>> news now from capitol hill. the house has passed a plan that would allow insurance companies to continue selling policies that do not comply with the health care law. the final tally was 262-157 with 39 democrats supporting the republican bill. the "washington post" writes that the proposal would allow more americans to keep their current health plans while significantly weakening the affordable care act. the plan would make good on president obama's broken promise of allowing americans to continue with the current health coverage if they wish. the president is meeting with insurance company executives getting underway about now at the white house, the associated press writes president barack obama trying to rescue as much criticized health-care program

is set to discuss strategy with health insurance ceos. white house meeting comes after obama adds a substantial change to the law. the president said thursday that insurance companies can offer another year of coverage under their existing plants. that's because people have been losing coverage and haven't been able to find new plans on the healthcare .gov website. it continues a white house official says that obama and senior aides are meeting with a senior officials to discuss holding people enrolling in new plans and help to minimize any disruptions as consumers switch to new plans. the official was not authorized to speak publicly in advance about the meeting. they spoke on the condition of anonymity. that from the associated press.

>> at the head of the congressional budget office testified wednesday before the house and the senate budget conference committee douglas elmendorf told the lawmakers even short-term agreement on spending levels would be better than no deal at all. conference committee is meeting as part of the agreement that ended last month's government shutdown and debt ceiling debate. the committee chairman paul ryan said they haven't yet come to an agreement.

>> [inaudible conversations]

[inaudible conversations] >> the committee will come to order. if everybody could take their seats. good morning everyone and welcome. i want to thank senator murray and the entire committee for all of their work so far. since the last meeting we have been talking. we are discussing the parameters of a potential agreement. we are trying to find common ground but we are not there yet. there is a big gap between the two budgets if anyone noticed and that's why we are talking. we hope today's meeting will keep the ball rolling. the reason we are here is to get an agreement. we spent a lot of time talking about our differences. we have that part down.

that is the easy part. the hardest part is figuring out where we agree. doctor elmendorf is going to give us a briefing on the budget of the economic outlook and on the long-term economic budget outlook. then we will open up for discussion. i will recognize to ask a question of the director. the director of answers will not come out of the person's allotment and a person can be recognized more than once if they choose to do so and we intend to adjourn at noon. with that i would like to recognize senator murray before we recognize doctor elmendorf. >> thank you for being here today who are here to participate. i think we recognize the nation is facing some serious economic challenges. our economy is recovering far too slow and our highest

priority has to be making sure that we meet with our short and medium-term needs to create jobs iand the economy and that doctor elmendorf will talk to us about that today. we face some serious long-term fiscal challenges as well. our budgets are dramatically different but it is extremely important and we agree that we need to step out of our partisan corners and make some compromises and lay down a foundation for some long-term bipartisan agreement. we have been as he said have had a number of discussions since our last meeting regarding the printers of a potential deal and i have been very encouraged by those conversations are going to continue in the days ahead and i am hopeful that we will get to a bipartisan compromise very soon.

>> doctor elmendorf the floor is yours. >> my colleagues and i are happy to be here. i will briefly review the economic and budget outlook and then try to answer any questions that you have. i will be referring to the charts in front of you for people in the room and the charts have just been posted on the website for people who are watching from afar. in february we projected the economic growth would be slow this year and then in a more rapid expansion would begin next year. that is still our view. in particular it is on track to rise about 2% this year. a little above the 1.5% that we had envisioned but still only a modest increase. the employment rate shown in the first chart at the bottom of the front page has come down more than we had expected about employment has not grown more than we expected. there's been a further decline in the number of people in the labor force. as a result of the share of the population with jobs shown in

the chart at the top of the next page is very close to what it was four years ago with other demographic factors but it's fallen well below its trend. we estimate it is now about 5 million jobs short of what it would be if the unemployment rate were back down to it sustainable level and participation in the labor force is back up to its trend. relative to the productive capacity of the economy and therefore in the demand for workers. the primary reason why the demand is week is the financial crisis. but fiscal policy has battered, to to. the impact of the spending increases and the tax cuts in

the 2009 recovery act has been fading for three years. other measures have expired and congress has enacted additional legislation to reduce budget deficits in the near-term. the combined effect of the deliberate policy choices that you've made an automatic stabilizers in the budget has been to reduce the deficits brought about 10% of gdp in 2009 to about 4% in 2013. that is the most abrupt fiscal tightening since the end of the fiscal world war and though it has had the beneficial effect of slowing the accumulation of government debt, our mlss indicate that it has also slowed down economic growth in the past few years. moreover, uncertainty about fiscal policy has been unusually high owing up to the surge into debt and the stark disagreement of the tax and spending policies. disagreements that have led repeatedly to the enactment of appropriation bills, worries

about default on federal debt and showdown over other budget issues. that uncertainty is also probably dampening the growth although we do not know by how much. the further tightening of the fiscal policy built into the current law for the next few years as well as ongoing uncertainty about the fiscal policy, represents the continued headwinds to the economic recovery. at this point, we think that 2014 will see an upswing in housing construction, rising real estate and stock prices and increasing availability of credit as well as a reduction and fiscal drag relative to the current law. in our judgment all of that will help to spur a virtuous circle of faster growth and employment, income, consumer spending and business investment. however everyone should be cautious about that outlook. researchers that have studied the record of the housing bubble and the financial crisis have been warning since 2,007 that

working off an excessive housing stock and improving the balance sheet and restoring credit and regaining confidence generally takes time. we think it will turn the corner next year but no one can be sure. in addition to the near-term economic challenges the country faces significant long-term economic and budgetary challenges. for one thing, the prolonged weakness in the economy has lowered its productive capacity for years to come. persistent, long-term unemployment shown in your next chart will leave some workers to leave the workforce more than otherwise and eroded the skills of other workers. in addition, where capital investment and productivity growth will reduce future output and income. moreover as you know the aging of the population expansion of federal subsidies for health insurance and rising healthcare costs will put increasing pressure on the federal budget. flip to the next page of the top

it shows the projection of the budget deficit for the coming decade under current law. although the deficits will fall to about 2% of gdp by 2015 it will reach 3.5% of gdp or nearly a trillion dollars by 2023. the deficits continue to increase beyond the coming decade. as a result, federal debt held by the public showed in the chart at the bottom of the page could reach 100% of gdp 25 years from now even without accounting for the harmful economic effect for that increasing debt. there are three reasons why we and other analysts are concerned about the long-term budget output. first, the debt is already larger relative to the size of the economy than any point in history except for a brief perco around while 22. even if the debt remains near

