Transcript of Opening & Closing Statements of Chairman Kent Conrad Hearing on How Big is the Remaining Surplus? June 28, 2001 Opening Statement
I want to welcome everyone to this morning's hearing on, 'How big is the remaining surplus?' We have a distinguished group of experts with us today who have all followed the federal budget very closely for many years and all have played an important role in urging the President and Congress to maintain fiscal discipline. And for that, the country owes you our thanks. We have with us this morning Robert Greenstein, the executive director of the Center on Budget and Policy Priorities, Robert Bixby, the executive director of the Concord Coalition, and Carol Cox Wait, the President of the Committee for a Responsible Federal Budget. Welcome to you all.
I'm just going to make a very brief opening statement and then go to the witnesses. The fundamental question before us today is, 'How big is the remaining surplus?' This chart shows, starting with the Congressional Budget Office May surplus projection, that we had $2.7 trillion of non-Social Security, non-Medicare trust fund surplus available to us. Of course, since then, we have enacted a tax bill that reduces that amount by nearly $1.3 trillion. We also have a budget resolution that has passed that takes out an additional nearly $500 billion. And then we have the defense request the President is sending up to us that has a request in 2002 for over $18 billion, and the 10-year effect of that proposal, if you adjust it every year for inflation, is $220 billion. Then you have the associated interest costs with those three items and you can see the non-Social Security, non-Medicare surplus is largely gone. And in fact, it is gone for 5 years, the years of 2003, 2004, 2005, 2006 and 2007 we're already into the Medicare trust fund. And by a fairly substantial amount. So it's not good enough just to look at 10 year totals. We also have to look at year-by-year effects of what is being proposed and what has already passed.
Let's go to the next chart that looks at this in a little different way. In this chart, we start with the May budget resolution surplus which showed $471 billion available. That's after the budget resolution, that's after the tax cut - $471 billion available over the 10 years. But then if we adjust that by the Bush defense request - again if we take the number he's asking for in 2002 and ramp it up simply by inflation ' that gives you a 10-year effect of $220 billion. If you then look at a possible increase for education because there's no new money in the budget for education. We've just passed an authorization bill that says the Congress is prepared to pass more than $350 billion of new funding for education ' now that's an authorization bill and I think all of us know that's unlikely to be all appropriated. But if we just take the IDEA portion of it - the disabilities act portion of it which is $154 billion. And then, third, if we adjust the forecast because we all know economic growth is slower than was anticipated in CBO's forecast. If we adjust that by even a low end adjustment of $165 billion over the next 10 years. We're hearing CBO may adjust their forecast by $200 to $300 billion. If we take just a low end estimate of $165 billion, you can see the result. The surplus is gone. The raid on Medicare is in nearly every single year including 2001. Only in 2010 and 2011 is there not a raid on Medicare. But every other year -- 2001, 2002 and on through 2009 -- we're raiding the Medicare trust fund and by substantial amounts. In fact, so substantial that we're also raiding the Social Security trust fund in five of the years, 2003, 2004, 2005, 2006, and 2007.
The first chart I showed was not assumptions. The first chart I showed that indicated we're headed into the Medicare trust fund was based on the budget resolution that is passed; it was based on the tax bill that was passed; it was based on the defense recommendation the President's people have made. This chart goes further and looks at not only the defense add the President is proposing but also a potential adjustment to education. Everybody says it's the top priority, and yet there's no new money in the budget for education. I think it is reasonable to anticipate money will be added. And also a revision to the forecast that I think is pretty clearly coming. Economic growth in all likelihood is not going to be 2.4% this year as was included in the forecast. The blue chip consensus now is 1.8%. If those things happen, the results are very clear. We have a dramatic and substantial raid on Medicare of over $250 billion. And a raid on the Social Security trust fund as well of over $40 billion.
This is important information for our colleagues. It is important information for the country. It is important information for our colleagues because of the 8 reserve funds, 7 of them are tied by a requirement that they can only be triggered if we are not invading the Medicare trust fund. That's the requirement that's tied to 7 of the 8 reserve funds. The only reserve fund that is not so encumbered is the reserve fund for the prescription drug benefit. All of the other reserve requirements have that requirement. So that is the overview of where we are and where we think we can reasonably anticipate where we are headed.
