have to set up a system where we empower parents to do what's best for their kids. as you know, the preponderance of education monies by far goes to the schools from the state level. and from the numbers that i am familiar with, the federal government provides maybe $1,000 to $2,000 towards every student in this country if you are talking about the mix between state and federal. and i'm talking about trying to re-arrange or redirect the flow of those funds and allow it to be that the parents and the students are put back in the driver's seat, not some failing school system that will cause the loss of a generation. thank you all very much. [applause]

[captions copyright national cable satellite corp. 2013] [captioning performed by national captioning institute] quacks on "newsmakers this week , chris van hollen talks about the decisions facing congress as it moves closer to the across-the-board spending cuts in march. >> i would much prefer to see us do this before the march 1 trigger date, but if we go over, i hope republican colleagues come to their senses. >> what is the game plan, if we do go over the deadline.

what is the game plan to think about -- for it if it becomes an economic drag? >> it is already becoming an economic drag. if you look at the last quarter of last year, you saw a downturn in economic committee and a factor behind that -- activity, and a factor behind that has been anticipation of the across-the-board cuts. if you get a slowdown in anticipation, it will get worse once the march 1 date hits. my view is you have to deal with this now and you are raising a broader question. all of these things upon us, the march 1 sequester, the march 27 government's federal authority to operate, and then the republicans move them debt ceiling debate until may 18.

you have these self-imposed economic wounds, and we really should be dealing with them all at at once in a comprehensive manner. if we cannot deal with it for 10 years, deal with it for the remainder of this fiscal year, and that is what the house democratic alternative did. we would replace with the -- sequester with deficit reduction achieved over a longer time. >> watch the entire interview sunday at 10:00 a.m. eastern and again later at 6:00 p.m. on c- span. now, douglas emmett dorf, director of the congressional budget office. this is just over one hour.

>> thank you all for coming. i am the director of the congressional budget office. cbo just released its outlook for the federal budget and the economy over the next decade. i would like to tell you a little about it, and then my colleagues and i will be happy to take your questions. our analysis shows that the united states continues to face very large economic and budget challenges. under current law, we expect the unemployment rate will remain above 7.5% through next year. that would make 2014 the sixth year in a row that unemployment is so high, the longest such period in seven years. -- 70 years. also under current law, we expect budget deficits over the next decade to total about $7 trillion. with deficits so high, the

federal debt on the public will remain a larger percentage of gdp than in any year between 1951 to 2012. by the end of the decade, debt would be 77% of gdp, on an upward path. let me elaborate on those points, beginning with the economy and then turning to the budget. we anticipate that economic growth will remain slow this year because the gradual improvement that we see in the underlying economic factors will be offset by a tightening of federal fiscal policy scheduled under current law. the good news is that the effects of the housing financial crisis appear to be gradually waning. we expect an upswing in construction and real estate and stock prices, and the increasing availability of credit will help to spur a cycle of faster growth, employment, income,

consumer spending, and business investment over the next few years. however, several policies that help to bring down the budget deficit will represent a drag to economic activity this year. the expiration of the two percentage point cut of the payroll tax, the increase in tax rates on incomes above a certain threshold, and cuts in federal spending scheduled to take effect next month will mean reduced spending by both consumers and the government. we project an inflation-adjusted gdp will increase about 1.5% in 2013. but it will increase roughly 1.5 percentage points faster if not for fiscal tightening. after the economy adjusts, we expect the growth in real gdp will pick up to about 3.5% per year in 2014 and the following few years.

but the gap between the nation's gdp and what is capable of producing on a sustainable basis, what we call "potential gdp," will not close quickly at that rate of growth. we expect output to remain below its potential level until 2017, almost one decade after the recession started in 2007. by our estimates, gdp was low last year. there was the get that existed three years ago. growth and output since then has been only slightly better. the nation has paid and will continue to pay a very large price for recession and slow recovery. we estimate that the total loss of output relative to the economic potential is between 2007 to 2017, the equivalent of

nearly half the output produced in the country last year. with the gap between actual and potential output, projected to close only slowly, we expect the unemployment rate to stay near 8% this year, to fall below 7% in 2015, and to reach 5.5% in 2017. let me turn now to the budget. under current laws, the federal debt will shrink in 2013 for a fourth year in a row. an estimated $845 billion. the deficit would be the first in five years below $1 trillion. and at 5.25% of gdp, it will be only about half as large of the size of the economy as the deficit was in 2009. our projections based on current laws showed deficits continuing to fall over the next few years, reaching about 2.5% of gdp in 2015 before turning up again to

