after having been working there almost one year, i cannot think of a better name. it is really the heart to beat of the people. >> executive director and congressional director of the black caucus, angela rye. >> they can the community at la. issues that may be plaguing their districts where they can find commonality. legislative solutions, legislative proposals to advance the causes of people. >> more tonight at 8:00 p.m. eastern and pacific on c-span. >> u.s. debt will nearly double the size of the entire economy by 2037 dallas congress raises taxes or enact major spending cuts. that is according to the -- nonpartisan congressional budget office which released the budget outlook this week . acbo director testified this

week where republicans and democrats disagreed as to the best way to reduce the growing debt while supporting the economy. this is just under two hours. >> welcome to the budget committee. the purpose of this hearing is to review the long-term budget outlook which cbo recently released. by nojoined today stranger to this committee, douglas elmendorf, director the congressional budget office. thank you for testifying today and for the work your team has done in this report. the report is sobering, and the warnings are dire. you write in the report, "growing debt would increase the probability of a sudden fiscal

crisis during which investors would lose confidence in the government's ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates." what is causing this growing debt? government spending is on a breakneck pace. by 2025, according to this report, health spending including medicare, medicaid, social security, and interest on the debt will consume 100% of revenues, tax revenues that continue to increase each and every year. the problem is unsustainable increases in government spending. our retirement programs, in particular, government spending on health care are the core drivers of the debt. the health care law fails to address the cost problem. instead, adds new liabilities to an already bankrupt future. those unwilling to structurally reform is structurally broken government repeat the same calls for ever higher taxes to chase

ever higher spending. on the question of taking more from harvard and taxpayers, the report is clear. writing, the extent that additional tax revenues were generated by boosting marginal tax rates, those higher rates would discourage people from working and saving, further reducing output and income. cbo, like all nonpartisan experts, has again warned of delay in solving our fiscal problems. unfortunately, the administration has no definitive solution but merely obstruction for those who put forth good faith solutions. the senate, of course, has not passed a budget in more than three years. house republicans refused to accept the european-style debt crisis which promises harsh austerity. we reject the empty promises and continued inaction in the face of a crisis. cranking up tex-mex that stifle growth and harsh deceptions to beneficiaries is what europe is doing right now. this does not have to be our fate. this is why we continue to

advance gradual, common-sense reforms to lift the debt, strengthen core priorities, and spur job growth. we still have a window of opportunity that requires us to come together to solve this problem. cbo has presented us with their analysis, but it is incumbent upon policy makers to respond with principled solutions. it is our moral responsibility to work together to chart a sustainable fiscal path, to revitalize economic growth, and to expand opportunity now and for generations to come. thank you for coming again today, doug. we look forward to your testimony and lots of questions. i will turn it over to ranking man merc, mr. van hollen. -- ranking member. >> two weeks ago, you and your colleagues at the congressional budget office released an analysis of the economic impact of the so-called fiscal cliff, painting a very somber picture of what might happen if congress fails to address inspiring tax

cuts and the looming automatic spending cuts that occur at year's end. you predicted a possible recession early next year and millions more out of work if we were to actually go over that fiscal cliff. yet, your long-term outlook, cbo's long-term outlook, which we are discussing today, also confirms that continuing to do business as usual, extending all current tax and spending policies, will produce unsustainable deficits and debt, which will also hurt the economy in the long run. taken together are the two cbo reports that reinforced the fact that congress must adopt a two- track strategy of, one, acting now to boost our fragile economy and helping put more americans back to work, and number two, acting now to put in place a balanced approach to long-term deficit reduction that does not take resources out of the economy in the near term.

this is the opposite approach of those who advocate for immediate, steep austerity measures, the type of measures that have been pushed by some of our european partners, like the u.k., and put them back into a recession. on the first step, putting americans back to work, we need to enact the president's jobs plan that the white house send to the congress nine months ago. the proposal includes significant new investment in building roads, bridges, transit ways, and other needed infrastructure. at a time of over 14% unemployment in the construction industry and super low interest rates, this should be a no- brainer. we call upon speaker boehner to put the president's jobs proposal to a vote on the floor of the house. the second step is for lawmakers, the congress, the president, to adopt a plan to reduce the deficit in a balanced way. i find the kind of framework of

spending cuts and revenues generated by eliminating certain tax breaks that has been recommended by a bipartisan groups like simpson-bowles. that plan should extend tax relief for working families and replace the sequester with a balanced approach to deficit reduction so our economy does not go over the fiscal cliff. unfortunately, the speakers threat to let the nation default on its debt if republicans cannot impose their european- style austerity plan is cementing the view in capital markets that lawmakers will fail to reach an agreement before the end of the year. that manufactured crisis creates uncertainty that will undermine confidence in a weekend the economy. the standard and poor's downgraded the u.s. credit rating last year was due to forecasts of continued political gridlock. yet, for many in the house of representatives from a compromise remains a dirty word. mr. chairman, we look forward to having a willing partner, willing to make the necessary

compromises to both make sure our economy kicks into full gear and also develops the balance plan to reduce the deficit over the long term. thank you. >> thank you, mr. van hollen. i ask unanimous consent that members of 5 legislative days to insert their statements that they choose to do so. >> thank you. to all the members of the committee, i am pleased to be back today with you to talk about the long-term budget outlook. in the report that cbo release used it, we assessed the outlook of two different assumptions about future tax and spending policies. the extended baseline scenario reflects the assumption that current laws generally remain unchanged. that assumption applies that lawmakers will allow tax and spending policy changes that are scheduled to occur to actually do so. in contrast, the extended alternative fiscal scenario

incorporated assumptions that certain policies that have been in place for a number of years will be continued and that some provisions of law that might be difficult to sustain for a long time will be modified. thus, the scenario maintains was some analysts might consider current policies as compared with current laws. the budgetary and economic outcomes under these two scenarios would be starkly different. under the extended baseline scenario, that is current law, federal debt would decline gradually relative to gdp over the next 25 years. from an estimated 73% this year to 53% by 2037. so the outcome would not be dramatically different from our current situation. there would be a sharp change of historical patterns of taxes and spending and revenues would rise steadily relative to gdp, owing to several factors. the scheduled expiration of cuts to individual income taxes

enacted since 2001, the growing region of the alternative minimum tax, the tax provisions of the affordable care act, the way in which the tax system and directs with economic growth. demographic trends and other factors as well. altogether, revenues would reach 24% of gdp by 2037, much higher than has been seen in recent decades. at the same time, federal spending on everything other than the major health care programs, social security and interest, would decline to the lowest percentage of gdp since before the second world war. a significant increase in revenues and decrees and the relative magnitude of other spending with more than offset the dramatic rise in spending on health care programs and social security. that is why debt would decline relative to gdp under current law. in contrast, the outlook for debt is much weaker under the extend an alternative fiscal scenario.

as i said, in that scenario the assumption is that government maintains the kind of tax and spending policies that we have been accustomed to. in that scenario, all aspiring tax provisions, with the sole exception of the current reduction in the payroll tax rate, are soon to be extended through 2022. after that, revenues are assumed to remain a 2 at the022 mark of 18.5% gdp, a little above the average of the past 40 years. on the outlaid side, this scenario since the automatic reductions in spending required by last year's budget control act will not occur. so instead of reductions in health care spending will not occur. and federal spending on everything other than the major health care programs, social security, and interest would return with average share of gdp during the past two decades. all together in the extended alternative fiscal scenario, revenues would be much lower and

non-interest outlays somewhat higher than the extended baseline scenario. as a result, federal debt would grow rapidly from its already high level. exceeding 90% of gdp in 2022, and approaching200% in 2037. because the extended alternative fiscal scenario is representative of the fiscal policies that are now or hurt -- or have recently been in effect, the explosive path of federal debt under that scenario underscores the need for large and timely policy changes to both the federal budget on a sustainable course. i would like to take a few more minutes to highlight two specific implications of these projections. first, it is not possible both to keep taxes at their historical average share of gdp and to keep the laws unchanged for social security, medicare, and medicaid.

