secondly wemc came in with a companion proposals and no amount of outside support should be the sole basis for a recusal. when you look at the 2007-2008 cycle round the country there were the nation's top spender in state supreme court race is just on spending in wisconsin. after a day of very contentious debate last fall the wisconsin court by a 4-3 margin supported verbatim proposals proposed to them. they also rejected proposals for a broader study of the issue that would actually have gone beyond each of the proposals they had before them and instead look at the issue more holistic play. ..

>> he made references to the metaphor progreso and that there at good guys and bad guys. justice bradley from wisconsin as well in hearing last fall she took the step of reading her dissent allowed, and another interjected, do you really want to do this? do you want to do this as a justice of the court. she responded she would not be silenced and read the dissent. they refer to this as the most important vote i cast in 12

years. she turned to the other members of the court's and said don't do this. this is even for judicial wrangling in oral arguments. it was very personal. i would just add as a footnote, we have seen there are some judges who are angry about the fact most americans do think can't pay my is affecting decisions and they believe reform advocates has had distressed in the court. i would note that at the exact same levels before any of us trying to raise the alarm about this. number two i would say that these debates are increasingly ideological which i think could be an emerging tragedy. if you look at the two states together, 13 out of 14 justices voted along party lines. the democrats have traditionally at least so far based on these, according to the recusal that are stronger, a moderate

republican cited against her cohorts in the court. there's been a lot of personal wrangling in that court. number three, each side does a to invoke very high constitutional principles we have a chief justice of michigan sanctum the constitutional rights of judges don't overbalance the right of the people to get a fair trial. in dissent, justice corrigan in michigan said this is a huge that to our liberties as america's that justice young said a great a 21st century star chamber. finally, as one was kind of alluding to, it is going to be always for political matter very difficult for judges to change the status quo. and other states, i do believe what's most telling is how quiet things are. i think that's mostly because most states have not yet really significantly responded to caperton. others have done so rather sort of quickly and quietly. and that's carte noted, it was a really high on the agenda.

the west virginia reform committee came together and that was the state where the caperton case came from. i do think it is quiet out there and i would just add in closing if courts don't want to take on certain proposals, then entry legislators can do so. no judge like this. state legislators do regular set of the rules involving courts. and i'll just close by noting that congress here in washington, d.c., began writing recusal rules for the federal courts back in 7092. thank you. >> thank you, bert. and five, we turn to stanford law school's who is one of the founders of the, what do we call, the constitutional litigation clinic at stanford. she's going to talk about what she sees as the structural problems that the supreme court united states supreme court has created for the state courts. >> first of all, thank you for

having me back again. this has been a long haul. i'm thinking about these issues, i would like te able to say from the last big on the panel, something positive and optimistic. but i'm actually pessimistic that the reason i'm pessimistic is i think that the focus on the money itself is misplaced, because this problem is much bigger than the money. the problem is bigger than the money because money is only the fuel of politics. it's not politics itself. and the problems that, in judicial elections come from the very nature of the elections, and not from the money directly. so while the courts, opinion and caperton, focused on one's water to spend who already had a case pending in the courts at the time they start spending the money, he could see his case is going to get to the west virginia supreme court.

most of the money that's been in judicial elections is closely tied to one single case. rather, it is spent in order to influence voters. and the voters are being influenced not by arguments over the narrow question that lead to the people are spending the money to spend it, but by other issues. and so what worries me is that we are losing sight of the real problem here. so when the supreme court in caperton talks about how gratitude for a pass financial contribution can pose a risk for actual isr prejudgment, then what do we make of the much more direct effect that comes from seer of electoral retaliation itself? political calculation can insulate judges in a wide range of cases. and might influence them any less visible but more pernicious way. so i just want to say a little bit about that problem. is a problem that, if you think about it, stems not so much from

caperton itself, but goes back as far as the supreme court's decision in chisholm against roemer, and and republican party against white. because the supreme court does not agree on what exactly is the judicial elections are supposed to accomplish. that is, our judges supposed to be responsive in some broadway to the electorate? or are they supposed to ignore entirely the electoral decorations? so what worries me, is that the problems are far deeper than a couple of people spending outlandish sums of money on a couple of races. even if we could drive the extraordinary amounts of money out of the judicial election process, and i think as we will see, citizens united makes that much harder to do and he decries a lot of that money into independent expenditures which themselves have a much more perverse effect on elections.

because unlike candidates, where they can also has to give you some reason to vote for him, or for her, these independent expenditures are mostly designed as negative campaign expenditures. and they're mostly designed to do flecked attention away from the issue that most galvanizes the contributor towards the hot button issues that affect voters. so what we see is a huge amount of literature now coming out that suggest that in the years before they come up for election as election approaches, judges decisions about sentencings change. so the savage punishment system we have in the united states is exacerbated by judges hear something organized. we see also a tremendous danger that judges will vote in partisan ways, something that has become much more visible as bert suggest and the roles of recusal themselves. and there's nothing in the supreme court decision that gave

any handle on how judges are supposed to think about this problem, the problem of their fear that they will not be reelected because the issue unpopular decisions. so on i'm pessimistic because i don't think this is a problem that the money itself. i think it's about what the money is spent on and what the money is spent on to something that is quite frankly inherent in holding partisan elections. >> so let me ask the elephant in the room question, again. is there anyway to elect -- is there anyway to have the judicial system, at least at the highest level, that elected, that is, relatively immune from these kind of political influences? or are we required to have or stuck with or however you want to put it, a some sort of an

appointed system, a nonelected system? why do we just go down the line. bert? >> well, it's getting harder to insulate those from these various pressures, and therefore, i think one of the answers of all the news including this past week, will be and should be more serious looks at a point of retention election systems. and on the other hand, given that that's not a simple thing in any state, it is also true that the things you can do to insulate competitive elections are still alive and well. they may have to be adapted. it's the job to try to turn bad news into good news, but there is work to be done here, and public financing of judicial races, recusal as we've been talking about as low, and disclosure are probably the three most prominent things. i lot of these get to in the end i think the culture of judges in the long run as well. and i would also sort of urge, think not only about what it means for the year, the next

year and the next year, it's all important but recusal in particular, crystallizes this is also a battle for this whole judiciary 20 and 30 years ago, how judges even think in their own minds where it comes one of these caperton decisions, or gets into the machinery that all laws and rules get is really lost about. given that we trust any and every judge to make probably far more decisions in the mind than the ones the right outcome and the more and more judges come up to the system, 70 understand there's great public concern about the way they approach these daily decisions could be different than perhaps the previous generation. i think that's the definition as well. >> carte, you allude to north carolina system and i confess i can't remember exactly how that works. >> i hope you're not going to ask you the specifics. spirit but they're now our challenge is brought by the same people, same groups, that have challenged, have challenged,

brought challenges to limits on independent expenditures. can have a system of public financing that, for example, there are challenges that have been successful, at least in arizona in the federal court, against matching funds, public financing system with matching funds. could you have a public financing system -- is this a reasonable thing to expect us to see in a significant number of states because i don't think it's a magic fix by any means. i think is a good first that. what it eliminates our direct contributions to candidates. the polls which is just that the public thinks that party litigants who contribute directly to judicial campaigns are treated accordingly. what it does not address, of

course, i want these two most recent decisions based on. i would say that the west virginia legislature has spent the past four years since 2004, making the effort to control expenditures by these 527 organizations. and require disclosure, and have run into some hurdles in the federal district in west virginia. the decision last week will make that even more difficult. >> pam, is the pointing the only answer? >> well, you can say it's an answer but it's an answer to a question though is going to let you ask. that is, the public has two self-contradictory thoughts. one is that they think judges are bought by money. and that causes them to lose confidence in the system. in the other they want to elect their judges. and as long as those, you know,

as long as they're able to hold those two contradictory is, ideas in their heads simultaneously, you will not move towards an appointed system. or at least you only move towards it very incrementally. i think here, to go back to something that bert said, we are for the very, very long haul. this ties in to justice o'connor, one of your other major concerns of the civic education. that is, unless and until people are prepared to recognize that judges will make unpopular decisions they can still be excellent judges, they will retaliate against judges at the polls who decide cases in ways they don't like. and as long as that present, there is a serious problem with judicial elections. that being said, i think the kind of intermediate move toward something more like retention election so you don't have elections where someone can help not only to knock out a judge he

or she doesn't like, but to actually replace him with a handpicked or perceived to be hand-picked candidate, would at least be a move that perhaps you could sell to the public that would smooth off some of the rough edges. >> thank you. may i can get very briefly? we are all here. i want to tangent about someone who isn't here today. we're all here, thanks to justice o'connor's retiring retirement. this is the first event you've brought us to, at which you have been sitting next to david souter. and with all respect to the wonderful successor, we have, what a mess, what a loss. if the only question is, are the only answer rather, to use your words, is going to appointment, then to take a word from mr. goodwin and his first words,

was feasible. and it ain't feasible. if you go back to 1940, and come down from it, there's been quite a shift in the success rate for getting anywhere in the way of ending contestable election. one of the very best books about financial crisis points out that academics may know something about the past, but they are lousy guys of the future. and maybe we're in a new period. because of a convergence of a number of changes. maybe now there will be moves to change the selection system, but unless we're in a new period, the rate at which we've been going, means we have to come up with answers that are going to reduce the problems in the judicial elections. mary maclean's national center for state courts has been just outstanding and helping the

spread of campaign conduct committees, which is a very easy, very valuable step. for example, in ohio when the state bar initiate -- >> i'm going to cut you off. i need to move on and ask other questions. route as i am. i have a question for whoever wants to take it. as bert said, at least in the last few years, as regards to judicial election, and as we've seen in both wisconsin and in michigan, democrats support reform, and republicans generally oppose it. my question really is, why? why should that be? as bert also said, people obviously feel very passionately about this, but is this because there has been a huge influx of money from the chamber of

commerce and the manufacturers in the state elections? why is that? it seems nonsensical to me to think that only democrats would support reform. any takers? >> yes. [laughter] >> former chief justice of texas, last time i looked was a republican. tom phillips. and he led not only reform and judicial campaign financing, but he made an effort, big effort, at selection change. the most recent move -- >> and he got nowhere to. >> and most recently that did get somewhere, was in miseries green county. which was the largest known their jurisdiction and this day, the home of a fellow named john ashcroft, who was the leading over against the change. and they just in 2008 adopted merit.

i don't think green county is deep democratic territory. i don't know how -- >> so there are places -- >> i don't think the label is -- >> i would just add i don't think the label is there. i brought it up to the show was happening and ritual but it's true, some leaders but the level of voters broad swath of both parties are very concerned. and if they're connected to on these very low sale issues that we don't hear about, they do often have very good instincts. as to why the leadership of the parties is maybe to some extent, my best sort of guess would be yes maybe, who is winning, but it also connects back to what's been going on in the national political scene. and i think the next panel in particular may be equipped to take on.

that might have allowed them to take over. >> i know it's human nature for people to think that they are not biased. speaking as a reporter gets accused from time to time bias one way or the other, i know that other people don't always believe that. and certainly at the united states supreme court level, justices decide for themselves on recusal, and some have different standards than others. but when you talk about the rooney rule, it does seem that most americans have somebody review what they do. even the ceo of companies has to report to abort. i have an editor, sometimes two or three. you have a dean. you have your own law firm so you probably have to report to nobody. bert has a board. so the idea that you make a

decision as important as a recusal rule, and that there is no requirement in most places, even for an explanation, much less two reviewed, it sort of i think -- that should be an easy thing to pass one would think that at least at the state legislative level. as a requirement. no? >> yes. >> i think it's more complicated than that, in the following sense. you get a sense of this about the dynamics on courts. it's not clear to me over all that you have more refusals if the recusal is passed on by other judges than if not. because to call one of your colleagues someone who needs to be re- queues, may on a court that is collegial, be harder to do than to have the person himself or herself make the recusal. that is, you know, this goes back to the point about what the

culture of judges is. rather than just what the rules are. because the rules are not going to have a major effect. what's going to have a major effect is changing the culture. and the problem here is because, in this trench is perhaps a bit on the next panel, because of the supreme court's treatment on independent expenditures and the like, it's not even something where you can say, i should recuse -- what exactly was just as benjamin supposed to say? i should recuse myself because of someone who didn't give me any money, but spent a lot of money. is in front of the core. what if he had been defeated? should his opponent, the chief justice asked these questions. chief justice benjamin had been defeated, should his opponent have recuse himself because after all, having someone spend $3 million against it is just as likely to have an effect psychologic as somebody spent $3 million in favor of you. perhaps even more. so i think simply having several

people pass on it doesn't necessarily solve the problem. >> anybody else? >> i do believe the issue of culture is very instructive here. indeed, to the degree that this could become less personal than it would become less offensive, less offensive for those colleagues downhaul to say maybe this would be a good one to step aside. all of us would have board. i've seen situations where board members step aside from the issue. life moved on. as usual, charlie j. from indiana who is not here today puts this better than most of us. the way he put his, the overriding point is not that judge is disqualified it presumptively biased against the movement but that a system devoted to a partial justice both an appearance and in fact, clinton's are entitled to a process that is sufficient. i think the more the conversation can go back to due process, that's what really i think has gotten sort of lost in some of the debate the fact that we're bouncing a number of factors.

