
that that disability is going to last at least 12 months and 
may eventually result in death. I think there is really a 
misconception about large numbers of people being on our rolls 
who are not, in fact, disabled. The average person is on the 
rolls for about 10 years. If you come on the rolls around 55--
and a large number of our people come on the rolls around 50--
they die within the first 5 years. So it again points to the 
fact that you have severe disability.
    But we focus on quality in the program. We try to make 
certain that our adjudicators are following the act and 
following the rules. We have a stringent review process. We are 
required to do 50 percent reviews of all of the cases at the 
DDS level before they even go to the point where they are being 
paid. And we have a 98-percent accuracy rate.
    Senator Corker. My time is up. It sounds like you do not 
think any reforms are due.
    Ms. Colvin. I definitely think we need reform. I am not 
going to suggest that. We do need reform.
    Chairman Enzi. Senator Stabenow.
    Senator Stabenow. Thank you very much, Mr. Chairman and 
Ranking Member. And, Commissioner Colvin, thank you very much 
for your service.
    Let me just start where my friend left off. I think there 
is a general sense that during the recession more people apply 
for disability and, therefore, more people are receiving 
disability. And the numbers that I have seen do not show that 
out. Would you agree that more people may apply, but that does 
not mean they receive it? In fact, we have a number of cases of 
folks who are seriously disabled in Michigan that we work with 
all the time that have challenges even getting through the 
complexity of the system. And I notice from the Office of 
Inspector General that of thousands of cases looked at for 
fraud in 2013, there were only 100 legal cases that were 
brought, that had enough merit to bring them, and that was the 
lowest rate I have seen in any Government program, about 10 out 
of a million people.
    But isn't it true--you may have more people applying, but 
that does not mean you are saying yes. Is that correct?
    Ms. Colvin. That is correct, Senator. We have many workers 
who are marginal. They have disabilities, and they continue to 
try to work. And when jobs are there, they work even though 
they can certainly meet our definition. They are in and out of 
the job market. They are often not able to do substantial 
gainful activity, which is a requirement of the disability law. 
So some of those individuals may go on the rolls. But it is a 
small number. And if you look at our most recent numbers, you 
will see that the initial applications are going down.
    Senator Stabenow. Thank you. And it is also true--I mean, 
when we look at the fact that we have more veterans coming 
home, veterans who are permanently and totally disabled as a 
result of military service or just as part of the community, 
they may, in fact, be part of those that you are serving. Is 
that correct?
    Ms. Colvin. That is correct. And the increase in the 
disability rolls was predicted by our actuaries. We knew that 
during this period we would see an increase, but it was not due 
to people who should not get on the rolls. It was due to the 
demographics that Senator Sanders talked about earlier.
    Senator Stabenow. And we have more women coming into the 
workforce, and--
    Ms. Colvin. More women.
    Senator Stabenow. I know, and I am unfortunately going to 
be going to the Finance Committee in a moment and not be able 
to stay for the second panel. But I do notice that we have 
someone in the second panel, I am sure a distinguished 
individual, talking about more mental health cases that are 
being included as somehow a bad thing. I have to say that as 
somebody who is a mental health advocate, I am glad since the 
1980s we recognized that there are diseases above the neck as 
well as below the neck. And Senator Roy Blunt and I have been 
leading the effort to make sure that we are doing to more 
equalize and understand serious mental health issues. And so as 
that is included, I would actually commend you for that as 
well.
    Mr. Chairman, let me just say that, first of all, Social 
Security is something that is an insurance program that 
everyone pays into, and it is probably the best deal in town.
    Ms. Colvin. Yes, it is.
    Senator Stabenow. It is a retirement plan; it is a 
disability plan; it is survivor benefits. We are talking about 
in the short run the need to adjust it by less than 1 percent. 
In my judgment, the short term is a phony crisis. We have long-
term challenges that we want to make sure to keep it strong and 
strengthen Social Security, and I think that there is--it may 
not be in this Committee. I do not know yet, Mr. Chairman, but 
there certainly is a debate with many on the Republican side of 
the aisle about wanting to privatize or fundamentally change 
the structure, turn it over to Wall Street to manage, which, 
boy, that would have been great back a few years ago.
    You know, I guess I would say I am a supporter of the 
structure of Social Security, and I think there are a lot of 
things happening to working people today. They are seeing 
defined pension plans go away. We do not need to see Social 
Security go away for people in terms of fundamental financial 
security for people.
    I also want to just recognize for the record that tomorrow 
is the day when millionaires in America will stop contributing 
to Social Security. So everybody else, if you earn $50,000, 
$60,000, $100,000 a year, working hard every day, you are still 
paying in all year. But there is a certain group of folks that 
they can still get Social Security but they do not pay in 
anymore. So I think Senator Corker had a good idea when he 
talked about how we need to adjust who is certainly paying into 
that as well.
    So the final thing I would just say is that I agree with 
the idea that we should be focusing on opportunity and job 
training and creating opportunity for people to work. I think 
it would be a good test of us in the Budget Committee on how 
those numbers look in terms of job security--I mean job 
training funding coming out of the Committee, certainly 
appreciate that. But in my judgment, Social Security is a great 
American success story, and I just want to see it strengthened.
    Thank you.
    Ms. Colvin. Thank you.
    Chairman Enzi. Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman and Ranking Member.
    Administrator Colvin, thank you for your tireless service 
to our country. You know, this debate, this conversation, is 
what drives people in my State absolutely crazy. I am not from 
the political world, so I am going to be very straight with you 
this morning. You know, the idea that this is a trumped-up, 
phony crisis is absolutely ridiculous, and it is ridiculous to 
people back home.
    I agree with you on several things. You said this morning 
that we need to move to ensure that nobody loses their 
disability benefits. I agree 100 percent. But the 
irresponsibility since 1974 has created this situation in 2017, 
and what we are about to do is going to create another crisis 
in 2033.
    I have no problem--let me make sure I understand the real 
simple details of this.
    First, the Social Security retirement fund will go from 
2034 being insolvent to 2033 if we move and reallocate funds to 
the Disability Fund. So the Disability Fund then goes from 2017 
to 2033. Frankly, I do not see that as a big deal. What I see 
as a big deal--and this is where this is not a phony crisis, 
Mr. Chairman--we have over $120 trillion of future unfunded 
liabilities coming at us like a freight train.
    In 1994, we kicked the can down the road to 2017. Well, 
here we are. We are about to kick the can down the road to 
2033. This should not be a partisan issue. I do not think it is 
a partisan issue. We get caught up in debating the wrong 
problem, and the wrong problem right now is what do we do to 
save this for 2017. That is easy. In my opinion, I do not have 
a problem with that, if the administration, along with all the 
other budget recommendations made, came to us with a well-
thought-out, long-term strategy and recommendation to how to 
solve both of these trust funds for the future of our kids. I 
have two kids, two sons in their middle career. I have got to 
look at them, if we do this, and say, ``You know what? I am 
kicking the can down the road. Good luck, pals.'' In 2033, both 
of these are insolvent. I think that is correct as well. Is 
that right? In 2033, both the trust funds are insolvent as of 
2033?
    Ms. Colvin. Yes, that is correct.
    Senator Perdue. So what do we do--
    Ms. Colvin. I should say not insolvent. The reserves will 
be depleted. When you say insolvent, people think that means 
that you cannot pay anything. It means you would not be able to 
pay the full amount. For instance, in the DI program you would 
still be able to pay 80 percent.
    Senator Perdue. Right. And as you said before, that is a 
mean amount. That is a very small amount. So that is not what 
any of us want to do.
    Ms. Colvin. Absolutely.
    Senator Perdue. So I think the first goal here, in my 
opinion, is to make sure that we can live up to the obligations 
that we have right now. I think everybody in the room so far 
has said that. And I think you have said that, too, correct?
    Ms. Colvin. Well, I certainly believe we have to satisfy 
obligations, but I do believe this problem can be fixed, and 
the administration has clearly indicated its desire to work 
with Congress to come up with a long-term solution.
    Senator Perdue. And where is that recommendation? That is 
what I am being asked by the people back home, is, okay, the 
number one crisis we have right now, in my mind, is our ability 
to fund our future unfunded liabilities. Right now we have $18 
trillion of debt; we have over $100 trillion of future unfunded 
liabilities coming at us, which is more than $1 million a 
household. And one of the things creating a problem in both 
these trust funds is the fact that today we have about 30 
percent of our workforce not participating in the workforce. 
Most of those want to participate in the workforce. Between 
unemployment, underemployment, and people who have dropped out 
of the workforce, that is a large number. And if those people, 
a large number of those people were working, it would not 
create a solution for this, but it would certainly ameliorate 
the problem and give us more time to work on it.
    You said that we do not need to kick the can down the road. 
I think your words were this is a temporary reprieve to give us 
an opportunity until 2033 to solve the problem. I think you 
said that, and I agree with that. The question I have is: The 
longer we wait, the harder it is to solve this. How can we move 
right now--you are the person in charge. How can we move right 
now to address the long-term solution and enter into an honest 
and open debate about solving it once and for all?
    Ms. Colvin. Well, Mr. Perdue, I think we have to address 
the more immediate crisis, which is the 2016 issue right now, 
and I think the President's proposal on reallocation will do 
that. And I think we need to do that and do that now.
    That does not mean that we cannot then begin to sit down 
and talk about the more long-term issues, but we should not 
have persons with disabilities wondering whether or not in 2016 
they are going to still receive a full benefit.
    Senator Perdue. I agree with that.
    Ms. Colvin. So I think we need to do that now. We need to 
address the proposal that is on the table, which will also help 
to address some of the concerns you have about the program, 
that we can make sure that there is no one on the roll who 
should not be on the roll.
    Senator Perdue. And my question is: How can you ask me to 
do that--I agree with everything you just said. How can you ask 
me to do that without a bona fide, honest, straight-up proposal 
to solve this thing past 2033?
    Ms. Colvin. Well, there are various proposals out there. It 
is going to take a lot of discussion to come to a bipartisan--
    Senator Perdue. What is the President's proposal, what is 
the administration's proposal to solve this past 2033?
    Ms. Colvin. The President's proposal is to address the 
immediate problem, which is the--
    Senator Perdue. Which does not solve the problem past 2033. 
Is that correct?
    Ms. Colvin. The President has an immediate solution for the 
2016 problem, which is what we should address, but--
    Senator Perdue. Agreed, but let me--I am sorry to 
interrupt, but there is no proposal from the administration to 
solve this crisis past 2033. Is that correct?
    Ms. Colvin. Well, he certainly has set forth the principles 
that I wanted to mention earlier that gives you the basis--
    Senator Perdue. But there is no--there is no--well, let me 
just--
    Ms. Colvin. --for what a proposal should--
    Senator Perdue. I understand, but I am really trying to get 
at this. We have had proposals on everything else in this 
budget. Is there no proposal to solve the Social Security 
catastrophe, impending catastrophe, which happens in 2033, 
coming from this administration?
    Ms. Colvin. I do not think it is reasonable to expect that 
a 2016 budget is going to have a proposal to solve a problem 
down the road for 2033. That is going to take a lot of 
bipartisan discussion and agreement. And there are many 
proposals out there that Congress can begin to discuss and look 
at as long as it follows the basic principles. And I will not 
try to put those forth since I see that you are not interested 
in them, but I think the thing that I try to convey is we need 
to make sure that we are going to strengthen this program, that 
we are not going to slash benefits, that people are going to be 
able to rely on a robust disability and retirement benefit--
    Senator Perdue. I can assure you that I care very much 
about each one of those, but I also care about what happens 
past 2033.
    Thank you, Mr. Chairman.
    Chairman Enzi. The Senator's time has expired.
    Senator Whitehouse?
    Senator Whitehouse. Thank you, Mr. Chairman. Welcome, 
Commissioner. We are delighted that you are here.
    The predicament that Social Security is in some say has 
something to do with income inequality, that because only the 
first--$108,000, is it?--$118,000 of income is subject to the 
payroll tax, that as more and more people who earn big incomes 
get richer and richer while the middle class goes no place, 
which has been our recent economic story, that more and more of 
the salary base of the country moves up into that above 
$118,000 quadrant, and that as a result, there is less money 
being paid into Social Security. Is that true?
    Ms. Colvin. That is true.
    Senator Whitehouse. And how does the aging of the 
population--we had a very well known baby boom after World War 
II. Does that play any role in this?
    Ms. Colvin. Absolutely. The people who were sort of at the 
disability-prone years, who are going no the disability rolls, 
are now reaching their retirement years. And so they are moving 
over into the retirement fund. If you are lucky and you are on 
disability, of course, and you live long enough, then you would 
automatically go--if would be seamless to you, but your benefit 
would begin to come out of the OASI retirement fund.
    Senator Whitehouse. Now, both Social Security and Social 
Security disability are funded by the payroll tax, correct?
    Ms. Colvin. By payroll taxes.
    Senator Whitehouse. And there is kind of a gate that 
distributes the payroll tax money between Social Security 
disability and Social Security retirement?
    Ms. Colvin. That is correct, and it has always been 
adjusted as needed between the two funds--
    Senator Whitehouse. Over and over, correct?
    Ms. Colvin. Eleven times.
    Senator Whitehouse. And both ways.
    Ms. Colvin. Both ways.
    Senator Whitehouse. And now what our friends in the House 
have done is they have basically closed that gate in order to 
precipitate this crisis in--or which will have the effect of 
precipitating this crisis in Social Security disability, 
correct? If you move the gate, the crisis goes way off into the 
future.
    Ms. Colvin. That is correct.
    Senator Whitehouse. All right. Now, and the amount in 
question to make Social Security disability whole right now, if 
we were to do it, is about how many billion dollars?
    Ms. Colvin. The $330 million that I gave before--billion, I 
am sorry, $330 billion.
    Senator Whitehouse. But that is over 10 years.
    Ms. Colvin. Yes.
    Senator Whitehouse. So per year--
    Ms. Colvin. No. Over 5 years.
    Senator Whitehouse. Five years, okay. And our information 
is that if you did something about the cap on the payroll tax--
so right now you have got a situation where, if you are a 
plumber and you make $118,000, you pay the exact same amount to 
support our national Social Security system as the hedge fund 
billionaire who makes $20 million a year. They both pay the 
exact--not just the same rate. They pay the same amount because 
of that cap.
    Now, if you were to come back in and apply the payroll tax 
again, our information is that if you started at the 10 million 
and first dollar of income, so anybody making less than $10 
million would pay no additional payroll tax, but if you are 
making $10,000,001, you would pay payroll tax on the $1; if you 
made $12 million in a year, you would pay payroll tax on the 
last $2 million, as well as the $118,000, that if we did that, 
that would completely cure this problem.
    So if we wanted to take care of this problem, we could do 
it in one fell swoop, and when we are talking about 
millionaires and billionaires, people making more than $10 
million in one year, to ask them to contribute a little bit 
more of the above $10 million salary to Social Security does 
not seem like asking a lot. And so I would ask you to take a 
look at those numbers and see if the numbers work. That could 
be a question for the record. My information is that those 
numbers do work and that you can fully resolve this 
manufactured Social Security disability crisis that the House 
rule has created by simply going and asking people making more 
than $10 million a year to pay the same fair share that the 
$118,000 plumber does, actually net a good deal less because 
between $118,000 and $10 million, they will be Scot free on 
payroll tax.
    So if you could do that--
    Ms. Colvin. We will provide those numbers for you.
    Senator Whitehouse. Will you look at that for me?
    Ms. Colvin. Absolutely.
    Senator Whitehouse. Very good. Thank you very much.
    Senator Whitehouse. I understand that questions about fraud 
were asked already, that it is basically very, very small 
numbers coming out of--
    Ms. Colvin. Well, the question was not asked, but I am glad 
you raised it because there is a misperception out there. We 
have had a study done by the Office of Inspector General, and 
they have identified the very minimal amount of fraud, less 
than 1 percent. But I want to go on record and say even one 
case is too many, and we are very aggressive in identifying any 
type of fraud so that we can prosecute.
    We also have programs that detect it in advance--
    Senator Whitehouse. Using computer models and so forth.
    Ms. Colvin. Well, also we established a Cooperative 
Disability Investigative Unit. We have them in 35 States. At 
least we will have them by the end of 2015. I would like to 
eventually see them in all States. But this is the one program 
that we have that allows us to detect or prevent fraud so that 
we do not pay benefits and then have to chase the money. And 
there are a number of other very active, aggressive anti-fraud 
initiatives we have underway, and I would be happy to provide 
that information if you want it.
    Senator Whitehouse. Mr. Chairman, my time has expired. I 
thank you.
    Chairman Enzi. Thank you.
    Senator Graham?
    Senator Graham. Thank you, Mr. Chairman.
    Conceptually, do you think it should be the Congress' goal 
eventually--not in the 2016 budget but eventually--to come up 
with a solvency plan for Social Security, the disability, the 
retirement fund, for 75 years? Would that be a good thing for 
America?
    Ms. Colvin. Absolutely.
    Senator Graham. Okay. Now, as we try to accomplish that 
goal, I just want to make sure that I understand what we cannot 
do.
    Now, Senator Whitehouse is a smart guy, and I am sure the 
math works out, or he would not have presented the analogy of 
taxing people, you know, paying payroll taxes above $10 million 
to fix this problem that is looming today. I just do not want 
America to believe that we can tax our way into solvency. Do 
you believe that to get a 75-year-solvent program we can do it 
with revenue alone?
    Ms. Colvin. I am not here to advocate for a specific 
position. I think that we would be very happy to work with you 
to tell you what is possible.
    Senator Graham. Yes, ma'am.
    Ms. Colvin. There are many proposals, and we can help you 
with the analysis and the--
    Senator Graham. Well, when you examine his proposal about 
closing the gap by using payroll taxes above $10 million, could 
you come back and answer my question, if you could? What kind 
of revenue would you have to generate, what would the tax rates 
be to make Social Security solvent for 75 years with revenue 
alone?
    Ms. Colvin. I am sure our Actuary can provide that.
    Senator Graham. Okay. I appreciate that very much.
    Senator Whitehouse. Mr. Chairman, may I get a copy of that 
as well?
    Senator Graham. Absolutely.
    Senator Whitehouse. You can make that both. Thank you.
    Senator Graham. We are not going to sneak up on you at all.
    Ms. Colvin. And that is what our actuaries do. If you have 
a proposal, the Actuary will cost it out for you.
    Senator Graham. Okay.
    Ms. Colvin. We will let you know what the impact will be 
for the American public.
    Senator Graham. Absolutely. Now, let us talk about why we 
keep having to do this. In 1956, when the Disability Fund was 
created, how many workers were there for every retiree in the 
program? I think it is 16.
    Ms. Colvin. We will get that for you in a minute.
    Senator Graham. Yes, ma'am. I was born in 1955, and I 
believe that for every Social Security retiree, there were 16 
workers paying into the system. Check that out.
    Ms. Colvin. I do not have it before me, but I know my staff 
has it.
    Senator Graham. Yes, ma'am. Check that out.
    Ms. Colvin. It is in our Trustee report.
    Senator Graham. Thank you. Check that out.
    And today I believe there are three workers for every 
Social Security retiree.
    Ms. Colvin. Today, that is correct.
    Senator Graham. Okay. In 20 years, there are supposed to be 
two. Does that make sense?
    Ms. Colvin. Probably, as we look at the birth rate of the 
country.
    Senator Graham. Right. We are living longer. Life 
expectancy is at an all-time high. That is good news. Agreed?
    Ms. Colvin. Yes.
    Senator Graham. We are having fewer workers born--we are 
having fewer workers available to the workforce because of 
demographic changes, and that is a problem.
    Ms. Colvin. That is a problem.
    Senator Graham. So the question for the Committee is: How 
do we fix this basic problem? Eighty million baby boomers are 
going to retire in the next 20 years or so, and the number of 
workers to keep this system solvent, Social Security and 
Medicare, is going to be down to two. How do two people pay for 
these programs without it putting us on the road to becoming 
Greece?
    Can you solve that problem through revenue alone? I would 
say no. Would the proposal the President is talking about for 
long-term solvency include means testing?
    Ms. Colvin. I do not know what the President's long-term 
solution will include.
    Senator Graham. Well, you just told the Senator from 
Georgia he had a proposal.
    Ms. Colvin. No, I did not. I said that the reallocation 
proposal which is in the budget. I did not speak--
    Senator Graham. I thought you said he had some concepts 
or--
    Ms. Colvin. Oh, I talked about the concepts, the principles 
that any reform--
    Senator Graham. Principles, I am sorry. It is my bad. Not 
proposal. Principles. Is one of those principles means testing?
    Ms. Colvin. No, it is not.
    Senator Graham. Is one of those principles age adjustment 
for retirement?
    Ms. Colvin. No.
    Senator Graham. Is one of those principles CPI adjustment?
    Ms. Colvin. Would you like me to tell you what the six 
principles are?
    Senator Graham. Yes, ma'am. You have told me what they are 
not, so tell me what they are.
    Ms. Colvin. All right. The first one is that any reform 
should strengthen Social Security for the future and restore 
long-term solvency--
    Senator Graham. That is not a principle. That is just a 
statement.
    Ms. Colvin. Okay.
    Senator Graham. Number two?
    Ms. Colvin. The second, the administration will oppose any 
measures that privatize or weaken the Social Security--
    Senator Graham. That is not a principle as much as it is 
what you will not do. Okay.
    Ms. Colvin. Third, while all measures that strengthen 
solvency should be on the table, the administration will not 
accept an approach that slashes benefits for future 
generations.
    Senator Graham. Well, let us--so you have just told me 
means testing is not on the table. Is that consistent with that 
statement?
    Ms. Colvin. I can only give you the statements that I have, 
sir.
    Senator Graham. Okay. I am sorry. Keep going.
    Ms. Colvin. Current beneficiaries should not see their 
basic benefits reduced.
    Senator Graham. Okay. These--
    Ms. Colvin. Reforms should strengthen--
    Senator Graham. Okay. I am sorry. Keep going.
    Ms. Colvin. --Social Security for the most vulnerable, 
including our low-income seniors, and reforms should maintain a 
robust disability and survivor benefit structure.
    Senator Graham. That is a set of principles that makes sure 
we do absolutely nothing meaningful. So I just want to say if 
that is the President's plan, we will never get there. That is 
not my plan. I am willing to stretch myself and my party. I am 
willing to do revenue to get us to entitlement reform.
    Ms. Colvin. I am very happy to talk about the President's 
plan that is in his budget for reallocation.
    Senator Graham. Yes, ma'am, I know you are, and that plan 
has been used in the past. And I do not know how we will fix 
this problem, but we will. I just want to let you know that I 
am really tired of bailing out water when the boat has got a 
hole in it a mile wide and we are using a very small pail, and 
somebody someday somehow up here is going to have to do the 
hard things. And I just want to put myself on the record as 
being willing to do hard things as long as they work. And we 
will fix this problem, but apparently we are not going to do 
much more than that.
    Thank you very much.
    Chairman Enzi. Senator Kaine.
    Senator Kaine. Thank you, Mr. Chairman, and thank you, 
Commissioner Colvin.
    I am going to take my wife out for dinner Saturday for 
Valentine's Day, and when I am toasting her, I am going to 
toast you.
    Ms. Colvin. Thank you, Senator.
    [Laughter.]
    Senator Kaine. I am going to toast you because you were 
nominated to be Commissioner on Valentine's Day--
    Ms. Colvin. I was.
    Senator Kaine. --2 years ago.
    Ms. Colvin. Yes. Thanks for remembering that.
    Senator Kaine. And you have been an Acting for 2 years. A 
mayor or Governor insight: Not having confirmed leadership 
always is weaker than having confirmed leadership. Always. 
Always. When the Senate does not exercise the advise-and-
consent function to confirm a leader, we create some weaknesses 
within an organization, despite the best efforts of Actings. 
But we also send a message. We send a message to the public 
that we do not think this agency is that important; we do not 
think this agency that provides Social Security to the most 
vulnerable people in our country is that important.
    And I have noticed something, Mr. Chairman, as I have been 
here for a couple of years. This happens a lot, and it seems to 
happen with agencies that are kind of the same. Two years of 
Acting at Social Security, 6-1/2 years of Acting, not a 
confirmed Administrator, for CMS, the Centers for Medicaid & 
Medicare Services, the single largest line item in the budget 
of the United States that is specifically designed to serve 
vulnerable people. This is actually a bipartisan comment. The 
first 2 years were--the Democratic Senate did not want to 
approve an Administrator at the end of the Bush administration, 
and then for 4-1/2 years, the Republican Senators did not want 
to approve President Obama's nominee. Six and a half years with 
an Acting in the program that is the largest program--larger 
than the defense budget.
    FHFA, Federal Housing Finance Agency, 4 years of Acting 
before Mel Watt was finally confirmed, and to do that we had to 
change the Senate rules.
    Consumer Financial Protection Bureau, 1-1/2 years of 
Acting.
    The agencies where we allow Actings and where we do not 
move to confirm dramatically are all in the human services 
side. They are all in the human services side. We do not have 
an Acting Secretary of Defense. Now, in the Department of 
Defense, there are a lot of questions about contracts and cost 
overruns and all kinds of things. But we do not have an Acting 
Secretary of Defense. What we have is Actings in agencies that 
serve vulnerable people.
    I am worried about this because I am worried about an old-
timey term that raises a lot of angst in Virginia: legal 
nullification, trying to nullify the law. If there is an agency 
that is controversial or unliked, and there is not enough votes 
to get rid of the agency, and there is not enough votes to 
defund the agency, what is the next thing that you can do? Not 
vote to confirm a leader. Not vote to confirm a leader. And I 
am just fascinated by the fact that most of these long-term 
Actings where the Senate will not act to confirm a leader 
cluster in programs that serve the most vulnerable Americans.
    So I am going to toast you on Valentine's Day, and I am 
going to toast you and hope that that Acting title is removed 
and that the Social Security Administration, which serves 
vulnerable Americans every day, will be respected enough by the 
Senate to actually have a confirmed leader.
    I want to ask you about anti-fraud efforts. One of our 
colleagues, not on this Committee--the folks on this Committee 
are far too savvy to say something like this. But one of our 
colleagues said recently, and I quote: ``Over half the people 
on disability are either anxious or their back hurts.'' That 
was a comment made by one of our Senate colleagues in January. 
I find that to be a very offensive comment, but it is also 
quite inaccurate. And I want you to tell the Committee some of 
the things that you are doing every day, some of the reforms 
you are putting in place, to take the really low fraud rate--
very, very low--and make it even lower.
    Ms. Colvin. Well, first of all, people do not get on our 
rolls simply because they have a back pain that they allege. 
That statement has to be corroborated by medical evidence, 
including lab reports. I really need to say that. The people on 
our rolls are the most severely disabled. We have 58 million 
people in this country who have self-identified that they are 
disabled, and we only have 9 million on the rolls, 7 million 
who are workers and 2 that are--I mean 9 million workers who 
are severely disabled.
    But we take fraud very seriously, and most of the fraud 
that has been detected in our program has been detected by our 
own staff. Our big challenge, of course, is the third-party 
fraudsters, like doctors and lawyers who facilitate fraud. And 
in the President's proposal is a proposal--I mean, in the 
President's budget is a proposal that would allow us to go 
after overpayments for those individuals, because often they 
are not--
    Senator Kaine. So in the President's budget proposal, there 
are additional anti-fraud--
    Ms. Colvin. There are additional anti-fraud initiatives 
to--
    Senator Kaine. To help the solvency of this program?
    Ms. Colvin. Absolutely. That is one. The other is the CDRs 
that I talked about, if we get those fully funded, because we 
have people on the rolls that are entitled to receive a check 
until we determine that they are no longer disabled. So they 
are not being fraudulent, but you would say that you still have 
that.
    The CDR units that I talked about, when I was here in 1998 
under President Clinton, I established a unit that was a 
partnership between the Office of Inspector General and law 
enforcement at the local level and us here at the Federal 
level, and these identify people who are pretending that they 
are disabled, and we are able to then stop them from getting a 
payment. It has been hugely successful. OIG would say that 
there is probably about a $17 return for every $1 that is 
spent. We only have 35 of those. When I came back after being 
away for 15 years, we only had 24. I increased five in 2014, 
and I am doing another five in 2015. So that will take that 
number up. We should have one in every State, but it takes 
funding to do that.
    We also are establishing a centralized fraud unit that is 
being very aggressive in using data analytics. We are working 
with the private sector, and we are doing some benchmarking to 
look at what else we can do to be able to detect the fraud 
before it occurs.
    Senator Kaine. Commissioner Colvin, I have run over time, 
and I just want to thank you for that answer, and I know that 
there is more on this score that we can talk about.
    Ms. Colvin. We would be happy to provide more for the 
record if someone wants it.
    Chairman Enzi. Senator Grassley.
    Senator Grassley. Commissioner Colvin, I regularly hear 
from my colleagues on the other side of the aisle contending 
Republicans are attempting to manufacture a crisis in the 
Disability Insurance program where none exists. They argue it 
has been regularly practiced to simply transfer funds from the 
Old-Age Fund to the Disability Fund to cover any shortfall.
    However, that understanding appears to not square with 
reality. I use this example. Last year, in response to a 
question from Chairman Hatch at the Finance Committee hearing, 
Deputy Commissioner La Canfora testified that she was unaware 
of any past ``stand-alone legislation that reallocated payroll 
tax inflows from the OASI Trust Fund to the DI Trust Fund.''
    So, Commissioner Colvin, could you confirm previous 
allocations from the Old-Age Fund to the Disability Fund were 
not done as stand-alone legislation? And then, in addition, is 
there any reason that a stand-alone reallocation should be the 
only option considered now?
    Ms. Colvin. I am not certain I know what you mean when you 
say ``stand-alone.'' I do not think that the proposal that the 
President is making is any different than what has occurred in 
the past. We have had 11 reallocations in the past from the DI 
to the OASI and vice versa. So I am not sure that I understand 
what ``stand-alone'' means. I would have to go back and 
research that and give you something for the record.
    Senator Grassley. Okay. You can supplement the record if 
you want to, but the most recent allocation in 1994 included an 
alteration of eligibility for drug addiction and alcoholism to 
qualify for disability.
    Ms. Colvin. Okay.
    Senator Grassley. It is generally understood that 
demographic changes have contributed to increased benefits and 
the projected shortfall. But I am also curious as to the 
contribution of certain policy changes. According to the 
Congressional Budget Office, legislation in the early 1980s 
increased subjectivity in the determination of policy because 
it ``allowed symptoms of mental illness and pain to be 
considered in assessing whether a person qualified for 
admission to the DI program, even in the absence of clear-cut 
medical diagnosis.''
    CBO goes on to say that these changes ``led to a 
substantial expansion in the share of DI beneficiaries with 
mental and musculoskeletal disorders.''
    So, Commissioner Colvin, do you agree with the CBO 
analysis? Is the increased subjectivity in the determination of 
disability something Congress should be concerned about?
    Ms. Colvin. I do not think that that statement is fully 
accurate. Certainly there is an area of subjectivity, but that 
is complemented by the medical evaluations that I talked about 
earlier, that no one can come on the rolls simply because they 
allege pain or some other medical disability that is not 
substantiated or corroborated by medical records and laboratory 
results.
    Now, in 1984, when Congress acted to make some changes to 
the law and some would suggest that it was liberalized, you may 
remember that Congress acted because they felt that the 
interpretation of the law was very narrow and was not intended 
to be implemented the way it was implemented. So you had the 
Medical Improvement Initiative; you had mental health. And 
coming out of the mental health community, I certainly think it 
was the right thing to do. Mental health is an illness, but, 
again, there is very specific criteria that individuals follow 
in making those decisions. We work with the Institute of 
Medicine and other such organizations to make sure that we are 
staying current with medical science. We follow the science. We 
do not create the medicine, but we interpret it based on what 
is happening in the medical community at the time.
    So I do not think that the 1984 laws liberalized the 
program. I think that the increase that you saw was the result 
of the economic and demographic factors that we have talked 
about: aging of the baby boomers, reaching the disability-prone 
years, more women coming into the workforce, those kinds of 
things. And we do a lot of quality review around those 
subjective areas that you have talked about. We give ongoing 
training. As I mentioned before, 50 percent of all decisions at 
the DDS level are reviewed for accurate before we make a 
payment. So I think we have control in those areas.
    Senator Grassley. Thank you.
    Chairman Enzi. Thank you.
    Senator King?
    Senator King. Thank you, Mr. Chair.
    I want to go back to Senator Perdue's questions and what 
troubles me about this. I am touched by your faith in 
bipartisanship to solve difficult problems, but not fully 
confident. We are much more adept at bipartisan avoidance than 
we are at bipartisan solutions. And 2033 is not that far off.
    Ms. Colvin. That is correct.
    Senator King. I remember 1998. It was not that long ago. 
2033 is going to come, and what I fear is we will have taken a 
series of steps, such as the one proposed here, and then we 
will be faced with exactly the same problem, only much larger, 
on a much more broad scale, involving not only Disability but 
the Old-Age program, and we will have run out of places to 
hide.
    And let me just state categorically I do not in any way, 
shape, or form want to see cuts in disability benefits. I do 
not want to see any diminution of what is already a fairly 
modest level of support. But what bothers me is the solution, 
and the solution is avoidance. And inevitably--you have used 
the phrase ``the combined funds actuarially do not change.'' 
Well, that is true because one comes down and the other goes 
up. But the Old-Age does come down by a year, not a lot, but it 
is the principle of the thing. And we just keep doing this. And 
I would much rather see some serious discussion about, A, does 
the program need additional funds because more people are 
disabled, more p in the workforce, demographics? And are there 
things that we can do to improve the program and provide the 
appropriate benefits, but at the same time cut the costs, for 
example, greater back-to-work programs? I mean, one of the 
problems, I am sure you are aware, is the so-called cash cliff 
where there is very little incentive to go back to work. The 
private sector disability insurance, we have a company based on 
Maine called Unum that does a great deal of work with this. 
They have been very successful in getting people back to work. 
The rate, as I understand it, in this program, in disability, 
Social Security disability, is 1 to 4 percent ever go back to 
work.
    Ms. Colvin. That is correct.
    Senator King. It seems to me that dealing with the cash 
cliff problem, some kind of phasing, greater intervention, 
working with these folks to get them back into the workforce, 
which I suspect they would like to do, would do a lot for the 
actuarial balance of the program. Periodic reviews, 
demonstration programs to show how we can do this, I would like 
to see that. Re-fund it. You mentioned the $1 for $9 return. We 
have got to do things like that, make those kind of 
programmatic changes. But it just bothers me that we are 
basically taking from one fund and giving to the other and 
calling that a solution and saying, well, 2033, I think one of 
my colleagues said, is way off into the future. It is not. And 
actuarial numbers do not lie, and it is going to come, and this 
is just another way of making that problem worse when it does 
come.
    So I commend you for the proposal and for the President's 
stepping forward, but I think it is just too easy to say, ``Oh, 
we are just going to do this for 5 years. It is going to make 
it okay and, you know, somebody else will deal with it in 
2033.'' We are dealing with problems now because our colleagues 
20, 30 years ago did not. And it is just going to get worse. 
Problems put off rarely get easier to solve with the passage of 
time. I am sorry to lecture you, but I just had to say I 
understand the impulse here, but I think it is bipartisan 
avoidance, not bipartisan solution.
    Do you agree that some of these back-to-work and the cash 
cliff, that those could be effective in dealing with the long-
term actuarial problems?
    Ms. Colvin. That is one of the reasons that the President's 
budget proposes a number of demonstration projects, so we can 
see just how effective they are. But, clearly, we know that 
early intervention is the key, Mr. King, because many of the 
people who come on our rolls are not going to be physically 
able to go back to work. We certainly want those who are able 
to go back to work to go back to work, and about 1 percent do. 
And I think that is terrific considering that the average 
amount of time on our rolls is about 10 years. So if you get 
that 1 percent to go back to work, that is about 10 percent.
    But I think the key is early intervention to try to get 
people to be able to remain in the workforce before they come 
out.
    Senator King. And also the rule that you cannot work at all 
for, what is it, 2 years before you are eligible or--
    Ms. Colvin. There are some work restrictions, and we are 
looking at all of those things. I do not want to suggest that 
within the agency we are not looking to see from, you know, the 
beginning of the process to the end if there are things that we 
want to recommend that would require legislative changes. But I 
just want to reemphasize that anything to fix the program will 
require congressional action--not administrative action; 
congressional action.
    Senator King. I understand that, but I would like to see--
and I understand that we have got an immediate problem in 2016, 
and we have got to deal with that, and maybe this rebalancing 
that you are talking about is the only short-term solution. But 
I would only support that if I also saw along with that other 
changes in the program that would increase the actuarial 
soundness of the overall program and leave us where we are in 
2033 instead of aggravating the problem by just pushing it out 
a few years.
    Thank you very much, and thank you for your service under 
very difficult circumstances. I associate myself with Senator 
Kaine's remarks. We should get you confirmed so you can fully 
get to work. I am a former Governor. I think executives should 
be able to choose the people that they want to work with them, 
and whatever their party, and stand or fall on the quality of 
their people.
    Ms. Colvin. Thank you.
    Senator King. Thank you for your service.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Sessions.
    Senator Sessions. Thank you. Thank you, Mr. Chairman, for 
what I think is a very important hearing. Commissioner Colvin, 
it is great to have you here, and we just have to talk about 
it. Senator King says actuarial numbers do not lie, and we 
might as well face up to the difficulties.
    Commissioner Colvin, is it not fundamentally true that as 
you consider disability an insurance program, we do not have 
enough--each individual that pays into Social Security through 
their payroll taxes for disability actually in effect is paying 
in less than they are drawing out if they become disabled over 
time as general numbers?
    Ms. Colvin. I would have to give you those numbers for the 
record. I am not certain that that is fully accurate, because 
remember that the average amount of time that someone spends on 
our rolls is 10 years, and that for anyone coming on who is 55, 
they die within the first 5 years. So I would like to go back 
and get the data to make sure that is accurate.
    Senator Sessions. Well, I think we are running out of money 
because it is not actuarially sound, is it? I mean, if you are 
an insurance company, you would have to raise income or cut 
benefits to keep it on a sound path.
    Ms. Colvin. And those are the things that I hope Congress 
will look at. What is the path--
    Senator Sessions. I know. It is our responsibility. It is 
in law. It is not your--we created this, and we have a 
shortfall, it seems to me. And with regard to Social Security, 
the retirement benefit, it is a similar thing. We have created 
a system that creates a benefit, an increasing benefit when the 
economy grows, and we do not have enough money coming in both 
overall and per individual. Is that correct?
    Ms. Colvin. Well, we recognize that you have far fewer 
workers paying into the system than you did when the program 
was created.
    Senator Sessions. Right.
    Ms. Colvin. We celebrated our 80th anniversary this year 
Social Security will have been in existence, but it is a basic 
financial security system for the workers of this country. And 
I think it behooves us to figure out how to make it financially 
sound.
    Senator Sessions. I agree we need to make it sound, and it 
is not your responsibility. It is ours. I acknowledge that. But 
as I understand it, a worker turning 65 in 2020 who made 
average wages over their lifetime will pay in $427,000 plus 
that includes the interest that would be accruing on that into 
Medicare and Social Security, but they would receive over 
$100,000 more, $536,000 in benefits. So I am just asking you, 
this is an actuarially unsound proposition, is it not?
    Ms. Colvin. I would have to look at your numbers. As I 
said, we recognize that--and we do the Trustee report each 
year, so we predict what the impact will be each year.
    Senator Sessions. Well, let me just ask you this: You are 
in charge of this program. The average person over their 
lifetime, aren't they going to draw--on average they will draw 
out more than they pay in, including the interest that might 
accrue?
    Ms. Colvin. I am not sure of that. I would like to get back 
with the answer for the record on that. I do not know if that 
is accurate.
    Senator Sessions. Okay. Well, thank you. I would like to 
know that. If that is not so, then we have got less of a 
problem than I thought we had. It would be nice if that were 
so.
    Ms. Colvin. I really do not know that number. I need to get 
back to you for the record with that.
    Senator Sessions. All right.
    Senator Sessions. Now, with regard to the disability 
situation, colleagues--and I know Senator Enzi is going to be 
wrestling with this, but the administration has said that we 
would just take the money from the Social Security retirement 
fund and fix this in the interim. I understand that is the 
solution. I understand the House has said that they do not want 
to do that and there has got to be more reforms, which I think 
should be. Anybody that saw the ``60 Minutes'' show on 
disability and lawyers and judges that are too lax and the 
problems that we have, it is really serious. So I think we need 
to do that. But I do hope that we can work together on a 
bipartisan basis to get some reforms in this system instead of 
just raiding the retirement fund, because it is going kaput, 
too. It is on an unsustainable path, and the more we take from 
it to fund the disability portion, the weaker it becomes. So we 
are not really doing anything but, you know, robbing Peter to 
pay Paul.
    Mr. Chairman, my time is up. Thank you. I look forward to 
working with you on that, and if you would give me your best 
estimate on the cash flow of individuals, I would appreciate 
that.
    Chairman Enzi. Senator Merkley.
    Senator Merkley. Thank you very much for your testimony 
today, and thank you, Mr. Chairman.
    It is my understanding that a lot of veterans are on Social 
Security disability. Is that correct?
    Ms. Colvin. We have 1 million right now.
    Senator Merkley. I have a couple letters I thought I would 
share from veterans back in Oregon.
    Kenneth from Medford wrote: ``All of my disability came 
from my service in Vietnam. I am totally dependent on my Social 
Security disability check. If I do not get paid, I cannot pay 
the rent. It is impossible for me to work because of my 
disability, so please stop this game.'' He is taking it very 
personally that people are attacking the veterans on 
disability.
    And Roberta from Portland, she wrote: ``Dear Senator 
Merkley, my name is Roberta, and I am a 100 percent service-
connected disabled veteran. As such, I collect Social Security 
disability. I own my home, but I spent a decade homeless after 
my discharge for disability from the Navy. I am 55 now. I 
cannot go homeless again. It would be a death sentence.''
    For folks who are on disability with these significant, 
major injuries, what happens if we do not sustain the health of 
this program?
    Ms. Colvin. Well, I do not want to be dramatic, but I have 
worked with this population my whole career. I think we give 
them a death sentence. You cannot have people out there who 
have served this country, you cannot have workers who have 
helped to build this country strong, that all of a sudden 
because of inaction we slash their benefits by 20 percent.
    If you think about it, if you are getting $1,200 a month, 
you are barely surviving. And if you then get a cut there, you 
are not going to be able to survive. Right now these people are 
making tough choices between the things that we take for 
granted--eating, paying their rent, paying for their medicine. 
I do not think that this country can allow that to happen. 
These are workers' benefits. People have paid into the system, 
and they deserve the comfort and certainty that this benefit 
will continue and it will not be threatened.
    Senator Merkley. And you have noted in your testimony that 
just a fraction of those who apply are actually granted 
disability because it is a very rigorous standard.
    Ms. Colvin. That is correct. At the DDS level right now, 
there is about a 32-percent approval rate. I do not usually 
focus on approval or disapproval. What I focus on is making 
certain that we make the right decision. But these are people 
who deserve our support and our help. But they have also earned 
it. It is an earned benefit.
    Senator Merkley. You have noted that there are these 
Cooperative Disability Investigative Units around the country 
in 35 States, and I think I understood you to say that for each 
dollar invested, we get $15 back.
    Ms. Colvin. I think that the Office of Inspector General 
says $17.
    Senator Merkley. $17 back. Is there any reason that we do 
not just go ahead and put one into another 15 States?
    Ms. Colvin. Money. When I came back, we only had 24. I have 
already diverted money from customer service, where I should be 
serving the public, to put these units in, trying to balance. 
So I put in 10 more, which gives us the 35. But I do not have 
the resources to do more than that.
    Senator Merkley. So if we are getting $17 back for every 
dollar we put in, maybe there would be bipartisan support for 
that kind of smart investment. There has been a lot of concern 
expressed. You have noted it is very difficult to be approved 
for disability and that the fraud rate is minuscule. But 
certainly having the investigation units is a part of what 
keeps the solvency, so maybe that is a bipartisan conversation 
we can have for that type of return on the investment.
    And then you have also noted these Continuing Disability 
Reviews, which are basically another fraud control. You go back 
and recheck whether somebody is still disabled, because 
sometime people heal from a disability. But there is a backlog 
of 1.3 million CDRs, and you are proposing we try to take on 
some of that backlog. But maybe colleagues on both sides of the 
aisle could agree that we should accelerate the investment for 
those reviews.
    Do we have a sense of whether those reviews primarily serve 
a preventive service, that is, people knowing that they will go 
through these reviews, it reduces even that small fraction of 
fraud? Or do we find people who have improved and they should 
be coming off the disability rolls and, therefore, there is a 
return on these reviews?
    Ms. Colvin. The CDRs are designed to do just that. When 
people come on the rolls, we know that some are likely to 
improve and some will not. For those that are likely to 
improve, we should go back within the time frame to review to 
see if there is improvement. And when we do not, of course, 
they continue to get a check even though they may no longer be 
disabled. So that would be important.
    Also, when we do the reviews, we may see some patterns that 
suggest that things are inappropriate that may allow us to see 
if there is fraudulent activity. I think that if you support 
the President's 2016 budget where he is asking for a dedicated 
program integrity budget, we would be able to do many of the 
things you are talking about. That 2016 budget will allow us to 
do 908,000 CDRs versus the 700 that we are doing this year or 
the 500 we did last year. So I would urge--
    Senator Merkley. So I will do a summary statement because I 
am out of time. But I think you are saying if we invest in 
these two programs--the investigative units and the CDRs--we 
will even further improve the efficiency and appropriateness of 
this program. That is a win-win.
    Ms. Colvin. Absolutely.
    Senator Merkley. Thank you.
    Ms. Colvin. Thank you, sir.
    Chairman Enzi. Senator Baldwin?
    Senator Baldwin. Thank you, Mr. Chairman and Ranking Member 
Sanders. I appreciate the opportunity to be here to discuss an 
important social safety net that is available to all working 
Americans: Social Security Disability Insurance.
    This program allows workers that have paid in with at least 
5 years of work to be insured in the event that they become 
disabled, by disabling injury or illness or other condition.
    Now, if the members of the Committee will indulge me, I 
would like to take a brief moment to brag about the program's 
proud origins in the State of Wisconsin. In the State of 
Wisconsin, we have something called ``the Wisconsin Idea,'' 
which has actually come under attack in recent days by our 
Governor. But first articulated in 1904, the Wisconsin Idea 
states that the mission of the University of Wisconsin system 
is to solve problems and to improve people's lives beyond the 
classroom, essentially that academicians and government experts 
should work together to solve social problems.
    It was in the spirit of the Wisconsin Idea that President 
Franklin Delano Roosevelt asked two Wisconsin professors, 
Arthur Altmeyer and Edwin Witte, to design the Social Security 
program and system.
    Now, from the beginning, Altmeyer advocated for a 
disability insurance program, stating that it might eventually 
be of even greater need than old-age protection. But he was 
wary at the time of potential political attacks against such a 
program, so it took a little over two decades for Altmeyer's 
Disability Insurance program vision and dreams to actually be 
realized.
    The program we have today is really due to that vision. 
However, I am very concerned by the politics that brings us to 
this hearing and this moment today, concerned that the Social 
Security Disability Insurance program has really come under 
attack by Republicans in the House who are putting up 
procedural obstacles to the way that we have sustained the 
viability of this program over many, many years and setting the 
stage actually for a battle over its future.
    Ms. Colvin, the AARP and every major retirement advocacy 
group opposes this particular House Republican recent action, 
tactic regarding Social Security Disability Insurance Trust 
Fund because it puts the whole program at risk.
    Can you tell me if it is true that the only two means 
available other than, of course, transferring money between the 
Social Security--or into the Social Security Disability 
Insurance Trust Fund--the only means available to restore 
solvency would be either drastic benefit cuts or raising 
revenues with policies like increasing the earnings cap?
    Ms. Colvin. Well, clearly, any change that you make is 
going to take some time. That is why the President put forth 
the reallocation proposal. We did not expect the type of 
reaction because this has been done 11 times in the past on a 
bipartisan basis. In fact, five of those times we transferred 
resources from DI to OASI. Clearly, any reform is going to 
require a combination of the things you have talked about, some 
changes perhaps to benefits and some changes to revenue. And 
there are many proposals out there that have been presented by 
many bipartisan groups as a matter of whether or not the 
country remains committed to providing this basic benefit for 
workers of this country.
    Senator Baldwin. But, obviously, if we were able to do the 
transfers that you describe, having been done 11 times before 
in both directions, we do not face the immediate issue of 
drastic cuts.
    Ms. Colvin. And then we can have a thoughtful discussion 
about what changes will occur and try to minimize the impact on 
those who receive those benefits. When the President put forth 
those six principles, it was designed to make certain that 
people would not be harmed as we looked at reforming the 
process.
    Senator Baldwin. You know, I appreciate my colleagues who 
have taken the time to share the stories of their constituents 
who have applied for and are eligible for and receive Social 
Security Disability Insurance benefits, because oftentimes we 
talk about them as a group rather than share their individual 
stories. But I think that if we find ourselves in the policy 
choice between either cutting benefits to the very most 
vulnerable in our society by some reports 20 percent, by your 
own testimony--
    Ms. Colvin. That is correct.
    Senator Baldwin. --20 percent or asking the wealthiest 6 
percent in this country to pay the same in Social Security 
taxes as poor and middle-class workers pay, I know which side I 
am on.
    Chairman Enzi. Senator Ayotte.
    Senator Ayotte. I want to thank the Chairman, and I want to 
thank you the witness for being here today. As I hear about 11 
years of transfers, whether it is from the Old-Age Fund to the 
Disability Fund and obviously the immediate issue facing us in 
2016, we have been here before since 1994 when we transferred 
money from Old-Age to Disability with the goal of buying time 
to fix the program. So we have been doing this for about 20 
years with the same problem. We know what the problem is.
    And so how do we avoid getting back in the same position 
next year, and the year, after that where we are kicking the 
can? How do we avoid that? Because it seems to me we owe the 
people who really need this fund, and it is important to them 
that we actually try to solve the long-term viability of it. 
And we have got the long-term viability of the Old-Age Fund, as 
well. It is wonderful to get six principles from the President, 
but I would also love to know what he would support in terms of 
concrete reforms so we can work together.
    Ms. Colvin. Well, certainly I think it is going to be 
incumbent that Congress sit down and look at the various 
proposals that are out there and determine which ones you can 
support. This proposal that is before us now is to give you the 
time to be able to do that.
    Senator Ayotte. See, but here is what I am struggling with: 
We have had so much time on this. We would love to see concrete 
proposals from the administration. I know that Senator Baldwin 
referred to a proposal in the House, but what is it the 
administration could support that, rather than just a transfer, 
would actually reform and preserve the programs so that we can 
work together to figure out on a bipartisan basis how we are 
preserving this for the long term, and we are not having 
Groundhog Day again? If we went back to 1994, I bet you there 
were Senators asking the same question as me here. Can you help 
me with that? Does the administration have a plan to submit to 
us that we could look at some concrete proposals that they 
might support?
    Ms. Colvin. I can only speak today to the proposal that is 
before you, which is the President's 2016 budget which sets for 
the reallocation plan as well as numerous legislative proposals 
and some demonstration proposals, et cetera, and I think you 
have those. I can certainly walk through those if you wish.
    Senator Ayotte. I do. I understand reallocation, but I 
think that is just basically robbing Peter to pay Paul. Let us 
not kid ourselves. And I hope that the administration will 
actually submit something concrete. If they do not like the 
House proposal, then let us hear what the proposals are that 
they would submit. And I hope other people are listening to 
this and would submit to us some ideas we can work on together.
    I got to the hearing a little bit late, and I wanted to 
understand if you testified about the fact that we have seen, 
going back to 1994, a significant increase in the number of 
claims that the Disability Fund has to cover. Could you help me 
understand what you believe is driving that? And what do we 
have to look at in terms of a situation where we see an 
increasing number of claims, that obviously exacerbates the 
fiscal challenge that we face? All of us want to make sure that 
the people who really need this fund are able to access it. So, 
can you give me a sense of what we are facing?
    Ms. Colvin. Absolutely. The increase in the disability 
rolls during this period of time should not have been a 
surprise. It has been projected by the actuaries and the 
trustees of Social Security since 1995, and they were right on 
target. The primary reasons were the economic and demographic 
factors, the fact that the baby boomers were reaching the 
disability-prone years and would be, in fact, coming on to the 
disability rolls, the fact that more women were working and 
getting benefit on their own right. In fact, they are now on 
parity with men.
    We knew that this was going to occur. I think the one area 
that may not have been fully projected was the recession, and 
so certainly people who were marginally employed, a number of 
those individuals came on our rolls.
    If you look at data now, you see that those variables are 
becoming minimal, and so now the number of applications are 
less. The number has significantly decreased. And the actuaries 
I believe projected that decrease will continue to go down and 
level out, because now you have individuals who were in 
disability-prone years now going into retirement years. Most of 
your baby boomers will be going into the retirement pool. And, 
of course, the actuarial challenges are related to the fact 
that we have less workers paying into the system than when we 
first started this program.
    So I do not think you should be surprised by the spike, and 
now, of course, we are pleased to see that that spike is 
decreasing, as was projected.
    Senator Ayotte. I know my time is up but there is one thing 
I do not understand, and perhaps you could help me with this. I 
understand the baby-boomer issue because it is, frankly, an 
issue we are facing in the Old-Age Fund, Medicare and many 
other programs. I understand the funding problem in terms of 
the recession, meaning number of people paying in. Maybe I 
misunderstood your testimony, but is there a relationship 
between when it is a recession more people go to disability, or 
were you just speaking to the funding issue? Because if that is 
a connection, I am curious why that connection would be there.
    Ms. Colvin. No, I think you have people who were marginally 
employed, they worked part-time, they may have situations where 
they are in and out of the job market, and they really try to 
hold on. During a recession you will see more of those people 
applying for disability, and they, in fact, meet our 
requirements. People want to work, and they try to work as long 
as they possibly can. But in some situations, they are just not 
able to. That is why you have provisions in the statute 
relative to substantial gainful activity. People who are 
disability rolls are allowed to earn a certain amount. We want 
to encourage that.
    And so there is a correlation. We would be very happy to 
meet with you privately and share more information with you.
    Senator Ayotte. I would love more follow-up information for 
the record.
    Ms. Colvin. We would certainly love to do that.
    Chairman Enzi. Thank you, Senator Ayotte.
    That concludes the questions for the first panel this 
morning. Commissioner Colvin, thank you for agreeing to testify 
this morning. This is an important topic, and we are going to 
need to work together on a long-term solution to better serve 
our disabled. That prediction that is so accurate from 20 years 
ago must have understood every demographic change that was 
going to happen, and yet we did not take those factors into 
consideration to come up with a solution. So I am hoping that 
we do not just kick the can down the road. I am hoping that the 
President will take an active role in this. And one of the main 
reasons is, in 2033, we are not going to be able to do any 
transfer from Old-Age or the Disability Fund or the Medicare HI 
Fund, Part A. They are all going to be in the same shape come 
2033, so a reallocation will not be possible. So I hope we do 
not kick the can down the road.
    Thank you very much for testifying.
    Senator Sanders. Mr. Chairman, if I could, just very 
briefly, I think at the end of the day there is pretty clear 
agreement. I would hope that nobody here is going to be 
supportive of the 19-percent cut for some of the most 
vulnerable people in this country.
    But also I think there is widespread recognition that w 
have a serious problem that has to be addressed. So my solution 
or suggestion is let us deal with this, let us do what the 
President said, let us do what has been done 11 times. Let us 
sit down and figure out how we do not kick the can down the 
road.
    Chairman Enzi. Thank you.
    The next panel, while we are setting up for the panel I 
will introduce the three witnesses who we are honored to have 
before the Committee this morning. We have talked about the 
problem. Now I am hoping we get the solutions.
    First we will hear from Dr. Duggan. Dr. Duggan is the Wayne 
and Jodi Cooperman Professor of Economics at Stanford 
University and a leading expert on Federal disability programs. 
Prior to joining Stanford, Dr. Duggan held faculty positions at 
the University of Pennsylvania, the University of Maryland, and 
Harvard University. He also was an economist with President 
Obama's Council of Economic Advisers in 2009 and 2010. Dr. 
Duggan has written extensively on the causes of the rise in 
disability insurance over the last 30 years. Along with his co-
author David Autor of Harvard University, he proposed reforming 
the disability system using front-end interventions focused on 
rehabilitation upon the onset of a disability to keep workers 
in the labor market.
    Second, we will hear from Dr. de Jong, who is a professor 
of economics at the University of Amsterdam and managing 
partner at APE, a research firm in the Netherlands. He is an 
expert on European disability programs and is considered by 
many to be the father of disability reform in Holland. He has 
published widely on Social Security and disability insurance. 
He has also advised the European Union, the OECD, the World 
Bank, and many countries confronting disability issues.
    Finally, we will hear from Ms. Lang. Ms. Lang is a staff 
attorney at the National Senior Citizens Law Center where she 
works on issues related to Social Security Disability Insurance 
and Supplemental Security Income. Prior to joining the National 
Senior Citizens Law Center, Ms. Lang was an attorney at the 
Legal Aid Bureau in Maryland and has worked for a variety of 
other legal services for low-income people. Ms. Lang has an 
undergraduate degree from Oberlin College, a law degree from 
Fordham University, and a master's degree in teaching English 
to speakers of other languages from the University of 
Pennsylvania.
    For the information of colleagues, each witness will take 5 
minutes for their opening statements followed by questions.
    Dr. Duggan, please begin.

