[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]







                THE PRESIDENT'S FISCAL YEAR 2013 BUDGET

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

           HEARING HELD IN WASHINGTON, DC, FEBRUARY 15, 2012

                               __________

                           Serial No. 112-19

                               __________

           Printed for the use of the Committee on the Budget











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                        COMMITTEE ON THE BUDGET

                     PAUL RYAN, Wisconsin, Chairman
SCOTT GARRETT, New Jersey            CHRIS VAN HOLLEN, Maryland,
MICHAEL K. SIMPSON, Idaho              Ranking Minority Member
JOHN CAMPBELL, California            ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California              MARCY KAPTUR, Ohio
W. TODD AKIN, Missouri               LLOYD DOGGETT, Texas
TOM COLE, Oklahoma                   EARL BLUMENAUER, Oregon
TOM PRICE, Georgia                   BETTY McCOLLUM, Minnesota
TOM McCLINTOCK, California           JOHN A. YARMUTH, Kentucky
JASON CHAFFETZ, Utah                 BILL PASCRELL, Jr., New Jersey
MARLIN A. STUTZMAN, Indiana          MICHAEL M. HONDA, California
JAMES LANKFORD, Oklahoma             TIM RYAN, Ohio
DIANE BLACK, Tennessee               DEBBIE WASSERMAN SCHULTZ, Florida
REID J. RIBBLE, Wisconsin            GWEN MOORE, Wisconsin
BILL FLORES, Texas                   KATHY CASTOR, Florida
MICK MULVANEY, South Carolina        HEATH SHULER, North Carolina
TIM HUELSKAMP, Kansas                PAUL TONKO, New York
TODD C. YOUNG, Indiana               KAREN BASS, California
JUSTIN AMASH, Michigan
TODD ROKITA, Indiana
FRANK C. GUINTA, New Hampshire
ROB WOODALL, Georgia

                           Professional Staff

                     Austin Smythe, Staff Director
                Thomas S. Kahn, Minority Staff Director










                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, February 15, 2012................     1

    Hon. Paul Ryan, Chairman, Committee on the Budget............     1
        Prepared statement of....................................     3
    Hon. Chris Van Hollen, ranking minority member, Committee on 
      the Budget.................................................     4
        Prepared statement of....................................     6
    Jeffrey Zients, Acting Director and Deputy Director of 
      Management, Office of Management and Budget................     7
        Prepared statement of....................................     9

 
                THE PRESIDENT'S FISCAL YEAR 2013 BUDGET

                              ----------                              


                      WEDNESDAY, FEBRUARY 15, 2012

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in room 
210, Cannon House Office Building, Hon. Paul Ryan, [Chairman of 
the Committee] presiding.
    Present: Representatives Ryan, Garrett, Simpson, Calvert, 
Akin, Cole, Price, McClintock, Chaffetz, Stutzman, Lankford, 
Black, Ribble, Flores, Mulvaney, Huelskamp, Young, Amash, 
Rokita, Woodall, Van Hollen, Schwartz, Blumenauer, McCollum, 
Yarmuth, Pascrell, Honda, Ryan of Ohio, Wasserman Schultz, 
Castor, Tonko, Bass.
    Chairman Ryan. Committee will come to order. Welcome all to 
this important hearing, and Mr. Zients, I do not envy your task 
today. I want to welcome you. You are new to the job; you got 
thrown into the breach; you came late with respect to running 
OMB to preparing this budget, and you have got a very tough job 
ahead of you. With the departure of Jack Lew, you have got 
thrown in at the late moment.
    I want to tell you first, before I get into this, thank you 
for serving our country. You came from a successful private 
sector career back to government and we applaud that; so I just 
think that these things go without saying, but they bear 
repeating.
    The problem is you are in the position of defending a 
budget that, essentially, dodges the most difficult challenges 
our country faces. The New York Times reported that this budget 
is quote ``More a platform for the president's reelection 
campaign than a legislative proposal,'' end quote. After a 
careful review of this budget, it is very hard to disagree with 
that.
    The Associated Press accurately, in my view, quotes this 
budget as quote ``Takes a pass on reigning in government 
growth. Instead, it leaves the drivers of the debt, namely the 
unsustainable growth in entitlement programs largely unchecked. 
It takes a pass on real reform even though the looming 
bankruptcy of these programs threatens to end the guarantee of 
security that they provide for our nation's seniors, and it 
breaks the president's promise to cut the deficit in half by 
the end of his first term.'' As ABC News reported, this budget 
does not come close.
    We have heard a lot of excuses from this administration for 
why the president broke his promise, but what we have not heard 
is any semblance of accountability. To the best of my 
knowledge, no one in the White House has taken responsibility 
for this failure. Instead, we get a blame game that does not 
stand up to scrutiny. Jack Lew, your former boss, claimed that 
the reason the Senate Democrats have not passed a budget in 
over 1,000 days is because Republicans had threatened a 
filibuster. Look, this is simply false. We all know, as I am 
sure Mr. Lew knows, that budget resolutions cannot be 
filibustered. They can be passed with a simple majority vote; 
it is that the Senate Democrats chose not to do so.
    The real source of dysfunction in the Senate comes from 
members of the president's own party who have been unwilling 
for almost three years now to go on record in support of his 
budgets, or to pass budgets of their own.
    More to the point, it was not so long ago that the 
president's party held total control of the White House and 
both branches of government, during which time the agenda was 
enacted in near totality. He was able to pass into law massive 
spending and taxes, the creation of new, open-ended 
entitlements, a regulatory onslaught that is now hurting our 
economy and trillions of dollars in new debt. Even after all of 
this, the new House majority provided him with an opportunity 
to make good on his promise, and ``to put aside the chronic 
avoidance of tough decisions,'' to use the president's words, 
that he once used to lament.
    We were, and we remain eager to work with the president to 
stop spending money we do not have, to reform government 
programs that are not delivering on their promises, and to 
enact pro-growth policies that raise revenue by getting our 
economy growing again.
    Instead of working with us though, the president has 
demonized our ideas to stave and strengthen health and 
retirement security programs. He fought to keep his reckless 
spending spree growing, and he continues to insist on taking 
more money from hard-working Americans, not to reduce the 
deficit, but to fuel his ever higher spending increases. The 
president's ongoing refusal to advance serious solutions to our 
nation's fiscal challenges represents a stunning dereliction of 
duty.
    We are not going to give up hope. I remain committed to 
working with my colleagues on both sides of the aisle wherever 
common ground can be reached. Some of us have been doing that. 
There is growing bipartisan support for reforms that are 
needed, but this consensus cannot succeed as long as the 
president of the United States remains on the outside looking 
in, as he does today. It is my hope that this hearing can shed 
some light on why this is occurring.
    I have just got to say, we see a debt crisis coming. We 
know our government is making promises to people it simply 
cannot keep. It is time for us to be honest with Americans 
about these things. Both parties got us into this mess, but 
this is the fourth budget from this president with a trillion 
dollar deficit each year, obviously a breaking of that promise, 
but worse yet, no credible solution to deal with our debt, to 
deal with this great threat to today's economy, and tomorrow's 
future for our kids. Instead, we get the politics of envy and 
division. Instead, we get smoke and mirrors, accounting tricks, 
budget gimmicks.
    If we are going to save this country from a debt crisis, 
and give our kids a better future, we have to have leadership. 
I have to say, I am just very disappointed that we are not 
getting this from the president. With that, I look forward to 
questions, and I yield to the ranking member Mr. Van Hollen.
    [The prepared statement of Chairman Paul Ryan follows:]

            Prepared Statement of Hon. Paul Ryan, Chairman,
                        Committee on the Budget

    Welcome all, to this important hearing.
    I'd like to thank our witness today, Mr. Zients, for coming to us 
under difficult circumstances.
    With the departure of Mr. Lew from OMB just last month, we 
understand that you are testifying on short notice, and we recognize 
the difficulty of that.
    And unfortunately, your job is even more difficult than usual--you 
are in the position of having to defend a budget that essentially 
dodges the most difficult challenges our country faces.
    The New York Times has reported that this budget is, quote, ``more 
a platform for the president's re-election campaign than a legislative 
proposal.'' After a careful review, it's hard to disagree.
    The Associated Press has reported--accurately in my view--that this 
budget, quote, ``[takes] a pass on reining in government growth.''
    Instead, it leaves the drivers of our debt--namely, the 
unsustainable growth of entitlement spending--quote, ``largely 
unchecked.''
    It takes a pass on real reform, even though the looming bankruptcy 
of these programs threatens to end the guarantee of security they 
provide for our nation's seniors.
    And it breaks the President's promise to cut the deficit in half by 
the end of his term. As ABC News reported, this budget ``does not come 
close.''
    We've heard a lot of excuses from this administration for why the 
President broke his promise. But what we haven't heard is any semblance 
of accountability.
    To the best of my knowledge, no one in the White House has taken 
responsibility for this failure.
    Instead, we've gotten a blame game that doesn't stand up to 
scrutiny.
    Jack Lew, your former boss, claimed that the reason Senate 
Democrats haven't passed a budget in over 1,000 days is that the 
Republicans have threatened to filibuster.
    This is simply false. As Mr. Lew surely knows, budget resolutions 
cannot be filibustered. They can be passed with a simple majority.
    The real source of dysfunction in the Senate comes from members of 
the President's own party, who have been unwilling--for almost three 
years now--to go on record in support of his budgets, or to pass 
budgets of their own.
    More to the point, it wasn't so long ago that the President's party 
held total control of the White House and both branches of Congress--
during which time his agenda was enacted in near totality:
     massive new spending and taxes
     the creation of new, open-ended entitlements
     a regulatory onslaught that hurt the economy
     and trillions of dollars in new debt.
    Even after all this, the new House Majority provided him with an 
opportunity to make good on his promise--to put aside the ``chronic 
avoidance of tough decisions'' that he once lamented.
    We were--and we remain--eager to work with the President to stop 
spending money we don't have * * * to reform government programs that 
aren't delivering on their promises * * * and to enact pro-growth 
policies that raise revenue by getting our economy moving again.
    Yet, instead of working with us, the President has demonized our 
ideas to save and strengthen health and retirement security programs.
    He fought to keep his reckless spending spree going.
    And he continues to insist on taking more money from hardworking 
Americans--not to reduce the debt, but to fuel his ever-higher 
spending.
    The President's ongoing refusal to advance serious solutions to our 
nation's fiscal challenges represents a stunning dereliction of duty.
    But I haven't given up hope. I remain committed to working with my 
colleagues of both parties wherever common ground can be reached.
    There is a growing bipartisan consensus for the reforms that are 
needed. But this consensus cannot succeed as long as the President of 
the United States remains on the outside looking in.
    Unfortunately, that's where he stands today. And my hope is that 
this hearing can shed some light on why.
    Mr. Zients, we look forward to your testimony, but we do not envy 
your predicament. This unserious budget raises some very serious 
questions, and the American people deserve answers.
    With that, I yield to the Ranking Member, Mr. Van Hollen.

    Mr. Van Hollen. Well, thank you Mr. Chairman. Mr. Zients I 
want to add my word of welcome to that of the chairman. I think 
after your testimony in the Senate yesterday that you are 
already battle-tested. Welcome to the job and thank you for 
jumping into the breach, as the chairman said, and I believe 
you have gotten off to a very good start. Sometimes we are all 
guilty of selective quoting, I will just point out that the New 
York Times editorial was headlined ``A Responsible Budget;'' 
and this is a responsible budget that begins to turn the corner 
in terms of the deficits and is very important in terms of job 
creation.
    I think it is important to remind everybody that when the 
president took office he inherited the worst economy since the 
Great Depression. That is not an excuse; that is a fact. That 
is just a historical fact, and if we could put the chart up 
here you will see that the red was in the last administration 
where we were losing jobs rapidly. When the president was sworn 
in, the economy was contracting at a rate that we now know is 
8.9 percent of GDP; 800,000 jobs were lost in January 2009 at 
the time the president put his hand on the Bible and was sworn 
in.


    Where are we today? Well, with the passage of the Recovery 
Act, with the successful effort to save the auto industry and 
other measures that have been taken, we have added 3.7 million 
private sector jobs over the last two years and 257,000 just 
last month.
    We all recognize we still have a long way to go, and that 
too many Americans are still out of work, too many Americans 
are hurting economically, but we have turned the corner and we 
must build on this gradual economy, and we certainly should not 
go back to the same policies that got us into that mess in the 
first place.
    Now, the fastest and most effective way to reduce the 
deficit is to put Americans back to work, and in fact the 
Congressional Budget Office recently estimated that we could 
cut the deficit by one-third if our economy were at full 
employment. So how do we help nurture that recovery? We begin 
by passing the payroll tax cut extension, and it looks like we 
may have some good news on that front. We begin by making sure 
that the millions of Americans who are out of work and 
unemployed through no fault of their own continue to get some 
support, which not only helps their families, but helps the 
whole neighborhood and the economy around them. The president's 
jobs plan that he submitted back in September also includes a 
lot of other elements that are just sitting in this House of 
Representatives and have not moved. His plan includes $50 
billion for immediate infrastructure investment to help put 
people back to work rebuilding our roads, our bridges, helping 
expand broadband, and it also contains a long-term plan for 
infrastructure development.
    It stands in great contrast, I will say, to the 
infrastructure bill that we are taking up on the floor of the 
House this week which does not begin to do the job in which 
former Republican Congressman Ray LaHood, now Secretary of 
Transportation, called the worst transportation bill he has 
seen in 35 years of public service. That just does not get the 
job done.
    Now, as we nurture the recovery, we have to act now to 
reduce the deficit over the next decade in a steady and 
predictable way, and this budget does that. The budget exceeds 
the deficit reduction targets established by the Budget Control 
Act, it consistently lowers the deficit as a share of the 
economy until it gets to under 3 percent of GDP, and it 
stabilizes the debt as a percent of the economy. The president 
does this, not by arbitrarily slashing defense and domestic 
investments, as would happen under the sequester, but by taking 
a balanced approach; that leads me to the fundamental issue 
which is that the question is not whether to reduce the 
deficits, the question has been how do we reduce the deficit, 
and the president's approach is the balanced approach. It takes 
the kind of framework we saw from the bipartisan commission, 
the Simpson-Bowles, Rivlin-Domenici. It adopts the cuts that we 
made to discretionary spending in earlier months. It cuts 
another $600 billion in mandatory spending, but it also does 
something else. It does eliminate a lot of the special interest 
tax breaks. It does ask the very wealthiest Americans to go 
back to paying the same top rate that they were paying during 
the Clinton Administration, a time when the economy was 
booming, and that balance is what our Republican colleagues 
have objected to.
    This is a question of choices. If last year's Republican 
budget is any sign of where we will head this year, they take a 
lopsided approach further slashing investments in education, in 
science and research and infrastructure, which are critical 
drivers of the economy, and they do slash the social safety net 
in that they cut $700 billion from Medicaid that goes to help 
people like the vulnerable seniors in nursing homes, and they 
do ask seniors on Medicare to carry the entire risk of rising 
health care costs, and that is their choice, but that is not a 
balanced approach. I think what we see here in the president's 
budget is a responsible approach that takes that balanced 
approach to dealing with a very serious problem. With that, Mr. 
Chairman, I thank you for the opportunity.
    [The prepared statement of Chris Van Hollen follows:]

      Prepared Statement of Hon. Chris Van Hollen, Ranking Member,
                        Committee on the Budget

    Welcome, Director Zients. Thank you for being here today to talk 
with us about the President's budget request for 2013 and the tough 
choices the Administration made to protect and build upon the economic 
recovery, while putting in place a plan to steadily reduce the deficit 
over the next decade.
    When the President took office, he inherited the worst economic 
crisis since the Great Depression. The economy was in total freefall, 
contracting at a rate of 8.9 percent. We were losing over 800,000 jobs 
per month. Where are we today? With the passage of the Recovery Act, 
and the successful effort to save the auto industry, we've added 3.7 
million private sector jobs over the last two years and over 257,000 
just last month. We recognize that we still have a way to go and that 
too many Americans are still out of work and hurting--but we are 
turning the corner. We must build on this fragile recovery. We cannot 
go back to the policies that put us in this mess.
    The fastest and most effective way to reduce our deficit is to put 
Americans back to work--in fact, the Congressional Budget Office 
recently estimated that we would cut the deficit by one-third if our 
economy were at full employment. How do we do it? We can begin by 
giving a boost to the economic recovery by passing a payroll tax cut 
extension and continuing to provide unemployment insurance to the 
millions who are out of work through no fault of their own.
    The President's budget also includes other key elements of the 
President's American Jobs Act, which has been sitting before Congress 
since September. These elements include tax cuts for small businesses 
and critical new investments. The budget provides $50 billion for 
immediate infrastructure funding and $10 billion for an infrastructure 
bank--this will allow us to put people back to work rebuilding and 
modernizing our schools, roads, and bridges--and it also contains a 
long-term plan for infrastructure development. This is a different 
approach from the Republican transportation bill in the House, which 
former Republican Congressman and Secretary of Transportation Ray 
LaHood has said ``is the worst transportation bill I've seen during 35 
years of public service.'' It stands in stark comparison to the 
bipartisan bill in the Senate.
    We must also act now to reduce the deficit over the next decade in 
a steady, predictable way. The President's budget does that. The budget 
exceeds the deficit reduction targets established in the Budget Control 
Act of 2011, consistently lowering the deficit as a share of the 
economy and stabilizing the debt as a percentage of the economy. The 
President reaches the targets not through an automatic sequester that 
arbitrarily slashes defense and domestic investments, but instead with 
policy choices that balance the need to make wise investments to spur 
job growth and provide security for the middle-class with the need to 
put the budget on a fiscally sustainable path. The issue is not whether 
to reduce the deficits over the coming decade, but how. The President's 
plan takes a balanced approach to reducing the deficit. It adopts the 
cuts to domestic spending included in the Budget Control Act. It cuts 
mandatory spending by over $600 billion. But it also eliminates special 
interest tax breaks for corporations and the wealthiest Americans. It 
asks our highest earners to return to the same tax rate in place during 
the Clinton Administration, when the economy was booming.
    It is this balance that our Republican colleagues object to. 
Ninety-eight percent of our Republican colleagues have signed a pledge 
saying they won't close one special interest tax loophole for the 
purpose of deficit reduction. And because they don't want millionaires 
to pay more, they seek to reduce the deficit on the backs of middle-
income taxpayers and seniors. If last year's budget is any indication, 
they would slash our investments in education, science and research, 
infrastructure--key drivers of innovation and economic growth. And 
their proposal last year would force seniors to absorb the rapidly 
rising costs of health care, end the Medicare guarantee, and whack 
Medicaid by over $700 billion. So, again, the question is not whether 
we reduce the deficit, but how.
    What the President's budget does instead is to take a balanced 
approach to deficit reduction, following the framework developed by 
bipartisan groups such as Simpson-Bowles and Rivlin-Domenici. These 
groups called for a combination of spending cuts and revenue increases, 
while guarding against cutting spending too deeply too soon. Adopting 
abrupt austerity measures will only hurt the fragile economy. This 
isn't just my opinion and that of these bipartisan groups--economists 
like Federal Reserve Chairman Ben Bernanke have also argued against 
immediate spending cuts that will jeopardize our economic recovery. We 
need to get serious about debts and deficits in this country, but we 
must do it in a responsible way. The President takes a balanced 
approach to deficit reduction.
    Thank you Mr. Chairman and thank you Director Zients for coming 
today; I look forward to your testimony.

    Chairman Ryan. My pleasure. Mr. Zients, the table is yours.

