[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




                CONGRESSIONAL BUDGET OFFICE PROJECTIONS

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, JANUARY 23, 2002

                               __________

                           Serial No. 107-20

                               __________

           Printed for the use of the Committee on the Budget


  Available on the Internet: http://www.access.gpo.gov/congress/house/
                              house04.html

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                        COMMITTEE ON THE BUDGET

                       JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire        JOHN M. SPRATT, Jr., South 
  Vice Chairman                          Carolina,
PETER HOEKSTRA, Michigan               Ranking Minority Member
  Vice Chairman                      JIM McDERMOTT, Washington
CHARLES F. BASS, New Hampshire       BENNIE G. THOMPSON, Mississippi
GIL GUTKNECHT, Minnesota             KEN BENTSEN, Texas
VAN HILLEARY, Tennessee              JIM DAVIS, Florida
MAC THORNBERRY, Texas                EVA M. CLAYTON, North Carolina
JIM RYUN, Kansas                     DAVID E. PRICE, North Carolina
MAC COLLINS, Georgia                 GERALD D. KLECZKA, Wisconsin
ERNIE FLETCHER, Kentucky             BOB CLEMENT, Tennessee
GARY G. MILLER, California           JAMES P. MORAN, Virginia
PAT TOOMEY, Pennsylvania             DARLENE HOOLEY, Oregon
WES WATKINS, Oklahoma                TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington             CAROLYN McCARTHY, New York
JOHN T. DOOLITTLE, California        DENNIS MOORE, Kansas
ROB PORTMAN, Ohio                    MICHAEL E. CAPUANO, Massachusetts
RAY LaHOOD, Illinois                 MICHAEL M. HONDA, California
KAY GRANGER, Texas                   JOSEPH M. HOEFFEL III, 
EDWARD SCHROCK, Virginia                 Pennsylvania
JOHN CULBERSON, Texas                RUSH D. HOLT, New Jersey
HENRY E. BROWN, Jr., South Carolina  JIM MATHESON, Utah
ANDER CRENSHAW, Florida
ADAM PUTNAM, Florida
MARK KIRK, Illinois

                           Professional Staff

                       Rich Meade, Chief of Staff
       Thomas S. Kahn, Minority Staff Director and Chief Counsel


                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, January 23, 2002.................     1
Statement of:
    Dan Crippen, Director, Congressional Budget Office...........     7
Prepared statement, and additional submissions of:
    Mr. Crippen:
        Prepared statement.......................................    13
        Reply to Hon. Ken Bentsen's question regarding deficit-
          financed tax cuts......................................    34

 
                CONGRESSIONAL BUDGET OFFICE PROJECTIONS

                              ----------                              


                      WEDNESDAY, JANUARY 23, 2002

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 2:34 p.m. in room 
2318, Rayburn House Office Building, Hon. Jim Nussle (chairman 
of the committee) presiding.
    Members present: Representatives Nussle, Sununu, Bass, 
Gutknecht, Thornberry, Ryun, Toomey, Hastings, Schrock, Brown, 
Crenshaw, Putnam, Kirk, Spratt, McDermott, Bentsen, Davis, 
Clayton, Price, Clement, Moran, Moore, Capuano, Hoeffel, Holt, 
and Matheson.
    Chairman Nussle. The committee on the budget will come to 
order. First of all, out of order for just a moment just by way 
of explanation, we are in the Science Committee. We appreciate 
the Committee on Science for lending us their room for the time 
being. Our committee hearing room continues to proceed with 
renovations. It should be completed, hopefully soon, so that 
the next hearings that we hold, we will be back in home field 
advantage. We look forward to that, but we appreciate the 
Science Committee for the use of their room. Today's hearing is 
intended to review the budget and economic projections for the 
coming decade as estimated by the Congressional Budget Office. 
The projections, which will be published next week in CBO's 
report of the budget and economic outlook fiscal years 2003 to 
2012, will serve as a backdrop or context, as it typically 
does, for Congress's budgetary decisions in the coming year.
    The CBO figures also provide an assessment on why large 
budget surpluses projected a year ago have declined. This 
accounting is expected to show that most of the surplus 
reduction in fiscal year 2003 and over the next 10 years as a 
result of terrorist attacks on the United States; the war 
against terrorism being waged overseas; and the economic 
recession that we find ourselves in. Such conclusions would be 
contrary to the views of administration critics who have been 
repeatedly trying to blame the surplus decline on tax reduction 
measured by the enactment of the tax bill last year. The 
hearing's witness today will be Dan Crippen, the director of 
the Congressional Budget Office, who will make the report on 
these findings.
    Before I turn it over to my friend and colleague, Mr. 
Spratt, let me just make a couple of opening comments that I 
think need to be made at this particular juncture. I don't 
think there is any speech I have heard in the last couple of 
months that didn't begin with ``on September 11, the world 
changed.'' For me, I have a simple question and challenge for 
my colleagues: Will those changes manage us or will we manage 
those changes? I believe it is incumbent on the United States 
Congress, the President of the United States and particularly--
using the leadership role of the Budget Committee--to begin to 
manage those changes in the budget that we will begin to 
discuss and review is the first step in making some of those 
important management decisions for the changes that we all know 
have to happen.
    After four straight balanced budgets and half a trillion 
dollars worth of debt reduction, we find ourselves in a 
deficit. Why? Well, there are those who obviously cheerily 
blame tax relief from last year and, in fact, have already put 
forward ideas on raising taxes as a way to try and get 
ourselves out of the situation that we find ourselves in. But 
it wasn't taxes that got us here, and raising taxes isn't going 
to get us out of the problem that we find ourselves in, and so 
let me be very clear from the outset. This budget committee 
will not raise taxes as a management plan to deal with the 
fiscal situation that we find ourselves in. We will do quite a 
bit over the next number of years, but raising taxes is not an 
option, particularly when we are in the middle of a recession.
    In order for us to deal with the challenges, we have got to 
fund America's priorities first. That has to be job one of this 
budget, and obviously, the priorities have changed since last 
September. We have a war, we have a recession, and we have a 
national emergency to deal with. The President, in his February 
address to the Congress, said that there were only three 
individual reasons why the United States Federal Government 
might have to go into deficit. Number one was a war. Number 
two, separately was a recession, and number three, separately, 
was the national emergency. Because of September 11--a 
deepening recession that now most experts suggested started at 
least last spring, if not before--we now find ourselves dealing 
with all three at the exact same time.
    Now, I know for many reasons it will be very interesting, 
particularly in a political year, to try and blame policies of 
tax relief, when taxes were the highest of any time since World 
War II, to try and blame tax relief as a way of demonstrating 
how we got into this situation. But as the report from the 
Congressional Budget Office suggests, that is just simply not 
the case. I think probably one of the best ways to demonstrate 
that is by looking at where the surplus went. So let us look at 
a chart, see how the Science Committee does on technology here 
for us. So far, so good, I guess, on a chart that can help 
depict exactly where the surplus went according to what the 
Congressional Budget Office is telling us. Just in case it 
doesn't come up, we use the--oh, here we go. And, boy, it looks 
like a headline news. Surplus estimates drop sharply. Boy, that 
isn't news. Everyone has known that has been coming. Mr. Spratt 
has been telling us that since how long ago?
    Mr. Spratt. Since you passed the tax cut.
    Chairman Nussle. Since we are in the Science Committee, let 
me state very clearly, it didn't take a rocket scientist to 
come up with that deduction, because we planned on that. We 
wanted that tax cut. We felt it was important to give people 
back their money, because in a recession, when you are trying 
to deal with economic changes, letting people spend their own 
money, not letting the government do that for them was job one, 
and that is exactly why we passed the budget in the tax relief 
package from last year. As you see, that is just a small part 
of the change. According to the Congressional Budget Office, 
1.6, almost equal to the tax cut relief over the 10 years, came 
from the economy, .8 from spending, which, let me remind my 
colleagues, we almost all cheerfully voted for in the packages 
that were passed this fall. We have a remaining surplus over 
this particular time. So, yes, the surplus has--and the surplus 
estimates over the 10 years have dropped sharply. Some of it 
was deliberate, and deliberate at a time when we needed a shot 
in the arm for the economy, and the rest came from the economy 
and spending that we all, in a bipartisan way, put forward.
    In order to meet the challenges from the war, the recession 
and the emergency, we need to focus on coming up with a budget 
to deal with this. We are going to disagree today. I have no 
doubt that there will be those who suggest that tax cuts is 
what got us here and tax cuts alone. Tax increases is not how 
we are going to get out of it, but we do need a plan. We have 
put forward, I think, a very positive and constructive plan 
from the House of Representatives in order to deal with this, 
and let me just review what we have done.
    First of all, we had a budget that prioritized in a number 
of different positive ways what America's priorities should be. 
Second, we passed protrade negotiation authority so that we 
could begin to improve, renegotiate and begin to negotiate an 
open trade around the country to create jobs around the world. 
Next was an energy plan so that we could break the bonds of 56, 
57 percent dependency on foreign oil--much of it coming from 
the Middle East--and recognizing that we will continue to be 
entangled in the Middle East as long as we have that 
dependency.
    And last but certainly not least, an economic stimulus 
package that said that we need to deal with dislocated workers, 
we needed to cut taxes for the middle class, we needed to 
provide benefits to workers, and we also needed to make sure 
that those who did not receive the benefits from the first tax 
relief package received some benefits in this plan. We passed 
it twice, and we are waiting for action; we passed an emergency 
plan and we are waiting for action; we passed a stimulus plan 
and we are waiting for action; we passed protrade negotiative 
authority and we are waiting for action.
    Where does that action need to come? From the Senate. We 
are waiting. America is waiting. We have a plan to get out of 
this mess. We know we are in a mess. America knows we are in a 
mess. We didn't put ourselves in that mess. We were put there 
by Osama bin Laden and the number of terrorists that we are 
dealing with right now, and we will deal with them, and we will 
reprioritize our budget to deal with them, even as we have 
stated in our balanced budget amendments in the past, and as 
the President has stated in his financial address to the 
Congress this past year, even if it means having to borrow for 
a short period of time--and I emphasize the word ``short''--in 
order to deal with those problems.
    So we wait for action from the United States Senate. My 
concern, in watching the process thus far, is that as we look 
at the budget process, I am concerned whether or not we can 
actually achieve a budget through the Congress this year, and 
let me be very clear about my intentions as the chairman and 
what I will be advocating to the House of Representatives as we 
move forward. We are going to be on time. We are going to hold 
the hearings. We are going to write the document. We are going 
to accept the President's recommendations, and we are going to 
draft a budget. And we are going to have it done on time the 
way we did last year. We are going to be prepared to negotiate 
and to discuss and to prioritize with our colleagues in the 
Senate. But we will continue, as we have this fall, to move in 
a positive direction forward for our constituents and for 
America if, in fact, the Senate fails to act. We will continue 
to move forward. We will not wait. We will not stop. We will 
not falter. We will not allow the gridlock of five or six 
acting minority leaders in the Senate to stop our progress in 
the House of Representatives. And that you can be assured of.
    We realize that there will be a number of negotiations, as 
there has to be, this year on priorities. We know that we are 
not going to have commonality, even within our own caucuses, on 
exactly what needs to be done, but we have to start moving 
forward, we have to start having the votes. The House has had 
the votes. The Senate needs to have those votes, and we are 
going to continue to apply pressure so that America can move 
successfully forward to meet the challenge that has been 
presented to us by the last number of months.
    It is not going to be easy. We all know that. We have been 
home talking to our constituents. You think this budget is hard 
to balance, try balancing a budget when you don't have a job. 
Try and figure out how you are going to pay for college when 
you are not making any money and you are trying to work off of 
unemployment. Forget about it. This budget is important, as 
important as any other job that we have to meet this year, but 
this is still about people, and making sure that they have got 
the resources around their kitchen table to deal with their 
home budget, their farm budget or their small business budget. 
But today's focus is on where we are, and the good news is that 
we have got a projection for where we are today. The challenge, 
of course, as we always talk about with our good friend, Mr. 
Crippen, is that the numbers are almost never precise.
    Mr. Crippen. That was kind.
    Chairman Nussle. And it calls upon all of us to use our 
best judgment as we move forward, but we appreciate the advice 
that CBO is going to be giving us today.
    With that, let me turn it over to my friend and colleague, 
Mr. Spratt, for any opening comments he would like to make, and 
before he does that, all members--I ask unanimous consent that 
all members be allowed to put in a statement in the record at 
this point.
    Mr. Spratt.
    Mr. Spratt. Thank you, Mr. Chairman.
    Chairman, it was just a month ago that President Bush said 
that his administration had--and quoting--brought sorely needed 
fiscal discipline to Washington. Today the Congressional Budget 
Office reports that $4 trillion of the $5.6 trillion projected 
surplus, $4 trillion, has disappeared in a year. Last January, 
CBO projected a surplus of $359 billion for fiscal year 2003. 
This January, today, CBO projects a deficit of $14 billion, a 
wing from a surplus of $359 billion to a deficit of $14 
billion, a reversal of almost $400 billion in 1 year. Surely 
the biggest budgetary reversal in the history of this country. 
If this is fiscal discipline, it has an odd bottom line.
    The chairman said it. I repeat it. War and recession and 
tax cuts have overtaken the budget, and I think that adhering 
to this budget, the budget that was passed by resolution last 
year in the face of this report, isn't fiscal discipline. It 
would be fiscal denial. I don't want to be in the role of 
saying I told you so, but a lot of the things that are laid out 
in this report and will be testified to by Dr. Crippen today 
confirm our concerns that we have expressed about the 
Republican budget for an entire year. First of all, the 
fragility of these surpluses. In 1 year, $4 trillion of the 
unified surplus has vanished, and the on-budget surplus has 
become an on-budget deficit. That is a fact. The on-budget 
surplus has become an on-budget deficit.
    Now, that is important. Dr. Crippen will talk consistently 
about the total surplus, the total deficit, but the number that 
matters most to us, if we abide by the law, is the on-budget 
surplus, the surplus in our budget exclusive of Social 
Security. Why? When I was here 10, 12 years ago, we all voted 
for a law that took Social Security off-budget and made it an 
independent account. Secondly, if we want to abide by our 
promise as represented by the lock box that we touted so much 
over the last 2 years, not to borrow and spend the Social 
Security surplus, but to save the surplus and to use it only 
for Social Security purposes or for buying up outstanding debt 
held by the public, then the number that we must target and 
look at and be concerned about is the on-budget surplus number, 
and as I said, for all practical purposes, for every year 
throughout this forecast, the on-budget surplus is gone.
    So the problem is not so much where we are. We can't do 
much about that. The problem is where we are going. As you look 
out over time, the horizon and over the horizon, particularly 
after 2008, when the baby boomers retire and begin to draw 
their Social Security benefits.
    Now, I am not here to tell you that the tax cut is the sole 
and only cause of the problem. It is not. We advocated a 
smaller tax cut ourselves last year, about half the size that 
was actually passed. We certainly aren't for raising taxes now 
in the middle of a recession. I want to make that clear. We are 
not here to claim that the tax cut is the only cause of the 
vanishing surplus. But it is one of the causes, as the chart 
that is now before you shows. You can't see the colors clearly 
on this. Or at least I can't. I am red, green color-blind but--
--
    Chairman Nussle. I will interpret it for you.
    Mr. Spratt. You can see that the surplus was a major factor 
last year. That is because of the tax rebate. It is a minor 
factor this year and next year, but over time each year it 
stairsteps upward. In 2010, it drops down again, but that is 
for a reason that we all know won't be applicable. This tax 
bill--in order to shoehorn as much as possible into the limits 
of a $1.35 trillion allocation, has a very improbable feature 
to it, a sunset. All of the tax provisions that implement 
steadily over time are suddenly repealed in the year 2010. Now, 
that is not going to happen. Politically, it is not going to 
happen. I know it, whether I am here or not, in 2010, it is not 
going to happen, and if you assume that it doesn't happen, that 
the sunset won't be repealed, then those stairsteps keep going 
upward, and the surplus for the 10-year frame of time, assuming 
the repeal of the repealer, the recession of the sunset, 
constitutes more than 50 percent of the cause for the 
disappearance of the unified surplus.
    This makes a mockery of all of our rhetoric about a lock 
box, because what we are going to be doing over the next number 
of years, probably for the full time frame that is forecast 
here, is dipping into Social Security again. First of all, we 
are going to spend all of Medicare. Now, Mr. Chairman, I know 
that you made an earnest statement last year when Mr. Daniel 
was here, and he would not disavow the intent to spend some of 
the Medicare trust fund. You proposed spending some of the 
Medicare trust fund, building up over the next 10 years, for 
Medicare prescription drugs. Well, let me tell you, we are 
going to spend all of it and not for Medicare, not for 
prescription drugs. We are going to spend it to run the basic 
operations of the United States Government, all of it. And we 
are probably going to dip into Social Security to at least half 
the trust fund. I don't think that is a radical proposal at 
all.
    So after all of this earnest talk about this lock box--and 
it was--the core idea of which was a good idea, that we would 
begin to use the Social Security surpluses as a mechanism for 
increasing net national saving, and we would lay the basis on a 
bipartisan basis for the first step toward this long run 
solvency of Social Security is out the window, unless this 
budget is significantly changed.
    One small item. Over the last 3 or 4 years, we have had a 
dividend that has barely been seen, but it has been realized as 
we have been allocating and appropriating out of our budget, 
and that is the decline in net national interest payments by 
20, $30 billion for a period of 3 or 4 years, they have 
staircased downward. As a result of the consequences of this 
budget built into this budget, we are going to see an increase 
of over a trillion dollars, in the interest payments of this 
Federal Government on its debt over this period of time.
    Now, let me say that the numbers we are talking about are a 
current services, current policy baseline. They don't include 
an awful lot of things that are in the pipeline on the agenda 
and are likely to be beyond this year or next year or in the 
very near future. For example, Mr. Chairman, the farm bill, 
that is not included in this baseline. We don't have anything 
for natural disasters, not fully affected in this baseline. We 
don't have a full increase in defense. I heard today that the 
defense increase will be at least $30 billion, maybe $40 
billion, for the Department of Defense alone. This assumes less 
than half of that amount.
    This is a current services baseline before we have done 
anything additional in the way of spending initiatives or 
anything additional in the way of additional tax cuts. And they 
are coming, too. You all know the expiring tax provisions. You 
all know we have got a huge problem with the individual 
alternative minimum tax that we will have to fix sooner or 
later, and you have got, as I said, the repealer at the tail 
end of your tax cut, which itself will be rescinded before it 
is all over with, and that will add $373 billion or take away 
$373 billion from the bottom line here.
    So what we are looking at here is as good as it gets, and 
as a result, what we are going to see is the on-budget surplus, 
that most important number of all, the one that we should 
really be targeting, we are going to see it decline from $3.1 
trillion just last January. It already dropped $846 billion by 
August. As a result of what we are baselining--what we have 
here today--there you go. Well, there it is right there, in 
simple language, $3.1 to $742 billion deficit over that period 
of time. This is a dire situation, and I hope, Mr. Chairman, 
that we can do our business on time, but I would like to think 
that we could somehow come to the table. Everybody would come 
to the table, and everything would be on the table, because 
this budget needs major work, or we are going to be faced with 
dire consequences for years and years to come.
    Dr. Crippen, welcome, and I look forward to your testimony.
    Chairman Nussle. Welcome CBO Director Dan Crippen again to 
the Budget Committee. We welcome you, look forward to your 
testimony. You may proceed. Your entire report will be made 
part of the record and your testimony and you may proceed as 
you see fit. Welcome.

