capturing with our conventional modeling? >> that's right. >> may we have the second slide, please? this is the one that concerns me and ought to concern us all. we are now in the worst recovery, worst recovery since world war 2 coming out of an economic down turn and the congress budget office for growth over the next ten years average growth over the next ten years given in january '12 '13, and and 2015. and every time you have a decrease in growth then what that does is increase deficit. so what are the factors that you believe that the cbo believes is contributing to this continuing downward trend of growth

projections? >> well certainly we've had some growth in consumer spending. that's actually held up pretty well, which is the really important part of this. but i think i swing back to the idea of the productivity. that productivity has not only rebounded but hasn't shown the usual sort of recovery that it has in the past. that's the most notable thing to me about this. >> and if we were to try to -- this is obviously a rate. the average rate over the last three years is 3.3% annualized. so we're a full point below, a percentage point. people say that doesn't make a difference. a percentage point adds -- we could decrease the deficit over the next ten years by $3 trillion. that's the incredible importance

of growth. so one of the kinds of things that we ought to be looking at as a congress to assist and get the economy growing again? >> well, i certainly -- i certainly believe in getting at least a credible plan on solving the federal debt problem because that is looming. that's going to continue to be a problem and that's going to continue to cause problems. it's going to have a significant effect on economic growth. and as you pointed out, i think in addition to the spending and revenues, economic growth is important. we maybe don't talk enough about that. economic growth is extremely important and it can solve a lot of issues. if you look at our long-term budget projection actually it's coming out soon, one of the things we talk about is how much a difference in productivity growth over the next 25 years makes for the budget outlook.

and that's a really good indicator of the importance of economic growth. >> let me just, in my final minute here, try to put a face on all of this. if we truly have 2.3% growth or even less over the next ten years, as opposed to our 40-year average of 3.3% growth what does that look like or feel like to the average american out there? what do they sense either is happening or isn't happening because of that decrease in growth? >> certainly one of the effects it's having is slow income growth. to get good, solid wage growth, you need a much tighter labor growth than we've had. again, that sort of shows up and even though we're having pretty strong or pretty reasonable job growth, because of the economy it's not a tight labor market.

and it slows revenue and things like that. >> dr. hall, thank you. i think it's important for folks to appreciate that these are real consequential decisions and it can have an adverse effect if we can't get the economy rolling again. i'm pleased to recognize mr. van hollen for his opening questions. >> thank you mr. chairman. there's no doubt about the fact that increased economic growth would be a very good thing. we've seen 62 consecutive months of good job growth, which is the longest sustained private sector job growth since the end of the 1990s. but obviously the more we can do to increase economic growth, the better. you're knew but i'm assuming the

cbo has not changed its analysis that the republican budget proposed would actually slow down economic growth in the next couple of years. is that the case? >> anything that slows aggregate demand in the near term could slow economic growth. >> yes. i understand that. and so -- and the republican budget slows aggregate demand, according to the congressional budget office. correct? >> that's right. so i do think it's worth emphasizing, since i thought we were all concerned about the last quarter's figures although there are powerful arguments that these have to do with some seasonal adjustments, but nevertheless, we should be concerned about anything that slows down economic growth in the short term and congressional budget office has concluded that the republican budget would slow down economic growth in the next couple of years. i understand there are other arguments with respect to long term but let's just focus on that for a moment.

because it's also the case, is it not director hall, that when you're looking at growth rates in the future compared to historical growth rates that cbo wants to anticipate that output will grow much more slowly than it did in the 1980s and '90s primarily because the labor force is expected to grow more slowly than it did then. i'm reading from a cbo document from january of this year. i'm assuming the cbo has not changed that analysis. is that right? >> that's correct. >> so one of the ways we can address the issue of an aging workforce in a way that actually boosts overall economic growth would be by implementing comprehensive immigration reform. in fact, the congressional budget office concluded before you became director that the bipartisan senate immigration reform proposal would be something that would help

mitigate this aging workforce issue and boost economic growth. and has cbo changed that analysis since you became director? >> i'm not familiar enough with that analysis to actually comment on it but i don't know that we've looked at that lately. >> well, i think it's true, we probably do all share the view that more economic growth is better so i think it's important to stick to the facts and they have concluded that the republican budget will slow down economic growth in the next couple of years and that the major reason long-term economic growth is not as high as the historical average is because people are retiring and not part of the workforce and one way to address that is through immigration reform which allows more people to come into the workforce and that would boost economic growth and reduce our long-term deficits and again

