that was the problem. 3 1/2 hours waiting out there on that tarmac. there were people pretty upset about that. this legislation addresses situations like that. so it's a good bill. it's a jobs bill. we said we'd move to a jobs bill. we discussed this legislation with senator mcconnell. this is the time to have a debate. people can offer amendments. there will be no tree filled. this is the time for a good old fashioned senate debate. something that will really help the american people and we'll send it to the house and i think they will be able to finish it fairly quickly. mr. president, i ask unanimous consent that the appointment at the desk appear separately in the record as if made by the chair. mr. reid: i ask consent when the senate completes its business today, it adjourn until 2:00 p.m. on monday, january 2

#-rbgs following the prayer and pledge, the journal of proceedings be approved to date, the time for the two leaders be reserved until later in the day be reserved for use later in the day and senate proceed to a period of morning business, senators allowed to speak up to 10 minutes each. the presiding officer: without objection. mr. reid: for the information of senators there will be no roll call votes during monday's session of the senate. mr. president, with the committees just having been formed today, we finished those at 1:30 or so today. we still have some funding issues as to the committees, so we're not getting a ton of stuff out of the. that's an understatement because they haven't been able to begin their work. we're going to continue to get more legislation out here, as senators know, we're going to vote a lot of mondays and sundays during our work periods here, but we're just not in a position to do that now. so, mr. president, we look forward to moving to the aviation administration bill really quickly. we should able to start that. there's no reason we couldn't start that legislation on monday. that's when -- it will be on the

senate calendar. if there's no further business to come before the senate, i ask that we adjourn under the previous order. the presiding officer: the senate stands adjourned until senate stands adjourned until

today he talked about the middle east peace process and the current political climate in washington. his remarks are next on c-span2. then the director of the congressional budget office testifies on capitol hill about the federal budget and the u.s. economy. later, we will bring some of today's senate debate on the filibuster and senate rules. >> no question 9/11 defined the presidency because made it abundantly clear that my most important job was to protect the country, and i made a lot of controversial decisions to do that, many of which i described in the book, and the truth of the matter is if i had to do them over again i would have done them again.

earlier, former president bill clinton urged israel to reach a peace agreement with the palestinians saying the jewish state will never have a better partner than the current palestinian leadership. in his speech, mr. clint also talked about politics in washington and was critical of congressional republicans. his remarks came at the world economic forum in davos, switzerland. >> thank you, bill, for being able to join us again here in davos. it has become a kind of tradition. he came first in 2009 as president of the united states, and i would say we cannot

believe that it's just around ten years ago that you left office, and i would say you have given a new significance to the world retirement if i look at what you have done in between. of course you have created the clinton foundation, and we all are very familiar of with the clinton global initiative, which you set up in 2005. and we are very pleased to share in some ways the same objective and to cooperate, the mission always being what can we do together in order to improve the state of the world? i just would like to mention the four areas you are involved in in the clinton global initiative

at this moment because it changed the focus and it is empowering women and girls, strengthening market based solutions, enhancing access to modern technology and have promising human potential. one area the global clinton initiative and the economic forum have been able to walk to get there is the situation in haiti. and i would call your attention to a publication which we just published this week with your help, with your support. it's called private sector development and opportunities for investment, job creation and growth, so we took a very personal approach to haiti and

we will hear afterwards how you feel about it. i would like to thank you on behalf of both of us on behalf of service members and partners who have been involved in companies like coca-cola, mackenzie, tnt, microsoft, and of course, the international organizations such as the world bank, the ifc, and the international development bank. i am asking you for the first question when you look at pt where we stand today, are you satisfied with what has been achieved, and do you believe

that what has been achieved is substantial for the future? >> first of all, thank you for having me again, and thank you for continuing to modify and grow the world economic forum, and we are making all of our facilities more comfortable this year. and thank du for the support you've given to the efforts in haiti. we will begin with haiti. am i satisfied with the progress that has been made? no. is it sustainable? yes, if we emerge from the current political situation, and let me explain what i mean by that. in april of last year, about three months after the earthquake, after a lot of the emergency work had been done to

try to save lives and put people in temporary shelter and make sure they have food and water and the basic things were taken care of, the government of haiti, with its supporters decided that we ought to have a mechanism that would enable the reconstruction to begin to rebuild the economy, to deal with the housing and the other challenges on a long-term basis while the government itself builds an agency that could supervise for several years. so a very unique mechanism was set up called the interim he reconstruction team, which is half international donors and participants, the inter-american development bank and today the world bank, the united nations i

would love for you to, my friend, the united nations that have pledged 100 million or more, canada, france, united states, venezuela is there. cuba has observer status because they have given a lot of things. people who fight with each other in the hemisphere are united in helping haiti. the caribbean community and every center of haitian society is represented, and what we are attempting to do is what we did in indonesia after the tsunami. the foundations and the ticket the non-governmental organizations to get their projects approved because this commission basically has a mandate to do for rebuilding in a way consistent with the economic plan and social development plan adopted by the government of haiti.

then we had to step it up. keep in mind 70% of the government work force was killed on earthquake day and we have to create a whole new agency so it took us until about august to really get going. we have a lot of help from price waterhouse and mackenzie and others and we are moving. many countries of the u.n. have given me people be desperate many people have been willing to go home and work and since then and the enormous amount of work has been done, and i think we've got a better strategy for how to get we are going to have the housing expo, and i think this year you will see a lot of movement out of those camps in the housing and so yes this scalpel. in the midst of all of this there has been in the election for a new prison in the parliament and a dispute about the results of the presidential election which the government of

he be tried to resolve with other interested parties. if we can have d-nd election that is completed on time with both the new parliament and a new president that is received by the people of haiti to be an honest transparent process that is empowering to them and if this can all go forward between now and the time the new government is to start meeting in may then i think it is sustainable. i have a very high regard for the man who is my co-chair in this commission who was here i think last year, the primm and mr. fet. the emergency authority to act without legislative approval and i hope if we can get an understanding that we can make some changes in the law and the procedure of the country to make it more competitive.

i just left an annual conference in saudi arabia and i stopped in both of those countries have done an astonishing job in the last few years of american competitiveness by measuring the progress against the world bank ranking and world economic forum linking of competitive economies. that is what i have urged them to do is to just keep pushing themselves up the transparent process and it's one you can keep score on but yes, i think it is sustainable but no i'm not satisfied. a lot of good things have been done even in the aftermath of the cholera epidemic doctors without borders and others have helped establish clinics set up to deal with cholera but the leaves us the skeletons of the national health system. the private sector has committed

well over $100 million in a country where 70% of the 9 million people live on almost $2 a day to give all but project. we just cut the ribbon on the restoration of haiti's old on your market and i urge you to go on line and you can find it on the web site, you can also probably find it on the digital website the cell phone company because it was financed by dennis o'brien, but the rebuild and 1891 market that was really built in turn-of-the-century style and it stands out like a breath of fresh air. it's one of the most beautiful buildings in the caribbean and now it's up and going again. we are going to be fine if our supporters will stay with us and

we can manage the politics during the rebuilding. we need your help. >> so little is a good demonstration of the public-private partnership. if i would extend the area and build the millennium development goals and the deadline is 2015, you have been very much involved, you are involved in the practical walking and it is a concept to will walk. my question here would be similar, are you satisfied and argue publicly satisfied with the engagement of business in making those goals a reality? >> i would say the answer to the second question is on a am very satisfied there are more businesses more involved in trying to figure out practical affordable and sustainable ways to not only meet but maintain

the millennium development goals than we could have predicted ten years ago. that's the good news. i am concerned about something else. alana concerned that both businesses and this difficult environment and government in this difficult environment will see the necessary investments in meeting these goals and was somehow optional or one of those things that unfortunately needs to be cut, and you and i were talking backstage about whether this will happen or not, and i think it depends on how central businesses and political leaders throughout the world see the meeting of the millennium development. if you run a global corporation and you believe in markets and you believe that they promote space freedom as well as economic prosperity, you have to

be concerned about the continuing inequality in the world not only because it makes you feel bad, but because it imposes very severe constraints on future growth. you should be concerned about the climate change because if you look at australia alone it imposes very severe constraints on future growth. so what we have to do i think is to integrate creating these kind of measures like the millennium development goals of shared progress into the basic business plan. these things are no longer what you might call economic externalities. to have to be part of the core vision of what it is to run a business in a global society and what is to run a responsible government. i'm very worried for example in the united states now in the aftermath of these congressional elections. the majority party in the house

seems to believe the most important public policy can possibly have is to get me another tax cut and and the best thing we can do is to pay for it by getting rid of all foreign assistance and as if that were not part of our not only our moral responsibility of our own economic and social well-being over the next unforeseeable period of time so this is something we need to talk about. in the forum there would be thousands of conversations about this. everybody understands you can't afford to keep doing this for a year or two but to abandon this as a core part of making the global economy work for the 21st century would be a terrible respect. >> integrating external costs

into the business model is not just a question of being socially oriented. it's a question longer-term of competitiveness and survival. let me shift to a more political issue. you're close to reaching an agreement with israel and palestine. now we see the defense and probably matters would become much more complicated. much more dangerous to read what you like to share your ideas and respect for us? >> first i think we don't really know how the tunisian process

will play itself out. but it is a manifestation of the yearning for change and accountability and shared progress moving throughout the world. particularly the middle east and north africa. the demonstrations in cairo i feel differently would happen that lebanon. lebanon is so far i hope i will be proven wrong but it looks to me like reaction, preemptive reaction to an international body during an objective effort to determine who murdered the prime minister. and so i feel differently about that and i want to make sure the lebanese have some real predominant role in controlling their own destiny over the long run.

but i see what happened in to tunisia and the smaller protest you see happening in the streets of cairo as a yearning in the middle east and north africa to be part of a modern world that works. and in that sense, to me it is part and parcel of the modernization movement manifested in saudi arabia by building the four new communities, the first coeducational university which also does amazing surgeries and research. the adopting the economic development mechanism that is half private-sector, have public sector. women representing the nyu building university there and winning the competition with germany for the international corrine energy headquarters on the promising of building in the middle east a city that is completely carvin natural --

carbon neutral. the world cup thing and the promising to build a ten or 12 air-conditioning stadiums so you can play football in 110-degree temperature. all of this is part of -- and i tell you something else. dubai recently hosted a conference -- stifel the way to do by to speak to the 22 countries in the middle east and north africa about the alarming rise in diabetes to child obesity and by what could be done about it because of the project that we have in the united states. this is a huge deal, all these countries coming together wanting to adopt common policies to restore health to their countries, and so all of this is really exciting to me. what we have to do is try to give the tunisians it positively

forward. what we have to try to do is give the the egyptians a way for word that connects eject that i know with the egypt that the left out and the left behind live in. i recently spoke to the cairo -- the u.s. and egyptian chamber of commerce and the had more than 1500 people there. it was accelerating, but the people you see in the street on television don't feel like they are a part of that. so there will be a lot of fits and starts, but on balance, if i were in israel and i had any influence, i would want to make that deal now because all these countries have offered israel a political, economic and security partnership, not just peace, not just the normalization of relationship a genuine partnership, and they realize israel will become the first in the country to put 100,000 all the electric cars on the road, not the u.s., not china, not countries much bigger -- israel.

