overseas operations over the 2013-2022 period. then we show in table 1-6 the menu of alternatives, the savings of driesing the number of troops deployed for this operation by 25,000 in 2013. there are no particular sets of policies that might get to you, but that particular alternative that we show would reduce the outlays for those programs by a little over $800 billion. whether those are amounts that could be used for some other purpose depends on how you mean "used." this is money. so the $1.4 trillion, which i should maybe explain to people or remind people, the way we do projections of discretionary spending, the parts that are now capped by law is to take the most recent level of appropriations enacted by congress and extrapolate that

over the decade with growth for costs. and that was specified in law as the way we should do this kind of projection two decades ago. so the $1.4 trillion comes from taking the latest level of appropriations which i think are $127 billion in fiscal year 2012 and growing that with inflation. however, whether we would spend that amount or less than that or more than that depends entirely on the challenges the u.s. sees in the world. congressional budget offer director douglas elmendorf testifying yesterday on the outlook. you can see the remainder of his remarks in the c-span video library. this morning he's testifying before the house budget committee on the same topic and is predicting that the budget will run about $1.1 trillion and

it will slow with the unemployment rate staying at about 8%. the chairman of the house budget committee, congressman paul ryan. the committee will come to order. welcome, all, to this very important hearing on the difficult fiscal challenges and economic challenges ahead of us. i want to welcome cbo director back with us again and with his beautiful daughters. it i'd good to have you here again, doug. wish we had better news. i want to thank doug, first of all, dr. elmendorf and your

entire cbo staff for your hard work on the release of the annual budget and economic outlook. we have a compressed timeline this year, given the tardiness of the president's budget, given our easter coming earlier, so we know that cbo is going to be pushed extra hard this year, and i know you're working really hard around the clock over there. so i first off want to start off by saying thank you for all you've done. there's no question about it. our fiscal and economic outlook is grim. according according to cbo's outlook it will mark the fourth straight year of trillion-dollars deficits. trillions more will be ahead putting a chilling effect on jobs today and. cbo projects economic growth remains sluggish and the unemployment rate to hover near 9d% through 2014. this report confirms what too many americans already are painfully aware of.

president obama's policies simply are not working. the president's and his party's leaders successfully enacted much of their agenda, but they have failed to advance policies that get our economy growing. they have failed to slans solutions that get our fiscal house in order. in a sense, they have failed to pass a budget in over 1,000 del days. the problems have been growing for years, and there is no question that the blame is bipartisan in nature. for years politicians from both political parties have failed to be honest with the american people about the size and scope of this debt threat. the new house majority has worked to chart a new course. in this committee we authored and advanced a principled agenda that provides a fiscal and economic outlook. it strengthens our security programs. it makes sensible reforms as per

job creation and economic growth while putting government spending on a more sustainable path. in response to our budget, the president and his party leaders have still yet to put forward a credible plan to solve our country's problems. look. we have a big difference of opinion on the big questions of the day, but i hope cbo's alarming report encourages us to focus on the urgent need for real solutions instead of resorting to the same old false attacks with no alternatives. let's build upon the sensible spending cuts enacted last year on a bipartisan basis. here at the budget house committee we've worked in a bipartisan manner. there are ongoing efforts to build a bipartisan coalition on the critical need to save and strengthen medicare, for example. i invite the president and my friends across the aisle to join us in this conversation. the cbo's outlook could not be more ominous. i look forward to your

testimony, dr. elmendorf, which i hope can inform and guide the committee to advance solutions in the year ahead. and with that, i'll yield to ranking member mr. van hollen. >> thank you, mr. chairman. i want to join the chairman in weekending you, dr. elmendorf, and your two daughters. it's great to have members of the family here today. and i want to realference the reportived yesterday na the chairman mentioned because while it shows that the economy remains very fragile, it also shows that it is slowly recovering. it demonstrates that we still have much work to do to create jobs, tackle the deaf sanltd return the budget to a long-term fiscally stable path. but for a moment, let's focus on the positive signs of the budding economic recovery and remember where we were just three years ago. if you could please put up the slide. no, the first slide.