    STATEMENT OF JEFFREY ZIENTS, ACTING DIRECTOR AND DEPUTY 
    DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

    Mr. Zients. Thank you. Thank you Mr. Chairman, Ranking 
Member Van Hollen, and members of the Committee. Thank you for 
having me here today to present the 2013 budget. As the 
chairman said, before I joined OMB three years ago, and I have 
now been at OMB three years and been involved in the budget, so 
I feel like I am in a good position today to talk about the 
president's budget. Before that I had spent more than 20 years 
in the private sector; I had not been in government at all 
before. One thing I found that was helpful in the private 
sector is to boil things down to a few graphics. So if it is 
okay with everybody I thought I would use my few minutes to 
walk you through the highlights of the budget using, I hope, 
these two screens.
    I will cover four topics: first, the current policy 
baseline, next, the key elements of deficit reduction, then an 
overview of our investments in the areas that are central to 
our future competitiveness, jobs, and growth, and finally the 
bottom line of the president's budget and how it puts us on a 
sustainable path. Let me start with the baseline.
    We believe we have a baseline that accurately reflects 
current policy. In essence, this is business as usual. The 
baseline includes the extension of the 2001 and 2003 tax cuts, 
estate and gift taxes; second, the permanent extension of AMT 
and SGR; we believe this presentation is more honest than 
patching these year after year; enforcement of the BCA caps and 
joint committee sequester; and accounting for future disaster 
costs, rather than ignoring them. The baseline results in an 
annual deficit of 4.7 percent of GDP at the end of the budget 
window in 2022. This is where we start before our policies take 
effect.
    Let me now turn to our deficit reduction policies. Last 
April, the president put forward a framework to achieve more 
than $4 trillion in deficit reduction. He maintained the $4 
trillion in his proposal to the joint committee last September. 
This year's budget is very similar to the September proposal 
with the addition of a year to the budget window. So as you can 
see on the far right in that green bar, this budget actually 
includes $5 trillion of total deficit reduction.
    Let me walk you through the key elements, I hope you can 
see them. I am going to walk from left to right across those 
blue bars. You start on the far left. You will see $676 billion 
in savings from the appropriation bills enacted last year, 
including both the 2011 appropriations in April, and the OCO 
savings from the 2012 appropriations.
    Next, there is over $1 trillion in reductions in 
discretionary spending, consistent with the caps in the BCA. 
Next, there are $362 billion in reductions from Medicare, 
Medicaid, and other health programs that will make these 
programs more effective and more efficient; then $272 billion 
in savings from reforming non-health mandatory programs in 
areas such as agriculture, federal civilian worker retirement, 
and the PBGC. These costs are net of the cost of new mandatory 
initiatives.
    The next category is $1.5 trillion of revenue for deficit 
reduction, including the expiration of the 2001 and 2003 tax 
cuts for the highest earners, and the elimination of 
inefficient and unfair tax breaks. The $1.5 trillion is a net 
number as we further cut taxes for the middle class and small 
businesses.
    Next, $617 billion in net savings from capping OCO and 
investing in a six year surface transportation re-
authorization. Capping OCO importantly closes the back door on 
security spending.
    Then there are other net savings of $141 billion. These 
include, for example, disaster adjustments, program integrity, 
and general fund transfers for transportation that are no 
longer necessary. As a result of these proposals, debt service 
costs decreased by $800 billion.
    Finally, in that pink bar right next to the green bar, 
there are $176 billion of investments in short-term job 
initiatives that actually cut the other way; so these are 
investments. This is the remainder of this $354 billion of job 
initiatives not spent in 2012.
    I want to be clear that we do not count the sequester in 
our total deficit reduction. We believe that the sequester is 
bad policy and we propose that it be replaced by this larger, 
more balanced package of deficit reduction, but be clear: the 
sequester is still in place, the president believes firmly that 
it is a very important enforcing function to make sure we do 
balanced deficit reduction.
    The bottom line is these efforts represent a total of more 
than $5 trillion in net deficit reduction. Even as we achieve 
the deficit reduction, we continue to make key investments in 
priority areas. These include short-term measures for job 
growth totaling $354 billion, tax breaks for the middle class 
and small businesses amounting to $352 billion, and continued 
investment in our long-term priorities, including education and 
job training for American workers, innovation and R&D, clean 
energy, and infrastructure. We make these investments in a 
budget that abides by the very tight spending caps and makes 
hard trade-offs.
    Let me now pull it all together for you. On the left, I 
have compared the adjusted baseline that I talked about in that 
first slide with the results of the president's policies. As 
you can see in 2022, deficits from the president's policies are 
below 3 percent of GDP compared to 4.7 percent in the baseline. 
Furthermore, debt as a percent of GDP is stabilized from 2018 
on. This is important for maintaining a strong investment 
environment. The president's budget replaces the sequester with 
a balanced approach to deficit reduction with $2.50 in spending 
cuts for every $1 of revenue increases. We have made tough 
choices, and we all need to work together to maintain this 
balanced approach.
    In closing, as a businessperson and now OMB acting 
director, I believe the president's budget makes the right 
investments to make us even more competitive in the global 
marketplace, and achieving declining deficits and stabilizing 
our debt are critical for business confidence and investment. 
This is good for business; this is good for the middle class, 
and good for America. Now, I would be happy to take your 
questions.
    [The prepared statement of Jeffrey Zients follows:]

   Prepared Statement of Jeffrey Zients, Acting Director and Deputy 
        Director of Management, Office of Management and Budget

    Mr. Chairman, Mr. Ranking Member, members of the Committee, thank 
you for welcoming me here today, and giving me the opportunity to 
present the President's 2013 Budget.
    Let me start by saying that at the beginning of the year, I did not 
expect to be sitting in this seat before you today. But, as you know, 
the President asked Jack Lew to serve him as White House Chief of 
Staff, and then asked me to serve as Acting Director.
    I do not come to the job with the same experience as my two 
predecessors: I am not a former OMB Director or former CBO Director. 
What I do bring to this role is a perspective forged from nearly three 
years at OMB overseeing the agency's management efforts and from two 
decades before that in the private sector, leading public companies. I 
know many of you also bring private sector experience to your public 
service, and I look forward to the discussion we can have today.
    The President's Budget is built on the idea that our country has 
always done best when everyone gets a fair shot, everyone does their 
fair share, and everyone plays by the same rules. We are all in this 
together: when the middle class is shrinking and families no longer can 
afford the goods and services that businesses are selling, it drags 
down the entire economy. Similarly, countries with less inequality tend 
to have stronger and steadier economic growth over the long term.
    By following these quintessentially American values of equal 
opportunity for all and responsibility from all, we can build an 
economy that will grow robustly and create good jobs for years to 
come--and we can pursue deficit reduction that is balanced and will put 
the country on a sustainable fiscal path. This Budget lays out the 
President's vision to do both. In it, we make tough choices--cutting 
waste where we can as well as some valuable programs that we would not 
cut if not for the fiscal situation. We put forward a plan to support 
and strengthen economic growth now so we can get more Americans back to 
work. And to meet the tight spending constraints that the President 
signed into law and insisted be a part of his Budget, we re-allocate 
resources to allow targeted investments so that we have an economy in 
years to come that is based not on speculation and bubbles, but one 
that is built on the solid foundation of an educated and skilled 
workforce, cutting-edge innovation, and world-class infrastructure.
    To understand our approach to the Budget, let me review the 
progress we have made since the President was elected and the 
challenges that we face today.
                           where we have been
    When the President took office, the economy was losing over 700,000 
private sector jobs a month, and experiencing the worst two quarters of 
growth since the end of World War II. Many thought that we were on the 
brink of a second Great Depression.
    But long before this recession hit, there was a widespread feeling 
that hard work had stopped paying off; that fewer and fewer of those 
who contributed to the success of our economy actually benefited from 
that success. Those at the very top grew wealthier while everyone else 
struggled with paychecks that did not keep up with the rising cost of 
everything from college tuition to groceries. And as a result, too many 
families found themselves taking on more and more debt just to keep 
up--often papered over by mounting credit card bills and home equity 
loans.
    Then, in the middle of 2008, the house of cards collapsed. Too many 
mortgages had been sold to people who could not afford--or even 
understand--them. Banks had packaged too many risky loans into 
securities and then sold them to investors who were misled or 
misinformed about the risks involved. Huge bets had been made and huge 
bonuses had been paid out with other people's money. And the regulators 
who were supposed to prevent this crisis either looked the other way or 
did not have the authority to act.
    In the end, this growing debt and irresponsibility helped trigger 
the worst economic crisis in generations. Combined with new tax cuts 
and new mandatory programs that had never been paid for, it threw our 
country into a deep fiscal hole. And millions of hardworking Americans 
lost their jobs, their homes, and their basic economic security.
    Due to swift action taken by the President shortly after taking 
office, the nation avoided what could have been a second Great 
Depression. We have now experienced 23 consecutive months of private 
sector job growth, with 3.2 million jobs created. In just the first few 
months of 2009, the President's strong leadership produced a Recovery 
Act to bolster American families against the worst of the crisis, as 
well as a rescue of the auto industry and the stabilization of our 
financial system which, together, prevented our economy from spiraling 
into a deep depression.
    When my predecessor last appeared in front of this Committee to 
present the President's budget, our economy was gaining traction after 
enduring a historic recession and coming back from the brink of a 
depression. During the previous six quarters, real gross domestic 
product (GDP) had grown at an average annual rate of 3 percent and, 
over the previous 12 months, the private sector had created 1.3 million 
new jobs. The financial system was no longer in crisis. The credit and 
capital markets were functioning, and the cost of stabilizing the 
financial and automobile sectors was amounting to a fraction of initial 
estimates. Yet we also subsequently have learned that the recession was 
deeper than many experts first thought: revised estimates showed that 
the economy contracted at an 8.9 percent annualized rate in the last 
quarter of 2008, from an original projection of 3.8 percent, the 
largest quarterly downward revision in history.
    Then, a trio of world events created strong headwinds that 
challenged the economic expansion: uprisings in the Middle East that 
sent oil prices higher; an earthquake in Japan that prevented American 
auto and manufacturing companies from getting the supplies they needed 
to keep our factories producing; and widespread sovereign debt concerns 
in Europe that roiled markets across the globe. In addition, the 
willingness of some Republicans in Congress to risk the first default 
in our Nation's history over the statutory debt ceiling and the 
subsequent downgrade by Standard & Poor's of the long-term sovereign 
rating of U.S. Treasuries and other debt tied to the U.S. credit rating 
kept financial markets on edge and appeared to rattle consumer 
confidence.
    In the face of these headwinds, the policies enacted by the 
President played a key role in keeping the economy moving forward. 
Because of the policies that the President fought for, the typical 
working family received a $1,000 payroll tax cut in 2011, and millions 
of Americans pounding the pavement looking for jobs could continue to 
receive unemployment insurance. This provided crucial insurance against 
headwinds buffeting our economy.
    While there are lingering concerns over the financial developments 
in Europe and the risk they pose to the U.S. economy, the pace of real 
GDP growth picked up in the second half of last year. Despite these 
encouraging signs, economic growth is not strong enough to create 
enough good jobs for all the Americans who want to work or robust 
enough to restore for the middle class the security and opportunity 
they deserve.
    At the same time, our country still faces the consequences of years 
of fiscal irresponsibility. When the President took office, he 
inherited an annual deficit of $1.3 trillion and projected deficits of 
trillions more in the years thereafter. Driving these deficits were 
decisions made over the previous eight years not to pay for two tax 
cuts and a Medicare prescription drug benefit. The deficits were then 
exacerbated by the recession: the sharp decline in receipts, steep 
increase in automatic outlays to help those in need, and efforts needed 
to jumpstart economic growth.
    Recognizing the challenges still facing the economic recovery over 
the past year, the Administration pursued both short-term efforts to 
boost economic growth and job creation plus comprehensive, balanced 
initiatives to put the United States on the path toward fiscal 
stability were both needed. These are complementary policies: A growing 
economy is necessary for long-term deficit reduction, and likewise, 
long-term deficit reduction and fiscal sustainability is necessary to 
sustain and strengthen economic growth for years to come.
    That is why the President pursued significant, balanced deficit 
reduction throughout calendar year 2011: first, in his 2012 Budget; 
then, in the Framework for Shared Prosperity and Shared Fiscal 
Responsibility released in April that built on the Budget to identify 
$4 trillion in deficit reduction; next, in a similarly sized plan 
presented to congressional Republicans during negotiations over 
extending the debt ceiling during the summer; and finally in the 
President's Plan for Economic Growth and Deficit Reduction that was 
presented to the Joint Committee on Deficit Reduction in September. It 
also is why the President proposed the American Jobs Act (AJA) in 
September of 2011, a plan to put more people back to work, put more 
money in the pockets of working Americans, and do so without adding a 
dime to the deficit. This combination of tax cuts, infrastructure 
investments, and aid to those seeking work would give the economy a 
needed boost through this difficult time.
    Unfortunately, at each step, partisan divides and an unwillingness 
by many in Congress to ask the wealthiest among us to pay their fair 
share through any revenue increases prevented a comprehensive deficit 
reduction agreement or measures in the AJA to boost demand from being 
enacted. Indeed, this lack of real progress on both the AJA and deficit 
reduction actually became a drag in and of itself on an economy already 
struggling to recover from a severe recession and battling significant 
headwinds from events around the globe.
    As we look toward the next fiscal year, the challenges of this past 
year persist: we need to boost economic growth and job creation now and 
take the steps necessary to put the country on a fiscally sustainable 
path.
           putting the nation on a fiscally sustainable path
    In this year's Budget, the President continues to pursue policies 
that will shore up our economy and our fiscal situation. Together with 
the deficit reduction he signed into law this past year; this Budget 
will cut the deficit by well over $4 trillion over the next decade. 
This will put the country on a course to a level of deficits below 3 
percent of GDP by 2018, and will also allow us to stabilize the Federal 
debt relative to the size of the economy. To achieve these results, 
this Budget contains a number of steps to put us on a fiscally 
sustainable path.
    First, this Budget implements the tight discretionary spending caps 
that the President signed into law in the Budget Control Act of 2011. 
These caps will generate more than $1 trillion in deficit reduction 
over the next decade, and reduce discretionary spending from 8.7 
percent of GDP in 2011 to 5.0 percent in 2022, the lowest this type of 
spending has been since President Eisenhower sat in the Oval Office.
    Meeting the spending targets in this Budget meant some very 
difficult choices: reforming, consolidating, or freezing programs where 
we could; cutting programs that were not effective or essential and 
even some that were, but are now unaffordable; and precisely targeting 
our investments. Every department will feel the impact of these 
reductions as they cut programs or tighten their belts to free up more 
resources for areas critical to economic growth. In fact, for every $1 
in new revenue from those making more than $250,000 per year, the 
Budget proposes $2.50 in spending cuts.
    And throughout the entire Government, we will continue our efforts 
to make programs and services work better and cost less: using 
competition and high standards to get the most from the grants we 
award; getting rid of excess Federal real estate; and saving billions 
of dollars by cutting overhead and administrative costs.
    Second, to build on the work we have done to reduce health care 
costs through the Affordable Care Act, the President is proposing more 
than $360 billion in reforms to Medicare, Medicaid, and other health 
programs over 10 years. The goal of these reforms is to make these 
critical programs more effective and efficient, and help make sure our 
health care system rewards high-quality medicine. What it does not do--
and what the President will not support--are efforts to turn Medicare 
into a voucher or Medicaid into a block grant. Doing so would weaken 
both programs and break the promise that we have made to American 
seniors, people with disabilities, and low-income families.
    Third, to address other looming, long-term challenges to our fiscal 
health, the Administration has put forward a wide range of mandatory 
savings. These include reductions in agriculture programs, changes in 
Federal employee retirement and health benefits, reforms to the 
unemployment insurance system, and new efforts to provide a better 
return to taxpayers from mineral development. Reflecting the plan the 
President presented to the Joint Select Committee on Deficit Reduction, 
these mandatory proposals would save $270 billion over the next decade.
    Fourth, this Budget begins the process of implementing the 
President's new defense strategy that reconfigures our force to meet 
the challenges of the coming decade. Over the past three years, we have 
made historic investments in our troops and their capabilities, 
military families, and veterans. After a decade of war, we are at an 
inflection point: American troops have left Iraq; we are undergoing a 
transition in Afghanistan so Afghans can assume more responsibility; 
and we have debilitated al Qaeda's leadership, putting that terrorist 
network on the path to defeat. At the same time, we have to renew our 
economic strength here at home, which is the foundation of our strength 
in the world, and that includes putting our fiscal house in order. To 
ensure that our defense budget is driven by a clear strategy that 
reflects our national interests, the President directed the Secretary 
of Defense and military leadership to undertake a comprehensive 
strategic review.
    The President presented the results of the review, reflecting the 
full support of our Nation's military leadership, at the Pentagon on 
January 5. There are several key elements to this new strategy. To 
sustain a global reach, we will strengthen our presence in the Asia 
Pacific region and continue vigilance in the Middle East. We will 
invest in critical partnerships and alliances, including NATO, which 
has demonstrated time and again--most recently in Libya--that it is a 
force multiplier. Looking past Iraq and Afghanistan to future threats, 
the military no longer will be sized for large-scale, prolonged 
stability operations. The Department of Defense will focus 
modernization on emerging threats and sustaining efforts to get rid of 
outdated Cold War-era systems so that we can invest in the capabilities 
we need for the future, including intelligence, surveillance, and 
reconnaissance capabilities. The Administration will continue to 
enhance capabilities related to counterterrorism and countering weapons 
of mass destruction, and we will also maintain the ability to operate 
in environments where adversaries try to deny us access. And, we will 
keep faith with those who serve by giving priority to our wounded 
warriors, servicemembers' mental health, and the well-being of military 
families.
    Adapting our forces to this new strategy will entail investing in 
high-priority programs, such as unmanned surveillance aircraft and 
upgraded tactical vehicles. It will mean terminating unnecessary and 
lower-priority programs such as the C-27 airlift aircraft and a new 
weather satellite, and maintaining programs such as the Joint Strike 
Fighter at a reduced level. All told, reductions in the growth of 
defense spending will save $487 billion over the next 10 years. In 
addition, the end of our military activities in Iraq and the wind-down 
of operations in Afghanistan will mean that the country will spend 24 
percent less on overseas contingency operations (OCO) this year than it 
did last year, saving $30 billion. The Budget also includes a multi-
year cap on OCO spending so that we fully realize the dividends of this 
change in policy.
    Finally, the President believes deeply that in our country, 
everyone must shoulder their fair share--especially those who have 
benefited the most from our economy. In the United States of
    America, a teacher, a nurse, or a construction worker who earns 
$50,000 a year should not pay taxes at a higher rate than somebody 
making $50 million. This is not about class warfare; this is about the 
Nation's well-being. This is about making fair choices that benefit not 
just the people who have done fantastically well over the last few 
decades--such as myself or the President, but that also benefit the 
middle class, those fighting to get into the middle class, and the 
economy as a whole.
    In the Budget, the Administration calls for individual tax reform 
that: cuts the deficit by $1.5 trillion, including the expiration of 
the high-income 2001 and 2003 tax cuts; eliminates inefficient and 
unfair tax breaks for millionaires while making all tax breaks at least 
as good for the middle class as for the wealthy; and observes the 
Buffett Rule that no household making more than $1 million a year pays 
less than 30 percent of their income in taxes. In addition, the 
Administration proposes a $61 billion Financial Crisis Responsibility 
Fee on largest financial institutions to fully compensate taxpayers for 
their extraordinary support during the depths of the financial crisis. 
This will offset the cost of TARP and pay for the President's mortgage 
refinancing program which will help thousands of homeowners keep their 
homes.
    Reining in our deficits is not an end in and of itself. It is a 
necessary step to rebuilding a strong foundation so our economy can 
grow and create good jobs. That is our ultimate goal. And as we tighten 
our belts by cutting, consolidating, and reforming programs, we also 
must invest in the areas that will be critical to giving every American 
a fair shot at success and creating an economy that is built to last.
    That starts with taking action now to strengthen our economy and 
boost job creation. We need to finish the work we started last year by 
extending the payroll tax cut and unemployment benefits for the rest of 
this year. We also need to take additional measures to put more people 
back to work. That is why the President introduced the AJA last year, 
and why the Budget contains nearly $375 billion in short-term measures 
for job growth starting in 2012, including many planks of the AJA that 
were not enacted plus some new job creation initiatives to put people 
back to work by rebuilding our infrastructure, providing businesses tax 
incentives to invest and hire, and giving States aid to rehire teachers 
and first responders.
    We also know that education and lifelong learning will be critical 
for anyone trying to compete for the jobs of the future. That is why 
the President will continue to make education a national mission. What 
one learns will have a big impact on what he or she earns: the 
unemployment rate for Americans with a college degree or more is only 
about half the national average, and the incomes of college graduates 
are twice as high as those without a high school diploma.
    When the President took office, he set the goal for America to have 
the highest proportion of college graduates in the world by 2020. To 
reach that goal, we increased the maximum annual Pell Grant by more 
than $900 to help nearly 10 million needy students afford a college 
education. The 2013 Budget continues that commitment, provides the 
necessary resources to sustain the maximum award of $5,635, and takes 
tough steps to improve the financial footing of the Pell program in 
2014 as well. In this Budget, the President proposes a series of new 
proposals to help families with the costs of college including making 
permanent the American Opportunity Tax Credit, a partially refundable 
tax credit worth up to $10,000 per student over four years of college, 
and rewarding colleges and universities that act responsibly in setting 
tuition, providing the best value, and serving needy students well.
    To help our students graduate with the skills they will need for 
the jobs of the future, we are continuing our effort to prepare 100,000 
science and math teachers over the next decade. To improve our 
elementary and secondary schools, we are continuing our commitment to 
the Race to the Top initiative that rewards the most innovative and 
effective ways to raise standards, recruit and retain good teachers, 
and raise student achievement. The Budget invests $850 million in this 
effort, which already has been expanded to cover early learning and 
individual school districts.
    And to prepare our workers for the jobs of tomorrow, we need to 
turn our unemployment system into a re-employment system. That includes 
giving more community colleges the resources they need to become 
community career centers--places that teach skills that businesses are 
looking for right now, from data management to high-tech manufacturing' 
creating a Pathways Back to Work Fund, which will support summer and 
year-round jobs for low-income youth, and will help connect the long-
term unemployed and low-income adults to subsidized employment and 
work-based training opportunities; and reforming Career and Technical 
Education.
    Once our students and workers gain the skills they need for the 
jobs of the future, we also need to make sure those jobs end up in 
America. In today's high-tech, global economy, that means the United 
States must be the best place in the world to take an idea from the 
drawing board to the factory floor to the store shelves. In this 
Budget, we are investing $140.8 billion for R&D overall; increasing the 
level of investment in non-defense R&D by 5 percent from the 2012 
level, even as overall budgets decline; and maintaining the President's 
commitment to double the budgets of three key basic research agencies 
(National Science Foundation, Department of Energy's Office of Science, 
and National Institute of Standards and Technology Laboratories). To 
make sure that more goods are stamped with ``Made in America,'' the 
Budget dedicates $2.2 billion for advanced manufacturing R&D, a 19 
percent increase over 2012. And while a tight budget environment means 
that we are proposing level funding for biomedical research at National 
Institutes of Health ($30.7 billion), we are getting out of the money 
through new grant management policies that will increase the number of 
new research grants by 7 percent.
    Moreover, this Budget continues the Administration's commitment to 
developing America's diverse, clean sources of energy. The Budget 
eliminates unwarranted tax breaks for oil companies, while extending 
key tax incentives to spur investment in clean energy manufacturing and 
renewable energy production. The Budget also invests in R&D to catalyze 
the next generation of clean energy technologies. These investments 
will help us achieve our goal of doubling the share of electricity from 
clean energy sources by 2035. By promoting American leadership in 
advanced vehicle manufacturing, including funding to encourage greater 
use of natural gas in the transportation sector, the Budget will help 
us reach our goal of reducing oil imports by one-third by 2025 and 
position the United States to become the first country to have one 
million electric vehicles on the road by 2015. We also are working to 
decrease the amount of energy used by commercial and industrial 
buildings by 20 percent to complement our ongoing efforts to improving 
the efficiency of the residential sector. And we will work with the 
private sector, utilities, and States to increase the energy 
productivity of American industries while investing in the innovative 
processes and materials that can dramatically reduce energy use.
    It is also time for government to do its part to help make it 
easier for entrepreneurs, inventors, and workers to grow their 
businesses and thrive in the global economy. The President is calling 
on Congress to immediately begin work on corporate tax reform that will 
close loopholes, lower the overall rate, encourage investment here at 
home, simplify taxes for America's small businesses, and not add a dime 
to the deficit. Moreover, to further assist these companies, we need a 
comprehensive reorganization of the parts of the Federal Government 
that help businesses grow and sell their products abroad. If given 
consolidation authority--which Presidents had for most of the 20th 
century--the President will propose to consolidate six agencies into 
one Department, saving money, and making it easier for all companies--
especially small businesses--get the help they need to thrive in the 
world economy.
    Finally, this Budget advances the national security interests of 
the United States, including the security of the American people, the 
prosperity and trade that creates American jobs, and support for 
universal values around the world. It increases funding for the 
diplomatic efforts that strengthen the alliances and partnerships that 
improve international cooperation in meeting shared challenges, open 
new markets to American exports, and promote development. It invests in 
the intelligence and homeland security capabilities to detect, prevent, 
and defend against terrorist attacks against our country.
    As we implement our new defense strategy, my Administration will 
invest in the systems and capabilities we need so that our Armed Forces 
are configured to meet the challenges of the coming decade. We will 
continue to invest in improving global health and food security so that 
we address the root causes of conflict and security threats. And we 
will keep faith with our men and women in uniform, their families, and 
veterans who have served their Nation.
    These proposals will take us a long way towards strengthening the 
middle class and giving families the sense of security they have been 
missing for too long. But in the end, building an economy that works 
for everyone will require all of us to take responsibility. Parents 
will need to take greater responsibility for their children's 
education. Homeowners will have to take more responsibility when it 
comes to buying a house or taking out a loan. Businesses will have to 
take responsibility for doing right by their workers and our country. 
And those of us in public service will need to keep finding ways to 
make government more efficient and more effective.
    Understanding and honoring the obligations we have to ourselves and 
each other is what has made this country great. We look out for each 
other, pull together, and do our part. But Americans also deserve to 
know that their hard work will be rewarded.
    This Budget is a step in the right direction. And we hope that it 
will help serve as a roadmap for how we can grow the economy, create 
jobs, and give Americans everywhere the security they deserve.
    I look forward to working with both houses of Congress in the 
coming months as we work to put our fiscal path back on a sustainable 
course.