its current 73% of gdp, the future wages and incomes will be lower than they would be with less debt. also the government interest costs will rise dramatically when the interest rates return to more normal levels. your ability to use fiscal policy to respond to future financial crises recessions and international threats will be much more constrained and the risk of a financial crisis, fiscal crisis will be higher. all of those problems keeping it out of touch current share of gdp will be worse if the debt rises assistant relative to the size of the economy. the second we project under the current law it will rise significantly and persistently relative to the size of the economy. projections and especially long-term projections of a very uncertain but the long-term outlook show the federal budget is on an unsustainable path under a wide range of possible

assumptions about some key factors that influence federal spending and revenues. you know the main reasons, retirement of the baby boomers and rising cost of healthcare are pushing up the cost of the largest federal programs. your next chart, the top of the next page, shows federal spending and revenues under the baseline compared with the past average is. for example in the top left corner of the chart you can see that social security outlays are presented 4.2% of gdp on average between 1973 to 2012 in the last 40 years or 4.9% of gdp last year and it will be 5.3% of gdp in 2023. if you take them together, that was about 6% of gdp on average in the past 40 years. it will be more than 8.5% of gdp

by 2023 and the long-term outlook by 2038. meanwhile, defense spending showed him the third bank of the numbers is on track to be a shrinking share of gdp. and all other non- interest spending together from everything but the security and medicare defense. i want to make it clear that the steadiness of the share of the category maps different patterns among its components so that chart at the bottom of the page and this other category. owing to the expansion of insurance coverage through the affordable care act and rising health care costs per person. in contrast, nondefense

discretionary spending in the budget control act. we show figures like these not to suggest that you should try to repeat the budget configurations of the past, but instead to help you and others understand which parts of the federal budget are expanding relative to the size of the economy and which ones are shrinking. there is no particular reason that outlays for social security and medicare need to be cut back to the historical average share of gdp when a larger share of the population is old enough to receive benefits from those programs. however, if the programs are not cut back, then we will need to collect a larger share of gdp in tax revenue relative to our history, or cutback in other federal an methods and servicese listed to what we have been accustomed to. the third reason for concern about the long-term budget outlook is the current law is undermining the baseline projections that included

provisionincludeprovisions thatn deficits in significant ways but might raise widespread objections as they took it will affect. i will offer two examples both of which can be seen in the charts i just discussed. first, given the structure of the tax code, revenues would rise above the historical average share of gdp in just a few years and would keep rising and reaching more than two percentage points above the historical average by 2038. at the same time, the outlays for the defense and nondefense discretionary programs would be smaller relative to the size of the economy in 2017 and beyond than any point in at least 50 years. the discretionary funding for the next decade under the current capps would be about $1.5 trillion less than what would be needed to provide the benefits and services provided in 2013. to be sure, depending on one's goals and priorities, there wouldn't be anything wrong with

either of those developments. my point is simply that if either of the current policies does not maintain either the increase in the tax receipts or the sharp drop in the discretionary spending that those are not maintained, and that other changes to spending and revenues are not made within the deficits will be greater and maybe a lot greater than we are projecting under the current law. to sum up we face both short-term and long-term economic challenges. and the shortages are related to fiscal policy in different ways. the long-term challenges can be addressed in part by reducing the deficits whereas the short-term challenge had been exacerbated by the reduction in the deficits. policy changes that lead to less fiscal tightening in the near term but greater tightening in the later years would improve the economic outlook for both time horizons relative to the current projections. to help you and other members of the congress make informed decisions about possible policy changes, we have just completed our body annual volume of

specific options for reducing the deficit. we brought a copy from each of you and we will be posting the report on the website at noon today. i want to close on a note of optimism. when i make presentations like this i'd worry that by putting up all of the economic and the jets challenges to make the problems seem so large that it actually discourages people from tackling them that would be unfortunate. the resolution of the long-term budgetary concerns would be beneficial. but even if that isn't feasible right now, reallocating element of the budget to convert better with the countries parodies as you view them are reducing the fiscal policy next year and improving or at least not worsening the long-run budget outlook would be a good thing for the economy and fellow citizens even to be addressed in next year's budget process.

instead of making this a formal hearing procedure again we will make it more of an informal discussion. i will ask members to put your plucker right side up if you want to be in the queue to speak we will offer between republicans and democrats. so we can keep the flow going we will limit questions for two minutes not including his time and members can speak more than once of course. >> thank you for your insight this morning and as you said at the end you have kind of depressing information which is that things don't look good and that's why we continue to see these relatively high rates of

revenue and these low rates of spending. one is with regards to interest rates. he didn't mention interest rates and it seems to me like if we go back to a historical level of interest rates we have a huge problem in terms of meeting these projections that you've laid out as specifically $120 billion a year including the deficit so if you could give us an answer on that, what do you consider to be the historic great if wrate if we went back t historic rate of interest and we already see that creeping above the rates today with what the impact of the deficit be. you said that the revenues are going to be above the historic levels, two points above the historic level. what will be over the next decade the average tax as a percentage of gdp? i think that figures 18.9% as i look at your material and how

does that compare to other decades? other than between 1993 to 02 he never had a tenure period. if that is accurate i would like to hear. then second, what will it be like in the next decade. use it more certainty as you go further out so two questions on interest rates with what the effect on the deficit is in the second, where are we as a percentage of the economy and house -- how does it compare? >> it will remain fairly low economy will be recovering and we will have significant resources and inflation for the easy posture and we will keep the private credit demands low so the low rates will stay for a few years and then return to words a more normal level. we project that short-term

interest rates will rise to 4%. by 2018 or so and we think that the treasury rates will be a little over 5%, five and a quarter% at that point and that normalization interest rate has a profound effect on the interest. so, nominal interest payments by the federal government last year the net interest was a couple hundred billion dollars that we project in 2023 it will be about $800 billion. in 2023 alone and the share of gdp interest will rise less than 1.5% of gdp to more than 3% of gdp over the next ten years. >> whether that is up short-term rates that you're talking about almost a trillion dollars. >> it's a lot of money, senator. on the question about the tax revenue, as you know, the bureau

of economic analysis revised the historical gdp data and we've incorporated that into our projections of shared gdp. it will be over the coming decade that should take you to the larger level built in the history an of projecting at takg the same projection of the dollar of revenue that we had us daso we get 18.3% now that compares with an average of starkly as i said up 17.4% and if we look further out by 2030 and the current law we think that will be up to 19.7%. >> have we ever been given the apples to apples comparison have we had 18.3% for any decade in history? >> i don't think so, senator. >> so it is a percentage of the economy the next decade and then continue to increase after that.

