for a state dinner in a beautiful gown you know and some speech where -- or whatever but i think what they may not imagine looking at

the white house from the outside is that it's actually a very normal life upstairs on those two floors in the white house residence. first ladies probably and i know i did lie on the couch and read a book and in my case my cat would always curl up next to me. up next ahead of the congressional budget office on the deficit. the economic outlook and how the labor market is being affected by the health care law. douglas elmendorf was before that house budget committee for two and a half hours. [inaudible conversations] see the hearing come to order.

i love everybody and welcome. i first want to thank director on the door for joining us again. we appreciate your taking time to meet with us today and we know this baseline was a little late because congress was a little late so i'm glad we got time to get to this. you have put together a very informative report. it does a great job of laying out the challenges we face. mine main takeaways this. we still have a lot of work to do. this year we are going to run a deficit of $514 billion. that is less than last years but it's nothing to brag about. in fact the deficit will start growing in just two years. by 2022 we will be running trillion dollar deficits again even though we will be taking in a historically large share of revenue. even though taxes are at a historically high place we still have got trillion dollar deficits in the future. that is because the economy is

growing twice as fast as revenues over the next 10 years we will add trend -- $10 trillion to our national debt for a grand total of $27 trillion. it's hardly time to start congratulating each other. i was glad to see we passed a bipartisan budget deal last year. i think it was a step in the right direction but only a step. we need to do more. we need to do much more. it's déjà vu all over again because we know what the problem is. autopilot spending and interest payments are driving our debt. interest alone will quadruple over the next 10 years. billions of dollars in government spending will make things worse for our economy and working families. by 2017 cbo projects that people will be working fewer hours precisely because of the incentives created in this law. the effect will be severe as a 2.5 million people had stopped working full-time by 2024.

between 2017 and 2024 overall labor compensation will also decline and these changes disproportionately affect low-wage workers. translation, washington is making the poverty trap much worse. your report points out some weak spots in our economy. low investment, high unemployment, people leaving the workforce. if we got our act together we could start paying down our debt and give our economy the certainty that it needs. tax reform, regulatory reform, energy development. i think all of these could help create jobs and increase take-home pay. if you could bring up from the cbo report slide 2.8. this is a point i would like to highlight. this report says that not only does the debt get worse, that we have slower economic growth

compared to the last forecast but what is particularly troubling is cbo's projection of the labor force participation. cbo says that half of this declined is attributable to the aging of the population. baby boomers are coming. they are retiring and fewer people are following them into the workforce, a problem we have had for a long time that we have yet to solve but most notably in this report is that cbo also says that government policies especially the president's health care law are discouraging work. washington is making this problem worse. this does not have to be our fate. we need to reverse this decline. so i consider this report a call to action. we know what the problem is. we know how to fix this problem and i believe we can work together to get it done. the debt won't take care of itself. it is up to us. the men and women and the representative branch of government elected to represent them. we need to take action so i want

to thank you once again for this report dr. elmendorf your time today and i look forward to a great conversation into your testimony and with that i would like to recognize the ranking member mr. van hollen. >> thank you mr. chairman and i joined the chairman and welcoming you dr. elmendorf and thank you to you and your entire team for the good work you do. as i look over the most recent cbo report it's a good news bad news story. the good news is that we have seen economic growth over the last few years and project continued economic growth going forward and the economy has added over 8.2 million private-sector jobs over the last 46 months. on the other hand this report projects very sluggish growth in the job market. in fact as i read it you project that the average unemployment rate in 2014 will actually be higher than the unemployment rate in december of last year

and that clearly is not good news. in fact page three of your report sums up this next story when it states quote economic growth is projected to be solid in the near term but weakness in the labor market will persist and that sums up our challenge. and it seems to me we should therefore take actions that are within the control of this congress. congress can change the trajectory. your report is based on current law but congress can take action today that will actually change that story for the remainder of this year and increase job growth. the president and the house democrats have put forward clear ideas to do it. we have a jobs plan that calls for a significant additional investment in our national infrastructure and our roads, bridges and broadband to help boost their international competitiveness and put people back to work. we can increase the minimum wage which allows more americans to

keep the fruits of their labor and by putting more money into the pockets of relatively lower income individuals who tend to spend it more, it will create more demand in the economy. and at the same time while we have a problem with long-term unemployment we can extend unemployment insurance to those now 1.7 million americans and as is the congressional budget itself has said that well off -- actually create additional jobs this year, 200,000 being the last projection so there are things we can do today mr. chairman to get back to work and get the country back to work. one thing we should not do is mess around with whether or not america pays its bills on time is that will create uncertainty in the economy and that will hurt economic growth and jobs. dr. elmendorf you have a comprehensive report that the one thing that has gotten all the attention is on the front page of all the papers and the

thing that chairman ryan referred to. and i have to say this is an example of when one misinterpretation gets out of the box early and goes around the world that takes the truth out of the hole -- what we believe we should focus on is the availability of jobs and the demand for jobs today. with the chairman was focusing on was beginning in 2017 when the economy gets back to full employment as a result of the affordable care act more americans will be able to voluntarily choose, choose to work fewer hours or not take a job because they don't depend on that job anymore with the provision of health insurance because before the aca if you lost your job you lost your health insurance. now you can go to the exchange and get affordable health insurance and as a result people may choose differently.

i find it really kind of ironic that back in 2008 when senator mccain proposed a health care reform plan the heritage foundation and conservatives heralded it as a plan that would help break job lock. they said today changing jobs means leaving behind health insurance provided at their place of work. individuals who work to take a better job or change careers or leave the work force to raise a family will retire early takes substantial risks and by god the mccain health care reform plan will and that job lock. the affordable care act doesn't that job lock traded allows americans to choose to spend more time time with their family or pursue their dreams and that is not a bad thing. it's a good thing. what is a bad thing is the lack of available jobs today and the fact that here in the house we have a one focus on trying to eliminate affordable care for millions of americans rather than focus on creating more jobs for millions of americans.

that should be our focus mr. chairman and that is really a conclusion of this report if you look at the entire thing instead of the few paragraphs. i think you dr. elmendorf for your work. >> dr. elmendorf the floor is yours. >> cbo's report on the outlook for the budget and the economy as well as our companion report released yesterday that dug more deeply into the slow recovery of the legal market. beginning with the budget the federal budget deficit has fallen sharply during the past few years and it is on a path to decline further this year and next year. we estimate under current law the deficit will total about $500 billion this year. compared with $1.4 trillion in 2009. at that level this year's deficit would equal 3% of the nation's economic out but for gdp close to the average percentage seen during the past 40 years.

the baseline projections show what we think would happen to federal spending revenues in deficits over the next 10 years if current laws generally were unchanged. under that assumption the deficits projected to decrease again in 2015 to about 2.5% of gdp. after that however deficits are projected to start rising up in dollar terms and as a percentage of our nation's economic output because revenues are expected to grow at the same pace as gdp whereas spending is expected to grow more rapidly with gdp. why the more rapid spending growth? in inner baseline spending is boosted by four factors. the aging of the population, the expansion of federal subsidies for health insurance, rising health care costs per beneficiary and mounting interest payments on federal debt. with no changes in the applicable laws spending for social security will increase from 5% of gdp in 2014 to 5.5%

in 2024. spending for the major health care programs including medicare medicaid the children'children' s health insurance program or chip and subsidies for insurance exchanges will climb even more in their current laws. net interest payments by the federal government are also projected to grow rapidly mostly because of the return of interest rates to more typical levels. in sharp contrast the rest of the federal government's noninterest spending for defenst from the ones i just mentioned and for all other non-defense activities it is projected to drop from 9.5% of gdp this year to 7.5% in 2024 under current law. that would be the lowest percentage of gdp since at least 1940 which is the earliest year for which comparable data has been reported. thus a sharply increase in each year in the federal budget will go to art benefit a few large programs and a shrinking share

will go tour most of the rest of the government's functions under current law. the large budget deficits recorded in recent years has substantially increase the federal debt and the amount of debt relative to the size of the economy is very high by historical standards. we estimate that federal debt held by the public will equal 74% of gdp at the end of this year and 79% in 2024 and her current law. such a large and growing federal debt has serious negative consequences including restraining economic growth in the long term giving policymakers less flexibility to respond to unexpected challenges and eventually increasing the risk of a fiscal crisis. turning to the economy we expect that after frustratingly slow recovery from a severe recession of 2007 to 2009 the economy will grow at a solid pace for the next few years. but it will continue to have considerable unused labor and capital resources.

