>> today the head of the congressional budget office says the united states will either have to pay for government, accept less in government services, or both. cbo director testified before the joint debt reduction committee. then more from alan greenspan on ways to improve tax policy. president obama was in all how today talking about his jobs plan, and mitch mcconnell criticizes the president's proposal. in an election marred by political corruption, blaine lost in 1884. he is one of the 14 men featured in "the contenders," friday at

8:00 p.m. eastern. learn more about this series at c-span.org/thecontenders. >> with that we will turn to our witness for today, dr. douglas commodores. he is the eighth director of the congressional budget office. before he came to cbo, he was a senior fellow at the brookings institution. served as co-editor of brookings papers on economic activity, and the director of the hamilton project.

he has served as an assistant professor at harvard, a principal analyst at the congressional budget office, a senior economist, a deputy assistant secretary for economic policy at the treasury com. in those positions, dr. relman door has gained a wide range of expertise on budget policies, medicare, national health care reform, financial markets, market analysis, forecasting, and many other topics. i am glad that he has agreed to join us here today. thank you for taking your time, and we look forward to your testimony. >> thank you, senator murray. appreciate the invitation to talk to you about the outlook and about cbo analysis of the

first hole -- of the fiscal policy choices facing the congress. the federal government is confronting a significant and fundamental budgetary challenges. if current policies are continued in coming years, the aging of the population and rising costs for health care will push up federal spending as a portion of the gdp. this will require significant changes in spending and talks -- and tax policies. addressing the challenges is complicated by the current weakness of the economy and large numbers of unemployed workers, and the houses, and under used factories and offices. changes can have a substantial impact on the pace of recovery during the next few years.

i will talk about the outlook for the economy and the budget and turned to key considerations in making policy. the financial crisis and recession have cast a long shadow on the u.s. economy. although output began to expand two years ago, the pace of recovery has begun to slow and the economy remains in a slump. cbo published its most recent look in august. in our view, incoming data and other developments since early july suggest the economic recovery will continue, but at a weaker pace than we had anticipated. with output growing, cbo expects employment to expand slowly, leading by the unemployment rate

as depicted by the dots in the figure close to 9% to the end of next year. all these figures are taken from the written testimony and nearly in the order in which the appear. as a result, we think a large portion of the economic and human costs of this downturn remained ahead of us. the difference between output and our estimate of the potential level of output shown by the gap between the lines in the theater -- of the figure has accumulated so far to $2.50 trillion. by the time output rises to the back of its potential, we expect the cumulative shortfall to be about twice as large as it is today, or $5 trillion. not only are the costs associated with this shortfall in output immense, they are also borne unevenly, fallen disproportionately on people who lose their jobs, are displaced

from their homes, or owned businesses that fail. i want to emphasize the economic outlook is highly uncertain. many developments could cause outcomes to defer substantially in one direction or the other from those we currently anticipate. as the recovery continues as expected and if the policies unfold as the spike in current law, the visits will drop markedly as a share of gdp over the next few years. under cbo baseline projections shown by the dark blue portion of the bars in a figure thought of as its fall to about 6% of gdp in 2012, 3% in 2013, and smaller amounts for the rest of the decade. in that scenario that is that over the decade total about $3.50 trillion. as a number of you have said, those projections understate the budgetary challenges. changes in policy that will take effect under current law will

produce a federal tax system and spending for some programs that differ sharply from the policies that many people had become accustomed to. specifically, cbo baseline projections include the following policies specify the current law. first, provisions of the 2010 tax act, including extensive of rates, and cuts enacted, all expire at the end of next year. second, extension of provisions designed to limit the reach of the alternative minimum tax, extensions of of of what compensation, and a reduction in the payroll tax all expire at the end of this year. third, sharp reductions in medicare payment rates for physician services take effect at the end of this year. fourth, funding for discretionary spending declines over time in real terms in accordance with the caps established and the budget

control act. fifth, additional deficit reduction of more than $1 trillion will be at lamented as required under the act. changing provisions of current law would produce markedly different budget outcomes. for example, and shown by the full bars in the figure, if most of the provisions of the 2010 tax act or extended, if the amt indexed for inflation, and if the medicare payment rates were held constant, the deficits over the coming decade would total $8.50 trillion, rather than the $3.50 trillion in the current base line. by 2001, debt held by the public would reach 82% of gdp, higher than at any year since 1940. mr. de cbo released analysis of the enforcement procedures of the budget control act as shown in the slides. we estimate if no legislation originating from this committee is enacted, the falling with a

core of the next decade. reductions in the caps on defense would cut outlays by four to $50 billion. reductions and the caps on discretionary appropriations for non-defense purposes would cut outlays by $300 billion. reductions in mandatory spending would yield savings of about $140 billion. the total reduction deficits would be about $1.10 trillion. the estimated reductions in mandatory spending are a comparatively small because the law and sims a portion of -- exams a portion of such spending from procedures. 70% would come from lower discretionary spending. cuts in defense and nondefense spending would lead to reductions in a number of military and civilian employees and in the scale and scope of federal programs. beyond the coming decade, the fiscal outlook worsens, as the

aging of the population and rising costs for health care puts significant pressure on the budget under current law. when cbo issued its most recent out, that by the public projected to reach 84% of gdp in 2005 under court wall, and 190% of the policies that more closely resemble current policies. although new long-term projections would differ because we would incorporate the latest 10-year projections, the mouth of our way that would be necessary under current policies would be clearly unsustainable. in sum, the budget is heading into familiar -- into an unfamiliar territory. as this committee considers its charge to recommend policies that would reduce future budget deficits, its key courses fall into three broad categories. how much reduction should be

accomplished, how quickly should deficit reduction be implemented, what form should deficit reduction take. let me take up these questions briefly in turn. first, regarding the amount of deficit reduction, there was no commonly agreed upon level of federal debt that is susceptible or of the wall. under cbo kurt moll baseline, that held by the public is projected to fall from 67% of gdp this year to 61% in 2001. stabilizing the debt at that level will leave it larger than any year between 1953 and 2009. lawmakers might determine that should be reduced to announce lower than those shown in the baseline and closer to those we have experienced in the past. that would reduce the burden of debt on the economy, relieve some of long-term pressures on the budget, the minish the rest of a fiscal crisis, and enhance

the government house flexibility to respond to the unanticipated developments occur if it would require a larger amount of deficit reduction. lawmakers might decide that some of the current policies scheduled to expire at the current law should be continued. in that case a cheating a particular level of debt would require a much larger amount of deficit reduction from other policies. if most of the provisions in the 2010 tax act were extended, medicare payment rate for physicians were held constant, then reducing debt in 2001 to the 61% of gdp projected under current law would require other changes in policies to reduce deficits over the next 10 years by a total of $6.20 trillion. in 2001, the gap between federal revenues and spending if those

policies were continued and other budgetary changes were made, shown by the right pair bars in the figure, is projected to be 4.7% of gdp. putting that on a downward trajectory would require a much smaller deficit. reaching that objective, the kind that brought to the -- the second set of choices involves the timing of deficit reduction which involves trade-offs. on one hand cutting spending or increasing taxes slowly would lead to a greater accumulation of government debt and might raise doubts about whether the longer term that is the reductions would ultimately take effect.

credible steps to narrow budget deficits over the longer term would support output in employment in the next few years by holding down interest rates and reducing uncertainty, enhancing confidence by businesses and consumers. the near-term economic effects of deficit reduction would depend on the balance between changes in spending and taxes that take effect quickly and those that take effect slowly. as shown in the next slide, policy changes that would reduce the visits later in the decade and beyond what -- without immediate spending cuts, with both support the economic expansion in the next few years and strengthen the economy over the longer term.

there is no inherent contradiction between using fiscal policy to support the economy today while the unemployment rate is high and factories are under used and imposing fiscal restraint several years from now with output been close to its potential. if policy makers want to achieve a short-term economic boost and longer term fiscal stability, a combination of policies that would be most effective would be changes in taxes and spending that would widen the deficit today, but narrow it later in the decade. such an approach would work best if the future policy changes were sufficiently specific, enacted into law, and what is supported so observers believe that featured restraint would take effect. the third set of dresses and false the composition of deficit reduction. federal spending and revenues affect the total amount and

types of output produced, and distribution of output among segments of society, and people's well-being in a variety of ways. considering the challenge of putting fiscal policy unsustainable paths, many observers have wondered whether it is possible to return to previous policies regarding federal spending and revenues. unfortunately, the task of combination of policies cannot be repeated when it comes to the federal budget. the aging of the population and rising costs for health care have changed the backdrop for budget decisions in a fundamental way. under current law, spending on social security, medicare, and other major health care programs, the dark slide in the figure, is projected to reach about 12% of gdp in 2020 when, compared with an average of about 7% during the past 40 years. this increase is worth 5% of gdp. most of the spending goes to benefits for people over 65,

with smaller shares for blind and disabled people and ford on elderly able-bodied people. in stark contrast under current law, off setting, is projected to decline noticeably as a share of the economy. that broad collection of programs includes defense, the largest single piece, the supplemental nutrition assistance program, formerly known as food stamps, unemployment compensation, veterans' benefits, retirement benefits, transportation, health research, education and training other programs. a whole collection of programs has encouraged spending at 11.5% over the past four years. with the expected improvement in the economy, it falls by 2001 to less than 8% of gdp, the lowest share in more than 40 years.

under current law, and are based on projections. putting those pieces together, including interest payments, between 1971 and 2010, shown by the left pair of course, federal spending averaged about 21% of gdp. under current law for 2001, as shown by the right pair of bars the cbo projected to grow to about 23% of gdp. alternatively, as the law governing social security was unchanged at all other programs were operated in line with their average relationship to the size of the economy during the past 40 years, federal spending would be much higher in 2001, around 28% of gdp. that amount exceeds the 40-year average for revenues as a share of gdp by 10 percentage points. in conclusion, given the aging of the population and rising costs for health care, a tenant

is sustainable federal budget will require the united states to deviate from the policies of the past four years in at least one of the following ways -- raise federal revenues significantly above their average share of gdp, make major changes in the sorts of benefits provided for americans when they become older, or substantially reduce their role of the rest of the federal government brought the size of the economy. my colleagues and i stand ready to provide analysis and information that can help you in making these important sources. thank you. i am happy to take your questions. >> thank you. as we begin the work that has been outlined for us as a committee under the budget control act, it is helpful to have a understanding of the scope of the problem, and you lay that out clearly for us. we agreed this task is pretty enormous, and we have to come together around a balanced

approach that addresses our fiscal situations, but also focuses on making sure we remain competitive and looks at our long-term growth. i wanted to start by asking you to spend a little bit of time on what you were talking about and talk to us about what we should consider in weighing the trade- offs between helping our economy in the short term to help create growth and not causing significant harm in the long term. >> in our judgment, and this is consistent with the consensus is a professional opinion, cuts in spending or increases in taxes at a moment when there are a lot and use resources in the economy and when monetary policy is finding it difficult to provide for the support for economic activity because of the funds rate been close to zero, under those conditions, cuts in spending and increases in taxes

will tend to slow the economic recovery. they will tend to reduce the number -- the level of output and employment other than what would be. at the same time, and it is quite consistent with a professional opinion, overtime, as the economy moves back toward potential output and those unused resources become used again come under those sorts of conditions cuts in spending or increases in taxes that reduce outsized budget deficits are good for the economy, both for output and income. it seems like a paradox, but it reflects the view that the effect of federal fiscal policy on the economy depends on economic conditions and on the stance and abilities of monetary policy. that is why in our judgment, the analysis we have done, to revive his activity now and

over the medium and long run, the combination of fiscal policies that would be most effective would be policies that cut taxes or increase spending in the near term, but over the medium and longer-term move in the opposite direction and cut spending or raise taxes. >> fenty. as -- thank you. several groups have released recommendations for reining in ad doesn't answer deming the rise of federal debt, all of them coming within a balanced approach, and i am concerned congress has not yet included revenues or entitlements as we have focused only so far on discretionary spending cuts and caps. some have made it clear they want entitlements off the table. others have made it clear they what revenues off the table. unfortunately, that leaves only

a relatively small amount of discretionary and mandatory spending that members so far have been unwilling to focus on. would you agree that cut and caps we institute within the act can help somewhat with the long term, but what we really need is a comprehensive approach that does address both revenues and mandatory programs? >> as a matter of arithmetic, there are a lot of this for it at this to reducing deficits, and it is not our role to make recommendations among the alternative paths. the crucial point is that the large pieces of the puzzle one takes off the table, then agreed to the changes will lead to be in the remaining pieces. you can see this clearly in this picture. for 2001 about this picture

shows under current law, revenues being 21% of gdp, if one instead wants to -- this is written14 intere the testimony. the left hand set of bars shows the averages of the last 40 years. the far left part is ravenous, revenues have averaged 18% of gdp. the right can bar shows the major pieces of the spending. the bottom chunk is social security, and major health care programs. >> could you try a page? >> page 42. >> thank you. >> the left-hand peas is revenues. the average 18% of gdp.

the right tanbark shows spending, social security and major health care programs, , schip., medicaid in the past that averaged 7% of gdp. of all other spending, mandatory spending, defense spending, has averaged 11.5% of gdp. the deficit has been a little bit under three percent hundred 40,021, revenues would rise to be 21% of gdp. for security in the major health care programs, 12% of gdp. that is 5% more than in the past 40 years. that is the essence of the point that the aging of the population and rising costs for

health care have changed the backdrop for the decisions that you and your colleagues make. if those policies continue -- programs continue to operate in the way they have operated in the past, they will be much more expensive than they have been in the past because there will be more people collecting benefits and each person will be collecting more in benefits. that is a crucial driver of the feature budget trajectory relative to what we have seen in the past. the other category, other non- interest spending, is already much smaller in 2021 under current law and our projections than it has been historically, and that is a combination of improvement in the economy which we think will reduce the number of people on food stamps, and so on, but also discretionary spending caps that reduce both defense spending and non-defense discretionary spending in real terms and thus reduce them sharply as shares of gdp. >> i am out of time.

i appreciate that response. i will turn it over to my code- share. -- co-chair. >> is it possible to pull up your figure 12 from your testimony, if somebody could help me with that. page 39 of your testimony, i believe it is entitled figure 12. i understand this chart is a chart of historic and projected growth on social security, medicare," other major health care programs. he would not happen to have this chart plotted against growth in gdp, would you? >> is our shares of t.d.. the spending on these programs expressed as a percentage of

gdp. >> the historic average is roughly 3%, annual economic growth? >> i think that is about right, congressman. >> on your figure 14, social security and major health care programs have averaged 7.2% of gdp. current law going to 12.2% of gdp in 10 years for it from 7.2% to 12.2%, not quite double, but that could be described as an explosive growth, could it not? they bought a very rapid, congressman, yes. >> as i am looking at some of your cbo data, just for the last 10 years, apparently social security has grown at an average of 5.8%, medicare, 9.1%, medicaid, 8.8%, in the last

decade, and again, we now have a revised gdp growth outlook coming out of your august revision of your baseline, so is it a fair assessment that we have social security, medicare, other health care programs that are potentially growing two and three times the rate of growth in our economy? >> our projections are for them to continue to outpace the economic growth. the exact amount is uncertain, but the gap in the growth rates that we have seen historically has been very large, as she said. >> now, the senator in his comments thought about the current law baseline, and although an important exercise is certainly not in front of us, but under a current law baseline, the care physicians are due to take the essentially

a 30 prison sign a cut next year, correct? >> yes, that's right. >> cbo, he recently testified that cbo does not have a model to really impact -- to show the impact of such a cut on health care delivery, is that correct? is cbo developing a model? but it is in the long term, plan. we have raised concern that much slower growth projected for payments to physicians relative to the private sector would affect the access to care about quality of care, received by beneficiaries, but we do not have a model in the near term that would enable us to make any more specific predictions along those lines. >> clearly, again the i have quoted the president who i do not agree with in our last

organizational meeting, where he said the major driver of our long-term viability as everybody here knows is medicare and medicaid and health care spending. nothing comes close. i take it you would probably agree with that assessment as well? , yes, that is right. >> but i am trying to get to a qualitative aspects to this, and you say cbo is developing a model. i know that actuaries have said he essentially if, under the current baseline, that medicare beneficiaries would almost certainly face increasingly severe problems with access to care. that is the medicare actuaries, august of 200010. the medicare trustees of 2011 talked about the growing insolvency, and the fishery access to health care services

-- beneficiary access to health care services would be rapidly curtailed. the administrator for the medicare and medicaid services says the decision is not whether or not we will ration care. the decision as well whether we will ration with our eyes open. to some extent, even the cbo does not have a model, we aren't looking not only at programs that are driving the insolvency of our country, but in many respects, left unreformed, is a lessening of the list of beneficiaries as well, is that correct? >> the extent of the pressure on providers of care to beneficiaries, it may depend on a time horizon. when the actuaries make projections for 75 years into the future, they have shown pictures in testimony about the route the payment rate to providers many decades into the

future. the sorts of changes and train for the coming decade might affect access to care, quality of care, but would be much less severe than if the same pulses were left in place for the remainder of the 75-year period. beyond that, we do not have a way of trying to quantify it for you the extent of the impact on beneficiaries. clearly the trustees and cms do so far, and in an attempt to lead by example, i see my time is up. thank you. >> thank you very much for your testimony, and you focused a bit of your time on what is coming up, which if we are not careful could be pretty bad. we are dealing right now with a

