we see this go on in europe right now. and of course if this is combined with either being in a recession or just coming out of recession those are the kind of changes you generally wouldn't want to make. the involve raising taxes and or cutting spending which is it stimulus of and not helpful to the economic recovery. but what is remarkable in the work of the oecd and other academics who looked at this is sometimes putting the policies into place actually starting to changes if you are at a point your interest rates are going up very quickly or more important announcing it and committing to can help bring down interest rates because there are two audience as we are talking about. audience of the international global credit markets and the audience of people in the street, the decisions you will be making are affecting their real lives. as of the benefit of the announcement is that you can deal with these twin challenges the do have been regularly together a sluggish economy and

a huge debt overhang following the financial or fiscal crisis in a way that the actions that you will take on the road as they are credible will help the opposite environments take place at the time. so we've seen that in many countries. none of them are like the u.s. because of the u.s. is the safe haven we don't have interest rates going up. ually he would use this to bring interest rates to come down. our goal is to keep them from going up. what we know is you could wake up tomorrow and it turns to push up. we are trying to keep themdown. the low interest-rate environment i think is one of obviously it is good in many ways in the recovery but it's one of the hardest factors because it is pulling people into the comfort zone. we can borrow cheap, the markets are telling us we are fine we don't have to worry about is why are you worrying about the fiscal situation? we need to worry about the economy. well, this is only as rudy likes to say because we are the best looking horse in the contract early. this is not an acceptable reason to think we can keep investing

-- that's good, right? [inaudible] [laughter] so, you can't assume that we are going to continue to benefit from lower interest rates because it isn't an earned low borrowing it's just relative to the other -- what's out there. so the announcement effect is geared towards letting the markets understand what will happen and it also has to be made in the way the policies are so transparent that the people will understand what's coming to happen to them, buy into it and hold politicians accountable. i think that barry can speak to this but in all of these countries where the fiscal rules have worked it is the norm that have made them work it's not because of the peterson pew commission can design a seven-point trigger plan that will keep the budget on track. it's because the country understands why we committed to giving this route and what metrics to look up and sort of trust the leaders to report how we are doing and have that be where the accountability comes

from and once it's become a public norm that it's been so effective and stayed in place so i think then you are trying to insure market and where the future is headed. >> i would only add one thing to maya and that is the importance of credibility in at the announcement affect. as i say i just was at oecdin paris and came back a couple of months ago. during that time we actually had a very good relationship with and dealt quite a bit with greece and not long before i left, we set up a eeting to have with agrees treasury officials in athens we called them up and said okay we will be there in a couple of days. they said i'm sorry we can't have the meeting we have to postpone it and i said why? well, we will be on strike. i dealt with the treasury departments around the worldnd that was the very first time i ever heard of any treasury official going on strike. he was all that i think if you

follow the greece situation periodically. the day had a number of announcements that had no affect at all because they lack credibility. it wasn't until they actually started to draw blood and stood up to the strikes and things that they were having in athens that you had in the announcement effect but it took quite a while. so i absolutely agree with everything maya said with the addition of importance of crittenden. >> one thing on the credibility you want to ' most of this to deal with what is going on in the economy but can't ' all of it. you actually have to take some tangible steps immediately an again that is why you want to look at the ones the wouldn't hurt the economy by you need in a down payment on the plan to show that when you say you're ing to cut spending and what shall we are going to cut spending. it can't be promises of the future that is the piece of the credibility i think. >> so you talk about sweden and health care and i assume all of the world people are dealing

with this issue of increasing technological and health care as well as aging. what have you seen people do that is instructive to all of us? >> in the budgeting ideal extensively with as you know numbers and i always put up this one chart in the oecd chart that is the most amazing and that it shows total health care percentages as a percentage of gdp for the oecd countries and we just ke the top ten. the difference, the number one country is the u.s. with 16%. the number two country is francis s. switzerland i think they are tied and sometimes they go back and forth at 11%. and then all the other countries i think the oecd average is below 9% at 8.8. my point here is that you look at statistics long enough even

