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>> we are going to show you the first meeting of the deficit committee held on september 9th where members laid out their goals for the committee. this is just over an hour. [inaudible conversations] [banging of the gavel] >> the joint committee will come to order. if photographers would please remove themselves. today the joint committee

convenes its inaugural meeting in accord with the budget control act of 2011. i welcome my colleagues from the house and the senate. my cochair, senator murray and i thank each and every one of you for agreeing to serve on the committee. today's inaugural meeting is for the purpose of organizing the committee. there are two items on the agenda. each member will have an opportunity to make an opening statement, and then the committee will take up consideration of its rules, after which, we will adjourn. the joint committee has noticed its intention to hold its first hearing next week on september 13th entitled the history and drivers of our nation's debt and its threat. dr. doug elmendorf, director of the congressional budget office will be our only witness. finally, i wish to announce that my cochair, senator murray and i

have agreed to alternate sharing our hearings and meetings perhaps by alphabetical order or some other arbitrary criteria of which i'm unaware. it was decided that i would chair the first meeting. before the chair yields to himself, the chair wishes to remind all of our guests that any manifestation of approval or disapproval, including the use of signs or placards is a violation of the rules of the house. the chair wishes to thank our guests in advance for their cooperation in maintaining order and decorum. the chair will now yield to himself for an opening statement. the late spanish philosopher famously wrote, those who cannot remember the past are condemned to fulfill it. in 2009, professors carmen

reinhart and kenneth rogolf pushed what may be the seminal work on the subject of past debt crisis entitled this time is different. spinning many different examples of a vast expanse of world history it paints a tragic mosaic of high unemployment, currency debasement, civil unrest, loss of economic growth and in extreme cases collapse of a nation. this is a path that we in america do not want to fulfill. unfortunately, when it comes to our own debt crises, the needle on the gauge has now entered the red zone. the debt situation threatens our job. speak to any future 500 ceo for any future businesses, it's clear our debt hangs like a sword over their hiring decisions. as one small business person in my district put it, jeb, i know somehow some day i'm going to have to pay for all this debt. so now is not the time i'm going

to take the risk of buying a bunch of equipment or hiring a bunch of folks. as his elected representative how can i ignore such sentiment especially when i hear it everywhere and i know that it is shared by thousands and thousands of job creators from coast-to-coast. i would hope it would be obvious to all that deficit reduction and a path to fiscal sustainability are themselves a jobs program. secondly, our debt threatens our national defense. no less of an authority than the chairman of the joint chief of staff mike mullen has said, quote, the single biggest threat of our national security is our debt. in interest payments alone, we are enabling china to buy two jet fighters a week. is it not our public duty to respond to this kind of warning with the same alarm and resolve that would be summoned to defeat any other threat to our nation?

finally, our debt threatens our children's future. spending has grown from its historic norm of 20% of our economy to 24% and is on glide path to grow have to 40% and beyond in the course of a generation. if finance through borrowing interest payments alone would crush our economy. if financed through taxes, the tax burden would have to more than double, a burden never dreamed of by the american people and the businesses which employ them. should we let this happen, i fear we would be the first generation in america's history to leave the next with less freedom, fewer opportunities and a lower standard of living. i will not sit idly by and watch the american dream disappear from my 9-year-old daughter and my 7-year-old son. and i believe that is a sentiment shared by all of my

colleagues. so what exactly is driving our debt? president obama has said, quote, the major driver of our long-term liabilities, everybody knows it, is medicare and medicaid and our health care spending, nothing comes close, unquote. i agree. the president has also said, quote, if you look at the numbers, then medicare in particular will run out of money and we will not be able to sustain that program no matter how much taxes go up. it's not an option for us to just sit by and do nothing, unquote, again, i agree. this takes us to the charge of the joint select committee on deficit reduction. i have many hopes. i hope we were able to bring about progrowth tax reform in order to bring about more revenue. i hope we're able to prioritize spending as families and small businesses do every day. i hope we're able to reform many

different programs to make them more efficient and effective but in order to succeed, i know this committee must be primarily about the business of saving and reforming social safety net programs that are not only failing many beneficiaries but going broke at the same time. i approach our task with a profound sense of urgency, high hopes and realistic expectations. our task to achieve $1.5 trillion of bipartisan deficit reduction will not be easy, but it is essential. as we proceed like any other committee in congress, there will be public hearings. there will be ample opportunities for the public to have their opinions heard. and like any other committee of congress, there will also be some discussions among members that will not be public. however, no final product will be adopted without ample public notice and a public vote

according to the rules. whatever this committee may achieve, i hope that we can at least agree that it is past time to quit spending money we do not have. it is past time to quit borrowing 42 cents on the dollar, much of it from the chinese and then sending the bill to our kids and our grandkids. i do not believe this committee alone will solve our nation's debt crisis. but a bipartisan negotiated reduction in the growth of our nation's debt would be a wonderful, needed, hopeful step in the right direction. beyond this committee and this congress, one day this generation will be judged. will history record that we wrote the first chapter of america's decline or will history record that we kept faith with the founding fathers and previous generations and left the next generation with greater blessings of liberty and vaults of limitless opportunities, the choice is

ours. let the work begin. the cochair now yields to the distinguished cochair of the committee, the gentlelady from washington, senator murray. >> well, thank you very much, chairman hensarling. thank you for agreeing to cochair this committee and all the work and time you've put into it so far and all the commitment we have in the coming weeks to put together this challenge in front of us and i want to thank all of our committee members as well for your commitment to this. like all of us, i spent a lot of time this past month traveling around my home state and talking to struggling families. i heard from people from all walks of life, with different challenges and hopes and ideas about where we need to go as a nation. but the one question i got from so many of them was, what is going on in washington, dc? they're worried. many of them are scared about what the future holds. they're frustrated. they want this country to work, and they know it can. but many worry that our government is broken and at

times it's easy to share their fear. this committee has the opportunity to show the american people we can still come together, put politics aside and solve a problem that's plaguing our country. we each got into politics for a different reason. but i'm quite certain none of us came to engage in the kind of petty bickering that's been dominating the discourse here in washington, dc, recently. we may not all agree on the solutions to our problems. we may not even agree about what the biggest problems are, but i know every one of us understands our great nation faces serious challenges. i hear from so many families about the jobs crisis that is devastating the middle class that we need to work together on as a nation to address. i hear from businesses that are struggling, especially small businesses, that are having a tough time creating the jobs that millions of americans are desperate to fill. and because of this sluggish

economy as well as for structural and policy reasons, our federal government is facing deep, short and long-term deficits. and a growing national debt that if left unchecked will be an overwhelming burden handed down for our children and grandchildren to bear. so there's no doubt that our country faces deep and serious problems. but i am confident that we can face them together and come out stronger because we've done it before. as serious as the problems we face now are, our country has faced greater. our people and our political system have always found a way to meet our challenges, move beyond them and flourish. and that is why i agreed to cochair this joint select committee on deficit reduction and i'm proud to get to work with all of our committee members who have shown they are also serious about the challenge in front of us. not because i believe this

committee is going to solve every one of the problems the country faces and not because the task we are charged with is easy or pain-free. it's because i believe we owe it to the families we all represent to finally come together, put their needs first and work together to find a solution that will put our nation on a solid path forward. this committee is made up of six democrats and six republicans. we each come to this task with our own strong set of principles, beliefs, and priorities for the country that we love. and while none of us will ever set aside or betray our principles, we must keep in mind there is much more that combines us as americans than divides us and we must all be open to compromise and the ideas and viewpoints of others. that's why i've been so glad that as we've gotten this process off the ground over the last few weeks, committee members have refrained from drawing lines in the sand or carving out areas that can't be touched. and as we move forward, i hope

we can continue to not allow ourselves to be boxed in or pigeon hold by special interest groups or media or pundits and we are allowed the room to come to a balanced agreement. there's broad understanding among us that economic growth and job creation are the best ways to reduce the deficit and debt so we certainly have some real differences regarding how to achieve that. but if we want to get our country back on track, we must come together around a balanced plan that can pass through this committee with bipartisan support, pass through both chambers of congress, get signed into law and that we can be proud to take to the american people. a successful final product from this committee will not be one that any one of us would have written on our own. it will have to include compromises on all sides. we have not been given much time to accomplish this. but thankfully we are not starting from scratch, far from it. together we can build on the

work of many, from both sides of the aisle, who have worked hard over the last few years on deficit reduction proposals. now families across america are looking to this committee to take those last few steps and get this done. the same families that sat at their own kitchen tables making tough choices about their fiscal future. this will not be easy, but we can do it. and i'm looking forward to getting to work with my colleagues on this critical and serious task. today we will be discussing a set of proposed rules for this committee that i've worked on closely with representative hensarling and i want to echo what the cochair has said about them. i'm confident they're going to give this committee the structure it needs to conduct our business transparently, get input from experts and members of the public and work together to pass a bipartisan plan that works for the american people. i believe the american people deserve to have full access to

committee business the way they do with every committee in congress and i believe these rules will allow us to do just that. as my colleague from texas said we looked at how house and senate committees operate and we work together to meet together and have the ability to discuss important issues. and as this committee works to bring its final product forward, let me make it clear that that product and that process will be public so my colleagues and the american people will know what the committee has put together. thank you, mr. chairman. i look forward to working with you. >> thank you. and the co-chairman now recognizes the gentleman from ohio, senator portman. >> thank you, mr. chairman. and i want to say first that i appreciate the way you and senator murray have laid out the critical task before us. the truth is, this extraordinary committee exists because nothing else has worked to address the serious fiscal crisis before us and one that threatens to sink

an already weak economy. the signs are all around us. record deficits, unsustainable debt, a bond rating downgraded for the first time in our great country, the faltering economy and this budget problem that was talked about earlier are, of course, both linked. an economy burdened by excessive government spending and borrowing doesn't create jobs. it creates uncertainty and caution. and an economy failing great jobs, of course, stretches the government's resources further and fails to create the revenue needed to close the gap. how to fix the budget problems and grow the economy are the twin challenges of our time and both must be addressed together. this committee has been tasked with reducing the deficit by 1.5 trillion over the decade. it's a significant task. and, frankly, reductions of this level have never been done before in any single piece of legislation. cutting $1.5 trillion, though, can be achieved.

and it must be achieved. think about it this cutting 5.3 trillion means 3.5% of total projected federal spending over the next decade. think how many families and businesses we all represent who have had to do much more in the past few years. some have asked why we shouldn't be doing more. and, you know, as i calculate it, based on the more realistic so-called current policy baseline using cbo data, over the next 10 years the debt is likely to increase by about $13 trillion. so our goal of 1.5 trillion would reduce that increase in the debt by only about 12%. so, yes, we should aim higher. we should aim to do what's necessary to bring long-term sustainability to the federal budget. the american people want this. the financial markets, the credit agencies are looking for this. and future generations who will be inheriting this debt deserves this. let's at least hit our $1.5

trillion target. and let's keep in mind that long-term sustainability also means that merely reaching the 10-year target isn't enough. the quality of reforms matter more than the quantity of reforms over the next 10 years. it could aid up to 1.5 trillion over 10 years. yet they would leave in place soaring deficits caused by unreformed entitlements. i'm sure there will be a spirited debate in this committee over tax policy. but let's keep in mind that the long-term deficits projected are caused by rising spending, not declining revenues. even if we were to keep all the tax rates where they are today, meaning the laws have to be changed to extend all the tax cuts from 2001, 2003, to patch the alternative minimum tax, the congressional budget office figures show revenues would still exceed the 18% of gdp historical average over the last 50 years over this next decade. spending on the other hand, has

already jumped from its historic average of about 20% to about 24% of gdp. and in future decades without reform, of course, is projected to soar well beyond that, the 25, 30, 40, 50% of gdp. so we should aim for structural reforms. but preserve and strengthen the entitled programs and ensure the benefits are there for those in need but also reigning in costs that threaten to bankrupt these programs for our children and grandchildren. this doesn't mean we should ignore taxes. we should try to fix our complex tax code. commonsense tax reforms could uneliminate tax preferences and apply those to tax rates to encourage savings, investment and jobs. that will create economic growth and generate more revenue. the cochairs, i look forward to work with colleagues on this committee. the american people are counting on us and we can't let them down. >> cochair now recognizes the

gentleman from california, congressman becerra. >> i'd like to begin by acknowledging our cochairs, senator murray and congressman hensarling as well as all my colleagues for their acceptance for their challenge to serve the american people in this difficult task. we face a defining challenge. will we embrace this opportunity to lead and put our economy back on track? or will we let the cynics and naysayers carry the day. we should start this process without preconditions or limitations. it is precisely because of its difficult nature that we need to step up and not cower from the challenge before us. i'm confident each one of my colleagues would agree that we must live and breathe believing that failure is not an option. we can prove to the american people that their country, their representative democracy is still alive and well. we can do that by simply listening to them. they have been telling us time

and time again to put on the same uniform and work not as democrats and republicans but as americans to treat everyone on the team fairly, not favoring powerful special interests as we look to spread the pain and the gain. and they have said to us loud and clear, tackle the biggest deficit, the jobs deficit as we restore fiscal responsibility to our budget. not too long ago our country saw record budget surpluses and our economy experienced the best decade of job creation in a generation. times have changed. this committee must be completely honest and open with the american people about what drove us here and how we plan to solve this fiscal challenge. this committee should be transparent throughout its process. we must identify the drivers of the deficit, point out the waste, fraud and abuse in the system and shine a light through any loop 12 for the taxpayers deserve nothing less than complete accountability. 14 million americans are still out of a job through no fault of their own. these are honest folks who are

out there right now looking for an honest day's work. and the fact of the matter is, these folks would be happy to be paying taxes again instead of drawing an unemployment check and that's the best way to reduce the deficit. put americans -- millions of americans back to work and get the economy growing. for america works when americans are working. we should set out to ensure that any plan we propose does not get in the way of any american willing to work from getting a job. but that's only part of the solution. we must achieve balance. policies that promote economic recovery and investment with smart, responsible long-term deficit reduction. by listening to the american people and allowing them to learn about the causes of these deficits through numerous and robust hearings and meetings, we can lead our country to find a sound solution to our deep fiscal troubles. i look forward to working with each and every one of my colleagues on an american solution to this challenge. let's get to it. i yield back my time. >> thank you. the chair now recognizes the

gentleman from michigan, congressman camp. >> well, thank you, chairman hensarling and chairman murray, fellow members of the joint select committee on deficit reduction. the problem we face is obvious. there's too much government spending and too much federal debt that are impeding our economy's ability to grow. as a result, too few private sector jobs are being created. we know it and the american people know it. a quick look at the facts show this committee has its work cut out for it. there were zero net jobs created in august. roughly 14 million americans remain out of work as the unemployment rate continues to hover around 9%. and the total debt for fiscal year 2010 reached $13.6 trillion or 93.1% of gross domestic product and it's growing at an astronomical and unsustainable rate. by the end of this fiscal year

our debt will exceed our gdp and according to expert testimony before the bowles simpson commission this gdp to debt ratio of over 90% has already cost us over 90 million jobs. these have happened on both parties' watch. frankly, both parties have also refused to enact many of the necessary and well-known solutions. simply put, washington has overpromised and underperformed. as a result, this committee must make and then hopefully our colleagues will concur with the tough decisions needed to find at least $1.5 trillion in debt reduction and take another step toward getting washington's spending under control so our economy can get back on track. as i stated when i was named to this committee, the final product must be looked at through the prism of job creation. will the recommendations help or hurt job creation now and in the future?

[chanting] >> if the gentleman will suspend until the disturbance is taken care of. [chanting] >> please -- if the staff will shut the doors. [chanting] [chanting]

[chanting] [chanting by protesters] [chanting by protesters]

[chanting by protesters] [chanting by protesters] >> would the staff to the best of their ability shut the door. and we will continue our proceedings. the chair believes the american

people want to see this committee succeed. so if members perhaps could speak a little bit more loudly -- >> i will try to do that. >> the chair again recognizes the gentleman from michigan. >> i didn't mean my remarks to empty the room but i'm from a big family so i'm used to a lot of background. let me just continue by saying, by reducing the burden the federal debt places on employers, families and taxpayers, we can help get the country back on track. and americans back to work. comprehensive tax reform would spire economic growth and should encourage discussion. i urge my colleagues to be bold and to focus on both the short-term and long-term impact of our recommendations and while i'm not naive, i am optimistic that we can succeed and i look forward to working with all of you on the committee. thank you. i yield back. >> the chair now recognizes the

gentleman from montana, senator bachus. >> we couldn't hear representative camp. >> i'll make sure you get a copy of my remarks. i'm sure that will be -- [laughter] >> i'll read them very closely. >> if the gentleman will yield, we called this room informally the big house and we're just getting ready for the night game for notre dame this side is blue and this side is gold. >> i'm not sure when the disturbance outside in the hallway will be taken care of and i would like to go ahead and proceed and certainly the american people can hear our statements and it's being recorded. ..

>> basically max, we are sure glad you're on the committee, but we sure feel sorry for you. it's a big test you have ahead of you. wish you all that they're very best because it's something that has to be accomplished. i think that expresses a lot of wisdom of the american people. namely, we have a huge problem ahead of us and the american people want us to solve it. pretty simple. i had a couple just basic points. number one, i think that we have, we should aim higher rather than lower. we are charged with yet and

deficit about 1.3, 1.5 trillion. i think we should try to do more. if we do a little more, then we will be able to get our fiscal house in order much more quickly, otherwise we might. we must also recognize that we are at a real crossroads here. that is, if a country is looking at us, the country, businesses looking at us, consumers are looking at us, there's a lot of uncertainty in the country today, and a lot of uncertainty in the world today. if we can get our act together, we as a country, can get our fiscal house in order i think i will address a lot of the uncertainty that exists today, causing us to move, or slipped back into recession, or at least causing us not to create the jobs we want to create. we have to be balanced, clearly. we have to be fair. we have to include revenues. not just spending. also revenues. many groups have done a lot of

good work on a lot of ground. bowles-simpson, gang of six, lots of proposals out there. people were extraordinarily hard, a lot of energy into trying to solve the problems. weekly should take a lot -- advantage of the work because it's a lot of good work done by a lot of good people. jobs, clearly sense the statute was passed creating this commission, there's been a greater need them greater cry for jobs. more jobs, clearly efforts to help find a way to get more jobs. more jobs means more growth. more growth means more revenue. more revenue means we can solve this problem more easily. so i ask my colleagues, let's work together. lyndon johnson once said, thousands of times, one cannot solve very much by oneself, rather it takes cooperation and

working together. we will only give what the american people want us to do if we work together, if we keep our eye on the ball, not get distracted by a lot of stuff, and just dig down really deep. it's going to take, dig down deep to get this thing resolved. thank you. >> co-chair that recognizes the gentleman from pennsylvania, senator toomey. >> thank you, mr. chairman. i think several of my colleagues have address the magnitude of this problem. i think we all understand it is huge. it's my hope that our response will be commensurate. the fiscal mess that we're in now threatens our livelihoods, our prosperity, opportunity, and even national security. but we have an extraordinary opportunity to do something about it. to begin to put our government on a sustainable fiscal path and to do in a way that will encourage economic growth and job creation that we all know we

badly need. i think the challenge calls for a bold response. you know, we could choose to just nibble around the edges of this problem and just look for redundant programs and obsolete programs. and we need to do that. we need to find them. they are out there. they might even be able at up to one a half trillion dollars which is a statutory goal. but if that's all we do, then i would suggest as i think senator portman observed, that we wouldn't really be doing all that's necessary to put us on a pro-growth sustainable path. if we are going to truly meet the challenge that we face, i think we do need to address the big entitlement programs that we all know are driving this fiscal problem. and we all know that's not easy. it's not easy for any of us to do that. we've all got many constituents who rely on these programs. it means that we would have to make some real changes, but we can do in a way that protects the vulnerable members of our society that we want to protect,

and still put these programs on a viable and sustainable path. we can only do it if we do it in a bipartisan fashion. that's a big opportunity for us. the other thing that we've got to do is max west economic growth and job creation. let me just underscore, if we can find a way to create policies that will encourage annual growth to expand just 1% per year faster than it otherwise would, that alone generates $3 trillion in additional revenue over 1 10 years. $3 trillion smaller deficit, $3 trillion less in debt. and millions of additional jobs if we can foster stronger economic growth. how do we do that? i would observe number one, cutting spending and reducing the deficit is itself a pro-growth because it removes the chilling effects that excessive deficits have on job creators and investment. but the other big opportunity for us is tax reform. in a simpler, more fair system would encourage economic growth

and go along way to helping this problem. i think our tax code is a national embarrassment. both parties are guilty of giving it to the point where it is now. examples abound. we have ethanol credits that are bad economic, bad agriculture, bad tax policy. we use the tax code to force americans to pay more for inefficient sources of electricity. that costs us jobs. in which each iconic american corporations can pay little or no income taxes, well, that's just indefensible. i think we ought to wipe out those special interest favors, have commensurately lower rates, encourage the economic growth that will generate more revenue, generate more jobs, mr. chairman, it's a very big challenge we face. i hope we will rise to the occasion. >> thank you. the co-chair now recognizes the gentleman from south carolina, congressman clyburn. >> thank you very much, mr. chairman, madam chair. it's a real pleasure for me, and

i'm very humbled to join your and my colleagues on this joint select committee. as i mentioned in my op-ed piece which was published in the "washington post" earlier this week, the enthusiastic reaction of my constituents and others has caused me to reflect upon growing up in -- despite expectations of us we are not the chosen 12. our energy deliberations would be clear vision. an open mind and a willingness to find common ground. i've always said that if the distance between me and an opponent is five steps, i don't mind taking three of them. i am hopeful that we would not allow our political differences to get in the way of economic common sense and do this to our

country. getting people back to work is the quickest way to restore confidence in us as an elected body and the country as the land of opportunity. last month, i held accountable meeting on the campus of voorhees college in bamberg county, south carolina. account has an unemployment rate of 17.5%. the three neighboring counties have jobless rates ranging from 17-19.8%. people didn't want to hear a lot about fancy washington talk about debt and deficits. they wanted to hear about jobs. restoring the dignity of work. they want to work, and they want their government to work. we need to make smart and compassionate budget cuts targeting waste, fraud, and abuse. eliminating unnecessary and duplicative spending, and ending military adventurism need not be

accompanied by slashing essential services like public education, and shredding safety nets and earned benefits like social security, medicare, and medicaid. any solution to your debt problems must be fair. it is just plain wrong to put all the burden of debt and deficit reduction on the elderly, the middle-class, and the poor. recent studies indicate that there is a growing wealth gap in this country that is squeezing the middle class and pushing millions into poverty. we need to work together to address these urgent priorities. economic fairness and commonsense call for reducing inequities in our tax code, closing unfair loopholes and eliminating outdated and unnecessary tax subsidies. debt and deficit reduction should be twined into a strong chord of job creation, budget

cuts and tax reform. taken individually, neither one of them will sufficiently restore consumer confidence, regain domestic tranquility, and maintain our national security. the american people are counting on us to work together and get the job done. thank you, mr. chairman. i yield back. >> thank you. the co-chair now recognizes the gentleman from michigan, congressman upton. >> well, thank you, mr. chairman. i, too, want to thank the two chairs for their leadership in a few short weeks since this panel is name. i spoke to both of you throughout august and appreciate the quick action to begin assembly a strong staff to coordinate our work, develop the rules package that we will consider today, take all the other logistical steps to allow us to really hit the ground running today. i spent virtually all last month at home in michigan meeting with my constituents and doing all the things that we do, forums, county fairs, et cetera.