$14 trillion national debt, plus, and fairly massive deficits today, and we have been charged to come up with savings with these current and past debts of at least $1.50 trillion. that we -- let me put a few charts out. the first chart is a chart of cbo work done in 2001 that i would like to have raised. it is called changes and the baseline projections of the surplus since january, 2001, and what i would like to do is point out what is being projected by your office back in 2001, and then analyzed, and all my colleagues have copies of this charts with them. it is difficult to make out these tables and make much sense of them, but for those who could make out the lines, the numbers on his charts, at the very top

line, the total surplus as -- >> what page is that on the ? >> that is in a separate handouts. >> the first one is that the type line there, total surpluses as projected in january from two dozen of the projected from 2001 to 2011, if you total that up, we would have surpluses of five trillion dollars trick if you go down to the very bottom of the chart, to the law and says actual surplus or deficit, under the 2002 column, by the year 2002, there was a negative one

had a 58, which means a deficit of $158 billion. while the projections in 2001 were four record surpluses totaling over 10 years, $5.60 trillion, by 2002, we were already beginning to run deficits, not surpluses. we knew well in advance that the year 2011 that the federal government was beginning to run deficits, record deficits, that could ultimately harm our economy. i have another chart that uses the data from the cbo that we just discussed and tries to put it in a little easier form to analyze, and the pugh center -- pew center did this chart, to try to segment out where that change from surplus to deficit went. all those dollars that were

spent, all the revenue to the tax code that was lost, where did it go? and the biggest piece of the pie on the right, it is what you described shortfall in nation's output. all the things that the cause us to have less output than we had expected, rejected, probably constitutes the biggest portion of that. after that the second biggest slice of the pipe that drove our deficits, you can see, are the tax cuts into the some one and 2002, the bush tax cuts. actually, you could put together our defense costs, which are here in the very bottom, operations, and other defense spending, a little bit further up to the left at 5%, and you have 15% of the pie due to defense spending and so on.

increase in net interest the money we pay just on the interest we owe on the national debt, is one of the largest items as low, so nothing productive comes of making those payments. i raise that because as we talk about where we should target our solutions we should know what has driven us most toward these large annual deficits that now give us this over $14 trillion national debt. the final chart that i want to raise because it points out the actual discretionary spending part of the pie, which he spent some time on, knot that tax expenditures, but to the applications we make for the budgeting process. hard to tell, but the largest item shows the change in spending from 2001 to 2010, the greatest percentage of that ad spending in those 10 years was

in the department of defense, much of it because of the war in iraq and the war in afghanistan, but fully 2/3 of the costs or the extra spending that was down from 2001 to now, 2010, has come in spending done in the department of defense. you can say that the veterans department, that share of the new spending that went to veterans was 5%. education, down the list about the new spending is about 1%, and that is important to gauge that, and as much as i hope we have a chance to get into some of this and talk about where we have to go, it is important to know where we are coming from, and so i thank you for being here to help us gauge this response is in the future. i yield back. >> thank you. rather than make a speech, which would have the effect of the

fighting us, -- of dividing us, i would like it fine areas we might find agreement. i will begin with a quotation from the president in march of last year. he said it is estimated in proper payments, if we created a department of improper payments, it would be one of biggest departments in our government. this committee can address that, but we will need cbo help in order to do that. for 2010 gao estimated improper payments at over $125 billion. medicare, medicaid, an unemployment insurance ranks one, two, and three in total improper payments. the bottom line is if you had $100 billion as the president says in overpayments each year over decade, that is $1

trillion. it is an area we need to address, and since it does not involve cuts in benefits or fundamental reform up programs, which i happen to think we should do, but i am trying to stay on areas where we can reach consensus, we will need help in scoring how to approach this. my first question i should ask is, do you agree whether with the specific numbers are not that there is a significant amount of inappropriate payments for some of the programs i have mentioned? >> i agree with that. there's a difference between improper payments and fraud, fraud involving legal issues. some improper payments are to people -- if they've -- if the forms were filled out properly, payments would still be made. people should understand when they see bees largest numbers

for improper payments, that is a much broader situation than the thing we see in the newspaper. the second put to make is that not just whether the improper ness is out there, but what policy -- government has out there. there was an effort on the part of the justice department as well as the department's running these programs to crack down on fraud, and you see stories. the question we can help the committee work on is, what policy the waivers are available to bring some of that money out of the system. >> exactly so, and that is where we need your advice. the, about fromme is correct. -- that comment about fraud is correct. it is important. one question is would be benefit rooting thats by bu

out. the other would be hiring additional people to check before the check goes out rather than what it after we find the problem. the prompt payment requirements represent part of the challenge we have. is it true that cbo -- has cbo itself done an analysis of these numbers? >> i do not have numbers comparable to the was acquitted to use, but we spend a fair amount of time working with members of congress, working with the people at cmf to think about ways and that policies could be changed that would try to reduce the level of those payments, and the budget control act included provisions for raising the caps in discretionary spending to cover some of those efforts you

described, and we could the effects of that act of the savings that would accrue in terms of reduced payments. >> will you work with us to try to identify the potential policy that could result on a cost-benefit analysis significant savings if we were to implement it? >> yes, we certainly will. i would caution that there is no evidence that suggests that this sort of effort can represent a large share of the 1.2 trillion -- $1.20 trillion, or larger numbers you have discussed as being the objective savings for this committee. >> if the g a zero report is right, if the president said -- if the gao is right, if we get 25% of that, it is a significant amount of money. it is at least something on a

bipartisan basis we can agree on. there's a second area i want to raise here, too, and that is asset sales. there are a lot of different reports. crs said in 2009 the government held over -- spending over $130 million just to maintain then. assumedident's budget savings by selling them. you have scored the president's proposal, but that was one that relied on incentives to sell property. if we simply mandated the sale of property, we would need your advice about how to structure that so that we would get the best return for the sales we would want to accomplish. will you work with us on that potential area of -- that is revenue, as well as savings? yes, of course, we work with

you. there is no evidence that the amount of savings or the extra revenue that could be reaped could represent any substantial share of numbers that begin with t 4 trillion. the base closure realignment effort has not yielded significant amounts of money for the government in terms of selling the properties, a money in terms of operating these facilities. but not much has been sold. if one sees these numbers about thousands of government property is not being used, many of them by number our shacks in the middle of nowhere that do not have market value, and the properties that have the most value, there has been back and forth in the newspapers about properties in los angeles, the people around it are fighting hard to prevent the government .rom selling it

the people who are there, using it, potentially using it, wanting the area to stay that way, pushback carey cartridge history suggests very little money is wreaked. we will work with you on policies in that direction. >> senator baucus. >> thank you, senator murray. we should explore this much more fit gristly than we have in the past. -- much more vigorously than we have in the past. page five, you talk about the timing of deficit reductions. use state according to analysis, credible policy changes that would reduce deficits later in the decade for the longer term -- cuts in spending -- basic

question is, can you give us examples of how we can achieve both goals, namely, jobs and that is a reduction? that is one of the key questions here. how do we do it? they're probably several ways. you have to mention that deficit reduction has to be longer-term that is credible. it has to work, we got to find that balance. i was wondering if he could give us a couple examples on how to accomplish that. >> we released a report in january of 2010 that analyzes a set of alternative proposals for growth.g job we look at increased transfer payments. we looked at cuts in all sorts of different taxes. we looked at other types of

government spending increases. i do not want to appear to steer the committee in any particular direction among mistresses because they involve not just the facts on the economy, and we didn't estimate the impact on output. they involve tresses about what you what the government to do, what sorts of activities the government should be engaged in. the set of choices in making policy in the that is -- in addition to deficit reduction policies, far beyond our technical role, crucial point our that cuts in taxes or increases in spending in the near term will spur output and a planet in the near term, but just by themselves, they will reduce output in in comes later on because of the extra deficits accumulated. i want to improve the medium and longer-term outlook for the

economy, and what needs to have deficit reduction that offsets the extra costs in the near term and reduces the deficit further relative to the unsustainable path of current policy. >> think i have your chart, and i applaud you for it because in that chart for example -- jobs as cumulative effects on implement, you have highs and lows. for example, increasing aid to unemployed is pretty high in terms of its economic effect in helping people without jobs chemical also with respect -- without jobs, also with respect to the gdp. we will find ways to address that. i would like to turn to another

question, and i did not want to steal from my good friend who can follow up more, but it is the baseline question. get to 61%hat we can of gdp in 2021 under current law. but most of us here in this room did not think current law is very realistic. there are prone to be changes, and you list the changes in your statements, namely, the tax cuts, amt, indexed for inflation, medicare payment rates, fourth, and if we were to assume if those provisions are going to be extended in current , of $1.20 trillion, 61%

of gdp in to those 21, the figure i have is $6.20 trillion. >> yes, that is right. the cost of extending this provision amounts to about, including interest costs, would include -- would be about $5 trillion in the coming decade. the trust of the congress about those policies -- that choice of the congress is much larger than the stated target deficit reduction of this committee. reduces say we want to the deficit by $6.20 trillion, for example. >> ok. >> what with the composition of that reduction be if we reduce the deficit somewhat in pe arallel to the causes of the $5 trillion? >> most of the extra $5 trillion

comes from a reduction in taxes, so if one wanted to offset that, one would need to raise the tax revenues through some other channel. i understand the purpose for this hearing, talking about the history of debt and how we got here. and you are extending that a bit into the future. the fundamental question for you is not how we got here, but where you want the country to go, what role do you and your colleagues want with government -- want the government to play, and if you want a role that has benefits for older americans like the ones we have had in the past, then more tax revenue is needed than under current rates. if one wants this tax rates, then one has the next dividend changes in spending programs for older americans or other aspects of how the federal government

conducts its -- >> is really a question of where do we want to go. do we want to have an amt indexed to week to we wanted -- these are basic questions we are right at ask ourselves that have consequences, and the consequences if we want to do all that, it is a $5 trillion addition pic. >> yes. >> thank you again, and i want to underscore what our friend mr. kyl said about fraud and abuse. as is needed help on that would be low-hanging fruit in a major way for us to

include as part of the package. let me ask just an early question as to timing of this whole event. we are tasked to have a vote, november 23. what is the timing, other than as soon as possible, what is the realistic date that truly we have to have our documentation submitted to you? i know sometimes a lot of our members are frustrated trying to get a cbo corporate there is not a higher priority for you all to do this, but what is really the state that you are going to want the material so we can complete the work by the statute? >> as you know from your work in your committee, it is a process where -- it is a process in which we often see preliminary version of

ideas and offer feedback, but if this committee intends to write legislation that would change entitlement programs in specific ways, that process usually takes weeks of drafting to make sure that letters of the law that you are writing accomplished the policy objectives that you are setting out to accomplish. as part of the drafting process we're estimating the effects of the letter of the law as it is being pressed -- written. it will take us at least a few weeks tree i have a terrific set of colleagues who are talented and were unbelievably hard, but we need to do our jobs right, and that means not just pulling numbers out of the air. we have set in discussions with the staff and the committee that with all respect your decisions really need to be mostly made by the beginning of november if you want to have real legislation and a cost estimate from cbo to go with that before you get to

thanksgiving. >> i want to get a better understanding of the estimates of the cost impact of the affordable care act. as we know the bill increased taxes on some of our nation's most innovative job creators. reduce medicare spending significantly. the tax creases in the medicare cuts were traded to create three new head of programs which have yet to take effect, and according to our projections, which are based on your most recent baseline, those new entitlement programs will cost the nation nearly $2 trillion over the first thing years, from $14 -- from 2014 to 2020. question one, at you all estimated the full 10-year cost for each of these entitlement programs, medicaid, health coverage subsidies, and the creation of the class when they are fully implemented? >> no, we have not.

>> de you anticipate doing that all? >> no. we created estimates for the 10- year. and then provided a rough idea of what would happen in the second they did from that point in time. as the time moves forward, we will end up with a 10-year window which will be from 2014 to 2020, that we will then not have an obvious effect. some legislation creates new monies that the not exist for, insurance exchanges, and those lines of our cost estimate will in some sense become flows of money at that time. much else of that legislation may change in existing programs, payments to medicare, so on, and we will never know for sure what money actually is flowing to for

me because of that piece of legislation. we will see flows for certain up purposes for certain accounts, but isolating the effects is not possible. the push corruption drug benefit is one where we could look back at how -- the prescription drug benefit is one where we can look back at how we did. for most legislation that congress passes, one can never go back and and tell what happened. the health legislation will be like that at some point. >> is there a way you can take a percentage of gdp and try to match that up with the out years and let and, 10, 11 years out? >> we can talk with you further, congressman. we didn't do that, then that affect of the law, the share of

gdp, and we talk in our estimate at the time about some of the bigger pieces of the legislation, things that were growing rapidly, more slowly, still appear that calculation is >> it is too broad a brush. if there are other ways of looking at those pieces, that would be helpful for you. i hope we make very clear and nobody is confused about this, that legislation treated entitlements that raise federal outlays. it also made other productions and outlays and raised revenues. we still think they reduce budget deficits. that was a net effect of very large changes with different signs that increases the uncertainty of the net effects.

>> thank you. >> thank you. >> thank you very much, madame chair. since we have been sitting here, we received a notice that the nation's poverty rate has increased to 15.1%. that is up almost one full percentage point. now, back in september of 2010, in testimony before the budget committee you said this -- regarding structural changes, the end of the housing boom and the recession, all of the reshuffling of jobs among businesses, industries, and geographical areas, those who

suggest gains in employment over the next several years will rely more out than usual on the creation of new jobs in different industries and locations and require workers with different skills. the youths -- the still feel that to be true? >> we do. we think much of the unemployment we are seeing now is what economists would call a cyclical response to the weakness for demands and services. some of the extra unemployment we see now is more what economists call a structural problem which involves the mismatches we discussed in the passage that you read. it also relates to unemployment insurance benefits and other factors in the economy. we made a rough in a tent to quantify those pieces in the august today, but the rough shot is we think they are an important piece to unemployment

that leads to the structural mismatch that makes it harder for people to go back to work. it is not so much going back as going on to something else. >> in your view, there is not much that can be done in the short term to attack this? >> i would not quite say that. it is challenging. i think what i would say is the cyclical part of unemployment, the part is responsible for goods and services can be addressed through aggregate economic policies. people who are unemployed for structural reasons because of the sort of thing they knew how to do any place they live is not being done there or anywhere anymore, that is not amenable to broaden mackerel economic policy. it might be responsive to certain types of more focused

policies -- training programs for example. i think the broad brush summary is that it is hard to make them work. it is not impossible. i do not want to suggest that. i think it is a different policy that needs to be considered to help those people find new jobs to help other people create jobs that those people would be able to do. >> to be certain, i am just as concerned as my good friend senator kyl is about fraud and abuse. the problem i have, with these kinds of those who are in need are increasing rapidly.

the question then becomes if you look at the median family household income declining 2.3% , there are increases occurring among the need the theory rapidly. we have not done anything to absorb that challenge. >> you are certainly right, congressman. one thing i would say is that the federal budget automatically does something for those people great food stamp participation is up. a lot more money is flowing out that way. unemployment insurance, even apart from extensions, will pay benefits to more people if more

people are unemployed. some of the automatic features of entitlement programs end up helping those people. i do not want to suggest that that has inoculated them against overall problems they faced. >> that means the burden of doing smart cut his greater than what it may appear just looking at the numbers. we really need to look into all of these programs and see exactly where cuts ought to be made rather than just dealing with a number. thank you very much. i yield back. >> building on what my colleague congressman cliburn just said and we talked about

earlier with the impact of debt on the economy. he you have a reaction to the study that shows once you are at 90% of gross debt, which are already, you have an impact on gdp, therefore on jobs and the kind of issues that clever talked about? >> we benefit from her expertise. i think the thing to know about the study. first of all, they are looking at gross debt. those are larger numbers than the ones you will see on me. something to say, they divided the world into buckets in a sense of different levels of debt. that does not prove there are some particular tipping point at 90%. sestet the evidence shows of of that level, the economy tends to not do well. we talked about the risk of a fiscal crisis and other things

we have written, we do not think it is possible to identify a particular tipping point. there is no doubt as risk rises, rest of fiscal crises rise. the federal government loses the flexibility to respond to unexpected international developments or problems at all because of the looming debt. we are moving into territory that is unfamiliar to most developed countries for most of the last half of the century. >> as you have looked around the world and was recently reported as harvard university showing that the most successful growth reduction took place in light cheaply on austerity programs and cuts. nations that rely more on tax increases were less successful and hence lower economic growth. have you look at some of these countries that have gone through the same process we are going through now? what, can you give us today on what we can learn from experience of those countries.

maybe if you know about his study. >> i do know alberto is working. work.rto's there are a number of countries that have faced fiscal crises and undertaken austerity programs. we'll look at a very similar set of data to the work of aalbero to. the results were the countries that set out to do fiscal austerity the results were not good in the short term. i think looking at greece and others, it is a terrible situation to end up and where one has to make drastic abrupt changes in policy. if you look at greece or ireland or the experience in the attic kingdom, which is not such a crisis but a very determined to pivot and its policy, those economies are not doing very well right now.

i think leaders in those countries felt they had no alternative given to where they had gotten too. they were at a point where people were not letting the government money anymore or were about to stop lending the government money. they had to make drastic changes. lead is not a situation that we would like to find ourselves in as the country. >> it appears we are heading there if you look at the current policy baseline and some of the more realistic things my colleagues have talked about. if you look at your chart with regard to baselines, you say we have about 3.5 trillion dollar increase, but under the policy, you say -- i would add text extenders and others have possibly you are about a two $9.3 trillion. $1.5 trillion is a relatively small part of the problem.

i do think as we look at our work, we're going to need your help in looking at more realistic baselines. we are making difficult choices and ending the extension and payroll tax and so on. what does that, your figure 14 is very instructive. we spoke about some major health-care programs earlier. there was discussion about president obama comments. assuming you agree with that, which i assume you do, what do you think ought to be the primary focus of this committee? >> again, it is really not the place of meat or cbo to offer recommendations about how to proceed. there is no doubt that the aspect of the budget as starkly different in the future relative to what we have experience in the last 40 years is spending on

programs for older americans and spending on health care. the reason those programs are so much more expensive in the future is partly to do with changes in policy over time. most important, it is due to a greatly increased of older americans at a higher cost of health care. as a matter of arithmetic, it is possible to raise taxes or carve away at the rest of the government and with that can support those programs in this form for some time. but there should be no illusion about the magnitude of the changes required and other policies to accommodate that. if one relieves those programs in place, under current law already, the rest of the government will be much smaller and 22 to one that has been historically. one would need to raise revenues substantially. this is a 5% of gdp increase in the cost of social security.