but in in the constitution guarantees due process, and that's what we're trying to answer to. >> i realized that the supreme court level, state supreme court level, this is an issue that has to be dealt with by i suppose but other than his other court. but by the lower courts it doesn't. there are places i think where review of a recusal motion is by a judge not in the same district. and i don't know why that would be more perfectly, perfectly well. but then i, you know, i recommend to everybody that i know always what i call the "new york times" or "washington post" will, which is, if you would like to see on the front page, it would be embarrassing to you, then don't do it. if it could be misinterpreted, then don't do it. those of us who popoff every

week on television understands this principle a cutely, having to thought once or twice in our lives. what our judicial -- i'm going to and with this question that pam raise. what our judicial elections supposed to accomplish? what is the goal of a judicial election, properly run, properly -- if you just assume for a moment that you didn't have what each of you might consider to be improper forces at work. what is the purpose of a judicial election? what does it do for the public? what does it do for the judicial system? there's a reason that, i don't

know, 80 some odd percent of the judges in this country are elected, and that people resist very mightily getting rid of judicial elections. so what is it they want from a properly run judicial election system? do you want to start? >> well, i think with any method of judicial selection, what you want are a way to find qualified, competent and impartial jurors. the question then becomes what method best serves that in. and i think as professor points out, there is inevitable tension and elected judges because as the public has a level of distrust over campaign contributors and big expenditures on behalf of judicial candidates, at the same time, resist mightily is almost an understatement and west virginia. just in recent history, the governor attempted to remove

elections for certain constitutional officers, agricultural commissioner. the state treasury auditor, and those referendums were defeated 90-10. so the notion that the people would go to the polls and vote to take away their right to vote to elect judges is at least a virginia, today, extremely far-fetched. >> there's a legendary, never attributed statement by some chief justice long ago that there's no judicial selection system that's worth a damn. they've all got problems. the big thing we've got to keep our eye on is whether the system makes it more likely or less likely that good people, the kind of people you want to have on the bench, will seek to go on the bench and will seek to stay there. and if the campaigns are really rough, i think that generally hurts the pool that you're

likely to get. there are people you would like to have on the bench were not going to go through really bad campaigns. so whether we change the system or not, we've got to change the way elections operate, if they continue to operate. >> bert? >> well, for the vast majority of people who have perhaps at least a residual or quick and sensual sense that maybe they prefer to elect judges, they nonetheless tend to vote in these elections. people go and vote for other offices and stop for the judges. this gets to one of the central arguments that those who believe that contested judicial elections are the only way to go make is this is accountability. that's what they say it offers. it does to some measure in terms of how that's really working, i think that's a real question and i think that is changing, because whether or not there was ever a good old day, the fact of the matter is what's happening right now is if you're in a

state with a contested election, you're going to see a steady diet of ads as has been mentioned that don't have anything to do with people underwriting the ads. they're going to go for the jugular on one or two crime cases that may or may not have been deeply important to a judges docket and make that the definition of the judge. and whether we want to turn that into the way we select judges i think is both the question generally but i do believe this issue of money could provide us with a different sense of what quote unquote the public wants perhaps over time that as this gets worse and worse. there may be more willingness on the part of people to try a different system. . .

>> if the case is made that the system is problematic and there is another system that provides just as much accountability because a retention election has a vote and it is a more informed vote you start to appeal to the accountability that people want. way around the fact that no matter what you want to have to talk about accountability, otherwise you will not get out of it. >> well, pat, you raised the question. you get to answer it. >> we've looked back to wide during the deck jacksonian era e move from appointed to elected

judiciary's. we get a little part of the answer. the reason we did it, tragic and abroad as it stands today, as people thought this was a way of getting special interest and big money out of judges. that that governors were appointing judges, the old and too large industry. so we could harness that same idea again, the way you want to elect judges is one in which special interests don't plan to major role in the selection process. this is back to the point, perhaps you can get some traction on incremental reforms you know, no system is perfect. the federal judiciary has become just as politicized in the appointment process in some ways on big and theological come on big ideological spectrum as they have become a more targeted ways. so i think being a realistic about the changes that can be made and talking about why it is the special interest will play less of april and retention all

efforts than directly contested partisan elections might be about as far as you can go. the reason we have judicial elections is because the old system was about to be too beholden to special interests and large amounts of money. >> what goes around comes around. well, i think i have lived within my times guidelines and even given the panel a couple of extra minutes, which they deserve because there is plenty to talk about. have want to thank, before i leave the stage, meryl chertoff, who does all the hard work setting this up and is the besn control freak. there is such a thing as could good control freak ism. the old saying among women anyway is if you want to get a

job done get a woman to do it. well, that is why this conference worked so well every year. started by justice o'connor. executed, to some extent, by meryl chertoff. i want to thank them very much for all of there hard work. thank you. [applauding] [inaudible conversations] >> tonight president obama delivers his first hit of the union address to congress line at his vision for the future of the country and is planted deal with issues like unemployment, health care, and the wars in iraq the state of the union address tonight beginning at 8:00 p.m.

eastern on c-span. you can ive. >> and now former supreme court justice sandra day o'connor. her remarks are part of the conference looking at the impact of recent supreme court rulings on the selection process for judges at the state level. georgetown university and the aspen institute hosted this event. it is a half-hour. >> okay. the folks in the back to our standing plan to take seats to take their seats. we can get started again. i am pleased that we have been joined by some of our georgetown law school students. i'm meryl chertoff, the co-director. visiting professor of law. i would be remiss if i that the opportunity go to say a few words about some of our programs that are coming up.

november 2010, the third georgetown law has been institute symposium will take place and it will treat one of justice o'connor's other interest. the november event is going to take place at the roosevelt house of hunter college in new york city and will be devoted to the subject of civic education which justice o'connor has done so much on in her years since leaving the sprint court. i also want to mention the aspen institute each summer conduct a seminar in aspen, colorado. the justice society seminar, in which we read classic works of political philosophy and jurisprudence. the seminar this year will take place july 13-19. if you are interested in further information will be found on the aspen institute web site. this year the moderators for the excellent program will be barbara rothstein, the director

of the federal judicial center, and richard burthough. the same kind of thoughtful programming, i hope we are providing today, will be provided in a more expansive we one format going back to some first principles. i urge you to take to give some consideration to taking the course this year or another year. i now have the very distinct pleasure to introduce our keynote speaker. most of us in this room are familiar with at least some of the details of the life of sandra day o'connor. raised on the lazy b branch, a stanford law school graduates whose initial job offer was legal secretary at the firm she applied to. justice o'connor rose to prominence first as a prosecutor and then as a member of the arizona state legislature and then as a state judge. in historic moment when president ronald reagan selected

her to join the supreme court. justice o'connor while remaining faithful. heard opinions display a keen understanding of the importance of the separation of powers and the important role of our nation's played in the state which is the workshop of democracy. upon her retirement justice o'connor turned back to that great interest in the state. she has become an outspoken advocate for judicial independence with the particular concern about the corrosive effects of money on state judicial races. she has coped spoken out in favor of came changing adjustmes and in particular in favor of merit based election in which a roster of judicial aspirants are submitted to the governor who makes his or her pick. after it turned the governors present them to the people in an

election. it is a system, if connected transparently, is able to assure high quality judges and ensure some element of accountability on the part of the judiciary. it is a system that justice o'connor helped shepherd through the arizona state legislature when she was in that body, and it has served the state of arizona well. at a time when a harsh light has been cast on the will of all kinds of political races justice o'connor's more relevant than ever. it is often said that she was the swing vote, but swing implies an indecisiveness for lack of commitment. justice o'connor is a thing about that. i think that her colleagues would say, instead, that as a jurist and a human being justice o'connor was the heart of the supreme court. she is held in the highest esteem in this nation and around the world, and we are privileged to have her with us today.

ladies and gentlemen, the honorable sandra day o'connor. [applauding] [applauding] >> don't stand up, and that was too kind an introduction. we are just to to learn something today. i am right with you learning this morning about what has been going on here at the supreme court. gosh, i step away for a couple of years, and there is no telling what is going to happen. [laughter] thank you, meryl, and thank you, georgetown law school and the dean and aspen institute for putting together a symposium in which i think all of us have a real interest today. you have heard some good panels on caperton and citizens united.

you are the experts now. there is not much that i can or would try add to the explanation of these cases. i want to take a step back and think about how these two cases threat judicial independence. when our judiciary becomes intertwined, as it certainly is coming in the political process. i think these two cases should be a warning to states that still choose their judges by popular election rather than by some modified process, some of which we called merit selection. these states need to at least think about whether changes are needed in the system or whether failing that the damage to our

judiciary and to our democratic system is going to become substantially worse. the independence of our federal judges was critical to our founding fathers. now, americans love to look back at the founding fathers. we don't have any mother's we look back to. [laughter] we look back to those fathers. we think they did an awfully good job in designing a system. two of the main grievances that our colonists' listed against king george in the declaration of independence involved in the absence of judicial independence in this country. the declaration charged that the king had obstructed the administration of justice by refusing his assent to laws for establishing judiciary powers. he had made judges dependent on his will alone for the tenure of their offices and the amount and

payment of their selling. this safeguard against the abuses, the founders and sure that our constitution provides federal judges, anyway, with tenure during good behavior and a salary which can't be reduced during their office. at the constitutional convention there was one delegate who proposed that federal judges should be removable by a more expedient means than impeachment. he was shot down by the other delegates. one delegate described the proposal as weakening too much of the independence of the judges. another said it was fundamentally wrong to subject judges to so arbitrary and authority. now, i mentioned the history just so we don't forget in our debate bit about how we select judges. the founders of our nation saw

fit to make federal judges independent of the other two branches, the two political branches, so that they would not be beholden to those political branches in there subsequent interpretation as judges of the laws and the rights of the citizens. the founders realized there has to be some place where being right is more important than being popular or powerful, and where fairness trump's strength. and in our country that place is supposed to be the courtroom. now, in 1968 the year after the supreme court struck down anti miscegenation laws, an excuse me, a gallup poll showed that only 17 percent of white respondents in the region

approved of interracial marriage. that is a very small number. it is hard to imagine that judges who could be easily defeated in elections are removed her political devices would have handed down an opinion like that. i don't think they would have. i am not sure what the gallup polls would have shown in the seven areas of this country about integration of our schools racially before the supreme court handed down brown v. board of education, but i suspect the citizens in large chunks of the country were equally hostile to that idea as well. and these examples show that in order to dispense the law without prejudice judges have to be assured they are not going to be subject to political retaliation for there judicial acts. many states in the united states

today don't apparently agree with this concept or apparently with the founders of the constitution on that idea. more than 80 percent, if you look across the country, at all state and local judges, i guess that includes justices of the peace and the whole crew, 80 percent of them have to win a political election to gain the office or to stay there. i suppose it is not all that surprising because the polls today also show that a majority of americans say they want to let ect their judges. you ask them, they say yes. but the point is public support for judicial alexian's is a system of the weakening of the judicial independence in this country. it is not a reason for it to. now, the actors and states that

elect judges, we know, also, are more cynical about the courts. they are more likely to believe that judges legislate from the bench. they are less likely to believe that judges are fair and impartial. it is this distrust of the judiciary that makes investors more inclined to elect their judges rather than to look at another system of appointment. and if you don't believe as a citizen, a voter, the judges can be fair and impartial you might want to select your judges by a process you think will be most likely to result in a judge who is partial to you and your reviews and can be unfair. so if you think judges legislate from the bench and you are willing to invest a lot of money to try to get the legislation that you want, and if you are

elected and likely to appear before an elected judge it makes sense to invest in that judges' political campaign. so that is where we are. and given the stakes involved it is surprising that a case like caperton did not come up the sooner. we all know what the issue was that caperton had to decide. you can understand the reluctance of the court to get into it because you don't want to subject the federal courts to thousands and thousands of recusal motion all cases, and that was the risk if the court based it on that. so the legal issue was tough. today's panel on caperton did a good job with discussing the case. one thing is certain. the events in that case just did not look good, did they?

