members, i want to note my desire to keep this committee going as it has, which is a long-standing tradition that's bipartisan of a comityy atmosphere. previous chairmen kept this committee moving in a collegial way. we have strong opinions but we have managed to do it with mutual respect. mr. van hollen shares it is my goal and desire to continue that tradition going forward. we also have a lot of new members of the committee here today. i want to introduce our new republican members before i turn it over to mr. van hollen. from tennessee, mrs. marsha blackburn. vicki hartzler from massachusetts. alan nunnelee of mississippi. jim renacci of ohio. luke messer from indiana, we

have to have at least three hoosiers on the committee, it's a rule. we're satisfying that rule. but we also got three wisconsinite this is year, so that's cool. we have tom rice of south carolina. jackie what horsekey from indiana. and roger williams from texas. i want to yield to mr. van hol ton introduce their new members of the committee. >> let me start, mr. chairman, by thanking you for the way you've conducted business in the budget committee both in the last session and i look forward to working with you in the same manner in this session. as you indicated we have very sharp differences on policy issues but in this committee, we have always been able to have that exchange of views in a civil way. i think that helps the debate going forward. thank you for that, mr. chairman. we have -- welcome to new members on the republican side. we're pleased to have some new members as well on our side. not all of them are new to the congress. some of them are, some of them aren't.

we have mr. mcdermott, jim mcdermott, from washington state. also serving on the ways and means committee. barbara lee, of course, from california, great to have you on board. david cicilline from the state of rhode island and we're really pleased he's here. curt schrader is with us from the state of oregon and thank you for your interest in serving on this committee as well. we also have some new members who have joined us, hakim jeff reets is with us, he's from the state of new york. mark poe can from wisconsin. michelle lujan entry sham from new mexico. jared huffman from california. and tony cardenas from california, i don't know if he's been able to join us yet. welcome to our returning members and new members on both sides of the aisle. >> thank you, mr. van hollen. thank you, everybody, for joining the committee. we look forward to a good and

thorough debate. today we meet to consider the committee's rules of procedure and consider the oversight plan. the proposed rules and oversight plan have been shared with all members of the committee. my understanding is the minority has no objection to the rules and oversight plan. the committee's rules set out its procedures and conform them to the house rules. the oversight plan is the proposal for planned activities for the congress. we will consider the rule for adoption. these are essentially the same rules we have operated under in the past under both republican and democratic majority. the changes are primarily to conform to the house rules changed at the beginning of this congress. at this time i'd like to recognize the gentleman from california, mr. campbell. >> mr. chairman, i ask unanimous consent that consistent with clause 4 of house rule 16, the chairman be authorized to declare a recess

at any time. >> without objection, the request is agreed to. the committee will now proceed to the consideration of the rules package. without objection, the markup document is considered read and is open for amendment at any point. my understanding is we will have no amendments so i'd like to move to adoption of the rules. i now recognize the member from california, mr. campbell, for the purpose of offering the necessary motion to adopt the rules package. mr. mcdermott, do you have a question? >> there it goes. >> you were here before, you know that. >> i just want to clarify the selection of witnesses. how is that done? which section is that in in the rules? >> can you answer the question, our chief counsel? >> it does not show up in the

committee rules, it's in the house rules. in general it's been done by practice. we normally -- normally we do it through a collegial discussion between the majority and minority so that the minority is always assured a proportional number of witnesses, which is consistent with the house rules. >> and that means -- >> so that if, for instance, if there's a panel -- >> if there are five witnesses how many democrat and how many republican? >> in that example, generally three and two. >> thank you. >> thank you. i'd like to recognize the chairman -- the member from california, mr. campbell, to offer the necessary motions to adopt the rules. >> i move that the committee adopt the chairman's mark as the rules of procedure of the committee on budget for the 113th congress. >> the question is on the motion offered by the member if california. those in favor say aye. podepose. -- those opposed, no. in the opinion of the chair

ayes have it. the ayes have it. the rules package is adopt the committee will now consider the oversight plan for the 113th congress. the budget committee is required to adopt an oversight plan by february 15. the plan before the committee summarizes the areas in which we will consider eversight and conduct oversight. these include the budget resolution, budget process reforl, budget enforcement and the economy. the plan lays out an initial schedule for hearings, similar to what this committee traditionally does. this schedule is not binding and does not preclude the committee from holding hearings on other topics as need arises or circumstances change this plan has been chaired with all members of the committee and my understanding is that there will be no amendments. without objection, the oversight plan is considered as read. i now recognize the gentleman from california, mr. campbell, for the purpose of offering the necessary motion to adopt the oversight plan. >> i move that the committee adopt the chairman's mark as the oversight plan for the committee on budget for the 113th congress. >> the question is on the

motion offered by the member from california, those in favor say aye. those opposed, no. in the opinion of the chair, the ayes have it. the ayes do have it. the oversight plan is adopted. i ask unanimous consent that the committee be authorized to issue and print copies of the compilation of laws and rules regarding the congressional budget process. without objection, so ordered. i now ask unanimous consent that representatives price, black, and blumenauer be recognized as members of the committee on the budget for the purpose of the hearing on c.b.o. budget and economic outlook and be allowed to be recognized as such. without objection, ordered. the reason for this, ways and means has not yet designated its committee members. these are our ways and means members to the committee. since the ways and means committee has not set its members yet, that's why this move is necessary. i expect the ways and means, by the end of the week, will have designated all of its members. it's because of a vacancy on

the republican side of the aisle that this is happening. by the end of the week, they will be official, full, free, clear members of the budget committee in good standing. objection, so ordered. the gentleman from california is recognized. >> thank you, mr. chairman. i ask unanimous consent that the staff be authorized to make any necessary technical, conforming or style -- or stylistic changes to the committee rules and oversight plan and that the rules of the committee on the budget be issued as a committee print and that the chairman submit the rules for printing in the congressional record within 30 days and that the chairman p authorized to submit the oversight plan to the committees on house administration and oversight and government reform. >> without objection, so ordered. that concludes the items of the business on the agenda for the house budget committee's organizational meeting. we will now proceed to the c.b.o. outlook meeting.

if dr. elmendorf will take his usual and customary pgs. -- position. kind of feels like groundhog day, sunt it? let me -- let me start by welcoming our new members, we have members who representative different areas, different view, different philosophies. i want to start by saying how much of a pleasure it is to serve on this committee. this is the kind of committee where you get to bring your ideas to the table and air them out. we've got enormous fiscal challenges ahead of us. we've got a debt problem we all acknowledge must be dealt with. we've got a deficit that needs to be brought down. we've got an economy that needs growth. -- growth. and this is one of those areas, up with of those committees where we need to have this debate. we're going to be processing legislation, we're going to be considering alternatives and i want to say on behalf of those of us on this side of the aisle, we look forward to engaging our friends on the

other side of the aisle in the collegial and comity way we have. with that, welcome to today's hearing. thanks again, dr. elmendorf, doug, for coming and testifying. i want to thank you for your -- your staff for putting together the latest budget and economic outlook. we understand you had a bit of a time crunch given the end of the year episode that occurred and i wanted to say that you didn't miss much of a deadline and you put out your baseline and outlook in a fairly quick form, given the circumstances you had to contend with. i'm sorry to say, though, that things don't look good. the c.b.o. says our economy will grow by only 1347b9% this year. unemployment will hover around 8% this year. and we will add another $1 trillion to our debt. that's what the news -- that's the news we just receive fred this c.b.o. farther down the road, things get worse. the c.b.o. says we'll add $10 trillion tour total debt by the end of the budget window.

that debt will weigh down our economy like an anchor. starting in 2019, the economy will grow by a mere 2 ppt 2%, much, much lower than the historical average. when people can't find jobs, many stop looking altogether for work. in other words, this report is a warning of what's to come. if we don't get spending under control. the debt will hit 76% of g.d.p. at the end of this year, the largest share of debt since 1951. in the 1950's, we paid down our debt and our economy kicked into high gear. these days, we still haven't gotten a handle on spending. total debt already exceeds 100% of gross domestic product. you see, we're in the danger zone. from the light and -- right and left they say we're in the

danger zone. creditors may demand higher interest rates. if they did that, interest rates across the country would skyrocket, on mortgages, credit cards, car loans. one estimate says that an interest rate incress -- increase of a single percentage point will cost the average family $400 more each and every single year. in short, we could have a debt crisis. and the result of a debt crisis could be catastrophic. unlike during the financial crisis, government would be unable to borrow money. the only way out would be austerity, which we're witnessing in europe. big tax hikes and big spending cuts. interest goes up, we literality start losing control of our own fiscal situation. we become slaves to interest on the debt. we don't have to look far to see examples of a debt cry cy is in action. we don't even have to look at europe. in central falls, rhode island, retirees' pensions have been

cut. if a dealt crisis hit this country, the social safety net would unravel. we cannot let that happen. if this report shows us anything, it is that primarily spending is the problem. spending on medicare and social security is set to double. spending on interest, spending on interest is set to quadruple. the c.b.o. expects revenue to double in the next 10 years system of taxes are going up. revenue is rising. it's doubling. but even with the president's tax hikes, the budget never, ever balances. in fact, it doesn't even come close. by 2023, the deficit will be nearly $1 trillion like it is today. the president says we need a balanced approach to closing the deficit, by which he seems to mean one tax hike after another. the fact is, mathematically, we can't tax our way out of this problem. we need to get serious on spending. unfortunately, the president has yet to produce a budget. it was due last week.

in violation of the law, it has yet to be received by congress. senate democrats haven't passed a budget in nearly four years. hopefully that will change. we will offer our budget here in the house, on time, next month. in accordance with the law. we will put our plan up against the president's and we will have a healthy debate in the house over the way forward. with that, i'd like to yield to the ranking member for his opening comments. >> thank you, mr. chairman. i want to join the chairman in welcoming dr. el mentor of and thank you and your -- dr. elmendorf and thank you and your team for the professional work you do. just at the outset, let me say with respect to the budget, i think all of us know we struggled until january 2 to pass throtion avoid the fiscal cliff. the result of that legislation was to make sure that we did not see a sharp increase in

taxes on middle income americans, but we asked higher income individuals to begin to contribute to reducing the debt over the long term. as c.b.o. has said that that action did help strengthen the economy if we'd gone over the fiscal cliff we'd be in a world of hurt but it did take us until january 2 to do it and we didn't know how much revenue would be coming in either this year or in the next 10 years so it's understandable that the president needs a little more time on the budget. look, as the budget committee, our challenge is to try to come up with a blueprint or our -- for our country's decisions on spending and taxes. and while we talk a lot about numbers, ultimately it should be a reflection of where the american people are in terms of their values and their priorities. and i believe, and i hope we share this view, that as we approach this budget, our

number one priority has to be expanding economic growth, making sure we promote job creation, making sure we strengthen the middle class so that we don't have an economy that just works for some folks at the very top but we have an economy that works for everybody in terms of rising wages and rising incomes and a plan that meets the commitments we made to people throughout the country including our seniors. that's the overriding goal. and reducing deficits, especially over the long-term, has to be an important part of that but it has to be seen in the context of the overriding goal. job creation, strengthening the middle class. i hope as we have these discussions over how we reduce our deficits, what's the timing and pace and target of doing that, we look at it through the lens of job creation, strengthening the middle class. that should hold true whether we're talking about the short-term, the medium term or

the long-term. over the long-term, there's no doubt. we see rising deficits and the challenges -- challenge as we have said before is not whether we reduce those deficit bus the magnitude of the reduction, the timing of the reduction and how we do it. as the president said last night, we support taking a balanced approach to that, meaning cuts, and i would just remind my colleagues that over the last two years, including the budget control act and previous actions, we were re-- we will reduce spend big $1.5 trillion by capping discretionary spending. as a result of the agreement to to avoid the fiscal cliff, we will raise $600 billion in rev mue from higher income earners. if you add up the interest savings on that that's $2.5 trillion in deficit reduction. yes, we have to do more in the out years but we believe in order to do it the right way and meet our commitments to our citizens and preserve economic growth and strengthen the

middle class, we've got to make sure we deal with that in a balanced way. new let me just say -- now let me just say in the short-term that means dealing with the sequester, mr. chairman. you cited the fact that c.b.o. projects 1.4% greth. none of us want to see growth that slow. a full .6% of that growth, of that lack of growth is attributed to the sequster. in other words, if we were the to the replace the sequester in a balanced way, you would add .6% to growth and translating that number into actual jobs and we'll get testimony from dr. elmendorf, we are talking about hundreds of thousands of jobs lost this year. if we don't replace the sequester. now, we on the democratic side have in this congress proposed a plan to replace the sequester, that $85 billion, with a mick of cuts which is in your budget as well, dealing

with ag subsidies, getting rid of direct payments, but also saying that we shouldn't be providing tax breaks to big oil companies and we believe we should apply the buffett rule to people making over $2 million a year. we heard a lot of talk during the last election from both candidates -- all candidates, about all the tax breaks in the tax code. we should get rid of some of those and get rid of some of those for the if you were of -- for the purpose of deficit reduction in a balanced way. that's what our sequester replacement plan does in the short-term and frankly that's what it would do in the long-term. so we hope we can have an opportunity to have an up or down vote, mr. chairman, on the plan we have put forward. we put it forward for a vote at least two or three times now, we'll be in the rules committee later today asking for a vote on that proposal that will save hundreds of thousands of jobs and prevent disruption. i hope we have an opportunity, as you say, just to have a free flow of debate and ultimately a vote and let the chips fall

where they may. thank you, mr. chairman. >> thank you. i'd love to begin the did -- debate right now but we have a hearing. dr. elmendorf, the floor is yours. >> thank you, mr. chairman, congressman van hollen, to all the members of the community, i appreciate the opportunity to be here today and discuss with you c.b.o.'s outlook for the budget and economy over the next 10 queers. our analysis shows the country continues to face very large economic and budget challenges. let me discuss the economy first and then i'll turn to the budget. we anticipate that economic growth will remain slow this year was the gradual improvement we see in underlying economic factors will be offset by a tightening of federal fiscal policy under current law. the good news is the effects of the financial and housing crisis appear to be gradually fading. we expect an upswing in housing construction, rising real estate and stock prices, and increasing availability of