that has been a conclusion reached by the nonpartisan congressional budget office. so i hope when we're really actually looking at policies, that can impact economic growth we will focus on what the nonpartisan professionals tell us is the reality of the case. you refer to dynamic analysis. as you well know even under the previous rules the joint tax committee and cbo engaged in dynamic analysis. the difference now is the congressional budget office has come up with one score which is different than analysis right? >> right. >> and so that is where there's potential -- i think many people believe for mischief and

concluding that there's more certainty in some of the cbo estimates going forward than there is in reality. what i want to ask you about is cbo's capacity to apply that kind of analysis to the investment side of the equation because there's been a lot of focus on the tax side. with respect to the categories of the budget that relate to federal investments, for example, investment in education, the cbo assumes that additional federal investment in that -- in those areas yields half of the return of the average private sector investment with a delay of five years. is that correct? >> that is. >> and so there is no assessment currently of different kinds of investment, like investment in education versus investment in infrastructure versus investment in places like the national institutes of health. is that right? >> that's right.

obviously we could do that sort of work. >> that's really what i'm asking. because if we're going to be going down this road which i think has a lot of potential pitfalls with respect to the tax side of the equation are you, as an organization, going to be spending the time and effort to better refine your capacity to do this kind of analysis with respect to the investment side of the budget? >> we plan on improving everything. >> there also are parts of the budget that are not categorized currently as investment but still could have a positive economic effect. do you agree with that? >> i imagine so. i'm not sure what you're -- >> well, i mean there was a study done just within the last 18 months, i believe regarding

medicaid spending. and that's not part of the budget currently that's categoryized as investment so when cbo does a crude analysis of the impact of investments on growth medicaid spending is not counted and yet as there was a study that indicated that medicaid spending for children has significant feedback effects on federal revenue. found that children eligible for past medicaid expansion earned higher wages and paid more taxes as adults, enough for the federal government to recover 14 cents on every dollar by age 28 and 56 cents by age 60. so if that's accurate, that's a pretty respectable return on that federal investment. now, i know it's a new study. i know cbo has not had time to evaluate it. but my question to you is, is cbo now going to take a very

broad view of those kind of programs as well in terms of the impact they might have on positive economic growth as this particular study found with respect to medicaid spending? >> actually the goal is to look at the evidence and to apply the macroeconomic effect analysis -- the macroeconomic effect analysis on things where there is evidence of dynamic effect. so we will do that. >> i mean, this is a whole new world because while there's been a lot of analysis done, what you're being asked to do now is pinpoint a score. and i think, as you go through this exercise, you're kbggoing to need a lot more time investigating the investment side. a lot of work has been done on the tax side. a joint tax provides a dynamic analysis on all of the big tax bills that are introduced

right? they already do that. we've not seen that kind of in-depth macro analysis with respect to cbo. you have this crude measure right now for what you consider the investment side of the budget. first of all, it's crude. second of all, it leaves out all of the spending like the medicaid spending that is not categorized as investment. so i'm just letting you know because you're now charged with this important agency and you're charged with the time that you've been asked to undertake this whole new enterprise. everyone is going to be watching very carefully to make sure it's put in place and implemented in a fair balanced and mostly in an accurate way so we have an understanding of the impact on the economy. so mr. chairman thank you for this hearing. we're in the middle of these appropriation bills and we are headed right now on a trajectory

that seems like we're going down toward that waterfall, toward a government shutdown. the president has put on the table a plan to address this each in a straightforward way and we hope our colleagues will join us in finding a way to avoid the government shutdown that seems to be looming on the horizon with the coming fiscal year starting october 1st. >> thank you. mr. rokita. >> i think the chair. dr. hall, thank you for being with us today. the plan i see from the president only increases our deficits and debts and over the near and even longer term and so therefore i don't think it's a viable solution. let's focus on the debt for a minute. it's my understanding that the debt as much as we're working and have evidence to show that are deficits are decreasing because of the leadership on

this committee and, more recently, throughout congress, including for the first time since 2001 that we've had a budget resolution that the debt itself is still expected to expand, the 77% by the budget window and there after it's the red menace that some have described is becoming a tidal wave because 10,000 baby boomers are retiring into unreformed programs. there's a debt clock in my office. there's over $18 trillion. quite frankly, as much as i put that out there for my constituents to see, it's hard to understand and visualize what $18 trillion is so my first question to you is can you talk to us in terms of what this means to the individual family what an increase debt load does to our standard of living? >> first of all, let me just say that the debt level is at right now 74% of gdp.