   STATEMENT OF MARK G. DUGGAN, THE WAYNE AND JODI COOPERMAN 
          PROFESSOR OF ECONOMICS, STANFORD UNIVERSITY

    Mr. Duggan. Chairman Enzi, Ranking Member Sanders, and 
members of the Committee, it is truly an honor to be here with 
you here today.
    The Social Security Disability Insurance program currently 
provides insurance against the risk of disability to more than 
151 million American adults. The program represents an 
extremely important part of our Nation's safety net as it 
protects workers and their families from the risk of a 
disability that prevents or greatly inhibits a person's ability 
to work.
    Nearly 9 million adults received SSDI disabled worker 
benefits in December 2014. SSDI expenditures currently exceed 
program revenues by 26 percent, and as a result the program's 
trust fund is rapidly being depleted. Current projections from 
the OASDI Trustees suggest that the trust fund will reach zero 
in late 2016.
    As shown in Figure 1 of my written testimony, enrollment in 
the SSDI program has grown steadily since the late 1980s, from 
2.3 percent of adults aged 25 to 64 in 1989 to 5.0 percent in 
2013. In my testimony today, I will briefly summarize the 
factors that are responsible for this growth, and in my written 
testimony, I also outline the implications of this growth for 
the U.S. labor market and discuss some prospects for reform of 
the SSDI program.
    One contributor, as has been discussed already today, to 
the growth in SSDI enrollment has been the aging of the baby-
boom generation. Individuals in their fifties and early sixties 
are significantly more likely to receive SSDI benefits than 
their counterparts in their thirties and forties. However, 
there has also been a significant increase within age groups 
during this time period.
    Consider individuals in their fifties. In 1989, 4.3 percent 
of adults in this age group were receiving SSDI benefits. By 
2013, this had almost doubled to 8.3 percent. The increase was 
also substantial for people in their early sixties or for 
adults from 25 to 49. Because of these age-specific increases, 
the aging of the population explains only about one-fifth of 
the increase in SSDI enrollment from 2.3 percent to 5.0 
percent. Put another way, if age-specific rates of SSDI 
enrollment had not changed over this time period, SSDI 
enrollment would have grown from 2.3 to 2.8 percent, not to 5.0 
percent.
    Another factor, as has been mentioned, is the increase in 
the fraction of women who are insured for the program. From 
1989 to 2013, the fraction of women 25 to 64 insured for the 
program increased from 66 to 75 percent. Taking account of this 
factor can explain another 12 percent of the growth in SSDI 
enrollment. So about one-third of the growth in SSDI enrollment 
from 1989 to 2013 as a fraction of the population is 
attributable to these two factors.
    Another important determinant of the growth in SSDI 
enrollment since the 1980s, based on my own previous research 
with David Autor and others, is the liberalization of the 
program's medical eligibility criteria that occurred in the 
mid-1980s. As shown in Figure 2, there has been a substantial 
increase in award rates for diseases of the musculoskeletal 
system and mental disorders, while award rates for neoplasms 
and circulatory conditions have remained roughly constant. This 
shift is important because, as shown in recent research, the 
employment potential of individuals with these sometimes more 
subjective conditions is substantial, and it is often somewhat 
difficult to verify the severity.
    A fourth contributor to the rise in SSDI enrollment has 
been the reduction in the generosity of OASI retired worker 
benefits. As a result of legislation passed in 1983, the 
fraction of full benefits that a worker can receive at age 62 
if they claim retirement benefits has fallen from 80 to 70 
percent, and as a result, the ratio of SSDI benefits to those 
early benefits is growing from 25 percent higher to 43 percent 
higher. Some of my own previous research shows that this has 
resulted in an increase in SSDI enrollment.
    Another important driver of the rise in SSDI enrollment is 
the sensitivity of the program to economic conditions. As shown 
in Figure 3 of my testimony, applications to the program are 
highly responsive to the unemployment rate, with applications 
rising substantially during economic downturns and falling when 
the economy improves. Previous research has shown that 
individuals who lose their job or who are unable to find a new 
job are more likely to exit the labor force and apply for SSDI 
benefits. This is troubling when one considers the low exit 
rate from the program back into the labor force.
    There have been other factors that have contributed as well 
to the rise in SSDI enrollment, including changes in 
replacement rate and other factors that I outline in my written 
testimony. The steady rise in SSDI enrollment, though, has 
started to slow down over the last couple of years, and I talk 
more about that in my written testimony.
    While providing valuable insurance to tens of millions of 
Americans, the SSDI program reduces the incentive to work both 
for individuals on the program and those applying for SSDI 
benefits. The growth in the program has coincided with a 
substantial reduction in employment rates among individuals 
with disabilities. For example, from 1988 to 2008, the 
employment rate of men in their forties and fifties who 
reported a work-limiting disability fell by 12 percentage 
points.
    One way to improve incentives in the SSDI program is to 
intervene sooner for individuals with work-limiting conditions 
so that they can continue working, and we have talked a bit--
this has already been discussed somewhat here today.
    The payoff to keeping a potential SSDI applicant in the 
workforce is very high given that the average present value of 
an SSDI award is in the neighborhood of $300,000.
    Increasing employment among individuals with disabilities 
could improve their economic well-being and increase their 
autonomy while also reducing the fiscal strains on the Social 
Security program.
    Sorry I ran over.
    [The prepared statement of Mr. Duggan follows:]
    
    
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     Chairman Enzi. Dr. de Jong?

    STATEMENT OF PHILIP R. DE JONG, PROFESSOR OF ECONOMICS, 
    UNIVERSITY OF AMSTERDAM - AMSTERDAM SCHOOL OF ECONOMICS

    Mr. de Jong. Thank you, Mr. Chairman. It is an honor for me 
as a Dutchman to address your Committee, but it also restricts 
myself. I come from a country where the minimum wage, the legal 
minimum wage is at the level of $1,200 per month, the same as 
the average benefit, even under the current euro-dollar 
transfer rates.
    Moreover, I come from a country which is not bipartisan, 
where governments are tripartisan coalitions or even 
quadripartisan. So what I learned here this morning is a lot 
about U.S. politics, and I am sorry to say much less about the 
solutions of the dooming problems with funding disability 
benefits. A lot of the discussions were about funding and much 
less, with a few exceptions, about the system. What I present 
is a system change, and I am sorry to have to use the word 
which you made use of, privatization, and especially strong 
incentives for employers, engaging employers. But the principle 
was focus on capacity, not on incapacity, and that is something 
which may be changed if you look at the SSDI system. But I feel 
somewhat awkward to suggest as a foreigner things to your 
political program.
    Anyway, let me start with my testimony. Disability benefit 
schemes are often used as a provision to accommodate social 
change and cyclical ups and downs, as Mark just has evidenced. 
In the Netherlands, the DI scheme supported structural change 
towards a service-oriented economy, and it mollified the 
transition of Dutch households from a traditional single 
breadwinner type to a modern dual-earner family.
    Similar uses of disability benefit schemes could be seen in 
Eastern Europe to soften the pains of transition to a market 
economy in the 1990s. In the U.S., too, the pronounced positive 
relationship between the national unemployment rate and the 
SSDI application rate shows that SSDI works as an alternative, 
and more generous, unemployment scheme. It is one of the 
factors that caused secular growth in the U.S. number of 
disability benefits, as Mark Duggan just explained.
    The drawback of using disability benefits as a ``soft'' 
unemployment scheme is that it hides the lack of targeted, more 
cost-effective provisions and postpones their introduction. 
Meanwhile, huge unfunded financial liabilities are created 
given the long average duration of disability benefit 
dependency. The Dutch case is a good illustration both of the 
size of such liabilities and of the long political road it took 
to change an entitlement-oriented disability policy into an 
employment-oriented one.
    To give you an example, in 1990 there was no country in the 
world that had more disability beneficiaries per 100 workers 
than the Netherlands. Twelve percent of the labor force was on 
disability, and the entry rate into disability was 2 percent; 2 
per 100 went each year on disability.
    Under pressure, like which was discussed here, of an aging 
workforce, the Dutch Government took a series of steps, in 
fact, from 1994 onwards. Their success fluctuated, but as of 
2002 the steps taken were successful in bringing down DI 
awards, so the entries, by 60 percent. I have a figure in my 
written testimony to show that.
    The major element causing the drop in DI inflow is early 
intervention, fueled by strong financial incentives for firms. 
In my introduction by the Chairman, he mentioned that I am a 
partner in a consultancy, so I am an employer myself, so I 
know--I am experienced in what it means to pay--to finance 
sickness benefits oneself, because that is an important part of 
what the Dutch did. All Dutch firms are obliged to pay for 
sickness benefits themselves, for rehabilitation, for 
accommodation, and for job mediation during the first 2 years 
of disablement. And those 2 years are also the mandatory 
waiting time before you can be awarded a long-term disability 
benefit, which is a public program. So that means that the 
coverage, the income protection of the first 2 years of 
disablement is fully privatized. Of course, it is based on 
legal mandates, but firms have to provide for it themselves. 
And, of course, they can insure against it, and small firms 
have to insure against such a liability. But they are 
completely free to do that.
    Moreover, disability benefits, so after 2 years when you 
are assessed, when you put in a claim and you are awarded a 
disability benefit, these are financed by contributions that 
are experience rated at the level of the individual firm. That 
means that Dutch firms pay substantially higher rates if one or 
more of their employees enter the disability benefit, the Dutch 
disability benefit scheme.
    Dutch workers also face stronger incentives. Although 
sickness benefits replace about 85 percent of wages, with a 
cap, but with a very high cap of about 50,000 euros per year, 
the DI benefits are lower and such that they make work pay if 
someone has a residual earning capacity that is more than 20 
percent of his previous earnings. I have to explain to you that 
disability under the Dutch law, under the Dutch disability 
insurance law, is defined in terms of earning capacity, so in 
terms of money. So you compare what you still can earn with 
your limitations with what you used to earn before you became 
disabled. And that earning capacity loss, that is what is 
insured, what is covered.
    DI benefits are lower--if such partially disability 
benefits--so there is within the disability benefit system in 
Holland a possibility to get partial benefits, which work, in 
fact, as a wage subsidy. But if partially disabled workers do 
not use their residual capacity, they get a much lower benefit. 
So there is a strong incentive to use as much as you can of 
your residual capacity.
    From 2004 more stringent eligibility standards apply, and 
these standards are strictly administered, which is also 
important, by the DI program administrators because you can put 
stringent things in law but they have to be administrated as 
well, and that also calls for attention for incentives for 
administrators. The denial rate is about 45 percent and went up 
and down with the cyclical conditions. So it turned out to be 
robust against the business cycle. Of course, applications also 
in Holland go up under adverse economic conditions. But at the 
same time, denial rates also went up, so keep entries at a 
stable level.
    Reforming a benefit program creates the issue of what to do 
with the current beneficiary population, and I think this is 
unheard of in the U.S. Between October 2004 and December 2007, 
all 300,000 DI beneficiaries younger than 45 were reassessed 
under stricter standards, so during the game you change the 
rules, which is--I think would be here very controversial. 
Anyway, 39 percent of the benefits were terminated or reduced, 
and among this group about 60 percent were working 3 years 
after their benefit status was reviewed and they lost the 
benefit of part of their benefits. But this is the only thing 
you can do to do something about this unfunded liability; 
otherwise, you have inheritance of a lot of people on 
disability who may be able to work, while your Continuing 
Disability Reviews may take care of that, that I do not know.
    Chairman Enzi. Can I ask you to kind of wrap that up?
    Mr. de Jong. Yes, yes.
    Chairman Enzi. We will have a lot more questions.
    Mr. de Jong. The reformed Dutch disability scheme purports 
to cover only those that have hardly any productive capacity 
left and to provide other workers with disabilities with strong 
incentives to remain active. The results for the first 9 years 
of the operation of the new scheme show that inflow rates have 
dropped substantially to levels that are reasonable by 
international standards and showed to be robust against the 
deep recession of 2008-13. The incentive structure that steers 
the behavior of employers and long-term sick workers proves to 
work.
    Thank you.
    [The prepared statement of Mr. de Jong follows:]
   
   
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    Chairman Enzi. Thank you very much.
    Ms. Lang?

STATEMENT OF KATE LANG, SENIOR STAFF ATTORNEY, NATIONAL SENIOR 
                      CITIZENS LAW CENTER

    Ms. Lang. Thank you, Chairman Enzi, Ranking Member Sanders, 
and Senator Perdue. My name is Kate Lang, and I am an attorney 
with the National Senior Citizens Law Center. Our principal 
mission is to protect the rights of low-income older adults.
    I am also a co-chair of the Income Security Committee of 
the Leadership Council of Aging Organizations, or LCAO, a 
coalition of 72 national aging advocacy organizations that 
represent millions of older Americans. Members of the coalition 
include the AARP, the National Committee to Preserve Social 
Security and Medicare, and the National Council on Aging, among 
many others. And together we work to preserve and strengthen 
the well-being of America's older population.
    The LCAO believes that Congress should preserve the 
disability benefits of millions of older Americans by 
reallocating the payroll taxes between Social Security's 
retirement fund and disability fund to equalize the solvency of 
the two funds and should do so without any cuts to Social 
Security coverage, eligibility, or benefits.
    As we all age, we face an increasing risk of acquiring 
disabilities that may limit our ability to support ourselves 
through work and put us at great financial risk. Fortunately, 
nearly all Americans pay into our Social Security system, a 
system of earned benefits that protect workers and their 
families in the event of death, disability, and retirement. 
More than 9 out of 10 American workers are insured for benefits 
that can be a lifeline for their families in the event of a 
qualifying disability.
    And I would like to take a moment today to tell you about 
one of those Americans, who is here with us today, in her green 
jacket. Darlene B. is a 60-year-old woman who
    lives here in Washington, D.C. She worked for many years in 
a variety of jobs in Pennsylvania and here in the D.C. area, 
but several years ago, Ms. B.'s children, who are now 28 and 
30, noticed that she was struggling with her memory. She 
thought it might be related to a brain tumor that had been 
uncovered in her teens, but she was, in fact, diagnosed with 
early-onset Alzheimer's in her fifties, and she was approved 
for disability benefits through Social Security's Compassionate 
Allowances programs.
    Ms. B.'s life has changed a lot as a result of her health 
problems, especially now that her cancer has spread to her 
spine. She has to plan her activities for each day carefully, 
and she relies on her son to keep track of her appointments. He 
is also her representative payee and helps her manage the 
approximately $900 a month she receives.
    Nearly all of her benefits go to pay rent and utilities, 
and she has had to cut back on her expenses now that her income 
is so limited. If her benefits were cut, she might not be able 
to afford to continue living in her apartment. And Ms. B. will 
face a benefit cut of about 20 percent, or $180 a month, if 
Congress does not act in the next 2 years.
    The LCAO urges Congress to reallocate Social Security's 
payroll taxes to ensure continuation of benefits for Ms. B. and 
millions of older Americans with disabilities--and to do so 
without making any accompanying cuts to Social Security 
coverage, eligibility, or benefits.
    So I would quickly like to wrap up with three points:
    First, that most who receive Disability Insurance benefits 
are older adults, age 50 and older, so helping DI helps 
seniors. Seven in ten beneficiaries are age 50 and older, and 
three in ten are 60 and older. When disabled workers receive 
Disability Insurance benefits as they age into their retirement 
years, these benefits help to ensure that they will not fall 
into poverty in later years.
    The increase in the full retirement age to 67 delays when 
disabled workers switch to receiving benefits from the 
retirement fund. And in December 2013, more than 450,000 people 
aged 65 and 66 received disability insurance benefits. That is 
over 5 percent of the disabled workers receiving disability 
benefits. Under the rules in place until 2003, they would have 
been receiving retirement benefits instead. This is just one 
example of how closely the retirement and disability components 
of Social Security are interwoven and how changes to one part 
impact the other.
    Second, the need for reallocation has been expected for 
many years. When Congress last acted to reallocate payroll 
taxes in 1994, it was predicted that this action would need to 
be taken again in 2016. And this is primarily due to a rapid, 
but temporary, increase in the number of disabled beneficiaries 
as baby boomers passed through their fifties and early sixties, 
when the risk of disability is greatest.
    Third, this present situation is nothing new. Congress has 
rebalanced payroll tax revenues between the two trust funds 11 
times over the past 50 years, about equally in both directions. 
This is a traditional and usually noncontroversial step, and 
there should be nothing unusual or contentious in taking such a 
step now.
    In closing, reallocation does not require any increase in 
tax rates and will maintain the solvency of the combined trust 
funds until 2033. One of the strengths of our Social Security 
system is its universality. Most Americans who rely on Social 
Security Disability Insurance are, in fact, older adults, and 
we reject any attempts to manufacture a crisis that pits older 
adults against people with disabilities.
    Thank you. I welcome any questions.
    [The prepared statement of Ms. Lang follows:]
    
