[Senate Hearing 111-969]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-969
 
                    SAFEGUARDING THE AMERICAN DREAM:
                   PROSPECTS FOR OUR ECONOMIC FUTURE
                       AND PROPOSALS TO SECURE IT

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 17, 2009

                               __________

         Available via the World Wide Web: http://www.fdsys.gov

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        Committee on Homeland Security and Governmental Affairs




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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           JOHN McCAIN, Arizona
MARK L. PRYOR, Arkansas              GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana          JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri           LINDSEY GRAHAM, South Carolina
JON TESTER, Montana                  ROBERT F. BENNETT, Utah
ROLAND W. BURRIS, Illinois
PAUL G. KIRK, JR., Massachusetts

                  Michael L. Alexander, Staff Director
  Rachel R. Sotsky, Legislative Assistant, Office of Senator Lieberman
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                Asha A. Mathew, Minority Senior Counsel
                  Trina Driessnack Tyrer, Chief Clerk
         Patricia R. Hogan, Publications Clerk and GPO Detailee
                    Laura W. Kilbride, Hearing Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Collins..............................................     3
    Senator Voinovich............................................     5
    Senator Carper...............................................    16
    Senator Burris...............................................    17
    Senator McCain...............................................    34
Prepared statements:
    Senator Lieberman............................................    43
    Senator Collins..............................................    46
    Senator Voinovich............................................    49

                               WITNESSES
                      Thursday, December 17, 2009

Hon. Kent Conrad, a U.S. Senator from the State of North Dakota..     7
Hon. Judd Gregg, a U.S. Senator from the State of New Hampshire..    11
Hon. Alan Greenspan, Former Chairman of the Federal Reserve......    19
Hon. David M. Walker, Former Comptroller General of the United 
  States.........................................................    21

                     Alphabetical List of Witnesses

Conrad, Hon. Kent:
    Testimony....................................................     7
    Prepared statement...........................................    51
Greenspan, Hon. Alan:
    Testimony....................................................    19
    Prepared statement...........................................    63
Gregg, Hon. Judd:
    Testimony....................................................    11
    Prepared statement with attachments..........................    56
Walker, Hon. David M.:
    Testimony....................................................    21
    Prepared statement with an attachment........................    66


                    SAFEGUARDING THE AMERICAN DREAM:
                   PROSPECTS FOR OUR ECONOMIC FUTURE
                       AND PROPOSALS TO SECURE IT

                              ----------                              


                      THURSDAY, DECEMBER 17, 2009

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Carper, Burris, Collins, 
McCain, and Voinovich.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. Well, good morning and welcome to this 
hearing. I thank everyone for being here. I particularly want 
to thank our colleagues, Kent Conrad and Judd Gregg, Chairman 
and Ranking Member, respectively, of the Budget Committee. And 
I would say for the purposes of this hearing, I will 
unofficially designate you as leaders of the rebellion against 
our national debt.
    Let me say just a few words in opening. Our focus here this 
morning is on our exploding national debt and what we can and 
must do about it. I want to say that the Committee is holding 
this hearing because under our traditional Governmental Affairs 
jurisdiction, before we came to also be known as the Homeland 
Security Committee, with oversight of all government 
operations, including the Office of Management and Budget (OMB) 
and, of course, the major Budget Committee is the one led by 
the two gentlemen before us, but we oversee OMB. We hear the 
nomination of the Director of Office of Management and Budget. 
And it is part of that jurisdiction that leads us to hold this 
hearing this morning.
    Look, the facts and numbers of our current national debt, 
which is literally exploding, are so large that I think 
sometimes they are numbing and hard for individuals to 
appreciate when you think that we are now approaching $12 
trillion in debt--$12 trillion. The Congressional Budget Office 
(CBO) tells us that we will run at least another $9 trillion 
into debt over the next 10 years.
    If you consider unfunded liabilities related to Medicare, 
Medicaid, Social Security, and pensions, it totals over $40 
trillion. By one estimate, this is more than $480,000 of debt 
per American household. It is astounding, and more than being 
astounding, it represents, it seems to me, the most serious 
threat that our Nation faces here at home.
    In some senses, and I want to be careful about this, it is 
as dangerous a threat as some of the threats we face from 
foreign enemies and the Islamist extremists who attacked us on 
September 11, 2001. Obviously, it is a different kind of threat 
because they aimed to kill us, as they did on September 11, 
2001. But they also aimed to defeat our way of life, our 
national strength. And unless we do something about the debt, 
that is exactly what will happen. Our country will not be what 
it has been for the generations before, including the one 
privileged to live in this country and to be Americans today.
    Another consequence will be that we will face economic 
difficulties that will be, I think, greater than the great 
recession that we are just coming out of. So we have got to do 
something about this.
    There is, as I suggested at the beginning, finally a 
rebellion beginning against our national debt, and it is 
beginning here in Congress, of which Senator Conrad and Senator 
Gregg have been leaders. But I do think, and I would guess my 
colleagues feel the same, that as I go home to Connecticut, the 
American people have reached a tipping point on this. They are 
getting it. It may be far away. The numbers may be beyond their 
comprehension. But they see that we in Washington are just 
incapable of dealing with the debt, of stopping it.
    It is not because, I would say for the inside, we are evil. 
It is just because, ultimately, we are irresponsible. We like 
to spend money and we do not like to raise taxes. You do not 
have to be Alan Greenspan to know that if you keep doing that 
over a long period of time, you are going to run an 
unsustainable debt.
    The rebellion has taken specific form in this Congress 
and--as Senator Voinovich and I have done in our so-called 
Securing America's Future Economy Commission Act (SAFE Act) and 
as Senator Conrad and Senator Gregg have done in their 
Bipartisan Task Force for Responsible Fiscal Action, which is 
really the leading vehicle of this rebellion today, with more 
than 30 Senate cosponsors--it is to create a process, a 
commission that will bring key decisionmakers from Congress, 
perhaps the Administration, perhaps from the outside together 
to make the tough decisions in the national interest and then 
to bring it back to Congress on an up or down vote.
    And the reason for this is, I think we have all concluded 
ourselves that we are not capable of dealing with this problem 
as quickly as we have to deal with it. I am dating myself--but 
it is like the old Walt Kelly ``Pogo'' cartoon. ``We have met 
the enemy and it is us.'' And so we have decided it is kind of 
a congressional fiscal 12-step program. We have got to 
discipline ourselves and the way to do it is with a commission.
    And a group of us have said, under the leadership of the 
gentlemen here, and I am proud to say including about a dozen 
Democratic senators, we are not going to vote to extend the 
debt limit beyond the $12.1 trillion it is at now unless such a 
commission, such a process to deal with our debt is set up. We 
have had a partial victory so far in that the House did not 
approve a $2 trillion extension of the debt as it wanted, but 
$300 billion, which will take us to February. But we are still 
talking and I will be interested to hear from Senator Conrad 
how he feels about that this morning, about at least getting a 
vote for our proposal on a statutory commission before we agree 
to even a short-term debt.
    So this morning, with our two colleagues at the beginning, 
with Chairman Greenspan and Dave Walker, who are leading the 
rebellion out in the provinces against the debt, we are going 
to consider what will happen if we do not deal with this and 
how can we best deal with it to literally secure the future of 
our country.
    I will tell you, one reason why there is such anger at 
Washington today among the American people is, of course, about 
the economy, but it is also because the economic troubles have 
led most every family I know to tighten their belt, to put some 
money away to save some, not spend as much. And yet they watch 
us and we are not doing that. This concern has obviously 
agitated people, affected the current debate over health care 
reform, and certainly part of why I was so concerned about 
creating a new public government insurance option and expanding 
Medicare at this time.
    Anyway, that is my opening statement. I thank everybody for 
being here and I hope this hearing can help, frankly, to build 
a rebellion against the national debt to the point where we 
finally do something about it.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman, for conducting 
this hearing on a matter of such importance to our country.
    I want to join you in commending Senator Conrad and Senator 
Gregg for their extraordinary leadership in this area. As you 
pointed out, they are not Johnny-come-latelys to this debate. 
They have been sounding the alarm on the fiscal crisis for a 
long time now.
    Now, I hadn't thought of them as leading the rebellion, but 
then I thought of Senator Gregg's State motto, which is ``Live 
free or die,'' and I guess it is really ``Live free of debt or 
die.'' So it is appropriate that they are here today.
    I also want to thank Mr. Greenspan and Mr. Walker for their 
service to our country, for their leadership, and for their 
participation today.
    Earlier this year, Mr. Walker brought the Concord 
Coalition's Fiscal Wake-Up Tour to the State of Maine, and I 
will tell you, the numbers are a clarion call to action. To 
paraphrase the Senator for whom this building is named, a 
trillion here, a trillion there, pretty soon you are talking 
about a real fiscal catastrophe. Nothing underscores the scope 
of the crisis we face more than the fact that the billions of 
taxpayer money that so concerned Senator Dirksen just a few 
decades ago pale by comparison to the prospect of annual 
deficits exceeding a trillion dollars that we confront today.
    The dire consequences are found in innumerable charts, 
graphs, and spreadsheets. This debate is, however, not just 
about numbers and cold data. It is about our obligation as 
policy makers and as citizens to future generations of 
Americans. The basic problem is that government has promised 
more than our citizens can afford to pay. One columnist has 
described it as the collision between the high and rising 
demand for government services and the capacity of the economy 
to produce the tax revenues to pay for those demands.
    Historically, Americans have paid about 18 percent of the 
Gross Domestic Product (GDP) in Federal taxes. But with the 
explosion in entitlement spending that is tied to the 
retirement of the baby boom generation, plus interest on the 
debt, Americans would have to pay taxes equal to 34 percent of 
GDP to keep pace with spending 25 years from now. Even if that 
were possible, the remedy would do tremendous damage to our 
economy. It would crush job creation, devastate our already 
battered small business community, and dash the aspirations and 
``can do'' spirit of our citizens. Thus, our decisionmaking 
must begin by reconsidering spending that, although popular, 
simply cannot be justified during this fiscal crisis.
    It is also wishful thinking to think that we can simply 
grow our way out of this problem. The SAFE Commission Act 
introduced by the Chairman and Senator Voinovich and the bill 
introduced by Senators Conrad and Gregg are thoughtful 
approaches to addressing this crisis. We will hear more about 
that, so I will not repeat in my testimony exactly their 
approach.
    Let me say, however, that this examination is not merely 
necessary, it is urgently needed. We simply cannot continue 
business as usual and there is no better evidence of the need 
for change than the budgets that we have recently approved. I 
opposed the budget because I believe it accelerates our journey 
down the primrose path to fiscal ruin. It projects an enormous 
increase in spending that will double the public debt in just 5 
years.
    This is a moment in history in which we must confront the 
conflict between what we want and what we can afford. It is 
time to reassess our national priorities to make the hard 
decisions and to set a new course. The budget reform proposals, 
the thoughtful legislation presented by our colleagues, would 
begin to move us forward as a Nation in facing our fiscal 
challenges.
    I do want to say that I believe the legislation could be 
improved. Instead of legislation that would not be amendable, I 
believe that Members of Congress should have some ability to 
amend the Budget Commission's recommendations. What I would 
suggest is that ability should not be unlimited and that 
amendments should be required to be revenue-neutral, not affect 
the overall balance.
    We can put this country back on track. We can do what needs 
to be done to ensure that future generations of Americans enjoy 
what every American generation has proudly proclaimed as a 
birthright, and that is the promise of a better quality of life 
than the generations that preceded it.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you very much, Senator Collins.
    Senator Voinovich, you have been so active in this quest 
for so many years, and I know, because you have announced you 
are retiring after this term, that you have really focused on 
this as something you want to feel that you have made some 
progress on before you leave public office, after an 
extraordinary career at many levels of government. So I would, 
with respect, invite you to give an opening statement this 
morning.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Thank you, Mr. Chairman, for holding 
this hearing. After national security, I think the most 
important issue Congress and our Nation faces today is this 
issue of our debt and budgets that are not balanced as far as 
the eye can see in the future. And as you said, if we do not 
deal with it, it will affect our national security and will 
have an impact on world peace. So I want to thank you for your 
work and our work on the SAFE Commission.
    I want to thank our panel, the Chairman and Ranking Member 
of the Senate Budget Committee, Senators Conrad and Gregg, for 
your leadership to unite efforts of the Members of the Senate 
to come up with a bill that we can get passed and that will 
start to make a difference.
    The bill would force Congress to fully address our Nation's 
fiscal crisis. It forces us. It recognizes that, despite all 
our good intentions, Congress has failed to balance our budgets 
and stop our rapidly-climbing debt, a $1.4 trillion deficit 
last year, over $12 trillion in terms of our debt limit.
    I think it is really important to point out that the 
American people, as well as the international community, 
recognize the fiscal crisis our Nation faces. Everywhere I go 
around the world, people are saying, ``what are you guys 
doing?'' Canadians, they have said, ``if you do not get your 
house in order, we are dead, because our economies are 
intertwined. You must face up to doing something about it.''
    So our Nation does stand on thin ice and our credit and our 
creditability are in jeopardy. And it does not take an 
economist to realize our course is unsustainable. The Federal 
Government is the worst credit card abuser in the world and we 
are putting everything on the tab of our children and 
grandchildren.
    So today, we are here to discuss Senator Conrad and Senator 
Gregg's Bipartisan Task Force. When we had our press 
conference, I told you there was a big smile on my face. That 
is something I have been working on for a long time around 
here, as Senator Conrad and Senator Gregg know. The thing that 
tickles me is that at last count, we have 33 sponsors. That is 
pretty darn good for the U.S. Senate.
    I just heard, though, yesterday that President Obama is 
considering an Executive Order to create a Bipartisan Debt 
Commission, but I think it is important to recognize that the 
authority does not mandate congressional action. I am going to 
ask Chairman Greenspan--he was the last one that had a 
successful commission around here--what the differences are 
between today and when he did it in 1983. But the fact is that 
this fiscal task force should be made up of Members of 
Congress. If we get the 14-vote majority, those Members who 
work their you-know-whats off on that commission and their 
staffs should know that their hard work is going to result in 
some action and not be dilly-dallied like so many other things 
where people bust their back and nothing happens.
    I know that some Members of Congress say that this should 
be done in regular order, particularly over on the House side. 
In an ideal world, that is what we would do. Unfortunately, for 
my entire time in the Senate, we have not been able to address 
this crisis. Congress is simply not willing or capable of 
enduring short-term pain for long-term gain. You just laid it 
out. It is the way it is. It is the reality. So that is why we 
need the commission, to provide solutions and an expedited 
procedure for an up-and-down vote so the reform proposals do 
not die in committee or become an exercise in political 
messaging.
    I am fed up with political messaging. We have it all the 
time on both sides of the aisle. And you want to know what? So 
are the American people. They see through it. That is why they 
are so upset with what is going on down here. They have had 
enough of it, and I will not use another word that I might have 
used because this is a hearing. [Laughter.]
    The Conrad-Gregg Fiscal Task Force is an example of 
bipartisan compromise to achieve a productive process to tackle 
an enormous problem. And I hope that this Committee and my 
colleagues do not make the mistake that we too often make, and 
that is we let the perfect get in the way of the good. And that 
is what I think that you guys were able to do. You have put 
this together. You have combined a lot of good ideas. I think 
the legislation you have put together is terrific. I am hoping 
that it gets the support of the Senate and the House and it is 
a strong message, I think, to the President that we have got to 
act now.
    And I think the President and our OMB Director realize it 
needs to be addressed as both a policy and a political issue. 
And the American people are going to want to know it is real, 
not another Saturday night special. We have got people out 
there across the country that are saying to us, ``What are you 
doing?'' Some are saying, ``We are losing America.''
    I was really upset the other day, and I think, Senator 
Lieberman, you were there when we had the expert on China 
talking about the fact that the Chinese once looked at us as 
the model----
    Chairman Lieberman. Right.
    Senator Voinovich [continuing]. And now they have concluded 
that we are on our way out. I think that this cannot be the 
last generation of Americans, like Senator Collins said, that 
they are not going to have an opportunity for the same standard 
of living that we have had. And I think that this is a moral 
issue, a moral issue for us and for our country and, quite 
frankly, as I said, for the world. Thank you.
    Chairman Lieberman. Thanks very much, Senator Voinovich.
    Thanks to our colleagues for your patience as the three of 
us really cleared our chests, because it is right in there.
    I want to make clear when I said you were leading a 
rebellion that it is a patriotic rebellion to help the 
government do what it should do. So thanks very much for being 
here and we will begin with Chairman Conrad.