and it is a sad environment when that situation comes up as a constitutional policy because it is so clearly bad policy for a state to allow that kind of thing to happen. in the state can possibly benefit from having that much money injected into a judicial campaign. the appearance of bias is high, and it destroys the credibility of any judgment favoring the political donor. well, maybe the supreme court's decision -- thank you. yes, thank you. will stop a situation as egregious as caperton from happening again. i don't know. as you heard the governor appointed in an independent commission to improve west virginia is a judicial system. i participated in an honorary capacity in that and was honored

to do so. but tweaking campaign finance rules or refusal standards of while helpful just treat the symptoms of mixing politics with judiciary. it does nothing to address the underlying distrust that judicial campaigns in cases like caperton breed. so whenever the solutions we have not seen a major change in west virginia, and perhaps we won't see such changes elsewhere either. no amount of election or refusal reform is going to remove remove politics inherent in partisan judicial election because they're specifically designed to infuse politics into the law. elections are intended to make

our courts and responsive to electoral politics. that is the flaw in the concept. if judges are subject to regular and competitive elections they can't help but being aware that if the public is unsatisfied with the outcome in a particular case, often some criminal case, as you can imagine, it can hurt their reelection prospects. it is like, as some have said, trying to ignore the alligator in the bathtub. now, it could hurt the judicial elections car just difficult to justify in a constitutional democracy in which even the majority is bound by the laws restraint. so if our understanding for hope is that a judge's constituency is the law, not the electorate,

then it is very hard to make that adjustment. and i think that that to judicial independence is getting worse. more and more money is flowing into judicial campaigns. you have heard some of that today. in 1980 texas was the first state where the cost of the judicial race exceeded $1 million. that was considered a huge amount, but today it is pretty pedestrian. during the past election cycle more than 5 million was spent on the race for a single seat on the supreme court of alabama. we have someone here today from that state. five years ago there was a race marred the illinois supreme court that cost just over $9 million. after that race in illinois justice lloyd wondered aloud how people could have faith in the system when such obscene amounts of money are used to influence

the outcome of judicial elections. and he won the election. you can only imagine what the losing candidates said. [laughter] probably could not repeat it here. well, these fundings races looks like there going to get worse before it gets better. there is no question that the current decision, which i joined back 2002 in the republican party in minnesota v. white house has exacerbated the campaign spending spree. as you know there were gains of judicial ethics in many states allowing candidates and requiring them to refuse to answer questionnaires concerning how they would rule on certain policies. in the white the court held that under the first amendment states with judicial elections cannot permit judicial candidates from announcing their views, if they choose to do so.

well, in a concurrence in that unfortunate case i pointed out the states with the judicial alexians are just inviting problems like that, and maybe they ought to consider a different system. a legally correct constitutional decision can have some consequences that aren't so welcome. states repealed their judicial campaign restrictions for fear they might violate white. that, in turn, emboldens interest groups to increase spending and use questionnaires to pressure judicial candidates in to publicly taking positions on controversial issues. the interest groups can then put their money behind candidates his legal opinions have further the particular political agenda that the donor wanted to pursue.

this rise in judicial campaign makes last week's decision and citizens united a problem, an increasing problem for maintaining an independent judiciary. i guess the legal issues are somewhat in holdings. i was glad we had some experts here who had done the briefing and could tell us in a very articulate fashion some of the consequences. ..

>> perhaps some of those laws are insecure or invalid as a result of last week's decision. i think today we can anticipate that labor unions and trial lawyers, for instance, might have the financial means to win one particular state judicial election and maybe tobacco firms and energy companies have enough to win the next one, and if both sides unleash their campaign spending monies without restrictions, then i think

mutually assured destruction is probably the most likely outcome. increasingly expensive and negative campaigns for judicial office erode both the impartiality of a judiciary and the public's perception of that. the long-term business interests of campaign donors may suffer despite the supreme court's decision, and it probably is going to result as some have suggested in substantially increased disclose can your rules. well, as in game theorist will tell you, relying on parties to voluntarily restrict their campaign contributions is risky. and in an arms race the incentive to deviate and be the only big spender is too great. and it seems to me that the best

way to stop the damage done by judicial elections is probably to go to a somewhat different system and have states that haven't done so yet at least take a look at a so-called merit selection scheme. there are problems with any scheme that you might ce devise -- devise for selecting judges, and merit selection schemes have their own problems. indeed, missouri may modify or eliminate the system in missouri. my home state of arizona with my help when i was a legislator did go to a merit selection system back in the '70s, and we've had to make a number of modifications to that system in the intervening years. but i used to practice law in my

home state of arizona in front of elected trial court judges, and we had some that were truly an embarrassment to this state. and i've been there long enough and observed the consequences long enough in my home state to tell you that going to the merit selection scheme made an incredible difference in the quality of the judges in that state. now, it involves setting up some kind of a committee, a formal committee, to give advice to the governor on appointments. now, i think west virginia is tinkering with that, and that's probably a good step. in arizona's case initially we had quite a few lawyers on the commission. today we have very few lawyers on it. we've gone to a predominantly citizens commission, but the nonlawyer members are very well qualified, and they can express themselves well, and it works

okay. but at least we can say to the public, this is not dominated by lawyers. the other thing that's happened is that arizona has opened all of their meetings of those advisory commissions to the public. and they ask when there's a vacancy in a judicial office for people who are interested in being considered to file an application and include their resumé. all of those are open to the public. and if you have all the data open and the meetings open to the public and a predominance of lay people on the commission, there's not a lot for the public to complain about in that system. and, indeed, it has produced some excellent judges. so i think there's no reason to think that states around the nation that still elect their judges shouldn't take a look at

what can be done if, if they did so. i think three states today may, may ask voters to take a look at such a system. one is nevada, one is ohio, and one is minnesota. now, i don't know if, indeed, all three will proceed. it looks like nevada's is already on the ballot, so we can expect that in that state. and maybe those states can serve as the vanguard for re-examines of elections -- re-examination of elections more carefully. as the political ramifications of our problems can only be remedied through systemic change. now, i hope the attention given in this conference and in other venues around the country to

caperton and to citizens united will speed the movement for re-examination in many states about how we select our judges. caperton showed america how judicial campaign contributions can poison the system, and in invalidating some of the existing checks on campaign spending, the majority in citizens united have signaled that the problem of campaign contributions in judicial elections might get considerably worse and quite soon. so i think the time is now for the interest groups who have opposed merit selection for quite a while to do a little soul searching and see if we shouldn't re-examine it in some areas and give it a try and see what we can come up with. i think the opportunity to re-examine is now, and you here

today are among the people who can best restore confidence in our judiciary. many americans don't yet recognize the importance of an impartial, fair, qualified judiciary, and they don't realize the threats to it imposed by judicial elections. and so the solution is easy, we have to tell people. we have to talk to them about this. we have to educate them. and by we, i mean all of us. everyone in this audience, not just me. and as lawyers and other public figures and students you're among the leaders in your communities. you really are. people will listen to you about the proper role of the judiciary as long as you speak out clearly and firmly and use the channels that the listeners use.

your voices need to be heard. so regardless of how we select our judges, i think maybe all of us can agree that an independent judiciary is critical to all our citizens. we really need that. we need that as david souter put it, one safe place. and that one safe place historically has been our courtrooms. now, let's not sacrifice that. and you have to help us and speak out. and we can still have one safe place in our system. for an independent, qualified judiciary. thanks so much for being here today, and i hope you will maintain your interest in this subject and will be spokespeople in the future for what we need to do. thank you. [applause]

>> thank you very much, justice o'connor. we're now going to adjourn. lunch will be in 12 where the continuation of the program will be. we invite you all to join us for lunch and thank you all for being here this morning. [inaudible conversations] >> the head of the congressional budget office, douglas elmendorf, is on capitol hill this morning to testify on the 2010 budget and economic outlook. this meeting of the house budget committee is scheduled to last about three hours, live coverage on c-span2. [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> i'll call the hearing to order.

we meet today to consider and to receive testimony from directer elmendorf of the congressional budget office on the latest update on the economy and the budget. the number in the cbo report, our update released yesterday, is daunting to say the least. but to fully comprehend the implications of those numbers, the dire bottom line to the budget, it's important to remain, to remember the context from which they emerge. a year ago the economy was in freefall. job loss was 714,000 per month in the month of january alone. retirement savings accounts had plunged by two trillion in the first quarter of 2009. the record budget surpluses had been converted to record deficits for as far as the eye could see. as president obama and this congress began 2009, this was

the context, this was the economic and fiscal legacy of the previous administration. too many americans today still feel the pain of the recession. we received news today from the testimony from dr. elmendorf that the economy, we believe, is out of recession. but nevertheless, there is much work to be done to recover to full capacity. cbo's report today confirmed that the actions we have taken over the last year have pulled the economy back from the brink. cbo's report confirms that gdp will grow in 2010 and beyond and that the recovery act has had a positive effect. the report also confirms that the recession has taken its toll on the budget's bottom line, that focus on rescuing the economy will show up on the bottom line. economists agree it is counterproductive to try to balance the budget in a midst of a deep and serious recession.

rebuilding the economy provides a critical foundation for deficit reduction. nevertheless, the cyclical deficits we're now facing should not and cannot persist. the short-term deficits associated with this recession should not be confused with the long-term fiscal challenges we were facing even before the recession began because the long-term -- remains unsustainable, we must turn our focus to make sure the economy recovers as well. reinstatement of the statutory pay code model, paygo model that helped us turn record deficits to surpluses in the 1990s. i was pleased to see the obama administration's recent announcement to be sent up next tuesday characterized by restraint in discretionary spending. clearly on both the economy and budget additional steps are

needed. yesterday's report gives us data with which we can better understand the challenges which we face. our sole witness today is doug elmendorf, and i want to thank him and the entire staff at cbo for all of the work that they do for us on an ongoing basis. by us, i mean democrats and republicans. you serve in a neutral, nonpartisan way, and you do it well. the congress truly could not function without you. i'd also like to invite all members to join me in congratulating the witness on an achievement of an anniversary this week, his one-year term as cbo directer. let me yield to mr. ryan for his opening statement. >> thank you, chairman. i also want to the welcome dr. elmendorf. you're a democratic appointee, but i gotta tell you, i can't tell what party you come from. you've been doing a very good job of being be nonpie

whereased, objective, and that is the role of cbo directer, and you're doing that very, very well. so i just simply want to say to you, you take a lot of flak over there at cbo, there's lots of demands of your time, i don't think i've ever seen more demand, and you're handling it very, very well. i know the people over there are working, you know, long hours. we want you all to know that we, we respect that, we appreciate it, and we think you're handling yourself in a very professional manner. might have some suggestions on how to model things differently -- [laughter] but i just simply want to say i think you're doing a fantastic job, and we appreciate it. let me turn to our fiscal crisis, now, if i might. when president obama took office, america was in the midst of a crisis that shook our financial situation to its core and eclipsed access to credit markets. the administration exploited this crisis to pursue a relentless increase in federal spending in size and reach of the government.

heading in this direction has made manners much worse for our fiscal future. last year congress enacted a trillion dollar surplus, stimulus, excuse me. last year congress enacted a trillion dollar stimulus sold with the promise that it would hold unemployment below 8%, and yet the unemployment rate continues to rise and now stands at the 25-year high of 10%. we learned that much of this stimulus which was neither targeted, timely, nor temporary, in fact, it was just a down payment on government programs. let's turn over to t.a.r.p.. t.a.r.p. was advertised as an emergency plan to heal financial markets, it has now become washington's latest slush fund. cbo's budget and economic outlook paints a startling picture of both the year we have left behind and the year we face and the time over the next decade. in 2009 congress delivered a $1.4 trillion deficit, the largest in our nation's history, and no doubt because of the recession that was made much worse. estimates for the current year,

also, are very staggering, $1.35 trillion deficit. and it will, our debt will reach over 60% of gdp this year. under the current policies of our government, by 2020 cbo projects that our debt will soar to nearly 100% of gross domestic product. adding to that, yearly interest paid to finance this surge in spending will more than triple in nominal terms from $207 be in 2010 to $723 billion in 2020. more troubling than another over $1 trillion deficit is that there is more to come. cbo figures don't include what is likely to come down the pipeline from requests for the need of war funding to health care entitlement to all the other things that are going to happen. i'm encouraged by the news yesterday that the administration is considering a three-year freeze on certain discretionary spending programs. we need to see the details, and this freeze needs to be enforced

with a statutory cap if we're going going to hold -- actually going to hold the line on spending. it is time to get serious about wednesdaying washington's in-- ending washington's insable appetite for the spending. although a step in the right direction is not enough to secure our financial future. as astounding as our current budget shortfalls are, long-term debt projections are profoundly worse. the peterson pew commission warned that government spending driven by the growth in health care costs in an aging population will almost certainly bring the debt to crisis levels during the next few decades. what is once thought as a scenario that would unfold in the distant future has compounded and become a pressing issue that we must face today. we must reform our largest entitlement programs. we used to think we had ten or so years, but because of the financial crisis, because of the spending binge we've engaged in and because of the massive debts

and deficits, this problem is here now, not in ten years. we need to do this. i propose a systemic way to reform our programs, my purpose in putting this legislation out there is not simply to say, you know, we have it all figured out, we have got all the ideas, our purpose is here's a plan to restore our fiscal future, to pay off our debt, to fulfill the mission of health and retirement and security and make our economy grow so people can have good jobs. the purpose is to encourage others to do the same. bring us your plans to solve our entitlement crisis. bring us your ideas to actually pay off our debt. there is a unique legacy in this country that is about to be receiverred, and that -- severed, and that legacy is each generation takes on its challenges so that the next generation is better off. well, as cbo will tell you, as every objective statistic will tell you, we know for a fact we

are consigning the next generation to an inferior standard of living. that is a fact. it's irrefutable. i encourage you to challenge that. we've got to act, and we've got to act now to turn this around so that we can give the next generation this american legacy of having a better future, which they will not unless we act. sorry for getting a little carried away, mr. chairman, but this is a serious time. we appreciate the work of cbo. we need to get to work. thank you. >> i couldn't agree more. before proceeding, i would like to ask unanimous consent that all members be allowed to submit an opening statement for the record at this point. without objection, so ordered. dr. elmendorf, once again we welcome you to the hearing today. you have prefiled your testimony, and we'll make it part of the record so that you can summarize it, but you're the only witness, and unless you want to call some of your colleagues to answer questions,y witness today, and you should