further growth in housing construction and business investment should raise output unemployment resulting in increased income should boost consumer spending. in addition under current law the federal government's tax and spending policies will not restrain economic growth to the extent that they did last year. and state and local governments are likely to increase their purchases of goods and services adjusted for inflation after having reduced reduce them for several years. as a result result of baseline shows inflation-adjusted gdp expanding more quickly from 2014 to 2017 an average rate of 3% a year ending in 2013. we expect those increases in output will spur businesses to hire more workers pushing down the unemployment rate and tending to raise the rate of participation in the labor force as some discouraged workers returned return to the labor force in search of jobs. that effect in participation will keep the employment rate from falling as much as it would

otherwise. we project the unemployment rate will decline only gradually over the next few years finally dropping below 6% to 2017 and edging down further after that. nevertheless labor force participation rate is also projected to climb further in the next few years because according to our analysis the increased participation stemming from improvements in the economy will more than offset by the downward pressure from demographic trends especially the aging of the baby boom generation. after 2017 the demographic trends will be unfolding with the effects of cyclical conditions for participation rate is projected to climb more rapidly. that is the main reason by beyond 2017 we project economic growth will diminish to a bit more than 2% per year. a pace that is well below the average seen over the past several decades. thank you and i'm happy to take your questions. >> all right.

i have a few questions about the health care law and how it has affected the labor market. what is your best estimate of the effects obamacare will have in the total number of hours worked which is the issue we are talking about? i just want to make sure we accurately understand what it is you are saying. >> we think the affordable care act will reduce the total number of hours worked in the economy by between 1.5 to 2% between 2017 and 2024 relative to what would have happened in the absence of that act. >> what is an equivalent fte, full-time equivalent worker? >> given the fact that well the calculation we have done suggest that is equivalent to 2.5 million reduction in full-time equivalent employment. >> just to make sure everybody understands this and i think reading the report 2 million

equipment in 2017, 2.3 million equivalent in 2021 and 2.5 in 2024. just to understand that, it's not that employers are laying people off, it's that people aren't working in the workforce, aren't supplying labor to the equivalent of 2.5 million jobs in 2024 and as a result that lower workforce participation rate less labor supply lowers economic growth? >> that is right mr. chairman. >> who are these workers? who are the people typically in this category? what kind of worker from an income scale side are being affected by this? >> so, the effect is principally on the labor supplied of lower wage workers and the reason is what the affordable care act does is to provide subsidies focused on lower and middle income people to buy health

insurance and in order to encourage the sufficient number of people to buy health insurance a subsidies are large in dollar terms. those subsidies have been withdrawn over time or withdrawn for people as their income rises and by providing heavily subsidized health insurance to people with low income and withdrawing those subsidies that they income rises the act creates a disincentive for people to work relative to what would have been the case in the absence of that act. these subsidies make those lower income people better off. this is an implicit tax and not the tax we normally think of but providing a subsidies people are better off but have less of an incentive to work. >> i understand that in the context of health care but better off in inducing a person not to work who is on the low income scale not to get on the

ladder of life to begin working and the dignity of work and getting more opportunities raising their income joining the middle class. this means fewer people will do that. that is why i am troubled by this. we are seeing a significant participation rate, 2.8 and i will just make a point here. this is what is so concerning about this, is if i understand your point that big part of this is something we are the new which is boomers are retiring so we are effectively doubling the amount of retirees we have in the country over a generation and far fewer people are following them in the workforce. it was only a 17% and the workers so that is already a problem. where we are not prepared for the boomers in their retirement but what this is doing is adding insult to injury. you are saying because of government policies as the

welfare state expands the incentive to work declines meaning growth of the government shrinks the economy. fewer people will be working in the economy will be slower as a result. we have about a trillion dollars in less revenue because of slower economic growth from your last forecasts which goes to the deficit in the debt and makes is that much less prepared to get ready for the baby boomers so that to me is just jaw-dropping. if you look at this budget and i am rounding here, social security and medicare have nearly doubled over the 10 year window. medicaid more than doubles but interest on the death quadruples. is that about right? >> in nondollars, yes. >> your baseline shows us that adding $10 trillion to the debt over the next 10 years with the 57% increase in the amount of the national debt. at the same time interest payments as i mentioned

quadruple to $880 billion by 2024. here is what i'm really worried about. you assume fairly stable interest rates. you assume a normalization of basically no inflation on the horizon of the decade and the 10 year goes from 4.8 to 5% at the end of the window. >> 5%. >> we of an expansion of our monetary base base. we are in uncharted territory with respect to monetary policy and the federal reserve. they have just begin to normalize and we have already seemed reverberations in the emerging markets and they only have tapered a little bit. what happens if interest rates don't go as we hope they do? what happens if we have a spiking interest rates say for instance 1%. what if interest rates are 1% higher than what you're projecting to the centrist payments? >> yes you know mr. chairman we try to set our forecast to be in the middle it distribution of

possible outcomes. we think they could be higher or lower them rejected. as you know mr. chairman rules of thumb for changes in economic conditions would affect the budget and these are meant to use roughly but the rough estimate is an increase in interest rates being one percentage point higher than we project for an entire decade would increase the deficit by $1.5 trillion over that period and correspondingly 1% lower would reduce the deficit by $1.5 trillion. i would say mr. chairman there is upward pressure on interest rates from a large amount of federal debt and we take onboard in our projections and there's downward projection on the interest-rate from the easing of the population. taking that on board in our projections as well. we do not see any sign of inflation over the past year has been unusually low --

you know over the last half dozen years as we are below the federal reserve goal of 2% so we do not see inflation as is a substantial risk going forward although economists learned to never say never. >> especially 10 years out area and here is the issue. i think you can make a good case that the federal reserve has been bailing out fiscal policy for some time since the crisis by keeping interest rates artificially low and depressing their true fiscal picture that we have. unfortunately congress did not take advantage of that moment to lock in a real fiscal consolidation plan and long-term debt reduction plan to tackle our entitlements which are budget in the past two years did. now the federal reserve is normalizing. now they are basically pulling back. they are still very loose because i think 65 billion a month. >> as they would say they are

still buying. >> they are still expanding just not as fast as they were before but they are showing signs of normalization. we have never been in this territory before. it's all new. if they get it wrong, if unforeseen exogenous things happen it's a $1.5 trillion increase in deficits. so time is running out. we are looking at the fact that we squandered the opportunity in the last five years to do something about this and in the future is that much more in certain because monetary policy won't be bailing us out like it used to. that is my concern. let me ask you one point in relation to that about the driver of this. figure 1.2 on page 15 in your report he compares where we were in 1974 to where we are going to be in 2024. we are in track to increase the deficit tenfold over the next

decade compared to 74. meanwhile if you look at the right side of this we will have cut defense and half. we will be collecting a full percentage point more of that the economy and revenues. given these facts what is driving just the people are clear, what is driving the tenfold increase in the deficit? >> growth in spending for social security medicare and medicaid above all else the aging population expansion of health insurance subsidies and rising costs of health care per person. >> thank you. mr. van hollen. >> thank you mr. chairman. just a quick comment on the debt. as the federal reserve pointed out the fact that congress created a fiscal drag on the economy made things worse but their message to congress was the sequesters doing harm and it's hurting economic growth. it's hurting job growth and it continues to do so to this day

with this refusal to take action on investments in infrastructure and in basic foundations of our national economy in many areas. there has been a lot of talk about the report and what you said about the affordable care act. you found did you not that the premiums offered in exchange would actually be going down 15% compared to your earlier projection? >> that's right for 2014. >> on page 125 you point out that there is quote no compelling evidence that part-time employment has increased as a result of the affordable care act. >> yes, that's right congressman. >> we have heard a lot of statements about how people are being forced and it for timer by the affordable care act. i want to make it clear one of the findings of cbo is that is not the case. there is nothing in this report the changes in cbo's earlier assessment that over the longer term window the affordable care

act benefits is to reduce our national debt and doesn't reducing our deficit especially as the economy kicks into higher year mean stronger economic growth? >> yes, congressman. >> as a result of the deficit deficit impact in 2017 beyond the affordable care act will spur economic growth. i want to talk about what we are doing focusing right now because on page 125 the cbo talks about the impact on the labor market, labor demand today and it says a wald the cbo estimates the aca will boost overall demand for goods and services over the next few years and then you go on to say the net increase in demand for goods and services will in turn boost demand for labor over the next few years. that is the conclusion you make, right?

>> yes, that's right. >> when you boost demand for labor in this kind of economy you actually reduce the implement rate because those people looking for work can find more work. >> that's right. >> for all the media who shot across the headlines this idea that somehow the affordable care act was going to hurt jobs, i just wanted to be very clear that the director the congressional budget office says for this year in the next couple of years actually it will help reduce unemployment. more people who are looking for work will find work as a result of the affordable care act so in fact the doctor elmendorf if you are or to repeal the affordable care act your project and unemployment rate would go up, right? >> let me be clear. we have not broken down the sizes of the various pieces we talk about in this act so i don't have any estimates of the effects of the particular challenge of .2 but it is something that spur some employment and unemployment over the next few years.

