going to need to spend a lot more time evaluating the investment side. a lot of work has already been done on the tax side. a joint tax provides a dynamic analysis on all of the big tax bills that are introduced, right? they did that. they already do that. we've not seen that kind of in-depth macroeconomic analysis with respect to cbo with respect to these investments. i indicated you have this sort of crude measure right now for what you consider the investment side of the budget. first of all, it's crude. second of all, it leaves out all of the spending like the medicaid spending that is not categorized as investment. so i'm just letting you know because you're now charged with this important agency and you're charged with it at a time that you've been asked to undertake this whole new enterprise. everyone is going to be watching very carefully to make sure it's put in place and implemented in a fair, balanced and mostly in an accurate way so we have an understanding of the impact on

the economy. so mr. chairman, thank you for this hearing. let me just close where i started, though, which is we're in the middle of these appropriations bills and we are headed right now on a trajectory that seems like we're going down toward that water fall, toward a government shut down. the president has put on the table a plan to address this issue in a straightforward way and we hope our colleagues will join us in finding a way to avoid the government shutdown that seems to be looming on the horizon with the coming fiscal year starting october 1st. thank you, mr. chairman. >> thank the gentleman. mr. rokita. >> i thank the chair. good morning, dr. hall, thanks for being with us today. the plan i see from the president only increases our deficits and debts and over the near and even longer term and so therefore i don't think it's a viable solution. let's focus on the debt for a minute. it's my understanding that the debt, as much as we're working

and have evidence to show that are deficits are decreasing because of the leadership on this committee and, more recently, throughout congress, including for the first time since 2001 that we've had a budget resolution, that the debt itself is still expected to expand, the 77% by the budget window, and thereafter it's the red menace that some have described is becoming a tidal wave because 10,000 baby boomers a day are retiring into unreformed programs. there's a debt clock in my office. it's over $18 trillion. quite frankly, as much as i put that out there for my constituents to see, it's hard to understand and visualize what $18 trillion is so my first

question to you is, can you talk to us in terms of what this means to the individual family, what an increased debt load does to our standard of living, for example? >> first of all, let me just say that the debt level is at right now 74% of gdp. that is really high. it's only been that high once and it was after world war ii. the extraordinary circumstances after world war ii. it is a very high level. and what is going to happen is we may have a few years where that's relatively stable at a very high level if the economy continues to recover. at some point, the effects of the aging population and rising health care costs are going to make that start to grow again and it's eventually going to get to an unsustainable level. and by unsustainable level we mean literally the ability of the u.s. government to borrow money is -- it can disappear at some point. that would make it a really serious meltdown. there we're talking about a really significant drag on the

economy and economic growth. we're talking about slower income growth for folks. and all of those things are serious and they're there. and one of the things that i think i need to point out is the sooner you start to address this, the less you have to do to fix it. because if you wait, what you need to do to fix it gets more difficult and more difficult. i want to mention one more thing. that's directly to what you're seeing, the debt almost doubled since 2007 so our ability to deal with another economic crisis going forward is going to be hampered with the debt level of where it is now and our ability is going to be -- it's going to be very difficult to deal with. that's a really important part of this going forward and we don't want to have another great recession.

let's talk about the fix. what fixes this, as you mentioned? do slightly reforming the programs that are driving our debt, medicaid, medicare, social security, the interest for ourselves and other countries that make up 67% or so that are spent? will that do it moving around the edges or do we need total restructuring of these programs if they're going to be available for my children, for example? >> we certainly, we need something pretty substantial and, you know, without talking about particular things, we spent some time and produce something for deficit reduction where we give you options to look at and you get an idea for just how big a change we need in things to stop this growth in debt, and one of the things that actually isn't in here that you should keep in mind is -- and when you look at the long-term budget outlook and when it gets to very, very high levels, two thing, one is that you're at a high level and that it's getting worse and the trajectory part of it.

so when it gets to be -- if it gets to be 100% of gdp in 25 years, it is 100% of gdp and getting worse which is why i say something significant needs to be done.l@5÷/vñ >> you mentione& át(uá?urcñ some count for debt in terms of what acceptable levels are. you talk in terms of trajectories, there is a difference there. >> the notion is that one, you don't know where the tipping point is. you don't know how big the debt needs to get before there are really serious problems and one of the things that factors into it is not just the level, but how believable it is for people that it's going to get under control and that it's going to be fixed and that's what i mean about the trajectory. >> mr. pascal has five minutes. thank you, mr. chairman.

i've been listening very tentatively and what seemed to me that what we want to do in the opening salvo of questions is go back in the decade and when clinton was the president when there was an $11 trillion turnaround, do you remember what the surplus was in 2000 and how we got to this deficit and how we got to this deficit? and then, on top of that, since you brought the subject of tax cuts up, we had huge tax cuts in 2001 and 2003. you want to know what the predictions were in when quote,

unquote, dynamic analysis was of then what this was going to mean to the economy -- not only what was it going to mean to the economy, but to the job picture, and to the job picture. we all know what the numbers are. you saw the graphs. we've thrown more graphs at you than exist, i think, and you know what those graphs are, but take those numbers away and take those graphs away and even take what i've just said away. the fact of the matter is what is dynamic analysis, huh? and dynamic scoring. i'm very concerned about your decision, mr. chairman and your party's decision to use dynamic scoring and that's what much of the discussion is about here or micro, or macro economic analysis and official cost

estimates for major legislation. this type of analysis is highly uncertain and prone to manipulation. you have the low number and then you have the high number and you can make whatever you wish at whatever time you wish to make it. different models and assumptions produce widely different cost estimates just right down our alley. we can fudge the numbers easier. for example, jct analysis of the reform proposal use two different models, if you remember. they came up with eight different estimates in a range of revenue estimates from $50 billion. listen to this range, 50 billion to 700 billion over ten years. i mean, that's, you can drive 5500 mack trucks for that. he used the most optimistic estimate to tout the plan of reform. some models depend on actions that future congresses will take my take to reduce the deficit. so i've been here long enough to know that there's been no guarantee what congress will or

will not do in the future. a ten-year budget is a fake. you know it, and i know it. i believe that including dynamic scoring will diminish the credibility of the budget process. so my question for you, i want to start off with an easy one on the affordable care act in terms of what you said and i quickly read over your testimony here. so the deficit is projected to hold steady as a percentage of gdp through 2018. it's currently at its closed points as president obama took office. nonetheless, the republican budget requires each of the five health-related committees to find $1 billion in savings to reduce the deficit. by repealing the hca would add

200 billion to the deficit. let's do a little dynamic analysis ourselves here. so i'm not a mathematician by any stretch of the imagination, as you are, but in your opinion, if we replace the hca and save $1 billion which i just referred to, what would the budgetary impact be, dr. hall? >> well, obviously the ac analysis that we did before was valid and i can tell you one of the things that will happen when we also look at the dynamic effect of this, the dynamic effect will actually probably help reduce the deficit and work a little bit against that, at least and with respect to dynamic analysis -- >> are you saying that if we repeal the aca we would reduce the deficit? >> the gentleman's time has expired. >> i yield back my time. >> the gentleman's time has

expired and the gentleman from oklahoma is recognized. >> i appreciate the extra time my friend yielded me. if i can, let me start with the discussion about the historical record of the 1990s and then i want to get specific and pick up where mr. akita left off on the whole issue of debt. >> if you're on the democratic side of the aisle you'd like to give credit to president clinton and if you're on our side you'd like to remind the democrats that hey, you had a republican congress for six years and you never could have gotten the thing balanced with a democratic congress, that's for sure, but he had three things going for him that we don't have today. the first one is he had peace. he didn't have much to do with that, but the soviet union was gone and we did get a real peace dividend and that lasted throughout the 90s and the second thing was he had baby

boomers working and not retiring and probably in their peak earning years and finally, he had an internet boom that nobody in washington, d.c. could take credit for that and that poured revenue into the treasury at unpredicted and unprecedented levels in terms of capital gains. we don't have any of those three things today. we're in a state of war and we're likely to stay in a state of war and we can debate that and we'll be militarily spending more money than we were in the 90s as a percentage of the budget and the percentage of the gdp. baby boomers will be retiring and they'll be living a lot longer than any previous generation so they'll be drawing social security using medicare longer and finally, economic booms are not predictable, but we certainly don't see a growth rate that's anything like what we've seen in the past. so we've got some really unique challenges that transcend, frankly, what our predecessors

in the 1990s have and we don't have the favorable conditions that they've worked with, and we've been able to bring down the deficit in a bipartisan way. i don't think we give either side enough credit for this in the last few years. we've had obviously, a little bit of real deficit reduction and we're spending less in discretionary side of the budget than we have before. we've had economic growth and not anything that we'd like, but that generates money and we've had a fiscal cliff deal that did raise revenue of $700 billion over the decade and that's a tax increase effectively and those things have brought that deficit down from $1.4 trillion to a little under $500 billion and 460 or 80, somewhere in that range. are those measures, director hall, sufficient to continue to

