the previous administration we did this around they did that, you know, i don't really care what happened in the previous administrations. what i care about is the fact that when i worked with agents in the previous administration as a law enforcement officer, i knew when they went to get a wiretap, they had to produce the evidence of probable cause to their supervisor who then had to sign off on that. so i listened today as you said, well, they just signed off on a summary. so are you telling me that your supervisors sign off on wiretap based on summer summaries without looking at probable cause? >> no, that's not what they do at all. ..

how someone sends of guns walked. i've never been involved in an undercover operation that would allow such a thing to happen, and it's amazing to that are of attorney general's office is the one to allow to happen. but then you going to say -- >> i did not allow that to happen. >> you have control over the agency, do you not? >> as soon as they heard about it i instructed that policy, that practice had to stop. after -- >> you also talk of how your agency has worked collaboratively, and it was information asked about immigration, and then you said

well, we just need a conference a solution for immigration issues. wouldn't that solution be that you and your agency action to enforce the laws on the books we have today? >> we do enforce the laws. we are more effective than any -- >> i will let you know when i ask about criminal aliens that are released back -- >> regular order. >> what we have is criminal aliens released back to our communities because their own country will take him back, and i ask do we ever filed paperwork, and i was told no. none during this administration have been attempted. so i have concerns when i ask you about our immigration laws be enforced. the other thing, before i go -- >> the gentlewoman's time has expired. >> i would yield back. >> the gentlewoman from california, ms. sanchez, is recognized. >> i'm sorry. the gentleman from florida, mr. deutch is recognized.

>> i knew it was an intentional. thank you, mr. chairman. general holder, thank you for joining us here today. as we are all aware, statewide -- in eligible voters is underway in florida. all voters benefit from voter all main its efforts conducted with oversight with accuracy and with enough time to rectify mistakes. unfortunately, the purge underway in florida -- the list of 182000 suspected noncitizens has been compiled by the governor's administration. this list is so riddled with mistakes that governors got so secretary of state objected to the list. it's a risk without reason enough for governors got to stop. crosschecking driver's license date with state voter file was getting keyed result in mistakes. guaranteed. many legal immigrants who come to this are still classified as noncitizens in the motor vehicle records. it doesn't explain how a world war ii veteran and bronze star winner is listed and it doesn't explain how a fort lauderdale

small business owners listed but it doesn't explain the staggering rate of inaccuracy and just the initial stage of the purge. if the right of inaccuracy and initial 2600 holds up for the remaining 180,000, the nearly 40,000 american citizens voting rights are at risk. let me be clear about one issue. everyone here agrees we don't want noncitizens to control. i don't, you don't. the issue is that this purge will remove thousands of legitimate voters. why is there zero concern for these voters? mr. sensenbrenner earlier called it the model of due process. the letters going to voters saying they will be removed if they fail to respond within 30 days. the company believes it fair to respond to live within 30 days is reason enough to lose your right to vote even if you're a u.s. citizen. maybe you move, maybe you don't read your mail, maybe it got lost. or maybe are different elderly veteran of world war ii and received a letter the week that his wife died and threw it out because he didn't have time to

do with the preposterous thing that he is not a united states citizen. that happened, mr. attorney general. i applaud you last right for requesting that florida suspend this error ridden unaccountable and illegal border perch. the doj rightly point out the federal voter laws prohibited voter person within 90 days of election thanks to a law passed a few decades ago. the closer you get to an election the last time you have time to correct mistakes. mistakes like disenfranchising voters. i know where the government responded you late last night in a letter that showcases his administration's willingness to make up the law as they go along. and i know, mr. attorney general, your department will respond in detail in the coming days and will do everything necessary to compel florida to comply with the law. finally i want you to chance to respond to a letter sent to you yesterday by a colleague of my. the letter reads that your departments interference in this purge proves that you are quote

more concerned with protecting the reelection prospects of the president than with upholding justice and enforcing the rule of law. that you are actively working with noncitizens have committed a felony on our state's voter rolls. general holder, with 60 cases of voter fraud found in florida, the assertion of voter fraud is an actual electoral strategy is per process and offensive. it's condescending because voter fraud would be totally ineffective way to rig an election. it's rare because it is a felony that risks present time and it is totally illogical way to try to swing an election. do you know what is an effective way to sway elections? scrubbing thousands of legitimate voters off the role. that's the tactic the government scott and governors got it is -- maybe i'm wrong. can you just answer quickly, is my republican colleagues write,

mr. attorney general? have i missed some grand conspiracy or? >> i have a single letter but that is not what motivated our action or will continue to motivate actions that we may have to take. i've not seen a response from the governor or the secretary of state in florida, but i will assure you that we will make sure that the federal law is enforced, and that voter purges happen in a way that is consistent with the law. i share your view that we do not want to people in a probably voting him that we don't have to have voter rolls that contain people who should not have the right to vote. at the same time we should engage in a process that does not put off the role of the people who have served their country, veterans, people who want to exercise that most fundamental of american rights. so the notion that this is somehow the political ploy is inconsistent. one only has to look at the law which is clear, 90 days. it is very, very clear. 90 days. >> and, in fact, general holder,

it is possible that the highest law enforcement officer of the land, you have real concerns about american citizens being disenfranchised and that the united states department of justice, the u.s. department of justice actually cares about protecting the constitutional rights of american citizens that are now being threatened by this illegal voter purge in florida, is that correct? >> that's right. at base we have to enforce the law, a law that was the signed by this congress or its predecessor to protect the rights of american citizens. that's what our action is all about, to protect the rights of them are consistent. >> thank you to i yield back. >> the gentleman from arizona, mr. quayle, is recognized. >> thank you, mr. chairman. and thank you for being here, mr. attorney general, but i want to get back to how the wiretap application is approved in the process it is. you said that basically whoever it was just read the summary

determines whether there's probable cause, and if there is probable cause, then they send it off to get approval by the court, is that basically what your process is? >> line lawyers look at the affidavit, purpurea summary that is then reviewed by deputy attorney general. >> said the deputy is on looking for problem will cause, is that which is to? >> to make sure there's a probable cause bases. >> how is that true? because under extensive requirements for federal eavesdropping law, the justice department and officials have a duty, a duty to evaluate the law enforcement tactics that have been used in the investigation. why they aren't going to actually make it so we can have a further investigation, and why you need to have wiretapping put into place. we have title 18, usc section 25181 c. says the application needed for complete same as to

whether or not other investigative procedures have been tried and failed, or why the reasonably appear to be unlikely to succeed if they tried, or to be dangerous. now, we put these sorts of safe measures in place because wiretaps are extraordinary interested. and so probable cause being the only basis for putting the application is just blatantly, it is just false but unless you're justice department was not living up to what is actually statutorily required for an application. >> what your saying is absolutely right that, in fact, there is the point that if you look at the affidavit you will see there is a statement by the person who does the affidavit and the person who prepared the summary that infect other methods have been tried and proven to be unsuccessful. >> so you are saying they did know about, this is what i'm going to get at the data deputy u.s. attorney who signed off on these wiretap applications, did they actually go through and

understand what the tactics that were being used since then they would actually know at the time of her doing this, because you said all they were looking at where the summaries and looking for probable cause, when actually they would have to be looking for the tactics, why the field and why you need to eavesdropping going forward. that would mean the would probably have the information earlier than when you said earlier. >> looking at the tactics we use nor to try to surveil, that's what you're looking for in terms of these tactics. it doesn't mean you're looking at every tactic that was used -- >> the whole operation but by the investigation or the operation of what you're trying to accomplish the a using various different tactics but it's for the whole operation. >> and -- >> the tactics are part of the application. why they feel, why you need eavesdropping. so your deputy, deputy attorney i should knew about the tactics even though you have been saying all along you didn't because they only had the summer and you are only looking for probable cause. >> i look at these affidavits

and summers. there's nothing in there as i reviewed them that indicate that gunwalking was a loud. that's the bottom line. so i didn't see anything in there that would put on notice a person who was reviewing either at the line level or at the deputy assistant attorney general level, you have knowledge of the fact of these inappropriate tactics were being used. >> are you saying in the summary or the whole affidavit? >> in the affidavit as well in. >> so there were no comments about the tactics of gunwalking within the whole affidavit, or are you talking about the summaries? there's a clear dissension between the two. then would be an untrue affidavit to go get wiretaps? i mean, is that lying to the court and the tactics they were being used during operation? >> we have to speak hypothetically them because we can't talk about -- >> i understand that but hypothetically, i mean, i'm just trying to get down to what the

process was because it seems to be a little misleading from what you have said and what mr. breuer said in the past, that it was only for legal sufficiency or probable cause in this instance from your perspective when in actuality the statute that governs this are much more strict and require much more proof that federal eavesdropping and wiretapping -- wire tapping is necessary to get the court order to it. >> the statutes do not require the degree of specificity that you are implying that they do not require you to go and described all of the things that you've done during the course of an investigation. with a degree specificity that you are implying. that is not accurate. >> what degree of specificity do think i am implying your? you have to go to what the procedures are, what the tactics were. i'm not trying to say that you need to put down every serial number of a certain shoe that everyone was wearing. but the basic gunwalking is a pretty big piece of the tactical

operation in operation fast and furious. >> again i can't get into the content of the fast and furious wiretaps. i am prohibited from doing that under federal law. but i can take you that the notion that you are pushing, you're pushing incorrectly but it does not require that degree specificity granularity to abruptly put together an affidavit and a summary that can go to -- >> but it provides more than probable cause is what you were saying earlier, and provides more than legal sufficiency which is what mr. breuer was saying earlier. >> ask a question. >> the gentleman's time has expired. the chimp in from california, ms. sanchez, is recognize. >> thank you, mr. chairman, and general holder, thank you so much for joining us here today. i know that it's an important responsibility of your office to submit to this committee's oversight and i know that you would agree that this is an important role for our to play. but he can't be easy. i feel your pain to sit in front of us for a lengthy period of time and answer questions about

the many different areas under your purview. so i'm going to apologize. i come towards the end it so my colleagues have already been to air on this topic but i would be remiss if i didn't bring up the recent changes in the department of justice policies regarding the reimbursement to local governments under the state criminal alien assistance program, or number, as scab. charged with felony or two or more misdemeanors. deportation is a federal responsibility and scaap is a program which acknowledges that our overburdened local law-enforcement facilities shouldn't have to bear those costs without some kind ever embracement or recompense from the federal government since it is the federal government's responsibility. shortly after his first sworn in

as a member of congress, some 10 years ago, local police official came to me and explained how a change in the scaap funding rules was having a very profound effect on their budgets. and the 2003 scaap reinterpretation in which states only received reimbursement if the criminal alien is convicted of a felony or two misdemeanors, and the arrest and conviction occurred in the same the school year, which is an odd and interesting requirement, has had tremendous repercussions throughout the law-enforcement community, particularly in my state of california. in california, scaap reimbursement payments have declined from 220 million in fiscal year 2002, prior to the department of justice reinterpretation, down to 112 million in fiscal year 2009. and 410 years now in congress i've been working with colleagues on both sides of the aisle, i partisan issue, to try

to help justice recognizes the need to return to the original congressional intent of this legislation. the police departments and sheriff's departments in my state are already having to do more in terms of deterring crime and protecting constituents with less. and this reinterpretation of the scaap we ever spent really hinders their ability to do that. they are trying under very difficult budget circumstances to do, and they're doing an incredible job, but, you know, they keep asking me, what is the federal government going to do about scaap reimbursement. i love to be able to tell them that the funds that they desperately are going to be coming. but last month i was made to find that your department further reduce the programs under the scaap program which has the effect of only further increasing the pressure on local law-enforcement and making their job that much harder.