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

    Mr. Crippen. I am gratified to be here for a number of 
reasons. I am also----
    Chairman Nussle. You may need to push a button up there. I 
am not sure.
    Mr. Crippen. Did that do anything?
    Chairman Nussle. No.
    Mr. Crippen. How's that?
    Chairman Nussle. There you go. Thank you.
    Mr. Crippen. I started to send an appreciative comment also 
on where I am sitting. You could have put me underneath that 
thing, which I think has a cable and a winch, and you could--
anyway.
    Mr. Chairman, Congressman Spratt, and other members of the 
committee, I appreciate the opportunity to represent CBO this 
afternoon, presenting our current assessment of the economic 
and budget outlook. I might say, as I did this morning, that I 
am here to reveal the worst-kept secret in Washington. Our 
surplus estimates of a year ago have diminished. As many of 
your colleagues said this morning as well, what a difference a 
year makes. I have often heard that a year in politics is an 
eternity, but it turns out that a year in economics is also a 
long time.
    As you are all aware, the results we present today, as Mr. 
Spratt just said, are our current best estimate for the economy 
over the next 10 years and the associated budget outlook, but 
with no policy changes. No increase in spending for the war on 
terrorism or for homeland defense, no additional spending for 
farm programs, no additional reduction in taxes for stimulus 
beyond that under current law. No renewal of expiring tax 
provisions.
    These first two charts attempt to illustrate graphically 
and numerically what has happened to the projected surpluses 
and why our projections have changed (see figures 1 and 2). 
Now, the gross numbers here both of you have already addressed. 
The outlook for surpluses over the next 10 years has gone from 
$5.6 trillion to $1.6 trillion over the same period, obviously 
a reduction of $4 trillion. The primary causes of that decline, 
the diminished performance of the economy and the passage of 
legislation, vary in importance over the 10-year period.


    In the near term, the biggest change since last January is 
clearly the economy. Instead of the 3.4 percent real growth in 
gross domestic product (GDP) we forecast a year ago--which was 
at the time similar to most other forecasts--we now expect GDP 
to grow less than 1 percent this year. As a result of that 
change in economic circumstances and the mostly related 
technical adjustments that go along with it, the balance for 
our current fiscal year will be something like $240 billion 
less than we forecast a year ago.
    Legislation enacted since last January will further reduce 
balances this year by nearly $90 billion--not counting debt 
service--one-third of which is in reduced revenues and two-
thirds in increased outlays. Combined, those changes amount to 
a swing of over $300 billion, and they alter our forecast from 
roughly a $300 billion surplus to a $20 billion deficit. A 
similar pattern exists for the budget year 2003, with a 
resultant small deficit of $14 billion. By 2004, under current 
policies, we forecast the emergence of unified surpluses, with 
on-budget surpluses developing again near the end of the 
decade.



    Our projection of changes in the second half of the next 10 
years show somewhat the reverse pattern. Changes in legislation 
have a more important impact than changes in the economy. By 
2011, changes in law since last January directly reduce the 
surplus that we estimated last January by just under $200 
billion, $120 billion from revenue and $63 billion from 
spending. Changes in the economic outlook and technical changes 
account for an additional $124 billion.
    Over the 10 year period from 2002 through 2011, then, 
changes account for 40 percent of the diminution in surpluses, 
whereas legislative changes account for 60 percent.
    This recession, Mr. Chairman, and its effects on the budget 
have been unusual in several respects. First, the downturn was 
precipitated not by the usual circumstances of demand 
outstripping supply, causing inflation and a subsequent 
tightening of monetary policy. Rather, this time a precipitous 
drop-off in capital spending and inventories by corporations of 
all types, but especially for IT products, caused about three-
quarters of the decline in GDP growth. Although the increase in 
consumer spending slowed, it remained a source of strength 
through much of last year.
    Second, what has been characterized as an over-investment 
was accompanied by a marked decline in equity markets, 
especially for high-tech stocks, which, in turn, meant fewer 
capital gains, slowdowns in gains realization, and therefore in 
capital gains revenues.
    Third, the attacks of September 11 probably exacerbated the 
recession we were already in, and while most of the initial 
impact seems to have worn off, at least some industries, such 
as airlines, have not recovered. The possibility of future 
terrorist attacks has increased uncertainty and led to a 
significant and growing level of expenditure on security.
    Fourth, our current economic projections alone would not 
have reduced revenues as much as was implied by this overall 
forecast. Revenue collections at the moment are running lower 
than expected, even given the current level of anemic growth. 
There are some phenomena here we simply don't fully understand. 
They may be temporary or permanent, but they are permanently 
built into this forecast.
    Finally, while not directly related to the downturn, the 
Bureau of Economic Analysis has simultaneously and 
substantially reduced its estimates of for the previous three 
years, which, in turn, lowered the base and the expected growth 
of the economy in the future.
    Given the nature of this recession, that is, the dearth of 
capital spending, the economy will likely be slow to recover 
even after it bottoms out. Only when consumption and inventory 
needs to strain current capacity, will it be profitable to 
invest again in capital stock, and only then will growth in the 
economy resume its 3 percent potential rate.
    Mr. Chairman, I am sure the committee has many questions 
about this forecast and its implications for policy, and I 
don't want to try to anticipate them in my statement. Before I 
relinquish the floor, I feel compelled once again--as I 
normally do--to remind everyone that the 10-year period in our 
baseline will only begin to touch on the era of what is likely 
to be the largest actual real, not merely projected, fiscal 
swing in our history.
    The retirement of my generation will double the number of 
retirees receiving Federal benefits, while the workforce that 
must support us and must pay our benefits will grow only 
nominally. What this means, I believe, is found in this poor 
chart I drag around with me everywhere I go, mainly that these 
three programs--Social Security, Medicare and Medicaid--will 
consume more than twice as much of the economy as is presently 
the case (see figure 3).



    There are a number of important implications to take away 
from this graph. First, there are really only two moving parts 
to the picture. Spending on the elderly, which is the 
numerator, and the size of the economy, which is the 
denominator. While the operation of the trust funds is not 
wholly irrelevant, the most important thing we can do for our 
children and grandchildren is to grow the economy, not the 
trust funds, and perhaps accept lower benefits for ourselves.
    When the day comes to collect my Social Security, it 
matters less how the cash that I will spend is generated, but 
how much of what my kids are producing I will demand they hand 
over to me. Whether it is financed by taxes on them, or 
providing less of other government programs for them, it will 
be my kids nonetheless, who pays my benefit.
    Finally, this growing wedge will consume nearly the 
resources we now expend for all Federal programs. That means, 
quite simply, that other programs will need to be cut, taxes 
raised, or debt issued to the tune of nearly 10 percent of GDP.
    As the next chart illustrates, since World War II the 
average Federal tax take has been 18 percent of GDP (see figure 
4). Even with last year's tax cut, revenues will remain well 
above that average. Put more starkly, the extremes here are 
quite clear. One of them will be that we would have to raise 
taxes to about 30 percent of GDP to pay for benefits. Another 
way to look at this, and I don't think you have an electronic 
version of this last chart, is the debt levels that might be 
required to sustain the current Federal budget, along with the 
increases in Social Security, Medicare and Medicaid (see figure 
5).





    Almost any fiscal scenario one could envision, which is an 
increase or decrease from the baseline on debt, will, before 
too long, become unsustainable. The highest point ever, which 
was reached in World War II, is the horizontal line of a little 
more than 100 percent of GDP--or where Japan finds itself now--
but it won't take long before we would exceed that highest ever 
level if we were to issue debt.
    The result here, if you look at extreme solutions, is that 
we will have to increase borrowing by a very large and likely 
unsustainable amount, raise taxes to 30 percent of GDP from 19 
percent of GDP currently, or eliminate most of the rest of the 
government as we know it. None of those are very palatable. 
Some combination of them is likely, but we need to take action 
as soon as we can to address what we only see now as the tip of 
the proverbial iceberg. With that, Mr. Chairman, I will retire.
    Chairman Nussle. Not yet. You can stop, but you don't need 
to retire yet.
    [The prepared statement of Dan L. Crippen follows:]

   Prepared Statement of Dan L. Crippen, Director, the Congressional 
                             Budget Office

    Mr. Chairman, Congressman Spratt, and members of the committee, I 
am pleased to be here today to discuss the current outlook for the 
budget and the economy. The Congressional Budget Office (CBO) will 
release its report on that topic, The Budget and Economic Outlook: 
Fiscal years 2003-2012, on January 31. My testimony today will 
summarize that report.
    The economic recession and recent laws have combined to sharply 
reduce the budget surpluses projected a year ago. In January 2001, CBO 
projected that under the laws and policies then in force, the Federal 
Government would run surpluses in fiscal years 2002 through 2011 
totaling $5.6 trillion. 1 In CBO's new projections, that 
cumulative surplus has fallen to $1.6 trillion--a drop of $4 trillion 
(see Table 1 on page 7).
---------------------------------------------------------------------------
    \1\ That projection appeared in Congressional Budget Office, ``The 
Budget and Economic Outlook: Fiscal Years 2002-2011'' (January 2001).
---------------------------------------------------------------------------
    About 60 percent of that decline results from legislation--the tax 
cuts enacted in June and additional discretionary spending--and from 
its effect on the cost of paying interest on the Federal debt. Changes 
in the economic outlook and various technical revisions since last 
January account for the other 40 percent of that decline.
    For both 2002 and 2003, CBO now projects that, instead of 
surpluses, the total budget will show small deficits, if current 
policies remain the same and the economy follows the path that CBO is 
forecasting. In 2001, by contrast, the Federal Government recorded a 
surplus of $127 billion (see Table 2).
    The deficit projected for this year--$21 billion--represents a 
change of more than $300 billion from last January's projection. Over 
70 percent of that reduction results from the weak economy and related 
technical factors, which have considerably lowered the revenues 
expected for this year and next.
    For the current 10-year projection period, 2003 through 2012, CBO 
estimates a total surplus of nearly $2.3 trillion. However, almost half 
of that total comes from the surpluses projected for 2011 and 2012--the 
last 2 years of the projection period and thus the most uncertain. The 
surpluses for those years also reflect the scheduled expiration in 
December 2010 of the tax cuts enacted last June.
    In CBO's new baseline, the off-budget accounts (which reflect the 
spending and revenues of Social Security and the Postal Service) run 
surpluses throughout the projection period. In the on-budget accounts, 
by contrast, surpluses do not reemerge until 2010.
    CBO's baseline projections are intended to serve as a neutral 
benchmark against which to measure the effects of possible changes in 
tax and spending policies. They are constructed according to rules set 
forth in law and long-standing practices and are designed to project 
Federal revenues and spending under the assumption that current laws 
and policies remain unchanged. Thus, these projections will almost 
certainly differ from actual budget totals: the economy may not follow 
the path that CBO projects, and lawmakers are likely to alter the 
nation's tax and spending policies. Therefore, CBO's baseline should be 
viewed not as a forecast or prediction of future budgetary outcomes but 
simply as the agency's best judgment of how the economy and other 
factors will affect Federal revenues and spending under current law.

