Eastern on cspans q a. On newsmakers this week her guest is phillip swagel. And helping with our questions in studio, economic reporters Richard Rubin and Jim Tankersley. Director slagle, for those what thef d. C. Explain Congressional Budget Office is, who you answer to and what viewers should take away from your latest reports and economic outlook. Thanks very much for having me on the program. Its function is we provide cost estimates of legislation, we do analytics reports. I host of scorekeeping functions. In support of the appropriations process. Tracking spending and helping Congress Figure out how much they are spending and how much bills will cost. Talk about who you answer to. Phillip we are a nonpartisan agency. We answer to the congress. We work for the entire congress. Generally our work is for the chairs and ranking members of the various committees. If there is something on health care that would be in the senate for the finance committee or the health committee. Similarly in the house. We answer to all of the members and support all of the members equally. Host all of the members are interested in your budget and economics outlook. What is the take away from that . Phillip it is twofold. On the economics side we have continued gdp growth in the power forecast, but large budget deficit that persist. Ratio reaching unprecedented levels over the next 10 years, and really over the next 30 years. Going up to 180 of gdp, a level never seen before. That is what is striking, that conjunction of an economy and labor market that is in pretty good shape and a budget deficit that is wide and getting wider. Host what is the Tipping Point . What is too much . Phillip we dont know. We know as the debt to gdp ratio rises, that will have some negative effects on the economy. It will eventually lead to a drag on on consumer spending. Even though we dont see that now, we know at some point it well. Rising debt makes the economy more vulnerable. If our debt level is right or is higher and Interest Rates rise, that would make our fiscal challenge all the more difficult. We dont know when that Tipping Point will come, but we know there is a rising vulnerability from the fiscal trajectory. Did jump off of that, a lot of people would have said if we were at the point we are at now, debt to gdp where they are, we would be feeling those effects. What was your view on those issues 10 years ago and have you changed your view about when and how deficits and debt affect the economy as a whole . Phillip there is a sense in which we can look at the economy now and understand why Interest Rates are low. For a variety of reasons, growth in the rest of the world, it has problems in recent challenges with the virus situation in china and the rest of asia. That has led to lower Interest Rates in the u. S. We see that situation. When the rest of the world has a problem, the u. S. Economy is a safe haven. Our Treasury Bonds are. Inflation has remained low in the u. S. The risktaking appetite of of markets and Market Participants has been lower than people expected. All of that leads to lower Interest Rates. You asked, how has it changed my view . 10 years ago if you told me where we were in the economic cycle, 10 or 11 years into an upswing, with the Unemployment Rate at 3. 6 , i would not have expected Interest Rates to be as low as they are. That has led to a rethinking in the profession and at the cbo, we have marked down our projection of Interest Rates substantially. Host what were you doing 10 years ago . What did you do before you took this job . Phillip i am a professor at the university of Maryland School of public policy, on leave while serving as cbo director. 10 years ago i had left the treasury department, where i was the chief economist of the treasury for the last years of the bush administration. Speaking of administration, the president s budget for fiscal year 2021 just came out this week. Very different forecasts on growth and deficit in the cbo forecasts. It sees growth of 3 per year, we have not seen for a long time. What do you make of the divergence between your forecast and the white house on growth and on deficits . Phillip we are analyzing the president s budget now. It is something we do every year. Who will have a full report. As you said, there gdp numbers are pretty different than ours and the trajectory is different. They have a different way of doing a forecast. There forecast assumes that everything the president is proposing is enacted. Our forecast assumes current law. Counters some of the difference. They have stronger productivity growth. We have productivity growth rebounding from the pretty low productivity growth after the financial crisis. We see better than that but not a strong productivity growth over the previous decade or two. That is the main differences. Are there a set of policies cbo has modeled you think would produce that productivity growth . As it is now, you see potential maximum run of the economy being lower than the white house does also, i think. Phillip we think longerterm gdp growth around 1. 7 , which is lower than the administrations projection. We know there are some policies that would boost roads, whose productivity growth over time. On the growth side, the Labor Force Growth is decelerating. We are an aging society. That affects the labor force. We know immigration is one lever outputuld increase our over time and increase gdp, and probably productivity growth as well. Immigrants bring a diversity and energy to our economy, and innovation, entrepreneurship as well. That would support stronger there are tax policies growth. Those are debated in the congress. There is a variety of levers. It is difficult to know what is the right way to boost productivity growth. In the economics profession, productivity growth is one of these mysteries that is hard to say what lever will boost productivity growth. What will be your role in the budget debate over the coming months . Phillip ours is an analytic one. As you said, we just put out our baseline. Now we are analyzing the president s budget. In march we will put out a new baseline that accounts for the actual dollars of spendings over the last year, when the president puts out his budget, we get more information on the actual spending over the last year. We will crank through all of that and put out a new baseline in march. As always, cbo will estimate whatever Legislation Congress is considering and evaluate that. As you think about what legislation you are evaluating, you obviously hear a lot from members on both sides with big ideas. I am curious how you are looking 10 to 12, 15 months ahead of things like climate legislation, medicare for all, things that would take a fair amount of analytic work. How far along is cbo in its analytic capacity at work on some of those things that the new administration, a new congress might, but not necessarily, bring . Phillip it is one of the challenges to figure out what we need to work on now. Cbo is at its best and we have done the work before the legislation comes to us. One example of that is surprise billing, a topic subject to legislation. Both the house and senate in various committees, several analysts at cbo, 11, 12 months ago figured out this was an important issue and got the work got the data and did the work, so we have been able to support the congress with surprise billing because of these star analysts who figured it out before i arrived. That is the challenge now. We are working on these issues, climate. We know that is an issue that is important to members. Both chambers and parties. We are doing the things you would