watch us engage, their assumption is magically if we had a budget here we would vote for a budget. then it would go to the floor. it would be voted on. in theory the appropriators would follow that budget and then go for the budget. that's fantasy land. that's not what happens here. the president's budget -- i'm talking more to the people through those who are watching they think magic happens here and there's a budget process that lays out the expenditures of the federal government. actually, the president proposes the budget. we set it aside. we write our own budget. then the appropriators set it aside and then we appropriate money and then the president must spend toward the appropriations. is that a fair -- >> yes. >> so it's great all this show and tell that's going on here, but it's not reality. and the poor folks that are watching us believe that we have a budget, we'll take the president's budget. we'll amend, we'll vote on it, and then have a budget. that's not how it works.

it's really somewhat appalling. i know the chairman has been working on trying to align the things when the president proposes a budget then we follow it. just for the education of the folks that are watching, it's great show and tell here today, but the fact is at the end of the day it's a whole different process. so i just wanted to make sure in a nutshell. thank you for that very decisive answer you gave on that. let me hold you there. second, i'd like you to produce a document for us. we've done one. i would like to get it. i think it's very interesting what we have already seen. the president's budget, when the president proposes aud under the last administration, in this administration. then the cbo, the congressional budget office, goes into some room and magically comes up with another number that they project. and then there's reality. at the end of the year. let me give you an example. in 2008, not under this administration, i'm going to give you another one.

$2.9 billion budget proposed, deficit $240 billion proposed. cbo says 226 is really going to be the deficit and actually it was $459 billion. cbo off half. the administration off half. then take the following year. $1.1 trillion budget. deficit requested $400 billion. cbo says it's going to go down. 342. actually, it went to $1.4 trillion. so you know i want to make sure -- i want to get a chart if you could produce with those lines, i want to know exactly at the end of the day, we have the numbers but i want to be confirmed the actual expenditure rate. >> we can provide that. >> okay. >> go back to '06 through today. what's interesting when you check the difference -- i heard the comment earlier, surge in spending. i heard that.

when i look at the actual budgets, i see, you know, i'll use the last three years since i have been here. $3.5 trillion, approximately $3.7 trillion, $3.77 trillion. actually slid a little bit. now surge usually means i have seen surges. >> right. >> you have a tsunami that's a surge that wipes out things. this is slight increases. yes, a couple of those years a pretty big one because we were in the worst recession in history. if you show me -- i think the american people need to understand what we're talking about. we use a lot of words around here, because it gets headlines and politico will write something and roll call and all that. so if you could produce that, that would be very important. and just to clarify, you're not replacing the automatic budget cut -- or you're suggesting another route if the budget cuts don't happen. here's another suggestion.

if the budget cuts happen because we're unable to act, they're happening, right? >> absolutely. it's a terrible policy. the president is clear that that forcing function remains. >> right. but if we don't do something, your budget will have to adjust to reflect that. >> yes. >> in some ways you have tried to do that through another means. if we don't act, we don't have the money, you don't spend it. is that fair? >> you're speaking of sequester? >> yes. >> yes. i think it would be a terrible outcome if that's how we did the spending cuts. >> i would like too say automatic nudget cuts because no one understands the other words we use around here. let me say this. on the 2011 budget control act, if you can follow up. under section 255 the veterans administration was exempt from the automatic budget cuts. but then section 256 establishes a process for them to be reduced. can you send us some clarity of -- are they part of the --

>> this question came up earlier. >> okay. i missed it, i apologize. >> we're hopefully not at a point where that matters, because we've replaced the automatic cuts. but we'll work on that for you. >> thank you, mr. chairman, for letting me go on a little bit here. last, has omb done an assessment or analysis of if there is a military brack put into place, the employment or any economic impacts. can you do that if it comes down to reality? >> let me have my staff follow. >> thank you, mr. chairman. >> thank you. i think i have a graph that will show you the surge in spending and to understand senator sessions' question to you -- >> i look to omb to give me that. no disrespect to my friend. >> i will use omb's numbers. this comes right out of table s-1 from president obama's

budget last year. and then table s-1 from president obama's budget this year. it's called total outlays in ten years. you can see in the '90s, go go '90s we spent $16 trillion and then we spent $28 trillion. last year's budget showed spending of $46 trillion. this year's budget in the tables, in president obama's budget shows $47 trillion. so again, i'm doing you a favor in answering senator sessions' question for you. this budget spends more than last year's budget and spends more on the base line. i actually have a question for you though. you're claiming $4 trillion in deficit reduction. but again going back to your budget, last year in schedule -- in table s-14, it shows total gross federal debt in the year 2021 and it showed a figure estimated it at $26.3 trillion. this year's budget table s-15 shows total gross -- same year, at $25 trillion. that's reduction of $1.3