5% of gdp is a very big number. that is why think many people believe that there should be changes in that part of the budget. >> so the 2.7% of gdp spending at 2021 estimate under current law, not even current policy, the major drivers social security and health-care programs as compared to the historic by average. revenues go from 18% up to 20.9%. my understanding is under current policy, revenues go up above the 18% level. so your estimate also includes a slight increase their revenues. >> a slight increase, yes. that is right. which i am not sure exactly, but yes. i would to some one factor here. the number of americans over the

age of 65 is going to rise by about one-third in the coming decade. one-third more beneficiaries and social security and medicare one decade from now, roughly then there are today. on top of that with higher health-care costs per person, one can see what this program in the current form is becoming much more expensive overtime. >> i want to try to move to a couple of things fairly quickly if we can. he said a moment ago the part of the budget that is starkly different is the number of older americans and the cost of health care, is that correct? those are the two things that you said are starkly different about the aspect of budget today. >> and in the future, yes. even more so in the future.

>> is not accurate that we have a balance the budget, i think, since world war 25 *. --world war ii five times. revenues have between 19% and 22% of gdp. is that accurate? "that sounds right. i have not checked. >> assuming there is accurate, we are currently at 15% -- 15.3% is your prediction where this year, for revenues to gdp. >> that is right. is it not fair to say that in fact there is an aspect of our budget today that is starkly different which is the level of revenues relative to gdp? it is starkly different, is it not? >> that is right, senator. >> it is starkly different in that it is well lower than the historical average of one we balance the budget or not balance the budget request that

is right. >> and given that reality and given the reality that you and others, i think last year the committee on fiscal future of the united states developed for budget scenarios. they have one budget scenario where you had nothing but cuts and another budget scenario where you had tax increase. then two in between. the only way they could keep the revenues of the historic average and keep the spending at these levels was basically with cuts. that is not the were you need to go in terms of this historical average and not man -- not winding up with major cuts. if you want to avoid -- you made

a statement to us a moment ago that we have to make a decision about what we need to do. most people have accepted that we do not want to have major reductions -- have reforms, yes. we need to do a better job of making them fiscally sound. i have not heard anybody stand up on either side of the aisle and say there need to be huge cuts in benefits. if that is true, are we not forced into a situation where we look somewhere near the historical norm with respect to the revenue of gdp? percentage? >> if one wants to leave it spending on social security and a major health care programs roughly in line with what would happen under current law, then one needs to either further carve a way other functions of the government or one needs to raise revenues above their historical average share of gdp

by a significant amount. one could do combinations of those. but there is no way to simultaneously let social security and major health-care programs grow the way they would under current policies or anything close to that and operate the rest of the federal government and light has a has of the last 40 years and keep revenues the same share of gdp have been on average the past 40 years. the reason those things are inconsistent with other work in the past 40 years is because the number of people will be older and a number is an amount will be collecting in health benefits will be somewhat larger in the future than it is now. but i would agree with that judgment that you have made. i think it is an important one with respect to how we approach that. also, we are obviously going to have some time to discuss the health-care peace. is it not true that -- the

medicare excess cost growth. how does that compare to the excess cost growth in overall spending over the next decade? i think in recent estimates that you found medicare in the excess cost growth was actually lower than historical average now. is that not true? >> yes. excess cost growth, meaning not excess of any judgmental sense but faster growth in benefits per person, that excess growth under current law is pretty close to zero for the coming decade. that would be a very sharp change from the expected the past 40 years. >> what do we attribute that significant reduction in the medicare cost? "a portly 2 features of the law like the cuts and payment rates

to positions due to take effect at the end of this year. like the number of the other cuts that provide payments enacted in last year's major health legislation. >> that has had a beneficial effect and growing costs of medicare? >> that is right. "i will reserve my time at this point. >> rep camp creek >> thank you. on a topic or a similar to what you are covering today. it seems as if your presentation then said it then and now that we need to get control of the automatic spending increases that have been built into the government's budget. is that a fair statement of your testimony then and now? >> we said those pieces are

growing very rapidly. to accommodate that as it stands would require very large changes and other aspects of the government spends or collect request of the significant drivers of our current situation. what programs in particular are at the core of the cbo's projections put the long-term government spending? which programs are responsible for the largest increases in government spending? >> if someone looks at the control from the written testimony on page 39 and coming up on the screen by those with very good eyesight, one can see that this picture shows growth over the next decade in social security and medicare and other major health care programs brickworks to the other health care programs include all of the health care act, long-term care, and other medicaid increases? >> the other programs are medicaid. the insurance program and

subsidies to exchanges on some smaller spending grew >> long- term care entitlement? >> the long-term care entitlement as you recall actually raises money for the government in the first decade of its life. i do not know of that has been netted out here or not. i do not think so, actually. one can see from the picture that the largest increase as a share of gdp or the coming decade among these three categories is the other major health care programs followed by social security and medicaid. that is principally, i think, because of a great increase in a number of beneficiaries from the expansion enacted last year and a continued sharp increases in costs for beneficiaries. what's in your prepared testimony before the president's commission, you also included a charge. if we could pull that up now. everybody has a copy of the chart in their desk and there packet which shows real gdp per capita under different economic conditions. you'll notice under the

alternative fiscal scenario, the line stops between 2025 and 2030. you explain then the line stops because economic growth collapses. it simply cannot handle debt loads that high. is that an accurate statement of what you testified before the president's commission? >> yes, that is right. we have updated these pictures from our long-term projections from this year. similarly, not at the same point, the amount of debt under the alternative scenario becomes a large that are models do not know what to do with it. i do not think the economy would actually get that for at all. people in the economy will be looking ahead. they will be foreseen what happens. it will be much more serious problems that come sooner in these pictures. >> i think he said the government debt has become so high that you do not know what to do with it because prior investment ceases to function. the economy ceases to function under that scenario, correct?

what's it ceases to function at some point. i think the increasing number comes sooner the show in the pictures because of anticipation of that problem. "i think that analysis really does go along with what other analysis have set of the country's debt to gdp ratio when it exceeds 90%. i am talking total debt to gdp ratio, that it exceeds economic growth as ever as -- as others have said in their time. >> i think the models we are using here are consistent with estimating the sort of issue. >> am i correct to say that our total debt to gdp ratio is over 90% at this time? what is, i think that is right, congressman. >> and what impact you think these massive levels of debt relative to gdp have on the economy in general and specifically on the prospects for job creation?

>> those levels of debt are a burden on the economy. they reduce our output and our incomes relative to what we would enjoy a if we had done less borrowing and more savings. >> this committee has been tasked under the budget control act of finding 1.5 trillion dollars in deficit reduction over a tenure. what is the size of the economy over the next 10 years? >> the gdp today is about 15 trillion dollars. we think it was over the next 10 years down. yet in the calculation, i would be happy to hear from you. >> justice and never tenures, 150 trillion. are talking about 1% of our economy, are we not? in terms of rough numbers. the reason i want to point out this number is you mentioned the impact of making decisions about spending that might have impacts on the economy. i just to put into perspective over the next 10 years that

these reductions that we are asked to find a the next 10 years roughly represent 1% of the economy. i'm talking very rough numbers. >> i think that sounds about right to me, congressman. i agree, the problem is or locked by the standards of the incremental fiscal policy decisions that the congress normally makes. it's not be viewed as unsolvable. changes in policy can put us on a different path. >> in terms of outlays, i think this amount of the next 10 years represents 3% of our out lines. i think as mr. senator portland mentioned as well. i think we need to put into perspective that while i am not apply how to call this much -- this might be, in terms of impacting the economic trajectory of the united states economy, we are not over the next 10 years. in significant percentages of their economy or outlays.

most families and businesses have had to do with less than 3%. i think it is something over a 10 year period. it obviously had to do with less than that. i realize my time has expired. i do want to ask you one quick thing. we may come to agreement on the impact budget window, but we may have decisions that are outside of the tenure budget window. i just wanted to ask if you would be willing to work with us to find ways to measure the impact of policies outside the traditional budget window and if you would help us do that? >> yes, absolutely. >> to leverage. i yield back. >> let me to start by thanking you for your testimony. i just want to say that -- this goes for republicans and democrats alike, we are all entitled to our opinions but

not to our own facts. the last time that our budget was balanced was back in the 2001-2000 it time. revenues of the gdp was 20.6% in the year 2000 and 19.5% in the year 2001. the last time spending was 18% of gdp was about 1967. it has risen since then largely because we as a nation decided to make sure that older americans in their retirement had the health security they need it. it is important to keep those facts in mind as we go forward. now, you posted very fundamental question to this committee. let me ask you this. if we were to try to continue

with current retirement and health care security programs in the future, we will need significant changes to revenue beyond current law, would we not, in order to fund and the balance our budget assuming we kept the rest of government constant? >> yes, that is right, congressman. >> if we were to try to preserve as programs -- let me ask you this. if we were to continue current revenue policy without any changes, it would require very deep cuts to those retirement and security programs, would it not if we were to try to burn -- bring down the deficit? but if all summit in the rest of the government in accordance with its historical pattern, yes. >> and he pointed out over the next 10 years as a percent of

gdp, that is going down, is it not? >> yes. >> that is the fundamental question. i think we recognize that we have to deal with the allied air issues. we have a demographic challenge. we have more and more people retiring. as you just pointed out, if we want to avoid huge cuts in medicare and social security, we also have to deal with the revenue peace. we have to increase revenues beyond current policy if we want to avoid very deep cuts. i think it is important that we look at the revenue side of the equation right now. you have presented that to us in your testimony. i think it is time for this committee to get real and recognize that, yes, there are spending issues in the out years, but there is also a revenue issue. as you point out, under current law. 18 year cumulative deficit is

2.4 trillion dollars. >> a think this report by trillion dollars. >> as you point out on page 19 of your testimony, if we continue current tax policy and the current physician payments under medicare, that will rise from 3.4 trillion dollars to over 8.5 trillion dollars. that is there in your testimony. >> is. >> too much in the two factors together, i think is important to point out that of that over five trillion dollars, that huge bulk of it has to deal with continuing tax policy, does it not? >> yes. >> by my calculation, you get just under four trillion dollars revenue critic at the debt service as a city with that, you are talking about 4.5 trillion dollars of your five trillion dollars dealing with current revenue policy. is that right? >> that is right. just to be clear, if this committee were to adjourn today, and congress were to adjourn for the next 10 years

and go away, we would actually achieve greater deficit reduction and if we went, took this advice and won big. is that right? we would get over four trillion dollars over the next 10 year period, even if we fixed -- even if we fix the doctor-physician reimbursement fees. >> if you extended the expiring tax provisions and indexed for inflation, that would add to deficits by 4.5 trillion dollars or so, he would be larger than the amount of savings -- in a simple math, right? it would be more than the about people talk about, right? what's that is right. >> i think is important to look at both sides of the equation there. what we're talking about just a we can translate this into what american people have

experienced. what we have been talking about is going back to the same tax rates and tax policy that was in effect during the clinton administration. a period of time when 20 million jobs were created in the economy was booming. i am not suggesting we go back to that particular tax policy, but if you looked at some some bowls compared to current law, they provide about two trillion dollar tax cut compared to current law. they propose about one trillion dollar tax cut compared to current law. so if we are really going to address this challenge, let's recognize that if we do not deal with the revenue piece back as the doctor said, you are talking about dramatic cuts than did to health and retirement security for america's seniors. we have to take a balanced approach grid as were the other bipartisan groups took that kind of approach pre >> thank you,

mr. chairman. >> thank you, madam chairman. since my colleagues have raised this issue, i want to touch on a couple of things that did not make it into the conversation so far. is it not true as recently as 2007, the current tax rates structure heal the revenue that was about 18.5% of gdp? >> think that is right. the current level is very low because the economy is very weak. >> exactly. the main reason that total revenue is so much lower than the historical levels is because we have an economy that is still effectively in a recession, very high unemployment, lack of will, as a right? >> that is right. >> as recently as 2007, the deficit we had that year was about less than 1.5% of gdp, i believe. if we could get to the point where we consistently have deficits that will put five gdp of -- 1.5% of gdp, then our debt

would be declining and we would have added to a very large extent solve this problem if not completely. >> that is right. >> to the level of the deficit that we had in 2007 with the current tax rates. let me ask a couple of other questions if i could. he went through -- i do not think there is any dispute that excessive debt has any kind of negative employment -- implications. also we you get to the point you have an economic crisis, a freezing up. is it not true that it is essentially impossible to know precisely when you get to that point? what's absolutely. >> so it is just not knowable? what it is just not knowable. is there not a danger that the magnitude of the debt is already impeding economic growth having a chilling effect on investment, risk taking the? is that not possible? "i think the level of debt is

probably weighing on economic activity. although we wish we had less, the question is how to achieve the point i want to make is given in is probably already weighing on economic growth and given that we acknowledge that continuing down this path eventually lead to a full-blown crisis and we cannot know when, that suggests to me it is very dangerous to delay. while there is some concern that curbing the size of the deficit in the short run it impedes economic growth, i would argue it is already happening. if the future promised reductions in the deficit, either were not credible or at some point became less credible, and we could discover we are already in that territory where the financial crisis could emerge. is that i danger we would run in dealing this? >> i think there are

disadvantages to the delay. as we said in the written testimony and as a repeated here. again, based on our analysis which i think it's consistent with the consensus of professional opinion, a media increases in taxes or cut spending would slow the economic recovery. that is not to met -- that is not to imply there are not factors that can matter in other ways. that is a professional opinion. but some might be, but there certainly is an alternative point of view about that, especially with regard to the spending side. >> that is right. even though you and i might disagree on this debate someone, i am sure you would agree that when it comes to its impact on economic growth, not all government spending is equal. spending would generate more rather than less, similarly, not all tax cuts are comparable some encourage economic growth more than others. >> in fact, broadly speaking,

spending and tax cuts, while they may have the same impact on the deficit, if you assume they have no other implications, they do have other implications. >> that is right. with economic modeling, we tried to incorporate the level of marginal tax rates on label and capital precooks on page 33 of your testimony, you absorbent -- you observe that lower marginal rates enhance. as a pro-growth feedback on the economy grew one of the things we have not discussed, i would like a reflection on it, the possibility of a revenue neutral tax cut that broadens the base and lower is marginal rates. would that not tend to enhance growth and therefore enhance revenue to the government? >> yes, that is right, senator. the magnitude of that effect, it depends on the specific policies that would be enacted. >> i wonder if you have a rule

of thumb that you could share with us. for instance, for a given incremental increase in the rate of growth on average, what kind of impact does that have on the deficit over an extended period of time? >> we offer rules of thumb for that in the back of our annual budget and economic outlooks. the magnitude of that the fact, i will offer to you in one moment. >> the figure that comes to mind, and maybe you can confirm or refute, is a 10th of a percent of additional growth on average sustained over 10 years his roughly $2.5 billion in additional revenue, is that right? "that is correct. but someone full%. this may not be perfectly clear, but it goes in the same direction. >> is almost a new crew we offer rules of thumb because we are not sure what else might happen.

>> the point is a small sustained growth has a huge impact on the deficit or reducing the deficit. would you agree? >> yes. >> thank you, madam chairman. >> thank you for a much. we have gone through our first round. i appreciate everybody keeping a concise. i want to make a small change at this time. the house is going to be having votes at approximately 1:00. there are 12 of us. the time is a very short period unless somebody throw something at me, i am going to limit something -- i will limit each of us to keep the mets in the final round. please, keep it to that time frame. cbo include an analysis on the impact of lower than expected economic growth on the federal budget. i wanted to ask you, what does cbo estimate the impact of the deficit projections in the near

term and over the next 10 years if gdp growth continues to weaken beyond what is reflected in the current estimates? >> a weaker economy implies or smudge the outcome, primarily because tax incomes fall, also because there is extra spending in some of the entitlement programs to talk about a while ago. beyond what is in these rules of thumb that we have offered in our volume in january. the rules of thumb our work -- the rules of thumb are rough because a lot of things may not rise and fall with the rest of the economy. we have been surprised in last year's that some of the outcomes of tax revenues. but there is no doubt that a weaker economy is worse for the budget and a stronger economy is a lot better for the budget. the challenge is how to move the economy. it is not easy to move a 15 trillion dollar economy.

