[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                   THE CONGRESSIONAL BUDGET OFFICE'S
                        LONG-TERM BUDGET OUTLOOK

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

           HEARING HELD IN WASHINGTON, DC, SEPTEMBER 26, 2013

                               __________

                            Serial No. 113-9

                               __________

           Printed for the use of the Committee on the Budget


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                        COMMITTEE ON THE BUDGET

                     PAUL RYAN, Wisconsin, Chairman
TOM PRICE, Georgia                   CHRIS VAN HOLLEN, Maryland,
SCOTT GARRETT, New Jersey              Ranking Minority Member
JOHN CAMPBELL, California            ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California              JOHN A. YARMUTH, Kentucky
TOM COLE, Oklahoma                   BILL PASCRELL, Jr., New Jersey
TOM McCLINTOCK, California           TIM RYAN, Ohio
JAMES LANKFORD, Oklahoma             GWEN MOORE, Wisconsin
DIANE BLACK, Tennessee               KATHY CASTOR, Florida
REID J. RIBBLE, Wisconsin            JIM McDERMOTT, Washington
BILL FLORES, Texas                   BARBARA LEE, California
TODD ROKITA, Indiana                 DAVID N. CICILLINE, Rhode Island
ROB WOODALL, Georgia                 HAKEEM S. JEFFRIES, New York
MARSHA BLACKBURN, Tennessee          MARK POCAN, Wisconsin
ALAN NUNNELEE, Mississippi           MICHELLE LUJAN GRISHAM, New Mexico
E. SCOTT RIGELL, Virginia            JARED HUFFMAN, California
VICKY HARTZLER, Missouri             TONY CARDENAS, California
JACKIE WALORSKI, Indiana             EARL BLUMENAUER, Oregon
LUKE MESSER, Indiana                 KURT SCHRADER, Oregon
TOM RICE, South Carolina
ROGER WILLIAMS, Texas
SEAN P. DUFFY, Wisconsin

                           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, September 26, 2013...............     1

    Hon. Paul Ryan, Chairman, Committee on the Budget............     1
        Prepared statement of....................................     2
    Hon. Chris Van Hollen, ranking minority member, Committee on 
      the Budget.................................................     3
        Prepared statement of....................................     5
    Douglas W. Elmendorf, Director, Congressional Budget Office..     6
        Prepared statement of....................................     8
        Response to question submitted for the record............    60
    Hon. Allyson Y. Schwartz, a Representative in Congress from 
      the State of Pennsylvania, question submitted for the 
      record.....................................................    60


       THE CONGRESSIONAL BUDGET OFFICE'S LONG-TERM BUDGET OUTLOOK

                              ----------                              


                      THURSDAY, SEPTEMBER 26, 2013

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:05 a.m. in room 
210, Cannon House Office Building, Hon. Paul Ryan [chairman of 
the committee] presiding.
    Present: Representatives Paul of Wisconsin, Price, Garrett, 
Campbell, Cole, McClintock, Lankford, Ribble, Flores, Rokita, 
Woodall, Blackburn, Nunnelee, Hartzler, Messer, Rice, Williams, 
Van Hollen, Yarmuth, Pascrell, Ryan of Ohio, Castor, McDermott, 
Lee, Cicilline, Jeffries, Pocan, Lujan Grisham, Huffman, 
Cardenas, Blumenauer, and Schrader.
    Chairman Ryan. The hearing will come to order. I know we 
still have our caucuses and our conferences are going on, so I 
understand some of our members will be here a little later, but 
we want to get started so we can start as close to on time as 
we possibly can.
    I want to thank everybody, and welcome. It has been a 
little while since we have gotten back together as a committee 
to see these things, but we have a new report that is worthy of 
our attention.
    It is good to see our CBO Director Doug Elmendorf once 
again.
    And I want to thank you, Doug, and your staff for putting 
together this very important and valuable report. I know what 
kind of work it takes, and we appreciate that.
    We want to put it to good use because, as I read it, your 
report makes one thing clear. We haven't solved the problem 
yet. We still are spending too much money. Just look at the 
numbers. Our total debt is bigger than our economy, and 
according to your report, our publicly held debt as a share of 
our economy is higher than at any point in the U.S. history, 
except for a brief period around World War II. Some seem to 
think that just because the deficit is not $1 trillion anymore, 
we don't have to worry, problem solved.
    But we know better. In 2008, our publicly held debt was 39 
percent of gross domestic product. Today, it is 73 percent. In 
other words, it has doubled in just 5 years. So today if we 
were to have an emergency, we will have a lot less leeway.
    When you owe more than you make, your creditors get antsy. 
Sooner or later they cut you off. The problem is, they could 
cut us off at exactly the wrong time.
    We have heard a lot of talk these days about how we need to 
pay our bills, but we need to make sure that we can pay our 
bills today and tomorrow. Look, we know what is driving our 
debt. It is spending, especially spending on health care. CBO 
says that most of the spending growth in the near future will 
be in Medicare, Medicaid, and the Affordable Care Act. In the 
next 25 years, it expects spending on health care programs to 
grow by 74 percent or maybe as much as 83 percent. And yet all 
of this spending, for all of this spending, what are we getting 
for it? The Medicare Trust Fund will go broke in just 10 years. 
That is after payrolls went up, after the health care law made 
cuts to the program, and after the sequester made even more 
cuts. All of these adjustments, especially the health care law, 
were supposed to patch the hole, but instead we took on more 
water.
    Clearly, a little tinkering isn't enough. We need a whole 
new approach. Your report says that the debt is too high, and 
the sooner we get to work, the better. That is a really 
important point here. You have looked at the spending package 
that would have saved $4 trillion over 10 years, which is 
roughly what the House-passed budget would do. If we enacted 
such a law, a $4 trillion spending package, interest rates 
would be 1 percent lower in 2038; our economy would be 7 
percent bigger; and our publicly held debt would be just over 
31 percent of GDP. But if we stayed on the current path, 
interest rates would rise; our debt would grow; and our economy 
would be 4 percent smaller in 2038.
    What does that mean? That means about $3,200 less per 
person in America at that time. I think the best illustration 
of our problem is what you call the fiscal gap. What would it 
take in spending cuts, tax hikes or both just to keep our debt 
stabilized? If we took action now, it would cost us roughly 
$145 billion per year, but if we waited, it could cost us up to 
$350 billion per year. We have got one foot on each side of a 
crater, and every day we wait, the gap grows larger. Every day 
we wait, it gets harder to bridge that gap.
    Washington's motto is never do today what you can put off 
until tomorrow, but tomorrow is a whole lot closer than we 
think, and we know what the answer is. We know that with real 
reforms, we cannot only pay down the debt, we can help grow the 
economy and put people back to work. It is not a matter of 
ability. It is a matter of will.
    And with that, I would like to recognize the ranking member 
for his opening remarks.
    [The prepared statement of Chairman Ryan follows:]

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

    Thanks, everybody--and welcome. It's good to see our friend, 
Director Elmendorf, once again. I want to thank him and his staff for 
putting together this report. We appreciate your hard work. And we'll 
put it to good use--because, as I read it, your report makes one thing 
clear: We haven't solved the problem. We're still spending too much 
money.
    Just look at the numbers. Our total debt is bigger than our 
economy. And according to your report, our publicly held debt--as a 
share of our economy--``is higher than at any point in U.S. history 
except a brief period around World War II.'' Some seem to think that 
just because the deficit isn't $1 trillion anymore, we don't have to 
worry. Problem solved.
    But we know better. In 2008, our publicly held debt was 39 percent 
of GDP. Today, it's 73 percent. In other words, it doubled in just five 
years. So today--if we have an emergency--we have a lot less leeway. 
When you owe more than you make, your creditors get antsy. Sooner or 
later, they cut you off. The problem is, they could cut us off--at 
exactly the wrong time. We've heard a lot of talk these days about how 
we need to pay our bills. But we need to make sure we can pay our bills 
both today--and tomorrow.
    Look, we know what's driving our debt. It's spending--especially 
spending on health care. CBO says most of the spending growth in the 
near future will be in Medicare, Medicaid, and the Affordable Care Act. 
In the next 25 years, it expects spending on health-care programs to 
grow by 74 percent--or maybe even as much as 83 percent.
    And yet for all this spending, what are we getting for it? The 
Medicare trust fund will go broke in just over ten years. That's after 
payroll taxes went up, after the health-care law made cuts to the 
program, and after the sequester made even more cuts. All these 
adjustments--especially the health-care law--were supposed to patch the 
hole. But instead, we took on more water. Clearly, a little tinkering 
isn't enough. We need a whole new approach.
    Your report says our debt is too high. And the sooner we get to 
work, the better. You looked at a spending package that would save $4 
trillion over ten years--which is roughly what the House budget would 
do. If we enacted such a law, interest rates would be one percentage 
point lower in 2038. Our economy would be 7 percent bigger. And our 
publicly held debt would be just 31 percent of GDP. But if we stayed on 
the current path, interest rates would rise. Our debt would grow. And 
our economy would be 4 percent smaller in 2038. That comes out to about 
$3,200 less per person.
    I think the best illustration of our problem is what you call the 
``fiscal gap.'' What would it take--in spending cuts, tax hikes, or 
both--just to keep our debt stable? If we took action now, it would 
cost us roughly $145 billion per year. But if we waited, it could cost 
us up to $350 billion per year. We've got one foot on each side of a 
crater. And every day we wait, the gap grows larger. Every day we wait, 
it gets harder to bridge the gap.
    Washington's motto is ``Never do today what you can put off till 
tomorrow.'' But tomorrow is closer than we think. And we know what the 
answer is. We know that with real reforms we can not only pay down the 
debt--we can help grow the economy and put people back to work. It's 
not a matter of ability. It's a matter of will.
    And with that, I recognize the ranking member for his opening 
remarks.

    Mr. Van Hollen. Thank you, Mr. Chairman.
    And I want to join the chairman in thanking you, Dr. 
Elmendorf, for this report which looks at the budget picture 
out until the year 2035, and clearly demonstrates that, on our 
current trajectory, we are on an unsustainable path with 
respect to the debt.
    It indicates that we need to move forward on two fronts, in 
my view. First, we have got to act now to kick our economy into 
higher gear, to put more Americans back to work. And there are 
a number of steps we need to take to do that, but an earlier 
CBO study and letter also indicated that one way we can do that 
is to replace the sequester that is in place right now, which 
you indicated earlier would cost us hundreds of thousands of 
jobs between now and this time next year. That is a self-
inflicted wound. That is a wound that this country cannot 
afford. More people could be put to work if we take care of 
that issue.
    Democrats in the House have now tried eight times simply to 
get a vote on our plan to replace the sequester. This Congress 
we have not seen a single plan put forward by our Republican 
colleagues to do that. So let's work together to replace it in 
a way that achieves the same amount of deficit reduction or 
more without the self-inflicted wound of hundreds of thousands 
fewer jobs. We can do that now.
    We also should act now to put in place a plan to address 
the long-term deficit challenge, and in my view, we should 
adopt the kind of frameworks recommended by every bipartisan 
group that has looked at this issue in recent times. Not adopt 
every particular recommendation, but their overall framework in 
terms of making cuts but also cuts to tax breaks for very 
wealthy individuals and special interests.
    The House Democratic budget, the President's budget, all 
those budgets take that kind of balanced approach. We had hoped 
that we would be able to go to a budget conference to try and 
resolve some of the differences between the House Republican 
budget and our budget. That is the way you deal with the long-
term challenge.
    We have tried time and again to have conferees appointed, 
and obviously, the clock has been run out. And the Speaker 
refused to even allow us to go to conference to try to reach a 
compromise and negotiate these issues.
    So let's move forward. Unfortunately, right now, in the 
House, we are focused on something very different than solving 
this long-term challenge. We have got before us now a proposal 
that would shut down the government if we don't shut down the 
Affordable Care Act, the Affordable Care Act, which is already 
providing help and health protections to millions of Americans 
and will provide millions more with access to affordable health 
care in the days to come.
    But right now, the position our Republican colleagues, 
unfortunately, have taken is that we are going to shut down the 
government if we don't accomplish the goal of shutting down the 
Affordable Care Act. And what is even more troubling is it 
appears that they are going to double down on that strategy 
with respect to the debt ceiling, with respect to whether or 
not this country pays its bills on time. And they are going to 
say that we are not going to pay our bills on time in the 
United States of America, unless we shut down the Affordable 
Care Act for 1 year. That is irresponsible and reckless, given 
the impact that not paying our bills would have on the economy.
    And, finally, Mr. Chairman, I just have to point out an 
incredible irony. The Congressional Budget Office has pointed 
out the Affordable Care Act will actually reduce the deficit by 
billions of dollars over the next 10 years and even more over 
the next 20 years. So to tie the defunding of the Affordable 
Care Act to the debt ceiling is to say, well, we are going to 
attach something that will increase the debt to a provision on 
the debt ceiling. And this was recognized by our Republican 
colleagues in their budget. I think many people have forgotten 
that if you look at the Republican budget, it only balances in 
10 years because they kept major parts of the Affordable Care 
Act. They kept all the Medicare savings. And they have the same 
level of revenues as the Affordable Care Act in their budget.
    You don't have to take my word for it. Here is a quote from 
the Heritage Foundation: Quote, Perhaps the biggest shortcoming 
of this House Republican budget is that it keeps the tax 
increases associated with Obamacare. In fact, the budget would 
not be in balance, the Republican budget would not be in 
balance in 10 years if not for the Medicare savings in the 
Affordable Care Act and the fact that you have the same amount 
of revenues. So it is saying two very different things at once, 
trying to have it both ways to say you are going to balance 
your budget and you are going to get rid of Obamacare, when you 
rely on Obamacare to balance your budget.
    So let's focus on the real issues here, Mr. Chairman, and 
the issues in this report.
    And I appreciate the time.
    And again, welcome, Dr. Elmendorf.
    [The prepared statement of Mr. Van Hollen follows:]

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

    Thank you, Mr. Chairman. And I want to join the Chairman in 
thanking you, Dr. Elmendorf, for this report, which looks at the budget 
picture out until the year 2035 and clearly demonstrates that on our 
current trajectory, we're on an unsustainable path with respect to the 
debt. It indicates that we need to move forward on two fronts, in my 
view.
    First, we've got to act now to kick our economy into higher gear, 
to put more Americans back to work. And there are a number of steps we 
need to take to do that, but an earlier CBO study and letter also 
indicated that one way we can do that is to replace the sequester 
that's in place right now, which you indicated earlier would cost us 
hundreds of thousands of jobs between now and this time next year. 
That's a self-inflicted wound. That's a wound that this country cannot 
afford. More people could be put to work if we take care of that issue.
    Democrats in the House have now tried eight times simply to get a 
vote on our plan to replace the sequester. This Congress, we've not 
seen a single plan put forward by our Republican colleagues to do that. 
So let's work together to replace it in a way that achieves the same 
amount of deficit reduction or more without the self-inflicted wound of 
hundreds of thousands fewer jobs. We can do that now.
    We also should act now to put in place a plan to address the long-
term deficit challenge, and in my view we should adopt the kind of 
framework recommended by every bipartisan group that's looked at this 
issue in recent times. Not adopt every particular recommendation, but 
their overall framework in terms of making cuts but also cuts to tax 
breaks for very wealthy individuals and special interests.
    The House Democratic budget, the President's budget, all those 
budgets take that kind of balanced approach. We had hoped that we would 
be able to go to a budget conference to try and resolve some of the 
differences between the House Republican budget and our budget. That's 
the way you deal with the long-term challenge. We've tried time and 
again to have conferees appointed, and obviously the clock has been run 
out--and the Speaker refused to even allow us to go to conference to 
try to reach a compromise and negotiate these issues. So, let's move 
forward.
    Unfortunately right now in the House we're focused on something 
very different than solving this long-term challenge. We've got before 
us now a proposal that would shut down the government if we don't shut 
down the Affordable Care Act. The Affordable Care Act, which is already 
providing help and health protections to millions of Americans, and 
will provide millions more with access to affordable health care in the 
days to come. But right now the position our Republican colleagues 
unfortunately have taken is that we're going to shut down the 
government if we don't accomplish the goal of shutting down the 
Affordable Care Act.
    And what is even more troubling is it appears that they're going to 
double down on that strategy with respect to the debt ceiling, with 
respect to whether or not this country pays its bills on time. And 
they're going to say we're not going to pay our bills on time, in the 
United States of America, unless we shut down the Affordable Care Act 
for one year. That is irresponsible and reckless given the impact that 
not paying our bills would have on the economy.
    And finally, Mr. Chairman, I just have to point out an incredible 
irony. The Congressional Budget Office has pointed out the Affordable 
Care Act will actually reduce the deficit by billions of dollars over 
the next 10 years, and even more over the next 20 years. So to tie the 
defunding of the Affordable Care Act to the debt ceiling is to say, 
well, we're going to attach something that will increase the debt to a 
provision on the debt ceiling. And this was recognized by our 
Republican colleagues in their budget. I think many people have 
forgotten that if you look at the Republican budget, it only balances 
in 10 years because they kept major parts of the Affordable Care Act. 
They kept all the Medicare savings and they have the same level of 
revenues as the Affordable Care Act in their budget.
    You don't have to take my word for it. Here is a quote from the 
Heritage Foundation: `Perhaps the biggest shortcoming of this budget is 
it keeps the tax increases associated with Obamacare.' In fact, the 
budget would not be in balance--the Republican budget would not be in 
balance in 10 years if not for the Medicare savings in the Affordable 
Care Act and the fact you have the same amount of revenues. So, it is 
saying two very different things at once, trying to have it both ways, 
to say you're going to balance your budget and you're going to get rid 
of Obamacare when you rely on Obamacare to balance your budget.
    So let's focus on the real issues here, Mr. Chairman, and the 
issues in this report. I appreciate the time and again, welcome Dr. 
Elmendorf.

    Chairman Ryan. Clearly, we see things differently.
    Dr. Elmendorf, the floor is yours.