this slide right here. what this slide shows is that the day president bush left office, the day that president obama was sworn in, the economy was collapsing at an even faster rate than originally thought. the gross domestic product was plummeting at a rate of 8.9%, in other words negative 8.9% gdp and we're shedding 840,000 jobs a month. when the president was sworn in, 840,000 jobs were last. the passage of the recovery act coupled with actions to save the auto industry and efforts by the federal reserve helped end the free fall and began the climb upward toward economic growth. now, we've all heard the expression that we're entitled to our own opinions but not our own facts. the fact is that the cbo said that the recovery act helped

save or create up to 3 million jobs in the year 2010, that it lowered the unemployment rate by up to 1.8 percentage points in calendar year 2010 and lowered unemployment by up to 1.4 percentage points in 2011 compared to what it would have done if the congress had not taken action. the private sector has now added jobs in every month since march 2010, adding 3.2 million jobs in total. more jobs were created last year than in any year since 2005. and what this chart shows very plainly is that we're on a huge downhill cascade and that after the president was sworn in, we began to reduce the downward momentum, turn the corner, and have been steadily heading up, reducing first the rate of job loss, which you obviously have

to do when you're losing gdp at an 8.9% rate and headed into positive job territory. so the facts as reported be i the cbo are clear that the recovery act did serve its purpose. it's kind of like when you're walking up an escalator that's going down very quickly. if you take no action, you will go down very fast. even if you take action, it will take -- appear at first this you're running in place and slowly you'll be moving up, and that's what we're doing. the cbo report, of course, also shows that the economy remains fragile and that we still face serious budget obstacles. while the economy continues to grow at the current rate it will take too long for unemployment to return to the precrisis levels, which is why our first priority has to be making sure we do what we can to help small businesses and businesses help put people back to work. we should take immediate action in this house on the plan the

president submitted to the congress last september. the president's jobs plan, including his significant infrastructure investments to help rebuild our infrastructure around the country. we should finish the job with respect to extending the payroll tax cut for 160 million americans and making sure that unemployment insurance is there for people who have lost work through no fault of their own. an and, mr. chairman, i'm going to apologize to both you and mr. elmendorf because i have to go to the conference committee. i hope it moves forward quickly and without delay to get that job done. finally, the congressional budget officers report underscores the need to address the looming deficit in a balanced, reasoned way. the budget control act that this body passed last year and the president signed saves us about $1 trillion from cuts in the discretionary budget over the next decade.

it will also result in an additional $1 trillion in deficit reductions starting in january 2013. there are better ways do that and there are worse ways to do that. i hope the congress comes together and does that in a way that makes sense. but i think as we listen to the testimony from dr. elmendorf, it will be clear that the bipartisan commissions that have looked at this challenge were right. simpson/bowles, that you really need to tackle this in a balancedw balanced way, and i'm quickly going to put up these two charts. i believe this is in your testimony. under the current law the deficit would be reduced the bottom heavily blue shaded line so that over the ten-year period the deficit would decline substantially. if we packed our bags and went away and 2kidsn't come back until next year, it would reduce the deficit significantly.

now, that very lightly shaded blue right over the bottom bar is the revenue that is lost if we keep in place all the current tax policies. and so clearly that is a factor. now, i don't think anyone is suggesting that we want to -- we want to put in policies that would capture all that revenue. i'm not suggesting that. but this is an important chart to understand what current law would do in the impact of revenue. if we go to the next chart, it quantifies those numbers and makes it clear that if you extend all of 2001, 2003 tax cuts and index amt, that adds 4.5 -- $4.5 trillion to the deficit. and the other extenders, tax extenders, if you continue those, it adds $839 billion.

if you add the debt service on that, you get to over $6.3 trillion in revenue. and if you look at the cbo baseline deficits cumulative over ten years, they're just over $3 trillion. so the cost of continuing all those policies on the revenue side leads to a doubling of the deficit over the next ten years. so i want to make it clear. i am not proposing that we change all the current policies, but i think this does give us a very clear indication of the order of magnitude. well, i'll give a very clear example. $1 trillion of that is tax cuts by folks at the very top who -- and if you returned those tax rates to where they were during the carolina don administration, a period of great economic growth, that would be $1 trillion of that. i thinking we need to tackle

this through tax reform, closing loop ho loopholes, sensible tax reform, but i think this underscores a bipartisan approach. we need to stake a balanced approach. yes, we need to make cuts, deal with reforms but deal with the other side of the equation as well. thank you, mr. chairman. and i apologize for having to leave. >> sure. my pleasure. dr. elmendorf, the time is yours. >> thank you mr. chairman, congress machb van hollen and your kind words about cbo. i'm priv lemged to be leading a group of extraordinairely talented and dedicated public servants and we all appreciate it very much what you have shown for our work. we will continue do our very best for this committee and for congress as a whole. i'll be referring as i talk to some charts that i'm told are in your notebooks. it's about a half a dozen slides. they're mostly out of the outlook, but they're collected in this handout to make it

easier for you to follow what i say. lenlet me begin by saying the economic projections are considered on current law not because we expect that there will be no changes in law but because this approach provides a benchmark against which potential changes can be measured. what we are presenting is a benchmark, not a forecast. that distinction has a large impact on the budget and economic projections. what is our assessment of the economic outlook? as you know, the pace of the recovery has been slow since the recession ended 2 1/2 years ago, and we project that it will continue to be slow for the next two years, reflecting both the lingering effect os testify crisis in the financial markets and the recession and the fiscal restramt that will arise under current law. specifically current law fiscal policy will reduce the growth of output slightly in 2012 and significantly in 2013 through a combination of large tax increases and spending cuts.

