>> i think we need to achieve what this budget achieves. which is to stabilize debt as a percent of gdp that will allow us to continue to be the place for american businesses and global economies to invest. >> thank you, mr. chairman. >> senator graham? >> thank you, mr. chairman. there's much being said about a fair share that people need to pay their fair share. when it comes to taxes. what is a fair share? can you put a number on it? >> i think it's -- i think rather than putting a number on it let's look at empirical data. >> my question is let's put a number on it. >> okay. so i think the number that the president has in the budget and again, the president prefers to do tax reform. >> right. >> but tax reform takes time.

so having the bush tax cuts expire, having the top rate -- >> whoa. the president prefers to do something. why doesn't the president lead? i mean, you've got people on this committee who have led. they got their brains beat out, but i admire them all. why didn't the president have a budget that led on tax reform? >> the president has specific proposals that would take the top rate back to 39.6%, which was a -- which was a level that existed in the 1990s. >> is that a fair share? is that -- should it be higher than 39.6%? >> i think that the $1.5 trillion which is raised here primarily through individual taxes, somewhat through corporate taxes, is represent -- represents a fair share. the ratio i have talked about -- >> so the president believes and you believe that the number that

we should be shooting for is 39.6%, not 35%? >> that's right. i think the president believes -- >> now, what does that do to our long-term fiscal outlook? if we told everybody in america we have found the fair number, 39.6%. can i go home and tell people we have solved our budget problems? >> let me explain the tax reform piece. this budget has very specific proposals, 35, going to 39.6%, capping deductions for americans with more than $250,000 of income to 28%. at the same time, the president has put forward principles for tax reform which would simplify the tax code, lower rates. >> so when we say a fair share we really need to reform the tax code to have a fiscal impact. >> that's right. we need -- >> so when people tell me you've got to pay your fair share really what you need to be

saying is no, you need to reform the tax code in a way that gets us to where we need to go as a nation. and 39.6% versus 35% is not going to solve the nation's problems. >> i think that 39 -- the specific proposal has us return to where we were, which was a successful system. >> let's talk about what got us into $15 trillion worth of debt. do you think the social security trust fund will be exhausted in 2036? >> it's solvent in 2036. >> i'm not beating up on you, but i'm trying to express what i think is the elephant in the room and the gang of six and others, bowles-simpson did try to do something about this. is there anything in the president's budget that adjusts the age for retirement? >> no. >> is there anything that means test social security benefits? >> no. the president does not believe -- >> is the president -- >> -- that our immediate problem is social security.

at the same time, the president has put forward principles for social security reform and it too needs to be done in a balanced way. >> okay. if we do nothing with medicare, social security and medicaid, how much of the revenue stream in the future does those three programs consume? >> well, across this budget window which is the next ten years, what the president's budget achieves is a deficit below 3%. and a stabilization of the gdp to debt. >> does the president's budget do anything to save social security from going bankrupt? >> it's solvent through 2036. the president is -- on social security -- >> is he against personal accounts? does he oppose personal accounts? >> the president looks forward to sitting down with congress and making fundamental -- >> does a millionaire under this budget receive subsidies from

the government when it comes to their medicare premiums? >> the president has through the aca -- >> this is a simple question. if you're a millionaire receiving medicare benefits, do you receive subsidies under this budget? >> you're entitled to medicare. >> you pay a large portion -- >> is there any subsidy coming to millionaires under this budget for medicare premiums from the general treasury? >> compact with seniors, it is maintained. >> so the compact is that we're going to let millionaires go -- be subsidized forever? is that the compact we all signed? >> that's the compact we have. >> count me out. aarp is watching, i did not sign that compact. i think i should be paying the full premiums. but anyway, thanks for coming.

>> next, senator warner. >> thank you, mr. chairman. i appreciate representative zients being here. i do concur with my friend, senator from south carolina, that we do need to take on a comprehensive approach to the long term deficit issue. i think one of the -- a lot of statistics are thrown around, but if there is one take away i think constantly i come back to and -- which is that last couple of years we have seen spending close to 24, 25% of our gdp. all-time high. we have revenues in the 15% range. 75-year low. if you look any time over the last 75 years, any time there's anything close to balanced, it's been when revenues and spending

have been in that basically 19 to 21% range. and i guess the feeling i have is that while it will require us to take on changes to the entitlement programs and i do wish we would have seen more, it will take us looking at the revenue half of the ledger as well. one of the things i want to take a moment on and i understand the administration -- president's reluctance and need to phase in appropriately long-term deficit reduction. i think we have seen in the press today the u.k. potentially being put on credit watch because they may be moving too quickly on the austerity path only. but one of the questions i'm -- i would like your comments on, what should be the economic indicators and the growth numbers, gdp numbers, jobs numbers, what have you, that

