agree or another in that area. >> we can try. budget resolutions is not pieces of legislation that we attach costs to. there are plans of the budget committees that they build using information from us. but i can see if we can, if we can be helpful to you in that. >> i would appreciate that. thank you very much. >> we have all looked at each other's budgets and look where the overlaps occur. that is the discussion we're having. >> just if we had that at the disposal for all the members. i think question put the appropriators to work. >> thank you. >> senator coons. >> i'm deeply concerned about what's reflected in your chart that while short term unemployment has come back down, long term unemployment remains

very high and is persistent and woringly so in terms of the human cost and the long term cost for our economy. you testified before that not all cuts are the same. and that there are some ways in which we are cutting that are hurting our long term competitiveness. they produce longer term reductions in our capacity and that we should be prioritizing things that will accelerate growth, that we should not be simply trying to get through this difficult fiscal time in a way that focuses on austerity. we should be investing in a way that sustains growth. what types of policies in your view could both help accelerate growth and do so in a way that would deal with long term unemployment? and what are the budget airy implications for long term unemployment? >> the first part of your question, senator, of all

nondefense discretionary spending, half represents investment of some sort about 20% of nondefense discretionary spending is investment in physical capital such as highways. another 15% is -- goes for education and training. over all, we think the investments build a stronger economy in the future and cutbacks in those investments would reduce output and kmk in the future. but i think it is also important to say that different pieces of those elements of spending may be much more effective than others in terms of long term growth. we said that -- this is about research. federal spending and support of basic research has an average

has a significantly positive return. we also noted that gross generalization is difficult to apply as guidance for decisions across budget functions, agencies budgets and appropriations subcommittee jurisdictions. so there is some evidence that we generated for other federal investments. it is nothing like a comprehensive evaluation of where in that large nondefense pool the money should be devoted. on the question of long term unemployment, this is very damaging. obviously for the people involved, many of whom have very little source of support for an extended period of time. but whatever savings people may have to get through a short unemployment spell is much more likely to be exhausted if one is unemployed for half a year or a year or longer. but also has beyond the personal effects important economic effects over time. some people who are unemployed for a long time simply give up looking for work.

some people find their way into disability insurance. the applications for the social security program have gone up rapidly over the past few years. people go into that program very rarely come back out of it into the labor force. technical skills and connections to the workforce, connections to people who are working. so it poses a very large risk. of there being some set of people that will not find their way back to work at all or find their way to the productive sort of work that they were in before they lost their jobs. >> are therein vestments in skills training and in the manufacturing sector if particular that strike you because of that combination of factors? >> i don't have a simple report to that. we reviewed the number on a

large number of different ways of trying to help people get back into the labor force. a number of the programs have been successful on a small scale and have not been tried on a large scale. it's a hard thing to do. i want to zis courage people from doing it. i don't have a short, crisp answer. but we would be happy to sit down with you and talk about the elements in that report and help you -- help you construct poll i that area. >> i don't know how we can hear that since sequestration is working. we've heard arguments for raising taxes.

you can't raise taxes high enough to satisfy the appetite of washington spending money. the tax code is a mess. but closing tax loopholes to spend more is not going to have long range good results because you get the higher level of expenditure and keep it there. closing loopholes for tax reform is what is needed and i support that. i'd like to give a caution to rumors that there is compromise on sequestration so we can spend more on defense. since the economy is so bad and since jobs are what's on everybody's mind and what we ought to be working on, i hope we keep in mind that economic strength of our nation is a necessary precondition to our military strength.

xpri compromising on sequester is shortsighted and is -- and hopefully those suggestions that you hear primarily out of the house of representatives won't be pursued. if they are pursued, i think it's shortsighted from the standpoint of the cooperation that you have to have on hill between people the same political party it's kind of like feeding senate republicans to the wolves. i hope you remember to keep our eye on the ball. we can be the sleeping giant that admiral warned the japanese warlords about. don't attack the united states. we have to have a strong economy in order to have a strong defense. i yield. >> senator nelson is not here. let's go to senator warner. >> thank you, doctor.

i have actually two questions. first of all, i just a question. as i understand under the affordable care act there is a three-year assumption of 100% pay of the medicaid expansion. i wonder if that assumption carried out throughout your budget outlook or your assumption assumes that that share will be reduced, number one. and secondly, as i look at your budget outlook, where i see the real significant issues in terms of getting our fiscal house in order, the trustees have said medicare goes bankrupt in 2026. the disability fund you referenced, 2016. and is there a way for us to address our long-term fiscal outlook if we don't reform those programs or also are we able to even sustain them for the beneficials that rely on them? >> senator, your first question,

our baseline projections follow current law in which the federal share of medicaid costs for the additional populations under the affordable care act declines from 90% over a few years later. our projections incorporate that and that feature current law. >> so just to be clear, if after three years the states come to us and say we want you to continue to pay 100%, that is not accounted for in this fiscal outlook? >> that's right. we would provide a cost estimate for that legislation. it would show additional cost for the federal government. >> with regard to obviously important programs, i think, to all of us but also a big challenge we face. >> yes. so on your second question, as my charts showed, the rise in spending for social security and medicare under current law relative to the sides of the economy is quite large. and that will require one of three possible or a combination of three possible courses of

action. you could raise revenues above the historical share of gdp. or you could cut all other federal programs, the combination of all other federal programs below the benefits and services that we have become accustomed to. it's not an analytic matter to say which is better or worse. the analytic point is you don't have a choice about doing at least one of those things and can you do one or two or three of them if you choose to. but at least one of those things will have to change. >> you also pointed out we're going to be at historical highs for revenues. at some point it's a negative impact on economic growth. >> so revenues will be a historically high share of gdp. this will be at historically low share of gdp. but the movements as we think they'll play out under current law is not enough together to support the extra costs for social security and medicare

relative to their history. and that's why more has to be done. >> senator warner and then we'll go with congressman black. >> i think getting something done for a year or two will have a positive infect on the marketplace and upon the economic growth and replacing some of the worst sequestration i think is a worthy goal being kind of virginia being ground zero.

and i wondered whether, let me get this out, i believe we are now imposing upon the economy a debt ceiling tax that you'll see a spike in interest rates every time you see a debt ceiling date come about. i'd be curious to know whether the cbos done any estimate of what kind of cost that bear would have on the debt ceiling taxes coming around february 7th. delayed maintenance of our construction is a tax because at some point it will have to be replaced. and i'd love to know whether there's been any analysis made on that subject. and third, i know senator portman and i have gone around and around on this. and this was just raised by percent of revenues. i would simply point out one of the reasons why we have a 17 trillion dollar debt is that based upon historic revenue numbers we've never -- we've always been at an annual

deficit. the only times we've had a surplus within the last 30 years is when revenues have been between 19.5% and 21%. anything at the lower rates, we'll be in deficit. i will simply say even with entitlement reform, and stroingly believe in entitlement reform, i guess i question on a going forward basis and even look at your numbers with revenues that i -- at a higher rate that still below 19 were still in that gap. two questions. one, because of the demographic bulge, it's hard to imagine how you're going to be able to drive the spend down to the numbers that could be dealt with on dmind of historic revenue basis. and last point, it seems to me that one thing that we may not have factored in, i don't know if you did any analysis, is that not just in america but across the world we have seen a dramatic shift from the private

sector to the public sector in both the areas of workforce training and particularly the area of research and development. there is no longer bell lab and more and more corporate america and korncorporations around the world are accepting the public sector to pick up the r & d costs. can you see to that as well? >> yes. on your first point about interest rates. i would say we think we have it fully in our projection. you suggested that maybe we had not been fully taken onboard. our numbers, we think it is fully taken onboard. we have built in a substantial increase and normalization in interest rates to a level that is consistent with the historical experience but a little higher because they'll be more federal debt relative to gdp under current law. we have not tried to quantify. that on your point of instra

structure, we've done work on highways and drawing on work the highway frel administration. it says in order to maintain the current functionality of highways, more would need to be spent than is being spent under current law. and using a building off the cost benefit analysis that the federal highway administration did that amount of spending and they would exceed the costs would be much higher than the amount under current law. you asked about the difficulty of whatever reforms were made to social security and medicare and keeping costs back where they used to be and i think that's -- i think you're right, senator. over the past 40 years, social security and medicare represented outlays for the program were 6% of gdp. by 2038 under current law, outlets will be about 11% of gdp. so the cut if spending that will

be required on the programs that will be required to bring them back to the historic am average will be a cut of almost one half. we don't have anything that would accomplish that. as i said to start with, there is no particular reason why those programs should go back to the historical share of gdp given that many more people and much larger share of the population is eligible for them. on the other hand, if one does not restrain the programs, then significant changes need to be ma made. >> is there anything else you'd like, senator? >> r & d, we're in the process of producing a chart book of federal investments and some of the private sector investments as well. in terms of development, there is often a great deal and growth

in private sector development but in the more basic forms of research. that is the sort of output for the economy that the private sector will tend not to do enough of. that is really a responsibility for the federal government to support that sort of basic research. >> i'll run through the list of those of you who know will know. >> thank you, mr. chairman. in listening you to, it really is striking to me we have a short term challenge that is different than long term in some ways. and the good news is we've actually begun to tackle long term and have been put in place the yearly deficit coming down by half.