    
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    Chairman Enzi. Thank you, Ms. Lang. I want to thank all the 
panelists for their information and ideas and hope you will be 
open to written questions submitted by people as well. We can 
go into more detail, and you are the three that we are relying 
on for the solutions. We in the earlier panel covered the 
problem pretty well.
    Let me begin my questions with Dr. de Jong. I want to thank 
you for coming all the way over here, and one of the reasons 
that we wanted you to testify is that when I was in the State 
legislature, I always tried to find some kind of a State that 
had already done what we were talking about doing and seeing 
what the pitfalls were and how they accomplished it. And so you 
are that on an international scale, and I appreciate it.
    You talked about privatization of Disability Insurance as a 
major instrument in helping the disabled people remain in the 
workforce, and you have probably already sense that that is a 
nasty word around here. But what it sounds like you did was get 
private insurance to pick up the first 2 years. Can you explain 
how you developed the market for that Disability Insurance for 
that first 2 years?
    Mr. de Jong. Well, it was not really developed. What you 
have now is that a Dutch employer has to contract--whether he 
wants to insure his financial liabilities towards paying 
sickness benefits for 2 years is something he can decide 
himself. There is no mandate. But he has to--he is legally 
mandated to contract occupational health services, because, I 
mean, normally employers--I can speak for myself--are not 
managers of absenteeism, of sickness absenteeism, so they have 
to contract company doctors, they have to contract people who--
so that is all legally mandated, and what you normally see is 
that especially for small firms--and most firms are small--is a 
package that--an insurer offers a package including all these 
occupational health services so that the management of sickness 
absenteeism is in the hand of professionals that are contracted 
by the firm.
    But the point is that in the end the employer and the sick 
employee together have their responsibilities, and what their 
responsibilities are is when sickness lasts longer than 6 
weeks, it is laid down in law also by what is called a 
``gatekeeper protocol,'' by a protocol, where the steps that 
you have to take and that you have to follow promoting work 
resumption as soon as possible are laid down in law. And that 
sounds like a lot of red tape. I mean, of course, you can 
follow those rules. But in the end, you are judged, if it all 
fails and within those 2 years an employee is not able to 
return to work or to return to the labor market, then he or she 
has to--can claim a disability benefit. But then the public 
disability benefit administrators will test whether or not 
enough effort has been put in that work resumption plan, the 
``reintegration plan,'' as it is called.
    So that is how it works. It is not really a market. Of 
course, there are private insurance, some of them you may know, 
ING, for instance, in Holland, and they provide those policies.
    Chairman Enzi. Thank you.
    Dr. Duggan, your research has shown that the Social 
Security Administration's projections of the growth has 
consistently been too optimistic. Do you believe the SSA's 
predictions of the future program growth are too low? And can 
you explain why?
    Mr. Duggan. I served on a technical panel to evaluate the 
assumptions and methods used by the Office of the Actuary, and 
I want to praise--I think they have--it is an incredibly 
complicated program to examine. There is the Old-Age program, 
the disabled program, and so forth. And I have not studied the 
most recent Trustees report, but from my service on the panel, 
then my recollection is that in certain respects my projections 
were--my analysis suggested that projections were somewhat 
optimistic, looking ahead to the future, about--optimistic in 
terms of the program flattening out somewhat more in the 
future.
    And it is true that--I mean, there are Trustees reports 
each year, and they are--there is an incredible amount of work 
that go into them, and I have gotten to know a lot of the 
people who work in the staff, and they are outstanding. I do 
think there are years in which they were on target with their 
projections, but more often than not, the projections were 
below in terms of the size of the SSDI program, let us say as 
of today.
    But that is not to say--it is a complicated thing to 
measure. I mean, as you can see from my testimony, the growth 
in SSDI enrollment has been larger than one would expect based 
purely on the aging of the baby-boom population and the 
increase in the fraction of women insured for the program.
    So there have been really big changes in the composition of 
conditions with which people are qualifying for the program. 
So, for example, conditions like stroke and cancer have been 
relatively flat since, let us say, 1989; whereas, conditions 
like musculoskeletal conditions and mental disorders have grown 
a lot.
    That is not to say that people with--all disability 
recipients with musculoskeletal or mental disorders, that those 
are not very deserving recipients, but there has been a big 
change in the composition of the recipient population that is 
much greater than one would have expected based purely on aging 
and the insured status.
    So I do not envy their task because there are a lot of 
variables that go into it. There is the economy. There is--and 
many--the age distribution and so forth. But I do--you know, 
so--but I cannot say because I have not studied the most recent 
report how that one looks. My preliminary look at it suggests 
that there have been some adjustments since the panel 
recommendations that I was a part of that have gone in certain 
dimensions in the dimension that we as a panel recommended, but 
I just cannot--I do not remember them right now. Sorry.
    Chairman Enzi. Thank you. I will ask some of those in 
writing, and I appreciate all of your expertise, and we will 
draw on that significantly for all three of you.
    Senator Sanders?
    Senator Sanders. Thank you, Mr. Chairman, and I thank all 
of you for coming here, especially you, Mr. de Jong, coming 
across the ocean to testify, and we appreciate that.
    Let me start off with Ms. Lang. Ms. Lang, you are here 
testifying on behalf of the Leadership Council of Aging 
Organizations.
    Ms. Lang. Yes, I am.
    Senator Sanders. Which represents more than 70, as I 
understand it, senior citizen groups.
    Ms. Lang. That is right.
    Senator Sanders. And all of those groups, including the 
AARP and the National Committee to Preserve Social Security and 
Medicare, I think all told they represent some 60 million 
Americans. Is that about right?
    Ms. Lang. About right, yes.
    Senator Sanders. And you are here very clearly to tell us 
that you believe we should go forward with the allocation 
process that has taken place 11 times previously. Is that 
correct?
    Ms. Lang. Yes, it is.
    Senator Sanders. Why? Why do groups representing 60 million 
Americans think that we should make sure there are not major 
cuts in the disability programs?
    Ms. Lang. Well, as I mentioned in my testimony, 70 percent 
of the current disability beneficiaries are, in fact, older 
adults, so any reduction in the program would harm them.
    I am sorry to see that Senator Sessions and Senator Ayotte 
have left, because they made the comment about robbing Peter to 
pay Paul, and the money is not actually taken out of the Old-
Age or retirement fund. It is reallocating the payroll taxes 
that go into each fund. So I do not think it is accurate to 
characterize the situation as stealing from retirees to pay 
benefits to people with disabilities. It is merely reallocating 
the percentage of the payroll taxes that go to each fund, and 
it is very important to make sure that those older Americans 
who meet the very strict disability standard for receiving 
these benefits are able to continue receiving the income that 
they need as they age into their retirement years.
    Senator Sanders. Ms. Lang, I happen to believe that at the 
end of the day, despite what the Republicans did in the House, 
we are going to reach an agreement, and I do not think anybody 
here really wants to see a 19-percent cut in disability 
benefits. That is what I think.
    But you also worked as an attorney representing low-income 
people with disabilities. Just very briefly, what would a 19-
percent cut in benefits mean to people who are barely making it 
today?
    Ms. Lang. I would say for my clients, I represented dozens 
of people applying for disability benefits over several years, 
and for those who did meet the very strict standard and were 
able to get on benefits, it was a fairly low amount of money. 
So any sort of cut for them would really, I think, mean 
homelessness for many of--
    Senator Sanders. How does a person with a disability 
survive out on the street when the weather gets, in my State, 
10 below zero?
    Ms. Lang. I do not know. And, quite frankly, many shelters 
for homeless people are not equipped to accommodate people with 
disabilities and serve them. So it really can be a death 
sentence for many individuals with disabilities to face 
homelessness.
    Senator Sanders. Mr. Chairman, I love the idea that we 
brought somebody from Europe to be with us today. I think that 
is a great idea, and I think we should do more of it. It is 
called best practices. You know, Vermont can learn from 
Wyoming, and Wyoming can learn from California, and we can 
learn from Europe and so forth and so on.
    But what is interesting to me is that when we talk about 
the United States and Europe, I think what we should begin with 
is appreciating that the social safety net that we have here is 
quite minimal compared to Europe. I would just for a moment, if 
I could ask Dr. de Jong, in this country we have 40 million 
people who have no health insurance. We have many more who are 
underinsured, large co-payments. How many people in Holland do 
not have any health insurance?
    Mr. de Jong. Well, only those that refuse to--well, no, 
everybody has health--
    Senator Sanders. Everybody has health insurance, so maybe 
we should have a hearing here as to how that works, and my 
guess is you end up spending far less per capita on health care 
than we do in the United States.
    In this country, we have large numbers of people who cannot 
afford to go to university or college. Others graduate deeply 
in debt. What is the cost of a college education in Holland?
    Mr. de Jong. Well, you mean the tuition fees?
    Senator Sanders. Yes.
    Mr. de Jong. That would be around 2,000 euros per year.
    Senator Sanders. But it is my understanding also for many 
it is free. Is that correct? For lower-income people it might 
be free?
    Mr. de Jong. Yeah, they get grants. They get grants.
    Senator Sanders. Okay. Now, let me ask you this about the 
reason that you are here, which is disability benefits. Let us 
hypothesize that you have two people who have suffered the same 
exact accident on the job--one is in the United States, and one 
is in Holland--and they needed disability benefits. Correct me 
if I am wrong, but my understanding is that for someone who is 
fully disabled in Holland, they would receive benefits 
equivalent to about 85 percent of what their previous income 
was. Is that correct?
    Mr. de Jong. Yeah, during the first 2 years, on average, 
and that is including collectively bargained supplements, so 
that is--
    Senator Sanders. Yes, they have a strong union.
    Mr. de Jong. So there is 70 percent legal base, you could 
say, and all workers have supplements that are from 
collectively bargained arrangements. But that is only for the 
first 2 years.
    Senator Sanders. Okay, right. My understanding--and, Ms. 
Lang, you correct me if I am wrong, or anybody up there, 
correct me if I am wrong--is that while for the first 2 years 
85 percent of a worker's benefits goes to disability. In this 
country, Ms. Lang, do you know what the number is?
    Ms. Lang. It is less than 50 percent replacement rate, and 
probably 40, 45 percent replacment rate.
    Senator Sanders. So I think, Mr. Chairman, another point we 
may want to continue this discussion and see if we in the 
United States can move toward where Holland is in their very 
generous benefits for some of the most vulnerable people in 
their country. I think it would be an interesting discussion.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator Perdue?
    Senator Perdue. Thank you, Mr. Chairman.
    Along with yourself and the Ranking Member and Senator 
Whitehouse, I have sat here this morning and listened to every 
question and every ounce of testimony because I think this is 
at the core of our financial crisis--not the disability and 
what we are about to do to solve that problem for 18 years. To 
me, that is the wrong thing we should be debating. I think we 
have agreed on two things today, or at least I have. The 
Ranking Member earlier this morning accused a friend of mine in 
the House--or misinterpreted, I think, comments made there. But 
there are two things that I agree with the Ranking Member on. 
One is that we have got to move to ensure that benefits are not 
reduced, period. Two, we have got to solve the long-term 
crisis.
    I have been saying this for quite a while. I believe this 
is not a debate over what we do between now and 2017 relative 
to 2033 with the Disability versus the Old-Age Fund. But I 
disagree on that this is a manufactured crisis. I have heard 
several people this morning mention that, and I take offense 
about that. I think this is our irresponsibility over the last 
really 30 years, but certainly since 1994, across three 
Presidents, 11 different Congresses, we have kicked this ball 
down the court.
    I think the only hesitancy I have personally about doing 
this is that I would like to see some long-term--or a debate 
about a long-term solution. That is really what my concern is, 
Mr. Chairman: What do we do for the beneficiaries past 2033?
    Ms. Lang, you talk about stealing from Peter to pay Paul. I 
disagree with your characterization of it. The one thing I am 
sure of is that by doing this, all we are doing is stealing 
from the future to make sure we do not have a problem for the 
next 18 years. That I will not be comfortable with. We have got 
to debate that. If we are going to move toward a responsible 
budget in this country, we have got to solve the long-term 
Social Security, and then eventually the Medicare program as 
well, which is an even bigger problem.
    I have a question for Dr. Duggan. You mentioned that about 
a third, I think you said--and correct me if I am wrong--about 
15--I am sorry, about a fifth, about 20 percent of the 
increase--and I think the number of people participating in the 
DI program has almost tripled since 1984, in the last 30 years. 
About a fifth of that was age-related, and I think you said 
about 12 percent was due to spouses coming into the workforce. 
Help me understand with some granularity what the other two-
thirds represent.
    Mr. Duggan. So there has been a large increase in the 
likelihood that--so, yeah, about a third combined between those 
two factors, the aging of the baby-boom generation and the 
increase in the fraction of women who are insured for the SSDI 
program. And the numbers differ a bit depending on what exact 
base year you use, but it is in the neighborhood of one-third 
from, let us say, 1989. And the increase, the rest of the 
increase is attributable to a greater likelihood that a person 
with certain characteristics will be on the program. So I gave 
one example, and the increase has been larger for women than 
for men because of this growth in the share insured, partly 
because of that. But take men, for example, 50 to 59, so men in 
their fifties, 25 years ago, 5.8 percent of them were receiving 
SSDI benefits, and now 8.8 percent of them are receiving, so 
basically an increase from almost 6 percent to almost 9 percent 
during that time period. And that is, you know, that sort of 
increase has been--has existed at other ages as well.
    And so if we look at--so where is that coming from? So if 
one looks at the composition of conditions with which people 
are qualifying--and this comes from Figure 2 of my testimony, 
and I tried to distill the complexity into just a few figures. 
There is a lot more--you can drill down at a much finer level. 
But there has been a change in the composition of conditions 
with which people are qualifying. Musculoskeletal conditions, 
for example, the award rate for those has increased by a factor 
of about 6 since just prior to the liberalization that we have 
talked about in 1984; whereas, during that same time, the award 
rate--and when I say the ``award rate,'' I mean here number of 
awards divided by number of people insured for the program. So 
you can see that in Figure 2.
    And if you look at the corresponding change for people, let 
us say, cancer or with circulatory conditions like stroke, 
those have been pretty flat. So there has been a big change in 
the characteristics of the people flowing onto the program. And 
so that is where it has come from.
    Senator Perdue. Thank you. I just have one last comment. 
Dr. de Jong, your indictment of our partisanship is well 
deserved this morning, and I appreciate your comments, and Ms. 
Lang as well. Thank you for being here.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman.
    Let me first ask each of the witnesses, starting with Dr. 
Duggan, would you recommend an across-the-board benefit cut in 
Social Security Disability Insurance in the neighborhood of 20 
percent under any circumstances?
    Mr. Duggan. I would not recommend that, no.
    Senator Whitehouse. Because?
    Mr. Duggan. Well, I have not evaluated the facts of that 
specific proposal, but it would clearly--as has been talked 
about earlier today, SSDI provides benefits to many of the 
Nation's most vulnerable citizens, and that would inflict 
significant hardship on a very large number of people. So I 
certainly would not--
    Senator Whitehouse. Dr. de Jong, how about you?
    Mr. de Jong. My answer would be--thank you for asking this 
question. My answer would be more bold. I would be very 
strongly against it, but maybe the--what I know of the SSDI 
system is that it focuses much more in incapacity than on 
capacity.
    Senator Whitehouse. But irrespective of that, with respect 
to my exact question, which was: Would you recommend a near 20-
percent cut?
    Mr. de Jong. No, I would--
    Senator Whitehouse. You would not.
    Mr. de Jong. I would be more selective.
    Senator Whitehouse. Okay. Ms. Lang?
    Ms. Lang. No, I would not.
    Senator Whitehouse. Okay. Dr. Duggan, you have looked--you 
appear to have looked pretty closely at this question. You 
appear also to have focused pretty much on the expenditure 
side. Do you have a view as to how the recent changes in income 
inequality, the extent to which higher incomes have exploded in 
this country, has changed the percentage of income that is 
above the $118,000 payroll cap and has, therefore, been a 
factor in the current Social Security imbalance?
    Mr. Duggan. So I personally have not evaluated that 
specific thing, but I recall from reading reports by the 
actuaries and by CBO and others that the fraction of income 
that is within that cap has declined over time.
    It is also true that the rise in inequality has affected 
benefits for people at the lower end of the income distribution 
because the bend points--we have this benefit formula, 
essentially the same benefit formula used for Social Security 
retired worker benefits. It is a 90-32-15 benefit formula, and 
the points where that formula bends from 90 to 32 and from 32 
to 15, those are indexed to average wage growth in the economy. 
And so some of the first research that I did on this program 
showed that because of slower wage growth at the lower end of 
the distribution, lower-income workers were replacing more of 
their income at that 90 percent rate than at the 32 percent 
rate, basically because the bend point was moving faster than 
their incomes were. So at some level, the formula has helped 
cushion somewhat that change.
    Senator Whitehouse. That might cushion it for individual 
workers, but as a program, the effect has been to forgo what 
otherwise would have been revenue and has added to the deficit. 
Correct? I.e., if income inequality had not changed from, let 
us say, 1990 to now, if that were a constant, there would have 
been more income subject to payroll tax and there would be more 
revenue coming into Social Security, and we would have less of 
a deficit. That is kind of mathematics, isn't it?
    Mr. Duggan. It just depends a little bit on the assumptions 
that you--like at what rate will those things grow. But, in 
general, the spirit of what you are describing seems plausible 
to me. It just depends on--I do not mean to--it depends a bit--
the devil is in the details a little bit on what you assume 
would have happened to those--
    Senator Whitehouse. Let me try it this way: You have got a 
chunk of American salary that is under $118,000.
    Mr. Duggan. Right.
    Senator Whitehouse. And it contributes revenue to Social 
Security. You have got a chunk of American salary that is over 
$118,000, and it does not contribute to Social Security.
    Mr. Duggan. Right.
    Senator Whitehouse. If the second chunk gets bigger 
relative to the first chunk instead of staying even, that means 
less money for Social Security. Isn't that pretty simple?
    Mr. Duggan. Like I said, it just depends on the assumption. 
Are you going to bring it into balance by raising the--
    Senator Whitehouse. No, no. I am not asking out-year 
assumptions. I am just asking if what I have said is accurate.
    Mr. Duggan. It is the case that--I do not know if it 90 to 
83 percent. I think someone here earlier said that. But that--
    Senator Whitehouse. It is the case that if less of 
America's income is subject to taxation than otherwise would 
be, the revenues for the program are less than they otherwise 
would be. Right?
    Mr. Duggan. It seems plausible, once again, but there are 
behavioral responses that one needs to take into account. So if 
you change the--
    Senator Whitehouse. Oh, all right. Well--
    Mr. Duggan. I am not--
    Senator Whitehouse. Thank you, Dr. Duggan.
    Chairman Enzi. The Senator's time has expired, and I want 
to thank everyone for their participation today. That concludes 
the questions for the second panel this morning, but--
    Senator Whitehouse. Oh, Mr. Chairman?
    Chairman Enzi. --I would hope that they would--
    Senator Whitehouse. May I offer an exhibit for the record?
    Chairman Enzi. Without objection, sure.
    Senator Whitehouse. Thank you.
    Chairman Enzi. And people can submit statements, too, if 
they wish.
    We appreciate the time here for all of our witnesses and 
hope that they will be open to answering questions. Sometimes 
the questions can be more specific in writing, but mostly 
because ones with numbers kind of put the people in the back to 
sleep, and that is not very exciting.
    I want to remind my colleagues that questions for the 
record are due no later than 6:00 p.m. today, filed in writing 
with the Committee clerk in Dirksen 624, and we hope the 
witnesses will respond within 7 days.
    With no further business to come before the Committee, we 
stand adjourned.
    [Whereupon, at 12:46 p.m., the Committee was adjourned.]
    
    
    
    
    
    
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                THE COMING CRISIS: AMERICA'S DANGEROUS DEBT

                              ----------                              - 
- -

                      WEDNESDAY, FEBRUARY 25, 2015

                              United States Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:30 a.m., in 
Room SH-216, Hart Senate Office Building, Hon. Michael B. Enzi, 
Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Sessions, Crapo, Johnson, 
Ayotte, Wicker, Perdue, Sanders, Wyden, Stabenow, Whitehouse, 
Warner, Kaine, and King.
    Staff Present: Eric Ueland, Republican Staff Director; and 
Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. I will call this hearing to order. Good 
morning, colleagues, and welcome to this hearing.
    We gather together facing the biggest debt our country has 
ever owed. That debt endangers our Government, hurts our 
economic potential, and threatens our children and 
grandchildren. Moreover, if you like your country to be able to 
stand up to enemies like ISIL, help its seniors with programs 
like Social Security, and help us all get from here to there 
with a good transportation infrastructure, then you will not 
like where America is headed.
    Our increasing national debt threatens these functions of 
Government and much more. If we do not stand up to our debt and 
stop overspending, we will ruin what so many generations before 
us worked to build and the hopes of the generations to come. 
Unfortunately, our President's budget plan just makes matters 
worse. I will refer you to the chart.
    How large is the dangerous debt that we face? The 
President's chronic overspending will make debt boom. As you 
can see on the screen, with the debt already at over 18,000 
billions owed, the President's runaway overspending plan in his 
budget will push the debt to 26,000 billion owed. I like to 
call it ``26,000 billion'' instead of $2.6 trillion, because 
that sounds like a smaller number. We get to work in billions. 
We are finally understanding what billions are, so 26,000 
billions owed in just 10 years.
    They are incredibly large numbers, and that is why I do 
break them down by the amount every man, woman, and child will 
owe on it over the next 10 years. As you can see on the screen, 
under the President's plan, the amount every American will owe 
on the debt over the next 10 years will march steadily upward. 
At the end of last year, each American's share of the debt 
stood at $55,683. In just 10 years, it will be $75,610--$20,000 
more.
    These are big numbers, and they are bad enough. But the 
staggering amount of what we owe is not the only thing that the 
numbers show. Take a look at the screen again. The debt 
threatens to overwhelm the size of our economy as well. 
According to CBO, just 15 years ago, the debt held by the 
public was one-third the size of our economy. Today the 
accelerating debt is 74 percent of our economy. In 2028, it 
will be the same size as our economy, and in just two short 
generations, by 2050, our debt will be more than twice the size 
of our economy.
    Colleagues, dive a little deeper into the debt forecast. If 
you look again at the video screens, you will see a comparison 
of the CBO forecast for the economy, the blue bars, between now 
and 2050, and the publicly held debt, the red bars. CBO expects 
debt to rise three times faster than the economy over the next 
35 years.
    After 2050, CBO will not make public what could happen. 
They simply report that the debt will be greater than 250 
percent of the GDP. You know you are in a lot of trouble when 
your own accountant refuses to tell you exactly how bad your 
financial condition is because they cannot calculate a number 
that big.
    These millions of retirees are a significant element of 
CBO's high debt forecast, but there is another factor as well. 
CBO assumes that Congress and the President will not tackle our 
overspending, and CBO is probably right.
    However, entitlements are not the only reason that the debt 
of the United States is growing so fast and so large. There are 
two other features with long-term consequences for the pace of 
the Federal debt growth.
    First, President Obama's policies have created the slowest 
economic recovery since World War II. More debt is on our books 
with a weak and anemic economy. Let me explain.
    If you will look again at the video monitors, this chart 
shows how slowly labor markets recovered from the Great 
Recession. It took over 6 years, until the spring of 2014, for 
total employment to get back to its level when the recession 
started in December of 2007. That is the blue line.
    Compare that to the equally severe recession of 1981. The 
unemployment rate was worse in that recession, but total 
employment recovered in 27 months as opposed to 76 months, or a 
little over 2 years.
    One of the reasons for so many suffering for so long was 
our debt. Economists who studied the interaction of debt and 
economic growth point out that the large debt leads to slow 
economic growth. Recent studies from the World Bank, the 
International Monetary Fund, from Ken Rogoff and Carmen 
Reinhart, the International Bank of Settlement, and the 
European Central Bank all connect high and growing debt to 
slower growth. For the average American, this means that an 
exploding debt could result in fewer job opportunities, longer 
unemployment, and a more uncertain future.
    Second, this slow growth has delayed the launch of the 
millennial generation, which worsens our ability to slow the 
growth of future debt. For the estimated 65 million young 
people between the ages of 16 and 29 in 2012, economically slow 
times have been very bad news. This large group of Americans is 
crucial for our economic and fiscal future, and they suffered 
extensively during the recovery. Unemployment among the 16-to-
19 age group averaged 22 percent. Among the older 20-to-24 age 
group, it averaged 13.6 percent. Lack of job opportunities has 
forced millions to delay beginning their lives, earning and 
saving.
    Professor Lawrence Katz of Harvard University recently 
estimated that one of five males have been idle since the 
recovery started. They are not working. Idleness among young 
women is almost as high. Lack of job opportunities caused 
incomes to stall and fall to levels last seen in the late 1970s 
among all working households and especially the young. Instead 
of launching the next generation of workers and entrepreneurs 
after the crisis of 2008 and 2009, we launched the debt-paying 
generation.
    Let me say that again. We launched the debt-paying 
generation. I see several out in the audience who are in the 
debt-paying generation.
    Rapidly growing debt will press down on their dreams and 
opportunities throughout their life. In the meantime, the 
steady march to a larger debt will continue. When it comes to 
the dangerous debt, our President can and should do and will 
have to do better.
    Senator Sanders?

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Mr. Chairman, thank you very much for 
holding this important hearing, and I thank our guests and 
panelists for being with us today.
    I think when we talk about debt and deficit, it is also 
important to understand how we got to where we are today. And 
it might be useful to remember that when President Clinton left 
office in 2001, the Federal Government enjoyed a healthy 
surplus of $236 billion, and the national debt was on track to 
be eliminated by the year 2009. Economists were telling us we 
were looking at surpluses into the foreseeable future.
    What happened? Well, let me give you some examples of what 
happened. Some of my so-called deficit hawk friends went to war 
in Afghanistan and Iraq, and they forgot to pay for those wars. 
We do not know exactly what those wars will cost, but the guess 
is they may end up costing something like $6 trillion by the 
time we take care of the last wounded veteran.
    So I find it a little bit strange that some of my deficit 
hawk friends who want to cut Social Security or Medicare or 
Medicaid forgot to pay for two wars.
    Under President Bush, my Republican colleagues passed huge 
tax breaks for millionaires and billionaires and some of the 
most profitable corporations in this country. But they forgot 
to offset or pay for those tax breaks.
    Under President Bush, my Republican colleagues passed an 
overly expensive Medicare prescription drug program written by 
the insurance and drug companies, which, among other things, 
does not allow Medicare to negotiate drug prices with the 
pharmaceutical industry.
    And, finally, Mr. Chairman, what I would say in that regard 
is that for all of those people who believe in the virtues of 
deregulation, well, in a bipartisan manner--not just 
Republicans--that happened, and we deregulated Wall Street. And 
as a result of the illegal and reckless behavior on Wall 
Street, we were plunged into the worst recession in the modern 
history of this country, which obviously had a huge impact on 
our deficit and our national debt.
    Now, having said that, there is some good news, and that is 
that when President Obama came into office, he inherited a 
record-breaking $1.4 trillion Federal deficit and a growing 
national debt, and the good news is that, in fact, the Federal 
deficit has been reduced by more than two-thirds while more 
than 11 million private sector jobs have been created over the 
past 58 months. So some progress is being made.
    Point number two that I want to make: When we look at the 
budget, it is important that we look not only at our national 
debt, but that we take a serious look at what is happening in 
the economy and how the American people are doing. Today 
millions of Americans are working longer hours for low wages. 
We have the highest rate of childhood poverty of any major 
country on Earth. And we have more income and wealth inequality 
than we have had in this country since 1929.
    It seems to me, Mr. Chairman--and I respectfully request 
that we could do a hearing on this issue--that we take a look 
at the grotesque level of income and wealth inequality, because 
this is not just a moral issue. It, in fact, becomes an 
economic issue, which touches on the issues that you and I and 
our Committee are discussing today.
    Today the top one-tenth of 1 percent of Americans own 
nearly as much wealth as the bottom 90 percent, and the top 1 
percent earn more income than the bottom 50 percent. This has 
not only hurt our economy, but it has increased our debt and 
harmed the solvency of Social Security.
    The fact of the matter is that over the last 40 years, 
under Democratic and Republican leadership, we have witnessed 
an enormous transfer of wealth from the middle class and the 
poor to multimillionaires and billionaires. This is the Robin 
Hood principle in reverse. We take from the poor and we give to 
the very, very rich.
    In 1985, the share of the Nation's wealth going to the 
bottom 90 percent was 36 percent. In 2013, it went down to 
below 23 percent. If the bottom 90 percent had simply 
maintained the same share of our Nation's wealth as they did 30 
years ago, they would have $10.7 trillion more in wealth than 
is currently the case today, which would have profound 
implications on debt and deficit, not to mention the well-being 
of the middle class.
    Meanwhile, the share of the Nation's wealth going to the 
top one-tenth of 1 percent has gone up from 10 percent in 1985 
to 22 percent in 2013, which means they have accumulated, the 
top one-tenth of 1 percent, $8 trillion more. So what you are 
seeing is a collapse in wealth in the middle class and almost 
all of that going to the top one-tenth of 1 percent.
    Mr. Chairman, if that massive transfer of wealth and income 
did not take place, Social Security would be in much better 
financial shape, the middle class would be more secure, and our 
national debt--the issue of today's discussion--would be much 
lower. And I really do hope that we could have a hearing to 
discuss the implications of this huge transfer of wealth from 
the middle class to the top one-tenth of 1 percent.
    The third point I want to make, Mr. Chairman, is that while 
we are here talking about the national debt, I have the feeling 
that in a couple of weeks, when we begin to talk about the 
deficit--now, I may be wrong on this, so I am speculating, and 
maybe you will suggest that I am wrong here. But I have a 
feeling that the budget that your Committee majority will bring 
forth in order to deal with the debt is to say to the American 
people, ``Yeah, we forgot to pay for the war in Iraq; 
therefore, we are going to cut Medicaid, we are going to cut 
education, we are going to cut food stamps, we are going to cut 
nutrition programs. And, by the way, we are going to give more 
tax breaks to the very, very rich and to the large 
multinational corporations.''
    I may be wrong. I have not seen your budget yet. My guess 
is that it will emulate what the Ryan budget was, and it will 
not be good for working families.
    The last point that I want to make is that if we are 
serious about deficit reduction, then we have to take a look at 
such facts as the reality that from 2008 to 2013, not only did 
a company like General Electric pay nothing in Federal income 
taxes, it received a huge tax break from the IRS of nearly $3 
billion. If we are serious about dealing with the deficit, you 
know what we are going to have to do? We are going to have to 
look at revenue. We are going to have to ask why the 
wealthiest, some of the largest and most profitable 
corporations in this country pay nothing in Federal income tax, 
while the effective tax rate for hedge fund millionaires is in 
some cases lower than it is for truck drivers or nurses.
    So, Mr. Chairman, there is a lot to discuss, and I look 
forward to this hearing.
    Chairman Enzi. Thank you, Senator Sanders. And one thing I 
am trying to change, we talk about deficit and we talk about 
debt, and people are kind of confusing the two. So I am trying 
to change deficit to our amount of overspending, because that 
is our annual amount of overspending--
    Senator Sanders. Well, or it could be--
    Chairman Enzi. --that adds to the debt.
    Senator Sanders. Well, that is one way of looking at it.
    Chairman Enzi. It has been reduced by two-thirds, but our 
debt has not been reduced by two-thirds, and some people are 
confusing that. And I would like to keep from getting that 
confusion.
    Senator Sanders. Well, the answer is spending is one cause 
of deficit, but not raising revenue is another cause of 
deficit.
    Chairman Enzi. Okay. Now we will turn to the witnesses. The 
capacity of this Government to accumulate more debt ultimately 
is limited by financial and moral factors. If those individuals 
and organizations that buy our debt begin to wonder if we can 
effectively manage our financial affairs and solve problems 
that threaten our financial help, then we will need to pay 
people for the greater risk to hold our debt. As a result, 
interest rates could rise even further than currently 
forecasted, thus worsening even more our financial condition.
    The other factor is moral. How long can this Government 
continue to pass ever higher debts to the next two generations? 
With higher and higher debt comes the possibility of higher 
Federal taxes and lower Federal benefits for Americans who 
today are under 30, many of whom are not old enough to vote. 
How long can Congress authorize the enormous deficits and, 
thus, greater levels of debt without a financial plan to reduce 
and eliminate overspending and stop the growth of debt?
    I cannot help but believe that elected officials ultimately 
will pay a heavy political price for their indifference to the 
next two generations. So today's witnesses will speak to us 
about these and other dimensions of the fiscal future. Let me 
introduce at this time.
    Our first witness is Dr. Larry Kotlikoff. Dr. Kotlikoff is 
widely viewed as the leading expert on the economic effects of 
debt and its intergenerational costs. He is the William 
Fairfield Warren Professor at Boston University, a professor of 
economics at Boston University; a fellow of the American 
Academy of Arts and Sciences; a fellow of the Econometric 
Society, a research associate of the National Bureau of 
Economic Research; president of Economic Security Planning, 
Incorporated, a company specializing in financial planning 
software; and the director of the Tax Analysis Center. On this 
subject he is best known for his best-selling book, ``The 
Coming Generational Storm: What You Need to Know about 
America's Economic Future,'' written in 2005.
    Our next witness is Heather Pfitzenmaier, the director of 
the Young Leaders Program at the Heritage Foundation. She works 
closely with the millennial generation on a broad range of 
public policies. In December of 2012, Forbes Magazine named her 
one of the 30 Under 30 young Americans who are making the 
greatest impact on law and policy. She serves on several boards 
of organizations focused on young Americans and is a graduate 
of the University of Michigan.
    Our final witness is Bruce Bartlett. Mr. Bartlett has 
served in several capacities in Government, perhaps most 
notably as the Deputy Assistant Secretary for Economic Policy 
in the Treasury Department during the administration of George 
H.W. Bush.
    I welcome all of the witnesses, and we will begin with you, 
Dr. Kotlikoff.
    You will have to push the button to get the microphone to 
work.
    Mr. Kotlikoff. Sorry. Let us see.
    Chairman Enzi. Thank you.
    Mr. Kotlikoff. Still not working? Is that better?
    Chairman Enzi. Yes. It has to be pointed at you.
    Mr. Kotlikoff. Okay. Sorry.
    Chairman Enzi. Thanks.

  STATEMENT OF LAURENCE J. KOTLIKOFF, PROFESSOR OF ECONOMICS, 
                       BOSTON UNIVERSITY

    Mr. Kotlikoff. Senator Enzi and Senator Sanders and other 
distinguished members of the Senate Budget Committee, it is an 
honor to speak to you about the Nation's fiscal position.
    The last time I had a conversation with Senators, I was 
testifying at the request of Senator Bradley back in 1990 to 
the Senate Finance Committee, and we were focused on the same 
questions we are focused on today. Unfortunately, the situation 
has gotten much worse, fiscally speaking.
    I mention that in part to reference what has changed 
through time, but also to mention that I was invited at that 
point by a Democrat; today I was invited by a Republican. I am 
not political. I am coming as an economist. I think economics 
has something to say that is independent of politics, and the 
best economists are neither Republicans nor Democrats. They are 
just focused on what economic science tells us, and that is 
what I am here to try and relate to you today.
    The first point I want to get across is that our Nation is 
broke. Our Nation is broke, and it is not broke in 50 years or 
75 years or 30 years, 10 years or 5 years. It is broke today. 
Just like Detroit is broke today in terms of looking at all the 
obligations it has to pay and all the revenues it has to 
collect, that it projects to collect, it is an entity that is 
broke, and it is not broke in the future. It is really broke 
today.
    And that is the case for the U.S., and that analysis is not 
based on looking at what Congress declares to be its official 
liabilities but, rather, by looking at all the liabilities that 
the U.S. Government faces, and those include not just official 
servicing of what is called the ``official debt,'' but also 
paying for Social Security, Medicare, Medicaid, defense 
spending, paying for the President's lunch, for the Supreme 
Court members' salaries, for fixing up the highways. But those 
are the obligations into the future that are projected by the 
CBO, and that is also assets which are the present value of all 
the taxes that are being projected.
    And economics tells us that we need to focus on not a 
subset of the obligations that have to be paid, not the payment 
for principal and interest on what is called ``official debt,'' 
but we have to look at all the obligations, regardless of what 
it is called, because Congress has enormous leeway, indeed 
infinite leeway in terms of classifying certain payments that 
it has to make as repayment of principal plus interest versus 
repayment of--versus transfer payments. And that leeway means 
that the official debt is really not a well-defined economic 
concept, and that is the thrust of my testimony today, that we 
are kind of tracking our fiscal position based on a non-measure 
of fiscal solvency.
    And what economics says and what economists as a group are 
saying is that we need to study and look at the fiscal gap, the 
infinite horizon fiscal gap, which is the present value, the 
value in the present, of all the expenditure commitments, no 
matter what they are called, whether they are called Social 
Security or defense spending or paying--servicing what is 
called the official debt, less the present value of all the 
projected tax receipts.
    Now, that fiscal gap calculation has been endorsed by over 
1,200 economists. If you go to theinformact.org, there is a 
bill, a bipartisan bill, that was introduced last year. I hope 
it will be passed this year. It is a bill to require the CBO, 
the GAO, and the OMB to do fiscal gap accounting on a routine 
basis and to put everything on the books, to stop this Enron-
type accounting that has been going on for decades under both 
parties.
    The fiscal gap which is being recommended as the basis for 
our budgetary analysis, it is not just being endorsed by 1,200 
economists from every top department in the country, people 
that are on both sides of the political aisle--you have got 
Jeff Sachs, who is viewed as left of center; you have got Glenn 
Hubbard, who is viewed as right of center; you have got former 
Secretary of State and Secretary of Treasury and the head of 
the Commerce Department and the Director of OMB. I am talking 
about George Shultz. He is also endorsing this bill. There are 
also 17 Nobel Prize winners in economics. The majority of these 
folks are Democrats, as far as I can tell, starting with Ken 
Arrow,, who is probably the leading economist after Paul 
Samuelson of the post-war period. All of these folks have 
endorsed the fiscal gap analysis.
    We have a $210 trillion fiscal gap at this point, so we are 
not talking about $13 trillion of obligations in the hands of 
the public. That is the official debt. But we are talking about 
a $210 trillion fiscal gap, and as my testimony indicates, the 
longer we wait to start dealing with and paying off this fiscal 
gap, the bigger the problem will be. We have to immediately and 
permanent raise taxes, all Federal taxes, by 58 percent to come 
up with $210 trillion in present value. So we are 58 percent 
underfinanced. In contrast or comparison, Detroit was about 25 
percent underfinanced at the time it declared bankruptcy. So 
the country is in far worse shape than Detroit, fiscally 
speaking.
    The other alternative to raising taxes is to cut spending, 
and if you cut all the spending, apart from servicing the 
official debt, you would have to have an immediate and 
permanent 38-percent cut in every expenditure. Defense 
spending, gassing up Air Force One, transfer payments of all 
kinds--all would have to be cut 38 percent.
    Now, this calculation of this enormous fiscal hole is 
coming right out of the CBO's July--I think it was around July 
30th--projection of long-term expenditures and taxes called 
their ``Alternative Fiscal Scenario.''
    Now, what economic science tells us is that if governments 
take from young people and give to old people and then promise 
young people future transfer payments, what is going to happen 
is that the old people will consume more, the young people will 
not consume anything less; they might actually consumer more 
themselves. The Nation as a whole will consume less, and we 
will have less national saving, and we will likely have less 
national investment.
    Now, I refer you to the charts in the testimony which show 
that there has been an enormous increase in consumption as a 
share of national income, so that in 1950, we had a national 
saving rate of 15 percent. Today we have a national saving rate 
of around 4 percent. It has just gone straight downhill. With 
some gyrations, over time our national saving rate has gone 
down. If you simulate the policy we have been running under 
both parties in the post-war, one administration after the next 
taking from the young, giving to the old, we have what you find 
occurring in reality, and the computer models show a decline in 
national saving and investment. And sure enough, that is what 
we see in the data, and you see this in Chart 2.
    Chairman Enzi. I will have to ask you to kind of summarize 
at this point.
    Mr. Kotlikoff. I will just finish up. And you also see in 
Chart 3 an enormous increase in the absolute and relative 
consumption of the elderly.
    So we have a huge hole. We have, in effect, been engaging 
in a war against our children. So I agree, Senator Sanders, 
that we have a big problem of inequality within a generation 
between the rich of a given age and the poor of a given age. 
And I am very concerned about that, too. It is not that that is 
not a big concern of mine and other economists. But we also 
have a big concern about how we are treating poor kids in the 
future versus poor kids today and rich kids in the future 
versus rich kids today. There is an enormous generational 
redistribution going on. I do think we have to address this. We 
have to pass the INFORM Act, and we have to do that immediately 
and be honest with our children about what kind of fiscal 
burdens we are leaving them.
    Thank you.
    [The prepared statement of Mr. Kotlikoff follows:]
    
    
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    Chairman Enzi. Thank you.
    Ms. Pfitzenmaier?

  STATEMENT OF HEATHER PFITZENMAIER, DIRECTOR, YOUNG LEADERS 
                PROGRAM, THE HERITAGE FOUNDATION

    Ms. Pfitzenmaier. Thank you Chairman Enzi, Ranking Member 
Sanders, and the distinguished members of the Budget Committee 
for the invitation to speak here today.
    My name is Heather Pfitzenmaier, and I am the director of 
the Young Leaders Program at Heritage. Before I begin, the 
views in my testimony are my own and should not be construed as 
representing any official position of The Heritage Foundation.
    Heritage is a 501(c)(3) research and educational institute, 
and our mission is to formulate and promote public policy based 
on key principles of limited government, individual freedom, 
traditional values, free enterprise, and a strong defense. The 
vision is to build an America where freedom, opportunity, 
prosperity, and civil society flourish.
    In my role as director of the Young Leaders Program, I have 
the privilege of overseeing our internship program, campus 
outreach, and other programs which connect with young Americans 
every day. I have the opportunity to hear from these young 
Americans about their aspirations, challenges, and hopes for 
the future.
    I am here today to be a voice for these young people and to 
say that I do not want my generation to be doomed as the debt-
paying generation. If Congress does not act to reduce the 
spending, deficits, and debt, that is exactly what my 
generation and subsequent generations will be: saddled with 
debt.
    Think about young people you know, like Kimberly. She is 
coming of age in a weak economy, where for many it has been 
hard to find a job. She already knows she will graduate from 
college with a huge personal debt. Now she must also think 
ahead to the future and the massive public debt that is coming 
to her and other young people. According to publicly available 
information, by 2028, when millennials will be in their mid-to 
late thirties, the public debt per capita is estimated to reach 
$66,000. It is jarring to think of having a mortgage this size 
but with no asset of a house.
    If Congress does not act, my generation and the generations 
to come will face many unpleasant consequences. Some will be 
felt immediately, others much later in life.
    Higher debt threatens opportunity and stifles growth. Not 
only will these student loans be more difficult to pay off for 
those who chose to go to college, but it will mean less money 
available for more education, for savings, for retirement, for 
health care. Maybe, like Jeff, they still live at home with 
their parents because they cannot yet afford to live on their 
own.
    Countless other young people are underemployed, perhaps 
with a college degree and not working in their professional 
field, or even worse, not employed at all. Individuals cannot 
get those years back. Those earnings they could have made 
cannot be recouped. Those job opportunities and experiences are 
gone.
    Excessive debt also hinders businesses trying to get a loan 
to start a business or expand and grow. Some young people want 
to launch a startup. Others, many of whom just started a 
family, want to sell something on Etsy and work flexible hours 
that work for them.
    Higher debt also increases the likelihood of inflation. 
Higher debt can lead to higher interest rates. What about the 
young person thinking through whether they can afford college? 
Or starting that business? Or buying a new home for their 
growing family? What is our outlook for the future?
    Higher debt can lead to higher taxes, and higher taxes 
eventually means less money going into the pockets of young 
people when they need it and are growing their families and 
looking to the future. For many in my generation, it will mean 
less choice about the size of our families. Many will buy their 
first home later in life, others perhaps not able to afford 
one.
    My generation does not want to be the first generation in 
living memory to have a poorer future than our parents did. One 
of the things that is so great about our country and Americans 
has been that each generation desires to leave our Nation and 
world a better place than they found it. At least that is how 
it worked in the Sexton and the Pfitzenmaier families.
    How long can we pass higher and higher levels of debt along 
to the next generation? I am here to ask you to make the 
necessary changes and be part of the solution. I am fortunate 
to be here, to have the opportunity to speak to all of you. 
Many in my generation do not. Many are not even old enough to 
vote yet. Is it right to leave all this debt and its real 
consequences to a generation that has not had a role in making 
these decisions?
    Individuals in their twenties and thirties should be 
launching our lives, building for our future. Instead, we and 
those younger than us are burdened by this ever-growing and 
looming debt and the impact it currently has and will have on 
our earning potential and lives.
    This is no longer just a fiscal moment, as you have already 
heard. It is a moral one. Young professionals starting a family 
do not deserve to be bearing the burden of all of this debt. 
Students finishing high school and college do not deserve 
reduced economic mobility and opportunity. Our Nation deserves 
action. Americans deserve solutions. We all deserve an America 
where there is opportunity for all and favoritism to none.
    Thank you.
    [The prepared statement of Ms. Pfitzenmaier follows:] 
    
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    Chairman Enzi. Thank you.
    Mr. Bartlett.

