budgets committee office. it is part of the agreement that ended last month shut down. this is just under two hours.

>> the committee will come to order. everybody can take their seats. andorning, everyone, welcome. i want to thank senator murray and the entire committee. patti and i have been talking.

we are discussing the parameters of an agreement. we are not there yet. there is a big gap between our two budgets and case anyone has noticed. that is why we are talking. the reason why we are here is to get an agreement. we spent a lot of time talking about our differences. we got that part down cold. the hard part is skittering out where we agree. i am not going to start -- the hard part is figuring out where we agree. i will start with dr. elmendorf. he will give us the long-term economic outlook. i will recognize any member for two minutes or for discussion or to ask a question. people can be recognized more than once if they choose to do so. we intend to adjourn at noon.

with that i would like to recognize senator murray before we recognize dr. elmendorf. >> thank you to dr. elmendorf for being here today. nation isze our facing some serious economic challenges. our economy is recovering, but far too slowly. our highest priority has to be making sure we meet our short and medium-term needs, create dr.in the economy, as elmendorf will talk to us about today. this is not easy. our budgets are dramatically different. we agree that we need to step out of our partisan corners and make some compromises and lay down a foundation for some long- term bipartisan agreements.

we had a number of discussion since our last meeting regarding the parameters of a potential deal. i have been encouraged i those conversations. they will continue in the days ahead. i hope we will get to a bipartisan compromise very soon. i look forward to this productive discussion today and i thank everybody for being here. >> inc. you. dr. elmendorf, the floor is yours. briefly review the economic outlook and try to answer any questions you have. in february, we projected that economic growth would be slow this year and a more rapid expansion would begin next year. that is still our view. in particular, real gdp is on track to rise two percent this

year, a little above the 1 15% that we envisioned, but still a modest -- a little above the 1.5% increase that we envisioned, but still modest. the share of the population with jobs is shown on the next page. is retirement of baby boomers and other demographic factors. it has fallen below trends. employment is 5 million jobs short of what it would be if the employment rate were back down with a sustainable level and participation in the labor force was back up to its trend. the

primary cause of the distress in the labor market is a shortfall in the demand for goods and services relative to the productive capacity of the economy and the demand for workers. the primary reason demand is weak is the enduring effect of the housing bubble. too.l policy has matter, taxspending increases and cuts in the 2009 recovery act have been fading. congress has enacted additional legislation to reduce budget deficits. the combined effect of the deliberate housing choices you have made has been to reduce the deficit from about 10% of gdp in in 2013.four percent to 4%s the most abrupt --

in 2014. it has slowed economic growth during the past few years. policyinty about fiscal has been unusually high disagreements have led to delayed enactment of appropriation bills, worries about the fault on federal debt and showdowns on other budget issues. that uncertainty is probably dampening growth, but we do not know by how much. fiscalther tightening of policy building to current law for the next few years as well as ongoing uncertainty about fiscal policy represents continuing headwinds to the economic recovery. at this point, we think 2014 will see an upswing in housing construction, rising real estate and increasing availability of

credit, as well as a reduction 2013scal drag relative to given current law. this will spur a virtual circle of faster growth in employment, income, and consumer spending and business investment. however, everyone should be cautious about that outlook. a study of the historic bubble of housing crises have been warning that working off excessive housing stock, restoring credit and regaining confidence generally takes time. turnink the economy will the corner next year, but no one can be sure. in addition to the near term economic challenges, the country faces significant long-term and economic budgetary challenges. for one thing, the prolonged weakness in the economy has lowered its productive capacity for years to come. persistent long-term unemployment, shown in your next chart, will lead some workers to

leave the workforce earlier than they would have otherwise and inroads the skills of other -- erode the skills of other workers. as you know, the aging of the population, the expansion of federal subsidies for health insurance and rising health care costs will put increasing pressure on the federal budget. flip to the next page at the top. the next page shows the budget deficit for the coming decade under current law. 2% officit will fall to again,t it will increase reaching 3.5% of gdp or nearly $1 trillion. deficits continue to increase beyond the coming decade. as a result, federal debt held by the public, shown on the

chart at the bottom of the page, will reach 100% of gdp 25 years from now, even without accounting for the harmful effects of that increase in debt. there are at least three reasons we and other analysts are concerned about the long-term outlook. debt is already larger relative to the size of the economy than at any point of our history except for the point after of uw to -- world war ii. the government interest costs will rise dramatically when interest rates return to normal levels. the skullty to use policy to respond to future financial crises, recessions, and international threats will be much more constrained. the risk of a fiscal crisis will be higher than it would be with less debt. all of those problems of keeping debt at its current share of gdp

will be worse if debt rises persistently relative to the size of the economy. we project that under current law, debt will rise persistently relative to the size of the economy. long-term projections are very uncertain. our long-term outlook shows the federal budget is on an unsustainable path under a wide range of assumptions. you know the main reasons. retirement of the baby boomers and the rising cost of health care are pushing up the costs of the largest federal programs. your next chart, top of the next page, shows federal spending and revenues under the cbo baseline compared with past averages. in the top left corner of the chart, you can see that social security outlays are 4.2% of gdp andverage between 1973

2013, the last 40 years. take spending for social security and medicare together. average. of gdp on gdpill be more than 8.5% of by 2023. in the long-term outlook, it will be more than 11% of gdp. thense spending, shown in third rank of numbers, is on track to be a shrinking share of gdp. all other spending, except social security, medicaid, and defense, will be the same share of gdp in 2023 than it was -- that it was on average in the past 40 years that it is today.

the study of gdp masks some sub components. you can see at the chart at the bottom of the page, means tested health care programs, are taking a growing share of gdp. in contrast, nondefense discretionary spending is on track to be a sharply shrinking share of gdp owing to the caps in the budget control act. charts like these not to suggest you should try to repeat the budget configurations of the past, but to help you and others to understand which parts of the federal budget are expanding and which are shrinking. there is no particular reason that outlays for social security and medicaid need to be cut back to their historical average of gdp when a larger fraction of the population is old enough to

receive benefits from those programs. if those programs are not cut that, we will need to collect a larger share of gdp in tax revenue relative to our history or cut back other federal benefits and services relative to what we have been accustomed to. the third reason of concern for the long-term budget outlook is that our baseline rejections include provisions that would restrain deficits in significant ways, but might raise widespread objections as they took effect. examples.er 2 given the structure of the tax code, revenues would rise above gdp inistorical level of just a few years and keep rising. time, outlays for defense and ends discretionary programs -- and nondefense

discretionary programs would rise in 2017 and beyond than at any point. under theary funding current caps would be about 1 -- trillion less. possible andone priorities, there would not be anything wrong with either of those developments. if either of those current law policies is not maintained, either the increase in tax receipts or the shop -- sharp drop in discretionary spending and spending cuts are not made, the deficit might be a lot greater than we are projecting under current law. we face short-term and long-term economic challenges. tose challenges are related fiscal policy in different ways. the long-term policy can be adjusted by reducing future

deficits. the short-term challenge has been exacerbated by the recent sharp reduction in deficits. policy changing -- changes that led to greater -- that leads to greater tightening, would be relative to our projections. congress makes of informed decisions, we have just onpleted our biannual volume reducing the deficit. we rocked a copy for each of you and we will be posting a copy on our website at noon today. i will close on a note of optimism. i worry that toting up all of the economic and budget challenges our country faces can make the problem seems so large it discourages people from tackling them. that would be unfortunate. a clear resolution of the long- term budgetary concern would be beneficial. even if that is not feasible

