[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
 THE SAFE COMMISSION ACT (H.R. 3654) AND THE LONG-TERM FISCAL CHALLENGE

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JUNE 24, 2008

                               __________

                           Serial No. 110-36

                               __________

           Printed for the use of the Committee on the Budget


                       Available on the Internet:
       http://www.gpoaccess.gov/congress/house/budget/index.html


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                        COMMITTEE ON THE BUDGET

             JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut,        PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas                    Ranking Minority Member
JIM COOPER, Tennessee                J. GRESHAM BARRETT, South Carolina
THOMAS H. ALLEN, Maine               JO BONNER, Alabama
ALLYSON Y. SCHWARTZ, Pennsylvania    SCOTT GARRETT, New Jersey
MARCY KAPTUR, Ohio                   MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California           JEB HENSARLING, Texas
LLOYD DOGGETT, Texas                 DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon              MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas               PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida                  CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts     K. MICHAEL CONAWAY, Texas
NIKI TSONGAS, Massachusetts          JOHN CAMPBELL, California
ROBERT E. ANDREWS, New Jersey        PATRICK J. TIBERI, Ohio
ROBERT C. ``BOBBY'' SCOTT, Virginia  JON C. PORTER, Nevada
BOB ETHERIDGE, North Carolina        RODNEY ALEXANDER, Louisiana
DARLENE HOOLEY, Oregon               ADRIAN SMITH, Nebraska
BRIAN BAIRD, Washington              JIM JORDAN, Ohio
DENNIS MOORE, Kansas
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin

                           Professional Staff

            Thomas S. Kahn, Staff Director and Chief Counsel
                 Austin Smythe, Minority Staff Director


                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, June 24, 2008....................     1

Statement of:
    Hon. John M. Spratt, Jr., Chairman, House Committee on the 
      Budget.....................................................     1
    Additional submissions:
        Statement of the American Association of Retired Persons 
          (AARP).................................................     1
        Statement of Hon. Barbara B. Kennelly, president and CEO, 
          National Committee to Preserve Social Security and 
          Medicare...............................................     7
    Hon. Paul Ryan, ranking minority member, House Committee on 
      the Budget.................................................    11
    Hon. Peter G. Peterson, chairman, Peter G. Peterson 
      Foundation.................................................    14
        Prepared statement of....................................    16
    Hon. David M. Walker, president and CEO, Peter G. Peterson 
      Foundation, former U.S. Comptroller General................    17
        Prepared statement of....................................    19
    Robert Greenstein, executive director, Center on Budget and 
      Policy Priorities..........................................    23
        Prepared statement of....................................    26
    Henry J. Aaron, Bruce and Virginia MacLaury senior fellow, 
      the Brookings Institution..................................    31
        Prepared statement of....................................    32
    Alison Acosta Fraser, director, Roe Institute for Economic 
      Policy Studies, the Heritage Foundation....................    37
        Prepared statement of....................................    39


 THE SAFE COMMISSION ACT (H.R. 3654) AND THE LONG-TERM FISCAL CHALLENGE

                              ----------                              


                         TUESDAY, JUNE 24, 2008

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:05 a.m. in room 
210, Cannon House Office Building, Hon. John Spratt [chairman 
of the committee] presiding.
    Present: Representatives Spratt, Cooper, Schwartz, Becerra, 
Doggett, Blumenauer, Boyd, McGovern, Tsongas, Scott, Etheridge, 
Moore of Kansas, Ryan, Barrett, Diaz-Balart, Hensarling, 
Conaway, Campbell, Tiberi, Smith, and Jordan.
    Chairman Spratt. I will call the hearing to order and 
welcome our witnesses.
    Before we have opening statements, a few housekeeping 
matters. One is to ask unanimous consent that we include in the 
record for this hearing statements submitted by the AARP, the 
American Association for Retired Persons, and the National 
Committee to Preserve Social Security and Medicare.
    Is there objection?
    Hearing none, so ordered.
    [Statement of the AARP follows:]

   Prepared Statement of the American Association of Retired Persons 
                                 (AARP)

    AARP appreciates the opportunity to present its views regarding 
H.R. 3654, the Securing America's Future Economy Commission Act, or 
SAFE Commission Act, which would create a bipartisan commission to 
address our nation's structural deficit, encourage a higher savings 
rate, lower our debt to foreign nations, and improve the congressional 
budget process. We commend Congressmen Cooper and Wolf for their 
commitment to addressing our nation's long-term deficit in a bipartisan 
manner. Our nation's fiscal health has a direct impact on our economy, 
our people, and our international standing. Solving the fiscal problems 
that confront us is a daunting and, in many ways, thankless task that 
will require enormous effort and cooperation. The choices we make 
matter not only to the budget, but more importantly, to the long-term 
health and economic security of the American people. Program and 
revenue changes are more than just budget savings--they have a direct 
impact on the lives of every American now and in the future.
    Our fiscal challenge is to make sure that current and future 
generations have health and financial security by maintaining the 
integrity of Social Security and Medicare in a fair and fiscally 
responsible manner. At the same time, AARP members understand that 
deficit reduction is vital for the future of our children and 
grandchildren. The solution to our structural deficits must be fair and 
involve everyone: government, business, and individuals. AARP shares 
the view that we must address the long-term budget deficit in a 
bipartisan and balanced way, and dealing with it sooner will avoid more 
dire consequences later. Prompt action means the options will be more 
moderate and will provide for greater opportunity for people to prepare 
for changes over time.
    A necessary first step, proposed in this legislation, is a review 
of the causes of our long-term deficits. AARP believes it is critical 
to focus on the most significant drivers of our budget shortfall. We 
strongly urge all policy makers to reject the misperception that often-
blamed ``entitlements'' are the chief cause of the Federal budget 
deficit. Blaming all entitlement spending ignores the reality that 
health care spending across all sectors is growing faster than other 
spending. As a result, it is health care costs that are the biggest 
drivers of our long-term budget outlook. Yet, reducing the rate of 
growth of health care costs must be accomplished on a system-wide 
basis, and cannot be achieved by focusing only on Medicare and Medicaid 
because those programs merely reflect the rapid growth of health costs 
throughout the economy. Failure to take a broad look at our health care 
system will simply result in cost shifting to individuals, businesses 
and other parts of government, and will further destabilize our already 
fragile health care system with enormous consequences for health 
security and the economy as a whole.
    Deficit reduction policies should be balanced and the long-term 
deficit should not be accomplished solely through spending reductions; 
we must also have adequate revenue to finance our nation's priorities. 
H.R. 3654 would be significantly improved if it acknowledged more 
explicitly the role that revenue reductions play in our long-term 
deficits. In addition to exploring the traditional revenue base, AARP 
would recommend particular focus on tax expenditures, that--similar to 
spending entitlements--confer direct benefits automatically, require no 
advance appropriation under the law, and have a large impact on the 
Federal budget.
    Finally, we commend the legislation's goal of increasing the 
national savings rate, and urge policymakers to acknowledge the 
importance of measures that encourage greater personal savings and 
extended working lives. Such measures can improve our economy and our 
fiscal health and make the transition to an aging society more 
manageable.

             I. AN AGING POPULATION IS NOT THE MAIN CULPRIT

    A call to reduce the deficit exclusively by cutting back on 
entitlement spending, particularly for Medicare and Social Security, 
reflects two fundamental flaws: it lumps all entitlement spending 
together, and it overemphasizes the budget impact in dollar-and-cents 
terms, rather than by the impact they have on the lives of individuals. 
AARP believes that as a nation we can balance the advancements of 
longer life spans with the pressures that longevity place on our 
government and our society. While demographics play a role in increased 
Social Security and Medicare spending, the real budget culprit is a 
fragmented and disorganized health care delivery system, as the 
Congressional Budget Office (CBO) has repeatedly pointed out in 
numerous reports. The myth that an aging population is primarily to 
blame for long-term deficits must be carefully examined and rejected or 
we run the risk of developing ineffective solutions.
    Demographic aging is not a sufficient explanation for either 
current or projected future growth in entitlement spending. Chart 1 
shows spending for Social Security compared to spending for the two 
largest health programs, Medicare and Medicaid, as a percentage of GDP 
from 1962 to the present and projected out to 2082.\1\ If demographic 
aging were the main problem, we would see similarities in the growth of 
Social Security and Medicare and Medicaid.\2\ Instead, we see a very 
striking difference in the past and future growth patterns of Social 
Security and Medicare and Medicaid. In 2007, Social Security accounted 
for 4.3 percent of GDP, and Medicare and Medicaid together accounted 
for only slightly more--about 4.6 percent of GDP. The Congressional 
Budget Office projects that Social Security spending will increase to 6 
percent of GDP in 25 years and will stabilize after that. Medicare and 
Medicaid, in contrast, are projected to surpass Social Security and 
grow to 12 percent of GDP by 2050 and to 19 percent of GDP by 2082. The 
differences in growth illustrate that demography as an explanation 
misses much of the story. Social Security's growth ``bump'' from 2010 
to 2035 is due almost entirely to the retirement of the boomer cohort. 
By contrast, according to a recent CBO report, more than half of the 
growth in federal spending on Medicare and Medicaid is attributable to 
health care costs per person growing more rapidly than per capita GDP.
---------------------------------------------------------------------------
    \1\ CBO projects spending for Social Security, Medicare, and 
Medicaid through 2082 based on growth in beneficiary populations as 
well as other programmatic assumptions. Other entitlements are simply 
assumed to grow at the same rate as GDP.
    \2\ Both programs do have a substantial share of beneficiaries who 
are under 65.
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 CHART 1: SPENDING FOR THE THREE LARGEST ENTITLEMENTS AS A PERCENT OF 
                             GDP, 1962-2082



    Source: Congressional Budget Office, The Long-Term Budget Outlook, 
January, 2008

                   II. SKYROCKETING HEALTH CARE COSTS

    Health care costs threaten our nation's fiscal well-being as well 
as the economic health of patients and their families, and of business 
and labor.
    The facts are well known, but they remain compelling. After 
flattening at around 14% of GDP from 1995--2001, health spending is 
again increasing as a percent of GDP. It reached 16% of GDP in 2006, 
and is projected to reach 20% by 2017. U.S. health care spending is 
substantially higher than that of any other developed nation, despite 
the fact that we are the only nation that doesn't assure universal 
coverage for its citizens. In 2005, for example, health care spending 
was 15.3 percent of GDP in the U.S. That was about one-third higher (32 
percent) than spending in the next highest country, Switzerland, where 
health care spending reached 11.6 percent of its GDP. The median 
developed nation spent just 9 percent of its GDP on health care.
    The high cost of health care must be viewed in the context of the 
systemic quality problems in our health care system. Research from the 
Institute of Medicine of the National Academy of Sciences has found 
that the United States has reached a level of overall health care 
spending in this country at which incrementally higher aggregate 
Medicare spending does not appear to be associated with higher quality. 
The health care studies group at Dartmouth Medical School, which have 
conducted careful research using the Medicare database, have also 
reached sobering conclusions about Medicare spending. The Dartmouth 
research finds that there are substantial cost differences in Medicare 
among different geographic regions around the country, even after 
adjusting for all of the relevant demographic factors.
    For example, after all of the adjustments, Medicare spending still 
varies by about 61 percent from the regions in the lowest spending 
quintile to those in the highest spending quintile in the country. And 
the higher spending regions (and states) are NOT associated with higher 
quality. In fact, they achieve lower quality/service scores.
    What accounts for the differences? A key factor, accounting for 
more than 40 percent of the difference in spending among regions of the 
country, is the structure of the underlying health care delivery 
system. The researchers find that the higher cost/lower quality areas 
have more hospital beds per capita, more specialists per capita, and 
fewer primary care physicians per capita. That leads to higher costs 
and lower quality because it appears that providers in those 
communities provide more ``supply sensitive'' care.
    The good news is that there are areas of the country, and states, 
in which beneficiaries get better quality and service outcomes, at 
lower cost to Medicare, and lower total coinsurance for patients. The 
bad news is that beneficiaries in the other areas get worse quality at 
higher costs. And all beneficiaries and all taxpayers pay more for 
premiums, cost-sharing, and taxes to pay for the high cost 
inefficiencies. We can begin to address this problem more broadly in 
Medicare under the right conditions--and in particular, if payment 
incentives are better aligned.
    Medicare and Medicaid are both participants and leaders in the 
health care system. As participants in the health care system, the 
programs are subject to the dynamics of the underlying health care 
system in which it purchases care. As leaders, the programs have a 
source of leverage for change in that system--for example, Medicare has 
a long history of leadership and innovation, especially in payment 
policy. It is critical to balance Medicare's participant and leadership 
roles in addressing the cost and quality issues in the overall health 
care system, and to re-establish the program's long-term solvency.
    That calls for a clear policy framework to assure that short-term 
changes to Medicare are supportive of long-term goals. There are a 
number of key cost and quality policies to pursue, including:
     A much stronger infrastructure of information technology 
to support the clinical and cost decisions made by health care 
providers and their patients.
     A much more robust national program of comparative 
effectiveness research.
     Improving the efficiency of health care delivery by 
encouraging coordination of care. Coordination of care is important for 
individuals with multiple chronic conditions and especially as 
individuals move across care settings.
     Providing much better and clearer information about the 
cost and quality of care for providers, patients, families, and 
communities. Quality and service issues should be as transparent as 
possible, since it will stimulate the improvement that both clinicians 
and patients' desire.
     Reshaping payment incentives across Medicare--provider 
payments in the traditional program, and health plan payments and 
competition in Medicare Advantage. All parts of Medicare must work in 
parallel to provide incentives to restructure care to better serve 
beneficiaries, and the public at large.

                          III. SOCIAL SECURITY

    Social Security is one of our nation's most popular programs among 
people of all ages. By providing a guaranteed standard of living, 
Social Security is the hallmark of responsible society. It is financed 
through workers' contributions that establish eligibility for 
retirement and disability benefits for workers and eligible family 
members, and survivor benefits for the loved ones that workers of any 
age and retirees leave behind upon their death. Social Security has 
reduced poverty among beneficiaries more effectively than any 
explicitly anti-poverty program, and it gives countless millions of 
Americans the freedom to live the lives they choose. We must continue 
to ensure that the defined benefit promise is preserved and made 
secure, and that benefits remain adequate.
    Most Americans would not have a viable retirement without Social 
Security, and given our nation's low savings rate and diminished 
pension system, it will be an even more critical pillar of retirement 
income in the future. Today, 3 out of 5 retirees rely on Social 
Security for the majority of their income, and nearly 1 in 3 count on 
it for at least 90% of their income. We need to make Social Security 
financially strong over the long-term so that our children and 
grandchildren can have the same rock-solid foundation on which to build 
a secure retirement that current beneficiaries enjoy, and so that all 
Americans can have greater peace of mind.

  CHART 2: RELATIVE IMPORTANCE OF SOCIAL SECURITY TO THE AGED 65-PLUS 
                            POPULATION, 2004



    Source: Social Security Administration, Income of the Population 55 
or Older, 2004, Table 6A.1.

    Social Security does not require draconian changes or a major 
overhaul. Unlike health care, it is not projected to drain the Federal 
budget. In fact, Social Security spending is a smaller share of GDP 
today than it was in Ronald Reagan's first term. By 2016, it will still 
consume about the same share of the economy as it did when Reagan was 
first elected president. Eventually, Social Security's costs will rise, 
but its growth will largely reflect the eligibility of the boomer 
cohort, which will occur between 2008 and about 2030. When the last 
boomer has retired, Social Security costs will resume a gradual and 
manageable growth path.
    While Social Security faces no immediate crisis, it does face a 
serious, though manageable, long-term financing problem. Viewed from 
the perspective of the Social Security Administration actuaries, even 
with no changes, Social Security can pay full benefits through 2040; 
after that date, Social Security can pay over three quarters of 
promised benefits for decades thereafter.\3\
---------------------------------------------------------------------------
    \3\ OASDI Board of Trustees, 2008.
---------------------------------------------------------------------------
    Of course, delay is not desirable. Social Security's long-term 
solvency can be resolved by relatively modest adjustments if we make 
them sooner rather than later. The first priority of Social Security 
reform must be to strengthen the long-term solvency of this guaranteed, 
defined-benefit program. As in 1983, the path to successful reform of 
Social Security is likely to combine additional revenues with changes 
to the benefit structure in a way that maintains the integrity and 
adequacy of the program but also ensures its long-term viability. 
Solutions must also be evaluated in the broader context of retirement 
security so that tomorrow's retirees are not put at greater risk. This 
context is important given the shortcomings of our retirement savings 
system.

                              IV. REVENUE

    Any meaningful examination of deficit reduction should include a 
look at both traditional revenue sources and tax expenditures. While 
taxes are visible to all of us, tax expenditures--often called tax 
entitlements--are not.
    The Federal revenue base has eroded over the past seven years. 
Federal revenues dropped by nearly 5 percent of GDP in only four years 
(between 2000 and 2004) and spending increased by 1.5 percent of GDP 
\4\ sending the budget from a surplus of 2.4 percent of GDP in 2000 to 
a deficit of 3.6 percent of GDP in 2004. Although revenues recovered 
somewhat in 2005 and in 2006, they are still well below their peak of 
2000, and below levels needed to finance our increasing domestic and 
global commitments.
---------------------------------------------------------------------------
    \4\ Five percent of GDP in 2006 is about $650 billion, more than 
twice the budget deficit for FY2006. This decline was from an all-time 
high of revenues as a percentage of GDP, which reached 20.9 percent of 
GDP in 2001.
---------------------------------------------------------------------------
    The tax code contains a multitude of tax provisions that 
automatically convey benefits, similar to spending entitlements, but 
they have very different distributional effects. Tax entitlements 
entail significant amounts of foregone revenue and have a deficit 
impact similar to spending entitlement programs. The benefits of tax 
entitlements are generally skewed toward more affluent individuals. 
Unlike Social Security and Medicare, which spread their benefits 
broadly, tax entitlements are highly skewed to the most affluent 20 
percent of the U. S. population.

                         V. BUDGET COMMISSIONS

    Over the years, the growing Federal deficit, the long-term 
financial problems in specific spending programs, such as Medicare and 
Social Security, and the need for tax reform have resulted in the 
creation of specific commissions and many more calls for them. The key 
to success for any policy process, whether a Congressional debate or a 
commission, is to properly define the fundamental nature of the problem 
and to propose solutions that can garner political and popular support.
    Successful commissions, such as the 1983 Greenspan commission on 
Social Security, have a specific charge, are composed of key decision-
makers, are bipartisan, take sufficient time to deliberate, and allow 
our elected officials the opportunity to make changes. The ultimate 
success of the 1983 commission's recommendations depended on the 
willingness of key Administration officials and Congressional leaders 
to come together and finish the job the commission started.
    Another successful commission was used for base closings and serves 
as a model for the SAFE commission. However, the base closing 
commission had a limited mission, and its recommendations had a high 
impact on limited geographic areas. The importance and scope of 
spending and revenue changes that would impact all Americans nationwide 
do not lend themselves to the procedures that were used for closing 
military bases or other more narrowly focused objectives.
    Commissions are not a substitute for the willingness of our 
nation's leaders to come together and solve problems. Bipartisan 
membership--as the SAFE commission requires--is a solid first step, but 
not enough to guarantee success. Finding solutions will also require 
the engagement of the American people--raising their awareness, getting 
their input, and winning their support. We commend the legislation's 
requirement for public comment, but we caution that given that the 
issues at stake in this legislation go to the heart of the health and 
financial security of every American, greater opportunity for a full 
and open congressional debate is not only important, but necessary.

                          VI. BUDGET TRIGGERS

    Some have advanced the concept of a budget ``trigger'' as a way of 
forcing action to deal with future budget deficits. H.R. 3654 includes 
a provision that would allow a super-minority of the SAFE commission to 
include an automatic stabilizer or trigger in the commission's 
legislative recommendations. Closer examination of past experience with 
triggers leads to the conclusion that this mechanism will not be an 
effective budget tool. Too often efforts to avoid the trigger divert 
attention from adopting more comprehensive solutions to the underlying 
problems.
    Triggers are flawed for several reasons. First, budget triggers are 
generally premised on the notion of an arbitrary, across-the-board cut 
in spending--a premise that frequently ignores the role revenues should 
play in reaching deficit targets; Second, triggers rarely take into 
account the resulting adverse impact on those harmed by the arbitrary 
cuts. Third, triggers are based on a combination of uncertain economic 
projections and assumptions about the actions of future Presidents and 
Congresses. Fourth, triggers are intended to force action, not set 
policy, and therefore generally avoid policy choices. Finally, the 
operation of a trigger is assumed to be ``automatic''; the President 
and/or Congress must act once the trigger is pulled.

                  A. BUDGET PROJECTIONS ARE UNCERTAIN

    The inherent uncertainty of economic projections and models to 
project spending and revenues accurately is widely recognized. CBO 
routinely presents information on the range of uncertainty surrounding 
its five year budget projections. For example, CBO's current projection 
of the budget balance in 2013, five years in the future, shows a small 
surplus--$70 billion. However, there is a 50 percent chance that the 
actual balance will range from a deficit of $330 billion to a surplus 
of $450 billion. Basing a ``hard'' trigger--one that requires automatic 
benefit cuts or tax increases on projections that are subject to such 
uncertainty would be unwise.

    B. TRIGGERS CANNOT DEAL WITH THE CAUSE OF THE PROBLEM, ONLY THE 
                                SYMPTOMS

    Simply establishing targets for mandatory spending and revenues 
will not reform the health care system or the tax code. Reducing 
system-wide health care costs is the problem that must be addressed to 
bring the budget on to a path that is sustainable for the long-term. In 
fact, triggers may make this difficult to make much needed 
investments--such as in Health IT and more evidence-based research--
that will save money in the long-term.
 c. automatic mechanisms have failed to achieve their goals in the past
    The history of the Federal budget in recent decades is replete with 
examples of the failure of mechanisms that resembled triggers to force 
action. When such automatic cuts in popular programs are likely, 
Congress has usually shied away from allowing them to happen.
    The Balanced Budget and Emergency Deficit Control Act of 1985 
(Gramm-Rudman-Hollings or GRH) established ``fixed'' deficit targets 
with the goal of balancing the budget. If projections showed that the 
targets would be breached, automatic cuts to mandatory programs were 
required by the law. It was generally acknowledged that these targets 
were too optimistic and that proved to be the case. Only once were the 
automatic cuts allowed to proceed, then the targets were ``adjusted''. 
This experiment with fixed targets was tossed aside a few years later.
    This discussion confirms that an automatic trigger rarely, if ever, 
is an effective deficit-reduction tool, and often promotes budget 
gimmickry to forestall politically unpleasant events. In this regard, 
automatic triggers may actually be counterproductive to the goal of 
addressing our structural deficit, by delaying real reform. AARP 
strongly recommends that efforts to create a ``trigger'' in vital 
programs like Social Security, Medicare and Medicaid be rejected. 
Instead, we should focus on the necessary longer term solutions.

                            VII. CONCLUSION

    The United States is reaching a tipping point with millions of 
Americans concerned about their health and long-term financial 
security. As policy makers seek to deal with budgetary issues, they 
must do so in a way that addresses these issues of retirement and 
health security that most people worry about everyday .
    The debate over government spending and revenues, and especially 
Medicare and Social Security, and their impact on the budget, has 
focused primarily on projected costs, with less attention given to the 
beneficial impact these programs have had on people's lives. The debate 
has also failed to focus on the underlying problem of system wide 
health care costs, which largely drives the increase in projected 
entitlement spending. Finally, the debate often isolates revenues from 
serious examination. The challenge is to improve the quality of 
people's lives while finding ways to keep retirement, health care and 
other systems affordable and sustainable. These are complex issues that 
will require the involvement of every sector of society. Meaningful 
solutions are the responsibility of all of us--governments, businesses 
and individuals. Working together, with the right focus and framework, 
we can ensure affordable quality health care and financial security for 
current and future generations.