STATEMENT OF BRUCE BARTLETT, FORMER DEPUTY ASSISTANT SECRETARY 
      FOR ECONOMIC POLICY, U.S. DEPARTMENT OF THE TREASURY

    Mr. Bartlett. Thank you, Mr. Chairman. I am just going to 
make a few sort of random points about the debt, simply because 
I seldom hear these mentioned in conversations, including those 
we have already heard from.
    One is that we need to understand that the debt is a stock, 
and it is not a flow. The flow associated with the debt is 
interest on the debt. And so when we talk about, for example, 
the debt as a share of GDP, we are comparing apples and 
oranges. We should compare--I mean, Mr. Enzi, you told me you 
are an accountant, so we are comparing a balance sheet item to 
an income statement item. We ought to have an apples-to-apples 
comparison, so we should look at the debt as a share of our 
assets.
    Now, we do not really know what the Federal Government's 
assets are. The financial statement of the United States 
Government takes a stab at that, but, of course, almost 
everything is carried at historical cost, so the numbers are 
worthless.
    But the number that I think is important is interest as a 
share of GDP, and that number is 1.3 percent. It was as high as 
3.2 percent just a few years ago. So by any meaningful 
standard, the burden of the debt is about a third of what it 
was just a few years ago. It has not been rising. It has been 
falling.
    Also, I think that is important to understand, especially 
to members of this Committee, that budget conventions overstate 
the Government's interest cost because it treats the Federal 
Reserve as if it is part of the general public when, in fact, 
of course, it is part of the Federal Government. The Fed right 
at the moment owns about $2.5 trillion of Treasury securities 
that, for all intents and purposes, are the same as, for 
example, those held in the trust funds for the Social Security 
Administration. And although Treasury pays the Fed interest on 
that debt, last year paid $116 billion in interest, the Fed 
subtracts some percent for its costs, but then it gives it all 
back, or almost all of it. Ninety-nine billion dollars was 
simply a gift from the Federal Reserve to the Treasury of the 
interest that the Treasury had previously paid to the Fed.
    Now, in my own personal opinion, we ought to adjust our 
financial account so that that money is subtracted from the net 
interest cost in order to make more accurate the true burden of 
interest in the budget, because I think that is the one number 
that really matters.
    I would just like to make a point that Professor Kotlikoff 
made because it is not often mentioned, which is that tax cuts 
increase the burden of debt because it is the difference--the 
annual increment to the debt, the deficit, is the difference 
between income and outgo. And I presented a table in my 
testimony that I think is quite interesting because it is based 
on projections that the CBO made in January of 2001, before 
President Bush even took office, and looked at the projections 
of the debt at that time, and at that time the debt was about 
$6 trillion, and the CBO was projecting a budget surplus of $6 
trillion over the next 10 years. If we had simply done nothing, 
we would have paid off the entire national debt by now. But we 
did not do nothing. We started wars, we enacted huge tax cuts, 
we enacted new entitlement programs. And the result of all that 
is that we went from instead of having zero debt to having a 
$12 trillion debt. So we, in essence, added $12 trillion to the 
debt during that 10-year period.
    I would like to make the point that capital investments are 
not netted out. We do not have an operating budget and a 
separate capital budget. I think that would be a good idea. All 
the States, we always talk--many people talk about how 
important it is that the States balance their budgets. We 
should do so, too. The States only balance their operating 
budgets. They do not balance their capital budgets. And I think 
it would be a good idea to shield capital investments in vital 
national infrastructure from across-the-board budget cuts. I 
think that is penny-wise, pound-foolish.
    There has been a lot of talk about the burden of the debt 
on future generations. It is seldom noted that future 
generations inherit all the assets as well. It is true that 
they inherit the burden of paying interest on the debt, but 
they get the bonds. They receive the bonds themselves. If all 
of the national debt was owned by Americans, we would literally 
owe it to ourselves, and the money would just circulate around 
and go from one group of people to another. There would be no 
net burden in the aggregate.
    We sometimes worry about the debt held by foreigners. They 
own about half of the debt these days. But the only reason 
countries like Greece and Argentina have ever gotten into 
trouble in this area is because their debt was not denominated 
in their own currency. One hundred percent of the United 
States' debt is denominated in dollars. We can always raise 
whatever revenue we need to pay those bonds. We do not have to 
raise foreign exchange. We do not have to get gold to pay those 
debts. And if worse comes to worse, we can just print the 
money. So there is never a danger that the United States 
Government will default.
    I will simply stop there. You can read my statement. But I 
do think that the net of this conversation we are having here 
is to grossly overexaggerate whatever the real economic costs 
of the debt are. I mean, debt as a share of GDP was well over 
100 percent, much higher than it is right now, when I was born. 
And if I were sitting at a panel like this one in 1951, I would 
be hearing how terrible the future would be. But, in fact, the 
future was quite good. The 1950s and 1960s were two of the 
greatest decades we have ever had despite this horrible burden 
of debt that we inherited from World War II, which was very, 
very large.
    So I think it is not--it does not really make sense to take 
every single thing that is wrong with our economy, such as the 
lack of wages and income distribution and things like that, and 
just automatically attribute it to the debt. I think that is 
not--that does not really make sense. We need to do a deeper 
analysis and look more carefully at the situation.
    Thank you.
    [The prepared statement of Mr. Bartlett follows:]
    
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    Chairman Enzi. Thank you. And as one of the two accountants 
on this panel, I want to thank both of you for your comments 
about some additional budgeting that we need to do. I have 
tried to get a capital budget since I got here and some more 
honest numbers and the fiscal gap accounting. Wow. I am not 
sure what complications that would provide because it would be 
better numbers, and I am not sure that we are prepared for 
better numbers yet.
    Dr. Kotlikoff, I have heard it is argued that the U.S. need 
not worry about its fiscal imbalances and level of public debt 
since we can just print more money and issue more debt. Somehow 
that does not sound right to me. As the other economist, what 
do you think? And, also, if our debt continued to rise rapidly, 
as some appear to want, what effect would this have on private 
investment and savings?
    Mr. Kotlikoff. I am a little perplexed by some of what 
Bruce has said here. If it was just so simple we could print 
money to pay for everything, why should we have any taxes 
whatsoever? Why don't we just pay for everything, pay off the 
official debt, $13 trillion that is in the hands of the public, 
print $13 trillion today, pay for all the Social Security 
benefits and Medicare benefits, everything else, discretionary 
spending, just by printing money and do it forever? Now, what 
would that mean?
    Well, it would mean hyperinflation. We have tried this 
experiment in other parts of the world. Argentina is trying it 
today. Germany tried it. There were 20 hyperinflations in the 
last century. They were disastrous for the country.
    Our obligations are almost entirely real. The Medicare 
benefits are going to be real. So if inflation takes off, they 
are going to have to be increased to pay the doctors' real 
salaries. The same thing with the military. So you really 
cannot make much money by printing money in real terms. I think 
it is just a ridiculous notion. It is--I am aghast. I do not 
think any of the 1,200 economists who have endorsed the fiscal 
gap accounting would find that an intelligent response to this 
$210 trillion fiscal gap.
    Chairman Enzi. Thank you. I want to ask you another 
question, though, because you made a strong case for adopting a 
different way to measure our current fiscal position. You 
advocate going to a fiscal imbalance measure that uses an 
infinite horizon calculation. How would you proposed to 
implement the changes in fiscal accounting? And what difference 
would it make to our policy debates?
    Mr. Kotlikoff. Well, it would put everything on the books. 
It would stop this Enron-type accounting where you put certain 
things--where Congress gets to choose what to put on the books 
and what not.
    Let me try and illustrate this concretely. You folks are 
all referencing the debt, the official debt, and, frankly, I 
have no idea what the word ``debt'' means, because I can make 
it whatever I want to make it just by changing language. So let 
me just give you an illustration.
    Suppose you wanted to get rid of the official debt today. 
Suppose you offered to everybody who holds Treasury bonds and 
bills the opportunity to swap those for future higher Social 
Security benefits. They could just turn those in for higher 
Social Security benefit commitments by the Government, and 
maybe you made that an attractive swap. Well, you would have no 
debt on the books tomorrow. And, therefore, would we have no 
problem? Would we have no fiscal issues? We could have a world 
where there is a balanced budget all the time, where we use 
words so that there is never any debt showing up on the books. 
But we can still drive our kids broke.
    And here is how it works. You take young people. Let us 
suppose you folks on the right here are young, and you are old. 
You take young people, and you take money from them. You call 
it taxes. Give it to the old people. They get to consume more. 
You tell the young people, ``Don't worry. When you are old, we 
will give you twice what you paid us. That is more than 
interest on what you paid us.''
    You become old. You are sitting over here. We come to the 
next set of young people. We have to take more from them. Taxes 
are equaling expenditures. There is no deficit. Take more from 
them, give it to them, tell those young people, ``Don't worry. 
We are going to give you twice as much as you gave us.''
    We keep doing this. What is the problem with this? Well, 
the problem with this is that we come to a point where those 
young people that are sitting there do not have anything to 
give. You take everything that they have earned, and you give 
it to the old people, and that is the end of the game. That is 
game over. That is what we have been running in this country. 
We have been hiding the--we have been taking most of the money 
from the young and giving it to the old and giving promises to 
the young in the form of commitments that are off the books.
    My mom is 95. She gets checks every so often from the--
well, every month from Social Security and every so often from 
the Treasury for Treasury bonds. They look the same. But the 
Treasury bond checks, the only thing that is different is the 
amount on the check. But the present value of the money that is 
coming in Treasury bonds is put onto the books. The present 
value of her Social Security benefits, which are safer because 
they are indexed against inflation, and they also have not the 
full faith and credit banking, not those words backing those 
checks, but the AARP backing those checks, the political power 
of 50 million people backing her payments. So that is a much 
stronger liability. It is not on the books.
    So you folks are having conversations about numbers that do 
not matter, that are not real numbers. The entire economics 
profession, with the exception of people on the extreme wings 
here--Paul Krugman and Art Laffer are not on the list of 1,200 
economists, neither is Bruce Baker, who have endorsed the 
INFORM Act. But you have people on the far right and the far 
left, mostly are Democrats--the majority of the economists 
there I think have voted Democratic, and they are saying that 
we have to measure what we really owe, which is the fiscal gap. 
That is expenditures minus the taxes all valued in the present. 
And it is saying that we have to do this immediately. And in 
terms of the cost of doing this, it takes me about 5 minutes to 
take the CBO numbers in Excel and produce the fiscal gap. I 
have to extend those into the future. That is easy to do. And 
the reason we need the CBO to start focusing on that is that 
that will focus your attention on the fiscal gap, and we will 
start budgeting on the basis of the fiscal gap.
    In terms of capital budgeting, the fiscal gap does not say 
you cannot make investments that will pay for themselves. If 
you think that educational investments, increasing the 
expenditures will produce in the future more tax revenues and 
more than pay for themselves or highway investments or any type 
of R&D, the fiscal gap analysis will not say that is a bad 
thing. It will say that is a good thing. But it is a 
conversation that makes sense.
    Chairman Enzi. Thank you. My time has expired, and I will 
have questions for the other two of you. Senator Sanders.
    Senator Sanders. Thank you, Mr. Chairman.
    Dr. Kotlikoff believes that we are taking from the young to 
give to the old. I think the history of the last number of 
decades is that we have taken from the middle class and the 
working families of this country and given to the super rich. 
But I wanted to start off with a question for Dr. Bartlett, and 
I must confess that this is unusual for me because I am 
introducing somebody who worked for Ronald Reagan, who worked 
for the first President Bush, who worked for Congressman Jack 
Kemp, and worked for Ron Paul. He is my witness, not yours, so 
this is a little bit surprising. But I want to ask you, you 
used to be--you worked very hard with Republicans to advance 
supply-side economic policies, many of the same policies that 
my colleagues here today advocate. Today that is not your view. 
It is my understanding that you believe that the lack of 
aggregate demand, not the debt, is the biggest challenge that 
the economy faces, and you have supported policies to 
significantly increase spending on our Nation's infrastructure, 
among other things.
    It is my understanding that you also believe that we should 
substantially increase revenue mainly by closing tax loopholes 
that benefit the wealthy.
    Why years ago were you an advocate of supply-side 
economics? Why have you changed your views today?
    Mr. Bartlett. Well, first of all, Senator, thank you for 
the honorary Ph.D., but I do not have one. Thanks--unless it is 
from the School of Hard Knocks.
    But everything you said is exactly correct, and, in fact, I 
worked with Larry Kotlikoff in years past, with conservative 
organizations, and I have not actually changed my fundamental 
philosophy, despite what a lot of people think. It is just what 
has happened is that circumstances have changed. I still think 
that the Reagan tax cut, which evolved from something called 
the ``Kemp-Roth tax bill''--I drafted that legislation when I 
worked for Jack Kemp. I still think that was very good policy 
in 1981. I think it helped the economy. But I do not think that 
the nature of our economic problem today will be helped by tax 
cuts.
    I think our basic problem has to do with the problem of 
very low interest rates. The ``zero bound,'' as economists call 
it, makes it very hard for monetary policy to be functional. I 
think, you know, several years ago, when the Federal Reserve 
greatly increased the money supply by well over $2 trillion, 
every single conservative economist I know of was predicting 
hyperinflation. They were all saying, ``Buy gold. We are going 
to go bankrupt.'' But none of that happened because they were 
not looking at the particular economic circumstances that are 
quite different today from any time in our history except the 
Great Depression.
    Now, if you go back to that era--
    Senator Sanders. Let me interrupt you, if I can, because I 
have a limited amount of time.
    Mr. Bartlett. Sure. I am sorry.
    Senator Sanders. Does it concern you that when we talk 
about deficits and national debts, my Republican colleagues are 
not forthcoming in asking large corporations that pay nothing 
in Federal income taxes now to start paying their fair share of 
taxes or that hedge fund managers have an effective tax rate 
lower than truck drivers and nurses? Is that an issue of 
concern?
    Mr. Bartlett. Yes. I think the carried interest loophole is 
the most egregious--perhaps the most egregious loophole in the 
entire Code, utterly unjustified, a huge giveaway to hedge 
funds. The problem of large multinational corporations 
storing--I do not know what the number is--perhaps $2 trillion 
of earnings in other jurisdictions, where in many cases it is 
not taxed at all. It is not a question of double taxation 
because they get a credit for any taxes they pay in foreign 
jurisdictions. But they are able to move this money around in 
such a way that nobody pays any taxes on it. And it does not 
even benefit the shareholders.
    Senator Sanders. Let me ask you this: Am I correct that you 
also understand that in an economy where 70 percent of our GDP 
is based on consumer demand, that when we have millions and 
millions of people who have literally no disposable income, it 
is going to be hard to grow the economy in the way we would 
like? Is that true?
    Mr. Bartlett. Yes, I agree completely. I think the problem 
of inequality that you pointed to is a problem. A number of 
organizations that are--for example, the Standard & Poor's 
Company put out a report just a few months ago worrying about 
the economic effects of growing income inequality because it 
said that if the people who spend do not have money to spend 
and the people who are getting the income are people who tend 
to save most of it, you are going to have too little spending 
and an excessive amount of saving for what the economy needs. 
And as you know, we have extremely low interest rates. That is 
evidence that we have more saving than we need, and, therefore, 
I think that if it were up to me, I think we desperately need a 
massive infrastructure program that would put people to work, 
that would get money mobilized, that would make Fed policy more 
effective.
    I really think it is a tragedy that we cannot even get the 
Highway Trust Fund taken care of properly.
    Senator Sanders. Let me just--last question, Mr. Chairman. 
And I am going to mispronounce your name. Ms Pfitzenmaier?
    Ms. Pfitzenmaier. Yes.
    Senator Sanders. Okay. You talk about the burden on younger 
people and the shift--the burden on younger people while 
protecting the elderly. Does it concern you that we have seen a 
massive shift in income and wealth inequality in this country 
so that we have the highest proportion of inequality in the 
world? Is that a concern of yours?
    Ms. Pfitzenmaier. I think all Americans are concerned with 
making sure that our neighbors and everyone in our 
communities--I heard Detroit mentioned. I actually grew up 
about a half-hour outside Detroit. And I think the question is 
looking at things like mobility. How are those opportunities 
going to get those people who are in need to be able to climb 
up the ladder?
    My colleague at Heritage, David Azerrad, has written a 
wonderful piece that I would happy to submit for the record to 
really look at that.
    I look a lot on school choice, giving those kids--
    Senator Sanders. No, I just asked you a question. There has 
been a transfer of wealth, trillions of dollars, from the 
middle class to the top one-tenth of 1 percent. Is that an 
issue of concern?
    Ms. Pfitzenmaier. I think we need to look at all different 
things of concern, and I am not a budget expert on this, but I 
think absolutely we need to look at really are there those 
opportunities to move up and help every American from every 
corner, from Detroit to California.
    Senator Sanders. Thank you.
    Chairman Enzi. Senator Grassley.
    Senator Grassley. Yes, thank you all very much for 
participating. I am going to start with Dr. Kotlikoff.
    I appreciate the work that you have done on studying 
generational debt. When OMB Director Donovan testified before 
our Committee a few weeks ago, I asked him about the debt 
burden of future generations and the impact President Obama's 
budget will have on future generations. The Congressional 
Budget Office has said that in future years a growing portion 
of people's savings would go towards buying Government debt 
rather than towards investing in productive capital goods. That 
crowding out of investment would reduce the size of the 
Nation's productive capital resources that, as you know, 
produce economic benefits over time. The smaller capital stock 
would result in lower wages and incomes, making future 
generations worse off.
    My first question: To what extent will future generations 
be worse off by taking no action to reduce the deficit and debt 
in the near term? I assume that you feel that reducing the debt 
burden of future generations would be more prudent than 10 more 
years of deficit spending and growing debt, as the President's 
budget proposes.
    Mr. Kotlikoff. Senator Grassley, thank you for the 
question. Again, the debt is not something that economics 
defines. Our mathematics can make the debt, the official debt, 
be anything we want with the words we want to use to label 
receipts and payments. So we are kind of having an ``Emperor's 
New Clothes'' discussion here. Every time you folks talk about 
the debt, I say I do not have any idea what you mean, because I 
can make the debt whatever number you want just by going back 
in time historically and relabeling things, calling things 
different things.
    So the only real thing we can look at that makes sense, 
that is independent of what labels we chose, is the fiscal gap. 
The fiscal gap in the U.S., we do not have a long time series, 
but in 2003 it was $60 trillion. Today it is $210 trillion. 
Those are the numbers you need to be focusing on. That is what 
our profession--that is what the people with the Ph.D.s 
actually say to look at. That is what George Shultz, 17 Nobel 
Prize winners--can you imagine what it takes to get 17 Nobel 
Prize winners from both political parties in terms of their 
orientation--but let me get back to your question--
    Senator Grassley. Well, let me take your approach, however 
you want to define it. My question is about making future 
generations worse off.
    Mr. Kotlikoff. We are in a fiscal war against our children, 
and this does not undercut the issue that you are concerned 
about, Senator Sanders, about within a generation are we being 
too generous to the rich versus the poor. I have the same 
concerns, absolutely the same concerns on that score, the 
degree of intragenerational progressivity, intragenerational 
accounting. But we are absolutely at war with our kids. We are 
leaving them a bill that is going to entail at least a 58 
percent higher set of taxes, if we do this all through taxes, 
all the correction through taxes, through the rest of their 
life. Every Federal tax, FICA, Federal income taxes, corporate 
taxes, have to be 58 percent higher to come up with $210 
trillion in present value. If you wait longer, then you see in 
Table 2 that--or Table 1 that delaying requires even higher 
adjustments later on. The longer we wait, the bigger the burden 
is on Heather and her generation.
    So, absolutely, we have a generational moral question here, 
and in terms of the impact--
    Senator Grassley. I think you have answered my question.
    Mr. Kotlikoff. Okay.
    Senator Grassley. And I would like to go to Ms. 
Pfitzenmaier, and I would like to make a suggestion. I think 
that the points you make for young people are very good points, 
and I wish that in the 99 counties I go to every year in Iowa, 
I wish the young people would come and make as much concern 
about the debt as older people make. I think it would make a 
very important point. So if you can spend your time getting 
young people to talk to Members of Congress about how they 
resent the debt that we are leaving to them, I think your time 
would be better used. And that does not denigrate what you are 
doing right now.
    As an advocate for future generations, how will this 
forecasted growth in debt affect the economic well-being of 
future generations?
    Ms. Pfitzenmaier. Thank you for the question, Senator, and 
encouragement. One of the favorite parts of my job is getting 
the opportunity to travel around the country and speak with 
students and talk to them about their concerns. I know I have a 
short time, so I think covered a lot of that in my remarks as 
well as the testimony, but I think it all comes down to just 
the potential for lower quality of life. And that is what is 
really on the minds of young people, and that is what I hope 
that we can resolve when we look at these issues, is making 
sure that our generation can be better off than the one before, 
and then we can leave a better future for our children and our 
grandchildren.
    Senator Grassley. Thank you.
    Chairman Enzi. Senator Stabenow.
    Senator Stabenow. Well, thank you very much, Mr. Chairman. 
I appreciate your having a University of Michigan graduate on 
the panel, so, Ms. Pfitzenmaier, thank you.
    Let me ask you--you talked about a young woman who had 
massive student loan debt. Do you think we should do something 
about that?
    Ms. Pfitzenmaier. Well, thank you, Senator, and thanks for 
the plug for our Wolverines. I absolutely think that student 
loan debt and the whole higher education is another issue that 
is on the forefront of a lot of young people. I am not an 
expert on that. Lindsey Burke at Heritage is. But I know she 
has done wonderful work looking at the accreditation process, 
looking at some of these open online courses that can come, 
because I think that is absolutely a big source, and the 
ability--I know my parents were able to work and pay for their 
college, and I think that that is not really the ability for 
many young people today. So I think that is absolutely a topic 
to look at, and I am glad to hear that it is something you are 
passionate about.
    Senator Stabenow. I am passionate about it. I would suggest 
that because we have a value of supporting education as a 
country, it does involve the public sector. We do not bring 
those costs down unless we as a country decide to also invest.
    Mr. Bartlett, you talked about assets as well as 
liabilities. I appreciate that very much. I believe that 
educated people are a great asset for us, and that does involve 
our coming together on public investments, like other countries 
are doing as well, education innovation.
    Mr. Bartlett, I very much appreciate the fact that you are 
looking from a practical standpoint about what works and what 
doesn't work, where we are today. And I think we are missing 
that in so many of these ideological discussions about debt. I 
come at this as a person who is in debt with a mortgage--a 
couple of them--who has put children through college who have 
had student loan debts, who has a car loan. We all go into 
debt. Businesses go into debt. But hopefully if you are smart 
about it, you do not go into too much debt. So it is based on 
our values. We want a roof over our heads for our families. We 
want to be able to drive a car. We care about our children; we 
want them to go to college. So we all--I mean, this whole 
notion that somehow--you know, this is all about values and 
decisions about how much, what we do, what is important. That 
is what this is about.
    What I get frustrated about is that we see things that have 
worked during the Clinton years, asking folks to pay a little 
bit more, we balanced the budget, 222 million jobs created. 
There were some cuts that were made, but it was kind of done in 
a way that was balanced. We go into the next 10 years, and, Mr. 
Bartlett, you were talking about $12 trillion in debt. We would 
be out of debt right now, $12 trillion, because different 
priorities. We heard, unfortunately, during the second 
President Bush's years that deficits did not matter when we 
were going to war; deficits did not matter when we were doing 
not one, but two rounds of high-end tax cuts for the wealthiest 
Americans, increasing the gap between working Americans and 
those at the top.
    So folks use deficits and debt for all kinds of things. I 
agree that, you know, it means all kinds of things. In the end, 
it really is about our values as a country in this great 
country and how we are going to all be in it together.
    I also want to just say--and I am talking more than asking 
a question, but when we talk about Detroit, I just want to say 
on behalf of the people of Detroit and Michigan, this is not 
about tax rates in Detroit. This is about jobs; it is about 
infrastructure, about investments and quality of life. What 
people in Detroit want to know is that there are public lights 
that work and roads that work and schools that work and safe 
neighborhoods so that police and fire come when you call. And 
that does involve accountability on public money, but it does 
involve people contributing to public services. It is not just 
about tax rates. If it was about tax rates, Detroit would have 
been able to fix it. It is about much more than that in terms 
of our investing in people and the quality of our life.
    So I am just about out of time here, but I just want to say 
that, whether it is--I know, Dr. Kotlikoff, one of the things 
that you suggest is eliminating the corporate income tax 
altogether and instead helping to pay for that by an additional 
tax on workers' wages. I am sorry. I do not get that.
    Mr. Kotlikoff. Can I just correct that?
    Senator Stabenow. Yes.
    Mr. Kotlikoff. That is not at all what I proposed. What I 
proposed was that we eliminate the corporate tax and that we 
impute the corporate income of the shareholders, no matter what 
corporations they hold, whether U.S. corporations or foreign 
corporations, onto their personal income taxes, so there is no 
way in which I have suggested that we put that burden onto 
workers. What I have said is quite the opposite, that doing 
this kind of integration would lead companies to invest a whole 
lot more in the U.S. to improve jobs in Detroit and other 
places and raise the wages of workers. What I said was that 
this is in this paper--and, please, it is on my website. Please 
take a look at it. I have said nothing like that. You have to--
I know you think that--
    Senator Stabenow. Well, if I was wrong, I apologize. That 
was the information that was given to me.
    Mr. Kotlikoff. I mean, I am over here maybe on this side of 
the table because I was invited by the folks on this side of 
the table. But I am not political. I am an economist. Okay?
    Senator Stabenow. I very much appreciate that, and I am out 
of time. I do not mean to be rude, but I understand that. I 
would just argue this is more than about numbers, and right now 
what I am most concerned about--we have eliminated two-thirds 
of our annual deficit in the last few years. What I am most 
concerned about is the middle-class jobs deficit and education 
deficit and infrastructure deficit in our country. The annual 
budget deficit has gone down by two-thirds, and the deficits in 
the other areas that relate to the quality of our country, the 
strength of our country, have gone up. And that involves all of 
us together doing our fair share.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman.
    You know, Ms. Pfitzenmaier, I agree with you, but I am on 
the other side of that generational gap. I do not want to be 
the member of the first generation that has to tell your 
generation that my generation is leaving your generation an 
America that is worse off. And yet that is what all the numbers 
say today, in my opinion.
    The problem is a lot worse than you said, though, and, Dr. 
Kotlikoff, I agree with you. We can make the number--you can 
pick a time period and get a number. It is $150, $200 million. 
Pick a number. But you get it back to households. The 
responsibility to pay this back over time is about $2 million 
per household. It is not $60,000. It is about $2 million a 
household. We all have car payments. We all have mortgages. 
That is unmanageable.
    And, Dr. Kotlikoff, I have a question I want to get to, but 
I honestly think this is the biggest crisis we face. It 
threatens our national security. It threatens the ability to 
talk about this gap. The gap we could talk about.
    And, Mr. Chairman, I am sorry. The conversation in this 
Committee that I have watched the last three times, that 
conversation does not serve the American people. This 
partisanship that is in here, this should be like Foreign 
Relations, should be like Armed Services, should be like the 
Intelligence Committee, where we are talking in a bipartisan 
way to try to get at the solution to this thing. How we got 
here, there are no innocent parties up here. I have said this 
for 2 years. I have not been in politics. I am an outsider 
looking at this thing, and I can tell you what. People out 
there hear what we say in here, and it does not make any sense 
to them. And it does not make any sense to me. I could argue 
all day long that the crisis in 2009 started in 1998 when we 
changed the homeownership rules about mortgage qualification.
    But I want to get to a question today that relates to what 
do we do to get out of this. I think we all realize that the 
problem that we have is today we are facing a problem by April 
15th, we have to put a budget together. OMB, the President, 
wants $4 trillion. Right now in that budget there is something 
like $229 billion in interest payments. There is another $95 
billion in accrued interest that goes to Social Security in 
terms of the other $4 trillion of debt. So we have $18 trillion 
that we talk about today.
    In just simple math, if interest rates were at their 30-
year historical average, somewhere around 6 percent, we would 
already be having a request in here on that budget for $1 
trillion of interest. Personally, I can debate all day long 
about whether it is $200 trillion or not. But the one thing 
that we cannot argue is that next year we are going to have to 
make X number of dollars of interest payments, and if interest 
rates get back to a 30-year average of 6 percent, I just do not 
see, frankly, how we can pay that.
    The question I have, Dr. Kotlikoff, is: Have we already 
passed this tipping point years ago? This is not a partisan 
question. It is a question of how--what do we do now to get out 
of here? And I want a follow-up question behind that.
    Mr. Kotlikoff. Well, we are in very deep water. I have 
proposed--you asked what we can do. I have proposed at 
www.thepurpleplans.org reforms of the tax system, reform of the 
Social Security system, reform of the health care system, 
reform of the banking system, reform of the energy treatment, 
energy policy, which many, many economists, including many 
Nobel Laureates, have endorsed these bills, these proposals. 
Each one of them is a postcard in length, so I would encourage 
you to take a look at www.thepurpleplans.org. It is purple 
because it is a combination of red and blue. It is supposed to 
interest both parties.
    Those proposals could dramatically reduce, if not 
eliminate, the fiscal gap, and they really, I think, meet the 
concerns of the Republicans and the Democrats. These are what 
economists would say will get us out of this hole and help our 
kids and also produce more equality, I believe, for--within a 
generation, more equity, more progressivity, because we have 
such a complicated fiscal system. We have something like 25 
major fiscal programs from the earned income tax to the 
alternative minimum tax, that getting a picture of the overall 
progressivity of the system is quite difficult. But I think 
that, on balance, these things would improve progressivity.
    Senator Perdue. I am sorry. I have one more question, but 
my time is almost up--
    Chairman Enzi. Microphone.
    Senator Perdue. I am sorry. It should be on now. Sorry.
    You mentioned to solve this problem, you can increase taxes 
58 percent, you could cut spending 37 percent--
    Mr. Kotlikoff. 38.
    Senator Perdue. 38 percent. But we did not talk about 
growing the economy, and the numbers we are being given by OMB, 
if we grow the economy one GDP point, 100 basis points in GDP, 
that is $4 trillion over 10 years.
    Mr. Kotlikoff. Right.
    Senator Perdue. The question I have is, you know, this 
gridlock that we have watched in Washington for the last 15 
years under several administrations, 11 different Congresses, 
we are not getting anywhere. That gridlock is not going--I just 
do not see how we are going to solve this without growing the 
economy. We talk about the earning gap, and I agree there is an 
earning gap. But we can talk about how 30 percent of the people 
who are not working today are contributing to that. We have 
created an environment out there where we just do not have the 
economy working. In the last 6 years alone, 4 million women 
have fallen into poverty, and the middle class is getting 
whipsawed by the economic policies. Obamacare alone has got 
two-thirds of small businesses have either stopped hiring or 
cut back employment.
    So the question is: Can we get the debate about how to get 
the economy going into this conversation about dealing with 
this budget issue?
    Mr. Kotlikoff. Okay. So one of the problems, Senator, is 
that we have less investment going on. If you look at this 
chart of the national saving rate and the domestic investment 
rate, you see that all this financing of higher consumption 
through these pay-as-you-go Ponzi scheme policies we have been 
running, some of which are very important, but, you know, 
Medicare Part D is an example. President Bush imposed a $15 
trillion addition to the fiscal gap in that measure. Now, do we 
need health insurance for drugs for the elderly? Absolutely. 
But should all the elderly have been left off the hook in 
paying for it? Absolutely not, especially the rich elderly.
    So we do need to have Government involvement in a lot of 
areas, including social insurance. The purple plans say this, 
but they also say you need to make sure we do not kill off our 
kids in making them pay for all our bills.
    And so one way to get things turned around is to get 
investment up, and that means to get saving up, and that means 
to get consumption down actually as a share of national income, 
and, absolutely, getting the burden off of our small 
businesses.
    So what about rationalizing our health care system? We now 
have Medicare and Medicaid, Obamacare, employer-based health 
care. The Government is involved in all four of these programs. 
We have got four different programs trying to provide basic 
health insurance to everybody. The Purple Health Plan provides 
a voucher plan, individually risk adjusted so it is actually 
highly progressive, that would provide a basic insurance plan 
for everybody in the country. I have talked o Congressman Ryan 
and people on the left as well. I think that is the way to go, 
and most economists do. This would eliminate all that paperwork 
that you are concerned about that employers are now facing.
    Chairman Enzi. Senator Whitehouse.
    Senator Whitehouse. Thank you very much, Chairman, and I 
can say that there is nothing that I would be more pleased with 
than a nonpartisan conversation about the debt and the deficit. 
But when we open up with blaming the Obama administration for 
debt levels that relate back to a war he did not start, tax 
cuts he actually tried to overrule, and an economic downturn 
that caused him to take office at a time when the economy was 
losing 800,000 jobs a month, that is not exactly a signal that 
we are involved in that nonpartisan discussion.
    It is also, I think, significant that debt should be the 
real target of our conversation. If the debt is just a stalking 
horse for an attack on social programs--on Medicare, on Social 
Security, on other things--and if it is defined, as it has been 
defined in this very hearing, as an overspending problem, and 
my colleagues refuse to look at the revenue side of the 
equation, again, hard to believe that is not a partisan 
discussion. I mean, this is a longstanding divide. The 
Democrats have stood up for Social Security and Medicare for 
generations, and Republicans have attacked them for 
generations. If you want to relitigate that through the debt 
discussion, we can do that. But I do not think that is very 
helpful. And it is particularly not helpful when there is more 
money going out the back door of the Treasury through tax 
credits and favors and deductions and so forth than there is 
actually being spent through the discretionary accounts. And 
ignoring that I think is mathematically not sensible and 
morally not fair, particularly when you have favored groups 
that are getting very special attention here.
    I know that the oil companies have huge clout around here. 
They do not need subsidies. They do not need subsidies. They 
are making more money than any corporations in the history of 
the universe, and yet it is almost as an act of political 
fealty, ``Yes, we are going to show up and do what you want, 
guys. We love you. Here is some more money.'' If that is more 
important than the debt, then we are not having a serious 
discussion about the debt.
    Hedge fund managers get a tax benefit that the witnesses 
have already condemned through the carried interest exception, 
and as a result, in the recent years they have had tax rates 
that are lower than the tax rates for Rhode Islanders who were 
hospital orderlies, who were brick masons, and who were truck 
drivers, if you go back over the 3 years.
    When we try to change that, we have a war on our hands: 
``No, that is an unmentionable. We cannot possibly not help our 
hedge fund buddies.'' While that is happening, while that is 
the conversation, we are not having a nonpartisan, legitimate 
discussion about the debt.
    And we know a lot of American companies love to offshore. 
That is a huge loss to our economy in a lot of ways. But 
Senator Levin fought very hard to try to get these offshoring 
restrictions put in, to try to protect against that offshoring. 
Every single time he had a war from the other side of the aisle 
on that.
    So please do not paint me into the corner of being an 
obstructionist or partisan about doing something about the debt 
when you have taken the biggest part of the problem and ruled 
it off limits. That just is not fair. And the math is not 
proper. Just none of that makes sense in any way.
    The third point that I will close with is we are making 
some progress on the spending side. The debt is--the deficit is 
coming down. And what most people have said in this hearing 
room, when they have talked about the long-term out-year 
projections, is that the biggest and scariest piece of it is 
health care. That has been a bipartisan opinion that we have 
heard over and over again. And there are ways to address our 
health care problem that we should be seriously attending to, 
because we have a health care system that costs about 50 
percent more than all of our industrialized competitors and 
produces health care outcomes, at least as measured in life 
expectancy, that are equivalent to Greece and Croatia. I mean, 
there is a great area for us to be working together, and I hope 
that is an area that we can focus on rather than have these 
exercises in kicking social programs and kicking the President 
all under the guise of a conversation about the debt. It is a 
serious problem. It deserves better, in my view.
    Chairman Enzi. Senator Sessions.
    Senator Sessions. Thank you, Mr. Chairman. Thank you for 
your expertise and leadership in this Committee.
    Senator Whitehouse. Mr. Chairman, I am sorry. May I ask 
unanimous consent to have a document put into the record that 
supports what I was saying? I apologize for interrupting the 
Senator.
    Chairman Enzi. Without objection.
    Senator Sessions. I do not know, Mr. Bartlett, if you were 
part of the group that said deficits do not matter. I never 
felt real comfortable with that idea.
    Mr. Bartlett. I worked for the first President Bush.
    Senator Sessions. Deficits do matter.
    Well, I guess I will just say on a political basis, I do 
believe the President of the United States has failed to look 
the American people in the eye and tell them we are on an 
unsustainable financial path. I think a President of the United 
States has a lot of duties, and one of them is not to 
misrepresent the danger that we face. So I think he deserves to 
be criticized for that. And to suggest that the reduction in 
deficits that we have seen somehow fixes the problem is really 
dangerous and really misleading and takes the heat off us to 
try to fix things. And without Presidential leadership, it is 
hard. But I think Congress forced the Budget Control Act and 
made some progress, as others have said, and there are more 
things that we need to do.
    Dr. Kotlikoff, the way I understand your position and what 
you are trying to have us hear is that a better way to look at 
where we are financially rather than debt is the fiscal gap, 
and the fiscal gap is relatively easily ascertainable and that 
we should judge ourselves on whether or not we are reducing the 
fiscal gap or not. Is that what you are saying?
    Mr. Kotlikoff. Absolutely, exactly what I am saying. And it 
goes beyond that. It is that the debt is not a well-defined 
economic measure. It is not defined by our math. Our equations 
do not say how to label the terms in our equations. They do not 
say what words to use to discuss our equations. So the debt is 
actually not well defined mathematically. Just like time and 
distance is not a well-defined mathematical thing in physics. 
It is a concept. It is how you are moving through space, at 
what speed, will determine what you say the time is right now 
and what the distance of this table is.
    So there are a zillion different measures of time and 
distance. They are equally useless in physics in terms of 
understanding anything.
    The fiscal gap, the infinite horizon fiscal gap, is the 
only measure that is label free. So no matter what convention 
you use in terms of your labeling, as long as it is internally 
consistent, you will get the same fiscal gap. This is why the 
entire profession has endorsed fiscal gap accounting. They are, 
in effect, saying that you guys are looking at the wrong 
numbers on a routine basis. And so that is--you know, I think 
that you have to start thinking about the fiscal gap. You have 
to pass the INFORM Act. You have to start--I know you are 
focused so much on these partisan fights, but there is a way 
around this to get to a safe place for our kids and for the 
poor versus the rich within a generation, and that is these 
purple plans, because they are big ideas. We need big solutions 
now. We need big bipartisan solutions. And I think if you just 
start looking at those and discussing those plans, which have 
been endorsed by a slew of economists, I think you will stop 
the bickering over small stuff and get to the big picture. And 
it does not undermine the social insurance programs that we 
have. It is saying let us do the social insurance programs 
efficiently so we do not leave Heather in bankruptcy.
    Senator Sessions. Thank you for sharing actual ideas about 
how to fix the problem, number one. I just think it is 
absolutely true that we have enjoyed more benefits today by 
creating debt, which is requiring our next generation to pay 
for the extra benefits we choose today. So, Ms. Pfitzenmaier, I 
think you are on the right track. And I agree with Senator 
Grassley. We do need to get our young people to better 
understand that, and I am sure we would be effective with it.
    But we see the deficits increasing relentlessly in the 
years to come. The Congressional Budget Office has told us we 
are on an unsustainable path. Those words have grave meaning to 
them. It creates the likelihood of a fiscal crisis, or if we 
have a financial crisis, it creates, does it not, Dr. 
Kotlikoff, greater difficulties in working our way out of it 
and creating more danger? So the greater debt we have--I saw an 
article recently in a financial magazine trying to counsel 
people on their investments saying we have recessions every 10 
years, about two every 10 years, more than one a decade. So we 
have another recession, and we are carrying this much debt. 
Does it not make it more difficult for us to work our way out 
of a future crisis if we have an unsustainable and growing 
debt?
    Mr. Kotlikoff. Yes, and I am very concerned about the 
monetary policy, because if we have seen what the Federal 
Reserve has been doing for the last 8 years, it has been 
printing money like crazy. Now, they call this ``quantitative 
easing,'' but it is really easing the burden on Congress to pay 
for its bills, for what the Government spends. There has been 
an increase of something like a factor of five in our base 
money creation. If that money gets out into the bloodstream of 
the economy, if the banks start lending it out--they are 
holding a lot of excess reserves--we could see inflation take 
off, and that could put the economy into recession and cause 
more problems.,
    So we have to start understanding where we are going, and, 
you know, Ben Bernanke says it is in order to lower interest 
rates. You know, that is a lot of, to me, frankly, B.S. for 
what is really going on, which is just printing money to pay 
for bills. And that is not going to be a solution into the 
future. And increasing the money supply by a factor of five is 
one of the most irresponsible things you could do as a Fed 
Chairman.
    Senator Sessions. Thank you.
    Chairman Enzi. Senator Warner.
    Senator Warner. Well, thank you, Mr. Chairman. I want to 
thank the panel for being here. I apologize about the fact that 
we all feel fairly strongly on some of these issues, and I 
appreciate, Dr. Kotlikoff, you put out some ideas. And, Mr. 
Bartlett, I think you have raised some very valid points as 
well, particularly in relation to the circular flow on things 
like the Fed interest rates.
    I do need to, I think, point out what I--and I have been, 
perhaps as anybody on this panel, more engaged in efforts of 
trying to bring the Simpson-Bowles--not a perfect plan, but a 
plan that led us with shared responsibility out of some of 
these challenges.
    I do, though, need to, I think, correct some of the record. 
You just cannot get away from the facts that the deficit has 
been cut by two-thirds under this President. You cannot get 
away from the fact that the President, much to the chagrin of 
the Ranking Member and others, suggested changes to our 
entitlement system that I supported, things like chained CPI. 
But there was not a willingness from our friends on the other 
side, at least from a leadership level, to meet halfway.
    So there clearly is blame on both sides here, and anyone 
who tries to assess this was started on one side or the other 
is just not, I do not believe, accurate.
    I do think the thing in the--and the Chairman raised this 
point. I think we do need to recognize the issue is now growing 
the debt, but the deficit is actually within historic means a 
relatively manageable basis. But because of irresponsible 
actions of the preceding 40 years, the total aggregate debt is 
not sustainable. We can pick our accounting methods or our time 
frames, but we all live with the referee, the CBO, 10-year 
windows. Probably not the most appropriate way, but that is 
what we have got to play with.
    And the CBO right now has just plain data that says a 100-
basis-point increase in interest rates adds $120 billion on an 
annual payment off the top to the debt payments. That is bigger 
than our whole debate now about the Department of Homeland 
Security. That takes precedence over everything else.
    The current CBO projection says that at the end of 10, debt 
payments alone will totally exceed defense, a national 
priority, or totally exceed our domestic discretionary. Right 
now domestic discretionary is already at historic lows. I for 
one, as one who has spent more time in the private sector than 
the public sector, believe strongly in the free enterprise 
system. But I do believe there is incredibly valuable 
commitments made by the public sector, in education, in 
infrastructure, in research. And as a venture capitalist, I 
would not invest in an enterprise right now that is spending 
less than 10 percent of its revenues on investments in those 
three categories. That is a bad business plan for America.
    And if you look at the actions since the crisis, the ratio 
of cuts to revenue is 4:1. Simpson-Bowles had a 60:40 ratio.
    So I guess what I would--and I apologize. Again, I may make 
it to a question or I may not, but I just think it is important 
to put some of these facts out on the table. You know, historic 
revenues, we are running at 17.5 percent of GDP. That is close 
to the 17.4 percent 50-year average. Anybody who says we ought 
to go back to the 50-year average cannot read a balance sheet. 
And I know the Chairman is an accountant and understands that, 
because we never balanced the budget when it was at 17.4. You 
got to get revenues--you got to get spending down, but you got 
to get revenues between basically 18.5 and 19.5.
    Now, how we can get it, whether it is a purple plan or 
whether it is tax reform, but there is no way you can run this 
enterprise or anything close to it on the revenue stream we 
have got right now.
    And I think Mr. Bartlett's point that in many ways the 
deficit--we spent a rather tiresome New Year's Eve a few years 
back all together where I am sure we probably did not want to 
spend it together where we avoided perhaps fiscal apocalypse 
for $600 billion in one-time revenues or 10-year revenues. We 
have got to do more on the entitlement side. I will take those 
hits and have laid out plans that have gotten me a lot of 
criticism from my colleagues on this side of the aisle. But you 
cannot get there without revenues.
    You know, we are actually in a worse position than 
currently because we have spent that $600 billion on revenues; 
yet because we have gotten $420 billion in extraordinary one-
time revenues from the profits from the Fed--and the way OMB 
books--you have got to go back to your accounting methodology 
The way OMB books return of the Fannie and Freddie profits, 
that is another 220. So we have got one-time revenues in excess 
of what we almost brought the Government to the brink of an 
abyss. And those are not going to be coming on a going-forward 
basis.
    So, Mr. Chairman and Ranking Member, Senator Sanders, you 
know, the debt has to be dealt with because it is 
unsustainable. But I would just ask in the spirit of what our 
panel has suggested that we both have to come out of foxholes. 
We have seen improvements in health care. We do have to 
recognize entitlements, and the mandatory has to be part of 
this. But any notion that we can get there with anything close 
to what the American public is expecting from the Federal 
Government without revenues in the mix is just not possible.
    My apologies to the panel for not getting to a question.
    Mr. Bartlett. Senator, could I make a brief point about 
that?
    Senator Warner. Yes, please.
    Mr. Bartlett. I do agree with you about revenues, and one 
point that may be in the interest of bipartisanship, we used to 
have a principle that partisanship stopped at the water's edge. 
And as I pointed out, one could argue that our national debt is 
essentially the accumulated legacy of the costs of all previous 
wars.
    Now, in World War II we raised taxes very substantially. 
Before the war, only 3 percent of American people paid any 
income taxes at all. By the end of the war, it was up to 30 
percent. We increased taxes very substantially during the 
Korean War. During the Vietnam War, we had a 10-percent surtax 
that applied to all income, so if you owed $1,000 of taxes, the 
next year you owed $1,100. And Richard Nixon extended that tax.
    I was working for President George H.W. Bush when, in 1990, 
in an act of what I think was great bravery, he raised taxes 
because he knew we needed the revenue to pay for the first Iraq 
War. Now, over the last 10 years or 12 years, whatever, for 
some reason we have decided that we are not going to pay for 
wars. And a great many of our fiscal problems result from the 
fact that we launched the Iraq and Afghanistan operations 
without asking the American people to pay, to share in the 
sacrifice of our soldiers. And I think it was irresponsible not 
to put on some kind of tax specifically dedicated to that war. 
And the reason I bring it up is because we are talking about 
another military operation, and maybe we can agree this time to 
put on some tax to pay for this new operation so that everybody 
is in this together, me and everybody else.
    Senator Warner. Mr. Bartlett--and Mr. Chairman, I will only 
take 10 more seconds with your--10 more seconds. I do believe 
absolutely what this country desperately needs is all in this 
together, whether it is for payment for the cost of defending 
our country or a debt surcharge, because I do believe Heather's 
comments are absolutely appropriate. It is unfair. We are 
making a massive wealth transfer from your generation to 
increasingly my generation. Poverty, because of good work of 
people like Senator Sanders, has dramatically decreased among 
seniors over the last 50 years because of commitments we have 
made. Poverty is at 9 percent. Unfortunately, poverty among 
children today is 24 percent. That is not a progressive system 
for our country, and I think this all-in-it-together concept is 
one that needs further exploration.
    Thank you for the extra time, Mr. Chairman.
    Chairman Enzi. Senator King.
    Senator King. Thank you, Mr. Chair, and thank you for 
calling what I think is a very important hearing on a topic 
which we need to discuss at further depth.
    Tom Brokaw wrote a book a couple of years ago called ``The 
Greatest Generation,'' and it was the generation of the 
Depression and World War II. And I want to take off on what you 
just said, Mr. Bartlett. That generation fought World War II, 
paid for World War II. If you look at the charts of debt, there 
is a great burst of debt right in the late 1940s, early 1950s. 
They paid it off. They built the Interstate Highway System. 
They taxed themselves to pay for it. They paid for the Korean 
War, as you pointed out. And now we cannot keep the potholes 
filled. They built the Interstate Highway System, and we cannot 
keep the potholes filled.
    I think if Tom Brokaw wrote a book about our generation, it 
would be called ``The Great Skedaddle'' after the first Battle 
of Bull Run, where our generation has skedaddled from its 
responsibilities to pay its bills. It is pretty 
straightforward. And we talk about an unsustainable path. We 
have been on an unsustainable path for about 40 years. Sometime 
in the 1960s, we decided we did not have to pay our bills as a 
generation, and what we are doing is simply passing them on to 
our children.
    I had a very formative experience with a hardware store 
clerk in Brunswick, Maine. When I asked him in 2003 or so, 
``What do you think of the Bush tax cuts?'' he said, ``There 
have not been any Bush tax cuts.'' I said, ``Of course there 
have.'' He said, ``No, there were no tax cuts.'' I said, ``What 
do you mean there were no tax cuts? Don't you watch the news?'' 
He said, ``Listen, if you cut taxes when you are in a deficit 
situation and borrow to make up the difference, all you are 
really doing is shifting that tax to the next generation.''
    I thought that was a very interesting insight. Those kids 
are going to have to pay for that. Our children are going to 
have to pay for that.
    Doctor, I understand you talk about debt and the fiscal 
difference. I call it ``unfunded liabilities.'' You are putting 
together the unfunded liabilities of Social Security. I agree, 
that is an appropriate way to look at it.
    We all agree around this table that we have got a problem. 
The question is: How do we deal with it? And do we start to 
deal with it in a serious way? And it seems to me there are 
only three ways to deal with it: one is revenues, two is cuts, 
and three is economic growth. And that is where Senator Sanders 
comes in, because I think inequality is costing us economic 
growth. You talked about one point of GDP. If 70 percent of the 
U.S. economy is driven by consumer spending and consumers, the 
vast middle class, do not have money to spend, by definition 
you are going to have slower economic growth. So inequality is 
an issue.
    But we have got to look at all three, and we have also got 
to look at the demographics of where we are now as a society. 
We cannot, as Senator Warner said, we cannot support the 
commitments we have made to seniors given the retirements of 
the baby boomers at the current level of revenues unless we are 
just going to wipe everything else out.
    And then the final point, I think, Mr. Chairman, that I 
know you are worried about is interest, and the point has been 
made several times here. Interest rates are going to kill us. 
We are in a fantasy land of interest rates right now, of 1.5 to 
2 percent. Interest rates, as has been pointed out, go back to 
historical norms of 5 or 6 percent. That would virtually equal 
what we are now arguing about is the entire discretionary 
budget of the United States Government. And it is going to 
crowd out everything that both sides of the aisle value, 
whether it is battleships or Head Start slots or student loans.
    And so we have really got to be thinking about that, and I 
think we have got to be thinking about--yes, we need to think 
about the unfunded liability. Let us put that aside for a 
minute and talk about the $18 trillion debt. And I think we 
have got to be thinking about how to bring that down. Yes, the 
deficit is lower. The deficit is lower. But it is still a 
deficit. We are still digging the hole deeper to the tune of 
half a trillion dollars a year.
    You found a question in there. I compliment you.
    Mr. Kotlikoff. Could I interject just a second here? I am 
trying to get across that we do not have a well-defined measure 
of the debt, so you guys keep talking--gentlemen and Senators 
keep talking about the deficit. The true deficit is $5 trillion 
between last year and this year, because the fiscal gap in the 
chart you will see went from $205 trillion to $210 trillion. 
So--
    Senator King. I understand that. I am trying to 
distinguish--you are lumping together what I call ``unfunded 
liabilities'' with the public debt.
    Mr. Kotlikoff. Economic theory does not know what the 
public debt is. It is just a matter of word games. You guys are 
engaged in a word game and have been for decades. That is why--
you know, again, my mom's Social Security check is a debt. It 
is not on the books.
    Senator King. I agree.
    Mr. Kotlikoff. So what you call interest is a matter of 
your language. What you call the deficit this year is a matter 
of your language.
    Senator Warner said that we can all choose our accounting 
method. Economists, 1,200 strong, 17 Nobel Prize winners, are 
saying you cannot all choose your accounting method. There is 
only one accounting method you can use. It is the infinite rise 
in the fiscal gap method, because that is what the theory says. 
That is the only method that is independent of your choice of 
words.
    Senator Kaine along with Senator Thune have cosponsored the 
INFORM Act. Pass it. It requires you to do fiscal gap 
accounting, put everything on the books, and it does not 
undermine the investments that you need to make to improve in 
R&D and education that will cost money but also get back 
hopefully taxes which will exceed what it costs in present 
value. So it is a framework for capital budgeting as well.
    Senator King. I agree, and I agree we need to have the 
clearest picture we can have. I do not mean to imply that we do 
not. But the question still is: What do we do? And, Mr. Chair, 
I think we ought to have a capital budget. There are things we 
should be borrowing for. The problem is now we are borrowing to 
pay park rangers, and that does not make sense. So that should 
be part of our discussion.
    Senator King. I agree.
    Mr. Kotlikoff. And do not take my forcefulness as really 
fundamentally disagreeing with you or your values, because we 
agree 100 percent on those things.
    Senator King. Well, I just think we have got to do 
something about this, and we have got to do it in a 
comprehensive way, and we have got to start--every year we wait 
to do it, it is going to get harder. And, fundamentally, to me, 
it is our generation being unwilling to pay our own bills. And 
we are borrowing from our kids, and at some point they are not 
going to be able to carry this burden. And it also saps any 
flexibility we have to deal with a legitimate crisis.
    Mr. Kotlikoff. Right.
    Senator King. If we are running huge deficits at a time of 
relative non-crisis and then when we have a legitimate crisis, 
we do not have any well to go to. So I commend all of you for 
bringing this to our attention. I do think it is something that 
we have to work on. But it is not going to be able to be solved 
painlessly on either.
    Thank you, Mr. Chair.
    Chairman Enzi. Senator Wyden.
    Senator Wyden. Thank you very much, Chairman Enzi and 
Senator Sanders. I think this has been an important hearing, 
and I wish I could have been here for more. But as you know, 
there are a few things going on at the Finance Committee right 
now that are time-sensitive.
    I want to get into the question of health care costs for a 
moment. I understand there has been some discussion, but what 
is striking is some of the tangible progress that has been made 
in reducing the growth of health care costs. And I was 
particularly struck by the Congressional Budget Office 
analysis. That is a substantial bit of progress in terms of 
moderating health care costs. And having heard you on this 
subject before, Dr. Kotlikoff, I know you agree, and I am happy 
to have all of you here today.
    What I wanted to get into is the question of dealing with 
the structural challenge in terms of health care, because I 
think it is well understood that 10,000 people are going to 
turn 65 every day for years and years to come. And, in effect, 
so much of the debate seems to be, well, for the structural 
challenge you really have two choices: you can cut people's 
benefits, or you can just kind of do business as usual. And I 
feel very strongly that there is a third path, that there is a 
path to better care and lower costs.
    Senator Sanders, my colleague here, his House compatriot, 
Peter Welch, is part of a bipartisan effort with myself and 
Senator Isakson and Erik Paulsen to focus on the challenge 
that, frankly, both political parties have missed in the past, 
and that is chronic disease.
    Medicare today is no longer primarily about broken ankles. 
You know, back when I was co-director of the Gray Panthers, 
that is what we often talked about. But there would not be any 
political debate today that Medicare was about broken ankles. 
Medicare today is about cancer, it is about diabetes, it is 
about heart disease, it is about stroke. That consumes 90 
percent of the Medicare budget, and yet my view is that both 
political parties have not adequately addressed this issue.
    So perhaps we might start with you, Dr. Kotlikoff, but any 
of you who would like to get into this. It seems to me that the 
centerpiece of what is done particularly in Medicare is to 
refocus so as to put the primary attention of the program on 
those with chronic disease, those with very often multiple 
chronic conditions, who are the most costly individuals, and 
that will make sense for Medicare. As we get into the issues, 
as we have sought to do in this bipartisan bill, we must also 
consider the population that is under 65, because there will be 
a greater focus on prevention.
    So let me just go right down the table roster and start 
with you, Dr. Kotlikoff, what you think of that analysis.
    Mr. Kotlikoff. Well, I think that certainly the Government 
has a big role in research and development in the area of 
health care, and it may be that we are underfunding NIH in 
these areas and that we need to--
    Senator Wyden. I am talking about coordinating care. I 
mean, for example, the bulk of the program today, where there 
is not Medicare Advantage and, you know, fee-for-service 
medicine, you cannot get a collective payment if a doctor, a 
physician assistant, or maybe a pharmacist want to team up. And 
it just seems to me we have got to coordinate these services to 
get better care and lower costs.
    Mr. Kotlikoff. Senator, my reform proposal--I wrote a book 
called ``The Healthcare Fix''--is one of the purple plans, it 
is called ``The Purple Health Plan.'' It has been endorsed by, 
I think, five Nobel Laureates. It is right there on the 
website, the purpleplans.org. It would say we should give 
everybody a voucher that is based on their pre-existing 
condition, whether they have cancer or diabetes, and that 
everybody would take that voucher to an insurance company to 
buy a single basic plan that would cover the things that were 
set by a panel that would be covered subject to a global budget 
so that the costs of all the vouchers would never exceed 10 
percent of GDP.
    Now, if you go to that kind of a system, you start giving 
the insurance companies--you make the basic health insurance 
plan a commodity, just like apples. And then you get them 
competing to provide that, and so they are going to go to the 
most efficient delivery system. So you are going to have Kaiser 
Permanente, for example, trying to figure out what is the 
most--how can we internally coordinate care for people with 
these chronic diseases so as to minimize costs? Because we are 
just getting their voucher--that is all it is--and we are not 
allowed to turn anybody down, but we are happy to have somebody 
who is diabetic because they are going to have a bigger voucher 
because they have--we are going to base it on medical records. 
There are electronic medical records proposed in this proposal. 
This is going to mean that they are going to come to us with a 
bigger voucher, so they are a good customer, too. And we 
solve--so we need to, I think, rely on the private sector to do 
this coordination of care, and they have to have the incentive. 
And the way to do that I think is to make the health insurance 
industry hyper-competitive and turn basic health insurance into 
a commodity, a simple commodity like apples. And beyond that, 
people could buy supplemental policies if they want to have 
insurance to get an angioplasty at 98, they would buy--
    Senator Wyden. Why don't we do this--because I am over my 
time. Let us go to Mr. Bartlett. I think we in the Congress 
have not had a very good history with vouchers or saying that 
health care is like apples, because it is a very different set 
of considerations. I think there ought to be a role for the 
private sector, but I think the idea of just handing somebody a 
voucher and saying health care is like an apple, that is not 
what our bipartisan group is all about. We are about choice, 
but not vouchers.
    Mr. Bartlett?
    Mr. Bartlett. I am disinclined to think that getting the 
private sector more involved in health is going to help our 
problems because we are already spending something like $300 
billion a year of unnecessary administrative overhead because 
of the complexity of our health system. And I think it is 
quite--the most relevant statistics that I am familiar with 
about health is the fact that the next country most like 
ourselves, the OECD, with the heaviest health spending spends 
half of GDP of what we spend. If we spent no more--we could 
have the health system that the British have--which is actually 
on balance a better system than we have. They have better 
health outcomes over a lifetime. We could have that, and if we 
spent the same amount they spend, which is a little over 10 
percent of GDP, we would have the equivalent of the payroll tax 
to give away for nothing. All Americans would be better off by 
the amount of money they now pay for the payroll tax that they 
could spend on anything. Their standard of living would be 
massively higher, and their health would be no worse than it is 
in Britain, which is better than ours.
    So I think we missed a chance in 2009 to examine foreign 
operations and see what we could have learned from their 
experience instead of just reinventing the wheel, as we always 
do.
    Senator Wyden. You are spot on, as you often are, on this 
question of driving down administrative costs. I mean, driving 
down administrative costs is the heart of this. And, of course, 
that is one of the most appealing features of Medicare, is that 
Medicare, of course, has done it. The question is: Can we now 
get Medicare to focus on the future, which is really chronic 
disease? And I know my time is up, and I thank you and look 
forward to working with you, Mr. Chairman, and Senator Sanders 
on these issues.
    Mr. Kotlikoff. Senator Wyden, can I make a quick 
correction?
    Chairman Enzi. We are running way behind.
    Mr. Kotlikoff. Sorry.
    Chairman Enzi. Senator Kaine has been here from the 
beginning, and as I understand it, he is the cosponsor of your 
plan.
    Mr. Kotlikoff. Absolutely.
    Senator Kaine. Indeed, I am a big supporter of the INFORM 
Act, a big supporter, and I appreciate the testimony of all of 
you.
    I want to ask you each just one question, and it deals with 
the title of the hearing, ``America's Dangerous Debt.'' How 
much debt is dangerous, is what I want you guys to tell me.
    Here is my observation. I was a mayor, and I was a 
Governor, and we had a philosophy in my city hall and we had a 
philosophy in my State for managing debt. And I have worked 
with some pretty dysfunctional folks, I do not mind telling 
you. My city council, five of my colleagues in 8 years were 
criminally prosecuted and four of them went to jail. Very 
dysfunctional, and very bipartisan, but we had a philosophy--
    Senator Sanders. The Democrats and Republicans going--
    [Laughter.]
    Senator Kaine. It was a bipartisan tradition. We had a 
philosophy about how to manage debt. It was, you know, debt 
service as a percentage of the city budget. We were always 
issuing debt and retiring debt, total outstanding debt, had 
some ratio relation to, you know, city assets.
    At the State level, the same thing. I had two Republican 
Houses who fought with me on everything, but we had a 
bipartisan compromise whether the Democrats or Republicans were 
Governor, whether the Democrats or Republicans were in majority 
in the legislative branches, about a debt management 
philosophy. Debt service payment as a percentage of State 
outlays and total debt as a percentage of, in this case, State 
GDP.
    The thing that surprised me here, coming here, is--I mean, 
I know, you know, the way you bring down debt is the three 
things that Senator King mentioned: more taxes or cut spending 
or grow. But there is no consensus here about what level of 
debt is appropriate. We are going to have debt. What level of 
debt is dangerous?
    I tend to agree with Dr. Bartlett that nominal debt is 
irrelevant, just the number. We never used the number as the 
danger zone in city hall. We never used the number as the 
danger zone in a State budget. It was always a ratio. It was a 
ratio of total debt to assets or a ratio of debt service 
payments to total State budget.
    So I am assuming that the measure of what is appropriate 
debt--and we are going to have appropriate debt--and what is 
dangerous debt is some ratio rather than just a finite number. 
And I just would like to ask each of you--I mean, I have been 
kind of trying to determine what your answers will be based on 
your testimony. But I would just like to ask each of you, 
forget about how we solve it, that is on us to do, but what 
would your professional advice be as to an appropriate Federal 
debt management metric? What should we, you know, paint as our 
bull's eye and try to manage to?
    Mr. Kotlikoff. Senator, if you are asking me, the answer is 
that the fiscal gap has to be zero. It cannot be 10.5 percent 
of the present value of GDP. Another way of saying that is that 
it is 10.5 percent of GDP that we need additionally to collect, 
either in the form of lower spending or higher taxes through 
ever. So the fiscal gap has to be zero; otherwise, you have got 
an economy that is trying to consumer more than it actually has 
in resources in terms of labor and income coming into the 
future and also current net wealth. And our country is trying 
to consumer more than it can. You see this in the national 
saving rate diagram--
    Senator Kaine. Can I--I mean, I hear your answer, and I 
want to make sure the other two answer within my time. But you 
would say forget debt, forget--
    Mr. Kotlikoff. It is not a well-defined--
    Senator Kaine. --debt service payment. You would say we 
should not even be having a hearing about dangerous debt; we 
should be having a hearing about the fiscal gap.
    Mr. Kotlikoff. Because I have no idea, as an economic 
scientist, what the word ``debt'' means. It is not define.
    Senator Kaine. All right. Let me go to you, ma'am.
    Ms. Pfitzenmaier. Well, since I am not here as an economic 
scientist, I do not think I can really put a measure, but I 
think it is something that I am glad we are having this 
discussion about, because I think it can really affect the 
quality of life of all Americans, as I mentioned in my remarks.
    Senator Kaine. Mr. Bartlett?
    Mr. Bartlett. Well, let me make a bit of a technical point, 
since I worked at the Treasury and I kind of think of debt in 
the way the Treasury thinks about it. I think the structure of 
the debt makes a huge difference. Whatever the amount is, I 
mean, we all know that we can adjust our backpacks in such a 
way to make the same weight more easily carryable. And, you 
know, looking at the debt right now, we are paying literally 
two basis points on Treasury bills, and 88 basis points on 3-
year, 1.81 percent on 10-year, and 2.39 on 30-year. So a penny-
wise, pound-foolish kind of approach to the debt would say, 
well, let us just sell everything in T-bills and, you know, not 
worry about the future. But it seems to me that if you take the 
attitude that interest rates eventually are going to rise to a 
more normal level, you know, years from now we may look back 
and say, God, we should have been selling every single bit of 
30-year bonds at 2.39 that we possibly could. I mean, you are 
old enough to remember the era of double-digit Treasury 
interest rates, as I am, and I think that we--it might be in 
the interest of the Treasury to sell more long-term bonds now, 
even though it will in the short run add to the Treasury's 
interest cost, because down the road within that 30-year time 
period that those bonds are going to be out there, rates are 
undoubtedly going to be much higher, and we will come out ahead 
in the long run. And it would help to use Professor Kotlikoff's 
type of analysis where you are looking over the long term to 
make these kinds of judgments.
    Senator Kaine. It is probably not a fair question to ask 
you without giving you the heads up, but the difference up here 
is not just because of partisanship. The difference is in the 
profession there is not an agreed-upon metric about debt.
    Mr. Kotlikoff. Senator, there--
    Senator Kaine. I mean, you say debt is a meaningless 
concept. You say nominal debt is--
    Mr. Kotlikoff. No, no, Senator, can I--
    Senator Kaine. So I just think that the--you know, we can 
talk about legislation to pass; we can talk about selling T-
bills; we can talk about all kinds of things. But if we are 
having a hearing about what debt is dangerous and nobody has a 
metric by which to measure it--
    Mr. Kotlikoff. No, Senator, let me just--
    Senator Kaine. --that is one of the reasons why these 
discussions are so difficult.
    Mr. Kotlikoff. Let me--
    Senator Kaine. Thank you all--
    Mr. Kotlikoff. Can I just interject on that point? The 
profession has been very clear--at theinformact.org--you cannot 
come up with 1,200 better economists, okay? These are all 
Ph.D.s from the top universities and other small places, but we 
have 17 Nobel Prize winners. There is no question in our math. 
There is no question among the economists as a profession what 
it is we need to measure. It is the fiscal gap.
    It is true that Bruce Bartlett does not sign onto it, or 
Paul Krugman or Art Laffer. That does not mean that the 
profession is not clear as to what to do or that the math is 
not clear. It is absolutely clear.
    Chairman Enzi. Thank you. And all of you can submit extra 
comments if you want to. I would like to thank all the 
witnesses for agreeing to testify this morning. We appreciate 
your time with us and your thoughts as we work on this critical 
issue. And we have asked that you be willing to answer any 
questions that come in writing. There are some people who were 
not able to be here, some that were here that were limited on 
the number of questions that they could ask. I had some more 
questions. So questions should be turned in for the record no 
later than 6:00 p.m. today to the Committee clerk in Dirksen 
624, and we would hope that you would respond to any of those 
questions within 7 days.
    Chairman Enzi. With no further business to come before the 
Committee, we stand adjourned.
    [Whereupon, at 12:27 p.m., the Committee was adjourned.]
    
