will to work in family wage jobs and economic benefits and avoid costs in the future. isn't that possible all things being equal? >> we have written about the economics of additional investments in transportation and water infrastructure. we noted for example according to the highway administration there are a large number of highway projects that will have benefits that exceed costs and are not being funded. to fund all of that infrastructure would require a good deal more money. >> i appreciate your patience with this. that is the note i would conclude on. there are lots of things people on this committee would agree on whether it is refining agricultural investment at a time when we have virtually zero interest rates we could finance long-term investment for

infrastructure. could make a huge difference in all of our communities and i hope we have reached a point that the fiscal cliff helps us look at this in a more comprehensive way, in ways that will make a long-term difference to our communities and our economy. thank you for your patience. >> thank you, mr. chairman. i would like to have mr. van hollen's chart back on screen. this chart i found to be interesting. there were two factors in play that were not discussed. in 2001 where the chart starts, we have an exhausting factor coming to play when the wall on terror started beginning with the attacks on 9/11. the fact that was conveniently left out if you move to 2007 led a political change that occurred and that was when the other part of the same control of congress

and both houses saw a huge increase in spending that occurred and the impact on the economy with changes to the regulatory environment. parter elmendorf -- dr. elmendorf, when the stimulus was pastor was believed unemployment would go down because of the stimulus program and here we are three years later with a peek at 10% unemployment. the other side of the aisle is proposing another round of stimulus. they change the name to investment and saying that is going to be the panacea to solve our deficits and debt problems that you have done a great job explaining. my question is can you explain in 30 seconds or less why this didn't achieve its desired outcomes and what impact it had on our debt and deficit? >> the economy performed worse

than many forecasters expect a few years ago. in our assessment and the assessment of most economists recovery act created more output and more employment than what happened without it. the underlying weakness of the economy not unusual in comparison to other countries that had financial crisis in future sessions. the underlying weakness of the economy has offset the efforts of fiscal policymakers -- >> that takes us to the next question. i have asked this question before. what is more efficient in terms of causing increasing economic activity? public-sector spending or private sector spending? it is a choice between solyndra and expenditure or keystone expenditure. which of those is better for the economy? >> we haven't studied those two

particular -- >> let's talk about it. >> in an economy where the constraint on employment is weak demand for goods and services which we have been living for for the past four years than additional demand from the private sector or the government will raise output and employment relative to what occurs. >> what causes that demand? under the thinking that private sector spending can raise demand, you would have had an $4 trillion stimulus but of course the impact on the economy would have been tragic. isn't it better to rely on private sector spending for economic stimulus. >> wouldn't you want to do things that encourage private-sector investment in jobs and our economy and paychecks than public sector

spending? >> we have been clear that the extra debt that was accumulated through the recovery act is not offset by other policy changes later with an ongoing level of higher gas in the long term be a drag on the economy. >> we wouldn't want -- >> we have tried to stimulate private spending and increase public spending. >> it would be inappropriate to double down the program. if the stimulus worked why would stimulus version of 2.0 work better? >> i recognize you don't agree with us but our position, our position is it created higher output and then would have occurred without it. we since last fall in testimony to the senate budget committee of the turner proposal on increases and tax cuts and spending increases we think would spur output and employment. >> what would have a higher

impact? if you had $700 billion of additional gdp vs $700 billion gdp of spending from public sector. which would have had greater impact on the economy? >> over the past few years extra spending wherever it came from would have led to more jobs and there's no reason to think the extra spending in the sector -- the question is what sorts of goods and services have been purchased and if the public sector was investing then that would be good and if the private sector was investing that would be good and a long run. >> that was fascinating. >> we had that hearing on multiplier of facts and keynesian multipliers and go back to that hearing. we had the cbo position, mr.