>> thank you. i do have a question, i will submit it for the record. i do think it is important. as part of the choices we are looking at here, we need to understand the impact on that. the significant impacts to be -- i will submit that to the record. i will reserve my time. >> i think it was senator kerry that brought up the revenues today are roughly at 14% of gdp. does your latest budget baseline share their revenues of 2014? "that is right. a little over 50% today and the improvement of the economy and other underlying factors in the tax code weekend pushed up to a little over 18%. what's your alternative fiscal

stereo also shows spending going from a historic average of roughly 20.5% up to 34% of gdp. is that correct? >> that sounds about right. >> with respect to revenues, one is episodic related to the lack of economic recovery. the other is structural. is that a fair assessment? "both factors at work right now. >> please continue on. those who have advocated it will have brought up that historical when the budget has been balanced, taxes have gone beyond their historic norm of roughly 18% of gdp to closer to 20% of gdp. again, this is for alternatives fiscal scenario that shows spending by 2035 goes up to 33.9% in the same alternative fiscal scenario shows that taxes are not on the path to increase from 18% of gdp to

18.4%. following the analysis of those who advocate in order to achieve a balanced budget that revenues have to come up from what you say are already rising from 80.4 to 20% of gdp, that also suggests a balanced approach that spending has to decrease essentially 14 percentage points under your alternative fiscal scenario. that is to reach its historic norm. >> i would rather not parse the meaning of the word "balance" gaps given the discussion. >> thank you. >> i think i am going to start calling you sergeant friday. you are essentially giving us your best interpretation of the facts. we appreciate that.

you're not try to give its opinion. you're not telling us whether in five years or 10 years we should reduce the benefits we give to seniors and medicare or make a change to our defense and security needs. you're simply telling us what the numbers show and leaving it to us as policy makers to come up with a good mix. i appreciate that. i suspect your mother or father or grandmother and grandfather are also pleased that you're talking numbers and not saying what should be done to them in regards to medicare or social security or anything else. one quick point. with regard to the discussion of our long term cost -- you mentioned medicare and medicaid. medicare and medicaid, because the deal with health care and health care costs, are in a different but then social security in terms of the long- term costs xxx is, that is right. the increases in spending for those programs. under current law they are like critter overtime and for social

security. >> indeed, social security by about 2028 or 2030 starts to stabilize and stays constant in terms of its cost to the federal government into the out years? >> briefly so. after the baby boom generation has retired, that line plans out. >> because you are dealing with facts, you are not here to tell us about how to make the fix to health care? the reality is that there simply reimbursement or financing systems. if we were just to cut benefits for a senior, that does not mean that their health-care costs will drop. that shifts the cost more into the pocket of the senior to pay for the care if medicare just read it -- reduces what they reimbursed. >> a think it depends on the policy, of course. there are some policies that shift costs. >> thank you. i appreciated. >> thank you, congressman. >> just one question in the

interest of time. i know you agreed with the sender's observation that there is another point of view regarding that cuts or spending now candela economic recovery, that is true of defense spending as much as other spending, is that not correct? what's that is true. there may be differences of cross types, but i think that is a more subtle. >> with defense as an example, you have high unemployment of returning veterans to begin with. you have more people potentially unemployed. you have people making radios and building ships. if those cuts, therefore end up reducing the employment in those industries and the amount of money spent in those areas, obviously it could delay economic recovery. >> that is right. >> thank you. >> i wondered if you could begin

discussing what we have already. what changes in the tax policy will stimulate the economy the most? if you could rent them somehow. >> it turns out in the table we are looking from our january 2010 report, we did consider a set of alternative tax cuts. we have not updated this table since that point. if we did, the numbers would be slightly different but probably not immensely different. reductions in payroll taxes that will study here were among the followedrful weaver's by expensing costs and falling below that a little bit by reductions in income taxes.

the reason for that difference is principally that the money that is saved by employers or employees, we can translate it into fairly comparatively larger amounts of spending. it amounts to a temporary discount on the cost of hiring workers true >> limit changes suspect -- that the change subjects. we have a revenue neutral tax reform individual can't the tax reform, let's say on the individual side is dramatic, broaden the base, lowering the rate, etc.. how much growth will result from a very simplified tax code along those lines? >> a tax code with broader plans would spur economic growth. the magnitude is something we would have to take specific proposals from you back to our models and work hard on for

awhile before we could have any quantitative estimate request thank you. >> thank you, senator. >> i am concerned about the impact of the affordable care act on job creation. can you provide a detailed explanation of the month allowed it -- methodology used to find out how many employers will drop their health-care coverage for their employees that's what i can provide a brief summary. we have a model of health insurance coverage and which employees and employers are trying to obtain coverage at the low cost but also giving way to the quality of the coverage they receive. in our analysis, the affordable care act encourages some employers to provide insurance coverage would not have otherwise because of the mandate for insurance coverage. on the other hand it encourages other employers not to offer any more coverage crude we think the

latter effect outweighs the former premier have a small reduction in employer sponsored coverage prove our estimates are very consistent with the estimates of other people like those over at the institute. obviously, there is a tremendous amount of uncertainty. there have been some surveys that have suggested it would be more employers dropping. at this point, based on the things we have seen since we did the estimates, we are comfortable those estimates make sense. there is an issue where we have been asked to explore the sensitivity of the budgetary fax 2 alternative outcomes in terms of the employee and her sponsor coverage. we are working on those. what can you provide is a dialogue. i do not know your percentages -- i thought it was as low as 5% or less? what's it is a small percentage. i am not entirely -- i am not entirely sure. the challenge we have is that it

matters a lot for budgetary costs who ends up with a without employer sponsored health-care coverage. we cannot scale up in that sense, we have to understand the model -- there are ways to change the assumptions of the model to get different answers. we need to do that because that will affect the budgetary cost. it is also not obvious that the budgetary costs are as large as that may seem at first. people are not getting employer sponsored coverage, the government will pay more for their coverage grid on the other hand, employers will have extra money they were previously using to buy health care coverage with. most people think that money will end up as wages for workers. it will pay taxes on that. if it does not, it will end up as additional corporate profits and it will pay taxes on that treaty overall budgetary effects will depend on the combination of changes in subsidies, medicaid costs, and tax receipts. we are working on that. >> thank you, representative cliburn. >> a look at revenue from a

different perspective here. is it fair to say that the decrease or the increase of unemployment has decreased revenue going into the federal coffins? >> is, that is right. but if we had a decrease in unemployment or say 0.5%, what would be the level of revenue increase? >> i cannot do that in my head, congressman. it would help, but i do not know. we would pay less on unemployment benefits and it would help because people who are earning money would pay taxes on those earnings. >> so it is a double whammy? both sides of the equation would be effected. >> i would like to see a computer printout request i will put my computer to the

task. >> thank you. >> i think congressman clever just made a great point pretty commonplace -- huge role here. i have looked back at your may 12, 2011 report, which was talked about earlier. 32% of the difference between $5.6 trtillion projected, 36% of that is because of the economy. about 33% of it is spending, and about one-third of it is the global war on terror. about one-third of it is iraq, afghanistan. about 39% of students spending. 15% is the bush tax cut, by the way, over 70% of that went to those earning less than two of $50,000 a year. the rest is interest and the

rebates of 2008. i think it is a great point that the economy will drive some much of the spirit we talked about this earlier, you said you thought the increase in taxes at this point would have a negative impact to says he thought certain spending cuts would have a negative impact on growth and jobs. in response to the senator, you said some reform would have a positive economic impact. can you briefly speak to that as it relates to the corporate tax code and the possibility of lowering the rate to meet the united states more competitive? >> i think in terms of the individual income tax and corporate income tax, congress would widely agreed that lower tax rates and a broader base would be good for the economy both because of the lower rates would reduce the incentive for workers to save and also because it's done in certain ways it can reduce incentives for misallocating capital resources.

again, to actually estimate the effects on the economy, we and our colleagues would be to have specific proposals. we would need to spend some time try to model clothes. it is a very complicated issue. >> how long would it take you? >> i will not commit to that of hand. if we have proposals from you, we will work on them as fast as we possibly can. i will send a promise to that request and prioritize them, right? >> we are getting very high priority work to the work of this committee. >> there is a big distinction, is there not, almost obvious its 98% of america was getting a tax cut and it to be signed, who happen to be the wealthiest people whose decisions are very different and some impact on the economy is different, there is a big difference in that compared to a blanket discussion of all

of the tax cutpurses 9, correct? what the terms of the economic effects, yes. >> i think that is part of the modelling and these to be done. i think that distinction will be very telling in a number of ways. i think it would be helpful to all of us in the committee. i have a great respect for the analysis. i suggested we might get them in here. i think it is an important one. your analyses and much of our discussion centered around the public debt. the public debt is 62% of gdp. we have had a number of references to to the gross debt which obviously includes trust funds and so forth where there is a very different impact because of the full faith and credit of the united states and printing and so forth. help us understand how that distinction might play out in our deliberations, particularly with respect to the impact on

interest rates. i think the public debt has far more impact on interest rates and the -- then on the economic judgment, does it not? maybe you can educate us on the distinction. >> ct 0 focuses on debt held by the public. because we think --cbo focuses on debt held by the public. we think that is a better impact on barring on financial markets today than gross debt. in the snapshot of what the government owes at a point in time will be very incomplete without looking at for the fiscal trajectory is going. that is why we always combine our reporting on current levels with projections of revenues and spending. our view is the dead of by the

public with these projections for the future offers you fairly complete, but -- by no means perfect, picture of the budget situation. gross debt includes bonds held by government trust funds, we think it is not really measured the amount of debt and public financial system has been asked to absorb today, nor is it a very good measure of what will happen in the future. for some programs, the amount of debt held in those trust funds is a lot less than the amount that they will need to pay benefits under current law. in other cases, the amount of debt held in the trust funds does not actually correspond to future spending. so we do not think that is the most useful measure. in the work that they did, they viewed that as the best available measure for the set of countries over the period of time that they have done this now. i do not want to put words in their mouth, but we have discussed this issue.

it gives you and your colleagues the best sense of where this country stands today. >> thank you. >> thank you very much. i just want to point out that as part of the fiscal commission, i researched how often the federal revenues exceeded 20% of dp. they abomey done it three times since in the history of our country -- they have only done it three times in the history of our country. in 2000, there were 20.6% of gdp revenues. that was an increase in capital gains. that is what drove the that.

>> i think that is right, congressman. >> in the 11 fiscal years since 1940, we have had surplus revenues for four of those years. for seven of those years, they were less than 19% of gdp. i have a letter that outlines all of this that i would like to submit for the record. i just think it is important to point out that during the 12 years in which the budget was surplus, all leas never exceeded 19. -- 19.4% of gdp. it is important to keep those revenue levels in historical perspective. i would like to submit that letter for the record. >> thank you, madam chairman. i would point out that the last

time the federal spending was around 18% of gdp or lower was about 1967. the may decision to provide -- we made a decision to provide security for seniors. i think you have made a very good point in your testimony. i know you are not making recommendations, but your testimony is clear that you cannot address the deficit challenge without modernizing programs. unless you change current tax policy, you cannot address the deficit situation without cuts in health security programs. i want to have a quick question -- humans and there are some tax policies that generate more economic -- you mentioned that there are tax polities --

policies that generate more economic revenue than others. isn't also true that with respect to spending programs, there are some that generate more activity than others? investments in the area of infrastructure and education provide for economic growth rate isn't that also the case? >> yes. give me one moment to say that i want to be careful about the pieces of the budget, there is the rest of the budget. the thing that is not possible to do is to maintain social security and the major health care programs in their current state and maintain the rest of the federal government and maintain revenues. what needs to move at least one, one could also choose to move any two or three of those. it is not possible -- for the

three of those to look like they have looked and starkly. some policies may be more affected this year or next great others will be affected over longer periods of time. we can try to provide that information to you if your interested. >> i appreciate that, doctor. both tax policies as well as investment spending policies can have positive economic impacts. >> that is right. >> thank you. >> one of the challenges that we face is how we can address these challenges in a credible way. how willing will future congresses be to abide by spending caps or other kinds of reductions or disciplines that

we might try to impose? of course, we can not tied the hands of future congresses. i was wondering if he might reflect on ways that we could maximize the chances. that spending restraints that we would hope to achieve would come to pass, whether that would be through strengthening existent enforcement mechanisms, creating new ones, or other ways. >> i think the most effective way to ensure that changes you discuss today actually become -- will take effect later is to enact those changes into law today. enforcement procedures are only a backstop. ultimately, the congress will need to enact changes in the legislation governing certain programs or provisions of tax cuts if it wants to make the changes. if specific changes are enacted into law, this year, there is a

much greater chance that they will take effect when the time comes then if it is simply a set of objectives for total amount of spending or a total amount of taxes. >> structural reform our might -- are more likely to have more enduring results than long-term caps designated. would you agree with that? >> i think that is right. i think we have seen that historically. the original was cast aside because the overall target that it had set for the deficit proved to be impossible to meet. the provisions of the early 1990's, that made it more difficult for congress to make budget deficit's worse, seem to have been somewhat affected.

-- effective. the important aspect of this for both the long-term effects and a shorter term a facts -- german facts comes from specificity in putting provisions into law today even if they are taking effect at different points in the future. >> thank you very much. i want to thank all of our committee members for being so accommodating. doctor, for your inputs today. i want to remind all of our members that they have three business days to submit questions for the record and i hope that the witness can respond quickly. >> yes, we will. >> thank you. members should submit their questions by the close of business friday, september 16.

>> former fed chairman alan greenspan was on capitol hill today and talked about ways to improve u.s. tax policy. in a few minutes, president obama in a while on jobs. the present jobs plan was criticized by mitch mcconnell -- the president's job plan was exercised by mitch mcconnell -- mitch mcconnell. on tomorrows "washington journal, we will talk to maryland congressman about global terrorism. he serves on the house intelligence committee. after that, a conversation on epa regulations.

later, trevor aaronson. "washington journal," live each morning at 7:00. the chamber will debate a resolution expressing disapproval of the debt ceiling being raised. why house coverages here on c- span. -- live house coverage is here on c-span. watch more videos of the candidate and dropped the latest, pain -- campaign contributions. it helps you navigate the political landscape. all at c-span.org/campaign2012.

>> alan greenspan told congress earlier that new revenue raised should be used to cut the federal deficit, not to lower tax rates. he testified at a senate finance subcommittee hearing today. we will show you his five-minute opening statement. later, you can watch this hearing in its entirety. >> i very much appreciate the opportunity to testify before this committee. it is an important subject and i am glad that congress is taking a pronounced effort to come to grips with it. tax reform is a major part of any program of fiscal reform. it will contribute to a restoration of american competitiveness, and a vibrant economy that goes with it. the fiscal success we achieved

in the early 1990's was essential to contain budgets that seemed prone to excess. the great irony of those years was that the surpluses that emerged from 1998 through 2001 was a consequence of that success, undermined fiscal prudence. we have now come for a circle to a point where as much as i wish it were otherwise, there is no credible scenario of addressing our current fiscal problems without inflicting economic pain. we have been procrastinating for too long in coming to grips with the retirement of the baby boomer generation and fiscal problem that has been visible for decades. by 2006, with chronic surplus is already a distant memory, the

medicare trustees indicated that the medicare program does not have enough projected revenue to cover projected future spending. a reduction in medicare part a expenditures by 51% would be necessary to make the medicare trust fund solvent. rather than repairing that huge shortfall, we expanded entitlements for their without a matching source of revenue. our major problem is not only spending has been rising rapidly, but that it has been mainly in the form of the entitlements rather than a discussion during -- that cease when the activity comes to wine

and bread entitlement, however, -- comes to an end. the growth of our economy in the years ahead is bound to slow. our civilian labor force should parallel a slowing growth of the working age population, most of them are already. a professor at northwestern university has concluded that this most recent forecast of the growth rate of per capita real gdp represents the slowest growth of domestic american standard of living over any to decade interval recorded since the inauguration of george washington. in the years ahead, increasing entitlements will be pressing

against shrinking economic growth. my preference going forward, as i have noted often, something that can to the budget recommendations of paul ryan. i regret that his budget lacks the votes for passage. as the european experience underscores the ways of implementing policy reform can be destabilizing. are politically feasible budget proposals -- appears the most substandard. what impressed me most is that it addresses tax expenditures,

mostly subsidies can be structured and viewed as cuts in outlays rather than a reduction in revenues. subsidies distort the optimum functioning of markets and ultimately the standard of living in society as a whole. i do not know whether a u.s. budget crisis is immediately on the horizon or is years off. what i do know is that if we presume that we have a year or two before starting serious long-term restraint, and returned out to be -- and turn out to be wrong, the impact on financial markets could be devastating. if we are braun -- if we are wrong in being overly cautious, that is a problem that is readily soluble. thank you. >> president obama on his jobs

plan at a high school in columbus, ohio. he'll be visiting businesses this week to talk about jobs. this is 20 minutes. >> hello, columbus! it is good to be back in the state of ohio. just a couple of people i want to make sure you know are here. first of all, my outstanding secretary of education, arne duncan, is in the house. superintendant of columbus city schools, dr. gene t. harris, is here. the principal of fort hayes metropolitan education center, milton ruffin, is here. and the mayor of the great city of columbus, michael coleman, is in the house.

it is a great honor to be here at fort hayes - one of the best high schools in ohio. i want to thank tom for that introduction. he just gave me a quick tour, and let me just say, these buildings look great. he did a good job. i wouldn't mind taking a few classes here. you've got computers in every classroom, got state-of-the-art graphic design and science labs, new media center, music rooms. and when you combine that with outstanding teachers and a challenging curriculum, you've

got the foundation for what you need to learn and graduate, and compete in this 21st century economy. [applause] so, fort hayes, i'm here to talk about exactly that -- about the economy. i came to talk about how we can get to a place where we're creating good, middle-class jobs again - jobs that pay well, jobs that offer economic security. and the renovation of fort hayes is a great example of where those jobs can come from if we can finally get our act together in washington. if we can get folks in that city to stop worrying so much about their jobs and start worrying about your jobs. now, yesterday, i sent congress the american jobs act. this is it right here. it's pretty thick.

this is a plan that does two things. it puts people back to work, and it puts more money in the pockets of working americans. everything in the american jobs act is the kind of proposal that in the past has been supported by both republicans and democrats. everything in it will be paid for. and every one of you can make it happen by sending a message to congress that says -- pass this bill. [applause] ohio, if you pass this bill, then right here in this state, tens of thousands of construction workers will have a job again. this is one of the most common- sense ideas out there. all over the country, there are roads and bridges and schools

just like fort hayes in need of repair. some of the buildings here at fort hayes were originally built during the civil war. that's old. and when buildings are that old, they start falling apart. they start leaking, and ceiling tiles start to cave in, and there's no heat in the winter or air-conditioning in the summer. some of the schools the ventilation is so poor it can make students sick. how do we expect our kids to do their very best in a situation like that? the answer is we can't. every child deserves a great school, and we can give it to them, but we got to pass this bill. [applause] your outstanding senator, sherrod brown, has been fighting to make this happen. and those of you here at fort hayes have been making it

happen. see, a few years back, you decided to renovate this school. and you didn't just repair what was broken, you rebuilt this school for the 21st century - with faster internet and cutting-edge technology. and that hasn't just created a better, safer learning environment for the students. it also created good jobs for construction workers. you just heard tom say it's created over 250 jobs for masons and concrete workers and carpenters and plumbers and electricians - and many of those jobs are filled by the good people of columbus, ohio. but here's the thing. there are schools all throughout ohio that need this kind of renovation. there's a bridge in cincinnati that connects ohio to kentucky that needs this kind of renovation. there are construction projects like these all across the country just waiting to get started.