nearly 4% by the end of the decade. a big reason for declining deficits is federal revenues are projected to grow because of both the expanding economy and changes in tax laws and are scheduled under current law. as a result, we expect revenues, which were less than 16% of gdp in 2012, will be about 19% in 2015. under current law, expected revenues will then be roughly 19% of gdp for the rest of the decade, compared to an average of 18% over the past 40 years. at the same time, under current law, that projection shows federal spending falling relative over the next several years. the spending that goes up when the economy is weak, like unemployment benefits, is expected to drop off. after 2017 though, spending

projections start growing again as a percentage of gdp. the aging of the population, increasing health-care costs, an and the expansion of eligibility for health insurance will push up spending on social security and major health-care programs. in addition, the return of interest rates to more normal levels will push up interest payments to the largest share of gdp in five decades. during the past 40 years, federal spending has averaged 21% of gdp. our projection for 2023, it is about 23% of gdp. what would that look like under those circumstances? we expect that again under current law federal debt held by the public will reach -- by the

end of this fiscal year, the largest percentage since 1950. it will then remain above 73% throughout the decade, far higher than the average we have seen in the past. remember, as recently as 2007, it was only 36% of gdp. but 2023, with a budget -- would be 77% of gdp rising. rough stability as a share of gdp over the next 10 years, it has had a sharp upward surge over the past years. this will remain a significant concern for several reasons. first, the crushing out of investment will be great. lawmakers will have less flexibility than they might ordinarily have to use tax and spending policies to respond to unexpected items, such as a recession or war, and a heightened risk, in which the

government will be unable to borrow at affordable rates. second, debt would be even larger if current laws are modified. as they have in the past, to delay schedule changes in policy. for example, if lawmakers eliminated the automatic spending cuts that will take effect in march but left in place the original caps in the budget control act, if they prevented the sharp reduction pertaining to physicians taking effect next year, and extending tax provisions scheduled to expire, then budget -- will be substantially larger than their baseline projections. debt would rise to 87% of gdp, rather than 77% under current law. third, debt might also be larger than our projections because even the regional caps on discretionary funding would reduce such spending to an

unusually small amount relative to the size of the economy, and that would be difficult to sustain. the cbo projects with just the original cast in place, discretionary spending would be 5.8% of gdp in 2023, a smaller share than in any year in at least the past 50. because the allocation of discretionary spending is determined, lawmakers have not yet decided the specific government services that would be reduced or constrained to meet the specified limits. and fourth, projections for the 10-year period covered in this report do not fully reflect long-term budget pressures. because of the aging population and rising health-care costs, a rising gap exists between benefits and services the public is accustomed to receiving from the government, especially in the form of benefits for older americans, and the tax revenues.

it is possible to keep the policies for there have been -- both large benefit programs unchanged, but only by raising taxes substantially for a broad segment of the population. alternatively, it is possible to keep bees at their historical average as a percentage of gdp but only when there are cuts relative to current policies and those to help a broad group of people read some point in their lives. deciding now the culmination of policy changes to make to resolve that in ballots would allow for gradual implementation, which would give households, businesses, and state and local governments time to plan and time to adjust behavior. thank you. we are happy to answer your questions. yes? >> can you say who you are and where you are from?

>> kevin, this is less a budget issue in more on the economic projections. quantitative easing and how the fed does this bold experiment, you are looking at, if i understand your projections right, roughly 4% gdp growth at a time where the 10-year yield is somewhere around 5.2%, and core inflation is still above 2%. can you talk a little bit about the out years, how you approach this? is this a normal period in our economic history? >> this is a highly unusual period in our economic history. we expect the federal reserve will start to raise the federal funds rate in 2016 and start to sell assets out of its portfolio in 2016. under current law and budget projections, economic projections that we have, that

would amount to an extraordinarily long period of extraordinarily low interest rates. that is what the fed says it is trying to do in order to provide as much support to the economy as it can, and we expect it will continue to provide that support. the interest rate on 10-year treasury notes will start to rise sooner than we expect because those rates reflect not just current short-term rates but expectations of future short-term rates, and we think financial participants will begin to look more and more at the period after the federal reserve has brought the rates back up to more normal levels, so we have a long-term rates hitting sooner than the short- term rates. that is not typical. we get a short-term rates heading up where we think the other up with a writ will be coming down decisively, and it will be working its way back,

and inflation will be coming up towards the rate the fed says it is targeting. >> a debate on can they withdraw support, are you guys looking at past history? >> we expect they will be able to reduce the size and raise interest rates in a way that prevents inflation beyond the 2% target. as you know, they have tools they have not had in the past, in particular, dealing with the reserves. because we are in a situation we have not been in before and they are doing things they have not done before. bob from "the washington post." you say that recovery has been so slow that the gap between output and potential output has not changed very much.