g the now, reallocatin budget and reducing uncertainty about fiscal policy next year and improving and outsourcing the budget outlook would be a good thing for the economy and our fellow citizens even if it left significant challenges to be addressed in next year upon budget process. budget process. thank you. >> i think we will make it a little more of an informal discussion. ask members to put your placards up if you want to get into the queue to speak. we will alternate between republicans and democrats. ' commentsmit members or questions for the director to 2 minutes. members can speak more than once, of course. i will go with mr. portman and then esther white house in the

whitehouse in the queue after him. , thank you forf your insights. you have depression -- depressing information for us. ng's do not look good. if we continue to see high rates of revenue and relatively low rates of domestic stationary spending. i have two questions one interest rates and one regarding tax revenue. if we go back to a historic level on interest rates, we have a huge problem in terms of meeting these projections you laid out. us an answergive on that, what do you consider to be the historic rate. already see a creeping up of

the rate today. taxes, with regard to that tax revenues are going to be above historic levels by 2038. over the next decade, what would be the average tax as a percent of gdp? how does that compare to other decades. timeve never had a 10 year with revenue at that level. second, what would it be like in the next decade. two questions, one on interest in terms where are we of taxes as a percent of the economy and how does it compare to past decades? we expect interest rates to

remain relatively low. the economy will be recovering. we think that will keep the federal reserve in a fairly easy posture and will keep credit demands low. we think they will return to .ormal levels year treasury note rates will be a little over 5% at that point. the normal interest rate has a profound effect. nominal interest payments by the federal government last year on net interest was a couple hundred billion dollars. we project in $2020 it will be 4800 -- $800 billion.

will be more than 3% of gdp over the next 10 years. you are talking about almost a trillion dollars in interest alone. know, the historical gdp data was revised. we incorporated that into our projections as a share of gdp. the number i have in front of me is that tax revenue will average 18.3% of gdp. that is taking the larger level of gdp built into history and projecting it taking the same protection of dollar revenues that we have from may. we have 18.3% now and that compares historically to 17.4%. if we look to 2028, that will be

up to 19.7%. >> given the apples to apples 3%parison, have we ever had gdp for any decade of our history? rates of taxation continue to increase after that. >> we had rates that were close, but that was due to a bubble. >> thank you. >> thanks a lot. mr. whitehouse. commended this discussion with spending cuts we

have already accomplished of $1.5 trillion and counting associated interest savings with tax rate increases, increasing revenues by $600 billion. $700 billion with associated interest savings and with tax deductions, loophole closing, of zero dollars, nothing yet. i would like to put up a slide ratioould that showed the between what we collect through our tax system and what those out the back door through deductions and loopholes. you will see in the green and every dollar we collect through the tax code, $.90 goes out the back door for individual taxes. for every dollar we collect in the corporate tax code, $.60 goes out of the back door

through deductions and loopholes. , cbo said in a report last year that expanding language, which is cbo bases, which is cbo language for a tax increase, would have a small negative effect or even a positive effect on how efficiently the economy operates. small or negative effect was in reference to reducing the deficit by raising tax rates. but you did mention not only a small negative effect, but the chance of a positive effect on from reducing the tax mending and the loopholes. can you explain that? >> different sorts of consumption and different source

of investment in the tax code because of a whole slew of what homes distorts and businesses make. the distortion may be an effort to correct some other distortions that exist in the world. maybe people do not do enough of something to achieve a social gain. inefficient because of the greater tax subsidy or greater tax rate on certain activities. to the extent that the tax reform effort were to reduce some of the differences in the tax increases of different household, it could leave house -- households and businesses to make more efficient decisions. it depends on the nature of the changes that were made. that is labeled tax reform would have those effects,

but tax reform could have those effects. >> the gains from tax loophole closing would go disproportionately to the highest income sectors of the economy. you off,ying to cut but i want to make sure that 2 minutes were the 2 minutes. >> i was following senator portman's example. receivedn ones are disproportionately by higher income people. look at thatou to report. we are happy to send a copy for you all to look at. senator go with sessions and mr. cliburn. -- clyburn. >> we have a far too complex tax system, which is causing abuses

to occur. they are trying to reform our system. senator baucus and senator hatch have solicited ideas. hopefully, we can make progress on that. i would support it for sure. looking at your chart on table explain why it is refraint that we can the growth in spending. we are not talking about long- term spending reductions. we are talking about restraining a growth in spending. thatndicate on that chart if we were to maintain or reduce spending over the next 10 years by $4 trillion that we would achieve greater growth than would otherwise be the case.

byeed, your chart shows that 2038, we would have 7% more growth. if we were to maintain our present course and not achieve $4 trillion in spending reductions, we would end up with a minus 7%. that is a germanic difference. -- dramatic difference. reserve has missed the growth projections in the future. year.ht be closer this in the past, you have missed it quite significantly. a cover magazine had story on slow growth. a project for the next 20 years growth would be one point -- 1.8%. mark zandi testified several times and he projects 1.8% for the next five years. prescription, this

suggests we could have better growth if we get serious about constraining our spending. is that accurate? >> you were referring to figure 6.2 of our long-term outlook. betweent distinguish the effects of reducing spending or raising revenue. this is simply an analysis of having more narrow deficits. be good forits will the economy in the longer term. as i said earlier today and on many occasions, deficit reduction that has occurred over the past few years has been a headwind. the near economic problem has been a shortfall in demand for goods and services. another economic challenge is to boost the supply and technological progress. clyburn.iburn --

>> yesterday, the wall street journal ran a front-page story dealing with the widening job cap in our economy. that during the so-called supercommittee, you and i had a little exchange about the impact of unemployment rates on our deficit. stark correlation between the 2. this report we just saw yesterday, if we look at 30 study thate 30 year , it meansed to us

things have gotten even worse since then when it comes to unemployment rates and the impact that is having on our deficit. i really would be interested in .ow you view this study there was a study at uc berkeley indicating that the increase in , 90% of those increases went to the upper 1%. i am really, really interested in that. i am also interested in whether or not you will define spending as many others are beginning to define spending.

of people say, and i would not disagree, that we should look at cutting spending. whether or not entitlement programs, if you call that spending, would you call tax expenditures tax entitlements? i have noticed that a lot of now looking at what we call tax expenditures as tax entitlements because this occurs time and time again and gets back to what senator whitehouse said. i would be interested to your views on tax entitlements -- in your views on tax entitlements versus tax expenditures. a great diversity of economic experience in this country. all of the charts i show on the average unemployment rate are overall income growth.

unemployment the rate, the overall unemployment rate in october was 7.3%. the unemployment rate for people between 20 and when before years of age was 12.5%, much much higher. the unemployment rate for people with less than a high school diploma was almost 11%. the unemployment rate for african-americans was a little of course, there are categories and groups of people for which the unemployment rate was less than the national average. peoplecession has hurt to the extent that the people's fortunes have improved or not during the recovery. there are also long-term trends of theh a growing share total national income is going to people at the higher in of the income distribution.

many other points of income distribution have received a we are working to update our analysis. there will be one shortly from us that will update the look of distribution of the federal tax heard in and the distribution of income. the point about tax expenditures. that term tax expenditures is an old term. it is in the budget at that established cbo almost or the years ago. there are large numbers of analysts on both sides of the political spectrum who think that from an analytical perspective, tax expenditures are viewed as a form of government spending because they are direct actions by the enrile government to give benefits to protect user groups us didn't -- of people. senator cryptoh

