supreme court. and public policy events in washington d.c. and around the country. c-span is brought to you by your cable or satellite provid provider. >> this week the supreme court takes up a case dealing with independent sales tax. and there will be a preview of the oral argument versus w wayfair. live coverage on c-span2. congressional budget office director keith hall talked about a new report on the economic outlook and took questions from reporters. this is half an hour.

>> good afternoon. welcome to the congressional budget office, cbo. i thought before we answer questions, i'd read a brief statement. as you know, we've just released our annual economic outlook for this time for 2018 to 2028. i'll start with a brief statement if that's okay. in the congressional budget office's baseline projection, with the assumption that current laws governing laws and spending remain unchanged. the budget growth substantially over the next few years. later on 2023-2028 it stabilizes in relationship to the size of the economy, though at a high level. as a result, federal debt is projected to be on a studily rising trajectory throughout

the decade. achieving by 2028. as economists we have to give you a picture. there we go. projected deficits offer the 2018-2027 period have increased markedly since we issued our last budget academic projections in june of 2017. the increased stems primarily from taxes and legislation from them. the 2017 tack back, the bipartisan act much 2017 and the appropriations act of 2018. in our economic projections, which underlie our budget, adjusted for real gdp expands by 3.3% this year and 2.4% in 2019. most of this growth by consumer

spending. and the potential much gdp over the next two years, this marks cyclical path in real gdp will occur in large part because recent legislation provides significant fiscal stimulus at a time when there's very little slack in the economy. the effects of larger federal budget deficits from the new laws exert upward pressure on interest rates and prices. during the 2020-2026 period those factors, along with the slower growth and federal outlays and the expiration of reductions in personal income taxes dampen economic growth. after 2026, economic growth is projected to rise slightly matching the growth rate of potential output by 2028. between 2018-2028 real action output and real potential output are likely to expand on a rate of 1.9%.

in our forecasted growth potential gdp is the dedeterminate of the growth of actual growth of 2028 because actual jut put is near to potential level now. projected to be near its potential level at the end of the period. potential output is project today grow more quickly than it has since the start of the 2007-2009 recession, at the growth of productivity increases to nearly its average over the past 25 years. nonetheless, potential output is projected to grow more slowly than it did earlier in decades. held down by slower growth of the labor force which results primarily from the retirement of the baby boomers. in our projection, the effects of the 2017 tax back on incentive to work, save and invest, rose between the 2018-2028 period. over the same period the tax act is to boost the level of

real gdp by 0.7% and nonfarm payroll by an average of 1.1 million jobs. our current economic projections differ from those that we made in june of 2017 in a number of ways. the most significant is that the potential and actual real gdp are projected to grow more quickly over the next few years. projected output is greater because of recent enacted legislation, data that became available after our previous economic projections were completed and political analytical message. the next decade. unemployment is lower particularly the next few years when economics boost the demand for labor and short and long-terms interest rates are predicted to be higher on average from 2018-2023. and budget projections, we estimate that the 2018 deficit will total 804 billion dollars.

139 billion more than the 665 billion shortfall recorded in 2017. in our projection, budget deficits continue increasing after 2018. as deficits u accumulate through 96% of gdp or 29 trillion dollars by 2018. that percentage would be the largest since 1946 and well more than twice the average of the past five decades. for the next few years revenues hover near that 2018 level of gdp in our protection and steadily 17.5% of gdp by 2025. at the end of that year many pre-visions of the 2017 tax act expire causing receipts to rise sharply to 18.1% of gdp in

2016. 8.5% of 2017-2018. it averaged 17.4% of gdp over the past 50 years. in our projection outlays for the next three years remain near 21% of gdp. which is higher than the average of 20.3% over the past 50 years. after that outlays grow more quickly than the economy does. that increase reflects a growth in mandatory spending mainly because of the aging of the population and rising health care costs for a beneficiary and increased spending for social security and medicare among other programs. it also reflects significant growth and interest costs which are projected to grow more quickly than any other major component of the budget. the result of rising interest rates and mounting debt. by 2028, out lays for interest of projected to be roughly triple what they are this year in dollar terms and more than double when measured against the percentage of gdp. in contrast, discretionary

spending is projected to decline in relationship to the size of the economy. from the 2018 to 2027 period, we now project a cumulative deficit 1.6 trillion dollars larger than the 10.1 trillion of the anticipated in june. projected revenues are lower by 1 trillion and projected outlays are higher by half a trillion. more than june of 2017 above all three i mentioned earlier are estimated to make the cumulative deficit 2.7 trillion larger than previously projected between 2018 ap 2027. however, revisions to our economic projections caused us to reduce our deficit by $1 trillion over the same period. mainly because of expectations of faster growth in the economy, and wages and corporate profits. other changes had relatively small effects on projections. cbo analyzed an alternative scenario in which current law

