♪ ♪ >> it is almost reminiscent of windsurfing in 2004 with john kerry. parks he was kind of a rebel as a young man. he liked third bikes. -- dirt bikes.

he comes across as a button down republican type your good -- republican side. but is not huntsman writing buckner region riding the dirt bike. -- doug is not huntsman riding the dirt bike. >> good morning. i really curious as to what is going to happen with the gop'. sooner or later the gloves are going to come off, and they are going to be at each other's throats you're a good -- and throats.

>> in the last surveyed, nobody went after mitt romney, and he is still a front runner. you are right. and watch the next debate. i think we will see many efforts that show the they could be aggressive. tim pawlenty is going to have to be aggressive. if nobody goes after him then, why are we having this race? >> we are also in iowa and tomorrow. what does michelle bachman bring to this campaign? >> she brings a lot. she brings charisma, fund- raising ability, of diversity.

there is still a lot of excitement around her candidacy. she did very well in the last of faith, but can she really ride into the caucuses? >> tomorrow, we examine the state of the u.s. economy as lawmakers negotiate a deal to raise the debt ceiling. we talk about the threat of homegrown terrorism and the book "the next wave and." who retired -- a retired brigadier general talks about afghanistan. >> c-span has launched a new web

site with the latest events from the campaign trail, switcher feeds, and facebook of state, and links to media partners -- which her fetus -- twitter feeds, facebook updates, and links to media partners. >> later, a committee meeting. after that, " the q&a" with russ roberts and john papola. >> you can access our c-span radio applications with spaniction books and rac- history. it is all available round-the- clock, wherever you are.

now available, a complete guide to the first session of the 112th congress. inside, new and returning senate twitter andcluding switze information on supreme court justices. >> the joint economic committee held a meeting talking about ways to sustain growth. the president and chief economist suggested ways to help sustain growth in manufacturing. this is the first in a series of meetings they plan to hold on manufacturing. it is about an hour and 15 minutes. >> the committee will come to order. we are going to go in and order

we normally do not have, which is we will have statement after our first two witnesses. we will first start with the senator, and i will do an introduction of our first witnesses. he is the chair of the senate agricultural and forestry committee. he is also member of the finance committee and the budget committee. she serves as co-chairman of thus caucus and was free and -- was appointed by president bush and president obama. she has sponsored many initiatives to revitalize our manufacturing sector including advanced manufacturers but is bringing jobs back to the united states, and i want to make sure to mention she resents the state

of michigan. -- represents the state of michigan, and she is proud of the. i know she was a mentor to a new senators and continues to serve. i would like to welcome to representative charles by us from new hampshire's second congressional district. -- charles bass from new hampshire's second congressional district. he served on the board of managers have at new england -- of new england and one of the leading producers of clean- burning wood pellets. he previously held the same seat in congress from 1995 until 2007, so we will start with the senator. we are grateful the senator and congressman are with us today. >> thank you so much.

it is really wonderful to be with you, and i want to thank you for recognizing the importance of manufacturing in this country and having this hearing. this is an important hearing, and i appreciate our friendship and how you fight for pennsylvania, but i very much appreciate that you are both focused on manufacturing in this country, so thank you. we understand this is a critical issue for us, as it is for your status. in order to have a middle class, i firmly believe we need to make things and grow things. the jobs are here. that is something that makes sense to us. we are proud to be the heart of

manufacturing. we are proud of the middle class in this country, but for too long we have seen the companies competing against countries right now. we first started with japan, and then it allowed when automobile companies to move more quickly in terms of hybrids and electric vehicles, because they were investing in that, but we are now seeing china, and we know there are a thousand different ones in china. germany has a manufacturing strategy, all of which they are aiming to compete with us because they want what we have, a robust and middle class and a

strong economy for the majority of their citizens. in the year is between 901979 ansel to an -- 1979 and 2009, michigan has lost more than 300,000 manufacturing jobs in the last 10 years. during that time, countries like china have been investing heavily in emerging technologies and to steal it from us. they do not seem to understand patent laws, and we have a number of different challenges as we work in a global economy, but they have certainly been focusing on renewable energy, and we have been watching that happen. in the next 15 years, and will invest $15 billion in advanced battery technology to compete with us. japan paid for almost all the initial research for toyota to complete their vehicles, and

japan invested $20 million in solar energy. part of the manufacturing strategy is stealing intellectual property and putting up barriers to american manufacturers, which is part of what we need to address in terms of fair trade, the ability to have doors open and to have their rules apply on both sides so breaking down trade barriers is there a important to us. we need to devote additional resources to trade enforcement, and there are a number of bills senator gramm and i have introduced to be able to address thought as well, but we also have to be able to make strategic investments in clean energy technologies. president obama telling us to put 1 million of electric cars on the road by 2015. aquino said we can create jobs in america and get us off for an

oil and address a number of other issues, including national security, so i would urge as we look of a pattern for what we have done, and the last two years we invested $2 billion in battery innovation. the fleas to tens of billions of dollars in private investments, while other countries are investing in -- that leads to tens of billions of dollars in private investments. we are seeing new jobs and new industries developed. by 2015, we will have the capacity going from 2% of the world of french battery manufacturing to being able to produce 40% of battery technology because of the public investment unleashed to work with the private sector. since 2010, we have created nearly a quarter of a million

manufacturing jobs, and that is the first increase in a decade. why? because we have done a few things. i will briefly say we have done a number of things focusing on clean energy, both advanced clean energy loans to make sure capital is available. you mention loans but have allowed a number of companies to bring back the small vehicles, the ford focused electric and other options. they are bringing jobs back from mexico related to that because we've partnered with them to retool plants, so whether it is a factory innovation, the tax credits, we are in a situation where we are beginning to see

some changes because of investing. the only manufacturing we have right now is a 30% credit for clean energy in equipment and building that we past two years ago, and i would strongly conclude by saying we should strongly invest in those things that have begun to work. we are seeing more companies. they have enabled companies in 43 states to be able to open and expand into new kinds of technology, and let me just say one final thing, and that is while china has five no. 10- year plans, our policies are too unpredictable curio -- unpredictable. for our private sector to have the confidence to invest, and

those are major investments. to create jobs we need longer- term policies, and i truly believe if we make the right investments, and partnering together in a global economy where every single company is competing against countries right now, we will reinvigorate and creative and advanced manufacturing economy -- create an advanced manufacturing economy that is critical to a superior >> i should have mentioned that your full statement will be made part of the record, and that would apply to the congressman as well. go >> i appreciate the opportunity to testify before the committee today. my home state is an excellent example of a state with a

diverse economy and excellent manufacturing. we have low unemployment. we have a highly educated, highly skilled workforce and a lower tax rate and 49 other states in america. good and we have an economy that benefits from those factors. i hope my perspective was a manufacturer and representative of the state's could be useful in the discussion. we have a large employers employing more than 5% 0 eog -- 5%. my and use -- my ancestors settled in the mid 1700's. it was a miserable existence.

they took sheep and so forth and started making clothing. throughout the next stool hundred units -- 200 years, the economy took off. in the early to late 1990's, new hampshire was no. 2 for high- tech employees, and where are we today? we are hoping to be able to lead the way in the development of technology in the area of alternative energy. it is one of my objectives. we survived because we have an environment where we create the ability for manufacturers to drive an environment of supports

entrepreneurship. -- thrive in an environment of supports entrepreneurship. the need for good environmental control, good access to profs -- products, were that is valid for and need not to tie down and they are spending for unnecessary labour to meet regulations that are not necessarily in the best interest of anybody. i ran in 1994. i went to the xerox machine, and there was an an enormous placard that explained who after after chapter about how i needed to do this or that to copy paper because the toner might harm the forever. i had been using this machine for 10 years.

we have to put that up there. it is part of the rules. i said, something is wrong here. we own manufacturing facility that is in full compliance with osha. then mosha appeared. were's regulations different from osha. we did not know which ones we were supposed to follow, because we might be in noncompliance. this is not paid for manufacturing in america. i am as in favor as anybody of a safe workplace, but we have to apply a level of cost benefit to the interrelationships between government and manufacturing. i watched shows on television. there is one called "how it is

made," and it is really extraordinary the level of sophistication in america, and everyone of those shows is about how diversity can be. if we can balance regulation so the consumers and working americans are safe, yet we can compete with other manufacturers around the world, we will stay ahead of china of. we need to have a good competitive workplace. we need to be able to trade, and we need to be able to continue to have a well-educated work force. we do not need the government to tell us how to succeed in manufacturing. >> as is often the case, we have

a lot of questions, because i know you are busy. i just want to thank you for your testimony. i will submit them, but i know you have places you need to get to. >> thank you for this testimony. but as we look into how we keep this moving forward. i want to thank you for leaving office hearing. >> i will begin my opening so we can keep things moving in the right direction. first, i want to discuss

manufacturing in the united states of america, and the subtitle is why we need a manufacturing strategy. i am pleased to discuss the critical role and the actions congress can take to strengthen and revitalize the manufacturing sector for decades manufacturing has been a pathway to the middle class for millions of american families. we made world-class products for many years, whether it was steel or cars or furniture, and the people who made these products were paid good wages with solid benefits of the same time, but in the past three decades, more of these jobs have moved overseas to developing countries with abundant supplies of cheap labor. the unfortunate reality is our trade policies have failed to

protect our workers from unfair trade practices such as currency manipulation, loose enforcement of intellectual property rights, and a lax environmental protection in other countries. when we lose these jobs overseas, we lose jobs but we need, and we also jeopardize u.s. research and development as well as innovation, which created the opportunities in the first place. given the numbers tell a worrisome story. manufacturing employment peaked in 1979. 19.6 million workers. today we are down to 11.7 million people employed in manufacturing. that is 19.6 to 11.7, a decline

of 40% in those short years. the last few years have been difficult for manufacturing. this past month, the united states lost 5.4 million manufacturing jobs in those 10 years, including 285,000 in my home state of pennsylvania in those 10 years. most of these losses occurred between february of 2001 and february of 2009. 4.6 million u.s. manufacturing jobs disappeared in the. we have regained some of the jobs lost. they have added 250,000 jobs.

we need to do a lot more in months and years ahead. this hearing is about how we build on progress and lay the groundwork for future growth in manufacturing. it is clear we need to take action for both the immediate and long term benefit of just over the horizon. a starting point should be a national manufacturing strategy, not just a set of policies here and there, but our real policy. the u.s. has been silent. the u.s. needs to develop something for small and large businesses in this strategy.

in must insure we are responding to new challenges and seizing new opportunities. this will allow us to coordinate resources and maximize afford. there are other steps we can take. we should make permanent research and development tax credit to give the certainty they need to make long-term investments here in the u.s. it is time to crack gone on china's currency manipulation and other unfair trade practices so american companies and workers have a fair shot. yet the undervaluation of vanilla yuan provides as much of -- of the yuan provides as much as 40% to the chinese. it is as if you give your competitor a 40-yard headstart. defense fair, and

we should not let them get away with that. currency manipulation is costing jobs, and it needs to be stopped. we need to stop talking about it and do something about it. we must help workers who have lost their jobs based on for foreign competition, and we need to find new strategies to increase employment. in pennsylvania, almost 24,000 people receive healtlp taa provides. it needs to be extended before we consider any trade agreements with south korea, colombia, and panama. earlier i introduced a legislations to extend trade adjustment for five years, and we need it. finally, we must continue to

invest in science, technology, engineering, and nafta. -- and masser. -- math. it is important so are real people are prepared for the high-paying and high skilled -- so young people are prepared for the high-paying and high skilled work of the future. manufacturing is still the heart and soul of our economy, even though manufacturing has declined since the 1970's. the u.s. has remained a world leader, producing 1/5 of manufactured products worldwide. we have not done enough to support and protect our excellent manufacturing companies and workers. it is time for that to change, and changing means charting a new strategy which will strengthen our economy and help create new jobs and new

opportunities, and i believe hearings like today can build a consensus of a bipartisan spirit and we can build us on a comprehensive strategy to strengthen our middle class. today as the first in a set of hearings to determine the strategy in rebuilding the base. we are fortunate to have this valiant sector of the american economy. we are grateful for their testimony. i will be introducing our panel members in a moment, but i

wanted to hear from chairman brady, and we are grateful that he made the turn these into this side of the capital today, and we are grateful for his opening statement during a >> thank you for holding a hearing on this subject. good manufacturing has changed dramatically. productivity has soared. what of 1000 workers to produce in 1950 now only takes a 184. today we produce 2/3 of what our country consumes. many are now important. the 1960's u.s. manufacturers .nd a 98% of america's shoes

new industries have risen such as computer chips. today products and machinery are the top five manufactured products in america. manufacturing remains an important part of our economy. u.s. manufacturers to produce about 12.5% of our gross domestic product and employ about 9% of our workers. your that creates nearly 7 million related jobs, many of them in small business. america leads the world in manufacturing output cover-up producing 21% of global products. china is second with 15% and japan is third with 12.

manufacturing accounts for half of what they saw as a country. today as europe struggles, regional indicators suggest manufacturing growth has stalled in many parts of our country. they are considering whether congress should adopt this strategy. it is a timely question. my concern is that industrial policy can change into central planning, which requires the placement of the invisible hand of the free market with the government, driven by understandable but often misguided considerations and outdated perceptions. it can result in undesirable corporate cronyism and economic stagnation. when industrial policy has

repeatedly failed. inevitably protects them to the expense of the consumer and ultimately of economic growth. if it keeps moving, regulate it. charles schultz observe, the forecast is the surest way, and protection measures are legitimate under the rubric of industrial policies. the likely outcome is that the losers would back the subsidies for the winner and return on the issues of protectionism. as we listen to business leaders, my thought is that

several manufacturing policies, they should raise economic votes in our country. cover should adopt a comprehensive plan to reduce federal spending relative to the size of our economy, reform programs to make solvent, and three in back into balance. cover should reform corporate taxes. good -- cover should reform corporate taxes. they should shorten the schedules for the building. congress should move to a territorial tax system, and until then, congress should work to make u.s. corporations repatriate stranded profits and provide financial stability at home. 3, find new customers for

american manufacturers. congress should immediately approved the outstanding free trade agreements with colombia, panama, and south korean, and seek more opportunities for american workers. number four, congress should repeal laws to drive up costs, such as the new national health care a lot and unnecessary regulation, to help erase a 18% cost disadvantage for u.s. .anufacturers cover should work now to reduce those costs in frivolous lawsuits. good -- congress should work to reduce these costs in of frivolous lawsuits. the final point, lawmakers and policy makers need much better information on trade flows while production networks better

reflect the manufacturing marketplace of today. traditional trade statistics fail to account for the trade in value. our bureau of labor statistics cannot identify and jobs gained in a loss -- gained and lost in trade. it does not reflect the changes in the fast-growing marketplace. real-world data is a bipartisan god i am convinced we can work together to achieve -- bipartisan goal i am convinced we can work together to achieve. i thank you for holding this series of hearings. >> thank you very much. unless there are other statements, we can introduce each of the witnesses, and we can go one by one. let me start with the audience's right and are left with dr. azandzandy.

