[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
       CBO'S ANALYSIS OF THE PRESIDENT'S FISCAL YEAR 2000 BUDGET

=======================================================================

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, MARCH 4, 1999

                               __________

                            Serial No. 106-2


                               



           Printed for the use of the Committee on the Budget

                                 ---------


                    U.S. GOVERNMENT PRINTING OFFICE
 55-211cc                  WASHINGTON : 1999



                        COMMITTEE ON THE BUDGET

                     JOHN R. KASICH, Ohio, Chairman
SAXBY CHAMBLISS, Georgia,            JOHN M. SPRATT, Jr., South 
  Speaker's Designee                     Carolina,
CHRISTOPHER SHAYS, Connecticut         Ranking Minority Member
WALLY HERGER, California             JIM McDERMOTT, Washington,
BOB FRANKS, New Jersey                 Leadership Designee
NICK SMITH, Michigan                 LYNN N. RIVERS, Michigan
JIM NUSSLE, Iowa                     BENNIE G. THOMPSON, Mississippi
PETER HOEKSTRA, Michigan             DAVID MINGE, Minnesota
GEORGE P. RADANOVICH, California     KEN BENTSEN, Texas
CHARLES F. BASS, New Hampshire       JIM DAVIS, Florida
GIL GUTKNECHT, Minnesota             ROBERT A. WEYGAND, Rhode Island
VAN HILLEARY, Tennessee              EVA M. CLAYTON, North Carolina
JOHN E. SUNUNU, New Hampshire        DAVID E. PRICE, North Carolina
JOSEPH PITTS, Pennsylvania           EDWARD J. MARKEY, Massachusetts
JOE KNOLLENBERG, Michigan            GERALD D. KLECZKA, Wisconsin
MAC THORNBERRY, Texas                BOB CLEMENT, Tennessee
JIM RYUN, Kansas                     JAMES P. MORAN, Virginia
MAC COLLINS, Georgia                 DARLENE HOOLEY, Oregon
ZACH WAMP, Tennessee                 KEN LUCAS, Kentucky
MARK GREEN, Wisconsin                RUSH D. HOLT, New Jersey
ERNIE FLETCHER, Kentucky             JOSEPH M. HOEFFEL III, 
GARY MILLER, California                  Pennsylvania
PAUL RYAN, Wisconsin                 TAMMY BALDWIN, Wisconsin
PAT TOOMEY, Pennsylvania

                           Professional Staff

                    Wayne T. Struble, Staff Director
       Thomas S. Kahn, Minority Staff Director and Chief Counsel




                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, March 4, 1999....................     1
Dan L. Crippen, Director, Congressional Budget Office:
    Statement of.................................................     2
    Prepared statement of........................................     6
    Response to question posed by Representative Ken Bentsen.....    32
    Response to question posed by Representative Christopher 
      Shays......................................................    36
    Response to question posed by Representative David E. Price..    55
Tables:..........................................................
    Discretionary Appropriations in the President's Budget 
      Compared With the Caps.....................................     3
    CBO Estimates of the President's Budget Including the Social 
      Security Framework.........................................     4
    CBO Estimates of Debt Held by the Public and Equities Held by 
      Social Security............................................     5
    How Much of the Surplus Is Saved?............................     5
    CBO Estimate of the Effect on the Surplus of the President's 
      Budgetary Policies.........................................     7
    CBO Estimate of Debt Held by the Public and Corporate Stock 
      Held by Social Security Under the President's Budgetary 
      Policies Including the Social Security Framework Proposals.     9
    CBO Estimate of the Effect on the Surplus of the President's 
      Budgetary Policies Excluding Social Security Framework 
      Proposals..................................................    11
    Discretionary Caps and Proposed Spending for Fiscal Year 2000    12
    CBO Reestimate of the President's Budgetary Policies 
      Excluding Social Security Framework Proposals..............    13
    Comparison of Economic Projections...........................    14
    Estimate of the Effect on the Surplus of the President's 
      Social Security Framework Proposals........................    18
    Changes in CBO Baseline Surpluses Since January 1999.........    20
    CBO Baseline Budget Projections, Assuming Compliance With the 
      Discretionary Spending Caps................................    21
    Estimated Costs of S. 4 as Passed by the Senate..............    36
        Pay-As-You-Go Considerations for S.4.....................    40



       CBO'S ANALYSIS OF THE PRESIDENT'S FISCAL YEAR 2000 BUDGET

                              ----------                              


                        THURSDAY, MARCH 4, 1999

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10 a.m. in Room 
210, Cannon House Office Building, Hon. John R. Kasich 
(chairman of the committee) presiding.
    Members present: Representatives Kasich, Chambliss, Shays, 
Herger, Smith, Hoekstra, Bass, Gutknecht, Hilleary, Sununu, 
Pitts, Thornberry, Collins, Wamp, Fletcher, Miller, Spratt, 
McDermott, Rivers, Minge, Bentsen, Weygand, Clayton, Price, 
Markey, Kleczka, Clement, Moran, Hooley, Lucas, Holt, and 
Baldwin.
    Chairman Kasich. I have this long statement here, but I 
don't think I need to do this, because we are here to hear you, 
not to hear me.
    I want to welcome Dr. Crippen to be here this morning. I 
know he has got a number of things he wants to tell us. And why 
don't I just stop, not say any more than that. I am glad you 
are with us. I look forward to your testimony.
    And I think Mr. Spratt has got a big statement that--
whatever.
    Mr. Spratt. Mr. Chairman, I will be short, but I will say a 
couple of things, at least, first of all, to welcome Dr. 
Crippen and say we look forward to working with you, look 
forward to your testimony today.
    Secondly, Mr. Chairman, I understand the projected markup 
date is March the 17th, and I have written you a letter about 
some hearings that we think we need to do that are minimally 
necessary to sort of cover the waterfront of the budget. We may 
not get them all done. There is defense----
    Chairman Kasich. We hope to have defense.
    Mr. Spratt [continuing]. Education, Social Security. I 
think we ought to at least try to have some hearings on that, 
and if necessary, to set them up, we will waive the 7-day rule.
    Chairman Kasich. We are going to have defense next--we have 
been struggling to try to get the best person to come in, and 
with the Secretary being in and out of town, that has been 
difficult. We are going to have a hearing on that next week. We 
are looking at whether we want to have both Mr. Thomas and--I 
was thinking about having Mr. Thomas and Mr. Breaux, but maybe 
we could have Bruce--we are looking at that, and we would----
    Mr. Spratt. We would like to have the other side of that 
presented. If Mr. Breaux wants to come out, that is fine.
    Chairman Kasich. I would like to get a report maybe on the 
Commission and then on the Social Security. We have our panel 
going. And I think we ought to kind of roll that in all year 
long and let the two, Nick Smith and the Ranking Democrat----
    Mr. Spratt. Lynn Rivers.
    Chairman Kasich [continuing]. Lynn Rivers be able to come 
and give us a report on what they are hearing. But we are going 
to have--we definitely are going to have a hearing on corporate 
welfare, but that won't come I doubt before the budget markup. 
But we are going to try to get in as many as we can, John, even 
if we have to waive the 7-day rule. And we are working on that, 
and I will be responsible on that.
    Mr. Spratt. All right.
    Chairman Kasich. OK. Sir. Your testimony.


  STATEMENT OF DAN L. CRIPPEN, DIRECTOR, CONGRESSIONAL BUDGET 
                             OFFICE

    Mr. Crippen. You guys have set a terrible precedent. If I 
talk for more than 30 seconds, it will be excessive. I will be 
quick.
    Mr. Chairman, Congressman Spratt, members of the committee, 
I am here to share with you our preliminary analysis of the 
President's budget. It is preliminary because we have more work 
to do, and it is preliminary because we await further details 
from the administration on a number of topics.
    I understand you hope to begin markup. Now I understand you 
are commencing on the 17th of March, and I just want you to 
know we will be ready to assist your markup whenever you are.
    Before I begin, I want to note a few minor changes in our 
baseline since it was constructed in December. We believe the 
surplus will be slightly larger this year and next because 
outlays will be slightly lower. The biggest single piece of 
that is Medicare.
    We have made no changes in the economic assumptions or the 
revenue estimates. The only change we have made is to take the 
outlays down slightly for the next couple of years, which gives 
us a slightly larger surplus.
    The President's budget, Mr. Chairman, is unusual in several 
regards. We think it as essentially two and a half budgets: a 
basic budget, which affects primarily the budget year 2000; a 
budget contingent on congressional acceptance of the 
President's Social Security proposals, which, in turn, would 
trigger more spending and result in more debt; and a half 
budget, if you will, that includes a number of initiatives for 
which we have no details. It is only the first, Mr. Chairman--
the basic budget we refer to in the testimony and tables as 
excluding the Social Security framework--for which we have 
enough detail to provide a truly thorough reestimate of the 
President's budget.
    For the second budget, which we refer to in the tables as 
including the Social Security framework, we have only the 
numbers provided in the President's budget documents and cannot 
reestimate most of those effects. Further, the Social Security 
framework stretches the budget window to 15 years. Our baseline 
is 10.
    The half budget I referred to, Mr. Chairman, consists of 
initiatives included in the text of the budget and one included 
in the State of the Union address, but for which we have 
neither programmatic details nor numbers. We therefore cannot 
analyze anything but in the most general terms.
    To recap, we have a basic budget, which mostly affects next 
year; a proposal that uses general fund transfers unrelated to 
future surpluses to extend the Social Security trust fund, 
which would trigger additional, non-Social Security spending; 
and some proposals in addition that we can't evaluate. I plan 
to discuss our analysis in that order and conclude with the 
discussion of the effect of the President's various proposals 
on debt.
    Let me start with the basics. Mr. Chairman, in this first 
chart, let me draw your attention initially to the $30 billion. 
That is the Congressional Budget Office's [CBO] estimate of the 
amount by which discretionary outlays will exceed the fiscal 
year 2000 cap. Look next at the $17 billion figure. That is the 
amount that the President proposes to offset with mandatory 
savings, revenues, and the pay-as-you-go [PAYGO] balances--
offsets that cannot be scored against discretionary spending 
under current practices. The administration fully recognizes 
that $17 billion and its implications and essentially asks 
you--the Congress--to change the scoring to accept those 
offsets.

                  DISCRETIONARY APPROPRIATIONS IN THE PRESIDENT'S BUDGET COMPARED WITH THE CAPS
                                            (In billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                              CBO                 OMB            CBO Minus OMB
                                                     -----------------------------------------------------------
                                                        Budget              Budget              Budget
                                                      Authority  Outlays  Authority  Outlays  Authority  Outlays
----------------------------------------------------------------------------------------------------------------
President's Budget \1\..............................      $564      $605      $556      $592        $8       $14
Adjusted Caps\1\....................................       542       575       538       574         4         1
Budget Less Adjusted Caps...........................        22        30        18        17         4        13
Proposed Offsets....................................       \2\       \2\       \3\       -18       \3\       \3\
                                                           \3\       \3\       \3\        -1       \3\       \3\
----------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; Office of Management and Budget.

\1\ Includes an upward adjustment for mass transit budget authority that is not subject to the caps.
\2\ To be estimated.
\3\ Not available.

    The rest of the $30 billion is largely differences in 
estimates of outlays, the lion's share of which is in defense. 
CBO believes the administration's estimate for defense outlays 
is too low by some $10 billion--$6 billion for faster spending 
on prior obligations, and $4 billion because some of their 
changes produce no savings or are estimated incorrectly. The 
differences in nondefense outlays--some $4 billion--stem mostly 
from the timing of spectrum auctions and assumptions about 
highway spending.
    The bottom line thus far, Mr. Chairman: CBO estimates that 
the President's budget exceeds the current discretionary caps 
by $30 billion, roughly half from offsets that would not count 
under current law and half from our higher outlay estimates.
    Turning to the next chart, we can examine the effect of the 
President's budget on the baseline surpluses. Focus on the 
column, please, for 2000. Our estimates of the basic policies 
are a total of a negative $20 billion--a net of $30 billion in 
additional discretionary outlays, minus $11 billion in revenue 
increases, and small changes in other outlays. The $11 billion 
in revenue consists of $16 billion in increases, which includes 
$8 billion in tobacco taxes, and $5 billion in reductions.

                 CBO ESTIMATES OF THE PRESIDENT'S BUDGET INCLUDING THE SOCIAL SECURITY FRAMEWORK
                                            (In billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                       2000     2001     2002     2003     2004
----------------------------------------------------------------------------------------------------------------
Total budget surplus, CBO baseline.................................     $133     $156     $212     $213     $239
President's proposals:
    Excluding Social Security framework............................      -20       -7      -14      -17      -15
    Social Security framework......................................      -32      -60      -88      -87      -96
                                                                    --------------------------------------------
Total budget surplus, CBO estimate of President's budget...........       80       89      110      109      128
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.

    So the net effect on the surplus of the President's 
policies is a negative $20 billion. The bottom line is that the 
President's basic budget reduces the surplus by $20 billion in 
2000.
    I should note here that we believe the surpluses will be 
higher than the administration projects in 2000--$16 billion 
higher because of higher revenues and lower outlays. In all 
years but 2000, the higher baseline surpluses CBO projects more 
than offset our estimate of the higher spending proposed by the 
administration in the basic budget. Remember, we are still on 
part 1.
    The next line on the chart incorporates the President's 
Social Security framework. The framework consists of several 
proposals contingent on congressional acceptance of the general 
fund transfers to Social Security. As we testified last week, 
traditional budgetary accounting would show the transfers to 
have no effect on the unified surplus, only on the on-budget 
and off-budget surpluses. It is the other, nontransfer 
proposals that appear in the third line called ``Social 
Security framework.'' They consist of additional discretionary 
spending, Universal Savings Accounts [USAs], and the purchase 
of corporate stock to be held by the Social Security trust 
funds.
    Table 7 in the preliminary report provides the detail of 
what the negative $32 billion consists of. Again, most of these 
numbers are straight from the President's budget. We do not 
have the detailed policy that would permit us to reestimate the 
effects. So the $32 billion is largely adding up the Office of 
Management and Budget's [OMB] numbers.
    I should note that the discretionary spending increase, 
which is $26 billion of the $60 billion total change in 2001, 
does not provide any real increase for defense. In fact, the 
President's budget represents a reduction from the CBO 
baseline, including emergencies. The increases the 
administration points to are increases over the President's 
request for last year, not increases over the baseline.
    Most of the remaining reduction in the surplus stems from 
the purchase of equities ($15 billion in the first year) and 
USA accounts ($14 billion in the first year).
    The last line of the chart summarizes, using current 
accounting, the effect of the President's budget with the 
Social Security framework on the unified surplus. The off-
budget effect is to virtually double the current-law surplus 
while creating on-budget deficits for the foreseeable future. 
Bottom line at this point, Mr. Chairman: the President's 
budget, including the Social Security framework, reduces the 
surplus by $52 billion in 2000 and by larger amounts 
thereafter.
    As we see in the next chart, however, it may be appropriate 
to add back in the value of equity purchases because stocks 
represent assets that can be redeemed at a future date and 
because their purchase can have an effect on the economy that 
is similar to debt reduction.

                  CBO ESTIMATES OF DEBT HELD BY THE PUBLIC AND EQUITIES HELD BY SOCIAL SECURITY
                                    (By fiscal year, in billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                       2000     2001     2002     2003     2004
----------------------------------------------------------------------------------------------------------------
Debt, assuming CBO's baseline......................................   $3,512   $3,372   $3,176   $2,979   $2,756
Effect of President's budget.......................................       53      119      220      323      432
Value of equities held by Social Security..........................      -19      -36      -60      -85     -118
                                                                    --------------------------------------------
Debt net of equities under President's budget......................    3,546    3,455    3,336    3,217    3,071
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.

Note: All amounts refer to debt or stock held at the end of the fiscal year.

    The last chart calculates the portion of the surplus and 
the portion of the Social Security surplus that is ``saved'' 
using traditional scoring. The last line, which we penned in 
after the chart gnomes retired from this effort, includes the 
equity purchases.

                    HOW MUCH OF THE SURPLUS IS SAVED?
------------------------------------------------------------------------
                                            2000    2000-2004  2000-2009
------------------------------------------------------------------------
Baseline total surplus (billions of           $133       $952     $2,603
 dollars)..............................
Baseline Social Security surplus              $137       $767     $1,777
 (billions of dollars).................
Surplus under President's policies             $80       $516     $1,435
 (billions of dollars).................
Percentage of total surplus saved......        60%        54%        55%
Percentage of total surplus saved,             74%        64%        66%
 including equities....................
Percentage of Social Security surplus          58%        67%        81%
 saved.................................
Percentage of Social Security surplus          72%        79%        97%
 saved, including equities.............
------------------------------------------------------------------------
Source: Congressional Budget Office.

    In conclusion, Mr. Chairman, the President's budget saves 
the equivalent of two-thirds of the unified surplus and most of 
the Social Security surplus counting equity purchases, although 
not in the first years.
    Mr. Chairman, I think that some basic facts and choices are 
obscured by the current debate. When all is said and done, the 
President has done us a service in recognizing the long-run 
problem in Social Security. He proposes to solve part of the 
problem by transferring some of the responsibility of Social 
Security obligations to the general taxpayer. What matters is 
not so much how we get there--the accounting for all of this--
but rather questions such as: What are the implications of 
general fund financing? What other reforms are necessary to 
ensure the long-run viability of the program? Should the 
government directly invest in equities?
    The President also advocates socking away some, but not 
all, of the surplus, which will help economic growth. As I have 
testified before, the presumption must be that saving the 
surplus is good economics. Among the questions you must answer 
are: Will the savings materialize? Can they really be saved? 
And what do you do with the portion you choose not to save?
    Mr. Chairman, I will quit there. I am sorry I took longer 
than you did, but not much longer.
    [The prepared statement of Mr. Crippen follows:]

  An Analysis of the President's Budgetary Proposals for Fiscal Year 
 2000: A Preliminary Report Prepared By the Congressional Budget Office

    The President's budgetary proposals for fiscal year 2000 fall into 
three categories:
    1. A group of basic policy proposals, including recommended levels 
of discretionary appropriations for fiscal year 2000, that are to be 
enacted whether or not agreement is reached on Social Security reform,
    2. Proposals that are contingent on adoption of what the President 
calls his framework for Social Security reform, and
    3. Additional proposals that are mentioned in the budget document 
or the State of the Union message but are not included in the budget 
numbers.
    As requested by the Senate Committee on Appropriations, the 
Congressional Budget Office (CBO) has estimated the effects of the 
President's budgetary proposals using its own economic and technical 
estimating assumptions. Although a few of the estimates in the 
President's budget extend for 15 years, the Administration provides no 
details of its policies after 2009, and CBO's analysis also covers only 
10 years.
    CBO estimates that the Administration's budget--including both the 
basic policies and the Social Security framework--would reduce 
projected surpluses by $53 billion in 2000 and a total of $436 billion 
over the 2000-2004 period. Those figures do not include the additional 
proposals that the Administration has not clearly specified.
    Under its basic policies, the Administration would increase 
discretionary spending above the levels allowed under the current 
statutory caps and would pay for that increase by raising revenues and 
cutting mandatory spending. CBO estimates, however, that those policies 
would increase discretionary spending by an amount that is only partly 
offset by higher revenues and lower mandatory spending. In 2000, the 
basic policies would reduce the surplus by $20 billion compared with 
CBO's current-policy projections (see Table 1). Over the 2000-2004 
period, the Administration's basic policies would reduce the projected 
surpluses by a cumulative total of $73 billion.

                                TABLE 1.--CBO ESTIMATE OF THE EFFECT ON THE SURPLUS OF THE PRESIDENT'S BUDGETARY POLICIES
                                                        (By fiscal year, in billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              1999     2000     2001     2002     2003     2004     2005     2006     2007     2008     2009   2000-2004
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline Total Budget Surplus\1\...........     111      133      156      212      213      239      263      309      338      358      383       952
Effect on the Surplus of the President's         -1      -20       -7      -14      -17      -15       -7       -2    (\3\)       -5       -4       -73
 Budgetary Policies Excluding Social
 Security Framework Proposals\2\...........
Surplus Under the President's Budgetary         109      113      149      198      196      224      255      307      338      353      379       880
 Policies Excluding Social Security
 Framework Proposals.......................
Effect on the Surplus of the President's          0      -32      -60      -88      -87      -96     -109     -131     -146     -156     -171      -364
 Social Security Framework Proposals\4\....
Surplus or Deficit (-) Under the
 President's Budgetary Policies Including
 Social Security Framework Proposals
    Total Budget...........................     109       80       89      110      109      128      146      176      192      198      208       516
      On-budget............................     -17     -126     -116     -124     -137     -146     -156     -166     -189     -223     -251      -648
      Off-budget...........................     127      206      205      234      245      274      301      342      381      421      459     1,164
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.

\1\ Assumes that discretionary spending will equal the statutory caps on such spending in 2000 through 2002 and will increase at the rate of inflation
  thereafter.
\2\ See Table 3 for details.
\3\ Less than $500 million.
\4\ See Table 7 for details.

