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see our complete schedule online at book tv.org. the library of congress national book festival live saturday beginning at 9:00 a.m. eastern on c-span two. joining us this morning is keith hall, the former director of the congressional budget office from 2019, let us begin with defining a credit rating. what is it and why does it matter? guest: it is not unlike the credit rating all of us individually have. it is credit services that are looking at debt. the federal government has been outspending revenues and making up for that by borrowing. they are evaluating the credit

worthiness of the federal government. according to fitch, we always had a aaa highest rating and they have lowered it to a aa+, which is an indication they are a little less pertinent in the u.s. ability to constantly repay the debt. fitch is one of the big three credit agencies. all three have credit ratings on the u.s. government. s&p lowered their rating in 2011, so now two out of three credit agencies have lowered the rating because of federal debt. this is an indication they believe the risk of default is not high, but has gone up a bit because of the size of the debt, the continued borrowing, the political troubles and coming to agreements on spending.

they are all things places like the congressional budget office have been pointing out to congress for years and years as being concerns. host: we will get more to that rationale, but what does it mean for the u.s. government and taxpayers? guest: in the near term -- there has been a little disruption in the credit markets, the cost of borrowing has gone up a little bit. they are constantly issuing new debt to pay off old debt. they have to pay interest. the interest rate has ticked up a little bit. it will probably go back down, but that is the ultimate concern over time. if the confidence in the federal government goes down enough, they have to pay more and more to borrow money and there always -- already paying rather a lot.

host: you noted two out of the three credit rating services have downgraded the u.s. government. what is moody saying, the third? guest: they are holding fast to the aaa rating. i have not heard them characterize what they are concerned about. fitch made noises they were not happy with what was going on. they did not give us a big surprise by lowering the credit rating. the s&p in 2011 said the same thing moody did, the same concerns from the credit bureaus started in 2011 and they are continuing now into 2023 area i believe the s&p has made noises about potentially lowering the credit rating more in the future if we do not get our act together. host: lower than a aa+? guest: that is right. host: what would that mean?

guest: more of the same. it is a rising level of risk, in their view, which is why they are lowering the rating a little bit. in the near term, this is probably not a real concern. there will not be a big meltdown in credit markets. this is sort of a warning signal. and it should be taken seriously. this is a signal that it might be on the horizon at some point. it could be decades. this is something the congressional budget office has told congress more than once. when the debt gets high, they raise the risk of real financial issues where they will have to

start paying a lot more in interest. right now, we pay $650 billion a year just in interest costs. that is more than we spend on medicaid. it is only going to grow in the direction we are heading, because we continue to borrow and we are on trajectory to raise debt over the next 10, 15, 30 years and beyond. host: what fitch had to say in their statement about their decision to lower the rating. there has been a s deterioration and standards of governance over the last 20 s, including fiscal and debt matters, notwithstanding the june bipartisan agreement to suspendebt limit until nuary 2025. the repeated pol standoff

and last-minute resolutions have eroded confiin fiscal management. lacks medium-term fiscalent ework, unlike most peers, has a complex budgeting process. these factors along with several economic shocks and new spending initiatives have contributed to excessive debt increases over the last decade. additionally, there's been limited progress in tackling medium-term challenges related to rising social security and medicare costs due to an aging population. there is a lot just in that statement. guest: to be honest, you could pick up a cbo report and see all of those things mentioned in the report. the congressional budget office, they are the budget experts who advise congress on the budget. the last five or six have all said debt is on an unsustainable

path. every fed chair, at least for five fed chair's all characterize the growth in debt as unsustainable. in a sense, this is not news. just articulating some of the things others have been saying for a long time. it sounds awful and it is awful, but it is not a crisis that is looming in the next year or two, but it is somewhere down the road and there are consequences to this. there are lots of little side effects of having this debt continually go up and we are not dealing with it. host: from the statement, i want to pull out this one part. the government lacks a medium-term fiscal framework unlike most peers and has a complex budgeting process. what is it getting at? guest: they are getting at a plan.