can you imagine with the synergies of economic and social development that could be blamed if the palestinians were given the state and they got the best partner in the west bank they've ever had? so, i think, to me, all these things are going on should make peace more likely to get i realize there are all kind of arguments against that, but just look where we are going to be in five years, 15 years, 20 years. can anyone imagine that even if a middle east or in particular the israelis and palestinians will be better off if we do not do this now? it has to be worse, not better. so i hope as your question animated that what you see on television and the disruptions will animate the parties to get peace agreement, but it ought to

be done because the positive future they can build together, not just out of fear. >> i would like to ask for a -- [applause] -- dialogue with you, and i see someone sitting also has served. david, how many presidents, five, six, u.s. presidents? >> this, david gergen i thought he would always be known as my republican in the white house but he was a promiscuous, it turned out he worked for any president. [laughter] to just wanted to prove he could on last us all. [laughter] >> mr. president, it's good to see you again. thank you for coming back to davos. i know i speak for a lot of people it's good to see you looking so fit. it's really, really good. [applause]

to questions. one about leadership. we have many young the global leaders here in davos coming from business, the savitt sector, the public sector. what advice would you give him? what council about how they might be effective leaders in the 21st century? that's the first question. the second question, as you well know, the debate has broken out again about whether america is in decline. and we have public intellectuals like kneal ferguson issue in dark for it's about america's equine and others like joe nai i'm curious you're d date, what you think the implications are for america and the world especially the relationship to china. and finally, how does america get itself back on track especially in the creation of jobs? i'm sorry that's a very broad,

but if klaus also has lots i know people would welcome them. thank you again. >> to the younger leaders, i would say it challenges you face depend on where you live and how the global your activities are, but life and you should -- i think you should, whatever you do, you should focus on the interconnection of your activities to everything else that's going on in your country and your region in the world. and i believe that there are two things that i would like to see you focus on, when i talk about all the time like a broken record, and that is don't just talk about the challenges we

face. do something about that. don't just say you wish the people and your government would do this, that, or the other thing, or you wish the people running the biggest companies in the world would do this, that with the other thing. to give up something you can do to change things to go the other direction and think they ought to go. because the world is so hungry today, are examples of things that work. lots of people talk about what doesn't work. it's quite another thing to be able to do something, no matter how small it might seem, it actually changes lives in the direction using. second thing i haven't thought much about, but i have given -- been getting a lot of thought to this, most of us believe that personal freedom, market economics and political democracy or a pretty good things. but we need a little more

sophisticated analysis of how do manifest that. as i always tell people in areas where there is an election for the first time in a long time after bloodshed that true democracy is more the majority rule. it's also minority rights and the rule of law. but beyond that, i'm struck by how the peculiarities of the political systems continually produce governments that will not make decisions that all public opinion polls show our support in the country. i just -- i will give you a couple of ideas. if you took a poll in israel and in the palestinian territories today, you could get big majorities in both places for a peace agreement that nearly

everybody would consider honorable and the would be close enough to the one that the king saudi arabia, king abdullah, got all of the arab and muslim countries in the middle east and then eventually i think the prince is here and could tell me more than 22 other countries to sign off on offer in partnership with israel if the ticket. but if you look at how people actually get elected and why, and if you look at the political pressures which you see cleanout in lebanon, and you see that sometimes what is maybe a perfectly honest election is put through a space forum that will not produce a government ever that reflects the majority rule, and that's a very frustrating. now that brings me to your other question about america. do i think america is in

decline? i don't. but it's relative position is changing. uae dhaka used to talk about this when i was in the white house. i used to tell everybody but at the end of the cold war we had a brief moment where america was the world's only military economic and political superpower. i would remind them china was bigger than we were, n'digo was bigger than we were and if europe continues to unite economically and politically they would be better than we were and you can never begrudged someone else the fruits of their labour or the benefit of their imagination, therefore it wouldn't be long before others had aggregate wealth as well as we did, and then what they're our military superpower remained unique depending on how they decided to spend their money. and whether or political

influence remained unique depended on two things, how they decided to exercise their influence and whether we could remain true to our own tell you that have made us attractive to people throughout the world. so what i think, david, is that relatively speaking, the 21st century will belong to a lot of countries, but the world would be much better off if america were still a very important and positive force. and we cannot be an important and positive force in politics or security affairs unless we have a strong economy. so, i don't like the people that have given up on us because people have been bidding against our country more than 200 years and so far everybody that bet against us has lost money because we had a remarkable ability to keep coming back. on the other hand, i don't like what i see as being set up as one of the main themes that the new republicans are trying to

set up in the 2012 elections which is the know america is a truly exceptional country and all of these democrats don't. because like michele bachman said in her tea party response to president obama everybody knows we have the greatest health care system in the world. that is factually untrue. [applause] that is not true. you can get the best health care in the world in america if you or bill clinton or david kirk in doherty the faisal but that doesn't mean having the best system that works for everybody. so what i think america needs as much as anything else is to stop conducting its politics in a parallel universe divorced from reality with no facts, and i see that -- [applause] i would make every become every

american matter whether your democrat or republican if we talked about what i think ought to be done. i think it's a good thing these states with excessive pension burdens are going to be forced to reexamine them. i think it is a terrible thing that the state and local governments went around pretending for decades they were running on the balanced budget when they were doing no such thing. i think there's a lot of things the conservatives are saying that need to be heard in the budgeting mechanism. on the other hand, i think the idea addressing america's's deficit problems at a period of zero growth by saying we are not going to deal with the defense budget or medicare, we are not going to do with medicare we have to pay interest on the debt, therefore we will focus our cuts on the 15% of the budget that is our halfway to the future is not. we need to put our future back in the business. so my answer to you about

america's future is you go all the way back to the civilization you will see that every successful civilization build institutions that work that lived up to greatness and its talented people up and reward people for their productive efforts that's what we've got to do in haiti because they don't have those institutions. and if you look at every one of those countries of the roman empire you see at some point all those institutions that benefit people long in the 2-cd, degette creaky. people running them become more interested in holding on to the relative power than advancing the purpose for which the institute was established. they become, the people who are the constituents become interested in holding on to the present benefits and putting a little at risk to build a better

future for our children and grandchildren. that's where we are now command public and private sector that's why there is an opportunity here for genuine bipartisan cooperation in america. we need to modernize america's's systems so they fulfil the purpose for which they were established. whether it's government budgeting, the retirement system, the health care system, the education system, the way that we produce and consume energy and regulate finance and provide credit and investment and there's more than enough to go around and more debates to be had about a slightly right of center job, but i think where we are in 50 years depends on what we do now. so i think the inevitability of those who say we are down and out and the inevitability of those who say we are always going to be on top are both wrong. but all i am still with where winston churchill once when the

british press dated him about america and roosevelt, but the roosevelt not coming into world war ii, and he said america always does the right thing. after exhausting every other alternative. [laughter] and what i believe is we need to be finished with this alternative and exhaustion phase and get the show on the road, and if we do don't bet against us. we will come back again. [applause] >> i would like to take this point a little bit further. you just mentioned the deficiencies in the space election process. now, feeling many in the united states at this moment is a society extremely polarized. and my question to you, and of course it reflects in politics,

my question to you is could be done to overcome this politicization? is it something of a more spontaneous nature or is it something which driven by the system will remain a factor? what is your recipe? >> let's look at where we've just come. my party was bound to lose quite a number of seats in the congress because we picked up some very marginal seats in 2006 and 2008 because the weakness of the economy and the unpopularity of the involvement principally in iraq, and because the economy was still bad. on the other hand, we took the one thing we did because there was a very well organized and advanced to your effort to drive

every alienated person botts by comparing the president and the leaders of congress to crypto socialists driving the country flat off the brink. what i mean by a parallel universe is one more time the american people rewarded the policy that they say they're against. since 1981, when the government was -- when the republican party was additional conservatism into demonizing the government as an institution and singing the most important thing you can do is to cut taxes and attack the government, america has been dominated by then. we had eight years and they had 20, 12 on one side and eight on the other until president obama was elected. during that time, the conservatives produced 20 deficits, quadrupled before i took office and doubled again when i left, and i produced four

of my budgets for surpluses and i paid down $600 billion of debt. [applause] and other words, it's not what it seems. but they had a heck of a campaign. in 1994 lost the congress because it took on all this and the national rifle association decides on guns, and our party raises a lot of money but we give about the individual members of congress because we did not know duke have a campaign in a mom presidential year. we've monessen's 94 treen 98 we've and a national campaign and we won the first time since 1822 in the presidency. in 2002 we lost but president bush was at 80% after 9/11 we didn't lose much. in 2006 we won the congress back. for the reasons that i will never understand the democrats reverted to the strategy of 1994 whereas $1.6 billion even 10% of it to tell the american people what they had done what they

intended to do and what the difference was. so basically we've had no national message and they did. exemplified by rush limbaugh and fox and was amplified by their pay, and i don't blame them. i'm not criticizing the republicans. they are in business to beat us. i'm criticizing my party. we have no national message comes of the losses were roughly twice as great as the need to be and it's got an devotee discouraged in terms of the polarization. here's i think is going to happen. they will be skirmishing. the conservatives in the tea party movement will probably try to force the president and democrats to accept the obliteration of the future budget of the federal government and our obligations to the world for the program and other things or we want to grow to raise the

debt limit. one side or the other will blank where they both will and then we will get through that and fight some more, than if we are lucky it will be like it was with new gingrich and me and bob dole and we will start working together and do good things for america. but, we are going to have to put up with a little blood on the floor and a little uncertainty and both sides playing chicken for a while. i don't really know how it is going to come out, but since i believe that most of these people genuinely love their country, even the ones that totally disagree with me, i have to believe in the end we will find a way to work together and move the country forward, therefore i think the president did the right thing in the state of the union address not to say some of the things i just said to you and to just be positive and keep pushing the ball forward. that's not his job. he did the right thing. i don't know how it's going to