this change is not only going, would not only reimburse state and local enforcement if they are holding known inmate already in i.c.e. database. i'd want to bring your attention to the letter i have from the california state sheriffs association, and mr. chairman, with your permission i would like it if it into the record. >> without objection. >> it suggests that if your department has made this change in 2010 it would have reduced payments to california shares by an additional $10 million. that's already on top of the 50% cut from 2003-2009. and i just want to quote a section of this letter since i think that the california state sheriffs association summarizes this issue very accurately. baystate, and i'm quoting, the

federal government must uphold its responsibility to the facilities that hold criminal aliens and not out of changes that would weaken the funding provided for scaap. i hope that you will give this issue more thought, and much more thought to the impact that this change is going to have on law-enforcement communities across the nation, not just to mention southern california. and i hope that you will reconsider, reconsider this decision and consider rescinding it. i just wanted to make you aware of the issue but i will be followed up with your office and i hope that we can work together to try to ensure that local enforcement entities will be properly reimbursed for the great job that they do in trying to attack the public safety. i guess i will just allow you a brief comment and yield back to the chairman. >> thank you, ms. sanchez. the gentleman from arkansas, mr. griffin, is recognize. >> thank you, mr. chairman. thank you, mr. attorney general,

for being here today. i want to ask you if you're familiar with the olmstead case that deals with disability law. are you, are you prepared to speak about that today? >> i mean i'm not an expert on it. >> let me ask you a few questions about it. in my state we have a number of homes, institutions for the development disabled. and around the country there've been a number of lawsuits against some of these homes alleging violations of civil rights. and in some instances these lawsuits are filed with the view that the olmstead case contemplates a structure where the institutions sort of our phased out, and that individuals

who are disabled, intellectually disabled, development elite disabled, with those individuals are moved into more community-based care. my state in arkansas has been the subject of some of these lawsuits. football, i want to ask you, do you believe that the olmstead case requires a movement away from from institutional care for the developmentally disabled, or do you believe that these institutions can exist within the olmstead framework? >> as i said i'm not an expert on olmstead. i am familiar with what the decision talked about, and unnecessary institutionalization how that clashes. you're asking equation which is beyond my -- >> could i get something in

writing on that? and let me continue a little bit. my concern is that those who are into many come i understand many levels below you, my concern is that some of the civil rights division and the special litigation section at doj are pursuing, and to be fair, some of this litigation began in the last administration. so this is, this is an ongoing problem. but my concern is that there are some who read the olmstead case as if not requiring a move away from institutional care, at least somehow endorsing the move that those at doj, some at doj, had advocated for. and my reading of -- well, i

think anyone reading of the case, the actual case, demonstrates that that's not what the case contemplated. that the case was, made it clear that segregation of those with disabilities will not be tolerated, but that institutions could be a part of the solution there. and, in fact, the opinion, the plurality opinion said, and i want to quote this to you, quote, teach disabled person is entitled to treatment in the most integrated setting possible for the person, recognizing on a case-by-case basis. at that setting may be an institution. and so that is, if you could give me some answers on that, that would be very important to me. you know, the lawsuit that was filed in arkansas was eventually

dismissed, for lack of evidence, lack of evidence presented by the department of justice. and, unfortunately, it cost the state of arkansas and the center that was involved $4.3 million to litigate that. and indie and it was dismissed for no evidence. and i won't go into details here but i will just tell you a small state like ours, with an institution like this, $4.3 million was a significant sum of money, and, in fact, had to be -- timber had to be sold. mineral rights had to be sold, et cetera, to help fund this litigation which was then dismissed because doj had no evidence, or did not have sufficient evidence. so tiki could get me just your views on that, that would be very much appreciated and i thank you for being here today and listening.

>> i'm glad to do that. i think the underlying material that you shared with regard to the disposition of those two cases is acted. so what i will endeavor to do is to respond to the question that you put to me, and i apologize for not being able to answer based on that correct factual assertions. >> thank you, sir. thank you mr. griffin. the gentleman from florida, mr. ross, is recognize. >> thank you for being there. i think the benefit for me having the question is i may be lessened or i would ask a couple of questions. the house committee on oversight did receive six wiretap applications and reviews. in that, that committee's intentions that those applications contain detailed information about fast and furious and gunwalking. it's my understand you reviewed those. it's my understanding the issue as to what these applications actually detail as to whether fast and furious existed or whether there was any gunwalking? >> yet they're ghana, what i

would again do, i would align myself with the letter that -- >> is that james cole's letter? >> the letter that congressman cummings set out i guess a couple days ago as he went through his analysis of that same attorney. i think that his perspective is a correctly as opposed to what chairman issa -- >> my understanding is there was a letter january 27 of this year to chairman issa from attorney general, the deputy attorney general james cole indicated that changes have been made. two of those changes included department of justice is change its way of response to inquiries and is also change into process for wiretap reviews but, in fact, your office has tripled the number of attorneys now rethink wiretap, is that correct? >> that's correct. >> is that an indication what was done before was an adequate? >> also with office visits were people saying it was an taking too long and get them processed

in washington and get the approvals but. >> who has nothing to do with another level of review as to the accuracy of the content? >> one of the changes does. when we require a supervised look at the affidavit and application be sent to washington, we now require a supervisor to look at the. that was not a requirement before spinning as i understand, according on tuesday of a spokeswoman who issued a statement this is the review process of wiretap application is limited and specific assessment of whether illegal basis recess, the review process is not an approval of an operation. i'm sure you agree with it. so it has nothing to do with what may be alleged in a different set of hypothetical trafficking operation going on at the wiretap was being requested for that, at what point do you just don't look at the legal sufficiency of whether the requirements met for the wiretap warrant what point do you do something to stop the actual operation in asserted?

>> when you get these affidavits they are pretty broad range. they describe in pretty good detail what's going on in an operation but they don't go into all of those as explained to mr. quinn. they don't go into the new degree of everything and affidavit is contained, totally hypothetical, if an affidavit they contain some indication that trafficking was going on that young girls at what i'm getting at is a process in renewing the process for preventing another fast and furious, is that correct? >> i think we do with a supervisor level. this is only assuming the people working on the affidavit option on information. but he should have on the base of his wiretaps. given the policy pronouncement i made and the changes i've made i think it is the primary reason

why we shouldn't have a repeat of fast and furious. >> believe me i would love to spend more time on the issue and i'm sure you have enough entertainment on that one. but what i would like to address which is very something and you're to my state of florida. is it your opinion that deceased people should vote? >> obvious enough. >> illegal aliens should not vote the? >> no, but veterans should be able to. >> i couldn't agree more but as long as they're eligible to vote. but when my state make sure that we have an adequate and sent to the voting process, nine months ago request with the department of homeland security, citizen database and yet we receive not only a know, but no response, and then today when they are trying to do what is necessary to make sure that the sanctity of the voting process is preserved and appropriate, the department of justice department of justice stonewalls and said sorry, you're within 90 days and, therefore, voting rights act applies and we can do it. so what is my state supposed to

do when doj does not cooperate with them in the furtherance of their obligations because i can't speak to what dhs did but what i will say, it does not contain people were born in the united states so it is not going to be a cure-all. >> why would they refuse to do it? not have to go to the motor vehicle to find out to do the job. they have better tools with that database and would have now with their own internal. >> i don't know why he did but i can say that the database itself would not be adequate for the kind of purging that is sought by the state of florida. >> and there's no reason why dhs should not -- they should have released it to the department spent i don't know what the basis was for the determination by dhs. i do know, and i'm concerned about, the numbers of people who i have heard have been inappropriately purged from voter rolls who are citizens, who have voted in the past and for whatever reason got those letters spent thank you. i yield back. >> thank you, mr. ross. mr. attorney general, thank you

for your testimony today -- >> mr. chairman? one unanimous consent. >> the gentleman from texas is recognized with unanimous consent. >> thank you. its clarification regarding an e-mail sent by mr. jason weinstein. his testimony regarding an e-mail referred to by the gentleman from utah. the e-mail referred to the wide receiver and the testimony that i am submitting indicates this statement but when i say it is a taking case, the number of guns that walk, i'm talking is closely about wide receiver. i ask unanimous consent. >> without objection the test and will be made part of the record. mr. attorney general, thank you again for testimony. we hope you will be timely in the response to this hearing is adjourned. >> thank you. [inaudible conversations]

>> [inaudible conversations] here on c-span2 will take you live now to the hearing this morning looking at the expiring tax provisions. on your screen the chairman of the subcommittee looking at the

extending and expiring tax provisions to that's pat t. berry who is the chairman of the committee. some of those provisions include expiring tax credits for research and development college tuition. hingis got underway like you on c-span2. >> now in any future to examine these tax provisions. his leadership in setting forth a transparent process for reviewing the tax extenders is what the american people expect from their congressional representatives. i think it's likely, accurate to say that the days of simply rubberstamping and extending an entire package of extenders is now behind us. today, we pivot to exploring what we hopefully will hear, and that his ideas to providing a framework that congress should use in evaluating these tax

extenders. our witnesses today will share their views on principles of good tax policy, and the specific merits and metrics against which congress should test the merits of particular provisions. i look forward to their testimony, and the ensuing conversation. before we begin i would like to take a moment to thank congressman mike thompson from california for serving as ranking member today. unfortunately, ogaden region you couldn't be with us today because he's attending a funeral in springfield for a fallen police officer. i now yield to mr. thompson for his opening statement. >> thank you, mr. chairman. and i think i can speak for everyone when we say that our thoughts and prayers are with the families of those in mr. neal's district who lost a police officer today. i know as a father of a detective, i know that something that all of us care a great deal about.

so mindful to most of us how dangerous those public servants are. but i think the chairman for convening this hearing today. we appreciate the subcommittee has decided to begin consideration of certain expired and expiring tax provisions as this consideration is long overdue. businesses have been desperate for certainty in the tax law when attempting to make decisions that can help to grow the economy. however, many major today's hearing as actually increasing uncertainty for businesses and for individuals that use these tax benefits as . as we learn in these -- their extension should not be difficult. as we learn from the recent job, work, our economy is driven and job creation is still too slow in coming. unfortunately, proven job creation programs have not received adequate consideration in this congress to press

reports indicate the highway conference may be solved and possibly gridlocked. provision on the president's to do list to create jobs have not made it to a vote. public is losing faith in congress ability to act and act quickly to turn this economy around. frankly, i don't blame them. we've had a hard time finding agreement on atlanta things, but it's important to remember that the things we can do in this committee that can help alleviate some of the pressures people are feeling and the uncertainties facing businesses are as we learned from the last subcommittee hearing, so many expired provisions that are under consideration today enjoy broad bipartisan support. in fact, many of us are lead sponsors of important job creation provisions, including the new markets tax credit, the r&d tax credit, the conservation easement credit, and the list goes on. we've all worked well together on these provisions and we should now work to get them

across the finish line. i appreciate the testimony from the witnesses today. evaluation of temporary provisions is as important as evaluating all provisions in the tax code. there are a number of loopholes that can be closed, or provisions that provide windfalls to certain industries that should be examined, particularly close. the temporary nature of provision should not automatic make a more eligible for determination and some of the provisions in the tax code that are permanent. many of these provisions were enacted on a temporary basis due to budgetary constraints. that does not automatically detract from the merits of the provisions themselves. but today we're talking about provisions that have already expired. this is his, large and small, rely on these provisions when making investment decisions. we have allowed almost 18 months of 112th congress to pass without doing our job to move

legislation, providing extension of these provisions. i mention in detail the last year and we had a tax into hearing a few weeks ago just how imports from of these extenders are to my district and to make incisions. i won't go into detail again, but will mentioned that mr. gerlach and i have a bill to permit enhance conservation easement incented. it's one of the most successful tools we have to support preservation of open space and family farms. which protects our watersheds and ensures food security. today, it has 308 cosponsors. including the chairman, which i appreciate very much. and wish that we were marking that bill up today, or better yet, have it on the suspension calendar. i couldn't agree more with our chairman that this committee has a duty to ensure that the tax code is working to create jobs and grow our economy. it is an exercise that is

necessary and takes time. but so much of the rest of congress is in gridlock. this committee can act quickly and do so in a bipartisan way to extend expired provisions that need to be extended, and help kickstart our job creation to get the economy going. i believe that such legislation should include not only job training provisions that expired in 11, but also proven job created provisions that were allowed to expire in 10, such as the build america bonds in the '40s you, advanced manufacturing investment tax credit. the commission engage a proper oversight and review of all the tax provisions to identify those that are meritorious based on the economic performance and find ways to strengthen them and make them permanent. but this oversight should not come at the cost inaction on important job creating provisions. i hope that the subcommittee and

the full committee can get to do our work and can get in front of the full house for a vote in the front of the president for his signature so we can help it through the economy. thank the chairman for allowing me to read this testimony. >> thank you, mr. thompson. all that and no mention of grapes or vineyards. inside joke. >> could i get unanimous consent? [laughter] speaking of unanimous consent and i have unanimous consent to allow for the reading or the submission of mr. neal's opening statement? >> without objection. next is my pleasure to introduce the witnesses here today. we have an excellent panel of witnesses see before us. today's witnesses bring both tax policy and oversight experience to us. today's witnesses begin with, from my left to the right, we would like to welcome back dr. jim white from the general

accounting office where he is director for tax issues. dr. white is responsible for gao's work pertaining to the irs, tax of ministration, and tax policy. thank you for being you. second we welcome back doctor donald marron, director of tax policy center at the urban institute here in washington, d.c. dr. marron's research at the tax policy center is focused on tax reform as his previously served as the acting front of the congressional budget office and as a member of the presidents council on economic advisers. thank you for being here today, sir. third we will hear from esther alex brill, richard hill at the american enterprise institute here in washington, d.c. mr. brill is an alum of the ways and means committee staff. and is also served on the presidents council on economic advisers and to serve as an advise her to the president's fiscal commission and 2010. welcome back to the room, sir. glad to have you. and, finally, we will hear from

