mr. elmendorf's report. it continues this way, unfortunately, throughout the decade and will average, based on the planned expenditures and revenues asset forth by the obama administration budget, it would average almost $1 trillion a year in deficit. and this is why experts repeatedly are telling us it's unsustainable. we'd be maintaining deficits twice as large as anything we've ever seen for the next decade. let me show what it means in one area that i think all of us can understand. when you borrow money, pay interest on it, and the c.b.o. has calculated each year -- that's one of the biggest line items in our whole budget is the interest we pay on the debt. and if your debt goes up fro from $5.7 trillion in 2008 t to $17 trillion in 2019, which is what they project will happen, your interest rates will go up. it will go up even more than that. more than that because the interest rates are extraordinarily low right now as a result of our economic slowdown. they are going to go up and that's going to hit

mr. elmendorf.'m going to go really fast, rapid-fire. if we want to address the structural deficit, which is better for the u.s. economy in the long run? cutting federal government spending, or raising taxes? >> well, so, raising taxes depending on how one raises them, can have important effects on people's incentives to work to say. and if taxes are raised in a way that discourage work and saving, that would have dampening effects of economic growth that would offset the advantages of less debt. similarly, government probe lands on the spending side to have effects on incentives to work and save in the ways those programs are change can have incentive effects as well. so i don't think there really is a clean answer that should be on one side or the budget with other. it depends much more i think on adopting policies on either side of the budget that take account not just of the overall effect on the deficit, but also the effects on people's incentives to. >> who is better for the economy and the lo

mr. elmendorf and thank you, mr. airman for your indulgence. >> thank the gentleman for his questions. dr. elmendorf you've been gracious as usual with the time. we appreciate that. we will look to you in the future for further testimony and guidance. we look forward to hearing from you, >>> the committee will come to order. the committee will come to order. good morning. on september the 16, 2008, the wall street giant aig faced immediate bankruptcy. aig was saved from collapse when the american people came to the rescue with an $85 billion bailout. less than two moss later, the american taxpayer was again forced to pay the bill when the federal reserve directed aig to hand out billions of dollars to counterparties, that inclupded the biggest names on wall street. in effect, the taxpayers were propping up the hollow shells of aig. by stuffing it with money, and the rest of wall street came by and looted the corpse. the circumstances surrounding the payments to the counterparties has created an air of suspicion and di

mr. elmendorf notes is cbo assumed all expiring tax cuts for extended and not pay for the long-term effect is to lower future gdp because of the greater accumulation of debt. also not only did greater accumulation of debt to fully pay for the wars in iraq and afghanistan will also make -- main future gdp will be lower than otherwise. thank you, mr. chairman. >> senator bunning? when you appeared last year of your confirmation hearing, i ask the question of the cbo practices and now you have a one-year experienced director i would like to ask about policies again current cbo practices assume any law that increase spending will be permanent on the other hand, current cbo practice said in a tax decrease will not be permanent. to have a plan to address the can -- inconsistency? >> no but senator. they are consistent across spending and taxes when a proposal is put forward if it is a policy and discord is the fax it would have over the 10 year budget window. if it is temporary it is gourde is having those defects. >> that was not my question. current policy of cbo on spending that any increase

mr. chairman and thank you, dr. elmendorf to be clear on the last line of questioning during the 8 years the republicans were in power did they enact a freeze on any kind of spending in any one of the 8 years? >> not that i'm aware of. >> not that i'm aware of, either but i think it is appropriate they scrutinize the president's recommendation, but, it needs to be scrutinized against real world history. one of my concerns is that as congress moves forward, to try to encourage job growth, that we may have the effect of producing few jobs and great deficits. and i think that is a potential problem with both -- some of the ideas advanced by democrats and, certainly, the principal idea advanced by republicans to encourage job growth. you pointed out, i believe, that while the spending was high, relative to gross domestic product, that we have the lowest revenues i believe you said, as a percentage of domestic product of output that we have had coming into the federal government in decades? >> yes. >> and i think the problem is, t