TESTIMONY OF HON. KENT CONRAD,\1\ A U.S. SENATOR FROM THE STATE 
                        OF NORTH DAKOTA

    Senator Conrad. Thank you, Mr. Chairman, thank you so much 
for holding this hearing. Thank you for your strong leadership 
on this issue. I personally appreciate it very much.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Conrad appears in the 
Appendix on page 51.
---------------------------------------------------------------------------
    Senator Collins, to you, as well. You have been a stalwart 
and we very much appreciate it.
    Senator Voinovich, there could not be a more passionate, 
articulate advocate for taking on the debt of this country than 
you are and you have been, and we thank you for your 
willingness to partner with us to try to get something done 
that is in the important interest of the country.
    As always, it is good to be with the former Chairman of the 
Budget Committee and my friend, Senator Gregg, to discuss this 
critical issue.
    Senator Lieberman, you have been a leader in the Senate, 
bringing attention to our long-term fiscal crisis. Along with 
Senator Voinovich, you have introduced the Securing America's 
Future Economy Commission Act, or SAFE Commission Act, which 
would establish a special process to develop legislation to 
significantly improve our long-term fiscal condition.
    I believe that you are exactly right, that a special 
process is required. Those who say, leave it to the regular 
order, it will not happen. We all know it will not happen. We 
only need to point to the most recent effort on health care 
reform, which I believe does make modest improvements, but it 
does not fundamentally address the long-term imbalances.
    And it is the nature of the beast here. I have been here 23 
years. If there is anything I am certain of, I am certain that 
the regular order is not going to take on this burgeoning debt.
    As you know, last week, Senator Gregg and I reintroduced 
our proposal for a special process. We call it the Bipartisan 
Task Force for Responsible Fiscal Action. That bill already has 
the support now of 34 of our colleagues--we had another 
colleague join just last night--20 Republicans and 14 
Democrats, including Senator Lieberman, Senator Murkowski--who 
is the one that joined just yesterday--and Senator Voinovich is 
a leader, as well. I thank you for your support. Thirty-four 
cosponsors in that short of a period, because we just 
circulated this proposal days ago. I thank all of the Members 
who have signed up, and some of them under pretty fierce 
lobbying by those who do not want to see us proceed in this 
way.
    We have colleagues who are very dug in on the notion that 
this invades their turf and this upsets the normal distribution 
of responsibilities to the committees of Congress. I would just 
say to those members, I respect the jurisdiction of your 
committees, but even more than that, I believe the threat posed 
by the debt crisis in this country supercedes any commitment to 
the jurisdiction of any specific committee because the 
committees of jurisdiction have had years to face up to this 
problem and have failed to do so. That is a fact.
    Before I discuss the specifics of the Conrad-Gregg Task 
Force, allow me to take just a moment to discuss how I see our 
economic future and why I think some special process is 
absolutely essential. Nothing short of the economic future of 
our Nation is at stake.
    Here is Newsweek's cover story from December 7, 2009. I 
note parenthetically December 7 is Pearl Harbor Day. I hope we 
do not have to have a similar catastrophe before we wake up and 
face up to this problem. The Newsweek cover is titled, ``How 
Great Powers Fall: Steep Debt, Slow Growth, and High Spending 
Kill Empires--and America Could Be Next.'' \1\
---------------------------------------------------------------------------
    \1\ The exhibit referenced by Senator Conrad appears in the 
Aoppendix on page 51.
---------------------------------------------------------------------------
    If you go inside the magazine and read the article, this is 
one paragraph. ``This is how empires decline. It begins with a 
debt explosion. It ends with an inexorable reduction in the 
resources available for the Army, Navy, and Air Force. If the 
United States does not come up soon with a credible plan to 
restore the Federal budget to balanced over the next 5 to 10 
years, the danger is very real that a debt crisis could lead to 
a major weakening of American power. We cannot allow that to 
happen.''
    The debt explosion in our country has already begun. The 
Chairman referenced it, as did Senators Voinovich and Collins. 
Under one 10-year scenario, gross Federal debt could rise to 
114 percent of our GDP by 2019. That is approaching the record 
121 percent of GDP debt level reached at the end of World War 
II.
    I do not know what it is going to take to convince some of 
our colleagues that we have to act and we have to begin to act 
now. If this isn't a warning sign, if this isn't an indication 
that it is imperative that we take on this burgeoning debt, I 
do not know what it would take. But, the longer-term outlook is 
even more serious.
    Mr. Chairman, according to the CBO and their long-term 
fiscal outlook, over the next 50 years, with rising health care 
costs, the retirement of the baby boom generation, the 
permanent extension of all the 2001 and 2003 tax cuts, the 
Federal debt could climb to more than 400 percent of the GDP. 
That is totally unsustainable.
    And you do not have to have my word or Senator Gregg's word 
for it. We have had the head of the CBO tell us that is 
completely unsustainable, and the head of the Government 
Accountability Office (GAO) when the distinguished David Walker 
was in that position, who will be testifying before you 
shortly. We have had testimony from the Secretary of the 
Treasury in the previous Administration and this 
Administration. We have had the testimony of the Chairman of 
the Federal Reserve. And you will be hearing from a former 
Chairman of the Federal Reserve a little later in this hearing. 
No doubt, he would make the same judgment. We have never had a 
debt in this country's history of 400 percent of the GDP.
    We believe that our task force proposal will work because 
it is based on several key principles. First, it is based on 
the principle of accountability. All of the task force members 
would be directly accountable to the American people. The panel 
would include 18 members, 10 Democrats, two of whom would be 
from the Administration, and eight Republicans. So in terms of 
Members of Congress, it would be eight Democrats, eight 
Republicans, two representatives of the Administration.
    It would be made up of currently-serving Members of 
Congress selected by the Democratic and Republican leaders in 
Congress. The Administration officials would be the Treasury 
Secretary and one other official selected by the President. 
This means the bipartisan leadership at the highest levels of 
the government would be responsible for the panel's outcome.
    Second, the task force would have broad coverage. 
Everything would be on the table, including spending and 
revenues. We cannot solve this problem, I believe, by looking 
at only one side of the ledger.
    Third, the task force would follow an expedited process. To 
minimize politicization of the task force, its recommendations 
would be submitted after the 2010 election. If there is a broad 
bipartisan agreement of the task force members with at least 14 
of the 18 members agreeing, the recommendations would get fast 
track consideration in the Senate--no amendments, no 
filibustering.
    I know there are many who are concerned about the no 
amendment provision. Senator Collins, you referenced it. Let me 
just say there are some who have suggested alternatives, such 
as actuarially-equivalent amendments. The reason Senator Gregg 
and I reached the conclusion of no amendments is because in 
watching the process here, we have concluded if there are 
amendments, the Republicans will put up an amendment that will 
say, we will address the deficit but just in one particular 
way. The Democrats will do the same. Everybody will have their 
amendment to explain to their constituents to explain why they 
did not support the final package, and therefore we never get 
to implementation of an actual solution.
    A final vote on the recommendations would occur before the 
111th Congress adjourns. That is what we call the Voinovich 
Provision. Senator Voinovich, after all this effort, deserves 
to be here to vote, as does Senator Gregg. Senator Gregg has 
also announced, and I lament this, that he is going to be 
retiring. And he and Senator Voinovich, if we do not vote in 
the 111th, will not have a chance to do something that they 
have worked so hard to achieve.
    Fourth and perhaps most important, the task force would 
ensure a bipartisan outcome. As I noted, it would take 14 of 
the 18 task force members to agree to report the 
recommendations to get fast track consideration. Final passage 
would require a three-fifths super-majority in both the Senate 
and the House. And the President would still have to sign the 
bill, and, of course, he would reserve and preserve his ability 
to veto.
    So everybody would have to be in. Everybody would have to 
be supportive of a solution. We believe, Senator Gregg and I, 
that is important for the sustainability for whatever is done, 
because this will not be a single year solution or a couple of 
years of alterations of the trajectory. This is going to have 
to be a long-term strategy and plan if it is to succeed.
    We believe this is the best way to accomplish the changes 
that are needed and to maintain them over time. No one party 
can or will do this on its own. It is not going to happen. And 
if we are going to be honest with each other and honest with 
the American people, we have to acknowledge it is going to take 
a special process to get this job done.
    This is the formulation that Senator Gregg and I have come 
to after many months of discussion and negotiation. It is very 
similar in many ways to your SAFE Commission. Both of our 
proposals require bipartisanship in the task force and in 
Congress. Both require that everything be on the table. And 
both guarantee that the task force recommendations get a vote. 
I cannot overemphasize that point. We have to structure a 
circumstance that allows the recommendations to get a vote.
    Your proposal would have some private citizens serve on the 
SAFE Commission and require the Commission to hold public town 
hall meetings. Certainly, those are worthy ideas. We held a 
Budget Committee hearing on this topic in November and you 
testified about the SAFE Commission, and we appreciate your 
testimony. As a result of that hearing, Senator Gregg and I 
made changes to our task force that would allow it to benefit 
from the assistance of knowledgeable and reputable citizens as 
part of an advisory panel. These same people could help the 
task force engage the public and build support for the ideas 
contained in the recommendations.
    One area where our proposals differ is the use of 
alternative ways of budget scoring to evaluate the long-term 
effects. The discussion about whether there are better ways to 
evaluate the budgetary effects of legislation is complicated. I 
personally prefer traditional CBO scoring. But again, I do not 
think we should let any of these issues stand in the way of a 
resolution.
    The single most important thing we can do in terms of our 
fiscal future is to put in place a process that can lead to a 
conclusion and can lead to the implementation of a solution.
    Chairman Lieberman, the work of any task force like you and 
I have proposed will not just be formidable, but it is critical 
to our country's future. Thank you and Senator Collins for this 
opportunity, and again, special thanks to my colleague, Senator 
Voinovich, for his leadership over a very long time on this 
issue. He does not just talk the talk. He has walked the walk, 
as have you, Chairman Lieberman and Senator Collins. And I 
notice that Senator Carper has joined us. He, too, has been 
somebody, as a Member of this Committee and as a member of the 
Senate Finance Committee, who has shown a real willingness to 
take on this threat.
    I have said to my colleagues on many occasions, the debt is 
the threat. That is where we must focus our energy and 
attention. I thank you very much for this opportunity.
    Chairman Lieberman. Thank you, Chairman Conrad, for an 
excellent opening statement.
    Senator Gregg, great to see you. Thank you for your 
leadership over a long time here. I can see a theme building. 
We are going to win this one for George and Judd. [Laughter.]
    Senator Gregg. I like that.
    Chairman Lieberman. And anyone else who is retiring who 
would like to do something about the debt.
    Senator Gregg. For all our grandchildren, hopefully.
    Chairman Lieberman. Amen. Please proceed.