aaron gornstein, the undersecretary for housing and community development for the commonwealth of us choose its. go celtics. and being from ohio, there's even an added little emphasis on that. [laughter] thank you for being here today, folks. subcommittee has received from each of you written statements, and they will be made part of a formal hearing record, as you know. each of you will be recognized for five minutes for oral testimony, and then we'll have questions. with that, dr. white, the floor is yours. >> thank you. mr. chairman, acting ranking member and members of the subcommittee, i'm pleased to be here discuss how to evaluate the expiring tax provisions, sometimes called tax extenders. most our tax expenditures will focus on those. however, the evaluation principles i discussed to apply more broadly. tax expenditures, special credits, deductions, deferrals

and so on that reduce the taxpayers taxable liability from what it would've been under a normal tax, under a quote normal tax. tax expenditures often a policy goals similar to those of spending programs. they may promote economic development, energy efficiency, or research and development because tax revenue is foregone, such provisions made in effect be viewed as spending channel through the tax system. like decisions about spending, decisions on whether and how to extend tax provisions involve trade-offs between policy goals and cost of my written statement summarizes factors commonly used to evaluate government policy, including tax policy center has expiring provisions. first is the effect of extending the provisions on revenue. tax expenditures shrank the tax base. is the reduced funding available for other federal activities or require higher tax rates to raise the same amount of revenue from the smaller base. put another way, revenue the government would have --

could've been used to fund other oh grams. second is in effect on equity, the economy and taxpayers compliance burden to equity or fairness is a subjective judgment but asking question but who benefits from the provision at how ability to pay tax is effective and help policymakers reached conclusions about it. the effect on the economy is what my statement calls economic efficiency, likely taxing one activity shifts resources to it and away from less taxpayers activity. the overall effect depends on whether the favorite activity provides greater benefits than the less favored activity. the effect on taxpayers cost to comply with the provision depends on its simplicity and transparency. contactors understand the provision? what kind of records will they need to keep? and, of course, simplicity and

transparency affects irs's ability to administer and enforce the provision. a third factor to consider when evaluating expiring provisions is whether the tax system is the best way to deliver the benefit or whether some of the tool of government such as loan guarantee to provide the same benefit at lower cost. tax expenditures may have a cost advantage when benefits are means tested. one goal is to prevent fragmentation overlap or duplication among program, not just to save money but also to avoid confusing the public. also import is the choice of tax policy tool. the choice of a credit versus a deduction, for example, affects incentives in the distribution of the benefits. a final factor is measurement are too often programs are implemented with little attention to how we will measure the results. in the case of tax provisions measuring results complicated because irs administers the provision but it is not the agency with functional responsibility for energy efficiency in a community building or any of the other

goals of the expiring provisions. the decisions are made about what agency should evaluate tax provisions, who should collect necessary data, and so on. now i want to briefly illustrate that gao has applied these factors in our reports. regarding the credit for ethanol, we found that while the credit can create the industry during its formative years, having both a tax credit and a renewable fuel standard now is duplicative. we suggested that congress consider modifying or phasing out the credit. our report on higher education tax assistance raise transparency questions. there are multiple such complex provisions, and we found many others will taxpayers either failed to claim anything or claimed one that did not maximize their financial benefit. we look at the efficiency of the research credit. while economists tend to support the eighth subsidy for research, the social returns exceed the

private returns to firms, we found the current design introduced inefficiency because incentives are distributed unevenly across firms and estimate that more than half of the regular credit, the windfall for research that would of been done anyway. we suggested changes to improve the bang for buck of the credit but we also looked at whether the new markets tax credits needed moving resource at intent. the credits didn't appear to increase investment in low-income communities. however, we also reported that the complexity makes it's difficult to reach smaller projects and results in less money flowing through to low income community businesses that might be possible with alternative design. we suggested that congress consider offering grants instead of tax credits with one option being a side-by-side test of the two approaches. mr. chairman, acting ranking member and other members, we've done in number of other such assessments all intend to provide congress with factual

information about the evaluation factors i outlined up front. how to use the information and make trade-offs between the factors is up to policymakers. i be happy to answer questions. >> thank you, dr. white. dr. marron, you have five minutes. >> thank you. chairman tiberi, ranking member thompson, members of the subcommittee, thank you for inviting me to appear today to discuss the breeding challenge of the tax extenders which might be better called attacks expire worse. as you know that united states faces a sharp fiscal cliff at year end when numerous policy changes occur. if all these changes happen they will reduce fiscal 2013 deficit by about $500 billion according to congressional budget office. before taking into account any negative feedback from a we the economy. about one-eighth of that cliff, $65 billion, comes from the

expiring and expired tax cuts that are the focus of today's hearing. in deciding their fate you should consider the larger problems facing our tax system. assistant is needed -- need is a complex, harmful and widely perceived as unfair. is increasing unpredictable, and it fails in both its basic task. they expire or's often worsened the contradictory uncertainty, gay compliance and cause him to read some of the tax code less fair, some more for. some we did our economy, while others strengthening. fundamental tax reform would of course be the best way to address these concerns. of such reform isn't likely soon. you must again grapple with the expirers. as a starting point let me note that they come in three flavors. the first our tax cuts that were enacted to address the cambridge on such as the recession, thousand of them are regional disasters. the second our tax cuts that reach the sunset review. prolonged economic weakness in recent omnibus extensions means that there aren't that many of the moment but they do exist. and third to our tax cuts that

expire. these appear to be the most common. supporters intend these belong lives are permanent but they haven't found a budget resources to do so. to determine which of these policies should be extended and which not you should consider several factors but does the provision address the compelling need for government intervention? does intervention? does it can't push its goal effectively and at reasonable cost? doesn't make the tax code more or less fair? do it potential benefits justify the revenue loss for the need for hard taxes elsewhere? in short you should subject these revisions to the same standards applied to other policies. in this case you should keep in mind that most of the so-called tax extenders are effectively spending to tax could pick you should hold into the same standards as other programs. you should also review the way you review the expiring tax. you should flip the bird approved. most of these provisional ultimately extend. that's why they're called the extenders even after they have

expired. ultimately, though we should move to extension -- expire and provisions will expire unless they can justify the continuation. in short, they should be the expirers. second you should divide them up. like most, the beneficiaries of the provisions realized there is safety in numbers but tried to migrate across the annual legislative thunder with little individual attention is possible. you should break up the her to return each provision in detail may not be practical in a single you're given how many there are, but you can identify specific groups for careful review. for example, you can separate out the steam is provisions, the charity provisions, energy provisions and so on. you should also try to spread expectations out over time. if you export any given year you be able to give them more attention. third i think you want to change budget rules for temporary tax cuts.

pay as. pay-as-you-go budget creates crucial discipline that has an unfortunate side effect. long-term tax policies often get chopped into one your segments. in addition 10 years of offsets can be used to pay for a single year extension. to combat this you would require in temperate tax efficient be assumed no less than five years. proponents would have to round up enough budget office to pay for those five years. in addition you could require that offsets happen over the same span of years as an extension. that would eliminate situations in which 10 years of offsets pay for one year of extension. thank you for inviting me to appear today. i look forward to your questions. >> thank you, doctor merrin. mr. brill, you're recognized. >> thank you very much, chairman, doctor dobson, and members of the subcommittee for the opportunity. before you going to discuss the tax provisions, known as tax extenders. i believe today's hearing is on an important topic as the number of and budgetary magnitude of

these regularly expiring tax provisions have ballooned in recent years. some of these policies can serve an appropriate goal that many has crept into the tax code over the years with little evaluation. for example, in 2001, 13 tax provisions were set to expire that you were the next year. a decade later, 129 tax provisions were set to expire in 2011 or 2012. the budgetary consequences extenders have increased as well. for example, in september 2004 congress enacted a one year extension of 23 tax extenders for a cost of $13 billion. in 2010 come a two-year extension of these policies cost over $55 billion. and if congress were to extend those policies again this year, the cost would be even higher. let me summarize three key conclusions from my written

testimony. first, no tax policy should be intentionally temporary. any tax extenders need appropriate should be made permanent. and the rest should be allowed to expire. second, each of the tax extenders provisions must be considered individually on its own merits, and against a clearly defined policy objective. each extender must be shown to meet that such as projecting -- tax equity. >> and third, a successful evaluation of the tax extenders, keeping the good and eliminating the bad or inefficient, may set a useful precedent for the bigger challenges of tackling tax expenditures broadly and ultimately tax reform. to guide the evaluation of tax extenders, policymakers i

believe need to answer simply to questions. first, intent. does the intent of the provision improve economic efficiency, increased growth, promotes fairness or achieve some other desirable coal? for example, the r&d tax credits and to to increase the aggregate level of research and development because our and degenerates benefits to society beyond those realized by the department. but one key point i would like to stress is that with the tax extenders, that is intended to subsidize the given activity, special care must be taken to evaluate its net economic benefit. most subsidies will increase the subsidized activity, but that does not mean it will produce such a net benefit or improve overall economic efficiency. in the absence of externalities, a credit for any given activity will lead to a missed allocation of resources. or of the subsidized activity or

less than everything else. and a provision that encourages more of a particular activity does not necessarily promote overall economic growth. the second question after determining the intent to policymakers should ask is what the policy be effective if it were permanent? and evaluate the effectiveness on a permanent basis, regardless of the fact that is frequent in the past been a temporary provision. let me next quickly highlight for harmful consequences that i see from the constant exploration and reinstatement of tax extenders. first, tax extenders distort fiscal budget baseline, complicates raven and deficit forecasts over the future period. second, tax extenders create financial reporting problems for public we traded companies. third, and importantly, tax extenders exacerbate the uncertainty facing businesses as

they don't know whether they can depend on these policies once they have expired. and forth, tax extenders may be designed to encourage oversight, but they are generally extended without much consideration. this subcommittee has held a number of hearings on this topic of oversight, but a review historically would indicate that more often than not these policies are extended without serious review. and allow me to conclude by observing that this committee knows well, that the tax base has eroded over the last 25 years. a proliferation of tax credits, deductions and exclusions has left the system that misallocated resource, creates complex the, and compliance problems to reducing the number of tax extenders offers an opportunity to reduce this complexity and uncertainty and to promote efficiency. i hope that such an effort could set a positive precedent for the greater challenges that this

committee will face as it embarks on broader tax reform. thank you. >> mr. gornstein, you're recognized for five minutes. >> thank you, chairman tiberi, congressman gingrey and members of the subcommittee thank you for the opportunity to testify today. i'm here to urge you to extend certain critical programs to support economic development, housing and community development. some of the successful job training programs expire in 2011, while others were deemed not traditional extenders in 2010, regardless of their proof of effectiveness. a new market tax credit, build america bonds, and the low income house tax credits have created hundreds of thousands of jobs in housing units across the country. these programs play a vital role in encouraging investment in our communities. as we continue our steady climb out of the great recession, now is the perfect time to extend these programs in the critical work that they support. let me briefly describe each programs to do that.

the first new market tax credit allocations were only nine years ago, yet this well-designed program has achieved excellent outcomes. $45 billion invested, 92 million square feet of retail commercial and office space develop. over 300,000 jobs created. these investments in each of your congressional districts are restoring abandoned buildings to be tackled, revitalizing small business districts, and creating momentum for further development. i wanted to provide a few examples from massachusetts. holyoke is a western massachusetts city once the world's largest paper manufacturer. but now one of the poorest communities industry. new markets generated 9 million in debt financing for a full-service health care center in the heart of downtown, a project that created 350 jobs. a few blocks away, a world-class computer technology center. $168 million project is under

construction with 600 jobs already created. universities, including harvard and mit are actively supporting this initiative. the new markets tax credits expired at the end of 2011. but it's not too late to extend it. because of its importance, i asked the committee and congress to take three actions. ..

to help several lighted neighborhoods creating 14,000 jobs and stimulating retail and commercial development. none have occurred in years. it could put hundreds of thousands back to work nationwide. and the extenders package the committee continues. it preserve 2.5 million units of rental housing. no federal housing program equals this record but the credit is not just housing program. it creates jobs, abandons properties and support retail and commercial opportunities nearby. highly flexible and supports new construction, rehab and renovation. it is seniors with disabilities, veterans and former homeless families.