trillion but didn't we pass this as part of the budget control act $900 billion in the first bit? >> uses up that other 1.3 trillion. >> well, the $4 trillion of deficit reduction is the sequester money which we believe should come through a balanced approach. and then there's $2 trillion -- >> but mr. zients, i realized those are your segmented talking points, but if you look at the growth in debt, one year versus another for 2021, the base line last year would have debt at $23.6 trillion. this year's budget shows it at $25 trillion. >> we have a much more honest base line. we have a base line that assumes -- >> but we're now reducing it by $4 trillion. if you were that debt level would go from $26.3 trillion minus $900 billion for the budget control act. so then you'd be at $25.4 trillion and then take away --

we should be at $21.4 trillion. if we were reducing deficit by $4 trillion. >> we're taking into account what is truly business as usual, using a base line that includes annual package of sgr. >> we're not reducing the budget. that is smoke and mirrors, it is not being reduced by $4 trillion. not even close. >> it is being reduce by $4 trillion versus the business as usual approach of patching things like sgr and amt. >> anyway, so everybody understands we are not reducing the debt and deficit in this budget by $4 trillion. it's not happening. in response to what's a fair share, you quoted a couple of figures. so on the one hand you said it would be fair, fair share, that you'd be satisfied, democrats would never come to us again, saying the rich have to pay more, their fair share. at 39.6%. i didn't come prepared to put this on a chart, but congressman paul ryan has done a pretty

effective job showing with the healthcare law, marginal tax rates are going to rise about 44.5%. so that would be above the fair share, wouldn't it? >> i'm sorry, i'm still focussed on your prior question. >> no, because i want to move on. so anyway, you said 39.6% top marginal tax rate would be the fair share. >> that's what the president is proposing in the budget law. >> but with the healthcare law and congressman ryan has laid this out we're at 44.5%. that's above the fair share. >> well, we're talking about ordinary income rates. there's different taxes obviously. i'm talking about the president's budget, the president is suggesting that the 35% which was enacted in '01 and '03 go back up to the clinton era. >> and then some. then with obamacare knocked it up to 45%. now you're thinking that's fair. another way you said it would be fair is if we went back to the share -- the top 1% paid during the '90s.

during the clinton administration. the average over the clinton administration's eight years was 32.8% of the total income tax burden was paid. under bush it was 36.7% and then the top 1% paid 40.6% which was a larger share than the entire bottom 95% of the -- now, again, you're saying that's not quite enough. that's not a fair enough share. >> senator johnson, the root cause there is the tremendous wealth accumulation by a few. and the fact that our middle class has not -- has not benefited. >> we have a very progressive tax rate. that's why when we have recessions we have such a falloff. it's not fair enough that the top 1% paid here than 40% and paid more than the entire 95% bottom part of the income tax. >> i think it's fair that we

are in a situation where we need deficit reduction and that reduction should come in part through revenue. the president is proposing $2.50 in spending cuts for $1 of revenue in fair share and that the wealthiest 2% should pay their fair share and we should have no tax cuts on those under $250,000. >> thank you, mr. chairman. >> senator nelson? >> good morning. >> good morning. >> senator hutchinson from texas and i have had quite a round with omb and the two of us having responsibility for passing the massive bill back in 2010 and then going through the process of getting it funded.

and basically, nasa had not until the head of omb came and met with us nasa basically had stone walled that omb -- that omb had stone walled the nasa budget. and since you are now the acting director, i think the constructive dialogue that we have with mr. lew having come and met with the congress and continued the discussion on nasa funding so that there was some certainty in the program i'd like to know what your attitude is about continuing those discussions? >> well, as you know, it's a difficult budget environment. nasa's held about even in this budget environment, and what we have done in this budget is to honor the 2010 discussions around the appropriation between

the things like the heavy lift rocket and the international space station. i would love to continue those dialogues. >> i believe that you have, and i think that the budget was basically a flat line budget, and given the cutting edge agency of research and development that it is, it has to have some certainty in those programs. but when there is a complete lack of dialogue with omb, that's what makes it difficult and i want to raise that issue to you that has been the case in the past. and until it finally got to the point that mr. lew as the director understood that we were going nowhere, we finally had a meeting of the minds between omb, the white house and the congress.