lower the deficit as we look forward? >> they're not, and what's going to happen is the effects of the aging population and the rising healthcare costs are going to become much more apparent going forward and we're going have a much harder time keeping the debt anywhere near its current level. it will be difficult to do that. and your test on this, and i don't want to belabor it with mr. akita, but what will be the impact of that debt on economic growth? >> it's certainly a drag on economic growth. i think it puts us at risk in terms of economic policy if we have another downturn and our ability to deal with that, and then at some point we get to a tipping point, right? when the debt is just so high that you have a hard time and the federal government has a hard time borrowing money and then we have a real issue. >> is there any way of dealing with the debt without dealing with entitlement programs? >> we have a lot of choices, and obviously, entitlement programs and the growth of those are a big part of the growing debt in

our forecast. >> this committee has put forward, a couple of pretty provocative ideas on medicare and medicaid that would slow their growth according to cbo studies. i know our chairman has talked about social security in the past and we've had private discussions about the need to have a process or address that. do you know if the administration has put out any proposals on entitlement reform? >> i -- i don't. i'm sorry. >> and how many years has this administration been in office? seventh year, i think? >> yes. that, i should have been able to calculate. obviously, i'm leading the witness if we were in a courtroom. the point is we have a huge

crisis. we know it's here. we've been around seven years. it's time to deal with it and this is an area where the administration has to lead and i think frankly, this committee has been willing and has put out ideas and think the congress is ready and so i would hope, mr. chairman, and i'll close out, i would just hope that the administration would take that opportunity to sit down and talk about the real long-term problems we'll face instead of pretending they'll disappear because they'll get worse. >> the gentleman's time has expired and mr. mcdermott is recognized for five minutes. >> do you own a house? >> i do. >> did you pay cash for it? >> i did not. >> so you went in debt to buy that house? >> that's right. >> is that a pretty common occurrence in the united states? >> it is. >> so we have a population that understands the idea of investment creates debt and that in the end in 30 years you'll have a house, probably and you'll have some house that's probably worth quite a bit more than what you paid for it, maybe already is, would that be true?

>> that would. >> that would be a projection you'd expect? >> yes. >> the idea of investment and mr. van helm talked a lot about it is one they think we have lost sight of in the congress. the republicans don't seem to want to invest anymore, and i was reading "the new york times" and i couldn't believe it when i opened it and saw that a great leader of the conservative right had come out with a suggestion that we should double the nih budget. newt gingrich and i asked him to put his editorial in the record said -- >> objection. >> even though we led financing for medical research stagnate, government growth on health care has grown significant and that should trouble every fiscal conservative. as a conservative myself i'm

skeptical to government investments and when it comes to breakthroughs that can cure, and not just treat the most expensive diseases, government is unique. it alone can bring the necessary resources to bear. the federal government funds one-third of all medical research and it's ultimately on the hook for the cost of the illnesses so it does the research to try and deal with it. it's irresponsible and short sighted and not prudent to let financing for basic research dwindle. the last budget that we put out of this committee was $1.7 billion less for nih, and not doubling the budget, but down $1.7 billion. 14,000 less grants is what the omb suggests that equates to. tell me how that spurs the economy to cut investment at the national institutes of health? just explain to me how that would spur the economy? >> i don't know that we've done

analysis of that sort of thing. >> can you imagine any way it would? certainly, there are things on the spending side that have dynamic effect, that have a positive effect on macro, economic growth. >> do you think the national institutes of health over the course of the last 50 years have had a positive effect on the economy? >> i just don't know. i don't want to speak lightly of it, but really, i don't know. you're kidding. you really are a politician. our henry jackson, our senator from washington once said he was looking for a one-armed economist.

someone who didn't say on the one hand this, and on the other hand that. you can't look at what's come from our pharmaceutical industry and from our health care industry and all that's -- it covers 16% of gdp and you're saying that the national institutes of health, with all of the research they've done in aids and in cancer and heart disease and in kidney disease, none of that has been positive? >> i didn't say that. >> you said you couldn't say that its had a positive effect. the effect is without that kind of research, medicine in this country would fall behind and we'd be like sierra leone or botswana if we stopped doing research and we say that we're going to go forward in the next century by innovation. we're going to innovate and that means you have to do the kinds of things that innovate and that's nasa. that's nsf. that's all of the places that we invest money. if we stop investing in the military and darpa and all of these places where money is invested, they say no, we have to cut back, we have to cut

back, but when you cut this you're cutting your own throat, in my view, economically. after the second world war when we had the same kind of debt we had today we invested. we gave a free college education to every soldier who came back. that's investment. >> the gentleman's time has expired. the gentleman from california, mr. mcclintock is recognized for five minutes. >> just to pick up that point. when we were at the end of world war ii when we had exhausted our resources and when you were carrying a debt as big as it is today, didn't harry truman in 1945 abolish the excess profits task and in 1946 didn't he slash income taxes from 60%, i believe, down to 20% or so? didn't he reduce the federal workforce by 10 million employees called mobilization and didn't he take the federal budget down to $30 billion in a

single year, and didn't the centers at the time warn us of 25% unemployment rate and a second great depression? >> i don't know my economic history like i ought to. >> please check it out because i believe you'll find that that is a fact and instead of that second great depression we had the post-war economic boom. i've been asked what keeps you up at night and my answer immediately is the debt. we're paying $230 billion a year just in interest costs to service that debt. that means if you're an average family paying average taxes $2,000 of what you sent to the government this year did nothing more than rent the money that we've already spent and as you pointed out at the end of world war ii when we were carrying this much debt there was serious doubt whether we could continue into 1946, our resources were exhausted, and our credit was shot. we are now at that point in history and we are concerned about what happens to our ability to respond to an international crisis if one is upon us in the condition we're

currently in. the budget that congress has just adopted sets a course back to solvency. how important is it that we stay that course? >> i think it's important that we do something fairly quickly and get a plan together quickly because the longer you wait the more dramatic a change you need. we have a plan and that's the budget that's in place and we just heard the ranking memo, co threats from the senators and from the administration that if the congress doesn't agree to spend a lot more money they're going to shut down the government. how damaging would be that path that is being suggested, that we massively expand spending at this moment in our history? >> well, the economics of it is interesting. spending a little bit in the short term is a stimulus. it adds to economic demand, but

adding to the debt over the long run time period is a drag. >> it adds, it adds temporarily because when you take a dollar from peter to pay paul, paul has an extra dollar, but doesn't peter have one less dollar to spend in that very same economy? >> that's right. >> isn't the impact over the long run negative, not positive? >> that's right. making the debt worse is a problem. >> my friend from new jersey rightly pointed with pride to the clinton administration's surpluses and rightly criticized the bush administration's deficits and the impact that he had on the economy, but he reminds me also of churchill's discrimination as a man who occasionally stumbles over the truth and then carries on as if nothing has happened.

isn't it true that bill clinton's administration cut federal spending by 4% of gdp, dramatically reduced entitlement spending and in his words ending welfare, as we know it and approved the biggest capital gains tax cut in american history. george bush comes along, increases federal spending by 2% of gdp and approves the greatest expansion since the great society and started the entire area of stimulus spending. mr. obama came in and increased it by another 2% of gdp. further expanded our entitlement obligations and drove stimulus spending through the roof. >> what do these experiences tell us? >> i don't know about those experiences in particular, but right now the end result from 2007 until now, having the debt double, nearly double as a share of gdp is something of real

concern and it really handicaps us going forward in terms of economic policy. >> in the remaining 23 seconds, reagan recovery, obama recovery, compare and contrast. >> i can tell you that the gdp growth from this recovery has been very slow. i don't know that i want to attribute it to one president or another, but gdp growth has been very slow this recovery. maybe the slowest we've had. >> gentleman's time has expired and the gentleman from massachusetts, mr. multon is recognized for five minutes. not here. mr. norcross, new jersey. >> thank you. >> mr. chairman, i appreciate it and good to have you here, dr. hall and we certainly appreciate you sharing your views. i want to follow up with a comment you made in your opening statement follow-up to mr. van holland. you talk about wage growth as a

stagnation on the revenue side of the ledger and that over the course of the last year of this recovery it has been stagnant, and i agree with that. i think we all agree with that, but i'm looking for a little better explanation and we look through 73 through 2013, real wages increased by 9%, but productivity and the very thing that we said drives those wages is up by 74% and huge gap that has been discussed. how do you attribute between what happened then and now and why that isn't changing based on your earlier comments that with the growing economy, the growing wages? >> right.

i know that it's been noticed and it's a concern that productivity growth has outstripped wage growth at times. >> massively, massively. one part of it is non-wage compensation. things like health care costs and other things. that's been a big part of that. so if you sort of take that into account they get a little closer which has been a little bit of a -- >> just fractionally. there has been a bit of a separation of that, and i think that's an interesting thing. i still think that it's fair to say that you still can't get solid wage growth without productivity growth.