good news. you talk about growing the economy and being smart not reckless in what we're doing. when we look at that, it seems to me a good way of summing up is you're not going to get out of debt with more than 11 million people out of work. a number of us are talking about the economy. i'm wondering if you might just talk a little bit more in terms of the short term how we're smart about growing the economy. the manufacturing institute says there are 600,000 manufacturing jobs unfilled right now because skills are different than the jobs available. and national skill coalition says about 300,000 people are going to be turned away from training programs because of the sequester cuts. so we have got inability, if we continue down this road to provide training whether it's the 20 to 25-year-old that you

talked about where we have a 12.5% unemployment or others. i mean we're -- if we don't do this right, if we don't stop what is in my judgment recklessness in terms of how we approach cutting spending, we are cutting our nose to spite our face in terms of economic growth. since 2011, countries like china and india increased investment and basic research, we're cutting ours. again, short term, not looking very wisely at n. what happens in terms of across the board cuts on sequester on education innovation which seemed to me are critical if we're going to grow the economy and get people back to work. you could talk a little bit more about that in terms of what we need to do, skills gap, so on? >> as i mentioned in my opening remarks, the sharp reduction in the deficit over the past few years has had the beneficial

effect of reducing the accumulation of government debt. that is a tradeoff that is up to you and your colleagues to make. i think we've been clear now for a number of years. i think the skills gap is partly an issue in the short term and even more important in smub ome terms. important source of growth in the american economy, growth in people's incomes has been the greater education that people have received. if that doesn't continue to happen, then that will have adverse consequences on our future ability to consume our ability to raise our standard of living over time in the way that we have in the past. and the government supports

programs and mostly at least through nondefense discretionary spending of one sort or another that can help to build people's skills, can help to do the research that's needed. as you discussed the amount and composition of nondefense discretionary funding, i think it is appropriate for you and your colleagues to be concerned about what the effects are over time of those different sorts of investments. and we're happy to talk with you about the work that we've done or know of that other people have done. as i said, i think there aren't simple lessons about -- in all -- there isn't that much evidence about just how much -- how certain things work better than others. whatever there, is we're happy to try to bring to your attention. >> the number one issue i'm hearing does relate to this issue of skills gap.

i hope we'll keep that in mind. mr. graham? >> there. >> let's talk about general treasury obl obligations. medicare. what percentage of medicare payments come from the general treasury? >> so senator in our long term budget outlook, we reported -- we showed that in a figure. >> let's just make it really three out of $4? 2 out of $3? >> so, senator, about now roughly half of total medicare outlays come out of general revenues. the other half come largely out of medicare payroll taxes.

>> premiums are about 10% of medicare payments. >> over time this problem really becomes difficult for the general treasury, right? medicare obligations over time grow? >> yes, sir. very much, senator. >> 10,000 people a day and the baby boomers are retiring. there are 80 million of us over the next 40 years are going to go into retirement. when i was born in 1955 there were 16 workers for every retiree. today, how many are there? >> a few, senator. >> three. in 20 years, how many will it be? >> two. >> right. so here's the big dilemma. if 80 million people are going to retire and the numbers are going to change from three now and 20 years two, we have a

problem. you agree with that? >> yes, senator. >> so when it comes to a general treasury obligations in the future, i just don't see how we can avoid entitlement reform. do you gr agree with that? raise taxes a lot or cut benefits a lot. >> they have to cut even further what is scheduled in current law into the other benefits and services of the government provides. >> that will amount to a smaller share of gdp than it has in many decades. logically, that is your number. >> we have a prom that can't be ignored. that is the retirement of the babyboomers. is that correct? >> that's correct, senator. >> is that why president obama decided to address cpi reform and means testing of medicare benefits? >> as you know, i will not speak to the president's motivations. >> why don't you go talk to him

and ask him? >> i think not, senator. >> i would go along your lines, we did analysis of the sources of growth in spending. >> would you gr he with me that it would be responsible for a president of the united states, democrat or republican, to be thinking about cpi reform and means testing, medicare benefits? >> senator, i will not comment on what the senator should do. >> we were talking about two minutes for questions. >> all right. >> may i just note for your and other people's interests, we did an analysis of the sources of growth in spending for social security and medicare as a share of gdp over the next 25 years. and fully half of the growth in spending for those two programs, share of gdp is just from the aging of the population and rising number of beneficials. >> can you tell me how two people -- >> last question? good lord. >> this is why he shows up late.

>> tell me how two people can do what 16 people used to do. >> that would require a lot of work, senator. >> senator merkly? >> thank you for this discussion. >> i want to reinforce the budget, we should think about the current state of affairs in america. the current state of affairs is a large portion of the economy is going to very few. large percentage of the wealth is held by very few. but another key point is that we are losing living wage jobs. by one estimate, 60% of the jobs we lost in the great recession were living wage jobs and less than 40% of those we're recovering our living wage gojo. is that a piece of the puzzle you have insight on? >> i can't speak to the precise numbers off hand. but you're certainly correct that the -- a number of decades

now a larger share of total income has gone to people at the very top of the income zrp distribution and other people experienced very little increase in their standard of living. >> the reason i want to emphasize this living wage job is when folks have living wage jobs, they don't need other programs and reduces the government expenditures considerably. >> i just want to reinforce this point over investing for growth. we've had some comments around the table that if you are spending money on a tax loophole or a credit or deduction and you close that loophole, you should not consider spending that money on something that would create

growth. we have tax loopholes of basically compensate companies and we regard them for shipping jobs oversees. is that any possible way that can be construed as something that really helps our country, grow our economy here at home or increase the number of living wage gojobs? >> senator, i don't want to speculate about the features and the particulars of the tax code. reform of the corporate tax code and reform of the individual tax code could have a significant positive he infect effect on th economy and people in that economy. >> you're being very diplomatic. i think most of us understand if you spend money to eliminate jobs in america and put them somewhere else in the world, that hurts our own economy here at home while investing in training to create jobs here

improves our economy. >> yes, senator. but there is a growing and complicated empirical literature by economists about how helping u.s. companies compete overseas can oorneither hurt or help the activities in this country. that is an issue i don't want to wade in off the cuff while i sit here. >> okay. thank you. >> thank you. senator mccain? >> thank you, mr. chairman. i want to ask you a question about what i thought was the end of your oral presentation. we don't have the written testimony. i don't want to put words in your mouth. tend of your oral presentation after you were done with the charts you were sort of offering the advice to us about the sa -- sulutory effects of finding a deal which would involve compromise between the house and

senate. this refers a little bit to the opening comment that senator warner made. i've been worried about uncertainty as an ankle wait around economic recovery. i would like you to elaborate on the final comments and talk about the extent that you think uncertainty is an ankle weight on the recovery and if we can find a deal for 13, 14sh, 15 or beyond and see positive economic effects. >> yes, senator. so we and many analysts i think have concluded that uncertainty about federal fiscal policy has been considerable drag on economic activity in the past few years. but quantifying that effect is very difficult. we had some people talk at our panel who have done work in that area to see how far we could go. and i think the conclusion of the advisors is that the results were quality but lots of numbers

are important that can't be quantified. again, our judgment to many other peoples, the uncertainty about what will happen to taxes, federal taxes and federal spending has been an important source -- been important head wind to the economic recovery. and my remarks concluded that it would be salutory. but re-allocating portions of the budget in way that's fit what you think would be best for the country. and would reduce uncertainty about what fiscal policy will do over the next year or two or three while improving or at least not worsening the long term budget outlook will be a positive factor for the economy now and next year and the year after. and i think there are very few large problems that are settled

in one go. i don't want to discourage ambition on the part of the economy. but i think one should in many lines of life, the perfect should not be the enemy of the good. i think that applies to budget policy as well. >> thank you. mr. widen? >> thank you, very much, mr. chairman. director elmendorf. i think we know traditionally when you're trying to find a consequence, you're looking for both areas when they're on record for supporting changes. for example, chairman camp in the house and the president's treasury department have identified among the trillion dollars of tax expenditures that the tax treatment of derivatives is particularly inefficient and abusive. now you can't be in the business of advocating specific policies this morning. we all get that. so let me just put this as a theory. is it correct to say that