                           THE BUDGET OUTLOOK

    If current policies remain in place, CBO projects, the budget will 
be in deficit for the next 2 years. Those deficits are expected to be 
quite small, amounting to only 0.2 percent of the nation's gross 
domestic product (GDP) in 2002 and 0.1 percent of GDP in 2003. After 
that, surpluses are projected to reemerge and gradually increase.
    For the 5 years from 2003 through 2007, CBO projects a cumulative 
surplus of $437 billion. That figure represents off-budget surpluses 
totaling more than $1 trillion offset by on-budget deficits that add up 
to $617 billion. For the 10-year period through 2012, the total budget 
surplus under current policies is projected to approach $2.3 trillion. 
Again, that amount is made up of surpluses in Social Security ($2.5 
trillion) offset by a cumulative on-budget deficit ($242 billion). 
Without the scheduled expiration of tax-cut provisions in 2010, the 
total 10-year budget surplus would fall to $1.6 trillion.
    The total surplus is projected to equal 1 percent of GDP by 2006 
and grow to 3.7 percent of GDP by 2012. Estimates of large surpluses 
should be viewed cautiously, however, because future economic 
developments and estimating inaccuracies could change the outlook 
substantially. In addition, future legislative actions are almost 
certain to alter the budgetary picture.
Changes in the Past Year
    As an illustration of how quickly the budget outlook can change, 
CBO's projection of the cumulative surplus for 2002 through 2011 has 
plunged by $4 trillion in just 1 year (see Table 1). 2 Some 
$2.4 trillion of that drop can be attributed to legislative actions. 
The legislation with the largest effect was the Economic Growth and Tax 
Relief Reconciliation Act of 2001, enacted in June. That law is 
estimated to reduce surpluses by nearly $1.3 trillion over 10 years 
(not including associated debt-service costs).
---------------------------------------------------------------------------
    \2\ About 45 percent of that reduction results from changes made 
since CBO issued its updated ``Budget and Economic Outlook'' in August. 
The drop since August totals $1.8 trillion and is attributed, in 
relatively equal measures, to legislative, economic, and technical 
changes.
---------------------------------------------------------------------------
    Additional discretionary spending since last January accounts for 
another $550 billion reduction in the projected surplus for the 2002-
2011 period. That amount stems from both regular and supplemental 
appropriations. CBO's January 2001 baseline assumed that discretionary 
budget authority for 2002 would total $665 billion. 3 The 
actual amount appropriated for 2002 in the 13 regular appropriation 
acts totaled $691 billion. In addition, the Congress and the President 
enacted $20 billion in supplemental budget authority in December as 
part of their response to the terrorist attacks of September 11--
thereby generating a total of $711 billion in budget authority for 
2002, $45 billion more than CBO assumed last January.
---------------------------------------------------------------------------
    \3\ That figure was calculated by assuming that the amount 
appropriated for the base year of 2001 would grow at specified rates of 
inflation.
---------------------------------------------------------------------------
    Under the provisions of the Balanced Budget and Emergency Deficit 
Control Act of 1985, CBO's baseline assumes that annual appropriations 
for discretionary programs continue at their current level, increasing 
only by the rates of inflation projected for each year. As a result of 
the appropriations enacted for 2002, projections of discretionary 
spending in the current baseline begin at a level that is $45 billion 
higher than a year ago.
    Furthermore, two supplemental appropriation laws enacted in fiscal 
year 2001--one for defense personnel and readiness programs and another 
in immediate response to the attacks of September 11--will generate 
outlays totaling around $25 billion in 2002 and beyond. However, budget 
authority from actions in 2001 is not carried forward into the baseline 
projections for future years because those appropriations occurred 
before the current year.
    Overall, legislated reductions in revenues, additional 
discretionary spending, and other laws with smaller budgetary effects 
have reduced projected surpluses--and thereby increased the 
government's borrowing needs--by $1,858 billion for 2002 through 2011. 
That increased borrowing is projected to result in an extra $562 
billion in net interest costs over the 10-year period.
    Changes in the economic outlook since January 2001 account for 
another $929 billion decline in the 10-year surplus. About three-
quarters of that total reflects lower revenue projections, mostly 
resulting from the substantially weaker economic growth expected in the 
near term and the slightly lower average growth rates projected for the 
following several years. Much of the rest of the decline attributable 
to the economic outlook represents additional debt-service costs 
resulting from the reduction in anticipated revenues.
    Technical changes--those not driven by new legislation or by 
changes in CBO's economic forecast--have reduced the projected 10-year 
surplus by a total of $660 billion since last January. As with the 
economic changes, revenues account for over 75 percent of the technical 
changes, and debt service accounts for much of the rest. The technical 
changes to revenues stem primarily from revised projections of capital 
gains realizations and adjustments for lower-than-expected tax 
collections in recent months.
Homeland Security
    Since the attacks of September 11, Federal agencies, State and 
local governments, and the private sector have perceived a heightened 
threat to the United States and a need to commit more resources to 
homeland security. On the Federal level, legislation following the 
attacks increased the budget authority provided for such security from 
$17 billion in 2001 to $22 billion for 2002. What level of resources to 
commit to homeland security will undoubtedly be a key issue as the 
Congress and the President make decisions about spending and other 
policies this year.
The Outlook for Federal Debt
    In the January 2001 Budget and Economic Outlook, CBO estimated that 
Federal debt held by the public would reach a level in 2006 that would 
allow the Treasury to retire all of the debt available for redemption. 
At that time, CBO also projected that the statutory ceiling on all 
Federal debt (which includes debt held by government accounts) would 
not be reached until 2009. Now, CBO estimates that debt held by the 
public will not be fully redeemed within the 10-year projection period 
and that the current debt ceiling will be reached in the next few 
months. Nevertheless, if the surpluses projected in the current 
baseline materialize, debt held by the public will fall to about 15 
percent of GDP in 2010--its lowest level since 1917.

                          THE ECONOMIC OUTLOOK

    In CBO's opinion, the most likely path for the economy is a mild 
recession that may already have reached its nadir. CBO expects the 
annual growth rate of real (inflation-adjusted) GDP to accelerate from 
-0.2 percent in 2001 (measured from the fourth quarter of calendar year 
2000 to the fourth quarter of 2001) to 2.5 percent in 2002 and to 
accelerate further to 4.3 percent in 2003.
    CBO believes, some unusual features of the current recession will 
cause it to be mild. Chief among those features are the rapidity of 
policymakers' responses, the moderating behavior of prices, and an 
early reduction in businesses' inventories. In less than 1 year, the 
Federal Reserve has cut the Federal funds rate 11 times--from 6.5 
percent to 1.75 percent. Also, the tax cuts enacted in June prevented 
consumption from slowing more than it might have otherwise, and 
additional Federal spending in response to the terrorist attacks will 
boost GDP in 2002. Lower prices for oil and natural gas and mild price 
increases for other items are supporting consumption by boosting real 
disposable income. Furthermore, businesses began to reduce inventories 
earlier in this recession than they did in past downturns, which may 
mean that fewer cuts in inventories remain than at this stage of the 
typical recession.
    CBO projects that weak demand in the short run will translate into 
weak employment, pushing the unemployment rate higher for the next 
several quarters while restraining inflation. With growth of real GDP 
near zero early this year, the unemployment rate is expected to 
increase to 6.1 percent in calendar year 2002 from 4.8 percent last 
year (see Table 3). The rate of inflation faced by consumers is 
forecast to fall from 2.9 percent last year to 1.8 percent in 2002. 
Lower oil prices account for most of the projected decline in 
inflation, although the recession also plays a role. As oil prices 
stabilize in CBO's forecast, inflation bounces back to 2.5 percent in 
2003.
    Looking out through 2012, CBO expects the growth of real GDP to 
average 3.1 percent during the 2002-2012 period--roughly the same as it 
projected last January for the 2002-2011 period. Nonetheless, the level 
of real GDP is lower each year than in last January's projections, 
primarily because actual GDP ended up much lower in 2001 than CBO had 
expected a year ago.

                     UNCERTAINTY OF THE PROJECTIONS

    CBO's baseline projections represent the midrange of possible 
outcomes based on past and current trends and the assumption that 
current policies do not change. But considerable uncertainty surrounds 
those projections for two reasons. First, future legislation is likely 
to alter the paths of Federal spending and revenues. CBO does not 
predict legislation--indeed, any attempt to incorporate future 
legislative changes would undermine the usefulness of the baseline as a 
benchmark against which to measure the effects of such changes. Second, 
the U.S. economy and the Federal budget are highly complex and are 
affected by many economic and technical factors that are difficult to 
predict. As a result, actual budgetary outcomes will almost certainly 
differ from CBO's baseline projections.
    In view of such uncertainty, the outlook for the budget can best be 
described as a fan of probabilities around the point estimates 
presented as CBO's baseline (see Figure 1). Not surprisingly, those 
probabilities widen as the projection period extends. As the fan chart 
makes clear, projections that are quite different from the baseline 
have a significant probability of coming to pass.

                         THE LONG-TERM OUTLOOK

    Despite the sizable surpluses projected for the later years of 
CBO's 10-year budget outlook, long-term pressures on spending loom just 
over the horizon. Those pressures result from the aging of the U.S. 
population (large numbers of baby boomers will start becoming eligible 
for Social Security retirement benefits in 2008 and for Medicare in 
2011), from increased life spans, and from rising costs for Federal 
health care programs. According to midrange estimates, if current 
policies continue, spending on Social Security, Medicare, and Medicaid 
combined will nearly double by 2030, to almost 15 percent of GDP.
    Taking action sooner rather than later to address long-term 
budgetary pressures can make a significant difference. In particular, 
policies that encourage economic growth--such as running budget 
surpluses to boost national saving and investment, enacting tax and 
regulatory policies that encourage work and saving, and focusing more 
government spending on investment rather than on current consumption--
can help by increasing the total amount of resources available for all 
uses.

                                    TABLE 1.--CHANGES IN CBO'S BASELINE PROJECTIONS OF THE SURPLUS SINCE JANUARY 2001
                                                                [In billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                      Total,     Total,
                                            2002     2003     2004     2005     2006     2007     2008     2009     2010     2011   2002-2006  2002-2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Surplus as Projected in January         313      359      397      433      505      573      635      710      796      889      2,007      5,610
 2001...................................
Changes:
  Legislative:
    Tax act\1\..........................      -38      -91     -108     -107     -135     -152     -160     -168     -187     -130       -479     -1,275
    Discretionary spending..............      -44      -49      -52      -54      -56      -57      -58      -59      -60      -61       -255       -550
    Other...............................       -4       -6       -5       -3       -4       -2       -2       -2       -2       -2        -23        -33
    Debt service\2\.....................       -5      -12      -22      -32      -44      -57      -72      -88     -106     -124       -114       -562
                                         ---------------------------------------------------------------------------------------------------------------
      Subtotal..........................      -91     -158     -186     -197     -238     -268     -293     -317     -355     -317       -870     -2,420
  Economic..............................     -148     -131      -95      -81      -75      -75      -76      -79      -82      -88       -530       -929
  Technical \3\.........................      -94      -84      -62      -51      -64      -64      -65      -64      -65      -45       -356       -660
                                         ---------------------------------------------------------------------------------------------------------------
      Total Changes.....................     -333     -373     -343     -330     -377     -406     -433     -460     -502     -450     -1,757     -4,008
Total Surplus or Deficit (-) as               -21      -14       54      103      128      166      202      250      294      439        250      1,602
 Projected in January 2002..............
Memorandum:
Changes in the Surplus by Type of
 Discretionary Spending:
  Defense...............................      -33      -29      -29      -29      -29      -29      -30      -30      -31      -32       -149       -301
  Nondefense............................      -11      -20      -23      -25      -26      -28      -28      -29      -29      -30       -106       -249
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note.--For purposes of comparison, this table shows projections for 2002 through 2011 because that was the period covered by CBO's January 2001
  baseline. The current projection period extends from 2003 through 2012.
 
\1\ The Economic Growth and Tax Relief Reconciliation Act of 2001, which was estimated at the time of enactment to reduce revenues by $1,186 billion and
  increase outlays by $88 billion between 2002 and 2011.
\2\ Reflects only the change in debt-service costs that results from legislative actions. Other effects on debt-service costs are included under
  economic and technical changes.
\3\ Technical changes are revisions that are not attributable to new legislation or to changes in the components of CBO's economic forecast.
 
Source: Congressional Budget Office.


                                                                       Table 2.--THE BUDGET OUTLOOK UNDER CURRENT POLICIES
                                                                                    [In billions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Actual                                                                                                       Total,     Total,
                                                                  2001     2002     2003     2004     2005     2006     2007     2008     2009     2010     2011     2012   2003-2007  2003-2012
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
On-Budget Surplus or Deficit (-)..............................      -33     -181     -193     -141     -108      -99      -76      -56      -23        4      131      319       -617       -242
Off-Budget Surplus \1\........................................      161      160      178      195      212      227      242      258      274      290      307      322      1,054      2,505
                                                               ---------------------------------------------------------------------------------------------------------------------------------
  Total Surplus or Deficit (-)................................      127      -21      -14       54      103      128      166      202      250      294      439      641        437      2,263
Debt Held by the Public (End of year).........................    3,320    3,380    3,410    3,373    3,288    3,177    3,027    2,840    2,605    2,325    1,900    1,273       n.a.       n.a.
Memorandum:
Total Surplus or Deficit (-) as a Percentage of GDP...........      1.3     -0.2     -0.1      0.5      0.8      1.0      1.2      1.4      1.7      1.9      2.7      3.7        0.7        1.6
Debt Held by the Public (End of year) as a Percentage of GDP..     32.7     32.8     31.3     29.2     27.0     24.8     22.5     20.0     17.5     14.8     11.5      7.4       n.a.       n.a.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note.--n.a. = not applicable.
 
\1\ Off-budget surpluses comprise surpluses in the Social Security trust funds and the net cash flow of the Postal Service.
 
Source: Congressional Budget Office.


           Table 3.--CBO'S ECONOMIC FORECAST FOR 2002 AND 2003
------------------------------------------------------------------------
                                                          Forecast
                                         Estimated ---------------------
                                            2001       2002       2003
------------------------------------------------------------------------
Fourth Quarter to Fourth Quarter
 (Percentage change):
  Nominal GDP..........................        1.7        4.2        6.5
  Real GDP.............................       -0.2        2.5        4.3
Calendar Year Average:
  Real GDP (Percentage change).........        1.0        0.8        4.1
  Consumer Price Index (Percentage             2.9        1.8        2.5
   change) \1\.........................
  Unemployment Rate (Percent)..........        4.8        6.1        5.9
  Three-Month Treasury Bill Rate               3.4        2.2        4.5
   (Percent)...........................
  Ten-Year Treasury Note Rate (Percent)        5.0        5.0        5.5
------------------------------------------------------------------------
\1\ The consumer price index for all urban consumers.
 
Sources: Congressional Budget Office; Department of Commerce, Bureau of
  Economic Analysis; Department of Labor, Bureau of Labor Statistics;
  Federal Reserve Board.

  
  
    Note.--This figure shows the estimated likelihood of alternative 
projections of the surplus under current policies. The calculations are 
based on CBO's past track record. CBO's baseline projections fall in 
the middle of the darkest area. Under the assumption that policies do 
not change, the probability is 10 percent that actual surpluses will 
fall in the darkest area and 90 percent that they will fall within the 
whole shaded area.
    Actual surpluses will of course be affected by legislation enacted 
during the next 10 years, including decisions about discretionary 
spending. The effects of future legislation are not included in this 
figure.
    An explanation of how this probability distribution was calculated 
will appear shortly on CBO's Web site (www.cbo.gov).

    Source: Congressional Budget Office.