that is really high. it's only been that high once and it was after world war ii. the extraordinary circumstances after world war ii. it is a very high level. and what is going to happen is we may have a few years where it's at that high level if the economy continues to recover. at some point, the effects of the aging population and rising health care costs are going to make that start to grow again and it's eventually going to get to an unsustainable level. and by unsustainable level we mean the ability of the u.s. government to borrow money is gone. it can disappear at some point. that would make it a really serious meltdown. we're talking about a significant drag on the economy and economic growth. we're talking about slower income growth for folks.

and all of those things are there and one of the things that i think i need to point out is as soon as you start to address this, the less you have to do to fix it because if you wait what you need to do to fix it gets more difld and more difficult. i mentioned one more thing because it relates to what you're saying. the debt has almost doubled since 2007 so our ability to deal with an economic crisis going forward is going to be really hampered with the ability to deal with it is going to be very difficult. that's a really important part of it going forward. we don't want to have another recession. >> let's talk about the fix and what fix is this, as you mentioned. do slightly reforming the programs that are driving our debt medicaid medicare social

security, the interest we owe ourselves and other countries, for example that make up 67% are spent, will that do it moving around the edges or will we need total restructuring if they are going to be available to my children, for example? >> well, we certainly need something pretty substantial and without talking about particular things we spent some time producing deficit reduction where we give you options to look at and you can get an idea for how big of a change we need in things to stop this growth in debt. and one of the things that actually isn't in here that you should keep in mind is when you look at the long-term budget outlook, one, you're at a high level, second, it's still getting worse, the trajectory part of it. so when it gets to be something like -- if it gets to be 100% of

gdp in 25 years it's not only going to be 100% but getting worse, which is why i'm saying something pretty significant needs to be done. >> you mentioned trajectory. >> yes. >> some account for debt in terms of what acceptable levels are. but you don't -- you talk in terms of trajectory. there's a difference there. >> well the notion is that, one, you don't know where a tipping point is. you don't know how big the debt needs to get before there are really serious problems. one of the things that factors into is not just the level but how believable it is for people that it's going to get under control and going to be fixed. that's what i mean by the trajectory. there's a credibility part to this. >> >> thank you. i've been listening very tentatively. it seems to me what we want to do in the opening questions here

is go back to the decade when clinton was the president until the end of bush's regime when there was an $11 trillion turnaround. you remember what the surplus was in 2000 and how we got to this deficit. and then on top of that, since you brought the subject of tax cuts up, we had huge tax cuts in 2001 and 2003. do you want to know what the quotes were during the analysis then, what this was going to mean to the economy, what -- not only was it going to mean to the economy but to the job picture. we all know what the numbers are. you saw the graphs. we've thrown more graphs at you

than exist, i think. and you know what those graphs are. but take those numbers away and take those graphs away and take what i just said. but what is dynamic analysis and dynamic scoring. i'm concerned about your position, mr. chairman and your party's decision to use dynamic scoring and that's what much of the discussion is about here or macroeconomic analysis. an official cost estimates for major legislation this type of analysis is highly unconcern. you have a low number and a high number and you can make of it whatever you wish at whatever time you wish to make of it. and it provides widely different

cost estimates. we can fudge the numbers easier. for example, jct's analysis of the proposal used two different models if you remember. came up with revenue estimates from $50 billion to 700 billion over ten years. i mean that's a -- you could drive 5500 mac trucks through that. he used the most optimistic estimate to taught the plan of reform. some models depend on actions, that future congresses will take my take to reduce the deficit. there's no guarantee what congress will or will not do in the future. a ten-year budget is a fake.

