oluntary measure, you encourage the future offshoring of profits and in fact, cbo would likely support that with a substantial cost, not revenue. our plan on the other hand raises enough money to fund a six-year reauthorization of the highway trust fund at 40% higher levels than we're currently funding, so it's a significant opportunity to invest in the middle class and infrastructure. second -- zpl my time is expired, i'm afreud, so i will leave the witness hanging. if there's anything else you'd like to add by way of response. >> i think it's critical that we have a policy that fixes this system going forward as well. creates a level playing field and encourages american companies to locate here and to bring jobs back here as well in our system would do that. >> thank you. >> thank you, mr. chairman and mr. donovan for being here today. i want to go back to initiative the chairman raised with you, which is the question of whether this budget helps to reduce our

national debt. i believe your answer to that question was focused on the size of the debt in relationship to the economy. the gdp, which i understand. i understand the argument and i understand the analysis. it's something that we talked about a lot in budget circles over the last few years. the the question i have though is does that really justify a budget that continues to frankly borrow hundreds of billions of dollars every year? and to spend that money in an effort to as you indicated to stimulate the economy, invest in things that should help the taxpayers and the people of america, but never balance. i think my question, my question is this. is it possible for us or any nation to simply spend in

deficit, every year, perpetually, borrowing money and never balancing and to keep ourselves in a prosperous posture? can we spend ourself perpetually sbroo prosperity on borrowed money? >> senator i think we've obviously talked a lot about this issue of what the right measure is. i think a different way maybe to look at it that i think has been key for us in looking at this issue, the most important measure of a budget is whether it invests in the things that are going to grow our economy going forward and meets our obligations to our seniors. we're facing an unprecedents graphic challenge in terms of the baby boom retiring and i think it's particularly important when you look at it in that context that over the next not just ten years but 25 year,

which our budget does, that the key tests of sustainability is first to make sure that debt is a share of gdp, is stabilized and is coming down. so, are you saying though that if we have our debt in relationship to gdp, going down, that we are in a sustainable budget posture? >> i think at a time when we're facing unprecedented demographic challenges, that that is the key fiscal test. second -- >> because our time is so short, i want to go over some numbers with you just to show you what i'm looking at in this budget. using your number we look at nondefense discretionary spending. it's about 14%. that is projected under your budget to drop to just 10% by 2025. if you look at defense discretionary spending which is today about 15.7% of annual

outlays, it's projected to drop to about 10.5% of total federal outlays in 2025. but if you look at interest expenses on our spending which are today, about 6% of total federal spending, they're projected to rise to double. more than double. to 12.7% of federal spending in 2025. my point is we're seeing our defense spending, our discretionary spending being squeezed and we're seeing the interest on the national debt double over the period of this budget window. and that dynamic, it seems to me, is one that shows the inability to just continue to mount a national debt that will squeeze out the potential spending that you talk about that may be needed in other areas. is that not something that we must address by controlling the spending and frankly, by balancing the budget? >> well, senator, i think we

agree that it is critical that we make progress on the deficit and the debt. we've actually made substantial progress during the president's time in office. i also think it raises the issue that this is something we can't just look to the spending side. for exactly the reasons you just described. we're already at discretionary spending levels share of the economy that are as low as they've been on record and we think that's where we have to look to the revenue side as well and i hope that we can work on a bipartisan basis to have a balanced approach to deficit reduction. sense 2011, we've achieved 80%, four out of every five dollars of deficit reduction and our measure is over $4 trillion thus far. 4 out of 5 this comes from spending reductions and even with our budget 3 out of $5 of deficit reduction would come

from spending. reductions. >> thank you. >> we believe we need to look at both sides of this equation as well. >> i understand. and my time is up. i'll just say, when i'm a member of the bolles simpson commission as you know and worked with others the gang of six and others to try to find a solution here. when we were working on that, the national debt was around $11 trillion. it's $18 trillion and is going to go to 26 plus trillion. i don't see how we can make the argument that as long as the economy keeps growing, we're okay. i don't see that we can avoid trying to balance our budget and control this debt. >> senator warner. >> thank you mr. chairman. and honored to see you. think you've made a smooth transition from hud secretary to omb director. i want to actually pick up on certain things that senator crepo said. first, i want to commend you for