he is the chief economist at moody's, where he directs for businesses, governments, and other institutions. his research include financial and regional economics. in addition, he conducts regular briefings on the economy. he is frequently quoted in news out los. -- news out los -- outlets. he received his bachelor's degree of the university of the full data -- of pennsylvania as well. we have a research fellow at the university, where he studies the u.s. economy. he was formerly the chief economist of the house ways and means committee and also served on the staff of the president's

council of economic advisers in congress. he worked on a variety of economic and legislative policy issues, including international tax policy and u.s. trade policy. he graduated from tufts university with a b.a. in economics and received his master's in math and monaco -- in mathematical finance. my wife is a massachusetts native, so i am glad i mentioned both institutions. we have the president and ceo of the national association of manufacturers, representing small and large manufacturers in every industrial sector. he became the national association of manufacturers president in january, 2011. he is a leading advocate for nearly 12 million americans

employed directly in manufacturing, educating the public and policymakers on issues that affect this critical sector of the economy. he previously served as chief of staff to a congressman, a governor, and to senator george allen from 1991 until 2002. he graduated from the ohio state university. welcome, and finally, scott is the founder and executive director of the alliance for american manufacturing. it was lawrence in april of 2007. it is a non-partisan, non-profit partners since -- partnership for leading manufacturers to explore common solutions to public policy problems such as international trade and global

competitiveness. he served as a staff member to the late representative from the state of indiana and a former representative from the state of wisconsin, and as the chief foreign policy and trade advisor to the then house democratic whip in the state of michigan. he earned a b.a. in foreign service in international politics from penn state university as well as an inmate from georgetown university school of foreign service. -- an ma from georgetown university's school of foreign services. >> thank you for the opportunity to be here today. i an employee of the moody's organization, and these are my views i am expressing. i did start my own company and grew into pretty vague size -- pretty vague business, so i have

been a business person as well. let me make two broad points. manufacturing plays a vital role in our economy in this business cycle and the economy more broadly, and that is some currently in the economic sector. manufacturing has been keyed to the economic recovery. in terms of output, manufacturing has accounted for over half of growth over the past two years. in terms of wages and salaries, it is about 1/5, and in terms of jobs, 1/10, although many of the temporary help trounce -- held jobs are on the factory floor, a

contribution is even greater than that. one other interesting point. manufacturers' cost contribution so far has been greater than any other economic recoveries since world war ii, so this is very important to our current economic prospects in terms of growth and output. manufacturing costs role is key for a number of other reasons. it is three important to middle income america. there are no -- it is very important to middle-class america. there are no better jobs than manufacturing. the average wage and salary for a current employee is just under $50,000 a year. that is the average across all occupations. the average for manufacturing is over $58,000 a year. the highest paying industry is

for mining with $90,000 a year. the lowest paying is for the leisure of hospitality industry, so manufacturing jobs are very important to support in middle income households. we need these jobs to help support the middle class. it is also important to recognize manufacturing costs role in many small communities across the country in many urban areas, particularly in pennsylvania across the country of ohio, indiana, and now i awoke, wisconsin, and from michigan -- io was, wisconsin, and from michigan, the region is. dependent. these are economies that are small. there is not a lot going on. these folks of lose jobs in these communities are stock. many of them are under water,

and it is difficult to move. i think it is very important to this part of the country to revise portman new factory, because this is key to their economic reports in manufacturing, because this is key to their economic 3 -- it is very important for these parts of the country to improve support manufacturing, because it is key to their recovery. one other thing about manufacturing is it is vital to innovation and productivity growth. manufacturing productivity growth has been about 3% over the past decade compared to 2% in the rest of the economy. more important, a lot of what is produced close to supporting growth in the rest of the economy. my business is an economic consulting, and i rely on very

sophisticated telecommunications even then and other kinds of computer data processing, and i could not do the without a manufacturing base. the point is the manufacturing is important. i am not going to go into details, but there are number of things policy makers can do to help support manufacturing. you mentioned the chinese currency. i think the is vital to address. nothing is more important for manufacturing then to get these currencies that are aligned. -- they are not aligned, and that is a competitive disadvantage. there are also policies to lower the cost of doing business. the cost of labor, the cost of capital, the cost of transportation and distribution. this goes to our infrastructure,

which is sorely lacking, and finally cohen -- finally, the cost of industry. we need to focus on trying to provide low-cost energy sources using natural gas resources that are clearly evident in many parts of the country and can fuel our manufacturing for a long into the future. i would be very happy to discuss a range of policy options, but i think you have an important role in supporting manufacturing for our economic future. >> i should have mentioned that your testimony would be part of this. you are close to the five minute mark. >> thank you. thank you for the opportunity to

discuss the manufacturing sector. my idea is to support long-term growth. i would like to support two things. >> first common -- first, productivity is robust. policy makers should seek to establish a broader economic policies that permit the u.s. economy to a false as dictated -- to evolve as dictated. manufacturing, of wide set of industries including food production has long been a significant driver of economic growth in the united states and abroad. total manufacturing output declined during the recession and has yet to recover, but manufacturing labor productivity increased 4.1% over the last four quarters.

manufacturing employment was hit particularly hard by the recession. nearly 2 million jobs were lost in 18 months ending in 2009, but manufacturing employment has been declining since its peak in 1979. we should not expect a sizable increase in employment in the sector, even as the economy recovers and output increases. the explanation is productivity growth. while the ability to produce more output with less labor input can reduce unemployment in manufacturing, such growth is the means by which our standard of living increases. the revolving similarly to the agricultural sector. -- they are evolving similarly to the agricultural sector. some conclude the government

should give special assistance to the sector. this is phil gustin 5. -- ill advised. policies like this can harm other sectors as resources are reallocated from one to the other. the importance of helping manufacturing is undeniable, but it is critical to realize manufacturing is but one sector of the economy. role of policy makers should be establishing a policy that permits the u.s. economy to grow as markets dictate. policy makers should not seek to develop targeted subsidies for narrow policies force of single sector. instead, long run economic growth should be pursued by improving the business environment by a whole. now this would benefit our

competitiveness and encourage growth across the entire economy and increased demand. it is important to recognize the policies. one clear indication the government has taken an interest in the sector is and the manufacturing initiative and antiestablishment of www.manufactoring.gov, the website i consider to be an oxymoron in a free market economy. this goes beyond dedicated website. the internal revenue code allows for producers to claim a deduction equal to approximately three percentage point reduction.

one way to reduce the distortion and mitigate other harmful distortion of the corporate income tax system would be to significantly reduce the tax rate. -- the corporate tax rate, replacing it with a significant reduction of perhaps 20%. thought would both level the playing field with manufactured production and improve the general competitiveness overall -- of all u.s. corporations. this is just one step in achieving a fiscal policy that would be a long-term benefit for the manufacturing sector and the economy at large. i cannot believe -- i do not believe we can subsidize. we need sound business policy to promote general economic growth.

>> thank you very much. i really appreciate the chance to speak to you about manufacturing in the united states, because i truly believe and the power of manufacturing, not just for families but in the country as well. my grandfather stood in line for six months of a local manufacturer, waiting for a job of that facility, because he knew what so many facilities know today, that the manufacturing job paves the way for the middle class. today i am president of the national association of manufacturers, and we are the largest manufacturing trade association of the country. we represent about 12,000 members and now, and we are the voice of 12,000 americans who work in manufacturing. i think it is safe to say we are

frustrated with the pace of recovery. manufacturing can lead to recovery. americans have created 14% of economic growth, but the fails in comparison to the 2.2 million jobs lost during the recession. the slightly brighter picture cannot be taken for granted. manufacturers such loss 5000 jobs in may. if they considered ways to improve the climate. will this policy held create jobs end achieve success.

other countries are racing ahead and leaving the united states behind. the united states is moving in the wrong country. the united states is standing still. -- the united states is moving in the wrong direction. we are behind japan, which revealed its rate cut. another concern is the regulatory burden. there 1 trillion dollar plus. there is trade. the colombia and panama free trade agreement has languished for four years. "the wall street journal" said columbia is looking to increase trade with china. they said the deal they want more than any other and columbia

can no longer sit with arms crossed waiting to act. this and will increase the already significant market, and we cannot allow this barrier to continue to stand. there are so many other policies causing us to stand still, but there are also policies are actually turning the clock back. excessive regulations continue to mount. the environmental protection agency has proposed standards. once those are on the book, communities across the nation would suddenly be in violation of the clean air are. many would have to put plans to be modernized on hold.

these new rules could cost as many as 7.3 million new jobs and add up to 1.3 trillion dollars in regulatory costs between 20. the and 2030. -- 2020 and 2030. we ought not to be unintentionally helping them do so. i cannot recall but i have ever met an american who complaints are country manufacturers to much. -- our country manufacturers to much. we have to take action. it should be designed with a specific purpose of making the united states of us plays to innovate, to manufacture, and should do business. i have outlined a number of surface of the policies that i invite you to review.

american manufacturers are unmatched in their resourcefulness. manufacturing is a place for a renaissance that can lead to a robust economic recovery, and our government must allow that to happen. >> thank you. i want to thank you for inviting me to testify today on behalf of the alliance for manufacturing, and i have to add supplemental materials into the record. this is a partnership formed by leading manufacturers and the united steelworkers. one goal is strengthening our nation's national security. we believe our labour management approach can help identify appropriate cooperation. i will say that the idea of a

manufacturing strategy is hardly a new concept. today's third of public policy is the exception, not the rule, they buy to our founding fathers. alexander hamilton started a policy that continued until the end of world war ii. globalization and economic policies have helped to steadily erode manufacturing as a percentage of gdp and other key measures. the idea is also not a partisan one. president reagan adopted a flurry of measures to help the trade relationship between europe and japan in the 1980's. they have a positive affect in

lowering the current affect over time. it sheet investments and other technical -- key investments and other technologies spurred by regulation. more recently, president obama and congress work together to help our auto business, which needed to rebuild and thrive. the effort was not perfect, but it was a necessary step to help support of manufacturing. as important as the step was, it was an emergency strategy and not a long-term effort to grow output. the case for a permanent strategy could not be stronger when one considers that no matter how innovative for competitive manufacturers may be, there are some problems that cannot be solved on their own.

research and development can be very expensive and hard to capture profits, for instance in advanced batteries. no single firm could possibly coordinate projects like this. firms need assistance for the production process. manufacturers often face barriers in accessing credits for innovation, and manufacturers need assistance in exporting as well as push back for unfair trade practices. we need this strategy because the fate is too important to be left to competing and ultimately unsatisfying theories as to why it has been declining. of competing and satisfying theorys of why it's been declining. the decline of manufacturing is not inevitable or desirable.

high regulatory costs or inefficiency. let's look at germany. germany's global shares of manufacturing outputs and exports have held steady over the past decade while america's have declined and china's has risen sharply. average manufacturing wages in germany is $48 an hour. in the united states they're $32. germany has a strategy for boosting manufacturing focused on skills, technology, investment, demand and centers. labor busiss, government and collaboration. aggressive trade policies that allow it to successfully compete. germany is a world leader in manufacturing and solar production because it wants to be and stake holders work together to make it successful. it matters more in germany than it does here.

what does america need to do to create more manufacturing jobs? im summarize these recommendations included in my written testimony. first, we have to deal with chinese currency manipulation. the benefits of gdp to employment would be extraordinary. second, we need to counter china's other cheating as rare earth minerals and the simple truth is when we act, when weapon stand up and enforce trade laws, we get results helping companies all across the nation, including those in pennsylvania hean in texas. send, we should retool the exposition. we should make tax changes.

as well as a number of members of the dias here. what we don't want to do is offset a corporate tax rate reduction with reductions and deductions for manufacturing. young estimates such an approach could give manufacturers a $48 million bill. and while well should eliminate dupelativeecommendations, winning a race to the bottom is something the united states doesn't want to engage in. sixth, we need to invest in infrastructure and establish a national infrastructure bank and finally we need a skills and training infrastructure that is far more advanced than it is today. thank you very much. >> thank you, mr. paul. everyone was close to their time. you were actually under time. pretty impressive. we're grateful for that.

i'll start the questions. our members of the committee know when their turn will come up. i wanted to start with you. i was glad you walked through recommendations because i think today we get a sense from everyone who has spoken from a microphone. there's more analysis than with could do. there's ways toe impruf t picture of manufacturing. i'll ask other witnesses as well. but one of the points you made, and you were able to make part of it. when you start on page 6 with the recommendations the first

one you make is, and i'm quoting, first pass legislation to allow american workers and firms to seek relief from the effects of currcy manipulation by china and other countries. using our economisting trade laws. unquote. later in the paragraph, y say that america would see a significant boost in gdp, up to 1.9%. 2.25 million more jobs and $71 billion annually in deficit reduction. and by doing ha? >> i'm sorry. let me turn on the microphone here. a number of economists. it extends. alan greenspan mentionedit. china's currency manipulation is one of the the most harmful policies out there preventing not only manufacturing growth and other industrialized and

industrializing countries. not only affects the united states, it affects countries like brazil. it becomes a vicious cycle that is hard to get out of. i will say a year ago cha valu what they want. it still remains grossly undervalued. somewhere between 0 pk and 40%. we have tools within our trade laws that we can deploy, that we've deployed on subsidies. that we've deployed against dumping with a couple of tweaks we could als apply to currency manipulation. and it could certainly produce results. but it would at least give our industries, our workers, a too and trade laws that they don't

have currently to deal with this unfair currency manipulation from china. a desired approach, and i'll be cand, would be for the administration to negotiate with china i haven't seen that willingness. we need to see congress step up to the plate. there's bipartisan legislation i would want to pass in the house of representatives. i think it's something congress should do immediately. >> i'm glad you focused on that. i think sometimes when people here folks like us in washington talk about china currency, i guess it can sound like, i don't know, a congressional complaint, inting a finger at a country. just as you and so many others have stated, if it's not the key

thing to do, it's in the top two or three. the evidence is irrefutable. you said as much as i and many others are working on legislation, we codo a lot right now. this administration can do a lot more to aggressively enforce the law. let me say for the record if your testimony, and you were referring to the economic policy, correct? if china appreciated their currency at a market bas level for the next two years, america would see a gdp increase of 1.9%, 2.25 million jobs. and a $71 billion deficit reduction impact. election say thing wrong by a little bit. if we got a fraction of that

from one policy it would be dramaticly significant. we'll get to more questions about th and other recommendations from the other three witnesses. i wanted to make that point. >> i think the policy will be to blam china. it is one in a plethora of challenges facing american manufacturing. many of them home grown, unfortunately. that's what this hearing has already revealed. it was a leader in the g20 to encourage to wind down. and begin to get their financial house in order.

that was the outline in the discussion that we wished we had listened closely to that. actually, i have 1.5 million fewer workers than when all the stimulus began. manufacturing struggling i four of our key reserve board regions. 6.5% this quarter. the stimulus missed my view by a mile. now we have 13.5illion people still without jobs. so i disagree with the assessment that stimulus has succeeded. so my question to begin with mr. timmons, listening to your manufacturing members.

to reduce the cost and regulations and barriers that would allow them to make private business investment, that allows jobs to be created. what is their view? >> i think if you enact legislation, it is a jobs bi. that's when you take out the cost of labor. it's an important distinction. our energy costs, our regulatory burden and our tort burden.

we can reduce the costs in barriers on our own. we can't schismly blame other countries. let's say china. the policies do make a difference. those are things, though, that are obviously more difficult for us to deal with. not things we should ignore, but the things that we can deal with. the other areas that i just mentioned. taxes, energy cost. regulation in particular. as well as opening, acting on the three pending trade agreements. and enabling the president to negotiate other trade agreements around the world.