and i think a lack of productivity growth is going to still hold back wages going forward and if that isn't somehow resolved. >> just following that up and following your logic then we should have had a massive wage increase. 74% productivity growth and only 9%. i'm looking for how did that occur and in your opinion, following your suggestion that the increase in productivity would give you wages and that didn't happen. we have to spend a little time looking at it and just right offhand, but like i say if you look at just narrow wages, that's a bit of it. we have had -- we only have had a bit more of a separation between productivity growth and it takes it up to 74% and it's still a massive difference, and i guess what i'm leading into is the trade agreement and 73 in nafta and we're looking at scoring and whether or not a trade agreement is good for this country, you take certain assumptions into effect, wouldn't you? when you score something do you assume that the other countries will follow the rules? >> well, that's right, and up until now the scoring of trade agreements has been looking at tariff revenue has been driving that. the effects would be different and you're right. it does rely on the agreement being upheld in both sides so

when we're moving forward, any trade agreements we might enter into, you will assume that they're going to follow the rules as part of that scoring? we do our best to estimate that. if there are indications that enforcement may be a problem or some of those things may not be credibly enforced then that could play into our scoring. >> is that a maybe? i'm not trying to pin -- >> i'm saying it's a -- it's a judgement i can't make because i

don't know all of the details of a future. >> we'll be running out of time. will you please follow up? it's not a maybe. are you going to have to assume they're following the rules? because i look at vietnam who has never followed the rules on their wage agreements and yet they'll be included in this trade agreement. australia, different story. they tend to follow the rules, and when you start screwing these things we want to make sure you're taking into account whether or not you'll assume that they've found god and are going to follow all of the rules which we find very unlikely. so we appreciate you coming onboard and looking forward to future meetings with you and your insight. thank you. >> the gentleman's time his expired and ms. black is recognized for five minutes. >> welcome, dr. hall. we look forward to working together especially at this time when we're looking at very critical things in our country and my colleagues before me have spent a lot of time on the

impact on the debt and our economy. i want to just turn to another area related to this and that is the impact of the interest for our government spending and our economy. so this past january the cbo estimated that its budget and economic outlook that over the next decade the interest payments on the federal debt will rise by more than 400%, just astounding. $827 billion per year in the year of 2025. this is astounding and as one of my other colleagues said how do you talk about billions and trillions about constituents and to ourselves is something that is unimaginable, but over these ten years the federal government is expected to pay a total of $5.6 trillion in interest payments. again, just astounding. what negative effects will these growing interest payments have on our economy?

>> well, first, they'll make the debt grow and that will have a pretty significant effect on the federal debt. i think if you do a quick calculation and the interest rates go up by .75 percentage points, just a fairly small amount. the debt to gdp ratio 25 years from now will go up by 25% which is higher than the long run average. i mean, just the debt -- just the debt alone from that is significant. when you raise interest rates you've had all sorts of effects and you raise the cost of capital to workers that can have an impact on wages and by

reducing the capital, and raising interest rates, it does affect investment, as well. so you have economic growth aspects to this. >> so as the interest rate goes up, that also means that more tax dollars paid into the coffers will be used to provide services and help with those kinds of things that we believe that we need to give to those most needy. we'll have less money for that because if the interest rates go up that means more money will go to pay for the debt. is that not correct? >> that's right. >> so given that, what is the effect if just 1% increase in interest rates on these projections? how much worse does this problem become? >> it can become significantly worse. to say something like three-quarters was 1% and you're talking about 30-plus percent

and that's really significant. i can give you more detail on the long-term budget outlook because one of the things we do with that is we show you how the interest rates affects the debt in the long run and do some discussion of that. >> and i appreciate getting that information and all it will do is make me stay up later at night worrying about where we're going and how we take care of this, but my last point here is my understanding from sitting on this budget committee is the longer we wait the harder it is. figuring out how to take care of especially those entitlement programs that is the greatest driver of our debt right now while we can and before interest rates do rise, will put us in a better position and perhaps not put us in a crisis situation. is that not correct? >> that's correct. >> thank you. thank you, mr. chairman, for this hearing, and i yield back. >> the gentle lady yields back. mr. lew is recognized for ten minutes. >> thank you, mr. hall, for your public service. i'm going to ask you about dynamic scoring. i believe it is a radical sea change in how the cbo will score

the federal budget and to me it's not radical because of the concept. i think the concept, as you know, is pretty easy that basically people react to changes in governmental policy. >> what is radical to me is that earlier this year the house majority passed a rule that said we'll only apply dynamic scoring to some parts of the budget and my view is math is math. if you'll apply math to some parts of the budget and not others that's going to skew the budget, and in the response earlier in the hearing you would have evidence of dynamic effect, but doesn't everything have dynamic effect whether you're spending on education or spending on infrastructure or spending on nih to do rnd and everything has dynamic effect. >> isn't that true?

>> i'm not sure everything does and some spending am whys have the dynamic effect just like revenue has done. >> and will the cbo go beyond what the house rule is if you believe there is going to be significant evidence of dynamic effect and score it that way regardless of the house rule? >> i believe the house rule asked to use dynamic analysis on both the spending side and the revenue side where appropriate. >> it limits the spending side though. >> okay. so let me ask you. you have no objection to having cbo score the entire budget with dynamic analysis. >> that's right. in fact, we've actually been doing that. if you look at the budget, you can see the dynamic portion. we do it in the long-term budget and we do the macro economic effect. so we've actually had a little bit of experience doing that, and this change to us is sort of a continuation of using the methodology that we've already been using. >> thank you. that's reassuring. second question i have is how you do it. so let's say. i give this as an extreme

example and say they stopped funding education and applied it toward deficit reduction so you will have a numbers effect to that, but then over time you will have a lot of uneducated people in america and that will have a drag on the gdp. do you factor that in, for example, educational levels of our population and how strong our infrastructure is and all those things of dynamic scoring. >> we do. that would have an effect on productivity going forward and our drop in productivity going forward would be a dynamic effect that would not be good for economic growth. >> it's possible that dynamic scoring will go in reverse, right? there will be some cuts that will have a worse effect over time because you will have a less productive workforce or something else that affects gdp. >> that's right.

and then i have a question about your view of what happened in kansas and louisiana because they applied dynamic scoring in those states and the governors of those states said we'll do massive tax cuts because our dynamic scoring shows that we'll bring more revenues and those tax cuts. it didn't happen. both of those states are now facing potential bankruptcy and do you think they just got the dynamic analysis wrong? do you think the theory that if you bring in more revenues is incorrect and it ran with coincidence and it will bankrupt your stay. >> i don't know the specifics about the states and what they did, but the economic evidence is that there are dynamic effects and not that the dynamic effects are so strong that tax cuts pay for themselves. that takes the economic evidence too far and it's just not there. >> thank you. i will yield back. >> okay. change an yields back and the gentleman from georgia is recognized for ten minutes. >> thank you, mr. hall, for being with us today.

you were asked earlier if you were a homeowner. you confessed to being a homeowner. i'm not going to ask if you're a credit card holder, but i do want to ask if your model reflects differently the kinds of investments that mr. lew was talking about, whether that be education and whether that be infrastructure and consumption. consumers buying more imported goods and does our model make a distinction between government spending on investment and government spending on consumption? >> it does, and that's an important distinction because deficit spending on something that will give you the dynamic benefit is different than something that's not. >> when we talk about deficits annually and debts over time, the scoring i generally see if we spend more today we'll have a positive effect on gdp in years one, two and three, but a drag on gdp in years seven, eight and nine in rough terms.

is there a way to avoid that impact as we try to balance. >> sure. >> -- gdp growth today versus gdp growth tomorrow? is there a formula that gives us gdp growth in each and every year? >> it's not a formula, but one of the things that would really help is not surprising people, right? if you get a fix you announce it now and you give it a little time so people can adjust to it then hopefully you can avoid that -- that push against economic growth. you can avoid that and still get the benefits down the road. so it's the idea of getting a plan together or having the effects phased in over time so you don't get a drag on the economy. >> so let me be clear about that. i'm 22 years away from retirement. young people polled say they are more likely to see a ufo in their life time and you're saying whatever it is that we're going to do to address that concern that the same solution phased in over time has less of a drag on gdp than if that solution was imposed at some

drop-off point. >> that's right. in the near-term and you could have a drop-off point as long as you give people a little bit of time to adjust to it, so it's an issue of timing and it's an odd issue because the faster you fix it the better off you are, but if you take a little time and phase it in, hopefully you can avoid this drag in the early years. >> i'm confused about that because i've been on the budget committee for four years and only been in congress for four years. my experience in congress is we do a lot of things one year at the time and we'll get to december 31st this year and decide we'll write tax policy for last year. we'll get to a problem that's coming in ten years and we won't deal with it in years one through nine and you're saying there is an economic consequence to the short-term extensions, to the one-year policies? to the let's wait and see culture that exists on capitol hill? >> without commenting on the

culture, but yes, there can be an effect from doing that. >> i feel guilty about the culture and if you'll comment on the economic effects that the culture brings. i'm thinking about the formulas and i just have such great respect for the budget committee chairman and getting to the first conference balanced budget we've seen in this country since 2001. we went after those consumption programs and certainly the sequester has gone after many of those investment programs. i supported the chairman's mark and supported the budget. >> have you seen alternatives that tried to reduce the consumption spending in this country in order to enhance the investment spending in this country, that haven't gotten the attention on capitol hill that they should have? have you seen any leaders out there other than the chairman pushing that idea that we can -- we are harming our country with consumption so let's get that balance right? >> i can't say i have anything in mind. we do have that proposal and

we've actually thought through some possible ways of balancing the budget in ways of improving things so some of those options are things that we thought of when we sort of detail what we think what the impact would be. >> i know you work hard to give us the economic information and not try to drive the congress on policy issues, but if i could encourage you at every opportunity to help to beat that drum about the -- about the degradation that occurs in our economic system with the uncertainty that absolutely ney one in this committee and no one on capitol hill benefits from, that is a place that we can come together and make the difference.