-- crapo. >> dr. elmendorf, i want to ask a two-part question. 0n 2009 when we had the $80 billion stimulus package before congress, you were just starting then. that is a a report common type of report that we see from economists who testified before us, which said the stimulus rock -- package, which was entirely borrowed money, would have a stimulative if it. it was two or three years. starting in two or three years, it would have a depressing effect on the economy. is that your recollection of that report? this pursuantdate

to federal law on a regular basis. the recovery act provided the biggest boost to the level of output and employment fairly soon after its enactment and it has provided a waning boost since then. we think the extra debt will start to be a drag on the level of output later in the decade, not yet. you're a point is right. your opponent is right. >> when we get to the drag of that stimulus spending and the debt it is growing and as we look at a question of the tax expenditures that senator wifehouse looked at, many of us have been -- senator whitehouse looked at, many of us have been fighting to reform the tax code by flattening the base and reducing the rate.

i believe you have testified in the past that that would have a positive stimulative effect on the economy if we approached the tax code in that fashion. stimulativehave a effect. the size of the stimulative effect would depend on the reform itself.ax i want to be careful about attaching particular additives to the general notion of tax reform. it depends on the extent to which you and your colleagues are willing to do the base rodney measures and remove tax expense of a essbase broadening broadening measures and remove tax expenditures. little bito talk a about the chart you have on the second page, short-term versus

long-term unemployment rates. the federal reserve recently released a paper or that stated that long-term unemployment, long-term unemployed people become less and less attached to the workforce and lose skills that they once had. their productive capacity diminishes, it also diminishes the growth capacity for our overall economy. the paper concluded that what should be a cyclical downturn in employment has the potential to become structural. i guess i just want to hear you dig down a little bit deeper on this topic. when i look at the chart, this is an alarming figure. if it were the top priority of this conference committee to dig into that problem, what are our

to fiscal policy options prevent this from moving from a cyclical problem into a structural problem? >> senator, we think the weakness in the economy over the past five years has reduced the productive capacity for the rest of the coming decade. what we said so far is we have reduced our projected level of potential output i the end of the decade by 1.5%. that is partly through -- potential output by the end of the decade by 1.5%. we are carefully reevaluating those estimates. we will do next year's economic budget projections. we may conclude these effects are larger than we may have

expect it. the persistently high level of long-term unemployment is a worrisome factor for the economy. to --te a report a year a or 2 of go. two ago. or firms need to hire workers to meet demand that can be done through monetary policy, which i am not here to talk about. it can also be done to fiscal policy. activityate economic in the short run is to lower taxes or raise spending. a be clear, there is consequence of doing that without taking other steps to pay off that debt later. that is the point that senator crapo was making. there are microeconomic policies that try to help improve the working of the labor market and improve skills of workers by

strengthening their training or by improving their ability to find jobs. number of detailed a things that can be done. i do not think any of them should be viewed as silver book -- bullets. we would be happy to sit down with you and talk about that set of options. a closing comment on this, i was talking about unemployment, short-term versus long-term if you look at the jobs report, we have greatly diminished manufacturing and construction sectors. what added employment we have seen, has been increasingly in lower wage set is likely user and hospitality -- sectors like leisure and hospitality. a matter ofortantly people finding jobs, but also finding jobs that use their

talents in ways that contribute to the economy and allows them to receive higher pay. >> let's go with dr. price and senator sanders. >> i want to commend you and senator murray for continuing to exchange ideas and gain information. welcome back. i was struck your three conclusions. debt will continue to rise and we are on an unsustainable path. followed, will result in a decrease of congress's ability to provide prioritization of spending on defense and non-did into areas -- and non-defense areas. reach aeful that we can large degree meant.

that -- i am hopeful that we can reach a large agreement. my question is a specific question about sequester. the discretionary side of spending will decrease january 15. many believe that is not appropriate on the defense side or the social side. i have been intrigued by some who have come to me and said the way to mitigate that is to accelerate the contributions that states make to the expansion of the medicaid program that was contained in the aca. for the first three years, it is a 100% federal subsidy. is that one option that might allow us to mitigate the challenge of sequester and potentially decrease federal spending? that is one way to reduce federal spending, to have states

bear a larger portion of the medicaid costs. if you were to do that and simultaneously raise the caps on discretionary spending, you can accomplish the aim you are expressing. there are an awful lot of ways to cut spending and raise revenue in ways you could reduce the debt relative to our projections. >> thank you. thank you, mr. chairman. >> mr. sanders. , forank you, dr. elmendorf being here. i thought your presentation was interesting. you left out some important facts of contemporary america. i will tell you what i in can you tell me if you agree. think and you can tell

me if you agree. one of the difficult things is to deal with priorities. and you spend money or cut money it impacts real human beings. in america today, we have the distribution of wealth and income since the 1920s, late 1920s. in terms of financial wealth, the top 1% owns 38% of the wealth of america and the bottom escape percent owns all of 60% owns allbottom of 2%. and 2012, 95% of topnew income went to the 1%. does that sound roughly right? it sounds roughly right. we have not done an analysis ourselves through 2012. you are certainly right that the

distribution of income and wealth in this country is much more uneven now that it has been in decades. go forward in terms of our priority -- some want to cut medicare and medicaid and programs for low income people. there are more people living in poverty than any other time in american history. >> the calculation of poverty rates is a complicated business. the standard series excludes many of the benefits the federal government provides. important this is an point. it is important to understand the path as we go forward. your chart tells us that up 98 -- 1998, 1999, we had a surplus. the reason we began to go into deficit was because we went to

war in iraq. by the time we take care of the last veteran, it will cost us $3 trillion. how do we pay for that war? >> as you know, congress cut taxes. >> you are not suggesting that in the middle of a war that cost $3 trillion congress cut taxes for the rich? you are not suggesting that, are you cackle -- are you? >> congress cut taxes for a lot of people. isthe reason we are in debt three wars and medicare part d. as we go forward to figure out where we want to go as priorities, you have to remember that fact. thank you. >> let's go with senator john ensign. senator johnson.

ismy only response to you the latest full set of data we could collect. it goes into detail on the ways different federal programs, cash transfers and federal revenues, how they affect people in households of different income levels. those of you who are concerned about the distribution, we hope this information will be helpful to you. senator go with johnson. >> i am looking at your last chart where you are showing the dramatic increase. discuss the patient affordable care act. in no way, shape, or form did i wouldn't -- would

be able to hang onto their health care. we asked the cbo score what would happen when 100% of employees lost their employer sponsored health care. the presidente when he repeatedly said if you like your health care you can keep it? work -- cbodone any done any work to calculate how much that health care will cost? over the next 10 years, obama care will cost $2.4 trillion. there will be $1 trillion of tax revenue associated with the plan. where does the rest come from? question, inirst our initial analysis of the affordable care act, it showed somein our judgment,

people would not have employer- sponsored insurance who would have had it in the absence of the act. we discussed at some length with congress at the time our view that people who were buying insurance not to their employer but on their own would face, on average, increases on the premiums they pay for health insurance primarily because the policies they would have to buy under the affordable care act would cover a larger share of healthcare services. there health care -- their health care would go down, but their premiums would go up. we have done a lengthy analysis of how the cost of the expansion under the affordable care act would very depending on byferent sorts of responses employers and employees. we gave a great deal of thought to our analysis of those responses and our basic estimates of the affordable care

act. we did a long analysis of what would happen if employees and employers the hate in different ways than we expected. we have not done -- employees and employers behaved in different ways than we expected. we have not done the study that you requested. for 30%,endment asked 50%, and 100%. >> we viewed a wide range of possible possible outcomes. on the third issue, the affordable care act has a cost iodr the current 10 year per9 that we estimate to be $1.3 trillion or $1.4 trillion.