    
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             WASTEFUL DUPLICATION IN THE FEDERAL GOVERNMENT

                              ----------                           

                        WEDNESDAY, MARCH 4, 2015

                              United States Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:30 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Sessions, Johnson, Ayotte, Corker, 
Perdue, Sanders, Warner, Kaine, and King.
    Staff Present: Eric Ueland, Republican Staff Director; and 
Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning, and welcome to everyone that 
is here. I will call this hearing to order.
    This should be one of our more bipartisan hearings during 
the year. We have all had some involvement in causing the 
problem. I have been looking at this for a long time, and it 
appears as though everybody comes up with an idea for a 
project, and the easiest way to pass it is to call it a 
demonstration project and to have it instituted in five places 
across the country and, you know, to see if it will work and to 
see if it is so spectacular that the local communities will 
take it over. So far every one of them has been spectacular, 
and so far the local communities have not taken it over. But 
since it was so spectacular, we nationalize it and do it for 
everybody, and that involves a lot of employees, too. So 
anytime that there is duplication and we are interested in 
ending the program, the employees fight for their job and send 
us the examples of the 20 people across the country that 
absolutely were helped, and we reinstitute the program.
    So what Government does too little of is to make any 
credible attempt to ensure that taxpayers are getting the best 
deal for their money. It spends too little time guaranteeing 
that the taxes they send to Washington are spent in the best 
and most efficient way. We spend too little time ensuring that 
when duplication is discovered, it is addressed. That is why I 
called this hearing today. One of the ways our chronic 
overspending problem could be improved is with a commitment to 
rooting out the needless duplicative spending in our 
Government.
    We will hear this morning from the head of the Government 
Accountability Office. The GAO has outlined tens of billions of 
dollars in savings that can be achieved through various 
efficiency measures. Ensuring that spending programs do not 
duplicate each other protects the taxpayer; as well, reforming 
and consolidating programs can ensure that they focus on the 
real needs and be managed with an eye on real results.
    The Federal Government has grown so large and complex that 
no one seems to know how many Federal programs exist. Even the 
executive branch cannot tell how many programs it administers. 
I am not kidding. Let me explain.
    Several years ago, Congress passed a law requiring the 
administration to publish a list of all Federal programs on a 
central governmentwide website, along with related budget and 
performance information. Unfortunately, when the program lists 
were put online, GAO reviewed the information and discovered 
that the inventory, in their words, was ``not a useful tool for 
decisionmaking.''
    Why was that? Well, each Federal agency uses a different 
definition of what constitutes a ``program'' in making its 
contribution to the inventory. GAO reported that because 
agencies used different approaches, similar programs across 
agencies would not be identifiable. So we do not know how many 
Federal programs there are. But even if the Government cannot 
answer that question, we can find strong evidence that the 
number is on the rise.
    One way to assess program proliferation is through the 
Catalog of Federal Domestic Assistance, CFDA, a governmentwide 
compendium of Federal programs that provide assistance or 
benefits to the American public. We have a slide that shows how 
the number of programs in the catalog have grown over time.
    In 1967, when the CFDA was first published, it contained 
459 programs. What our chart shows is that the list grew to 
1,390 by 1995; and by 2005, it had increased to 1,580; and 
today there are 2,292 programs outlined in the CFDA. That is a 
five-fold increase in the past half-century.
    But this snapshot of numerous programs is just the 
beginning of the problem. The CFDA uses a narrow definition of 
``program'' that excludes many activities and initiatives not 
specifically designated in law. This is important because now 
in this administration, new initiatives are spawned internally 
by Federal agencies and have been by other administrations, 
too. So not only are we spending much more money, not only are 
the number of programs that we directly appropriate for 
growing, now the executive branch is busy creating all sorts of 
new programs on their own through an increasingly byzantine 
web.
    It stands to reason that as Federal spending and the number 
of Federal programs grow, both overlap and duplication become 
harder to avoid. Fortunately, Congress has required GAO to 
investigate and report on duplicative programs. Pursuant to 
law, GAO has published a series of four annual reports 
chronicling the spending with duplicative goals and activities 
both within agencies and across the Government.
    The extent of spending program duplication is staggering. 
Take a look again at the video screens, colleagues. What has 
GAO found so far? Among their discoveries, GAO has outlined 209 
STEM education programs across 13 Federal agencies. This number 
was reduced to 158 after GAO's initial findings were released.
    GAO has also found nearly 700 renewable energy initiatives 
being administered by 23 agencies and their 130 sub-agencies.
    GAO in these reports also identifies opportunities for 
agencies or Congress to reduce, eliminate, or better manage 
fragmentation, overlap, or duplication, and achieve cost 
savings. Such savings would benefit our constituents.
    So what have we done with all of GAO's good work? GAO has 
maintained a running tally of its recommendations and how many 
have been addressed. So far it has made 440 separate 
recommendations, but, unfortunately, fewer than one-third of 
their recommendations have been fully implemented by Congress 
and the executive branch. That is highly disappointing. It is 
long past time to take these recommendations on spending 
seriously. Taking GAO's advice, we can begin almost anywhere, 
but regardless, we ought to begin.
    For example, by using strategic sourcing, we can reduce 
duplicative IT investments by Federal agencies. The Federal 
Government spends about $80 billion annually on purchasing and 
upgrading software and hardware, so trimming even a few percent 
off of the cost would yield billions in savings. And by 
consolidating Federal data centers, we can save $3 billion over 
10 years.
    Fortunately, there is the possibility of progress this 
Congress. Our committees in the House and Senate should be 
empowered to focus on consolidating duplicative programs, and 
our budget should facilitate that.
    As well, our colleague Senator Ayotte deserves support from 
this Committee for her Duplication Elimination Act that she 
introduced with Senator Joe Manchin, and Senator Warner and 
Senator Ayotte should be congratulated for the work that they 
have done on Government Performance and Results. That was in 
effect in 1987 when I came, and I spent a lot of time looking 
at that. It was not enforced, and hopefully the new initiative 
will be. That Duplication Elimination Act is designed to ensure 
implementation of the recommendations in GAO's annual 
duplication reports. I think Members of Congress share 
considerable common ground in wanting to ensure that we and the 
executive branch do a better job addressing spending 
duplication. And it is my hope that Congress will take strong 
action this year on the problem. We have gone too long in 
Washington letting things continue as they are. I guess one of 
the things we will have to do is craft a definition of 
``program'' so that they know what we are talking about.
    So in light of the chronic overspending and dangerous debt, 
we should act to consolidate duplicative spending programs that 
sprawl too far across our Government and in so doing save 
taxpayers billions of dollars.
    Senator Sanders.

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Mr. Chairman, thank you. And, Mr. Dodaro, 
thank you very much for being with us.
    I think, Mr. Chairman, that on a lot of issues there will 
be strong philosophical and ideological differences, but I 
suspect on this issue you are right, there should be a 
nonpartisan approach. I am not sure that anybody, no matter 
what their political views may be, should be tolerant of waste 
or fraud or duplicative services.
    As you know, every year, as you have indicated, since 2001, 
the GAO has issued a report on opportunities to reduce 
fragmentation, overlap, and duplication, and achieve other 
financial benefits, and this time they have found 188 areas 
where Federal agencies and Congress can take action to improve 
Federal programs. The administration and Congress have worked 
together to address GAO's concerns by finding ways to reduce 
fragmentation and overlap through better data systems and to 
improve the management of Federal programs. Clearly, every 
branch of Government can and must be more efficient and 
effective, and we all have a responsibility to reduce waste in 
every branch of Government.
    Let me use this opportunity to make three points.
    As Willie Sutton famously indicated, he robs bank because 
that is where the money is. Well, we could go on for hours 
talking about waste and fraud in all kinds of Government 
agencies, but the truth is when we speak about discretionary 
spending, the money is in the Defense Department. That is more 
than half of our discretionary spending, and I think it is 
appropriate--and the GAO has taken a hard look at defense 
spending. Not to say that that is the only agency, but that is 
where a lot of money is.
    At a time when the U.S. spends more on the Pentagon than 
the next nine countries combined, and when over half of our 
discretionary spending goes to the Pentagon, we have got to pay 
close attention to this issue.
    Mr. Chairman, GAO has identified over 100 needed reforms at 
the Defense Department to increase efficiency and reduce waste. 
But, sadly, only one-third of these proposed reforms have been 
implemented to date.
    Further, every two years, at the beginning of the new 
Congress, GAO produces a list of agencies and programs that are 
at high risk of waste, fraud, and abuse. Since GAO began this 
exercise in 1990, the Pentagon has made the list each and every 
time.
    In addition, GAO has found that almost one-third of the 
Department of Defense's $1.5 trillion acquisition portfolio--
now we are talking about real money here, $1.5 trillion--is 
attributable to cost overruns. That is cost growth above and 
beyond what was originally estimated by defense contractors.
    So I think when we talk about waste, this is clearly an 
issue which should be at the top of our list. How does it 
happen that almost a third of the Department of Defense's $1.5 
trillion acquisition portfolio, or $448 billion, is 
attributable to cost overruns? That is real money.
    In my view, these cost overruns are a prime example of 
wasteful spending that only benefits the bottom lines of some 
of the largest defense contractors in this country. Many of 
these defense contractors have paid billions of dollars in 
fines and settlements for misconduct and fraud over the past 
two decades while raking in hundreds of billions of dollars in 
Government contracts over the same period. Just a few examples:
    Since 1995, Lockheed Martin has been fined over $600 
million for misconduct. Northrop Grumman has been fined more 
than $850 million for misconduct. And Raytheon has been fined 
more than $479 million for misconduct. This is an issue that 
needs serious discussion.
    With respect to financial management, according to GAO, the 
Pentagon's inability to manage its finances affects its 
``ability to control costs, ensure basic accountability, 
anticipate future costs and claims on the budget, measure 
performance, prevent and detect fraud, waste, and abuse, and 
address pressing management issues.''
    Mr. Chairman, this situation has become so absurd--and now 
we are talking about the largest discretionary fund in the 
Government. The situation has become so absurd that the 
Pentagon is unable to even account for how it spends its money. 
Now, we can argue about whether you need this weapons system or 
that weapons system or the size of the Pentagon. But I would 
hope there is no disagreement that at least we should have an 
understanding of how the Pentagon spends its money.
    Time and time again, the GAO has said that it is simply 
unable to audit the Pentagon. In fact, the GAO has reported 
that it has been unable to conduct a review of the Pentagon's 
financial records due to, and I quote, ``serious financial 
management problems at the Department of Defense that made its 
financial statements unauditable.'' And this is clearly an 
issue that we have got to address.
    So the first point that I want to make--and I will wrap up 
in a second here--is that we can talk about a lot of things, 
and we should talk about a lot of things. And I do not think 
you and I will have much disagreement on that. But I do think 
we should go where the money is and take a hard look at an 
agency which is unable to even audit itself and give us the 
kind of information that elected officials deserve.
    The second point that I would make is that when we look at 
wasteful spending, wasteful spending is not only what we spend, 
it is what we do not collect. And as I have said previously, I 
believe that Members of Congress should take a hard look and 
ask questions why from 2008 to 2013 companies like General 
Electric paid not a penny in Federal income taxes and, in fact, 
received significant rebates. We are talking about GE, Verizon, 
Citigroup, JPMorgan, and other large corporations. So it is not 
only wasteful spending, but the absurdity that a truck driver 
is paying his taxes and some of the largest corporations in 
America are not.
    So, with that, Mr. Chairman, I look forward to hearing the 
testimony of the GAO, and thank you for holding this hearing.
    Chairman Enzi. Thank you for your comments.
    One of my irritations is that IRS agents have not been 
paying their taxes and have been getting bonuses besides. So I 
appreciate your comments.
    Senator Sanders. Well, let me pick up on that just briefly. 
That is true. But the other thing, what we know is when you 
invest in the IRS--and they can do the audits--we bring in 
significant amounts of money for every dollar we spend in 
funding the IRS.
    Chairman Enzi. Okay. Our witness this morning is Gene 
Dodaro, the head of the Government Accountability Office. Mr. 
Dodaro testifies frequently before Congress, but, frankly, I 
think we should have him appear more often before this 
particular Committee. GAO has done great work over the years in 
identifying waste, fraud, and abuse in Federal spending. We 
need to wield their work as a tool as we fashion the Federal 
budget. The GAO is the auditor of the Federal Government, and 
we should use the work of our auditor to inform our budgeting. 
As Chairman then, I look forward to this Committee having a 
productive relationship with Mr. Dodaro and GAO.
    Mr. Dodaro is the eighth Comptroller General of the United 
States. He was confirmed in December of 2010 after serving as 
Acting Comptroller General since March of 2008. He has been 
with the GAO for more than 40 years. He served 9 years as the 
Chief Operating Officer, the number two leadership position at 
the agency. Prior to that, he headed GAO's Accounting and 
Information Management Division, which specialized in financial 
management, computer technology, and budget issues.
    For the information of colleagues, he will take about 5 
minutes for his opening statement, followed by questions, and 
we do have a vote at 11:30 today.
    Mr. Dodaro?

