your projections of what you think might happen if the reductions in some of these outlays would occur in both defense and nondefense over the next 10 years as a result of the cap. if we're not able to come to an agreement -- my understanding is under the cap there are far walls which separate the savings we would extract from defense from non-defense. but as far laws exist for only two years. projections go out for 10 years. are you saying the savings you show for defense are guaranteed or that is what we assume are the projections and that half of the savings will come from defense and half will come from nondefense? >> security fund his defense

funding and other pieces of funding as well. you are correct, beyond the first two years, there is no cat and overall funding we looked at three alternatives, one in which the reduction from the inflated former base line with inflated amounts, one which was taken up entirely through defense-cut spending, non- defense spending and one was met through a combination. i presented the middle of those here for simplicity. we looked at the raid because it will be of two future congresses to decide. >> it really depends on what congress does where we will see the savings occur? >> absolutely. >> total of all discretionary spending whether it is for the pentagon or education, environmental protection, clean water, clean air, food safety inspection -- total that up and

how does it compare to the amount we spend for the tax code through tax expenditures, earmakrs. >> we have not published and estimate of that. it is about $1 trillion per year. the total funding for discretionary purposes last year was about $1.30 trillion. >> so we spend almost as much per the tax code for certain constituencies as we spend for the entire appropriations allocations process for the regular budgetary process. that is the type of spending we're not talking about today, the tax expenditures. you discussed this last time and we appreciate it. final question -- thank you for the report you just issued on the distribution of income in america and a comparison over the years. i think you highlighted some pretty startling numbers about

the disparity in income and wealth in america today where the top 10%-20% of americans and the 1% of americans have seen a concentration of wealth as opposed to the very middle of america. can you give us a synopsis of what you found? >> we found very pronounced widening of the income distribution in this country with reductions in the share of national income going to the bottom 4 quintiles and a large increase, roughly doubling, of income going to the top 1% of the population. >> i see that my time is about to expire and i thank you. >> let me read to you an e-mail

that was sent to interested hill staff from the congressional budget office on september 17. the subject is hhs class announcement on the cbo baseline. " friday, the secretary ofhhs does not plan to institute a long-term insurance care program under current law. on its next baseline, budget projections would be issued in january, cbo will assume the program will not be implemented. unless there are changes by the administration that would supersede the friday announcement. furthermore, following longstanding procedures, cbs takes new and administrative actions into account when analyzing legislation being considered by congress even if it has not published new baseline projections. beginning immediately,

legislation to repeal the class provisions and the current law would be estimated as having no budgetary impact." this says that your long standing policy is to take new administrative actions into account and as you testified earlier, this would suggest you would not necessarily wait for congress to act. the president is commander in chief. his trip announcements -- his troop announcement is tantamount to a congressional action. he has the ability to withdraw troops. what is the difference between his announcements that we will have no presence in iraq after christmas and his previous decision and announcement that we would withdraw in stages the troops from afghanistan over the ensuing year? what is the difference between that announcements and a class act announcement in terms of cbo

baseline decisions? >> it is the difference between the treatment of mandatory spending and discretionary spending laid out in the balanced budget and deficit control act. for mandatory spending, a program where congress has certain rules within which the administrative action can be taken. we are trying to provide our latest estimate of the fax of that set of authorization. -- of the affects of that set of authorizations. if a program has been abandoned, we adjust the scoring base for those mandatory programs. for discretionary spending, our projections don't respond to particular sets of programs or objectives because the congress can choose every year how much

to provide for certain purposes. >> this is a distinction without a difference. the president is the commander- in-chief and he deploys troops, not congress. are you saying that that difference requires you to wait until congress acts even though the commander-in-chief has already made his announcement and begun a program for withdrawals? in theater, they are making plans as we speak and how they will withdraw the troops from iraq. >> it is a distinction with a difference -- we are not equipped to project what defense fund and the president will request in the future or what funding the congress will enact in the future. this news from the administration will be a factor that will affect the funding their request and not necessarily in a one to one way that we can analyze. >> so this memorandum should have distinguished between