out of specific matter we urge congress to extend the so-called fixed 9% credit established in the housing and economic recovery act of 2008. when replacing the floating tax rate with a 9% rate congress brought consistency and clarity to the program. we appreciate your leadership on this issue with your introduction along with ranking member neal of h r a 3661, and a 9% credit permanent. in conclusion these community development tax credits provide many important benefits. they leverage private sector funds for economic development in housing, create jobs leaders to rebuild infrastructure and transform distressed neighborhoods. i urge you to extend these credits on a long-term basis so we can use them to build the road to economic recovery. as you consider ways to streamline and reform the tax code please take into consideration the important

contributions these programs have made especially while undertaking efforts to lower the corporate individual rates. >> dr. marron, in your written testimony and oral testimony you talk about how we should change the automatic nature of extending the extenders' which is bowl of chairman camp. can you focus operationally from your perspective on putting the burden on having supporters having each extender provide us and how we should therefore proceed in separating the different types of extenders and their wordiness of staying in

the law. >> last time i appeared before you i thought it was a good start to take a category of tax references and focus on them. the tax extenders or expires list is very long and you can group in to charity community development, stimulus and try to focus on those as a group and figure out which ones make sense and which ones don't. >> should providers provide certain data points, jobs numbers and thoughts on that? >> it would be great if they could. our friends at g a o have data on this. to provide such information is available. on that issue i don't want to overemphasize these provisions. there are a lot of provisions in government policy in the tax code that don't get enough

review. certainly there are things in a permanent tax system that deserve more review than they currently get as well. by separating out and giving attention and providing data and justification for what they are doing and the other point is if you spread them out in time the difficult tax extender the last five years than on average you will have one fifth as many to look at every year and you will be able to give those closer attention. >> i think you are raising a critical issue. one is the burden of proof question. is it the responsibility of the constituents and advocates to prove to congress the worthiness of these policies or is the burden rests with congress itself or other federal agency to prove policies are not working. we are well served by trying to pursue both of those agendas.

as jim noted in his remarks there are often not a lot of -- there may be oversight on the administrative side but not a lot of evaluation on the effectiveness of the program. these are really hard questions because simply observing that a subsidized activity that that activity is doing well doesn't prove the effectiveness of the policy itself. for any given credit, there may be lots of energy but that doesn't mean on the margin we are encouraging investment or activity. we may be providing a windfall. the analysis necessarily requires you develop a case in the absence of this policy, what would be the outcome. hard economic policies to figure out because we don't have a controlled pace but the conclusion is the bargain is

very high. in order to have a policy that distorts from what would be happening we need to set high expectations for the outcome. >> some of the work that she a 0 has done the new market tax credit suggests should convert credited to a grant program. two questions related to that. the program's cost is $5 billion and allocated $29 billion in tax credits that resulted in what mr. gornstein said was the $85 billion in new market investments. that is a leverage of 8:1. in addition some estimates are 300,000 jobs were created or retained at a cost of $17,000

per job. the first question is can you elaborate on how g a o's perspective on obtaining that when a bridge would work through that ratio would work through a grant program in place of a tax credit program? >> yes. the question we are looking at with the grant program was the amount of money that is flowing through from the treasury ultimately to the beneficiary businesses, community-based businesses and because of the way the tax credit is structured, credits are allocated and sold to investors and there's a fairly complex process for raising funds from the private sector. in effect tax credits are sold to them. in that process, not all of the money is flowing through to the

ultimate beneficiary businesses in the community. so the question we have was whether a grant would allow for the same cost to the treasury, more money to flow through beneficiary businesses. what we suggested was running an experiment, divide up the funding and have some of its run as a grant program and some run as a traditional tax credit program and test which one is more effective at getting money through to the community businesses. >> it seems to me that one factor in gao's conclusion of the grant program operation is tax credits are running a discount. but sir lead the economy and the recession have intensified that issue. mr. gornstein suggested may be

one way of improving that is to trade and new market tax credit program like the low income tax credit program and historic tax credit by entering into exempting from the alternative minimum tax as we do for low income housing tax credit and historic tax credit. >> you still have the basic question whether there is some alternative design to a tax credit that would allow more money to flow through to the beneficiary businesses. and the assistance from the treasury flows through. the effectiveness of these programs overall and we have tried to look at that. our work on that. and the amount investors were

investing in this sort of program. the other two separate questions. one is the effectiveness of money from the treasury flowing through. the other one is the effectiveness of the program overall. >> mr. gornstein, do you have any thoughts? >> let me answer the grand versus tax credit issue if i can. the tax credit attract significant private investment. low-income within the house credit and gao's own credit found a survey of investors, 88% would not have made the investments or grant program won't give you that private leverage that is so important to getting funding into these communities. second it brings private sector participation in the undermining of the project and the ongoing monitor which you would not have

on your grant program. converting your grant program brings the appropriation risk and there's so much pressure on the domestic programs we're certainly going to run into that as you convert to a grant program. those are the concerns we have with converting to a grand program. and we have seen yields going up and investments, and record levels in 2011. we are on the right path and permanent extension would build on that momentum. >> proud of your testimony today. mr. thompson is recognized. >> thank you, mr. chairman. i want to follow up on the new market stuff on behalf of mr. neil. specific questions for him. i just want to note a couple

things. all of the issues explained from uncertainty to the difficulty in the code are clearly important and the effect the work this committee does on tax code and the economy i don't think could be overlooked. we are in a unique position here. a lot of this is just a math problem. bottom line. a political side gets in the way and that is where this committee's responsibility really needs to be stepped up because we need to get beyond some of the political bickering and focus on what tax policy is going to improve our economy and not improve the lives of the american people. we need to have honest debate. mr. marron, you mentioned in

your written statement the whole issue of nascar provision and use said it adds to the perception the tax code is riddled with special interest giveaways when in fact that was merely done to correct an administrative action by irs that would have treated one theme park different from another theme park to put it basically. we went through the same thing a couple years ago where it was media fodder over the arrows. there was a company in san diego that made aluminum arrows and they were going to move off shore because the tax code made it more lucrative to them to make the arrows in korea rather than the united states of america because they assemble -- they could make 1 pace and

assemble them here and get a tax break. when that was fixed they kept a bunch of jobs in the united states and we handled aluminum arrows the same way we handle aluminum baseball bats. the press went wild with this stuff. we talked about it being a giveaway to the bow and arrow people which was ridiculous. we all have a responsibility to make sure that the debate is honest. i appreciate you bringing that up. i hope that we can get to that honest debate to make sure we have tax policy that is effective and efficient and fair and meets all of the criteria that a couple of you have mentioned. the new market tax credit, this deserves a lot more discussion. not o only has it worked in massachusetts where there has

been historic building preservation, it has been used all over. i have a clinic on the north coast of california that is one of the main health care providers on the north coast and they are looking on it to do their expansion. not only is this growth in construction jobs but growth in medical jobs. doctors, nurses, owners practitioners who are not only good jobs but when you are all done and happier community which saves us money in the future as well. so on behalf of mr. neil, they talk about new market tax credit quite a bit. he would like you specifically to comment on the gao's recommendation on this issue.

would you please do that? >> as i have said before, we certainly have to look for every way to make the new markets tax credit more efficient and effective and the community welcomes scrutiny and evaluation and appreciates all that the gao has done to point out areas the program can be strengthened but do have concerns about shifting to a grant program but that would be around the issue of leveraging private sector investment and how critical that is to get the private sector involved in these distressed communities, investing in low-income neighborhoods. this is a highly targeted tax credit benefiting thousands of low income people and low-income neighborhoods in california as well. it is up program that also brings oversight from the private sector.

this is true in the low income housing tax credit. you are getting market discipline imposed and having another set of eyes on this project in underlining and monitoring to be sure the benefits continue going forward. again, new markets, housing credits scored very high in that regard. that is the nature of the tax credit, a big reason for that. >> thanks, mr. chairman. >> chairman tiberi, thank you for the series of hearings we are having on temporary tax provisions and the thoughtful approach as far as thanking the chairman for his issues and leadership as well. i chair the oversight subcommittee ways and means and we have been looking intensively at a number of tax credits and administration problems

propensity for fraud and abuse. it is easy to dissect on that particular aspect but you have been to another area, metrics we ought to be looking at and challenges. i am curious. help us figure out what we should be looking at when we try to make distinctions between a tax provision that is very well written but hard to measure versus one that may be flawed in a way it is written and creates measurement problems and distortions as well. can you give us a little more insight how we might approach that dilemma has policymakers? >> a couple things i would emphasize, some of the panelists discussed, setting clear goals

for the program, selling -- spelling out what the effect is that you are looking for. >> in the statute? >> it could be done in the statute. the community development program focused on construction or focused on jobs or focused on jobs and existing presidents or new jobs in that community that might come from the outside end a second issue would be focusing on evaluation and one issue, especially tax provision is what agency ought to be responsible for the evaluation? irs administers these tax provisions but irs is not the federal agency, the executive branch agency responsible for housing programs or energy programs or community development programs so what

happens, tax provisions administered by irs the agency was functional responsibility in many cases doesn't pay much attention to the program. defining responsibility for doing this assessment of the program would help. >> any of you want to comment further on this? mr. brill? >> to jim's, and the valuation of thecomment the valuation of the effectiveness of the tax policy recognizing other things and the net consequences of tax policy towards housing but also spending policies, bring close together in a single frame work and make determination and evaluation. >> if i could shift gears you mentioned no tax policy should

be intentionally temporary. as we go through tax reform we want to simplify, streamline the code and see more permanency to create an environment of certainty. that sounds great but if we are going to have provisions, what is a reasonable timeframe? when you're doing things year after year several of you highlighted that. what is a reasonable time frame? >> it depends on the policy itself. the committee has fought in the past about how to create a policy that is convincingly convincing to the beneficiary that is permanent.

that is in essence part of the budget complaint system and budget act and convince users this is something to rely on. reinstating policies retroactively to create benefits. i would look back to 2003 when the gains rates were lower on a temporary basis to a budget process and not a cost issue but budget process and it was viewed that five years would give that amount of 70, and other policies were considered at that time that would have been shorter and not pursued because of the importance of convincing beneficiaries or constituents that the intent is to create policies that are permanent. >> my time is expired. >> thank you. mr. martin. >> expired. >> recognized for five minutes.

>> mr. brill, various industries urge the adoption of tax provisions with stated purpose of incentivizing investment in certain types of energy and the merits of these incentives it was indicated these taxpayer supports would only be required for the amount of time necessary for these industries to mature. today very few if any of these industries have independently determined these subsidies are no longer necessary. could you address the methods and criteria congress should use to make its own evaluation as to whether they originally stated objectives of these subsidies has been achieved and what the appropriate means of discontinuing taxpayer benefit? >> this goes to perhaps the hardest question for congress or

the private-sector to grapple with, the rate of technological progress. many will be hopeful that the nascent technology will quickly matured and cost of production will fall quickly in such a way that willow longer need government support these are hard issues to ultimately predict ahead of time. we have seen a lot of policies work their way to the cold on that argument. we need encouragement for a limited time. ultimately the industry can grow to become dependent on policies and the economics for any given activity will rely on the availability of taxpayers' subsidy and the ability to wean the industry of of these credits

is proving very difficult. i suggest the committee pursue an effort to reduce these credits, about a transition of these policies that might allow the market to understand how things are going. >> relying on these subsidies strategy to come to this committee to demonstrate clearly at what point they feel they would not need a subsidy anymore and code a 5 that into law. >> that is exactly right. if you code of 5 the step down of that policy instead of having them hit a wall a large percentage goes away overnight. the policy matter and

politically that might make it more likely that the policy will terminate. >> in the investor community an investor would look at that and make a decision -- it might more realistically reflect the investment level, might more realistically reflect how feasible that industry was. >> exactly right. >> mr. white, you mention in your written statements that with some tax expenditures is difficult or impossible to determine whether a provision is having its intended effect. should congress extend a given tax expenditure, what steps should it take to facilitate measuring its impact? >> as i said earlier, setting

goals, finding responsibility to an executive branch agency for doing the evaluation that ought to be agencies were functional responsibility, not irs, irs is tax agency i don't think they should be in the business of assessing a housing program or an energy program and the agency would make determinations about the type of data needed to conduct the evaluation is. the only data that is collected on many provisions is data that the irs needs for insuring compliance with the law, the irs is not collecting information suitable for assessing the effectiveness of many provisions. >> thank you, mr. chairman. >> as a follow-up to question on energy, i am sure you allude to

your computer screen, the highly rated session that we had, with members on both sides of the aisle talking about production of tax credit, we have a lot of consensus and not just with members but supporters on this issue of phasing out the tax credit over the next several years which is interesting. as a side question, also heard that since this has already expired, and impact on investment, and 3 extended. but how does that impact the policy. does authority expires and the fact that you have. >> no question in my mind that

these policies have real measurable observable consequences in the market. the taxpayers' act or don't act depending on whether or not they're getting the policies so the determination that this subsidy is desirable and we want more of that activity there are many of them that work that way and it is observable in the energy sector with a host of credits. ..

but not constantly interfering or feeling that test when we let these policies expire and then go back to the old system. >> will you yield? >> i will yield for a minute. >> i just want to get some certainty. were talking about the energy tax provisions. we are talking about all of them, not just the renewables so the 199 deduction for gas and oil? we are talking about everything? >> the 199 does not expire. i was speaking generally of tax credits to encourage activity in a given sector including the energy sector. >> so the 199 deduction for gas and oil would he won that you are talking about? >> the section 199 is not an expiring provision. >> i understand it's not expiring but if you're going to talk about energy tax provisions i don't know how you talk about one side without talking about the other side.