>> congress is looking at policy, you mentioned trade. as you know it's not enough to simply buy american. we have to sell american all throughout the world. i fine the world tilted against the trade agreements. take one way trade into the united states and create a two-way trade and create jobs and sales. how important is it to pass trade agreements that level the playing field and seek more opportunities so the manufactures can compete and win those areas. >> it's critical that we have a trade licy. one that is reducing barriers and opening markets. as others noted and you noticed

yourself the pendi agreements before congress are lock overdue. unfortunately by delaying the implementation at the pending agreements, we're disadvantaging our ability to advance our exports and more concerning is the lack of tpa. the lack of the ability to create new agreements going forward. vetchry i hope to get the agreements that are pending. i'm concerned we don't have the tools for the new open markets. >> thank you, mr. chairman. thank you for coming in today, panel. this phrase of uncertainty may be overused. it's a term that i continue to hear as i am in my district talking to our informers a lot

of them are saying they're making more money. often times they will talk about the debt. they tl are concerns that have been discussed in washington. in my area, there's a lot of coerabout what's happening with the epa. we have a large products industry in my district. all those things are m coing together. they're saying they're creating uncertainty. they're not taking the risk they may normally take. not from the business side, but

from the government side of things is abilitying our willingness of manufactures to expand and grow. i'll throw it to the panel as a hole. want to take a stap? >> yeah, i think there's something to that argument, yes. i think that american businesses in aggregate are in very good financial shape. we have to make the distinction between very large companies and smaller companies, that would be well. but in their totality, they're profitable. profit margins are wide. they did an admirable job getting the cost down. it's no longer a question of can businesses hire more. it's a question of willingness. part of it is we don't forget that quickly. policy uncertainty played a role. some coto fruition in health care reform. i'm not speaking to the merits

of any of the policy itself. just the fact that we've gone through these. health care reform, financial regulatory reform. we didn't nail down the tax code until the end of last year. cap and trade immigration policy. card check. i do think that the policy uncertainty is fading. there hasn't been major legislative initiatives in the last six months. do i think the one thing, and i speak to a lot of business people in my work, the one thing that makes them nervous is they can't construct the narrative in thab mind as to this how congress and the administration are going to come to terms on the debt ceiling and ultimately on our debt situation. they're not going to fire

people. but they're going to be slow to hire people. th means potentially higher interest rates, potentially higher taxes. massive changes in government programs. those make things very nervous. >> i think we're seeing more manufacturers asking current employees to work overtime or they're asking for temporary workers instead of engagements in long-term hiring. also what you reference as the health care bill itself. what will it cost to hire this new employee? are you aware of the proposed legislation? in paper manufacring we use industrial boilers. at a time whene're under immense competition from china, which i think is unfair competition these are far fwov

already chinese standards. in the end they're going to drive american jobs over seas. we're all taking in the same water and breathing the same air. descending the jobs to manufacturing where they have far less standards than we do, it doesn't make sense. it could severely harm the paper industry. it's good that there's a bit of a delay there. but there are several other regulations coming down the pike. i've already mentioned the ozone regulations. there's potential regulation of carbon dioxide from the epa. the recent decision by the rb to cite boeing and tell them

where they can locate a production line. all these factor into a business's decision on whether or not to do business. are they going to immigrate or evaporate? i don't think anybody in government wants to see businesses evaporate or to immigrate. our yob is to deal with the tax code, which will expire the end of next year and deal with the real la toiroverreach we've seen from so many agencies. >> i would agree with that. i yield back the remainder of my tim time. >> as we talk about manufacturing policy, i will level the playing field as opposed to getting inlved in specific programs. we heard testimony before. i think one of you gentlemen

mentioned the japanese policies on advanced batteries. for every success story that a government can point to like that, there are more and more failures. i remember when i was a kid i thought e japanese company was involved. more recently heavily invested in plasma tvs versus leds. every time there's a success story, there's a lot more failures. the government simply doesn't have the information or the proper motivation available to make decisions on where investments are properly made. i'm a landscape level playing field type of guy. one the things that seemed to be consistent akrsz ul all your testimony was the importance of any government policy to allow more business to be more efficient, to lower the capital and labor cost. in order to encourage it t grow. you mentied specifically

something that i'm familiar with, having been in the housing industry about people being stuck in a particular location. is there anybody who diskbreas with that? good. like i said, i'm new here. i'm city trying to figure out how to find things we can agree on. as we sit here and say the free movement of labor and capital should be the goal of all government policies, is anybody here that wants to defend what the nlrb is doi to boeing? i'll take your sims as support for the fact that it's absolutely wrong. what's happening is the government is telling the busiss where it can do

business. as we talk about the manufacturing policy wharks can we do to encourage the labor and free-floof? i'll throw it open to the panel to see what to do to accomplish what you have suggested. i want to turn your question. in a pe kul your aspect of the united states is that we have a lot of interstate competition for jobs. i'm not saying it's unique in the word, but 's pretty unique. through incentives, either positive or reducing regulations between states.

ul matly we have to compete with mexico and china and other countries they willave lower regular costs. this is an economic development strategy. it doesn't mean the government telling you where you can put your factory. it doesn't mean that at all. it does mean some sort of a national national strategy and acknowledgment. the federal government will matcthat in a way to provide insentdive. that's what her countries do. i think the way you articulate is exactly right. i think that would define the national manufacturing strategy.

policies to help facilitate this free flow of capital labor. let me moe kus on labor for a second and give you a couple ideas that may help with respect to that. first is reforming the unemployment insurance system. manufactures have very high unemployment insurance costs. many states had to take on loans for the federal government to pay for their ui. and this bill is coming due. the cost to manufactures will be quite significant. i would also make broader changes to the usystem. a couple of times it's done so well is they have a work share program. so manufactures don't have to lay off workers.

they can distribute the paying among all the the workers by cutting back hour ls. so they don't lose very skilled workers and laborers in a recession. we should reform the system to allow unemployed workers to get the training. so the ui program is a really good place to work. second, migration policy. i think the hidden gem in our economy is the university system. it's going to take 100 years for anyone to recognize what we've done with the university systems. if any foreign student comes to the country, gets a degree by thuniversity of wisconsin, they iue them to stay.

third, thinking outside the box for you. # there's a really interesting noouchlt that i've observed among manufactures and universities. manufactures are saying, listen, i have a big skill mismatch problem here. myorkforce is old, it's aging, it's going to retire. the young folks are not interested in learning the skills. the companies are saying i'll give you money. you take the money. you hire faculty. build a lab, build an office buding. just let me have an input into your curriculum process. this solves a lot of problems.

it would be helpful in addressing the job skill mismatch. it's going to take work and with rmt to universities that are very sensitive about seating any kind of economic freedom. i'm there. i understand that. this would be a good way to solve a lot of problem. >> i know we're running low on time. but i wanted to ask you again about parts of your testimony, on dos and don'ts. we'll start with the dos. you mentioned great universities. i'm glad you said penn. when you mentioned ohio state, i wanted to make sure penn state was in there, too. >> that would be piling on.

but thank you for the reference to ohio state. that won't come out of the chairman's time. >> can you go from the dos and what we should do in your testimony? >> i focused on labor in the previous remarks. we can do things to facilitate, to low e the cost of capital with respect to lowering the cost of transportation and distribution which is so important to manufacturing in. also energy, as i mentioned. i would focus on two things. then i'll stop. i don't want to take up too much time. it needs to be considered in a comprehensive way.

so that we can bring down the marginal rates. i know there's a lot of debate about how the corporate taxes are. it's almost irrelevant to me. it's a plus if we can lower them. we can do that by addressing the swiss cheese in our corporate tax code. the other thing is going to small manufactures. one of the beauties is there are a lot of small manufactures tucked away that are very productive. they're very competitive. they're in lancaster or pittsburgh or ohio, wisconsin. all the forced product companies are not big. these are small companies.

there's been a lot of discussions about these companies not getting a loan. that's been an issue. i'm less concerned about that now. it's starting to improve. but one thing that worries me is the lack of equity capital. we don't have investor taking an equity stake in the companies. there's a lot of reasons for that. i think there's role for government to play here. helping finance indirectly through different means to pride equity capital. don't try to pick winners and losers, but let the professionals do it. let the marketplace do it. >> anyone else? i talked about the importancef corporate tax remark

i would like to endorse dr. zandi's comments about the values. it's an opportunity where we can improve the labor markets in manufacturing and elsewhere. with regard to your comments earlier about capital, i think it was an excellent point. we nood need to pursue strategies to facilitate them. that would include inbound investment. lowering barriers to encourage foreigners to invest in the united states. but we have to recognize the benefit to invest abroad as well. there are a number of concerns that i share with regard to china and their activities. china is a large customer for u.s. manufacturing. and we will all be better off if we're facilitating inbound

vestment and permitting u.s. investors and others to appropriately invest globally. >> your time is down to 22 seconds. >> i also want to point out that he was talking about a skills curriculum at universities. we're really pleased that the president endorsed that the president endorsed the skill certification system that we set up. it involves community colleges. i think it's very important we don't overlook the importance of community colleges that can help us with addressing our workforce issues. compreheive tax reform, corporate tax rate reduction is at the top of our list. also an energy policy that enables us to utilize domestic resources. that's going to require some active engagement by congress and the administration to undertake. i would suggest they ask really

hard and poignant question as well as provide the proper oversight to the regulating agencies. we grew to require manufacturing facilities to impose -- or to purchase hundreds of millions of dollars worth of noise equipment, to accomplish the same goals that are achieved through those five cent phone pieces of protection equipment. the real question is who had the time to come up with this in the first place? >> congressman, i'll have him jump ahead. >> thank you, mr. chairman. i have one last question. i've heard across the entire

panel today a consistent message of corporate tax reorm. i think you used the word comprehensive. mr. timmons, i'll put this to you. how critical is it when with talk about tomorrow rat tax reform that it goes beyond the "c" corporation level and moves to the "scorporation? >> thank you for asking that question because it is critical. when there's discussion to raise individual rates at the end of 2012, that will have a huge and direct and negative impact on manufacturers. the corporate tax rate is clearly a competitive disadvantage. raising rates would be a disadvantage for us as well. >> mr. zandi, you had the same position? >> yes, in a sense that i think we need comprehensive reform of

the personal income tax code as well. all these issues need to be considered in a broader context. >> the reason i ask the question is it seems up here we have two debates. we have a debate about corporate tax reform. then we have a separate debate about individual tax reform. the message i'm trying to get out is there's an area in between really it's in terms of what it does. it gets taxed as an individual. what i'm hoping we can do is have an understanding that corporate tax reform includes small "s" corporations. zbli think it's important cutting across businesses and individuals is looking at the tax expenditures and the tax code. the credits and reductions that make it complex and creates bad incentives, and the strategy should be to scale back or eliminate as we can so that we can raise more revenue.

everything that we need to. >> i just add the notion of a corporate tax where a small large corporation and a large small corporation face completely different tax systems is completely illogical. the high tax rate for many individuals who are many business owners is a distortion. it's a distortion that's taxing and discouraging labor as well as the supply of capital. i would also note that addressing these issues separately while not ideal, doesn't disadvantage our smaller businesses. the customers of our small businesses are oft large businesses. while we should work to reduce the individual marginal rates to help s-corp. partnerships and self-proprietors, the advantages of a corporate tax reform are

go. >> i don't want to be the skunk at the garden party here, but i have a slightly different perspective. >> sure. >> i do think we need to lookt the effect of among manufacturers. they vary widely, from 0% to somewhere in the mid-20s to in some cases a little higher. i don't think i am burdened by economics training in saying i do believe that target of tax assistance can be ineffective, for instance in industries attempting to'ing u bait, you often need public incentives to have them thrive. the tax credit which senator stabenow mention had a great deal of up take, and really helped to establish battery facilities, wind turbine solar panel, i think we should encourage other energy and development, too, including nuclear, but the point is that

for the sake of an elegant economic corporate tax system, we would make a lot of sacrifices. i think it makes sense to target tax relief for manufacturers that are actually making things in the united states instead of overall inme, and the last thing i would add briefly is i think it misses the larger debate, which is virtually every other country we're competing against has a value added tax system with rebates for exporters. the united states almost exclusively among industrialized countries does not have a system like that, and i'm not saying we need to adopt a system precisely like that, but it puts our exporters at somewhat of a competitive disadvantage. >> that brings us full circle to where i started, every time u sit and give the example of a successful government policy encouraging a particular industry, there are four or five that failed miserably. we give tremendous incentives to

various green energy segments. my fear is we are siphoning capital and creativity from what might be working. we sit here and encourage wind. my concern is by doing so, we're drawing resources away from something that might be more productive than wind energy. that's part of the overall debate. to the first point regarding the effective tax rate, that's what dr. zandi was getting at because of all of the loopholes, incentives and subsidies in the tax code, you end up with small companies paying a higher rate than large companies and end up with some industries paying higher rates than other industries. what dr. zandi and folks like myself have been encouraging is a system that does away with that so the effective rate is the rate. >> a quick question. >> i am out of town. >> can we make that in a moment. we want to keep moving. >> that's fine. >> thank you very much. >> i can speak three days or

three minutes. >> senar stabenow was here earlier. >> i would end there. you know, you're two women senators. >> i have a long introduction but i'll give it another day. you get an extra minute. >> all right. well, i wanted to thank all the witnesses. i'm sorry we had a hearing in judiciary on intellectual property which is a piece of this, making sure wire protecting all the things we make, but i believe we are going to get out of this downturn by making stuff again, by exporting to the world, by thinking again, and so all of the focus i think is a good one. it is the way my state of minnesota has been able to, we are now 6.6 unempymt, significantly we low national average. a lot of it has to do with manufacturing. i suddenly realized this year i could visit some of our