>> they are well above what they have been historically under the current law. i think it went from 93 to 02 we had similar rates perhaps close but that was in part due to the bubble as we all know now and it also did not continue at a sustained rate to the highest sustained rates in history. >> thank you chairman, mr. elmendorf, welcome. i think that we have commended this discussion with spending cuts that we have already accomplished of $1.5 trillion adding the 1.7 associated interest savings with tax rate increases increasing revenues by $600 billion. count that 700 with associated interest savings roughly and with tax deductions loophole closings etc. of the $0, nothing

yet that shows the ratio between over here come it shows the ratio between what we collect through the tax system and what goes out the backdoor through bh the deductions and loopholes. you will see that in the green and blue for every dollar that we actually collect through the tax code 90 cents goes out the back door for individual taxes, and for every dollar that we collect due to the corporate tax code, 60 cents goes out the back door through deductions and loopholes. mr. elmendorf, if you said in a report last year on the choices for deficit reduction, then expanding the tax base is which is language for reducing that money going out the door at the tax code would reduce the deficit and generally have a smaller negative effect were

even a positive effect on how efficiently the economy operates. now, smaller negative effect is iany reference to reducing the deficit by raising tax rates. but you did mention only a smaller effect that the chances even a positive effect on the economy from reducing the tax spending and the loopholes. could you explain that? >> yes. the decisions that the household and businesses make and in some cases those distortions at the behavior may be an effort to correct other distortions that are in the world and maybe they think that people don't do enough of something to achieve some social gains of some of them distort behavior that would

otherwise be efficient and become an efficient because of the greater tax subsidy or the lower tax rate on certain sorts of activities. to the extent that the tax reform effort were to reduce some of the differences in the tax treatment or different business decisions that could lead them to make more efficient decisions and that would be gdp and people's well-being it depends on the nature of the changes that are made. not anything is labeled tax reform would have those effects but certainly tax reform could have those effects. >> just to be clear the loophole would go to the highest income sectors in the economy, right? >> i just want to make sure that the two minutes are kind of the -- >> i was following senator portman's example. >> i would say very quickly that we funded the analysis of the destitution of the tax

expenditures. certain ones are received disproportionately by higher income people and others are received by lower income people with a category something like the income tax credit. but i would encourage you to look at that report and we are happy to send a copy for you all to look at. mr. clyburn? >> mr. chairman, with regard to the tax loophole, we have a far too complex system that is causing things to occur. the senate i know is working on that verit very hard. they are trying to reform our system and the senators have ideas now that we can make progress on that and i was supportive for sure. looking at your chart, mr. elmendorf on title 62, i

think it helps explain why it's important that we can say at least to the growth in spending. we are not talking about long-term spending reductions, we are talking about it ahead of the growth in spending and you indicate on that charge but if we were to maintain the spending of the next ten years and otherwise is the case your chart shows that by 2038 you had a 7% more growth but if we were to maintain our -- not achieve a 4 trillion-dollar spending reduction, we would end up with minus 7%. that is a very dramatic difference. ..

this with you, president of office management and budget, the federal reserve have missed the growth projections in the future. you might be closer this year, but in the past you've missed it quite significantly. and colleagues, i just saw the barons magazine had a cover story on slow growth. they project for the next 20 years growth would be 1.8%, based on a number of research numbers. mark zandi, who's testified as a democratic witness several times, projects 1.8% for the next five years. so, mr. elmendorf, this prescription suggests we could have better growth if we get serious about constraining our spending. is that accurate? >> so, senator, as you know, you're referring to figure 6-2 from our long-term budget outlook, which looks at the longer term effects of different paths for federal debt.

we do not distinguish here between the effects of reducing spending or raising revenues. you're absolutely right, narrower deficits will be good for the economy in the longer term. as i've said earlier today and on many occasions, the deficit reduction that's occurred over the past few years has actually been a headwind in economic growth because the near term is nearly a shortfall for the demand of goods and services, which is to boost the supply of the factors of production of labor and capital and technological progress. >> mr. clyburn. >> thank you very much, mr. chairman. mr. chairman, on yesterday, "the wall street journal" ran a front-page story dealing with the widening job gap in our economy, and you may recall, mr.

elmendorf, that during the so-called super committee, you and i had a little exchange about the impact of unemployment rates on our deficit, and there was a stark correlation between the two. now, this report that we just saw yesterday, if we look at the 30 years, 30-year study that you reported to us that was released while we're having those discussions with the tax -- so-called super committee, it means that things have gotten even worse since then when it comes to unemployment rates and the impact that it's having on our deficit. and i really would be interested

in how you view this study, as well as there's a study, i think, uc berkeley indicating that all of this increase in wages that 90% of those increases went to the upper 1%, and most of that to upper .1%. now, i'm really, really interested in that, but i'm also interested in whether or not you will define spending as many others are beginning to define spending. a lot of people said, and i would not disagree, that we ought to look at just cutting spending. but the question is, whether or not entitlement programs, if you call that spending, would you call tax expenditures tax entitlements? because i have noticed that a lot of economists are now

looking at what we call tax expenditures as tax entitlements, because this occurs time and time again and gets back to what senator whitehouse has said. and i would be interested in your views on tax entitlements versus tax expenditures. >> so, congressman, to start, i'm not afraid familiar with all the studies that you mention, but it is certainly true that there's a great diversity of economic experience in this country that all the charts i tend to show about the average unemployment rate or overall income growth are missing, diversity lies underneath that. so, for example, if a look at unemployment rates, although the overall unemployment rate in october was 7.3%, the unemployment rate for people between 20 and 24 years of age was 12.5%, much, much higher. the unemployment rate for people