>> the gentleman's time has expired and the gentleman from virginia is recognized for five minutes. >> i just want to take exception of a couple of remarks previously given by the ranking member and just get your confirmation that it's true. he said in the short run the republican budget reduces gdp, and you said correctly that, yes, the aggregate demand goes down and that's the relationship, but i just want to put it in context. would it be equally true to say if we go another trillion dollars in debt as milton friedman taught us decades ago and you created jobs program and people dig a ditch with

teaspoons and then fill in the ditch and that would also create gdp growth. >> it would in the short term. that's right. >> that would also create growth in the short-term and i'm just trying to show the context of smart, economic growth and the second remark the ranking member made was that immigration increases would increase gdp growth. that's also a true statement, but what most use as the more helpful measures is gdp per capita and would you say that's accurate as a measure of welfare, that the gdp per capita is more important than the average person than just growth in gdp. >> that's what's behind household income. >> good. and is it your understanding that in terms of federal scoring, immigration federal programs come into play, but if an average person with a ninth grade education emigrates to our country and pays very little in federal income tax, but if they have two kids in schools the cost of that is roughly $24,000 to the local and state roughly speaking and any other additional expenses and is that scored by cbo, the state and local costs?

no, we don't do a state and local. right. >> so when he says immigration causes growth, i accept that premise. it does increase gdp growth, but the average person would not be happy to find the additional tax burden for paying for schooling and the other programs that go with it and finally, if we can just redirect to the slide, this is probably the most important problem the country faces and provides the ultimate context and background that everyone we've been speaking to the $18 trillion in debt and the debt clock that is spinning out of control and this chart is from cbo and roughly shows that by 2032, the four major programs plus interest take up all federal revenues by about 2032, and so i say this over and over to folks. our governor came up with the entire delegation from virginia today and sequesters having painful effects on the military in virginia. we need transportation spending and education spending, et cetera, but i just want your

confirmation that what this graph is telling us is that under current law, and at present the budget committee can only deal roughly speaking at one-third of the budget and two-thirds is autopilot that we can't touch without changing the law, and i just want to make it clear that by 2032 under current law with interest payments included, 100% of the budget is autopilot, and there will be very little, if any, money left for military and all of the regular expenses of running the government all else equal. >> it certainly gets up to be at an unsustainable level. it's hard to know where it is, but it is. >> in your view, i know this is incredibly hard to answer and you have the debt at 18 trillion and these at the bottom of the debt is roughly $27 trillion. what breaks first? where is the -- this time is different than folks out of harvard had the red lights going

off and you said that to gdp ratio is already at historical highs and if you throw in this story along with that, where do you see the first breaking points? >> i don't know. that's -- it's like any not kind of debt. when it just accumulates, if it's a company or if it's a household, at some point you know it's going to break them. you don't know where. >> right. right. i would like to go to the next slide. >> i think you're quite familiar at the bottom, but harvard, and it seems like we can do more to provide numbers through cbo and through our committee were to illustrate how dire the situation is that this chart presents, economics professor estimates that the total fiscal gap and roughly the difference between our projected spending and revenue in current dollars is more than $200 trillion, and i just gave the 127 trillion and he does it in the infinite horizons and by the way, for political purposes and it's not

blue or red. >> the gentleman's time has expired. >> the gentleman from indiana is recognized for five minutes. >> thank you, mr. chairman, thank you, dr. hall for being here and i've enjoyed listening to your testimony and also to the answers to different questions that very been asked i want to talk about interest on our debt and interest rates a little bit and i appreciate your comments about $18 trillion of debt and that does to on you are economy and the future of the country and we're talking about the interest and could you talk just a little bit about the sequester and maybe how it relates to our military readiness and our military

spending, but then is that the greater problem or are our entitlements the greater problem that we need to fix because as mr. pascal was saying earlier, with the budget of the late '90s when president bush did come into office 9/11 did occur and we had some extreme situations that we had to deal with, but i don't think that that could be the only place we blame for our high number of debt. i think it really starts pointing, too, and the sequester has shown we've seen military spending go down, but we haven't done anything about the other two-thirds as congressman brown was talking about. could you talk a little bit about that? >> sure. the most obvious thing that clearly is coming is the effects of the aging population. that's just going to happen and that has significant budget impacts and the rising

healthcare costs. so, which is also related somewhat to the aging population. so no matter what else happens, those things are going to push the debt higher and there are a lot of ways to work on that. we've tried to give you some options, but that -- those issues didn't exist until now. >> cbos, report on health care costs. cbo recently reduced its projection on health insurance premiums for the 2016-25 period. is that something -- could you talk a little bit about that, as we talk to folks back home they're seeing a rising cost in premiums and out of pocket expenses. are we seeing -- could you just

touch on that a little bit? >> let me just put it in context. one of the challenges from cbo and the aca was that we didn't have any experience with that. so when we're trying to estimate the likely impact, to be honest, we're relying on theory and we're relying on theory and now what's happening is we're starting to get some experience and we're starting to get some real data and going forward, that's got to inform our estimates of the costs going forward and what we saw early on is we saw a drop in premiums that we didn't forecast and we'll keep monitoring premiums and monitoring things and it looks like premiums are not following our forecast and if in fact, they wind up going more than the forecast we'll adjust. >> that's my concern that folks at home aren't seeing wage increases and we're starting to see large companies increase. the minimum wage for the companies but as you mentioned earlier there needs to be tightness in the labor market and the companies are having a hard time finding that, and to go back to the debt and the interest. how do we, the interest will surpass the next ten years and

you what? i don't remember, if that's the projection, i suspect it hasn't changed. what can we expect when greats do at some point go back up? how are we, as a congress, supposed to handle the debt service to 18 trillion of debt and a debt that will only continue to rise? what happens? >> well, if you want to avoid the debt getting out of hand, you have to make some cuts. you have to manage spending or manage revenue or you've got to do something. >> thank you for your candidness. it's appreciated and i appreciate the chance to ask you a couple of questions and i look forward to working with you on this new committee. >> the gentleman yields back. the gentle lady ms. black burn is recognized for ten minutes.

>> we so appreciate your time and your willingness to work with us. i think we all realize that we have spending issues and budget issues and it is constituents want us to get these addressed and think we're tired of the bureaucracy feeling as if they're immune and exempted from having to work within a budget and i just, i think they're encouraging us to be bold in the work we're doing. i want to ask you specifically about the inspector general report and we've been doing some work on the counsel of inspector general on integrity and efficiency reports and, the fiscal year 2013 and they had quantified $56 billion worth of savings and it we have had a project going on in our office that the interns were working

and the window from 2011 to 2014, they found $97 billion that could be utilized with the inspector general report and they had the waste fraud and abuse. so as you all look at the budget, does cbo take these reports and waste fraud and abuse into consideration and how does that play into your cost estimating and your budget process? >> sure. we do take the ig reports into account when we can and it's a matter of estimating the cost properly, so it's clear that

there are issues and that is part of the cost estimate going forward. the scoring efforts to bring waste and fraud into under control. there are scoring rules that make that for us. >> there is a report that cbo issued in 2014 regarding the budget efforts of reducing waste fraud and abuse with the healthcare programs. so is cbo looking at or studying waste fraud and abuse on a broader level and are there plans to release any future reports in this vein? >> at the moment, we're not currently conducting research like that, and we are happy to discuss the possibility of such work if there's interest. >> well, let me ask you this then, could you capture savings

by utilizing some of these, kept your savings and used them for budgetary offsets by heightening efforts or changing the way you utilize these reports or integrate these into the budget process? >> there's actually a score keeping rule that makes it a little bit tricky. if it's -- if it's -- if it's a new proposal and it's something that's the increasing spending on finding waste and abuse and then the rules won't let us count that. >> that's helpful. i appreciate that. i have a couple of other questions and i'm going to just submit to you dealing with interest rates and deficit reduction because those are those are items that come up

when talking with constituents and town hauls and the good thing is that people are watching very closely what is happening with the budget and they're very concerned about the health of this nation and they want us to begin to operate in a more forthright way and also a healthier way as we determine the budget process. i yield back. >> the gentle lady yields back and mr. palmer is recognized for five minutes. >> thank you, mr. chairman and thank you for being here, dr. hall. it was earlier discussed about the impact of regulations. i think the regulatory environment costs the economy $2 trillion last year and it is a little over 15,000 per household. in your view, should that be taken into account when the cvo looks at its economic projections?