that money is offset by a combination of cuts in other sorts of spending, i merrily medicare spending -- primarily medicare spending. >> what am i looking at when i am getting 2.4 trillion dollars over the next 10 years -- 2.4 trillionlars -- $2.4 over the next 10 years? don't know. the bottom line over the coming decade is $1.4 trillion. we should talk about what numbers you are looking at. mr. chairman, i ask that the record of our preceding include the letters submitted by the chairriation committee calling for sequestration to be replaced. >> without objection. >> january 16 is the deadline

for passing legislation to keep the government running. the shutdown cost our economy 120,000 jobs, billions in economic at enmity. this conference committee must be successful in reaching agreement on a funding level for fiscal year 2014 with enough time for bills to pass before january 15 and a funding level 15 so that wer avoid another dysfunctional, unrealistic budget and appropriations process in just a few months, as noted in the letter from our creations shares. there is also bipartisan demand for us to and the sequester. said, rogers has sequestration is unrealistic, ill-conceived. discretionary cuts must be brought to and in and. -- an end.

sequester will cost our economy estimateded and -- 800,000 more jobs in 2014 alone. it bears repeating. cbo'syou please share analysis of the overall impact of sequestration on job and economic growth for 2013 and what you think the impact will if sequestration remains in place? congresswoman, when we quote from a letter we wrote to congressman chris van hollen. discretionary spending spending, if those reductions were eliminated, that 6%uld increase real gdp by 0.

and would raise full-time employment by 800,000 people i the fourth quarter of 2014. much.nk you very the stakesmplifies of our conference committee's work. i hope our committee will begin working in earnest toward an agreement to prevent the economic damage that hires and -- that partisan politics and sequestration has caused. and senatoran cole coons. that myt to assure you good friend and i did not coordinate our remarks. i was going to ask that that letter be placed in the record. speaking order was just

random. >> a couple points and then a question. i want to quote from that letter. we ask at the budget committee endeavored to agree on a common discretionary number no later than december 2. november 22 is nine days away. we do not have any scheduled meetings between the 22nd and december 2. this is a matter of some urgency. our colleagues on the appropriations committee includes my friend and myself. opportunity to getting about the billet -- the business of arriving at real spending bills. this is a bigger and a smaller problem than we are faced with. dr. elmendorf has given us a wonderful reason nation of long- term debt. on the other hand, the more immediate problem, the 2 bodies

are only about $90 billion apart. to borrow something said by senator mike enzi, that is not a big deal in a 3.5 jillion dollar budget. enzi -- senator mccain, that is not a big deal in a $3.5 billion budget. you are probably more familiar than anybody here with the house budget and the senate budget and the president's budget. i would , can youif you could tell us if there are enough savings to bridge the gap between the house and the senate budgets? $90 billion. the chairman said they could deal with hundred $25 billion in spending.

$125 billion in spending. >> there are areas where the budgets overlap. >> could you prepare a list of those sorts of cuts so we could have the options? >> we could look into that. budget resolutions are not analyzed by cbo directly. they are not pieces of legislation. they are plans of the budget committee that they build using information rum us. -- plans of the budget committee that they build using information from us. >> they do not have those budgets on the shelf. we have looked at each of those budgets and looked where those overlaps occurred. i think there are enough common areas for my friend and i to find a common figure and put the appropriators to work. >> senator coons.

director, i am deeply concerned about what is reflected in your chart. short-term unemployment has come down. long-term unemployment remains high and is persistent. it is worrying considering the human cost and the long-term cost to our economy. he testified before that not all cuts are the same. there are some ways we are cutting that are hurting our long-term competitiveness. infrastructure, research and development, longer-term reductions in our capacity. we should be prioritizing things that will excelerator growth. we should not be trying to get through this difficult fiscal time that focuses on austerity. we should the investing in a way that sustains growth. what types of policy could accelerate growth and deal with long-term unemployment?

what do you think are the impacts of sequestration and long-term unemployment and what are the budgetary implications of persistently high long-term unemployment? > the first part of your question, senator, of all nondefense discretionary spending, about half represents investment of some sort. nondefense discretionary spending, half represents investment of some sort about 20% of nondefense discretionary spending is investment in physical capital such as highways. another 15% is -- goes for education and training. over all, we think the investments build a stronger economy in the future and cutbacks in those investments would reduce output and kmk in the future. but i think it is also important to say that different pieces of those elements of spending may be much more effective than

others in terms of long term growth. we said that -- this is about research. federal spending and support of basic research has an average has a significantly positive return. we also noted that gross generalization is difficult to apply as guidance for decisions across budget functions, agencies budgets and appropriations subcommittee jurisdictions. so there is some evidence that we generated for other federal investments. it is nothing like a comprehensive evaluation of where in that large nondefense pool the money should be devoted. on the question of long term unemployment, this is very damaging. obviously for the people involved, many of whom have very little source of support for an extended period of time. but whatever savings people may have to get through a short

unemployment spell is much more likely to be exhausted if one is unemployed for half a year or a year or longer. but also has beyond the personal effects important economic effects over time. some people who are unemployed for a long time simply give up looking for work. some people find their way into disability insurance. the applications for the social security program have gone up rapidly over the past few years. people go into that program very rarely come back out of it into the labor force. technical skills and connections to the workforce, connections to people who are working. so it poses a very large risk. of there being some set of people that will not find their way back to work at all or find their way to the productive sort of work that they were in before they lost their jobs. >> are therein vestments in skills training and in the manufacturing sector if particular that strike you

because of that combination of factors? >> i don't have a simple report to that. we reviewed the number on a large number of different ways of trying to help people get back into the labor force. a number of the programs have been successful on a small scale and have not been tried on a large scale. it's a hard thing to do. i want to zis courage people from doing it. i don't have a short, crisp answer. but we would be happy to sit down with you and talk about the elements in that report and help you -- help you construct poll i that area.

>> i don't know how we can hear that since sequestration is working. we've heard arguments for raising taxes. you can't raise taxes high enough to satisfy the appetite of washington spending money. the tax code is a mess. but closing tax loopholes to spend more is not going to have long range good results because you get the higher level of expenditure and keep it there. closing loopholes for tax reform is what is needed and i support that. i'd like to give a caution to rumors that there is compromise on sequestration so we can spend more on defense. since the economy is so bad and since jobs are what's on everybody's mind and what we

ought to be working on, i hope we keep in mind that economic strength of our nation is a necessary precondition to our military strength. xpri compromising on sequester is shortsighted and is -- and hopefully those suggestions that you hear primarily out of the house of representatives won't be pursued. if they are pursued, i think it's shortsighted from the standpoint of the cooperation that you have to have on hill between people the same political party it's kind of like feeding senate republicans to the wolves. i hope you remember to keep our eye on the ball. we can be the sleeping giant that admiral warned the japanese

warlords about. don't attack the united states. we have to have a strong economy in order to have a strong defense. i yield. >> senator nelson is not here. let's go to senator warner. >> thank you, doctor. i have actually two questions. first of all, i just a question. as i understand under the affordable care act there is a three-year assumption of 100% pay of the medicaid expansion. i wonder if that assumption carried out throughout your budget outlook or your assumption assumes that that share will be reduced, number one. and secondly, as i look at your budget outlook, where i see the real significant issues in terms of getting our fiscal house in order, the trustees have said medicare goes bankrupt in 2026.