>> okay, right. it is a factor in as a result of the reduce -- repeal the affordable care act you will in the near term increase in employment rate because there will be less demand for jobs in over the longer term because the affordable care act reduces the deficit you will actually spur economic growth as the economy continues to recover. now i think it's really important that information gets out there because as the media themselves have confessed they bought hook line and sinker some of the talking points from our republican colleagues and unfortunately misrepresentations go around the world three times before the chip against to catch up but maybe it will begin to catch up at this point. now in terms of the long-term deficits and debt as the chairman indicated and as your report indicates as you go out into the future we will see rising deficits. it's important to point out that

your findings show that right now our deficits are dropping and will continue to drop in the next couple of years but as more baby boomers retire and more people on medicare and social security spending goes up. >> there will be fewer collecting benefits than they are today. the overall cost of the program will -- sharply. >> we are talking tens of millions of people and i believe it's 30 plus million more people on medicare so people are following this is not because we are increasing benefits. this is just more people coming into the system. this is a demographic change. >> yes, that's right. at. >> now our republican colleagues say those deficits concern them. however they are only willing to look at the spending side of the equation meaning if you want to address those spending needs to

have to reduce the benefits from social security medicare somehow >> unless one is willing to contract the rest of the government below the economy of 1940 then one needs to focus on those programs. >> eshoo pointed out in this report we have squeezed those so-called discretionary spending programs to the lowest point in recorded budget history. >> a few years from now after the current caps. >> our republican colleague solution is simply to look at squeezing those benefits which help millions of americans including a lot of middle income struggling seniors and they refuse to look at the revenue side of the equation. it is their position that we cannot close a single tax loophole for the purpose of reducing the deficit. that is the grover norquist pledge. we can't clues one -- close one loophole in a hedge fund to reduce the deficit.

at my question dr. elmendorf is if you go back a little ways in history when was the last time we had a balanced-budget? >> i think 2001 congressmcongressm in. >> 2001 and in fact the last time we had a balanced-budget over a very long period of time was 2001 is that right? and just so everyone understands decades before that obviously since 2001 we were riding deficits. dr. elmendorf if you look at the revenues as a percentage of gdp during that period of time they are higher in each of those years than they are today. >> that's right congressman. >> and they are higher are they not in each of those years then they will be as a% of the economy 10 years from now? >> yes, that's right. >> in fact my calculation is

that the average amount of revenue as a% of gdp when we last balance the budget is 19% of gdp. during those four years the average amount of revenue coming in with 19% of gdp. now you have just testified the main reason we are going to see an increase in the deficit in the out-years is because we have tens of millions more americans on programs like social security and medicare. >> yes. >> it's our republican colleagues position that we can somehow deal with that huge increase in the number of americans on social security benefits with less revenue as a% of gdp than we had when we last balance the budget in 1998 to 2001 when we had fewer americans on social security and medicare. that is the problem mr. chairman a lot of our democratic colleagues have. we take a position that you won't close a single tax break for the purpose of reducing the deficit.

you say you care a lot about the deficit. you recognize that you let tens of millions more americans on social security and medicare but you still want the government to operate on less revenue as a% of gdp than the last time we had a balanced-budget when we didn't have all both those benefits so the only solution our republican colleagues are proposing unless they want to cut even more deeply into our defense and scientific research and infrastructure is to simply cut those other programs. the irony is the affordable care act was able to reduce the medicare spending by performing it instead of cutting it. as a result of the affordable care act dr. elmendorf we are seeing reduced medicare costs, said that the case? >> yes, that is true. >> in fact our republican colleagues after initially

lambasting that in demagoguing that they included that provision in their own budget so they achieve the deficit savings. we were actually able to achieve medicare savings without hurting beneficiaries and that is the model that we will continue to look at and closing tax breaks for special interests in order to meet these long-term challenges create our immediate challenge is to put people back to work and that is why we need to adopt our infrastructure investment plan, passed minimum wage and for the folks who are still out there hurting we should extend emergency in employment insurance and we certainly mr. chairman should not mess around with whether not we pay our bills on time. >> dr. elmendorf thank you and welcome to the committee and we appreciate the good work the cbo is done. our friend from maryland says the report is good news and bad news. i would agree with that but the problem is when you compare to last year's report and the

reports prior to that there is more bad news this year this year than it was last year. our friend makes the comment about decreasing medicare spending. spending in medicare has increase by $700 billion because of the affordable care act but it is forced reductions and as a physician i can tell you that my former medical colleagues will say it actually is harming health care for seniors. so the challenge that we have here is to put in place programs that don't harm seniors and our friends of the of the side -- on the other side want to put in place programs that do harm seniors. dr. elmendorf what happens in a fiscal crisis to those benefits for seniors? >> it depends on the nature of the crisis and what the congress does to respond to it. the physical crisis to use the term is a point at which investors are unwilling to buy u.s. government debt unless it has high interest rates and that

puts a tremendous squeeze on the rest of the government budget. >> the squeeze that might happen is that services to beneficiaries actually decrease significantly under a fiscal crisis. >> that could have been congressman. >> is here estimation that congress hasn't done anything to address the challenges of a fiscal crisis in the last year? >> eshoo now the congress has taken a number of steps. i don't want to diminish those but it's clear from our report that the fundamental fiscal challenge remains which is a significant increase in spending for certain programs and even though the rest of the government is on track we nonetheless show rising debt and that means the country needs to make changes in cutting back as large programs or raising tax revenues to pay for them. >> which is a great segue to the medicaid program. the medicaid trustees of the medicaid program is going to go bankrupt by 2026. what does that mean to real

people? of me and services that have been promised for seniors won't have the resources to provide those services so what are side and i love how her friends on the other side of the aisle like to characterize our solutions the fact of the matter are solutions solve the problem. in fact we have put forward multiple solutions for the mandatory programs in the area of medicare and we talked about a premium support system. i want to draw your attention if i may dr. elmendorf to report that cbo put out last september the model premium support. it wasn't the specific one but the question that i want to get an answer to is premium support system may in fact to quote the report combines spending by the federal government and beneficiaries that use premiums and out-of-pocket costs would be less than if current law remained in place under premium support system. is that the condition that you agree with?

>> certainly the system that we analyze as you know there are many specifics that can affect the budgetary outcomes so one should not take that as -- but that was the effect by our estimates. >> there for the premium support model that is something that saves medicare for seniors would decrease spending for the federal government decree spending for beneficiaries. i think is important when folks are listening to solutions that the solutions be explained by those individuals that promote solutions and not those that criticize the solutions. in the short time i have remaining i want to touch on the issue of the interest rate question that the chairman got to. as i say i think this is more bad news than there was last year and tabled d1 that highlights the issues there relates to interest rates, a% increase, 1% increase in interest rates last year was

projected to cost $1 trillion. this year it's $1.5 trillion. what happened? what is the difference? >> i believe congressman this is the effect of changes in and our projection of the amount of debt and jeff is pointing out that the last time we issued this table was two years ago. the congress acted even later under tighter time constraints so relative to two years ago it's more expensive than the reason for that is larger debt projections but not from the extra trillion dollars from this year. last year was much larger because of our current law baseline before had incorporated the expiration of the attacks. >> thank you mr. chairman. dr. elmendorf nice to see you and thank you for your testimony. i want to dig a little deeper

into the methodology that you used to assess the impact of the affordable care act on hours work. the chairman i think was mentioning an example of a young person, at least that would be somebody who could find his or hey -- his or her way up the economic ladder. my son is 30 years old and single. he found insurance through the kentucky exchange, pretty good coverage for $180 a month so we are talking about $2200 a year premiums. if he got 100% premium support, subsidy one in the world kind of incentive would he have to not work? >> by working of course he wouldn't earn income to spend money on things so health insurance is only one of the considerations. >> is seems to me that there is an impression out there that you

talk about it disincentive to work as part of the impact and i'm trying to figure out the methodology because i can understand why a 62-year-old under the affordable care act might say i want to retire and now i can retire because i can find coverage that i can afford whether or not i get subsidy or not. i understand that example. i'm trained to figure out an example of somebody who is at the lower end, where there would be an incentive not to work. >> you are certainly right congressman that some of these people are early retirees as you describe. the other part is it's not so much an incentive not to work as lessons of an incentive to work. under the law prior to the affordable care act if one decided to work or hours to earn higher cash wages and would maybe receive health insurance but would give up some of those

extra cash for paying extra cash or losing benefits. by providing a benefit in the form of subsidized health and if it's it increases the standard of living people would have a working more hours that would be smaller than would otherwise it would otherwise. they would still have a higher standard of work -- living by working but it wouldn't be as much higher relative to what they would have if they didn't work or worked fewer hours. i providing a smaller incentive to work somewhat fewer people would work. >> yes lander stand it, the subsidy was set up in a way that no one should have to pay more than 9% of their income for health insurance. could you give me and i would accept -- on the spot some kind of numerical example of someone who would have a disincentive to

work because of the subsidy whether it's 90% or 50% or whatever it is. i'm having a hard time understanding how that could possibly make sense. >> it's not that they have no incentive to work but they have a smaller incentive to work otherwise. >> moving on as we look at the long-term repercussions of deficits and projections and so forth, and the impact of entitlements, social security and medicare and so forth have you done an analysis of what immigration reform would do to soften the impact of those expenditures and i shouldn't prejudice you, to change the long-term impact of health care costs of social security benefits and also the economic and if it's? >> it's? >> us, congressman. we did a thorough analysis of the immigration bill passed by the senate last year and found that legislation would reduce