getting rid of sequestration, which i've always called stupidity on steroids because he he pointed out, even with sequestration, remove domestics domesticsic discretionary is down, it would be much lower without getting rid of sequestration and as somebody again who can pride myself in saying i've been in business longer than politics investing in business, staying ahead of the competition. for government, that's education, infrastructure and research. and our current american business plan is a faulty one and part of that is driven by sequestration, so i commend you for getting rid of that. i would argue that though and i do acknowledge bringing the deficit down as a share of gdp in the appropriate range. i don't believe 72% debt level at the end of ten is

sustainable. just a few quick facts, which i know you know, but a few of these, my colleagues might be interested. at 18 trillion. 1% increase in interest is rates, takes you to $120 billion a year off the top. that's greater than the whole department of homeland security and the department of education combined. at the end of ten year, even within this budget window, this is where i think our colleagues on both sides may not want to be here at that point, will be spend ing spending more on interest than we will on total defense or total domestic discretionary. and while i commend and believe revenues have to be part of the mix, i remember spending a very long new year's eve, great colleague, but not necessarily the people i wanted to spend new year's eve with, to fight to get $600 billion in revenue so we didn't go over the proverbial fiscal cliff and go into unknown financial abis. i might point out we fought all

that, 600 billion we have had two one-time sources of revenue that have more than topped that number. we're at $420 billion in extraordinary profits from the fed. now, we can argue about fed policies being good or bad, but i don't think anybody thinks those kind of profits are going to be projected forever and while cbo and omb count the money differently, a bill that you, senator, and senator corker and many others have workeded on on the repayments on fannie and freddie, 220 billion at this point, you book that as revenue, so, if you take, get rid of those $650 billion plus of extraordinary one-time revenues, our deficits are actually worse than the appearance would look at this point. now, where i would differ and many of my colleagues on both sides, one has to be taken, i think that has to be a question, but you've got to get to the

revenue side. this is where i may not agree with all of the methodologies or spending purposes but revenues have to be part of the mix. cbo has recalculated the numbers and i think senator enzi understands you've got to have a reference point and percentage gdp is what everybody at least agrees is the common area. anybody who says we've got to look back at 50-year averages, they're 17.4%. we've never balanced the budget on that. and no matter what you cut with a demographic bulge you pointed out, you're going to have to get revenues up. the only time we balance the budget in the last 50 years when revenues under the new calculation between 18.8 and 19.9 and you at the end of ten get you about 19.3, somewhere in the midpoint, so, i think this is a debate that's going to continue. i think we have a little bit of

breathing room because of hard action actions you've taken and the congress has taken, but anyone that thinks we're going to be able to solve this problem without revenues being a significant portion of the mix and that any kind of lookback one basis is going to get us there because even with entitlement reform, we have demographic bulge, so i'm running out of time. i wanted to make that statement. the quick point i will make is you've raised repatriation as a one-time payment for infrastructure. congressman delaney and i are look ing looking at that. i would simply ask you to comment on that. is there some more modest proposals? we had a bridge pact last year that also dealt with infrastructure financing and do you think we need to finance those infrastructure financing programs in a single place? >> so, good, i'll be happy to do that. >> thank you for doing that.

senator graham. >> thank you, mr. chairman. i would expect when we coour budget and i know we will under senator enzi's leadership, that you'll probably like our budget about as much we like yours. but at the end of the day there seems to be some common ground here. the idea that sequestration needs to be fixed, i agree with you, mr. donovan. at the end of the sequestration as we have it today under the budget control act, what percent of gdp will be spent on defense? >> i don't have that number in front of me. if you do, please tell me. >> between 2.3% and 2.7%. in terms of historical averages since world war ii what have we been spending on defense? >> significantly higher than that. >> do you agree that the threats in the world don't justify going to 2.7 2.3%?

>> we fully agree and this budget makes clear that sequestration is a threat to our military readiness and we ought to reverse it. >> back to senator sessions' questions, you do spend more than the budget control cap. you say you account for it by off setting in mandatory senator portman may challenge that a bit, but there's a desire by some of us on the committee to replace sequestration, at least most of it, with a revenue component and a mandatory reform component. i just want to be in the camp of saying i'm not going to support a budget that continues to gut the military. and it's just not the military. it's the cdc, nih and a lot of other programs, so i support the idea you're trying to achieve. i just don't know if i agree with the methodology. about the workforce. how many retiree, how many workers do we have for a retiree