    Chairman Ryan. Thank you, Mr. Zients. We will do great if 
our answers are not so long and we do not filibuster here in 
the House. So I want to run through a handful of things, and I 
think they are going to bring me a PowerPoint in a second here.
    So let's put aside the fact that we are using different 10 
year windows to get from the $4 trillion claim to the $5 
trillion claim. This stuff is confusing enough. Let's just go 
to the $4 trillion claim, which is what the budget documents 
make, and because there is a difference in 10 year windows and 
I think we would all probably agree on that. So you are saying 
that the policy changes in this budget reduce the deficit by $4 
trillion, correct?
    Mr. Zients. Right.
    Chairman Ryan. So bring up Figure 2. Let's walk through 
that. Using your numbers, these are not CBO numbers, these are 
OMB numbers. So to make this $4 trillion claim stick, that this 
budget does this, the top bar, the blue bar, claims credit for 
the Budget Control Act, $2.3 trillion. This is a law that was 
already passed.


    Mr. Zients. Right.
    Chairman Ryan. I do not know how one can claim that this 
budget achieves these things when this is something Congress 
already passed. I would add to that, Congress passed this over 
the president's initial objections. He wanted a clean debt 
limit increase, then he wanted a tax increase of the debt 
limit, and only because of this House majority did we get the 
BCA; so let's take away that claim because that is not in your 
budget. You cannot claim you are achieving this when it is a 
law that we already passed.
    So now we are down to the war gimmick. People call this 
OCO. The war gimmick is let's claim savings on spending that is 
never going to be requested and never going to be spent and all 
of a sudden claim that that is going to save us $850 billion. I 
do not know what part of the private sector you come from, but 
if we are saying we are saving money that we were never going 
to request, never going to spend, I do not know how you can say 
you are saving money.
    Now you are down to the doc fix. Nobody wants these doctors 
to get cut, nobody wants to see this 27 percent cut occur, but 
we cannot just assume it away. It is here, it is happening, it 
is in law, and it happens at the end of the month. So we are 
just assuming that they are not going to get cut and that is 
$430 billion in your numbers. Then let's take off the interest 
savings that you are attributing to all these claims and here 
is what we are left with. We are left with a budget that has 
only $400 billion in deficit reduction over a 10 year window. 
If you strip out these accounting tricks and these budget 
gimmicks, it is a 10 year budget that spends $47 trillion with 
a net deficit reduction of $400 billion. So I just do not 
understand how you can claim anything other than this. Let's go 
to Figure Number 1. Let me ask you this. How much does the debt 
increase under your budget?


    Mr. Zients. Can I respond to the run you just did because 
you keep building on top of it, and it is going to be difficult 
for me to organize my thoughts.
    Chairman Ryan. Okay, let's go back to Figure 2.
    Mr. Zients. Please, that would be much more helpful.
    Chairman Ryan. You bet, my pleasure.
    Mr. Zients. First of all, I think we all agree that the 
$2.3 trillion came from the BCA, and we have been talking 
consistently about a minimum of $4 trillion of deficit 
reduction. This reminds me of a marathon and when you start the 
race. We started the race months ago, so taking credit in this 
budget for the $2 trillion that we have worked together to 
achieve, I think makes a lot of sense. Second, on OCO: OCO very 
importantly closes the back door.
    Chairman Ryan. Then why do you not count the stimulus 
spending and the 24 percent increase in domestic spending?
    Mr. Zients. I am sorry?
    Chairman Ryan. I mean, if you are going to count things 
that happened in the past, why do you only count the things 
that count to your benefit and why do you not count things that 
do not work to your benefit?
    Mr. Zients. The stimulus is accounted for as part of the 
budgets.
    Chairman Ryan. Not in the numbers.
    Mr. Zients. The BCA, this summer, that counts towards the 
$4 trillion deficit reduction we have been talking about all 
along. Secondly, on OCO, very importantly, we are closing the 
backdoor to spending by capping OCO. CBO scores it as savings, 
and it is this president's policies that have led to getting 
our troops out of Iraq and draw down in Afghanistan. I do not 
know exactly how you are cutting the chart here, but somehow 
you have left off $1.5 trillion of revenue that needs to be 
raised, revenue that is part of balanced deficit reduction. I 
do not know where that is, but the president's budget proposes 
$1.5 trillion.
    Chairman Ryan. I will give you that, but this is just the 
spending side of the ledger.
    Mr. Zients. Okay, sorry. Then on the spending side, and 
again, I am not sure how you are cutting it, but there are $360 
billion of mandatory savings from health care, and there is 
another $270 billion of net savings from other mandatory 
programs, I mentioned some of them: PBGC, the federal 
retirement, the agricultural programs. So there is further 
savings there and then on top of all of that, obviously you 
have debt service from bringing down the spending.
    Chairman Ryan. Right, so we net things out. That is what 
balance sheets do. And when you net all of this out, not 
claiming credit for something somebody else did, or Congress 
and president did before, you cannot say this budget has policy 
changes which achieves a result which was already achieved 
before. It is not achieved in this budget.
    With respect to war, we pass supplementals to fund wars. 
Congress has to affirmatively pass these supplementals to fund 
wars, so if there is a back door, it is already closed. If we 
are pulling out by some date certain which everybody now agrees 
to this timeline, it is not as if it is a surprise, it is a 
flaw in the baseline that they assume we are going to be at a 
full-fledged war for 10 more years. It does not work to cut us 
off, okay.
    Mr. Zients. I think of CBO as the referee.
    Chairman Ryan. Like I am saying, please do not interrupt. 
We pass supplementals. It is not a back door if we are not in 
war; we do not pass supplementals. What I am saying, at the end 
of the day here, is when you net this out this budget, using 
your own numbers, has a net increase of spending of $1.5 
trillion and a net increase of taxes of $1.9 trillion, and that 
is how you result with a $400 billion of deficit reduction. 
These are your numbers we are using; we are not using somebody 
else's numbers.
    Let me ask it a different way. How much does this budget 
add to the debt? What is the nominal amount of money that this 
budget adds to the debt?
    Mr. Zients. Well, I think the right way to think about it 
is as debt as a percentage of GDP.
    Chairman Ryan. No, but what is the nominal amount? How much 
actual money is added to the debt?
    Mr. Zients. Well, the nominal amount we can pull from one 
of the tables. Let me have my team gather that while I answer 
the question I think the right way, which is to think about the 
debt as a percentage of GDP, and this budget stabilizes debt as 
a percentage of GDP, which is very important for maintaining 
the investment environment that we all want, which is making 
America the right place to invest. Let me just circle back, if 
I may, to OCO. I think we would all agree that the CBO is the 
referee here and I just want to make it clear that CBO does 
score OCO as savings.
    Chairman Ryan. So if we assume we are going to be at war 
for 10 years in the baseline, because that is what the law 
requires CBO does, by the way; it is not CBO's fault. Then all 
of a sudden we are going to have a pullout from Iraq and 
Afghanistan before 10 years is over, this money is all of a 
sudden a spending cut, it is savings?
    Mr. Zients. Savings relative to the baseline according to 
CBO, yes. And it importantly closes the backdoor on 
discretionary spending.
    Chairman Ryan. If this is the way we measure reality heaven 
help us. I will just use your budget, your chart. If you can 
bring up Figure 1, please. I have your number for you, so I can 
just get into it if you want to. You are adding $11.4 trillion 
to the debt. Excuse me, the baseline adds $11.4 trillion to the 
debt. That means if just do not do anything, and we just sit 
still, we add $11.4 trillion to the debt. Your numbers in your 
budget adds $11.2 trillion to the debt. So how on earth can you 
make a claim that this budget achieves $4 trillion in deficit 
reduction when your own numbers show, instead of increases the 
debt by 78 percent it increases it by 76 percent. Instead of 
increasing it by $11.2 trillion it increases by 11.4 to 11.2.
    Mr. Zients. Two points that I would make. One is I think it 
is really important that we are starting with an honest 
baseline. The idea that each year we patch SGR year over year, 
or AMT year over year, it is just not reality. You have to 
start with the right baseline of where we are, and we do that. 
So I think that it is much better we face into the wind and 
know where we are.
    Secondly, a lot of this in inherited. It is inherited from 
an administration that passed a 2001 and 2003 tax cut that was 
unpaid for, a Part D Medicare unpaid for, two wars unpaid for, 
and then we walked, as Congressman Van Hollen said, to an 
economic situation which was the great recession.
    Chairman Ryan. So if these wars are unpaid for, then how 
can you claim savings from them?
    Mr. Zients. Well they were unpaid for at the time, yeah; 
and therefore, we are capping the savings, capping OCO and 
getting the savings, and CBO scores it as savings.
    Chairman Ryan. I think you see my point. If this is 
correct, and we all agree the baselines are messed up around 
here, that is not a source of contention, but if the baselines 
are as messed up as you say and we agree, then you cannot have 
your cake and eat it too. You cannot say that this budget is 
cutting the deficit by $4 trillion. If you actually add this 
all up, net it all out, it is a $1.5 trillion in net spending 
increases with a $1.9 trillion net tax increase and that 
results, over the 10 year window, of a measly $400 billion of 
deficit reduction over a 10 year period. Look, I know we love 
to back and bash the last administration. Lots of us have 
criticisms with past fiscal policy from both political parties. 
This is your fourth budget. I mean, it is not as if the 
president came in office a month ago. This is his fourth 
budget, four years of trillion dollar deficits, and a 
repudiation of the promise to cut the deficit in half by his 
last year of his first term. I just do not know how you can run 
away from your own numbers.
    Mr. Zients. I always want to go to the bottom line, and the 
bottom line here is more than $4 trillion of deficit reduction.
    Chairman Ryan. Yeah, okay.
    Mr. Zients. The bottom line here is that we get the deficit 
as a percent of GDP below 3 percent. The bottom line here is we 
stabilize debt as a percent of GDP. These are important 
milestones. Do we have more work ahead? Absolutely. This budget 
reaches an important milestone.
    Chairman Ryan. I want to give Chris his time. I just want 
to ask one last question. You claim to want to give IPAB more 
tools to consider quote ``value based benefit design changes,'' 
but you also prohibit IPAB from changing cost during 
arrangement for beneficiaries. I do not understand this. If we 
are saying you cannot have cost sharing arrangement changes 
with beneficiaries, but IPAB now will have the power to design 
quote-unquote ``value based benefit design changes'' what does 
that mean?
    Mr. Zients. At the end of the day we have put forward in 
this budget more than $360 billion of health care savings. What 
they are based on is what I have seen in the private sector, I 
know all of you have seen, and I know there is a doc in the 
room, which is tremendous variation in how medicine is 
delivered around this country, and there is not a great 
correlation between how much it costs and how effective it is, 
and we need to drive to that intersection of lower cost and 
more effective health care by decreasing variation in care, 
driving towards best practices, having the same type of 
productivity increases that other sectors have enjoyed in 
health care.
    What does productivity mean? Productivity means you drive 
down costs and increase quality at the same time. So we have 
made progress with the Affordable Care Act, we have made 
progress in this budget in driving toward more productive 
health care, more efficient, more effective care for our 
seniors, and we need to continue to do that.
    Chairman Ryan. So we are going to give IPAB more power to 
determine how value is achieved on beneficiary designs?
    Mr. Zients. IPAB is a backstop on the system, and we are 
making sure that we are driving toward more effective, more 
efficient care, and that we are not in any way violating the 
basic compact that we have with our seniors to provide them 
with high quality care.
    Chairman Ryan. Mr. Van Hollen.
    Mr. Van Hollen. Thank you Mr. Chairman, and again, thank 
you Director Zients for being here. Let me just pick up on a 
couple points that the chairman raised. The Simpson-Bowles 
commission, the bipartisan commission, set $4 trillion in 
deficit reduction as their 10 year window. Rivlin-Dominici, 
another bipartisan commission, also set something in that range 
of $4 trillion over the 10 year window. Included in their 
recommendations were reducing discretionary spending by 
actually over $1 trillion. Now, as part of the Budget Control 
Act that we all passed, we did cut discretionary spending over 
the next 10 years by approximately $1 trillion. It seems 
perfectly reasonable, and I think an ordinary American watching 
this proceeding would agree that you should be able to count 
the effort we made already toward the $4 trillion. I mean, 
after all, Simpson-Bowles recommended we do something along 
those lines, we did it. That is $1 trillion. We also, as you 
have pointed out, put in place this mechanism to achieve 
another $1.2 trillion through a sequester.
    Now, I dare say that Republicans and Democrats alike agree 
that the sequester is not the best way to achieve that deficit 
reduction. It has across the board cuts to defense and 
important non-defense investments, and what you have proposed 
is another better, more balanced way of achieving that $1.2 
trillion deficit reduction, but just because it is already 
somehow built into the CBO assumptions that this massive across 
the board $1.2 trillion cut that nobody in this room, I think, 
thinks is the best approach to doing that, just because you 
have come up with a better way of doing that, does not mean 
that your budget should not be credited with that $1.2 trillion 
in deficit reduction. I think that is kind of common sense.
    Let me say something about the war savings. The reality is 
if you look at the appropriations budgets today, they are 
already using so-called OCO war savings as a bit of slush fund 
when it comes right down to it. So the reality is closing the 
door on that slush fund, I believe, will achieve real savings 
as we move into the out years and, as you have pointed out, the 
decisions that the president has made with respect to 
Afghanistan and Iraq will help accelerate that effort.
    I would point out to the chairman that when he presented 
the Republican proposal here before the budget committee last 
year and said that their budget achieved a $5.8 trillion cut 
out of the CBO baseline, that included the OCO spending, 
because CBO includes that in their baseline as you pointed out.
    Now, let me turn to what I think, really, is the essential 
question that we face in this committee, in this Congress, and 
in the country, which is how we are going to achieve the 
deficit reduction we all recognize we need to get to over the 
10 year period. How do we get the balanced budgets over the 
longer term and stabilize the debt as a percentage of GDP and 
really that means there are choices to be made. Ninety-eight 
percent of our Republican colleagues in the House have signed 
this pledge that says that they will not close one tax loophole 
for the purpose of deficit reduction. Not one penny can go to 
deficit reduction from closing a tax loophole. You get rid of a 
subsidy for the oil and gas industry, you cannot use that 
savings for the purpose of deficit reduction. I think what the 
president has proposed is that we want to achieve a net of $1.5 
trillion in additional revenue, and doing it in a way that 
protects middle income taxpayers, but does ask the folks at the 
very top to pay more.
    Sometimes we hear from our colleagues that the wealthiest 
are already paying a growing share of income; it is not because 
their tax rates have gone up; it is because they have done 
disproportionately better than all other working Americans. The 
productivity gains from the 1990s and the 2000s did not accrue 
to the benefit of working Americans, or middle income 
Americans. They accrued to the folks at the top. Now, that is 
great, but when you are trying to deal with the deficit? I 
should not say that is great, it would be better to have shared 
prosperity, but the reality is when you are dealing with the 
deficit we have to make choices.
    If we could put up the slide.
    
    
    I hope everybody will really take a look at this CBO report 
that came out last fall on growing income inequality in the 
United States. What this chart shows, and that red line there 
at the top are the top 1 percent income gains, again, 
proportional, and you can see what people in different 
quintiles did. This is why the folks at the top are paying 
more, in terms of taxes, because they are making a whole lot 
more than everybody else. That is simple math. This is not 
about the politics of envy or class warfare, this about how do 
we solve a deficit problem in a way that asks for shared 
responsibility. What this chart shows is we should maybe ask 
the folks at the very top to pay a little more because if we do 
not, we are going to have to do what the Republican budget last 
year did, which is slash important investments in education, 
lack Medicaid and the Medicare guarantee.
    If we could go to the next. We also hear that the 
president's budget is going to lead to these huge tax increases 
that are going to weigh down the economy. What this chart shows 
is that if you go back to the Clinton years, you had revenue at 
21 percent of GDP. The Simpson-Bowles proposal takes revenue to 
20.6 and then the president's budget actually has less revenue 
as a percent of GDP at the end of this window.