mandatory/discretionary spending when it talks about cbo's policy. cbo will assume the program will not be implemented unless there are changes in law by the administration that would supersede the announcement following longstanding procedures. it takes new administrative actions into account. they should have distinguished between mandatory and discretionary, is that what you're saying? >> i think you are right, senator. i should have put that word in. >> with regard to the so-called oco savings that the president included in his alleged budgetary savings, it depends on whether the defense appropriations legislation is passed or when that legislation is passed as to whether you

change your baseline? >> yes, congress enacts a different level appropriations at any point and after that we would respond to that level of enacted appropriations. >> if we could get the appropriation bill completed before the december 23 deadline, much of the alleged oco savings would no longer be available because of the adjustment in your baseline projections? >> it depends on what level appropriations you enacted. >> assuming it was lower than previous years. >> if they were lower than $119 billion that was enacted for this year, that is a good deal lower than the $159 billion from the last fiscal year. if congress decided to enact appropriations for the rest of the fiscal year that were below $119 billion for overseas operations, that would bring down our projection of those in the base against which we would estimate for the reductions. >> thank you very much.

>> i would like to just focus a little bit on spending. is it true that the current level of the spent -- defense spending overseas contingent spending, oco, is higher now in historic terms compared with any other time in american history except for world war ii? is the current level of defense spending including more funding -- war funding greater than the korean war? >> yes, i believe that's true.

, in as a share of gdp -- >> i'm talking about dollars. adjusted for inflation. >> spending was about $240 billion during the korean war. in 2011, it is nearly $700 billion. >> in the vietnam war? we are spending more dollars? >> yes, senator. >> and more than we did during the reagan administration adjusted for inflation? >> yes, senator. >> and more than the cold war average? >> yes, senator. >> which is the highest since world war two? >> during the reagan administration, it was higher than in the vietnam war and korean war. >> let me nail this down -- the budget control act had two separate caps for 2012 and 2013

but no separate caps for security/non-security thereafter? >> yes. >> congress could decide to spend more on security than is allowed under the caps in the first two years? >> yes, they can pick any allocation under those total catch it chooses. if the committee does not achieve any additional savings than the enforcement procedures established separate caps for defense and non-defense discretionary spending. >> they are based cabs in -- they are based caps. are there any caps and more spending? >> they would be adjusted upward by any amount of spending designated by the congress. >> there are caps specific for

security and non-security for two years and no caps in the subsequent years and no caps whatsoever on oco. >> that's correct, senator. >> thank you. the appropriations committee has sometimes gone to oco and they spend the dollars that are not worth funding, arguably, because it is an extra pot of money to use. are there no caps on that? has that ever happened? >> i cannot speak to the thought process of the appropriations committee. inevitably, there will be ambiguity and any efforts that allocate costs and what costs are truly attributable to these wars and what costs are not. that will be a matter of

judgment. >> the senate appropriations committee proposed $9.9 billion to move to this account? >> there has been some movement of money that used to be designated to oco into base budgets and in the other direction. i don't have an overall assessment of the numbers involved. >> what about the reports of $100 million that was taken out of oco for migration in refugee assistance for places like kenya and pakistan? >> i don't know. >> we know there is no limit on oco account -- how is it defined? what constitutes appropriate spending out of the war account? >> in our presentations, we

follow the labeling provided by the congress. it is up to you and your colleagues to decide what you support under various categories. >> it sounds like it is what congress wants to do. >> yes, senator. >> you say there are no burqa certain rules under the budget control act that would restrict my days -- you say there are no certain rules under the budget control act that would restrict congress? >> what ever they used as part of spending that would happen. >> if this committee were to say dollars could not be spent on a certain program, my understanding is that not -- would not be scored by your office than a certain discretionary programs taught me to be careful about that. >> changes and map -- military programs we do but changes in individual discretionary programs would not take account

of because we rely in the overall level of the caps. the squeezing of one particular program without changing cap level will be filled by other programs. >> what this committee were to establish caps? what if there was a cap on oco? >> if they were below the level of funding that was based on the extrapolation with increases for inflation for the latest enacted a corporation, we would estimate savings from that. >> you are suggesting -- >> $1.30 trillion. >> on caps? >> that is not magic. that is $119 billion. >> no caps, ok. if we were to set a cap that would be supported? >> we would estimate the effects, yes, senator. >> thank you. >> dr. relman door of -- dr.