TESTIMONY OF HON. JUDD GREGG,\1\ A U.S. SENATOR FROM THE STATE 
                        OF NEW HAMPSHIRE

    Senator Gregg. Well, thank you, Mr. Chairman. Thank you for 
holding this hearing. Senator Collins, Senator Carper, Senator 
Voinovich, all of you, thank you for your interest in this and 
for your proactive approach to this issue.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Gregg with attachments 
appears in the Appendix on page 56.
---------------------------------------------------------------------------
    A lot of good statements and thoughts have already been 
given. I just would like to tie together a few. Unfortunately, 
I am going to have to leave after I speak because we are about 
to confirm the Chairman of the Federal Reserve in the Banking 
Committee and I want to make sure I make that vote.
    As you said, Mr. Chairman, I view this issue as the most 
serious issue our Nation confronts after the issue of a 
terrorist getting a weapon of mass destruction and possibly 
using it against us, because the implications of the numbers 
that Senator Conrad has outlined here in a very stark way are 
pretty clear. Essentially, we will reduce the quality of life 
of our Nation and of our children and our children's children 
if we do not do something about the burden of the debt that we 
are passing on to them.
    We are already seeing signs of this. This used to be an 
issue that was over the horizon. No longer. It is coming at us. 
It is on the horizon. It is closing. We are seeing signs of 
this in the world community. We are seeing nations which are 
confronting the problem today--Greece, Ireland, potentially 
Spain, maybe Austria--where they basically have run up so much 
debt as a result of not running proper fiscal policy that they 
are essentially collapsing.
    We have the unique luxury of being able to monetize our 
debt because we are the world currency. But even that luxury 
and strength cannot confront and stand up to the debt numbers 
that are coming at us. We know that for a fact. And we are 
being told this. We are being told it by independent groups.
    Moody's just took us and put us on a special list. There 
are 17 industrialized nations which they have in a certain 
category in rating bonds. They have decided that amongst those 
17, the United Kingdom and America will be put on a special 
group. They have not put us on a warning or a watch list yet, 
but they have given us a new title. I think it is called 
``Resilient'' or something. It is reflecting the fact that they 
know the problem is coming unless we address it, and address it 
soon.
    The issue, of course, is why do we not do it through 
regular order. I mean, that is our job, is it not? That is what 
we are paid for. That is why the people send us here. And it is 
pretty obvious why we do not do it through regular order, 
because the political system does not allow it to happen. It is 
just that simple.
    You quoted Pogo. I have used that line a few times myself. 
Another way to express it is this way. We keep looking around 
for what is the next systemic risk in our economy. The systemic 
risk is the Congress. It is that simple. Because as a very 
practical matter, what happens here is when you put policy on 
the table, when our side of the aisle, for example, suggests 
something on Social Security, or your side of the aisle 
suggests something on tax policy, immediately, there is this 
massive cadre of interest groups out there who essentially make 
their living off of demonizing whatever the proposal is, and 
poisoning the well and making it impossible. Sometimes we 
cannot even get the policy to the start line, but we can never 
get it off the start line when it is big issues like this.
    And so we concluded, Senator Conrad and I, that starting at 
the policy inevitably leads to virtually nothing happening. And 
so what we have to do is set up a procedure that drives policy, 
and that is what we tried to do with this proposal.
    The proposal itself has obviously some differences from 
your SAFE Act and from concepts that are on the House side, but 
let me talk about some of the reasons why we came to the 
conclusion that we should do it the way we have proposed--
obviously, nothing is written in stone around here, but the 
concepts.
    At the core of this, the American people have to believe 
that whatever is proposed is absolutely bipartisan and fair. 
These issues are so all-encompassing, they impact every 
American in such a personal way--Social Security, Medicare, tax 
policy--that unless you do it in a bipartisan, fair way, the 
American people will reject it. They simply will. And so the 
process of drawing up the policy must be seen as fair and 
bipartisan.
    So a lot of effort was put into the issue of the make-up of 
the commission, what the membership would be, and how the vote 
process would occur, and that is why we have these super-
majorities, 14 to report of the 18 people. That means the 
majority, which will be the Democratic Party in this instance 
because you will have eight members from the House and Senate 
and two members from the Administration, and the Minority, 
which will be eight members from the House and the Senate, are 
assured that neither side can game the other. Four people have 
to be there from the Minority to vote for it. So a majority of 
the Minority basically has to vote for the final product, 
assuming they got into that type of conflict, which hopefully 
they would not. But the purpose is to send a clear signal that 
it has to be fair, it has to be bipartisan, which I think is 
critical to this effort.
    The commission has co-chairmen, one Republican, one 
Democrat, so it is very clear that the purpose is to have 
bipartisanship.
    Why did we not put outsiders on the commission? Well, that 
is a legitimate point. I mean, how do you handle that? Our 
conclusion was this. We wanted people who had skin in the game, 
knew the process, because this has to be done. The people who 
reach these conclusions have to be able to execute the 
conclusions, and that means we think they should be Members of 
Congress and members of the Administration.
    And the secondary issue which concerned us about the 
outsider issue is who do you pick? I mean, there are so many 
people who have a legitimate right to be on this undertaking, 
that once you start choosing from one group, how do you say no 
to the next group, and you would end up with a massive 
commission, probably unwieldy, and there would be questions 
about whether or not it was going to be fair and bipartisan 
because these different interest groups would bring such issues 
to the table that would be singular in their sense of purpose. 
So we went with purely Members of Congress and members of the 
Administration.
    The issue of amendment, that is probably the key issue, in 
my opinion, and I think Senator Conrad explained it. But 
basically, amendments allow Members of Congress to hide in the 
corners. That is what amendments do. You vote for an amendment, 
then you can vote against the final passage.
    The Base Realignment and Closure (BRAC) Commission, which 
we basically track, did not allow amendments, and I think it 
worked because it did not. If there had been amendments, the 
BRAC Commission probably never would have passed. So I do not 
think you can do amendments and have this work. I feel pretty 
strongly about that, because I know that the way the place 
works, people who vote for the amendment did not vote for final 
passage and claimed it is simply because their amendment wasn't 
included.
    You have to believe, if you take this route, that the 
people who are sitting on this commission who are going to come 
to this conclusion are not going to do anything that isn't 
bipartisan and fair, and it is structured so they cannot. The 
amendment process will have been addressed in the development 
of the issues and the policies.
    It is, obviously, time to act. Even if we were to put this 
in place today and have this fast time frame, the Voinovich 
time frame that it is concluded by the end of the Congress, 
that policies that are going to correct this are not going to 
be precipitously undertaken. You cannot do that precipitously. 
It would be too much dislocation to the economy. It is going to 
take probably years for these policies to be implemented. Many 
of them are going to require fairly significant phase-in times. 
And yet the debt is going to mount all the time. So we need to 
start acting now.
    But as a very practical matter, if we pass this commission 
today or within the near term, we would be sending a message, 
an unequivocal message to the world that America is going to 
stand up to our problem and we are going to do something about 
it, and I think that would have a massively positive impact on 
our ability to sell our debt, on interest rates in this 
country, and on our economy generally, because the American 
people would see that we are going to do something and the 
world would see that we were going to do something.
    So I think just the passage of this commission, or this 
task force, would have a hugely positive effect on our Nation's 
economic well-being, and I thank you very much for your time.
    Chairman Lieberman. Not at all, Senator Gregg. Thanks for 
the time you spent with us. Thanks for an excellent statement.
    I will say for myself--I think you know this, and I think I 
speak for Senator Voinovich, but obviously he will speak for 
himself--that though we have sponsored another proposal, the 
proposal that you and Senator Conrad have put forward is the 
proposal now. We may want to tinker with it, all of us in one 
way or another, before it comes to a vote, but this is the 
vehicle for finally doing something about this, so I appreciate 
it.
    Normally, we do not ask our colleagues questions. If you 
have time, Senator Conrad, and I do not want to keep Chairman 
Greenspan and Mr. Walker waiting too much, but I want to 
suggest to my colleagues, maybe we just each take one question 
to ask of you.
    Senator Conrad. I am happy to answer any questions you 
have.
    Chairman Lieberman. OK, good. I realized as I am 
formulating, I am going to try to ask two questions in one. 
Sorry. [Laughter.]
    I really want to ask you where we are now in the process--
some people say this commission can be established to do what 
we want to do by Executive Order. Now, of course, the great 
challenge to that is the Executive Order cannot bind Congress 
to a no-amendment process. The Executive Order can set up a 
commission very much like the commission we are talking about 
here. So how do you evaluate those two ways to achieve our 
goal?
    Senator Conrad. Let me say that an Executive Order 
commission--and the commission in the 1980s to deal with Social 
Security was an Executive Order commission. We ought to 
acknowledge that. I think this is a different time and a 
different circumstance. Then, you had an immediate crisis. And 
then, you had a special relationship between the Speaker and 
the President of the United States, who were of opposite 
parties.
    Chairman Lieberman. Right.
    Senator Conrad. That is a different circumstance than we 
have today. So we chose to have a statutory commission, one 
that would be in law, that would be able to assure--and I think 
this is the single most important point--that the 
recommendations get to a vote, up or down, in the Congress of 
the United States. Senator Gregg said it well. I think if any 
structure that is put in place that does not assure an up or 
down vote on the recommendations is highly unlikely to succeed.
    With respect to amendments, we chose to have no amendments 
and again, the only way you can do it is in a statutory 
commission because then it is law. In an Executive Order 
commission, you could not restrict the number of amendments. 
But there are negotiations ongoing to deal with a whole series 
of issues.
    One possibility on the amendment front is actuarially 
equivalent amendments. So, for example, if the commission said 
you have to save a trillion dollars over 5 years, and it is 50 
percent revenue and 50 percent spending cuts, or it is 60 
percent spending cuts and 40 percent revenue, whatever it is, 
that you require amendments to be actuarially equivalent, that 
they would have to meet those same metrics, that same amount of 
savings, that same distribution. That would be one way of 
preventing a gaming of the system and still provide an ability 
to amend. I think Senator Collins was describing in some way an 
actuarially equivalent approach. So that is one possibility.
    Chairman Lieberman. Thanks for that. That is my one 
question. I will say that as I listen to you and think about 
this, that it is clear that the preferable course is a 
statutory commission because then we really create a process. 
We may come to a point of decision where, for some reason, we 
cannot enact a statutory commission through both Houses of 
Congress, and then we are going to have to decide if the 
President is intending or willing to issue an Executive Order, 
because of the urgency of the crisis, if that a better way to 
proceed, and if there some way we can try to do what the 
commission would do to limit amendments.
    I am going to yield to Senator Collins.
    Senator Collins. Thank you.
    Senator Conrad, there is a third commission approach that 
has been proposed by our colleagues. I think it is Senators 
Feinstein and Cornyn. They have proposed a commission that 
would focus on the three major entitlement programs--Social 
Security, Medicare, and Medicaid. They argue that those three 
programs are the big cost drivers in the budget and that it 
would be best to try to have a more narrow focus and get a 
consensus on what to do with those three programs. What is your 
reaction to that approach?
    Senator Conrad. My reaction is, I think you also have to 
have revenue on the table. And I say that because as I analyze 
our current revenue system, it is inefficient, it is unfair, 
and it is hurting the competitive position of the country. I 
say that because by my calculations, we are only collecting 
about 76 percent of what is actually owed under the current 
system. We have an extraordinarily inefficient system that is 
hemorrhaging revenue to offshore tax havens, to abusive tax 
shelters, the tax gap.
    I think we are going to have to fundamentally change the 
tax code in light of the world we live in today. Our tax system 
was constructed at a time we did not have to be worried about 
the competitive position of the United States. We were so 
dominant. That is no longer the case.
    So many people say, well, if it is revenue, that 
automatically means a tax increase. My own belief is, before 
you ask anybody for a tax increase, we ought to construct a tax 
system that collects most of what is owed in a far more 
efficient way, in a far more fair way, and in a way that 
enhances the competitive position of the country. So I think 
revenue has to be on the table.
    Finally, what they are suggesting leaves out, of course, is 
domestic discretionary spending, including defense, and we have 
found in reactions across the country, people want everything 
on the table. They want everything on the table. They simply do 
not believe that there are only a few places where money is 
being wasted. And you know what? I think they are right.
    As Chairman of the Budget Committee, I have often thought 
about writing a book about what I have seen and what I have 
found. I think the American people get it. They know we can do 
a lot better.
    Senator Collins. Thank you for your leadership.
    Chairman Lieberman. Thanks you. Senator Voinovich, one 
question.
    Senator Voinovich. As you know, there is some difference of 
opinion in the House, I think, on the SAFE legislation. We have 
about 100 sponsors. But it has been pretty clear that the 
Speaker and the Chairman of the Ways and Means Committee are 
not enthusiastic about this. Do you believe that this cannot 
get done without the support of the President of the United 
States?
    Senator Conrad. Well, we could, just as a factual matter, 
put in place a commission through negotiation, because there 
are those of us who have taken the position we will not vote 
for any long-term extension of the debt without this being 
included. But as a practical matter, the President, I think, 
has to be supportive.
    Now, does that mean he has to support every jot and tittle 
of what we have outlined here in the Conrad-Gregg Act? No. Is 
there room for negotiation? Yes. Is it possible that we could 
find ourselves in a circumstance where we cannot pass a 
statutory commission, because it would require 60 votes in the 
U.S. Senate. We have 34 cosponsors. Thirty-four is not 60. It 
is also possible, even if we passed it in the Senate, that it 
would not get passed in the House.
    So I think we have to preserve the alternative for some 
other type of commission. My first preference would be another 
form of statutory commission, maybe not a BRAC-like process but 
at least one that would assure us by law that you would get to 
a vote on the recommendations of a commission, and certainly an 
Executive Order commission, properly designed and properly 
committed to by the leadership, including the President, could 
result in a vote on the commission recommendations.
    But I think, by far, the most preferable is a statutory 
commission, as we have outlined and as you outlined.
    Senator Voinovich. And the answer is that the President 
will have to embrace something and take a leadership role for 
this to happen?
    Senator Conrad. As a practical matter, I find it hard to 
believe that we could get to the end of this process without a 
President being engaged and a President being supportive, and I 
cannot speak for the President. I cannot speak for the leaders 
in the House. I believe there is growing momentum behind this 
idea. In the negotiations I have had with the White House, with 
colleagues in the House, because remember, the Majority Leader 
there, Mr. Hoyer, is a strong supporter of the commission 
approach. And I think there is a growing recognition in the 
House, Senate, and the White House that we confront something 
here that is going to require a special process.
    Senator Voinovich. Thank you.
    Chairman Lieberman. Thanks. Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. I am almost reluctant to try to ask a 
question. Let me just start out by saying thank you so much for 
your leadership day-to-day of the Budget Committee and all the 
time and energy that you and Senator Gregg have put into this 
idea. I know it is extraordinary. And to your staffs. Thank you 
for standing up and saying, all right, this is where we draw 
the line.
    I also want to thank you for showing a fair amount of 
flexibility in taking input and suggestions to modify the 
original proposal that you started off with.
    I am not going to ask you a question. I just want to say, 
yesterday in this same room, I chaired a hearing of another 
nature. When I was in the House, Charlie Stenholm and I and 
others sponsored a balanced budget amendment to the 
Constitution, not one that mandated a balanced budget every 
year, but something that actually mandated the President 
propose a balanced budget and allowed the Congress to unbalance 
the budget with a three-fifths vote, allowed the Congress to 
raise the debt ceiling with a three-fifths vote, but put some 
emphasis on the President.
    I was struck by Senator Gregg's comments. He says, it is 
basically the Congress's fault that we are in this mess. Well, 
there is plenty of blame to go around, and I would suggest that 
it is a shared responsibility of both the Legislative and the 
Executive Branch.
    The hearing that I held yesterday was on one subject that 
would require a vote on the President's rescissions, would 
allow us to defeat the rescissions with a simple majority vote 
in either the House or Senate, and would compel us to vote on a 
rescission. I am struck by one of the themes that comes through 
your proposal is that it gets us to a place where we have to 
vote, and I think that is part of the beauty of it.
    I am mindful, having worked with some of our colleagues in 
this group of 10, five centrist Democrats and five 
progressives, to try to come up with a compromise on the public 
plan and how to go forward on the health care, that it is hard 
to get members to spend concentrated amounts of time for an 
extended period of time. It is very difficult to do that, as 
you well know. And in terms of constructing the membership, 
where it is largely House and Senate Members, I would just ask 
us to keep that in mind.
    There are a number of people who used to serve here, 
though, who know a lot about the budget process, who understand 
government very well, and frankly, who might have a little more 
time on their hands than we do, and I would ask that we 
particularly keep some of them in mind as possible people to 
serve here and could add a whole lot--not just to the process, 
but to the outcome, as well. Any thoughts on that?
    Senator Conrad. All of this is delicate in terms of 
responses I might make because we are in a negotiation and I do 
not want to negotiate against myself, especially in public.
    Chairman Lieberman. Don't.
    Senator Conrad. So we have been careful to outline what we 
think would be the most effective way to approach this. Are 
there other ways? Yes, there are, and many of those are on the 
table, and I think, without my referencing what I would 
support, I am flexible. Senator Gregg is willing to be 
flexible. We are interested in getting a result and we are 
interested in getting a result that can actually transfer into 
this country effectively taking on this debt threat.
    Chairman Lieberman. Thanks. Senator Burris, we are just 
doing one question on this round.
    Senator Burris. One question?
    Chairman Lieberman. That is all, because I want to get to 
the next panel.