with less than a high school diploma was less than 11%. the unemployment for african-americans was a little over 13%. so there's a tremendous, and, of course, there are categories, groups of people for whom the unemployment rate was less than the national average. there's a tremendous diversity of experience in how this recession has hurt people and to the extent of which people's fortunes have improved or not during this recovery. there also are, as you mentioned, long-term trends in which a larger, over time, a growing share of the total national income is going to people at the higher end of the income distribution and more particularly, people at many other points in the income distribution have experienced rather small gains in income over a period of many years, and we do ongoing analysis of that and we are working right now to update our analysis. the last released was last year. there will be one released shortly from us to look at the distribution of federal tax

burden and the distribution of income in the country. on your point about tax expenditures, the term tax expenditures is an old term. it is in the budget act that established cbo almost 40 years ago. but i think there are a large number of analysts on both sides of the political spectrum and with a wide range of views about appropriate policy who think from an analytic perspective tax expenditures are best viewed as a form of government spending, because they are direct actions by the federal government to give benefits to particular activities or particular groups of people, much like federal spending programs. >> thank you. let's go with senator crapo and senator baldwin then. >> thank you, mr. chairman. dr. elmendorf, i kind of want to ask a two-part question like senator portman did. first of all, in 2009 when we had the $800 billion stimulus package before the congress, i

believe you were cbo director. you were just starting then. >> yes. >> cbo issued a report that is a common type of report that we see from economists who testify before us, which said that the stimulus package, which was entirely borrowed money, would in the short term have a stimulative effect, and in the longer term, which i recall two or three years, it would start to have a depressing effect on the economy because of the impact of the borrowing. is that your recollection of that report? >> so, our analysis, senator, and we actually still update this, pursuant to federal law, on a regular basis, is that the recovery act provided the biggest boost to the level of output and employment fairly soon after its enactment and provided a waning boost since then. we think that the extra debt will start to be an actual drag

on the level of output later in this decade, not yet. i think your qualitative point is right. >> so my question is this, and the second aspect of it is, as we look at the fact that we are getting closer and closer to the drag of that stimulus spending and the debt that is growing, i think you've indicated we're on an unsustainable path, and as we look at the question of tax expenditures that senator whitehouse pointed out that we need to look at, many of us have been fighting not to raise revenue because of the utilization of the tax increases, but to reform the tax code by flattening the base and reducing the rates. i believe that you have testified in the past that that would have a very positive stimulative effect on the economy if we approached the reform of the tax code in that fashion. would that be true? >> i think it would have a stimulative effect. the size depends on the nature of the tax reform itself, but i think it's certainly can be a

very positive factor, senator, i want to be careful about attaching particular adjectives to a general notion of tax reforms. as you understand, lots of things can be labeled that and it really does depend on the extent you and your colleagues are willing to do the base broadening measures, remove the tax expenditures, in order to bring down the tax rates. >> thank you. >> thank you. >> senator baldwin. >> thank you, mr. chairman. i wanted to talk a little bit more about the chart you have on the second page, short term versus long-term unemployment rates. the federal reserve recently released a paper that stated that long-term unemployment or long-term unemployed people become less and less attached to the workforce, obviously, lose skills that they once had, and

as their productive capacity diminishes, it also diminishes the growth capacity for our overall economy. the paper concluded that what should be a cyclical downturn in employment has the potential to become structural. and i guess i just want to hear you dig down a little bit deeper on this topic, because when i look at that chart, this is an alarming figure. in terms -- if it were the top priority of this conference committee to dig into that problem, what are our key fiscal policy options to prevent this from, you know, moving from a cyclical problem into a structural problem? >> so, senator, we do think that the weakness in economy over the past five years has reduced the

productive capacity for the rest of the coming decade. what we've said so far is that we've reduced our projected level of potential output for the end of the decade by 1.5% because of the downturn, and that's partly through workers leaving the labor force or losing skills. that's partly reduced capital investment, partly through lower productivity, but we are carefully reevaluating those estimates. now beginning our process of doing next year's economic and budget projections, and we may conclude these effects are larger than we had expected, and i think you're absolutely right that the persistently high level of long-term unemployment is a very worrisome factor for the economy. we wrote a report a year or two ago now about policies that could be used to bring down unemployment. i think some of those are on the macro economic side. basically, it amounts to stimulating the demand for

firm's products so firms need to higher workers in order to meet that demand, could be done partly through monetary policy but also fiscal policy, and the primary way to stimulate activity in the short run is lower taxes or raise spending now. however, to be clear, there's a consequence of doing that without taking other steps to pay off that debt later, and that's the point that senator crapo was making about what happens over the medium term and long term. there's also some economists would call microeconomics to improve the skills of workers by strengthening their training or by improving their ability to find jobs for which they have the right training, and our report detailed a number of things that can be done. i don't think any of them can be seen as silver bullets, they are mostly ideas worked on large scale.

>> just as a closing comment on this, you know, i was talking about unemployment, short term versus long, but if you look at the jobs reports, you know, we have greatly diminished manufacturing and construction sector, and what added employment we have seen has been increasingly in lower-wage sectors like leisure and hospitality and retail, which also relates to the productive capacity of our nation. >> yes, that's right. it is importantly a matter of people finding jobs but also a matter of finding jobs that use their talents in ways that contribute to the economy and also allow them to receive higher pay. >> thank you. >> let's go with dr. price and senator sanders. >> thank you, mr. chairman. i want to commend you and senator murray for continuing to provide opportunity for exchange of ideas and gaining information. dr. elmendorf, welcome back once

again. i was struck by your three conclusions, one, debt larger than after world war ii, two, debt will continue to rise and we are on your words an unsustainable path, and, three, that current law, if followed, will result in a decrease of congress' ability, the people's representatives ability, to provide prioritization and spending on defense and nondefense areas to a smaller level than any time in the last 50 years in 2017 and beyond. real fundamental change in the work that congress does. now i'm hopeful that we can reach a large agreement. i think we can reach an agreement. i'm not sure how large it can be, i'm hopeful that it is large, but i think we need to walk before we can run, likely. so my question is a specific question about sequester. the discretionary side of spending will decrease january 15th down to 965, 967 or so. many believe that's not