i know the president's office of regulatory affairs takes a look at that. i think it only captures the discretionary cost. is there any consideration of the cbo taking into account regulatory costs? >> no. i don't think we've ever really done research or done work on the possible impact of regulation and a lot of what makes it tricky is you need regulation and the issue is what becomes too much regulation and what becomes regulation that has a tradeoff with economic growth and that's a very difficult thing. >> you raise a good point right there that you do need regulation, but what you need is certainty in regulation, and i think there are a number of studies out there that indicate that when businesses know that

they're going to be regulated and they know what the regulations are it doesn't have a negative impact. it's the uncertainty in regulation that has an impact, and i think we're seeing that played out in the economy now. how would you respond to that? >> well, i think i mentioned earlier, there is some economic research about the effect of policy uncertainty on economic growth and that can have an impact. that's still kind of new research. i don't know how well accepted it is yet and to be honest, i don't know how much they focused on the regulations contribution on that. >> i think there is new work out there, i can't remember if it's the university of chicago or the london school of economics that looked at that aspect of it, but

i do think it's something that cbo ought to take into account and it was also discussed and mentioned earlier with our distinguished colleagues about the states and a couple of states and louisiana being one of them that used dynamic scoring and justification for tax cuts at the state level and i want to run through this proposition because state taxes are considerably lower. is it possible that the benefits of a state tax cut would have less of an impact on discretionary spending and investment spending or that impact would be nullified or muted because of higher federal taxes and regulatory calls such as what they're experiencing now, higher energy costs and higher healthcare costs and higher federal taxes. well, yeah. that's right and that's one of the difficulties of doing any projection and that's certainly one of the difficulties is understanding fully what's been the effect and the dynamic effect of things and it's not that easy to estimate. >> for instance, in alabama, our state income tax are at levels 5%. lets very little compared to the

federal income taxes and when you consider that for instance, bluecross blueshield just announced that their premium rates will rise by 26% and that's pretty significant. you take into account the increase in energy costs and particularly for people on fixed income and lower income for its consuming for people who earn less than $32,000. when you take into account that the state taxes are usually fairly insignificant and particularly on the income tax side relative to the cost imposed by the federal government, would it not be true that whatever tax cuts you have at state level would be pretty much wiped out by federal policy? >> yes, sure that's possible. >> one thing you were asked earlier if you own a home. you said you did. you were asked if you had a mortgage on that home. i would like to know if in ten

years the interest on your mortgage will be the highest single household budget item? >> i have a fixed interest mortgage so, no. >> so the answer is no. well, that's good. that makes me feel better about you being the director of congressional budget office. mr. chairman, i yield the balance of my time. >> mr. westman recognized for five minutes. >> thank you, mr. chairman. and thank you dr. hall on your bio that you taught at the university of arkansas and i just wanted to point that out here for the committee. >> i did. appreciate you being here today. you made an interesting comment about how delaying solutions to our problems compound the problems. and we know that those solutions

haven't been implemented in quite some time and our problems are getting worse with too much debt, with too much continued deficit spending. and we've seen the graphs that show what this is going to do to our interest on the debt. and we've seen the grass that show the amount of discretionary spending. but when we start looking for solutions to these problems and we start drilling down on some of these mandatory spending components, and specifically if we look at the affordable care act, you know, i think of it in two components. you've got the exchanges, which provide premium support for those who fall in the 138 to 400% of the poverty level bracket. and then you've got medicaid expansion, which 29 states in d.c. have participated in the medicaid expansion and it pays up to 138% of those in 138% of the poverty level. so unlike traditional medicaid and for disabled beneficiaries for nursing home and children, the aca is for abled bodied working age adults. my question do you know the wit on the numbers of aca participants and the exchange in the medicaid expansion and also

the budget impact for each population? >> i don't offhand, but i can follow up with you. >> okay. i haven't looked at some of that data and i believe there are more people in the medicaid expansion population and those effected by the changes. we're anticipating a court ruling in the king versus burwell case would effect those under the exchanges but do very little to effect the large population of those in the medicaid expansion population. since you don't know the number you probably won't know the answer to this question but i'll ask it anyhow. would you say fair to say medicaid over the aca is costing more than the exchanges if there were more people in the medicaid expansion and more money is being spent? >> i don't know offhand. >> all right.

when we look at that medicaid expansion there's also an incentive premium in there that was put in. the budget director even stated here in this committee that the premium was put there to entice states to expand medicaid. and again the medicaid expansion's only been done in 29 states and d.c. whereas the exchanges are in all 50 states. and under traditional medicaid the federal government only pays an average of about 57% of the cost for traditional medicaid whereas under expansion the federal government pays 100% of the cost for those in the expansion population that will be backing off around 90%, which

is still a very large premium, again for able-bodied working age adults. our numbers show that this premium alone is about $300 billion over ten years. have you seen any other areas like this under the mandatory spending where, you know, there seems to be these premiums or enhancements or, you know, things that would make our mandatory spending continue to grow. which also makes our deficit spending continue to grow which makes our debt problem even worse. >> yeah, i don't know, i'm sorry. >> the time i allotted for you to answer questions has been quite short today. i appreciate your testimony. i would appreciate if you could go back and find some answers to those questions and get those to me. and, mr. chairman, i yield back. >> the gentleman of south carolina mr. sanford is recognized for five minutes. >> yes, sir, again, thank you

for your time as well. couple quick thoughts. one, i wanted to follow up on my colleague from virginia's thoughts with regard to what our colleague from maryland had suggested about the republican budget. and in it he said, you know, the republican budget will slow economic growth. what my colleague attempted to get at from virginia was the why. and i think used the analogy of, yeah, you can hire a bunch of people with teaspoons and fill in a ditch and dig it out again. yeah, that would add economic growth but ultimately not make us more prosperous. would another way to characterize this suggestion by my colleague from maryland be that of if you continue down this road, if you go on spending money that you don't have, if you don't impose the financial constraint that the republican budget was ultimately about, yeah, there might be a little bit of slow down short-term, but there will be much greater consequences down the road by not addressing the entitlement and spending issue that this country's confronting. would that be a fair

characterization? >> that's right. i think that's part of our basic message over the long-term budget outlook. >> i also want to go back to your words earlier. you said the debt deficit issue will have significant effect in growth at some point. not quite sure where. but i want to go back to, again my colleague from virginia, he mentioned the book this time it's different it was one professor from harvard, the other from the university of maryland, lawrence -- indeed i think has done a lot of work on a thing called generational counting and the debt load in this country and impact on future generations of a young person born in america today. simpson-bowles, i think it's interesting their observation

was we're facing the most predictably economic crisis in the history of man if we continue to not address the deficit and debt issue we have in this country. again, i'm not trying to lay blame. debt doubled under the bush administration, doubling again under the obama administration. this is not a partisan issue, but it is a flat out economic and numerical issue that is going to have unbelievable consequences for the american public if nothing is done. could you just explore just a little more deeply when you think we might get to that tipping point from which again be these severe consequences? >> yeah. this is one of the things that's difficult in communicating about this because nobody has a tipping point. you know it's got to be there somewhere. but there's no real consensus as to what is a tipping point, when it's going to happen. i would liken it to looking at any business that's losing money at some point. >> okay. but let me just because time is so limited. >> okay, sure.

>> might we say this, the effects of the tipping point, if we go over that tipping point would be one in all probably substantial effect in terms of value of the dollar. if you look at tipping points around the globe when countries have had a debt spiral, severe consequences for the currency in question. there have been severe consequences generally with regard to barring capacity, with regard to interest rates and a spike that impacts the mortgage, a person's ability to buy a home, also there have been real impacts to way of life because there's generally been economic drag which is what rhinehart and rogue point getting in their book. you would say there would be severe consequences if we go past that tipping point wherever it might be? >> that's right, yes. >> and coming back just for one second, if we're somewhere around 2025, 2032, which is not that far off, at that point which we only have enough money for interest and entitlements and nothing else, could that be

a likely spot at which you indeed financial markets say wait a minute this is clearly unsustainable we're not going to loan you more money if you're at this spot. i mean, could that in narrowing probability could we be getting close to as little as maybe ten years out? >> you know, i don't know. >> conjecture, i understand that. but would it be reason to say financial -- if you believe the financial markets anticipate and we're going to get to a market in ten years where there's no money for interest and entitlements only, it could well be inside of ten years that we're looking at such a tipping point. would that be reasonable conjecture? >> certainly the part is you have to believe you're going to address it. that factors in. that's why the debt to gdp ratio alone doesn't tell you anything. you have to have some sort of credibility that it's not going to continue and it's worthwhile to continue to loan you money.