theoretically -- theoretically, you could eliminate several of the most play grant tax loopholes without compromising the broader tax reform agenda? just in theory? >> yes, senator, that sounds right to me. >> okay. thank you for that. the only other thing i wanted to do, chairman ryan, is ask we put into the record at this point a chart that director elmendorf sent you to a few weeks ago. i thought it was particularly important. the chart demonstrates for 2014, congress adhered to the caps for nondefense discretionary spending but disregard the caps for defense. i would ask unanimous consent to put that chart in the record. >> without objection. >> thank you. >> thank you, senator. >> mr. cane? >> thank you, mr. chairman. i have a real sense of you aurg

about this. there is no question the uncertainty of the policy is affecting the economy. it's also undermining confidence generally in the country and undermining certainly confidence in this institution. to that end, i have a modest proposal. i commend to you as a suggested way to begin to talk about a result for this conference. i call it the grande proposal. they tell me in starbucks, grande is in the middle. it's a medium size. >> i just call it medium. >> it's a medium. okay. here's what i propose, a 10-year deal which include mandatory cuts, cuts in mandatory spending, revenues, and a smoothing to substantially mitigate the effects of the sequester but produce the same deficit reduction effect. number one, cut the sequester caps in half through a combination of cuts in mandatory spending of $255 billion and revenues derived from corporate tax expenditures of $200

billion. you would generate an additional $325 billion in additional revenue from corporate tax reform which will be applied to corporate rate reduction. and an infrastructure fund in a ratio of 5-1. $ $275 billion rate reduction and fran structure fund which would take the current corporate rate from 35% to 32.5%. you're left with half the sequester amounts and you would apply the smoothing concept that senator sessions has suggested in terms of the interest -- i'm sorry, the growth rate which would essentially minimize -- >> do you mean smoothing on pensions? >> no, i'm sorry. there is smoothing the rate of growth in the sequestered amounts. you know, there are varying growth rates. and if you lower the rates in the out years, increase them in the near years, you can in effect eliminate the cuts that we're now facing.

this would provide certainty to the appropriators. we give them numbers that they can then work with and that in turn gives us the plechl buifle that people talked about in the appropriations process in the congress rather than in the administration. i think there is something in there for everyone to dislike. i hope you'll take a welcome at this and consider this as a possible and it leaves further deficit reduction for further talks. but it solves the immediate problem of the sequester and, yet, wend up at exactly the same place in terms of deficit reduction as under current law. >> thank you, i encourage every one of our colleagues if they have suggestions, submit them. thank you. >> thank you.

>> i want to get to a point that was raised by senator warn we are respect to historic revenues as a percent of gdp. from 1973 to 2012 it was 17.4% revenues percent of gdp. of course, we were running deficits at 3% on average. the only time in that entire period we did not run deficits was 1998 to 2001 where the revenues as a percent of gdp averaged 19.5%. if you look at your chart under current policy, at the end of this ten-year window, he would still be at least a percentage point below what it was when we balanced the budget. i would point out between now and then, we will have a 33% increase in medicare beneficiaries and a 30% increase in social security

beneficiaries. so huge increase in seniors that qualify or are eligible for social security and medicare at a lower revenue percent of gdp then ten years from now in the years we actually balanced a budget. i want to emphasize that point. it seems to me it's hard to say you care about reducing or long term deficit but have a position that you wont close a single tax break or loophole or eliminate a -- any tax expenditures for the purpose of reducing the deficit. the senator pointed out and you're pointing out the recovery helped cushion the economy during a difficult time. that some of the debt service in the outyears will provide drag. the drag from the interest rates we're inoccurring as a result of the wars, unpaid for prescription drug plan and the tax rates dwarf any outyear drag from the recovery bill. the sequester, as you pointed

out, will result in approximately 800,000 fewer jobs. at the end of this year the current policy on unemployment compensation will expire. can you tell us what impact that will have on economic growth? these are people still looking for work, out of work through no fault of their own. what benefit would it be to the economy from extending that current policy unemployment compensati compensation? >> we wrote and report about this time last year that extending the additional unemployment benefits through 2013 would provide a boost to gdp and jobs in 2013. we think extending the benefits now through the end of 2014 would provide a boost to jobs next yearme. we have not yet tried to quantify that. you may be about to ask.

>> yes, if i -- i would ask cbo if you could quantify that impact. thank you. >> i'll look into that. >> let's go senator johnson anden in senator sessions then senator murray. >> we were given a sheet of paper on the possible obama care. the trust fund holds about $2.6 trillion of nonmarketable government bonds, correct? >> that sounds about right, senator. even the treasury has a $2.6 billion liability, correct? >> yes. >> so if you consolidate the books of the federal government, do the assets off sets liability and has a net monetary value of zero, correct? >> yes, that's right. >> so the trust fund has no monetary value in total? consolidate ed base snis. >> in fact, senator, we work on a consolidated basis. that's why we talk about the federal debt held by the public. >> i understand. again, the federal government is an entity. it has zero monetary value. now i want to quick go back to

the cost of obama care. in front of you now is what i was looking at that showed over the next ten years the cost of the affordable care act will be about $2.4 trillion. i'm not sure what you were categorizin categorizing. do you agree this analysis, discretionary spending, woint go through it. >> let me clarify what i was saying. i was referring to the cost of the coverage proifvisions. >> i'm talking about all the expenses that it's going to cost over the federal government. >> so we have not tried to tote up the costs in this way, senator. i can check. we have -- i have here our estimate of the effects of repealing a legislation that we provided to speaker of the house last summer that has a breakdown of total outlays and receipts. by our estimates, the total cost -- the total addition outlays over the come being

decade was about $900 billion and the total increase in revenues was about $1 trillion from the affordable care act. but you were doing i think different sort of breakdown into constructive pieces you have here. we can look at it and talk about it. >> i feel like we're showing about $2.4 trillion, a trillion dollars in revenue. where is the $1.4 trillion come from to make up that gap? >> as i said before, senator, there are cuts in other sorts of spending and increases in revenues. that's why on balance all of the provisions together, we indicate they will reduce deficits. >> so you're still sticking to that? >> yes. >> yes, senator. >> thank you. senator sessions? >> thank you. with regard to the sequester and the job short term but in long term, your report makes clear on chart 62 as we discussed earlier that if we don't adhere to that $2 trillion in savings, we'll

see a minus 7% reduction in long run gdp whereas if we do, we'll have a 4% gain which is a huge difference. if we take another $2 billion out, we'll have another 7% gain. the long term -- i think we all have to realize that sometimes you have to take some medicine to get off an illness. are you familiar, doctor, with a new imf international monetary fund report on europe that found on all the actions they've been taking over there that tax increases are two to five times more harmful as cutting spending to reduce deficits? >> i've heard of the report, senator. i've not read the details of it. and i should say, as you know, in our analysis of the effects of changes in the budget, we try to incorporate the effects of changes in tax rates in addition to the effects of changes in overall amount of government

borrowing. >> and your findings are not inconsistent with that general principle. your find woing findings would that tax increases are less helpful than spending cuts over the long term to deal with deficits. >> so the one clarification i would offer, senator, is that increases in marginal tax rates, tax rate that people pay in an additional dollar of saving increases in marginal tax rates, slow the economy relative to some other way of reducing the deficit. it's not affecting people's behavior. >> with regard to the marginal rates, you would agree that it -- on tax increases are less advantageous over the long run for the economy than spending cuts? >> than spending cuts that do not otherwise distort people's behavior. again, we come back to the discussion about the role of investment. federal investments can also help the economy in the long run.

senator, the point is -- >> that's not what your report says. >> no, actually, senator -- >> in general that the tax increases are less -- are less helpful in reducing the deficit as -- tax increases do more damage to growth over time than spending reductions as we seek to reduce deficits. >> senator, i think we tried to be very careful in our reports not to paint either all tax increases or all spending cuts with the same broad brush. >> i know. >> as you understand, the incentive effects of -- >> i'll look at your report. i think it says what i said. >> okay. we'll go to mr. whitehouse.