the disability fund you referenced, 2016. and is there a way for us to address our long-term fiscal outlook if we don't reform those programs or also are we able to even sustain them for the beneficials that rely on them? >> senator, your first question, our baseline projections follow current law in which the federal share of medicaid costs for the additional populations under the affordable care act declines from 90% over a few years later. our projections incorporate that and that feature current law. >> so just to be clear, if after three years the states come to us and say we want you to continue to pay 100%, that is not accounted for in this fiscal outlook? >> that's right. we would provide a cost estimate for that legislation. it would show additional cost for the federal government. >> with regard to obviously important programs, i think, to all of us but also a big challenge we face. >> yes. so on your second question, as

my charts showed, the rise in spending for social security and medicare under current law relative to the sides of the economy is quite large. and that will require one of three possible or a combination of three possible courses of action. you could raise revenues above the historical share of gdp. or you could cut all other federal programs, the combination of all other federal programs below the benefits and services that we have become accustomed to. it's not an analytic matter to say which is better or worse. the analytic point is you don't have a choice about doing at least one of those things and can you do one or two or three of them if you choose to. but at least one of those things will have to change. >> you also pointed out we're going to be at historical highs for revenues. at some point it's a negative impact on economic growth. >> so revenues will be a

historically high share of gdp. this will be at historically low share of gdp. but the movements as we think they'll play out under current law is not enough together to support the extra costs for social security and medicare relative to their history. and that's why more has to be done. >> senator warner and then we'll go with congressman black. >> i think getting something done for a year or two will have a positive infect on the marketplace and upon the economic growth and replacing some of the worst sequestration i think is a worthy goal being kind of virginia being ground

zero. and i wondered whether, let me get this out, i believe we are now imposing upon the economy a debt ceiling tax that you'll see a spike in interest rates every time you see a debt ceiling date come about. i'd be curious to know whether the cbos done any estimate of what kind of cost that bear would have on the debt ceiling taxes coming around february 7th. delayed maintenance of our construction is a tax because at some point it will have to be replaced. and i'd love to know whether there's been any analysis made on that subject.

and third, i know senator portman and i have gone around and around on this. and this was just raised by percent of revenues. i would simply point out one of the reasons why we have a 17 trillion dollar debt is that based upon historic revenue numbers we've never -- we've always been at an annual deficit. the only times we've had a surplus within the last 30 years is when revenues have been between 19.5% and 21%. anything at the lower rates, we'll be in deficit. i will simply say even with entitlement reform, and stroingly believe in entitlement reform, i guess i question on a going forward basis and even look at your numbers with revenues that i -- at a higher rate that still below 19 were still in that gap. two questions. one, because of the demographic bulge, it's hard to imagine how you're going to be able to drive the spend down to the numbers

that could be dealt with on dmind of historic revenue basis. and last point, it seems to me that one thing that we may not have factored in, i don't know if you did any analysis, is that not just in america but across the world we have seen a dramatic shift from the private sector to the public sector in both the areas of workforce training and particularly the area of research and development. there is no longer bell lab and more and more corporate america and korncorporations around the world are accepting the public sector to pick up the r & d costs. can you see to that as well? >> yes. on your first point about interest rates. i would say we think we have it fully in our projection. you suggested that maybe we had not been fully taken onboard. our numbers, we think it is fully taken onboard. we have built in a substantial increase and normalization in interest rates to a level that is consistent with the historical experience but a little higher because they'll be more federal debt relative to

gdp under current law. we have not tried to quantify. that on your point of instra structure, we've done work on highways and drawing on work the highway frel administration. it says in order to maintain the current functionality of highways, more would need to be spent than is being spent under current law. and using a building off the cost benefit analysis that the federal highway administration did that amount of spending and they would exceed the costs would be much higher than the amount under current law. you asked about the difficulty of whatever reforms were made to social security and medicare and keeping costs back where they used to be and i think that's --

i think you're right, senator. over the past 40 years, social security and medicare represented outlays for the program were 6% of gdp. by 2038 under current law, outlets will be about 11% of gdp. so the cut if spending that will be required on the programs that will be required to bring them back to the historic am average will be a cut of almost one half. we don't have anything that would accomplish that. as i said to start with, there is no particular reason why those programs should go back to the historical share of gdp given that many more people and much larger share of the population is eligible for them. on the other hand, if one does not restrain the programs, then significant changes need to be ma made. >> is there anything else you'd

like, senator? >> r & d, we're in the process of producing a chart book of federal investments and some of the private sector investments as well. in terms of development, there is often a great deal and growth in private sector development but in the more basic forms of research. that is the sort of output for the economy that the private sector will tend not to do enough of. that is really a responsibility for the federal government to support that sort of basic research. >> i'll run through the list of those of you who know will know. >> thank you, mr. chairman. in listening you to, it really is striking to me we have a

short term challenge that is different than long term in some ways. and the good news is we've actually begun to tackle long term and have been put in place the yearly deficit coming down by half. good news. you talk about growing the economy and being smart not reckless in what we're doing. when we look at that, it seems to me a good way of summing up is you're not going to get out of debt with more than 11 million people out of work. a number of us are talking about the economy. i'm wondering if you might just talk a little bit more in terms of the short term how we're smart about growing the economy. the manufacturing institute says there are 600,000 manufacturing jobs unfilled right now because skills are different than the jobs available.

and national skill coalition says about 300,000 people are going to be turned away from training programs because of the sequester cuts. so we have got inability, if we continue down this road to provide training whether it's the 20 to 25-year-old that you talked about where we have a 12.5% unemployment or others. i mean we're -- if we don't do this right, if we don't stop what is in my judgment recklessness in terms of how we approach cutting spending, we are cutting our nose to spite our face in terms of economic growth. since 2011, countries like china and india increased investment and basic research, we're cutting ours. again, short term, not looking very wisely at n. what happens in terms of across the board cuts on sequester on education innovation which seemed to me are critical if we're going to grow the economy and get people

back to work. you could talk a little bit more about that in terms of what we need to do, skills gap, so on? >> as i mentioned in my opening remarks, the sharp reduction in the deficit over the past few years has had the beneficial effect of reducing the accumulation of government debt. that is a tradeoff that is up to you and your colleagues to make. i think we've been clear now for a number of years. i think the skills gap is partly an issue in the short term and even more important in smub ome terms. important source of growth in the american economy, growth in people's incomes has been the greater education that people have received.

if that doesn't continue to happen, then that will have adverse nsequences on our future ability to consume our ability to raise our standard of living over time in the way that we have in the past. and the government supports programs and mostly at least through nondefense discretionary spending of one sort or another that can help to build people's skills, can help to do the research that's needed. as you discussed the amount and composition of nondefense discretionary funding, i think it is appropriate for you and your colleagues to be concerned about what the effects are over time of those different sorts of investments. and we're happy to talk with you about the work that we've done or know of that other people have done. as i said, i think there aren't simple lessons about -- in all -- there isn't that much evidence about just how much --

how certain things work better than others. whatever there, is we're happy to try to bring to your attention. >> the number one issue i'm hearing does relate to this issue of skills gap. i hope we'll keep that in mind. mr. graham? >> there. >> let's talk about general treasury obl obligations. medicare. what percentage of medicare payments come from the general treasury? >> so senator in our long term budget outlook, we reported -- we showed that in a figure. >> let's just make it really three out of $4? 2 out of $3?