the reason we cannot repeat that historical combination of policies is that the aging of the population and rising costs for health care have made those large entitlement programs much more expensive than they used to be. it is possible to keep taxes at their historical average share of gdp. but only by making substantial cuts relative to current law in the large entitlement programs that benefit a broad group of americans at some point in their lives. alternatively, it is possible to keep the laws for the large tournament programs unchanged, but only by raising taxes substantially on a broad group of americans. changes in other federal programs, besides the large entitlements, can affect the magnitude of the changes needed in taxes or the large entitlements. but they cannot eliminate the basic tradeoff i just described. even if spending on all those other programs, including

national defense and a wide variety of domestic programs, fails with a smaller share of gdp that we have seen since before the second world war. debt would still be on an unsustainable upward trajectory without substantial changes in taxes, a large entitlement programs, or both. the second application of the projections i would like to emphasize is that keeping federal deficits and debt no larger than we project under current law would involve difficult policy trade-offs. under current law, as captured by the extended baseline scenario, we expect the debt will decline slowly relative to gdp in 2015 and beyond. such a path for debt would gradually reduce the crowding out of private investment caused by high debt. it would restore a lawmakers' ability to use tax and spending policies to respond to unexpected domestic international challenges. and it would reduce the risk of a sudden fiscal crisis during

which investors will lose confidence and the government's ability to manage its budget and the government loses its ability to borrow at affordable rates. but even on that path, debt in 2037, 25 years from now, would still be larger relative to gdp than any year between 1956 and 2008. that path might not be optimal. in fact, analysts do not know what level of debt is optimal. but it is 1 path that might be considered a plausible goal for federal policy. obtaining that galt would pose significant trade-offs. trade-offs are exemplified by the decision confronting you as various provisions of law expire or take effect at the end of this year. to keep the nation on that current law path of declining debt, any actions by the congress that would significantly worse than a budget outlook relative to current law would need to be offset or paid for by other

actions that would improve the budget outlook by a comparable amount. for examp, the moving the automat -- removing the automatic spending reductions would raise deficit by about $1 trillion over the next decade. and extending all the 2001 and 2003 tax cuts and indexing for inflation would raise deficits by about $4.5 trolling over the next decade. including the effects on debt service. making such changes to current law while maintaining the same path of declining debt, as under current law, would require other changes in policies that would reduce deficits by roughly $1 trillion or $4.5 trillion. the congress might not enact those changes in law or it might choose to allow more debt that would occur under current law or, alternatively, to reduce debt more quickly relative to gdp than would occur under

current law. there are many possible combinations of policies he might pursue, and cbo will make night the recommendations nor predictions about them. my point is simply that the path of debt under current law would still leave debt at a historically high level relative to gdp. and, yet, achieving in the past would require very large changes in current policies. you and your colleagues and all of us that the mayor -- as americans says it -- american citizens, face hard choices. thank you. i am happy to take your questions. >> thank you. ok, so first, it is very constructive that we have what we called the alternative fiscal scenario. that worreflects current polici. but when we talk about current law baseline, 30% cut to doctors starts january -- the kansas state in place in the sequesters on top of that and a $4.4

trillion tax increase in -- occurs in january as well. >> the position of all the new things that would happen. >> that is not very realistic. it is very helpful to have this afs, alternative fiscal scenario. as we look at this alternative fiscal scenario on a table2.1 and figure 2.1, when doing a realgmp person in real gdp, you can have a range of estimates. i am in st. with these ranges. first of all, on one of them, on this one, it is the standard of living. what is great about our nation as we have always had an increase in standard of living. we have always given the next generation a better standard of living, better growth. i am looking at your lower as

demint, which shows in the 2030's, that goes away. down in your footnote, you said that debt would reach 250% of gdp by 2035. cbo's model cannot reach estimate that amount in the agency's judgment, which means you basically -- the model cannot measure the economy going beyond that point. wasn't it at 200% of gdp in your assumptions a year ago? where is the difference? as i recall when we had this conversation with your predecessor and with yourself, i know it is technical, but i am curious -- where do you lose confidence in measuring the economy going forward once debt reaches these kinds of levels? did you not move that out? >> we did not change that, mr. chairman. if you look in last year's long- term budget outlook, we show the effects of the then alternate

scenario on gnp to 2035. in 2035, without including the dynamic effects of rising debt, the debt would be 250% of gdp. that was on page 32 of last year's rert. there is no magic point where it stops working. our view is that -- >> it just loses credibility. >> based on historical experience. at some point, our debt under these scenarios would be so far out of historical experience that we do not trust the model to be reliable. we just cut off the vertical axis, cut off the picture at 250 the son of poverty -- pete -- 250% of gdp. we do not think it makes sense to run the calculator out.

>> what that means is in the 23rd's, we do not think we can measure the economy going forward because of the debt burdens -- in the 2030's. >> by the end of the 2030's, yes, that is right. >> let me ask you about interest rates. first of all, our 10-year yield curve is incredible these days. part of that i think people would say is because we're sort of the safe haven. the 10-year note went down as much as 1.5%. you predict interest rate increases, but those long-term rates are still under the past trends. what happens if rates do not stay as low as you're projecting? what is the rule of thumb used on a rolling average, say, 10- year basis if rates do not stay as low as you're predicting? that is one of my biggest fears, interest rates rise whenever,

medium, long-term, above trend like they did in the 1980's or even at the 1990's levels, and what does that do to us? and how does that move those dates up? >> at the end of the first chapter of the report, we talk about a collection of risks that surround these projections, and you should take uncertainty very seriously. one risk we point to, as the german is mentioning, is the risk of much higher interest rates -- as the chairman is mentioning. also possibly much lower. we note that if interest rates under the extended alternative fiscal scenario, net interest would be 27% of all federal outlays by 2037 in our projections here. but if interest rates were even half a percentage point higher on a sustained basis, than the debt service cost would be even higher. for example, think of federal debt being 215% of gdp in 2037,

not 199% as we showed you in the passage. >> now, i was also intrigued with your comments on marginal tax rates. you're saying the higher marginal tax rates go, the less output and economic growth we get. so, is a good combination of fiscal policies, in your judgment based upon what we're seeing here, lower debt levels, which increases output, and keeping marginal tax rates low -- if they are not a trade-off, meaning, if we get savings which reduces the debt from entitlement reforms and other reforms and better economic growth, is not the virtuous cycle we want to get on -- not asking for a policy judgment. but in your judgment, do we get better economic quotes at lower tax rates and lower debt levels?

