i don't know whether those numbers are correct. but if they are and you can tell me if they're roughly in the ballpark, then that means that the over $250,000 account for about 15% or roughly of the total tax -- tax potential if you let everything expire over the next ten years, is that correct? >> i think that's right, congressman. 20% of the set of tax provisions enacted in 2001-2003-2009. we also show on our table other expiring tax provisions like the research and experimentation tax credit. so i think of the effects of the top tax rates as being about a fifth based on the latest numbers i've seen of the set of things often described as the bush tax cut. >> if you take all of the different tax things, 15% to 20%, let's say, then if you wanted to get to the alternative scenario and you only raised

taxes on $250,000 or more, then you have to take roughly 80% or 85% of the rest of that money and get it out of spending. is that correct? >> that was -- i mean, i think that's right. i mean, with alternative fiscal scenario says if you don't do these things, i think what you're saying is that the piece which is just raising the top tax rates only makes a small difference in moving the alternative fiscal scenario back towarder the current law baseline. >> thank you. the reason i bring this up is there's obviously a lot of rhetoric going on with that we can solve the deficit problem with just that slice of the populous. and we can't. you -- if you want to do that and then you have to the a lot on the inside or you have to increase taxes on virtually everybody to get more towards the alternative scenario. second thing i'd like to ask about is, and i think i have these numbers correct.

but the health care law, which we affectionately call obamacare, the numbers on that were on the basis of some late 2009 cbo projections. and at that time cbo projected that unemployment would be 4.9% in 2014. obviously -- from looking at your thing here, you had 2013 at 9.2%. you have 2014-2016 at 5.6%. clearly in 2014 you project now significantly more unemployment. >> 8.7%. >> 8.7%. you now project in 2014 versus 4.9% when the obamacare law was -- when the numbers -- cbo numbers scoring the obama law was put into effect. so if we were rescoring that today based on the scores that you have today, because that's when some of the medicare

increases and the medicaid and exchange subsidies kick into effect, would not the cost of obamacare be projected to be significantly larger because of that much higher unemployment figure? >> that piece alone would raise the cost of the affordable care act. i don't know by how much. we're not able -- we say this in the outlook but i should emphasize. we were not able for this outlook to update those estimates. that's particularly involved with jobs. we will be doing that as part of our march baseline due out in a month and a half, we hope. in the march baseline you will see new estimates of all the programs in the budget. part of that will be the cost of the coverage provisions in the affordable care act, that change. >> that and the class act which we may be dealing with this week and the fact that that's likely to be pulled back. thank you very much. i yield back the remaining three seconds of my time. >> ms. mcclintock.

no, ms. bass is next in line. >> oh. okay, there you go. thank you for your testimony this morning. earlier when we opened, i believe the chair mentioned the need for the president to present solutions instead of just criticizing. i just wanted to mention that yesterday the president sent his start-up america legislative agenda to accelerate start-up and small business growth to congress. parts of the agenda have already won bipartisan support in the house, including allowing small business to businesses to raise capital, raise taxes on capital gains and key investments and small businesses. i think this is an example of the types of economic stimulus we should be pursuing. and i'm hoping that my colleagues on the other side of the aisle will bring the president's package to the house floor for a vote soon.

i did want to ask you about states and the fiscal pressure on states, which i do see as a major obstacle to sustainable recovery. at the start of 2012, 29 states have already projected a gap of about $44 billion for fiscal year 2013. and i imagine that this number is going to grow. and given that federal aid was a lifeline for states and now far from providing assistance to states i am sure that we will likely be proposing additional cuts. i wanted to know if you could respond to what toll the overall economic growth is due to states still facing a long and uncertain recovery. >> congresswoman, of course, we don't study state budgets as closely as we study the federal budget. but state budgets do matter for the overall economic outlook for the economy and the federal budget outlook as well. states as you know have been through a terribly tough time. things are a little brighter

than they used to be. revenues have started to grow a little bit in many states. but the overall levels of revenues remain well below what they were, in many cases before the recession. it vary across states. but in general, well below prerecession levels. as you said, the federal support, much provided through the recovery act of 2009, extra federal support, is now waning. that will put increasing pressure on state budgets. one way in which that matters for the economy is the state and local governments have been reducing their level of employment. so if you look back from the peak of the business cycle before the recession started at the end of 2007, since then state and local governments have shed about nearly half a million workers. that is part of what has, not a large part but a nontrivial part of the loss of jobs. >> thank you. could you also comment on the

proposed changes of unemployment insurance, specifically that impact it would have on the economy to reduce the number of weeks that are being currently proposes? >> so i'll answer the question sort of a little backward if i might. our baseline, projection that you see assume current law, assume the expiration at the end of this months. however, if the congress were to extend the emergency unemployment benefits along the same lines that they're currently in place, that's one of many options, of course, that they would extend along the same lines, that would add maybe about a quarter of a percent to the level of gdp at the end of this year without any other changes in policies. and that would then add maybe about a quarter of a million jobs by the end of the year.