my question is, is this pattern of recovery substantially different from previous recoveries? in other words, in previous recoveries did we reach the potential much sooner? secondly, you seem to assume there is going to be a pickup. if we will get to your estimate in 2016 or 2017? >> yes. >> what do you base that on? we have been growing less -- we have not had that boost above potential until now. why would you expect we would get it now? >> as you know, it is very unusual to have output fall short of potential output for this long. the only previous episode i am aware of was in the great depression. but if one looks at the experience around the world, the financial crises, it is often the case that output remains

well below potential. a lot of unemployment remains high. a lot of resources remain unused. for a considerable period of time. while households reduce the leverage they had heading into the financial crisis. today it appears the process of deleveraging has gone on to a significant extent. household wealth is rising now. stock prices are rising. house prices are rising. mortgage and debt is falling. we think households are in a stronger position to spend than they have been. business investment, not particularly strong for the last year, but seemed to do well toward the end of the year. in terms of its growth rate, we think that state and local governments will be providing less of a drag on the economy.

we wrote our report last fall about these sources of the slow growth, the slow recovery. one very important factor in our assessment was the cuts state and local governments have been making in response to the loss of revenues they have suffered. we think that factor is improving. so, we think there are a number of elements of demand for goods and services in the economy that are taking off. the housing market is another important one to mention, although it is rebounding from a low level. it is clearly rebounding. house prices are coming up. house sales are rising. look across the economy, we see momentum building. i think that is consistent with experience in other countries after some period of time in which growth resumes. on top of that is the effect of

fiscal tightening for 2013, which this year we think offsets most of that gathering strength in the economy. but by the time the economy has adjusted to the tightening this year, projections for current the law, next year and beyond we will see economic growth. there are important risks on the upside and downside, but we think it is a reasonable middle given what we have seen today. >> one and a half questions, if i could. you talk about the fiscal drag from this year. can you give us separate estimates for each of those elements, or at least specifically the sequester, and how much of a drag that would be? and there was an increase in ag spending. i wonder what the situation was there? >> on fiscal tightening, we said

we saw a total of 1.5% of gdp effected by fiscal tightening. it is in our baseline projection. gdp growth would be 1.5% faster this year without that tightening. we said 1.25% of that comes from the big fact of people -- we analyzed it last fall -- about owes the sequester and half goes to the increases in taxes from the expiration of the payroll tax cut and higher tax rates on higher incomes. your meaning 0.25% is from a collection of other factors in the budget. that is the breakdown. that is as precise as we think we could reasonably be. as for the extra half question increase in the agriculture

spending, i'm afraid i cannot speak to that directly. i do not know if my colleagues know that off hand. if not we have to get back to you separately. >> two questions. the first, really inside baseball -- in your june report you had debt to gdp at 200% by 2037. my colleague wants to know, based on this current report, it sounds like you have pushed that back to 2040. >> i do not think you can draw that conclusion. your colleague is referring to our long-term budget outlook from last year, which looks at 25 years and some of the on that. we have not updated those long- term projections yet. we will do that later this year. so we do not know how the change in the projections for the first decade will affect the path of debt beyond that. >> how do you factor in things like the fracking revolution -- or do you not factor in circumstances like that?

>> we do try to factor that in. we have separate analysis underway on the effects of fracking on the economy. our parliamentary insights are in the forecast. our view is that fracking good for the us economy relative to not having fracking at all, but the effect is probably smaller than some of the more enthusiastic supporters have said. moreover, our economic forecasts do not generally pick out specific elements of innovation in techniques or shifts in the composition of output. we are looking at a cruder approach, just to stack up the labor and capital resources for some sense of overall productivity.

our projection has in them a certain amount of new ideas -- given the potential importance of fracking, are doing a separate analysis which is not quite complete. >> you talked about how debt to gdp is now around the 76, much higher than the average. one of the big debates in washington is how much additional deficit reduction should be done. do you guys have any projections of how much additional deficit reduction it would take to stabilize debt to gdp? >> i am not sure i know that fact exactly. as we show in a report -- i can go back to the crucial picture the debt to gdp ratio will be 76% of gdp. that is a decline in to around 73%, then back up to 77%. what the right level of debt is

relative to gdp is not a question to which economists have an analytic answer. what we have said, consistent with the consensus view, is that high levels of debt have costs and risks. the costs are the crowding out of investment and the reduction of output and income that comes with that. the risks are particularly the inability of policymakers to respond to unexpected developments. notice that in the last six years the debt to gdp ratio has risen from 36% to 76%. if we were to run along at 77% of gdp and were to encounter another recession or a more serious recession, a financial crisis, then there would be much less room to move. countries that find themselves with very high debt to gdp and then in counter economic problems or circumstances where