appropriate and we ought to mitigate that. i've been intrigued by some that have come to me and say a possible way to mitigating that is to accelerate the contributions that states make to the expansion of the medicaid program that was contained in the aca. as you know, for the first three years, that's 100% federal subsidy. would that -- is that one option that might be able to allow us to mitigate the problem, the challenge, of sequester and also potentially decrease federal spe spending? >> well, congressman, that is one way to reduce federal spe spending, is to have states bury larger portion of the medicaid costs, and if you were to do that and simultaneously raise the caps on discretionary spending, then, i think, you could accomplish the aim you are suggesting, yes. as you know, the point of the big book, there are an awful lot of ways to cut spending or raise

revenue in ways you can reduce the debt relative to our projections or offset projections that you don't think are a good idea for the country. >> thank you. thank you, mr. chairman. >> mr. sanders. >> thank you, mr. chairman. thank you, mr. -- dr. elmendorf, for being here. dr. elmendorf, i thought your president was very, very strong and interesting, except you, i think, kind of left out some very important facts of contemporary america, and i'm going to tell you what i think and you tell me if you agree or if i'm wrong. one of the difficult jobs that this committee has is not only trying to come up with a budget, which is hard, but also within the budget, deal with priorities. when you spend money, cut money, it impacts real human beings. now, my impression is, that in america today, we have the most unequal distribution of wealth and income since the 1920s, late 1920s, that, in fact, in terms

of financial wealth, the top 1% owns about 38% of the wealth of america while the bottom 60% owns all of 2.3%, and my understanding also is, top 1% today in terms of income earns more income than the bottom 50% and between 2009 and 2012, 95% of all new income went to the top 1%. does that sound roughly right? >> senator, it sounds roughly right. we have not done analysis ourselves through 2012 nor back to the 1920s, but you are certainly right that the distribution of income and wealth in this country is much more uneven now than it has been in decades. >> and i say that, because as we go forward in terms of our priority and some folks want to cut social security, medicare, medicaid, programs for low-income people, we also have to recognize, correct me if i'm wrong here, there are more people living in poverty than

any time in american history, 46.5 million people. is that right? >> as you know, senator, the poverty rate is a complicated business. the standard series excludes many benefits the government provides to low-income people. i'm just not familiar -- >> okay, let me ask this also. i think this is an important point. again, it's important to understand the past as we go forward. your chart that you gave us tells us that up until 2001, i think '98, '99, 2000, 2001, we actually had a surplus. we had a surplus. now, is it fair to say that the reason we began to go into deficit was because we went to war in iraq, which by the time we take care of the last veteran is going to cost us about $3 trillion. how do we pay for that war? >> so, senator, as you know, congress cut taxes and then spent significant -- >> you mean in the middle of the war you're not suggesting in the middle of a war which cost $3 trillion, congress actually cut

taxes for the rich, you're not suggesting that, are you? >> senator, congress cut taxes for a lot of people, and the congress spent a lot of money fighting overseas. >> point being, the reason we're in a deficit today is because two unpaid wars, medicare part d program unpaid for, large tax breaks, trillion dollars of which went to the wealthy, and i only say that, as we go forward to figure out where we want to be as priorities, you got to remember that fact, as well. thank you, mr. chairman. >> so, let's go with senator johnson -- >> mr. chairman, may i just -- >> go ahead. >> my only response would be to note we released a study earlier this week of the distribution of federal spending and taxes. this is from 2006, which were the latest full set of data that we could collect, but it goes through in great detail the ways in which different federal programs, cash transfers and other sorts of transfers and also federal revenues, how they effect people, households, different categories and income

levels, and those you are particularly concerned about, the distributional impact you're considering, we hope this information would be helpful for you. >> it is a helpful body of work, i encourage members to read it. let's go with senator johnson and congresswoman lowey. >> looking at the last chart looking at the dramatic -- i want to ask a multipart question on the affordable care act. certainly, when i learned the details of the act, in no way, shape, or form did i think every american would be able to hold on to the health care plan. i knew millions of americans would lose their health care plan, which is why in our budget process here in the senate, we passed an amendment on a bipartisan basis asking the cbo to score what would happen when 30%, 40% of employees would get put in the exchanges and how much that costs in terms of subsidies, so three-part question. first of all, did you believe

the question when he repeatedly said if you like your health care plan, you can keep it. two, has the cbo done any work to actually give congress that estimate of how much obama care is really going to cost, and, three, your current cbo estimate says over the next ten years obama care will cost $2.4 trillion. i think the estimate about $1 trillion of tax revenue associated with the plan. where does the other $1.4 trillion come from? >> so, senator, your first question, as >> as you know, our initial analysis showed in our judgment some people would lose -- would not have employer sponsored insurance, who have had in the absence of the act and we discussed at some length with congress at the time our view that people who were buying insurance in the nongroup market, not through their employer but on their own, would face on average increase in the

premiums they pay for health insurance because the policies they would be having to buy under the affordable care act would cover a larger share of health care services. so that their co-payments would be down but their premiums would be up. we made that information available to the congress in 2009. and your second question, as you know, we have done very lengthy analysis of how the cost of the coverage expansion under the affordable care act would vary depending on different sorts of responses by employers and employees and the incentives of the act. and we did a very long analysis of what would happen in term of sources of insurance coverage and cost to the federal government if employees and employers behave in rather different ways than we had expected. we think that is plausible.