                                                                                CBO'S BASELINE BUDGET PROJECTIONS
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Actual                                                                                                       Total,     Total,
                                                                  2001     2002     2003     2004     2005     2006     2007     2008     2009     2010     2011     2012   2003-2007  2003-2012
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     In Billions of Dollars
Revenues:
  Individual income taxes.....................................      994      947      998    1,059    1,114    1,162    1,228    1,305    1,387    1,477    1,673    1,841      5,562     13,245
  Corporate income taxes......................................      151      179      175      199      235      246      260      275      289      303      319      335      1,115      2,635
  Social insurance taxes......................................      694      710      748      789      832      869      908      948      994    1,045    1,097    1,151      4,146      9,381
  Other.......................................................      152      146      149      159      161      170      172      179      186      183      188      223        811      1,769
                                                               ---------------------------------------------------------------------------------------------------------------------------------
    Total.....................................................    1,991    1,983    2,070    2,206    2,342    2,447    2,568    2,706    2,856    3,008    3,277    3,549     11,633     27,030
      On-budget...............................................    1,484    1,464    1,525    1,632    1,739    1,816    1,907    2,014    2,130    2,243    2,474    2,706      8,620     20,187
      Off-budget..............................................      508      518      545      574      602      631      661      693      727      764      803      842      3,014      6,842
Outlays:
  Discretionary spending......................................      649      733      764      784      808      824      841      866      888      910      937      953      4,021      8,575
  Mandatory spending..........................................    1,095    1,188    1,248    1,292    1,362    1,428    1,508    1,602    1,701    1,809    1,933    2,023      6,837     15,904
  Offsetting receipts.........................................      -87      -88     -101     -113     -119     -115     -122     -129     -136     -143     -152     -160       -570     -1,289
  Net interest................................................      206      170      174      188      188      182      175      165      153      138      120       92        908      1,577
                                                               ---------------------------------------------------------------------------------------------------------------------------------
    Total.....................................................    1,864    2,003    2,085    2,152    2,238    2,319    2,402    2,504    2,606    2,714    2,838    2,908     11,196     24,767
      On-budget...............................................    1,517    1,645    1,718    1,774    1,848    1,915    1,983    2,069    2,153    2,240    2,343    2,387      9,237     20,429
      Off-budget..............................................      347      358      367      379      391      405      419      434      453      474      495      521      1,960      4,337
  Surplus or Deficit (-)......................................      127      -21      -14       54      103      128      166      202      250      294      439      641        437      2,263
    On-budget.................................................      -33     -181     -193     -141     -108      -99      -76      -56      -23        4      131      319       -617       -242
    Off-budget................................................      161      160      178      195      212      227      242      258      274      290      307      322      1,054      2,505
Memorandum:
Gross Domestic Product........................................   10,150   10,315   10,890   11,556   12,168   12,803   13,468   14,166   14,897   15,664   16,469   17,314     60,884    139,394
 
                                                                                     As a Percentage of GDP
Revenues:
  Individual income taxes.....................................      9.8      9.2      9.2      9.2      9.2      9.1      9.1      9.2      9.3      9.4     10.2     10.6        9.1        9.5
  Corporate income taxes......................................      1.5      1.7      1.6      1.7      1.9      1.9      1.9      1.9      1.9      1.9      1.9      1.9        1.8        1.9
  Social insurance taxes......................................      6.8      6.9      6.9      6.8      6.8      6.8      6.7      6.7      6.7      6.7      6.7      6.6        6.8        6.7
  Other.......................................................      1.5      1.4      1.4      1.4      1.3      1.3      1.3      1.3      1.2      1.2      1.1      1.3        1.3        1.3
    Total.....................................................     19.6     19.2     19.0     19.1     19.2     19.1     19.1     19.1     19.2     19.2     19.9     20.5       19.1       19.4
      On-budget...............................................     14.6     14.2     14.0     14.1     14.3     14.2     14.2     14.2     14.3     14.3     15.0     15.6       14.2       14.5
      Off-budget..............................................      5.0      5.0      5.0      5.0      4.9      4.9      4.9      4.9      4.9      4.9      4.9      4.9        4.9        4.9
Outlays:
  Discretionary spending......................................      6.4      7.1      7.0      6.8      6.6      6.4      6.2      6.1      6.0      5.8      5.7      5.5        6.6        6.2
  Mandatory spending..........................................     10.8     11.5     11.5     11.2     11.2     11.2     11.2     11.3     11.4     11.5     11.7     11.7       11.2       11.4
  Offsetting receipts.........................................     -0.9     -0.9     -0.9     -1.0     -1.0     -0.9     -0.9     -0.9     -0.9     -0.9     -0.9     -0.9       -0.9       -0.9
  Net interest................................................      2.0      1.7      1.6      1.6      1.5      1.4      1.3      1.2      1.0      0.9      0.7      0.5        1.5        1.1
    Total.....................................................     18.4     19.4     19.1     18.6     18.4     18.1     17.8     17.7     17.5     17.3     17.2     16.8       18.4       17.8
      On-budget...............................................     14.9     16.0     15.8     15.3     15.2     15.0     14.7     14.6     14.5     14.3     14.2     13.8       15.2       14.7
      Off-budget..............................................      3.4      3.5      3.4      3.3      3.2      3.2      3.1      3.1      3.0      3.0      3.0      3.0        3.2        3.1
Surplus or Deficit (-)........................................      1.3     -0.2     -0.1      0.5      0.8      1.0      1.2      1.4      1.7      1.9      2.7      3.7        0.7        1.6
  On-budget...................................................     -0.3     -1.8     -1.8     -1.2     -0.9     -0.8     -0.6     -0.4     -0.2        *      0.8      1.8       -1.0       -0.2
  Off-budget..................................................      1.6      1.6      1.6      1.7      1.7      1.8      1.8      1.8      1.8      1.9      1.9      1.9        1.7        1.8
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note.--* = between zero and 0.05 percent of GDP.
 
Source: Congressional Budget Office.


                                                                      CBO'S BASELINE PROJECTIONS OF DISCRETIONARY SPENDING
                                                                                    (In billions of dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Actual                                                                                                       Total,     Total,
                                                                  2001     2002     2003     2004     2005     2006     2007     2008     2009     2010     2011     2012   2003-2007  2003-2012
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Budget Authority
  Defense.....................................................      331      348      357      367      376      386      396      406      417      428      439      451      1,881      4,022
  Nondefense..................................................      331      363      376      385      394      404      414      425      436      447      459      470      1,973      4,211
    Total.....................................................      662      711      733      751      770      790      810      831      853      875      898      921      3,854      8,233
Outlays
  Defense.....................................................      306      351      356      363      375      381      387      401      411      422      437      441      1,862      3,974
  Nondefense..................................................      343      381      408      421      433      443      454      465      476      488      500      512      2,159      4,600
    Total.....................................................      649      733      764      784      808      824      841      866      888      910      937      953      4,021      8,575
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Notes.--CBO's baseline projections assume that discretionary spending grows at the rate of inflation after 2002, using the inflators specified in the Balanced Budget and Emergency Deficit
  Control Act of 1985 (the gross domestic product deflator and the employment cost index).
In CBO's projections, discretionary outlays always exceed budget authority because of spending from the Highway Trust Fund and the Airport and Airways Trust Fund, which is subject to
  obligation limitations in appropriation acts. The budget authority for such programs is provided in authorizing legislation and is not considered discretionary. Another reason outlays exceed
  budget authority is that outlays include spending from appropriations provided in previous years.
 
Source: Congressional Budget Office.


              CBO'S CURRENT AND PREVIOUS ECONOMIC PROJECTIONS FOR CALENDAR YEARS  2001 THROUGH 2011
----------------------------------------------------------------------------------------------------------------
                                                                            Forecast         Projected Annual
                                                             Estimated ------------------         Average
                                                                2001                     -----------------------
                                                                          2002     2003    2004-2007   2008-2011
----------------------------------------------------------------------------------------------------------------
Nominal GDP (Billions of Dollars)
  January 2002.............................................    10,193    10,422   11,063   \1\13,639   \2\16,676
  January 2001.............................................    10,446    11,029   11,623   \1\14,100   \2\17,132
Nominal GDP (Percentage change)
  January 2002.............................................       3.2       2.2      6.1         5.4         5.2
  January 2001.............................................       4.7       5.6      5.4         4.9         5.0
Real GDP (Percentage change)
  January 2002.............................................       1.0       0.8      4.1         3.3         3.1
  January 2001.............................................       2.4       3.4      3.3         3.0         3.1
GDP Price Index (Percentage change)
  January 2002.............................................       2.2       1.4      2.0         2.0         2.0
  January 2001.............................................       2.3       2.1      2.0         1.9         1.9
Consumer Price Index\3\ (Percentage change)
  January 2002.............................................       2.9       1.8      2.5         2.5         2.5
  January 2001.............................................       2.8       2.8      2.7         2.5         2.5
Unemployment Rate (Percent)
  January 2002.............................................       4.8       6.1      5.9         5.2         5.2
  January 2001.............................................       4.4       4.5      4.5         4.8         5.2
Three-Month Treasury Bill Rate (Percent)
  January 2002.............................................       3.4       2.2      4.5         4.9         4.9
  January 2001.............................................       4.8       4.9      5.0         4.9         4.9
Ten-Year Treasury Note Rate (Percent)
  January 2002.............................................       5.0       5.0      5.5         5.8         5.8
  January 2001.............................................       4.9       5.3      5.5         5.7         5.8
Tax Bases (Percentage of GDP)
  Corporate book profits
      January 2002.........................................       6.9       6.1      7.0         7.9         8.1
      January 2001.........................................       8.9       8.5      8.4         8.1         8.0
  Wages and salaries
      January 2002.........................................      50.0      50.3     50.1        49.3        48.9
      January 2001.........................................      48.2      48.2     48.2        48.1        48.0
----------------------------------------------------------------------------------------------------------------
Notes.--CBO's January 2001 projections for GDP and its components were based on data from the national income
  and product accounts before the accounts were revised in July 2001.
Percentage changes are year over year.
 
\1\ Level of GDP in 2007.
\2\ Level of GDP in 2011.
\3\ The consumer price index for all urban consumers.
 
Sources: Congressional Budget Office; Department of Commerce, Bureau of Economic Analysis; Department of Labor,
  Bureau of Labor Statistics; Federal Reserve Board.

  
  
  
  
  
  
  
  
  
  