in an international perspecive you'd never see differences between number one and number to that large. it's just exceptional. so, now we take a look at what we've just done. what we have done is provide my children and grandchildren who until recently didn't have health care coverage they are going to get health care coverage of which i am very happy. but we have done is also take the 16% and moved it up. we haven't attacked the major issue is why we are at 16 a the next is at 11 and as i said i just lived in france the last five years. i kept my federal employee health benefits plan because you can't get it back. but i never used the past five years because i had a combination of employer and french state andas much better in terms of my out-of-pocket cost and the coverage wasn't bad either. so i am now able to compare

first hand the two systems. i just don't see the 16%. i just don't understand it. so my comment to you with respect to this and maya had discussed this from the commission, e medicare and medicaid health issues at large are just so incredibly important when you look in e out years. but they are important even now. we have to look at why we are at 16% and look at the fundamental reasons to get us down to a more reasonable level. >> can i just add one quick thought? what do those countries do differently? >> well, i am not a alth care economist, but i think there are three elements that are worth noting. one is malpractice insurance that they have a much different view with respect to how they handle malpractice. the second concern is the flip side of that and that is a product liability which is how

they handle product liability. and the trd has to do with a single player plans and the way that we adjust. france flexible as a single payer plan but the health care provided by private doctors and hospitals and things like that the tax laws basically encouraged if you will the overconsumption of health services at the expense of the taxpayer needs to be looed at and is much more complicated than that and i am not an economist but those are three areas. >> mr. becerra? >> thank you. you've been asked to please foive me and i will try to go right to the questions. spending, we were talking quite a bit about spending. we spend with her through the budget through the corporation process and more and more we spend through the tax code i think you mentioned the tax

extenders. when we talk about controlling spending do you also control including spending to the tax code? >> yes. >> most definitely. one of the things i mentioned as i have praised the swedish system and controlling that but they did not do that tax expenditures and now they have to revisit that because they've been doing what we've been doing putting spending of the tax code and you have to control it that way. speckled peterson will be recommended the next summer not with certainty every single budget rule that applies to spending, whether it triggers or caps more scrutiny performance measures must apply to the tax expenditures as well. they are spending for the tax code and if you don't fix them you will have a portable back door spending problem. >> it might be instructive to of the presenters could provide us with some of the lists of things that they think we can -- i

would say attack but looking to because many of those items are very cherished items, some are less the cherished but vigorously defended by those who receive the benefits of those tax expenditures and tax shelters. so any comments you might be have would be helpful and also to tweet those, you may not want to get rid of the mortgage rate on homes but there might be some you would revise it so we can make it at a good incentive but still reduce the amount that is expended. >> conwell with great excitement present the list of the tax expenditures and reforms and i think it is perhaps the most important area of the budget reform. when i came for this session that you are -- co-chairs safra last month one of the things i was asked to do is present ideas on how you could get to what ever did stabilizationtarget you pick. so i submitted a whole plan i

will go ahead and resubmit and then i will actually put forth a lot of plans on the tax expenditures and it's important to recognize there's some of the most cherished things because people think they are getting something. tax time is pretty miserable looks at the home mortgage deduction or other kind of credit. but they are one of the most detrimental pieces of the tax code and reforming them will help us raise revenue and much less damaging to the economy. >> i think that it's aazing to someone who is an outsider like me to look up the tax expenditures and realize ever total taxable income wha comes into the income tax is about a trillion dollars. and our total tax exenditures are about a trillion dollars. >> 4.2 trillion. >> it is hard to believe how it has grown but it is something that we have to a device as part of this but to go to senator baucus of that's all right and then congressman -- >> if you can come back for the cond knott. thank you.

>> thank you. i am curious what other countries do with respect to their tax gaps. we have atax gap in our country of based on the 2001 data i think that is most recent for the composite data $40 billion that's about $340 billion of income legally owed but not collected. and i think the payroll tax gap is in the nature of $60 trillion a year legally owed not collected, and it seems to me that we shouldspend some time on this and figure out how we collect some of that. i would sure like to take other measures to address the deficit is that it seems to me somebody should focus on this tax gap. i think the american people are

appalled when they learn that. they pay taxes fairly, most of them, and if they hear others are paying to the tune of three injured $40 billion a year, you know, that's -- something's not quite right. and i'm curious what to other countries do about that? what do other countries tax gaps and how do they reduce the gap oro they add -- at all? ..