    The President's budget also contains several proposals that are 
contingent on a legislative agreement that would extend the life of the 
Social Security trust funds. Those proposals include providing further 
increases in defense and nondefense discretionary spending, subsidizing 
new Universal Savings Accounts, making transfers from the general fund 
to the Social Security and Medicare trust funds, and using about one-
fifth of the transfers to Social Security to purchase corporate stock. 
In total, the policies in the President's Social Security framework 
would reduce the surplus by $32 billion in 2000, more than $360 billion 
over the 2000-2004 period, and almost $1.1 trillion over the next 10 
years. Because the general revenue transfers are intragovernmental, 
they would have no effect on total federal spending, revenues, or 
surpluses, but they would delay the projected date on which the Social 
Security trust funds would become insolvent. The Administration 
estimates that its Social Security framework would postpone the 
exhaustion of the Social Security trust funds from 2032 to 2055.
    Finally, the Administration indicates that it will work with the 
Congress to develop additional proposals that will keep Social Security 
solvent for the next 75 years. In the context of those changes, the 
President has expressed his desire to eliminate Social Security's 
retirement earnings test and to reduce the rate of poverty among 
elderly widows and other elderly groups. In his State of the Union 
message, the President also suggested including a prescription drug 
benefit in Medicare. Because the Administration has not spelled out 
these additional proposals, CBO cannot estimate how much they would 
cost, and they are not included in this analysis.
    To the extent that the federal government runs budget surpluses, it 
is able to pay down the amount of federal debt held by the public. 
Under current laws and policies, CBO projects that debt held by the 
public would decline from $3.6 trillion at the end of 1999 to $1.2 
trillion in 2009 (see Table 2). Under the President's policies, debt 
held by the public would decline to an estimated $2.3 trillion in 2009. 
At that point, debt held by the public less Social Security's holdings 
of corporate equities would total $1.9 trillion, or nearly $800 billion 
more than in CBO's baseline.

  TABLE 2.--CBO ESTIMATE OF DEBT HELD BY THE PUBLIC AND CORPORATE STOCK HELD BY SOCIAL SECURITY UNDER THE PRESIDENT'S BUDGETARY POLICIES INCLUDING THE
                                                           SOCIAL SECURITY FRAMEWORK PROPOSALS
                                                        (By fiscal year, in billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              1999      2000      2001      2002      2003      2004      2005      2006      2007      2008      2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Debt Held by the Public Under          3,628     3,512     3,372     3,176     2,979     2,756     2,508     2,212     1,886     1,540     1,168
 CBO's Baseline Projections...............
Effect of the President's Budgetary                1        53       119       220       323       432       548       679       823       982     1,155
 Policies on Federal Debt Held by the
 Public...................................
Federal Debt Held by the Public Under the      3,630     3,565     3,491     3,396     3,302     3,189     3,055     2,891     2,710     2,522     2,324
 President's Budgetary Policies...........
Value of Corporate Stock Held by Social            0        19        36        60        85       118       156       204       262       331       413
 Security Under the President's Budgetary
 Policies.................................
Federal Debt Held by the Public Net of         3,630     3,546     3,455     3,336     3,217     3,071     2,899     2,687     2,448     2,191     1,911
 Corporate Stock Held by Social Security..
Memorandum: Net Change in Debt Held by the         1        35        83       161       238       314       392       475       562       651       742
 Public and Corporate Stock Held by Social
 Security.................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office. NOTE: All amounts refer to debt or stock held at the end of the fiscal year.

                 The President's Basic Policy Proposals

    As part of his basic proposals, the President is requesting $564 
billion in total discretionary budget authority for fiscal year 2000. 
CBO estimates that the resulting outlays would exceed the current 
statutory cap by $33 billion. The President is also proposing various 
tax increases and tax reductions that would, on balance, raise revenues 
by $11 billion in 2000. The Administration's mandatory spending 
proposals would reduce outlays in 2000 by a net of $1 billion, 
according to CBO's estimates.
          cbo's estimates of the president's policy proposals
    Under the President's proposals, total discretionary spending will 
increase significantly above the levels allowed under the existing 
statutory caps on such spending that are in place through 2002. But the 
budget also proposes increases in revenues and reductions in mandatory 
spending that the Administration estimates are sufficient to offset the 
increases in discretionary spending.
    The President's request for discretionary appropriations will 
result in outlays that exceed the existing Deficit Control Act caps by 
almost $33 billion in 2000, according to CBO's estimate (see Table 3). 
Under CBO's assumptions, the proposed policy changes affecting revenues 
and mandatory spending will offset less than $13 billion of the 
increase in discretionary spending in 2000. Thus, the surplus will 
decline relative to CBO's baseline by $20 billion in that year. Net 
changes in revenues and mandatory spending will offset an estimated $44 
billion of the $116 billion discretionary increase relative to CBO's 
baseline in 2000 through 2004, producing a cumulative reduction in the 
surplus of $73 billion over that period.

         TABLE 3.--CBO ESTIMATE OF THE EFFECT ON THE SURPLUS OF THE PRESIDENT'S BUDGETARY POLICIES EXCLUDING SOCIAL SECURITY FRAMEWORK PROPOSALS
                                                        (By fiscal year, in billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              1999     2000     2001     2002     2003     2004     2005     2006     2007     2008     2009   2000-2004
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        REVENUES
Revenue-Increasing Provisions
    Raise tobacco taxes...................    (\1\)        8        7        7        7        7        7        7        7        7        7        36
    Change sale-source rules for              (\1\)        1        2        2        2        2        2        2        3        3        3         9
     multinational firms..................
    Other.................................    (\1\)        6        8        8        8        8       10        8        9        9       10        39
Revenue-Reducing Provisions
    Assist taxpayers with long-term health        0    (\1\)       -1       -1       -1       -1       -2       -2       -2       -2       -2        -5
     care needs...........................
    Increase child and dependent care             0    (\1\)       -1       -1       -1       -1       -1       -1       -1       -1       -1        -5
     credit...............................
    Eliminate harbor maintenance tax......        0    (\1\)       -0       -1       -1       -1       -1       -1       -1       -1       -1        -3
    Other.................................    (\1\)       -4       -4       -3       -4       -4       -5       -6       -7       -6       -5       -19
                                           -------------------------------------------------------------------------------------------------------------
      Total...............................    (\1\)       11       11       11       10        9       10        7        7        9       10        52

                                                                         OUTLAYS
Discretionary.............................        1       33       17       22       23       21       14        6        3       10        9       116
Mandatory
    Child care............................        0        1        2        2        2        3        3        3        3        3        3         9
    Medicaid..............................        0    (\1\)    (\1\)    (\1\)        1        1        1        2        2        2        3         2
    Medicare..............................        0       -1       -2       -2       -2       -2       -2       -2       -2       -2       -3        -9
    Supplemental Security Income..........        0    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)        1        1        1        1        2         1
    Employer share of employee retirement.        0       -1       -1       -1       -1       -1       -2       -2       -2       -2       -3        -6
    Customs user fees.....................        0        0        0        0        0       -1       -1       -2       -2       -2       -2        -1
    Harbor maintenance fees...............    (\1\)        1        1        1        1        1        1        1        1        1        1        -5
    Net interest..........................    (\1\)    (\1\)        1        2        2        3        4        4        4        5        5         9
    Other.................................    (\1\)    (\1\)        2        2        2        1    (\1\)    (\1\)    (\1\)       -1    (\1\)         7
                                           -------------------------------------------------------------------------------------------------------------
      Subtotal............................       -1       -1    (\1\)        2        4        3        3        4        4        4        5         8
        Total.............................        1       31       18       25       27       24       18       10        7       14       14       124

                                                                          TOTAL
Total Change in Surplus...................       -1      -20       -7      -14      -17      -15       -7       -2        0       -5       -4       -73
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; Joint Committee on Taxation.
\1\ Less than $500 million.

    CBO estimates that the President's request for discretionary budget 
authority for fiscal year 2000 totals $564 billion--$282 billion for 
defense and $282 billion for nondefense programs. (In addition, he is 
requesting approximately $33 billion in obligation limits that control 
spending for discretionary transportation programs but do not count as 
budget authority.) Although that budget authority is $3 billion below 
the inflation-adjusted 1999 level of total appropriations (excluding 
funding for emergencies and the International Monetary Fund), CBO 
estimates that the resulting outlays would be $7 billion higher (about 
$3 billion in defense and $5 billion in nondefense programs) than the 
outlays that would result from providing an appropriation for each 
account equal to the 1999 appropriation adjusted for inflation. The 
outlays resulting from the President's plan would be $18 billion higher 
than those that would result from freezing discretionary budget 
authority at the 1999 dollar level in 2000 (excluding funding for 
emergencies and the International Monetary Fund), with the excess 
equally divided between defense and nondefense programs.
    The Administration's proposals for the Department of Defense (DoD) 
represent a reduction of $7 billion in 2000 and $2 billion over the 
2000-2004 period compared with the 1999 enacted level (including 
emergencies) adjusted for inflation. By the Administration's reckoning, 
however, its request represents an increase of $86 billion over the 
next five years. The Administration bases its claim on a comparison 
with its budget request of a year ago. The fiscal year 1999 budget 
slated $64 billion less for the Department of Defense over the 2000-
2004 period than does the current budget. It also included $21 billion 
for price growth that the Administration's new price forecast would 
indicate is unnecessary. Nevertheless, the Administration proposes 
redirecting that funding to other purposes, thereby bringing its 
current budget to about $86 billion over last year's request as 
adjusted for the new economic forecast.
    After taking into account adjustments to the caps (primarily for 
emergency appropriations) that would be required under current law if 
the President's proposals were enacted, CBO estimates that the 
President's discretionary spending would exceed the caps by $22 billion 
in budget authority and $30 billion in outlays (see Table 4). The 
President proposes to change current law to allow a number of revenue 
and mandatory spending proposals to count as offsets to discretionary 
spending. Under the Administration's assumptions, those offsets would 
keep discretionary spending from exceeding the caps. CBO has not yet 
separately identified its reestimates of those changes, but it 
estimates that the total net savings from all of the President's 
revenue and mandatory spending proposals would not be sufficient to 
bring discretionary spending down to the level of the caps.

                     TABLE 4.--DISCRETIONARY CAPS AND PROPOSED SPENDING FOR FISCAL YEAR 2000
                                            (In billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                         CBO Estimate       Administration         CBO minus
                                                     --------------------      estimate         administration
                                                                         ---------------------------------------
                                                        Budget   Outlays    Budget              Budget
                                                      authority           authority  Outlays  authority  Outlays
----------------------------------------------------------------------------------------------------------------
Baseline Caps\1\....................................       537       573       538       574        -1        -2
Adjustments Under Current Law If President's                 5         3     (\2\)     (\2\)         5         3
 Proposals Are Enacted..............................
Caps with Current-Law Adjustments...................       542       575       538       574         4         1
President's Budget Request\1\.......................       564       605       556       592         8        14
President's Budget Request Minus Baseline Caps......        27        33        18        17         9        16
President's Budget Request Minus Adjusted Caps......        22        30        18        17         4        13
Offsets That Would Require a Change in Law..........     (\3\)     (\3\)       -18       -18     (\3\)     (\3\)
Discretionary Spending Net of Offsets...............     (\3\)     (\3\)       538       574     (\3\)     (\3\)
Discretionary Spending Net of Offsets Minus Adjusted     (\3\)     (\3\)     (\4\)        -1     (\3\)     (\3\)
 Caps...............................................
----------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; Office of Management and Budget.
\1\ Includes an upward adjustment for mass transit budget authority that is not subject to the caps.
\2\ The Administration's baseline caps include adjustments the Administration assumes will be made if the
  President's proposals are enacted.
\3\ CBO did not attempt to separate out its reestimates of the portion of proposed changes in revenues and
  mandatory spending that the Administration counts as offsets to discretionary spending.
\4\ Less than $500 million.

    The President has proposed a number of changes in tax laws that 
together would produce a net increase in revenues of $11 billion in 
2000 and $52 billion in 2000 through 2004 (see Table 3). A proposed 
increase in tobacco taxes, including an increase of 55 cents a pack in 
the tax on cigarettes, accounts for almost half of the revenue 
increases. Other provisions that increase revenues include a change in 
the sale-source rules for multinational firms. Revenue-reducing 
provisions include proposals for a new tax credit to assist taxpayers 
with long-term health care needs, an increase in the credit for child 
and dependent care, and the elimination of the harbor maintenance tax, 
the effects of which are more than offset by a proposed new harbor 
maintenance fee that would be recorded as a negative outlay rather than 
a revenue.
    Proposed changes in mandatory programs would reduce outlays by $1 
billion in 2000 but increase them by $8 billion over the 2000-2004 
period (see Table 3). Additional funding for child care ($1 billion in 
2000 and $9 billion in 2000 through 2004) represents the budget's 
largest proposed increase in mandatory spending. Proposed changes in 
Medicaid would increase spending by $1 billion a year by 2003, and 
changes in a variety of programs would boost spending by a total of $7 
billion in 2000 through 2004. Proposals to alter the Medicare program 
would reduce spending by $1 billion in 2000 and $9 billion in 2000 
through 2004. The new harbor maintenance fee would increase offsetting 
receipts by $5 billion over the same period, but the repeal of the 
existing harbor maintenance tax would reduce revenues by $3 billion. 
Offsetting receipts would be increased by $6 billion in 2000 through 
2004 because proposed increases in military and federal civilian 
employee pay and military retirement benefits would trigger increases 
in agency (employer share) payments to the military and civil service 
retirement funds. That estimate reflects the receipts into the funds. 
The increased payments to the fund are reflected in estimates of 
discretionary appropriations for civilian and military personnel costs.
            differences with the administration's estimates
    CBO estimates that total budget surpluses will grow less rapidly 
over the next five years under the President's policies (excluding 
proposals that are contingent on agreement on Social Security reform) 
than they would under CBO's baseline. However, because CBO's economic 
and technical assumptions produce higher projected baseline surpluses 
than the Administration projects under current law, the total surpluses 
projected by CBO under the President's policies are $52 billion higher 
in 2000 through 2004 than the Administration estimates (see Table 5). 
Only in 2000 does CBO estimate a lower surplus than the Administration 
does.

  TABLE 5.--CBO REESTIMATE OF THE PRESIDENT'S BUDGETARY POLICIES EXCLUDING SOCIAL SECURITY FRAMEWORK PROPOSALS
                                    (By fiscal year, in billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                        1999    2000    2001    2002    2003    2004   2000-2004
----------------------------------------------------------------------------------------------------------------
                                             ADMINISTRATION ESTIMATE
Surplus Under the President's Budgetary Policies.....      79     117     134     187     182     208       828

                                             SOURCES OF DIFFERENCES
Baseline
  Revenues...........................................       8      -2       6      17      24      27        72

  Outlays
    Discretionary....................................      -7      -2      -1   (\1\)      -1      -2        -5
    Mandatory........................................     -16     -16     -15      -9      -5      -2       -48
                                                      ----------------------------------------------------------
      Subtotal.......................................     -23     -18     -16      -9      -6      -4       -53
        Total........................................      31      16      22      26      31      31       125
Estimates of Proposed Policies
  Revenues...........................................   (\1\)   (\1\)       2       2       1       1         6
  Outlays
    Discretionary....................................       1      16       4       9       7       6        42
    Mandatory........................................      -1       5       5       7      11      10        37
                                                      ----------------------------------------------------------
      Subtotal.......................................       1      21       9      15      18      16        79
        Total........................................      -1     -21      -7     -14     -17     -15       -73

                                                TOTAL DIFFERENCES
Revenues.............................................       8      -2       8      18      26      28        77
Outlays
  Discretionary......................................      -6      14       3       9       6       4        36
  Mandatory..........................................     -16     -11     -10      -2       5       8       -11
                                                      ----------------------------------------------------------
    Subtotal.........................................     -22       3      -7       6      12      12        26
      Total..........................................      30      -5      15      12      14      16        52

                                                 CBO REESTIMATE
Surplus Under the President's Budgetary Policies.....     109     113     149     198     196     224       880
----------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; Joint Committee on Taxation.

\1\ Less than $500 million.

    Baseline Differences. CBO estimates that surpluses under current 
policies will be $125 billion higher over the 2000-2004 period than the 
Administration estimates. That difference represents less than 1.5 
percent of the total outlays projected by CBO over that period. 
Estimated higher revenues and lower outlays are almost equally 
responsible for the cumulative upward reestimate. In 1999, however, 
lower outlays account for about two-thirds of the $31 billion 
difference (see Table 5).
    CBO's estimates for discretionary and mandatory spending in 1999 
are lower than those of the Administration. CBO projects that 
discretionary outlays will be $7 billion lower in 1999, with the 
difference about equally divided between defense and nondefense 
programs, and that mandatory spending will be $16 billion below the 
Administration's estimate. About two-thirds of that difference stems 
from CBO's lower estimate of spending for Medicare, a program that has 
experienced no growth for more than a year. CBO and the Administration 
agree that the growth in spending for Medicare will pick up, but the 
Administration's estimates assume that will happen more quickly. CBO 
also assumes that a variety of income security programs--including 
unemployment insurance, the earned income tax credit, the Food Stamp 
program, and Temporary Assistance for Needy Families--will spend about 
$5 billion less in 1999 than the Administration estimates.
    Revenues will be an estimated $8 billion higher in 1999 than the 
Administration projects, largely because CBO expects taxable income to 
be slightly higher. The economic forecasts of CBO and the 
Administration are quite similar overall (see Table 6). But CBO's 
slightly higher projections of taxable income also explain most of the 
difference in baseline revenue projections for all years through 2004 
except 2000, when CBO's technical assumptions offset the effects of 
different economic assumptions and produce a downward reestimate of $2 
billion. Altogether, small differences in economic assumptions account 
for $58 billion of CBO's higher revenue estimate for the 2000-2004 
period, but the effect on the surplus is offset by increases in outlays 
that result from the higher growth in the consumer price index and 
slightly higher interest rates that CBO projects.

                                  TABLE 6.--COMPARISON OF ECONOMIC PROJECTIONS
                                           (Calendar years 1999-2004)
----------------------------------------------------------------------------------------------------------------
                                                                Forecast                   Projected
                                                           -----------------------------------------------------
                                                              1999     2000     2001     2002     2003     2004
----------------------------------------------------------------------------------------------------------------
Nominal GDP (Billions of dollars)
  CBO.....................................................    8,846    9,182    9,581   10,015   10,476   10,960
  Administration..........................................    8,833    9,199    9,582   10,004   10,456   10,930
Nominal GDP (Percentage change)
  CBO.....................................................      4.1      3.8      4.3      4.5      4.6      4.6
  Administration..........................................      4.0      4.1      4.2      4.4      4.5      4.5
Real GDP (Percentage change)
  CBO.....................................................      2.3      1.7      2.2      2.4      2.4      2.4
  Administration..........................................      2.4      2.0      2.0      2.2      2.4      2.4
GDP Price Index\1\ (Percentage change)
  CBO.....................................................      1.7      2.0      2.1      2.1      2.1      2.1
  Administration..........................................      1.5      2.1      2.1      2.1      2.1      2.1
Consumer Price Index\2\ (Percentage change)
  CBO.....................................................      2.5      2.6      2.6      2.6      2.6      2.6
  Administration..........................................      2.2      2.3      2.3      2.3      2.3      2.3
Unemployment Rate (Percent)
  CBO.....................................................      4.6      5.1      5.4      5.6      5.7      5.7
  Administration..........................................      4.8      5.0      5.3      5.3      5.3      5.3
Three-Month Treasury Bill Rate (Percent)
  CBO.....................................................      4.5      4.5      4.5      4.5      4.5      4.5
  Administration..........................................      4.2      4.3      4.3      4.4      4.4      4.4
Ten-Year Treasury Note Rate (Percent)
  CBO.....................................................      5.1      5.3      5.4      5.4      5.4      5.4
  Administration..........................................      4.9      5.0      5.2      5.3      5.4      5.4
Taxable Income\3\ (Billions of dollars)
  CBO.....................................................    5,178    5,351    5,562    5,795    6,054    6,328
  Administration..........................................    5,166    5,354    5,551    5,778    6,037    6,308
----------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; Office of Management and Budget.
Note: Percentage change is year over year.

\1\ The GDP price index is virtually the same as the implicit GDP deflator.
\2\ The consumer price index for all urban consumers.
\3\ Taxable personal income plus corporate profits before tax.