they need to respond, really find themselves in very bad and dangerous circumstances. so, at this level of debt relative to gdp, our country would be airing risks of the sort that we have not in our history except for a few years around the end of the second world war. at the same time, bringing down debt requires reductions in benefits and services that we are getting from the government or higher taxes paid to the government. we released another report that looks at the alternative budgetary factors. we lay out some alternatives. i'm not recommending any, but simple showing the consequences. another benchmark you might have in mind is, we have gone from 36% to 70%. suppose you want to reverse

that. we are pretty patient. you would do it over the next 40 years. we would be taking down 40% of gdp. you want to do one percent per year. that kind of reduction would get you to 66% at the end of 2023. over 10 years. that is 66% compared with 77% in our current baseline. to get that slight downward slope, you would need to reduce debt by 11% of gdp in 2023. that is about $2.75 trillion. if you did that gradually, you would have debt service savings when you got to 2023, but you would still need maybe $2.25 trillion of savings from lower benefits and services or higher taxes over the decade. to put that on that sort of gradual downward trajectory. some people would argue that we should not push that down that far, and they are implicitly saying that they are comparable or willing to bear the cost and the risk.

other people would say that we should not wait so long. we should not be on a 40-your path to return debt to where it has been. we should do it faster. they are implicitly saying they're willing to accept larger cuts in benefits and services or larger increases in taxes than are built into current law. that is a choice that we as citizens need to make and our representatives need to make on our behalf. >> i take it from what you are saying that you do not deny there is an argument that the us government is within a short look of the goal line after all the work that has been done, and by the way the goal line and has become stabilizing debt rather than reducing it, so i take it

the way you have reduced your medium-term growth projections and raised the treasury rate projection, to what extent does that come down on the deficit reduction that has been made over the last two years? >> on the first point we have said many times and still think that minimum requirements for sustainable fiscal policy is a stable ratio of debt to gdp. as we have said before, debt cannot continue to rise. over this decade, we're shown a ratio of debt to gdp that is roughly stable. but as i said in the report, there are costs and risks. moreover, you can see the back half of the 10-year window -- we will see it in our next report. you will see that deficits are rising and debt is rising relative to gdp. that is because underlying forces that are widening this

imbalance, the aging of the population and rising spending on healthcare, those forces are still at work. you can see, from the work that me and many other people have done about the forces driving the budget, that that is not going to last. revisions to the economic forecast -- our forecast are stronger in the near-term because the legislation enacted at the beginning of january took away a large share of the fiscal tightening that was scheduled to appear. that we had built into our forecast last summer. our economic forecast is brighter in the near term because fiscal tightening has been reduced. it is not so bright new the end of the budget window. in our outlook, we down the effects of different factors in changing our budget projections. the net effect of economic

factors was slightly positive but small in terms of the 10- year deficit. but, far and away the most important thing that happened between our last projection and this one was the enactment of budget legislation in january. the second most important thing was are revisions to spending at some of the federal government health programs. >> do you have an estimate of what kind of job growth deficit reduction creates over 10 years? >> we have not done any estimates on the effects of different 10-year paths on job growth in this report we released today. we have done estimates before of the effects on unemployment, changes on fiscal policy in the short-term. in this report, the outlook, we talk about the extra 1.5% of gdp

that we would have at the end of 2013, if not for fiscal tightening. that would translate into about 2 million additional jobs by the end of 2013 if none of the fiscal tightening that is scheduled in current law actually took effect. that estimate is quite persistent with -- consistent with estimates we released last fall about the output and employment effects of the components of fiscal tightening that were in place then. maybe to be more specific -- of that 2 million jobs, most of that is due to the combination of maybe 1.5 million due to the combination of sequester and tax provisions. those are each about half of that 1.5 million. the other 0.5 million comes from a collection of policies contributing to fiscal tightening.

>> what certainty do you have we will gain these jobs back in future years on the deficit reduction we are seeing now? >> i would like to emphasize -- we are not fairly certain of these numbers. we are making the best estimates we can. much of our work about the economic effect of fiscal policy, we report estimates precisely to show the uncertainty that is involved. we think that right now, the economy is suffering, as it has to last several years, from a shortfall for demand in goods a lack of desired spending by households and businesses and governments. and the federal reserve has been trying to offset that weakness in demand with stimulative

monetary policy, but has limitations that you are all aware of. so, under those circumstances, we think the gap between potential and actual output is larger and pushes the unemployed rate up. but as we look out 10 years from now, we think that the underlying economic momentum will bring the economy back toward a potential output. moving unemployment back down will allow the federal reserve to bring short-term interest rates back up again. under those circumstances, fiscal policy has somewhat different effects on the economy. in the medium run and long-run, the way fiscal policy can contribute to economic growth is by reducing borrowing and freeing up funds for investment and perhaps changing the incentives in tax policy and federal benefit programs.

there are different economic circumstances over the next few years relative to later on, and we think that the policy -- policies that would restrain growth today, would also bring down deficits, would ultimately be beneficial once the economy returns to sustainable levels of employment and output. >> along the same lines -- house republicans are considering a budget this year that will have a 10-year balance. i am wondering if you could address it all -- what the implications of that could be, and if that time window of 10 years, how does that mesh with some of the examples you have given earlier about reduction?