>> thank you. so this relates to health care in the country. and the figures i have is that we are spending about 18% of our gdp on health care nationally. that figure is northbound, headed for 20 and higher. >> yes, senator. >> and that the least efficient of our competitor and industr l industrialized nations is burning maybe 12% of their economy on health care. so we pay about a 50% inefficiency premium in our health care system compared to other industrialized countries. the president's council of economic advisors said there is $700 billion per year to be saved in the health care system without affecting the quality of care in any adverse way.

the institutes of medicine i think are at $7 auto -- $750 billion. george bush's treasury secretary who is putting knowledge in this because he ran the pittsburgh group that focused on health care therement they'. they're at $1 trillion a year. so these are very, very, very big numbers. and 40% of the numbers would come back into the federal budget if we were able to achieve those savings on a national level. so i know that there's a scoring problem with trying to work from the national health care cost savings into the federal budget. but just in terms of talking to us as members of congress, in terms of the priorities that you see out there, how important is it for us to get a handle on the

health care cost problem in the united states? >> senator, i think it is a tremendous difference for the federal budget. if you and your colleagues and people running the programs can find ways to slow the growth and costs that do not adversely affect people's health. but i think the principle problem is not -- >> that's the premise of all the different studies that i've reported. is that it won't hurt people's health care but improve it. >> i understand, senator. i would -- the place i would disagree with you is that i think it's not basically a scoring problem as a policy problem that you confront. so there is very widespread agreement, as you know, among analysts and practitioners, health care providers, that a good deal of health care spending in this country is doing little or nothing to improve people's health. but there's much less agreement and much less evidence to show how federal policies should be

changed to squeeze out that extra spending. >> i'm not saying we understand the policy jujtsmedgments yet. but you think we should be relentless on this? >> yes. it would make a huge difference. >> before i turn for the last word to senator murray, you had a uc request? >> yes. i would like unanimous consent to enter into the record "the wall street journal" article that i referenced in my comments. >> all right. without objection. >> thank you. [ inaudible ] >> i think he's good. good? perfect. >> just very briefly, mr. chairman. i want to thank you and senator murray for allowing us to have this dialogue and also for saving probably tens of thousands of dollars in your own budget cutting techniques by turning off the heat in this room today.

>> it's like wisconsin right now in here. >> just very briefly, i think this has been a great hearing. director, i think what i take from what you're saying and the charts and so on is consistent with where i think there's kind of a growing consensus which is that the two-thirds of the budgets that we don't appropriate every year which is on autopilot and growing to 76% of the budget based on your statistics is where we got to be focus a lot of our attention even in this group. and what you said earlier was you don't mean to be too pessimistic in the sense even if we made small steps in the right direction in terms of mandatory savings and reforms that markets would respond favorably and that we would be viewed by the american people as dealing with a real problem. is that correct? if so, maybe it's a good conclusion statement for you to make as far as what you review

this group. we don't have all the answers here. we don't have all the committees of jurisdiction. but we have an opportunity to do something that moves us in the right direction. what would you recommend that we do? >> well, senator, i can't make specific recommendations. i think that -- i would say i think the big steps are better than small steps. but small steps are better than no steps at all. and no steps at all is better than stepping backward. and so i think that the specific changes that you would make are, of course, up to you and your colleagues to judge on behalf of me and other citizens. but i think that while keeping your keeping your eye on the longer term problems is critically important that one should not view this as sort of the world series or bust, that if one can move the ball a little bit, one can make some changes that would fit your sense of where they ought to be

and reduce uncertainty about what will happen in january and february and throughout next year. that can be an important lift to the economy. it can improve the efficiency which the government operates and so i think that as i said earlier, one should not make the perfect enemy of the good. >> thank you. senator murray. >> actually, senator portman, that was where i wanted to end as well and i echo what was said, we all appreciate your comments about not discouraging us from doing the large obviously we have to keep our eye on the ball and continue to work on that. your comments today are especially important for all of us to here, the uncertainty created by the way that things have been managed by crisis and by the sequester is harmful to the economy and that by making some small steps now moving us

forward providing that certainty, so that businesses can sign contracts and know where they are going for the next year to two years is [inaudible conversations] [inaudible conversations]

president obama has picked janet yellen. they hold the conformation hearing tomorrow starting at 10:00 a.m. eastern live on c-span 3. president obama's folk head the homeland security department took questions at the senate con -- confirmation hearing wednesday. he served as a general counsel of the pentagon. during the hearing, john mccain asked mr. johnson questions

about border security. >> your predecessor. i want to talk about the border with you. your predecessor stated frequently that border is more secure than ever citing the reduction in apprehensions as a proof of that progress being made. she said it for a number of years. do you agree with the statement? >> senator, i have seen the same numbers. i noted that the numbers are going down. there might be a recent trend upward, but one of the things if i'm confirmed is look at how we define border security and whether or not they are an accurate reflection of border security. >> in reality over the last two years there's been a 20% increase in apprehension along the border. when your predecessor made the statements. i can't tell you the frustration i felt, because i knew in thoses of us familiar with the border that the real reason why those

apprehensions went down was because the economy. and now that the economy is getting stronger, apprehensions are up. so if they're up 20%, that means that the border is less secure. as we work to do -- eight of us, to complete this con he -- comprehension immigration which is stalled in the house, one of the major reasons it's stalled because of the lack of confidence in border security on the -- not only members here, but members of the house of representatives. now for years the secretary of homeland security said, well, apprehensions are down. -- are up. so that border is more secure because there was reduction in apprehensions. now they are up. and so here we are faced with a situation where the border is still not secure. when we try to develop the legislation we went time after

time to the department of homeland security to get what was needed to get the border secure. what measures were needed to be taken. we never got that from the homeland of security. never. we had to go directly to the border control and got some very good information which we included in the legislation. specific sector by sector. the technology needed. can you tell this committee that you will not repeat what happened to us, the frustration that we experienced. and i want to know what, from you, is required for us to have 90% of effective control of the board per -- border. can you assure the committee of that? >> senator, i can commit to working with you -- >> i'm not asking to working with me. i want to know if you will give this committee the exact metrics that are needed sector by sector so question obtain 90% effectness on the border.

not working with me. yes or no. >> i'm inclined. >> i'm not asking for your inclination. i'm asking for yes or no answer. we have our responsibilities here. one of them is to have a secure border. unless we get the right information from your, from your and your bureaucracy, we're not able to ascertain how we can secure our border. so as much as i admire and appreciate you. given the information which this committee has a right have, i cannot support your nomination. i'm inclined. >> i'm not -- >> so you will -- let the record show you will not give a yes or no an. therefore,ly not support your nomination until i get a yes answer. this committee and members of congress particularly those on the board have a right to have the information. it is our responsibility and our obligation to our constituent.

i have constituents in my state every night there are people crossing the border illegally. i have constituents every day drug smugglers are going across their property and homes. so they certainly have the right as citizens to know what measures need to be taken in order to have a 90% effect control of the border. sky one more time. will you or not give this information to the committee? >> you know, i've been through the process enough to know that a senator ask a question like that, and somebody after ward is going tell me six reasons why i shouldn't do it . and in those instances, i have said, senator, i think you know it from me. the senator needs it. we are trying to get to the same place. let give it to them. so before i commit unequivocally to your question, and part of me very much wants to do that, i

think i need to talk to people at dhs to better understand the issue. i've read the letter you've wrote in february. i'm strongly inclined to give you what you need, senator. i think you know that from me and my track record at armed services. ..

>> i urge you early in the tenure, if confirmed, see if you can't head down there and spend some time, especially in arizona and eastern part of texas. it was illuminating for me, very, very helpful, and i think it would be for you as well. >> i thank the chairman for traveling down there. i thank dr. coburn who traveled spending time down there, and both of you understand very well the frustration and my constituents feel when they live in an environment where nightly people are crossing their property, where ranchers have been killed. this is not an academic exercise, and it seems to me that an obligation to the congress of the united states would be to provide us with information that we couldn't get when we were putting the comprehensive immigration reform together and had to go direct to the border control to get the require information. now, i was told that that was because the white house had said

that the department of homeland security shouldn't provide us with that information, but how can we carry out our functions of oversight if we don't get the kind of information we tbheed to make the decisions that this committee is responsible to make? >> if confirmed, johnson would be home homeland security secrey replacing janet napoiltano. watch this hearing at c-span.org. >> i started with teddy roosevelt. i knew so much was written about teddy that i needed another story. i got into taft knowing he had been friends, broke apart in

1912, and when i figured out the difference between the two and their leadership, it was teddy's public leadership, taft's failure as a public leader. i started with the era, the public, the magazines, and the press, and they were at the center of it. the best historians writing secondarily say these people were the vanguard of the progressive movement. i read about them. i knew about them before and i didn't know the others, and i didn't know mccore until he came into life. >> roosevelt and taft sunday night with the bully pulpit author at eight on c-span's "q&a. >> now president obama's top economic adviser testifies at the joint economic committee. he said that economic growth continues with improvements in the housing and the auto sectors, but unemployment remains too high. this is 50 minutes.