for its lower tax rates mean more output. lower debt means more economic output. whether all this is the will depend on policies congress would adopt of the alternative fiscal scenario has lower tax rates than at the baseline but much more debt. by our estimates, the much more debt is a stronger negative force than the lower tax rate -- or positive force. >> that is basically the essence of our approach. deal with the spending drivers of our debt. because, as we can see here, even under the afs, revenues go up. spending goes up as such an incredible clip, because, as you mentioned, demographics, inflation, and the rest. if we get that under control, then we can grow. if we keep our debt levels at or below where we are over the long term and keep our tax rates at or below where we are, we will avoid this kind of projection that you are showing us in these

various scenarios in the 2030's or debt is so high that you cannot track growth going forward. meaning, we can dodge this austerity bullet if we get those two combination of policies in place. is that not an accurate take away? >> we can do up to the point of dodging the austerity bullet. it depends on how we get there. but, yes, you're right that a debt stays that or falls lower than the share of gdp and tax rates are lower, that combination would be the best combination to those two features of the budget for growth in the long run. >> one more question on the fiscal cliff. is it your judgment that -- how much do you disagree between the recession that you're projecting, which i believe you are projecting a two quarter drop in output if the fiscal cliff occurs. how much of that, in your judgment, results from the tax side of that fiscal cliff versus

the other parts of the cliff, the spending issues? >> a larger share of the tightening of fiscal policy between this year and next comes on the revenue side. now, the effects of specific changes in revenues and spending will not be exactly the same on the economy in the short run. but all together, we think the revenue increases are the larger factor in restraining economic growth and employment at the beginning of next year. >> ok, thank you. >> thank you. let me just pick up first were the chairmen left off with some of the hypothetical. because he asked you if you were able to keep tax rates low, giving everything else being equal, and also that debt remain low. but, dr. elmendorf, as you said, all this involves a very difficult trade-offs. to the extent that we keep that low and we reduce revenue, that

means that we have to cut much more deeply into other areas. is that right? >> yes. >> and given the fact that health care costs are increasing rapidly, especially medicare, it will mean that we have to come up with another way of dealing with medicare costs. is that right? >> yes. >> and, just to go back to the cbo analysis of the house republican plan, with respect to creating and medicare voucher, a premium support, whatever you want to call it, my recollection is that the cbo analysis showed that you are really just shifting a lot of the rising health-care costs off the medicare program and on it to seniors. is that right? >> looking at your door the plan, we did analyze and try to offer some rough estimates of the shift to beneficiaries. this year, we were not able to do that kind of analysis. the plan was more complicated.

we were not able to do the comparable analysis yet this year. >> that is right. i think in the chairman's plan, he changed some of the things which may have somewhat softened the impact. my understanding in reading -- reading the cbo analysis last night -- last time, the same dynamics are play, and it is somewhat reduced the amount of risks and cause a shift to seniors. does not eliminate the problem. have you had a chance to look at that? >> we have not been able to analyze that plan. >> it like to just put up a chart, because i think it is important that we have an idea of what components are driving this. what you see here is -- this is the deficit, the debt as a% of gdp. beginning in 2001, you have that black bottom line going down very steeply. that was cbo's projection on surpluses at the time. in fact, about 5.6% -- excuse

me, $5.6 trillion projected in surpluses. we know that by the end of 2011, we had one of the worst reversals in fiscal fortunes we have ever seen, and you see the debt rises as a percent of gdp. this shows the different components of the based off of the cbo numbers. the deep red being the result of the recession, the economic downturn. the pink being the result of the 2001, 2003 tax cuts. i will ask you and your colleagues to look at this to confirm if this breakdown is accurate. what it shows, i think, is a simple lesson, which is that in order to get ourselves out of this long-term fiscal challenge, we not only need to deal with the spending side of the equation, but as your testimony makes clear, we should also deal with the revenue part. when is the last time we actually had a balanced budget?

>> i think that was 2000. >> and do you remember what revenues were as opposed to gdp? >> 20.6%. >> what are the revenues today? >> a little under 16%. >> almost a 5 percentage point gdp swing. >> yes. i want to get back to the fact that we've proposed a balanced approach that combines needed cuts and i would remind my colleagues that as part of the budget control act, we cut one trillion dollars over the next 10 years. our proposal also deals with the revenue side of the equation. because of we do not get our fiscal house in order, you do have this crowding out effect, which slows down the economy. as you mentioned, the alternative fiscal scenario has lower revenue, correct? >> much lower it under the

extended baseline. >> you are projecting both higher deficits and slow or economic growth picks the right. >> if we could just go to this chart which is something cbo handed out. it is in everybody's packet. your one page. it mentions the different components that make up the difference between york extended baseline scenario and the extended alternative fiscal scenario. what i found interesting in this is that in this comparison that we did, there is very little difference in the major drivers of spending. if you look at social security health-care spending, under scenario one and two, 0.7% of

gdp difference in the year 2037, even when you go way out there. [no audio] [no audio] the interest payments result mostly in this analysis from increase debt as a result of less revenue. that is the major reason for the difference between your extended

alternative scenario and extended baseline scenario. >> that is right. once that starts to grow interest to gdp, i payments pickup in the same way and it snowballs in very damaging ways for the economy. >> the top driver here is the difference in revenues. i want to make it clear not proposing that we adopt the revenue policy underlying the extended baseline scenario, but i do think this chart as well as the one i put up on the screen argues for taking the kind of balanced approach that has been recommended by groups like simpson bowls bipartisan groups. let me ask you about the debt ceiling. by most forecasts, we will hit that at the end of this year.

what would be the economic consequences if the u.s. did not raise the debt ceiling? >> i think the default on debt would be devastating to the economy in the financial system. it is hard to know because we have not done it. we cannot look to historical parallels in this country in the modern era, but if they default were to occur in a sustained way, if the obligations we have taken on were not honored, that would be a shock to the financial system that is already in a fragile state. i do not know anybody who thinks we ought to let that happen. i realize there disagreements among members of congress about

what should go along with the increase in the debt ceiling. i do not know anybody who thinks it would be useful to default on debt. >> that is right. it is grossly irresponsible for anybody to threaten that the u.s. would not meet its obligation unless we in that somebody else's version of how to best reduce the budget. the speaker has said that he would object to raising the debt ceiling unless we reduce the deficit the way the speaker wants to do it. if i could just ask you if you had the chance to look at the house republican budget? >> we do not analyze budget resolution said cdo. we have looked at the chairman's long-term budget proposal. we have not looked at the budget resolution itself. >> do you know that the house republican budget would require, even if you adopted their provisions, it would still require a 5.2 trillion dollar

increase in the debt ceiling between now and 2022? >> i was not aware of that. >> if you could get back to us to confirm that. >> debt will go up under any budget scenario. >> i just thought it was important to mention that despite any -- that the speaker has made a big thing about using the debt ceiling and the republican budget that he supports requires a 5.2 trillion dollar increase. >> i introduced his comments to the record to make sure that his comments are reflected. turn your microphones on. the sound people are not capturing. >> thank you.

referring to something the ranking member said about tax rates -- tax revenues as a% of gdp, in 2007 under the current tax rates, revenues were 18.5% of gdp. they are down under the same tax rate. the amount of revenue as a% of gdp is affected not just by rates but by economic conditions. >> absolutely. >> ok. if we had a better economy today, we would have a larger share revenue even under the existing tax rate. 18.5% is very close to historic average. >> when cdo talks about averages, we use the last 40 years. revenues have average 17.9% of gdp. >> under the existing tax rates

in a good economy in 20008, we had a larger revenue share of the economy that over the previous 40 years. >> yes. >> thank you. the next question, relative to what we charitably call obamacare and they call the affordable care act, does your scenario include obamacare? >> we use the term affordable care act. under both the scenarios, most of the affordable care act is included. there is one thing that is different in the extended alternative fiscal scenario. we turn off a couple of provisions that would reduce the

global health-care spending in what was the second decade when be affordable care act was enacted. we do not allow the continued reductions in the growth of payments to medicare providers to go on and we turn off some of the extra indexing of the thresholds for different sized subsidies and insurance exchanges. we take away a few of the features that would create greater slowdown in federal costs in the second decade. >> why? >> we view this as extending some policies that have been in place for a long time, but also modifying some policies that we think would be difficult to sustain for a long time. the cutbacks in payments to medicare providers are incremental. every year, it is a lower growth rate. we think it becomes harder -- >> you think it would not work so you have taken it --