It tells me that we are on very thin ice. It tells me that we already have a problem and that problem is likely to grow given the defense request the President is sending, given the bipartisan and overwhelming support for additional funding for education that is not included in the budget and given the fact that the strong prospect is for a reduction in the forecast given the current economic weakness. Yesterday, we had a hearing in which we heard from top economists. One of them predicted that the 2002 federal revenue will be reduced by $50 to $75 billion below the forecast. That's just for 2002 . Our projection under a possible economic revision, we only took out $20 billion in 2002. Mr. Dudley, the chief economist at Goldman Sachs told us yesterday he believes the revenue next year will be reduced by $50 to $75 billion. The other two economists, including the former chairman of the Council of Economic Advisers under President Clinton agreed with that assessment. The Republican witness also agreed with that assessment that we could anticipate a reduction in revenue of $50 to $75 billion. Again, I want to emphasize we have put in our estimates only a $20 billion reduction. If instead we get the kind of lowering of revenues that was testified to here yesterday, obviously the situation is much more serious. We will know better as we get to the August re-estimate.
With that, I want to turn to our witnesses and again thank each of them for coming.
Let me just end by saying this is reality time. This isn't projections. This isn't what maybe is going to happen. This is what has already happened. If we start with the most recent forecast from CBO, we take out the tax bill, we take out the budget that has passed and we take out what the President is proposing on defense, we are already invading the trust funds of Medicare in 2003, 2004, 2005, 2006 and 2007. So we're not talking about things that might happen or prognostications. We're talking about what has already happened in a tax cut, in a budget resolution and a defense request from the President of the United States.
And that we can make some informed judgements about where we're likely to go in just a few areas. That first chart has nothing with respect to fixing the alternative minimum tax which costs over $200 billion to do; it has nothing to do with the extenders which we all know is going to happen; the extension of popular tax provisions like the research and development tax credit that aren't included in the budget resolution. It doesn't include any money for natural disasters. And natural disasters have already occurred. We've already had the head of FEMA call up yesterday and tell the Appropriations Committee he needs an additional billion dollars just to get through September. There's none of that in this budget. There's no new money for education in this budget even though the Senate has passed an education bill that has authorized over $350 billion. And there's no change in the economic forecast in that first chart. We know the economic forecast is going to change because economic growth is not meeting what is in the projection.
On two of those items, if we make a reasonable assumption on education funding and a revision in the forecast, we can see the results. And the results are clear for anybody to see who has the courage to look. And the result is deep raids in the Medicare trust fund and even raiding the Social Security trust fund. Something a vast majority of the Congress has voted not to do on both counts.
We're in trouble. It's just as clear as can be. We're in trouble already and prospects are the trouble is going to get worse and it's because we've put in place an unrealistic budget, one that is based on a forecast that is overly optimistic in my judgement, number one. Number two, that we've passed too large a tax cut. Number three, the budget did not include items that are clearly going to happen including the President's request for increases in national defense, including new money for education, including the necessity to fix the alternative minimum tax which is otherwise going to at the end of this period effect 35 million taxpayers in this country when today it effects less than two million. We also know there will be natural disasters in this country. We've already experienced it.
We know, I think beyond a shadow of a doubt, that the forecast in the short-term is going to go down. Economic growth was forecast to be 2.4% this year. Forecast now is 1.8%. That means we're going to get less federal revenue. How much less is an item of discussion. We had a very distinguished panel here yesterday, two Democratic witnesses and a Republican witness, who agreed that revenue is going to be down from what is forecast by $50 to $75 billion just next year. We are in trouble. And that's a message that has to be clearly developed to our fellow members of Congress and to the country because it will have to guide us in every decision we make. It's why I believe the budget resolution must be enforced. But, that's not good enough. We are also going to have to say to our colleagues, 'No new spending that's not in the budget that isn't paid for. No additional tax cuts that aren't paid for.' That is a message we have to clearly deliver to our colleagues and to the country.
All those out there who think there's this big honey pot, the honey pot is gone. The honey pot has been fully committed. In fact, it's been over committed. And we are into the trust funds of Medicare already and you can see with even very reasonable and modest and conservative assumptions that we're going to be into the Social Security trust fund. So it's time to face reality. That is a message that has to be delivered over and over and over to colleagues as unwelcome of a message it is. And as unwelcome of a message it is to people in this country. That still is an optimistic outlook for the economic future. That's still assuming we have economic recovery next year, good economic recovery, that we don't have further slowdown this year. That is assuming very strong productivity growth, 50% higher than we saw in the 21 years from 1973 to 1994. Those are very optimistic outlooks for the economy. We hope they all come true. But we also recognize reality, and that will require us to make some tough decisions and the sooner we face up to it, the better off we'll be.
I want to thank this panel. We appreciate very much your time and your taking the opportunity to come here and give us the wisdom of your experiences.