>> i appreciate your willingness to reschedule the hearing, an i hope you reseem the long standing practice of the chairman of the counsels testifying before the jec about the economics about the president's immediate release. welcome today. we are all pulling for a strong recovery. too many americans -- [inaudible] hope of finding full-time jobs. now for full years, while some parts of the nation are making progress, the current recovery remains the weakest among all post 1960 recovery in every major measure of economic performance generating a troubling, and we think dangerous growth gap. while real gdp grew by 10% since the recession ended, that's just barely above one-half the growth recoveries over the same period producing the growth gap of 1.3 trillion in the country. for families, the growth gap hits home.

real disposable income per capita is increased by a mere 3.7%, less than one-third of the 11.7% average. this means a family of four has $11,000 less in real after-tax income to spend that they would have had if this recovery had been average. in the current recovery, produced 4.4 million fewer private payroll jobs since the cyclical low of the average recovery. an important gauge of america's jobs picture is employment population ratio that measures the proportion of the country's population age 16 or over that's employed. it would have risen by one and a half percentage points in an average recovery, more than double that in a reagan recovery. today america's unemployed ratio climbed by 1.1 points. to put it into perspective, october of 2013, the ratio was

only six-one hundred dread point higher than the lowest reading during the president's administration. in october, labor force participation rate fell to 62.8%, a low not seen since the carter administration, and as many unemployed americans are learning the hard way, there's a climb in the unofficial unemployment rate of 7.p%, largely ill los ri. so many americans gave up looking for work. the labor force participation rate had not declined since the president took office. the unemployment rate would be a whopping 11.3% today. the president john adams says facts are stubborn things. this is the weakest recovery since 1960, indeed, since world war ii. on july 24th, president obama described the growing middle class as the engine of prosperity. he was exactly right. in this recovery, however, middle class americans continue

to suffer while wall street does not. the return index is up by more than 86%. all real disposable income per capita is up a mere 3.7%. to make matters worse, as of this past july, 15.7 million more americans were receiving food stamps while only 2.1 million more americans were employed. adding eight americans to food stamps for everyone finding work is not growing the middle class. in fact, recovery might be described as a real war on the middle class. today, we want to discuss the economics before the president, roadblocks to job creation and economic growth, and search for bipartisan solutions to restore prosperity to the suffering middle class. clearly, main street is harmed by the president's higher taxes. mountains of new red tape on local businesses and the disastrous rollout of the

ill-named affordable care act cutting workers' hours, raising health care costs, preventing small businesses from hiring, and canceling health insurance for millions of americans. both parties agree that americans deserve better. chairman, we look forward to your testimony. with that, i recognize vice chair clob char. >> thank you. the last time a chairman testified before this committee was in october of 2009, so we thank you for coming close into the time you were appointed. i know at that point, the economy shed more than 200,000 private sector jobs as it struggle to regain its footing, the exact opposite of what we just saw with the job gains from the past month of october and, in fact, we've now seen an average of 2 # -- 200,000 for each month in the last three months. we all know we have come a long way as the chart shows since the

beginning the downturn. four years later, we are adding jobs, not as many as we'd like, but there's been 44 straight months of private sector job growth, 1.9 million private sector jobs just this year. in this time, 7.8 million private sector jobs have been created overall including more than 2.4 million in the past 12 months. last month, the unemployment rate was 7.3%. in my state, as i noted here before, the unemployment rate is down to 5.1%. look at another measure of the economic progress. the number of unemployed workers per job opening. in 2009, there were nearly seven unemployed workers for every job opening. there are now about three unemployed workers for each opening, almost back to the prerecession ratio of two unemployed workers for every job opening. in addition, while economic

growth grows slower than we'd like, the overall economy grew for ten consecutive quarters growing at 2.4%. we are seeing promising signs of growth in critical sectors like the housing market, single family home prices up more than 10% for a year ago, housing starts, these are positive signs, but there's much more to be done. we need to focus on policies, what we've done in this committee on a bipartisan basis, policies that spark job creation in the short term while laying the ground work for prosperities in the long term. the first thing we need to do is to stop subjecting the economy to self-inflicted wounds like we experienced last month with the government shut down and brinksmanship in over paying our bills. the crisis was unnecessary. the government shutdown negatively affected millions of people's daily lives, stunned

countries around the globe, and caused significant harm to the economy. as was testified -- who testified before our committee twice this year, i noted it took out of the first quarter, and it's taken from 2.5 to 2% estimating the crisis cost the country $20 billion. the agreement reached in mid-october reopened the government allowedded us to pay our bills on time and set up a frame work for reaching a long term deal. i'm hopeful this will happen. as we know, we have until mid january and we have an opportunity, as you know, mr. chairman, to replace the upcoming sequester costs, and i hope some of the other existing sequester cuts with additional revenue or finding other ways to reduce our debt besides that hammer of sequesteration. i have two good ideas right now, the farm bill -- felt good about

the conference committee meeting that went well between the house and senate that brings the debt down, at least the senate bill down 24 billion, and the immigration bill -- we had a hearing on that here -- that brings it down $158 billion in ten years, $700 billion in 20 years. those are positive ideas as well as many things discussed in this group. last thing to mention is exports, been one the brightest spots in our economy. i truly see this as a way we get out of the downturn for the total value of the american exports reaching 2.2 trillion last year. exports are a key driver of job creation with every billion in exports supporting nearly 5,000 jobs. i'm proud to be on the president's export counsel with a lot of good work done there, including the export control list that i advocated for changing so we make it easier for some of our industries to export items, and we just have to lock at seeing ourselves as a

competitor in the global economy and looking how we can compete in today's world because if we learned anything from the economic turmoil of the last few years is that america can no longer afford to be simply a country that turns money. we have to be a country that makes stuff that invents things, that exports to the world. i look forward to hearing your testimony. thank you. >> thank you, vice chair. dr. jason, a distinguished chairman of the economic advisers, prently served on the economic counsel, indirect of the hampton project at the brookings institute, expert in fiscal policy, tax policy, economics, social security, and monetary policy, all key issues for the country. he earned a ma from harvard university and mfc from the lemon school of economics. chairman, thank you for joining us today, and you are recognized.

>> thank you so much chairman brady and members of the committee. as you know, the counsel of economic advisers and joint economic committee were created by the same act of congress with a common interest in using economic analysis to craft and promote policy to promote economic growth. i'm pleased to be before you today and look forward to continuing to have a strong relationship. in my statement, i'd like to highlight some of the main opportunities and challenges the economy faces right now, and then briefly discuss several policies that could capitalize on the opportunities and address the challenges. all of these are discussed in more detail in my prepared remarks. after growing -- going through the worse recession since the great depression, the economy today is strengthening. the private sector added 7.8 # # million jobs over 44 consecutive months.

the unemployment rate fell by seven-tenths of a percentage point a year, and while it remains unacceptably high at 7.3%, it is now back to where it was in december of 2008. the question and answer we can discuss about the ratio and come back to those important issues. the economy expanded for 16 out of the last 17 quarters. america has a strong auto industry, the banks are increasingly well capitalized. our housing prices are rising, and construction is recovery. with this context, there are five areas of opportunity that i would like to highlight, including two cyclical factors that could contribute to the recovery and three structural factors that will help improve the economy's long run imroat potential as well. first, the most immediate macroopportunity is the potential for continued increases in residential

investments, consumer durables, and consumer spending more generally. residential investment drives the recovery over the last two and a half years growing at a 12% annual rate. the over building of no homes during the bubble has new been offset of depressed construction, and if you look at housing construction, it remains below the steady state level we expect for household formation indicating further potential in that sector. there's similar pent up demand in the automobile sector as well. the second cyclical factor is that the economy is headed towards a less contraction fiscal stamp, although the precise magnitude depends on policy choices. the budget deficit has fallen rapidly from 9.8% of gdp in fiscal year 2009 to 4.1% of gdp fiscal year in 2013.