  STATEMENT OF DOUGLAS W. ELMENDORF, DIRECTOR, CONGRESSIONAL 
                         BUDGET OFFICE

    Mr. Elmendorf. Thank you, Mr. Chairman and Congressman Van 
Hollen.
    To all the members of the committee, I am very pleased to 
be back with you again today.
    The bottom line of CBO's long-term budget outlook this year 
is the same as it was last year. The Federal budget is on a 
course that cannot be sustained indefinitely. In our extended 
baseline, which largely follows current law, we project that 
Federal debt held by the public would rise from 73 percent of 
GDP today, already very high by historical standards, to 100 
percent of GDP in 25 years, even without accounting for the 
harmful effects of rising debt.
    The deficit has shrunk dramatically during the past few 
years, from nearly 10 percent of GDP in 2009 to about 4 percent 
this year, and we expect, under current law, the deficit will 
decline further in the next few years to about 2 percent of 
GDP.
    After that respite, however, we project the deficits would 
begin growing again. Federal spending would be pushed up by 
rising interest payments on the Federal debt and by growing 
costs for Social Security and the major health care programs, 
Medicare, Medicaid, and subsidies to be provided through 
insurance exchanges.
    Interest payments on the debt would rise as interest rates 
rebound from their current unusually low levels. In particular, 
with debt so large, the increase in interest rates that we 
expect would have a very large effect on interest payments by 
the Federal Government.
    Projected spending for Social Security increases relative 
to GDP in our extended baseline, principally because of the 
retirement of the Baby Boom generation, which would increase 
the number of people eligible for Social Security by more than 
one-third during the next 10 years alone.
    Spending for the major health care programs would increase 
for three reasons. First, because of retirement of the Baby 
Boomers; second, because of rising health care costs per 
person; and, third, because of the expansion of Federal 
subsidies for health insurance.
    Meanwhile, projected Federal spending for all other 
programs put together declines sharply relative to GDP in our 
extended baseline. This category of all other spending has 
averaged about 11 percent of GDP during the past 40 years. It 
is currently about 10 percent of GDP, although below the 40-
year average, and would fall to about 7 percent of GDP by the 
end of the decade in 2038.
    By 2020, under current law, Federal spending apart from 
Social Security, the major health care programs and interest 
payments would be a smaller percentage of GDP than at any time 
since the 1930s. Thus, the upward pressure on Federal spending 
relative to the size of the economy does not come from general 
growth in the size of the government but instead from growth in 
just a handful of large programs--Social Security, Medicare, 
and Medicaid--and from rising interest costs on the Federal 
debt.
    Federal revenues would also increase over time under 
current law but more gradually than Federal spending. Revenues 
have averaged 17.5 percent of GDP during the past 40 years. 
They are now a little lower but will rise to 18.5 percent by 
2023 and nearly 20 percent by 2038 under our extended baseline. 
The gap between Federal spending and revenues would widen 
steadily after 2015. By 2038, under our extended baseline, the 
deficit would be 6.5 percent of GDP, and Federal debt held by 
the public would be 100 percent of GDP, even before we account 
for the economic effects of that increase in debt. That would 
be more than any year except 1945 and 1946. With such large 
deficits, debt would be growing faster than GDP, a path that 
could not be sustained indefinitely.
    In our report, we separately project how the economic 
consequences of the policies that underlie the extended 
baseline would affect the long-term budget outlook. The growth 
in debt would reduce the Nation's output and raise interest 
rates relative to what they would otherwise be in the long run, 
which in turn would lead to wider budget deficits. With those 
effects included, debt under the extended baseline would rise 
to 108 percent of GDP in 2038.
    Debt that is so large relative to our annual output would 
in the long term reduce output and income relative to what they 
would be if debt were closer to its historical average 
percentage of GDP. Debt that is so large would also require 
higher interest payments, would reduce your flexibility to use 
policy to respond to unexpected developments, and increase the 
risk of a fiscal crisis.
    In addition, our report shows the effects of some 
alternative sets of fiscal policies, some that would produce 
larger deficits than under current law and some that would 
produce smaller deficits. The report also examines the 
uncertainty of long-term budget projections, which is 
substantial, but our analysis shows that under a wide range of 
possible assumptions about some key factors, the budget is on 
an unsustainable path.
    As lawmakers consider changes in policies that would put 
the Federal budget on a more sustainable course, you will face 
choices about the magnitude of deficit reduction, the policies 
to use in reducing deficits, and the timing of deficit 
reduction. Economic analysis does not say what the optimal 
amount of Federal debt is nor what the right amounts of Federal 
spending and revenues are, but a significant reduction in debt 
from its current percentage of GDP would require substantial 
changes in tax policies, spending policies or both.
    As an illustration, if you wanted to bring debt down to 31 
percent of GDP in 2038, a little below its 40-year average, 
using policies that phased in over the next decade, you would 
need to enact a combination of increases in revenues and cuts 
in spending relative to current law totaling about $4 trillion 
during the coming decade.
    In deciding how quickly to reduce the deficit, you face 
difficult tradeoffs again. Waiting to cut Federal spending or 
increase taxes would lead to a greater accumulation of debt and 
increase the size of the policy adjustments needed to achieve 
any chosen debt target. However, implementing spending cuts or 
tax increases quickly would weaken the economic expansion.
    The negative short-term effects of deficit reduction on 
output and employment would be especially large now because 
output is so far below its potential or maximum sustainable 
level that the Federal Reserve is holding interest rates very 
close to zero and could not lower them further to offset the 
impact of changes in tax and spending policies.
    Thank you very much. I am happy to try to answer your 
questions.
    [The prepared statement of Douglas Elmendorf follows:]

         Prepared Statement of Douglas W. Elmendorf, Director,
                      Congressional Budget Office

    Chairman Ryan, Congressman Van Hollen, and Members of the 
Committee, thank you for inviting me to testify on the Congressional 
Budget Office's (CBO's) most recent analysis of the long-term outlook 
for the budget and the economy. My statement summarizes the report The 
2013 Long-Term Budget Outlook, which CBO released last week.
    Between 2009 and 2012, the federal government recorded the largest 
budget deficits relative to the size of the economy since 1946, causing 
federal debt to soar.
    Federal debt held by the public is now about 73 percent of the 
economy's annual output, or gross domestic product (GDP). That 
percentage is higher than at any point in U.S. history except a brief 
period around World War II, and it is twice the percentage at the end 
of 2007. If current laws generally remained in place, federal debt held 
by the public would decline slightly relative to GDP over the next 
several years, CBO projects. After that, however, growing deficits 
would ultimately push debt back above its current high level. CBO 
projects that federal debt held by the public would reach 100 percent 
of GDP in 2038, 25 years from now, even without accounting for the 
harmful effects that growing debt would have on the economy (see Figure 
1). Moreover, debt would be on an upward path relative to the size of 
the economy, a trend that could not be sustained indefinitely.

                BUDGET PROJECTIONS FOR THE NEXT 10 YEARS

    The economy's gradual recovery from the 2007--2009 recession, the 
waning budgetary effects of policies enacted in response to the weak 
economy, and other changes to tax and spending policies have caused the 
deficit to shrink this year to its smallest size since 2008: roughly 4 
percent of GDP, compared with a peak of almost 10 percent in 2009. If 
current laws governing taxes and spending were generally unchanged--an 
assumption that underlies CBO's 10-year baseline budget projections--
the deficit would continue to drop over the next few years, falling to 
2 percent of GDP by 2015. As a result, by 2018, federal debt held by 
the public would decline to 68 percent of GDP.\1\
---------------------------------------------------------------------------
    \1\ For details about CBO's most recent 10-year baseline, see 
Congressional Budget Office, Updated Budget Projections: Fiscal Years 
2013 to 2023 (May 2013), www.cbo.gov/publication/44172. In July 2013, 
the Bureau of Economic Analysis (BEA) revised upward the historical 
values for GDP; CBO extrapolated those revisions for this report when 
projecting outcomes as a percentage of future GDP. Although CBO's 
projections of revenues, outlays, deficits, and debt over the 2013--
2023 period have not changed since the baseline projections issued in 
May, those amounts measured as a percentage of GDP are now lower as a 
result of BEA's revisions. In this testimony, budgetary values 
presented as a percentage of GDP have been rounded to the nearest one-
half percent.
---------------------------------------------------------------------------
    However, budget deficits would gradually rise again under current 
law, CBO projects, mainly because of increasing interest costs and 
growing spending for Social Security and the government's major health 
care programs (Medicare, Medicaid, the Children's Health Insurance 
Program, and subsidies to be provided through health insurance 
exchanges). CBO expects interest rates to rebound in coming years from 
their current unusually low levels, sharply raising the government's 
cost of borrowing. In addition, the pressures of an aging population, 
rising health care costs, and an expansion of federal subsidies for 
health insurance would cause spending for some of the largest federal 
programs to increase relative to GDP. By 2023, CBO projects, the budget 
deficit would grow to almost 3\1/2\ percent of GDP under current law, 
and federal debt held by the public would equal 71 percent of GDP and 
would be on an upward trajectory.

                  BUDGET PROJECTIONS FOR THE LONG TERM

    Looking beyond the 10-year period covered by its regular baseline 
projections, CBO produced an extended baseline that extrapolates those 
projections through 2038 (and, with even greater uncertainty, through 
later decades).



    Under the extended baseline, budget deficits would rise steadily 
and, by 2038, would push federal debt held by the public close to the 
percentage of GDP seen just after World War II--even without factoring 
in the harm that growing debt would cause to the economy.
    By 2038, CBO projects, federal spending would increase to 26 
percent of GDP under the assumptions of the extended baseline, compared 
with 22 percent in 2012 and an average of 20\1/2\ percent over the past 
40 years.
    That increase reflects the following projected paths for various 
types of federal spending if current laws generally remain in place:
     Federal spending for the major health care programs and 
Social Security would increase to a total of 14 percent of GDP by 2038, 
twice the 7 percent average of the past 40 years.
     In contrast, total spending on everything other than the 
major health care programs, Social Security, and net interest payments 
would decline to 7 percent of GDP, well below the 11 percent average of 
the past 40 years and a smaller share of the economy than at any time 
since the late 1930s.
     The federal government's net interest payments would grow 
to 5 percent of GDP, compared with an average of 2 percent over the 
past 40 years, mainly because federal debt would be much larger.
    Federal revenues would equal 19\1/2\ percent of GDP by 2038 under 
current law, CBO projects, compared with an average of 17\1/2\ percent 
over the past four decades. Revenues are projected to rise from 15 
percent of GDP last year to 17\1/2\ percent in 2014, spurred by the 
ongoing economic recovery and changes in provisions of tax law 
(including the expiration of lower income tax rates for high-income 
people, the expiration of a temporary cut in the Social Security 
payroll tax, and the imposition of new taxes). After 2014, revenues 
would increase gradually relative to GDP, largely because growth in 
income beyond that attributable to inflation would push taxpayers into 
higher income tax brackets over time.
    The gap between federal spending and revenues would widen steadily 
after 2015 under the assumptions of the extended baseline, CBO 
projects. By 2038, the deficit would be 6\1/2\ percent of GDP, larger 
than in any year between 1947 and 2008, and federal debt held by the 
public would reach 100 percent of GDP, more than in any year except 
1945 and 1946. With such large deficits, federal debt would be growing 
faster than GDP, a path that would ultimately be unsustainable.
    Incorporating the economic effects of the federal policies that 
underlie the extended baseline worsens the long-term budget outlook. 
The increase in debt relative to the size of the economy, combined with 
an increase in marginal tax rates (the rates that would apply to an 
additional dollar of income), would reduce output and raise interest 
rates relative to the benchmark economic projections that CBO used in 
producing the extended baseline. Those economic differences would lead 
to lower federal revenues and higher interest payments. With those 
effects included, debt under the extended baseline would rise to 108 
percent of GDP in 2038.

               HARMFUL EFFECTS OF LARGE AND GROWING DEBT

    How long the nation could sustain such growth in federal debt is 
impossible to predict with any confidence. At some point, investors 
would begin to doubt the government's willingness or ability to pay 
U.S. debt obligations, making it more difficult or more expensive for 
the government to borrow money. Moreover, even before that point was 
reached, the high and rising amount of debt that CBO projects under the 
extended baseline would have significant negative consequences for both 
the economy and the federal budget:
     Increased borrowing by the federal government would 
eventually reduce private investment in productive capital, because the 
portion of total savings used to buy government securities would not be 
available to finance private investment. The result would be a smaller 
stock of capital and lower output and income in the long run than would 
otherwise be the case. Despite those reductions, however, the continued 
growth of productivity would make real (inflation-adjusted) output and 
income per person higher in the future than they are now.
     Federal spending on interest payments would rise, thus 
requiring larger changes in tax and spending policies to achieve any 
chosen targets for budget deficits and debt.
     The government would have less flexibility to use tax and 
spending policies to respond to unexpected challenges, such as economic 
downturns or wars.
     The risk of a fiscal crisis--in which investors demanded 
very high interest rates to finance the government's borrowing needs--
would increase.

            THE CONSEQUENCES OF ALTERNATIVE FISCAL POLICIES

    Most of the projections in The 2013 Long-Term Budget Outlook are 
based on the assumption that federal tax and spending policies will 
generally follow current law--not because CBO expects laws to remain 
unchanged but because the budgetary implications of current law are a 
useful benchmark for policymakers when they consider changes in laws. 
If tax and spending policies differed significantly from those 
specified in current law, budgetary outcomes could differ substantially 
as well. To illustrate the extent of that difference, CBO analyzed the 
effects of some additional sets of fiscal policies.
    Under one set of alternative policies, referred to as the extended 
alternative fiscal scenario, certain policies that are now in place but 
that are scheduled to change under current law would continue instead, 
and some provisions of current law that might be difficult to sustain 
for a long period would be modified. With those changes to current law, 
deficits (excluding the government's interest costs) would be a total 
of about $2 trillion higher over the next decade than in CBO's 
baseline; in subsequent years, such deficits would exceed those 
projected in the extended baseline by rapidly growing amounts. The 
harmful effects on the economy from the resulting increase in federal 
debt would be partly offset by lower marginal tax rates. Nevertheless, 
in the long run, output would be lower and interest rates would be 
higher under that set of policies than under the extended baseline. 
With those economic changes incorporated, federal debt held by the 
public would reach about 190 percent of GDP by 2038, CBO projects.
    In a different illustrative scenario, deficit reduction would be 
phased in such that deficits excluding interest costs would be a total 
of $2 trillion lower through 2023 than in the baseline, and the 
reduction in the deficit as a percentage of GDP in 2023 would be 
continued in later years. In that case, output would be higher and 
interest rates would be lower over the long run than in the extended 
baseline. Factoring in the effects of those economic changes on the 
budget, CBO projects that federal debt held by the public would be 67 
percent of GDP in 2038, close to its percentage in 2012. Under a third 
scenario, with twice as much deficit reduction--a $4 trillion reduction 
in deficits excluding interest costs through 2023--CBO projects that 
federal debt held by the public would fall to 31 percent of GDP by 
2038, slightly below its percentage of GDP in 2007 (35 percent) and its 
average percentage over the past 40 years (38 percent).
    Those different scenarios for fiscal policy would also have 
different effects on the economy in the short term. During the next 
several years--when the nation's economic output will probably remain 
below its potential, or maximum sustainable, level--the spending 
increases and tax reductions in the alternative fiscal scenario 
(relative to what would happen under current law) would increase the 
demand for goods and services and thereby raise output and employment. 
The reductions in deficits under the other illustrative scenarios, by 
contrast, would decrease the demand for goods and services and thereby 
reduce output and employment.

            THE UNCERTAINTY OF LONG-TERM BUDGET PROJECTIONS

    Even if the tax and spending policies specified in current law 
continue, budgetary outcomes will undoubtedly differ from CBO's current 
projections as a result of unexpected changes in the economy, 
demographics, and other factors. Because the uncertainty of budget 
projections increases the farther the projections extend into the 
future, CBO's report focuses on the next 25 years.
    To illustrate the uncertainty of those projections, CBO examined 
how altering its assumptions about future productivity, interest rates, 
and federal spending on health care would affect the projections in the 
extended baseline. Under those alternative assumptions--which do not 
cover the full range of possible outcomes--federal debt held by the 
public in 2038 could range from as low as 65 percent of GDP (still 
elevated by historical standards) to as high as 156 percent of GDP, 
compared with the 108 percent of GDP projected under the extended 
baseline with the economic effects of fiscal policy included.
    Those calculations do not address other sources of uncertainty, 
such as the risk of an economic depression or major war or the 
possibility of unexpected changes in birth rates, life expectancy, 
immigration, or labor force participation. Nonetheless, CBO's analysis 
shows that under a wide range of possible assumptions about some key 
factors that influence federal spending and revenues, the budget is on 
an unsustainable path.

                         CHOICES FOR THE FUTURE

    The unsustainable nature of the federal government's current tax 
and spending policies presents lawmakers and the public with difficult 
choices. Unless substantial changes are made to the major health care 
programs and Social Security, those programs will absorb a much larger 
share of the economy's total output in the future than they have in the 
past. Even with spending for all other federal activities on track, by 
the end of this decade, to represent the smallest share of GDP in more 
than 70 years, total federal noninterest spending would be larger 
relative to the size of the economy than it has been, on average, over 
the past 40 years. The structure of the federal tax code means that 
revenues would also represent a larger percentage of GDP in the future 
than they have, on average, in the past few decades--but not large 
enough to keep federal debt held by the public from growing faster than 
the economy starting in the next several years. Moreover, because 
federal debt is already unusually high relative to GDP, further 
increases in debt could be especially harmful. To put the federal 
budget on a sustainable path for the long term, lawmakers would have to 
make significant changes to tax and spending policies--letting revenues 
rise more than they would under current law, reducing spending for 
large benefit programs below the projected levels, or adopting some 
combination of those approaches.
    The size of such changes would depend on the amount of federal debt 
that lawmakers considered appropriate. For example, bringing debt back 
down to 39 percent of GDP in 2038--as it was at the end of 2008--would 
require a combination of increases in revenues and cuts in noninterest 
spending (relative to current law) totaling 2 percent of GDP for the 
next 25 years. (In 2014, 2 percent of GDP would equal about $350 
billion.) If those changes came entirely from revenues, they would 
represent an increase of 11 percent relative to the amount of revenues 
projected for the 2014--2038 period; if the changes came entirely from 
spending, they would represent a cut of 10\1/2\ percent in noninterest 
spending from the amount projected for that period.
    In deciding how quickly to carry out policy changes to make the 
size of the federal debt more sustainable, lawmakers face other trade-
offs. On the one hand, waiting to cut federal spending or raise taxes 
would lead to a greater accumulation of debt and would increase the 
size of the policy adjustments needed to put the budget on a 
sustainable course. On the other hand, implementing spending cuts or 
tax increases quickly would weaken the economy's current expansion and 
would give people little time to plan for and adjust to the policy 
changes. The negative short-term effects that deficit reduction has on 
output and employment would be especially large now, because output is 
so far below its potential level that the Federal Reserve is keeping 
short-term interest rates near zero and could not lower those rates 
further to offset the impact of changes in spending and tax policies.

    This testimony reiterates the summary of The 2013 Long-Term Budget 
Outlook, which is one in a series of reports on the state of the budget 
and the economy that CBO issues each year. Prepared under the 
supervision of Joyce Manchester, the report represents the work of many 
people at CBO. In accordance with CBO's mandate to provide objective, 
impartial analysis, neither the report nor this testimony makes 
recommendations. Both are available on CBO's website, at www.cbo.gov/
publication/44521 and www.cbo.gov/publication/44602, respectively.