>> let's make sure that we continue those dialogues. >> very good. all right. i want to ask you about housing. we have tried a bunch of programs. we have tried the home affordable modification program, hamp. we have tried the home affordable refinance program, h.a.r.p., and then the hardest hit fund. what makes this most recent attempt to help homeowners different? >> this is a hard problem and the housing market is starting to stabilize and it's a mix. it needs a lot of work. i think the settlement last week is an important settlement. that will get the money out to approximately 2 million homeowners to help with modification and refinancing. the program that the president

just announced which takes advantage of one of those charts that we talked about earlier, the historic low interest rates, we have too many homeowners paying interest rates above the rates. yet they're stuck and they're current and in the president's program which he announced, will allow those folks, both gse, those mortgages that are owned by fannie and freddie and non-gse holders to refinance and take advantage of the historic low rates. >> i applaud you for this. what is the source of revenue you're going to use to basically fund what is the underwater mortgages so that people who are current on their payments, but their mortgage is way under water and they never could have a chance getting the bank to refinance it?

so you're going come in with a fund that's going to basically make up the difference? >> yes. >> where's that money coming from? >> it's estimated to be $5 billion to $10 billion and that will come from a tax or a fee of the recipients of t.a.r.p. that will be recouped through the t.a.r.p. financial responsibility fee. >> and that's going -- >> so no expense to taxpayers. >> that's going to be pursuant to us passing legislation that would allow you to enact that? >> yes, we do need congress to act. >> do you have any flexibility administratively in case congress is wound around the axle and can't get it done? >> we're pushing it hard as we can on programs like tamp and h.a.r.p. we need the congress to act on this. we'll continue to push as hard as we can, but on the

refinancing and the backup of the fees being paid through the financial responsibility fee we need congress to act. >> do you need that same revenue for refinancing the underwater mortgages in fannie and freddie? >> that money goes to primarily to the fha which will be the vehicle to refinance the non-gse mortgages. >> so do you need a source of funds to fund that? >> yes. that's the $5 billion to $10 billion. >> so it's the same as in the mortgages that are not -- >> that will allow -- the $5 billion to $10 billion paid for will allow for the program across the gse and the non-gse held mortgages. >> thank you. >> thank you, mr. chairman. i want to thank the witness for being here today. i appreciate it. you know, it's astounding to me about the president's budget as

i reflect upon it is he manages to propose the largest tax increase close to the history of our country, while still having a $1.3 trillion deficit in '12 and bringing our national debt to $26 trillion in the next ten years. while again proposing this huge tax increase. it's like the worst of both worlds. it's staggering to me. i guess i have a fundamental question for you, which is the medicare, the trustees of medicare, independent group, not republicans, not democrats, have said that medicare's going to go bankrupt in 2024. and so what is the president's plan to preserve medicare? >> well, i think just to come back to your first comment, i think we have to look at the bottom line here and what the bottom line is, is by 2018

deficits as a percent of gdp are below 3% and debt as a percent of gdp is stabilized. i think it's wrong focus on our current and instead look at the deficit reduction -- >> am i missing something though? if you look ten years forward, is our national debt not close to $26 trillion under the proposal? >> it is if you look at it on a gross basis. a lot of that is what the president has inherited in terms of unfunded 2001 and 2003 tax cuts, and unfunded, unpaid for medicare part "d." wars that weren't paid for. so the president inherited a lot and in an economy, as senator conrad said up front, which was in a great recession. >> but he did add during his presidency close to $5 trillion to the debt, did he not? >> so to pivot back to your question on medicare -- >> well, just to be clear, just so we're clear because you were coming back at me in terms of

what the president inherited, >> -- >> just so we are clear. during his presidency we have added close to $5 trillion to the debt. >> the bottom line is we get below 3% of gdp and we get debt -- >> just so we are clear, did he add $5 trillion to the debt. i would want to confirm that. >> 4.9. >> if if you look at root cause -- >> so you do not know the answer? >> the root cause is what the president in her -- we are now in a more sustainable path, one that results in gdp -- debt as percentage of gdp less than 3%. >> if we oh, $26 trillion in the