    [Statement of Mrs. Kennelly follows:]

  Prepared Statement of Hon. Barbara B. Kennelly, President and CEO, 
      National Committee to Preserve Social Security and Medicare

    Mr. Chairman and Members of the Budget Committee, the National 
Committee to Preserve Social Security and Medicare is pleased to have 
the opportunity to submit testimony for your hearing on ``The SAFE 
Commission Act (H.R. 3654) and the Long-Term Fiscal Challenge''.
    The National Committee is made up of millions of senior citizens 
around the country who are care deeply about Social Security and 
Medicare and want to see them preserved and strengthened for future 
generations. Unfortunately, much of the discussion in recent years has 
not focused on increasing Social Security solvency but rather on using 
Social Security's funding gap as a pretext for unraveling the program. 
Similarly, those who are philosophically opposed to Medicare have used 
rising health care costs in the general health care system to promote 
their proposals to privatize Medicare.
    The National Committee is very concerned about the inflated fiscal 
rhetoric surrounding Social Security and Medicare. Often the future 
costs of these programs are inappropriately combined to generate an 
enormous multi-trillion dollar number to advance the notion that 
spending on entitlements is out of control. While Social Security and 
Medicare, in combination, are designed to provide older Americans with 
a sound foundation in their old age, they are in fact two very 
different programs.
    Contrary to some accounts, Social Security is not facing bankruptcy 
but has a funding gap which is both modest and manageable. This gap is 
based primarily on demographics. Medicare, on the other hand, is a 
health care program. Most of its cost increases are being driven by the 
inflation in overall health care, not demographics. The reasons for 
these health care cost increases are many and complex and need to be 
addressed in a larger context. Cutting Medicare benefits without 
addressing this larger problem will only shift additional costs onto 
Medicare beneficiaries.
    The younger generation has been led to believe that the 
demographics of the Baby Boomer generation will condemn them to a 
desolate future. Nothing could be further from the truth. Baby Boomers 
have been with us for a long time. The bulge produced by that 
generation has been working its way through society ever since the Baby 
Boomers were born. When they needed schools, this country built them. 
When they needed homes, this country helped finance them. While some 
would have us focus on the declining ratio of workers to retirees, the 
more correct measure is the ratio of workers to the total number 
dependents of all ages. That ratio remains the same as it was in the 
1950s when the Baby Boomers were in school.
    The millions of members and supporters of the National Committee 
remain very concerned that the overheated debate on entitlement reform 
will lead to privatization of Social Security. Thus, they are opposed 
to the establishment of a commission or task force on entitlements that 
offers a backdoor path to the enactment of private accounts.
    Representatives Jim Cooper and Frank Wolf have introduced the SAFE 
Commission Act (H.R. 3654) which would create a bipartisan entitlement 
commission. The legislation would empower a small group of individuals 
to write legislation on Social Security, Medicare, Medicaid and taxes.
    The National Committee has several concerns about this proposed 
process. The commission's legislation would be fast-tracked through the 
Congress. No amendments would be permitted with the exception of 
substitutes from specified officials. Moreover, committees of 
jurisdiction, including those Members of Congress who are the most 
familiar with the workings of these programs, would be effectively left 
out of the process.
    Most importantly, the National Committee strongly opposes any 
commission which is allowed to consider privatizing Social Security 
among its options. After a long national discussion when President Bush 
offered his privatization proposal in 2005, Social Security private 
accounts were soundly rejected by the American people. That is because 
privatization would dismantle our nation's most successful retirement 
security program and would do nothing to improve Social Security 
solvency. Private accounts have no place in any conversation intended 
to strengthen Social Security for future generations. Any commission 
that does not specifically preclude private accounts will certainly be 
interpreted by America's seniors as a surreptitious effort to resurrect 
this failed initiative.
    We believe that a commission that focuses on Social Security and 
Medicare in the context of the federal budget, with little regard for 
the critical role these programs play in the income and health security 
of future retirees, would be inherently biased and would inevitably 
result in a reduction in the standard of living of older Americans.
    In this debate, we sometimes lose track of the reasons Social 
Security was enacted in the first place. It is important to repeat a 
few things about Social Security and its beneficiaries. Social Security 
is the largest single source of income for older people. Among lower-
income people, Social Security is almost 85 percent of their income. 
Social Security pays a monthly benefit that lasts as long as you live--
which is particularly important for women who live longer and find 
their small assets dwindling. Social Security benefits are modest--the 
average Social Security retirement benefit is only about $12,000 a 
year. Social Security provides disability benefits for those who lose 
wages due to a disabling condition, and it provides benefits to young 
spouses and children if a worker dies. Finally, without Social 
Security, over half of seniors would live in poverty.
    Similarly, Medicare provides basic, affordable, universal health 
care to a population largely shunned by private health care plans. 
About 70 percent of Medicare beneficiaries have incomes under $25,000 
and 85 percent have incomes under $40,000. Almost two out of three 
elderly households have incomes under $20,000, and they are already 
spending 30-50 percent of their income on health care.
    Arbitrarily cutting Medicare without getting at the root of the 
continuing upward trend of health care costs will have real impacts on 
real people--most of whom have nowhere else to go for coverage and 
limited options for increasing their resources.
    The National Committee and it members and supporters care deeply 
about the future. We favor balanced and responsible action to address 
the funding gaps facing Social Security and Medicare. However, we are 
dismayed by the overblown rhetoric about entitlements because we 
believe that it stands in the way of real changes that would strengthen 
these essential programs. We look forward to working with the Congress 
to ensure the continuation of Social Security and Medicare for the 
benefit of both current and future generations.

    Chairman Spratt. In addition, Mr. Frank Wolf, Congressman 
Wolf is to participate today. He is a cosponsor of the bill 
before us, along with Mr. Cooper. I don't think Mr. Wolf is 
here, but I would like to ask unanimous consent at least to 
extend him the courtesy of sitting on the panel with us. He 
would, of course, come last in order for questions.
    Is there objection?
    Hearing none, so ordered.
    On the subject of the hearing this morning, there is really 
little dispute our Nation faces grave fiscal problems in the 
foreseeable future; and the sooner we address them the better. 
Today's hearing centers on Cooper-Wolf, H.R. 3654, a bill 
calling for a commission along the lines of the Base Closing 
and Realignment Commission. Though I have concerns about this 
bill, I have great admiration for its sponsors, our Budget 
colleague Jim Cooper and veteran appropriator Frank Wolf. I 
believe their bill is a genuine effort to address a serious 
problem, and I salute them, but I am not sold on the vehicle 
they are offering.
    I acknowledge the precedent for a commission. The Greenspan 
Commission in 1983 was a huge success, but its recommendations 
did not bypass committees of long-standing jurisdiction, it did 
not come to the floor in an up-or-down, take-it-or-leave-it 
vote.
    In the years afterwards, the initiatives to resolve the 
deficits of the Reagan-Bush years all took the form of select 
groups drawn from the leadership on both sides who hammered out 
agreements with the prevailing administration. That was true of 
Gramm-Rudman-Hollings in 1985, of the Bush Budget Summit in 
1990, of the Clinton budget in 1993, and of the balanced budget 
agreement in 1997.
    Members of Congress working with the executive branch 
produced these agreements. As a result, these core groups who 
have been involved in the production of the agreement acquired 
some equity in the outcome and became advocates for passage 
through committee and onto the floor.
    I am not at all convinced that this commission of 18 
members, only four of whom are Members of Congress, will have 
the traction needed to push unpopular reforms and entitlement 
cuts through Congress and some real reservation about fast-
track procedures that bypass Ways and Means and Commerce and go 
straight to the floor, more or less unamendable, vote it up or 
down. I think a lot of members will look upon this as an 
overdelegation of authority.
    The commitment and the consensus needed to tackle these 
problems starts with the President, with the leadership of the 
Congress, and there is no substitute for it. We saw that 
commitment in 1990, 1993, and 1997.
    In 1997, for example, every time the four budget principals 
met, every time we met, President Clinton had his first team on 
the field. It could be one day Frank Raines, the next day 
Erskine Bowles, but somebody was in the room every time we met 
who had the President's proxy, and that commitment was not lost 
on anybody who was participating.
    There has been no such commitment during the Bush years, 
certainly no effort to build or forge consensus. Unless there 
is commitment among all the stakeholders, the most likely 
outcome is that the commission's report will meet the same 
forgotten fate as countless other reports from other 
commissions.
    The bill also has some oddities that we can cover with 
questions when the time comes. One is it provides for dynamic 
scorekeeping, which violates rule one of the Greenspan 
Commission. In that famous anecdote, Greenspan announced to his 
commissioners as they got started, everybody is entitled to his 
own opinion, nobody is entitled to more than one set of facts, 
and these are the facts.
    I know that you will find it--be shocked, shocked to hear 
it, but projections, economic projections can be manipulated 
and dynamic scorekeeping is one way of skewing a forecast in 
your favor, which is one reason mainstream economists are wary 
of it.
    Let me make a few other random observations and then turn 
to Mr. Ryan for his statement.
    This bill singles out entitlements but seems silent on 
other cost drivers, as if entitlements were all of the problem. 
They are certainly a big part of the problem. There is one 
claim, for example, on the budget which is never called a 
entitlement, though it is obligatory, and that is net interest 
on the national debt. Interest is too large to be eradicated, 
but we still have to mitigate or rein it in or else the efforts 
to reduce entitlement spending will be overcome by the swelling 
in another obligatory account, that for debt service. We will 
reduce Medicare, Medicaid, only to have the reduction displaced 
by the increasing costs of debt service if we do not first 
balance the budget.
    My colleagues on the Democratic side are unlikely to put 
their middle-income constituents through the wringer with cuts 
in Medicare and Medicaid only to have debt service keep rising 
and eclipsing our other priorities.
    One of the lessons learned in the 1990s is that the traffic 
will bear politically only so much. Social Security reform came 
in 1983, years before Medicare and Medicaid cuts of 1990, 1993 
and 1997. It is hard for me to believe that Congress in one 
fell swoop can cut all of the entitlements down to an 
affordable size. It is also hard to believe that we can extend 
the 2001 and 2003 Bush tax cuts, repeal the estate tax, repeal 
the alternative minimum tax, then add a few more tax cuts to 
the mix while we keep on increasing defense and funding other 
deficits, infrastructure, innovation, education. It is hard to 
believe that we can do all of the above and still solve this 
equation.
    One preferred way that I think we would all support if it 
were entirely viable, one preferred way to make our 
entitlements more affordable, is to make our people and our 
economy more productive. For that reason, I think that a budget 
reducing long-term liabilities should be discriminating when it 
comes to the support of education and job training and 
infrastructure and research and development and innovation, all 
of which can become long-term assets.
    Medicare and Medicaid are typically singled out in this 
bill as the chief culprits, the fastest-rising accounts in the 
budget; and over the long run they are clearly the biggest part 
of the problem. But right now, the fastest-rising spike in the 
budget post the year 2000 is national security. Since 2000, 
national security has increased from 300 billion to between 6 
and 700 billion this year. If we want to balance the budget, we 
have to curb or cut discretionary spending; and since defense 
constitutes well over half of discretionary spending, it, too, 
has to be subject to constraints. This is the elephant in the 
room which we seldom discuss, but it is still part of the 
problem.
    To rid the budget of deficits in the '80s and '90s 
following the Reagan tax cuts and the defense build-up, it took 
almost 15 years and four deficit reduction plans.
    The good news is that we perfected the process. We sorted 
out what would work: multi-year budgets, pay-as-you-go 
entitlements, discretionary spending caps, and across-the-board 
automatic cuts. The bad news is today the deficits are probably 
more intractable due to the retirement of the baby boomers, war 
in two theaters, increasing debt service, and may take even 
longer and several more iterations before we ever get rid of 
these deficits.
    To resolve this problem is quite simple. Everybody needs to 
be at the table, and everything needs to be on the table, and 
all stakeholders for good-faith purposes should ante up, should 
have some skin in the game. That was true the last time we did 
such an agreement.
    President Clinton led by offering $110 billion in Medicare 
cost reductions. Scored later at $90 billion, he raised it back 
to $100 billion. That was his earnest money. That was his ante. 
That was the way we propelled and carried forward these 
negotiations. And that precedent I think is a worthy one as we 
consider how to do it again.
    In the next few months, we will have a new President. 
Whether it is President Obama or President McCain, let's hope 
he will sit down with congressional leadership and decide how 
we can move back to the path of deficit reduction and toward 
the solvency of our major entitlements.
    With a shared commitment--that is critical, shared 
commitment, we can't do it either party by itself--we can move 
the ball again, I believe, as we did in the 1990s. If the 
Congress and the President do not have that sense of shared 
commitment, that agreement to work together and consensus about 
what needs to be done, I doubt that a commission can supply it.
    We have today a distinguished panel of witnesses: Pete 
Peterson and David Walker from the Peterson Foundation; Bob 
Greenstein from the Center on Budget and Policy Priorities; 
Henry Aaron from the Brookings Institution; and Alison Acosta 
Fraser from the Heritage Foundation. That pretty well covers 
the spectrum, and we look forward to a lively discussion.
    Before turning to you, let's go to the ranking member, Mr. 
Ryan.
    Mr. Ryan. Thank you, Chairman. I appreciate your 
indulgence, and I appreciate the fact that you are having this 
hearing today.
    I also want to welcome all the esteemed witnesses we have 
today. Dave Walker, it is great to have you here again with us. 
You are a very familiar face here with us, and we are glad to 
see you here in your new capacity.
    Just last week, Congressman Cooper and I had the 
opportunity to participate in a bipartisan event right here in 
this room, sponsored by the Brookings Institution, with the 
sole purpose of discussing the entitlement challenge. It was 11 
a.m. on Wednesday. We didn't have any coffee. We didn't have 
any donuts. It was just Mr. Cooper and me doing our respective 
PowerPoints on entitlement reform. And, you know, we actually 
filled this hearing room; and I understand that Brookings even 
had to turn people away because we ran out of seats.
    I have probably given that presentation 50 times in the 
past month or so, mostly back home in Wisconsin; and the people 
keep coming because Americans know that there is a problem. 
They are beginning to understand the magnitude of the problem, 
and I can tell you from my own experience they are ready to 
hear from their representatives about how we plan to solve the 
problem. Now we just need to get Washington up to speed with 
the rest of the country.
    Now, Chairman Spratt, you are doing your part. He has 
called more than a dozen hearings dealing with the entitlement 
crisis and once again brings this issue before the committee. 
And my friend Congressman Cooper, who requested this hearing 
today, and who, along with Congressman Frank Wolf, who I think 
is going to join us later today, has proposed this bipartisan 
commission to look at ways to address this challenge. All of 
these individuals ought to be commended for their efforts.
    It should also be a major component of the campaign debates 
this year. Because if the candidates--and I am talking about 
every candidate running for Federal office--are going to talk 
about the issues of importance to the American people, 
entitlements had better be part of that discussion.
    But I also believe it is time Congress gets onto the 
business of doing what our constituents actually sent us here 
to do, and that is to move beyond simply talking about the 
problem and actually finding solutions to those problems.
    Because I believe that, I introduced my own proposal. It is 
called the Roadmap for America's Future. It addresses this 
challenge in a very comprehensive way and achieves the 
following three objectives: It fulfills the mission of health 
and retirement security for all Americans, it removes the 
massive debt burden for the next generation and ensures 
American jobs and competitiveness in this 21st century global 
economy.
    I won't go through all the details. As you can see, it is a 
pretty thick bill. It is hundreds of pages long, with a 70-page 
report to go along with it. But, to be clear, it is a real plan 
with real proposals, real numbers to back them up and actually 
real legislation to implement it.
    I don't expect everyone to agree with every aspect of it, 
but I would ask you to take a look and leave your comments and 
input. You can go to our Web site at Americanroadmap.org, 
because we need all to be a part of this discussion.
    Every expert Congress can find, from the GAO to CBO to the 
Fed to Heritage to Brookings, they have all come to the same 
conclusion. The entitlement crisis is real, it is serious, it 
is not going away, and it is getting dramatically worse with 
every year we fail to act.
    Congress has already demonstrated what does not work. 
Ignoring it doesn't work. Playing the demagogue doesn't work. 
Pointing fingers at each other doesn't work. We have done all 
of these here in Congress, both political parties; and every 
time we find ourselves another year deeper in the hole.
    Well, I have with me over here on my left shoulder my 6-
year-old daughter, Liza. I bring each one of my three kids up 
here for a week with me during the summer break. By the time 
she is raising her kids and when she is my age, on the current 
trajectory the government will be twice the size that it is 
today, twice the tax take. The debt will be insurmountable, and 
we will for sure quantifiably be handing the next generation an 
inferior standard of living if we do nothing.
    So I ask everybody, look your 6-year-old in the eyes, your 
daughter or your granddaughter, and ask yourselves here in 
Congress, is this what we should be doing or should we come 
together and fix this?
    We have got to recognize that these problems aren't 
Democrat problems--Democratic problems, excuse me, they are not 
Republican problems, and neither are the solutions. We have got 
to build bipartisan support for action, and we have got to move 
beyond simply rehashing the problem to the politically 
difficult but critical task of debating, implementing actual 
solutions for the American people.
    Chairman, I thank you for having this hearing, and I look 
forward to our witnesses' testimony. Thank you.
    Chairman Spratt. Thank you, Mr. Ryan.
    And before going to our witnesses, let me recognize Mr. 
Cooper, the co-author of this bill.
    Mr. Cooper. Thank you, Chairman Spratt. I appreciate your 
holding this hearing.
    It should be stated for the record that this hearing was an 
agreed compromise in return for Blue Dog votes for the budget. 
You were kind enough to allow us this hearing. Whether this 
bargain was worth it remains to be seen. I feel a little bit 
like that t-shirt we see sold on the street that says my 
parents got the vacation, all I got was this t-shirt.
    Mr. Chairman, you correctly stated in your opening comments 
that we face grave fiscal problems; and yet the status quo 
lobby here in Washington is so awesomely powerful this Congress 
will do little or anything about those problems. This hearing 
is one of our few chances.
    I wish it were a markup. A number of the comments that you 
have made, Mr. Chairman, and that we will hear in testimony do 
little more than create straw men and proceed to tear them 
down. Frank Wolf and I are very open on the membership of the 
commission. It can be anything you want. We are completely open 
on the issues before the commission. Taxes are on the table. 
And yet this bill has 40 or 50 Republican and Democratic co-
sponsors. Tax expenditures are on the table, contrary to what 
you see in some of the testimony. Everything is on the table 
because we need to deal with these problems now.
    Mr. Chairman, you know that the Presidential candidates are 
busy. They don't have time to focus on this. Members of 
Congress are not as busy, but we are still not focusing. I wish 
we could have a substantive hearing on Medicare reform, 
Medicaid reform, health care reform, Social Security reform. 
But where are those hearings? They are simply not happening.
    I think the best way to put this is, Mr. Chairman, history 
is watching; and they are seeing this Congress do virtually 
nothing. And yet this could be the gravest issue of our time.
    I asked a senior administration official--I won't embarrass 
him publicly. He acknowledged there were terrible long-term 
problems. And I said, well, sir, when does the long term begin? 
He said January 20th, 2009. Well, that is a completely 
irresponsible attitude. I hope that we don't go down in history 
as the ostrich Congress, having sunk our heads under the dirt 
when we knew danger was approaching.
    I think the best way to show our love and commitment to our 
seniors, to all of our family members of whatever age, and to 
these vitally important American entitlement programs is to 
prepare to meet the need, not to duck. So, Mr. Chairman, that 
is what this hearing is really all about.
    I want to commend Pete Peterson, David Walker, because they 
have shown leadership on this issue for a long time. Books like 
this, their continued efforts, I just hope that we can rise to 
the challenge as the people's elected representatives to look 
beyond the horizon, to prepare for what will otherwise be a 
very tough, dismal future.
    Thank you, Mr. Chairman.
    Chairman Spratt. Thank you, Mr. Cooper.

 STATEMENTS OF HON. PETER G. PETERSON, CHAIRMAN, THE PETER G. 
 PETERSON FOUNDATION; HON. DAVID M. WALKER, PRESIDENT AND CEO, 
THE PETER G. PETERSON FOUNDATION; ROBERT GREENSTEIN, EXECUTIVE 
  DIRECTOR, CENTER ON BUDGET AND POLICY PRIORITIES; HENRY J. 
   AARON, PH.D., BRUCE AND VIRGINIA MACLAURY SENIOR FELLOW, 
ECONOMIC STUDIES, THE BROOKINGS INSTITUTION; AND ALISON ACOSTA 
     FRASER, DIRECTOR OF ECONOMIC POLICY STUDIES, HERITAGE 
                           FOUNDATION

    Chairman Spratt. And now let's turn to our panel, beginning 
with the senior statesman on the panel, Mr. Peter Peterson.
    Mr. Peterson, thank you for coming; and the floor is yours. 
We will make your statement part of the record so that you can 
summarize it as you see fit.

              STATEMENT OF HON. PETER G. PETERSON

    Mr. Peterson. Thank you, Mr. Chairman and members of the 
committee. I am pleased to be here today to talk to those of 
you who have the opportunity to find sustainable, long-term 
solutions to the problems facing the American economy. As you 
alluded to with my senior statesmanship, I have been around a 
long time, and it has been a long time since I have seen this 
many problems of a long-term nature that I call undeniable, 
unsustainable, and yet politically untouchable.
    Permit me to start with one number. $53 trillion dollars in 
today's dollars is what the country owes, is projected between 
our future liabilities, our national debt, and our huge 
unfunded promises for programs like Social Security and 
Medicare. Social Security and Medicare are about 44 trillion of 
this. It is significant that Medicare is projected to be about 
35 trillion and Social Security is something on the order of 7 
trillion. So Medicare is by far the largest fiscal problem.
    Every American with this kind of debt is now burdened, most 
of them unknowingly, with more than $175,000 in Federal 
liabilities and unfunded government promises. Taxes would have 
to more than double to pay for them. Slipping this huge check 
of debts and taxes to our children should indeed be not only 
unthinkable but immoral. And our unprecedented current account 
deficits and levels of foreign debt, given our record low level 
of savings, is downright dangerous.
    Given our abysmal national and personal savings rate, we no 
longer owe this debt to ourselves, we owe much of it to 
foreigners. We simply must increase national and personal 
savings. We are leaving this country vulnerable to economic and 
geopolitical risk that no great country should be taking. And 
ballooning health care costs, our number one fiscal problem by 
far, threaten the very competitiveness of our economy.
    In our lifetime, as you know, 78 million boomers will 
retire, causing the cash deficits of Social Security and 
Medicare, the foundation of America's social safety net. These 
deficits happen long before the so-called and, in my view, 
fictional trust funds are solvent. These programs must be 
reformed to reflect the demographic realities, while also 
making them solvent, sustainable, secure, and more savings 
oriented.
    The question, of course, is how to reform. Some would 
suggest that we simply raise taxes. Beyond the thought that it 
is unthinkable that we double taxes, I hear proposals that 
eliminating the Bush tax cuts that is going to fat cats like 
myself will go a long way to solve this problem.
    Let's look at some melancholy realities. Let's suppose we 
got rid of all the Bush tax cuts, and I hear few proposing 
this. This would amount to something like 1 percent of the GDP. 
The projected increase in entitlement spending is 9 percent of 
the GDP.
    On the other hand, particularly given the rapidly growing 
inequality of incomes, I consider it inevitable that, at the 
very least, taxes will be increased for the well off. The point 
is, will they be combined with fundamental reform of these 
programs?
    Permit me to make one other rather obvious point. Spending 
these unthinkable amounts on mandatory entitlement programs 
means that other critical investments will be crowded out. I 
mean crucial investments in our children, their health and 
their education and research and development. Indeed, as I look 
at the history, that crowding-out process has already begun.
    I am here because I am committed to meaningful results in 
my lifetime. As the Congressman indicated, this is an American 
issue; and I am devoting a great deal of not just my energy and 
my time but my financial resources to bring Americans together 
to find lasting, long-term solutions.
    Sadly, we have gone from being an optimistic and hopeful 
society to one of great anxiety and increasing pessimism. For 
the first time in our history, a majority of Americans believe 
their children will not have a better standard of living than 
they do. That, my friends, is simply unacceptable. We owe it to 
the next generation to keep that dream alive and fully intact 
the way our parents did.
    Engaging America's youth is critical to this process. They 
are the ones, after all, who will inherit this sobering future. 
They are truly our greatest asset, which is why they must be a 
fundamental part of any conversation about America's future and 
the path they will take to get there. Through the Peterson 
Foundation, we encourage Americans to make responsible choices 
today, while providing opportunity for tomorrow.
    This lack of sustainability will eventually begin to 
cripple America and threaten the very foundation of not just 
our financial system but our country. The time for action is 
now. The greatest generation confronted challenges at least as 
daunting as this one's. They fought and paid for the costliest 
war in history in every sense of the word costly. Not only did 
they repay debts far higher than today's, but they bought into 
and paid for the GI bill, the Marshall Plan, and the huge 
infrastructure highway program.
    We have done it before, and I can see no reason we cannot 
do it again. But the changes required must begin somewhere. I 
see no better place than this room right now. So today it is 
our mutual turn to do something.
    Thank you.
    Chairman Spratt. Thank you, Mr. Peterson.
    [The statement of Peter Peterson follows:]

   Prepared Statement of Hon. Peter G. Peterson, Chairman, Peter G. 
                          Peterson Foundation