would allow us to start phasing in more dramatic and comprehensive deficit reduction? one of the things i'm concerned with, mr. chairman, i understand i think probably both sides of the aisle do that the payroll tax cut at this point, while quite popular, does have some current stimulative effects. i am afraid at times we need to be hoisted on our own language at some point. that eliminating that would then be viewed as a tax increase at some point into this year going forward. i would like to see if the economy continues to improve that automatically phaseout. i am concerned that as well that it looks like the house leadership now after a great deal of talk about fiscal responsibility may decide to try to extend that without paying for it at all. i think that's totally irresponsible and against the grain of everything that this committee, both the chairman an

the ranking member have been about. if we ought to do it, we ought to pay for it. i guess what i'm asking, mr. zients, what should we look at as the metrics on economic growth that would allow us to take on deficit reduction with both the revenue side increases and the entitlement side reductions to get us back in greater balance? >> first, on revenue you talked about the 19, 20% range. that's exactly where our budget is. so at the end of the budget window, we hit 20.1% and we're in that 19% range through the window. so that we agree is a historical range that's worked and one we need to get back to. second, i want to emphasize that

the budget has declining deficits year over year. we get below 3% in 2018. that gets to the point where we stabilize debt as a especially of gdp. on payroll tax, let me answer that specifically. we think it's essential. you can't have a tax increase on 160 million americans at this point in time. we're starting to recover. unemployment is at 8.3% which is better than where it was, but not where we need to go. i think we feel absent any major shock to the system that once it's extended through the end of the year that that is it. >> paid for? >> you know, i think that the most important thing is that it be extended. i know there are conversations that many of you are involved in. i think it's important that we have unemployment extended, u.i. extended and the sgr. that package should get done as soon as possible. we can't afford any delay. the president will be signing that bill. >> i didn't hear the answer as to whether it would be paid for.

what are the indicators of when we can phase that out. you're saying the end of the year, or other economic metrics would allow us -- >> i think continued decrease in unemployment. i think we believe that the president's policies are enacted a year from now will be below 8%. we look forward to gdp growth in the mid 3s or higher. we can begin to pivot toward deficit reduction. >> thank you, senator. senator portman is next. >> thank you, mr. chairman, and welcome, mr. zients. couple quick questions for you. senator reid has said we don't need to bring our budget to the floor this year. do you agree with that? >> i think that the most important thing is that -- >> just a yes or no. >> -- that congress act and that we pass the president's policy. >> so yes? yes or no?

do you think we should take a budget to the senate floor, yes or no? >> i think the mechanics and the process are not my area of expertise. what i do -- >> that's -- i'll take that as a no. which is consistent with what the white house has said. i find it pretty amazing. >> i will note that the bca as the chairman said -- >> second question, what do you think is the most significant policy issue facing the country in terms of our fiscal policy? what's the single most important thing in terms of our fiscal posture? >> i think it's -- i think it's actually two things. the short term and the long term. short term is continuing this recovery. and we need to make sure that payroll taxes i talked about and other initiatives like transportation, schools, rebuilding -- >> what's your longest -- >> and driving down the deficits

to a sustainable level. i think we made progress here. >> what is the area that troubles you the most in terms of our fiscal posture? >> i think it's getting a balanced approach. you look at the revenue right now, the revenue is much below where senator warner that i agree needs to be and we need to bring down our spending. >> okay. i was hoping for something a little more specific. i have asked that question of a lot of folks including the cbo director who sat in your seat and the question usually gets answered with one policy area which is healthcare and entitlements. so i know you come from the management side and welcome to this budget committee. >> well, i do have some background in healthcare from the private sector and i think -- >> well, if you look at the budget, i think it's difficult not to see that the entitlement side, the mandatory side and healthcare is our number one problem. we're borrowing 40 cents spent and we have had a downgrade as was mentioned by senator warner.

we are looking a at a fiscal crisis on our doorstep. $15 trillion debt, we're spending more than we ever have in this country since world war ii. so i -- you know, i would just like to suggest having heard a lot of the conversation today that there doesn't seem to be the urgency that i would hope for, particularly with regard to the mandatory spending side. as a percent of spending to gdp on the mandatory side, this year is about 65%. in 1971, it was 42%. at the end of your budget window do you know what the percent of gdp will be on the entitlement spending, this includes medicare and interest on the debt so 42% in 1971. about 65% now.

what will it be at the end of the ten-year window? >> i don't have a figure in front of me. >> it's 78%. so think about the budget. well, you have graphs and charts here. when you look at this, this is as -- i'm sorry, this is as a percent of the budget. so it's percent of the budget we have gone from 42% in 1971. i use '71 because that included the great society programs and so on. so there was a big expansion. back in the '60s it was in the 20s. we're going to 78% and yet in the budget when you look at it, there is nothing as senator graham indicated on social security. even though we're in cash deficit and we have a huge growth. on medicare, what is their -- there in medicare on the benefits side during the next term of whoever is president? so during the next four or five years, what is under medicare?