was altered to maintain policies now in place. so substantial tax increases and spending cuts would not take place as scheduled under current law and provide emergency funding than sums provided for 2018. in that scenario -- debt held by the public, 105% of gdp by the end of 2028, an amount exceeded only once in the nation's history. however, the pressures contributing that to rise would accelerate and push debt up even more sharply in subsequent decades. such high and rising debt would have serious negative consequences for the budget and the nation. in particularly, the likelihood of a fiscal crisis in the united states would increase. and i'd now answer some questions. we have some smart people who worked on the report on the side and john mcclelland to

help answer questions. john is the head of our tax analysis division. so, if you don't mind, would you please state your name and news organization when asking a question. >> paul congressional quarterly. there used to be sort of a rule of thumb over the previous 40 years revenue had averaged 18% and spending averaged 20%. but now over the next ten years revenue 17% and spending 20%, is that correct? >> that's right. >> okay. and do you know at what point that changed and why it changed, spending stay about the same, but it looks-- well, but over the past 50 years revenue has dropped from 18 to 17 average? >> well, actually the recent

drop, the question was that the tax act. and we expect that the revenue projections are going to grow back to above their 50-year historical average by the end of the 10-year period and get back to higher than normal revenue levels. >> the great recession play a part in reducing past revenues, which helps bring the past average from 18% to 17%? >> yeah, that seems like-- there's a cyclical aspect to revenues and spending. you know, in fact, the great recession, i think, actually overdoubled the size of the debt in five quick years and that was from lower revenues and higher spending, that are no natural during the cycle. and actually, actually reminds me if you don't mind. let me go back to a picture here. one of the things about the picture i'd like to not be

missed. and it's a business cycle aspect to this. you notice at time periods, this is the deficit. at time periods where the deficit is getting high or all during business cycles, at theened of recessions, you always have a big, significant increase. we're well away from the last recession and we're starting from a very high level. so any more business cycle activity that comes up starting from this high of a level is likely to push the deficit to quite high levels of what we're forecasting right now. in case i hadn't depressed you enough. >> joe walter washington examiner, can i ask about your interest rate forecast and on the one hand, if i understand correctly, it's a little bit higher than the fed's own-- what they put out in their monetary policy spending. and why would that be?

and are you worried about being high and maybe having that debt projection window. and also, is there anything that is on the horizon or that could make those rise much more quickly, change the picture? you know -- is the prospect, for instance, of a big foreign investor like china dumping their loss? >> first of all, one of the reasons we've upped our forecast of interest rates pretty significantly since june of 2017 because we've just had a great deal of fiscal stimulus on an economy that's near, nearly out of slack. so, we expect it's going to deal-- although we're going to have a nice jump, a picture here, a jump in gdp above potential, we're going to have, we're going to pace that because it's above potential we expect there

will be pressure on prices, inflation and interest rates so we expect the fed will accelerate their increase in interest rates. and that's actually part of what you're seeing here with the slowdown in the gdp forecast. so, we do see federal funds rate, it's at about the 1.75 right now, expected to go up to about 2 1/2% by the end of this year, by 3 1/2% by the end of next year. it's because we expect the fed will have to deal with inflationary pressures. you're right to focus on interest rates. interest rates are one of the more uncertain parts of our forecast. we have such a high debt level. a higher interest rate, a lower interest rate than what we're projecting makes a real difference in the interest costs that the federal government experiences. you know, we obviously-- what we've done, we've forecast because of the legislative changes, we expect interest

rates to accelerate faster than we did before, and get to a same sort of relatively high level than we expected all along. just, we think it's going to accelerate things faster. but, again, as you mentioned, if interest rates are higher or lower, that will make a pretty big impact on where we are with respect to debt in ten years. things like-- we haven't had a chance to look at that much. i know we've got tariffs on steel and aluminum and those aren't really in our forecast. that sort of thing could affect gdp growth. so that would be part of our next baseline, sort of be included, i guess in our economic forecast. >> so just to clarify, the likelihood of higher interest rates is why you believe gdp will fall below potential, around 2020, 2021, et cetera. >> that's right. >> and when was the last time

that the economy hit 105 debt to gdp ratio. >> immediately after world war ii, a rather special time period and again, i say that the timing of this is really concerning because we're not coming out of a recession. we're quite a few years off a recession and we have very high deficits. >> there's a number in the report that suggests a cumulative deficit specifically 1.9 trillion and that's a number that's higher than the others-- do you know what explains that discrepancy or how you arrived at that number? . well, sure. we-- a few things about this. it's different from the good work that gct did because we're dealing with a different 10-year time period, a year earlier. a we have a different economic

forecast, we're working off a different baseline. and i can tell you that the economic effect, we're kind of right in the middle with other folks in terms of economic impact on things, so, i don't know if we're higher or lower than other folks, but the 1.9 trillion comes from about 2.3 trillion in direct increase in the deficit from the legislation and then an economic growth will take off about 460 billion dollars of that deficit increase. and that's how we get to where we are. >> you have a tendency to talk about the dangers, in the same langua language even though the deficits have gotten higher and you don't sound more alarmists, but here is your opportunity. [laughter]