take as much time as you feel is necessary to thoroughly explain your testimony. and in that connection, i think it would be useful if you'd also walk through some of the graphs you brought with you. thank you very much for coming today, we look forward to your testimony. >> thank you, mr. chairman and congressman ryan, for your kind words about the work that we at cbo have been doing during the past year. we very much appreciate the support you both have shown for our work during this past year and in many previous years. to the two of you and all members of the committee, i appreciate the invitation to talk with you about cbo's outlook for the budget and the economy. i will speak fairly briefly, and then i will take your questions with assistance from my colleagues behind me. under current law cbo projects that the budget deficit for this year, fiscal year 2010, will be about $1.35 trillion or more than 9% of the country's total output. that deficit would be only slightly smaller than last year's deficit which was the largest as a share of gdp since

world war ii. we expect that revenues will grow modestly this year, primarily because we expect a slow pace of economic recovery. we expect that outlays will be about even with last year's level as a decline in federal aid to the financial sector is offset by increases in spending from the stimulus program and for other purposes. debt held by the public will reach $8.8 trillion by the end of this fiscal year, or 60% of gdp, the largest burden of debt since the early 1950s. looking beyond this fiscal year can, the budget outlook is daunting. again under current law, cbo projects the deficit will drop to about 3% of gdp by 2013 but remain in that neighborhood through 2020. by that point, interest payments alone would cost more than $700 billion per year. moreover, maintaining the

policies embodied in current law that underlie these projections will not be easy. it would mean, for example, allowing all of the tax cuts enacted in 2001 and 2003 to expire in 2011 as scheduled and not extending the temporary changes that have kept the alternative minimum tact, or -- tax from affecting more taxpayers. if instead they extend all of the 2001 and 2003 tax cuts, index the amt for inflation and made no other changes to revenue or spend, the deficit in 2020 would be twice the size of the deficit projected under current law. debts held by the public would equal 87% of gdp and be rising rapidly. the baseline projections also assume the annual appropriations will rise only with inflation. if the instead policymakers increased such spending in line with gdp which is about what

actually happened during the past 20 years, the deficit in 2020 would be two-thirds again as large as projected under current law. in sum, the outlook for the federal budget is bleak. to be sure, forecasts of economic and budget outcomes are highly uncertain. actual deficits could be significantly smaller than we project or significantly larger. we believe that our projection balances those risks. one set of factors contributing to the bleak budget outlook are the financial crisis and severe recession along with the policies implemented and response. analysts define the end of a recession as be point as which output begins to expand again. by that definition, the recession appears to have ended in mid 2009. however, payroll which has fallen by more than seven million, has not yet begun to rise again. and the unemployment rate, as

you know, finished last year at 10%, twice its level of two years earlier. unfortunately, cbo expects that the pace of economic recovery will be slow in the next few years. household spending will be restrained by weak income growth, lost wealth and constraints on their ability to borrow. investment spending will be slowed by the large number of vacant homes and offices. in addition, although aggressive action by the federal reserve and the fiscal stimulus package helped moderate the severity of the recession and shorten its duration, the support to the economy from those sources is expected to wane. employment will almost certainly increase this year can, but it will take considerable time for everyone looking for work to find jobs and project that the reemployment rate will not return to its sustainable level of 5% until 2014. thus, more of the pain of unemployment from this downturn lies ahead of us than behind us.

the deep recession and protracted recovery mean under current law lower tax revenues and higher outlays for certain benefit programs. cbo estimates that those automatic stabilizers will increase the budget deficit by more than 2% of gdp in both 2010 and 2011. in addition, cbo projects that last year's fiscal stimulus package will increase the deficit by roughly 2% of gdp this year and by a smaller amount next year. as the economy recovers and the effects of the automatic stabilizers and legislative policies fade away, the budget deficit will shrink relative to gdp. however, as i have noteed, the projected deficit remains large throughout the decade even under current law, and if the current law is changed in some way that more closely matches current policy -- as most people see it -- the amount of government borrowing relative to gdp would be unprecedented in the post-world war ii period.

a large and persistent imbalance between federal spending and revenues is apparent in cbo's projections for the next ten years and will be exacerbated in coming decades by the aging of the population and the rising costs of health care. that imbalance stems from policy choices made over many years. as a result of those choices, u.s. fiscal policy is on an unsustainable path to an extent that it cannot be solved by minor tic thering. the country faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older americans, and the tax revenues that people are prepared to send to the government to finance those services. that disconnect will will have e addressed if the nation is to avoid serious long-term damage to the economy and to the well being of the population. the chairman asked me to, also, specifically refer to some of the charts in the testimony that

we submitted. of course, we've written an outlook of almost 200 pages that i'm sure you're taking home and pouring over in your spare time. but we did have several charts in the testimony that i brought today that i think are worth attention. if one looks at summary figure 1, if you have that in front of you, there's a picture of debt held by the public and net interest. it's a slightly complicated picture. the amounts are expressed as shares, excuse me -- >> [inaudible] >> very good. the solid line is debt held by the public, the picture ranges from 2005 up through the 2009 the left of that vertical line labeled actual, and then the next 11 years of our projection. debt held by the public, which

was running about 40% of gdp before the financial crisis and recession, will jump from that 40% at the end of fiscal year 2008 to basically 60% at the end of this fiscal year, 2010. so in two years we will have increased the size of the debt relative to the economy by one-half. under our projection it then continues to rise a little further and is roughly stable around 65%, ending at 67% of gdp. again, this is under current law which assumes that tax kutz expire as -- cuts expire as scheduled. the bars are net interest on the debt. again, expressed as a share of gdp. that net interest was quite low last year despite the large debt because interest rates were quite low. but we and essentially all analysts expect interest rates to rise considerably as the economy recovers, and the combination of rising debt and

rising interest rates will push debt payments up in nominal dollars. we expect them to triple over the next ten years as a share of gdp to roughly double. the next picture we included in my testimony today is figure 2 shows revenues and outlays of the government. this picture goes back 40 years into the past and then ten years into the future with our projection. you can see that outlays have spiked up clearly in the last couple of years, are now at their highest level relative tod to fall back but to remain well above the average noted by that horizontal dashed line. revenues have fall then very sharply -- fallen very sharply, the lowest share of gdp seen in many decades, and are projected to rise again. again, this is under current law which assumes the expiration of

the tax cut cans. under that current law, revenues move up above their historical level. however, if all of the tax provisions that are set to expire under current law were allowed to expire, that's 2001 and 2003 tax cuts, that's the extension of the amt and also the extense of other expiring provisions, then revenues would remain below their historical average. it would be inching up close to it by the end of the ten years. and i think there's a third picture which is the picture of the unemployment rate. oh. picture of the unemployment rate which i'm not sure where that -- ther-- yeah. that picture. you can see the very sharp rise, of course, the last several years, you can see the decline. this picture of the decline looks fairly steep, the line comes down, but, of course, it is now so far above the

sustainable level that even at that pace of decline it takes a number of years to come down. and you can see in that sense that more of the bulk of that peak actually lies in front of us than behind us, to the right side of that projected line. and that's the sense in which i think the pain of unemployment going ahead is likely to be greater notwithstanding the fact that we, again and essentially all over analysts, will expect gdp to the grow. thank you, mr. chairman. i'm happy to take your questions. >> thank you mr. chairman. last week in preparation we had a panel of witnesses most of whom differentiated between the short-term cyclical debt and the long-term structural deficit. one who was particularly outspoken, as you might imagine, was bob greenstein. and he said, in effect, that the short-term deficits were a necessary encumbrance that had to be undertaken in order to respond to the cyclical downturn

in the economy. but the real concern was that these were necessary provisions for the most part, and the real concern had to be the long-term structural deficit as opposed to the short-term countercyclical measures we had taken. would you agree with that, generally speaking? >> mr. chairman, cbo does not recommend fiscal policies in the way bob greenstein and others do, but i think it is a widely held view among analysts that the danger from the budget deficit arises from its persistent large size, not particularly from having large deficit during this downturn. i've said on a number of occasions that fiscal policy poses two central challenges to macroeconomic stability now, a short-run challenge and a long-run challenge. the short-run challenge is that fiscal stimulus will be withdrawn very rapidly over the next few years under current law. as the stimulus package be, as

its effects wane, as tax rates increase under current law, as the automatic stabilizers diminish in importance, deficit falls very sharply in the next few years and that is a withdrawal that private demand will have to overcome to continue to move the economy ahead. the other challenge that fiscal policy poses in the long run is the fact that fiscal stimulus doesn't really ever go away, that the budget remains very much out of balance for many years to come. so i think it is how one resolves that tension is, of course, a matter for you and your colleagues. i think it is a widely-held view that the principle damage comes from there being large periods when the economy is at full employment and when they really are crowding out investment in plants and equipment. >> let me go back to three points i made in my opening statement and ask you to comment on policies we've taken. a year ago at the end of the fourth quarter 2008, the economy was in deep recession. i think we'd all agree.

and that month alone the economy shrank by 5.4% beneath the previous quarter. by contrast, the economy in the third quarter of 2009 grew by 2.2%. nothing to cheer over, but that's some movement in the right direction, for sure, a swing of 7.6 percentage points out of recession into growth in less than a year. secondly, a year ago end of january 2009, the job market registered a loss of 741,000 jobs in the previous quarter averaged about a job loss of about 600,000. also just from one indication of how all this was impacting individual households, a year ago at the end of the fourth quarter retirement accounts had lost 1.8 trillion, nearly $2 trillion over the previous year. retirement accounts had fallen in value from 8 trillion in the

first quarter to 6.2 trillion in the fourth quarter, a fall of 1.8 trillion in one year alone. by contrast, looking over the past year, 2009, retirement the savings have risen from 5.9 trillion to 7.7 trillion at the end of the fourth quarter. all of those are dire developments that have turned into positive be developments over the last year. one factor in this turn around, surely, to what extent i know is debatable, one factor was the recovery act. $787 billion of countercyclical effort by the government, and it is being shown and appears now from the bottom line of the budget because those outlays had to be made in the previous fiscal year and to some extent the current fiscal year, you say looking at the recovery act, i'm quoting from your testimony, it moderated the severity of the recession and shortened it duration. can you quantify that? can you tell us to what extent

the recovery act stimulated this growth in gdp and jobs in this recovery and retirement phase? >> so, mr. chairman, i'm happy to offer our estimate of the effects. as you know, it is a difficult business to judge the effects of a particular piece of legislation or the entire federal budget. because of that, we have reported a range of estimates, of effects. but we do believe and have said this on a number of occasions, including today's testimony, that as you said the stimulus package did moderate the severity and shorten the duration of the downturn. we estimate that the legislation raised real gdp by 1.3% to 3.5% be, somewhere within that range during the second half of 2009 relative to what it would have been without the stimulus. i think the last estimate that we provided of the employment effects was in a report that we issued required by law in

november, and this was based on the effects through the third quarter. our estimate through the third quarter was that employment was boosted by between 600,000 and 1.6 million jobs. >> so the recovery can act has had a positive impact. >> that is our judgment, yes, mr. mr. chairman. >> you also warn in your testimony that the recession probably ended in the middle of last year, the last calendar year. but that you, but you warn that it's likely to be a slow slog from here to full recovery -- to full employment. in fact, i think the date you've targeted for full employment is 2014, some time away. would you comment on why that is? >> i think there are several factors. one is that we expect overall economic growth to be only moderate in the next few years. in the wake of some past deep recessions, the federal reserve has cut interest rates sharply,

and there has been pent-up demand for housing and for other consumer durable goods and for business investment that has propelled the economy on a fast upward trajectory. given the nature of this particular downturn and something in common with some past downturns due to financial cry cease in our country and others is that that pent-up demand is not there in the same way. we have more houses than there is current demand for. so we think that the economy's likely to grow more slowly, and one direct effect of that is a smaller increase in employment. a second factor is that hours worked for people who have jobs has been on a downward trend for decades, but it declined fairly sharply in this recession, and thus we think as firms need more labor to produce product as demand starts to rise, the first thing they will do is start to increase the hours of people who

are already employed rather than to employ new people. that will come later. a third factor is recessions often accelerate restructuring in the economy, it pushes companies that were struggling to the brink or over the brink, pushes companies that were doing well, perhaps, into a dangerous territory, and one way that our economy tends to grow and to create jobs is if people move. they move to other parts of the country. they, that kind of regional migration has been an important feature in the past, but we think it will be harder to accomplish in this recovery because of the problems in the housing sector. though a significant minority, but a significant minority of people be underwater in their homes, owing more on mortgages than the houses are currently worth, we think they'll have more difficulty going to other locations where jobs are more available. we think that will hamper growth a little bit. but the biggest factor, again, is the first one which is just