michigan is a great state. it's a place where people as passionate were drawn to us to build your own american dream. our state produce some of the world's greatest inventions and industries. it was an economic hub. and now it is on the front lines of an economic downturn. we have endured now 32 consecutive month of double-digit unemployment. manufacturing jobs have disappeared, and more jobs are at risk because of regulatory burdens and economic uncertainty. i don't think any state has more at stake and my constituents know. they know that this can he was great to make the tough but necessary choices to cut spending and make reforms to put us on a more stable long-term fiscal footing. removing economic uncertainty and demonstrating that we can reverse our long-term debt and deficit trends will help spur job growth. if i had one thing consistently, it was this. the american people want us to succeed.

they know the job of this committee and this congress is not an easy one, but all of us, the 12 of us here and everyone of our house and senate colleagues, were sent to do what's right for the nation. and they are reinforced. american people know how high the stakes are, too. but let me read you something from this week's "national journal." for the first 10 months of fiscal year 2011, revenues are up about 8% over last year, and spending has risen less than 3%. revenue from income and payroll taxes grew, even though congress cut payroll taxes to still for the economy. but the good news ends there. economic growth slowed to a crawl in the first half of the year. many analyst predicted the economy will grow less than 2% in 2012, about half as fast as many had thought previously. if the gloomy new outlook turns out to be right, the deficit

over the next decade will be hundreds of billions of dollars higher than either cbo or omb forecast. cutting spending is essential to jumpstart our economy and prevent the kind of downturn that we are being warned about. if we don't succeed, we risk further damage to our credit rating and deeper erosion in confidence, both of which will worsen the cycle. michael ford is committed to begin by seeking common ground. sure there are areas where we can agree. surely we can identify areas where we are not spending taxpayers dollars wisely and where we can do better. every taxpayer dollar we spend, every program on the books, can be chewed through the lens of job creation and fiscal responsibility. are we spend the people's money wisely? are we supporting job growth and economic certainty? those are the questions i look forward to working with my college to find the right solutions. i yield back.

>> thank you. the co-chair now recognizes the gentleman from massachusetts, senator kerry. >> take on this job about mission. they said that we shall produce recommendations and legislation to significantly affect the short-term and long-term fiscal imbalance of the federal government, reducing the federal debt by at least $1.5 trillion. the critical words are at least 1.5, and significantly affect the long-term imbalance. the only way to meet that challenge is to achieve a larger agreement that grows our economy, puts america back to work, and addresses the deficit, sending the message loud and clear that congress is serious in prepared at last to make the hard choices. in fact, the real mission of this committee comes from the american people, who wonder if we still can't and desperately

want us to sit down like adults, make the congress worked so that our economy can work again for the american people. so yes, we are here to examine the numbers, but, frankly, we're also here to examine our consciousness and look beyond narrow consideration of party or ideology to address the broader needs of our nation. our national debt is 14 points 7 trillion, but we've also got a jobs deficit. 269 americans looking for work. we can't fix the budget without fixing jobs, and we can't fix jobs about fixing our budget. we have to restore confidence and we need to do it in a hurry. the world is watching. and our strength at home determines our strength in the world. only a few days ago, russian prime minister putin said that in today's globe economy, he only need to really deal with five countries, and america wasn't one of them. none of us were sent here to

accept an economic future where the united states doesn't make the list, let alone top it. and here at home americans are watching. in less than 13 years, if we don't take significant steps, our government will only be able to fund medicaid, medicare, social security and the interest on our national debt. everything else would have to be deficit funded. by any measure, today's fiscal path is unsustainable. as we face this challenge we need to remember that america does cherish and set of basic does. we believe in caring for the sick, bringing the elderly and disabled out of the shadows. and that every young person deserves opportunity in future. we also believe that america must always prepare for that, as we engage in this effort we cannot eat america's seedcorn. we need to grow our economy. some of us were here for gramm-rudman hollings in the 1980s when we made tough decisions and committed ourselves to ever-increasing

poverty or inequality as a sacrifice on the altar of deficit reduction. in the 1990s we saw we balanced the budget in a balanced way. we can do it again. three bipartisan groups have spent thousands of hours working to find common ground. rivlin-domenici, simpson-bowles and the so called gang of six have all build a foundation. we don't agree with every proposal, and neither do they. but they are roadmaps. we don't need to reinvent the wheel here, but we have to put our shoulder to the wheel and find the political willpower to get this done. none of us sitting here is so important or so permanent that we can ignore the demands of history of the demands of the moment. we have to find not just common ground, but higher ground. some of the most fiercely independent plain talk and determined partisans in american history have sat at the desks, tables and chambers that we will sit in, and they of tackle the

toughest issues throughout our history. and they found common ground with people they disagree with on near everything else. now it's our turn. i believe, i'm convinced, there is a bipartisan consensus just waiting if the 12 of us are willing to sit down and forge it and make it real. that is our mission and that is our charge. and i look forward to getting to work. >> thank you. the co-chair now recognizes the gentleman from arizona, senator kyl. >> thank you, mr. chairman, and college. i am struck dumb i suspect most of the people in the audience are, too, by the commonality of views expressed here and by the very strong and united commitment to succeed. we are all hearing the same things are mark and stitch was back home. there is a strong connection everyone has acknowledged about

what our challenge of reducing the deficit and the necessity of job creation. i sense an optimism that we can succeed express but all of my colleagues. coupled with a hope that we can even do more. starting with the goal of $1.5 trillion deficit reduction, but hopefully moving beyond that to things like tax reforms and intel reform that all of us acknowledge would help in the ultimate goal of job creation and economic growth. i'd like to though also end with a challenge to my colleagues and admonition perhaps to those who think that this will be easy. i've been involvement in three different levels of these discussions starting last december, our colleague chris van hollen that been and then the biden talks adding james clyburn and max baucus, and then a week or 10 days of discussion down at the white house. and having gone through all that and all that and having seen how

difficult it is to reach an agreement, i think a dose of realism is called for here. this is tedious, time-consuming work and it's going to require going through a lot of budget numbers line by line. we've always had a lot of hearings in both the house and the senate. it is time i think for us to get down to the hard decisions that are required to go through those line by line items. and as chairman murray pointed out, the time is short as well which complicates our job. not only must we act by november 23, but we have to have anything that would make public 40 hours in advance, cbo must go everything, and that can take weeks based upon some other complicated things that we must do. so the reality is we really have to act by sometime in, by the end of october, realistically. which means we essentially have about six weeks to construct our package. and it's a long way since we are

only going to succeed if we can avoid partisanship i would say, and try to limit the demands on the committee as well as the staff so that we can collectively work to achieve this goal. the more demands that are made on the committee and its mentorship, the more challenging it would be. it is true, as one of my colleagues said, the american people want us to succeed. and i'm going to do everything within my power to succeed in this challenge that the american people and our colleagues have laid before us. the future of our country is at stake. >> thank you. the chair now recognizes the gentleman from maryland, congress and at holland. >> thank you, mr. chairman. before i make a few remarks i a few remarks i ask unanimous consent to get our colleague, mr. camp, a brief opportunity to complete his remarks. >> without objection. >> i appreciate the gentleman senator i don't think that's going to be necessary. what i said i will also post

online and i appreciate very much his senate and we just yield back. >> the general from maryland is recognized. >> thank you, mr. chairman. i joined my colleagues here today and recognizing that we have a big responsibility to the american people. of responsibly to meet the twin challenges of doing everything in our power to put americans back to work and put america on a steady predictable pass the deficit and debt reduction. these are not competing goals. they overlap. every day that the economy is stalled as another day that the american people are hurting and another day at the deficit is growing. so the quickest most effective way to reduce the deficit in the short term is to help grow jobs. indeed, the nonpartisan congressional budget office has projected that for each one-tenth of 1% increase in gdp over the next decade would reduce the deficit by about $310 billion. the biggest obstacle to economic

growth right now it is weak consumer demand. it's simple. businesses are not going to hire employees and less they have customers for their goods and services. i knew the american people are looking forward to the president's jobs plan tonight, and the president is going to need a partner in courage to get the economy back on track. i hope we will work with him in a bipartisan fashion to do just that. now getting the economy moving again is just part of a solution. it will not in itself reduce the deficit. we know that. it must be coupled with a credible plan -- deficit reduction plan. the good news, as my colleague from massachusetts said come if we don't have to start from scratch. we have to recent bipartisan commissions, as well as the work of the gang of six better provide a framework for the general approach we can take. now, i don't agree with every proposal made by these groups, and i know that probably none of us do. at a to provide some overall scaffolding and framework for

serious deficit reduction plan. the bipartisan commissions have several things in common. in fact, rivlin-domenici -- of spending and revenue sides of the equation. they take a balanced approach. they recognize that we need to modernize certain programs to achieve savings. they also recognize that we need to settle for an reform the tax code by cutting the pork, subsidies, and in many preferences that benefit a slew of special interest. simple math tells us that cutting 1 dollar of tax expenditure does just as much to reduce the deficit as cutting 1 dollar of programs. we have just 77 days left to complete our work. the clock is ticking. there are plenty of ideas out there for reducing the deficit that have been thoroughly debated, and we have a menu of options. so i think all of us would agree that if the committee were to fail, and i am confident it won't, but it would be not for a lack of ideas, but for a lack of

political will. there are some who believe that the next election will somehow bring about a huge new medical alignment that would either allow republicans or democrats to get 100% of what they want and the way they want a. both parties suffer from that pollution from time to time. and it's a dangerous illusion to put the long-term economic health of our nation at risk. it's time for both sides to bite the bullet and put the country first, get the economy moving and implement a long-term deficit reduction plan. i stand ready to reach a reasonable compromise for the good of the country. compromise is not a dirty word. in fact, it is the difference between a divided government that works and a dysfunctional government that doesn't. this sunday, we know, marks the 10th anniversary of the awful day when our nation was attacked. in the aftermath of that awful september day, our nation showed its true character as we rally together to meet a common

challenge. we must unite them to put america back to work and get our fiscal house in order, and to ensure a brighter future for our children and our country. thank you, mr. chairman. >> thank you. the chair now cause of the rules of the joint committee and asks the clerk to report. >> proposed rules of the joint committee on deficit reduction. >> without objection, the first reading of the rules is dispense with. the rules will be open for a minute at any point, so ordered. the chair recognizes himself. i think is all member snowe, these rules were negotiated on a bicameral bipartisan basis. they are designed to comport the rules of the standing committees of the house with those, with the senate, to assure that this body can operate as closely as

possible to any standing committee of either body. i urge their adoption, and i yield back. is there any other discussion of the proposed joint committee rules? >> mr. chairman? >> the chair recognizes the co-chair. >> mr. chairman, i do want to enter into the colloquy to discuss the meaning of the term meeting as used in these rules. both roles and rule 26 of the standing rules of the senate provide for meetings of the transaction a business which include markups of legislation or reports. the house and senate rules provide similar transparency requirements to those meetings as we have proposed in the rule for the joint select committee. and i just want to clarify that the use of the term meeting in these rules has the same traditional meanings used in both houses and does not include less formal kocsis or working sessions that would not be covered by either the house or senate rule in the normal or

ordinary course. >> if the gentlelady will yield, the distinguished co-chair is correct. that reflects our understanding as we have been working on this particular rules package. is there any other discussion of the rules package? >> mr. chairman? >> the gentleman from maryland is recognized. >> would this be the appropriate time just to inquire about the hearing scheduled? >> the gentleman is yield five minutes. >> thank you, mr. chairman. i know we have our first hearing scheduled for next week. i think it's important kickoff hearing. from mr. elmendorf, the head of the nonpartisan congressional budget office. i know we also have a requirement, probably, that we have a weeks notice before hearings. and so i know that co-chairs are now involved in trying to decide what the hearing schedule would be, and i just want to underscore a point that i think a couple of us made it a number

of us reference on both sides, referenced the word of a bipartisan commissions. .. for our hearings and we

hope to have a proposal to all of our members really quickly. we'll be working through that. i think we're very conscious of the need to get this done quickly. the seven-day notice, obviously, puts intense pressure on us. and we will be working through that and we intent to get to our committee members our proposal for hearing. >> and i would certainly associate myself with my cochair's remarks. does the gentleman yield back? >> is there further discussion on the rules package? if there's no further discussion, the question now occurs on favorably reporting the rules. all those in favor say aye. >> aye. >> those opposed no. the ayes appear to have it and the ayes have it and the rules are favorably reported. without objection, staff is authorized to make technical and conforming changes to the rules

approved by the joint committee today. so ordered the joint committee now stands adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> that event from september 8th, the first meeting held by

the joint deficit reduction committee. well, midnight tonight is the deadline for the committee to publicly release a plan to eliminate at least $1.2 trillion of the budget deficit. it's made up six republicans and six democrats the stated goal of achieving at least $1.5 trillion in budgetary savings in at least 10 years. from spending cuts or tax revenue. if the committee reaches an agreement by the end of the day they'll have until wednesday to vote on it. it moves on to the full house and senate until it has to december 23rd to act on those recommendations. if the joint committee or congress fails to act by that >> remarks from douglas leveson who is the director of the budget office.

he talked about cutting taxes to increase spending and why this would be the best way to boost the economy. this meeting was held on september 13th and will start with opening remarks from mr. elmendorf. >> we will turn to our witness for today. dr. douglas elmendorf is the eighth director of the congressional budget office. his term began on january 22nd, 2009. before he came to cbo, dr. elmendorf was a senior fellow in the economic studies program at brookings institution as the edward m. bernstein scholar, he wrote papers on the economic activity and the director on the hamilton project in an effort to promote shared economic growth. he was an assistant professor at harvard university, a principal analyst at the congressional budget office, a senior economist at the white house counsel of economic advisors, a deputy secretary -- assistant secretary for economic policy at the treasury department and an assistant director of the division of research and

statistics at the federal reserve board. in those positions, dr. elmendorf has gained a wide range of expertise on budget policy, social security, medicare, national health care reform, financial markets, macroeconomic analysis and forecasting and many other topics. so i'm very glad that he has agreed to join our committee here today. dr. elmendorf, thank you so much for taking the time and for helping us get through this and we look forward to your testimony. >> thank you, senator murray. congressman hensarling and all the members of the committee i appreciate the invitation to talk with you today about the economic and budget outlook and about cbo's analysis of the fiscal policy choices facing this committee and the congress. the federal government is confronting significant and fundamental budgetary challenges. if current policies are continued in coming years, the aging of the population and rising cost for health care will

push up federal spending, measure the shares of gdp well above the rate of revenue that the federal government has collected in the past. as a result, putting the federal budget on a sustainable path will require significant changes in spending policies, significant changes in tax policies or both. addressing formidable challenges is complicated by the current weaknesses of the economy. and the large number of unemployed workers, empty houses and underused factories and offices. changes that might be made to federal spending and taxes could have a substantial impact on the pace of economic recovery during the next few years. as well as on the nation's output and people's income over the longer term. i will talk briefly about the outlook for the economy and the budget and then turn to some key considerations in making fiscal policy. the financial crisis and recession have cast a long

shadow on the u.s. economy. although output began two years ago the pace of recovery has been slow and the economy remains in a severe slump. cbo published its most recent economic forecast in august, that forecast was initially completed in early july and updated only to incorporate the effects of the budget control act. we can now review incoming data and other developments since early july that the economic recovery will continue. but as a weaker case than we had anticipated. with output growing at only a modest rate, cbo expects a slow rate. it's close to 9% through the end of next year. these figures are all taken from the written testimony and nearly in the order in which they appear in the testimony. as a result, we think that a large portion of the economic and human cost of this downturn

remain ahead of us. the difference between output and our estimate of the potential level of outputs shown by the gaps between the lines in the figure has accumulated so far to about $2.5 trillion. by the time output rises back to its potential, which will probably be several years from now, we expect that cumulative shortfall to be twice as large as it is today or $5 trillion. not only are the costs associated with this shortfall and output immense, they are also bourne unevenly falling disproportionately on people who lose their jobs, are displaced from their homes or own businesses that fail. i want to emphasize the economic outlook is highly uncertain. many developments could cause economic outcomes to differ substantially in one direction or the other from those we currently anticipate. if the recovery continues as

expected, and if tax and spending policies unfold as specified in current law, deficits will drop markedly as a share of gdp over the next few years. under cbo's baseline projection shown on the dark blue projections on the figure, deficits fall to about 6% of gdp in 2012, about 3% in 2013 and smaller amounts for the rest of the decade. in that scenario, deficits over the decade total about $3.5 trillion. but as a number of you have said those baseline projections understate the budgetary challenges. because changes in policy that will take effect under current law will produce a federal tax system and spending for some federal programs that differ sharply from the policies that many people have become accustomed to. specifically, cbo's baseline projections include the following policy specified in current law. first, certain provisions of the 2010 tax act including

extensions of lower rates and expanded credits and deductions enacted in 2001, 2003 and 2009 all expire at the end of next year. second, the two-year extension of provisions designed to limit the reach of the alternative minimum tax extensions of emergency unemployment compensation and the one-year reduction in the payroll tax all expire at the end of this year. third, sharp reductions in medicare's payment rates for physician services take effect at the end of this year. fourth, funding for discretionary spending declines over time in real terms in accordance with the caps established under the budget control act. and fifth, additional deficit reduction of more than a trillion dollars will be implemented as required under the act. changing provisions of current law so as to maintain major policies that are in effect now would produce a markedly different budget outcomes. for example, and shown by the full bars in the figure, if most

of the provisions of the 2010 tax act were extended, if amt was indexed for inflation and if medicare's payment rates for physician services were held constant, then deficits over the coming decade would total $8.5 trillion rather than the $3.5 trillion in the current law baseline. by 2021 debts held by the public would go to 82% of gdp higher than any year since 1948. yesterday, cbo released an analysis of the enforcement procedures of the budget control act as shown in the slide, we estimate that if no legislation originating from this committee is enacted, the following would occur over the next decade. reductions in the caps on discretionary appropriations for defense would cut out waste by about $450 billion. reductions in the caps on discretionary appropriations for nondefense purposes would cut out waste by $300 billion and it

would yield net savings of $140 billion. the total reduction deficits would be about 1.1 trillion. the estimated reductions in mandatory spending are compare actively small because the law exempts a significant portion of such spending from the enforcement procedures. as a result, about 70% of the total savings would come from lower discretionary spending. cuts in defense and nondefense spending of that magnitude would probably lead to reduction in the number of military and civilian employees and in the scale and scope of federal programs. beyond the coming decade, as you know, the fiscal outlook worsens as the aging of the population and rising cost for health care puts significant and increasing pressure on the budget under current law. when cbo issued its most recent outlook in june, it was projected 80% of gdp under

current law and 190% of gdp under policies that more closely resembled current policies. although long-term projections would differ because we would incorporate the latest 10-year projection but the amount of federal borrowing that would be necessary under current policies would be clearly unsustainable. in sum, the federal budget is quickly heading into territory that is unfamiliar to the united states and to most other developed countries as well. as this committee considers its charge to recommend policies that would reduce future budget deficits, its key choices fall into three broad categories listed in the slide. how much deficit reduction should be accomplished? how quickly should deficit reduction be implemented? what form should deficit reduction take? let me take up these questions briefly in turn. first, regarding the amount of deficit reduction, there is no commonly agreed upon level of federal debt that is sustainable

or optimal under cbo's current law baseline, debts held by the public is projected to fall from 67% of gdp this year to 61% in 2021. however, stabilizing the debt at that level would still leave it larger than any year between 1953 and 2009. lawmakers might determine the debt should be reduced to amounts lower than those shown in cbo's baseline and closer to those we've experienced in the past. that would reduce the burden of debt on the economy, relieve some of the long-term pressures on the budget, diminish the risk of a fiscal crisis and enhance the government's flexibility to respond to unanticipated developments. of course, it would also require a larger amount of deficit reduction. furthermore, lawmakers might decide that some of the current policies scheduled to expire under current law should be continued. in that case, achieving a

particular level of debt could require a lot more deficit reduction from other policies. for example, if most of the provisions in the 2010 tax act were extended, the amt was indexed for inflation and medicare's payment rates for physicians were held constant, then reducing debt in 2021 is a 61% of gdp projected under current law would require other changes in policies to reduce deficits over the next 10 years by a total of $6.2 trillion rather than the $1.2 trillion needed from this committee in automatic budget cuts. in 2021 alone, the gap between federal revenues and spending -- if those policies were continued and no other budgetary changes were made, as shown by the right pair of bars in the figure, is projected to be 4.7% of gdp. putting debt on a downer trajectory in that year would require a smaller deficit.