    The baselines of both CBO and the Administration assume that 
discretionary spending will comply with the statutory caps that 
constrain appropriations in 2000 through 2002. CBO's projected 
discretionary spending for 2000 is $2 billion lower, however, because 
CBO does not include adjustments (primarily for emergency 
appropriations) that would be made under current law at the end of this 
year if the President's proposed appropriations are enacted. CBO's 
projected mandatory spending for 2000 is $16 billion lower than the 
Administration's (see Table 5). Estimates of spending for Medicare 
again account for the bulk--$9 billion--of the reestimate because CBO's 
estimate of low spending in 1999 holds outlays down relative to the 
Administration's estimates through 2003. Spending for income security 
programs under CBO's assumptions is $6 billion lower, but spending for 
Medicaid is $2 billion higher.
    In addition, CBO's baseline estimate of mandatory spending in 2000 
is $3 billion lower than the Administration's because the 
Administration assumes in its baseline projection that the pay-as-you-
go balance for 2000 will be spent. (The Administration's baseline also 
assumes that pay-as-you-go balances for 2001 through 2003 will be 
spent.) Since legislation would be required to increase spending or 
reduce revenues, CBO did not assume those costs in its current-policy 
baseline.
    The differences between CBO's and the Administration's estimates of 
baseline outlays continues to shrink after 2000 (CBO's estimate is only 
$4 billion lower than the Administration's in 2004), but the excess of 
CBO's revenue projections over the Administration's grows (to $27 
billion in 2004), and the difference in estimates of the surplus 
returns to $31 billion in 2003 and 2004.
    Differences in Estimates of Proposed Policies. Whereas the 
Administration estimates that proposed policy changes will have 
essentially no net effect on the surplus through 2004, CBO estimates 
that those changes will reduce cumulative surpluses for 2000 through 
2004 by $73 billion. That reduction is the result of CBO's estimate 
that the President's proposed increases in spending will be larger than 
the Administration estimates (see Table 5). Revenues only partially 
offset that higher estimate of spending--the Joint Committee on 
Taxation and CBO estimate that the President's tax proposals will 
increase revenues $6 billion more than the Administration estimates in 
2000 through 2004.
    CBO's largest reestimate of the President's policies occurs in 
2000. About three-fourths, or $16 billion, of the $21 billion 
difference between CBO's and the Administration's estimates of outlays 
in 2000 is accounted for by CBO's higher estimate of the outlays that 
would result from enactment of the President's requests for 
discretionary appropriations. Of that $16 billion, $2 billion stems 
from the anticipated adjustments to the caps (such as the increase 
required under the Deficit Control Act if emergency funding requested 
by the President is appropriated) that the Administration included in 
its baseline. CBO, however, does not include that amount in its 
baseline because the adjustments depend on enactment of the President's 
requested appropriations; the $2 billion is included in CBO's 
reestimate of the policies proposed by the President.
    Of the remaining $14 billion difference in estimates of 
discretionary outlays for 2000, $10 billion is attributable to CBO's 
higher estimate of outlays for defense programs. In every year since 
1994, CBO's estimates of outlays from defense appropriations have 
exceeded the Administration's but have proved to be lower than the 
outlays that actually resulted. The difference between CBO's and the 
Administration's estimates of defense outlays for 2000 is larger than 
in recent years (it was $5.7 billion in 1998 and $3.7 billion in 1999). 
Of the $10 billion, about $6 billion can be attributed to the 
differences in analytic judgments about spendout rates for new 
appropriations and assumptions about the timing of disbursements of 
unexpended balances that have generated differences in the past. The 
remaining $4 billion difference can be traced to the Administration's 
not including in the defense budget the outlays from 1999 contingent 
emergency appropriation funding that had not been released at the time 
the budget was presented to the Congress, and to different estimates of 
the effect of an assortment of proposed changes in Department of 
Defense practices. Those changes would deny interim or progress 
payments for contracts between $1 million and $2 million in value, 
reconfigure the accounting of spending for maintenance of real 
property, allow the Secretary of Defense to cancel up to $1.7 billion 
of enacted budget authority, and request appropriations only for the 
first-year costs of certain construction projects.
    Unlike the Administration, CBO estimates that these proposed 
changes would produce little or no reduction in outlays. For instance, 
the Administration requests that $5.3 billion in funding for some 
construction projects be split into two parts: an appropriation of $2.3 
billion in 2000 for the first-year costs of the projects and $3 billion 
in advance appropriations for 2001 to cover the remaining costs. 
However, the Administration applied the same spendout rate to the 
first-year funding that had previously been applied when the total 
funding was all provided in the first year. CBO assumes that the first-
year funds will be spent much more quickly since they are sufficient to 
cover only the first-year costs of the projects, pushing CBO's estimate 
of outlays in 2000 up by $0.4 billion compared with the 
Administration's.
    CBO estimates that the President's nondefense discretionary outlays 
are $4 billion higher than the Administration estimates. Two 
reestimates account for the bulk of that difference. The President's 
budget proposes that legislative language be included in the Commerce, 
State, and Justice appropriation bill for 2000 that would accelerate an 
auction of a portion of the electromagnetic spectrum that current law 
prohibits the Federal Communications Commission (FCC) from beginning 
before January 1, 2001. The Administration estimates that this action 
will produce an offset to discretionary spending of $2.6 billion in 
2000 (and offsetting costs of $1.3 billion in 2001 and in 2002). Under 
current laws and policies, changes in mandatory spending (including 
timing shifts) resulting from legislation included in an appropriation 
bill are counted as discretionary spending for purposes of compliance 
with the caps. CBO assumes, however, that the FCC is highly unlikely to 
be able to move quickly enough on the proposed auction to produce any 
effect on outlays in 2000. CBO therefore estimates that accelerating 
the auction would produce a $1.6 billion increase in receipts in 2001 
and a corresponding loss of receipts in 2002, when CBO assumes the 
auction would be completed under current law.
    More than $1 billion of CBO's higher estimate of nondefense 
discretionary outlays is attributable to estimates of spending for 
highways and mass transit. The difference partly reflects CBO's 
assessment of the effect on highway spending of the delay in enactment 
of the Transportation Equity Act for the 21st Century in 1998. Because 
the funding provided by that bill did not become available until the 
summer of 1998, outlays for highway programs were lower in 1998 than 
had been anticipated. CBO assumes that the spending that did not occur 
in 1998 will carry over to subsequent years and has therefore increased 
its estimate of prior-year outlays that will occur in 1999 and 2000.
    In the years from 2001 through 2004, CBO also estimates that 
discretionary outlays resulting from the President's proposals will 
exceed the Administration's estimates, although by smaller amounts than 
in 2000.
    About three-fifths of CBO's total reestimate of mandatory spending 
for 2000 is attributable to the Administration's treatment of the pay-
as-you-go balances. The Administration assumed $3 billion in savings 
relative to its baseline since it included the costs of spending 
increases or revenue reductions equal to the pay-as-you-go balance in 
its baseline but did not propose legislation to achieve those changes. 
By contrast, CBO--following the baseline rules of the Deficit Control 
Act that provide that revenues and mandatory spending are to be 
projected at current-law amounts, with a few specific exceptions--did 
not include costs equal to the pay-as-you-go balance in its baseline. 
Thus, CBO does not count any savings from the absence of legislative 
proposals to spend the balance. The other significant reestimate of a 
mandatory policy in 2000 is in student loans. The Administration 
estimates that a variety of proposed changes in the student loan 
program (such as establishing a national database of new employees to 
track students with outstanding loans) will yield net savings of about 
$2 billion in 2000 compared with CBO's estimate of about $1 billion.
    On the mandatory side, the largest reestimate over the 2001-2004 
period is for the President's proposed tobacco recoupment policy. 
According to the Administration, ``U.S. taxpayers paid a substantial 
portion of the Medicaid costs that were the basis for much of the State 
settlement with the tobacco companies, and Federal law requires that 
the Federal Government recoup its share.'' The budget proposes to 
``waive direct Federal recoupment, if States agree to use a portion of 
funds from the settlement to support shared national and State 
priorities.'' The Administration assumes that this policy would reduce 
costs for those unspecified programs by $16 billion in 2001 through 
2004. CBO assumes that any reduction in spending for the unspecified 
programs that might occur will be offset by the loss of the Medicaid 
funds that could have been recovered under current law--CBO's baseline 
assumes recoveries of less than $1 billion a year in 2001 through 
2009--and therefore attributes no savings to the proposal.

          The President's Framework for Social Security Reform

    The budget includes a number of proposals as part of a package to 
reform Social Security and extend the life of the Medicare Hospital 
Insurance (HI) Trust Fund. Some of the proposals, such as a proposed 
increase in discretionary spending, are not directly related to Social 
Security or Medicare but are described as contingent on agreement being 
reached on Social Security reform. CBO estimates that together the 
proposals will reduce the total budget surplus by $1,076 billion in 
2000 through 2009 (see Table 7). Some of the proposed changes would not 
affect the total budget surplus but would affect on- and off-budget 
surpluses and balances held by the Social Security and Medicare 
Hospital Insurance trust funds.

                         TABLE 7.--ESTIMATE OF THE EFFECT ON THE SURPLUS OF THE PRESIDENT'S SOCIAL SECURITY FRAMEWORK PROPOSALS
                                                        (By fiscal year, in billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              1999     2000     2001     2002     2003     2004     2005     2006     2007     2008     2009   2000-2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Surplus or Deficit (-) Under the
 President's Budgetary Policies Excluding
 Social Security Framework Proposals as
 Estimated by CBO
  On-budget...............................      -17      -25        4       45       34       53       71      113      134      140      160        729
  Off-budget..............................      127      138      145      153      162      171      184      194      204      213      218      1,782
                                           -------------------------------------------------------------------------------------------------------------
    Total.................................      109      113      149      198      196      224      255      307      338      353      379      2,512
Effect on the Surplus of the President's
 Social Security Framework Proposals\1\
  On-budget
    Additional discretionary spending.....        0        0      -26      -41      -36      -34      -38      -41      -39      -33      -30       -318
    Universal Savings Accounts............        0      -14      -16      -22      -21      -24      -26      -32      -36      -39      -43       -272
    General fund transfers to Social              0      -85      -70      -92      -90     -109     -121     -152     -177     -205     -232     -1,332
     Security trust funds.................
    Interest paid to Social Security trust        0       -2       -5       -8      -12      -17      -22      -29      -37      -46      -57       -235
     funds................................
    Net interest..........................        0       -1       -3       -6      -11      -15      -21      -26      -33      -41      -49       -206
                                           -------------------------------------------------------------------------------------------------------------
      Subtotal............................        0     -101     -120     -169     -171     -199     -227     -279     -323     -364     -412     -2,363
  Off-budget
    General fund transfers to Social              0       85       70       92       90      109      121      152      177      205      232      1,332
     Security trust funds.................
    Purchase of stock by Social Security          0      -18      -15      -19      -19      -23      -25      -32      -37      -43      -49       -280
     trust funds..........................
    Interest paid to Social Security trust        0        2        5        8       12       17       22       29       37       46       57        235
     funds................................
                                           -------------------------------------------------------------------------------------------------------------
      Subtotal............................        0       68       60       81       84      103      117      149      177      208      241      1,287
        Total Budget Effect...............        0      -32      -60      -88      -87      -96     -109     -131     -146     -156     -171     -1,076
Surplus or Deficit (-) Under the
 President's Budgetary Policies Including
 Social Security Framework Proposals as
 Estimated by CBO
  On-budget...............................      -17     -126     -116     -124     -137     -146     -156     -166     -189     -223     -251     -1,634
  Off-budget..............................      127      206      205      234      245      274      301      342      381      421      459      3,069
                                           -------------------------------------------------------------------------------------------------------------
      Total...............................      109       80       89      110      109      128      146      176      192      198      208      1,435
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.
Note: Because the budget did not provide a detailed description of the proposed Social Security framework proposals, CBO has used the Administration's
  estimates of all effects except the changes in interest payments.

\1\ Spending increases are shown with a negative sign because they reduce the surplus.

    The proposals are to:
    Increase defense and nondefense discretionary spending above the 
levels assumed by the President's basic policies by $318 billion in 
2001 through 2009.
    Provide seed money and matching funds totaling $272 billion in 2000 
through 2009 for Universal Savings Accounts (USA accounts).
    Make transfers from the general fund to the Social Security trust 
funds totaling $1,332 billion in 2000 through 2009.
    Make transfers from the general fund to the HI trust fund totaling 
$350 billion in 2000 through 2009.
    Use $280 billion of the money transferred to the trust funds to 
purchase corporate stock to be held by the trust funds. The proposal 
assumes that any returns on those investments will be reinvested in 
stocks.
    Change the budget accounting rules so that certain amounts 
transferred to the Social Security trust funds would reduce the 
reported total budget surplus.
    CBO's reestimate of the President's proposals does not reflect the 
proposed change in budget accounting. Following long-standing practice 
and scorekeeping rules agreed to by the Congress and the 
Administration, CBO uses current budget concepts and rules to estimate 
the President's proposals and will adopt the proposed change only after 
it is agreed to by the Congress and the Administration.
    Because the Administration has provided little detail about the 
Social Security framework proposals, CBO's estimates are based on the 
costs of the programs included in the President's budget (except for 
CBO's own estimate of the resulting changes in interest costs). For 
instance, the budget does not specify which discretionary programs are 
to receive the proposed additional funding that is contingent on Social 
Security reform. Therefore, CBO cannot reestimate the outlay effect of 
the funding.
    Similarly, the Administration has provided little information about 
how the proposed USA accounts would work, and CBO has simply assumed a 
program that will cost the amount specified in the budget. The budget 
does not indicate whether the costs of the USA program will be 
reflected as an increase in outlays or a loss of revenues. At least 
some of the costs will almost certainly be counted as outlays even if 
the program operates through the tax code (for instance, refundable 
portions of tax credits are shown as outlays), but part of the costs 
may be shown as a loss of revenues. In the absence of details, CBO has 
assumed that the costs will be divided equally between outlays and 
revenues.
    CBO also assumes that the transfers from the general fund to the 
Social Security trust funds will equal the amounts included in the 
President's budget since the budget did not provide details about how 
the transfers would be calculated. The transfers themselves would have 
no effect on the total budget surplus (or debt held by the public) 
since they represent intragovernmental transfers. They would, however, 
affect the on- and off-budget surpluses. As shown in Table 7, the 
transfers (and the resulting increases in interest paid to the trust 
funds) and the costs of additional discretionary spending and USA 
accounts turn projected on-budget surpluses of $729 billion in 2000 
through 2009 into on-budget deficits of $1,634 billion. The transfers 
of $350 billion from the general fund to the HI trust fund in 2000 
through 2009 affect the fund balances but not the total or on-budget 
surplus since they represent a transfer from the general fund to an on-
budget trust fund.
    Using $280 billion of the transferred funds to purchase corporate 
stock to be held by the Social Security trust funds reduces the total 
and off-budget surpluses for 2000 through 2009 by that amount. CBO, 
like the Administration, treats the costs of those purchases as an 
outlay. The appropriate treatment of federal purchases of corporate 
stock was not addressed by the 1967 President's Commission on Budget 
Concepts or in subsequent efforts to determine budget concepts and 
rules. However, in at least one case, the Administration, CBO, and the 
Congressional budget committees have treated a federal transaction in 
corporate stock as an outlay. Stock held by the District of Columbia's 
pension funds was taken over by the federal government pursuant to 
provisions of the Balanced Budget Act of 1997. Administration and 
Congressional estimates of those provisions showed that the assumed 
sale by the federal government of that stock would produce offsetting 
receipts for the federal government, implying that the purchase of 
stock should be recorded as an outlay. That treatment, which is 
consistent with the basic assumption that budget transactions should be 
recorded on a cash basis, seems reasonable until the issue can be 
carefully considered and agreement reached on whether some other 
treatment would be more appropriate.
    The value of the stock accumulated in the Social Security trust 
funds (including additional stock that will be purchased with any 
dividends) would affect the balances in the Social Security trust funds 
and should be taken into account in assessing the financial position of 
the federal government. The money borrowed from credit markets to 
purchase the stock is immediately returned as an investment in the 
private sector. Thus, the purchase of stock can be viewed as merely an 
exchange of financial assets and would have little economic effect. For 
purposes of determining the federal government's demand on private 
financial markets, therefore, the value of the stock should also be 
considered as an offset to debt held by the public. However, although 
the anticipated increase in the value of the stock above the costs of 
borrowing to purchase the stock appears to make the government better 
off, it does not represent an improvement in the economy.

                         CBO's Revised Baseline

    In the course of preparing its annual analysis of the President's 
budget, CBO typically updates its baseline projections to take account 
of new information from that budget and other sources. The revised 
March projections then usually become the starting point for the budget 
resolution baseline.
    CBO's new March projections are only slightly different from those 
issued in its January 1999 report, The Economic and Budget Outlook: 
Fiscal Years 2000-2009 (see Table 8). Projected surpluses are slightly 
higher in every year--by an average of less than $4 billion a year. CBO 
now projects that the total budget surplus will be $111 billion in 1999 
and will grow to $383 billion in 2009 (see Table 9). It still projects 
that when the off-budget transactions of Social Security and the Postal 
Service are excluded, small on-budget deficits will remain in 1999 and 
2000. But, as in January, CBO projects on-budget surpluses starting in 
2001.

                         TABLE 8.--CHANGES IN CBO BASELINE SURPLUSES SINCE JANUARY 1999
----------------------------------------------------------------------------------------------------------------
                                                1999  2000  2001  2002  2003  2004  2005  2006  2007  2008  2009
----------------------------------------------------------------------------------------------------------------
January 1999 Baseline Total Budget Surplus....   107   131   151   209   209   234   256   306   333   355   381
Technical Changes
  Revenues....................................     0     0     0     0     0     0     0     0     0     0     0
  Outlays
    Discretionary.............................    -1    -2    -1  (\1\  (\1\  (\1\  (\1\  (\1\  (\1\  (\1\  (\1\
                                                                     )     )     )     )     )     )     )     )
    Medicare..................................    -6    -3    -2    -2    -2    -3    -5    -1    -2  (\1\     2
                                                                                                         )
    Medicaid..................................    -1    -1    -1    -1    -1    -1    -1    -1    -2    -2    -2
    Other mandatory...........................     4     3    -1    -1  (\1\    -1  (\1\    -1    -1    -1    -1
                                                                           )           )
                                               -----------------------------------------------------------------
      Subtotal................................    -3    -2    -5    -4    -3    -5    -7    -3    -4    -3    -2
        Total.................................     3     2     5     4     3     5     7     3     4     3     2
March 1999 Baseline Total Budget Surplus......   111   133   156   212   213   239   263   309   338   358   383
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.
\1\ Less than $500 million.


                           TABLE 9.--CBO BASELINE BUDGET PROJECTIONS, ASSUMING COMPLIANCE WITH THE DISCRETIONARY SPENDING CAPS
                                                                    (By fiscal year)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               Actual
                                                1998     1999     2000     2001     2002     2003     2004     2005     2006     2007     2008     2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 IN BILLIONS OF DOLLARS
Revenues
  Individual income.........................      829      863      893      919      958      990    1,035    1,085    1,138    1,195    1,258    1,323
  Corporate income..........................      189      193      188      191      202      214      226      238      250      259      267      273
  Social insurance..........................      572      610      640      666      691      717      746      783      816      852      885      923
  Other.....................................      133      148      148      154      164      170      177      182      188      194      200      208
                                             -----------------------------------------------------------------------------------------------------------
    Total...................................    1,722    1,815    1,870    1,930    2,015    2,091    2,184    2,288    2,393    2,500    2,611    2,727
      On-budget.............................    1,306    1,368    1,402    1,443    1,508    1,563    1,634    1,711    1,791    1,871    1,956    2,046
      Off-budget............................      416      446      468      488      506      527      550      577      602      628      654      681
Outlays
  Discretionary spending....................      555      574      573      573      568      583      598      614      630      646      663      680
  Mandatory spending........................      939      979    1,027    1,081    1,136    1,205    1,273    1,357    1,419    1,505    1,603    1,704
  Offsetting receipts.......................      -84      -78      -80      -86      -97      -93      -96     -101     -106     -112     -118     -125
  Net interest..............................      243      229      218      207      195      183      170      156      140      123      104       85
                                             -----------------------------------------------------------------------------------------------------------
    Total...................................    1,653    1,704    1,737    1,775    1,802    1,878    1,946    2,025    2,083    2,162    2,253    2,344
      On-budget.............................    1,336    1,384    1,407    1,432    1,449    1,512    1,567    1,632    1,675    1,737    1,810    1,880
      Off-budget............................      317      320      330      343      353      366      379      393      408      425      442      464
Deficit (-) or Surplus......................       69      111      133      156      212      213      239      263      309      338      358      383
  On-budget.................................      -30      -16       -5       11       59       51       68       79      116      134      146      165
  Off-budget................................       99      127      138      145      153      162      171      184      193      204      212      218
Debt Held by the Public.....................    3,720    3,628    3,512    3,372    3,176    2,979    2,756    2,508    2,212    1,886    1,540    1,168

                                                                 AS A PERCENTAGE OF GDP
Revenues
  Individual income.........................      9.9      9.9      9.8      9.7      9.7      9.6      9.6      9.6      9.6      9.6      9.7      9.8
  Corporate income..........................      2.2      2.2      2.1      2.0      2.0      2.1      2.1      2.1      2.1      2.1      2.1      2.0
  Social insurance..........................      6.8      7.0      7.0      7.0      7.0      6.9      6.9      6.9      6.9      6.9      6.8      6.8
  Other.....................................      1.6      1.7      1.6      1.6      1.7      1.6      1.6      1.6      1.6      1.6      1.5      1.5
                                             -----------------------------------------------------------------------------------------------------------
    Total...................................     20.5     20.7     20.6     20.4     20.3     20.2     20.2     20.2     20.2     20.2     20.2     20.2
      On-budget.............................     15.5     15.6     15.4     15.2     15.2     15.1     15.1     15.1     15.1     15.1     15.1     15.1
      Off-budget............................      4.9      5.1      5.1      5.1      5.1      5.1      5.1      5.1      5.1      5.1      5.1      5.0
Outlays
  Discretionary spending....................      6.6      6.6      6.3      6.0      5.7      5.6      5.5      5.4      5.3      5.2      5.1      5.0
  Mandatory spending........................     11.2     11.2     11.3     11.4     11.5     11.6     11.7     12.0     12.0     12.1     12.4     12.6
  Offsetting receipts.......................     -1.0     -0.9     -0.9     -0.9     -1.0     -0.9     -0.9     -0.9     -0.9     -0.9     -0.9     -0.9
  Net interest..............................      2.9      2.6      2.4      2.2      2.0      1.8      1.6      1.4      1.2      1.0      0.8      0.6
                                             -----------------------------------------------------------------------------------------------------------
    Total...................................     19.7     19.4     19.1     18.7     18.2     18.1     18.0     17.9     17.6     17.4     17.4     17.3
      On-budget.............................     15.9     15.8     15.5     15.1     14.6     14.6     14.5     14.4     14.1     14.0     14.0     13.9
      Off-budget............................      3.8      3.6      3.6      3.6      3.6      3.5      3.5      3.5      3.4      3.4      3.4      3.4
Deficit (-) or Surplus......................      0.8      1.3      1.5      1.6      2.1      2.1      2.2      2.3      2.6      2.7      2.8      2.8
  On-budget.................................     -0.4     -0.2     -0.1      0.1      0.6      0.5      0.6      0.7      1.0      1.1      1.1      1.2
  Off-budget................................      1.2      1.4      1.5      1.5      1.5      1.6      1.6      1.6      1.6      1.6      1.6      1.6
Debt Held by the Public.....................     44.3     41.4     38.6     35.6     32.1     28.8     25.4     22.1     18.7     15.2     11.9      8.6
Memorandum:
  Gross Domestic Product....................    8,404    8,762    9,095    9,476    9,904   10,358   10,837   11,337   11,855   12,391   12,946   13,521
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.