>> they have a better ability to add taxes which are mh more significant in every european country than it is ours in the u.s.. we have sales taxes, and they are easier to collect, and i'm not an expert to say whether that is in fact true or not. number two, even if it is true the compliance issues are better, that still doesn't meenl

they have worse or better with respect to their income taxes, and virtually every country has both. >> right, right. mr. chairman, i just think we should look at the tax gap as a partial solution here. >> thank you. to what extent, maya, do the proposals that have been made take into consideration the issue of income inequality in our country? the "wall street journal" reported that the top 0.1% hold 22.2% of the wealth and the bottom percent of households hold just 4% of the nati's wealth, and then there was just a recent study, an economic

security index report by the rock feller foundation, you know if you've seen that that explored, it measured the share of americans who expeence at least a 25% reduction which is the equivalent loss of three months of income of their inflation adjusted available household income from one year to the next and lack an adequate financial safety net to replace st income, and in 2009, the report found that one out five americans fits into that category. i've been asking for -- what's the word now? help me with that -- distributional analysis, there we go, applied to everything this commission might impose because we talk about joint sacrifice, but a lot of people have been sacrificing for a long time, and, you know, i think

probably compared to most other of the countries that we're talkin about today that we have the greatest income inequality of most, if not all. >> well, i thank you for the question because my other hat at the new america foundation as i run the fiscal policy program and a number of years ago when they were not paying attention to fiscal concerns, i spent my attention efforts on increment of equality, which is a large problem in the country and it's growing and troubling. i think i can say thinking about all the other outside efforts that are out there, and certainly the work of all the people who i've had the pleasure of working on policies with, one of the principles that is a starting point is we have to protect the people who are most vulnerable. it is clear that by shared sacrifice it means everybody has to sort of be involved, and there can be no sacred cows.

it can't mean balancing the back on people who can't afford -- >> which is a slightly different question because it seems to me the.01% versus the 90%, we might want to make sure we don't cut safety net programs, but should we be concerned about this distributional difference in oury? >> i don't see how no one could be concerned. there's short term redistributional programs and long term perhaps that can help. we have been shortchanging the piece of our budget because we overemphasized spending. we put, i believe, .84-cents. of course these problems are been generated over time.

many of the programs are fa more targeted towards people who need the ben benefits than they are here. we have large programs that give money to everybody, and if i were thinking about how to restructure those for the major changes we have to face, you would want to protect the people who depend on them while scaling back on the places that we don't need them as much, and that's why i think it's so important also we do make something like social security solvent that we know people depend on. you can't have them up in the air, but i think every discussion -- this inequality problem is a problem and the final point i'll make is on the revenue side. they have to go up and for people on the high end quite significantly, but i think there are pledges out there without any tax increases on people that

just don't make sense. again, these things have to be shared sacrificed and also understanding what parts of the budget reflect our national priorities and are most important investment priorities to deal with the income inequality. >> thank you. are there other questions? i know representative becerra has e. >> thank you, mr. chairman. i wish i would probe deeper on the issue of tax expenditures. i mentioned just one. i think the mortgage interest reduction has been valuable in helping us move toward home ownership, but there y be things to do to the tax expenditures and whether it's that example or another would be helpful, mr. chairman, to have thoughts on all tax expenditure. your thoughts on statutory a you talked about, maya, you mentioned, we need to

demonstrate a real commitment to fiscal responsibility, and it has to be not just words. you mentioned it has to be in law. it is now in statute and it used to be a rule in the house or in the senate, now it's engraved in our statute and can't be changed unless congress overturns it and the president allows it. at the same time, statutory dent stop us with paying if we find an offse you still could end up expending resources on a particular item or function, but at least at the same time you find a way to pay for it, so you're not doing anything to increase the size of the fiscal deficit for the year or the overall nationa debt, but your comments on the statutory whether it's good or if it is not good enough, what