factories on the weekends because they were going through the weekends. a lot has to do with exports. we have a huge history with cargill and 3 m and medicine tron i can and other companies with export markets that expanded into smaller and medium sized businesses because they think this is the way to go, and it is just the ag community as well, which is now doing quite well, exporting all of the world from pork to sugar beets. i want to focus on manufacturing. we had increase of 17.3% over 2009. and the sector recently reported 12 month job gains of 7800, out pacing the nation, so i think i'll start with you, mr. timmons. i know it is not that rosy all over the place, i am well aware of it. but one of the things i noticed, i was at agco in southern

minnesota, employing nearly a thousand people there, they can't find a welder in southern minnesota now. i spent a lot of time in technical schools. 96% placement rate out of alexandria. tech is no longer your grandpa's tech school, not just fixing rs there, learning how to run computer systems that run assemblyines at bse, cascade and other places, and i would like to see a greater emphasis. scott brown and i have a bill, innovate america, emphasize two year degrees and how businesses and manufacturing could work with two year community and technical colleges to fire out what their needs are literally within a year, get kids into those programs as well as workers that lost jobs. could you comment on the need for workers trained and where there's actually t openings? >> mus to my ear senator. if i could divert a second, mr. chairman, you did ask what can be done toelp manufacturing,

and one of those things is to ensure all elected officials spend time in a manufacturing fality and see real people i the real world doing real things, and how it's done, and i bring this up because senator cloeb char is a perfect example. she visited many of our manufacturing facilities in minnesota and they have a very personal and good relationship with her. so thank you for your commitment to manufacturers. i would say that you're exactly right on. one of the things i hear from members around the country besides the big three that i mentioned already which are taxes, energy policy, and relatory burden, is the lack of work force. there are jobs that are open and there are those that are not able to fill those jobs. ientioned earlier, i think it bears repeating, we have a partnership with the administration, the president endorsed the national

association of manufacturers skills certification program, which is a national set of standards to help potential manufacturer workers ensure they ha the skills necessary for the jobs of the future and jobs that are available today. so i look forward to reading your legislation and summary of that legislation. the issue is right on. we're wking on that with a good public private partnership with the government is helpful in this regard. >> thank you. another piece of this obviously yo focused on is exports of manufactured goods. i have some strong views on that as well heading up the export subcommittee of commerce, but having our embassies around the world making this a major focus, helping when companies are trying to get private contracts or gernment contracts in other countries, but also not closing the door on small and medium sized especially manufacturing firms that need help from the foreign commercial service, and senator lemieux and i got some

help in that regard because it is worth its weight in gold. could you comment on small and medium sized businesses and their need to be part of this growing export market? >> small and medium enterprises are a fast growing part of our export platform in this country, and in fact nam we have a laned executive from department of commerce whose sole function is to help reduce barriers for export opportunities around the world for small and medium enterprise. i agree with you that's an important part of the puzzle as well. >> and dr. zandi, appreciate you being here as well. i know you see the export market as key. one piece of this is as we look the export market, one of the things that becomes clear to me and mr. timmons mentioned this, we're competing in these markets against companies in other countries that sometimes are newer competitors, have new rules, they have been able to

start fresh, and i am becoming increasingly concerned with some of our rules and regulations. a medical device where a lot of investment goes to europe now because china requires country of origin labeling. no one would have guessed this two decades ago. because the european system goes faster, a third of that venture capitamoney has been going to eupe or tourism because it takes so long to get the visas to come to america versus great britain, lost 16% of international tourism market since 9-11. not necessarily because we put the security rules in place but because we haven't adjusted in terms of how we handle the applications. so i wondered if you could comment about the economics of changing some of these rules and regulations because we no longerer compete in a vacuum. >> you make an excellent point. i think it is clear going forward the key sort of economic growth will be exports. that for the past quarter century, relied on u.s. consumers to purchase things we

produce. that drove the growth in our economy and the global economy frankly, and that's one of the inflection points as a result of what we've been through, that going forward we can't count that. we have to look to selling what we produce to the rest of the world, and we sell manufactured goods to the rest othe world now. those manufacturing companies that survive what we went through i think have to be very competitive, have good cost structure and good market edge. i think we are well poised. but one thing that clearly would help in their effort to sell to the rest of the world is to be cognizant of regulatory costs and constraints. when we think about regulation, there are good reasons for regulation, but we need to think about them through the prism of what they mean. at the end of the day, key source of growth long run. >> thank you very much. appreciate it.

>> wanted to make sure senator coal had extra time after i referred to her as senator stabenow. this panel is willing to be here all day. i know we have to wrap up. i want to pose one more question, give each of you a chance if you want to add something. tells you how closely folks are listening. staff came warmup a great question. based upon part of your testimony, dr. zandi, mr. brill, part of your testimony, the question about the impact during the period of recovery that manufacturing jobs had, manufacturing as a sector contributed mightily to the recovery, half the growth, but in terms of the job gains, about one-tenth. is that what you said? >> that's correct. one-tenth. if you include the temp jobs in manufacturing, at mows, one

fifth. >> just at that posing that or putting that along with this question or point that mr. brill made about productivity, pretty substantial productivity gains, the question i have is how much when you consider both of those, when you consider the productivity gains with that one-tenth of jobs manufacturing contributing one-tenth of the jobs, what has happened with regard to wages? it seems that even though we've had pretty substantial up tick in productivity, i wonder how much workers benefitted from that. what can you tell us, if

anything, about the way it -- >> senator, i can't speak to that specifically. what i can tell you, however, there is some research in this area, including some work by staff at the bureau of labor statistics that productivity growth in the manufacturing sector out paced wage growth in that sector. that's true, legitimately something to be concerned with. it is unclear what the explanation for that trend would be. congress is certainly familiar and comfortable with the fact that productivity growth and wage growth don't necessarily move hand in hand, certainly not in the short run. however, in the long run there should be a strong correlation between the two, and over a number of years, we have seen a lag in wagegrowth. i would also note, however, that some of that may be attributable to labor policy burdens and rising compensation costs, healthcare costs, so we observed

a decline in share of wages as a share of total compensation across the entire economy. workers are being paid more and more in nondollars, paid infringe benefits. that could be a contributing factor. >> i looked at data in preparation. average holy earnings for manufacturing have gone nowhere since the recovery began. there's measures of wages, but most timely consistent measure we have. so they've been flat. now, that combined with increase in output means profits are up. so if you look at profits in manufacturers, they rurned to prerecession levels. most of the benefit of this improvement in manufacturing is in the form of jobs, some jobs. also come in the form of more hours, right, for people that are working. but most of the benefit, at least so far, accrued to businesses. let me say one other thing.

that's not atypical in recovery. that's how it works generally. recession hits, businesses panic, they t costs, cut labor, try to get margins up, get a little sales growth and goes to the bottom line. historically with better profits and stock profits, businesses expand and take a risk. that's where we are now and it is not happening. that's the problem we have. that's why the recovery is not engaging, not just manufacturing, but across the economy. this is the crux of the matter. why aren't businesses doing that. my sense is they're going to have to. you can't continue to grow earnings and profits and maintain your stock price by cutting costs. that's done. they've done it. now they need revenue growth an opportunity. hopefully we'll see it. we just need i think a little luck and some really good policy making to make sure we nail down this uncertainty, particularly with regard t the deficit and debt limit.

i think it will come together. >> we hear a t about that across the board. i know we're ready to wrap up. unless the senator has any more qutions? >> no. >> and our panel has anything to say before we wrap up, we're close on time. anyone? and of course, the record is open not only for individual mbers to submit questions to be answered for the record, but if you want to submit additional material. >> mr. chairn, briefly. thank you for having us here. it is very important. one word about productivity and wages, this has been a lo term trend dating back to the 1980s. unique in post world war ii period. one possible explanation that needs i think furtheriscussion is the productivity measure itself and the degree with which intermediate inputs, particularly imports, seep into the productivity data and maybe skewing it slightly.

some economists at upjohn institute and michael man dell, the chief economist in business week identified that. it is worth exploring more greatly. i think one thing that the session revealed is that there were some structural impediments to growing manufacturing in this country, even after the acute nature of this decline in demand. the infrastructure which mr. timmons identified is something that's critical. rebuilding the logistical structure is important, access to credit. those are the strong foundations for a manufacturing strategy. thank you. >> good note to end on. we need a strategy, we don't have one. one hearing did not a strategy make, but i think we've had a lot of good ideas here, and i think it is worth repeating as i said at the outset that this will be now one of several

hearings we will have during the economic committee to best try to revitalize manufacturing. i want to thank the panelis for being here, especially those that traveled a great distance to be here. the record will be open for fe business days for any member to submit a statement or hear

[inaudible conversations] >> welcome onto this very important hearing. the purpose of our hearing today is to discuss what can be done to what he did feel the economic collapse this country. our witness today's doug elmendorf, director of the congressional budget office. want to thank you for her professionalism and hard work and does your associates hav cbo and for appearing in our committee again today. history the cbo released its long-term budget outlook. distractors harsh light of the challenges we face in sound similar to many in washington haveeen ignored for far too long. the federal government will raise across the dangerous tipping point this year.

acording to cbo, total u.s. debt will reach 100% of gdp. example of eclipse the size of our entire economy. economists who study suffering that tell us that leading total to rise above 90% of gdp creates a drag on economic growth and intensifies the risk of a delafield economic crisis. the cbo is candid about the increasing lelihood of crisis in the report states quote, such a crisis with them for policymakers is extremely difficult choices and probably have a significant negative impact on the country, unquote. this code demonstrates reveals ear for the understatement. a sudden fiscal crisis would be a complete catastrophe for this country. families and businesses with her the full brunt of the painful consequences. if the nation ultimately experienced a pani run on its debt, policymakers would be forster make immediate and painful fiscal adjustment like yesterday programs that is still

the rates incease. this is the massive tax increases on working families and steep but that cuts our most vulnerable citizens to hurt us. cbo is a nonpartisan agency, so it does not take a position on what would be required to prevent this crisis. but we can draw firm conclusions on the evidence in this report. for one thing, this report makes clear exploding government spending not insufficient revenue is driving us towards this crisis point. if we simply keep revenues that the historic revenue average as a share of gdp, than government spending driven by an aging population and rising heth care costs will cause federal debt to grow to a stable levels. again, cbo makes clear programs are driving the debt in driving these programs themselves into bankruptcy. attacking solutions to save these programs, threatens both the health security and economic security of the american people.

if we try to chase ever higher spending with ever higher taxes, the cbo is very clear about the consequences. it estimates the gnp will be 2% lower in 2035 than it would be otherwise. the number represents hundreds of billions in dollars of lost income for american families and businesses on top of much higher taxes they would have to pay. house republicans had have passed a budget, to pass prosperity. perchance cbo's warnings in the averts the crisis for us. the house budget tackles the explosive growth in spending, save critical programs like medicare and puts our budget on a path to balance without resorting to job tax hikes. meanwhile, the president has not put forward a credible plan, credible budget and its been 785 days. and they said it again. 785 days since the senate passed any budget at all.

we have a leadership deficit in washington and our window for solutions is closing quickly. instead of turning that cbo and others are working to inform us of this danger, let's work together now before it's too late to put america's budg on a sustainable path, grow the economy and the next generation with a better economy than the one we inherited. thank you good but that would ke to go to device ranking member, ms. schwartz. >> thank you, mr. chairman. i look forward to this hearing, not because will be easy or because it's new, but because it's the reality of what our nation is facing and demands our attention. i did want to say that ranking member ben holland is at the white house. he apologizes to dr. elmendorf for not being here. user can of course that the vice president and the white house and the senate on the republican on the issue of the debt

ceiling, which i know we may talk some more about and see if we can't come to some agreement about a balanced approach of spending cut an revenue increases to be able to move forward. we'll see. but i appreciate the opportunity to make a few comments about where we stand at what we hear today about how we move forward. for me to make it and if you know i've been on the budget committee for some time. the federal budget is a statement of as a nation. it's about three things. it's fiscally responsible and reducing debt, meeting obligations to our seniors and making target investments to grow our economy. we need a balanced approach and that spending cuts for every aspect of the budget thatensure economic competitiveness and will increase revenue. we do not need political rhetic were strict ideology.

everything must be on the table and compromise in finding the common ground is very important. they are committed to deficit reduction. i feel like i should repeat that. democrats are committed to deficit reduction. the cbo's fiscal outlook reinforces the need for action. the question is not if we reduce the deficibecause we must. it's how. the short-term deficit with his

works are necessary response to it. as well as revenues in the bush tax cuts to unpaid for spending and medicare. in a long-term deficit is made worse by dramatic changes in demographics in this country in the cbo will point this out. our population is aging. 50 million more americans will be over 65 in the next decade. the ratio of workers to retirees is one to two to one in the next 40 years, meaning fewer wage earners to support and cost of retirees. get its projected by cbo to rise 4% or as much as 187% of gdp by 2035. this is simply unsustainable. a long-term balance deficit reduction is absolutely necessary. the president's fiscal commission are symbols, alan

simpson commission and the bipartisan policy matters, both strongly acknowledge the need to do both cutting spending and raising revenue. the democrats proposed budget for fiscal 2012 tackles the deficit responsibly by both spending cuts and revenue increases. these include reductions from elimination of duplicate of spending, fraud, waste and abuse are streamlining government to make it more efficient and eliminating those that don't work well protect the nose in e nation. it includes the implementation of health care reform to save $1.2 trillion in health costs over 20 years. it increases revenue by ending tax cuts for wealthiest americans saving a hundred billion over the years and ending corporate tax rates that bring in billions more. the democratic should make

smart, strategic investments in education, innovation and come infrastructure and research and development which will strength and economic competitivene to promote private-sector job growth and expand our economy. this is balanced, fair and responsible approach that it is a clear contrast to the republican badge it. the republican budget takes a sledgehammer to nondefense discretionary spending was careless cuts that don't acknowledge the impact on americans or a recovering economy. the republican budget jeopardized the safety, highway expansion undermines education research and reduces our best hopes for a future prosperity has had income of the republican budget ignores defense spending. it's imperative that we meet our commitment to our troops and military preparedness and security of the ntion further growth in dod spending has to be taken into account. if admiral to 20% of her spending. in the years between fy 08 it

will spend more this includes the cold weather cannot be a non-and wars. that's government agencies agencies to become more efficient. a third term republican budget undermines our promise to america's seniors. the repuican budget will answer seniors and will not reducecost by turning medicare into a voucher program. it will simply shift that purgatory seniors. again, i believe we'll talk more about this as we go along. the fact is the republican pl will increase the cost of senior health care and increase will be increase borne by indivual seniors, not by all of us. cbo estimates the republican budget will cos a 65 yield an additional $6000 sonata pocket cost and by 2030 will be as high as 12,000.