>> we think it would be more difficult. we are trying to offer you an alternative. >> under either of these scenarios, medicare and medicaid would rise 78% under the baseline scenario and 93% over the next 25 years as a share of gdp. the medical cost would rise by 78% as a% of gdp under the baseline and 93% under the alternative scenario. are those correct? >> yes. >> those are the biggest drivers of the expense increases in the budget by far. in a letter to chairman ryan, weere asked what tax increases were needed?

33% rate hikes by 2023. 40% by 2030. 86% in all tax rate by 2050 in order to keep a balanced budget and under the alternative fiscal scenario. >> correct. i want to be clear with the experiment was. we were asked to look at it is for the increase in tax revenue came entirely with tax rates. >> i understand. i have lots more to say but only 25 seconds to say it. i wanted to mention that you have these huge medical entitlement cost drivers and you cannot do in 86% increase in taxes. we have to deal with these things quickly. we do not want to have to make a rapid changes that europe did. their problems are because they left their european socialism go

on too long. they had to fix it too quickly. we need to get on this right away so we have a slower path to correct this. thank you. >> thank you, mr. chairman. thank you. as i read page four --to keep deficits and debt from climbing to levels, we will need to increase revenue, a decrease spending significantly, or adopt some combination of these two approaches. that is what your testimony has been. thus far, the congress over the last year has pursued reducing spending significantly only. under the agreement reached last year, if fully implemented, spending would be reduced by about $two trillion, correct? no revenue increase at all. a one-sided approach to

addressing this problem. >> the budget control act is focused on spending cuts. >> your testimony is that we continue to pursue that course of only cutting spending and that would bring no additional revenues and that will have to -- we will have to reduce medicare and social security. >> yes. >> each time that the congress passes another tax cut without paying for any of its, $46 billion in a recent feature for and $29ess tax cut an billion per year. each time they pass one of these tax cuts, without paying for it, that adds to the dead and would increase the amount of spending that would have to be cut, directly impacting medicare and

social security. >> any increase in spending reductions is not offset. it is not paid through other policy change. under current law, we have very gradual declines relative to gdp. >> your testimony is that if we extend the bush tax cut and make the adjustments with the amt and do not pay for them, that is 4.5 trillion dollars in additional debt. >> yes, plus the debt service, which will add a significant amount. >> of the congress has taken an approach of cutting spending by $two trillion, one of the alternatives is that we have unpaid for 4.5 trillion dollars

of less revenue. the impact will be to significantly increase the debt if that were to become law and to make it nearly certain that we would have to make substantial cuts in social security and medicare unless we wanted to have uncontrollable debt. >> if those tax cuts were extended and no other changes were made to fiscal policy, that would make the federal budget outlook significantly worse and it would worsen the economic outlook. >> my concern is that those who continue to preach good rhetoric at a political convention that washington does not have a tax problem and only has a spending problem ignores the fact that we really have a little of both. unless we have a balanced approach to trying to get our budget in balance, we ensure that medicare and social security will not be there for

people and that is a terrible and unjustified cost to pay. as far as the spending side because we do have to focus on both, you talk about the fact that we do not just having medicare health problem or a veteran's health problem or a children's health insurance health cost problem. we have a health cost problem, generally. in one of those areas that some folks have suggested might help us resolve that is to copy the federal employee health benefits program. from looking at that program, has it produced a substantial savings that would help us avoid these problems? >> sbo has written about -- cbo is written about this before. we concluded that premium increases in the federal employee program have been

roughly comparable to increases elsewhere. we show rates of medicare and medicaid. in general, we see increases in health-care costs that outpaced the growth in gdp and that is what creates this increasing find it for the federal budget in state and local governments and the budgets of firms and households. >> thank you. the experience with the federal health program shows it cannot solve this health care problem. >> welcome to the committee. the committee appreciates the long-term project and you have made. i want to talk about a couple different items. first, the debt ceiling. friends on the other side often

used the language that people are threatening to have the u.s. not meet its obligations. you are not aware of anybody threatening that, are you? >> i try not to characterize the comments of members of congress. i do not know anybody who thinks we should be followed. i recognize there is a disagreement about what other policies should be combined with an increase of the debt ceiling. that is fair. >> we are talking about the debt ceiling and if a debt ceiling increase is required. the options are to have no spending reduction and a debt ceiling increase or debt ceiling increases accompanied with spending reductions. which has a more positive affect on economic activity and output? >> in the short term, congressman, we think that a cutback in government spending will weaken the economy . will

lower output. over the longer term, if the reduction in government spending is not accompanied by other changes and thus lead to a reduction in the debt, that would be good for the economy. >> decrease in the debt resulted more economic activity, output. >> yes. >> any reduction in taxes and lower taxes result in more economic activity. >> lower marginal tax rates, in particular. many features of the tax code that affect the economy -- the lower tax rate can help encourage additional work and that is good for the economy picks the that is what we have attempted to include within our budget. >> i want to talk about the economic variables that you use in this forecast. it is my understanding the average annual economic growth

rate is 3.1%. >> maybe. i do not know that number. you also forecast the unemployment rate -- >> you also forecast the unemployment rate going to 5.5% by 2014. last week, your office warned that if the current law stated place and $500 billion in tax increases go into effect in 2013, the schedule -- they stick to the u.s. will go into recession. is it safe to say that a recession would contract, a decrease federal tax receipts. >> it would contract them. that was a severe recession that brought revenues as low as they were two years ago. we do not think they would fall that low. we are predicting a mild recession. -- that direction is the same. >> if the congress does not do

anything in the current law is realized, would you expand on your perspective on how this will impact the macro economy in terms of employment and economic growth? >> yes. we think that if the congress allows current law to unfold through the end of the year and into next year, the economy will contract in the first half of next year end will grow only slightly over next year as a whole and employment will be a good deal lower in unemployment higher than it would be the case if the federal budget or by contracting in that way. as we go later in the decade, the path of smaller deficits would be good for the economy and would strengthen output and income. that is what the extended baseline scenario shows here overtime relative to the extent it altered its fiscal scenario. >> the proposals that we have attempted to put forward, which

are either giving marginal rates that are not increasing on individuals can decrease in spending at the federal level, decreasing debt at the slope of the debt, that would be a positive factor from an economic output standpoint? >> the lower tax rate and it would be of -- would both be good for the economy. >> would you care to address the difference between tax rates and revenue to the federal government? our friends oftentimes confuse the two or use those anonymously. >> in simple terms, the revenue the government collects -- our current tax base our tax bases better narrower than overall individual or corporate income.