today in the work force? >> it's three. when i was born in '55, it was 16. unless there's a baby boom among 60-year-olds, i think we're in trouble. in 20 years, it goes to two. does that make sense to you? >> absolutely. >> that we're living longer and having fewer children. a lot of western nation face this problem, is that correct? >> absolutely. >> doesn't that cry out for rational immigration reform? where do the new workers come from? >> couldn't agree with you more, senator. >> for those who say on our side or any other side that we're flooded with workers, you not looking at america the way it is and you're obviously not running a business because if you're in the business world, you're having a hard time getting high skilled workers and if you're in the manual labor world, you're having a hard time getting workers, so i just reject the idea that we don't need workers. we do. we just need to pick the workers. we need a rational way of choosing an economic based

economic system rather than just chaos. when we talk about america in the future and the challenges we face, probably the biggest challenge dmes click is the retirement of the baby boom population. there are about 80 million of us. that's why you need immigration to replace us in the workforce, but is it fairly accurate that by 2042, if nothing changes, we'll be spending all the money we collect in taxes just to pay for the medicare social security bill? >> sounds about right. >> so, just pause for a second. unless something changes, all the money we're going to collect in taxes in the future, whether there's 17.5 or 19.whatever is going to go to pay for two government programs. medicare and social security. there will be no money left to invest in infrastructure. no money left to invest in the military unless you have massive boar

borrowing. do you agree with me that the challenge of or generation is to find a way to change that dynamic to make medicare and social security sustainable without taking all the revenue? >> i guess i would put a few caveats on that. one, we need to do that in a way that keeps our promises to those who have paid into the system. >> i agree with that. we're not talking about divesting people. we're talk inging about long-term structural changes, means testing benefits. adjusting the age of retirement, but we need revenue. so, what i'm willing to do is work with you and other members of the committee to find a way to structurally adjust these retirement programs. in terms of revenue if you took all the money the top 1% made, would it balance the budget? the answer is no. >> i don't think it would. >> if you took every penny out of the defense department, would it balance the budget? >> it would not.

>> okay, so you're not going to tax your pay into prosperity or cut your way into prosperity. you have to reform entitlements to sustain an america that's not going to become greece. does that make sense? >> it does and in fact, our budget has $400 billion of savings in medicare and medicaid and i couldn't agree with you more that immigration reform is perhaps the single most important thing we can do to improve the solvency of social security going forward. it saves close to a trillion dollars over 20 years in terms of reducing deficits. >> senator murphy. >> thank you, mr. chair and thank you for your presentation mr. donovan. if we step back to the central theme of the budget, you're laying out a vision in which right now, under our economy, we have high income inequality. high wealth inequality.

all new income is is going to the 1% or fraction of the 1% and you're saying and i correct me if i'm wrong because i want to summarize this, that we can proceed to invest more in education, ranging from early childhood through higher education education, we can invest more in infrastructure, we can invest more in r and d and that your budget presents a way to pay for these so that you actually have a net decrease in the deficit of current law. >> that's correct. >> i want to applaud you and the president for laying out a vision that changes the path our nation is on. right now. imagine that you have a family, a large family of 100 pea people and that family is work ging together, but all the income that comes into that family goes to just one member of that family. i think the balance of the

family would feel that that was not an equal opportunity arrangement. would you agree? >> i would. >> and it would be an arrangement in which that one member of if family would pres per greatly, but everyone else who has basic challenges and hopes and opportunities would find those closing because all the revenue from that family is going to just one member. and i look at the p conversation from my constituents who are seeing the incredible inflation in tuition for higher education. and they are looking at that and they are saying why is it that our father's generation managed to provide lower cost higher education to us so that we might thrive and that we have been fail ng that and you're saying we need to correct that. we may need to open the doors of opportunity to higher education.

>> absolutely right. in fact, the president's proposal to make two years of community college free is really baseded on the idea many thought decades ago that we couldn't make high school universally available. we need to make at least two years of community college available and this is a critical step in terms of doing it if we're going to prepare our workforce for the future. >> i had a chance to give a commencement speech to three xhupt colleges last year and i think that the working class families who are represented there both those who were going through college and the families who came to celebrate their graduation, would believe that was a pretty good idea to open those doors of opportunity wider. >> absolutely. and look, it has to begin as you know well senator, from the very beginning.