credit will help to spur a virtuous cycle of faster growth in employment, income, consumer spending an business investment over the next few years. however, several policies that will help to bring down the budget deficit will also represent a drag on economic activity this year. desperation of the two percentage point cut in the social security payroll tax, the increase in tax rates on income above certain thresholds and the cuts in federal spending scheduled to take effect next month will mean reduced spend big both households and the government. we project an inflation-adjusted fwmplet d.p. will increase by about 1.5% in 2013 but that it would increase roughly one and a half percentage points faster were it not for that fiscal tightening. under current law, then, we expect the unemployment rate will stay above .5% through next year. that would make 2014 the sixth consecutive year with

unemployment so high. the longest such period since the 1930's. we expect that growth in real g.d.p. will pick up this year to about 3.5% in 2014 and the following full years. but the gap between the nation's g.d.p. and what it is capable of producing on a sustained basis, what economist revers to as potential g.d.p., will not close quickly. we expect output to remain below potential level until 2017 -- until 2017, nearly a decade off the recession starred in 2007. the nation has paid and will continue to pay for the recession and slow recovery. we estimate that the total loss in jut pow relative to the economy's potential between 2007 and 2017 will be nearly equivalent to half of the total output produced in the country last year. let me turn, then, to the

budget. under current law the federal budget deficit will shrink in 2013 for the 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 g.d.p. only about half as large relative to the size of the economy as the deficit was in 2009. our projections, based on current law, show deficits continuing to fall over the next few years before turning up again in the second half of the decade. and totaling nearly $7 trillion over the decade as a whole. federal revenues are projected to reach 19% of g.d.p. in 2015 and beyond. because of both the expanding economy and scheduled changes in tax rules. 19% figure compares to an average of about 18% over the past 40 years. at the same time, federal spending will fall relative to the sides of the economy over the next several years and then

rise again. the decline can be traced to the caps on discretionary funding and the dropoff in spending that tends to go up when the economy is weak, like unemployment benefits. later in the decade, the return of interest rates to more normal levels will push up interest payments to nearly their highest share of g.d.p. in 15 years. throughout the decade, the aging population, a significant expansion of federal health care programs and rising health care costs per person will push up spending on the largest federal programs. by 2023, spending reaches about 23% of g.d.p. in our projection, compared with a 40-year average of about 21%. what does this mean for federal debt? we project debts held by the public will reach 76% of g.d.p. this year, the largest percentage since 1950. under current laws we project debt in 2023 will be 77% of g.d.p. far higher than the 39% average

of the past 40 years. and it will be on an upward path. such high and raising -- rising debt relative to the side of the economy is a significant concern for several reasons. first, high debt means that the crowding out of capital investment will be greater, that you will have less flexibility to use tax and spending policies to respond to unexpected challenges like recession or war, and there will be a heightened rick of a fiscal crisis in which the government would be unable to borrow at affordable interest rates. second, debt would be even larger if current laws were modified to delay or undo certain changes in policies. for example, if lawmakers eliminate the automatic spending cuts scheduled for march but left in place the original spending caps, if they cancel the raise in rates for medicare physicians and if no

offsetting changes were made, budget deficits would be substantially larger than our baseline projections and debt held by the public would rise to 87% in 2023 rather than the 77% under current law. third, debt might also be larger than in our projecks because even the original caps on discretionary funding in the budget control act would reduce such spending to just 5.8% of g.d.p. in 2023, a smaller share than for any year in at least the past 50. because the allocation of discretionary funding is termed, as you know, through annual appropriation acts, you and your colleagues have not yet decided which specific government services and benefits will be constrained or cut to meet those caps and doing so might be quite difficult. fourth, projections for the 10-year period covered in this report do not fully reflect long-term budget pressures. because of the retirlte of the

baby boom generation and rising health care costs, a wide gap exists between the future costs of the benefits and services that people are accustomed to receiving from the federal government, especially in the form of benefits for older americans, and the tax revenues that people have been sending to the government. it is possible to keep tax revenues at their historical average percentage of g.d.p. but only by making substantial cuts relative to current policies in the large benefit programs that aid a broad group of people at some point in their lives. alternatively it is possible to keep the policies for those large benefit programs unchange bud only by raising taxes substantially for a broad segment of the population. deciding now what combination of policy changes to make to resolve the budget imbalance would allow for gradual implementation of those changes, which would give household an businesses time to adjust their behavior. thank you.

>> thank you, dr. elmendorf. let me get into the debt itself. we had the state of the union address last night and as we all doe do, we go@microphones and give our play-by-play analysis of what we thought of the speech and what we liked and didn't like. one thing that stood out that gave me cause for concern, i heard it in mr. van hollen's opening statement, it seems they think the heavy lifting on debt reduction is behind us and we've just got alyle bit left an we're done. the notion that we've already got $2.5 trillion in deficit reduction taken care of, we're not much farther to go to finish the job this calculation, this $2.5 trillion of debt reduction, does not count the spending that took place during that time. it doesn't count the stimulus spending, $831 billion. it doesn't account for the first payroll tax holiday, $111 billion.

it doesn't account for the second payroll tax holiday, $89 billion. it doesn't count for multiple unemployment extensions or the 24% increase in nondefense discretionary spending in the first two dwhreefers administration. it doesn't count for the disaster spending that's taken place annually or the sandy supplemental or the debt servicing of that additional spending youch wash it out, net it out it's about $500 billion, roughly of deficit reduction, not $2 ppt 5 trillion. when you hear such projections which ignore the spending that occurred at the same time, i really worry that part of our government here, 2/3 of it, the senate and the white house and our friends on the other side of the aisle, are deluding themselves and thinking that this is taken care of. look, you say in your own report here, publicly held debt has doubled from 36% of g.d.p. at the close of 2007 to 73% on

2012, on page three, 77% by 2023. your new, i guess, your new altern gnat fiscal scenario, meaning doc fiction and the other things you -- doc fix and the other things you think congress will do based on reasonable assumptions would go as high as 87% of g.d.p. total debt is already above 80% of g.d.p. if you bring up chart one. here's the question i have. the green is what you said revenues are historically. about 18.3%. the blue line are all the tax increases the president has supported, endorsed, the loophole closers, mr. van hollen talks about, much of this has been enact the fiscal cliff deal enacted a good portion of the blue. the rev mues the president is calling for. the red are your projecks on where spending is going. so even if we got every tax increase that the president has

called for, we're not even scratching the surface or getting close to fixing this problem. so the concern i have is, a couple of things. what happens if we don't get this under control? what does the debt crisis look like? what happens to families? what happens to a nation if our debt continues on this burden, if we go to where your alternative fiscal scenario goes if we don't curn this around? that's question number one. question number two, and i'm going to ask you this in brite, give me different interest rate scenarios. what what happens if interest rates rise faster than you're projecting? what happens to our ability to control our fiscal situation? what happens to our economy? >> mr. chairman, let me quickly clarify two points in what you said so people understand. we have not yet updated our long-term budget projections. i presume this slide is our new

projection for the coming decade and our projecks beyond that. but it is true in our long-term outlook from last year and i represume it will be true this year, that spending will continue to rise as a share of the economy over time, driven most importantly by the aging of our population and the rising number of eligible beneficiaries and also further due to other factors as well. the second point to clarify is that alternative fiscal scenario is not meant to be a projection of what you and your colleagues will do. as you know, it is a projection of what current policies would cost. in fact, we all presume you'll make some the chaplain:s in policies over the decade but it is an additional benchmark that many of you have found helpful in the past, in addition to our standard presentation of what would happen under current law. >> you have a new baseline wark is the basic assumption? we have some new things dealing with the fiscal cliff. >> so people understand, our basic projections follow

current law. it assumes for example, now, that the tax provisions scheduled to expire at the end of this year, many of which are routinely extended, our current projection assumes they'll expire. our current snaree we extend those. current law includes a cut in medicare's pames to doctors at the end of this year. congress has routinely pushed off that cut and made other changes in health care policy along the way. our alternative scenario continues to extrapolate the current payment rates in positions. current law includes the sequester and many members of congress have argued they would like to do something different instead of that, so our alternative scenario takes away the sequester but leaves in place the caps congress agreed to in august of 2011. the alternative scenario, total debt rises by about 2.5 trillion -- by about $2.5 trillion more than under the current baseline projection. mr. chairman, you asked what

happens if debt rises and stays high and rises and there are some costs that i think are quite predictable and other risks that are created. over time, not under the current economic conditions, but under the conditions we expect for later in the decade of nearly full employment in the economy, at that point in time that large amount of debt will crowd out some private investment that would then raise wages and incomes and the higher the debt is, the more that investment is likely to be crowded out and the greater the depressing effect on wages and incomes. we have models to capture that and report those estimates to you. but there are risks involved. some countries with very high levels of debt and have not communicated doctor -- or not persuaded their potential lenders they have a plan for

getting the debt under control, have faced a fiscal crisis which we defined as a point at which a government is unable to boar reat affordable rates. currently our government is not at all in that position. currently interest rates, treasury interest rates are extraordinarily low. our projection calls for a normalization of interest rates as the economy strengthens, as the federal reserve stops pushing so hard to keep interest rates low. we have a normalization of interest rates in our basic projections but with debt high and rising, there is a greater risk that potential buyers of government debt will get spooked and will be unwilling to do so at the regular level of interest rates. if interest rates were a percentage point higher than we project over the entire decade, then the federal government's interest costs would be about $1.1 trillion higher. if interest rates for a percentage point lower than we

project, the interest rates would be about $1.1 trillion lower. the point is given the large amount of debt the federal government has and will have under current law for the coming decade, fairly small movements in interest rates can have fairly large effects on government interest paymentings. >> what is the normalized rate assumption? >> we are projecting that short-term interest rates rise rm, 10-year treasury note rates rise to 5.25%. those rates after adjusting for inflation are a little above inflation adjusted interest rates over the past several decades. reflecting in our view the effects of the higher level of debt relative to what we've experienced in the past decades. >> so for the comity of the committee, mr. van hollen and i are limiting ourselves to 10 minutes. we don't always do that. i'll be brief to say that it seems we have this window that's beginning to narrow on

us. as you mentioned, america is right now with respect to the bond markets, the port in the storm. the safe haven. we're the world's reserve currentcy. that gives us a privilege, it gives us time. if we frit they are time away, if we don't deal with the core problem, which is spending new york matter what you try to do on revenue wecks will have lost this opportunity we have to get our fiscal house in order while we have low interest rates. the other problem, as we see it is growth. if we keep chasing higher spending with higher taxes, we will sacrifice growth. the best way is to get people back to work, in good jobs, with good wages, paying taxes, and getting spending under control. and so when we talk about taxes, and tax reform, this is something for the ways and means committee, something we'll discuss here, loopholes are part of tax reform. closing loopholes which is what we prepro posed for years is

the necessary pay-for to get tax rates down to have a globally competitive tax code, to help businesses, to create jobs, to get people back to work. if we use loopholes to chase higher spending, we are foregoing tax reform and missing our opportunity for economic growth. that, i want to make very clear for the record. i think we'll have a lot of rhetoric to the contrary. with that, i yield to mr. van hollen for his 10 minutes. >> thank you, mr. chairman. again, welcome, dr. elmendorf. first, just a little bit on the math. as the chairman pointed out, while we will have $1.5 trillion in cuts over the next 10 years as a result of the spending caps, there were some other one-time spending measures. included in those spending measures, the payroll tax cut, which was probably the biggest single item in that issue, and there was agreement that given

the tough economic time it was important to pay, provide a payroll tax relief. i actually think we should have phased that out rather than having gone cold turkey but the point is, a big chunk of that number had to do with lost revenue from a payroll tax cut that was supported by a great majority in this body. as i said in hi opening remarks, i think that our overall objective here in the short, medium, and long-term needs to be expanding the economy, growing jobs, and having a strong middle class. it's absolutely true that especially as the economy recovers, if you continue to have high deficits, it will squeeze out that private investment and put upward pressure on interest rates. in order to make sure we have good, long-term economic growth, we have to grapple with the deficit that brings us back to the question of how we deal with the deficit and as dr. elmendorf pointed out, you can have sort of two cat gorical ways, one, you can say you're

not going to do any revenue, going to do it all in cuts, as you pointed out, you can do it all on revenue, no cuts. both of those lead and argue to bad results. you can't raise revenue enough realistically hi to cover all those costs but cutting as dr. elmendorf says, means undermining important commitments that we've made when it comes to retirement, helicopter, and -- health, and security for our seniors. now back to the sequester issue. that's looming right now. could you tell me, dr. elmendorf, in terms of the negative economic impact of the sequester, the .6%, what does that translate into in terms of lost jobs? >> so our estimate is as the conference says the sequester alone will reduce g.d.p. growth

this year by .6 percentage points, lowering the level of g.d.p. at the end of the year by that .6%. we think that would reduce the level of employment at the end of the year by 750,000 jobs. >> 750,000 jobs between now and the end of this calendar year, 2013? >> yes, congressman. >> that's a whole lot of jobs, obviously, and we should be working overtime to prevent that kind of job loss. now if you were to replace the deficit reduction through that austerity program, the meat ax cuts to the sequester, with a plan that accomplished the same amount of deficit reduction, spread over the 10-year period, you would not have that big hit on jobs, isn't that right? >> that's right, congressman. >> we've also heard a lot about the impact as a result of the defense cuts. i should point out, this is not sort of -- the congressional