come out, but my gut is a lot of these people that got elected they might not have a lot of experience and i actually believe a lot of what they said that this is untrue, but they are smart, they are vigorous and convicted and they are energetic and they love their country so i believe in the end we will find a way through this. but on a listen to a zillion debates about health care and nobody in the press ever said well what about the cost of continuing the status quo? spending our income on health care and none of our nearest competitors are closer than 10.5. the next most expensive system in the world is right here in switzerland 11.5 because the population is older and as you see the reason we are looking davos is there are certain distributional challenge is to bring health care to remote but

if you look to the big countries scott 10.5, germany, ten, france, ten, the u.k. at 10.5, japan, nine. we are spotting our competitors 10 trillion a year and nobody talks about it in the next election so what i want to do is be a nag on both sides to get people back into the fact based world and then work through the challenges and we will be fine if we do. the >> we are living in an age of let's say we have to live in an age of austerity or deleveraging. on the other hand, you have -- if everything is included it is 1617, and a few at let's say the

unemployed people, their relatives come you come to a figure which is probably close to 40% of people directly or indirectly affected by employment, so the next election determined by this issue. what would be your advice to become more protectionist or what would you do in order to address this issue of unemployment? >> let me make an observation. number one, one of the tragedies of the last election from my point of view is the democrats and president obama were blamed for the size of the debt because of the stimulus program which was a one-off deal brought in because the economy was contracting and there was no private investment, that is the did with its traditional

economic theory. we never had permanent deficits in america before 1981. you go back and look. we institutionalize the deficit spending and the worked for about eight years and then it didn't work for president bush which is why i won because there is only so long you can just keep borrowing money when the economic circumstances don't. on the other hand, the american people voted against borrowing money when the economic circumstances state for did warranted it. unlike the depression when we stopped the stimulative government spending in 1937, we finance our own deficit. people like my grandfather who was a poor working guy kept money in a coffee can and when franklin roosevelt came on the radio he would go by a bomb and try to help. now we borrow the money from our

trading partners and we are executing the global imbalances and capital flow when we do that. so on the other hand, look at the challenges that europe is facing. iceland, not a part of the zone was in worse shape arguably than ireland and greece but it seems to be coming back quicker because they were not subject to a level of contraction that in conventional economic times you would not half so the europeans are going to have to figure out how to get money. the united states has an interesting dilemma because the american people have voted and they say we want you to cut back now. we want you to start showing restraint now. the deficit commission, the bipartisan commission president obama appointed wendi issued the

report, they recommended we not do this until next year when the growth is under way. so what is the way out of this? should we become more protectionist? in general, no. i was glad to see the president say we should adopt the korean and the panel trade agreement. on the other hand, one of the reasons the germans maintain the rate two points below the united states, even when we had recovered a high your percentage of our lost gdp, why did they do that? i think they did it for three or four reasons. one is germany did a better job of penetrating the chinese and other growing markets than we did. number two is the germans partly because the partnership between management and labour and partly because of wall have a much better way of dealing with under

employment than we do. in other words before you pay somebody to fall on employment, in germany they have a system where you can get some money from a trust fund you pay into to keep people employed. that is your firm when the activity drops. so you don't have to go to the trouble to high gear and train again and do all that. the tough third reason is germany was one of the four countries in the world of 44 wealthy ones who promised to meet specific targets under the kyoto climate change treaty and the other in the u.k., sweden and denmark and all four of them before the financial collapse were performing the american economy, lower rates, high your job growth rates, higher business rates, less any quality because they changed the way they are producing energy and it turned out to be good economics. slicing fat, david, is a good

indication, and for the rich developed countries if you want your economy to grow you don't want to shut it down and become but you of to add new jobs every five to eight years. the other thing i would say is china joined the world trade organization. we want them to be able to help the poor people in china who are not part of the prosperity yet. india, we don't want to see a major political crisis in india or there's a record number of millionaires and billionaires and still have 650 billion people living on less than $2 a day so we want them to do that. on the other hand, the relative position of the united states and the other countries is different now and we have suffered now and have 9.5% unemployment and if you count the discouraged workers about

68.7% of the working age population and i do believe that the trade policy has got to reflect that and people can't say well, you have to be opened no matter whether you have any sense of parity in the rules and access to the market's and the currency values and what ever. we've got to recover our own economic strength or we will not be able to do any good for anybody else. we won't be able to fund the global fund on malaria and implemented the goals. so i think you will see i am adamantly opposed to some sort of wholesale protectionism. i don't agree with the immigration position of the majority in congress. i think america including the underemployed would be more likely to get jobs and more likely to raise their income if

we pass immigration reform and brought more skilled immigrants we would generate more economic activities. [applause] that is what i believe. but i do believe that we have no choice now but to try to focus on the american economy. >> we will have a session -- we are having a session during this meeting with the prime minister's of the countries and if you look at our own competitiveness report the most socially inclusive countries and also in terms of the gender equity are the most competitive ones. >> absolutely. >> this is a lesson which every country should learn. it is inclusive as we say. >> goes back to the point you say there are no externalities' and economics any more. the most effective political

philosophy when it comes to economics is communitarian as some, not mrs. early right or left or the government has to do this, the private-sector has to do that but the sense that we are all in this together and have to create a retirement a share the benefits, shared opportunities, shared responsibilities and, in progress. if you have too much inequality it's going to limit your potential. you're absolutely right. with the way to do that is but to pretend the only thing that matters is to keep taxes as low was possible on the private sector individuals and allocate a good result defines all evidence does not a single example of a truly successful economy that does not have another one from a vigorous

private sector, number two, effective government, and number three, a strategy to widen the circle of opportunity. there just isn't. you can't find one. so america now has been actively we have permitted and i blame us, my party more than the other, conducted on a totally false promise for a and you're right. the interesting thing on the energy deal is they all did it differently. germany leapfrogs japan and the united states becomes the number one country in the world on solar power although china, but in germany the sunshine averages as much as london said they have to -- you have deutsche bank, not green peas, deutsche bank says the germans net 300,000 jobs out of the process. the swedes adopted a sensible,

unique carbon tax in 1991 on the government and you ought to talk about the swedes adopted a carbon tax and said we are going to tax you so you will know the cost of carbon so it won't be in externality anymore and then we are going to get to the money back. 100% of the money and if you to spend it the way you did you have the freedom to do it. have at it. guess what people wanted to spend denmark and the u.k. are different story but my point is we have to -- you can argue this right or left but you can't divide the evidence and so i

appreciate what he said. we need the conservatives and the progressive debate should be over what we are going to have, how do we have shared benefits, how we have shared responsibilities? that's the debate the world needs. >> a good message to end the session but i have one last question. you have achieved a lot during your presidency, you have achieved in a different way a lot over the last ten years i think a remarkable example of engagement, global engagement, social engagement what do you want to achieve the next ten years? >> i would like to live. [laughter] i would like to be a grandfather

i have nothing to do with of that achievement, but i would like it. [laughter] and i would like to have a happy wife and she won't be unless she is a grandmother. [laughter] something she wants more than she wanted to be president. seriously, i tell you what i would like. i consider every day against some of like to meaty enough health and capacity to keep learning about the world as it is and keep trying to change it for the better, and before i die, whenever that is, i would like to believe that my own country in the world had its least embraced the right paradigm we are never going to have all the answers and we are going to fight like crazy over the details the best is to be thinking about these things. that's why i love the bald economic forum because the

primary benefit may be 50 years now of all the davos meetings may have been biden the millions of conversations that have occurred as people keep reaching out for each other and reaching out for each other. just consider this. the hubble telescope up in the air a dozen years or so they may have found the world's first galaxy 13000000000-years-old. last year we found a planet in another galaxy in the milky way that seems to have the same conditions that exist on planet earth, close enough there might be wiped out there. last year we discovered unless you are 100% sub-saharan african between one and 4% of your genome comes from our prehuman ancestors the ne were false --

neanderthal. my wife wasn't surprised to find out what was part neanderthal. [laughter] but she was surprised to find out she was. that's the way we all are. most important of all, switzerland is now the home of buck off largest super on earth carried to the commode from texas back for the '94 budget but we still have smaller ones in the united states. the first significant discovery came out of the superconductor last year that may offer the key to how life began after the big bank and how we can finally do what einstein thought might be done and have a unified theory that encompasses iowa, chemistry and physics, because we were all

taught, all who studied elemental physics that this the subatomic level be negative and positive of every atom have to be unequal balance otherwise matter what and code. we would all fly apart. and it is discovered that the subatomic particle turns out that based on their findings which will be confirmed or contradicted when the swiss machine is up and going, it turns out there is slightly more positive than negative in all of our speed would what justify the fate of all of the believers in the world, making more optimistic and give an explanation for how we might have all come to this moment from the pre-mortal. this is an exciting time to be alive. there's no reason to go along hangdog. we just above the level of

consciousness and understanding broadly enough embedded in the society to make consistently good decisions, and that is -- you asked me what i want the next ten years. before i die i want to believe that is the case so that i can feel that 100 or 1,000 years from now, people on this planet will wake up with the same sense of wonder i feel every day. that is really what i want. >> thank you so much. [applause] ..

