[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



        THE BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 2005-2014

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, JANUARY 27, 2004

                               __________

                           Serial No. 108-15

                               __________

           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
CHRISTOPHER SHAYS, Connecticut,      JOHN M. SPRATT, Jr., South 
  Vice Chairman                          Carolina,
GIL GUTKNECHT, Minnesota               Ranking Minority Member
MAC THORNBERRY, Texas                JAMES P. MORAN, Virginia
JIM RYUN, Kansas                     DARLENE HOOLEY, Oregon
PAT TOOMEY, Pennsylvania             TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington             DENNIS MOORE, Kansas
ROB PORTMAN, Ohio                    JOHN LEWIS, Georgia
EDWARD SCHROCK, Virginia             RICHARD E. NEAL, Massachusetts
HENRY E. BROWN, Jr., South Carolina  ROSA DeLAURO, Connecticut
ANDER CRENSHAW, Florida              CHET EDWARDS, Texas
ADAM PUTNAM, Florida                 ROBERT C. SCOTT, Virginia
ROGER WICKER, Mississippi            HAROLD FORD, Tennessee
KENNY HULSHOF, Missouri              LOIS CAPPS, California
THOMAS G. TANCREDO, Colorado         MIKE THOMPSON, California
DAVID VITTER, Louisiana              BRIAN BAIRD, Washington
JO BONNER, Alabama                   JIM COOPER, Tennessee
TRENT FRANKS, Arizona                RAHM EMANUEL, Illinois
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   DENISE MAJETTE, Georgia
THADDEUS McCOTTER, Michigan          RON KIND, Wisconsin
MARIO DIAZ-BALART, Florida
JEB HENSARLING, Texas
GINNY BROWN-WAITE, Florida

                           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 27, 2004.................     1
Statement of:
    Douglas Holtz-Eakin, Director, Congressional Budget Office...     5
Prepared statement and additional submissions of:
    Hon. Mario Diaz-Balart, a Representative in Congress from the 
      State of Florida...........................................     4
    Mr. Holtz-Eakin..............................................    11
    Letter in response to Mr. Neal's question regarding AMT......    22

 
        THE BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 2005-2014

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                       TUESDAY, JANUARY 27, 2004

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 2:09 p.m., in room 
210, Cannon House Office Building, Hon. Jim Nussle (chairman of 
the committee) presiding.
    Members present: Representatives Nussle, Shays, Portman, 
Schrock, Brown, Wicker, Hulshof, Tancredo, Vitter, Bonner, 
Garrett, Diaz-Balart, Brown-Waite, Spratt, Moran, Moore, Neal, 
DeLauro, Edwards, Scott, Thompson, Baird, and Emanuel.
    Chairman Nussle. Good afternoon, the Budget Committee will 
come to order. Welcome everybody on the committee back for a 
new year and for a new budget season. We have invited the CBO 
Director Doug Holtz-Eakin here today to ensure that we have a 
clear understanding of our Nation's fiscal picture. We are here 
today to ensure that we have a very clear picture and 
understanding of our Nation's fiscal situation. It is critical 
for us to understand just what the bottom line is, so to speak, 
and so we have invited the Congressional Budget Office Director 
Doug Holtz-Eakin to provide us with that.
    The resource that we use as a starting point is the report 
that was released just yesterday from the Congressional Budget 
Office, which gives their estimations of the budget and 
economic outlook for the coming decade.
    Director Holtz-Eakin is here not only to discuss with us 
the hard and fast numbers of this report but to explain just 
what all these numbers mean and to put them into some context; 
in other words, how did CBO arrive at these estimates and what 
are some of the key variables that could affect our economic 
and budgetary future.
    And again to be clear, the purpose of today's hearing is 
not to guess what will be in the President's budget or to even 
for that matter begin writing our budget, but to get a solid 
understanding of where we are right now so that we can have a 
better idea of where we should go from here.
    Next Monday the President will introduce his budget and we 
will begin a series of hearings, at which time it will be 
appropriate to discuss what should or for that matter what 
should not be in next year's fiscal budget.
    That said, let's get this process started by taking a look 
at what we have got. First, this report tells us in one very 
important respect that we are in a pretty similar situation or 
position as we were back in August when we received these 
projections. We have large deficits in the near term, $477 
billion in fiscal year 2004, and then $362 billion in fiscal 
year 2005, with deficits declining over the next decade 
according to this estimation.
    This is really not a surprise. We have these deficits 
because we intentionally spent--and I say intentionally spent--
at an extraordinary pace to react to extraordinary 
circumstances ranging from terrorist attacks and conflicts in 
Iraq and Afghanistan to an economic recession.
    Now, does that mean these deficits are unimportant? Of 
course not. I have said that the spending driven deficits are 
an issue that we do need a get a handle on, we are going to get 
a handle on this information today because we are going to have 
a lot of serious discussion and have to make a whole lot of 
tough choices in the next few weeks to try and figure out where 
we need to go from here.
    Before I turn this over to Director Holtz-Eakin for his 
explanation of the report, I would like to stress a couple of 
key points that I noticed in looking through the report. First, 
last year at this time we made it clear that we needed to 
invest in our economy to get it growing again. Those 
investments have clearly paid off. From GDP growth to retail 
sales we are seeing record highs; and most important, the 
economy has begun to create jobs again. Not as quickly as we 
would like, but it is moving in the right direction and faster 
than just about anybody predicted a year ago today.
    In fact, to quote the report, ``The economy should continue 
to grow at a healthy rate over the next 2 years for a recovery 
appears to have taken hold.'' There should be no question that 
the economy has begun to recover and that the tax cuts that we 
installed are working.
    That said, I believe our starting point for the budget is 
really different in two cases. First, CBO's baseline assumes 
that Congress will raise taxes or that in fact the tax cuts 
will not be made permanent. This assumes that expiration of a 
whole range of tax relief provisions, including increasing the 
marriage penalty, reducing the child tax credit, resurrecting 
the death tax, increasing taxes on capital gains and stock 
dividends and increasing taxes on small businesses, for that 
matter increasing taxes on every American who pays income 
taxes, will occur.
    That is not an assumption that anyone should make as we 
move forward. This will not happen as far as I am concerned in 
this budget or under our watch. In fact, I would be willing to 
wager that we might even have a few Democrats who might be 
willing to support it in that regard. So I think you can safely 
rule out that part of the assumption.
    Second, the baseline assumes that the $87 billion of the 
Iraq supplemental that we spent last year will continue to be 
spent every year for the next decade. I think that also we can 
presume, barring extraordinary emergencies, that that will not 
also be the case.
    So with that context and that understanding, we need to 
turn to the report and to get the wisdom of the Director of the 
Congressional Budget Office. Before we do that, let me turn it 
over to Mr. Spratt for any comments that he would like to make.
    Mr. Spratt. Thank you, Mr. Chairman. Dr. Holtz-Eakin, we 
welcome you back. As always, you have done an excellent job as 
the Director of the Congressional Budget Office, and we welcome 
you today even though you are not exactly the bearer of good 
tidings. You have got some very sobering news for us about the 
budget.
    Your projections show that deficits loom far into the 
future, that we are not going to grow out of them and somehow 
glide effortlessly to the conclusion we all want, which is a 
balanced budget, and frankly I think they cast grave doubts on 
the Bush administration's claim that it will be able to cut the 
deficit in half over the next 5 years.
    In particular, the first chart that I would like to call up 
here gives you a summary of the deficit for this year and the 
decline in that deficit over 3 short years. January 2001, CBO 
projected we would have a unified surplus of $397 billion. 
Instead, we have a unified deficit this year of $477 billion.
    Next chart. This shows the cumulative surplus or deficit 
over the period of 10 years, a deterioration from $5.6 trillion 
to 10-year estimated surplus between 2002 and 2011 and a 
cumulative deficit as CBO now sees it. That is a swing of about 
$8.5 trillion in the wrong direction.
    Next chart. And tax cuts add to the problem. We are not 
here to advocate the nonrenewal of the child tax credit or the 
expansion of the 10 percent bracket or the 15 percent bracket, 
but we are here to call attention to the fact that the whole 
agenda of the Bush administration is tax cuts if they are 
extended aggravate the bottom line significantly. They 
increased the January 2004 baseline. With the expansion of the 
tax credits, the cuts come out to $4.150 trillion.
    Next chart. This is the only budget surplus, excluding 
Social Security, which I think we should do and which Congress 
has dictated we should do in putting Social Security off 
budget. Back out Social Security, and you will see the debt 
accumulation between 2005-14. If you do the tax cuts, if you 
renew them all, we will be $7.177 trillion. That is what we 
will add to our national debt over that period of time.
    Next chart. Now, the Bush administration is apt to say in 
the face of forecasts like these this is why we need pro-growth 
policies. We couldn't agree more. We would love to grow out of 
it, but the truth of the matter is that CBO is assuming pretty 
robust growth, 4.8 percent for 2004, 4.2 percent for 2005, 
tapering off to 3 percent and then dropping slightly below 3 
percent, but substantial robust growth for the next 10 years 
and particularly in the near term.
    Next chart. If you look at pages 92 and 93, that is the 
only place where the small print is big enough to read, you 
will see that if you do extend the tax cuts, you will add $2.3 
trillion to the deficit over 2005, between 2005-14, that 10-
year period of time.
    All that is going to the bottom line. In 2001 when it 
appeared that we had a surplus of $5.6 trillion, some may have 
felt that a tax cut of $1.350 trillion was defensible, but now 
we know we don't have a surplus. We have a deficit, and the 
renewal of these tax cuts when they expire will add $2.3 
trillion to that deficit. There is no way around it.
    Next chart. Now, it is also said by the Bush administration 
frequently we have got to rein in spending, and in that regard 
they mean discretionary spending, which is in the 13 different 
appropriation bills that we pass every year. But if you look 
where the increases in spending over and above current services 
have come over the last four fiscal years, you will see that 
the lion's share of it, 90-95 percent, has gone to defense, 
homeland security and our response to 9/11 for New York City 
and for the airlines relief. Ninety to 95 percent of it has 
gone there.
    I would like to think we could rein in some of that, but I 
don't think we can. In truth, I think you will probably see 
when the budget comes up an increase in homeland security 
because there is a fairly common feeling that we are standing 
on thin ice and barely funding that at an adequate level.
    Next chart. So a couple quotations there that ended up. We 
have got a serious problem on our hands. I don't know whether 
we will get down to brass tacks in dealing with it this year or 
not but sooner or later we will have to deal with it.
    One particular statement you made in the report today--a 
couple of them struck me, Dr. Holtz-Eakin. First of all, you 
noted that if we allowed the tax cuts to expire as scheduled 
and held discretionary spending to the rate of inflation, then 
the budget would balance itself over this period of time of 10 
years. That is the way I read your report.
    On the other hand, you said if you renew all of the tax 
cuts that in 2014 we will have a deficit of $484 billion. There 
on the eve of the retirement in big numbers of the baby boomers 
we will still have a huge deficit which will aggravate the 
problem of supporting the retirement programs that the baby 
boomers are looking forward to. That is the gravity of the 
situation we find ourselves into, and there is no way out of it 
except a budget plan that comes to grips with the different 
elements of it. It has got to include taxes, it has got to 
include spending, it has got to include all of these elements 
because this is a big intractable problem, it is not going 
away, and we can't grow out of it.
    We will look forward to your testimony.
    Chairman Nussle. Director Holtz-Eakin, thank you for coming 
back to the committee and for your work. Your entire report 
will be made a part of our record here today, and you may 
proceed as you wish to give us the details of the report. In 
addition, all members will have 7 days to enter statements for 
the record.
    [The information referred to follows:]

   Prepared Statement of Hon. Mario Diaz-Balart, a Representative in 
                   Congress From the State of Florida

    Thank you, Mr. Chairman. Today's hearing marks the first in a 
series of hearings leading up to the debate over the fiscal year 2005 
budget. It is important to not only review the current economic state, 
but also evaluate the projections for the next 10 years.
    Over the last 4 years, the U.S. economy has experienced significant 
hardship due to the 9/11 terrorist attacks, corporate accounting 
scandals and the wars in Iraq and Afghanistan. These events have 
greatly contributed to the sharp increase in spending and, ultimately, 
the current deficit levels.
    Fortunately, the third quarter highlighted a strong recovery in the 
economy attributed to the growth from the tax relief passed last year 
and the return of investor confidence. It is now our responsibility to 
create policies that will not only extend this growth, but foster 
greater growth in the future.
    It is clear that the major source of recent growth has been the tax 
relief passed by Congress and signed into law by the President last 
year. In fact, estimates show that the combined tax relief between 
2001-04 amounts to nearly $600 billion (or about 6 percent of gross 
domestic product). Additionally, 2.1 million more Americans would be 
out of jobs without the tax cuts and the unemployment rate would be 
around 7.5 percent rather than the current 5.7 percent.
    As we enter a period of growth, I strongly believe that our 
economic path should be focused on adhering to the concept of fiscal 
discipline. We must--in every way possible--help Congress restrain 
spending and work on eliminating wasteful spending that is hamstringing 
the Federal Government and greatly burdening the American taxpayer.
    I look forward to working with my colleagues on the Budget 
Committee to ensure that the fiscal year 2005 budget not only 
represents a restraint on spending, but also a clear path to economic 
recovery.
    Thank you.

     STATEMENT OF THE HON. DOUGLAS HOLTZ-EAKIN, DIRECTOR, 
                  CONGRESSIONAL BUDGET OFFICE

    Mr. Holtz-Eakin. Thank you, Mr. Chairman, thank you, 
Congressman Spratt, members of the committee. I appreciate the 
chance to be here today to talk about the CBO provisions for 
the budgetary and fiscal and economic outlook for fiscal years 
2005-14.
    We have submitted our entire report for the record. There 
is a short extract of it that serves as a written testimony. I 
will provide an even shorter version in my oral remarks so that 
we can turn to any questions that you might have on the 
material.
    Briefly, the facts are as follows. CBO projects that the 
Federal budget deficit will be $477 billion in fiscal year 
2004, will diminish to $362 billion in 2005, $269 billion in 
2006, and then will steadily diminish thereafter until the 
budget reaches balance at the end of the budget window.
    These deficits, while large in dollar terms--$477 billion 
is the record in dollar terms--are 4.2 percent of GDP in 2004, 
dropping to 3 percent of GDP and 2.1 percent by 2006. So 
relative to the national income and the economy, these are not 
the largest deficits.
    Over the 10-year budget window, as the slide shows, we have 
a cumulative deficit of $1.9 trillion. Because the budget is 
largely in balance roughly after 2011, the 5-year total is the 
majority of that $1.4 trillion.
    A different way to look at the situation--a different 
fiscal barometer--is the cumulative effect of deficits or debt 
relative to GDP in the economy, and in these projections we see 
debt relative to GDP rising from about 38 percent at the 
beginning of the budget window and hitting between 40 and 41 
percent, where it stays until after 2011 and then diminishes to 
about 45 percent.
    Now, since the projections that we put out in August two 
things have happened. The first is that the economy has 
performed better than we projected it at that time. The third 
quarter is much stronger than we had expected. And indeed, we 
have altered our near-term economic assumptions accordingly and 
it may be the case in fact that the fourth quarter, which the 
data are not yet available, is stronger yet than what is 
included in the projections that you see before you today.