budget office, the republican leader, mr. cantor had it exactly right last september on the floor of the house when he said that if we allowed that sequester to take place, quote, unemployment would soar, unquote. it would set back progress on the economy and he cited an estimate that the sequester would cost 200,000 jobs in the state of virginia alone. that was the if the sequester for the full year went over. we were able to prevent the sequester for the first two months, through a planned approach, i should say, that's the model going forward, that's the model we applied to prevent the sequester. just to be clear, since there's been a lot of attention focused on the jobs lost because of defense cuts, the jobs in nondefense on a dollar for dollar basis, does that result in the same amount of jobs lost? >> the effects of cuts in defense spending and nondefense spending will be quite similar, dollar for dollar. the precise timing of the

economic effects depends on the timing in which the defense spending and nondefense spending occurs. basically you're right if the government is paying people to build battleships or paying people to build other sorts of equipment or structures, then those will have comparable effects dollar for dollar on the economy output and on jobs. >> i never understood the logic as to how cuts to defense, meaning not building as many tanks or battleships, somehow costs jobs but cuts to other government spending somehow do not cost jobs. obviously when you invest money to build roads and bridges and other transportation systems, you're putting people to work doing things that are productive for our economy. if it's scientists at n.i.h. or other people around the country, those are grants being spent to try to find treatments and cures for life-saving diseases, it would be

absolutely counterproductive in terms of our long-term competitiveness, let alone the health of our people, to have those kinds of cuts take place. on top of that, those long-term negative impacts, you've got the job loss, 750,000 jobs between now and the end of the month. let me just say something, dr. elmendorf about the tax reform. i don't know if you've done a recent estimate of the amount of tax expenditures in the tax code. what's your most recent estimate? >> so, we, in last year's outlook, which was a longer document since we had a little more time, we had an extended discussion of tax expenditures, we have not updated that this year but the staff of the joint committee on taxation released a new estimate, i believe, of tax expenditures or certainly they're working on one. tax expenditures amount to a very large amount of money. i think many economists agree that they are really best

viewed as a form of government spending because they are directed at particular people or entities or designed to subsidize particular activities, very much analogous to the way that government spending is often directed at particular people or remedies or designed to subsidize particular entities. it is a large component of spending by the federal government even though it's recorded as lost revenue on the revenue side of the budget. >> that's right. it's spending through the tax code by saying to certain interests, sometimes based on policies we agree there's consensus on, sometimes not, that that's revenue that will not come into the treasury to help reduce the keff sit and the chairman -- the deficit and the chairman pointed out we passed the $600 billion tax increase focused on foe folks at the very high end of the income scale but as the president pointed out in talks with the speaker, his goal was

to achieve $1.2 in revenue which is less revenue in that plan than in the bipartisan simpsons bowles plan which said we should do tax reform but in addition to reducing the rates, we should have a significant amount go to deficit reduction, in fact, the bipartisan simpsons-bowles commission report would have a lot more revenue coming in than the president has proposed. i want to make that clear to our colleagues. i would also point out that speaker boehner, during those discussions with the president, said he didn't want to increase rates but he could raise $800 billion by closing these tax loopholes and breaks and getting rid of tax expenditures. those are all still there. none of the abs we have taken eliminate those tax breaks and tax expenditures were talking about, that the candidates in the last election talked about. if we agree that those are just different forms of spending in the tax code, it seems to me we should be willing to help

eliminate those, some of those tax expenditures for the purpose of reducing the deficit. in a balanced way. and just to be clear, what our colleagues today have said, is they're not willing to do that. they're not willing to eliminate any of those tax expenditures, spending and tax code, for the purpose of reducing the deficit and we think that's important as part of a perhapsed plan, combined with targeted cuts, reforms, going forward. a last point i would say is if you look at the chairman's chart, there's no doubt, there's no doubt we have to deal with this issue. but as you know you can pass changes to laws in this 10-year window that have a very important impact in the out-years which is -- in the out years which is what your budget did last time. arbitraryly trying to squeeze that into a 10-year window, which apparently is what the

speaker had to abrie to do as part of extending the debt ceil, is not good economics. that's politics. i would hope as we go through this process we keep an eye on the point i raised at the beginning. what's the impact on the economy, short-term, middle term, long-term, and what's the impact on the middle class and jobs. >> i would say balancing the budget is good economics but i guess we just disagree on that. dr. price. >> let me follow up on that, mr. director, welcome back to the committee, we appreciate your input. is it better to have a balanced budget than not? >> i think that depends on what your values are. the reason that c.b.o. doesn't make recommendations about budget policy is because the course that you and your colleagues choose depends not just on the sort of analysis we can provide but on your judgments. >> the level of debt you describe, 76% of public debt

now, 87% going under, i guess your alternative fiscal scenario, you would, i suspect you would agree that a level of 87% is not as wise as a level of 76%, given the propensity for a fiscal crisis being higher at 7% than 76%? >> yes we agree that higher debt has higher expected crosts and highest ravegs than lower debt would have. >> good. i would concur. i want to touch briefly on the fiscal cliff, the $600 billion increase in taxes, do you recall what the spending reductions were in that legislation? the net spend regular duckss? >> well, congressman, remember the way -- the cost estimate we produced and we produce for all bills is relative to current law. so our cost estimate showed that legislation as a very large tax cut, not the tax increase you just described. there were only small changes in spending. i don't remember how they netted out. there was an -- extra

additional spending on medicare but cut babs in other health care spending. the sequester was deferred, paid for partly, as you know, through other spend regular duckses. >> minimal spend regular dubs in the fiscal cliff bill. so this balanced approach our friends on the other side of the aisle talk about is plansed until it isn't and that's what we saw with the fiscal cliff. i want to touch on the whole issue of revenue. your report cites the revenue has returned esen lirble in 2012 to 2008 levels or higher than the 10-year average is that accurate? >> that may well be right. i don't have that history in front of me. >> i think that's correct. the revenue to the federal government now is higher than the 10-year average that being the case and if we look at the deficit in 2008 at about $450 billion and the deficit in 2012 at $1.3 trillion work revenue returning essentially to 2008

levels, isn't it true that the thing that's driving the deficit to a greater degree at this point is not that the revenues are lower than they have been but that spending is higher than it has been? is that an accurate state snment >> certainly in dollar terms, congressman, you're right that spending is going up very sharply. i think the problem that you and your colleagues face is from the perspective of many americans who are now starting to retire in the baby -- in the baby boom generation, the benefits they're expecting, the fact that there are many more of them than there were beneficiaries 20 years ago. if you take a given benefit and multiply it by a lot more people, the aggregate spending gose up. that's the challenge you face, how to respond to that. >> it is indeed. we look forward to working through a budgetary process that will save and strengthen and secure those programs as

opposed to essentially lopping off funding for the programs at the expense of those beneficiaries. i want to touch again back on the 76%, 87%, your alternative fiscal scenario in the past has really been more accurate compared to reality, is that a true statement? >> i suppose that's true. the single biggest difference as you know between that and the baseline had been the extension of the expiring tax provisions and congress chose about a month ago to extend most of those expiring provision. our current baseline looks more like our last alternative scenario than our last baseline. >> if past is prologue, it's more likely we'll be closer to 87% public debt held as opposed to 76%? >> if you and your colleagues let current policies stand that would be the case. whether you will or not is the issue you're debating. >> the question i want to get to is, when a fiscal crisis

occurs, when a debt crisis occurs, what's the triggering mechanism? what happens that results in that, an inability to borrow at an affordable rate as you described it? >> i think a loss of confidence in government's ability to manage its affairs and to pay the interest on the debt makes potential investors more concerned and makes them expect higher risk premiums. >> which is not a predictable moment in time, is that accurate? >> that's right, congressman. >> this has schwartz. >> thank you. i'm pleased to be back. this is an important debate we're having for our country. i do want to thank you, dr. elmendorf, for being here and outlining where we are. just to point to some positive news, i appreciate that, that we're in recovery, we are seeing positive signs in

economic growth, the housing sector you pointed out. an of course you've heard already the disagreement that's making it very difficult to find a way to reduce the deficit in a fair and balanced way that strengthens the middle cla class and grows jobs that does no hurt this fragile economic recovery. we've seen economic growth and saw the arguments at the end of last year, that we saw contracks in the economy for the first time in threer years, was it? the debates we have here have an effect. and of course we believe that this is not just politics here, very, very different economic theories about how to grow the economy, strengthen the middle class and how we are competitive in a flobal marketplace and how we meet our obligations not only to our children and our future but the obligation we have talked about and that is to our seniors. that's what i wanted to ask you about. one of the things we have seen again positive news this week, you pointed it out, c.b.o. pointed it out, private sector

institutes have pointed it out but in fact we have seen slower growth in the cost of health care. in both the private sector and the public sector. it is quite significant. we have double digit growth in costs for a decade, 100% increase and more in both the private sector -- more the private sector than the public sector. but in medicare and medicaid, some of us would contend we have seen the delivery system reforms and the serious commitment we have made to really, first the health care system, both doctors an hospitals, to give us better value for our taxpayer dollar, improve the quality of health care for our seniors, to deliver health care in a much more cost efficient way and as a result save taxpayer dollars and improve the quality of our senior's health care. particularly the demographic problems around medicare, baby

boomers, 10,000 more seniors a day, it's serious business. but would could you speak to the fact that you -- again, we've seen other reports that have said, we've seen very big reduction, 3% growth rate really something when we've seen 10% per year in medicare. is there -- can you confirm that and i will also ask, as we move, which is the intention, we have legislation to do it as well, which is to move the way we pay physicians in this country, not just repeal, but change the way we reimburse all physicians under medicare, but require them to pick a model that saves money and improvement quality and outcomes for our seniors has the potential and i hope you can document it, that all physicians in this country move in that direction, the potential cost savings and kansas containment not only in the public sector but the private sector. >> let me first quickly

emphasize the point you made about the effects of the retirement of the baby boom generation because the numbers are quite striking. bewe think that by 2023 there'll be roughly 40% more beneficiaries of social security and medicare than there were last year. that has a tremendous effect, obviously, on the overall cost of those programs. >> we made a commitment to those seniors that many of us expect to be. >> your point about health care cost growth, there's been a marked slowing in medicare, in part a, mostly paid for hospital care, an part b that pays for physicians and part d that pays for drugs and in medicaid and the private sector in the rate of health cost growth. we and other analysts think that part of that is because of recession and slow growth of income and loss o wealthing reducing people's willingness to pay money for health care. we think a significant part of

it is structural. the crucial question is whether the structural changes are transient or will be enduring. that's a topic we're giving a lot of thought to and talking with outside experts. the right way to summarize the consensus is to say we don't know. >> if we were to pass legislation this year, before the s.g.r. ex-peers, that would go into effect again to see that kind of cuts if we pass legislation, and there have been serious and good discussions between democrats and republicans on, on innovative ways to pay physicians under medicare, would that give you the tools to say this is actually going to happen,s the window when it's going to happen, this is the direction we're moving in? >> i think there's widespread support for the idea that we should be paying health care providers in a different way than we're paying them today. and i think widespread agreement that a shift in how we pay providers can improve the quality of care and keep costs down. exactly what changes in federal

law will lead to what particular outcomes is an uncertain business and we look forward to continuing to work with you on that. >> mr. camp. >> thank you, mr. chairman, good to see you again, dr. elmendorf. large and persistent deficits like we have over the long-term are a bad thing for economic growth, job creation and potentially have the debt crisis risk that you discussed, right? >> yes, congressman. >> but the solution to that, which is some kind of fiscal contradiction either through tax increases or spend regular ducks, can cause a reduction in short-term economic growth and/or job creation. >> exactly, congressman. >> so we're in a bit of a pickle. >> yes, congressman. >> so the question is, how do we get out of this thing? in europe, greeks and spanish and italians waited too long and had to do a substantial fiscal contradiction in a short period of time which resulted in extremely high unemployment

and large contradiction in their contraction in their g.d.p. is that correct? >> other factors have been at work as well but we think the shamp fiscal austerity have contracted their economies. >> if we were to try to decide the fix the whole budget deficit in two years or forced to do it by debt crisis, that would plunge the country into recession, unemployment would go up, worse than it is today, bad thing. >> yes, congressman. >> so we don't want to do that. but if we ignore it or only deal with just a little bit of it and the deficit goes on as you show in the baseline or even worse or the alternative scenario, then we wisconsin never getting to our potential growth and potentially have that debt crisis where a few years from now we have to make that kind of overnight contraction. >> yes, congressman, that's a risk, absolutely.

. i don't know whether you feel answering this or not, two or three years too short and 30 years is too long, somewhere in eight to 12 years, if it were done in an even approach, is that the sort of thing that might be able to balance and get us out of this pickle with as little damage as possible and much opportunity for growth? >> i don't want to prescribe that, but you are absolutely right that the longer -- the risk of waiting longer is by running with a high level of debt to g.d.p., the costs buildup and the risks buildup. 2007 debt was 37% of g.d.p. and this year it will rise because the financial crisis and the action taken, if we run at this

higher level of debt and mr. enyart: counter another crisis that room to expand the deficit will not be there in the way it has been in the last half dozen years. >> mr. van hollen talked about the sequester and replacing, one year cut will be something over 10 years. if you replaced the sequester with just a similar amount and match year for year of other spending cuts and/or tax increases and i understand the composition would have something to do with it, but if you do $100 billion of fiscal contraction, there is some negative impact. >> yes. you are right that the timing is critical for the economic effects sm the composition can matter depending on how you and your colleagues do l deal with

it. >> one thing on tax expenditures and i know i hate that term. the vast majority of those, if you look at home mortgage interest, charitable contribution, i.r.a., and other retirement plans and health care, isn't that where -- if you really wanted to make a big impact, would you have to go into those things, wouldn't you not? >> those the largest components. how big an impact, i can't assess. the single largest expenditure relates to health care, exclusion of health insurance from taxable income. second largest involves pensions and third largest involves mortgage interest. >> thank you very much, doctor. >> mr. pascrell.