>> let me start with healthcare -- >> let me answer that question for you because i'm not going to get an answer from you it sounds like. but nothing. you know, you have a little means testing which i applaud you for. and republicans have been going to get out in front and talk about the need to get entitlements under control, as has the chairman. you've got nothing. after this president's term. so i appreciate your testimony today. i look forward to talking you on the management side where you have a lot of background and expertise and i would hope on the other issues when someone asks you what the top issue is it's not a balanced approach, or more taxes. but we have to get this mandatory and entitlement spending under control. this budget does nothing to move the country forward on what is the most urgent issue facing the nation on the fiscal side. if we don't, i fear we're headed down the road of our southern european allies and it will have a negative impact on our economy and jobs.

i look forward to talking to you more about these and other issues. >> thank you. >> senator toomey, let me just say that in fairness to witnesses, if we ask a question, we have to give the witness a chance to answer the question. senator toomey? i'm sorry. senator whitehouse, and then senator toomey. you'll be next. then senator begich. >> we would ask that the witness answer the question. many of these are simple questions. >> well, you have -- >> answer the question. >> well, let me just say, let me just say, when we ask a question here, a witness deserves the chance to answer. that's the way this committee will be conducted. for anyone. senator whitehouse is recognized. >> and give a straight answer -- >> senator whitehouse is recognized. >> welcome, mr. zients. >> thank you.

>> for as long as there has been discussion about medicare, there has been opposition to medicare and there has been resentment that medicare exists. the forces that opposed medicare initially and that have resented it since are still out there. there is enormous value to certain sectors in the private sector of turning medicare over to private control. giving people vouchers and sending them off into the private health insurance industry for instance would be a significant windfall for the private health insurance industry. so i think it's important that we recognize that political fact and recognize that the debt and deficit problems that we have

can be used to become a leveraging vehicle for this long-standing opposition to and resentment of medicare and a desire to disable or change that government program. we saw dramatic and i think very unhelpful changes and actually passed by the republican house of representatives just recently and i think the american people responded to that with a very negative point of view. and the next thing that appeared out of the republican house was something called cut, cap and balance which was even worse for medicare than the original budget, so immediately rejected. so i think we have to face the fact that there is -- the fact that the american people really count on medicare, the fact that people in rhode island i know are -- some of them a year or two out from medicare and they're foregoing health care when they finally get to medicare. it's safe harbor at last after years of storm and uncertainty.

that that program remains under constant attack and we have to defend it. as you know, i believe very strongly that there is a -- an efficiency problem, a quality problem, an information technology problem and an incentive problem that runs throughout our healthcare system. medicare is seeing its costs go up, but the defense budget secretary gates just testified that healthcare is eating his defense budget alive i think is the phrase he used. the private sector is getting clobbered with healthcare costs increases. v.a. is seeing its costs go up in healthcare. there's a systemic cost problem that doesn't just land in medicare. it touches on all of the different elements of our healthcare system. we burn 18% of our gross domestic product on healthcare.

the next least efficient industrialized country, competitor of ours is at 12%. we're 50% more inefficient at delivering healthcare than our most inefficient industrialized competitor and when you put commonwealth fund measures of how good the care is that we're get, what the outcomes are, we're not better than they are. we are worse in some areas. so there's a huge opportunity here, i think, that i believe the administration needs to seize. i think that a lot of good work has been done already, i'm working on the help committee to put more focus on the implementation of the reforms that need to be done. but here's my question to you. you're now in charge of omb. and you're an important emissary and member of this administration. i understand perfectly well from discussions with cbo over many years, from hearings over many years, that because of the

nature of the reform that's required it's not something that is actuarially scorable. it is hard to calculate a score for how this works. in certain very well developed areas like hospital readmissions, we have been able to calculate marrow, sort of pinpoint scores. but as a general proposition, we're embarked in what is called an experiment in innovation and it's hard to see around corners of innovation. the fact that you cannot calculate a score does not mean that you cannot set a goal. and i will continue to urge this administration to move beyond the standard it has set for itself of bending the healthcare cost curve which to me is a metric free standard and try as the different elements in the affordable care act get implemented as we learn more

about this, as success out of kaiser and intermountain and gunderson and lutheran as as they prove with real savings for improved care that you all push to -- i know as i have said, i appreciate you can't calculate a score. you can set a goal. you can set a firmer goal than this bending the cost curve business. could you talk about this. >> please. >> in the 30 seconds i have in my inordinately -- >> we have to live by the compact and voucherizing medicare is not in the program. so the republican house bill would shift $6,400 to seniors as an additional expense is completely unacceptable to the president. there are -- having spent time in the private sector, there are inefficiencies. you have places where costs are higher and outcomes are actually lower so you don't have the correlation between cost and outcome.