>> our baseline projection of the deficit for 2023 is about $1 trillion. to balance the budget in 2020 three would require reduction's in the deficit relative to current law of about $1 trillion. if one got there gradually over the course of the next decade, that might involve reduction on the order of $4 trillion relative to current law. and in fact, in the other report, the economic effects of alternative budget paths we have an example we picked independent of any particular discussions on the hill, one of our examples was $4 trillion in ends up $9 trillion. $2 trillion cumulative reduction and we looked at a range of possibilities. the amount of deficit reduction to balance the budget in 2023 is a large number.

and not from the current law baseline but from current policies, then the deficit reduction required will be even greater. the economic effects of that depend on the timing and on the nature of the changes in policies. so our analysis today of alternative macroeconomics of alternative budget paths looks at total amounts of deficit change and does not incorporate any specific proposals on effects to work and to save. we analyze those in specific policies. and whenever the policy makers would do to reduce the deficit, the economic effect will be depend on how they do it and it depends on the timing. sharp deficit reduction, next few years, given the large amount of slack in the economy, given the constraints on the federal reserve's actions would

reduce output and employment in the next few years by our estimates and that is consistent with the work we have done in the recovery act and several years running to stimulate the economy and increase employment. and consistent with consensus. deficit reduction in the short run would have negative short- term effects on the economy. deficit reduction later would have positive medium and long- term effects on the economy. so the set of effects that would occur over a decade in response to a particular budgetary path would depend on when this reduction would occur in addition to the composition in the change in policy. i don't mean to be vague, but there is no more explicit answer that would apply to any possible way of achieving the goal you mentioned.

yes? >> talk about your page 42, the estimates --when the government cost of borrowing will go up and why you think it will go up because it has paid so low for so long -- because it has been so low for so long. >> there is an append discs that appendix that gives the year-by- year economic predictions and you flip to page 64 can see on a year by year basis. interest rates are two-thirds of the way down on that table on page 64. you can see as i mentioned before, the short-term interest rate, the -- stays extremely low through 2015 but then moves up rapidly in 2016, 2017 and then

in 2018 up 4%. and that happens in our forecast because we think the strengthening of the economy by 2016, the reduction in the unemployment rate, we think will have occurred by then. and will leave the federal reserve to tighten policy. in addition to the interest rate, we think the federal reserve will start to sell assets from the portfolio beginning in 2016. the long-term interest rates move up basically in anticipation of the path of short rates. so we think market participants who expect the federal reserve to raise short rates will start to raise long-term rates ahead of that. long-term rates start up. tiny bit this year and more next year and in 2015.

and at the back half of the 10- year window, we end up with both short and long-term rates that are 20 boys is points higher -- basis points higher than we had in our august projection. based on current law which showed much smaller deficits. long-term rates are higher in than we had in this country and that also reflects the higher amount of debt, federal debt relative to g.d.p. than we have had over the past several decades. >> "washington post.? -- "washington post." thinking about how we should view the budget battles over the last two years. we are stabilizing debt at a much higher level. to what extent is that a result of decisions that were made by lawmakers and to what extent

that is the underlying recovery in the economy? >> both factors and we have not tried to quantify them. one can look at our projections over the past several years and basically add up each successive revision, so every time we release new budget projections, we report the revisions and we divide them into the effects of economic forecasts and changes to other technical revisions. if one stacked all those up, one can get a sense about how much the debt has changed or the deficit has changed for any given year relative to any particular path projection than one could look at. we have not tried to do that. an important part of what's happening is the economy is strengthening.

so revenues are a larger share of g.d.p. in 2013 than they are in 2012 in our projections here. another factor is the -- some specific pieces of legislation that had effects on the deficit. the recovery act is an important piece of that. it was passed in 2009 and important source of reduction in some categories of spending over the past few years has been the tailing off of the extra outlays that occurred under the recovery act. there has also been caps established -- cutbacks and caps established on discretionary spending. but to really pars out or have a quantified answer to your question, we need to be specific about the starting point you had in mind and the comparison comparison.