>> gentleman's time has expired. gentleman from arkansas, mr. womack, is recognized for five minutes. >> thank you, mr. chairman. and as my colleague from arkansas's already stated, your bio includes a stint at the university of arkansas. go hogs. welcome to the hearing room. mr. mcdermott, from the acting ranking chair's position a moment ago opened his line of questioning about your house. if it's okay, i'm a fellow arkansan. nice home? >> sure. >> you've already mentioned you took out a mortgage. was it the nicest home you looked at? >> no. >> so you looked at nicer homes? >> i dreamed when i looked at the other ones, but realistically that's what i

could afford. >> so there were nicer homes, bigger homes. >> yes. >> probably some in some gated communities, a lot of amenities you'd like to have had, you dreamed, so why did you buy the house you got? >> it's what i could afford and what i could -- it was a loan i could pay back. >> so when you went to the lender, they were interested in your ability to repay? >> that's right. >> how novel. were any of the considerations in what you were doing say maintenance and upkeep, utility costs, taxes, those kinds of things? >> oh, absolutely. that factored in our decision. >> you might have had kids going to college that might take a bite out of your disposable income, all of those things. and your lender he was interested in that too probably, wasn't he? >> yes. >> but as mr. mcdermott said, the house is a great investment.

so if it's a great investment, if it's something we ought to do as homeowners is buy a home and invest in those homes, stands to reason we probably ought to go for the best thing that we can without regard to our ability to repay. but what you've basically stated, and i know it's kind of a crudely simple comparison that i'm making here, is that the people that are lending you money for an investment like that are vitally interested in your capacity to repay that loan. and if you could not demonstrate a capacity to repay that loan, you're probably not going to benefit from that loan, correct? >> that's right. >> so as mr. sanford stated a minute ago and others here have stated, our creditors must be interested in our capacity to repay, don't you think? >> yes. >> do you think there's coming a

point in time that they may ask of us to start doing some things like looking at our budgets as everyday americans look at their budgets and start doing away with cable and expensive vacations and unnecessary costs that might be as mr. woodall would articulate to the consumption side and not necessarily to the investment side, don't you think our creditors are going to be expecting us to do that? >> yes. >> don't you think they're kind of looking at that today? as a matter of fact i think it's under this president's watch that we have taken the only downgrade in a rating agency at least in my lifetime, i don't know ever i suppose, and that downgrade was basically a reflection of congress' inability and the leadership of the country's inability to come to terms on a long-term program that would keep us from getting to the point where we're going to have to suffer extreme measures, is that correct? >> i don't want to speak to their decision. i don't know what their decision was based on, but that certainly

should be a consideration. >> in the remaining time i have, and it's already been said a number of times, but one of the things that frustrates me as a member of congress is our inability to completely wrap our arms around the solutions that are going to take the long-term implications of all of these programs, whether they are investment grade or otherwise, off the backs of the next generation. and when i looked at that slide a minute ago and i projected out to 2032, i've got a 2-year-old grandson this month, before that young man can vote the debt load and the amount of pressure that the mandatory programs are having on the discretionary budget will be more than we have to be able to even afford discretionary programs. and that young man even before

he has a chance to vote has not had one thing to do with creating that problem. and so i'm like the rest of my colleagues up here, i'm in search of solutions. and i think the time to do it is now. and i yield back. >> gentleman's time has expired. gentleman from kentucky recognized for five minutes. >> thank you mr. chairman. welcome, mr. hall, on your position. wish you well and look forward to working with you. one of the things i won't say keeps me up at night because i have a very easy time going to sleep, but what i think about a lot is how did this body which moves at its optimum efficiency at about 10 miles per hour can make policy in a world that's moving at 100 miles an hour. and this manifests itself in so many areas that we deal with in the energy field and education field and medical field where things are changing so rapidly. and those obviously all have repercussions for government and the taxpayers and our federal budget. i remember several years ago

when treasury secretary geithner was here and we were discussing these long-term projections about deficits and costs of medicare and medicaid and so forth. and i asked him at that time how reliable would you say projections going out 30, 40, 50 years would be and he said i don't think projections past five years are reliable. of course that doesn't make your job any easier. and nor does it make our job any easier. but in your statement talking about the transparency of your modeling that's kind of the segue to that issue. and i am concerned about how somebody in like cbo would model forecasting in some of these areas when things are changing so rapidly. just look at what the changes in the forecast of health care costs and the medicare viability have changed in just the last few years.

and obviously you've had to go back, cbo's had to go back and revise forecasts and projections and so forth. so i guess my question is, we've talked about modeling and asked questions over the years about how cbo reached these various conclusions. and i don't think that any of us really understands how that process has -- comes about. and now that we're going to use dynamic scoring apparently both on the tax side and on the spending side, it seems to me that there needs to be a great deal of consultation with the congress about the modeling that is used. and i know that that risks putting that question into a partisan dialogue, but i guess my question would be how do you plan to continually modernize

your modeling system? and what if anything should congress be able to -- what input should congress have in your modeling decisions? >> sure. to me one of the fundamental things that we need to do especially with something like dynamic scoring is transparency. we don't want to produce a dynamic estimate and give you nothing else except a number so all you can do is criticize it's too big or too small. what we want to do is be transparent about what model we're using, how we're characterizing the economy. and we want to interact really with experts. we've tried very hard to do that. we've been doing the dynamic modeling for a few years. we've talked about it with our panel of economic advisers. >> i would rule out talking with us, but go ahead. >> well, we're happy to talk with you. we've given presentations to staff many times. we're happy to do that.

and, you know, the whole goal we all kind of have the same goal, i think, and the goal is to produce the best estimate possible. and i think the dynamic part of this helps us produce the best estimate. >> the only thing i would say before i yield is that the problem is that your estimates while done with the best of intentions and done as "-z7 accurately as you can make them are still highly inherently flawed. most of them are going to turn out to be -- meantime we have to make investing decisions or taxing decisions. and in the case of as mr. mcdermott talked about earlier medical research, we may miss some real opportunities to do something that will not only benefit millions of americans but also have an incredibly positive impact on the budget. looking at things like alzheimer's research which all accounts indicate are very close

to yielding some real significant progress curing that disease and reversion of the mental deficiencies. and we should be in my opinion investing far more because the downstream savings is roughly $200 billion a year spent on alzheimer's would be worth it to achieve. thank you for that and i yield back. >> gentleman's time has expired. gentleman from new jersey mr. garrett recognized for five minutes. >> i thank the chair, i thank you for being with us here today. i just came from another financial services hearing on xm bank and that hearing made me think of something in this, are you familiar with the writings of frederick bostia at all? >> i know the name a little, but i don't -- >> this applies here sort of as well, seen and the unseen. seen is the immediate and it unfolds with causation. the unseen occurs over time and unfolds over a period of time. in thinking about that on the

way back over here i don't know if he got his writing from earlier writings but if you go back to earlier writings we are focused on the here and now we should be focused on the eternal. if you focus on the here and now that is only transient. we should be focused on the eternal. and i think about all that comes into play when we're talking about spending and our debt, what is transient and what is eternal. now, you have or rather the cbo's office has in january put our their budget and economic outlook projections. and if you look into that and see what is seen and what is not seen but public debt will reach 79% of the economy by 2025. and this is a question i've asked before and answers are always no, i assume you'll say the same thing. when the cbo takes into account the potential for other things, do they take into account other things when they come into those projections or just work off of a baseline? the answer is yes they work off

of a baseline, or do they take into account for such things as potential for future war, potential for emergency military spending that we just can't foresee? the answer is? >> no. >> right. do you take into account or did they take into account with those projections future recessions that may come in the future and the answer is? >> no. >> no. because you can't see them now. do you take into account future large expenditures for new government programs that we just haven't even thought up yet? and the answer is? >> no. >> right. so we've seen and what we get as a report is only what we hear and now and know, but those other things are not considered in the actual report, is that

correct? >> that's right. >> so if any one of those or all of those things occur, the actual projections would be what? a lot -- >> different. >> different. and actually if you did those expenditures on future wars, future recessions, not only different they would be how would we classify them, worse off i would say. >> right. >> what other ones do we take into account the interest rates are not as projected but they are because of these factors or other factors could be higher than what we're projecting now. >> actually, on that one i'll tell you yes because the long-term budget outlook one of @ the things that we do to worry about just exactly what you're talking about as we go through some scenarios w@a$n÷ rates are higher, what if interest rates are lower to give you an idea of how our forecast changes. >> i thought your idea was going to be yes on that. so if the cbo forecasts are correct in ten years we will be

spending $827 billion on interest payments alone, give or take a billion dollars, is that correct? >> yes. >> and how much could we be spending -- or what could we be doing with that $827 billion if we were not spending it just on interest payments to investors and banks? >> not my decision, but -- >> in other words the answer i guess is we would be spending a lot more on all the other things we talk about spending on whether it's infrastructure or health care costs. >> right. >> or if you believe in educational costs, all those other things could be funded by it. but we can't because we'll be spending it on -- >> on the debt. >> on the debt and interest payment. and also in this report the cbo projects federal tax revenue will grow, so upside by $3.2 trillion over five years up to $5 trillion and 25%, that's an average over 4.5%, 4.67% is your projection, is that correct? >> i'll give you one caveat. we assume there's no change in marginal tax rates from inflation. so we have the bracket creep in there. and whether or not you think that bracket creep would be allowed.