    Chairman Ryan. Thank you. Let me start on the big picture 
here. We haven't solved the problem. Revenues are projected to 
go to, what, 19.5 percent of GDP, far higher than our average 
that we have been at?
    Mr. Elmendorf. Yes.
    Chairman Ryan. So the revenues are rising, but spending is 
taking off at an unsustainable trajectory, correct?
    Mr. Elmendorf. The combination of the revenue path and the 
spending path is unsustainable.
    Chairman Ryan. Right.
    Mr. Elmendorf. Whether you choose to fix, adjust one line 
or the other is up to you.
    Chairman Ryan. Right. What I find interesting in your 
report is the main driver of these outlays that are going up so 
fast are the health care programs, particularly the new one, 
the Affordable Care Act, in the first 10 years. That is the 
great contributor. I find your shadow box 1.1 is very 
interesting where you look at aging, you break it down between 
aging, excess costs, growth, and then the Medicaid expansion 
exchange subsidies. So it is not just the fact that Baby 
Boomers are retiring. That is a big contributor, correct.
    Mr. Elmendorf. Yes.
    Chairman Ryan. It is also the fact that health inflation is 
getting out of control, it is running faster than everything 
else. And then when you add more programs that exacerbate 
those, that in lies the biggest driver of our debt, correct?
    Mr. Elmendorf. Yeah. The one amendment I would make is that 
health spending has outpaced GDP growth for sometime, as you 
know.
    Chairman Ryan. Right.
    Mr. Elmendorf. In fact, it has been slower relative to GDP 
recently, but nonetheless still growing relative to GDP, and 
that is a contributor to growth.
    Chairman Ryan. Thus excess cost growth?
    Mr. Elmendorf. Yes.
    Chairman Ryan. So what I find really interesting in this 
report is when you add an economic analysis to it, correct me 
if I am wrong, but you are basically saying if we get a fiscal 
package in place now that, let's say, take the $4 trillion 
number, that means we will have lower interest rates which will 
help the economy, which will grow GDP, which will lower our 
debt, so that is economic stimulus, using a term that my 
friends use, 101, meaning lower--a bigger debt package, lower 
interest rates, faster growth, lower debt burden.
    Then lower marginal income tax rates I find is a very 
interesting aspect of your analysis. What you are saying is if 
we keep high marginal income tax rates that will slow down our 
economy, we will not hit as much of a potential, but if we 
lower our marginal income tax rates, albeit on a revenue-
neutral basis, that will accelerate economic growth, that will 
help grow GDP and give us a smaller debt burden in the future. 
Is that basically what I am getting out of this?
    Mr. Elmendorf. Yes, I think that is right, Mr. Chairman. 
The one thing I would add is that putting a package in place 
that gives people confidence that future deficits will be 
smaller can hold down interest rates today and boost the 
economy. That is a slightly different point than the one I made 
in my opening remarks about actually implementing the tax 
increases or spending cuts today, and that part alone would 
slow the economy in its economic expansion.
    Chairman Ryan. You are basically making a timing point 
there, though, correct?
    Mr. Elmendorf. Yes.
    Chairman Ryan. So from a Keynesian perspective, doing 
something that is a shock now, from a Keynesian perspective, a 
big spending cut that is immediate or a big tax increase that 
is immediate will harm and put our base in the wrong direction?
    Mr. Elmendorf. Yes.
    Chairman Ryan. But if we put in place a long-term debt 
reduction plan dealing with these primary drivers of our debt, 
which are clearly these health care programs--there are other 
factors, but health care programs--and if we have tax reform 
that lowers our marginal tax rates, that will help us in a 
couple of great ways. It will help us in lower interest rates, 
which grows the economy, and the lower tax rates will help grow 
the economy, which means we can get this thing under control 
even with the retirement of the Baby Boom population. Is that 
basically what I am getting out of this?
    Mr. Elmendorf. Yes, Mr. Chairman, that is right.
    Chairman Ryan. That is the point we are trying to make 
here. This is where we want to go. The reason this debt limit 
fight is coming is because when we have had great fiscal 
bipartisan agreements in the past, whether it was Reagan with 
Gramm-Rudman, whether it was Bush with Democrats in the Senate 
in 1990 at Andrews Air Force Base, whether it was Gingrich and 
Clinton, or BCA and Bowles-Simpson, these things were part of 
debt limit agreements. They have always been the forcing 
actions that got us agreements.
    And what we are getting here is if we put together a 
package now before the Federal Reserve normalizes, before 
interest rates start going, we will put ourselves as a Nation 
in a very good position. But if we miss this moment, if we just 
kick the can because we keep fighting each other, then we will 
not get this opportunity; the Federal Reserve will start 
tapering, we all know that. It is not an ``if,'' it is a 
``when.'' Interest rates will go up, and shame on us because 
the hole we will have to dig ourselves out of then will be that 
much deeper. He is already giving us numbers, $145 billion a 
year versus $350 billion a year. And it is so clearly in our 
interest as a country--this is not a Republican-Democrat thing; 
this is a math thing--to do something about this. And what we 
are seeing here, it is these health care programs are the 
primary drivers of our debt. This is why we are focused on 
these health care programs. This is also why we are focused on 
tax reform, because what we are getting is if we keep high 
marginal tax rates, we hurt businesses, we hurt job growth, we 
slow down the economy from hitting its potential.
    If we lower our marginal tax rates, we have more economic 
investment, we have more entrepreneurship, small businesses can 
compete.
    The highest, the top effective marginal tax rate as of 
January now is 44.6 percent. Eight out of 10 businesses in 
America, they don't file their taxes as corporations. They file 
their taxes as people. We call them subchapter S corporations, 
LLCs, sole proprietorships, partnerships, pass-throughs. The 
international average tax rate on businesses is 25 percent. 
Most other industrial nations don't tax themselves like we do 
ours. They don't have a pass-through regime like we have. They 
just have business tax rates, and they are, on average, 25 
percent. Our corporate rate is 35, that is the highest in the 
industrialized world, and that is for 20 percent of our 
businesses. The other 80 percent go as high as almost 45 
percent effectively. We are really hurting ourselves with these 
high tax rates. And so what we are getting here is if we lower 
our tax rates--and believe me, there is a way to do this 
without losing revenue. Lower our tax rates, we can have faster 
economic growth. If we take advantage of the moment we are in, 
the low interest rate moment we are in, which will not last 
that much longer, and get a fiscal consolidation package on 
spending and entitlement reform, we will do our country a big 
favor; we will do our children a big favor because we will bank 
debt reduction and economic growth at a time where it makes the 
most bang for the buck, the most difference. But if we don't 
take advantage of this moment--this is why we are focused on 
the debt limit, this is why we are focused on these issues--
then shame on us because the hole we will have to dig ourselves 
out of will be that much deeper. I will reserve the balance of 
my time.
    Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    And the whole purpose of the budget law, which establishes 
a process for the House and the Senate to pass budgets and then 
go to conference, is to try and work out these big issues on 
the budget deficit, not just for this year but for future 
years. And the law requires that the conference committee 
between the House and the Senate report by April 15th.
    And yet our Republican colleagues have prevented us from 
going to conference and instead gone for a strategy where they 
drive this country right up against the debt limit, create huge 
uncertainty and, in that context, try and make huge demands. If 
you read the papers today, they say, Okay, United States will 
pay its bills, but only if you adopt the entire House 
Republican agenda, anti-environmental laws, get rid of the 
Affordable Care Act for a year. That is irresponsible.
    The responsible way to do it is the way the law prescribes, 
and unfortunately, Mr. Chairman, the Speaker absolutely refused 
to go to conference so we could be working on these issues for 
a number of years.
    Now, here is where we agree, that it is about math. It is 
about math. And every bipartisan group that has looked at our 
long-term deficit challenge has said, you have got to look at 
both sides of the budget equation. Yes, of course, you have to 
look at the spending side, and we have to deal with the long--
care--health pieces, and by the way, Mr. Chairman, again, you 
did include in your budget the Medicare savings that we achieve 
without diminishing quality after your presidential candidate 
demagogued against those for months on the campaign trail, but 
you recognized that they were important to help reduce the 
deficit, and in fact, the Republican budget wouldn't balance in 
10 years without them.
    So we understand that we have to have savings on the health 
care side in a responsible way, but we also recognize that 
simple math tells you that the other side of the equation needs 
to be looked at as well, revenue.
    Dr. Elmendorf, you pointed out the fact, which is that if 
we keep running high deficits and debt, as the economy 
improves, that will crowd out private investment, right?
    Mr. Elmendorf. Yes.
    Mr. Van Hollen. And that will increase interest rates, and 
that would slow down economic growth, right?
    Mr. Elmendorf. Yes.
    Mr. Van Hollen. And you have said that if, in the next 10-
year period, we reduce the projected deficit by $2 trillion, 
then, in 2035, we would have a debt-to-GDP ratio where we are 
today, right?
    Mr. Elmendorf. Yes, that is right.
    Mr. Van Hollen. And you have been clear that you could 
achieve that $2 trillion deficit reduction through cuts or 
through revenue or through a combination; isn't that right?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Van Hollen. And so if you want to have, if you want to 
eliminate that drag on economic growth, the key point in your 
report is that we have to reduce the deficit, right?
    Mr. Elmendorf. Yes.
    Mr. Van Hollen. And it is up to policymakers to decide what 
mix.
    And we totally agree, Mr. Chairman, that we need to reduce 
the deficit, just as the CBO has said, but we think that we 
need to have a balanced approach because if you do it only by 
cutting on the health care side, you are going to be asking 
Medicare beneficiaries, whose median income is $23,000, and for 
many of them who get half of that income from Social Security, 
that $23,000, you are going to be asking them to take a big hit 
when you are not asking people who are earning a million 
dollars to eliminate some of their deductions or you are not 
going to ask big oil companies to get rid of their special 
interest tax breaks, which is why we have argued, just like 
every bipartisan commission, that you have to do a combination 
of things, and that is simple math. You have got to do 
something on the revenue side, and you have got to do something 
on the spending side.
    Now, Dr. Elmendorf, as I look at your analysis here, and 
you look out to 2035, and you compare this year's projection to 
the previous current law projections, in fact, the biggest 
driver of increased deficits in the out years is the fact that 
we changed the tax law so that less revenue will be coming in, 
isn't that the case?
    Mr. Elmendorf. Yes, that is right, Congressman.
    Mr. Van Hollen. So the reason the deficit in 2035 is much 
higher under this report than in previous reports is because we 
changed the tax law and less revenue will be coming in. So our 
point is the point I think the overwhelming majority of 
American people support, which is to tackle this challenge, you 
need to address both pieces of this going forward.
    Chairman Ryan. Can I ask you a question about that then?
    Mr. Van Hollen. Sure.
    Chairman Ryan. Are you suggesting we should raise tax rates 
on middle income taxpayers, which is what we prevented from 
happening in that tax----
    Mr. Van Hollen. Actually, no, Mr. Chairman. In fact, 
reclaiming my time, our view is that your tax plan does exactly 
that, because you say you are going to get the top rate down to 
25 percent, you say you are going to do it in a revenue neutral 
manner, which according to lots of analysis means you have got 
to come up with $4 trillion, even while you are providing the 
folks at the top with a big tax cut. And the way you are going 
to have to make it up mathematically is to increase the burden 
on middle income folks.
    And if it is not the case, we would love to see your tax 
plan, you know. It has been in the Republican budget for 3 
years now. Let's see it. Just like for the last 3 years, you 
have been talking about repeal and replace on health care. We 
have had 42 votes on repeal; not a single House Republican plan 
has been voted on to come up with a different system.
    So let me ask you this, Mr. Elmendorf, because we need to 
look at the long term, and we should act now to deal with it, 
but we also should make sure we get the economy moving more 
quickly. Now several months ago, we asked you, the CBO, that if 
you were to get rid of the fiscal year 2013 sequester and the 
fiscal year 2014 sequester, how many jobs would be saved? We 
are obviously now not able to take back fiscal year 2013, 
despite our efforts to try and replace that sequester. So just 
for this coming fiscal year, just for fiscal year 2014, if the 
sequester remains in place, what is your best estimate as to 
how many fewer jobs we will have in this country this time next 
year; 100,000, 200,000? What is your estimate?
    Mr. Elmendorf. Well, so, Congressman, if the Congress were 
to move discretionary funding back up to the original caps 
under the Budget Control Act and turn off the sequestration for 
2014, we think that would add about half a percent to the level 
of GDP at the end of 2014, and it would add about 600,000 jobs 
at the end of 2014. Those are the mid points of ranges. We 
often present our economic estimates with ranges to show the 
uncertainty. The effect on GDP we think would be somewhere 
between two-tenths of a percent and eight-tenths of a percent 
on GDP growth, GDP at the end of 2014. As I said, it was a 
midpoint of half a percent, and the effect on full-time 
equivalent employment would be between 200,000 jobs and a 
million jobs, again with a midpoint of 600,000 full-time 
equivalent jobs.
    Mr. Van Hollen. Okay, just so I understand. Your best 
estimate as to how many fewer jobs we will have in this country 
if we keep the sequester in place between now and this time 
next year is 600,000?
    Mr. Elmendorf. Yes, that is right, Congressman.
    Mr. Van Hollen. And just for the benefit of our colleagues, 
the last 3 months, we have seen around 500,000, in fact, fewer 
jobs, so you are talking about keeping the sequester in place 
that wipes out more than the number of jobs that were created 
in the last 3 months. That is an unnecessary self-inflicted 
wound.
    And so, Mr. Chairman, I would just, again, ask that the 
majority in this House allow us a simple vote on our plan to 
replace the sequester to save over 600,000 jobs, to end the 
eating away at important investments, whether it is in 
biosciences or our infrastructure, which clearly is having a 
negative impact on the economy and on the country going 
forward.
    Mr. Elmendorf, let me just ask in the last minute here, if 
we were to actually not pay our bills, if the United States 
Government were to lapse on its full faith and credit, could 
you discuss what the potential negative impacts could be on the 
economy?
    Mr. Elmendorf. Congressman, defaulting on any obligation of 
the U.S. Government would be a dangerous gamble.
    In a very uncertain world, one thing that everyone has been 
able to count on is that the U.S. Government will pay its bills 
on time; the benefit checks for older Americans, for needy 
Americans will go out on time; that grants to State and local 
governments will be paid when they are scheduled, that the 
bills that small and large businesses submit to the Federal 
Government in exchange for the goods and services the 
government buys will be paid on time; and that the principal 
and interest payments on the Federal debt will be made on time.
    If the confidence in the reliability of those payments were 
cast into doubt, then the consequences for the budget, for the 
U.S. economy, for the U.S. and global financial systems could 
be large and lasting and very damaging.
    Mr. Van Hollen. Thank you, Dr. Elmendorf. I noticed that 
you said default on any obligation because----
    Mr. Elmendorf. Yes, Congressman.
    Mr. Van Hollen [continuing]. Some of our colleagues have 
this debt prioritization bill, we call it the Pay China First 
bill, which says you don't have to pay our troops in the field, 
you don't have to pay doctors on Medicare, but you pay 
bondholders, including the government of China. What you are 
saying is that default on any obligation would send a very bad 
signal?
    Mr. Elmendorf. Yes, Congressman. It is very hard for 
economists to know exactly what would happen. It might be that 
defaulting on some obligations would be different than 
defaulting on others, but we don't have a basis for really 
analyzing that because, fortunately, we have not had a lot of 
experience with the government defaulting, but I think given 
how much money the Federal Government owes, to stop paying what 
is owed is a very risky strategy.
    Chairman Ryan. Thank you.
    I will reclaim the balance of my remaining time. To try and 
just put this all in perspective, and I am not trying to pick a 
fight here, I am just trying to clarify our goals and 
intentions. If the minority would have been willing to agree to 
limiting their motions to instruct conferees to two, which was 
the offer given in the Senate, we could have gone to 
conference. That wasn't--you know, nobody wanted that.
    Mr. Van Hollen. Mr. Chairman----
    Chairman Ryan. You and I spoke about that.
    Mr. Van Hollen. No, I have never heard that offer until 
this moment, Mr. Chairman, ever.
    Chairman Ryan. That is not the case.
    So the point we are trying to make is, the point I am 
trying to make is having endless motions to instruct would have 
done more to divide this Congress, more to prevent good, 
legitimate, serious reforms from making it into that budget 
agreement. When we have actually gotten bipartisan budget 
agreements in this country, especially in eras of divided 
government, such as the one we have right now, it has usually 
accompanied the debt limit.
    We now get a report, a fresh one from the CBO, which, by 
the way, says that there are better Medicare reforms that can 
lower beneficiary costs and government costs through premium 
support. That is a pretty interesting report, I wonder if 
anybody has read that. It came out about a week ago. We hear 
that if we lower our marginal tax rates, it is good for growth 
and good for debt reduction. So the problem is, can people 
agree that it is not just rich guys we are hitting; it is 
actually successful small businesses who are the job creators 
that help grow the economy that is getting caught up in this, 
and lowering those tax rates is good for jobs, investment, good 
for the debt. And if we get fiscal consolidation, meaning 
entitlement reforms, the drivers of our debt, health care 
programs, that, too, will help us get our debt under control, 
grow our economy, and leave the next generation better off.
    The final point is the window of opportunity is narrowing 
because interest rates are not going to be where they are for 
much longer.
    Mr. Price.
    Mr. Price. Thank you, Mr. Chairman, and I want to welcome 
the Director back to the committee. I think if one is looking 
in this country and watching this on C-SPAN today, they are 
scratching their head and trying to figure out why there is 
agreement at the ground level that there is a debt but why we 
can't come to any more agreement than that, and I really am 
surprised at the ranking member in this conversation about the 
Affordable Care Act and our focus on it, and it is appropriate 
because it is of concern to the American people.
    Thousands of stories of calamity across this country 
already because of Obamacare. Full-time workers being shoved 
into part-time status, destroying families, amazing that this 
would be tolerated by the administration, our friends on the 
other side of the aisle; thousands, hundreds of thousands of 
families with members of their families being tossed off their 
current health coverage because of the Affordable Care Act, not 
because of anything they desire as families, and this is 
destroying lives; huge numbers of doctors, and as a physician I 
can tell you, huge numbers of doctors that are no longer able 
to participate in the program. So I would urge my colleagues to 
listen to their constituents.
    Also, I am surprised by the amnesia that I seem to hear 
from the other side. This is the President's sequester. The 
President's sequester. We on our side tried to pass a piece of 
legislation that would more appropriately prioritize the 
spending, but that was not--the administration wasn't willing 
to take that, and then the full faith and credit that we have 
passed with this continuing resolution last week.
    But I do want to turn to your report because I find it 
very, very fascinating, the long-term budget outlook. This is 
the picture that you all chose to demonstrate the challenge 
that we have, and the outgoing line there is the increase in 
debt over a relatively short period of time, a time that all of 
us can remember in our lifetimes up here. Would you call that a 
large and growing debt?
    Mr. Elmendorf. Absolutely.
    Mr. Price. So, on page 3, you state the harmful effects of 
a large and growing debt, and I want to draw our attention to 
one sentence there: At some point investors, with a large and 
growing debt, begin to doubt the government's willingness or 
ability to pay U.S. debt obligations.
    That is a calamitous event when that occurs, is it not?
    Mr. Elmendorf. Yes, Congressman, it would be.
    Mr. Price. And if we on this side, on both sides of the 
aisle are trying to look at the tea leaves and see how close we 
are to that point, are there things that we can look at as 
indicators?
    Mr. Elmendorf. Congressman, as we say in the report, there 
is no way to predict when the country would reach a fiscal 
crisis because those events are rare, have not occurred in this 
country, and depend not just on some particular amount of debt 
but on people's confidence in the ability of the government to 
manage its finances. So we don't know when we might reach that 
point in this country.
    One indicator would be rising interest rates. On the other 
hand, when countries encounter fiscal crises, they have often 
been borrowing at fairly low interest rates for a long enough 
time to instill some confidence, some false confidence, in the 
path they are on, and then rates can rise very sharply with 
very little warning. So this sort of event may not have the 
sort of leading indicators that one would hope for.
    Mr. Price. Mr. Chairman, we are still in that window where 
we can turn things around and move in the right direction?
    Mr. Elmendorf. Yes, absolutely.
    Mr. Price. But at some point, that window closes, does it 
not?
    Mr. Elmendorf. Yes, it would.
    Mr. Price. I want to shift to page 88 in your report that 
talks about the long-run effects of fiscal policies with 
smaller deficits and a couple graphs, and you stated, I think, 
in your comments that increasing debt decreases income.
    Mr. Elmendorf. Yes.
    Mr. Price. And the graph on the bottom here demonstrates an 
alternative scenario where there is $4 trillion in deficit 
reduction over a 10-year period of time, and you actually have 
the debt and deficit decreasing and incomes increasing; is that 
correct?
    Mr. Elmendorf. Yes, that is right, Congressman.
    Mr. Price. Can you help us understand why that, what the 
correlation is between those two?
    Mr. Elmendorf. Yes. So over time as the government borrows 
more money, it is reducing the funds that are available to 
private investors, and thus reducing the amount of capital 
investment we do, and it is that capital investment that 
together with education and other things makes workers more 
productive and leads to higher incomes, so if there is less 
investment, there is less productivity growth, less increase in 
wages and incomes over time.
    Mr. Price. And the budget that House Republicans adopted 
had a debt reduction over a 10-year period of time of about----
    Mr. Elmendorf. I think about $4 or $5 trillion, 
Congressman.
    Mr. Price. $4 trillion or $5 trillion. So if we want to get 
on a path that decreases debt and increases income for the 
American people, the House Republican budget is an example of 
one?
    Mr. Elmendorf. Yes, it is an example of one.
    Mr. Price. Thank you.
    I yield back.
    Chairman Ryan. Ms. Schwartz. Wait, no, Ms. Schwartz is not 
here.
    Mr. Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman.
    Dr. Elmendorf, it is a pleasure to see you. Thank you for 
being here.
    Over the last couple of months, I have talked to a large 
number of medical researchers, both in my district and 
elsewhere, who have reached near panic, I guess, over the 
effects of sequester on the projects that they have been 
working on and are very, very concerned about the long-term 
effects of sequestration on their work, but at the same time, 
they have given some very encouraging news. Virtually every 
researcher I have talked to believes that, within the next 10 
years, we will have a disruptive change in the medical field, 
one or more, and by a disruptive change, I mean curing cancer, 
curing diabetes, something of major consequences to the medical 
field and subsequently to the burden of health care costs in 
the country.
    Have you, CBO, given any thought or projection as to what, 
say, curing diabetes--I think the estimates are somewhere 
around $150 billion a year spent systemwide--what that kind of 
disruptive change would mean on the projections of long-term 
health care costs for the taxpayer?
    Mr. Elmendorf. Congressman, our basic long-term projections 
don't try to guess what particular sorts of changes might occur 
in health care delivery. We have a gradual slowing of this 
extra cost growth over time in response to rising pressures of 
costs. We don't try to figure out the path for particular sorts 
of diseases or treatments for them. Whether curing a disease 
would help the Federal budget or not is actually not very 
clear. It would be great for people's lives, obviously, but the 
effects on the budget are complicated. When we looked at the 
effects of raising the cigarette tax in the lengthy report that 
we did, that would make people healthier. Fewer people would 
smoke. They would live longer. But the Federal budget has some 
odd cross currents; thus, less spending on health care for 
people who don't get certain diseases, people live longer; they 
collect Social Security benefits for longer. That is all to the 
good for society but may not be good for the Federal budget. 
So, for individual diseases and individual new approaches that 
could have different sorts of effects on the Federal budget, 
and we have not tried to work out any of those in great detail 
except for the increase in the cigarette tax and reducing 
smoking.
    Mr. Yarmuth. Thank you. Let's look at in a different way. 
You talked about the fact that $4 trillion in reduction of 
either spending or a combination of reduction in spending and 
increased revenues would bring the debt as a percentage of GDP 
to below historic ranges. So we are talking basically about, 
what, $400 billion a year?
    Mr. Elmendorf. Yes, that is right.
    Mr. Yarmuth. At current levels.
    Mr. Elmendorf. Yes.
    Mr. Yarmuth. What would be the impact on the economy of 
taking $400 billion out of the economy, say, in the health care 
arena, $400 billion a year?
    Mr. Elmendorf. Well, if one takes it out of the economy 
right away, and especially under these economic circumstances, 
it would weaken the economy, it would reduce the number of 
jobs. That is why many people who have constructed different 
policies reducing deficits have focused on phasing in those 
policies over time, and again, back to the discussion we had 
earlier, there are pros and cons of how quickly one phases in 
policies. I think a general agreement that making decisions 
soon is good because the sooner you make decisions, the more 
time you give people to plan and adjust to where policies are 
going.
    Mr. Yarmuth. Thank you.
    The chairman of the committee talked about the--and stated 
as apparently a matter of faith or irrefutable faith that 
cutting marginal tax rates creates wealth and reduces the 
deficit and so forth. Didn't we try that in 2001 and 2003?
    Mr. Elmendorf. Well, Congressman, I think the economic 
statement, I should say carefully, is that reducing marginal 
tax rates while maintaining the same level of total revenue so 
that deficits would not be affected would be good for the 
economy. If one lowers tax rates and loses revenue through that 
process, then the effects on the economy depend on the 
magnitudes involved because the larger deficits are bad for the 
economy and the lower tax rates by themselves are good for the 
economy.
    Mr. Yarmuth. But we did reduce the marginal tax rates in 
2001 and 2003.
    Mr. Elmendorf. Yes.
    Mr. Yarmuth. And we did not see a reduction in the deficit 
over the ensuing years; isn't that correct?
    Mr. Elmendorf. Congressman, I think when economists study 
the effects of changes in tax rates, we don't look at just a 
few years. There are so many things that go on in the economy 
and the budget, so we draw on a broader set of evidence.
    Mr. Yarmuth. Thank you. I would yield the last 25 seconds--
okay, never mind. I will just yield back the balance of my 
time.
    Chairman Ryan. Mr. Garrett.
    Mr. Garrett. Doctor, thank you for coming here to testify. 
So, as Dr. Price was saying, the viewers who watch this 
probably can see the difference of opinion as to whether we are 
in financial difficulties or not. Looking at the issue of 
health care, we see the discrepancy on that view, so I 
appreciate that you are here and the report as well because we 
can sort of dig down into some of the numbers.
    In the report I believe I read that the balance of the 
trust fund under Medicare, looking at that part right now, part 
A, would fall from $229 billion at the end of fiscal year 2012 
to $31 billion at the end of fiscal year 2023. Is that correct?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Garrett. And then you go on to say the CBO concludes 
that in a long-term budget outlook, what we are looking at here 
right now, is that, quote, under the extended baseline the 
trust fund would be exhausted just beyond the coming decades. 
Is that correct?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Garrett. Okay. So I guess my constituents at home, I 
don't know whether they read this report or not, but----
    Mr. Elmendorf. I hope they do, Congressman.
    Mr. Garrett. Yeah, I hope they do, too. There are a lot of 
pictures. I mean, it is a little dry, but it is important. But 
they do get your message, and they do get your numbers, and 
that is why they are asking us, what are we doing to try to fix 
this? You use the word ``exhausted.'' What they are asking me 
is what are we going to do to prevent bankruptcy by--another 
way to describe exhausted, I think. Could you tell us or tell 
them what will be the practical implications for seniors in my 
district and across the country as well if we get to that point 
where part A is exhausted or bankrupt, if you will?
    Mr. Elmendorf. So, as you know, Congressman, the payments 
for hospitals through Medicare come out of the Hospital 
Insurance Trust Fund. If that trust fund were exhausted, then 
the amounts that could be paid to hospitals for treating 
Medicare beneficiaries would be limited to the amount of 
revenues as they come in, and that would be less than would be 
needed to meet all of the bills that would rise under current 
law.
    Mr. Garrett. What does that mean to a senior at home today 
if that happens?
    Mr. Elmendorf. Well, we have not--so far, the Congress has 
not let either the Medicare or Social Security Trust Fund 
actually run out of money, but if Congress were to stand by 
when that happened, then hospitals would not get the payments 
written down in current law. I don't know which hospitals would 
get paid or which wouldn't or for which patients or what 
patients would not get paid for. There is no way to know.
    Mr. Garrett. So the bottom line, doctors potentially would 
not be paid, hospitals potentially would not be paid, more than 
potentially, and services----
    Mr. Elmendorf. Hospitals would not get the full payments 
that is written into current law; that is right, Congressman.
    Mr. Garrett. So just delving into it a little more, also in 
the report it says the Federal Government's health care 
spending will grow considerably in 2014 because of changes made 
by the Affordable Health Care Act. What are the growth 
projections for health care spending as a result of the 
Affordable Health Care Act as a percent of GDP as well?
    Mr. Elmendorf. Well, Congressman, all told, the Federal 
spending on these major health care programs is about 4.5 
percent of GDP now, we think it will be 8 percent by 2038. And 
over those 25 years, there are substantial portions of the 
increase explained by the aging of the population and rising 
health care costs and by the coverage expansions of the 
Affordable Health Care Act.
    Mr. Garrett. Okay. So spending is going to go up, services 
would be going down. There was an article in the Wall Street 
Journal recently about the price of the premiums that people 
will be paying in my home State of New Jersey, New Jersey 
premiums would increase from $162 per month to $219 per month. 
I just did that, that is around 35 percent roughly increase in 
premiums under the Affordable Health Care Act if we just 
continue on right now. I know you guys did a look back in 2009 
as far as increase of premiums. Have you done a look at what 
premiums would be increasing under the Affordable Health Care 
Act if the status quo is continued?
    Mr. Elmendorf. So you are right, Congressman, in the fall 
of 2009, we did an analysis of what the version of the 
Affordable Care Act in play at the time would do to premiums. 
We have not updated that. We are, of course, following the news 
about premiums, and we will factor them into our next baseline 
projections. We have not redone that particular analysis.
    Mr. Garrett. You haven't redone it. But do you still expect 
that the Affordable Health Care Act would increase premiums for 
Americans purchasing in the nongroup market?
    Mr. Elmendorf. Yes, Congressman. Let me explain clearly 
here. We thought there were a number of factors that would 
increase premiums, the most important of which in our 
estimation was insurance policies will be required to cover a 
larger share of the total services. That means that premiums 
would be higher but out-of-pocket payments would be lower.
    Mr. Garrett. Right. And that is a part of the Affordable 
Health Care Act?
    Mr. Elmendorf. That is because of the Affordable Care Act 
setting standards for what share of medical costs have to be 
covered by an insurance policy, but the increase in premiums 
and reduction in out-of-pocket costs will be offsetting for the 
average beneficiary. Some would pay more, some would pay less, 
but offsetting on average. There are other reasons also we 
think premiums would go up. As you know, those are before 
subsidies, the premiums that you are referring to.
    Mr. Garrett. My time is up, but I thank you for the 
clarification on all that.
    Mr. Elmendorf. Thank you, Congressman.
    Chairman Ryan. Mr. Pascrell.
    Mr. Pascrell. Thank you, Mr. Chairman.
    Mr. Chairman, I am glad that you are the chairman here. I 
would rather have Chris, of course, but I don't want to 
believe, I really don't want to believe that this obsession 
with the debt--and no one in this room denies, just looking at 
the pictures, that we have a debt and we need to address it. 
The question is, how do we address it? And we don't address it 
by making it worse. Folks that look back to 2009 and they see 
the great deficit that existed in 2009 because no business was 
investing, no capital, no consumers were buying, so the 
government has to do something, as they have done in 25 times 
in the 20th century whenever we had a recession or a 
depression.
    So I like to put things in context, so I am counting on 
you. So you won't allow this issue to be a stalking horse for 
continued ideological struggle to slash the social safety net 
and pad the pockets of other people. I am counting on it. I 
can't put it any clearer than that. The--we are talking about 
this budget, and we are talking about----
    Chairman Ryan. Since you engaged me, can I ask you, do you 
honestly think that is what we are trying to do?
    Mr. Pascrell. I said I am counting on you. If you want me 
to go on to the rest of the members, I can do that.
    Chairman Ryan. No, but you are addressing me. I mean, 
honestly, do you honestly think that is what we are trying to 
do?
    Mr. Pascrell. Yeah, I think that is one of the reasons that 
we have the problem today.
    Chairman Ryan. Well----
    Mr. Pascrell. I don't think that is your motivation. Who am 
I to question your motivation? But I don't think that is where 
you are at. So I am counting on that. But on page 103, the very 
large change between this year and last year--and correct me if 
I am wrong--in the projected Federal debt stems primarily from 
changes in tax law that have sharply reduced revenue, future 
revenues.
    Mr. Elmendorf. Yes, Congressman.
    Mr. Pascrell. That is on page 103. In this report, the 
largest reason for the deficit would be bigger, bigger than the 
previous estimate that we have had, is that the tax deal we had 
at the beginning of this year. Talk about amnesia. And that 
deal is very interesting to examine.
    How much bigger, Mr. Elmendorf, would the deficit have been 
if we had extended the tax cuts of 2001 and 2003 for everyone, 
as my friends suggested on the other side? How much bigger 
would the deficit, since they are so concerned about this 
deficit and debt, how much bigger would it be?
    Mr. Elmendorf. It would be substantially larger, 
Congressman, but I don't have a numerical estimate at hand, I 
am sorry.
    Mr. Pascrell. Substantially larger?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Pascrell. And then what do we do? So, in just 1 year, 
the projections for the future growth in our healthcare system 
went down by almost 10 percent. I have read parts of this 
report. That is what you say, correct?
    Mr. Elmendorf. So we brought down the--yes, Congressman.
    Mr. Pascrell. In all the other years before that since 
1995, going back to 1990, those costs went up. Now maybe it 
just happened by chance. Maybe it just--we woke up one morning 
and said let's--insurance companies felt great and said, we 
won't increase insurance, the premiums as much as we did last 
year.
    You know that is not how it happened, and I know that is 
how it happened. I don't know if everybody in the room knows 
that is how it happened.
    So it is clear that we have much more to do, but this is a 
very significant accomplishment because so much of this deficit 
is dependent upon, as the chairman rightfully pointed out, 
health care costs. The purpose of the ACA, one of its purposes, 
was to bring down the health care costs.
    Now, Dr. Elmendorf, on page 58 of your report, you make 
some projections regarding Federal non-interest spending, 
including discretionary spending.
    Mr. Elmendorf. Yes.
    Mr. Pascrell. Which we know is coming down. The President 
lowered it by half. The reason why he lowered it by half is 
someone said this morning, well, the reason--how can you say 
lowered it by half when he increased it so much in 2009, put it 
in context.
    Chairman Ryan. Thank you.
    Where are we?
    Mr. McClintock.
    Mr. McClintock. Thank you, Mr. Chairman.
    Dr. Elmendorf, we keep hearing the proposition that in 
order to reduce the deficit we either have to raise taxes or 
cut spending, as if taxes and deficits are opposites. It seems 
to me they are two sides of the same coin, that deficits are 
taxes. They are just future taxes. The only difference between 
a deficit and a tax is the timing of the tax.
    Mr. Elmendorf. Well, I think, Congressman, the accumulation 
in debt that comes from a deficit could be addressed later by a 
tax increase or by a spending cut later. I think what a larger 
deficit does is to push the question off for the future.
    Mr. McClintock. But you are applying future taxes. I mean, 
taxes and deficits are the only two possible ways to pay for 
spending.
    Mr. Elmendorf. Yes, Congressman, that is right.
    Mr. McClintock. Well, so it seems to me, then, the critical 
issue before us is the level of spending, since the level of 
spending automatically sets the combined level of current and 
future taxes, not the other way around.
    Mr. Elmendorf. Well, again, I think it can affect future 
spending as well. But I take your point that the only way to 
pay for spending is to collect that in revenue or to borrow 
that money.
    Mr. McClintock. A recent article in The Wall Street Journal 
noted that the European experience is that those nations that 
have restrained spending increases relative to GDP overall had 
higher economic growth than those that did not. Is that your 
observation?
    Mr. Elmendorf. Congressman, it depends on the time period 
you look at and on the sets of policies. So the countries in 
Europe that have had more restrained fiscal policies in the 
past few years have not had good economic growth. They have had 
weak economic growth.
    Mr. McClintock. When you say restrained fiscal policy, that 
is taxes and spending.
    Mr. Elmendorf. I mean countries that have had lower 
spending, Congressman, had lower spending or higher taxes----
    Mr. McClintock. What The Wall Street Journal article was 
referring to specifically was levels of spending relative to 
GDP, and they found a remarkable correlation between restraint 
in increases in spending relative to GDP and economic growth.
    Mr. Elmendorf. So, Congressman, I think the way that 
economists would look at that question is to look at the 
effects that the tax code of a country is having on people's 
behavior.
    Mr. McClintock. No, no. But, again, their point is it is 
the spending that seems to be directly correlated to growth. 
The greater restraint in spending, the greater overall economic 
growth these nations have had. You mentioned timing. I mean, 
just looking at the recent history of this country. Coolidge, 
Truman, Kennedy, Reagan, Clinton all cut spending relative to 
GDP, Hoover, FDR, Johnson, and Bush all increased spending 
relative to GDP. The economy seemed to do better under the 
former policies than the latter.
    Mr. Elmendorf. Well, Congressman, President Hoover, for 
example, not to defend his economic policies exactly, but GDP 
started to fall. Spending rose as a share of GDP because of 
what happened in the economy, not what happened--not 
originally----
    Mr. McClintock. But just in terms of raw Federal spending, 
he increased spending 60 percent during his 4 years in office, 
a rather breathtaking amount.
    Mr. Elmendorf. Just knowing that the ratio of spending to 
GDP depends both on explicit decisions about spending----
    Mr. McClintock. But even factoring that out, just in 
nominal terms, 60 percent increase in Federal spending in 4 
years is rather breathtaking, and it didn't seem to jump-start 
the economy.
    Mr. Elmendorf. Most economists think that expansionary 
fiscal policy in the Depression, meaning larger deficits, was 
good for the economy during the Depression. Most economists 
think that the lower taxes and higher spending----
    Mr. McClintock. I understand that.
    Mr. Elmendorf [continuing]. During the past economic 
downturn were good for the economy during the downturn. The 
problem is the longer-term effects.
    Mr. McClintock. I understand that. That is an example of 
what I like to call McClintock's third law of political 
physics, which is the more we invest in our mistakes, the less 
willing we are to admit them.
    But let me go on to a response that you made to the ranking 
member, who asked you about the debt limit. Did I understand 
you correctly to say that you see no distinction to credit 
markets between the government defaulting on actual debt owed 
to the public and delaying payments of routine obligations? Did 
I understand that correctly.
    Mr. Elmendorf. No. That is not what I said, Congressman.
    Mr. McClintock. Good.
    Mr. Elmendorf. I said that defaulting on any obligation of 
the U.S. Government was a dangerous gamble. And I said, 
Congressman----
    Mr. McClintock. But do you believe that credit markets see 
a distinction between defaulting on the actual debt owed to the 
public and delaying payments of routine obligations?
    Mr. Elmendorf. And I said, Congressman, that it might be 
that the financial system or the economy would respond 
differently to default on different kinds of obligations, but 
that economists did not have a basis for making analytic 
predictions, because we don't have experience in that.
    Mr. McClintock. I want to turn to one other subject very 
briefly: student loans. $1 trillion of debt owed to the Federal 
Government, increasing default rates. The amount that we are 
putting in seems to be driving a huge increase in tuition. 
Tuition is up four times the rate of inflation over the past 
decade. Health care up twice the rate of inflation, yet we talk 
about affordable health prices. Are we heading toward a student 
loan default bubble?
    Chairman Ryan. Thank you.
    Mr. Elmendorf. We haven't studied that, Congressman.
    Chairman Ryan. I just want to keep everybody on time.
    Ms. Castor.
    Ms. Castor. Well, thank you very much, Mr. Chairman.
    Good morning, Dr. Elmendorf.
    Mr. Elmendorf. Good morning.
    Ms. Castor. Thank you for being here, and thank you for all 
of the work that went into the 2013 Long-Term Budget Outlook.
    I am very concerned with the economic damage that is being 
caused by the sequester. And you previously responded to 
Ranking Member Van Hollen by saying--did you say if we keep the 
sequester in place that that could cost our country 600,000 
jobs over the next----
    Mr. Elmendorf. Yes, yes. Relative to the alternative, 
moving discretionary funding back up to the original BCA caps 
and not having the sequester take effect.
    Ms. Castor. And that would take, did you say, a half point 
away from gross domestic product?
    Mr. Elmendorf. About half a percent off of gross domestic 
product by the end of 2014.
    Ms. Castor. And, you know, back home in Florida, in my 
community, the type of jobs we are talking about, I think we 
have already seen some very harmful impacts. Our premier cancer 
research center in Tampa is the Moffitt Cancer Center. They, 
before the sequester, had 120 researchers working to find a 
cure for cancer and work on treatments. They are down to 100 
researchers. At the Air Force base, MacDill Air Force Base is 
one of our largest community economic drivers, they are 
furloughing mental health counselors, among others there.
    We all agree that defense is--that part of the budget is 
shrinking, but the sequester does not give us a lot of room to 
maneuver on the type and where we want those cuts to take 
place. Law enforcement job losses, cuts to the courts, very 
significant cutbacks in education.
    And then when the Republicans adopted the CR last week, it 
became crystal clear, I think, that they intend to march 
forward with those sequester cuts. Then I look at your report, 
and it is apparent those kind of expenditures aren't the 
drivers of the long-term debt. Is what America is investing 
right now in innovation or infrastructure or education, are 
those the drivers of the debt and deficit?
    Mr. Elmendorf. No, Congresswoman. All of government 
spending, except for spending for this handful of large 
programs, will be a smaller percentage of GDP by the end of 
this decade than it has been at any point since the 1930s. What 
is growing in dollar terms and relative to the size of the 
economy is spending on Social Security and Medicare and 
Medicaid in particular.
    And, Congresswoman, I would just add that, of nondefense 
discretionary spending, historically nearly half has been in 
investment of some sort. About 20 percent of that spending has 
gone to physical capital, think of building highways, for 
example; about 15 percent has gone to education and training, 
what economists would call investment in human capital; about 
10 percent has gone to research and development, like health 
research. So historically nearly half of this category of 
nondefense discretionary spending has been an investment of 
some sort.
    Ms. Castor. Well, then, we have a real mismatch here now on 
what the Republicans have enacted and have set forth in debate 
just last week on the CR on what the debt reduction strategy 
is. You want to continue the sequester. Meanwhile the CBO's 
report says the long-term drivers of the debt and deficit: an 
aging population. We have proposed significant reforms in 
Medicare, just look at the Affordable Care Act, a lot of those 
reforms taking Medicare from fee for service to a system based 
on quality, changing those models.
    We really need to sit down and negotiate. The Republicans' 
refusal to negotiate on the budget for the past 4 months has 
led to this mismatch in policy. I talk to many of you, my 
Republicans colleagues, they say, yes, I am sorry, we want the 
sequester, we want these cuts. But I hope you really study the 
CBO's report and understand it is not those investments in 
innovation, education, infrastructure in America that are 
driving the long-term debt.
    I will yield back.
    Chairman Ryan. Mr. Lankford.
    Mr. Lankford. Thank you.
    Dr. Elmendorf, thanks for being here as well. Let me just 
bounce to a couple different issues if we have time. On Social 
Security Disability, SSDI, what is your report on that as far 
as the status of that and where it is headed in the coming 
days?
    Mr. Elmendorf. So the Disability Insurance Trust Fund will 
be exhausted in just a few years, Congressman, I think in 
2015--or 2016, I am told. We think that trust fund will be 
exhausted in 2016.
    Mr. Lankford. So we have 3 years.
    Mr. Elmendorf. Yes, Congressman.
    Mr. Lankford. What is the status at that point once that is 
exhausted?
    Mr. Elmendorf. Once that trust fund is exhausted, as with 
the Hospital Insurance Trust Fund, then the payments can 
presumably be only as large as the incoming receipts, which are 
not enough to cover all the payments that the government is 
committed to under current law.
    Mr. Lankford. Has that changed as far of the growth of that 
program in the days ahead? What has brought about that moment? 
Has that date changed, 2016? Did it used to be 2020? Have you 
been able to determine the history of that?
    Mr. Elmendorf. Our projection of that date has moved around 
over time. As you may know, Congressman, the disability 
insurance rolls have increased markedly over the past few 
decades, and we have done a number of reports ourselves trying 
to show you what the sources of that increase are and to give 
you policy options for addressing it. In the last few years it 
has been pushed up in particular, I think, by people who have 
some disabilities, have lost their jobs, have trouble finding 
jobs, and have applied for disability insurance.
    Mr. Lankford. Are you aware of Congress implementing any of 
those policy options that you have recommended in the past?
    Mr. Elmendorf. No, Congressman.
    Mr. Lankford. Do you think it might be time for us to 
implement a few of those----
    Mr. Elmendorf. I hope that you find these options useful 
for you as you decide what policies to follow.
    Mr. Lankford. At some point, when we begin to solve some of 
these issues, let's say, is that the first entitlement to reach 
an insolvency level, is the disability?
    Mr. Elmendorf. As you know, only a few of these benefit 
programs have trust funds of this sort, and that is the first 
of these benefit programs that would reach insolvency.
    Mr. Lankford. If we implemented some of the policy options, 
and we can discuss some of those in the days ahead, but if we 
implemented any of those policy options, how many years would 
it take to bring some stability to that? So what I am trying to 
ask is, the clock is ticking, we have 3 years before we are 
insolvent. If we implemented that policy at the end of this 
year would that buy us another year depending on what it might 
be or would it take several years to be able to get it into the 
system to build it up?
    Mr. Elmendorf. So in principle, of course, you could make 
very sharp changes overnight, but in practice----
    Mr. Lankford. Yeah, we could add a lot of tax dollars to 
it, or deficit dollars, and say we are just going to continue 
to fund it that way with deficit.
    Mr. Elmendorf. Or in principle you could just cut benefits 
a lot for existing beneficiaries. But I think in practice, the 
point you are making is that Congress generally makes changes 
that are phased in over time, and that emphasizes the 
importance of deciding as soon as possible what changes you 
want to make, because if you want to phase them in and you need 
to forestall the exhaustion of a trust fund or you want to 
forestall a given increase in debt, then it is even more 
important to make decisions and start that process right away.
    Mr. Lankford. Okay. On page 64 of your report you make a 
pretty remarkable statement about the tax revenue is going up. 
And you say that the tax revenues you project is going up 
because of the growth in real income, and the interaction of 
the tax system with inflation would push a greater proportion 
of income into higher tax brackets, and certain tax increases 
enacted in the Affordable Care Act would generate increasing 
amounts of revenues relative to the size of the economy.
    Is this similar to what we faced with the AMT for years, 
that because it wasn't inflation adjusted we had a growing 
number of people that were caught into that AMT trap?
    Mr. Elmendorf. It is similar, not as traumatic as the AMT 
increase would have been. The AMT was not indexed for 
inflation, and moreover the Congress enacted a series of these 
temporary changes----
    Mr. Lankford. Correct.
    Mr. Elmendorf [continuing]. So that the jump got larger and 
larger, the jump under current law got larger and larger over 
time.
    Mr. Lankford. Is there an assumption at all in some of your 
conversations that that may occur again at some point? Since it 
was in your alternative fiscal scenario that there would be an 
extension of the AMT, is there a discussion to build into an 
alternative fiscal scenario that Congress will again not allow 
more and more people to be trapped in these higher taxes in the 
days ahead?
    Mr. Elmendorf. Yes. Our alternative scenario, which tries 
to extend policies that Congress has followed, extended in the 
past, or not let certain things take effect or be sustained 
that might be hard to sustain, one of the things that scenario 
includes is holding tax revenue at a lower level indefinitely 
rather than rising. And in the past Congress has tended to act 
to cut taxes when tax revenue got to be a larger share of GDP.
    Mr. Lankford. On page 88, you talk about how, if the 
deficit comes down, the graph that Dr. Price had mentioned 
earlier, when the deficit comes down people's real growth in 
income goes up. And you made a stark statement earlier about 
it, and that was that when sovereign debt is requiring more and 
more of those individual dollars to come out, it is less money 
that goes into capital investment, and so that slows the 
economy down some and the real growth with that.
    What is interesting to me about it is the assumption, then, 
is private dollars going into investment has a greater increase 
on the economy than government dollars taking that and, quote/
unquote, investing that into the economy.
    Mr. Elmendorf. I think our view, Congressman, would be that 
investment does good things for the economy. A lot of 
investment, of course, most investment occurs in the private 
sector. There can be government investments that pay large 
dividends over time. We haven't modeled that effect 
specifically in this analysis.
    Chairman Ryan. Thank you.
    Dr. McDermott.
    Mr. McDermott. Thank you, Mr. Chairman.
    It is always good to have an economist here. Welcome, Doug.
    Mr. Elmendorf. Thank you, Congressman.
    