    Thank you, Mr. Chairman and members of the committee. I am pleased 
to be here today talking to those of you who have the opportunity to 
find sustainable, long-term solutions to the problems facing the 
American economy. I don't intend to talk only about facts and figures, 
though some will be necessary to paint an accurate picture of the 
daunting situation we're in right now.
    To that end, I would ask that if you leave here remembering only 
one number, let it be this one: 53 Trillion.
    Fifty-three trillion dollars in today's dollars is what this 
country owes between our national debt, future liabilities, and our 
huge unfunded promises for programs like Social Security and Medicare. 
It's an ugly number. It's unacceptable. And frankly, I believe it is 
Un-American.
    Our nation is sinking deeper and deeper into debt and unsustainable 
promises while Americans are asking more and more from the government. 
This is a vicious cycle that MUST be broken, before it breaks us. 
That's exactly why it's time for all Americans to know what these 
critical issues are, why they are important, and what we can do 
together to fix them NOW--before it's too late.
    These sustainability challenges are not new. They've been building 
under the surface of America's social and economic policies for years. 
More specifically, government obligations are reaching unthinkable, and 
worse, unmanageable levels. Every American--even the youngest among 
us--is now burdened, most of them unknowingly, with more than $175,000 
in federal liabilities and unfunded government promises. Taxes would 
have to more than double to pay for them. And that is unthinkable not 
only economically, but morally. Slipping this huge hidden check of 
debts and taxes to our children should, indeed, be declared immoral. 
And, our unprecedented current account deficits and levels of foreign 
debt, given our record low level of savings is downright dangerous. 
Given our abysmal national and personal savings rate, we no longer owe 
this debt to ourselves. We owe it to foreigners. We simply must 
increase national and personal savings. We are leaving ourselves 
vulnerable to economic and geopolitical risks that no great country 
should be taking. And ballooning health care costs threaten the very 
competitiveness of our economy.
    In our lifetime, 78 million baby boomers will retire, causing huge 
cash deficits of Social Security and Medicare, the foundation of 
America's social safety net. These deficits happen long before the so-
called and, in my view, fictional trust funds are solvent. These 
programs must be reformed to reflect the demographic realities and 
longer life spans while also making them solvent, sustainable, secure, 
and more savings-oriented.
    With all of this in mind, I'm here today because I'm committed to 
ACTION, to seeing real, meaningful RESULTS in my lifetime. This isn't 
my personal issue; this isn't a Democrat or Republican issue; it's an 
American issue. That's why I am dedicating so much of my energy, my 
time, and my resources to bringing Americans together to bring about 
lasting, long-term solutions to the shared challenges facing our 
nation.
    Sadly, we've gone from being an optimistic and hopeful society, to 
one of great anxiety and unity and increasing pessimism. In fact, for 
the first time in our nation's history, a majority of Americans believe 
their children will not have a better standard of living than they do. 
That, my friends, is simply unacceptable. It also means we're letting 
the promise of the American Dream slowly slip away. We owe it to the 
next generation to keep that dream alive and fully intact, the way our 
parents did for us.
    Engaging America's youth is critical in this process. They are the 
ones, after all, who will inherit this sobering future. They are truly 
our greatest asset, which is why they must be a fundamental part of any 
conversation about America's future and the path we will take to get 
there.
    Through the Peter G. Peterson Foundation, we encourage Americans to 
make the responsible choices necessary today, to ensure lasting 
opportunity for tomorrow. Our goals certainly aren't easy, but neither 
are the challenges before us. And these challenges, if ignored, will 
only get worse until we are faced with the possibility of a complete, 
system-wide failure. This lack of sustainability will eventually begin 
to cripple America and threaten the very foundation of our financial 
system. The time for words has passed. The time for action is now.
    While the Greatest Generation faced a threat from abroad, this 
generation faces a threat from within. I'm here before you to today 
because I believe that, together, there truly are no challenges we 
cannot overcome as a nation. By creating the Peterson Foundation, I 
hope to motivate this generation of Americans to take action and create 
a movement.
    I hope that you will join the Peter G. Peterson foundation in our 
mission, striving not only to reform America's out of control spending, 
but also to rebuild our nation and ourselves. I do believe that if we 
are willing to change, our best days are still to come. But, that 
change must begin somewhere. I see no better place than this room, 
right now.
    Today, it's your turn.

    Chairman Spratt. And now we go to your colleague, the 
Honorable David Walker, formerly the head of the GAO, which is 
the last iteration we knew him, and now the President and CEO 
of the Peterson Foundation. Dave, welcome back.

               STATEMENT OF HON. DAVID M. WALKER

    Mr. Walker. Thank you, Chairman Spratt, Ranking Member 
Ryan, members of the House Budget Committee. It is a pleasure 
to be back before you, this time as a private citizen, with my 
partner and boss, Pete Peterson.
    Today, the Peterson Foundation is issuing a publication 
entitled The State of the Union's Finances. This citizen's 
guide provides a clear and compelling picture of the Nation's 
true financial condition and longer-term fiscal outlook. Every 
Member of Congress, every Senator, every Cabinet official, 
every Presidential candidate and, yes, the President and Vice 
President will receive a personal copy. It is also available on 
our Web site, which is www.pgpf.org.
    While the graphics and tables in this book look nice 
visually, they present an ugly picture fiscally. As the cover 
demonstrates, based on historical tax levels and absent 
meaningful entitlement spending and tax reforms, the United 
States will face debt burdens in the future that would make the 
U.S. look like a third-world nation from a public finance 
perspective.
    What do we need to do? First, as I have testified before, 
we need to provide more transparency in connection with our 
current accounting and budgeting processes. Increased 
transparency should involve some restructuring of the way the 
current budget is prepared and presented to the Congress and 
the President.
    From a financial reporting perspective, among other things, 
the government needs to recognize that the bonds in the so-
called trust funds should be deemed to be liabilities. You 
can't have your cake and eat it, too. Either they are a 
commitment of the United States or they are not. If they are, 
they are a liability. And it should place more emphasis on 
fiscal sustainability and inter-generational equity.
    In addition, a summary annual report of the Nation's 
finances should be issued each year, and a longer-range fiscal 
sustainability report should be issued by our government every 
4 years, as in the case of most industrialized nations who are 
focused on the future.
    I have included in Exhibit 1 of my testimony a summary of 
the types of reforms that are needed.
    In addition to the above steps, we need to reimpose tough 
statutory budget controls on both the spending and the tax side 
of the ledger. After all, both sides of the books contribute to 
our Nation's bleeding bottom line.
    In my view, the Congress also needs to consider adopting 
biennial budgeting and appropriations processes, and it needs 
to provide better recognition of the difference between capital 
expenditures and operating expenses, while providing 
appropriate safeguards to prevent mischaracterization.
    Beyond the budget and appropriations processes, in my view 
the regular order for addressing complex and controversial 
reform legislation, especially entitlement reform legislation, 
but not solely that, is not adequate to deal with the number 
and magnitude of the reform efforts that we must address if we 
expect to return to a more prudent and sustainable path in a 
reasonably timely manner and before a real crisis hits. As a 
result, I support the need to establish a capable, credible, 
and bipartisan commission to address at least four issues: 
statutory budget controls, comprehensive Social Security 
reform, and round one of both comprehensive tax and health care 
reform. Everything must be on the table.
    The Securing America's Future Economy Commission Act, or 
SAFE Commission Act, H.R. 3654, whose primary co-sponsors are 
Congressmen Cooper and Wolf, is intended to do just that. H.R. 
3654 is not perfect, and there are areas that could be 
improved. But it now has over 90 co-sponsors on both sides of 
the aisle.
    One might argue that those who do not sponsor or co-sponsor 
proposals for changing the status quo are tacitly sponsoring 
the do-nothing plan. And the do-nothing plan will bankrupt 
America, and it will not create a better future for our 
country.
    In the final analysis, while reasonable people can and will 
differ, I believe that a commission will likely be necessary in 
order to achieve timely action in connection with several major 
reform efforts that lie ahead if we want to avoid a crisis. In 
my view, we need an action-forcing event. We must remember the 
Greenspan Commission was created at a time where the checks 
weren't going to go out on time within a matter of weeks. 
Believe me, that was an action-forcing event. We need another 
action-forcing event that is not a crisis.
    Given the greater public awareness that is needed here and 
the need, frankly, for Congress to have some cover to make 
tough choices that people may not otherwise like, in addition 
to publishing The State of the Union's Finances, the Foundation 
has decided to purchase and support the distribution of a 
documentary entitled I.O.U.S.A. This film addresses four key 
deficits facing America: our budget, savings, balance of 
payments/trade, and leadership deficits. It will come out in 
theaters in selected cities in August, before the Presidential 
election. This will be one of many efforts that we will take in 
order to increase the visibility of this issue and hope that it 
will be a priority for the next President of the United States.
    We also will have a private showing for Members of Congress 
on Wednesday, July 9th, in the evening, at the Library of 
Congress.
    In closing, Mr. Chairman, thank you for the opportunity. I 
do have a two-minute trailer that I would be happy to show if 
you so desire and the members do of what the film is about. It 
is staunchly fact-based, nonpartisan and nonideological, 
because that is the only way we are going to do anything in 
this foundation.
    Chairman Spratt. Two to three minutes?
    Mr. Walker. Two minutes. Two minutes and six seconds.
    Chairman Spratt. Let's roll it then.
    Mr. Walker. Thank you, sir. From the beginning.
    Chairman Spratt. You just lost about 80 percent of the 
audience.
    [Tape played.]
    Mr. Walker. Thank you, Mr. Chairman.
    Chairman Spratt. Thank you, Mr. Walker.
    [The statement of David M. Walker follows:]

Prepared Statement of Hon. David M. Walker, President and CEO, Peter G. 
          Peterson Foundation, Former U.S. Comptroller General

    Chairman Spratt, Ranking Member Ryan and Members of the House 
Budget Committee, I appreciate the opportunity to appear before you 
again--this time as a private citizen and with my partner and new boss, 
Pete Peterson. As you know, I've changed my position on the battlefield 
for America's future; however, I'm still very much concerned about our 
nation's fiscal future and the other serious sustainability challenges 
that we face in my new position as President and CEO of the newly 
established Peter G. Peterson Foundation.
    Pete has already addressed his long-standing concerns regarding our 
nation's current fiscal path, along with his hopes and plans for the 
Foundation. I will address several specific issues that I believe will 
be of interest to members of this Committee. However, before I do, I 
would like to congratulate the Chairman and this Committee for gaining 
passage of a budget resolution this year.
    Today, the Foundation is issuing a publication entitled ``The State 
of The Union's Finances''. This citizen's guide provides a clear and 
compelling picture of our nation's true financial condition and longer-
range fiscal outlook. Every member of the Congress, the President, Vice 
President, all Cabinet members, each of the major Presidential 
candidates and selected other key officials is being provided with a 
printed version of this guide. It is also available online at 
www.pgpf.org.
    While the graphics and tables in the guide look nice visually, they 
present an ugly picture fiscally. As the cover points out, based on 
historical tax levels and absent meaningful entitlement, spending and 
tax reforms, the United States will face debt burdens in the future 
that would make third-world nations look thrifty. And our related debt/
GDP ratios escalate dramatically after the 2040 date because we will 
have passed a ``tipping point'' by then. Furthermore, as one table in 
the guide notes and as Pete has stated, we are currently in a $53 
trillion fiscal hole. This hole gets deeper by $2-$3 trillion a year on 
autopilot. We need to start figuring how we are going to start climbing 
out of that hole. The time is over for merely saying how one will pay 
for new spending increases or tax cuts. It is critical that we not 
continue to kick the can of tough choices down the road.
    What do we need to do? First, as I have testified before, we need 
to provide more transparency in connection with our current accounting 
and budgeting systems. For example, steps need to be taken to provide a 
fuller and fairer disclosure of where we stand financially and where we 
are headed fiscally. The Congress needs to consider the affordability 
and sustainability of major entitlement, spending and tax proposals 
over the longer-term before they are passed into law. Congress must 
never allow what happened in connection with the Medicare prescription 
drug bill to happen again. That bill deepened our fiscal hole by over 
$8 trillion, when Medicare was already underfunded by approximately $20 
trillion at the time.
    Increased transparency should also involve some restructuring of 
the way the current budget is prepared and presented to the Congress 
and the President. The current budget baseline that attempts to 
approximate current law results in an incomplete and even misleading 
picture, especially in the way that it treats automatic growth in 
mandatory spending programs. For example, assume a 3-percent inflation 
level, 2 percent real economic growth, and an annual health-care cost 
growth rate at 7.6 percent. Under current budget rules, having 
education grow by 2 percent in nominal dollar terms is referred to as 
an ``increase,'' whereas having mandatory health spending grow by 5 
percent is called a ``cut.'' This approach does not pass a straight-
face test on Main Street and outside the Beltway. It also serves to 
provide an excuse for not revising mandatory spending programs that are 
clearly unsustainable while not providing adequate funding for programs 
that represent an investment in our collective future well being.
    Federal financial reporting should, among other things, recognize 
that the bonds in the so-called ``trust funds'' should be deemed 
liabilities, and it should place more emphasis on fiscal sustainability 
and inter-generational equity. In addition, a Summary Annual Report on 
the nation's finances should be issued every year. A longer-range 
Fiscal Sustainability Report also should be issued by our government 
every four years, as is the case in several other industrialized 
nations. I have included as Exhibit I of my testimony a summary of the 
types of reforms that I advocated as Comptroller General. My views of 
these issues have not changed just because I'm in a new position. These 
reforms need to be aggressively pursued and acted on.
    In addition to the above steps, we need to re-impose tough 
statutory budget controls on both the spending and tax side of the 
federal ledger. After all, both sides of the books contribute to our 
nation's bleeding bottom line. Unfortunately, as we have seen in recent 
years, Washington still has not learned the first rule of holes--``When 
you're in a hole, stop digging!'' This must change, and the sooner the 
better.
    In my view, the Congress also needs to consider adopting biennial 
budgeting and appropriations processes. And, it needs to provide better 
recognition of the difference between capital expenditures and 
operating expenses while providing safeguards to prevent 
mischaractization of items. The sad but simple truth is that both the 
budget and appropriations processes have not functioned well in most 
years of our recent history. The Congress spends way too much time each 
year dealing with minor issues and not enough time dealing with major 
ones, frequently with very disappointing results. This is one of the 
reasons that the public's view of the Congress as an institution is at 
or near historic lows. In fairness, the same can be said of the current 
President's ratings.
    As you know, the federal government has enacted at least one 
supplemental spending bill each year for a number of consecutive years. 
This process can be used to address bona-fide emergencies and 
contingencies in the future if the Congress moves to a biennial cycle. 
Furthermore, several states have already proven that biennial 
approaches can work.
    Beyond the budget and appropriations processes, in my view, the 
regular order for addressing complex and controversial reform 
legislation, especially entitlement related legislation, is not 
adequate to deal with the number and magnitude of the reform efforts 
that we must address if we expect to return to a more prudent and 
sustainable fiscal path. As a result, I support the need to establish a 
capable, credible and bipartisan commission to address at least four 
issues--statutory budget controls, comprehensive Social Security 
reform, and round one of both comprehensive tax and health care reform. 
The Securing America's Future Economy Commission Act (SAFE Commission 
Act), or H.R. 3654, whose primary co-sponsors are Congressmen Cooper 
and Wolf, is intended to do just that. How could anyone vote against a 
bill with a name like that if they have a chance to vote, and provided 
that its provisions are consistent with its name, which I believe they 
are?
    In my view, if properly structured and staffed, such a commission 
could make at least a $10-$15 trillion down payment on our $53 trillion 
federal fiscal imbalance. This would be a significant accomplishment in 
addressing our nation's financial challenge as well as a positive step 
that would help improve both the confidence in, and the credibility of 
the Congress in the eyes of the American people. Why is Washington 
waiting to bring up this proposal for a vote?
    Among various budget options that the Commission should consider is 
how best to address mandatory spending programs and existing tax 
preferences. I have previously stated that the Congress should consider 
establishing triggers that would force re-consideration and reforms of 
mandatory spending programs. A recent group of fiscal experts from a 
range of respected Washington think tanks, including the Foundation's 
own Gene Steuerle, who was formerly with The Urban Institute, issued a 
comprehensive report that contained a similar recommendation. I also 
believe that the Congress must periodically review and reconsider all 
major tax preferences and possibly adopt automatic reconsideration and 
reform triggers for them as well. In my view, like spending programs, 
tax preferences are not all created equal. In addition, tax preferences 
represent ``back-door'' spending. The U.S. Government foregoes 
approximately $1 trillion in revenue a year as a result of existing tax 
preferences. As a result, they must get on the radar screen and become 
part of our overall reform effort.
    In the final analysis, I believe that a commission will likely be 
necessary in order to achieve timely action in connection with several 
of the major reform efforts that lie ahead. At the same time, I would 
like to compliment Representative Paul Ryan on his recent decision to 
put a comprehensive entitlement and tax reform proposal on the table. 
Irrespective of what I and others may think about the details of his 
proposal, it took courage to make it, and we need more leaders who are 
willing to take such risks.
    We must keep in mind that, while Washington is a ``lag indicator,'' 
political gridlock in Washington is not good when we face a range of 
serious sustainability challenges that grow with the passage of time. 
The truth is that there are a number of very disturbing parallels 
between the factors that contributed to our recent mortgage-related 
sub-prime crisis and our nation's federal finances. These parallels 
have gone largely unnoticed; however, absent meaningful and timely 
action, the probability that we will experience a serious economic 
crisis continues to rise. Such a ``super sub-prime'' crisis would make 
the current mortgage-related sub-prime challenge look like a bump in 
the road.
    The parallels between the mortgage related sub-prime crisis and our 
federal financial sub-prime challenge include: 1) a disconnect between 
the parties who benefit from current practices and those who bear the 
risk; 2) a lack of adequate transparency and understanding regarding 
the nature and magnitude of related risks; 3) a re-enforcement of the 
importance of maintaining lender confidence and adequate cash flow, as 
well as the limitations of credit ratings, and; 4) an illustration of 
what can happen when there is a lack of effective oversight and action 
to address large, known and increasing risks before a crisis occurs. 
These parallels are real. What is Washington waiting for?
    Given the importance of our sustainability challenges, we at the 
Foundation believe that it is important to find new ways to communicate 
the various sustainability challenges that we face as a nation. We also 
believe that in this great nation, ``We the People'' are responsible 
for what does or does not happen in capitals around the country. At the 
same time, the people cannot be expected to act of they don't have the 
facts, haven't been told the truth, or don't understand the 
consequences of failing to act. Addressing these key factors is what 
true leadership is all about.
    This is a Presidential election year. Therefore, it's important to 
state what we should expect the Presidential candidates to say 
regarding our large, known and growing fiscal and related 
sustainability challenges. In my view, a real leader would commit to at 
least five things. First, acknowledge our current problem and commit to 
making fiscal responsibility and inter-generational equity a priority 
if elected President. Second, refrain from taking major reform options 
off the table (e.g., the need for Social Security, Medicare, tax and 
health care reform). Third, use the ``bully pulpit'' to state the 
facts, speak the truth in order to help the American people understand 
the need for timely action and the consequences of failing to act. 
Fourth, commit to work on a bi-partisan basis to seek sensible and 
sustainable solutions to our fiscal and other key sustainability 
challenges. And finally, a real leader would support the need for a 
commission along the lines of the SAFE Commission to help increase the 
chances that we will take timely action in order to help ensure that 
our collective future is better than our past.
    Given the need for greater public awareness and action, in addition 
to publishing the guide to ``The State of the Union's Finances,'' the 
Foundation has decided to support the distribution of a documentary 
entitled I.O.U.S.A. This film addresses four key deficits facing 
America--our budget, savings, balance of payments/trade, and leadership 
deficits. It also highlights the efforts of the Fiscal Wake-up Tour 
that I and representatives of the Concord Coalition, the Brookings 
Institution and the Heritage Foundation have been, and continue to be a 
part of. This film will be released in August in selected cities around 
the country, including the Washington, D.C. area. However, we believe 
that the film's message is so important that the Foundation has decided 
to fund a private showing of the film for members of Congress and other 
invitees the evening of Wednesday, July 9, at the Library of Congress.
    In closing, we at the foundation are committed to doing everything 
we can to help promote responsibility and accountability today in order 
to help ensure that every American has more opportunity tomorrow. This 
was a longstanding tradition in this country until fairly recently. 
It's time that we returned to this great tradition in order to keep 
America strong, to help make sure that our collective future is better 
than our past, and to be sure that the United States of America is the 
first republic to stand the test of time.
    Mr. Chairman, I have a DVD that includes a two-minute theatrical 
trailer of the film and respectfully request that I be allowed to show 
it. In any event, thank you again for the opportunity to testify. I 
look forward to answering any questions that you or the other members 
of the Committee may have.
          exhibit i: transparency in accounting and budgeting
    Exhibit I. GAO, Long-Term Fiscal Challenge: Additional Transparency 
and Controls are Needed (Appendix I), Statement of David M. Walker, 
Former Comptroller General of the United States, GAO-07-1144T 
(Washington, DC: July 25, 2007)

   APPENDIX I: TRANSPARENCY IN ACCOUNTING AND BUDGETING: LEGISLATIVE 
               RECOMMENDATIONS OF THE COMPTROLLER GENERAL

Supplemental Reporting in the President's Annual Budget Submission
     Produce as supporting information to the budget an annual 
Statement of Fiscal Exposures, including:
     a concise list, dollar estimates, and descriptions of 
exposures, including----
     information from Consolidated Financial Statements of the 
U.S. Government on total liabilities, contingencies, commitments, and 
net present value of social insurance program payments, and
     long-term cost (> 40 years) of major tax expenditures, 
presented together with related spending or credit programs in the same 
policy area , if appropriate
     dollar estimate of the effect on these exposures of all 
major spending or tax proposals
     an assessment of methodologies and data used to produce 
such cost estimates
     a graphic presentation of the dollar amounts of exposures 
presented as percentage of GDP for each year covered
     Budget horizon expanded to cover 10 fiscal years
     President shall include in the budget a statement of the 
President's budgetary goals for a 10-year period in terms of surplus or 
deficit and in terms of surplus or deficit as a percentage of GDP
Summary Financial Report for the General Public
     Pursuant to OMB form and content guidance, Treasury shall 
annually publish a summary financial report on the U.S. Government 
derived from the information in the audited annual Consolidated 
Financial Statements of the U.S. Government.
     Report shall be in format and of length, content and 
sophistication for general American public
     Report shall include condensed summary of CG's audit 
report on the CFS
     First annual report due no later than January 30, 2008 
[Note: This requires an amendment to GMRA (31 USC 331(e)(1)) to make 
audited CFS due by January 15 each year and an amendment to the 
Accountability for Tax Dollars Act (31 USC 3515(a)) to make agency 
financial statements due by November 30 each year.]
Statement of Fiscal Sustainability
     Pursuant to OMB form and content guidance, Treasury to 
prepare and make public every four years an assessment of the long-term 
sustainability of all major federal programs and activities. Statement 
of Fiscal Sustainability shall include:
     PV of projected receipts and outlays of federal programs 
and activities for 75-year and infinite horizons, including separate 
reporting for social insurance programs
     Statement of annual cash flows for programs and activities
     Reconciliation of changes from prior period Statement
     Presentation of information using different measures of 
sustainability and estimates of financial burden on different age 
cohorts and other demographics
     Explanation of assumptions used and sensitivity analyses
     First Statement of Fiscal Sustainability due no later than 
March 31, 2008
    Additional Cost Information on Legislative Proposals before 
Adoption
     Before a Member of the House or Senate calls up for 
consideration on the floor of either House a bill or joint resolution 
or an amendment thereto that contains a proposal that would result in a 
significant increase or decrease in revenues or in mandatory spending, 
that Member shall obtain from CBO a statement of the long-term costs of 
such bill, joint resolution, or amendment.
     CBO and Budget committees to jointly define 
``significant'' for each Congress
     ``Long-term costs'' are those financial costs over at 
least a 40-year period
     The statement from CBO shall be provided to the Members of 
either House, as applicable, and shall be published in the 
Congressional Record
    GAO Report on the Financial Condition of the U.S. Government
     The Comptroller General shall annually report to the 
Congress his assessment of the financial condition of the U.S. 
Government. Report shall include analyses of----
     the Consolidated Financial Statement (CFS) and the Summary 
Financial Report
     results of GAO's latest long-term fiscal simulations
     the President's Statement of Fiscal Exposures
     the adequacy of information regarding long-term cost 
implications of existing and proposed policies
     the Statement of Fiscal Sustainability
     statutorily-required CBO and JCT reports for the prior 
fiscal year
     First annual report due no later than January 31, 2009

    [Internet address to ``The State of the Union's Finances,'' 
submitted by Mr. Walker, follows:]

          http://www.pgpf.org/resources/PGPFCitizensGuide.pdf

    Chairman Spratt. Let's go on with Bob Greenstein of the 
Center on Budget and Policy Priorities.
    We have got, Bob, 9 minutes and 4 seconds to go vote to 
adjourn. But if you would take about 5 to 6 minutes to 
summarize, I think we have got enough time to spare then, and 
then we will leave quickly and come back. We have got two back-
to-back votes.
    Bob Greenstein, thank you for coming.