>> so things could be actually a lot worse? >> that's right. >> again, but even if they stay the same our projections on spending side are what? worse than that we'll be spending more than that increase in revenue so we'll be continuously getting into a worse situation than we are right now is that correct? >> yes. >> so the seen is what with know as far as what we spend. the unseen is what? the eternal. and the eternal in this case is on our children and our grandchildren and what we can actually foresee is a future increasing debt and an eternal debt for them of a less prosperous and growth of economy for our children and grandchildren, is that correct? >> gentleman's time has expired. dr. hall, i want to thank you for appearing before us today. please be advised members may submit written questions to be answered later in writing and those questions and your answers will be made a formal -- a part of the formal record. any members who wish to submit questions for the record may do so within seven days. we look forward to working with

you in the months and years ahead. this committee stands adjourned.

with live coverage of the u.s. house on c-span and the senate on c-span2, here on c-span3, we complement that coverage by showing you the most relevant congressional hearings and public affairs events. on weekends, c-span3 is the home to american history tv with

programs that tell our nation's story, including six unique series. the civil war's 150th anniversary, visiting battlefields and key events. american artifacts, touring museums and historic sites to discover what artifacts reveal about america's past. history bookshelf with the best-known american history writers. the presidency, looking at our nation's commanders in chief. lectures in history with top college professors delving into america's past. and our new series real america, featuring archival government and educational films from the 1930s through the '70s. c-span c-span c-span3, created by the cable tv industry and funded by your local satellite or cable provider. take you live now to the senate homeland security committee as members look into tsa oversight. the hearing titled first hand and government watchdog accounts of problems at the tsa. the chair being seated now.

ron johnson of wisconsin. the ranking member tom carper of delaware. >> good morning. this hearing will come to order. i want to first welcome our witnesses. thank you for your very thoughtful testimony you've provided in written form. looking forward to your answers. i want to point out that this hearing is necessary. i think it is unfortunate that, you know, some information was leaked prior to our ability to really completely analyze it. we want to make sure that as we're asking questions as you're answering questions, that we don't reveal classified or sensitive information to give our enemies information to harm

us. but the fact of the matter is, if we're ever going to solve any problem -- i've said this repeatedly from this chair -- we have to recognize and acknowledge reality. we have to describe it. the purpose of any hearing under my chairmanship is that in the end, following the hearing, that every member of the audience takes the first step in solving any problem, which is admit we have one. certainly as i've been reading the briefing, as i've been thinking about the struggles of the tsa since it was first established, understanding how it's got two missions and they're by and large almost completely contradictory. on the one hand we're looking for 100% security to keep airline and -- not only airline but all public transportation 100% safe and secure. on the other hand, we're looking for complete efficiency so the lines don't backup. we're looking for efficient

throughput through the system. it's an enormously complex and difficult task. because of the leaked information -- and inspect general roth, i got to commend you for your independence, for taking a hard look at this, doing the inspections, the investigations that i think are appropriate. we're finding out that contradictory goal, we're not meeting both of those. not by a long shot. so certainly with secretary johnson, with inspector general, with the acting tsa administrator now and the tsa nominee, i've had some pretty serious discussions. i've asked them to completely analyze the problem, start thinking outside the box. we need to look at more effective solutions and we have to start prioritizing what we can do that's going to improve security in the most effective way. an example i will use is after 9/11 a pretty simple solution

is provide us the greatest security so airlines can't be used as the most effective weapon, being able to fly into things like the world trade center. that was just locking the doors and securing the cockpit door. but we found out with germanwings that's not a complete and total solution either. it creates some unintended consequences. again, the point i'm making is this is an enormously complex and difficult issue. we need to approach the solution soberly and honestly. i would like to ask unanimous consent to have my written opening statement written in the world. also point out we had another witness, mr. jason harrington, unable to make it due to illness. he was a transportation security officer at the chicago o'hare international airport from 2007 to 2018. he submitted written testimony in preparation for this hearing. i ask unanimous consent to put his written testimony in the record as well. i would like to read a couple

stats that describe the difficult mission of the tsa. tsa is comprised of 46,000 transportation security officers. 20% of the tsa employees are veterans. that's a good thing. i'd almost like to see that increased. tsa screens nearly 2 million passengers each day. 2 million passengers each day. nearly 660 million every year. that is an enormous challenge and task. tsa screens 1.1 million checked bags, 3 million carry-on bags for explosives and other dangerous items on a daily basis. tsa used more than 700 advanced imaging machines at airports nationwide. tsa is responsible for the security of 25,000 domestic flights per day, 2500 outbound international flights per day. it also secures 4 million miles of roadways, 140,000 miles of railroad track 600,000 bridges

and tunnels, 350 maritime ports, 2.6 million miles of pipeline. again, it's an enormous challenge. so we need to recognize that reality. again, take a look at this problem as one that's a significant challenge and talk about it as honestly as possible if we're going to really find solutions. with that, i'll turn it over to our ranking member, senator carper. >> thanks, mr. chairman. thanks for bringing us together today. thanks to our witnesses. good to see you all. thank you for your attendance, your preparation, and your willingness to respond to our questions. few federal agencies interact with the american people more on a daily basis than does tsa. men and women who work there have a very difficult but extremely important job. last month i spoke on the senate floor about two women who have dedicated their lives to keeping our aviation system and its users secure by working for tsa. in fact, one of these two women

was shot in the line of duty and showed up for work the very next day. every day these women and their colleagues, thousands of them around the country, work in a very challenging environment to keep our aviation systems safe and for those of us who use it safe and secure. we don't do enough to acknowledge that and to thank them when they do their jobs well, which is almost all the time. while i believe it's important for us to recognize exemplary performance when it's done at tsa or throughout other parts of the department of homeland security more often than we do, this committee also has an obligation to exercise our oversight responsibilities when performance falls well short of that standard. thanks to our witnesses before us today we've been alerted to a number of instances where performance by tsa and its employees appears to have been disappointing and even troubling. just yesterday, for example, we learned from the inspector

general that 73 individuals with possible links to terrorism have been granted credentials to access secure areas of airports across our nation. last week, of course, we learned about significant vulnerabilities at passenger screening check points uncovered by the inspector general. the reported failure for detecting prohibited items at check points are more than troubling, they are unacceptable. i look forward to reviewing the department of homeland security inspector general's full report and recommendations later this month, later this summer. that said, i'm encouraged by the swift action taken by the secretary of homeland security to address the inspector general's findings. since 2011, transportation security administration has transitioned from a one size fits all screening philosophy to one that's more risk based. that approach is designed to allow tsa to deploy its limited resources to the areas where we face the greatest threats. however, as the inspector

general and gio have identified such a swift transition may have created vulnerabilities to this system. given recent reports, it's more important than ever for the transportation security administration to have a permanent senate confirmed leader in place. i thank the chairman and his staff for working so quickly and cooperatively with my staff so that we can move the nomination of vice admiral, which we'll examine at a hearing tomorrow. with that, we look forward to the testimony. thank the witnesses for appearing here today. grateful that the current front line employees who joined us today to discuss the prospectives of how to improve tsa. one last personal thought. my father used to drive my sister and me crazy when we were kids growing up by saying some of the same things over and over and over again. one of these things he said over and over again is if a job is worth doing, it's worth doing well. he said that hundreds of times, maybe thousands of times. and out of that, i took this

lesson. we should be focused on perfection perfection. we'll never get there, but that should be our goal. and if it isn't perfect, we need to make it better. clearly some things are going on at tsa that fall well short of perfection. our job is to help you get closer, help them get tsa closer to that goal to better protect the people who use the airlines, including all of us. thank you so much. >> thank you, senator carper. i would only add to a request for perfection is the way you achieve is through continuous improvement. it is the tradition of this committee to swear in witnesses. if you'll all stand and raise your right hand. do you swear the system you will give before this committee will be the truth, the whole truth, and nothing but the truth so help you god? thank you. please be seated. our first witness is john roth. mr. roth is the inspector general for the department of homeland security. prior to serving as dhs' inspector general, mr. roth was director of the office of criminal investigations at the

food and drug administration and also had a decorated career as a federal prosecutor with the department of justice. inspect general roth? >> chairman johnson, ranking member carper, and members of the committee, thank you for inviting me here to testify today to discuss our work examining tsa's programs and operations. before discussing tsa's challenges, i'd like to acknowledge the tsa whistle-blowers i join on this panel today. we are grateful when tsa employees as well as employees from other parts of the department of homeland security are willing to step forward to identify problems within the agency. whistle-blower disclosures have saved lives as well as taxpayer dollars, and whistle-blowers play a crucial role in keeping our department efficient and accountable. we review over 16,000 complaints per year more than 300 per week to better understand and respond to potential waste, fraud, and abuse in the department's programs and operations. with regard to tsa we face a classic asymmetric threat in