    Chairman Nussle. Let me start with the basics again, and 
just to cover your principal reasons for the decline of the 
projected surpluses, you suggested were, number one, economic 
factors, and that was to the tune of how much?
    Mr. Crippen. Of the 10-year total, it is 40 percent.
    Chairman Nussle. 40 percent.
    Mr. Crippen. For the first year, it is most of it. It is 
$240 billion out of the $300 billion.
    Chairman Nussle. All right. The second reason for increased 
spending and, at least that which you can--because you are not 
factoring into this some of the items Mr. Spratt was talking 
about, many of us know are on the horizon, but you don't take 
those into consideration. Most of that spending was, as I 
recall--and correct me if I am wrong--but the emergencies, the 
war and added security.
    Mr. Crippen. Yes, mostly. There were some increases before 
that, but, yes.
    Chairman Nussle. And finally--go ahead.
    Mr. Crippen. That was about 20 percent of the 10-year 
change.
    Chairman Nussle. So 40 percent for the economy over 10 
years, 20 percent for increased spending over the 10 years, and 
the tax cut would be----
    Mr. Crippen. The rest of it, the 40 or so percent that is 
left.
    Chairman Nussle. According to Mr. Spratt's comments to 
start with, it appears that at least on the House side, the 
Democrats have taken taxes off the table as one of the possible 
solutions, and obviously we have. We have made that very clear. 
In fact, we are very deliberate about taking taxes off the 
table. That's why the taxes are back on the kitchen table and 
not out here on the committee table.
    So having said that, what are our options for solutions? If 
the Republicans say we are not going to repeal the tax cut, and 
in fact we are looking for other ways to stimulate the economy, 
and the Democrats are suggesting that taxes are off the table, 
and we are not going to increase taxes, where do we find a 
solution to getting us back into surpluses in the short term or 
long term?
    Mr. Crippen. Well, in the short term, there aren't many 
places to go. If you define the problem as the budget not being 
balanced, then either you raise revenues or cut spending. In a 
weak economy, of course, most of us would believe that running 
a deficit is not necessarily a bad thing, that the economy 
could probably use a bit of stimulation now, and it may be in 
the pipeline. It may be that we have already turned the corner. 
Nonetheless, deficits aren't inherently evil when it comes 
particularly to a weak economy. In the long run, I would argue, 
what we need to keep our eye on is not so much the balance, 
particularly of any given trust fund, but rather the size of 
the economy, and the commitments we are making for our 
children. For many of these issues, the best way certainly for 
economists to view it is to look at how much of the economy we 
are consuming. In that case, there are only two things you can 
adjust: spending and the size of the economy.
    So, in the short run, there is not much you can do, perhaps 
that you want to do. In the long run, you could grow the 
economy and grow the revenue base in addition to doing other 
things.
    Chairman Nussle. Let me focus then on spending. The 
baseline that you have presented today assumes that the $20 
billion of emergency spending that we approved after September 
11 will continue in the baseline indefinitely. Even though none 
of--well, very little of that, most of it, was not intended to 
be any more than a one-time expense. Could you explain the 
reason why CBO puts that $20 billion into the baseline? I mean, 
if we are looking for places for spending, that may be one of 
the areas that we can focus on.
    Mr. Crippen. It is. There were, of course, two 
appropriations of $20 billion each last year. One was 
appropriated for 2001. The second, as you are referring to 
here, is for 2002. The rules of the road require us to take 
2002 appropriations, including this $20 billion, and simply 
inflate it over the baseline, period. So the $20 billion is 
added by requirement of the way the rules are written.
    I am not sure you would want CBO in the business of saying 
what is or isn't a one-time expenditure, but as you suggest, 
only about $3 billion as I recall, $2.8 billion or something 
like that went to defense in Afghanistan. The rest went to FEMA 
and other agencies, some of it undoubtedly for ongoing 
activation to counter for bioterrorism, perhaps, and other 
things. But some of it, like cleaning up New York City, might 
be for one-time expenditures, so you are absolutely right. You 
want to look at what is in the so-called baseline that you 
would be able to allocate to other things.
    Chairman Nussle. Finally, and there are a number of members 
that have questions, so I will limit mine to the 5 minutes. The 
statutory debt limit comprises both of debt in the private 
sector and the intergovernmental debt, debt held by the public, 
debt held by the government, as is typically said. You 
indicated that the debt is--subject to debt limits, is going to 
be increasing. Which kind of debt is mainly responsible for the 
increases over increasing the debt subject to the limit over 
the past 3 or 4 years, and what does that look like going into 
the future?
    Mr. Crippen. Most of the increase on debt--in fact, all of 
the increase of the past few years--have been due to 
intragovernmental debt, that is debt held by other parts of the 
government; trust funds in particular. Debt held by the public 
has actually gone down over the past four years. So what has 
been increasing has been debt held by government accounts to 
the transfers to trust funds and other Federal accounts. We 
will have to borrow again from the public, if our projections 
are right, for the next year or two at least, small amounts 
hopefully. Then any increase during that time and thereafter 
almost by definition will be in the government accounts the 
debt owed to government accounts will be growing, not the debt 
owed to the public. So it is mostly found in trust funds. The 
Social Security surplus gets translated into Social Security--
or debt held by the Social Security system, which goes into the 
gross debt number, for example.
    Chairman Nussle. So boiling it down, one of the biggest 
challenges we have is to answer the question, are we willing to 
borrow from the public for a short period of time to deal with 
the war, the emergency, the recession, some of our priorities, 
if, in fact, taxes are off the table? And as I said, to make it 
very clear, taxes are off the table. We have been hearing 
rumbling that there is a table where some taxes might still be 
on, but we hear that table evidently doesn't exist over here. 
It will be very interesting to see where that table exists.
    So with that, I will turn it over to my friend, Mr. Spratt.
    Mr. Spratt. Dr. Crippen, on page 2 of your testimony, you 
say that if current policies stay in place, the budget will be 
in deficit for the next 2 years, and by that you mean the 
unified budget?
    Mr. Crippen. I do.
    Mr. Spratt. All accounts of the government included?
    Mr. Crippen. Yes.
    Mr. Spratt. Now, what I call the basic budget, excluding 
Social Security, the main and largest trust fund account, will 
bear a deficit, however, for a number of years, in fact through 
2009, will it not?
    Mr. Crippen. Yes.
    Mr. Spratt. So, for most of the years in your forecast, 
there is an on-budget deficit, and if we----
    Mr. Crippen. Yes.
    Mr. Spratt. Do you know what the consequences are if we 
assume, which I think is practical to assume, that the sunset 
provision in the Tax Act is repealed, what then will be the 
effect? Won't we have on-budget surpluses for the full 12-year 
period you have laid out here?
    Mr. Crippen. I believe that's correct. The numbers aren't 
the most current because the Joint Committee on Taxation hasn't 
reestimated on the basis of our new baseline, but it looks like 
expiring provisions of revenues would add $162 billion or 
thereabouts in 2011 and $268 billion in 2012.
    Mr. Spratt. 162 plus 268?
    Mr. Crippen. [Witness nodded head.]
    Mr. Spratt. So that would put us in on-budget deficit for 
the whole time period through 2012?
    Mr. Crippen. Yes.
    Mr. Spratt. 168 plus 2----
    Mr. Crippen. 68.
    Mr. Spratt. 268.
    Mr. Crippen. There are a few other expiring provisions 
along the way, so it is a small number plus that.
    Mr. Spratt. Do you agree that the on-budget target is an 
important number?
    Mr. Crippen. It is not for me to agree or disagree, 
Congressman. It is up to you and other members of the committee 
to say what your target is. What I keep discussing, I am sure, 
to distraction, is that we need to keep our eye on what I think 
is a different ball. It is not the budget and its balance or 
the trust funds per se. It is the effects we have. It is 
probably a good idea to have a rule of thumb about balance over 
the average of a long term. But whether or not we are in 
deficit this year and whether or not we have a surplus next 
year is much less important than how the economy behaves and 
how we finance the necessary costs of the Federal Government.
    So we said last year, and we will continue to say that if 
we generated surpluses, if we were looking at 3 percent 
economic growth, then it might be useful to have surpluses 
saved by paying down debt held by the public because that 
should help economic growth and therefore the future outlook. 
We also said there are other policies that would help economic 
growth. But right now we are looking at growth that is not 3 
percent a year, at least for the next year or two. So not 
saving--not having surpluses and not saving--shouldn't be 
something we are as concerned about as we would have been if we 
had 3 percent growth.
    Mr. Spratt. Well, my concern is that as I read your 
testimony about dealing with the total surplus, you tend to 
diminish the extent of the problem as I see it, because Social 
Security has to be a major concern. The demographics are 
already in place. It is just a matter of when they unfold.
    Mr. Crippen. What I am suggesting, sir, is that the fact 
that my generation will consume twice as much of the economy as 
we are consuming today just in Federal benefits will occur 
whether or not we have trust funds. That will occur whether or 
not we have balances now or small deficits. That is going to 
occur. What we need to be mindful of is not just the status of 
trust funds and just the balance of the Federal budget, but 
what the effects are on the economy, the obligations----
    Mr. Spratt. We have a different concept going for the trust 
funds. We want to make them a net addition to national savings 
for the next dozen years.
    Mr. Crippen. Right.
    Mr. Spratt. That would have helped the economy. That also 
would have helped the Treasury when the baby boomers begin to 
retire and draw their benefits. The Treasury would have been 
free of debt to the public and much more solvent and able to 
meet those obligations as they came due.
    Mr. Crippen. All I am suggesting is that that policy looked 
a little different, in the short run at least, a year ago than 
it does today. To generate trust fund surpluses, and actually 
buy down debt held by the public, fiscal policy would be 
restrictive. Whether or not that is a result you would want in 
times of weak economic growth or indeed a recession would be a 
question. So all I am suggesting is that we all keep telling 
each other today, that a year has made a difference, and the 
policy that may be most attractive, at least in the short run, 
may well have changed.
    Mr. Spratt. Well, the difference that is made in the on 
budget surplus is this year it is $180 billion in deficit, I 
said surplus. Next year it is $193 billion in deficit; the next 
year it is 141; 2005, 108; 2006, 99. For the next 5 years, we 
have got $100 billion to $200 billion in on-budget surplus 
every year, and that is before any additional spending 
initiatives or tax cuts, and there are more tax cuts coming for 
various reasons, extenders and AMT fixes and things like that 
are bound to come. They are in the agenda. So we have got a 
problem. Wouldn't you agree?
    Mr. Crippen. It depends on how you define the problem. I am 
not sure. Clearly, the fiscal condition has deteriorated. I 
mean, $4 trillion is a lot, even over a number of years. But 
this morning I was reminded as I was listening to some of the 
questions, that three years ago or four years ago, we wouldn't 
be quite as distressed if we had been looking at a small 
deficit in the unified budget and the prospect of surpluses 
before too long.
    Mr. Spratt. But keep in mind that we are 3 years further 
along toward the day of judgment, the day of reckoning when the 
baby boomer retire. Let me put it a different way by going back 
to your testimony last year.
    Mr. Crippen. Do you have to?
    Mr. Spratt. Last year you foresaw the possibility that we 
could repay, under current policies, all the debt held by the 
public that was available for redemption by the year 2006 if we 
simply followed current policies, we could repay all debt held 
by the public by 2006. This year in your testimony, you say in 
the whole time frame we are looking at, we won't be able to pay 
off that much debt.
    Mr. Crippen. That's right.
    Mr. Spratt. Last year you said we won't need to have an 
increase, a hike in the statutory debt ceiling until 2009. Now 
you acknowledge we will have to do it in about 2 months. Those 
are real measures of substantial change, but one thing struck 
me when I compared the two testimonies. Last year, in 2008--
looking at a chart that you had, Table 1-4, page 15--in last 
year's budget and economic outlook. By 2008, CBO projected that 
we could either pay or provide for payment of all the 
outstanding debt held by the public. We might not be able to 
redeem it, but we could certainly provide the payment. By 2008, 
the year the baby boomers began to retire, the demographics of 
the country changed dramatically.
    This year you project that in 2008, we will still have $2.8 
trillion debt. That is before factoring in any of these 
additional likely further actions. We will only pay down about 
$500 billion of that debt. We will still be right at $3 
trillion as the baby boomers retire.
    Mr. Crippen. Right.
    Mr. Spratt. Well, that makes it harder to bear the burden 
of the demographics and the baby boomers retirement, does it 
not?
    Mr. Crippen. It may or it may not. What I have been trying 
to convince you of, in part, is that it depends on what we do--
or how the economy performs between now and then--more than it 
depends upon the absolute level of debt. Certainly the lower 
the debt, the easier it will be for the government to borrow. 
But as that last chart I introduced showed you, even if we had 
surpluses 2 percent greater than we have in our baseline, which 
I think would suggest on-budget surpluses the entire time, you 
would soon reach an unsustainable level of debt anyway. So it 
is not just debt that we need to be looking at. It is a larger 
issue that we are about to run into.
    Mr. Spratt. It is a big problem that has more than one 
solution. We had one solution in place. There was bipartisan 
agreement on it, and we virtually dashed all hope that that can 
be affected under the budget situation we have before us now, I 
am afraid. Thank you for your testimony.
    Chairman Nussle. Mr. Sununu.
    Mr. Sununu. Thank you, Mr. Chairman. Welcome, Mr. Crippen. 
I think it is important to remember--as I am sure that you do--
that what we are talking about today, for the most part, are 
projections, 10-year projections, economic projections, which 
are very challenging and very difficult and we see how quickly 
the economic situation in the country can change. As Mr. Spratt 
has pointed out in detail--not quite exhaustive detail, but 
substantive detail--these economic projections have really 
changed. We see deficits in the foreseeable future. We did have 
projections of surpluses.
    At the same time, though, I can't help but look back a year 
to a lot of the discussion that we heard as we were conducting 
hearings, preparing for the budget resolution then, and then 
what we heard, for the most part, from the minority was a lot 
of criticism that the projected surpluses were nothing but a 
fiction. They were an unrealistic projection. They weren't 
real. They weren't material. While I am as concerned as anyone 
about the current set of forecasts, I hope that the irony of 
lamenting the disappearance of something you never believed in 
is not lost on my colleagues.
    I am encouraged as well to hear a pretty firm commitment 
from the other side that increasing taxes is not an option. I 
think most people in this country would agree, in the middle of 
a recession, very uncertain economic times and certainly 
uncertain times in the international front, it is probably not 
the best of time to be raising taxes on the American people. 
What that means is the baseline is the revenue baseline is what 
it is. We make the best projection we can. We trust on the 
expertise of you and others. We put together that revenue 
baseline, and if we want to have a material effect on the 
surpluses or the deficits projected for the coming fiscal year 
or the coming 5 fiscal years or the coming decade, there are 
really only two things that I can see that will affect it. One 
is enacting policies that result in a higher level of economic 
growth, and therefore a higher level of revenue collections. Or 
enacting policies that control, modify or limit or the amount 
that the Federal Government is spending.
    Now, we can lament the change in our economic position all 
we want. We can wring our hands about legislation that has been 
signed into law that has established the revenue baseline, but 
unless you are willing to step forward and say let us repeal 
that tax cut, let us increase taxes, let us raise taxes on some 
segment of the economy to increase the revenue baseline, you 
have got just two options, policies that increase economic 
growth and increase revenue collection by raising the economic 
growth rate or policies to control the level of spending, or 
cut spending. We certainly haven't heard any proposals of that 
nature from the minority side today or in the last few months.
    I would like you to address two points. One in each of 
those areas. First with regard to economic growth. To the best 
of the assessment of--you know, best of your ability and the 
assessment of the people that are working with you, has there 
been a benefit, an effect, an economic effect to the Tax Relief 
Act that was signed into law last year? And on the spending 
side, is there a reason that you have not looked at fiscal year 
2002 spending to back out those appropriations that were 
effectively, or at least presented as one-time distributions, 
emergency spending, things that were directly--appropriations 
that were made directly to deal with recovery or reconstruction 
in New York or Washington, et cetera, that probably shouldn't 
be part of a baseline that is looking out 10 years? If you 
could address those two points, I would be grateful.
    Mr. Crippen. Let me start with the last point first. The 
rules of the road, as I call them, by which we have to abide 
say that we take the total budgetary resources for 2002, which 
include the $20 billion in supplemental appropriations, and 
simply inflate them over the next 10 years as the best proxy 
for an operations policy. As I said to the Chairman a few 
minutes ago, there may well be things in there, as you suggest, 
that won't bear repeating and that you might want to use for 
something else or not spend at all. But I would also say, as I 
did earlier, that I am not sure you would want us in the 
business of saying this is one time and this isn't. Some things 
are clearer than others, but in the main, it is a judgment call 
that we would be uncomfortable making.
    Mr. Sununu. Why would you be uncomfortable at least 
providing your estimate or your assessment of what would be 
most appropriately considered to be occurring?
    Mr. Crippen. I can give you today the breakdown of the $20 
billion supplemental, for example, that rules require we put in 
the baseline, and there are things there that may well strike 
you as being or that should be one time, but it shows up in 
agency budgets. FEMA, for example, its baseline is bigger 
because of the New York City cleanup expenditures. So you may 
well want to take some of those out or spend them otherwise, 
but we are not allowed--at least by the rules, and I would 
suggest we would be uncomfortable trying--to say this is one 
time and this isn't. But you certainly can, and we can clearly 
give you a list of where the $20 billion went and for what.
    Mr. Sununu. And the economic impact of the Tax Relief Act 
that was signed into law?
    Mr. Crippen. Well, we haven't examined it since last July, 
and we do not--to the frustration of some of you--try to look 
at the immediate impact of legislation on the economy in our 
initial scoring of bills. So regarding the tax bill itself, we 
didn't do an assessment at the time it passed to say whether it 
would grow the economy or not; but subsequently, we did do a 
qualitative statement which appeared in our August report, that 
suggesting there are some negatives to the tax bill in terms of 
the economy and some positives and that on net it probably has 
a slight positive effect on economic growth.
    Mr. Sununu. On Page 5 of your report, you say that the tax 
cuts enacted in June prevented consumption from slowing more 
than might have happened otherwise. You certainly stick by that 
statement?
    Mr. Crippen. Absolutely.
    Mr. Sununu. Thank you.
    Chairman Nussle. Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman. Mr. Crippen, I have a 
couple of questions for you. First of all, I want to say to my 
colleague from New Hampshire, I think if anything, we have 
found out that our theory has moved from the fiction side of 
the bookstore to the nonfiction side of the bookstore, because 
I think the numbers bear out that in fact what we were saying, 
and what even CBO was saying last year was that these 
projections were highly speculative, and may not turn out. You 
had a graph last year that was the best graph I think you all 
put out. You have a revised one now that is the one that looks 
like a--I think someone described it as a fish fin or something 
last year. It is--I think it is this graph right here that----
    Mr. Crippen. Well, we like to call it a fan, but----
    Mr. Bentsen. A fan, whatever, all over the map, and that is 
where we have ended up. I mean, it looks to me like we have had 
an increase in interest costs over the 10-year projection of 
$600 billion, an increase of--a reduction in the surplus of 
nearly a trillion dollars. Now, I remember meeting with your 
staff early last year and asking the question about what the 
impact would be if we had a severe recession, and if I recall 
correctly, I was told, well, it wouldn't be more than a hundred 
or $200 billion, because by the time we had the upswing, that 
that would be made up, but this is--$900 billion is a little 
bit more than a hundred or $200 billion. So we clearly missed 
on that. I realize it is hard to make these projections.
    Let me ask you, in your baseline assumptions, does that 
include any funding for prescription drug program like that 
that was discussed, even in the Republican budget last year? 
Does it include the $75 billion additional funding for 
agriculture that was proposed in the current fiscal year's 
budget resolution? Does it include the trillion dollars for the 
President's Social Security privatization? Does it include 
the--I think I know the answer to this last one. Does it 
include the 9 percent that we read in real--or 9 percent plus-
up in spending that the President is supposed to propose in his 
budget when he sends it up here at the end of this month or 
early next month? Are any of those in your baseline?
    Mr. Crippen. None of them that you cite.
    Mr. Bentsen. So it is fair to say that the baseline will 
have to be adjusted, assuming that any of those issues are 
enacted, including things that even our friends on the other 
side of the aisle have proposed. If we are going to do a 
prescription drug program, we are going to have to figure out 
where to put that in. If we are going to spend $975 billion in 
the new farm bill, pass it in the House, then we are going to 
have to figure out where to put that in.
    Let me ask you another question, and you can answer this 
for the record. But I would be interested to know what the 
economic value is of borrowing money at 4.9 percent over 10 
years, or whatever the 10-year Treasury is today, and putting 
that back in the form of tax cuts. Can your economists tell me 
do we get a real bang for that or is there some drag associated 
with that? You can provide that for the record.
    Mr. Crippen. OK.
    [The information referred to follows:]

Response to Congressman Bentsen's Question Concerning Deficit-Financed 
                                Tax Cuts