              OPENING STATEMENT OF SENATOR BURRIS

    Senator Burris. Thank you, Mr. Chairman.
    I will have a quick question. Is there a conflict between 
S. 2835 and S. 1056? You two have a bill, and you two have a 
bill, Gregg and Conrad. Are you all going to merge these, or is 
there a conflict?
    Senator Conrad. There is conflict in the sense they are 
somewhat different approaches, which I outlined in my 
statement. But by and large, they have a lot of commonality, 
and the commonality is it has to be bipartisan, it has to have 
a special process, it requires a super-majority to advance, and 
that the President retains all of his powers. Those are 
commonalities.
    There are differences, but really the differences are in 
nuance and membership. We have all Members of Congress and 
representatives of the Administration. The alternative proposal 
has some outsiders, so I would say that is probably the major 
difference, whether there should be outsiders as members or it 
should all be Members of Congress and representatives of the 
Administration.
    Senator Burris. Senator, I assume that we are trying to do 
this after the 2010 elections and you have a strict timetable 
and strict restrictions. So you are trying to freeze things as 
they are in your proposal going forward so that we will not do 
any borrowing, and you look at how you are going to educate the 
public to the fact that every demand that the citizens are 
making on the Federal Government cannot be met if we go to this 
type of process.
    You do know the reason why we have debt, right? It is 
because we believe we have to meet the demand of our citizens 
and everybody has their little special project that they need 
and they want somebody's ox to get gored and rather than goring 
their ox. So I just hope any commission that takes this into 
consideration will definitely understand, because I spent half 
of my life in government, especially on the State level, and we 
do have balanced budgets. But right now, those balanced budgets 
are killing all the States. Most all of them have deficits and 
they are running them and they do not know how to meet it. That 
is because of the demand of the citizenry. So please, with all 
due respect, we have to do it, but we have to keep that in 
mind.
    Senator Conrad. Yes, I could not agree more, Senator 
Burris. I want to make clear that we recognize debt can be a 
positive thing. The problem is when debt swamps you, and we 
know that the United States can handle its current debt. The 
problem that we confront is where we are headed. Where we are 
headed is towards unsustainable debt, and the goal that we have 
outlined here is to try to prevent that unsustainable debt from 
becoming a reality. We recognize debt financing as healthy for 
families and for governments up to a point. The problem we 
confront is we all know that we are headed for a circumstance 
in which, if we stay on the current trend line, we will have a 
debt that totally swamps us, and that is what we have to try to 
prevent.
    Senator Burris. Thank you, Senator. Thank you, Mr. 
Chairman.
    Chairman Lieberman. Thanks, Senator Burris.
    Senator Conrad, thanks very much. You said at one point--I 
forgot your exact words--that the process, executive and 
legislative, seems to be now responding to what you and those 
of us who support you are asking for, and honestly, because of 
all we have said about the process, the only reason I believe--
well, two reasons. One is that the problem, the debt, is 
getting so serious for our country.
    But the second is that a group of us in the Senate, 
including about a dozen Democrats, have said we are simply not 
going to vote in the next week for a long-term extension of the 
debt unless something is done about this, unless we create a 
process, unless we get a vote on a statutory commission.
    This is unprecedented, and this is why I called it a 
rebellion. The stress level is going to go up and the pressure 
on all of us is going to go up. But this is so critical to our 
country's future that I know you will remain strong, and I 
pledge to you my support, as well, as we go forward. It is only 
going to take--you mentioned--about 60 votes to pass this 
commission. It also takes 60 votes to extend our current debt 
limit, and I think that is going to be very hard to obtain 
before the end of this year, certainly a long-term extension, 
unless we get some specific response to the request that a 
group of us are asking under your leadership. So I thank you 
for that, and if we stick together, we will make something good 
happen.
    Senator Conrad. Let me just say, if I can, there will be no 
long-term extension of the debt without this being included. 
Our group is resolute and they have held up under a great deal 
of pressure and we are not going to approve any long-term 
extension of the debt without this being addressed.
    Chairman Lieberman. Thank you.
    Senator Conrad. Thank you.
    Chairman Lieberman. Stay strong. See you soon.
    I am glad now to call the second panel, Alan Greenspan, 
former Chairman of the Federal Reserve, and David Walker, 
former Comptroller General of the United States of America and 
now the head of the--what do you go by now?
    Mr. Walker. Mr. Chairman, I am President and CEO of the 
Peter G. Peterson Foundation.
    Chairman Lieberman. The Peterson Foundation. I thank you 
very much. I thank both of you for your patience as we were 
listening to, and I think being encouraged and learning from--
--
    Senator McCain. Mr. Chairman, I am sorry I was not here to 
ask the Senator from North Dakota how you want to have a 
commission to cut spending and at the same time approve of and 
vote for $4 billion in earmarked pork barrel projects. I am 
sorry I wasn't here to ask the Senator that. There is a certain 
amount of a double standard there that I strenuously object to.
    Chairman Lieberman. I am sure Senator Conrad is upset that 
you were not here to ask him that question, too. [Laughter.]
    Chairman Greenspan, thanks so much for being here to bring 
your own experience, your voice of authority, all that you know 
about the economy to bear on this urgent problem. You have 
obviously spoken about it a lot before, but at this moment in 
this Congress, your voice publicly, I think, really can be very 
critical, very important. So we welcome your testimony at this 
time.
    Again, there is a time limit up there, but do not feel 
controlled by it. Just speak as long as you want to speak. Now, 
I say that to you because you are not a Senator. [Laughter.]
    Go ahead. Please proceed.

  TESTIMONY OF HON. ALAN GREENSPAN,\1\ FORMER CHAIRMAN OF THE 
                        FEDERAL RESERVE

    Mr. Greenspan. Thank you very much, Mr. Chairman. I also 
want to thank Ranking Member Collins and Members of the 
Committee for coming to what I think is one of the most 
critical hearings in quite a long time.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Greenspan appears in the Appendix 
on page 63.
---------------------------------------------------------------------------
    For more than two centuries, we have been able to hold the 
level of U.S. Federal debt to well below our capacity to 
borrow. But for the next decade or two, on some reasonable sets 
of assumptions, our borrowing cushion shrinks significantly, 
threatening to test our capacity to raise funds to finance 
unprecedented deficits.
    The challenge to contain this threat is more urgent than at 
any time in our history, in part because of today's limited 
flexibility of adjustment, especially of entitlement spending 
whose constituencies are very well entrenched. Compounding this 
concern is our inability to accurately forecast current 
services spending. Projecting Social Security 10 or 20 years 
into the future is not too difficult. It is a defined benefit 
program whose payments in real terms are narrowly defined by 
law. Similarly, owing to long experience in forecasting non-
military discretionary budgets, outlay projections in this area 
are also narrowly defined.
    Projections of Medicare and Medicaid, however, are far more 
daunting. Unlike Social Security, these are in-kind 
entitlements whose levels are determined by individuals' 
particular medical needs. The number of future beneficiaries 
in, say, 2030 is readily predictable, since they are already 
born. But future per capita benefits are subject to very wide 
uncertainties.
    Medical technology and pharmacology are advancing rapidly 
to previously unimagined heights. With no meaningful restraint 
on our subsidized fee-for-service medical care system, demand 
for advanced technologies and drugs is largely without limit. 
Medicare Trustees' forecast assumptions, especially beyond 10 
years, are, of necessity, assumptions, not forecasts.
    Short of some form of market price or administrative 
rationing--a political third rail, obviously--ever-rising 
medical services will eventually strain the physical capacity 
of our economy. Since demand for medical services by its nature 
is highly inelastic, medical services' share of GDP has no 
credible immediate upside restraint.
    The simple fact is that we have promised resources which by 
any reasonable projection we will not have, a morally untenable 
position. Those who will retire in the years ahead depend on 
government's promises to plan their future.
    We are not dealing with a simple problem of finance solved 
with the addition of appropriated dollars. It is a physical 
resource crisis. If the dollar share of GDP devoted to medical 
services is rising, so is the share of medical workers in our 
labor force and medical hardware in our capital stock. 
Importantly, a dollar of the Nation's scarce savings employed 
to finance new medical technology investment is a dollar not 
available to fund other critical non-medical cutting-edge 
technologies that enhance our material well-being.
    The health of the population, of course, must take 
precedence over material considerations. An unhealthy 
population will not be productive. But there has to be a point 
where diversion of real resources to medical services no longer 
measurably enhances longevity or reduces morbidity.
    Our scope for increasing the size of the overall economic 
pie to resolve our pending crisis is limited by the growth of 
our labor force and growth of productivity. Short of a 
significant increase in immigration, the size of our labor 
force in 2030 is fixed in a relatively narrow range. And if 
history is any guide, so is long-term productivity growth.
    Since 1870, non-farm productivity gains over 15-year 
periods has rarely strayed outside the range of 1 percent to 3 
percent annually, averaging slightly more than 2 percent. We 
and the rest of the developed world are at the cutting edge of 
technologies. Accordingly, we apparently cannot for a 
protracted period exceed 3 percent productivity growth, 
presumably because there is a limit to human intelligence, the 
source of all innovation.
    The recommendation of Senators Conrad and Gregg for a 
Bipartisan Fiscal Task Force is an excellent idea, and I 
thought the discussion that was very interestingly expanded 
earlier this morning is clearly going in the right direction 
and I hope that you succeed. I trust any such task force will 
address the very thorny issue of the asymmetrical consequences 
of too much or too little fiscal restraint.
    In the former case, too much restraint is not a risk and 
would in any event free resources for other initiatives. The 
dire consequences of a failure to tighten sufficiently to 
balance our books, however, calls for policies that err 
significantly on the side of restraint. I understand that this 
is politically extraordinarily difficult to do, but our Nation 
has never before had to confront so formidable a fiscal crisis 
as is now visible just over the horizon.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you very much, Chairman 
Greenspan. It is very serious, very somber, and very insightful 
particularly to hear from you that this really is unprecedented 
in our history. It is a fiscal crisis the likes of which we 
have not faced before and it challenges us to respond equally 
in an unprecedented way.
    David Walker, welcome back. We feel like you are a member 
of the family at this Committee. Thank you for the work you 
have done at the Peterson Foundation and really around the 
country to inform the public and, I think, inform what I 
described earlier as a citizens' rebellion, uprising against 
the debt. So we welcome your testimony now.