    The largest change in CBO's projections since January is a 
reduction in Medicare outlays--by $6 billion in 1999 and lesser amounts 
in subsequent years--reflecting the continuation through the first 
months of 1999 of an unprecedented period of no growth in spending for 
that program (see Table 8). CBO assumes that the rate of spending for 
Medicare will pick up in the remaining months of 1999 but that outlays 
will remain a little below the levels projected in January until 2008. 
CBO's revised projections of Medicaid spending are also lower--by a 
little more than $1 billion a year, on average, for the 1999-2009 
period. The projections for a number of other programs are slightly 
higher than in January, resulting in a total reduction in projected 
outlays of $41 billion in 1999 through 2009. CBO has made no change in 
its projections of revenues.
    Under CBO's baseline assumptions, federal revenues are expected to 
total about $1.8 trillion this year--or approximately 20.7 percent of 
gross domestic product (see Table 9). As a percentage of GDP, projected 
revenues fall gradually to 20.2 percent in 2003 and hold steady at that 
level through 2009. Total spending is expected to be slightly more than 
$1.7 trillion this year--or 19.4 percent of GDP. Spending is projected 
to increase in dollar terms--to more than $2.3 trillion in 2009--while 
falling as a percentage of GDP to 17.3 percent in that year. If there 
are no changes in current policies, debt held by the public is 
projected to fall from $3.7 trillion at the end of 1998 (44.3 percent 
of GDP) to less than $1.2 trillion (8.6 percent of GDP) in 2009.

    Chairman Kasich. I think we have a record here. We will put 
that in the Guinness Book of World Records, opening statement 
and the witness being able to complete his testimony.
    Thanks for that, Dr. Crippen. Let me just ask you a couple 
of questions. First of all, I wonder have you had a chance to 
do an analysis of 2 percent of payroll being able to be 
invested similar to what Federal employees do in terms of being 
able to solve the long-term Social Security problem?
    Mr. Crippen. We have begun, Mr. Chairman, to look at a 
number of the proposals that are extant at the moment. Senators 
Domenici and Gramm, as you know, have one; Mr. Archer is 
working on another. In rough terms, 2 percent of payroll is 
what the actuaries assessed to be the problem facing Social 
Security in the next 75 years. If we increased resources to the 
trust fund by 2 percent of payroll, we would essentially solve 
the 75-year problem. So any plans that put the equivalent of 2 
percent of payroll into the trust fund or into the Social 
Security system would essentially solve the 75-year problem.
    Chairman Kasich. Get a note of that over there gang. I 
think that is important that everybody notice that, I mean. And 
the benefits of being able to solve the Social Security problem 
for 75 years, how does that impact then on the national debt?
    Mr. Crippen. Well, if we truly saved it, Mr. Chairman--and 
one has to be a little skeptical about lockboxes and other 
things--it would reduce the national debt considerably; not 
quite as much as in our baseline, but by a considerable amount. 
The national debt would go down eventually to zero and turn the 
corner and come back in the latter part of the 75-year period.
    Chairman Kasich. Pretty interesting. And at the same time, 
we are paying down publicly held debt, correct?
    Mr. Crippen. Yes.
    Chairman Kasich. Right now? Are we paying down publicly 
held debt as we sit here today and breathe and feel so good 
about paying down that public debt? Are we doing that right 
now?
    Mr. Crippen. Yes.
    Chairman Kasich. How much have we paid down since we 
started talking here, 10 after 10 until now?
    Mr. Crippen. During the course of my statement, I think we 
probably paid it down a couple billion.
    Chairman Kasich. There we go. See, Pete, do you feel 
better? OK.
    Mr. Herger. How is the debt owed to the government going?
    Chairman Kasich. It is going, but he said if you would--why 
don't you repeat this again. Let me just say that there are two 
parts to the national debt, and one is the publicly held debt, 
which has been paid down in the last year; is that correct, Mr. 
Crippen?
    Mr. Crippen. Yes.
    Chairman Kasich. OK. So the publicly held debt has come 
down. If we are able to do 2 percent of payroll, and it is for 
real, and we have--and it is for a savings plan where you 
presume you are earning about 7 or 8 percent, what does that do 
if you can save--if the actuaries say we then have saved Social 
Security for 75 years, which is a plan we can enact tomorrow, 
we could enact it before the end of this year, what would that 
do to the national debt? Again, if you would----
    Mr. Crippen. If it is actually saved, Mr. Chairman, it 
would reduce the national debt by a considerable amount; not 
quite as much as in our baseline forecast for the short run, 
but by a very considerable amount.
    Chairman Kasich. So we would have a declining national 
debt?
    Mr. Crippen. Yes.
    Chairman Kasich. Both publicly held and privately held?
    Mr. Crippen. Yes.
    Chairman Kasich. Good.
    Now, let me ask you about the programmatic changes that--
the myriad of programmatic changes that the President has made 
in Medicare and Social Security. Tell me about all of those 
programmatic changes that he has made in these programs.
    Mr. Crippen. In the basic budget, Mr. Chairman, there are a 
number of modifications to mandatory and other spending.
    Chairman Kasich. I mean just for Social Security and 
Medicare. Tell me about the myriad of changes he has made in 
those two.
    Mr. Crippen. Assuming that we incorporate the Social 
Security framework, the two primary changes in that framework 
are transfers of general funds to both the Social Security 
trust fund and the Medicare Hospital Insurance (HI) trust fund. 
But there are virtually no changes in the Social Security 
framework other than those two transfers.
    Chairman Kasich. Well, those aren't a programmatic change, 
are they?
    Mr. Crippen. No.
    Chairman Kasich. How many programmatic changes does the 
President have to save Social Security and Medicare?
    Mr. Crippen. Other than the transfers----
    Chairman Kasich. That is not a programmatic change, right?
    Mr. Crippen. Other than the transfers, virtually none. 
There are some proposals in the budget that speak to other 
Social Security benefits, of course, but there are no details 
on that.
    Chairman Kasich. What about revenues, what are we going to 
do on the revenue updates? Tell us what you think about what--
we are now ahead of where we thought we were going to be on 
revenue collection, is that correct, right now?
    Mr. Crippen. Yes.
    Chairman Kasich. Is there any sign that any of this is--of 
course, we had 6 percent economic growth in the last quarter, I 
guess. So it doesn't look like it is abating, correct?
    Mr. Crippen. Correct.
    Chairman Kasich. So when are we going to get another update 
here on how much more surplus we have?
    Mr. Crippen. Well, we will do, in concert with the monthly 
Treasury statements, reviews of our own surplus estimates, 
which we will be happy to share with you; I think we probably 
do that routinely now. We do need to note, Mr. Chairman, that 
much of the change we are seeing is for the current fiscal 
year. And there is still some question as to how far that 
extends into the next fiscal year.
    Also there are some counterforces here for our purposes. 
Inflation is lower than we had predicted. In fact, if we were 
to do the forecast today, we would probably lower our inflation 
forecasts for this year and probably next. But in so doing--by 
upping real growth and lowering inflation--nominal gross 
domestic product [GDP] stays about the same, which is what 
drives our revenues. In fact, if you look at the Blue Chip, 
which is a half-point above us on real growth but also has 
lower inflation, its nominal GDP is very close to ours, in 
which case the revenues would be roughly the same.
    Outlays should be somewhat lower because of lower 
inflation. And we have had, as you know, in the past few days a 
bump-up in long-term rates of some 30 or 40 basis points. If 
that trend persisted--and there is no reason to think that it 
will--it would change our interest costs as well.
    It is a mixed bag. But in the main, your observation is 
right. We are certainly above what we thought would happen for 
real growth this year, and we are lower on inflation.
    Chairman Kasich. So do we think there is a pretty good 
prospect that the surplus for the year 2000 will be greater?
    Mr. Crippen. I would say, as my friends in Wall Street say, 
that is where the bias is.
    Chairman Kasich. That is where the what is?
    Mr. Crippen. The bias.
    Chairman Kasich. The bias.
    Mr. Crippen. The bias is upward. It looks like because of--
--
    Chairman Kasich. What do they say on Main Street?
    Mr. Crippen. The answer to your question is yes.
    Chairman Kasich. So you think we will have a bigger 
surplus?
    Mr. Crippen. Yes.
    Chairman Kasich. That is good to know.
    OK, I want to thank you, Dr. Crippen.
    Mr. Spratt.
    Mr. Spratt. Dr. Crippen, you say the revenues are about the 
same. Over the last couple of years, CBO has substantially 
updated, upgraded its revenue forecast. Are you comfortable 
with the revenue forecast, and are you comfortable with the 
method of forecasting revenues over 5 and 10 years?
    Mr. Crippen. Comfortable, yes; satisfied, no. I think we 
can improve those estimates. We have seen some pretty 
substantial errors in the recent past. I think we do almost as 
good a job--in some cases, a better job--than others, but we 
need to improve the estimates. Based on the January baseline, 
the revenue forecast still can't be too far off. As I just 
answered the Chairman, if we were to make an estimate at this 
point, it would probably be a little bit low in terms of 
revenues. But as you say, I am comfortable with where we are at 
the moment; however, I think we can improve our estimating 
capability.
    Mr. Spratt. Is your level of dissatisfaction such that you 
would caution us to not rely upon these outyear surpluses 
stretching out 4, 5, 6, 7 years?
    Mr. Crippen. Certainly--the longer you go out, the more you 
are basing the projections on assumptions and not facts. And we 
have only 3 or 4 more months of data now than we had when we 
made our original estimates back in December, so we don't have 
a lot more knowledge to radically change what we did in the 
baseline initially. So the further you go, the less certain 
anybody is. And in a statistical sense we have less confidence 
in these estimates the farther out we go.
    Mr. Spratt. You say that by your reckoning the President's 
proposals take about $53 billion out of the surplus that would 
otherwise occur if we simply went forward as things are, 
current services, so to speak?
    Mr. Crippen. Yes, sir, in the----
    Mr. Spratt. In year 20 plus 32.
    Mr. Crippen. Right, exactly.
    Mr. Spratt. Now, the 20--the 32 is connected with the 
President's Social Security framework?
    Mr. Crippen. Yes, sir.
    Mr. Spratt. And some of this has to do with the way we 
score things; does it not?
    Mr. Crippen. Yes, absolutely.
    Mr. Spratt. Because if you transfer the money to the Social 
Security trust fund, and the trust fund spends the money for 
the purchase of securities, that is treated as an outlay, 
scored as an outlay, but really is just swapping cash for a 
near cash asset; is it not?
    Mr. Crippen. Yes, and that is why, on our last chart, we 
added the equities to the amount the President would save. We 
take the surplus under conventional accounting, like the $80 
billion, and we add back the value of the equities purchased. 
We recognize exactly that point, and that is what the red-line 
numbers entail. We have added back the equities to the surplus.
    Mr. Spratt. OK. I missed that point of your testimony. The 
balance of it, however, then, is the transfer of Treasury 
securities?
    Mr. Crippen. The balance of the 32?
    Mr. Spratt. Of Social Security framework, the $32 billion.
    Mr. Crippen. The balance of the 32 is a combination of 
things. Table 7 in the preliminary report has all of the 
details. One big piece is the increase in discretionary 
spending, and another is the outlays for the USA accounts.
    Mr. Spratt. But that would be under non-Social Security, 
would it not; that is in the 20?
    Mr. Crippen. No, it is part of the framework.
    Mr. Spratt. I see what you are saying.
    Mr. Crippen.There is the basic budget, which is the $20 
billion that we talked about; add the President's Social 
Security framework, that is the 32.
    Mr. Spratt. Yes. As to the non-Social Security addition 
there, does this have to do with scoring conventions, or is 
this because you estimate the outlay effect of the President's 
proposals at a higher rate than he proposes in the OMB?
    Mr. Crippen. It is probably a combination, Mr. Spratt. But 
most of the discretionary increases, I think, do not result 
from scoring differences. They are proposals the President has 
in his budget for expanded spending. Recall the $30 billion of 
our estimate over the caps for next year; $17 billion of that, 
over half of it, you could say results from scoring 
differences, but the President proposes to increase taxes and 
other things to pay for part of that $30 billion. The 
discretionary spending increases are not so much a scoring 
issue--and we may have some individual differences here and 
there--as it is expanded spending in the President's budget.
    Mr. Spratt. If we took Mr. Kasich's proposal, which is to 
carve 2 points out of the payroll tax and put those in private 
accounts, this would have to be scored as an outlay; would it 
not?
    Mr. Crippen. From what we know, yes, currently, but it is 
not an issue that the original President's Commission on Budget 
Concepts addressed. We are still looking at these proposals. On 
its face, it would appear to be an outlay.
    Mr. Spratt. And 2 percent is 1/6 of the payroll tax, so 
that is 1/6 of our $400 billion?
    Mr. Crippen. Yes.
    Mr. Spratt. That is about $50 billion a year?
    Mr. Crippen. It sounds about right.
    Mr. Spratt. So this would be in addition to the--this would 
take away from the surplus as well over the next 15 years; it 
would take nearly $700 billion away from the surplus?
    Mr. Crippen. It could. Again, we don't have enough detail 
on any of these proposals--certainly not on the one that the 
chairman just offered--to tell you exactly how the accounting 
would work. And there are some issues here that CBO, OMB--
nobody--has really addressed. All I can do is speculate at this 
point.
    The question is: Does that increase net national saving or 
not? As I said earlier in the testimony, that is the bottom 
line that we need to worry about.
    Mr. Spratt. I understand. But for bookkeeping purposes, it 
would be $50 billion, and that amount would rise as the payroll 
tax amount went up, and you would also have an effect on debt 
service, so you could easily take a trillion dollars off the 
surplus in the next 15 years if you pursued this proposal?
    Mr. Crippen. Entirely possible. Again, without specifics on 
the proposal, I don't know how the traditional accounting would 
treat it. I would say as a larger comment--not so much to the 
point of your question--that this is a very big change. We 
haven't had surpluses in a very long time, certainly not of 
this magnitude. The President's proposal advocates a change in 
accounting. You may want to change the accounting for any of 
these proposals.
    In terms of traditional accounting, I can't tell you 
without specifics exactly how the Chairman's proposal would 
work. My guess is that I would agree with you--that it would 
appear as an outlay on the unified budget.
    Mr. Spratt. Now, in saying that this proposal, that pursued 
75 years would make Social Security solvent for at least that 
long, are you assuming that the net national savings 
accumulation, the addition in net national savings, because of 
these private accounts would have an impact on the growth rate 
in the economy? Are you factoring that into the overall 
solution?
    Mr. Crippen. No, I hadn't, Mr. Spratt. I was just referring 
to the actuary's report that says the gap between financing and 
obligations over 75 years is roughly equal to 2 percent of 
payroll. So if we add more resources to Social Security equal 
to 2 percent of payroll, as the Chairman suggested, I would 
assume that would about solve the problem. But I am not 
assuming that it is an increase in net national savings. It is 
not dynamic in the sense of having an assumed effect on the 
economy.
    Mr. Spratt. Let me ask you with respect to the President's 
proposal, the way Mr. Lew presents it, it is to say, look at 
what we are paying today for Social Security as a percentage of 
GDP, gross domestic product, about 4.6 percent. To reach the 
peak requirement in the next 50, 60 years, we need another 2.6 
percent of GDP carved out and allocated to Social Security, 
which would take us to about 7.2 percent.
    If you combine what Mr. Lew says today's commitment to 
Social Security is at 4.6 percent with what we are spending on 
debt service, which is about 3 percent of GDP or a little less, 
you get about 7.2, 7.3 percent. What he says we are doing in 
the administration is driving down the costs of debt service to 
the point where it is below 1 percent, so that when the costs 
of Social Security goes up to about 7.2 percent, the total 
burden on the economy is still within the range of 7.6, 7.7 
percent.
    Would you agree with that simple arithmetic as a way of 
seeing through the accounting and getting to the essence of 
their proposal?
    Mr. Crippen. Not directly. As we pay down debt, we will 
certainly have less debt service, which could free up current 
taxes to pay for Social Security or anything else the Congress 
chooses to pay for. So in some sense, yes, you are going to 
reduce debt. Our calculations, both in the baseline and in 
these reports, take into account the changes in debt service. 
So as we project debt and the surplus, we have obviously taken 
into account the debt-service reductions in the President's 
proposal in our baseline.
    Again, we can only look at the next 10 years, so I can't 
speak very precisely to anything past that. But it is also 
true, Mr. Spratt, that those reductions in interest payments, 
because they are within the budget, could go somewhere else, 
too. Yes, it could free up current general fund taxes to help 
add to the Social Security payments in the future, but you have 
to make a lot of assumptions between now and then about what 
happens with the rest of the budget in order to have much of a 
statement about what does it do to net national saving or other 
things.
    Mr. Spratt. Leaving aside the specific proposal, do you 
agree with the general proposition that if we use the 
forthcoming surpluses to pay down public debt, debt held by the 
public, and to increase net national savings, that we are 
working toward a solution to the long-term Social Security 
problem?
    Mr. Crippen. Yes. But let me tell you one of the things 
that Mr. Lew assumes in that same budget and in those same 
calculations is that discretionary spending will go down from 8 
percent to 3 percent of GDP. I am not sure that is going to 
happen either. I am not here to say it won't. These are very 
long-term projections, and they anticipate a lot of 
governmental behavior that I can't forecast. So in theory, if 
we reduce net national debt, we would reduce debt-service 
costs, and that reduction of debt-service cost could free up 
general funds to pay for anything, including Social Security. 
So if all other things are equal, paying down the debt could 
help with anything. It could help with Social Security or with 
Medicare.
    Mr. Spratt. It helps with Social Security because when the 
trustee of the administrator goes to the Treasury lender 
bearing a bond, the Treasury is in a much better position to 
pay the bond because the outstanding debt is maybe two-thirds 
the level that it was 25 years prior to that. Wouldn't that put 
the Treasury and the Social Security Administrator both in 
better positions?
    Chairman Kasich. Why don't you say yes, Dan. Let me get to 
the next person.
    Mr. Spratt. The answer is manifestly yes. I think it is 
axiomatic. OK. You have got a lot of people to ask questions on 
your side. I lost my train of thought. That is all right.
    One further question. I know what my question was. I was 
going to quit on this one anyway. Listen, are you satisfied--
you may prefer a different approach, you may prefer that 2 
percent proposal that you just described, but taking the 
President's proposal as he laid it out, which is to take the 
payroll taxes that the Treasurer receives for which he gives a 
Treasury special in return, take that cash, don't use it to 
offset tax cuts, don't use it to increase spending initiatives, 
but use it instead to buy outstanding publicly held debt, and 
then give dollar for dollar that debt to the Treasury--excuse 
me, to the Social Security trustee, are you satisfied if we can 
put that in black letter law, embed it in the Code, require the 
Treasurer and the Administrator to follow this procedure 
religiously, that this will drive down debt and increase the 
securities held by these Social Security trustees?
    Mr. Crippen. Yes, but less than in our baseline, less than 
if we did nothing at all. The President clearly chooses to save 
some of the surplus. Deciding whether or not his mechanism 
works I leave to you, and in the future we will have to debate 
that. But he also chooses to spend some. If you saved it all, 
you would have even more of a positive effect. So the debate, 
as I said in my opening remarks, focuses on two questions. The 
first question is: How much of the surplus are you going to 
save? And it sounds like we are talking about 62 percent or so. 
And then the next question is: What do you do with the what you 
are not saving? That is the debate I think you are having.
    Mr. Spratt. I understand that, but I think you just said, 
talking about discretionary spending declining as a percent of 
GDP and the unlikelihood of that, I think you implied that 
following this path of current services with no big spending 
initiatives and no big tax cuts and all the while accumulating 
huge surpluses is not a realistic course.
    Mr. Crippen. It may not be, but the reduction of out-year 
discretionary spending is what is included in the President's 
budget. We don't make that assumption in our baseline because 
we don't go that far. Our baseline is very vanilla-flavored, 
traditional. You have seen it. We assumed that after the caps 
expire, inflationary growth goes back in. If we did nothing and 
just spent our baseline, which you say is not necessarily going 
to happen, we will save more than the President's budget. 
Nobody is talking about saving it all. We are talking about 
saving substantial portions, and that is a good thing. The 
question is what to do with what we don't save.
    Mr. Spratt. Thank you, Mr. Chairman.
    Chairman Kasich. Thank you, Mr. Spratt.
    Mr. Chambliss is recognized for 5 minutes.
    Mr. Chambliss. I want to get my questions in before the 
Chairman interrupts me here. I want you to address a couple of 
different areas: First of all, defense; secondly agriculture.
    There is a general feeling, I think, among Members of the 
House that we ought to have an increase in defense spending. 
And I think the White House has openly stated that they agree 
with that, that there ought to be an increase in defense 
spending. In fact, the President has cited the fact in his 
budget he calls for an increase of some $12 billion for 
defense.
    You note in your remarks, and, again, it has been widely 
stated, that really we are only talking about $4 billion in new 
money. I would like for you to explain, first of all, to this 
committee what the difference in that 12 billion and that 4 
billion in new money is.
    Secondly, with regard to defense spending and the 
President's budget, are there any assumptions made in the 
President's budget with respect to future increases in defense 
spending, and do you anticipate that the assumptions that are 
set forth in there are realistic and will, in fact, take place?
    With regard to spending and agriculture, the President 
stated in his State of the Union Address that he was ready to 
work with lawmakers of both parties to create a farm safety net 
that will include crop insurance reform. I reviewed the 
President's budget, and, frankly, I didn't see any indication 
of any crop insurance reform proposals in the way of increased 
funding for agriculture--in the agriculture portion, 
specifically for crop insurance.
    We have got real problems in ag country all over this great 
country of ours today. One of the potential safety nets that we 
can provide our farmers is in the area of crop insurance. And 
would you address whether or not you see any, number 1, reforms 
in the President's budget with respect to crop insurance, and 
secondly, any funding to make provision for those reforms?
    Mr. Crippen. I think there are three questions here. First, 
the President's defense increases are contingent on the Social 
Security changes. That is part of his contingent budget. So it 
is inside what we call the Social Security framework.
    Mr. Chambliss. With respect to those changes, you already 
addressed that in your answer to Chairman Kasich. And did you 
find any reforms that are assumed in increased--did you find 
any reforms in the budget with respect to Social Security?
    Mr. Crippen. No.
    Mr. Chambliss. OK.
    Mr. Crippen. But the increase in defense that the President 
is speaking about would occur only if you agree to the Social 
Security framework, which includes a number of things. It 
includes USA accounts and the purchase of equities. So that 
entire piece of the budget--at least the way it is presented--
is contingent. The defense increases that the President is 
talking about are contingent on Social Security reform. You 
heard him say that as well.
    Second, much of the increase that the President is talking 
about is compared with his request of last year, not last 
year's appropriation levels. That is the big difference between 
the figures. So the big numbers that are being talked about for 
defense increases are mostly increases in the President's 
request from his request last year, not from current funding.
    Over the 5 years of the budget window that we have 
analyzed, the defense request in the President's budget, again 
contingent on the Social Security reform, is slightly below the 
baseline. I think over the 5 years, it is a total of minus $1 
billion in outlays. It is pretty close.
    The first year is closer, but it is roughly at baseline 
over the long term. So it is not an increase the way you folks 
normally think about spending, it is not an increase anywhere 
in the budget window over baseline. And in some cases, it is a 
reduction.
    On agriculture, again, subject to being corrected, I think 
we found nothing in the budget on agricultural reform. I have 
looked at Table 7 in our preliminary report, and I don't see 
any additional mandatory spending for ag programs, which is, as 
you are aware, where most of it appears. We didn't find any 
specific reform proposals of the kind you are referring to, 
such as crop insurance reform or additional resources being 
committed to agriculture in any significant way.
    Mr. Chambliss. Thank you, sir.
    Chairman Kasich. Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman.
    Mr. Crippen, first of all, just briefly, in your 
discussions before this committee and other committees, you 
seem to be taking a different position than your predecessor as 
it relates to how CBO looks at debt held by the public and 
total debt including intergovernmental debt.
    Is that true? Is there a change in the position? CBO 
normally just looks at debt held by the public.
    Mr. Crippen. No, there is no change that I am aware of and 
certainly no conscious change. I think we looked at gross debt 
in the past as well. But gross debt doesn't tell you a great 
deal. The effects on the capital markets and economy are all 
driven by debt held by the public.
    Mr. Bentsen. It is an intergovernmental cross-balance-sheet 
transfer?
    Mr. Crippen. If we displayed everything differently, it 
wasn't a conscious effort to do that.
    Mr. Bentsen. In response to Mr. Kasich's question, he 
brought up the Federal Employee Retirement System, which, of 
course, is a completely different system than Social Security, 
it is a supplemental retirement system, Federal Employee 
Retirement System members also pay in the Social Security. But 
he talked about the 2 percent or--in response you mentioned the 
2 percent, 2 percent plus Social Security deficit going 
forward, which is a 3 to $4 trillion cost, I think it is 
something along those lines, over a 75-year period.
    Some have suggested that we should subtract 2 percent of 
payroll tax into a private account as a means of supplementing 
that. Does CBO know what return would be necessary on an 
individual account to both absorb--to both get back to the 
Social Security baseline, average baseline, as well as to 
absorb the 2 percent costs in the deficit and the transitional 
costs that would be associated as well?
    Mr. Crippen. The short answer is no. We have not tried to--
--
    Mr. Bentsen. Would it be greater--let me ask you this: 
Would it be substantially greater than the current Treasury 
rate of return?
    Mr. Crippen. Yes.
    Mr. Bentsen. Substantially greater than the current S&P--
20-year S&P index return, you think?
    Mr. Crippen. I don't know. We don't predict the stock 
market for obvious reasons. If we did, I would probably find 
another profession. So I don't know the answer to your 
question. We do some long-term projections of Social Security.
    But those projections are based on the actuaries' figures, 
and we can just move them up or down a little. We don't at the 
moment have the ability to do the kind of calculation you are 
talking about.
    Mr. Bentsen. If you could, for me, for the future, because 
I have another question, if you could maybe check and do some 
analysis of whether it is 7 percent, 8 percent, 20 percent, 
something like that, because I think these numbers are thrown 
out quite a bit.
    Mr. Crippen. OK.
    [The information referred to follows:]