do you mean by having something in statute? >> so, i would say statutory pago would be the bread and butter of process reform. absolutely, we've seen it work in the past and it's a piece of the future. a couple points about it. i think it has to apply to both sides of the budget. we are on the same montra. if you exem t taxes, fine -- >> weid include the tax side in our statutory. >> yes, so it applies to both sides of the budget and that's helpful. i have to take issue with the number of things that are exempt. for shifting priorities you can do something if you pay for it. that's what it should be. our budget needs to reflect changing priorities.

i don't think anybody at the table looks where we put the dollars in the country and say this is the right reflection of our national priorities. we are short term oriented now. but whatever somebody's priorities are certainly should be able to change where you spend the money as long as you offset the cost. i do think the large, large loopholes in extending the tax cuts right now means we are allowing ourselves to dig the fiscal hole much, much deeper when we know we can't afford to. i'm one of the people w believe we should consider expanding them temporary with, and this has to be with, an iron-clad commitment if they are offset. i think planning on borrowing for the extensns is very, very dangerous. >> thank you. >> your comment on -- even if we broaden statutory

pago to include revenues without the exceptions, it doesn't affect the long term debt problems it's good a necessary, but it doesn't do that. that's one thing peterson commissioned and maya head up, but in this sense coming out with it'sual that you have to have discretionary caps, but you also have to look and i think maya said it in her comments, mechanisms to get you to a debt not greater than 60% of gdp in 2018, so a dual system, thank you. >> senator simpson? >> i was interested in the maive material we get. if i recall correctly with regard to social security old age and survivor's insurance and disability insurance were originally quote, separate.

they've been blended now and they ride together, but if i remember there was a statistic that disability insurance had doubled since 1980, and i'm not even suggesting anything in regard what you described as to why that was. i think here in this country it's people physically work and exhaust themselves, but what is your thought as to -- and, and, here's the one. this little program will be broke not paying, you know, 50% or 75 in eight to ten years. that's the figure i recall from my twisted pile of stuff that i churn through, and what is the reason for that and what is the extraordinary inability to

address what is a critical program which won't go paying 75% of the benefit in 39, it will blast off. >> i've been fortunate enough to be a speaker at a number of the universitieso college students, and one of the subjects injoy talking about is social security, and one of my speeches i gave to a group of young people not long ago -- >> don't give us the speech today. >> i wanted to summare the speech, so i hnded o a big box, and in the box were lollipops. i told the people to take one, and they looked at it and said this is a summary of your speech? i said, yes, it is. if any of you in the room feel you're getting full social security benefits, you're a big sucker like what's in your hand. my point is social security is tremendously complicated and

though reporting of it is complicated. there are three ways to look at it. the most common way that you mentioned senator, is the accounting or trust fund way that talks about mchs like that. it should be done. another way is the budgetay of looking at it. you take a look at the social security, how much money comes in, goes out, what it adds to the budget. that's legitimate and should be done and is done. the third way that is done the least is the economic way of doing it. by that, when we look at social security as part of our economic system, we're trying to talk about our standard of living. we're talking about stainability. i think there needs to be much more discussion about social security as an element of that. when i think of my grandchildren and think about them and what they're going to get and have to pay for social security, it's not just the accounting

mechanism, osi, that's should done, but that's just one part. it's not what it does to the current bument, but it's what it does to our overall standard of living. >> i would add that with social security, it's so clearly a essential component of retirement security, and it is so clearly on a path that's unsustainable, and we know what the trustees tells, we have to make changes keep this important program balanced over time. we'll hear if a week the newest numbers, and they're bound to be bad, and i think it's this constant warning the sooner we make changes to this program to return it to solvency, the earsier it lob to make changes. if ever there's a part of the budget that needs to make sure it's protected, it's people who are disabled and unable to work, that's what an insurance program