   TESTIMONY OF HON. DAVID M. WALKER,\1\ FORMER COMPTROLLER 
                  GENERAL OF THE UNITED STATES

    Mr. Walker. Thank you, Chairman Lieberman, Senator Collins, 
and other Senators. It is truly a pleasure and an honor to be 
here today, especially with Chairman Greenspan, really an honor 
to be here with him on this panel. I can see that now that he 
is no longer the sitting chairman of the Federal Reserve, he is 
very clear and very compelling on his language. You can 
understand everything that he says---- [Laughter.]
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    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 66.
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    Which is great. And I remember one of his best quotes, 
which was in the critically-acclaimed documentary, ``I.O.USA,'' 
which I also had the pleasure of being part of, where he said, 
``without savings, there is no future,'' and he is 110 percent 
right. And rather than having savings, we have debt.
    I am from Alabama. I live in Virginia----
    Chairman Lieberman. And where are you moving?
    Mr. Walker. Moving to Connecticut, the Constitution State. 
[Laughter.]
    And let me say for the record, I am a rebel with a cause.
    Chairman Lieberman. Good.
    Mr. Walker. And you and others may be forming the rebellion 
peacefully within this institution and I am helping to lead the 
effort in the real world outside of Washington's beltway, and 
it is working, and I will come back to that.
    I have the honor to testify today on behalf of the Center 
for the Study of the Presidency and the Congress on the 
strategic initiative that I happen to co-chair. Ambassador 
David Abshire is head of that institution. There are three co-
chairs, former Governor Roy Romer from Colorado, also former 
chairman and CEO Norm Augustine of Lockheed Martin, and then 
myself. So it is a non-partisan commission, a Democrat, a 
Republican, and I, myself, for a number of years an 
Independent.
    I would like to commend Chairman Conrad, Senator Gregg, and 
other Senators here, especially Senator Voinovich, Senator 
Lieberman, for leading the charge here with regard to trying to 
bring fiscal sanity to this country. We are out of control and 
we are reaching a precipice, that if we do not take definitive 
action soon, we could pass a tipping point, a loss of 
confidence on behalf of foreign lenders that could have serious 
adverse consequences for the United States, for the American 
people, and for the world.
    Our challenge is not short-term deficits. Our challenge is 
not the current debt. Our challenge represents the serious 
structural deficits that are large, known, and growing, that 
are worse today than they were before the recession and the 
bailouts, and are closer to hitting our shores and that 
threaten to swamp our ship of state.
    As Chairman Greenspan said, for over 200 years, this 
country had a history of not running deficits and accumulating 
debt unless we were at war, faced a depression, or a serious 
recession. But that has changed in recent years. Everybody 
wants it all and they do not want to pay for it. And so they 
charge the national credit card, which at present we do not 
have a constitutional limit, which we should. We have a limit 
right now on what our credit is. We just do not know what it is 
because the Chinese, the Japanese, and Organization of the 
Petrol Exporting Countries (OPEC) have not told us yet.
    It is important that we recognize that the four factors 
that contributed to the mortgage-related subprime crisis exist 
for the Federal Government's own finances. There are two big 
differences. The numbers are much bigger. The risks are much 
greater. That is one. The second is nobody is going to bail out 
America. We have to solve our own problem, and we need to get 
started soon.
    Chairman Conrad already noted the December 7, 2009, issue 
of Newsweek. I noted that he took out the part that said 
``Cheney in 2012'' on the top of it. [Laughter.]
    But in any event--I am not going to comment on that, but in 
any event, it was pretty clear and compelling and that article 
is an outstanding article. But I think it is important that we 
can still change course. We can be the first republic to stand 
the test of time. But we have to change course because we will 
not succeed unless we do.
    Theodore Roosevelt recognized that sometimes you have to do 
things differently. You need dramatic and fundamental reforms. 
You need to engage in movement politics. I think that is where 
we are here today. Roosevelt recognized that the necessities of 
time and the challenges that we face sometimes require breaking 
out of normal party structures, normal legislative processes in 
order to leap forward. That is where we are today.
    At the Peter G. Peterson Foundation, which I am honored to 
head, we have been engaging in a variety of citizen education 
engagement efforts and this represents the results of the 
latest statistically valid public opinion survey. Eighty 
percent of Americans believe that escalating deficits and debt 
should be a top priority, secondary only to the economy and 
jobs, way ahead of health care reform, way ahead of climate 
change, way ahead of tax cuts, way ahead of proliferation of 
weapons of mass destruction, not that those are not legitimate 
issues, but they are relative priorities.
    Second, two-thirds of Americans believe that Washington is 
not paying enough attention to this issue.
    And third, 70 percent of Americans agree with Senators 
Conrad and Gregg, Lieberman, Voinovich, and others that we need 
a special commission that will engage the American people with 
the facts and the truth and the tough choices, that will make 
the case that we need to act soon, the benefits of doing so, 
the risks and consequences if we don't, and that, in addition 
to that, will result in a vote in the Congress of the United 
States. One bill will not solve the problem. One act of 
Congress will not solve the problem. But we must receive a 
significant reduction in the $60-plus trillion in liabilities 
and unfunded promises that are growing by trillions of dollars 
a year on autopilot. We must do it before we pass the tipping 
point and lose the confidence of our lenders, especially our 
foreign lenders.
    Unfortunately, America is increasingly being mortgaged, and 
to a greater extent, that mortgage is held by foreign lenders. 
That is not in our long-term economic, national security, 
foreign policy, or even domestic tranquility interests over 
time. At the end of World War II, we had debt equal to GDP of 
122 percent, but it was all owed to Americans. Today, 50 
percent or slightly over of public debt is held by foreign 
lenders and growing. We are fortunate that they will lend us 
that money at low interest rates, but on our present course, 
both with regard to fiscal policy and monetary policy, once the 
economy turns around, we are likely to see higher interest 
rates. The question is, how much higher?
    I have a lot higher degree of confidence in the Federal 
Reserve to be able to make the changes that they need to make 
to turn around monetary policy than I do fiscal policy, 
because, quite frankly, fiscal policy is out of control. In the 
last 2 years alone, discretionary spending, if the 
appropriations bills for 2010 pass, will go up 20 percent in a 
time of no inflation. It is amazing, absolutely amazing.
    So we do need a special commission, one that will educate 
and engage the American people and result in a vote in the 
Congress. Some have argued that the commission is not the way 
to go, that the Congress ought to handle it in the regular 
order. Well, if the regular order was working, that would be a 
valid assertion.
    Some have argued that this is unconstitutional. That 
ignores the fact, in the final analysis, the only votes that 
count are the votes of Senators and Members of Congress and 
whether or not the President signs the bill or vetoes the bill. 
So all the constitutional prerogatives are protected.
    And as everybody has said, everything has to be on the 
table. That is of critical importance in order to achieve a 
positive outcome.
    In closing, our Nation's current fiscal path is 
irresponsible, immoral, and unsustainable. Our children and 
grandchildren will end up picking up the bill while at the same 
point in time we are reducing relative investments in their 
future at a time where they face increasing competition in an 
interconnected global economy. We are approaching a tipping 
point in American history. We are at a crossroads. We must 
choose the right path forward. We cannot allow America's future 
to be worse than its past.
    We must be the first republic to stand the test of time. We 
owe it to ourselves, our country, and our families to do no 
less. In fact, we have a patriotic, fiduciary, and stewardship 
obligation to do no less, and a special commission is the way 
to go.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks very much, Mr. Walker. That was 
great.
    We will do 7-minute rounds of questions.
    Chairman Greenspan, you said something at the outset of 
your opening statement that I want to invite you to develop a 
bit. ``For more than two centuries, we have been able to hold 
the level of U.S. Federal debt to well below our long-term 
capacity to borrow. But for the next decade or two, on some 
reasonable sets of assumptions, our borrowing cushion shrinks 
significantly, threatening to test our capacity to raise funds 
to finance unprecedented deficits.'' That is the end of the 
quote from you.
    You are obviously not just talking about the statutory debt 
limit. You are talking about our national capacity for 
borrowing. And I wanted to ask you to speak a little bit more 
about that, because obviously if we run up against that, it is 
as consequential--I suppose even more consequential--than 
extending the debt limit. Tell us more about what you mean.
    Mr. Greenspan. We do not know where our borrowing capacity 
is. We have never tested it, never thought about it, never 
thought it was relevant. When you begin to look now at the 
potential escalation of debt outstanding, not only in the 
standard current services projections of CBO or anybody else, 
because that is pretty much of a guess in the longer-term 
years, but what we do know is that the range of error that the 
number can hide is very large. And when you see the daily, 
weekly rise in the net debt to the public, the Federal debt to 
the public----
    Chairman Lieberman. Right.
    Mr. Greenspan [continuing]. It is on a wholly different 
track than any time we have ever imagined.
    The trouble is that we are going to learn where the ceiling 
is through long-term interest rates beginning to move higher, 
very significant pressures on, for example, the Treasury 
Department, in auctioning its Treasury notes and bills. At that 
point, we are already beyond the point where simple action will 
restore balance. Because we do not know where that actual 
borrowing capacity, it is essential that we take actions well 
in advance of anything that could occur which would disable the 
economy, because there is no way, as David Walker has been 
pointing out, to restore the budget balance unless we do very 
drastic things, and these are exceptionally difficult to 
implement in a democratic society.
    Chairman Lieberman. So the question of borrowing capacity 
and what the limits of America's borrowing capacity are, is not 
a question, if I am hearing you correctly, of when it is 
impossible for America to borrow in world markets. It is a 
question of when the interest we have to pay begins to rise so 
much that it will compromise our standard of living and so much 
more we value.
    Mr. Greenspan. If we ever get to that point, we will see it 
first in rising long-term interest rates----
    Chairman Lieberman. Right.
    Mr. Greenspan [continuing]. Because, clearly, the credit 
quality of any entity tends to be very evident on its ability 
to market long-term Treasury issues, or any long-term issue, 
and that when you see a particular entity in trouble, like the 
City of New York----
    Chairman Lieberman. Right.
    Mr. Greenspan [continuing]. What you saw first was they 
could not sell municipal bonds. Then they could not sell 
intermediate notes. And eventually, at the tail end of a 
process which led almost to the cliff of default, they could 
barely sell overnight issues. We are nowhere near there at the 
moment.
    Chairman Lieberman. Right.
    Mr. Greenspan. Indeed, we have time. This is not months or 
quarters. It is years. But once the process is underway, when 
you have a highly inflexible budget situation--the problems 
begin. When we came out of World War II, we knew what was going 
to happen to overall expenditures.
    Chairman Lieberman. Yes.
    Mr. Greenspan. We were not going to continue to spend 
militarily and spending came down very dramatically. We do not 
have that luxury anymore.
    Chairman Lieberman. Take a moment, if you will, and explain 
for people who are listening or watching on TV, if long-term 
interest rates that the United States has to pay to sustain a 
debt begin to rise, as they will once we reach our borrowing 
capacity, if we do not do anything about it, how is that felt 
by average families or businesses? What happens?
    Mr. Greenspan. It is felt across the board, Mr. Chairman. 
First of all, very simply, if you get a rise in long-term 
Treasury rates, mortgage rates will move right with them. And 
mortgages are an $11 trillion market at this stage.
    As rates go up, not only in the out years, which is not our 
biggest issue, but as they gravitate back towards the shorter 
end of the market, the debt servicing costs become a very 
critical issue. When your debt is low, it is a problem when 
rates go up, but not a big one. But when you have very low 
average debt service rates, as we do now, in the context of 
swinging over to a very large level of outstanding debt that 
must be serviced, every point of additional interest rate has a 
very large impact on total spending, which, of course, means on 
the deficit itself.
    Chairman Lieberman. Right.
    Mr. Greenspan. And the critical issue that economists worry 
about is the spiral that begins to occur as you begin to get 
ever-rising debt and debt service, and as interest rates rise 
as a consequence of that, the debt service becomes explosive 
and that goes directly into the budget deficit, which makes the 
deficit begin to rise uncontrollably.
    Chairman Lieberman. Higher, right, it is a vicious cycle. 
And just to try to close this round of questioning for myself, 
as long-term interest rates rise on our debt and mortgage rates 
rise, that obviously has an effect on the real estate sector of 
our economy, both residential and commercial. I presume it also 
has an effect on the capacity of businesses to borrow to 
sustain themselves, and that, in turn, would have an effect on 
employment, which is to say that it would lead to more 
unemployment.
    Mr. Greenspan. Yes, Mr. Chairman. And we could go over item 
after item----
    Chairman Lieberman. Yes.
    Mr. Greenspan [continuing]. In which it would affect it. It 
also would affect equity prices, which are not a small issue in 
an economy such as ours. So I would be very fearful that the 
ability of the business sector to borrow and invest is reduced, 
but also remember that as the government takes an ever-
increasing share of our scarce savings----
    Chairman Lieberman. Right.
    Mr. Greenspan [continuing]. There is less of it available 
for the rest of the economy, the market-based economy. And 
since government has the prior lien, so to speak, on the 
Nation's savings, the more it draws off, the less there is 
available in the mortgage market, in housing, for investment, 
physical investment, and our capacity to produce. So there are 
so many avenues in which this process, which we have never 
actually had to observe----
    Chairman Lieberman. Right.
    Mr. Greenspan [continuing]. There are so many avenues that 
this carries that its devastation in eroding the economy over 
the longer run is a frightening expectation.
    Chairman Lieberman. Yes. Well, I thank you. My time is up. 
You see, I think it is very important for us to try to go down 
that road, and even though it is unprecedented, to begin to 
think about what the effects would be on every American, every 
family, every business, and our government, because as we 
confront what you obviously correctly describe as the very 
difficult political decisions we have to make to turn this 
around and what we will face if we do not do anything is, as 
you said, devastating compared to the difficulty of the 
challenges we are going to face to try to avoid that. I thank 
you.
    Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Walker, I cannot help but observe the irony that we are 
having this debate about what to do with the unsustainable debt 
load of this country at a time that we are debating on the 
Senate floor a huge health care bill that is, in essence, 
creating a new entitlement program that has enormous 
consequences for our future budgets, and that the Chief Actuary 
for the Center for Medicare and Medicaid Services has estimated 
will actually drive national health care spending up, not down. 
And Chairman Greenspan mentioned in his opening remarks just 
how important health care spending is to this whole debate.
    I know that the Peterson Foundation commissioned the Lewin 
Group to look at the impact of the Senate bill on long-term 
costs for the government. Could you comment on what the 
analysis found and also give us your own views on what we are 
doing on the Senate floor even as we speak?
    Mr. Walker. Thank you, Senator Collins. It is somewhat 
ironic. Let me just note that the Lewin Group is owned by 
United Health Care, but they are an independent operation. They 
are not controlled by United Health Care with regard to what 
they do. The people that are there are former CBO people and 
they do great work. Let me also note that their findings are 
their findings, not the Peterson Foundation's.
    But generally, we have found that the Peterson Foundation 
believes that fiscally responsible health care reform should 
meet four tests. Number one, it should pay for itself over 10 
years.
    Number two, it should not add to deficits beyond 10 years.
    Number three, it should result in a significant reduction 
in the tens of trillions of dollars in unfunded obligations we 
already have. Medicare alone is underfunded $38 trillion and 
growing.
    And number four, it should result in total health care 
costs as a percentage of GDP that is less after the reform than 
before the reform. In other words, bend total health care cost 
curve down, not up.
    None of the bills meet that. None of them come close on 
number three and number four. Some of them meet it on number 
one and number two, but then the question is will the 
assumptions that they rely upon with regard to cranking down on 
provider reimbursements and other things actually be realized, 
because the track record in the past is not very good in that 
regard.
    So I think we need comprehensive health care reform. But 
frankly, the bill that is being talked about now is a coverage 
bill, and the only reason that people are talking about cost is 
to pay for coverage. The one thing that could bankrupt America 
is health care cost and we are not doing enough to really, 
truly be able to reduce health care costs as well as the rate 
of increase. That is where we need to keep our eye on the ball, 
and so far, people are not doing that.
    Senator Collins. Thank you. I could not agree more with 
what you have just said.
    Chairman Greenspan, you headed a very successful commission 