    Nevertheless, these economic growth rates will simply bring 
the cyclical recovery on more quickly and get us back to full 
employment. Our estimate of the capacity of the economy to 
produce has also been moved up since August. We have seen rapid 
productivity growth, and we have tried to adjust for that in 
our projections. And I can come back to that in a second.
    The second major innovation is legislative. Since August, 
over the 2004-13 budget window, the one we used last year, we 
have seen an increase of $1 trillion in the cumulative deficit. 
That change comes from $700 billion roughly--about $680 billion 
more precisely--in legislation, largely the Medicare 
prescription drug bill but also concurrent receipts, the Air 
Force's Boeing tanker acquisition, appropriations and then 
roughly $300 billion from economic and technical sources, 
roughly evenly divided. And I can talk about the details of 
that.
    As has been noted, the CBO projections assume current law 
prevails over the baseline projection period. On the tax side, 
that assumes that tax law has the sunset of the 2001 and 2003 
tax cuts as scheduled, and that is included on the outlay side. 
It also assumes that we have an ever-increasing reliance on the 
alternative minimum tax in the collection of our individual 
income tax receipts. So both of those are built into our 
baseline.
    On the outlay side, the notable features is that we assume 
the current programs on the mandatory side, but we also for 
discretionary spending include all appropriations on the books, 
including the $87 billion supplemental, and we inflate those 
only at the rate of inflation. So discretionary spending rises 
at 2.5 percent in these projections.
    Now, what I thought I would do in conclusion is to touch 
briefly on those three topics and then take your questions--
first the economic forecast, then the pattern of receipts and 
then the pattern of outlays.



    On the economy, we do expect a robust cyclical recovery, 
and if we can go to the next chart, the key features are 
represented in this graph of actual versus potential GDP. The 
actual course of the economy is the light blue line, and we 
anticipate that economic growth will be rapid over the next 2 
years, at 4.8 percent, and 4.2 percent, and this will bring us 
back to potential and at the same time we will see the 
unemployment rate diminish as the economy comes closer to 
utilizing its capacity fully.
    To the extent that the economy grows faster over that 
period than we projected, it will close that gap more quickly, 
but in the long run the capacity of the economy to produce and 
the long-run revenue potential that it will deliver is driven 
by the dark blue line, which is the potential GDP. And there 
the big news has been productivity in the U.S. economy.
    As we detail in the report, we have experienced a recent 
period of very rapid productivity growth of origins not well 
understood, and in the interest of acknowledging the increased 
potential for production in the U.S. economy, we have raised 
the potential for GDP, but we haven't really changed its long-
run growth rate. So we get a one-time increase in the level. 
That gives us more room to grow quickly and our projections 
assume that we will. They assume that we can grow quickly 
without large amounts of inflation, and our projections include 
a modest inflationary environment, both over the near term and 
over the long term where we have lowered our long term rate of 
inflation modestly.
    As it turns out, the budgetary impact of these various 
changes is on balance a little bit negative. In the near term, 
the faster economic growth is a good piece of news from a 
budgetary point of view. Over the longer term, the combination 
of higher health costs lowers the fraction of compensation that 
comes in the form of taxable wages, and lower inflation on net 
has a modestly downward impact on the budget. And as a result, 
we get a net negative, which is really not quite substantial 
from our economic assumptions.



    In the next slide, receipts are shown as the dark line at 
the bottom. The bottom dotted line is the historical average in 
the United States from 1962 forward, about 18 percent of GDP 
collected in revenues by the Federal Government. These 
projections have revenues rising rapidly at a rate of something 
in excess of 7 percent. The economy is growing, including 
inflation, growing at 4.7 percent. So we are seeing revenues 
rise faster than GDP in these projections.
    As a result, revenues rise from 15.8 percent of GDP this 
year, which is a low number, the lowest number we have seen 
since the 1950s, to 20.1 percent in 2014. That growth in 
revenues comes from two sources. One source is the expiration 
of various tax provisions, first the partial expensing 
provision at the end of 2004, then the provisions in EGTRRA and 
JGTRRA, and with those we see the sunsets raising revenues. 
That contributes to about 2.3 percentage points or a little 
over half of that rise.
    The remainder comes from other sources. It comes from the 
fact that real growth in the economy raises real incomes and 
moves people into higher tax brackets. That is one source of 
revenue growth. It comes from the presumption in these 
projections that we will see capital gains realizations return 
to closer to their normal relationship with the economy, and we 
will get more capital gains tax receipts as a result.
    During this period as well, we will begin to see the 
retirement of the baby boom population and with that will come 
the cashout of tax preferred savings accounts like IRAs and 
401(k)s. That will contribute as well to receipts into the 
Federal coffers.
    And finally, as I mentioned earlier, the alternative 
minimum tax will become increasingly important both as a 
revenue source and in the number of taxpayers that it affects. 
We have a discussion in chapter 4 of the report pointing out 
that under our baseline projections the number of individuals 
affected, the number of taxpayers affected by the AMT, rises 
from about $3 million to close to $30 million at the peak. 
Depending on how things proceed, those receipts could become as 
important as 7 percent or so of individual income tax receipts.
    On the outlay side, the light blue line at the top, we 
assume that current law will deliver a growth in mandatory 
spending that is about 5.5 percent a year over the budget 
window. That is going to increase largely because of the 
effects of Social Security, Medicare, and Medicaid to the point 
where in the last year, 2014, the growth rate will be 6.5 
percent. And that is the beginning of a long-run interaction 
between rising health care costs in the U.S. economy and an 
aging population that will lead Social Security, Medicare and 
Medicaid, the latter two programs in particular, to demand an 
increasing fraction of budgetary resources, or indeed national 
income, on the current track.
    On the discretionary side, as I mentioned earlier, we 
include the $87 billion supplemental increased at the rate of 
inflation. If one were to remove that $87 billion for each of 
the 10 years and the inflation and the debt service associated 
with it, it would lower the baseline projected deficit by $1.1 
trillion over this 10-year period; so the inclusion following 
baseline rules contributes $1.1 trillion in these projections. 
And as well, I would note that the assumption of growth at 2.5 
percent is at odds with past growth rates, which have been much 
higher, and we present in the report as a result some broad 
brush alternatives that would lead to different budgetary 
outcomes.
    I think the fair message of the report is that it 
anticipates cyclical recovery. It gets the economy back to 
potential. It is an economy that grows at a relatively rapid 
rate, and our productivity growth assumptions are laid out in 
the report. As a result, policy choices will matter for where 
we actually end up.



    And in the final slide and in the report, we sketch the 
ones that stand out in most discussions. The impact of expiring 
tax provisions is laid out in considerable detail in a table in 
chapter 4. This includes not only the provisions of EGTRRA and 
JGTRRA but all expiring tax provisions. We include an impact of 
the reform of the alternative minimum tax. Here reform should 
be taken as a loose, stylized reform in which we index the 
alternative minimum tax for inflation so that no one ends up 
paying the AMT unless he is really rich. The effects of 
inflation alone don't put you on AMT. And the consequences 
there, about $4.5 billion over 10 years, are shown.
    Finally, some outlay projections for discretionary spending 
that are both faster and slower than the baseline. At the top 
increasing discretionary spending at its historical rate would 
have a consequence of about $3.2 trillion over the 10-year 
budget window, whereas removing the effect of the supplemental, 
as I mentioned, would be worth $1.1 trillion, or an absolute 
freeze would reduce the 10-year budget deficit by $1.3 
trillion.
    Those I think make clear that the range of budgetary 
outcomes is considerable from the perspective of policy 
decisions that the Congress and the administration might make, 
and we also try to display in Appendix A the range of budgetary 
outcomes that might come from simple uncertainty over the 
future path of the economy and the technical assumptions 
associated with it.
    So with that I would close. These are our baseline 
projections constructed according to the standard procedures. 
We have also displayed the economic uncertainty and some of the 
policy uncertainty that surrounds them, and I will be happy to 
go through it in any way that you might desire and look forward 
to your questions.
    [The prepared statement of Douglas Holtz-Eakin follows:]

  Prepared Statement of Douglas Holtz-Eakin, Director, Congressional 
                             Budget Office

    Chairman Nussle, Congressman Spratt, and members of the committee, 
thank you for giving me this opportunity to present the Congressional 
Budget Office's (CBO's) budget and economic outlook for fiscal years 
2005-14. CBO projects that under current laws and policies, the Federal 
Government will incur a total budget deficit of $477 billion this year 
and $362 billion in 2005 (see table 1). Such a deficit for this year 
would set a record in dollar terms, but at 4.2 percent of the nation's 
gross domestic product (GDP), it would represent a smaller share of the 
economy than the deficits of the mid-1980s and early 1990s. In the 
absence of further legislative changes, deficits would diminish after 
their peak in 2004, although outlays would continue to exceed revenues 
for most of the next 10 years. Deficits are projected to total $1.4 
trillion for the 5 years after 2004 and $1.9 trillion for the 2005-14 
period.
    By statute, CBO's baseline projections must estimate the future 
paths of Federal revenues and spending under current laws and policies. 
The baseline is therefore not intended to be a prediction of future 
budgetary outcomes; instead, it is meant to serve as a neutral 
benchmark that lawmakers can use to measure the effects of proposed 
changes to taxes and spending.
    New legislation can significantly affect the budget outlook. For 
example, laws enacted since CBO's previous baseline projections were 
published in August have increased spending by an estimated $681 
billion (0.5 percent of GDP) between 2004 and 2013. \1\ Much of that 
total stems from the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (Public Law 108-173). The outlays resulting 
from that law will steadily increase between 2006 and 2013, totaling 
nearly $400 billion over the 2004-13 period (not including debt-service 
costs).
---------------------------------------------------------------------------
    \1\ That estimate includes the increased interest payments on 
Federal debt attributable to legislative changes.
---------------------------------------------------------------------------
    The baseline projections reflect CBO's forecast of robust economic 
growth for the next 2 years. By late 2003, stronger investment by 
businesses, a weaker dollar, and a rising stock market--augmented by 
expansionary monetary and fiscal policies--were spurring economic 
activity. CBO forecasts that real (inflation-adjusted) GDP will grow by 
4.8 percent in calendar year 2004 and by 4.2 percent in 2005 and that 
the unemployment rate will fall to 5.8 percent in 2004 and 5.3 percent 
in 2005. Between 2006-14, the annual rise in real GDP will average 2.7 
percent, CBO projects.
    Even if economic growth turns out to be greater than projected, 
however, significant long-term strains on the budget will start to 
intensify within the next decade as the baby boom generation begins to 
reach retirement age. Federal outlays for the three largest retirement 
and health programs--Social Security, Medicare, and Medicaid--will 
consume a growing share of budgetary resources
    even under moderate assumptions about the programs' growth, rising 
from over 8 percent of GDP in 2004 to more than 14 percent in 2030. 
Such increasing demands on spending will exert pressure on the budget 
that economic growth alone is unlikely to alleviate.

                           THE BUDGET OUTLOOK

    CBO projects that if current laws and policies remain unchanged, 
Federal deficits will begin to decline after this year. In the ensuing 
years, under CBO's baseline, deficits drop as a percentage of GDP, from 
4.2 percent in 2004 to 3.0 percent in 2005 and 1.7 percent in 2010. 
After 2011--if the tax cuts enacted in the Economic Growth and Tax 
Relief Reconciliation Act of 2001 (EGTRRA) expired as scheduled, growth 
in discretionary spending continued to be limited to the rate of 
inflation, and other policies stayed the same--the budget would 
essentially be in balance.
    Over the 2004-14 period, outlays are projected to grow at an 
average annual rate of 4.7 percent and to remain near 20 percent of 
GDP. That level would be slightly below the average share of the 
economy devoted to Federal spending since 1962 (see figure 1).
    The constant share of outlays as a percentage of GDP, however, 
masks opposing trends in mandatory and discretionary spending. Under 
the assumption that no changes in policy take place, spending for 
entitlements and other mandatory programs is projected to grow by 5.5 
percent a year--faster than the rate projected for the economy as a 
whole. Such growth is driven largely by spending for Medicare and 
Medicaid, which is projected to rise at average rates of 9.0 percent 
and 7.2 percent a year, respectively, from 2004 through 2014. Toward 
the end of that period, Social Security spending is also expected to 
grow faster than the economy as the baby boom generation begins to 
retire.
    CBO projects discretionary spending as specified in the Balanced 
Budget and Emergency Deficit Control Act of 1985 (using the GDP 
deflator and the Employment Cost Index for wages and salaries). The 
combined rate of growth of those factors is about half of that 
projected for nominal GDP. As a result, the baseline projection for 
discretionary outlays falls from 7.8 percent of GDP in 2004 to 6.4 
percent in 2014. If instead such spending kept pace with the growth of 
GDP (and the other assumptions incorporated in the baseline remained 
the same), discretionary outlays would maintain a share of about 7.8 
percent of GDP throughout the projection period and the deficit in 2014 
would be $323 billion, or 1.8 percent of GDP (compared with a small 
surplus for 2014 under the baseline's assumptions). \2\
---------------------------------------------------------------------------
    \2\ That projection includes an extrapolation of the $87 billion in 
supplemental appropriations for 2004 enacted in November 2003 to fund 
defense spending and reconstruction in Iraq and Afghanistan.
---------------------------------------------------------------------------
    Revenues are projected to total 15.8 percent of GDP this year--
about 2.5 percentage points below the average since 1962 (18.2 
percent). As the economy continues to improve and certain tax 
provisions expire, revenues will increase to 16.9 percent of GDP in 
2005, CBO projects. In 2006 through 2010, rising income and the 
expiration of more tax provisions will push revenues up to about 18 
percent of GDP, by CBO's estimates. In the baseline, projected receipts 
rise more rapidly after the major provisions of EGTRRA expire at the 
end of 2010, reaching 20.1 percent of GDP in 2014. If those 
provisions--together with the expiring provisions of other tax laws--
were instead extended and all of the other assumptions underlying the 
baseline were held constant, receipts would be 18.1 percent of GDP in 
2014, and the deficit would total $443 billion, or 2.4 percent of GDP.
    Debt held by the public (the most meaningful measure of Federal 
debt in terms of its relationship to the economy) is anticipated to 
equal 38 percent of GDP at the end of this fiscal year. Under CBO's 
baseline, that debt will stabilize at around 40 percent of GDP through 
2011, at which point the Federal Government's diminished need to borrow 
will reduce the growth of such debt.
    Since CBO last issued its baseline (in the August 2003 Budget and 
Economic Outlook: An Update), the cumulative deficit over the 2004-13 
period has increased by nearly $1 trillion, or 0.7 percent of GDP (see 
table 2). About 70 percent of that total results from new legislation, 
such as the Medicare law. Another $171 billion stems from economic 
factors--mainly the decline in CBO's forecast for inflation, which 
reduces estimates of both revenues and outlays (although the effect on 
revenues is moderately larger). Changes in projections of the 
unemployment rate, real GDP, and other variables also play a role. 
Technical revisions to CBO's baseline--mostly on the revenue side of 
the budget--account for another $134 billion of the addition to the 
cumulative deficit over the 2004-13 period.