and there are millions of unemployed construction workers who are looking for a job. so my question to congress is -- what on earth are we waiting for? i don't know about you, but i don't want any student to study in broken-down schools. i want our kids to study in great schools. i don't want the newest airports and the fastest railroads being built in china. i want them being built right here in the united states of america. there is work to be done. there are workers ready to do it. so let's tell congress, pass this bill right away. >> pass this bill! pass this bill! pass this bill! pass this bill! >> pass this jobs bill, and

there will be funding to save the jobs of up to 14,000 ohio teachers and cops and firefighters. [applause] think about it. there are places like south korea that are adding teachers to prepare their kids for the global economy, at the same time as we're laying off our teachers left and right, where we've got school districts that have eliminated all extracurriculars -- art, sports, you name it. you've got situations where -- i just heard a story from arne duncan driving over here. i met this young man yesterday -- he's a music teacher in philly, and his budget -- total budget is $100 for teaching music in a whole bunch of schools. so they're using buckets to do drums because they can't afford actual musical instruments.

you've seen it here in ohio. budget cuts are forcing superintendents here in columbus and all over the state to make layoffs they don't want to make. it is unfair to our kids, it undermines our future, and it has to stop. tell congress to pass the american jobs act so we can put our teachers back in the classroom where they belong. tell them to pass this bill so we can help the people that create most of the new -- we can help the people who create most of the new jobs in this country. that's america's small business owners. it's all well and good that big corporations have seen their profits roaring back -- that's good. we want them to be able to hire people as well. but smaller companies haven't come back. so this bill cuts taxes for small businesses that hire new employees. it cuts taxes for small businesses that raise salaries

for current employees. it cuts small business payroll taxes in half. so let's tell congress, instead of just talking about helping america's job creators, let's actually do something to help america's job creators. let's pass this bill right away. >> pass this bill! pass this bill! pass this bill! >> if congress passes this jobs bill, companies will get new tax credits for hiring america's veterans. we ask these men and women to leave their careers, leave their families, risk their lives to make sure that we're protected. the last thing they should have to do is fight for a job when they come home. that's why congress needs to pass this bill.

it will help hundreds of thousands of veterans all across the country. it will help hundreds of thousands of young people find summer jobs next year. [applause] it's also got a $4,000 tax credit for companies that hire anybody who's spent more than six months looking for a job. the american jobs act extends unemployment insurance, but it also says if you're collecting benefits, you'll get connected to temporary work as a way to build your skills and enhance your resume while you're looking for a permanent job. and, finally, if we get congress to pass this bill, the typical working family will get $1,500 in tax cuts next year -- $1,500 that would have been taken out of your paycheck will go right back into your pocket. but if congress doesn't act, if congress refuses to pass this

bill, then middle-class families will get hit with a tax increase at the worst possible time. now, we can't let that happen. >> no! >> some folks have been working pretty hard to keep tax breaks for the wealthiest americans. tell them they need to fight just as hard -- they need to fight harder -- for middle-class families. tell them to pass this jobs bill. so the american jobs act will lead to new jobs for construction workers, jobs for teachers, jobs for veterans, jobs for young people, jobs the unemployed. it will provide tax relief for every worker and small business in america. and it will not add to the deficit. it will be paid for. [applause] we will pay for this plan, we'll pay down our debt, and we'll do it by following the same principle that every family follows. we'll make sure that government lives within its means. we'll cut what we can't afford

to pay for what we really need - including some cuts we wouldn't make if we hadn't racked up so much debt over the last decade. and here's the other thing, columbus. we got to make sure that everybody pays their fair share -- including the wealthiest americans and biggest corporations. we've got to decide what our priorities are. do you want to keep tax loopholes for oil companies, or do you want to renovate more schools like fort hayes so the construction workers have jobs again? [applause] do you want to keep tax breaks from multi-millionaires and billionaires, or do you want to put teachers back to work and help small businesses and cut taxes for middle-class families?

so, columbus, we know what's right. we know what to do to create jobs now and in the future. we know that if we want businesses to start here and stay here and hire here, we've got to outbuild and outeducate and outinnovate every country on earth. we've got to start manufacturing and make goods that are stamped with three proud words -- made in america! [applause] we need to build an economy that lasts. and columbus, that starts now. that starts with your help. democrats and republicans have supported every kind of proposal that's in the american jobs act, and we need to tell them to support those proposals now. you know, yesterday there were some republicans quoted in washington saying that even if they agree with the proposals in the american jobs act, they shouldn't pass it because it would give me a win.

you know, that's the kind of game-playing we've gotten used to in washington. think about that. they've supported this stuff in the past, but they're thinking maybe they don't do it this time because obama's promoting it. give me a win? this isn't about giving me a win, this isn't about giving democrats or republicans a win, it's about giving the american people a win. it's about giving ohio a win. it's about your jobs and your lives and your futures and giving our kids a win. [applause] maybe there's some people in congress who would rather settle our differences at the ballot box than work together right now, but i've got news for them -- the next election is 14 months away. and the american people don't have the luxury of waiting that

long. you've got folks who are living week to week, pay check to pay check. they need action, and they need it now. so i'm asking all of you to lift your voice not just here in columbus, but anybody who's watching, anybody who's listening, anybody who is following online, i need you to call and email and tweet and fax and visit and tell your congress person that the time for gridlock and the time for games is over. the time for action is now. [applause] tell them that if you want to create jobs right now, pass this bill. if you want construction workers renovating schools like this one, pass this bill. if you want to put teachers back in the classrooms, pass this bill. if you want tax cuts for middle class families and small business owners, then what do you do? pass this bill. if you want to help our veterans share in the opportunity that they defend, pass this bill. now is the time to act.

we're not a people who just watch things happen, we're americans. we make things happen. we are tougher than the times we live in. we are bigger than the politics that we've been putting up with. we have patriots and pioneers and innovators and entrepreneurs, who, through a commitment to one another, build an economy that's the envy of the world. we write our own destiny. it's been our power to write it once more. so let's meet this moment. let's get to work. let's show the world once again why the united states of america is the greatest country on earth. thank you very much, ohio. thank you, columbus. god bless you, and god bless the united states of america. [cheers and applause] ♪

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♪ ♪ >> senate minority leader, mitch mcconnell, says he opposes president obama's job

proposal, saying it would not create jobs or economic growth. he spoke on the senate floor for about five minutes. >> last week president obama came up to capitol hill to unveil a stimulus bill he's calling a jobs plan. and yesterday the white house explained how they'd like to pay for it. the first thing to say about this plan is that it's now obvious why the president left out the specifics last week. not only does it reveal the political nature of this bill, it also reinforces the growing perception that this administration isn't all that interested in economic policies that will actually work. but none of this is really news. over the past few days press reports have made it perfectly clear that this legislation is more of a re-election plan than a jobs plan. it's an open secret which democrats all over washington have been acknowledging to

reporters since the moment the president revealed it. they've said that despite the president's calls to pass this bill immediately, the real plan is to let it hang out there for a while so democrats can use it as an issue on the campaign trail. the president knew as well as i did when he unveiled this plan that democrats and the senate had already scheduled a full slate of legislative business for the next few weeks. so unless the white house wants to admit that it has no regard for its own party's legislative business in congress, the president's call for immediate action was clearly little more than rhetorical flourish. but the speeches we got yesterday only reinforced the impression that this was largely a political exercise. for one, they undermine the president's claim that it's a bipartisan proposal, because much of what he's proposing has already been rejected on a bipartisan basis. the half a trillion dollar tax

hike the white house proposed yesterday will not only face a tough road in congress among republicans, but from democrats, too. the central tax hike included in this bill, capping deductions for individuals and small businesses was already dismissed by filibuster proof democratic-controlled senate in 2009. another idea floated by the white house, a tax on investment income has been vehemently opposed by the number three democrat in the senate, among others. and a proposal to raise taxes on the oil and gas industry was rejected as a job-destroying tax hike by both democrats and republicans just a few months ago. and for good reason. since the non-partisan congressional research service tells us it would only raise gas prices and it would also, in addition to raising gas prices, move jobs overseas.

so climbing this bill as a bipartisan may sound good if you're out there on the campaign trail, but surely the president can come up with some proposals that both sides had not already rejected. here's how one prominent left-leaning analyst put it yesterday -- these aren't new policy ideas, he wrote. the obama administration has been looking to cap itemized deductions since the 2009 budget. nor are they bipartisan policy ideas. the specifics we got yesterday were disappointing for another reason as well. not only have they failed to attract wide bipartisan support in the past. even if they did enjoy bipartisan support, it wouldn't create any jobs. the president knows raising taxes is the last thing you want to do to spur job creation. he said so himself. yet, that's basically all he's proposing here.

temporary stimulus to be paid for later by permanent tax hikes. so that when the dust clears and the economy is no better off than it was after the first stimulus, folks find themselves with an even bigger tax bill than today. now, the president can call this bill whatever he wants, but in reality all he's doing is just proposing a hodgepodge of retread ideas and at convincing people that a temporary fix is really permanent and that it will create permanent jobs and then daring republicans to vote against it. while i think most people see through all of this. i think most americans are smarter than that. i think they know our economic challenges are more serious than this and that they require serious, long-term solutions. i think the american people realize we can do a lot better. i've talked with a lot of job creators over the past few weeks, including many in my own state. it's no secret what they need to create jobs.

every one of them says the same thing. and yet, the president refuses to do any of it. if the president is truly interested, truly interested in growing the economy and putting americans back to work, then he'll leave the temporary proposals and the hike measures and the tax hikes aside. you can work with us on a plan that indicates he's learned something from the failures of the past two years, and which actually has a chance of attracting bipartisan support. he could start with a permanent reform of our broken tax system, reducing out-of-control federal regulations, and by passing the trade bills that have been sitting on his desk since inauguration day, 2009. all of this is doable. all of it should attract bipartisan support, and all of it would actually create jobs. now, that would be a jobs plan worthy of the seriousness of the moment. but make no mistake -- what the

president proposed so far is not serious and it's not a jobs plan. after what we learned yesterday, that should be clear to everyone. madam president, i yield the floor. >> in a moment on c-span, a conversation on jobs and the economy. we'll hear remarks from white house economic advisor gene sperling and then house majority leader eric cantor. and later, former fed chairman, alan greenspan, testifies about u.s. tax policy. >> last week f.b.i. agents searched the headquarters of the solar manufacturing company after it filed for bankruptcy. tomorrow morning a house panel holds an oversight hearing to an energy department loan made to the company. that loan was part of the 2009 economic stimulus package. live coverage gets underway at 9:30 eastern on c-span3.

and later in the day also on c-span3, a hearing examines refinancing or restructuring home mortgage loans that are in financial trouble. the c.e.o. of the mortgage bankers association, david stevens, is among those testifying. live coverage starts at 2:00 p.m. eastern. that's from the senate banking subcommittee on housing. >> the c-span networks. we provide coverage of politics, public affairs, nonfiction books and american history. this month look for congress to continue federal spending into november, including funding for recent natural disasters. keep tabs on the deficit committee, as they formulate a plan to lower the debt and follow the presidential candidates, as they continue to campaign across the country. it's all available to you on television, radio, online and on social media sites. search, watch and share all our programs any time with c-span video library. and we're on the road with our c-span digital bus and local content vehicles, bringing our

resources to local communities and showing events from around the country. it's washington your way, the c-span networks, created by cable, provided as a public service. >> coming up -- a forum on jobs and the u.s. economy. we'll hear from white house economic advisor gene sperling and house majority leader eric cantor, who's critical of president obama's jobs plan. this is hosted by the american action forum. >> thank you, pete, thank you to the american action forum, thank you to doug for inviting me and for often, over these years, despite differences, being willing to be part of civil and bipartisan honorable debate and discussion, and that couldn't be more critical at this moment. good news for everyone is i am not here to deliver a prepared

speech, i am here to talk to you about the american jobs act and to give you a sense of the rationale for why we put forward the american jobs act and we we chose the components that together make up what we feel is a very strong and powerful initiative to jump-start growth and job creation in our country. we face today a serious economic challenge, a pivotal economic moment that deserves a serious economic response as part of an economic growth strategy. we already knew we were digging out of the worst economic hole our country has been in since the great depression. we now know more about how deep that hole was. if you were to look at the blue

chip in november of 2008, the projections for the economy in the fourth quarter of 2008 and the first quarter of 2009 was that it would average a loss of growth of about 1.65%. that is what we were -- the obama transition team was looking at. we now know that actually over those two quarters growth averaged a loss of 7.8%. it was negative 8.9% in the fourth quarter of 2008 and negative 6.7% in the first quarter of 2009. those are the worst two economic quarters since they started doing quarterly economic data in 1948. other than the period of

demobilization after world war ii, in 1946, other than that is the worst two quarters of economic performance our country has seen since the great depression. so the challenge, which we all knew was enormous with flew and more updated information -- new and more updated information, we realize how serious and precarious the situation was at that time in our economy. now, we also already knew, particularly from other economists that coming back from a financial crisis-induced recession is a tougher and harder and longer ride back than a normal or more typical

recession, and it means, as the president said thursday night, that you just have to stay at it, you have to dig and keep digging and stay at it and try -- do more of what's working, less of what's not working, but, for god's sake, stay at it until we get this recovery at a pace and a momentum that can start making a more serious dent in unemployment and a more positive impact on job creation. we also already knew that while unforeseen events out of your control can surprise you on the up side, they also surprise you on the down side. and for this recovery, that happened last summer with the problems in greece. and we've seen it this year as well.

in even march of this year, blue chip were projecting 3.3% growth for 2012. very positive growth still for the second half of this year. many of the top forecasters believed growth in 2012 was estimated to be over 3.5%, 3.75 %. but we have faced a combination of headwinds that have changed every economic forecaster's view of where the economy is. the good news for democracy in the middle east did not translate into necessarily positive news at the pump for the typical american consumer. in december we were looking at

$3 per gallon. i don't have to tell anyone many americans have seen $4 and higher at times, and even now the average is closer to $3.60 than $3. two, we had an unparalleled supply disruption. and it was unparalleled because virtually no one had projected that even a major event as horrible as the earthquake and tsunami could have this kind of impact globally. but we've seen once again how interconnected we are. three, serious concerns about europe still dominate the downside risk in the global economy right now. and, four, and in some ways perhaps the most unfortunate, because it was the one thing that was in our control, we have learned painfully how

harmful it was that our country went through such a public period of governmental dysfunction with a prolonged threat of our first default in the history of our country. with that, we now see that the blue chip estimates growth to be 2.2%. there are a significant amount of forecasters who believe particularly, if we do not extend any of the measures currently in the economy, like the payroll tax, etc., that we could be below that at 1.5% or 1.7%. these are very troubling projections. and i think it is safe to say that with these type of economic challenges being faced now by the american people, doing nothing is just not an option. with these type of headwinds

faced by workers and working families and 9.1% unemployment and 14 million people out of work, simply sitting on our hands is just not an option. the downside risk of an action in an economy with 9% unemployment are too great and the bold action that could help give this recovery more momentum are too significant and profound for anybody to responsibly argue that they should just say no, or favor minimalization over bolder and stronger action on jump-starting jobs and economic growth. so we do need a three-part economic comprehensive growth and job strategy. we, as a country, first, will

always need to continue to invest in our future and winning the future, in our people, in our training, in our education, in taking the steps that lay the foundation for the private sector, the engine of our economy to grow, to be more innovate tiff to, produce the high-wage jobs of the future here in the united states. that second, we also need to have a plan for long-term fiscal soundness to provide the long-term confidence that this is the place to do long-term investment and job creation in. but the third, and only as i mentioned, not less important, perhaps more important at this moment, a powerful effort to jump-start jobs and growth right now. and the american jobs act is central to this strategy. one, it gives a powerful

measure to jump-start job creation and give more momentum to our economy. two, it is paid for each and every penny. and it is part of -- and as you will see, it is part of a longer-term strategy to stabilize and bring down our debt as percentage of our economy. and third, many of the things in the american job act are also essential to the type of long-term investments we need to do for greater productivity, for greater innovation for a more competitive work force. now, we each made a decision to not put out -- to not put out our own economic projections. our view had been that that's a tough call, whether to do or not to do. there's a lot of benefits in doing so. but often our projections get

more politicized than the issue also becomes a distraction. so at this particular moment we decided to rely on what outsiders, independent analysts would say. and while there's a range, what is absolutely incumbent in all of them is what a significant difference this would make. mark zandi, the chief economist at moody's, and someone who has advised both republicans and democrats alike, estimated a 2.2% growth, about right where the blue chip is. they predicted that if the american jobs act was passed, growth would be 4.2% in 2012, a 2% growth differential. job growth would be 1.9 million jobs higher. that's 158,000 jobs a month

differential, 158,000. now, it is clear that others, such as other economic advisors were not quite as high. they were at 1.3% growth. they were at 1.3 million jobs. it wouldn't surprise you to know that i kind of favor zandi's analysis.but they theret is 110,000 jobs or not, and whether it would make projections of growth go from 2.0% to 3.3%, there is simply no taste for not trying to pass the american jobs act or not trying to find a significant effort that we can take together to

give this economy momentum, to protect against a risks of further downside, and to offer the hope of greater momentum and job growth and greater economic confidence and more customers in stores by taking this type of action. yesterday we put forward our legislation which set how we would pay for every penny. as you saw, it called for limiting deductions at 28%. for hiring americans and called for reducing corporate tax expenditures that are harder to defend. we are not totally sure how one depends how you try a private jet -- you buy a private jet, you get to depreciate that faster than someone engaged in

buying a commercial jet, which is central to our economy and employs tens of thousands of people. those of the types of things that we put in as pay ffors. the way the legislation is written, here is how the measures the president recommends taking, to pay for the american jobs act, so that we can get the benefits in the first year, 2011-2812, partial 2013, and getting greater economic job growth in our economy. and how we insurer over 10 years is paid for -- how we ensure over 10 years it is paid for. if the joint committee meets its

deficit target that was set by law and to the budget control act, and chooses to pay for the american jobs act above meeting its target, then the measures we put forward would trigger off. this was our way in of making clear that we were willing to step up to the plate and detail precisely how we would pay for every penny of the americans job -- american jobs act, but we created a mechanism where if there is a bipartisan agreement to pay for it with a different mix of policies, that we would not only allow that, but our legislation would by definition put that alternative into action. we met the test of being specific on how we would pay for

it. we told the country what our preference would be. but we also created a process whereby there was a bipartisan agreement to pay for it in a different way, that that was another way of getting the american jobs act done. i will say the following about the particular payfors that we put forward. deficit reduction is never easy. it is never without controversy and is never without asking someone to sacrifice in some ways. and it has been the president's firm principle that sacrifice must been shared sacrifice -- must mean the shared sacrifice. and that means choices. the president put forward choices that he would make. we think that it is more

important to put forward a fiscally irresponsible plan that could mean up to 2 million jobs, up to 2% of growth as an zandi projected, and we view that that is more important than giving the most well-off two or three times higher deductibles than the typical american family. we made a decision that we would rather support the book -- putting people back to work fixing schools, putting teachers back to work, than we would protecting corporate deductions in oil, four private jets -- for private jets that are just not economical in the situation

we're in. when the president but for this proposal to cap deductions at 20% in 2009, later bowles- samson, the gang of six, virtually every bipartisan group came forward and said that one of the ways that we should have deficit reduction is to have reform of our individual past expenditures. the president was there earlier with the proposal that does reform our individual tax expenditures and does so in a way that is most fair. now obviously, we're not only open but we will encourage a tax reform process that does so in a way that will lower rates and lower the deficit.