taylor from stanford, that hearing gives and illustration on this point. >> thank you for your testimony. as the cost of health care, a significant factor in increased spending in your testimony certainly reinforces that, traditional approaches cutting people from care, in my state of oregon we come together, and the uninsured and medicaid dollars and slightly refreshing to see business, educators, all come together and health care transformation with goal of improving care while cutting costs. and coordinating physical and mental and moral health care.

the modeling, coordinating physical and behavioral healthcare managing chronic diseases. and aligning care for individuals. and projected to improve care while reducing costs and access and by coordinating services oregon project in 4.9 to 9.9% savings in implementation compared to the transformation of an increase in savings is expected to build over time and the wonder if you could talk about how this type of change would attack the federal budget as a similar approach was implemented in other states as well. >> we have tremendous

experimentation going on and different providers of care. and more value for health care dollars. and very positive factor. and number of experiments have been triage, and hope. even though it has been more difficult to expand across different provider settings across different health care systems, we had a long and careful review of collection of medicare demonstration projects in value methods and care coordination, these were medicare demonstrations and we read about this last year and the demonstrations that medicare has tried have found when there is direct interaction between a care manager and physician, and

person interaction with patients where there's a lot of energy to be focused on care coordination, that model is more likely to reduce spending. growth spending. also has its own cost in terms of paying for these interactions. medicare, there has not yet been a model used in any widespread way that has had what people are looking for, higher quality care and lower-cost at the same time. doesn't mean it can happen. probably it can't happen that people are still trying to figure out how to do it. just different sorts of settings. the affordable care act reduces a lot of programs and particular the the center for medicare information designed to do more experiments faster and reach conclusions more rapidly and be

able to extend the successful programs across the system more rapidly. and we think that will have positive effects. how large the effect will be at what range, we don't know yet. >> a few for your testimony. we will all be watching what is happening in my home state and other states. until we can increase access and start addressing the high costs of chronic care we will increase those costs and keep people out of emergency rooms. i appreciate your testimony in yield back my time. >> mr. lankford. >> i want to talk about page 35 of your report for you have an interesting section i talk about a lot which is the effect on government borrowing and what effect that has on the economy as a whole and increased government borrowing generally draws money away from war crowds out private investment in productive capital leading to a smaller stock of capital and

lower output that whether wise be the case. deficits have that effect on private investments and the portion of people savings is not available to finance private investment. the description which we talk about, more that we borrow the more we require of capital that would otherwise be invested into productive things rather than sovereign debt. that is occurring worldwide currently. this trend -- in the center of something you want to talk about dwight have that happen in europe and other parts of the world. what do you think of that affect, the crowding out of investment worldwide based on sovereign debt? >> countries in europe have a collection, banking crisis and fiscal crisis and growth crisis

and as we rode about a fiscal crisis, quince one ends up in that situation there are no good options. countries that are unable -- borrowing at the same time and cutting back on spending or increase in revenue and the economy which worsens their budget situation and it is a vicious circle. we think the european economic situation is weighing and has the potential to be a more significant force. if they don't find a way to keep their system going. >> it is a benefit and keeps the interest rates low because people don't invest in sovereign debt. it is a double-edged sword that is helping us keep our interest rates low. >> it is pushing down treasury interest rates, people engaged in flight to relative safety but

it is weighing another part of a financial system. they have a larger collapse in their financial system. a potential for negative spillover. >> you mentioned tax rates and marginal rates and it tends to increase productivity or activity in the economy. can you factor in certainty and uncertainty, we don't know what the rate is going to be next year when rates are five every single year. can you factor in the difference between certainty and uncertainty? >> difficult to quantify. the uncertainty about federal policy in a variety of areas including the tax code is weighing on the economy. it is the negative factor. >> there is a common discussion

about all these tax rates from 2001-2003. better to resolve those earlier or better to resolve those later. we have six months to do either of those. it is not exactly early at this point. >> earlier is better no doubt. >> do you think it is possible to address our national debt burden or deficits at all without dealing with major entitlement programs? >> as i said at the beginning it is possible to maintain social security, medicare and medicaid under current law but only by a substantially raising taxes on a broad group of america. it is possible to maintain taxes at the historical average but only by substantial cuts in the large entitlement program that benefit a broad section of americans at some point in their