>> thank you. >> mr. mcclintock. >> thank you, mr. chairman. this microphone is working. we've been hearing a recurrent theme from the other side that recovery is pretty strong. the economy's getting better. all is well with the world. let me ask you, are there more people working today or fewer people working today than at the -- on inauguration day of 2009? >> i believe the answer to that is there are fewer people, congressman. >> is the unemployment rate higher or lower than it was on inauguration day? >> so i don't -- to be honest, i don't know the unemployment rate on inauguration day. >> in january of 2009 i believe it was 7.8%. >> is that higher or lower than it is today. >> the current rate is higher than that you identified,

congressman. >> and if the labor participation rate had remained the same as it was on inauguration day, that is, if so many workers didn't get discouraged and made the workforce, what would the unemployment be today? >> let me see if we have answer answer to that question. i'm sorry. i don't have that offhand, congressman. >> would you say it's over 10%? >> i just don't know. it's a complicated question. i don't want to speculate. >> is the debt higher or lower today than it was on inauguration day? >> the debt is higher, congressman. >> how much higher? >> again, congressman, i have a lot of tables but they don't really keep track of political things, mostly of economic things. >> would $4.5 trillion more be in the ballpark? >> that may be right. i don't know. >> how about the price of a gallon of gasoline, more or less than it was on inauguration day? >> i'm sorry, congressman, i don't know. >> would it be up about 83%, perhaps? >> i just don't know. >> let me ask you this.

we heard it said, well, we just need to go back to the clinton prosperity and i would hardly agree with that. that looks awfully good by today's standards. did the clinton administration increase or decrease spending as a percentage of gdp during his eight years in office? >> as i said, we have a set of nice tables in the back of our book. >> as a percentage of gdp didn't it decrease under the clinton administration by a whopping 3.5%? >> depebds on how one aligns the fiscal years with the presidencies. fiscal year 1994, for which the budget was set in 1993, spending was 21% of gdp. and then in the year 2000 it was 18.2% of gdp. >> cut spending relative to gdp? >> i guess i would have said the president and congress in that era made a set of decisions that -- >> where credit is due, the

president signed that legislation. did he expand or contract the federal government's entitlement obligations during this period? >> that's a hard question to answer, congressman. >> i'm referring specifically to the welfare reform that abolished the open-ended welfare system we had at the time. >> yes, that was changed. i don't know -- >> turn in deficits or surpluses during the last four years of his administration? >> there were several years of surpluses, congressman. >> okay. so clinton reduced spending relative to gdp, he contracted our entitlement obligations, he turned in budget surpluses during his final years in office. bush, on the other hand, increased spending relative to gdp, expanded our entitlement obligations, and turned in major budget deficits. it seems to me that if increasing spending, increasing our entitlement obligations, and

turning in major deficits toward the path of prosperity, we should be in the golden age of the american economy right now. let me ask you this question. how does this recovery tract with the reagan recovery? senator phil graham has estimated that if the economy tracked under the obama administration as it did under the reagan administration, as you recall reagan inherited double digit unemployment, double digit inflation, mile long lines around gas stations, interest rates at 21.5%. graham estimates that if the economy tracked today as it did under the reagan years, at this point of the administration, there should be 16 million more americans working with per capita income, $4,000 higher than it is today. do you have a comment on that? >> no doubt, congressman, this recovery has been very unusually

weak by u.s. historical experience and we've shown chunks like that. >> one final quick question, and that, is last year we had a number of experts, including yourself, of warn that we were about five years away at best from a sovereign debt crisis. >> your time is expired. >> where are we today? >> not one of the people who put a tate on that. what we said consistently is that very difficult to predict what set of economic and b budgetary economics. >> mrs. caster. >> thank you very much. thank you for your testimony. the economy is creating jobs right now. they are in the right direction. private sector payrolls added nearly 1.9 million jobs in 2011.