you know it and i know it. i believe that, including dynamic scoring will diminish the credibility of the budget process. so i want to start off with an easy one on the affordable care act in terms of what you said and i quickly read over your testimony here. so it's supposed to stay steady as a percentage of gdp through 2018. it's at the lowest point since president obama took office. none nonetheless, the republican budget requires each of the five health-related committees to find $1 billion in savings to reduce the deficit. by repealing the aca would add 200 billion to the deficit. that's a little dynamic analysis ourselves here. so i'm not a mathematician here by any stretch of the

imagination, as you are. but, in your opinion, if we repeal the aca and replace the law with policies that save $1 billion, which i just referred to what would the budgetary impact be, dr. hall? dr. hall. >> obviously the ac analysis we did before was valid and i can tell you one of the things that will happen when we also look at the dynamic effect of this, that will reduce the deficit work a little against that at least. and with respect to dynamic analysis -- >> are you saying if we repeal the aca, we would reduce the deficit. >> the gentleman's time expired. >> i yield back my time. >> the gentleman's time expired.

mr. cole is recognized. >> i appreciate the extra time yielded me. if i can, let me start with discussion about historical record of the 1990s, then i want to get specific and pick up where mr. akita left off on the debt. you like to give credit to president clinton. if you're on our side, you remind yourselves you had a republican congress, never could have gotten it balanced with a democratic congress for sure. he had three things going for him that we don't today. first, he had peace. the soviet union was gone and we did get a peace dividend and that lasted throughout the '90s. second thing is you had baby boomers working not retiring and actually in peak earning years. finally an internet boom that nobody in washington, d.c. can take any credit for that poured revenue into the treasury in

terms of capital gains. we don't have any of those three today. we are in a state of war and likely to stay in a state of war, and we can debate that, we will be militarily spending more than we were in the '90s as percentage of budget and gdp baby boomers are going to be retiring and we know they're going to be living longer than any previous generation, so they're going to be drawing social security, using medicare longer. finally, economic booms are not predictable but we certainly don't see a growth rate anything like what we have seen in the past. we have some really unique challenges that transcend what our predecessors in the 1990s had. we don't have the favorable conditions they had to work with. we have been able to bring down the deficit in a bipartisan way. i don't think we give either side enough credit for this in the last few years. we have had obviously a little

bit of deficit spending, we had a little bit of economic growth, not anything we would like but that generates a little money, and had a fiscal cliff deal that raised federal revenue by $700 billion over a decade so that's a tax increase effectively. and those things brought that deficit down from $1.4 trillion to a little under $500 billion, 460 or 80, somewhere in that range. are those measures sufficient to budget the deficit? >> they're not. the effects of aging population and rising health care costs will be more apparent going forward, we are going to have a much harder time keeping the

debt anywhere near the current level. it will be difficult to do this. >> you touched on this i don't want to we labor it with mr. akita, what's the debt on economic growth. >> it is a dragon economic growth, puts us at risk in terms of economic policy if we have another downturn the ability to deal with that. at some point we get to a tipping point where the debt is just so high that the federal government has a hard time borrowing money, then we have a real issue. >> any way to deal with the debt without dealing directly with entitlement programs? >> we have a lot of choices for deficit reduction. obviously entitlement programs the growth of those are a big part of the growing debt in our forecast. >> this committee has put forward a couple of provocative ideas on medicare and medicine tad that would slow their

growth. i know the chairman talked about social security in the past we had private discussions about the need to have a process to address that. do you know if the administration put out any proposals on entitlement reform? >> i don't. >> how many years has this administration been in office? seventh year i think? >> that i should have been able to calculate. >> fair enough. obviously i am leading the witness if we were in a courtroom, but the point is we have a huge crisis, we know it is here. we have been around seven years, it is time to deal with it. this is an area the administration has to lead and frankly the committee has been willing, has put out ideas and i think congress is ready. i would hope, mr. chairman, and i'll close out, i would hope that the administration will take that opportunity, sit down

and talk about the real long term problems we have, because they're just going to get worse. >> the time is expired. mr. mcdermott is recognized for five minutes. >> mr. chairman. do you own a house? >> i do. >> did you pay cash for it? >> i did not. >> so you went in debt to buy that house. >> that's right. is that a common occurrence in the united states? >> it is. so we have a population that understands the idea of investment creates debt and that in the end in 30 years you'll have a house probably and you'll have some house that's probably worth quite a bit more than what you paid for it maybe already is. would that be true? >> that would. >> that would be a projection you would expect. >> yes. >> now, the idea of investment,