attempting to secure our transportation systems. tsa cannot afford to miss a single genuine threat without potentially catastrophic consequences. yet, a terrorist only needs to get it right once. tsa's thousands of transportation security officers conduct tedious tasks that require constant vigilance. complacency can be a huge detriment to tsa's ability to carryçs.ñ out its mission. ensuring consistency across dhs' largest work force would challenge even the best of organizations. unfortunately, although nearly 14 years have passed since tsa's inception, we remain deeply concerned about its ability to execute its important mission. since 2004, we have published more than 115 audit inspection reports about tsa's programs and operations. we've issued hundreds of recommendations to attempt to improve tsa's efficiency and effectiveness. we have conducted a series of covert penetration tests

essentially testing tsa's ability to stop us from bringing in simulated explosives and weapons through check points as well as testing whether we could enter secure areas through other means. we identified vulnerabilities caused by human and technology based failures. i am aware of the media reports regarding our most recent testing. although the details of those tests are classified, andly not be able to speak to the specifics of them in the hearing today, i welcome the opportunity to brief members of this committee and their staff of our findings in an appropriate setting. we've also audited and reported on tsa's acquisitions. our audit results show that tsa faces significant challenges in contracting for goods and services. despite spending billions on aviation security technology our testing of certain systems has revealed no resulting improvement. we've examined tsa's approach to risk-based screening. while we applaud the concept of risk-based approach in

transportation security, our audits and inspections have uncovered significant vulnerabilities, and we have deep concerns regarding the manner in which tsa manages this risk. this includes tsa's use of managed inclusion, its risk assessment rule in granting expedited screening to those who are not part of pre-check and the administration of the pre-check program itself. we have also examined the performance of tsa's work force, which is largely a function of who is hired and how they are trained and managed. our audits have repeatedly found that human error often a simple failure to follow protocol every time poses significant vulnerabilities. we have also looked at how tsa plans for boorks, buys, maintains and deploys equipment. these weakness have a real impact on transportation security as well. tsa has taken some steps to implement our recommendations and address security vulnerabilities. nevertheless, some problems appear to persist.

while tsa cannot control all risk to transportation security, many issues are well within its control. sound planning and strategies for efficiently acquireing, using, and maintaining screening equipment, for example, would go a long way towards improving overall operations. tsa needs to have a better understanding of the limitations of its technology and develop strategies to counter those limitations. better training and better management of i tsos would help mitigate the effects of human error that although+ eliminated could be reduced. taken together tsa's focus on management practices and oversight of its technical assets and work force would enhance security as well as customer service. this concludes my prepared statement. i'm happy to take any questions you or other members of the committee may have. thank you. >> thank you, mr. inspector general. our next witness is rebecca roaring. ms. roaring is the stabt federal security director for inspections at the

minneapolis-st. paul international airport. during her 25 years of government service she's also served the federal aviation administration as a federal air marshal and civil aviations security inspector. >> chairman johnson ranking member carper and members of the committee, thank you for inviting me here today to discuss important security concerns related to the tsa and security at our nation's airport. the mission of tsa is to ensure the freedom of movement for people in commerce which is undeniably a difficult challenge. it is also the mission of tsa to protect the traveling public against terrorist attacks. the ability of tsa to execute its mission has been called into question by many oversight groups. my testimony today will focus on a number of the security concerns and agency policies that result in vulnerabilities in morale issues across our work force. over the recent years, tsa has hired into leadership positions a number of former airline executives and others who place more emphasis on customer service and passenger wait times

than on security and detection rates. any wait time that's deemed by the agency as excessive requires immediate reporting, a thorough analysis, and corrective action. conversely conversely, the local monthly testing of our officers to determine their ability to detect weapons and explosives not associated with any performance metric. a tsa officer may never be subjected to a covert test based on the current volume of the assigned tests each month, limited resources and the volume of our officers. the regular testing on the regular basis the lack of leads to complacency in the workforce. this is a direct result of covert testing at numerous airports identifying detection rates that cause great concern.

leadership recognize that port detection rates are related to the poor morale across the workforce. the 2014 employee viewpoint survey resulted in tsa receiving more than their fair share of low marks. our front line employees feel strongly the work they do is important and they are not involved by the leadership. the job of tsa officer is a challenging one with a great deal of pressure and scrutiny. a culture of fear and distress has been created in the agency. this is clearly documented in the results of the survey. equally as troubling are security gaps associated with the tsa precheck program. while a risk based approach to security scening is essential, tsa

tsa, in the fall of 2013 i expressed my concerns of the precheck, and i later reported the concerns to the officer of special counsel for investigations, and my allegations were substantiated in a report titled security enhancements to the precheck initiative. tsa is handing out precheck status like halloween candy in an effort to expedite passengers as quickly as possible despite self admitted security gaps being created by the process. the program did not meet the expectations in terms of volume therefore precheck rules keep expanding as a matter of efficiency even though the agency is well aware of the associated risks. as documented in insider reports, some form of screen something conducted on cargo, and catering supplies and

checked baggage and passengers there are other airport employees that have access to sterile areas of the airport who are subjected to only criminal history checks and this group has unimpeded access to aircraft, and tsa has increased the use of playbook teams recently with the focus on insider threat. at many locations and in my experience the federal security director is reluctant to initiate enforcement reaction against the air carriers, and a conflict of interests exists when they provide upon the air carrier to provide certain services. additionally transportation and security inspectors are being used by the fsd to provide a wide range of duties not related to their core functions like

moving bins at the check points, and determining such items as whether or not there is hand so that in the rest rooms or if the staff is friendly. these audits should be done by a officer rather than leg latorre inspectors. tsa uses prohibited personnel practices to pressure employees to resign when management wants them removed from the agency and when allegations of misconduct happen, they must be referred to the office of inspection. it's a waste of taxpayer dollars to use criminal investigators to conduct routine aep administrative

investigations and destroys"íbb the6wwn morale and work trust of our workforce. the culture at tsa is of fear and mistrust. while they cannot control everything at the aviation security, they are in the position to impact change. if a)é5: tsa employee feels valued and respected the matrix will reflect this in a positive way. tsa should eliminate security gaps created by precheck and dhs should consider the inspectors avoiding conflicts. this concludes my prepared statement. i welcome any questions from you or any members of the committee. thank you. >> our next witness is robert mcclain. mr. mcclain is a federal air marshal that blew the whistle about a tsa alter.

he is currently a federal air marshal based out of the los angeles field office. >> thank you, chairman johnson and ranking member carper and other members of the committee. it's a great honor to be here as an active duty tsa federal air marshal. due to my case that finished before the supreme court four years ago, dozens of tsa federal air marshals come to me with their concerns about aviation security threats. this is a huge responsibility. being a voice for those who are tasked with stopping terrorism. many are tired of the complaints and want their tax money spent wisely on realistic measures. the 9/11 attack should have

proved how volatile it is inside a pressurized tube traveling 40,000 feet up in the sky. the marshal's biggest concern bombs. if a terrorists group puts thought into it it's easy to sneak bombs on to jets to blow up at high altitude. that cargo includes food drink, condiments cooking oil and cleaning products and then all of the packaging that goes with it. then you have all the dense stacks of newspapers and magazines and books. this mountain is nowhere near getting the screening that passengers are getting at the checkpoints. a bomb smuggler will hide a needle in a heywagon before

sneaking a steak across a pack of wolfs. get exhausted air marshalled out of airline chairs and deploy them deep inside the bowels of the train stations and airports to do traditional foot patrol such as the uniformed viper teams and the uncover red teams. when i flew missions i tried to find that terrorists but instead of interrupted strugglers. tsa pre-check with the improvements that were pointed out should be greatly expanded and should be free of charge. more people in pre-check frees up resources to focus on attackers. i would like to see tso's roaming airports with mobile

precheck application kits and so lititting passengers during delays. in order to get more air marshals on the ground you need to secure the flight deck or cockpit where pilots are in control of the jet. every flight deck should have a modified shotgun, and they are ideal since the primary concern is to stop an attacker trying to force the door open. in a highly unlikely miss, start gun pellets will not harm the air graft or passengers. once again, this is highly unlikely. but it's possible. armed pilots are not allowed to carry pistols on international

flights due to restrictive handgun laws in foreign country, but a shotgun to stop one or two hijackers trying to break into the cockpit from one foot away it is an extreme hazard whenever a pilot opens the flight deck door to use the hraf tory or get food and drink. an attacker can dive inside and destroy the jet. there's a cheap and simple solution to this. horizontal cables to a pole, this barrier buys the flight crew plenty of time to get the pilot back into the flight deck and unlock the door. in order to control unruly passengers every cabin should be equipped with restrain