>> the u.s. budget deficit will hit a record $1.48 trillion in fiscal year 2011 according to the nonpartisan congressional budget office. in a moment, testimony from cbo director doug elmendorf at the senate idget committee. the committee is chaired by kent conrad of north dakota. >> the hearing will come to order. i want to welcome everyone to the budget committee this

morning. i know there are other members who are on their way but they had other business. as you know this is a day the committee assignments are determined and so there are members who will be here who are involved in that process. a today's hearings will focus on cbo's the budget and economic outlook. are witnessed today is the cbo director, doug elmendorf, director elmendorf welcome back to the committee. i want to take a moment to congratulate you on your reappointment that was formerly made yesterday as cbo director. that is a well deserved recognition for your extraordinarily professional work. i just want to say theto competence you enjoyable sides of the aisle is a testimony to you and to the entire team at cbo. over and over, you have demonstrated your independence. i might add, even when i had a proposal that was very important

to me, you did not give it veryo good marks and i think that demonstrates pretty clearly youm independence.th but that is healthy and that isd what we need here.ea we need an independent scorekeeper who is going to give us their best assessment of theu effect of the policies that are enacted by congress. of the policies enacted by congress. you have demonstrated a high degree of professionalism, as has your entire team at the congressional budget office. you have been a fair umpire calling it as you see it. your reappointment by a democratically controlled senate and a republican controlled house speaks volumes of the trust and respect you and your team have earned on both sides of the aisle. we look forward to your testimony here today. be a redort should light flashing to the nation.

our fiscal situation is serious and becoming more self. -- more so. we are at a critical junction. we are borrowing 14 cents -- 40 cents for every dollar we spend. revenue is at its lowest level as a share of the economy in more than 60 years. let me repeat that. spending as a share of our national income is at the highest level in 60 years. revenue as a share of our national income is at its lowest level in 60 years. no wonder we are headed to the largest deficit ever. this is utterly unsustainable. the sooner we come to the grips

of it, the better. this chart projects the baseline. due to the extension of the tax package and the slow economic recovery, cbo is expected to see that this is of more than $1 billion per year continuing into 2012. the deficit will briefly fall before rising again as the bulk of the baby boom generation begins to retire and health care costs began to decline. gross federal debt is expected to reach 100% of gross domestic product this year and continue rising. it is important to note that many economists regard anything above the 90% threshold as a danger zone. as disturbing as those near term deficit and that our, the long- term outlook is even more dire.

it is the deteriorating long- term outlook that is the biggest threat to the country's long- term economic security. the warning signs are as clear as they can be. andier this month, moody's s&p warned that rising s&p -- rising u.s. that could lead to america losing its grip ball -- triple a rating. in his recent testimony, federal reserve chairman bernanke called for a demonstration of political will to address the long-term fiscal imbalance. he stated, "nobody stated the united states has the incapacity to pay its bills. the question is, do we have the political will to do that.

the demonstration of political will is what the markets are watching. is the congress and the administration willing to work together to make progress. at the point where confidence is lost, you can see a relatively quick deterioration in funding to conditions." that all from the chairman of the federal reserve. i hope people are listening. we cannot afford to wait until the markets lose confidence in the conduct of our financial affairs. we need to act and we need to act this year. that does not mean we need to make steep cuts immediately. all of the bipartisan commissions that have come back with recommendations have recommended that we began modestly because of the continuing economic weakness, but that we put in place a

credible plan that convinces markets that we are going to get the result that is required. in acting such a plan now, according to the chairman of the federal reserve and others, will reassure the markets and help boost our near-term economy. i believe the deficit and reduction plan assembled by the death as a commission provides one way forward. i supported the commission report. i did so proudly. there were things i do not like. but that is not the point. the fiscal commission came back with a plan 11 of the 18 commissioners supported. i can tell you, it is not popular. certainly by the phone calls and letters i have received. we understand that. it is necessary.

it would reduce the deficit by some $4 trillion over the next two years and it would get us on a path to take us back from the brink. the commission plan was also important because it showed us how to reduce the deficit and debt in a balanced way. it included substantial cuts in discretionary spending. it included entitlement reform. it included tax reform that broadens the base and lower rates that help america been more competitive. if you focus on non- discretionary spending, the cuts will not be sustainable. raising revenue also must be part of the plan. the result of this balanced approach was to get the deficit

and beat that stabilized and then, over time, bring it down sharply. it will require real compromise and a great deal of political will. we need everyone at the table. that includes the president of the united states. we need to have democrats and republicans willing to move off of their fixed positions and find common ground. we cannot continue to put this off. we need to reach agreement this year. it is time for the administration and members on both sides in congress to come together to get this done. with that, we will turn to senator crapo, who is going to do the opening statement for the republican side. i want to welcome senator crapo. he served on the fiscal commission as well and was one of the 11 that supported the

report. welcome and make whatever statement you choose and then we will go to our witness and welcome questions. >> thank you, mr. chairman. >> we have not formally welcomed the new members of the committee. that will happen in a process later today. we now know who new members are going to be and we want to welcome them here this morning. senator toomey, senator johnson. we want to extend the courtesy of giving you the chance to ask questions. with that again, thank you, senator crapo. >> thank you. we also welcome our new members. knowing who they are, they bring a high level of new talent to

this committee and we appreciate their willingness to support us. i wanted to give senator sessions' apologies. he had a conference that was unavoidable. we look forward to his solid leadership. i agree strongly with the concerns that you have raised as we move forward to deal with america's fiscal dilemma. f, i have worked with you in the past and i look forward to working with you as congress to develop a proposal that is credible and will get us out of this difficult problem. i want to highlight a couple of points, most of which senator conrad has already made. the time for delay, gridlock,

and debate is over. we must take action. one of the strongest messages would assistioinal -- congressional witnesses gave was that the most important factor of developing a plan would be the most significant thing we could do to give confidence to investors and help rebuild the revenue side of the equation that we are dealing with as we try to build a solution to this problem. we must act and we must act now. we must demonstrate the political will that will require us to make a lot of tough decision. those who voted in favor of this plan -- i do not think a single

one of us liked everything in the plant. i think everyone of us would face -- i do not think a single one of us like everything in the plann. there are going to be plenty to pick it apart, whatever we choose to do. we must be prepared to move forward aggressively. i gave my commitment. i know on your side and on our side there is the will to engage in this issue. we have to move it forward now. i also believe the president must be heavily engaged in this process. to his credit, he established a fiscal commission to deal with the issue. that fiscal commission has now issued a report. the president had an opportunity to either accept or

modify that report or propose some other approach and give us a detailed plan to move forward. it will not necessarily be the plan congress adopts. but the president needs to engage. we need to engage. we need to get past the politics of the past and deal with this issue, making the hard decisions that have to be made. as we move forward in that context, i personally believe strongly that all aspects of the spending and revenue side of the equation must be on the table. they were in the president's fiscal commission's approach. some were too likely treated and some were too heavily treated, but they were all on the table. i strongly believe we must have tax reform. one of the most beneficial development of the president

also commission activities was the elevation of the -- of the president's commission activity was the elevation that the tax code was so expensive to comply with and put america in such an anticompetitive position that we have a tremendous difficulty on the revenue side of the solution achieving a solution. we must eliminate those problems and create a tax code in which americans can thrive in powerful economic activity. i know, dr. elmendorf, you are more focused on the budget numbers. but we need mr. chairman to guide as we engage and put our approach to data.

we need to guide this nation in a comprehensive way toward a solution to get a plan that can be put into place today. clearly, this year we have got to act. the last thing i will say is this. any plan for us to get out of this difficult fiscal hole in which we have put ourselves as a nation must be a plan that will be implemented over a period of years. that will require that more than just this congress participate and more than just this president does dissipate in implementing this plan. because of that, i believe process reforms are as critical as the substance reforms dealing with spending and tax policy. process reforms are going to have to be strong. we need to not only create the plan we were talking about and

passed the plan and make it law, but also make it law that congress must follow that plan. and that supermajorities of votes must be achieved. we must send a strong message to our people and the world that we have put a plan on the table and we will implement it. there are a lot of tough parts of the past we have before us. dr. elmendorf, we will be relying on you for the numbers. we have done it before. nothing can be more important. this is the most critical threat to our nation in my opinion. i include the threat we received from external sources. in fact, the head of the joint chiefs of staff has said the greatest threat to our security is our debts.

./ we have to get the numbers, the policy, and the process rights. . i hope we will be able to build a strong bipartisan solution. >> thank you for your strong statement this morning. thank you for your work on the fiscal commission. thanks to the other members of the congress who were on the commission. five of the 6 from the senate appointed the commission report. all of us believed that if we would have done it, we would have done a different job, perhaps a better job.

at the end of the day, we have to get a result. at the end of the day, we have got to find a way to get a result. >> may i interject a quick point? >> certainly. >> everyone knows the commission's report failed to get the 14 votes that would have forced and vote -- a vote in congress. >> that is an important point. eleven of eighteen supported the recommendations of the report. with that, we will turn to doug elmendorf. please proceed with your testimony. >> i appreciate your confidence in me and be confident in the

analysis that my colleagues and i at cbo have been doing and will continue to do. i want to a knowledge one of my colleagues, who has done a good job for many years. he is retiring at the end of the month. [unintelligible] [laughter] [applause] >> mr. chairman, i also want to pass on on behalf of me and my colleagues your plans to retire -- my sadnes about your plans to retire. we look forward to working with the other members of the committee throughout this

congress. >> i am not going to retire. i am just not going to run again. >> i understand. the united states faces daunting budgetary challenges. the economy has struggled to recover from the recession. the pace of growth and output has been anemic. the unemployment rate has remained quite high. federal budget deficits and debt have surged. . because of policies implemented in response to the economic problems and an imbalance in revenues than predate the recession -- a return to normal economic conditions will take years. even after the economy has fully recovered, a return to sustainable budget conditions will require significant changes

in the tax and spending policies. let me discuss the economic outlook first and turned to the budget outlook. projects that real gdp will increase by about 3% this year and next year, reflecting continued strong growth in business investment and improvement in business investments, net exports, and consumer spending. we have a long way to go on the employment front. next slide. next one after that, please. again. let's focus on this. payroll employment rose only by

70,000 jobs between june 2009 and december 2010. the recovery in the unemployment has been slowed by structural changes in the labor market such as mismatches in the available jobs and available skills of workers. we expect the unemployment rate will fall only to 9.2% in the fourth quarter of this year and 8.2% in the fourth quarter of 2012. only by 2016 does the unemployment rate reach 5%.

economic development and the of course had a big impact on the budget. we estimate that if current laws remain unchanged, the budget deficit this year will be close to $1.7 trillion. representing the three largest deficit relative to the size of the economy since 1945. as a result, debts held by the public will probably jump from 40% of gdp at the end of fiscal year 2008 to nearly 70% at the end of fiscal year 2011. if current laws remain unchanged as we assume for cbo's baseline

projections, but to deficits would drop markedly over the next few years as a share of output. go back i think two slides. and a darker line shows the deficit under our baseline projections reflecting current law. deficits would average 3.6% of gdp from 212,320,201. totaling nearly $7 trillion during that decade. as a result, the debt held by the public would keep rising,the reaching 77% of gdp. however that projection is based on the assumption that tax and spending policies unfold as specified in current law. consequently it understates then budget deficits that would occur if many policies currently in place were continued rather than allowed to expire as under current law. for example, suppose that three major aspects of current policy work continued

during the coming decade. first, the higher 2011 exemption amounts for the a plaintive -- for the alternative minimum tax is indexed for inflation. second, the other major provisions in the recently enacted tax legislation were extended rather than allowed to expire in january of 2013. third, that medicare's payment rate for positions were held constant rather than dropping under current law. all of those policies have recently been extended by the congress. if they were extended permanently, that this is from 2012 through 2021 would average 6% of gdp rather than 3.6%. cumulative deficits over the coming decade would total

nearly $12 trillion. go to the next slide, please. debt by the public would rise to the highest level since 1946. beyond the 10th year projection. , spending on social security and the government's major mandatory health care programs and insurance subsidies to be provided to exchanges will increase to 10% of gdp over the next five years. to prevent that from becoming unsupportable, congress would have to restrain the rate of spending or pursue a combination

of approaches. the longer the necessary adjustments are made, the greater will be the negative consequences of the mounting debt, more on certain businesses will be and the more drastic the ultimate policy changes will need to be. changes of the magnitude that will ultimately -- that will ultimately be required will be disrupted. congress may wish to implement them gradually to avoid a negative impact on the economy to give businesses and state and local governments time to adjust. remedying the nation's fiscal imbalance would take longer and a major policy changes would need to be enacted soon to limit a further increase in federal debt.