>> the section 199, which applies for a manufacturing income including income derived to energy production, may have an effect on the allocation of resources towards those activities in a way from activities -- >> similar to tax expenditures effect on the allocation of resources as it pertains to renewable energy? >> that is correct. >> thank you. >> i was actually trying to be helpful. >> may too. [laughter] >> mr. goodlatte you are recognized for five minutes. >> thank you mr. chairman. thank you both mr. white and mr. gornstein on your further thoughts on the market tax credit, and i share your view on keeping the program as is and growing it in terms of the amount of allocations available

over longer period of time. i think it does a pretty terrific thing in a lot of communities with these projects. mr. white if i can however go back to your testimony or your gal report, that gets into again the criteria for good tax policy, and i am interested very much in the terminology you use, criteria including equity, economic efficiency, simplicity, transparency and administrative ability as well as relationship to other policy tools. interestingly, as we are talking about what you say and what should be taken out of the tax code as we go through this process and hopefully simplifying it, you would think and most of the conversations we have had center around job growth, making it more easy to grow capital and it makes itself available than for investment in the economy, but you term it as economic efficiency and can you describe a little bit more fully

that term relative to jobs, relative to capital formation, as a criteria for how we ought to look at a lot of these provisions down the road? >> yeah. essentially what you are doing with these tax provisions, and this applies not just a tax provisions. this applies more broadly to spending programs or other types of grow grams. you are shifting resources, you are providing incentives to move resources from one area and you're a connie to other activities in your economy. the program is -- the question is whether there is a net gain from doing that and in some cases there may be in it gain so there is a research credit for example provided businesses will underinvest in basic research because they can't capture all of the benefits of that research, so there is a justification for some government subsidy to shift additional resources into basic research.

tax provisions are one way to do that but not the only way to do that. >> and as that role into this issue of relationship to other policy tools? for example lets take the new market tax credit that could be used and in order for my district to undertake renovation of older housing stock and turn it around for affordable housing projects, and yet you can find umpteen other federal programs that are grant programs that might do the same thing, say the hud program. so is it better for policy standpoint to allow for private sector market taste approach to use a credit that then allow also the formation of capital to do that project or just have some entity go and file a grant application with hud to get it done that way? or take a look at a situation where you might have an r&d tax credit or section 179 business expensing, or rather than tax

code approach just have them get an sba, 7a loan to do something. so, shouldn't we be looking at these tax codes, extender as well as issues not only from the context of what would happen, reaction was to the there but also what is available out there on her programmatic side that is also available to people, and maybe even think about whether those programmatic approaches to in the private sector, those ought to be maybe reduced, and provide better opportunities in

another example of what we are talking about here is the systems providing the higher education where you have got a title for spending program and a number of tax programs at the same time in which you would like to do is apply these evaluation criteria to across-the-board, to all of those programs. one of the things we found in our work right now is that it appears that the mix of these

programs is just not very transparent to many people. they are either not claiming anything at all even when they are eligible or they are claims are using the wrong program and it seems to be overwhelmed by the choice here. and it has resulted in confusion and people make him bad decisions from their own financial self-interest perspective. >> does anybody else on the panel have a thought on that in terms of the relationship of current grant a loan programs that are ministered through a mass of bureaucracy in washington versus just allowing the tax code to be a better tool to stimulate private sector investment in our economy and our community? >> just one point about that. the grant programs are extremely important but the tax credit, low-income tax credit market are the engine that drives these deals of the grant programs alone are not enough to move forward on most development

projects in most communities. you need a combination typically, but the biggest resource in the most powerful one is the tax credit, so i think if we lose the tax credit or it's not recommended or there is not certainty and it is going to have a detrimental effect and an effect on our ability to do more projects in very targeted communities. >> any others? if? if not, thank you mr. chairman. >> thank you mr. gerlach and thank you for your leadership. i know in my district which is urban, suburban in my current district, the fact is if you and i drove through it and saw differences in housing policy at the federal level between housing authority, the hud property versus low-income housing and tax credit policy. to a new market tax credit policy that has private sector involvement and oftentimes local

support from cities and counties, the differences are unbelievable. i would love to see you all do a study on how those different policies at the federal level impact in the end with a the bricks and mortars are built on the ground and how it impacts communities. i don't know if you have ever done that before, have you? >> i don't think we have done it as the comprehensive look as you are asking about. i had been involved with task reviews of low-income tax credits and a visited projects myself, so i have seen that difference as well and i think ultimately it oils down to the question of if you are comparing programs, does one deliver more bang for the buck than another one, and also the overall effect of the combination of programs.

for example, to what extent are the programs crowding out the private sector investment in an area? that would be part of the evaluation. one of the things we found in our review in the new market tax credit was it did appear to increase overall and the targeted communities. >> so you probably wouldn't answer this question it. you probably would not come out and support chairman and gerlach 's -- mr. berg is recognized for five minutes. >> thank you mr. chairman and i thank the panel for being here. this is an important great discussion and really the next step. there is no question the problems we have got with the tax code and the uncertainty and the unpredictability has just caused so much doubt throughout our economy. i think that is just one of the key things that we need to get

fixed if we are going to get our economy turned around. there is absolutely no question about it. having said that, there has been a lot of discussion about conference of tax reform and i think that is something that many of the stone this committee would like to see happen so i would like to kind of ask the panel just briefly, you know, we have got extenders. if we do that outside of the box of a comprehensive tax reform, what are we accomplishing or should they not be part of this tax reform. i think everyone that is a beneficiary of these -- the discussion today is make them stand up, make them say here is why this is important and let them stand on their own merit. i think that's important and i think the comment about for many of these are short-term echoes of the budget problems. well, there are long-term decisions quite frankly that need to be made as long -- as

far as long-term comprehensive tax reform. my question is can we do the it outside of that or should they all be part of the comprehensive tax reform? >> i think you want to do both. you want to look at the merits of individual provisions or for the package of programs targeting a specific area such as assistance for higher education, but then you also on tax reform you have got broader issues. with tax expenditures as a whole, not just in the expiring provisions, the tax expenditures as a whole are so large that affects what tax rates have. there is so much revenue given up from shrinking the base that tax rates on the remaining base have to be higher or there is economic consequences to those higher tax rates. and so there is a trade-off there that can be taken into account at a more macro level.

>> thank you. >> i would absolutely agree but the fundamental tax reform is to clean up everything so they're a bunch of expiring provisions that really ought to be permanent features for good tax policy. mr. thompson gave an example where one may correct an error that is out there. those kinds of things ought to be addressed permanently as part of overall reform. the challenge as you know better than me, is that the clock of legislation does suggest that we are going to have such tax reform before people deserve some resolution in the near term of what is going to happen in these provisions particularly those that have already expired but are still under consideration. and to have an opportunity to let some of them die permanently and maybe keep them out of the next discussion of tax reform but frankly i think the legislative clock will require you address all whole bunch of these in another year or two as another bridge to tax reform of 2013 or 2014. >> i would just note that many

of the policies and the tax extender packager tax expenditures and there has been a dialogue over the last two years or so, more focused on the notion of broadening the tax base, curtailing these tax expenditures whether they are temporary or permanent parts of the tax code today and then with a broader tax base that is more efficient and less distortionary there is an opportunity to reduce tax rates, which would be pro-growth and/or potentially reduce the deficit in some combination and policymakers will need to wrestle with that. i think we should consider these tax extenders and they distortionary effect that many of them have just as we have had a debate about tax expenditures generally in the code. >> given the urgency and the need to extend the expiring credits and i've would hope congress would move quickly on

that as soon as possible and not wait for the broader reform package as has been pointed out may or may not happen by the end of this session. so new markets in particular, the flat 9% in terms of housing tax credit, to very high priorities. >> thank you. would the gentleman yield? on the issue of the comprehensive tax reform, doing away with the tax expenditures to get the rate down, do you all agree that -- why kneel we need to do it and i think you all agree we need to do it but do you agree it needs to be revenue-neutral? >> you don't think we should grow the debt in order to do this? >> well, there is certainly, the united states is on a long-term budgetary path that is not

sustainable. >> i get all that. should tax reform be revenue-neutral? >> i think that has got to be answered in the context of how you were going to reduce the debt, bring down the deficit. >> you all are prepared to testify and tax reform. you may answer if you want. >> egg and as you experience as much as i do unfortunately it is revenue-neutral and there's a question of what on earth that means and who are the extenders, whatever. it's easy to say yes or no to that but i would say the way i would summarize your point is we need a tax revenue target for tax reform and my reading of the tea leaves as you look into the future the federal government is going to have to raise more revenue than it has a starkly in the past given the spending pressures that are building and continue to build. >> anybody else want to answer? you may or may not. >> i agree with donald's comments that we need to think

about what that revenue level needs to be given i'll of the spending objectives we have and we need to find a balance. that's the question that needs to be answered and obviously there are significant spending questions. >> the gentleman's time has expired. the gentleman from texas. >> thank you mr. chairman. i will be very brief. i would like for our committee to also interject another aspect of the extenders and the viability of them and that is, the probability of that program or extender, having the same ability to attract investment in the proper amounts of investment, and in eight, in fact, reforms tax code where if i am at 39% and i am an investor, i am looking at deals

based on the tax effect on my personal tax return. i am looking at the income credits and at that point, the value of all those credits and the in the value of that investment is worth axe. if we follow through, and i believe we will as a committee, and lower the tax rate, simplify the code, then in one year or two years, many of the programs that we renew our put back on the books will not have the same level of viability and the investor community because they simply won't have the horsepower to attract the investment that they will let the higher rates. so i would just like to interject that is another criteria when we look at these extenders to see if there is some -- >> excellent point, excellent point. while this concludes today's hearing, right on cue with the bell. i really appreciate the four of

you today. you have really provided excellent testimony and i appreciate the dialogue in the give-and-take and some of the questions outside of the area to which we attracted you here to give your expert opinions. we are going to continue as a committee, as a subcommittee, to go through this process and try to determine what extenders should he extended and what should not be extended and what maybe should be part of a permanent form of tax reform so we appreciate your input. please be advised that members may submit questions to witnesses. those questions and the witnesses answers will be made part of the official record. again i would like to thank you all for taking time out of your busy schedule and i thank our members for being here today for this great discussion. this hearing is adjourned.

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>> this hearing coming to a close as members moving over into the house chamber as a series of votes are underway on the legislative branch operation, a series of eight votes there. we will move on with their pro-granting and let you know that tonight on c-span2, you can watch for it to the white house coverage of the lives of the presidential candidates out campaigning this week at 8:00 eastern. first lady michelle obama at rally in dale city virginia where she talks about her family and women's health issues and ann romney the wife of republican presidential candidate mitt romney hits the campaign trail in florida speaking to cuban-americans in miami and a visit to the marion therapeutic riding association in ocala florida where she talks about how writing courses helped her in dealing with also both clarissa's. watch road to the white house tonight starting at 8:00 eastern here on c-span2. also tonight on c-span live coverage of the 60th annual radio and television

congressional correspondents' dinner in the washington dimension center. house speaker john boehner and emmy award-winning comedian wayne brady are these featured speakers. live coverage starts at 9:00 eastern, and again you can see it on c-span. u.s. debt will nearly double the size of the entire economy by 2037 unless congress raises taxes or enacts major spending cuts. that's according to the nonpartisan congressional budget office which released its long-term budget outlook this week. cbo director douglas elmendorf testified before the house budget committee on wednesday and republicans and democrats on the committee continue to disagree as to the best way to reduce the growing debt while supporting a weak economy. this hearing is just under two hours. >> to work your team has done in putting this together. the report is sobering and the warnings are dire. you right in the report quote, growing debt would increase the

probability of a sudden fiscal crisis during which investors would lose confidence in the governments ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates," matt. what is causing this growing debt? government spending is on a breakneck case. by 2025 according to this report, spending including medicare and medicaid, social security and interest on the debt will consume 100% of revenues. tax revenues that continue to increase each and every year. the problem of course is unsustainable increases in government spending. our entitlement programs and particularly government spending on health care are the core drivers of the debt. has a report made clear the health care law fails to address the cost problem and instead adds new liabilities to an already bankrupt future. those unwilling to structurally reform a structurally broken government repeat the same calls forever higher taxes and chase

ever higher spending. on the question of taking more republican taxpayers the cbo report is clear, writing quote extend additional tax revenues were generated by boosting marginal tax rates, those higher rates would discourage people from working and saving for the reducing output and income" matt. the sepia like all nonpartisan experts has again warned of delays in solving our fiscal problems ferc unfortunately the of has no definitive solution to the problem we face but merely obstruction for those who do put forth good faith solutions. the senate of course hasn't passed a budget in more than three years. house republicans refuse to accept a european-style the european-style debt crisis which promises harsh austerity. we reject the empty promises and continued in action in the face of a crisis. cranking up tax rates that further stifle growth and harsh disruptions to beneficiaries is what europe is doing right now. this does not have to be our

fate. this is why we continue to advance gradual, commonsense reforms to lift the debt, strengthening core priorities and spur job growth. we still have the window of opportunity that will require us to come together to solve this problem. the cbo has presented us with their analysis but it is incumbent upon policymakers to respond to their findings with principle solutions. it's our moral responsibility to work together to chart a sustainable fiscal path to revitalize economic growth and to expand opportunity now and for generations to come. i want to thank you for coming in today doug and we look forward to your testimony and lots of questions for members and with that i will yield to the ranking member. >> thank you mr. chairman. i want to join the chairman in welcoming you dr. elmendorf. two weeks ago you and your colleagues at the congressional budget congressional budget office released an analysis of the economic impact of the so-called fiscal cliff, painting a very somber picture of what might happen if congress fails

to address expiring tax cuts and the looming automatic spending cuts that occurred at years and. you predicted a possible recession early next year and millions more are out of work. we would actually go over that fiscal cliff, yet your long-term outlook, cbo's long-term outlook which we are discussing today, also confirms that continuing to do business as usual, extending all the current tax and spending policies, will produce unsustainable deficits and debt, which will also hurt the economy in the long run. ..