needs to focus on. i think retirement is a host of things. social security is one piece, private savings, finding ways to help people with productive aging. all that is important. i think what i find most disturbing about social security is people say it's the easiest of all the problems to fix, and i've tried to come up with a plan and it's doable. it's not quite that easy. it's more than numbers. it really affected people, and i think it's become such a heated topic because i don't know, i guess only it's become the third rail. as soon as we touch things like mortgage reductions and we'll see social security is ears easier, but we need to tone down the rhetoric on it. what's helpful, i think, is if there was some kind of agreement for people to acknowledge what the trustees tell us. changes have to be made to social security to preserve the program for the future and

encourage all ideas to be put on the table and come up with options to have a discussion about whether it should be retirement age or something else. all of those are options to be discussed, and i hope we can discuss it because we need to make changes to preserve the program. >> my question is disability insurance and the figures i have seen is that it will end, that it's not a payable benefits like the social security when we get to that point or scheduled benefits will not be paid and payable benefits will be paid which are going to be 25 something percent less, but dibility insurance from everything i have discerned will end. there won't be any injection of schedule versus payable or anything. is this correct?

>> what the congress does is blend it in. >> right, i know they're blend it, but that takes more out of social security. >> it won't terminate -- >> but it takes it from social security. >> my understanding is that for the total 0asdi k i believe the law says there cnot be made payments unless there is moneys in the trust fund, and if there isnsufficient moneys in the trust fund, then at least the examples we used based on law, you pay proportionally for what's available. if the trust fund can only pay 80%, everybody gets .80-cents on the dollar. i believe that applies and that may be what you're referring to, senator. >> thank you. >> if we can go to representatives. >> briefly, there's a lot of things said today.

thank you bothor being here. we just in recent few minutes spent a lot of time on tax expenditures. i think that's important that that is a piece of what we're looking at. clearly that is something we should look at. i don't think that alone will solve all of our problems. i just would like to hear you both comment on, you know, our broader tax situation where basically half the people pay no taxes in america, and then it's been done by both administration republican and democratic where people are receiving more in taxes than they pay in income and rrpt making any considerations to social security or medicare, yet going to be receiving, as they should, benefits from those programs, but as we talk about tax expenditures, we have broader tax concerns too i always like to hear your comments, and also

i don't really know whas meant by a short term redistributional program. i don't know what those terms mean and i would li to hear what you meant by that comment. if you keep your answers short because we want to turn to reports and we have another question left. >> okay. so, i'll answer your question about redirks first. there's program safety net programs to be protected when there's high employment and income inequality. i think those are important places to protect, and that's my value, and exactly, safety net. on the tax code, we are going to have to look at fundamental tax reform. the first point is there is no way to get to any reasonable or crediblebjective whatever you pick. you can do as much as possible

and you should, you can do as much as possible on entitlements, and you must, and i still don't think we can get there without a revenue piece of the pie. it becomes important that revenues are raised and done in the most ficialt way possible, so that's why tax expenditures comes up so much because that swiss cheese base is a disaster for efficiency, but other areas i would look, is i've been fan of progressive con consumption tax with rates. i think energy taxes is a very right place to look in the budget. my personal belief is if you do a good enough job to have room in the budget for sweeteners, and that might be a heavy lift, i would recommend a corporate tax rates that's bad for the budget. but you need to find ways to raise as much money as possible by taxes the things we want less

of, not more of. i think the first step is going to be broadening the base, and that's tax expenditures which is why there's focus on that as well. >> congressman, i don't understand payroll taxes. by that, if you take a look at the distribution of income taxes in the u.s. by quintile they haveegative and get back more from the tax system than they pay in. goodness, that changes a lot when you take total taxes. that is payroll and nonpayroll. you take a look and that they e largely regressive, the poor pay more. why do we have that system? why do we have a system to look at income taxes separately from total taxes? i don't understand why -- if we're going to have an income tax, fine, but why we need

payroll taxes over and above those two, why not build them in the system to have a different tax system. i applause you in raising ts issue, when you don't look at the distribution of taxes by income alone, but look at the distribution by income and payroll. >> representative schakowsky. >> if there was not broadcast mr. foreman anderson, i would leave this, but for you to suggest to young people that social security somehow will be significantly diminisheand they are suckers to believe otherwise, i think is a distortion of the history of the program and the commitment of the congress to making sure that it's there. i bet you there were people, young people in particular in