    Tax cuts affect the economy in two ways. They can stimulate the 
economy in the short run by encouraging consumers and businesses to 
spend more. Tax cuts can also affect incentives to work, invest, and 
save, and thus affect the long-term productive potential of the 
economy. In both cases, the structure of the tax cut is crucial: in 
particular, which tax is changed, how it affects marginal taxes on work 
and saving, and how the tax cut is financed.
    When there are unused resources in the economy (as there are today 
or in any recession), a deficit-financed tax cut can boost economic 
growth in the short run by encouraging spending. However, different 
kinds of tax cuts can have varying effects: cuts that increase workers' 
take-home pay probably deliver the greatest bang for the buck in terms 
of short-run stimulus.\1\
---------------------------------------------------------------------------
    \1\ For more details, see Congressional Budget Office, Economic 
Stimulus: Evaluating Proposed Changes in Tax Policy (January 2002).
---------------------------------------------------------------------------
    The impact of any short-run stimulus is going to depend in part on 
the permanence of the tax cut as well as on what people believe it 
implies for future budget surpluses or deficits. Other things being 
equal, permanent cuts in personal income taxes are more likely to boost 
people's consumption than are temporary ones, whereas temporary cuts in 
some types of business investment taxes can be more stimulative than 
permanent ones in the short run. The effect of the tax cut on the 
budget is also relevant because smaller budget surpluses (or larger 
deficits) in the future can increase long-term interest rates today, 
which can reduce spending for investment on new plants and equipment 
and cause the value of the dollar to appreciate, reducing the demand 
for net exports.
    The Congressional Budget Office has examined the short-run effects 
of the Economic Growth and Tax Relief Reconciliation Act of 2001 using 
simulations of various macroeconomic models. Although the simulations 
indicated that the reduction in future surpluses could increase long-
term interest rates and slow the growth of investment and net exports, 
those negative effects were not large enough to offset the short-run 
positive economic effects of the tax cut. The simulations do not 
support the view that the tax cut has worsened the recession.
    Even though long-term interest rates have remained firm relative to 
short-term interest rates during the current downturn, the decline in 
projected surpluses may not have played much of a role. Most observers 
recognized that the large budget surpluses projected last year were 
based on the assumption of a continuation of current policies, and thus 
the projected surpluses would probably not materialize because policies 
would be changed. Therefore, the substantial reduction in the level of 
those projected surpluses may not have had a large impact on the 
markets.
    Moreover, several other factors could be responsible for the 
failure of long-term rates to decline in this recession.\2\ For 
example, the markets may be looking beyond the current slowdown and 
recognizing that short-term interest rates will rise as the economy 
recovers. In addition, businesses and financial markets may believe 
that the prospects for strong productivity growth in the United States 
are still intact, which would work to keep real long-term rates 
relatively high. Moreover, foreign long-term interest rates have fallen 
by only a little. The markets may also be expecting inflation to pick 
up because of the easy monetary policy put in place by the Federal 
Reserve in response to the aftermath of the terrorist attacks and to 
the recession. And last, there may be a recognition that long-term 
rates are already quite close to their lows of the early 1960's, when 
productivity growth and inflation rates were near current levels.
---------------------------------------------------------------------------
    \2\ See Alan Greenspan, ``The Economy'' (speech given to the Bay 
Area Council Conference, San Francisco, Calif., January 11, 2002).
---------------------------------------------------------------------------
    Aside from any short-run effects on demand, tax cuts that reduce 
marginal tax rates can increase incentives for people to work and save, 
and thus they can have longlasting effects on the economy's productive 
capacity.\3\ The long-run effects of a tax cut ultimately depend on how 
it is financed. A tax cut cannot be financed by borrowing forever; at 
some point, spending must be cut or other taxes raised to cover the 
additional interest costs on the debt. If a tax cut displaces 
government consumption, it could boost supply in the long run. However, 
if it is financed by simply raising marginal tax rates in the future, 
it could have an adverse effect on the economy's productive capacity in 
the long run.
---------------------------------------------------------------------------
    \3\ For more details, see Congressional Budget Office, The Budget 
and Economic Outlook: An Update (August 2001), pp. 34-35.