deficit budgets and lead to a larger economy in overtime lee to higher output per person in this country. >> does that because you could have a lot of younger people paying into social security and paying the medicare tax but not receiving benefits for 30 years or 40 years? >> the age matters and it's also the composition of the additional people who would the lead into the country and given a chance to work under the legislation. a number of those people would receive benefits but a number would be high-skilled ,-com,-com ma high educated people who would be paying a lot of taxes. >> thank you very much. i yield back to. >> thank you mr. chairman and thank you dr. elmendorf. if there is one good thing i hear from both sides, this morning it's that no one is

saying -- a trillion dollars. everyone is interested in reducing the deficit and that is a good thing. let's talk for a second about taxes and outside of it. there were a bunch of tax increases and 2013 reflected in this projection. also 2014 there is about 60 i think it is tax credits and reductions that expired. have you included those in this as well? >> no, the provisions that expired as you know we follow current law for basic projections but we do provide alternative policy scenarios one of which extends all of the expiring taxes. >> and summary table 1 you assume that they expire. >> yes, that's right. >> what i'm getting at is there were tax increases in 2013 and tax increases in 2014 and will be some in 2015 that are reflected in this which is why

revenues go from 16.7% of gdp last year to somewhere between 18 and 18.4. >> you have to factors. its revenue as a share of gdp. >> for tax increases of 2013 and 2014, you mentioned four things and i'm keeping them at 30 seconds at each one. driving the deficit certainly from the spending side. interest rates are not expected to stay at historically low levels but the other is that the deficit itself obviously needs more -- feeds more debt. the best cure for that is to eliminate the deficit, right? >> all considerations aside a small deficit would lead to lower interest payments. >> then you talk about the cost

of medical care going up generally and how that's affecting the various medical programs medicare and medicaid and etc.. you're projecting the cost of medicare going up i'm trying to balance that against the argument that obamacare is reducing the cost curve. >> congressman there has been a very pronounced slowdown in the rate of growth of health care cost per person in both federal programs in the private sector over the past few years and more and we have taken significant lesson from that and low word our projections for the federal programs going forward. but we have not lowered them so much as to have no more growth left. that would be an extraordinary turn of events. what role the affordable care act is played in the slowing of health care costs is quite unclear channels at this point. >> you are basically saying there are conditions out there before obamacare that increase health care costs and you expect those conditions independent of government action to continue to

some degree? >> exactly, not at the rate we thought before but as a positive rate. >> that gets to be aging of the population which is something that we here in congress unfortunately cannot control. those two factors are what is driving up the cost of so many of the major entitlement programs. if we are going to get this deficit under control we have got to do something about those, don't we? >> congressman i think you either need to cut back on some of those larger programs or raise revenues to a larger share of gdp or some combination of those two. >> we just did raise revenues as a share of gdp. >> to some extent, yes. >> okay. the last thing you mentioned was driving things with obamacare so that is driving things on the cost side. i understand there are tax increases involved but is

driving a lot of additional cost as well. >> expansion of medicaid and the institution of subsidies to be provided through exchanges. part of what is pushing a federal health care spending. >> won't the 2.5 william full-time equivalent job loss, whatever that is, 2 million does not revenues as well because that is people aren't working and are making an arm paying taxes -- are making money and paying taxes. >> that lowers revenue. revenue is still rising but that would happen with a reduction in employment and reduction of gdp and a reduction in tax revenue. >> good morning mr. chairman. director elmendorf, do you believe that when social security was passed it had an impact on labor supply since we are distinguishing between labor supply and demand? >> yes, absolutely.

>> in a similar way that you would project obamacare. >> the specifics would be different but the basics are the same which is the provision of income of people over age 65 who choose not to work who otherwise would have felt compelled to work. >> the headline back in 1936 and 37 about what was going to happen to demand. if it were repealed, let me ask you this question or if benefits were cut due to privatization which is an option, that would have an impact on labor supply, would knit? >> yes. >> how? >> it would push up labor supply. in fact we have estimates of the effect of raising the eligibility age for social security. we think that would increase the amount of work that people do primarily in their 60's.

>> they would work beyond what they could be working? >> they would work longer than they would under current law. >> the fact that americans won't be tied to a job they don't want or need solely because it's the only way for them to get affordable health care is a feature of obamacare as i look at it. director, dork if you are assumptions prove correct could 2.3 million americans remove themselves from the labor supply what effect will that have on the unemployment rate and wages? >> congressman we think people who are choosing not to work as visit the incentives provided by the affordable care act would have essentially no effect on the unemployment rate. let me say that very clearly. we did not analyze formally. it's complicated and depends on how the capital investor response to changes in work and we have not tried to model

better estimate that specifically. >> what you are saying is because of the security of obamacare that it provides, a 60-year-old, let's take that as an example. they might decide to retire early and open up a job for someone who is unemployed today. is that correct? >> yes, that's right congressman. >> this is an example of a drop in the labor supply. now, in fact in the cbo report you specifically state the estimated reduction depends almost -- entirely from the amount of labor that workers choose to supply rather than from the net drop in businesses demand for labor. how do you see this in any of the announcements about this? i just wonder why and i'm very curious about that. you said it, i didn't. in other words this is and

employers cutting jobs. i think that's a good thing. chairman ryan, my good friend said in 2009 when we were debating obamacare -- why not? we want to address job loss. this is what you said. the key question that ought to be addressed in any health care reform legislation is are we going to continue job loss or are we going to allow individuals more choice and affordability to fit the 21st century workforce unquote. i agree with you 100%. i think the answer is yes. giving workers more choice is not unique to obamacare. other federal programs have reduced the amount of labor that workers choose to supply just

like social security, right mr. chairman? >> i will take the rest of your 39 seconds to respond. a couple of points. the purpose then was to help produce a system so that older workers could not be destitute and compete with younger workers for jobs so it was the opposite attempt which was to bring younger workers into the workforce by providing social security benefits back during those days. this is the opposite. this is saying younger workers, the very people we want to go into the workforce to work are being disincentivized to do that so it's sort of the opposite of what you were trying to suggest. since you invoked me i'm going to do this. >> don't shut me out though. >> job locked in this case is a subsidy that ann's and it's a cliff that traps. what we have always said is it should be, it should be

structured differently so that you don't produce this kind of effect. so we have literally a very different idea on how to address this issue so that you always encourage a person to go into the workforce and encourage a person to work and obamacare is structure the opposite of what it was intended. that is your opinion but we are we are still basically talking about older workers. and i'm glad what you said because now we can all agree. >> the gentleman's time has expired. if you want to ask a republican their position ask a republican if you want to ask a democrat their position as the democrat. mr. cole. >> thank you very much. although i hate to interrupt that debate. it was actually pretty good. i may just yield my time back to both of you.

the report has been helpful and very fair. i'm exceptional and i think most of us are disappointed. we have worked to make a little progress the last few years on the deficit and i've voted with my friends on the other side on general revenue and i know mr. chairman you did as well. the budget agreement you negotiated with senator murray also restrained discretionary spending. that made more progress in the right direction and some mandatory spending as well. we are actually spending $164 billion less than the discretionary budget we were spending in the last year the bush of so that is actually real progress by congress and yet when you look at this report it really doesn't translate into long-term deficit reduction for the simple fact that we simply haven't done enough on the entitlement front.

is that a fair statement? >> i think the congress hasn't done enough on revenues -- >> fair enough but between the two which have we done more on revenue or entitlements? >> well that depends on how you view the extension of the expiring tax provisions a few years ago so under current law the extension of most of the expiring income tax cuts and nearly 2000 produced a big cut in revenues and a big increase in the deficit. i recognize that is not the way that many of you thought about starting point in your own minds but it makes it hard to answer that. >> i know, that is why i want you to answer it. are we going to have a lot more revenue than we would have had had we retained all of the bush tax cuts? .. t if you want to

correct it later, that's fine. >> i think my ballpark has been agreed to. >> let me ask you this. if we had $1 trillion worth of reforms and empowerment programs? >> well, the transfer made substantial reduction in spending for medicare, as you know. i really have not tried to assess what that would look like over the same 10 year time period as s. like some of these tax cuts to expire so i think i should not speculate those numbers i haven't looked up. >> let me come at it -- politically, it's obviously i think the revenue picture is easy to do within the entitlement picture is easy to deal with. i don't care which side of the aisle you're on. that's just the case of it. we saw the struggle with entitlement spending, frankly, in the budget agreement between chairman ryan and chairman murray. that's just politically a very charged every. let me ask you this. of the entitlement programs,