1950 who thought, are you kidding me in 2010, there's going to be social security for me, i doubt it. i think that is the most cynical to go to college campuses and to pass out suckers to people when we're going to make sure that social security is a significant part of retirement security for generations to come. that is a position, 77% americans agree that it is critical we preserve social security for future generations even if it means increasing contributions to national security. that's a poll from the social insurance, so i don't get that, and i just wanted to push back on that. >> i abbreviated my comments. i will add one minute. i said to them after i passed out the lollipops that let me be

clear, i think you're going to get full, dollar for dollar every dollar youare eligible for with in social security. the government is going to take away from you in much different ways. they're going to tax more of your benefits which they have done already. they are going to change things such as the retirement age, which they have done already. my parents could we fire at full benefits at 65. i could only do so at 66. my children will do it at 67 or something like that. they are going to change the cola provisions. they're going to do a number of others so i was very clear -- >> you know that? you assumed bunch of things that is not in your domain to decide. >> i was giving a speech and it is my domain to express my opinion, and that's what i did. [laughter]

>> thank you, i think it's a good time to turn to questions. i will say that if you go on a college campus today where i live full time and you take maya's balancing the budget simulator which we've done, and i have a former president of university of chapel hill, they balance the budget much quicker than you will, it makes your head spin. they get it and understand what we're facing, and what they can't understand is why don't you get it done to come back and do your real job at chapel hill. >> thank you. i want to now turn to the reports from the various comments, and if we could start with, i think the revenue reforms is t best to start with because we have both . kent and mr. conrad here. i've never seen two people work better together, the staff worked together, it's been

totally non partisan, and i appreciate what you've dne. >> just briefly we have had two etings in the intervals that we hav not reported on. on june 30th we had mr. sterile y to report on the tax gap which senator baucus referenced. they are more than a trillion dollars a year and that the tax gap is more than $50 billion a year based on outdated numbers. no doubt it's grown significantly since then, and these are things that require a focus on our work. mr. sterly was at the treasury in the 1986 reforms, and he urged us to take a comprehensive approach to the reform and to do it based on principles that is improving efficiency, improving

the competitive position of the unitedstates, and improving fairness. it had to be based on principles and that it needed to be bro based reformed. on july 24th we had two experts, . many of you remember dr. maren as former head of cbo. they gave a broad we view of tax reform proposals by category. they did it by specific proposals including members on this commission, so they talked about senator gregg and senator wyden's proposal and senator ryan's and others as well. they gave us a very good review of alternatives both in specifics and in categorically. let me just say. my own conclusion from this is

that we really have a tax system that is badly outdated. it no longer relates to the world we are in today. this tax system was constructed at a time we did not have to worry about america's competitive position because america was dominant in the world. now we face determined competition, and we really need to think about how the tax system affects the competitive position of the united states because of the role that plays in future economic growth and the economic strength of the nation and economic opportunities that all of our citizens will enjoy, so my conclusion is we have a tax system that really is does not fit the circumstances we confront today either in terms of generating revenue that's necessary or contributing to the competitive position that's absolutely citical for the

country going rward. >> i think the other point you made, senator conrad, at the same time is that the current tax system was put in before capital was as mobile as it is now, and that as enormous effect as to where revenue goes. >> that has an effect in where we live in today. that has to be kept in mind. also, i indicated my own view is the tax system is only collecting 80% of what's owed. you can get more revenue without a tax increase per se by collecting more of what's owed. the vastmajority pay what's owed, so clearly, the mast majority pays what is owed. i bet everybody here pays what they owe, a vast majority of the american people are, but we hav a system that em hemorrhaging revenue. >> we have a tax gap.

