Feb 12 2013
“This hearing will now come to order. I want to welcome everyone to the first Senate Budget Committee hearing of the 113th Congress. I want to thank our witness, Dr. Doug Elmendorf. As well as the ranking member Senator Sessions—and all of my colleagues for joining me here today
“As we begin the budget process here in the Senate, I am hopeful this Committee can be a place where we come together to tackle our fiscal and economic challenges in a balanced way that works for the families and communities we represent.
“Budget issues have received a lot of attention over the past few years, but the conversation is too often focused on abstract numbers and the partisan back-and-forth.
“Budgets, however, are about far more than this. They are reflections of our values, our priorities, and our vision for what our government, our country, and our economy should look like now and in the future.
“Budgets aren’t about us here on the Budget Committee— they aren’t about our colleagues across Congress or in the Administration— they are about the families across America whose lives will be impacted by the decisions we make. They are about their jobs, their children—and their future. And we owe it to them to make sure they have a voice in this process—and that their values and perspectives are heard.
“So I see today’s hearing as the first part of a two part opening examination of our nation’s fiscal and economic challenges.
“Today we will hear from Dr. Elmendorf about the Budget and Economic Outlook for Fiscal Years 2013 to 2023. Then tomorrow we will hear from members of the public and experts to learn more about the impact of budget decisions on families and communities.
“Over the coming weeks and months as we put together a pro-growth, pro-middle class budget resolution,
I am going to continue making sure the voices of the American people are heard loud and clear—throughout this process. And that their values and priorities are being represented.
“As we start this hearing on the budget and economic outlook, I think it would be helpful to do a quick review of how we got to where we are today. Because a look ahead is only valuable in the context of where we are coming from.
“I’ve served on this Committee for twenty years, and in the time since I arrived, our country went from having a serious deficit and debt problem, to running surpluses and being on track to pay down the debt, to eight years later, being in an even worse position than we were before—to today, when we are starting to turn the corner but still have a long way to go.
“All of us remember the early nineties. In 1992, the year before President Clinton came into office—the same year I was making my first run for Senate—the federal government was taking in revenue equaling 17.5% of GDP, while spending was 22.1% of GDP—a deficit of 4.7%.
“When he was sworn in, President Clinton promised to tackle the deficit while continuing to invest in jobs and the middle class. I bought into that vision—and I was proud to help make it a reality.
“When his bill to raise the tax rate on the highest-earning Americans passed the Senate and House—without a single Republican vote—the top Republican on the Senate Budget Committee at the time said it would —‘devastate the economy.’
“Others predicted calamity along similar lines.
“But as we all know now, it didn’t work out that way. The unemployment rate went from 7.3% at the beginning of 1993, to 3.9% at the end of 2000. Over the course of those 8 years, 22 million jobs were created. The economy grew at an average rate of 4%.
“And the deficit? Well, revenue increased from 17.5% of GDP to 20.6%. And responsible spending cuts brought federal spending down from 22.1% of GDP to 18.2%. So a 4.7% deficit was turned into a 2.4% surplus in eight years. And our nation was on track to completely eliminate the federal debt by 2010.
“Now I don’t think the revenue increase under President Clinton was the sole cause of the economic growth. But I do think our responsible fiscal and economic stewardship played a role in keeping interest rates low and giving markets and small businesses the confidence they needed to expand and create jobs.
“Our work in the 90s proved that calling on the wealthy to pay their fair share is not incompatible with strong economic growth. In fact, it is strongly associated with the kind of broad-based growth that helps the middle class prosper and expand.
“In 2001, many of us Democrats saw the surplus as an opportunity for our country to free ourselves from debt and invest in national priorities.
“But President Bush and his administration had other ideas. They saw it as a blank check to cut taxes and increase spending. President Bush and Republicans in Congress immediately worked to pass two sets of tax cuts that were heavily skewed toward the rich.
“When his first Treasury Secretary, Paul O’Neill, tried to warn that the second round of tax cuts would blast a hole in the deficit, Vice President Cheney informed him that ‘deficits don’t matter.’ Not too long after, O’Neill was fired.
“When Federal Reserve Chairman Alan Greenspan testified in front of this very Committee in support of the 2001 tax cuts, my colleague Senator Sarbanes predicted these tax cuts would ‘put us on the glide path to dissipate this hard-earned fiscal restraint.’ He, like many of us at the time, was ignored.
“President Bush took us into two wars—without paying for them. He enacted Medicare Part D, a program that is estimated to cost taxpayer $60 billion this year alone—without paying for that either. While he was President, more Americans lost jobs than got new ones. Inequality grew as the wealthiest Americans benefited from the tax cuts while the middle class stagnated.
“By 2008, federal revenues had plummeted back down to 17.6% of GDP—Spending had shot up to 20.8% we were back to a deficit of 3.2%...and all of those projections about the national debt being eliminated were tossed out the window.
“When President Obama came into office our country was losing over 700,000 jobs a month. He was desperately working to staunch the bleeding from the Wall Street collapse that threatened to push our country into a depression. Federal revenue plummeted even further.
“Middle class families and the most vulnerable Americans were losing their homes, struggling to put food on the table, and worrying about what the future would be like for their children.
“But at the very time when we needed to be investing our families and our economy—and focusing on growth— many of my colleagues went back to their file cabinets and dug out those talking points they used back in the early 90s.
“All of the sudden, they were telling us deficits were the most important issue to address. Cutting spending was once again their new priority. Not jobs, not the middle class, not economic growth—but deficits.