which are the largest conservators to the deficit going forward over the next decade? >> the largest program, single largest program is social security, the programs that are growing, whose increases our sharpest in dollar terms are social stratum medicare and medicaid. >> let me ask you this. this is going to be a pop on both houses. has either party put forward a plan to deal with social security? >> we've not analyzed any plan, in the last few years. years. >> i suggest that's because one hasn't been present. we have not presented one on our side of the aisle because it's politically -- our friends and the administration haven't presented one. it's probably statistically the easiest one to deal with because we got to know how many people turn -- it's much more predictable, much easier and yet neither party has had anything to say about it, is that correct? >> well, we have provided congress with a large menu of

possible changes to sosa security and other parts of the federal budget. >> i'm not suggesting -- [inaudible] >> the last person who tried to lead visiting with president bush who actually did put forward proposals and did do something. so i would actually, i would say this for the record for my friends because we'll have a lot -- this is in a way think we ought to sit down. is where got to go down. our friend, mr. delay come on your side of the aisle had an interesting bill to make congress vote up or down the same way we do in brac. i would suspect it would be full of unpalatable choices for both sides of the aisle. but that's something i would like to see us begin to look at and did. are most important single program we have, most likely, the one most americans want us to ensure and yet neither side of the out has put a plan on the table. yield back. >> thank you very much. at the outset i would like to say, chairman ryan, i was listening to your opening remarks and it was interesting because you kind of echoed some

of the language president obama from his state of union address. you said you hope this is a call to action, and the president last week said they should be a year of action, so i hope there's a way we can come together to focus on speed. [inaudible] >> economic opportunity, economic growth and there is some goo good news because we he made progress on job growth. but we have to do more to the economy has added private sector jobs for 46 consecutive months, and the total of 8.2 million jobs has been added over that period. this is reflected what i hear at home in florida where small businesses are doing better. it's been a very difficult kline from out of the great recession that kind of his earlier in housing in 2007, but he we are 2014 and people -- businesses are hiring again. the economy looks better.

except we have this intractable problem, it's kind of a jobs crisis. and the cbo report demonstrates that the outlook for job creation remains weak. and then we are dealing with the retirement of the baby boomers. that's what every time there's an announcement on jobs numbers, every month the unemployment rate is going down but yet people are retiring and dropping out of the work force. so we're going to have to be much more strategic in how government partners with this is to create jobs. and that's why it was a very concerning to me, the part of your report that highlighted congress is eroding commitment to scientific research, education. you say now that that kind discretionary spending that has been really, that provides the jobs for the future is going to be at its lowest level in 40

years but can you expand on that and take us through some of the areas, whether its r&d education, or tell us where that weakness is? >> yes. we wrote a report in the fall about the facts a federal investments that have the amount of federal investment has changed over time. i think roughly speaking, about half of non-defense discretion spending can be viewed as an investment in physical capital like highway, bridges, in human capital, economist called in education and training of workers. and the research and development. and that nondefense discretionary spending will under, current law, under the cap, fall two a share of gdp. lower than any point in 50 years for which there is date on that has been collected in that way. now we don't know, congress does not just how the money under this category allocated for different activities so we can do projection, research

investment, spending directly. but that estimate about half of that total amount of discretion spending over time. and if that sure is maintained in future and the federal government will be do less investing relative to the size of its economy by the second half of this decade and it is in any point in my lifetime. >> so that's education? >> education. it is investment in physical infrastructure like roads and highways to it is investment in research and development. >> so that's the national institutes of health, nih, national cancer institute, medicine speed all in that category, yes. >> infrastructure and defense as well? >> defense, discretion spending is also on track have also lower share of the economy than it's been at any point in the last 50 years. and again how those cutbacks are allocated between the research done by the defense department in the things the defense

department something that congress we did decide in future appropriation bills. >> a lot of folks are believed that this question has been replaced here in the short term for a couple of years. and they tend to focus on the crisis that is right in front of them, but the challenge of looking ahead in the next decade is going to be how we maintain these investments in what makes america great in education and research and development, and infrastructure. and that's why i do think it's important for us to work together as we learned that the aging population is going to be a challenge, a fundamental budget jumped into my colleague, mr. gore, i would agree to work with you -- mr. cole. i don't think it's fair to say that the democrats haven't been focus on social security. we are focused like a laser. i would recommend congressman ted deutch bill from florida.

i agree we need to work together to make sure that we are being -- >> thank you. >> thank you, mr. chairman. and thank you for the work on this as well. let me just bring a couple of things together we've talked about already. there's been some conversation about discretionary spending obviously. there's been a lot of conversation about discretionary spending. is it the cbo's conclusion that there is no additional waste in government and the government is running as efficient as it can possibly run so there is no additional places in the discretion area where we can do with whistles been? >> no. our volume of budget office in the fall which provided to congress was a dozen of options for cutting back on discretionary programs if you choose to go that direction. we also noted that i think the entire staff of options we give you would all be needed and maybe more than that in order to meet the caps are already in place because the caps are such that the current set of programs, there will be enough money to continue the current set of programs and services

under those caps. even under current law you and your colleagues would need to take event of a wide range of cutbacks and programs in order to meet the caps spent programs and services come with it in reducing duplication and try to do with some of those inefficiencies, inappropriate payments and all that? >> congress and, that would depend on what the cost i doesnt also on people's interpretation. my experience, some members of u.s. ways, other members view as important. not my place to judge that. >> i've noticed that as well i suppose. let me mention a couple things on interest. last year once we get the tender when the we get the 2023. you estimated the interest payments alone at 857 billion. that interest payment in 2020 is 819 billion. so we have made some quote unquote game at that point. but a i've also noticed the amount of interest with a versus the increase in the deficit each

year, that number is strikingly similar many years. some years the interest payment increases higher than the deficit and some years it's a little bit different. but if i try to just the increase in how much interest we are paying, it's very similar in numbers to actually the increase in our deficit every single year. so this seems to be a problem that is driven primarily right now, obviously there are other factors as well, by an increase in interest rates going up as well. am i tracking that correctly? from 2017-2018% increase in interest payments of $89 billion. at the same time there's an increase in deficit spending of 74 billion. so if the interest rate wasn't accelerating, we would make progress but we are not. it's increasing but if the go between 2018-2019, it's an increase of $76 billion in interest payments that $97 billion in deficit spending. can we talk about the interest?

>> yes, congress and to your right, one can isolate the interest is that all the rest of government spending and revenues, the gap between them would actually be fairly stable in dollar terms over the coming decade and -- spinning but what do you asked with rising interest payments, why is that interest them accelerating at this point? >> interest payments are rising part because of rising debt. but even more so because of rising interest rates but interest rates as you have been unusually low over the past half-dozen years and we expect as financial markets expect those rates to return to typical levels. so interest rates on the 10 year treasury note will be rising from 2% something to we think 5%. that's the cause of a very sharp rise in interest in the government will have to make. >> ten years in our only payment is $880 billion speak with yes. in the 10th year, 2024.

>> 2024. >> this concept of simply getting to the primary balance and we're just going to try to get the balance for separate interest is what pays the same with hud get the balance except for around the last trillion. >> we are not testifying that but you're right, the interest things will be very, very large. >> i want to make it, that is not related to cbo and a square structure. each year, the conversations there is a scoring issue that deals with manager programs. where we take money from existing in a fund to move into the next is fun, count that as savings. would you consider that -- i know cd officially considered that savings. would you consider a change of program or an account to be an actual savings? >> yes, congressman. we think that if an appropriations bill make a change in mandatory program so the government pays out less in the year, that is a real savings. you are right that the budgetary passion is comfy and these things can look -- and next year

we tend to focus on you done in appropriations and make the change demanded for spending part of our mandatory spending projection. but i don't think we believe that there's anything that is fake about the changes in medicare programs, not you really haven't made a change in law that cuts been is a, then that's a we are recording when we give you an estimate. >> i yield back. >> thank you very much. drama. first of all, thank you and welcome. 50 years ago, the war on poverty represented a dramatic shift in the federal government's priorities for helping those who are left behind in the growing economy. we hosted president and lady bird johnson's daughter, last month, she reminded us that the major legislation that was passed during that time was bicameral, bipartisan and was

with the leadership of the white house. and it worked, even though we have a long way to go. i want to thank the chair, congressman ryan, chairman ryan for at least beginning to engage in a debate around poverty. in the omnibus appropriations bill, the president signed into law january 17 come we were able to secure link and i just want to read this just want to reduce the, it says poverty is far too prevalent in the united states. congress and the administration should work together to implement in the agency efforts and support proven antipoverty programs that reduce the existence of poverty and the suffering associate with it. so i want to ask you, what policies are antipoverty initiatives tend to get the most bang for our buck in terms of boosting economic growth? for example, what is the impact of economic impact of not extending unemployment compensation for the 1.7 million people have lost their checks what they're looking for a job?