                 STATEMENT OF ROBERT GREENSTEIN

    Mr. Greenstein. Thank you. That trailer is a hard act to 
follow.
    I certainly agree, Mr. Chairman, with you, Mr. Ryan, Mr. 
Cooper, Pete Peterson and Dave Walker that if current policies 
aren't changed, the projected mismatch between revenues and 
expenditures will grow over time and eventually lead to a debt 
explosion. We need to start taking action soon to address it, 
something our Center has been calling for for some time. As you 
know, we issued budget projections last year, 50-year 
projections that essentially tell the same story.
    Having said that, I don't believe a law establishing a 
commission would be advisable. This is not a philosophical 
disagreement. It is a strategic judgment on how best to move 
forward based in significant part on my experience as a member 
of the last--as a commissioner on the last deficit reduction 
commission, the Kerrey-Danforth Commission in 1994.
    Unless the next President and the bipartisan leadership of 
the House and Senate are committed to considering both program 
reductions and revenue increases and system-wide health care 
reform and working out compromises on these matters, I think 
any commission will fail. A commission will only work, as the 
Greenspan Commission did, when the President and congressional 
leaders decide to work out a bipartisan compromise and use the 
commission members as their negotiators. And if the President 
and the congressional leadership are willing to commit to 
negotiate a package, then they can go straight to the 
substantive negotiations themselves, as they did in 1990 and 
1997, without convening a commission.
    Now they may decide that a commission would provide the 
best forum for negotiating an agreement and educating the 
public, but that is a decision that can only be made if the 
President and the bipartisan congressional leadership have 
reached a consensus that serious negotiations are desirable. 
And if that is the case, a commission can be convened by 
executive order without legislative action, as was done with 
the Greenspan Commission.
    My bottom line is that I believe a commission will not 
force a consensus or a willingness to negotiate a bipartisan 
agreement where one is lacking on the part of the President and 
the congressional leaders. And that is why the 1994 Kerrey-
Danforth Deficit Reduction Commission utterly failed. It 
couldn't even issue a majority report in favor of any specific 
policy proposals. That occurred because the President and the 
congressional leaders of both parties had no interest in having 
that commission come up with a bipartisan plan. The signal was 
clearly sent to the commissioners, and it all fell apart.
    By contrast, the Greenspan Commission had a clear mission 
set by the President and the bipartisan congressional 
leadership to restore solvency to the Social Security Trust 
Funds. It was a success because President Reagan, Speaker 
O'Neill, and other congressional leaders of both parties used 
it as a forum to negotiate a deal through proxies.
    The Greenspan Commission was basically a mechanism for 
President Reagan's top negotiator, Howard Baker, and the 
Democrats top negotiator, Bob Ball, to hammer out a compromise 
on behalf of their principals. It was understood in advance and 
agreed to in advance that it would include both increases in 
the payroll tax and reduction in Social Security retirement 
benefits, and in this sense it succeeded. History underscores, 
I think, the point that any successful major deficit reduction 
exercise starts with the President of either party and must 
involve the top leadership of Congress. And once the President, 
Speaker O'Neill, and other leaders agreed to move forward, the 
Greenspan Commission was established by executive order.
    Given that the stars were moving into alignment, no time 
was lost having arguments in committees and House and Senate 
floors over how many commissioners, what would be the shape of 
the table. It was formed by executive order, and it moved.
    I would also note that a BRAC-type procedure was not used. 
And a key provision of the 1983 Social Security Act, the one 
that raised the normal retirement age for Social Security 
benefits from 65 to 67, was not proposed by the Commission but 
rather was added on a bipartisan basis on the House floor in 
1983.
    So it seems to me the real key here is how do we persuade 
the next President, whether it be President McCain or President 
Obama, to move after the election to reach out to the leaders 
of both parties and to be willing to engage in serious 
negotiations? If that occurs and the planets are aligned, a 
commission shouldn't be necessary.
    We had successful bipartisan deficit reduction negotiations 
without a commission in 1982, 1987, 1989, 1990, and 1997.
    Chairman Spratt. Mr. Greenstein, we are going to have to 
stop right there if we can. We will come right back as quickly 
as we can to pick up where we are leaving off. Thank you very 
much.
    [Recess.]
    Chairman Spratt. Mr. Greenstein, you still have the floor. 
You are free to wrap up as you please.
    Mr. Greenstein. Well, let me, I just had a couple of more 
points I will complete quickly.
    I was going to say that I very much agreed with the comment 
that David Walker made toward the end of his testimony, that 
the effort to deal with our long-term fiscal problem needs to 
be a comprehensive one. It will need to deal with Social 
Security and Medicare. It will need to deal with revenues. It 
will particularly need to deal, as I think he also mentioned, 
with the health care system. As I think Henry Aaron will talk 
about more in his testimony, the rate of beneficiary growth in 
Medicare and Medicaid for the last 30 years has largely tracked 
that of private sector health care. I don't think we can get 
there from here in terms of the long-term fiscal problems 
unless we can slow the rate of growth of health care 
systemwide.
    Revenues also need to be on the table. Pete noted that the 
increase, say, 50 years from now or whatever in Social Security 
and Medicare and Medicaid is significantly larger than the cost 
of the tax cuts. This is true. It is also the case that, if you 
look at the fiscal gap for the next 50 years, we estimate it is 
about 3.2 percent of GDP, the cumulative gap over 50 years. And 
the tax cuts cost 1.5 to 2 percent of GDP, or about half of the 
gap.
    The issue there is simply the following: The growing costs 
of Social Security and Medicare grow gradually over time and 
get bigger and bigger. The question of whether we pay for those 
tax cuts that we extend after 2010 is a fiscal impact that is 
felt fully and immediately starting in 2011, and therefore, 
what we do, for good or for ill, has big compound effects over 
time on interest payments on the debt. And as we all know, when 
you look at the long term figures and the explosion over time, 
what really triggers that explosion is when we get to the point 
that the interest payments on the debt start compounding and 
exploding, and we get a debt explosion; the interest payments 
soar, and that takes everything out of whack.
    The last point I would like to make is simply a brief 
discussion of the base closing commission, which is sometimes 
mentioned as an example of what we need to do here. It seems to 
me, they are fundamentally different. In the case of BRAC, the 
President and the bipartisan congressional leadership agreed 
that the Nation had too many bases, and some needed to be 
closed. They needed a commission to implement that agreement in 
order to provide a way to surmount parochial, geographic 
concerns from both sides of the aisle that might otherwise 
prevent a bipartisan agreement among the President and the 
congressional leaders of both parties that, in the aftermath of 
the Cold War, there were more military bases than were needed 
for the Nation's defense.
    The BRAC process enabled the commission of experts to help 
decide which and exactly how many bases to close. It was about 
preventing purely geographic interests of individual Members 
from undercutting a bipartisan leadership consensus over the 
need to reduce the number of military bases.
    In major deficit reduction, we have to address fundamental 
questions about the trade-offs between taxes, defense, 
education, health care, systemwide health care reform, issues 
on the role of government and so forth. Decisions of, for 
example, whether it is worth raising taxes and, if so, which 
taxes. To provide for various levels of expenditure on health 
care or education are of a fundamentally different nature than 
which geographic bases to close.
    So it takes me back to the point I mentioned before you 
broke for votes on the Hill. I don't think anything can 
substitute for starting with the next President exerting 
leadership, reaching out to the bipartisan leadership of 
Congress, trying to get an agreement, to negotiate a bipartisan 
agreement that covers the big programs and taxes and systemwide 
health care reform. And if that can be done, I would let the 
President and the bipartisan leaders decide whether or not a 
commission is the best way to implement that agreement.
    [The prepared statement of Robert Greenstein follows:]

Prepared Statement of Robert Greenstein, Executive Director, Center on 
                      Budget and Policy Priorities

    Mr. Chairman and Mr. Ryan, thank you for inviting me to testify 
today. My testimony will focus primarily on the general question of 
whether a ``budget commission'' would be useful at this point as a way 
to address the serious long-term fiscal problems the nation faces. I 
would like to make three principal observations.
    First, the Center on Budget and Policy Priorities agrees with the 
many analyses showing that, if current policies are not changed, the 
projected mismatch between expenditures and the revenues to pay for 
them will grow over time and eventually lead to a debt explosion. This 
cannot be permitted.
    Second, we agree that policymakers should start soon to reduce this 
long-term mismatch.
    Third, we do not believe that a law establishing a commission is 
advisable, at least not now. I say this based on experience as someone 
who served as a member of the Kerrey-Danforth Commission on deficit 
reduction in 1994. Unless the next President and the bipartisan 
leadership of the House and Senate are committed to considering both 
program reductions and tax increases to achieve deficit reduction--and 
to working out compromises on these matters--any commission will fail 
and be a waste of time and money. A commission will only work--as with 
the 1982-1983 Greenspan commission--when the President and 
Congressional leaders decide to work out a bipartisan compromise and 
use commission members as their negotiators. Moreover, if the President 
and the Congressional leadership are willing to commit to negotiate a 
package of program reductions and revenue increases, a commission is 
not really necessary--political leaders can go straight to the 
substantive negotiations themselves, as they did in 1990 and 1997, 
without convening a commission. To be sure, they may decide that a 
commission would provide a useful forum for negotiating an agreement 
and educating the public about its importance and desirability. But 
that is a decision that can only be made if the President and 
Congressional leaders have reached a consensus that serious 
negotiations are desirable. And, if so, a commission could be convened 
without legislative action, as was done in 1982-1983.
    The key point is that a commission will not force a consensus--or a 
willingness to negotiate a bipartisan agreement--where one is lacking 
on the part of the President and Congressional leaders. That is why the 
1994 Kerrey-Danforth commission on entitlement and tax reform failed.
    I would add that the base-closing commission does not offer a 
counter-example. There, the President and bipartisan Congressional 
leadership agreed that the nation had too many bases and some needed to 
be closed. The commission was designed to implement that agreement by 
providing a way to surmount parochial geographic concerns that could 
otherwise block action. But bipartisan consensus on the need to close 
bases had already been reached.
    I would like to elaborate now on these three points, with special 
emphasis on the third.

                        PROJECTED DEBT EXPLOSION

    Our projections of the long-term budget outlook show a ``fiscal 
gap''--the difference over time between revenues and expenditures other 
than interest payments--equaling 3.2 percent of Gross Domestic Product 
from now through 2050.\1\ This is too high--it would lead to a 
compounding explosion of debt. Specifically, under our projections, the 
publicly held debt, which today stands at a relatively modest 37 
percent of GDP, would grow to 42 percent of GDP by 2020, to 72 percent 
by 2030, to 134 percent by 2040, and to 231 percent by 2050. The 
Congressional Budget Office, in a recent letter to Mr. Ryan, estimates 
that in about 40 years, the per-person growth of the economy would halt 
and then begin to reverse. Such a situation would be untenable. This is 
why nearly all analysts call the long-term budgetary projections of 
existing tax and budget law ``unsustainable.'' (CBO also says that in 
the real world, financial instability and periodic market crises could 
occur before debt reaches such a level unless it becomes clear that the 
public, and therefore policymakers, are willing to raise revenues and/
or reduce programs as necessary.)
---------------------------------------------------------------------------
    \1\ Both projected primary (non-interest) deficits and future GDP 
are calculated on a ``present-value'' or discounted basis, which gives 
higher weight to earlier deficits, because the sooner a deficit occurs, 
the more years the nation must pay compound interest on it. Our 
projections were issued in January 2007. We are in the process of 
updating those projections, but they are not likely to differ 
materially from our published results. See Richard Kogan, Matt Fiedler, 
Aviva Aron-Dine, and James Horney, ``The Long-Term Fiscal Outlook Is 
Bleak,'' at http://www.cbpp.org/1-29-07bud.pdf.
---------------------------------------------------------------------------
                       EARLY ACTION IS DESIRABLE

    Early action is desirable, because the earlier that the nation acts 
to reduce projected deficits--and the sooner that we increase revenues 
and reduce program expenditures from projected levels--the longer the 
Treasury can earn compound interest on these budget savings. For 
example, a policy that reduces projected deficits by 1 percent of GDP 
in this and all future years would reduce the fiscal gap through 2050 
from 3.2 percent of GDP to 2.2 percent, a reduction of almost one 
third. In contrast, if the same set of policies were enacted five years 
from now, they would reduce the fiscal gap by 0.86 percent of GDP; so 
we would lose about one-seventh of the long-term budgetary value of 
those savings. Put differently, waiting five years means that the 
necessary revenue increases and program reductions would have to be 17 
percent larger to reduce projected debt in 2050 by the same amount and 
likely would be somewhat harder to enact as a result.
    In short, delay has costs. To be sure, combating climate change, 
addressing the foreclosure crisis, and dealing with global nuclear 
threats are more immediately pressing. But sooner or later, the nation 
must change budgetary course, and sooner is certainly better.
    I would note that an attempt to eliminate the entire long-term 
fiscal gap in one sitting would almost certainly fail. The lift would 
be far too heavy. We believe that when the moment is ripe for 
bipartisan compromise on deficit reduction, policymakers should 
negotiate a package of permanent savings to take a noticeable and 
permanent bite out of the long-term fiscal gap. We will need to do this 
several times, until the matter is fully addressed.
     If policymakers raised revenues and reduced programs by a 
total of 3.2 percent of GDP in 2008 and each subsequent year, that 
would indeed eliminate the fiscal gap through 2050; the debt in 2050 
would be 37 percent of GDP, just as it is today. But such a sudden 
change in fiscal policy could throw even a healthy economy into a 
recession. And, the budget would run immediate surpluses, growing to 
almost 3 percent of GDP by the end of the next decade and lasting a 
quarter of a century. The debt would fall to zero and then below--the 
U.S. Treasury would accumulate assets amounting to one-sixth of the 
economy by 2030. Eventually deficits would return, and the assets would 
be drawn down and then replaced with debt. But surely the public would 
not stand for surpluses of this magnitude or duration. Much of the 
public thinks of surpluses not as desirable ``saving for the future'' 
but as undesirable ``over-taxing'' or ``under-investing.'' Pressure 
from the right and left to consume those surpluses would be 
overwhelming.
     Alternatively, Congress could eliminate the fiscal gap in 
one sitting by enacting tax increases and program cuts that start small 
but ramp up significantly over time. This would avoid the politically 
untenable prospect of a quarter century of surpluses. Under this 
alternative scenario, however, today's policymakers would not only be 
deciding the appropriate trade-off between higher revenues and lower 
benefits and services for today's voters but also be enacting a series 
of future tax increases and future program cuts that would first take 
effect 15 or 25 or 40 years from today. If a new trade-off between 
taxes and benefits must take effect every decade or so, the voters and 
policymakers at that time should have some role in deciding the 
tradeoffs. In particular, we cannot know today the efficacy of health 
care practices 30 years from now, so we cannot make final judgments of 
much public financing they will merit. Nor can we know today whether 
income inequality will continue to grow, whether our future relations 
with China will be confrontational or cooperative, or whether new 
technology will make energy cheaper or exploding demand will make 
energy much more expensive and the need for public transportation much 
greater. Such questions will influence how future voters view the role 
of government.
    At the same time, doing little and saddling future generations with 
mountains of debt should be unacceptable. An appropriate balance needs 
to be struck, and major action to shrink projected deficits--and to 
start securing interest savings that will compound over time--should be 
taken soon.

                           BUDGET COMMISSIONS

    As noted, I do not favor a budget commission at this time. The 
Kerrey-Danforth Commission could not even issue a majority report in 
favor of specific policy proposals. This was not because the two 
principals were not serious, the staff was not expert, or there were no 
available options. Not at all; plenty of serious and thoughtful people 
devoted much time and effort to the task.
    No, the failure of the Kerrey-Danforth Commission was caused by the 
fact that neither President Clinton nor the top Congressional leaders 
were interested in negotiating a bipartisan deficit reduction plan. 
There was no broad consensus on whether taxes should be raised and by 
how much, nor about which programs should be cut and by how much.
    This is my main point: without a pre-existing consensus that a 
bipartisan compromise should be negotiated and what should be on the 
table for negotiation, and without engagement in the negotiations--
through key commission members--of the President and the top 
Congressional leadership, no commission will succeed.
    Let's look more closely at the Greenspan Commission. It had a clear 
mission, set by the President and bipartisan Congressional leadership, 
to restore immediate and longer-term solvency to the Social Security 
trust funds. That Commission was a success because President Reagan, 
Speaker O'Neill, and top Congressional leaders of both parties wanted 
it to be and used it as the forum to negotiate a deal (through 
proxies). In this respect, the Greenspan Commission more closely 
resembled the successful 1990 budget summit negotiations than the 
failed Kerrey-Danforth Commission, because the Greenspan Commission was 
basically a mechanism for President Reagan's top negotiator--Howard 
Baker--and the Democrats' top negotiator--Bob Ball, the former 
Commissioner of Social Security--to hammer out a compromise on behalf 
of their principals. Furthermore, it was understood in advance that the 
agreement would include both an increase in the payroll tax and a 
reduction in Social Security retirement benefits. This history 
underscores the point that any successful deficit reduction exercise 
starts with the President and must involve the top leadership of 
Congress. It is also worth noting that the Greenspan commission was 
established by executive order, not through passage of a piece of 
legislation. Once a consensus formed to move forward, no time was lost 
in trying to move a commission bill through Congress and having 
committee and floor debates and disputes over ``the shape of the 
table.''
    Given this history, enacting legislation now to establish a new 
commission is not advisable, in my view. President Bush has little 
interest in this subject. More importantly, we do not know if either of 
the presidential candidates would be willing, after the election, to 
enter into negotiations for lower program expenditures and higher 
revenues.
    Suppose, however, that the next President does decide after the 
election that he would like to negotiate a serious deficit reduction 
package with Congress. To begin with, he needs a willing partner. Most 
likely, a serious President would first find out if the leaders of both 
parties are willing to engage in serious negotiations.
    If the planets are aligned and the new President and the bipartisan 
leadership of Congress are willing to engage, a commission should not 
be necessary, as successful bipartisan deficit reduction negotiations 
in 1982, 1987, 1989, 1990, and 1997 proved. If the President and 
Congressional leaders decide a commission could facilitate their 
negotiations and help to secure public support for a deficit reduction 
plan, they could establish a commission designed to accomplish that 
goal and would not need the enactment of legislation to do so. As 
noted, the Greenspan Commission was established by executive order 
after consultation between the President and Congressional leaders.
    Before concluding, I would like to make three additional points.
    First, we should be aware of the law of unintended consequences. 
There are some thoughtful deficit reduction ideas that have not yet 
been firmly and unequivocally rejected by one or the other party. These 
ideas could form part of a serious plan the next President and the 
bipartisan Congressional leadership might negotiate if there is such a 
negotiation. However, if a commission exists in the absence of such a 
high-level, substantive negotiation and that commission propounds one 
of these deficit reduction ideas, there is a risk that one or both 
parties or some prominent political leaders will try to score political 
points by loudly attacking the proposal. If, a few years later, the 
planets realign and serious negotiations become possible, the previous 
trashing could take what would otherwise be a useful option off the 
table.
    Second, I would like to elaborate on the point that I noted earlier 
regarding the Base Closure and Realignment, or BRAC, process. The BRAC 
model worked because there was overwhelming bipartisan agreement, 
shared by the President and Congress and by both parties, that in the 
aftermath of the cold war, there were more military bases than were 
needed to provide for the defense of the United States. Despite this 
consensus, it was difficult for individual Members of Congress to 
support legislation that would close bases in their own districts or 
states. So the BRAC process was established to allow a commission of 
experts to do the work of deciding which and exactly how many bases to 
close and to require Congress to vote up or down on the base-closing 
package. The BRAC process is about preventing purely geographic 
interests of individual Members from undercutting a bipartisan 
consensus over the need to reduce the number of military bases.
    Major deficit reduction, however, is different. Putting our fiscal 
house in order involves fundamental questions about the tradeoffs 
between taxes and the defense, education, health care, and other needs 
of the nation. It may involve key questions about the role of 
government. These are exactly the kind of decisions the framers of our 
Constitution believed should be made by an elected President and 
elected members of Congress. It is one thing to design a process like 
BRAC that is aimed at overcoming the effects of the geographic nature 
of our system of representation after elected policymakers have made 
the fundamental policy decision. It is quite another thing to try to 
design a process that reduces the ability of elected officials to make 
the fundamental decisions themselves. Having a panel of military 
experts decide which bases to close in order to implement a consensus 
that our military bases need consolidation is not the same as having a 
panel decide, for example, whether it is worth raising taxes to provide 
better health care or education for American children, and if so, which 
taxes should be raised and on whom and how the proceeds should be 
allocated.
    In contrast to the BRAC concept, I would like to point one final 
time to the Greenspan Commission of 1983, which restored between about 
60 years of solvency to the Social Security trust funds. The 
recommendations of that Commission were marked up in the House Ways and 
Means and Senate Finance Committees. Somewhat different versions of the 
bill were reported in each chamber, many amendments were agreed to in 
the Senate and in the House, and one especially important amendment--to 
raise from 65 to 67 the ``normal retirement age'' for Social Security 
benefits, a change that was not in the commission package--was adopted 
and became part of the enacted legislation. All of this took 
considerable floor time, but because everyone had a fair shot and the 
normal legislative process was followed, the results were much more 
widely accepted than might have occurred if Members of Congress had 
been denied the right to offer amendments, and the results have stood 
the test of time. From my point of view, either this type of approach 
or the approach exemplified by the 1990 budget summit negotiations is 
to be preferred.
    As I just noted, Congress followed the normal legislative process 
in enacting the Greenspan Commission's recommendations. A variation 
would be to use the reconciliation process, as was done with the 
policies agreed upon in the 1990 budget summit. The reconciliation 
process has both advantages and disadvantages. The Byrd Rule keeps out 
much extraneous material, for instance, but might also preclude the 
inclusion of material that is technically extraneous but nevertheless 
important to the deal, such as the creation of process rules to enforce 
the deal over its negotiated lifetime. In addition, the reconciliation 
process cannot include Social Security legislation, and a long-term 
agreement might include a Social Security component. On the other hand, 
reconciliation speeds the process and--most importantly--prevents 
Senate filibusters from killing legislation that the President, 
majorities in both houses, and a majority of the public may support. 
Because it is a close call whether the reconciliation process or the 
normal legislative process should be used, it is better to let the 
President and the Congressional Leadership resolve that tactical issue 
at the time, rather than having enacted legislation pre-determine the 
legislative procedure that would be used.
    In summary, I do not see advantages to enacting legislation to 
establish a deficit-reduction commission. History suggests that formal 
commissions are not necessary to enact major deficit reduction 
packages. And there are potential disadvantages in establishing such a 
commission. The most likely is that a commission would waste time, 
talent, and money in circumstances when there is no prospect for a 
major deal. It also could cause delay and unneeded acrimony if the time 
were propitious for major, substantive deficit-reduction negotiations 
but the existence of a statutory commission made it easier for 
lawmakers to make excuses to wait for the commission rather than to 
move ahead with real steps to reduce the deficit. Finally, arguments in 
Congress over provisions in commission legislation related to the form 
that a commission would take and the Congressional rules that would be 
used for consideration of its product could dissipate some of the 
goodwill that an initial high-level agreement to undertake serious 
negotiations would generate.