in 1983 to deal with a looming crisis in the Social Security 
system. Reflecting back on that experience, could you give us 
any advice as we look at the commission model, since you 
chaired a successful model for constraining the costs of a 
major entitlement program?
    Mr. Greenspan. Certain things occurred during that 
commission that were really quite different from previous 
commissions which ended up with a very thick report gathering 
dust on everybody's shelf. Its recommendations were implemented 
virtually in full. And the reason was that we did several 
things.
    First of all, it was a commission that was created by 
President Ronald Reagan with Speaker Tip O'Neill's agreement, 
and the commission itself worked for quite a long period of 
time, but as part of the process, we kept the political system 
wholly informed as to what we were doing, so that I would 
report to President Reagan and Jim Baker, who was operating as 
the key staff person in that regard, and Bob Ball, who was a 
former Social Security Administrator under Lyndon Johnson, 
reported to Speaker O'Neill. And he and I, Ball and I, worked 
very closely together.
    So, as the various different proposals went forward, the 
senior leadership of the Congress and the Administration were 
wholly informed so that they could absorb it, react to it, and 
feed it back to the commission so that we did not end up with a 
report coming out at the end that was a ``take it or leave it'' 
type of report with 20 different issues that nobody could think 
about in a coherent manner. And what you avoided from that 
process were particular Congressmen and Senators taking quick 
positions with respect to various aspects of the report without 
having had time to really think them through. So that process 
kept everyone engaged.
    Then finally, when the agreement was complete and we all 
agreed that it was non-amendable, because it was a very tightly 
argued commission report, Bob Ball and I went up to the Hill 
and, as the Republican member, I would answer the Republican 
questions and he would answer the Democratic questions, as we 
held to a unified position, saying, you take it or you leave 
it. We will try to explain it as best we can. But if you try to 
amend it, it will not work. And it turned out to be a 
reasonably sensible set of recommendations which was 
overwhelmingly accepted.
    Now, the existing Fiscal Task Force recommendations all 
have some of those qualities right off the bat. In fact, having 
Senators and Congressmen as well as members of the 
Administration on that task force solves the political problem 
and provides continuous updating, which is essential.
    I do not want to comment because I do not really know as 
much as I need to know about the existing structure of what can 
happen in this context. There are many commonalities and there 
are many differences, though.
    Senator Collins. Thank you.
    Chairman Lieberman. Thanks, Senator Collins.
    Senator Voinovich, if you would indulge Senator Burris, he 
has got to go over and preside. He has asked for the 
opportunity to ask one question before he goes.
    Senator Voinovich. That is OK, but Senator Carper has an 
appointment, too, and only has one question.
    Chairman Lieberman. OK. Go ahead, Senator Burris.
    Senator Burris. Thank you, Senator Voinovich. Thank you, 
Mr. Chairman, mine will be very short.
    I am asking for a personal opinion of these two 
distinguished American citizens. I am just concerned about the 
commission that would be created and whether or not we should 
do something about campaign finance reform in reference to the 
political process because I do not see us being able to get any 
control in the financing of programs in the Federal Government 
unless individuals who have to run for these offices are not 
beholden to special interests which drive up the costs of 
government because they want their program to be in place. And 
I just wondered if you all had given any thought in the 
commission as to whether or not campaign finance reform should 
be a part of this.
    Mr. Greenspan. Do you want to take a shot at it or do you 
want me to?
    Mr. Walker. Do you want to go first, Mr. Greenspan?
    Mr. Greenspan. Not particularly.
    Mr. Walker. All right. I will start. First, I think the 
Fiscal Future Commission, with everything on the table, which 
would mean statutory budget controls, Social Security, 
Medicare, Medicaid, other spending, tax reform, that is broad 
enough. I think campaign finance would be probably beyond the 
scope of this.
    I will say this. We need campaign finance reform. There is 
no question about that.
    Senator Burris. Well, if you do not get campaign finance 
reform, we are not going to be able to do anything about the 
deficit and the debt because politicians have to run for 
office. They have got to raise money. The only way to raise 
money is to make commitments to special interests, and special 
interests then drive this whole country.
    Mr. Walker. Quick comment, Senator. I have got a book 
coming out in January called ``Come Back, America.'' It talks 
about policy, operational, and political reforms that this 
country needs, including campaign finance.
    Senator Burris. Mr. Greenspan.
    Mr. Greenspan. We have a sitting House of Representatives 
and a sitting Senate. Irrespective of how they came to office, 
there are some very good people in both bodies and very 
thoughtful people on a lot of the committees. So I agree with 
David Walker that, clearly, campaign finance reform is a 
critical issue. It has to be resolved. But I do not think it 
needs to be resolved prior to coming to grips with this issue.
    Senator Burris. Or part of.
    Mr. Greenspan. They are separable issues, really, as far as 
I can see.
    Senator Burris. Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Burris. Senator Carper.
    Senator Carper. I hadn't planned to go into this point, but 
I want to start off by saying a word or two on the health care 
reform and the implications that it has for long-term deficit 
reduction.
    I serve now on the Finance Committee and have had an 
opportunity to work this year on the issue, and I have said 
countless times--and so has Senator Conrad, who was here 
earlier--if we do not rein in the growth of health care costs 
as we go through this process, we may extend coverage to people 
who do not have it, but we will not be able to sustain that 
extension of coverage for very long.
    A lot of the press coverage on what we have produced 
focuses on issues like death panels and abortions and we are 
going to cover all of the illegal aliens and stuff like that. 
But there are actually a number of reforms. I just want to take 
a minute just to mention some of what I think are the most 
important things that are part of the bill.
    We are trying to replicate what works. One of the things 
that works in delivering health care, better results, less 
money, is health care that is provided by the Cleveland Clinic, 
Mayo Clinic, Geisinger, Intermountain Health, and Kaiser 
Permanente. They get away from fee-for-service and we need to 
move away from fee-for-service. They focus on prevention and 
wellness. They focus on primary care. All the people that they 
care for have electronic health records. They coordinate care 
in order to address chronic diseases. There are a whole lot of 
smart things that they are doing and we are trying to take that 
health care delivery system and infuse it into Medicare and to 
Medicaid and to really any other forms of health care delivery 
in our country.
    The other thing that we are trying to do is to create large 
purchasing pools. We participate in a large purchasing pool, 
the Federal Employee Health Benefit Plan, eight million people 
strong. We not only get cheap health insurance, but we get 
reasonably priced health insurance because a whole lot of 
health insurance companies want to compete for our business. It 
helps drive down the cost of the health care that we buy. Our 
administrative costs are 3 percent of premium dollars, much 
lower than what most other people pay for individual coverage 
or small business coverage.
    And what we are trying to do is to allow for the creation 
of large purchasing pools in every State, and if States have 
too small a population to have a large purchasing pool, they 
create regional purchasing pools across State lines. If we 
create regional purchasing pools, insurance could be sold 
across State lines to increase competition and the availability 
of choices.
    Those things very rarely get discussed in the media, but 
what we are trying to do is to replicate what works, and one of 
the health economists who has followed this very closely has 
said, if you look at all the provisions that are actually in 
the bill bumping up the service, restraining the growth of 
health care costs, he said, you are really throwing everything 
up against the wall and we will see what sticks. And my guess 
is that some of what we are doing will stick and some of it 
will not.
    But that is not my question. I just wanted to mention that. 
Here is what I want to say. It is the same question I asked 
Senator Conrad. The role of who is going to serve on this 
commission. I am sure Senator Lieberman and Senator Collins 
remember when we had Lee Hamilton here, who was good enough to 
co-chair the 9/11 Commission, and I asked him, how come you 
guys were able to get so much done? Virtually everything they 
recommended, we did. And for the most part, I think everybody 
on that commission--nobody was in the Congress. They worked 
very hard.
    And I said to Lee Hamilton, why were you so successful in 
presenting to us all these recommendations which we ultimately 
subscribed to and adopted in toto, and he said it was we had 
plenty of time, we had plenty of time to work with one another, 
we got to know each other, and the vice chair was the former 
governor of New Jersey, Tom Kean. And he said, Tom Kean and I 
developed a sense of trust and confidence in one another and, 
he said that spirit of trust infused the entire commission and 
it led us to a very successful effort and enabled us to speak 
with one voice, not unlike what happened in the commission that 
Chairman Greenspan led.
    So, a question. In terms of looking for other people to 
serve on the commission beyond members of the House and Senate 
and one or two people named by the Administration, give us a 
word or two on the profile. The idea of people like Bob Dole or 
Tom Daschle or George Miller, folks like that, people who have 
served--maybe people who have chaired the Budget Committee in 
the past who have a whole lot of knowledge, and a lot of trust 
and confidence, and understand the politics as well as the 
policies, your thoughts, please.
    And I again want to thank George Voinovich for yielding. 
Thank you, George.
    Mr. Greenspan. I think it is less important who the 
individual members are than the process of the deliberations 
and how it ultimately is constructed into a report and 
eventually into legislation.
    There are certain critical things which my experience 
suggests have to be done: Specifically you cannot drop a whole 
report on everyone's desk, after secretive deliberative, 
discussions by some private group. It will go nowhere. And the 
reason, is that when you have a commission, especially for 
controversial issues, the ideas and notions of change have to 
be absorbed gradually by the Congress. If you force them to 
react immediately, they will take positions which they may be 
sorry about, but they will not be able to reverse, having taken 
a commitment, it ends the whole deliberative process.
    So I would say it is less important who is on the committee 
than how it functions.
    Senator Carper. All right. Thank you. Mr. Walker.
    Mr. Walker. Senator, in my view, without mentioning any 
names, they need to be knowledgeable, respected, credible, and 
committed to making it work, to making best efforts to come up 
with recommendations that actually will be acted on and 
approved. And last, they have to be willing to dedicate the 
time.
    One of the concerns that I have is what you said before. I 
think for this commission to be successful, it has to do two 
things. It has to educate and engage the American people, 
representative groups of the American people beyond the 
beltway. That is going to take time. And it has to do things 
with elected officials and others and key stakeholders, as 
well. And so you have to think about can they dedicate the 
time.
    The last thing is, keep in mind, we need nonpartisan 
solutions. A plurality of Americans consider themselves to be 
political Independents today. The simple truth is--and I have 
been to 46 States in the last 2\1/2\ years, I am going to the 
last four States in the next 6 months--the simple fact of the 
matter is, if you have a hard ``D'' or ``R'' on your sleeve, 
you are going to be discounted dramatically by the American 
people, no matter who you are and how good you are and what 
your intentions are. That is reality in America today.
    Chairman Lieberman. That is very nice of you to say. 
[Laughter.]
    Mr. Walker. I was going to ask the Chairman, who is going 
to answer the Independents' questions?
    Chairman Lieberman. Well, you did it. Thank you. 
[Laughter.]
    Senator Carper. Again, thank you for those responses, and 
Senator Voinovich, thank you so much for your kindness and for 
yielding. Thank you.
    Chairman Lieberman. Thanks, Senator Carper. Senator 
Voinovich
    Senator Voinovich. Mr. Greenspan, you have talked about 
1983 and the unusual interpersonal relationships between the 
President and the Speaker of the House and the fact that you 
kept people informed as you moved along and it worked out. The 
question I have is, compare that period of time--now, you have 
done it in your testimony, but really, compare that time in 
terms of the urgency of the situation, and I would like the 
same comment from Mr. Walker.
    In other words, there are some people who say that we do 
not have an urgency today. We can kick the can down the road. 
We do not really have a crisis that needs to be met. I would 
like the two of you to comment on that.
    And the second question is, what do you think it will take 
to convince the American people, and probably just as 
important, the international community, that we are getting 
serious about dealing with this problem?
    Mr. Greenspan. Well, first, let me say that the first act 
the 1983 commission implemented was to recognize that Medicare, 
which was part of our mandate, was much too complex to handle, 
and besides, we had a quarter century before the baby boomers 
retired and we would run into trouble.
    All of the facts that confront us now were available in 
1983. This crisis is to a very large extent a demographic 
crisis, where we are doubling the number of retirees. We are 
essentially altering the structure of our labor force, because 
remember, it is not only the question of the baby boomers 
retiring and their impact on the retirement programs, it is the 
fact that we are losing very productive people and a very large 
cohort of our population is going from work to retirement, and 
we knew that 25 years ago. We could see it coming and we knew 
the implications, but always it looked too daunting to endeavor 
to come to grips with it.
    Social Security is a defined benefit program which was 
reasonably resolvable once Claude Pepper, who was a member of 
that commission, said it was inconceivable that we would use 
general revenues to solve the problem that seemed to appear 
fairly quickly in the trust funds.
    Once we had the arithmetic of the Social Security program, 
I remember Senator Patrick Moynihan, who I miss considerably, 
said, everyone can have their own opinions about policy, but 
there is only one law of numbers and one rule of arithmetic, 
and to solve this problem--meaning the problem back then--we 
needed either to raise payroll taxes or lower benefits. There 
was no third alternative. If we could get to this problem as 
succinctly defined as Senator Moynihan defined it, I think we 
are a good way down the road.
    On the second issue--how will the foreigners know when we 
are serious? When the American people know we are serious. It 
is the same evidence and basically they are watching this very 
closely. And indeed, if it were not for the fact that our debt 
is becoming increasingly held abroad for reasons other than the 
quality of our debt. In the case of China, for example, they 
are trying to maintain a competitive position by keeping their 
exchange rate down, and the only way they can do it is to buy 
U.S. dollar debt. It does not help all that much if you are 
exporting to the United States to buy Euros or other 
currencies. They are building up dollar balances not because 
they want to invest in the United States, but because it is the 
only means by which they can keep their exchange rate at a 
level that keeps their labor force employed.
    At some point, that has to stop, and it will. It will stop 
because the markets will not continue to function in the manner 
in which they are able to do that.
    Mr. Walker. Senator Voinovich, first, I think the Greenspan 
Commission deserves a tremendous amount of credit, especially 
Chairman Greenspan and Bob Ball for the leadership that 
resulted in the reforms in 1983. But I think we are in a very 
different situation today.
    In 1983, the checks were not going to go out on time. 
Within weeks, tens of millions of American's were not going to 
get their Social Security check. There was no option other than 
to succeed. That would have obviously been a politically 
unacceptable outcome.
    That is not the situation today, but let us explain what is 
the situation today. First, the trust funds are an accounting 
device. They do not mean the same thing as Webster's 
Dictionary. You cannot trust them. They are not funded. There 
is no fiduciary responsibility, all right. If they were a trust 
fund in the private sector--and I used to be Assistant 
Secretary of Labor for the Employee Retirement Income Security 
Act (ERISA)--people would be in jail. There would be all kinds 
of fiduciary breaches, prohibited transactions, whatever.
    So let us talk about the reality. The reality is, we are 
negative cash flow in the Hospital Insurance Trust Fund. We are 
negative cash flow in the Disability Insurance Trust Fund for 
perpetuity, all right, without reforms. We are negative cash 
flow in the Retirement and Survivors Income Trust Fund at least 
for 2 more years. The Medicare program Part A will not be able 
to pay bills within 10 years. The Social Security Trust Fund 
does not go dry for a while, but again, what are we doing? We 
have to end up borrowing from the public, mainly from foreign 
lenders, in order to deal with the negative cash flow 
situation.
    Within 12 years, according to GAO, which I headed for 10 
years--within 12 years, without an increase in interest rates, 
and Chairman Greenspan has talked about the risk there--without 
an increase in interest rates, the single largest line item in 
the Federal budget will be interest on the Federal debt--not 
defense, not Medicare, not Medicaid, not Social Security. And 
what do we get for that? As we say in the South, shineola. 
Nothing. Now, that is without an increase in interest rates, 
and these numbers are getting worse every second of every 
minute of every day.
    So what does it take for people to understand that we are 
approaching an abyss? Remember Harry and Louise for health 
care? We face Thelma and Louise. We are headed for a fiscal 
cliff and we need to change course before we go over it. It is 
as simple as that.
    Senator Voinovich. Thank you.
    Chairman Lieberman. Thanks, Senator Voinovich. Senator 
McCain.