life. that makes this choice we face and we as american citizens face so difficult. told one part of the budget as it would otherwise be but given the gap between revenue and spending one has to make even larger and more dramatic changes in other parts of the budget. you can see that in our extended baseline scenario here and what happens under current law which is a large increase in tax revenue and the vision in chairman ryan's proposal analyzed in march, make large cuts in a number of federal programs. >> earlier is better to resolve this. >> for logger term issues as well earlier is better because it gives people time to adjust and gives you a chance to see changes gradually and have them take effect in a way that is

important in dollar terms before it gets larger than it is today. >> director elmendorf, we talk about cuts in entitlement programs of lodge but i would like to talk about another program and your assumptions on that in a different area. what were your assumptions for defense spending as a percentage of gdp? >> defense spending? what we do for our long-term scenario is take a set of all programs. >> i just have a few minutes. tell me what it is. >> we don't have a section of defense spending beyond the ten year budget window. we have a specific baseline projection. i am not sure -- >> you will have to look for that. maybe you can get back to me if

you can't answer this question. mitt romney who is the republican for the soon-to-be -- never allowed defense spending to go below 4% of gdp. what would be the impact of such a sustained elevated level of spending over the remainder of the decade? he didn't say anything or put any qualifiers for the security environment. what would that have done the affect of domestic discretionary spending and your scenarios? >> in our baseline all other categories, only 7.3% of gdp in 2020 to. if it were 4% of gdp all little over 3% of gdp for all domestic programs apart from a handful of large entitlement programs, that would be a dramatic reduction relative to the historical average. >> there's a plan on the table

for mitt romney. the decision never to allow defense spending to go below 4% of gdp. he also talks about cutting revenue of $6 trillion over the decade by making the bush tax cuts permanent, cutting the corporate rate to 25%, eliminating a state tax we personal capital gains tax week for the taxes on dividend earnings and other tax breaks for when you add the increased defense spending what would be the impact on the other cats he is talking about having and what effect would it have on the safety net and entitlements? >> i am sorry. we have not analyzed mitt romney's plan nor do we ever analyzed the plans of candidates for office. [talking over each other] >> you have two scenarios, one

in which you have the tax cuts not having sequestration happening. mitt romney is talking about undoing that and increasing defense spending. what would be the effect on the safety net and the entitlement program? you have one scenario in which the tax cuts expire in the corporate rate doesn't change. you are talking about undoing that. >> if you extend all the tax policies that are expiring as we do in our alternative scenario, see the bird trajectory, maintain slight downward trajectory under current law and one needs to cut other parts of the government by trillions of dollars. >> that scenario and more -- >> defense spending with current

law and still wanted to keep the debt from a downward trajectory. with larger cutbacks in domestic programs. >> mr. stutzman. >> thank you dr. elmendorf for being here. always enjoy your analysis and testimony. i would like to talk about interest rates and segue into taxes. on page 32, one of your points that our interest rate says increasing government debt raises interest rates by leading people to allocate a portion of savings to purchase government -- treasury bonds crowding out investments to capital goods like computers. does your report touch on why interest rates at record low levels right now? >> we don't talk about that

here. we will in the regular forecast update, the principal factor seems to be weak economy and weak private demand and a flight to relative safety from financial markets particularly europe. that are in especially fragile stage right now. >> qe 1, qe 2 is playing a part of that. if that expires are we going to see interest rates increasing in the future? >> more focused on the long run rates, and bring down longer-term rates. when one looks at financial markets, beyond the next few years and later in the decade they are expecting a noticeable increase in interest rates, short-term and long-term interest rates and the forecast