we collect less revenue than we would if the bases were broader. the raising tax revenue will tend to hurt the economy but raising tax revenue by broadening the base could help or hurt depending on the nation of -- the nature of the changes. on the other hand, there are features, credits and deductions, that may be helpful in offsetting distortions that exist in the private market. so they do help to achieve social gains. it is hard to make broad statements about whether broadening the tax base would be good or bad for the economy. we have the modeling capacity and our colleagues have the modeling capacity to provide us with senior colleagues about

the economic effects. it is hard to make general statements. >> thank you. >> mr. blumenauer. >> we appreciate your patience in coming back again and carefully trying to create accurate words and resist our efforts to use questions of them to testify our needs. i continue to marvel how well you do that. i love how you used, earlier, the term "all things being equal." this is the trust of your analysis, to let us know what is going to happen. i like what you said a moment ago in terms of how structured the tax provisions -- some could be reinforcing activity.

if these are borrowed dollars that distort the market place and encourage overproduction of something and may even have environmental damaging impact, and short change things like nutrition support, which actually help sustain the economy, this is one of the things cbo has ruled as a powerful stimulus. for example, all things being equal, if we got our agricultural subsidies refined, that might be something that could save money and improve productivity. >> it might be. we have not studied the -- >> i am not asking you to walk the plank. i just want you to help me hypothetically think that we could reduce the deficit and

move forward. >> potentially. >> likewise, were we to deal meaningfully with reforming our military spending, hundreds of billions of dollars in maintaining the nuclear arsenal that we are not going to use, hopefully, ever, has less economic impact then lowering the deficit. reducing potentially taxes or investing in things like education and infrastructure. is it possible that getting that right could boost our economy? >> the whole -- there are a whole variety of possible changes. >> maintaining a nuclear arsenal and does not have a ripple effect. does not strengthen other parts of the economy. this is more of a drag on the

economy than investing in education, bridges, or source systems? >> when the federal government spends money, there is a positive multiplier effect. >> i understand the principles. i am not trying to trap you. i just want to put on the table that there are some things that have less of a multiplier than investing in our future. all things being equal. >> has . in addition to the short-term economic affects, different sorts of government spending could represent investment in our future and others may be more for current consumption. >> i guess that is one of the things that all things being equal, it would seem to me that if we were in fact investing, as we used to do, on things like roads and bridges and transit, improving sewer and water in the

virus of the protection, these investments actually put people to work and avoid cause san in the future. is that possible? >> yes. we have written about the economics of additional investing in transportation and water infrastructure. according to the federal highway administration, there are a large number of highway projects that would have benefits that exceed their costs. to fund all of those would require a good deal more money from either the federal government or -- >> thank you. i appreciate your patience with us. that is the note i would conclude on because there are lots of things that people on this committee could agree on, whether it is refining and a cultural investment and a time when we have vaulter earl -- virtually all lower interest

rates -- that could make a huge difference at all of our communities. i hope we have reached the point where the fiscal cliff helps us to make a long-term difference to our communities and economies. thank you. >> thank you. >> thank you, mr. chairman. and i would like to have mr. van hollen's chart back on the screen. this chart is interesting. there are two factors i think in play here that were not discussed. number one, in 2001, we had the with therror stbegin attacks on 9/11. that fact was left out. in 2007, with a political change that occurred when the other party assumed control of

congress, you see the huge increases in spending that occurred and the impact on the economy with the changes in regulatory environment. doctor, when the stimulus bill was passed, it was widely believed that unemployment would go down because of that stimulus program. here we are 3.5 years later and we have had about 40 months of employment higher than 8%. the other side of the aisle is proposing to continue to spend -- to have another round of stimulus. they change the name to investment. they say that will bemy questio. can you explain it by the stimulus did not achieve its endesired outcome? >> the economy has performed

worse than expected. in our assessment, the recovery act creed and more output in more employment than would have happened without it. the underlying reason, unusual for us, the other underlying weakness of the economy has more than offset the efforts of fiscal policy makers and monetary policy makers to get us back on a strong course. >> i've asked this before. what is more efficient in terms of causing increased activity. solyndraoice between and keystone. is better for the economy?

>> we have not studied those two in particular. in an economy where the consaint has been for the past four or five years, the additional demand will raise output relative to what it would otherwise occur. >> what causes the increased demand at back thinking that public-sector spending can raise the man, then you would have a $4 trillion stimulus or a $5 trillion stimulus but the impact would have been catastrophic. privateetter to rely on par sector spending?

>> we have been clear that the extra debt that had been accumulated is not offset by the policy changes later. this will be a drag on the economy. policy makers have tried. >> so it would be inappropriate to double down to contain this? why would stimulus to point no work any better? we did an analysis last fall of proposals. some proposals come increases cuts the we think would spur

output and employment >> what kind of difference would bthis be? billionit was $700 in the private or public sector. >> they both would have ledto jobs. what sort of goods and services were purchaed? if both were investing, that would be good. >> fascinating. we had that hearing on multiplier effect and there is clearly a difference of opinion on multipliers. andad the cbo's position

mr. taylor from stanford who represented an alternative position. that could maybe give an illustration on this point. >> thank you for your testimony. the cost of health care is frequently mentioned as a factor in increased spending. in my state of oregon, we have come together in order to take a new approach, particularly regarding the uninsured and are medicaid dollars. it's quite refreshing to see business, labour, democrats, republicans all work together with the goal of improving care while cutting costs. coordinating services including

physical and mental, and oral health care. the modelling taken place includes coordinating physical and behavioral health care, better managing chronic diseases, and aligning care for individuals who are dual eligible. the establishment of these organizations is projected to actually improve care and. oregon projected 4.9%-9.7% savings in the second year of implementation compared to a 10% increase in the savings expected to build over time. i wonder if you could talk about how this type of change would impact the federal budget that a similar thing was implemented?

>> there are different things going on in different states, different providers of care and insurers in an effort to get more value for our health care dollar. the ferment of experimentation is a very positive factor. it is also true that a number of experiments have not worked as well as advocates have hoped. this is across different health care systems. we did a careful review of day medicare demonstration project in both the value-based in disease management care coordination.

in personal interaction, there's a lot of energy being focused on care coordination. that model is more likely to reduce spending. it had its own costs in terms of paying for the interaction. in medicare, there has not yet been a model being used in any widespread way that has had the effect we're looking for, higher quality care, lower-cost. that does not mean it can happen. feebler still trying to figure out how to do it. -- people are still trying to figure out how to do it. >> this introduces a lot of different programs. the center for medicare and medicaid services are supposed to do more faster to reach conclusion is and then be able o

spread these throughout the system. how large the effects will be and what the turnout will be most effective, we do not know yet. >> thank you for your testimony. i know we will all be watching in my home state as well as others. until we can increase access and start addressing the high cost of chronic care, i appreciate your testimony and i yield back my time. >> i want to talk about page 35 of your report. this is on the effect of government borrowing. "increased government borrowing generally crowds out private investment in productive capital

leading to a stollelower impactn the long run. the portion of savings is not available to finance private investment." you talk about the effect that the more that we borrow, the more capital require that be invested in productive things rather than sovereign debt. that is occurring worldwide currently. this trend, i do not know if it is it something you want to talk about or not, but we have this going on in europe and other parts of the world. what you think about this crowding out based on sovereign debt? >> in your book, they have a collection of overlapping problems, as you know. they have a banking crisis, its fiscal crisis, of a growth

crisis. we rode about this two years ago when we read about the risk of its fiscal crisis in the united states. once one ends in that situation, there are no options. the need to cut back on borrowing but not increase on revenues which worsens the budget situation and it really is a vicious cycle. we think the european economic situation is weighing on the economy now and has the potential to be much more significant negative force if they do not find a way to keep their system going. >> and it keeps our interest rates low because people are investing?