       Congressional Budget Office Response to Question Posed by 
                       Representative Ken Bentsen

    The actuaries of the Social Security Administration project 
that the 75-year deficit in the Old- Age and Survivors and 
Disability Insurance [OASDI] trust funds amounts to 2.19 
percent of payroll under the intermediate assumptions of the 
1998 Trustees' Report. This figure means that an immediate 2.19 
percentage point increase in the payroll tax, combined with 
real (inflation- adjusted) investment returns of 2.8 percent, 
would eliminate the deficit. However, most current proposals 
for personal accounts would not immediately increase the cash 
flow of the trust funds. Rather, they would reduce the income 
of the trust funds (or of the general government) immediately, 
and eventually reduce outlays by offsetting part of the 
personal accounts against current-law Social Security benefits.
    An analysis of a hypothetical proposal to direct 2 percent 
of wages to personal accounts illustrates the difference. The 
proposal would not reduce the payroll taxes going into the 
trust funds, but would grant taxpayers a refundable income tax 
credit equal to 2 percent of their covered wages, That credit 
would be invested in private accounts. If the yield on those 
accounts equaled the government bond rate (the assumed 2.8 
percent described above) less 25 basis points for 
administrative costs, crediting the trust funds with the 
reimbursements from these accounts would reduce the long-range 
deficit to 1. 1 5 percent of payroll, or about one-half the 
current-law deficit. With a real return net of administrative 
costs of 5.27 percent, the long-range deficit would be wiped 
out, leaving a surplus of 0.04 percent of payroll. This rate of 
return--which is consistent with the historical performance of 
a portfolio consisting of 60 percent stocks para. and 40 
percent corporate bonds--would thus fill in the Social Security 
shortfall. But the government as a whole would still absorb a 
loss of 2 percent of payroll, or about $80 billion annually in 
today's dollars, plus the debt service on those funds. Even 
higher rates of return might help to offset some of those 
general fund costs; but the offset would be limited because 
after the personal accounts grew so large that they could 
provide a greater benefit than Social Security, the excess 
would presumably belong to the account owner and not to the 
government.

    Mr. Bentsen. Some have proposed last year and again this 
year in the sort of ``saving Social Security'' that you could 
bifurcate the principal and interest of the assets or the bonds 
within the Social Security trust fund, and that saving the 
principal is the property of the Social Security trust funds 
and thus the beneficiaries, but that you could move some of the 
interest owed on those bonds for use in tax cuts or spending.
    Is it your understanding or your opinion or CBO's opinion 
that interest owed on bonds held by the trust fund--Treasury 
specials held by the trust fund, is the property of Social 
Security and thus the beneficiaries of the Social Security 
system, and thus if you were to allocate some of that interest 
so you could maybe fit a tax cut in in 2000 or 2001, or greater 
spending for that matter, that you would, in effect, be 
spending assets of the Social Security trust fund?
    Mr. Crippen. Part of your question is more legal than not. 
I can't tell you that there is a legal right or a property 
right or anything else about the bonds. I can tell you, 
however, how the current accounting would be changed if the 
interest was removed. We give credit to the Social Security 
trust fund, of course, for current and future interest payments 
on those securities that are held by the trust fund. If you 
removed that interest from that calculation, you would reduce 
the amount of resources going into the trust fund, and 
presumably you would reduce the current year of expiration--
2032--to something closer. But that is all we can tell about 
how the numbers would work.
    Mr. Bentsen. Mathematically it would be spending part of 
the Social Security trust fund. Legally it would be another 
question, I guess?
    Mr. Crippen. We would certainly show it as a diminution of 
the trust fund. I think the trustees would show it as a 
diminution of the trust fund.
    Mr. Bentsen. And finally, in your opinion, if you had to 
rank between the difference between--in this time of surplus 
the difference between increasing net national savings versus 
consumption, either through more spending in defense/nondefense 
or tax cuts, or a combination thereof, as more beneficial to 
the economy and long-run economy as well as to trust funds like 
Social Security, among those two, in your opinion, what would 
you rank?
    Mr. Crippen. Well, it is not just me, as I have said here 
and elsewhere. One of the few things most economists--you won't 
find us agreeing on anything totally--agree on is that 
increasing national saving will help productivity and economic 
growth, and that is a good thing. So anything you do other than 
save the money should be judged against that standard: Does it 
help economic growth in this context more or less than saving 
it?
    And I can't tell you whether the research or anything we 
know says that there ought to be some tax cuts or some spending 
programs that would increase economic growth more than saving. 
I would be skeptical. I think the standard by which you have to 
judge any of these initiatives is whether it could help the 
economy grow better than saving the money.
    Mr. Bentsen. Thank you. Thank you, Mr. Chairman.
    Mr. Shays [presiding]. Thank you, Mr. Bentsen.
    I am next in line. I am Chris Shays from Connecticut. Then 
we will go to Mr. Markey.
    Doctor, it is nice to have you here, and I want to run 
through some questions fairly quickly. First, your answer is 
the President breaks the budget caps, and I just want to be 
fairly certain on this. Under OMB it is about 17, 18, depending 
on outlays. And you are saying it is 22 to 30, somewhere in 
that range, that it breaks the budget caps?
    Mr. Crippen. Thirty, yes, sir.
    Mr. Shays. Does the President spend some of the so-called 
Social Security surplus? And my understanding is that you say 
about 146 million?
    Mr. Crippen. In every----
    Mr. Shays. Billion, I am sorry.
    Mr. Crippen. We are all are stumbling.
    Mr. Shays. Over the next 5 years, you say OMB spends about 
$146 billion of the surplus; is that correct?
    Mr. Crippen. Every year until 2008, by the OMB's own 
estimate, part of the Social Security trust fund doesn't get 
saved.
    Mr. Shays. Does the President reform Social Security and 
Medicare in his budget? Does he give us any plan on how to do 
that?
    Mr. Crippen. There are some fairly traditional changes in 
Medicare and some proposed expansions of Social Security 
benefits and Medicare benefits. But there are not any details 
on any kind of reform in the way I think you are----
    Mr. Shays. And does the national debt go up about a 
trillion dollars in the President's plan; is that accurate as 
well? Under his plan, it will go up about a trillion dollars?
    Mr. Crippen. It doesn't go up, it still goes down. But it 
doesn't go down as much as if you do nothing at all.
    Mr. Shays. The national debt grows by another $1 trillion 
by the year 2004; is that not correct?
    Mr. Crippen. Not quite. The national debt is higher in 2004 
than it would be if we did nothing, but debt still goes down. I 
still find tables where we are talking about deficits. We 
haven't yet crossed off deficit and put in surplus, so we have 
to think about this a little differently.
    Debt is going down in the baseline. If we did nothing at 
all, debt would go down. Under the President's proposals, debt 
won't go down quite as much. So we are not adding to the debt, 
but we are not reducing it as much as we could.
    Mr. Shays. My understanding is that the national debt, when 
you add both public and private, is we are still adding to the 
national debt until the year 2004, the year 2005; isn't that 
correct?
    Mr. Crippen. Let me be clear. The debt held by the public, 
which is the number that really counts for economic purposes, 
will decline more under the baseline than in the President's 
budget.
    Mr. Shays. I know. But we are borrowing from the trust 
funds.
    Mr. Crippen. There is interfund borrowing, and there is 
more----
    Mr. Shays. When I add what we are borrowing from the public 
and what borrowing from our funds, the obligation of our 
government goes up by a trillion dollars; isn't that correct?
    Mr. Crippen. In the transfers between funds, which are 
between government funds, as you are suggesting, we are lending 
money from one part of the budget to another, but it doesn't 
involve debt held by the public.
    Mr. Shays. I understand that. I understand that. I really 
don't want to spend a lot of time on this part. Does the 
obligation of the government to pay into that fund or to pay 
the public--excuse me, a private debt go up by a trillion 
dollars by the year 2004?
    Mr. Crippen. The gross debt goes up. But I want to be 
careful, and I think we need to be, because the obligations, 
which are what we owe the Social Security recipients--you, me, 
and our parents--don't change one bit.
    Mr. Shays. I understand.
    Mr. Crippen. All we are doing is moving money around, but 
not changing the obligation.
    Mr. Shays. Right.
    Is it true that since 1992 to 1996, the revenues of gross--
the share of the gross domestic product has gone from 17.5 
percent give or take up to 20.5?
    Mr. Crippen. Yes.
    Mr. Shays. What are the implications of that? The 
implications to me are that more revenue is coming into the 
Federal Government, more of the gross domestic product is being 
devoted to the Federal Government; is that accurate?
    Mr. Crippen. Yes.
    Mr. Shays. OK. I have been told it is the highest since 
World War II; is that accurate?
    Mr. Crippen. The highest since 1944, as I recall.
    Mr. Shays. OK. Does the President increase taxes in the--in 
his budget or reduce taxes?
    Mr. Crippen. Increases.
    Mr. Shays. OK. My understanding is that about 108 billion 
gross and about 72 billion net.
    Mr. Crippen. That sounds close, yes.
    Mr. Shays. So the bottom line is that we are having to 
debate on our side of the aisle that we should cut taxes, and 
the President has actually proposed that we should raise taxes; 
is that correct?
    Mr. Crippen. That is correct.
    Mr. Shays. What are the long-term implications of what the 
Senate has done by adding--by suggesting, suggesting--voting to 
increase the retirement of military employees and undo what we 
did in the 1980's from 40 percent at retirement after 20 years 
to 50 percent? What are the long-term implications of that?
    Mr. Crippen. I don't have our estimate of that with me. I 
would be happy to give it to you. But the short answer is that 
it considerably increases both discretionary and mandatory 
expenditures in the out-years. And the numbers are in the range 
of $10 billion a year, as I recall. But we have actually scored 
that bill, and I would be happy to give you the analysis of it. 
But it is a substantial increase in out-year spending.
    Mr. Shays. Would someone in your office get that and be 
able to report to us before this hearing is over and tell us 
publicly what that is?
    Mr. Crippen. Sure.
    Mr. Shays. Thank you very much.
    [The information referred to follows:]

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 17, 1999.
               congressional budget office cost estimate

S. 4--Soldiers', Sailors', Airmen's, and Marines' Bill of Rights Act of 
                                  1999

              As passed by the Senate on February 24, 1999

                                summary
    On February 12, 1999, CBO prepared a cost estimate for S. 4 as 
reported by the Senate Committee on Armed Services. This estimate 
reflects the changes resulting from amendments approved by the Senate. 
Compared to the bill as reported, the amendments adopted by the Senate 
would increase direct spending by $1 billion and spending subject to 
appropriations by $3.8 billion over the 2000-2004 period. In 2009, S. 4 
as passed would raise direct spending by $2.9 billion and discretionary 
spending by $6.7 billion. Because the bill would affect direct spending 
and revenues, pay-as-you-go procedures would apply.
    Section 4 of the Unfunded Mandates Reform Act excludes from the 
application of that act any legislative provisions that are necessary 
for the national security. That exclusion might apply to the provisions 
of this bill. In any case, the bill contains no intergovernmental or 
private-sector mandates.
                estimated cost to the federal government
    The estimated budgetary impact of the bill is shown in the 
following table. The costs of this legislation fall within budget 
functions 050 (national defense), 570 (Medicare), 600 (income 
security), and 700 (veterans' affairs).

                                                TABLE 1. ESTIMATED COSTS OF S. 4 AS PASSED BY THE SENATE
                                                    (By fiscal year, outlays in millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     2000    2001    2002    2003     2004     2005     2006     2007     2008     2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     DIRECT SPENDING
Change in Spending Under S. 4 as Reported.........................     537     599     870     887      927    1,108    1,435    1,940    2,270    2,633
Amendments
    Radiation-exposed veterans....................................      19      77     124     149      160      183      178      171      194      201
    Dual compensation.............................................      59      62      65      68       72       75       79       82       86       90
    Expand MGIB applicability.....................................       1       1       1       1        1        1        1        1        1        1
    Accelerate education payments.................................      20       4       0       0        0        0        0        0        0        0
    Modify education entitlement period...........................       5       5       5       5        5        5        5        5        5        5
    Demonstration of Medicare subvention..........................      10      35      35      10        0        0        0        0        0        0
Tricare provisions................................................     (a)     (a)     (a)     (a)      (a)      (a)      (a)      (a)      (a)      (a)
                                                                   -------------------------------------------------------------------------------------
      Subtotal....................................................     114     184     230     233      238      264      263      259      286      297
Change in Spending Under S. 4 as Passed...........................     651     783   1,100   1,120    1,165    1,372    1,698    2,199    2,556    2,930

                                                                        REVENUES
Change in Revenues Under S. 4 as Reported.........................     -10     -44     -67     -86     -103     -113     -120     -127     -134     -141
Amendment
    Thrift Savings Plan...........................................       0      -1      -3      -3       -4       -4       -5       -5       -5       -5
Change in Revenues Under S. 4 as Passed...........................     -10     -45     -70     -89     -107     -117     -125     -132     -139     -146

                                                            SPENDING SUBJECT TO APPROPRIATION
Change in Spending Under S. 4 as Reported.........................   1,075   2,164   3,103   3,487    3,963    4,354    4,832    5,400    5,928    6,520
Amendments
    Radiation-exposed veterans....................................       5      10      17      18       20       21       22       23       25       26
    Tricare provisions............................................     (a)     (a)     (a)     (a)      (a)      (a)      (a)      (a)      (a)      (a)
    Special subsistence allowance.................................      22      44      44      44       44        0        0        0        0        0
    Increase in special pay (non-aviation)........................      47      47      53      62       74       89      105      113      120      123
    Increase in special pay (aviation)............................      65      65      65      65       65       65       65       65       65       65
    Extend bonuses and special pay (active).......................     368     662     836     592      379      230      109       27        3        0
    Extend special pay (reserve)..................................       5       5       5       5        5        5        5        5        5        5
    Increase tuition assistance...................................     (b)     (b)     (b)     (b)      (b)      (b)      (b)      (b)      (b)      (b)
    Special supplemental nutrition pay............................      13      15      15      15        1        0        0        0        0        0
                                                                   -------------------------------------------------------------------------------------
      Subtotal....................................................     525     848   1,035     801      588      410      306      233      218      219
Change in Spending Under S. 4 as Passed...........................   1,600   3,012   4,138   4,288    4,551    4,764    5,138    5,633    6,146    6,739
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office and Joint Committee on Taxation.

a. Section 601 contains several provisions that would affect costs of DoD's health program known as Tricare. CBO does not have the information to
  estimate the costs of these provisions.
b. Less than $500,000.

                           basis of estimate
    Amendments to the bill would affect direct spending, revenues, and 
spending subject to appropriation.