super low interest rates, should should be a no-brainer. we call upon speaker boehner to president put the president's jobs proposal a vote on the floor of the house. the second step is for lawmakers, the congress, the president to adopt a plan to reduce the deficit in a balanced way, by applying the kind framework of spending

cuts and revenues generated by eliminating certain tax breaks recommended by bipartisan groups like simpson-bowles. that plan should extend tax relief for working families and replace the sequester with a balanced approach to deficit reduction so our economy does not go over the fiscal cliff. unfortunately, the speaker's threat to let the nation default on its debt if republicans can not impose their european-style austerity plan is cementing the view in capital markets that lawmakers will fail to reach an agreement before the end of the year. that manufactured crisis creates uncertainty that will undermine confidence and weaken the economy. the standard & poor's downgrade of the u.s. credit rating last year was due to forecasts of continued political gridlock. yet for many in the house of representatives, compromise remains a dirty word. mr. chairman, we look forward to having a willing partner, willing to make the

necessary compromises to both make sure our economy kicks into full gear and also develops a balanced plan to reduce the deficit over the long term. thank you. >> thank you, mr. van hollen. i also ask unanimous consent legislators have five days to insert their comments into the record if they choose to do so. mr. elmendorf. >> to all members of the committee i'm pleased to be back today with you to talk about the long-term budget out look. in the report cbo released yesterday we set a two very different sets of assumptions about future tax-and-spending policies. the extended baseline scenario reflects the assumption that current laws generally remain unchanged. that assumption imfliz that lawmakers will allow tax-and-spending policy changes to occur will actually do so. in contrast the alternative

fiscal scenario incorporates the assumption that certain policies that have been put in place for a number of years will be continued and some provisions of law that might be difficult to sustain for a long period will be modified. thus the scenario maintains what some analysts might consider current policies as compared with current laws. the budgetary and economic outcomes under these two scenarios would be starkly different. under the extended baseline scenario, that is current law, federal debt would decline gradually relative to gdp over the next 25 years, from an estimated 73% this year to 53% by 2037. so the outwould not be dramatically different from our current situation there would be a sharp change from the nation's historical patterns of taxes and spending. revenues would rise steadily relative to gdp owing to several factors. a scheduled expiration of cuts to individual income

taxes enacted since 2001. the growing reach of the alternative minimum tax, the tax provisions of the affordable care act, the way the tax system interacts with economic growth. demographic trends and other factors. all together revenues would reach 24% of gdp by 2037. much higher than has been seen in recent decades. at the same time federal spending on everything other than the major health care programs, social security and interest, would decline to the lowest percentage of gdp since before the second world war. significant increase in revenues and decrease in magnitude of spending would more than offset on the dramatic rise on health care programs and social security. that is why debt would decline to relative to gdp under current law. in contrast the outlook for debt is much bleaker under the extended alternative fiscal scenario.

as i said in that scenario the assumption is that government maintains the kind of tax-and-spending policies that we've been accustomed to. in that scenario all expiring tax provisions, with the sole exception of the current reduction in the payroll tax rate are assumed to be extended through 2022. after 2022, revenues assumed to remain at their 2022 mark of 18 1/2% of gdp, just a little above the average of the past 40 years. on the outlay side this scenario assumes the automatic reductions in spending required by last year's budget control act will not occur. that certain scheduled reductions in health care spending will not occur, and that federal spending on everything other than the major health care programs, social security, and interest, would return to its average share of gdp during the past two decades. all together, in the extended alternative fiscal scenario, revenues would be much lower and noninterest

outlays somewhat higher than in the extended baseline scenario. as a result, federal debt would grow rapidly from its already high level, exceeding 90% of the gdp in 2022 and approaching 200% in 2037. because the extended alternative fiscal scenario is roughly representative of the fiscal policies that are now or have recently been in effect, the explosive path of federal debt under that scenario underscores the need for large and timely policy changes to put the federal budget on a sustainable course. i would like to take a few more minutes to highlight two specific implications of these projections. first, it is not possible both to keep taxes at their historical average share of gdp and to keep the laws unchanged for social security, medicare, and medicaid. the reason we can't repeat

that historical combination of policies is that the aging of the population and rising cost for health care have made those large entitlement programs much more expensive than they used to be. it is possible to keep taxes at their historical average share of gdp but only by making substantial cuts relative to current law in the large entitlement programs that benefit a broad group of americans at some point in their lives. alternatively, it is possible to keep the laws for the large entitlement programs unchanged but only by raising taxes substantially on a broad group of americans. changes in other federal programs besides the large entitlements can affect the magnitude of the changes needed in taxes or the large entitlements but they can not eliminate the basic tradeoff i just described. even if spending on all the other programs including national defense and a wide

variety of domestic programs fell to a smaller share of gdp than we've seen since before the second world war debt would still be on an unsustainable upward trajectory without substantial changes in taxes, the large entitlement programs, or both. the second implication of the projections that i would like to emphasize is that keeping federal deficits and debt no larger than we project under current law would involve difficult policy tradeoffs. under current law, as captured by the extended baseline scenario we expect that debt will decline slowly relative to gdp in 2015 and beyond. such a path for debt would gradually reduce the crowding out or private investment caused by high debt. it would restore lawmakers ability to use tax-and-spending policies to respond to unexpected domestic or international challenges. and it would reduce the risk of a sudden fiscal crisis

during which investors would lose confidence in the government's ability to manage its budget and government lose its ability to borrow at affordable rates. even on that path debt in 2037, 25 years from now, would still be larger relative to gd. than any year since 1956 and 2008. so that path for federal debt might not be optimal. in fact analysts don't know what level of debt is optimal but it is one path that might be considered a plausible goal for federal policy. attaining that goal though would pose significant tradeoffs. tradeoffs are exemplified by the decisions confronts you as various provisions of law expire or take effect at the end of this year. to keep the nation on that current law path of declining debt, any actions by the congress that would significantly worsen the budget outlook relative to current law would need to be offset or paid for by other

actions that would improve the budget outlook by a comparable amount. for example, removing the automatic spending reductions under the budget control act would raise deficits by about a trillion dollars over the next decade. and extending all of the 2001 and 2003 tax cuts and indexing amt for inflation would raise deficits by $4.5 trillion over the next decade. both figures excluding the effects on debt service i should say. making such changes to current law while maintaining the same path of declining debt as under current law would require other changes in policy that would reduce deficits by roughly one or four.$5 trillion. to be sure, the congress might not enact those changes in law or might choose to allow more debt that would occur under current law or reduce debt more quickly relative to the

gdp than would occur under the current law. there are many possible combinations of policy that might pursue. and cbo will neither make recommendations or predicts about them. my point sim i the path of debt under current law would leave debt as a historically high level relative to gdp. yet achieving that path would require very large changes in current policies. you and your colleagues and auld of us as american citizens face hard choices. thank you. i'm happy to take your questions. >> thank you. okay. so first i think it is very constructive that we have what we call the alternative fiscal scenario because that sort of reflects more current policies. to get clear, when we talk about current law baseline, the extended baseline, superintendents 30% cut to doctors starts starts january, discretionary caps stay in place and sequester is enacted on top of that

and $4.4 trillion tax increase occurs as well. >> includes all the expiration of under current law and includes all the new things would happen. >> that is not very realistic. so helpful to have the afs, alternative fiscal scenario. as we look at that alternative fiscal scenario on your table 2.1 and figure 2.1, when we're doing real gnp per person and long-term budget scenarios and real gn p&g dp you have a range of estimates and i'm very intrigued with these range of estimates. first of all, on one of them over on your gnp per person that is basically how we measure standard of living. how much does the economy grow per person in the future. and what's great about our nation we've always had an increase in standard of living. we've always, always given the next generation a better standard of living, better growth. i'm looking at your lower estimate which shows in the

2030s, that goes away. down in footnote, we been about this before, debt would reach 250% of gdp by 2035 under these assumptions. cbo's out put can not rebly estimate. basically model can't measure the economy going on beyond that point. want it at 200% of gdp in your assumptions a year ago? where is, where is the difference? if i recall when we had these conversations with your predecessor and with yourself, i know this is a technical thing but i'm just curious, where do you lose confidence in measuring the economy going forward once debt reaches these kinds of levels? did you not move that out from 250 to 200? >> no, sir, we didn't change that, mr. chairman. if you look in last year's long-term budget outlook we show the effects of, of this alternative scenario on gnp

out at that point to 2035. in 2035 we sought thought that including the dynamic effects of rising debt on the economy and thus on the budget that the debt would be 250% of gdp and we show that on page 32 of last year's report. what we, and there's no magic point at which model stops working. >> right. >> guest: our view is that the model -- >> just loses credibility after certain --. >> guest: estimated based on historical earns sps. at some point our debt would, under these scenarios would move so far out of his tore experience we don't trust the model to be reliable. in various parts of the reports we cut off the vertical axi we cut off the picture at 250% of poverty because we don't think it conveys useful information. >> percent of gdp you mean? >> or fdp. we don't think it conveys useful information to you if we can run the calculator. >> right. what that means in the 2030s

we don't think the economy, we can measure the economy going forward because of the debt burdens? with any degree of confidence? >> by the end of the 30 20s, yes. beyond middle of the 2030s, yes, that's right, mr. chairman. >> let me ask you about interest rates. in this, first of all our 10-year yield curve is incredible these days and part of that i think people would say because we're sort of port in the storm, we're the safe haven. 10-year note went down as much as 1.5. you predict interest rate increases but those long-term rates are still under the past trends. what happens if rates don't stay as low as you're projecting. what is the kind of rule of thumb you use on rolling average say 10-year basis if rates don't stay as low as you're predicting? that is one of my biggest fears. interest rates rise,

whenever, medium, long-term, above trend like they did in the 1980s or even at the 1990s levels. what does that do to us and how does that move those dates up? >> so at the end of the first chapter of the report we talk about a collection of risks that surround these projections. you should take those risks you should take the uncertainty very seriously. one source of risk west point to as the chairman is mentioning is risk of much higher interest rates. also possible rates would be lower than we project. we note if interest rates under this extended alternative fiscal scenario net interest would be 27% of all federal outlays by 2037 in our projections here. if interest rates were even half a percentage point higher on sustained basis then the debt service cost would be even higher. so for example, we think federal debt would be 215%

of gdp in 2037, not 199% of gdp we show given the interest rate path we've assumed. >> now, let me get you, i was intrigued also with your comments on marginal tax rates. you're saying the higher marginal tax rates go the less output in economic growth we get. so is a good combination of fiscal policies in your judgment based upon what we're seeing here, lowered debt levels, which increases output and keeping marginal tax rates low? if they're not a tradeoff, meaning if we get savings which reduces debt from entitlement reforms and better economic growth, is not the virtuous cycle we want to get on, not asking you to give me a policy judgment but i'm asking you, in your judgement does it, do we get better economic growth with lower tax rates and lower debt levels? >> yes. so all else equal, lower tax

rates mean more economic output. all else equal, lower debt means more economic output. whether all else is equal of course depends on a combination of policies congress would adopt. the alternative fiscal scenario has lower tax rates than the baseline but much more debt. >> much more debt. >> by our estimates the much more debt is stronger negative force than the lower tax rates are a positive force. >> that's basically the essence of our approach which is keep tax rates low to maximize economic growth but deal with the spending drivers of our debt because as we can see here, even under the afs, revenues go up, it is just that spending goes up as such an incredible clip because as you mentioned demographics, health inflation and the rest, if we get that under control, then we can grow. so if we keep our debt levels at or below where we are, over the long term, and, keep our tax rates at or below where we are, we will avoid this kind of projection you're showing us

in these various scenarios in the 2030s where debt gets so high you can't track going forward. meaning we can dodge this austerity bullet if we get those two combination of policies in place. is that not an accurate takeaway? >> i agree with you up to the point about dodging the austerity bullet. depends -- >> how you define austerity. >> yes, you're right if debt stays at or falls lower as share of gdp and tax rates are lower, that combination would be the best combination of those two features of the budget for growth in the long run. >> get one more question on the fiscal cliff. is it your judgment that, how much do you disaggregate between the recession that you're projecting which i believe you're projecting two quarter drop in output if the quote, unquote fiscal cliff occurs, how much of that, in your judgment results from the tax side of that fiscal cliff versus the