thank you. >> thank you. one of the things we say a lot on this committee is that the current trajectory in our deficit and debt is unsustainable. you have used that language as well. what do you mean by that? >> as the debt rises relative to the size of the economy, so does the burden on the american citizens on making the payments on baghdad -- on that debt. has that burden rises, it becomes more and difficult to prevent a further -- as that burden rises, it becomes more ethical to prevent further rises in ways that are difficult for the country to absorb. rising debt payments can

snowball. one sees that in our projections where the path of debt-gdp can rise sharply. the government needs to find investors willing to purchase government securities, to roll over the existing debt as it matures and to acquire the new debt necessary to finance ongoing budget deficits. investors are likely to become increasingly nervous about whether the government can manage its budget. that is what we and others have called a fiscal crisis. we have seen other countries encountered a crisis of that sort in which it becomes impossible for the government to finance secret factory of debt it has in mind at affordable

interest rates. we have been clear that we do not have and analytical capability of predicting what a tipping point might be and when it might happen. as the debt rises relative to be deeply and the trajectory continues to be upward, the risk of that sort of crisis increases. >> part of your analysis, the reason for the introductory of our debt being unsustainable -- the trajectory of our debt being unsustainable is that it puts pressure on interest rates in order to satisfy those who loaned us money to take on greater risk. that has been a fact of slowing the economy. is that your analysis? >> yes. as the government needs to work harder to find buyers for its debt, it has to pay higher

interest rates over time. more importantly, from an economic point of view, the government's borrowing is crowded out the borrowing a household might do to support investment, equipment, our new housing. it is the crowding out of that investment that makes future incomes lower than they would otherwise be. >> i think that analysis is in line with what every economist has told this committee. and what the chairman of the federal reserve has told this committee. let me go a bit further. part of your analysis of the trajectory of deficits and debt is tied to the question of interest rate levels. you have a projection of what interest rates are likely to be during the term of this forecast.

what would happen if the interest rates were 1% higher than you project. i think you did a sensitivity analysis to determine what would happen to our that if interest rates were just 1% higher than what you project currently. can you tell us what you found? >> yes, mr. chairman. this is in the appendix b. if interest rates are 1% higher than we project for short-term and long-term rates, we estimate the budget deficit would be $1.25 trillion larger over the coming decade that our projection. >> so you would add another $1.25 trillion if interest rates

were just one percentage rate higher than in your forecast? >> yes. that is right. >> the chairman of the federal reserve testified before this committee in recent days. basically, his advice to us on deficit and debt reduction was start modestly and then rode the effort in a determined way once the economy is on strong ground. his arguments to the committee was that this recovery was still fragile. one in every 6 americans is still unemployed or underemployed. he said we ought to begin the process, but begin fiscal

discipline in a modest way, but put in place a plan that goes beyond modest to get the debt stabilize, and then bring it down to more manageable levels. is that your advice to this committee? what is your advice? >> i will not make policy recommendations to you and your colleagues. judging the speed of policy changes you are considering, you and your colleagues face a difficult trade off. on the one hand, the longer you wait to make the policy changes, the more the debt will amount, the greater the negative consequences of that will be, including the crowding out of other investments, the loss of flexibility to respond to future emergencies that we cannot foresee now, the greater the burden of interest payments, and

the greater risk of a fiscal crisis. at the same time, the faster you make policy changes, especially those of the magnitude required to fix a fiscal imbalance of this time -- of this size, those changes can be disruptive to the households that are planning for certain services -- certain sorts of benefits to state and local governments who are depending on the federal government to continue the relationship they have had in the past. but let me ask you this question. the analysis you have given is in line with what other economists have told this committee. we try to provide a broad range of philosophical input.

some are telling us that tax cuts are so beneficial that if we enact tax cuts, they really will not lead to additional deficits because the cost is offset by the economic growth they encourage. what is your analysis with respect to the effect of tax cuts on the budget? >> so the answer depends, to some extent, on the specific tax cuts one has in mind. reductions in marginal tax rates can encourage work and saving and boost the economy. through that, they can provide some offset to the direct loss

in tax revenue from the reduction in rates. from broadbased reductions in taxes, the consensus in the economic professions is that the offset provided through the extra work and savings is significantly smaller than the direct revenue loss. effect is a reduction in revenues. that is the professional consensus. >> give us an understanding. i supported extending the tax cuts. i supported extending all of them. i believe the economy was in such weak condition that we needed some certainty and we needed the additional lift those tax cuts can get in the short term. isn't the cbo analysis that the

tax cuts have a different effect short-term and long-term? >> yes. that is not unique to us either. the report we presented to you about the affects of different ways of extending expiring tax provisions that you and your colleagues were considering, we look at the effects from the next few years and in future decades. in the short term, we think reductions in tax receipts that put more money in the hands of taxpayers that they can spend can stimulate economic activity. the demand for goods, and employment. that is especially true under current economic conditions where there is unused labor and unused industrial capacity and where the federal reserve has pushed the interest rates that it controls down to their lower

rate. as we show in september, reductions in tax revenue that are not matched by reductions in government spending and lead to wider budget deficits tend to reduce the flow of economic activity. the lower tax rates to spur work and saving. we a corporate that in our estimate. at the same time, the larger deficit -- we used a variety to illustrate the uncertainties. most of the approaches we have taken showed the loss of future output and income out way - outweigh the boost from the tax

rate. >> and the tax cuts do add to the deficit and debt? >> yes. that legislation increase budget deficits this year and next and over the entire decade by around $800 billion, i believe. >> let me go to senator crapo. and then we will go to members or questions in the order of our arrival. we use the early bird rule. given the number of senators, we will do seven minute rounds. senator crapo. >> i describe what the chairman of you were talking about as dynamic scoring of tax policy. i do not know if that is an accurate description of it. do you take into consideration

the dynamic impact of tax policy as you provide your numbers? when you do your analysis and come up with the a hundred dollars billion number for the deficit impact, are you calculating the dynamic impact of tax policy on revenues? >> let me distinguish two sets of words and tell you what i mean by them. dynamic scoring, a full range of micro economic and macro economic responses. the estimates you get are done by the staff of the joint committee on taxation. those estimates incorporate a vast array of micro economic responses that do not include dvd.

we and our colleagues at the tax committee do dynamic analyses of various sorts, analyses where we allow the macro economic aggregates to change to these behavioral changes. we report that the dynamic analysis. we do this every year. we have done this for the arizona recovery an investment tax. we do a variety -- we do it for a variety of circumstances. we only do it for particular pieces of legislation for which we have weeks or months of lead time according to your interests. >> what kind of revenue growth estimates are you using throughout the decade in your projections? >> revenue grows slowly poured

this year. >> you are at 3.8% for this year. >> for this year, we have total revenue growing by 3.1%. much faster on average for the remainder of the decade. much of that is from the expiration of a set of these tax provisions at the end of this year or next year. over the next few years between now and 2014, tax revenue rises by about five percentage points of gdp. 3/4 of that is from the expiring tax provisions. >> do you use projections as to what rate of inflation you

expect in the economy? >> yes. the nominal growth rate depends on our level of inflation. we expect inflation to remain low in the next few years and then to move up toward federal reserve's implicit target, which is 2% or a little under. if there were faster reflation, that would lead to more revenue and more spending and higher interest payments on the debt. in appendix c, one of the experiments we did was to look at what happens -- appendix b -- we look at what happens when interest rates are higher. this will when burden of

interest payments would grow even faster. >> i am shifting gears a little bit. are you familiar with the studies comparing debt to gdp of different nations? >> the author is a member of our committee of economic advisers. >> you indicated the debt to gdp will be approaching the 90% mark at the end of the decade. can you comment on using debt owed to the public as opposed to gross debt, we are rapidly approaching those markers? what do you expect to be the consequences of our failure to change that dynamics of growth and death?

-- and debt? >> u.s. debt is already in unfamiliar territory for our country. if the current policies are pushes up and tdebt to 100%, we will be in different territory for all developed countries. some countries have gone there, but they have been poor. the u.s. is different in a variety of ways that affect how far we can push up debt before we encounter negative consequences. people view the u.s. economy as a viable one. that gives us a little more room. on the other hand, we have a low private savings rates compared

to other countries. our government debt cannot be absorbed as much in u.s. savings. it has to rely on the savings of others. >> let me interrupt and moved to this next question. i want to follow up on that in a future round. there are four major housing and banking activities that affect the federal budget to varying degrees, the federal government obligations to fannie mae and freddie mac, premiums paid by share payments and the federal paymentss emissions of to the treasury. can you explain to me what the budget associated with each of the entities -- these entities actually reflect?

are we treating these different aspects differently in our budget analysis? >> the answer to the last part of the question is yes. they are treated differently. the federal budget is primarily a cash flow accounting. money coming in and going out. 20 years ago, there were some changes made to try to better reflect the true cost of some of the government postal financial activities. in fact, that methodology -- 20 years ago, there were some changes made to try to reflect the true cost of some of the government's financial activities. the particular part of the government's activities you mentioned were put in place by different budgetary treatment.

t.a.r.p. was put in place to treat it not with government reform basis. we have done that. fannie mae and freddie mac were brought into the government through the conservatorship and the ownership and control the government has demonstrated. there is nothing in the law that specifies how they should be treated in the budget. we are treating them on the same risk adjusted basis that we are treating tarp. the government still sees them as being outside the government. they've record cash payments to those entities as if they were -- they record cash payments to those entities as if they were outside entities.