    Chairman Nussle. Thank you. Thank you for your testimony, 
and we appreciate the professionalism that the report was put 
together in and all of the folks who work at CBO should be 
commended for their work on this, because I know it is quite a 
job getting this all together for us. We appreciate it.
    I wanted to make a couple of comments before I start. I 
basically have only a couple of questions. First of all, just 
to let the committee know and to let those that are listening 
know that deficits do matter. I said that last year. I said 
that the year before. I will open it again by saying that the 
deficits that we are hearing about again today from the 
Director--and we will continue to hear about for some time--do 
matter in the overall scheme of things.
    This committee has led the effort, and we produced a very 
austere budget last year, led the effort to pass the budget, 
and with very few exceptions stuck to that budget. It wasn't 
the budget that in final analysis we passed out of this 
committee, but I think we should always remember that we have 
led the effort when it comes to controlling spending on this 
committee, and I am proud of that.
    Let me just say as we set the table for the coming year we 
will do it again. The President is certainly ready to present 
his budget on Monday, and I have been hearing different things 
about it, and I am increasingly impressed at the level of 
interest that we are hearing from the administration on 
controlling spending. I hope that they hear even more between 
now and Monday, when the budget is presented, because that is a 
message that they need to hear.
    We need the President to lead that effort to control 
spending. It cannot only be done from this committee and be 
successful. We will do it if no one else takes the lead, but we 
hope that as the President presents his budget on Monday and as 
we ask for testimony from his OMB Director coming up next week 
that the administration will lead the effort on controlling 
spending, because these are spending-driven deficits, and that 
is the first question that I wanted to get to.
    There are some--I hear the arguments--I heard them in Iowa 
of all places. I don't know what necessarily was so special 
about Iowa over the last few months, but I have heard in Iowa 
this issue about how Republicans have squandered the surplus, 
and if you would parachute into the committee room today and 
having not known much about the last 3 or 4 years of history, I 
could see how you might come to that conclusion, but since we 
all have subscriptions to newspapers and know exactly what had 
been going on with the war and Iraq and Afghanistan, the global 
war on terrorism, 9/11, the economic recession that the 
President inherited from the previous administration, et 
cetera. I would hope there would be a better understanding of 
exactly how we got here.
    But just in case we need a refresher course--and judging 
from the media reports that I saw yesterday, I think it 
probably would bear repeating--would you please review for us 
once again the largest factors in reducing the $5.6 trillion 
surplus and led us to today's point in time in borrowing, what 
the different amounts or what the different factors would be or 
percentages would be that got us to this particular point in 
budget history?
    Mr. Holtz-Eakin. Well, certainly. If one were to compare, 
for example, the 2004 projection, the $477 billion, with the 
projection of a surplus made in 2001, 40 percent of that 
decline would be from economic and technical factors. The 
remaining 60 percent would be equally divided between 
legislative initiatives on the receipts and legislative 
initiatives on the outlay side.
    If one were to extend the 2002-11 budget and look at the 
whole thing and do the same kind of a decomposition of where 
the surplus went, one would find 40 percent came from economic 
and technical factors: recession, equity market fall-off, and 
associated declines in receipts. Then on that longer horizon, 
30 percent can be traced to legislative initiatives on the 
receipt side and 70 percent to the legislative initiatives on 
the outlay side.
    Chairman Nussle. I have actually--we can use that chart 
too, but why don't you go to the next one. No, you were there, 
right there--No. 4.
    This is the chart we have been using. We have now added to 
it based on numbers that CBO has provided for us in your 
report. Is this what you are referring to? I think you were 
just explaining the last line there, the last column for fiscal 
year--were you explaining fiscal year 2005, or was that----
    Mr. Holtz-Eakin. The example I gave was fiscal year 2004, 
40 percent economic and technical and the remainder equally 
divided. And then for the budget window as a whole, 2002-11, if 
you go back and look at what went on and do the same kind of 
decomposition, it is 40 percent economic and technical, 30 
percent on the legislation on the receipts side, 70 of the 
remainder, 30 and 70 on the receipts and outlays sides 
respectively.
    Chairman Nussle. And, again, this is right out of the CBO 
report and these are numbers that are readily available, but I 
don't want anyone to either bury their head in the sand or to 
forget where we have come from. There certainly is a portion of 
this that was done to stimulate the economy. In fact, it was 
done in some respects in a bipartisan way. Again, a lot of the 
spending to support the global war on terrorism, the war in 
Iraq, a lot of the rest of the spending was done in a 
bipartisan way. In fact, we were able to add up the amount of 
proposals of reconciliation--excuse me, motions to recommit 
that were offered by the Democrats this year, and we have about 
$900 billion of extra spending just through motions to instruct 
and motions to recommit. So certainly a lot of the spending was 
deliberate.
    I think the factor that was certainly out of anyone's 
control was the economic impact, and that is that--the bottom 
shaded portion there, which was as much as 68 percent in 2002 
and now as you said 40 percent in 2004 and 2005.
    The second question I had for you is: I do hear that the 
tax cuts themselves caused the deficits, that there weren't any 
other factors. I am interested if you would tell us how much of 
the total deficit was caused by tax relief. The way I have it 
added up, even without tax cuts, even without tax relief, we 
would still be in deficit. We would still be running deficits 
even without the tax relief packages that were passed. In fact, 
they may even be deeper as a result of the fact that the 
economy would not have recovered. I know that is difficult to 
play the guessing game on what would have happened without tax 
relief vis-a-vis economic growth but just from a dollar amount, 
the way I have read it the tax cuts not only did not cause the 
deficit, we would be in deficit anyway even without the tax 
cuts.relief packages caused the deficits?
    Mr. Holtz-Eakin. Certainly. There are two different 
questions, one of which is simply the budgetary math in the 
absence of economic feedback. And as I said before, for 2004 
the revenue decline on the legislative front is $268 billion. 
So if that were not present, we would still--on just budgetary 
math--be below zero: take $260 [billion] back from the $477 
[billion].
    The deeper question of what would have been the path of the 
economy in the absence of tax cuts is not something I have a 
ready and simple answer to. But it is, I think, pretty much the 
case that if one looks back at the impact of the fiscal policy, 
the entire package of a swing from surplus to deficit, roughly 
6 percentage points of GDP over a 3-year period in the presence 
of the economic headwinds that we faced, the equity market 
fallout, in which we saw the stock markets fall; a sharp 
decline in business fixed investment; terrorism events; war in 
the Middle East; corporate scandals and the necessity of 
Sarbanes-Oxley legislation the fiscal policy served to support 
the economy and support demand at a time when the economy was 
relatively weak. So in that sense certainly deficits matter and 
they matter in different ways, and in an economy that is weak, 
they support a demand. The shift from national saving to 
national spending was beneficial. Going forward, it might be a 
very different story. If you had a full-employment economy, you 
wouldn't need that kind of support for demand and the shift 
from saving to spending would not be as beneficial and indeed 
could have economic consequences that were not particularly 
desirable.
    Chairman Nussle. Thank you. Mr. Spratt.
    Mr. Spratt. Dr. Holtz-Eakin, the recession was over in 
November of 2001, according to the National Bureau of Economic 
Research I believe. Growth surged in the third quarter of this 
year, this past calendar year, and still the deficit picture 
has deteriorated radically, dramatically since last January 
when you were here presenting the same report.
    If you look at the same time frame, 2004-13 for last year's 
report, during that period of time last year you foresaw on the 
assumption that there would be no policy changes a cumulative 
surplus of about $1.350 trillion.
    Now if you look at the same time frame in this year's 
report, 1 year later, there is a cumulative deficit of $2.350 
trillion. Basically, there is a swing of about $3.6 [trillion], 
$3.7 trillion over a 1-year period of time. How do you account 
for that?
    Mr. Holtz-Eakin. Well, as I mentioned, if one goes from the 
$2.4 trillion back to the August number, which was a deficit of 
$1.4 trillion, that $1 trillion swing is composed of roughly 
$700 billion in legislation, including debt service and $300 
billion in economics and technicals.
    If I recall correctly, in going from January to August last 
year, that swing, which was $2.7 trillion, consisted of--I 
forget the exact amount, which was economic and technical--
probably $700 billion or so, and probably $1 trillion--
ballpark--on legislation. Some of that was the tax cuts in the 
spring that was much at the front end of the budget window, so 
that was a legislative initiative on the tax side, and then a 
larger amount was outlays, including supplementals, which were 
carried forward in the baseline. But I think that contributed 
to the large majority of the swing, from $1.3 trillion in 
surplus to the $1.4 [trillion] in deficit.
    Mr. Spratt. All those factors, legislative initiatives 
taken here in the Congress, principally the surplus 
deteriorated, got worse by $3.65 billion, or $3.7 trillion over 
the last--over that time frame just in 12 months time.
    Mr. Holtz-Eakin. It is largely legislative, yes.
    Mr. Spratt. Going back, as you did with your bar chart a 
minute ago, to January of 2001, when we received the first 
forecast from OMB and CBO, is what the expected cumulative 
surplus would be between 2002-11, the number from CBO I think 
was $5.6 trillion, a slight difference between the two.
    Yesterday I asked your staff when they presented the budget 
how much have you made in the way of economic and technical 
adjustments that reduce that original $5.6 trillion surplus. In 
other words today, knowing what you know, what would you 
project the surplus for that period, 2002-11, to be? I was told 
it was $3.4 trillion in economic and technical adjustments.
    Mr. Holtz-Eakin. That looks about right.
    Mr. Spratt. That means that we didn't really have a surplus 
of $5.6 trillion on which these big tax cuts were predicated. 
It was far less than that over that same period of time. It was 
more like $2 [trillion], $2.3 trillion, something like that. Is 
that correct?
    Mr. Holtz-Eakin. That is what it looks like today, yes.
    Mr. Spratt. And all of that was Social Security, was it 
not? The Social Security surplus was $2.4 [trillion], $2.5 
trillion. Once you adjust for economic and technical, there was 
no surplus over and above Social Security, was there?
    Mr. Holtz-Eakin. I am not familiar with the Social Security 
number, but we will stipulate you are right.
    Mr. Spratt. Let me also get clear what was said earlier, 
because I may have written it down wrong when I read your book 
last night, but it is my understanding that you say in this 
book, this presentation, that if the tax cuts are not renewed 
and if discretionary spending is basically kept at current 
services baseline, the budget will just about balance over the 
next 10 years by itself.
    Mr. Holtz-Eakin. That is the baseline projection, yes.
    Mr. Spratt. So the tax cuts are a critical--if they weren't 
renewed, then this situation would go away in 10 years?
    Mr. Holtz-Eakin. If all the aspects of this policy package 
were adhered to for 10 years.
    Mr. Spratt. I will let you clarify that, because there is a 
chart in the Washington Post today that omits one of the 
critical assumptions that goes along with this, and that is 
that discretionary is held to no more than inflation over the 
next 10 years. Those two factors together, then the budget 
would be in balance in 10 years' time?
    Mr. Holtz-Eakin. Yes. That is the baseline projection.
    Mr. Spratt. By the same token, I read that--or conversely, 
I read that if the tax cuts were not renewed--if they were 
allowed to expire as scheduled according to their own original 
legislative terms, then we would have in the terminal year, the 
last year of your forecast here, 2014, a deficit of I think 
$484 billion, something in that range.
    Mr. Holtz-Eakin. I think it is a little smaller but it is 
close to that.
    Mr. Spratt. So we wouldn't be able to cut the--according to 
your projection here, unless you take other actions, you would 
not be able to cut the deficit--today's deficit of $477 
[billion] in half, even over the next 10 years, if you renew 
the tax cuts.
    Mr. Holtz-Eakin. If you just do that policy from the 
baseline, yes.
    Mr. Spratt. Let me also mention one thing, because it is--I 
understand was a subject of discussion in the other body this 
morning when you testified before the Senate Budget Committee. 
You have included, as the law requires you to include, the 
supplemental for defense and international affairs of about $87 
billion adopted in 2004, because you are required by law to put 
that in the baseline for the next year, and therefore when you 
extend it out over a 10-year period of time you have got--I 
think you told us--$880 billion for that addition, plus 
interest, which is $227 billion I believe--about $1.1 trillion.
    Could I show you a little chart and ask you to take it back 
and let your staff work on it and let us know if it comports 
with your own analysis? Because what we have done is taken 
another analysis from CBO, namely on the defense budget, and 
used those numbers. The argument being that if you remove the 
$800 billion for the supplemental, most of which went to the 
deployments in Iraq and Afghanistan, if you remove that, you 
have got to put something in that place, because then you don't 
have anything included for the likely continuation of those 
deployments or anything included for international aid which we 
are still providing to Afghanistan, still providing to Iraq. We 
won't be--you can remove that, but you are left with an 
unrealistic baseline. This thing is not exactly self-
explanatory. That is the best I can do to hand it out. If I put 
it up on the screen, you would never be able to see it.
    But basically we went back to your study on the defense 
budget in which you essentially said once you allow for 
contingency costs, that is, for the worldwide--or that was not 
in your study, but there ought to be some allowance made here 
for the global war against terror, and we have got, included 
starting at this year's level, 51 bills down to 31, down to 30, 
down to 20 and tapers off in the low to mid $20 billion a year 
to maintain that effort, and I don't think that is an 
unrealistic effort. But you don't have to comment on that.
    The other three items, the risk, cost risk in weapons 
systems, procurement and development now underway was a number 