reaching that objective, declining debt relative to gdp from that starting point would require reduction of the deficit of about 2.5% of gdp or $600 billion in that year alone. the second set of choices involves the timing of deficit reduction which involves difficult tradeoffs some rise in the slide. on one hand cutting spending or increasing taxes slowly would lead to a greater accumulation of government debt and might raise doubts about whether the longer term deficit reductions would ultimately take effect. on the other hand, implementing spending cuts or tax increases abruptly would give families, businesses and state and local governments a little time to plan and adjust. in addition, and particularly important given the current state of the economy, immediate spending cuts or tax increases would represent an added drag on the weak economic expansion. however, credible steps to narrow budget deficits over the

longer term would support output and employment in the next few years by holding down interest rates and reducing uncertainty thereby enhancing confidence by businesses and consumers. therefore, the near term economic effects of deficit reduction would depend on the balance between changes in spending and taxes that take effect quickly and those that take effect slowly. i show in this next slide credible policy changes that would substantially reduce deficits later in the coming decade and beyond without immediate spending cuts or tax increases would both support the economic expansion in the next few years and strengthen the economy over the longer term. moreover, there is no inherit contradiction between using fiscal policy to support the economy today while the unemployment rate is high and many factories and offices are underused and imposing fiscal restraint several years from now when output and employment will

probably be close to their potential. if policymakers wanted to achieve both a short-term economic boost and longer-term fiscal sustainability, the combination of policies that would be most effective according to our analysis would be changes in taxes and spending that would widen the deficit today but narrow it later in the decade. such an approach would work best if the future policy changes were sufficiently specific, enacted into law and widely supported so that observers believe that the future restraint would truly take effect. your third set of choices involves the composition of deficit reduction. federal spending and revenues affects the total amount and types of output that are produced, the distribution of that output among various segments of society and people's well-being in a variety of ways. in considering the challenge of putting fiscal policy on a sustainable path, many observers have wondered whether it is possible to return the previous policies regarding federal

spending and revenues. unfortunately, the past combination of policies cannot be repeated when it comes to the federal budget. the aging of the population and the rising cost of health care has changed the backdrop for budget decisions in a fundamental way. under current law, spending on social security, medicare and other major health care programs the darkest line in the figure is projected to reach about 12% of gdp in 2021 compared with an average of about 7% during the past 40 years. an increase worth 5% of gdp. most of that spending goes to benefits for people over age 65 with smaller shares for blind and disabled people and 9 for able body people. all spending apart from social security and the major health care programs and interest payments on the debt is projected to decline noticeable as a share of the economy.

that broad collection of programs includes defense, the largest single piece, the supplemental nutrition assistance program formally known as food stamps, unemployment compensation, veterans benefits, federal civilian and military retirement benefits, transportation, health research, education and training and other programs. that whole collection of programs has incurred spending averaging 11.5% of gdp during the past 40 years. with expected improvement in the economy and the new caps on discretionary spending, it falls in our projection by 2021 to less than 8% of gdp, the lowest share in more than 40 years. under current law and in our baseline projection. putting those pieces together including interest payments between 1971 and 2010, as shown by the left pair of bars in the figure, federal spending averaged about 21% of gdp. under current law for 2021, as

shown by the right pair of bars, cbo projects it to grow to about 23% of gdp. alternatively if the laws governing social security and the major health care programs were unchanged and all other programs were operated in line with their average relationship to the size of the economy during the past 40 years, federal spending would be much higher in 2021 at around 28% of gdp. that amount exceeds the 40-year average for revenues as a share of gdp by about 10 percentage points. in conclusion, given the aging of the population and rising cost for health care, attaining a sustainable federal budget will require the united states to deviate from the policies of the past 40 years in at least one of the following ways. raise federal revenues significantly above their average share of gdp, make major changes in the sorts of benefits

provided for americans when they become older or substantial reduce the role of the rest of the federal government relative to the size of the economy. my colleagues and i at cbo stand ready to provide now assist information that can help you in making these important choices. thank you. i'm happy to take your questions. >> thank you very much, dr. elmendorf. as we begin the work that has been outlined for us as the committee under the budget control act i think it's helpful for us to have a clear understanding of the scope of the problem. and you laid that out very clearly for us. i think we all agree this task is pretty enormous and we have to come together around a balanced approach that addresses our fiscal situation but also focuses on making sure that we remain competitive and looks at our long-term growth. so i wanted to start by just ask you to expand on a little bit on what you were just talking about and talk to us about what we should consider in weighing the

tradeoffs between helping our economy in the short term to help create growth and not causing significant harm in the long term? >> in our judgment, and this is consistent with a consensus of professional opinion, cuts in spending or increases in taxes are the moment when there are a lot of unused resources in the economy, unemployed workers, empty homes, unused factories and offices. and when monetary policy is finding it difficult to provide further support for economic activity because the federal funds was already close to zero, and under those conditions, cuts in spending and increases in taxes -- cuts in spending and increases in taxes will tend to slow the economic recovery. they will tend to reduce the levels of output and employment relative to what would otherwise be. at the same time, this is also quite consistent with a consensus professional opinion -- over time as our

economy moves back to our potential output and those unused resources become used again, under those sorts of economic conditions, cuts in spending or increases in taxes that reduce outsize budget deficits are good for the economy. both for input and outcome. that may seem like a paradox but it isn't really. it's just reflecting the view that the effect of federal fiscal policy on the economy depends on economic condition and on the stance and abilities of monetary policy. and that's why in our judgment, and analysis that we have done and presented to congress over the past few years to provide the greatest boost of economic activity now and over the median run and long run, the combination of fiscal policy is likely to be most effective would be policies that cut taxes or increased spending in the near term but in the immediatiam

and longer term cut spending and raise taxes. >> okay. thank you. dr. elmendorf, as you know, several bipartisan groups have released reports in the last nine months with recommendations for reigning in our deficit and spending and stemming the rise of federal debt. all of them came with a balanced approach and i'm concerned that congress has not yet included revenues or entitlements as we have focused only so far on discretionary spending cuts and caps. when i think we need to be looking at balanced approaches. now, some have made it clear that they want entitlements off the table. others have made it clear they want revenues off the table. unfortunately, that leaves only a very small amount of discretionary and mandatory spending that members so far have been willing to focus on. would you agree that while cuts in caps we instituted within the budget control cap will help with the long term, what we really need is a comprehensive approach that does address both

revenue and mandatory programs? >> so, senator, as a matter of arithmetic, there are a lot of different paths to reducing budget deficits and it's not cbo's role to make recommendations among those alternative paths. i think the crucial point, though, is that the more large pieces of the puzzle one takes off the table than the greater the changes will need to be in the remaining pieces. now, you can see this very clearly this picture, sandy? and very clearly in this picture for 2021. this picture shows under current law revenues being about 21% of gdp. if one instead wants -- [inaudible] >> we can't -- it's hard to see. >> i'm sorry. this is figure 14 in the written testimony if you have that in front of you. what the left hand -- [inaudible] >> 14? >> yes, exhibit 14. >> thank you. >> figure 14 in the written

testimony. the left hand set of bars shows the averages over the last 40 years. the far left bar is revenues. revenues have averaged about 15% of gdp. the right hand bar shows the major pieces of spending. the bottom chunk is social security. and major health care programs. >> can you try a page? >> page 42. >> thank you. >> the left hand piece as i said is revenues. they've averaged 18% of gdp. the right hand bar shows spending, social security and the major health care programs. that's medicare, medicaid now chip in the future including subsidies to be included for the health care industries. all other noninterest spending,

that's other mandatory spending it's defense spending, it's nondefense discretionary spending has averaged 11.5% of gdp. and interest payments have averaged 2.25% of a gdp. in the deficit that's been a little under 3%. for 2021, under current law, revenues would rise to be about 21% of gdp. social security and the major health care programs would be 12 -- a little over 12% of gdp. that's 5% of gdp more than the average for the past 40 years. and that's the -- that's the essence of the point that the aging of the population and rising cost for health care have changed the backdrop for the decisions that you and your colleagues make. ..

>> but also the discretionary spending caps that reduce both defense spending and nondefense discretionary spending in real terms, and thus reduce them fairly sharply as shares of gdp. >> dr. elmendorf, i am out of time. i appreciate a response. i want to turn over to my co-chair, congressman hensarling. >> thank you, madame co-chair. doctor elmendorf, maybe will continue on this life question. is impossible to pull up your

12, if someone could help me with that. >> figure 12? >> page 39 and because when i believe it is entitled feature 12. as i understand, this chart is a chart of historic and projected growth on social security, medicare, other major health care programs. you wouldn't happen to have this chart plotted against growth and gdp, which is? >> so these are shares of gdp. this is spending on these programs expressed as a percentage of gdp. >> okay. but historic average post-world war ii gdp is average want, roughly 3% annual economic growth? >> i think that's about right, congressman. i don't know for sure. >> on your figure 14, i can social security a major health

care programs have averaged% of gdp. current law going to a 12.2% of gdp in just 10 years, so from the 12.2, not quite double but certainly that could be described as explosive growth, could it not? >> very rapid, congressman, yes. >> we won't pars terms. as i'm looking at some of your cbo data, just for the last 10 years, after a social security has grown at an average of i .8%, medicare 9.1%, medicaid 8.8%, in the last decade. and again, we now have a revised gdp growth outlook coming out of your august revision of your baseline. so is it a fair assessment that we have social security and medicare and other health for --

health care programs are potentially going to a three times the rate of growth in our economy? >> they grow much faster in the past and our projections are for them to continue to outpace economic growth. of course the exact amount is uncertain, but the gap in the growth rates that we've seen historically has been very large, as you said. >> now, and senator toomey certainly in his comments talked about the current law baseline, and although an important exercise, it is certain not to sponsor to the task ahead of us. but under current law baseline, medicare physicians are due to take essentially a 30% pay cut next year, correct? >> yes, that's right. >> does cbo, i believe recently he testified that cbo did not have a model to really impact, to show the impact of such a cut

on health care delivery, is that correct? is cbo developing a model or is that beyond the scope of what you? >> it's in a long-term plan, congressman. we have raised concerns that the much slower growth projected for payments to physicians and medicare bolted to the private sector could access to quality of care received that we do not have a model, are not about in the near-term to have a model that would enable us to make any more specific predictions along those lines. >> what i'm gonna get at is clearly, again, you quoted the president who i don't often agree with in our last organizational meeting when he said quote, the major driver of our long-term liability, everybody here knows is medicare and medicaid and their health care spending. nothing comes close, and i take it you would probably agree with that assessment as well? >> yes, that's right. >> but i'm also trying to get to

the qualitative aspect of this, to to be, in our criticisms and using cbo is developing a model. i know that senior actuaries have said as essentially if, that under the current baseline that medicare quote medicare beneficiaries would almost certainly face increasingly severe problems with access to care, that's the medicare actuaries, august of 2010. the medicare trustees 2011 port, talking about the growing insolvency quote, beneficiary access to health care services would be rapidly curtailed. the president administrative process for medicare and medicaid services has said a decision is not whether or not we will ration care. the decision is whether we will ration with our eyes open.

so to some extent, dr. elmendorf, even the cbo doesn't have a model we're looking at not just go grams that are driving -- programs that are driving the country but it is also changing the beneficiaries as well, would you agree with that assessment, or again and tell you have your model? >> i think all i can say, is the extent of the pressure on providers of care may provide a lot on the time horizon for which -- when the action was make projections for 75 years into the future, they have some pictures i've seen in testimonies about the relative payment rates to providers, many decades into the future. the sorts of changes that are entering for the coming decades might affect access to care and quality of the care as i've said that will be much less severe in those effects and if the same policy were left in place for the remainder of the 75 year period that actuaries make projections for.

but beyond that, we just don't have a way of trying to quantify for you the extent of the impacts of beneficiaries speak apparently the trustees and cms do so far in an attempt to lead by example, follow the lead of my co-chair, i see my time is -- thank you, dr. elmendorf. >> thank you. >> dr. elmendorf, thank you very much for your testimony, and he focused quite a bit of your time on what's coming up, which it would not keep -- not careful, could be pretty bad. but we're getting right now with a 14 trillion-dollar national debt, plus 14 trillion plus national debt, and fairly massive deficits today. and we've been charged to come up with savings from these current and past deficits of at least 1.5 trillion. and so, let me ask, a chart that

i have. the first chart is actually a charge of cbo's work done in 2001 that i would like to have raised. it's called changes in cbo's baseline projection of the surplus since january 2001. and what i would like to do on that chart, if we get that up, is point out what would be projected by your office back in 2001, and then analyze and i think all my colleagues have copies of those charts with them, and analyze that it is a very difficult to make out the stables and make much sense of them, but for those who can make out the lines, the number's on this charge, they are very tough -- the very top line -- >> could you tell us what page that is a? >> it should be a separate package that you got. separate handout, that's correct spent i think this is a cable cbo has published and posted on

its website but is not included testimony i brought today. >> that's correct. and only make a couple points since it is difficult to read all the numbers on the table. but the first one, the top one, total surplus projected in january 2001 projected that after 2001-2011, you totaled it up, we have surpluses of $5,610,000,000,000. and if you go down to the very bottom of the chart out towards the very bottom to the line that says actual surplus or deficit, under the year 2002 column, by the year 2002, there was a negative 158, which means a deficit of $158 billion. so that while the projections in 2001 were for record surpluses totaling over 10 or so years, 5.6 trillion, by the second year, by 2002, we were already beginning to run deficits, not

surpluses. so we knew well in advance in the year 2011 that the federal government would begin to run deficits, in fact record deficits that could ultimately harm our economy. i have another chart that uses the data from the cbo that we just discussed and tries to put it in a little easier form to analyze. and the pew center did this charge taking the data from the congressional budget office to try to segment out where that change from surplus to deficit went. all those dollars that were spent, all the revenue and the tax code that was lost, where did it go? obviously the biggest, the big biggest piece of the pie on the right, that's what you described earlier as nation's up a. in other words, all the things that caused this to happen less

output than we had expected, projected, the recession and so forth probably constitute the biggest portion of that. after that, the second biggest slice of the pie that drove our deficit, you can see are the tax cuts in 2001 and 2002, bush tax cuts. actually you could put together our defense costs, which are here in the very bottom, operations in iraq and afghanistan at 10%, and other defense spending a little further up to the left. and 5%. you have 50% of the pie due to defense spending. and so on. and interestingly enough, increase in net interest, money we pay just one interest we owe on that national debt is one of the largest items as well. so nothing productive comes to making those payments. i raise all that because as we talk about where we should target our solutions, we should know what has driven us most

towards these large annual deficits that now give us this over 14 trillion national debt. and the final chart that i wanted to race, because it also points out the actual discretionary spending part of the pie what you spent time on. not the tax expenditures, not this thing we do through the tax code which is the largest portion, but did allocations we make every year through the budgeting process, the appropriation process. hard to tell and much of a chart in your hand, but the largest items shows the change in spending from 2001 the 2010. the greatest percentage of that added spending in those 10 years was in the department of defense. much of it because of the war in iraq and the war in afghanistan, but fully two-thirds of the costs or the extra spending that was done from 2001 the now 2010 has come in spending done in the department of defense.

you can compare that to, say, the veterans department, veterans affairs department. a share of the new spent over the 10 year period that went to veterans was about 5%. education, further down on the list. the new spending was expected in 2001, about 1%. i think it's important to sort of gauge that it and as much as i hope we are a chance to get into some of this and talk about where we have to go, i think it's important to note where we are coming from. so i thank you for being here to help us gauge those responses. yield back. >> thank you, madam chairman. rather than make a speech, which we probably have the effect of dividing us if i respond to my colleague, i'd like to focus on areas we might find agreement going back to my opening statement. began with a quotation from the president in march of last year, he said in a cocoa it is made improper payments cost taxpayers almost $100 billion last year

alone. if we created a department of improper payments it would actually be one of the biggest departments in our government. well, this committee can address the question of improper payments, but i think we will need cdos help in order to do that. for 2010, gao estimate total and improper games out of 125 billion. and according to its report, medicare, medicaid and unemployment insurance rank one, two and three in total improper payments. they are figures were slightly below those i quoted earlier. but the bottom line is that if you had $100 billion, as the president says, in overpayments each year over a decade, that's a trillion dollars, more than a trillion dollars when you compounded. it's an airy we need to address. and since it doesn't involve cuts in benefits or fundamental reform of programs, which i happen to think we should do but i'm trying to stay on areas where we can reach bipartisan consensus, we are going to need help in scoring how to approach

this. my first question i guess i should ask is, do you agree whether it is with the specific numbers or not with the president's contention, let's just say at least there's a significant amount of inappropriate payment for some of the programs that i've mentioned. >> so, i agree with it. two quick comments. what is the david accords between improper payments and flawed. flood is a much narrower category involving certain legal issues. some improv or payments are something people didn't such as judy numbers in forms with sure that are so one. forms were filled out properly the payment might still be made. so people should understand when they see some of these largest numbers for improper payments, that's a much broader set of situations and sort of thing prosecution regarding a newspaper. second point to make of course is not just whether the improper his or the fraud is out there but what policy makers become as to go after that. of course, those programs are

not trying to encourage improper payments or four. there was active effort on the part of the justice department as well as the department is program to crack down on fraud. and utc stories in the newspaper about prosecutions. so the question that we can help the committee work on is what policy levers are available that can try to wring some of that money out of the system? >> exacta. and that's where we need your advice. and the comment about fraud is obvious the correct. i think fraud is not the most significant part of these overpayments, but it's important. one question is, would we benefit in a cost-benefit analysis by devoting more resources to try to root that out. we should deal with it. another we deal with whether or not hiring additional people to check before the check those out rather than audit after we find the problem would be beneficial. the prompt payment requirements represent part of the challenge

that we have here, as i understand it. so now, is it true that cbo has -- let me say, has cbo itself done an analysis of these numbers? >> i don't have numbers comparable to the ones you quoted to use, but we do spend a fair amount of time working with members of congress, working with the people at cms and so on, to think about ways that policies could be changed that we try to reduce the level of those payments. and as you know, the budget control act in fact included provisions for raising the cap in discretionary spending to cover some of those things that you describe, and we including our estimate of the effects of that act, the savings that we thought would accrue in terms of reduced payments spent just to summarize this. will you work with us to try to help us identify the potential policy that could result on a cost-benefit analysis

significant savings if we were to implement its? >> yes, we sort of the. i cannot also caution, i'm not against working with you on any issue that you must work with you on, but there is no evidence that suggests that this sort of effort can represent a large share of the $1.2 trillion, or $1.5 trillion the larger number that some of you have discussed has been the objective savings for the committee. >> well, if the gao report is right, if what the president said is right, it is over $100 billion in just one year alone, then even if we get 25% of that it's a significant amount of money. it's at least something i think on a bipartisan basis we can agree on because it doesn't involve fundamental reform of the program, it seems to me. there's a secondary i wanted to raise and that's asset sales. there are a lot of different reports. c.r. as for example, in 2009 said the government held well over 10,000 unneeded buildings spending 134 majors to maintain them. the president's budget assumed

savings by selling property and so on. one of the things would also like to ask you to do, and i know you have scored the president's proposal but that was a proposal that relied on incentives to sell property. if we simply mandated the sale of property i think we would need your advice about how to structure that so that we would get the best return for the sales that we want to a cottage. will you work with us on that potential area, that's revenue rather than savings but it all amounts to the same thing in terms of helping us with our problem. >> yes, of course we will work with you. i would caution begin to have done a fair amount of work. we have given testimony on this topic and there's no evidence that the amount of savings that could be, or extra revenue that could be read by the government to efforts by this direction would represent any substantial share of numbers that begin with key 4 trillion. the base closure realignment

effort has not yielded significant amounts of money for the comment in terms of selling the properties, to save my in terms of operating some of these facilities. but not much has been sold. and if one, when one sees these numbers of thousands of government properties, not being used, many of them by a number our shacks in the middle of nowhere that don't have market value. and the properties that have the most value, back and forth i've seen in the newspapers about property in los angeles, then the people who live around it are fighting very hard to get the federal government am selling. i would urge you pashtun what happens, the things are most vital is that the people who are there using it of potential using it are what the area to stay that way tend to push back very hard. history suggests that very little money is actually read. but we're certainly rig to work with you on policies in that direction. >> senator baucus.