it is a complicated business. we are in ongoing discussions with budget committees here and in the house to try to think through if there are better ways to communicate to you and your colleagues what is going on. >> i think it is important for members of the committee to know that cbo, when they have a question about how to do these things, consults the chairman and the ranking member of the house and the senate budget committees. they did consult us on the question of treating fannie mae and freddie mae off the books or on the books. we insisted it be included because we think that is the most accurate reflection of the effect on the federal books.

we were unanimous in that deal -- in fact view. congressman ryan was ranking in the house. four of us were consulted and agreed unanimously that it ought to be included. >> thank you. >> i still believe that was the correct decision. cbo wanted to do it that way and we believe it was the proper way. >> hopefully, omb will follow that lead. >> thank you, doug elmendorf, or your service. i agree that we need a credible

plan. the support and enactment of a credible plan would have an incredible impact on our economy. all actors need to be part of the solution. the difficulty is that congress will normally take up issues on a specific matter and then the discipline seems to break down. we will have a true emergency or a natural disaster, a katrina. we will have a security issue that we have to respond to. we say we will take care of that. we do it in a different manner. we understand that. other matters it characterized as emergencies or urgent issues and we make separate exceptions. i agree that we need to do this in a balanced way. it seems like domestic discretionary spending is the one that takes the brunt of this type of discussion. i was pleased that the president mentioned discretionary spending first.

i will try to get the relative impact of what the president said. in your baseline, what projections are you making with regard to discretionary domestic spending? procedures we followed we have followed for years. we take the measures that congress has approved an increase that for inflation. >> and the president mentioned 3 years. would that be different from what you had in your baseline? >> yes, it would. >> can you tell us what would happen if we did a freeze on

discretionary spending over the next five years? >> i do not know precisely what the president is proposing. we did a calculation freezing all non-defense discretionary spending except that that was directed by the appropriations committee. if one reason is that by five years and at the end of the five years, increases it with inflation, the savings over the decade are about $400 billion. >> thank you. you mentioned three policy issues that are not in your baseline, but are actively being considered by congress. the alternative minimum tax, the extension of the tax issues passed in december, and the physician reimbursement under medicare. let me take them if i could -- let me take them, if i could,

separately. can you tell me what a negative impact each of those policies would have on your projections? >> there is a table in our outlook on page 122 that gives the budget it facts of a variety of alternatives. the effect of extending the income tax and the state and give tax provisions is about $2.50 trillion over the decade. the effect of indexing the amt our inflation is about $700 billion over the decade. -- amt for inflation is about $700 billion over the decade. one does the extension and in texas the -- does the extension and indexes the amt,

it at $3 trillion over 10 years. the effect of maintaining medicare payment rates for positions is about $200.- 1539607552. -- $250 billion. >> part of bringing the budget into balance is that we are going to have to make sacrifices. if we do that, we will bring about savings in the budget. if we talk about the tax issues and say, taxes are different, it pales in comparison to the extra

deficits. i have not got into the military at. your baseline assumes what for enlitary spending -- i have .. military yet. you a baseline assumes what for military spending? >> that level would not be a good representation of what your colleagues would expect for baseline spending. we also provided some alternatives that involve different paths toward defense spending. >> so you are taking a lower projection for the future than using the current. you believe there will be some savings in the next 10 years. >> i am just saying that you and your colleagues have often asked

us the question. you think this is hired and what you anticipate. >> so your base line starts with the current level of military action we are participating in? if we bring down military action and do not have to spend as much on our soldiers overseas, we can bring some back, that would give us some savings that are not in our baseline. i understand there will be trade-offs. >> when secretary gates has talk about savings he would like to implement, the savings he is discussing are from a higher level from our baseline. he is discussing savings relative to the budget plan the defense department has put out. those savings bring down that budget plan in the direction.

part of the problem is, depending on where in the year we have done the protection, whether the congress has enacted supplemental appropriations that have gone for overseas contingency operations. it has been and are pingpong. >> my time is up. i did not have time to go through the analysis, but my point is this -- all of the major areas need to be on the table. i think all of us were proud that the recommendation was balanced. we do have problems with the provisions, but you have to have all at the table. let's not just pick and discretionary domestic spending. >> thank you. i want to welcome senator thune

to the committee. i look forward to working with you. let me indicate to members that i try not to interrupt senators when they are questioning, even though they may not -- even though they may be at the end of their time. when i hold up the gavel, i know don't want to tap it on members, but if you try to stick close to the time in fairness to others. >> thank you, mr. chairman. dr. elmendorf, welcome, and of start out by saying how much i and other members of congress and committee appreciate the professionalism and integrity of your office. i know the numbers you report are often battered around and spun in different ways which must be a source of tremendous frustration to you, but you

always seem to keep your cool despite that. it's important we get good numbers and thank you for that. >> thank you, senator, that means a lot. >> unfortunately, we talk about the budget and economic outlook, i feel like mark twain when he said everyone talks about the weather but nobody ever does anything about it. i think congress is guilty of that. that's why i was pleasantly surprised, mr. chairman, when you and other members of the president's fiscal commission came out with what i thought was a bold and dramatic and a sobering report. i hope we will take the opportunity to deal with this crisis and i do believe it is approaching a crisis. we do not know when the tipping point will come, but we are almost there.

we can't just talk about the economic outlook and the budget, we have to do something about it. i believe there is a window for us to do it. i heard you say we have to be careful about the pace of some of the austerity measures because it could further depress the economy. i hear you loud and clear. i think the political reality is we have a short time to do this. if we do not do this within the six-nine months, the opportunity will be lost. i am anxiously awaiting the president's budget, which will come a week of february 13th, to see whether the president himself is serious about the crisis that was so well documented and explained by his own fiscal commission. i hope that opportunity is not squandered by the same old, same mold sort of thing that seems to

happen time and time again. i know we talked a lot about the need to cut, but you alluded to the crowding out effect of more federal government borrowing on private access to private credit. i would like to talk about the importance of not just cutting, but growing the economy because i know when senator portman was the office of management and budget director at the beginning of 2007, the budget deficit was 1.2%. now it is around 10%. one reason it was low is not because we were spending money, because we were. but the economy was booming. jobs were being created. the federal treasury was getting a lot of money. but for the reasons the chairman mentioned, not only are we continuing our bad habits in terms of spending the amount of

money coming in because the economy is hurting, because people are out of work, losing their homes, it is a double clammy. let me ask you -- is a double whammy. you have some economic projections in terms of growth of our gross domestic product. i believe i heard you say, and this appears to say on page 51, in 2011, you are protect -- you are projecting the gross domestic product to grow at 3.1%. is that correct? >> yes. >> can you tell us how much growth in gross domestic product is required to see a net increase in employment? i assume with new people entering the workforce that there is a level -- i cannot recall the specific number, is it a range of growth we need to

see before we see the unemployment rate come down? >> at that pace, we think the unemployment rate will come down, but slowly. we think the potential growth rate of the economy -- i should explain what i mean -- apart from the cyclical issues, as the labor force for almost fully employed and productive capital were fully in use, economic output would grow by up to 2.5% per year. if economic growth exceeds that rate, we are in the process of closing the gap between the potential level of output and the actual level of output. that means putting equipment and people and plants back to work again. >> ben bernanke testified that by 2012 we would still see unemployment stubbornly high in the 8% range. do you agree with that?

>> i do. we think the unemployment rate will be down to about 8.2% by 2012. that's better than today but still well above a level we have seen in strong economic conditions in the past. >> since time is so short, let me conclude on some matters that are of grave concern to me. that has to do with energy costs and some of our policies emanating from washington having to do with our domestic energy supply. i don't think it's any secret that the moratorium imposed on drilling for oil in the gulf of mexico, and now that the formal moratorium is lifted, what is -ometimes called the permit orium, that is having a dramatic

negative impact on employment, particularly in the gulf states, but the ripple effect throughout the economy. we have discovered in the last couple of years as a result of modern technology, a huge amount of natural gas here in america available from shale formations. as i heard the president talk about green jobs, which sounds very good and certainly we are all for conservation and looking for ways to protect the environment as we develop energy sources, i was concerned and there wasn't a lot of talk about what i would call red, white, and blue jobs -- jobs created from domestic energy sources. let me conclude on this and say

what do you see in terms of energy costs, particularly gasoline costs? if we see for dollar and got -- $4 a gallon gasoline costs, will the rising cost of energy due to our economy? >> i don't know offhand what the projection is. for oil prices, which are a very important economic factor, we look to the futures market as our starting point and follow the path of people buying and selling the right to have oil in the future -- i don't think that calls for further large increases on the price of oil. i am not sure about gasoline prices. oil prices, we have rising -- they are about $90 a barrel. we have them rising to $100 a barrel by 2017 and $110 a barrel

by 2020. the price of oil can easily shoot up will be on that and fall well short of that. so you should picture having a very large range around these numbers. but we think this is consistent with what's in the futures market. >> if a conflict broke out in the middle east and people became concerned, those numbers could skyrocket almost immediately. >> yes. >> thank you dr. elmendorf for all your good work. in the 1980's, democrats and ronald reagan got together on taxes, cut taxes, cap productivity and grew the economy. we found a startling number in the two years at all that bi- partisan work. the economy created 6.3 million non-farm jobs. that's twice as many jobs as

were created between 2001 and 2008, when tax policy was partisan. in your analysis, you assume that between now and 2012 there will be no changes and after 2012 we will see what happens. what could you tell us -- and this is a very rough analysis -- what would your fiscal outlook be if in the next two years, democrats and republicans picked up on the kind of work done in the '80s and grew the economy? can you give any sense of how your fiscal outlook could change? obviously it would change because you are not making any calculations based on anything else be dead -- being done. what would you suggest would be

part of a changed fiscal outlook if a tax reform along the lines of what was done in the '80s was enacted? >> mike capacity of analysis usually falls well short of your questions. as a general matter, it's a widely held view among experts that a tax code that had a broader base with fewer special exemptions, deductions, credits and so on, and there by could have lower tax rates to raise the same revenue, would be more effective tax code in terms of raising revenue while producing less distortion to private economic behavior. all else equal, and there's a lot being swept in to that phrase, a tax cut with a broader base and lower rate is one we would expect to be more conducive to economic growth. >> which would mean the fiscal picture you have painted today