in essence, you know, the productivity gains that have been made across the private sector, outside of healthcare, 1.5% and productivity gains for cost decreases and quality increases happening at the same time. we need to do more of that in healthcare. technology central to that. best practices. making sure that we understand what's working at intermountain. that we can take across the country. because again there's a correlation between lower cost care and higher quality care that we need to find that intersection and stamp that out across the country. so we need to have the productivity gains in healthcare. i couldn't agree more. >> senator toomey? >> thanks, mr. chairman. thank you, mr. zients, for being here. you have a tough job and i appreciate your time. a couple of quick questions here. the president's talked about fairness, obviously. in your judgment, in the

interest of fairness, what percentage of the american people should pay no net income taxes at all? >> i think that's a hard thing to put a percentage on. we want to grow the middle class as -- >> it's about half right now. this budget would increase that number. so i can only infer that the belief is that a fairer system is one in which more than half of all americans pay no income tax at all? >> we have a situation where wealth is concentrated in a few people and we're asking for them to pay their fair share. which is a share consistent with the share they paid -- >> that's not all you're asking for. do you agree with white house chief of staff jack lew it takes 60 votes to pass a budget in the senate? >> it takes 60 votes to pass the -- >> you know it's a budget resolution.

>> it's 51 votes. >> okay. so the clear and unambiguous fact that the democrats who control the senate could pass it without a single republican vote if they chose to exercise the leadership of actually pursuing a budget? >> i would say there was a lot of leadership involved in passing the $2 trillion of deficit reduction which was included what if -- passed -- >> i want to commend our chairman who marked up a budget in this committee. i welcomed that. i think that's the responsible thing to do. i will be extremely disappointed if the democratic majority chooses to go yet another year without laying out the case to the american people of how much money they think we should spend and on what and where the revenue should come from. >> but just one thing. beyond process, the most important thing here is getting outcome. getting policy enacted in law. like the bcs. and now an opportunity to do balanced deficit reduction. so we look forward to the

president's policies being put into law. >> well, part of the problem is that we haven't addressed the big policy issues that we ought to, and senator portman addressed this. you know, when i look at just a few categories of federal spending, social security, medicare, medicaid and interest on our debt, do you know how much they grow in the president's budget over the ten-year window? just those items. i wouldn't expect you to have the number at the top of your ahead. it's 8% per year compounded. 7.9% to be precise. your own forecast for gdp which is ambitious given the anti-growth policies you have in there, but nominal gdp growth isn't near that level. my question to you, isn't it possible to sustain indefinitely growth in big government programs that is consistently, in fact, always higher than the economy grows?

>> let me take it piece by piece. on healthcare, the president and congress put forward and passed the affordable care act which cbo scores at $100 billion of savings in its first decade. $1 trillion in the second. this budget puts forward $360 billion of additional healthcare savings. on the social security side, it's not our immediate problem. at the same time, the president stands ready to address social security. at the root cause of much of what you're talking about are our demographics. our baby boomers retiring. and we view this budget as a very important milestone. real progress. at the end of the day, more needs to be done. let's get this chapter under our belt. let's achieve this level of deficit reduction. and then we can look up and talk about more. >> well, i just have to say this is an extremely disappointing approach to this. what you ran through doesn't --

it's fully reflected in the numbers that i'm citing and despite whatever savings you attribute to the programs the president's proposing, these programs are still growing far faster than anything that's sustainable. everyone who's looked at this honestly in every bipartisan commission and group comes to one conclusion. in fact, the president has acknowledged that mandatory healthcare spending is the problem and this president refuses to propose a solution. i think this is extremely irresponsible and what you are doing with the huge tax increases jeopardizes economic growth while not addressing the fundamental driver of our deficits. i just think is a huge absence of leadership. >> senator begich? >> thank you very much, mr. chairman. it's been somewhat entertaining today and thank you for surviving the first several rounds of conversation. let me first -- just more of statement. because people who watch us and