law. congress should recognize that the federal government should assist the private sector in the same manner it already does.

[inaudible conversations]

[inaudible conversations] >> hearings will come to water. welcome. i want to thank director elmendorf for joining us again. we appreciate your taking time to meet with us today and we know this baseline was late because congress was a little late. i am glad we got time to get to this. you have put together a very informative report. we still have a lot of work to do. we will run a deficit of $514 billion. that is less than last year but nothing to brag about.

the debt that deficit will start growing in two years by 2022, we will be running trillion dollar deficits again even though we will be taking in a historically large share of revenue. even though taxes are at a historically high place we still have trillion dollar deficits in the future. because spending will be growing twice as fast as revenue. over the next ten years we will add 10 fully in dollars more to our national debt for a grand total of $27 trillion. it is hardly time to start congratulating each other. i was glad to see we passed a bipartisan budget deal last year. it was a step in the right direction but only a step. we need to do more. we need to do much more. it is deja vu all over again. we know what the problem is. auto pilot spending and interest payments are driving our debt.

palmer acare add trillions in government spending and made things worse for the economy and working families. by 2017 cbo projects as if 2.5 million people stopped working full time by 2024. between 2017 and 2024 labor compensation will decline and these changes, disproportionately affect low-wage workers. translation, washington is making of a poverty trap much worse. report points out weak spots in our economy. low investment, high unemployment, people leaving the work force. if we get our act together we could start paying down the debt and give our economy the

certainty that it needs. tax reform, regulatory reform, energy development. all of these could create jobs and increase take-home pay. if you could bring up from the cbo report slide 2.8. this is a point i would like to highlight. this report says not only does the debt get worse, we have slower economic growth compared to the last forecast but what is particularly troubling is cbo's projection of the labor force participation. cbo's says half of this decline is attributable to the aging of the population. baby boomers are coming, retiring, fewer people following them into the work force. a problem we had for a long time we have yet to solve but most notably in this report is cbo also says government policy especially the president's health care law discouraging work. washington is making this problem worse.

this does not have to be our fate. we need to reverse this decline. i consider this a call to action. we know what the problem is. we know how to fix this problem and i believe we can work together to get it done. the debt won't take care of itself. it is up to was. the men and women in the representative branch of government elected to serve and represent them. we need to take action. i thank you for this report, dr. elmendorf. i look forward to a great conversation and i would like to recognize the ranking member, mr. van allen. >> i joined the chairman in welcoming you, dr. elmendorf, welcome to you and your entire team for the good work you do. as i look at the most recent cbo report it is good news/bad news story. the good news is we have seen economic growth over the last few years and continued economic

growth going forward. the economy has added over 8.2 million private sector jobs over the last 46 months. on the other hand, this report projects very sluggish growth in the job market. in fact as i read it you project the average unemployment rate in 2014 will actually be higher than the unemployment rate in december of last year and that clearly is not good news. page 3 of your report sums of this next story when it states, quote, economic growth is projected to be solid in the near term but weakness in the labour market will persist and that sums up our challenge and it seems to me we should therefore take actions that are within the control of this congress. congress can change that trajectory. your report is based on current law but congress can take action to date that will actually change that story for the

remainder of this year and increase job growth and the president and house democrats put forward clear ideas to do it. a jobs plan calls for a significant additional investment in national infrastructure in roads and bridges and broadband to help boost our international competitiveness and put people back to work. we can increase the minimum wage which allows more americans to keep the fruits of their labour and by putting more money in the pockets of relatively lower income individuals who tend to spend it more, they can create more demand in the economy and at the same time, we have a chronic problem with long-term unemployment we can't extend unemployment insurance to 1.7 million americans and the congressional budget office has said that will create additional jobs this year. 200,000 being the last projection so there are things

we can do today to get back to work and get the country back to work and one thing we should not do is mess around with whether or not america pays its bills on time. that will create uncertainty in the economy and hurt economic growth and jobs. dr. elmendorf, a comprehensive report. one thing that has gotten attention on the front page, the thing chairman roger and referred to, i have to say this is an example of when one misinterpretation gets out of the b goes around world and we should focus on whether there's a demand for jobs today and instead what the chairman was focusing on was beginning in 2017 when the economy gets back to full employment as a result of the affordable care act more americans will be able to

voluntarily choose, choose to work fewer hours or not take a job because they don't depend on that job anymore for the provision of health insurance because before the aca if you lost your job you lost your health insurance. now you can go to the exchange and get affordable health insurance and as a result people may choose differently. i find it kind of ironic that back in 2008 when senator mccain propose the health care reform plan the heritage foundation and conservatives heralded it as a plan that would help break job lock. they said today, changing jobs leaves behind health insurance in a place of work. individuals who work to change careers or leave the work force to raise a family or retire early take substantial risk. by god the mccain health care reform plan will end that job block. the affordable care act does end that job lock.