would not be quite the bleak when you have offered. >> not quite as bleak. as you understand, the gap between spending and revenue under the extension of these policies has been very large. that's not a gap the economy can grow its way out of, even with the world's best tax system. >> let's talk about the international implications of tax law if we can. i am very interested in seeing the corporate rate cut considerably and have proposed cutting it from 35% to 24% to encourage manufacturing in the united states. in effect, that would provide us an opportunity to repatriate some of the money that is parked overseas back here in the diet states again to grow the economy. have you all done any analysis with respect to an approach that

would promote that kind of repatriation through a tax code we're doing some differentth in approaches on different corporations in work we hope to present to the congress in a few months. i don't think we studied that particular proposal as of yet. >> i will follow-up with your staff on that. i think we know that billions and billions of dollars are parked offshore right now and we ought to make it more attractive to repatriate that money through tax law and in sent private sector job growth in the country. i'm going to ask you the same question i asked ben bernanke with respect to tax law. the effect of doing just corporate tax law changes rather than individual tax law changes at the same time. my sense is because most

businesses pay taxes and is -- as individuals and not as citicorp corporations, -- and c- corp. >> from the perspective of an analyst, tackling all the aspects of a general problem that once seems most effective. it is up to you and your colleagues to judge how many changes you can think through and agree upon in a finite time. as you understand, both the corporate tax reform and individual tax reform agendas are incredibly long and complicated. from an analytic perspective, trying to think about all the pieces of the tax could together would be most effective and appropriate. >> i think the interactions

between what individuals pay and what businesses pay is now so intertwined with sole ,roprietorships, llc's partnerships, to say you're going to split off one piece of the tax code and say you're going to reform there is a vastly oversimplify it and create a lot of distortions. what are the growth implications of doing taxes on a temporary basis? let me read you a sentence from the "wall street journal." the united states has no permanent tax regime for leverages on capitol gains or family breaks for students and others. in effect, what america has done is to put the tax system on a permanently temporary basis. we are facing things in, taking things out, we have a permanently temporary tax code.

what are the growth implications of having something that is now a jury-belt system rather than a look at those 1986 numbers, which are eye-popping. to think when ronald reagan and democrats got together, in two years, they created more jobs than you saw in eight years of partisan tax policy. what would be the benefits of looking beyond a tax approach. >> the current nature of our tax system is damaging to the economy. we hope and expect businesses and families are planning ahead in making decisions and investments for the future and it's very difficult for them to make those sorts of decisions in an informed and thoughtful way if the tax rates that will apply to them a year or two down the

road are so uncertain. resolving that uncertainty would encourage and support household decisions, business decisions, and investment and hiring, probably. >> my time has expired, but because we will be working closely under your leadership under the next two years, i want to touch on a last point that dr. elmendorf made about the nature of a temporary set of tax policies. if we have the same debate in the lame-duck session of 2012 where we are once again talking about extending the tax law today for two more years, dr. elmendorf has told us that will be damaging for the economy and the country. with your leadership, i hope is that this time over the next two years, we can make permanent, pro-growth changes to tax law,

get it done in this congress, and not just real litigate another set of temporary tax law changes in the lame-duck session of the 2012 congress, which dr. elmendorf has just told us would be very damaging. i think the point dr. elmendorf made is especially important. >> senator sessions is now back. he was at another hearing. i think it is most important we get to him for any additional or opening statement he would want to make and then we will resume questions. >> thank you. [audio difficulties]

that is better. fundamentally, you are absolutely correct. a permanent tax policy is better than uncertainty and we have too much uncertainty in our economy and we need more stability and you have come forward with some proposals and ideas i think are worth serious consideration and i look forward to working with you on it. i truly believe you are attempting to accomplish something in an effective way. i'd like to congratulate you, mr. elmendorf for your real important. you have carried out your duties with honesty and integrity. you have some rather specific controls on how you score and evaluate matters. it is not your fault, they have been established and you follow them, i think objectively,

whether we like that are not. the rules are set up mostly by congress. we have the new baseline and the news was not good. the deficit is expected to reach $1.5 trillion this fiscal year as of september 30th as, well above what we were projecting not long ago. our gross debt is expected to reach 100% of gdp, meaning the amount of all the money our nation as will soon be equal to the value of everything are nation produces. that is above the 90% level that could be calculated in the analysis of nation to default on their debts. the 90% rate is significant.

40 cents of every dollar we spend is borrowed. by the end of the decade, the interest on our debt is expected to rise to $750 billion in one year. that crowds out -- people want spending, people want to spend more on a host of projects and i'd like to do that too, but we have $750 billion less because we have to pay interest on the surging debt we have. alan greenspan said recently that we have almost a 50/50 chance of a bond market crisis in the next two years. that was from a "wall street journal" interview. i thought that was something we should hear. this is a man of wisdom who has been around a long time and he says the only question is will this debt bond crisis be -- these kinds of budget numbers we

need be passed before or after the crisis? it would be a lot better, i think we all agree, critical that we do of before the crisis. the path we are on is unsustainable, yet i have to say president obama in his state of the union address, announced fundamentally we would continue as we are. to hear the president's remarks, one would think his speech had been written 10 years ago. they were disconnected from the reality of the debt crisis we face. earlier this week, i said his state of the union address would be a defining moment for his presidency. i don't think he rose to the occasion. it was a timid speech, it squandered a historic opportunity to rally the american people behind true spending reform. he had the opportunity to look them in the eye, say what the

real dangers we are facing our and call on us to meet the challenges that americans will it properly called. it was far short of the standard set by gov. chris christie in new york and david cameron in the uk. no one forced the president to be the president. like my wife says, don't blame me, you asked for the job. he asked for the job and he has a real tough job now and i don't think he did lead effectively. he proposed instead we continue a five-year plan. this so-called freeze on domestic spending is not a plan to reduce deficits. it's a plan to preserve the deficits, locking in place the very spending levels that have been dramatically increased by president obama in the last two years. the plan is remarkable, not for

the strength, but for its weakness. in defense of his proposal, he argued the government spending is the engine of the economy, that the government is the engine of the economy, basically. he had this airplane metaphor backwards. the engine of our economy is the private sector, not the public sector. when the public -- and the private sector grows, it creates new jobs, new industries, new ideas and more tax revenue. but when the public sector grows, it simply consumes more of what the private sector produces. big government waste is funded on the back of small business thrift. the american people deserve candor and directness from the elected officials. the money to sustain the president's big government vision, the more investments he called for is simply not there. we don't have the money. meaningful spending reductions are not a choice. they are an obligation. there is no serious alternative.

we need to take a tougher road, the road that leads to prosperity. reducing the size and cost of government and not be easy, but is the only responsible course, the only one that will lead us to a better future. so i look forward to discussing the issues with you now and as we go forward through the next years. together, i believe we can make some progress. mr. chairman, there is nobody who has seen this and study this more carefully than you. i look for to seeking your advice as we go forward. >> thank you. it may turn out that it just falls to less in this committee to put forward a plan. if the commission did not give

1418, it may just be that we have to go backed -- go back to a process that worked in this committee when i first came here, which is to have a real markup. "and for this committee to lead. frankly, i never thought on a problem with the dimensions of this one, where we typically do five-year budgets, in this circumstance, which requires a plan that extends beyond five years, that this was not the forum to sort it out, but i am not sure anymore. i'm not certain it is not going to fall to less to put a plan out there for our colleagues on the floor. i am going to be having discussions with members of the

committee on both sides to see what the feeling would be about our taking this on and laying a plan before our colleagues because this is the budget committee. even though we have typically been limited to five-year plans, maybe we are the only ones who are going to have the opportunity to lay out a comprehensive plan absent some kind of summit. i think the thing that makes the most sense is there is a summit between the white house, leaders in the house and the senate because of the end of the day, the white house has to be at the table. unfortunately, the budget process, the president is left out. the president gives us a budget and congress passes a budget but it never goes to the president for his signature or veto. but if there's not going to be a

summit, there's not going to be some kind of negotiation. maybe it's going to fall to us in this committee to put forward a plan. >> let me congratulate you on your reappointment. >> thank you. >> we're glad to see we all agree on something. on health care, you scored health care and you see where we are right now with the bill being sent over in repeal and i heard the $200 billion for on that. could you elaborate on that and a little bit on what the mandates would do if they were eliminated and from the state's perspective, the medicaid -- i'm not sure if anybody really understood where the governors

were coming from, most states do not cover 50% of the people qualify. we'd jump from 50% of all the way to 133, which we have a hard time swallowing. if you could talk about that, i will have one further question. >> you raise a lot of complicated questions. the original legislation enacted last march, a patient protection, affordable care and the reconciliation act set in place substantial expansion of federal entitlements for health care. it paid for that expansion by the setting in place new tax revenues and trimming money from existing health programs, particularly medicare.

by trimming the money for medicare in a way in which the gains to the government budget would increase over time, the rate of increase to payment providers. in our analysis, the combination of the extra tax revenue and the reductions in spending laid out in the legislation exceeded the cost of a new entitlement so the legislation had in our assessment last month -- last march, small positive effect on the federal budget. in the preliminary analysis, we prepared for the house vote that repealing that legislation would have a small negative affect on the federal budget. we are in the process of constructing a full pullback which we will make available as soon as we have completed it. one of the many questions we were asked along the way during

the health debate in addition to the federal budgetary effects was the affect on state budgets. the expansion of medicaid put additional burdens on states, the expansion was set in place in such a way that the federal government pays at -- pay a larger share of the cost of people made eligible for medicaid that it does under the current program. but nonetheless, it would not pay all of that bill and the share the federal government will pay for the newly eligible people declines overtime. our latest estimate is that the state share of the costs associated with the medicaid cover and much -- coverage expansion will be a little over $60 billion during the time covered by this latest outlook. > that is when the state's -- and that goes into effect? >> yes.