the slow economic growth. we think there'll be slow growth in employment, and that's a pattern we've mentioned. the past four recessions have had fast employment growth. >> despite the growth in the debt, we've not had what you would normally expect in the way of an increase in debt service, not yet, because of the low rate of interest, historically low rate of interest. but as that rate rises with the resurgence of the economy, the costs of debt service will go up, and you've got a frightening number, frankly, in your testimony namely that today we're spending -- last year we spent $207 billion for debt service, by 2020 that'll be $723 billion, and that, too, is an entitlement. we tend to think about social security and medicare, medicaid as being the entitlements of great concern to us. interest on the national debt is

truly obligatory, it has to be paid, it's an entitlement in the strongest sense of the word. our witnesses last week suggested we need some target thes. we don't need to be out there doing ad hoc things, we need some target to shoot at, and they were suggesting we try to bring the deficit down to 3% of gdp and bring the debt or at least hold it to no more than 6% of gdp. are those reasonable goals? do you think they're too level, too high, too tight, too strict? >> so, again, mr. chairman, it's not our place at cbo to suggest what your goals should be. economists don't have any analytic basis for saying, this is the crucial point in terms of debts or deficits. it is true that as we push in this country to 60%gdp at the end of this year and beyond that over the next few years, we're

moving into territory that most developed countries stay out of. we are moving into territory the that is unusual in our historical experience and in the experience of other countries that we think of with solid economic situations. that raises the risk every step that we go. but what precise point you should stop at is not something that has an analytic basis for answering. it is true that the numbers you suggest have been discussed fairly widely. i think one thing to note is that our baseline projection is for deficits about 3% of gdp. and the interest payments that you point to are assuming that we have deficits of about 3% of gdp. not in the next couple of years, but beyond that for the rest of the ten-year period -- >> but your baseline is not the worst case scenario by be any means. >> no, and as i said in my opening remarks, many members have discussed making changes that would increase deficits

relative to our baseline and in particular extending the expiring tax provisions and indexing the alternative minimum tax. so in some ways relative to what many people, i think, would think of as current policy, sort of policies we have in place, the tax rates we have now, the deficit would be much larger than our official baseline. and to get to 3% from there would require a good deal of policy change. >> thank you very much for your testimony and for the good work cbo does for us continually. >> thank you, mr. chairman. >> mr. ryan. >> the health care bill is very complex, has a lot of moving parts. you and your staff have done a very good job of working over time to give us estimates, but you're currently scoring the bill on last year's baseline, and we now have a new baseline, so i think it's just for the sake of accuracy so we know what we're doing have this scored on this year's baseline.

so i would like to request that you score the health care bill on this year's baseline. when do you think you could produce a score so that we know what it will cost using the current baseline? >> that's a quite reasonable request, congressman. i don't think i have a very good answer. cbo's traditional practice across a range of pieces of legislation is to continue when legislation is in process, to continue scoring it on the baseline with which we started that process. in particular, congress adopted a budget resolution last spring based on our march 2009 baseline projections. we've used that for legislation since then even though we updated our outlook for the economy and the budget last august, and we as a general matter continue to estimate based on that baseline until there is a new budget resolution. now, it is also true that we in response to requests like yours try to provide a parallel

estimate, if you would, based on a more recent baseline, and we do that particularly when we have reason to believe that the change in the baseline is consequential for the estimate and that an estimate based on the earlier baseline might be misleading in some way. we have not actually updated the health, the details of the health baseline, so the baseline forecast that we released, of course, but the details we need for recalibration of our models to do estimates off this new baseline is a project itself of several weeks 'duration that we have not had time to undertake. so maybe after doing that we could then proceed to try to estimate some particular bill, and i'm not sure at that point which health bill you would find most interesting. >> i'm not sure exactly what the timeline of the health bill is. i don't even know if the majority knows. you just rescored the stimulus

which is an act of law, i understand, but that went up to 862 billion. so you're telling us several weeks meaning we probably won't see a score using the new baseline until after this is done, if this is done within less than several weeks? >> so that's right. again, it takes us several weeks to recalibrate the models, and these are the same people, i'm afraid -- >> i understand. let me, yeah, we've got a lot coming down the pike. let me ask you this, it's cbo's normal practice to provide estimates of authorization of appropriations. you haven't been able to provide those yet. i think mr. lewis has requested this information, particularly in view of, you know, a freeze when are we going to get the estimates of the appropriations authorized and required in the health care bill? that, i think, is probably easier to achieve before we vote on this. what are the appropriations we're talking about here? can you get that estimate? >> so that is, so we received

that request, and we talked with chairman stack, ranking member stack. in our estimate of the health bills, we've included a section that offers a range of what we believe to be the appropriations necessary to finance particular parts of the government that would be responsible for running the insurance exchanges or making changes in medicare and so son, those ranges so on. ranges from 5-10 billion in some categories. to do a complete estimate of the appropriations that might be required would be, doesn't require doing a new baseline, so it avoids that complexity, but it is itself very complicated. there are a lot of provisions, a couple thousand pages of legislation. that would also take us several weeks. it's a completely legitimate -- >> right. this is the creation of a new -- we haven't created a program like this in a generation, so it would, i think, be helpful if we

know the cost of all the government that's being created here. and of all things that i would think would be easier to do is just the discretionary spending. how many new people we have to hire, how many new agencies, what's all this new government which is the biggest in a generation going to cost? that estimate, i would like to think, you could probably get, hopefully, before we vote on it. >> would the gentleman yield? >> yeah. >> there's a question about whether or not in parts b and c of the house bill is a lot of money that is authorized, but not appropriated. it is subject to appropriation. so it's not an indication what's going to be spent, it's an indication of ideally what we would spend to serve a particular purpose if the funds were available. but we don't want to confuse the number with the -- >> right. >> which are more or less an entitlement. >> yes, mr. chairman. i was going to say, congressman, that we tried in our letter to give, again, these ranges. not very precise, but ranges of the parts that would be critical to implementing the legislation,

the things without the mandatory spending that is correct ready occur. >> right. i want to be, i want to be mindful of time. okay. so we're at 60% of gdp now, we're heading north, you know, if you use the alternate fiscal scenario, i think we're at 85% at the end of the window which i think is a more realistic measure of what's going to happen. we get about half our debt from foreigners. is there a tipping point in your mind using your, you know, your background act dem canically whereby foreign investors start losing confidence in our ability to turn this thing around? i mean, greece is having a problem floating their bonds because of their debt to gdp ratios. where in your mind do we start hitting that nexus, that tipping point? and then just one quick final question i'll have for your.

you. >> so, so i don't know. i mean, of all the things economists have trouble predicting, which is almost everything, swings of investor confidence must be pretty high on that list. it is true we sell almost half of our debt as is held now from overseas, that's a large increase from a decade ago. we've benefited during this financial crisis for all the problems here in this country by investors here and around the world thinking of u.s. treasury securities -- >> yeah, but we were in the high 30s at the time. on our debt to gdp ratio. >> yes, that's right. oh, absolutely. so at the moment during that crisis money came in, interest rates have been quite low, as we said. wide spread view among analysts that that is ending now, that as investors become more willing to take risks again in other investments and as they focus more on the trajectory of u.s. fiscal policy that there will be much less willingness to buy treasury security securities at

current low interest rates. but -- so i think analysts widely agree there is an increasing risk over time of some flight from treasury securities or flight from dollar assets. but how large that risk is or what would trigger it or when it would be triggered is just beyond -- >> i think the operative word is trajectory. if it shows we don't have our fiscal situation under control, it gets much worse, investors flee. if we get this under control by actually reforming government entitlements, the budget, then the trajectory over the long run's going in the right direction, and that would restore confidence. i think that kind of answers itself. okay, one last thing. lots of economists are telling us 2011 is going to be a slowdown year. i see that in a lot of blue chip and private forecasts. i notice that you have it in yours with this new baseline that you're saying we're going to have 2.2% growth this year, and then it's going to slow down next year. why is that, and to what extent

is the expiration of the '01 and '03 tax cuts which occur in 2011 a contributing factor to the slowdown in our economy that you're projecting for 2011? >> so the numbers i should say that i focus on most are our fourth quarter to fourth quarter changes. on that basis we expect real gdp to grow 2.1% this year and 2.4% next year. some pickup, but less than would be the case -- you may be looking at a yearover f over year -- year over year average? >> yeah. [inaudible] >> in term thes of the reason i prefer this is because the tax cuts will expire, and we think that on a calendar date, we think that will then depress economic growth in the first part of 2011. and relative would otherwise occur. >> how much do you shave off growth because of the expiring tax cuts? >> in a very rough sense if we

were to take those out of our projection, we would raise gdp growth by about one and a half prosecutor. >> one and a half percent? >> cumulatively. >> if the tax cuts were extended on a permanent basis, we've done a different sort of calculation in the paper we released a week or two ago about employment and jobs, we looked at a set of temporary policies, temporary extension has less cumulative effect on growth. >> right. i plies if it's permanently extended. >> now, these are for 2010 and 2011. over a longer term the extra borrowing of several trillion that would ensue from that change in policy would tend to damp growth over the back half of the ten-year window and beyond. >> i've got some technical questions i want to ask you about the freeze proposal, questions dealing with

unobligated balances and things like that, can i just, in the interest of time the, give you some stuff in writing that you can work back with us? >> even better. >> all right. >> thank you, congressman. >> i yield. >> ms. schwartz. >> thank you, mr. chairman, and thank you for the hearing, and i was going to say welcome to dr. elmendorf, but -- and you are welcome, but it is, i think, both good news and bad news. i appreciate your comments on where we stand right now and some of the actions that we've taken in the last year that have helped stabilize the financial situation and is beginning to turn the economy around. that is good news to the american people, although as all of us know until we start to see new jobs, expansion of the economy here at home they are really just numbers to people, and we can be more hopeful that we are beginning to regrow this economy, and that is good news. but it is daunting. the numbers that you present in terms of the deficit. again, i think some of this is

good news on our part because we're taking it seriously, and i want to just ask a couple questions about, one, you know, how we got here. i think that we, we don't want to go over a lot of history, but i think it does help for us to understand what we inherited in the situation and how we got here. you did -- and we know that president obama inherited a $1.3 trillion deficit this year. it's just about that now, even with the additional recovery act, the additional 700, $800 billion. that's good news, right? that it's stable at least? didn't go up, there was some anticipation -- >> [inaudible] >> again, i'm not looking to paint a rosy picture here, i want to say we're trying to keep things somewhat stable. but you mentioned quickly that the revenues were down. i mean, when you sort of say that, it makes it sound like how did that hand? that we didn't know that? we actually know why revenues

were down in the last 8-10 years, that's because there were dramatic tax cuts for the wealthiest americans, is that right? >> certainly there were very substantial tax cuts, and that is a feature that is holding down revenues relative to what they would have been other side, absolutely. >> right. and if we do maintain the tax cuts for americans below $200,000 family income but not for the wealthiest americans, would that help in the, to be able to bring some more revenue into the government over the next number of years? >> again, our current law baseline -- >> i understand -- >> tax cuts expire, relative to all of them expiring extending, well, extending all of them costs much more, makes the deficit much worse, as i said. extending only some of them will have a partial effect. >> right. >> i think the lion's share of the money from extend thing those expiring tax provisions would go to people below the

income threshold that you suggest, although certainly a significant amount would go to people above those thresholds. >> we, obviously, are looking at that. the other piece of what got us here partly, also, is the extension, the biggest extension under medicare since its beginnings which was part d. which was the prescription drug benefit. i wasn't here at the time, but certainly as democrats we believe you should extend prescription drug benefits to seniors, but we also believe it should be paid for. so the notion of how we budget this new health care bill is really very important going forward, and appreciate your comments on how we are. you have to look very clearly at the cost to the health care bill, but you in the analysis you've already done in both the house bill and the senate bill and, again, you can't predict exactly what it's going to look like, but in both cases you anticipated a reduction in the deficit if we enact health care

reform, comprehensive health care reform. and it may not be going as far as you might like or might expect and, again, you don't create policy, i understand, but in we terms of bringing down the deficit, it actually is a very clear reduction of over $100 billion in your estimates. so would you say that enacting health care reform would have a positive effect on the deficit? >> yes, congresswoman. we estimated both the bill that passed the house and the bill that passed the senate would reduce deficits over the next ten years by $130 some billion if they unfolded as written and would reduce the budget deficits in the subsequent decade, again, if they unfold as written. these reductions are, as you say, in the direction of reducing deficits. they are, as you understand, a small step in that direction. >> but, again, i think that appropriately you're very conservative in the way you anticipate savings, and that is a good thing. we don't want to overanticipate savings, but there are some of us who feel like if done well

and done right, we will see potentially even more savings. again, could be very helpful. i'll just end by saying we're taking very seriously the issue of the deficit. the commission that if not done statutorily will be done by executive order to focus on the debt and the deficit and on all aspects of the budget, both spending and tax revenue is all really very important as well as paygo which, of course, we have pushed actively in the house, and i assume you also think those are, again, you have to be careful about policy, but could you comment or might want to on how important it is for us to take it seriously by us enacting paygo in both the senate and house and commission? >> i think analysts believe, including those at cbo, that the paygo rules and discretionary spending caps in the 1990s did help to restrain policy arcs that might -- actions that might

otherwise have worsened the budget deficit. and they did so particularly during the period when attention of policymakers in both parties was focused on the deficit problem. at the end of the decade as the deficit problem was temporarily going away, then those restraints were widely ignored. but when attention was focused on that problem, those restraints helped. of course, all they can do is prevent or discourage policy action that would make the deficit worse, they don't create actions to make the deficit better. those actions require difficult decisions, and commission doesn't implement the need for those difficult decisions, it may provide a mechanism for encouraging those decisions to be made. don't have all the evidence about that and, as you say, cbo doesn't have a position on whether that should be pursued or not. >> we are taking it seriously. thank you. >> thank you, congresswoman. >> mr. hander is ring.