allows americans to choose to spend more time with their family or pursue their dreams. that is not a bad thing. it is a good thing. what is a bad thing is the lack of available jobs today and the fact that in the house we have on one note focus on trying to eliminate affordable care for millions of americans rather than focus on creating more jobs for millions of americans. that should be our focus, mr. chairman. that is the conclusion of this report if you look at the entire thing instead of a few paragraphs and i thank you, dr. elmendorf, for your work. >> dr. elmendorf, the floor is yours. >> thank you, members of the committee, congressman van hollen, i am pleased to discuss cbo's report on the outlook for the budget and the economy as well as our companion report released yesterday that dug more deeply into the slow recovery of the labour market. beginning with a budget the federal budget deficit has

fallen sharply during the last few years and is on the path of decline further this year and next year. we estimate under current law the deficit will total $500 billion this year compared with $1.4 trillion in 2009. at that level this year's deficit with = 3% of the nation's economic output or gdp close to the average percentage seen during the last 40 years. the baseline projections show what would happen to federal spending, revenue and deficit over the next ten years of current laws were generally unchanged. under that assumption the deficit is projected to decrease again in 2015 to 2.5% gdp. after that deficits are projected to start rising in dollar terms and percentage of our nation's economic output. because revenues are expected to grow at the same pace as gdp, spending is expected to grow

more rapidly than gdp. why the more rapid spending growth? in our baseline spending is boosted by four primary factors, the aging of the population, expansion of federal subsidies for health insurance, rising health care costs per beneficiary and mounting interest payment on federal debt. with no change in applicable laws spending for social security would increase from 5% gdp in 2014 to 5.5% in 2024. spending for the major health care programs include medicare, medicaid, children's health insurance program and subsidies through insurance exchanges requiring more under current laws. net interest payments by the federal government are projected to grow rapidly mostly because of the return of interest rates to more typical levels. in sharp contrast, the rest of the federal government's non-interest spending for benefit programs apart from the ones i mentioned and all other

nondefense activities is projected to drop from 9.5% of gdp this year to 7.5% in 2024 under current law. that would be the lowest percentage of gdp since at least 1940 which is the earliest year comparable data had been reported. plus the sharply increasing share of the federal budget will go to benefit from a few large programs and shrinking share will go toward most of the rest of the government functions under current law. the large budget deficits recorded in recent years substantially increase the federal debt and the amount of debt relative to the size of the economy is very high by historical standards. we estimate the federal debt held by the public will equal 74% of gdp at the end of this year and 79% in 2024 under current law. such a large and growing federal debt could have serious negative consequences including restraining economic growth in the long term, giving

policymakers less flexibility to respond to unexpected challenges and eventually increasing risk of a fiscal crisis. in terms of the economy we expect after a frustratingly slow recovery from the severe recession of 2007-2009 the economy will grow at a solid pace the next few years but will continue to have considerable unused labour and capital resources. further growth in housing construction and business investment should raise output in employment and result in increase in income should boost consumer spending. in addition under current law the federal government tax and spend policies will not restrain economic growth to the extent they did last year. state and local governments are likely to increase their purchases of goods and services adjusted for inflation after reducing them for several years. as a result our baseline shows inflation-adjusted gdp expanding

more quickly from 2014-2017 conlan average rate of 3% year than it did in 2013. we expect increases in output will spur businesses to hire more workers pushing down the unemployment rate and tending to raise the rate of participation in the labour force as some discouraged workers returned to the labor force in search of jobs. that affect in participation will keep the unemployment rate from falling as much as it would otherwise. we project the unemployment rate will decline gradually over the next few years finally dropping below 6% in 2017 and edging down further after that. nevertheless the labor force participation rate is projected to decline further in the next few years because according to our analysis the increase in participation, improvements in the economy will be more than offset by downward pressure from demographic trends essentially the aging of the baby boom generation. after 2017 when the demographic

trends will be unfolding but the effect of cyclical conditions will we expect largely wayne participation rate is projected to decline more rapidly. that is the main reason beyond 2017 we predicted economic growth will diminish to a bit more than 2% year, a pace below the average seen over the last several decades. thank you, happy to take your questions. >> all right. a few questions about the health care law and how it is affecting the labour market. what is your best estimate of the effect obamacare will have on the total number of hours worked which is the issue we are talking about? i want to make sure we accurately understand what it is you are saying? >> we think the affordable care act will reduce the total number of hours worked in the economy by one% or 2% between 2017 and 2024 relative to what would have happened in the absence of that act. >> what is that in equivalent to

full-time equivalent workers? >> given the fact the calculation we have done, translate that, suggests the equivalence between 2.5 million production in full time equivalent employment, to make sure -- >> i think 2 million equivalent, in 2024. just to understand, it is not that employers are laying people off, but people aren't working in the work force, supplying it labored to the equivalent of 2.5 million jobs in 2024 and as a result work force participation rate, less labor supply lowers economic growth. >> that is right. >> who are these workers?