as i said, senator, we viewed as a wide range of plausible possible outcomes. on the third issue, the affordable care act has a cost over the current ten-year period from the coverage provisions that we estimate to be about 1.3 or $1.4 trillion. and the -- that money is offset in our estimate by a combination of cuts in other sorts of spending, primarily in medicare spending relative to prior law and increases in tax revenue of $1 trillion. >> what am i looking at when i'm getting $2.4 trillion over the next ten years? >> i'm afraid i don't know,

senator. i have the table in front of me contained in the aca. the bottom line over the coming decade is $1.4 trillion. >> mr. chairman, i ask the record of our proceeding include the letters submitted by the appropriation subcommittee chair along with a statement by each kolg for sequestration to be replaced. >> without objection. >> as we're all keenly aware, january 15th is the deadline for passing legislation to keep the government running. the shut down caused our country 120,000 jobs, billions of economic activity. this conference committee must be successful in reaching agreement on a funding level for fiscal year 2014 with enough

time for bills to pass before january 15th and a funding level for fiscal year 15 so that we avoid another dysfunctional, unrealistic budget and appropriations process in just a few months. as noted in the letter if our appropriations chairs. there is also bipartisan demand for us to end the sequester. as mr. rogers has said, sequestration, and i quote, is unrealistic, ill conceived, discretionary cuts must be brought to an end. as cbo has repeatedly noted the sequester will cost our economy an estimated 800,000 more jobs in 2014 alone. so i think it bears repeating, could you please share cbo's analysis on the jefr all impact of sequestration on job and

economic growth for 2013 and what you think the impact will be for 2014 if sequestration remains in place? >> so congresswoman, i think the things that -- let me quote from a letter we wrote to congressman van holland a couple months ago. we said that if the automatic spending reductions specified in the budget control act including both the effects on discretionairy spending and the mandatory spending, those reductions were eliminated that would increase real gdp by .6% by the fourth quarter of 2014 and would raise full time equivalent employment by 800,000 people by the fourth quarter of 2014. >> i thank you very much. and i really thank you for your testimony today. this just amplifies the stakes of our conference committee's work.

i hope that our committee will really begin working in earnest toward an agreement in the coming days to prevent the economic damage that partisan politics and the sequester could cause in the coming months. thank you, mr. chairman. >> thank you. let's go with -- right next to you, congressman cole. >> thank you very much, mr. chairman. i want to assure you that my grend and i d good friend and i did not coordinate our roshgz. i was going to ask that letter be placed in the record. i'm glad my friend has already done it. so please make that for both of us. >> speaking order was just random. just a couple points and then a question. i want to quote from that letter. it does make a couple important statements. we ask that budget committee endeavor to agree on a common overall discretionairy number by november 22nd. november 22 is nine days away.

and we don't have any schedule meetings between the 22nd and december 2nd. so this is a matter of some urgency. so our colleagues on the appropriation committees which includes my friend miss loy and myself have the opportunity to get about the business of arriving at real spending bills. this is a bigger and littler problem than what we're faced with. he has given us a wonderful presentation of long-term debt. we don't disagree with any of that. he is right. we need to address it. on the other hand, the more immediate problem, the two bodies are $90 billion apart. we ought to be able to give the appropriation a number for both fiscal year 14. i would hope fiscal year 15 as well.

so they can have an uninterrupted stretch of time to deal with the budget. let me ask you this question. i would ask you if you could, you may not be able to do this off the top of your head, proubbly can't, are there enough savings in the three budgets to bridge the gap between the house and the senate budget? which is again, only $90 billion and over a two-year period i think the two chairman have said they can deal with $125 billion worth of spending. again, not a lot out of almost $7 trillion. >> i think there are proposals for spending cuts in the two budgets that overlap but i can't list them. i don't know what the magnitude is. >> could you just prepare for us for future reference a list of those sorts of cuts so we have the options really that all sides have agreed on to one 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 usstandif and put them summarize the world, that hurts her economy here at home, one that is intriguing to create jobs here improves our economy. >> yes, senator. there's a growing and complicated empirical literature by economists about how helping

u.s. companies compete overseas can either hurt or how they are duties in this country and that the issue i don't want to wade into. >> thank you. senator cain. >> thank you, mr. chairman. dr. elmendorf, 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 and i don't want to put words in your mouth. it seemed at the end of your oral presentation of your charts come you are offering the hortatory advice to a about the salutary effects of finding a deal that it would have some -- just the mere fact of finding a deal, which would involve compromise between the houses that would have some positives on the economy. this refers to the opening comment that senator warner made. i've been worried about a certainty as an inchoate around economic recovery. i would just like to have you

elaborate on those final comments and talk about the extent to which you think is certainty has been an inchoate on the recovery that we could find a deal for 14, 15 or set parameters were beyond the likely see positive economic effects. >> yes, senator. we and many analysts say he has concluded that uncertainty about federal fiscal he has been a considerable drag on economic activity in the past few years. but quantifying that effect is very, very difficult. we've had some people's beak is economic advisers, who worked in the area to see how far we could go in the conclusion of our racers was the results were qualitatively very suggestive, but there is no way to quantify that effect. that's why we don't turn off the numbers. lots of things are important. they can be quantified.

the uncertainty about what will happen, the federal taxes on federalist pending has been an important source -- an important heaven to the economic recovery. my remarks concluded by noting a broad solution to the long-term budget challenge would of course be salutary, but even if that is not feasible now, reallocating portions of the budget in ways that 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 would be a positive factor for the economy now and next year in the year after. there's very few large problems settled in one go. i don't want to discourage admission on the part of the committee, but i think many lines of life should not be the enemy of the good.

that applies to the budget policy as well. >> mr. wyden. >> thank you very much, mr. chairman. director, north, i think we know traditionally when you're trying to find a can insist for a conference like this come you look to the side in areas where they are on record as supporting changes good for example, chairman camp in the house and the president's treasury department have identified among the trillion dollars in 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 and we'll get there. so let me just put this is the theory. is that correct to say that theoretically you could eliminate several of the most flagrant tax loopholes without

compromising the broader tax reform agenda, just in theory? >> yes, senator, that sounds right to me. >> thank you for that. the only other thing i want to do, chairman ryan is vastly put into the record at this point a chart that director elmendorf since you a few weeks ago. the chart demonstrates for 2014 congress adhered to the caps for nondefense discretionary pending but chose to disregard the caps for defense. but ask unanimous consent would put the chart into the record at this point. i thank you and i think the director. >> mr. kane. >> thank you, mr. chairman. i have a real sense of urgency about this for one of the reasons mentioned several times that's insurgency. there's no question the uncertainty of the policy in washington is effecting 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 of this conference. a call to grind proposal. it's on at starbucks on days in the middle. it's a medium size. >> i just call it media. >> medium, okay. a 10 year deal that would propose minimum cut, cuts in mandatory spending, revenues and is moving to exchange they mitigate the effects of the sequestered that produce the same deficit reduction effect. number one, cut the sequestered caps and half through a combination of cuts in mandatory spending of 255 billion in revenue strikes are reducing corporate tax expenditures of 200 billion. it would generate an additional 325 billion in additional revenue from corporate tax reform from what should be applied to corporate rate