whether it's quality prek programs insure inging that american families can pay for child care. that's why we expand the child care credit up to $3,000 per family. it's a broad range. >> let me go back to one part of the plan, my family of 100 members i was speaking of where one member of the 100 is getting all of the new revenue the family is generating. but also that one member out of the 100 is getting fabulous tax breaks and you are proposing that some of that wasteful spending in tax give aways needs to be adjusted for a fundamental issue of fairness and to invest those ibs instead in a better deal for the middle class. >> that's exactly right. as our tax system stands today, there's hundreds of billions of

dollars each year in capital gains. that avoid taxation because of this current system for what we call stepped up basis in capital gains. similarly, on the capital gains rave, all we're saying is let's go back to the 28% rate the country had under president reagan and we think that will establish, those are two steps of many that could begin to establish more fairness to the tax code. >> thank you very much. >> senator johnson. >> hey, mr. chairman. welcome back. i want to spend a little bit of time, some short answers on things we agree on. you talk about economic growth as senator sanders did. we had steps of major -- from 2009 to last fiscal year we've actually increased revenue by $916 billion per year. >> i don't have that number. >> from 2.1 trillion to $3

trillion. over $900 billion. 874 billion was due to economic growth. only 42 billion was due to that fiscal cliff tax deal. i'm trying to point out that economic growth really provides the growth senator warner was talking about. we need to concentrate on that. to personal size it's important for us to point out why debt is such a problem. if you're a family in debt over your head, it's kind of hard to grow your personal economy because the debt collectors are knocking on the door and anything past spending is really spent to service the debt isn't that correct? >> if you're not investing in education. >> you don't even have the money to invest in that because sop of your income is being spent just servicing the debt. is that what happens with a family and same thing is true on a national basis. one other thing. if you're going to solve a

problem, isn't the first step to solve a problem admitting you have one? and then properly defining it? would you agree with that? >> i guess i would say our budget takes on -- >> i'm just talking about solving the problem. you've got to admit you have one, correct? let's go over the charts. i would think that we don't have just a ten-year budget window problem although i realize what your budget is confined to. the baby boom generation, 10,000 people today, we've made all these promises and we don't really have a pay to pay for them and by the way, i have to challenge senator sanders. we want to save social security and medicare, that's our goal. make it sustainable for future generations, but this is a chart of the cbo's alternate fiscal scenario in terms of deficits over the next 30 years. about $9 trillion you're saying 8 trillion the first ten years

which is the budget window we're talking about now. then 31 trillion in the next decade. 87 trillion in the third decade for a whopping total of $26 trillion in deficits over the next 20 years. that's pretty accurate, correct? >> i think that's before our policy which is i said earlier, not just over the ten-year window, but the 25-year window would stabilize debt as a share of gdp, which is again this doesn't measure it as a share of the economy. cbo says the right way is a shared measure of the economy. >> if you look at that $126 trillion. that's comprised of about $15 trillion of deficits in social security. about $35 trillion in deficits to the medicare problem and then $71 trillion of interest on the debt. okay? so again, talking about or responding to what senator graham was talking about interest starts dwarfing all the other problems. i realize these projections, so we have to kind of compare you

know, how likely is this and all i really have to go on is on history. we've just taken total federal spending over the last 30 years, compared to this 30 year fiscal scenario just for reasonableness, so our entitlement, we spent about 7.9% of gdp on entitlements we're looking at about $13.3 trillion. when i was working with sylvia white house figures were about 13 trillion. 3.5. all other spending, 6.4 over the last 30 years, 6. then of course, interest is is a plug. to me, if anything, the ultimate fiscal scenario might be understate understating the size of the problem. my question to you in your budget deliberations, are you looking at the 30-year problem? and if you are, what has the president included in his budget to address the long-term

unsustainability of social security and medicineare which produces $71 trillion of interest payments. >> so, three key things that i think we could all agree are really driving these deficits in debt over the long-term. health care costs. a lack of enough workers as we talked about earlier. relative to the number of retirees that we have and having adequate revenue and all of these key things that we attack in our budget, the impacts grow over time, so, whether it's the capital gains reforms and others that grow substantially in the second decade and beyond immigration reform which grows are from $160 billion of deficit reduction in the first decade to 700 billion in the second decade and more beyond that, or many of the health care changes, the 400 billion in the first decade grows to a trillion dollars in the second decade, so, we are absolutely focused on making smart choices that would grow and impact over time with a

focus on the deficit. >> you're talking about a trillion. thank you, mr. chairman. >> senator baldwin. >> mr. chairman i would ask that i'd be allowed to offer a longer statement for the record, but imted to jump -- >> in writing? >> yes. >> without objection. >> the writing doesn't count against the time clock here. thank you, director donovan. i'm pleased to see that the president's overall budget focus focuses on an issue that every one of us cares about deeply here, which is ensuring that every american has a chance to share in the benefits of economic growth in this nation. before i get to a couple of specific questions on areas relating to that growth, i wanted to outline two areas which i believe fall short that haven't been given much