    The point here is that this is a balanced approach which 
does not even raise as much revenue as a percent of GDP as 
either we did during the Clinton years, when the economy was 
booming, or the in the bipartisan Simpson-Bowles proposal.
    Now, here is what I am going to ask you to do. If you could 
just lay out very clearly why it is important to take a 
balanced approach, why it is important to deal with the revenue 
side of the equation as well as the cutting side of the 
equation, and what the consequences are for middle-income 
Americans and all Americans if you do not take a balanced 
approach, if you try to deal with this deficit issue the way 
our Republican colleagues have suggested, which is without 
taking one penny for deficit reduction from closing tax breaks.
    Mr. Zients. Right. Well, I think, first of all, you 
mentioned discretionary spending. This budget takes 
discretionary spending from about 9 percent of GDP down to 5 
percent. So we are making very hard choices in achieving that. 
The balanced approach, which is at the center of the 
president's plan, has also been at the center of other plans. 
You mention Simpson-Bowles. Simpson-Bowles has a balanced 
approach, in fact, raises more revenue than we are talking 
about raising here. So I think when any serious group looks at 
this, there is a recognition that we need to increase our 
revenues. We cannot increase our revenues from the middle 
class. The president has no tax increases for families less 
than $250,000. In fact, they are further tax cuts. We need to 
increase revenue from the wealthiest 2 percent, who as you 
pointed out Congressman, have benefited extraordinarily across 
the last several decades and asking them to do their fair share 
so we, as a country, can succeed and have a healthy, growing 
middle class makes a lot of sense.
    As someone who was part of the private sector during the 
1990s when the tax rates were the tax rates that enabled us to 
have that share that you have on the screen, there was plenty 
of incentive to grow businesses, plenty of incentive to invest. 
We need to have everybody do their fair share in order for the 
country to get into a better position than we are in today, to 
have us have deficits of less than 3 percent of GDP by 2018, 
and to stabilize debt as a percent of GDP which is very 
important for our long term investment environment and our long 
term growth.
    Mr. Van Hollen. Thank you Mr. Chairman, let me just 
conclude by reading from the statement from the co-chairs of 
Simpson-Bowles commission, with respect to the president's 
budget, as Mr. Zients indicated, and I think we all agree, we 
should all find ways to achieve greater deficit reduction as we 
move into the out years, especially, but here is what they 
said:
    ``In the framework the president announced in April and 
what he submitted to the select committee, the president 
embraced many of the goals and principles outlined by the 
fiscal commission and incorporated some of the policies we 
proposed. We are pleased that the president's latest budget 
continues to focus on deficit reduction and are also encouraged 
to see real, specific policies for limiting tax expenditures, 
slowing health care cost growth, and reducing spending 
throughout the government.''
    That is the quote from the bipartisan co-chairs of the 
president's fiscal commission and, again, I think what the 
president has laid out here is that balanced approach that the 
American people are looking for, rather than a lopsided 
approach which will ask middle-income families to take the 
brunt of our national effort to put the country on a long-term 
fiscally sustainable footing, and with that, Mr. Chairman, I 
thank you.
    Chairman Ryan. All right. Thank you. Mr. Garrett.
    Mr. Garrett. Thank you and I appreciate your testimony 
today. I appreciate you also being here from the private 
sector. You probably feel a little lonely sometime over at the 
White House in that respect, but I am glad that you are here 
coming with that experience. One point though, you did just say 
that there are no tax increases for those folks who are making 
under $250,000.
    Mr. Zients. Families under $250,000, individuals under 
$200,000.
    Mr. Garrett. So if I am part of a family that does not buy 
health insurance in violation of the president's health care 
program, and I have to pay because of that, that is not a tax 
on me?
    Mr. Zients. The Affordable Care Act saves money.
    Mr. Garrett. I understand that, but is that a tax on me, if 
I do not pay that or is that not a tax?
    Mr. Zients. I am not sure I am following the question.
    Mr. Garrett. You said there is no tax increases on people 
making under $250,000. If I make under $250,000 and I do not 
buy health insurance as I am required to under the Affordable 
Health Care Act, is that tax on me or is that not a tax on me? 
A moment ago you said there is not tax increase.
    Mr. Zients. There are not.
    Mr. Garrett. So that is not a tax?
    Mr. Zients. No.
    Mr. Garrett. That is not a tax? Okay. I want to be clear on 
that because that is not the argument that the administration 
is making. Let's move on before the Supreme Court. I appreciate 
again, the fact that you are from the private sector. Two 
decades in the private sector leading public companies. In that 
area of responsibility, you always had to present a budget, I 
guess, for those companies, right?
    Mr. Zients. Absolutely.
    Mr. Garrett. Right, and that is why I do sincerely commend 
the administration for coming forward with this budget. Do you 
anticipate that this budget will be taken up in the Senate?
    Mr. Zients. I look forward to the policies in this budget 
being put into law, and putting us on a sustainable path. I am 
not an expert in the process of Congress, but I will tell you 
that I look forward to the policies that are embedded in this 
budget.
    Mr. Garrett. When you were leading public companies, would 
it be responsible to have a budget in public companies?
    Mr. Zients. Absolutely.
    Mr. Garrett. When you were leading public companies, would 
it be fair to say it would be irresponsible not to have a 
budget?
    Mr. Zients. Yes, and I would say that, as the CEO of a 
public company, and if you think of the president as the CEO of 
this country.
    Mr. Garrett. Right.
    Mr. Zients. That CEO has come forward on multiple occasions 
with serious proposals.
    Mr. Garrett. I appreciate that and that is why I thank the 
administration, I thank you for being here, just as Paul did as 
well because it is a hard seat to sit in and I appreciate the 
administration for putting pen to paper and actually outlining 
that; that is good so we have something to dialogue with going 
forward.
    Mr. Zients. But I want to emphasize this is not the first 
time the president put forward a proposal.
    Mr. Garrett. I appreciate that, I am just hearing from you 
that it is responsible to have a budget. Last year the 
president proposed a budget to the Senate and he got zero votes 
if I understand. Recently the Senate president said that he has 
no intention of putting a budget up, so as far as I understand 
right now, I commend you and I commend the president for coming 
forward with a budget, but as of right now, if what you said 
before it is the responsible thing to have a budget, it is 
irresponsible not to have a budget; it would seems as though it 
would be irresponsible for Senate President Reid to not take 
this budget up and have a vote on this. Would you agree with 
that?
    Mr. Zients. As the chairman said, the president and 
obviously the legislative bodies put into effect the BCA last 
summer, that serves as a budget, and that is a real 
accomplishment, it keeps us going.
    Mr. Garrett. So we do not need this budget?
    Mr. Zients. What we need is this budget, we need the 
policies embedded in this 2013 budget the president has put 
forward.
    Mr. Garrett. So that only will be done if it will be passed 
into law if Senator Reid takes this up in the Senate. So we are 
both on the same page encouraging the Senate.
    Mr. Zients. I hope the Senate and the House work together 
to make sure that the president's policies are enacted into law 
as soon as possible, to achieve the deficit reduction.
    Mr. Garrett. Let me ask you another quick question, just 
give me a one year answer, if we pass this budget tomorrow, 
when does the budget balance in this country under your 
proposal?
    Mr. Zients. That is not a year question.
    Mr. Garrett. Sure it is. I can put a chart up on the RFC 
budget, or I can put up Paul's budget. He is not answering the 
question. It is a simple question; I am looking for a year. 
Paul's budget can tell us when it is balanced, the RFC budget 
can tell us when it is balanced. A simple year. What year does 
your budget balance?
    Mr. Zients. This budget makes significant progress across 
this decade.
    Mr. Garrett. Is your answer that this budget never 
balances? Is it your answer this budget never balances?
    Chairman Ryan. Time for the gentleman has expired. The 
witness is obviously not going to answer the question. Ms. 
Schwartz.
    Ms. Schwartz. Thank you, Mr. Chairman. I just wanted to 
make a comment or two about the conversation that has been 
going on with the questioning. Two points I wanted to make, 
just quickly on the last questioning. You may want to, and were 
gracious not to, but to point out that the Ryan budget last 
year that was voted by the Republican House did not reach 
balance in the 10 year window. So if that is the standard I 
think the president is doing pretty well.
    Just a comment also about the chairman not wanting to 
acknowledge, what I understand to be the budget process, which 
is to take current law, which might mean law that was passed in 
the past, and apply it to our current budget and to the 10 year 
window. He wanted to take away the fact that President Obama 
actually put war expenditures in the budget, rather than 
considering them emergency spending every year, and did 
anticipate those expenditures in the future to be honest about 
budgeting; and the fact that we are not going to spend all of 
that is a good thing for this country, but it means it gets 
acknowledged in the budget, right?
    Mr. Zients. Absolutely.
    Ms. Schwartz. Secondly, same thing on SGR, the anticipated 
cuts that only happened once in the last decade. Again, this 
budget deals with that in a way. If the chairman is suggesting 
that we do not have to actually make up for that difference in 
SGR, then that make it a lot easier for us if we do not 
actually have to acknowledge that that is the law of the land 
and we have to quote ``pay for it'' which I also consider an 
accounting problem.
    The chairman, in his analysis, if you take all that off it 
means we do not have to consider current law in our budget. 
That is kind of astounding. I do not know how we would. You may 
want to change the budget process but we are in the middle of a 
budget process. If we were at home, or our home budgets, and 
someone said your mortgage is going to go down even though you 
have anticipated what your mortgage payments are going to be 
for the next 10 years. If someone says they are going to go 
down, you change what you are going to spend next year and the 
year after and the year after that. That is all this is doing; 
it is acknowledging the reality of current law and how that 
affects future budgets.
    The chairman of the budget committee just said he does not 
consider that process legitimate, nobody considers it 
legitimate but that is the process of the way the budget is 
determined and how we deal with it. You have done that, the 
president has done that, and to his credit he is dealing with 
the reality of both more savings, the savings that that 
accomplishes, and the cuts that are not going to happen. I do 
not know how we begin to have a discussion about baseline when 
the chairman of the budget committee just denied the way we do 
it.
    Anyway, I want to take the next two and a half minutes just 
to quickly ask you what I think is on the minds of most 
Americans, which is how President Obama moves forward in the 
budget in making sure that we grow this economy, and we do not 
do anything to hurt this fragile economic growth. Maybe even 
more importantly, it makes critical investments in the future, 
particularly in growth industries. So I wanted to just take a 
couple of minutes, if you would, to talk about the critical 
investments that are made in everything from basic research, on 
energy and life sciences, to investments in innovative 
industries, and advanced manufacturing. These are growth 
industries in our nation, we are excited about the increase in 
manufacturing that is happening in this country, but this is so 
important that the president is making clear investments in the 
innovative sector. He is going to create jobs for Americans 
right now and into the future, and if not done, could seriously 
hurt our economic growth in the future.
    Mr. Zients. Agreed. I mean, we are seeing the signs of 
recovery, but we have a lot of work ahead. 8.3 percent 
unemployment is completely unacceptable. The president is 
making investments to continue the job growth. It starts with 
the payroll tax holiday, which I know you are making progress 
on, extending unemployment, fixing, as you said, SGR. The 
president looks forward to signing something soon.
    Ms. Schwartz. We would like to fix it permanently, but that 
is another conversation.
    Mr. Zients. That is a different conversation, but let's get 
it done, let's get payroll tax holiday done so that there is 
not a tax increase on 160 million Americans. So it starts 
there. There is a call for an immediate $50 billion investment 
in infrastructure, which I think is important both for jobs and 
for our global competitiveness. On manufacturing, we are seeing 
manufacturing job growth, which is great. Manufacturing jobs 
are great jobs, they are well paid jobs, and they have great 
spillover effect to other service jobs. There are investments 
in this budget to continue R&D around manufacturing, 
particularly at MIST and at other agencies. We are continuing 
to do research around clean energy, and at the same time we are 
encouraging manufacturing companies to locate here and to 
manufacture here. There are tax incentives for manufacturers to 
do their manufacturing here in the United States. You mentioned 
health care, even in this difficult environment we are 
maintaining NIH's funding and increasing the number of grants.
    Ms. Schwartz. Thank you, all extremely important to our 
economy, thank you.
    Chairman Ryan. Thank you. Mr. Simpson.
    Mr. Simpson. Thank you, Mr. Chairman. I am tempted to ask 
you if you were drafted for this job or you volunteered, but I 
will not go there because it is a tough job that you have and I 
know that, and I appreciate you being here today to present the 
president's budget. I am also fascinated by this discussion we 
have. We get into baselines and all that kind of stuff; the 
American people really do not care about baselines. I do find 
it interesting that you are trying to use OCO savings when 
there is not an account in Treasury with all this money in it 
that we are going to save and not spend. That is the reality. 
As I remember, it was the Bush Administration that signed a 
status of forces agreement, and we have known that we were 
going to be coming out of Iraq for a number of years. So to 
count a continued effort, as we have had in the last several 
years, for the next 10 years and then say we are saving it is 
just phony, which a lot of this budget is, quite frankly.
    I am just a simple guy from Idaho. What the American people 
want to know is how much deficit are we going to add to our 
current deficit if we were to pass this blueprint this year, 
which I understand is $1.3 trillion. How much would it be at 
the end of the 10 year cycle, which I understand is going to be 
still around $750 billion? What would the total deficit be at 
the end of a 10 year cycle if we adopted the president's 
spending plan, point one?
    Point two, is the point that Mr. Garrett made. Every budget 
I have seen except the ones proposed by this president 
previously and this year, never put a target out there of when 
we expect the budget to be balanced, and you ought to at least 
present a budget which says, ``I do not care, 50 years from 
now.'' Make it some time, but tell us when, if we adopt this 
spending plan, when we will achieve a balanced budget, and quit 
adding to the debt.
    The question I have is does this administration really care 
about deficits and debt? They talk a lot about it, but their 
budgets do not reflect that, and I also hear a lot of talk 
about Simpson-Bowles, which I support, but you know what? This 
administration walked away from it.
    Mr. Zients. Well, that was a lot at once. Let me try to 
respond and I will do it quickly, Mr. Chairman. First of all, I 
am honored to be in the job and I am honored to serve this 
president and honored to present this budget. On OCO, I have 
made the points, and I will repeat them. It closes the back 
door. I think we all agree that CBO is our referee, and CBO 
scores it as savings.
    Mr. Simpson. What back door are you talking about?
    Mr. Zients. The back door to more discretionary spending. 
Second, on deficits, I do not think you want to look at this in 
nominal dollars. No one thinks a dollar today is worth a dollar 
tomorrow, so I would rather have the dollar today than 
tomorrow, so let's pivot to GDP and percent of GDP.
    Mr. Simpson. Nobody cares about that, they care about what 
the dollar amount is that you are going to create in deficit 
spending. Constituents that talk to me do not say as a 
percentage of GDP, what is our debt going to be in 10 years? 
You know what they say, is how much are we spending and how 
much are we going in debt and are we becoming Greece? This plan 
is Greece's plan.
    Chairman Ryan. Let him answer.
    Mr. Zients. I think what you are seeing is declining 
deficits in real dollars, which is the right way to look at it. 
You are seeing debt stabilized as a percent of GDP. We are 
hardly Greece, look at our interest rates. This is a place 
where people want to invest, and if we get on the president's 
plan people will want to continue to invest. This budget 
achieves significant savings in the 10 year window. It is a 
step, it is an important step, there is more work to be done, 
and the president has shown his leadership and his willingness 
to work with Congress to achieve deficit reduction and let's 
start by getting the policies in this budget enacted into law. 
We will achieve a good milestone by doing that.
    Mr. Simpson. You do a great job of trying to defend it, but 
I tell you that this budget leads us to Greece. At some point 
in time, we have to balance this budget, and I do not see this 
administration taking any steps to do that. Yes, they make 
little savings here and little savings there, and make phony 
comparisons against a baseline that they have created, and say 
that we are saving money when we are not. I will tell you that 
the American people are fed up with this.
    Mr. Zients. We are not Greece.
    Mr. Simpson. And I am fed up with this.
    Mr. Zients. We are not Greece.
    Mr. Simpson. We are not Greece yet.
    Mr. Zients. And we are not going to be Greece. This budget 
achieves a sustainable of level of debt as a percent of GDP and 
will make sure that this country continues to be a great place 
to invest in. I believe in this country, I believe in our 
workers, I believe in our competitiveness and the president's 
budget supports it.
    Mr. Simpson. You know what, so do I. So does everyone in 
here, so I wish your budget matched the rhetoric that you put 
forward, but I do appreciate you being here because you have a 
tough job.
    Chairman Ryan. Thank you. Mr. Blumenauer.
    Mr. Blumenauer. Thank you Mr. Chairman. Mr. Zients, I 
appreciate your being here.
    Mr. Zients. Thank you.
    Mr. Blumenauer. It is interesting for me, as I have two 
points of reference as I listen to my colleagues go back and 
forth. One is to look at what is proposed on this by the 
presidential candidates running for the Republican nomination 
in terms of more defense spending, no revenue adjustments, and 
even people like George Will pointing out that it is just an 
absolute fantasy land and it will be fun to watch in the 
unfortunate circumstance if you have a Romney budget here, and 
some of you are sentenced to the budget committee again, 
reconciling what he was talking about with this impassioned 
rhetoric.
    When the Republicans were in charge with the Bush 
Administration, what we were presented every year looked better 
because it was not anywhere near an honest budget. I really 
commend you and the president for not being in a fantasy land 
that somehow these overseas adventures are unforeseen, 
supplemental funding, and it is just free money, Congress. That 
somehow we are not dealing with the alternative minimum tax, 
and that we are not dealing with the sustainable growth rate 
for Medicare reimbursement for physicians. If we did the 
fantasy budgeting that my Republican friends accepted, and in 
fact, participated in with the Bush administration, this $700 
billion number would be under $200 billion if you engage in 
fantasy budgeting, which did not bother people when Republicans 
were in charge. I appreciate your laying it out. I appreciate 
the notion of looking at some longer term investments because 
you could not be more right. We are not Greece and the world 
would not be lending us billions of dollars at very low 
interest rates if they thought we were, even remotely. So our 
challenge is how do we move forward over the next 10 years to 
start bending the cost curve.
    I think you have a number of things here that presumably 
even Republicans and Democrats can agree on. I would like to 
zero in on one, where there has been some support around this 
table. The chairman and I have worked on some agricultural 
reforms in the past and it was even one of the good parts of 
his budget. The administration proposes reduction in 
agricultural subsidies. I wonder if you could elaborate on that 
a little bit.
    Mr. Zients. Absolutely. I mean, it is a time of strong 
profitability in the farm sector, and there are direct payments 
going to some farmers, even though they are not producing. Crop 
insurance, the returns, the IRR on crop insurance is too high, 
so there are opportunities to save about $30 billion by getting 
rid of these unnecessary subsidies and at the same time 
continuing to have a very competitive agricultural sector. That 
is part of those savings that I mentioned that were part of the 
other mandatory savings.
    Mr. Blumenauer. Well, I think this is an example of where 
maybe we can stop sort of the posturing, but we will do some 
political posturing and we did it before, we will do it again, 
but this is an area where I think the administration has 
outlined something that we on this committee can get behind. We 
have a farm bill that is expiring September 30th. We can move 
forward with actually more substantial savings.
    Mr. Zients. The exact number in the president's budget, I 
was not off by much, is $32.2 billion. Real money that I think 
makes sense to put into law as soon as possible.
    Chairman Ryan. I think that is the one thing we agree with 
him on.
    Mr. Blumenauer. I would hope, Mr. Chairman, that this is 
something that the committee might roll up our sleeves and do 
some work this year providing some budget committee leadership, 
I know you believe in this, the administration believes in it. 
I just want to say, we are fighting sort of a juggernaut on the 
floor, but I would think that this is something we ought to be 
able to set our sights on, deliver some real savings, show that 
we can work together, and do something that will help the 
American public and actually will help more farmers.
    Mr. Zients. If I may just make one point. I do think it is 
important that as we work together and achieve real deficit 
reduction, that we do it in a balanced way. So it is important 
to find savings in agriculture, it is important to find savings 
in health care. It is also important to get revenue. So this 
budget has $2.50 of spending for every $1 of revenue. We need 
to maintain a balanced approach and not cherry pick here or 
there.
    Chairman Ryan. We have got some time constraints. I 
appreciate it, obviously we disagree with that number, but Mr. 
Calvert.
    Mr. Calvert. Thank you Mr. Chairman. I know Mike left, but 
I want to certainly associate myself to his remarks. Looking 
through this budget, I think it is a lack of leadership that 
has put us on an unsustainable path that, if enacted, would 
lead to this country's economic demise. That is why there is 
little support in the House for this, there no support for it 
in the United States Senate, and I suspect very little support 
throughout this country.
    Thankfully there are a lot of people in this room and 
throughout the country to make sure that this budget does not 
hold. I think the budget we have done here is a responsible 
budget. At least it puts us on a pathway to economic solvency 
and I want to congratulate the chairman and the committee for 
the good work we are trying to do to keep this country fiscally 
sound.
    I also serve on another committee so I want to get into 
some other issues: on the issue of defense acquisitions. I 
serve on the Defense House Appropriations Subcommittee with my 
good friend Mr. Cole, and obviously we are taking a look at how 
we are doing acquisitions, and as the budget requests delays 
and restructures several major acquisition programs, including 
the joint strike fighter, the Army's ground combat vehicle, and 
the replacement for the Navy's ballistic missile submarine. You 
are claiming that these delays will save taxpayer money. 
Historically, stretching out these defense acquisition 
programs, do those reduce costs or are you just shifting those 
costs outside that budget window?
    Mr. Zients. I would like to actually start with your 
comment about our economic demise. Maybe I am just more 
optimistic about this country, but I think a budget that puts 
people back to work and at the same time puts on a sustainable 
path to deficit reduction.
    Mr. Calvert. You are claiming my time. I am optimistic too 
because I know that your budget is not going to get to see the 
light of day, so we are going to move ahead with our own budget 
plan which will actually pass the House, but the question is on 
the Department of Defense.
    Mr. Zients. So on DOD, I think it is really to understand 
that this is strategy first, budget second, so this is a 
strategy which is consistent with what Secretary Panetta, his 
leadership team, and the president all believe is the right 
strategy. The budget, as you know, does have a 1 percent 
decrease in DOD, so the secretary is making tough choices. I 
think you should talk to him about specific programs. I think 
you cannot generalize. I do know a little bit about contracting 
and procurement. I think you cannot generalize on that, and I 
think you need to look program by program and any specific 
questions you have I would direct to the secretary.
    Mr. Calvert. I will be talking to him tomorrow, but as you 
probably well know, being from the private sector, and I am 
from the private sector myself, when you push off these large 
acquisition programs, your costs increase and there are a 
number of studies that show that the cost increase on this is 
as high as a 40 percent increase in the actual acquisition 
cost, but that will not show up in the budget numbers because 
you are shifting those numbers beyond the budget window. So 
there is something that we are very concerned about. One, in 
additional costs that it puts on these programs, which makes it 
more difficult to explain to the American public why we are 
expending as much money for these particular programs as we 
are, when it is unfortunately because of the way we are 
acquiring these weapon systems.
    Mr. Zients. I think Secretary Panetta has a very well 
thought through plan and I would suggest you direct that 
question to him.
    Mr. Calvert. Thank you. Thank you, Mr. Chairman.
    Chairman Ryan. Thank you, Mr. Calvert. Mr. Yarmuth.
    Mr. Yarmuth. Thank you Mr. Chairman. Mr. Zients, thank you 
for being here and for your testimony. Quick question in 
relation to something that Mr. Garrett raised, however you 
characterize it, fine, tax under the Affordable Care Act. You 
said there were no new taxes in this budget. If I am not 
mistaken, that fine, budget, or tax was in existing law prior 
to this budget being submitted; and therefore by the chairman's 
own standards, those things that are in existing law you do not 
get credit for or blamed for. Well, the implication that in 
some way this budget raised revenue through that vehicle does 
not meet the standard which the chairman set, would you not 
agree with that?
    Mr. Zients. Yeah, I think it is important that in this 
budget there are no increases on families earning less than 
$250,000, and in fact, there are important tax breaks including 
the American opportunity tax credit which gives up to $10,000 
for tuition credit, tax against tuition, which is important as 
part of our global competitiveness, and ensuring that people 
can afford to go to college. We need to rebuild and make sure 
that we are doing what is right by the middle class and this 
budget does that.
    Mr. Yarmuth. Thank you. I am going to get a little 
parochial for a second.
    Mr. Zients. Please.
    Mr. Yarmuth. Over the last three years, the administration 
has proposed to repeal the LIFO accounting method, and I 
understand that by your calculations that would result in about 
$78 billion worth of revenue. Obviously, that accounting method 
has been used for a long time and has been considered a valid 
accounting method for certain business, including one that is 
near and dear to the heart of all Kentuckians, the bourbon 
distilling industry, and the justification being that bourbon 
by law has to be aged for quite a long period of time. I have a 
Fortune 1,000 company based in my district, Brown-Forman 
Distillers, which would be adversely impacted to the tune of 
several hundred million dollars by this change.
    Meanwhile, Brown-Forman does about $3.4 billion worth of 
business, about half of that is exported. So it is contributing 
to helping our trade balance. My question to you is while 
calculating the impact of the change in LIFO accounting 
methods, just in terms of the revenue side, has OMB calculated 
the other implications economically of that change, including 
the possible death of some businesses in the country?
    Mr. Zients. On the LIFO, that disproportionately benefits 
oil and gas producers who have record profits and there is a 
lot of gaming that can go on through that LIFO system. As you 
know, the Treasury secretary really is the point person on 
specifics around individual tax policy, so I will defer to 
Secretary Geithner on the calculation and how cost and benefits 
are weighed.
    Mr. Yarmuth. I appreciate that, I have raised that with 
Secretary Geithner as well. Quick question, when I am home this 
weekend and I am in Costco, I know Mr. Simpson says people do 
not care about it, but in case somebody is watching this and I 
am walking through Costco, or Kroger, or someplace and a 
citizen says why should I care whether the deficit and debt are 
percentages of GDP as opposed to nominal numbers, whether it is 
$11 trillion here in this calculation or in the Republican 
budget that was passed last year the $6 trillion. Why does that 