                                APPENDIX

Specific aspects of H.R. 3654 that raise concerns
    This appendix raises some specific concerns or observations about 
certain aspects of H.R. 3654. (As the body of this testimony indicates, 
I do not favor legislation such as H.R. 3654 to establish a commission, 
but if such legislation were moved, I would recommend some changes in 
it.)
     H.R. 3654 says that one of the Commission's purposes would 
be to ``improve the budget process to place greater emphasis of long-
term fiscal issues'' (emphasis added). Allowing a Commission to draft 
changes in the budget process is an invitation for the Commission to 
avoid difficult substantive decisions about program design or the tax 
code and instead substitute budget process changes. The failed Gramm-
Rudman-Hollings law of the 1980s is an example of why process should 
never be a substitute for substance. To quote former CBO Director Rudy 
Penner, ``The process is not the problem; the problem is the problem.''
     H.R. 3654 speaks of reforms that ``limit the growth of 
entitlement spending.'' Entitlements in general are not the problem. 
There are serious issues related to the costs and growth rate of 
society-wide health care spending, and Social Security faces a long 
term deficit that must be closed. But other than Medicare, Medicaid, 
and Social Security, entitlement programs have been a shrinking share 
of GDP for the last 30 years, and under current law, they will continue 
to grow more slowly than the economy for the indefinite future. As a 
result, there is not a general entitlement problem, as distinguished 
from a problem related to Medicare and Medicaid that is largely a 
problem of rising health care costs systemwide, and to a much lesser 
extent, problems related to Social Security's long-term imbalance.
     H.R. 3654 speaks of making tax laws ``more efficient and 
conducive to economic growth.'' While it is hard to argue against 
efficiency, CBO has pointed out that the economic harm done by deficit-
financed tax cuts generally outweighs any efficiency gains that those 
tax cuts may generate (and, of course, many tax cuts add complexity and 
reduce efficiency). It is undesirable to include language that can be 
used by supply-side ``true believers'' to argue against some or any tax 
increases when additional revenues are likely to be a necessary 
component of any major bipartisan deficit reduction package.
     H.R. 3654 speaks of ``generational equity.'' It should be 
noted that future generations are projected to be substantially 
wealthier than we are (in the aggregate). As a result, asking them to 
pay a bit more in taxes would still leave them with much higher after-
tax income and standards of living than current generations enjoy. It 
should not be assumed that generational equity implies constant tax 
rates or a constant revenue/GDP ratio.
     H.R. 3654 would have the Commission draft the legislation, 
bypass real mark-ups by the committees of jurisdiction, and in general 
avoid either the normal legislative process or the reconciliation 
process under the Congressional Budget Act. We do not favor these 
special processes or the removal of Committees and Members from 
legislating. Moreover, tactical decisions that would enhance the odds 
that a deficit reduction package would pass the House and Senate floors 
cannot be known in advance. We should let the negotiators decide how 
best to move a package through Congress, not impose a pre-determined 
procedure that could reduce the prospects for its passage.
     Under H.R. 3654, the Secretary of the Treasury and 
Director of OMB would be the President's two designees on the 
Commission. The President should be able to pick her own designees.
     We disagree with the concept of alternative cost estimates 
that are estimating methods developed by a minority of members of the 
Commission. The major purpose of such a commission would be to try to 
develop bi-partisan consensus between the President and Congress. 
Allowing a minority faction of the commission to force alternative 
estimates to those that the commission itself believes best is a recipe 
for undermining consensus and for delay. If a commission member desires 
both a cost estimate of his or her proposal and a discussion of its 
possible economic consequences, CBO and the Joint Committee on Taxation 
can be asked to provide those.
     We disagree with the provision in H.R. 3654 that allows 
the Commission to include triggers or ``stabilizers'' to enforce 
spending and revenue targets. The last thing we need to do is enact a 
75-year version of Gramm-Rudman-Hollings and automatic sequestration. 
Such an effort would very likely fail just as the GRH law did.

    Chairman Spratt. Thank you, Mr. Greenstein.
    We now turn to Henry Aaron, an economist for Brookings 
Institution and a recognized expert in the area of these 
entitlement programs, Social Security and Medicare.
    Mr. Aaron, thank you for coming. The floor is yours, and 
you can offer your statement to be included in the record and 
summarize it as you see fit.

               STATEMENT OF HENRY J. AARON, PH.D.

    Mr. Aaron. Thank you very much, Mr. Chairman, Mr. Ryan, 
members of the committee. I do appreciate the offer to have my 
statement included.
    With respect to the composition and functioning of the 
proposed commission, I agree with many of the comments that Mr. 
Greenstein just made. I am going to confine myself only to one 
comment in that area, and that is with respect to the comments 
that Representative Cooper made in his opening statement. I 
think that statement carried a correct and admirable 
inclusiveness in the range of issues that he called upon such a 
committee, or a commission to address. My testimony, however, 
was based on the draft bill, not on Mr. Cooper's introductory 
comments, and the draft bill is not similarly inclusive, but 
does focus only on some of the issues that he raised in his 
comments. I hope that later versions of this bill incorporate 
the range and comprehensiveness of the comments that he made 
initially.
    I would like to focus my remarks, however, on some numbers. 
I think the beginning of dealing effectively with what every 
member of this panel agrees is a significant long-term fiscal 
problem is understanding the nature and source of that problem. 
I believe that it is incorrect to characterize it as emerging 
largely from entitlements for a number of reasons, and I have 
two slides that I would like to use in order to illustrate the 
point.
    The first slide, which you now see up on the screen, is 
simply a graphical representation of what we economists call 
the primary budget deficit as projected by the Congressional 
Budget Office in its recently released long-term projections, 
where they actually released two projections, one based on what 
they called their adjusted baseline, and the second, based on 
an alternative scenario that I believe probably all of us on 
this panel would agree is a more realistic indication of the 
magnitude of the long-term budget challenges. The baseline 
includes a number of assumptions which the CBO is required to 
adhere to in its baseline because it is following statutory 
policy, even where the indications are very strong that statute 
will not be followed because of a track record of Congress in 
making adjustments.
    What this chart shows is that over the period between now 
and 2050, very much as Mr. Peterson, Mr. Walker and Mr. 
Greenstein and I, and I am sure Ms. Fraser, would agree, the 
total of projected government spending grows considerably 
faster than the total of projected government revenues.
    May I have the second chart. What I have done in this chart 
is subtract from projected total spending and projected total 
revenues, expenditures specifically on Medicare and Medicaid, 
as projected by the Congressional Budget Office, all earmarked 
revenues dedicated to those programs and a share of the general 
revenues currently allocated to those programs measured as a 
share of GDP. The projection assumes that the same percentage 
would continue to be allocated to these programs. That is 
clearly not enough to cover the projected growth in spending. 
So, the black bars that you see show the projected deficit, 
according to Congressional Budget Office's long-term 
projections, essentially excluding the impact of Medicare and 
Medicaid.
    The story that emerges from this chart, I think, is simple 
and straightforward. The budget, projected budget shortfalls, 
derive exclusively from projected increases in Medicare and 
Medicaid spending. Apart from the growth of those two programs, 
there is no projected long-term deficit. And I want to stress 
that those black bars include every penny of spending under 
Social Security called for under current law with no reductions 
at all. Or to put it more directly, if we were able to deal 
with the projected growth in health care spending, current 
total government revenues are sufficient to cover projected 
growth in all discretionary spending and all entitlement 
spending other than those they are spending on Medicare and 
Medicaid.
    I draw three conclusions from these numbers: We do face 
projected long-term fiscal challenges. The source of those 
challenges is exclusively the projected growth of government 
health care spending. And third, I believe all health care 
experts agree that, as a practical matter, it is quite 
impossible to deal with just Medicare and Medicaid apart from 
general reform of health care financing. The bottom line, 
therefore, is that the Nation faces long-term health care 
financing problem. That constitutes the fiscal challenge or 
creates the fiscal challenge that we face as a Nation. And what 
it means, I think, is that if we wish to deal with the long-
term fiscal challenge, the place to start is are reconstruction 
of our health care financing system.
    I have said this on a number of occasions, and people have 
then responded, okay, well, how would you fix the system, the 
health care system? It is a fair question, but it is not one 
that I believe is central to this particular issue. And the 
reason it is not central is I believe strongly that there are 
liberal or conservative reforms of the overall U.S. health care 
system that are capable of bringing into balance the revenues 
that we dedicate to those programs and the amounts we spend on 
them. That is the crucial debate that needs to take place 
across the political spectrum on how we wish to reform health 
care spending. We should address that issue, and if we do so, 
the fiscal challenge that has been, I believe, not correctly 
characterized as an entitlement problem, which casts it as a 
public problem exclusively, the fiscal problem would be 
resolved.
    [The prepared statement of Henry Aaron follows:]

   Prepared Statement of Henry J. Aaron, Bruce and Virginia MacLaury 
                Senior Fellow, the Brookings Institution

    Mr. Chairman, Mr. Ryan: Thank you for your invitation to testify 
today on H.R. 3654, which would establish a federal budget commission 
to `reform tax policy and entitlement benefit programs and ensure a 
sound fiscal future.' My testimony will develop the following themes:
     The premise of the bill is correct in part; the United 
States faces daunting projected fiscal deficits. Early action to 
prevent them, while not urgent, is desirable.
     The bill mischaracterizes the source of these deficits. 
They derive entirely from projected increases in national health care 
spending, not from problems peculiar to government health care or 
entitlement spending.
     Materially slowing the growth of Medicare and Medicaid 
apart from general health system reform is impossible, unless the 
nation reneges on its commitment to assure the elderly, disabled, and 
poor health care roughly comparable to that available to the rest of 
the nation.
     The specification of `issues to address' and `policy 
solutions' in section 3 of H.R. 3654 is unbalanced. For example, the 
draft bill specifies as a `policy solution' limits on entitlement 
spending, but does not mention as a `policy solution' curbing in tax 
expenditures that putatively serve the same general objectives as 
direct spending, but benefit different groups.
     The draft bill virtually invites `game playing,' as 
policymakers could avoid hard choices by manipulating long-term 
projections with artful assumptions, scoring methods, or other tactics 
for avoiding hard choices. Such practices were used extensively to 
subvert the Gramm-Rudman-Hollings targets in the 1980s. H.R. 3654 could 
actually obstruct desirable action to address projected long-term 
budget deficits.
     Commissions never solve complex problems unless members of 
Congress are prepared to address the underlying source of those 
problems.

                                   I

    The Congressional Budget Office has issued projections of long-term 
spending and revenues twice in recent years, under the directorship of 
Douglas Holtz-Eakin, who was selected by a Republican Congress, and 
under the directorship of Peter Orszag, who was selected by a 
Democratic Congress. 1 Their projections differ in detail, 
but both foresee the emergence of excessive budget deficits in future 
decades.
    All deficit projections depend on the difference between two 
projections of much larger estimates of spending and revenues, each 
subject to large errors. Seemingly small differences in projection 
methods, assumed growth rates, or baseline conditions have huge effects 
on whether and when deficits emerge and on how large they will be.
     Demographic projections one or two decades into the future 
contain much useful information because most who will be alive are 
already born, and because mortality rates evolve slowly.
     Longer-term demographic projections and economic 
projections of almost any duration are subject to large errors, because 
birth rates and economic growth are hard to forecast.
     Long-term projections of health care spending are little 
better than guesses because most of the projected increase in 
healthcare spending arises from future discoveries, which, by 
definition, we currently don't know.
    Past health care advances have boosted per person spending, and 
currently anticipated advances seem likely to do so as well. But many 
scientists expect medical advances eventually to reduce spending per 
person. Our ignorance of the directions of future health care 
discoveries means that projections of health care spending more than a 
very few decades into the future are virtually devoid of useful 
information. And, as I shall show, that uncertainty renders budget 
projections highly suspect.
    Figure 1 (next page) indicates the projected size of so-called 
primary deficits--the gap between all government spending (other than 
interest on the debt) and revenues. It is based on recent CBO 
projections, using their `alternative scenario' for revenues and 
expenditures. 2 Deficits, shown in zebra-striped bars, are 
projected to grow to unmanageable size.



    This projection raises two practical questions. What causes those 
deficits? What can be done about them? Perhaps the shortest and most 
frequently heard answer to the first question is that the cause is: 
entitlements, which is shorthand for Social Security, Medicare, and 
Medicaid. This answer is misleading for three reasons.
     Entitlement (or mandatory) spending includes many programs 
other than the `big three.' Collectively, the `smaller' entitlements 
account for as much federal spending as Medicare and more than 
Medicaid. 3 As a group, entitlements other than `the big 
three' will claim a declining share of gross domestic product. In fact, 
the share of GDP going for Social Security and the entitlements that 
CBO groups as `Other Mandatory Spending' is projected to remain roughly 
constant over the next decade, even as the baby-boom generation is 
beginning to retire.
     Nearly all of the projected growth of federal budget 
deficits is traceable to added spending on Medicare and Medicaid in 
excess of earmarked revenues and general revenues as a share of GDP 
currently allocated to these programs. As shown by the black bars in 
figure 1, CBO's long-term projections indicate that apart from the 
fiscal impact of Medicare and Medicaid, the federal budget will remain 
in approximate balance through the year 2050--and that projection 
includes every penny of Social Security benefits promised under current 
law. 4
     Finally spending on Medicare and Medicaid is driven mostly 
by forces that are outside these two programs.
     The most important of these forces is the projected growth 
of per person health care spending. Growth of Medicare spending per 
person has closely tracked growth of per person spending on health care 
in general. That parallelism simply reflects the central purpose of 
Medicare and Medicaid: to assure that the elderly, disabled, and poor 
receive care similar to that available to the general population. 
Increases in spending per person account for about three quarters of 
projected increases in Medicare and Medicaid outlays. Holding growth of 
per person spending on Medicare and Medicaid below that for the general 
population would imply the gradual abandonment of the national 
commitment to assure the elderly, disabled, and poor standard health 
care.
     Growth in the number of Medicare and Medicaid enrollees 
accounts for less than a third of projected spending increases. The 
only ways to offset this source of growth would be a) to increase the 
age of eligibility for Medicare or b) to tighten the already stringent 
income and asset tests for Medicaid eligibility. Increasing the age of 
eligibility for Medicare has a surprisingly small effect on outlays 
because the young elderly are relatively inexpensive. My estimate is 
that raising the age of Medicare eligibility from age 65 to 67 would 
reduce spending about 2 percent; raising it to age 70 would reduce 
spending about 9 percent. Furthermore, until and unless American 
workers can be encouraged to retire at later ages than they now do, 
raising the age of eligibility for Medicare would exacerbate an already 
serious problem--the gaps in insurance for those who lose employment-
based coverage before they are old enough to qualify for Medicare.
    The forgoing numbers carry three clear implications:
     America does not face an entitlement crisis; it faces a 
health care financing problem.
     The health care financing problem is a total system 
problem, affecting private as well as public spending, not a problem 
just of government programs.
     The solution to the fiscal challenge posed by increasing 
health care spending hinges ultimately on overall reform of health care 
financing.

                                   II

    Even though projected budget shortfalls derive almost entirely from 
forces that equally affect private and public health care spending, 
general measures to slow the growth of budget outlays or increase 
government revenues can defer the onset of those deficits and reduce 
their size. To be regarded as fair, an examination of possible measures 
should include all government spending, not just entitlements. And on 
the sound, conservative principle that we should pay for what we buy, 
the search should include tax expenditures that erode the tax base and 
measures to boost tax rates. I invoke fairness because entitlement 
programs provide basic support for low- and moderate-income households, 
while tax expenditures disproportionately benefit those with 
comparatively high incomes.
    Consider the two largest tax expenditures--the exclusion of 
employer-financed health insurance and the mortgage interest deduction. 
Both flow disproportionately to upper income tax filers for two 
reasons. First the value of an exclusion or deduction rises with one's 
marginal tax rate. Second, upper-income households typically carry 
larger mortgages than lower-income households do and are covered by 
more generous health plans. Thus, an effort to cut Social Security 
benefits on the ground that they are unsustainable while ignoring tax 
expenditures would represent an ideologically biased agenda that 
favored the well-to-do in the name of fiscal responsibility. Calling 
for cuts in Social Security in the name of fiscal balance while 
embracing extension of all of the 2001 and 2003 tax cuts is also 
unbalanced. The estimated seventy-five year cost of the 2001 and 2003 
tax cuts just for the top 1 percent of filers with incomes of $450,000 
or more exceeds the entire projected Social Security shortfall over 
that period.

                                  III

    The key to dealing with long term deficits is substantive agreement 
on legislative changes that either curb net spending or raise net 
revenues, or both. Actually cutting spending or raising taxes is hard 
work. Setting numerical goals and procedures is easy. Dealing with 
projected deficits by specifying procedures or numerical targets is a 
virtual invitation to avoid or delay the hard work and instead to fall 
back on easy gimmicks to comply with numerical targets.
    Two elements of H.R. 3654 illustrate this problem. First, the draft 
bill would explicitly authorize three methods of estimating the cost of 
legislation: the methods used by the Congressional Budget Office and 
two others that could have the support of fewer than one-third of the 
membership of the proposed Commission. Rather than forcing the 
Commission to agree on how to price policy changes, this provision 
virtually guarantees that there will be three estimates of everything. 
It would, thereby, divert discussion and commission attention from 
discussion on real policy to bickering over estimation techniques. I 
interpret this provision as an attempt to appeal to those who persist 
in believing that so-called `dynamic scoring' will transform revenue 
losing tax cuts into revenue gainers. The continued belief in the 
transformative power reflects a tenacious faith, but is contradicted by 
careful studies of dynamic scoring by the Congressional Budget Office 
under both Dan Crippen and Douglas Holtz-Eakin and by President Bush's 
Department of the Treasury. These studies have shown that dynamic 
scoring techniques variously cause tax cuts to appear less or more 
costly than conventional techniques do but never make much difference.
    Second, the life of the Commission would end whenever Congress 
enacted legislation that the Comptroller General certified that 
legislation would reduce the fiscal gap by 1 percent of gross domestic 
product measured over twenty-years and 2 percent of gross domestic 
product measured over fifty years as estimated by the Comptroller 
General.
    However, the draft bill leaves undefined what the term fiscal gap 
means or how it should be computed. Another point should be made here. 
Projections of what revenues and spending will be half a century hence 
are highly speculative; no one has a good idea of how complex measures 
undertaken today (such as national health care reform) might affect the 
economy, revenues, and spending fifty years hence. How, for example, 
would budget estimators in the Eisenhower Administration have estimated 
the impact on today's fiscal gap of the interstate highway system 
established during their term? 5
    Quite apart from the impossibility of intelligently estimating the 
impact on the fiscal gap so far in the future, this provision means 
that Congress could do absolutely nothing that materially affects 
either spending or revenues for many years yet comply technically with 
these targets. How? One way would be to shift spending responsibility 
to the states. A second would be to back-load tax increases or spending 
cuts that members would be confident that future Congresses would 
reverse.
    Those who believe that the good consciences of elected officials 
would deter them from such phony fiscal probity need only look back at 
the truly comical avoidance mechanisms adopted to comply with Gramm-
Rudman-Hollings requirements of the 1980s. Or they could look at the 
sunset provisions of the 2001 tax legislation, which the Administration 
advocated with straight faces, thereby low-balling estimates of long-
term revenue loss and avoiding need for a super-majority for passage in 
the Senate under the Byrd rule. Or they could look at the 1997 Medicare 
legislation, which delayed insolvency in part A by the device, entirely 
bogus from the standpoint of budget balance, of shifting spending to 
part B. Furthermore, the triggers in H.R. 3654 introduce yet a fourth 
possible method of estimation, as the Comptroller General would not be 
duty bound to use the methods employed by the Congressional Budget 
Office or by either of the five-member Commission factions that could 
under this bill insist on estimation methods of its own.

                                   IV

    Finally, the most fundamental point is that projected long-term 
budget deficits result from specific policies. Until such time as the 
Administration and Congress, with the backing of the American people, 
are prepared to modify the policies that generate those deficits, 
Commissions are an avoidance mechanism, not a solution. Some observers 
demur from this negative appraisal of commissions, pointing to the 1983 
National Commission on Social Security Reform (known better as the 
`Greenspan Commission'), which recommended a combination of tax and 
spending changes to prevent imminent insolvency and to restore close 
actuarial balance to Social Security.
    In fact, the Greenspan Commission illustrates a quite different 
truth. Although President Reagan had inveighed against Social Security 
during his pre-presidential years, as president he recognized--as did 
Congressional leaders--that allowing exhaustion of the Social Security 
trust funds to force capricious benefit cuts was intolerable and that 
immediate action was necessary to forestall that event. All of the key 
leaders in Congress and in the administration, Republicans and 
Democrats, as well as key outside groups--including the elderly, 
insurance companies, organized labor, and large businesses--wanted to 
make sure that Social Security was sustained. The consensus was solid, 
and it was generally recognized that a deal would have to include both 
benefit cuts and tax increases. The Greenspan Commission served as 
political cover for action to avoid results that no one wanted but that 
would otherwise have occurred in a few months. No such budgetary cliff 
exists today. We are not in a situation comparable to that in 1982, 
when President Reagan and Congressional leaders of both parties agreed 
to try to work out a bipartisan compromise involving both Social 
Security benefits and Social Security taxes, and to use a commission as 
the mechanism through which the White House and Congressional leaders 
would negotiate the deal. In the current circumstances, a commission 
likely would only provide an appearance of doing something. And 
creating that appearance could reduce the likelihood that real action 
would be taken.

                                ENDNOTES

    \1\ Congressional Budget Office, The Long-Term Budget Outlook, 
December 2005; Congressional Budget Office, The Long-Term Budget 
Outlook, December 2007.
    \2\ The alternative revenue scenario assumes that 2007 personal 
income tax law remains in effect and that the AMT is indexed for 
inflation, that estate and gift taxes are a constant share of GDP, and 
that corporation income taxes, payroll taxes, and other revenues follow 
current law except that other revenues remain a constant share of GDP 
after 2017. The alternative expenditure scenario is based on the 
assumption that Medicaid and Social Security follow current law, that 
Medicare spending follows current law except that physician payments 
grow with the Medicare economic index, and that other spending other 
than interest remains a constant share of GDP.
    \3\ The largest `other mandatory spending' programs civilian and 
military retirement pay, the earned income tax credit, supplemental 
security income, unemployment insurance, and food stamps. All of these 
programs qualify as `entitlements.'
    \4\ If one uses CBO's `extended baseline' projections, subtracting 
the impact of Medicare and Medicaid leaves large and growing projected 
surpluses in the rest of the budget.
    \5\ The question is important for two reasons. First, advocates of 
increased spending or reduced taxes that might be classified as 
`investments' or `pro-growth' would doubtless argue that short term 
costs would lead to improved long-term outcomes. What looked to be 
deficit increasing over a few years, it could be argued, would be 
deficit reducing in the long run. Second, actually doing the analysis 
to substantiate or refute such claims is impossible to do reliably. 
Critics of the interstate highway system would have pointed to the 
unfunded liabilities for highway maintenance that would boost future 
deficits of the states. The road-builders of the Eisenhower years could 
have claimed--with considerable legitimacy as events turned out--that 
those unfunded liabilities would pale beside the economic innovation 
and growth that would result from a revolution in the transportation of 
goods and the associated investments. Were an analogous undertaking to 
be enacted to day, should the Comptroller General under H.R. 3654 count 
it as raising or lowering future deficits?

    Chairman Spratt. Thank you, Mr. Aaron. I was thinking that 
you were going to go ahead to build the structure. I was 
waiting for the next shoe to drop.
    Mr. Aaron. Well, if you will hold a hearing on health care 
financing reform, I will be glad to testify, too.
    Chairman Spratt. Now, to be the clean-up hitter, Ms. Alison 
Acosta Fraser from the Heritage Foundation.