>> it is probably weighing down on other parts of our financial system. that is ready biggest risk lies. if they have a larger collapse than the financial system than negative spill overs. >> can you factor in certainty and uncertainty. there has been this mentality about not knowing where the rates are going to be. can you factor in the difference between these two in marginal rates? >> we think the uncertainty on a variety of dollars -- on a variety of rates is a current factor. >> as we walk through this year

going to the common discussion about all of these rates from 2001-2003, better to resolve them earlier or later? we have about six months to do either of them. >> earlier is better, no doubt. >> do you think it's possible to address the national debt deficit at all without dealing with major entitlement programs? maintainossible to social security, medicare, and medicaid as they are under current law but only by substantially raising taxes on the broad groups of americans. but this is only to maintain a

broad section of americans and that is what makes the choice that you and your colleagues face and that we as americans face so that one can pick one part of the budget. given the gap between revenue and spending, then one would have to make even larger, more dramatic changes in other parts of the budget. you can see that in the extended baseline scenario of what happens under current law and what could be an alternative vision. we analyzed congressman ryan's that makes cuts in a number of areas. >> but earlier is better? >> earlier is better because it gives people time to plan and it just.

it was important in dollar terms before it gets even larger than it is today. >> would talk about cuts in entitlement programs a lot, but i would like to talk about another program and your functions in that in your two scenarios. what were your assumptions for this -- for defense spending as a percentage of gdp? >> what we do for the long term some areas is because take the all programs apart -- >> i understand. if you could just tell me what it is. >> we do not have anything beyond the 10-year budget window. >> maybe you can get back to us

after this question. mr. romney, the republican nominee for president, has proposed to never allow the spending to go below 4% of gdp in defense. what would be the impact of sustaining an elevated level of spending over the remainder of the decade. he did not put any qualifiers for that, but what would that have on the effects of domestic discretionary spending under two scenarios. >> this is 7.3% in 2022, that would leave 3% of gdp for all domestic programs apart from these larger entitlement programs which would be a dramatic reduction relative to their historical averages.

>> i mention his never wanting to have defense spending go below 4% of gdp. he also talks about cutting revenues of $6 trillion of the decade by making the bush tax cut permanent, cutting the corporate rate to 25%, eliminating estate tax, it capital gains and dividends taxes. when you add the increase in defense spending, what would be the impact? what effect would that have on the safety net in entitlements. >> we do not analyze the plans of candidates for office.

>> you have two scenarios. one in which you have the tax cuts not having this sequestration happening. mr. ryan is talking about undoing that. and then he wants to increase defense spending. what would be the effect of the safety net in the entitlement program. >> week to explore these in the alternative scenario, but then that would put this at this steep over trajectory. then you need to cut parts of the government by trillions of dollars. >> so it would be that scenario which would even mean it --

>> would increase relative to current law. we would have to make him terribly larger cutbacks in other domestic programs. >> thank you. thank you, mr. chair. >> mr. susman. >> thank you for being here. i always enjoy your analysis and your testimony. i would like to talk about interest rates and segued that into taxes. on page 32, one of your points of interest rates, the increase in government debt leads people to allocate to more government securities and crowd out other sectors. does your report touch on why are interest rates are at record low levels right now?

>> we do not talk about that here, congressman. we will talk about that in the regular forecast update. the principal factors into the weak economy and weak credit demand and a flight to relative safety from financial markets, particularly the euro, that are especially a for agile state right now. >> is qe1 and qe2 playing a part? but that expires, will we see interest rates move up? >> their focus in on the long term rates. they have brought down long-term rates. if one looks at financial markets out beyond the next few years, later in the decade, they're expecting a noticeable increase in interest rates, short-term and long-term

interest rates, and they have included in those delinquencies. we're looking for short-term rates close to 4% and a 10-year close to about 5%. >> on page 43, under the bullet point for the need to higher taxes, am i correct? from the data you gave earlier, you talked about rate verses base. there's a lot of rhetoric that republicans are against revenue increases when, in our own budget, we address their tax policy in suggest two tax rates. it might clear that you're discussing one scenario vs. the other where there is a tax rate increase where you are

encouraging the expiration of the tax breaks? in your alternative scenario, broadening the base. do you discuss either in the report? >> we do not. we are not trying to explore the details of alternative tax policy. we try to capture things in the extended baseline scenario. then we try to look at a variety of provisions. it turns out that, given the positions that will expand the use, it turns out under current law in respect of broadening of the base, it will be taxed. >> broadening the base would not hurt the economy the way that

raising the current rate would affect the economy? >> it is generally true. it depends a lot on the nature of the broadening. we would have the look of the specific provisions and we're prepared to do that. >> thank you. >> my apologies. you were here first. >> if we had more people working across america, would the debt and deficit situation be improved? >> absolutely. >> can you tell us if the unemployment rate was 1% lower how much lower the debt and deficit situation would be?

>> i did not bring that magic table. i wish i had. we wrote a letter a few months ago that talked about the effects on the economy if the economy were strong group. i think we said about one-third of the current deficit would go way if the economy were somehow immediately put back close to full and climate. >> there is absolutely no dialogue from my friends on the other side of the aisle as for job creation and debt reduction. here are the positive signs. we have had 27 straight months of private sector job growth, manufacturing employment trending upward, consumer confidence is up. the median home price sales figures are up.

corporate profits are up. things are trending in the right direction and this could be really helpful in job creation and deficit reduction if we could come together to do something on jobs. unfortunately, we lost a jobs plan put forth last year that would rebuild homes across america. that would put construction workers back to work and lead to better facilities for students. they had stalled the transportation bill. the bipartisan bill has been stalled for months and months and months. i heard your earlier comment when it comes to infrastructure. you say the benefits far exceed the costs.

>> there are a lot of projects not being done. >> the new factor is that that would be a recipe for disaster because they slash the important investments that the work on together, whether it is in scientific research, and for instructor, education -- infrastructure, education. i think it this one-sighted approach to this will cause great damage. it is causing damage now because we could come together now. i hear your message loud and clear come sooner rather than later.

>> i always appreciate your report. i do read them, highlight them, and learn some much. thank you for your work. i just have to address what the gentle lady from florida was talking about, that there are ways to raise revenue. the one which is to tax more and then the unemployed to raise revenue. the job creators say there's so much uncertainty that business is not growing. the uncertainty is creating paralysis. giving them some certainty in looking at what you're saying in the budget outlook is helping us understand where the debt drivers are. we have 30 pro-job creator bills laying there that have not been handled by the senate.

we look at those areas that are driving our debt in the long term debt of our country. what would you say the significant drivers are. >> spending on health care programs and, to some extent, social security because of the rising cost of health care and the aging of the population. >> would you see the entitlements -- >> what you decide to do in response to them are up to you. >> if we could bring up the first chart taken from the cbo report in one that is easy to look at? we see the historical average verses if there were no changes in programs, what would happen under the current law.