>> well, i don't have a lot to add. that's a good summary a well done. just to say that we also, in addition to evaluating all of these different tax proposals, they also gave us some advice particularly dr. sterly on the process and how to address the changes, but i agree with what senator conrad said that was reflected in the presentations we got. it was interesting he felt it was easier to pursue a broad reform than to try to pick and choose among different tax breaks. i'm not sure that is the reality of it, but that was the advice we got, but also we're obviously taking that information and as we evaluate these preferences and otherax policy items and planning for the next meeting,

and i thought it was an cellent presentation that really helped bring us along and said all of the things about our tax system that we really aren't prepared to compete in the 21st century with our current system both internation and domestic policy. >> # i want to thank you yr two staffs again. i've never seen two people work better together and i wish people could see these publicans and democrats working side by side on what's a difficult problem. i would add that i did see an article in the "wall street journal" the other day and he implored this commission to go after tax expenditures. he said if you don't you're really not serious about controlling spending. if we could now here from the discretionary groups, senator cobum had to go out.

i can't overemphasize the amount of help he's given us and chairman spratt, if you would summarize, we will read the statement. >> sure. well, we had a lively conversation about various options for the discretionary spending a least for the enforcement for discretionary spending. we had guest speakers withan open and free-flowing conversation about work in the past, what sort of numbers we would use for the normal number which is the prescribed growth rate. it's easy to look at percentages of gdp and using the past and average those up to the future, but it's not clear exactly how much we should be spending on discretionary spending. we certainly didn't reach any conclusions as to tha we did agree, i think, i would at least maintain that the budget enforcement agent of

1990, revisions in 93 and 97 were all extremely useful experiences and budget processes helped us reach our goal and bring the budget to balance for the first time in 30 years. they were not what we propose here, but it's important to remember the discretionary limits are only one part of the budget deals. they work to some extent, and ultimately to full exat the present time in 1997, but they also work because pago played an important role on the mandatory side, and also plays an important role on the tax reduction side. one clear area we have to ge some attention to is exactly how should we present what our commendations might be here. do we have specific cuts we propose or do we put a cap on all discretionary spending, and if we do cap it, do you have

walls like in the past or an ag gri gaited amount? obviously, we don't reach any conclusions there. i think the general consensus in the room was overall limits would be more appropriate than specific cuts, but they would be amplified with specific cuts ill los straiting whaftion in the range of political feasibility. any discretionary proposal must include war spending. today we spend in real terms, real dollars more than we spent at the peak of the career of vietnam. not the second world war, but it's a significant sum of money. even though the budget assumes as the president presented it that after 2011 there will be a reductio of $160 llion to $50 billion and that's a plug number not based upon any particular policy position or

strategic position. it's something to give attention to if we're going to give a proposal here. in addition to setting a limit what are specific cuts we have in mind and secondly with respect to war what's the amount and how to bring it down, do you bring it down, what's the amount in do we have fire walls for that and for diplomatic expenditures, foreign aid in addition to defense spending? all in all, we have had a good conversation, but i think everybody left the room with more clarity what's at stake, but not closer to consensus. we have clarity, and that's a good sign. we had a good discussion, but the discussion showed how much we got to work through in order to make senseible and sustainable proposals. >> thank you, sir. bruce reed is going to read the

statement. >> senator cobum had to leave to attend a markup. as chairman spratt said there was a fruitful discussion on a number of issues on finding a pass forward for producing significant savings on the discretionary side of the budget ledger. we are beginning to make headway in 120 billion in savings and more than double spending levels ten years ago. mostembers of the working group agreed discretionary spending caps to limit spending and wasteful programs targeted for elimination will be necessary to reign in discretionary spending. in addition, we need to address the inappropriate use of emergency spending to avoid the caps and the implementation with all recommendations. it will be important to establish a fire wall to ensure

any unforeseen savings in defense and nondefense savings are applied as a slush fund by congress or the agencies. we directed the staff to spend the month of august for us to consider at the next meeting in september. at that point we begin the tgh conversation about eliminating low priority spending and finding real savings in the budget. we face a $13.2 debt and 10% unemployment. it's time for serious action. it will not be easy, but have been given the job by the president eang taxpayer and every child in the next generation and they are counting on us to make difficult decisions and cut the deficit. >> he's been enormously helpful in this, just enormously helpful like chairman sprat. we did spend a lot of time on