we tend to report 10-year numbers. it is principally 2014 and beyond. it is not our place to judge how they can deal with that or whether it is appropriate, but the estimate incorporates our expectation of changes in state behavior in response to the firebird and they will face. our estimates cannot incorporate changes in law that you and your colleagues might incorporate the federal level, but our estimates and corporate responses by family, businesses and state governments. >> give me, if you could score the reduction of 133 to 100 >> also, the mandates were removed. if there is an offset, we could talk about that. i was very proud of the debt

commission. in west virginia, every family sits down and work through their budget. they start a budget and stick with it. most states have a balanced budget amendment. i want to know what your thoughts would be for this federal government because it does not seem we are going to have the will to tackle the problems we have to and the votes that have to be made unless there is a balanced budget amendment that forces us and it would do it over time because ratification would take some time to do it. in give us a chance to get our financial house in order. the states are going through some very challenging and difficult times of making difficult cuts. they are looking at the federal government was saying why can't you do it? we are taking these cuts and making these tough votes but we don't see anything coming from washington. if i could hear your response

on a balanced budget amendment and a constitutional change of how we do business in washington. >> i don't think it's appropriate for me to make a recommendation for or against that sort of change. i will make a few observations. the set of budget rules set in place in 1990 regarding caps on discretionary spending and the pay-as-you-go system for mandatory spending and taxes seemed to have been effective at helping to guide decisions of the congress as long as there was the focus in the congress on deficit reduction. once the budget improved, and a focus dissipated, those restrictions were no longer effective. >> the focus in the congress, amending the constitution to require that sort of balance

rages -- wages -- raises risks. the automatic stabilizers the government has, the fact taxes fall when the economy weakens and that spending programs increases when the economy weakens. existing law -- there's an important stabilizing force for the aggregate economy. state governments need to work against as a fax in their own budget and need to take action to raise taxes or cut spending. that undoes the automatic stabilizers that the state level. taking as a way at the federal level risks making the economy less stable, which is exacerbating the swings in the business cycles. >> but would you agree we are very unstable right now? >> yes. the automatic stabilizers are not purposefully stabilizing. but taking away would have cost you and your colleagues would have to weigh.

that amendment does not suggest how you or your colleagues would change taxes or spending. >> would you be asked to score a balanced budget amendment? >> we do not score amendments to the constitution. >> i would like to you -- like to talk to you further about that, is very important to me, every governor and household in west virginia. they can do it, they think we can do it also. >> i did not ask any questions and my first comment. can i have two minutes to ask a question? >> >> we have an unusual situation. it is a little unfair to do that. the your the ranking member, so we'll make an exception great >> you are a great chairman, and i thank you. magnanimous.

>> with regard to to this core of the health care bill, mr. elmendorf, the money that came in through this bill, with medicare trams and medicare cuts, tax increases, most of which were medicare tax increases, i believe, that money was used to fund the new program. but two things are important. mr. elmendorf has made it perfectly clear that you can't cut the money twice. cannot increase medicare and it fund the new program. this is a very serious matter we're talking about. thet it true that treasury, new health-care program is in

giving money to fund the program, but the money they got and the medicare cuts is borrowed by treasury and treasury oppose that money back when medicare continues to go into default and claims of money back? >> senator sessions is referring to a set of letters we cents in his request in january of 2009 and 2010. it is done on a unified basis, taking into account all spending and revenue. the net of fact with deficit spending as a whole. the cutbacks in medicare spending, to get with revenue increases more than offset the extra spending on the new health entitlement and expanded health entitlement.

it is also the case that the savings in medicare, particularly the savings in the hospital insurance part of medicare then lead to a greater accumulation of bonds in a trust fund. those bonds have important legal meetings. there are real u.s. debt backed by the full faith and credit of the united states government, like the debt sold to the public. they do not have independent economic meaning in the sense that the trust fund has an accumulation of bonds. that does not give the trust fund a separate way to pay medicare benefits, except by coming back to treasury, redeeming those bonds, and getting that cash in the future. another way to say that is that paying medicare benefits in the future relies on tax revenue that will be raised in the future or borrowing that will be

done in the future cannot depend directly on the bonds in the trust fund. >> i think that's fair and all this need to understand that, but i would go a little further. it increased the internal debt of the u.s. treasury because the money extended for the health care program is borrowed from medicare, at least a substantial portion of it. when medicare, since we know is going into default, inevitably will call those bonds, the united states treasury will have to raise taxes or borrowing on the economy or deflate the currency, which is the three choices governments have, isn't that basically correct? >> the money is being borrowed from the medicare trust fund. >> it increases the internal debt, the gross debt of the united states. >> absolutely. >> i think the senator for making the point because we have

the same issue with social security. the hard reality is social security has trillions of dollars of assets. that is true. there is special purpose bonds backed by the full faith and credit of the united states are real assets. the problem is the only way those bonds are redeemed is out of current income. social security is going to go permanently cash-in five years. i have to say -- and i have received the lash from those who say you should not have to touch social security because there are trillions of dollars of assets. that's true. it is true that there backed by the full faith and credit of the united states, it is also true that the only way those bonds get redeemed is out of the

current income of the united states. we are about to see a dramatic shift in the budget circumstance when we go to having hundreds of billions of dollars of surplus and social security the general fund could borrow to having a circumstance in which there are hundreds of billions of dollars of debt that has to be serviced out of current income. senator, i apologize because you got delayed. >> that's okay. the important thing is getting some of these issues on the table. what you just talked about is of absolute critical importance. you talked about the full faith and credit of the united states and that is what we are dealing with. the chairman held up about moody's and standard time -- moody's and standard and poor's, talking about the aaa rating of the united states. japan was just downgraded to aa. what would a downgrade from

triple a to double a of the united states credit rating due to the interest rates and your budget projections? your budget projections in my opinion, i know you try to be conservative, but as we have seen, i think this year you projected a $1.1 trillion deficit. for this year, it turned out to be a $1.5 trillion. some of that was because of the tax policy, but the bottom line is these things can change radically very quickly. the full faith and credit idea, this idea of of the bond traders downgrade our bonds, if the fed is successful, and a lot of people think they're going to be successful in raising inflation because that's what they're trying to do with the monetary supply, those all lead

to higher interest rates, higher than you are projecting. that is the question -- if it goes out to double a, what does that do your projections? for the steps? >> if the federal government's credit rating or to lower, that would push up the interest rates the government would pay and push up the interest rates would have to pay. we would not quantify how much it would affect interest rates, but it would be an adverse affect. >> it would not be insignificant, it would be significant, would you agree? >> absolutely. >> you talked about this -- the sooner we make these changes -- they are going to be painful, but the sooner we make them, maybe all less painful. as alan greenspan talked about, we're going to have to make

these changes, it's just do we do them in the middle of a crisis or do we do it to avoid the crisis? that's a significant part of this. my colleagues mentioned we need presidential leadership right now. the chairman has talked about this committee doing its job. i could not agree more that the president needs to lead right now. these issues we're talking about, and you have been around and seen this, dr. elmendorf, it's much easier to get reelected by giving money away. none of us want to make these tough political boats. but we have a democratic president -- these political votes. we of democratic president, democratic senate, and republican house. the president would lead come join the parties together, we could do what's right for the american people. but it's up to him to lead. he's the president, he's the

only one with the bully pulpit. our little microphones here don't echo through the country. i think he failed on the state of the union, but he has plenty of opportunities. we have the debt ceiling coming up. he has his budget coming up. there are plenty of opportunities for the president to lead. forget our party labels, this is about the future of our country. the-you're talking about, the interest on the debt, you say that's unsustainable. it is. it is unsustainable. dr. elmendorf, the reason you were reappointed by republicans and democrats is you try to call a fair shot. we don't always agree, because what you do is unbelievably difficult to predict, but you play within the rules you are given and some of the rules aren't necessarily the best rules for making the most accurate deductions as well. but the bottom line is all economists agree, our country is

in serious trouble if we do not deal with the debt and deficit problems. $400 billion the president talked about the other night, what percentage is of the debt we are going to accumulate over the next 10 years based on your projections? >> under the based projections, we expect the government will accumulate about $seven trillion in debt over the next decade. $400 billion is a little over 5%. -- about $7 trillion. >> especially the talk about the alternative minimum tax, and all those things we know are going to happen -- >> if we go into all those expiring provisions, we look for debt of $12 trillion over the next decade. $400 billion is a few percent of

that. >> as far as total projected spending during that time, what percentage? my back of the napkin calculations are less than 1%. the president has basically said we're going to reduce spending by less than a penny at of every dollar when this country, all economists say it is unsustainable. this country is headed for a financial crisis that we maybe have never seen. for us to sit here -- that's why it's so important to join together as republicans and democrats with the president to tackle this problem. mr. chairman, i'm willing to join whoever it is, but we have to make such a difficult -- these are going to be painful, politically painful choices to make. we have to have the kind of tax policy because you cannot just cut your way out of this.

you have to cut and grow. you have to do them both at the same time. it's the only way you are going to solve this financial crisis that could be looming on our country. the last thing i have this -- the last thing i have this state pensions. moody's is requiring states to put their pensions on their books. you talk about destabilizing factors, what does that do potentially to this whole economic projections going off into the future? >> we are in the process of completing an issue brief and state pensions which we will release very shortly. it's a very important topic. the issue of stabilization was in the context of year to year behavior during the recession, downturn and recovery. a very important long-term financial issue for states and local governments is the commitments they have made to pay certain benefits to retired

government workers and whether they have or have not put aside sufficient money to meet those. >> i realize my time has expired. my last comment is it's not in the future. my state is dealing with this right now. cities and states across the country are dealing with this problem right now. they know [inaudible conversations]

[inaudible conversations] become very important to reaching an agreement, not a plan. so, the budget i never believed the budget committee had actual authority we have since freewill to the task of the plan to get the debt under control.

we just don't have the requisite authority. who else is going to do it. sort of my frustration. and i know there's some pressow reports that i'm criticizing and i really am not and i'm not criticizing the president, i amh just looking at the reality wit. to me, " would be the most of effective is to have some kind of negotiation -- the third problem of the budget is the president never get the resolution. it is a congressional document. ultimately, the president has to be at the table because he can veto legislation. maybe, with all of that said, --

you know, i have been really trying to think of a way to get for a the bodyy a plan debate that needs to occur. what is a way? that is why i made the comment that i did. i do not have a more formal plan. however imperfect the institutional boundaries are here for the budget committee to take this on, maybe we are just going to have to do it. >> a are you frustrated by a lack of ideas?

you wanted a budget summit, and you seem to be proposing this because nobody is a bleeding in it. biting it. >> yes, but this is not a criticism of the president. i think the president made a quite clear that working at it discretionary spending is now going to get us where we need to go. that the kind of comprehensive plan that was laid out by the fiscal commission is what is required, looking at both the spending side, and not just non- defense and discretionary spending, because that is such a small part of the budget. we have to look at all the spending of the federal government, and we have to look at the revenue side of the equation. while the budget committee,

because of the authority of this committee is really not well positioned to come up with a comprehensive multi-year plan of the type that is needed, who else is going to do it? that is the frustration i have. institutionally, of the way things are structured here, we do not have a mechanism, we do not have a place that really has the authority to deal with the kind of multi-year, long-term plan that is required. so, i am struggling with this myself. >> have you talked to other congressional leaders about a solution to this? >> no, i have not. >> can