remarkably, nearly half the deficit reduction, 2.7% of gdp, was in this last fiscal year alone. although deficit reduction is an important long term policy goal, the rapid fiscal consolidation over the past year has created challenges for growth. the good news is that the economy has already gone through most of this severe fiscal head wind, and further reduction will be at a gradual pace, although the exact pace depends on policy. third and shifting towards structural items, the market's slow down in the growth of health care costs prevents a long run opportunity for jobs and wage growth. according to the center for medicare and medicaid services, inflation adjusted health spending grew at a 2% annual rate over the three years since 2010. the lowest rate recorded since we began tracking the data in

the 1960s. lower health spending helps with wages and jobs. fourth, dramatic increase in domestic energy production is another opportunity for the u.s. economy. crude oil production has grown each year the president has been in office reaching its highest level in 17 years in 2012. we've seen stronger fuel efficiency and as a result of all advances, we learned today that our domestic production of crude oil exceeded our net imports of oil in october. more overall, the president remains firmly committed to all of the above energy strategy including progress on renewable energy as well. finally, the last favorable trend we have is the technology providing significant opportunities for long term growth, especially in areas that benefit from the mobile computing and increasingly wired

and wireless internet connection. over the last four years, the united states investment in these networks has grown 40% markettedly faster than europe and asia, and these investments are key to a vibrant ecosystem throughout our economy. we have several outstanding challenges that i wanted to briefly list as well, mr. chairman and madam vice chair. the first is that we are still struggling with the legacy of a severe recession, and most notably, the significant elevation of the unemployment rate that turn is due to the large number of long term unemployed workers. the second and less widely appreciated challenge is that the recession appears to have exacerbated a longer term trend of reduced job-to-job mobility to the labor force. while many focus on net job growth, the flow of workers across firms matters a lot to the economy as well providing

workers with matches to the jobs in which they are most productive and can be paid the most. as a result, reduced mobility is an important challenge. third and finally, we have a very long standing and deeply embedded trend rise in equality, and last year 19.3% of the total income went to the top 1%, the largest share since 1928. finally, turning briefly to the policy agenda, the most immediate priority is to do no harm by avoiding repeated fiscal rangeling, allowing the economy to capitalize on all opportunities i sketched earlier. there are all sorts of opportunities to make more rapid progress in addressing the challenges identified through an affirmative agenda to increase

jobs, increase growth, and increase wages. one area of fro depress is on budget policy. there's significant my more elite, medium long term deficit reduction than the sequester. as a result, the congressional budget office estimates it falls to 2.1% of gdp in 2023, and that consistent with debt falling as a share of the economy. moreover, the president's proposal shifts the composition of spending, jobs, infrastructure, education, and research while taking steps to strengthen medicare, continue to slow the growth of health care, and reduce inefficient expenditures and reform the tax code to make it more competitive. getting beyond these immediate fiscal challenges allows the u.s. economy to continue to mend and strengthen, but there are opportunities to do more, and the president has sketched many of these out in the context of his better bargain for the middle class addressing jobs,

housing, retirement, health care, and ladders of opportunity. finally, the president has identified immigration reform and the farm bill, both mentioned by the vice chair here today as two economically important priorities that he would like to work with congress to get done. that concludes my comments, and i would be happy to take any questions you have. >> great, chairman, thank you for being here. there's positive economic statistics in the testimony that we appreciate very much. i agree with your assessment of energy and technology and tax reform, the potential upside in growing this economy, but i think everyone has to agree this is four years after the recession officially ended. this is a disappointing recovery. a lot of americans have given up hope. a lot of college graduates have no jobs or are working behind cash registers, and a number of people dropped out completely. my question is do you, with this

economy, disappointed thus far in the recovery, do you anticipate the president making a change in the direction of his economic policies, or will he continue to stay the course? >> well, mr. chairman, i'm not sure i fully accept the premise of the question. i went through some of the statistics in terms of the strength of the recovery. i would in bench marking the success and strength look at comparisons, for example, we have grown more strongly than many countries around the world including in europe, financial crisis pose a very significant challenge and tend to have longer lasting effects on the economy, and there's been a several decade long slow down in things like the growth force of the labor force with the baby boomers retiring, and that impacts the total growth, and when you take those factors together, i think we are making progress, making progress at a

faster pace than you have in the face of such a financial crisis, but i absolutely agree, mr. chairman, we cannot be fully satisfied where we are, and we want to continue to make that progress. to that end, you know, the president would like to go to the next stage of what we do, so i don't know if i described it as the same or different, but a continuation, so we have temporary business tax cuts during the initial recovery phase. now we're more focused on ongoing permanent business tax reform. we had temporary investment in infrastructure in the beginning. now we are focused on a sustained six-year authorization of the highway bill, and so many of those are as the economy recovers, the direction that we'd like to see our policy going. >> you see our businesses have cited repeatedly uncertainty over higher taxes, regulatory onslaughts, affordable care agent, drags on the economy. do you view the current rate of

red tape on local businesses as a drag on the economy? >> mr. chairman, the president has worked very hard and issueded an executive order that you have to take cost benefit into account in designing regulations, you have to do them flexibly, in the lowest cost manner possible, and i think it's been very successful in regulation who benefits. we have to constantly look to see how we do better. >> 2012 federal government issued more than 2,000 federal regulations. only 14 underwent had all cost benefit analysis. to me, that's not a reasonable approach of weighing what may be commendable goals with the impact on local businesses. let me ask you this, the affordable care act is forcing businesses to cut hours, a steel company in the eastern region

last week that's doing everything to keep it's workers at 49 workers and manage to renew their health care plan to avoid a 47% increase. do you believe the affordable care act is agenting as a drag on our local economy? >> no, mr. chairman, i do not. i think the affordable care act includes several important things that actually help our economy. one of them i briefly mentioned in our prepared remarks which is the large slow down in the growth of health costs, premiums rise at 8% a year, going up until 2010, after 2010, they've grown at 6% a year. there are many factors that have contributed to the slow down, but i have no doubt the affordable care act is one of them and that that's good for businesses. >> as you know, there's a great deal of dispute about what has temporary slowedded medical prices increases that i know of almost no local business in my district that's only seen a 6%

increase in their insurance premiums. it's the opposite. you know, they are stunned by the increased cost. now they are seeing workers who have hours cut. there's a significant drag. let me ask you this, with wall street roars as a result of the president's policies, middle class america is struggling in a significant way. what is the president going to do differently in economic leadership to bridge the equality in wall street? >> mr. chairman, as a long agenda designed to get at that question, first and foremost we have to continue to create jobs and create jobs at a faster rate from investment in infrastructure to reforming our business tax code. we have to address many of the particular issues that face middle class families, helping

them to own a home, some are tight, what we can do about that, some of the challenges for retirement, many families have a hard time saving for retirement, and bringing down and slowing the growth rate, the cost of health care, i think, is an important part of that agenda for the middle class as well. >> may i ask a question? will the white house, having stated support for corporate tax reform, will the white house be bringing up a proposal over, and will it be encouraging of senate democrats to pass tax reform bill this next year? >> mr. chairman, as you know, the president put forward a frame work for business tax reform, and it described it as a certain level of specificity, for example, naming a rate of 28% describing how it is you pay for that rate, but chose not to put out a fully detailed proposal in order to both

solicit more ideas, but also be able to more effectively work with congress which drafts the laws. what we're trying to do is figuring out this is a big goal of the president, something he has an economic team for as early as 2010, figuring out the best way to push it forward is, and so welcome any advice and opinion on that and certainly encourage democrats and republicans to do that, but also to embed it in a grand bargain for jobs as well as other things we need in competitiveness like competitiveness in infrastructure, and manufacturing. >> the vice chairman. >> thank you very much, mr. chairman. thank you for your testimony. we talked about some of the stability and improvements in the economy and also the employment situation. i cited the figure about how in 2009 there were seven unemployed workers for every job opening, and now there are three, and we're almost back to the prerecession ratio of two unemployed workers for every

opening. for the record, our state representative paulson in my state of minnesota just hit a 12-year high for job openings, and a few questions along those lines. we had a hearing on long term unemployment, and what we've seen with the statistics is that there may be some signs of structural unemployment that there's evidence that long term unemployed workers may eventually become difficult to employ, that even though we've seen improvements, there's a number of them not getting jobs, and that the negative perceptions developed over time, and can you talk about specific policies that we think could help for the long term unemployed? >> yeah. so entire -- almost entire increase in unemployment relative to where it was prior to recession is because the long term unemployment rate is elevated. the short term returned to where it was prior to the recession. i think to date we have not seen that turning into a serious per sis tent structural

unemployment, but i think we have to be very worried that that's what happens #* what -- what happens, and we saw in europe that led to persistently high impacts for the economy. the first most important thing about long term unemployment is the same things with regular unemployment which is increasing aggregate demand and investing in jobs like infrastructure, business tax reform, all the issues. you know, i had been talking about already. there's issues specific to the long term up employed that you want to look at as well, ways of encouraging people to move more quickly into jobs, training, matching them to jobs, and the president has a pathway to work fund he's proposed, which is designed to help states experiment with different approaches to the goals. >> right. in fact, minnesota has a good pilot going with some of our businesses, the community college in the northern suburbs, and then our high schools. we have one high school where the kids can literally get -- can get an advanced degree right

in high school and looking at that model more when we have 60% of the manufacturers who say they literally can't find someone to fill the jobs. we are doing a major report on manufacturing that's coming up. we have a major report on manufacturing showing for the first time in the history of our nation the number of people who are filling manufacturing jobs with advanced degrees. we are seeing a major change there, and i agree with you on the work skills training. could we talk about the budget negotiations going on right now and how djing from your speed as chair of the economic counsel do you see another episode of brinksmanship or close to a shut down or experience a shutdown?