other parts of that the cliff, the spending issues? >> well, a larger share of the tightening of fiscal policy between this year and next comes on the revenue side. now, the effects of specific changes in revenues and spending won't be exactly the same on the economy in the short run. >> right. >> all together we think that the revenue increases were larger factor in restraining economic growth and employment at the beginning of next year. >> thank you. mr. van hollen. >> thank you, mr. chairman. let me just pick up first where the chairman left off with some of his hypotheticals. he asked you were you able to keep tax rates low given everything else equal, assuming also that the debt remained low. dr. elmendorf, as you said in your testimony all this involves very difficult tradeoffs. so to the extent with we keep debt low and we reduce

revenue, that means that we have to cut much more deeply into other areas, is that right? >> yes. >> and give the fact that health care costs are increasing rapidly, especially medicare, it would mean that we would have to come up with another way of dealing with medicare costs, is that right? >> yes, that's right. >> and, just to go back to the cbo analysis of the house republican plan, with respect to creating a medicare voucher premium support, whatever you want to call it, my recollection is that the cbo analysis showed that it really just shifted a lot of the rising health care costs off the medicare program and on to seniors, is that not right? >> the analysis we did a year ago of the plan that the chairman put forward at the time we did analyze, tried to offer rough estimates of the shift of costs to beneficiaries. the plan this year we weren't able to do that kind of analysis. the plan is more complicated

and we've been not been able to do comparable analysis this year. >> that's right. in the chairman's plan he changed some of the things which may have somewhat softened impact but, my understanding of reading of the cbo analysis last time is the same dynamics are at play. and while it may somewhat reduce the amount of risk and cost shift to seniors it doesn't eliminate that problem. have you had a chance to look at that? >> we have not been able to analyze that plan. >> okay. if i could just put up a chart because i think it is important as we discuss the deficit challenge that we have an idea what components are driving it. and, what you see here is in the, this is the deficit, the debt as a percent of gdp and what you see is beginning in 2001 you have that black bottom line going down very steeply. that was cbo's projection of surpluses at the time. in fact about 5.6% trillion,

excuse me, $5.6 trillion in projected surpluses. we know that by end of 2011 we had one of the worst reversals in fiscal fortunes we had ever seen and you see the debt rising as a percent of gdp. and, what this chart shows is the different components of it based off the cbo numbers. the deep red being the result of the recession, the economic downturn. the pink being the result of the 2001, 2003 tax cuts. dr. elmendorf, i will ask you and your colleagues take a look at this just to confirm this breakdown is accurate but what it shows i think is a very simple lesson. in order to get ourselves out of this long-term fiscal challenge we not only need to deal with the spending side of the equation, but as your testimony makes clear, we should also deal with the revenue piece. when's the last time we actually had a balanced

budget? >> i think that was 2000. >> 2000. and do you remember what revenues were as a percent of gdp in the year 2000. >> 20.6%. >> what are revenues as a percent of gdp today? >> they're a little under 16%. >> right almost, a five percentage point gdp swing, is that right? >> yes, that's right. >> so again, i want to get back to the fact that we, in the democratic alternative budget proposed a balanced approach that combines needed cuts and i would remind my colleagues that, as part of the budget control act, we cut a trillion dollars over the next 10 years but our proposal also, deals with the revenue side of the equation, because, if we don't get our fiscal house in order, as dr. elmendorf said in the out years, you do have this crowding out effect which slows down the economy. in fact dr. elmendorf, as you pointed out, the alternative fiscal scenario has lower revenue, correct?

excuse me -- >> much lower than under the extended baseline. >> under the extended baseline and yet you're prowrecking -- projecting higher deficits and slower economic growth, is that right? >> yes, that's right. >> if we could just go to this chart which is something cbo handed out. it should be in everybody's packet. it is your one-pager. because, it points out the different components that make up the difference between your extended baseline scenario and the extended alternative fiscal scenario. and what i found interesting in this is that, in this comparison, that you did, there's actually very little difference in the major drivers of spending. in other words, if you look at social security and health care spending, under scenario one and scenario two, it is only .7% of gdp

difference. in the year 2037, even when you go way out there, is that right? >> yes, that's right. >> and the, if you look at the all other federal spending as i understand it one of the big components of that is that you assume that we will not allow the sequester to go into effect, nor will we replace the sequester with a equivalent amount of deficit reduction, am i correct about your assumption there? >> yes, that's right. >> if you actually look at these drivers, that component, assuming that we will not replace the sequester and the gap in total revenues, plus the interest payments, which result mostly in this analysis from increased debt as a result of less revenue, are the major reasons for the difference between your extended alternative

scenario and extended baseline scenario, is that correct? >> i think that's right, congressman. once there's, once the debt starts to grow, relative to gdp, continues on that path, then interest payments start to pick up in the same way, and it snowballs in a, very damaging way for the economy. >> right. and in this chart, the major difference, i mean the number one driver, the top driver here is the difference in revenues, correct? >> yes, absolutely. >> so i want to make it clear, i'm not proposing that we adopt the revenue policies underlying the, the extended baseline scenario but i do think this chart, as well as the one i put up on the screen, argue very strongly for taking the kind of balanced approach that has been recommended by groups like simpson-bowles, bipartisan groups. let me just ask you a question about the debt ceiling. which, by most forecasts we will hit possibly at the end

of this year. what would be the economic consequences if the united states did not raise the debt ceiling? >> we think that it a default on american debt would be devastating blow to the economy and the financial system. it's hard to know. we haven't done it. so we can't look to historical parallels in this country really in the modern era. but, if a default were to occur, in a, sustained way, i mean, if the, obligations that we had taken on really weren't honored, that would be a shock to a financial system that is already, in this country, and particularly overseas, in a fragile state, and, i don't know anybody who thinks we ought to let that happen. i realize there are disagreements among members of congress about what else,

if anything, should go along with increase in the debt selling. i don't know anybody who think it is would be useful to actually go ahead and default on that debt. >> no, i think that's right. i think it is grossly irresponsible for anybody to threaten that the united states will not meet its obligation unless enact somebody ales version of the budget. the speaker for example, would object to raising debt ceiling unless we reduce the deficit the way the speaker wants to do it. if i could ask you, dr. elmendorf, have you had a chance to look at the house republican budget? >> we don't analyze budget resolutions at cbo congressman. we have looked as you know at the chairman's own long-term budget proposal. we released our analysis in march. we have not looked at budget resolution itself. >> do you know the house republican budget would require, even if you adopted all their provisions would still require approximately a $5.2 trillion increase in

the debt ceiling between now and 2022? >> i'm not aware of that either way, congressman. we have not studied that. >> well, if you could just get back to us to confirm that fact. >> let me do it for you. the debt will go up in this country under any budget scenario by the factors we're talking about here. >> right. >> democrat or -- >> i thought it was important to point out that despite any comments speaker has made a big thing about using the debt ceiling to achieve his political purpose that is the republican budget that he supports would require a $5.2 trillion increase in the debt ceiling. >> i introduced the speaker's records in the comments last week to make sure his comments are accurately reflected. [inaudible] okay, doug, turn your mic on or pull it closer to you. the sound people are not quite capturing it. >> it is on. >> a little closer to you then. right, up front. mr. cap bell.

>> thank you, mr. chairman, dr. elmendorf. just in, refering to something the ranking member mentioned about tax rates or tax revenues as a percent of gdp. in 2007 i believe under the current tax rates, revenues were 18.5% of gdp and they are down now under the same tax rates. so my question, or point of this is, that, the amount of revenue as a percent of gdp is affected not just by rates but by economic conditions? >> absolutely, congressman. >> okay. so if we had a better economy today, you would have a larger share of revenue even under the existing tax rates? >> yes. >> and 18.5% is fairly close to historic average since world war ii, isn't not?. >> when cbo talks about averages we generally use the last 40 years. >> okay. >> the last 40 years, revenues averaged 17.9% of gp. >> right, under existing tax

rates in good economy in 2007 we had a larger revenues as share of the economy, were actually larger than the average over the previous 40 years? >> yes, that's right. >> thank you. next question, relative to what we charitiably call obamacare and and, on the other side they call the affordable care act, does your, all of your scenarios, both alternative scenario and baseline scenario include obamacare and the, that law being in effect, is that correct? >> we used the term affordable care act congressman. >> i'm sure you do. >> i think a lot of independent analysts do. under both the scenarios most of the affordable care act is included. there is one point a little different in the extended alternative fiscal scenario we turn off a couple of the provisions that would reduce

the growth of health care spending in what was the second decade when the affordable care act was enacted. in particular we don't allow the continued reductions in the growth of payments to medicare providers to go on and we turn off some of the extra indexing of thresholds or different sized subsidies through the insurance exchanges. so we take away a few of the features that would create greater slowdown in federal costs in the second decade. >> why did you turn those off in your alternative scenario? >> as we defined scenario we view it as extending some policies that have been in place for some time but as as modifying some policies we think would be difficult to sustain for a long period of time and the cutbacks in payments to medicare providers are sort of incremental. every year a lower growth rate. >> okay. >> as years go on we think it becomes harder and harder. >> you think they wouldn't work and take them back?

>> we think it would be more difficult and we're trying to offer you an alternative. >> okay. under either of these scenarios then, total outlays of the health programs would, medicare, medicaid and the schip program would rise 78% i have under the baseline scenario and 93% over the next 25 years as a share of gdp. so the medical costs would rise, medical entitlements would rise by 78% as a percent of gdp under the baseline and '93% under the alternative scenario. those figures sound correct? >> yes, they sound right. >> those are the biggest drivers of expense increases in the budget by far, are they not? >> yes, absolutely. >> in a letter to chairman ryan you were asked, cbo was asked what would tax increases would be necessary if you're going to pay for all this with entirely with tax increases. and you concluded that you would need a 33% across the

board rate hike by 2023. 48% by 2030 and an 86% increase in all tax rates by 2050 in order to just keep a balanced budget, under the alternative fiscal scenario going out? >> you quote those numbers correctly, congressman. i want to be clear what the experiment was. the experiment we were asked to look at increase in tax revenue came entirely through increases in tax rates. whole other approach -- >> i understand. >> broading the tax base, that of course is being discussed. >> no, i understand. i have lots more to say but only 25 seconds. >> all i merely wanted to point out from this, you have these huge medical entitlement cost drivers and you can't do an 86% increase in taxes. we have to deal with these things and we have to deal with them quickly. we don't want to have to make the rapid changes that europe did. europe's problems are because they let their european socialism that they weren't paying for go on too

long. so they had to try to fix it too quickly. we need to get on this right away so we have a slower glide path to correcting these problems. thank you. >> mr. doget. >> thank you, mr. chairman. thank you, dr. elmendorf. as i read page 4 of your summary and just paraphrasing it, to keep deficits and debt from climbing to unsustainable levels, policymakers will need to increase revenues substantial le, decrease spending significantly, or adopt some combination of these two approaches. and that is basically what your testimony has been this morning? >> yes, exactly congressman. >> thus far, the congress over the last year has pursued the reducing the spending significantly only. i believe that under the agreement that was reached last year, it fully implemented spending would be reduced by about 2 trillion dollars, is that right? >> yes, congressman. >> no revenue increase at all. entirely one-sided approach

to addressing this problem? >> budget control act focused on spending cuts, exactly. >> and your testimony this morning is if we continue to pursue that course, of only cutting spending with no additional revenues, we will have to substantially reduce medicare and social security, will we not? >> yes, that's right, congressman. >> and, each time that the congress passes another tax cut, without paying for any of it, $46 billion in a recent week, for a business tax cut. $29 billion this week for a medical device tax, directed mostly at trying to weaken the affordable health care act but still, $29 billion a year, tends to add up. each time they pass one of these tax cuts without paying for it, that adds to the debt and would increase the amount of spending that would have to be cut directly impacting medicare and social security, doesn't

it? >> yes. any, any increase in spending or reduction in taxes that isn't offset, isn't paid for through some other policy change is going to push our debt above this trajectory we have under current law. under current law, only very gradually declines relative to gdp, even quarter century from now would be exceptionally large by u.s. historical standards. >> your testimony this morning is if we extend the bush tax cuts and make the adjustments with with amt associated with those, and don't pay for them, that is 4 1/2 trillion dollars in additional debt? >> yes. plus the debt service. >> plus the debt service which will add a significant amount? >> yes. >> so though congress has taken an approach of cutting spending by 2 trillion, one of the alternatives being advanced for approval in the house this summer we have unpaid for $4.5 trillion of