Disability Compensation and Medical Care for Radiation-Exposed Veterans

    Section 603 would add lung cancer, colon cancer, and tumors of the 
brain and central nervous system to the list of 15 diseases currently 
presumed to be connected to military service for certain veterans who 
were exposed to nuclear radiation. Data from the Defense Special 
Weapons Agency (DSWA) indicate that approximately 410,000 military, 
civilian, and contract personnel employed by the Department of Defense 
(DoD) participated in atmospheric nuclear tests or in the post-war 
occupation of Hiroshima and Nagasaki, Japan. CBO estimates that about 
200,000 of these veterans are alive today. By requiring a presumption 
that, for these veterans, the three illnesses are service-connected, 
the bill would add to the number of radiation-exposed veterans who are 
eligible for disability compensation or whose spouses are eligible for 
dependency and indemnity compensation benefits.
    To estimate the caseload of veterans having each disease, CBO used 
age-specific incidence and mortality rates for each disease from the 
National Cancer Institute. Recognizing that a small number of affected 
veterans and survivors may draw benefits under current law, that not 
all potential new beneficiaries would participate, and that it would 
take about 3 years to reach the full estimated participation rate, CBO 
estimates that, of the 18,500 veterans and survivors who would be 
eligible for benefits in 2000, about 3,700 would receive benefits in 
that year. CBO used data from the Department of Veterans Affairs (VA) 
that was specific to the three diseases to calculate the average 
compensation payment to veterans.
    CBO estimates that enacting the bill would increase direct spending 
by $19 million in 2000 and by $529 million over the 2000-2004 period. 
In addition, it would increase discretionary spending for medical care 
by $5 million in 2000 and by $70 million over the 5-year period, 
assuming appropriation of the necessary amounts.

                           Dual Compensation

    Section 204 would repeal the prohibition on a military retiree 
receiving a full annuity plus income from Federal civilian employment. 
Currently about 6,000 military retirees receive an average of $800 a 
month less in retirement benefits because of this prohibition. CBO 
expects that the number of such retirees will grow by about 150 
individuals a year, based on information provided by DoD, and that per 
capita costs would grow by the change in the Consumer Price Index. CBO 
estimates that the provision would cost $59 million in 2000 and $739 
million over the 2000-2009 period by raising benefit payments out of 
the military retirement trust fund.

                           Education Benefits

    Three amendments to S. 4 would increase direct spending for 
education benefits by $26 million in 2000 and $84 million over the 
2000-2009 period, compared to the bill as reported.

    Expand Montgomery GI Bill Applicability. Section 305 would extend 
Montgomery GI Bill (MGIB) benefits to cover preparatory courses for 
college or graduate school entrance exams. Veterans who would otherwise 
consume their entire entitlement would forgo a payment at the end of 
their training if they use the benefit under this section, but for all 
other veterans section 305 would add to spending. CBO estimates that 
this provision would increase direct spending by about $1 million a 
year. The estimate assumes that about 2,000 participants would receive 
an average benefit of about $400 for these courses, based on their 
expected average duration.

    Accelerate Education Payments. Section 401 would permit members of 
the selected reserve to receive a lump-sum payment for benefits they 
would receive monthly over the term of their training, for example, a 
semester in college or the period of a course's instruction for other 
forms of training. CBO estimates that this provision would increase 
direct spending in 2000 by $20 million and by $4 million in 2001. 
Increased costs would occur initially as payments from one fiscal year 
are made in the preceding year. There would be no net effect in 
subsequent years because in a given year payments shifted to the 
preceding year would be offset by payments shifted from the following 
year.

    Modify Education Entitlement Period. Section 402 would extend the 
entitlement period for MGIB benefits for certain members of the 
selected reserve. Selected reserve members who entered service after 
July 1985 and agree to serve for 6 years are eligible for MGIB benefits 
under chapter 1606 of title 10. Under current law a beneficiary may 
receive assistance during the 10-year period following the day the 
reservist becomes eligible, but the individual must be in the reserves 
during that time. The amendment would permit selected reservists who 
serve longer than 10 years to use their MGIB benefits while they remain 
in service and for 5 years after the day they are separated from the 
selected reserve. CBO estimates that section 402 would increase direct 
spending by $5 million in 2001 and $50 million over the 2000-2009 
period.

                              Health Care

    The amendments approved by the Senate involve changes to DoD's 
health care program and payments by Medicare for veterans' medical 
care.

    Demonstration of Medicare Subvention. Section 604 would establish a 
3-year demonstration project in which Medicare would pay the Department 
of Veterans Affairs (VA) for Medicare-covered services furnished in VA 
facilities to certain Medicare-eligible veterans. The demonstration 
project would be operated in up to 10 of the VA's 22 regions (Veterans 
Integrated Services Networks), beginning on January 1, 2000. Medicare 
would pay for Medicare-covered services furnished to veterans who are 
not entitled to medical care from the VA on the basis of service-
connected disability or income (Category C veterans). Medicare payments 
to VA would be limited to $50 million.
    The bill would require that VA maintain its current-law level of 
effort with respect to the value to Medicare of Medicare-covered 
services furnished to Category C veterans and paid for with non-
Medicare funds. However, CBO has concluded that Medicare spending would 
rise due to erosion of VA's level of effort. That conclusion is based 
on the inherent tension between VA's mission and satisfaction of the 
maintenance of effort requirement, the inability to establish a 
reliable measure of effort, and the lack of an effective mechanism to 
monitor and enforce compliance with that requirement.\1\ CBO estimates 
that enacting the bill would increase direct spending for Medicare by 
$10 million in 2000 and by $90 million over the 2000-2004 period.
---------------------------------------------------------------------------
    \1\ See CBO cost estimate for H.R. 3828, Veterans Medicare Access 
Improvement Act of 1998, May 29, 1998.

    Tricare Provisions. Section 602 would make several changes to DoD's 
health care program known as Tricare. Some provisions would overlap 
with current law, while other provisions would leave DoD with 
discretion over whether and how to implement them. CBO does not have 
the information to estimate the budgetary impact, but it does not 
believe the budgetary impact would be great. The provisions that 
overlap with current law would have no budgetary impact, and the other 
provisions, with one exception, would have a minor impact because CBO 
expects that DoD would use its discretion to maintain its current 
practices.
    One provision would allow DoD to bill third-party insurers using 
Medicare rates rather than what current law refers to as reasonable 
costs. According to DoD, Medicare rates are usually slightly lower than 
DoD's costs, but third-party payers are more familiar with Medicare 
rates. That familiarity may make them more likely to approve a claim 
from DoD, thereby offsetting some of the lost reimbursements due to 
lower rates per claim. Thus, CBO expects there to be a relatively small 
net budgetary effect from this provision, but it cannot estimate the 
precise impact.

                         Military Compensation

    Several amendments to S.4 would raise military compensation and 
extend new benefits to improve recruitment and retention.

    Thrift Savings Plan. The version of the bill reported by the Senate 
Committee on Armed Services would allow active-duty members to 
participate in the Thrift Savings Plan. An amendment approved by the 
Senate would extend that benefit to members of the selected reserve. 
The Joint Committee on Taxation estimates that the amendment would 
result in a tax deferral on reservist pay of up to $5 million annually 
by 2006.

    Special Subsistence Allowance. As reported, the bill contains a 
provision to offer a Special Subsistence Allowance to servicemembers 
who qualify for the Food Stamp program. Because that program includes 
housing allowances in calculating gross income, a servicemember's 
eligibility can depend on whether his family lives on or off base. As 
amended by the Senate, eligibility criteria for the Special Subsistence 
Allowance would exclude housing allowance payments. CBO estimates that 
the increase in participation would raise annual costs from $26 million 
to $70 million.

    Increases in Special Pay. Sections 105 through 113 would increase 
special pays for active-duty servicemembers with specific skills. Under 
those provisions, additional funding would go to aviators, certain 
naval officers, servicemembers performing diving duty, and individuals 
with proficiency in foreign languages. CBO estimates that in 2000 the 
increases would cost about $47 million and $65 million for non-aviation 
and aviation specialties, respectively.

    Extended Bonuses and Special Pay. Sections 114, 115, and 116 would 
renew authorities for special pays and bonuses that will expire in 
December 1999 under current law. The renewal of payments for active-
duty members would raise outlays by about $368 million in 2000. Because 
many of those authorities involve multiyear contracts, the 3-year 
renewal in S. 4 would raise costs through 2008. Section 118 would 
extend special-duty-assignment pay to reservists. That provision would 
result in an additional $5 million of discretionary costs.

    Increase Tuition Assistance. Section 104 would allow full funding 
of tuition for servicemembers who are deployed overseas on contingency 
operations. Currently, DoD is required to fund only 75 percent of these 
costs. CBO estimates that funding for additional tuition would total 
less than $500,000 annually.

                   Special Supplemental Nutrition Pay

    The bill would require DoD to carry out the Special Supplemental 
Nutrition Program for Women, Infants, and Children (WIC) for military 
personnel and civilians living overseas. The WIC program is operated 
under the Food and Nutrition Service of the Department of Agriculture 
(USDA), and provides food assistance and nutrition services to pregnant 
and post-partum women and children up to 5 years of age who meet income 
and nutrition eligibility guidelines. The provision would require USDA 
to provide $10 million and such funds as are necessary from its WIC 
appropriation to DoD for the supplemental food costs of the overseas 
WIC program.
    Assuming DoD retains current income and nutrition eligibility 
rules, CBO estimates that about 33,000 women and children would 
participate in the program in an average month with total food costs of 
$10 million in 2000 and $44 million over the 2000-2004 period. 
Administrative and nutrition services for the program would be paid out 
of money available to DoD. Those costs are typically 25 percent of the 
total costs for the WIC program. Based on the estimated food costs, 
administrative costs would be $4 million in 2000 and $16 million over 
the 2000-2004 period.
    The estimated participation is based on information from DoD and 
USDA. DoD estimates that about 31,000 children live overseas and meet 
age and household income requirements for assistance. In addition, 
another 12,000 women would be eligible based on rules of thumb used for 
this program. Assuming that 9,000 of the eligible children are up to 1 
year of age, those factors would suggest that 12,000 pregnant, post-
partum, and breast-feeding women would be eligible. Thus, a total of 
about 43,000 women and children would be eligible for assistance.
    About 80 percent of those 43,000 individuals would also be 
determined to be at nutritional risk, and CBO assumes 95 percent of 
those eligible would participate, for a total of 33,000 participants in 
an average month. The estimated average monthly food cost of about $28 
per month per participant is based on a DoD estimate of the cost of an 
average WIC food package in military commissaries, adjusted for 
inflation.
                      pay-as-you-go considerations
    Section 252 of the Balanced Budget and Emergency Deficit Control 
Act of 1985 sets up pay-as-you-go procedures for legislation affecting 
direct spending or receipts. The net changes in outlays and 
governmental receipts that would result from S. 4 as passed by the 
Senate (not just the amendments) that are subject to pay-as-you-go 
procedures are shown in the following table. For the purposes of 
enforcing pay-as-you-go procedures, only the effects in the current 
year, the budget year, and the succeeding 4 years are counted.

                                                         By Fiscal Year, in Millions of Dollars
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             1999    2000    2001    2002    2003     2004     2005     2006     2007     2008     2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays........................................       0     651     783   1,100   1,120    1,165    1,372    1,698    2,199    2,556    2,930
Changes in receipts.......................................       0     -10     -45     -70     -89     -107     -117     -125     -132     -139     -146
--------------------------------------------------------------------------------------------------------------------------------------------------------

              intergovernmental and private-sector impact
    Section 4 of the Unfunded Mandates Reform Act excludes from the 
application of that act any legislative provisions that are necessary 
for the national security. That exclusion might apply to the provisions 
of this bill. In any case, the bill contains no intergovernmental or 
private-sector mandates.
                         previous cbo estimate
    On February 12, 1999, CBO prepared a cost estimate for S. 4 as 
reported by the Senate Committee on Armed Services. This estimate 
reflects the changes resulting from amendments approved by the Senate.
    Estimate prepared by--Federal Cost: Jeannette Deshong (military 
personnel), Dawn Sauter (military retirement and veterans' benefits), 
Valerie Baxter (food stamps), and Thomas Bradley (Medicare subvention)
    Impact on State, Local, and Tribal Governments: Leo Lex
    Impact on the Private Sector: R. William Thomas
    Estimate approved by:
                                      Paul N. Van de Water,
                            Assistant Director for Budget Analysis.