that you developed for your study based on historical 
experience with the defense budget. The next was benefits based 
upon the experience we have had recently and the things that 
are on the agenda, the risk of personnel costs going up 
significantly due to various policy changes like TRICARE for 
life.
    Finally the total for that comes over a 10-year period of 
time to $700 billion if you add all of those things. Fifty 
declining to 24 for the global war against terror. The items 
that you included in your defense study as risk over and above 
the budget. And in addition there is another factor. You take 
what we are spending on defense this year and each year you 
adjust it by inflation, and yet that amount, your current 
services baseline projection of defense spending, is less than 
the so-called FYDP, the Future Years Defense Plan, in the 
Department of Defense. We know more or less what is in that 
budget and we know it is more than what you have got in current 
services.
    So if you also adjust for the DOD's, Department of Defense, 
FYDP, what they have got as opposed to what you get 
automatically by simply adjusting every year for inflation, 
there is another item to be added. That is the item of A, and 
it adds up to about $447 billion, the difference between 
current services and the FYDP for the period of time we are 
talking about.
    And then if you assume that if we are going to be in 
Afghanistan, we are going to be in Iraq, we are going to be 
doing the things we are doing, we are probably going to have a 
larger budget for international affairs as a small plus-up in 
international affairs. On top of that you don't have to include 
it to get to $1.1 trillion.
    What I am suggesting is that when you take that $87 
[billion] out on the basis that it was arbitrarily included to 
comply with black letter law and put something in its place, 
what you put in its place is pretty close to what you get 
anyway by extrapolating forward the $87 billion over the 10-
year period of time.
    Would you care to comment on that?
    Mr. Holtz-Eakin. Well, certainly we would be happy to go 
back and go through this and make sure we come up with the same 
kinds of costs for this particular policy scenario. Indeed, 
this simply constitutes another future scenario for the course 
of policy. The baseline is meant to be a neutral benchmark 
against which policies are measured, and this would be one. I 
would be happy to go back and make sure that these numbers, 
which strike me as quite close to our original estimates, are 
still good estimates, and we will get back to you on it.
    Mr. Spratt. We very much appreciate your response to it, 
and thank you very much.
    [The information referred to was subsequently provided to 
the House Budget Committee Democratic staff.]
    Chairman Nussle. Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. Mr. Holtz-Eakin, we 
certainly appreciate you coming today and sharing all this 
information with us, and I was just going to follow up on 
John's [Spratt] question, if I may. The $87 billion is factored 
in through the--I guess the 10-year cycle, and I was just 
wondering if there are other items, these nonrecurring items, 
which also could be identified as factors through this cycle 
too. Do you have any kind of an estimate of what those numbers 
might be?
    Mr. Holtz-Eakin. In principle, that is possible. I can't 
think of anything else major that would enter into these 
projections.
    Mr. Brown. I was just thinking of building battleships, 
aircraft carriers, or some of the other large initiatives that 
are actually there.
    Mr. Holtz-Eakin. As the Congressman mentioned, there is a 
Future Year Defense Program, which lays out the 
administration's initiatives in that area, and we have in a 
separate analysis attempted to look at the budgetary 
consequences of that. That is slightly different than the 
discretionary baseline you will see here, and it is different 
again from including one-time events, which you might plausibly 
argue wouldn't continue. So the baseline includes all 
appropriations which are on the books at the end of 2004 and 
extrapolates them in a fairly mechanical fashion.
    Mr. Brown. One other question. I serve on the 
Transportation Committee, and we are in the process of trying 
to get the reauthorization bill. What dollar figure are you 
using in these figures?
    Mr. Holtz-Eakin. I think we have in this baseline $480 
billion over 10 years, and that represents a continuation of 
the extension that was passed last fall.
    Mr. Brown. OK.
    Mr. Holtz-Eakin. I will get the precise number with my 
staff.
    Mr. Brown. Somewhere less than $300 [billion]--I guess--
let's see. It would be $48 billion a year. Right?
    Mr. Holtz-Eakin. A little under $300 billion for the 6-year 
reauthorization window.
    Mr. Brown. Right. What I think we are looking at in the 
Transportation Committee is some $375 billion, and so this 
would change our numbers too if in fact that was passed.
    Mr. Holtz-Eakin. Yes, to the extent that there was a new 
policy beyond the continuation, that will be priced the next 
time in August.
    Mr. Brown. Thank you.
    Chairman Nussle. Mr. Moran.
    Mr. Moran. Thank you, Mr. Chairman. Let's go back over the 
current deficit. You estimate it to be $477 billion for the 
current fiscal year.
    I heard you say earlier that $268 billion was attributable 
to tax cut legislation in 2004.
    Mr. Holtz-Eakin. That is right. If I read my notes right.
    Mr. Moran. OK--$268 [billion] is more than 40 percent of 
$477 [billion]. So I understand the 40 percent is over a 10-
year period, but clearly for the current budget deficit the tax 
cuts were the predominant factor?
    Mr. Holtz-Eakin. The number I gave was as a measure of the 
swing from surplus to deficit, which is larger than the deficit 
itself. So that is the difference there.
    Mr. Moran. But I still think it bears out a contention that 
the tax cuts were the principal factor in the current year's 
deficit. Is that not accurate?
    Mr. Holtz-Eakin. The number I gave was the swing from 
surplus to deficit, and the tax cuts contributed about 30 
percent of that spending legislation; economic and technicals, 
the rest.
    Mr. Moran. Well, the point when you add the tax cuts with 
the war in Iraq, both of which were an issue of the prerogative 
of the President, it was certainly up to the President to 
decide whether or not to cut tax cuts. That was not essential, 
and as we are finding out more clearly every day, the Iraq war 
was a war of choice, not of necessity. And I think when you 
consider that, that these deficits were not inevitable, that 
they were the result of decisions made by this administration 
and the majority, although a bare majority of this Congress.
    In the outlook volume that you presented to us, Dr. Holtz-
Eakin, it says that CBO has conducted detailed analysis of a 
sample of tax returns, which is to suggest that some of the 
decline in receipts which was believed to be temporary last 
summer is likely to be permanent. I would like to get a sense 
of whether as a result of that there is any real hope for 
achieving the President's objective stated in the State of the 
Union Address that he plans to cut the deficit in--was it the 
deficit or the debt, because either one is impossible, 
certainly improbable, within 5 years. Given the fact that he 
wants to make permanent all of the tax cuts and the fact that 
there has been this permanent reduction in tax receipts, do you 
see anything that would confirm the assertion of some who have 
said that over the last 2 years cutting tax rates would 
increase tax revenues to accomplish the President's stated 
objective?
    Mr. Holtz-Eakin. Well, I can't speak to the President's 
objectives, and we will certainly analyze his budget when it is 
delivered. I know that when we do each projection we start it 
at the ground and work up all the details, and in scrubbing the 
revenue numbers, there are always gaps left between what we 
think we should be getting in terms of receipts given the state 
of the economy and the structure of the tax code and what it 
looks like will be coming in, and those gaps are called 
technicals. And what goes in are various things.
    Mr. Moran. I don't want to interrupt but I know we are 
going to run out of time. You said that the traditional revenue 
is about 20 percent of GDP, I understand, and if the tax cuts 
were made permanent it would be about 15 percent, 15, 16 
percent.
    Mr. Holtz-Eakin. That is not quite----
    Mr. Moran. No?
    Mr. Holtz-Eakin. No. The average has been about 18 percent 
of GDP. If you go to the end of the budget window, these 
projections have receipts of 20.1 percent of GDP.
    Mr. Moran. But that is assuming that the tax cuts are not 
permanent, that the President does not achieve his objective of 
making them permanent. And the point I am getting to is that if 
we were to follow through on the President's legislative 
priority of making permanent the tax cuts, then the receipts 
would be considerably less and in fact it would negate the 
achievement of his other objective, which is to eliminate the 
deficit within--halve the deficit in 5 years. Is that not 
accurate? I think that is supported by all of your numbers.
    Mr. Holtz-Eakin. The numbers that I know--I again can't 
speak for the President, but of the rise in receipts, 2.3 
percentage points comes from sunsets. So if you took that out 
mechanically, you would be at 17.8 percent of GDP, and that 
would be what I would refer to as a very conventional budgetary 
static estimate. In our baselines we try to incorporate the 
impact of the tax law on the economy in the numbers that we 
talk about in terms of what it would cost to make tax cuts 
permanent things. We don't have any economic feedback at all.
    Mr. Moran. As Mr. Spratt pointed out in your table, it is 
2.3 trillion, is the cost of making permanent the tax cuts. I 
am just factoring that in and suggesting that the two 
objectives of halving the deficit in 5 years or making 
permanent the tax cuts, they are mutually exclusive, and I 
think your numbers support that.
    Mr. Holtz-Eakin. Well, what policies people pursue are 
clearly not something that I can decide, but I want to just 
make sure that it is clear that the table in chapter 4 has all 
expiring tax provisions, not simply those that can be traced to 
2001, 2003, and the difference will depend on which ones are 
chosen.
    Chairman Nussle. Mr. Wicker.
    Mr. Wicker. Thank you.
    Mr. Chairman, I notice that my friend, Mr. Spratt, and my 
friend, Mr. Moran, have asked questions about what, in theory, 
would happen if the tax cuts were allowed to expire on time. 
Then I think I listened carefully and I think I heard Mr. 
Spratt say that he did not advocate a full return to the higher 
taxes that we had earlier. For example, I believe he said he 
did not advocate doing away with the additional child tax 
credit or the new 10 percent income tax bracket, things of that 
nature. I was glad to see him say that, Mr. Chairman, because 
that is something he and I can agree on; but it creates a 
problem in asking these questions about what would happen if we 
did certain things that I do not think very many of us in this 
room want to do.
    To me, when you take away a child tax credit, that is a tax 
increase; and when you eliminate a 10-percent tax bracket and 
push someone up to 15 percent or higher, that is a tax 
increase; and with what we have seen in the economy and where 
we need to go, I do not think we need to do that. When you 
eliminate partial expensing on small business, that is a tax 
hike, and I do not advocate that.
    When you go back to a higher marriage tax penalty, that is 
a tax increase, so I hope that when we are doing assumptions we 
can rule out some of these assumptions that we have asked 
questions about, because they are not realistic in terms of 
where we need to go with the American people. But let me ask 
you, Mr. Holtz-Eakin, about where we have been in the economy 
since the income tax cuts and other tax cuts that have been 
enacted.
    You would think, listening to some people, that we have 
gone to hell in a hand basket, but, actually, the economy is 
pretty good, in terms of the recent news.
     Real GDP grew at a rate of 8.2 percent the third 
quarter of last year, back down to between 4 and 5 percent in 
the last quarter, but projected to be in that range for the 
entire coming year.
     Manufacturing reached its highest pace of activity 
in 20 years at the end of last year.
     Housing starts at their highest pace in 20 years.
     Industrial production at a 6 percent annual rate 
of increase.
     Real fixed business investment again growing 
faster than it has in years and years, and the Dow Jones 
Industrials up 26 percent.
    It is clear to me, and I think it should be clear to an 
objective observer, that the economy is coming back, and we do 
not need to do anything to dampen what seems to be a real good 
recovery from this recession which we inherited in the year 
2000, 2001.
    In your opinion, Mr. Holtz-Eakin, do not you agree that 
this is good economic news and that we are going to see more of 
it and that a great deal of that is as a result of our actions 
in this Congress in reducing the tax burden on American 
families?
    Mr. Holtz-Eakin. Well, I certainly agree that we were 
surprised by the strength of third quarter. We certainly did 
not anticipate that in August when we put together our 
projections.
    As you have seen in our projections, we do anticipate that 
the cyclical recovery will continue, and continue robustly, 
returning us to potential output in the U.S. economy. As I said 
earlier, I believe that the swing from surplus to deficit, when 
viewed looking backward, did tend to support the economy at a 
time when private demand was quite weak. We do not have a 
decomposition of that, but there is evidence to support that, 
yes.
    Mr. Wicker. Thank you, Mr. Chairman.
    Chairman Nussle. Mr. Neal.
    Mr. Neal. Thank you very much, Mr. Chairman.
    Thank you, Mr. Holtz-Eakin.
    In response to my friend, Mr. Wicker: I know that the 
Massachusetts unemployment rate caught the national average for 
the first time in many, many years. At a meeting that I had 
with construction people yesterday, they tell me it is the 
worst it has been in memory, so perhaps something is happening 
in Mississippi that is not happening in the northeastern part 
of the country.
    Mr. Holtz-Eakin, let me talk to you about an issue that I 
know the chairman would tell you that I have been consistent 
on, even in my work at the Ways and Means Committee, and that 
is fixing the alternative minimum tax.
    The President's budget I assume is going to call for a 
short-term fix, and could we not argue that the tax cuts during 
the last 3 years have only exacerbated the problem in the sense 
that, on the one hand, we give tax cuts to people and, on the 
other hand, they get hit with the AMT and that revenue ends up 
going back to the Treasury.
    Mr. Holtz-Eakin. You can certainly see the interaction 
between the AMT and the tax cuts in chapter 4. There is a box--
Box 4-2--which you can read at your leisure--that shows at the 
end of the projection window, when the tax cuts sunset, the 
sharp drop in AMT payers because their regular income tax 
liability will be high enough to keep them off the AMT.
    Mr. Neal. Right. You estimated there will be 23 million 
taxpayers who will be subject to the AMT by the year 2014.
    Assuming that the Bush tax cuts expire and no other AMT 
fixes are enacted, can you estimate for me how many taxpayers 
will be subject to the AMT if the Bush tax cuts are extended, 
as he has requested, without any fix in the AMT?
    Mr. Holtz-Eakin. I do not have the number off the top of my 
head. I would be happy to work with you about it.
    Mr. Neal. That is part of the problem. Everybody is happy 
to work with me on it. We just cannot get it resolved.
    Mr. Holtz-Eakin. I will get you an estimate.
    [The information referred to follows:]