matter to the average citizen?
    Mr. Zients. I think it matters because we need to make sure 
the average citizen understands that we are doing what we need 
to do right now to bring down the unemployment rate, to make 
sure that people are employed and there are plenty of jobs, and 
that we are making the investments to make us a more 
competitive country. We are doing it at the same time as we are 
bringing our deficits down, and creating a sustainable level of 
debt to GDP, so that this maintains our standing in the world 
as the place to invest. I mean, you see it, as we mentioned 
earlier, in our current interest rates and we need to maintain 
an environment that has both American companies and global 
companies investing here.
    Mr. Yarmuth. And that would be the difference between 
United States and Greece?
    Mr. Zients. Absolutely.
    Mr. Yarmuth. Thank you.
    Chairman Ryan. Mr. Akin.
    Mr. Akin. Thank you, Mr. Chairman. Just a couple questions, 
you just said a minute ago this is a budget that puts people 
back to work. Boy, it would be nice if that were, in fact, 
true, but I am not so sure that I am sold on that idea. First 
of all, in a larger context, when you tax small business owners 
and increase taxing them, what the effect of that is going to 
be is to make their business less competitive and harder to 
create jobs, but specifically I want to call your attention to 
your tax increases that you have got. My understanding is that 
under American energy producers, you have a repeal of the 
percentage depletion for hard mineral fossil fuels, i.e. coal. 
So, you are going to repeal a percentage depletion for coal. 
How is that going to affect the income taxes of a coal company?
    Mr. Zients. It would increase them.
    Mr. Akin. It would increase them. About what amount?
    Mr. Zients. I do not know the exact percent, but I can 
follow up with you on that.
    Mr. Akin. Well, you do not really need to. I know, okay? 
They are paying about a 22 percent tax. This would double it. 
What this does is it basically puts coal companies out of 
business. Now, there are a bunch of mines that are already 
closing down, but this thing here is going to shut down the 
coal industry.
    Now, I do not understand how shutting the coal industry, 
along with some other administrative policies, such as delaying 
permitting and expansion of the streams rule so you cannot dig 
under half of the coal that is in an area which makes long-wall 
mining just go out the window. What you are doing is you are 
shutting an entire industry down, this budget is a key part of 
driving the last spike in the coffin of coal. So, how you can 
say that this thing is a budget that puts people back to work, 
I just do not feel like that that is a reasonable assertion at 
all.
    Mr. Zients. May I respond?
    Mr. Akin. Yes, you may.
    Mr. Zients. I think you might be overstating the impact on 
coal companies, but we can continue that dialogue.
    Mr. Akin. Do you not think doubling their federal taxes is 
pretty significant?
    Mr. Zients. Overall on small businesses the president has 
done 17 different tax breaks for small businesses. This budget 
has further tax breaks for small businesses that allows small 
businesses to write off 100 percent of their investments. It 
also gives them a tax credit as they increase their payroll. 
So, the president believes that small business is vital to this 
economy and the growth of this economy and has supported small 
businesses in a very vigorous way.
    Mr. Akin. Yeah, well let's see how we are doing that in a 
vigorous way. First of all, we are increasing death taxes, so 
that makes it hard. That is an increase on the tax of small 
business.
    Mr. Zients. I am sorry, are you talking about the estate 
tax?
    Mr. Akin. Yeah, estate tax, death tax, same thing.
    Mr. Zients. So, just to respond to that, it is at the 2009 
level, which has a $7 million exemption. I believe it impacts 
less than 0.3 of one percent of estates.
    Mr. Akin. Well, the point of the matter is you go death 
taxes and capital gains, that is the money, and that is the 
seed corn financially of people making investments, which gets 
businesses going. And if we have a policy of first of all 
taxing them more, so this is a budget that is going to tax them 
more, and then we follow that up with, of course, all the other 
regulations that you are burying them in, I do not understand 
how this is going to help. But, particularly, I take extreme 
exception not only to that, not to even mention what you are 
doing to defense and the 10 percent and with the other 10 
percent cut coming, but this is not a budget that does anything 
that puts people back to work. I think this is a budget that is 
going to specifically destroy a lot of industry and a lot of 
jobs. I yield back.
    Chairman Ryan. Thank you. We are making up some time. Mr. 
Pascrell.
    Mr. Pascrell. Thank you, Mr. Chairman. When does the budget 
balance? I think that is a great question, Mr. Zients, and you 
were put to the test by the ranking member, my friend from New 
Jersey, when he asked you that question in different ways and 
different times, and he claimed that you never answered the 
question.
    You know, Dante's Inferno is the terrace, and we are 
looking at it right now. The budget that was presented to us 
not that long ago, Mr. Chairman, your budget, was balanced on 
the positive in terms of the percentage of GDP in 2063. Let me 
finish, please.
    Chairman Ryan. Okay, but if you want to be accurate.
    Mr. Pascrell. I am going to get back to you. I always allow 
you to speak. 2063.
    Chairman Ryan. The debt was paid off by then.
    Mr. Pascrell. Fifty years, balanced budget, that is what we 
are talking about.
    Chairman Ryan. That was when the debt was paid off.
    Mr. Pascrell. You took in your budget, and I thought you 
were courageous to present one. So, hear me out. I said that to 
you once before. It took revenue off the table, all revenue, no 
increases, and the CBO said we had annual deficits of 3.5 and 
4.5 percent of GDP. So, it was estimated in the budget that you 
presented, and please correct me if I am wrong, to add $62 
trillion into the debt before going into balance out. It is 
difficult to have a five year budget let alone a ten year 
budget. You do not know what is going to happen. You do not 
know the emergence. Of course, when you are not paying for 
anything, it does not matter, but we are paying for things now. 
We are trying to do it. I think both parties are trying.
    Chairman Ryan. Would you politely yield?
    Mr. Pascrell. Go ahead.
    Chairman Ryan. Draw a figure eight if you can. Here is the 
point. This is really tough stuff.
    Mr. Pascrell. It is.
    Chairman Ryan. It is really hard given the tough fiscal 
situation our country is in to balance. So, the question is 
what path are you putting the country on, what trajectory are 
you putting the country on?
    Mr. Pascrell. I agree with that.
    Chairman Ryan. Ours, as you can see, balances the budget. 
It takes a long time, but the key is you are getting the debt 
downward and paid off, which is that date you are talking 
about. The baseline, the status quo we have, which is what this 
budget essentially does, sends our debt into the stratosphere, 
and that is the point.
    Mr. Pascrell. Well, we have different stratospheres. I 
understand that. And if we work together, we perhaps could move 
towards some tangible evidence. So, you cannot oversimplify 
these things. You cannot ask Director Zients out of context. It 
is a simplification. It does not work. It does not work.
    Now, as a former member of the Transportation and 
Infrastructure Committee, I believe that funding for roads, 
bridges, buses, trains, is an investment in the economy. I have 
never seen an economist say otherwise. They are right once in a 
while. According to the American Society of Civil Engineers, 
our infrastructure is graded as D minus. That is no surprise to 
anybody around the table. The president's budget includes $50 
billion in upfront investments, and a $460 billion six year 
reauthorization, which is 80 percent increase. This is in 
contrast with the budget of the transportation committee that 
is coming up, not today or tomorrow, in the future. Headline 
news.
    On that top, we learned yesterday that the Congressional 
Budget Office has found that this legislation leaves the 
highway trust fund $78 billion more in the hole, but I got to 
take exception to one thing in this budget. I have an exception 
on many.
    I am supportive of the transportation budget in the 
president's proposal. I got a major problem with the 
retroactive cap on the municipal bond tax preference. How long 
are we going to take to minimize and target municipalities in 
this country which get very little help from anybody anywhere 
until their town, small or large, goes under? The phase-out 
could result in higher borrowing costs. Where are they going to 
get this money? I want you to tell me where they are going to 
get the money for state and local governments to pay the higher 
rates on what you are suggesting, and I think that this would 
be a disaster for municipalities who have had to lay off 
police, fire, teachers, et cetera, large and small towns, 
Republican and Democratic towns. This is an absurdity, and I 
would like to know your answer if I could, Mr. Chairman. Go 
ahead.
    Mr. Zients. Well, I think on the specific tax policy, I, 
again, will defer to Secretary Geithner in terms of your 
transportation comments, I could not agree more. It is actually 
a $476 billion reauthorization, six years. The other thing I 
would note is that the president has $30 billion in the budget 
to make sure that teachers and first responders and other key 
people at the state and local level keep their jobs and are put 
back in their jobs. So, the transportation is a win-win. It 
puts people back to work and helps make us more globally 
competitive.
    Mr. Pascrell. Mr. Chairman, I would ask you to take a look 
very carefully at this point. We do not know the consequences 
of this or understand it. Neither party did in the past 10 
years. I am asking you to look at it because we are burying our 
municipalities.
    Chairman Ryan. Duly noted. Mr. Cole?
    Mr. Cole. I want to agree with my friend, Mr. Pascrell. I 
think you were courageous to offer the budget you did. I think 
this committee was courageous to pass it. I think the House was 
courageous to pass it. I am sorry that my friends, when they 
were in the majority, did not do a budget the last year, and 
our friends in the Senate have not done one in 1,000 days, and 
we find precious little support for the president's budget on 
his side of the aisle. So it is tough to grapple with these 
things.
    Mr. Zients, I am almost reluctant to say that I am happy to 
see you here, because every time somebody does that, they spend 
the next four and a half minutes beating you up, but I really 
am happy to see you here.
    Mr. Zients. Thank you.
    Mr. Cole. I know you will do a good job for the president; 
you have served him well in your previous capacity. Let me put 
a hypothetical in front of you, but I think it is a reasonable 
hypothetical. First, let's just posit that you get the revenue 
increases in your budget, and those actually occur as predicted 
in the budget. And let's posit for a minute that discretionary 
spending actually does a little bit better, and we have 
actually spent less on the discretionary side and the 
appropriations process than the president asked for the last 
two budget years. We have the Budget Control Act going forward, 
which kind of put a ceiling on that, and I think we actually, 
on the discretionary side of things, can do even better than 
the president projects.
    So if those two things happen, is there any realistic 
chance of this budget ever balancing absent some sort of 
serious entitlement reform?
    Mr. Zients. Well, I think that, you know, the ACA, the 
Affordable Care Act, resulted in about $100 billion of savings 
in the first decade, a trillion in the second. In this budget, 
there is $360 billion of further health care savings through 
the efficiency gains, effectiveness gains that I talked about 
earlier. There is $270 billion of non health care mandatory 
programs. It is an important policy to get done.
    Mr. Cole. But can it ever balance?
    Mr. Zients. We need to keep working on it.
    Mr. Zients. We need to keep working to see how we maintain 
the compact that we have with our seniors at the same time.
    Mr. Cole. I agree. Is it fair to say that means no, that we 
are going to have some sort of entitlement reform to get 
further to where we all want to be.
    Mr. Zients. Yeah. I will go back to my private sector 
experience. Sometimes when you face a really big challenge, you 
keep going at it, and you keep making incremental progress, and 
you do it in a way that maintains the compact that we have with 
our seniors. The Republican budget breaks that compact. It is 
asking folks in 2022 to pay $6,500, $6,400 more according to 
CBO. That breaks a basic compact.
    Mr. Cole. I would disagree with that.
    Mr. Zients. We can keep that compact and keep going after 
it.
    Mr. Cole. Reclaiming my time, what is the president's plan 
then to deal with this?
    Mr. Zients. The plan is to make this progress and this 
budget, have these policies enacted into law, and continue to 
work together to make continued improvements to these programs 
to ensure that we are maintaining the compact and at the same 
time bringing down cost.
    Mr. Cole. Do you think the president will tell us what his 
plan is before the next election so we know what is going on?
    Mr. Zients. I think the president, on multiple occasions, 
has shown leadership, come to the table with serious 
discussions, and each and every time has been rebuffed, meaning 
no one is willing to take a balanced approach to deficit 
reduction.
    Mr. Cole. Reclaim my time, but I will disagree with you on 
that. You show leadership when you present a plan. We have not 
got a plan on entitlement reform.
    I have limited time, but let me ask you another question. 
You referenced in your initial remarks that it looks like we 
are making progress on the payroll tax, and we may well be. We 
will probably all have to all hold our nose on both sides of 
the table and accept some things we do not like, but that 
potentially could happen this week. Do you continue, in your 
budget, the payroll tax holiday next year, or do you assume 
that we are going to return to, as I think we should, quite 
frankly, hopefully the economy is stronger and we can return to 
the normal Social Security taxes and revenues that we project 
on current taxes.
    Mr. Zients. It is the latter. We are confident that we will 
be in the type of shape economically that we can end the 
payroll tax holiday.
    Mr. Cole. Okay. So, you are pretty sure?
    Mr. Zients. Yes.
    Mr. Cole. Very good. Thank you very much. Last question, 
and we have had a lot of discussion about OCO, and, again, I 
disagree with you on projecting $850 billion worth of savings, 
but how do you do that unless you can figure out what we are 
going to spend if we go to war someplace else? You are taking 
savings, saying we are ending wars, but the next 10 years is 
very unpredictable. And you have no place in there where you 
would assume we would spend money to go to war, but there is a 
pretty good chance.
    Mr. Zients. Well, I do not want to speculate on the 
international scene; that is definitely s for Secretary 
Panetta. I will point out that there are $450 billion in OCO 
still in the budget in this situation where we are saving over 
$800 billion.
    Mr. Cole. Okay.
    Mr. Zients. It is not as if OCO is going to zero. There is 
$450 billion.
    Mr. Cole. Thank you very much. I appreciate and yield back, 
Mr. Chairman.
    Chairman Ryan. Mr. Honda.
    Mr. Honda. Thank you, Mr. Chairman. I appreciate it. And 
thank you for your presence here. The budget is, I think, for 
the public, and I agree with Mr. Simpson that when we talk in 
terms of percentage of GDP, people's eyes just glaze over 
because it is just not something that we talk about on a daily 
basis; it is not a common language outside of the beltway. 
Having said that, we have been talking about extending the 
payroll tax cut and the unemployment insurance benefits, and 
the information I have says that if we extend the 2 percent 
payroll tax cut and the unemployment insurance benefits, that 
could add about 0.5 percentage points to the economic growth in 
2012, and supply between 120,000 and 600,000 jobs. Mark Zandi 
of Moody's Analytics has estimated that doing this would add 
0.9 percentage points to economic growth, which is almost 
double.
    The nexus between the continuing and extending of the 
payroll tax cuts and the job creation, how does that happen? I 
mean, how do you create the jobs from the tax cuts? What is the 
economic dynamics that happens and people's motivations? What 
is the thinking?
    Mr. Zients. Well, I am not a macroeconomic guru by any 
stretch, but the statistics that you cite, I think, are widely 
accepted statistics, and by ensuring that families have an 
extra $40 in their payroll at each paycheck through the end of 
the year has great spillover effect. They go out and they spend 
that money, and that creates additional jobs.
    Mr. Honda. It is just that simple?
    Mr. Zients. I think that is the basis of it. It is, again, 
a very complex set of interrelated issues, but when people have 
more money in their pocket to spend, they are able to spend it, 
and they are able to help stimulate the economy and create 
jobs.
    Now, I want to be clear that the president's plan is not 
just the payroll tax cut. It is extending the unemployment, as 
we have talked about.
    Mr. Honda. Right.
    Mr. Zients. But it is also an immediate $50 billion 
investment in infrastructure. It is ensuring that there is 
money for us to retain first responders. It is to hire veterans 
and to continue to make changes that will help our housing 
market rebound.
    So this is a multifaceted approach. We need that, given 
that we are still at 8.3 percent unemployment. We need to 
attack on all fronts and get people back to work.
    Mr. Honda. So, since we have done this for a while now, are 
there any hard data that we can look at and say since we have 
done this, it has created X amount of jobs?
    Mr. Zients. I think the most important thing we can look at 
is that, thankfully, across the last several months the 
unemployment rate has come in quite a bit. It is not where we 
want it to be at 8.3 percent, but it is moving in the right 
direction. GDP growth is moving in the right direction. Now is 
not the time to stop. Now is the time to continue to make the 
investments, to put people back to work, and make our country 
more competitive.
    At the same time, we will be putting ourselves on a path to 
deficit reduction and stabilize our debt, which is important 
for our medium and long term.
    Mr. Honda. And there will be a point when we will withdraw 
the tax cuts?
    Mr. Zients. Well, I think I was just asked that question, 
and the plan is that the payroll tax cut be extended through 
the end of the year. That is very important, but that there are 
no plans for additional payroll tax holidays.
    Mr. Honda. And does the Chamber of Commerce or any other 
organization reflect that same kind of sentiment and data?
    Mr. Zients. Sure. I mean, I think there is widespread 
belief that the payroll tax holiday helps to create jobs and 
helps our recovery. And, if you would like I can have our staff 
follow up with some of the specifics on that.
    Mr. Honda. Yeah, and for the future maybe we can find some 
other terminologies when we talk about percentage of GDP.
    Mr. Zients. We will work on that.
    Mr. Honda. This is a way where we can educate ourselves and 
educate the general public when they hear terminologies.
    Mr. Zients. I think the main thing is the general public 
needs to understand that there is an immediate emphasis on job 
creation, getting people back to work, which is essential for 
our economy and for individuals and for families and for the 
middle class, and at the same time, we do need to bring down 
our deficits to a point where they decline. We have stable 
debt, and therefore, as a percent of GDP, I hate to use that 
terminology, but they are stabilizing debt. And that makes sure 
that we, as a country, remain the favorite place to invest, 
both for American companies and for global companies.
    Mr. Honda. Thank you, Mr. Chairman. Thank you.
    Chairman Ryan. Thank you. Dr. Price.
    Mr. Price. Thank you, Mr. Chairman. I think that I want to 
welcome you, Mr. Zients, but I think the American just have a 
huge frustration about what is happening here in Washington, 
and they do not get a sense that anybody is dealing with the 
issues honestly and forthrightly; and this budget, I think 
compounds that.
    If you look at what some folks are saying across the 
country, the Wall Street Journal says, ``promises of future 
spending cuts are a mirage. Mr. Obama needs to point to the 
mirage, because his fiscal record is the worst in modern 
American history.'' The Washington Post says, ``Mr. Obama's 
proposed budget for fiscal year 2013 falls short. The final 
budget of his first term does not reflect the leadership on 
issues of debt and deficit that Mr. Obama once vowed.'' 
Bloomberg says, ``it is a wasted opportunity,'' on and on and 
on.
    As a physician, I can tell you that the doctors across this 
land and the patients across this land are very concerned, and 
that the pact that they have with each other, the ability to be 
able to provide the highest quality of healthcare in the 
country, they see eroding away. I want to go to the big 
picture, if I may. What revenue do you project for the United 
States in the next fiscal year. Ball park?
    Mr. Zients. Are we doing fiscal year 2013?
    Mr. Price. Correct.
    Mr. Zients. The total receipts for the U.S. Government is 
$2.9 trillion.
    Mr. Price. And what level of spending do you project?
    Mr. Zients. $3.8 trillion.
    Mr. Price. $3.8. And the discretionary amount?
    Mr. Zients. Is about a little over a trillion dollars.
    Mr. Price. A trillion. So, if you removed all discretionary 
money, then we would barely get to balance under your current 
budget. Is that right?
    Mr. Zients. Yes. I mean, discretionary spending, so you 
know, is going down.
    Mr. Price. I understand that, but, if you removed it all, 
that is all the spending at the federal level completely?
    Mr. Zients. Well, given that we have a deficit of about 
$900 billion dollars.
    Mr. Price. My point is, Mr. Zients, is that the concern on 
the health care side is that unless we address the fundamental 
reforms that are necessary to save Medicare and Medicaid, that 
we are ignoring the problem. So, what solutions are 
incorporated in this budget for Medicare, for example?
    Mr. Zients. So, it starts with the Affordable Care Act, 
which saves $100 billion in its first decade, a trillion in its 
second.
    Mr. Price. In this budget?
    Mr. Zients. Then there is $360 billion in this budget which 
has things like when people move from Medicaid to Medicare they 
get the same drug rebate that we get as a government, the same 
drug rebate that they got in Medicaid, that we get that in 
Medicare. That saves a lot of money.
    Mr. Price. You are not presuming to tell me that that is 
the major fundamental reform that is going to save Medicare?
    Mr. Zients. No, no.
    Mr. Price. So, the major fundamental reform that is going 
to save Medicare in this budget is?
    Mr. Zients. The major fundamental reform is to keep going 
at it the way the president has. Here is $360 billion of 
savings. I think the framework that we start with or the 
principle we start with is that we have a compact with the 
American people.
    Mr. Price. If I may, I have only got a short period of 
time. In your own budget, Medicare spending in 2022 is a 
trillion dollars, and this next year, $487 billion.
    I want to revisit, if I may, the Independent Payment 
Advisory Board, because it is of great concern to patients 
across this land, because they believe it to be, as I believe 
it to be, a denial of care board.
    I think in your earlier comments to the chairman, you 
mentioned that this budget would give new tools to the 
Independent Payment Advisory Board through value-based benefit 
design changes that you intimated could cut benefits to 
beneficiaries.
    Mr. Zients. I want to be clear that we attribute no savings 
to that board. That board is there as a backstop if we do not 
get the savings that we have committed to.
    Mr. Price. And a backstop requires that there is a catcher 
to catch the ball first, and I would suggest that there is no 
catcher in place.
    Mr. Zients. Right.
    Mr. Price. And therefore, Mr. Zients, if I may, the 
backstop will be the only thing there.
    Mr. Zients. If you look at the data, health care costs on a 
per-person basis is coming in. It came in quite a bit. So, we 
are making progress in making health care more effective for 
more people.
    Mr. Price. I have got 30 more seconds, and I just want to 
share with you the concern that the physicians of this land 
have, and that is that they are no longer able to have that 
physician-patient relationship that allows them to provide the 
quality of care that they believe is most important for their 
patients. They also believe that the whacking away at providers 
in this country is destructive to the ability of them to care 
for their patients, and consequently, the patient's access to 
care is being terribly eroded, and this budget continues that.
    Mr. Zients. I think the Affordable Care Act is very 
sensitive to that patient-physician relationship in making sure 
that we work together in a way across the whole health system 
so that we maintain that relationship and improve the system, 
both in terms of its outcomes and lowering its costs.
    Mr. Price. Thank you for pointing me to that.
    Chairman Ryan. Thank you. Ms. Castor.
    Ms. Castor. Thank you, Mr. Chairman. Welcome, Director 
Zients.
    Mr. Zients. Thank you.
    Ms. Castor. I thank you for all of your hard work and your 
whole team. The economy is getting better. We have had 23 
months of private sector job growth. The unemployment rate is 
at its lowest level in three years. I think the first chart we 
had up tells the story. Small business confidence is growing, 
but it is clear that our country must do more to accelerate job 
creation so that our neighbors have good jobs, and the non-
partisan CBO gave us some good, healthy advice just a few 
months ago, and Director Elmendorf reiterated that when he was 
here just a week or two ago that if America can create more 
jobs, we can reduce the deficit. So, it is very important to 
see the administration's job creation strategy that also 
doubles as a debt reduction strategy.
    I would like you to focus in a little bit on the 
administration's job creation strategy. I know it has not been 
easy because the president's American Jobs Act has been blocked 
by the Republican Congress, but I am happy to see that in this 
budget the president does not give up on a number of investment 
strategies and job creation strategies. If it is 
infrastructure, research and innovation, I appreciate that you 
believe that we need to continue to invest there, and I would 
like you to focus on education, because it is vitally important 
that America continue to invest in students and our future 
workforce. They have got to be trained and talented to focus on 
the challenges of the coming decades.
    So, would you go through the education section? I represent 
a community where we have a large public research university. 
We have a private universities and colleges and a substantial 
community college presence. They are going to be very 
interested in what you are proposing for the Pell grant, what 
you are proposing for community colleges, and other investment 
and job creation strategies.
    Mr. Zients. As you know, it is one of the most important 
areas of focus for the president, which is to ensure our long-
term competitiveness and to invest in education. I will hit on 
a few highlights, but the budget is very robust as to education 
from early childhood through college.
    In terms of a few of the highlights I mentioned earlier, 
the American Opportunity Tax Credit, which gives up to $10,000 
of tax breaks for tuition, the community college area is very 
important. The president, just this week, announced a new $8 
billion initiative to work with our community colleges around 
the country, working closely with businesses in those community 
college areas to ensure that we are putting together the right 
courses and the right teaching, so that when folks graduate, 
when they do their courses, they have jobs, and we expect that 
will impact two million students around the country.
    The other area I would touch on because you touched on it 
is Pell grant. The president's budget has the Pell grant at the 
higher level of $5,600 or $5,650, funded for two years, and I 
think more than nine million students are part of the Pell 
grant program.
    So, that is three of many initiatives. The president also 
really believes that we need to make sure that college is 
affordable. If tuition increases, continue to compound that 
rates above inflation, students either cannot afford to go to 
college or they leave with debt that is too high. The president 
has a real emphasis on making college more affordable by having 
incentives for colleges to begin to reign in their tuition 
increases.
    So, from early childhood, to K through 12 through college, 
this president and this budget focuses on education and making 
sure that we are able to compete and win in this global economy 
by having the best educated workers.
    Ms. Castor. And the president's also continued to put 
emphasis on the portion of the American Jobs Act creating jobs 
through public school modernization and renovation because all 
across the areas that I represent the state has, and this is 
not unique to Florida, but many states have rescinded in what 
they are able to do in schools, and we could put thousands and 
thousands of people to work renovating schools.
    Mr. Zients. Well, it is a great situation, and it is $30 
billion to both modernize our schools, which is great for 
education, and, at the same time as you point out, puts people 
to work. This proportionally puts construction workers to work 
who need jobs, so it is a great opportunity to get a two-for: 
improve our schools, which is great for our students, which 
will make them better educated and more competitive in this 
global marketplace, and it immediately puts people to work. So, 
$30 billion is in the president's budget to do just that.
    Ms. Castor. Thank you.
    Chairman Ryan. Thank you. Mr. McClintock.
    Mr. McClintock. Thank you, Mr. Chairman. The ranking 
member, I think, put his finger on the great question 
confronting this committee, and, for that matter, confronting 
this nation. He made two statements, one of which I disagree 
with, the other which I heartily agree with.
    He said that this administration had inherited the worst 
economy since the Great Depression, and I agree it inherited a 
terrible mess. But, I seem to remember a time more recently 
when we had double-digit unemployment, double-digit inflation, 
mile-long lines around gas stations, and interest rates at 21.5 
percent. That was the end of the Carter administration. We 
elected Ronald Reagan who adopted policies quite the opposite 
of this administration.