attention and i hope our committee will give it great attention as we move forward. the great lakes are 84% of north america's surface fresh water and over 20% of the world's surface fresh water. but yet for a second year in a row, the administration's recommended cutting funding for the great lakes restoration initiative, this time by $50 million. i know for myself and many of the other senators who represent the great lakes this is really a nonstarter and we have the warning signs all around us right now, whether it's what we saw last summer in toledo, the threat of invasive species and the great lakes are such an incredibly important asset. so, i look forward to working with the committee on that, but i feel like this is a way in which the budget has fallen short. another area that i wanted to

just quickly touch on is critical access hospitals. you know the administration has placed a priority on access to health care. that rural access is is a major challenge. many of us represent states with many areas many rural areas and the economics of rural health care are unique. and the cuts that have been proposed for critical access hospitals i think will create real harm in our communities. now, back to some specifics on ways in which this budget can spur economic growth, we've seen this stock market back in recent years, but wages have remained stagnant as rating number outlined in his opening remark. in many cases fallen in

adjusted dollars and while this is obviously a huge problem in the aggregate, when you listen to the stories of people trying to get ahead, it is heartbreaking. in my state, one of the key engines of economic growth, one of the key ladders to accessing the middle class is our manufacturing economy. our manufacturing sector and i was pleased to see that there is continued focus in this area in the administration's budget proposal. it was two years ago in this committee that i offered an amendment on the issue of manufacturing institutes across the country. it was accepted on a voice vote and in our last fiscal visit 2015 funding legislation, it's now signed into law manufacture manufacturing across the country ft i was proud to support that effort. you also have an initiative

called the american made scale up fund to help american made manufacturing technologies reach commercial scale production in the u.s. i would like you to talk about the seven new institutes proposed to the president's budget. what areas are you going to focus on and secondly, explain the scale up fund. how does the administration envision coming about and how do you make sure it's not duply kaitive of other programs? >> senator, thank you for asking about this. this has been a bright spot in our recovery. more than we've seen in decades in the u.s. and specifically, thank you for recognizing the great bipartisan work that was done. we were very excited about it, to get these manufacturing institutes authorized. what this would do is provide both discretionary and mandatory funding to get up to the full 45

institutes that the president called for. initially. and those are the departments of commerce agriculture, defense, energy, would all be engaged in institutes specifically targeted to areas they are working on, whether clean energy new ago ary cultural advances and others. in terms of this start up fund what it is really targeted to that we have not done in other ways, we do great basic research in this country and in fact, the budget proposes to sail up our investment in basic research. what's missing, we can, is is a public private effort that would take the most promising technologies and get them to scale where we could really do manufacturing at a scale that would create new industries and drive large scale job growth so the idea of this start up fund is to provide a credit subsidy

to use the technical term in our budget that would allow us to raise private capital towards these promising technologies and scale them up to really put them into practice and create hundreds of thousands of jobs. >> thank you mr. chairman. i wanted to ask you, does interest do anything for us? the interest that we pay, does it do anything productive for us? >> no. zpl zpl >> so, if it does nothing productive for us, aren't you concerned when you look at the proposal when we get to 2021, which isn't too far off we're already spending more on interest than defense and we have had the decision previously that as we look at 2025, interest payments essentially

are exceeding as we look at defense and nondefense we're in a position where that's a huge chunk of 12% that does nothing for us. of what we're spending money. >> so, i think the fundamental point you're making is that the budget needs to take steps that reduce our debt so that interest payments are lower than they would otherwise be. >> are you concerned at all when you look at the trip, over tripling of the interest of doipg nothing for us over the ten-year window, which goes from 229 building we're spending in interest now, to $785 billion of doing nothing for the american people, no infrastructure, no education education, no defending the nation. nothing. >> and that's exactly why our budget focuses on and achieves $1.8 trillion in deficit reduction and in the long run,

puts debt in the economy on a stabilizes it, puts it on a declining path. >> let me just make clear so the american people watching this, hearing that you think that stabilizing in a good scenario is spending, tripling plus our interest payments over ten years, getting us in a position where we're spending more in interest than defending a nation spending more in interest than we are on education infrastructure, protecting the environmenting all the other things that the federal government does, so you and i just have a disagreement as we look at this, whether this is a productive way to look at things and i know that the american people will decide themselves on what they think about that. i wanted to ask you about the solvency we've talked about the demographic problems we have with medicare social security and the numbers that i've gotten