STATEMENT OF THE HONORABLE GENE L. DODARO, COMPTROLLER GENERAL 
  OF THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Dodaro. Thank you very much, Mr. Chairman. Good morning 
to you, Ranking Member Senator Sanders, members of the 
Committee. I am very pleased to be here today to talk about 
GAO's work for improving the efficiency and effectiveness of 
the Federal Government.
    As the Chairman mentioned, in the last 4 years we have made 
over 440 recommendations in 180 areas across Government to 
address fragmentation, overlap, and duplication, as well as 
outlining areas for cost savings and, as Senator Sanders 
mentioned, revenue collection as well.
    So far, as of November last year, 29 percent of the 
recommendations have been fully addressed, 44 percent have been 
partially addressed, and 23 percent have not been addressed at 
all, either by the executive branch or the Congress, and we 
have a scorecard on both the executive branch and Congress in 
terms of the actions taken on our recommendations.
    As a result of actions taken to date, I would note that $20 
billion has already been saved and about another $80 billion 
will be saved in future years. However, much remains on the 
table, and a number of the issues and recommendations we have 
mentioned and much money remains to be saved by acting on our 
additional recommendations. The recommendations span the entire 
Federal Government from defense to health care. They include 
better management of leveraging the Government's purchasing 
power by using strategic sourcing objectives; eliminating 
wasteful information technology acquisitions and operations; 
and also we have recommendations to stem the tide of tax fraud 
through identity theft and to increase collections for the 
Government.
    Now, one area in particular that I wanted to point out this 
morning is also the issue concerning improper payments in the 
Federal Government. These are payments that should not have 
been made at all or were in incorrect amounts. Last year, for 
2014, the executive branch estimated the amount of improper 
payments as $124 billion. That is about a $19 billion increase 
from 2013. This is a significant problem that needs to be 
addressed. There are over 100 Federal programs with improper 
payments across the Government, so it is not an isolated 
program. There are three programs in particular, though, that 
account for 75 percent or more of the total $124 billion: 
Medicare, about $60 billion in overpayments last year; 
Medicaid, $17 billion in improper payments; and the earned 
income tax credit at IRS, another $17 billion.
    We have many recommendations to help improve this situation 
in these cases. I am very concerned about this improper payment 
issue because the highest programs with improper payments are 
also the fastest growing payments in the Federal Government. I 
have said for the past couple years I think unless we get on 
top of this problem and the executive branch improves their 
efforts, this problem is going to get worse before it gets 
better over time. So we have a lot of recommendations in this 
area as well.
    Congress has passed legislation in this area, three bills 
in the last 10 or 12 years, increasingly requiring better 
reporting, better estimating. I would make the point that even 
the $124 billion is not yet a complete estimate. For example, 
estimates are not being made yet in the Temporary Assistance 
for Needy Families program because HHS says it needs additional 
statutory authority to collect the information from the States.
    So I am very pleased--Mr. Chairman, you mentioned having a 
productive relationship with GAO. I look forward to appearing 
before this Committee as often as you would like and to have 
our work support this Committee as it takes its important 
responsibilities of preparing a budget resolution and guiding 
the fiscal path of our Federal Government in the future.
    So thank you again for the opportunity to be here this 
morning, and I would be happy to answer questions.
    [The prepared statement of Mr. Dodaro follows:]
    
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    Chairman Enzi. Thank you for your information and even more 
so for all the information you collect that there would not be 
time for you to share with us here. But we have some people 
that are anxious to ask some questions, so I appreciate your 
brief comments.
    We will be recognizing the members in their order of 
arrival after the gavel, so I get to start the questions.
    We created a Bureau of Consumer Financial Protection which 
added another entity to the cluster of Federal agencies, 
although they are under the Federal Reserve and not technically 
under us, and we have no control over them whatsoever. In 2012, 
GAO recommended a prioritization and consolidation of the 
financial literacy programs and activities that are taking 
place in 14 different agencies. Last spring, GAO reported that 
the prioritization had yet to take place.
    The CFPB is using its Civil Penalty Fund to pay for 
financial literacy programs. I believe GAO recently reviewed 
that fund and its expenditures. Has the CFPB appropriately 
documented the rationale for its expenditures on financial 
literacy programs? And do we know whether these new programs 
duplicate other programs being administered by the Federal 
agencies?
    Mr. Dodaro. First, with regard to our report on the Civil 
Penalty Fund, we found that the programs that were authorized 
under that fund were not properly documented. We made 
recommendations to the Consumer Financial Protection Bureau. 
They have adopted new procedures, but they have yet to approve 
any additional programs out of the Civil Penalty Fund, so we do 
not know how effective those procedures will be.
    We have looked more broadly at the issue of potential 
duplication among the programs. We find a considerable amount 
of overlap between the programs, and for that reason, we 
suggest that the Consumer Financial Protection Bureau and 
Treasury, who are the Chair and Co-Chair of the financial group 
that oversees these literacy programs, prioritize the funding 
and look for opportunities to consolidate the programs. Those 
two recommendations have yet to be implemented.
    Chairman Enzi. Okay. Thank you.
    Switching over to the STEM education programs, we found 
that two-thirds have not undergone an evaluation between 2005 
and 2011. How do we know how to consolidate the programs if we 
do not know which ones work and which ones do not? And are 
there other areas where we lack the data to determine whether 
the Federal programs are working?
    Mr. Dodaro. This is a very significant problem. In 
undertaking the work over the past 4 years, we found many 
Federal programs across a wide range of areas that really were 
lacking in evaluation to know what programs were working and 
what were not. STEM is one, as you mentioned. The programs for 
economic development, we found over 80 programs there, many of 
which were never evaluated to determine how effective they 
were.
    In the teacher quality area, improving teacher quality, we 
found 82 programs at 10 Federal agencies. Many of them were too 
small to really be effectively evaluated. And we found problems 
in domestic food assistance. There were 18 programs there. The 
7 largest ones had some good evaluations, but 11 of the other 
ones did not. We recommended that the Agriculture Department 
look at consolidating some of these smaller programs into those 
areas.
    So this is a very significant area. You mentioned, Mr. 
Chairman, there is not a good definition consistently applied 
to programs. There is really not a lot of good information 
about specific funding aligned with those programs and 
activities available, and even still we are lacking in the type 
of performance information that would enable Congress to make 
an informed decision.
    However, there are some things that could be done. As you 
mentioned, in the STEM area they have begun consolidating 
particularly the smaller programs. I think you can do it and 
still provide effective coverage.
    But I think the real question here is: Why would Congress 
want to continue funding programs that do not have a 
demonstrated track record of improving their objectives, 
achieving their objectives and having proper performance?
    Chairman Enzi. I will change topics a little bit again, 
because in the 2011 and 2012 reports by your agency, you 
identified 94 Federal initiatives to promote green buildings in 
the non-Federal sector and recommended that agencies 
collaborate to identify inefficient or costly duplication.
    Have the agencies made progress in that area? And do you 
have any idea the amount of funds that are allotted to those 
programs?
    Mr. Dodaro. Yes, they have taken some very limited steps to 
try to study the reporting in the non-Federal sector, but I am 
not satisfied that they are taking this very, very seriously 
and have come up with a plan to coordinate the Federal 
Government's activities in this area and to establish goals and 
performance metrics. In two-thirds of the 94 programs we looked 
at, they had no specific goals and metrics for the program, so 
we are kind of lacking in that. And there is no effective 
coordinating mechanism as there is on the Federal side. So this 
scenario I think warrants congressional attention and direction 
to the agency to implement our recommendation, and we really do 
not know how much money has been spent. We made an attempt to 
do this. Part of what is proposed with the green buildings, 
first, their definition of ``green buildings'' is a little 
loose, but also they fund it out of larger programs and really 
do not track specifically how much money goes to this 
particular area. Another opportunity, I think, for Congress to 
provide some direction.
    Chairman Enzi. Thank you. My time has expired.
    Senator Sanders?
    Senator Sanders. Thank you, Mr. Chairman.
    Let me focus briefly on two areas. One is where in terms of 
discretionary spending we spend the most money, and I want to 
talk about money that we should be collecting that we are not.
    Mr. Dodaro, according to a GAO analysis, $448 billion in 
cost overruns have been added to the Department of Defense's 
$1.5 trillion acquisition portfolio. That is a lot of money. In 
2001, Secretary of Defense Donald Rumsfeld, not one of my 
favorite Secretaries of Defense, said--and he said this 
literally the day before 9/11, never got a whole lot of 
attention. But he spoke--I think it was at the Pentagon--and he 
said that the Pentagon could not account for some $2.3 trillion 
in transactions. Even here in D.C. that is a lot of money. And 
yet 14 years later, the Pentagon still cannot pass an audit.
    Now, explain to me what goes on when the agency that 
receives most of the discretionary spending, close to $600 
billion, cannot give us an audit, has huge cost overruns, and 
then comes before us and tells us, gee, we need even more 
money? I was a mayor for eight years. That did not happen when 
I was a mayor. You hold people accountable. So we talk about 
accountability a lot. Tell me about accountability in the DOD 
and tell me about these huge cost overruns. Why do they happen? 
What do we do to end that practice?
    Mr. Dodaro. First, with regard to financial management at 
DOD, we put them--you mentioned our high-risk list. We put them 
on our high-risk list for financial management in 1995. The 
Congress passed legislation--before 1996, there was not a 
requirement to prepare financial statements and have them 
audited across the Federal Government. So in 1996, 6 of the 24 
largest departments and agencies in the Federal Government were 
able to pass the test of an independent audit. Now virtually 
all the 24 agencies can pass the test of an audit except for 
the Defense Department. For many years, they did not focus a 
lot on this activity. They are focused now on auditing their 
budget numbers, and some of their attempts to audit budget 
numbers for multiple years have not been successful, so now 
they are trying to audit budget numbers for one fiscal year, 
which I agree with--we have to start somewhere--and also to 
identify the completeness and existence of their assets. They 
have a long way to go.
    Senator Sanders. If somebody is watching this on TV, might 
they think it is a little bit absurd that the agency that has 
most of the discretionary spending cannot give us an audit? Is 
that a fair statement?
    Mr. Dodaro. Well, it is definitely a problem. I have 
pointed it out many times, and, actually, last week we issued 
our annual--we have a requirement to audit the consolidated 
financial statements of the Federal Government, and for 17 
years we have not been able to give an opinion largely because 
the Department of Defense has not been able to--
    Senator Sanders. Thank you. What I would say to my 
colleagues--thank you--is we can argue about what the size of 
the Pentagon budget should be. That is going to be a debate. I 
would hope that there is no argument and that some people take 
issue with the fact that when folks want more and more money--
you talk about this issue in a different context. People want 
more and more money, and we do not even know how they are 
spending their money right now. I do not think that should make 
sense to anybody in this Committee.
    Mr. Dodaro. On that point, Senator, the Congress has 
required they state that they are auditable by 2017, so we are 
tracking their progress.
    Senator Sanders. Let me switch gears.
    Mr. Dodaro. Okay.
    Senator Sanders. We are talking about wasting money here. 
Now let's talk about the acquisition of money, money coming in. 
The IRS has estimated that each and every year about $350 
billion in taxes go uncollected. This has been referred to as 
the ``tax gap.'' The Department of Treasury estimates that for 
every $1 spent on IRS enforcement, $6 is gained in increased 
revenue. But, meanwhile, in the last several years, the ability 
for the IRS to collect taxes has been severely hampered because 
its budget has been reduced by 10 percent in the last five 
fiscal years.
    In your judgment, does it make sense to cut back on those 
people who can enforce tax law and bring in needed revenue?
    Mr. Dodaro. First, I would say I agree that the tax gap is 
a very significant problem. The estimates that I have seen--the 
most recent estimate is a net tax gap of $385 billion, and it 
ranges across the different types of taxpayers.
    We have had on our high-risk list since 1990 some form of 
tax enforcement responsibilities. The latest we--
    Senator Sanders. But my question is--
    Mr. Dodaro. But on the revenue side, definitely revenue 
directed toward enforcement is productive. But whatever 
Congress decides on funding, they need to also take into 
account our recommendations that IRS could do a better job with 
the funding that they do have. You know, we have found that 
they do not have good return on investment measures. Overall it 
works out, but for specific enforcement programs--like, for 
example, we found if they shifted $124 million from field exams 
to correspondence audits, they would likely collect an 
additional $1 billion.
    Senator Sanders. Good. But bottom line is spending money on 
enforcement will bring in a lot more money than we are 
spending--
    Mr. Dodaro. Well, and also I think you have got to be 
concerned about level of service over time and the effect on 
voluntary compliance. Voluntary compliance right now is about 
84 percent, so we have about--and if the people are not getting 
their questions answered by the IRS on the phone, they are 
waiting longer on the lines, I am concerned that over time 
there could be a cumulative effect on compliance issues, that 
even if you throw more people at it, you are not going to solve 
it.
    Senator Sanders. Fair point.
    All right. Thank you, Mr. Chairman.
    Chairman Enzi. Senator Ayotte--oh, Senator Perdue, I am 
sorry. Senator Perdue is next.
    Senator Perdue. Thank you, Mr. Chairman.
    Mr. Dodaro, I have been a fan of yours since you took this 
office, and even before I got into politics, I have been a 
student of your output. Besides killing trees, there is a lot 
of information in here. I agree with the Ranking Member that 
what we are talking about today really is not a partisan issue. 
This is about getting a return on our investment, making sure 
the money is spent where it needs to be spent.
    I have just got a real question, and that is, after reading 
through this and being a student for several years, I have a 
problem getting to the bottom line. What is the potential? And 
you gave us some numbers and percentages of what has been done. 
You have identified what has been done, what is in process, and 
what is open. Can you give us a little more detail about that? 
And break it, if you can, by DOD and other.
    I agree with the Ranking Member that there is no sacred cow 
here. Everywhere we spend money has got to--we have got to get 
a return on that. But speaking of the IRS and collection, I 
would like to make sure that we are getting a return on what we 
are already spending, to your point, before we spend any more 
money. But the bigger question is: Help us understand what the 
starting point is about what the potential is as we look at 
this opportunity.
    Mr. Dodaro. Yes, there is definitely potential. As I 
mentioned, $20 billion has been saved already, and another $80 
billion is in the works, that Congress has already approved, 
that will be saved over the next several years. There are tens 
of billions of dollars more in that area. There is a lot of 
room in defense and health care, which is where the money is.
    Senator Perdue. I am sorry. Could I interrupt you on that?
    Mr. Dodaro. Sure.
    Senator Perdue. So the 20 and the 80, is that just on 
discretionary, or is that overall in the total budget?
    Mr. Dodaro. That is overall. That is overall.
    Senator Perdue. Okay. So it is both discretionary and 
mandatory.
    Mr. Dodaro. Yes, yes. Yes, we have pointed out areas, for 
example, in the Medicaid area, we are very concerned that HHS 
is approving demonstrations in States without ensuring that it 
is budget neutral to the Federal Government. It ends up costing 
the Federal Government tens of billions of dollars, and, you 
know, Congress has no visibility.
    Senator Perdue. So the $80 billion that is open, that is 
still out there--
    Mr. Dodaro. No, no, no. That is already solved.
    Senator Perdue. All right. So the 80--
    Mr. Dodaro. We have got about--you can look at it, there 
are $100 billion in the bank. Okay?
    Senator Perdue. Got it. So what is left? What is the 
remaining potential that you have identified bottom line?
    Mr. Dodaro. It is tens of billions. I have not put a final 
figure on it.
    Senator Perdue. Could you do that for us?
    Mr. Dodaro. Well, I do not know if we could do it. It 
depends on what the Congress does based upon what our 
recommendations are in those areas. We have a number of areas 
where CBO has already scored what would happen if our 
recommendation was implemented. Those are noted in our 
testimony. We can add those up for you and give you those 
numbers and then say, well, here is the potential for the rest.
    Senator Perdue. Well, what I am really interested in is 
what the potential is by discretionary and mandatory.
    Mr. Dodaro. Okay.
    Senator Perdue. And by priority as well.
    Mr. Dodaro. Yes.
    Senator Perdue. You know, the 80/20 rule I am sure applies 
here as well, that 20 percent of the potential areas will give 
us 80 percent of the results. But I am not sure of that here. 
The question is: If you can give us that potential, that would 
be very helpful.
    Mr. Dodaro. Yes. I am just informed by my team that CBO has 
already scored at least $25 billion that could be saved, but 
there is more.
    Senator Perdue. Well, we would be very anxious to get that.
    Mr. Dodaro. Okay.
    Senator Perdue. The next thing, when you look at who is 
responsible--I think you mentioned 29 percent had been fully 
addressed.
    Mr. Dodaro. Right.
    Senator Perdue. Who addressed that?
    Mr. Dodaro. We broke it out in the table in our testimony. 
It is roughly around--you know, 28, 29 percent was addressed 
both by the executive branch and by the Congress. But the 
partially addressed, the executive branch addressed them more, 
because to score a partial in our scoring on the Congress, the 
executive agency--Congress addressed 26 percent of what we 
addressed to Congress; the executive branch, 30 percent of what 
we addressed to them. But to get it partially addressed for the 
Congress, there has to be a bill introduced and actually 
reported out of Committee as a starting point. Just a bill 
being introduced, we are counting that as not addressed.
    Senator Perdue. Well, I understand the scoring. Mr. 
Chairman, I think it would be great--and, Mr. Dodaro, thank you 
for your testimony. I think it would be great if we could get a 
summary of that, even if it is bracketed by estimates, educated 
estimates. I realize that it depends on how we score it and 
what we do legislatively.
    Mr. Dodaro. Right.
    Senator Perdue. But as a budgeting matter, I would really 
love to see your idea of what that potential might be.
    Mr. Dodaro. Okay. We will do what we can.
    Senator Perdue. Thank you.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator Warner, and then Senator Ayotte.
    Senator Warner. Well, thank you, Mr. Chairman. Mr. Dodaro, 
good to see you again, as always, and let me just say that for 
particularly Senator Perdue, who, like me, comes from the 
business sector, you know, this is a challenging area. And, 
unfortunately--and Senator Johnson and I have worked on this; 
Senator Ayotte and I have worked on these issues together. You 
know, there is some progress, and I want to go through in my 
couple of minutes some of the progress we have made, because 
this is not an area that is very sexy or keeps people's 
attention very long.
    The challenge sometimes is making sure we just have 
commonality of terms. One of the things that we passed a few 
years back was the GPRA bill, which says, you know, 
traditionally what happens, every administration comes in, they 
set a whole new set of management objectives, and they last for 
a few years until the next administration comes in. For the 
first time ever, we have said agencies actually have to 
identify their strategic goals, limit those goals--anybody who 
has done business knows if you have got 30 goals, you do not 
have any goals. Limit it to two or three, report on them on a 
quarterly basis. You have been very supportive of this effort, 
and for the first time ever, agencies actually have to identify 
not only their great performing programs but their three worst 
performing programs.
    We have got OMB that comes up with an annual list, but if 
you do not have actually the agencies, the people running these 
programs themselves, identifying where their problems are, we 
are not going to get to the bottom of it. And in this year's 
fiscal year 2016 budget, for the first time ever, we have got 
some of that data.
    Last year, this Committee worked together, and we passed 
the DATA Act, and I think, again, you called it, Mr. Dodaro, 
one of the most single biggest things you could do to help find 
and fix wasteful programs, because one of the challenges is--
and the Ranking Member has talked about the Defense Department, 
but this is everywhere--there is no common definition of what a 
program is. So somewhere in our budget, something appears as a 
grant, somewhere else it appears as an expenditure, and the 
DATA Act does not go as far as some of us would like. But it 
really is the first time ever that there has been an effort to 
try to start some level of consolidation. The Ranking Member 
should know, you want to really get a good talking point, there 
are over 250 separate financial reporting systems just inside 
the DOD. How do you ever compare apples to apples if you have 
got different financial reporting systems?
    Again, I am going to come back and get you a question on 
this one. An item that Senator Kaine and I have worked with, 
with Congressman Whitman over on the House side, the Chesapeake 
Bay Accountability Act. We have got a slew of programs, 
Federal, State, and local, around the Chesapeake Bay. This is 
the first time ever we have tried to say let us do a cross-
cutting budget analysis of all these programs and actually try 
to evaluate where we get the most value for our dollars. And a 
small area, a small segment, but even within the Chesapeake Bay 
there are literally dozens of programs, State, Federal, and 
local, and this will be the first time we try to analyze this 
on a cross-cutting basis.
    And one that Senator Ayotte and I have worked on got us 
some good attention, maybe not fully transformative, but we 
spent a slew of time perusing reports of agencies that nobody 
ever looks at. So we started with your good work. When it 
finally got through the sausage-making process of each 
committee re-evaluating, we only ended up with--I think they 
identified 300 reports. We got about 50 reports eliminated. But 
this literally is thousands and thousands of man hours and 
hundreds of thousands if not millions of dollars spent on 
activities that could be more usefully spent.
    So action is needed, and it is one of the reasons why under 
Senator Ayotte's leadership this task force that continues to 
focus on areas of Government performance, efficiency, 
duplication I really think, Mr. Chairman, needs to continue, 
and under Senator Ayotte's leadership I know it can continue to 
do good things, because this is an area that, unless you stay 
focused on it, it tends to always get pushed aside.
    If you could comment for a moment, Gene, on the DATA Act, 
we have got a fairly aggressive timeline. You might want to 
give us an update on how you are helping OMB and Treasury get 
the program definitions right and what you want to share with 
us in terms of metrics we ought to look at going forward.
    Mr. Dodaro. Yes, I think the DATA Act is very important, 
but it has to be implemented effectively. So we are working to 
monitor what Treasury and OMB are doing to implement it.
    The first big milestone is coming up in May. In May 2015, 
they have to produce data standards for the agencies to 
implement. So we are monitoring what they are doing. They got 
off to a pretty good start. They are supposed to consult with 
people. But they are working now to come up with those data 
standards.
    Even though the law does not require GAO to report on 
progress in the DATA Act until 2017, I am going to report this 
year on the progress so that Congress has a good idea where 
things stand and whether the data standards developed are 
comprehensive, whether they are going to be clear enough.
    They have also decided that they are going to link the 
definition of ``program'' under the Government Performance and 
Results Act with implementation of the DATA Act, which has some 
intellectual merit to it, but it has to be done properly; 
otherwise, you are not going to have the good definition. We 
have suggested that they use web-based technology so that a lot 
of this information can be sorted. GPRA requires it to be 
linked to the program activity accounts in the budget 
submission, but that has not yet happened.
    So the bottom line is they got off to a decent start. I am 
cautiously optimistic. There is a lot that needs to be done. 
GAO will be involved early and advising the Congress.
    Senator Warner. Mr. Chairman, last, just one--30 seconds.
    Chairman Enzi. Your time has expired. We have got a vote at 
11:30, so I do have to move on. You can submit it in writing.
    Senator Ayotte?
    Senator Ayotte. Thank you, Chairman.
    I wanted to first of all thank you for your important work. 
I appreciate your being here. And, you know, I think as Senator 
Warner said, I have been glad to work with him on the Budget 
Performance Task Force. And one of the things that I am 
interested in getting at as well is--and you and I have talked 
about this in the past. As I understand your testimony, only 29 
percent of the issues raised by GAO have actually been fully 
addressed--29 percent.
    Mr. Dodaro. Right.
    Senator Ayotte. And so a lot of these reports sit on the 
shelf. You know, I have got a bill with Senator Manchin that 
the Chairman referenced called the Duplication Elimination Act, 
and it is really what I like to call a bill that kicks all of 
us where we need to be kicked to act, the executive branch 
actually take up the work that you are doing and provide 
recommendations to Congress, and then provides an expedited 
process for Congress to act so we can really move these 
recommendations either affirmatively or negatively and really 
act on them.
    What else do you think we should do to ensure that your 
recommendations are fully addressed? Because you do such 
important work, and my colleagues have already talked about 
some of it today that needs to be addressed.
    Mr. Dodaro. One of the things in particular this Committee 
is poised to do that other committees would not, a lot of the 
areas that we suggest be addressed span jurisdiction of 
multiple committees in the Congress, and as a result, unless 
there is action by multiple committees, there is really not 
going to be much progress in those areas. I am not optimistic 
based on the track record that that would--
    Senator Ayotte. So our jurisdiction becomes fragmented as 
well.
    Mr. Dodaro. Yes. Yes, and the same thing happens in the 
executive branch. The departments and agencies are in their 
lanes, and OMB is the only one that can look across the 
agencies, like we have made recommendations that some of the 
loan programs we believe between Agriculture and HUD can be 
merged. You would have a more efficient structure and better 
service to the public. But nobody is taking the initiative 
within the executive branch when there are multiple agencies 
involved very often.
    So I think that is going to be the pivotal point and 
whether that 29 percent is really going to move much or not in 
the future.
    Senator Ayotte. So this is a great bipartisan opportunity 
we have here in the Senate Budget Committee because we cross 
jurisdictions.
    Mr. Dodaro. Yes.
    Senator Ayotte. Excellent. Great. And I look forward to 
working with the Chairman and the Ranking Member because I 
think this is something we all can agree on, and all of our 
constituents, it drives them crazy, for good reason, when they 
look at your--when we talk with them about your reports on 
duplication and fraud, and they say, ``Well, that is our money 
going there.'' So I hope we can work together on that with this 
Committee's jurisdiction.
    I wanted to ask you about a particular area, and that is 
STEM education. STEM education is so important. In 2010, you 
found 209 STEM education programs, and as I understand, based 
on your recommendations, they have been consolidated to 158. 
The President's 2016 budget proposes to eliminate another 20 
STEM programs.
    Here is my interest in this. We happen to have in New 
Hampshire an inventor named Dean Kamen, who came up with a 
brilliant basically public-private partnership in FIRST 
Robotics that is across this country that actually keeps 
metrics about kids going in STEM, learning how to build a 
robot, and then going back into the field.
    So of the 138, assuming that we eliminate the 20 the 
administration has asked for, of the 138 that are left, that 
still seems like quite a bit. And I know that the National 
Science and Technology Council has developed a 5-year strategic 
plan. But help me understand. Are we measuring what these 
programs are doing? Because it seems like we have a bipartisan 
interest in improving STEM education in this country. And how 
good are we measuring whether these 138, even from the progress 
we have made, are actually helping improve STEM education and 
getting more of our kids ready for the jobs of the 21st 
century?
    Mr. Dodaro. First, I am encouraged that the 5-year plan and 
the guidance that the National Technology Council has put out 
provides some guidelines on what should be evaluated. But the 
last time we looked at this--now, admittedly, we looked at the 
larger set of STEM programs--we found very few of them had been 
evaluated. In fact, 66 percent had not been at that time.
    Now, I do not know how many of the remaining 136--we can go 
back and take a look at it, but based on what our prior 
experience would be, there is--you know, not enough of them are 
getting evaluated in order to know what effectively works or 
not, and that should be something that the Congress--I mean, it 
is already required under the Government Performance and 
Results Act, but nobody is enforcing it.
    Senator Ayotte. Right.
    Mr. Dodaro. And I think the Congress could do a lot to 
require that.
    Senator Ayotte. I think this is an issue across programs, 
so we have got these--it is required, but we are not really 
measuring whether they are getting results out of where we are 
putting in programs.
    Mr. Dodaro. Right. Well, I think that, you know, until the 
Congress starts saying, ``Look, we are not going to fund you 
unless you tell us and demonstrate that you are effective and 
the money we are going to give you is going to be invested 
well,'' there is no incentive for the agencies to change what 
they have been doing.
    Senator Ayotte. Right, I agree with you. And I am hoping 
even just a measure like Joe Manchin and my bill might just at 
least get people knowing that we are not going to let these 
reports sit on the shelf, that we are going to say, ``What are 
you doing with the taxpayer dollars?'' I think that would be 
helpful. And I know my time is up. My clock is not moving, but 
I am assuming it is up soon. I wanted to ask a specific 
request, if you would be able to provide a list of--we cannot 
find the STEM programs. Like we cannot get a list of what is 
left.
    Mr. Dodaro. Okay.
    Senator Ayotte. So if you can help us with that, because we 
are very interested in it, I would appreciate it.
    Mr. Dodaro. Sure.
    Chairman Enzi. Senator Kaine.
    Senator Kaine. Thank you, Mr. Chairman, and thank you, Mr. 
Dodaro, for your testimony.
    You gave some statistics about the degree to which your 
advice is being followed, and I was kind of curious. I saw a 
piece--I think it was in Government Executive, a publication in 
the middle of February--that begins--it says, ``Reports and 
congressional testimony from the GAO often note Federal 
agencies' failure to act on past recommendations. But a unique 
study using data analytics shows that agencies ultimately have 
acted on more than four-fifths of the recommendations from 
Congress' top watchdog over the past quarter-century.'' And 
this was a study that was done by Deloitte Public Sector 
Research. I am assuming that you are familiar with the report.
    Mr. Dodaro. Yes.
    Senator Kaine. How does that differ--they are sort of 
analytic--differ from your calculation on the numbers? I am 
just curious.
    Mr. Dodaro. Well, actually their study basically verifies 
the statistics that we have reported to Congress every year. If 
you look at all of GAO's work collectively, 80 percent is 
implemented over a 4-year period of time. The 29 percent and 
the 44 and 23 that I report are just for the overlap, 
duplication, and fragmentation area.
    Senator Kaine. I see.
    Mr. Dodaro. You know, that is a subset of our reports.
    Senator Kaine. I think that is--I mean, it is important 
because it says to me two things. One is you are doing good 
work if they are accepting that many of your recommendations. 
If they are accepting 80 percent of your recommendations, that 
must mean they know you are right and you are pointing out 
things that they need to fix.
    Mr. Dodaro. Right.
    Senator Kaine. And, secondly, if they are fixing 80 percent 
of the recommendations you make, essentially, that also says 
some good things about the folks out there who want to improve. 
And so I was pleased to see that.
    I want to ask you, since you have been at GAO for such a 
long time, I am kind of curious about your thought about how to 
build in a culture of improvement. So, you know, one way to 
improve is when you send a report from the GAO and you point 
out things that are wrong, then, oh, gosh, GAO says it is 
wrong, I guess we better fix it. But you would obviously want 
to build in a culture of improvement that, even if they were 
not getting that report from you, there is an effort systemwide 
to look at duplication or look at, gosh, we do not have any 
data that says this program or performance is working, it 
should not take a GAO report to convince an agency, a Cabinet 
Secretary, the entire Government, to kind of build a culture of 
improvement.
    What kinds of things have you seen in your GAO career that 
you think are good examples? I remember Vice President Gore did 
the Reengineering Government Commission. I guess this is 
supposed to be part of OMB's charter, to kind of perennially--
on the management side of OMB, perennially improve better 
management. But what strategies are good strategies for driving 
down duplication and driving on, you know, getting value and 
measuring outcomes?
    Mr. Dodaro. Part of the problem is you have perverse 
incentives in place in a lot of agencies in the culture. For 
example, on weapons systems acquisition, you know, we find time 
and time again that when we have got Defense to put in their 
policies best practices, where we have done studies in the 
private sector and other areas, but they do not get executed 
properly. There are still requirements not developed in some of 
the programs. I mentioned improper payments of $124 billion. 
The culture and the incentives were to pay quickly and worry 
about later finding out whether everybody was eligible or did 
we pay the right amount or whatever. So the incentives are 
skewed right now, and they need to be directed.
    Unfortunately, the only major management improvements that 
have worked successfully over the years have actually been 
those that have a statutory underpinning in the Congress 
because that provides continuity over time. And every time you 
change an administration, you have 3,000 new political 
appointees come in. There are a lot of acting people. Average 
tenure is about maybe a year and a half, 2 years. And so there 
is a lot of churn in the leadership in the agencies, and it is 
hard to change these incentives so that they work effectively 
over time and people get properly rewarded.
    The budget and appropriations process makes people make 
decisions too early in the process sometimes, and the 
preparation of it. If you save money, you do not get to keep 
it. You have a smaller budget at the end of the day, so it does 
not get reinvested.
    Senator Kaine. Right. That is a bad incentive.
    Mr. Dodaro. Yes.
    Senator Kaine. What is an example--you mentioned the best 
ones have a statutory underpinning because there is a 
continuity.
    Mr. Dodaro. Right.
    Senator Kaine. What is your opinion of the best thing 
Congress has done statutorily to push a culture of improvement 
in performance?
    Mr. Dodaro. The passage of the Chief Financial Officers Act 
and the Management Reform Act, which required for the first 
time the preparation of financial statements and audits. Right 
now--I mentioned earlier that that first started in 1996. Well, 
first of all, the Federal Government required State and local 
governments to have financial audits. The private sector has 
had it following the stock market crash. The Federal Government 
was very late to the party to implement that. Six of 24 
agencies when we first started could get clean opinions. Now 
routinely 22 of 24 get clean opinions. So that culture has 
changed, and it is a result of Congress and a lot of hard work 
by the agencies.
    Senator Kaine. I would love to ask more, but my time is up. 
Thank you, Mr. Chairman. Thank you to you, Mr. Dodaro.
    Chairman Enzi. Thank you.
    Senator King?
    Senator King. Thank you, Mr. Chairman.
    First, I want to thank you for your testimony and your 
amazingly good work. What you are doing is good and very 
important work, particularly given the size of the enterprise 
that we are discussing here. Do you have sufficient staff and 
authority to continue doing this work? Do you need more? I 
mean, I just think we are dealing with such a large enterprise 
and what you are doing is so crucial, I just wonder if you 
are--I realize everybody says, ``I always need more people,'' 
but give me your thoughts on that.
    Mr. Dodaro. Yeah, well, I was concerned. From 2010 to 2013, 
we lost 15 percent of our staff. We were subject to the 
sequester just like everybody else. So we were at our lowest 
staffing level since 1935. Obviously--
    Senator King. Which is crazy, considering the growth of the 
size of--
    Mr. Dodaro. Well, the Federal Government is a little bigger 
than it was then at that time. And our results, I mean, 80 
percent of our recommendations that I mentioned are implemented 
over time, but last year, our work resulted in $54 billion in 
financial benefits to the Government. So we get about $100 
return for every dollar invested in GAO.
    Fortunately, with the Bipartisan Budget Act, in 2014 and 
2015, that offset the sequester, we have been able to gain back 
some of those staff resources, but we are not at our optimum 
level yet, which I think should be around 3,250 people. I have 
submitted a request to continue incrementally, you know, 
recognizing our deficit and debt situation. You know, I audit 
the financial statements of the Federal Government, so I know 
very well what our fiscal dilemma is right now. We are not on a 
long-term sustainable path. So we could use a little bit more 
resources, and I would invest them in this tax gap and improper 
payments areas, is what I have told our appropriators.
    Senator King. I want to follow up on that in minute. But 
what you are saying is that the sequester would diminish your 
capacity to find savings in the Federal Government, which would 
be the ultimate Catch-22.
    Mr. Dodaro. Yes.
    Senator King. One more reason to try to do something--not 
try but do something about the sequester.
    I was going to ask you about overpayments. You identified a 
lot of money there. Is that an area that is worth its own 
special focus? Do you have a division, a directorate, or a 
department that focuses on that? That seems like a ripe area 
for work.
    Mr. Dodaro. Yes, we have a GAO-wide plan. We have our 
specialists in each program area who are working on it, but we 
have a coordinated plan across GAO. I wanted to make sure we 
did that. But, you know, we do not--you know, the problem is 
growing, and we do not have enough resources to do what I would 
like to do, which is get at root causes in a lot of places. So 
that is one where we could--I am planning to invest more 
resources if the Congress responds.
    Senator King. I would urge you to be specific about what 
you need and where those resources would go so we can help you. 
Again, I think the investment is so powerful that we should 
pursue that.
    Finally, I have inquiries about evaluation. We do all these 
different things, and as you point out, sometimes they are 
evaluated and sometimes they are not. What about a neutral 
body--maybe it is you, maybe it is part of GAO, maybe it is 
somebody else--to evaluate Federal programs and also at the 
same time to evaluate tax expenditures? Tax expenditures are 
essentially Federal programs. They are equal in dollar value to 
the entire discretionary budget, over $1 trillion. And yet I 
just would--I think it would be helpful to all of us in making 
policy to know what is working and what is not working. And 
should we pass a kind of general, generic evaluation statute? 
And I hate to talk about creating a new bureau, but an Office 
of Evaluation, because I am not--I am a little suspicious of an 
agency evaluating its own performance. Of course, all their 
programs are working beautifully. Thoughts on that?
    Mr. Dodaro. Yes, first, we have recommended for years that 
the Congress and OMB start evaluating tax expenditures in any 
one year that it is more than the entire discretionary spending 
and revenue foregone. But we have not gotten very much traction 
on that. I think it needs to be done. It ought to be part of 
the regular budget process and you have routine scrutiny, just 
like you do with discretionary spending.
    Secondly, I think evaluating the programs is a fundamental 
management responsibility of the agencies running the programs. 
They have been required by law to do this since 1993, but 
nobody is following--
    Senator King. But is it realistic to expect an agency to 
evaluate its own programs?
    Mr. Dodaro. I think it has to start there to be a 
management responsibility. You can have--a lot of times we are 
asked to look at whether the evaluation by the agency is done 
properly. Sometimes the Congress will require us to consult 
with the agency to make sure it is done properly. I think 
that--I mean, that is where all the money is right now, you 
know, in terms of running the programs. And if you set up 
something separate, it would take a lot of time and years to do 
what should be done as a normal part of management. You can 
have independent scrutiny of the evaluations, but if they are 
not done by the managers, there is no incentive to improve 
either. I mean, they will just have--they will fight the 
evaluation--
    Senator King. Unless the managers know that somebody is 
going to be coming in and looking over their shoulder.
    Mr. Dodaro. Yeah, I mean--
    Senator King. I am just trying to think of a structural way 
to get at this problem of lack of evaluation.
    Mr. Dodaro. Yeah, I do not think it is a structural 
problem. I think it is a discipline problem on the part of the 
agencies in following the law Congress said and Congress 
following--requiring the agencies to do what they have already 
asked them to do and use the results. Even when evaluations are 
made, I am not sure they are always used effectively.
    Senator King. Do most statutes that create programs require 
evaluation?
    Mr. Dodaro. I would have to go back and we will give you an 
answer, but there is a general statute that requires it across 
the Federal Government, the Government Performance and Results 
Act, and there was a modernization passed in 2010 that not only 
requires it now for agencies, but on cross-cutting 
governmentwide priorities.
    Senator King. Thank you, Mr. Chair.
    Chairman Enzi. Thank you. I want to thank our witness. I am 
always fascinated by this evaluation prioritization, and the 
only thing I have ever found that would get an agency to do 
their evaluation is to ask them for a list of what they would 
cut if they had to cut 2 percent, if they had to cut 4 percent, 
if they had to cut 6 percent, if they had to cut 8 percent. If 
it shows up on all the lists, it is not that important to them. 
But, otherwise, there is a tendency by the agencies to say all 
of them are spectacular.
    So I want to thank the witness for agreeing to testify this 
morning, for all the information you have shared with us, for 
all of the questions that are still pending.
    I want to remind colleagues that questions can be given to 
the record for the Comptroller General by 6:00 p.m. today. And 
we would hope that you would respond within 7 days because we 
are going to be getting close to our budget markup by that 
time.
    Mr. Dodaro. Okay.
    Chairman Enzi. So with no further business to come before 
the Committee, we stand adjourned.
    [Whereupon, at 11:34 a.m., the Committee was adjourned.]