even when i was director, we were suggesting to congress at least privately that they need to think of a debt target. debt right now is about $32 trillion. think of a debt target and plan on lowering the borrowing level over time to some sort of target level, that is just a medium-term plan. other countries have done that. not all of the countries, but some of them responsible and some not. we have seen what they would have to do to get this done. you see it year after year. they do not get anything done by deadlines, they run it down to the end with no agreement. the budget process is just a real mess and it is a problem of lack of cooperation. whoever is in power on the

budget completely runs the show and the minority party has no input in the formulation of the annual budget. you cannot get enough votes easily to pass the budget because you do not have participation from minority party. host: fitch calls it a complex budgeting process, you seem to be describing it as dysfunctional. what is the difference? guest: if they followed it, it would be complex. it has got lots of pieces to it. they set out a plan. the president is supposed to submit a budget, congress is supposed to evaluate and create their own plan. once they publish the plan, they sit down and work out the details. here are a dozen appropriations bills, here is how we are going to spend money over the next years in detail.

what i just said is supposed to be done by april 15. we have not done it yet, we did not do it last year by april 15. the bills did not have to get passed by congress, sent to the president, then it has to become law. there are a lot of steps. they certainly could simplify it. in my view, it is complicated. the real core problem is congress has set up deadlines and a process that they do not follow. they have people making up their own rules and they do not follow the rules they have made up. host: you are describing discretionary spendin so reminder for viewers determined on an annual basis by congress and the president, 12 separate appropriations bills are supposed to move annually through congress by appropriations committees. defense represents mo than half of all discretionary spending.

other major spending is homeland securi, food safety, science and space programs, disaster assistance, public housing and federal law enforcement. that is discretionary. what about mandatory spending? medicare, medicaid, social security, federal retirement programs, veterans programs. how does that play into what you are talking about? guest: that is the problem. all the mandatory programs are not part of the annual budget process, they work on automatic. those discretionary settings -- things, that's only about 27% of the budget. 73% of the budget is on automatic. social security is collected and paid out, medicare is collected and paid out.

that is the part that is going to become a real challenge as the population ages. the mandatory spending, which they do not talk about, is way more than discretionary spending. host: 73%, i want to repeat that for viewers who are listening. 73% of the budget on the mandatory side. guest: most of them are funded by trust funds. make the payroll taxes, they put into a trust fund and hold it. you pay in, the fund gets filled up and they pay it off. the problem is the aging population sees more and more people are going to start receiving benefits, social security and medicare. the fund is now being depleted. the fund is going to run out

completely in 10 years. when 10 years hits, that fund will be down to zero. according to current law, they cannot pay social security benefits unless they have the money. they will have to reduce benefits for 23% unless congress decides to go ahead and fund anyway. in a sense, we have a potential crisis in about 10 years with mandatory spending, which is not part of the annual budget process. nobody talks about enough during the annual budget process. host: fitch puts in the statement, there has been limited progress in tackling medium-term challenges related to rising social security and medicare costs due to the aging population. they put this as part of the rationale for lowering the u.s. credit rating. if the government waits until the last minute, what will

happen over the next 10 years? guest: the longer they wait, the more ciccone and a measure they will have to take. if you wait 10 years to deal with this, you will have to have a significant decline in benefits. you will have to have a significant rise in either borrowing or taxes to pay for this. if you start to deal with it now , it is like any of the rest of us planning our budgets. if you plan and adjust things over time, it is easier to deal with. if you wait until the crisis, you run the risk of disruption and credit markets, the economy. if we did not pay off the full social security benefits in 10 years, we would probably go into a recession and all these recipients would have a drop in their income and they would slow

down their spending significantly. you have to plan ahead, not just wait until there is a crisis than try to deal with the crisis. host: i want to invite viewers to join in on this conversation, we are talking about the drivers of debt. one of the reasons why the credit rating downgraded the u.s. credit rating, we want to get your thoughts. republicans (202) 748-8001, democrats (202) 748-8000 an independents (202) 748-8002. you can text with your first name, city and state to (202) 748-8003. let us go to robert in texas, independent. robert is up first, go ahead. caller: good morning to both of you. i am listening right now to this mandatory spending and social security dilemma and medicare

dilemma coming forth by 2034, i believe it is. it seems to me the simple solution on this, instead of worrying about whether or not the population is aging, why don't we just lift the cap significantly on all earnings above the cap great, which today i believe is somewhere around $130,000? after 130 thousand dollars, you pay 3% on all additional income. problem solved. host: is it problem solved? guest: unfortunately, no. that has been a solution that his been offered quite a lot.