the announced unemployment rate in december is 8.5%. p that is the lowest in three years. we always hear that if economy can create more jobs, it would lower the deficit. could you give us a little more detail on that? i know you have a certain projection now if your projection of the unemployment rate if we created more jobs, how does that reduce the deficit? >> we actually wrote a letter which i looked for but can't find offhand, to congressman a few months ago that talked about the effects of a stronger economy on the budget and the largest part of the whitening of budget deficit over the past few years has been the weakness of the economy. the explicit actions of the government, recovery act and other things, have also led to deficits. but the largest part of the

whitening has been automatic changes, particularly in revenues, but also on the spending side, to a weak economy. less taxable income, more people out of work. and those things have had a big effect on the budget. over the next few years under current law is improving the economy, also, of course, the changes in policies. scheduled to take effect under the current law. the economy matters a great deal. we show in the appendix in this outlook a rule of thumb for how stronger or weaker economic growth would affect budget outcomes. >> is there a precise number if the unemployment rate is reduced, say, by 0.2, the exact impact that has on cutting the deficit? >> i don't have a precise number in my head. we could estimate a number for you, i think we probably could. i did find the letter we wrote to congressman on october 4th of

last year, in this experiment i think we looked at the effect of moving the economy all of the way back to potential levels. but we could certainly look, congresswoman, what the effects have done to employment rate might be. >> this is the great frustration, that over the last year the congress really has the ability to do some things, for example, the transportation bill that is long overdue, that's -- i know you said there's a lag there. what if we had gotten it done a year ago. what if we had some short-term investment in some jobs initiatives. we know, you know, the president lay down on the american jobs act, people at home love the idea of repairing schools, putting people to work there. we've got so many bridges in the state of florida, schools that are in need of prepare. and it would just seem that's a great common sense solution that would put people back to work and help us reduce the deficit.

>> just to answer your specific question, actually, and this was in the letter to congressman holland. we estimate 1 percentage point reduction in the unemployment rate would reduce the deficit by about half a percent of gdp. using some averages of relationships. >> great. thank you very much. on another topic. congress, we really should be working together to try to find a solution on a permanent medicare document. i know one proposal that is being considered is looking at the savings president obama now has ended the war in iraq in support of the american people. and there are savings in the overseas contingency funds. that's the fund where, i guess, cbo has said we're going to anticipate that we're going to stay in iraq longer. what is available in the oco for

us to use to possibly developing a permanent fix so that our parents and grandparents can maintain their relationship with the doctor of their choice? >> let me try to explain this, the issue of the overseas contingency operation funding and how it appears in our pro jkzs, i think, is a technical and complicated one. let me try to explain for everyone. there isn't an oco fund in a sense of a set of money sitting somewhere. what our baseline does do is for discretionary spending that is not capped by a budget control fact, and this is not capped by the budget control act. that sort of funding we project, we take the latest level of a appropriations provided by congress and extrapolate that for increases over time. that extrapolation from the latest funding that congress provided for those purposes amounts to $1.4 trillion over the coming decade.

but that is just our extrapolation based on the latest actions of congress. and how the congress might want to think about that money relationship to other things that congress wants to do is really up to you all, not -- >> which is all borrowed money. >> well, a lot of times revenue, a lot more spending than tax revenue. we're borrowing a lot for some purpose. >> thank you. >> thank you, mr. chairman. thank you for being here today. i really appreciate your testimony today. i think we would all be wise to take your report and act upon it. i'd like to touch on two things. i'd like to touch on the tax rates and then also on social security a little bit. maybe you touched on this a little bit and maybe i missed it. but could you touch on what effect, if we allowed the -- if congress would raise taxes attend of this year, outside of the payroll tax rates, what kind

of affect would that have on the economy immediately? >> so if congress did nothing so that tax rates automatically increased going into next year then we've shown an estimate in the outlook for affects like that but i can give you an estimate for the effects of the tax piece alone. if the expiring -- i'm not clear what the experiment had in mind here. in the current line baseline, taxes go up and spend is cut typically because of the budget control act. and our economic forecast is conditioned on that. if instead the congress extended the expiring tax provisions for the next few years, then that would increase the level of gdp at the end of 2013 by between 0.3% and 2.5%. by our estimates. that's about two-thirds of the total effects in the output.