but this proposal as a stand- alone measure to pay for the american jobs act is consistent with it called to pay for our tax expenditures. and many who might have not supported this full throated lee in 2009 will take us second look now that the issue of tax reform or reforming tax expenditures has come into stronger focus. now we obviously -- well, one final frame i would say before saying a little bit about some of the components, is that the plan we have put forward to my

to have a powerful american jobs act that in jump-start jobs growth in the immediate term, with a longer-term plan of investment in the future and fiscal soundness that will bring our debt down as a percentage of our gdp is a plan that works best to gather. it is complementary, not contradictory. creating economic momentum with a powerful jobs and growth jump- start combined with a longer- term fiscal soundness plan to create long-term confidence is not contradictory. it is complementary as good hitting and good pitching is to a good baseball team. it is hard to read your long- term fiscal goals if you do not -- if you are not willing as a country to take the necessary steps to ensure that this

recovery gets the momentum that it needs. it is also harder to get the full long-term benefits of economic confidence it that powerful jump-start is not also combined with a commitment to do with your long-term fiscal situation in a way that does not pull back or offset in the 2011-2012, the increase of demand that the american jobs act is designed to encourage. in putting forward our plan, we obviously put forward a four- part agenda. i will not work through each item, but they are tax cuts to help america's small-business hiring row, putting workers back on the job, rebuilding and

modernizing america, and tax relief for every american worker and family. let me just say a few points about the rationale for some of those items. as i mentioned, in december 2010, when we passed payroll tax relief, we were looking at gas prices of about $3 a gallon. the 2% payroll tax cut was a very important measure. it provided a significant offer for american consumers -- buffer for american consumers to deal with the higher gas and food prices that were not foreseen at that moment. it turned out to be a to bebuffer an insurance policy against what could have been and

more harmful headwind of consumer spending against the higher gas prices that virtually every american faced at the pump. as we now look forward with current projections and current gas prices and the need to ensure strong demand and more customers in the shops of more small businesses, we felt it was economically necessary to offer a temporary and larger payroll tax relief. so we put forward 3.1% payroll tax relief which essentially cuts it in half for all american workers. that would mean $1,500 for the typical family that makes $50,000. this is one of the measures that has received the strongest

endorsements from independent forecasters. it is also an elegant measure. you were building on an existing structure that puts more money in the pockets of every worker on a biweekly way. it is elegant in that you are able to build off an existing structure and put more money into the pocket of american workers and their families in an extremely efficient way. while this can only be a temporary measure, we feel that the head winds that our economy faces justifies not only extending but expanding. on the employer side, we spent a lot of time analyzing this. i think we came to a couple of conclusions. that there was significant differentiation in the economy now between the largest

multinational companies and the millions of small businesses and entrepreneurs who have faced a perfect storm in this economy. on the larger side, many companies are sitting enormous -- sitting on enormous amounts of tax, up to $2 trillion told perry for the smaller companies, many face a perfect storm. they are more dependent on financing and have been hurt more by that tightening of standards for working capital. many rely on their home or office building as collateral. and the deterioration which is usually of no fault of their own has hurt their capacity to get financing and to even meet the cash needs that they have. we felt that if we did a payroll tax cut on business, the right

way to target that would be to target the smaller companies. by cutting the payroll tax in half for companies -- excuse me, for the first $5 million of wages, we thought that was an efficient and effective way to target the overwhelming amount of businesses in our country, of which have wages $5 million or less. it would still go to every company, but it will have a major impact on the 98% of businesses who have $5 million in wages and less. for them, up to $155,000 in cash can be very meaningful. we believe that this will help small businesses keep people on the job. it will make it easier for them to hire. but we want to make very clear

that this is part of an overall smart strategy to increase demand. many of those small businesses need that extra relief for inventory, for equipment, to fix and repairs, all of those uses of those funds would be positive for this economy. and we said to all businesses that if you are going to have higher wages, then you did the previous year, if you're going to hire more people or give raises to your existing worker, on that amount over what you did the previous year, we will give you a full payroll tax holiday, 6.2%. this is been found by many economists and cbo to be one of the most efficient measures for job creation. it is because that two out of 10

small businesses make a choice of a factor that pushes them over the line in accelerating a hire, that alone makes this a good bank for the buck. -- bang for the buck. obviously a major part of the proposal is putting people back to work while modernizing the economy. the president is out speaking of about one of the pieces, rebuilding and modernizing schools. our proposal has a $30,000 proposal to modernize over 35,000 schools, for science labs and internet-ready classrooms. one of the things we did was give those at the school district level greater flexibility. how to use their funds than is

normally been the case in many school construction proposals. why? schools are like a lot of families. not everyone is ready to do a major reconstruction. probably everyone at your home has something you would be ready to fix. likewise in the schools, where there is some need and schools that would be ready for millions of dollars of significant renovation, critical for the integrity of the children going to the school there, many others face terrible inadequacies in their physical infrastructure that could be dealt with much less. by giving flexibility, more schools would benefit, more money would go up quickly, and we could do more to invest in our long-term education goals.

the gao found 48% of schools that had a high degree of children in poverty, when asked whether there school met functional requirements for laboratories in science, and the choices were yes, partially, or not at all, 48% wrote not at all. it is just a terrible thing that we all go to conferences here and talk about the importance of science and talk about having a strong core work force, a stronger stem initiative, and then with half of the schools, they do not have adequate science lab facilities. that is an outrage. it should be an outrage economically and morally. this would give the school

district the capacity to take that on, to have internet-ready classrooms, to find ways to save money with more energy-efficient modifications. the second point i would make is that there is nothing noble or fiscally efficient or pro- spending cut about allowing ongoing deferred maintenance. if in your home, you decide to cut back as i have not on my nfl direct tv access, i will save money. i will not get to see the detroit lions play and win their first game. this is not the time i'm going to cut back, but you would save money. if you simply do not fix a broken window, you are just suffering -- deferring the

increased spending to a later date. it will mean more increased spending later because of the damage this time. we have $270 billion of deferred maintenance in our schools, $100 billion of deferred maintenance and community colleges, of which a portion of this could go to. so the idea that this would be about big spending as opposed to smart investment just does not -- smart investment in our future does not hold when you look at the details. the second thing to mention in there is that there is a $35 billion in initiative for teachers. if you look at our economy right now, every month on the unemployment reports, every quarter on gdp, you see the same thing. growth in the private sector is being pulled back by a contraction in the local

governments and state sectors. you see this every time. since january 2010, the private sector has added 2.3 million jobs to the economy. the private sector has added 2.3 million jobs in state and local government has attracted 508,000. this is a clear head wind that we are allowing in our economy now. and its greatest harm is in our classrooms. in 2010, we lost about 85,000 teachers. 2011, about 140,000. over the last 12 months, 184,000 teachers. is this really the way we want to deal with digging out of this financial crisis? is it really did children of main street we want to have suffered from the irresponsibility that took place on wall street and the lax

standards among our government regulators? this is an effort that is more economically and smart for our children. i could probably go for another 40 minutes. and you would be riveted. you would be riveted. [laughter] but i told the dow would allow for some questions and answers. -- doug i would allow for some questions and answers. i will simply just say that long-term unemployment is extremely serious and we have put forward a comprehensive strategy to deal with it. extending unemployment insurance is absolutely critical to this. throwing 6 million people out every day looking for work off of unemployment would be cruel and unwise economically.

but what we have done is put forward not only an extension the significant reforms that encourage people to get back to work. it helps encourage companies to do work sharing and avoid layoffs. help those who have been six months unemployed are longer have a voluntary option to help them reconnect with the work force. that is an important part of our strategy. the president is very opposed and very upset at the report of companies who are explicitly discriminating in their hiring and advertisements against those who are unemployed. it was not acceptable in our country to put up billboards or advertisements saying that african-american men and women need not apply. it is not acceptable for people to say that if you have been unemployed for a certain amount of time, you should not even

apply for a job. the president is making it illegal to discriminate against someone solely because they are unemployed. he is putting forward a tax incentive to encourage employers to hire those long-term unemployed. i am happy to take questions. and if there is not time, i am happy to escape. >> why don't we take one question? we have a question out here. all right. we're going to get set for our next panel, then. [applause] >> good morning. it is a real pleasure to be here. i want to salute the american

action forum and doug holtz- eakin for holding this conference and for trying to deliver on exactly that. and that is how to focus policy makers on both sides of the aisle, individuals and the administration as well as in congress to begin rolling in the same direction and turning this economy around. i appreciate the opportunity to be here. we are now in the ninth month, if you will, of a new majority. and our majority hit a ground running in january with a clear sense of affecting real change. and i say that, because we just by make out are now 33% new members. 40% of that new 33% are individuals who do not know from

serving in public office. they are individuals who came from the private sector, who really know the pain and the challenges people are phasing out there, and they came to washington for the right reason. they were elected in a year in which there was a political wave, and have come as almost a moral compass for our conference. and they come with the notion of not seeing tricks. they do not want any more gimmicks. they look at the numbers and say the math does not like. it is time for us to solve the problem and produce results. the change in mind that they have and that we all has has not come easy. all of us have seen what has gone on in all last six months. and it has been a struggle. the stakes are big. we are facing a two crises in

this country prefec first. there's policies that have contributed to the hole that we are now in from a fiscal standpoint. both sides have plenty that they can be blamed for. but we are trying to approach this in no way that we can all come together and solve it. the resolution at the beginning of august and the debt ceiling agreement provide a way or least puts in place a process for us to begin to resolve the problem and manage down the deficit and debt. now the other crisis is something that directly affects the people that sent us here. it affects us all. it is the issue of jobs and economic growth. that challenge for all of us is

to try and resolve both of these crises without trying to address one and hurt the other. now the president came to capitol hill last week to address a joint session of congress. and he specifically came to try and speak to the second crisis, the jobs crisis. i would say that there were certainly areas that the president laid out that i believe we can work on together. there are potential areas of agreement. the president talked about the potential for progress on regulatory relief. the house republicans have announced they're all agenda -- the fall agenda. just this week we are putting on the floor a bipartisan measure that says, no, to the nlrb, that

we should not have a board that tells private entities were they can put investment in this country. i am hopeful that the president to put some meaning behind the words that he delivered. there is a potential for us to agree. the president also spoke about tax relief for small businesses and employers. we agree with that. we agree now was not the time to raise taxes on anybody if we are trying to grow this economy. the president talked about infrastructure spending. we republicans believe that there is a great need in the approaching the decaying infrastructure of this country. we need to come up with a way to address it. we may have differences in the methods by which we do that. the president suggested it infrastructure bank. i for one thing is that in infrastructure bank is something akin to creating a fannie and freddie for roads and bridges,

something we do not need to do if we're going to be serious about prioritizing infrastructure spending. let's get the system straight. let's create a spending process with transparency and not put in and outside it today that it escapes the purview of congress and taxpayers. right now we know that states are required to have at least 10% of their money allotted set aside for projects that are not necessarily priority transportation projects. we have some permitting issues that we can get straight to see the flow of money to projects rather than sit while permitting stands and the way. the president also talked about unemployment benefits. he mentioned that because there are a lot of people out of work.

entirely too many people out of work, 14 million americans out of work. that is equivalent to the population of pennsylvania. there are 4 million people, the equivalent of the population of kentucky, that had been out of work for a year or more. it is unacceptable. i can see why the president feels for those people. what we need to do in fashioning a way forward in unemployment benefits is to look around the country to see what works. what works is work, a job. unemployment benefits should not turn into a permanent solution. we should connect unemployment benefits with work and job opportunities. these are the kind of reforms that we republicans would like to work with the president on. now some of the things i think are troubling about the president's remarks are this. first of all, his message of all

learn nothing, take-it-or-leave- it, passed my plan. that's just not the way i think anything works and certainly not the way that washington works. we have been there, done that for the last eight months. just this morning, we sought david axelrod on television saying it again. it is not a a la carte menu. that is not the spirit that the people of this country would like to see us go forward with. the president's plan also has in it a significant amount of what i would call stimulus spending. we have also seen stimulus spending before, and given the promises that were made, at least i would say that the stimulus program was a failure. why would we want to do something like that again? especially when we have this

federal debt crisis of borrowing money to fund government spending that has to produce good job results that we would like. now the president has also mentioned that he will send up a pay-for bill, or as he calls a, a deficit reduction bill. he calls for significant tax hikes. as you know, republicans support not raising taxes if you want to grow the economy. it is that simple. but the president also likes to talk about taxing the super wealthy, the millionaires and billionaires. his proposals are just not that simple. looking at the impact of his policies in increasing taxes on people making $250,000 and up, you see that is a tax on the very people if you want to create jobs. we also found out from looking

at his proposals, or at least the report, is that his tax proposals are going to impose taxes on charitable contributions. in fact, it impacts at least 40% of tax-deductible charitable contributions. i did not think there are many americans who think that that is a good idea. why would we want to put an impediment in the way of charity accessing funding, when the charities are the ones out there helping the people in need right now? it does not make sense. also, i would say that in looking at the proposals thus far, it looks as if the tax increase will also affect the ability for states and municipalities to borrow money. as we know, there is a tax deduction of four did for the interest on those borrowings.

the president called for giving money to states for stimulus spending, and then he makes it more extensive -- more expensive for states to do that. it is nonsensical. now there are areas of agreement. i did not think we should allow areas of disagreement to get in the way of trying to come together on the things we can agree on. and the people expect no less. in closing, i would say this. in listening to the president the other night in the chamber, something struck me and what the president turned a fair shake. -- termed a fair shake. many people feel that they no longer have a fair shot. i think there is some sense that

we may be talking about the same thing. somehow we have to reignite that confidence and optimism of this country among the american people. but i believe there are very strong differences about the vision of how we get there. of how we get to that fair shot four people again. and the president himself has said that there are going to be big differences, and i think, certainly the american people understand that. republicans and democrats are not going to agree on everything. the president will then say that some things are left for the election. maybe the issue of taxation, maybe some of these other issues will have to be left for the election. i think that what we're headed for over the next 14 months is a season in which there will be a robust debate culminating in november 2012 about the very question of who we want to be as

a country. i believe that who we are as a country is a place where most people came because they did want that shot, that opportunity at earning their own success. the differences i believe on the other side and for the president's policies being promoted, they get in no way of that. they get in the wave of entrepreneurs, of the immigrants who came here decades or centuries ago to make it. the policies in place right now make it more difficult for individuals to go at it on their own. there is a sense in this town that somehow washington's job is to guarantee the success of everybody. i do not think that that is what america and our country is

about. i think it is about freedom, it is about opportunity for everyone. and that there is an impediment in no way for someone to learn that success, that is where the government is properly situated to remove that impediment and in short that success can be had through earning it, for working hard and playing by the rules, and seeing it come. so there are be differences but now's the time for us to try to set them aside, try to see if we can deliver results, and that will be the job for us in congress as we go forward over the next several months. thank you very much. [applause] >> that concludes our forum today. i like to acknowledge the

president of the american action forum. without your leadership, we would not be here today. thank you all for coming. >> former fed chairman alan greenspan was on capitol hill today to talk about ways to improve u.s. tax policy. that is next on c-span. then the head of the congressional budget office testifies to that joint deficit- reduction hearing. after that, president obama in columbus, ohio talking about jobs. and then the republican majority leader mitch mcconnell on the senate floor criticizing the president's job plan. "washingtonow's journal," we will talk to congressman dutch ruppersberger of global terrorism. after that, a conversation on epa regulations with congressman lee terry. later, trevor aaronson of "mother jones," who wrote an

article about how the fbi uses informants. w.j." at 7:00 a.m. each day. the houses in at 10:00 a.m.. legislative work begins at noon. they will work on a resolution on a resolution of disapproval of the debt ceiling race. next, former fed chairman alan greenspan talks about overhauling the u.s. tax code and eliminating loopholes. he testified with other economists and a former michigan gov. john engler, who is the president of the business roundtable. bill nelson chairs the senate finance committee. the hearing is two hours.