             THE BETTER WAY: BENEFITS OF A BALANCED BUDGET

                              ----------                              

                       WEDNESDAY, MARCH 11, 2015

                              United States Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:30 a.m., in 
Room SD-608, Dirksen Senate Office Building, Hon. Mike Enzi, 
chairman of the committee, presiding.
    Present: Senators Enzi, Sessions, Crapo, Johnson, Wicker, 
Perdue, Sanders, Stabenow, Whitehouse, Warner, Merkley, 
Baldwin, and King.
    Staff Present: Eric M. Ueland, Republican Staff Director; 
and Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. I call this hearing to order. Good morning, 
everyone.
    Hard-working taxpayers deserve a government that is 
efficient, effective, and accountable to them. Washington 
should spend your tax dollars wisely and responsibly and give 
you freedom and control to pursue your future the way you 
choose. That is what every American deserves and that is what I 
am committed to here today.
    We must all face the truth. America's budget is at a 
crisis. We did not get there overnight and we will not fix it 
overnight, but we can begin to solve this crisis if we act now. 
We must take responsibility to act with integrity in an open, 
honest way to solve this problem and start at once. This will 
deliver the healthy economy that hard-working taxpayers 
deserve, a healthy economy that creates real opportunity for 
all, where job creators can grow, where if you work hard and 
play by the rules, you have a shot at the financial 
independence you deserve and the peace of mind you need.
    That is why I was so disappointed in the administration's 
recent budget. After adding $7.5 trillion in debt since taking 
office, this administration proposes to add five-and-seven-
tenths trillion more. That is actually $5,700 billion more in 
debt.
    Take a look at the screen. Over the past six years, we have 
learned that wasteful Washington spending does not solve 
problems, it sidesteps them. We need to eliminate deficits 
instead of exploding them. Hmm--
    Senator Sanders. That is not what the screen says.
    Chairman Enzi. Yes, I know.
    [Laughter.]
    Chairman Enzi. Well, I want you to imagine that.
    [Laughter.]
    Chairman Enzi. There. A little help with the--now you can 
see clearly what I am saying.
    Senator Sanders. Oh.
    Chairman Enzi. I am glad my description was so good.
    You can see the little blue hatched parts up there. That is 
actually each year's deficit through the next ten years, the 
little kind of blue cross-hatched, kind of a purple, kind of a 
combination red and blue, because it is everybody's fault.
    But, what the red bars are is the cumulative amount of 
that, and you can see that it adds up over time.
    What are the long-term consequences of this approach? It 
means higher interest rates for consumers, because government 
is borrowing more, and it means higher taxes for every American 
to pay for more overspending. It also means more waste and 
unaccountable spending that puts an anchor on our economy, 
costing us stable, good-paying jobs.
    Look at this chart. Because of the President's budget, 
interest costs will more than triple. Let me say that one more 
time. The interest costs will triple. In ten short years, we 
will be spending $785,000--$785 billion on interest every year. 
That spending will do nothing to help hard-working taxpayers 
meet the costs and challenges of everyday life. Interest does 
not build anything. In fact, it will make it even harder.
    The administration's budget sends a very clear message. In 
this economy, with fewer jobs and less opportunity than ever, 
taxpayers may have to learn to do more with less, but so far, 
Washington does not have to. That is simply wrong, and it only 
deepens the distrust, the skepticism, and the cynicism our 
citizens feel about their government and this Congress.
    Americans have worked hard, harder than we can imagine, to 
claw back from the Great Recession and its aftermath. It is 
time for Congress to work just as hard to protect them. By 
spending responsibly, by making taxes fairer, simpler, and more 
straightforward, by putting our fiscal books in order in a 
balanced, responsible way, there are three significant 
benefits.
    First and most importantly, we can restore the trust that 
we have broken with the American people. According to Gallup 
last month, only 20 percent of those surveyed approve of how 
we, their elected representatives, are doing their job. Sadly, 
that poor number is an improvement over the 12 percent who 
approved in February of last year. The biggest reason for this 
broken trust is because of our failure to do what voters have 
long demanded, to eliminate wasteful Washington overspending, 
to make government truly more efficient, more effective, and 
more accountable to them, to improve the programs that protect 
our most vulnerable and strengthen the health and retirement 
security of our seniors. They see trillions in waste, fraud, 
and abuse, and ask why we do not do what obviously must be 
done. We must be committed to rebuilding, to truly earning the 
trust of the American people.
    This leads me to the second benefit. A responsible, 
balanced budget requires us to actually set priorities and 
stick to them. We live in an age when everything is a priority. 
As we know from life, when everything is a priority, nothing 
is. The Comptroller General of the United States, Gene Dodaro, 
who appeared here at our last hearing, came before us and 
presented a catalog of inefficient, ineffective, and 
duplicative programs. Why do they still exist? It is long past 
time for every program to be evaluated and prioritized. If they 
are not delivering results, we should improve them. If they are 
not needed, we should eliminate them. If they are being done by 
multiple offices, we should streamline them.
    Getting our budget balanced and staying there, except for 
extraordinary circumstances, means a constant examination of 
what needs funding and what does not. A responsible balanced 
budget ensures that we actually prioritize and demand results. 
Hard-working taxpayers, along with every business in America, 
do this every day. We must play by the same rules in 
Washington.
    Finally, a responsible balanced budget demonstrates that 
Washington is doing its part to deliver a healthy economy for 
everyone. A government that is more efficient, more effective, 
and more accountable is absolutely essential for strong 
economic growth and job creation. This will help build the 
opportunities that so many people deserve. In the real world, 
this means investors can find new opportunities, and most 
importantly, it means every American who wants to find a good 
paying job and a fulfilling career has the opportunity to find 
it. That is what a balanced budget can deliver and that is what 
the American people deserve.
    I want to mention a letter that I got. One of the people I 
was interested in having as a witness was Mitch Daniels, who is 
with Purdue University right now. He just finished speaking at 
the National Academy of Engineers, and in that he said, ``In my 
view, the nation's transcendent problem, the one that endangers 
our entire position as the leading country in the world, is 
also the single biggest danger to the future of our 
historically dominant scientific research enterprise. I refer 
to our national debt, which I have elsewhere labeled the 'red 
menace,' this time consisting not of militarily aggressive 
Soviet imperialism, but in perhaps the more dangerous red ink 
in which our national finances are drowning.''
    I would ask unanimous consent to have the letter in its 
entirety appear in the record. Without objection.
    [The information of Chairman Enzi follows:]
   
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    Chairman Enzi. Working together, we can deliver real 
solutions, real results, and real progress if we look for the 
common ground and cooperate to get things done. A responsible 
balanced budget that makes government more efficient, more 
effective, and more accountable is not only possible, it is 
doable.
    Senator Sanders.

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Thank you very much, Mr. Chairman, and 
thanks for holding this important hearing.
    For most Americans, the economic reality of today is pretty 
clear. For the last 40 years, the American middle class has 
been disappearing while the people on top, the wealthiest 
people, have been doing better and better and better. Today, 
real median family income is almost $5,000 less than it was in 
1999. The typical male worker, despite huge increases in 
productivity, made $783 less last year than he did 42 years 
ago, after adjusting for inflation. The typical female worker 
is making $1,300 less than she did in 2007.
    Despite the modest gains of the Affordable Care Act, 40 
million Americans continue to have no health insurance, and 
more people are living in poverty today than almost any time in 
the modern history of America.
    Despite a significant improvement in the economy since 
President Bush left office, real unemployment is not 5.5 
percent, it is 11 percent, counting those people who have given 
up looking for work or are working part-time when they want to 
work full-time. Youth unemployment, the future of our nation, 
is 17 percent, and African American youth unemployment is far 
higher than that.
    Throughout this country, a significant number of young 
people have given up the dream of going to college because of 
the high cost of tuition, while millions of others are 
struggling with the yoke of excessive debt around their necks, 
and I am sure that every member of this committee has talked to 
young people who are trying to figure out how they deal with 
$50,000, $80,000 of debt for the crime of having gone to 
college.
    The Federal minimum wage today of $7.25 an hour is a 
starvation wage, and half the kids in public schools are 
eligible for free or reduced-price school lunches.
    And, while the middle class disappears, the people on top 
and the largest corporations have never had it so good, and any 
serious discussion of deficit and debt has to take that into 
consideration. Today, the top one percent earns more income 
than the bottom 50 percent. And since the Wall Street crash of 
2008, over 99 percent of all new income goes to the top one 
percent. Corporate profits are soaring, and CEOs now earn over 
270 times what their average employee makes.
    Today, incredibly, the top one-tenth of one percent owns 
almost as much wealth as the bottom 90 percent. And the 
wealthiest family in this country--one family--owns more wealth 
than the bottom 42 percent of the American people.
    The fact of the matter is that over the last 40 years, we 
have witnessed an enormous transfer of wealth from the middle 
class and the poor to multi-millionaires and billionaires. 
Between 1985 and 2013, the bottom 90 percent of the people in 
our country lost $10.7 trillion in wealth that it otherwise 
would have had if the distribution of wealth had remained at 
the same level as it was in 1985. Meanwhile, the top one-tenth 
of one percent experienced an $8 trillion increase in wealth as 
the distribution of wealth became increasingly unequal.
    And today, we are going to hear testimony from our 
Republican friends, invited witnesses that I can only refer to 
their testimony as the Robin Hood principle in reverse--we are 
going to hear from witnesses who suggest that in the midst of 
this massive income and wealth inequality, that we cut programs 
that the elderly, the children, the sick, the poor, and working 
families desperately depend upon, and then at the same time 
they want us to give more tax breaks to the rich and large 
corporations.
    And, unless I am very mistaken--and if I am, I owe you an 
apology, Mr. Chairman--that is exactly what the Republican 
budget will be doing, taking from the working people and the 
poor and giving to the wealthy and large corporations. And, 
that is exactly what the Ryan budget did last year when it was 
passed by the Republican House.
    Further, we will hear testimony today from one of our 
Republican witnesses about the need to make major cuts in 
Social Security and Medicare. In other words, not only do some 
of my Republican colleagues want to provide huge tax breaks for 
the wealthy, not only do they want to make cuts in health care, 
nutrition, education, heating assistance, Food Stamps, Meals on 
Wheels, and affordable housing, they also want to cut Social 
Security benefits for elderly seniors in Vermont and throughout 
this country struggling to survive on $14,000 or $15,000 a year 
or less, and, by the way, also cut back on benefits for 
disabled veterans.
    That is wrong. That is terribly wrong. Frankly, it is 
almost laughable that this advice that cuts Social Security and 
Medicare comes from the Business Roundtable, an organization 
representing the CEOs of many of the largest corporations and 
Wall Street financial institutions in this country.
    While these people tell us that we should cut Social 
Security for a senior in Vermont who today does not have the 
funds to heat her home or pay for her medicine, a study from 
the Institute for Policy Studies tells us that the CEOs of 
these major corporations in the Business Roundtable can expect 
a monthly retirement check of $88,576 a month. So, we have 
people who are getting a retirement benefit of over $88,000 a 
month coming here telling us that we should cut Social Security 
benefits for elderly people in Vermont who are trying to live 
on $14,000 a year. I thank you for your advice, but that is 
advice that this Senator will not accept.
    Further, when we talk about the deficit and debt, which is 
the focus of this hearing, I find it interesting that some of 
my colleagues seem to ignore the fact that we have major 
corporation after major corporation, including many in the 
Business Roundtable, that pay virtually no taxes at all in the 
United States. To name just three companies in the Business 
Roundtable, General Electric, Verizon, and Boeing, and there 
are many others. These are enormously profitable corporations 
that in some recent years have paid zero in Federal income 
taxes. And today, we are going to be lectured about how we have 
to cut programs for working families to balance the budget.
    This country is losing approximately $100 billion a year in 
revenue because American companies and the wealthy are stashing 
their profits in the Cayman Islands, Bermuda, and other tax 
havens. The situation has become so absurd that one five-story 
office building in the Cayman Islands is the home of more than 
18,000 corporations. Maybe, if we are serious about deficit 
reduction, rather than cutting Social Security or Medicare, we 
might want to examine that reality.
    Last point. If we are serious about lowering the deficit 
and the debt, the best way to do that is not by developing an 
austerity program which increases suffering for those already 
hurting. The best way forward is to create a full employment 
economy with jobs that pay good wages. When people work and 
when people have jobs, they pay taxes. When people have jobs 
that pay them a livable wage, they no longer need government 
programs, in my view. The best way to do that is to rebuild our 
crumbling infrastructure, to put millions of people back to 
work. And I would all remember--all of us hope to remember--
that the last time we eliminated a deficit, from 1998 to 2001, 
we had a full employment economy.
    And with that, Mr. Chairman, I yield.
    Chairman Enzi. Thank you.
    It is important for my colleagues to appreciate the concept 
of a balanced budget is not new or untried. Most of the States 
have long abided by balanced budget requirements. It is a rich 
record of fiscal success and failure in the States and we 
should draw heavily on it.
    I just noticed that 24 States have already passed a 
Balanced Budget Constitutional Convention Amendment. Ten more 
are considering it, while I know of one more that has already 
passed it, so we are at 25 now. If we get to 34, we have to 
balance the budget.
    Last year, we spent $1,100 billion, so we have got to make 
decisions on $468 billion we spent more than that, which would 
be about a 50 percent cut, and I do not think we can do that.
    So, that is why we are doing a hearing to try and talk 
about some of these things, so to guide us to a better 
understanding of the benefits for moving toward a balanced 
budget, we have three exceptional witnesses. Let me introduce 
each in the order they will offer testimony.
    First, we have Governor John Engler. Governor Engler was 
the 46th Governor of Michigan, from 1991 to 2003. He is 
currently the President of the Business Roundtable, an 
association of chief executive officers of leading U.S. 
corporations that produce seven-and-four-tenths trillion in 
annual revenues and employ more than 16 million people. During 
Engler's tenure as Governor of Michigan, he signed 32 tax cuts 
into law, saving Michigan taxpayers some $32 billion, and 
helped create more than 800,000 new jobs, taking the State's 
unemployment rate to a record low.
    Our second witness is Maya MacGuineas. Maya MacGuineas is 
the President of the Committee for a Responsible Federal 
Budget. There probably are few in this town who have served on 
as many fiscal commissions and task forces than Ms. MacGuineas, 
with the probable exception, of course, of Pete Domenici. 
Senator Domenici, of course, used to chair this committee for 
many years. Ms. MacGuineas has worked at the Brookings 
Institution and on Wall Street. She serves on the boards of a 
number of national nonpartisan organizations and received a 
Master's in Public Policy from the John F. Kennedy School of 
Government at Harvard University.
    Our third witness is Dr. Mark Blyth. Dr. Blyth is the 
Eastman Professor of Political Economy in the Watson Institute 
for International Studies at Brown University, where he has 
taught since 2009. He has published extensively on topics in 
international relations, comparative politics, and recently on 
fiscal questions.
    Welcome to all of you. Governor Engler, we will start with 
you. I hope that all the witnesses will kind of condense their 
presentation to five minutes so that we can have questions. 
There will be more showing up for questions. So, Governor 
Engler.

 STATEMENT OF JOHN ENGLER, PRESIDENT, BUSINESS ROUNDTABLE, AND 
               FORMER GOVERNOR, STATE OF MICHIGAN

    Mr. Engler. Thank you, Mr. Chairman. I could tell from the 
opening comments there will be questions, so I am delighted to 
have an opportunity to be here, and Ranking Member Sanders, 
members of the committee, Senator Stabenow from my home State 
of Michigan, my former colleagues, the Governors of Virginia 
and Maine, members, thank you for the opportunity to testify 
today on the benefits of a balanced budget.
    Business Roundtable commends this committee for your work 
to produce a serious budget resolution. Above all, a budget 
must be a blueprint for action, action that restrains spending, 
modernizes entitlements, and fosters the robust economic growth 
required to meet America's many challenges. Business 
Roundtable's CEOs believe achieving robust economic growth is 
one of our nation's most important priorities. Further, they 
believe growth is achievable through policies like business tax 
reform, expanded trade, investments in physical and digital 
infrastructure, a fix for our broken immigration system, and a 
smarter approach to regulations.
    This committee understands very well the costs of inaction. 
An America that remains on a worsening and unsustainable fiscal 
path, as some of these charts indicated. The doubling of annual 
deficits within a decade, more than doubling, in fact, from the 
$483 billion in the fiscal year 2014 to $1.1 trillion in fiscal 
year 2025. Soaring Federal debt, another concern, rising from 
more than $7.6 trillion over the next decade, representing 79 
percent of GDP by fiscal year 2025. This would be the highest 
ratio, by the way, since the end of World War II. Federal 
Government spending itself rising from $3.6 trillion today to 
more than $6.1 trillion by 2025.
    Medicare, Medicaid, Social Security, and net interest on 
the debt would drive government spending, accounting for about 
85 percent of the increase in outlays over the next ten years. 
Interest payments, which the Chairman referred to, on the debt 
pose a real and fiscal economic threat. Interest actually 
represents the fastest growing component of government 
spending. As a share of the economy, interest payments will 
climb from 1.3 percent of GDP to 3.0 percent by 2025, and 
certainly even higher in future years.
    So, the consequences of all of this, the government paying 
higher interest rates to borrow, producing even higher 
deficits, leading to even more expensive future borrowing.
    Balancing budgets is difficult, no question, but doable. 
And, again, as the Chairman mentioned, States can show the way. 
As a new Governor in 1991, Michigan was faced with a $1.8 
billion deficit. Business as usual, no longer affordable. But, 
in the 1990s, Michigan budgets actually did downsize 
government, reduced the number of State employees, lowered 
property taxes--Senator Stabenow played a role in that--and 
reformed welfare and made education a priority. By the end of 
the decade, we were able to restore Michigan's credit to a 
triple-A rating, something not seen in the State of Michigan in 
25 years. Investment rose. The State's economy grew.
    Growth makes budgeting a whole lot easier. It brings in 
revenues that allow us to address our nation's priorities. A 
CBO report has compelling data. A sustained increase in the 
growth rate of GDP of a full percentage point annually reduces 
the deficit, the budget deficit, by $3.3 trillion over a 
decade.
    And, I want to highlight two priorities from the 
Roundtable's ``Achieving America's Full Potential'' report that 
we believe will contribute and produce substantial economic 
benefit.
    Entitlement reform, been mentioned already. For future 
generations of American retirees to rely on the assurances of 
basic retirement security, changes are needed to strengthen and 
sustain Medicare and Social Security. Business Roundtable 
supports gradually increasing the eligibility age for full 
benefits, updating the method of computing cost-of-living 
adjustments, as the President has proposed, and implementing 
means testing for higher-income recipients, and expanding 
competitive models of care much broader within the Medicare 
system.
    Pro-growth tax reform is another one. The U.S. corporate 
tax system does hinder the ability of American companies to 
compete in the global economy. The result is less investment in 
the U.S. and an underperforming economy with fewer job 
opportunities and, as has been mentioned, lower wages. 
Roundtable CEOs believe business tax reform has the greatest 
potential for immediate positive growth.
    We have identified two reforms that could put the U.S. at 
the forefront of global competitiveness, invigorating economic 
growth and spurring job creation: A competitive corporate rate 
of 25 percent and a modern international tax system that ends 
the double taxation of U.S. corporations' foreign earnings and 
encourages the profits to come home to the U.S. of A. I am 
certainly happy to address these reforms in more detail in the 
Q and A.
    So, Mr. Chairman, Ranking Member Sanders, members of the 
committee, thank you again for the opportunity to address the 
need for a balanced budget. It has many benefits, and the pro-
growth policies will help reinvigorate our nation. We look 
forward to working closely with you.
    [The prepared statement of Mr. Engler follows:]
    
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    Chairman Enzi. Thank you, Governor.
    Ms. MacGuineas.

   STATEMENT OF MAYA MacGUINEAS, PRESIDENT, COMMITTEE FOR A 
                   RESPONSIBLE FEDERAL BUDGET

    Ms. MacGuineas. Good morning. Chairman Enzi, Ranking Member 
Sanders, and members of the committee, thank you for inviting 
me here today to talk about this important topic.
    I am going to make several main points today in my remarks. 
The first is that our deficit and debt problems are still far 
from solved. The second is that having a fiscal goal is key to 
making progress. Third, there are many advantages to getting 
the debt to more manageable levels than where it currently is. 
And, finally, policy makers do need to avoid backsliding and 
adding more to the debt than we are already on the path to do.
    So, let me start by saying that I think the United States 
has the potential for a real economic renaissance. We just 
heard from the head of the IMF that we are described as the 
best economic performer, and that is really remarkable coming 
out of the terrible, terrible economic downturn that we just 
went through. Still, we are nowhere close to being out of the 
woods, and the fabric of a successful economy will be strong 
production, good jobs, investment in the future, and a growing 
standard of living. The best solutions will enhance our 
competitiveness, grow our economy, and make sure that the 
benefits of that growth are spread more broadly. Controlling 
our debt is a key factor to achieving all of these objectives.
    So, let me start by recognizing the good news. The deficit 
has come down by about two-thirds since its peak in 2009, and 
health care cost growth has slowed significantly, leading to a 
savings of a trillion dollars from what we had been projecting.
    That said, our debt situation is still very troubling. Our 
debt is twice the historical average relative to the economy. 
Interest payments, as the Governor just said, are the single 
fastest growing part of the budget. Our budget favors 
consumption over investment, and we are dangerously short-
sighted in how we budget.
    There also seems to be a near endless list of political 
reasons not to make any changes for getting this situation 
under control when, really, there are no economic reasons for 
delaying figuring out the kind of changes that we are going to 
put in place.
    Some have pointed to the recent decline in the deficit as a 
reason not to worry about the situation, but keep in mind that 
the 66 percent decline followed an unprecedented increase in 
the deficit of 780 percent. And, the decline is temporary. 
Deficits are expected to hit a trillion dollars again by 2025.
    Moreover, I would argue that the short-term deficit was 
never the primary concern, and it should not have been, given 
that we are still focusing on helping the economy to recover. A 
much smarter approach would have been to include real reforms 
of the tax code and entitlement reform than the kind of short-
sighted and blunt tools that were used to bring the deficit 
down and to have focused on controlling the debt for the longer 
term.
    More troubling, still, is our national debt. At 74 percent 
of GDP, it is currently the highest it has been as a share of 
the economy since World War II, and it is more than double the 
size of the debt as a share of the economy compared to when we 
went into the national crisis in 2007, and having very low debt 
levels at the time gave us the flexibility to respond.
    So, there is no question that our projected deficits and 
debt are too high, and ideally, what we should do is strive to 
balance the budget over a business cycle, which would allow us 
to save money when times are good and spend more money when the 
economy is in bad shape.
    The first step towards getting towards balance is getting 
the debt on a downward path as a share of the economy, and that 
comes with a number of benefits. Starting with economic 
benefits, it leads to greater investment and economic growth, 
and from our estimates based off of CBO numbers, getting the 
budget to balance would lead to an increase in the size of the 
economy of more than two percent in 2025 and more than ten 
percent in 2040.
    That leads to higher income and wages. Again, using CBO's 
rule of thumb, the increase due to a balanced budget in wages 
would be $6,000 per person per year, or $200,000 in additional 
income for an average worker.
    It also leads to lower interest rates. Under a balanced 
budget, according to CBO, the interest rates could be roughly 
one point lower than under current law. So, to put that another 
way, if you think about a family with a mortgage of $300,000, 
that could lead to savings of $60,000 over the life of that 
mortgage.
    It also would lead to declining interest payments. Right 
now, we are projected to be spending over $800 billion in 
interest payments by the end of the budget window, certainly, 
that is money that could be better spent on many other 
priorities if we did not have such high payments.
    And, the fiscal flexibility that we were allowed when we 
entered the crisis, because our debt levels were low, was 
instrumental in helping us get out of the crisis. Were we to go 
into another crisis--and there will be one sometime--with debt 
levels as high as they are, we would be constrained in a way 
that we were not before.
    And, finally, getting rid of high debt levels, getting rid 
of them, balancing your budget, reduces the risk of a fiscal 
crisis. CBO has warned that the larger a government's debt, the 
greater the risk of a fiscal crisis.
    There is a final advantage, also, I think, of getting a 
balanced budget, which is it is an easy, tangible and 
measurable goal that can be easily explained to the American 
people, and that has been shown to help keep plans on track. 
Right now, there are virtually no limits on borrowing, no 
agreed upon fiscal goal, and if there were one, policy makers 
would be required to show their preferred paths for getting 
there and then we would have a real discussion on the budget. 
We would discuss the various trade-offs of the various plans to 
achieve that goal, whatever it is.
    Finally, I encourage all of us in this coming year not to 
take a step backwards, and I think there is a very real risk 
there. Last year, lawmakers added $100 billion to the debt 
beyond what was projected from a variety of things that they 
either did not want to pay for or that they used gimmicks to 
pay for. This year, we will face a number of these fiscal 
speedbumps, from SGR, to highway, to tax extenders. Not paying 
for them could add another $2 trillion to the debt.
    So, I want to close by saying that controlling America's 
debt is a key part of a comprehensive economic growth plan. We 
need to grow our economy. We need to keep our businesses 
competitive. We need to invest in our workers, innovations, and 
infrastructure. We need to ensure that the gains from growth 
are broadly shared. And, we need to control our debt for any of 
these efforts to be effective.
    To truly tackle our fiscal challenges, we are going to need 
to reform our tax code, we are going to need to strengthen our 
entitlement programs, and we are going to need to control and 
better target our spending. All of those things have to be on 
the table.
    The payoffs from responsible fiscal policies are immense, 
and I really do think that they are the key to getting this 
economic growth to stick and take off and help American 
families.
    So, thank you to the committee for hosting this hearing 
today.
    [The prepared statement of Ms. MacGuineas follows:]
    
    
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    Chairman Enzi. Thank you.
    Dr. Blyth.

    STATEMENT OF MARK BLYTH, EASTMAN PROFESSOR OF POLITICAL 
  ECONOMY, WATSON INSTITUTE FOR INTERNATIONAL STUDIES, BROWN 
                           UNIVERSITY

    Mr. Blyth. Good morning, Mr. Chairman, Ranking Member 
Sanders, and members of the committee. It is a real honor for 
me to be here as an immigrant to the United States, so I just 
want to acknowledge that before I begin.
    I am going to show some slides. I am kind of a data-driven 
guy, so if I can have my slides. Can we go to the next slide, 
please.
    You do not really have a spending problem. You have a 
revenue problem, so I am going to show you why. Next slide.
    You have been cutting taxes on top--on basically everyone, 
but really it is the top end that matters--basically since the 
1960s, and if you have a look--next slide, please--what you 
will see there, the green line is the United States Federal and 
State tax take as a percentage of GDP. That is the average of 
all the other rich countries in the world. So, basically, you 
are massively under-revenuing, if you want to make that into a 
word. Next slide, please.
    That is the United States on the blue line at the bottom. 
That is everyone you compare yourself to and the OECD average. 
You are just not raising revenue. Next slide, please.
    This is an old story. As you can see, taxes have outpaced--
revenues have fallen short of taxes all the way through the 
1980s, as well, actually. It was only briefly in the 1990s it 
was ever any different. And, the reason you see this large, 
huge build-up in debt and spending is because we bailed the 
entire global financial system and had a huge recession. So, of 
course, taxes are going to go down as revenues dry up from an 
already low baseline and spending is going to go up. Your debts 
become your deficit. It is all quite normal why that should 
happen. And, as you can see, they are trending down again to 
being almost normal. Next slide, please.
    In fact, in comparison to the average of all other 
countries, the United States tax gap is actually smaller than 
many other countries. So, you are actually even in better 
shape, comparatively, even though you actually spend very 
little through the government. Now, next slide, please.
    If the U.S. was overspending, it would show up in bond 
deals, because the people holding all of that debt would freak 
out and would want more interest payments. Well, here is the 
funny thing. It has been falling consistently since 2006, right 
through the financial crisis. You create a giant tsunami of a 
financial crisis and people want to hold your debt. In fact, 
interest payments keep going down in terms of bond yields. If 
you have a problem in spending, it is simply not showing up in 
the way that investors' appetite shows up in bonds. The 30-year 
bond, it is rated 2.8 percent. That does not even cover 
inflation over the period. No one can get enough of this debt. 
This is an entirely different story. Next slide, please.
    You cannot really see this, but, basically, what it shows 
is a regression between the degree of budget tightening, what 
you want to do, on the horizontal axis, and then what happens 
to your debt, and that dot at the top is Greece and the ones in 
the middle are Spain and Ireland and Portugal. And, guess what. 
The more that they tightened, the more debt they got, because 
the underlying GDP got smaller and the same constant stock of 
debt got bigger rather than smaller. So, the more you tighten, 
the more you shrink your economy, the more debt you end up 
with. It is quite a paradox, but it is a very robust finding. 
Next slide, please.
    This is the same thing seen the other way. This is 
basically the wonders of austerity, part two. The stronger the 
budget tightening, the sharper the decline in GDP. Again, that 
is Greece at the bottom. They have cut more than any country in 
modern history and they have lost a third of their economy and 
their debt has doubled despite the cuts, in fact, because of 
them. Next slide, please.
    This is hardly a surprise, because when you spend all that 
time shrinking your economy by obsessively balancing your 
budget, you build fragilities into the system going forward 
such that when you get hit with an external shock, your economy 
craters because it is much more fragile. And, what we have here 
are years in which the budget was paid down, very long periods, 
and they are all followed by recessions or depressions the 
minute you get hit with a shock, because you have been 
artificially constricting your GDP growth for no good reason. 
Next slide, please.
    We wonder a lot about--we have heard a bit about interest 
payments on the debt. One of the other things I find 
fascinating is this idea that we are all in hock to foreigners, 
right, so, you know, foreigners own our debt. If you look at 
this slide, you will find that most, in fact, 70 percent of 
U.S. debt is domestically held, and that matters for your 
interest payment story, because although I pay taxes which 
become payments on the debt, pension funds and banks use debt 
very productively. And when you pay them interest, that goes 
back into my pension. We are all borrowers and lenders at the 
same time. The notion that debt interest is some dead-weight 
loss is just simply not true. Next slide, please.
    So, we have a lot of debt, and you can see here two lines. 
The blue line is the United States and the other one is the 
European Union, Eurozone countries, and you can see the effects 
of the crisis going on. Basically, government spending is 
pretty constant going all the way across the decade. There is 
no orgy of spending. It simply did not happen. Then there is a 
huge blow-up with the global financial crisis. You bail out the 
banks, and at the same time without recapitalization and so on, 
you end up constricting the economy. You have a big recession 
and that is where your debt came from. Europe has been 
tightening. Remember that they have been doing the budget cuts 
that you want so much. They are in exactly the same position. 
Last slide, please.
    However, the story is much worse, because if you look at 
this another way, there is your spend going on. There is GDP 
growth. There is the effect of the financial crisis going down. 
Look at the blue line. That is America. We did not cut. We grew 
five times as fast as Europe did last year. Look at what 
happened to Europe. The more they cut, that dotted line going 
down at the end, that is 20 percent unemployed in the periphery 
and 12 percent unemployed in the core. They are in a miserable 
state because they have been balancing their budget.
    One last thing I want to end on. You do not have a budget 
crisis now. You did not have it in the past. But you project it 
into the future. Everything I have heard is ten-year 
projections in the future. These straight-line one-year 
projections ten years out. One thing you can bet on: Knowing 
your projection ever comes true. Imagine you did a ten-year 
lineal projection in 2004. Do you think you would have picked 
up the financial crisis? Imagine the CBO did a ten-year 
projection in 1987. Do you think they would have picked up the 
cost savings of the end of the Cold War?
    Worlds are non-linear generators. You have no idea what it 
will be like in ten years' time. But, one thing we do know is 
the American economy will be much better than it is now. In 
2006, it was $13 trillion, $13.6. Today, it is $17 trillion. 
When we go out ten years, we will have a much bigger economy on 
which we will be paying back a smaller share of debt. If you 
start cutting now, you will end up in worse fiscal shape than 
you actually would if you just stayed on the course you are on 
now. Growth cures debt. Cuts cause debt.
    Thank you.
    [The prepared statement of Mr. Blyth follows:]
    