>> thank you. again, i want to follow up with senator kyl's questions. i think we should explore this much more vigorously than we have in the past. i think we will try to work with you to find some solutions here. on the version i have, the statement that his page five, your talk about the time is up deficit reduction. used it according to your analysis essentially incredible faulty changes -- [inaudible] we will support expansion. my basic question is, can you give us examples of how weekend the goals, namely, jobs and deficit reduction? actually one of the key questions here, how do we do it? there are probably several ways.

you mentioned the deficit reduction has to be longer-term credible. you can't do something that is not credible. it's got to work. we have to find the balance. i wonder if you could give us a couple, three examples in how we a coverage that. >> there are a number of possibilities. we released a report in january 2010 to analyze a set of alternative proposals for spurring job growth. we looked at increased transfer payment. we look at cats in different types of taxes. we look at other types of government spending increases. and i don't want to be appearing to steer the committee in any particular direction among those choices because the choices involve not just the effects on economy. and we did estimate quantitatively the impact on output and employment.

they also involve choices about what you want the government to do, what sorts of activities you should be engaging, what the road should be to the private sector. the choices in making stimulative policy in addition to doing deficit reduction policy but forgot our technical role. i think the crucial, i think the crucial points though are that cutting taxes are increases in spending in the near term, will spur out part in the near-term. but just by themselves, they will reduce output and income slid on because of the extra debt that is a candidate. one wants to also improve the medium and long-term outlook for the economy than when he said deficit reduction that offsets that extra cost in the near-term, and reduce the deficit for the relative to the unstable path of current policy spent i appreciate that. in fact, i think i have your chart, your table on output and

employment and i applaud you for it because in that chart, for example, with respect to jobs, as acute effects on employment, 2010, 11 and 15, you have highs and lows that you great sales. this creates more jobs than that. so you give us a sense, for example, unemployed is very high in terms of its economic rate, but also with respect to the economy gdp. so i appreciate that. i will work with you on tries -- i will work with you trying to find ways to address that. i don't want to steal for my good friend, rob portman, follow-up on more, but it sort of baseline question. you say that we can get to 61% of gdp in 2021 under current

law, but i think most of us here in this room don't think that current law is very realistic. there's going to be changes, and you list some of the changes in your statement. namely, the tax cuts, 2010 tax cuts, amt, medicare payment rates and so forth. and if we were to assume that those are going to be extended, there's something of current policy, but instead of trying, instead of $1.2 trillion, as 251% of gdp in 2021, the figure i have is what $6.2 trillion. >> yes, that's right. the cost of extending the expiring provisions announce -- musto, including the interest costs that would result, amounts to about $5 trillion over the coming decade. so the choice of the congress

about those policies is much larger and impact, potentially, than the stated target deficit reduction of this committee. >> all right. so let's say we want to reduce the deficit by 6.2, i put one, 6.2, let's say, for example. >> okay. >> what would the composition of that reduction be if we reduce it, deficit, somewhat parallel, tandem, proportionate to the cost of additional 5 trillion? >> bucks i guess it would just -- >> most of the extra $5 trillion under your scenario comes from a reduction in taxes. so if one wanted to offset that, that's what you're suggesting then one would need to raise, tax revenue, through some other channel. i mean, i think i understand the purpose for this hearing, talking about the history of

debt and how we got here. i think your extended that a bit in the future look at what policy changes would get us with certain place. but the fundamental question for you is not how we got here but where you want the country to go. what role do you and your colleagues want the government to play in the economy and society. and if you want a wall as benefit programs for older americans like the ones we've had in the past, like the ones i've had in the past, they more tax revenue is needed and under current tax respect on the other hand if one wants those tax rates then one has to make very significant changes in spending programs for older americans, or other aspects of how the federal government speedy's i don't want to take the time here, but really the question is where do we want to go. and do we want to have amt, index for example. they want to have payment rates. we want to increase taxes for middle income americans beginning 2013, or not.

basic question we have to ask ourselves, there are all consequences clip and consequences is what we just agreed on, namely, -- i've met in addition, what the president will have us do with a jobs plan. >> yes. >> representative upton. >> thank you again, dr. elmendorf. i want to underscore what our friend, mr. kyl, said about fraud and abuse. there's nothing more irritating to any of us here, sir make your constituents, and any assistance you could help us on that i know would be low-hanging fruit any major way for us to include as part of the package. let me ask just an early question as to timing of this whole event. we are tasked to have a vote prior to november 23. what is the tiny, other than as

soon as possible, what is the realist date that truly we have to have our documentation submitted to you? i know sometimes a lot of our members are frustrated trying to get a cdo-squared. i know that there's not a higher priority for you all to do this, but what is really the date you are going to want the material so we can complete the work by the statute? >> as you know, congressman, from your time and energy and commerce committee. there's a process in which ---there's a process in which offers a preliminary versions of idea and off for preliminary feedback. but if this committee and tends to write legislation that would change entitlement programs in specific ways, that process usually takes weeks of drafting to make sure that the letters of the law that you are writing

accomplish the policy objectives that you're setting out to accomplish. and as part of that drafting process, ultimately the effects of the letter of the law as it is being written, it will take us at least a few weeks. i have a terrific set of colleagues who are incredibly talent and work incredibly hard, but we need to do our jobs right. and that means not just when i was out of the air. so we sat in some discussions with staff that, with all respect, your decisions really need to be mostly made by the beginning of november if you want to have real legislation and cost estimate from cbo to go with that before you get to thanksgiving. >> now, i want to get a better understanding of some of the estimates and the cost impact of the affordable care act. as we know, the bill increased taxes on some of our nation's most innovative job creators, reduced medicare spending significantly. the tax increases in medicare

cuts were traded to create three new entitlement programs, which have yet to take effect. and according to our stats projections, which are based on your most recent baseline, those to entire programs will cost the nation nearly $2 trillion over the first 10 years from your teen to 2023. so question one, have you all estimate the full 10 year cost with each of these entitlement programs, medicaid, health coverage subsidies, integration of the class act, for the 14-23 period when they're fully implement at? >> no, we have not. >> you anticipate doing that at all? >> no. as you know we produce estimates for the ten-year period, that was under consideration when the law was being considered. and we provided a rubberstamp of what we thought would happen in the second decade from that point in time.

as the time moves forward, we will ultimately end up with the ten-year budget window that will be from 2014-2023. but even then it's not obvious that we will have an estimate of the effects of that legislation by itself. some pieces of that legislation create new institutions, new flows of money that didn't exist before. insurance exchanges and subsidies. and those lines of our cost estimate will in some since become real close of my at that point in time. not much else of that legislation may change its existing programs, through medicare and so on, and we will never know for sure what money action islam differently because of that piece of legislation. we will see flows for certain purposes through certain accounts. but i sleep the effects of the isolation really will be possible. the prescription drug benefit is one of the few pieces of legislation where we can look back at how we did in a sense because much of that legislati

legislation, the big part created a whole new stream of money that would've been do otherwise so we can see the difference. but for most legislation that congress passes, one can never really go back and tell that's the risk that we got to congressman becerra and others. one can never go back into what happened. so that helped her legislation would be like that at some point. >> is there a way you would take the percentage of gdp and try to match that up with the out years and look at nine, 10, 11, 12 years out? is that i thought you might take a? >> we did. so, we can talk with you further, congressman, we did do an estimate as the net effect of the law, the share of gdp over the second 10 years, and we talked in essence at the time about some of the bigger pieces of the legislation. i think growing rapidly, more slowly or so one. that sort of calculation is not possible to do on a level of specific provisions. it's just too broad a brush.

we need to paint with that arise given the uncertainty, but if there are other ways looking at this pieces, that would be help of the, i think we made very clear although that legislation created significant new entitlements that raised federal outlays. it also made out of production and alleys and raise revenues in ways that on balance we think and still think reduce budget deficits. but that was a net effect of very large changes with different signed. and that increases the uncertainty surrounding the estimates of the net effects. >> thank you. >> thank you. representative clyburn. >> thank you very much, madam chair. dr. elmendorf, since we had been sitting him, have you received a notice that the nation's poverty rate has increased to 15.1%, up

almost a full percentage point. now, back in, i think was in september 2010, and testimony before the senate budget committee, you said this, regarding structural changes, the end of the housing boom, and the recession, reshuffling of jobs among businesses, occupations, industries and geographical areas, those developments suggest that gains in employment for the next several years rely more than usual on the creation of new jobs, the different businesses in different industries and locations, and requiring workers with different skills. do you feel that is still to?

>> yes, we do, congressman. we think that much of asked amount of unemployment we are saying that is what it comes to called cyclical response of weakness in the demand for goods and services. but some of the extra unemployment we see now is more what economists call a structural problem, which involves importantly the mismatches that we discussed in the passage you read. also relates to unemployment insurance benefits and other factors of the economy. we made a rough attempt to quantify this pieces in our august update, but the upshot of that is to say we think there is an important piece of current unemployment that relates to this kind of structural mismatch that makes it harder for those people to go back to work because it's not so much going back as going on to something else. >> then that means that your

view, there's not much that can be done in the short term to attack this? >> wouldn't quite say that. it's challenging. i mean, i think what i would say is the cyclical part of the unemployment, the parts that responds to goods or weaknesses, can be addressed through aggregate economic policies. so people who are unemployed for structural reasons in a sense because sort of the things they knew how to do, the place they live isn't being done there or anywhere anymore, that isn't a minimal broad macroeconomic policy but it might be responded to certain types of more focused policy. training programs, for example. i think the broad brush summary of training programs is that it's hard to make them work. but not impossible. i don't want to suggest that but i think it's a different sort of policy that needs to be considered in order to help some

of those people find new jobs, to of other people create jobs, that those people would be able to do. >> let me just say, to be certain, i am just as concerned as my good friend, senator kyl, that is about fraud and abuse. i want to call that out of the system as well as we possibly can. problem i've got though is that with these kinds of numbers and with what you've just left out, it means that those in need, or increasing rapidly, and the question then becomes is, if you look at the median family and household income, declined to .3%. that means that the respective of what may be happening to the

people who may not be deserving of the assistance, there are increases occurring among the needy very rapidly your and we have not done anything to absorb that challenge. >> certainly right, congressman, about the number of people who are hurting. one thing i would say is the federal budget automatically does something for those people. food stamp participation is up. a lot more money is flowing out that way. unemployment insurance, even apart from extensions, will pay benefits to more people if more people are unemployed. so some of the automatic features of entitlement program end up helping those people. but i don't want to suggest that has inoculated them against overall problems that they face.

>> that means the burden of doing smart cuts is greater than what it may appear, just looking at the numbers. it means we really need to look into all of these programs to see exactly where cuts ought to be made, rather than just dealing with the number. thank you very much. i yield back. >> senator portman. >> thank you, madam chair. building on what my colleague, congressman clyburn just said, and what co-chair hensarling talked about earlier in terms of the impact of the debt and does on economy your dr. elmendorf, do you get the reaction to the study that shows what you are at 90% of gross debt, which we are already, have an impact on gdp, therefore our jobs, therefore those current issues that congress and clyburn talked

about? >> certainly familiar with that work, senator. carmen reinhart is a member of our panel of economic advisers that would benefit from her expertise. i think the thing to note about the study personal as a said they are looking at gross debt so those are large numbers, the numbers that you see for me with lucent debt held by the public. the thing to say though is they divided the world into buckets in a sense, different levels of debt. that doesn't prove that there is some particular tipping point at 90% instead evidence shows that above that level economies tend not to do well. we said in an issue we wrote last year about the risk of a fiscal crisis and other things that we've written we don't that it's possible to identify particular tipping point but there's no doubt that as debt rises, risks a fiscal crises rise. the federal government loses the flexibly to respond to unexpected international films our problems at home because of this them in debt.

and we are as i said moving into territory that is unfamiliar to most developed countries, for most of the last half-century. >> in fact as you look around the world, there's a recent report showing the most successful and pro-growth deficit reduction took place in countries that relied chiefly on a steady progress, spending cu cuts. and -- that relied more on tax increases were less successful in reducing the deficit and had slower economic growth but have you looked at some of these countries that have gone through the same process we are going through now? and what comment can you give us today on what we can learn compared to those countries? and maybe if you know about the professor's study. >> so i do know alberto's work. there have been a number of studies, as you know, looking at international experience of countries that have faced fiscal crises and have undertaken austerity programs. the imf looked at a very similar

set of data to the work of alberto and sylvia, and came to a different conclusion, in fact. their conclusion was that in countries that really set out to do fiscal austerity the results tended not to go in the short term. i think the principal lesson of looking at countries like greece and others is that it is a terrible situation to end up in. where one has to make drastic abrupt changes in policy. but if you look at greece or ireland or the experience in the u.k. which has made a very determined if it in its policy, those economies are not doing very well right now. and i think leaders in this country felt they had no alternative given what it can't do, that they're at a point where people were not lend the government money anymore, or were about to stop lending money. so they have to make drastic changes. but that is not a situation that

we would like to find ourselves in as a country. >> it appears that we are heading there if you look at the current policy baseline and some of the more realistic things my colleague, senator baucus talked about. if you look at your chart with regard to baselines, you say that we have about a three and a half trillion dollars increase under the current law baseline but under current policy, i would add tax, guarantee tax credit and others, possibly you're up to about 9.3 trillion. so the 1.5 truly is a relatively small part of the problem. it's about 70 men have% by the way of your eight and a half% number. so i do think that as we look at our work we will need your help i'm looking and more realistic baselines. we are making very difficult choices on things like alternative minimum tax, ending the ui extension and payroll tax and so on. and in terms of what drives

that, your figure 14 i think is very instructive. major health care programs are you. there were discussions about president obama's comments, major driver of our long-term liabilities have ever here knows medicare and medicaid and a health scare -- health care spending, nothing else comes close. assume you agree with that, which i send you? >> yes. >> what you think i to be the primary focus of this committee? >> again, it's really not the place for me or cbo to offer recommendations of how to proceed, but there is no doubt the aspect of the budget that is starkly different in the future relative to what we have experience in the past 40 years in spending on programs for older americans and spending on health care. and the reason those programs are so much more expensive for the future is partly due to policy change but mostly deal to great increase number of older americans and higher costs for health care.

it is possible to raise taxes or carve away at the rest of the government in a way that can support those programs in this forum -- form for some time. but there should be no illusions about the magnitude of the changes required in other policies to accommodate that it is one release those programs in place, then, in fact under current law already the rest of the government will be much smaller vote to decide to become in 2012 than it has been historically. and one would need to raise revenue substantially. this is a 5% of gdp increase in the cost of social security and major health care programs in 2021 relative to the for your average. 5% of gdp is a very big number, and that's what i think people believe that they should be changes in that part of the budget. >> so the 22 points 7% of gdp of spain in the 2021 estimate undertaken current law, not even

current policy is the major drive is the social security and major health care programs as compared to the historic average plus 50 years, about 20.8%. revenues go from 18% up to 20.9%. my understanding is even under current policy revenues go up above the 18% level. so 2 trillion, 9.3 trillion itches i think a more realistic estimate, is that correct as a% back at gp? >> that's right, center. i'm not sure exactly, but yes. a slight increase. i would just add one fact. number of americans over the age of 65 is going to rise by about one-third in the coming decade. one-third more beneficiaries of social security and medicare, a decade from now, roughly, than there are today. and on top of that with higher

health care cost per person one can see why programs in the current form are becoming much more expensive over time. >> senator kerry. >> thank you, madam chairman. dr. elmendorf, i want to try to move to a couple things fairly quickly if again. you said a moment ago that the aspect of the budget that is starkly different is, i think he said the number of older americans and the cost of health care, is that drug? >> yes, that's right spent those are the two things you said are starkly different today? >> today and in the future, even more so in future. >> but isn't it accurate that we have balanced the budget i think since world war ii five times, and that each time we have balanced the budget, revenues have been somewhere between 19 and 21 plus percent of gdp, is

that i could? >> that sounds right. i've not checked exactly. >> assuming that is accurate, we are currently at 15%, 15.3 i think is your prediction for this year, of revenues to gdp, correct? >> yes, that's right spent so isn't it fair to say that, in fact, doesn't aspect about our budget today that is starkly different, which is the level of revenues relative to gdp. is starkly different, isn't it? >> yes, that's right, center. spent and it is starkly different in that it is well lower than the historical average of when we bought is the budget or not balance the budget. >> yes, that's right. >> so let me ask you, you know, given that reality and given the reality that you and others, i think lash of the committee on fiscal future of the united states which is a joint effort of the national academy of sciences and the national academy of public administration

develop for budget scenarios. they had one budget scenario where you had nothing but cuts. another budget scenario we had nothing but tax increase. and then to in between. the only way they could keep the revenues of those struggle averaging keep spending at a decent level was basically with cuts. but that doesn't get you where you need to go in terms of, so this historical average and not winding up with major, major cuts in terms of the benefits of medicare or medicaid. so if you want to avoid, you made the statement to us a moment ago that we have to make a decision about what we want to do. most people have accepted that we don't want to have major reductions -- we have reforms, yes. we need to do a better job of making them fiscally sound, but i haven't heard anybody stand up on either side of the aisle and

say there ought to be huge cuts in benefits. if that's true, then aren't we forced into a situation where we look somewhere near the historical norm with respect to the revenue to gdp, percentage? >> so, if one wants to leave spending on social security and the major health care programs roughly in line with what would happen under current law, then one needs to either further carve away at all function of the government or one needs to raise revenues above their historical average share of gdp. by a significant amount. are are one can do, nation's of those. but there is no way to simultaneously that social security and major health care programs grow the way they would under current policies, or even close to that, and operate the

rest of the federal government in line with its role in the economy and for the last four years and keep revenues the same share of gdp have been on average in the past 40 years. and the reason those things are inconsistent, even though they work in the past 40 years is because the number of people will be older and the number, the amount of be collecting in health benefits will be somewhat larger in the future. >> i have to agree with that judgment that you have me. i think it's a very important one with respect to how we approach this. also want to we are going to have some time here discuss the health care peace, but isn't it true that, well, that medicare excess cost growth, how does that compare to the excess cost growth in overall health care spending over the next decade? i think in recent estimates that you found that medicare in excess cost growth was actually

lower than historical average now, isn't that true? >> yes. so excess cost growth, meaning not necessary excessive in the judgment of sense, but just faster growth in benefits per person than in the growth of gdp per person, that sort of excess cost growth in medicare. under current law is pretty close to zero of the coming decade. that would be a very sharp change from the experience of the past 40 years. payment rates to providers spent what do we attribute a significant reduction in the medicare cost? >> socom importantly to teachers of the law, like cuts in payment rates imposition, due to take effect the in addition and like a number of the other cuts in provider payments in active in last year's major health care legislation. >> so that has had a beneficial effect in medicare costs? >> yes that's right spent i

would reserve my time. >> representative camp. >> thank you. director elmendorf, i'm sure you remember last you testified before the president's national commission on fiscal and responsibility form on a topic very similar what you're covering today. it seems as if your presentation then said then and now that we need to get control of the automatic spending increases that have been built into the government's budget. is that a fair statement of your testimony then and now? >> i can, i think we said those pieces are growing very rapidly and that to accommodate that, as it stands would require very large changes in other aspects the government spends or collects. >> those are the significant drivers of our current situation. so what programs in particular are at the core of cbo's projections with a long-term

government spending? and which programs are responsible for the largest increases in government spending? >> from the written test on on page 39 coming up on the screen for those with very good eyesight, one can see that this picture shows growth over the next decade in social security and medicare and other major health care programs. >> to the other major health care programs include all of the health care act, long-term care and other, medicaid, increase his? >> the other major health care programs or medicaid, the children's health care program and subsidies to insurance exchanges and some related smaller spending. spent long-term care entitlements because the long-term care entitlement, if you recall actually raises money for the government in the first decade of its life. and i don't know if there's been bad out here or not. i don't think so actually,

congressman. but one can see from this picture with the largest increase as a share of gdp over the coming decade, among these three categories it's the other major health care programs followed by social security and medicare. and that's principally i think because of a great increase in the number of beneficiaries from the expansions enacted last year, and continued sharp increases in costs for beneficiaries in those programs. >> in your prepared testimony before the president's commission you also included a chart, which if we do pull it up now to everyone has a copy of this chart at the desk in their packet. would show real gdp per capita under different economic conditions. you'll notice under the alternative fiscal scenario the line stops between 2025 and 2030. and you explained them that that line stops because economic growth collapses, and that it simply can't handle downloads that i. is that an accurate statement of what you testified before the

president's commission? >> yes, that's right. with updated this picture in our long-term projections from this year, but similarly, congressman, not quite the same point the amount of debt under this alternative scenario becomes so large that our models don't know what to do with it. i don't think the economy actually gets that far at all because the people and the economy would be looking ahead. in fact, much more serious problems come sooner than we shall in these pictures. >> and they think he said that the government debt has become so high that you don't know what to do with it because private investment ceases to function and the economy ceases to function under that scenario, is that correct? >> ceases to function at some point. i think freezing up a, senator eshoo in those pictures because anticipation of that problem. >> and i think that announces really does go along with what other analysis have said to the

country's gdp ratio when it exceeds 90%. i'm talking total debt to gdp ratio, that it reduces economic growth as others have said in their time by about 1% at that level. >> yes. i think the models we are using here are consistent with the consensus approach, estimating this sort of issue spent am i correct to say that our total debt to gdp ratio is over 90% at this time? >> yes, i think that is right, congressman. >> and what impact do you think these massive levels of debt relative to gdp have on the economy in general, and specifically on the prospects for job creation? >> those levels are debt are a burden on the economy. they reduce our output and our incomes relative to what we would enjoy if we had done less borrowing and have done more saving. >> this committee has been passed under the budget control

act of finding 1.5 trillion deficit reduction over a ten-year period. what is the size of the economy over the next 10 years? >> to gdp today is about $15 trillion. we think it grows over the course of the coming 10 years. if you have done that? elation, congressman, i would be happy to that number from your. >> assuming over 10 years, we're talking about 1% of our economy, are we not, in terms of rough numbers? ..