our projections incorporate the upcoming expiration of the payroll tax cut and emergency unemployment benefits, the expiration of the tax cuts enacted in 2001, 2003, and 2009, as well as other expiring tax previsions, the constraints on spending imposed by last year's budget control act, and the winding down of the budgetary effects of the 2009 recovery act. taken together those policies will generate a sharp fiscal contraction. in addition, the excess number of houses, loss of wealth, run-up in debit and other legacies in economic downturn are continuing to weigh on household and business spending. if you look at the first slide in the path, which looks roughly like this, oochz we project that real gdp will grow by only 2% this year and only about 1% neck year. we expect it to quicken after 2013 but real gdp to remain

below the economy's potential through 2017. according to our projections, the economy's only about halfway through the accumulative output as a result of the aftermath. this picture is not the one to which i'm referring to at the moment. the costs associated with that persistent output gap are immense and fall disproportionately on those who lose their jobs, are displaced from their homes. in particular the labor market still has a great deal of slack mainly as a continuing weakness and demands for goods and services. the unemployment rate remains above 8% both this year and next. as economic growth picks up after 2013, the unemployment rate will gradually decline. but in our projection it remains above 7% until 2015 before dropping to 5.25% by the end of the coming decade.

while the economy continues to be weak during the next few years, inflation and interest rates will remain low. let me turn now to our budget projections. under current law, we expected this year's deficit will be about $1.1 trillion. at 7% of gdp, that's nearly two percentage points less than the deficits recording last year but still larger than any deficit between 1947 and 2008. over the next few years, projected deficits in cbo's baseline narrow sharply, average 1g.5% of gdp and totally about $3 trillion between 2013 and 2022. with deficits small relative to the size of the economy, debt held by the public drops a little as a share of gdp but remains quite high. much of the projected decline of the deficit occurs because under current law, revenues will rise considerably. in particular, between 2012 and

2014, revenues in our baseline chewed up by more than 30% because of the recent or scheduled expiration of various tax provisions and new taxes and other collections that are scheduled to go into effect. federal spending and the baseline declines modestly relative to gdp in the next few years as the economy skpansd and the statutory caps. later in the decade spending turns up again relative to gdp because of increasing expenses generated by the aging of the population and rising costs for health care and because the accumulation of debt and rising interest rates will cause a surge in the government's interest costs. of course, these baseline projections are heavily influenced by the changes in tax and spending policies that are embodied in current law. changes that in some cases represent a significant departure from recent policies. to illustrate the budgetary consequences of maintaining some

tax and spending policies that have recently been in effect, cbo developed an alternative. like the baseline this is not a prediction about policy or recommendation. it's sim le meant to show to you the consequences of some fiscal actions that are regularly discussi discussed in the congress. all expenses other than payroll tax deduction are suspended. third, the medicare's payment rates for physician services are held constant at the current level rather than by dropping at 27% in march and more thereafter as scheduled under current law. and fourth that the automatic spending productions reporting by the joint select committee on debt reduction do not take effect, although in this scenario it would remain in place.

under that alternative fiscal scenario, deficits over the 2013-2022 period would be far higher than in the baseline, averaging 5.25% of gdp rather than 1.5% and totally $11 trillion rather than roughly $3 trillion. debt held by the public would climb on an unsustainable path reaching 94% of gdp in 2022, the highest figure since just after ward war ii. under that scenario the economy would be noticeably stronger in the next few years than the current law but noticeably weaker later in the decade. the report presents estimates of those effects using ranges of numbers to reflect the uncertainty involved. it shows gdp 2% higher and unemployment rate that's 1 percentage point lower than would be the case under current law. however, the midpoint of the range for 2022 sh 2 shows gdp i