who are the people typically in this category? what kind of worker from an income scale side are being affected by this? >> the effect is principally on the labor supply of lower wage workers. the reason is what the affordable care act does is provide subsidies focused on lower and more middle income people to buy health insurance and in order to encourage sufficient number of people to buy an insurance like health insurance the subsidies are fairly large in dollar terms. those subsidies are then withdrawn over time for people as their income rises. by providing heavily subsidized health-insurance to people with low income and with trying those subsidies as income risess, creates a disincentive for people to work relative to what would have been the case in the absence of that act. the subsidies are of course make those lower income people better

off. this is an implicit tax, the government raises taxes we are worse off and disincentive to work more but providing a subsidy people are better off but they have less incentive to work. >> i understand the better route in the context of health care but better off in inducing the person not to work who was on the low-income scale, not to get on the ladder of life, to begin working, getting the dignity of work, getting more opportunities, rising the income, joining the middle class, this means fewer people will do that. that is why i am troubled by this. in the report we are seeing a significant labour force participation rate, 2.8. i will make a point here. this is what is so concerned about this. if i understand your point a big part of this is something we knew which is boomers are retiring so we are effectively

basically doubling the amount of retirees we have in the country over a generation and fewer people are following them into the work force. something like 100% increase in retirees and a 17% increase in workers' on demand so that is already a problem. where we are not prepared for the boomers and retirement but what this is doing is adding insult to injury. you are saying because of government policy and welfare state expands the incentive to work declines meaning grow the government you shrink the economy. fewer people are going to be working and the economy will be slower as a result, we have about a trillion dollars in less revenue because of slower economic growth from your last forecast which goes to the deficit, to the debt and makes it less prepared to get ready for the baby boomers to pay off the debts. that to me is jaw dropping. if you look at this budget, i am rounding your social security

and medicare near the double over the window, the ten year window, medicaid more than doubles but interest on the debt quadruples. is that about right? >> in nominal dollars. >> your base line shows us adding $10 trillion to the debt over the next 10 years, 57% increase in the amount of the national debt at the same time interest payments as i mentioned quadrupled to $880 billion by 2020 for. here is what i am worried about. you assume stable interest rates, you assume normalization of basically no inflation on the horizon over the decade and the ten year goes 4.8 or 5% at the end of the window. >> 5%. >> we have a 4 they trillion dollar expansion of monetary base, we are in uncharted territory with respect to monetary policy and the federal reserve. they had just begun to normalize. we are seeing reverberations in

the third world and the emerging markets and they have tapered little bit. what happens if interest rates don't go as we hope they do? what happens if we have a spike in interest rates? >> reporter: we try to forecast the middle of possible outcomes. we think interest rates could be higher than we project for lower. >> give me a sense of 1%. >> as you know mr. chairman, changes and economic conditions would affect the budget. these are meant to be used only roughly. the rough estimate is an increase in interest rates of one industry being one percentage point higher than we project for the entire decade would increase the deficit by $1.5 trillion over that period and correspondingly interest rates one percentage point lower than we project over the entire decade would reduce the deficit by $1.5 trillion.

i would say, mr. chairman, there's upper pressure on interest rates from all large amount of federal debt and we take that on board in our projections and downward pressure on interest rates from easing of the population. economy is with slower economic growth tend to have lower interest rates, taking them on board in our projections as well and we do not see any sign of inflation over the past year has been unusually low and over the last dozen years has been at or below the federal reserve's goal of 2%. we do not see inflation as a substantial risk going forward. but mackerel economist should never say never. >> ten years out it is hard to project. here is the issue. i think you could make a good case the federal reserve has been bailing out fiscal policy for some time since the crisis by keeping interest rates artificially low and depressing true fiscal picture that we have.

unfortunately congress did not take advantage of that moment to lock in a real fiscal consolidation plan and long-term debt reduction plan to tackle entitlements which the budget we passed three years in a row did. of the budget pay off the debt that would be entitlements. federal reserve normalize, basically pulling back, still very loose, $65 billion a month. still buying more assets. just not as fast as they were before. but they are showing signs of normalization. >> we have never been in this territory before. whenever had this kind of a balance sheet. it is all new. if they get it wrong. if unforeseen things happen, it is not $1.5 trillion increase in deficits. time is running out. we are looking at the fact that we squandered the opportunity in the last five years to do something about this and in the

future is more uncertain because monetary policy isn't going to bail us out like it used to be. that is my concern. let me ask you one point in relation to that on the driver of this, figure 1.2 in your report, page 15 in your report is interesting. it compares where we were in 1974 to where we are going to be in 2024. we are on track to increase the deficit ten fold compared to 74. meanwhile if you look at the upper right side of this, we will have cut defense in half, we will be collecting a full percentage point more in revenues. given these facts what is driving so people are clear, what is driving the tenfold increase? growth in spending for social security, medicare and medicaid above all else. by aging the population, expansion of health insurance subsidies and rising cost of health care per person. >> thank you, mr. van hollen.