reduction and an infrastructure fund and the ratio of five to one. $275 billion reproduction from a 50 billion infrastructure fund would take the current corporate rate from 35% to 32.5%. you're left with at the sequestered amounts and you would apply, that senator sessions has suggested in terms of the interest -- the growth rate, which would essentially minimize -- [inaudible] >> no, this is moving the rate of growth at the sequestered amounts. as you know, there are varying growth rate. if you increase than in the near years, you can in effect lemonade to cut we are now facing. this would provide certainty to the appropriators if we get the numbers they could then work with and that could give us the flexibility many people have

talked about in the appropriations process in the congress rather than the administration. i think there's something in there for everyone to dislike, but i hope you'll take a look at it and consider this as a possible and it needs further deficit eduction for further talks, but it's always the media problem of the sequestered and yet we end up at exactly the same place in terms of deficit reduction as under current law. so that's the proposal i made to you. >> as mentioned before, i encourage everyone of her colleagues if they have suggestions, please submit them. thank you. mr. van hollen. >> thank you, mr. chairman. thank you, dr. elmendorf. i want to get back to a point raised by senator portman with respect to historic revenues as a percent of gdp. you pointed out from 1973 to

may 2012, he was 17.4% revenues. of course we are running deficits at 3% on average and a senator warner pointed out, the only time in the entire. would it not been deficits as 1998 to 2001 for the revenues as a percent of gdp averaged about 19.5%. if you look at your chart under current policy at the end of this 10 year window, we would still be at least a percentage point approximately a revenue of gdp below what it was for my balance the budget and 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. some huge increase in seniors to qualify or eligible for social security at a lower revenues. 10 years from now than we had in

the years we actually balance the budget. i wanted to emphasize that point because it seems to me it's hard to say you care about reducing our long-term deficit, but have a position you will close a single tax rate for loophole or eliminate any tax expenditures for the purpose of reducing the deficit. senator crapo pointed out in the recovery helped cushion the economy during a difficult time that some of the debt service in the out years will provide a little bit of drag. i would point out the drive from the interest rates. they were sort of the worst for prescription drug plan and attack straight for any out here track from the recovery bill. the sequestered as you pointed out will result in approximate 800,000 fewer jobs by this time next year. we should fix that. my question is unemployment

compensation. can you tell us what impact that will have on economic growth. >> we wrote in a report about this time last year that extending the additional unemployment benefits through 2013 will provide a boost. we think extending the benefit now in 2014 would provide a boost to gdp and jobs next year, but we have not yet tried to quantify that. you may be about to ask. >> mr. chairman, i would ask cbo if you could quantify the impact. >> look into that, congressman. >> center johnson, center sessions in the editor murray

thing. >> dr. elmendorf, will give you paper on obamacare. the trust fund holds about $2.6 trillion of nonmarketable government bonds. >> to asset offset liability >> the trust fund to the federal government has no monetary value and total? consolidated basis? >> in fact senator, we casino as a consolidated basis. that's her talk about the federal debt held by the public. >> the government as an entity has your monetary value. now i want to go back to the cost of obamacare. in front of you now is that i was looking at to show over the next 10 years the cost of the affordable care could be about

$2.4 trillion. about 1.3. you basically agree with this analysis that discretionary spending -- i won't go through it. >> let me clarify what everything. i was referring to the cost of the coverage precisions. >> are the expense the affordable care act is going to cost the federal government about 2.4 trying dollars, correct? >> i can check, we have here are a minute the effects of repealing the legislation that we provided to the speaker of the house last summer that has a break down. if i can find it -- by our estimates. the total addition out ways over the coming decade was about $900 billion the total increase in revenues was a trillion dollars in the affordable care act. you are doing a different sort of breakdown to construct the

pieces you have here. >> we are doing 2.4 trillion, said my question is what is the $1.4 trillion come from >> haircuts and other other sorts of spending and increases in revenues and that's why all the provisions of the affordable care together we estimate would reduce deficits. >> you're still sticking to that? the current budget when no quick my guest, senator >> thank you. senator sessions. >> thank you. with regard to the sequestered the job short-term, but in the long-term committee report makes clear redshirt 62 as we discussed earlier that we don't adhere to the $2 trillion in savings will see a a 7% reduction in long-range gpe. we have a 4% gain, which is a

huge difference. if we take another 2 billion that would be a 7% gain. i think we just all have to realize that at times you have to taste the medicine to get off the maleness. are you familiar, dr. elmendorf, with a new imf, international very monetary fund report that found on the actions they been taking over there that tax increase is are two to five times more harmful at cutting spending to reduce deficits? >> i've heard of the report, senator. i've not read the details of it. 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 are we. >> your findings are not inconsistent with the general principle. your findings would indicate also tax increases are less

hopeful than spending cuts over the long term to deal with deficits. >> so the one clarification i that offers senator is increases in marginal tax rates, tax rate people pay any additional hour of work or dollar savings increases in marginal tax rates slowed the economy relative to some other way of reducing deficit that does not effect people's behavior. >> with regard to the marginal rates, you would agree tax increases are less advantageous over the long run for the economy this pending cuts? >> than spending cuts that do not otherwise destroy people's behavior. we come back to the road investment. federal investments can help the economy in the long run. i want to be careful here. >> senator, the point -- >> actually, senator -- >> in general, the tax increases

are less hopeful and reduce the deficit as our tax increases do more damage to growth over time than spending reductions as we seek to reduce deficits. >> so some of her, we would be careful in our reports not to paint either all tax increases or spending cuts with the same broad brush. as you understand the incentive effects -- thank you -- >> thank you. wilco to mr. whitehouse. >> thank you, chairman. dr. elmendorf, one of the issues we have to address this health care the federal budget. as you and i have discussed before, the cost of health care in the federal budget relates to the cost of health care.

in the country. the figures i have is we're spending about 18 purse and a fair gdp on health care nationally, that the figure is northbound, had it for and higher and that the least efficient of our competitor, industrialized nations is burning maybe 12% of their economy on health care. we pay about a 50% inefficiency premium in our health care and compared to other industrialized countries. the president council of economic advisers said their $700 billion per year to be saved in the health care system without effecting the quality of care in any adverse way. the institute of medicine a thinker at 750 billion. rant came out with a range in the mid-point of rand corporation's range is about