lower caused by the escalating debt. the budget outcomes that would result from them is very difficult. many things could turn out to cause the economy and the budget be worse or better than we project. however, there is no plausible economic outcome under which the policies of the alternative scenario i outlined would lead to a sustainable budget outcome. the fundamental fiscal challenge during that decade and beyond remains the aging of the population and rising costs for health care. the number of people age 65 and older will increase one third substantially raising the cost of social security, medicare and med cared. affordable care act will increase for those receiving

federal health care programs. furthermore the costs per enrollee will continue to rise. because of these forces the set of budget policies that were in effect in the past cannot be maintained in the future. here's one way to think about the problem using cbo's projections under the alternative fiscal scenario which, as i said, represents a combination of current policies. under the scenario, outlays for social security and the health care programs would be much higher by the end of this coming decade than in the past. more than 5% of gdp higher than in that 40-year average. however, outlays for all other federal programs are projected to be much lower than in the past, averaging in the past 40 years they've averaged about 11% of gdp and in our projections for this scenario would be 8%. that would be lower than any year in the past 40 years. despite the constraint on those programs, the rising costs for

social security and the federal health care programs meaning the bunt under the scenario is expected to be 6.1% of gdp. to keep debt from rising relative to gdp, it would need to be about $9 billion smaller in 2022. in that year alone would be the case under the scenario. therefore, to put the federal buchlgt on sustainable path, policymakers will need to allow federal revenues to in crease to a much higher percentage in gdp than we've seen in the past 40 years or make very large changes to social security and federal health care programs or pursue some combination of those two approaches. let me close by highlighting the consequent chal choices that policymakers face this year. on one hand, if policy makers leave current laws unchanged, the federal debt will probably recede slowly due to the size of the kmichlt that will occur because of a large increase in

revenues and a sharp restraint of federal spending apart from the federal programs i've just mentioned. however, both of those budgetary patterns will have significant egg nomic and social effects. it will markedly slow the economic recocoverry are. on the other hand, changing current laws to allow current policies to continue would boost the economy and hay lou people to pay less in taxes and benefit more from government programs in the next few years but would put the nation on a quickly unsustainable fiscal course. if policymakers wanted to achieve both a short-term economic boost and medium-term and long-term fiscal sustainability, they would need to enact policies that would leave deficits significantly wider than our current baseline in the next few years but significantly narrower under the significant policies that we've described. in conclusion, how much and how

quickly the bijt declines in the coming decade will depend in part on how well the economy does. probably more critical, though, will be the choices you make as you face the substantial changes to tax and spending policies that are slated to take effect within this year. thank you. i'll take your questions. >> so in other words, it's pretty bleak to sum it up. there are so many areas i could go. let's talk about medicare and your analytical tools in measuring what's going to become the largest federal program. we have two scenarios here which do a service of showing where we're headed. under the alternative fiscal scenario, which is your attempt to try to get closer to reality, that's my description. i don't know if that's yours. the -- from your june 2011

long-term outlook you show it doubling over the next 20 years and rising. by 2037 debt exceeds 200% of gdp. so what we find, and i think everybody agrees with this. i don't need to belabor this, is medicare becomes unsustainable under the alternative fiscal scenario because it drives debt to just untenable levels. and so that's a future we know is not going to exist because it simply can't sustain itself. you would agree with that, right? >> i agree that the alternative fiscal scenario can't exist endefinite endefinitely. i think it's a combination of policies in that scenario that cannot be sustained together. one could sustain the medicare path while making other changes or the social security path in making other changes or the revenue path while making other changes and the set of changes that will be made will depend on you and your colleagues. that combination cannot be

sustained over the next quarter century. >> so when we look at the extended baseline,my experience is that whenever we seek to control costs by cutting reimbursement rates to providers, what we learn is that the cuts are either not sustained, meaning they're given back, or they cause higher utilization rates that actually erode the anticipating savings. the president's health care law cut medicare payments to providers be i $500 billion over ten years to pay for the new entitlement. it also created the ipab. and under this proposed, it will hold the medicare rate to gdp by cutting reimbursements to providers. now last year you testified that cbo has a tool kift when it

comes to analyzing the behavior of physicians and beneficiaries' abilities to access care. do you still have that on both the provider and the beneficiary side? i e-mail afraid we do, mr. chairman. it's gap we're trying to fill. we have projects under way. we've been in conversation with panel advisers about what evidence we can draw on in trying to give congress a better sense of how changes in payments to provide eers would improve the beneficiaries' access to care and quality of care. we're at the beginning of the road, not the end. >> i obviously want to encourage you to keep doing that because we're getting analysis from the act wares, he basically told us that he estimates that 40% of providers will become unprofitable by 2050 and therefore go out of business or stop tarecking medicare according to the c