will we see them fall into the ranks of the poor? does raising the minimum wage boost economic growth and reduce poverty? what's the impact on poverty and economic growth rate as a result of, unfortunately not, the impact of structural and long-term unemployed as we continue to recover from the recession and can't seem to get any jobs past. i would like for you to respond to this issues around poverty, given the sense of congress that was put into the omnibus bill. >> yes, congresswoman. we have estimated that if the congress were to extend the additional unemployment insurance benefits that expired, that would add about a quarter of a percent in 2014. and would have a couple hundred thousands people to the ranks of the employed. and we've not done an estimate of the poverty rate but that

would be good for people. some people who would otherwise be below the poverty line in the above the poverty line because of extra benefits. we've not tried to quantify that. on the minimum wage, we are currently doing an analysis with respect to raising the minimum wage, both in terms of the high wages income for people who keep their jobs and in terms of people who would probably lose their job. and we hope to present that announces to the congress in just a few weeks. so i don't want to speculate at this point about the results of that analysis. on the long-term unemployed, you are exactly right that for many people who lose jobs and cannot find jobs again, the economic consequences to them can be devastating. and, in fact, the consequences on families on on the health and so on come and there's a substantial amount of research about this and we report on it a few goes -- a few years ago.

many independently bad shape and end up below the poverty line. i begin we have not tried ourselves to quantify just how many more people that would be, but persistent level of high unemployment. we should and are labor market report, a company the outlook, that the rate of long-term unemployment remains today, although it come down from its peak of you is is a, remains toy than at any high point before this last recession and weak recovery. the economic and human costs of that are very, very large. >> i would like for you to look at the language in the bill, in the senate bill, and see if it's appropriate and possible to give us some of your suggestions as it relates to congress and the president, what we should do to implement the policies and interagency effort, and support and to operate from programs. we would like your perspective on what we voted into law. finally, i have a few more minutes. let me ask you about the cbo report last year as it relates

to the public option. in the health care exchange. i think you said it would reduce the federal deficit by 158 billion through 2023, which reflects a 37 billion reduction in at least. and 121 billion increase in revenue. now, with your new report, have you recalibrated that or do we think that still hold? >> we've not we estimate that, congresswoman, but this estimate was to be quite applicable. >> thank you. >> turn one. director elmendorf, thank you for joining us today. i'm sure that americans, real-world americans that are watching today's adjustment, their eyes are glazing over, so for that i would summarize -- >> i'm offended. >> no offense to you. but i would like to summarize that economics is essentially a mathematical expression of aggregate human and business

behavior. and in that vein i would say that this latest cbo report i think is a better reflection of aggregate human employ an employer behavior over time as a result of government policy. obamacare is one policy that has been enacted by the federal government in addition to that there were several other policies had been enacted over the past five years that have affected our economy. in your report you talked about the impact, the affordable care act or obamacare, on the supply side of the equation in terms of what employees are prospective employers did come and use of equipment of 2.3 million jobs would be lost due to expressed, let me rephrase that. hours of labor would be less, would be offered and job losses

would be 2.3 million to not be 2.3 million. not to sit 2.3 when jobs would be lost. have you looked at the demand side of the equation? the affordable care act, or obamacare, has a huge impact on employers. and they're making economic decisions to determine how many employees they hire and what sort of hours that they ask these opposed to work. can you tell me in a short amount of time what impact that would have? >> yes. we looked in report and outlook on the effects of the affordable care act on the demand for labor. we highlighted two channels, one was defective the overall demand for goods and services and unemployment. the other is the effects of the employer penalty, the demand for labor. in the very short run, requiring employers to pay something the amount for each of the employees in some circumstances amounts to raising the cost of those employees and would lead employers to reduce their number

of people they hire. but we expect as other analysts believe that over time, costs that employers bear for their employees into being borne by employers in the form of lower wages, health insurance causes one example in this mandate would be another. so we think after a few years the cost of implementing is basically showing up in wages, and are affecting ultimately workers supply of labor, but no longer employers demand for the most part. >> just to summarize, you potentially, essentially took the potential negative impact on labor demand and translated it further into labor supply. >> because we think wages will adjust. >> i can live with that. i mean, i don't like the fact that we are labor supply or labor demand, even when. i think that's bad policy, and we as republicans in the house are looking forward to our replacement, alternative that

doesn't do that. does the cbo routinely analyzes administrative actions and tries to trim the impact on the economy. that's -- that process isn't terribly transmit at this point but when you take obamacare and epa action and department of labor actions, just to show actions, you could after every agency and they have issued tens of thousands regulations over the last five years. what has been the impact? i ask you from this frame of reference, as a person has created or helped create hundreds of jobs in the real world, i know firsthand the impact of that policy but i was wondering, do you have accused the number of potential jobs lost because of obamacare and all the government policies that been an active the last five is?

>> i'i'm sorry, we do not to our focus as you know, legislation that congress is considering the we got to go back and look at how the law is a minister and as part of why we look at the affordable care act again this time but we don't in a sort of copper into the analysis. >> i think that would be well served because i mean, one of the reasons the inflation rate is so low because employers have decided that they can't hire those types of employees where they stand and so -- prospective employee base has given up. i would just say that the government policy allows the use has expanded the poverty trap but it's dropping, pushing them out of middle-class and hurting opportunities. i yield back. >> the gentleman's time has expired. i just want to keep us on the clock. >> thank you, mr. chairman. and thank you, mr. director, for your testimony. i believe you testified last year that the imposition of

sequestration would cost the economy potentially 750,000 jobs that would be lost, is that correct is? >> that sound right. i don't remember without looking. >> there are estimates that engineered unnecessary reckless government shutdown post a comment about $24 billion in lost economic productivity, correct? >> i've seen investment but we're not done investment ourselves. i can't vouch for it. >> i believe cbo itself is set as it relates to the failure to renew or extend unemployment compensation, that could cost the economy 200,000 jobs during this calendar year, correct? >> yes, that's right. >> so that our choice this congress has made or will make moving forward that could adversely impact the economy economic productivity and job creation moving forward, correct speak was yes, congressman. >> as it relates to the cbo,

discussion concerning the aca, if you estimate that the aca will result in the decline of full-time equivalent employment, correct? >> that's how, one of the ways we have measured the effect that we've and alaska yes. >> just so i understand, this stems from a net decline in the amount of labor that workers would choose to supply. i believe you said that on page 117. >> exactly. >> as an that estimate on impact of the aca's -- this estimate of the impact the aca would have on labor market participation, you yourself nonetheless go on to characterize its substantially uncertain, true? >> yes spent the reason why is because this is a new program and the impact of the imposition and the effects of the program are on clough, correct?

>> correct. >> notwithstanding all the hysteria that has been created over the last 24 hours related to asthma on the impact of labor participation, by her own as mission is not even clear that there will be an adverse impact moving forward, correct? >> we've not tried to quantify the uncertainty. in some cases we give the congress not only our best estimate but a range of possibilities. that requires more analysis. we've not done that in this case. >> on page 118 of your report you state that the actual effects of the aca code, on labor participation, could differ notably from your estimates, true? >> yes, that's right. >> now, it's my understanding that the cbo also concludes that the impact of the aca on the supply, even assuming that your estimates prove to be true, will

be small or negligible for most categories of workers. is that also your position? >> yes, that's right. >> okay. now, just so i understand, and i believe this was pursued in an earlier line of inquiry. the reason why you estimate that the aca could have an adverse impact on labor participation is because the aca its older workers in particular in a better position than they otherwise might have been at a certain stage of life, is that true? >> it puts a set of workers in a better position. some are older and some are younger so we've not tried analyze this for different age cohorts separately. >> because it puts a set of workers in a better position, they might voluntarily decide not to participate in the labor market at numbers that they otherwise might have done, correct? >> exactly, congressman. >> okay. now, at the turn of the century did the imposition of child

labor laws reduce the impact on labor participation? >> i guess, i think so. i never thought about that question. >> this standardization of the 40 hour workweek in america reduce labor participation in this country? >> it reduce the number of hours, total number of hours worked. i think, yes. >> would you also say that the successful assault, not complete, but the successful assault on sweatshops in american reduce dissipation in the labor market? >> yes, i think it probably has. >> thank you. i yield back. >> mr. rush. >> thank you, mr. elmendorf. is a really interesting material, and getting my hands about, still a freshman congressman. i have some questions that probably i should know, but i just need clarification.

trying to add up these alloys in this figure. what percentage, total spending -- what is the percentage of total spending -- total spending as a percentage of gdp in 2024 based on the statutes? >> in 2024 we think the federal government cover outlays will be 22.4% of gdp. ..

>> revenues will be about 1% of gdp. >> so, at what point -- i know economists speculate what point of the evenuef that will on the economy. if you collect too much it begins to drag on the economy. what percentage is that? >> there is no tipping point that economists are aware of, congressman. in part because the effect depends an awful lot on how the tax code is structured. it's not just a total amount of revenue raised, it is even more so the way the revenue is raised and so this has do with the nature of the tax code and the particular incentives and disincentives created by the provision. >> said it could be 50% of gdp and it wouldn't be a drag on the

economy? >> i didn't say that. but i want to say is there is no magic number. the higher the tax rates are, all else equal the more that distorts people's behavior. and if you're taxing work and saving the more that will reduce the amount of work and saving all else equal. the amount of debt we have depending on the gap in the revenue and outlay also affect economic growth over time. so what else is equal in the = the calculations. but leaving aside when you have taxes of a certain level, the higher the tax rates are, the more that would tend to distort the behavior. also, the more revenue than you might raise and reduce the deficit and have beneficial effects. but in our analysis we take on board the benefit of the tax rates on the economy but there is no number that you go beyond where it is a problem and it becomes an increasing problem as you work your way up.