the congressional produces a publication called options to reduce the debt, where we talk about here are the things to do to reduce the debt. that is one of them, that will help some. but it is nowhere nearly big enough to solve the problem. you need way more than that. you need to do that and lots of other things, unfortunately. host: debbie in maryland, republican. caller: i just wanted to talk to you about medicare. i am on it and i have five bills in the mail -- this is not a bill. i was charged five times for covid tests, it was $96. medicare paid that and all the way to chicago. five different addresses. i called medicare, i reported this as fraud because i never

had a covid test. i called my girlfriend because i was curious, i was talking to her and she got the same thing. it was all from chicago, five different tests. it was $96 each that medicare had paid, she did not have the test. one of them was two days, one day than the following day. host: waste fraud and abuse. guest: that is an issue with lots of government programs. something like medicare, it is a really big program. the program has lots of controls, they have price control. they set prices, they do not get charged whenever hospitals want to charge. prices are set. they should have controls on waste and fraud. that is sort of another issue.

is the government doing enough to deal with the waste and fraud problem? it is not clear how big the problem is. the core problem -- we constantly overspend revenue. that is a problem that is big, but nowhere nearly as big as the overspending problem. we are overspending revenue by 30% every year. this year so far, we've borrowed $1.6 trillion. not all of that is medicare fraud. i think that is a concern. there are lots of concerns. host: in florida, democratic caller. welcome to the conversation. caller: i hear an awful lot of talk about overspending and i agree we are overspending our

revenue. i also hear that we have a spending problem, not a revenue problem. when i did some research about what the united states takes in as a revenue, as a percent of gdp, we are way out of line with other developing countries. 10% of our tax revenue comes from individual income taxes, whereas most countries are in the 35 to 45% range. if you take all of the taxes, corporate, capital gains, individual income, we are at about 26%. this is still so much less then what other developing countries taken. we are trying to fund our government with not enough revenue. we've had this revenue shortage since the reagan era, were tax

cuts were the name of the game. when bush got in, more tax cuts. when trump got in, more tax cuts. all for the wealthy. i am not saying we need to raise taxes on people that cannot afford it, but we have an income distribution problem where the rich are getting wealthier all the time and it is because of our tax system where we are not generating enough revenue. host: in the fitch statement about downgrading the u.s. government, they mention tax cuts and new spending initiatives. guest: the big surge in borrowing over the last 15 years primarily increases spending. there are two ways to solve this problem.

there have been times where a democrat member would come down to me and say you are saying debt is a real problem, we need to raise taxes. minutes later, a republican would come down into say that is a real problem, we need to lower spending. even if they recognize the problem with debt, they have different views of the solution. raise taxes or lower spending or both. if you want to solve this problem, you have to lower the borrowing level. the tax rate is below a lot of other developed countries. but the tax revenue last year was the sick and highest level since world war ii. we borrowed $1.5 trillion with

historically high tax revenue. there are a lot of options, raising revenue and lowering spending. host: after the pandemic, now that it is over, did fitch and other companies take into consideration spending should go down after? the pandemic? guest: yes, this is their talk about continuing deficits. you go through something like the pandemic, we spend date tremendous amount, trillions of dollars to work through the pandemic. once it was done, the next year, we still borrowed another $1.5 trillion. no pandemic, no recession. we used to never borrow that much. this year, no recession. the economy is doing ok. yet we borrowed 1.6 trillion

this year already so far. host: for what? guest: it is increased spending. this year, we have a drop in revenue. not from the change in tax rates , but revenues are coming in slower than they have before. there is always an issue, tax revenues will go up and down based on the economy. it is hard to know what is causing until you have to look back a year or two. i am not sure why revenues have been so slow this year. it is a little bit of a concern -- it can be an indication the economy is struggling, under a threat of recession. sometimes revenues go down in advance of that, but i do not know that is the case. if you are going to borrow money during recession and pandemics,

why not pay it back when it is done? this is a medium-term complaint that fitch has about the federal government budget. host: bruce in chicago, republican. you were up next. caller: i would like to leave a couple of thoughts with your viewers. everybody has got a solution to the credit problem or budget problem and the deficit problem. it goes back to the fact they want to tax someone else. ben franklin had this saying text the guy behind the treat. the bottom half of americans pay no federal income tax and the tax burden is on the shoulders of upper income people. you can only text people so far, then you tax them out of existence.