elemndorf, thank you for your testimony. if this committee were to make an agreement, a solution, what is the real date that you want us to give you the information that your worker bees can turn out a reasonable number for us? >> our allegiance of skilled analysts work very hard for this committee. >> have a had time off until now? >> i'm afraid not. we have a hard working group. as i said last time i was here, if you have a set of proposals that would make changes across a range of mandatory spending programs, that would require us some weeks to work with legislative council and a staff of this committee in refining the legislative language to

accomplish the objectives you are setting out to accomplish and for us to produce a cost estimate. backing up from thanksgiving, that left us looking at the beginning of november which we are very aware is not very far away. >> thank you, what is the deficit as a share of gdp today? >> in 2011, it was about 8% of gdp. >> if this committee fails and we end up with a sequester and we do the numbers you suggest in your testimony for the fans and non-defense. -- we would end up with $882 billion in savings for defense over two years and almost the same, 794, in non dentist

nothing ond the entitlement side or nothing on the mandatory side -- just those two -- where would we go in terms of the debt as a percentage of gdp 10 years down the road? >> these numbers are a comparison of the sequestered -- inflated extrapolation. it is not the amount of the sequester or . our baseline projections for august inc. $1.20 trillion include the action of this committee. whether the committee gets $1.20 trillion, as long as you don't save more than $1.20 trillion, you're putting yourself back to our baseline projection from the summer. under that projection, allowing for the expiring provisions of

the tax code to expire, and medicare payments to doctors to be cut sharply and other features of current law, deficits by the end of the decade are 1.5% of gdp. debt will be declining relative to gdp but that is changing radically on revenues rising above their historical average share of gdp and discretionary spending fallen well below its average share of gdp a. make room order to for so security in major programs. saw the't know if you gao report earlier this week as related to if this committee fails -- $1 trillion in savings is not sufficient is the word they used for stability -- a projected a credit downgrade. have you had a chance to look at that report?

>> i have glanced at it. >> do you have any comments? >> they offer two scenarios -- one of which is close to our alternative scenario. the other day the u.s. closer to a core bloc. nonetheless, they limit the tax revenue as a share of gdp. our extended baseline scenario incorporates the rise in revenue to -- revenues relative to gdp that would persist beyond the next decade. both of their scenarios look for some are better scenario. it is a difference in policy assumption about tax revenue and tax policy. we certainly agree very much with the underlying point of the analysis that under current policy, the u.s. government is on a sustainable fiscal pattern

the magnitude of changes that will be needed from current policy is very large. as i said last time, it won wide to consider extending the expiring tax provisions and limiting the reach of the alternative minimum tax and adjusting medicare payments to doctors, the deficit over coming decade becomes $8.50 trillion rather than the $3 trillion in present law. that would rise to levels we have almost never seen in this country. >> thank you. >> thank you very much. dr.elmendorf, thank you very much for being here again today. at the first hearing, as you may recall, i discussed a little bit about the growing wealth gap that exists. i did that with references to unemployment numbers.

your recent report indicates that over the last 28 years, in my estimation, that is a generation, or last generation, we have seen an increase in income of the upper 1% of households in america of 275%. during that same time, you see an increase in the top 20% of 65%. of the bottom 20%, only 18%. over that same period of time, we the 60% of the metal,e midd, have only seen 40% growth. that indicates that the middle income is shrinking relative to

the rest of the country. can you extrapolate that out attac? i would assume we are where we are because -- to the extent that government policy has allowed this gap to exist -- if we continue current policy, it is fair to say that we will experience the kind of continued widening of the wealth gap america in the united states. >> we wrestle with the illusion of the income distribution. the study that we did ends with the year 2007. what has happened during the past few years of the recession is not clear.

some past recessions have shown some narrowing of the income gap because higher income people collected a larger share of their income from capital income which is more cyclical. i don't know where things exactly stand today for sure. our projections incorporate the widening the whether it is the events of the last 30 or so years will continue at that pace, we don't know. i don't think our projection calls for a widening to that extent but neither do we see forces at hand that would cause that to be reversed in coming years. the effects of this recession, we don't have data for this. looking from here on, we now see those underlying factors reversing. >> i would assume -- i have seen a whole lot in the media in