>> thank you, mr. chairman. first, with all due respect to our vice chairman, i'm find thing it challenging to find any context by which i can call a $1.3 trillion deficit good news. having said that, dr. elmendorf, i thought i awoke to good news yesterday when i read "the washington post," obama to reduce spending, obama to seek spending freeze to trim the deficits. frankly, i was overwhelmed by the headlines, and then i read the article, and i became underwhelmed. first, do you have an understanding of have you studied the president's proposal? >> i only know what i read in the newspapers, congressman. as you know, the president will release a budget next week, and then we will complete and report -- >> well, dr. elmendorf, let's see if we're reading the same newspapers. the newspapers i read say the president's proposal will exempt 83% of the budget. do the newspapers you read say the same thing? >> so i didn't take notes,

congressman. i am loathe to do the instant the analysis of things you're telling me i should remember from reading yesterday's newspaper. what is true, as you know, most spend anything the government is now in these mandatory programs is smaller and one excepts the defense and security-related pieces -- >> when you have the details of the proposal, i would appreciate your analysis. if you may or may not recall this from the articles. i understand this is not an immediate freeze, something that could take place today, a decision could take place today, but it is a freeze promised to take place in the future for fy-2011. is that your understanding from your reading of the proposal? >> yes, that's my understanding. >> okay. .. >> still has us mired in

double-digit unemployment, and so if you will, indulge me, but, just a little back of the envelope calculation, isn't the president in some way saying, okay, after increasing spending, ten percent one year, 12% the next year, i'm going to freeze it for the next 3, over a five-year budget window... so isn't he really saying, my idea of fiscal responsibility is, i'm going to propose 5% spending

growth, a year, in these accounts, when i actually wanted to spend double-digit? is that a fair assessment? >> i cannot speak to the details of the proposal until we have numbers to analyze. like your 83 and 17, may well be right but we cannot do the calculation... >> let me try another set of numbers on you. we have the president's ten-year spending plan that he submitted last year. starts out almost 3-6 trillion and fy-2010 it ends up in 2019 at 5.2 trillion. now, as i understand the plan, he is proposing a $250 billion savings according to what i understand from the white house. i assume, don't know, that the president will submit another ten-year budget plan. if you take 250 billion savings, over a ten-year period, again using his last year's budget, i don't know what this year's budget but if we apply his

proposed so-called freeze, to his last year's budget, what it appears to me is, it is a proposal to raise federal spending 44.3%, as opposed to 45%. again, we don't have his numbers. but, do you at least recall that the spending trajectory was proposed to go from 3.6 to 5.2 trillion. >> i'm not trying to be difficult. i don't remember the specifics of that calculation but, if -- your points is that, their $250 billion estimate is certainly a small share of the deficits we project under the baseline, which are a good deal smaller than the deficits we projected for the president's budget last year. >> would that qualify as u, i believe, in your testimony, quote-unquote, minor tinkering? >> i think it is a small step. and i doubt there is a single step that can accomplish the

deficit reduction that may be -- >> i see my time -- i certainly have high hopes for tonight but i fear the president's plan is a lot more about trying to impact newspaper headlines and not budget baselines and yield back the balance of my time. >> we'll report back tus with the full analysis of the president's badge when we have the details we need for that. >> thank you, mr. chairman and thank you, dr. elmendorf, to be clear on the last line of questioning during the 8 years the republicans were in power did they enact a freeze on any kind of spending in any one of the 8 years? >> not that i'm aware of. >> not that i'm aware of, either but i think it is appropriate they scrutinize the president's recommendation, but, it needs to be scrutinized against real world history. one of my concerns is that as congress moves forward, to try

to encourage job growth, that we may have the effect of producing few jobs and great deficits. and i think that is a potential problem with both -- some of the ideas advanced by democrats and, certainly, the principal idea advanced by republicans to encourage job growth. you pointed out, i believe, that while the spending was high, relative to gross domestic product, that we have the lowest revenues i believe you said, as a percentage of domestic product of output that we have had coming into the federal government in decades? >> yes. >> and i think the problem is, that most of the questions you have received this morning, doctor, only address half the budget. they focus on the direct spending but ignore the growth in tax end expenditures and the use of the use of the tax code sometimes to advance policies and it may be similar to the

objectives, some worthy, some not so worthy that occur through direct spending and in terms of our long term national debt, and all of the negative aspects associated with it with foreign bars and reduced standards of living, in terms of the national debt alone, it doesn't really make any difference whether the debt is affected by tax expenditures or direct expenditures, they have the same effect on the debt, do they not. >> yes, that's correct. >> and as we look at some ideas that were considered last year bet me go to the democrats first. you have provided us an excellent analysis, this month, in the policies for increasing economic growth, cbo put out, one of the politically popular ideas was what is called bonus depreciation. and i believe your analysis is that if we use the tax code to do that, that for every dollar that we drain from the treasury

we'll get back 20 cents to up to maybe the dollar itself. is that right? >> yes, congressman, i think that's correct. >> not really necessarily the best bang for the buck, to go that approach, though it may be politically popular, and, then, last year when we considered the stimulus, one of the popular ideas then was what is called "lost carry back" and your testimony last january was the effect of this provision on business spending would probably be small. we limited it then to small businesses. but, then, the only way apparently we could get enacted an extension of unemployment and cobra benefits in december was to tell the treasury to write checks for 33 billion dollars this year to businesses, and what's called lost carry back and one of those was is a bond insurer that made bad bets on subprime mortgages and it got about a billion by itself. let me ask you, for the

businesses, of various types got those, but, since a defunct business that didn't have a single employee could get lost carry back and a check written by the treasury, if the treasury writes a check to a company that has no employees, does that contribute any more than zero to growth and output? >> doesn't contribute much, congressman. i mean, there is a longstanding view in the -- not encouraging the tax changes for businesses, that encourage types of behavior, is much more effective than simply changing cash flow. >> let me move in my final seconds to the principal republican idea which this is solution to all of our problems is to extend the bush tax cuts which added so much to our moving from surplus to debt shortly after the bush administration took over. in the final two pages of your report, you indicate that extending for one year the -- all of the bush tax cuts and the amt patch for two years, that that will get us, in output,

about ten cents to 40 cents for every dollar that it cost the treasury. isn't that right on page 25? >> that's right, congressman. >> and if we did, since the republicans don't want to do that they want to do it permanently and the final sentence of your report, is that if there were a permanent extension of all of those tax cuts, we could get much less than the ten to 40 cents per dollar we'd get for doing it for one year, is that right. >> yes, that's right, congressman. >> and that would cost us to do that about another $5 trillion, wouldn't it? >> i think extending -- i think $4.5 trillion is the number i have in my head, yes. >> thank you so much. >> thank you, mr. chairman. and thank you, dr. elmendorf, for your i think accurate and rational and sobering report. in the report you youused the t unsustainable, a number of

people use that in terms of the budget deficit track and the term i've used myself. and i assume that is in reference to the cbo baseline which we admit the chairman admitted is actually taking into account political realities probably one of the more optimistic scenarios for the budget deficit going forward. i'm not sure that there is a complete understanding of the consequences of inaction here in this town. we use the term unsustainable. can you be a little more specific? and describe to us what that -- what happens? we do nothing. we now look at deficits of $500 billion to a trillion-and-a-half dollars as far as the eye can see. what happens? >> i think the particular thing that is unsustainable is to have federal debt constantly rising as a share of gdp, because that requires a larger, ever larger share of investors' portfolios

to be occupied by treasury securities and at some point they will refuse to hold them or will insist on much higher interest rates to do so. the thing that is particularly unsustainable, is expecting investors will constantly pile more and more of their portfolios, investors here and abroad and -- into securities and what can go wrong is interest rates can spike up when there is a crisis of confidence, and there is sentiment about buying thez those securities changes and before you hit the crisis point, of course, what is going on in a more subtle, less obviouses but still very damaging way is that the more of those treasury securities that are being held, the less investors will be holding of shares, ownership of physical plants and equipment, the sorts of things that make our economy, workers more productive over time and raises incomes over time. >> what does that mean? does that mean, then we have much lower gdp growth? does that mean that we -- the

federal government's debt rating gets reduced and we're actually in perhaps -- and perhaps physically unable to sell the debt. >> that is all upon. most observers expect that the government will act. the unsustainbilly waiting resolved through action, not witnessing some collapse done the road. literally, if nothing is done, eventually something very, very bad happens. but i think the -- the widespread view is that you and your colleagues will take action. >> and i think... i wish it were not true, but i sense that that will not happen until people fully understand that very, very bad thing and how very, very bad it is. >> again -- >> and i know you don't like to alarm people but frankly i think we have to alarm people. so... >> i think we have given the -- an accurate, sobering view and again we are not trying to

overly drama ties and not trying to sugar-coat, we are presenting the facts for you and for the american people and it is up to you all to make whatever decisions you choose to make. >> couple more questions if i can in the time i've got. if you said that -- all right. we'll let spending grow with gdp, stay where it is with gdp and balance the budget on tax increases, entirely, do you have any sense and throw the health care bill in there as a tax increase as well. do you have any sense for what kind of tax increases that would require? in terms of -- >> i can give you one illustrative case. if you look at the budget in 2020, if your goal were to balance the budget in 2020 our baseline projections, a deficit of $700 billion and if you extended the 2001, 2003 tax cuts and index the amt it would be twice that size, as i said, $1.4 trillion.

so by comparison, individual income tax revenues in our baseline before you take accounts of the fact the extra cut, are $2.5 trillion, so, if one wanted to narrow a gap of 1.4 trillion dollars by increasing a category, baseline size is $2.4 trillion, that requires a very substantial increases. and so it is very difficult with those numbers -- can i say also, the number is quite large, doing all of those changes on the spending side. the -- the equivalentsly radical changes on the -- >> i understand that. but i think the point is, if we have -- if you keep spending where it is as a percent of gdp, forget the health care bill, without increasing it potentially it is a 50, 60% increase in every, single federal tax on e every, single human being in this country? >> it would take, i haven't done the percentage calculations, i have done it on some occasions, but it would take a very

substantial increase in tax rates. >> thank you. >> thank you, mr. chairman around thank you, dr. elmendorf. this has a very important hearing and i -- if i could follow up on the remarks of ms. schwartz, i think it is important that we all understand how we got into this mess to begin with. and when i hear my republican friends talk about the importance of trying to rein in spending i would remind them that under the clinton administration, total spending grew at an average annual rate of 3.5%, under the bush administration it grew at an average annual rate of 8.4%. fact is that president obama inherited a mess of an economy, as a result of what i believe are fiscally irresponsible policies, of the previous administration. and, there is no question, that we need to take some strong and bold action, and i will say also, that for all the whining about the reinvestment and recovery act, i can tell you

that, from my experience, in massachusetts, that teachers' jobs have been saved, police officers' jobs have been saved, firefighters' jobs have been saved, there is more jobs created in the construction industry and some of the high-tech industries, so we have seen the benefit. has it created as many jobs as i would have liked to have seen? no. but without it i think we'd be in a much bigger mess than now. so i find it ironic that the same people who drove this economy into a ditch are now complaining about the size of the tow truck, the fact of the matter is, you know, we are in a mess, and some tough measures have to be taken. i want to praise the president, for his announcement in the newspaper. trying to figure out a way to deal with the deficit. and with the debt. so that it's not thrust on the backs of our kids and our grand kids. but, one thing i worry about, is

what we're spending on defense, but, specifically, war costs. i mean, we have been fighting wars since 2001. and, they have been expensive. and we have been paying for these wars, funding these wars through emergency supplemental appropriations where there are no offsets. i mean, hundreds of billions of dollars have been spent but not offset. and, you know, no matter what you think about the war in afghanistan the president is making a mistake by trying to increase troops in afghanistan and we are told there will be another emergency supplemental, 33, $35 billion, and it goes on and on and on... and i think this notion of paying for wars with emergency supplementals are not offsetting, i think is the wrong way to do it but i think it has a devastating impact on our deficits and debt and i appreciate your comments on, you know -- that subject and i'm afraid the wars will bankrupt

us. and i appreciates anything you have to add to that. >> well, the point you made earlier about the stimulus package, congressman we agree relative to what would have occurred without the package, there is more gdp and more employment. >> which is a good thing. >> even i'm allowed to say that is a good thing, yes. on the cost of the wars, again that is a policy choice. we, to date, congress has appropriated $1.1 trillion for fighting in afghanistan and iraq and related activities. >> do you know how much of that was offset, how much did we pay for or all on the credit card. >> well, there's no specific linkage of particular spending decisions and revenue-raising decision and it's true the deficits over that period well exceeded $1.1 trillion. >> i guess my point is if you fight the wars you ought to pay for them. because there are impacts that -- impacts negatively on our deficits and our debts, and the

notion we can fight these wars and not even have to talk about how we pay for them i think is a bad way to do business. >> again, that is really a policy choice, and i think the analytic point many economists would make is that if one were undertaking a lasting stream of spending, without paying for that, there is a lasting stream of deficits which is very damaging. unusual spikes of spending, there is a logic to not bumping up tax rates and bumping them down again -- >> these wars have gone on for quite a long time and will go on for a lot longer and the idea that this is a short-term expenditure -- >> certainly has not been short-term. >> the point i'm trying to make is when you d these things and don't pay for them, you are adding to the -- our debt. and we are talking about trying to control deficit spending and clearly, this issue should be on the table because we have been there since 2001 and we'll probably be there a lot longer than anybody wants to admit.