>> thank you, mr. chairman. dr. elmendorf, thank you for coming before us again and opening the pleasant season for the next two years. i think that -- i want to respond to my brother from georgia what he said before about how we have an increased spending since 2008, beginning january, 2009 when president obama raised his hand. i think we're all here to roll up our sleeves and find a long-term solution to the debt. but just as we know that increased revenue is not going to solve the entire problem by any stretch, neither, we can't cut our way out of budget difficulties either. so when you look at what's happened in terms of budgets

since 2009, january, 2009 and now, when there was an increase in spending, we just can't talk about that out of context, why was there an increase in spending. are we spending just to spend, or was this the government's response, our response, whether you voted for it or not, to a very serious problem in the united states of america, people out of work, health care costs going through the roof. so how do we do it? no one else is spending. if we don't have private capital invested and that started before the end of 2008, then how do you try to provide an atmosphere so there is investment into the economy? and we want private investment. we know the government can't solve every problem. we understand that very, very

well. but when you talk about a balanced budget, of course it's preferable. are we to think because we have this tremendous deficit problem going into 2009 all we needed to do is cut across the board in view of the social and cultural things going on in this country and much of the world, if we simply cut and slashed everything would be fine? you have created a situation >> if there was no recovery and we could point out chapter and

verse, what happened in the last quarter of last year, very interesting comparisons. so we had to come out of two wars. we never paid for them. we had to come out of two major tax cuts in 2001 and 2003. we didn't pay for that. we didn't pay for the prescription drug plan that we passed eight years ago. there's a reason why we had to spend that money. and if anyone is trying to imply here that if we simply stopped spending the money, isn't that wonderful. and it is our money, it's the taxpayers' money, that we would be in better economic shape -- well, the american people didn't buy that. they just simply didn't buy it. because they are a lot smarter than we think they are, both sides of the aisle. instead of trickle-down economics which we had for eight

years and go into how many jobs were created then and how many jobs were created over the last four years, instead of trickle-down we went to trickle-up. i prefer that the little guy have a shot at prosperity and not wait for the big guys to drive this economy, because they certainly flopped on their face in 2007 and 2008 when capital was not invested in this country. director elmendorf, seems to me the most important way to achieve long-term deficit reduction is a balanced approach of revenue and spending cuts. that's what we keep on talking about. in fact, according to your report, the c.b.o. expects the deficit to shrink from 8.7% of g.d.p. because we don't want to quote these things because it doesn't fit into our script,

that that will shrink the 5.3%, is that correct? >> yes, congressman. >> can you answer the question? >> he said yes, but if we wait until clock is at zero to ask our question, we aren't going to get to our other members. >> your point is well taken. >> dr. elmendorf, let's get to some basics here first. in order to pay for spending, we either tax it now or borrow it now or tax it later. are there any other ways of spending, other than monetary policy? >> the amount which you raise taxes depends on the level of debt -- >> you either borrow it or you tax it if you are going to spend it. >> yes, congressman. >> government can't inject it all into the economy without it taking it out or borrowing now

and promising to repay in the future. >> if the government borrows money, it is not taking a dollar out that would be otherwise invested. it can increase the total demand. >> if the dollar being borrowed by the government, presumably, it is not there then to be borrowed by a consumer seeking to make consumer purchases or a home buyer seeking to re-enter the housing market or a small business seeking to expand jobs. >> that logic is exactly right where the economy -- that's not the current economic circumstance. >> would you explain the economic impact of debt. >> in a fully employed economy that we project for the second half of the coming decade, higher debt crowds out private investment and reduces incomes relative to what they would be.

in an economy like today, the differences are starkly different. and we think additional borrowing to support higher spending or tax cuts would provide a boost to the economy in the short-term. certainly if that extra borrowing is not paid down later -- >> but you are borrowing a dollar from the same capital market that would otherwise be funding loans to consumers or to businesses or to home buyers, for example. so it's the same dollar. the only question is whether it is borrowed by the government to spend or borrowed by someone in the productive to spend. >> in current conditions, the demand for private borrowing is very low. there isn't a conflict in the credit markets. that's why the federal government's interest rates are so low right now. under other conditions, there would be more a competition for funds. but these conditions are unusual. >> i suggest you talk to small business people who are trying to get loans or home buyers

trying to get loans and they are telling us they can't get them. >> that sounds roughly right. i don't remember the specifics. you are referring to the report on the fiscal cliff. >> we are told by your office that the sequester reductions in spending would affect about 0.6%

of growth, you said about 750,000 jobs because government would not be spending that money on creating government jobs. but as we just established, government doesn't inject a dollar into the economy that is first not taken out of the economy. i'm afraid we are getting to a situation where we are being told the tax increases are bad, too much borrowing is bad for the economy, particularly in the future and spending cuts are bad for the economy and that doesn't leave us with many options. >> the effects of fiscal policy on the economy are different under different economic circumstances. that is a widely held, not universally held but widely held view by economists. under current economic circumstances when demands for goods and services, additional demand for spending or the

government spurring additional private demand can both increase the overall demand for goods and services and encourage businesses to hire more. under different economic circumstances, and we expect we will have again, five to 10 years from now, this competition you are describing can become acute. and that's why under those economic circumstances, smaller government deficits are good for the economy. >> mr. mcdermott. >> good to see you, mr. elmendorf. your budget nationalities is very interesting. for years, we had to listen to the republicans lighting their hair on fire on cable tv about the temporary large deficits we have. we were told that simpson-bowles

not enacted would be the end of the world. two years later,, notice on that chart, the jobs are going up. we have had 35 months of people increasing and the only places you see dips if you check them out are when the republicans began to play games with the budget and created chaos whether we were going to pay our bills internationally or these big fights we have on the floor, the unemployment goes up because business doesn't have any confidence and not going to hire anybody and it seems to me that what you said is that the long-term problems in this country really are about health care costs, as ms. schwartz pointed out. when i came to congress in 1988, we were talking about the big problem that was going to come in 2011. well, it's here. the baby boomers are now

enrolling in medicare and go from 40 million to 60 million and it's been absolutely predictable and nobody wanted to deal with it until it's now. it's nothing new and not that we are having massive spending, except we are honoring our commitments to the people in this country. it seems to me that the issue really here is whether we are going to tear the safety net out and say to seniors, we aren't going to cover you. you are on your own. find out whatever you want. what's interesting, we have a triumph to talk about and i want to talk about that. medicare spending, as i understand it, is flat, per person, is that correct? >> i don't have those precise numbers but you are right. it has slowed very hardshiply in the past few years than it was before. >> in my reading of your analysis, at least you give some credit, if not a good bit of

credit that we enacted the affordable care act, is that correct? >> we have not attributed the slowdown to any particular factors like the affordable care act. what we said is that part of it is related to the recession, part of it is structural. the structural part could have a number of possible causes. one could be providers thinking about the current and insip yent effects of the affordable care act but also driven by pressures of private insurers and that they aren't providing care in as efficient a way as possible. we tried to think through, but we have not said anything and we don't know about what factors are driving those structural changes. >> if we understood what the factors are driving it, we would understand the prognosis as well. >> if you pass the law, even the threat of passing the law even

under the clinton administration, health care costs kind of leveled off. and again, we see it when the congress acts that we that we see the flattening of costs. you can't directly tie it. but you know the whole united states is watching what the congress is doing and when we don't pay our debts, they stop hiring, that's clear. you could look right at the graph and trace it down to the time when it happened and can see how it happened. the thing that's most amazing about this is, the medical industrial complex is actually responding because they know it's not sustainable. and my question to you is, the effect of throwing people off of medicare or raising -- let's raise the age to 67 or 70,

before you can get on, what would that effect -- how would that affect the economy? do you have an idea? >> depends a lot on what else is going on and exactly how that provision would be structured. we wrote a report early last year about the effects of raising the eligibility age for social security and medicare and talked about the consequences. some people who don't go on medicare would go on other federal health care programs. some people would end up with health insurance, some would work longer. so the exole combination of responses that we think would occur. >> the real issue here is how do we control health care costs. >> mr. garrett. >> greetings. and this will follow up on our private conversation initially and maybe some of the points when i was out of the room with regard to interest rates.

and so the -- one number that i heard and let me throw this out to you, you said we are at zero, projection around the 10-year going up around 3 so payment on the debt is going to increase during the period of time. the one number you threw out to us is $1.1 trillion and you basically factor that in to your projections going from zero. >> the increase in interest rates that we show is underlying projection of our feature of payments. >> one of the uncertainties is the date that the fed has on the securities going out, that this -- between long and short. do you take that into consideration as well? in other words, wub of the numbers you look at a 3% increase and 3%, $140 billion increase in year one and that

would only last for two to three years as the maturation date changes for the securities, you with me on that? >> you are right, there are projections of government interest rates depend on not just the interest level but what the federal government has issued and when it is rolling over the maturing securities into new securities. >> one of the multiple bottom lines is we are going through the whole sequester issue and trying to save $86 billion of interest rates and that pales in comparison if interest rates go up just 1%? >> that's right. one percentage point higher level of interest rates would be sizeable change. >> sizeable change, but a historically accurate change. we are in low numbers right now. >> i mean above and beyond the increase, we have built into our projection which is the return

of interest rates to slightly above their slightly historical level. percentage point difference the entire decade is a fairly large difference. >> the f.h.a. revealed that cash reserves are down 45% from last year and chances of future losses on the current portfolio could exceed 50% which would require potentially that the taxpayers would have to bail out the f.h.a. going forward. report shows from the f.h.a. that they are overleveraged right now at 400-1 which makes bear stearns and others pale in comparison. have you examined the f.h.a.'s report and the budgetary implications in your budgetary projections? >> first, as you know, when you refer to a government bailout, there is no explicit action by the congress, but it's the case

that people don't pay back their mortgages and f.h.a. is on the hook. >> they have a line of credit due to the treasury and have to come to congress but congress can give them the money. did you take that into consideration? >> i would say, as you know again, but explain to others, there are a few years of f.h.a. lending that has turned out particularly poorly in terms of the delinquency and default rates and have not done a separate projection of what the draw on what the treasury might be if there is a change -- it would turn up as a credit re-estimate in the budget but don't have a specific projection that i'm aware of -- >> is that something that you could do and take a look at? >> i think we could take a closer look at. we have to talk more specifically and i don't know if that's the data we could get. >> that would be helpful to us.

last question is with regard to medicare, as you well know, there is a law that says when costs exceed receive news by 45%, something has to happen, right? president has to issue a report on how to solve the problem, correct? >> yes. >> and has that ever been triggered? >> that threshold has been exceeded for a number of years. >> was that triggered in 2009? >> i don't know the precise numbers. >> 2009, 2010, 2011, have you ever scored the president's proposal in response to that? >> we never scored specific response to that. >> has the president as required by law provided a report as required in the law? >> i'm not aware. >> he has violated the law? >> i'm not a lawyer. there is a requirement for the proposal to be made.

i'm not aware of any proposals having been made. i may be unaware -- >> you would have scored it if he had done it? >> we have to score the president's budget. >> ms. lee. >> thank you very much, mr. chairman. it's an honor to serve on this committee and i hope to work with this committee to create a youthful romance with the american people, one that will create jobs, lift people out of poverty and into the middle class and grow our economy for everyone and reduce the deficit and let me think you, mr. director for your testimony and being here. this is not only a road map to fiscal responsibility but also a moral document that shines the light on what the priorities are of our government and who we are as a country. our nation's budget must reflect

our values and must raise enough revenue so we can invest in our people and meet our nation's challenges head on. while our economy continues to slowly recover, i believe we must also focus on lifting the millions of americans who are living in poverty up the economic ladder and into the middle class. and so in addition to looking at policies that strengthen the middle class, i will continue, as a member of this committee to remind this committee that nearly 50 million people live in poverty, 60 -- 16 million are children. unless congress acts by march 1, the sequester will slash thousands of jobs and economic security of the middle class and also push the poor and low-income individuals over the edge. it will aadvice rate any gains our economy has made in recent

years. and so there is no question that we need to prevent these cuts from taking place and do so in a way that create investments that continue this economic growth. i think we need to look at the loopholes and tax expenditures in our tax code that allow the wealthiest individuals to not pay their fair share but look at the ongoing waste, fraud and abuse going on at the pentagon. i can't for the life of me figure out how we can budget when the single largest discretionary item on our budget cannot be audited. we need them to have an audit to know where our tax dollars are going and set priorities. let me ask you about the c.b.o. report on the american recovery and investment act. i would like to ask you, mr. director, can you explain how

our government's targeted investment and the american people and in our nation's critical infrastructure, how that created jobs and how it helped to begin to grow the economy. and also if we invested in a program that provided coordinated benefits and social services that listed the long-term economic stability and incomes, say half the families living in poverty, what impact would that have overall in terms of our economic growth? >> as you know, we have estimated consistently for the past four years that the recovery act taking effect at the time it did with the economic circumstances that the country faced, increased output and jobs relative to what would have happened in the absence of the recovery act and we think it did that by some additional direct government purchases, by giving money to state and local governments that they then used

to purchase goods and services or to provide benefits and by cutting taxes to americans that let them spend more money themselves. and additional demand for goods and services filled in part, only part, but part of the great shortfall in demand that has come out in the wake of the bursting of the housing bubble and the financial crisis. we think the path of output and employment has been higher than it would have been otherwise because of that act. and we think that this year with an economy stronger, but not that strong, that are easing of fiscal policy such as the deferral of sequester would boost output relative to what would occur under current law. you asked about longer term effects of policy. i think those effects are ones that we worry about, but are harder to know for sure.

if the government can strengthen the economic -- people's skills, education and training, that should make them more productive over time, but the economic effects will depend on how the government does that and where the money comes from to do it. so spending a dollar in a certain place can be good for the economy but in the longer run, it does come out of something else and think of the overall economic effects thinking about what is coming out of the economy. >> mr. lankford. >> thank you. i want to be able to continue on that same line of conversation about the long-term impact. is there an economic benefit to balancing our budget? not adding to principal year after year, is there a benefit to our economic development as a nation? >> a smaller deficit all the way down to zero can be better for

the economy in the medium and long run than a large deficit, but what the economic effect is how you do that. >> i understand that. is how you get there also matters that has to be done in a way that makes sense for the economy itself. i interact with a lot of families that have a challenge of understanding this as they walk through the document and want to know how this applies to their individual family. can you help break it down to the individual family, what is the effect of a $16.5 trillion debt on a family and what is the effect of how that grows as you said, $7 trillion over the next 10 years. i know you can't name the family and say this family will lose their job but the overall impact? >> over the next few years with a weak economy, the government borrowing in order to keep taxes

lower and spending higher helps the average family by producing more demand for goods in the economy and increasing the chance they will be employed and get paid more. as you go into the second half of the coming decade, then the government's borrowing is competing with the borrowing that households want to do for their mortgage borrowing, it competes with the borrowing that the businesses they work for and at that point, competition for borrowing makes it harder. that will tend to limit the extra equipment that workers have to work with and because of that, it will lower their wages and family incomeses relative to what would have happened had the government not been borrowing so much in the credit markets.