              OPENING STATEMENT OF SENATOR MCCAIN

    Senator McCain. Well, thank you, Mr. Walker. You have given 
me some great lines. [Laughter.]
    I will not give you any credit, either. [Laughter.]
    I am entertained, too, when I see these advocacies for, we 
are going to stop all this spending. We are going to really 
knuckle down here. Two days ago, we passed a bill, six 
appropriations bills, three of them never considered on the 
floor of the Senate so they could be amended, a conference 
report with a 14 percent increase in spending, and they all 
voted for it, or the majority of them voted for it, loaded down 
with pork-barrel projects--$2.9 million to study performance of 
surgery in outer space. Trekkies are happy all over America. So 
you might as well laugh about it.
    But, we are going to have this commission, but yet we can 
vote at these times for appropriations bill that have a 14 
percent increase in spending. Meanwhile, the consumer price 
index (CPI) is minus 1.3 percent. Does anybody have any shame, 
I wonder? And now we have a bill on the floor of the Senate 
that I am going to go and debate today that has $2.5 billion to 
buy C-17s which everybody knows we neither need nor want--$2.5 
billion.
    Let me just ask you a question really quickly, and I know 
we have not got much time. How much difference does this 
earmarking--by the way, in that last bill, it was $4.3 billion 
worth of earmarks and pork barrel projects. I will not comment 
on the money that was being spent on irritable bowel syndrome. 
But you were here. You saw it. And you saw it grow out of 
control. Everybody says, well, it is sort of the standard way 
we do business. It is not the standard way we do business. We 
did not used to have these earmarks and pork barrel spending. 
So what is your view, Mr. Walker.
    Mr. Walker. Senator, several things. One, in a typical 
year, over time, earmarks are about 1 to 2 percent of spending.
    Senator McCain. So, therefore, they do not matter?
    Mr. Walker. No, they do. That is a lot of money. One to 2 
percent of Federal spending is a lot of money. They do matter. 
I personally think that we need reforms there. There is no 
question about it.
    The other thing is a lot of these earmarks do not have a 
Federal purpose and a number of the earmarks avoid competitive 
bidding. So there are a lot of reasons why they are a problem.
    I think there is more than a little bit of--I could use a 
lot of words, I will say irony--there is more than a little bit 
of irony that people are now wanting to try to get tough when 
last year, discretionary spending went up 8.3 percent, the 
Congress's budget went up 10 percent, this year you have 
already talked about discretionary spending is going up over 10 
percent, we have zero inflation over that period of time, and 
now we are going to get tough. It is one thing to spend money 
on the stimulus or financial rescue plans or whatever if they 
are properly designed, but this is the base of government. This 
is government that will be here for years and years.
    I think we not only need a Fiscal Future Commission, which 
is what this hearing is about, I think we need a rebaselining 
commission. I think we need a separate commission, not 
comprised of elected officials, but of people formerly from the 
private sector or government who have transformational success 
records to relook at the base of government on the spending and 
the tax side and to basically start repositioning things, 
because you cannot sustain----
    Senator McCain. Let me ask you three quick questions. One, 
do you see any of this in this health care bill that really 
means significant cost savings?
    Mr. Walker. Well, I think there are several things in the 
health care bill that are laudable. One, pilots. There are a 
number of pilots, and if they prove to be successful, then the 
Secretary of Health and Human Services (HHS)----
    Senator McCain. So you have seen some?
    Mr. Walker. Second--but let me close up----
    Senator McCain. Let me get the second question for you and 
Mr. Greenspan. Do you believe that the returned or unused 
Targeted Asset Relief Program (TARP) funds and the unobligated 
stimulus funds should be spent for further economic stimulus or 
should be returned to the Treasury?
    Mr. Greenspan. There are often appropriated funds which do 
not get spent and they automatically return to the Treasury. 
There is no distinction----
    Senator McCain. Well, as you know, there is a proposal to 
use the unused TARP funds.
    Mr. Greenspan. I know.
    Senator McCain. Do you support that?
    Mr. Greenspan. No, I do not.
    Mr. Walker. I agree with the Mr. Greenspan.
    Senator McCain. This is my final question, and you probably 
do not have an answer to it, but maybe you can help us out a 
little bit. In 1970, foreign investors held 5 percent of our 
debt. Now, it is over 50 percent. We have deficits, according 
to Mr. Walker and Alan Greenspan, of $38 trillion in Medicare, 
and I have forgotten the number in Social Security----
    Mr. Walker. It is a little over $7 trillion.
    Senator McCain [continuing]. $7 trillion, a $12 trillion 
deficit, and, of course, $1.5 trillion this year. Given the 
path we are on, in other words, let us say we do not really 
change anything, at what point, Mr. Greenspan, do we have a 
severe fiscal crisis which requires us to do what we did in the 
early 1980s, only in spades, debase the currency, inflation, 
etc.? And I know that is a very difficult question, but I think 
Americans really deserve to know when we are going to hit a 
wall here or at what point this is--we all know it is 
unsustainable, but at what point could we face a severe fiscal 
meltdown in this country?
    Mr. Greenspan. Well, in one sense, it almost goes back to 
the very first question you raised today, namely the issue of 
spending seeming to get out of control. In my experiences, 
spending is contagious. I remember years ago there was a 
Congressman, H.R. Gross, from Iowa who used to get up and say, 
where is the money coming from?
    Now, we also at that time had the, it seems sort of quaint, 
view that government finances should be like household 
finances. And my recollection of the period was such that I 
remember President Eisenhower apologizing to the American 
people for what would now be considered to be a minuscule 
deficit; indeed, it would not pay for the earmarks. And the 
reason he was apologizing is that the culture was that you did 
restrain. There is no way that I can conceive of that if you 
have huge amounts of monies being appropriated for anything 
that people do not want to get into the act with a little bit 
here and a little bit there, because rounding, you never see 
it.
    And I think that we have to get back to a general view that 
this is not a bottomless pit. We have physical resources which 
cannot do all of the things that everyone wants to do. And 
unless we can get some means to go back to a view where it is 
not the most important thing when you are in Congress to find 
ways to spend money to help your constituents--I think that is 
critically important, but remember, we have had over 200 years 
of Congresses in which that did not happen.
    I think this has become an extraordinary country, by far 
the most productive in the world. We have had a remarkable 
democracy. The system works. There is nothing in it which says 
we have to be profligate in spending and creating benefits for 
constituents. They are not really asking for it.
    Senator McCain. And how much time do we have?
    Mr. Greenspan. I would say the time frame collapses very 
quickly if we do nothing. It is not going to be the next 2 
years. There is no credible scenario. It is out there somewhere 
in the future. Somebody who says they know exactly when it is 
merely indicates that they do not have a clue what is going on.
    The critical triggering point will be in the bond market, 
and we do not yet see that. But when we begin to see that, that 
is, in fact, the canary in the coal mine.
    Senator McCain. And could I just say for the record, what 
would we see in the bond market that would sound this alarm?
    Mr. Greenspan. As I indicated earlier, it would show up 
largely in the longer end of the market, meaning 30-year 
Treasuries and 10-year notes. Yields would start to move up 
relative to, say, one-year Treasury bills so what we call the 
yield curve would tilt up very significantly. That is the first 
sign that something is emerging, similar to, as I said before, 
what happened in the City of New York.
    Mr. Walker. You mentioned inflation, Senator. This is very 
important. You cannot inflate your way out of this problem. You 
can inflate your way out of the burden associated with the $12 
trillion in current debt. But the problem is not that. The 
problem is the $38 trillion in unfunded obligations for 
Medicare, the $7-plus trillion for Social Security, that grow 
faster than inflation, and in the case of health care, faster 
than the economy when the economy grows. You have to make tough 
choices on health care costs, on social insurance reforms, on 
spending constraints, on tax reforms. Tough choices are 
inevitable.
    Senator McCain. Did you see any of those choices made while 
you were here?
    Mr. Walker. No. That is why we need a special process. They 
will not be made, in my opinion, Senator, in the regular order 
because the regular order is dysfunctional.
    Mr. Greenspan. I am just saying, unless you alter the day-
by-day process of governing with our profligate fiscal 
propensities there is not a limit to spending. There is no 
limit because borrowing money to pay for something seems like a 
free lunch. And in a certain sense, it tends to be. However, 
there is obviously the physical world out there which is 
responding to all of this.
    And what I like to do often when you talk about budgets is 
say, forget the finance. Think in real terms. How much in the 
way of resources do we have to start with and how do we 
allocate them amongst demands for those resources which exceed 
the total? Every single thing that appears before you are 
desirable things. In other words, you do not pass frivolous 
bills. What you pass is something for which there is a need. 
The trouble is, if you add up all the needs, all of which are 
exceptional needs, you have a physical requirement that is much 
larger than our capacity to produce it. So there has got to be 
some forum in which the total demand is constrained to the 
total available supply.
    One of the points I made in my prepared remarks is that 
this notion that we can somehow just expand the economy at will 
or increase productivity is false. The history of productivity 
in this country, has been on the cutting edge of technology. 
That means you cannot go faster than we can think. And indeed, 
what we have seen since the data became realistically usable in 
1870 is that there is a very narrow constraint on innovation 
turning into productivity and growth. We cannot do it any 
faster, which means we have no choice but to find a way to 
bring down the level of demand of otherwise exceptionally 
desirable needs of the society. We just do not have the 
resources to do that, and if we try to do it, the system breaks 
down.
    Senator McCain. So in the words of Chairman Mao, it is 
always darkest before it is totally black? [Laughter.]
    I thank you, Mr. Chairman.
    Chairman Lieberman. Even I laughed at that, even though I 
have heard you deliver that line 100 times. [Laughter.]
    It is very apt. If you have time for a few more questions--
--
    Mr. Greenspan. Sure.
    Chairman Lieberman [continuing]. Because, actually, if 
Senator McCain can stay, you make a fascinating point in here, 
in your opening statement, and you just touched on a part of 
it, where you essentially said we cannot grow ourselves out of 
this problem, which is to say increase the size of the overall 
economic plan. You just mentioned that productivity has 
certainly historic limits. But you mentioned something else 
fascinating. Short of a significant increase in immigration, 
the size of our labor force in 2030 is fixed in a relatively 
narrow range.
    So am I hearing you correctly? Forget all the politics of 
this. From an economic point of view, if we had a significant 
increase in America in, obviously, legal immigration, that 
would be one way to grow the economic pie.
    Mr. Greenspan. It would be, but I would not have 
immigration policy focused on the economic need to finance a 
great number of things. I mean, I am very strongly supportive 
of H1-B expansion.
    Chairman Lieberman. Right.