what has been the historic level of spending in these two areas? >> i cannot check the exact numbers, but social security and health care spending are on track to be much larger shares of the economy than they are today. they are larger today than there were over the last several decades. >> of gesticulate at these two categories and you say they represent about it -- if you just take a look at these two categories they represent about 25% of gdp in they could go up to 60%. there's not a lot of room left for anything else in the budget. would you agree? >> under current law, you have set revenue to 18% of gdp, said that is under our extended alternative scenario. under the current law, revenues

wouldand certainly, if revenuese held at that share of gdp as they did historically, than the dramatic rise of cost from the program makes the budget untenable. that is why, ultimately, you and your colleagues face this choice. >> i think we have to admit that we cannot stay where we are. there have got to be policy changes. if we can go to the next chart. i think this is even more devastating. if we keep sticking our head in the sand and saying, we will just wait. we see that by 2037 our total spending far, far outpaces our total revenue. and we see how our debt continues to grow. i think as we put these out there for people to see, rather

than in these reports, are so instructive. that is great. but if we just take a flash and look at a chart form, it has got to wake us up to say, there have got to be some changes as we move forward. >> that is absolutely right, congresswoman. i would just know about this chart, again, to be clear, over total spending is that high in large part because of the explosion of interest payments, reflecting the gap between the non-interest revenues and all the years between now. non-interest spending, would itself, go higher, but not much higher than our historical average has shown in this picture. >> you can take a lot of the samaras and do different things. i think the most important thing is that when we take a look at it in a chart form, it has got

to be striking to us that we have to act on this. we do have some alternatives out there. the policiesn to and address these for the american people. thank you very much. >> thank you. >> thank you very much. i appreciate your testimony. i was really interested in your answer in response to the charts. he spent two hours telling usatt is -- it is not just spending, it is also revenue. that chart ignores revenue. i was surprised you didn't say the debt was just spending. you just said it many times. the problem with the deficit and the increases and the national debt relate to both spending and

reductions in revenue. >> be on sustainability of fiscal policy -- and the and sustainability -- the un sustainability is a choice that you can make. >> that last chart, which is based on the fact that there will continue to be the lower revenues built on the fact that there are an insistence on the republican side that instead of looking at both spending and revenue and recognizing that we cannot, given the dramatic concerns about deficit, we cannot ignore the revenue side. you pointed out, how we do that is for us to decide. but if we maintain those tax deductions for our largest

corporations, it is completely ignored by that chart. that is a choice the republicans are making, to take only a look at the spending side and to refuse to look at the revenue side. reduced revenues will continue making a choice. refusing to take -- refusing to raise any revenues. no new revenues. even if those tax deductions will not affect the growth. even if they do not do anything. >> will the gentleman yield? >> no. >> you are certainly right. an explosion of debt and interest payments that we show under the extended alternative could be addressed either by reductions in spending relative to that scenario --

>> or in combination. >> i contend all the time that budgets are about choices. we, the democrats, have put forward a budget that is clear about our insistence that, yes, we will deal with the deficit. we will deal with it in a way that does not hurt a fragile economic recovery. we want to see more. the only way we will do it is every bipartisan commission has said it has to be both. looking at the revenue side, getting rid of tax reductions that do not grow the economy. instead of saying their job creators, but have not created jobs. they don't create jobs or economic growth. we could see something on the side of revenues. of course we're going to cut

spending. we have already. we have made that commitment. $1 trillion at t end of this year in a tough ways. this is really about choices that we are making. it is about choices of whether we take all of this out of the spending side. we walk away from our commitment on seniors to medicare. that we walk away from investments in education and innovation and growth industries. and yes, this was pointed out on our side, walk away from the potential of public investments now such as infrastructure that actually help economic growth in the private sector by creating demand and an environment that grows jobs and encourages companies to stay here, investor, and grow jobs in the private sector. it is certainly possible that we have to take the balanced

approach and we have to take it sooner than later. >> as you know, i cannot tell you what approach should take. you're absolutely right that you and your colleague and we as citizens make fundamental choices about the role of government in society. they are becoming much more expensive than they used to be paired >> thank you. >> thank you. i appreciate you being here. at a couple fall out questions in reference to this stimulus package and why it did not work. you had a comment. i want to refresh your memory. the administration, and i presume the cbo predicted that roughly the unemployment rate today would be 5.7% if that had

worked as most economists, promoting math. that is the actual unemployment rate. 13 million americans are not working today. you said that the economic recession was worse than we figured. can you tell me what numbers were missed? the reason i'm asking is i am trying to find out who in this town actually doesn't accurate job of predicting. the folks who said we needed to spend more money were very wrong. kitty kelley were you and others were wrong with the economic figures you were using with that type of projection? >> yes. that is a good question. economic forecasting is very hard. i think a good way to summarize that is that we're no worse than at that -- no worse than other economic forecasters. a thing in our case and for many forecasters, the u.s. has not

experienced a recession of the magnitude we just went through since the depression. we have been used to having infrequent and fairly wild recessions. in fact, people who study more carefully to other countries were sang from the beginning that, and this sort of situation, we should be looking for a much longer and more pronounced downturn in this country. they turned out to be right. i want to be clear about the affects of the recovery act. there's an agreement about the size of these multipliers. in that agreement, we show ranges of estimates. there is only a small fraction of the profession that thinks the recovery act was not good for the economy. >> i appreciate that. on what particular figures, just in general, are you saying? most economists were wrong? for the specific indicators that were missed?

this gets pretty political because we have a folks suggesting, and may be yourself, that it was not big enough. which be spending more money. you suggest that if we could dispense some more money is somehow that will go to the economy. -- if we could just spend some more money it somehow will go back to the economy. or just spend more money of any type that somehow it will go back to the economy. what did you and other economists the mess, specifically that led to this huge job disparity between what was projected? we're talking 13 million americans would like an answer to this. where did washington mess up? you said most economists think it should have worked. it did not. >> the question, if i am not mistaken, whether the multiplier

is above 1 or below one. is that not the case? and what was the multiplier? >> the question was whether the economy act was good for the economy. >> excuse me, yes, zero. >> we put it into the transcript on this regard. the university of chicago did a regular survey on issues of public policy to show where the agreements ally. >> whether a dollar spending is worth more than economic output or less. >> because of the american recovery and reinvestment act of 2009, the u.s. unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill. does that answer the question? that was the question. the question with a question mark at the end. the phrase is a statement.

because of the recovery act was lower at the end of 2010 than it would have been without the stimulus bill. 80% of respondents agreed or strongly agreed. 4% this agreed or strongly disagreed. >> meaning a positive number vs negative number. >> here is what i think he is getting at. >> what was the multiplier? i think it was the bernstein. i cannot recall who came up with the multiplier to generate those stimulus projections. what was those multipliers that they used? >> i don't know what they did. when he is getting at is, how did they get it so wrong off of their projections. my question is, what was the multiplier they used? and was it not outside the realm of what most economists thought it would have been?