    
    Mr. McDermott. I put a chart up on the screen because I 
want everybody to see. It is one of your charts. And in late 
2010, the fiscal commission that we have lionized, the Bowles-
Simpson, called for roughly $400 billion in healthcare savings 
in their original proposal. Now, since that time, however, CBO 
has reduced Medicare and Medicaid projections by roughly $1 
trillion, more than twice as much as they suggested. Is that 
correct?
    Mr. Elmendorf. Yes, Congressman. Actually about a $1.25 
trillion reduction in our projection of spending for these 
programs in the last 2 years.
    Mr. McDermott. So that would suggest that the chairman's 
blaming of all our deficit on healthcare spending is really not 
quite accurate. We are actually reducing it. And it is 
certainly questionable as to whether that is going to be the 
major cost of our deficit in the future, isn't it?
    Mr. Elmendorf. Well, Congressman, our projections of the 
growth in healthcare spending have come down. Nonetheless, as 
you know, in our current projections the growth of healthcare 
programs is the largest factor leading to higher spending and 
wider deficits over time. And we showed in the report a 
sensitivity analysis to our projection of healthcare spending 
growth that shows that even if growth is a good deal lower than 
we project, that the debt would still rise relative to GDP over 
the next 25 years.
    Mr. McDermott. So there is just too many people living too 
long. Is that what you are saying?
    Mr. Elmendorf. Well, I wouldn't say too many people, but 
there are a lot of people living longer, and that increases the 
number of beneficiaries of Medicare and of Medicaid. As you 
know, a large share of the Medicaid dollars go to older 
Americans, particularly for longer-term care.
    Mr. McDermott. So if we cut off the spending at the Federal 
level for the people who are on the program, how will their 
care be paid for, or will they simply not have care?
    Mr. Elmendorf. I think it depends on what you did, 
Congressman. But as you know, many older Americans do not have 
substantial financial resources, and if they suddenly faced a 
larger burden to purchase health care, that would affect the 
care they could buy or the other things, other necessities they 
could buy.
    Mr. McDermott. Or they would turn to their children.
    Mr. Elmendorf. Yes, Congressman, that is possible, too.
    Mr. McDermott. As it was before 1964 in this country, when 
old people didn't have health insurance, they turned to their 
kids. That is what my grandmother did. She came and lived with 
us and we paid her bills. Right? That is what went on before 
this program.
    So what they are talking about when they want to cut 
Medicare spending, they are really saying, we are going to cut 
what the government will spend for old people. They can find it 
wherever they want after that. They can go to their children or 
they can go out and beg in the streets or not have the care. Is 
that----
    Mr. Elmendorf. Congressman, I can't speak to what the 
``they'' in your sentence wants to do.
    Mr. McDermott. Okay. I want to look at your chart on page 
10. I mean, since we are blue-skying it here about 75 years. I 
want to look at that chart and ask you a question that Ms. 
Castor sort of moved toward, which is we are not making 
investments now.
    Now, if you look at the Civil War, during the Civil War 
Abraham Lincoln started the land grant colleges, he did the 
Homestead Act, he did the national railways. That looked like 
reckless spending to me. Why would you do, when you have a big 
spike?
    And then you come to the Second World War, and we come out 
of that and we have the GI Bill and we have FHA and we have VHA 
and we had the Federal highway system under Eisenhower, all 
reckless spending by our Presidents at that time.
    Now, why was it the country didn't go into default or 
disappear from the face of the Earth because of this reckless 
spending that had been done by these Presidents? Why did it 
work? You are an economist, so give us an explanation.
    Mr. Elmendorf. I am less familiar with the post-Civil War 
period, but after the Second World War, Congressman, the 
government roughly balanced its budget and the economy grew 
rapidly. So the ratio of debt to GDP fell sharply.
    Mr. McDermott. Where were they getting the money to give 
these scholarships to every guy who came back from the 
military, practically was all men. They handed out the GI Bill 
of Rights. Where did that money come from?
    Mr. Elmendorf. The Federal Government raised tax revenue 
roughly equal----
    Mr. McDermott. Raised tax revenue?
    Mr. Elmendorf [continuing]. Roughly equal to the spending 
that it was doing.
    Mr. McDermott. Well, they raised the tax revenue and did 
that? They were investing in the people? Is that what created 
the greatest generation, you think?
    Mr. Elmendorf. Well, I think the government investments 
played some role, Congressman, but I don't know how important 
they were relative to other factors, I really don't.
    Mr. McDermott. Where did they get the money for the highway 
system?
    Chairman Ryan. Thank you.
    Mr. Flores.
    Mr. Flores. Thank you, Mr. Chairman.
    Director Elmendorf, thank you for joining us again today.
    Mr. Elmendorf. Congressman.
    Mr. Flores. There were a couple of comments that came from 
the other side that we need to correct. They just don't need to 
hang out there. I would remind Ms. Castor that the sequester 
was the President's idea. If she doesn't like it, I can give 
her a phone number to take care of, to call.
    Ms. Castor. Will the gentleman yield?
    Mr. Flores. The next thing has to do with some of the 
comments from our ranking member----
    Ms. Castor. He has offered a replacement plan eight times.
    Mr. Flores. Ma'am, this is my time. I didn't interrupt you.
    The other comments had to with Mr. Van Hollen. He said that 
we have done nothing about the sequester, but unfortunately he 
is incorrect. We have tried in the House to replace the 
sequester more than once.
    The other comments about shutting----
    Mr. Van Hollen. Will the gentleman yield on that? Because 
that is not what I said.
    Mr. Flores. Yes, you did.
    Mr. Van Hollen. I said you hadn't taken action this 
Congress.
    Mr. Flores. And the other thing I would like to say is that 
the comments about Republicans talking about shutting down 
government are incorrect. You have not heard one comment on 
this side of the aisle about shutting down the government. 
Those are irresponsible and reckless comments.
    One of the things we have heard is that we need to raise 
taxes. And I would refer you to page 80 of your report, and it 
says that increases of marginal tax rates on labor and capital 
income would reduce output and income relative to what would be 
the case with lower rates, all else being held equal. For 
example, a higher marginal tax rate on capital income decreases 
the after-tax rate return on savings, weakening people's 
incentive to save. Less saving implies less investment, a 
smaller capital stock, and lower output and income.
    So, I mean, you stand by those comments, don't you?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Flores. Okay. Well, I just would like to remind the 
other side of the aisle that for all this furor about wanting 
to raise tax revenues, that they could damage the economy in 
doing that.
    Let's kind of move to the real world for a minute, let's 
talk about central Texas for a second. If the government has a 
policy or a law that increases healthcare premiums by 15 to 20 
percent per year, is that good or bad for employment and 
economic growth?
    Mr. Elmendorf. Congressman, I think it depends on the 
policy.
    Mr. Flores. Okay.
    Mr. Elmendorf. I really don't think there is a standard 
answer to that question.
    Mr. Flores. Well, let me tell you what the answer is, 
because the employers in my district are telling me it is bad 
and they tell me about what has happened to their past head 
counts and what is going to happen to their future head counts. 
What if we had a policy or a law that causes employers to 
reduce the number of full-time employees by reducing maximum 
weekly hours to something less than 30 hours per week? Is that 
good for employment and GDP growth or bad for employment and 
GDP growth?
    Mr. Elmendorf. So, Congressman, the Affordable Care Act 
does include some incentives, as you know, for employers to 
move toward more part-time employment.
    Mr. Flores. Well, let me give you the real world answer.
    Mr. Elmendorf. Whether that affects the total amount of 
labor is not clear.
    Mr. Flores. That is, our employers in our district say that 
it is bad for employment.
    How about Federal regulations that cause the price of 
energy to skyrocket? Is that good for the economy and GDP 
growth and employment or is that bad for it?
    Mr. Elmendorf. Higher energy prices tend to slow the 
economy, all else equal, Congressman.
    Mr. Flores. Thank you. Mr. Chairman, I yield back.
    Chairman Ryan. Oh, wow.
    Ms. Lee.
    Ms. Lee. Thank you very much, Mr. Chairman.
    Good to see you again, Director.
    Mr. Elmendorf. Thank you, Congresswoman.
    Ms. Lee. Let me ask you a couple questions. I will go right 
to them.
    First of all, last week, as we all know, House Republicans 
cut, I think, about $40 billion from the SNAP funding. Many of 
us believe this is morally wrong and deeply troubling, 
especially considering nearly one in five children in America 
suffer from food insecurity and nearly half of all SNAP 
recipients are children. $40 billion in cuts means 6 million 
families will be cut off from this vital economic lifeline, and 
at a time when so many are already struggling to stay afloat.
    This is for me very mind-boggling, it is unconscionable, 
and it is wrong. There is certainly no rationale for throwing 
hungry children, families, and seniors off of SNAP, and I can't 
conceive of any compelling economic rationale either, given 
that for every $1 in SNAP benefits, I believe it is $1.70 
generated in economic activity.
    So I just have to ask you, in terms of the economic 
benefits to SNAP spending, does CBO estimate the current 
economic impacts of these types of cuts in basic nutrition on 
the healthcare costs in the future? That is my first question.
    And then secondly has to do with the public option. I 
believe that--I think it was 2011--CBO and the Joint Committee 
on Taxation estimated that a public option would reduce the 
deficit by about $88 billion between 2012 and 2021. Given that 
the Affordable Care Act at passage saved about, I think, $140 
billion and now it would cost about $109 billion to repeal, 
what do you think from a fiscal point of view a public option 
would achieve in terms of--had we included them in the 
exchanges, what would be the downsides or upsides fiscally of 
the public option?
    Mr. Elmendorf. So, Congresswoman, on your first question 
about SNAP, our estimate of the legislation that passed the 
House was that it would reduce the number of people receiving 
SNAP benefits by about 4 million in 2014 and about 2 million in 
2023. And we have said a number of times in the past that 
people receiving SNAP benefits or other benefits of this sort 
have a high propensity to consume, to spend the money they 
receive, and thus that providing them with more money tends to 
be a short-term boost for the economy and taking money away 
from them would tend to be a short-term drag on the economy. We 
have not done the economic analysis of this particular piece of 
legislation.
    On your second question about a public option, as you were 
reporting correctly our estimate from our last volume of--set 
of budget options, and we think that including a public option 
in the insurance exchanges would bring down Federal spending. 
That estimate was, as you say, about $90 billion over 10 years. 
We have not updated that estimate since that point, but we have 
no reason to think that it would be markedly different today.
    Ms. Lee. Thank you very much, Mr. Chairman. I yield the 
balance of my time.
    Chairman Ryan. All right. Mr. Rigell here? No.
    Mr. Rokita.
    Mr. Rokita. Thank you, Mr. Chairman.
    Thank you, Director. Good to see you again.
    Mr. Elmendorf. Congressman, good to see you.
    Mr. Rokita. I want to go down and unpack this idea that the 
sequester is hurting the economy and killing jobs and so forth. 
Do government jobs better the economy?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Rokita. How?
    Mr. Elmendorf. Because if the government pays people for 
working, they then earn money they spend by buying 
refrigerators and cars and clothes and other things, and then 
those people have jobs.
    Mr. Rokita. Point taken. Where does the government get the 
money to pay that initial person?
    Mr. Elmendorf. Well, under----
    Mr. Rokita. Where does the government get the money to pay 
you and me?
    Mr. Elmendorf. So under current circumstances, as you know, 
any extra spending comes from--if you just raise spending, the 
government would borrow that money.
    Mr. Rokita. No, no, no, no. Where does the government get 
the money to pay you, me, and the hundreds of thousands of 
other workers that you say if were laid off would hurt the 
economy?
    Mr. Elmendorf. So it raises some of that money through tax 
revenue and it borrows some of it.
    Mr. Rokita. Okay. So it confiscates that money from people 
in the private sector, correct?
    Mr. Elmendorf. It raises some of the money through tax 
revenue.
    Mr. Rokita. Which is a confiscation of property, correct?
    Mr. Elmendorf. Those have to be your words, Congressman. 
They are not budget terms.
    Mr. Rokita. Okay. Fine. We take money from the private 
sector to fund the jobs of the government like you and me, 
right?
    Mr. Elmendorf. You raise tax revenue and you borrow.
    Mr. Rokita. Right. Now we are borrowing, too. About 40 
percent of our Federal budget is borrowed, of course, from 
people that don't yet exist, so it is a tax on them whenever we 
pay that debt.
    Mr. Elmendorf. Well, it is borrowed from people who 
certainly do exist and provide the cash.
    Mr. Rokita. Well, the debt created by that is eventually 
paid back by people who are around when you and I are dead.
    Mr. Elmendorf. That may be. It depends what policies are 
pursued.
    Mr. Rokita. Well, you probably run a lot more in the 
morning than I do, so maybe you will live longer. But the point 
is, is that to run the government, to pay people who work these 
government jobs, we take from somewhere else. We take from the 
private sector. So that is less property, less money, right, 
that they have to grow the economy. So you obviously don't 
agree with me.
    Mr. Elmendorf. Right.
    Mr. Rokita. How much does the economy grow by paying all 
these people in government jobs?
    Mr. Elmendorf. So, Congressman----
    Mr. Rokita. You say that government jobs help the economy.
    Mr. Elmendorf. Yes.
    Mr. Rokita. To what extent, what percentage?
    Mr. Elmendorf. So I am not sure what the policy experiment 
that you had in mind is. Is the alternative of no government or 
is it a reduction----
    Mr. Rokita. No, no, no. I am asking you the questions.
    Mr. Elmendorf. Well, I can't answer if I don't understand 
the question.
    Mr. Rokita. How we started this off was you said that the 
economy grows with government jobs. To what extent? How much? 
How do you quantify that?
    Mr. Elmendorf. So it depends on the economic circumstances. 
In an economy where there is sufficient demand for goods and 
services, that essentially all of the productive capacity is at 
work, which was true in this country in 2007, for example, then 
an additional government job is likely to come out of a job in 
the private sector.
    However, if the demand for goods and services is less than 
the productive capacity of the economy, which has been the case 
in 2009, 2010, 2011, 2012 and 2013, then additional government 
borrowing that is then spent to hire government employees or to 
provide benefits will increase the output and employment in the 
economy.
    Mr. Rokita. Okay.
    Mr. Elmendorf. And that is a very widely held view among 
economists.
    Mr. Rokita. If that is the case, why don't we just tax 
everyone 100 percent and borrow more so that we can grow the 
economy? That would be a surefire way to make sure GDP 
increases, right?
    Mr. Elmendorf. So, Congressman, it is not true at every tax 
rate. I am speaking about the economic situation in the country 
today, the tax system we have in the country today. Given where 
we are now----
    Mr. Rokita [continuing]. Temporarily 100 percent, borrow 
more temporarily, and then----
    Mr. Elmendorf. Well, Congressman, tax rates of 100 percent, 
as you well know, would drive down private activity.
    Mr. Rokita. Well, I don't believe that when you confiscate 
property from the private sector to fund government jobs that 
you actually grow the economy. So we have already established 
that you and I have a difference of opinion. So, yeah, I don't 
well know. But you well know that, because of what you said, 
that you grow the economy with all these government jobs, and I 
am trying to quantify that, what you mean, and understand why 
we shouldn't do more of this borrowing, more of this 
confiscation of the people's property in the form of taxes to 
better ourselves, to just get ourselves right out of this hole.
    Mr. Elmendorf. So two thoughts, Congressman. One, on behalf 
of my opinion, there was a survey of economists conducted by a 
group at the University of Chicago, conducted of economists, 
leading economists across the country, about whether the 
Recovery Act had made output and employment higher than it 
otherwise would have been, and 88 percent of the respondents 
said yes, 4 percent said no. So my opinion is widely shared.
    On the second point----
    Mr. Rokita. By Keynesians.
    Mr. Elmendorf. This was a survey of economists, 
Congressman, leading economists across the country.
    Mr. Rokita. I see that I am out of time. Thank you.
    Mr. Elmendorf. On the second point, Congressman, the best 
quantification I can give you is the one I started with in 
response to Congressman Van Hollen's question, which was an 
estimate of the effects of continuing versus not continuing 
with the sequestration for 2014.
    Mr. Rokita. Mr. Chairman, I would simply say that sequester 
is not the problem.
    Chairman Ryan. Thank you.
    Mr. Jeffries.
    Mr. Jeffries. Dr. Elmendorf, under the 8 years of the 
Clinton administration the so-called confiscation tax rate was 
39.6 percent. Is that correct?
    Mr. Elmendorf. That was the top tax bracket, Congressman, 
yes.
    Mr. Jeffries. All right. And under this confiscation rate, 
approximately 20 million jobs were created in America. Is that 
correct?
    Mr. Elmendorf. I don't remember the number, Congressman, 
but it was quite a few. It was a tremendous economic boom.
    Mr. Jeffries. Okay. And now during the 8 years of the Bush 
administration, which immediately followed the Clinton 
administration, am I correct that the so-called top 
confiscation rate was dropped to 35 percent? Is that right?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Jeffries. And we lost approximately 600,000 jobs during 
that 8-year period. Is that right?
    Mr. Elmendorf. I don't remember the exact number.
    Mr. Jeffries. Okay. Now, as it relates to a statement that 
was made earlier by one of our colleagues, suggested that the 
American people looking at this hearing might come to the 
conclusion or be perplexed at our inability to move forward 
with a resolution, because I think we all agree that there is a 
long-term deficit and debt problem that we need to confront.
    I would certainly agree with the ranking member in his 
observation that perhaps the problem is that we have breached 
the procedural integrity of the budget process, that the House 
has passed a budget, the Senate has passed a budget, and the 
next step in that process is to move forward with conference 
committees. Because the math that we should really be paying 
attention to preliminarily is the electoral math, and the 
electoral math says that we are in a divided government context 
and that there are 54 Democrats and independents in the Senate, 
which constitute a majority; that Barack Obama did win 
reelection with 51 percent of the vote, only the second 
President since Eisenhower, I believe, with two consecutive 
popular vote margins to exceed 51 percent.
    We are in a divided government context. We should move 
forward with the integrity of the process, which is conference 
committee, so we can work it out and perhaps try and find 
common ground to move things forward.
    Now, you stated, I think, in your testimony that the 
consequences of default on the debt would be large, lasting, 
and very damaging. Is that correct?
    Mr. Elmendorf. I said that economists are unsure, but they 
could be large, lasting, and very damaging, and that is why I 
think it is a dangerous gamble to default on an obligation.
    Mr. Jeffries. Right. I think you said it was a risky 
strategy to stop paying what the United States government owes. 
True?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Jeffries. Now, part of the problem with a default on 
the debt is that it would erode the confidence of investors in 
the belief that the United States has the ability to manage its 
economic affairs. Is that right?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Jeffries. And one of the reasons why Greece and some of 
the other European countries, which many of our colleagues love 
to allude to, find themselves in the situation that they are in 
right now is because there was an erosion in confidence in the 
ability for those countries, like Greece, to manage their 
economic affairs, correct?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Jeffries. And one of the consequences of that erosion 
of confidence is that the rates on our debt moving forward 
would increase, perhaps quite significantly. Is that right?
    Mr. Elmendorf. They could, Congressman, yes.
    Mr. Jeffries. And so an erosion of confidence then leads to 
an increase quite possibly in our debt burden, and an increase 
in our debt burden worsens our long-term budget outlook. Is 
that right?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Jeffries. And that is part of the reason why I think it 
would be irresponsible to simply attempt to hold hostage the 
full faith and credit of the United States of America in the 
context of us paying our bills as we confront the need to raise 
our debt ceiling. And I hope that this Congress will come 
together and stop playing partisan politics as it relates to 
this very serious issue.
    One last question in the remaining time that I have. Would 
it be fair to say that an increase in the minimum wage largely 
benefits low-wage workers?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Jeffries. And low-wage workers are most likely to 
immediately spend the increased income. Is that right?
    Mr. Elmendorf. I think that is right, Congressman. But 
people who work and receive a higher wage would have higher 
income that they would be likely to spend. As you know, a 
higher minimum wage can also reduce the number of people who 
have jobs.
    Mr. Jeffries. Right. Now, an increased spending, an 
increased consumer demand would ultimately lead to economic 
growth. Is that correct?
    Mr. Elmendorf. Under the current economic conditions, an 
increase in the demand for goods and services would boost 
output and boost the number of jobs.
    Mr. Jeffries. Okay. Thanks. I yield back.
    Chairman Ryan. Thank you.
    Mr. Ribble.
    Mr. Ribble. Thank you, Mr. Chairman.
    Good morning.
    Mr. Elmendorf. Good morning, Congressman.
    Mr. Ribble. Thanks for being here.
    I want to change the direction a little bit to Social 
Security. Your report I think shows the Social Security trust 
fund actually going insolvent in 2031 now? Is that correct?
    Mr. Elmendorf. Becoming exhausted in 2031, yes.
    Mr. Ribble. In 2031. It seems that in the 3 years that I 
have been here that window keeps getting shorter and shorter.
    Some would say that we should wait till we get to 2031 and 
then address it, because Congress seems to react better to 
crises than to fiscal management. Is it more expensive to 
address it then or is it more expensive to address it now? I 
mean, is there a cost to waiting?
    Mr. Elmendorf. There is certainly a cost to waiting, 
Congressman.
    Mr. Ribble. In what regard?
    Mr. Elmendorf. So the longer one waits to make changes, the 
larger the changes need to be and the more abruptly they would 
need to take effect. For Social Security right now, the age for 
full retirement benefits is working its way up as part of an 
agreement that Congress and the President reached in the early 
1980s, and that agreement was to do various things, including 
phasing in an increase in retirement age over a long period. 
But the longer one waits to address the imbalance in Social 
Security and in the Federal budget as a whole, the less time 
one would have to phase in any changes that you and your 
colleagues agreed to.
    Mr. Ribble. When you started kind of your first run or 
first stint over at CBO, I think it was back in the early 
1990s, 1993, 1994, something like that, were they talking about 
Social Security then, because that was post those reforms? Were 
they also seeing this trend then?
    Mr. Elmendorf. Yes. It was very much on the radar of 
analysts. And, in fact, later in the 1990s there was a lot of 
discussion among policymakers. This aging of the U.S. 
population has been predicted for decades now. I recall Alice 
Rivlin, the first Director of CBO, giving a talk that I saw in 
the 1990s talking about how it wasn't really that far away, but 
nonetheless a number of years have now passed with no changes.
    Mr. Ribble. So now we are 20 years past that date and still 
no fix in sight. I am assuming that the fixes, at least in the 
3 years that I have been looking at this since I came to 
Congress, the fixes seem to we relatively well known. CBO has 
spoken of them and other Members of Congress have spoken. Would 
you agree with that?
    Mr. Elmendorf. So we published a report a few years ago 
that had a long list of changes, with estimates of their 
budgetary effect, the effect on people of different 
generations, different income levels. I think the menu of 
possibilities is well known, but people have not chosen off the 
menu collectively. Individuals have chosen off the menu.
    Mr. Ribble. At some point we are going to need to do that. 
We are either going to be forced into doing it in a crisis or 
we are going to do it thoughtfully and ahead of time and do it 
that way.
    Now, since to a certain degree economists are professional 
speculators--I say that with a little bit of tongue in cheek--I 
would like you to speculate a little bit on how you might see 
the financial markets, the ratings agencies, and even the 
American people responding to a Congress that with forethought 
and thoughtfulness actually reformed these programs to save and 
protect them. How would they respond?
    Mr. Elmendorf. I think that if a Federal budget were to be 
put on a sustainable path, it could have a very positive effect 
on the confidence of businesses and households in a way that 
could provide a substantial economic boost. And I don't know 
how to quantify that effect, but I think people now are very 
uncertain of what Federal policy will be, very skeptical of 
whether those problems will be addressed in a timely way. And I 
think if they were, it would come as a very welcome surprise to 
a lot of people in a way that would be very good for the 
economy.
    Mr. Ribble. And if it is very good for the economy and good 
for the American people, it is probably good for politicians, I 
would guess. And I would really encourage this body, both of 
us, Republicans and Democrats alike, to actually get serious 
about doing these things, because my sense is that political 
dysfunction is also a drag on the economy. Would you agree to 
that?
    Mr. Elmendorf. Yes, Congressman. We think that the 
uncertainty about where Federal policies are going is one of 
the factors that has led to slow growth in the past few years, 
not the principal factor, but a factor.
    Mr. Ribble. All right. Thank you very much for being here.
    I yield back.
    Mr. Elmendorf. Thank you, Congressman.
    Chairman Ryan. Mr. Pocan.
    Mr. Pocan. Thank you, Mr. Chairman.
    And thank you, Dr. Elmendorf, for being here. It is a 
little bit ironic. I am glad that we are having this 
conversation, but it is a little bit ironic that we are having 
it at a time this body hasn't had a national budget, our 
country hasn't for the last 4 years. We are going to talk about 
long term, but we can't deal with the immediate. We have got 
the GOP-induced sequester that is having a drag on the economy, 
as you pointed out, we are dealing with.
    Instead of being back in our districts this week, we are 
kind of held hostage back here on a Don Quixote mission to get 
rid of the Affordable Care Act one more time and to put us on 
the cusp of a government shutdown that, while we can't seem to 
do anything in the immediate, we are going to have a real good 