we somewhere baseline projections but people may have other starting points in mind. they may want to be starting from something else and then you have to do a different set of calculations. we don't have a view about how much has been done in that sense. we are really focused on what we see are the issues here forward. >> tom curry with nbc news. you say a number of points in this report, you talk about the historical points in the last 30, 40 years. going back to the 10-year treasury, you're saying by the end of this budget period, it will be 5.2%. the 40-year average is 7%. do you look at that average and say -- >> what i meant to say, adjusting for inflation, we have a real interest rate on the 10- year treasury note projected to 2023 that is higher than the average real inflation adjusted rate on treasury notes in the

past. inflation rate of 2% is lower than the inflation rate we have seen in the past. i think you are making a comparison of the nominal interest rate and i don't have the facts at hand. the way we think about this is to think about what inflation will be and what real interest rates would be and add those pieces up to get a nominal rate. >> i'm from "national journal.? -- "national journal." what the balanced budget would be in 10 years? is that through nondefense discretionary spending or will that require in 10 years changes or significant cuts to entitlement programs? >> well, that's a good question. so in our projections, there's a table that shows discretionary spending year by year and total

over the period. table 1-5 and that is page 23 -- 26 and 27. so you can see there -- if you look at the right-hand page, page 27, 2/3 of the way down, total for nondefense discretionary spending in our baseline and that totals $6.4 trillion. so, if one were to aim to achieve $4 trillion in deficit reduction, not counting interest but just in the policy changes and achieve in $4 trillion out of that category, 2/3 reduction in nondefense discretionary spending relative to our baseline. if one tried to do it out of discretionary spending as a whole which amounts to $13

trillion and it would be about 30%. and i said that $4 trillion is in its alternative path would end up with a deficit that is close to zero in 2023. whether that particular time path is the one that anybody might decide to do, we don't know. we picked some simplistic linear path to deficit reduction. but the gap between spending and revenues is very large and that means that changes -- changes you would need to eliminate that gap will be large relative to outlays or taxes. would require large changes if one split the impact across spending and taxes and even if one split it across taxes and changes needed to balance the

budget are very large and even the changes needed, as i discussed to bring debt down relative to g.d.p. would be significant changes. >> if you just cut $4 trillion of nondefense discretionary spending, what would the federal government look like at that point? >> well, it would look like a much smaller thing that looks like now. remember, nondefense of nondefense discretionary discretionary spending includes a wide away of government activities. about 15% of that or so is education and training. another big piece is transportation. i think mostly of highway construction. there's a big piece that is health-related, of which a large share is funding the national institutes of health. there is a big piece of that that is veterans' health care.

there is a piece that is involved in international affairs, a piece, administration of justice. an awful lot of different activities. what the government would look like is how those cuts were distributed across those various activities. one of the points we make in the report the caps on discretionary spending and the sequester on top of that would reduce both defense and nondefense discretionary spending to low levels in a share of the economy than what we have seen in the past decades but policy makers haven't confronted what programs would be eliminated or reduced to meet those totals because the funding for that spending is only provided by congress in annual appropriation acts. no decision has been made or

really could be made about what will be cut later. and one of the risks we see in our budget outlook when it comes down to making those specific decisions about what programs will go away or greatly reduced, will be difficult to meet those. >> could you talk about what is going on about health care costs. >> health spending has grown slowly over the past few years, both in federal programs and in the rest of the health care system. we think that part of that owes to the recession and the loss of income and wealth, but we think that a significant part of that probably does not stem from the recession. probably arises from structural

changes in the health care system. the critical question is whether those structural changes are very transitory or whether they will persist. we are talking with outside experts who are investigating the same question. i think the short summary of that is we don't know. the slowdown is fairly broad- based. we have seen it in public and private programs. and within public programs, it's fairly broad-based and we have seen it in the part of medicare that pays for hospital care, physician care and drugs. but that doesn't tell us or other people really what's going on in a way that would let us draw firm conclusions about the duration of this effect. we mention this in the end in appenddix a and talk about the

revisions to our projections, we say since early 2010, we have been surprised by slow growth and spending in the federal health programs. 2012, medicare and medicaid spending were 5% less than we expected they would be in 2012 back in the beginning of 2010. we have seen that savings already. and we have over the past few years watching those data come in, mark down our projection of health spending. since 2010, we have taken our medicare and medicaid spending by about 15%. that amounts to $200 billion. for this reason. there are other changes, of course, in our health projections, economic factors, legislation and so on. but the changes that were technical, due to our observation of the slowing growth have led to a reduction in medicare and med said spending each of about 15% until 2020. we expect it to continue for a while, but we don't know.

this is one of the sources of great uncertainty. >> is it accelerating or just sort of -- i mean? >> the best way to characterize it is the growth has been slow and slower than analysts have expected a few years ago. looking for in our analysis to try to pin down the causes, we are trying to turn up the magnification on that, but we have to be careful about that, because there are an awful lot of movements in health care over time that had not gone anywhere after that. we should be careful about drawing too much conclusion from the particular timing, but we have seen enough for a long period of time that we think that it is something real and not just related to the business cycle. >> how is medicare absorbing the baby boomers?