>> if this congress does not get serious, then the structural budget imbalances facing this economy could permanently reduce the labor productivity and economic growth for years to come. a launching point for getting our fiscal house in order should haul of the federal income tax code. if that means lowering tax

rates, eliminating tax expenditures, and other loopholes, and simplifying the tax code, then so be it. we hear a lot about entitlement programs, so security and medicare in particular. -- social security and medicare in particular. we do not hear about that 250 entitlement programs put into the tax code. the various tax credits, deductions, and exclusions grafted on to the tax code are entitlement programs, pure and simple. and if you are eligible, you can claim the benefit. and it is in the expenditure. and there is no application process in order to get this benefit. and there is no annual or even periodic review of those

expenditures' efficiencies by the congress. so tax expenditures are entitlement spending without accountability. some of these tax benefits, particularly those relating to oil and gas, they date back to the early 1900's. they might have outlived their justification. the last time congress tackled the attack expenditures -- the tax expenditures in a systematic way was 25 years ago in the tax act of 1986. i voted for that. were you in the house at the time? >> i would have. >> i bet you would have. that legislation took a hatchet to special interests and lowered

the top individual tax rate from 50% to 28%, but the special interests came back stronger than ever. since 1986, according to the joint committee on taxation, congress has enacted 158 new tax expenditures. is it right for an oil company that could reap and an $11 billion tax windfall from the worst environmental disaster in our history in the gulf oil spill? i think that is questionable. and i do not think it will spill clean-up costs -- i do not think oil spill clean-up costs should be treated as a necessary business expense. and that is just one tax break. is it right that large

multinational corporations can report record profits cut might yet still pay no federal income tax? -- report record profits, yet still pay no federal income tax? the example in the news is general electric that paid $0. that does not seem to be right or fair. when you need the tax system that is embraced by the population as being fair, these are examples that strikes the everyday american as a system that is very unfair. is there right the wall street executives can avoid millions in taxes using complex deferred compensation schemes, while the

average taxpayer can put no more than $5,000 a year into their roth ira? or is it right that a special tax rule allows oil and other commodities speculators to treat a portion of their short-term trading profits as long-term capital gains in order to have a lower tax rate? in fiscal year 2008, tax expenditures such as these totaled $1.2 trillion in lost revenue, and that is in one year. that sum is greater than the entire amount raised by individual income tax in that same tax year. it is also greater than all federal discretionary spending in that same year 2008, and it is twice as much as all non-

defense discretionary spending. between 72 in 2008, the number of tax expenditures more than quadrupled in 25 years. from 74 in 2008, they climbed from 5.7% to 8.6% of gdp. if we simply reverted to the 74 level, we could wipe out more than $400 billion off our annual deficit this year, and more than $4 trillion over 10 years. such a tax expenditures can be characterized more accurately as tax earmarks, because they represent favors for a particular interest that is

revenue not coming into the system that has to be made up someplace else by the average american taxpayer. and so tackling tax expenditures is not just about deficit reduction and increasing revenue, it is also about getting rid of the distortions that act as a drag on investment and economic growth. and over the last two decades, our foreign trading partners have moved rapidly to modernize their tax systems to make them more relevant in a global economy where capital moves at the touch of a button, the click of a mouse, and where intellectual property is easily transferred, and goods are manufactured in global production chains that transcend borders.

here we plod along with a system developed in the 1920's, and the time for tinkering has now passed. we need to overhaul the way that we tax u.s. companies that operate around the world. onwe're going to focus today the subject of examining whether there is a role for tax reform in comprehensive deficit reduction in u.s. fiscal policy. one of the things is tackling tax expenditures. making the tax code simple, fair, and equitable. the code is so complex that so many taxpayers simply throw up their hands cut they spend an estimated 7.6 billion hours each year compiling bridget complying

with filing requirements. that is $140 billion roughly in 2008, 60% paying tax preparers to fill out their forms. i could go on and on, and i will submit for the record the rest of the testimony here. the four i send it -- before i send it to my colleague, senator crapo, i wanted to say that we do have a panel that is extraordinary to speak on the subject. the first witness, alan greenspan, managed u.s. monetary policy under four presidency during his five terms as the chairman of the federal reserve. during that time, the united states grew from may 5 dollar trillion to eight $13 trillion

economy. john taylor served as a member of the council of economic advisers and the george h.w. bush administration. and he was undersecretary of international affairs in the george bush administration. and he is and a professor -- he is a professor of economics at stanford. martin feldstein served as chairman of the white house advises.of economic counci he has written more than 300 research articles in the field of economics, founded the national bureau of economic research, and is currently a professor at harvard. john engler president of the business roundtable, a three- term governor of michigan. mr. engler, i governor engler

was president and ceo of the national association of manufacturers. and edward kleinbard, chief of staff of the joint committee of taxation from 2007-2009. he has 20 years of experience practicing tax law in new york and is currently a professor of law at the university of southern california. an extraordinary panel. thank you for honoring us with your presence. senator crapo. >> if thank you mr. chairman. i appreciate your opening as well. i want to focus on one of your earlier comments. any part of the important needed changes that we need to make in america today with regard to our economic and fiscal policy, tax reform is one of the keys that we must not allow to be ignored. i have been working with a group of six, it has been called

the game. -- gang. senator wyden has a proposal of his own. but the one area of agreement that we have among us and many others is that in addition to controlling the excessive spending appetite of washington and getting our spending under control, which is undoubtedly an important and necessary piece of the reform of our fiscal policy, we also need a pro gauche growth element of our fiscal policy and our economic policy. and we will focus not only on the austerity and a proper fiscal policy relating to expenditures, for spending, but also with regard to those kinds of reforms that i think are started at the foundation, with the fundamental reform of our tax code which would generate pro-growth opportunities for our

country and strengthen our economy. today's hearing focuses on the issue of tax reform. and as you said, we have an astounding panel to discuss this. that this is needed is hardly in dispute in the united states today. but there are a tremendous number of ideas about how we should do it. you have identified a number of pieces of the complexity of the tax code, and i think you have the feeling you thought we could simplify. the group that i have worked with has proposed dramatic reductions of the complexity in our tax code. i know that senator wyden's proposals are similar in that regard. undoubtedly we will have to engage in the discussion and debate over these various specific parts of our task code, and there will be disagreements about individual pieces and their policy justification spirit but we must engage in that debate.

i have said many times that if we go about creating a code that is more unfair, more complex, more expensive to comply with, and more anti-competitive to american business interests, we would be hard-pressed to do it. i do not think people would argue that we dramatically need to platinum our code and make it much less complex, project flats and our code and make it much less -- flatten our code and make it much less complex. many had disagreed with the notion that we should stay in the age old box of battling over whether we should raise taxes on those who are particularly identified as the wrong people in america to receive taxes, raising taxes on the wealthy, or whatever. we need to move out of that into

a debate over how to reform the tax code. the proposal that i support and many others have proposed all have selma -- similar elements. they look it simplifying the complexity of the code. most look at reducing tax rates in accordance with that in building the economy. i think that is the approach that would be music to the ears of those seeking to engage in capital formation and business development in the united states. a byproduct of the economic growth that i hope would come from tax reform with the additional revenue that we do not currently see in our economy, not because current tax rates are too low, but because our economy is not growing. history has shown that our annual total revenues as a -- this is in gdp is a

the case whether the top tax rate was 7% or 35%. in times of slow growth and high unemployment as we have in recent years, we've seen this in the total revenue. over time we've always seen written avenue turn -- return to the historic average. regardless of what congress is done to the tax code. annual revenues have only exceeded 20% of gdp three times in the last several years. one was at the end of world war ii when we were still running high deficits. the other was in 2000, where it was 20.6% at the height of the start of that vote will -- stock market bubble. that also coincided with the post-9/11 recession that occurred. and that, other than 2000, of the other 11 times when our

budget has been in surplus, revenues were less than 20% of gdp. many times they were below 19% of gdp. it is important to note that our budget has never been in balance when federal spending exceeded 19.4% of gdp. many of our witnesses note in the prepared testimony law tax reform is an important goal, a fundamental entitlement reform must be at primary and immediate goal for congress, as it is the largest driver by far of all long-term fiscal shortfall. nevertheless, if we cut trillions of dollars of spending, which we must do, so long as our economy remains in the tape and unemployment remains high, policies that will generate the kind of robust economic growth currently know where to be found must also be a priority. it is for this reason i support tax reform as part of a comprehensive fiscal reform plan that also includes

fundamental entitlement reform and strict enforcement mechanisms that will keep congress from violating those guidelines and those requirements. i am very pleased, mr. chairman, that we have been working together on these types of issues. the other senators on the panel, we all have to some extent different ideas about exactly how to achieve this. but there is a huge overlap in our commitment to achieving this kind of fundamental tax reform and in the hearing we're holding today, it is evidence of that. i look forward to what our witnesses have to tell us and look forward to working with you and our other colleagues in congress and development -- in developing a pro-growth agenda for our economy as we deal with our spending excess. thank you. >> thank you, senator crapo. chairman greenspan.

>> i very much appreciate the opportunity to testify before this committee. i am glad that congress is taking a very pronounced effort to come to grips with that. tax reform is a major part of any program of fiscal reform. it will contribute to a restoration of american competitiveness and a vibrant economy that goes with it. the fiscal success we achieved in the early 1990's was essential to contain budgets that seemed prone to excess. the great irony of those years was that the surpluses that emerged from 1998 to 2001 as a consequence of that success, undermined fiscal prudence. we have now come full circle to a point where as much as i wish

it were otherwise, there is no credible scenario of addressing the current fiscal problems without inflicting economic pain. we have been procrastinating far too long. and coming to grips with the retirement of the baby boomer generation, a fiscal problem that has been visible for decades. by 2006, with chronic surplus is already a distant memory, the medicare trustees indicated, according to calculations by the council of economic advisers, that the medicare program does not have enough projected revenue to cover projected future spending. the reduction in medicare part a expenditures by 51% would be necessary to make the medicare trust fund solvent. rather than repairing that huge

shortfall and a lesser one in social security, we expanded entitlements further. without a matching source of revenue. our major problem is not only that spending has been rising rapidly, but that it has been mainly in the form of entitlements, but rather than a discretionary outlays such as bridge building that cease when the activity comes to an end. entitlements, however, once bestowed are very difficult to respond. the growth -- resend. the growth of our economy in the years ahead is bound to snow. our civilian labor force short of a major change in integration should parallel a slowing in growth of the working age population, most of whom already born. the professor of northwestern

university has concluded that the most recent 20-year forecast of the growth rate of per capita real gdp represents the slowest growth of the measured american standard of living over any to decade interval recorded since the inauguration of george washington. in the years ahead, increasing entitlements will be pressing against shrinking economic growth. my preference going forward, as i have noted often, is something akin to the budget recommendations of paul ryan. i regret, however, that his budget lacks the votes for passage. as european current experience underscores, delays in implementing policy, it can be

destabilizing. are politically feasible budget proposals -- that proffered by the national commission on fiscal responsibility and reform appears the most substantive. what impressed me most is that it addresses tax expenditures, mostly subsidies, can be structured and viewed as cuts in outlays rather than reduction in revenues. subsidies of what ebert stripe distort the optimum function of the markets and ultimately it the standard of living in society as a whole. i do not know whether a u.s. budget crisis is immediately on the horizon or is years off, what i do know is that if we presume that we had a year or two before starting serious

long-term restraint, and we turn out to be wrong in that optimism, the impact on financial markets could be devastating. if we are wrong in the overleaf fiscally cautious, that is a problem that is readily soluble. thank you, mr. chairman. >> we have focused on more temporary types of interventions and they have not been

effective. that is why it is so important to move towards a more comprehensive strategy. there are two elements of that strategy, one is the budget strategy and second is the tax reform strategy. they are intimately linked together. i would like to refer to a graph that i have distributed in my testimony. it is in front of you. this graph illustrates the way to go about this. you would start with the budget control act this summer. while criticized by many, it has accomplished a reduction in spending growth compared to the original budget submission of the president. if the joint select committee comes up with the additional spending reductions, it will take the spending levels by 20201 from 24.2% to 22%.

i think we need to go further and would suggest that we take spending levels back to where they were in 2007, as a share of gdp. that level is 19.5% of gdp. there are two big advantages of that strategy and i will show you in a minute. it allows tax increases to be taken off the table. that is a stimulus to economic growth. it will allow for " revenue neutral tax reform, meaning lower marginal rates and broadening the base, the classic definition of tax reform. those advantages are essential for raising economic growth. the tax reform strategy, of course, should just do that. reduce marginal rates.

you have indicated how to do that. it can be done on the corporate side and on the personal side. both should be part of this. i would like to try to work through my graft. the numbers are really important here. if you look at page 5 of my a graphy, you'll see that shows a federal spending as a share of gdp from 2000 to 2021. this tree is most remarkable because it shows a gigantic int -- the history is most remarkable. the president's original budget did not deal with that spending problem, as we all know, and it is shown in the graph. it would've had spending at 24.2% of gdp.

with the budget control act, the continuing resolution of 2011, and with the extra work the joint select committee must do, you can see that has been -- the picture has changed dramatically. it takes spending to 22% of gdp. as you can see, if you really want to have a budget strategy that does not entail a tax increase, you have a little ways to go. what i would suggest is that with the tax reform proposal and entitlement reform proposals, it is quite feasible to get to where we were in 2007. that was 19.6% of gdp. there is a way to do that. this would be the way to have a comprehensive budget strategy, a comprehensive tax reform strategy, and one which will do a great deal of good for the

american economy. thank you. >> thank you, dr. taylor. >> thank you very much, mr. chairman. talking about tax expenditures and pro-growth tax reform for many years. before i served as chairman of the council of economic advisers for president reagan. i was really pleased to hear your opening comments and those of the center. i wrote the testimony that i said -- those of the senator. i wrote the testimony before i heard president obama's speech to the congress the other day and is planned to finance his new stimulus package. if you looked at my testimony, you will know that i favor reducing tax expenditures.

i must say i do not favor the way president obama proposes tax expenditures. there are two reasons why his proposal is a bad idea. it uses the revenue to finance his new collection of government spending programs. we need that revenue from reduced tax expenditures to reduce the future budget deficits and to lower marginal tax rates. second, as you know, the president would lead the tax expenditure reductions just to higher income tax payers. those earning more than $200,000. long-term deficit reduction requires that everyone shared in that burden. if congress were to pass the president's proposal to reduce tax expenditures just for high- income individuals, it would be very difficult to revisit that

at a later time and to extend it to the entire population of taxpayers. with that said, let me return to the testimony that to i submitted. as both of you said, tax reform, although it is the focus of this hearing, is not a substitute for the fundamental reform of social security, of medicare, and of medicaid. the primary sources of the future growth of government spending. i think the key to those reforms is to reduce gradually the growth of the projected government benefits and to supplement those benefits with universal investment based annuities and private health stand -- spending. during that would protect the future end comes and help care of older americans without

requiring higher future tax rates. let me turn to tax reform. in the prepared testimony, i emphasized what you have both spoken about. that is the role of tax expenditures comment tax expenditures are substitutes for direct government spending. i think that the key to favorable tax reform is to limit the revenue lost because of these tax rules and to use the resulting extra revenue to reduce current and future marginal tax rates. today is marginal tax rates are typically close to 50% for middle-income families. because of the combined impact of the income tax, the payroll tax, and the state tax. these high marginal tax rates reduce the incentive to work, require more skill, to save and

invest. reducing -- to spend money in waste always that generate tax reductions. limiting tax expenditures and using the resulting revenue to lower marginal tax rates would produce a double win. it would reduce waste a behavior directly and would strengthen incentives for economic growth. that could be made a triple win by using some of the resulting revenue to reduce budget deficits. although eliminating tax expenditures produces additional revenue, it is really a way of cutting government spending. the effects shows up in revenue side of the budget, and it is really a cut in spending.

the accounting rules make it look like a tax increase, but the economic effect is the same as any other reduction in government outlays. let me be more specific about how i think the limiting of tax expenditures might be approached. i think it can be done without actually eliminating any of the tax expenditures or even putting limits on specific tax expenditures, like the size of the mortgage deduction. a better and fairer way to reduce the revenue lost caused by tax expenditures is to allow individuals to use all currently available tax expenditures, but to limit the total tax benefits that each individual can get from those tax expenditures. to limit that total tax expenditure -- tax benefits to a percentage of that individual's adjusted gross income.

for example, limiting the revenue loss from the item i deductions and from the exclusion of employer payments for health insurance to 2% of each individual's adjusted gross income would raise more than $275 billion a year at current income levels and more than $3 trillion over the next decade. the size of the tax cap could be started with a higher rate and gradually reduced to a 2% cap. even a 5% cap would generate more than $100 billion of additional annual revenue at current income levels. a key point to stress about this idea is that the 2% cap is applied to the tax expenditure benefits and not to the total amount deducted or excluded.

someone with a 30% marginal tax rate who pays an annual mortgage interest of $5,000 would receive a tax expenditure benefits of $1,500. that cap would apply to them. it would also generate tremendous simplification, a 2% cap on tax expenditure benefits would cost nearly 75% of individuals who now itemize their deductions to shift to the standard deduction. that would be an enormous simplification. i said a little bit about corporate tax reform, but basically it lowering tax rates and shifting to the territorial system that is used by virtually every other industrial country. i will stop there and look forward to questions after the other speakers. >> thank you, a doctor.

governor? >> i will pick right up on the corporate tax report. thank you to the committee for holding this meeting today. i might mention in my credentials, as a three-term governor, we're able to get michigan back to a triple a rated state. i appreciate the challenge in front of the committee. my testimony focuses on the critical relationship among business tax reform economic growth and deficit reduction. this is tax reform should be designed to maximize economic growth over time while creating permanent jobs with good wages. we believe that congressional action can improve the ability of american workers to compete in a hyper competitive world economy. it would add the additional benefit of reducing burdens the nation's current debt imposes on our economy.

it improves economic growth by half a percentage point, we can generate millions of new jobs for americans. mr. chairman, you and your committee could not be holding a more timely hearing. our companies are disadvantaged by u.s. corporate tax system that is an allied air at a time when capital is more mobile in the world economy have more -- are more interconnected that it any time in history. your opening statement folk and highest -- focused and recognized that it discourages capital investment in the united states. the u.s. corporate tax system is quite possibly the least competitive tax system in the entire nation -- family. i put a charge of just to show what has happened over a period of time. you noted that we have an antiquated tax code. i developed for a different era.

this chart shows for we have made changes and we are in a more competitive posture. today, we need a simpler, lower rate system that allows american businesses and workers to compete and win. the two primary reforms we endorse is a territorial tax system and a significant read deduction in the corporate tax rate. the territorial tax system -- territorial tax system is allowed domestically headquartered companies to compete on a level playing field in foreign markets where they do business. it shows just how predominant the practice is. we had a competitive tax rate, we no longer do.

reductions over the past 20 years have resulted in u.s. corporate rate in 50% greater than the average of the country's. i believe the proposals we bring today would boost the worldwide competitiveness of american companies, increase jobs for american workers, increased wages, promote long-term economic growth and help pay down our debt. in evaluating the costs, it is important to consider the cost relative to the revenue stream that government would a mother was collected. in doing so, i urge congress to recognize that many provisions have routinely been extended year after year. you sort of mentioned that in your opening comments. the research and development tax credit is one for example. provisions that have been extended are realistically part of the baseline.