               STATEMENT OF ALISON ACOSTA FRASER

    Ms. Fraser. Thank you very much, Mr. Chairman, Mr. Ryan and 
members of the committee.
    I appreciate being asked to speak to you today and to be 
your closer. The challenge always with being the closer on a 
large panel is coming up with something a little bit different 
to say, so I hope I have some new things to share with you that 
other panelists have not. By and large I agree with just about 
everything that was said earlier, with some few distinctions.
    But let me circle back to the entitlement challenge that we 
face. I believe that entitlement spending is a threat to the 
Nation's growth. It is a threat to our prosperity and to our 
ability to perform in a global economy. This problem is not a 
partisan one. Indeed, it threatens priorities for the right and 
for the left as less and less room is left each year in the 
budget.
    According to CBO, in a recent letter to Congressman Ryan, 
total Federal spending will grow from about 20 percent of GDP 
today to 42 percent by 2050. And this surge is driven by 
entitlement spending for Medicare, Medicaid and Social 
Security. So, to be specific, total entitlement spending will 
grow from 8.4 percent of GDP to 18.6 percent, more than 
doubling, by 2050. That is before my three teenagers will be 
ready to retire.
    Entitlement spending alone will also exceed the historical 
level of taxation of about 18.3 of GDP. So clearly this 
spending is unsustainable. The thing that is also interesting 
and important to point out, that this same CBO letter explains 
and lays out the harsh economic consequences of not tackling 
the entitlement problem.
    So why the SAFE Act, and why a commission? Solving 
entitlements, as you all know, is very difficult and there are 
many, many considerations. Tough choices will have to be made. 
And as you know, as well, the normal budget and legislative 
process for bills and proposals, means that any time a new one 
is dropped, every stakeholder, every special interest and their 
lobbyists walk the halls of Congress. They visit you with two 
things in mind, either being held harmless by any legislation 
or to seek out a gain from legislation. So we really need 
something that is going to change the dynamics in order to make 
the tough choices necessary to rein in entitlements, one that 
will examine the problem holistically, balancing the needs of 
younger generations and older generations.
    So why is this really necessary?
    Now, setting aside Mr. Ryan's sweeping reform proposals, 
all other current legislative steps to rein in entitlement 
spending this year are quite likely to be overridden. We have 
the doc fix, which would result in savings on payments to 
physicians. Whether you like it or not, it is something that is 
on the table. We have regulations tightening loopholes and 
abuses of the Medicaid Federal matching system for States. And 
there is a competitive bidding for durable medical equipment 
which would result in substantial savings to Medicare. All of 
those things are facing very tough votes indeed.
    And I believe that SAFE Act would transcend these current 
legislative logjam dynamics in two key ways: by building public 
support for change and to forge bipartisan momentum action.
    In the SAFE Act, I think there are two important elements 
of the defined mandate that will make this commission, or would 
make this commission, a success. That is: to consider and 
propose reforms to limit the growth of entitlements while 
strengthening the safety net to ensure that every American's 
basic needs, especially for health care, can continue to be 
met; and for tax reforms, to make the system more economically 
efficient and to improve economic growth.
    So we heard a lot of talk earlier about everything needing 
to be on the table. I think this covers the gambit when it 
comes to entitlements. But I think there is one very, very 
important key feature of this commission proposal, and that is 
the feature of public engagement, so rather than sort of, you 
know, closed-door negotiations, and this important element 
would hear the concerns of ordinary Americans across the 
country about the entitlement situation and be able to consider 
the changes that Americans are actually willing to make 
themselves in their lives to leave things better off for next 
generations.
    And to build on that, I would like to depart a little bit 
from what my preceding panel members have discussed, and talk 
about my experiences in speaking on entitlements as a member of 
the Fiscal Wake Up Tour. The Fiscal Wake Up Tour is sponsored, 
as you probably know, by the Concord Coalition, with 
participation from the Heritage Foundation and the Brookings 
Institution, and of course featuring my fellow panelist, former 
Comptroller General David Walker. We spent over 2 years 
traveling the Nation talking with ordinary Americans from all 
walks of life about entitlement and the problems that could 
arise from them if we don't tackle them. And we've been 
privileged to see some extraordinary lessons in how the Nation, 
how these everyday Americans outside Washington view the 
problem and what they are willing to do about it.
    And the first thing that I really want to share with you is 
that each one of our audiences, no matter what city we go to, 
appreciates our respectful and frank bipartisan discussions 
that we hold with them. They appreciate different points of 
view and the steps that we have taken to work together towards 
a common goal. They are also stunned when they hear how high 
tax rates would have to be raised to pay for this spending. And 
they view this problem really more as a moral one, of leaving 
things better for the next generations like our young person 
back there in the back, and less as an economic crisis. They do 
not feel that it is right. We heard Mr. Peterson talk about the 
$175,000 burden. They don't think it is right to leave that to 
our children and our grandchildren, so that when they are 
presented with the facts and the options for reform, these 
Americans are open to actions and change that we would normally 
think of as being off limits.
    So I think there is tremendous potential for change. 
Americans, in every experience that I have been on in the 
Fiscal Wake Up Tour and other experiences speaking on 
entitlements, Americans want Washington to fix this problem. So 
I believe SAFE Act would build and capitalize on these 
experiences.
    The entitlement problem must be dealt with sooner rather 
than later. As David Walker says, and we have been on many, 
many speaking engagements together; we could give each other's 
speeches, so I am going to borrow a line from him, ``every year 
we wait will cost trillions of dollars.'' And the younger 
generations have to pay those trillions of dollars.
    So I believe that SAFE Act would change the legislative 
dynamics in a bipartisan way to create public support, which is 
essential for changes in entitlements, something, programs of 
this nature, and also create the legislative momentum necessary 
for action.
    Thank you.
    [The prepared statement of Alison Acosta Fraser follows:]

Prepared Statement of Alison Acosta Fraser, Director, Roe Institute for 
            Economic Policy Studies, the Heritage Foundation

    My name is Alison Acosta Fraser. I am Director of Economic Policy 
Studies at The Heritage Foundation. The views I express in this 
testimony are my own and should not be construed as representing any 
official position of The Heritage Foundation.
    Thank you for the opportunity to speak to the committee on this 
most important issue.

                     ENTITLEMENT TSUNAMI CHALLENGE

     Entitlements will cause the budget (without interest) to 
soar from 18.8 percent of GDP today, to 35.3 percent by 2082.
     With interest included spending will soar from 20 percent 
of GDP to 75 percent by 2082 if current tax policies are kept in place.
     Maintaining current tax policy will result in revenues 
rising above the post World War II average of 18.3%.
     The gap between future benefits and funding committed for 
Medicare is $36 trillion, Social Security nearly $7 trillion more.
     When other liabilities like the national debt are added in 
this is the equivalent of a $175,000 mortgage for every man, woman and 
child in American--only without the house to go with it.
     The SAFE Commission ACT is a bold way to build public 
support for change and forge bipartisan agreement for action.
    Entitlement spending on Medicare, Medicaid, and Social Security is 
a tsunami heading toward our budgetary and economic shores. Experts 
across the ideological spectrum agree that entitlements threaten the 
nation's priorities.
    Entitlements are not budgeted in the same manner as most other 
federal programs. Though there are strong reasons for this approach, 
this means that entitlement spending grows virtually unchecked from 
year to year. This approach to budgeting makes it exceedingly difficult 
to tackle entitlement spending, but it does not diminish the need to do 
so.
    The Congressional Budget Office's latest analysis projects that 
spending on these three entitlements will cause the budget (without 
interest spending) to soar from 18.8 percent of gross domestic product 
to 24 percent by 2030, 28.3 percent by 2050, and 35.3 percent by 2082. 
Maintaining current tax policy\1\ and with tax levels rising just above 
the historical average of 18.3 percent of GDP, total spending including 
interest skyrockets from 20 percent of GDP in 2007 to 75.4 percent in 
2082.\2\
    Clearly, this is an unsustainable budget path, and it is one that 
is driven by entitlement spending. Social Security and Medicare have 
promised $42.9 trillion more in benefits to senior and disabled workers 
than the programs will be able to pay, according to a new report. 
Social Security's long-term unfunded obligations are $6.6 trillion; 
Medicare's are $36.3 trillion. When other liabilities and obligations 
are factored in, this is the equivalent of $175,000 for every man, 
woman, and child in America--nearly the equivalent of a mortgage, but 
one without a home to go with it.
    According to the CBO ``Ryan letter,'' if entitlements are left 
unchecked, spending will cause huge deficits that will begin to extract 
a tremendous toll on the economy, causing GNP not only to stop growing, 
but also to contract. In out years, ``project deficits would become so 
large and unsustainable'' that CBO's models simply cannot calculate the 
impact on the economy. Moreover, the estimates ``greatly understate the 
potential loss to economic growth.'' \3\
    The spending problem is so massive that federal tax rates would 
have rise to stagnating--even confiscatory--levels to close the gap. 
CBO estimates that today's income tax rates would have to more than 
double:

                              [Percentage]
------------------------------------------------------------------------
                                        Tax Rates Necessary to Pay for
           Today's Rates                         Entitlements
------------------------------------------------------------------------
                               Individual

                     10                                   25
                     25                                   63
                     35                                   88
------------------------------------------------------------------------
                                Corporate

                     35                                   88
------------------------------------------------------------------------

    This is calculated without any economic feedback. Such tax rates 
would come at a tremendous cost to the economy and create other 
problems as well. According to the CBO, revenues would likely fall 
materially short of their projections and thus are not feasible.\4\ The 
U.S. Corporate tax rate is already one of the highest among the 
industrialized nations. In order to remain competitive in the global 
economy, our tax rates should be going down, not up.

                            WHY A COMMISSION

    Representatives Jim Cooper (D-TN) and Frank Wolf's (R-VA) Safe 
Commission Act (H.R. 3654) would create a vehicle for action that could 
break the entitlement legislative logjam. This legislation would 
achieve both public acceptance for solutions to the entitlement tsunami 
and bipartisan action to put these solutions into law. Since many 
experts feel that entitlement spending is the greatest economic 
challenge facing the nation, the need to tackle it is vital.
    Legislation moving through Congress frequently takes steps 
backward, not forward to rein in the soaring costs of entitlements. It 
is politically difficult for most Members to talk about meaningful 
reform. The legislative and budget processes only aggravate that 
dynamic.
    The entitlement tsunami is driven by huge increases in future 
federal spending on retirement programs for middle-class retirees: 
Medicare, Medicaid, and Social Security. It is not driven by falling 
tax levels.
    The reality of today's politically deadlocked environment means 
that many lawmakers may insist that revenues must be considered if 
reductions in popular entitlements are to occur. Conservatives resist 
the idea of raising taxes for several reasons: Taxes are not the 
problem, future spending growth is; and raising taxes would threaten 
the economy, compounding the harm from higher levels of government 
spending. Moreover, increasing taxes would likely reduce the pressure 
on Congress to curb spending, or could even increase spending in other 
areas
    The Cooper--Wolf bill provides a rational solution to this 
political quagmire. It creates a bipartisan commission with a mandate 
to address the ``unsustainable imbalance'' between federal commitments 
and revenues while increasing national savings and making the budget 
process give greater emphasis to long-term fiscal issues. While the 
commission could consider a range of approaches, the bill places 
emphasis on two:
     Reforms that would limit the growth of entitlements while 
strengthening the safety net, and
     Tax reforms that would make the tax system more 
economically efficient and improve economic growth.
    Focusing on slowing the growth in entitlement spending, along with 
changes to strengthen assistance for the needy, the commission's 
proposal should appeal to those who worry that surging middle-class 
entitlement retiree spending will crowd out spending on other 
priorities. On the other hand, focusing on pro-growth tax reforms that 
improve economic growth (and also lead to an increase in revenues, just 
as the 2003 tax changes produced increases in revenues) is a critical 
issue for those who worry about escalating tax levels. Combining both 
of these areas of concern into a reform package is necessary in this 
polarized political environment to achieve changes that can be 
acceptable across the political and ideological spectrum.
    Public engagement is another vital feature of this commission. This 
commission would not create a backroom deal and drop the results on the 
nation. Rather, it would hold public hearings to discuss the long-term 
entitlement challenge. This essential first step would consist of 
public ``town hall''--style meetings across the nation to speak frankly 
about the long-term fiscal challenge and the tough options for fixing 
it.
    Taking this first step would help to build public acceptance of the 
need to fix entitlements and support for ultimate plans to modernize 
the programs. These discussions would require balancing the worries of 
the young and the elderly. This up-front guidance and buy-in from 
Americans of all walks of life would help to guide the commission in 
creating detailed recommendations that would receive much broader 
support and understanding than proposals crafted solely inside the 
Beltway.
    In today's political environment, it is extremely difficult and 
uncomfortable for many, if not most, Members of Congress to explicitly 
discuss the colossal fiscal challenge that entitlements present. The 
highly partisan environment often seeks to push discussions further and 
further from real action on these tough problems. The end result is 
that succeeding Congresses merely kick the can down the road. The 
Cooper--Wolf SAFE Act would change these underlying dynamics so that 
entitlements can be tackled and a huge economic disaster prevented.

                          FISCAL WAKE-UP TOUR

    I have been a partner in the Fiscal Wake-Up Tour, sponsored by the 
Concord Coalition with The Heritage Foundation and the Brookings 
Institution and featuring former Comptroller General David Walker. The 
Fiscal Wake-Up Tour has traveled the nation for over two years, 
educating Americans on the problem and possible solutions.
    Americans trust the data that are presented in the Fiscal Wake-Up 
Tour, and they are prepared to discuss, accept, and sometimes even 
demand solutions to entitlement spending that most politicians assume 
would be unacceptable to the public. Moreover, they view the budget 
crisis primarily as a moral issue, centered on the huge debt--that 
$175,000--facing the younger generations, often their children and 
grandchildren, not as just an economic crisis.
    Americans are ready to have this conversation and often wonder why 
there is not more being done in Washington to solve the problem.

                           LEGISLATIVE ACTION

    The entitlement problem has been well known for years. Experts from 
the right and the left agree that entitlements are fiscally 
unsustainable and a threat to the economy, as indicated earlier. Many 
budget and fiscal policy experts have written extensively to warn of 
the entitlement problem.\5\ Audiences appreciate the respectful and 
frank bipartisan nature of these conversations.
    Representative Paul Ryan (R-WI) has proposed a bold legislative 
road map to rein in entitlements--and without raising taxes. This plan 
is a collection of bold, comprehensive, and sweeping reforms covering a 
broad spectrum of issues. He has laid out his vision for reforming 
entitlements and challenges others with different views to present 
them.\6\
    Sadly, legislative action in Congress to achieve tough first steps 
toward solving this problem, Ryan's road map and the SAFE Commission 
Act notwithstanding, has not been forthcoming. Worse, efforts to rein 
in costs are frequently stymied even by those who view entitlements as 
a legitimate threat.
    When tough legislation is proposed, every conceivable special-
interest group--and their lobbyists--will work diligently to ensure 
that their particular interests are protected or receive even more 
favorable treatment. With programs like Medicare and Medicaid, there is 
an astonishing array of stakeholders: doctors, hospitals, drug 
companies, durable medical equipment providers, to name just a few who 
will want to be held harmless. The legislative result is predictable. 
Legislation to curb entitlements this year seems likely to meet a 
dismal fate.
     The Medicare trigger law in the Medicare Modernization Act 
of 2003 (MMA) requires the President to submit legislation to the 
Congress for consideration when Medicare's general revenue funding 
becomes excessive. That trigger was pulled this spring and is an 
important step for Congress in addressing Medicare's perilous 
spending.\7\ The deadline for the House to act is June 30, yet no 
positive action to bring Medicare spending under the trigger level is 
being planned as of this writing.
     A moratorium to prohibit the Administration from 
increasing the integrity of Medicaid's federal matching rules is 
included in the current war supplemental funding legislation. The need 
to overhaul federal matching fund rules has been noted for decades, 
including a strong critique from the Government Accountability Office. 
These administrative changes would make it more difficult for states to 
use inappropriate or questionable techniques to maximize their federal 
matching rate, but this moratorium would eliminate a good first step 
toward reining in Medicaid's soaring costs.\8\
     The MMA also authorized Health and Human Services, which 
runs Medicare, to require direct competition for durable medical goods 
by the companies that provide them. If the program is allowed to grow, 
savings could be as high as $1 billion a year. This would also directly 
translate to savings for Medicare retirees since they typically make a 
20 percent co-payment on this equipment. But these steps sadly are 
being sidelined by legislation pending in Congress.\9\
    Despite a series of warnings about the economic and 
intergenerational harm from the entitlement tsunami, action from 
Congress seems increasingly difficult and unlikely without bold changes 
in the legislative dynamics, as these three examples show. The SAFE 
Commission Act would transcend this type of legislative paralysis.

                MEDICARE REFORMS VS. HEALTH CARE REFORMS

    Part of Medicare's problems stem from the fact that medical 
spending has outpaced the economy for decades. This doesn't mean, 
however, that there are not real steps that should be taken to rein in 
Medicare costs. A major portion of Medicare's spiraling costs in the 
next two decades is a result of the number of beneficiaries nearly 
doubling. Growth in each retiree's health care costs is certainly a 
large part of Medicare's spending problem, even the largest, but the 
increasing number of retirees in the system sorely exacerbates the 
trajectory of spending increases, with serious economic consequences.
    Since Medicare accounts for roughly 20 percent of the nation's 
health care bill and other federal programs account for an additional 
13 percent, Congress can and should revisit Medicare's structure to 
determine a way to make the program more affordable for future 
generations while ensuring that the basic needs of older Americans 
continue to be met.

                               CONCLUSION

    Americans understand the entitlement problem and the consequences 
of inaction. They are ready for a national debate and anxious for 
Washington to work together to find solutions. Representatives Cooper 
and Wolf recognize that the nation's budgeting system is ill equipped 
to tackle the entitlement problem and that the political environment 
will not lead to a sustainable, responsible long-term federal budget. 
This is a sound proposal that could fundamentally change those tensions 
to achieve actioin and lead to a better future for younger and older 
generations alike.
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                                ENDNOTES

    \1\ Key features: maintaining the 2001 and 2003 tax cuts and 
indexing the alternative minimum tax (AMT).
    \2\ Peter R. Orszag, letter to Honorable Paul Ryan, Ranking Member, 
Committee on the Budget, U.S. House of Representatives, on ``The Long-
Term Economic Effects of Some Alternative Budget Policies,'' May 19, 
2008, at http://www.cbo.gov/doc.cfm?index=9216.
    \3\ Ibid., p. 4.
    \4\ Ibid., pp. 8, 9.
    \5\ Stuart M. Butler Ph.D., Alison Acosta Fraser and others, 
``Taking Back our Fiscal Future'' Heritage Foundation White Paper 9999, 
March 31, 2008, at http://www.heritage.org/about/staff/
alisonfraserpapers.cfm#2007Research
    \6\ J.D. Foster, ``Courageous Reforms in Ryan's Entitlements Road 
Map: Where Is the Democratic Response?'' Heritage Foundation WebMemo 
No. 1958, June 19, 2008, at http://www.heritage.org/Research/
SocialSecurity/wm1958.cfm.
    \7\ Robert E. Moffit, Ph.D., and Alison Acosta Fraser, ``Washington 
Must Pull the Trigger to Contain Medicare Spending'' Heritage 
Foundation WebMemo No. 1796, February 4, 2008, at http://
www.heritage.org/Research/Budget/wm1796.cfm.
    \8\ Nina Owcharenko, ``The Medicaid Regulations: Stopping the Abuse 
of Taxpayers' Dollars,'' Heritage Foundation WebMemo No. 1911, May 2, 
2008, at http://www.heritage.org/Research/HealthCare/wm1911.cfm.
    \9\ Robert E. Moffitt, Ph.D., ``Medicare: Congress Is Poised to 
Block Savings for Taxpayers and Seniors Alike'' Heritage Foundation 
WebMemo No. 1959, June 18, 2008, at http://www.heritage.org/Research/
HealthCare/wm1959.cfm.