we need to deal with the issue up dpro up front, thank you. >> thank you. >> thank you, congress manage. >> thank you, mr. chairman. director, thanks for being with us today. in retrospect i represent the largest agriculture and manufacturing district in the state of ohio. our employment numbers came out for the state just the other day and we are not going down, we are going up, we're up to 10.9% statewide. my district is even worse because of the manufacturing we have got. four of my 16 counties now are at 14%. so, when you talk about, you know, a slow growth in job recovery, i can see it. because, every week, that i'm home i try to get out, across my district and my manufacturers are hanging on by their fingernails now and always turn to us and ask what we'll be doing for them and i cannot tell

them and it is tough, because when you talk about this plants, we will not see the recovery coming quickly and a lot of these plants are down to 32 hours to try to save their brother and sister next to them on each machine. they've said, you know what? what do we do when they cut down to 32 hours and a lot of them and you have plant managers cleaning bathrooms and the outside contractors no longer are working at these plants and you have more unemployment. but, you know, when i look at your testimony today, and it is sobering, you know, the question when you look back, or look out to 2020 and look at this massive amount of interest on the debt, of $723 billion, quick math, $2 billion per day, and when you look into your definition of, is that sustainable, for this country to be able to $2 billion a day, in interest on that debt?

>> we are a large and rich country. we can get away with a lot. for a while. what the -- at what point we can no longer gets away with it as i've said is difficult to judge analytically. >> well, in going along, i tell my kids this all the time, i'm not that old but started practicing law in 1981. and when i started practicing law, of course, we were looking at 21.5% interest rates in this country and what was going on. and we were writing a lot of land contracts because people couldn't even go to the bank and get a loan. there wasn't any money to loan and looking at the massive amount of interest that will have to be paid by the federal government, are we looking at what we'll be stared at in the late '70s and early '80s, a lot of the businesses plan for the future and when you talk of jobs not being created, there is no way i'll buy the new machine or add more employees, because i'm looking down the road now, at the federal government, will be spending and how in the name of

sense we'll go out and borrow money and now i have companies that cannot get any money now, and actually have no debt. and can't get a loan from a bank. >> as you know, interest rates were particularly elevated in the '80s because inflation was high and so, lenders demand -- want at least as much money back in real terms as they gave out and want real return on top of that and the nominal reported interest rates were high, because inflation was high. we project that interest rates on the debt will -- government debt and other interest rates on the economy will rise over the next decade, not to anything like the levels in place then. the projection is uncertain but we think it blends the risks. -- balances the risks. so, the burden is growing of making the interest payments but is not impossible, it is just a matter of -- it is in this case analogies to individuals or families actually work pretty well, if you borrow a lot now,

and when you payou pay it back it squeezes what you can do later on. as the economy recovers and the financial system strengthens, business as you are talk about should be more able to get credit. small businesses in particular, are having to -- are getting credit now and this is one of the things we describe in our outlook on economic growth the next few years, but, the healing of the financial system is underway. there has been tremendous improvement over the past year. it's not -- has not yet affected a lot of small businesses but our expectation and that of e many analysts is it will over the next few years. >> and i hope, too, because the thing is, we try to give hope to the folks out there, that, you know, are right on the bubble right now. hopefully they'll be in business in six months. and just briefly, has already been toughed on by the chairman and mr. ryan. i look at these numbers every month, about the amount of foreign holdings out there, or debt and we have gone to $561

billion over the last year, alone and watching it go up, we have almost 3.6 trillion dollars out there owned by someplace outside of this u.s. that is pretty sobering. as the trend goes on, it is a big question. when are -- one of these other countries will say we will not just borrow the debt and it willful back on the american taxpayer and -- fall back on the american taxpayer and the consumers and businesses and i worry about when the bubble might break we'll see folks finding out there is not -- where will they borrow this money, the federal government has to up the interest rates and we'll be staring at 1981, 1982 again and that is my fear. thank you, i yield back into thank you. >> ms. saunders. >> thank you, mr. chairman and thank you, dr. elmendorf, it is a very sobering testimony we are hearing today but also to look back at a year ago, when we were hearing yet again a very

sobering story, from virtually every economist who recommended that the federal government had to act, the debate i felt was more, largely around what the size of the recovery package looked like and what the composition should be, and as a new member to congress i really took a lesson from a city i represent, the city of lowell, massachusetts, during -- when the industrial revolution began and the textile industry began to move south it had a dramatic impact on the economy of the community, and, government failed to act. and because government failed to act, it took decades for that city to dig itself out from under the challenges it faced. so that very real example really did motivate me and drive my decision to support the recovery package and i think from your testimony today we have seen how important it was. we cannot imagine where we might have been without taking that very bold action and, again, also listening to the lessons

from the great depression. so i think you would agree that we had to move and we had to move aggressively. >> and i can't suggest policy but we do believe that the economy would have lost more jobs and suffered larger declines in gdp without the stimulus package. >> it would have taken many more years and we'd be looking at a far different scenario in terms of building ourselves back. >> it would have taken longer. >> i have another question and we understand the long term challenge of addressing the debt an deficit and when the president's budget is released, we have heard that he plans to propose a three-year freeze on nondefense discretionary spending and i, like my colleagues, am pleased that he is taking the question of deficit control seriously, and i recognize that we're going to have to make some very painful choices that include spending cuts, to our priorities. but, everything has to be on the table, since nondefense spending

is the smallest piece of the spending pie. even if we were to cut nondefense discretionary spending down to zero, we would still face a deficit in the hundreds of billions of dollars. would you agree? >> yes. that's right. >> nondefense spending is also the primary way the government fulfills its responsibilities to the middle class. nondefense discretionary spending is really just jargon for public schools open to all, affordable college education, save roads and bridges, poison and toxic-free food and toys and so on and as we have this very important debate, i think we in congress will be sure to protect the middle class understanding we do have to address nondiscretionary spending as well as all other forms of spending. but i have another question, that really has to do with the commission: in light of the senate's rejection of the commission yesterday, do you think we're going to see a negative reaction from the markets? >> i would rather not predict

financial market reactions. i think among other things, markets tend to react fairly quickly and i think yesterday's -- the set of events over the last day or two, have not been entirely unexpected and some was built in all ready and some has already occurred and it is difficult to predict. if i could go back to your previous point about discretionary spending i think you are absolutely correct the category of spending that people often object to in general terms but when it comes to specific aspects of it, there often are strong support for pieces of -- and in addition to the ones you mentioned is the category that funds health research and veterans benefits, and the court system, national parks, and specific elements that i think many people believe are an important part of what the government should be doing. and that is why in fact over time, it has proven difficult to

reduce that substantially as share of gdp. because in the end, all of the general objections, there are a lot of specific things people want the government to do and that is why the choices that you face are difficult. >> but i agree we have to put everything on the table and be very -- you know, very careful about how we move forward and yet addressing the long term challenge we face, because it is obviously, as you have said, unsustainable. >> thank you, congresswoman. >> mr. garrett. i have you next. who is next? >> and... thank you, director. for being here today, and, particularly, i also wanted to thank you for -- you and your office, for the work you have done, what i think is this is accurate account for accounting

for the gses. government sponsored enterprises. in the latest long-term budget outlook. i'll spend a moment here, first, before i ask you a question, to lay out the history of how they came about and i think probably how you came to that conclusions. it was back in july of 2008 congress passed and the president signed the housing an economic recovery act of 2008. also known as paulson's bazooka. this legislation gave the treasury secretary the power to buy an unlimited amount of securities, from fannie mae and freddie mac, if the treasury secretary determined a couple things, that such actions are necessary, a, to provide stability, to the financial markets and b, to prevent disruption in this availability of mortgage finance and, c, protect the taxpayer. ultimately, they allowed the government to effectively take control of those companies, if it deemed their losses to be a systemic risk to the u.s. financial system. then, in september, 2008, when the housing market continued to decline, secretary paulson, fired the bazooka and the federal housing finance agency

placed fannie mae and freddie mac into a government conservatorship and then, beginning of last year, 2009, cbo concluded fannie mae and freddie mac should now be included -- this is the important point, they should now be included in the federal budget. and accord to a report, you arrive at the conclusion after considering the following questions, who owns the agency and who supplies the capital, and, who selects the managers, and, who has control over the agency's programs and budget. and, ultimately, cbo, concluded this answer to those question, was... well, the federal government and each one of those. and since then, the treasury continued to purchase preferred shares in the gses, the means to provide them with enough capital to cover their losses. initially, congress put up $200 billion, as one -- 100 billion for each entity and last year the treasury raised the potential commitment to 400 billion and of course, on christmas eve lifted the cap altogether and now it is basically, unlimited.

in the latest report, fannie mae said we expect for the foreseeable future the earnings of the company, if any will not be efficient to pay the dividends on the senior preferred stock. as a result, future dividend payments actually will be effectively refunded from the equity drawn from the treasury. which means -- seems to me is the treasury pours money in and they take the treasuries and send their own money back to us again as dividends. director, your counterparts, however at the office of management and budget, omb and treasury, somehow disagree with you. and, your conclusions about fannie and feel the cost to the taxpayers equals the kots of the actual cash infusions pumped into the gses and do not as you do account for risk to the taxpayer. ness of the losses the gse will continue to sustain in the coming years and the "wall street journal" article, said the administration has no plans to alter how it accounts for fannie mae and freddie mac and the federal budget and i don't anticipate any changes, assistant treasury secretary --

said michael bar and they'll have the same appearance they had before the budget books. and my first question is, is there any possible interpretation of the current relationship between the federal government and the gses that would allow to you change your opinion or for that matter, any reasonable person to concluded that they should not accurately accounted for in our budget? :

>> that was a reasonable conclusion to place them on budget is basically what you're saying? >> absolutely. if the relationship changes over time do we will revisit that conclusion. >> but worry on right now, is contrary? >> that's correct. >> thank you. this is not an inconsequential decision then as to whether it's on budget or not? >> well, it mattered most for the budget numbers last year, because by our assessment that taking on board, absorbing those companies put the federal government on the hook for the risk that companies were. the biggest difference was actually for last year. looking ahead this year and beyond, the cash infusions and our version of the subsidy cause our tagliatelle. as it turns out at least at the

moment, the numerical differences are not that large. by it is potentially important beyond the baseline projections and how one would estimate the effects of very changes in which any every do or that change with the government. we think it's important to continue to score them on the basis we have established. >> and i guess the last point, in light of your consideration of how it is done in the assumptions you make as time goes along, if things don't turn around over there, your numbers could go up if you are on budget under your interpretation could go up dramatically in light of the literally trillions of dollars that is exposed, correct? >> yes, that is correct. >> thank you, mr. chairman. dr. elmendorf, thank you for being here. appreciate it very much. i'm glad that you've had to say this morning i'm glad to hear that some economic indicators indicate we are beginning to turn around in the economy. however, we all know that job

market is critical and it appears those lagging indicators are really hurting. let me tell you what they are is so important to me. especially my state of north coletta. we just reached an all time high of 11-point to 4 percent in the month of december. there are indications we haven't topped out. i've introduced a bill, the hiring after 2010 to help businesses attacked credit for job creation. to help those folks on the fence. sort of push them off. in your opinion, what do you think the unemployment rate remains high, even in the face of economic growth, you have touched on this some? that's ugly, how do cbo improvement on this front, how do we get there? finally, we intend to the highly act and other bills out there similar, to increase job creation in the short-term, what kind of impact would that have on a projection number that you have over the long-term?