>> i think there's no doubt that the shutdown and brinksman ship hurts the economy. when it comes to economic growth, there's a variety of estimates. we estimated 0.25 percentage points off the fourth quarter growth rate, more conservative than what advisers, standard and poors, and others estimates thought they might have off the growth rate. it's in the data, daily and weekly data about the economy in the first half of october, two different measures showed sales, plummeting consumer confidence, two measures on unemployment, insurance, and a survey showed weakening job market pros perks, and we saw weaknesses in housing. you saw concentrated worsening of the economy in the first half of october. >> i say energy statistics

today, our oil produced domestically is now exceeded what we bring in from other countries? >> yes, for the first time in a long time. >> very good. >> yeah. doesn't include natural gas? >> correct. that's just oil. >> okay. that's what i see as a major role in our increase in manufacturing is it's cheaper to do it than it was before. that's a good thing. last thing is as we look at the potential for a long term budget and tax reform that could fund major areas that we identified with in education and our infrastructure and the other things, have you looked at the idea, a bipartisan bill this week about infrastructure authority. >> i have not looked at your particular bill, but -- >> the one with senator warner. >> okay, yeah so that's -- if

it's the bill i'm thinking of, that's similar to the approach that the president suggested in the past, and i think it's important in a time of limited budget resources that we're able to leverage budget dollars as far as we can and to direct them as effectively as we can. it's not just more money. it's smartedder money and leveraging the money and as i understand it, that's the goal of the proposal and certainly something i think is important. >> uh-huh. you and i in the context of corporate tax reform discussed for a while a few months back for repatriation and how that plays a role in it and whether it's tied in for an infrastructure financing authority or not. do you want to talk about that? >> sure. i think as a one-time stand alone matter, a repatriation holiday i dome think is effective in creating jobs and i think would cost significant money. it's different when you talk about ongoing reform of the stax code, and if if you transsages

you might get money as part of the process that you could then take back, and you transition to a new system is improving the competitive of the companies and taking base erosion seriously doing that on a permanent basis rather than on a one-time basis. immigration reform, how do you see that? we had testimonies about debt reduction it brings, a major factor, but how do you see that contributing to the economy if we get the reform done? >> this is an issue where it's widespread agreement among the economists and congressional budget office embodied the groament saying the gdp is 1.4 trillion higher in 203 p because immigration reform. what's exciting about that estimate is it's not just a larger population of workers, although, that's important and good. it's that we'd actually have more what is total factor productivity growth, more innovation, more ideas because

immigrants are an important source of that in america. we have more of that with reforms, so we'd have more output as a result. >> thank you. >> thank you. senator paulson is recognized. >> thank you. thank you for being here to testify. this committee spent a lot of time discussing and going over idea going over the growth gap and how america lags in terms 6 what an average recovery would be like, and as you testimony pointed out, the fundamentals are there on the right track, but there are a lot of folks that we talked to, particularly on minnesota companies that it's better than the rest of the country, but it doesn't feel better. they think it should be better. there's more potential, i guess is what i'm trying to say. vice chairman mentioned earlier that we are doing better in mips. meeting with small, medium, and

large companies from plymouth, there's one scene that's arisen around the uncertainty of the tax code. typically, there's six month extensions, provisions, and no doubt a lot of minnesota employers want one that's stable, predictable, and conducive to growth. i agree. a couple questions around the impact of the current tax code on economic growth. yesterday, there was a piece written in the "wall street journal" entitled the biggest fiscal loser, but it noted in the last year the deficit decreased in the large part due to higher revenues from higher tax rates. however, it also noted that the gains from higher tax rates were offset by slower growth caused by higher tax rates. do you believe revenues are affectedded by slower economic growth as a result of higher marginal tax rates? >> i certainly agree revenues are affected by growth. i don't agree that the tax changes that we made at the

beginning of the year have had an adverse impact on growth. i think they were part of an overall economic plan that gave more ternty about taxes to the middle class, extended their tax cuts, and brought down the deficit over the medium and long run, a sound economic strategy. >> recently, the federal reserve bank of san fransisco did a study and found roughly 9 o% of the recent fiscal drag comes from higher taxes, not from the slow spending due to the sectors. do you believe that worry over the sequesteration's effect was overblown? >> the congressional budget office estimated the sequester would cost 7 # 50,000 jobs and would take 0.6% off the growth rate. that, to me, is a reasonable estimate, but the important issue is that it's not the magnitude, but it's the composition and timing of it. we'd like to see more deficit reduction than you saw in the

sequester over the medium and long run. we'd like to see it in entitlement and tax expenditures rather than in up front investments in infrastructure. >> let me follow up on that. i agree for those who stated a blunt approach dealing with budget and sequester is not the answer but address the long term pressure, mainly those of the entitlement programs mentioned. if we replace this with reforms, some of the entitlement programs, what reforms do you support in order to put the economy and the united states back on a fiscally sustainable path? >> there's one to entitlements and revenue, in terms of including things like means testing, medicare, further reducing the cost of drugs and other reforms. in terms of revenue, there's tax

benefits for the highest household, something he saw going together as an effective pact and balanced pact. >> in the latest round of the budget discusses on going, will the administration or do you feel the president will be aggressive in pushing the budget because there is an opportunity. >> pushing those as part of the balanced approach that includes revenue as well, and that was the basic principle is that you need a balanced approach that includes entitlements and the revenue side. >> thank you, mr. chairman. i yield back. >> representative delayny is recognized. >> thank you, mr. chairman. thank you for appearing here today and for your testimony. i think a lot of the data that you presented makes a compelling case in areas like the financial

services industry and clearly better than around the world, the response, the class of the auto industry, the housing industry paid good returns for the taxpayers, but now i think we're confronted with another set of challenges which is how do we bring more americans along into the recovery that we are seeing and likely will continue to see. i mean, it seems to me one of the challenges that we face is that the two dominant forces in the world is globalization and technology have benefited too few americans, benefited americans that are highly skilled, great education, have access to capital, which is why we have good growth among high skilled workers, and we are seeing good growth among low skilled workers because we have more income equality, to some extent increased opportunity for low skilled workers. it's a middle skilled worker issue that we have. you've outlined good policies in

my judgment to address this issue. investments in infrastructure, research, proving to be tremendously rewarding for the health of the economy, skills training, ect.. which one -- in which of the areas do you believe that there is actually an opportunity for good bipartisan support? i know in infrastructure, i got a bill in the house that's got 23 republicans and 23 democrats on it. that funds infrastructure by tieing it to repatriating overseas earnings. as an example of good bipartisan support for an initiative that's clearly very important for creating both short term and long term economic growth for the country. what other areas were in infrastructure in particular or in investments in research or in skills training do you think we actually have opportunities for bipartisan support, and what kind of proposals exist as aside from saying we should be doing all these things, which i agree

directionally we should be doing these things. where do you have ideas where you have support in a bipartisan basis? >> well, congressman, i'm the least expert in that particular question, but let me try to answer it and also say where i think there ought to be. there's things like immigration, the farm bill, and the budget where you've seen progress in one or both chambers of legislation moving forward, and those would seem like very good areas to take and build on. you have areas like infrastructure and the idea of leveraging and better targeting that the chamber of commerce and the afl-cio came out together to announce plans in that area years ago, democratic and republican governors held them as they, you know, announced plans in those areas. you know, there's other areas like preschool. i can't tell you, you know, what the bipartisan prospects are for that right now, but the

president's preschool ideas are motivated in part by the work of nobel prize winners, economists, a republican, but has done the numbers and finds that that's among the highest rate of return you have in terms of investments in education. you know, finally, i would say business tax ri form, there's an increasing amount of convergence and views on the topic. >> do you specifically, when you look at the agenda you are advancing, overlay kind of the reality of the political process in terms of thinking about what initiatives should get priorities? in other words, i think one of the issues we've had in terms of trying to make a difference against this middle skill jobs issue, if you will, is that we have not been doing the things we have to do, we have not been investing in infrastructure. we've been cutting back investments in basic research, have not been doing skills training we have to do, so the cost of doing nothing has not been nothing. we paid a big cost. when we think about our