recent days about who is in fact paying taxes. used toming, as my dad say, don't argue about taxes because if you owe them, you may -- you made something. i'm assuming these people are not paying because they don't owe anything and they don't owe anything because they have not made any thing. that is just an assumption on my part. let me look at the economic ladder that we talked about. if we are going to see the shrinkage in that gap, it would seem to me that we need to start looking get how you prepare people to assume tax paid responsibilities in our society and would do that by investing

in their education to the extent thatpell grants are designed to help people provide income and pay taxes and not the on the government bill, as we sit down south. -- as we say down south. if we dramatically reduce that investment, will we dramatically reduce people's abilities to assume these responsibilities and to become taxpayers? >> that is an important a difficult question. -- but a difficult question. income comes from a variety of different influences on their lives. .n people's lives

but people are getting skills that could well affect their income in the future. have a way to quantify that is on specific programs. there is a large research literature about training programs, for example, and some seem to work well as some seem to work badly and the ones that work well are typical to expand to a larger scale. what role particular government programs play is a much studied question and we do some work in that area but there is not a very good general answer to how in people'sat sayis ability to influence in come. >> thank you very much. time goes will fast here. my time has expired. >> thank you for all the hard

work you and your team are doing. in responding to our many inquiries. i expect my to be prioritized because i said that. [laughter] >> we prioritize everybody first, senator. >> especially the committee. we have a lot of work yet to do in a short period of time. you talked about jobs and the economy earlier. congressman cliburn raise the issue of jobs which is one way you get people to pay taxes. you said that you believe demand it was the key issue and a source of that lack of demand was a tough question. i would ask you if you could comment on the unsustainable fiscal that you have outlined

repeatedly and the fact that we are increasing the debt anywhere from $3.50 a trillionto $9 trillion over the next decade. this reminds us that our commitment is to reach $1.50 trillion to avoid sequester and that is not close to the increase we are likely to see from the current $14.50 trillion debt. what impact does that have? i am sure you have looked at other studies on the impact of this unsustainable fiscal situation on our current economy. >> the unsustainable path matters in the short run in various ways. it is partly the bar when the government has done and the anticipation of government borrowing. it crowds out private investment to some extent private investment is week anyway.

the magnitude of the crowding out is less clear. we see treasury interest rates being very low at the moment. there can be crowding out of investment. beyond that, the uncertainty about fiscal policy is probably waiting on household and businesses. take americanize there will have to be -- they have to -- there will have to be changes but they don't know what those changes will have to base. that is an inhibiting factor in decisions particularly commitments of money over time to invest in factories and equipment and invest by hiring people, for households to invest. that uncertainty is a piece of broader uncertainty about government policy. there are many different policies that are up in. the air the air. that is a broader statement

about the economy and the amount that households will have in the future and businesses will have in the future. >> i appreciate that. as an economist, i appreciate you giving us a sense of the importance of our task. it is not just about cutting spending. it is about the economy and jobs. although we are not the johns committee, what we do will affect that sense of cert -- although we are not the jobs committee, we will -- what we will do will affect that sense of certainty and take us in the right direction. if we don't do our work, what effect will that have to make our prospects for economic growth more negative? let me give some figures human a trust because they are from the office of management budget. you said earlier that you only trust the cbo figures. i think they are consistent with yours.

i totally agree with what you said earlier -- mandatory spending dominates the federal spending. that was what you said a few minutes ago. i totally agree with that. the biggest part of our budget, 60% if you include interest on the deck and the fastest-growing part of our budget has gone from roughly 25% of our budget in the 1960 to 50% today. the fastest growing part of the budget, we will not accomplish their goal. let me give you some statistics on the discretionary side. i will give you numbers from 1990 until to. non-defense discretionary has risen by 95 percent. nearly double defense

spending. the growth in defense spending is 95% on non-defense for the defense spending has been more recent from 2001 which reflected an increase from the cuts in the 1990's on the fans if they use the last decade, the funds would be higher. from 2001-2011 on the non- defense side? outlays on the education side, discretionary was up 116% and international spending of 102%, federal spending of over 100%, health research and regulations that make up 56% and so on. i think we need to keep these things in mind that if we don't deal with the spending issues, it is tough to get the economy going and we have seen substantial increases in the discretionary spending, understanding the that theyvca

has put those levels under more constraint. do you agree with those numbers? >> i would not argue with their numbers. >> thank you for all your help to help us achieve the goal we have talked about today. we look forward to working with you. >> thank you, senator. >> thank you very much for being here and thank you for the terrific work you and your team are doing. it is my understanding that cbo keeps regular estimates on the number of jobs that have been created by the american recovery and reinvestment act? >> we are required to publish estimates once per quarter. >> is it not correct it without the policies of this act that gdp would be lower and on and won it would be hired? >> yes, senator. >> it has had a positive impact and the debate and on reducing unemployment?