    Letter From Mr. Holtz-Eakin in Response to Mr. Neal's Question 
              Regarding the Alternative Minimum Tax (AMT)

                               Congressional Budget Office,
                                      Washington, DC 20515,
                                                  February 6, 2004.
    Dear Mr. Neal: At my testimony on January 27, before the Committee 
on the Budget regarding CBO's budget and economic outlook, you asked 
how many taxpayers would be subject to the alternative minimum tax 
(AMT) in 2014 if the recent tax cuts were extended without any change 
to the AMT. We estimate that, under those assumptions, about 40 million 
taxpayers in 2014 would be subject to the AMT. Under our baseline 
assumptions, the number would peak at about 29 million in 2010 and then 
drop in 2011 after the tax cuts expire. If instead the tax cuts were 
extended, the number would continue to rise beyond 2010.
    If you wish further details on this estimate, we will be pleased to 
provide them.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.

    Mr. Neal. That is different than getting it resolved.
    Thank you for qualifying that.
    Do you not think that people that advocate tax cuts and 
that have been consistent and even at moments vociferous in 
their support of tax cuts, do they not have some responsibility 
to those that are about to get bumped into an AMT situation 
that it would be appropriate for the tax cut advocates to do 
something about it, rather than leaving it to future 
generations to foot this bill?
    I mean, in deference again to the gentleman from 
Mississippi, he talked about how the tax cuts have been 
important here, and he does not want this tax increase, does 
not want that tax increase, and I understand that, but let's 
remind people that the deficits belong to them, too, and that 
the debt belongs to them. But this notion that has become 
popular that will let future sessions of the Congress and 
future administrations deal with this AMT issue, does not that 
mean that we are also suggesting that we ought to let future 
generations of Americans deal with it as well?
    Mr. Holtz-Eakin. I can tell you that I will leave it to the 
committee to assign the standards for public responsibility in 
assessing public policy, and you can ascribe the deficit only 
to the cumulative of net policies, and I could not parcel it 
out to net pieces in any scientific way.
    Mr. Neal. Well, do you think we are going to tackle AMT in 
a serious way this year?
    Mr. Holtz-Eakin. I would prefer not to speculate.
    Mr. Neal. Let me take you to another favorite topic of 
mine, these U.S. corporations that go to Bermuda.
    The joint tax has estimated that we can collect $5 billion. 
We have 134,000 troops in Iraq, we have 12,000 troops in 
Afghanistan and at the cost of $1 billion a week; and we all 
know after the election there will be a request for another 
supplemental, tens of billions of dollars for Iraq. Wouldn't it 
be very helpful that if we were to go out and collect the $5 
billion that we could for these corporations who enjoy the 
protection of the American military and enjoy many of the other 
nice things that come along with being an American citizen 
except on tax day for these folks?
    Mr. Holtz-Eakin. Again, which path for policy the Congress 
and the administration should take is really not something that 
I can speculate on.
    The joint committee, I think, has taken a good crack in 
making that estimate; and certainly it is one policy option 
available to the committee and the Congress as a whole.
    Mr. Neal. Would it ease your projections if we were to 
collect the $5 billion?
    Mr. Holtz-Eakin. If we added $5 billion in receipts it 
would lower the deficit $5 billion other things being equal.
    Mr. Neal. Thank you very much.
    Chairman Nussle. Mr. Bonner.
    Mr. Bonner. Thank you, Mr. Chairman.
    Dr. Holtz-Eakin, I would like to just seek your definition 
as an economist. Our friends talk about tax cuts not being 
renewed, and I was hoping that the tax cuts would not expire.
    The way we think in my district in south Alabama, letting 
the tax cuts expire or not having the tax cuts be renewed would 
be equivalent to a tax increase, so, from your perspective, if 
this Congress or future Congresses does not make permanent if 
the tax cuts of 2001 and 2003 and those tax cuts do expire, is 
that a tax increase on the American people?
    Mr. Holtz-Eakin. I would not be a professional economist. I 
could not give you two answers to that question. Let me give 
you two answers to that question.
    I think if you consciously attempt to raise more tax 
revenue from the same base, that is a tax increase; and that 
seems fairly straightforward to me. A key part of this would 
be--expectations in the private sector are the second thing. If 
people expect those tax cuts to be permanent, they would 
perceive their expiration as a tax increase. I think that is 
fair, and we have actually, in doing our projections, tried to 
think hard about how to handle that.
    Certainly, we build into our projections, the economic 
projections, the budget law on which they are based; and this 
tax law has lots of sunsets in it, so people will behave based 
on what they expect.
    We do not know if they expect the tax cuts to be permanent, 
expect them to sunset, or expect something in between, but it 
is generally consistent, and, as a result, the economic 
behavior in these projections is based on that. And what will 
happen actually when we get out to 2010, 2011, I do not know.
    Mr. Bonner. As a follow-up, because I have friends in 
Massachusetts and I have friends in Mississippi----
    Mr. Neal. Would the gentleman yield?
    Mr. Bonner. Be happy to yield.
    Mr. Neal. You have a friend right here in Massachusetts.
    Mr. Bonner. I am looking at him, yes, sir.
    Mr. Neal. You know that.
    Mr. Bonner. But to the constituents that you represent and 
to the constituents that I represent who have had difficulty 
getting jobs in the last few years, I guess my question again 
is to your background as an economist: Is there anything in the 
history of this country that would suggest that increasing 
taxes on people who are already struggling to find jobs is 
going to enhance their ability to find jobs? Will it be healthy 
for the economy if we increase taxes?
    Mr. Holtz-Eakin. The correct answer to that, the scientific 
answer, is: It depends what you do along with that. If you do 
it in isolation, you bring budgetary resources into the budget.
    Mr. Bonner. So it will be the government's money.
    Mr. Holtz-Eakin. You know, a fair answer involves asking 
both parts of the policy package. If the money comes in and you 
spend it, we can analyze that. If the money comes in and you 
buy back debt, we can analyze that. So that is a careful 
answer.
    It would also depend on the state of the economy, quite 
frankly. As I have said to the chairman in the past, deficits 
certainly matter, but their impact differs, and it differs in 
this economy which is very weak, but we anticipate it will 
recover quite nicely.
    Mr. Bonner. Mr. Chairman, I yield back.
    Chairman Nussle. Mr. Edwards.
    Mr. Edwards. Mr. Chairman, these alarming deficits should 
be a wake-up call for the country and the Congress. For the 
second year in a row, we will have the largest deficits in 
American history, adding $852 billion to the debt on the backs 
of our children and grandchildren in just simply 24 months. 
These deficits are a cancer that will eat away at the long-term 
economic growth in America and put our children's future at 
risk. They can also undermine Social Security and Medicare 
benefits for present and future seniors and will likely force 
cuts in vital programs for homeland security, education, 
defense, and health care.
    I believe the dirty little secret about these historic 
deficits is a country such as China had been purchasing this 
year and last enormous amounts of U.S. debt, so they now have a 
knife at our economic throat. So, if some future administration 
wants to negotiate, for example, a tough, fair trade deal with 
China or Japan, they can threaten the American economy by 
simply saying maybe it is time for them to turn in that debt, 
back to the United States, and doing so could devastate our 
economy.
    To put in perspective for those who might minimize the size 
and historic nature of these deficits, Dr. Holtz-Eakin--and I 
think you can answer this yes or no--prior to this 
administration, was not the largest single deficit in American 
history $292 billion in 1992?
    Mr. Holtz-Eakin. Yes.
    Mr. Edwards. So, in actual dollar numbers, the fiscal year 
'04 deficit will be $185 billion higher than the deficit was in 
the largest single deficit year prior to this administration. 
That is a 63 percent increase and the largest deficit in 
American history in any one year.
    Now, I am going to assume 4 percent costs of funding this 
$852 billion debt that we have added to our children and our 
grandchildren. I think your assumptions assume 4.5 percent. I 
am going to assume we will get a little cheaper money, but 4 
percent times $852 billion, Mr. Chairman, is $34 billion a year 
that our children and grandchildren will pay in interest on the 
national debt from these 2 years of deficit spending; and they 
will pay those taxes until the day they die.
    Now, to put that amount in perspective, since $34 billion 
goes over the heads of most of our family budgets, the United 
States Federal budget only puts $29 billion a year on all 
education programs, from Head Start, to kindergarten, through 
the 12th grade, so the deficit interest costs from 2 years, 
without that, we could have doubled our commitment to education 
and still had money left over.
    Now, to put it in more family budget terms, I would like to 
put in the record Mr. Chairman, that, using administration 
numbers and CBO, the Democratic staff of this budget committee 
estimated by 2013 a family of four will be paying $9,493 for 
their share of interest on the national debt.
    Perhaps those that talk about what is a real tax increase 
ought to look at the honesty of those numbers.
    Now in terms of the myth that we can solve these historic 
high deficits by simply being a hawk on cutting spending, Dr. 
Holtz-Eakin, am I not correct that in three of the five largest 
programs of the thousands of Federal programs, five of them 
represent 70 percent of every Federal dollar spent, defense, 
Social Security, Medicare, Medicaid, interest on the national 
debt?
    Now, am I correct, Dr. Holtz-Eakin, that the Bush 
administration actually wants to increase defense spending, 
Medicare, and is increasing interest on the debt, and three--
even from this budget-hawkish administration, three of the five 
largest programs in the entire Federal budget that make up the 
vast majority of Federal spending, this administration is 
asking we spend more and not less? Is that correct, Dr. Holtz-
Eakin?
    Mr. Holtz-Eakin. We have not yet seen the President's 
budget, and we will be back to discuss it. We will be happy to.
    Mr. Edwards. Let me say for fiscal year '03 the 
administration, while talking about being tough on spending, 
actually requested increases in three of the five largest 
Federal programs--and, frankly, I supported them in some of 
those increases--but let's do away with the myth that spending 
alone is going to keep our grandchildren from being drowned in 
a $7-trillion sea of national debt.
    Thank you, Mr. Chairman.
    Chairman Nussle. Mr. Garrett.
    Mr. Garrett. Thank you, Mr. Chairman.
    You know, it is encouraging to sit on this side of the 
aisle and find out that we do have some commonality on some of 
the issues that we are discussing here, that, just as we would 
see that a tax increase is a burden on the individual, so, too, 
that an increase in borrowing today is a burden that is going 
to be placed maybe not on people today but on future 
generations.
    I do recall, Mr. Chairman, sitting here a year ago and 
heard your statement as you reiterated today at the outset of 
this meeting that deficits do matter. I appreciated your 
comment, back then, as a freshman member of this committee, to 
stress the importance of us to address the issue; and I think 
we need to continue that as well.
    To the gentleman from New England, I hear the same things 
to some extent back in my district in New Jersey as well when 
we hear, gee, we do hear some good economic news. But we have 
certain pockets in certain areas where people are not exactly 
where they want to be economically, for one reason or another. 
But I will tell you this, that I concur with the comments of 
Mr. Wicker, that, overall--and I say this each time I go out to 
a town hall meeting--that, overall, the economic indicators are 
certainly positive and encouraging economic indicators, whether 
you are talking about the manufacturing numbers, up to the best 
numbers in 20-odd years; housing starts, best and largest in 
20-odd years.
    Maybe that is one of the conundrums that we have in New 
Jersey, that, on the one hand, the economic numbers are so 
good, that housing starts are so great. But, on the other hand, 
I go back to my constituents and they talk to me that, if they 
are so great, we have suburban sprawl. The housing is so great 
that they are building too many houses and that we actually 
have an environmental issue that things are going so well back 
in our State that we have to address it.
    So what I hear from my constituents is we do have certain 
areas we have to address economically, but, in the long term, 
things are improving and that what they do not want to have is 
an additional burden on them in the future, which would be a 
deficit today, nor do they want an additional burden on them 
today, which would be increases in taxes, which would be the 
result of us not continuing the tax cuts that we passed in the 
years in the past.
    My questions to you, though, still sitting here somewhat as 
a freshman, I will say this: When I was here at the beginning 
of last year I was amazed at the projections and how accurate I 
thought they could all be 10 years down the road. Now I know I 
was a little naive in that. I read through your report, and I 
see that maybe we are not even that accurate 5 years down the 
road.
    I look in the details that you have, I think, in your 
report. Is it correct to assume that the numbers that we are 
looking at today in the short term are usually more optimistic 
as to where our deficit is going to be and in the long term 
that they are going to be more pessimistic?
    Mr. Holtz-Eakin. Actually, in one of the appendices, we 
walk through in fairly great detail and show the historic range 
of uncertainty that surrounded budget projections.
    Certainly, the near-term ones are more accurate than the 
longer-term ones. The more time you have in the future, the 
more likely you are to not anticipate things; and not just for 
the CBO but for economists in general, at the turning points, 
the same would be true. We have not experienced a large number 
of business cycles that would allow us to get projections 
around turning points as well as I would like, but that is a 
weakness that we will face now.
    I would also point out that in this particular business 
cycle, one of the things that the CBO as well as the economic 
profession has really worked to try to understand is the labor 
market and how it hasn't quite picked up, its inconsistency 
with the pace of overall economic activity. We can talk about 
that more if you want to, but it does show up in the budgets, 
because the incomes haven't picked up as much as the production 
and output have. There is a little bit of a mismatch at the 
moment, and that affects the budget as well.
    Mr. Garrett. Is it better to err on reigning in spending 
today than to continue on either the flat line or a slight 
increase in budget expenditures?
    Mr. Holtz-Eakin. We do not have a particular bias that we 
attempt to introduce in the numbers; let me be clear about 
that. I think when you look at the appendix and look at the fan 
chart, it is out to 5 years, which is the horizon that we can 
analyze at all carefully. The central forecast is for deficits, 
and there is a very small likelihood that, just through the 
course of economic events, everything breaks to the upside.
    In an economic technical fashion, you end up in surplus. 
The chances of that are much thinner than the chances of being 
further south.
    Mr. Garrett. Thank you.
    Chairman Nussle. Mr. Baird.
    Mr. Baird. Thank you, Mr. Chairman.
    We have about 8 percent unemployment in our district, so 
when my good friends talk about the economy getting better I 
just came from a lot of unemployed workers who sure do not feel 
it is getting better, and when Mr. Bonner talks about taxing 
people who are looking for work, I think that is disingenuous.
    Those folks who are looking for work are not paying income 
tax, and when we have the opportunity to help them by extending 
unemployment benefits we do not do so, and when we have the 
opportunity to help them by extending the child tax credits to 
help their children, this Congress refused to do so.
    We spoke some time back in this Congress--most of us ran 
for Congress on a premise of a thing called the lockbox, and I 
asked the distinguished gentleman last year: How much will we 
be borrowing from Social Security over the next 10 years in 
your estimates from the trust fund?
    Mr. Holtz-Eakin. In the CBO projections, we have a on-
budget deficit of $4.3 trillion over the 10 years and an off-
budget surplus of $2.4 trillion over the 10 years.
    Mr. Baird. So if I were to tell the average citizen how 
much we have taken out of the lockbox that we promised to lock 
up, what figure would I give them?
    Mr. Holtz-Eakin. With the stipulation that I do not believe 
we actually have a budgetary lockbox, the accounting is such 
that, instead of $4.3 [trillion], we have $1.9 trillion, and 
the difference is the 2.4.
    Mr. Baird. So we all ran for office saying we would not 
touch the Social Security Trust Fund, we would put it in a 
lockbox, but yet we are borrowing about $2.4 trillion from that 
lockbox over the 10 years so that we can make this budget 
deficit look smaller.
    Do we have a viable plan to pay back what we borrowed from 
the Social Security Trust Fund?
    Mr. Holtz-Eakin. There are budgetary plans, and then there 
is the future path. The future path is that all budgetary 
responsibilities, all outlays, come from the economy in the 
end, and the Social Security Trust Fund does not contain any 
real economic resources. It is an intragovernmental accounting 
device that keeps track of particular transfers from the 
Treasury general fund to the Social Security Administration and 
vice versa. So in the end, the obligations that are out there 
for Social Security and other entitlements will be paid for out 
of the economy, and those resources will come into the 
government by taxes or borrowing, and they will go out in the 
form of benefit payments.
    Mr. Baird. When people talk about lowering the deficit by 
half in the next 5 years, my reading is that we are going to 
lower the deficit but we are not going to count the borrowing 
from Social Security and Medicare. If we actually did count 
that in any feasible way, would we actually see the deficit 
reduce by half?