>> how much worse in debt is the fiscal picture now-- particularly if that legislation extended under the alternative scenario and when you say that it increases the likelihood of a fiscal crisis. does it also increase the likelihood that the fiscal crisis would occur earlier? >> well, first of all, one of the difficulties that we have is nobody knows what too much debt, what will cause a fiscal crisis. you know, it really depends upon the country, it depends upon the situation. the real key, of course, is whether people are still willing to loan the federal government money, where the government continues to borrow. one thing that we can say and do try to say, the bigger the debt, the bigger of chances of a fiscal crisis and we respect the timing. one of the most important things about the timing is when

do you start to fix something like this? the longer you wait, the more draconian the measures have to be to fix the problem. the earlier you start to tackle it, the less draconian the measures can be. that's the biggest warning, i think, that we've got with this is if you continue to ignore it, do you think you're going to have a-- you're going to have congress make more dramatic changes to fix the problem later on. >> so the-- protected the [inaudible] would you tell me a little bit more about during the period when unemployment rate is already low.

>> okay. the difficulty, the tricky part for right now in terms of the economics is to have so much stimulus at a time when there's very little slack in the economy. you know, there is some effects from the tax bill that raises potential gdp and by the way when we say potential gdp we're talking about the supply side of the economy. there's increases in the potential gdp, but there's more stimulus that pushes gdp above potential, right? and that's the thing that that becomes tricky over the next few years. if we have gdp above potential then we've got to anticipate that we're going to have to have a soft landing at some point because there's going to be pressure on prices and interest rates. >> yes. >> kind of a follow-up from andy's question. after 1946 the debt was more than 100% of gdp.

when in 28 would we be approaching that. what was the difference between 1946 and looking ahead. how would the debt and fiscal situation differ compared to where we'll be in 2028 with that amount of debt? >> i think that the singlemost important difference is that debt had be high and rising. our forecast beyond ten years does nothing, but show rising debt to gdp ratio. so, we anticipate within the next decade after that that we're going to break the record under current law debt to gdp so we're getting to really quite high levels and there's really no trend path under current law to fix the problem. that's the biggest difference, i think. have you weigh in on the best

policy solution for addressing that problem? i know there was some debate today some say it's not about cutting entitlement spending, about-- not taxes at this moment in time. would you say more about others? >> we would go out of our way not to make a policy description except to say that congress has got some tough decisions to make about how to deal with this problem and they've got some options. where i think that's going to be really important, if you sort of look ahead at ten years from now, just the net interest cost, all right, the annual cost of just of interest payments will exceed total nondefense discretionary spending in ten years. so, you're getting at a level, the interest cost is getting to be a really big part of the budget. and you've got to deal with a big part of the budget to fix

it. >> looking at extending the individual tax cuts that expire to 2025. there's been talk about moving another bill that would make these permanent. can you give us an idea what that would do to the deficit if it's not paid for like the current --. >> well, we do have that alternative scenario, fiscal scenario, where we did literally assume that those tax cuts would stay in place. the spending caps would stay in place, the expensing would stay in place so that is sort of our current policy baseline and there we see the gdp, the debt to gdp ratio about be 106% of gdp instead of, i think, 96%. so that would have a significant effect. >> and immediately and not in 10-ier window? >> in the 10-year window.

that's the trickiness about our forecast because we're assuming current law so we now have to worry about, well, do people really believe that the tax cut, that the taxes are going back up after 2025? how many believe it will be extended? and we have to deal with the incertainty of our forecast. >> looking at the increase in nondefense discretionary in 2018, the biggest part of that is disaster spending, disaster, 102 billion. that's-- ments right. >> to what extent does that translate into outlays, which actually increase the deficit? >> well, under our baseline, we assume that those outlays continue at that level. as part of the fiscal scenario, we've taken it down to where we assume that the spending is more like 11 billion a year and let it grow with inflation because we think that's more