is we've got the demographic problem challenges we look at it as very immediate. it's more than a demographic challenge when it comes to the social security disability fund because as i understand it, the trustees have said that the fund will be exhausted in 2016, which is next year. does the president's budget do anything to address the structural issues or the fact that thisable disability fund is going to be exhausted next year and i'm worried because the people that really need this if we ignore this they will only be able to pay 1% of disability benefits. do you do anything about that? >> we're very concerned as well. the most simple, direct step that's been taken many times before under both parties is a small reallocation of the payroll tax. and we ought to take that step and make sure that those who

have earned these benefits get those benefits. >> well, let's and i don't mean to interrupt you because i don't have a lot of time. so, what you're doing is basically ignoreing the fact that it's exhausted and transferring the money. let's be honest. when you say a small allocation, that's transferring the money, yet it's a system that's going insolvent, so we're transferring the money from one pot to another. we're not solving the problem. >> let me finish, please. the combined funds remain solvent until 2033, but we are taking steps on theablety side specifically. we have a number of steps in the budget that will ensure those who are due the benefits get those and a number of pilots and other efforts that will ensure that anyone who can work is able to. and so, we take steps there and in the longer run on social security, the demographic

challenges comprehensive immigration reform is one of the most important steps we can take to make sure that social security is is insolvent going forward. >> as i look at this budget, i don't see steps in here that are going to solve this problem by 2016. or any real meaningful steps, but since you've just said they are in there i would like a specific answer to me question for the record. thank you. >> happy to do that. >> senator kane. >> i would echo a lot of my comments from the senator in chicago. it's going great things for the chinese who are using it to build highways and airports and suf. i find myself in agreement with both sides of the debate and i would suggest mr. chairman it would be a useful exercise to convene this committee in workshop to get us all together

to have the kind of discussion we're having in the context of this hearing about revenues, debt, deficit interest and threats to the economy. i think we could all benefit from sharing those views. i agree with my colleagues who talk about debt and deficit. we cannot ignore interest. and the fact that's been pointed out numerous times, interest will exceed defense, interest will exceed, almost equal social security. it's a gigantic expenditure that really does nothing for us and it's going to heat up autothe up all the programs everybody likes. whether you like defense or head start or whatever, it's going to crowd those programs out, so i agri with that. i think that's a very debt, the debt and the deficit is a serious problem and to me lowering the deficit is progress, but not an answer because the hole is still getting deeper, i think we really need to think about that.

on the other hand as senator johnson pointed out, the best wii the get out of this mess is through economic growth and there are several strategies that involve spending money. infrastructure's probably the most important one. lincoln at the age of 23 when he first ran for the illinois legislature, put out a pamphlet on investing in roads and waterways. it was an infrastructure plan because that's the basis upon which the economy depends and we are doing a woeful job of underfunding our infrastructure at this time. the other big way to grow the economy is through education. the biggest economic stimulus program the federal government in the history of the united states was the gi bill. after world war ii which sent millions of people to college for the first time and really expanded was the basis for the expansion of the middle class. both of those things involved money. and expenditures, so how do we

get out of the problem how do we grow the economy make the expenditures that we have to make at the same time not keep digging ourselves deeper into the deficit hole? and it seems to me there are three or four strategies that we ought to put together into a comprehensive strategy. one, is we have to look at federal expenditures and make sure they make sense and that they're not duply kaitive. the idea that every one made is perfect and good and useful and ef kay shouse, that doesn't pass the straight face test. two, we have to look at the structural health care costs. that's one of the biggest drivers of the deficit is health care costs. it's not national parks, defense. it's the sheer cost of health care costs. steven brill has written a whole book about how expensive it is to be treated in this country twice as expensive per capita as

anywhere else in the world. the reason health care costs are expensive is that they're expensive and we need to focus on structural changes, which i know the affordable care act does, but that has to be a national priority. if we continue as we are and let health care costs fee for service continue to drive the kind of escalation, which unfortunately may recover shortly, we'll never get out of this hole. and then the next strategy is some kind of revenues. we can't deal with the demographic problem if don't look at revenues. my concern and i'm interested in a balanced budget amendment. i think something that puts constraint makes sense. on the other hand, if you add the no balance amendment and no tax pledge, it creates a ratchet effect that you will never solve these problems and squeeze out everything else as you pointed out, but payments to the elderly. there's got to be some relief built into that and that's where i think we need to have some

discussion about revenues and i don't know what the right number is. whether it's 19%, 20%, but we have to take account of the fact we've got this big in the python, which is the retirement of the baby boomers and that's going to end at a certain point, by the way somebody said in the long run, a famous philosopher said in the long run, we're all dead, but the demographic reality of the next 25 years has got to be dealt with and we didn't just say well, we're going to maintain taxes at historical levels and therefore meet all of the obligations to the national defense and cover the cost of our commitments to the elderly. so, it seems to me it's got to be a combined strategy of ago knowledging the problem, number two, senator reductions in expenditures. health care costs reductions. revenues, probably from tax expenditures and investments in proven job growth strategy like education.