>> how is medicare absorbing the baby boomers? are they paying in more than they are bringing out? it seems counterintuitive to think -- >> when i talk about the slow growth, the spending per person. we are extracting, how many 65- year-olds there would be now. we are just at the leading edge of baby boomers being eligible for medicare. the 6 -year-olds and 66 year olds tend to be healthier than the average medicare beneficiary. there should be some slowing in some reduction in medicare growth -- medicare spending per beneficiary to bring in a lot of people at the younger end -- the aging population is greatly increasing in the number of beneficiaries in medicare. but relatively to the overall number, what is increasing, the younger ones, they are less expensive.

those are things we can project into our calculations. the things that are surprising others are the cost per person after adjusting. >> where does it leave the blueprint? 6% and now it's >> we have a nice statistic in here that medicare spending -- since 2009, spending for part a and part b has risen by 2.9% per year. this is on page 57, footnote 6 in the right-hand column. since 2009, spending for part a and part b has risen by an average of 2.9% per year compared with annual average growth of 4.8% from 2008 to 2009. and we focused on part a and part b because part d was introduced in the middle of that period.

>> \[inaudible] >> what the federal government might do to reduce federal health spending further and there are different avenues, this may be worth emphasizing, despite the slowing in growth, we still see substantial growth in federal health care spending over the next 10 years and beyond and that is important because the number of people who will be eligible for medicare will be rising very sharply. and this is true for a number of people rising and that is for social security as well. in 20123, there will be about 40% more people receiving benefits through the survivors' benefits in social security than 2012.

a 40% increase. those people will be in medicare as well and in medicare -- but the effect in medicare is not just the number of people but the cost of per person. 2023 relative to 2012. 40% more beneficiaries. so the disability insurance is growing more slowly. just in numbers of people who will be receiving the medicare subsidies for their health care are growing so rapidly that costs will grow rapidly even as costs per person doesn't grow at all. medicaid is also affected by the aging population because it pays a significant share of long-term care in this country,

nursing home bills in this country. >> in your estimates, you have taxes going to 19% of g.d.p. in a couple of years, which is 1 percentage point greater than the average the last 40 years of 18%. what is the reason for that? and second question is, you project under current law that the deficits over the next decade are roughly $7 trillion and you don't have a number for the alternate fiscal scenario and can you give us an actual number if you include some of the current policies being continued. >> yes. so, we do actually have an alternative fiscal scenario but given it less prominence than we have given it in the past. we offer, as we have many times in the past, a long table that shows the budgetary effects of

particular changes in policy. and the last row of that table is that labeled alternative fiscal scenario. so this is on page 33, change in deficits from the alternative fiscal scenario. page 33, just above the memorandum lines and you can see on the far right side that that set of policies would add 2.088 trillion to deficits over the decade and $450 billion of debt service. so the deficit as a whole would be $2.5 trillion larger than what we show in the baseline. and the alternative scenario includes all of the pieces essentially of our previous alternative scenario that have been allowed to expire. it includes the effect of the

tax provisions that are still scheduled to expire. it includes the effects of the sequester. and it includes the effects of the medicare's payments to physicians. >> i don't think there is a simple answer to the question why more revenue would be collected. our income tax system left to its own devices will show over time a larger share of income being collected in taxes because of what is known as real bracket creep, as real incomes rise, even with tax brackets they will be pushed into higher tax brackets and pay more. one of the reasons that tax revenue is wide is because of

this creep. if one compares the next decade, you need to think of whole collection of changes in tax policy as well as changes in the economy, shifts? distribution of income and so on. and i don't have a decomposition of that. >> the 2013 sequester, the president chipping away at the problem today, is it fair to say that we should go back to multilaterally things to lock in deficit reduction now? would that be a better way to approach this than the small ball they are playing today? >> we don't make recommendations on policy because we don't do that. it depends on their judgment and about the role of the government and depends on their assessment of political possibilities and those are issues that we have no special expertise in and don't engage in. what our report does show is that we have a large imbalance. we have large projected deficits, a debt that will remain at historically high share of g.d.p. and will be rising at the end of the coming decade.

what that implies is that small changes in budget policy will not be sufficient to put the budget on a sustainable path. but what sorts of changes should be made when to address that, not our place to say, beyond i think the simple line -- i finished my opening remarks with, which were that the sooner decisions are made about any given changes that will take effect, the more time that households and businesses have to adjust to those changes. we are living now through a gradual increase in the full retirement age for social security that was put into law 30 years ago. and not everybody is planning ahead their retirement for 30 years, but i think the idea that there were changes under way that might change people's behavior, i think was important. and if one pushes sharp changes in benefit programs, one faces a risk. --s worth remembering here