>> those are our estimates, yes. >> with respect to our work in the committee, i talked to you last time you were here about going big, if $4 trillion total target if you include the money already cut, $3 trillion if you don't. it is my understanding that you already have in your baseline and accounting for $1.20 trillion in deficit reduction by this committee? >> yes. >> if all we do in this committee is $1.20 trillion, we're not reducing the deficit by current rates? >> that is because of its automatic enforcement procedure ver if you . if you don't take expose of action, there is a backup plan. >> would you tell the committee your perception -- assuming you had a $3 trillion reduction which included something along

the ratios we have all heard about -- somewhere in the this and the of2:1 or 3:1 of cuts to revenue and some of the revenue would come exclusively from the highest and people -- -- highest income people -- can make a judgment as to what the impact would be on the marketplace and perceptions of deficit reduction or job growth that come from the $3 trillion vs just achieving the $1.20 trillion goal? >> looking at the aggregate deficit reduction, it gets clear that larger reductions coming from the work of this committee would have a positive effect on current spending and current output on unemployment and conversely the failure of this committee to reach agreement or for congress to enact an

agreement reached by the committee would have a negative affect on confidence and thus on spending. >> if we simply do $1.20 trillion or $1.50 trillion and that's all we do, isn't it a fact that we will be back here in about a year or two or three maximum dealing with the same issues on the plate now about the on sustainability of our budget? >> yes, senator. >> in terms of the duty that the co-chair has talked about to significantly reduce, the most important message to the marketplace, i am told, comes if you achieve a $4 trillion total which is the only way to begin stabilizing of the debt. is that not accurate? >> the amount that is needed depends important and how you view the expiring tax provisions and other provisions of current law that would take away from current policies to which people

have become accustomed. if one extends all our large share of the expiry tax provisions over the next few years, the gap between spending and revenues over the coming decade becomes much larger and more action is needed to achieve any given objective for the path of debt relative to gdp. >> what would have a greater negative impact on growth - the failure of the committee to come up with more than $1.50 trillion and the marketplace signals that would send or an ability to come up with a $3 trillion or $4 trillion level as that3:1 ratio i talked about within the revenue coming either from closing tax loopholes or exclusively from that height and 275% income earner? which would have a greater

negative impact on our economy -- finding revenue from those folks or having no deal and not having the revenue? >> i cannot analyze the policy proposals you are describing in my head. >> but you can -- you have told us that if we fail to come up with anything that deals with the on sustainability, we are sending a bad message to the marketplace. >> yes, in terms of the amount of deficit reduction, the more this committee can achieve over some period of time, the better that would be for current confidence but i cannot wait that against the effects of a hypothetical combination of specific spending and tax changes. >> leave the hypothetical out -- can you tell us the expiration of the top end of the bush tax

cut, if it went from 35 per t signo 39.6 and part of a $35 billion deal, would that have an impact on growth in our economy? >> last fall, we provided estimates of the effects on the economy of different ways of extending expiring tax provisions. extending them had a positive effect of reducing deficits and have a negative effect of reducing deficits and the positive effects of keeping marginal tax rates lower. the negative effects of the extra debt was larger than the positive effects of lowering marginal tax rates. for the policies we looked at and over the medium and longer term. that is what the answer depends on the specifics of the policy. >> thank you, i appreciate it. >> thank you. is there anything in the budget control act that would prevent

the congress and changing how they sequester would affect spending? >> congress could enact a change in what i could override the budget control act. >> there is nothing in the budget control act that would prevent that? >> no, any congress can reverse the actions of the previous congress. >> i appreciate your response to a question to m senatorurrray that you believe that your projections on gdp growth are too generous and you believe vick would be lower which means our deficit is worse than you have rejected and in the past. under your projections, you are assuming a 30% cut two positions in medicare and you are assuming the taxes go up $3.80 trillion. that would have a detrimental effect on the economy and you are assuming there is a cut in discretionary spending.