i did want to make one point. congratulations in getting us a budget on time. that hasn't happened before in recent history and i think you are due some credit for that. >> thank you. >> mr. chairman, could i take a moment? >> his time is expired. you can send us your answer. >> happy to do that. >> senator corker, we're going to have a vote that we're trying to get everything in before. >> thank you, mr. chairman and appreciate senator king's comments. i want to say i don't want to volunteer to die quickly to solve the social security problem, but i know that's a part of the solution. so, to our -- >> i didn't mean it that way. >> thank you for bringing the budget in on time. i think the focus on percentage of gdp the 74.2% in keeping it steady, what we see happening year after year after year is people don't take into account

things that happened like happened in '08 and '09. even though that's what you project to occur that's under sem rosy circumstances and things will happen in the interim. that's what happens in the world we govern and i happen to think a balanced budget is one that keeps our nation strongest. i think that you know, the greatest threat the our national security is our inable thety to grapple with these issues. cbo director was in here saying that look, debt and deficits harm standard of living of americans. and yet, as projected in your budget that just continues. it also slows growth especially when you get to where we are in the cycle, where we're having almost full recovery. that hurts the standard of living of americans, so basically, the way this budget is laid out what we're doing, if we were to take this up, is

we'd be hurting the standard of living of americans over time, more and more and more. i'm a little disappointed that you guys took a powder if you will, on the highway program. basically we haven't solved one single problem since i've been here. not one. you know, key we keep kicking the can down the road. i've been here eight years. you've been here six. we have not solved one single problem. and instead of solving the infrastructure problem, y'all took some, an easy, some easy money. probably won't work that way, but i do wish that y'all had look at that in a more serious way and put it on a steady pattern and i think all of us know that putting a lot of money quickly into infrastructure, more than has been in the past usually candidly leads to waste and not planning thicks out in an prominent way. spending has been over the last 50 years at 20.1% and under

current law mandatory spending will be at 14.2% at the end of ten years and your budget 14.8 and that obviously as everyone has said creates huge problems. for 50 years, revenues have been 17.4%. and spending's been at 20.1. that's been with republican congresses republican presidents. democratic congresses presidents and so i actually agree. we have a revenue problem. and a spending problem. and as senator johnson mentioned, the best way to generate revenues is through robust economic growth, but we certainly have a problem on both sides. it's my belief that we need to go through good periods, times of balanced budgets and actually surpluses and then in bad times there may be a need to have some deficits, but what we continue to do is bank on deficits forever. so i just have one question.

i know this is generally speak speaking. sort of a wish list. prz some people might say an idea logical budget. i don't want to be projortive when i say this, but i saw a large stack oof budget documents on the table on one of the papers and i thought how sad, wasteful. those are all going to sort of be in the circular file after today. it's an aspirational budget that's not going to be adopted. it says some things you'd like to see happen. my question is this. republicans can pass a budget, half to pass a budget. have to pass it in both bodies. and if we do it alone, the likelihood is we will nibble at some of these issues. but we don't solve the problem. because the president then will

override the things that we may put forward. so for us to really deal with these issues the opportunity to lay out what he would like to see would happen but knows isn't, do you discern any desire on behalf of the administration to sit down with all of us and work toward a budget proposal that is painful to all, but really solves the problem? >> senator absolutely. and in fact we constructed our budget building on really what was a bipartisan precedent in marie ryan which said we know discretionary spending is too low, we know that in the long run that our challenges are on the mandatory and on the referendum side and what we ought to do, and this is what our budget does, is more than

fully pay for a dollar for dollar increase on the defense and nondefense side in discretionary spending with reductions on the mandatory and new references. that is the model that we used. we think it is a model we can build on. it is what got us back to regular order on budgeting and it is what created more jobs because we got rid of mindless austerity and mindless crisis and we are ready in our budget because of bipartisan discussion this year and use it to solve our short-run and long-term challenges. >> thank you, mr. chairman. >> senator purdue. >> thank you mr. chairman. mr. donovan, thank you as well for providing this budget on time. i'm the rookie here and the benefit is -- you've run out of

senators here today. but i would like to submit some questions later though in writing. but i have one question. and that is the severity in this debt that it is sustainable at about 90% of gdp. i personally disagree that gdp is the denominator and i believe growth should be the denominator. this is a question from president june 23 2008. the way this administration has done it is to drive up our national debt from the first 52 presidents the first 42 has driven up the debt, that is irresponsible. let me put it in context. in the year 2000 our debt to gdp was 55% of gdp.