>> i don't have any more questions. thank you. >> thank you mr. charan and doctor ellmendorf. i want to talk about the jobs portion of what you have. first if i can briefly -- i know it's repetitive but i think it's important given the new i got the chance to see the washington misinformation sheehan yesterday. when we had the best panels because of the affordable care act and i got to see up close around the 2.5 million jobs it was going to cost it was employed there would be a decreased demand for labor from businesses that somehow people would be reducing the number of hours people are working and the economy would be worse off. i want to verify and doublecheck these things one more time. you said that workers would be leaving participation because they are going to be choosing to leave rather than businesses demand for labor reducing,

correct? >> yes, congressman. >> second, you said there is no compelling evidence part time has increased because of the aca? >> yes congressman. >> you also sent by allowing low-income households to redirect some of the funds they would have spent on the purchase of other goods and services they have increased overall demand which would induce some employers to hire more workers or increase the hours of current employees during the period. >> yes chairman. >> i know it happens, sometimes perception becomes reality rather than reality becoming reality so i want to emphasize those points. >> the reason we don't use the term lost jobs is there is a critical difference between people who like to work and can't find a job or have a job that's lost for reasons beyond their control and people who choose not to work. if someone comes up to you and says the boss says i'm being

laid off because we don't have enough business to pay any other person feels bad about that and we sympathize for them having lost her job. their job. if someone says i decided to retire or stay home and spend more time with my family and spend more time doing my hobby, they don't feel bad about it, they feel good about it and we don't sympathize. we say congratulations. >> i think it was just inferred earlier that somehow if fewer people -- you mentioned that they would be better off in your report and language presented to us and it was implied people had an opportunity to get to middle-class you wouldn't be better off. but part of it is you're saying in the aging population people aren't participating. that's part of statistic for people who like my mom don't have to do that, but secondly it could be on the the low were and who is now working two part-time jobs instead of three part-time jobs and instead they might be able to tuck their child in bed

at night and read a bedtime story or go to inactivity which means they are better off. at least that's what it means in my part of wisconsin. then let me ask a question about what we can do in your report about jobs. as we talked about with mr. jeffries, the sequester was about 750,000 in full force. i know we released some of the pressure this year but we go back to putting a lot more of that in 2015. we are going to lose jobs because we are not extending unemployment extensions. while people want action by congress rather than the president, the problem is that congress isn't acting. we aren't doing anything to create those jobs come in jobs, therefore someone has to do something about that. what policies tend to get the biggest bang for the buck in terms of boosting economic growth that we could be doing in the near term? >> a number of times now in the past, we have given to congress our estimate of congress our

estimate of the set options for spurring the economy in the short-term. as the fiscal policy options, does that put money in the hands of people most likely to spend it. so increasing the aid the unemployed has been very high on the list in terms of the bang for the buck, so providing additional refundable tax credits to the lower income households reducing the payroll taxes. those things are more effective in spurring growth in the short term under the current economic conditions than the government spending increases or tax cuts focused on people who are likely to save rather than spend a larger part of the extra money the end up with. >> at some point you can only buy one so far you can't buy 100 sofas come is that the theory? >> those are some big houses, congressman. but people tend to spend a smaller share. >> let me ask on the unemployment benefits because in the state of the union in my district someone lost his benefits and has his house for sale because he doesn't want to go into foreclosure, they are

not even having friends over for dinner because they don't believe they can't afford food. what is the unemployment often than in this country? >> i'm sorry, i don't have the facts of that at hand i am afraid the congressman. but the unemployment rate in the country remains very high and the rate of the long-term unemployment is higher today than it has been at any point in decades. except for the past few years it's come down a little off its peak but it remains extraordinarily high and the cost of that to the economy and the people involved. >> i hadn't planned on it but i want to follow-up with what he said because i think it's important. i agree with all of your answers to questions about what stimulates a short-term growth. and of course we have done that. we had a stimulus package in the first year of the president's administration. we did a trillion dollars health

care bill. and as i look at all of that, the effort that was supposed to produce short-term result, what i see from your report is that it virtually doubled the public debt held by the public. so, we were so committed to the short-term stimulus that we borrowed more as a percentage of gdp coming in in about five years than we had in the previous nation combined and we can argue whether that was a good idea or bad idea but we did that to create a short-term growth. when in your projections do we return that dates back to historically normal levels presumptive lead we are going to do these things to stimulate short-term growth and have to pay the piper sometime. when in your projections do we end up returning to the historically normal levels? >> if it doesn't return to the historical traditional share of gdp at any point in the next ten years or as we showed in the long-term outlook last fall in the decades beyond that. >> i agree what you say that we can do things in the short-term

to stimulate economic growth. presumptively that's good for the economy. what you are saying is the things we did has exacerbated our debts not just in the ten year window but also in the longest term when does we never return back to historically normal levels? is always at this abnormally high perhaps dangerous levels? >> so, let me add a bit of interpretation to this. the first thing to realize is that a large share of the increasing in baghdad was not anything you did deliberately. it was an automatic stabilizer in the federal budget and we quantify those as best we can in this outlook. the biggest thing that raised the deficit and debt wasn't a deliberate action but it was the tax revenue has fallen by a lot and spending rises automatically. this large share taking no actions. additionally congress took actions that by our estimate substantially strengthen the strengthened the economy had added outputs and jobs, but you are right that if that debt is

never -- the extra debt is never paid it down, then for all that's good in the short-term, it becomes a drag on the economy. >> sort of a long-term drag. i regretted when you were having your discussion earlier we talked about balanced budgets in the '90s and in the early 2000's. but i think of as a cash flow, the congressman was borrowing from the social security trust fund that was supposed to be elsewhere. it's hard to call that a spending balance. i don't want to take issue with that. what i want to take issue with is that the tax rates were higher and that led to some prosperity. when i look at your ten year window, i see income tax receipts as a percentage of gdp rising to about 9.4%. and as i look back historically in the decade upon decade upon decade that your report covers, i can only find one year in the history of the nation that income tax revenues were higher than they are projected to be in

this ten year window. so we are going to have historically high income tax collections. but, to see again, you are saying that the debt is not going to return to the normal levels and in fact that is going to continue to rise nominally? >> yes, and i would add there has been a shift in the distribution of taxes over time. so certain tax going to corporate income tax had collected less revenue in some payroll taxes as well. and the individual income taxes are the portrays the rising was to substantially over the next decade. >> you have a difficult job, and i'm glad you have agreed to do it. you opened your statement with saying that decline sharply wilkey -- sharply decline more. that is accurate. what is not said if they are declining to a level that is still higher than the

historically highest level they have ever been before this administration. and i just would ask you going forward because it is something that we agree on collectively. when the extremes on either end looks less extreme than where you were but whether or not it is the responsible thing to begin to accept that as the new normal or whether we had an opportunity to continue to describe it as being damaging and high i think is a question that we can continue. becausewhen doctor ellmendorf talks, people listen. i'm glad that they do, but those words matter. >> we tend to focus on the size of the economy as a percentage of gdp during the comparisons over a long time period when the population and the size of the economy have changed a lot since the deficits we see for this year and next year are actually at or below the share of the gdp

looking back over the last 40 years. with outside of the historical average it it as best as a share of gdp. and i look pain and that remark as well. >> thank you. >> thank you very much mr. chairman. thank you, doctor ellmendorf for your report and remarks. i have a question for you. let me set up where i'm going so that you can understand what my question is. today unemployed americans continue to struggle seeking a job that will support their family and give them a chance to earn their share of their american dream. the american worker doesn't want a handout. i don't believe the american worker wants a handout. they want to work. they want a paycheck, and i think we must come together to remove the barriers that promote full-time employment. while long-term unemployment is a national problem, it doesn't fall evenly across the united

states. disparities exist and unemployment from heavily impacted states and those with with liver unemployment rate. how would the rate would be greatly impacted by the long-term unemployed workers with a lump-sum unemployment benefits to help cover living costs for the workers can move from one area of high unemployment and perhaps area of london limit rate in order to accept employment that would require them to move? >> have not had an opportunity to analyze the proposal. it is an interesting one that might have beneficial effects but we would need to sit down and spend some time to give you a useful answer i'm afraid. >> does the data show that in some areas of america today a snapshot of it is employment opportunities are much greater in certain regions of the states where other states it is higher than other regions? >> the labor market is very tight in some places and poor in others. historically part of what has

helped to bring the labor market back to a better place after the previous downturn has been the mobility of people. and there's evidence the mobility of americans has actually declined over time which may be an aggravating factor but we have to think how of a particular policy might be able to address that. >> so you don't have any analysis that indicates perhaps one of the factors is a lack of resources to make that move. it costs more to move across the town or across to another state or another region than it would drive back and forth to work. there are impending factors, financial factors that say if i don't have the first and last to get another rental place for my family, what have you, there are expenditures in a move. >> that is certainly true, congressman, and the logic sounds right to me. i just analyzed the policy of complicated.

i try not to do it just sitting here without the benefit of the expertise of my colleagues. i would be happy to spend some time -- >> it would be helpful for us to look at that because again, as you would seem to agree it is logical that that is a factor, but you probably would probably would have to analyze it in order for you to dispense about here. >> if in fact we figured out a way to help people mobilize from one region or one state for example to another one, where they have a much higher likelihood of finding employment just because of the simple fact they are looking for employees and they have a much lower unemployment rate. if we figured out a way to do that, would that help the economy? >> yes that would. >> is it overly logical to assume if somebody gets off the unemployment rolls and into the taxpaying working role that helps the economy?