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
    
    
    Chairman Enzi. Thank you.
    Now, we will turn to questions. As a reminder, I will 
alternate recognition between the Republican and the Democratic 
Senators, following seniority for those who were here when the 
hearing gavel sounded. After that, I will recognize members 
based on their order of arrival. If you are not here when your 
name is called, I will skip you, but pencil you in at the end 
of the question list. Actually, I do not have to pencil you in. 
We have this nifty little computer here now that somebody is 
keeping track of all these changes for me so we will all have a 
chance to ask questions.
    Some good presentations by all three. It will be 
interesting to see what Europe does now when they have the Euro 
where they do not have the control of their money supply, and 
with Greece where they are about to reverse all of their 
austerity. That is what their new election did.
    But, I will begin with Governor Engler. You ran the State 
of Michigan for 12 years under the constitutional requirement 
that your annual budget be balanced, yet you made significant 
investments in education, conducted a successful economic 
growth plan, and you reduced income taxes numerous times. You 
have also successfully run large nonprofits. I have been 
arguing that a balanced budget requirement sharpens the 
priority setting process. You obviously had your priorities. Am 
I right in thinking that the process of writing a budget 
becomes more focused on priorities and what not to fund under a 
balanced budget requirement? Can you tell me how you did 
prioritization and wound up with an improvement?
    Mr. Engler. Well, thank you, Mr. Chairman. The question of 
priority setting is one that is never done by a Governor alone. 
It is a collaborative process. In Michigan at the time, we had 
divided government, so we ended up having to have a consensus 
among legislators in both parties. In fact, one of the changes 
we made in the early days of the 1990s, we eliminated general 
assistance, which was cash assistance for single able-bodied 
adults without children. We had Democratic votes to do that.
    We prioritized things like education, what we thought was 
an investment agenda. And, we tried to reduce those programs 
that we thought were less essential. It was not as though--we 
were not reducing key investments. Some went up and some went 
down. I mean, sort of in contrast to the sequestration process 
that has been used here, which is kind of a blunt tool that 
goes the good gets cut with bad, you try to eliminate the bad 
and double-down on the good is what a strategy is.
    I would say that if we look across the States, because we 
all, for the most part as Governors, have balanced budget 
requirements, we do not have latitude. So, we just have to set 
priorities. In the case of Michigan, it actually took two 
years, really, to get the whole deficit gone. We could not even 
get it done in the first year. But, we knew that raising taxes, 
given the unemployment numbers in Michigan at the time, was a 
poor strategy, and so we averted that path and stayed on one 
that ultimately led to an unemployment rate that got under four 
percent.
    Chairman Enzi. Thank you.
    Ms. MacGuineas, you have served on so many budget 
commissions and work groups that you have provided some 
suggestions, but I know you have more. Adopting a joint budget 
resolution might be a big step forward. We have not done that 
in six years. Beyond that important goal, however, what would 
be the two or three most important reforms to the budget 
process that we can assure would provide a better debate over 
priorities and an informed budget?
    Ms. MacGuineas. Good. So, given where we are right now, I 
think one of the most important things we can do is adopting a 
fiscal metric. And, so, if we have a goal that is agreed upon, 
whether it is balancing the budget or getting the debt to a 
certain level of the economy by a certain amount of time. That 
then forces the budget process to confront trade-offs.
    So, right now, fiscal responsibility is usually used as 
people trying to stop the other side from doing what they want 
to do. But, instead, if we agreed we need to get the debt to 
whatever goal it is, we then would put forth a variety of plans 
of how to get there and you look at the different kinds of 
trade-offs. How much comes from revenues? How much comes from 
spending? What is that spending like? How do we make up a 
budget plan? And that is the process that budgeting should 
confront.
    Second, I do think we need to look at lot more at the long 
term. Right now, our budget process is overly focused on the 
short term when we know that the problems that are really 
generating our concerns deal with demographics, the aging of 
society, and health care, and, again, those growing interest 
payments. So, when you look out in the long term, even though 
we cannot project sort of when the business cycle will hit, 
demographics is destiny, as they say, and so we know that that 
is going to have a significant effect.
    Finally, I think there is two-thirds of the budget, 
mandatory spending, that really is not budgeted for, and I 
think finding more ways to have oversight and thinking about 
how much you want to spend on various areas and which 
priorities we want to spend on will, again, go back to 
confronting trade-offs within the budget.
    Chairman Enzi. Thank you. Fiscal metric, long-term 
planning, and looking at the two-thirds that is mandatory. I 
appreciate that.
    And Governor Engler mentioned increasing the economy. It 
was interesting that the OMB said that if we increased the 
economy by one percent, that that would increase revenues by $4 
trillion over ten years.
    You also mentioned in your testimony $100 billion in 
gimmicks. We will see if we cannot reach a more honest budget.
    My time has expired. I will have some questions in writing 
for all of you and hope you will respond. Obviously, Dr. Blyth, 
your questions will have a lot more to do with specific 
numbers, and I appreciate the presentation that you made and 
look forward to your answers.
    Senator Sanders, followed by Senator Sessions.
    Senator Sanders. Thank you, Mr. Chairman, and let me thank 
all of the panelists for their excellent testimony.
    Governor Engler, I want to ask you a question, and I do not 
want to--please trust me and understand that it is not a 
personal question. I have a hard time hearing a representative 
of an organization of the largest corporations in America, 
where the CEOs of these corporations will retire with about 
$88,000 a month, over a million dollars a year, in retirement 
benefits, which is the case, coming before the Congress to 
recommend that we cut Social Security benefits for people who 
are trying to survive on $12,000, $13,000, $14,000 a year. My 
point here is not to argue the issue. I mean, different people 
have different views on Social Security. But, I just want to 
say, I have a problem with some of the wealthiest people in 
this country, who have more money than people can dream of, 
coming here and lecturing us about how we have to lower Social 
Security benefits for disabled vets and working people.
    My question to you is--and let me go to Ms. MacGuineas, if 
I could, you used the expression, ``strengthening entitlement 
programs.'' I will be introducing legislation that will 
strengthen Social Security. It will make it solvent until the 
year 2060 by lifting the cap on taxable income, which is now at 
$118,500. Starting at $250,000, all people would pay the 6.2 
percent. That will strengthen Social Security very 
significantly. Are you supportive of that legislation?
    Mr. Engler. Well, I will start with that. Who do you want 
to--
    Senator Sanders. Sure, either one. I was going to start--
let me start with Ms. MacGuineas, then we will go to you.
    Ms. MacGuineas. Yes. I think that that is the kind of thing 
that we need to do to strengthen Social Security, in that right 
now, what we have is promises that have been made that we 
cannot make good on. I think you should go the whole way. I 
think that--I believe that your bill closes about 80 percent, 
maybe. I know it gets to 2061, as you said, but again in 2021--
at some point, we would have to start confronting that it will 
be out of balance pretty quickly. So, I would recommend putting 
a full package that gets to sustainable solvency, which is 
normally the goal.
    And, the only issue--I think that looking at lifting, 
eliminating the payroll tax cap makes an awful lot of sense. I 
think there are only so many times we can tax and use that 
money for different places. So, the one thing I think we want 
to do is think about, holistically, what the biggest priorities 
in our country are, and I think Social Security and maintaining 
a strong safety net, in particular for people who depend on it, 
clearly is.
    I do think you want to make sure those changes are targeted 
and you do not expand benefits for the well-off at the same 
time that you are making those changes.
    Senator Sanders. Okay. Governor.
    Mr. Engler. Yes. I would certainly look at any legislation 
that is introduced to strengthen the system. That is why we 
look carefully at President Obama's recommendations to use the 
correct calculations on cost of living for Social Security. We 
are disappointed that that did not get any traction in the 
Congress. So, there are a number of changes.
    But, when I talk about strengthening Social Security, I am 
also wanting to make sure the people who need it most have it 
there for them. So, I am not interested in protecting Warren 
Buffett's Social Security. I am interested in the people you 
talk about.
    Senator Sanders. Well, but I am not talking about Warren 
Buffett. I am talking--
    Mr. Engler. Well, you are, because--
    Senator Sanders. No, I am not. I am talking about--
    Mr. Engler. You are.
    Senator Sanders. All right. Well, we can argue. I am 
talking about maintaining a universal system, and I am talking 
about lifting the cap right now, which is at $118,500 a year, 
so that somebody who makes $10 billion a year contributes the 
same amount as somebody who makes $118,500, I think that that 
is pretty wrong.
    All right. Let me ask, Governor, again, and then I am going 
to go to Ms. MacGuineas, as you well know, there are major 
corporations in this country, including General Electric, PG&E, 
the American Electric Power, Corning, who have paid zero in 
taxes in recent years, in fact, have received rebates from the 
IRS. Let me start with you, Ms. MacGuineas, and then we will go 
to the Governor. If we are serious about talking about deficit 
reduction in any way that is fair and not simply on the backs 
of low-income and working families, should we not end those 
loopholes?
    Ms. MacGuineas. I think one of the keys to overall tax 
reform is broadening the tax base, which means ending many of 
the corporate loopholes. I would do the same thing on the 
individual side, as well, and I would try to do it 
comprehensively. But, yes, I think we have to look at all the 
tax breaks. Right now, you have corporations that are putting 
money overseas because they have a crazy tax system that they 
have to work within. So, we need to rationalize our tax system, 
allow us to be more competitive, and I believe, as part of a 
comprehensive debt deal, you are going to have to look at both 
sides of the budget, look at spending and revenues--
    Senator Sanders. I apologize. Again, my time is short. Let 
me just go back to you, because I am running out of time. Last 
question, Mr. Chairman. In, as I recall, 1952, corporations 
contributed over 30 percent of the revenue coming into the 
Federal Government. Today, that number, I believe, is around 
ten percent. Does that concern you, that the collective amount 
coming into the Federal Government from corporations, in 
general, have declined precipitously?
    Mr. Engler. Well, I think corporations, as we recognize, 
are tax collectors. I mean, corporations collect the taxes from 
their customers. One of the studies--there are several studies, 
actually, that show that corporate tax burdens fall most 
heavily upon workers in America--I can provide those to the 
committee--about 75 percent of corporate taxes. It is one of 
the reasons that--that has a negative effect on wages, 
actually, corporate taxes. But, I--
    Senator Sanders. Is it a logical conclusion, Governor, that 
we should eliminate corporate taxes?
    Mr. Engler. I would think that would be a terrific idea.
    Senator Sanders. You think we should have zero corporate 
taxes in America?
    Mr. Engler. I think that there are proposals that have been 
in Congress to reform the tax structure that come up with very 
impressive ways to look at how we could make the system more 
progressive. Today's system is, in fact, anything but, and, 
more importantly, going to the point about job creation and 
wealth that you talked about earlier, today's system--and we 
released a report just today showing that in the last decade, 
1,300 companies were needlessly acquired by foreign ownership 
because of the tax structure that we have here. So, I think job 
creation and wealth creation says get that stretch much, much 
better. Ireland--Britain has cut theirs seven points in the 
last, I think, three years. Ireland is way down.
    Senator Sanders. Am I out of time, I presume?
    Chairman Enzi. Yes.
    Senator Sanders. I am. Okay. Thank you.
    Chairman Enzi. Senator Sessions, then Senator Stabenow. If 
she is not here, then it goes to Senator Johnson.
    Senator Sessions. Thank you, Mr. Chairman. I look forward 
to us having a budget that passes both houses of Congress that 
will balance. Social Security is not within our purview, so we 
will not be able to lay out plans to fix that, but we will lay 
out a budget under Chairman Enzi's leadership, I think, that 
will serve the national interest.
    I just would say, Dr. Blyth, that experts dealing with how 
to solve the fiscal debt crisis around the globe have found 
through careful study that spending reductions are kinder on 
the economy than tax increases. And, I will quote the studies 
of Alberto Alesina at Harvard, Valerie Ramey at UCLA, the World 
Bank, the European Central Bank, and the International Monetary 
Fund. You just do not--this idea that you can tax the economy 
and hammer it and it is going to produce more growth is, I do 
not think, defensible.
    I would also note, colleagues, that under President Obama, 
we have already added $2.3 trillion in taxes over the decade, 
$1.7 on Obamacare, another $600 billion at the fiscal cliff. 
And, his budget that he submitted now has got another $2.4 
trillion that he wants to add. So, I do not think we are going 
that way.
    Ms. MacGuineas, thank you, and thank you to the Committee 
for a Responsible Budget. I was just looking at some of the 
names on your list of Directors: Kent Conrad, our former 
Chairman here, Paul O'Neill, Leon Panetta, Pete Peterson, 
Robert Reischauer, Alice Rivlin, former Senator Chuck Robb, 
Paul Volcker. So, I think you speak in a good way for the 
objective evaluation of where we are.
    I want to say to you, first, I totally agree, and it is 
very important to emphasize that our debt problems have not 
been solved. Years ago--several years ago, we knew the deficits 
would decline to this year, but we also could tell then they 
were going to start going up again to a dangerous level. They 
are already at a dangerous level, almost a half-a-trillion 
dollars each year in debt. So, you have indicated that. Would 
you just briefly assert with clarity your belief that if we do 
not do something, that we are on an unsustainable path, as the 
Congressional Budget Office says, and we place our country at 
risk. That is a fundamental question Americans need to know.
    Ms. MacGuineas. I absolutely believe that. I believe the 
fact that we are projected to have our debt growing faster than 
our economy is problematic from an economic perspective and it 
puts us at risk.
    Senator Sessions. And we know Rogoff Reinhart studies have 
indicated when debt gets to the level we are at now, you can 
begin to slow economic growth, and the last thing we need to do 
is have another action that slows growth.
    You also said something that is very important, and I think 
all of our colleagues need to hear this. You said a fiscal goal 
is a key part of budgeting. So, we talked with former cabinet 
members in New Zealand and Canada, the former Prime Minister of 
Canada. Both of those faced budget crises and balanced their 
budget. Both have told me personally that you need a clear goal 
for the people of your country and the goal is a balanced 
budget. Anything else becomes so fuzzy that you cannot call 
people to sacrifice to reach the goal. Now, I understood you to 
say, Ms. MacGuineas, that you think that we should have a goal 
of balancing the budget.
    Ms. MacGuineas. Yes. I think that what we have seen in 
these countries that have done fiscal turnarounds is that 
having an understandable goal by the public is one of the key 
factors in success. And, I do think that balancing the budget--
over the business cycle, though. I do not think it is important 
you balance it every year. I think when the economy is slow, 
you need to be running budget deficits, and when the economy is 
strong, you need to be saving so that you are able to. I think 
that is your ultimate goal. And, I think, again, what is really 
troubling is where we are right now, where it is projected that 
our debt will grow faster than the economy.
    Senator Sessions. I understood you to say in your opening 
statement that balancing the budget will have economic growth 
benefits, too, over time. Would you share your thoughts on 
that.
    Ms. MacGuineas. Yes. So, if you look at--there have been a 
number of studies by the Congressional Budget Office, for 
instance, that show putting in place a Simpson-Bowles-like plan 
would have short-term effects where it slows the economy, and I 
will talk about that in one second, and then it has longer-term 
growth effects, where it adds to GDP in perpetuity. That is one 
of the reasons that Simpson-Bowles and other comprehensive 
plans always did say, you need to pick when you start to phase 
those changes in very carefully. You should not phase them in 
when the economy is slow. You phase them in gradually when the 
economy is getting stronger.
    So, I think there is a big difference between austerity and 
fiscal responsibility. Fiscal responsibility is putting us back 
on a sustainable path, and that will have effects on the 
economy, on jobs, on wages, and that is why fiscal 
responsibility--it is not a goal in and of itself. It is part 
of how you have a comprehensive growth plan. I do not believe 
our economy can be strong and that that strength and that 
growth can be shared across the economy, which is a really 
important priority, unless you have a manageable debt 
situation.
    Senator Sessions. Mr. Chairman, maybe Governor Engler will 
give a yes or no to this. You had great success with welfare 
reform. Do you believe it is time for us to have additional 
welfare reform, and properly done, could that translate, or 
move workers from dependency to work and prosperity? Basically, 
yes or no.
    Mr. Engler. Yes.
    [Laughter.]
    Senator Sessions. Thank you.
    Chairman Enzi. In keeping with the alternating of those who 
were here at the sound of the gavel, Senator Merkley would be 
next, then Senator Johnson.
    Senator Merkley. Thank you very much, Mr. Chairman, and 
thank you all for your testimony and thoughts.
    Governor Engler, I understood you are making the case 
corporations should not pay any taxes, and in Oregon, we have a 
road user fee, weight per mile, that affects trucking. 
Essentially, it is calculated so everyone's impact on the road 
is reflected in the fee. So, it is a little more sophisticated 
than a diesel tax. You put an extra axle under a truck, you do 
less road damage, you pay a lower rate. If you are a smaller 
truck, you take up less road space, you are using less 
infrastructure, you pay a lower rate, so on and so forth.
    That concept in which infrastructure costs are paid 
proportionately to the users made a lot of sense to me, and 
when I hear you say, or as I understood you said when I was out 
of the room, that corporations should not pay any tax, I think, 
why should a corporation not help pay for the infrastructure 
that it uses? Why should that burden all fall to others?
    Mr. Engler. Well, thank you for asking this question, 
because what I--I certainly think corporations--they pay lots 
of taxes. They collect lots of taxes. But, I think all of us as 
Governors knew that our tax rates had an impact on business 
investment in our State. That is why Governor Cuomo, to clarify 
for our Ranking Member, he is advertising all over America, 
come to New York, no taxes. No taxes on business. Tax holidays. 
That is no corporate tax. Now, that does not mean they are not 
paying franchise taxes or other types of taxes, but he is 
talking about the income tax.
    To Senator Merkley's question, I think Oregon is to be 
commended for their kind of innovative approach in looking at 
this. I, as a Governor, signed a gas tax increase, which 
included taxes on diesel fuel, which primarily at the time the 
trucks bought that. I think we are kind of at the end of the 
gas tax era. There is maybe one more hike in there, but I think 
you are looking down the road. It is going go take some--you 
know, we have got to work out the technology, but--
    Senator Merkley. So, let me put it this way. If we were 
looking at the use of infrastructure across the country and the 
amount of the Federal budget that went into that, would you 
support a minimum corporate tax that reflected the amount that 
companies are utilizing that infrastructure?
    Mr. Engler. Well, you just asked me about fuel taxes or 
vehicle miles traveled. I mean, those kind of user taxes. There 
are some who, I think, have tried to conflate the issue of the 
current tax law of the U.S. is, of course--
    Senator Merkley. Okay. My time is running out. I gather I 
am not going to get your support for that strategy, but I just 
thought it would be an interesting reflection.
    Let me turn to the issue of Social Security. My seniors 
feel that the Consumer Price Index on Social Security should 
reflect their actual baskets of goods, what seniors buy. Dr. 
Blyth, do you agree with my seniors in Oregon? Should the CPI 
in Social Security reflect what seniors are actually facing in 
terms of inflation?
    Mr. Blyth. The CPI tends to measure what we call core 
inflation, so it strips out a lot of more volatile items. 
Unfortunately, your seniors live in a volatile world, and not 
just your seniors. If we think about this more generally, the 
cost of health care and the cost of education goods are growing 
far faster than the cost of inflation, and when you have 
stagnant real wages, that creates a real problem.
    So, in terms of supporting seniors through making 
adjustments in the CPI more reasonable--
    Senator Merkley. Try to give me the crisp version of this.
    Mr. Blyth. Yes.
    Senator Merkley. Thank you.
    And, Ms. MacGuineas.
    Ms. MacGuineas. My recommendation would be to adopt what 
the people who do the calculation of inflation say is the best 
measure, which is the chained CPI, which, I think, would have 
effects on all parts of the budget--the budget, Social 
Security, and revenue. I think one of the present--
    Senator Merkley. Let me ask you this. Are you aware that 
chained CPI is less accurate in reflecting the costs faced by 
seniors than the current price index and certainly less 
accurate than CPIE, which is designed directly to capture the 
costs faced by seniors?
    Ms. MacGuineas. Well, what I am aware of is that the CPIE, 
which is experimental, has been determined by the people who 
are still putting it together as not being a good, accurate 
measure yet. So, they are continuing to work on it, and I think 
they should. It will be interesting, if we start breaking out 
inflation so that it applies differently for different groups, 
how that will look throughout the economy. I think we continue 
to develop it, but right now, chained CPI is the one they say 
is best.
    Senator Merkley. Well, ``they,'' whoever ``they'' is, may 
say that, but it is really advocating for something that is an 
accounting trick that is less accurate for our seniors. And, 
quite frankly, our seniors are onto that type of strategy, one 
more attack on people of low income, an attack on our seniors, 
attack on working America, while here I hear a panel that is 
saying, you know what? Wealthy Americans should not pay the 
same marginal tax rate that working Americans pay. Why not? Why 
should wealthy Americans not pay the same amount per every 
$1,000 they earn that working Americans earn? And, I am out of 
time, so if the Chair will indulge me and you want to give a 
crisp response, why should a working person pay a higher 
marginal tax rate than the rich?
    Ms. MacGuineas. They should not.
    Senator Merkley. Thank you.
    Mr. Blyth.
    Mr. Blyth. They should not.
    Senator Merkley. And Governor Engler.
    Mr. Engler. The--I thought the President made a reasonable 
proposal. I am surprised that it is now interpreted as an 
attack on seniors and poor people.
    Senator Merkley. Well, that was not the question, actually. 
The question was, why should low-income or middle-income 
Americans pay a higher tax rate per $1,000 they earn than the 
rich?
    Mr. Engler. Well, I think--I thought our tax code was 
progressive.
    Senator Merkley. Well, then, you are deeply misinformed and 
I encourage you to read up a little on it.
    Thank you, Mr. Chair.
    Chairman Enzi. Next is Senator Johnson, followed by Senator 
Whitehouse.
    Senator Johnson. Thank you, Mr. Chairman.
    Ms. MacGuineas, you mentioned Simpson-Bowles. I just 
wanted, for the record, to make sure everybody understands, we 
have actually done about 81 percent of Simpson-Bowles. Simpson-
Bowles asked for about a trillion dollars in tax increases. In 
our fiscal cliff deal, we got about $700 billion. They are 
looking for about $1.9 trillion in discretionary spending 
reductions. In our Budget Control Act, we got about 2.1. And, 
then, Simpson-Bowles also had about half-a-trillion dollars of 
some mandatory spending, which we have not done. So, Simpson-
Bowles, before interest, was looking for about $3.4 trillion of 
deficit reduction. We have done about $2.8 trillion.
    Now, it has been a pretty messy process, but lest anybody 
think that is a panacea--I mean, it certainly has helped in the 
short term, but we have got a long-term problem which I want to 
talk about.
    I have certainly been trying to point out that we do not 
have a ten-year budget window problem. We really have a 30-year 
demographic problem. We have all the Baby Boom generation. We 
are retiring at the rate of 10,000 per day. We made all these 
promises and we really do not know how to pay for them.
    So, if you look at the--and I see in your testimony, Ms. 
MacGuineas, you talked about the CBO's alternate fiscal 
scenario. So, we have actually turned, converted those 
percentages of GDP, which nobody understands, to dollars. Let 
me just run it by you.
    In the first decade, the deficit is projected, according to 
CBO's alternate fiscal scenario, to be $8 trillion. The second 
decade, $31 trillion. The third decade, $88 trillion. I always 
like to point out that my little baby girl turned 31 and that 
kind of went by like that. Now, the net private asset base of 
America is $106 trillion.
    So, you talked about--and you related our debt to a family. 
I would just kind of like to have you relate why the nation, a 
nation that is in debt over its head, why it is hard to grow 
their economy when you have this massive debt hanging over 
their head, massive debt service, and is that not pretty 
similar to a family that is in debt over its head, spending all 
of its money on servicing a debt, having the creditors banging 
on their door? It is kind of hard to grow a personal economy, 
as well. Can you just kind of speak to that?
    Ms. MacGuineas. Well, I never want to overdo the comparison 
between the government and families, because, clearly, they are 
different. But, there are a number of conclusions that you can 
draw, and one is that you cannot borrow indefinitely. You 
cannot borrow beyond your means.
    You also cannot borrow to spend on consumption rather than 
investment and have that turn out well for you. So, when 
families are borrowing to send a kid to college or for their 
worker training, that might be a good reason to borrow, whereas 
borrowing to spend a lot of money on consumption is not. The 
same for the government. And, if you look at how our government 
spends money right now, it is the reverse of what I would think 
it should be if we had a long-term strategy, to your point 
which you focused on so much about the long-term, where the 
vast majority, probably above 80 percent of what we spend is on 
consumption and very little is on investment.
    And, if you look at the difference between what Simpson-
Bowles recommended and what happened, the area that fell short 
was we did not reform any of the entitlement programs. Where 
the squeeze has been is on the investment, the discretionary 
portion of our budget, and that squeeze is going to harm our 
growth and our economy in the long run--in the medium run.
    Senator Johnson. Dr. Blyth, I heard your testimony talking 
about we have just got a revenue problem. Does that long-term 
projected deficit, does that not concern you?
    Mr. Blyth. It does concern me, but it concerns me in a very 
different way. Global financial markets, as measured by bond 
rates, have no issue with funding the United States. They 
simply do not--
    Senator Johnson. Right.
    Mr. Blyth. --currently. But, you know, a 30-year shot at 
2.8 percent is pretty good. The notion that--and the family 
analogy is at all useful for this, I find very problematic.
    For example, three variables really matter about debt 
sustainability. One is positive demographics, right. Are you 
Italy or are you the U.S., and the U.S. is positive on this.
    Are you growing? Yes, we are the leader of the pack. The 
IMF is celebrating us. That is kind of awesome. So, your GDP is 
growing, as well.
    And, then the third one that matters is the rate of growth 
in the debt. Now, you were saying that, basically, we are on an 
unsustainable track. But, if we are the lead performer, I do 
not see how that can be. That is the assumptions built into the 
model, actually, that does that. So, we are actually in a 
pretty good place to just grow our way into a solvent situation 
over the long term.
    Now, should we restructure the budget? This is legitimate 
democratic debate. What should we spend on? I am deeply 
troubled by the fact that the United States spends 17.7 percent 
of GDP on health care. That is not--it is like we are all 
trying to live forever. There is something very strange going 
on. It is twice all the other developed countries. So, we have 
issues, but we do not have the issues that are related to 
family budgets.
    Senator Johnson. Okay. I appreciate that.
    Governor Engler, you were talking about, basically, 
corporate tax reform. Certainly, a number of businesses report 
their income through individual returns, through Subchapter S-
es and LLCs, and those businesses--that business income is 
actually taxed at those progressive tax rates, which we do have 
a progressive tax system. The maximum marginal tax rate is 
approaching 40, in some instance over 40 percent just on a 
Federal basis. Then tack on property tax and State tax and--
    Mr. Engler. Sure.
    Senator Johnson. Okay, and payroll tax. So, has the 
Business Roundtable at all explored potentially doing the same 
thing with larger corporations? In other words, rather than 
make employers and consumers pay the tax--because that is 
really who pays the corporate tax. It is not the piece of paper 
that is the corporate charter--
    Mr. Engler. Right.
    Senator Johnson. --it is a self-inflicted wound. We are the 
chumps. Has the Business Roundtable explored any options of how 
you make the owners of the large corporations, basically as 
pass-through entities, and make the owners of the companies pay 
the corporate tax rather than the piece of paper that is the 
corporate charter?
    Mr. Engler. Well, in 1986, Senator, everybody went the 
other way. They fled from the corporate status and went to that 
incorporated pass-through status.
    We are--we think and we talk in terms of business tax 
reform. Obviously, we think we could get the corporate rate 25 
percent. That would get us to average of the OECD nations. Our 
effective rates today are, according to a World Bank study that 
was done, looked at 185 countries, you know, we have the 
highest effective rate among the G-7 nations. There is a lot of 
confusion about that. You see a lot of different rates tossed 
around. But, we have got a very high effective rate. The 25 
percent rate would, I think, make us globally competitive, and 
that is where we ought to be.
    You know, I talk about the States. The States are the--the 
way to understand this, I think, and your question is an 
excellent one, because you look at how the States compete for 
jobs and we saw migration from--Michigan sure saw it from the 
Midwest down to the South. When Indiana went to a Right to Work 
State, that put pressure on your State. Michigan now moved to a 
Right to Work State. They are competing because States have to 
compete.
    Well, today, unfortunately, that competition is happening 
among nations, and almost everybody has got a kind of a 
national economic strategy to go out and compete except us, and 
that is fundamentally the difference, and that is why we have 
not seen GDP growth above nine percent--above three percent in 
nine years. So, it is growth and that is why I was citing 
growth as such a contributor to solving these budget problems, 
and that is how people go to work and that is how they raise 
incomes.
    Senator Johnson. Thank you, Governor. Thank you, Mr. 
Chairman.
    Chairman Enzi. Senator Whitehouse, followed by Senator 
Crapo.
    Senator Whitehouse. Thank you, Chairman.
    One quick question for Governor Engler. During the time 
that you were Governor, the national unemployment rate fell to 
a 30-year low of 3.8 percent. So, would you give President 
Clinton and his economic policies maybe even a smidgen of 
credit for--
    Mr. Engler. Well, I think that President Clinton and 
Speaker Gingrich and Senator Dole could all take credit as the 
leaders of the respective chambers. But, I will tell you what I 
give credit to. That was a period where people worked together. 
You know, they worked--they got welfare reform done during that 
period, a Democrat President and a Republican-led House, and--
    Senator Whitehouse. Well, let us talk for a minute--
    Mr. Engler. --we are not seeing that kind of cooperation 
today. But, I think you have got your finger on something--
    Senator Whitehouse. --about working together, then, because 
I think working together would be a good thing.
    Mr. Engler. Yes.
    Senator Whitehouse. We hear folks right in this committee 
and out on the floor who talk a really good game on debt and on 
the deficit. It is like people who talk up a good game on 
religion, but on Sunday morning, they are not in the church 
pew. On Sunday morning, they are out playing softball or 
sitting at the tavern having a cold one and you get a sense of 
what their real priorities are when you see how things relate 
to one another. Go to church, go play softball, or go sit and 
have a cold one.
    One of the key priorities here is what are we going to do 
about the $1.2 trillion that goes out the back door of the tax 
code through loopholes, through tax favoritism, through 
benefits for high-income taxpayers that lower-income taxpayers 
do not share, and when you come to that conversation, all the 
good words and good work on debt and deficit from our 
colleagues come to a screeching halt. And, every corporate tax 
loophole is sacred, and every position in the code that gives a 
high-income, including an amazingly high-income taxpayer, a 
benefit compared to regular working folks, they will defend 
that to the last trench.
    So, if we, in fact, are going to work together, is it not 
just economically necessary to look at the $1.2 trillion in 
lost revenue that adds to the deficit and that is going out the 
back door of the tax code? Let me go right across, Blyth, 
MacGuineas, and, well, you guys are the economists--
    Mr. Blyth. I will save you some time. Yes.
    Senator Whitehouse. Okay.
    Ms. MacGuineas. Absolutely. That is kind of the shadow part 
of the budget. It is not very good spending. It is not 
targeted. It is not done well. And, it is the key to tax 
reform. You need to broaden the base in order to make us more 
competitive, simplify the tax code, and raise revenues, and you 
want to reform the tax code. You want to bring rates down and 
you want to collect more revenues to close the deficit. Those 
tax breaks are how you are going to do it.
    Senator Whitehouse. I would add that, from the political 
perspective, if you are a lobbyist for a big special interest 
and you go to the Appropriations Committee to get some special 
deal for your client, you have got to fight for that every 
single year, or at least every single year that there is an 
appropriation. And, so, for the lobbyist, that might be good, 
because you are constantly employed, but for the special 
interest, it is not as sure a thing as if you can get something 
into the tax code for yourself. Then you can walk back and you 
are good for years.
    And, when you see some of the nonsense that gets into the 
tax code through things like conference reports, where nobody 
will put a finger on how it put in there, it has no identity, 
it is the anonymous deal, you know who it benefits but the 
whole thing was done out of regular order, there is a quality 
of this just being a very seamy and disreputable side of the 
legislative business, as well. So, I hope that we can undo some 
of that and get to a place where we can seriously address the 
debt and the deficit on both sides of the aisle and assure that 
this conversation is not just being used as a stalking horse 
for benefit cuts and sort of the traditional hobbyhorses of one 
party.
    I yield back my time.
    Chairman Enzi. Thank you. The first one to finish ahead of 
time.
    Senator Warner, followed by--
    Senator Whitehouse. I got good, quick answers, Mr. 
Chairman. Everybody agreed. It was terrific from the 
economists.
    [Laughter.]
    Senator Warner. Well, thank you, Mr. Chairman, and with 
apologies to the panel, because I have got a series of points, 
I would like to make--surprise, surprise--I actually would 
wager you, Mr. Chairman, that as different the views could be 
from the three panelists, that they could actually come up with 
a coherent plan, because these are not problems that are 
unsolvable--
    Mr. Engler. Right.
    Senator Warner. And, then, I have got a number of points, 
in my effort to be equal opportunity offender here, let me try 
to make a series.
    One, as a Governor, as well, Governor Engler, and we worked 
together on things, we balanced our budget. We got a AAA bond 
rating. But, we also had to deal with revenues, and the States 
are very different. They do not have two-thirds of their budget 
on a mandatory basis. And, while I think the Chairman has had a 
long record of being responsible in terms of having a balanced 
approach, I do find that there are a number of members who use 
the notion of a balanced budget amendment as a fig leaf because 
they are not willing to propose a real plan that is truly 
balanced on both sides of the balance sheet, both in terms of 
how we deal with spending and how we deal with revenue.
    And, candidly, for a nation that does need the opportunity 
to go into debt at appropriate times, I think it is not the 
appropriate way to go. I think we need to make the hard choices 
that this committee or groups like Simpson-Bowles and others 
have tried to make.
    I think it is also important, as we talk, we have seen 
corporate tax levels go down at State. We have seen it go down 
nationally. But, I do think it is important as we think about 
this with intellectual honesty, as we point to countries like 
Ireland and others, it is not like their tax rates are lower. 
They may have taken the corporate tax rate down. But, I think 
Dr. Blyth's chart is really essential that everybody looks at. 
If you look at our competitors, they are all at almost ten 
percent higher percent of GDP in revenues than we are, 
including the Irelands of the world.
    So, the notion that we are going to be able to solve this 
somehow without additional revenues, and the absurdity of 
people who say, you know, 17.4 percent, we need to get to, 
because that is our historic averages, well, the thing is, at 
17.4 percent, we have never balanced the budget. And, with an 
enterprise that we have got now with just the demographic 
bulge, unless we get that revenue line up to 18.5, 19, we are 
just--we are not getting there, even with entitlement reform.
    And, just so I can, again, make sure I am equal 
opportunity, I think Social Security, best program ever. But, I 
think when some of us do not acknowledge the math around Social 
Security, we make a mistake. I, for one, believe the chained 
CPI, something that had been agreed on by both economists on 
the left and the right, makes some sense. I also think the idea 
that we are going to have different forms of inflation measure 
for different population sectors does not make sense. And, I do 
agree with the Ranking Member that raising the cap has to be 
part of the solution set.
    What bothers me, because Social Security and Medicare have 
been so successful, we have seen poverty rates go for seniors 
in the 1960s from mid-20s down, and even though the Ranking 
Member has pointed out they are starting to creep up, thank 
goodness, because of good advocacy of people like him and 
others, they are still down at only nine percent.
    What bothers the heck out of me, and should bother us all 
who care about America being competitive, is we have got 
poverty rates now amongst kids at 24 to 25 percent. And, 
unfortunately, all of those programs that support those 
children all come from the discretionary part of the budget and 
do not get the benefit that Senator Whitehouse mentioned, which 
I think is a key part of the problem, too, you get it into the 
tax code, you are safe. You get it onto a mandatory side, you 
are safe. And, the investments that we need to make for kids 
somehow are always first on the chopping block.
    I would also make the point, and again, with apologies to 
the panel in terms of not asking questions, that there is, I 
think, sometimes--and as Governors, we know this--we become 
more competitive. It is not the lowest tax rate that attracts 
people. It is quality of workforce. It is your infrastructure. 
It is your universities. And, unfortunately, America's business 
plan right now, we have, as a percent of spend, the lowest 
investment in those domestic discretionary items. We have a 
lower percentage of spend than we had during President 
Eisenhower. That is not a good budget plan.
    And, unfortunately, at least the Ryan budget plan--and I 
know, Mr. Chairman, you are going to gavel me out here--the 
Ryan budget plan takes already historic lows, domestic 
discretionary at about 16 percent, and cuts it almost in half, 
down to around eight percent over about a 15-year time frame. 
Just from your background in finance, my background as a 
business guy, that is not an enterprise that I would invest in.
    So, I do hope that we can--I would charge this group, or, 
frankly, any other group to come up with a framework. And, if 
we are willing to come at this with both sides of the ledger, I 
do think we can get something done.
    Again, my apologies to the panel for not asking a question, 
but this is something that I care very deeply about.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator Wicker, then Senator King.
    Senator Wicker. Well, thank you very much, and I wondered 
if I would even make it for the discussion because I have had 
to be in two other hearings.
    Let me pick up on what the Senator from Virginia said, 
though, about chained CPI. I think everyone is in agreement, if 
you are receiving a Federal retirement benefit, that benefit 
should not be eaten away by inflation. We all agree on that. 
The question is how to measure that. And, so, the reason that 
people like Senator Warner and I would be willing to embrace 
chained CPI is it is deemed by economists to be the most 
accurate measure of the inflation rate as it affects consumers 
and, therefore, it would simply be fair. The fact that it would 
help us on the revenue side and help us on the expenditure side 
is an added benefit. But, we would need to first make sure that 
it is, indeed, the most accurate measure of the Consumer Price 
Index, or the inflation rate, so that a cost-of-living 
adjustment, a COLA, is, indeed, accurate.
    Now, when I came in Senator Warner was talking about making 
a different rate apply to different individuals. You know, it 
seems to me he makes a point that if we arrive at an accurate 
measure of inflation, that ought to be the measure. However, I 
will just simply say to my fellow committee members, if it 
would help us get somewhere on an accurate measure of the 
Consumer Price Index, I would be willing to start it at a 
certain level of higher-income earners or higher-income 
retirement recipients and see if it works and see how that can 
be made to be part of the solution.
    If what we are worried about are the lower-income 
pensioners that might be expecting the higher Consumer Price 
Index, then we could take care of those people. But, try it at 
some level, and I am open to suggestion there. I think, and I 
will say that Senator Warner was on to something, but I would 
say that we ought to be flexible and not hide-bound if it will 
get us to a solution.
    Let me just ask the panel this, and there is no way we can 
have a full discussion of this. This is about the benefits of a 
balanced budget. You know, when I was a freshman back in 1995 
in the House of Representatives, the idea of actually getting 
to a balanced budget within ten years, it was just so 
troublesome to Chairman Kasich that, I mean, he went back to 
the Speaker, ``Must I really do this?'' And, so, we finally 
came up with a plan to have a balanced budget, and lo and 
behold, it was much earlier than ten years or seven years.
    How did--somebody help me out here. How did we get to a 
balanced budget so quickly after we finally made up our minds 
to do that? Of course, we know when we lost the balanced 
budget, it was September 11, 2001. From that day forward, there 
has been no hope of a balanced budget at the Federal level 
since then. But, if you could talk about what were the factors 
that actually got us to that earlier than expected, and were we 
going to lose the balanced budget anyway and I am just using 9/
11 as an excuse, or are there things that got put into the 
budget structurally after 9/11 that we just could not get 
around?
    Mr. Engler. I would say that a factor that I think is 
important is the confidence that there was in the U.S. economy. 
We went through that rather catastrophic shutdown, but then 
after that, we got a number of things converging. We got 
welfare reform done. You had split--you had divided control, 
divided government, but people saw people working together. 
Decisions were being made. I think there was an easing of 
regulatory burden at the same time. I just think a number of 
things combined together. There was confidence in the economy. 
People were investing. And, a good deal of it came from the 
private sector growth, and that is one of the things I am a big 
advocate of.
    Ms. MacGuineas. One of the things that we did that got us 
there is we had three budget deals, in 1990, 1993, and 1997, 
and so a number of real policy choices were made at the time 
that put us back on a track, and also combined with a growing 
economy and in some sectors of the economy bubbles, which did 
not turn out to sustain.
    We then lost the deficit--we lost the surplus because we 
had a huge economic downturn that took away revenues, increased 
spending. There was money to deal with that. And, we also made 
policy choices along the way that spent the surpluses. As soon 
as we had surpluses, it seemed like we were putting in place 
all sorts of new programs, cutting taxes. Spending was growing 
faster than it had. And, it reminds us that surpluses kind of 
take us off of being fiscally more responsible.
    The problem we have now is that with the growth of the--the 
aging of the population and the entitlement programs, it is so 
much harder to do than it was before. The numbers we have is 
that it will be about $5.5 trillion to get us to balance in ten 
years. And, just to put that in perspective, that is eight 
times the size of the fiscal cliff deal, and it is 65 times the 
size of the Ryan-Murray deal, which you will recall none of 
you--I should not say none of you, but we did not stick to for 
very long. So, it will entail some real policy choices to get 
us to balance or even on that track, and that is what it took 
last time. And this time, the challenges because of the growth 
of the population, the aging of the population, will be even 
more challenging.
    Mr. Blyth. Going back to what Senator Warner said, and I 
said in my presentation, you also have a revenue problem, and a 
particular one. The United States tax revenues are particularly 
susceptible to the economic cycle. What that means is in the 
late 1990s, global interest rates fell. Lots of countries did 
well in that period, not just the United States. And, because 
of that, money was cheaper and you ended up with a lot of 
bubbles, first of all in tech stock, and then after 9/11 and we 
bought them there in 2004, it went into mortgages and it went 
into the housing bubble. And, when we have those types of 
bubbles, revenues go up, but they are unsustainable revenues 
because the base rate of revenue collection is so low.
    Senator Wicker. Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator King.
    Senator King. Mr. Chairman, I have to begin with a 
hilarious anecdote, which people are going to find hard to 
believe, but I just looked it up and I was right.
    John Engler, you and I sat with Alan Greenspan in January 
of 2001, where he told us, and I remember because I happened to 
sit right next to him, about the grave danger to the country of 
zero budget deficit and the fact that the danger was that the 
Federal Government, because it was running surpluses, would 
eventually pay off all its debt and start going into the equity 
markets. I just found his testimony to the committee in 
January, January 25, 2001. So, history is a very strange deal, 
because here we are talking about the danger of deficits. At 
that time, Alan Greenspan was--he was arguing in favor of the 
first round of Bush tax cuts, saying that it was a danger to 
have surpluses and to balance the budget. Anyway--
    Mr. Engler. The danger is gone.
    Senator King. Yes, long gone.
    [Laughter.]
    Senator King. I agree with almost everything that has been 
said today, believe it or not, because I believe there is some 
commonality here. I think long-term debt and deficits are 
unsustainable and are, in fact, burdening future generations 
and the interest rate. What worries me is that we are in a 
fantasy land of interest rates right now, and if the interest 
rates go from 1.8 or two percent to a long-term average five or 
six percent, just interest on the debt will almost equal the 
entire discretionary budget.
    What worries me--and, so, I am inclined, and I think all 
politicians are inclined--it is much easier to spend than it is 
to tax. So, deficits are almost hard-wired into the system 
unless there is a discipline. Every State has the discipline of 
requiring a balanced budget. So, sort of institutionally, I am 
inclined to support a balanced budget amendment, except the 
practicality of it--there are two practicalities that make it a 
problem.
    One is that we have spending that is essentially--it is 
mandatory. That is the word. It means it is uncontrollable. 
And, that is where the rise is. One of you testified 85 percent 
of the increase in future budgets is in that area--Social 
Security, Medicare, Medicaid, and interest on the debt. That is 
where the increase is.
    Discretionary spending, which is what we talk about as the 
budget, but it is really only a third of the Federal budget, is 
essentially flat or declining as a percentage of GDP, the 
lowest in 40 years.
    Therefore, if you put a balanced budget amendment on top of 
that situation, with the mandatory rise caused mostly by health 
care and demographics, and that is all you do, you squeeze the 
shortfall down into the discretionary budget and essentially 
eliminate the Federal Government. We become a collection agent 
for Social Security, and it squeezes out all of the 
discretionary programs, whether it is defense or Head Start.
    The other piece of--and, I think of it as a vice--and there 
is another piece that needs to be discussed, has not been 
mentioned here, and that is the ``No Tax Pledge.'' If you 
combine a balanced budget amendment with the No Tax Pledge, the 
only place to go is to eliminate discretionary spending, 
because it just cannot work. The arithmetic does not work. And, 
I think of the No Tax Pledge as a kind of ratchet that only 
works in one direction. Taxes go down. They could never go back 
up under different circumstances.
    So, Mr. Chairman, that is the practical problem that I 
have. I theoretically like the idea of a balanced budget 
amendment, but if it is applied in the current situation, as we 
see it now, with the combination of the growth of health care 
expenditures and the demographic bulge that is coming, it 
cannot work, or it can work if your goal is to eliminate Head 
Start and the defense budget. So, that is the problem that I 
see now.
    We have to come to grips with this. The question is not 
whether we should balance the budget. I think we should. The 
question is how to do it and over what period of time and what 
is on the table in order to do it. You know, we can argue about 
what the right tax will be for corporations or individuals, but 
the real number we ought to be debating is what is the right 
percentage of GDP for revenues. And, if we are stuck at 17.5 
percent, then none of this is going to work unless you are 
going to eliminate, essentially, all the functions that we 
think of as essential to the operation of the Federal 
Government.
    My final point is, Dr. Blyth, I bet you never figured you 
would come from Dundee and have to listen to a guy named Angus 
talk about economics.
    [Laughter.]
    Mr. Blyth. Well, the Scots do secretly run everything, 
Senator.
    [Laughter.]
    Mr. Blyth. We just do not want them to know.
    Senator King. I am sorry you let that out of the bag.
    Mr. Chairman, thank you very much.
    Chairman Enzi. Thank you.
    Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman.
    I agree with my colleague from Maine, Senator King, in most 
respects. I differ with just two minor points. I want to get to 
my other point in just a minute, but I want to respond, because 
he has got a great point. We have another option. Let me remind 
people on both sides of the house, I think we all know that the 
fiscal irresponsibility of the last 30 years cannot continue. 
It just cannot. This is not a partisan question.
    The issue, though, is that we have got the 800-pound 
gorilla in the room that we never talk about. The last time we 
had a balanced budget in this country, we had a Democratic 
President and we had a Republican Congress. We also had 
something called a dot-com bubble and ten years of good 
interest rates, but I will not go there, either.
    I will say this. It was not our fiscal responsibility in 
Washington that caused that surplus. It was an economy that was 
growing like crazy, and I was participating in that. We have 
that opportunity again, but we are doing so many things in this 
city to thwart that growth to give us an opportunity to dig out 
of here, because he is right. The math does not work. You are 
not going to solve the future unfunded liabilities unless we 
get this economy going, and even then it is going to take 
tough, tough decisions up here.
    I would argue that the balanced budget is not the issue. I 
mean, I know that is sort of a first step. I get it. It is sort 
of the phrase of the day. I love the word ``surplus.'' We do 
not talk a lot about surplus around here, but we have got to 
have it if you are going to pay down $18 trillion. And, by the 
way, if we get to a balanced budget in ten years, we are going 
to grow the debt by $8 trillion minimally between now and 2025, 
by most estimates. So, at $25 trillion of debt, if interest 
rates, as Senator King alluded to just a minute ago, go back to 
their 30-year historic average, that is untenable. We cannot 
manage that. There is no way to pay for that. You cannot tax 
your way out of here. You cannot cut your way out of here, in 
my view.
    Yes, I think Social Security and Medicare and pension 
benefits for Federal employees all have to be amended, but not 
by current beneficiaries. The numbers have changed dramatically 
since people--since these systems were developed back in the 
1930s, most of them. Life expectancies have gotten longer. The 
financial balance here of people working versus people in 
retirement and the demographic slide that we are talking about 
here, or the growth in the retirement-age population.
    So, I just have a question for Ms. MacGuineas. I know you 
have dedicated a lot of years to this, and I have watched your 
work. I hope you will stay involved with this, because I think 
this is the quintessential challenge of our generation. Help me 
understand the long-term implications of this debt. I 
understand what the benefits are of a balanced budget, but we 
have got to get to a surplus situation so we can start paying 
down this debt to a certain level.
    And, I want to take just a second real quick. I absolutely 
believe that talking--I disagree on one thing, and this is both 
sides--I think talking about debt and the size of government as 
a percentage of GDP is an absolute fallacy. Let me give you an 
example.
    In business, you have fixed expenses. We have fixed 
expenses in the Federal Government. Just because the economy 
grows three percent over ten years does not mean the Federal 
Government needs to grow ten percent over three years. So, I 
think if we start looking at what the real needs are, what the 
missions are of each of our departments and what money we need 
to spend, we will end up developing a more realistic and more 
financially responsible long-term plan.
    I am sorry to take so much time, but I want to get to the 
question, and that is, Ms. MacGuineas, what is your position 
relative--how do you see the long-term potential, not just 
getting to a balanced budget in ten years, but past it, because 
in year 11 to year 20, Social Security quadruples, Medicare 
quadruples. I just do not--unless we have some type of serious 
conversation about the long-term implications of this 
demographic issue, I do not see how we are going to solve this 
debt crisis.
    Ms. MacGuineas. Yes, Senator. I agree with you. The key to 
helping get us out of this, in addition to the policy choices, 
is growing the economy, and that is true in the short, medium, 
and long term. And the long term, if we do not get control of 
the debt, that makes growing the economy all the more 
challenging.
    I also want to add that I agree with Ranking Member Sanders 
that the other key to this is making sure that when we grow the 
economy, that growth is shared in a way that we have not been 
seeing in our economy, and we cannot thrive as a country unless 
we have a thriving, vibrant middle class and we get rid of some 
of the poverty that has been taking--
    Senator Perdue. I agree.
    Ms. MacGuineas. --moving along. So, when I always come here 
and encourage everybody to compromise and work together on the 
budget and the fiscal situation, that is to--I think the 
economy calls for that identical kind of cooperation. That 
growth and shared growth need to be worked out together. I just 
think taking the debt as a separate issue is the wrong way to 
look at it. I think getting control of the debt is an 
absolutely central component of growing the economy and 
ensuring that it grows in a way that works for all of us.
    Senator Perdue. Thank you, Mr. Chairman. Thank you.
    Chairman Enzi. Thank you.
    I really appreciate the comments by the witnesses, the 
questions by the members of the committee. There is still a 
chance for people to submit questions, usually of the more 
technical nature that would just bore any audience out there, 
but that are essential to making the kinds of decisions that we 
need to make. So, questions for the record are due no later 
than 6:00 p.m. today, and hopefully, the witnesses will respond 
within seven days.
    A word of caution to all members of the committee. Chained 
CPI is a nasty word across America. Now, if you ask seniors 
what chained CPI is, they have no idea. They just know it is 
bad. So, I really like the way that it was phrased here, that 
we need a realistic basket of purchases to come up with that 
Consumer Price Index or cost-of-living add-on or whatever. So, 
think about that. Share any other terminology that we can use 
for that that will not generate the kind of instant hate that 
we have with chained CPI, and the reason the President left it 
out of his last budget. I will be around if somebody wants to 
ask questions about that afterwards.
    But, with no further business to come before the committee, 
we stand adjourned.
    [Whereupon, at 12:10 p.m., the committee was adjourned.]

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