but it should not be viewed as unsolvable. changes in policy can put us on a different path. >> and in terms of outlays, i think this amount over the next 10 years represents 3% of our outlays. and i. dissecting senator portman mentioned as well. so we need to put in to while i'm not underplaying how difficult this night he come about in terms of impact and economic trajectory of the united states economy, we are not over the next 10 years. in significant percentages of either economy or outlays. most families and businesses have had to deal with less than 3%. i think it is something over a ten-year period. it obviously had to do with less or not. lastly, i want to ask you one quick thing.

when i come to agreement on impacts within the ten-year budget window, though we may have decisions that are outside of the ten-year budget window. i want to be ask if you're willing to work with us to find ways to measure the impact of policies outside the traditional budget window and if you commit to helping us do that. >> absolutely, congressman. >> thank you very much. i yield back. >> representative van hollen. [inaudible] >> let me start dr. elmendorf for thanking you for your testimony and just say that this goes for republicans and democrats alike. we are all entitled to our own opinions, but not to our own fax. i'm the last time that our budget was balanced was back in 2001, 2000 time period. in fact, revenues as a percentage gdp was 20.6% in the

year 2019.5% in the year 2001. and the last time spending was 18% of gdp was about 1967. and it has risen since then largely because we as a nation decided to make sure that older americans and their retirement tab four health security needed. so it is important to keep those facts in mind as we -- i go forward. now you post a very fundamental question to this committee. and let me ask you this. if we were to try and continue with current retirement and health care security programs in the future, we would need significant changes to revenue beyond current law, would we not? in order to find them and balance our budget, a seemingly

kept the rest of government constant? >> yes, that's right, congressman. >> if we were to try to preserve those -- that nasty bits. if we were to continue the revenue policy without any changes, it would require very deep cuts to those retirement and security programs, would it not? if we were to try and bring down the deficit? >> if you maintain the rest of the government with the historical pattern, yes. >> in fact come over the next 10 years as a percent of gdp, that's going outcome is that not? >> yes. >> said that is the fundamental question. i think we recognize we have to do what the your issues. we have a demographic challenge. we have more and more people retiring. but as you pointed out, if we

want to avoid huge cuts to medicare and social security, we also have to deal with the revenue piece. we have the increased revenues beyond current policies and we want to avoid very deep cuts. i think it's important to look at the revenue side of the equation and right now you present them back to us in your testimony. i think it is time for this committee to give real and recognize that there are some issues, especially in the out years. there's also the revenue issue. as you point out, under current law, the ten-year hemolytic deficit is $3.4 trillion, correct? under current law. >> eichinger $3.5 trillion. >> as he points out on page 19 of your testimony, if we continue current tax policy and current position payments under medicare, that will rise from

$3.4 trillion to over $8.5 trillion. that's in your testimony. >> you mention this to fact there's together and it's important to point out that over $5 trillion that the huge bulk of it has to deal with continuing tax policy, does it not? and by my calculation you'd get just under $4 trillion in revenue. you are talking about 4.5 trillion of your $5 trillion dealing with current revenue policies. >> yes, that's right. >> just to be clear, if this committee were to adjourn today in the congress were to which i'm for the next 10 years and go away, we would actually achieve greater deficit reduction benefit check this and symbols of faith in the outcome is that not right? who took over $4 trillion over that ten-year period, even if we

fixed the doctor physician reimbursement, right? if you examine those expiring tax provisions for inflation, then that would add to deficits by $4.5 trillion or so. that would be larger than the amount of savings. >> it's simple math. it's more than the fortune tellers a lot of people talked about. >> yes, that's right. >> so it's important as we look at this challenge to look at both sides of the equation there. and while we are talking about come in just a make and translate this into what american people are experiencing, what would be talking about is essentially going back to the same tax rates and tax policy that was in effect during the clinton administration when 20 million jobs are created in booming. now i'm not suggesting that go back to that particular tax

policy. but if you look at simpson/bowles compared to current law, they provide about a $2 trillion tax cut compared to current law as opposed to 4 trillion. if you look at rivlin domenici, they compare to current law approximation. so if we are really going to address this challenge, let's recognize if we don't deal with the revenue piece as dr. elmendorf said, you are talking about dramatic cuts to health and retirement security for america's seniors. we've got to take a balance approach. that's a bipartisan groups took the ad approach. thank you, madam chairman. >> senator toomey. >> thank you, madam chairman. since my colleagues have raised the issue i want to touch in a couple things that didn't quite make it and so far.

this mature as recently as 2007 the current tax rate structure yield revenue that was about 18.5% of gdp. >> i think that's right, senator. the level is low is because the economy is weak. >> the main reason total revenue as a percent of gdp is so much lower is because we have an economy that still effectively a recession, very high unemployment lack of growth, is not right? as recently as 2007 the deficit we had its about time as i remember correctly, less than 1.5% of gdp i believe. if we could get to the point where he consistently had deficits of 1.5% of gdp, then our debt as a percentage of our economy would clearly be declining as we would have to very large extent solved this problem is not completely. >> yes, that's right. >> to the level of the deficit we had in 2007 at the current tax rates.

let me ask a couple other questions if i could. you went through and i don't think there's any negative implications we all acknowledge including a possibility regard to the point where you have a financial crisis, and economic freedom not. isn't it true that it's essentially impossible to know precisely when you get to that point? >> absolutely. >> so it's just not knowable. >> is just not knowable. >> rate. isn't there a danger that the magnitude of the debt is already competing economic growth having a chilling effect on investment and risk taking? is not possible? >> the level of debt is probably wane in economic activity although the school is less. >> the point i want to make is given that it's probably already been on economic growth and

given that we acknowledge that continuing down this path eventually leads to a full-blown crisis and we can't no-win. i suggest to me that it's very dangerous to delay, making meaningful reform. and while there is some concern that curbing the size of the deficit in the short run impedes economic growth that would argue is already happening. and if the future promised reduction in the dataset either were credible at some point became less credible, then we could discover we are already in that territory where the financial crisis could emerge. isn't that a danger we would run into lameness? >> there are disadvantages to delay. as he said, written testimony and as i repeated here again based on our analysis which is consistent with the consensus of professional opinion, immediate increases in taxes or cuts in spending would slow the economic recovery. but that is not meant to imply

there aren't a variety of factors that can matter in different ways, not meant to imply we are sure we have that right. but that is the consensus of professional opinion. >> it might be, but there's an alternative point of view with regard to the spending side. and even though you and i might disagree on this debate somewhat, i'm sure you would agree that when it comes to its impact on economic growth, not all government spending to sql. spending, and your models to generate more rather than less. similarly, not all tax cuts are comparable? >> exactly. >> and in fact, broadly speaking, spending and tax cuts while they may arithmetically have the same impact on the deficit, if you assume they have no other implications. in fact, they do have other implications. >> what i do modeling of the consequence of fiscal policy, we

incorporate the level of tax rates in effect from work and saving. >> on page 33 of your testimony, you deserve lower marginal rates enhance the incentive to work and save and invest in it as they progress feedback on the economy. one of the things we haven't discussed but i think your reflection on is the possibility of a revenue virtual tax reform that simplifies the code, braddon basin lowers marginal rates. wouldn't that tend to enhance growth and therefore enhance revenue to the government? >> yes, that's right, senator. the magnitude of the effect depends on specifics of the policies they would be back to it. >> i wonder if you have a rule of thumb that you could share with us. for instance, for a given incremental increase in the rate of growth on average, what kind of impact does that have on the deficit over next in a period of time?

>> well, so we offer a rule of thumb for that. in the back of our annual budgets and economic outlooks. the magnitude of that effect and allows her to you in one moment. >> a figure that comes to mind and maybe you could confirm or refute is that a 10 of a percent of additional growth in average sustained over 10 years is roughly $300 billion in additional revenue. >> that's just right. >> soy full% -- this may not be perfectly linear, but it certainly goes in the same direction. >> almost certainly is linear and we offer rules of thumb for small changes because we are not sure what else might happen. >> the point is a self-sustaining change and growth is a huge impact on the deficit or reducing the deficit, would you agree? >> yes, that's right. >> thank you, madam chair. >> thank you very much.

i appreciate everybody keeping a concise. i'm going to have to use a private about my church make a small change at this time. the house is going to be having those at approximately 1:00. there are 12 of last and the time is very short. so unless somebody throw some anatomy, i'm going to limit each of us to two minutes in the final round and ask everybody to please keep it to that time frame. dr. elmendorf, let me just ask, has he been talking about the long-term budget report from january coming cbo included analysis on the act of lower than expected economic growth on the federal budget. i want to ask you, what the cbo estimated impact in the near term and over the next 10 years is gdp growth continues to weaken beyond what is reflected in the current estimate? >> so certainly a weaker economy implies worse budget outcomes, primarily because tax revenues

fall, also because the extra spending and entitlement programs detect about a moment ago. we've not done quantitative estimates of budget outcomes further particular scenarios beyond was in the rule of thumb was offered at our volume in january. and the rules of thumb i rasp because a lot of things can or may not rise and fall with the rest of the economy. we have been surprised the past few years as some of the outcomes of tax revenue, given the state of the economy. but there was no doubt a weaker economy is worse for the budget and a stronger economy is a lot better for the budget. the challenge is how to move the economy. it's not easy to move a $13 trillion economy. >> thank you. i'm going to submit for the record because i think as hard as choices for that here, we need to understand the significant impact to sequestration needs to be as

well. also meant that for the record. i turn it over to mr. hazarding. >> dr. elmendorf, i think senator kerry who product revenues today are roughly 14% of gdp, doesn't the latest current policy baseline go back to their historic run of 18% of gdp in 2014. >> that's right. >> and improving the economy and another fact areas we think will push the data to 18%. >> alternative fiscal scenario is the current policy baseline also shows to an historic average of 20.5% at 34% of gdp, is that correct? >> that sounds about right.

do not want us apoptotic related to the lack of economic recovery feared the other is structural. is that a fair assessment clinics >> yes, those that does look right now, congressman. >> those who have advocated or have brought up that historically when the budget has been balanced, taxes has gone beyond a historic permit 18% of gdp to closer to 20% of gdp. and again, this is your alternative fiscal scenario, shows that spending by 2035 associate to 33.9% in the same alternative fiscal scenario shows that taxes are in a pass to increase from 18% of gdp to 18.4. so following the nauseous for those who advocated or to achieve a balanced budget director mitch have to, you say rising from 18.4 to 20% of gdp, would not suggest that spending

has to decrease essentially 14 percentage points under your alternative fiscal scenario. to reach its historic norm. >> congressman, i'd rather not parse the meaning of the word talents given its role -- apparently good discussion. or you are right if revenues were 20% of gdp, then balancing the budget given the assumption would require reduction in spending. >> thank you. >> representative becerra. >> dr. elmendorf, i'm going to start calling you start your friday. you are here essentially giving us at least her best interpretation of the facts and we appreciate that because you're not trying to give his opinion or tell us whether in five years or 10 years we should reduce the benefits they give to seniors under medicare or make a change to a defense and security needs, you simply tell us what the numbers show and leaving it

to us to come up with a good mix and i appreciate that. i suspect her mother or father or grandmother or grandfather probably also believes you're just talking numbers are not saying what should be done to them with regard to medicare or social security or anything else. one quick point. with regard to the discussion about long-term costs come he mentioned medicare and social security and medicaid. medicare and medicaid because they do with health care and health care costs are in a different boat than social security. not in terms of long-term costs. >> that's right. the increase in spending for those programs the project under current law are that greater over time than social security. >> indeed, social security by 2028, 2030 starts to stabilize and stays constant in terms of its cost to the federal government into the out years, right? >> roughly so. after the baby boomer generation has retired, but balances out.

>> you're not here to tell us how to make that fix the health care because the reality is medicare and indicator simply reimbursement for financing systems. if we were to just cut benefits for senior, that doesn't necessarily mean that health care costs will drop. that shifts the cost more into the pocket of the senior to pay for that care is medicare just reduces what it reimburses. >> it depends on policy of course, but there are some policies that shift costs and reduce overall costs. >> appreciated. >> thank you, congressman. >> thank you, dr. elmendorf. just one question in the interest of time. why do you agree with senator to me's other point of view regarding your argument, cuts and spending now can harm economic growth or delay economic recovery is true of defense spending as much as

other spending, is that not correct? >> potentially all types of spending, but i think that is the more subtle. >> here with defense for example, you have high unemployment of returning veterans to begin when. you have reduction in end strength. you have more people potentially unemployed. people making radios and building ships and so on. and if those cuts therefore end up reducing the employment of his injuries in the amount of money spent obviously could delay economic recovery. >> yes, that is right, senator. >> thank you. >> senator baucus. >> thank you, madam chairman. i wonder, dr. elmendorf, if you could discuss what was already, what changes either the same tax policies will emulate the economy must? let's rank them somehow.

>> well, it turns out in the table you are looking, senator, from the january 2010 report, we did consider the effects of a set of alternative tax cut. we have not updated table since that point. and to members to be slightly different but probably not fundamentally different. reductions in payroll taxes that we studied here were among the more powerful lovers, father died expensing of investment cause and then followed a load that a little bit by broader reduction in income taxes. and the reason for that difference is principally that the money that is saved by employers or employees in payroll taxes we think translates into a fairly comparatively large amount of spending and also in the case of a cartoon employers pay amount

to at least a temporary discount on the cost of hiring workers. >> if we have a revenue neutral tax reform corporate or individual and the tax reform, let's say on the individual side instrument bake broaden the base, lower the rate, et cetera, how much growth will result from a very simplified tax code along those lines? >> a tax code would spur economic growth, but it's not much to do something we would have to take specific proposals from the about to wear goggles and work hard for a while before we could have any sort of quantitative estimate. >> okay, thank you. >> thank you, senator. >> representative update. >> thank you. i'm worried about the impact of the affordable childcare act on the methodology used to calculate how many employers

will drop their health care coverage for their employees? >> i can read a brief summary. we have a model of health insurance coverage in which employees and employers are trying to obtain coverage at the low cost. but also giving way to the quality of the coverage they receive. in our analysis, the affordable care at encourages some employers to provide insurance coverage you would not have otherwise because of the mandate for insurance coverage and some of the subsidies. on the other hand, encourages other employers not to love her anymore and i think the latter effect is the former and with a small reduction in employer-sponsored insurance coverage. estimates are very consistent with estimates of other people with large-scale models like those at the european institute. obviously there is a tremendous amount of uncertainty around the

sustenance. and there have been some surveys that have suggested it would be more employer dropping. at this point based on things we've seen since we did this estimates, we are comfortable those estimates make sense. but it is an issue we have been asked to exploit this and activity of the budgetary effects of alternative outcomes in terms of employer response coverage and we're working on this estimates. >> can you actually provide us a dial-up? i don't know what your percentage is, as low as 5% or less? >> it is a small percentage. >> i wonder if you could provide us an estimate of is maybe 10% or 20%. >> so the challenge we have is it matters a lot for budgetary cost to and that with and without employer-sponsored health insurance coverage so we can't do justice scaling up in that sense. we have to understand the model and there's ways to change the assumptions of the model to get different answers, but we need

to do that because that will affect the budgetary costs. it's also not obvious to budgetary cost is as large as it may seem at first if people are not getting employer-sponsored coverage and that government will pay more for their coverage. on the other hand, employers will have extra money they were previously using to buy health insurance with. most economists think money will turn up as wages for workers. they'll pay tax on that. if it doesn't, you will pay tax on that. so the overall budgetary effects will depend on the combination of changes in exchange subsidies, medicaid cards and tax receipts, but working on that, congressman. >> thank you. represented clyburn. >> thank you, madam chair. dominican revenue from a different repair. is it fair to say that the decrease with increasing unemployment has decreased the revenue going into the federal

caucus? >> that's right, congressman. >> if we had a decreased to just say .5% from 9.12 mac 8.6, what would be the level of revenue increase? >> i can't do that in my head, congressman. it would help, but i don't know. partly because we pay less and partly because the people are earning money would pay taxes. >> both sides of the budget would be affected. >> i would like to see some computer printout. >> i will task my computer with bad assignment, congressman. >> thank you. >> senator portman. >> i think congressman clyburn has made an important point that the economy place such as usual this is a hearing about the history of how we got here, i went back and looked back to

your may 12, 2011 report, we talked about earlier 32% of the difference between the 5.6 chili's surplus projected in the 6.2 trillion deficit, which is $11.8 trillion swing, 32% is because of the economy. 33% as new spending and a third is for the global war on terror. a third of that is iraq, afghanistan and other spending of the word terror. 39% is due to new spending that 6% that's the stimulus. 15% of the bush tax cut. by the way, 70% went to those making less than two and 50,000 bucks a year and the rest is interest and amt and the rebates into destiny. so i think it's a great point that the economy is going to drive so much of this. we talked about this earlier, but you said that you thought increasing taxes at this point would have a negative impact as he thought the spending cuts

would have an impact on growth and jobs. in response to senator baucus, he said some tax reform, particularly lowering the rates and broadening the base would have a positive economic impact. can you speak to that of the release to the corporate tax code and the possibility also blowing away to make the u.s. were competitive? >> in terms of the individual income tax and corporate income tax, congress would likely agree that lower tax rates and broader-based would be good for the economy, both because the lower base would reduce the disincentives to work with the save and also because broadening the base of cells can have done in certain ways reduce the incentives for miss allocating capital resources. again, to estimate the effects on the economy, our colleagues at this staff would need to have specific or postal 70 to spend some time trying to model does.

it's a very complicated business casino, senator. >> how one would you take you? >> i would not commit to that ossian. if would've proposals come up, we've overcome them as fast as we possibly can. i was certainly premise that. >> and prioritize. >> we are giving high priority to the work of this committee, senator. >> senator kerry. >> there is a big distinction come to >> , almost obvious dr. elmendorf if 90% of america was getting a tax cut in 2% to to happen to be the wealthiest people whose decisions are very different and its impact on the economy is very different, there is a big and not versus sort of the blanket discussion about the tax cut versus non, correct? >> yes, senator. we think that's right. >> that's part of the model and it needs to done here because the distinction will be telling in a lot of ways. what i want to ask is i think it would be helpful to all of us in

the committee. i have great respect for the rogoff, reinhart analysis. it is an important one, but i think you draw the the distinction for us. your analysis and most of our discussion around the public that. the public debt is 62% gdp, but we've had a number of reference is here to the gross debt, which obviously includes trust funds and so forth. where there's a very different impact because of the full faith credited the united states in printing and so forth. help us understand how that distinction might play out in our deliberations, particularly with the back to the impact on interest rates. i think the public debt is far more impact on interest rates in on the economic judgments, does it not? maybe you can educate us a little on the distinction between them. >> yes, senator. cbo focuses on debt held by the public because we think that is

a better measure of the impact of federal borrowing on financial markets today didn't gross debt. of course, any snapshot of what the government does at a point in time will be. complete without looking at where the fiscal trajectory is going. that is why we are was combiner reporting an current levels of debt held by the public with projections of revenue and spending and financial markets are very attentive not just the current amount of debt, but also the amount of debt they expect the government to be trying to get them to bioneers ahead. our view that the debt held by the public with these projections for the future offers you and your colleagues fairly complete, by no means perfect, but fairly complete picture of the federal budget situation. gross debt includes money of bonds held by various government trust funds. we can does not measure the

amount of debt that the private financial system has been asked to absorb, north they could measure what will happen in the future because for some programs the amount of debt held in trust funds is a lot less than the amount that they will need to pay benefits under current law. in other cases can be mounted that doesn't actually correspond to future spending. so we just don't think that the most useful measure. and the carbon carmen reinhart and kenneth rogoff date, debuted that is the best available measure of the set of countries over the period of time they have done this analysis work. i don't want to put words in their mouth. we've discussed this issue with carmine. in our case, because we do these elaborate projection in a very detailed level of the budget, that combining those projections the debt held by the public is your colleagues the best sense of where this country's dance today.