>> sooner the congress acts, the lower level of debt it is to be. sooner the congress acts, greater the contraction would be in the short-term. >> do you like it right now or do you like it five years from now or six years from now? >> yes. >> you're saying that on current path, we can't postponethe paying for five years, but it's coming? >> i think it is coming. >> let me ask you the question about the size of the interest. we talked about the interest rates and such. you talked about another $7 trillion being added to the debt, what about the actual dollar size based on your projection? we are paying around $300 billion a year in interest payments. what's your best guess on getting out to the 10-year

window in a single year? >> our projection for this year, fiscal year 2013, the government would spend $224 billion on interest payments. we project that would grow to $857 billion in 2023. that's an increase in the share of g.d.p. from 1.4% to 3.3% or two% of g.d.p. >> current path, that's with the s.g.r. cut and everything else, current path by the end of the next decade, $857 billion just in interest? >> yes, just in that single year. >> how many things do we have in our budget that are $857 billion? >> not very many congressman. it would be a nice picture in our outlook. this would be one of the largest components of federal spending. you can see that by 2023, the

major health care programs as a group and social security as a group will be more than the interest payments. but the debt to interest payments would be higher than defense spending and higher than all nondefense discretionary spending apart from social security and the major health care programs. >> thank you. i yield back. >> the gentleman from rhode island, mr. cicilline. >> thank you, mr. chairman. i thank chairman ryan and ranking member and thank you, dr. elmendorf. i have not heard from an economist or read who has not said that we have to approach this serious economic challenge by a balance of reducing spending and generating new receive news and i think there is no question that the president's aparticular can you lation of that model is something we have to do it and do it in a way that is timed and

making the investments that are necessary to grow our economy. we have to reduce spending and we have to make choices in what we invest in. i wonder if you would share some thoughts in terms of getting the most bang for our buck, what are the kinds of policies when we are engaged in spending, we are likely to produce the economic growth and greatest help to our economy because not all spending is the same. in that regard, in particular, i would like to know your thoughts about infrastructure spending, rebuilding the crumbling infrastructure of our country and the old fashioned w.p.a. way which leaves behind an asset which contributes to economic growth and our ability to move goods and services and compete in the global economy and puts people to work immediately, but leaves behind a valuable asset. how does infrastructure particularly relate to economic growth and making choices about how to do spending?

and if you would speak to a proposal the president spoke about last night, which is the proposal that would allow millions of americans to refinance their homes at a lower interest rate today, which i suspect not the economist would produce, i think they said $1,200 in new spending opportunities for families and provide substantial economic relief to stabilize the housing market and it would be a huge generator in terms of job creation and speak to those two issues. >> when we talk about bang for the buck, sometimes we talk about it in the short-term context and the answers can be different. in the short-term, what matters most is how much of the extra dollar of government spending or how much of the lost dollar of taxes is spent and how quickly it's spent. giving more money to spending increases or tax cuts to lower-income people is more

effective because they tend to spend a larger share of the difference. infrastructure spending, a lot of that gets spent, but depending on the project, it may get spent somewhat slowly. it can have a high bang for the buck ultimately but not right now. certain projects take a while to get started. infrastructure investment, if devoted to high return projects, can, in fact, have a big effect on the state of the economy. about half of nondefense discretionary spending can be viewed as investments either in physical structures or in people in the form of education and training. not all that money is spent well. but some of it is clearly spent for things that the private sector would not otherwise provide. and some of those projects can then have high rates of return and boost the economy in significant ways over time. i think the -- one concern that people have raised about the

cutbacks in discretionary spending as a share of g.d.p. that are in place under the sequester but even under the original cast, people have expressed concern that can end up limiting the investment that the federal government does, but it's hard to know for sure because your colleagues haven't made specific choices yet. on helping to refinance, i don't know precisely what his proposal is. we will see that when he releases his budget, we have done analysis of different ways of encouraging more refinancing. and that could have a positive effect on the economy. in addition to helping those households, the overall effect depends on how many households refinances. who is eligible. what the incentives are to households and to the lenders to do something differently. but dollar for dollar it can be effective as we reported about a

year or so ago. >> when you say depends on the amount, more americans who are able to take advantage of it, easy program to administer, lots of eligible americans, it will have a greater and more positive impact? >> yes. >> the gentlelady from tennessee, ms. black. >> thank you for being here today and i can thank you for this budget outlook but as you read through it, certainly bring up a lot of concerns about where we're going and the huge challenges that we'll expect going down the road. i made some notes where a lot of things are unsustainable. social security is unsustainable and without reform it will go bankrupt in 2033. medicare is unsustainable. hospital insurance trust funds in 2023. social security disability

insurance which we don't talk much about and this is an important topic that i would love to see this committee take a look at because i got concerned about this last year. it will go bankrupt in 2016, a big concern and then on the education side, pell grants, $1 billion shortfall in f.y. 2015 and annual shortfalls of $5 billion from f.y. 2016 through 2023. all of these programs, it's very scary to see they are going to go bankrupt unless we have some form of reform. let me now turn to look at the health care issue, because c.b.o. cites that rising health care costs as the leading driver of our debts and our deficits and the federal exchange subsidies alone are expected to cost $1 opinion.2 trillion and medicaid expansions are expected

to reach $26.8 billion. first of all, the affordable care act adds $1 trillion in entitlement spending. here we go, more entitlement spending. will this increase in spending with the medicaid expansions and the new exchange subsidies reduce health care costs growth as we look at the growth down the road? >> the affordable care act had a number of different pieces. the expansion of insurance coverage, we now estimates will cost $1.3 trillion over the 2013-2023 period. >> let me interrupt you there and make sure i understand, $1.3 trillion more than what was anticipated in previous outlooks of the program, is that correct? >> i'm saying that the costs of

the coverage expansion relative to a world that did not have that coverage expansion. extra costs of $1.3 trillion. we have had many changes to the coverage expansion but netted out to very little change on balance for any given period of years. our estimates through 2019 are now actually slightly below what they were when we first estimated the effects of that expansion three years ago. as one moves the budget window further along, one has to look at larger numbers for this expansion and all existing federal programs and for tax revenue because the economy is growing over time. this particular part of the law raises federal costs in order to subsidize health insurance for people in particular ways. the law incrudes changes to medicare that has the effect of bringing down the growth rate of

medicare spending over time. taking those pieces together, the law has increased the federal government's budgetary commitment to health care in the long run because ultimately those coverage expansiones -- the law as a whole includes changes in tax provisions. but the government commitment to health care is increased because of the affordable care act. how those medicare changes will affect the growth of medicare spending, we made our best estimate of, but it is an uncertain business. and whether the changes would spill over to the private sector, we don't know either. we have not offered a view about whether -- and we don't do estimates of total health expenditures. we try to focus on what we have done and said. >> and all of this -- and i brought the chart up that you

were referencing, the major health care programs are the greatest amount of money that is spent in any one time and we are showing that it does grow, doesn't come down and doesn't curve down or level out. it continues to grow. and yet despite this and this is the point i want to make at the end of the day. we know that there are going to be people out there, more people that will be uninsured than previously unexpected because there are a lot of dynamics that are going to cause that reaction. >> we project that the law will greatly reduce the number of uninsured americans. >> my apologies to ms. castor. >> thank you for being here today and sharing your economic

budget outlook. i think there are positive signs that should not be overlooked that our economy is growing and we are adding jobs. that's consistent with what i have seen back home in florida. there is greater construction work and more cranes popping up across town. housing prices are up. if you are a seller, that is pretty good news. we have seen a significant drop in unemployment. the tourism has rebounded after the b.p. disaster and if you are fortunate to have money in the stock market, you have done very well. if we had more people wrking would our debt and deficit be largely improved and you said yes and i assume you believe this is still the case. >> yes. >> but it seems like we have significant headwinds to getting

past that $7.5% unemployment rate and in your outlook you said you don't see great improvement there in the near term. so talk about the headwind to greater employment across the economy, especially, what is in the control of the congress? what are the current policies that are in place that prevent us from lowering that unemployment rate? >> congresswoman, i think you described well a number of the factors that we see underlying factors that are leading to economic growth. but as we've said, we think that the remaining parts of what had been the fiscal cliff, the remaining parts are still a damper to economic growth this year and one of the things that congress might do to boost economic growth this year is to not let that fiscal tightening take effect. >> the sequester?

>> there are a number of pieces to that, but one crucial piece is the sequester and if the congress were to not have the sequester, then that would strengthen output this year and would lead to 750,000 more jobs in the fourth quarter. at the same time, if there aren't offsetting changes made later, the extra debt would be a drag on the economy medium term and long-term. >> that's what i'm hearing from folks at home, major employers. we have a large port. if we reduce infrastructure spending, they anticipate cutbacks and private businesses especially. large research university, they rely on innovation, science and medical research along with the cancer research institute, very significant damage to what they're doing, but loss of jobs, large school district, ninth largest in the country and large

air force base, civilian work force projection. colleagues, we really -- time is short. and i think what we're hearing today, if we want to address the debt and deficit, let's not do this to ourselves, let's not self-inflict a wound that will put us back farther, bigger and deeper on deficit and debt reduction. i think this is a warning sign and dr. elmendorf is being very clear with us that we have to work together and replace the sequester. doesn't mean we are going to shirk our responsibility to address the long-term debt, the medium-term debt but if we are going to be stuck with this 7 1/2% unemployment rate, that is not sustainable. are there other policies that could help us that are within

the control of the congress to create more jobs? >> congresswoman, think of a few categories. there are a number of changes in fiscal policy. higher spending or lower taxes than are under current law and as you know, few reports in the past few years of trying to evaluate the bang for the buck of different sorts of changes in tax and spending policy. turning off the sequester would be one item. >> did you also mention immigration in your outlook? >> so we don't talk about it in the outlook. we have done other work. i think immigration can be -- more immigration can be a positive force for the economy in the medium term and long-term depending on what the reforms are that consider might consider. those are reforms that wouldn't take effect that would provide a big boost in the economy this year and next year. in terms of changes in fiscal

policy, there is certainty about what it would help. >> the gentleman from texas, mr. flores. >> thank you for joining us again. let's talk about a different subject for a minute. when you looked at the president's budget from last year, can you tell me when that budget balanced? >> in our estimate of it, congressman, it never reached a balanced budget. >> and what would be -- would you say that the spending and revenue profile in that budget was one that would help create a sustainable economy? >> well, congressman, we did think the economy would be sustained, yes. so we did an analysis of the economic effects of that budget. we think the economy would be growing. but as i have said on many occasions, a path that had less government debt would by the end of the decade would lead to a

stronger economy. >> even by its own admission said the debt beyond the 10-year level is going to reach unsustainable levels and the economy would suffer. what would the economic impact be if we raise taxes by $85 billion by the end of this fiscal year, having an $85 billion cut due to the sequester that also starts on march 1? >> that would depend on the nature of the tax increase. >> let's assume it is done by tax rate increases. >> it is dependent on whose tax rates were cut. but in general -- >> on the top 1% again that includes small business owners. >> if the sequester were replaced by an avifflet equivalent dollar amount, that would be an improvement for the

economy because we think the pro pencity to spend would be smaller dollar for dollar than the spending -- >> the lady on the corner that owns the dry cleaning store who has her taxes increased dramatically is going to invest as much in the economy and continue with expansion plans that she had prior to that tax increase? >> i think, congressman, that the lady on the corner would find that people would come in with dry cleaning if they were the people who were working for the government or working in government contracts of the sort that would be increased by taking away the sequester. i'm not trying to play a game but that is the effect we have in mind. what businesses are most concerned about is weak demand for their products. >> under that line of thinking, what you do is raise the taxes to 100% on high-income people and spend all their money on government contracts?

>> congressman -- >> that is rhetorical. how do you measure the strength of this economy over the last four years as opposed to post-world war ii. >> weaker. >> how does it compare to the recovery of 1988 through 1993? >> this has been a much weaker recovery than we had in the early 1980's. >> what was the 10-year cost of the affordable care act -- your cost estimates? >> deficit impact was a slight deficit reduction. the costs of the coverage expansion may be what you are referring to over the 10-year window at the time. i don't know that number off

hand. the number of that and the cost of coverage expansion over 10 years we think would be smaller by a little bit than we thought at the time, but the budget window, the 10 years we provide projections for has moved out to 2023 and increases the current 10-year costs. >> and and again, switching subjects for a minute, does the c.b.o. look at unfunded obligations like what the acktue article obligations are of social security, medicare, medicaid? does c.b.o. look at those? >> yes, long-term budget outlook, we include the costs of those programs and comments on the social security trust fund. >> you discount those back and say this is what the net unfunded obligation is for social security today? >> yes, we do, congressman. >> do you have the numbers off the top of your head? >> i'm sorry, i don't.

but it is substantial. >> trillions of dollars between social security and medicare, correct? >> that's correct. we talked about this as a share of g.d.p. because that is a way to measure the burden on the economy. >> the gentleman's time has expired. the gentleman from new york. mr. jeffries. >> with you are asked whether this has been a morrow bus or weaker recovery as opposed to after world war ii and you testified this was a weaker recovery? >> yes. >> in 2008, this country confronted the worst economic crisis and collapse that we have experienced in the history of the republic with the exception of the great depression? >> yes, that's right, congressman. >> and the economy since 2009 under this administration is moving in the right direction based on any reasonable objective, economic measure, wouldn't that be correct?