    Mr. Holtz-Eakin. Again, I do not know what people have in 
mind when this target gets tossed around. I have heard dollar 
values. I have heard as a fraction of GDP.
    You would like, it sounds like, to count it in strictly the 
on-budget portion. Again, the baseline projections show the 
deficit going from 4.2 percent of GDP to 2 percent of GDP in 2 
years. So as a fraction of GDP on a unified basis, that is in 
the baseline projection. That is a particular policy. You could 
choose another policy which counted it using only the on-budget 
portion; and again for dollar values--it would be without 
taking advantage of the GDP growth, it would be a different 
policy.
    Mr. Baird. I appreciate that.
    I just find it a little ironic that we run for office on 
one policy and then we defend our actual actions based on a 
different policy.
    One of the things that always puzzles me is the tendency 
for correlation causation reasoning, and it goes something like 
this: There were tax cuts passed, the economy got better, ergo 
it got better because of the tax cuts.
    Seems to me lower interest rates have something to do with 
that, and neither I nor my friends on the other side of the 
aisle are responsible for that, but I can tell you a lot of 
folks invested in their business.
    Have you attempted to look at what percentage of the 
economic recovery and the resulting reduction in deficit has 
been the result of lower interest rates versus tax cuts?
    Mr. Holtz-Eakin. No, we have not done a decomposition of 
all the potential factors that led to recovery from the 
recession.
    I think as a matter of trying to relive an alternative 
history, you are exactly right. The path of monetary policy and 
the path of fiscal policy are intertwined; and if one had 
chosen another path, one would have gotten a different answer.
    Mr. Baird. I raise that because, as we look toward the 
possibility of extending the tax cuts, one might want to decide 
whether or not we deserve crediting those tax cuts with a 
recovery and recovery of jobs productivity, et cetera, or 
whether lower interest rates may be more responsible. If 
deficits drive those interest rates up, we could have an 
unpleasant surprise.
    I thank the gentleman for his commentary.
    Chairman Nussle. Ms. Brown-Waite.
    Ms. Brown-Waite. I have a couple of questions, they are not 
related but totally disjointed, but they are questions that I 
have as a result of listening to some of the other testimony.
    As a freshman, I need to ask this question: Is borrowing 
from Social Security, the Social Security Trust Fund, new? I 
mean, was it done long before these projections whenever there 
was a deficit?
    Mr. Holtz-Eakin. Certainly there is no economic division 
between the Social Security deficit and the on-budget deficit, 
and so to the extent that we have run unified surpluses smaller 
than the Social Security surplus, the same kind of math 
applies.
    Ms. Brown-Waite. OK. And following up on Congressman 
Wicker's point, if we were to increase taxes, would we not risk 
it having a negative effect on the economy, especially in light 
of the fact that things do seem to be economically turning 
around?
    Mr. Holtz-Eakin. Again, in the absence of a particular 
proposal--it depends if you mean right now, if you mean in 
2011, and what else you might do with that. When we did, for 
example, our analysis of the President's budget last year, I 
tried to take pains to explain that you cannot look at one 
piece of the fiscal policy in isolation. Indeed, the entire 
budget has consequences for the economy. So specifying the 
whole policy is actually the key, and if the policy involves 
tax cuts or tax increases, there has to be some other part to 
it. You have to figure out what would be done with those 
revenues--would they be spent? Would they be used to retire 
debt? And that package has to be analyzed. You cannot look at 
one piece in isolation.
    Ms. Brown-Waite. OK, but if we look at the tax breaks that 
went to businesses, particularly small- and moderate-sized 
businesses, particularly the accelerated depreciation, would 
not that have somewhat of a stagnating effect on the economy?
    Mr. Holtz-Eakin. The question is magnitudes.
    In our baseline, we anticipate that the partial expensing 
goes away at the end of 2004. That provides a tax base 
incentive for firms to move their investment expenditures from 
2005-14. We expect they would take advantage of that, and we 
have an increase in our business fixed investment in 2004 from 
that fact alone. But that is by no means the only reason that 
we expect an investment recovery: The return of the stock 
market to higher levels, increased profitability, some increase 
in foreign demand because of the growth in the international 
economy. So it is true that the expiration of partial expensing 
is there, but it is not the only part of the decision-making, 
and, in this case, I would think that the timing issue is far 
the most important one in terms of the economy.
    Ms. Brown-Waite. OK. The last question that I have, I come 
from an area of west central Florida with a very high 
percentage of veterans; and, obviously, the veterans' budget 
has mandatory spending. I just would like to know what kind of 
projections that your baseline assumes about veterans spending, 
both discretionary and mandatory.
    Mr. Holtz-Eakin. Well, for the discretionary, the baseline 
projections would follow the usual rules of inflating at the 
appropriate price index, the discretionary appropriations that 
we have in 2004, the omnibus.
    For the mandatory programs, I confess that I am not 
intimately familiar with the details, but we can easily show 
those numbers to you.
    Mr. Wicker. I wonder if the gentlelady would yield in her 
final minute?
    Ms. Brown-Waite. Yes.
    Mr. Wicker. In terms of assuming that tax cuts will be 
extended beyond their repeal or deadline, I assume that your 
office is required to assume that the law will be followed and 
does not take into account the fact that many of the repealers 
were placed in there simply for parliamentary reasons, to 
comply with the budget rules, particularly in the U.S. Senate, 
that did not allow us to have the tax cuts be permanent as we 
intended.
    Are you able to take into consideration at all the fact 
that almost all of the debate surrounding these tax cuts has 
assumed that they would be permanent?
    Mr. Holtz-Eakin. I will repeat something I said earlier. I 
will try to say it more clearly. As a budgetary matter, we 
assume current law, and in figuring out receipts, we assume 
that tax cut sunset when we do our calculation.
    In doing our economic projection, we are forced to forecast 
the behavior of the private economy, and people will behave 
based on what they believe will be the tax law. It could be 
made permanent, and the private sector could believe it will 
sunset, or the private sector could believe on a provision-by-
provision basis that some things stay, some things go.
    We do not know exactly what those beliefs are. So into our 
baseline, we assume that the private sector believes that the 
tax cuts will sunset as written in law and our economic 
forecast and medium-term projections are consistent with that. 
So, in particular, when the tax cut sunset in 2011 and there 
are higher marginal tax rates, that will have incentives for 
labor supply and other economic incentives. We did show a 
modest negative impact on GDP as a result of that sunset, and 
so we have taken it into account in doing our baseline 
projections.
    Mr. Wicker. Thank you very much.
    Chairman Nussle. Mr. Emanuel.
    Mr. Emanuel. Thank you, Mr. Chairman.
    I look at this record of $477 billion and I think it 
underscores the point that it is almost impossible to finance 
three wars with three tax cuts. I am reminded of the Vice 
President's comment in the recent book that is out that 
deficits do not matter, and I think the $477 billion almost 
underscores that point.
    Now I actually believe, and I have had discussions with 
friends on both sides of the aisle, a growing economy should 
reduce the deficit. I am struck by all those who claim that the 
economy is growing at record pace and yet we have a record 
deficit when, in fact, the net result should be of a growing 
economy, should be of reducing deficit, not one that is 
growing.
    Last year we had a record number and now this year we 
surpass last year's number, so I am struck both by what should 
happen is not happening.
    I understand you are not willing to enter into some policy 
disputes and get yourself caught in the crossfire, but I do 
understand that, as I read your report, that you seem to think 
deficits are manageable. But yet when I read the IMF's report 
about the danger of the U.S. deficit to the economy, the two 
different tones, tenors, and also conclusions, one is we 
believe our deficit is not a problem to either our economy or 
the world's economy and their conclusion in the IMF, that, in 
fact, the biggest danger to the American economy today is the 
American deficit and the permanence of it. If you look at the 
size of the deficit and the way the economy is growing, we are 
going from a cyclical to a structural deficit, and once that 
attitude changes, as Mr. Baird noted, my colleague, interest 
rates are going to spike. Everything we have been whistling by, 
you know, will catch up with us.
    So I do think that deficits matter, having the right 
foundation matters, having tax cuts matter, but not all tax 
cuts lead to the same economic benefit. Some are stronger, and 
some are weaker. Not all spending leads to the same economic 
growth. Investments in education, health care, and the 
environment lead to greater long-term growth than other types 
of spending.
    So as I read your report and try to look forward both to 
the cause of the deficit as well as to future types of spending 
and you talk about Medicare and some of the other entitlements, 
I was surprised. I am asking for a clarification.
    You wrote a letter last week to Senator Frist about the 
ability of the Secretary of HHS to negotiate prices. In front 
of this committee, our chairman had a hearing on waste, fraud, 
and abuse. The Inspector General from HHS was sitting there and 
said, under their study of 10 drug costs, between veterans and 
HHS, veterans, because they negotiate close to $2 billion, $1.8 
[billion] to be exact, in their study and if HHS had that same 
right on 10 drugs they could save money, and yet you wrote a 
letter saying you did not see that type of savings.
    Now either I misunderstood that letter and I took it out of 
context, and I apologize, but you see the growth in Medicare as 
a threat to the long-term economic fiscal structure of the 
government and yet not give the Secretary of HHS the ability to 
create a Sam's Club and negotiate lower prices in the same way 
we give veterans the right to do that. Could you please explain 
why you wrote that letter and the basis behind that?
    Mr. Holtz-Eakin. Certainly. The majority leader in the 
Senate asked for an understanding of the impact of this 
language; and in looking at the Medicare bill as passed by the 
Congress, signed by the President, we determined that for the 
prescription drug plans, the private sector delivery of the 
prescription drug benefit, the key of their ability to manage 
costs is to have both the incentives and the ability. Do you 
give those firms the tools and the incentives to manage costs?
    In the way the bill was passed, those are at risk for cost 
overruns. They have every incentive to control costs for the 
usual reasons and they indeed are given the tools to do that. 
So our reading of the law as written is that those private 
sector plans would have tremendous incentives to cut the best 
deal possible with pharmaceutical companies and that, as a 
result, removing the language, the noninterference language, 
would have a negligible influence on the cost of the bill 
because they would have done what you would have. I am not 
familiar with the Veterans Administration example, but it has 
already taken advantage of the best discount prices.
    Mr. Emanuel. Let me share this with you.
    The Veterans Administration, since 1992, has the right to 
negotiate bulk prices, and under this committee in this hearing 
room they do far better than HHS on an analysis of 10 drugs 
used by seniors on savings. If we can trust the private 
sector--the last time I remember we have a responsibility to 
the taxpayers--we can also trust the Secretary of HHS.
    I have trust in Tommy Thompson. I do not think he is 
inadequate or incompetent. I think he can somehow put together 
41 million seniors and get a good deal. I think he is a good 
negotiator. I have seen him do it as a governor, and I will 
send you what the Veterans Administration does.
    I see your economic incentive that you think the private 
sector has. My own view is all of us, Democrats and Republicans 
alike, as well as this administration, Tommy Thompson is fully 
capable of negotiating something because he has an incentive, 
too, and that is honoring the taxpayers who are going to be 
asked to foot $400 billion.
    Chairman Nussle. Mr. Diaz-Balart.
    Mr. Diaz-Balart. Thank you, Mr. Chairman.
    I am tempted to respond Mr. Moran's comments on the reasons 
of the Iraq war, but I know this is not the appropriate forum, 
and it has been covered by the national press. So even though I 
am tempted, it is a new year, I will direct my attention to the 
director.
    There are a number of different ways that you can reduce 
the deficit. The government can take steps to reduce deficit. 
You know, we can increase revenues, we can increase taxes and 
hope that that will lower the deficit. We can try growing the 
economy, and there are different ways that we can do that. Tax 
cuts is one of the ways that this Congress and this President 
chose to do so, and many will argue it is working.
    We can also reduce spending, and from what I heard today, 
spending is one of the large segments of our problem.
    Would it be advisable--and I guess I am allowed to ask 
advice--would it be advisable, then, to take steps to further 
reduce spending in order to try to reduce the deficit if in 
fact you believe as I do, that the deficit is something that 
does count, as our chairman continuously reminds us?
    Mr. Holtz-Eakin. Well, I will say at the outset that it is 
not my portfolio to advise on particular policies.
    I do think the things that are in the report and that I 
would highlight show that to run large, sustained deficits 
going forward in the face of a fully employed economy is, among 
other things, easily economically detrimental.
    The second thing that we have discussed in this committee, 
as I testified last August, is that over the long term, 
government spending is a good indicator of the overall cost, 
and that once the decision is made to spend the monies in the 
Federal Government, the next decision is how to finance it.
    You can finance it with taxes, or you can finance it by 
borrowing, which is simply a decision to defer the taxes. And 
going forward, it is clear that there will be a vigorous policy 
debate on how to do that financing mix. But certainly over the 
long term, one of the messages of both I think this report and 
some other studies that we have done is that there are spending 
demands built into the government programs that will simply 
have to be debated and discussed in terms of how they are 
financed or whether they will be mitigated.
    Mr. Diaz-Balart. And just a follow-up. So therefore an 
increase to that deficit of $900 billion would be, I would 
imagine, worrisome; in other words, if this Congress had gone 
ahead and accepted the amendments posed on the floor by our 
friends on the Democratic side, which would have increased the 
deficit by about $890 billion, $900 billion, despite all the 
rhetoric, that clearly would have created a major problem, 
would it have not?
    Mr. Holtz-Eakin. There is no magic line between the correct 
amount of a deficit or a harmful or not harmful amount.
    The U.S. Federal budget averaged a deficit of 2 percent of 
GDP in the 1970s, it averaged 2 percent of GDP in the 1990s. 
Economic performance was clearly superior in the 1990s. And so 
there is no simple relationship between a level of the deficit 
and economic performance, in the same way there is not a magic 
line that separates a sustainable level of debt from one where 
investors lose confidence in your ability to service that debt. 
So I do not know whether the $900 billion hits the magic line.
    What we do know is that going forward, the economy does not 
need this sort of short-term support, and we are running a 
sustained large deficit that has a negative economic 
consequence.
    Mr. Diaz-Balart. I understand that you do not know how to 
find out what that magic number is; but clearly, you know, 
close to 500 is better than 500 plus 900. Is that an accurate 
statement?
    Mr. Holtz-Eakin. We are getting the direction squared down.
    Mr. Diaz-Balart. OK. So clearly I do not think, at least I 
am not comfortable with the deficit we have today and the ways 
we have to reduce it, and it seems to me that that plus another 
$900 [billion] would be irresponsible. I am not asking you to 
comment on that, but clearly it probably would not be good 
fiscal policy to add another $900 billion to that large 
deficit.
    Mr. Holtz-Eakin. I think you have exhausted my views on 
what the consequences will be going forward. I think we are 
pretty clear.
    Mr. Diaz-Balart. Thank you, Mr. Chairman.
    Chairman Nussle. Mr. Thompson.
    Mr. Thompson. Thank you.
    Your report states that about a third of our Federal debt 
is held by investors outside of this country, foreign 
investors. Can you tell us how much we pay in interest on that 
portion of the national debt that is held by foreign investors; 
in other words, how much money do we send out of this country 
to people living in other countries in regard to paying the 
interest on our national debt?
    Mr. Holtz-Eakin. Our net interest in 2004 is $156 billion. 
Without a detailed knowledge of the composition or holdings, 
the cheap answer is to divide by 3, so it is on the order of 
$50 billion. We can get you a detailed estimate if you are 
interested.
    Mr. Thompson. Fifty billion dollars? Does that have any 
implications on our economy, the strength of our economy; say, 
for instance, in regard to interest rates? Could there be some 
complications here at home because of monetary fiscal policy of 
our countries that hold the vast amount of our debt?
    Mr. Holtz-Eakin. From a strictly economic point of view, 
the net issuance of the debt and who buys it, picking out 
particular buyers, not matter very much.
    The question is, at what market price will they buy the 
debt? These particular governments have bought the debt at 
market prices, and we can see what they are. There is another 
layer on top of it that many people speculate about in terms of 
the broader political goals of a government in purchasing U.S. 
securities. That is a noneconomic thing. It has to do with 
their domestic agenda or their international relations.
    Mr. Thompson. So their domestic economic policy could have 
some spillover, as I think someone mentioned here; in something 
such as trade negotiations, could be a leverage point that we 
could feel?