initiatives, our policy initiatives, are we formulating ideas that could -- we believe will actually have bipartisan support or more working on some of these things, you know, without thinking about the political cop text? >> right. i mean, in terms of me permly, there's more economic advice, but absolutely we are focused, focused on getting things done and getting things done eater on his own administratively and with congress and the areas i talk about, immigration, farm bill, budget, infrastructure, business tax reform, all areas where there's a lot of convergence, and it's just a question of going the last part of the way and getting them done. >> great, thanks. >> thank you. representative hannah. >> thank you, thank you, chairman. thank you, doctor, for being here. you mentioned in your earlier verbal testimony that the affordable health care act, only now being enacted, had produced

cost savings or cost cuts. coyou explain what they might be? >> sure. i said "contributed to," but one factor among many. you see things like reduced hospital readmissions, fewer hospital acquired sections, a large increase in accountable care organizations. all of those were reforms made in the affordable care agent. you have further that will matter in the future, things like delivery system reforms, bundled payments, and even some of the payments, changes for providers have in the past we've seen gone through to the private side as well. all of that is contributed. >> you know, in october, the labor force participation rate was, i think, 62.8. it's not been that low since 1978, and if we accounted for the actual numbers of the

unemployed, it's more like 11.3%, not the 7.3 p that we see. do you think that that's -- what could cause a trend like that? what do you see in the future? do you think that trend is continuing, and maybe you can help me understand what you believe is causing that. >> i think the number one thing causing it is the retirement of the baby boomers. that was not just predictable, but it was predicted. in the economic report of the president in 2004 written under the bush administration, they wrote in that economic report that starting after 2008, you would see an accelerating decline in the participation rate, and so -- >> that accounts for 2 million, but what about the other 4 million? >> that's the main factor. there's cyclical reduction in the participation rate as well,

and whenever the rate goes up, that tends to lead the participation rate to go down, and the participation rate lags changes in the unemployment rate somewhat. you have a structural compounded by the cyclical. >> you spoke earlier, too, about inequality in the disparaging difference between what we, the poor, the extremely wealthy that we see. the middle class skews that that it's not necessarily relevant how rich or poor people are, but the mad -- middle class adds to that concern. it would be my belief that we have prek and go along way in helping that, but give me a moment to talk about it in my

way you like. >> yeah, i appreciate that chance to expand on what i said, and it was a point brought up, and i very much agree that it really is, you know, how the middle class is doing of how the economy is doing, and to some degree what i said before was the shorthand for the trend seen of increased technology, increased demand for skills. on the one hand, deacceleration in educational attainment, on the other hand, and those true trends combining to hallow out the middle class. i think the important part of the answer is in education, everything from pre-k as you cited through college. >> thank you. i'm -- thank you very much. >> thank you, former chairman maloney. >> thank you, mr. chairman and vice chairwoman, and it's a particular pressure for me to welcome chairman furman as he is from the city that i'm

privileged to represent, and i can say unequivocally that new yorkers are very proud of you and the role played not only in this position, but in other positions in the administration to assist president obama in the economic recovery which led to 44 straight months of private sector job growth, the gdp of runs for ten straight quarters and housing is rebounding. the economic recovery shows resilience in strength, even in businesses and individuals who faced unnecessary uncertainty and harm because of the government shut down, and that fight that really hurt consumer confidence, saying that it's one of the lowest points it's ever been, and i'd like you to comment on this self-inflicted damage. how much do you think it costs our economy, and what other

factors could slow and hold back our recovery? it was interesting in the testimony that you point the out that even with these manufactured crisises and slow downs, that our economic recovery was deeper and stronger than europe and could you comment on what factors and reasons this is happening? >> thank you so much for those questions. in terms of consumer confidence, i think one of the troubling things is in the most recent consumer confidence data we got for the beginning of november, it remained down and actually fell a little bit further relative to where it was in october. i personally would have liked to have seen the episode ended in that confidence starting to recover, and it's too soon to say how lasting the consequences of the shut down and the brinksmanship would be, but, clearly, it'll have some per sis tent effects, and i think the

degree of that persistence depends on how we handle it the next time. i think we have a great opportunity with both parties coming to the through regular order to address it. in terms of the second question, i think that is really the big picture story in the economy. the up employment rate -- i might be wrong in the memory, but north of 12% in the eurozone and rising, and here it's, obviously, 7.3% and generally has been on a trend of declining, and i think that's broadly speaking we got the economic policies right in this country. we've gotten broadly speaking our fiscal policies right, especially in the early days of the recovery. we have focused on things like exports that the vice chair was talking about. we have had a vigorous program in terms of financial rescue. we put effort into housing in terms of bringing foreclosures done and providing refinancing for families.

i think it's that broad based all friends approach that served the u.s. economy well. >> i would like you to comment on what i call the democratic stimulus, and this is the credit card bill of rights, the credit card accountability responsibility disclosure act that was the second bill that president obama signed into law. it was a bill that i authored and worked on for well over six years, and there was a report in the new york times front page of the business section that economists have come out with a report that this bill alone put 21 billion dollars back into consumers' hands, back into the american economy by cracking down on abusive, unfair, and anticompetitive practices, so this is a stimulus that can help the overall economy, and my question is could you estimate

the impact on the economy of the card act in terms of economic growth and employment. >> right. well, a study, as you just said from some very good economists, found that the card act saved $20.8 billion per year each and every year. it's important to understand those savings would accrued to lower income families more likely to spend the money, so there's no question that that would contribute to consumer spending and help the economy recover to its full potential. i think it's also important to put it in the broader context of delev ramming we've seen for consumers, both credit cards, but also as mortgage debt and other debt under control, you see interest fames fell from 13% to 10% and now stands around the lowest they've been on record. i think all of that puts consumers, the contributions of the card agent and everything

else, consumers in a better position to be investing in home to be spending and to be driving the recovery. >> well, this was an important part of the recovery, and it did not cost any money? just the reform? can you think of any other areas that there's this type of impact on helping the middle class with men and women putting more in their pocket, and i thank the president for signing that bill into law. >> i'll do that. i don't have anything off the top of my head, but it's a win-win-win. you can protect consumers, not cost taxpayers any money, and do it in a way that helps the economy. we look to any opportunity that could accomplish that. >> my time's expired. thank you. >> thank you, chairman. senator lee. >> thank you, chairman, and thank you for being with us today. i know you weighed in the past, shifting gears for a moment, on changing the minimum wage and on

bills addressing the so-called living wage. it's been suggested by some that we might, at some point in the near future, see movement of such a bill in the senate, and so i wanted to talk to you about an article that you wrote in 2006, in june of 2006 in slate. you said you would ignore efficiency and impact on unemployment of the minimum wage for purposing of the article's argument. while noting that at $10 or $15 an hour minimum wage, ignoring those factors would be as you put it, quote, a terrible assumption. can you explain what efficiency in employment factors might exist there and why it would be a quote-on-quote terrible assumption to think that a $10-15 hour minimum wage might

not impact? >> sure, senator, and glad you have gone back and read that more recently than i have, but the issue with this is there's a range of studies found that raising the minimum wage in the range seen before does not have an adverse effect on unemployment, and that's because the extra cost to a company is outweighed by the benefits in terms reduced turnover, better motivation attracting workers, and the like. the levels is most comfortable are ranges that we see in the past in terms of the level and an increase m i think it's important to understand that i was writing in 2006, there's been inflation since 2006, so whatever number i have in that article there, if you think 2016, many of the bills would be fully effected, you want to take the numbers and take them up by

20-25% in order to have an apples to apples comparison. it's not a $10 minimum wage in the year 2016, but i was commenting on it in the year 2010. >> sure, yeah, no, i understand that, and i also understand what relatively low inflation since then, so wouldn't it be fair to say that the corresponding numbers are 12-18? >> well, the effective date for a lot of the minimum wage proposals around 2015 or 2016, a decade between what i wrote and then i don't know the number off the top of my head. i think 20% inflation over the course of that decade. i can look that up and get back to you. >> okay, thank you. i could obviously look that up and get back to you. >> okay. thank you. in your testimony, while writing about lower health care costs, you indicated that in the short run, lower pressure on employee

compensation would translate to job growth. so all else being equal, would a higher minimum wage, say a $10 minimum wage, be a policy that would make it more likely to increase employment numbers, to put more americans back to work? >> right. the difference is there are two sides of the ledger when it comes to the minimum wage. on the one hand, it's an extra cost, but on the one hand it's also an extra benefit in terms of higher productivity, retention, motivation, all of those factors. and the empirical work finds that those two factors roughly balance out and as a result there isn't a significant adverse effect on employment. in contrast, paying extra for health insurance is really just a cost to accompany, and it's not, you know, everything else being equal of any benefit to the work sore it doesn't have that corresponding other side.