if republicans continue assault on health reform, the cost burden to seniors will not only increase, but will also reduce coverage and benefits. going back on the promise for me to her seniors and disabled in america is wrong. it's not only morally represent, fiscally irresponsible. finally, fifth, republican colleagues refuse to address the needs to raise revenue, which is essential to balancing our budget. just as we cuts unnecessary federal spending, we must also pay special tax division said a trade deficit. tax expenditures at over $1 trillion to a deficit annually. yet the republican budget

continues to affect millions of dollars in tax rates very year. we should stop this and save taxpayers billions. we cannot afford another 10 years of deficit financed, bush tax cuts and our fisl outlook to change. revenues must be a part of solution, plain and simple. freelance real quick. indeed sensible, reasonable and strategic solutions to our nation budget challenges. it's clear the house republican budget takes a one-sided approach. we need a balanced approach that needs to meet our commitments as the nation and it's fiscally responsible and will strengthen our economy in the short and long-term. i look forward to our testimony. >> all say we see it a little dierently. doot dr. elmendorf, the time is yours good >> thank you, mr. chairman.

to you and all the members, the budget outlook of the united states is daunting during the next decade and over the longer term. as the economy recovers from a severe recession and policies adopted in response to recession phase out come the deficits will decline markedly in the next few years. however, the retirement of the baby boom generation are significant and sustained increase in the share of the population eligible for social security, medicare and medicaid benefits. moreover, per capita spending for health care will probably continue rising faster than spending and other goods and services. in addition, the recession and a company policy of the pen a legacy of greatly increased government debt between the end of fiscal year 2008 in the end of the current fiscal year, debt held by the public will surge from roughly 40% of gdp close to his 40 year average to nearly 70% of gdp.

the highest is shortly after world war ii. therefore, we face a budget pressures of an aging population and rising health care costs from a significant beware starting point than just a few years ago. cbo analyzed long-term budget outlook under two scenarios that embody different assumptions about future policies. although there are great uncertainties about future economic conditions, demographic trends and other factors how we think about implications of our analysis would be the same under reasonable alternative assumptions. here are our findings. under one scenario, or extend the same scenario, debt held by the public would increase slowly from its already high level relative to gdp, reaching about 85% to 2035. that scenario adheres closely to current law and can be summarized in three broad

categories. first, spending on the major health care programs as as social security is projected to grow substantially from 10% gdp today to 15% 25 years now. increase the spending will be on the major health care programs. medicare, medicaid and subsidy to provide it for insurace to seniors, which would grow from less than 6% of gdp today to 9% in 2035. spending on social security is also projected to rise, but much less sharply. second to the scenario, given assumptions that underlie our baseline projections, government spending on everything other than interest payments on the debt and the programs they just mentioned include national defense in a way to read the mystic programs. that category of spending would decline lower share of gdp since before the second world war. third in the scenario, expiration of the tax cuts enacted since 2001, the grain

reaches the alternative minimum tax, tax provisions of last year's health care legislatio and the way in which the tax system interacts with economic growth will result in steadily higher revenues. revenues reached between 23% of gdp by 2035, much higher than has been seen in the past. the significant increase in revenues in decreasing the relative amount of spending would offset much, but not all the rise in spending on health care programand social security. you revenues historically high levels it would continue to rise. however, the budget outlook is much bleaker rendered alternative fiscal mary up in which federal debt would go much more rapidly, 6100% of gdp by 2021 in approaching 190% by 2035. that scenario from which more closely approximates current policy is incorporate several changes to current law is or

where they expected to occur or that would modify some provisions of law that might be difficult to sustain for long. most important are the assumptions on revenues. undethis scenario, we've seen attacks cuts enacted since 2001 will be extended, the reach of the alternative minimum tax will be restrained and over the long run, tax will evolve further so revenues remain near historical average of 18% gdp. this scenario also incorporates assumptions about medicare's physician that they remain currt levels rather than declining by a third at the end of this year under current law and policies enacted by share for extreme growth by the federal government will not continue after 2021. in addition, the alternative scenario includes the assumption that spendinin all other activities will not be quite as low as under the baseline scenario, although we'll still saw close to its lowest level in the entire postwar period.

it is important to note further that these projections do not incorporate the harmful effects of rising debt would have an onomic growth in interest rates, incorporating economic feedbacks of the report, debt under this scenario would be well over 200% to gdp in 2035 is such a thing would come to pass. the implications of this analysis are clear. there is a substantial mismatch between what the government would have to spend to maintain existing programs in their current form and the revenues that taxpayers are accusmed to providing good to keep deficits and debts from climate to unsustainable levels how policymakers need to increase revenues for the percentage of gdp. decrease spending from projected bubbles will adapt sun combination of those two approaches. making such changes remain well below potential levels would

probably slow the economic recovery. however, the sooner one team changes pa a spending policies are agreed upon the sooner they are carried out once the economy recovers, the smaller the damage to the economy from growing federal debt. thank you.

yesterday the trustees and the ways and means confirmed in a hearing medicare as we know and use in 2023 so i have three basic questions on this part. if medicare trust funds are empty, and paying for medicare promises requires tens of trillions of dollars to be transferred from general revenue, where will these funds come from, number one, number two, how what medicare be financed in a fiscal crisis and is it plausible medicare could continue to provide current benefits indefinitely as analysis consumes comparing the two? >> on he first question mr. chairman, if the trust fund runs out of money than the only way the benefits will be continued at the level specified in the current law is if the

general revenue were used for that purpose andhat can only come from higher taxes or lower spending in other prorams. >> or additional borrowing. >> if the government becomes unable to borrow at affordable rates as we have seen from other countries end up in a position, there would probably nee to be very stark changes in the whole range of government spending programs and start changes -- >>n the immediate term. >> when the situation arises the government cannot turn to capital markets to obtain the funds it needs and then balance the budget almost literaly overnight then the disruption to the federal government policies and the economy and the society could be immense. >> so this is unsustainable. >> the path of the budget the current policy is most definitely. >> and the medire baseline itself.

>> it funded through the trust fund ion unsustainable path and our own projection it is in 2020 a few years earlier. >> so let's get down to the provider side o this. i've been on the ways and means for a long time and lots of provider issues. historic lee medicare in both parties have been working on this, medicare control cost by paying less than private. it cut by $500 billion not to advance medicare solvency but fund another open-ended entitlement program. on top of that physicians are said to be cut by an additional 29.4%of this january i believe it is 29.4 to read to your -- in the medicare -- to your projections assume providers continue to accept patients with the same rate ey do now under the traditional program because let's remember medicare pays

providers eda present what they ll receive in the private market. this will fall to about 40%. so, do your projections assume providers continue to accept medicare patients at the same rate now in the traditional program and as your analysis assumed despite the additional provider cuts coming this will have no effect on the quality or access of care? >> we don't model the behavior of physicians. we don't more of the access to carroll quality-of-care. >> it stays as is. >> we noted in the letter analyzing your proposal that's a gap in the tool kit that we are trying to fulfill but under the current circumstances we don't model in the regular baseline projections or analysis of the proposal the affect it might happen under the current law or alternatives. >> your analysis effectively assumes no matter how much the government pays providers for health care services providers

continue to deliver the same quality care and access. that's the gap to talk about one of you accept the premise and position of price control to actually reduce cost strikes m that your analysis does not appear to take into account the choice and ompetition despite in the economy and even within medicare where applied would put downward pressure on the health inflation. there's a take away here that the only way to get a grip on skyrocketing health care cost is to restrict price control and heavy government rationing. is that what we are to conclude? >> i don't think that's a fair interpretation of the analysis. as you pointed out yourself medicare pays list providers to date and private insurers. so it is i think an open question to how much lower payments can go in medicare relative to private insurers without the access to care or quality-of-care of medicare beneficiaries in an important way >> but you don't feel like you have the tool kit to model that

is that what you're saying? >> we also noted in the letter that we do include the effect of competition in the current private insurance market and assessing the gap today between the costs in medicare and the cost of the similar patient we estimate the downside of medicare, but we do not in the analysis and corporate any effective competition that might arise over time from the additional place pressures that are built into your proposal ad from additional flexibility that insurers have relative to the traditional medicare to adjust. >> to be clear on that point medicare part b which is something we looked at -- if you don't mind i would like to have on contact. helpful. medicare part b, it's come and 40% below cost projections. now while those savings can be attributed to the

lower-than-expected in a moment to calculate nearly 85% of the program savings were, quote, direct result of competition and gnificantly lower plan bids. remember we had an amendment in the ways and eans remiums rate that would be about 25% higher than they actually are today. the reforms in the budget are modeled on these kind of reforms so choose from guaranteed medicare coverage option. when analyzing the costs under the house-passed budget, did you take into account choice and competition woulhave on the health care cost and do you assume people will continue to utilize the same rate they do now meaning what i got t of what you just said is that you're not reallyreening those lessons from the experience we had from the part d result petraeus too we are not applying any additional effect of competition on the rowth rate over time and analysis of the

proposal coming and we don't have, again, the analysis we would need for the quality of luation on the importance of the factors. interpreting the evidence and interpreting other evence in the world is complicated at the time of the estimate the we made which was above the ultimate cost prescription drug spending we expect this to slope through of the health care system than we anticipated at the time. part shared in that slowdown. that is say, again, health care system wide phenomenon. the extent to which th was passed through to medicare part ad is different than it would have been under an alternative structure for part de is a subtle and of the queion and if one loo at other examples one tries to compare the public health care programs to systems where there are competition in the pivate insurers the

comparisons are not straight forward as we shall there are periods of history where the cost and the public programs grow faster than private insurance and periods where the is the opposite can be seen. if one looks the federal employees health benefit program premiums in that program have risen fairly rapidly along with premiums and the rest of the health care system rohly despite the competition. but interpreting this evidence is tricky. we have a public health care program that has evolved over time with a lot of policy changes. it's not a queen from a research and set of policies. we have private health care system that's been affected by developments in the health care system and affected by the tax treatment of employer sponsored health insurance so it isn't a clean run of a purely private system either. we are trying to do thiss a long project is to glean the lessons from the different parts of the historical experience to try to address the policy issue

which is the power of the public to find the benefit of chrysostom versus a system where the government makes the fine contribution the competing private insurers to try to give you some more analytics. >> you guys ae doing -- at the shop you do such a great work. if we stick with the analytical tools or lack of tools then the only conclusion isprice controls and i think economic evidence throughout history shows what happens there. so i think we have got work to do. so really analyze this. any plan, but ours aside for a moment, any plan to address the crisis must address health care programs and help inflation and measuring any of these plants against what is a fiscal fantasy and unsustainable trajectory is not an accurate measurement of

coarison because it's comparing some plan against the future we now know can't continue. and so, i think we just all have to do more work to try to figure out how to really truly address these issues. >> i want to get into the budget only to say we got your analysis of the president's budget i won't go back into that, but the president gave a speech april 13th where he outlined a new budget framework that claims for trillion deficit reduction over 12 years, have you estimated the budget impact of this framework? >> no mr. chairman. we don't estimate speeches. we need more specificity than was proided in the speech through the analyss. >> ms. schwartz? >> let me take a different approach on medicare.

one is we are concerned about the long-term fiscal health of medicare. it's one of the reasons we passed a law last year to use basically every idea that exists for containing costs and ensuring quality and access for seniors. you've looked at some of those and acknowledge they do good to quantify all the cost savings that exist and acknowledge the costavings and i tnk both you and the medicare trustees talked about at a minimum it is going to save money over the long run in the affordable care act and it does extend the fiscal health of the trust fund for a numb of years, and that is i could do better than that, much of the work that's being done and the payment of a free system reform to reduce the

duplication and waste as well as coordinate care and improve the efficiencies in the health care system. so it's not just about the futureervice reimbursement. it's changing the way we do this so the date doesn't become house simply how much do we reimburse doctors particularly relative to the private sector. so yes or no that's true. estimate there were important changes made in the structure of the medicare payment to priders, the whole collections in last year's legislation. some people were frustrated at the hour analysis of got into the gerrans frustration this year's proposal by him we don't have the tools perhaps to capture the full effect of certain changes and we are working in that area as well to build a stronger toolkit to provide you with better information. >> i do appreciate some of the regulations o has been able to respond saying this i what we believe. that is a ceo cn save where

there's so many other actions we are taking and the proponents of hospitals that actlly has cost savings you've been able to in allies. >> we certainly have estimated some savings fo some of the more unusual experiences. we are struggling ourselves with developing tools that could enable us to provide better analysis. islamic i want to make it very clear of course what we did in the for care act was to sit out a path and this is the path. it's not going to happen in ten minutes. it's a pah to be on to get better value for our dollars and assured access to the highest quality care for senis and the idea to focus on the other piece of what we are talking about in medicare in particular republican proposals for the premium support the voucher. it's the same thing. it's a support for cooperative support for --

>> would you like to yield a minute? i'm happy to go into this if you want to be this and i completely understand how you equate to the federal employees and -- >> there's a difference between supporting vouchers and the cbo very clearly. >> one of the things that seems clear and i want you to clarify this is if we are going to give seniors a certain amount of money for them to be able to go and buy private insurance in the marketplace as the costs rise who pays for the cost, the additional cost? you've been very clear about this but initially over time if you could answer that question. >> the contribution which the government contributions are set as under chairman ryan's proposal then one of your extra amount private citizens need to pay to obtain the services they

would pay themselves. >> have you estimated how much that would be for the average senior? >> the typical 65 year old body new standardized health insurance benefits, and we estimated that in 2020 to for example, under dhaka baseline scenario seniors would pay 27% of the cost of the standardized benefit under the proposal seniors would pay 61% of the cost of that benefit. >> can you give a number with this? >> i don't -- >> about $6,000 is what the average senior 55-year-old to would expect to pay and it could go up as much as 12,000 over time. >> i don't have a dollar figure and i'm told by my colleagues we don't provide a dollar figure so

the percentages to the other estimates of the cost. >> and that's probably where it came from the point i'm making here of course is the republican proposal has been voted on and supported by every republican in the house does shift the burden of addional cost to the individual seniors. >> by our estimate aood deal of burden and also ships risk regarding the ultimate cost. >> right. so the notion seniors would be able to get the same benefit to pending the of an extra 6,000 or 12,000 to pay for them or whatever it might be. all understand they see this as choice we see this as if you can't afford it it's not much as a choice. islamic to buy that package of benefits depends on the resources they have available on the estimas being correct about those costs. >> i think you made this threat as well if we are all concerned

and you have the style of health we come to in the rising growth and cost can be shared by programs and private insurers and how to actually get better value to contain the rising cost. in my district nationally families have seen a 100% increase over the decade its double duty for the health premium between paray and proposal the republican vote on proposals the cost containment built in except for the individual senior not being able to afford to buy the insurance but there isn't anything that's actually moved the system to improve quality and reduce cost over time. is that correct? the cost containment peace in the private-sector to do it

through what people can afford to buy. >> to observations. first, interest and the chairman's proposal, traditional medicare would continue along the lines in the current law and because people move into the new system as they turn 65 under this proposal, a good deal of patience and medicare and even larger share of the spending in medicare remain in the traditional medicare system. islamic 55-year-olds would be different and not traditional medicare anymore after a certain point. >> by 2030 evin, more than half of the medicare beneficiaries e still receiving traditional medicare, 45% are receiving the support so it's a gradual transition and the program as understand the proposal the programs in place in traditional medicare would maintin.