the other thought i have is corporate's -- everyone is going to tax corporations. corporations are not taxpayers, they are tax collectors. the consumer ends up paying it. guest: i do not want to offer too much of an opinion on this. the congressional budget office tries to not offer opinions on anything but the technical issues. if you want to raise taxes, you can raise taxes. you have to think about where you could raise them. you have a really progressive tax system, it may not be progressive enough for you. wealthier folks in the united states pay more than a lower income folks.

again, i keep pointing this out, 120 ways to live with the deficit. it actually has a number estimate, it tells you how much the different actions will reduce the deficit, so you can see if you raise the income tax rate on the wealthiest folks, how much money can you make from that? it points out how difficult it is to solve this problem with one or two things, you need a constellation of acts. what fitch is complaining about, first recognize the problem then come up with a goal to lower borrowing over time, then have political discourse on how you're going to do that.

congress is committing itself and the president to lowering borrowing overtime, then we can have a political debate on how we do that. host: here is a viewer with a post on x, how will the credit rating be affected when the adults in the room cannot stop republicans or magas from shutting down the government? how does a possible government shutdown or previous ones play into the rationale here? guest: it is part of the broken process, part of the idea congress cannot i even get an annual budget together every year. we ran into this issue with the current administration, ran into it with the previous administration, with the administration before that. it has been years and years

since we had a budget process that was followed. whoever is in power does not cooperate, they do not get cooperation, they do not have consensus on budgets. so the winner takes all and tries to force the budget through without enough votes because the minority party is not included and does not participate. host: the republican freedom caucus held a news conference where they demanded reduction in federal spending. here is what bob good of virginia had to say about the possibility of a government shutdown. [video clip] >> we should not fear a government shutdown. must've what we do appear as bad anyway, most of what we do hurts the american people. when we do stuff to the american people promising to do things for the american people, essential operations continue.

most of the american people will not even miss if the government shutdown temporarily. our speaker has the opportunity to be a transformational historical speaker that stared down the democrats and the free spenders, stared down the president and said no, we are doing with the american people elected us to do in the house is going to say no. we will pass a good republican bill out of the house and force the senate and white house to accepted, or we will not move forward. what would happen if republican stared down democrats and were the ones who refused to cave and betrayed the american people and the trust they put in us? we do not fear a government shutdown. host: no big deal? i was repeating what he had to say, no big deal is essentially what he had to say. guest: i disagree with that. this is the partisan dysfunction for is talking about. before the congressional budget

office, i headed an agency during the great recession. managing a large agency with 3000 federal employees and in october, i do not have a budget. the government shuts down, they have a resolution where they keep it going. i went most of the year with no budget for my agency. you want me to be efficient, i do not have a budget to work with. it makes it hard for the government to be efficient and effective if there is this constant uncertainty. i understand the notion they try to use it as leverage to get what they want. but it is a costly piece of leverage is all i can say. it made it hard for me to do my job. host: keith hall is our guest

this morning, he was the head of the congressional until 2019, he was the chief economist of the u.s. international trade commission before that. the 13th commissioner of the bureau of labor statistics. from 2005 to 2008, he served as the chief economist for the george w. bush administration.

right now in my social security i pay more taxes than i do in my state retirement. a quite a bit. if you can go through that scenario use me as an example i would appreciate it. they should keep people like you in office instead of changing all the time because you know what you are doing. have a good weekend. >> thank you. >> they will do anything. this trust fund will start to decline.

probably credit agencies might start to make noise again that we are getting near the depletion of these trust funds with no plan in place. once the trust funds become depleted, there still will be payroll taxes coming and there will be money to spend. the president would have to decide how to fund it or how to lower benefits. they've lowered for current benefits. it affects younger folks. for folks like you and me at think social security is going to go forward and if they don't do anything, you will have benefits and it will get down to

a point where congress will have to do something. there is a second aspect about this will be huge gifted that to younger there is real concern over climate change that future generations are going to have to struggle with severe climate change. the way things are right now, they have to struggle with overwhelming federal debt. in 30 years, federal debt is going to be at an unheard-of level. it could be 180% to 200% gdp i won't have to pay it back if they let that happen. future generations are going to have to deal with that. and they will have lower incomes because of all of this debt hanging over our heads. the people that i talk with --