>> thank you peered >> representative camp. >> thank you very much. i decided to point out as part of the fiscal commission, i researched how often federal revenues exceeded 20% of gdp in the history of our country and we found that only 10 at 23 times in the history of our country in 1844 and 1945 and 2000. and in 2000, there were 20.6% of gdp revenues and i was largely due to the threefold increase in capital gains from 40 billion in 1999 to 12 billion -- 121 billion in 2000. so that was what drove that. >> i think that's right, congressman. we might thank you. and the 11 fiscal years since 1940, we have had surplus revenues for four of those years between 18% and 20% and seven of

those years, they were less than 19% of gdp. so i have a letter that outlines all of this that i would like to use that for the record. and i just think it is important to point out that again during the 12 years in which the budget was in surplus, outlays never exceeded 19.4% of gdp. i think it is important to keep those revenue levels and historical data. so and like to submit that for the record. >> representative van hollen. >> thank you, madam chairman. i'd like to point out the last time spending was around 18% was around 1967. we made a decision to provide for health security for seniors. so we've really got to look at the period of time since then if i want to continue that

commitment, 13 what here's the budget in balance, which was 2000, 2001. >> dr. elmendorf company of many good point in your testimony. i think your testimony was clear that you can address the deficit challenge about modernizing health security programs unless you have large increases in taxes above current law. but unless you change current tax policy, you can't address the deficit situation without deep cut in health security programs. i just want to have a quick question. you mentioned there some tax policies that generate more economic dvds from the sun generate less. much of the payroll tax holiday generated relatively more than some of the others because more money in people's pockets. is it also true with respect to spending programs there some that generate more activity than others in the economy and investments in the area of infrastructure and education provide for economic growth.

it's not also the case? >> yes. but give me one moment to say that i want to be careful about the pieces of the budget. as revenues come social security and the rest of the budget and i don't think you disagree with this, congressman, that thing that's not possible to do is maintain social security and major health care programs in their current state and maintain rest of the federal government at the same share relative to the size of the economy in the past and maintain revenues at their historical average of gdp. one is to move at least one. one could also move to recruit those as you choose. it is not possible as a matter of arithmetic given each of the population of rising health care costs of all three of those pieces who click they've looked historically. different colors of on the spending side affects economic growth and they do that at different horizons.

system policies might be more effective this year or next. others might be over a longer period of time and we can try to provide that information to you and others if you're interested in that. >> i appreciate that, dr. elmendorf. both tax policies as well as investment spending policies can have positive economic impact. >> senator to me. -- toomey. >> tanks, madam chairman. dr. elmendorf, one of those challenges we face is how we can can -- how we can address these challenges in a credible way. for instance, how willing will future congresses need to abide a spending caps or other kinds of reductions or disciplines that we might try to impose? and of course we cannot tie the hands of future congresses. so i wonder if you might reflect on ways we could maximize the chance is that spending restraints that we would hope to

achieve what in fact come to pass, whether that would be through strengthening existing budget enforcement mechanisms, creating new ones are other ways we might do that. >> i think, senator, the most effect way to ensure that changes to discuss today actually become -- take effect later countries to enact changes into law today. enforcement procedures are only a backstab. ultimately the congress will need to enact changes in the legislation governing certain programs or provisions of tax code if it wants to make those changes. if specific changes are enacted into law this year, then i think there's a much greater chance they will take effect when the time comes in is what's enacted into law this year is simply a set of object does for total amounts of spending the total amounts of taxes or other source of benchmarks.

>> says structural reforms in a program are likely to have more enduring results than long-term caps designated, which you agree with that? >> i think that's way. i think we've seen that historically. grant revenue hollings was cast aside because the overall targets that are the deficit proved to be impossible to meet. risk provisions of the early 1990s, the paygo provisions made it more difficult for the congress to make budget deficits worse, seemed to most observers would've been at least somewhat effective during the period when the congress was concerned about budget deficit. so i think it is the important aspect of this for both the long-term effects and also for the shorter term effects in terms of people's ballooning deficits will be smaller in the

future comes from specificity in putting provisions into law today, even if they are timed to take effects for different reasons at different points in the future. >> thank you very much. i want to thank all of our committee members for being so accommodating. dr. elmendorf, certainly for your input incessantly today as well. i want to remind older members they have three business days to submit questions for the record and i hope the witness can respond quickly to that. and our member should submit their questions by the close of business on friday, september 16. without objection, the joint committee stands now adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> is meaningless from separate carotenes come in the second meeting held by the joint deficit reduction committee. midnight tonight is the deadline to release its plan to cut at least $1.2 trillion over budget deficit. the committee is made up of six republicans and six democrats

and it was created by the budget control act of 2011 to find at least $1.5 trillion in budgetary savings over 10 years from spending cuts or tax revenue. if the committee reaches an agreement by the end of the day come and have until wednesday to vote on it. it then goes on to the full house and senate with a december 23rd deadline for those bodies to act on the recommendations. if the joint committee of congress failed to act by that time, the bill calls for automatic across-the-board cuts come as split 50/50 between defense and nondefense spending. and with that deadline just hours away, we will now show you the last meeting of the joint deficit reduction committee with remarks from erskine bowles and alan simpson, former cochairman of the president debt and deficit reduction commission and they voiced their support for debt reduction package containing spending cuts and revenue increases. as is held on november 1 and runs three hours.

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> the committee will now come to order. before i recognized myself for an opening statement, we should make a few preliminary remarks. number one, i wish to remind all of our guests that the manifestation of approval or disapproval, including the use of signs or placards is a violation of the rules in which govern this committee. the chair wishes to thank our guest in it and for their cooperation in maintaining order and the koran.

this is the fourth hearing of the joint select committee on deficit reduction, entitled overview of previous debt proposals. i want to thank our witnesses. first, you wish to thank them for their service to their country, all long-term stirred public officials. senator alan simpson, who served as senator from wyoming for 18 years, served as chairman to the veterans committee and member of the finest chichi an aging committee and obviously the cochair of president obama's national commission on fiscal responsibility and reform. additionally, erskine bowles, who served as chief of staff to president bill clinton and was appointed by president obama to also cochaired the national commission on fiscal responsibility and reform. senator pete dominick, the

longest-serving senator in new mexico's history, although new mexico is still a fairly young state, a storied career as chairman of the budget committee serves as senior fellow at the bipartisan policy center. finally, dr. alice rivlin, who was a vice-chairman chairman of the federal reserve, direct or read the omb in the first clinton administration and the founding during the congressional budget office and served with senator domenici on the bipartisan task force for debt reduction. again, i want to thank each of our witnesses for their work. there are many other fine organizations and think tanks that it added value to the process this committee chose to hear from these were individuals

and these two bodies. with that, the chair will now yield to himself for an opening statement. what i do believe we will hear from each of our witnesses is that america at least does indeed face a legitimate debt crisis. not only are we operating on borrowed money, we are operating on fire time as well. in that the income i never tire of reminding not only myself, but the public and my colleagues that although we have a statutory goals to reduce the growth of the deficit over 10 years by $1.5 trillion backed up by $1.2 trillion sequester should we fail, more importantly we have a statutory duty to proper legislation that would significantly improve donations long-term fiscal imbalance. what could not be clearer is that none month we offer

fundamental and structural reforms to a nation entitlement programs, especially health care, we'll not only end up failing in our duty, we may fail our nation as well. health care costs measured by gdp roughly have doubled since the time of my birth and tell him into the workforce and have risen about two thirds since then. and they're going and what i'll acknowledge to be an unsustainable rate. every agency in think tank that i'm aware of him every academic study shows that medicare will go broke in mind 13 years. the president himself has said could come as a major driver of a long-term liabilities have everybody here knows that come as medicare and medicaid in our health care spending. nothing comes close. i continue to agree with the president. unfortunately, social security faces problems as well. my children will likely put my

money into social security than they take out. at best, generational unfairness at worst, a form of generational task. we've previously heard from the congressional budget office that tax revenues upon recovery of the economy will once again roughly 18.5% of gdp. we also know there's many tax increases already built into current law. but spending principally driven by health care and retirement programs is due to roughly double in size to 40% of gdp over the course of a generation from where it was just a few short years ago. certainly we cannot tax our way out of this is. we cannot solve it by simply tinkering around the edges of our entitlement programs. for the sake of our economy, jobs, national security and children's future, many people as they decide to quote unquote go big. i agree.

but going back is not merely measured by slowing the rate of growth that the deficit over the next 10 years. going bake must be measured in solving the problem. another words, fundamental and structural reforms of our entitlement programs, giving every american the opportunity for quality health care and quality retirement security at a cost that does not harm our jobs and diminish our children's future. with that, i will now yield for opening statement to make cochaired, senator murray of washington. tonight thank you very much, cochair senator hensarling and our witnesses who have all come today. we really appreciate your being in front of this committee today want to thank the members of the public for joining us us as well. we have all been working very hard over the past two months. with 23 days left to go until our deadline and with even less time before we needs with it and ready to be voted on, we are now entering the critical final

phase of this process. as we all know, consequences of failure are unacceptable. the triggers for and place it be devastating for national defense and for middle-class families in the most vulnerable americans that depend on this country for things like education and housing and even nutrition assistance for women and infants. market rating agencies and businesses across the country are watching closely to see if congress can of this problem and the american people are putting looking to us to break out of gridlock and partisan rancor that has dominated d.c. recently and deliver the kinds of results that they expect in that they deserve your status with members of the committee have been clear. we need to find a way to come together around a bipartisan deal. so i believe it is very appropriate that we are having this hearing that these witnesses as we move into these final few weeks. before as we have democrats and republicans who were able to

come together around bacon balanced proposals to tackle some of the most difficult challenges facing our nation. the two groups went about it in slightly different ways and i don't agree with each plan, but they provide serious models for bacon balanced bipartisan proposals. as you know we will hear more about today, proposals achieve a partisan support and came together only because they were balanced. they included concessions from all sides in the required all americans to share and the sacrifices this endeavor endeavor calls for. neither bipartisan proposal include only spending cuts and they didn't simply address entitlement or only raise revenues. they put everything on the table. they made tough decisions and because of that, they were able to put together balanced packages that garnered bipartisan support. so as this committee moves into the home stretch, hear more about the importance of a

balanced approach, it will be very helpful. witnesses today can address a bipartisan deal is impossible if members refuse to come out of their partisan or ideological corners. it's not enough for your site is simply say they want to reduce the deficit. that was a time when everyone needs to be putting real skin in the game and offering serious compromises. democrats have made clear we are prepared to do that. we said were very open to painful concessions and compromises if republicans are so we put forward various ideas to reflect that. with these concessions will only be made in only considered in the context of a balanced deal that doesn't just fall in the middle class and most vulnerable americans. but that requires corporations in the wealthiest among us to share in the sacrifice. american people realize that. the overwhelmingly support a balanced approach, which is why this is the kind of deal every bipartisan group successfully tackled this issue is made. it's the kind of solution i'm looking for to your more from

witnesses today and the kind of deal i hope every member of this committee is prepared to make. so again i want to think witnesses for being with us to have this critical conversation with a bipartisan balance plan to put forward provide a foundation for this committee and we look forward to hearing your testimony and having the chance to answer questions. the thank you two of you for being here today. >> thank you, senator murray. and now we will hear from our panel. i have no idea why your seat in this order, but will start with you, mr. or bowles. each of you will be recognized for five minutes at which time members will have 10 minutes for questions. mr. bowles, were not prepared to receive your testimony. >> thank you, mr. chairman. i'm delighted to be here in the company of these three great americans. and i want to thank you for inviting me to come.

both alan and i thought long and hard about what we wanted to say today. we have submitted something in writing to you, but instead i would like to just read to you from a few notes i've made. i know most of you. i have worked closely with almost all of you on both sides of the aisle. i have great respect for each of you individually, but collect the idea worried you're going to fail. fail the country. when alan and i first got into this, we thought we were doing it for 15 grandkids. i have nine and he has six. but the closer we got to the numbers, the more we realized we weren't doing it for granted kid. we weren't even doing it for kids.

we were doing it for us. that is how dire the situation is today. i think that we face the most predictable economic crisis in history. i know that the fiscal path we're on here in washington is not sustainable and i know that each of you know it when you see it because it is as clear as day. when alan and i travel around the country and we talked to people and ask them, what you think we have these deficit? they tell us, it's got to be waste, fraud and abuse. it is got to be foreign aid. oil companies subsidies. and yes, all of those are a small part of the problem.

but the big problem really comes from four sources beard and you know it. the is health care. we spend twice as much as any developed country in the world on health care. and unfortunately, if you look at the outcomes, our outcomes don't match the outlays. we rank somewhere between 25th and 50th in things like infant mortality, life becton c., preventable deaths. and so the rapid growth of health care and the unsustainable growth of health care is our number one problem. ..

>> third, i believe we have the most ineffective, inefficient tax system that man could dream up. what we believe you need to do is broaden the base, simplify the code, eliminate, or at least greatly reduce, this back door spending that's in the tax code, and use that money to bring down rates and reduce the deficit.

the fourth cause of a deficit is simply interest on the debt, and if there's one thing i'm familiar with, it is the power of come popped interest, and when interest rates go back to normal, this country's going to experience the power of compound interest. this is a problem we can't grow our way out of. we could have double digit growth for decades and not solve this problem. as the chairman said, it's not a problem we can solely tax our way out of, raising taxes doesn't do a darn thing to change the demographics of a country or change the fact that health care is growing at a faster rate than gdp, and it's also not a problem we can solely cut our way out of. i think you all have proven that over the last year. that's why our commission came up with a balanced plan, a $4

trillion of deficit reduction over the next decade. we didn't make the $4 trillion number up because the number four bus road down the street. $4 trillion is not the maximum amount we need to reduce the deficit. it's not the ideal amount. it is the minimum amount we need to reduce the deficit in order to stabilize the debt and get it on a downward path as a percent of gdp. we based this proposal on six basic principles. those principles are that we shouldn't do anything to disrupt a very fragile economic recovery, so we made very light cuts in 2011 and 2012, and did not get spending to precrisis levels until 2013 when we did get it back to precrisis levels

in terms. we didn't want to hurt the disadvantage so we didn't make any big cuts or any cuts in things like food stamps or ssi or workers' comp, and we actually did things to improve social security while making it sustainably solvent. third, we do want to make sure this country's safe and secure, but we have to realize, as admiral mullen said, that our biggest national security problem is the deficits. fourth, we thought the president was right, or at least half right in his state of the union, when he said america must invest in education, infrastructure, and high value added research if we're going to be competitive in a knowledge based global economy. what he left out is we have to do it in a fiscally responsible manner. we live in a world of limited

resources. that means choices and priorities. fifth, as i said earlier, we believe we have to revise the tax code, simplify the tax code to broaden the base, reduce tax expenditures, and use the proceeds to reduce rates and to reduce the deficit, and lastly, we have to be serious about spending cuts. we have to cut spending wherever it is whether it's in the tax code, the defense budget, the non-defense budget, discretionary budget, or the entitlement budget. i believe if you all go big, if you're bold, and if you do it in a smart manner, that the american people will support you if you make these big, bold, smart decisions. i hope for the country's sake you will. thank you very much. >> thank you, mr. bowles.

senator simpson, you are now recognized. >> senator murray and representative, it's a pleasure to be here. i look at this panel, and i, too, know many of you, but at this age of life, i've been around the track for awhile in this game, never worked with finner people than erskine bowles and alan and pete. it is -- we don't need charts when we go out. we don't use powerpoints. we just say if you spend more than you earn, you lose your buck, and if you spend a buck and borrow 42 cents of it is stay tuned. people hear that, and then you see it today, your country is borrowing $4.6 billion, and we'll borrow that tomorrow and the next day and the next day. if that has any common sense to

the american people, it's certainly escaped us. now, my dad was a governor and u.s. senator. i know the game of inside baseball, and i know many of you do. as we wandered through this place a year ago, people came up and said save us from ourselves. that's not a very smart thing to say in the duties you have to perform, so this is the toughest thing you have ever been in or ever will be in without question what you're doing. you have my deepest admiration and respect, all of you, and you all know what you have to do in your gut. you know what you have to do. some will say, well, you and bowles have nothing to lose. you're not in the game. that's true. dick durbin and tom coburn had something to lose, and they

stepped up to the plate and did it. they voted for our report. there was five democrats, five republicans, and one independent. i used to take these people on when i was in the congress. i did not do this suddenly. i'm the only living person that had a hearing on the aarp. they went goofy, absolutely ballistic. why would you have a hearing on us. we do great things. well, that's enough of that, so anyway, i've dealt with professional veterans, extremists of the senior citizens, i've dealt with emotion, guilt, fear, racism, i did immigration, social security -- i've done it all, and i've never lost an election. i dealt with peter, a great democrat and ron mizzoli. i took on the professional veterans. i never heard anything from bob dole and inouhy when we did

stuff, but if from those who never did anything. i was called a biggot and a racest, and get brought 3 million people out of the dark. they said this is a national id card. that came from the right and the left. people admire guts and courage. they may fight you. they may vilify you, but they will admire you. i've been the toast of the town one day and toast the next. i've been on the a-list and the z-list in this town when i was hear. it's a funny place. on the cover of "time" one month, and six months later, you're doing it. [laughter] a note about grover norquist and if he's the most powerful man in america, he should run for president. he has people in thrall. that's a terrible phrase.

lincoln used it. that means you've been captured, you're in bondage with the soul. so, here he is drks -- i asked him. he said his hero was ronald reagan. i said he raised taxes 11 times. he probably did it to make the country run, another sick idea. look at the aarp. just this morning, i saw that ad. that is the most disgusting, the most disgusting ad i've ever seen. i don't know what the people got paid, especially the actors, but i'll tell you this, they are well-paid. they said we're 50 million. we're watching you. we remember, and we vote. i'll tell you, that is a really ugly thing. let me tell you about aarp. let's remember what they will be when they do nothing. we asked what they'd do to help, and they said two things we'll tell you -- they never did -- but let me tell you what happens

with their view of the world which is to do nothing to restore the solvency of social security. in the year 2036, you're going to waddle up to the window and get a check for 23% less, and then i hope they remember the aarp. i certainly will, and a lot of young people will too. anyway, it's a tough job. you're going to have to do it. people are out there are going to say, now i've helped you forever, and now i never asked you for a thing, but here we are, and that's going to put a lot of heat. well, the market will call the shots from now on, won't need anything but that. interest rates will go. inflation goes up by the failure, and guess who gets hurt? the little guy, the vulnerable guy everybody babbles about day and night will be hit with a hammer on the nose. remember the definition of politics. there's no right answers, only a continuum flow of compromises

among groups resulting in the changing cloudy ambiguous series of public decisions where appetite and knowledge compete openly with wisdom. thank you very much. >> thank you, senator. dr. rivlin, you are now recognized. >> i'll defer to my colleague if that's all right to go first. >> absolutely. you're recognized. >> pull the microphone a little closer to you, senator. >> thank you, mr. chairman. i just wanted to say the reason she asked for that privilege is we have our discussion with you planned in that order, and so we thank you very much. first of all, let me say to the two co-chairs, and the members of the committee, thank you for the opportunity to discuss with you today both the economic and fiscal challenges our nation faces, and our comprehensive

plan to stabilize the national debt. more than 18 months ago, dr. alice rivlin and i decided that we should continue our decade's long work for a rational, federal, fiscal policy. our only stipulation was that everything is on the table. she and i agree. when we then invited 17 other members to join us in what became the bipartisan policy centers deficit reduction task force. i tell you this because i think the history of the men and women that worked on this is very important to show you what kind of americans we have out there who are worried about the future and will step up to the table and do what's necessary. the condition of their membership, these that joined us, was that they, too, agree that everything was on the table. our task force ranged from mayor mark of new orleans to former oklahoma governor frank cady.