conversation about the long-term. It just seems a little 
ironic, but that is the position we are in.
    But if I could ask you a couple questions specifically 
about the long-term and the Affordable Care Act and a couple 
about how you do some of the projections in the future.
    So specifically on the Affordable Care Act, you know, 
taking the coverage provisions and other provisions of the 
Affordable Care Act together with the Medicare provisions and 
other revenue provisions, what is your estimate of the effect 
of the entire Affordable Care Act on the deficit and what would 
be the impact if we repealed the Affordable Care Act on the 
deficit?
    Mr. Elmendorf. We estimated that the Affordable Care Act 
reduced budget deficits and that repeal of the Affordable Care 
Act would increase budget deficits.
    Mr. Pocan. And what kind of levels are we talking about?
    Mr. Elmendorf. Over the next 10 years, on the order of $100 
billion, and then beyond the next 10 years a fraction of a 
percent of GDP.
    Mr. Pocan. Got you. And then two specific questions 
specifically to how you determine some of the projections. You 
said that healthcare costs are growing much more slowly in the 
last 5 years, and just since the last report, you have got that 
projection in there. I am just wondering how many years, how 
much frequency do you need to see in reduction of the 
healthcare costs before you change the per capita income, the 
growth estimates? Just trying to get a picture of what it takes 
for you to change that course a little bit so we can look at 
different numbers maybe in the future.
    Mr. Elmendorf. So we have already changed course to a 
significant extent. Relative to our projections in 2010, actual 
spending for Medicare and Medicaid have now fallen about 5 
percent below what we thought they would be, and we have 
lowered our projected growth rate over the rest of this decade 
so that by 2020 projected Medicare and Medicaid spending are 15 
percent roughly below what we projected a few years ago.
    So we have in fact extrapolated some of the slow growth 
rates--we have seen into slow growth rates going forward. And 
we think that is appropriate because the slowdown in health 
cost growth has been very broad across different sectors of the 
healthcare world and has now lasted for half a dozen years or 
more.
    But at the same time, past episodes of slow health cost 
growth have been followed by pickups in health cost growth, and 
the underlying driver of a lot of health cost growth is the 
development of new procedures and techniques and technologies, 
and that is continuing. So we don't think it is appropriate to 
take the last half dozen years and then just extrapolate those 
low growth rates out for decades to come.
    So what we have done is to bring down the long-term growth 
rate a little bit in response to the data we have received, but 
mostly you should think of this as lower growth for a number of 
years and then a return close to previous growth rates, but for 
a significantly lower level of Federal healthcare spending than 
we projected a few years ago.
    Mr. Pocan. So would it be more significant if you saw a 
decade of reduced spending, would that have a different impact?
    Mr. Elmendorf. Yes. I think the longer that this periods 
lasts and the more that we and others can learn about it. We 
did a very detailed analysis of the slowdown in Medicare cost 
growth, released a lengthy paper a month ago. And one of the 
conclusions from that analysis was that the weak economy does 
not seem to have been a factor in holding down Medicare growth, 
spending growth, and thus that an improvement in the economy 
won't necessarily undo the slower spending growth. As we and 
others do this kind of research that affects our estimates as 
well.
    Mr. Pocan. If I can just get one more question in, I have 
got about a minute left. On the Social Security deficit, you 
know, I know that increased life expectancy, can you break down 
the projected shortfall due to people who are 50 and over 
versus, you know, their children and grandchildren? I think a 
lot of people make certain assumptions, but if we're going to 
have that continued projection in the future, is there a 
breakdown that you----
    Mr. Elmendorf. We have not broken down the shortfall by 
generation per se, but we do have a figure in the report that 
shows the taxes and benefits for people born in different 
decades. And for most people born, on average, across the 
1940s, 1950s, 1960s, 1970s, and 1980s, those people have 
payroll taxes over their lifetimes that are pretty comparable 
to the benefits they are going to receive over their lifetimes. 
But the Social Security system started by paying benefits to a 
collection of people who had not paid into the system, because 
the system wasn't there when they were working, and that has 
created essentially an ongoing debt, in a way, and that is 
really what the future generations will have to deal with.
    Mr. Pocan. Thank you.
    Chairman Ryan. Mr. Williams.
    Mr. Williams. Thank you, Doctor, for being here today. 
Appreciate it.
    I am a small-business owner, 73-year family business, 
myself 42 years, and I have been a borrower all my life. And 
you know where I am going with this. I can tell you Main Street 
America is not back. Some of our friends say the economy has 
come back, it is doing well. It is not doing well, as evidenced 
by the high unemployment rate that we still continue to have, 
underemployment, and so forth. Because people like me are 
concerned, where are we on taxes? You know, where are we on 
health care? We are all playing defense, afraid to hire 
anybody, afraid to put capital at risk because we don't know 
what kind of return we would get.
    But all that being said, I am of the age that I borrowed 
money in 1980 at 20 percent and now I am able to borrow it 
almost in many cases zero percent. And, of course, we know 
which is better than the other. But I can tell you that there 
is a lot of industries that have seen costs go up six times or 
seven times since 1980. And, you know, rates back then were, as 
I say, 20 percent. And in my lifetime, a 6 percent rate has 
been a pretty good rate. We have been able to do well with 
that.
    But the problem is with the costs being up so much, you 
know, 6 percent of, say, $60,000 right now would be more than, 
say, 20 percent of $10,000. There is a problem there 
developing, and I think it is a real concern. And the rates can 
kill small growth in business, it can kill. And nobody is 
really thinking about it, and I know you have talked about 
rates are going to go up because of this mismanagement of our, 
in many cases, of our debts and the huge deficit we continue to 
run up and not wanting to cut costs by some people.
    I think, and I hope you would agree, that the answer is 
lower rates. You know, lower rates generate cash to grow and 
spend. If you have a lower rate, you just have more cash. And 
businesses don't save money, they spend money and they invest.
    I believe tax cuts are revenue permanently. We hear the 
other side talks about revenue, but then they always talk about 
tax increases being revenue. Tax increases will eventually 
burden small business to where they don't exist anymore or they 
just have to, again, as I said, play defense.
    We have tried zero percent, we have tried stimulus, none of 
that works. The last thing are tax cuts. And tax cuts are real 
revenue, whereas tax increases, I think, are temporary revenue, 
because it puts a burden on job creators.
    So do you think that the solution with higher interest 
rates would be lower tax rates for all taxpayers across the 
board, which I think would mean more jobs--we have seen that in 
the history of our country--mean more jobs, it would reduce 
unemployment, and would create less dependence on the Federal 
Government.
    Mr. Elmendorf. Well, Congressman, if marginal tax rates 
were lowered, but the other changes were made in the tax codes, 
the same amount of revenue was collected, that would be good 
for the economy. But if tax rates are lowered and nothing else 
is done, so that total tax revenue falls as well, which we 
think it would if tax rates were reduced, then the reduction in 
tax rates by itself is good for the economy, but the extra 
borrowing would be bad for the economy. So our projections 
here, for example, incorporate both of those sorts of effects. 
So it really depends, not just on the tax rates matter, but so 
does the overall amount that the government is borrowing over 
time.
    Mr. Williams. Well, if we reduced unemployment, we will 
say, from 7.5 percent or underemployment to maybe 12 or 15, if 
we reduced that down to 5 or 4 percent, let small-business 
owners like me in Main Street hire people, that is more 
revenue, that puts more people in the system, that is real 
money.
    Mr. Elmendorf. Yes. So absolutely stronger economic growth 
can make a great deal of difference in the gap between spending 
and revenues that we are projecting here. The question is what 
policies you could implement that would spur growth. And, 
again, I think that under the current economic conditions, tax 
cuts or government spending increases could spur growth, but 
over time then one wants to bring the budget more into balance, 
keep debt from rising so rapidly in order to keep economic 
growth going.
    Mr. Williams. Well, we do have one of the highest tax rates 
in the world right now, and it doesn't seem to be working.
    Mr. Elmendorf. Well, the corporate tax rate in this country 
is higher than it is in other countries.
    Mr. Williams. Right.
    Mr. Elmendorf. That is right, Congressman. As you know, the 
total amount of tax revenue that we collect as a share of GDP 
is smaller in this country than it is in most developed 
countries.
    Mr. Williams. Well, I just think that we need to remind 
people, in my belief, that tax cuts are real revenue, tax 
increases are temporary and put a burden on small business.
    Mr. Chairman, I yield back.
    Chairman Ryan. Mr. Schrader. No, he is not here.
    Mr. Cicilline.
    Mr. Cicilline. Thank you, Mr. Chairman.
    Thank you, Dr. Elmendorf, for this excellent report and for 
being here today.
    You said in your testimony that our nondefense 
discretionary spending will be at levels not seen since the 
1930s. Is that correct?
    Mr. Elmendorf. Yes. As a share of GDP, yes, Congressman.
    Mr. Cicilline. And so the focus of your report is that 
health care and Social Security and interest or debt service 
are the three principal drivers of our debt.
    Mr. Elmendorf. Yes, that is right.
    Mr. Cicilline. And one would think that we should be 
putting together a plan to protect and strengthen those 
programs, be sure that they are being administered in a cost-
effective, efficient way, and also plan on how to pay for them. 
And that would be done in the context of the development of a 
budget. Right?
    Mr. Elmendorf. Yes, it could be, Congressman.
    Mr. Cicilline. And it be helpful, of course, if we had a 
budget conference committee charged with doing that. And this 
report really underscores the urgency of adopting a budget and 
addressing these issues. And I hope you will mail a copy of 
this to the Speaker of the House with a note that appointing 
conferees to a conference committee is the next step, because 
we can't do a budget conference without him.
    But I want to specifically ask you about two issues that 
you focus on in the report, and the first is that, as you know, 
we passed a continuing resolution that would partially defund, 
and now there is some effort to pass a resolution to completely 
defund the Affordable Care Act. And it will also, the 
continuing resolution also doubles down on sequestration.
    And as I looked through your report, what really struck me 
in your testimony again today, affirmed it, you continually 
cite the rising cost of health care as one of the single 
biggest drivers of our long-term debt, and you go on to say, 
though, that the rate of increase in health care has declined 
and that you expect that isn't a flash in the pan, this is 
going to continue for some time. Correct?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Cicilline. And so it is sort of hard to understand, if 
the Affordable Care Act is contributing to deficit reduction, 
why the strategy is being advanced by my good friends on the 
other side of the aisle to repeal this deficit reduction tool 
called the Affordable Care Act in an effort to reduce the 
deficit. Am I missing something?
    Mr. Elmendorf. I can't and won't speak to the motivations 
of you and your colleagues, Congressman.
    Mr. Cicilline. Okay. But there is no question, the 
Affordable Care Act, if it were repealed, would substantially 
add to the deficit.
    Mr. Elmendorf. We estimate that repeal of the Affordable 
Care Act would increase the deficit over the next decade and in 
the longer term.
    Mr. Cicilline. And that is because there is built into it a 
whole series of payment reforms and demonstration projects and 
competition that is going to create additional pressure to 
lower costs. Correct?
    Mr. Elmendorf. Because the spending cuts and tax increases 
in the legislation as it was enacted slightly outweighed the 
costs of the coverage expansions, and those factors would run 
in reverse if the law were repealed.
    Mr. Cicilline. And so with respect to the sequestration, 
you have already testified and your report confirms that the 
maintenance of sequestration will result in substantial job 
losses both in the current year and in the next fiscal year.
    Mr. Elmendorf. Yes. Compared with a policy that relaxed 
that restraint on spending.
    Mr. Cicilline. And restored spending back to the pre-
sequestration levels. And what is the impact of that on the 
deficit, both in the short term and the long term?
    Mr. Elmendorf. Well, so stronger economic growth would 
reduce the deficit, but I don't want to leave the impression 
that we think that relaxing the sequestration would pay for 
itself. Like cuts in tax rates, that can be good for the 
economy, but not so good that the extra revenue offsets the 
initial cost of the tax cut.
    Mr. Cicilline. But your report reveals that in the long 
term the replacement of sequestration with a balanced approach 
will lead to a stronger economy and a reduction ultimately of 
the deficit?
    Mr. Elmendorf. So if the extra costs of relaxing 
sequestration were offset entirely by other policies that at 
some point in the future would raise taxes or cut spending, and 
if those other policies were actually adhered to, then one 
could have stronger growth in the near term with no worse or 
better economic conditions in the long term.
    Mr. Cicilline. And a reduction in the deficit.
    Mr. Elmendorf. And a reduction in the deficit.
    Mr. Cicilline. So these two sort of policies that we have 
heard so much from our friends on the other side of the aisle, 
you know, maintaining sequestration or making it worse or 
repealing the Affordable Care Act, both of those things taken 
together in terms of the long-term impact will actually 
increase the deficit.
    Mr. Elmendorf. Well, I want to be careful, because I think 
it depends on the combination of policies. So, again, in the 
short term a little more Federal spending.
    Mr. Cicilline. I am asking about the long term.
    Mr. Elmendorf. So in the long-term, if the combination of 
policies reduces spending or raises taxes, then that would put 
the budget and the economy on a stronger path, but you have to 
get to those policies. And if one doesn't do them this year or 
next year, then one has to implement them in the years after 
that.
    Mr. Cicilline. Thank you.
    Chairman Ryan. Thank you.
    Mr. Nunnelee.
    Mr. Nunnelee. Thank you, Mr. Chairman.
    Thank you, Dr. Elmendorf, for being here.
    Mr. Elmendorf. Congressman.
    Mr. Nunnelee. I am going to ask questions on a couple of 
graphs in your report, starting with page 2, the bottom graph. 
You have already talked about how the driver of our debt is 
Social Security, healthcare programs, and interest, and the 
bottom graph on page 2 seems to bear that out.
    My quick observation of math and that our current situation 
is that if we add the lines today for Social Security, for 
healthcare programs, and for net interest, both the total of 
those three roughly about equals what we are spending on all 
other non-interest spending.
    Mr. Elmendorf. That is right, Congressman. It will be a 
little higher. Yes, it is close to that, Congressman.
    Mr. Nunnelee. And then when I follow the graphs out 2038, I 
see that the three things that are driving our debt continue to 
get worse, while other non-interest spending goes down. So, 
again, my quick observation and math by 2038 is that Social 
Security, healthcare programs, and interest are about double 
what other non-interest spending is.
    Mr. Elmendorf. Yes, Congressman. I think that is about 
right.
    Mr. Nunnelee. All right. And now turn over to page 10, the 
graph on page 10, just showing our historical debt as a 
percentage of GDP. I see five significant spikes: the 
Revolutionary War debt, Civil War debt, World War I and World 
War II, and then the spike that I see going out beyond 2030.
    And what keeps me awake at night is to see that our debt is 
growing, not to pay the cost of defending freedom, but to pay 
for benefits for ourself. And the thing that keeps me awake is 
seeing my grandson or my granddaughter sitting in this chair in 
2038 and having a repeat of December the 7th, 1941, and we find 
ourselves so much in debt we cannot afford to pay to defend 
ourself. Is that a valid fear?
    Mr. Elmendorf. I think that is a valid fear, Congressman. 
What we say in the report and have said on a number of 
occasions, one of the risks that is posed by having debt that 
is so high is that you and your colleagues lose the ability to 
respond to unexpected developments, economic crises or wars, in 
the way you would have the ability to respond if the debt 
started at a lower point.
    Mr. Nunnelee. And this week, we are debating the debt 
ceiling, and as I see it the debt ceiling that we place upon 
ourselves is an artificial debt ceiling, and I think it is a 
very valuable artificial debt ceiling that allows us to have 
this debate, but the real debt ceiling that any family, that 
any business or any government faces is when we get to the 
point when we can no longer find people to lend us money at a 
rate we can afford to repay.
    Mr. Elmendorf. Yes, Congressman.
    Mr. Nunnelee. As I see that spike going to 2038, it puts us 
in that position very quickly, and it certainly puts us in a 
position in the event of an unplanned catastrophe, such as 
December the 7th, 1941, comes upon us.
    Mr. Elmendorf. Yes, Congressman, that is right. And we talk 
in the report about how this sort of run-up in debt that we are 
projecting doesn't have a precedent in U.S. history. We have 
had run-ups before, as you noted, but they have been for 
particular circumstances and have then been reversed, and this 
would be unprecedented, and it reduces our ability to project 
just what would happen to interest rates under those 
conditions. And we note that, and we also highlight the risk 
that you are referring to, that if one has a high debt and then 
one hits a depression or one hits a war, then the country could 
really be in a very tight box with nothing but poor options, 
and that is why analysts think it is far, far better to take 
action sooner rather than later.
    Mr. Nunnelee. We have labeled the generation of the 1940s 
as the Greatest Generation, and they did defend freedom and 
earn that title. But in my opinion, an equal characteristic of 
greatness is their commitment to repay the debt that was 
incurred to defend freedom. And it appears that my generation 
is incurring debt to fund our own excesses. And we are willing 
to pass that on to our grandchildren, and that is simply not 
acceptable.
    Thank you.
    Chairman Ryan. Thank you.
    Mr. Huffman.
    Mr. Huffman. Thank you, Mr. Chair.
    And thank you very much, Dr. Elmendorf, it has been an 
interesting discussion, and it has even been interesting that 
we have had a few practitioners of political ideology 
interrupting and disagreeing with and attempting to reeducate 
our independent Ph.D. nonpartisan economist who Congress turns 
to for answers in these situations. I think those who are 
watching have had an interesting window into some of the forces 
that have taken us to the brink of a government shutdown in 
that discussion.
    I am, of course, sobered by this mountain of debt that you 
are projecting that we are grappling with. I think everyone in 
this institution should be, and I know that Democrats are very 
sobered by it. In fact, we may even be more dismayed because we 
have gone in a pretty short period of time in 2001 when 
following 8 years of the Clinton administration, your office 
was projecting we would be enjoying multi-trillion dollar 
surpluses at this very point in time to this mountain of debt 
that you are now projecting, and we could certainly probably 
have more discussion about how we got here, but it seems to me 
that putting a couple of wars on the national credit card, 
cutting taxes for the rich, and looking the other way while 
Wall Street crashes the economy had a lot to do with it.
    In any event, it also seems to me that we have four issues 
that are immediately facing this House that could have either a 
positive or a negative effect on this situation depending on 
how we resolve them, the first of which is the sequester, and I 
want to just understand your testimony. I believe you said that 
continuing the sequester, which is what our Republican 
colleagues are suggesting in their CR and other proposals, in 
2014 would eliminate 600,000 jobs and reduce GDP by as much as 
half a percent; is that correct?
    Mr. Elmendorf. Those are our estimates for the end of 2014, 
yes, Congressman.
    Mr. Huffman. Thank you.
    And then, with respect to the debt limit, I think you were 
completely unequivocal in stating that a default of any kind 
could have catastrophic effects on our economy and our 
recovery.
    Mr. Elmendorf. I said that a default on any obligations of 
the Federal Government could have effects that are large, 
lasting, and very damaging to our economy and our financial 
system and the Federal budget.
    Mr. Huffman. All right. So that is the second big issue 
facing us right now in Congress.
    The third is the Affordable Care Act, what will inevitably 
be the 43rd proposal in the days ahead to try to repeal it. 
Just to be clear, the Affordable Care Act is a net budget 
saver, correct?
    Mr. Elmendorf. That is our estimate, Congressman, yes.
    Mr. Huffman. So repealing it would actually make things 
worse?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Huffman. And finally, we should be talking about--we 
are not, but we should be talking about comprehensive 
immigration reform along the lines of the bipartisan proposal 
that the Senate has advanced. What would the net effect on 
these fiscal challenges be if we could pass a bipartisan 
comprehensive immigration reform bill like the one that came 
out of the Senate?
    Mr. Elmendorf. Congressman, we estimated that the proposal 
that was approved in the Senate would improve the budget 
balance, would improve, would increase output in the economy 
over this coming decade and beyond.
    Mr. Huffman. Thank you very much for your testimony.
    Again, there is no dispute that we face a serious challenge 
here, but rather than exchanging rhetoric about it, we have 
four things that I have just highlighted that are pending 
before this House that we can do to make it better or to make 
it worse, and I think your testimony has been very illuminating 
in that regard.
    Thank you, Dr. Elmendorf.
    And I yield back.
    Mr. Elmendorf. Thank you, Congressman.
    Chairman Ryan. Thank you.
    Mr. Rice.
    Mr. Rice. Thank you, Mr. Chairman.
    Thank you, Mr. Elmendorf, for being here today. Your study, 
and I think you said earlier that increased taxes are a drag on 
GDP; is that correct?
    Mr. Elmendorf. I said that higher tax rates for any given 
level of revenue is a drag on GDP, but it matters, of course, 
what the total revenue collected is as well.
    Mr. Rice. What percentage of our economy is consumer 
spending, do you know?
    Mr. Elmendorf. I think, as a share of GDP, consumer 
spending is about two-thirds or three-quarters.
    Mr. Rice. And taxes take away from that, correct?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Rice. All right. And what are taxes? How do you define 
taxes?
    Mr. Elmendorf. So----
    Mr. Rice. They talked about this conversation earlier, but 
it is a government exaction.
    Mr. Elmendorf. So, in the Federal budget, revenues are 
monies that are collected through the sovereign power of the 
government.
    Mr. Rice. I want to look at a little bit expanded view of 
taxes to not necessarily something collected by the government, 
but exactions forced by the government. So, for example, if we 
have our utilities bills go up because we have a war on coal or 
we refuse to use our own natural resources, does that affect 
consumer spending?
    Mr. Elmendorf. Yes, it does.
    Mr. Rice. Negatively?
    Mr. Elmendorf. Yes. Higher prices for energy have been one 
of the big causes of swings in consumer spending in the past 
decade.
    Mr. Rice. If we require people to buy insurance and their 
premiums go up, does that affect consumer spending?
    Mr. Elmendorf. Well, Congressman, it depends what else 
happens, and I am not trying to be coy here, but----
    Mr. Rice. If they have less money in their bank account at 
the end of the month----
    Mr. Elmendorf. Congressman, yes, but as I noted earlier, 
some of the increase in premiums under the Affordable Care Act 
that we project comes from a reduction in out-of-pocket 
payments, which also affects how much money people have at the 
end of the month.
    Mr. Rice. I just read in a Forbes article the average 
woman's premium will go up 60 percent and the average man's 
will go up 90 percent, I don't know. That is just what this 
Forbes article said. If interest rates go up, that is another 
factor because we can't get control of our budget deficit, that 
is another factor that is going to take more money out of 
consumers' pockets and less money in their bank account and 
less consumer spending, right?
    Mr. Elmendorf. Yes, Congressman, that is right.
    Mr. Rice. The way I view this, really they are all taxes 
disguised because they are all the result of government action. 
Increased insurance premiums, increased utility bills, 
increased taxes, with the fiscal cliff deal and now with the 
imposition of the Obamacare taxes, and increased interest 
rates, they all lead to lower bank accounts at the end of the 
month and lower economic activity.
    Mr. Elmendorf. But, Congressman, the problem that you and 
your colleagues face is that a cut in government benefits takes 
money out of consumers' budgets, and an increase in taxes takes 
money out of consumers' budgets, yet in the end, the amount of 
taxes that are collected and the benefits that are paid are 
going to have to come into closer alignment than would be the 
case under current law. So you don't really have a choice 
ultimately if our projections are at all right in either 
raising taxes or cutting spending.
    Mr. Rice. I am curious about one thing. You said earlier 
that our average tax collections projected 5 years out under 
current law are going to be higher than they have been in the 
past, average.
    Mr. Elmendorf. Yes, that is right, Congressman.
    Mr. Rice. And I just want a quick answer to this. Is there 
some kind of a sweet spot, you know, where you get diminishing 
returns with tax rates, you know, some kind of a Laffer curve 
analysis that you shouldn't go over or you will have 
substantially decreased economic activity?
    Mr. Elmendorf. Well, as tax rates rise, they will have 
incrementally bigger negative effects on output.
    Mr. Rice. We are already at our average. Aren't we dancing 
around that?
    Mr. Elmendorf. Congressman, I think not. When economists 
try to estimate--I mean, again, each increase in tax rates will 
have some negative, more negative effect on the economy, but 
still total tax revenue will go up until those tax rates are a 
good deal higher than they are right now.
    Mr. Rice. I hate to cut you off, but I am running out of 
time, but, you know, we are taxing with taxes, we are taxing 
with increased insurance, we are taxing with increased utility 
bills, we are taxing with increased interest rates. It seems 
like we are going to wring people dry.
    The second thing, you talk about, you have analyzed the 
effect of sequester on jobs. Have you analyzed the effect of 
Obamacare on jobs and how many jobs that is killing and costing 
and hurting?
    Mr. Elmendorf. We did an analysis of this in 2010, 
Congressman, and our estimate at the time was that the 
Affordable Care Act would reduce the level of employment in the 
country by about half a percent by the point at which the law 
was fully phased in, and that was worth, equivalent to about 
800,000 full-time equivalent jobs.
    Mr. Rice. Okay. So which one is the biggest job killer, 
Obamacare or sequester?