>> congressman, i'm not examining your particular bill but in general, we did analyze alternative ways of spurring economic growth and job creation. and we think that one of the more effective ways for policies that are targeted at basically give money to firms in response to increases in the payroll. >> and that's what this one does. >> that works in two ways really. part of that is just that putting money into the spending stream, giving more money to workers or to firms will incur a certain amount of excess spending. there is an incentive effect. if the program is structured right, and there are a lot of complexities as you know with a, it can create an incentive effect addition. at a policy like that were implemented, we would incorporate -- were tried as make the aspects of it. as was being considered, and we would certainly incorporate its effects in our next round of baseline projections.

but i can't say offhand how much difference that makes. >> thank you. i understand it. the larger question on the economy, i agree we need to have commonsense in cooperation to fix the problem. and i think mr. campbell were here, because he said willie are is unsustainable. and that's true. it also is unsustainable last year and the year before that. and the year before that, and in the years the previous administration was in charge. >> yes, that's right. >> and things have added to the problem we're in. here's some of them. because in 2000, i came here early enough to work on a cooperative way in to send us to the past. policies were put in place shortly thereafter in the first bush years that made the problem even worse because we were told then that we could pay off all our debt. where we are today. but there were those who said, that was not important as a

matter for, vice president cheney said, deficits don't matter. if he's listening i want him to understand debt to do matter. and now the consequences of the actions that were taken. debts matter to children. so my question is this, as we look at the rotter road, we need a bipartisan approach. we don't need a partisan issues that are out there that are going to take everyone working together, making tough decisions, we can go back to that. if we want to get the job done, that will make a difference so that people who live in my district whether they are on main street or on a country road, start enjoying some of the same benefits that the people on wall street are now enjoying and we are getting jobs. so how do we make these things fit from an economic standpoint, so this economy starts to go and everyone is able to sit at the table again rather than sit at the end of the chair and get people on?

>> you ask a very important and very difficult question, congressman. and has not been a good period for many american families, and trying to adopt policies to encourage overall growth and to also ensure, as you like that that growth be shared in certain ways, it's very difficult. and it is made more difficult by very large deficits and growing debt that exist under current policies. and we are one of the areas that we are plan to devote a good deal of effort this year in fact is working on programs of the income security and education area doing the sorts of analysis that we hope will help you make decisions in that area in an informed way. i don't have a cookbook and he was particular to pass you. but i do think that doing that will also taking note as you

say, correctly that the debt matters, will be a very great challenge. >> thank you, mr. chairman. i yield back. >> we have seven minutes, 17 seconds. what we can do is let you answer questions and we got to go vote twice. there's a five minute boat following this one. let's take a was upended will leave here. we will leave you with two minutes to go. the floor is yours. >> thank you, mr. chairman. thanks, mr. elmendorf. so i'm going to go really fast, rapid-fire. if we want to address the structural deficit, which is better for the u.s. economy in the long run? cutting federal government spending, or raising taxes? >> well, so, raising taxes depending on how one raises them, can have important effects on people's incentives to work to say. and if taxes are raised in a way that discourage work and saving, that would have dampening

effects of economic growth that would offset the advantages of less debt. similarly, government probe lands on the spending side to have effects on incentives to work and save in the ways those programs are change can have incentive effects as well. so i don't think there really is a clean answer that should be on one side or the budget with other. it depends much more i think on adopting policies on either side of the budget that take account not just of the overall effect on the deficit, but also the effects on people's incentives to. >> who is better for the economy and the long-term, a a federal government employee, or a private sector employee? >> i will take that personally, congresswoman. [laughter] >> look, we have to decide as side what we want the public sector to do and not to do. and i don't think there's a simple answer to the question. both employees will spend money and they will buy things that will help create jobs for other

people. it's really a matter of judgment about what one wants the economy to be like, and how much we want to be in the public sector versus the private sector. which has taken care about health care to some extent. but there isn't a simple economic answer to that question. >> does the private sector employees taxes help pay for the position of the public sector employee? >> yes. >> thanks. which is worse and longer, crowding out private investment, with government borrowing, or higher taxes that slow private growth of? >> so i think it depends critically on the nature of the taxes and how much they slow private growth. as you understand it will, not every tax increase is the same. not every spending cut is the same. it matters very much what specifically you would do in policy terms of. >> in this economy, if you had to raise taxes, why tax would

you raise first? that you believe would have a positive effect or a less negative effect on the economy. >> i'm sorry, congresswoman, i'm not trying to be difficult that i have not thought carefully about breaking possible tax increases in that way. >> okay. i want to talk a little bit about the hagel bill. you mentioned earlier that the pay go rules of the 1990s helped, and i've heard that also. but i've also heard that the paygo rules that we passed last year had so many loopholes and exemptions that they want the same as the paygo rules that were in effect in the 1990s lex is that true? >> the paygo rules that you passed last year exhibit significant amounts of perspective tax cuts and some spending increases from the paygo requirements.

>> so would it be more meaningful if we went back to the paygo rules that were in effect in the 1990s, in terms of trying to address the structural deficit in the long-term? >> yes. if you adopted a paygo rules that did not exempt any prospective policy actions, that would have a sharper a fact on holding out budget deficits of. >> okay. what if we froze the topline of medicare medicare, medicaid, social security, and the very same discretionary spending that the president announced for tonight's speech for the same time period? how much would that save? >> i can't think of the categories off hand but it would've saved a great deal of money. i think the challenge is to decide what the top line cap on medicare spending, what does that mean to medicare beneficiaries, who is that will not get paid in an amount that would've been paid without that

cap. >> okay. let's say that you reduce the benefits to wealthy americans who did pay that money into social security, means tested the payouts and did it that way. >> so on social security side, with picking sort of a dollar amount up front it's easier to change those rules then want to do this sort of thing as you suggest. exactly how much you'd save depends on just what thresholds you picked and how the testing worked. >> mr. chairman, thanks a million. [inaudible] >> thank you, mr. chairman. >> dr. elmendorf, thank you for being here. i applaud president obama for taking a significant first step toward getting this deficit under control, and i applaud

those republicans such as i believe senator mccain and others who said they will support it. it's somewhat disappointing to me that some of my republican colleagues on this committee who had the majority for 12 years and helped, through their partisan budget, passed into law without democratic support led us from the largest surplus into the largest deficits in american history. and perhaps it's an inside it to why we have the deficit problem have today, with some of my colleagues would suggest it's not significant that we are going through this freeze, be able to reduce the deficit by $250 billion more than it otherwise would be. i'm still hopeful we can build some bipartisan support for deficit reduction programs, short-term, long-term, because i don't think either party has the political will or the political ability to make the tough choices to get us where we need to be. but i do want to go back, not

focus on the past, but i do want to be sure we understand how we got into this ditch so we can figure out how to not drive the car into the ditch again. and i'd like to begin with this question. in 2001 when president bush took office, what was the cbo's projected national debt for the year 200 2000 -- 2010. >> i don't know offhand congressman. i'm sorry. >> wasn't a close to zero national debt? >> that seems plausible. >> so if you could get that for me i would appreciate it, but as i recall in 2001, cbo when president bush took office, cbo was projecting -- at that time we had a body $5 trillion national debt and there was a projection of about $5.5 trillion of surplus. my math tells me that would've been a projection of having the national debt paid off by the

year 2010. and if you could verify those numbers i would appreciate that. what is the national debt to a? >> debt held by the public, but into this fiscal year we think will be about $8.8 trillion. >> and the total debt to a? >> if you mean the grows, there are a lot of measures of debt. on the order of $12 trillion. that includes as you know that held by the public and other parts of the government. >> so instead of the projected situations where we would have no national debt, gross debt by the year 2010, projected when president bush came into office, in fact, we have a gross debt of about $12 trillion. so 12, approximately a 12 trillion-dollar turnaround from what was projected with the policies in place and 2001, is that approximate direct? >> i think, congressman, the numbers you are thinking about for the 2000 projection would have referred to debt held by the public that it was not gross debt that would've gone to zero

because that would've been bonds held in social security and trust fund. i think it was debt held by the public. you are correct to focus on because that is what really measures governments in effect on economy. that is the number we think will be about $8.8 trillion. and we think would've been in the neighborhood of zero. we will check to be sure. >> wasn't a projection there would be about a fight with 5 trillion-dollar surplus over a ten-year period if you go back to cbo's projections and 2001? >> that may well be. i just don't have personal recollection of that. but we will check for you. >> so instead of at the very minimum, instead of having zero public good in the year 2010, we have about $8 trillion? >> yes. >> public debt. the gross debt is actually worse than that, $12 trillion. >> an incredible turnout. >> i just want to get this for the record. during the 12 years that

republicans have a majority on this budget committee and pass the budget resolution without democratic votes, and did they ever pass through this committee, or in the house or through the congress, a three-year freeze on nondefense discretionary spending? >> not that i'm aware of, congressman, no. >> okay. during those 12 years that the republicans had the majority on this committee and passed every budget resolution they passed out of this committee on a partisan basis, did they ever pass on the floor of the house or into law a long-term reform proposal to reduce the cost of entitlement spending? >> not that i'm aware of, no, congressman. >> in fact, the reality is that without democratic votes under the leadership and push of tom delay in the wee hours of the morning, is that correct that the congress under republican leadership passed the largest

increase in medicare funding since medicare was created, the medicare rt prescription program? >> that's right. >> was that the largest increase in medicare entitlement spending since medicare had been created to? >> yes, i think that was the largest increase, not is a the number seven increase over time based on the cost of providing benefits already written into law. in terms of the expansion of benefits, that was a very significant expansion, and it was and acted without any particular means of paying for it being identify. >> in fact, it was asked without being paid for at all, is that correct? >> yes, congressman. >> all that money was borrowed in effect. do you know how much of a tenured -- what does the part d prescription program? >> that's a good question. >> can someone give me a ballpark? 10 years from the time it was

passed. what did 10 year cost? [inaudible] >> i'm not sure, congressman. the actual cost is coming below cbo's estimate, even for the below the as that of the office of the actuary at the centers for medicare medicaid services. but still a substantial amount of money. i don't know what the tenure number would be. >> i've heard between $500,000,000,000.700 billion over a ten-year period. do you think that's approximate range of costs, a ten-year cost of the medicare expansion program that was passed without being paid for by republicans when they controlled the congress? >> those numbers sound a little height to before the decade, but we will check for you, august and. and respond to that question. >> i think it is somewhere in the half a trillion dollar range, none of which was paid for. can you tell you, doctor elmendorf, how much the 2001 and 2003 tax cuts have increased the

national debt, as of today? >> i think i'm zero for three for you, congressman. i don't have an assessment of cost of that over the past decade. on a related fact which may be interesting to you, and the deterioration in the budget outcomes over the last decade, wealth, about two thirds of that deterioration has come from legislative changes in our estimation. and about a third has come from economic and technical factors that are less able than we expected. >> okay. do you think -- you have a ballpark? did the bush tax cuts of 2001 and 2003 on a ten-year basis at more or less than a trillion dollars to the national debt? >> i believe a good deal more than a billion dollars, congressman. >> more than $2 trillion,

perhaps? >> so there we go. so we think over the ten-year, the appropriate ten-year window which in this case of the 2002 through 2011, fiscal years, that the cost of the 2001 tax cut was about one and a half trillion dollars, not including the extra debt service that has resulted from it. >> do you know what the number is with the extra debt service because i don't think we've done that calculation of the debt service. as you know week as to make the effect of the debt as a whole and do a partial estimate for this piece but we have not done that. >> but when you increase the deficit, debt service is a real cost of increasing that deficit, is that correct? >> yes. >> so minimum of $1.5 trillion has been added to the national debt as a result of the 2001 --

2003 tax cuts that if you add in interest that could be over $2 trillion, perhaps. okay. some of my colleagues in congress, just a few weeks ago, were proposing a complete repeal of the estate tax. in fact, some of my colleagues and this committee talk a great deal on a regular basis at every opportunity about importance of not adding debt to the next generation and our moral obligation to our children. some of those same members who voted for the budgets that led to the largest deficits in american history, after they inherited the largest surplus, has also supported repealing the tax. to heaven as one of the cost of complete repeal of the estate tax? >> we may. >> i realize you're not the director of the ways and means committee, so i understand you're not having the exact number is on all these

questions. i would welcome the follow-up. but some approximate number? >> i think we don't know. i take it back. as you say, it is the ways and means committee, that does those estimates. we can check on what the numbers would be. >> these are the have a direct budget application, that's why appreciate the answers in writing. i have heard numbers as high as $700 billion being added to the national debt if we had complete repeal. the estate tax. does that sound like a ballpark cost in terms of extra national debt to? >> i'm sorry, congressman. we just don't -- we don't know. we have a lot nubs in our heads, but not every number we have aligned with your questions very well i'm afraid. but we will send that to you. >> i believe that might be the ballpark number for your. if we did what some members of this committee talk about reducing the deficit on a

regular basis. if we did what they wanted to do, i think that would add somewhere between half a trillion to an extra $700 billion to the national debt over a period of time. could i just -- why don't we do this then? can i just ask you for the record, in addition to answering the questions i've asked, if you would also answer the question of what the ten-year cost would be of other tax proposals that had been made, one of them has been reducing the corporate tax rate by perhaps 5%. i'd like to know what the increase in the national debt would be if we reduced the capital gains tax by 5%. and would you happen to know off the top of your head what the amt, complete amt permanent tax fix would cost, how much that would add to the national debt over 10 years? >> that we actually do have, and

approximate number reported in our outlook that over the next decade, indexing the amt for inflation, particulars of what one might mean by fix, would add would reduce revenue by $558 billion. and would also have a debt service cost beyond that over the next decade of $125 billion. >> okay. and we will be able to tell more specifically when you get the numbers, but the bottom line is, by my math, if you were to pass some of these tax proposals that some of the folks who give a lot of deficit hawk speeches but turn into deficit does when it comes to the tough decisions to balance the budget, if they were to pass all the tax cut proposals that they have recommended, you could not only frees the nondefense discretionary budget, you could eliminate the entire discretionary budget and probablylu