coming ten years, how are my children going to repay $26 trillion? >> the important thing here is that it's a major step forward t president has shown a starting april -- >> so it's >> -- leadership around the ceiling talks in the summer and leadership in september around the proposal to the super committee, leadership here with this budget. this budget represents a major milestone. it's not the end state. but it's a major milestone, it's big step forward and we should work together to make it law. >> i want to be clear, so it's your testimony, this a budget that increases our nshl debt to $26 trillion, close to next ten years is a mark of leadership by this president? >> a budget that ensures that we continue our economic recovery, creates jobs and brings down

unemployment and gets us to a situation where the deficit is a percentage of gdp is below 3% and debt is stabilize sd a major milestone and step forward. we have work ahead. >> we disagree on what a major milestone is. can i get back to my original question, by 20 medicare is going bankrupt. what is the president's plan to on save medicare? >> more than a trillion in the second decade, in the president's proposal is $360 billion of health care savings, these are steps forward. >> can i go home to my seniors and say that's enough to preserve medicare so that my grandparents in 2024 will not have to worry that it's going o way. >> medicare needs to increase

their productivity and decrease the variation in care which leads often times poor outcomes and higher costs. we need to keep going after medicare in terms of making sure that we preserve the compact that we have with our citizens and still drive down costs. >> my time is up, b but i do no see anything in this budget that will preserve medicare, which very shortly in 2024 is going bankrupt, which is a huge driver of our budget issues. and i just wanted to point out that as critical as you have been about the tax state and blaming that for the $5 trillion of debt that the president has added, it was the president who signed those tax provisions into law in 2010. so i appreciate you being here

but i do not agree that putting our deficit to $26 trillion is the type of leadership that we need to face the debt crisis. >> senator? >> in the 2013 budget there's a variety of proposals to eliminate any tax preferences for oil and gas and the coal industry. repealing those tax preferences in one year will eliminate a lot of small businesses that will not have the cash to be able to pay what has accumulated over a period of time, and i worry about the transition on any of these t these tax preferences. this is a broken record, it has been in the budget every year and never moves forward and yet we continue to claim the savings a as though it moved forward.

you cannot pass it when democrats had total control in the senate and majority in the house. it has never been done. >> specific question around the oil and gas? >> yes. >> so we are at a point of near record production and our imports are the lowest we have been and the oil companies are making a lot of money and they do not need the subsidy and it has been a good idea to get rid of it, and it continue tobss to good idea to get rid of it. >> small business men, if you impose those elimination of taxes instantaneously instead of over a small period of years, you them out of business. >> we have been signaling that we think it's good policy for a

while, there's plenty of profit in the industry and we should be investing in clean energy reducing our dependence on foreign oil and improving our efficiency, through cafe standards -- >> i think that every business agrees with you on that to transition. but i have other questions. there's trust funds that get delved into on this budget, i nout we had a policy that -- i thought we had a policy that we were not going to take, away any trust funds. >> what are you referring to? >> the abandon mine program which was a massive compromise that deals with health care for orphaned minors which ones where the mines went broke and it a accelerated the rate at which we would repay money from the trust

fund that some of the other states that had paid in that they had never been able to get primarily those west of mississippi. i'm hoping that that does not become a policy of this administration or any other administration to delve into trust funds, there's already too little in the trust funds, like the social security fund, which is mainly bonds. there's feeling in the country that there's money in trust funds and there's not money in trust funds and i did not find out about with -- >> social security is a trust fund and functioning as a trust fund. as to the question on mining, i'll make sure my staff gets back to you. >> thank you. some questions on the sbmpt win what is the composite interest

ra rates we are paying right now? >> i can get you those numbers. i think it's around 4%. let me get you the exact numbers. >> so right now we are payi paying.10%. >> the ten-year treasury motenos currently at assumed to be 3.5 and it goes up to the low 5s which is consistent with historic averages. >> i was not a able to get the net interest that we are paying to match up with the interest rates you are showing in your other chart. >> i can have the staff follow-up with you to make sure that everything squares there.

>> i noticed again on table s-5 that the deficit increases every single year, in actual dollars, i understand the gdp stuff but i don't think that america understands the gdp stuff, they do not get to pay their bills based on their gdp and holding down -- getting a continual loan to cover so they just have to pay the interest rate. they actually expect us to pay something down at some point in time. and this shows accumulation of dollars and that means accumulation of interest and i'm worried about the international situation now and the rate of interest at the international and what will happen to that and i think these estimates may all be low, which means we will be spending $850 billion a year in interest rate. >> senator, as we know right