780 billion. the group in george bush's secretary treasury is knowledgeable on this because he ran the pittsburgh group to focus on health care they are any trillion dollars there. so these are some very, very big numbers at 40 plus% of the numbers would come back into the federal budget. if we were able to achieve the savings on a national level. i know that there's a scoring problem with trying to work from a national health care costs the means and to the federal budget. but just in terms of talking to assist members of congress, in terms of the priorities you see out there, how important is it for us to get a handle on the health care cost problem in the united states? >> so senator, i think it is a tremendous difference for the federal budget if you and your

colleagues and the people running the federal health care programs can find ways to slow the growth of cost that should not adversely affect people's health. the principal problem there -- >> that's the premise of the different studies have reported is that it won't hurt peoplesoft care, probably improve it. >> i understand, senator. the place i would disagree with you as it is basically not a scoring problem is a policy problem. there is very widespread agreement does he 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. there is much less agreement and less evident to show how federal policies should be changed to squeeze out that extra spending. >> i'm not saying we understand the policy judgments yet. as an area focused on me think

we should be relentless on this? be my guest i'm absolutely, senator. >> before he turned to senator murray, mr. clyburn community ec requests. >> yes, mr. chairman. i would like to enter into the record "the wall street journal" article that i referenced in my comments. >> without objection. [inaudible conversations] >> i think he's good. >> 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. [laughter] >> ali haverty sues. just very briefly, i think this is a great hearing and director

elmendorf, i think what i take from what you are saying in the church and so on is consistent with where i think there's kind of a current senses, which is a two thirds of the budget we don't appropriate every year, which is on autopilot, which is going to 76% of the budget based on your statistics is very to focus a lot of our attention. even in this group, what you said earlier is you don't mean to be too pessimistic and they sent you think even if we made small steps in the right direction in terms of mandatory evening and reforms that markets would respond favorably that would be viewed by the american people is dealing with the real problem. is that correct? if so, maybe it's conclusory statement to make about what you view this group. we don't have all the answers here and on the committees of jurisdiction, but we have an opportunity to do something that moves us in the right direction. what would you recommend we do?

>> senator, i cannot make specific recommendations. i think the big steps are better than small steps, the small steps are better than no steps at all. no steps that i would be better than stepping backward. i think the specific changes he 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 eye on the longer-term problems is critically important, that one should not view this as sort of the world series or bust. that one can move the ball a little bit. one can make some changes that figure sense of what the country's priorities are to be and would reduce uncertainty about what will happen in january and february and throughout next year, that that can be an important lift to the

economy, can improve the efficiency with which the government operates. so i think the earlier one should not make the enemy at good. thank you. >> order to the last word. senator murray. >> senator workman, that was where he wanted to end this n. echo s. i matter cain said is that we all appreciate your comments about not discouraging us from doing the large. obviously, we have to keep our eye on the ball in the long run. all of us need to continue to work on that. your comments today are especially important for all of us to hear that the uncertainty that is created by the way things have been managed by christ is in the sequester is harmful to the economy and by making mall steps now, moving us forward providing that certainty so businesses can sign contracts and know where they're going for the next year to two years is

extremely important for us to at least make those steps and i appreciate your comment on that and advice to the committee. >> i want to thank everybody for attending today's committee. senator murray and i will consult on how to proceed the next steps. for now, this meeting stands adjourned. thank you. [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> news now from capitol hill. the house has passed a ban that would allow insurance companies to continue selling these they do not comply with the help a lot. the final tally was 261 to 157 with 39 democrats supporting the republican bill and for gop members voting no. the "washington post" writes that the proposal quote will

allow more americans to keep their current health plans will significantly weakening part of the affordable care act. critics say the measure undercuts the essential premise of the affordable care act, the supporters said the plan would make good on president obama's broken promise of allowing american to continue at current health coverage if they wish. ..

>> thank you very much. i'm damon wilson, executive vice president here at the council. let me echo the welcoming to all of you in our audience and as well as to the ambassador and our team, our partners from norway. this is a conference on nato's deterrence and collective defense. this first panel discussion is on the new challenges and new tools around deterrence. as fred said, this conference today is part of a much larger project that we have called nato in an era of global competition. it's a chance for the council in 2014 to think long-term about where the alliance is going. in essence it's a project to sharpen the purpose and relevance as the alliance as we head into what fred characterized as an inflection point in history. for all of you in our audience, working on ensuring that the summit next year is not just the

last summit on afghanistan essentially. but it really is a summit that kicks off a new chapter of nato's future, a healthy future for the alliance. for all of you, everyone knows during the cold war, the alliance was about deterring deterrence. it was about the soviet threat. in post '89, the alliance was known for outreach to the east. to open up a historic process of enlargement. with the disallusion, the alliance became active in its first operational role and became an institution of first resort for crisis management. and post 9/11, we saw an alliance that continued to transform really the to tackle challenges, to tackle where they were, whether that was the taliban, whether it was missiles originating from facilities in iran, or whether it was from

unknown hackers in cyber space we saw an alliance beginning to think differently abouts i approach to security. the question is now what? what's next? the washington treaty, which set up the nato alliance, it it doesn't identify an enemy. the alliance is about binding the security of north american europe together for all contingencies. it's actually about deterrence rather than any particular enemy. so what does that mean in today's world when we have nonstate actors, global powerships, disconstructive power. nato just concluded on november 8th they concluded a major exercise, a multinational exercise involving 6,000 troops from 28 nations called exercise steadfast jazz. this was one of the the most important exercises the alliance has done in recent years. it raises the question of what type of exercise, what type of deterrence is this alliance

preparing for for the future. to get us into this conversation, we have four terrific panelists. barry pavel is the vice president and director of the scope center. barry will update you on the work we have done and laying out a new concept for the alliance. he joined the atlantic council after a long career in the pentagon also having served as a special assistant to the president for defense policy and strategy at the white house. and played a heavy role in strategy issues at the pentagon. to his left is the newest atlantic council senior fellow. welcome. it's a delight to have you with us today. he also holds positions with vice president of the gruch. but he's on this panel discussion because he served not only as diplomatic adviser to president of italy, but as a representative to nato. he