>> thank you, mr. chairman. a quick comment on the fed. the federal reserve pointed out perfect that congress created a fiscal drag on the economy, made things worse than the fed made some accommodating actions but their message to congress was sequester is doing harm, hurting economic growth, hurting job growth and it continues to do so to this day, this refusal to take action on investment and infrastructure and the foundations of our national economy in many areas. there has been a lot of talk about the report and what you said about the affordable care act. i want to go through a couple things. you found the premiums offered in the exchange would actually be going down 15% compared to your earlier projection. >> for 2014. >> on page 125 you point out there is, quote, no compelling evidence that part-time employment has increased as a

result of the affordable care act. is that right? >> that is right. >> we heard a lot of statements about how people are forced into part-time work by the affordable care act. one of the findings of cbos is there is no compelling evidence that that is the case. there is nothing in this report that changes cbo's earlier assessment that over the ten year window and the longer-term window the net effect of the affordable care act is to reduce our national deficit. isn't that right? >> that is right. >> doesn't reducing the national deficit especially as the economy gets into higher gear mean stronger economic growth? >> yes. >> as a result of deficit reduction impact the affordable care act in 2017 and beyond the affordable care act will spur economic growth? i want to talk about what we are focusing right now because on page 125 the cbo talks about the impact on the labour market on

labor demand today. it says, quote, on balance the cbo estimates aca will boost demand for goods and services over the next few years and you go on to say the net increase in demand for goods and services will in turn boost demand for labor over the next few years. ..

>> let me be clear. we've not broken down the size of the various pieces we talked about in this actress i don't have any estimates of the effects of a particular channel he appointed by the that is, in fact, something we think spurs employment and would reduce unemployment over the next few years. >> so i think it is a factor and as a result if you repeal the affordable care act you will at least in the near-term increase the unemployment rate because it will be less demand for jobs. and over the longer term because the affordable care act reduces the deficit you will actually spur economic growth as the economy continues to recover. now, i think it's really important that that information gets out there because as the media themselves confess, they bought hook, line, and sinker some of the talking points from

our republican colleagues, and, unfortunately, misrepresentations go around the world three times before the truth begins to catch up but maybe it will begin to catch up at this point. now, in terms of the long-term deficits and debt, as the chairman indicated, as you go out into the future, we will see rising deficits. it is important to point out that your findings show that right now our deficits are dropping and will continue to drop for the next couple of years, but as more baby boomers retire and more people on medicare, social security, spending was let go, isn't that right? >> that's right. there will be one-third more people collecting a decade from now that are doing so today. whatever the benefit is per person, multiply that by a much larger number of people, the overall cost of rice very sharply. that's right. >> we're talking tens of millions of people. i believe in the range of additional 30 plus many more people on medicare. and just the people who are

following this understand, this is not because they're increasing the medicare benefits. this is just more people coming into the system. this is a demographic change, is that right? >> yes, that's right. >> that's a big driver. now, our republican colleagues say those deficits concerned them. however, they are only willing to look at the spending side of the equation, meaning if you want to address those spinning problems it means you got to reduce the benefits and social security or medicare somehow. if we are looking at those two pieces, right? >> yes. unless one is willing to contract the rest of the government and the where was as a show of economy in 1940. if one wants to cut spending. >> as you would -- we've squeezed those programs to the lowest point in reported budget history, is that right? >> will have a few years from now. >> so our republican colleagues which is simply to look at squeezing those benefits, which

helped millions of americans, including a lot of middle income struggling seniors. they have refused to look at the revenue side of the equation. it is their decision that you cannot close a single tax loophole for the purpose of reducing the deficit, right? that's the grover norquist pledge. you can't close one loophole, taxes for the oil and gas can do hedge funds or to help reduce the deficit. and my question, dr. elmendorf, if you go back a little weight in his, when was the last time we had a balanced budget? >> in 2000 or 2001. >> 2001. and, in fact, the last time we had a balanced budget over a very limited time was the years 1998, 1991, 2002001? >> that's right. >> for decades before that, we were running deficits and since 2001 we run deficits. now, dr. elmendoro