    Mr. Elmendorf. So the effects of the Affordable Care Act on 
employment in 2018 or so, so about 800,000 full-time equivalent 
jobs, the effects of the sequester for this coming year we 
think is about 600,000 jobs.
    Mr. Rice. Okay, I want to tell you, I am getting hundreds 
of calls in my office, and they are not about sequester; they 
are about Obamacare. Thank you.
    Chairman Ryan. Thank you.
    Mr. Cardenas.
    Mr. Cardenas. Yeah, I think one of the reasons why so many 
people are getting calls about Obamacare is because there is 
millions upon millions of dollars being spent on attacking 
Obamacare, and it hasn't even been fully implemented yet, so I 
think that people, Americans are just reacting to the airwaves 
and what they are hearing because they are getting scared into 
believing that Obamacare is something that they should be 
afraid of.
    Well, one of the things I would like to point out is that, 
you know, before I got involved in being an elected official, I 
was a former business owner, and I know what it is like to be a 
business taxpayer but also a domestic employer as well, and one 
of the things that I would like to point out for the record as 
well, Congressman Rokita made a statement about increasing 
taxes up to 100 percent of income basically is what he was 
describing, and there was no Democrat to second that as a 
motion, so I think that we showed a lot of restraint there. 
That was a joke. Anyway.
    At least somebody laughed. Thank you very much.
    So when it comes to immigration reform, my colleague 
Congressman Huffman just touched on that, but I would like to 
expand on that. Immigration reform, will it benefit domestic 
American employers if a comprehensive immigration reform, for 
example, we have one on the table that the Senate passed, that 
version, would it benefit domestic employers?
    Mr. Elmendorf. We didn't study the effect on employers per 
se, Congressman. We looked at the effects on employment and on 
output and so on.
    Mr. Cardenas. But people get employed by employers 
eventually at the end of the day.
    Mr. Elmendorf. So we concluded that relative to the current 
law, enacting the Senate bill would increase the size of the 
labor force and employment, would increase average wages in 
2025, and later than that would boost the amount of capital 
investment, raise productivity.
    Mr. Cardenas. Now, is that in just one corner of America, 
or would that be pretty much in many, many, many, many parts of 
America?
    Mr. Elmendorf. It would be disproportionately in places 
that the additional immigrants would come to live and to work, 
but we didn't try to do an analysis at a regional or 
metropolitan level.
    Mr. Cardenas. So, for example, it would have a net positive 
effect based on your numbers in California?
    Mr. Elmendorf. Again, we didn't do estimates for particular 
States, but it would tend to have--the larger effects would be 
in places that attracted more immigrants.
    Mr. Cardenas. Well, when you look at the tech industry 
being large in California and the ag industry being large in 
California, I think that your numbers probably, the conclusion 
of your numbers came from by and large communities like that.
    But to my next point, I think a lot of Americans think that 
a comprehensive immigration reform would only benefit foreign-
born individuals should we pass something, for example, like 
the Senate bill that already passed the Senate but is not 
getting a hearing in this House. Would it benefit just foreign-
born people in this country or would it benefit American-born 
individuals economically and foreign-born individuals?
    Mr. Elmendorf. So it would only----
    Mr. Cardenas. It is not exclusive to foreign-born 
individuals?
    Mr. Elmendorf. It is not exclusive to foreign-born 
individuals. It would benefit some people who would live in 
this country anyway. We have not done the full analysis, 
divided among foreign-born individuals and native-born 
individuals, but the effects would spill over. Some of the 
effects are negative. As we noted, the unemployment rate would 
be slightly higher over the next, through 2020, but in the 
longer run and on average, we think it would be good for 
people, but the specific effects will differ depending on 
people's situations.
    Mr. Cardenas. So let me ask the question, then, a little 
bit more specifically. A comprehensive immigration reform law, 
like the one that the Senate passed, which I would assume has 
been analyzed by you and your people, that would only benefit 
foreign-born individuals in this country?
    Mr. Elmendorf. No.
    Mr. Cardenas. Or it would benefit both foreign born and 
American born?
    Mr. Elmendorf. It would benefit at least some American, 
native-born individuals.
    Mr. Cardenas. So the answer is both----
    Mr. Elmendorf. Both groups----
    Mr. Cardenas [continuing]. By and large will benefit.
    Mr. Elmendorf. Both groups will benefit over time, 
Congressman.
    Mr. Cardenas. Got it. And the reason why I ask that 
question because I think a lot of people in this country 
believe that the debate on immigration reform has no net 
economic effect to Americans, and that is just simply not true.
    Another thing that I would like to point out is when it 
comes to American corporations that have much of their 
employment overseas, does that have, tend to have a direct 
benefit to households with incomes of blue collar workers in 
this country?
    Mr. Elmendorf. Congressman, that is a very hard question. 
It depends on what the companies do.
    Mr. Cardenas. That is why I said direct. Not indirect, 
direct.
    Mr. Elmendorf. In some cases--I know, but a full answer 
from an economist needs to take account of the indirect 
effects.
    Mr. Cardenas. When an American corporation hires people 
domestically in this country, does that have a net positive 
effect on that household that got employed?
    Mr. Elmendorf. Yes, Congressman.
    Mr. Cardenas. Okay, that is my point. Thank you very much.
    I yield back my time.
    Chairman Ryan. Mr. Woodall.
    Mr. Woodall. Thank you, Mr. Chairman.
    I appreciate my colleague's discussion about the 
immigration. I would say if we reframe that debate instead of 
asking what is good for immigrants, asking what is good for 
America, we may end up with the same conclusion either way. I 
appreciate what Dr. Elmendorf had to say. I am glad the House 
is doing it in a step-by-step approach. I applaud what the 
Judiciary Committee is doing, but the question should always be 
what is good for America, and the answer has always been that a 
robust immigration policy is good for America.
    Mr. Cardenas. I agree.
    Mr. Woodall. It was mentioned in passing, Dr. Elmendorf, 
your July 2010 report on about 30 different options for 
rescuing Social Security from bankruptcy. If we went back and 
looked at that--I know you may not be prepared to talk about 
that today--have economic conditions changed in the last 2 
years such that that report would need to be updated, or are 
those numbers still as reliable today as they were 2 years ago?
    Mr. Elmendorf. If we did new estimates today, they would be 
somewhat different, but I think the broad conclusions, the 
comparison across estimates, across policy options in that 
report would still be valid for you.
    Mr. Woodall. What you showed there is not only what the 
size of that problem is but how absolutely doable it would be 
by pulling on somewhere between one and four levers that we 
have to pull on to make those changes today that would take 
this off the table as a worry for generations to come. They 
took a big step in a bipartisan way in 1983 to do that. I feel 
like we have the opportunity in divided government today to do 
that, and I appreciate the foundational work that you all have 
done there.
    Folks ask me why we are talking about health care in the 
time of budget deficits and budget crisis, what that connection 
is. I think of Federal health care costs as being one of the 
largest drivers of Federal spending long term. Is that the 
CBO's conclusion?
    Mr. Elmendorf. Yes, that is right. Absolutely, Congressman, 
yes.
    Mr. Woodall. When we talk about whether the Affordable Care 
Act is helping or hurting, you have said several times it is a 
net positive on budget deficits, but I am looking here on page 
25 of your report. You may not have it handy, but it is a chart 
that talks about projected growth in Federal health care 
spending, and I am looking out over the next 10 years, and you 
divide major growth into three different categories. You talk 
about the aging of the population. Obviously, as we get older, 
we have programs that cover the elderly, that is going to drive 
health care costs. You talk about excess cost growth. I think 
that is one of, an economic term for when inflation is higher 
than ordinary inflation, and what that does to divide----
    Mr. Elmendorf. Spending on health care per person outpaces 
the growth in spending of GDP.
    Mr. Woodall. But then you talk about the Medicaid expansion 
and exchange subsidies, and if I am reading this chart right, 
you are saying that over the next 10 years, health care is 
already one of the largest drivers of spending in this country, 
Federal spending, and you are saying that the Medicaid 
expansion and exchange subsidies are going to be responsible 
for 53 percent of the increase over the next 10 years. Am I 
reading this right?
    Mr. Elmendorf. That is right, Congressman.
    Mr. Woodall. So the connection between budgets and the 
Affordable Care Act is not only have we identified Federal 
health care spending as the single largest driver of debt and 
deficits as we look out over the horizon, but 53 percent, well, 
actually no, 53 percent of total costs, you are saying that the 
Affordable Care Act alone is going to double growth in Federal 
health care programs over the next 10 years?
    Mr. Elmendorf. So, Congressman, this role of this table 
refers to the insurance coverage expansions of the Affordable 
Care Act. The Affordable Care Act also includes, as you know, 
cuts in spending in Medicare and some other programs and 
increases in tax revenue, so my statements about the overall 
effect of the Affordable Care Act take account of the coverage 
expansions and the Medicare spending cuts and the tax 
increases.
    Mr. Woodall. Absolutely.
    Mr. Elmendorf. This row just has the coverage expansions. 
The Medicare spending cuts actually place some role on the 
excess cost growth line but not in a way that we can break out 
at this point.
    Mr. Woodall. But am I reading that right that if 53 percent 
of your total projected costs over the next 10 years is 
associated with the Affordable Care Act, that means in the 
absence of the Affordable Care Act, Federal health care costs 
would be half, the growth would be half?
    Mr. Elmendorf. In the absence of the insurance coverage 
provisions of the Affordable Care Act, but maintaining the 
Medicare spending reductions in that act, then Federal health 
care spending would be a great deal----
    Mr. Woodall. So when you talk about the Affordable Care Act 
as reducing deficits, you are not saying that the laws in the 
Affordable Care Act, the health care changes are reducing 
deficits. You are saying because the Affordable Care Act cuts 
$600 billion out of Medicare, you are saying because the 
Affordable Care Act raises over a trillion dollars in taxes, 
you are saying because of all the non- insurance-related things 
that the Affordable Care Act does, that is why it has an 
effect, and if we were to do all of those same things 
irrespective of their merits, we would just bank all of that 
for deficit reduction rather than spending it on new programs?
    I know that is not an economist's question, that is more of 
a rhetorical question, but I very much appreciate what you have 
done here, and again your work on Social Security is the 
foundation that really does offer an opportunity for success in 
a bipartisan way. I thank you.
    Mr. Elmendorf. Thank you, Congressman.
    Chairman Ryan. Mr. Ryan.
    Mr. Ryan of Ohio. Thank you, Chairman Ryan, and I 
appreciate the opportunity here. The chairman has not had lunch 
yet, and he is getting a little cranky, so I will try to make 
this as brief as I can.
    Prior to Obamacare--and thank you, sir, for all your great 
work. Prior to Obamacare, what were our health care costs going 
up, what percent?
    Mr. Elmendorf. So health care costs have risen, health care 
costs per person have risen faster than GDP per person for 
decades in this country. That growth rate has slowed over the 
past half dozen years or so across the Federal programs and in 
the private sector as well. The role of the Affordable Care Act 
in the slowdown we have observed so far is not clear to us. As 
you know, the Affordable Care Act includes a number of 
provisions that will slow health cost growth over time.
    Mr. Ryan of Ohio. Right.
    Mr. Elmendorf. Medicare payments, other changes in 
Medicare, a tax on high-cost insurance, but whether those 
provisions have mattered a lot so far is hard for us to 
analyze.
    Mr. Ryan of Ohio. I remember running for Congress in 2002, 
and the number one issue for businesses and families was health 
care. Health care costs. I don't know what it is going to be. 
It keeps going up. This is a major problem. So, you know, we 
had a problem to solve, and we ended up solving it alone. We 
didn't have much help from the other side, although we did 
adopt several of their positions, like the individual mandate. 
So my question really was to get everybody to recognize that 
this has been a big problem, and we are now seeing things 
starting to slow down, and a lot of people who had preexisting 
conditions and could not get health care are now able to do 
that. If you had a young kid with cancer, they would not meet 
their lifetime cap and then get thrown out. They will now be 
able to get that care. So we have--and look forward to 
improving this as we go. I don't think it is a perfect health 
care bill.
    I would like to make a couple comments here in the last few 
minutes. We had one gentleman make a statement about all these 
huge debt issues, Civil War, World War II, and another point in 
history, but then forgot to mention the two wars that we put on 
the credit card that our friends on the other side primarily 
initiated, a prescription drug bill not paid for, no 
negotiations in trying to drive down prices. So I just think it 
is important as we have this discussion to say, well, we have 
these points in history where the debt ran up and then all of a 
sudden President Obama got in and, oh, there is this other debt 
that just came, not looking back into the past decade, and my 
friend Mr. Rokita, who is a friend, and I like him a lot, was 
talking about public investments. We can't--the problem we are 
having today is the whole narrative in Washington, D.C. is 
every single dollar the government spends is bad, it is bad, it 
is coming out of the pockets of the private sector, it is 
stealing, it is confiscating money from private citizens. That 
fails to recognize over the course of our history as a country 
the significant public investments that have been made that led 
to economic growth, and as I was listening to him make his 
argument, I am thinking about local politics. I am thinking of 
the City of Youngstown, the City of Akron when they put public 
money into an industrial park. Public sewers, public roads, 
public sidewalks, invest in, create an industrial park; private 
sector comes in, takes risks, makes the investment. But for the 
investment by the public to say this is where we want to go, 
that private investment wouldn't have had a chance to grow, and 
then those businesses grow over time; same with the interstate 
highway system, same with NASA. Those huge investments we made 
in NASA that many people thought were foolish led to 
telecommunications revolutions and all kinds of other things. 
Defense spending, you know, the oil coming in and out of the 
United States ports guarded by a public investment in the 
United States Navy, hundreds and hundreds of billions of 
dollars. I mean, these are investments that we make, 
investments in research and development, like my friend Mr. 
Yarmuth was talking about, that eventually will lead to growth, 
and look at what is going on in Silicon Valley because of the 
investments on the public side.
    So I just--I know we have got deficits, you know we have 
got deficits. We both know we need to curb these in the long 
term, but we can't sacrifice investments, and right now, we 
were lucky enough to get President Obama's first additive 
manufacturing initiative. We have got to continue to invest in 
that, public-private partnerships, we have got to make sure our 
schools have three-dimensional printers in them, so that these 
kids--and Legos and robotics so kids get jazzed up about 
engineering over the long--public investment, not the be-all-
end-all, but this blend, this mix recognizing the complexities 
of our economy.
    Chairman Ryan. Thank you.
    Mrs. Blackburn.
    Mrs. Blackburn. Thank you, sir.
    I know you want to say save the best for last, and we women 
are accustomed to that around here.
    Ms. Lujan Grisham. So, thank you.
    Mrs. Blackburn. Absolutely.
    Mr. Ryan of Ohio. I just want to say I finally have found 
an agreement with the gentlelady from Tennessee.
    Mrs. Blackburn. We were at the same briefing that we 
stepped out of this committee for, and I told her it was a long 
queue. I want to go back, Mr. Elmendorf--first, thank you, 
thank you for the report, and I enjoyed glancing through this 
and looking at the impact that you have on health care 
expenditures, and I didn't--in looking at your footnotes, I 
don't see where you pulled data from any domestic programs that 
may have yielded a window and some insight into what we are up 
against. You have got TennCare in my State of Tennessee. You 
have got Guaranteed Issue in New Jersey. You have got 
RomneyCare in Massachusetts. And did you look at TennCare and 
the escalation of the cost of that program, the administrative 
and the beneficiary cost of that program, because it is the 
closest thing we have got to what Obamacare is? And just for 
the committee, TennCare was the test case for Hillary Clinton 
health care back in the mid 1990s in Tennessee, and eventually 
it became 35.3 percent of the State's budget. It quadrupled in 
cost after 5 years of implementation, and our Governor, a 
Democrat Governor, excellent Governor, did a good job, he had 
to come in and remove 300,000 people from the program and 
reshape the 1115 waiver program from CMS in order to address 
this. So did you all pull any evaluated data from that?
    Mr. Elmendorf. So, Congresswoman, I am not personally very 
knowledgeable about the experience in Tennessee, but when we 
have done our estimates over the past several years of the 
Affordable Care Act, we have drawn on the experience that 
States have had and that private insurers have had, we have 
drawn on a very large research literature----
    Mrs. Blackburn. So you did look at that?
    Mr. Elmendorf [continuing]. In forming our estimates. Yes, 
Congresswoman.
    Mrs. Blackburn. Okay. So then that does lead me to believe, 
as did Mr. Woodall's point, that you are looking at the 
additional taxes and components, the revenue side to try to 
make that an affordable program that on its own, it would end 
up doing what TennCare and other programs did, which is kind of 
collapse under its own weight.
    Mr. Elmendorf. Well----
    Mrs. Blackburn. Let me ask you another question. You know, 
I have two grandsons, a 5-year-old and a 4-year-old, and it is 
just really painful to me to look at what is happening with our 
Nation's debt, and the closer we get to that 100 percent of 
GDP, and I had looked at France's public debt. They are at 91--
95.1 percent of their GDP. And they are looking at a tax pause. 
Have you all taken a look at what is happening with some of 
these countries and looked at the steps that Congress would 
have to take if at that point to return our Nation to a path of 
prosperity how we back away from this debt? Are you looking and 
making the expectation that the only way we could do that would 
be higher taxes or increasing existing taxes?
    Mr. Elmendorf. So I think, Congresswoman, that you and your 
colleagues have a choice of raising taxes substantially, 
cutting Federal spending substantially or some combination of 
those two paths.
    Mrs. Blackburn [continuing]. For cutting the spending.
    Mr. Elmendorf. I understand, Congresswoman, but that is for 
you to say, not for me, and we are currently producing a large 
volume of budget options, that is what we do every couple of 
years, and that volume would include options for both cutting 
spending and raising taxes.
    Mrs. Blackburn. Okay. Let's say we do what France does, and 
they are looking at a 1 percent corporate tax. What kind of 
effects would that have on the economy?
    Mr. Elmendorf. Congresswoman, I can't do estimates of that 
sort in my head, and as you know, other countries are starting 
with very different economic systems, very different levels of 
taxes and spending, so we would try to learn from other 
countries' experiences, but it is hard to apply directly to 
this country because this country is different in a variety of 
ways.
    Mrs. Blackburn. Okay, let's talk a minute about sequester. 
I like the 2 percent across-the-board cut, do not like the cuts 
on the military, I think they are harmful. However, according 
to your report, if Congress reverses the sequester cuts, our 
Nation's debt would reach nearly 190 percent of GDP by 2038. So 
what do you think we--tell me what you think. Is it safe to say 
that the sequester cuts are preventing our long-term debt from 
doubling when you consider if we keep current law and we do not 
make any changes that our public debt would reach 100 percent 
of GDP?
    Mr. Elmendorf. So, Congresswoman, the alternative fiscal 
scenario that you are referring to incorporates a set of 
changes relative to current law, one of which is taking away 
the sequestration and going back to the original caps on 
discretionary funding from the Budget Control Act, but there 
are also big differences in tax policy and in other aspects of 
spending policy in that alternative scenario, so I don't know 
how big the effect would be if the sequester, turning off the 
sequestration by itself, but certainly it is true that if 
spending were increased or taxes were cut relative to the 
current law that underlies these projections and no other 
changes were made that offset those changes, then the debt 
would be higher and the problems would be bigger and would 
arrive faster.
    Mrs. Blackburn. Okay.
    Chairman Ryan. Thank you.
    Ms. Lujan Grisham.
    Ms. Lujan Grisham. Thank you, Mr. Chairman.
    And thank you, Director, for being here. I am actually 
going to do a couple things. I know most of the questions, 
quite frankly, have been asked and most of us have been very 
clear about this report and all of the information that we get 
about the fiscal condition of the United States and the Federal 
budget. The deficit and the debt are stark and striking and 
require us to do something because they are incredibly serious, 
and I think there isn't a member on this committee who wasn't 
clear about that from your report and who wasn't clear about 
that before this report and isn't looking forward to the kind 
of budget options that we need to undertake.
    But I would like to go to two other, two balancing issues, 
and I am actually, with all due respect to my colleague, Mrs. 
Blackburn, she is very correct about how she talked about 
TennCare and its model as States looked at ways to do something 
different about their Medicaid programs and their populations. 
The trick for States in that regard is that they did it alone, 
all right? So there were no, they had no way to impact 
Medicare. They had no way to impact CMS rules on hospitals and 
hospital reimbursement. And the problem then is that it can be 
unsustainable. And so quickly--and there was no partnership on 
the Medicaid side from the Federal Government to be as robust 
as it is today to really deal with the growing uninsured 
population. And so they don't work, or they haven't worked very 
successfully.
    So let's start with that, and actually Tennessee, some of 
their hospital corporations are in New Mexico and are big 
supporters of the ACA and Medicaid expansion because those 
rural hospitals will go belly up in the current path that we 
are on in health care. So I just want to reassess and make sure 
that I am getting this right, that the Affordable Care Act 
expanded coverage has raised some revenue and reduced spending 
for Medicare.
    Mr. Elmendorf. Yes, Congresswoman.
    Ms. Lujan Grisham. And I want to know what that impact of 
continuing that kind of a balanced approach, where you are 
reducing and you are raising, has on the Federal deficit over 
the next 25 years.
    Mr. Elmendorf. All those provisions taken together in the 
Affordable Care Act, in our estimate, reduced deficits over the 
next 10 years and beyond in the second decade relative to what 
would have happened under current, under prior law.
    Ms. Lujan Grisham. Perfect. So, given that scenario, and in 
my State, that has been hugely helpful, and we are expanding 
Medicaid, we have a Republican Governor, who is doing that. We 
have the SHOP exchange. We are doing our own State exchange. We 
have some Federal partnerships, recognizing that that is the 
kind of balanced approach that we want to a fledgling State 
budget, an economy arguably that is one of the worst economies 
in the country with negative job growth. We understand that 
there is going to have to be some balanced approaches to 
resolving this problem both in the short term and the long term 
so that we are affecting the debt and growing the economy so 
that we can manage those things effectively.
    And here, as we are, as many have said, colliding into the 
debt ceiling and recognizing that we have got a short-term 
issue that we have got to address, what is the impact on our 
economy if we weren't to address that and make sure that the 
full faith and credit of the United States--and I know that you 
have addressed this several times today, but since it is the 
issue of the hour, what happens to our economy again if we 
fail?
    Mr. Elmendorf. So we think that defaulting on any 
obligation of the U.S. Government will be a dangerous gamble. 
Economists can't predict exactly what would happen because, 
fortunately, we don't have a lot of experience with that in 
this country, but the confidence in the Federal Government 
paying its bills on a timely basis is the bedrock of our 
economy and our financial system, meaning both the economy and 
financial system in this country and the economy and financial 
system around the world. And if that confidence were broken, 
then the consequences could be very harmful, and for the 
financial system, for the flow of credit, for the payments 
mechanism, for the economy and ultimately for the Federal 
budget. If interest rates on Federal debt were to be pushed up 
higher than we think they would rise anyway because of a loss 
of confidence, that would raise interest payments. And the debt 
is so large now, and in our projections remains large for 
indefinitely, then the increased interest rates, given the size 
of that debt, can be very costly. So if interest rates were 
about a percentage point higher than we project over the next 
decade, that would raise interest payments by the Federal 
Government by about a trillion dollars over the decade.
    Ms. Lujan Grisham. And that is also going to have, I would 
assume, the same kind of effect on small business. And also 
listening to the sequester comments, I share those, that while 
we have an obligation and have been cutting the Federal budget 
and being very clear about our obligation to do that, this 
sequester then leads to, particularly in the military, an 
inability to do that innovation and research and have that 
translate to economic growth in the economy. That 
predictability, that stability has certainly continued to crush 
New Mexico and particularly my district in Albuquerque, and I 
would assume that that is the same issue without a balanced 
approach.
    Mr. Elmendorf. Congresswoman, as I mentioned a little 
earlier, nearly half of Federal nondefense discretionary 
spending represents investments in physical things like 
highways, in education and training of people, and in research 
and development. And if the path of overall discretionary 
spending and of the defense and nondefense pieces remains as it 
is in current law, then that will--and that the composition of 
that spending remains about the same as it has been 
historically, then Federal investments will decline as a share 
of GDP in a significant way over the coming decade.
    Ms. Lujan Grisham. Thank you.
    And thank you, Mr. Chairman, for your latitude. I yield 
back.
    Chairman Ryan. Thank you very much.
    Dr. Elmendorf, thank you very much for your testimony. 
Thank you for this report, for the premium support report, and 
we will see you this weekend.
    Mr. Elmendorf. Thank you, Mr. Chairman.
    Chairman Ryan. Hearing adjourned.
    [Question submitted for the record and the response 
follows:]