has included the increases. we're in the decade looking for short-term rates close to 4% and a ten year rate up to 5% roughly consistent with financial markets. >> on page 43 the need for higher taxes and less spending on government programs, am i correct? from what you stated earlier you talk about rates versus states, there's a lot of rhetoric in washington that republicans are against revenue increases when in fact in our own budget we address the tax policy and suggest we go to two tax rates, 25% tax rate. am i clear, is it clear you are discussing one scenario versus another where there is a tax rate increase. you are discouraging with

expiration of tax rates or in your alternative scenario broadening of the base you discuss those in the report? >> we don't. we are not trying particular of the to x for the detailed alternative tax policies in current law with a certain set of things occur which capture the extent of the baseline scenario as the alternative scenario tries to capture the extension of a variety of expiring provisions. it turns out under the alternative scenario to extend these provisions that they are kept low and the base has not changed. if had a broader base than the individual -- >> broadening the base would not hurt the economy the way that

their current rates would affect the economy. >> generally true but the effect of broadening the base depends on what on the nature of the broadening. the particular provisions that might be broadened in tax reform plan congress considered we have to look at specific provisions and we are prepared to do that and talk about that. >> thank you. >> miss castor. my apologies. castor, you were here first. >> thank you, elmendorf. if we had more people working across america, would our debt and deficit situation be improved? >> absolutely. >> can you tell us if we had the unemployment rate was 1% lower how much better the debt and deficit situation would be? >> i did not bring that magic table.

i wish i had. we wrote a letter to congressman van hollen to talk about the effect of the economy if the economy were strong. the current deficit would go away if the economy were immediately put close to full employment. >> there is no dialogue from my friends on the other side of the aisle as job creation part of debt reduction and deficit reduction and we could give a boost to this improving economy if we can do some things on jobs. we have had 27 straight months of private sector job growth, manufacturing continues to trend upward, consumer confidence is up, the median home price, sales figures are up. if you like corporate profits,

they are up. for things are trending and the right direction and congress could be really helpful in job creation and deficit reduction if we could come together to do some things on jobs but my friends on the other side of the aisle blocked the jobs plan put foh last year that said let's rebuild schools across america. a lot of people in construction back to work and leave us with better facilities for students. they have stalled the transportation bill. look at the transportation. when you have a bipartisan bill and yet that has been solved -- stalled for month and i heard your earlier comment on infrastructure. you said oftentimes benefits, the benefits exceed the costs. is that correct? >> it depends on the specific

project a lot of projects, the benefits to the economy would be a lot greater than the costs. >> when you factor in the republican budget that was passed that is a prescription for disaster when it comes to the plan for this country because they so cut the important investments that government and the private sector work on together whether it is in scientific research or infrastructure and education and 1-sided and balanced approach is really going to cause great damage. it is causing damage now because we could come together now to take a good whack at the debt and deficit if we could do some things on jobs. so i am hopeful there's still time to do it but i hear your message about and clear sooner rather than later. thank you and i yield back. >> thank you.

miss black. >> i appreciate your reports. i do read those and highlight them and learn so much so thank you for your work. i wasn't going to go in this direction but i have to address with the gentlelady from florida was talking about. there are ways to raise revenues. one is to tax people more and the others to have those that are employed paying those taxes which and raises revenue. i can't let this go by to sade's i am visiting with my job creators in my community what they tell me is there's so much uncertainty this is why they're not growing. the uncertainty creates paralysis. getting them certainty and booking at what you are saying on the budget outlook and helping us understand where the debt drivers are help us make those decisions on policy so we have 30 pro -- 30 pro job creator bills laying there that have not been handled by the senate. let me go to the area when we

look at those areas that are driving the death -- the long term debts of our country what would you say the significant drivers are? >> the feature of the budget that is different than the pass is spending on the health care program and spending on social security because of a rising costs of health care engaging of the population. >> those drivers that a significant that we continue to hear about in the budget forecasts that you give us another way of our social security, medicare and medicaid. >> those are the big changes. would you decide to do in response to those it up the you. >> if we could bring up the first chart that is taken from the cbo report we see historical average versus of no changes in any of these programs what will happen under the current law so we see what has been the