>> g.d.p. has been growing since the summer of that year, yes, congressman. >> let's look at some other numbers, six million private sector jobs have been created? >> i think so. depends on the point on on which you start that tally. >> than and i believe 500,000 manufacturing jobs have been created? >> that may be, i don't know that off hand. >> the unemployment rate is at or near its lowest levels than the last four years? >> i think that's right. >> home prices are rising at the fastest pace than in the last six years? >> yes. >> home purchases are rising at 50%. >> they are rising. >> we reduced the deficit by $2.5 trillion in the last several years. >> we try not to do a calculation like that. how much has been accomplished depends on the point of time and the benchmark one is comparing to. we have not done that

calculation ourselves. >> based on any reasonable economic measure, the economy's clearly moving in the right direction. the question has been asked a few times today, is there any economic benefits to balancing the budget. i would like to ask a different question, is there any economic benefit to stimulating economic growth in the country at this moment in time? >> yes, there is. >> what would be the best way in your estimation as you examine this question to stimulate economic growth? >> the ultimate choices depend on people's choices as to what the government should be or should not be doing. cuts in taxes or increasing in spending that put money in the people's hands where it is spent quickly can provide a crucial boost to the demand for goods and services encourage businesses to hire workers and gives them income and allows them to spend more. >> you have indicated that the

best way to increase consumer demand is to make sure we increase the amount of money that is placed into the hands of low-income or modest americans? >> in terms of the bang for the buck. lower-income spend the greater share. >> do you think it would be reasonable to conclude that an increase in the minimum wage has been advocated by others which would therefore place a greater dre of money in the hands of low-income or modest new yorkers would increase to demand and therefore be good for the economy? >> we have not studied a particular increase in the minimum wage. there are various aspects at work. some people could get paid more and would presumably spend. also true, we think there would be small reduction in if employment because the cost of workers would go up. we have not tried to work

through those effects or others. it also, of course, depends on how much the minimum wage is increased and how the increase compares to what is the current minimum wage in many states. there is a different minimum wages. >> and the reductions we could face in the short-term would be to allow the sequestration to take place, we would lose 650,000 jobs? >> of the things that are about to happen under current law that you all talk about a lot, the sequester, taking it away would have an output and jobs. >> mentioned a loss of confidence in the government's ability to manage its affairs could trigger sort of fiscal crisis where our ability to borrow at aforwardable rates is reduced? >> yes. >> confronting >> and confronting a fiscal cliff and sequestration, debt

ceiling default and sequestration in march, government shutdown in april, another potential debt ceiling default in may could perhaps shake the confidence of some ininvesters in our ability to deal with our responsibilities? >> yes, congressman. we think that the perennial crisis mode of fiscal policy over the past few years is reducing people's kfls. how big an effect that is, we don't know. >> thank you, chair. thank you, doctor, for being back with us. i think by anyone's objective measure in this town or country we would consider you a smart man, an intelligent man, a good economist, right? >> thank you, congressman. >> that's why it befuddles me although it's certainly a measure's prerogative, it strikes me that some of us want to speechify rather than engage

new conversation through some questioning and that's, for the record, i have so say i really appreciate mr. jeffrey's line of questioning. i'll try to continue on in that regard. speaking of speechifying. we heard that it's impossible to get ourselves out of this debt situation through spending cuts alone. and i just want to understand, if i am correct, that the c.b.o. projects that revenue will double from 2012 -- the 2012 level of $2.5 trillion to $2.50 trillion by 2033? >> yes, congressman. >> and this year alone revenues will grow by $259 billion from the previous year's fiscal level. >> yes, congressman. >> yeah. according to your report, revenues have averaged just under 18% of the economy in recent history. am i correct that you project under current law that revenues will rise to over 19%? >> yes, congressman. >> and isn't that above the historic average since world

war ii? >> yes. >> am i correct that in a letter you wrote to mr. boehner last year you estimated that the president's affordable care act or obamacare will increase revenues, i say taxes, but increase revenues by $1 trillion? >> yes. that's right. >> and that's because why? >> because the law included a number of changes in tax rules to collect more money. >> taxes, in other words. >> yes, exactly. >> i think most people are focused on the tax increases that hit higher income taxpayers. but am i correct that the payroll tax holiday expired? that's part of the fiscal cliff deal or not being included in the fiscal cliff deal. >> yes. >> thank you. now, when you talked about, in your opening remarks, the public debt, i think and correct me if i have these numbers wrong, you said the public debt was 76% of our gross domestic product. the value of goods and services, this whole country, man, woman and child generates in a year.

>> that projection for the end of this year, yes. >> 76%. >> yes. >> but going to back to mr. flores' line of questioning, that's not the whole picture, right? go through the definition of public debt and why i think it might be higher than that if you include what's missing from the social security trust fund, etc. >> so in addition to the debt that's held by private citizens here and abroad and by the federal reserve system, there's also a substantial amount of government debt that is held by other government accounts, the most prominent of which, the largest of which is the social security trust fund. that debt is honest to goodness government debt backed by the full faith and credit of the government. we don't include in the debt measure that we focus on, nor do most analysts, because we look at the government as a unified whole and we take account of future social security and medicare, other compliments of spending, so we capture the future obligations of those programs under current law in the way we do our projections of spending. when we look at the debt we look at the debt that the

government owes to outside of the government. >> so you don't calculate that debt until that debt becomes due so when the social security trust fund has an i.o.u. and gets into the other hand of government to pay that, that's when you count it, at that time? >> so we produce projections of this larger -- of gross debt. we report them in this outlook but we don't focus on it. >> if i want to include a social security trust fund to my constituents and educate america, what would be the debt to g.d.p. ratio if you included the trust fund and any other significant debt? >> i'm sorry, congressman, i don't know that number. >> you think it would be over 100%? >> that's plausible, yes. >> ok, thank you. with the remaining time i have, now, remember, when i started my questioning i complimented you about how smart you were. certainly relative to me. so take it in this vain. if i was taking your credit card appcation, your personal one, and under the question occupation, would it be plausible for you to tell me you're an economist? >> yes, congressman.

>> ok. so you're familiar with the austrian school, the chicago school, keynesians, the neokeynesianses and all that have. >> yes, we discussed this before. >> ok. which one do you prefer and why are the other ones inferior? which school? [laughter] >> so, i think the consensus in the economics profession is that what people think of as keynesian economics, which is output of employment demands on the goods of services, answers important questions about what will happen in the economy, when unemployment is very high as has been over the past several years. but the consensus also thinks that over the medium term and long-term when unemployment is not generally so high, that what we think of as neoclassical economics is a better guide. >> and even keynes thought you had to stop the spending at some point. >> i don't know. >> the gentleman's time has expired. >> my time's expired, i'm told. >> yes. the gentleman from wisconsin. >> thank you, mr. chair. thank you, dr. elmendorf. it's a pleasure to be on the

committee. especially someone from wisconsin, i know mr. ryan and i share a county back home. we have neighboring districts so it's great to be here representing my state. doctor, one of the top priorities ases i look at it is growing the economy. how can we create more jobs right now to really get things going? that's the best way to get out of the deficit situation. especially before being here, watching the news, it seems like all they ever talk about is deficit reduction as the economic plan, as if congress can't walk and chew gum and i think we can do both. and part that have is how do we help grow the economy, to help create those jobs? when i was on our joint committee on finance back home, the legislature, i used to be the chair of the committee, and we had to approve every single recovery dollar, stimulus dollar, that came through wisconsin, that came from congress. and at that time, you know, anecdotally i have a small business, i heard from small business owners who peffed from it, but more importantly at that committee we had the road building industry and the vertical construction industry.

so road building and building buildings. not exactly your most liberal entities, put out a report saying that 54,000 jobs were saved or created just in the state of wisconsin thanks to those stimulus dollars and some other things we did in the legislature. i look at that and then i look at what the president said yesterday about kind of investing it back again and then i saw a release from speaker boehner yesterday and he said, tonight he offered little more than the same stimulus policies that have failed to fix our economy and put americans back to work. and i know wisconsin is a very unique place because those of us from there are very proud to be from there. i think we have very commonsense, midwestern values, but our experience is very different than that comment. i was just curious, i believe the c.b.o. has done a report on the a.r.a. effects. were there indeed -- is it unique to wisconsin or were there total job increases

across the country because of those investments? >> we think that there were more jobs and more output produced because of the recovery act. >> and what number of jobs are we talking? >> it varies over time because the spending and the tax reductions from the recovery act varied over time. at the peak effect of the act, in 2010 and 2011, we think there were between -- basically half a million and 3 1/2 million additional jobs. >> so 3 1/2 million. then were there additional jobs since then through that peak period? >> yes. so there continue to be -- continues to be in our estimate slightly more employment than would otherwise be the case. but most of the money from that -- both the spending side and the tax cuts has now been spent. so the effects are gindling. >> because of the job increase i think it's fair to say that it reduced the unemployment rate during that period? >> yes. >> and how about the effect on economic growth?

did it have any net effect to the economy? >> yes. we think it boosted economic growth in 2009 and 2010. by a considerable extent and brought down the unemployment rate, again, particularly in 2010, 2011. >> ok. so i just think as we look at what we're talking about, you know, so often people talk about either you raise taxes or you cut spending as if those are the only two alternatives on the table. and i think maybe sometimes in washington those are the only two alternatives people seem to look at. but for those of us who come from the heartland or are new around here, you know, i've had a small business since i've had hair and it was dark. so i come from a little different perspective. but it does seem there's another way that if we can actually help to increase people getting to work and getting jobs and if they're paying taxes, that trajectory we saw on spending is the problem on that chart, we could start to then close up that trajectory by bringing in real revenue without raising taxes on anyone, just by having more people become taxpayers is that a fair assessment?

>> you're right, congressman, that if more people worked and they earned more money, that would -- could have a substantial positive effect on the budget. the question is what policies the congress might enact and what the cost of those policies would be for the budget. >> and then when people have talked about, too, when there's a dollar expended to do that, i mean, just like in business, if i invest in something you've got a cost to do that but i make a profit off of that ultimately. so there are there may be a cost depending on my product, ultimately you could still have a net gain, correct? so having the investment, if it's the right policy, and it creates jobs, can help close that trajectory. >> it's possible, congressman. but if the government invests in something, even if that project earns a fairly high return for the economy as a whole, the government will collect only a small share that have higher return in future tax revenue. so finding projects that would pay for themselves by the federal government, i wouldn't want to rule out but on the other hand i think you should

view that -- [inaudible] >> the gentleman's time has expired. the gentleman from georgia, mr. woodall, is recognized for five minutes. >> i thank you, mr. chairman, and i am proud we're having a georgian sitting as vice chairman of the committee this cycle. my freshman colleague from wisconsin talks about commonsense, midwestern values. it's those commonsense georgia values that give me great hope of this institution. congratulations to you and that new role. i do want to talk about the common ground we have with wisconsin. in fact, rhode island, the gentleman from rhode island, mr. cicilline, was talking earlier about great public works programs. and before we start our questioning, director, i just wanted to read from f.d.r.'s state of the union speech back in 1935, when he said, i am not willing that the vitality of our people be further sapped by the giving of cash or of market baskets. we must preserve not only the bodies of the unemployed from destitution but also their self-respect, their self-reliance, their courage and their determination. he called the payments going out at that time a narcotic, a

subtle destroyer of the american spirit and i would certainly hope as we talk about revenues and i think about refundable tax credits as being these cash payments, anything we can do to work together to redirect those cash payments into those real jobs that provide real benefits to the human spirit, not just to the pocketbook, i look forward to working together on. but thinking about my common georgia upbringings, i wanted you to help me with some things. i heard a lot of discussion about we can't get to balance budgets just by cutting spending. there has to be a revenue component. my friend from indiana pointed out that revenue was going -- going to double over the next 10 years over your projection? >> yes. >> so our revenue component, if we do nothing more, we're going to double revenues to the federal government over the next 10 years? >> yes, congressman. that's our projection. >> now, thinking about the cutting of the spending we're going to be doing over the next 10 years, if we do nothing over

the next 10 years, how much will spending fall below current levels? >> in dollar terms, congressman, as you know, we expect the spending at the end of the decade will be quite a bit higher than spend something now. >> you say in dollar terms. what if we did it as a percent of economy to adjust for inflation? then how much lower would it be in 10 years than today? >> as a share of the economy, we project outlays in 2023 will be 22.9% and last year they were 22.8%. >> so over the next 10 years they're not going down either. >> there's a dip and then there's an increase again. >> so, just to be clear, tax is going to double over the next 10 years in real dollar terms, spending not going to decline over the next 10 years either in real dollar terms or nominal dollar terms? >> that's right. that's right. as you know, as i mentioned earlier, there will be roughly 40% more beneficiaries of the largest, most expensive federal programs a decade from now than