less revenue? and the impact will be to significantly increase the debt if that were to become law, and to, make it nearly certain that we would have to make substantial cuts in social security and medicare notice we wanted to have uncontrolable debt? >> if those tax cuts were extended and no other changes were made to fiscal policy, that would make the federal budget outlook significantly worse and the medium run and long run and worsen the economic outlook in the medium run and long run. >> yes. my concern is that those hot continue to preach what may be a good rhetoric at a political convention, that washington doesn't have a tax problem, it only has a spending problem, ignores the fact that we really have a little of both, and unless we have a balanced approach, to trying to get our budget in balance, we insure that medicare and social security

as generations of americans have known them, will not be there for them, and, that is, a, i think a terrible and unjustified cost to pay. as far as the spending side, because we do have to focus on both, you've talked about the fact that we don't just have a medicare health care problem or a veterans health problem, or a children's health insurance health cost problem. we have a health cost problem generally. and one of those areas some folks have suggested might help us resolve that is to copy the federal employee's health benefit program. from looking at that program, has it produced substantial savings that would help us avoid these problems? >> cbo's written about this before, congressman. i'm not completely familiar with it but i believe our conclusion was that premium increases in the federal employees program have been

roughly comparable to increases elsewhere in the health system. >> exactly. >> we show in our long-term outlook, comparative rates of cost growth, medicare, medicaid, and rest of the health care system, for different periods time when certain pieces have outpaced other pieces. but we see in general, as you commented, across the board increases in health care costs that have outpace the growth in gdp. that is what creates increasing bind for the federal budget and for state and local government budgets and for budgets for firms and households. >> thank you. finally the experience then with the federal health program shows it's no panacea to solve this rising health care cost -- >> time for the gentleman has expired. dr. price. >> thank you, mr. chairman. welcome, again, dr. elmendorf, to the committee and i appreciate the long term projections you made. talk about a couple different items. first the debt ceiling. our friend on other side

often times use the language, that people are threatening to have the united states not meet its obligations. you're not aware of anybody that is threatening to have the united states not meet its obligations, are you? >> just the speaker. as you know i try not to characterize the comments of members of congress. i said and i repeat i don't know anybody who thinks we actually should default. i recognize there is disagreement about what other policies if any should be combined with an increase in the debt ceiling. >> i think that is fair. we're talking about the debt ceiling and if a debt ceiling increase is required, and the options are to have no spending reduction and a debt ceiling increase, or debt ceiling increase and a accompanied with a spending reduction, which has a more positive effect on economic activity and output? >> well in the short term, congressman, we think, as do most economist that is a cut back in government spending

will weaken the economy, will lower output and employment. over the longer term, if the reduction in government spending is not accompanied by other changes and thus leads to a reduction in the debt, then that would be good for the economy. >> so a decrease in the debt, as you mentioned before, lower debt results in more economic activity, more economic output? >> yes, that's right. >> and a reduction in taxes as you said earlier, lower taxes results in more economic output and more economic activity? >> more, lower marginal tax rates in particular. many features of the tax code affect the economy. >> yes. >> but the lower tax rates on the margin can help encourage additional work and saving and that is good for the economy. >> exactly. that is what we attempted to include within our budgets. i want to talk about the economic variables that you used in this long-term forecasts. and it's my understanding this average annual economic

growth rate utilized for the next five years is 3.1%? >> for the next five years? maybe, congressman. i don't know that number. >> i think that is accurate. during the same time frame you also forecast that the unemployment rate goes from current rate to 5.5% by 2018. >> yes. that's correct. >> and yet last week your office warned that if the current law stays in place and $500 billion in tax increases go into effect in 2013 as scheduled, that the united states will likely go into recession for a period of time next year? >> yes, that's right. >> and so is it safe to say that a recession would contract, decrease, federal tax receipts similar to those levels we saw in '07, '09? >> it would certainly contract them. that was a very severe recession, that brought revenues as low as they were a few years ago. we don't think they would fall as low again. we would be predicting a mild recession. the direction is the same, congressman. >> so if the congress doesn't act in the current

law is realized, would you expand on your perspective how this will impact the macro economy in terms of employment and economic growth. >> yes. we think that if the congress allows current law to unfold through the end of the year and into next year, that the economy will contract in the first half of next year, and will grow only slightly over next year as a whole. and, that, employment will be a good deal lower and unemployment higher than would be the case if the federal budget weren't contracting in that way. as one goes later in the decade and beyond, then the path of smaller deficits would be good for the economy and would strengthen output and incomes. that is what the extended baseline scenario shows here over time relative to the extended alternative fiscal scenario. >> so the proposals that we have attempted to put

forward which are either keeping marginal rates as they are, not increasing marginal rates on individuals, and decreasing spending at the federal level, decreasing debt, the slope of the debt, would be a positive factor from a economic out put, economic standpoint? >> yes. lower tax rates and lower debt are both good for the economy in the long run. >> in my short time remaining would you care to address the difference between a tax, tax rates, marge that rates and revenue to the federal government. our friends often time confuse those or use though sin anomaly. >> revenue at that times the tax rate to which those rates are applied. our current tax base, talk about the income tax as lower tax on all income, individual or corporate levels. intact our tax bases are a lot narrow than overall individual income or overall corporate income. thus we have given a set of tax rates which have in

place we collect less revenue than we would if the bases were broader. raising tax revenue by raising tax rates will tend to hurt the economy. raising tax revenue by broadening the base could help or hurt the economy depending on the nature of the changes. so some of the features, some of the special deductions and credits and so on are bad for the economy because they distort individuals behavior. they encourage certain things at expense of other things in a way that is not consistent with the market price signals and perhaps not consistent with our social aims. on the other hand, there are features, credits and deductions and so on, that may be helpful in offsetting distortions that exist in the private markets or do help to achieve social gains. very hard to make any broad statements whether broaden the tax base would be good or bad for the economy. for particular sorts of changes we have the modeling capacity and our colleagues on the joint committee on taxation have model capacity to provide the you and your

colleagues about the economic effects but it is hard to make general statements about broadening tax rate. >> thank you, mr. chairman. >> mr. blumenauer. >> thank you, doctor. we appreciate your patience coming back again and carefully trying to parse your words to be accurate and resist our efforts to use portions of them to the justify our heartfelt needs and sound bite. >> understanding my predictment, congressman. >> i continue to marvel how well you do it. i loved how you used earlier the term, all, all things being equal. because this is the thought of our analysis is to let us know what happen, all things being equal. i love what you said a moment ago in terms of how you structured the tax provisions because there can be some that can reenforce productive activity. some can distort economic

activity. that could be the case for example, for lavish agricultural subsidies, couldn't it? if these are borrowed dollars that distort the marketplace, that encourage overproduction of something that may even have environmental damaging impacts and shortchange things like nutrition support which, like food stamps, actually helps sustain the economy, this is one of the things cbo has ruled as, as a powerful stimulant. so, for example, all things being equal, if we got our agricultural subsidies refined, that might be something that could save something and improve productivity, couldn't it? >> it might be congressman. we have not studied -- >> i'm not asking you to walk, i'm not asking you to walk that plank now. i want you to help me with the hypothetical. done right, we could reduce the deficit, improve

productivity and move forward? >> potentially so, yes, congressman. >> likewise, were we to deal meaningfully with reforming our military spending, some things like, hundreds of billions of dollars maintaining a nuclear arsenal that we're not going to use, hopefully use ever, has less economic impact than lowering the deficit, reducing potentially taxes or investing in things like education and infrastructure. isn't it possible that getting that right could boost our economy while reducing the deficit? isn't it possible? >> there are a whole variety of possible changes, congressman in federal programs that might -- >> but maintaining nuclear as younal doesn't have a -- arsenal, doesn't have ripple effect, doesn't strengthen other parts of the economy. this is more of a drag on

the economy than investing in education, bridges or sewers systems, is it not? >> in general congressman, we think when the general government spends money in the short term there is a positive multiplier effect to other things. as the federal government pays my salary i go buy some things at the store which helps -- and salary of -- >> i understand the principles and i'm not trying to trap you. i just want to put on the table that there are some things that have less of a multiplier than investing in our future, all things being equal? >> so yes, in addition to the short-term economic effects where we talk about multipliers in particular, different sorts of government spending could represent investments in our future. others may be more for current consumption. >> i guess that is one of the things that all things being equal, would seem to me that if we were in fact investing, as we use to do in this country, on things like roads and bridges and transit, improving sewer and water and environmental

protection, these investments actually put lots of people to work at family wage jobs, have economic benefits and avoid costs in the future? isn't that possible all things being equal? >> yes, congressman. we have written about the economics of additional investment in transportation and water infrastructure. we've noted for example, that according to the federal highway administration there are large number of highway projects that would have benefit substantially exceed their costs that are not currently being funded. to fund all of that infrastructure investment would require a good deal more money from either the federal government or other sources. >> thank you. i appreciate your patience with us. and i guess, that's the note i would conclude on because there are lots of things that people on this committee, in their heart of hearts could agree on, whether it is refining agricultural investment at a time when we have virtually zero interest rates, that we could finance long-term

investments for infrastructure, could make a huge difference in all our communities. and i hope we reach the point, maybe the fiscal cliff helps us look at this in a more comprehensive and thoughtful fashion in ways that will make a long-term difference to our communities and our economy. thank you for your patience. >> thank you, mr. flores. >> thank you, mr. chairman. i would like to have mr. van hollen's chart put back up on the screen if we can. this chart i found to be interesting. there were two factors i think in play here that were not discussed. number one is in 2001 where the chart starts, we had an exogenous factor come into play and that's when the war on terror started beginning with the attacks on 9/11. so i think that particular factor was conveniently left out. if you move over to 2007, we had a political change that occurred and that was when the other party assumed control of congress in both

houses. you can see the huge increases in spending that occurred and also the impact on the economy with the changes in regulatory environment. dr. elmendorf, when the stimulus bill was passed, it was widely believed that unemployment would go down because of that stimulus program but here we are 3 1/2 years later and we had a peak to 10% unemployment and we've had about 42, 40 months of unemployment higher than 8%. the other side of the aisle is proposing to have another round of stimulus, they changed the name to investment saying that will be the panacea to solve our deficits and solve our debt problem that we have in this country, that you've done a great job ever explaining. my question is this, can you explain in 30 seconds or less why the stimulus didn't achieve its desired outcomes and what impact it has had on our debt and deficits? >> the economy has performed a good deal worse than we

expected and many forecasters expected a few years ago. in our assessment and assessment of most economists i think the recovery act created more output and more employment than would have happened without it but the underlying weakness of the economy, not unusual in comparison to other countries that have had financial crisis induced recessions but unusual for us, the, underlying weakness to the economy has more than offset the efforts of fiscal policymakers and monetary policymakers coming back on a strong course. >> that takes us to the next question. i have asked this question before. what is more efficient in terms of, causing increasing economic activity? is it public sector spending or private sector spending? i mean in other words, it's a choice between a solyndra expenditure or keystone expenditure. which of those is better for the economy? >> well, we haven't studied

those two particular, those two particular -- >> they're the poster children. let's talk about it because they're the poster. >> in an economy where the constraint on output on employment is weak demand for business services which is the economy we've been living through for the past 4 1/2 years, then additional demand from the private sector or from the government, will raise output, raise employment, relative to what would otherwise occur. >> and what causes that increased demand? what is it, i mean can, under that thinking that public sector spending can raise demand, you would have had a $4 trillion stimulus or $5 trillion stimulus. but of course the impact on the economy would have been tragic because impact on federal deficits and debt. so isn't it better to rely on private sector spending for economic stimulative activity? wouldn't you want to do things that encourage private sector investment and jobs in our economy and

paychecks than, then public sector spending? >> well, congressman, we've been clear that the extra debt that was accumulated through the recovery act, is not offset by other policy changes later will lead to ongoing level of higher debt in the immediate term and long term be a drag on the economy. >> correct. so we couldn't -- >> policymakers tried to stimulate private spending an increase public spending. >> so it would be inappropriate to double down on a failed program to continue, if the stimulus version 1.0 worked why would stimulus version 2.0 work any better?. >> i you understand, and i recognize you don't agree with us. the our position that the recovery act is not failed program. it created higher out put in enemployment than occurred without it. we did analysis last fall and testimony to the senate budget committee of alternative proposes some tax increases some tax cuts, spending increases we think would spur outlook in

employment. >> what would have higher impact? if you had $700 billion of additional gdp from the private sector, versus $700 billion of gdp, of spending from the public sector which would have greater impact on the economy? >> well, in, over the past few years, congressman, that extra spending, wherever it came from would have led to more jobs. and there is no reason to think that the extra spending in the private sector would reed to more additional jobs than extra spending in the public sector. >> i understand. >> over longer period of time i the question is what sorts of goods and services have been purchased and if the public sector was investing that would be good. if the private sector was investing that would be good in the long run. >> that was fascinating. >> time is getting here. i would just say to the gentleman from texas we had the hearing on multiplier effects where there is clearly difference of opinion on keynesian multipliers and maybe go back to that hearing. we had mr. zandi, who represented