    Chairman Spratt. Thank you.
    And I will yield to Mr. Cooper to begin the questions.
    Mr. Cooper. Thank you, Mr. Chairman.
    I appreciate the testimony of the witnesses. There are a 
lot of vitally important issues to cover, but let me begin with 
Dr. Aaron's suggestion that perhaps we have a hearing on 
comprehensive health care reform financing. I would welcome 
such a hearing. I hope that this Congress, in its waning days, 
could start that debate.
    I personally am for the so-called Wyden-Bennett bill, a 
bill that has 14 Senate cosponsors, seven Democrats, seven 
Republicans. It has been scored by CBO. It actually pays for 
itself. Now, this is a controversial bill, but at least it is 
the start of a debate, and it is bipartisan, and it is paid 
for. That is a pretty good place to begin the debate. But 
wherever we begin the debate, let's have the debate.
    The thing that has amazed Frank Wolf and me more about our 
bill than anything else is all we are asking to do is for a 
commission, which is essentially Congress to punt on this 
issue. And this Congress is so timid, we are afraid to punt. It 
is a remarkable thing because I think we have amazing think 
tank consensus. We have had the Fiscal Wake Up Tour. We have 
Brookings and Heritage in an unusual alliance.
    And today before us, we have two of the few think tank 
people left in Washington who disagree with the commission 
approach or the need to deal with it urgently. Dr. Aaron says 
in his remarks that early action is not urgent but desirable.
    Well, I would like to ask Dr. Aaron, what early action do 
you propose?
    Mr. Aaron. Let me begin by correcting a reference to 
Brookings and other organizations endorsing these positions. 
What has happened is that specific scholars at the Brookings 
Institution, by no means all, have participated in these 
events, but as an institution, Brookings has not endorsed the 
positions of the Fiscal Wake Up Tour or any other specific 
provisions. Very respected and senior scholars have done so, 
but not everyone at the Brookings Institution necessarily 
agrees with that.
    In fact, you will note at the bottom of my statement, as 
should occur at the bottom of every statement by anybody at 
Brookings, these views do not necessarily reflect those of the 
trustees, officers or other scholars at the Brookings 
Institution.
    Now, with respect to specific actions, let me suggest one 
which comes from a calculation that was done through the Urban-
Brookings Tax Policy model, and that is, if we did not extend 
the tax cuts for the top 1 percent of the income distribution, 
over the next 75 years, the revenue from that one tax change 
would exceed the entire projected long-term deficit in Social 
Security over the same period. That is a specific measure that 
would deal with one of the entitlement issues, often lumped 
together with health care, misleadingly, in my opinion, because 
Social Security, admittedly, does face a projected long-term 
deficit but one of relatively modest size and one that is 
easily closed. This is one particular way that we could, in a 
responsible, fiscally responsible way, deal with that 
particular problem.
    The problems posed by Medicare, Medicaid and private health 
care spending are exceedingly difficult, vastly more 
complicated and have orders of magnitude larger financial 
stakes.
    Mr. Cooper. Dr. Aaron, so your early action that you are 
recommending is that we go ahead in this Congress and repeal 
the Bush tax cuts?
    Mr. Aaron. I said the Bush tax cut, if you simply allow the 
Bush tax--no, actually what one would do is allow current law 
to remain in effect for the top 1 percent of the income 
distribution.
    Mr. Cooper. But you referred to early action in your 
testimony.
    Mr. Aaron. Yes.
    Mr. Cooper. We are not going to wait until 2010 to allow 
the tax cuts to expire. We should go ahead----
    Mr. Aaron. I would be content if it was done in 2010.
    Mr. Cooper. But that doesn't sound like early action.
    Mr. Aaron. It does to me. Given the fact that there are 
current moves to repeal--to, pardon me, make permanent those 
tax cuts, I think a clear statement by Members of Congress that 
the tax changes for the top 1 percent of the population were 
going to be allowed to expire as called for under current law 
would be an important first step.
    Mr. Cooper. It is my understanding that the opportunity 
cost of delay is several trillion dollars a year. Even USA 
Today had a headline a couple of weeks ago saying that a 1-year 
increase in the fiscal gap is $2.5 trillion. The consequences 
of that are terrifying for our young people. So even a delay, 
if you are willing to accept 2010, I am not. This is 2008. 
Surely there is something we could do sooner.
    Mr. Aaron. If you think you can get a majority of both 
Houses of Congress to act on that currently, that would be an 
admirable first step.
    Mr. Cooper. The trouble is no one is proposing anything, 
with the exception of our friend Mr. Ryan. You know, that is 
why we need a commission is to get folks, and whether it is all 
Members or no Members or some Members, but to get people, on a 
bipartisan basis, thinking about these issues.
    With all due respect to my friend Mr. Greenstein, you raise 
a number of small procedural points that are really not worthy 
of you or your outstanding organization. I have never heard 
such deference to the current President, especially from you, 
that we have to rely on the President to start the process. 
Well, when we have a bad President, that means that for 4 or 8 
years, Congress can't act?
    We are a coequal branch. We should come up with proposals 
and initiatives of our own. And yet I am not hearing that from 
your testimony. These are such urgent problems. We need to do 
something now.
    Mr. Greenstein. You know and I know, Mr. Cooper, that 
nothing is going to happen between now and November.
    Mr. Cooper. How do we know that? If you were to get fully 
behind it, could something happen? There is enough time to 
vote.
    Mr. Greenstein. No. Nothing is going, in fact in the Senate 
at this point, you almost can't move anything on the Senate 
floor that doesn't have unanimous consent between now and the 
election.
    Mr. Cooper, let me say, I am not at all disagreeing with 
the analysis that you have set forth of the problem or the need 
to get going. I think--I am hoping that you are not conflating 
my view that moving ahead now into a commission, in my view, 
strategically is not the best way to go. I am trying to be 
realistic. I don't think anything will happen between now and 
November. I think the first goal is to try to get, persuade the 
next President, whoever it may be, to make this a priority. I 
don't want to saddle that next President with a commission. I 
want to increase the chance that the next President will want 
to do something. If the President thinks a commission is the 
way to go, great. If the President wants to do something 
without a commission, great.
    Mr. Cooper. We are an equal branch of government. You are 
ceding an incredible authority to the executive here.
    Mr. Greenstein. In the real world, every significant, every 
big deficit reduction package that we have had in recent 
decades, whether it be the 1983 Social Security package, the 
1990 package, the 1993 package, everything started with the 
President.
    Now, let me be clear. I have, and if you want to, I will go 
through them. I have a whole list of things I would do the 
sooner the better in Medicare, in health care, in taxes, in 
Social Security, in inflation indexing. But I am not sure any 
of them can pass up here if we don't have a larger process that 
includes the President. I am just trying to be realistic about 
how we get there from here.
    Mr. Cooper. Mr. Greenstein, let's not give up in June. They 
sure can't pass if we don't try. We are sworn to uphold the 
Constitution and the laws of the land. The Constitution gives 
us equal priority with the President. Let's give it a shot. 
Let's let the Constitution work. Let's uphold our job 
description. Let's not give up in advance.
    The candidates are busy. We can have hearings such as Dr. 
Aaron was suggesting on comprehensive health care reform. Where 
are those hearings? They are simply not happening.
    Most Members of Congress really can't tell you the 
difference between Medicare and Medicaid when you get down to. 
That is like many are confused about Sunni and Shia. We should 
do our homework. We should solve these problems. We should earn 
our pay, and that is simply not happening today. So at least a 
commission could happen. But you are even against a commission.
    Mr. Greenstein. I am all for more public hearings. I am 
interested in seeing the movie when it comes out. I am for 
things that increase the chance of action in the next Congress, 
but I am not persuaded that a commission is one of those 
things; that is all.
    Mr. Cooper. So for you and Dr. Aaron, there is commission, 
no matter how drafted, that you think would be positive and we 
should pass this year?
    Mr. Greenstein. I would not pass a commission this year. I 
would wait until after the election, and I would look for what 
is the approach--it might be a commission; it might not be--
what is the approach that gets us the key? The key is a 
commitment on the part of the President and the bipartisan 
leadership of both parties to put everything on the table and 
try and negotiate agreements.
    Mr. Cooper. If a commission were formed, would you serve on 
such a commission?
    Mr. Greenstein. If I were asked to, certainly, as I did in 
1994.
    Mr. Cooper. Even though you are opposed to a commission, 
you would still serve on it?
    Mr. Greenstein. I think my record is pretty clear in 
rolling up my sleeves and trying to help and basically, 
normally, when we were talking about this during the break, my 
roll has sort of been, whenever an effort comes along, to try 
to help bring people who are more philosophically policymakers 
where I am to agree to changes that might need to be made in 
various programs in return for larger changes in other areas, 
revenues and so forth.
    Mr. Cooper. So you will join in the debate, but you won't 
help start it.
    Mr. Greenstein. I like to think that what the Center on 
Budget and Policy Priorities has been doing for years and is 
doing now, including issuing reports warning about the dire 
long-term problem, is contributing to that debate.
    Chairman Spratt. Mr. Cooper, we have got to move on.
    Mr. Aaron. I just wanted to say, I think that what the 
position that I would support is precisely the one that you 
have articulated, that you and the President are coequal 
branches of government and that, for that reason, both need to 
act together for effective action.
    Chairman Spratt. Mr. Ryan.
    Mr. Ryan. I thank the chairman.
    First of all, thanks for doing this hearing.
    And Mr. Cooper, I enjoyed your line of questioning.
    When I took this seat back in the beginning of this 
session, I decided to work with this brilliant staff we have 
here to just try and come up with a plan to fix it. No one has 
really done that around here, and so I thought I would just 
take this sort of novel approach of getting into the weeds and 
getting into the numbers and meeting with the actuaries and the 
trustees and all the experts around town, listening to folks 
around the country, and actually trying to come up with an 
actual plan that scores out as fixing this problem.
    Now, every time you do that, and this took us 14 months to 
write this, you have to make a lot of decisions, and they are 
not necessarily popular decisions. And my purpose in going 
through that exercise was to simply try and get people around 
here to do that. I am not going to sit here and pretend that I 
have got it all figured out and we have got the best ideas in 
our bill. I simply want to say that, let's come together and 
have everybody else bring their ideas so that we can get on to 
the business of actually fixing it.
    I really want to commend Mr. Cooper and Mr. Wolf for 
attacking this problem and coming up with it. My own personal 
view is this is what we should do. This is what we are elected 
to do here in Congress, and this is why people send us here, to 
fix problems, to change laws. And so I just want to roll up my 
sleeves and go do it. I serve on the Ways and Means Committee, 
which has jurisdiction over most of these entitlement programs, 
and we serve here in the Budget Committee, which sets the 
architecture up. And so I for one would just like us to 
actually just do it.
    So now we find ourselves with this political system we have 
today, this political gridlock, and like Winston Churchill 
said, democracy is the worst possible form of government, 
except for all other forms of government. So the question I 
guess we have is, how do we get ourselves off the dime, and how 
do we get moving on this stuff?
    So that is the frustration. But I think by throwing plans 
out there, we can probably advance the ball. Welfare reform is 
one of those issues I look at, which back in the early 1990s 
was considered just undoable, impossible. In Wisconsin, we 
started it in 1992; it became a success story. In 1996, we got 
welfare reform. People may disagree with whether that was the 
right thing to do or not, but it was a huge change to 
entitlement law.
    I liken the moment we are in today to maybe perhaps that 
moment we were there then, that if we begin to come up with 
ideas and work on these things, propose solutions, enough of us 
bringing our solutions to the table, and perhaps we will 
actually start solving problems.
    So let me direct my questions to each person based on their 
testimony. And I will start with you, Mr. Peterson. You 
mentioned, obviously you have been writing about this challenge 
for at least two decades. And you are now dedicating most of 
your life and a lot of your resources to trying to educate the 
public to act, to get Congress to act on this. What is the 
plan? What is the secret? What is the idea? What is, in your 
opinion, with all of your experience, what do you think it is 
going to take to get us here in Congress to actually act and to 
work on this and get this done?
    Mr. Peterson. Well, I think, from actual experience, I know 
what it is not going to take.
    I served with Bob Greenstein on the Kerrey-Danforth 
Commission. And I found it immensely sobering that, even though 
we had a bipartisan staff, 20 Members of the Congress and 11 of 
us in the private sector, and at the end of looking at the 
problem, without getting to reforms, there was, Bob, I believe, 
unanimity, quote-unquote that the entitlement programs were, A, 
unsustainable, and by the mid '20s, as I recall, would consume 
all or most of the budget, that and interest. You would have 
thought that having said it was unsustainable, we could get 
some agreement on what to do about it. The two chairmen, you 
may recall, Bob, put off the reforms until after the election, 
rather than before. That is my recollection. We could not get 
agreement I don't think, except for Chairman Kerrey, for any 
specific proposals by the sitting Members of Congress.
    Is that correct?
    Mr. Greenstein. Yes.
    Mr. Peterson. And all of the agreement was from people like 
himself and myself. That was a very sobering experience that I 
had there.
    Now, we are starting out on a very daunting task. I was 
presumably educated at the University of Chicago, and we had a 
Nobel Prize winner named George Stiegler who once said, if you 
have no alternative, you have no problem.
    Mr. Ryan. He did the seminal work on the barriers to entry, 
as I recall.
    Mr. Peterson. What?
    Mr. Ryan. He did the seminal work on the barriers to entry.
    Mr. Peterson. He did.
    I thought about having all this money and being deeply 
concerned about the future of this great country and doing 
nothing. So our first task, I think David would agree, is to do 
everything we can to educate the public because if the public, 
for example, really believes that the Social Security system, 
to take one example, is solvent for 40 or 50 years, we can't 
expect them to take this issue separately. And of course, 
Medicare is a much more urgent program.
    So as with the film, as with major efforts among the young, 
we are going to try to figure out how to motivate these people, 
but first, they have to understand the problem. So we are going 
to spend a lot of time on educating.
    Once they are educated, we hope we can figure out ways of 
getting these people to do something about it, to get organized 
because, I hope I am not being unpleasant to the Congress, but 
I had an experience way back on the Peter Grace Commission of 
looking at the indexing system that was used on, of all things, 
congressional and public retirement plans, which were far more 
generous than was true in the private sector. I went to visit a 
Congressman who was a leader in the Budget Committee at that 
point, and I laid out what the problem was and the proposal, 
and he says to me, calls his assistant in, and said, Shirley, 
why don't you bring in all the letters that we have gotten that 
propose leaving the current indexing system the way it is?
    And this person said, you mean all of them?
    He said, yeah, just bring in the most recent ones.
    She comes in with an armful of letters.
    And then he says, I wonder if you could bring in for Mr. 
Peterson letters supporting the proposal that we change the 
indexing system.
    And the assistant said, we never get any letters like that.
    So, in our naive view, you might say, until those of you in 
Congress are exposed to some public education and public 
support with a lot of letters and a lot of voting and a lot of 
lobbying or whatever you call it, it is going to be very 
difficult to make any progress. So we are going to spend a 
great deal of money and time trying to educate and activate the 
public, putting major, major emphasis on young people because 
it is their future.
    Mr. Ryan. I appreciate that. That is my view as well. Most 
Members of Congress, speaking just myself, a political 
observer, don't want to do something that risks losing their 
job, and so, therefore, they don't propose these kinds of 
changes. And until it becomes risky to lose your job by not 
reforming these things, then the reforms probably won't occur.
    David, obviously, you have done the Fiscal Wake Up Tours. 
You are coming to Milwaukee next week. Give us the sense of the 
price of delay, the cost of delay. What happens if we just kick 
the can down the road 1, 2, 3, 5 years. Give us--why the sense 
of urgency and the price of delay?
    Mr. Walker. As a certified public accountant, among other 
things, I am reasonably proficient at math. And when you look 
at discounted present value dollar numbers, which is the way 
that a CPA would look at something, economists typically look 
at percentage of the economy. Actuaries might look at 
percentage of payroll. We are in a $53 trillion hole as of last 
September 30th, 2007. And by the way, that is in the financial 
statements of the United States Government, and by the way, 
that is in here. That hole is primarily comprised of unfunded 
obligations for Medicare, $34 trillion, and somewhat less than 
$7 trillion for Social Security. That $53 trillion grows by $2 
to $3 trillion a year by doing nothing.
    And in my opinion, the biggest deficit this country has 
today is a leadership deficit. And the simple fact of the 
matter is that Washington is dysfunctional. And based upon my 
experience going around country, more than half the States and 
40 to 50 cities, the people are tired of the status quo. And 
the fact is, it is unacceptable. It is unsustainable. It is 
threatening the future of our country and our families. And the 
simple fact is, if you don't propose a plan, whether the plan 
is a plan like yours or the plan is a commission, which is more 
of a process--and I agree with Bob, by the way, that it would 
need to be implemented next year with the support of the 
President and bipartisan support of the Congress if we are 
going to have it for it to work. If you don't support 
something, you are tacitly supporting the do-nothing plan. And 
the do-nothing plan threatens the future of our country and our 
families. It is as simple as that.
    Mr. Ryan. Bob, you have been here many times. Your group 
advocates certain kinds of spending, domestic spending. 
Wouldn't you agree that if we do not address this issue of the 
large entitlements, that it crowds out all the other kinds of 
spending programs that you so passionately advocate for here?
    Mr. Greenstein. Let me say several things.
    First, I certainly agree, as I testified, that the sooner 
we get going, the better. I wanted to clarify one of number 
that is being used. This notion that there is a couple of 
trillion dollar cost for each year that we don't act, as David 
mentioned, that is a net present value, 75-year number. The net 
present value, 75-year size of the economy is $500 trillion. In 
other words, we need to be careful not to compare the $1 or $2 
trillion cost per year of not acting to the current GDP of $14 
trillion. It has to be compared to the total net present value 
GDP over the next 75 years.
    Mr. Ryan. Would you not agree that the proportion of the 
increase is on an accelerating slope?
    Mr. Greenstein. It is definitely on an accelerating slope. 
Basically, it is not that big a deal whether we act this year 
or next year or even a year after that. But if you start 
saying, what if we wait 10 or 15 or 20 years, that is a huge 
deal.
    Mr. Ryan. Are you saying that because the Boomers haven't 
really begun to yet retire and we have this massive retirement 
generation? Or it just the accumulation of speed and health 
spending?
    Mr. Greenstein. No, it is because if you look at the 
projections that we have all talked about what happens by 2050, 
2075, whatever, what happens is you get to a point somewhere in 
the 2020s where you start into the debt explosion and, so--but 
I think the point is not this $1 or $2 trillion. It is simply, 
the longer you wait, the larger the program changes or tax 
increases have to be to address it. And that may make it even 
harder to deal with politically.
    But let me get to your main question.
    Mr. Ryan. And just fairly briefly if you can, so I can get 
to everybody else.
    Mr. Greenstein. Yeah, let me be clear that, at the Center 
on Budget, we favor increased investment in some domestic 
areas. We favor significant savings in other spending areas. 
And the key, I think, is we are not going to make progress on 
this problem, Congressman, I think, until, as in every past 
successful major deficit reduction package, 1983, 1990, 1993, 
we have to have both the program side and the revenue side on 
the table. I am for adopting virtually all the MedPAC 
recommendations. Medicare Advantage and others. I think we 
ought to look seriously at proposals from your side of the 
aisle on raising premiums in Medicare for more affluent 
beneficiaries. I think we ought to look at the way we index 
both Social Security, other benefit programs, and the Tax Code. 
There are a variety on price supports. I am very much for 
looking at things on both sides.
    Could I just say in that regard that I am actually 
concerned about whether the plan you put forward moves us 
forward or maybe moves us backward. What I mean by that is the 
following: As I understand your plan, it basically roughly 
doubles the size of the Bush tax cuts. The Tax Policy Center 
estimate indicates that, even under dynamic scoring, its cost 
is $5 to $6 trillion over 10 years, and that the average tax 
cut for the top one-tenth of 1 percent of the population is 
over half a million a year.
    Now, when you do that, your hole gets bigger.
    Mr. Ryan. Let me get you there.
    First of all, that is an inaccurate analysis, I would say, 
number one. Number two, it presumes the baseline with the AMT 
going into it that would go into the 24 percent of GDP on 
revenues, and anything shy of that is a big, quote-unquote tax 
cut. It is a different type of logic stream that I just don't 
share.
    Mr. Greenstein. If you want to use the base line that 
assumes all the tax cuts are made permanent, it is still 
several trillion over that baseline, and the average tax cut of 
$545,000, according to the Tax Policy Center, for the top one-
tenth of 1 percent, the AMT has almost nothing to do with it 
because people in the top-tenth of 1 percent don't pay the AMT.
    My point though, I don't want to argue the specifics. Here 
is my larger point: Under your plan, because the tax cuts are 
bigger, the spending cuts have to be bigger. You have about a 
70 percent reduction by the 75th year from baseline in Medicare 
and Medicaid, and most striking, for everything outside Social 
Security, Medicare and Medicaid----
    Mr. Ryan. Okay, let me get you there----
    Mr. Greenstein. Here's my bottom line.
    Mr. Ryan. Yeah, go ahead.
    Mr. Greenstein. We are going to make progress when people 
on your side of the aisle put out plans that include increases 
in revenues and people on this side of the aisle put out plans 
that make changes in Medicare and Social Security.
    How would you feel if the other side of the aisle put out a 
plan that doubled Social Security benefits and then closed the 
entire gap through tax increases? So that is my concern. We 
have to move closer together and put everything, revenue, 
Social Security, Medicare and the health care system on the 
table.
    Mr. Ryan. All right.
    Since you kind of get after my plan, I am going to have to 
defend it for a minute because I want to get to these two, and 
we are taking up too much time as it is.
    My goal, using Treasury's model, OTA, static analysis, not 
dynamic scoring, was to plug the loopholes in our Tax Code, 
which go to the top tax bracket payers themselves; broaden the 
tax base; and clean up the way we tax ourselves, so that we can 
win in this era of globalization, in this era of a global 
economy.
    What I propose is to keep our tax burden on the American 
economy roughly what it has been over the last 40 years, 18.5 
percent. You have a problem with that. I understand that. We 
have a disagreement on that. It is my belief that if we start 
exceeding up, going above 20 percent of GDP, that there is a 
wealth of empirical data that shows that economic growth 
dissipates; that standards of living begin to go down. You 
don't agree that. I understand that. But it is my intention to 
keep our revenues roughly where they are today.
    And I am not talking about cutting taxes. I am talking 
about keeping them where they are as it relates to our 
economy's ability to pay it, but taxing ourselves more 
intelligently so that we can do well in the 21st century, so 
that we can get the next generation a higher standard of living 
and good positive economic growth. I would argue that the way 
we tax ourselves is very unintelligent. It is literally 
shifting jobs and capital overseas. We need to reverse that.
    But yes, we do have to attack the spending side. It is the 
spending side of the ledger that is the biggest culprit here. 
You simply can't tax your way out of this. Don't ask me, ask 
the Congressional Budget Office, ask the GAO, ask any other 
nonpartisan, non-ideological institution, and they will tell 
you spending is the biggest culprit here. That is why I 
borrowed a lot of ideas from Democrats to put this bill 
together: means testing, social safety nets, high-risk pools, 
all ideas not from my side of the aisle, from the other side of 
the aisle, in an attempt to try and bridge this gap.
    So I think you might want to take another look at our plan.
    But let me move on just very briefly.
    If you could, Dr. Aaron, give us just one, you know, real 
fast, what would be a good way to tame the inflation in health 
care? What would be one of the things we could do to address 
the root cause of health inflation?
    And then, Alison, I will just ask you one real quick, quick 
question, if you could. Budget process. You are an expert on 
budget process reforms. Give us just one or two very fast ideas 
on what we ought to do to the budget process here to bring more 
integrity to it and more discipline to it.
    Thank you.
    Mr. Aaron. I would like to say just a very few words about 
the question that was on the table before. I think there are 
three things that are necessary for us to begin to make 
progress overall. The first is what Mr. Peterson stressed, 
education. That education does include measures to improve our 
understanding of what works and what doesn't in the health care 
area. Our ignorance is appalling. Our failure to invest a small 
percentage of what we spend on health care in discovering what 
works and what doesn't is a criminal dereliction of 
responsibility.
    If you are looking for something to do right now, Mr. 
Cooper, that would be as important a step as one could take.
    The second step that is necessary for progress is 
Presidential leadership. This is not an issue on which 
significant progress will be made with the best intentions in 
Congress without Presidential cooperation.
    Mr. Ryan. Give us a best idea on attacking the root cause.
    Mr. Aaron. I will.
    And I want to say there are two things that I think Members 
of Congress have to do to make things happen. The first would 
be, on the Republican side of the aisle, every Member should 
rescind the pledge not to vote for any tax increases. And on 
the Democratic side of the aisle, every Member should rescind 
what may be an implicit pledge not to cut spending on 
entitlements.
    Mr. Ryan. I want to be deferential to my colleagues here, 
so if you could please answer the question very quickly, I 
would appreciate it.
    Mr. Aaron. The specific step, I already did. I believe the 
most important step to be taken right now is to invest 1 or 2 
percent of health care spending in an aggressive effort to 
determine what works and what doesn't in the way of health care 
spending. Until that information is available, no organizer, 
private or public, is going to have the basis for saying we are 
doing too much of this to a physician who believes strongly in 
the desirability of those actions. We have historically set up 
difference agencies, told them to go out and do exactly what 
I've just said, and as soon as they have done it, various 
pressures have been brought to bear which have undermined the 
continued investment in those studies. We have to discover that 
it doesn't make sense to do commonly practiced forms of 
diagnosis or therapy in specific cases. If we have that 
knowledge, insurance companies, businesses and Medicare and 
Medicaid will be in a position to say, this is too much; it is 
the wrong thing to spend money on.
    Mr. Ryan. Alison.
    Ms. Fraser. Thank you very much.
    Just very quickly, I don't think that we can solve this 
problem in one fell swoop. I think it is going to require 
changes made over very many years, as you yourself know from 
tackling your plan, that there is a lot of complexity here.
    So the biggest change that I would like to discuss for the 
budget process is actually to put entitlements on a long-term 
budget. I know that this is really almost a travesty to many 
people, but consider this: Budgets right now are in essence on 
auto pilot. And what I would propose to do, indeed, what many 
of my colleagues have proposed to do is to put them on a long-
term budget that would set targets for entitlement spending and 
reexamine the spending trajectory, along with the dedicated 
revenue trajectory on a regular basis and make changes to keep 
these programs operating within levels of fiscal sustainability 
over those years and build in hard triggers, so that if action 
isn't taken, that there are automatic steps that will begin to 
take place that will rein in spending, if that is the issue and 
it likely is, to maintain or to achieve sustainability for the 
entitlement programs.
    I have been working with about 12 other colleagues across 
the ideological aisle, and we have a paper that is published 
both by Brookings Institution and the Heritage Foundation 
called, ``Taking Back Our Fiscal Future.'' We have three former 
CBO directors who are a part of that effort, and I very much 
appreciate the opportunity to discuss it.
    Mr. Ryan. Thank you, Ms. Fraser.
    I yield.
    Chairman Spratt. Mr. Doggett.
    Mr. Doggett. Thank you very much.
    Mr. Walker, is it your belief that the only effective 
solution to the economic and budgetary challenges that you have 
outlined will involve some reduction in either the amount of 
entitlements or the accessibility to entitlements?
    Mr. Walker. I believe it involves several elements: number 
one, tough budget controls; number two, restructuring 
entitlements, which will include reducing the current 
commitments in some way to make them affordable and sustainable 
over time; and also targeting taxpayer subsidies. We have 
middle- and upper-class welfare in Medicare. We have middle- 
and upper-class welfare in our tax system with regard to the 
exclusion of the value of employer paid health care from income 
and payroll taxes. I also believe it is going to take spending 
reprioritization and constraint outside of entitlements 
programs, and I also believe it is going to take comprehensive 
tax reform in ways that will generate more than 18.3 of GDP.
    Mr. Doggett. Is a permanent extension of the Bush tax cuts 
a part of your plan to address these challenges?
    Mr. Walker. No. We haven't gotten to that level of detail.
    Mr. Doggett. Would that be harmful and counterproductive to 
attempting to address the budgetary and economic challenges 
that you have outlined?
    Mr. Walker. Well, first, I don't know, I believe there is 
broad-based agreement to extend portions of the Bush tax cuts, 
but, frankly, we haven't gotten to the level of detail that--we 
are focusing on a more fundamental issue.
    Mr. Doggett. I am just reflecting on the chart you brought 
from your prior job to this committee showing what the effect 
that those tax cuts have already had in adding to our national 
debt, and really extending all of them would be 