  Question Submitted for the Record From Hon. Allyson Y. Schwartz, a 
       Representative in Congress From the State of Pennsylvania

  potential to reduce health care costs through delivery system reform
    Republicans and Democrats across the ideological spectrum agree 
that the current Medicare payment system must be repealed and that the 
rate of growth in health care spending in the United States is 
unsustainable. Fixing the Sustainable Growth Rate (SGR), the flawed 
formula that dictates payments to Medicare providers, is essential to 
containing the growth of health costs. The long-term fiscal challenges 
facing our nation cannot be solved without acknowledging and addressing 
this threat to the sustainability of Medicare.
    In March, I reintroduced the bipartisan Medicare Physician Payment 
Innovation Act (H.R. 574) with Rep. Joe Heck, DO (R-Nev.). This 
legislation fully repeals the SGR and implements new delivery systems 
and payment reforms to ensure long-term stability in the Medicare 
physician payment system, while containing the rising growth in health 
care costs. My legislation employs the Center for Medicare and Medicaid 
Innovation (CMMI) in the development of cost-effective payment models 
that ensure quality patient care.
    The House Energy and Commerce Committee advanced its own bipartisan 
SGR repeal legislation (H.R. 2810) in July. This bill also took steps 
to advance payment reforms but established a new entity to conduct the 
testing and evaluation of payment models. CBO scored the House Energy 
and Commerce proposal at $175 billion over 10 years, which is over $40 
billion more than the $139 billion score for permanently freezing 
physicians' reimbursements at current levels. In the report, CBO notes 
that ``the structure specified by H.R. 2810 would replicate the process 
being followed by CMMI in many ways * * * [and] would lead to smaller 
savings.''
    Dr. Elmendorf, can you explain how taking advantage of the work the 
Center for Medicare and Medicaid Innovation is already doing in the 
area of delivery system reform could reduce the cost of an SGR fix?