in 2008 we added 4$4 trillion to a 6$6 trillion debt and since 2008, the last six years we've added 8$8 trillion and this budget takes it up to 26$26 trillion. and at 18$18 trillion and if interest rates and i'm concerned about the forecast of interest rates because if you look at the sensitivity analysis and if you took it to the 30 year average, we'd be paying close to a trillion in interest today and that is not sustainable on a $4 trillion revenue and that is one problem. and the things that senator phillips indicates and this accelerates in the second decade and the $100 trillion in liabilities added to the $18

trillion right now and if you look at it per household which is the way things get paid in this country that is over $1 million per hour hold, that is not sustainable. pension and medicare and medicaid and a million per household brings it home for me and my constituents and so looking at a second decade and third decade and kicking this can down the road, how should we look at a deck said with a debt 9% the gdp can be sustainable. and let me give you an anecdote. and it looks to me to be a security issue and we have treaties and one with taiwan and one is that if it is invaded by

china, we have to go to taiwan and to do that we have to borrow the money from china to save china and my constituents wants to know when we are going to balance the budget and how we will get out of the long-term expenditures in the second and third decade. so the word sustainability is tricky and i get it. you said this is sustainable at 95 and declining. i disagree. i don't think it is sustainable but i would love to get your opinion why this is sustainable given the volatility of interest rates that we've seen over the last 30 years. >> first of all senator recognize that when we came into office we were facing enormously difficult fiscal circumstances and we have brought down the deficit by more than two thirds with a broad set

of steps and the steps we've already taken have substantially reduces long-run deficits and debt. whether it is bringing down health care costs and a range of other steps we've taken on economic growth. and as i said earlier we agreed we need to focus on the long-term steps and reducing the health care costs. >> with the time, i'm sorry to interrupt. but you still think that 95% of gdp and that is sustainable i'm talking in the second and third decade, past our budget. >> our budget is not at 95% of gdp. under current law it would rise up to 81% of gdp. our budget changes that and brings it down in the ten year window to 73% and would actually keep it stabilized throughout the 25-year window which is really, as we talked about earlier, when the demographic

challenges are hitting us most strongly and that is why i say it is most sustainable. >> thank you mr. chairman. >> senator portman. who used to be in your position. >> as he reminded me at my position hearing. >> congratulations, you've been nominated to my job. and my worst day is yours today. and congratulations, you're doing a good job defending it but we have to set the record straight on a few things, this notion that this budget as you said earlier is all about, in response to senator corker's question setting apart the ryan murray proposal of let mandatory spending and breaking the caps and more discretionary spending, it is not. and i think perhaps you wanted the last few years to look good

and this is the reality and i'll give you the numbers and i'm not going to ask you a question because these are what the numbers are. spending on the discretionary side goes from 6.5% now down to 4.5% of gdp and defense going down to 2.3% and the numbers look better after 2022 and 2024. so it is $2 trillion in new taxes, a trillion in new spending and you said mandatory is spending more and i'm happy to share the charts with you. so i like your theory that you say you guys are following but the budget doesn't meet that standard. and i know we're going to have some big differences in these

two budgets but we have to figure this out. i think it is very obvious what the problem is and i think you guys skirt it. you ask a bunch of questions. you need to raise more referendum. you have over $2 trillion in new taxes. over the last 50 years, is it true our taxes as a percent of gdp have been just under 18%? is that about right? >> roughly right. but i think as it was said earlier, the only time we balanced our budget that our economy was growing quickly that our revenue levels were up 12% so we think our levels of spending are the right ones. >> so just before 2008-2009 we have had $161 billion and 18% in revenue to gdp. and by the way, this whole

notion that you have done so much better than you expected to do, the cbo baseline you inherited in 2009 that took into account the recession and included all of the war funding in other words it had much higher levels of defense spending that we had, the defense line there that cbo gave you had deficits that were half of what have occurred, $3.4 trillion versus $6.7 trillion and this year's $6.4 billion deficit is double what cbo thought at that time. and including the recession and the war spending that it is fair to say this is a break-through and everything is going great and we've made this progress. but let's continue on these question and the problem is obvious and we all know what