there are today and that's a critical factor driving those numbers. >> which leads me to believe that when you have serious people looking at these issues, as we do, that no one's actually talking about cutting spending. we're just arguing about how much more we're going to increase spending. are we going to increase it a whole lot more, are we going to increase it a little more because there are folks out there that we have to keep commitments to. as useful as i find the baseline i can't tell you how much i appreciate the work you do. i'm glad you do it instead of me doing it. the best part of my job are smart people are willing to invest time in me to make me smarter but something i don't understand, you mentioned in your testimony that the alternative fiscal scenario assumes sequester doesn't go into effect because you've had some members mention that. but does the baseline assume that the war in iraq and afghanistan comes to an end and that that money ceases going out the door? >> no. so what we do -- >> does it assume that the

sandy supplemental spending was just a one-time effect, it also won't go on? >> no. to answer both parts of the question, our pronkses of discrer agencies spending have never been about the cost of doing particular sorts of programs. they've always been extrapolations of latest funding congress has provided, with one crucial exception now of the caps on most discretionary spending. but the current funding for overseas wars and the funding that the congress has provided for to hurricane sandy, we've extrapolated those with inflation, the way we have traditionally done discretionary spending as a whole. >> and why is that? here we've done an alternative scenario because some members have suggested that something might happen and yet we've baked into the baseline 10 years of sandy aid which we know with absolute certainly it never happen. what's the reason to that are? >> so, i think for the things that -- as you know, our table of alternative policies includes numbers that allow you and your colleagues to subtract

those particular provisions, if you would like, to construct your own projections of the budget balance. the reason we do those is what different from provisions in the alternative scenario. the alternative scenario has a set of permanent features of law that the congress has in the past extended or deferred taking effect. whereas discretionary spending has never been about particular programs. so we've written our reports, for example, on veterans health care, which is indiscretionary spending. we think that providing the level of care people now get to the people who are now eligible will be more expensive to 10 years from now than captured in the discretionary baseline. sandy may not occur but other storms may come, other wars may come. we try not to judge what the level of discretionary spending that you all would like to have in the future. >> the gentleman's time has expired. the gentleman from california. >> it is an honor to serve with you on this committee. thank you, dr. elmendorf, for your testimony. it's been very useful. i have a pretty quick question

here. we've spent most of our time today discussing the deficit, our debt and the health care costs that are the big driver of future expenditures. but one -- a couple of my colleagues have brought up social security. and so i just wanted to ask you, doctor, if you could please explain the extent to which social security contributes to the deficit and the public debt that we saw illustrated on the chart. and also if you assume that we should be focused like a laser beam on bringing the deficit down so that we can get our debt under control, would you agree that the discussion of reducing social security costs is a bit of a red herring? >> starting two years ago and continuing indeaf flitly into the future under current law, the social security benefits that are being paid out succeed -- exceed the social security tax revenues are a being collected. social security trust fund also receives interest payments on the debt that it holds. so at this point in time,

social security benefits, as i said, are greater than tax revenue, a little less than the tax revenue plus the interest payments. but on the unified budget basis, where the interest payments from one part of the government to the other wash out, social security taxes and benefits and taxes actually are increasing the budget deficit. and if you look in our projections, out half a dozen years or so, by that point the benefits will exceed the tax revenues plus the interest payments that will be paid in so the social security trust fund as a whole will be suffering annual deficits. >> at what point does social security begin to contribute to the deficit? >> again, congressman, on a unified budget basis, taking account of just the tax revenues dedicated tax revenues and the benefits, it is contributing to the deficit now .

if one instead looks at just the balance in the social security trust fund, that balance -- the annual balance is positive now but will be negative in about a half a dozen years. i'm looking for the exact number but i can't find it. it is changing quickly. >> the gentleman yields back the balance of his time? the gentleman yields back the balance of his time. >> mr. chairman, do i have the number to answer -- fully answer the question is that we think that by 2021, the old age insurance survivor's trust fund will have a deficit. the -- taking those pieces together as people often do we think the overall social security trust funds will be running annual deficits beginning in 2017. >> thank you. >> the gentleman from ohio. >> excuse me, mr. chairman. >> thank you, mr. chairman. >> excuse me. >> the gentlelady from wisconsin. >> i do have time constraints and do i believe that i've been

overlooked. >> the gentlelady is up following mr. rens ay. >> oh, is he -- how many republicans -- >> we've gone back and forth. republican and democrat. >> ok. i'm so sorry. >> that's all right. the gentleman from ohio. >> thank you, mr. chairman. thank you, dr., for being here. i just want to go back to my colleague's question on social security. because did i have a question on it. but the c.b.o. baseline shows, and you previously mentioned, that social security will run a cash deficit of $1.3 trillion over the next 10 years. is that a true statement? >> i don't have that number in front of me, i'm afraid. >> ok. going back to some of the discussions that have occurred, it's been an interesting day for me, i've been a businessman most of my life, only been here a couple of years. when i look at the business of the federal government as to how it's going and how my current businesses ran, my

small business ran last home, i'm be afraid to death of the trajectory of the direction we're going. i think you said that continuing under the current policies, it's just not sustainable. is that correct? >> yes, congressman. >> ok. one question earlier, somebody talked about jobs. net jobs created over the last four years, is that a negative number or positive number? net jobs? >> i'm sorry, congressman, i don't have that number. >> let's go back to tax rates. again, as a business owner, when my tax rates increase, i was concerned and would not employ more people. that was an easy answer for me and if i didn't have any certainty and predictability of what those rates were going to be, i definitely do much as far as the future. do you have any correlation to the raise -- raising marginal rates and how it effects the zphe we've talked a little bit about that. >> yes, so when we model the effects of big changes in fiscal policy like the president's budget parole proposals each year, our models

include the effects of changing in tax rates on people's work effort and on their saving behavior. we recently did a re-examination of our -- of an assumed amount of response that we have, with a lot of consultation with outside experts and made some adjustments in what we do and published reports describing how we read the evidence but it's certainly the case in our view of research literature that higher tax rates will tend to discourage work effort and saving. >> so, as we talked about earlier, you heard that if we add taxes, if we do a balanced approach, when we add -- marginal tax rate goes up, that's going to slow the economy down? >> that's right, congressman. the crucial question is, what else is going on in the federal budget? >> do you think that comprehensive -- actually, let's go back to the fiscal cliff. when we pass the fiscal cliff here recently, do you think

people moved their taxable income, was there a shift in taxable income and a change in their -- what they were going to go know -- going to do knowing the rates were going up? >> yes. both corporations and individuals behaved differently the last part of last year. not based on their expectations and their uncertainty. >> so we'll see a jump up maybe in receipts this year because of that? >> and in fact federal receipts are strong in january and that is i think part of the story. there's also of course the end of the temporary reduction in the payroll tax, another factor. >> let's talk a little bit about capital gains which i know also change. capital gains rates could lead -- in 2012, g.c.t. and c.b.o. said that higher tax rates on capital gains could lead to a level of inefficiency and conversely lower capital gain rates, could in fact encourage investment. do you agree with that statement? >> yet >> do you believe an increase in the capital gains tax could

increase the long-term productivity? >> you said increase? >> knowing that we are increasing capital gains tax. >> no. we don't think that an increase on the tax on capital is going to boost investment. loss is not usually equal. if that money is used to reduce borrowing, then that reduction in borrowing has a positive effect on the economy. >> my colleague earlier talked about revenues doubling over the next 10 years in your projection and spending going up significantly. do you have an idea of how much spending's going to go up over the next 10 years? >> i don't have that number calculated, congressman. we think spending this year will be about $3.3 trillion and in 2023 will be pushing $6 trillion. but i don't know the percentage change i'm afraid. >> ok. i yield back at this time. >> the gentleman yields back

the balance of his time. the gentlelady from wisconsin, ms. moore. five minutes. >> thank you so much, mr. chairman. and thank you, dr. elmendorf, for appearing today. i have seen how you've done this very delicate dance all morning as members have attempted to get you to agree with their approach about how to reduce the deficit, about how to grow the economy. what's more important, is this tax policy better or worse. so i do appreciate your indulgence and patience with. this what i guess i learned and heard from when you today is that ultimately we make the decisions around here about what happens and that, you know, all things are not equal. so, for example, the american taxpayer relief act of 2012, so the called fiscal cliff thing we did new year's day, it doubled the deficit, didn't it?

went from like $2.3 trillion to $4.6 trillion. and in that i think we, for example, did not extend the payroll tax relief and so therefore we didn't help poor people there. we did things like make the unemployment insurance until december 31 of this year, whereas we increased the estate tax relief, went back to former law, made that permanent. so that couples up to $10 million have an exemption. so, when we think about this provision, for example, in terms of long-term debt and the stimulative ability or lack thereof, do you have an assessment of this particular policy with respect to long-term deficit reduction?

>> you actually understated the point. we thought deficits under current law would have been $2. trillion over the decade -- $2.3 trillion over the decade. and new year's law added about $4.7 trillion to deficits over the decade. so essentially tripled the deficits under current law. that change greatly increased government borrowing. it also reduced tax rates. those two changes have opposing affects on future output. we haven't actually done a specific estimate of the economic effects of that law. but as i've said before, the level of government borrowing has an important negative -- higher borrowing has a bigger negative effect on future economic outcomes. >> my time is a winning. but i think that -- wanning but i think you have really made the point that there are consequences of policy and this

was an initiative. i think that helped wealthier people more. because the bush era, obama era, whatever you want to call it, tax rates, disproportionately helped richer people. same thing with tax expenditures. we heard discussion here earlier about -- and greenspan calls them not tax expenditures but tax entitlements. isn't it in fact true that the tax expenditures almost equal the medicare and medicaid and social security all together? that they almost equal that amount? and that they disproportionately go to wealthier people? 60% of our tax entitlements go to, you know, maybe 20% of the wealthiest people. >> so, in our report last year, we showed the tax expenditures through the individual income tax and the payroll tax were larger than government spending in social security, larger than

spending on defense, larger than spending on medicare. the distribution varies a good deal across tax expenditures. some of them benefit higher income people, disproportionately. others are more focused on lower income people. we have some work under way. >> there's a lot of complaints about the 50% of the people who don't pay any income tax and so, i mean, the tax expenditure program for homeowners and for charitable donations, which are good tax expenditures, there's a lot of waste in it as well. i just want to -- i just want to you stipulate in your testimony here that in fact there is a lot of spending that is done through tax expenditure programs and it increases the income disparity. >> i think -- >> and regressive. >> i think many economists agree that tax expenditures are best thought of as government spending, even though they

appear in the budget -- >> and they're regressive. are they regressive? >> we have work under way on the distributional -- distribution of type of expenditures and it's not finished yet. >> the gentlelady's time has expired. >> thank you for your indulgence, mr. chairman. >> thank you. the gentleman from indiana, mr. messer, five minutes. >> thank you, mr. chairman. thank you, doctor. [inaudible] -- final questioner today. >> i think that's accurate and we'll appreciate you turning on your mike. >> we've already eaten up my time without the mike. thank you, mr. chairman, thank you, doctor. i'm the final questioner today. appreciate that. somebody gets to do it. at least today it's me. doctor, i want to thank you for your eloquence. thank you for your knowledge and wisdom and thank you for your stam in a -- stamina. >> and yours, congressman. you may be one of the few people who sat through an entire hearing in my experience. and you, too, congressman. >> when you're new here you want to learn. i appreciate the knowledge i've

been able to gather today. i want to focus just for a second on a comment that you made earlier and want to make sure that i have it accurate. you mentioned that by, was it 2023 we would have 40% more recipients of medicare and social security than today? >> roughly, yes. >> and there's a lot of rhetorical energy spent around this building, appropriately so, making the point that we want to make sure we keep our commitments to those who have invested through a lifetime of social security and medicare. certainly a commitment i intend to keep. i know of no one on either side of the aisle who believes any differently. if you saw that number and saw that we were going to increase by 40% by 2023, but you also knew that we were going to increase our work force by 40%, by 2023, so that you had the same number of taxpayers putting -- footing the bill for those benefits, or at least per recipient, then you wouldn't be

neerm as alarmed by that number as you might be in a scenario that's far different. so i was hoping you could comment just a minute about maybe the historical trend of how many taxpayers we've had per recipient in those programs and where we're going in that same trend. >> yes, congressman. so, we project that the labor force will grow much more slowly in the coming decade than it has grown over the past several decades. and there are two main reasons for. that one is the retirement of the baby boom generation. they came into the labor force, they boosted labor force growth. they'll tie it down as they've retired. women labor pushed up participation rates late in the last century and has been pushing the other direction but it's not been doing that now. so we think that the labor force growth will be a good deal slower going forward than it's been in the past. a lot of that is outside of the control of the congress. but there are policies the congress can enact or not that

can have effects on labor force participation. on both the tax and spending sides of the budget. >> you know, i know you're probably reluctant to just throw out numbers that you may have access, not have access to right in front of you. but could you just talk a little bit at least, in the last 10 to 20 to 30 years, how many workers per recipient did we have, what are the likely trends by 2023, for example? >> i know that, i have one fact. a few years ago 21% -- a few years ago the population age 65 or older was 21% of the population between ages 20 and 64. so 65 or older relative to those of working age, 20 to 64, that share was 21% a few years ago and it will be 37% 25 years from now. >> which would mean we have fewer people paying for each recipient later. if could you get those numbers to me, i would appreciate it.

i'd like to see whatever we're able to get track of. just want to make this very simple point. rightly so. a lot of energy is spent talking about the injustice that would fall to those who have invested and paid in over their lifetimes if they did not receive the benefits that they rightly should receive. but probably not enough energy is spent talking about the injustice to the next generation, those who will pay far more into a program that -- in through which they may receive far less if nothing is done either. and so as we focus, as a body, on the importance of the justice of making sure that current recipients and those nearing retirement receive those benefits, i hope we spend equal energy thinking about the next generation and how we preserve these programs for them. >> we produced a report every summer or fall on the social security program which lays out

the points you're making about the ratio of workers to beneficiaries and about the differential effects of the program on people born in different birth cohorts and at different points in the income distribution. >> i'd love this see that. >> the gentleman yields back the balance of his time. want to thank the director for being with us today for his wisdom and his patience. i am charged with asking unanimous consent that members have seven calendar days to submit questions for the record and without objection, so ordered and this hearing adjourned. >> thank you, congressman. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013] >> here's a look at our primetime schedule.