is one i think we lost sight of in congress. republicans don't seem to want to invest any more. and i was reading "the new york times" and couldn't believe on 22nd of april that i saw a great political leader of the conservative right had come out with a suggestion we should double the nih budget. newt gingrich. i ask unanimous consent to put his editorial in the record. >> objection. >> even as we let financing for basic scientific and medical research stagnate, government spending on health care has grown significantly. that should trouble every fiscal conservative. as a conservative myself i am skeptical of government investments. when it comes to breakthroughs that could cure not just treat, the most expensive diseases, government is unique. it alone can bring the necessary resources to bear, the federal

government roughly funds one-third of all medical research, it is ultimately on the hook for cost of illnesses so does the research to try to deal with it. it is irresponsible and short sighted, not prudent, to let financing for basic research dwindle. now, the last budget that we put out of this committee was $1.7 billion less. 14,000 less grants is what the omb suggests that is equivalent to. tell me how that spurs the economy to cut investment at the national institutes of health? just explain to me how that will spur the economy. >> you know, i don't know that we have done analysis of that sort of thing. >> can you imagine any way it

would? >> well certainly there are things on the spending side that have the positive effect of macro economic growth. >> do you think the national institutes of health over the course of the last 50 years have had a positive effect on the economy? >> i just don't know. i don't want to speak lightly of it. i really don't know. >> you're kidding you really are a politician. our senator from washington said once he was looking for a one armed economist, one that didn't say on the one hand this on the other hand that. you cannot look at what's come from the pharmaceutical industry, health care industry and all that's going on it covers 16% of gdp and you're saying the national institutes of health with all of the research they've done in aids cancer, heart disease kidney

disease, none of that has been positive? >> i didn't say that. >> you said you couldn't say it had a positive effect. the effect is without that kind of research, medicine in this country would fall behind. would be like sierra leone or bot swan a if we stop doing research. we say we're going to go forward in the next century by innovation. we are going to innovate. that means you have to do the things that innovate, that's nasa, that's nsf, that's all the places we invest money. if we stop investing money in the military, all these places where money is invested, republicans say no, we have to cut back we have to cut back, we have to cut back. if you cut this, you're cutting your own throat in my view economically.

after the second world war we had the same debt as today we invested, gave free college education to every soldier who came back. that's investment. >> the gentleman's time expired. mr. mcclintock recognized for five minutes. >> to pick up on that point when we were at the end of world war ii and exhausted all of our resources, carrying a debt proportion as great as it is today, didn't harry truman in 1945 abolish excess profits tax. in 1946, didn't he slash income taxes from 60% down to 20 or so percent? didn't he reduce the federal work force called war demoebization, didn't he take the federal budget from $85 billion down to $30 billion in a single year, and didn't they warn us at the time of a 25%

unemployment rate and second great depression? >> i don't know my economic history like i ought to. >> please check it out. i believe you'll find that's a fact. instead of a second great depression, had the post economic war. we are paying $230 billion a year just in interest costs to service that debt. that means if you're an average family paying average taxes $2,000 of what you sent to the government this year did nothing more than rent the money that we already spent. as you pointed out, end of world war ii when we carried this much debt there was doubt if we could continue to 1946. resources was exhausted credit was shot. we are at that point at this moment in history and i am very concerned what happens to our ability to respond to an international crisis if one is hoisted on us in the position

we're currently in. the budget that congress just adopted sets a course back to solvency. how important is it that we stay that course. >> i think it is important that we do something fairly quickly. and get a plan together quickly because the longer you wait, the more dramatic change you need. >> we have a plan that's the budget in place. we heard the ranking member echo what we heard from democratic senators and from the administration that if the congress doesn't agree to spend a lot more money they're going to shut down the government. how damaging would be that path being suggested, that we massively expand spending at this moment in our history? >> well, you know the economics of it is kind of interesting. spending in the short term is a

stimulus, adds economic demand but adding to the debt over the long run time period is a drag. >> it adds temporarily because when you take a dollar from peter and give it to paul, paul has an extra dollar to spend. doesn't peter have one less dollar to spend in that same economy? >> that's right. >> and isn't the net impact over the long run negative not positive? >> that's right, making the debt worse is a problem. >> my friend from new jersey rightly pointed with pride to the clinton administration surpluses and rightly criticized the bush administration deficits and impact that he had on the economy, but reminds me of churchill's description of clement at lee that carries on as if nothing that happened. isn't it true bill clinton's administration cut 4% of gdp, reduced entitlement spending, in his words, ending welfare as we