“Forgetting what we did in the nineties to get our country on track—ignoring what happened during the Bush Administration—and acting like the world was created on the day President Obama was sworn in. This narrow and short-sighted approach was wrong back in the early 90s. It’s just as wrong today—and it’s not just Democrats saying so.
“Right now the economy is still struggling. Millions of workers are still looking for too few jobs. Aggregate demand is still far below its potential. And at the moment, the federal government is borrowing at historically low rates.
“Experts and economists across the political spectrum agree it makes sense to invest in job-creation in the short term, while putting ourselves on a strong path to responsible and sustainable deficit and debt reduction over the medium and long-term. And poll after poll shows that’s what the American people support too.
“Federal Reserve Chairman Ben Bernanke put this idea well in a speech he gave in August of 2011. He said: ‘Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery.’ He continued: ‘Fortunately, the two goals of achieving fiscal sustainability—which is the result of responsible policies set in place for the longer term—and avoiding the creation of fiscal headwinds for the current recovery –are not incompatible. Acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives.’
“I think that’s exactly right. I will work with anyone to tackle our debt and deficit responsibly, but as I’ve told Senator Sessions and others—I feel very strongly that it just doesn’t make sense to replace our budget deficit with deficits in education, infrastructure and research and development.
“If we cut our budget deficit by giving up on the investments we need to compete globally in the 21st century economy, then we will not have done right by our economy today—and certainly not for the generations to come.
“So we absolutely need to tackle our debt and deficit in a responsible and sustainable way.
“But our top priority needs to be jobs and economic growth. And as we saw in the 90s, those two go hand-in-hand.
“Which brings me to our witness today. I am pleased to welcome back to the Committee, the Director of the Congressional Budget Office, Dr. Doug Elmendorf. The Members of this Committee know Dr. Elmendorf well, as he has appeared before us on numerous occasions. And, of course, I want to thank you and your staff on behalf of this Committee for the hard work and professionalism you provide to us and to Congress.
“I think it’s fair to say that the report you delivered to us last week on the state of the budget and economy over the next 10 years is a mixed bag, as it contains some hopeful signs, but also highlights some real challenges for the nation.
“In terms of the economy, on the one hand, we are starting to see the effects of the housing and financial crises fade following the work we did in Congress to support the recovery.
“We are clearly not out of the woods and far too many workers are still struggling to get back on the job, but housing prices and the stock market are rising and that is certainly some welcome news. On the other hand, your report makes clear that the economy still faces significant headwinds in the short term, particularly from the tightening of federal fiscal policy.
“The sequester set to occur on March 1st is not the only policy action that is contributing to this fiscal drag, but it is a major factor. And, in total, the impact of this fiscal tightening, including the March 1 sequester, is to depress economic growth by about one and a half percentage points. That translates into roughly 2 million jobs by the end of this fiscal year.
“Leaving the sequester in place would lead to massive, self-inflicted damage that would hurt middle class families, those already struggling in this economy, as well as our national security and future global competiveness. But replacing it the way House Republicans have proposed—with even more cuts to programs families and seniors depend on— and without calling on the wealthy to pay a penny more—would be even more damaging over the long run.
“That’s why I believe we should replace the sequester with a balanced package of responsible spending cuts and revenue from the wealthiest Americans.
“That approach makes sense for the federal budget and it makes sense for American families, particularly when you are talking about so many jobs, and an unemployment rate that remains stubbornly high at near 8 percent.
“In terms of the budget outlook, we see some slight signs of improvement. The deficit is expected to total $845 billion this year, the first time it will be below $1 trillion in five years. To put that number in perspective, relative to the total size of the economy, it is expected to equal 5.3 percent in 2013. While that remains too high, it is progress. In fact, in 2009, the deficit was almost twice as large, at just over 10 percent of the economy.
“And, fortunately, CBO expects this downward trend in the deficit as a share of the economy to continue over the next few years, falling and remaining below 3 percent through 2018—and this is even with the end of the year budget deal.
“We also got what I believe is some good news in the area of health spending. As I was reading through the report, one section really got my attention, Dr. Elmendorf, which was the discussion of the change in health spending in recent years. In fact, I stopped and underlined one statistic because I found it so surprising. The statistic is that CBO has lowered its estimate of federal spending for Medicare and Medicaid to such a degree that spending for 2020 – one year is now $200 billion lower than CBO thought back in 2010, an improvement of 15 percent.
“And let’s be clear, that improvement has occurred since enactment of the Affordable Care Act.
“Dr. Elmendorf, I know you’ve heard a lot from Senator Whitehouse and other Senators regarding their belief that current budget conventions and estimates miss the mark in the area of innovation and delivery reforms. And I will be interested in hearing your thoughts on what has led to this downward trend in health spending.
“Of course, as with the economy, the news on the budget is by no means all good.
“As I mentioned earlier, we got hit at the end of the last Administration with the confluence of a financial crisis, housing crisis, and deep recession. Largely as a result of those conditions, the debt skyrocketed in a very short period of time. The debt was equal to roughly 36 percent of the economy in 2007—it will soon be at about 76 percent. And, if we don’t tackle this responsibly, it will begin rising again by the end of the decade, particularly with the retirement of the baby boom generation and increase in health care costs.
“So, even with some good news, we clearly have our work cut out for us as a Committee and a Congress. This is a tough Committee, with a tough mandate.
“I look forward to working with my colleagues – on both sides of the aisle – to meet that challenge and address the budget in way that is fair, works for the middle-class and most vulnerable families, and invests in long-term and broad based economic growth. We did it in the 90s—and I am confident we can do it again.”
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