realistic. so, that's one way direction where all of the fiscal scenario would actually help the deficit a little bit because we don't think that 100 billion is going to continue. >> just looking a the 100 billion in 2018. do you assume that all of that budget already turns into outlays and adds to the deficit? just from-- >> not in 18. >> it would over time. >> it would over time, you would expect over the 10-year peri period. >> a question on the tax estimates. can you explain why it's a 11-year window for the 1.8 versus the-- i'm sorry if you answered this already. >> well, you mean why we extended to 2028. >> 11 years versus the 10 years. >> 2018 to 2028. this would be the normal part

of our forecast to take it out. this would be our normal outlook. we take it 2018 to 2028. nothing unusual. and what would be unusual the estimate was on the old baseline which would have been a year earlier. >> i have a question, you guys have the tax code and the credit, and some said that you guys found that the international provisions might encourage companies to locate tangible assets overseas. can you talk about that? >> yeah, so, there are provisions of the act that attempt to try to shift what's been a problem over the years of firm locating certainly assets overseas and there's

particular provision who are intending trying to discourage those locations and they try to identify items overseas that have very high returns that treat them differently than other activities. well, one way to work around a rule of that sort is to put things that have low returns, tangible asset to try to soften how this rule does. clearly, it's a very complicated set of decisions that the national companies are con fronting with the idea of the new tax low and this is one that some observers feel may not be working exactly as intended. that said, we're waiting on guidance from the internal revenue service to outline exactly how the rules will be applied. >> on a global basis? >> it's a global basis that's looking at, is this activity that a u.s. firm has overseas earning a high return. and if that's what triggers a rule, one way to reduce that is to put something low with the

high and that gives you something that looks like a typical rate of return. that's a pre versus incentive, but it's a potential risk as they try to confront their incentives under the law. >> and there is a box in there which estimated that the law will reduce by 65 billion a year. is there a way to translate that to revenue? >> not directly. i mean, i think the observation that we're trying to make with some of these to recognize the facts that these decisions of a large-- where to locate certain activities and attribute profits have the ability to distort economic statistics and i think that the discussion there, pointing out the fact that you may have these flows, as far as unwinding activities

that they currently attribute to a foreign party. whether that indicates that's likely to be taxed, but recall, under the new law going forward the activities of a foreign multinational will not necessarily be subject to tax, except it's caught up with the high return assets kind of rules so it's very hard to translate to a dollar for dollar bottom line impact on revenue. >> a little technical, but when you net out the cost of the deficit, tax credits, does that inclu include-- do you try to parcel out the tax cut effects on interest rates? there's effect on interest rates from the legislative changes, but this-- try to put that all in the same box? if you get what i'm saying?

>> yeah, part of the macro feedback is the interest rates. >> to follow up on that, i think the earlier score of the tax cut was 1.1 trillion including feedback, so, this higher-- this higher estimate, how much it will increase the deficit over ten years. ... that helped inform things which were not available earlier. so really we taken more information, a number of reasons why the numbers look a bit

different than they did before. >> i believe a number like that also doesn't include the full cost of the debt service, that had the interest rate effects but not the full cost. it's not an apples to apples comparison. >> it didn't? >> that's correct. for the joint committee is not estimating the debt service, correct. >> the effect the federal borrowing, changes to federal borrowing, conventional score or a a dynamic score typically would not incorporate effects on debt service some changes to the federal borrowing, but so a conventional score wouldn't incorporate any changes to debt service. but this is all in. this includes effects on interest rates and changes in federal borrowing. >> thank you.

>> so we answered all questions? you guys absorb a big report very quickly. [laughing] >> there are a few additional questions -- if there are not any additional questions, thank you all for coming. [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> live this morning with a discussion on changing u.s. demographics and the electoral possibilities for democrats and republicans in future presidential elections. the bipartisan policy center will review its recent report identifying you swing states, the role of electoral college and generational impact on future voting trends. live coverage expected to start in just a moment here on c-span2. [inaudible conversations] [inaudible conversations]

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[inaudible conversations] [inaudible conversations] >> once again we're live at the bipartisan policy center is hosting a discussion on changing your demographics in upcoming presidential elections. discussion will include a review of the bipartisan policy center recent report that identifies you swing states and the role of electoral college among other items. it should get underway shortly here on c-span2. also to let you know some of or

other programming coming up this week, the supreme court will be taking t-uppercase-letter do with an internet sales tax. today legal experts will be offered a preview of the oral argument in south dakota versus wayfarer. live coverage from the heritagee foundation gets underway at noon eastern here on c-span2. also coming up tonight a look at the trump administration, the 2016 election and russia. reporters from the "new york times" and npr will be joined a discussion with marvin kalb of the kalb report and that starts live at 8 p.m. eastern on c-span3. also available online at c-span.org, and you can listen with the free c-span radio app. [inaudible conversations]

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