>> it certainly helps the budget if we gave people the jobs they can earn money and pay taxes on it. i want to emphasize the difference across the region as you understand taking the country as a whole, there are significantly fewer jobs and ban people that want them. moving people to where there are more jobs can help. but in any case, however effective it can be by itself, it won't solve the whole problem because right now there is less demand for goods and services than we have the ability to produce them and that weakens the demand by workers across the country. >> there's the bigger picture come about if ima parent who is trying to feed my family and i'm tired of getting an unemployment check and i want to work and have that dignity of work like many americans i believe do, to that person, the bigger picture is their picture. here i'm living in a city or the county i grew up in and i finally have the guts to go ahead and say i hear where my

cousin lives they are hiring an unqualified. all i have to do is move my family over and i can get that employment. to me that is a big enough picture to concentrate on that kind of effort so that we can actually hopefully make progress that can improve the family. >> thank you. >> thank you mr. chairman. doctor ellmendorf, i'm sure when you write your notes on fun things i did this year they said that the day may not make the list. but we appreciate you. >> i appreciate the chance to talk about the analysis my colleagues and i have been doing the question about the 2 million equivalent lost jobs, and i think the best way that i could explain back as the chairman, the equivalent of 2 million full-time jobs are people that

look at the benefits that they are getting under obamacare and sable gets better for me to just stay and not work because i get those benefits. is that right? if we look at that in isolation, what effect does that have on the total tax revenues to the federal government? >> reduction and employment whether it is voluntary or not, and in this case or not, either way that will reduce the all else equal the income earned in the country and the amount of the tax revenue that is collected. >> people choosing not to work because they are not paying into the revenue is going down. i think i read the report and it estimates that there is about $1.2 trillion over the ten year budget window that are used to subsidize the exchanges. and about 792 billion for medicaid expansion.

so, roughly a total of $2 trillion over the two years to pay for exchanged subsidies and medicaid expansion under obamacare. >> recall that the gross cost of taking account of some of the other effects on tax revenues and so on. we end up with a net cost of $1.5 trillion over the next decade. >> we are spending 1.5 or $2 trillion more. we are taking in less revenues because people are choosing to work less or stay home. it looks to me like that is adding to the problem of our death; is that right? connect again, congressman, when we evaluate the affordable care act as a whole and not just be affordable as you have been referencing that the exquisite cuts to medicare payments and the cuts to the increase in tax revenue, the last time we did the analysis of and behold we found out it would reduce the budget deficit. but you are right that a piece of the wall that expands the

subsidy for the insurance coverage costs the federal government money on balance. >> obamacare also includes a bailout for insurance companies in case things go bad. the risk. since enrollment started in the fall, it looks like we have had fewer people enrolled in obamacare than we thought were going to. have you looked at the fact that insurance companies called this adverse selection, but it's the sick people, those that are going to need more extensive coverage -- what is that going to do to the subsidies for insurance? >> by our estimates, the risk quarter program in the affordable care act will actually reduce the government deficits and it will lead to the net savings on the federal government because it is a program in which it ensures the cost significantly exceed their

expectations. the federal government is on the hook for some of that but if they fall short of their expectations, then the government can share those savings. and the closest analogue that we are aware of is the risk quarter medicare program in part and if it's which has yielded savings for the government consistently. our estimate is that the quarter program on the affordable care act will yielded savings into and those are very uncertain estimates. our original projections on the affordable care act takes care of the adverse selection that you're talking about. we thought that enrolled -- enrollment would be one third of what it is right now and we thought the people that would enrolled this year would be more sick on average than the people that enrolled over time and we presumed insurance companies understood that as well and incorporated that into the settings of premiums. neither we or the insurers know now how many people left this year or how healthy they will be or if that is -- their estimate

in setting premiums and our estimates now are highly uncertain. >> one final question. i think the report indicates over the ten-year window we anticipate under the unemployment rate actually go down. that's a good thing. but this is the labor participation is also going to decrease. how is it that we have fewer people working in the unemployment coming down? we think that employment will rise. the participation rate is a total share of the population over age 16 that is working. a lot of people in their 50s and 60s now well be into their 60s and 70s where the participation rates are much lower. so if that is the aging of the population. of the people that choose to participate in the labor force, we think it is a smaller share over time will not be able to find work. they are unemployed. but the growing share will be able to find work and the

employment will rise over the next decade. but not as fast as it was if we didn't have the aging population under way at the same time. >> thank you. >> thank you mr. chairman and i appreciate the line of inquiry because it's very important. what i heard you say is the risk corridors, which we actually borrowed from the republicans when they did the prescription medicare drug program. the risk corridors were in there where they not? >> yes. >> and you said that helped save money over the long haul. and that in your estimation, and that of your team of analysts, it will save money over the long haul under the affordable care act. >> it's only a three-year program as you understand. >> unlike the medicare prescription drug program that didn't have a time limit, this is just three years.

but if it were eliminated, it adds to the volatility and it will probably cost more. >> i really appreciate my friend bringing that out and i appreciate him digging in with you the difference between jobs and workers. the unemployment rate is very likely to go down even though there are people leaving the workforce as we are not going to put a gun at their head and force them to work past retirement age or if for some reason they are not tethered to a job cause of their fear of losing their. people might have more choices. so there is less participation for whatever reason, but not less jobs. i appreciate the clarification. i don't know if you have had a chance for your team to look at and analysis from the urban

institute and the robert wood johnson foundation that found that 1.5 million americans might start new businesses. because of the freedom under the affordable care act. have you looked at that report? >> i think my colleagues have that i have not had the chance myself to talk about it. >> i found it interesting that here's an opportunity to actually increase employment, and it would appreciate at some point getting some feedback whether the folks at the robert wood johnson and the urban institute were off in the ozone or if s. is usually the case it's pretty good and analysis, that would be very valuable to hear that from you experts if you have had a chance to look at it. >> i want to just focus for a moment on this notion that my friend talked about on the tax levels being high, higher than

if i understood them correctly and that if we haven't seen this era of high deficits such as we have experienced and maybe looking at the future. looking at the chart that you provided that shows that the long-term average for the revenues was 17.4%. you'd think that that is going to go up to 18.1% on going forward as a percentage of gdp. but on that same chart on page six of the documents provided to us, it shows back when we were actually in the surplus. the revenues were higher than the 19.1%. and i think that my friend, mr. van hollen eluded to that in

his opening statement. no, we have seen revenues that were higher back when we were producing surpluses. and we have seen deficits that were much higher back when we were struggling with the depression and world war ii and we get these things into balance. i hope this is the day that you look forward to, because i like watching you walk the tightrope, refer back to the data, encourage us to do so, and not take the topline focus group points, but look at what it actually says. and i think what you have done here in your testimony is pointing out the difference between jobs and workers and loss of workforce persecution, not necessarily bad. and that risk corridors are not some foreign concept that's going to cost us money that we

can steal as part of a budget debt ceiling notion and that revenue we have enjoyed over time when we were in surplus are actually higher. >> thank you. >> mr. williams. >> i'm going to take one of his second as he went on as you noted. >> i cut him off as well. >> i don't cut off director ellmendorf. i cut off members. [laughter] >> now you get the drill. >> thank you mr. chairman and doctor for your testimony. i'm a small-business owner 42 years, family man. like a taxpayer and a small-business owner rather than a politician. the economy and main street economy is not fixed.

it's hurting. i can tell you that. and the 0% hasn't worked in the stimulus money has not worked. the effects are evident from the high unemployment. people are living from paycheck to paycheck. people on food stamps, and frankly larger deficit. we see that. i believe the last thing that we have to fix its economy and turn it around is through small business owners and lower taxes. i think that is what we have left and i am a big supporter of cutting the corporate and cutting the cap gains and dividends into the tax employer and employee, accelerated depreciation, and also inheritance tax. i believe there's places that if we let -- if we reduce all that small business generates a lot of our opportunity to do the great things to make money and frankly small business doesn't save money, they spend money on the infrastructure and hire people and i think that is a big answer to the love of the