    Mr. Bentsen. What I am particularly concerned about, and 
this is on page 6 of your testimony, I think you are as well, I 
know we have some flexibility in our economic philosophies from 
when we are in surplus and deficit. We can be Monetarist in 
surplus times and Keynesian during deficit times. What I am 
particularly concerned about, and I agree with you, is you say 
that taking action sooner rather than later to address long-
term budgetary pressures can make a significant difference.
    What bothers me a great deal about our budget outlook now--
and this is what a number of us were saying last year before we 
went on and bet the farm on these 10-year projections--is while 
we may go back to achieving a unified budget surplus and even 
an on-budget surplus some time at the end of the decade but 
then that we will have already crossed over into the retirement 
of the baby boomers and then we will be 7 short years away from 
when we start drawing down on the trust funds for Social 
Security and Medicare. Then, on top of that, that assumes that 
we will repeal the tax cut that was passed last year.
    Now, if delaying--and I do agree to some extent in the 
middle of a recession delaying a tax cut is countercyclical. 
Repealing the tax cut in 2011 certainly would have some 
countercyclical effect, I would imagine, on the economy going 
forward. Are we setting ourselves up for sort of the perfect 
storm, if you will? The fact that we had the opportunity to pay 
down debt, position ourselves for these long-term, looming 
liabilities which are upon--if they are not on our doorstep, 
they are out on the sidewalk at the front yard, and are we--I 
mean, how much have we set ourselves back rather than setting 
ourselves forward taking action sooner rather than later?
    Mr. Crippen. Perhaps the best way for me to answer that is 
to say that certainly for this year and next--that is, 2002 and 
2003--there is not much that has been done that wasn't 
inevitable. Eighteen months ago or so, the cover of our summer 
report tried to show the difference in the outlooks from 1997 
in which deficits were still forecast to the surpluses that we 
didn't foresee then but obviously developed. While there was 
certainly a legislative piece to it, the actions that you all 
took back then, much of the difference was due to the economy, 
the unforeseen growth in productivity and real economic growth. 
So the short version is, what the economy gives the economy can 
take away, and that is precisely what we are seeing certainly 
in the next year or two.
    Mr. Bentsen. My time is up, but if you would answer this 
quickly. Didn't last year, when we raised questions about the 
economy and we had indications that we were heading into a 
recession or at least a soft landing, we were led to believe--I 
think by CBO and others--that it would not be a $900 billion 
event, but today it is a $900 billion event. How did we miss so 
badly?
    Mr. Crippen. That is certainly a fair comment. In our 
analysis last year at this time, we included a chapter on 
uncertainty, which explained what a recession might do to the 
outlook, but it was certainly much less than this recession 
did. There are several reasons for it. One is that the current 
recession, while it is not deeper than the recession of 1990 
and 1991, it will last longer. We have also had a couple of 
changes since then in the way the economy produces revenues 
relative to economic growth, which have reduced revenues.
    We thought by modeling the current recession and the 
analysis on the 1991-1992 recession, we had something that was 
representative. But that recession doesn't look like the 
recession today, and a couple of other things have changed. So 
a combination of both the economy and the changes in what we 
call technical factors have led us to more of a loss of revenue 
than we thought a simple recession would have in 1991 or 1992.
    Mr. Bentsen. Thank you, Mr. Chairman.
    Chairman Nussle. Mr. Gutknecht.
    Mr. Gutknecht. Thank you, Mr. Chairman.
    I appreciate your testimony, and I want to come back to a 
couple of key points because I think I must tell you I am 
frustrated by this sort of roller coaster ride we have been on.
    I have been on this committee I think 6 or 7 years. Charlie 
is one of the only members that has been on this committee 
longer than I have. We have sort of gone through this annual 
and sometimes a semiannual and sometimes quarterly adjustment; 
and, you know, it strikes me that we are going to have to come 
up with better models. These wide fluctuations really make it 
very difficult for us not only to look at 10-year projections, 
which I happen to believe are probably not good ideas. Frankly, 
I think we ought to look at 5-year projections because we see 
we are off in the 6-month time span, let alone 10 years.
    I want to get back to some of the assumptions that you 
make, because I think in many respects the assumptions are even 
more important or at least as important as the conclusions.
    You are assuming, for example, that economic growth over 
the entire fiscal year which we are currently in will be eight-
tenths of 1 percent, is that correct?
    Mr. Crippen. Right.
    Mr. Gutknecht. What has it been so far this fiscal year? 
The question from my colleague here was fiscal year or calendar 
year. Are we going by fiscal year or calendar years here?
    Mr. Crippen. We have tables for both, but the number you 
cited is for the fiscal year. John tells me we don't have any 
numbers yet on the current year.
    Mr. Gutknecht. The current calendar year you don't have 
numbers on. I would assume you have numbers for the fiscal year 
which began October 1st.
    Mr. Crippen. We don't have the fourth quarter. We expect 
that on the 30th we will have the preliminary numbers for the 
fourth quarter. So we don't yet have it, but we will a few 
days.
    Mr. Gutknecht. That makes it even more difficult, doesn't 
it?
    Let me go back to another question then. We were told late 
this fall that it was believed by the President's Council of 
Economic Advisors that the recession began about--on or about 
March 15. At least that is the date that we were given. When 
did you find out that we were in a recession?
    Mr. Crippen. Well, probably the same time you did in the 
sense that it is officially designated by the National Bureau 
of Economic Research (NBER). When they said March, everyone 
accepted the definition. Certainly by the middle of last year 
we saw some of the weakening in the economy, but at that point 
we and others thought that the weakening wouldn't turn into a 
recession. We were wrong. It did. And we may see some evidence 
in this fourth quarter report of whether or not it has yet 
bottomed out. Most of the numbers we are getting now are 
relatively positive.
    Last January at this time, clearly we thought 3 percent 
growth was possible for the calendar year. By July it was 
obvious that 3 percent wasn't possible, but it didn't look like 
zero was going to be it either, and we were just wrong. The 
economy went south more than we expected.
    Mr. Gutknecht. Your original assumptions for this fiscal 
year were what for economic growth?
    Mr. Crippen. Around 3 percent.
    Mr. Gutknecht. So a 2.2 percent drop, just using--making it 
easy, simple subtraction has cost us in revenue how many 
dollars?
    Mr. Crippen. Well, over the course of the 10 years?
    Mr. Gutknecht. Over the course of this year. I am not 
concerned about 10 years. I am concerned about what is going on 
this year and what will happen in fiscal year 2003.
    Mr. Crippen. $150 billion in revenues.
    Mr. Gutknecht. In revenue loss.
    OK. Well, I guess what I want to get to is you go forward. 
I am concerned, as the Chairman mentioned, that we have 
automatically built into the baseline--I believe that number is 
actually larger. You said $20 billion--that was what we 
believed and I still believe--is emergency spending--is built 
into the baseline for the next 10 years?
    Mr. Crippen. Right.
    Mr. Gutknecht. Is it 20 or is it 30?
    Mr. Crippen. Twenty billion dollars is the amount of the 
supplemental that was described and put in the defense 
appropriation bill--I believe in the last days of the 
Congress--and that was what was described as being emergency, 
mostly one time. Only about $2.8 billion of the $20 billion 
went to defense for the war in Afghanistan. Much of the rest of 
it went to domestic agencies--HHS on bioterrorism, FEMA for New 
York cleanup. As I said to Mr. Sununu, we had a list of where 
that $20 billion went.
    Now there certainly may be one-time expenditures in the 
appropriation bills that occurred prior to that. We are 
required to take the 2002 total, including the supplemental 
appropriations, and just inflate it.
    Mr. Gutknecht. That is the other factor I want to get at. 
What are you assuming for inflation over the next 10 years? I 
do want to come back to the 10-year projection now. What are 
you assuming for the inflation rate and how much are you 
assuming the baseline Federal Government budget will grow over 
the next 10 years?
    Mr. Crippen. There are two inflation factors that get used, 
one of which is for employment. There is something called the 
Employment Cost Index, ECI, which I think is about 3.5 percent 
over the next 10 years. Then, for the rest of the government, 
there is the GDP price deflator, which is 2 percent or so over 
the 10 years. So call it 2.5 percent, which is the inflation 
factor CBO assumes for the next 10 years.
    For discretionary spending appropriated accounts, we 
believe the economy will grow faster than just that inflation 
rate. But if you add more spending now, of course you will have 
boosted the base, and it could grow faster than the economy.
    Mr. Gutknecht. So the base is going to grow somewhere 
between 2 and a half and 3 percent. You are only assuming that 
that is roughly the inflation rate.
    Mr. Crippen. Right.
    Mr. Gutknecht. Thank you.
    Chairman Nussle. Mr. Clement.
    Mr. Clement. Thank you, Mr. Chairman.
    Dr. Crippen, I think you have been very forthright today, 
but it is still discouraging to hear what you have had to say.
    I heard the Chairman speak earlier about the world has 
changed, and it definitely has changed in a lot of ways. And I 
know the Chairman commented also about the tax cut, that, you 
know, we need something. We have to do--to get a shot in the 
arm to get this economy moving again.
    Now, I see the Bush administration doing a good job on 
combating terrorism in the world. I give them high marks. But I 
can't give them high marks on the managing and handling of the 
economy because I just don't think they have given the same 
weight to managing the economy as they are combating terrorism, 
which disturbs me greatly.
    Then I see what has happened with jobs and disappearing--I 
see the people losing their health coverage. I see people 
suffering a lot of pain now. But I don't see a plan. I know 
some comments have been made about some legislation yet to be 
passed by the United States Senate.
    But I have to ask you--and knowing that I don't like the 
so-called 10-year projections either because I don't think we 
should ever consider anything more than 5 years. Ten years is 
just out of the question with all the variables and all the 
forces at work and what is happening in this country and is 
happening in other countries and how other countries impact 
America and how America impacts other countries.
    What are you expecting next year? I know we have talked 
about that our projections are wrong for now, you know, and we 
are way off what we thought the surpluses were going to be and 
going back into a deficit situation looks like we are going to 
have deficits for the rest of the Bush administration. But what 
do you expect for next year?
    Mr. Crippen. As far as the economy goes, we anticipate that 
if we haven't already reached the bottom of the recession we 
will soon, certainly in the first quarter of calendar year 
2002. As one of your colleagues just pointed out, we are 
assuming about 0.8 percent real growth for the current fiscal 
year we are in; for the next year, 2003, we assume that real 
growth will bounce back pretty considerably. But over the next 
couple of years, we will certainly have unified deficits. We 
think that, without any further programmatic changes in 
spending, we will have a small deficit for 2003.
    If there are other actions taken by this Congress, which 
are entirely likely, that number could grow some. But my guess 
is it is going to be somewhere in the neighborhood of 50 to 
$100 billion when all is said and done. So the economy will be 
coming back in our view and in the view of a lot of other 
forecasters, for whatever that is worth; and the deficit will 
be probably in the range of $50 billion to $100 billion for 
2003.
    Mr. Clement. Dr. Crippen, you and I know Democrats and 
Republicans alike are not going to raise taxes in this 
recession. It is not going to happen. It is off the table. I 
would also like to think the Democrats and Republicans alike 
would consider all the other options.
    From my discussions and the meetings I have been in and 
from a number of people I have talked to, I have to agree with 
you--or I think you said this a while ago--that this particular 
recession we are going to come out of it a lot slower than we 
did in 1991, 1992. But I am not so sure I am hearing that from 
the Bush administration. That seems to think we are going to 
turn the corner within the next few months. Which is true?
    Mr. Crippen. Well, we will soon see what the administration 
has to say when they present you with their budget on February 
4. They may be slightly more optimistic than we are in the 
short run.
    My guess is we won't be all that much different on 
economics certainly in the 5 or 10-year framework. But 
economists are, among other things, not very good at calling 
turning points in the economy. Whether it was the downturn we 
didn't foresee a year ago or when we hit the bottom and start 
back up, it will have happened before we know about it. So it 
may have happened in December. It may happen in March. My guess 
is earlier rather than later.
    But how quickly we grow, which is the point you have just 
made, I think is in question because of the nature of this 
recession. Because it was a dearth of capital spending that 
started it, it is going to take real opportunities for capital 
investment to climb again.
    Consumers have been carrying their load pretty much all 
along. The increase in consumer spending dropped from 5 percent 
over the past couple of years to a 2 and a half percent 
increase last year, but it still increased. So the primary 
thing that dropped off was business capital investment and 
inventories. Until those start rebuilding, we are not going to 
recover quickly, but we will recover.
    Mr. Clement. Thank you, Mr. Chairman.
    Chairman Nussle. Thank you.
    Mr. Thornberry.
    Mr. Thornberry. Thank you, Mr. Chairman.
    Mr. Director, as I think about the roller coaster of 
projections that Mr. Gutknecht talked about, I am reminded how 
much your job is more of an art than a science; and it is just 
intriguing to think what you may be presenting to us next year.
    I guess I want to understand something a little better that 
you have mentioned twice. I think I understand most of the 
reasons you have here for changes between your last 
projections, but I come to this line that talks about technical 
changes, and it talks about that, in a 10-year period, the 
surpluses reduced by $660 billion, most of that is because of 
revenue. In your testimony you said that something about 
revenue collections is lower than the level of economic growth 
would indicate. So it is telling me something strange is going 
on.
    Something, as I think you said, caused you to change your 
models; and it seems to me we ought to understand that. If 
economic growth is the key to solving our population issues, 
what is happening and what is it that causes the revenue growth 
to be even lower than the economic situation would indicate?
    Mr. Crippen. There are several things specifically in this 
forecast that I can note for you. One is, and it is clearly 
related to economics, the amount of capital gains realizations, 
which in turn, of course, drive capital gains tax collections. 
People may have a lot of capital gains on paper, but until they 
actually realize them, they don't incur any tax liability. When 
people actually realize capital gains is something we haven't 
been able to model very well.
    Mr. Thornberry. So they are holding on to things.
    Mr. Crippen. They can be holding on to things or not.
    Mr. Thornberry. Maybe that is a psychological issue of 
confidence to some degree.
    Mr. Crippen. Could be. Part of the surpluses that surprised 
us came from the fact that people were realizing capital gains 
faster than we expected they would. Given the level of economic 
performance, realizations of capital gains were unexpectedly 
high. Now, realizations are unexpectedly low, given the current 
state of the economy. That doesn't mean they don't have accrued 
gains, however, and they may later begin realizing them and 
paying taxes.
    Another thing, as I suggested in the testimony, is that for 
any given level of the economy, say it is a 3 percent rate of 
growth, our models tell us roughly what we ought to expect for 
revenue growth, and they are pretty good on that score. But if 
you look at month-to-month withholding, for example, on income, 
at the moment it is running a little behind what our models 
suggest should be happening, which may mean that our income 
measures are bad.
    There are a lot of revisions that occur in the data we get 
on income, for example. At the moment clearly the collections 
are below what we would expect given what we think incomes are. 
So that ends up being classified as a technical adjustment. We 
assume, because we don't know better, that those technical 
adjustments will carry forward.
    Then, sometimes we get revised data. We can actually say 
this unknown that we called a technical last year we now know. 
We figured it out, and we can put it into the models in a way 
that shows the adjustment was really economic. So these 
adjustments are related in some way or another to the economy.
    But we are also saying here that there are things going on 
that we don't fully understand at the moment. Those things are 
reducing revenues to well below where we would have expected 
them to be. At the moment, because we don't know better, we 
can't fathom why exactly this is happening, but we still carry 
that technical adjustment forward. Am I making any sense?
    Mr. Thornberry. You are coming as close as you probably can 
with me----
    Mr. Crippen. Or me.
    Mr. Thornberry.--to making sense.
    It does get back, to some extent, that there is a lot we 
don't know. I guess one could theorize all sorts of things. 
Maybe people who hold capital assets are expecting a lower 
capital gains in the future and--their expectations of what we 
do may play into it.
    Let me ask you about one other issue. Mr. Spratt talked a 
lot about the on-budget surplus. I was kind of interested in an 
editorial over the break in the Wall Street Journal of one of 
our colleagues who suggested that what we also ought to focus 
on--with regard to the debt ceiling is the on-budget debt, if 
you will--the debt that we borrow from the public, if that is 
really what ought to be subject to the debt ceiling rather than 
all of these intergovernmental transfers. Is there any economic 
pros and cons or light that you can shed on that proposal that 
it would matter one way or another?
    Mr. Crippen. Certainly economists believe that the debt 
held by the public is the most important because it is the 
exchange between the government and the private sector. How 
much the government is going to borrow from our capital 
markets, from people, is what counts more than how much one 
part of the government is lending to or borrowing from another. 
In that regard, a debt ceiling based on debt held by the public 
would probably make more sense.
    The debt ceiling, in my view, was enacted as a way to 
attempt to control government spending. Having 
intragovernmental transfers and lending money from one part of 
the government to another may or may not help you in that 
regard. But limiting debt held by the public certainly does. 
Because if you can't borrow, you can't spend what you don't 
have. Whether or not you can't borrow in between government 
accounts if you don't have the tax revenue.
    Mr. Thornberry. Thank you.
    Chairman Nussle. Mr. Capuano for 30 minutes.
    Mr. Capuano. Thank you, Mr. Chairman.
    Chairman Nussle. I will give you five. When you asked for 
30, I just wanted to be respectful. Five minutes.
    Mr. Capuano. First of all, Mr. Crippen, thank you for 
coming. I think you do a great job with the limitations of all 
economists. I understand that, and I think you do a fantastic 
job, and so does your staff.
    Before I go, I do want to make sure I understand some of 
the things in your prepared statement today. I would like to 
start with the labor statistics. It is my understanding that 
the labor force is about 135 million people, fair number?
    Mr. Crippen. Sounds right.
    Mr. Capuano. So that a 4.8 percent unemployment rate would 
actually mean 6,480,000 people out of work.
    Mr. Crippen. OK.
    Mr. Capuano. That means a lot more to me than 4.8 percent, 
because that is more than the entire population of the State of 
Massachusetts. It is also more than the entire population of 38 
states. I think the number should be on a footnote somewhere.
    The 6.1 percent that you are projecting for this year, 
which I am sure will be in the ballpark of everybody--I know 
some people differ here and there, but they will be all in the 
same ballpark--is an increase over the current year's number of 
1,755,000 people. That is an increase. That is more than the 
population of 13 states. It is the entire population of the 
State of New Mexico or the entire population of the State of 
Virginia. Everybody--man, woman and child. I think those 
numbers need to have absolute numbers put to them to make them 
real. They are faces, they are not percentages. That is more of 
a footnote than anything else.
    On table 2--I am pretty sure I am reading this right, but I 
want to make sure. As I read this, through 2009 for the next 8 
fiscal years, we will be using the money currently paid by all 
of our people currently paying FICA taxes, Social Security 
taxes, that everybody who pays them thinks it is going to 
Social Security, that is the money we will be taking to 
balance--well, actually to reduce, because we will still have a 
deficit in two of those years on the remainder of those--to 
balance the budget. Am I reading that correctly?
    Mr. Crippen. You are.
    Mr. Capuano. So we are doing exactly what virtually every 
Member of this Congress has said we don't want to do since I 
have been here, which is now 3 and a half years. So I want to 
make sure I know that.
    I have to go back to some of the original comments. I was 
under the impression there was a difference between some of the 
statistics you gave as economic changes versus technical 
changes. Yet during some of this discussion they were lumped 
together as all economic. I want to make sure they are not all 
economic.
    Economic and technical, many of the technical changes, 
correct me if I am wrong, would have occurred or could have 
occurred regardless of the economic changes. Is that accurate?
    Mr. Crippen. Could have, yes. They are related to economic 
changes, but----
    Mr. Capuano. But if they were economic changes they would 
have been put in the economic----
    Mr. Crippen. Capital gains realizations, for example.
    Mr. Capuano. So the economic impact of your changes is 
really 23 percent, not 40 percent.
    Mr. Crippen. Yes.
    Mr. Capuano. Otherwise, I would have thought----
    Mr. Crippen. Pure economic, sure.
    Mr. Capuano. I tried to extrapolate some of the debt which 
you didn't have for some of the tables. But all that 
information is here, it just wasn't in one place.
    As I read it, debt service has now increased by $562 
billion versus the legislative changes of that 385, give or 
take, is relative to the tax cut alone. $232 billion for the 
economic changes, another $165 billion for the technical 
changes, for a total increase of debt service alone of $959 
billion over the next 10 years.
    Mr. Crippen. Right.
    Mr. Capuano. Which is a little short of 25 percent of the 
total exchange in--I think that is an amazing statement. That 
by doing tax cuts, by doing additional spending plus the 
economy, the economy certainly has something to do with it, we 
have now increased what we are going to pay out in debt service 
to people. I think that has to be a very clear statement to 
people, especially since last year we were all thumping 
ourselves in the chest saying what a great job we were doing 
reducing the debt, and we did, but we are now significantly 
increasing it.
    I guess really there are now too many questions. That is 
why I was joking with the Chairman earlier about 30 minutes.
    Some of this stuff to me--I also made the mistake of 
pulling down one of your other reports that was published in 
January relative to the economic stimulus. I want to read one 
line, because for me, certainly I am concerned. I am a 
politician like everybody else. I will be talking about what 
happened and how we got here. We will all be doing that. But I 
am more interested in what do we do to get out of it.
    One of the major debates is, do we have another stimulus 
package? Partially one of the debates is with the existing one. 
But are we going to have another one?
    I really recommend to everybody on this committee to, when 