i do not know what they used. i know what we did. we went through a set of multipliers from the evidence the economists generated. >> endorses one. something, right? >> -- and yours is 1.something, right? >> i think we got the average was about one. a very rough turn. that is what we have been reporting. >> right. >> i am doing this off the top of my head. bernstein to something? t know the answer to that? >> is may have been. >> we did our own analysis. i can speak to that. i cannot speak with the administration did. >> for now, it is pretty simple. the question is whether or not the recovery bill helped the

economy relative to not do a stimulus. the answer is that it helped. >> when he is getting at is the claims that were used to sell the stimulus were based on a multiplier that clearly did not materialize, which was much higher than what they thought it would be. >> we're not suggesting you are selling anything. we're suggesting the administration was selling something and they oversold the. >> we should just invite everybody to look at the congressional budget office now. this is the exact issue that has been raised a couple of times. as a result of the recovery bill, we saved or created over 4 million jobs. we talk about on a year-by-year basis. for those people who have those jobs it is pretty meaningful. >> the administration claims the administration -- that on a plan

would never get above eight. they used a multiplier that very few economists support. >> canada say one more thing? >> not on my time. >> we are doing a report right now on the slow recovery. we're trying to understand better where we went wrong in an effort to improve our forecast going forward. it will be available i hope within a few months. >> i request 30 seconds to close. >> i actually started this mantra after time expired. >> no, you did not. i give you my time. >> oh, you are right. >> i was not around here. i'm going with the numbers that were provided by the administration. so far, it might have been different multipliers. as we go forward, one thing i will ask to put in the report is if you can make an estimate,

what is the economic impact of uncertainty. i'm hearing now from job creators. that is nowhere in your report. >> thank you. >> it reminds me of the economist who said, well, that might be true in practice, but how does it work in theory? i think we run afoul of the law of political physics. the more we invested our mistakes, the less likely we are to admit it. somehow it consensus has determined science or economics. the fact of the matter is that 80% of economists turn out to be wrong. 80% of them does not make it right. it is still wrong. that is the experience we have had an why your testimony is greeted with skepticism now. doesn't the secretary of the treasury have the authority to

prioritize payments to assure the timely payments of the government's sovereign debt obligation? >> i think that is right. >> i think it is, too. in fact, i think it is embedded in the original act. it would not be enacted the congress, it to be a malfeasance of the objective. >> i am sorry. i cannot speak for the legalities of this. i can speak to the sense of the economic consequences. i recall standard and poor's warning that a deficit reduction of $7 trillion in bayside over the next 10 years is what was necessary to preserve the aaa credit rating of the united states government. i specifically asked the head of

the sovereign debt division if the budget adopted by the house last year, the so-called ryan budget would have preserved the aaa credit rating. his answer was that it would have. you have any reason to contradict that? >> i have no view on that one way or the other. >> there are some on the left to seem to think that is a disaster. >> let me talk about the relationship between tax and deficit, if i could. tax is often put forward as an antidote. you essentially said that in your testimony. on taxes and deficits basically the same thing? is in the deficit a future tax? aren't taxes and deficits the only two possible ways of paying for spending? >> i think that is right. as you know, we cannot just continue to run a deficit. we to bring our spending into

direct correspondence with each other. >> what you are taxing today or whether you are taxing to mark, which is what we're calling a deficit, those are the two ways to pay for spending. it seems to me, with apologies to the clinton campaign, it is the spending. >> their commit to doing either more taxation or less spending in the future. >> can you offer us any examples of a nation has ever spent and borrowed their way to prosperity? by that,ure you mean congressman. prosperity comes from the ability of an economy to produce goods and services. it is the amount of quality of the labor force. and so on. >> right. but going from theory to actual practice, in the beginning of

the 21st century, i see reducing spending of gdp in the early 1920's. reagan reducing it in the mid 1980's. and clinton reducing it in the mid 1990's. each. as follows -- each period expansion.in bush in the 2000's. the economy has languished. what are we to draw from the practical experience that is quite consistent over the past entry? >> it is harder to interpret and you're suggesting. if you look it european countries and how they perform, germany, which is one of the

stronger european economies being relied on by others in europe today, devon much larger share of gdp tax revenue. >> that is not what i'm talking about. i'm talking about spending as a percentage of gdp. >> the countries in europe also have different tax policy. >> during in per capita dollars is higher than it is in those european countries. >> we are richer than they are. >> we continue these policies. we can fix that in a hurry, i am afraid. >> i know i am using your time. i'm not sure if you're referring to our policy making. we have adjusted our range of the effects of the recovery act

in response to what we have learned in that process. we have not adjusted the range to include a fax of the low zero -- to include effects below zero. again, while we do respond and we're not afraid to admit that, we are clear on why we change our views and why. we think it was on net with the economy or the past few years. >> thank you. >> was the stimulus bill and the recovery act of the only way we could have helped the economy? >> no. there are a whole collection of possible policies that could have been enacted. we have been asked on a number of occasions to look at alternative ways of replied -- of providing proof for the economy. we have provided options and discussed what we think the effects would be. there are many different

policies. >> is it fair to say the recovery act did add to the deficit? >> yes. that is right. >> and it did add to the debt? >> yes. >> where the affects of borrowing in going into debt and deficits -- what to the effects have on the private sector? >> over the immediate and long- term, that extra debt will crowd out. does it, in february 2009, it would be good for the economy in the short run. it would be a drag later on. >> as i look at the present's budget proposal for the next decade, i seem to recall seeing every year for the next 10 that our deficit exceeds $1 trillion. our long-term debt continues to grow. i do not know what percentage of gdp that is on the top of my head. to your point, that at some point in the long term, which is

what this report talks about, we do have to change, as you said, the ratio of debt to gdp. we have to change our tax revenue to our expenditures. it is suggested by some that the way to do that is to increase taxes. let's say we increase every single tax rate. does that necessarily suggest we will have more long-term revenues to the treasury? >> in general, higher tax rates will mean more revenue spirit not proportionally higher, because there be some affect on people's behavior. of the level the u.s. is starting today were talking about in the next decade. it increases from that point. there could be specific taxes, perhaps. i do not know. >> so there is an alternative to just raising tax rates to try to fix this.

what is our revenue today? $2.20 trillion? >> you'd think i would know that, but i do not. we think it'll be about $2.50 trillion. about $3.50 trillion. we are. but nothing that will persist at that level president's budget. the president does have larger deficits under current law. >> one of the things that you want to try to get on the record and you may have talked about it, i apologize if you have. in terms of health care entitlements, the cbo report -- reports it is spending in 2012, which goes up to 12% of gdp by 2015. that is clearly a driver of our long-term fiscal problems.

is it not? >> that is what is different from the past. that is the part that means we can repeat the policies of the past. whether that is addressed by your colleagues, that is up to you. the problem in balance comes from the gap. >> if we were to limit 100% of discretionary spending, we would still have the current deficit and a long-term debt problems. >> as i said when i started, changes they make in programs outside of social security can affect a magnitude of the changes needed with the large entitlement programs. it could eliminate the trade off. change these programs relative to current law. >> would you be able to come on

the unfunded liability numbers? ? on the mandatory sense? >> would not calculate in terms of that. we show some balances and the social security trust fund. we share a fiscal gap for the economy as a whole. that is just a gap. it is not the present value of all future spending and revenue. >> ok. thank you very much. i yield back. >> thank you very much. i think that concludes all of the questions. thank you to your and -- you and your team. this hearing is adjourned. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

>> coming up today on c-span, the joint economic committee hears from fed chairman ben bernake. then overside with attorney general eric holder. jpmorgan chase ceo jamie diamond testified about the company's recent $2 billion trading loss. live coverage of that hearing starting at 10:00 eastern on c-

span and c-span radio. then the house financial services committee will hold a hearing on the public policy implications of jpmorgan chase and other trading loss on tuesday, june 19. we bring you that live on c-span 3 and a c-span radio. senate finance committee, max baucus, will outline his policy on monday. we will also hear from the former white house director and the former committee chairman. join us live on monday morning at 10:00 eastern on c-span 3. >> the b-52, you know, everyone thinks back to vietnam. they think of the history of the b-52. the cold war. there is a different kind of power associate with the b-52 as opposed to other long-range