    Perhaps the reason the ranking member does not remember 
those days as vividly is because they did not last very long, 
and those policies produced one of the great economic 
expansions in our nation's history. In fact, Phil Graham 
recently published an article in the Wall Street Journal which 
he estimated that if the economic recovery under this 
administration had tracked the same as the Reagan years, we 
would have nearly 17 million more Americans working today with 
per capita income about $5,500 greater than it is today; which 
brings me to the point that he made, that I heartily agree 
with, when he says that we cannot return to the same policies 
that got us into this mess. Amen to that. We have to ask 
ourselves what were those policies? The Bush administration 
increased spending by over 2 percent, over 2.5 percent of GDP. 
They expanded entitlement spending massively. They turned in 
massive budget deficits, and they presided over an 
unprecedented government intervention in the housing market, 
encouraging bad loans by dragooning taxpayers into covering the 
losses for those bad loans.
    My beef with this administration, and my concern over this 
budget, is that it has not only not corrected those mistakes, 
those policies, but instead has repeated them and doubled-down 
on them, which brings me to the concerns that I would like to 
raise with this budget and get your feedback.
    A year ago, we had one economist after another coming 
before this committee warning us that the federal government 
needs to get its finances in order in the next three to five 
years to avoid a fiscal meltdown that would dwarf the 2008 
crisis. One of those economists was Secretary Geithner, and I 
would like to read you a quote from his testimony. He said, 
``Over the next five to 10 years, we have an unsustainable 
fiscal position. We have to get that down to a level where the 
debt is not growing as a share of the economy. Without that, 
nothing else is possible and will do a lot of damage to future 
growth and confidence.''
    That is very important. Now, I want you to listen very 
carefully to this next line, Mr. Zients, because I am going to 
need your guidance on it. ``That is why you need to bring the 
deficits down over the next three to five years to something 
that achieves primary balance. That is a minimum necessary.'' 
Does this budget bring us down to primary balance in that 
timeframe?
    Mr. Zients. I will answer your question in one second.
    Mr. McClintock. Well, I only have one minute and 30 
seconds. My comparison was not a question, it was a statement. 
I would like you to answer a question. Does this budget bring 
us to primary balance?
    Mr. Zients. Yes, it does.
    Mr. McClintock. In what period of time?
    Mr. Zients. Five years.
    Mr. McClintock. From now?
    Mr. Zients. Yes.
    Mr. McClintock. Okay. So, it is not the minimum that 
Secretary Geithner set last year of three to five years from 
last year?
    Mr. Zients. The budget achieves primary balance in 2018, 
given unexpected economic situation, which a lot of which was 
controllable around the debt ceiling. If we had avoided that, 
we might have had a better economic recovery.
    Mr. McClintock. Mr. Zients, I am going to have reclaim my 
time because I need to get back to the credibility of that 
statement. In 2009, the president projected a $581 billion 
deficit for fiscal year 2012. By 2010, his 2012 estimate had 
grown to $828 billion, an increase of 41 percent in his 
projection in just a single year. In February of 2011, the 
president's projected 2012 budget deficit grew to $1.1 
trillion, and this year the president projects that deficit to 
be $1.3 trillion, which is 128 percent increase over his 
projection at the beginning of his term. So, why should we 
trust your budget projections three or four or five years into 
the future when we have a track record of grossly distorted 
projections under this administration?
    Mr. Zients. Well, I think the first thing to start with is 
your comparison to the Reagan recession. It is apples and 
oranges. That was fueled by inflation, and Fed policy was the 
answer. You get out of a recession like that much more quickly 
than a financially-led recession, which is unfortunately what 
we inherited based in large part on those policies that you 
articulated so elegantly at the beginning.
    So we started in a hole. We thought it was a hole that was 
about negative 3 percent of GDP. It ended up being negative 8 
percent for Q4 of 2008 and Q1 of 2009, so a much deeper hole. 
We are digging our self out of that hole, and the president's 
budget puts us on a sustainable path.
    Chairman Ryan. If you want to keep to your schedule, or you 
want to be out by 12:30. I am trying to get through everybody.
    Mr. Zients. Please.
    Chairman Ryan. Mr. Tonko.
    Mr. Tonko. Thank you, Mr. Chair. Mr. Zients, thank you for 
joining us here today. I want to use my brief time here today 
to focus on the issues of fairness that are emphasized in this 
budget proposal. I want to read briefly from a letter that 
Chris, a constituent of mine from Schenectady, New York, wrote 
almost exactly one year ago. He writes of his thanks for living 
in a society that has allowed him, his wife, and their two 
children to succeed, and the role that things like public 
infrastructure and public education played in their success. He 
concluded his eloquent letter with this, ``We are not rich, but 
as Americans, we are willing to give back to the country that 
has given so much to us. We feel a responsibility to ensure 
that others have that same opportunity that we benefit from. As 
my elected representative, I want you to know that when our 
government requires additional revenues to close the budget 
gap, we are willing to do our share. If it becomes necessary to 
raise taxes to preserve essential social services, I will 
consider it an honor to support them through my 
contributions.''
    This committee, on both sides of the aisle, is rightfully 
concerned about the future of our deficit. In 2011, federal 
spending was 24.1 percent of GDP. Tax revenue was 15.4 percent 
of GDP. There is a pretty big gap between those two numbers. 
That tax rate, 15.4 percent of GDP, is the lowest, I would 
point out, since President Eisenhower was in office, before 
Social Security and Medicare were law, before we even had all 
50 states in fact.
    Mr. Zients, do you have, on hand, what federal revenues 
averaged under the Reagan administration as a share of GDP?
    Mr. Zients. I do not have it readily handy, but my team 
might have it. I know under Clinton, as we saw earlier, it was 
about 20 percent.
    Mr. Tonko. Okay. I believe my information is 18.2 percent. 
And do you have on hand what federal revenues averaged under 
the Clinton administration as a share?
    Mr. Zients. Well, that was shown earlier. I think it is 
right around 20 percent.
    Mr. Tonko. Yeah, 19 percent. So, we have 19 percent under 
President Clinton, 18.2 percent under President Reagan, and now 
15.4 percent under President Obama. That is not the picture 
some of my colleagues are painting here. I have heard my 
Republican colleagues commenting this week that with this 
budget, the president will increase spending over the course of 
11 years by 62 percent. Do we know how much President Reagan's 
increase in spending over his eight years in office?
    Mr. Zients. That was higher. I actually do have that data 
with me, if my team can just hand it over. I am sorry. Let me 
follow up and get you those specifics on Reagan.
    Mr. Tonko. Okay. My information is 69 percent.
    Mr. Zients. That sounds correct.
    Mr. Tonko. And how much did President George Bush increase 
spending for his eight years in office?
    Mr. Zients. I believe even higher, but it sounds like you 
have the data in front of you.
    Mr. Tonko. My information is 89 percent.
    Mr. Zients. Yes.
    Mr. Tonko. So, thank you. My point is this: for what has 
been deemed a tax-and-spend presidency, it seems to me that 
President Obama is cutting taxes more and increasing spending 
less as a share of GDP than many of our great Republican 
leaders, and we need to restrain our rhetoric, I believe.
    Mr. Zients. And, in fact, on the revenue side, we are 
bringing it in 2021 right to that 20 percent level at 20.1 
percent.
    Mr. Tonko. Right. Well, tax-and-spend is a catchy line, and 
it gets thrown around a lot in an election year, but another 
constituent of mine wrote to me a couple of months ago with 
similar, catchy lines. Rod is a retired teacher from 
Voorheesville, New York. ``You might think,'' he writes, ``that 
after the ruinous binge of deficit spending that was the Bush 
administration, we would not again hear the old tax-and-spend 
song. Bush administration,'' in Rod's words, ``was an era of 
spend-and-pretend.'' And that is what we have seen time and 
time from my colleagues across the aisle when they control our 
government. Rod went on to write the following: ``President 
Obama is asking Congress to invest in value-creating 
enterprises. He believes, and I think, that if we can spend our 
taxes to train young men and women to fight and kill, we can 
spend taxes to teach the same young people to teach and heal. 
He believes that if we build schools in Iraq, we can build them 
in Iowa.''
    I am incredibly honored to represent constituents like 
these and believe that the important facts here that need to be 
exchanged in a very logical, contrasting way, is an important 
exercise.
    Mr. Zients. I think what is at the core of both your 
constituency's comments, or letters, is a balanced approach. 
This is a balanced approach. $2.50 of spending cuts for every 
$1 of revenue. We need a balanced approach in order to get on a 
sustainable path.
    Mr. Tonko. And I agree with you, and I appreciate that. I 
am running out of time. I was going to ask you about the 
investments in research and development.
    Mr. Zients. We can follow up.
    Mr. Tonko. Okay.
    Chairman Ryan. Thank you.
    Mr. Tonko. Thank you.
    Chairman Ryan. Mr. Chaffetz.
    Mr. Chaffetz. Thank you, Mr. Chairman, and thank you, Mr. 
Zients, for being here.
    Mr. Zients. Thank you.
    Mr. Chaffetz. The president promised when he was running 
for election that he would not increase taxes on anybody 
earning $250,000 or less. Do you believe that to be the case, 
and is that the case moving forward?
    Mr. Zients. Yes. The president is committed to no tax 
increases for those families earning $250,000 or less, or 
individuals at $200,000 or less.
    Mr. Chaffetz. But he has already violated that pledge, has 
he not? I mean, is that not the medical device tax at 2.3 
percent, that is about to kick in, is that not a tax on people 
earning $250,000 or less?
    Mr. Zients. You need to tell me more about the medical 
device tax and how that impacts individuals.
    Mr. Chaffetz. Well if you are earning less than $250,000 
and you need to go purchase a medical device, you are going to 
have a new tax at 2.3 percent.
    Mr. Zients. That is a corporate tax, or it is an individual 
tax?
    Mr. Chaffetz. No, it is an individual tax. I would 
appreciate if you would look into that.
    Mr. Zients. I will look into that.
    Mr. Chaffetz. The indoor tanning tax, the tax on tobacco, 
the individual mandate, there is a long list of things that 
have already been implemented that I think violate that pledge, 
and I would appreciate your perspective on it because to say 
that is true and will continue to be true in the future, I just 
think is factually inaccurate.
    Mr. Zients. Let me have my staff follow up with your staff 
on those individual taxes and how they actually relate to 
individuals.
    Mr. Chaffetz. Thank you. You refer to a sustainable rate of 
debt as a percentage of the GDP. What is that actual number? 
What do you think is an acceptable level of debt for this 
country?
    Mr. Zients. Well, this budget has it come down to about 76 
percent of GDP.
    Mr. Chaffetz. But if you look at the total debt that is 
offered by the Treasury, the total percentage, what percentage 
do you think is an acceptable level?
    Mr. Zients. Well, I think that importantly, at this stage, 
the most important milestone is to stabilize it as we have 
talked about. Our work is not done.
    Mr. Chaffetz. But, it is like 100 percent now, right?
    Mr. Zients. I think that is not the right way to look at 
it. I think the right way to look at it is the debt that is 
held by the public.
    Mr. Chaffetz. So, what is the case to say why would we not 
look at the total debt? Why would we not look at all the 
obligations.
    Mr. Zients. I think it makes sense to look at debt that is 
within the federal government, that is sort of inside the 
family, if you will. This is looking outside. Debt held by the 
public, I think, is the right metric. It is what most people 
would agree is the right metric, but I just want to get back to 
you on the percent. Currently, in 2012, that is about 74 
percent, and stabilized at 76 percent.
    Mr. Chaffetz. Would I be inaccurate to say if you look at 
the total debt, which is on this Page 203 of the budget, debt 
issued by the Treasury, that when President Obama took office, 
it was in the range of $9 trillion, and that under this plan 
that has put forward by the president, it would go to $26 
trillion. Can you see why people are concerned about this?
    Mr. Zients. Absolutely, and I would say a major root cause 
of that problem is the fact that in the prior administration.
    Mr. Chaffetz. You are going to actually blame President 
Bush?
    Mr. Zients. Well, if you want me to answer your question as 
to where the bulk of that debt come from, it comes from unpaid 
for tax cuts, it comes from unpaid for Medicare Part D, it 
comes from unpaid for wars, and then inheriting the great 
recession, which we absolutely needed to dig ourselves out of. 
The hole was very, very deep.
    Mr. Chaffetz. Let me move on. I totally and fundamentally 
disagree with you from top to bottom. The bottom line is the 
president was elected at $9 trillion in debt and we are going 
to grow it to over $26 trillion under his plan, under his 
numbers, and I think that is fundamentally wrong.
    Mr. Zients. Can I make one comment?
    Mr. Chaffetz. Let me move on. No, I cannot. I have got a 
minute and 15 seconds. You said your part; I want to say mine. 
I want to talk about the federal payroll, because if federal 
payroll continues to increase, the reality is there are 145,000 
additional federal workers, not counting the uniform, military, 
postal, or census workers, 145,000 additional federal work. The 
president has stood before the American people and said he was 
putting a pay freeze in place. I think that was a farce, 
because through step increases, through rewards and bonuses, 
the payroll went up, and it continues to go up. Can you please 
explain to me at point do we think we can actually justify 
increasing the payroll even more and more?
    Mr. Zients. Well, this year's budget actually calls for, 
essentially, a flat number of employees in those agencies that 
you are citing. Of your 145,000 89 percent of that is security 
related. I think we all would agree that our veterans should 
get care in the hospitals, that we should protect our borders 
at DHS.
    Mr. Chaffetz. You have made your point. Let me ask this 
last thing, Mr. Chairman. I know you do not have this whole 
thing memorized, but on Page 114 of the Analytical Perspectives 
it says, ``This pay increase proposal permits savings of 
approximately $28 billion over 10 years,'' and it continues. If 
your staff could help explain how a pay increase has a savings 
over the course of times?
    Mr. Zients. Well, I want to be very clear. The president 
froze civilian pay for two years. This proposal is for 50 basis 
points, one-half percent of an increase, and the savings is the 
difference between that and what happens in the private sector 
with 1.7 percent.
    Chairman Ryan. And with that, Ms. McCollum.
    Ms. McCollum. Thank you. Thank you, Mr. Zients. I would 
like to shift gears here a little bit and talk about a part of 
the budget that we usually do not ever discuss here in a budget 
committee, and I am hoping I can capture the chairman's 
interest and we can talk about this some more in the coming 
months, and that what this budget request means for our 
nation's private sector. The Red Cross, Meals on Wheels, 
Habitat for Humanity, these and thousands of other non-profits 
are working to solve problems, improve the quality of life in 
communities all across the United States. The country's 
estimated 1.5 million non-profits are a distinct sector of 
America's economy and they employ 10 percent of our country's 
workforce.
    Now, there is no doubt that non-profits that are part of 
being job creators. Non-profits tackle issues that are often 
beyond the reach of government and below the bottom line of the 
business sector. That is why the work that non-profits do is 
not an extra; it is essential. Every American community depends 
upon the non-profit sector. The federal government depends upon 
non-profits to implement many federal programs, from worker 
retraining to crime prevention.
    All of us in Washington and in OMB, and Congress need to 
start paying attention to the help of the non-profit sector, 
much like we do with the small business sector. This budget 
requests $948 million for the Small Business Administration to 
protect, strengthen, and represent the interest of our nation's 
small business, but the non-profit capacity building program 
authorized at $5 million is now recommended for zero, zeroed 
out.
    So, I would like to ask you a couple of questions. Do we 
know how much of this budget would be implemented by the non-
profit organizations in this community and across the country? 
Do we know how much federal funding is being leveraged with 
local government and private funds by non-profits? Do we know 
how many jobs non-profits will create within the federal funds 
in this budget, and this is not a ``got you,'' because nobody 
normally asks these questions.
    Mr. Zients. No. They are good questions. They are very good 
questions.
    Ms. McCollum. I would very much like to work with you, as 
you get these answers, because none of us on this committee, to 
my knowledge, since I have been on the Budget Committee, has 
asked about the non-profit sector, and so I do hope that the 
chair takes some interest in this and looks at how this is 
interrelated.
    I would like to follow up with you about how we increase 
the focus on non-profit's sector, to strengthen it, and to 
strengthen local economies because, as I said earlier, they 
implement a lot of things that the federal government needs to 
have happen in this country, and they do a lot of the work that 
the poor profit sector just will not get involved in because 
there is not profit in it. Yet, the poor profit sector relies 
on many of the programs that they provide. I know I asked you 
some questions you did not have direct answers for, but if 
there is anything that you would like to maybe say about the 
non-profits.
    Mr. Zients. No, I agree with you that they are essential, 
both to making sure that our programs are effectively 
implemented in the federal government, and to our society at 
large. As to your specific questions, I look forward to my 
staff following up with you, and your staff to address some of 
the specific data that you are looking for, but I do not have 
that handy.
    Ms. McCollum. Thank you. I think we need to talk about 
this, because you and I both know in our communities how 
integral they are to the fabric of our communities.
    Chairman Ryan. So, these mediating institutions are 
critical to a civil society flourishing, and I would just 
simply say we want to get back to a virtuous cycle, because the 
non-profit sector thrives on donations from the profit making 
center, meaning the private sector, and so we clearly need to 
have a vibrant, profitable, private sector, so that we can have 
a flourishing non-profit sector. It is a virtuous cycle that we 
want to get on and we have different approaches on how to 
achieve these things.
    Ms. McCollum. Mr. Chair, let's leave the politics aside.
    Chairman Ryan. No, that is my point.
    Ms. McCollum. I think we need to understand how the non-
profit sector is working and as members of Congress, sometimes 
we say well, we will have the private sector do that. We just 
assume that the private sector can pick up the slack, and to 
your point, the business sector sometimes says the bank is 
closed on that.
    Chairman Ryan. I indulged because we had time and now we do 
not, and want to be mindful of this gentleman's time. So, Mr. 
Huelskamp.
    Mr. Huelskamp. Thank you, Mr. Chairman. I appreciate the 
opportunity, Mr. Zients. I appreciate the opportunity to 
question you today. I appreciate the budget presentation. Going 
through the budget, I have not dug into it as much as I will 
shortly. If you had to pick one thing as the absolute highlight 
of this budget, what would it be? What are you most proud about 
in this particular budget?
    Mr. Zients. I think it is the combination of investing in 
the short term, to make sure that we put people back to work, 
and at the same time, putting us on a sustainable path, by 
getting our debt deficits under control. So, it is the 
combination. It is doing both at once. It is not an either, or.
    Mr. Huelskamp. And I appreciate that, and we have had the 
earlier question, and I stepped out for a little bit. There was 
another committee visiting with folks about their budget in a 
particular area, but again, you did not answer the question 
earlier about exactly when do we actually balance. When I visit 
with constituents, they are worried about a deficit, but more 
importantly, they are worried about the debt. They understand 
the math, and until you do not have a deficit, you cannot 
propose to pay down the debt. So, maybe I will ask the question 
a little differently. When does the president's proposal 
actually reduce the debt on America?
    Mr. Zients. Well, he stabilizes the debt in this budget, 
and this budget makes major progress. The president looks 
forward to working with both Houses to continue to bring down 
our deficits, and bring down our debt.
    Mr. Huelskamp. What year does he actually stabilize the 
debt? That would suggest that there is a year in which this 
budget will balance.
    Mr. Zients. 2018.
    Mr. Huelskamp. That is when the budget will balance?
    Mr. Zients. I think the question you asked was when does 
the debt stabilized. The debt stabilizes in 2018, as a percent 
of GDP.
    Mr. Huelskamp. As a percent of GDP.
    Mr. Zients. Which we keep coming back to it. You have to 
think about it that way, because nominal dollars do not make 
any sense. If I would told you that you could have a dollar 
today, or a dollar 10 years from now, I think we would all take 
the dollar today.
    Mr. Huelskamp. Does the debt stabilize, or the additional 
debt that the president's budget proposes, that stabilizes, 
correct? The debt load continues to increase as a percentage of 
GDP?
    Mr. Zients. No. Debt stabilizes a percent of GDP, starting 
in 2018.
    Mr. Huelskamp. But the president does not propose to ever 
actually balance the budget, is that correct?
    Mr. Zients. We are not at the point in this budget window 
where we are balancing the budget. This takes us a significant 
step toward that, and then we need to work together to continue 
to drive toward a balanced budget.
    Mr. Huelskamp. The window you discuss is in the next 10 
years. So, there is no balanced budget in the next 10 years, 
correct? But looking long term, it is a question I get from 
constituents, you have understand, they ask when will 
Washington, instead of talking about a balanced approach, 
actually give us a balanced budget? Can you foresee how many 
years, decades that might occur?
    Mr. Zients. I do not think any of us can project out that 
far. What I can tell you is this budget makes significant 
progress. We bring down our deficits to below three percent of 
GDP. We stabilize our debt as a percent of GDP. That is a major 
milestone. There is more work to be done.
    Mr. Huelskamp. In the next 10 years, another question, how 
much more debt is added to the bottom line in this president's 
budget?
    Mr. Zients. Well again, I do not think you should think 
about it in nominal terms.
    Mr. Huelskamp. No, but what is the nominal term? Humor me, 
if you would, please.
    Mr. Zients. I think your colleague before was saying some 
numbers. I can try to track them down. The debt held by the 
public is currently in 2012, about $11.6 trillion dollars, and 
in 2022, $19.5 trillion.
    Mr. Huelskamp. So, to you, stabilizing the situation is 
just adding debt, but not as quickly? I mean this president is 
comfortable with never having a balanced budget, maybe in the 
next 20 to 30, to 40 years?
    Mr. Zients. I think what we are talking about is making 
serious progress in a period of time when you can actually talk 
about progress. Who knows what happens across 30, 40, 50 years 
of time? We are making that progress. We are making that 
progress while we maintain the basic compact we have with our 
citizens.
    Mr. Huelskamp. Well, I would hope that maybe your staff 
would actually kind of project what the administration would 
like to see. Give us a date when we would actually have a 
balanced budget, not a percent of GDP, but actually spend less 
in one year than we are taking in, and that has not happened in 
decades, and I would like to see that happen.
    Another thing, quick question, what part of the budget, and 
particularly the president's tax increases, actually create 
jobs. I know it is a short, short time. I only have 22 seconds 
left, but I wish your staff would get back to me and identify. 
I know the president has proposed a bunch of new tax increases, 
and I am concerned about jobs. Exactly which one of these tax 
increases and how will they actually create jobs, because that 
is what the American people want.
    Mr. Zients. Well, I think in terms of the medium-term, 
having a balanced approach of deficit reduction, which creates 
an investment environment.
    Chairman Ryan. And we will, as he said, let you get back to 
him in writing, if you want, just in the interest of time. Mr. 
Ryan.
    Mr. Ryan of Ohio. Thank you, Mr. Chairman. I feel like I am 
living in an alternative reality here, because I just left the 
Armed Services Committee, in which Secretary Panetta, head of 
the Joint Chiefs, were presenting $500 billion worth of cuts to 
the military, making very significant cuts that many people 
were uncomfortable with, and it was my friends on the other 
side of the aisle were saying well, wait a minute. Maybe we 
should not make those cuts. Maybe we got to be careful about 
how deep we go. And then I come to the Budget Committee, and we 
are not cutting enough. So, I think that is always proved that 
we are, I think, striking the right balance, and I think you 
guys are doing that.
    I think it is also important for us to know that the 
Republican budget adds almost $9 trillion to the debt over the 
course of the next 10 years. The Republican Study Committee 
budget adds almost $6 trillion to the debt over the next few 
years as well. I think it is also important to point out that 
the policies that this president, and in many instances, the 
Democrats passed, that stabilized the economy, made 
investments, the stimulus package, stabilized the economy, got 
us to where we are going now, in the right direction, they were 
opposed by the Republicans.
    The auto industry bailout in Ohio, thousands of people, one 
in every eight jobs in Ohio is related to the auto industry, 
because of what President Obama did, and that is helping us 
stabilize things. I think you hit the nail on the head with the 
issue of Medicare. I will ask you is Medicare a Medicare 
problem? Is it an entitlement problem or is it a health care 
cost increase problem that is leading to the increases in the 
Medicare loss?
    Mr. Zients. Well, I think we need to make sure that we keep 
the compact that we have with the American people, and if we 
can do that through smart changes to the Medicare system; the 
Affordable Care Act saved over $100 billion.
    Mr. Ryan of Ohio. Medicare costs are going up because 
health care costs are going up.
    Mr. Zients. For two reasons, health care costs are going up 
and the baby boomers are retiring. So, it is a demographic 
issue and it is a health care cost issue. Fortunately, some of 
those health care costs are starting to come down. We still do 
have our demographic issue.
    Mr. Ryan of Ohio. Right, and we see in hospitals like Summa 
Hospital, in Akron, Ohio, that is focused on the patient 
centered medical home, where they are beginning to use that way 
of reorganizing the system and the delivery of health care, to 
drive down costs.
    Mr. Zients. What makes me optimistic are examples like the 
one you cite. We have those examples all around the country. 
Let's take working and transfer it around the country, so we 
have best practices throughout; and best practice is defined as 
cost efficient care that has the best possible outcomes.
    Mr. Ryan of Ohio. Right, and I agree with you. I think that 
the Affordable Care Act is essential to all of this, and the 
medical homes, and those kinds of things. I think it is 
important to point out, somebody brought up President Reagan. 
You know, President Reagan did cut taxes, and then a few years 
later he raised taxes, several times. Do you know how many 
times President Reagan raised taxes?
    Mr. Zients. I do not know the number of times.
    Mr. Ryan of Ohio. Six, seven, eight, something like that. 
So, I would like to remind my friends who worship at the altar 
of Ronald Reagan, that he would be beneath Ron Paul and the 
presidential primary election right now, and as far as support 
from the Tea Party.
    Quickly, the research and development, because I love what 
you guys are doing with the community colleges. Youngstown, 
Ohio, Akron, Ohio, these are decisions in a value based 
document, which is our budget, that are going to help my 
constituents, $10,000 tax credit for tuitions, Pell Grants, 
community colleges.
    Mr. Zients. They add to the list, ensuring that the 
interest rate does not go up on student loans, which it is 
scheduled to go up to 6.8 percent from 3.4 percent. The budget 
keeps it at 3.4 percent.
    Mr. Ryan of Ohio. So the average person is not only going 
to get a payroll tax cut, but if we start implementing some of 
the budget priorities from this administration, they are going 
to see more help with their student loans, as you just stated, 
more money for Pell Grants, and getting them in the community 
college.
    Mr. Zients. Encouragement to make sure that colleges are 
more affordable. I mean this is a major emphasis of this 
budget.
    Mr. Ryan of Ohio. I appreciate what you guys have done. 
This has been very difficult and I think what we are seeing now 
in Ohio and around the country is people start to appreciate 
what has been done as we have weathered the storm over the past 
few years, and as the question now, is now what. Now what do we 
do? Now where do we go? And I think what you are talking about 
with STEM college and investments in the community colleges, 
they are going to ramp America up to be competitive, and that 
high end manufacturing that we are going to need. So, I 
appreciate what you are doing and thank you very much. We are 
here to support you.
    Chairman Ryan. Thank you. Mr. Mulvaney.
    Mr. Mulvaney. Thank you, Mr. Chairman. If the staff could 
bring up the first slide.