they read your report, just put out on this thing, are the 
stimulus packages that are currently on the table, and on page 
3 of that report, one sentence, and I will read it, it 
concludes that most of the tax cuts that the report analyzes, 
which are most of the major ones on the table now, are unlikely 
to generate large first-year increases in gross domestic 
product. Which to me means virtually worthless which if your 
purpose is to stimulate the economy.
    Of the two that you say might have a large impact, if I 
read them correctly, you say both of them are highly 
speculative as to whether they will have a change. Is that an 
accurate reading of this report?
    Mr. Crippen. And difficult to implement in some cases.
    Mr. Capuano. At another time because my time is out, there 
are so many questions here I look forward to how the OMB 
director and others are going to suggest we get out of it 
because there is no one way. I think that is where the debate 
shall come and not necessarily with you.
    I want to finish where I started. I want to thank you for 
providing this information. It really does help. I want to 
thank you also for maintaining what is professionalism and 
neutrality in a place that it is difficult to do. So thank you 
for that.
    Chairman Nussle. The gentleman's time has expired.
    Mr. Capuano. I thought I had 25.
    Chairman Nussle. Mr. Toomey.
    Mr. Toomey. Thank you, Mr. Chairman.
    Director Crippen, thank you.
    A couple of things. I want to touch on this economic growth 
issue. It seems to me that one of the lessons we clearly should 
be drawing from this extraordinary change in circumstances that 
we have witnessed is just how fundamental central our 
assumptions of economic growth are to that.
    I cite on your first page of your testimony you refer to 
the swing of about $300 billion in this year alone in our 
projection, and in your testimony it states that over 70 
percent of that change results from the weak economy and 
related technical factors. Seventy percent of this $300 billion 
swing is a change.
    It seems to me pretty clear if we step back and look at 
just a little bit of history it was surprisingly strong 
economic growth that surprised us with huge surpluses. It was a 
surprising downturn in the economic growth, in fact, a 
contraction, that dramatically diminished the surpluses. And, 
frankly, if and when we return to strong economic growth we are 
going to be looking at strong surplus. It seems to me it is all 
about growth.
    I would like to ask you off the top of your head if you 
have a rule of thumb you could share with us. Over the next 10 
or so years, I think you assume about 3.2 percent for the 
average annual real GDP growth, thereabouts. If that is wrong 
and it really ends up being 4.2 percent, what is the annual 
impact? What is the cumulative impact? Do you have a rule of 
thumb for what 1 percentage growth is worth in budgetary terms?
    Mr. Crippen. We do, I think. I am going to rely on my 
colleagues to answer you in just a second. We have in our 
report which we publish on the 31st now an Appendix A, which 
has these rules of thumb as we currently look at them.
    A tenth of a point is $250 billion over 10 years.
    Mr. Toomey. A tenth of a percentage point is $250 billion 
over 10 years. So if this is linear, which I assume it is, 
roughly, a point is $2.5 trillion over 10 years.
    Mr. Crippen. Probably wouldn't be that much, but it is 
certainly a big number.
    Mr. Toomey. Over 2 trillion. It would be a very, very large 
number.
    It seems to me that growth dwarfs virtually everything 
else. So, therefore, our mission should be to say what do we do 
to maximize economic growth. I, for one, think that further 
important tax relief is the way to do that. Others will 
disagree. But that is what we should be focusing on, it seems 
to me.
    A couple of questions as to how we got where we are. Is it 
fair to say that we would be in surplus today, in fiscal year 
2002, actual numbers, while they are still projected but you 
would be projecting surplus for 2002, 2003 and beyond had we 
kept to the spending caps what were passed on a bipartisan 
basis in 1997?
    Mr. Crippen. I don't know that we have done that, but I 
think you are right.
    Mr. Toomey. I have a chart that suggests that the 
discretionary spending cap in terms of budget authority--
obviously, outlays ultimately sort of catch up to follow budget 
authority. We had about $130 billion less spending in 2002 than 
what we actually spent, about $130 billion. Now the deficit for 
2002 is----
    Mr. Crippen. Twenty billion dollars.
    Mr. Toomey. Twenty. So it seems to me--let's put it 
differently. If we hadn't stuck to the caps but we grew Federal 
spending each and every year at the rate of inflation, would we 
in 2002 and 2003--would we be looking at surpluses or deficits?
    Mr. Crippen. Surpluses.
    Mr. Toomey. Large surplus. It seems to me we have been 
growing spending. My numbers here estimate about 6.1 percent as 
an average rate of growth from 1997 to 2002. Is that about 2 
and a half times the rate of inflation, 2 times the rate of 
inflation?
    Mr. Crippen. Yes.
    Mr. Toomey. So let me ask another question. This chart is 
something that you guys produced, right, CBO?
    Mr. Crippen. Yes.
    Mr. Toomey. The way I read this it seems to suggest that 
the total tax revenue as a share of GDP from 2001 through 2012 
is going to be each and every one of those years consistently 
well above the average total tax as a percentage of GDP in the 
whole post-war era.
    Mr. Crippen. That is correct.
    Mr. Toomey. If I arrange out the years from 2001 through 
2011--thanks for the help--the technical help here. That makes 
it easier. If you drew an average on that, it looks like the 
average might even be as high or higher than any point in the 
post-war era, aside from immediately after in 1944, 1945.
    My point is, it seems to me very clear what has happened is 
spending has accelerated dramatically. It is well above what we 
said we would spend. Taxes, even with the tax relief package 
that we passed last year, will remain at historically high 
levels, post-war era, certainly.
    It is amazing to me that anyone thinks that taxes are the 
problem here. Taxes are very high, still. The problem seems to 
be spending.
    I yield the balance of my time.
    Chairman Nussle. Mr. Price.
    Mr. Price. Thank you, Mr. Chairman.
    Mr. Crippen, let me add my thanks for your appearance here 
today and for the quality of your testimony.
    I would like to pick up on the line of questioning Mr. 
Spratt and Mr. Capuano were pursuing regarding the debt held by 
the public and where we are going with those figures.
    You testified a year ago that the publicly held debt would 
essentially be retired by 2006, that is all of the debt that is 
available for redemption would be redeemed by 2006. I am not 
sure what that figure was and how much you calculated would be 
available for redemption. That whole debate now seems rather 
quaint as to whether we were going to reach a point of too much 
debt retirement.
    In any case, under current projections, how much has that 
debt projection for 2006 increased? Just to give us a 
benchmark, what were you thinking a year ago it will be in 
2006? What are you now thinking it will be in 2006? And then 
how much will the publicly held debt be by 2012, the end of the 
10-year period? That is my first question.
    The second has to do with the debt service that accompanies 
the debt. What will the debt service burden be over this period 
and how much more is that than what you projected last year? I 
think it is just short of a trillion dollars.
    Could you clarify those two figures for us?
    Mr. Crippen. On the first figure, my colleagues are 
scrambling to give you the difference between our projection of 
debt held by the public last year and this year.
    On the second figure regarding debt service, you are right. 
The debt service costs will be considerably higher that what we 
projected last year; that, in turn, allows us to retire less 
debt held by the public over the next 10 years.
    Mr. Price. The debt service approaches a trillion dollars. 
That is what you told Mr. Capuano.
    While we are getting those actual figures as to what the 
actual debt is, I wonder if you could comment on the impact of 
that trillion dollars in debt service. What are the opportunity 
costs associated with that? We were speaking earlier about the 
capacity to meet our obligations to Social Security retirees, 
for example, a decade from now. We all know about things we 
would like to do with prescription drug coverage for Medicare. 
These are public and private uses of that trillion dollars that 
I think most of us would agree are more productive. Do you have 
any thoughts on that, the opportunity costs of sinking another 
trillion dollars over the next 10 years into debt service?
    Mr. Crippen. Certainly from the point of view of our 
baseline, without other policies, the primary opportunity cost 
that is missed here is the ability to pay down even more debt 
held by the public. A trillion dollars more, just because of 
debt service, will be held at the end of this 10 years than 
would otherwise be the case.
    As you are saying, there is always an opportunity cost. 
Rather than pay down debt held by the public as last year's 
forecast assumed, there is also an opportunity to provide 
things that folks are interested in doing, such as 
pharmaceuticals for beneficiaries or cut tax rates. So there is 
an unlimited range of opportunity costs here.
    The economic impact may not be as severe or as important in 
some ways as the opportunity costs for public programs. The 
main thing higher debt service cost have done is restrict the 
ability of us to do more things with the budget, either pay 
down debt or increase spending.
    Mr. Price. Some of those programmatic priorities, as 
important as they are, do remain discretionary. Most of them 
do. But the necessity of redeeming bonds held by the Social 
Security trust fund and making good on those obligations when 
the cash flow in Social Security reverses is not discretionary.
    Mr. Crippen. No.
    Mr. Price. One way or another we are going to have to meet 
those obligations. Would you not agree that is much more 
difficult to envision doing if we are carrying a huge debt load 
and huge debt service load?
    Mr. Crippen. That is part of the conversation Mr. Spratt 
and I were having. It is absolutely true. The more debt 
presumably we have, the harder it will be to borrow more money.
    We have looked at a number of hypothetical fiscal policies 
you could pursue of having the debt level as we see it today, 
and we saw it last year, as we could see it get even worse. 
Under any of those scenarios, we are going to start 
experiencing a very heavy debt load after my generation 
retires. So it makes a few years' difference as to when the 
trajectory really takes off, but only a few years.
    What is most important is not the level of debt we hold as 
we go into the baby-boomer retirement but how much can the 
economy--can our kids--afford to give us as we retire.
    As you said, when the swing takes place, when we start 
paying out more than we are taking in in payroll taxes, 2011 or 
so, whether we have a trust fund doesn't matter at that point 
in some ways. The options for the Federal Government at that 
point are the same whether or not you have a trust fund, 
because those bonds have to be turned into cash. So you are 
going to have to raise taxes, cut other spending, or borrow 
from the public to get the cash to pay off the beneficiaries. 
That is the same whether or not we have a trust fund.
    So the real impact depends on how many resources we are 
taking from our kids, not what the level of the trust fund is 
in this case. But you are right that the lower the debt level 
the easier it would be for us to borrow, but that is a 
temporary or, if you will, ephemeral effect. Because 
eventually, no matter what our debt level, we are going to have 
to borrow or change other policies by very significant amounts.
    Mr. Price. I understand that the longer term challenges are 
daunting. Nonetheless, these years of projected debt reduction 
are years that we had counted on and that in fact both parties 
had counted on and had pledged their fealty to not touch the 
Social Security and Medicare surpluses and apply this to debt 
reduction so that we would get this debt service off our backs 
and be more prepared to meet our obligations in the next 
decade. So I think we are going to have to come to terms rather 
quickly with the abrupt reversal in those projections.
    Do you have the full debt numbers that I requested 
initially?
    Mr. Crippen. Two trillion dollars.
    Mr. Price. Two trillion at what point?
    Mr. Crippen. 2006.
    Mr. Price. At the end of the 10-year period?
    Mr. Crippen. My guess is about three.
    Mr. Price. If you could clarify those numbers for the 
record, it would give us a point of comparison. If you will, 
when you furnish those numbers, put alongside them the 
projections from this point last year.
    Thank you, Mr. Chairman.
    Chairman Nussle. Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman.
    Dr. Crippen, thank you for coming to bring your words of 
wisdom to us today and sitting around the table and listening 
to all the comments about how bad things are. It was so nice 
when I first came up last year as a freshman to hear how good 
things were. It is amazing how things could change so rapidly 
in such a short period of time.
    I heard different ideas about how we might be able to make 
a difference. I noted somebody mentioned 1.8 million folks out 
of a job that were working last year. You know, the House 
passed two stimulus packages and sent them to the Senate. I 
believe I heard you--somebody commented about a report you made 
that you said that maybe none of those things would work. Did I 
understand that correctly; that nothing in the stimulus package 
might change the position in which we find ourselves?
    Mr. Crippen. We said that there are a lot of reasons to be 
skeptical, not that necessarily it wouldn't work, and to be 
skeptical because it takes a long time to implement any of 
those stimulus packages. Some of them do not put money into 
people's hands so they can buy things very quickly. So at this 
point, what we are saying is it would take a long time to get 
something that probably would kick in anytime soon.
    Mr. Brown. Weren't we going to give an immediate tax relief 
for people and tax rebates last year and weren't we going to 
extend the unemployment benefits from 16 weeks to 39 weeks and 
weren't we going to accelerate depreciation for businesses so 
it would give them incentive to purchase additional equipment?
    Mr. Crippen. Right.
    Mr. Brown. None of those things might not be of benefit?
    Mr. Crippen. They may be of benefit. What we are saying in 
our response to Chairman Conrad in the Senate was that, of the 
things that were being discussed at that time--and I think he 
actually listed them--some were better than others. Things like 
a payroll tax holiday probably will give you more consumption, 
if that is your goal, than marginal tax rate cuts in 2006. That 
kind of makes sense.
    Some of the changes in taxation of capital, as you are 
saying, such as eliminating the alternative minimun tax (AMT) 
reward past behavior more than they stimulate future behavior. 
An investment tax cut, on the other hand, would lower the cost 
of new capital immediately, and that could have a more positive 
impact than changing taxation of capitol that has already been 
purchased.
    So all we are doing is looking at the timing of these 
various things. That is not to say they might all be salutary 
or not salutary at all, but if your objective is to get people 
and companies to spend as fast as possible, some packages are 
better than others.
    Mr. Brown. Then I guess, since your background is in 
investments also, you know, some of us had proposed cutting the 
capital gains tax thinking that this might help stimulate more 
investments, too. How do you feel about that proposal?
    Mr. Crippen. It certainly might over the long run. My guess 
is that, in the short run, it wouldn't have much effect on 
capital expenditures.
    Mr. Brown. But did I hear you earlier say that one of the 
losses of revenue was in the capital gains section?
    Mr. Crippen. Sure. It is in capital gains realized, not 
just in capital gains taxes. So something has to induce 
people--you are suggesting--to realize capital gains that 
increase revenues some. If your goal is in the very short term 
to get companies to invest, changing the capital gains rules 
might not have that impact.
    Mr. Brown. I guess my finishing statement is, I don't think 
we can criticize the President for the economy if we are not 
going to give him the tools in order to try to make things 
better. Thank you.
    Chairman Nussle. Mrs. Clayton.
    Mrs. Clayton. Dr. Crippen, thank you for being here. I 
guess I am the one that is holding you up.
    Mr. Crippen. There is no place I would rather be.
    Mrs. Clayton. He is smart and charming. How about that?
    I do want to thank you for your testimony. For those of us 
who are trying to follow your explanation it certainly helps 
us. So I am appreciative not only of your written word but also 
of the explanation you are trying to put on it.
    I would like for you to explain, the deficit. You are 
making a new assessment of the deficit. Now it would be 
something like $21 billion for this year. And on your chart 
here, you say why. As one of my colleagues tried to make the 
distinction between the economic and the technical changes, 
but, whatever the reason, on this page, this column, is we now 
have a $21 billion projected deficit that we didn't anticipate 
earlier.
    Mr. Crippen. Right.
    Mrs. Clayton. Did I misunderstand you earlier, that the 
debt really wouldn't make that much difference in the economy? 
Was that relative to the extension of that statement as it 
relates to the trust fund for the Medicaid and Social Security?
    Mr. Crippen. It was more related to the trust fund.
    Mrs. Clayton. Rather than this deficit piece. So having the 
deficit which means that we have a debt does indeed affect the 
economy.
    Mr. Crippen. In this case, there are a lot of 
macroeconomists who would say that. Whether you call it 
Keynesian or not, it might be a good thing to have a deficit so 
that we can get the economy rolling again. Or, put the other 
way, it may be a bad thing if we were running big surpluses 
right now because that would mean the Federal Government was 
actually helping to restrict the economy or contain it. So in 
some sense it is not necessarily a bad thing that we have a 
deficit. Some of my colleagues would say it is appropriate.
    Mrs. Clayton. So it depends on the situation in terms of 
society if we need to deficit spend in order to do certain 
things.
    Mr. Crippen. Right.
    Mrs. Clayton. Along that line, we have needs to fulfill our 
commitment to Social Security. We have needs to address issues 
in society like prescription drugs or like Patients Bill of 
Rights or other areas that we know that would need. And to the 
extent that we are not able to do that, obviously, society is 
not helped. But some of this spending is not discretionary. 
Prescription drug may be discretionary, but Social Security is 
not.
    Whether we are deficit spending or not, our obligation is 
to our veterans. Our obligation is to those that are in those 
fixed obligations, whether it is Social Security or Medicare. 
The deficit we are going to spend and I want my colleague to 
hear, it is not an option whether we spend or not. There are 
some things we are going to spend because we are obligated to 
spend. In my own judgment, there are some things we ought to 
spend that we are not going to spend for. So it is not a 
question of whether we spend or give a tax break. The question 
is how we spend and to what extent we incur debt.
    The issue is, if indeed having so much debt will to deter 
the ability of the economy to raise the quality of life for 
people, we need to do something in public policy that would 
stimulate that.
    Am I right so far?
    Mr. Crippen. Absolutely. I couldn't have said it better.
    Mrs. Clayton. You get better and better.
    I tell you what. You said that the consumers were doing 
their part and their spending didn't go up 5 percent, but went 
up 2.5 percent. But the area that you found a void or deficit 
was business capital investment, right?
    Mr. Crippen. Right.
    Mrs. Clayton. Well, I think the Bush administration wants 
to give a big corporate tax benefit. Now, I am assuming that 
projection is based on the fact that, if we did that, we would 
speak to businesses not investing. Well, the tax that they are 
proposing is that one of the responses you made to Senator 
Conrad? Or is that a different tax?
    Mr. Crippen. The AMT was certainly one of those.
    Mrs. Clayton. Let me ask the question then. How do we get 
businesses to invest their capital so that the economy can be 
stimulated? Do we do it by the proposal you have heard, the one 
of the corporate tax break? Does that help? If so, how fast can 
we do that?
    Mr. Crippen. We are skeptical of at least one of the 
proposals that has been talked about and I think the House 
passed, which is a major change in the alternative minimum tax 
for corporations. While its repeal may have positive effects in 
the future, mostly what the retroactive part would give 
corporations is a benefit for capital they have already 
invested. So it doesn't have a stimululative impact. It is more 
of a retroactive effect.
    Mrs. Clayton. What was the tax relief for those that 
invested in foreign countries? They got a tax break. How did 
that help us?
    Mr. Crippen. I think you refer to the FSC.
    Mrs. Clayton. Does that help the economy?
    Mr. Crippen. They can. Although the international trade 
organizations have now said the provision is not legal in their 
view, essentially what the provision does is companies who earn 
revenues abroad a lower tax rate. So to the extent that other 
economies are allowing our corporations to sell and our people 
to work and build things to be sold abroad, that means that 
there is an added bonus to doing that. So it could help. But 
that is not a big revenue loser or something that is much in 
play.
    Mrs. Clayton. I know you say you are not policy, so you are 
not going to recommend it, but what in your judgment of these 
options on the table would speak to the lack of businesses 
investing their capital to stimulate the economy?
    Mr. Crippen. First, consumers have to keep up their end. As 
we have said, they have been doing pretty well. But without 
consumer spending, without people buying the things 
corporations and businesses make----
    Mrs. Clayton. It is hard for them to do that when they 
don't have jobs. It is hard for them to do that when they are 
losing their retirements. It is hard to keep that up.
    Mr. Crippen. It is all related. But, in addition to 
consumption, there are things that you could do to change the 
price of capital for companies. One of the things that was done 
in the past, for example, was to complement an investment tax 
credit, which simply gave a credit for the price of a machine 
simple example. But probably the primary thing you could do is 
reduce the cost of capital to the point where companies have 
the rate of return that their shareholders and owners demand.
    Mrs. Clayton. Greenspan has been doing that, hasn't he?
    Mr. Crippen. On the short term interest rate, certainly. 
The cost of borrowing in the short run has gone down 
considerably, and the money supply has been growing at a 10 
percent rate recently. All of those things should help. 
Policies that you can pursue would be to reduce the cost of 
capital in a generic sense which would help companies that are 
close to being ready to invest, it would push them over the 
edge and increase investment demand.
    Inventory should kind of take care of itself. If consumers 
are buying and inventories are too low, companies will start 
building their inventories again. That was the other piece of 
the downturn that we didn't expect, was heavy inventory sell-
off.
    I am a little pessimistic that at this point there is 
anything you can do in the very short run that would 
dramatically change the outlook. Because this is going to be a 
slow recovery you may have plenty of opportunities here to 
think about ways to help over the next several quarters.
    Mrs. Clayton. Thank you very much.
    Chairman Nussle. Director Crippen, thank you very much for 
your testimony today, for presenting the good, the bad, the 
ugly.
    Mr. Crippen. I am the ugly, see.
    Chairman Nussle. In years past I have been critical about 
CBO's projections and the way that they can be unpredictable. I 
don't know if there is any way that anyone could have predicted 
this last year one way or the other. Certain things were, I 
suppose, predictable. But what you have reported today had a 
lot to do with things that were out of everyone's control. We 
appreciate the way you have given us the news straightforward, 
the way you always do.
    For purposes of announcement, we will be taking testimony 
from Mitch Daniels, OMB Director, February 5; Treasury 
Secretary O'Neill on February 6. Unless I am aware of any other 
time, it will be 10 I believe. OK. 2:30 for the 5th and 10 for 
the 6th. Hopefully, we will be back in the Budget Committee 
room at that time.
    There is no other business before the committee, we will 
stand adjourned.
    [Whereupon, at 4:25 p.m., the committee was adjourned.]

                                
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