against which the revenue from are reformed tax system must be measured. some increases should be used for deficit reduction. others will argue that business tax increases should be used for new spending. the business roundtable argued that any business tax changes should be used to lower one of the highest corporate tax rates and the world. given the desperate -- given the deficit, we must guard against any diversion of corporate tax revenue. comprehensive tax reform as a challenge, and it will not get any easier by selling for piecemeal changes. or succumbing to the targeting that you spoke of for a specific industry. successful, we address the fundamental tax reforms that can

help achieve a higher u.s. standard of living. i look forward to working directly with congress. we did bring one other charge. it is important. it shows where the payrolls are today. this one has gone a little bit of attention. we need to help move those numbers on the employment side in a positive direction. thank you, mr. chairman. >> to buy, the governor. >> thank you, mr. chairman. -- thank you, governor. >> even by our own standards, with collecting low-level attacks, below 15% of gdp for the last three years. at the same time, we are spending allies into larger

stocks trade the spending determines the level of tax revenues that we require. first, we spent much more on health care per capita than does any other country. our per-capita government share of the spending is the second highest in the world. in the u.s., or aggregate health care spending would demille decline by $800 billion a year. second, the u.s. spends as much on its military as the next 14 countries combined. a 42% of the world's entire military expenditures. our current base cannot be reconciled with their outside spending on health care and defense. whatever the long term government and title spending policies the transition to, and we will need to finance the cost of getting their. that means higher tax revenues than those the currently collect. the u.s. can afford to increase

the total tax collection as a fraction of gdp. a decade ago, the country ran budget surpluses. tax collection exceeded 20% of gdp. the cbo budget baseline assumed the so-called bush tax cuts will expire at the end of 2012. extending those temporary pass discounts would add $4.60 -- a $4.6 billion over the next 10 years. we have no practical choice but to treat the cbo baseline as the tax reform base case. to our goals should be the same revenues as the cbo baseline, but to do so in a smarter way. this means that we must abandon are nostalgic for the tax reform act of 1986. that effort was revenue neutral because it could afford to be. it was followed by major tax increases. the fact that we have to raise

revenue today means that this tax reform will look different. in particular, this tax reform will be to tackle some of the subsidy programs baked into the tax code. of all of these, the most important to address are the personal itemized deductions, such as mortgage interest cut terrible contributions, and state and local taxes. they are -- charitable contributions, and state and local taxes. they are inefficient and a lead to major misallocation of economic resources. they are poorly targeted. they are unfair. they are upside-down subsidies. they subsidize a high-income americans more than low income. the tax policy center has estimated that eliminating the subsidies would increase tax revenues in the neighborhood of

1.5% of gdp over and above the laps of the temporary tax discounts. this is an enormous tax pick up. i fully recognize that the personal itemized deductions are described as political sacred cows. they are sacred cows that we can no longer afford to maintain. either we eliminate the sacred cows are we allowed them to stampede of grass. tax reform also must address the corporate income tax. i agree with the governor that a 35% is too high. at the same time, most multinationals are adept -- for the production of what i called stateless in time. income that is taxed nowhere. the u.s. corporate base is being systematically eroded. the territorial system advocated

by the business roundtable would make these problems worse in every dimension. a revenue neutral corporate tax reform package could be fashioned along the following lines. eliminate as many tax expenditures, reduce the corporate tax rate to something in the range of 25%, and tax multinational currently under worldwide income. the resulting corporate system would represent a huge competitive boost for american domestic firms and would attract investment into the u.s. and will provide a fairer tax environment. thank you, mr. chairman. >> thank you. i am going to ask one question. i will then turn to you for your questions. gentlemen, how much revenue could congress expect realistically to be generated by broadening the tax base,

eliminating the tax expenditures, and closing the loopholes? let's go right down the list. >> that is a very large number. i would not put the issue that way because what we are dealing with is a major problem in this country and which what we have promised in the wake of entitlements is in physical volume terms more than i think the size of the american economy can produce. it is not an issue of raising revenue per say, it is a question of our spending is already committed to more than we have the capacity of achieving. i would say that the focus has got to be fundamentally on the issue as to why the trustees of

the medicare fund several years ago found that we were severely underfunding medicare. until we understand that our problem is spending and not taxes, i think we will leave ourselves a straight. let me just say, mr. chairman, there is no question that the level of saturation is a major factor in determining the level of economic activity. the issue that i think we ought to focus on is that we are in a period of sluggish economic activity, there seems to be no real potential for changing that materially. the revenues we will engender their respective of the tax code are gone to be much less than i think are currently being

projected. if that is the case, we have to recognize that we have a major problem on the expenditures side. this is not discretionary spending. it is very difficult to cut entitlement spending. unless we put our focus on that issue, and then determine what it is the need to raising revenues, after we determine what we are going to spend, and this is an appropriate way to focus on tax policy. taxes are there to fund spending. the lower the level of spending, the less the problem of funding. >> if it is just a matter -- >> on hold on. i want to follow up with

chairman greenspan. just focusing on expenditures, what do you think is realistic for the congress to squeeze out of that $14 trillion of tax expenditures? >> mr. chairman, i am one of those who thinks tax expenditures should not exist in our fiscal system. whatr as i'm concerned, the commission did the start of but the presumption that tax expenditures would be a zero and work back from there. i like that premise. in fact, i realize it is going to be very difficult to avoid having to keep some of that in place. as far as i'm concerned, the sooner we can get rid of the whole concept of tax

expenditures, the better we will be. i would like to see all expenditures go through the appropriations process rather than go through tax credits or other things, which i find is merely a mechanism to get around the ultimate process. >> get rid of $14 trillion and then build from there? >> if you start with the assumption that tax expenditures or an inappropriate means of raising revenue, and and work back from there, i think you will be in the right direction. >> dr. taylor? >> if you want to just eliminate the tax expenditures and not consider its along with tax reform, which is adjusting the marginal rates, you will be disappointed about how much extra revenue you raise.

if we have a strongly growing economy, say like we had after the recession in the early the same% a year, share of taxes, we get a lot more revenue. we can give a lot more things. it is the growth that is most important. when you are thinking about zero in terms of tax expenditures, you better be simultaneously thinking about the marginal rate reductions that will go along with that. >> which is precisely what we have said appear. -- up here. >> you proposed 2% cap on any individual and i assume corporate amount of tax expenditure. if i recall your testimony, that was about $3 trillion over 10 years.

that way you do not have to pick and choose which ones you want and do not want. >> let me be clear. that was just on the personal side. it is hard to think about what the equivalent of a percentage of agi is for the corporate side. i have not looked at that. i do know that if we look at the tax expenditure analysis by the joint committee, it is much more of the tax expenditures are on the personal side than on the corporate side. although the things you mentioned are important and on the corporate side. there is also a question of how to treat incentives for saving and investment. under a broad income tax measure, you would say contributions to individual retirement accounts or the interest earned in 401k accounts

are tax expenditures and should not be allowed. i would disagree with that. the numbers i mentioned assumed that pro-savings items in the tax code, features of the tax code like ira deductions, would continue to be allowed. that $3 trillion over 10 years, just from the personal deductions and the exclusion of employer payment of health insurance. putting a 2% cap on that. >> governor? >> been a very mediocre agricultural economist, let me remind the committee of something that this committee was part of that in 1995 and

1996. we were doing welfare reform. that stands as one of the singular accomplishment in the last part of the last century. we saw in that when the incentives got changed, we had people going back to work that people said would never work. we had entire counties for everybody on public assistance was working somewhat. that was as simple as changing the way we handled encompass regards. to restore the animal instincts of our -- to get the incentives windup, the kind of changes being talked about will yield additional revenue beyond what a static analysis zero burk in it corner- over in some cbo would come up with. what we have to be focused on is

the lack of economic growth in this country. we need to be a jobs engine again as a nation. our policy should be coordinated to get there. your topic today can help. >> as the former chief of staff of the joint committee on taxation, it is incumbent on me to do what you have always suspected my old group the dead. i pulled the number of the top of my head. -- my old group did. i come up with about $4.50 trillion. first the itemized deductions, some are in the neighborhood of $2.50 trillion over 10 years. the employer sponsored health insurance, i would not put a cap on that. what we tend to forget is that this is one tax expenditure that also has a tax expenditure

affect on our social security tax payments. that is about $1 trillion over 10 years. regardless of what we do want income tax, if we included employer sponsored insurance, we would be talking about another trillion. there is over a trillion dollars in business tax expenditures. those need to be reversed. every country that has lowered its rate had broadened its corporate base by getting rid of accelerated depreciation. that is a fair trade. that would put over a trillion dollars, which should be employed to reduce the corporate tax rate. having said that, when we talk about fundamental changes like this, like eliminating the personal deductions, it is important to remember that you have to borrow the fraud slowly.

-- boli the frog 00 boil the frog slowly. >> the frog is still dead though, which is one of the problems. >> your proposal is 4.8 -- >> over 10 years. >> 4.8. over 10. senator? >> i assume that number would be $4.80 trillion at of the 14 that there is now in the tax code. >> by way of tax expenditures, yes. >> there would be about $9 trillion left in the tax code. >> most of those would be on the capital income side. >> i would like to ask that the entire panel very quickly -- at

least the proposals that are out there with regard to the corporate income tax rates are being proposed on revenue neutral basis. is there any disagreement that on the corporate side that the revenues -- that the reforms to be revenue jet -- a revenue neutral? >> i do not disagree with that except to note that some business tax expenditures are by it noncorporate businesses. >> thank you very much. getting back to the question of what ever the level of adjustments that can be made in the internal revenue code in terms of flattening the code and reducing the tax expenditures, and i think there is no disagreement among any element here with regard -- that in some way we should do that. the bottom line, it seems to me that there is a big debate over how that revenue savings to the

federal government should be utilized. it can be used in three ways. it can be used to reduce rates, it can be used to justify more spending, it can be used to reduce the deficit. there may be other ways to use it. in a broad sense, it seems to me that those are the three options. in my mind, producing rates would be the most effective utilization of those kinds of savings. i would like to have your observations as to how we should approach that. >> ordinarily i would agree with you. but we are in such precarious shape fiscally at this stage, i think it is essential that we get to the level of the deficit down as quickly as possible. every day that deficit sits out there, we are adding to the

debt and in order to reduce that debt, we have to run a surplus. leaving aside the issue of stabilizing the fiscal system by making sure that the level of debt relative to the gdp is some stable number, that is an economist fiction. what can happen very readily in that context is interest rates can go up. i think the combination of a slower rate of growth and the fundamental revenue creation coupled with the issue of the very considerable difficulties we are having in cutting spending leads me to conclude that the very first thing we ought to address is get the deficit down. once the deficit is down, then i think we approach the issue of cutting spending and having cut spending, then cut taxes.

i do not believe it makes sense to cut taxes funded by borrowed money. i do not think at the end of the day, that works. i think we underestimate how severe this problem is. the mere fact that everybody seems to agree on the baseline of this and the total revenues on that, it tends to be the case. they make the same fundamental assumptions about the long-term economic outlook. that is the major driver of revenue. my judgment is let's get our house in order, let's remember that taxes are there for the purpose of funding spending. decide what level of spending this country can afford. not what it would like, but what it can afford.

>> i am a strong favorite for your first approach. to use it to reduce rates. that is a classic definition of tax reform, expanding the base and lowering the rates. the strategy or the planned for the budget i outlined at the beginning and to my written testimony had that built into it. that is one of the advantages of a credible, a gradual reduction in this high level of spending. it seems to be number one is the way to do this. >> thank you, doctor. >> i would summit -- i would split the revenue between the two uses. i thought that the bowles- simpson proposal probably puts too much into deficit reduction

and not enough into deficit reduction. i think we do have to get back to annually balanced budgets. not every year, but over the business cycle, as quickly as possible. here is the good news. after world war ii, we had a debt to gdp ratio of 110%. that happened because over those 15 years, on average, there was no deficit. the fact that the economy grew 2.5% and we had inflation 2.5% it meant that nominal gdp kept growing while the total debts remained unchanged. and so we got back from this very high debt to gdp ratio to something that we lived with for several decades until recently. >> thank you.

>> in terms of the structure. from the business side, i think it is very important -- you mentioned the concept of revenue neutrality. it would be the right baseline. that can alter things a lot between how you play that. i would see a rate reduction which i think has a positive of fact in terms of economic growth. i think the only thing you clearly have to be very -- no increased spending. >> thank you. >> i that chairman greenspan was quite persuasive. to spend is to tax. it is really spending that drives the question of how much revenue as we need. i think we are all perhaps not

keeping on the table the inescapable demographic fact that this country is getting older. look at this panel in front of you as proof. the result of that is that health care expenditures are rapidly growing at a rate that to greatly exceed its our growth in gdp. we need to rethink our spending patterns, are long-term entitlement patterns, those have to be phased in slowly. we have to boil the frog slowly. whatever is left, we have to finance. refinance the two taxes. -- we finance sat through taxes.

as we make a transition to a different spending path. >> thank you. >> thank you very much. thank you for being here to talk with us. a question -- i would still like a little more clarification about as congress approaches this whole idea of tax reform, do we need to raise additional revenue? i'd understand -- i understand chairman greenspan to be saying that we do. i believe that is my interpretation. the rest of you have said we do not. or maybe we do, i do not know. maybe you can clarify. >> my view is that if we eliminate or cap tax

expenditures, you should use some of that money to reduce deficits and some of it to reduce marginal tax rates. >> we should raise additional revenue it? it is a question of how to use it. >> if you eliminate expenditures, you automatically raise revenue. do you give it all backed in the form of lower rates or do you use some of it -- >> your view is that we should give some of its back, but not all that. >> exactly. >> dr. taylor, your view is that we should do the reforms, but we should use the revenue that we achieved from those reforms to cut rates? >> yes, it would be analogous to what we did in the 1980's. >> you would not want us to do an increase. >> i think growth is so important.

classic tax reform is what i would suggest. >> am i correct, chairman greenspan, at your view it is -- deficits are so when portents, we first need to bring down definite -- are so important, we first need to bring down deficits. is that your position? >> it is, senator. what i would recommend is a recognition of the bush tax cuts of the 19 -- of 2001 and 2003. it rested on a concept -- unbelievable amount of surplus as far as the eye can see.

i always envisioned the bush tax cuts as being the means by which we could take advantage of that, meaning get to the tax cuts and reduce the surplus. i would think at this particular stage, what we ought to do is to go back to the tax structure that existed prior to 2009. start again. we want to get the level of taxes down, but you can only do it through -- if you bring expenditures down. the primary objective of policy ought to be one to get ourselves to a stable position and allowing the bush tax cuts to be rescinded. we will start to get to a point

or weekend began to get a balance in the system -- where we can begin to did balance and the system. as i pointed out in my prepared remarks, this is not like the end of world war ii with the 110% ratio of debt to gdp. that was very easy to cure, just stop world war ii, and all of the sudden, spending went down. if you have a lot of discretionary spending, that is easy to cut. but we are locked in with entitlements. everyone who receives them believes that the government says, this is your right. rescinding them is something that is very difficult to do. my view is that we should -- we are in the process of promising more to people who are 55 years of age.

the level of medicare benefits in real terms for the year 2030 -- i do not believe our economy will be able to deliver. not delivering what is promised by the government is the worst thing that government can do. that person is 55 years of age. if it knew what and actual benefit size was going to be in medicare, for example, they could perhaps work a year or two longer because they had retired on the assumption that those benefits for real. i think they are not. i think unless we recognize that we have a very serious problem, this is gone to be a very tough road to hoe to get ourselves back to fiscal stability. >> thank you very much. >> thank you.

>> thank you, mr. chairman. thank you for your leadership on this. this is important topic and i commend you for the work that you are doing. i want to zeroed in on the jobs issue with respect to this topic. start with you, if i could, dr.. i am very sympathetic to these proposals and ideas that you are advancing. when we looked at the labor statistics figures, in the two years after the 1986 reform bill, the country created 6.3 million new jobs. 6.3 million new jobs. it seems to meet this study that you did on 1986, would to a

great extent, has affected my thinking over the years. it is based on that. look to lower marginal rates while keeping progressivity and you are on a path to stimulating the economy and creating jobs. do you conceded be a continued to feel that those principles are sound -- do you continue to feel that those principles are sound? >> absolutely, yes. >> want the question of the corporate rate, we have it at 24%. that is the lowest right now. most of them are between 25 and 27. the point is, everyone is moving in the tax reform debate towards the same kind of figure.

the question is, how do we make sure that to and corporate tax reform, we get as many jobs as possible here in the united states? what a typical citizen is saying, look at these tax breaks. you have tax breaks for shipping jobs overseas. we need jobs here. a lot of companies would like to put their focus here, so the question then becomes, where do we need to go to get that done? it seems to me what you are saying in your testimony is that if he cut corporate rates to the mid 20s -- and i am certainly open to whether it should be 22 or this or that -- your theory is that that could create jobs here in the united states for companies that are already here,

number one, companies that are looking around the world to invest here, and for multinationals. in other words, it would allow us to run the table and do everything as far as tax policy that is needed to have pro- growth tax reform. is that true? >> that is an excellent summary. i believe quite strongly that the corporate rate is too high. i also believe, frankly, that too much attention has been paid to the plea of multinational firms for a territorial system that would work for technical reasons to erode the domestic corporate rate even further. domestic firms have been left out in this discussion. the rate -- the right approach is to lower the rate on domestic business operations, to attract jobs, it to attract inbound

capital. to offer multinational firms a fair system. when you look at the tax rates, those rates are still in the high 20's. if we were to offer u.s. firms a worldwide rate in the mid-20's, we would be in the middle of where the g-7 major economies are today. when we make these comparisons, we have these tendencies to throw in state and local taxes. the fact is that multinational firms do not pay state and local tax on their foreign income. we're not talking about a 39% rate. we are starting with 35 and you can get it down to 25. can get it down to 25.