          CBO's Response to Questions Submitted for the Record

    Q. Dr. Elmendorf, can you explain how taking advantage of the work 
the Center for Medicare and Medicaid Innovation is already doing in the 
area of delivery system reform could reduce the cost of an SGR fix?

    A. The Center for Medicare and Medicaid Innovation is charged with 
testing models that modify rules in the Medicare, Medicaid, and CHIP 
programs--such as changing Medicare's payment methodologies or 
expanding the set of services that are covered--to identify and refine 
models that will reduce program spending without harming the quality of 
care or improve quality without increasing program spending. The 
Secretary is authorized to expand models that prove to be successful in 
achieving those objectives.
    Under current law, CBO expects that, in general, the Secretary will 
use that authority to expand successful models. CBO incorporates the 
expected savings from the development and expansion of those models in 
its baseline projections of federal spending for Medicare and the other 
health care programs. Compared to projections from before the CMMI 
provisions were enacted, those expected savings have contributed both 
to reductions in the projected rate of growth in Medicare spending and 
to lowering the estimated cost of proposals to replace the Sustainable 
Growth Rate (SGR) mechanism. However, because the budgetary effects of 
testing and expanding those models will occur under current law, those 
effects are not available to be used as offsets to new spending--such 
as an SGR ``fix''--in proposed legislation.
    It is possible that the Secretary will decline to expand some CMMI 
models that reduce program spending and improve quality, despite the 
expectation that those models could be successfully replicated. In such 
cases, a provision of legislation requiring expansion of a successful 
model might offset some or all of the cost of other provisions that 
increase direct spending.

    [Whereupon, at 12:40 p.m., the committee was adjourned.]

                                  
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