know it, approved the biggest capital gains tuck in american history. george bush comes along, increases federal spending two% of gdp, approves the biggest expansion of entitlement spending since the great society, started the entire era of stimulus spending. mr. obama came in increased it by another 2% of gdp. further expanded our entitlement obligations, drove stimulus spending through the roof. what do these experiences tell us? >> well, i don't know about those experiences in particular but let me say that right now the end result from 2007 to now, having the debt double, nearly double gdp is something of real concern and it handicaps us going forward. >> in the remaining 23 seconds, reagan recovery obama recovery, compare and contrast. >> i can tell you that the gdp

growth from this recovery has been slow. i don't know if i want to attribute it to one president or another, but gdp growth has been slow this recovery maybe the slowest we've had. >> gentleman's time expired. mr. mole ton recognized for five minutes. not here. mr. norcross new jersey. >> thank you, mr. chairman, appreciate it. good to have you here, dr. hall certainly appreciate sharing your views. want to follow-up with a comment you made in your statement to mr. van who willens. you talk about wage growth as stagnation on the revenue side of the ledger, and over the course of the last year this recovery has been stagnant, and i agree with that.

i think we all agree with that. i am looking for a better explanation. we look at 73 through i guess 2013, real wages increased by 9% productivity the thing you said drives wages was up by 74%. huge gap that has been discussed. how do you attribute the difference between back then and now and why that isn't changing based on your comments that with the growing economy, the growing wages. >> right. it has been noticed, it is a concern that productivity growth outstripped wage growth at times. >> massively. >> massively. one part of it is nonwage compensation, things like health care costs and other things. that's been a big part of it. if you take that into account, they get a little closer. but you're right --

>> factually. >> has been a bit of a separation of that and i think that's an interesting thing. i still think it is fair to say that you still can't get solid wage growth without productivity growth. and i think lack of productivity growth is going to hold back wages going forward if that isn't somehow resolved. >> just following your logic we should have had a massive wage increase 74% productivity growth, only 9%, i am looking for how did that occur in your opinion following your suggestion that the increase in productivity would give you wages and that didn't happen. >> well, we would have to spend a little time looking at it.

offhand, like i say, if you look at narrow wages, that's a bit of it. we have had a bit more of a separation between productivity growth and total compensation growth. >> total compensation takes it up 17%. still massive difference. i am leading to trade agreements and '73 and nafta. looking at scoring and whether or not a trade agreement is good for this country, you take certain assumption into effect wouldn't you? in other words are they applying and following the rules that have been set up. when you score something, do you assume that the other countries will follow the rules? >> well, that's right. up to now the scoring of trade agreements has been looking at tariff revenue lost tariff revenue has been driving that.

the effects would be different if we did a dynamic analysis of a trade agreement, but you're absolutely right it does rely on the agreement being upheld on both sides. >> so when we're moving forward, any trade agreements we might enter into you would assume they're going to follow the rules as part of that scoring? >> we do our best to estimate that. if the indication is that enforcement may be a problem or some of those things may not be credibly enforced that could play into scoring. >> is that a maybe? i am saying it is a judgment i can't make because i don't know all of the details of a future trade agreement. >> we are going to run out of time. would you follow up with me it is not a maybe you're going to have to assume they're following the rules? i look at vietnam who never

followed the rules on wage agreements, yet they're going to be included in this trade agreement. australia, different story. they tend to follow the rules. when you start scoring these things, we want to make sure we are taking into account whether or not you're going to assume they found god and are going to follow all of the rules which we find very unlikely. again, appreciate you coming on board. looking forward to future meetings with you and your insight. >> the gentleman's time expired. the gentle lady. >> we are looking at critical things in the country. my colleagues spent time on the debt and the economy. i want to turn to another area related to this, that's impact of interest on our government spending and economy. this past january cbo estimated

budget and economic outlook over the next decade that interest payments on federal debt will rise by more than 400%. $827 billion a year by 2025. it is astounding. as one of my other colleagues said, trying to figure out how do you talk about billions and trillions to our constituents and even to myself. it is something that's really unimaginable. over these ten years, the federal government is expected to pay $5.6 trillion in interest payments. again, just astounding. what negative effects will these growing interest payments have on our economy? >> first they'll make the debt grow. that will have a significant effect on the federal debt. i think if you do a quick