enforcement, and one of the things we discussed that wasn't mentioned this morning is t sessions mac mccaskill bill, but it's for a supermajority for enforceability. we'll now go to the mandatory report and congressman becerra. if you would report that, that would be great. >> thank you, mr. chairman, and i'm reporting for dr. rivlin who is not with us today. we were very fortunate to have both the senatorrings from medicare and medicaid here provide a presentation along with the congressional research service on mandatory spending programs. they a foster focused on medicaid, medicare, and overall

health care expenditures. he indicated between 1976 and the year 2008, we saw substantial increases in the cost of health care within both medicare and medicaid and with private insurance. medicare the cost grew from 10% of all health care expenditures to 15% from 1976 to 1978. medicare grew in 1976 to 20% in 2008 and private insurance grew from 24 #% of all health care expenditures in 1976 to 34% in 2008. mr. foster pointed out that health care costs are growing faster than the economy, something most of us already knew, and this is the result, he mentioned a number of factors, but two he pointed out that should be of interest to us are

the important advances that have been made in health care delivery, that improve and save lives, things like the medical devices used today, and he also pointed out that part of that growth in health care cost is due to improper use of services or overutilization. mr. foster mentioned as well overall cost in the private insurance market are going faster thanmedicaid and medicare although as was pointed out they provide health care to folks who are elderly, disabled, and the poor. ms. levitt reporting from the research service gave a excellent presentation o the nonhealth nonsocial security portions of the federal mandatory spenting site things like veteran, earned income tax credit, the unemployment benefit

program, and pointed out a number of areas to make changes again making sure we take a hard look at any unnecessary or ineffective programs as we go about doing the scrutiny that we must on all aspects of the budget to find savings where we can. it was generally, i believe, a robust conversation and constructive on the part of the two presenters and something to help guide us as we move forward. >> thank you very much. mr. ryan. >> there's nothing i can really add, but it's pretty interesting i think we had a fresh analysis from medicare and medicaid since the passa of the last health care bill. we have made is clear we have different opinions of the health care bill, but leaving those aside, the actuary was situation are the health care programs and the primary drivers are excess

health care costs and aging of the population. those are the things that are the primary drivers of the fiscal problem. there was a service of this in pointing those out, and i think we had a good frank discussion about ideas on how to get this under wraps. >> thank you. we have one minute to go. if i could yows -- >> take the ole minute. >> i just want a half minute. i just want to ask you please let us hear from you during this recess. we need whatever additional questions you have. we want to make sure the staff has a chains to answer them. we want ideas you have to vent them over in the month of august and what options you want prepared over the recess. please let us hear from you. we have four months left for this commission, and some of you have some plans for the month of

october, i think, other than this commission, and our staff wants to make sure we get a chance to work hard over the recess so that we can hit the ground running in september, so pleaseet us hear from you. we plan to work and work hard in the month of august so we can make presentation to you all and ke real decisions beginning in september. thank you very much. >>r. chairman, just a quick point. over the recess if we could get the distributional tables to members, and i would say as we're trying to make these decisions on what to recommend to congress, knowing where we were, where we came from, where we are, and where we want to go, will be very constructive. we may want to take a close look or take sises sores to a program because of the size, but if it hasn't been a driver of these budget deaf deficits i'm not

sure we should go there. we should knowhat's driven us towards these massive budget deficits, and i think that requires us to know where we have come from, where we are, and where we want to go. we need something that essentially tells us if we are looking at mandatory spending or discretionary sending or revenue, let's see where we can take it so it's in perspective. >> everybody thinks it mes sense to look at a distributional table and we want to so we know the impact it has on any person. i think we want to avoid the blame-game at all costs because we got to look at going forward, but also the pas the present, and the future. >> thank you very much. >> thank you, thank you so very, very much.

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