the second of cervezas the proposal rather than deducting specific experiments on the changes as was done in the last legislation would rely on the pric pessure affecting the competing private insurers. >> but does that mean then all the cost containment provisions that are built into the law we have now if it should be repealed would then go by the wayside and wouldn't see the cost containment. there's a lot of work in the health care system and i apologize this isn't the expertise as you said you haven't driven down this is a lot of important good work being done across the country that is actually getting better value for the dollar to scale that up to more seniors. >> i don't mean to be little this by using the word experiment. what i'm trying to signal is that the successful experiments getting greater value and thers been a number of them have tended to be fairly localized and the question of

how they can best be extended across the country is somhing both medicare and private insurers are wrestling with. with medicare and private insurers in different ways of paying providers and so on. i d't mean to be little that but there will be a certain a lot of trial and error for private and public insurance whenever the system is, we need our health care system to become more efficient and i think the crucial policy question is public or private system applies more of the use all kinds of pressure and avoid its more of the detrimental pressure you would judge that. >> my timeis up butthis is a conversation we have tried to advance we will contain the growth in the that the care because we are serious about that as well that this needs to be done in order to sustain medicare as we hope to but

turning over to private sector is it could contain costs for businesses or for families or seniors for sure that that actually is a model we can't rely on the fact the federal government pays 46% of the cost of health care in this country we could and should be in our view a force for improving quality and insuring access. that's one of the big debates we are having. >> i want to help answer the questions you asked the director to show what is our thinking and why we propose what we proposed because you are right. we've got to do this out. medicare is the biggest driver and the affordable care act does attempt to do that. we disagree with the way it attempts to do that. there's no cost containment there's twways of doing this. you put the patient in charge or put the bureaucracy in charge?

we think a patient centered system is a better way to go. now, when you put the bureaucracy in charge let's look where we're headed. accountable care organizations. the idea is very good but look what is happening. nobody's going to purchase it in this rule so let's have a system that's decentralized and not a government centralized, not to go with price control because price control might make the numbers add up on paper but it wouldn't deny access to people. and so, what we have found is that we continue to underpay providers where they are telling us providers are going to get about 66 on the dollar for medicare now going down to 33 cents on the dollar. we can't assume they are going to keep taking medicare. so i or we don't think that that is the proper approach. more to the point we don't think an elected unaccountable bureaucrats, technocratso matter how smart they are can figure out how to micromanage

our economy. we believe that providers competing against each other, insurance company, hospital, physicians competing against each other for our business has uncovered consumers is a better way to go and we have a lot of evidence that shows that to the point his analysis does not include, it does not include the fact we've proposed a risk adjustment subsidy as a person gets sick in medicare we want them to have a high year subsidy. it also does not include the fact that we propose to add an additional $7,800 to begin with which keeps growing every year to low-income seniors to subsidize and cover their out-of-pocket cost. there's only so much money to go around, and our point is we shouldn't subsidize wealthy people was much as a free but deals. and we should subsidize low-income people more than everybody else. that is the way we think tax

payer dollars ought to be deployed and we want the patient to be the nucleus in the health care system and everywhere else instead of some border 15 technocrats' giving a thumbs-up or thumbs down on whether this will work or not or who gets paid what, where an how much really don't think there will work because we have lots of evidence already. with that i yield. estimate your correct saying the numbersi quoted and featured in the report did not include the effect of the additional in the letter. we're part of the cost for a typical 65 year old and include their model. estimate the illustration does not suggest a person will get high income. >> it's an average so it doesn't take into consideration the fact person who has high your mortalities, high-risk get a

higher subsidy to cover the higher cost and get health insurance coverage >> i could take more time on that. you're introductory comment i thought was pretty well set it all and that is the budget outlook is daunting. i agreed to. it's unfortunate we been left in the situation the last years of congress controlled by the oversight that racked up $6 trillion in det. i want to talk about three things. in 2.1 of the material you handed out today you have some gdp growth charts. can you tell me quickly what the revenue assumption were come excuse become the gdp growth assumptions were in the extended baseline scenario and the alternative fiscal scenario. congressman, we set for the underlying path of the benchmark two years for most budget projections and economic future and as you see --

>>ust give me some numbers quick. >> under the alternative fiscal scenario, gmp would be seven to 18% lower in 2035 the with the under our benchmark that assumes a steady debt to gdp ratio. >> not debt to gdp but would you look at in terms of real gdp growth for long-term? >> the real gdp growth we have had is 2.2% on average per year 2225 and that's lower than our historical long term isn't it? >> it is never particularly because the labour force related to the population aging. >> you talk about the fact that taxes would rise to 23% of gdp under the extended baseline is that correct? >> what eli models taxpayer

behavior in a situation like this? in other words, do you go to maryland and virginia ortiz? >> i live in maryland. >> maryland doubled its tax rates tomorrow would you move? >> mykids finished their sophomore year i would move on peril of my life. >> he would be looking at it right? >> it does incorporate the effect of the changes in marginal tax rates that's an important area we ha an hensarling analysis in the past few years as was the difference in debt are included in the gdp. >> that factors into the work gdp growth. so there's an impact on revenue by raising the rates because you put a brake on the economy as you move forward. >> on the extended baseline scenario for the alternative scenario where there is more or less steady and rising debt. >> to the extent that you have assumed tax revenues as a

percentage of gdp are high year than 18.3% long-term average it has a dampening impact on the economic growth. correct? >> the one we emphasizes the marginal tax rate that rally matter for economic growth not just the level of revenue but how that money is raised for the modeling captors the effect of the marginal tax rate the disincentive to the workers did. >> right. good. okay, the next question has to doith provider behavior. again, everything that happens in the economy is because an individual or company believes in a certain way based on the conditions thrown by its government or by some of their factory. when you look at provider behavior if we were to cut the pay of everybody in ceo by two-thirds with the impact of ur people wanting to receive or move to your position? >> i'm afraid it would come congressman. >> essentially what the chain

saw that was applied to the provider reimbursement under the obamacare to will does impact provider behavior, and you're modeling doesn't assume any change in behavi, right? >> that's right. we don't capture, again, if you were trying to in part, our modeling does not capture any sophisticated way the possible ramifications of that >> looking not theoretically but likely realistic outcome with the reimbursement rates are to providers by two-thirds, we are going to have a lot to the providers less health care. >> that's a possibility but i don't think it's -- i don't think it is a guarantee. a lot of experts on health care system say there's an awful lot of inefficiencies the way things are currently being managed and that by changing the organization of the health care

system a lot of deficiencies can be achieved and providers can continue to cover their lure more efficient levels of cost with lubber payments. estimate you said it wouldn't work of the cbo and would cut your pay by two-thirds. >> the issue was withhe possibilities are for improving the efficiency of the system and we set ourselves and our analysis of the legislation last year that how long the cuts could be sustained for was arm surgeon and we provided an alternative scenario in which the cuts are not sustained free long period but i don't think that it's obvious the cuts can happen for some period of time. we don't know how far they can go partly because we don't know what the possibilities really are for improving efficiency in the health care system not just as a theoretical matter but practically speaking what kind efficiencies can be achieved in particular places across the system as a whole. >> couldn't cbo operate with two-thirds of yourpeople? the efficiencies to provide the same product to do today? >> we could not to read

>> i suggest the same is true for the health care system. that is an important part of the economy. i yield back. >> thank you very much. >> i think one word around which this congress is focused so far this year is kutz, the immediate far-reaching cuts. the education committee has met and voted to eliminate dozens of education programs. another republican group has said that pell grants, which allow folks to go to college or just another form of welfare and we cannot sustain the level of financial assistance we have. boats have been taken to eliminate federal support for community policing and firefighters and of course it is seldom a week goes by there isn't a proposal to cut health care. putting aside for a moment before reaching consequences of denying educational opportunities and health care

and adequate law enforcement, i want to direct your attention to the comment of the chair of the federal reserve yesterday dr. bernanke who said in light of the weakness of the recovery it would be best not to have sudden and sharp fiscal consolidation in the near-term. i don't think the sharp immediate cuts in the deficit would create more jos. do you agree? >> yes i do, and we set the same thing ourselves on a number of occasions. >> i thought that was the case. while we want more agency and to address the long-term costs, if these cuts ar dramatic of the not only will deny educational opportunity and hlth care security, but the cause us to lose more jobs and have less economic growth >> the specifics would depend on the specific policies to read our analysis complies the cuts in spendg more in taxes during the next few years would buy

themselves reduce output and employment that would otherwise have been at the same time credible reductions in the future deficits would boost output in the next few years because they would hold on interest rates and probably increase business and household. >> i certainly agree with you on both points on the long term i guess the only problem is the specifics so let me go to one of the specifics, and i want to try to quote but exactly what you said to ms. schwartz on beeve plans similar to what chairman rye in advance with medicare will come up with, shift a good deal of burden and risk to seniors. now it's great to talk in theory about putting the patie in charge. we've had the patient in charge with regard to seniors n medicare in the past with prescriptions to pete and i ess we can put the charge again and that may reduce consumption of health care because there will be some

seniors wh will say i would rather eat and go see the doctor or by another prescription. i'm going to keep cutting michaels and half. that is the patient nucleus. while you may reduce some consumption that way in medicare, what i hear you saying is that we have an overall problem about rising health care costs that affect a different amount at different times with federal employees plan, medicare, medicaid, the veterans administration and private-sector and that if all we do is shift more of the burden, good deal of the burden and the risk to seniors d we haven't found a way better it is through experiments or something else to address the problem of rising health care cost we may have relieved some of the burden on our debt and our taxpayers but we have not relieve the burden and we have increased it on some of the most vulnerable

people in our societ it time that they are trying to achieve a decent level of retirement security. would you agree with that? >> certainly that if the congress chooses to shift the burden to some or all demographic group then that is addressing the government a budget constraint by tightening other people, but i would emphasize almost any way i can think of to address the government budget constraint involves tightening smebody's budget constraint that as i say we are collecting, used to collecting certain amount of revenue relative to gdp which has varied over time but it hasn't shown a trend around the 18% market we have government programs that provide certain benefits to older americans from social security, medicare and medicaid and other tasks in the government, national defense,

homeland security, veterans' care and on and on, that have occupied a certain share of gdp. we cannot have all those things being together in the future. we cannot repeat the past and the federal government because of the aging of the population and rising health care cost. >> certainly we cannot but we can avoid shifting a good deal of the burden and risk to seniors without addressing the broad issue of health care cost. thank you. >> thank you mr. chairman. thank you for joining us today. clich question, how many years have you been director? >> almost two and a half years. >> director, we had discussions today on the house republican plan and by a freshman. how long has it been since you have analyzed the congressional democratic budget? >> i don't want to sound too

technical but we don't analyze budget resolutions. they come from the budget committees. in fact we're trying to the kitchen and ryan proposal we analyze the impact of the proposal and the long term impact of oth proposals it has had three we don't do an estimate of the resolution. it's not a law. >> sate democrats' proposal budget committee, when was the last one you analyze that came out of their committee? >> i think, congressman, the last budget resolution voted on by the senate budg committee was in 2009. >> a little over two years. or do they even have one? >> in 2009 because the reconciliation that came out of that budget resolution turned out to be quite important in the final act of the health legislation. selected that passed the senate? >> i guess i'm not sure,

congressmen. >> did they pass the proposal? >> trying to figure that out i heard there has not been for a couple years and it's pretty amazing to me. what i want to talk about the was a question on the economic assumptions. you talk about 26 through 28, the impact of more borrowing, higher tax rates and the impact on economic growth and it's pretty well agreed that increased spending by issuing more debt is going to impact the economy by increasing taxes will do the same though under most economic assumptions it would seem the only reasonable economy to tackle the deficit is reducing spending now has is that correct? >> there a tradeoffs here.

higher marginal tax rate due to reduce economic activity to some extent under the views of most economists. but, certain forms of government spending are important for economic growth and we are using -- reducing those can be damaging. moreover -- >> excuse me, but in your analysis, pages 26 to 28 talk about increasing taxes will hurt economic growth. >> marginal tax rates, yes. >> it's been suggested by the president. additionally by borrowing more debt and has a similar impact on the economy. explaito me that lie reducing spending is not the only alternative to read >> again, congressman, for a dollar reduction in the deficit if one kutz some form of spending that was not in an investment in economic growth, there would be better for the economy than if one raised about her through increase in marginal

tax rates. stomaches medicare spending and economic gross revenue? >> i don't think it's an important driver in the long term. >> what about social security? >> i don't think it's an important drivers -- >> what about the department of defense budget? >> again, there are some ieces of it that have mattered. >> three-fourths of the budget is economic growth as i anderson and? you eliminate two-thirds of it so the remaining third is economic growth? >> there are pieces of federal spending that have been important in economic growth. i don't have an exhaustive list of that and we are not good at modeling those effects. >> but you do make a statement and you identified in the report and are the appreciate you could identify the following program that you believe the right economic growth. mr. bernanke refuses to identify those and face the possibility that we have a debt crisis and

that if we don't face that very soon and quickly and suggest that we can't cut spending that somehow we can borrow and tax and that's going to work out, obviously your report doesn't say that so if you could provide that determination if you would of the type spending you believe cbo believes would help drive economic growth because we are working with that now, and i would appreciate that distinction. >> i would be happy to work with your stuff, congressman. >> thank you. i yield back my time. >> nice to see you again. earlier he mentioned in passing $6 trillion worth of additional debt over the last four years attributed to the congressional the activity. have you done an analysis of the factors that contribute to that

additional $6 trillion in debt? how much would have been attributable to the converse actions and how much the policies already in place? >> we've done an analysis sometimes of the swing in the budget deficit from what cbo is projecting about a decade ago to what has come to pass, and it turns out i think i have the table with me. i often don't remember to bring it but i have it with me. and as you know, congressman, there's been a collection of actions taken over the last decade that significantly worsen the current budget picture. there's also been a collection of default and an economy that were not predicted by cbo that have also led to the worsening of the budget situation. >> would you say a majority of the additional accumulated debt over the last four years was because of congressional ke to the war because of existing