    Mr. Greenspan. I have also argued before Senator Schumer's 
subcommittee that there is a very unusual pattern of our 
immigration in which we have a very large number of immigrants 
who are high school or less well educated, a significant part 
of whom are illegal, and then we have a remarkably large 
number, relative to our domestic educational system, of Ph.D.'s 
and better who have come to this country and contributed 
immensely----
    Chairman Lieberman. Right.
    Mr. Greenspan [continuing]. To our economic success. I 
argued that both groups were actually very importantly 
affecting the economy in a positive way. If we try to send all 
our illegals home, which one would think that is what we ought 
to do, obviously, with respect to upholding our laws, speaking 
as an economist, I will tell you, we will have a really serious 
problem. There are 12 million of them.
    Chairman Lieberman. It is very significant. I am not 
suggesting that we increase illegal immigration as a way to 
deal with the debt, but it does have those positive economic 
implications.
    Mr. Greenspan. Oh, it certainly does, Mr. Chairman.
    Chairman Lieberman. Let me ask this final question of both 
of you, because we have talked a lot here about the horribles 
that would occur if we do not do anything, if we do not, for 
instance, set up a process such as we have talked about to 
begin to deal in an orderly way, to discipline ourselves with 
our national debt.
    Let me ask you both to just speculate a little bit on the 
other side of this. Let us assume that we do create a 
commission. The commission does make bipartisan recommendations 
to Congress for the methodical reduction of our national debt 
down to a much lower percentage of GDP, or however we measure 
it. What are some of the positive responses, both within the 
American economy and the global economy, if we are able to 
achieve that result? Chairman Greenspan?
    Mr. Greenspan. Well, we saw that when we were running 
surpluses a decade ago. Real long-term interest rates come 
down. The effectiveness of capital investment is enhanced. You 
have all of the reverse effects of rising real interest rates. 
And, in fact, the great irony is that one of the things that 
has created a huge difficulty for us was precisely that 
surplus, those surpluses, because they undermined pay-go----
    Chairman Lieberman. Yes.
    Mr. Greenspan [continuing]. That was such an important and 
actually quite effective program. So I want to say there are 
obviously downsides, but having budgets in balance creates a 
stability for the future which enables people to invest over 
the longer run. It is not an accident, for example, at the turn 
of the 20th Century, we were selling bonds at under 2 percent 
for 30-, 40-, and 50-year maturities, and that was a 
consequence of having a stable fiscal system. But it enabled 
our infrastructure to be filled with longer-term assets. And 
the longer the average age of assets in a society, other things 
equal, usually the more productive that society is.
    So whether or not we are talking about balanced budgets or 
whatever, fiscal stability and responsibility has very positive 
outcomes for a democratic society.
    Chairman Lieberman. And, Mr. Walker, I assume that what 
Chairman Greenspan has described also then feeds through the 
economy in very real and positive ways to individuals, to 
businesses, to families. I mean, it is likely to, within 
limits, stimulate more economic growth, less unemployment, etc.
    Mr. Walker. Correct. Simply stated, if we do the right 
thing, our future can be better than our past. If we do not do 
the right thing, our best years may be behind us. What is going 
on right now is that we are mortgaging the future of our 
children and grandchildren at record rates. At the same point 
in time, because most of the budget is on autopilot on 
mandatory spending, we are reducing relative investments in the 
future--basic research, critical infrastructure, other things--
at a time where they are going to face increasing competition 
in the world. That is not right.
    Last thing, on immigration, it is not just quantity, it is 
quality. We need to change our immigration policy to focus more 
on skills and knowledge. We cannot compete on wages. We do not 
want to compete on wages because our standard of living will go 
down. We have to compete based on skills, knowledge, 
productivity, innovation, quality, value added, and that means 
that we have to be more intelligent about our immigration 
policy and we need to rethink what the priorities ought to be 
as well as the numbers.
    Chairman Lieberman. Well said. Somebody around here 
suggested, and we have not actually acted on it, that, as you 
know, I forget the percentage, but somewhat close to half of 
Ph.D.'s, particularly in science, technology, mathematics, in 
U.S. universities are foreign born, foreign nationals, most of 
whom go home. Somebody around here said we ought to act on it. 
We ought to put a green card on their diploma, assuming that 
they pass all the other tests, security and all the rest, 
because it is in our interest to keep them here because they 
will contribute remarkably to economic growth.
    I thank you. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Just a couple of final questions. Chairman Greenspan, one 
measure that is looked at often is the percentage of Gross 
Domestic Product that our public debt is, and it is obviously 
going up. It is projected to exceed the level that it was at 
the height of World War II. But many of us wonder, what is the 
appropriate level? What do economists believe is a level of 
debt as measured by a percentage of GDP that is acceptable 
versus worrisome?
    Mr. Greenspan. Well, Senator, I thought we did reasonably 
well when the percentage of debt was 20, 30 percent of GDP. I 
would prefer lower than that, but we can tolerate that. The 
major problem is not so much the level of debt relative to GDP, 
but what is the sustainable deficit, and that is a more complex 
calculation. But I would argue that the lower the debt, the 
better off we are, because to the extent that the Federal 
Treasuries are drawing off the savings of the society, which 
are scarce, it leaves less savings for the private sector to 
invest in far more productive investments than generally is 
employed using the savings of the society through government 
functions.
    Senator Collins. Thank you.
    Mr. Walker, do you have anything to add on that measure?
    Mr. Walker. The comment that I would say is there are two 
debt-to-GDP ratios, one of which that economists tend to use, 
which is the public debt-to-GDP. The other is total debt-to-
GDP, which is what the debt ceiling limit is. We have got to 
keep in mind that the bonds that are in the ``trust funds,'' 
are backed by the full faith and credit of the U.S. Government. 
They are guaranteed as to principal and interest. They will not 
be defaulted on, in my view. And when you look on that basis, 
total debt-to-GDP right now is about 85 percent. By the end of 
next year, it will be 95 percent and headed up.
    We are the only ones that I know of that have these 
fictional trust funds. We did not have monies sitting in these 
trust funds back at the end of World War II at 122 percent. We 
were largely pay-as-you-go. So I think people ignore trillions 
of dollars worth of debt which is real. It may not be a current 
demand on the economy, a current crowding out effect, but we 
owe it and, therefore, I think we need to look at both debt 
held by the public and total debt and show both.
    Senator Collins. Thank you.
    Finally, Senator Conrad mentioned the importance of 
everything being on the table for the Fiscal Future Commission, 
and I agree with that approach as opposed to the more narrow 
approach recommended by some of our colleagues. On the other 
hand, the CBO has clearly warned us that to sustain the current 
projected spending levels would require a level of taxes never 
before seen in our country. I am interested in hearing both of 
your views on whether there is a limit to the level of taxation 
that can be imposed on our economy before it starts having very 
detrimental consequences. I will start with you, Mr. Chairman.
    Mr. Greenspan. Well, there is clearly a limit in the sense 
that as tax rates go up, the tax base begins to shrink. And 
clearly, at 100 percent taxation, you are not going to have any 
tax base to speak of. So that clearly, you cannot raise 
revenues indefinitely through raising rates. It is not easy to 
calculate where that is, and indeed, when you get to the point 
where the additional revenues are very small as rates go up, 
you have already probably gone too far.
    But it is very clear from the outlook that we have no 
choice but to work from both the spending side and the tax 
side. As much as I dislike the notion, I cannot visualize in 
any concrete way how we can bring down the level of spending to 
the capacity of our economy to function comfortably with it, 
and if we cannot do that, then clearly we have to go to the tax 
side. But again, we have to be very careful there, as well, 
because it is a different type of constraint. The constraint on 
the spending side is basically political. The constraint on the 
tax side is mainly, but not wholly, economic.
    Senator Collins. Thank you. Mr. Walker.
    Mr. Walker. Well, a few numbers. For the last 4 years, 
average Federal taxation has been about 18.3 percent of GDP. 
The highest that it has been in history, in recent times, at 
least, is about 20.6 percent of GDP. If we do not do anything, 
it is going to go up to 40 percent-plus of GDP by 2040 if we 
all of a sudden continue to do what we are doing now and then 
want to try to balance the budget in 2040. If we do not extend 
the Bush tax cuts, in other words, if they all expire, taxes 
will be 24 percent of GDP within the next 10 years or so and 
moving up.
    My view is that you can solve the problem for less than 24 
percent of GDP, that everything has to be on the table, that 
the problem is primarily a spending problem, but that you are 
going to have to have more revenues because there is a new 
four-letter word that people have to deal with. It is called 
math. The math does not come close to working. You cannot grow 
your way out. You cannot tax your way out. You cannot just cut 
your way out. You cannot inflate your way out. You have to do a 
number of things.
    We want to keep taxes as low as we can, but here is the 
key. The sooner we act, the lower they can be. So the miracle 
of compounding will work for us. As Albert Einstein said, the 
most powerful force on earth is not nuclear energy, it is the 
power of compounding. And when you are a saver, it works for 
you. When you are a debtor, it works against you. It also means 
that when you act sooner rather than later, the less draconian 
the changes have to be, the less the burdens have to be, the 
more transition time, the better ability to plan. So let us act 
sooner rather than later. Taxes are going up on a lot more 
people than those making $250,000 or more. Why? Math.
    Senator Collins. Thank you.
    Mr. Chairman, I want to thank you for an excellent hearing 
today and express my appreciation to our very distinguished 
witnesses. I have a feeling, if we do the model of the 
commission that had outside members, that we are looking at two 
people who could contribute enormously. So thank you very much, 
and I thank our witnesses.
    Chairman Lieberman. I agree with you, Senator Collins. This 
membership on the commission would be an appropriate punishment 
for your good behavior over the years and for your excellent 
testimony today. [Laughter.]
    I think we are really on a verge of beginning to try to do 
something about this. That is a long way from doing something, 
but I think we have a reasonable opportunity here, a reasonable 
chance to begin the process that we are talking about that both 
of you have supported this morning, and then the hard work 
begins, of course. And your voices this morning and for a long 
time really bring us closer to beginning to deal with the 
problems and then ultimately dealing with it. So I cannot thank 
you enough for the time that you have given us this morning and 
for the content of your comments to us. We appreciate it very 
much.
    We will keep the record of the hearing open for 10 days for 
any additional statements and questions, but with that, I wish 
you a good day.
    Mr. Greenspan. Thank you very much.
    Senator Lieberman. The hearing is adjourned.
    [Whereupon, at 12:35 p.m., the Committee was adjourned.]


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