historic level of spending on these two areas, mr. elmendorf. >> i can't check exact numbers but the point, social security, and health care spending are on track to be much larger shares of the economy than they are today and the larger share today than they were over the last several decades. >> if we look at these two categories the represent a quarter, 25% gdp and if we look at it historically we will go to 6 the. we see our total revenues, there is not a whole lot of room left for anything else in the budget. would you agree with that? >> under current law, use and revenue just above 8% of gdp so that is under our extended

alternative fiscal scenario. and extrapolate the current policy at that gdp. and historically the dramatic rise in costs makes the budget untenable and that is why we take this choice of pushing that down. >> we have to admit we can stay where we are. there have got to the policies and policy changes. the next chart is more devastating if we look at current policy and don't do anything and keep sticking are head in the sand and saying we will just wait. we see by 2037 our total spending far outpaces total revenue and we see how the debt continues to grow. i think these charts as we put these out for people to see rather than these reports are so

instructive and if we have time to read these that is great but if we just take a flash and take a look of these in chart form it has got to weigh the sub to say there have got to be some changes as we move into the future. >> absolutely right. we cannot go back to the combination of policies in the past. under current law is the alternative scenario and total spending is that high in large part because of explosion interest payments reflecting the gap between the non interest spending and revenues and all the years between now and 2037. non-interest spending would be higher in 2037 has been historically but not much higher than historical averages. >> you can take a lot of scenarios and do different things with these are the the most important thing is when we look at it in a chart form it has got to be striking to us that we have got to act on this

and we have alternatives out there and hopefully we will get out of the politics and get into the policy and address these and get done to the american people. thank you very much. >> now this schwartz. >> i appreciate your testimony. and be charged -- i was interested in your response on the charts. use the and two hours telling us is not just spending but also revenue. the last chart was -- ignores the fact that you do something about revenue. i was surprised you said -- didn't say it wasn't just spending because you said many times the problem we are facing in terms of deficits and dramatic increase in deficits and the national that relate to both ending and reduction in

revenue. >> the and sustainability of fiscal policy is the gap between revenues, whether you and your colleagues shoes the current policies, whether you raise tax revenue or cutting spending the choice you can make. >> the last charge was based on the fact that it will continue to be the lower revenues built on the fact, on the republicans' side instead of looking at spending and revenue and looking that we cannot, given the dramatic concerns about deficit. we cannot ignore the revenue side. you pointed out how we do that is to the side. whether we maintain those tax deductions for our largest corporations and afford to do that is ignored by that chart.

i want to make clear that that is a choice the republicans are making. to only look at the spending side and refuse to look at the revenue side and revenues -- reduced revenues they want to continue, continue -- refuse to raise any revenue. only discussion on tax policy if it is revenue neutral. no new revenue. even if those tax deductions do not contribute to economic growth or do anything. >> will the gentlelady yield? >> no. will you speak to that? >> you are certainly right that the explosion of debt and interest payments we show under the extent of alternative scenario could be addressed by reductions in spending relative to that scenario or increase

revenue. >> recombination. one of the things we put forward is budgets are a bad choice. we put forward -- democrats have put forward a budget that is clear about our insistence that we are going to deal with the deficit and create that certainty and do it in a way that does not hurt the fragile economic recovery or economic growth. we want to see more. the only way to do it in every bi-partisan commission has said it is going to be looking at the revenue side, that grow the economy and fund the other side. they have not created jobs. they don't create economic growth and get rid of those and see something on the side of revenue but we will cut spending. we have already made that

commitment. in tough way is, this is really about choices. and take all of it, that we walk away from our commitment to seniors on medicare which republicans voted for time and time again, walkaway from investments in education and innovation and growth and walkaway from public investments such as transportation infrastructure that not only rose jobs right now but help economic in the private sector by creating demand and environment that grows jobs and encourage companies to stay here and invest here and grow jobs in the private sector. it is the only possible, we have got to take a balanced approach sooner rather than later.