    Mr. Holtz-Eakin. Perhaps. I am not conversant enough to 
know what is going on there.
    Mr. Thompson. And I heard in response to numerous questions 
the fact that you are not interested in getting involved in 
giving us policy advice, but----
    Mr. Holtz-Eakin. There is actually a law that prohibits 
that.
    Mr. Thompson. So you say you are not interested in breaking 
the law.
    Mr. Holtz-Eakin. It is something I did not----
    Mr. Thompson. I do not know how to frame it to sort of keep 
you out of trouble, but there has been a lot of discussion 
about this effort to reduce our deficit, 50 percent reduction 
number.
    Would it seem plausible that reinstitution of some budget 
enforcement act language, such as PAYGO would be a good tool 
that we could rely on to get us there?
    Mr. Holtz-Eakin. We actually have a quick review in part of 
the report on budgetary mechanisms, and at least my reading of 
the historical evidence, PAYGO discretionary caps were very 
useful in supporting the consensus when attempts have been made 
in the '80s and '90s to reduce the deficit.
    However, in the absence of the consensus first to do that, 
such rules themselves will not bind the Congress. There are 
alternatives that can always be imposed on a year-to-year 
basis. And so the first step, I think, is to develop a 
consensus for the fiscal policy going forward, and then for the 
Congress to define rules to support that consensus. But I think 
the order is most effective if the it comes that way. Rules 
cannot come first.
    Mr. Thompson. There has been some talk today about reaching 
that goal. The President mentioned in the State of the Union 50 
percent reduction, I think in 5 years, and your data suggest 
that our deficit in 2004 is $477 [billion]. To reduce that by 
50 percent in 5 years, our deficit would still be $240 billion 
in 2009.
    In the same speech, and I think it has been supported here 
by our friends across the aisle, the President has suggested 
that we make permanent the tax cuts. And again your data 
suggest that that would be $132 billion cost, including debt 
service in that figure. So that means that if you exclude the 
discretionary spending, the rate of inflation holds, we are 
still in 2009, a deficit of 310 billion; is that right?
    Mr. Holtz-Eakin. The number for 2009 for the tax cuts, the 
$132 billion, would be the piece that we would have to make 
sure we got exactly right. The baseline has the deficit at $268 
billion. That includes the expiration of the partial expensing 
and some of the dividend tax in 2008, so we can work on exact 
numbers, but certainly that is the kind of calculation we need 
to do.
    Mr. Thompson. So can we get to the 50 percent number if we 
reinstate the tax cuts or extend the tax cuts? And, if we 
would, what sort of policy changes would we be looking at?
    Mr. Holtz-Eakin. We can certainly show you the net 
combination of making permanent some tax provisions and then 
whatever other policies you might need on the mandatory and 
discretionary side. Obviously there is an infinite number that 
will get you to $240 billion.
    Chairman Nussle. Mr. Portman.
    Mr. Portman. Thank you, Mr. Chairman, and Mr. Holtz-Eakin, 
thank you for your good testimony again. Appreciate your latest 
report.
    We have had a lot of talk today about deficits. Deficits do 
matter, but there has been a lot of talk about these being 
record deficits. What is the critical measure of the deficit in 
terms of its impact on the economy? Is it the percentages of 
GDP or is it an absolute actual number?
    Mr. Holtz-Eakin. I think it's the percentage of GDP. You 
should always measure this relative to the size of the national 
income available to service it.
    Mr. Portman. I do not know what the percentage of GDP is in 
your latest report. I know when I was first elected in 1992, 
when I first ran for office, the percentage of GDP was 4.7 
percent, which is not as high as in the '80s when it was over 
percent of GDP.
    What is your percentage of GDP that you are estimating?
    Mr. Holtz-Eakin. For 2004 it is 4.2 percent.
    Mr. Portman. It is 4.2 percent. So it is not a record 
level.
    In terms of the tax cuts, what do you think the impact of 
the tax cuts was in terms of business investment and lowering 
the cost of capital? What impact did they have on the economy 
over the last year?
    Mr. Holtz-Eakin. We have not done a particular scientific 
decomposition by any means. The broad fiscal policy, I believe, 
supported the economy when private demand was weak, including 
the household sector as well as the business sector.
    Mr. Portman. And recent industrial production rose at 6 
percent this year, the fastest in over 3\1/2\ years, certainly 
is attributable to lowering the cost of capital, I would say. 
And so my friends on the other side of the aisle say, ``Gee, 
how can you make these comparisons and was not it just lower 
interest rates?''
    We talked about adding value to the market. It has gone up 
about 25 percent over the last year, which helps everybody 
invested in the 401(k), the IRA, and helps the economy, so I do 
not think there is any question there is a cause and effect 
here.
    In terms of interest rates, interest rates were high during 
the recession, is that why we had a recession, because of 
interest rates?
    Mr. Holtz-Eakin. No. I think the Fed moved fairly 
aggressively to lower short-term rates. We have seen the rates 
down as well.
    Mr. Portman. Rates have been down over the last few years, 
so it helps. But I just think we have to give credit where 
credit is due, and when you look at what happened over the last 
few years, looking at these charts coming up here, was it 
spending, was it the tax cuts, was it the economy?
    If you believe that it was tax cuts, then you better look 
at this chart, because even if you think tax cuts did not help, 
which I argued they did, the tax cuts would be roughly 20 
percent--when you add all the tax cuts--of the reason for us 
going into a deficit position. About 30 percent as I read these 
charts is reduced spending, so it is bigger than tax cuts, and 
the biggest cause is the economy.
    So the one piece of that that is getting the economy moving 
is the tax relief, particularly I would say on the business 
investment side, which includes the cost of more tax relief, 
because that goes to small businesses, largely those who have 
subchapter S companies and sole proprietors and partnerships.
    I just think we have to look at the analysis carefully and 
not say, ``Gee, tax cuts did not help.'' And we have to admit 
that the goal here is to get the economy moving. That is how we 
got the surplus this time. That is how we will do it again. And 
I appreciate again some of the testimony you have given as to 
the impact of the tax cuts.
    Finally, with regard to your analysis, the $87 billion for 
Iraq would have been continued through the 10-year period. Why 
do you assume that, that there would be an $87 billion 
supplemental for Iraq? Is that based on some policy from the 
administration?
    Mr. Holtz-Eakin. The baseline rules as outlined in the 
Budget Act can't ask the CBO to prepare a baseline projection 
that includes all appropriations, in this case from the end of 
2004, and to extend them for the entire projection period, so 
it is consistent with the----
    Mr. Portman. Under the rules you have to add the $87 
billion supplemental, even though the administration has 
indicated the opposite, that they don't expect to have another 
supplemental, the $87 billion this year, and certainly hope not 
to have it over the 10-year period. And that adds, what, about 
$1 trillion?
    Mr. Holtz-Eakin. About $1.1 [trillion], including debt 
service.
    Mr. Portman. I appreciate that clarification, and again, I 
appreciate your coming to the committee again and giving us 
some hard-number analysis. The key is clear to me. It is 
keeping spending under control, and the President, I 
understand, is going to submit an austere budget on nondefense, 
nonhomeland domestic spending, which is a real problem around 
here.
    I hope the Democrats come up with a budget this year. I 
look forward to seeing it. I am sure there will be a 
responsible debate because we will have two budgets to talk 
about. When you add up all the amendments from last year, I 
think we had about $900 billion of additional spending. Taking 
Mr. Edwards 4 percent number into that, which is about $36 
billion, not $32 billion, so it is more than even the 
additional spending due to the interest on the debt over the 
next 10 years.
    So the key to me is keeping the spending under control and 
letting the economy grow; and if we do that, we will get not 
just half the deficit reduced, but even more over the 5-year 
period.
    Chairman Nussle. Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman. Mr. Holtz-Eakin, we 
have heard a lot about this budget. The fact is we passed 
massive tax cuts in 2001 and 2003, and the economy has been in 
the tank ever since. Cause, effect, I don't know. That is what 
happened. We passed the tax cuts. That is what happened. The 
fact of the matter is it makes a difference as to which taxes 
you cut, whether you had used the money for other stimulus, but 
the $100 billion, you could hire 3 million people at $30,000 a 
piece, and we would have hundreds of billions of dollars.
    And you mentioned swings of $500 [billion], $600 billion in 
terms of the deficit. We have heard the economy in terms of 
jobs listed as good. I think that the fact is it is going to be 
the worst job-producing record since the Great Depression. The 
stock market is doing great, yeah, I mean, its average over the 
last 30, 40,50 years is about 8, 9, 10 percent a year. It is 
exactly where it was 3 years ago. It should be up 8, 9 percent 
compounded a year, but it is exactly where it was 3 years ago, 
and that is great.
    Let me ask you a couple of questions on policy. You 
indicated the budget might be balanced in 8-10 years, but I 
understand that whatever you call the--making the tax cuts 
permanent, the balancing of the budget would require that we 
reject making the tax cuts permanent. Is that right?
    Mr. Holtz-Eakin. The projection that we show shows the 
budget coming to balance and a modest surplus------
    Mr. Scott. If we reject the permanent tax cuts?
    Mr. Holtz-Eakin. Under current law.
    Mr. Scott. Does it have any room for going to Mars?
    Mr. Holtz-Eakin. This does not include any new policies.
    Mr. Scott. Does it include any policy of privatizing Social 
Security and the trillion dollars that that is going to cost?
    Mr. Holtz-Eakin. It is a projection of current law.
    Mr. Scott. So if we make the tax cuts permanent, go to Mars 
and try to privatize Social Security, we are back in the ditch; 
is that right?
    Mr. Holtz-Eakin. We haven't analyzed that. We can look at 
it.
    Mr. Scott. What portion of the Federal budget was paid for 
with borrowed money at the beginning of this administration?
    Mr. Holtz-Eakin. The historical deficit? I don't remember 
the number off the top of my head, but we have seen it swing 
from surplus of about 2\1/2\ percent of----
    Mr. Scott. We weren't borrowing any money. So zero.
    Now, what portion of the Federal budget right now are we 
spending--are we paying for with borrowed money?
    Mr. Holtz-Eakin. It is $477 billion out of total outlays on 
the order of $2.3 trillion.
    Mr. Scott. On budget, not Social Security, because that is 
supposed to be paying for itself? About 37\1/2\ percent of the 
Federal on-budget spending paid for with borrowed money?
    Mr. Holtz-Eakin. Typically, it is defined as going to 
private credit markets and raising funds, and that doesn't 
include the Social Security part, which is just an 
intergovernmental transfer. So it would be the $477 billion, 
which is how much is actually borrowed.
    Mr. Scott. Plus taking the spending in Social Security 
surplus that was in a lock box when this administration came 
in.
    What was the net interest that we are going to be paying in 
2014? Net interest, you have at $338 billion?
    Mr. Holtz-Eakin. Yes.
    Mr. Scott. Social Security surplus, $284 billion.
    Now, in 2017, the net interest will be a little more than 
$337 [billion]. Is that a fair assumption?
    Mr. Holtz-Eakin. On this--based on the projection----
    Mr. Scott. About the same, a little more?
    Mr. Holtz-Eakin. Well, under the baseline, we have gone 
back to surplus, so the debt to outstanding will be 
diminishing, and interest rates are stable in the long-run. So 
it will start to go down.
    Mr. Scott. About $300 billion? Would it go down $30 
billion?
    What is the Social Security surplus in 2017?
    Mr. Holtz-Eakin. I don't know that number.
    Mr. Scott. Isn't it zero?
    Mr. Holtz-Eakin. I don't know.
    Mr. Scott. Doesn't it go to zero in 2017?
    Mr. Holtz-Eakin. I have to check.
    Mr. Scott. Have you heard the joke about the guy falling 
down a 20-story building and passing the eighth floor? It says 
so far no problem. You have net interest of $300-some billion 
offset by $200-some billion in Social Security surplus. The 
Social Security is going to go down to zero in 2017, putting a 
hole in the budget of almost $300 billion.
    Is there anything in this budget proposal--I will just ask 
it another--is that a problem? I mean, we have all these happy 
faces on the budget. It is nice. Do we have a problem?
    Mr. Holtz-Eakin. I think that to pull any particular piece, 
Social Security or Medicare Part A or any subpart of the 
Federal budget out is not revealing. I think that the important 
thing from the perspective of long----
    Mr. Scott. A $300 billion hole in the budget does not 
constitute a problem?
    Mr. Holtz-Eakin. I think that without knowing how the rest 
of the budget will play out, it is impossible to say. The long-
run problem from the perspective of the entitlements is that 
they are structured in a way that regardless of how they are 
financed, they will demand ever-increasing fractions of our 
national income under current law, and that is, I think, the 
fundamental issue that is important.
    Mr. Scott. A $300 billion budget in 3 years, a swing in a 
budget is not a problem. Is that your position?
    Mr. Holtz-Eakin. In the absence of knowing what the rest of 
the budget does, it is impossible to answer.
    Chairman Nussle. Ms. DeLauro.
    Ms. DeLauro. Thank you, Mr. Chairman, and my apologies. I 
was chairing a food safety hearing, and so I am sorry I missed 
most of the testimony--or all of the testimony. So I guess I 
have a two-part question.
    What percentage of the GDP was a deficit in the Clinton 
years?
    Mr. Holtz-Eakin. Depending on the year chosen, it was 
different. First there were deficits and then surpluses in the 
1990s.
    Ms. DeLauro. Looks to me like it was pretty much zero if I 
look at the chart that you have listed here.
    And does the Bush administration have a plan to get us back 
into surplus?
    Mr. Holtz-Eakin. I am not privy with the administration's 
plans.
    Ms. DeLauro. So you know of no plan that the administration 
has to get us back into a surplus position? So in the Clinton 
years it was a zero percentage of--the deficit was a zero 
percentage of GDP, and we have no plan now to get us back into 
the surplus.
    A lot of discussion on cutting spending in order to reduce 
the deficit. If you take a look at nonhomeland security, which 
my colleague, Mr. Portman, mentioned, that discretionary 
spending has been virtually frozen for the past 3 years. If the 
President proposed only a minimal increase of .9 percent, he 
would only save about $4.8 billion. Do you think that this is 
the most effective way to address our projected deficit of $362 
billion in 2005?
    Mr. Holtz-Eakin. Which ever package the Congress and the 
administration choose, no matter their policy preferences, I 
can tell you the cost. The programs are chosen for their 
benefits. The budget reflects the costs, and my goal here today 
is to illuminate those costs as clearly as possible.
    Ms. DeLauro. Without using the Social Security surplus, the 
deficit will be $631 billion. Is it credible to think that we 
can control the deficit simply by looking at this small part of 
the budget? And which you do have some views, I would think, as 
to where you might look to address these issues.
    Isn't it true that we could completely eliminate domestic 
appropriations that aren't related to homeland security and 
still be left with a deficit?
    Mr. Holtz-Eakin. Certainly the budget authority for 
particular subset of the budget was $341 billion in fiscal year 
2004. That is our projection, and that is smaller than the 
deficit we project.
    Ms. DeLauro. Where would you continue to look for 
opportunities to lower the deficit?
    Mr. Holtz-Eakin. I would say this is Casablanca. You can 
round up the usual suspects, you can look at the rest of 
spending, and you can look at the remainder of the receipts.
    Ms. DeLauro. Well, it is not exactly like Casablanca. Maybe 
some of us will get up and sing the Marseillaise. But it is 
not. This is a reality, and you make commentary on how you 
might be able to handle these significant deficits. And, you 
know, where do you look for your biggest bang for the buck 
here, if you will, to try to deal with your cost--be able to 
bring your budget into some sort of either balance or surplus?
    Mr. Holtz-Eakin. I hope it has been clear from the outset 
that my goal is to inform the committee about the current track 
of the Federal budget. Left under current law, that is the 
neutral baseline provided by the projections. And to show the 
budgetary implications of some broad alternatives, we sketched 
those in our report because they are commonly discussed. And 
indeed, we could analyze further specific proposals. I do not 
believe--I hope it is not interpreted that I am providing 
commentary on the best way to proceed in fiscal policy. That is 
not my role here today.
    Ms. DeLauro. It may not be your role here today, but you 
certainly might have some thoughts that you impart maybe 
confidentially here to members or to the chairman or ranking 
member or to the administration about what they might do or 
maybe the view is just a hands-off view of this is it and come 
what may.
    Mr. Holtz-Eakin. The CBO works with the Congress. If you 
would like to have a discussion about particular ideas that you 
might have, I would be happy to pursue that.
    Ms. DeLauro. I am happy to do it. Thank you.
    Chairman Nussle. Mr. Shays.
    Mr. Shays. Thank you very much for your testimony here. I 
think it is fair to say that neither Republicans or Democrats 
feel necessarily that you have sided with their position. You 
have provided information, and that information is not too 
pleasant.
    A lot of people don't like deficits on either side of the 
tables here, but I didn't hear hardly any solutions. I heard 
that we have deficits, and I heard that some wanted to blame 
the economy, some wanted to blame tax cuts, some wanted to 
blame spending, and we all have our view. I happen to think it 
is spending. And others think it may be the tax cuts. But 
ironically if they think it is the tax cuts, they don't want to 
raise taxes and put them back to where they were. So they 
certainly don't have a solution there.
    I just remember when I was on the committee during the 
early years, the Bush years and the Clinton years, when 