>> so, senator, about now roughly half of total medicare outlays come out of general revenues. the other half come largely out of medicare payroll taxes. >> premiums are about 10% of medicare payments. >> over time this problem really becomes difficult for the general treasury, right? medicare obligations over time grow? >> yes, sir. very much, senator. >> 10,000 people a day and the baby boomers are retiring. there are 80 million of us over the next 40 years are going to go into retirement. when i was born in 1955 there were 16 workers for every retiree. today, how many are there? >> a few, senator.

>> three. in 20 years, how many will it be? >> two. >> right. so here's the big dilemma. if 80 million people are going to retire and the numbers are going to change from three now and 20 years two, we have a problem. you agree with that? >> yes, senator. >> so when it comes to a general treasury obligations in the future, i just don't see how we can avoid entitlement reform. do you gr agree with that? raise taxes a lot or cut benefits a lot. >> they have to cut even further what is scheduled in current law into the other benefits and services of the government provides. >> that will amount to a smaller share of gdp than it has in many decades. logically, that is your number. >> we have a prom that can't be ignored. that is the retirement of the

babyboomers. is that correct? >> that's correct, senator. >> is that why president obama decided to address cpi reform and means testing of medicare benefits? >> as you know, i will not speak to the president's motivations. >> why don't you go talk to him and ask him? >> i think not, senator. >> i would go along your lines, we did analysis of the sources of growth in spending. >> would you gr he with me that it would be responsible for a president of the united states, democrat or republican, to be thinking about cpi reform and means testing, medicare benefits? >> senator, i will not comment on what the senator should do. >> we were talking about two minutes for questions. >> all right. >> may i just note for your and other people's interests, we did an analysis of the sources of growth in spending for social security and medicare as a share of gdp over the next 25 years.

and fully half of the growth in spending for those two programs, share of gdp is just from the aging of the population and rising number of beneficials. >> can you tell me how two people -- >> last question? good lord. >> this is why he shows up late. >> tell me how two people can do what 16 people used to do. >> that would require a lot of work, senator. >> senator merkly? >> thank you for this discussion. >> i want to reinforce the budget, we should think about the current state of affairs in america. the current state of affairs is a large portion of the economy is going to very few. large percentage of the wealth is held by very few. but another key point is that we are losing living wage jobs. by one estimate, 60% of the jobs we lost in the great recession

were living wage jobs and less than 40% of those we're recovering our living wage gojo. is that a piece of the puzzle you have insight on? >> i can't speak to the precise numbers off hand. but you're certainly correct that the -- a number of decades now a larger share of total income has gone to people at the very top of the income zrp distribution and other people experienced very little increase in their standard of living. >> the reason i want to emphasize this living wage job is when folks have living wage jobs, they don't need other programs and reduces the government expenditures considerably. >> i just want to reinforce this point over investing for growth. we've had some comments around

the table that if you are spending money on a tax loophole or a credit or deduction and you close that loophole, you should not consider spending that money on something that would create growth. we have tax loopholes of basically compensate companies and we regard them for shipping jobs oversees. is that any possible way that can be construed as something that really helps our country, grow our economy here at home or increase the number of living wage gojobs? >> senator, i don't want to speculate about the features and the particulars of the tax code. reform of the corporate tax code and reform of the individual tax code could have a significant

positive he infect effect on th economy and people in that economy. >> you're being very diplomatic. i think most of us understand if you spend money to eliminate jobs in america and put them somewhere else in the world, that hurts our own economy here at home while investing in training to create jobs here improves our economy. >> yes, senator. but there is a growing and complicated empirical literature by economists about how helping u.s. companies compete overseas can oorneither hurt or help the activities in this country. that is an issue i don't want to wade in off the cuff while i sit here. >> okay. thank you. >> thank you. senator mccain? >> thank you, mr. chairman. i want to ask you a question about what i thought was the end of your oral presentation. we don't have the written testimony. i don't want to put words in your mouth. tend of your oral presentation after you were done with the

charts you were sort of offering the advice to us about the sa -- sulutory effects of finding a deal which would involve compromise between the house and senate. this refers a little bit to the opening comment that senator warner made. i've been worried about uncertainty as an ankle wait around economic recovery. i would like you to elaborate on the final comments and talk about the extent that you think uncertainty is an ankle weight on the recovery and if we can find a deal for 13, 14sh, 15 or beyond and see positive economic effects. >> yes, senator. so we and many analysts i think have concluded that uncertainty about federal fiscal policy has been considerable drag on economic activity in the past few years.

but quantifying that effect is very difficult. we had some people talk at our panel who have done work in that area to see how far we could go. and i think the conclusion of the advisors is that the results were quality but lots of numbers are important that can't be quantified. again, our judgment to many other peoples, the uncertainty about what will happen to taxes, federal taxes and federal spending has been an important source -- been important head wind to the economic recovery. and my remarks concluded that it would be salutory. but re-allocating portions of the budget in way that's fit what you think would be best for the country. and would reduce uncertainty

about what fiscal policy will do over the next year or two or three while improving or at least not worsening the long term budget outlook will be a positive factor for the economy now and next year and the year after. and i think there are very few large problems that are settled in one go. i don't want to discourage ambition on the part of the economy. but i think one should in many lines of life, the perfect should not be the enemy of the good. i think that applies to budget policy as well. >> thank you. mr. widen? >> thank you, very much, mr. chairman. director elmendorf. i think we know traditionally when you're trying to find a consequence, you're looking for both areas when they're on record for supporting changes. for example, chairman camp in the house and the president's treasury department have identified among the trillion dollars of tax expenditures that

the tax treatment of derivatives is particularly inefficient and abusive. now you can't be in the business of advocating specific policies this morning. we all get that. so let me just put this as a theory. is it correct to say that theoretically -- theoretically, you could eliminate several of the most play grant tax loopholes without compromising the broader tax reform agenda? just in theory? >> yes, senator, that sounds right to me. >> okay. thank you for that. the only other thing i wanted to do, chairman ryan, is ask we put into the record at this point a chart that director elmendorf sent you to a few weeks ago. i thought it was particularly important. the chart demonstrates for 2014, congress adhered to the caps for nondefense discretionary spending but disregard the caps

for defense. i would ask unanimous consent to put that chart in the record. >> without objection. >> thank you. >> thank you, senator. >> mr. cane? >> thank you, mr. chairman. i have a real sense of you aurg about this. there is no question the uncertainty of the policy is affecting the economy. it's also undermining confidence generally in the country and undermining certainly confidence in this institution. to that end, i have a modest proposal. i commend to you as a suggested way to begin to talk about a result for this conference. i call it the grande proposal. they tell me in starbucks, grande is in the middle. it's a medium size. >> i just call it medium. >> it's a medium. okay. here's what i propose, a 10-year deal which include mandatory cuts, cuts in mandatory spending, revenues, and a smoothing to substantially

mitigate the effects of the sequester but produce the same deficit reduction effect. number one, cut the sequester caps in half through a combination of cuts in mandatory spending of $255 billion and revenues derived from corporate tax expenditures of $200 billion. you would generate an additional $325 billion in additional revenue from corporate tax reform which will be applied to corporate rate reduction. and an infrastructure fund in a ratio of 5-1. $ $275 billion rate reduction and fran structure fund which would take the current corporate rate from 35% to 32.5%. you're left with half the sequester amounts and you would apply the smoothing concept that senator sessions has suggested in terms of the interest -- i'm sorry, the growth rate which would essentially minimize -- >> do you mean smoothing on pensions? >> no, i'm sorry. there is smoothing the rate of

growth in the sequestered amounts. you know, there are varying growth rates. and if you lower the rates in the out years, increase them in the near years, you can in effect eliminate the cuts that we're now facing. this would provide certainty to the appropriators. we give them numbers that they can then work with and that in turn gives us the plechl buifle that people talked about in the appropriations process in the congress rather than in the administration. i think there is something in there for everyone to dislike. i hope you'll take a welcome at this and consider this as a possible and it leaves further deficit reduction for further talks. but it solves the immediate problem of the sequester and, yet, wend up at exactly the same place in terms of deficit reduction as under current law.