mr. elmendorf and thank you, mr. chairman for your indulgence. >> thank the gentleman for his questions. dr. elmendorf you've been gracious as usual with the time. we appreciate that. we will look to you in the future for further testimony and guidance. we look forward to hearing from you, and unless you wish to add anything for the record we will close this hearing. >> thank you very much, congressman. >> i'm being reminded i want to make sure that we have provide for any members who were here or did not have opportunity to attend who did wish to ask you some questions the opportunity to do so. so without objection, members who did not have the opportunity to ask questions of dr. elmendorf, will be given seven days to submit questions for the record. with that. >> thank you. >> director elmendorf, we appreciate your testimony and we will close the hearing. so this committee now stands adjourned and we'll be looking forward to seeing you in the future. >> thank you. [inaudible conversations] [inaudible conversations]

mr. chairman. >> senator grassley. >> thank you, dr. elmendorf.i got here late, i hope it hasn't been asked by other peop people, about the bank tax. widespread agreement with president among taxpayers, members of congress, financial institutions should repay every dime that they received from the government for financial stability. the president recently proposed what he calls a financial crisis responsibility fee to help facilitate the repayment. obviously, a lot of us agree with the goals that the president articulated before congress is asked to vote on legislation imposing such a fee. it will be very important to understand the potential impact on consumers, the criteria for applying the fee to some entities and not others and the implication for security and stability of these institutions. so, does the cbo know if the fee will get passed on to consumers in any manner? if so, how will we pass on to consumers, and secondly, will the fee reduce the amount of bonuses paid by financial institution subject to the fee? >> so senator, we and the st

mr. elmendorf, the c.b.o. director, testified this number today and indicated to us that if several more things that probably are likely to occur, occur -- which he did not use in his calculations the number here would be much worse, much higher. he says we are facing a critical economically threatening force of debt that we have got to do better about. and so did chairman conrad and so did ranking member gregg in their opening statements. i would point out that he reaffirmed their score that under the present path we are on, we now pay in 2009, $170 billion per year in interest. that's what we pay on people who loaned us money. the public debt. by 2019, ten years, that debt will triple from $5.7 trillion to over $17 trillion. and the interest we pay in one year on that debt is $799 billion. and when you think about it, that the highway program, the federal highway program is about $40 billion to $50 billion, aid to education is not much more than that, this is going to crowd out all kinds of spending that so

mr. chairman and thank you, dr. elmendorfago, when we were hearing yet again a very sobering story, from virtually every economist who recommended that the federal government had to act, the debate i felt was more, largely around what the size of the recovery package looked like and what the composition should be, and as a new member to congress i really took a lesson from a city i represent, the city of lowell, massachusetts, during -- when the industrial revolution began and the textile industry began to move south it had a dramatic impact on the economy of the community, and, government failed to act. and because government failed to act, it took decades for that city to dig itself out from under the challenges it faced. so that very real example really did motivate me and drive my decision to support the recovery package and i think from your testimony today we have seen how important it was. we cannot imagine where we might have been without taking that very bold action and, again, also listening to the lessons from the

mr. chairman. >> let me yield for an opening statement. >> i also want to welcome dr. elmendorfto the committee. nd that is the role of cbo directer, and you're doing that very, very well. so i just simply want to say to you, you take a lot of flak over there at cbo, there's lots of demands of your time, i don't think i've ever seen more demand, and you're handling it very, very well. i know the people over there are working, you know, long hours. we want you all to know that we, we respect that, we appreciate it, and we think you're handlinr trillion dollar stimulus sold with the promise that it would hold unemployment below 8%, and yet the unemployment rate continues to rise and now stands at the 25-year high of 10%. we learned that much of this stimulus which was neither targeted, timely, nor temporary, in fact, it was just a down payment on government programs. let's turn over to t.a.r.p.. t.a.r.p. was advertised as an emergency plan to heal financial markets, it has now become washington's latest slush fund. cbo's budget and economic outlook paints a cbo's budget and econom

mr. chairman. >> senator grassley. >> thank you, dr. elmendorf.i got here late, i hope it hasn't been asked by other peop people, about the bank tax. widespread agreement with president among taxpayers, members of congress, financial institutions should repay every dime that they received from the government for financial stability. the president recently proposed what he calls a financial crisis responsibility fee to help facilitate the repayment. obviously, a lot of us agree with the goals that the president articulated before congress is asked to vote on legislation imposing such a fee. it will be very important to understand the potential impact on consumers, the criteria for applying the fee to some entities and not others and the implication for security and stability of these institutions. so, does the cbo know if the fee will get passed on to consumers in any manner? if so, how will we pass on to consumers, and secondly, will the fee reduce the amount of bonuses paid by financial institution subject to the fee? >> so senator, we and the st