>> now ohio congresswoman marcy capture responds to last night's state of the union address from "washington journal." this is 25 minutes. guest: the caller is correct. the president proposes and the congress disposes. it is the responsibility of the congress to meet its constitutional obligations to pass bills that relate to the various departments of the government and to uphold the oath that we take to protect our country from all enemies, foreign and domestic, and to promote the general welfare of the country.

to establish justice and if you think about what we do, as a nation, normally that happens in several bills that congress will pass to fund the various departments of the government, starting with defense. what's been happening over the past several years, however, in the congress is there have been fits and starts where the committees aren't functioning under what i would term regular order. so the gentleman is correct. the committees have not been meeting, they have not been passing bills under regular order and bringing them to the floor for a vote. the president last night, in referring to one of the issues, in the very broad ranging address that he made, in the area of gun violence, said, give us a vote. give us a vote. give us a vote. the families up in the gallery who had lost loved ones. that was a reference to the fact that bills are being blocked, they're not being allowed to proceed in a norm

al-manar. host: congresswoman, in the immediate, republicans have said to avoid sequestration that the president needs to agree to more tax rev -- or excuse me, needs to agree to spending cuts. that they already agreed to tax revenues. so spending cuts should be on the table. "u.s.a. today" editorial that we just read for our viewers grease that spending cuts, entitlement reform needs to be addressed, not only for the deficit issues, but also to go through with president obama's big vision on immigration reform and other items that he laid out yesterday. your reaction, could you agree to spending cuts to medicare, social security? >> i think that -- guest: i think that what the president laid out was a vision of rigor. what i heard him say last night on the medicare issue was, for instance, with prescription drugs. there was a reference made in

his remarks to trying to operate the programs more efficiently, dealing with the high cost of prescription drugs. i thought, oh, i wonder if that's going to be legislation for competitive bidding for pharmaceuticals which i support. so that we pay as a country a competitive price, not an outrageous price. for the prescriptions that the government of the united states purchases across the various functions that it has. that could save a lot of money. the president talked about outcomes in hospitals. and rewarding not the number of days of stay for a patient but rather outcomes. i really heard that. and the same is true in education. where he talked about a college scorecard, giving families and students an opportunity to grade outcomes in how well the institution is performing. i think the president wants to restore more rigor in these

programs. and for the federal government to use its power to operate programs efficiently, so i think we're going to see more details coming up when the full budget arrives. >> congresswoman, would you agree to raising the eligibility age for medicare from 65 to 67? guest: for medicare? host: right. guest: in the part of the country that i come from, that's a nonstarter. i think that so many people can't even make it to 60. i don't know if you know what it's like to work up on an oil platform in the bitter cold, when the wind is blowing and it's below 30 in terms of freezing. and boilermakers come to work, plumbers and pipe fighters, crawling up on these rigs. by the time they're 50, 55 years old, many of them are already impacted heavily in their physical condition by the work that they do. so i wouldn't support raising the medicare age, no.

but i would support more rigor in the program, rewarding good outcomes, supporting home care to lessen the cost of nursing home care, which is so much more expensive. so there are ways that we can manage the budget in a more sensible way. host: all right. congresswoman, here's a tweet from someone. guest: i think that the appropriations committee needs to function in a normal way. and our chairman, congressman rogers of kentucky, wants to do that. i think that congresswoman lowy, the ranking member from new york, on our side of the aisle, wants to do the same thing. the appropriations committee can do a lot of oversight. it's not been doing. that it has not been allowed to function in a norm away. bills are not proceeding and

being passed one at a time. we have 12 bills that we must pass. we have tremendous oversight functions. and we it can do investigations, we have to route out waste. but we have to be allowed to do our job. that's been difficult with these megabills that have been proposed just by the top leaders and then they're thrown down on the congress, they vote yes or not -- yes or no. you can't run a country that way. you have to get into the details in every committee. on a defense committee, subcommittee on which i sit on appropriations, we have a responsibility to provide the strongest defense for our country and at the same time eliminate waste. i know how much waste there is in the department of defense, particularly in some of these contracts that are let. and we're contracting to contractors instead of resources inside the department. we can do a lot but it takes meeting with the committee and very rigorous work.

host: all right. a this phone call umcomes from paul in norfolk, arkansas, independent caller. caller: thank you so much for taking my call. my question is, in the private sector, obamacare from my understanding is caution employers to cut back part time , end benefits for employees. will raising the minimum wage to $9 put further strain on the private sector and hurt jobs? guest: that's a really good question. and for small employers, the affordable care act exempts those under 50 employees, and it also gives every american, including your colleagues, people that you work with, an opportunity to access a plan from the exchange that is being set up so that, for example, if you're a business and you find that you live in a region where maybe there's only one or two

providers, maybe only one or two, it will offer you a broader range of plans to pick from that might be more affordable. the goal with the affordable care act is to open up insurance choice for you and for your colleagues and if one believes in the private market and competition in order to hold costs down, which i do, if you just don't get one organization controlling or two controlling the market in a region, then it holds the great potential to reduce costs, provide you with better care and access that you currently don't have. in terms of the minimum wage, i was interested when the president said, let the minimum wage rise with the cost of living. let there be a relationship there. so it is related to the health of the economy and it isn't a down draft on growth. host: greg in fort smith, arkansas, republican caller. caller: hi. host: hi, you're on the air. caller: i'm sorry.

this delay with this. host: listen through your phone. caller: yes, ma'am. did you say that just a while ago that you did not support raising the retirement age? guest: i do not support raising the medicare eligibility age to 67. that is correct. caller: i ask because most people have broken down and -- but my question that i'm asking -- host: we're listening. caller: my question is, how much money does the government give mayo clinics? or do they? host: give mayo clinic? caller: yes. host: what are you getting at? caller: well, that would be some way to save money because they do not accept medicare people. host: so you're wondering how much money is given to providers and if that's a way

to cut spending. go ahead, congresswoman. guest: i don't think i quite understood the question. is he referring to a specific clinic? host: he was referring to the mayo clinic, they're headquartered in rochester, minnesota, but i think the question is, about providers that don't -- they don't take medicare is what he said. could you just speak to the costs and the money given to providers, like hospitals, like mayo clinic? guest: i think that for most providers, particularly hospitals, half or better of their revenue relates to medicare reimbursement and medicaid reimbursement. so it is very, very significant. some might get 1/3, some might get 1/2, in the region that i represent most of the hospitals, about half their revenue relates to several payments for care because most people become ill when they're older and there are many people who don't have insurance or they can't afford different

procedures in med -- and med dade clicks iner to -- medicaid clicks in for them. that's why when the president talked about reimbursement based on outcome and making sure that payments relate to performance, that is really a measure that can make a difference across the country. and for the federal government to be promoting the best operations, the best practices in order that we get the greatest yield for every dollar that is spent. we also have a situation where, as you know, the federal government for years has been imposing regulations that say, well, you shouldn't be in the hospital over a couple days. maybe two, three days. some patients have to be in the hospital for over that period of time. because they have serious illness and they would then be released to a nursing home which is very expensive, they'd get sick again and come back in

the hospital. that made absolutely no sense, it was very, very, very expensive. so the president's statement last night that he wants to reimburse based on performance, not on the number of days of stay in the hospital, that was a very interesting statement and we'll see what legislation he sends up in order to implement that. host: congresswoman, the president also talked about manufacturing hubs, creating them across the country. government-private sector relationships. how might those work? guest: we already have one in the state of ohio, in youngstown, ohio, which had been so affected by the downturn in the steel industry and the outsourcing of bakes i -- basic manufacturing from this country which has been a tragedy over the last 30 years and that particular hub is really aimed at a new type of, as i understand it, a new type of manufacturing, advanced manufacturing, where literally you can take and create an on object in 3-d, in full life-size, through a special

type of machining. i've seen it done. it's absolutely amazing. and the president was talking about an effort between the department of defense, the department of energy in places like youngstown to bring together the private sector and our need to advance research and development of products in the manufacturing sector. i'll tell you, i just cheered because those of us who come from manufacturing america know that that is where you create real wealth. on the agricultural side, think about this, as a country agricultural income is at all-time highs, despite the drought, because of the way in which we manage agriculture in this country. manufacturing has been out there struggling in a global economy under such unfair competition from closed markets like japan, like china, and even our own automotive industry hits the skids because we as a nation were not really meeting the needs of advanced

engineering and energy efficiency in those companies. and we had to refinance them. these centers the president's talking about and he'll have to send out more details, but it's a way of leap frogging technologies in order to move into a 21st century manufacturing age, inside the borders of this country, not by outsourcing. so i am very anxious to see the details on that and i'm glad that the president selected the departments of defense and energy because those are two that i have particular responsibility for here. host: congresswoman kaptur is also part of the manufacturing caucus up on capitol hill and the automotive caucus as well. isaac in tampa, florida. democratic caller, you're next. hi, isaac, you're on the air. caller: ok. hi. i have a question and a comment. it's my own belief the republicans create a war in iraq. which continues.

[inaudible] so my question is, can we create a -- [inaudible] to avoid another miss mistake like iraq? guest: there's some background noise here. host: isaac, are you still there? it's a little bit difficult to hear. we're up at can house office building, that's where the congresswoman is joining us. could you repeat your question? caller: yes. in the war in iraq was wrong. the messenger: it was wrong, ok -- host: it was wrong, ok. caller: is there any way we can create a plan to avoid another war like that? because spent trillions on that war and the republicans don't admit it. host: ok, congresswoman? guest: i thank isaac for calling in and the war in iraq was a tragedy.

the american people were not given the actual facts and there were not weapons of mass destruction found in iraq. so the caller is correct. i think that he asked for a contingency plan to avoid that kind of terrible miscalculation in the future and i think it depends on all of us, the average citizen doesn't have the information at their fingertips that those of us in washington do. i was one of those members that thought a war in iraq -- fought a war in iraq and we were unsuccessful in our efforts. but there were voices here. now looking back they're saying, oh, you were pressured, how did you know that? what we knew was we didn't have the evidence for the invasion and -- but what happened was there was a lot of propaganda that occurred at that time and the american people obviously

were put in a very fearful state of mind and you could just feel the country move to a state of war even though the facts weren't there. because the public obviously wants to defend this country and the interests of this country. but they were not given the proper facts and history will record that. so i hope we will learn from that and that in the future the congress and the american people will be more vigilant before we commit our precious men and women in the military to military action. host: patricia is up next watching us from libertyville, illinois. independent caller. caller: good morning. i would like to say that i felt that the state of the union address was much ado about nothing. obama is a talented speaker which has been proven however, i am concerned at what i would call the willful deceit by mr.

obama and by others who speak of defense cutbacks when in fact these $300 billion or $400 billion that we are allegedly cutting back from the wars in iraq and afghanistan is being paid out by the state department as payment for contractors left behind in iraq and in afghanistan to continue these wars. host: all right. let's have the congresswoman respond. guest: i want to thank the caller very much. because of what has happened in the past with these particular military engagements. we have to be very clear on where the american people's tax dollars are being spent. and she is correct. the cost of contractors related to these wars is extraordinary. i know when i have traveled to iraq, to afghanistan, and i have personally witnessed with my own eyes the presence of many of these contractors versus those in our military.

and they are very powerful interests and they make themselves felt. as i said earlier in the program, i am for insourcing these services back to the department of defense so they're completely within the control of the secretary of defense and those in charge of our military and the various branches of the military. we've had many incidents with contractors. we need some contractors, on the other hand they don't operate by the same rules and it creates a real problem and our soldiers know it. our soldiers know it. i was flying into iraq and a young gentleman pilot from ohio was actually flying the plane and i said, tell me about what you're experiencing over here, soldier. and he said, congresswoman, get those guys in the back of the plane out of here. and what he meant was, he was carrying the planeload of soldiers with contractors onboard. and very offended because they

made five times more than he and his colleagues. the cost of it is extraordinary. so i thank the citizen for calling in. i thank her for her impressions and i am hoping that as we look at where to trim, that this will be an area of the defense budget that we can make a real difference in and insource many of those services back into the department of defense itself. i think it's important in terms of national security. host: one last phone call here for you, congresswoman. al in tampa, florida, republican. caller: yes. my concern is the waste in the v.a. department. when they're having conferences and everything else and spending millions of dollars, mr. miller tried to get control of it. i remember him doing -- they had a committee meeting about the $2 million that they spent down in miami when they just

kicked people out of the hospital with ptsd. i'm a disabled vet. i've been waiting eight years for my v.a. claim. i've lost my house, i lost my car. i have to pay for my medical on the outside. in tampa there is over 200 days that the hospital goes and bypass means there's no room for you. have to go out on the outside to get -- i have to pay for my own medication because there's no room at the v.a. hospital. they haven't added one hospital bed in there since 1974. and they've had all these wars and they're not taking care of us. and they're wasting millions of dollars and they wonder why the vets are killing themselves. because we love our country but we don't want to see anything bad and we're being abused. guest: first of all, thank you for your service to our country. and i'm sorry for your injuries.

and, yes, we do have a responsibility from the time of lincoln when the department of veterans affairs was established, to care for the wounded warrior. their families, their spouses, their children and you can certainly call my office and i can try to help you find your member of congress and to see what's happening with your individual situation. we do this every day. i know that florida, because of the number of veterans that have moved to florida, is under particular stress and we have put a lot more money into florida. i don't know how your particular region is managed but i can tell you, i know this backlog, disability claims inside the v.a., is huge. i saw secretary chin secretaryy last night, the -- shinseki last night, and i know how committed is he to removing that bach log and to try to get these -- back lock log and to try to get these things resolved. i would be happy to put you in touch with your member of congress. i'm not sure who it is but call

i'm not sure who it is but call us at 20