>> thank you, i encourage every one of our colleagues if they have suggestions, submit them. thank you. >> thank you. >> i want to get to a point that was raised by senator warn we are respect to historic revenues as a percent of gdp. from 1973 to 2012 it was 17.4% revenues percent of gdp. of course, we were running deficits at 3% on average. the only time in that entire period we did not run deficits was 1998 to 2001 where the revenues as a percent of gdp averaged 19.5%. if you look at your chart under current policy, at the end of this ten-year window, he would still be at least a percentage

point below what it was when we balanced the budget. i would point out between now and then, we will have a 33% increase in medicare beneficiaries and a 30% increase in social security beneficiaries. so huge increase in seniors that qualify or are eligible for social security and medicare at a lower revenue percent of gdp then ten years from now in the years we actually balanced a budget. i want to emphasize that point. it seems to me it's hard to say you care about reducing or long term deficit but have a position that you wont close a single tax break or loophole or eliminate a -- any tax expenditures for the purpose of reducing the deficit. the senator pointed out and you're pointing out the recovery helped cushion the economy during a difficult time. that some of the debt service in

the outyears will provide drag. the drag from the interest rates we're inoccurring as a result of the wars, unpaid for prescription drug plan and the tax rates dwarf any outyear drag from the recovery bill. the sequester, as you pointed out, will result in approximately 800,000 fewer jobs. at the end of this year the current policy on unemployment compensation will expire. can you tell us what impact that will have on economic growth? these are people still looking for work, out of work through no fault of their own. what benefit would it be to the economy from extending that current policy unemployment compensati compensation? >> we wrote and report about this time last year that extending the additional unemployment benefits through 2013 would provide a boost to

gdp and jobs in 2013. we think extending the benefits now through the end of 2014 would provide a boost to jobs next yearme. we have not yet tried to quantify that. you may be about to ask. >> yes, if i -- i would ask cbo if you could quantify that impact. thank you. >> i'll look into that. >> let's go senator johnson anden in senator sessions then senator murray. >> we were given a sheet of paper on the possible obama care. the trust fund holds about $2.6 trillion of nonmarketable government bonds, correct? >> that sounds about right, senator. even the treasury has a $2.6 billion liability, correct? >> yes. >> so if you consolidate the books of the federal government, do the assets off sets liability and has a net monetary value of zero, correct? >> yes, that's right. >> so the trust fund has no

monetary value in total? consolidate ed base snis. >> in fact, senator, we work on a consolidated basis. that's why we talk about the federal debt held by the public. >> i understand. again, the federal government is an entity. it has zero monetary value. now i want to quick go back to the cost of obama care. in front of you now is what i was looking at that showed over the next ten years the cost of the affordable care act will be about $2.4 trillion. i'm not sure what you were categorizin categorizing. do you agree this analysis, discretionary spending, woint go through it. >> let me clarify what i was saying. i was referring to the cost of the coverage proifvisions. >> i'm talking about all the expenses that it's going to cost over the federal government. >> so we have not tried to tote up the costs in this way, senator. i can check. we have -- i have here our estimate of the effects of repealing a legislation that we provided to speaker of the house

last summer that has a breakdown of total outlays and receipts. by our estimates, the total cost -- the total addition outlays over the come being decade was about $900 billion and the total increase in revenues was about $1 trillion from the affordable care act. but you were doing i think different sort of breakdown into constructive pieces you have here. we can look at it and talk about it. >> i feel like we're showing about $2.4 trillion, a trillion dollars in revenue. where is the $1.4 trillion come from to make up that gap? >> as i said before, senator, there are cuts in other sorts of spending and increases in revenues. that's why on balance all of the provisions together, we indicate they will reduce deficits. >> so you're still sticking to that? >> yes. >> yes, senator.

>> thank you. senator sessions? >> thank you. with regard to the sequester and the job short term but in long term, your report makes clear on chart 62 as we discussed earlier that if we don't adhere to that $2 trillion in savings, we'll see a minus 7% reduction in long run gdp whereas if we do, we'll have a 4% gain which is a huge difference. if we take another $2 billion out, we'll have another 7% gain. the long term -- i think we all have to realize that sometimes you have to take some medicine to get off an illness. are you familiar, doctor, with a new imf international monetary fund report on europe that found on all the actions they've been taking over there that tax increases are two to five times more harmful as cutting spending

to reduce deficits? >> i've heard of the report, senator. i've not read the details of it. and i should say, as you know, in our analysis of the effects of changes in the budget, we try to incorporate the effects of changes in tax rates in addition to the effects of changes in overall amount of government borrowing. >> and your findings are not inconsisnt with that general principle. your find woing findings would that tax increases are less helpful than spending cuts over the long term to deal with deficits. >> so the one clarification i would offer, senator, is that increases in marginal tax rates, tax rate that people pay in an additional dollar of saving increases in marginal tax rates, slow the economy relative to some other way of reducing the deficit. it's not affecting people's behavior. >> with regard to the marginal rates, you would agree that it -- on tax increases are less

advantageous over the long run for the economy than spending cuts? >> than spending cuts that do not otherwise distort people's behavior. again, we come back to the discussion about the role of investment. federal investments can also help the economy in the long run. senator, the point is -- >> that's not what your report says. >> no, actually, senator -- >> in general that the tax increases are less -- are less helpful in reducing the deficit as -- tax increases do more damage to growth over time than spending reductions as we seek to reduce deficits. >> senator, i think we tried to be very careful in our reports not to paint either all tax increases or all spending cuts with the same broad brush. >> i know. >> as you understand, the incentive effects of -- >> i'll look at your report.