policies? bush tax cuts and the war initiated in the earlier years? >> will the to to the baseline projections in january, 2001, just a little over ten years ago, the deterioration in the budget of come in 2008, 2009, ten and 11, they are much more to the legislative changes than the economic and technical surprises. and those legislative changes include both reduction and the tax revenue and increases. >> we will leave it there. there's been a fair amount of conversation already about the impact of increase in marginal tax rates. when you make those statements conclusions they were just economic activities, do you assume an increase in marginal tax rates across the entire population, do you break it down as to the impact on economic

activity of raising the marginal tax rates on people making over $215,000 then people making over million dollars? and is there a difference in the impact economic impact of those increases? >> so, congressman, we do look at the effects on a variety of income categories. i don't know what they are off hand, and we try to apply historical evidence what we think the responsiveness would be. and you can see some of this in all this testimony we did for the budget committee last fall that different ways of the tax provisions, some of those scenarios we study we assume all of the expiring provisions were extended to read that did occur in the end of last year and others we looked at extending only the taxprovisions of to a certain point and not above that. i don't have the results of hand. >> is it safe to say the general proposition that i you reduced the marginal tax rates on 35% to 39.6% on people making over a

million dollars a year that will not have a huge drag on the economy versus extending the marginal tax rates on the other 99% of the population? >> the question of the total went back and the impact per dollar revenue there are more people on the distribution, much more income earned in the thus changes in the marginal tax rates below that threshold will have a larger aggregate effect on the economy with the per revenue dollar lost, the effects were generally larger at the top of the income distribution because the changes in the marginal tax rates are less revenue is given up in the sense relative to the changing the incentives. so in terms of the distortion of the economy per dollar revenue lost that is not smaller at the top than it is at the bottom but

it depends on the precise nature of the tax policy. >> i look for to discussing it rther. one last question to the in the republican budget that was passed by the housethere's an assumption as i recall that unemployment drops to .8% by 2015, and that range stays at a very relative to today's terms and historic terms a very low level. i believe i'm correct on that and if i'm not the chairman was -- >> what kind of assumption do you make in your scenario to what unemployment would befor the next ten years or so? >> because the recovery is slow, we think that it will come down only fully and over the second half of the coming decade be down to about 5.5% of the labor force. >> thank you. >> that is not an assumption of the budget cbo is the measuring

we will use. there's an economic forecast group that did its own separate analysis of the budget. the subsequent week revised that analysis to the deal with that particular statistic and they revise it to think 5% or something like that. next is mr. saltzman. >> thank you mr. chairman and mr. elmendorf for being here. my question is in the report you note the federal government could not issue ever larger amounts of debt relative to the size of the economy indefinitely. do you believe current level of debt is harming the the economy? >> the current level of debt is reducing our output, our incomes relative to what would be the case if we have a lower level of debt leavin aside the effect of the particular recession that complicate that but for the

longer period high levels of debt are more damaging than the lower levels of debt. >> you think the discussion on the tax increases keeps money on the sideline as well without encouraging economic growth? >> i think that on the certainty about the federal policy is diminishing househol and business spending and that uncertainty covers a whole set of policies i think it covers tax policies, it covers regulatory policy, health policy. i should say the more important source of the uncertainty is households and businesses, uncertainty about their own income and the demand for the product but we think the government policy is playing some role. >> i agree wth you and i feel what families are doing is they are doing what they can control and that is cutting the own spending and budgets controlling their budgets. they can't necessarily control the income revenue because the job market is tough.

they can't take on more debt because it's tough to borrow and it's not necessarily wise to do so. so on here in this committee that we only want to cut spending. i know you've been in this job about two and a half years or so. when is the last time congress talked about cutting spending and actually did cut spending in washington? >> as you kno congressman, the appropriations bill was passed spring reduced spending. i don't keep a list of that to be honest. the covers a variety of proposals that include d but have been enacted into law that include a combination of spending cuts an increases, tax cuts, tax increases. i'm not even sure how i would keep such a tally. >> i don't understand why it is they seem like they should be out of the realm of cutting spending, addressing everything whether it's entitlements, whether it is discretionary come on discretionary spending,

military. i believe everything should be on the table, and from your analysis in the report is that we need to be very cautious in the debt that we hold is damaging or holding back the economy a thing devotee agrees the higher taxes, just the discussion holds money on the sideline. so cutting spending should be a part of the discussion. did you score the affordable health care act? >> yes, we did. >> there was a report about a glitch found on the bill that's going to send 3 million, roughly 3 million middle-income americans and medicaid. can you touch on that? >> i don't know whether it was a glitch in the drafting or the intense t in any case our estimate incorporated of the effect of that provision as a was written. >> what do y think that is going to do to the 3 million middle-income americans trying to find confidence in the economy and in washington?

if we continue this sor of -- i am not blaming you because the intent obviously was there, for some reason was there, and now we are finding out after the fact and what it's going to do to affect at least 3 million americans possibly come so why should say we don't have an estimate of the number of people affected. we took the definiti of the income eligibility into account and in our estimate, but we don't have any separate account of how many people were affected by that piece of the definition, and ifactthat's not an answer the question because it depends what other things would change to it i don't want to endorse the 3 million. that's not from us. we've had in our estimate. it isn a surprise to us. >> so, this glitch is not a surprise to see below? >> no, it's not to read i don't know if it is a glitch or in tend but we did that piece of legislation and use that language in our estimate.

>> that's what it seems to be called and there's backtracking by some folks here that this is a glitch and we didn't recognize what happened here, and you know, that's -- i appreciate your answers because you've been balanced in approaching this and because if we don't start talking about cuts come and you know, your report obviously gives not so rosy a picture and we have a lot of work to do to control what we can control and that is cutting spending without doing damage to fther damage tohe economy, but i believe the tax increases, more borrowing is detrimental to our eligibility. would you agree with that? >> i believe more borrowing is detrimental to our long term outlook and that high your marginal tax rates are also detrimental to the of look and that is why we try to capture bo of those where they are

relevant in our economic analysis. >> thank you very much >> thank you for joining us to to the conductor on understand clearly these are days or the expertise is tremendously needed so welcome. if i could just returned briefly to the line of quetioning, is it reasonable to assume education spending and economic growth an what about our investment or spending basic infrastructure, the roads, bridges, the connections we need, the infrastructure to move people and goods around the country. >> we this done and i was of infrastructure investment, and obviously there are some aspects

of that investment has been me beneficial to the economy and some that have probably n been beneficial not all. but on balance, sensible investment in public infrastructure, investment to pass some sort of benefit cost test enhance economic growth. stomach asked another way is there is any reason to believe we mightee an economic dip if we don't do the investments in education d infrastructure? >> ihink the term did and why is a cut in spending more increases in taxing and a short one with as i said before perhaps cause that sort of dip, but usually conversations but education or infrastructure are more of the longer-term and i think reduction in education that occurs in the country, reduction is not infrastructure that we build would be detrimental to the long term economic growth. >> and what about our

unemployment, which i have read has a return in economic activity between $1.60 to $1.70 and every dollar spent in our unemployment insurance? >> so we think that in the short run come in the situation of our economy now, which is a lot of unemployed workers and underutilized factories and equipment, that putting money into the spending stream through benefit payments and reductions in taxes encourages mre spending and that leads to more output and unmployment. and in our esmates, the effect of putting mony in unemployment insurance is especially powerful because people that receive it tend to spend a large share of it andhey are people who have lost their jobs and in many cases they don't have other sources of icome. >> it seems as though the economic activity we need to inspire what at least help those in that unfortunate realm. can we bring up the charts that

we have on the long term debt? there we go. this chart is from figure 1i believe, and in this you present, dr. elmendorf, to projections where the debt is headed in the next 35 years. under both scenarios that continues to grow relative to the size of the economy but there's a tremendous difference between the two. where do we in the that the chart and 2035 under each scenario in this chart? >> the extended baseline scenario which largely follows the current law we end up with debt at 84% of gdp. and under the alternative fiscal scenario which more closely corresponds to the current policy settings we end up with debt at 187% of gdp in 2035. >> thank you. can you briefly summarize the

key policy choices that differentiate the two scenarios? >> the biggest differences on the revenue side under the current law because of the expiring tax provisions, the provisions of last year's of legislation, just the natural when collection of the tax code economic growth revenues rise quite a bit relative to gdp. under the alternative fiscal scenarioe hold revenue we assume these expiring provisions are instead an extended and keep revenues down closer to their historical average share of gdp. 72035 revenue under the extended baseline scenario or 23% of gdp. and the alternative scenario or about 18.5% of gdp. the differences on the spending side and both of the health programs and then on health on cial security part of the budget and the programs for principally assuming under the alternative scenario some of the cost control features of the

last year's legislation don't continue over the entire quarter-century that we are showing here. and on the other mom health care and on social security spending we are assuming still a very substantial decline relative to the historical experience but not quite as sparked an endpoint as under the extended the baseline scenario. >> to summarize, one scenario sticks to the current law and puts the debt of about 80% of gdp in 20 orso years. the other scenario puts it at 180% of gdp by among other things extending tax cuts for the wealthy and refusing to implement the affordable care act. that sounds to me tobe an awful lot like the republican agenda this year. my concern is that we are wasting month after month on the pawlenty to policies by the majority and digging us into a deeper hole regardless of how you feel about that strategy going forward, i think we need to do far better than to create

a larger -- >> the gentleman's time is expired. and get back in writing if you would do so. ..

more people have been on through stamps than ever before. i know that. [unintelligible] >> the principal reason why it is so high is because the economy. people are out of jobs. >> i know you were talking about deficiencies in the marketplace. are there any industry sector she can point toward an? a great initiative program run by the government? >> congressman, a feature and you table 31 underreport corporate excess conscripts in spending for health care and if one looks at the table, one can see it. where in fact federal spending on health care and medicare and

medicaid has increased more slowly than private health care spending. there are other periods where the opposite is true. i said in response to an earlier question that just looking within the health care system, the verdict on whether the private or public sector is better at controlling costs is not self-evident. >> with the gentleman yield on that plane? i'm looking at table 31. for the fourth time periods you have measured from other private health plans have lower conscripts and medicare. there's one of the four appears or medicare is little or and the dirt. although there is lower in cost growth in medicaid. >> so these are -- >> i misreading that chart? >> these are overlapping. i would emphasize. so when the 1985, 2007. come in the last 23 years -- 22

years, medicare and medicaid spending growth was below spending growth in the private sector. as i emphasized earlier i don't want to pick -- >> in 1990 with 1.6 medica 1.5%. >> history. over the last 17 years, medicare has been slightly above all other. medicated and below that. so what i'm suggesting instrument conclusions about which is better -- you can't draw those straightforwardly with just a look at historical tabulations and that what makes this analytic challenge we face difficult. >> anatomist trying to draw a conclusion about what is better. i'm trying to draw the conclusion were efficiencies are. would you say we he the government purchasing a must-have for health care in the couny, we could just tell folks are going to pay less. that doesn't create

inefficiency. does your modeling suggests efficiencies is why you see these numbers changes or is it just a legislative change it says were not going to pay you for their successes they are not experiencing on the efficiencies i pay a price controls clearly successful if done by the government. >> whether one. pain providers less is a hard thing. there are help analysts who point to experience of european countries that pay providers less for health care than we do and they do that is an appropriate way proceed. i'm not one to make recommendations as you know. i think efficiency means different things to different ople in this context. >> attempt of a certain forms of government spending important to economic growth or did you actually mean certain forms of government or to certain forms of spending? as you actually point to areas

of spending more valuable if done bthe federal government didt se a state or local government or an individual? >> adventures seen in a hard question, congressman. the point i was trying to before it was simply that one shouldn't feel all forms of government spendings a drag because there pieces thahave retur, but they are more effectively in different ways, i don't know. some of these things are national standards for consistency across the country. when they think of the interstate highway system. others are more individuals in particular parts of the country could be more effective on that level. today kitimat, mr. chairman. i like to follow up earlier in terms of government efficiency. have you done an analysis of the cost per patient for veterans health versus national averages in the private dirt? >> we've done analyses of the

health care system. that's a good question she raced to the veterans health care system in any point in time provides a high-quality care at no cost. >> at lower cost than the average. >> in which a prescription medicare drug scam over the veterans administration actually negotiates prices, do they provide prices less than what people are paying in the private market? >> theydo. >> you're extrapolating individual systems. >> i appreciate that, but i just want to say with all due respect that there are monos the federal government is doing now but are providing higher quality at less cost in terms of food inflation, i would think part of that is we are lavishly subsidizing corn production cheaper unnecessarily with the federal government and congress, which is linked and

not fixed it in fact the chance in this community to vote against that, contributes to food inlation. but i want to go back to something you said that i had a little concerned with. he mentioned in the course of your testimony that having money for food stamps actually tends to get into the economy, has a higher multiplier effect because people take it and spend it very quickly. and then in terms of reaction to my friend where you're sying social security is not an economic driver. we seem to me the money that goes into the hands of our senior citizens is almost analogous to food stamps. the senior citizens in my district are much more likely to spend that medicare dollar- excuse me, social security dollar and some of the lavish subsidies we have now that we've try to turnback. i mean, are you really think

that does not have substantial economic impact? >> thank you for the chance to clarify this. the discussion we were having over here was about the long-term economic growth path that we show in chapter two of our report. over the longer term, over the medium-term and long-term, what matters most for economic growth is supplied of the factors of production, how many workers are another ways. in the short term, particularly in an economy like ours now come with unemployed resources, the principal determines the rate of economic growth for goods and services and that is why cuts and spending today tend to slow economic. >> super. i appreciate the clarification. i guess i would like to just conclude in one area that you referenced that other countries spend far less than the united states. actually almost every developed

country spends dramatically less than the united states. and if you're old-fashioned come you look at things like life expectancy, child mortality, indicators that the rest of the road used to look at health care quality. it appears that they provide on average better outcomes for far less cause. now -- >> i wanted to ask a question without factual basis. don't think anybody disputes the numbers we've been provided although some may dispute what they want to say is the best re. i'm just trying to get at this sensitive or something intrinsically about the united states that would prevent us from being able to take to scale reforms within the existing system? i come from a state that is low cost high quality for medicare.

and if everybody packed his status in the they do in my community or in wisconsin, we wouldn't have the crisis were facing. is there something intrinsic about the economic system that would prevent us from being able to nationalize better quality, different part of paddings? >> i think there's a lot of potential in our system to do much better than redoing, congressman. the questionat hand than what is the best institutional framework to encourage those sorts of hanges. as you point to foreign health care systems come you're certainly correct they spend less money than we spend and have in many cases the better outcome, the thing i wanted to be more careful about and whether the measure of health care quality is more complicated because there's a variety of contributors to health care, said lifestyle differences.