President Clinton got elected, he didn't have a plan to balance 
the budget either. It was never in balance under his plan. 
Republicans were elected in 1994, took office in 1995, and we 
had some major debates. And what we did ironically is we cut 
taxes and we froze spending, and ultimately we balanced the 
budget.
    Ms. DeLauro. Would the gentleman yield?
    Mr. Shays. No, I won't.
    Ms. DeLauro. Thank you.
    Mr. Shays. No. I have been here all day. I have been 
listening to everybody else, and now it is my turn to talk. And 
what happened was that we ultimately balance this budget by 
freezing spending over a number of years or at least slowing 
the growth in spending. We don't seem to have the appetite to 
do that frankly on either side of the aisle, because when we 
voted out a budget last year and sent it to the floor, we 
couldn't get any Democrats to support it, and we couldn't get 
enough Republicans to support it. So we raised spending. And 
the reality was that we couldn't get out of town unless we had 
President Clinton signing the budgets, and it always was we had 
to spend more.
    So I don't know ultimately if we are going to find a 
solution here, because I know Republicans are going to be the 
ones that have to vote this budget out and we are going to get 
no help on the other side of the aisle. What I would like to 
know, though, is I would like to know what the impact of these 
extraordinary productivity growth gains have been. It strikes 
me a few things. The economy grows at 3 percent, and we still 
aren't seeing the kind of employment that we want to see, but 
it also strikes me that if we get large productivity growths, 
that we are likely not to see interest rates go up all that 
significantly, because we continue to do a lot more with not as 
many resources and not as many people. Tell me the 
significance, please, of productivity growth, the pluses and 
the minuses.
    Mr. Holtz-Eakin. I think the way you characterize it is 
exactly right and the way that we handled it in our baseline. 
Now, certainly we have seen extraordinary productivity growth 
measured over the recent recession and recovery, with some 
caveats that often, especially in the recent data, productivity 
gains are revised in the data and that coming out of 
recessions, the economy is capable of displaying a couple of 
quarters of very big productivity growth that aren't permanent.
    But we have seen a period that is really quite remarkable. 
As a result, what we have done in the projection that is before 
you is raised the economy's capacity to produce, and that has 
given us more room to grow and grow rapidly without placing 
upward pressure on prices, which would ultimately translate--
higher inflation will translate into higher interest rates.
    So the rapid cyclical recovery that you see in our 
projection--at 4.8 percent and 4.2 percent, and continued low 
inflation--is in part a reflection of that productivity growth.
    What we have not done is dramatically change our estimate 
of the long-run rate of labor productivity. It is still about 2 
percent a year in our projection. To the extent that one were 
to develop a sufficient comfort that this was a persistent 
faster rate of productivity growth, it would be appropriate to 
raise that. That would mean that that extra room would get 
bigger every year. In our projections, we have revised the 
economy's capcity to produce in a one-time fashion that is 
there for all 10 years but we haven't caused it to expand. That 
would provide further room for the economy to grow with less 
inflationary pressure, and as a result, less nominal interest 
rate pressure as well.
    Mr. Shays. Does productivity growth provide ultimately 
greater wealth for individuals? How does it impact wealth?
    Mr. Holtz-Eakin. Productivity growth, in the long-run, 
improves the Nation's standards of living. You get more 
national output for every unit of labor input, for every person 
in simple terms. It typically, over the long-run, translates 
into higher real wages for workers, and the degree to which 
those higher national incomes are saved and invested leads to 
higher national wealth as well.
    Mr. Shays. Thank you.
    Chairman Nussle. Thank you.
    Are there other members, other questions that--just before 
we go into a second round, let me just make it clear that the 
witness has been before Congress for 7 hours today. It is going 
to be questions. If you want to make a comment, the microphones 
will be available, I am sure, for the media to do that, but if 
you have a question for the witness as we proceed, I am happy 
to entertain a very brief, quick question from those who would 
like to inquire.
    Are there members wish to do that? Mr. Edwards.
    Mr. Edwards. Thank you, Mr. Chairman. I don't know of 
anything else we are going to do the next 2 hours that would be 
more important than looking at the largest deficit in American 
history, and my question is----
    Chairman Nussle. Do you have a question for the witness?
    Mr. Edwards. Yes, I do. I keep hearing that, you know, 
let's protect the tax cuts. Those that pushed them in 2001 
would have admitted that wasn't a $1.3 trillion tax cut if you 
extend it. Do you know if you assume that you extended all the 
temporary tax cuts, they were part of the $1.3 trillion tax cut 
in 2001, would have been more like a $2 [trillion], $3 trillion 
tax cut, Dr. Holtz-Eakin?
    Mr. Holtz-Eakin. I forget the number, to be honest. We 
could go back and check.
    Mr. Edwards. And let me ask you this. I hear a lot about 
let's balance this budget by cutting spending. I want to go 
back to the fiscal year 2003 budget and look at the five 
largest programs in the Federal budget that represent 70 cents 
of every single dollar we spend. Now, in the administration 
budget request for 2003, was defense spending--was the request 
to increase it or decrease it?
    Mr. Holtz-Eakin. I recall it was an increase.
    Mr. Edwards. So it was an increase, significant one, I 
believe.
    Social Security, was there any request to reduce spending 
on Social Security?
    Mr. Holtz-Eakin. I don't remember any proposals for Social 
Security at all. It is current law.
    Mr. Edwards. If we privatize it as proposed, there would be 
a trillion dollar hole there. That would be an increase in 
Medicare--the recent Medicare prescription drug bill, did that 
increase or decrease out-year expenditures for Medicare?
    Mr. Holtz-Eakin. The President's proposal, when we analyzed 
it, was simply an allotment of $400 billion over 10 years.
    Mr. Edwards. So it increased the Medicare budget, third of 
the five largest expenditures of the Federal Government. The 
administration asked for an increase there.
    Medicaid, did the administration in fiscal year 2003 ask 
for a reduction in Medicaid spending in 2003?
    Mr. Holtz-Eakin. The President's budget had a proposal in 
Medicaid, the details of which I forget. It involved changing 
the program somewhat in the out-years and I forget the net 
budgetary consequences.
    Mr. Edwards. To your knowledge for the 2003 budget year, 
the administration did not ask for a decrease in the Medicaid 
expenditures?
    The final one, the interest on the national debt, the 
administration didn't have a choice. It had to ask for a 
massive increase in spending. So actually, as we look at 
spending reductions, the administration actually asked for 
increases in three of the five largest programs that represent 
70 percent of the budget.
    One final point and in terms of a question. When we borrow 
money--now, this $477 billion deficit we are going to add as a 
debt to our children's future this year, that does not include 
the money we are borrowing, the billions we are borrowing, from 
Social Security and Medicare.
    Now, do we have as a Nation a legal obligation to repay 
that money borrowed from the Social Security and Medicare Trust 
Funds? Is that a legal debt?
    Mr. Holtz-Eakin. I am not a lawyer, but my understanding is 
that the legal implications of the trust fund balance are that 
benefits cannot be paid unless there are funds in the trust 
fund. So it has a triggering mechanism for the benefit payment.
    Mr. Edwards. So bottom line, that is a legal debt we are 
incurring. So it is just as real as the $477 billion deficit we 
are going to have this year. If you add the Social Security and 
Medicare Trust Fund borrowings for fiscal year 2004 to the $477 
billion deficit you project we will have, what would that 
deficit be?
    Mr. Holtz-Eakin. Well, if one took comprehensively all of 
the off-budget and trust fund-like activities, then you would 
have the $630-odd billion number that was referred to earlier.
    Mr. Edwards. So it would be $631 billion deficit that we 
are, in effect, adding to the national debt for fiscal year 
2004 if you count the money we are borrowing from Social 
Security and Medicare; is that correct?
    Mr. Holtz-Eakin. And, again, you can do the accounting for 
informational purposes any way you like, but from the strict 
point of demands on credit markets, the 477 represents the net 
demand on credit markets. The remainder is an intergovernmental 
transfer, which may have programmatic implications, and I 
understand that.
    Mr. Edwards. One last question about the chart. You often 
said 40 percent of the deficit this year can be chalked up to 
economic changes from assumptions that were made. A lot of us 
said several years ago those assumptions were never honest. But 
the fact--based on your knowledge of American history's 
economy, would it be honest to say and project as a 
professional economist that you don't expect America to ever 
again have a recession?
    Mr. Holtz-Eakin. I think there is no way to rule out the 
fact that we would have a recession in the future.--I want to 
thank the chairman for acknowledging the efforts of the staff 
at the outset. I wasn't at CBO for that projection, but I take 
issue with the phrase ``never honest.'' This staff does its 
very best to----
    Mr. Edwards. No. I am talking about from now forward. I am 
not talking about something that was done in the past. What I 
am saying is looking from now forward, would it be honest to 
suggest to the American people that we will not have a 
recession in the next 10 or 20 or 30 years? Would that be 
consistent? Would it be honest to suggest that?
    Mr. Holtz-Eakin. And no one is suggesting that. Instead, 
what we project are near-term business cyclical recoveries----
    Mr. Edwards. I understand.
    Mr. Holtz-Eakin [continuing]. Please let me finish. And 
over the out-years we project the average performance of the 
economy in the face of unknown timing of business cycle 
fluctuations, and that is the right way to interpret our medium 
term projections.
    Mr. Edwards. Put that into lay terms, and I will finish 
with this, Mr. Chairman. The point is we make budget 
projections, assuming there will be no recessions. You are 
required to do that, you know. I assume that you are required, 
in effect, to do that. But the truth is, just like we said 2 
years ago when we debated the 2001 tax cut bill, you can't 
assume that we are never going to have an economic slowdown. So 
to all of a sudden say oh my gosh, we have an economic 
slowdown, that is why we have the deficit, we should have been 
honest with the American people in the first place 3 years ago.
    Thank you, Mr. Chairman.
    Chairman Nussle. Thank the gentleman. I turned off the 
clock. I counted 12 questions. I really am trying to ask if 
members have one final brief question.
    Mr. Moran.
    Mr. Moran. Thank you, Mr. Chairman. I have a question with 
regard to the process. These are all helpful analyses that you 
provided us with Dr. Holtz-Eakin, but in many ways as of next 
week, they are going to be outdated, given the fact that we 
will then embark on a legislative struggle, if you will, 
process with regard to the President's legislative initiatives.
    And in the President's budget in the first place, he will 
give us defense spending assumptions for Iraq, Afghanistan, and 
so on. So that will presumably update the numbers you have for 
the $87 billion supplemental repeated on an annual basis with 
inflation, but he also has projections for the individual 
savings accounts as an alternative to Social Security. He will 
have the long-term revised projections that OMB does of the 
effect of the Medicare and prescription drug changes to 
legislation. There will be a number of tax proposals.
    There is a tax benefit for health insurance, for example, 
and all of these combined--and I think it is a reasonable 
assumption that most of them are going to get passed, since it 
is the House and Senate are of the same party, and the 
President has had a remarkable success with the legislation he 
has proposed.
    All of them combined, I think present a very different 
budget picture. That plus the fact that you suggested earlier 
that the numbers start changing as to the role of Social 
Security and Medicare in the out-years. The proportion of 
spending on Social Security and Medicare, because of the 
dramatic addition of retirees, I guess beginning in 2008, but 
really accelerating after 2013. Those policies, plus the 
changes in Social Security and Medicare dynamics, it seems to 
me, we really ought to be looking at perhaps a 20-year 
projection. I don't know if that is conceivable, but we really 
need to look at revenue flow and entitlement demands over the 
long period, particularly with regard to tax policy, because 
once taxes are imposed, it is very--or once they are cut 
particularly, it is very difficult to reinstate them as we are 
going to find out.
    So I wonder if CBO is considering giving us updated 
analyses in that context once the President's budget is 
introduced? Will you be able to give us that kind of updated 
commentary after next week's budget submission?
    Mr. Holtz-Eakin. Well, certainly we will follow the usual 
process, in that with the receipt of the President's budgetary 
proposals, we will do two things: We will revise our baseline 
projections, the ones that you see today in light of 
information that we receive from the administration in terms of 
credit reestimates and a variety of other aspects of it.
    We also have the opportunity to revisit any new information 
about the economy and put that in. So we will comprehensively 
revise these baseline projections as new information indicates 
we should. We will then analyze the President's budgetary 
proposals off of that new baseline and give our estimate of 
their budgetary implications. We will also, in the standard 
fashion, take a look at their economic impact as is necessary. 
And to the extent that the Budget Committees are interested in 
analyses that have a different duration than the 10-year 
window, I would leave it to work with Chairman Nussle and 
members of the committee so that we provide the information you 
need to do your work.
    In the end, that would be the key issue, and we would be 
happy to work with you on that.
    Mr. Moran. Well, I would, Chairman Nussle, that you might 
consider even longer-term projections, at least in terms of the 
tax and revenue front given the additional context of Social 
Security and Medicare retirees accelerating after 2013. So it 
really doesn't present a different budgetary context. So I 
would hope you might consider requesting that of the CBO. Thank 
you, Mr. Chairman.
    Chairman Nussle. Mr. Scott, do you have a question?
    Mr. Scott. Yes. Thank you, Mr. Chairman. We have a chart 
that is going up.
    Mr. Holtz-Eakin, are you familiar with this chart?
    Mr. Holtz-Eakin. I have seen it.
    Mr. Scott. Well it is a budget deficit--on-budget deficit 
over the last few years. In 1993 when President Clinton came 
in, he passed a budget. That is right when the green starts--
with no Republican votes. You are aware in 1994 the Republicans 
campaigned against those votes, and in 1995, came in control of 
the House and the Senate and passed--are you familiar with the 
massive tax cuts that were in the bills that they passed? 
Anyway, they were vetoed by the President. We closed down the 
government because President Clinton would not sign those 
massive tax cuts, and the green continued.
    In 2001, are you aware that budgets were passed by the 
Republican Congress similar to the ones that were vetoed in 
1995, only these were signed by President Bush? And you will 
see the red ink flowing after that. Is that an accurate----
    Chairman Nussle. Does the gentleman have a question for 
this witness?
    Mr. Scott. Is that an accurate description of what 
happened?
    Mr. Holtz-Eakin. I can go back and look at the bills. I am 
not intimately familiar--you were there.
    Chairman Nussle. Is this a chart that is written by CBO or 
is this written by whom?
    Mr. Scott. It is the CBO numbers. It is written by the 
Democratic staff, but that little uptick there is really 
assuming that we reject the President's initiatives, otherwise 
it will be going down off the chart.
    One other question. You had indicated to my colleague from 
Texas about the Social Security. In 2017, we do have a problem. 
My colleague from Virginia also indicated that a 20-year budget 
would be important, because we have a severe crisis with Social 
Security running instead of huge surpluses. They start to run 
huge deficits.
    Wouldn't one solution to this problem be just to repeal 
Social Security? Would that be legally permissible?
    Mr. Holtz-Eakin. The Congress could choose to alter any 
program, and Social Security is one of them.
    Mr. Scott. And if we are not ready to pay for it, that 
probably would be what we would end up having to do, wouldn't 
it? Unless we get the budget straight now.
    Thank you, Mr. Chairman.
    Chairman Nussle. If there is nothing else to come before 
the committee--does the gentlelady have a brief question?
    Ms. DeLauro. Yes, I do. I have a brief question. Thank you. 
It is a question that has to do with your opinion as a 
professional economist, and that is we are talking about--my 
colleague from Connecticut talked about productivity. It is all 
about economic growth. It is about job creation. We talked 
about productivity. There hasn't been any real job creation, 
but the fact of growth, and in the future that if--if your 
professional opinion, that if we continue to have tax cuts that 
are deficit-financed, in your view, will that lead to higher 
growth in the United States?
    Mr. Holtz-Eakin. Other things equal--again, the important 
stipulation--productivity growth comes either from 
technological innovation or providing workers with more of 
those new technologies--capital deepening. So we save, invest, 
provide capital to the future.
    To the extent the fiscal policy in a noticeable fashion 
detracts from our ability to save as a Nation and invest, that 
will affect productivity growth.
    Ms. DeLauro. Thank you.
    Chairman Nussle. I thank the witness for your testimony. We 
will certainly be in touch, I am sure, throughout the year on a 
number of different items. We appreciate your work and your 
staff's work in preparing this report, and we look forward to 
working with you again this year.
    Mr. Holtz-Eakin. Thank you.
    Chairman Nussle. If there is nothing more to come before 
the committee, this committee stands in recess.
    [Whereupon, at 4:31 p.m., the committee was adjourned.]

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