    Mr. Shays. At this time, Mr. Markey, do you have any 
questions?
    Mr. Markey. Thank you.
    Mr. Crippen, I just want to go back over a little history 
to bring us up to today. The principal obligation of CBO is to 
provide unbiased and accurate data and analysis to the Congress 
regarding the Federal budget. We've got to get the numbers 
right. In recent years CBO has all too often fallen short in 
this area.
    For example, back in 1997, CBO was projecting a continued 
budget deficit. In February 1997, the CBO projected the fiscal 
year 1997 deficit to be $115 billion. So as this committee was 
meeting in 1997, there was $115 billion deficit for that year. 
CBO failed to issue its midyear projections, as did OMB. Then 
after the budget deal was cut in July, following the budget 
negotiations, which found 30 billion extra bucks to take care 
of both sides, that led to the August deal, then CBO issues a 
new projection that the deficit is only going to be 37 billion 
for that year. And in the end, the deficit for that year was 
only 22 billion. So in the course of a 4-, 5-month period, the 
CBO was off by a huge amount.
    Now, that led to a decision made in this committee and on 
the floor of Congress that Medicare would be cut $115 billion, 
accommodating in part a $90 billion tax cut that went largely 
to the wealthy, all based upon fraudulent, erroneous numbers, 
contemporaneous numbers. I am not talking about projections 15 
years from now outside of your window. I am talking about that 
year, that month, on your desk--not your desk, your 
predecessor's desk.
    Well, the consequences for this committee are choices that 
ultimately have moral implications, because they affect 
ordinary families as we cut these programs, Medicare 
specifically.
    So here we are 2 years later. I will give you an example of 
what happened. There is some big mystery here that Medicare 
growth is at zero right now. So I went on, I visited these 
hospitals. I represent a blue collar area, Malden, Medford, 
Everett, Melrose, Wakefield, Stoneham, in my home area. Jim, 
Jim is from Natick. We have to export Congressmen from 
Massachusetts. There is not enough room for everybody. Connie 
Morella, Jim Moran, we have got about 20 extras.
    Now, what you have got is a situation where the cut in home 
health care, the visits that go into homes that have spouses 
with Alzheimer's, with Parkinson's, with other diseases--here 
is what happened since that cut: 1997, 470,000 visits in a 
five-community area; fiscal year 1998, 332,000 visits, helping 
out this spouse, giving him a break for a couple of hours; 
fiscal year 1999, 260,000 visits, visiting nurses helping out 
the spouse.
    These people are elderly. We have this growing population 
of people with Alzheimer's, with Parkinson's. This is just an 
actuarial reality. And now here is what we are saying to them, 
because these people are heroes, they are keeping a family 
member, a spouse with Alzheimer's, with Parkinson's, with some 
other disease in the home. And so the balanced budget amendment 
says to them, we are so concerned because of the fraudulent 
numbers that come out of CBO, that we are going to slash this 
program. And so instead of increasing the amount of help we 
give to these heroes in their home, we cut the program.
    These people are heroes, but heroes need help, and they are 
getting less and less help because of the numbers which CBO 
gave us in 1997. These families are shouldering a burden which 
is almost unimaginable; these spouses over the age of 60, 65, 
70, 75, 80, keeping a spouse in their home, taking care of them 
22 of the 24 hours a day. And they cut in half the number of 
hours in the course of a day of a week that they are going to 
get somebody visiting their house; instead of 2 hours, 1 hour a 
day. I don't think that is right.
    And I think that the wonderful talk that we can utter about 
how Medicare is down to zero percent growth can be attributed 
largely to the fraudulent numbers which were given to this 
committee in--deliberately--I accused the CBO of giving us 
deliberately wrong numbers in 1997. I accused the whole process 
in 1997 of having been fraudulent.
    Those numbers were available. If we knew about it, we would 
have made different decisions about how deeply we cut into 
those Medicare programs, especially home health care programs 
and programs like that that help people in their homes. 
Deliberately fraudulent. People knew. It was a moral choice 
that had to be made.
    And as we go forward now, I hope that CBO understands the 
impact on families. These aren't just numbers. This dramatic 
reduction in the number of people in their homes that don't 
have help now, have much less help, is something that 
dramatically affects these people, these old people trying to 
do their best.
    So my point to you, Mr. Crippen, is this: We need the 
facts. You are Joe Friday. Of all of your responsibilities, you 
give us the facts, and we will make the moral choices. We will 
make the political choices. And if you do that one job for us, 
Mr. Crippen, and you do it honestly, you will have discharged 
your moral and political responsibility. We don't need anything 
else from you. Nothing.
    And then it is on our shoulders to make the decisions which 
affect every family in America. There are too many good things 
which we can do that just aren't going to go undischarged.
    So my question to you, Mr. Crippen, taking over at the 
CBO----
    Chairman Kasich [presiding]. Mr. Markey, let the record 
show that the Chairman did not interrupt the passionate man's, 
you know, exclamations here, and we appreciate it, but I have 
got to tell you, I will let you ask the question, because you 
have been a buddy of mine for 15 years. Make it short, would 
you?
    Mr. Markey. Why were the numbers so wrong in 1997 and then 
in the 1997-1998 fiscal year, in your opinion, Mr. Crippen?
    Mr. Crippen. Mr. Markey, obviously we can all choose 
different words. I don't think that at any time in the past 
CBO--and certainly the folks that are there now and with me 
today--has ever given you fraudulent numbers that were 
knowingly wrong. I don't believe that. Even though I wasn't 
there, I can tell you from my work with them so far, only a 
month or so, that they are of the highest integrity and keep me 
straight most days.
    I will say--and this is cold comfort for your larger 
point--that CBO was no worse and, in fact, was much better than 
many other forecasters. We all missed the ball on a number of 
occasions, and it wasn't just OMB or just CBO. There are many 
folks out there, including some of my friends on Wall Street, 
who do a new forecast every month, and, of course, as you get 
closer to reality, reality bites you.
    Mr. Markey. Mr. Crippen, I called four economists in May in 
the leading Wall Street firms, and they all told me that the 
budget could very well balance itself by the end of the year, 
and they didn't know why CBO was not reflecting that. I called 
the chief economists at the leading firms. So I don't agree 
with you that those numbers weren't available.
    Mr. Crippen. What I was saying is that they have the luxury 
of incorporating new evidence every day. We make a baseline 
projection in January. We have a chance to update it with the 
changes in the President's budget, although that is rarely 
done, and then we do another forecast in July. And we are 
forecasting 18 months ahead.
    Mr. Markey. They didn't redo it in May of--July of 1997? 
That is the point I am trying to make, sir. It wasn't redone.
    Mr. Crippen. OK.
    Mr. Markey. Even though the numbers were available. What 
are you doing to correct that?
    Mr. Crippen. Well, we are going to do our best, and I know 
there are places where we can do a better job of estimating, 
but we will never give you fraudulent numbers. And I really do 
want to attest to, even in my short time there, the integrity 
of these folks. They are not in the business of making moral 
judgments, as you said. They are in the business of providing 
you with the best estimates we can. We will try to do better. 
We have under way a number of efforts to do better.
    Mr. Markey. Mr. Chairman, I have been waiting 3 years to 
get it off my chest. I appreciate that.
    Chairman Kasich. I remember once when Jim Wright, the 
Speaker, was making a speech on Central America, and somebody 
asked him to yield, and he said no one ever asked Beethoven to 
yield, no one ever asked Monet to yield. I am not putting you 
in that category, Eddie. OK.
    Listen, I want to say one thing. There are a lot of guys 
here. I think what we have got to do at the next hearing we do, 
I am going to try, is--we do this on the basis of who gets here 
first. But, frankly--I was short today, I think pretty good. I 
want to start recognizing people down here at the lower level.
    Spratt was long, but I am going to recognize people at the 
lower level, so when you come, it is meaningful, and you don't 
have to sit here and listen to everybody else ask questions and 
pontificate from time to time. So thank you.
    Mr. Spratt. The chairman is ad-libbing.
    Chairman Kasich. I am trying to cut that out as well.
    Mr. Hoekstra is recognized for 5 minutes.
    Mr. Hoekstra. I thank my colleague for the wonderful lead-
in. But the President, in his State of the Union speech, he 
stated, if we work together, we can secure Medicare for the 
next two decades, and what was seen as the greatest need is 
affordable prescription drugs.
    Does the budget have any new funding for prescription drugs 
for Medicare beneficiaries?
    Mr. Crippen. No, there is absolutely nothing in the budget, 
not even words, about the prescription drug benefit that he 
mentioned in the State of the Union Address. So we have no 
knowledge of either the benefit itself or how it might be paid 
for.
    Mr. Hoekstra. Isn't it true that instead of adding a 
Medicare prescription drug benefit, that the President, in 
fact, cuts reimbursements for prescription drugs now covered by 
Medicare?
    Mr. Crippen. Yes, there is a reduction in the prices for 
some of the in-patient drugs that are provided.
    Mr. Hoekstra. So we are actually reducing the prescription 
drug benefit rather than increasing it or expanding it?
    Mr. Crippen. Yes, the current drug benefit is quite 
limited, as you well know. It is primarily for drugs 
administered by doctors or in offices, like chemotherapy and 
those kinds of things. So it is a very limited benefit now. It 
is a small number that he proposes should get smaller, yes.
    Mr. Hoekstra. As I said, it is a small benefit now, and it 
is getting smaller, at least if we implement the budget?
    Mr. Crippen. At least the prices are, yes.
    Mr. Hoekstra. OK. And if we add a prescription drug 
benefit, how would that affect the financial stability of the 
Medicare program?
    Mr. Crippen. Well, presumably if there are no offsets, it 
would dramatically increase the--let me step back. It depends 
on how it is done.
    If the increase is all in Part B, which is the current 
outpatient/doctor program under current law, about 75 percent 
of it would be funded by general taxpayer revenues and about 25 
percent by premiums. And so if the premiums went up for 
beneficiaries, and the taxpayers forked over the other 75 
percent, the benefit might not affect the trust fund of 
Medicare at all.
    So, again, it depends on how it is structured. Presumably 
it would be in Part B, but if it was in Part A, it could, of 
course, deplete the Medicare HI trust fund faster than under 
current law.
    Mr. Hoekstra. Thank you.
    I have got to go back to the debt issue. The debt that is 
held by the government, do we credit the government with 
interest on that; is there an interest expense?
    Mr. Crippen. That, too, is a net wash. It is one hand of 
the government paying interest to the other hand. That is why 
we say the debt held inside the government doesn't matter a 
great deal in terms of its effect on the economy or even the 
budget, because it is like paying interest to yourself. You 
take it out of one pocket and put it in the other.
    Mr. Hoekstra. I find this very interesting, because we do 
count--when we take a look at the long-term solvency of Social 
Security, don't we calculate in the debt that Social Security 
holds and the debt or the interest that has been accumulated on 
that debt that is ``owed'' by the general fund to Social 
Security?
    Mr. Crippen. Yes, and future interest payments on those.
    Mr. Hoekstra. And future interest payments.
    Mr. Crippen. Right. But those interest payments are made 
from the general fund of the Treasury to Social Security--it is 
a trust fund. Again, for unified budget surpluses, put the two 
together and it is a wash--one pocket to the other.
    Mr. Hoekstra. Would you have a feeling as to whether that 
is even a meaningful exercise then of calculating government-
held debt and interest that we pay ourselves? If it is just a 
wash anyway, if it really has no meaning in the economy, if it 
is taking money out of one pocket and putting it into the other 
pocket, I am getting the belief that maybe we shouldn't be 
doing it at all. And it is a----
    Mr. Crippen. I have lots of feelings. I probably shouldn't 
have a feeling about this. The securities that the trust fund 
holds are interest-bearing securities. If they were any other 
type of investment, they would have a return as well. So the 
interest payment to the trust fund--while it comes out of 
another part of the government because the debt comes out of 
another part of the government--is a wash in the unified 
budget. But it is not unrealistic to say that the debt held by 
the trust fund should get at least a Treasury rate of return.
    If those securities were not Treasuries--if they were stock 
or corporate bonds or anything else--they would have a rate of 
return not unlike what the President is proposing with the 
equity purchases in his budget. So it is not unrealistic, 
phoney, or any of those things to say that interest should be 
paid into the trust fund. But again, from the macroeconomic 
standpoint--looking at the big budget picture, unified budget--
it is paying interest from the non-Social Security part of the 
budget to Social Security. You put the two together, and it 
washes. I don't know if I helped any, but----
    Mr. Hoekstra. So I was waiting for an explanation as to why 
we actually even calculate a Social Security trust fund and the 
interest payments if it really has no economic impact, and you 
know the interest is going from one government account to 
another.
    Mr. Crippen. The trust fund accounting is tricky. It 
complicates things, but it doesn't have a real effect on 
programs. It gives some guidance as to whether the funding 
sources--the dedicated funding source in this case--and the 
outlays (the obligations) match. It lets us know when the 
program is out of balance because we have obligations exceeding 
the income.
    Having said that, though, the trust fund itself doesn't 
tell you a lot about the budget, the resources, the economy. As 
I have testified before, it doesn't matter much when the Social 
Security trust fund runs out of money--in 2032 or, under the 
President's budget, 2055. What potentially matters is when we 
start taking in less payroll taxes than we are paying out.
    So trust fund accounting may have important political 
consequences. It certainly gives you policy guidance as to 
whether a program is in balance or not, but it doesn't give you 
much guidance as to the effects on the economy or the state of 
the budget or lots of other things.
    Mr. Hoekstra. Good, thank you.
    I yield back.
    Chairman Kasich. Ms. Baldwin.
    Ms. Baldwin. No, that is OK.
    Chairman Kasich. Let the record reflect that that has never 
happened before.
    The gentleman from Virginia.
    Mr. Moran. Well, thank you, Mr. Chairman.
    Mr. Kasich, I have some interesting figures I would like to 
talk about, the defense budget, because you go into one meeting 
and you hear one thing, and another meeting from another thing, 
and even in the same meeting you hear different things from 
different sides of the aisle. And the chairman and ranking 
member would be free to respond to this as well.
    If Mr. Crippen isn't familiar with this, the President's 
budget for fiscal year 1998 requested $1.383 trillion in budget 
authority for defense between fiscal year 1998 and 2002. That 
was 12.3 greater than the fiscal year 1997 budget resolution.
    Then we came in with the balanced budget agreement. For 
fiscal year 1998, we added 2.6 billion, which was 16.7 more 
than the resolution that had been proposed out of this 
committee that year. The next year, the President's budget for 
fiscal year 1999 requested 3 billion more for defense between 
fiscal year 1999 and 2003 than either the House or the Senate 
resolutions. And this year, the President's budget provides 55 
billion more in BA for defense between fiscal year 2000 and 
2003 than either the House or the Senate budget resolutions 
that were proposed last year.
    Now, you know, we are hearing that the President is short-
changing defense, but it seems that the balanced budget 
agreement and the proposals that we have gotten the last few 
years are actually significantly less than the President has 
asked for. But the real problem comes up this year, and I think 
that given the bipartisan commitment to defense--to increasing 
defense, that the problem is going to be felt in nondefense 
discretionary. And this is something that I am sure you must 
have given some thought to, Dr. Crippen, because if we stick 
with the outlay caps that are in the balanced budget agreement, 
which were basically frozen in fiscal year 1999 levels, then by 
your estimate we are $12 billion short of the budget cap--or 
the--we will bust the budget caps by 12 billion. And under OMB 
scoring, you are figuring that OMB scoring is $10 billion too 
short in terms of outlays.
    Mr. Crippen. Correct.
    Mr. Moran. The President is suggesting 275. You are 
suggesting approximately 285 should be the outlay figure. So if 
the caps are not raised, and the firewalls come down, the 
nondefense discretionary programs have to be cut by about $21 
billion by your estimate, right? Is that not correct?
    Mr. Crippen. From the President's request, yes, but not 
necessarily from the baseline or this year's spending or 
anything like that. All of our numbers are based on the 
President's budget.
    Mr. Moran. Well, that is what I want to get at. You have 
shown the charts here, but what I would like to get behind are 
the broad numbers that you are showing here.
    Mr. Crippen. Sure.
    Mr. Moran. Just focus a bit on defense, because I think 
that is where the real problem is going to come. It is the 
total part of the budget, and the real issue is going to be 
between defense and nondefense discretionary programs. And if 
we are committed to funding defense at the level that either 
the President has proposed or the Senate has proposed, which, I 
have the numbers for that, is much greater not just this year, 
but particularly in the next--over the next 5 years, how much 
are we going to have to bust the--how much are we--number 1, 
how much will we have to bust the balanced budget agreement 
caps for defense this year in outlays; and, number 2, how much 
are we going to have to take out of nondefense discretionary 
programs in order to meet that commitment to defense?
    Mr. Crippen. Let me start by saying, as you suggest, that 
there are a lot of numbers, and every meeting you go into or 
out of, you hear a different story; increase, decrease. That is 
why we have a baseline. Our baseline reflects what the Congress 
gave to defense last year, and all of our measurements are 
relative to that baseline in terms of increase/decrease.
    The defense spending in the President's budget is 
contingent on getting Social Security reform. Even so, the 
President's budget stays pretty close to baseline.
    That is why we have a baseline. But the point is that if 
you compare the President's budget with our baseline, there are 
no increases.
    Let's go to the question of the outlays. We think that the 
defense budget proposed by the President will spend $10 billion 
more than he does. That $10 billion, of course, gets scored 
against the cap, as you have said.
    We think that the President's budget is a total of $30 
billion over the caps. So it is not just the defense piece that 
is blowing the caps: $20 billion of other stuff is blowing the 
caps as well. Part of that the President would like you to 
offset with nondiscretionary resources. The other part is the 
difference in outlays. But the cap doesn't have to be busted; 
it is up to you to change it or keep it. According to our 
analysis, if you give the President the amount of budget 
authority he has asked for in his budget, there will be $10 
billion more in outlays than his budget shows. You would, 
therefore, have to reduce outlays somewhere else in the 
President's budget in order to stay under the caps. That is not 
baseline, Mr. Moran; it is from the President's budget.
    Mr. Moran. OK. I just wanted to put this in context. Well, 
that is up to the Member who is controlling the time. But the 
issue here--first of all----
    Mr. Smith [presiding]. That comes way down to here.
    Mr. Moran. You are controlling time.
    Mr. Smith. Ask another question.
    Mr. Moran. Let me pose the point to you. There is not going 
to be any Social Security change, legislative change, this 
year. We all know that, and we are going to talk about it a 
lot, but it is not going to happen. So the real issue that is 
going to confront this committee, I think, more than any other 
issue is how we pay for the commitment to increase defense 
spending and where it comes from.
    And it would appear that, as we see here, we are talking 
about busting the budget caps that we agreed on last year by 30 
billion. Two-thirds of that would have to be for defense, 
because it is the outlays that require the--that would raise a 
point of order. And I am just getting--trying to get a sense of 
how we are going to do that, and if we don't bust the budget 
caps, we have got a figure out where we take it from the 
nondefense discretionary programs, and that is a real problem, 
and it is much more immediate than talking about how we reform 
the whole Social Security System.
    That is all. Thank you.
    Mr. Smith. Mr. Fletcher for 5 minutes.
    Mr. Fletcher. Thank you, Mr. Chairman.
    And, Dr. Crippen, let me just say we certainly appreciate 
your analysis of the budget. And looking over it, I am going to 
just restate some things that I understand from it and then ask 
a few questions.
    First of all, it looks like he does breach or blow the 
budget caps by about 116 billion over 5 years. This year, and I 
know that the question is there, I understand he is really only 
putting about 4 billion of that into defense. Others come about 
by reduced spending and some other things, fuel costs, et 
cetera, even though the forces, Armed Forces, have asked for 21 
billion to really do what they need to do, to maintain 
equipment they have, and that doesn't even include any new 
programs or missile defense.
    Also we said last year--and remember saying that he wanted 
to spend 100 percent of the surplus--the President said that--
in the State of the Union, it was 62 percent, and now it looks 
like in this budget he spends about 146 billion of the budget 
surplus over 5 years, when he originally said he wanted to use 
100 percent for Social Security. He also adds about 314 billion 
to public debt by 2004; is that correct, or not?
    Mr. Crippen. It sounds about right. I have to look at the 
table.
    Mr. Fletcher. That is public debt by 2004, which is much 
more than what it would be if we continued what we are doing 
right now?
    Mr. Crippen. Right.
    Mr. Fletcher. The way I do the accounting at home, if I owe 
somebody something, and we have a legal debt to the Social 
Security trust fund, and even though that is considered private 
debt, the interest there is a legal obligation that we have 
that is going to be realized when the recipients grow to a 
number that our outlays are going to be much greater.
    So it is actually a real debt, it may not just affect the 
economy immediately. But it is a real debt, it is a debt that 
we are leaving to our children, and I think that is what is 
important. It is not just that we have a debt that we can hide 
with a lot of funny money and funny shifting of numbers and 
papers. It is actually a $1-trillion increase in total debt 
that we are leaving to our children. And that is what this 
budget does, and that is unfathomable to me that I am going to 
leave my children and my grandchildren a $1-trillion increase 
in debt which is in addition to what we have now.
    So I think that is significant. And even though it may not 
impact the economy, I think that is a very significant concern.
    Additionally, when I look at Medicare, and I know in the 
Medicare Task Force right now, there is going--they are 
deadlocked and not getting a report out because the President's 
appointees are holding it up over the prescriptive drugs. They 
want to make sure we provide something for that. Even though I 
think all of the other is done on a bipartisan way, they are 
supporting the report that they are about--Senator Breaux's--
that they are about to approve.
    And yet we see here in this budget, first of all, there is 
no increase funding in Medicare. There is increase in IOUs 
again. There is really no real increase in money put into the 
Medicare fund; is that correct?
    Mr. Crippen. Correct. The transfers do affect the Medicare 
trust fund balances and push them out, but there is no change 
in the obligation of the system or in the revenues coming into 
it.
    Mr. Fletcher. Even though we have got rural hospitals that 
are really struggling now, and we have got a President that 
says he is actually holding up a report from the Medicare Task 
Force, and he has said in his State of the Union that he wants 
to provide prescriptive drugs, we have got actually a 1.3--or I 
guess it is a decrease in--how much decrease is it that he is 
providing for prescriptive drugs? Is it $1.3 billion over 5 
years?
    Mr. Crippen. That sounds about right. It is a small amount 
because of the small program, but yes.
    Mr. Fletcher. It is still a substantial amount. And those 
are drugs that deal with cancer and renal dialysis and very 
life-threatening illnesses that they are dealing with that he 
is decreasing prescriptive drug support for. So I find some 
great inconsistencies in his budget with what he actually 
proposes to do and what he says. And I am very concerned that 
there is absolutely no Medicare reform here to provide better 
coverage, provide better--more prescriptive authority.
    Also, you know, we have about 60 percent of the seniors 
that now are covered with prescriptive drugs, if you exclude 
the Medicaid coverage, and if you include those that have their 
own prescriptive drug authorities, and I don't see any plan 
when he talks about providing prescriptive authority to capture 
that money that is taken there, which would be a tremendous 
amount of savings.
    So with that in mind, I just wanted to make those 
statements and confirm my understanding of the budget. And 
thank you very much.
    Mr. Smith. Mr. McDermott for 5 minutes.
    Mr. McDermott. Thank you, Mr. Chairman.
    First of all, I have a yes or no question. Is it true there 
is no on-budget surplus until 2001?
    Mr. Crippen. Yes.
    Mr. McDermott. Therefore any tax cut that affects 2000 or 
2001 would be out of the Social Security surplus?
    Mr. Crippen. Well, there is no----
    Mr. McDermott. Wherever it came from, it would come out of 
the surplus in Social Security, right?
    Mr. Crippen. I want to answer you, but I am not following 
you. Try it one more time, and I will see if I can.
    Mr. McDermott. If there is no on-budget surplus, if we give 
a tax break, where does it come from? It comes out of the 
Social Security surplus?
    Mr. Crippen. Right.
    Mr. McDermott. OK.
    Mr. Crippen. Right.
    Mr. McDermott. Fine, thank you.
    Now the next question I have, and that one is more 
complicated, because I read your letter to the Medicare 
Commission I heard referred to here, the Thomas-Breaux approach 
was presented to you to analyze, and you analyzed it and wrote 
this on the 18th of February: ``Traditional Medicare would 
adopt the same tools that private plans use to manage costs. 
Cost-cutting or revenue-raising strategies might include 
increases in premium and cost-sharing requirements and 
reductions in covered benefits.'' And you went on to say that, 
``the government's contribution would depend on the premium 
charge by each health plan, but would be capped.''
    Now, is that your understanding of what was presented to 
you to analyze, and doesn't that make it a defined contribution 
rather than a defined benefit program?
    Mr. Crippen. It was certainly our understanding at the 
time, as we say both in the letter and in the accompanying 
analysis. A lot of details will matter, but in the main, your 
characterization is correct; at some point you would have to 
have a restricted amount of money or resources going into the 
traditional program.
    Mr. McDermott. So you were analyzing a diagram produced by 
Mr. Thomas that would reduce benefits or increase premiums on 
the senior citizens in this country who stay in the managed 
care--or in the regular traditional fee-for-service in which 84 
percent of seniors now are; is that correct?
    Mr. Crippen. What we are assuming, Mr. McDermott, is that 
the Health Care Financing Administration [HCFA], as the manager 
of the traditional program, needs to have the same kinds of 
tools the private sector would have in order to compete at all. 
We believe, as the letter says, that introducing competition 
into the traditional side--which, as you know, is the last fee-
for-the-service program--could actually save some money.
    That doesn't necessarily mean that you have to raise taxes 
or raise premiums or cut benefits. There are a lot of 
efficiencies to be had. Either in the cover letter or the 
accompanying analysis, we point out that there are still almost 
twice as many hospital beds in this country as we need, and a 
lot of estimates point to an excess of a quarter of a million 
or so doctors.
    Mr. McDermott. So you are anticipating closing rural 
hospitals, or are you closing them in the cities; which place 
would you close them?
    Mr. Crippen. I don't have a preference. All I am suggesting 
is that a lot of excess capacity exists, so it is reasonable to 
think that some costs could be reduced without cutting benefits 
or raising premiums. A lot of overhead, as you know, is 
required to keep the health care system running.
    Mr. McDermott. What I found difficult listening to your 
testimony is that the Chairman of the Commission said he never 
gave you specs that included these things. He said your 
analysis was pulled out of thin air essentially, because he 
said he never told you to assume premium increases or benefit 
reductions.
    I am trying to resolve a conflict in my own mind when the 
Chairman and the two Chairs say, this isn't what we sent over 
to CBO, and yet you write this letter. I don't think you would 
risk your job doing an analysis on something without having 
some basis for thinking that. From where is this confusion 
coming? Why do they say, we never intended them to give us 
that?
    Mr. Crippen. As I think the attachment to the letter made 
pretty clear, we had to make a number of assumptions to reach 
any kind of a conclusion. As you know from the way that I 
structured the letter, there are some questions that should be 
asked of any reform proposal.
    But in the attachment, we were very clear about the 
assumptions we made in order to get to where we thought we had 
to be. Now, some of those assumptions were based on guesses. 
Others were based on public statements from the Commission, the 
staff.
    If you are asking whether we received a package of material 
which we then used in our analysis, the answer is no. But we 
certainly intended to be very clear in the attachment about 
where we were making assumptions.
    Mr. McDermott. So anybody who comes to the conclusion or 
asserts the conclusion that there are savings has to assume 
your assumptions to come up to that line; would that be 
correct? And you would have to come to--you would have to have 
those assumptions to save money in the program, wouldn't you, 
by changing to the premium support?
    Mr. Crippen. Some of the assumptions, yes. I don't agree 
that we need to necessarily assume that it is going to cut 
benefits or increase premiums. I said there is a lot of excess 
capacity out there. We believe that putting some competition 
into the Medicare traditional program could help increase 
efficiencies, just as it has in other parts of the private 
sector.
    Mr. McDermott. Have you looked at the HCFA analysis of this 
premium support program?
    Mr. Crippen. I have not looked at it carefully.
    Mr. McDermott. They made the assumption that there would be 
a 10-percent increase--a new copay in home health care and a 
20-percent copay on other services. You didn't make any 
specific----
    Mr. Crippen. No.
    Mr. McDermott [continuing]. Number assumptions?
    Mr. Crippen. We did not.
    Mr. McDermott. You just made a sort of overall kind of a 
back-of-the-envelope guess because you didn't get specifics?
    Mr. Crippen. Yes, sir, in part. CBO cannot, as an 
institution--and I don't believe you can anywhere--make very 
long-term projections like this. These, as you know, are 75-
year projections of very large programs with lots of people 
moving in and out. As I said in the cover letter, the longer we 
go out in our analysis, the more we are driven by the 
assumptions, not the facts.
    So it is very important to lay out the assumptions, which 
is what I think we did in the attachments, but we cannot make 
any kind of detailed estimates the way the actuaries have 
attempted to at HCFA. We aren't in the business of doing that. 
We have ability to make forecasts over long periods of time, 
but, as I said, we are driven in the out-years by assumptions, 
not facts. Excuse me, I just wanted to finish.
    Mr. McDermott. Sure.
    Mr. Crippen. Obviously, we can all debate the best way to 
think about these things, but I think the best way CBO can help 
is by suggesting some of the questions you might want to 
address to assess this policy. You can then ask whether this 
policy moves you into a better or worse position relative to 
that set of principles or questions. But to pretend that we 
have any precision 75 years from now--it would be nothing more 
than pretending.
    Mr. McDermott. You are saying that the assumptions you make 
in Social Security are of an order of magnitude somewhat 
greater of certainty than the ones you would make in Medicare?
    Mr. Crippen. I think that is probably correct.
    Mr. McDermott. Because you know population and you know 
salary trends and economic trends, etc.
    Mr. Crippen. Right. We are struggling with some very 
important questions--not only with us, but the actuaries in 
Social Security as well. Take mortality, for example. Much of 
the private literature suggests that the assumptions we are 
making about mortality are a little short; that is, people are 
going to live longer than we currently think. That is an 
assumption, but if it is true, then obviously it would have an 
effect on the projections for the Social Security trust fund.
    Mr. McDermott. What private literature are you talking 
about? You are talking private research or research literature?
    Mr. Crippen. Yes, research literature in the Academy of 
Actuaries and some private actuaries.
    Mr. McDermott. You say that the projections we are using 
actually are too short?
    Mr. Crippen. They could be a little bit too short. It is 
being debated at the moment. All I am saying is that in Social 
Security, while it is more straightforward, as you said, there 
are still some very important things that we have to assume.
    Mr. McDermott. I think we will have to continue this maybe 
at the next hearing.
    Mr. Crippen. I would like to.
    Mr. McDermott. Thank you.
    Mr. Crippen. We don't have to wait until then.
    Mr. Smith. I will proceed with 5 minutes. And I think, Mr. 
McDermott, that I would object to Mr. Crippen's response to you 
that the only way to have a tax cut would be to use Social 
Security surpluses. Of course, we are looking at corporate tax 
loopholes. We are looking at all other kinds of adjustments 
that could accommodate that, rather than using Social Security 
surpluses.
    But in terms of the President's budget using those Social 
Security surpluses, do I understand you to say that the 
President's budget does use Social Security surpluses for some 
of his new expanded program spending?
    Mr. Crippen. Yes. The President's budget suggests that at 
least through 2008, we will be using--not saving all of--the 
Social Security surplus. According to our estimates, over a 10-
year period, the President uses some portion of the Social 
Security surplus in every year.
    Mr. Smith. And, Mr. Spratt, I would like to inform to you 
and the chairman that our Social Security Task Force of this 
committee is meeting every week on Tuesdays at noon, and we 
have been sending out notices to the full committee.
    Next week we will be talking to asset managers in terms of 
the effect of capital investments on the market if we were to 
move----
    Mr. Markey. Mr. Smith, Mr. Smith. The recorder over here 
tells me your microphone is not on.
    Mr. Smith. Thank you.
    Mr. Chambliss. We can all hear you though.
    Mr. Smith. Just a quick report on the task force. Last 
week, for example, we had Steve Goss, one of the actuaries. And 
it was interesting that our committee staff had projected that 
every cent, both Social Security surplus and any general fund 
surplus over the next 5 years, if every penny was put into an 
investment at 10\1/2\ percent, and if the 700-plus billion 
dollars were paid back that is in IOUs in the trust fund now, 
how long would Social Security stay solvent, and the estimate 
was approximately 2040.
    And another question I thought was interesting was if we 
decided to put an additional $3.5 trillion of bonds in the 
trust fund this year, would the actuaries at the Social 
Security Administration score that to keep Social Security 
solvent for the next 75 years? And the answer was yes. Is that 
really a realistic way of scoring and giving guidance to the 
Congress on Social Security if they are simply going to say 
that an additional IOU will keep the program solvent?
    Mr. Crippen. That is why we have a unified budget, why we 
have to look at the Social Security and non-Social Security 
together. The trustees have only one thing to look at: they 
look at the Social Security trust fund. And, indeed, if we 
transfer general funds through there and leave behind 
nonmarketable securities, as you are suggesting, they have to 
look at those and say that they are securities that are backed 
by the full faith and credit of the government. They will be 
cashed in when the time comes. But that ignores what is 
happening with the rest of the budget. So from the trustees' 
point of view, it is realistic and----
    Mr. Smith. More than that, I think it probably ignores the 
consequences of not having a long-term solution. It ignores the 
consequences of not being able to come up with money when we 
run short someplace between 2008 and 2013.
    Mr. Crippen. It has real consequences, as you are 
suggesting, and what you are suggesting are political or social 
consequences. But it does inherently commit future general 
funds to Social Security, because those bonds are going to be 
redeemed using general funds. And in the President's 
calculations, his transfer is about enough to solve half the 
long-term problem--1 percent of the 2 percent of payroll we 
talked about earlier--but there is no reason that, using the 
same techniques, you couldn't solve the whole problem.
    Mr. Smith. That was the question. We said what if we add 
$3.5 trillion, which is the actuarial debt on an open system.
    Mr. Crippen. Right.
    Mr. Smith. It would seem that somehow there has to be a 
better way to guide this Congress in terms of the seriousness 
of the problem. And if you look at what happened in 1970 and in 
1983 under the Greenspan Commission, when we ran into problems 
of having enough money, we reduced benefits and increased 
taxes. And so the full faith and credit is only as good as 
Congress' decision and the White House's decision to not reduce 
benefits or increase taxes.
    So it seems to me that in terms of guiding this body, it 
would be better to concentrate on the predicament that we are 
going to face at a time when there is less money coming than 
what is being spent.
    Mr. Crippen. As I suggested in my opening remarks, it is 
less important exactly how we account for these things; it is 
more important to think about what we are doing. If the 
President's budget was adopted, we would be committing future 
general funds to the Social Security System. That may be 
perfectly acceptable--I am not saying it is not--but that is 
what we are doing.
    So the accounting matters less than the implications. Do 
you want to start putting more general funds into the Social 
Security system, or do you want to try and keep it self-funded 
through payroll taxes and match the obligations with the 
payroll taxes?
    Mr. Smith. Well, let me finish in my last few seconds on 
the Budget Committee's Task Force on Social Security. The week 
following next week on March 23, Mr. Greenspan has agreed to 
come in to a working session or a closed session where we could 
have a free discussion back and forth on some of the issues 
that we are facing in Social Security. And so, again, I invite 
the full Budget Committee to that hearing.
    Mr. Price for 5 minutes.
    Mr. Price. Thank you, Mr. Chairman.
    Mr. Crippen, I would like to--or, Dr. Crippen, I would like 
to add my congratulations on your appointment and welcome you 
for your first appearance before this committee. We look 
forward to working with you.
    Mr. Crippen. Thank you. I look forward to working with you 
as well.
    Mr. Price. I would like you to elaborate on the reasons of 
the differences between CBO's estimate of discretionary 
spending in the 2000 budget and OMB's estimate. That, of 
course, goes to the heart of the caps problem, which a number 
of people have referred to here today.
    Let me just anticipate, I know part of the difference is 
going to be accounted for by the fact that the administration 
did not always specify in the budget that it expected the 
Appropriations Committee to enact its mandatory program 
offsets. So, of course, one related question is whether you 
agree that Congress could write the legislation in that way, 
and if the offsets were enacted through the appropriations 
bills, then they would legitimately accommodate increases 
within the caps, and that would no doubt change your estimates 
as to the amount of discretionary--the net discretionary 
spending we are dealing with here.
    Mr. Crippen. That is right. We would give them credit for 
those offsets if they appeared in the appropriation language. 
It is about, as I recall, a little under $5 billion of the $17 
billion that we talked about in offset differences. So that 
would be something like $5 billion of the 17.
    Mr. Price. That would be--you say 17. I had understood it 
was more a $13 billion difference.
    Mr. Crippen. It is $17 billion total: $3 billion of it is 
PAYGO balances; the other $14 billion is mandatory savings that 
we wouldn't, under current scoring, count as offsets to 
discretionary spending.
    What you are suggesting is right. If they had included in 
the appropriation language the enactment of some portion of 
that, we would have scored it differently, and they would have 
received credit for another $5 billion. So the $17 billion we 
talked about would have been $12 billion or $13 billion.
    Mr. Price. So it is true, isn't it, that the historical 
precedents as to whose estimates Congress relies on is somewhat 
mixed. I believe that last year Congress adopted OMB's estimate 
rather than CBO's on several large items, including defense 
outlays, the veterans offsets, T-21 and vocational education. 
Is that true?
    Mr. Crippen. Yes. You can obviously adopt whatever 
estimates you want. We, of course, stand by ours and are 
willing to defend them in any quarter, but you have the ability 
to do whatever you want. In the resolution, you can adopt 
different economic assumptions. You can do lots of things, sir.
    Mr. Price. Going to the issue of those Pay-Go offsets, on 
the issue of whether revenues can or cannot be used to offset 
discretionary spending and how that might be done, isn't it 
true that in the Contract With America budget resolution of 
1995, and in last year's House budget resolution, that the 
House Republican leadership did propose cutting taxes and 
offsetting the revenue loss with cuts to discretionary 
spending?
    Mr. Crippen. I have to refer to my colleagues. That is 
historical. I will take your assertion for the moment, and we 
will look at it. It sounds like it was not quite the same as 
what Jim was telling me, but I am not sure I understand it well 
enough to try and have an exchange with you.
    Mr. Price. Well, I think it would actually be quite helpful 
for the record if you would give a more detailed response.
    Mr. Crippen. Absolutely, sure. I wasn't there then, and I 
don't know what they did.
    Mr. Price. And hopefully a balanced response as to how that 
could be argued on either side, if you do find some conflicting 
evidence.
    Mr. Crippen. Sure.
    [The information referred to follows:]