imagine the difference between the two, as you know, and they agreed we're in trouble and agreed we have to solve the problem. we had liberals, conservatives, think tanks, former members of presidential cab innocents, people with -- cabinets, people with business experience, and we were diverse a group as american citizens as you can get to address what we all believed is a looming crisis for our nation. last november, we issued our report. it has been much discuss and you and your staffs have seen it. the recommendations after many days were unanimous. they were controversial as they should be because they were all so serious. individually, each of us may have preferred a different mix of solutions, but each compromised to find a set of policies that we could all support. since then, unemployment has exceeded 9%, the economy continues to stagnate, and at the same time, there's been a

damaging fight over the debt ceiling increase. we've seen another series of the mellow dramas on annual appropriations, and we've seen another year of deficits exceeding $1 trillion, and the debt that had ballooned to over $10 trillion, that is the debt held by the public. with spending projected to grow faster than revenues, we're forced to borrow more and more every year if we don't change the policies. this projection is clearly unsustainable. now, everybody has to learn that word because that's probably the best word to explain where we are. we are an america with ununstainble economic policy, and it will ruin us sooner or later. this unsustainable nature has been so attested to by the former -- by the federal chairman, ben bernanke, president obama, and almost all fiscal experts used

that word "unsustainable". they are trying to fix the unsustainable and make it sustainable. righting our fiscal house takes three things. renewed economic growth, cutting federal spending, especially entitlements, driven in large part by medicare and medicaid, and pro-growth fundsmental tax reform that yields significant new net revenues. the significant proposal that alice and i present to you today is the only reasonable bipartisan plan to fundamentally reform that program, make it more efficient, and preserve it for future generations. we also present to you a comprehensive pro-growth tax reform that clears out all special interests that are in the code. we, like our friends who chair the president's commission and listen carefully to their

recommendations today, they recommended a fair and simpler tax system. we have one similar to it, but i would think if you look carefully at it, it better solves the problem that we have today. now, let me be blunt -- a plan that does not fundamentally restructure medicare and other health entitlements will fail to adequately address the debt crisis that we face. both sides, those who are against any fundamental health entitlement reform and those who oppose revenue increases will be equally come police sit in bringing the nation closer to fiscal brink. i hope you heard that. i said it, and it's not like me. i don't usually say that about things. i did say if we don't do this, those who are for fixing health care and those who are for tax increases, and they'd say we'll do not one without the other, we'll do only one, and they are both come police sit in let --

come police it in letting america destroy itself, this great democracy destroy itself because we don't want to make tough decisions. the largest driver of the deficits, social security finances are unstable, and we must soon take action for small fixes that keep the system on solid ground for generations to come, and that can be done. that's not so difficult. citizens will understand that. what will happen if we continue to try to wiggle around these facts when the debt ceiling increase based short term disturbances in the market, when that happened, i had hopes the fiscal reality would push the president and congress to real fundamental action; then because the turmoil in north africa and european debt problems of highest order, investors rushed

into quality. seen as the american sovereign debt so instead of seeing higher interest rates for american debt, we have seen much lower interest rates. instead of the stock market collapse, dow jones is rising and going down steadily and on the upside in the last month. that's not normal for the situation we're in, but i just told you why it was. those of us who predict serious, perhaps calamitous consequences for our fiscal policies, are we wrong? i think not. right now, to borrow a phrase, american debt is the best house in the truly terrible neighborhood. yes, we have rats, holes in the roof, and grass growing window high, but other houses for global investors to store their money are even worse, and that accounts for us having lower interest rates. however, it won't always be so. the neighbors might fix their

houses or the whole neighborhood might burn. either way, we will pay for our neglect with slower future growth, and that's the death mill for those in middle america who have been part of america's prosperity. future growth and less prosperous country, far less able to play a leading role in the world is what we will present to the world if we don't fix this problem. i am told that the joint select committee doesn't have the time to do comprehensive reform. i believe it can create time through a fast track mechanism using section 404 of your enabling legislation. in which we expand upon in the appendix documents in your folder, and i can say to you, those in your folder from us today, the five or six, it's real sense and gives you answers to almost every problem that you have before you. i'm told that the wise exchange

of short term political pain for long term fiscal gain won't happen. i hope that's not true. without substantial new revenues and structural entitlement reform, our fiscal ship is destined to capsize. i am told that we need to put these kind of tax and entitlement changes off until 20 13, an odd number, non-election year. well, 2011 is an odd number, non-election year, and although i'm not making a prediction, we might not get to the next one unschaved. i'm saying we might have the calamity before that event. i know that the jsc has enormous power. what i don't know is whether or not they will use that power. i want to -- i left one remark that was very important, i left it out here, and i want to find it so we can be sure that you

understand that those who are for -- who say they will not support tax revenues unless they have -- we have entitlements. that's -- that can't -- that's a good position if, in fact, you are saying i will do it if we get both, but both are come police it if they fail to act because each policewomans the other. -- each blames the other. they will be if they don't cooperate in participating in this deficit reduction. not one, not the tax raisers, not the entitlement cutters, but both will be come police -- complicit if we fail to recognize this. >> thank you. >> thank you, members of the committee.

i share senator's views and those of mr. bowles and senator simpson's that this committee it change the course of economic history for the better. the united states faces two huge challenges at once, accelerating growth in job creation and reducing future deficits to stabilize the debt. there's no choice between jobs and fiscal responsibility, both are essential, and they reenforce each other. this committee, with its extraordinary powers has the opportunity and obligation to address both challenges. to achieve success, the committee will have to go well beyond the minimum charge of $1.2 trillion in savings over the next ten years because even savings of this mag magnitude would leave the debt rising faster than the economy can grow. we believe you should craft a grand bargain involving

structural entitlement and tax reform that would save at least $4 trillion over ten years. to do so, the committee should take full advantage of the authority given to you in section 404 of the act and write instructions to authorizing committees to produce tax and entitlement reforms to be considered on a fast track. a grand bargain would reduce the chances of the devastating double-dip recession that could leave to a stagnant lost decade. it would also reassure citizens and markets that our political process is functioning in the public interest, not stuck in partisan gridlock or overwhelmed by special interests. i was privileged to serve on both the simpson-bowles commission and the rivlin task force, and both groups worked hard to find policy changes to

enhance growth and put the budget on a sustainable path. the math of the problem, far more than political considerations, drove them to similar proposals. both concluded that two major course changes were essential -- structural reform in health programs, especially medicare, and comprehensive reform of the individual and corporate income taxes that would raise more revenue for a more pro-growth tax system. both also advocated freezes in domestic and defense discretionary spending to encourage weeding out low priority activities in favor of more important ones. the budget control act capped discretionary spending. we believe that further reductions in discretionary spending risks harming government functions. for the same reason, we urge you to avoid the sequester. instead, this committee should focus on growing health care

spending and reforming the tax code. our report offers solid bipartisan proposals to do this. our proposal for medicare reform, which we called defined support, would preserve traditional medicare for all seniors who prefer a fee-for-service system. it would also offer and array of comprehensive health plans, competing with traditional medicare to deliver the same benefits. plans could not refuse any medicare beneficiary and would be compensated on a risk-adjusted basis. the federal contribution would be determined by competitive bidding on a regional exchange. we believe that the competition on a well-regulated exchange would lead provider and plans to deliver care more cost effectively and reduce spending growth. as a fail safe, the federal contribution is capped at gdp growth plus 1%. excess costs would result in an increased premium, but low in

moderate and income beneficiaries would be protected by the increased payments. this bipartisan proposal would preserve medicare for our rapidly rising population of seniors. on tax reform, while growth and spending must be controlled, we do not believe that the projected tsunami of retirees can be absorbed by federal programs without increasing revenues. stabilizing the debt by spending cuts alone would cripple essential government functions and responses to human needs. moreover, as our colleagues have stressed, our current tax code is riddled with exclusions, exemptions, deduction, and other special provisions that distort economic activity, narrow the tax base so much that rates are unnecessarily high. our proposed tax code would have only two individual rates -- 15% and 28%, and one corporate rate

of 28%. most special treatment of income spending would be eliminated or phased out. capital gains, dividends, and so-called carried interest would be taxed at ordinary rates. credits would be allowed for earned income, children, charitable deductions, charity contributions, mortgage interest on primary residences up to a limit, and retirement contributions. the exclusion of employer paid health care from taxable income would be phased out, which we regard as both attacks in health care reform. we believe, like our colleagues, that this simpler tax code would be both fairer and more conducive to economic growth raising more revenue than comfortable policy with less current law and do it in a more progressive fashion. we fully appreciate the difficulties facing this committee, and we hope you have the courage to restore fiscal responsibility and avoid the

truly dire consequences of partisan gridlock. thank you very much. >> thank you, dr. rivlin. thank you to the entire panel. the chair now yields to himself for ten minutes. i believe one of the things i've heard from all of the panelists, and i'm certainly hearing the revenue message, and we'll go back to that, but i think i heard that the number one challenge that we have with respect to our debt is health care; is that correct? i think, mr. bowles, you said something similar? is there a consensus among the panel that the number one challenge we face in the structural debt crisis is health care? no one's diverting from that? dr. rivlin, i have question then for you. >> mr. chairman? >> yes? >> i just wanted to ask if

they'd put up the chart that's even explicit on this. you cannot miss it. >> you have a number for me, i'd be glad to have the staff put it up. >> we don't use this, so somebody said they would be putting it up. >> i bet somebody will be able to find that. >> they showed me just before we met. >> wake up, folks, it's health care. that appears to be how you entitled the slide. [laughter] if the staff can pull that one up, please. >> ask them to put it back. >> there it is. that's one of them. >> that's it. >> that's -- >> these various governmental functions versus gdp, and look which one, that blue line up there, that's health care. look at the lines underneath. those are big ticket items that people think -- look what's happening to health care. i want to add -- give you a word gsh -- if we do not produce a plan permitting cbo to say the line

has been bent, the line has been bent, if that's not in the plan, then you have not caused in a major way reform of health care because if that line keeps going that way, you have solved nothing, so it must start to bend someplace. >> you're not speaking simply of slowing the rate of growth, but talking about a plan that bends the cost curve? >> that's correct, and that's what we do. >> dr. rivlin, having the honor and actually pleasure of serving with you and senator simpson and mr. bowles on president obama's fiscal responsibility commission, i was somewhat familiar with your plan with house budget committee chairman, paul ryan on medicare premium support system. you now have what i believe you have called a defined support system, and as i was listening to your testimony includes an

aspect of maintaining some facet of the current fee-for-service aspect of medicare, but could you tell me why this form of defined support is critical to saving us from the national debt crisis and how does it differ from your earlier premium support plan with chairman ryan? >> i think it differs in several republics. the most important one is the one you noted that it preserves traditional medicare for anyone who wants it, and i think that's important. it's important to senior, and it's important to have -- you should forgive the expression, a public option, and -- but in addition to traditional medicare, it sets up medicare exchanges where seniors would

choose among an array of plans that provided at least the same benefits as medicare, and competed with each other and with traditional medicare to produce them in the most cost effective way. we believe that that would control the cost, that the costs would go up much less rapidly, and that would be part of bending the curve as the senator says. we have, however, a fail safe mechanism in there. if the competition does not result in bending the curve enough, we would say, this defined support, the federal contribution, would not go up faster than the gdp growth plus 1 #%. if it did, there would be additional premiums for those

choosing the more expensive plans, but those premiums would not apply to low income people. that's the plan in the nutshell. >> thank you. question for you, mr. bowles and senator simpson. again, it was an honor and pleasure to serve with you, and you contributed mightily to the nation's conscious, and i hope that whatever >> probably both.

>> what we tried to do was to look at it on a realistic basis. if you look at the cost of medicare and medicaid alone today, it's about 6% of gdp, and it's growing like a weed, and that excludes what it takes tooted $267 billion to do the fix or $76 million to repeal the class act so it really is a big portion of our costs. if you -- it is as again as said earlier, i believe it's our biggest challenge from a fiscal view point. as we lookedded at the affordable health care act recently passed, it was the

contention of the democrats on our commission that the cuts made to medicare in the affordable health care act, along with the pilot programs set up would reduce the rate of growth of health care to gdp plus one. if i could -- >> that's on the provider side? >> that's correct. we didn't think that would happen. we didn't think those cuts were enough, so we did about $500 of additional cuts over and above that with the hope that those cuts would slow the rate of growth of health care to gdp plus one, but on the -- assuming that didn't happen, you know, to us, there was no choice but to get to the rate of growth to health care to that level, and we said there was certain options that would have to be

considered at that point in time, and those options did include a premium support plan, it did include a robust public option. it did include even a single and all -- all-payer plan. >> i see my time is about to run out here. let me quickly cover two other subjects. with respect to both of your plans on raising revenue, i do note that as part of that marginal rates are brought down in both plans; is that correct? the witnesses are saying yes. have less than a minute remaining in my time, i also -- i was looking for certain common elements of your plans, one of which is global chain cpi throughout the entirety of government programs, and in the short time that we have left, maybe i could get a 30-second answer out of each of you why you thought that was a critical part of the solution.

dr. rivlin a brief answer on chain cpi? >> yes, it's a technical change that economists thought for quite a while was a better way, a more accurate way of measuring the cost of living for this purpose, and it would affect all government programs including the tax code. >> so the color would be there just rising at a different rate? >> absolutely. it's just a technical change in how you calculate the cola, and the index that is used for other programs with colas including the tax code, which indexes the brackets. >> senator simpson, out of time, but can i have a quick answer on chain cpi? >> everything we looked at, people that looked at it, it's better, although there's suggestions for something else, c prk ii, but that has -- that's

experimental. this one looks like everyone would adopt it, and if we can do it government wide would save billions. >> i thank you, senator, and the co-chair yields now to his co-chair, senator murray, for 10 minutes. >> thank you very much. again, thank you to all of you for wise council or a very serious challenge. it seems both of your perspective proposals achieves deficit reduction, at least $4 trillion over the next ten years through the use of a balanced approach frame work that includes reductions in spending and increases in revenue. let me just ask all of you, maybe by a show of hands, do all of you believe to get a balanced program that addresses the fiscal crisis, do we need both spending cuts including entitlement reform and revenue increases? show hands -- okay. well, let me start then with senator simpson, ms. rivlin,

maybe you can both answer for your sides. tell us why a balanced approach that includes both reductions in spending and increases in revenue was proposed by your committees. >> well, we know you can't cut spending your way out of this. you can't tax your way out of it. if you get into the rates that happens doing taxes or whatever it is, it can't be, and we tire of the phrase "tax increase" when we're did -- digging in a $1 trillion tax of stuff called tax expenditures that really affect 5% of the big guys, and the little guys had never heard of them. let's take those, and when you take one of those out, to call that a tax increase is a term logical inexactitude, a lie in other words.

that's where that is. this is a fake to say you get rid of a tax expenditure and it's a tax increase, so we said we're not getting into that business of tax increase so the grover won't have a stroke in the shop, but go around grover, and let grover rant because i'll tell you one thing -- if he and the aarp, if we are enthralled to those two groups, we haven't got a prayer, and neither have you. >> dr. rivlin? >> we agree, we were attacks expenditures in the tax code, and they are almost identical with expenditures that are called spending. there's another reason, however, why you need a balanced approach, and that, i think, is the demographics. this government is going to have to absorb a doubling of the number of people over 65 in the next couple of decades.

that's an awful lot of people. that is not changing the role of government. that's absorbing a lot more people which we can't do unless we have some manufacture revenue. we must bend the curve on health care. we must fix social security, but we can't do it in such a drastic way, but we can absorb all of those people without more revenue. >> yes, senator? >> might i just say, i think you all know, you, madam chairman, and a couple other senators, have known me for a long time, and i didn't come on this committee trying to get anything -- i didn't have any preconceived percentages. i said let's start over. the truth of the matter is even when you fix medicare in any

reasonable way and bend the curve so over 20 years you really get savings, the deficit is still too big unless you decide to fill the gap with something. in other words, you don't have a viable budget versus the economy situation so you have to look to the only thing that's left because you've dope the others, and -- you've done the others, and we did it that way. >> very much appreciate that response, and mr. bowles, let me ask you, in the guiding principles and values in your commission to guide the development of the recommendations, you stated "growth is essential to restoring fiscal strength and balance reduction. it must not disrupt the fragile economic recovery." cbo and many economists agree the rate of economic growth in the recovery projected for the remainder of this year and through 2012 was considerably stronger than when your commission put out its recommendation that it is today. i wanted to ask you if you

believe, first of all, that the commission was successful in hearing to those economic principles, but also whether given the weaker projections for today, whether we should be doing more now for economic growth and reducing our unemployment. first of all, our commission, the number one founding principle in the commission was we didn't want to do anything that was overtly stay tuned, and we -- stupid, and we felt it was overtly stupid to hurt a recovering economy, and therefore, if you look at the cuts made in 2011 and 2012, you'll see the cuts are quite small; however, we felt it was very important for us to get spending down, and so we did make significant cuts in spending in 2013, and those

spending cuts do get us back to 2008 levels or pre-crisis levels of spending. when we came forward with that provision, lots of people thought that, you know, we were being too conservative. they said the recovery is real, that if you look at things like back in december as you asked about, there was an increase in factory production, existing home sales were going up, retail sales were going up, and it looked like banks were starting to lend to small businesses, unemployment was starting to come down, and investor sentiment was sprung, and people said in that point in time that the recovery is real. we, on the other hand, felt while the recovery may be real, it was very, very fragile, and the reason we thought it was

fragile, i think that's been proven to be right over time is we were very concerned about the demand. demand comes from three sources. the consumer is still two-thirds of the gdp, and in our case, we looked at what consumer debt, household debt, was 120% of household income. it was about $13 trillion outstanding, over half of it was at floating rates, and if you think that the rise in food prices and gas prices took a bite out of consumer demand, you wait until interest rates go up. we didn't see the consumer suffering decline in home value and loss of income driving the economic recovery. second leg of growth would come from business. it's a fact small businesses can't grow or create jobs without capital, and banks simply were not lending to small

businesses, and so we didn't see that the small business community would be able to lead us out of recovery, and with big businesses who had the capital, their capital was basically on strike because we didn't have confidence in the direction the country was going or didn't know which direction the country was going in, and lastly, it's hard to see business lead us out of recovery when the cruck industry is really -- construction industry is really on its backside. the third level of economic growth would come from government. we didn't foresee an additional big stimulus package coming out of washington to add growth to the economy, and if you look at what state and local governments were doing, they were actually cutting spending and laying people off trying to balance their budget. we didn't see where the growth would come to drive the economic recovery. myself, i believe we're in a structural contraction which

will lead to a prolonged period of reel -- relatively slow growth and unemployment. >> you addressed the concern of accelerating our recovery and phasing in some kind of deficit reduction. i think you also were worried about the demand. can you talk to us about what you did in your proposal? >> yes, we were worried about adequate demand, and we not only phased in the deficit reduction slowly, but we called for a one year, both sides employer and employee, payroll tax holiday on the ground that that was needed to stimulate demand up front before we could safely phase into the deficit reduction that we were calling for. that was deficit was at a time when the economy was somewhat

stronger and seems more -- >> did you have anything to stimulate jobs in your plan? >> it was a symbol of how concerned we were. a full year of a payroll tax holiday for employer and employee is, i think, $650 billion. that's a lot. now, you can do it different ways, but we put it in to symbolize the fact we were really worried about inadequate demand. >> madam chairman? i might comment on that. frankly, i was very surprised in looking at the group of people that were on this debt reduction group. when it came to this issue, they were as worried on any issue i've seen because they were fearful that the economy was not going to recover, and frankly, we don't know what will make it recover, but alice has

appropriately told you what came about what we did, and it is a lot of money. i guess some of us said that it might have been a much better thing to have done two years ago than whatever we tried to get jobs. this might be a better way than anything we did, so we said let's suggest it. >> appreciate that very much. my time expired. thank you very much. >> the co-chair recognizes senator kyl from arizona. >> thank you. great to see you again, and to all four panelists, thank you for the thousands of hours you put in on these subjects, and it's been helpful to everyone. senator simpson, you never disappoint. this is a serious subject, but a little levity sometimes can help, and i appreciate that. you talked about eliminating so-called tax expenditures. i have a quick question for you, comment on taxes, and then i want to talk entitlement

reform. if you eliminated the so-called tax expenditures, the biggest four which on the personal side are deductions for medical expenses, charitable contributions, mortgage interest payment, and payments of state and local taxes, and you don't reduce marginal tax rates, the roughly one-third of americans who itemize would have a higher effective tax burden, would they not? in other words, they would pay more in income taxes. >> we, in getting rid of the $1 trillion $100 billion suggested that goes towards -- and if you want to pit something