as you project that deficits will decline as a percentage of gdp, is based on all of these assumptions which, frankly, what impact that number in one way. >> it is not our assumption. we are following current law about these are baked into your proposals and your testimony. >> under either of your long- term fiscal projections, spending on entitlements or mandatory health programs like social security will increase between 15% and 17% of energy paid a net interest cost will increase to between 4% and 9%. under either of those scenarios, the crowds at discretionary spending even assuming the highest level of revenue this country has ever seen. under the best of assumptions,

total discretionary spending under that long-term scenario is about 1% of gdp. verses the 9.7 per hour -- 9% it is today. your response to that calculations, are they correct? >> i don't have long-term numbers at hand. we extrapolate our projections over the long term. we extrapolate the long-term spending. what the congress ultimately did when a recent unsustainable point, we cannot predict. >> assuming my question that if under the rosiest of assumptions given the long term cbo projections that discretionary spending is 1% of gdp, has that ever occurred? >> i don't know about this century. >> i'm in recent history. could we operate functioning

government at 1% of discretionary spending of gdp? >> nothing like the government we are now accustomed to pare. >> with your testimony, that mandatory spending dominates the government budget, you also said it is a growing share of spending growing rapidly. doesn't this illustrates that as part of what we are trying to do, the need to re in mandatory spending is of is the one of the priorities we need to address? >> it is up to the committee to choose what changes in policy they want but the growth in mandatory spending particularly for health care and social security is a feature of the budget that makes the past unrepeatable. it is the change in current policies because of the aging population and the increasing cost in health care that pushes those numbers up.

forces our elected leaders to make the future different than the past. the changes are up to your. >> i yield back. >> the committee will be in order. >> [heckler] >> the chair wishes to remind all of our guests -- >> your own and not taxing the rich p. >> the committee shall be in order. >> you have enough money for housing and health care. it is very obvious.

tax the rich. and the war. ebd -- the war. >> i have yielded back. >> thank you. thank you for your testimony. to be clear, if the congress was to take action to repeal the defense portion of the sequester, all things being equal, that would make the deficit worse, correct? >> yes. >> thank you. let me go back to the overall feeling which is that under a share of gdp, non-discretionary spending is shrinking dramatically over the next 10 years? >> yes, that is right. >> in fact, it goes to below 3%

in your chart, figure 6, which is the lowest level since the eisenhower administration. there have been many questions that relate to the level of non-defense discretionary spending during the 2007-2000 pe period which was a component of the recovery act. i think you indicated clearly a bet that spending is part of the overall affordable care act actually help prevent the economy from getting worse, correct? >> in 2009 and 2010 and this year and we believe those cuts in taxes and increases in government spending increased output and employment relative to what would have occurred otherwise. >> i received a letter from you, i think the calculation of the cbo is below over 1/3 of the

current deficit that we face is a result of the fact that the economy is not at full employment, is that right? >> that sounds right. >> even though we prevented things from getting a lot worse more quickly, clearly we have a long way to go. i want to follow on a remark you made with respect to infrastructure spending where you said many analysts think the country should spend more in the area of infrastructure. the cbo has looked at infrastructure investments. do you believe that is an effective way to boost job growth especially given the fact that we have over 40% unemployment in the construction sector? >> yes, we think it variety of government spending programs for government tax revenues reduced would spur economic activity in the next few years. >> i know the cbo has also analyzed different forms of

investment to see which would be more effective. there are many folks unemployed through no fault of their own. one of the most effective ways to boost consumer demand which is a big soft spot would be to an extent support for people who are out of work through no fault of their own, is that right? >> yes, congressman. >> another issue that is looming on the horizon as of the beginning of next year, the current payroll tax holiday which is in effect for all working americans will collapse unless the congress takes action. if that were to lapse, that would mean that working people have less disposable income, that would also dampen demand in the economy? >> yes, congressman. all the dampening of demand would mean less economic growth and sure jobs, would it not?