>> i can't tell you what approach you should take with you are right that you and your colleagues and we as citizens face fundamental choices about the role of the government in our society, what we want to do collectively and the choices are forced upon us because we have incentive programs that are becoming more expensive. [talking over each other] >> reduced revenues. >> thank you. i appreciate you being here. i have a couple follow-up questions on an earlier discussion in reference to the stimulus package and why it didn't work and you had some comments and i want to refresh your memory. the administration and i presume the cbo predicted the same outcome, that roughly the unemployment rate today would be 5.7% if that had worked as most

economists were promoting that, 8.2% is the actual unemployment rate. thirteen million americans are not working today that were projected. you say the economic recession was worse than figured. can you tell me what numbers were missed? the reason i am asking, i want to find out who in this town does an accurate job predicting because the folks who said we need to spend more money were very wrong. tell me where you and others were wrong as far as the economic figures you were using for that projection? >> good question. economic workout is very hard. we released a regular updates and for good way to summarize that is we are no worse than other economic forecasters. it is hard to do. in our case and for many

forecasters the u.s. has not experienced a recession of the magnitude of the one we just lived through. we're used to having infrequent and mild recessions and we expected this to be like that. people who studied more carefully downturn other countries and financial crises were saying from the beginning in this situation we should be looking for a much larger and more pronounced downturn that turned out to the right. i want to be clear about the recovery act. there is disagreement as the chairman noted among economists on the size of these multipliers and reflecting that this agreement is ranges but only a small fraction of prevention that the recovery act was not with the economy. [talking over each other] >> on what particular figure, you are saying most economists were generally wrong for the specific indicators that were missed because this gets pretty

political because we have folks suggesting and maybe yourself that it wasn't big enough that we should be spending more money and on page 34 you suggest -- that is going to grow the economy some more and after spending $880 billion, the $1 trillion costs to pay it back i can figure out what the economic indicators were missed that we should have a bigger stimulus or spend more money of any type that will grow the economy. what did you and other economists miss that would to this job deficit between what was projected by folks that produced the stimulus, thirteen million americans live like an answer. where did washington mess up? most economists think it should have worked. it didn't. >> can the gentleman yield for a second? if i am not mistaken the question is whether the multiplier is above one or below

one? is that not the case? >> the question of whether of the recovery act and the multiplier is above or below 0 and what does that put in the transcript? at the university of chicago, regular survey of distinguished economist at leading universities and issues of public policy to show where the agreements why. >> dollar spending, more economic output or less is basically the question. >> the specific question they ask the american reinvestment act, the u.s. unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill. [talking over each other] >> with a question, the statement phrased as a statement quoting directly because the recovery act unemployment rate

was lower at the end of 2010 than it would have been without the stimulus bill. 80% of the response agreed or strongly agreed. only 4% disagreed were strongly disagreed. >> positive versus negative number. >> 4%. [talking over each other] >> here's what we're getting at. [talking over each other] >> the bernstein -- i can't recall who came up with a vote multiplier to generate those stimulus projections. what was the multiplier used? [talking over each other] >> what he is getting at, how did they get it so wrong? my question is what was the multiplier they used and when is it not outside the realm of what most economists thought it would have been? >> i don't know. i know what we did.