back, go ahead. the issue being if you want it, pay for it, so then you can go to rates to 12 and 18 or whatever you want to do. if you want -- we said give on home mortgage interest deduction, give them a 12.5% non-refundable tax cut if that helps the little guy. give them 12% nonrefundable tax credit. we realize those things, municipal bonds, but at some point you just say look, you were told to bring home the bacon. the lobbyists got you what you wanted, and now it's over. the fun and games is over. >> of the $1.1 trillion, $1 trillion goes for rate reduction? >> that is correct. >> and only $100 billion for debt reduction? >> that is correct, john, and that is good to see we served together, but let me say if you want to put something back, they are wonderful things, earned income credit, get the violin

out if you want to talk about what we're doing. >> i don't want to take the time. >> no. >> one observation, and then to entitlement spending. both the fiscal commission and bipartisan cementer have suggested that -- center have suggested that one of the obstacles here is to tax capital gains and dividends at ordinary income tax rates. you started that you didn't want to do anything to disrupt a fragile economic recovery along the line of first do no harm, and my own observation is i think you could do great harm by effectively doubling the capital gains and dividends taxes because those remit areas of -- represent areas of capital formation and investment in the economy. let me just make a quick observation here. the government receives capital gains revenues when taxpayers sell appreciated assets. it's called realizations. congress tried taxes capital

gains at ordinary income, this was in 1986, and the revenues were dismal. in fact, they shrunk for a decade until it was lowered in 1997. higher capital gains taxes mean fewer realizations, a higher cost of capital, less activity in the capital markets, and less economic growth. the health care bill that was passed last year already increases capital gains and dividends rates by 3.5% meaning the rate under your suggestion would be 26.8%, the highest being 32.8%, in other words, more than double the existing rate, and the joint committee on taxation says a rate that high will actually lose, not gain revenue, and that's noting thing for the negative impact on economic growth. other economists who testified before our finance committee

said letting the top dividends rate go up to 20% erases the theoretical revenue gain from increasing the tax rate and lowers both economic growth and wages. if the rate is pushed higher, more revenue and gdp is lost, and wages will be lower. i would just ask you all as we continue to lose it about these things to think about this. your views are important to the committee, but in this one respect, i think you can be very counterproductive by lowering economic growth, not raising revenues, and it would make the deficit problem worse. now, let me turn to entitlements here because dr. rivlin, i think you said something very important in response to representative's questions, and i want to ensure i have have right. first of all, i think it's useful for you to explain the benefits of a defineed support

or premium support, generally, but also correct me if i'm wrong, but i understand you to describe the plan laid out in your committed testimony, a little different than the original in that at least there's two attributes. first of all, you'd actually -- do you actually set the contribution, the federal contribution level, first by the second lowest bid, which would include fee-for-service, but have the fail safe, as you described it, that in no evident would it be more than gdp plus one with a sort of means tested premium support in the event that it did so? if that's not accurate, please tell me how i'm wrong. >> senator, you have it exactly right. we have improved the plan, i think, over our original one, and it is now more like the bipartisan plan in the thomas proposal of the late 1990s, and one of the complaints we got

about the way we did with originally is it didn't reflect the actual costs of health care. when you do it by a bidding process, then it does reflect the actual cost. >> and also as you describe the benefits of this, talk about how you select the second lowest bid, because i think that's a very clever way to do this. >> well, that's arguable, the different ways of doing it, but we thought selecting the second lowest bid gave -- it wasn't of the lowest which might well be flukishly low for some reason, but people who then who wanted to go to the even lower bid, the one that wasn't selected, could do so and get some money back. >> they pocket the difference between the second bid -- >> right. >> and if they wanted to be no

dollar out of pocket, they would take the second lowest bid plans -- >> right. >> and anybody can offer plans at that level, and if they offered a plan that was more expensive and perhaps a different set of benefits or whatever, then they could pay for it, but the federal premium support would only be at the second lowest bid? >> that's right. >> okay. >> so it gives you a way of making the competition real. >> right. >> and we believe that would bring the costs down. >> i agree with that. now, let me go back to the first question there. discuss the benefits the premium support regimely because it's not -- generally because it's not well understood. that's not all that you would recommend? you also recommend -- and this is really a question for all of you, but additional changes to the existing system that we have in order to potentially reduce expenditures, things like combines part a and b,

increasing premiums under certain circumstances. i don't know whether you get into the co-pay issue or not, but discuss whether some of those things are useful to do even if we do the premium support, but in any event, certainly if we don't do it. >> yes. i think also the things that erskine bowles mentioned, that the pilot programs and attempts to find better ways of delivering care and government support and private support for innovations and testing those things and putting them out in the public domain, that is all a very good thing to do, and we think it will pay off in the end, and it's not in compatible with -- incompatible with our defined support plan because witness you have those innovations out there in the public doemain, the

private sector picks them up, they use them, and things get better. >> hopefully reduce costs. >> can i just follow-up with one observation? on this one you're speaking of on medicare, the first thing that we did was to note the objection to a new system, and it was generally right up front that you are aboll increases in revenuing -- abolishing medicare, and this new plan starts with the premise with both programs, and you can choose. that put us on a completely different path with our members than before, and it is very different than anything you all consider -- excuse me -- you all in the house considered when you took the subject up. >> important observation, thank you, thank you. ..

for the first 500 up to $5000. >> all of those are useful suggestions and i appreciate them all. >> the time of the gentleman has expired. the coach are not recognized as some affirm california. >> thank you, mr. chairman and for your service to this country and the work you've done to give us some template that we can use to try to resolve this issue for not just the congress, but for a

country. i enjoy always hearing from the four of you because you have shown us that you can be big. you can be bold and you can be balanced and so tried to move the country forward. so i thank you for that. as i said to aliment erskine on many occasions, i thank you for attacking the sacred cows that too often given the way of congress being able to deal with those things most important. i honestly think and i served on that commission would do as i said before. i thought you put all the elements in place. i would have put the mixture of those elements differently, but i compliment you today as they did in putting together the template of what could be a solution for the country. i urge you all say this, but i want to make sure about this. while we are still suffering through difficult economic times and back when we were going

through this with the commission and direct her rivlin come to you and senator domenici were doing this when you cannot care plan, times are tough. they expected this when i went to the commission thought that the country, the economy were doing far better. it is still your premise that we should really concentrate on getting the economy back on track, getting americans back to work before we go to heavily into trying to find the savings by making cuts in some of these important investments. >> director. >> at the timing, mr. becerra. we believe that drastic cut in spending right now would be damaging to the economy, as the tax increases right now. so we need to let their recovery happened and indeed stimulate it wet proposals that we've been

talking about. but that doesn't mean putting off the deficit reduction. one of the best things we can do for the growth of the economy right now is for this committee to legislate long-run reduction in the deficit on the entitlements and tax side right now. we can't wait until after 23rd teen or some other time to do that. the markets in the public have got to the that we are serious and that it is in my and then it doesn't have to take effect right away, but it has to be in the law. the next a lot of play at those -- get it done, let it play itself out. you have time to take affect long-term as you see the economy began to recover. >> rate. but don't wait to legislate it. >> may ask a question regarding revenues?

you also tackled the issue of revenues. he did it in somewhat different ways, but for the most part, you can something that i thought was very important. he tried to also show the public that while we would increase real revenues, we would ultimately try to reduce the rate and give people a fair taxation system. an note that while we were still able to generate revenues, which we need, you are able to also tell the public that they are going to have a system that works better for them and said i could understand that the simplicity and fairness of it. in both plants, i believe in the head a little discussion on this coming week equalize the taxation for capital gains and dividend to ordinary income or in layman's terms, and not fact, and invest in stocks or bonds would now be taxed at the same rate that the income earned by a

hard-working americans would be taxed at, so they would be treated equally. you also found ways to reduce the rates overall for all income groups and you went after what i know and the simpson/bowles commission became known as taxed earmarks, tax expenditures for shipley senator since then you mention totaled over a trillion dollars. see you came up with a mix. again come you tackled some sacred cows and came up with the next. is it still your son that that type of the next can work for this committee? open it up to anyone. >> i will say absolute way. i would say to my friend, senator kyl when he talks about capital gains. if you look at my record i have voted in favor for 36 years in the senate. but i did not have a chance to lower the rates like we are lowering them at the same time that she was lucky not capital gains. in this case, that is what

happened. we lower the rate spirit i hurt for the best experts this country could put for me when i was sharing the best way to affect growth in this company is to lower the rates on all people. i was the best instrument of growth. they didn't say except for capital gains. they said it best instrument for growth. and we lowered it all substantially, so we put back into the code the instruments of growth, which is lowering of the rates on middle america and all americans, which we did in ours and they did in theirs. theirs is a little stronger in terms of as alex stanek and they can download or so you can put backs and things. i would tell you we also included in this thing, so you don't forget, we put him in medical expenses, which is the largest tax expenditure. it is bigger than homeowner and interest rates. we faced that out over at long-term. that is a very difficult one,

but we did it in ours and you all should know that's part of the reason we got the rates we got. >> erskine, you called the tax expenditures factors running for the tax code. >> it is. congressman, it is just spending by another name. i was flabbergasted. i was appalled to see that, you know, having listened to all the talk about earmarks all these years which are in the appropriations bill, there's about billion dollars worth of annual earmarks the year. they are 1.1 shilling dollars worth of annual earmarks in the tax code. and it is just spending by another name. it is somebody social policy. and if you were to eliminate them and use 92% of the proceeds to reduce rate and only 8% of proceeds to reduce the deficit, you could reduce the deficit by

about 100 lien dollars a year. so a total of a 10 year window of about a trillion dollars. and you could take weeks to 8% up to $70,000. 14% up to $210,000 have a maximum rate of 23%. you could take the corporate rate to 26% and you could pay for a territorial system so that $1 trillion is captured overseas could be brought back to this country to create jobs over here. i believe that would create dynamic growth in this country and produce revenues far beyond what we have four cats. so i'm very excited about simplifying the code. i think it makes a lot of difference. >> and i would love to focus on a couple more areas of spending. i know when we talked about spending time you also are willing to tackle this issue of the discretionary side with the budget, the kind of spending we typically talk about. but most people don't recognize

the 65% of the spending increases that occurred over the 10 years in the last 10 years came out of just one department, department of defense mostly because of the war, but because of the growth in some of our military projects and contracts and so forth. i know you try to tackle some and i appreciate the work you did there. with the limited amount of time a habit that you touch on health care and appreciate what each of the commissions due in health care. perhaps you can help us with this. we can do any number of things to try to reduce the cost of medicare and medicaid for the american public. but at the end of the day if we do nothing to try to help lower the cost of health care overall, not just in the public within medicare medicaid, we will simply have shifted the extensive help care in medicare medicaid those who use health care through medicare medicaid to our seniors and our disabled. because the reality is that today the cost of health care

under medicare is growing slower than the cost of health care and the private insurance market. we went through that in the simpson/bowles commission. we talk about the crisis in health care. the reality is if you were to get rid of medicare fanciers to the private sector, they would pay more because the cost of private insurance is going at a faster clip than his medicare medicaid. so the issue is, how do we corral the cost of health care, which includes medicare, medicaid is we don't end up shifting costs from the taxpayers to the actual beneficiaries in this case seniors now retired. so if you can get back some thought, that would be. start date. i had a health reform of last year meant to do that to try to help corral the cost in the air. but if we don't do something about overall health care costs simply telling seniors bill and the pay more in medicare doesn't

help with our health care costs. thank you for your service to this country and your time. be not the time of the gentleman has expired. the coach or not recognize congressman upton of michigan. >> thank you, mr. chairman. and they certainly want to agree with each of you that these deficit are unsustainable. i appreciate your candor, your service, your hard work. believe me when a little bit about your work as we together have spent hundreds of hours is all over the last number of weeks. and you -underscore my respect for each of you is truly great americans. as you may know, my home state of michigan, dave camps as well, we have had dirty four consecutive months of double-digit unemployment. as i talked to people back home as i was this last weekend, people know that we are in iraq.

senator simpson may know exactly what we're talking about. and they are relying on mass to try and get our car out of the ditch and back in first gear. i can't see it very well appear, that scores the president health care plan from 2014 and that tenure outlay planned shows and the effects will be almost $2 trillion in additional spending over the next 10 years. and each of you noted in your various proposals that the federal budget is on this unsustainable path and you identified health care as one of the most important items that this committee and the nation should be focusing on. so as you see from this chart that the exchange subsidies are

certainly the primary driver of this dramatic expansion of medicaid. cms actually certified that because of the president's proposal nearly 25 million more americans will be on medicaid after 2014 because of that expansion, which means that more than one in four americans will be in fact a medicaid beneficiary. so based on that the statements you have made about the budget crisis, do you believe that we should revisit the expansion of the medicaid program and the president's proposal? erskine? sorry that you start a madman. >> now, i'm very happy to answer any question that you ask. you won't sell any fear in us out here. we have great questions that if the affordable health care plan

could the great two gdp plus one because we had a those questions. we did believe it would solve a problem providing more people health care, but we didn't think it would solve a problem of how to stop the cost of health care and therefore we make $500 billion worth of additional cuts to both medicare and medicaid and certain other federal health care programs and hoping that would slow the rate of growth. if it didn't slow the rate of growth, but we said is there's an overall cap on all of these areas of spending the federal health care spending and you're going to have to look at some options like some premium support plan, like the robust public option like a single-payer plan. >> we just knew that whatever you call it, if you want to use the negative sokol at obamacare or any kind of care you want, it won't work. it can't work because all you have to do is use common sense.

you had this imploding of people appeared to have diabetes. you're one person in america weighs more than the other two. you have guys who choose to do tobacco, choose to do designer drugs and all of them will be taking care of. you have preexisting conditions and 3-year-olds. what happens to their 60 years or 50 years of life? all you have to do is forget the charts and know if you torture statistics long enough, and they will eventually confess. and know that this country cannot exist on any kind of situation where a guy who could ride this building gets $150,000 heart operation and does even get a bill. not that it's not than that is where we are in america. there is no affluent testing. you've got to raise co-pays. he got knocked on providers to do with positions. that would be a start.

>> alan, what did you do about medicaid? because originally you have, as i understand it, converted into a block grant for the states and it's my understanding you drop that proposal. >> we were never going to convert into a block grant for the states. one of the things we thought was a too big of a ship to unproven theory, what we did advocate is testing it in 10 states. atomic theory that one size doesn't fit all the governors can cover more people with less cost if they have control of the funds. so we said let's tested in 10 states. if it does prove to be something that does lower the cost of health care and so provides coverage to people who need it, then we can support it. but you have to test it first. that's what she do in the business world and in most places. it's now being tested in rhode island. it is working well. i understand washington state is

asking if they can test it. so it is one of the things that will provide retirement. >> someone does pass, did you ask for in other reforms? >> yes we did. >> as an example, having run the public hospital in north carolina for the last five years, you can see the gaming that goes on in the medicaid program by the payments since this is a shared prize program with approximately 50/50 between the states and federal government. you know, the talks would up the amount they would charge an order to cover higher fee charged by the state. they would both come out even, but taxpayers end up with a $50 billion bill if that is to be cut up that kind of gaming in the state medicaid programs. >> malice, one of the proposals you all recognized on the medicaid by was this program called the per capita cap, which for those in the audience would

actually come each state would receive an allotment determined by the number of folks in the specific categories for medicaid, based on the state population number for those numbers. and then, that would be increased each year by gdp plus one, beginning -- i want to say in 2014 -- 2015. are you a part of that proposal? i know way back when -- are you still supporting that idea? >> we looked at a number of ways to reduce the rate of growth of cost and medicaid. one was splitting the responsibility between the federal government and the state. medicaid is really two programs. it is acute care, which is largely for children and their mothers and its long-term care.

and one of the things we looked at was split the responsibility for those two between the federal government and the states. we thought that would help. make it clear who is responsible for what. and results in a certain amount of gaming. we also wanted to get rid of the gaming that goes on in medicaid as mr. bowles has suggested. one thing we were very clear about was the dual eligible, those medicated for medicare. i'd given impediments getting into managed care and we wanted to fix that. >> what did you do in terms of added state flexibility to allow the states to be able to have a greater control over what

services are eligible? >> that is certainly a possibility. we did not frankly come down very clearly. we offered a menu of options on what to do about medicaid. i think it is the hardest problem, much harder than medicare. we thought we had a good plan for medicare. we offered a menu for medicaid. >> on medicare, both ways and means and energy commerce have jurisdiction over this issue. and i know that as many of us have the did this, we assaulted is the toughest entitlement to try and curb the cost curve downward. we have heard a little bit about anb, putting together deductibles, co-pays. it is my understanding both of your groups also increase the h. is that right? for eligibility? >> no, we didn't even do it for social security. but we certainly did not for medicare. >> we have it as one of the

options in a tenure window, not in the first tenure window. >> when you look at the options you consider, which was the one that was first -- what was the priority order you came up with in terms of where you thought we had to do to reform. >> we did not prioritize that of a tenure window. drastic steps will have to be taken. those drastic steps must include looking to things like alice and paul's premium support plan. it has to look at a robust public option and things like block granting medicaid to the states. it has to look at things like a single-payer plan. it has to look at things like raising the eligibility age for medicare. those are the options we thought they would have to be considered if in fact you can't slow the rate of growth to gdp plus one. >> before yielding to the next panel member, senator since then, i think i've been informed that you have to depart in 20

minutes. >> mr. cochairman, i could wait a few minutes after that. i have to get to dallas to catch a 5:30 flight to denver so i can get out of town before they find out they've been here. [laughter] >> well, certainly senator, we sincerely appreciate your participation today. >> let me share with the cochairs that erskine bowles was a remarkable thing to present to you. if you do have to leave early, given my time it's very important issue here is what i think this a solution for you that only he and his rightness can propose. you can do anything you want, but i think it would get you somewhere we think you want to get. erskine, as i say, if i leave whatever time you would've a letter to me and i want to hear from my colleagues who came to the senate when i did, max, i

will stick around till about 25 or 20 us. >> thank you, senator. the cochairman is mr. bowles now has your proxy. the cochair will yield to the gentleman from montana, senator baucus. >> thank you, congressman hensarling. everyone wants to reform the tax code. i don't know anyone who doesn't. but it is in the eyes of the beholder. what is reform to one might not even form to the other. you mention the $1.1 trillion in tax expenditures. i think it is important for everyone to know that only 200 billion of those are itemized deductions. the rest are either tax expenditures, which include employer provided health insurance can a retirement income provisions, r&d tax credit, in whole host of others in addition to itemized deductions. so if the proposal is to repeal

the mom, return for lower rates and deficit reduction, people have to realize what that means. a lot of people have provisions. employees have income that is not tax generally as well as r&d tax credit to make america strong and retirement provisions so people can say for the future. now the question becomes in my mind, how quickly do you recommend that we tackled that? we have a november 3rd deadline. i think one of you suggest that this be delegated to the tax writing committees so that we do tax reform is some kind of a penalty of the committees in the congress. i'd like you to comment on that.

i'm also waiting for the himelfarb six conclusion. i hope it includes something i'm talking about. address revenue. when you give your presentation, were all big fans and you've worked so hard. each of the four of you were speaking you could hear a pin drop. you spent so much time on this subject and so conscientiously, so thoughtfully. people know that. but when you, mr. bowles, mentioned one of your four-point but when you, mr. bowles, mentioned one of your four-point, when this tax reform. but she didn't say your four-point, when this tax reform. but she didn't say much about revenue. my understanding is that the commission suggested something in the neighborhood. i forgot exactly what it was, maybe a trillion dollars in new revenue.

is that true? it is my understanding is that metal income tax cuts and you propose revenue on a current policy basis about $1 trillion. does that sound about right? >> well, you are in our our commission and attended our meetings i think you probably know exactly what we did. what we did was we did in the baseline extend the bush tax cuts for everyone except the top 2%. and then we reformed the tax code by broadening the base and simplifying the code and eliminating tax expenditures in the zero option plan. and the zero option plan off the tax expenditures did disappear

and 92% of the money went to reduce rates an 8% went to reduce the deficit. none of it went to additional spending. >> so in answer to senator kyl's question, about 100 billion, is that correct? >> that's a hundred billion a year approximately. how can that be enough revenue when they are such spending cuts recommended in your plan? i think you have a two to one ratio of revenue raised. depending how you count it, we had about a billion dollars worth of revenue coming in and about $3 billion for the spending cuts. excuse me? >> a trillion. >> a trillion. we're working towards that number. we were trying to get no more

than one third revenue to third spending cuts would try to get to between one quarter of three quarters. >> going back to my first question, and you recommend we here try to not been cut all those tax expenditures in separate? >> welcome we do recommend you delegate to the tax writing committees and set up a framework in this commission. i don't think you could possibly rewrite the tax law between now and november 23rd and get it scored. nor do i think you can rewrite the entitlement legislation and get it scored a november 23rd. but you can provide instruction to be approved are your committees. >> what was included in the rates? >> i wonder if you a deal to me for a mint