    Mr. Zients. My eyesight is not good enough. Can I get a 
paper copy?
    Mr. Mulvaney. You can, actually, and it is simply a pledge 
that he made when he ran for office and said today, I am 
pledging to cut the deficit we inherited by half during this 
first term. I am not going to ask you about that because in 
response to a Washington Post criticism of this promise 
yesterday, I understand the administration's official position 
is now that they had to break that promise because things 
turned out to be much worse than they thought they were.
    Then, I was going to ask you about this next promise about 
not raising taxes on any families making less than $250,000 a 
year, but I think you have been asked about a couple of those 
already. Mr. Garrett asked you about the Individual Mandate 
Excised Tax for failing to purchase government qualifying 
health care, and I think you said that was not a tax. Then I 
believe Mr. Chaffetz asked you about things such as the medical 
devices tax.
    Mr. Zients. Can I make one 10 second comment on that front? 
The president actually has cut middle class taxes by $300 
billion.
    Mr. Mulvaney. Except for everything that is on this list.
    Mr. Zients. $300 billion.
    Mr. Mulvaney. Again, when you make a pledge I guess you do 
not really get to say listen, I am going to raise it someplace 
and reduce it someplace else. That is not my question. My 
question actually focuses on something you said earlier, which 
is on the next slide.
    Mr. Zients. There is absolutely no way I will be able to 
read that one.
    Mr. Mulvaney. And I will read it to you because it is right 
out of your budget. Table S-4, you mentioned several times that 
this is a responsive budget as to deficit, and then you were 
loathe, at times, to talk about nominal dollars; and I agree 
that when you are talking in 2012 about $1 in 2022, it is not 
the same thing. I would suggest to you that you can talk apples 
to apples, nominal dollars, when you are talking about, for 
example, net interest payments in 2015 versus, say, Medicaid 
payments in the same year, 2015. I would suggest to you, sir, 
that the budget that you offered to us today has net interest 
payments in 2015 exceeding what we will spend on Medicaid. The 
budget that you have offered us today has net interest payments 
exceeding the money that we spend on non-defense. Medicaid, you 
have got a budget for $372 billion of spending in 2015, net 
interest 384.
    Mr. Zients. Yes.
    Mr. Mulvaney. You go to non-defense by 2017, 553 versus net 
interest of 570. And then by 2020, net interest payments will 
exceed defense. So, what you have offered us, sir, is a budget 
with the fastest growing line item being net interest, and a 
future for this country where net interest by 2020 will exceed 
what we spend on defense. That interest will exceed what we 
spend on non-defense discretionary, and what we will pay also 
for Medicaid. I ask you, sir, if you really do believe that 
that is a responsible budget as to deficit?
    Mr. Zients. I really want to be responsive, and maybe this 
just needs to be done, chairman, in follow up, because Table S-
4 is the adjusted baseline. That is not actually the 
president's budget. So, it would be very difficult for me to 
comment off of an adjusted baseline.
    Mr. Mulvaney. But I believe the data is off of your budget.
    Mr. Zients. No, this is the baseline that in the beginning 
of my presentation that I described as an accurate reflection 
of business as usual. So I think that if we want to start to 
comparing numbers, we should probably do it off of the actual 
budget, rather than adjust the baseline. In cognizant of the 
time that we have, I think it is probably best just done in 
follow-up.
    Chairman Ryan. Just to interject, just go to S-5, which is 
the next page in your budget, and the same point can be made.
    Mr. Mulvaney. And let's go to the next one then because 
this is back to the president's own words then. In that same 
promise when he said he was going to cut the deficit by half, 
there is actually a line that they caught my attention, which 
is the one that says, ``but I refuse to leave our children with 
a debt that they cannot repay.'' So, I will ask the same 
question that has been asked several times here today, which 
is, when my children ask me when we can expect to start 
repaying the debt, what is the answer?
    Mr. Zients. I think what the answer is that we have to do 
two things here in this budget, and we are not alone in saying 
this. CBO has said this. The Fed has said this. Major 
economists have said this. We need to put get people back to 
work. We need to create jobs. We need to put ourselves in a 
position where we are more competitive as a country. That is 
step one. Step two, if we do not do step one then we are in 
real trouble. With step one done, we are able to get ourselves 
on a sustainable path.
    Mr. Mulvaney. I thought this budget was designed to put 
people back to work and create jobs.
    Mr. Zients. It absolutely is. So step two, gets us to a 
point where our debt stabilizes a percent of GDP, and that will 
allow us to continue to be a place to invest in. You can see it 
in our current credit markets that we are the chosen place. We 
can maintain that status. American companies will grow here. 
Global companies will grow here and we will be in a much better 
spot than we are in today. There is more work to be done.
    Mr. Mulvaney. Then, I guess my last question; I know my 
time is up, but your party had control of both Houses of 
Congress and the White House for all of 2009 and 2010. Why did 
you not do those things when you were in control?
    Chairman Ryan. We will let you get back to him in writing.
    Mr. Zients. Please.
    Chairman Ryan. Let's go to Mr. Young next.
    Mr. Young. Thank you, Mr. Chairman. Mr. Zients, thank you 
so much. We have almost hit the end here, only a couple more 
questioners. I really appreciate being here today to explain 
this budget. I do have to say when I visit my constituents in 
southern Indiana and I do town hall meetings, I frequently go 
through a budget presentation, a PowerPoint presentation. Where 
I start is where the money goes and I think many Americans do 
not really appreciate how much money is spent on so called 
mandatory expenditures: Medicare, Medicaid, and Social Security 
being the largest of those expenditures. They account for 
approximately 70 percent of all expenditures. Now, under the 
president's budget, net Medicare spending increases, by my 
reading, about $135 billion over the next 10 years, correct?
    Mr. Zients. If you have done the math, you have done the 
math.
    Mr. Young. Okay. President's budget: Medicaid spending more 
than doubles over the next 10 years. President's budget: Social 
Security runs a permanent cash deficit over the next 10 years, 
accounting for about $1.1 trillion. Again, these are the 
largest programs of our federal government, the largest 
mandatory programs. Under the president's budget for 2013, 6.5 
percent of federal outlays will go to debt service. That 
increases more than doubling to about 15 percent in 2022. Under 
the president's budget, mandatory spending over the next 10 
years will increase to almost 80 percent of total federal 
expenditures. I have a pretty obvious question here, and I just 
want to dig fairly deeply on this, why did the administration 
not address this entirely predictable situation where mandatory 
spending continues to tick upward at a rapid rate, driving our 
debt crisis.
    Mr. Zients. Well, let's break it apart a little bit here. 
On Medicare, the Affordable Care Act actually saves over $100 
billion in its first decade, and $1 trillion in its second. In 
this budget, there is $360 billion of health care savings, and 
as we have talked about repeatedly today, we will continue to 
work together to figure out how we make care more effective and 
more efficient, but we have a basic compact with our citizens.
    Mr. Young. Agreed. So, let me pivot off of that compact.
    Mr. Zients. We need to make sure that we don't break that 
compact by creating a system of vouchers where we transfer 
risks to our citizens. That is not the right way to go about 
that.
    Mr. Young. I am going to reclaim my time here and agree 
that we need to maintain the trust, and not break the faith 
with the American people. These are important programs that my 
constituents are demanding. We lay out a coherent plan to make 
them solve it, to make them sustainable. Why have you not done 
that?
    Mr. Zients. We have made significant progress.
    Mr. Young. What does that mean, significant progress?
    Mr. Zients. Look at the budget. The budget brings the 
deficit down below 3 percent of GDP. It stabilizes debt as a 
percent of GDP. It maintains that compact that we have, which 
we both believe in.
    Mr. Young. Mr. Zients, I am going reclaim my time. A budget 
is a roadmap as to how you would solve these fiscal problems I 
the future. All right? It does not lay down some weak marker so 
that in the future we can cooperate. It is supposed to lay out 
an optimal plan. It is supposed to lay out, frankly, what the 
priorities of the administration are, what your ideas are, and 
then we can find compromise after that.
    Let me continue, please. Without any specifics, you know 
what we are left with? We are left with talking points. We are 
left with political arguments. If we would lay out a scorable 
plan for each of these different programs, then we could find 
common ground, which is exactly what the American people want. 
I will give you an opportunity to respond to that point.
    Mr. Zients. Well, I think that I have told you about the 
president's budget and why I think it is the right way to go. I 
would contrast it with the Republican budget, which creates 
vouchers and transfers risk to our citizens on health care.
    Chairman Ryan. Mr. Zients, I would be happy to show you in 
writing how it does not do that, and I would be happy to share 
that with you later.
    Mr. Zients. Okay. And at the same time, it creates block 
grants for Medicaid at very low levels, and continues tax cuts 
for the wealthiest Americans; that does not strike me as a good 
plan.
    Mr. Young. Mr. Chairman.
    Mr. Van Hollen. He is trying to answer the member's 
question.
    Mr. Young. It is not about your plan. It is the same plan 
the members of Congress have.
    Mr. Van Hollen. Since the Chairman interjected on the last 
point. I will show you why it is not at all the same plan 
members of Congress.
    Mr. Young. It is based on the same model of competition 
where plans have to compete for your business, provide more 
value, and you still enjoy the benefits of competition, while 
saving the American people money.
    Mr. Van Hollen. I will tell the gentlemen the plan the 
members of Congress have is a much better deal in terms of 
shared contribution than the plan proposed by the Republicans.
    Chairman Ryan. Since all time has expired.
    Mr. Young. I look forward to seeing your plan, Mr. Van 
Hollen.
    Chairman Ryan. I could go on and on. I am going to risk the 
temptation. It is Mr. Lankford's turn.
    Mr. Lankford. Thank you, Mr. Chairman. Mr. Zients, thanks 
for being here.
    Mr. Zients. Thank you.
    Mr. Lankford. It has been a long day, and getting a chance 
to do this yesterday, and doing it again today. I do thank you 
honestly for your experience in the private sector, both with 
Bain and with Portfolio Logic. Those are successful companies 
and then I assume you would much rather be here talking about 
Washington National's baseball today then you would about the 
budget today, and the history that you have with that. So, 
thank you for what you have done on that, and sometime we will 
visit offline about baseball?
    Mr. Zients. I look forward to that.
    Mr. Lankford. Let me tell you somewhat the frustration, I 
guess, as we come into this, and just looking at the budget and 
starting to go through it, because there is this sense when we 
are home in our districts, and people talk to us and they just 
want to know when are we going to get control of our debt, and 
how is that going to happen, and when is that going to come 
down. Their perspective is, from their business and from their 
home, that there is this plan that I am going to pay off this 
big mortgage. In business you do not have a CEO of a company 
that says for the rest of this company we are going to run in 
the red. We are never going to run in the black. So, that just 
does not translate, and when you use terms like stabilize our 
debt to try to get us down to 3 percent of GDP, that does not 
translate anywhere else.
    Last year, the term in the same committee from Jack Lew, 
and from Timothy Geithner was sustainable deficits. That was 
the term last year. We want to get us to sustainable deficits. 
We had the same frustration trying to figure out what in the 
world is that. Is there ever a point, and again, the same 
conversation's are not new to this year. It was the same with 
last year. I go back, for me, somewhat past is prologue and all 
this, and I go back to 2009, when the president said, ``Today, 
I am pledging to cut the deficit we inherited in half by the 
end of my first term in office.'' And I pull up the 2010 budget 
from the president, and go to this year, 2012. So, in the 2010, 
and look to what was the expected deficit in this year. The 
expected deficit this year was 581 billion. It is actually 
going to be 1.3 trillion. So, you understand our frustration in 
coming into this. It is easy to look at some future documents 
like this did, and to say I have this great plan, and we are 
going to spend this, we are going to do this, but it ends up in 
this case being almost three times higher this year than what 
was anticipated by the president in 2010. That is the 
frustration. So, I do not say that in a form of a question.
    I do have a question for you. I say that just to say hear 
our empathy with this as well. It is easy in Washington to say 
we are going to stabilize our debt. No one outside of these 10 
square miles processes that. We said three years ago it was 
going to be $581 billion; it is actually $1.3 trillion, and 
then we look at the projections now and think these are 
guesses, but we have got to figure out how to budget.
    I do want to ask though about some of the tax pieces. There 
is a segment in there about energy taxes. I think it is about 
$40 billion or so, if I remember the number correctly, for 
companies that are producing energy. Do you know some of the 
specifics of that?
    Mr. Zients. What sector of the energy market are you 
talking about?
    Mr. Lankford. For this particularly, I think it was on 
fossil fuels. So, there was a whole series of taxes saying it 
is about $40 billion. Do you know what some of those taxes may 
be?
    Mr. Zients. What I do know is that oil and gas profits are 
a record high, that we no longer need these types of 
incentives, that production is at record high, and our imports 
are down.
    Mr. Lankford. Actually our imports are down because we are 
producing more.
    Mr. Zients. That is right. That is where I started. I think 
production is at the highest point it has been in eight years.
    Mr. Lankford. Yeah, it has been great.
    Mr. Zients. Part of that is making sure that we continue to 
open up properties, both onshore and offshore for production.
    Mr. Lankford. I completely agree, but you are not sure 
which taxes that would be or which areas?
    Mr. Zients. We can get you the details.
    Mr. Lankford. For instance, intangible drilling costs is 
one that gets hit on a lot. They really do not seem to be any 
different for a company that is doing drilling than it is for 
any other business writing off their business expense. We are 
trying to figure out what the dynamic is to say you do 
manufacturing, if you do something else, I mean you write off 
your business expense, but if you happen to produce oil, or you 
happen to produce natural gas, you cannot write off that 
business expense. That is no longer manufacturing. Is that kind 
of the plan at this point or do you know if there is a 
breakdown of large companies, small companies? Will a company 
that is a drilling company, or a lot of these small 
independents, the majority of the drilling and operation that 
comes out of the ground is this very small company. So, they 
may have five to 12 employees. Will they have the same tax 
burden that a company that has 5,000 that also produces oil? Is 
it the same across that?
    Mr. Zients. Well work with Treasure to get your answers to 
those questions.
    Mr. Lankford. Yeah, because that would be helpful to know, 
because if you are talking about the energy companies, everyone 
goes to Exxon. Exxon is a pretty rare breed in this field. The 
majority of them are mom and pop shops that are family owned 
businesses. Their business model is based around when they have 
business expenses. They can write them off, just like every 
other small business in America.
    Mr. Zients. We will work with Treasury to follow-up.
    Mr. Lankford. I yield back. Thank you.
    Chairman Ryan. Because he has been generous with his time, 
and we are going to limit to the remaining members here, 
meaning if another member shows that we are closing the roll 
with who is here. So if a members coming they are not going to 
be able to get time. So with that, Ms. Wasserman Schultz.
    Ms. Wasserman Schultz. Just under the wire, Mr. Chairman. 
Thank you very much. Welcome.
    Mr. Zients. Thank you.
    Ms. Wasserman Schultz. Congratulations. Getting back to 
something that Mr. McClintock talked about in extolling the 
virtues and the record of former President Reagan in helping to 
bring us out of a significant recession at the time, I want to 
just read a quote. ``We are going to close the unproductive tax 
loopholes that have allowed some of the truly wealthy to avoid 
paying their fair share. In theory, some of those loopholes 
were understandable, but in practice, they sometimes made it 
possible for millionaires to pay nothing, while a bus driver 
was paying 10 percent of his salary, and that is crazy. It is 
time we stopped it.'' Now, if I was going to quiz the numbers 
here on who we might have attributed that quote to, I bet it 
would not be at the top of anyone's mind, but that was from a 
speech by Ronald Reagan at Northside High School in Atlanta, 
Georgia, on June 6, 1985.
    Mr. Zients. No one would have guessed that Warren Buffet 
would say the same thing.
    Ms. Wasserman Schultz. Right, exactly. He said, ``I would 
raise rates immediately on taxable income in excess of $1 
million, including, of course, dividends and capital gains, and 
for those who made $10 million or more. I would suggest an 
additional increase in rates,'' and that was on August 14, 
2011.
    So, that prefaces my question, Mr. Zients. How does the 
president's budget strike a balance when it comes to addressing 
our short term and long term deficit reduction needs, because I 
think there is very little that we are agreeing on in Congress 
these days, but I think we actually all agree that we need to 
make a commitment to reducing our deficit, in the short term 
and in the long term.
    Mr. Zients. I agree.
    Ms. Wasserman Schultz. But the economists that I have heard 
from across the spectrum, major economists, have really 
indicated that we need to be careful about not short circuiting 
what is an obvious recovery that we have begun.
    Mr. Zients. I think that is right. So, it is a two step 
process. It is a focus on job creation, making sure that we 
continue to have the economic recovery, starting with the 
payroll tax, unemployment, extending that, the $50 billion of 
infrastructure, modernizing our schools, just to hit a few of 
the highlights, and at the same time we move to deficit 
reduction across the medium term.
    The key is that it is a balanced approach and this is at 
the core of most approaches outside this chamber in terms of 
looking to Bowles-Simpson as an example; but it is a balanced 
approach. Our approach has $2.50 of spending cuts for every 
dollar of revenue.
    Ms. Wasserman Schultz. That is an important point. The 
budget proposed by the president has $2.50 in spending cuts for 
every dollar in proposed revenue?
    Mr. Zients. Yes.
    Ms. Wasserman Schultz. When it comes to subsidies for the 
oil industry, for example, I mean I think it is important to 
note that we had an increase in production, the most production 
of oil domestically that we have ever had, but how does the 
president's budget treat subsidies, taxpayer subsidies, to the 
oil industry who are making record profits?
    Mr. Zients. It gets rid of them. It gets rid of, I think we 
heard earlier, it is about $40 billion. I believe that figure 
is correct. They do not need those subsidies.
    Ms. Wasserman Schultz. So, the feeling is that those oil 
companies do not need those subsidies in order to be able to 
remain very profitable, and still be able to increase domestic 
production, because we are allowing more lease sales, opening 
up more areas to drilling, which, by the way, I oppose, at 
least in terms of lease sales that are not available currently.
    Mr. Zients. Production is way up. Our imports are way down 
and just to correct the figure, it is $30 billion, not $40 
billion.
    Ms. Wasserman Schultz. And this is all being done within 
the lease sales that are currently available and that we opened 
up in the GOMESA Agreement from 2006. Is that right?
    Mr. Zients. I believe so. If that is not the case, I will 
have my staff follow-up.
    Ms. Wasserman Schultz. Okay, thank you very much. I yield 
back.
    Chairman Ryan. Mr. Stutzman.
    Mr. Stutzman. Thank you, Mr. Chairman, and thank you, Mr. 
Zients for being here today. I got a couple of questions and I 
want to kind of follow up on some of the comments that you have 
made throughout the day. You talk about the compact with 
Americans, and I guess how do you define that? I assume you are 
talking about Social Security, Medicare. Can you define what 
you are saying when you say compact with Americans?
    Mr. Zients. I think you are right. You know, we have people 
who have contributed across the years to Medicare, to Social 
Security, and they have correctly have relied on a set of 
promises that we have made, and we need to live up to those 
promises, while at the same time we do responsible things.
    Mr. Stutzman. Two the largest expenditure items in our 
federal budget is Social Security and Medicare. Do you think 
that we can keep the compact with Americans, and I am assuming 
you are saying all Americans, that includes you and I, at the 
current levels of benefits, demographics, payroll tax cuts, all 
of the games that are played around Social Security and 
Medicare, can we keep that compact at sustainable levels?
    Mr. Zients. I feel like we have talked about Medicare on 
several occasions today. Let me just quickly summarize that the 
Affordable Care Act is essential. It expands coverage. It saves 
$100 billion in its first decade, a trillion dollars in the 
second decade, the package the president's budget has on health 
care saves another $360 billion, and we need to keep going at 
it. So, this is important. We have made important steps, both 
with the Affordable Care Act and today, in the president's 
budget, you see $360 billion of savings in health care, 
Medicare, Medicaid, and other programs. That is an important 
step, but the same way we do in other sectors. We have to keep 
going at it.
    Mr. Stutzman. What about Social Security?
    Mr. Zients. Social Security is solvent until 2036.
    Mr. Stutzman. What happens then?
    Mr. Zients. At the same time, the president has expressed 
his desire to begin to lean into that issue, to do it in a 
balanced way, and he looks forward to working with members of 
both the House and the Senate, but I want to be clear.
    Mr. Stutzman. So the compact will change.
    Mr. Zients. But I want to be clear on Social Security. That 
is not our immediate problem. We should get on to it, but that 
is not our immediate problem.
    Mr. Stutzman. But the compact will change. It has to 
change. I mean you are a smart guy. You are a successful guy. 
It is not going to be the same for you when you are ready to 
retire as it is for those who are 55 and above.
    Mr. Zients. We need to keep the basic compact that we have 
and we need to go about any reform that we do in a balanced and 
fair way.
    Mr. Stutzman. Okay, so it will change? So, I want to touch 
a little bit on something, and I am a farmer from Indiana, and 
I support eliminating direct payments. I have been an advocate 
of that. I am glad that the president is following Congress' 
lead on that and including that in his budget, but if we are 
going to eliminate direct payments, will the federal government 
employees to administer direct payments being needed?
    Mr. Zients. Well, I do not know about the exact employees 
and what they have in terms of their portfolio. I can tell you 
that Secretary Vilsack has been very aggressive in managing 
administrative costs. He is out there with a very strong 
position in terms of consolidating administrative costs, 
proposing to close offices, and being incredibly efficient.
    Mr. Stutzman. The reason I asked is because you have 
proposed in 2011, enacted, where salaries are at 1208, 2012 
estimate is ate 1199, 2013 is 1208.
    Mr. Zients. What page are you working off of?
    Mr. Stutzman. I am working off of the USDA Budget Summary.
    Mr. Zients. Right, and you are working off of what line?
    Mr. Stutzman. It is Page 16. It would be discretionary 
under Farm Service Agency, FSA Salaries and Expenses. So, I 
guess my comment and my question is why would you eliminate the 
entire program, but not adjust federal government salaries to 
show that this is a program that is not going to be in 
existence, so we are going to continue to be paying government 
employees for a program that does not exist.
    Mr. Zients. We need to get to the bottom of it.
    Mr. Stutzman. Okay.
    Mr. Zients. As I said, Secretary Vilsack has shown 
tremendous leadership in cutting expenses and ensuring that 
taxpayer dollar is well used. So, I would like to come back to 
you on the specific line item.
    Mr. Stutzman. That is fine. And the last point, real quick, 
GDP is estimated at 14.9 in 2011, or assumed, and in 2022, 
25.4. Do you think that is even possible?
    Mr. Zients. I am sorry, GDP?
    Mr. Stutzman. 14.9 today, 25.4 in 2022. Is that even 
possible?
    Mr. Zients. Oh, absolutely. This is historical GDP growth, 
yes.
    Chairman Ryan. Mr. Ribble.
    Mr. Ribble. Thank you, Mr. Chairman. I know it has been a 
long day. Mr. Zients, thank you for being here.
    Mr. Zients. Thank you.
    Mr. Ribble. Welcome to the party. Like you, I have spent 
almost my entire life in the private sector, but I do have a 
couple of questions because I have concerns about the 
president's budget and it actually concerns how you got there, 
given your background, but we will talk about that in just a 
second. Who was president of the United States December 2010?
    Mr. Zients. Barack Obama.
    Mr. Ribble. And who was the Speaker of the House in 
December 2010?
    Mr. Zients. Nancy Pelosi.
    Mr. Ribble. And who was the Senate Majority Leader in 
December, 2010?
    Mr. Zients. Harry Reid.
    Mr. Ribble. All right. Good. We have got it. The Democratic 
Party controlled all three levels of government and at that 
time they extended the 2001, 2003 tax cuts to everybody. Was 
that a balanced approach then or was it terribly unbalanced in 
December 2010?
    Mr. Zients. I think in December, 2010 we were in the midst 
of a very difficult economic situation and a decision was made, 
in the context of a much larger package, as you know, to do 
that extension; the president has never believed in the 
extension for the wealthiest 2 percent and this budget has no 
tax increases for families making less than $250,000, but I 
think very rationally and very fairly has the wealthiest 2 
percent pay more by returning to the same Clinton era tax rates 
when we ran surpluses, and as someone who was in the private 
sector then, it sounds like you were there also, there was 
plenty of incentive to grow businesses, plenty of incentive to 
invest, plenty of incentive to hire people.
    Mr. Ribble. And right now, you are saying that the economy 
is precarious. We still need to invest in deficit spending to 
this degree because of it, because if we cut spending too much, 
we might harm the economic growth of the country. Is that 
correct?
    Mr. Zients. That is true.
    Mr. Ribble. Okay. So, we cannot have it both ways, that we 
have to have it here, but the tax cuts do not belong there.
    Mr. Zients. No, but I disagree. You are assuming that 
targeted investments in areas like infrastructure, research and 
development, and manufacturing, which we need in order to 
compete in this global economy and get people employed, equate 
to the same thing, is asking the richest 2 percent to pay a 
little bit more. Those are not the same thing. Those are apples 
and oranges and we can do both, and what that achieves is it 
gets people back to work and it gets us in a position where we 
have a balanced approach deficit reduction, which is essential 
to bringing down our deficits.
    Mr. Ribble. Let's talk about that balanced approach, 
because you have used the word probably a hundred times today.
    Mr. Zients. I have been here a long time.
    Mr. Ribble. Yeah, I am sure you have. Right if you look at 
the slide up there, top 5 percent of American taxpayers are 
contributing 58.70 percent of the income tax revenue coming 
into Treasury.