the other third is the affect of relaxing the spending cuts that we included. >> would you recommend that congress extend the current tax rates for three to five years to boost the economy and then revisit the issue once the economy has started to progress? >> it's not our place, congressman, to make recommendations. we have tried to illustrate here in the analysis we did and the comments i made the economic short-term economic consequences of fiscal contraction that is very rapid. of course, as you understand, we talked about, there are long term very negative economic consequences of not having fiscal restraint. >> i think the facts are pretty clear, that if we would raise taxes and taxes were to be raised at the end of this year there would be -- that could be a detriment to the current state of our economy, is that correct? >> we think that the increases in tax rates built into current law at the end of this year will

reduce economic activity and employment next year relative to what would occur if those tax rate increases were deferred. >> property payroll tax rates currently. extending the payroll holiday. what is the cost of extending the payroll holiday through the end of this year and what would be the deficit added to that cost? >> if the lower payroll tax rate was extended through the end of this calendar year, it would add $75 billion to the fiscal year of 2012 deficit and $25 billion to the fiscal year deficit. 2013 starts in the last quarter of this calendar year. total is $100 billion. >> how many years are we shortening the life of social security if we continue the current rates? >> it has no direct effect on

the social trust fund. depends on how you do it. the way that it's happened in the lower payroll tax rates so far is that general revenue has been transferred to the social security trust fund in the amount of the payroll tax receipts. so the trust fund has been held harmless in the lower payroll tax rate. and if you extended the payroll tax rate with the same provision as is in place now, the trust fund continue to be held harmless. if you didn't do that, then the trust fund would be $100 billion to the worse by the end of the year relative to what would happen in her current law. i don't know what effect that has on the, say, the expiration date and trust fund. trillions of dollars we think the survivors insurance fund that part of social security has decades before it will be exhausted. >> the rates were not to be

extended at the current levels, what kind of affect would that have on the economy? if we left americans keep more money in their pocket, would that have an effect on the economy, positive or negative? >> yes. relative to current law, extending the payroll tax cut through the end of the year lynn crease output and increase employment by the end of the year. lower taxes or higher spending in the short term, given the economy with so many unused resources, those provide a boost in the short term. the amount in the boost depends on the specifics of the policy and the testimonies that we've done including the one last fall, we tried to layout, we estimate to be the relative bang for the buck with different sorts of policies. but the directions are pretty consistent. the crucial, crucial point to remember is that it works for a few years in an economy on unemployed resources because the constraint on economic activity right now is really the demand

for goods and services. by later in the decade the constraint on economic activity will be the supply of savings, it will be the labor supply, it will be productivity. and in that sort of world, what matters -- the way the budget choices matter is importantly through the amount of borrowing that it does, also through the effect of certain spending programs. >> thank you. >> thank you. >> thank you, mr. chairman. there was a sharp increase in military spending in 1943. guess why. so when you take numbers out of context and gain the numbers, i think we all have a responsibility here to set the record clear. we have an entirely different situation. >> who is doing what? >> gentleman from california just took off. >> the gentleman is not here. let's not --

>> i will reduce my remarks about it, if that's okay with you. we had a very different situation in terms of president bush one when he lowered taxes. and mr. clinton raised taxes. so if you want to put numbers in context and why things are better at one time and not so good at another time, we need all facts. both of those presidents worked hard to do what was necessary at the particular time in history when they took office. this president took office in january of 2009, and you know what the employment and unemployment was in the two months before him and in the two years before him and in the two months after he raised his hand and in the two years after he raised his hand? i want to show you a chart, if i may. we're gaining the numbers.

the blue line in this chart shows the rate at which state and local government had been growing or shrinking as compared to real gdp since the late '80s. very clear, even i understand it, so you all should understand it. but those are the numbers. you didn't put them there and i didn't put them there. these are the numbers. in 2007, if you look -- try to look closely, the private sector and government were growing. then the economy began to shrink. and then fell off the cliff during the financial crisis which occurred at the end of 2008. can i see this second chart, please. thank you. this chart shows the rate of government investments or how we are sacrificing the future as

well as the president. at the beginning of 2009, in the face of political timidity and outright obstructionism, we acted to stem the drop in economic growth and unemployment and we passed the recovery act february of 2009. the most successful parts of the recovery act were state fiscal relief that went directly into state and local jobs. the result was the blow lines upwards spike in 2009. then we all know the rest of the story. the private sector, 2009 recovery stalled and everything started to drop in the second quarter of 2010. the president proposed the american jobs act which included $35 billion to reverse this trend. but it stalled in the congress.

we lose teachers, we lose police, and we lose firefighters. now we've lost close to 700,000 in the public sector. others going up, others going down dramatically. last night so we can put a human touch on this? police officer kevin brennan in brooklyn was shot down, shot in the face. an individual with an illegal gun. we have reduced in human facts, when we globally talk about what we can cut and what we can't cut. i mean, the direction we're going, we're going to have to cut money to the fbi, transportation, border security, vets benefits, because that's where we're headed because