analyses of the treatment for specific conditions in the system or other health care systems is less clear. >> is black. >> thank you, mr. chairman and dr. elmendorf for being here today to give us a perspective the long-term budget outlook. i want to follow up on what congressman altman was talking about and he is going more on how dead is effect in individuals and families. as they could turn the attention a little bit in a different direction on private investment because private investment obviously as we invest in jobs in the tech knowledge is something for that sort, we grow the economy and when the economy grows, there's a need for more jobs. so first i'd like for you to

talk a little bit about the crowding outeffect. explain that. and then go to, hat level of private investment become problematic? >> the crowding out as you know, congresswoman refers to the phenomenon that there's me government debt being issued in a larger share of the private savings in holding that debt, rather than investments in the cool cat will to make a more productive of retirement. that is one of large cause of rising debt. a cost that economists can best quantify. their other costs that we are not going to quantifying, do we write words about in the report. the more debt you have come and work interest payment the government needs to make an icon for other spending and taxes. the more debt you have come in the less flexibility you have to respond to emerging crises and more debt, the greater risk of a financial crisis.

and so, so for all of these reasons, additional debt is a problem. for much of these effects, there is no particular tipping point. every extra dollar of debt is a little bit worse. everything else equal. the one for which they may be a tipping point in this risk of the fiscal crisi some particular level of debt, but if we wrote in an issue brief last year, we don't need we can identify a particular level because it's not just the level of debt that matters is the expected trajectory, the confidence of ivestors in the governing process in the country to make changes in the fiscal policy. if the underlying strength and so on. there's a lot off a lot of facts that matter. we been appropriate unwilling to identify some particular tipping point. even the well-known work, they don't really find a tipping point so much as they pick

countries that ebt, but whether there is some threshold i think is not clear. if they contacted you talk to them fay is factors as well. >> just along those lines, i want to note that figure in your report does seem to indicate that government are and will have the negative effect on the economy in the list just a few years and you do have that in your report. so i appreciate that. i think that given the fact that there isno tipping point as you say and there's no time limit where we can say definitely this is going to happen and in what i appreciate so much as we've had previous members who have indicated sort of like a pond that you're skating on, were you skate around the edges that are shallow and the ice is very thick and you feel very safe. but none of us know when the ice starts to get and come a water

starts getting deeper and we just have to le some of the countries that have argued that in the situation where the debt contact us at a point that would be unknown and could in many cases be very quick without us being able to respond. then i assume it's a short period of time i have le you would agree that the sooner we address this dead issue, the more safer going to be in the less likely were going to be to look like this country. >> congresswomen, i certainly think the sooner that policy changes are agreed upon, to see for the country will be in terms of the fiscal picture. the question of how quickly to implement the policy changes you agree upon involve trade-offs that i can't judge for you. the sooner you act in terms of implementing changes, the last debt is accumulated and the more credibility is attached the future cutbacks tha have been

discussed. on the other hand, the center government spending and taxes are raised, the less time individuals and businesses, state and local governments have to adjust to the changes and so the harder the transition must be for them. and also, she just implement in the next two years late in economy that authority quite weak. so there is a trade-off in the speed of implementing changes. and semi that reinforces the risk of building up high level so that if one gets into a position where one is confronted with less and less choices and that's part of what she seen a trade-off. >> thank you, mr. chaiman. i yield back my time. >> mr. pascarella. >> thank you, mr. chairman. good morning. in the health care reform, mr. elmendorf, the issue that keeps on coming up, we pass what

i consider to be significant savings, one third of that legislation was devoted to medicare and medicaid. many of those savings were not supported for understandable reasons. that's not the issue her in a large part -- which is a large part of our deficit, we created innovative payment and delivery models. that was the whole purpose. people saye did not being any changes. democrats, god bless you who supported the legislation did not ring anything new to the table. they obviously dn't read the bill. but the majority's plan to sto

these models and move everyone into t private bracket, that's a brilliant idea pre-1964. very effective. if we look at the private market in 2010. it's interesting that you outfielder at 29, mr. chairman. 2010 shows a very different situation. in 2010, costs rose by 7.75% cost of health care compared to medicare, cost rate was raised in 3.3% -- rose by 3.3%. that is the standard industries of 2010. that is before three quarters of the health care bill even even went into effect before this.

so the point about what cost more in how it can save money, let's take a look at the facts and will improve the legislation or do away with the legislation may be might be very hurtful to the economy and particularly those who are covered and particularly those losing their jobs. we obviously, mr. elmendorf did not get the forecast radically about the economy in 2008 or 2,642,004 because the 2001 in 2003, when we made those dramatic cut -- tax cut and i'm not singling out any group, but when those cuts were made, what was the forecast of why we were doing this in what the results would be? and then what are the result?

did we have to investment them a good friend miss black talks about? did we have any increase in jobs? no, if you look over the past four decades -- for decades, the only president that has substantial increase in job investment in where the economy stood strong with bill linton. a 3% increase in business investmenunder jimmy carter. 3.4% under ronald reagan. under bush one and bush two, president bush, president bush to, we got an increase of about 3.5%, 3.6%. that's a better job than ronald reagan. under bill clinton, 10.2 or send in those eight years with the president of the united states business investment. so tax cuts are not the panacea

that we all are pretending it is, is there, mr. elmendorf? >> well, congressman, there are a varietof influences on the economy. the policies of presidents and congresses are obviously important. i would be close to draw any strong conclusions from that. savages you suggest. >> they're pretty accurate. >> i'm not disputing the numbers. i am just saying to map those directly to the policies while leaving out all the other factors. >> there are other factors aren't there, mr. elmendorf? when the president raised his hand in january 2009, he had no idea, we had no idea of how bad this economy was. would you agree to that?

>> if they do, congressman. >> for the record, mr. chairman. >> thank you mr. pascarella. mr. kerry. >> i thank the chairman. for taking a page out of mr. pascarella's comments i guess is that with the same time forcefulness. it is hard to make these projections that should make overtime. >> certainly is, congressman. so when you made these assumptions -- when you make these projections, what do you do quickly with great assumptions with regard to the overall capital market structure and investments but have you, how does that play into it? >> the private saving matters. we assume private saving continues over time in a way that keeps interest rates and that we do others aims for

policies. >> you may have heard -- to what they're not, for example, do you take assessment to see what the capital markets are the proverbial trillion dollars, whether that's invested or not come as bad a and look at? >> we're looking more at the 40 year for 30 or 20 or averages when you mature projection. with the updating august we're looking at the current state of the capital market. >> your chairman bernanke say some statement where he said jamie diamond i think said david said looking to and consider -- that he considers that the cost is.frank is on the marketplace and he said no is just too complicated for us to do. you heard that? >> we have also not quantify the effects of that legislation. >> day is that something be able

to do? is that something you should be doing? >> i don't think we have the capacity to do it, congressman. i think it's an interesting question. >> does it necessarily drive part of the cost of stories the economy going? >> i think it's certainly a factor in economic growth. said then he sent a press conference last week you said he's seen some sort of saucepot in the economy. he said he doesn't quite understand thissort of clueless, if you will because if you projections going forward, doing all the things from me that we're going to be certain places on gdp growth and unemployment, but were not there. you saw the comment? so could that be part of the problem that if those few inherent feeling to have that bit of infortion as far as what the cost of regulation and implementation could be explaining on some of our charts for the albums are?

thers enough a lot of themes >> i think it would be a big fat her as one of their two responsibilities of job growth. >> capital markets are important. >> so i came in and you may have paraphrased. he said shortcuts right now in tax increases now would slow economic growth. >> yes, that's right. >> can you quickly decide for me what are sharp cuts in spending? >> i was trying to convey with the word sharless said the magnitude of the cut or increase relative to the size of the economy. so we have an economy in its weakened state has gdp $15 trillion. policies that move that has to be significant. >> can you define that for me? >> now, there is no cut off or

say. it's a question of degree. our analysis says the cuts in spending -- >> if we cut $100 billion out of the 02 budget, is that a sharp cut? >> that's enough of a cut that would affect her productions over the next two years. yes, congressman. >> 100 billion with? >> yes. >> to what extent? >> it depends on what you change. the analysis we've done other recovery act and alternative policy for increasing output and employment show a range of different effects depending on specifics of the policy, which i think it's not just a matter of dollars, and moderates in the policy. >> or percentages that? 1% of that is $150,000,000,000.2 thirds% of the economy. for some forms of government policy come effects on the

economy can be less or more than not. the downward revision of the forecast that we got coverage yesterday of mr.'s economic growth are less than not. so about two thirds -- .66% cut in spending and your mother would slow down the economy? >> yes. all the models try to capture even the smallest acts. i was trying to convey with he turned sharply that you're concerned about it might be raised if the effects are substantia >> ms. wasserman schultz. >> thank you, mr. chairman. i want to just follow up on that same line of questioning that mr. kerry had. so if we are assuming that $100 billion cut could cut the growth of the economy demonstrates that would even seems that the small percentage cut would have a significant

impact, that seems backed up, mr. elmendorf committee chairman bernanke he said an article in "politico" today that i don't think a sharp immediate cuts and deficit would create more jobs. it would be best not to a sudden and sharp fiscal consolidation in the near term. so we have more than one of our economic experts pointing to the danger of cutting too much too fast. so generally, are you concerned that the proposed -- what i term a close, but a proposed republican budget cut at the cases proposed them and the amounts in size they have proposed them would negatively impact our ability to recover? >> congressmen, i agree with chairman bernanke statement. we have not done an economic

analysis of the republican budget resolution. as i said earlier and on another occasion, near-term cuts and spending or increases in taxes under the current economic conditions that showed the economy. credible reductions in future deficits for future spending cuts or tax increases would lose confidence, lower interest rates and thus strengthen the economy today. i think the effects of an overall fiscal package on today's economy depends on the balance and timing of the changing policy. >> suet make much sense in terms of making sure the pace ourselves on trying to strike that balance to use a chisel when it comes to cut, to make sure that we have the right combination of investments and cuts so that we don't offend the applecart? >> from our analysis, there are trade-offs in the speed of the

fiscal consolidation term. the faster wonders, the less debt, the better that is in the long run andhe more credible future promise kept b.c., which is good for the short run. on the other hand, the faster the policy goes, the less time people, businesses, upper levels of government have to adjust in the bigger the hits on the economy in the short term. so there is a trade-off there that we can do is try to hallucinate the trade-off, but it's up to you and your colleagues how to receive. >> thank you. i want to shift to medicare just the last couple minutes that i have. cbo's analysis of the voucher payments in mr. ryan's plan in 2022 says basically it's equal to what is 65-year-old would

cost than traditional medicare. my question is kind of typing in the first year of the program the voucher doesn't really see the government any money and doubles the out-of-pocket cost for 60 fibril to be covered under the plan? and my understanding that correctly? >> congresswoman, we didn't study the first decade or we don't usually city budget resolution alternately distinguish between federal cost. by ouranalysis it is more expensive to treat a 65-year-old and treat that person through medicare today for 65-year-old, but the plan also overtime reduces the federal government's payment. so we shall overtime the plan reducing federal payment relative to the medicare system. but we also show, as you know the beneficiaries of paying

more. >> just in my final 30 seconds, your analysis of the one page 13 indicates the reality of the proposal is some people wouldn't actually purchase insurance becae of the extra cost is made. so does that mean we could actually see an increase in the rates of elderly who are either uninsured or underinsured and would have to spend a substantial amount of income on health care to make up for the difference in what the coverag used to be? >> congressmen come you might see an increase. we were not able to analyze that anything that's a very important question and one of a number of significant caveats to that analysis. another context we've studied decisions given a set of both the government would put in place. we just have not been able to do that with this proposal. >> bottom line -- >> it raises the risk of older

americans over the age of 65 that exists now. >> it's a very different world than the world in the traditional program today. >> thank you, mr. chairman. i yield back. >> last speaker. >> if you could back to my college question on what we lose more people in health care because they wouldn't have the money to buy the difference if our plan actually direct funds more towards lower and middle income as opposed to wealthy millionaires and billionaires, what we in fact improve the circumstance of the insured? >> if we were able to analyze the patient's decision coming absolutely right. the levels of subsidies for different resource is an part of the analysis to be. >> middle-class americans are good ideas.

>> it's not my place to make value judgments. additional subsidies for people would increase participation relative to people. >> i need to come back to this mystical magical $100 million in cuts an impact on the economy, some of the federal government is not actually borrowing that money, what else does the federal government get the money from? >> well, >> from a igher tax how does taking money from one sector of the economy to consumer, giving to another sect of the economy changes dollars in the economy. >> the policy scenario is a cut in spending that match the equal cuts. it's also true that the analysis

from american who is not investing payment and is not getting the contract and that reduction in the government money pushed into the economic system reduces spending of helpful businesses that otherwise get it and the reduction in demand says the economy. >> a message at te money from a consumer might spend it based on their own free choice company abb accrual conflict. >> again, congressman not by reduction probably depends what the cut is, but somebo is not getting a check theyould otherwise be getting come either the benefit payment or payment for service provided to the government. >> that might t also get the tax that otherwise would have.

>> well, i think the future taxes are you changed right away, that people pic asian in future taxes would probably be different and that's why emphasize the credible reductions in future deficits through overspending or higher taxes would have confidence building effects. modeling inc. the tax rates >> in your report is a long-term budget -- cbo's production in the most long-term budget understate the severity of the long-term budget because they do not incorporate the federal attack economy, nor do they include the imact of higher tax rates on people's incentives to work and save, whch i think is significant. going onto the next page, you say growing debt would also

increase possibility of a sudden fiscal crisis. i wonder if you could talk to me -- is simple to look at what sadness and the crazy things, but what does that any crazies need to? how fast a sudden and how big is the crisis? >> first let me emphasize most of the projections in the report of the economic conditions for comparison across policies. we do in chapter two of an extended analysis on the economy. sudden fiscal crises in other countries have come on and the matter is months or weeks or days they have generally had very destructive effects in the economy to make the decision to put off at a moment when the economy is already under siege if you will a particularly

difficult. and dutcher mantles to economic issues. >> just one final comment and then i'll yield also investors of this confidence in the government's ability and the government would thereby lose its ability. i would dare say based on the conversations i've had with american citizens in my district that many investors and americans have a relative lack of confidence in this government. >> so, that may be to congressmen, but i find books that financial markets, investors putting money on the table are not charging a government tirades. they are actually charging low rate at this point and not things are fine until they aren't anymore. including our panel of economic

advisers meeting, the participants were themselv a little surprised that financl market. and most investors do in fact will be taken on a sustainable path as investors have confidence. >> i hope we weren't that confidence and i'll yield back. >> thank you for indulging us. i know you're hoping to get out of here by noon. it's pretty close to that. hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national

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