we went through literature and looked at a set of multipliers from the evidence and reported what those multipliers art. [talking over each other] >> we talk about the differences. for the recovery act, with tax cuts, spending increases, we fought the multiplier on average was about one. very rough. that is what we are reporting in the regular report. >> i am doing this office top of my head. i forget who -- i think was bernstein. that was two something. >> it may have been. >> that is what he is getting at. >> you are not trying -- [talking over each other] >> i can't speak to what the administration -- >> we are over the time. the question is whether the recovery bill, the stimulus bill helped the economy relative to

not doing stimulus. the answer from cbo and 80% of economists is it help the. >> the claims that were used to sell the stimulus for based on a multiplier that clearly did not materialize which was much higher than what cbo claimed. [talking over each other] >> we started doing our analysis. >> we are not suggesting you're selling anything. the administration is selling something and oversold it. >> i invite everybody to look at the congressional budget office analysis on the exact issue raised a couple times which made clear as a result of the recovery bill we saved or created over three million jobs. with a talk about it on a year by year basis. for those people that have those jobs it is pretty meaningful. >> the administration claimed unemployment would never get above eight. that million more jobs would be created and flood the multiplier

that very few economists support or justify. >> one more thing -- [talking over each other] >> we are trying to understand where we went wrong in an effort to improve forecasts going forward. it will be available to you and your colleagues within a few months as part of preparation for the forecasts. >> our request thirty-second close. >> i started the mantra. >> i give you my time. >> i appreciate that. i wasn't around here and i am going with numbers provided by the administration. 5.7% in writing was so far off there might have been different multipliers but i look forward to that report. to put in the report, make an

estimate. what is the economic impact of uncertainty. i am hearing that from job creators. difficult thing to >> thanks. [talking over each other] >> the economist said that might be true in practice but how does it work in theory? we are running afoul of the first law of physics which is the more we invest in our mistakes the less willing we are to admit them. a corollary of that is to the left, somehow a consensus that determines science or economics. the fact of the matter is if 80% of economists turn out the wrong, doesn't make it right. it is still wrong. that is the experience we had and why your testimony is greeted with a certain degree of skepticism. with respect to the question of default doesn't the secretary of the treasury have the authority to prioritize payments to assure

timely payment of the government's sovereign debt obligations? >> that is right, congressman. >> if so does the gao. it is embedded in the original act that had the department of treasury so sovereign debt default would not be an act of the congress but the executive and non prioritizing payments to short time repayment of sovereign debt obligations. >> i can speak to the legality of this. the sense of economic consequences. >> miss castor called the budget a disaster. i recall standard and force warning that deficit reduction of $7 trillion in the base line over the next ten years was necessary to preserve the aaa credit rating of the united states government. i specifically asked the head of

their sovereign debt division if the budget adopted by the house last year, the ryan budget would have preserved the aaa credit rating in the united states government. his answer was it would have. >> i have no view on that one way or the other. >> could reserve the aaa credit rating but i have some friends on the left his team to think that is a disaster. >> has to what -- >> let me talk about the relationship between tax and deficits if i could. tax has often been put forward as an and the dow -- antidotes. aren't taxes and deficits the same thing? isn't deficits of future tax? aren't taxes and deficits the only two possible ways of paying for spending? >> they run up deficits and in the long run they run our

spending into rough correspondence with each other. [talking over each other] >> whether you are taxing today or tomorrow which is what we call a deficit you're still taxing and those two ways to pay for spending so it seems to me with apologies to the clinton campaign the spending is stupid. >> when we run up a debt today that permits us to doing more taxation or less spending in the future but which of those it is depends on decisions of congress. >> can you offer examples of a nation that has spent and borrow and tax its way to prosperity? >> not sure what you mean by that. prosperity comes from the ability of the economy to produce goods and services. the amount and quality of the labour force and the amount and nature of capital and so on. >> going from theory to actual practice, i look back over the 20th century and the beginning

of the 20 first century and icy partly reducing spending as a percentage of gdp in the 20s, truman reducing it in the 1940s. reagan reducing it in the 1980s and clinton reducing it in the 1990s and each period that follows is followed by a rather dramatic expansion of the nation's economy and yet i see when spending is dramatically increased hoover in the 20s and 30s, roosevelt drop of 30s, the economy has languished. what are we to draw from the practical experience that is quite consistent over the past century? >> the practical experience is hard to interpret as you are suggesting. look across european countries and how they perform, germany which is the stronger european economy being relied on by