calculation, if interest rates go up by .75 percentage points, a fairly small amount, debt to gdp ratio 25 years from now would go up 25%, higher than the long run average, just the debt alone from that is significant. when you raise interest rates you have all sorts of effects. you raise the cost of capital to workers. that can have impact on wages. by reducing return on capital, i'm sorry, raising interest rates, it effects investment as well. you have economic growth aspects to this. >> as the interest rate goes up that also means that more tax dollars paid into the federal coffers will be used to by

services and help with those things we believe we need to get for those most needy. if the interest rates go up, more money has to go pay on the debt, is that correct? >> that's right. >> so given that what is the effect of 1% increase in interest rates on the projections, how much worse does this problem become? >> it becomes significantly worse. you're talking about 30 plus percentage percent to debt in 25 years, it is really significant. i can give you more detail. will give you more in the long term budget outlook. one of the things we do is show you how varying interest rates effects the debt in the long run and do some discussion of that. >> i appreciate getting that information. all it will do is make me stay up later worrying how we are going and how we take care of

this. my last point is my understanding from sitting on the budget committee and hearing previous testimony is that the longer we wait the harder it is. figuring out how to take care of entitlement programs that's the greatest driver of our debt right now while we can, before interest rates do rise, will put us in better position and perhaps not put us in a crisis situation, is that not correct? >> thank you. thank you mr. chairman for the hearing. i yield back. >> mr. lieu is recognized. >> thank you mr. chair. thank you dr. hall for 25 years of public service. i am going to ask you questions on dynamic scoring. i believe it is a radical c change in how the cbo is going to score the federal budget and to me it is not radical because of the concept, like the concept as you know is easy basically people react to changes in governmental policy.

>> right. >> earlier this year, the house majority passed a rule that said we're only going to apply dynamic scoring to some parts of the budget. my view is math is math. if you're going to apply additional math to some parts of the budget and not others, that will skew the budget and response earlier in this hearing, you said you would apply dynamic scoring where there's evidence of dynamic effect, but doesn't everything have dynamic effect whether you spend on education or spending on infrastructure r&d tax credit spending on nih for r&d, everything has an effect, isn't that true? >> not sure everything does, certainly many spending items have dynamic effects just like revenue items have dynamic effect. >> and will the cbo go beyond what the house rule is if you believe there's going to be significant evidence of dynamic effect and score it that way, regardless of the house rule? >> well, i believe the house

rule asked to use dynamic analysis in both the spending and the revenue side where appropriate. >> it limits the spending side though. so let me ask. you have no objection to having cbo score the entire budget with dynamic analysis? gl that's right. we actually have been doing that, you look at the analysis of the president's budget, we do a dynamic portion of that. you can see how we apply it on everything. we do it in the long term budget outlook, macro economic effect. we had a little experience doing that, and this change to us is just sort of a continuation of using a methodology we have already been using. >> thank you. that's reassuring. second question i have is how you do it. so let's say -- i get the extreme examples. say the state and federal government stop funding education, took that money and applied it to deficit reduction. so you would have a numbers effect. then over time you have a lot

of uneducated people in america, and that has a drag on the gdp. do you factor that in, education levels of the population, how strong infrastructure is, do you apply those to dynamic scoring? >> we do. that would have effect on productivity going forward drop in productivity going forward would be a dynamic effect that would not be good for economic growth. >> and it is possible that dynamic scoring will go negative reverse, right? possible there may be some cuts that actually have a worse effect over time because you're going to have a less productive work force or something else that effects gdp. >> that's right. >> then i have a question about your view of what happened in kansas and louisiana because they applied dynamic scoring in those states, governors of those states said we're doing massive tax cuts dynamic scoring shows we bring in more revenues than the tax cuts. didn't happen. both states are facing potential

bankruptcy. my question is do you think they got the dynamic analysis wrong? do you think the theory if you do massive tax cuts you bring in more revenues is incorrect or do you think it is random coincidence if you do a lot of tax cuts, you'll bankrupt your state. >> i don't know the specifics about the states and what they did, but the economic evidence is that there are dynamic effects but not that dynamic effects are so strong that tax cuts pay for themselves. that takes the economic evidence too far, it is just not there. >> thank you. i yield back. >> gentleman yields back. gentleman from georgia mr. woodall is recognized. >> thank you for being with us today. you were asked earlier you were a homeowner, you confessed to being a homeowner. i am not going to ask if you're a credit card holder, but i want to ask if your model reflects differently the kinds of