and because of that concern, i think, changes in certain retirement programs are sometimes only made for people under a certain age and it's worth realizing that connection that the baby boomers are starting to retire now. 60% of baby boomers are already age 65 or older. and five years, 75% will be 65 or older. when one thinks about possible changes for benefits for older americans, we are just at the point where we will either make changes to people who are either already in or about to be in these programs or we will not be making changes for this very large part of the american population whose retirement is the fundamental cause of this increase in costs. but again, that doesn't say what ought to be done. it simply illustrates the consequences of alternative

policy actions. >> you mentioned 30 years and coming to plan for the change in the official retirement age. people who are 50, who are not -- who are under 50, 50 is the cutoff and gives people roughly 17 years to prepare for the changes. have you looked at any point as to what the appropriate age is, how much build-in when we are making changes to these entitlement programs? >> i don't know. i think the example of the social security eligibility age is one of the striking examples of a change being set in motion a long time ahead of its effect. obviously other changes, smaller changes are made less frequently. i don't have a broader sense i'm afraid of what sorts of changes should be made.

part of the point here, though, we are confronting now in our country changes of a sort that we have not had to make in the past. when one looks back over the last 40 years and leave aside the effects of the recession, if you look at the two decades before that, we had spending on social security and the major health care programs that was offset as a share of g.d.p. by decline in defense spending. we made budget room for extra spending in those programs in the past by reducing the share of the economy's resources that are being devoted to defense. that's not a strategy that can be repeated in that magnitude over the next 40 years, because defense spending has come way down as a share of g.d.p. and because of demographic pressures and the spending of those programs are so intense. we had never really confronted i think quite the pressure to either change spending or to raise tax revenue in the way we

are confronting it now. any other questions? ok. thank you all very much for coming. \[captions copyright national cable satellite corp. 2013] \[captioning performed by national captioning institute] >> tomorrow, chris van hollen. he talked about the federal debt and deficit sequestration settled began on march 1. working with paul ryan on the budget. the amount is a new tomorrow at 10:00 a.m. eastern and again at 6:00 eastern. >> will continue our discussion on the economy and national debt monday with the president of the

commitment for the response will federal budget. shares also headed the campaign to fix the debt in joins officials and former members for a presentation of reports. our live coverage begins at 1:30 p.m. here on c-span. >> i thought maybe there would like to know my first impressions. i know you think i have an accent. i think i talk like tom brokaw. i thought you would want to know what it is like to be 100 and seniority in the united states senate. noone wants to know about that. if it is truly very glamorous. my office is quite small, very cozy. for can conrad to come pick up the charts so we can hire staff. my office is small and certainly

not big enough to live and. in.live was a really cosy and homey when you live there? was there room for the donny and marie posters ta? i have to tell you i feel very well protected. based on personal experience, they are at the ready. they are great guys. the other day someone tricked a panic switch under my desk. i do not know who did appeared five guys showed up along with their supervisor appeared i did what all the people who, it wasn't me. to tell you how great they have been, i do not know there is only one exit you could get out

of the building. i am in the basement coming back from the rayburn building wandering around. literally trying to figure how and when to get out of the building. i realize there are security cameras. i start looking around carried my shoes feeling quite low and quite low. you might think you get orientation. it is here is your pin. good luck. wondering of burrell and think i bet the republican party is wishing they had a laundering iran -- wandering around the theme in which they have. >> and never get nervous. i'm nervous. when you walked into the stream

me where it's really boring republican. even if you bomb, you are selling to be really born republican. as you know, republicans are trying to turn over a new leaf. weaving diversity is the strength of the republican party. they sent me a conservative mormon from utah to speak to you tonight. it is the only constituency we have at this point. they want to mark a ruby it to fill the spot. for demarco rubio to fill the spot. i was under the impression that i was invited because i was an

up-and-coming republican. is out there just looking for a way to save money on top of all, and by the mormon. -- on alcohol, invite the mormon. the senator from idaho is in here is the? >> watched the entire annual dinner hosted by the press club foundation tonight at 8:20 p.m. eastern. next, at the future of afghanistan reconstruction efforts with the special inspector general for afghan reconstruction. his quarterly report was released on this show the government appropriated $90. this is just under one hour.

>> the morning. -- good morning. welcome. it is my pleasure today to the hosting of john sopko the special inspector general for afghan reconstruction. yes been a federal prosecutor. he has been congressional counsel. he has been the chief counsel for oversight and investigations. he has also been on the cheap oversight council.

he was on the senate subcommittee for investigation staff. he has worked at the justice department, at the state and federal level. today he is the special intelligence -- inspector general for afghanistan. we're entering are to appear in that conflict. -- our 12th year in that conflict. i wish i could report that reconstruction is complete. what we do know is that compared to 10 years ago there has been a great deal of progress in afghanistan society. as we are very well aware comment the program has not always gone as desired and expected. we have military units continue to rotate into afghanistan. to rotate into afghanistan.