counterproductive to the objectives you have outlined, wouldn't 
it?
    Mr. Walker. It you look at the math, that is true. I think 
what we need to do, though, frankly, is to step back and re-
look at our entire tax system. I prepare my tax return every 
year by hand, not because I am a masochist, but because I want 
to be able to tell every Member of Congress and challenge them 
to do the same thing. And I am a certified public accountant. 
It is an absolute outrage, our system. We need to broaden the 
base, keep rates as low as possible, maintain a progressive tax 
structure, and we have got to have a system, frankly, that not 
only is competitive, but it generates enough revenues to pay 
our current bills and deliver on the promises we intend to 
keep. We are short now. We are going to be a lot shorter later.
    Mr. Doggett. And we can't do that, as you said in earlier 
response, if we set an arbitrary target of 18 or 19 percent of 
GDP for revenues.
    Mr. Walker. I believe it is going to take more than 18.3 or 
19 percent of GDP. I do, however, believe that you cannot solve 
the problem through taxes alone. I don't think there is support 
for it. I think it would be a serious adverse effect our 
economy.
    Mr. Doggett. Let me ask Mr. Greenstein a question.
    If I understand, you are not opposed to the idea of some 
commission, you just don't believe that a commission can be 
effective unless it has the wholehearted support of a new 
President and a new Congress.
    Mr. Greenstein. That is correct. I think the key is not 
whether you do or do not have a commission. The key is whether 
there is a commitment on the part of the President and the 
leaders of Congress to reach bipartisan compromise. If there 
is, then if they think a commission is the best way to achieve 
it, I would use a commission. If they think the best way is, as 
in 1990, to go to the Andrews Air Force base or some other 
venue and negotiate directly without commissioners, I would do 
that.
    Whatever works the best to effectuate a commitment and 
agreement on the part of the President and the congressional 
leadership to act.
    Mr. Doggett. You touched a little bit with Mr. Ryan on his 
``Roadmap for America's Future.'' What would tax cuts look like 
under that plan? What would Medicare look like under that plan 
if it were adopted?
    Mr. Greenstein. Well, we seem to have a somewhat different 
analysis of Mr. Ryan's plan than Mr. Ryan does.
    Mr. Ryan. I used the Treasury analysis.
    Mr. Greenstein. Ours is based on the Brookings-Urban 
Institute Tax Policy Center analysis of the tax provisions of 
the plan and the information CBO has made available on the 
spending part of the plan.
    Based on that, our understanding is the Tax Policy Center 
estimates that, over the next 10 years, the cost of the tax 
cuts would be $6 trillion to $7 trillion under regular 
analysis, $5 trillion to $6 trillion if you use certain dynamic 
scoring assumptions; with the average tax cut for the top one-
tenth of 1 percent of the population, those with average 
incomes of $4.2 million a year, would be $545,000 in 2012; that 
Medicare and Medicaid would be reduced by the 75th year about 
70 percent from baseline.
    But the figure that strikes me the most is that the plan 
has an overall expenditure cap. And if you look at where it 
takes Social Security, Medicare and Medicaid, what it means is 
for everything else other than interest payments on the debt, 
everything else other than interest payments, is today 9.8 
percent of GDP. Under Mr. Ryan's plan, in 2082 it would be 
reduced from 9.8 to 3.1 percent of GDP. Now, that is less than 
we spend just on defense today. He would have to fit within the 
3.1 percent defense and everything in the entire Federal budget 
other than Social Security, Medicare and Medicaid. To me, this 
is an illustration that, as David Walker just said, you can't 
get there from here with revenue at 18.3 percent of GDP. I 
think his plan ultimately takes it lower.
    I have one other quick point. Yes, 18.3, 18.4, 18.5, 
somewhere in there, is the average for the last 30 years or so. 
So if you go back over the last 30 years, and you say, in how 
many years was that average level sufficient to avoid a 
deficit, the answer is that in 29 of the last 30 years that 
level left you with a deficit. Well, if it left us with a 
deficit 29 of the past 30 years, imagine what it is going to 
leave us with in the decades to come.
    I am not for doing the whole thing on the tax side. That is 
not my position at all. What I am saying is we are going to 
need ultimately not only major reform of the health-care 
system, put Social Security back in long-term balance, reforms 
in Medicare starting with the MedPAC recommendations, and 
ultimately significant increases in revenue. If you don't do 
all of those, I don't see how you get there from here.
    Mr. Doggett. Thank you very much.
    Chairman Spratt. Mr. Campbell from California.
    Mr. Ryan. Mr. Campbell, if you will just yield for 10 
seconds?
    I don't want to go do the tit-for-tat. But, Mr. Doggett, I 
just want to kind of give you an answer.
    I could respond to all of those things, but we need to have 
this debate, we need to have this conversation. I am glad you 
are bringing these debates to the table. So I am glad of this.
    One of the ideas I took was from this Heritage and 
Brookings paper to have budget discipline, caps on spending. I 
think you are going to have do that, going forward. You are 
right, because expenditures have exceeded revenues, we have to 
have a better system here to prevent that from happening in the 
future. That is why I think you need to have some hard caps, 
hard decision-making being forced upon Congress as time goes 
on. And that is why the cornerstone of this plan are the budget 
reforms proposed by the left and the right, that coalition that 
Brookings and Heritage put together.
    Thank you, Mr. Campbell.
    Mr. Campbell. Thank you, Mr. Ryan. And I share that 
viewpoint.
    And, Mr. Walker, there is one other certified public 
accountant--that would be me--in the room, so I share your view 
of these things in terms of number-crunching.
    But let me say this. If this is a football game, and if we 
define a touchdown as we have solved the problem, right now we 
are losing ground. We are running plays, and we are losing two 
or three or four yards a play. And it is not just because we 
are not doing anything; we are actually, in fact, moving away 
from the problem.
    One of the things that isn't being talked about very much 
right now is that it looks like our deficit for this fiscal 
year in which we are currently engaged is going to be 
perilously close, if not over, half a trillion dollars--half a 
trillion dollars.
    The Appropriations Committee last week released 12 
appropriations bills that increased spending by 7.7 percent. If 
you then take the entitlement growth, projected at 5.2 percent, 
and the fact that revenue right now is flat because of economic 
doldrums, we could be looking at a $700 billion deficit next 
year--not 20 years from now, not 30 years from now, next year.
    So with all of the entitlement things looming, right now 
what we are doing in this Congress and what we are doing around 
here is actually making the thing even worse day by day. We 
would almost be better to do nothing than what we are doing, 
because we are continuing to make things worse and worse.
    And one thing, Mr. Greenstein and Mr. Aaron, when you talk 
about Presidential leadership, as big a problem as this is 
right now, both the deficit--add the looming entitlement crisis 
to the deficit, are the Presidential candidates talking about 
this? I don't see a lot of, from either of the Presidential 
candidates, forget the current occupant of the office. But we 
are all taking about like things are going to change in 2009. 
Well, I don't see either one of them out there doing it.
    Now, I support Mr. Ryan's American Roadmap. And, Mr. 
Greenstein, you may have problems with it, but I tell you what: 
Right now, if we want to stop going backwards, the first thing 
we have to do is legitimize, in this Congress and in this 
political system, legitimize proposals to deal with this, 
comprehensive proposals. They are all going to include some 
things that a lot of people don't like. But we have to first 
engage, I think, and make it okay to have the debate. I would 
love to be sitting here debating these things with the other 
side, at least with an agreement that we have to do something 
about it and that we have to move the thing forward.
    So I guess--and most of this has been a lecture from me I 
guess, but I would like to hear from Mr. Peterson and Mr. 
Walker just about, I guess, more--you have talked about getting 
the public to move. But, I mean, I really think we are in a 
hole here right now, and we almost have to get out of the hole 
first. We have to legitimize the debate.
    Mr. Peterson. Well, it may be presumptuous to make this 
suggestion to you people who have had much more experience than 
I, but I find something very ironic.
    We passed the Sarbanes-Oxley bill that required 
corporations to have full disclosure of their liabilities on 
their balance sheet and to charge off in a given year whatever 
the earnings implication would be. I find it very ironic that 
nowhere in the current budget do we see any reference to what 
it would cost to fund these programs. So I have kind of 
wondered, if it is okay to require public corporations to fund 
their pensions over, I believe, a maximum of 30 years, is it, 
under ERISA, why wouldn't the same thing apply to the people 
that instituted that legislation?
    And if you were to do that, I think you add about $1.5 
trillion or more to the annual budget deficit. And were you to 
do that, it would help achieve the education that I am talking 
about. Because, at the present time, the public doesn't 
understand the implications of these long-term unfunded 
promises.
    Mr. Campbell. And, sir, I couldn't agree with you more.
    And one other thing to mention is this problem is not 
limited to the Federal Government. In my home State of 
California, we have a number of local agencies, school 
districts, water districts, cities that are actuarially 
bankrupt if you were to use what is required of private 
companies in accounting to account for their unfunded and 
unrecorded pension and health-care liabilities.
    Mr. Walker?
    Mr. Walker. A couple things.
    Mr. Campbell. And then my time is up.
    Mr. Walker. First, the deficit is actually worse than you 
said, because if it is over $500 billion, that is just the 
unified deficit. Add another $185 billion for the Social 
Security surplus that is gone, is spent, and has been for 
years. And this is before boomers retire.
    Last thing: In addition to trying to educate the public, we 
have a number of specific efforts targeted toward the 
Presidential candidates. And we have been in touch with the 
Presidential candidates' economic advisers. We intend to do a 
number of things that are designed to raise visibility and 
enhance accountability on a nonpartisan basis to both of the 
major Presidential candidates on these issues.
    Mr. Campbell. Thank you.
    Thank you. My time is up.
    Chairman Spratt. We are just debating here what to do, 
because we have two votes on the floor right now, one with 4 
minutes and 19 seconds.
    Could I ask our panel if you could stay with us? If anyone 
needs to leave--I hate to impose upon you our crazy schedule, 
but it is the nature of this operation. If anyone needs to 
leave, please, thank you for coming, we very much appreciate 
your participation.
    Otherwise, Xavier, will you come back?
    Mr. Becerra. I won't be able to.
    Chairman Spratt. Okay.
    Dennis?
    Mr. Moore of Kansas. I will come back.
    Chairman Spratt. You will come back.
    Mr. Hensarling, did you want to ask questions?
    Mr. Hensarling. I will be back.
    Chairman Spratt. Is that agreeable with the panel?
    Thank you very much for your forbearance.
    [Recess.]
    Chairman Spratt. Thank you for your patience and 
forbearance.
    And we will wrap up as quickly as possible, going first to 
Mr. Moore of Kansas.
    Mr. Moore of Kansas. Thank you, Mr. Chairman.
    And I thank the panelists for being here today.
    And I want to address a question to Mr. Walker, but any of 
the other panelists are certainly welcome to comment if you 
have any ideas that either agree or disagree with what Mr. 
Walker answers.
    Mr. Walker--and I apologize if this question has already 
been asked and/or answered, but I was at Financial Services and 
some other stuff this morning, so I didn't hear everything--do 
you have any specific recommendations for reducing 
entitlements? You talked about that being needed.
    And I just said to Mr. Hensarling, you know, this can't be 
about, should not be about Democrats and Republicans. We are 
all in this together. We have to look at both sides of the 
equation, not just reducing entitlements but also whether there 
is going to be any tax increases as well.
    But do you have specific recommendations for reductions in 
Social Security, Medicare or Medicaid? And if you have answered 
that, again, I apologize. And do you have any specific 
recommendations for where maybe the best place to increase 
revenues would be?
    Mr. Walker. Well, first, as part of the Fiscal Wake-Up 
Tour, the primary purpose has been to help people understand we 
have a problem, we need to make changes. But we now have 
started to get into some potential options. And, in fact, the 
foundation is going to fund phase two of the Fiscal Wake-Up 
Tour, which is going to be solutions-focused.
    Let me address one of the things that you mentioned as an 
example. I have road-tested a framework for comprehensive 
Social Security reform that gets broad-based support out in the 
real world. And that involves the following: For people that 
are currently retired or close to retirement, you make little 
to no changes with regard to their promised benefits because 
they don't have time to make any adjustments. One possible 
exception to that would be possibly a modest modification of 
the cost-of-living adjustment so, that way, everybody would 
give something, all right, but they wouldn't give much. All 
right.
    Secondly, to gradually increase the normal retirement age 
and, I would argue, the early retirement age, as well, at a 
faster rate than the current schedule is, and to index it to 
life expectancy.
    Thirdly, to reduce the replacement rate--there are lots of 
ways that you can do it--for middle- and upper-income workers 
so they get somewhat less than otherwise they would under the 
COLA system, but to strengthen the benefit for people that are 
near the poverty level, so you actually make it, you know, more 
progressive.
    In addition to that, to consider an increase in the taxable 
wage base cap, not to eliminate the taxable wage base cap, but 
to consider an increase in the taxable wage base cap in order 
to moderate the impact on benefit reductions and in order to 
try to get a political agreement, if you will.
    And then last, but certainly not least, to have an add-on 
supplemental automatic savings element payroll deduction that 
goes into a real trust fund with real investments with real 
fiduciary responsibilities and liabilities that would be a 
supplement to the defined benefits. So it would give a 
preretirement death benefit, a supplemental retirement income 
benefit, and something to pass onto your heirs.
    There is broad-based support for some type of a framework 
like that, including among a lot of key stakeholder groups as 
well.
    And the only reason I would say--I would agree with Dr. 
Aaron that the problem is much greater for health care--
Medicare, as well as health care overall. But Social Security 
is a lay-up. Health care is a five-point play from under the 
opposite basket. You know, it would be nice if we could end up 
doing a lay-up and then start taking steps towards dealing 
with, I agree, the much greater problem, but the much more 
difficult, complex, emotional problem of health care.
    Mr. Moore of Kansas. Do any other panelists have any 
comments?
    Mr. Greenstein. Sure. In the area of health care, I think 
the starting point is what Henry Aaron mentioned, an institute 
that really gets us solid information on comparative 
effectiveness, with the idea of moving over time, in both the 
public and private sectors, to limiting payment for less 
effective but costly procedures.
    In the area of Medicare, you have the Medicare Payment 
Advisory Commission which has a lot of proposals, particularly 
overpayments in Medicare Advantage, but they have proposals 
relating to other providers as well.
    I think there is some room to do some increases in Medicare 
premiums for affluent beneficiaries. I wouldn't do it exactly 
the way the President proposed it.
    In the area of Social Security, there are two books that 
set forth plans. An earlier one was by Henry Aaron and Bob 
Reischauer. It has kind of a menu of options, not so much a 
specific plan. The best balanced, specific plan I have seen is 
a book that came out maybe 4 or 5 years ago from CBO Director 
Peter Orszag before he was at CBO and MIT economist Peter 
Diamond called ``Saving Social Security,'' a balanced package 
of revenue and benefit and eligibility changes that would 
produce long-term balance in Social Security.
    I would look at a report the Joint Committee on Taxation 
issued in 2004 or 2005 that outlines an array of ineffective or 
unproductive or, in some cases, unintended tax expenditures and 
other problems in the tax code.
    I think you have to deal with the 2001 and 2003 tax cuts, 
which are not affordable unless paid for. And, in particular, 
you will need to move, I think by 2009, to resolve the estate 
tax issue. I would ideally make the current parameters 
permanent, but I would go no farther. I wouldn't spend more 
money to making the 2009 parameters permanent, under which 997 
of every 1,000 people who die would owe zero on the estate tax.
    I would look at the way we index both benefit programs and 
the tax code. We use the regular CPI. There is an alternative 
CPI that the Bureau of Labor Statistics publishes that most 
analysts across the political spectrum believe is a more 
accurate measure of inflation. It rises a little more slowly 
over time. That saves a lot of money. I would look at reforms 
in farm price supports.
    But ultimately, as Henry Aaron and others here on the panel 
have indicated, the bottom line over everything else is health-
care costs. And we are going to have to make a judgment on what 
health care is affordable and what we want to provide for 
people. We are going to have a trade-off between health care 
that improves breakthroughs in the future, that improve health 
and lengthen life but cost a lot of money.
    And to the degree that we want that health care, we will 
have to pay for it. I think ultimately, not in the next 2 
years, but ultimately we may have to consider some additional 
revenue, perhaps a modest value-added tax or something like 
that to pay for the rising cost of health care that results 
from increases in technology that really improve health care 
but that cost money.
    And we will have to make a society-wide decision on what to 
do. But whatever we want, we have to pay for it.
    Mr. Peterson. If I may, on one specific thought on health-
care reform, to refer to something that Dr. Aaron said, there 
are some practices in Medicare that cost us an enormous amount 
of money that wouldn't be tolerated for a moment in the private 
sector.
    We have something in corporations--and I used to run one--
you call best practices. And you look at costs and you look at 
benefits, and you decide, ``This is appropriate.'' And then you 
apply it throughout the entire corporation.
    We have this anomalous system where there are variations 
not only in cost but in treatments that are utterly 
inexplicable. I was talking with Henry a little earlier. You 
know, there are certain counties and States in which there are 
six times the back operations that there are in others and six 
times the prostate removals. Now, I know we have red States and 
blue States, but I rather doubt that we have bad back and bad 
prostate States. But we have a perverse incentive system, where 
the bigger the cost, the bigger the plus.
    And I think there are going to be enormous savings if we 
could install some kind of notion of best practices. And I 
assume, Henry, that was what you were leading to, trying to 
come up with such a system.
    Mr. Aaron. Yes, it was.
    I do want to emphasize, however, that the problems to which 
Mr. Peterson has just referred, which were first documented in 
the United States about 30 years ago by a Dartmouth medical 
professor, John Wenberg, and have been amplified and shown over 
and over again throughout the United States, those problems are 
about as serious today as they were 30 years ago, and they are 
about as serious in the private sector as they are in the 
public sector.
    The variations, for which it is very difficult to conceive 
of any medical justification, that have just been mentioned, 
those variations are remarkably stubborn, and there are in the 
current health-care financing system remarkably few levers for 
dealing with them.
    And even if there were levers, as both Bob and I have 
emphasized, we don't have solid research knowledge that good 
administrators could use to level down the excesses and bring 
up the areas of insufficient provision. The start is knowledge, 
but applying that knowledge is eventually going to require a 
root-and-branch change in the way in which we pay for health 
care. Without that--I mean, if one wanted to design a health-
care system immune to effective cost control, you really 
couldn't do better than what we have done in the United States.
    Mr. Cooper. Would the gentleman yield for a moment?
    Mr. Moore of Kansas. Absolutely.
    Mr. Cooper. This discussion of the Dartmouth data is so 
important, but there are things that we can act on immediately, 
because, as they point out, the same doctor doing the same 
procedure in Minnesota is paid one-third of what he or she is 
paid in Miami. There is no justification for that. So you can 
have some variation, but not a historical 30- or 40-year 
variation. And yet we, as a Congress, are doing nothing about 
that.
    So you don't have to get into treatment modalities. Same 
procedure, same work, different pay just due to geographic 
variation. Congress has never touched that.
    Chairman Spratt. I don't think that is quite accurate, is 
it?
    Mr. Cooper. I believe it is.
    Chairman Spratt. If you have never dealt with that, there 
have been formulas proposed and I think adopted trying to even 
out the regional disparities.
    Mr. Aaron. I think the bulk of the regional disparities 
arise in total spending. And the variations in total spending 
across counties are close to three to one. They are really very 
large. I think the maximum county per capita spending for 
Medicare is in the $11,000 to $12,000 range, and the minimum is 
in the $5,000 range or $4,000 range.
    But the bulk of those variations are due to use of 
procedures, I think, more than to variations in price. There 
are price variations, but they interact in addition with 
variations in use. There are very high use areas down in 
Florida, for example.
    Mr. Cooper. But this is exactly the sort of discussion 
Congress should be having to be up to speed on the data. 
Shannon Brownlee has a new book called ``Overtreated,'' which 
relies heavily on the Dartmouth data, illustrates problem after 
problem. And most Congressmen are simply unfamiliar with this, 
these two- and three-to-one variations for the same work.
    And see, Medicare has the best data, because Medicare has 
been a single payer for many years, so the data are much more 
accessible. And Medicare also has a leadership role in the 
payment system, being one of the largest payers, if not the 
largest payer.
    So I relish an opportunity for Government to lead the way, 
instead of following. Medicare and Medicaid could be the 
pacesetters, as the VA system has been, which provides, 
according to many experts, the top quality care in America, 
even according to the Mayo Clinic and folks like that, at, by 
the way, the lowest cost, at half the price of Medicare. So if 
we could just encourage more people to use the VA system, we 
would be getting more value for our dollars.
    But while the VA has been leading, the rest of health care 
has been lagging, including our friends at Medicare and 
Medicaid. So all I am wanting is to restore that role. And when 
we wait for overall health-care reform, we are letting the best 
be the enemy of the good.
    But I know I have already trampled the gentleman's time too 
much.
    Mr. Moore of Kansas. I thank the panelists.
    And I yield back, Mr. Chairman. Thank you, sir.
    Chairman Spratt. Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman.
    The first thing I want to do is acknowledge the reason that 
we are here and salute the gentleman from Tennessee. Sometimes 
we disagree on policy, but we do not disagree on principle. And 
this is a serious piece of legislative work. He has been an 
outstanding leader in our Congress on the issue of dealing with 
entitlement spending. And I have observed, in my career here, a 
man who takes a number of courageous votes. So I appreciate the 
work of Mr. Cooper and that of my colleague, Mr. Wolf of 
Virginia, in helping bring us here today.
    In the latest round of questioning dealing with the 
Dartmouth study, if I recall--and I think perhaps I was first 
introduced to the study by our CBO director, Dr. Orszag--if I 
recall right, his takeaway was that the study evidences, at 
least puts forward the proposition that you could actually keep 
the quality of your current health care and, with the right 
policy changes, save as much as 30 percent.
    Is my memory serving me correct? And I see the gentleman 
from Tennessee saying so.
    So I assume from what I have also heard from the panel, in 
various policies that are being discussed, the very simple 
proposition that it is possible, it is possible to get superior 
health care, superior retirement security at a lower cost than 
currently projected.
    Is that a safe takeaway, Mr. Walker?
    Mr. Walker. One, over time, not magically wishing that it 
would be the case. Secondly, quality is not acceptable. So I 
think we need to do better than current quality. And thirdly, 
for Medicare alone we are in a $34 trillion hole.
    So, you know, yes, I mean, yeah, we can do a lot better 
than we are doing, and we ought to take steps to try to do 
that. But let's don't wish away our problem. We are going to 
have to make some more fundamental reforms than just try to 
look at best practices.
    Mr. Greenstein. Could I just say, my understanding is Dr. 
Orszag has said, in theory, we can get this 30 percent savings, 
but today I think he would say we don't have the knowledge 
today to know how to do them. I know he has particularly talked 
to Members about the importance of this comparative-
effectiveness research. The goal should be to get those savings 
you mentioned. But we need a lot of research and we need a lot 
of things in order to be able to get them.
    One other quick point is, one does want to distinguish here 
between Medicare and the private system and Medicaid. Medicaid 
pays providers way below both Medicare and the private system. 
And it would be a mistake to think that there are comparable 
levels of savings in Medicaid.
    Mr. Hensarling. Mr. Walker, not unlike Mr. Moore, I missed 
much of the testimony due to a markup in another committee, so 
you may have covered this in your testimony. But I am curious 
about how you judge the success of your Fiscal Wake-Up Tour.
    I am somewhat under the impression that probably over half 
of America have heard of the ``Bridge to Nowhere'' and they 
greatly disapprove of it. But my sense is not one in 10, 
perhaps one in 100, understand the entitlement spending crisis.
    So I am curious about, how did you judge the success of 
your tour? And when people learned about the entitlement 
crisis, what were their reactions?
    Mr. Walker. Well, first, our experience has been that the 
American people are a lot smarter than people give them credit 
for. That when you state the facts and speak the truth to them, 
they get it. That they are willing to make trade-offs; they are 
willing to accept some shared sacrifice. But they don't have a 
whole lot of confidence that whatever sacrifice they might give 
would be honored.
    And, therefore, one of the things we believe we need to do 
is to go to a broader audience and to use the Internet, use 
documentaries, use other types of means and mechanisms to get 
this message out to many, many more millions of people than 
otherwise you can do through the Fiscal Wake-Up Tour. And that 
is what we intend to do.
    What is important is the Fiscal Wake-Up Tour resulted in, 
among other things, a ``60 Minutes'' broadcast, which has now 
resulted in a commercial documentary, which has now resulted in 
a number of other networks being interested in doing things. 
And so, over time, believe me, it will make a difference.
    Mr. Hensarling. Ms. Fraser?
    Ms. Fraser. If I can elaborate on that, I am one of the 
partners in the Fiscal Wake-Up Tour. I haven't been to as many 
as Dave; nobody has. But I have done it for nearly 3 years now. 
And I can say that, in the beginning, our experience was that 
Americans didn't know about this problem. And we started this 
tour on the heels of the Social Security debate, and people 
knew about Social Security but they didn't know about the 
broader problem. So, at first, they were stunned. They didn't 
know why they didn't know about it. They didn't know why 
Congress wouldn't tell them about it.
    But over the ensuing year and a half or so, I think we have 
made significant progress as a Nation and that there is a much 
broader understanding of this entitlement problem, sort of writ 
large, holistically speaking. People know about it; they are 
concerned about it. And they do really want Washington to take 
action. They don't know why Washington is waiting.
    So we have really had some, in my mind, some very 
invaluable experiences on the road. And our successes are that 
Americans are engaged. They want to talk about solutions. They 
don't want to blame.
    And, you know, I have had a number of people--I didn't get 
to offer up some of the things that I would do to solve this 
problem, but one of them is to target benefits more to those 
who need them the most. And I have had a number of people come 
up to me in these different forums and say, ``You know, this is 
really a big problem, and I would be willing to give up some of 
my benefits. I don't need all of the Social Security benefits I 
get. I don't need all of the Medicare benefits I get. But I 
want to make sure that they do go to the younger generation so 
they are better off than they would be otherwise.''
    Mr. Aaron. I hope you told them that they are able to do so 
even now, by voluntarily returning them to the Government, for 
which they would receive a charitable-contributions deduction.
    Ms. Fraser. But I don't know if they have the confidence it 
would go to where they want it to.
    Mr. Hensarling. Mr. Peterson, you spoke earlier about--I 
suppose what you were stating is that Congress ought to 
practice what it preaches. And you alluded to Sarbanes-Oxley 
and the type of disclosure, transparency in accounting that is 
now the new level which is required upon corporate America.
    If corporate America practiced baseline budgeting and did 
not account for its long-term obligations, what would happen to 
those who did that? And what can we learn from that on the 
Federal level?
    Mr. Peterson. Well, the failure to disclose, of course, 
that is the problem metastasized, because people aren't aware 
of it. And then you end up with the worst-case kind of 
situation of pension plans that are so underfunded that the 
companies get into bankruptcy or near-bankruptcy.
    Now, I don't know that that analogy is perfect, but I don't 
think there is any question that full disclosure of the amount 
of funding that it would require to take care of these problems 
would be a critical part of educating the public as to how big 
they are.
    Mr. Hensarling. Thank you, Mr. Chairman.
    Chairman Spratt. Mr. Cooper, you want one final shot across 
the bow? We have tried the patience of our witnesses for over 
3\1/2\ hours now.
    Mr. Cooper. Very quickly. At this point, we don't even, 
today, acknowledge on the Federal balance sheet the health-care 
and retirement liabilities of our own employees. That would be 
a criminal offense in the private sector. You know, it is 
outrageous.
    Mr. Walker. Actually, Mr. Cooper, we do. We do have 
unfunded obligations for pensions and retiree health care for 
civilian and military. What we don't acknowledge, which I think 
you may have been referring, these bonds that are in the so-
called trust funds that are backed by the full faith and credit 
of the United States Government, they are guaranteed as to 
principal and interest, and I believe they will be honored, 
they are part of the total debt--subject to the debt ceiling 
limit, they are not deemed to be liabilities of the United 
States. The Government is trying to have its cake and eat it 
too, and that is wrong.
    Chairman Spratt. Thank you very much for your testimony, 
all of you. You have helped our understanding of this issue. 
And we very much appreciate your coming. And I appreciate your 
patience and forbearance today.
    As a matter of housekeeping, I would ask unanimous consent 
that members who didn't have the opportunity to ask questions 
be given 7 days to submit questions for the record.
    In addition to that, any member who so wishes, by unanimous 
consent, may add a statement for the record at this point in 
the record.
    Thank you once again for coming. Thank you for your 
contribution.
    [Whereupon, at 1:09 p.m., the committee was adjourned.]

                                  
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