>> yes. >> a lot of ground has been covered here. i want to pick up on the comment that congress upton made. we are all aware that the clock is ticking here. in my view, we have to accomplish an awful lot in a short period of time especially given your constraints. i hope that this committee is able to complete its mission and come up with a package that serves two purposes -- one is to get the economy moving again and put people back to work and you have described some ways that could be done in response to questions. you have also indicated that could help reduce the deficit over a period target because the sooner you get people back to work, the more the economy gets back in gear, the more revenue will come in. secondly, we need to act to put

in place a long-term credible deficit reduction plan that does that in a steady way without harming current jobs and economic growth and we need to do it, i believe, in a balanced way like every other bipartisan group that has lifted this challenge recently. i hope we can complete that mission as you have indicated in your testimony. there are two big components in the long-term picture -- we have to get a grip and the increasing cost as a result of the baby boom retirement, rising health care, no doubt about it. there are smart ways to do it and then there are ways that i think would impose a lot of unnecessary pain on americans. we need to reform the health- care system so we focus more on the value of care and the volume of care, more on quality and quantity and we have to deal with the revenue issue.

in the past decade, we all know that when folks at the top for paying a little bit more, the economy performed just far. 20 million jobs were created, the economy was booming, and so it seems to me that this is a time for shared responsibility to address to our country's needs and i think your testimony made that very clear. thank you, doc elmendorf. >> thank you. a couple of quick follow ups -- i know it is your view that the recent huge increase in spending and a corresponding big deficits have generated more economic growth and more job creation than we would have had in the absence of those things but surely you would agree that essentially asks for a comparison and it is completely impossible to prove them a yes. >> i would urge us to consider

that there is another theory which is that government cannot really create demand on balance. it can substitute public demand for private demand but it is illusory to think the government can simply step in and make up for what is perceived to be a shortfall in private demand. i would suggest there are governments such as greece and italy and portugal and spain who have created a lot of demand domestically through their excess of spending and it is not working out so well for them. i wanted to fall off on something i might have misunderstood. i thought i heard someone suggests that non-defense discretionary spending has been essentially flat for about the last decade. i think we touched on this in various ways. by any reasonable measure, non- defense discretionary spending has grown dramatically, i would say. in 2000 memo spent about $284 billion in non-defense

discretionary spending. in 2010, we spent 500th $50 billion. there's a slight reduction this year. this is growing in nominal terms. it is growing in inflation- adjusted terms. it is growing faster than gdp, in fact, isn't that true? >> that is true about outlays. the issue is that funding, meaning the new budget authority that congress is providing for non-defense discretionary purposes is now back down in fiscal year 2011 as a share of gdp to roughly what it was over the preceding decades. in terms of nominal dollars, you are correct but there's a sharp distinction between the level of outlays in 2011 which depended

on previous years' funding and level of funding in 2011 which is the jumping off point for future discussions of appropriations. >> over this tenure. , we have seen growth in non- discretionary -- over this past 10 years, we have seen an increase in non-discretionary spending. if we were to pursue never -- revenue neutral tax reform that would have the effect of broadening the tax on which -- broaden the base of which tax is applied, it is true that both with respect to such corporate form or individual reform that that would have a pro-growth effect on the economy which in turn generates more income for the government. >> yes, that's right. the amount would depend on these specific to the proposal. >> thank you very much. >> thank you very much for

coming in today and testifying. i want to thank all of our members for being short and concise. we have a lot of work to do and a shrinking amount of time to finish to the. s dr.elmendorf, thank you to you and your team for the tremendous amount of work we are giving you. i want members to know that they have three business days to submit questions for the record and i hope the witness can respond quickly to that. members should submit their question by the close of business on friday, october 28. i would like to inform everyone that we're going to have another hearing on november 1. the topic will be an overview of previous debt proposals and we will be hearing from the former senator simpson, erskine bowles, and former senator pete did manage a person without objection, this committee stands adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

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>> this is what we are covered on the cspan of course this morning. on c-span to a 10:00 a.m. eastern, live coverage of hillary clinton at the house foreign affairs committee. she will testify about afghanistan and pakistan. at 9:30 on c-span 3, the administrator of the gulf coast compensation fund, kenneth feinberg, is that the house natural resources committee to talk about the aid given to people hurt by the gulf oil spill. on c-span, "washington journal" next live with your phone calls and live house coverage as the house continues work on bills dealing with the withholding tax for government contractors and income eligibility requirements for certain health care programs. in about 45 minutes, we will talk to freshman congresswoman diane black ofne