i think it says what i said. >> okay. we'll go to mr. whitehouse. >> thank you. so this relates to health care in the country. and the figures i have is that we are spending about 18% of our gdp on health care nationally. that figure is northbound, headed for 20 and higher. >> yes, senator. >> and that the least efficient of our competitor and industr l industrialized nations is burning maybe 12% of their economy on health care. so we pay about a 50% inefficiency premium in our

health care system compared to other industrialized countries. the president's council of economic advisors said there is $700 billion per year to be saved in the health care system without affecting the quality of care in any adverse way. the institutes of medicine i think are at $7 auto -- $750 billion. george bush's treasury secretary who is putting knowledge in this because he ran the pittsburgh group that focused on health care therement they'. they're at $1 trillion a year. so these are very, very, very big numbers. and 40% of the numbers would come back into the federal budget if we were able to achieve those savings on a national level. so i know that there's a scoring problem with trying to work from the national health care cost

savings into the federal budget. but just in terms of talking to us as members of congress, in terms of the priorities that you see out there, how important is it for us to get a handle on the health care cost problem in the united states? >> senator, i think it is a tremendous difference for the federal budget. if you and your colleagues and people running the programs can find ways to slow the growth and costs that do not adversely affect people's health. but i think the principle problem is not -- >> that's the premise of all the different studies that i've reported. is that it won't hurt people's health care but improve it. >> i understand, senator. i would -- the place i would disagree with you is that i think it's not basically a scoring problem as a policy problem that you confront. so there is very widespread agreement, as you know, among

analysts and practitioners, health care providers, that a good deal of health care spending in this country is doing little or nothing to improve people's health. but there's much less agreement and much less evidence to show how federal policies should be changed to squeeze out that extra spending. >> i'm not saying we understand the policy jujtsmedgments yet. but you think we should be relentless on this? >> yes. it would make a huge difference. >> before i turn for the last word to senator murray, you had a uc request? >> yes. i would like unanimous consent to enter into the record "the wall street journal" article that i referenced in my comments. >> all right. without objection. >> thank you. [ inaudible ] >> i think he's good. good? perfect. >> just very briefly, mr.

chairman. i want to thank you and senator murray for allowing us to have this dialogue and also for saving probably tens of thousands of dollars in your own budget cutting techniques by turning off the heat in this room today. >> it's like wisconsin right now in here. >> just very briefly, i think this has been a great hearing. director, i think what i take from what you're saying and the charts and so on is consistent with where i think there's kind of a growing consensus which is that the two-thirds of the budgets that we don't appropriate every year which is on autopilot and growing to 76% of the budget based on your statistics is where we got to be focus a lot of our attention even in this group. and what you said earlier was you don't mean to be too pessimistic in the sense even if we made small steps in the right

direction in terms of mandatory savings and reforms that markets would respond favorably and that we would be viewed by the american people as dealing with a real problem. is that correct? if so, maybe it's a good conclusion statement for you to make as far as what you review this group. we don't have all the answers here. we don't have all the committees of jurisdiction. but we have an opportunity to do something that moves us in the right direction. what would you recommend that we do? >> well, senator, i can't make specific recommendations. i think that -- i would say i think the big steps are better than small steps. but small steps are better than no steps at all. and no steps at all is better than stepping backward. and so i think that the specific changes that you would make are, of course, up to you and your colleagues to judge on behalf of me and other citizens. but i think that while keeping your keeping your eye on the longer term problems is critically important that one

should not view this as sort of the world series or bust, that if one can move the ball a little bit, one can make some changes that would fit your sense of where they ought to be and reduce uncertainty about what will happen in january and february and throughout next year. that can be an important lift to the economy. it can improve the efficiency which the government operates and so i think that as i said earlier, one should not make the perfect enemy of the good. >> thank you. senator murray. >> actually, senator portman, that was where i wanted to end as well and i echo what was said, we all appreciate your comments about not discouraging us from doing the large obviously we have to keep our eye on the ball and continue to

work on that. your comments today are especially important for all of us to here, the uncertainty created by the way that things have been managed by crisis and by the sequester is harmful to the economy and that by making some small steps now moving us forward providing that certainty, so that businesses can sign contracts and know where they are going for the next year to two years is

>> c-span's wrote to the white house coverage continues today with two events. maryland governor martin o'malley is the keynote speaker at the new hampshire democratic party's jefferson jackson dinner in manchester. following that life event, we will show you remarks from earlier in the day by 2012 vice residential candidate paul ryan. the wisconsin with republican is speaking at a birthday party fundraiser. calls livelus your at 7:00 p.m. eastern here on c- span. monday, the senate homeland security committee will examine the impact of digital currencies that allow people to exchange goods and services without using real money. patrick --nclude

watch live coverage beginning at three clock p.m. eastern. -- at 3:00 p.m. eastern on our companion network, c-span3. firstqueline kennedy's lady time was -- was defined by images. international fame and the tragedy of a grieving widow all within three years. watch our program tonight at 10:00 p.m. eastern and sunday at noon on a c-span3 and life monday, our series continues. >> mrs. johnson as first lady loves to show off the texas hill entry in her home. the guests would gather here in the den, and various heads of state came to visit. hereonnection to the room -- one of the things she wanted to highlight was the native american heritage here in the hill country, and we do have a small section of arrowheads their peers she had an eye for copper and collected various items through the years and had gifts from various friends.

mrs. johnson gave a tour of the house in 1968 that was filmed where she featured the china that you see here, very colorful. the first lady, mrs. johnson, spent a lot of time here at the ranch and it was very important because it provided such a respite from all the turmoil of washington, particularly later in the presidency in which the johnsons could come home, recharge their batteries, and make that connection back to the land in the place that they value so much. johnson --dy labor lady bird johnson. governments in hearing from jeh johnson, president obama summoned me to head the homeland security department. mr. johnson recently served as general counsel for the defense department and also formerly to the u.s. air force. from the senate homeland security committee, this is about two hours and 20 minutes.

>> before dr. coburn and i began our opening statements, i want to begin mr. johnson, his family, and we will have the opportunity to meet a couple of them in a couple of minutes, but we are happy that you are here.

senator menendez is joining us shortly, but i think it is fitting that we let him go first at the new kid on the block. literallypy to hear and figuratively. is this your first time to introduce a witness? >> it is my first time, and it is important that i introduce someone at such an extraordinary caliber. i appreciate you giving me the opportunity and the difference to the senior considered her of new jersey, sunderman and death. it is good to see you as well, and thank you for this opportunity. i'm really thrilled today to have the chance to join the sender menendez, introducing someone i have known some time who is well-known in the state of new jersey, and the opportunity to support the nomination of this fellow new jersey and, jeh johnson, as the neck secretary of department of homeland security. out of deference to the senior

senator of new jersey, who is instructed to continue, so i shall do what i am told. >> he is on a roll. you do not want to stop them. go right ahead, please. welcome, senator menendez. >> i know all of these senators, you have seen my letters urging the senate confirmation of jeh johnson. they were penned not only by me but by many others, many of the most respected men and women in the military intelligence community. likehrilled to see people mike mullen, former secretary of defense bob gates, and three previous dhs secretaries, tom ridge, janet napolitano, michael chertoff. those letters reflect the respect and admiration of people who worked long hours with jeh, often on difficult and very complex issues, but the support that caught my eye comes from america's police organizations. they say something really

important about jeh. i may be new to the senate, but as mayor, i know there are difficult issues facing our country, and physically, we have a nation that has been targeted by terrorists. indeed, the city that i represented for seven years, had specific target by terrorists. we are a state that has also been hit by one of america's most costly national disasters, and we have a bridge and that node for key immigration. i know how vitally important" mission between federal, state, and local agencies or. as a former mayor, i can provide first-hand testimony to the strength of a coordination in recent years and we have made a lot of progress. and it time with jeh, know that this is something he gets -- the urgency, the importance, the critical nature of these coordinations and these partnerships. he understands that to keep

communities safe, the relationships between federal law enforcement and local cops, first responders and elected officials is crucial. that is true for dhs' .ounterterrorism mission it is also true for its role in preparing for and responding to disasters. i wouldn't that during hurricane sandy, during the response to it was responsible at every level to limit the loss of life and begin the recovery process. there is still a long way to go, as i discussed last week with administration officials, but with jeh at the helm of the hs, i am confident that new jersey will have another partner and advocate in washington. i am proud to introduce jeh