others in europe today, in much larger share of gdp in tax revenue before the downturn. [talking over each other] >> i am talking spending as percentage of gdp. >> countries in europe with different spending and tax policies -- >> per-capita dollars for spending in the united states is higher and then those european countries. >> we are richer than they are. >> we can fix that in a >> thank you. [talking over each other] >> using the time. you were the first congressman to invest in errors and not willing to admit them. not sure if you're referring to our analysis for policymaking the half of the analysis if you read the literature we have in fact adjusted our range of estimates of the effective recovery act in response to what we have learned.

we have not adjusted the range to include below zero which we don't think is consistent and only 4% of people think it is. 80% think it isn't. we do respond to the evidence and are not afraid to admit that we clearly change our views on why. we think a great majority of the comments of the recovery act was in the economy over the past few years. >> mr. guinta. >> was the stimulus bill the only way we could have helped the economy? >> no. there were a whole collection of possible alternative policies that could have been enacted and when we were asked by the senate budget committee to look at alternative ways of providing a boost to the economy we offered a menu of options that we discussed what we think the likely effect would be an the pros and cons. >> is it fair to say the

recovery act did add to the deficit? >> that is right. >> it added to the debt? >> that is right. >> what is the affect of borrowing money, going into debt and deficit have on private sector capital? >> over the medium-term and long-term extra debt will crowd out capital information and we saw it in february of 2009 the recovery act was being discussed would be good for the economy in the short run but absent other changes would be a drag later on. >> as i look the president's budget proposal i seem to recall seeing every year for the next ten our deficit exceeds $1 trillion and our long-term debt continues to grow. i don't know what percentage of gdp that is off the top of my head. the your point that at some point in the long term which is what this report talks about we

do have to change as you said, the ratio of debt to gdp and have to change our tax revenue to our expenditures. it is suggested by some that the way to do that is increase taxes. if we increase taxes let's say we increase every tax rate does that necessarily suggest we will have more long-term revenue to the treasury? >> higher tax rates mean more revenue. not proportionally higher because there will be effects on people's behavior but higher tax rate from the level the u.s. is starting from today or has been talking about increases from that point to lead to more revenue. specific taxes, not true. we haven't checked that. >> there is an alternative to raising tax rates to try to fix -- solve this problem. the revenue was $2.2 trillion.

>> you would think i would know that but i don't. >> it is roughly -- >> we think this year it will be $2.5 trillion. >> but we will spend -- [talking over each other] >> about 3.5. >> we're looking at at $1 trillion deficit. >> we are. i don't think it will persist at that level under the president's budget but the president's but it does have more under current law. >> one thing i want to get on the record you may have talked about before so i apologize if you have, in terms of health care entitlements the cbo reports 5% of gdp of that spending in 2012 which those of to 12% gdp by 2015 that is clearly a driver of our long-term fiscal problems. is it not?

>> that is different from the past. that is the part that means repeat the policies we have. and other spending and more taxes is up to you. the problem comes from the gap, not the other side. >> if we were to loan 100% discretionary spending we would have -- current deficit, long term -- >> haven't tried the complete elimination but as i said when i started changes one makes in programs outside the health-care program can affect the magnitude of changes needed for large entitlement programs and eliminate the basic trade off to change taxes relative to historical performance or change programs relative to current law or a combination of those. >> can you comment on the

unfunded liability numbers on the mandatory side? >> we don't calculate the amount in dollar terms. we have projections to gdp and in balance in the social security trust fund and a fiscal gap for the economy as a whole. that is just the gap between spending and revenue. not the present value. >> thank you very much. i yield back. >> that concludes all member questions. dr. elmendorf, thank you and your team for putting this insightful and harrowing reports together and this hearing is adjourned. [ambient noise]