investments that mr. lieu was talking about whether it be education, infrastructure consumption, consumers buying more imported goods. does our model make distinction between government spending on investment and government spending on consumption? >> it does. that's an important distinction. obviously deficit spending on something that gives dynamic benefit is different from deficit spending on something that's not. >> when we talk about running up deficits annually, debts over time, the scoring i generally see says if we spend more today we're going to have a positive effect on gdp in years one two, three, drag on gdp in years seven eight and nine in rough terms. is there a way to avoid that impact as we try to balance gdp growth today versus tomorrow? is there a formula that gives gdp growth each and every year? >> it is not a formula but one of the thing that would help is not surprising people right?

if you get a fix, you announce it now and you give it a little time so people can adjust to it. then hopefully you can avoid that push against economic growth, you can avoid that and still get the benefits down the road. it is the idea of getting a plan together, maybe having effects phased in over time so you don't get a drag on the economy. >> let me be clear. i am 22 years from retirement. young people think they're more likely to see a ufo in their lifetime than social security check. you're saying whatever we are going to do to address that concern that the same solution phased in over time has less drag on gdp than if that was imposed at some drop off point? >> that's right in the near term you can have a drop off point as long as you give people time to adjust. it is an issue of timing. faster you fix it better off

you are. if you take time and phase it in you can hopefully avoid drag in early years. >> i am confused i have been on budget committee four years only been in congress four years. we do things one year at a time, we will decide in december to write tax policy for last year. get to a problem we know is coming with ten years but won't deal with it in years one to nine, we only deal with it when it is upon us in year ten. there's economic consequence to short term extensions to one year policies, to let's wait and see culture that exists on capitol hill? >> well, without commenting on culture, yes, there can be effect from doing that -- >> i feel guilty about the culture, i'll comment on culture if you comment on negative effects that the culture brings. i am thinking about the formulas

and i have such great respect for the budget committee chairman and getting to the first conference on balanced budget since 2001. we went after those consumption programs and certainly the sequester went after many of the investment programs. i supported the chairman's house passed and conference budget. have you seen alternatives that tried to reduce consumption spending in this country in order to enhance the investment spending in this country that haven't gotten the attention on capitol hill that they should have? have you seen any idea leaders other than the chairman pushing that idea that we are harming our country with consumption and harming our consumption with lack of investment so let's get the balance right?

>> i can't say i have anything in mind. we thought through possible ways of balancing the budget and ways of improving things. some options are things we thought of and sort of detail what we think the impact would be. >> i know you worked hard to give us the economic information, not try to drive congress on policy issues, but if i could encourage you at every opportunity to help to beat that drum about the degradation that occurs in the economic system with the uncertainty that absolutely no one in this committee, absolutely no one on capitol hill benefits from that seems like a place we could come together and make differences you talk about. mr. chairman, i yield back. >> gentleman's time expired. mr. brat is recognized. >> i want to take exception to couple of remarks previously given by the ranking member, get

your confirmation it is true. he said in the short run the republican budget reduces gdp. you said correctly yes, aggregate demand goes down that's the relationship. but i want to put it in context. equally true, if we go another trillion in debt as milton freedman taught us decades ago and you just create a jobs program, people dig a ditch with teaspoons and fill in the ditch, that would also create gdp growth. >> it would in the short term, that's right. >> that would also create growth in the short term. i am trying to show the context of smart economic growth versus anything that causes economic growth. the second remark the ranking member made was immigration increases would increase gdp growth, that's also a true statement. but what most economists use as a more helpful measure is gdp per capita. would you say that's accurate as

a measure of our welfare, gdp per capita is more important to the average person than just growth and gdp? >> absolutely that's what's behind household income. >> good. is it your understanding in terms of federal scoring immigration federal programs come into play, but if an average person with a 9th grade education i am grates into the country, makes $20,000, pays little in federal income tax, but if they have two kids in school, the cost of that is roughly $24,000 to the local and state, roughly speaking. and any other additional expenses. is that scored by cbo, the state and local cost? >> no. we don't do state and local. >> right. when he says immigration causes growth, i accept that premise it does increase gdp growth, but the average person would not be happy to find