      Congressional Budget Office Responses to Questions Posed by 
                     Representative David E. Price

    Question 1. Please explain CBO's estimate that 
discretionary spending for fiscal year 2000 requested in the 
President's budget request would exceed CBO's capped baseline 
in light of the Administration's estimate that the budget 
complies with the discretionary spending limits of the Deficit 
Control Act.

    There are three components to the difference between CBO's 
estimate that proposed discretionary outlays would exceed CBO's 
baseline cap on discretionary spending by $33 billion and the 
Administration's estimate that the President's budget complies 
with the discretionary spending limits.
    1. CBO's baseline cap on discretionary outlays for 2000 
does not include adjustments that would be required under 
current law if the President's proposals were enacted. CBO 
estimates that such adjustments--which would be triggered by 
appropriations for emergencies and appropriations for special 
purposes such as continuing disability reviews of Supplemental 
Security Income recipients--total almost $3 billion. Thus, CBO 
estimates that the discretionary spending proposed in the 
President's budget would exceed the caps, including adjustments 
that would be made at the end of the session of Congress, by 
$30 billion.
    2. CBO estimates that the outlays resulting from the 
President's discretionary appropriation requests will be nearly 
$14 billion higher than the Administration estimates. Almost 
$10 billion of the difference in estimates of discretionary 
outlays is attributable to CBO's higher estimate of outlays for 
defense programs, and about $4 billion is attributable to 
reestimates of spending for nondefense programs. CBO's March 3, 
1999, report, ``An Analysis of the President's Budgetary 
Proposals for Fiscal Year 2000: A Preliminary Report,'' 
describes the major components of those differences (see pages 
12-15).
    3. The President's budget proposes offsets to discretionary 
spending that would require a change in law to be counted as 
offsets. The proposed offsets, as estimated by CBO, are:
     Savings of $2 billion in direct spending programs 
that would be enacted in authorizing legislation. Under current 
law, savings in direct spending count as offsets to 
discretionary spending only if they are enacted in 
appropriation acts.
     A $1 billion increase in offsetting receipts of 
the Military Retirement Trust Fund resulting from changes in 
military retirement benefits. Under current law, such increases 
are not counted as savings in either direct or discretionary 
spending because the increase in receipts reflects the increase 
in the long-term liabilities of the trust fund.
     An $11 billion increase in revenues that would be 
enacted in bills other than appropriation acts. CBO believes 
that current law does not allow revenue changes to be counted 
as offsets to discretionary spending under any circumstance, 
although the Administration has counted them as offsets if they 
are enacted in an appropriation act.
     The elimination of the current $3 billion pay-as-
you-go balance for fiscal year 2000. Under current law, 
eliminating the balance would not count as either direct or 
discretionary spending because it does not directly affect 
budget authority or outlays.
    The Administration estimates that these items would offset 
$18 billion in discretionary outlays. Under current law, CBO 
estimates that they would not offset discretionary spending at 
all. Under the assumption that the law is changed to allow 
these items to count as offsets, CBO estimates the offsets 
would total $17 billion and that net discretionary spending 
proposed by the President would exceed the adjusted Deficit 
Control Act limits on outlays by $14 billion.

    Question 2. Is the Administration's proposal to count 
certain savings as offsets to discretionary spending any 
different from proposals supported by the House of 
Representatives in recent years that would have allowed 
reductions in discretionary spending to offset reductions in 
revenues?

    The House of Representatives in 1995 passed legislation 
(section 20008 of H.R. 2491 and section 1009 of H.R. 1215) that 
would have required counting a legislated reduction in the 
Deficit Control Act limits on discretionary outlays as a 
decrease in the deficit for purposes of pay-as-you-go 
enforcement. That would have allowed reductions in the 
discretionary limits to offset the pay-as-you-go effects of a 
tax cut or increases in direct spending.
    The President's budget for fiscal year 2000 proposes that 
the items discussed in the answer above--direct spending 
savings and revenue increases achieved in authorizing 
legislation, increases in offsetting receipts of the Military 
Retirement Trust Fund, and elimination of the pay-as-you-go 
balances--should be counted as offsets to discretionary 
spending for purposes of determining compliance with the 
limits.
    Both proposals would allow trade-offs between discretionary 
spending and revenues, and both would make it easier to make 
trade-offs between discretionary spending and changes in direct 
spending (the President's proposal would also allow certain 
items that currently do not count as any kind of savings to be 
used as offsets to discretionary spending). However, the 
mechanisms for making the trade-offs are different. H.R. 2491 
and H.R. 1215 would require an explicit reduction in the 
discretionary limits to accomplish the trade-off. The 
President's proposal would allow changes in revenues and 
mandatory spending to count as offsets that would allow 
additional discretionary spending without formally raising the 
discretionary limits.

    Mr. Price. Well, regardless of the disagreement with OMB on 
discretionary spending, your testimony does indicate, does it 
not, that CBO believes that the surplus over the 5 years will 
be higher under the President's budget actually than OMB 
predicts?
    Mr. Crippen. Yes. We believe the baseline surpluses are 
considerably more than what OMB starts from.
    Mr. Price. So specifically CBO estimates that the 
President's overall policies, including the Social Security 
framework, will produce $516 billion in surplus over the 5 
years, while OMB expects only $465 billion; is that true?
    Mr. Crippen. Yes, but we would expect considerably more 
without the President's policies.
    Mr. Price. Now, just going back to that discrepancy between 
the estimates of discretionary spending, how much of that goes 
to the differences in estimated spendout rates for defense; 
that is a major chunk of it as well?
    Mr. Crippen. About $6 billion of the total is spendout 
rates, primarily on prior-year obligations. The other $4 
billion, just to round up to $10 billion, is things that the 
administration thinks will save money but that we don't believe 
will save money.
    Mr. Price. All right. So we have some genuine scoring 
differences there?
    Mr. Crippen. Yes.
    Mr. Price. We also have the differences attributable to the 
way you score the possible offsets that might be enacted 
through appropriations bills?
    Mr. Crippen. Yes.
    Mr. Price. All right. Well, I think it would also be 
helpful for the record if you could give a precise breakdown--
--
    Mr. Crippen. Sure. The two things you just mentioned----
    Mr. Price [continuing]. Of the components that we discussed 
here this morning. And that, secondly, what accounts for those 
differences, and if you care to add commentary as to how that 
might be--how that difference might be narrowed depending on 
how these offsets are enacted, that would also be helpful.
    Mr. Crippen. We have had an exercise under way for a number 
of years to try and narrow our differences with OMB, 
particularly on defense outlays. About 10 years ago, we had 
fairly significant differences. That difference, because of 
lots of discussions with OMB, had actually narrowed to about a 
billion dollars a year, but the difference has been building. 
Last year the difference was about $5.7 billion, as I recall. 
This year it is $10 billion.
    So in the last couple of years we have again had these 
really disparate estimates of outlays for defense. In the old 
days, we had big differences. Those went almost to nothing with 
a lot of discussion. But in the last couple of years, it would 
appear that OMB has reverted to its bad ways. No, no. We have 
increased our differences with OMB.
    Mr. Price. All right. My time has expired. Thank you, Mr. 
Chairman.
    Mr. Chambliss [presiding]. Ms. Clayton, I don't want to 
rush you. Do you want to go ahead and ask your questions, or 
vote and come back?
    Mrs. Clayton. Actually I can do it in less than 5 minutes.
    Mr. Chambliss. OK.
    Mrs. Clayton. I just want to kind of have you summarize 
your differences and the assumptions for Social Security. My 
assumption is that you do not subscribe to the President's 
assertion that transferring 62 percent into the trust fund 
would be helpful or would make the savings that would be there.
    Mr. Crippen. Well, what we say is that the transfer has no 
real effect on the program. It will extend the trust fund 
balances, as he asserts, from 2032 to 2055 or something like 
that, but it doesn't change the obligations or the revenues 
associated with it. Now, the transfer does have a real effect, 
I think, in that it commits future general fund resources to 
Social Security. At some point, those Treasury securities will 
have to be cashed in using other, non-Social Security 
resources--taxes, debt, or something else--and so the general 
funds will be committed to the Social Security system. So it 
has a real effect.
    But there are two pieces to the question. One is: How do we 
account for it? And the President asked that we account for it 
differently than we do now, and that is one issue. And as I am 
suggesting here, the accounting issues are less important than 
the policy issues, and one policy issue is the implications of 
using general funds for Social Security. I am not suggesting 
that that is a good or bad thing to do. All I am saying is that 
it is the more important issue.
    Mrs. Clayton. That is a different issue from saying that if 
you transfer, whether it is good or bad, it is a neutral issue; 
that adding to the solvency of Social Security trust fund, if 
you put those dollars in there, does it not add to the solvency 
or extend the trust fund solvency by the number of years that 
you assert it?
    Mr. Crippen. Yes, it does extend the trust fund's solvency, 
but it doesn't change the program at all. What it does is 
commit future general fund revenues to it.
    Mrs. Clayton. I think further reforms may be things that 
this Congress will do. So you would say that actually 
transferring those funds to the trust fund adds to the solvency 
of the Social Security?
    Mr. Crippen. It extends the solvency, yes.
    Mrs. Clayton. OK. One last question is, I wasn't clear when 
you said that--in your testimony that your overall projection 
for surplus was less than the administration, but did I just 
hear you say the reverse?
    Mr. Crippen. I may have contradicted myself. I hope not. 
What we are saying essentially is that we believe that if you 
did nothing for the next 10 years, surpluses would be a little 
higher than the President projected if he did nothing for the 
next 10 years. So our baseline surplus is a little bit higher 
than the President's.
    But the point is that his budget does not save the entire 
surplus. Whether it is his surplus or our estimate of the 
surplus, not all of it is saved, and I think that is the 
important part.
    Mrs. Clayton. I am reading from your testimony on page 8, 
it says, ``However, because CBO's economic and technical 
assumptions produce higher projected baseline surpluses than 
the administration projects under the current law''----
    Mr. Crippen. That's right.
    Mrs. Clayton. You are saying if he did nothing, we will 
have more?
    Mr. Crippen. Yes.
    Mrs. Clayton. But the baseline--are you saying his baseline 
is erroneous, or because his policies--he is spending more of 
it?
    Mr. Crippen. No. We think that if no action was taken by 
you or the President over the next few years, surpluses would 
be a little higher than what the President believes they would 
be if nothing was done. So we start out with a little bigger 
surplus, then when we subtract what the President is proposing 
to do with the surplus, and we end up with a final number that 
is still a little bit bigger than what the President thinks.
    Mrs. Clayton. Is there a surplus for this year?
    Mr. Crippen. Yes.
    Mrs. Clayton. Is there? To Mr. McDermott I thought you said 
it was no. For year 2000 I guess is what I should say, rather 
than this year.
    Mr. Crippen. Right.
    Mrs. Clayton. Is there an on-line surplus?
    Mr. Crippen. On-budget? No.
    Mrs. Clayton. Is there an on-budget surplus for 2000?
    Mr. Crippen. No.
    Mrs. Clayton. But there is overall increase in the baseline 
budget for the next 5 years, greater than what the President 
has said. So when he says he wants 62 percent of an imaginary 
number, that imaginary number, from your point of view, is 
lower than what you have as a baseline?
    Mr. Crippen. Yes, that would be right.
    Mrs. Clayton. Because he wants to use some of surplus to 
commit it to the trust fund, you are saying that that would put 
the deficit at a higher rate than the debt would be? Is that 
what I understand?
    Mr. Crippen. No, the transfers do not count in this 
calculation. We don't count the transfers.
    Mrs. Clayton. It is a neutral?
    Mr. Crippen. It is a neutral. It is a wash for this 
purpose.
    Mrs. Clayton. Thank you.
    Mr. Spratt. Mr. Chairman, if I could just state two things 
for the record for clarification. When you spoke of the CBO 
baseline for defense, that baseline that is included is an 
extrapolation of fiscal year 1998 spending for defense, which 
included $8 billion in emergency spending, which is not 
requested this year, so it is an inflated baseline in that 
sense----
    Mr. Crippen. Yes.
    Mr. Spratt [continuing]. Nonrecurring item included?
    Secondly, just for the record, if I am wrong, you may not 
have the numbers readily available, but by our calculations the 
President's budget request from 2000 to 2009 averages 3 percent 
per year rate of increase, versus .7 percent rate of increase 
for nondefense discretionary. That is in outlays, which is the 
important number.
    Mr. Crippen. OK. We have----
    Mr. Spratt. We got a mismatch between BA and outlays which 
is longstanding. The longer we put off rectifying it, the worse 
it gets. Thank you very much.
    Mr. Crippen. Thank you.
    Mr. Chambliss. Dr. Crippen, thank you very much for being 
here this morning, and we look forward to working with you, and 
we particularly look forward to getting those intermittent 
reports on where you think we are headed with respect to 
whether it is surplus or excess cash flow or whatever it may 
be. But we look forward to getting those written reports from 
you. Thank you very much.
    Mr. Crippen. Thank you.
    [Whereupon, at 12:05 p.m., the committee was adjourned.]

                                
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