    Under your balanced approach idea, should that number be 70 
percent, 90 percent, 95 percent, especially in light of the 
comments in your testimony where I quote on Page Number 1, ``By 
following these quintessentially American values of equal 
opportunity for all, and responsibility from all, we can build 
an economy that will grow robustly and create good jobs for 
years to come.'' So, I am curious, going back to your balanced 
approach, and I will even give you some wiggle room here. Let's 
use the top 10 percent of wage earners in the country. What is 
the balanced approach? How much more of the total burden should 
they bear?
    Mr. Zients. Well, I guess again, my eyesight is failing me. 
What are we looking at here? Is this income?
    Mr. Ribble. That is the tax burden by income level.
    Mr. Zients. These are income taxes?
    Mr. Ribble. Right, so the bottom 50 percent are paying 2.3 
percent of revenue coming to Treasury.
    Mr. Zients. But does that include payroll taxes, Medicaid?
    Mr. Ribble. No, this is just income tax. This is just 
income tax.
    Mr. Zients. This is just income tax. So, I think that it is 
important.
    Mr. Ribble. Well, but rich people will pay other taxes, 
too.
    Mr. Zients. I think if you look back across the last couple 
of decades or more, when we were both in the private sector, 
there has been such disproportionate wealth creation focused on 
that very top tier.
    Mr. Ribble. There have been a lot of middle class people 
that were brought into that wealthy place as well.
    Mr. Zients. Middle class has not done nearly as well, and 
what we need to do is we need to ask that top 2 percent to do 
their fair share. The budget has specific proposals.
    Mr. Ribble. 36.7 percent is not fair for them? It should be 
50 percent? I am trying to get a number from you so I know what 
balance is.
    Mr. Zients. The president's proposal has two main pillars. 
One is to return to the Clinton era tax rate of 39.6 percent, 
which worked quite well back then. We actually had surpluses, 
and then to ask that the wealthiest limit their deductions to 
28 percent, so their deductions are the same as, or do not so 
far exceed, middle class. That strikes me as fair.
    At the same time, I want to emphasize that the president is 
in favor of fundamental tax reform and the Buffett Rule would 
be part of that fundamental tax reform, a simpler code, lower 
rates would all be part of tax reform.
    Chairman Ryan. Mr. Flores, last, but not least.
    Mr. Flores. Certainly not least. Thank you, Mr. Zients.
    Mr. Zients. Thank you for waiting.
    Mr. Flores. Thank you for your testimony today. This iPad 
cost about $600. That is the same as about six barrels of oil 
that Exxon produces. Who makes more profit?
    Mr. Zients. I do not know the answer to that question.
    Mr. Flores. Apple makes substantially more profit on this 
iPad. So, the question is this. Let's say that Apple is making 
too much money on this, so let's go to Apple and raise their 
taxes. Now, are we to assume if we do that that Apple is going 
to make more of these at a cheaper cost for the American people 
or for the international community?
    Mr. Zients. I do not know what specific tax expenditures or 
tax breaks Apple has.
    Mr. Flores. You know the answer like I do. Let me get to 
the rest of my question.
    Mr. Zients. I do know that there are outdated tax breaks 
and expenditures for oil and gas companies.
    Mr. Flores. We expect Apple to be able to reclaim its 
intellectual property investment and its investment in plant, 
property, equipment, and people, the same thing that we allow 
energy companies to do, and to somehow come up with the fact 
that there should be a differential between these two is not 
fair to use the administration's language. It is not balanced. 
It will create winners and losers.
    Just overall I am disappointed in the budget. It fails to 
address the president's competitiveness council that deals with 
jobs, it fails to address the deficit commission that talks 
about our looming financial crisis, it does not deal with the 
looming insolvency of Medicare, Social Security, Medicaid, 
those programs.
    I have a few questions, on stimulus spending we have tens 
of billions of dollars of so-called targeted spending in here. 
What metrics do we have to prove that this is going to better 
spent than the $800 billion we spent the last stimulus package. 
I guess the overall question is, why does government do it 
better? Chairman Bernanke, last week, of the Federal Reserve, 
said that the private sector generally invests better and more 
efficiently for the greater good the American people than does 
the government, so why are we re-upping on this failed program? 
If you take the wildest job estimate of 2.7 million jobs, it 
costs $300,000 per job created. I guarantee the private sector 
can do it for less than that.
    Mr. Zients. Let me answer it actually in the context of the 
President's Council on Jobs and Competitiveness because I 
actually worked very closely with Jeff Immelt, Ken Chenault and 
others, and it is not to say that everything in this budget is 
consistent with everything they recommended, but the focus on 
education, first and foremost for that group; the focus on 
infrastructure, top of the list; an infrastructure bank, which 
we propose in this budget for $10 billion is something the jobs 
council recommends. The president has worked very closely with 
his jobs council and has adopted many of its recommendations, 
both administrative actions that we have taken, including 
speeding up payments to all contractors.
    Mr. Flores. Thank you. Reclaiming my time. Thank you, I 
appreciate you addressing that. We are going to have to agree 
to disagree. I think it is just version 2.0 of a failed 
stimulus program. I did not see anything in the budget having 
to do with program integrity. In other words, and I will ask 
this question in every hearing that I go to with respect to 
this budget, what is it that prevents future Solyndras? What is 
it that prevents the administration from picking winners and 
losers? What is it that will make the American hard-working 
taxpayer feel confident that their dollars are being properly 
spent? In other words, what makes them feel confident that we 
are not going to be bailing out some of the president's 
contributors in the future? Do we have any provisions like that 
in this budget?
    Mr. Zients. Well, in terms of program integrity, there is 
significant investment in program integrity because program 
integrity has a heck of a good return. For every $1 you spend 
on IRS program integrity, you return $5.
    Mr. Flores. I am talking about the way we are spending 
dollars, not IRS collection dollars.
    Mr. Zients. Same in Social Security in terms of program 
integrity, same in health care in terms of program integrity. 
The president put a statement out.
    Mr. Flores. Okay, you are telling me this provisions are 
included in this budget, is that correct?
    Mr. Zients. Absolutely.
    Mr. Flores. Okay. Thank you.
    Mr. Zients. They are.
    Mr. Flores. The next thing I have to do has to do with GDP 
growth assumptions. I noticed that in looking at the 2012 
budget versus the 2013 budget, during the years 2015 through 
2019, now the GDP growth assumptions have been amped up a fair 
amount, this does not compare well with the recent CBO update 
that we got that paints a much bleaker future for economic 
growth. So how does OMB come up with numbers that are pretty 
optimistic in my view?
    Mr. Zients. Well the CBO assumptions, I think that you are 
talking about, assumes that none of the president's policies 
are adopted. In fact, the 2001 and 2003 tax cuts disappear, 
both for the middle class and the upper, the wealthiest. So I 
think the CBO is based on current law and, therefore, is a 
projection that is not reflective of the kinds of policies that 
we would agree on, even if we do not agree on all of them.
    Mr. Flores. Probably not many of them.
    Mr. Zients. Well, I do not think any of us are looking to 
increase taxes on the middle class, for example, so a CBO 
assumption would have that. So I really think you are comparing 
apples and oranges.
    Mr. Flores. Thank you, I yield back.
    Chairman Ryan. Guess what, time has expired. Hearing is 
adjourned. Mr. Zients, welcome to your first trip to the Budget 
Committee.
    Mr. Zients. Thank you. Thank you for having me.
    Chairman Ryan. Hearing is adjourned.
    [Whereupon, at 1:02 p.m., the Committee was adjourned.]

                                  
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