expect cbo to do. We are looking at, how does climate fit into the baseline . With military installations, things like that. That spending is discretionary spending, so it is annual appropriations. Along the longerterm, the bigger dollars are a macro effect on the overall economy. We are looking at the research that relates Climate Changed Climate Change to overall gdp and saying how does it feed through to the budget . It is not attenuated by the steps are climate, gdp, spending revenue. Is that reflected it all in the budget . Economic up or down from Climate Change . Where do you expect a baseline adjustment to do with that . Phillip i can talk about health also. We are preparing some health care as well. Climate change implicit in the budget now, we have a projection for the Flood Insurance program. But it is not broken out separately. We dont have a line that says the effects of climate does this to Flood Insurance and things like that. That is what we are working to understand. So, it is implicit. We are working to make it more explicit. Once we have the connections, we will be in a better position to analyze policies in the future. Could then lead you to a position where cbo could score a bill to reduce Carbon Emissions as being proeconomic growth because it would reduce the effects of Climate Change on the economy . Phillip that is a good question. Cbo under my predecessor, two directors ago, did a work on a lot of work on cap antitrade and trade legislation. Looking at the effect of climate on the baseline and then developed to update the analytic tools to evaluate the policies. The policies are the sort of thing we would do. We work jointly with the joint committee on taxation which does the revenue estimates. Onsay, what is the effect the economy, carbon and other emissions and then ultimately what are the costs . One caution is that the sort of thing of avoiding future disasters doesnt score. We would talk about it, and we would provide as much information as we can, but instances avoiding future disasters is a good thing and it has a cost to it. I cant believe it took us this long with two tax report is to taxes, here we are. The cbo did do a lot of work on the tax act in the past, 2017. President trumps signature tax cuts. You forecast its effects on revenues and along with the modeling on growth. I am curious, two years of data now have been collected on the effects of the tax cuts. How do you think cbos predictions fared and what have you learned and updated about them in that time . Phillip cbo has looked a lot at this. In the april 2018 before i started cbo did a comprehensive evaluation of the 20 tax act. Overall, it looks like the effects have been in line with our analysis. The impact, positive impact on gdp growth. It looks about what we expected. It is difficult because of the subsequent events and policies can interfere with the clear signal. Notably, tariff policies in place in 2018 look to have an effect on holding down business investment. We have expected to see the positive impact of the tax act coming through business investment. We saw that in the first half of 2018, and then business estimates look to have been dampened since then. It is hard to disentangle the positives of the tax policy and the dampening of the tariff policy. We are still tracking. One caveat is many of the tax returns, especially for businesses, were just filed last october. We dont have access to those yet. The gct gets first access. By the end of the year, later in the year, generally october, we will have access to the full file of tax returns working through the jct. What we do see is the incoming revenue, the payments by companies. On the whole, those are in line with our analysis but with a couple of important changes we detailed in a blog post last week. I can go into those. If you could tell the viewers, you did estimate reduced revenues over a decade. Could you talk a little bit about that . To build on that we had the treasury secretary this week reassert the Administration View that the tax cuts will generate enough growth to pay for themselves. If you can elaborate on what effect is having on revenue and whether it is paying for itself. Phillip i will start there and they go back to the corporate side. We are looking carefully at the incoming data. Overall, the cbo in 2018, in this analysis, we indicated the tax act would increase growth. In an amount that would pay for 20 of the revenue loss of the tax act. This includes all of the dynamic effects. There would be stronger growth, that would mean higher revenue. But the stronger growth would have an effect on Interest Rates and that would lead to increasing interest outlays. The overall growth is 20 . We think roughly it pays for 20 of itself. The administration has a stronger growth outlook, but and i havent done the math, but maybe they have in mind with a stronger outlook, there will be more revenue. That is the sort of thing they have in mind. That is our take is 20 . On the corporate side, we ve learned a lot in the two years. We dont have the returns. The joint Task Committee just put out a nice report. Looking at some of the Largest Corporation returns. Again, that is their role. We are looking at changes in data which revise the share of business profits against wages. In the economy, over the previous several years, corporate profits were lower and wages were higher. In a sense, that resulted bit of a mystery on the Corporate Tax side. Incoming revenues were weaker than we had expected. We knew how much money was coming in the door from tax payments. The data indicated Corporate Tax payments were high relative to the tax payments and now the data revision helped resolve the mystery. That is one thing. The other thing we have is two years of both the regulations pertaining to the tax law have been put forward by the treasury and the Internal RevenueService Within the treasury and taxpayers have reacted to that. We are seeing the incoming revenue as a result. That also has led us to markdown her expectations of revenues. With less than 10 minutes left, i want to focus on that for a minute. When your projections differ members white house are of congress, can you talk about what happens then . Do you sit down and say this is why we should be looking at this data and this is why we came to this conclusion . How much back and forth is there to show them why you projected what you projected . Phillip we have a different role than the omb or the council of economic advisers. We look at what they are doing and we estimate the president s budget using our economic assumptions, but we dont try to coordinate that. We do different things. We respect them and pay attention. Do they try to convince you . Phillip not on the macroeconomic side. Parallel play would be the agree to disagree. Phillip it isnt agree to disagree, it isnt in a sense we are all talking about what is the economy going to do over the next 10 years . We go out 30 years. Anyones level of confidence of what gdp is going to be in eight years, everyone should have some humility about that. We see a wide range of opinions. We think we are in the middle of a distributional possible outcomes. We think we have a reasonable forecast, pretty much in the middle of the distribution, the bluechip forecasters, so that makes us comfortable. We are not out on a limb. I should add, at the staff level we work well with the executive branch. There is legislation that affects something in a cabinet department, a new program at the veterans administration, our analyst would talk at the appropriate place and say, how much would that cost you . What would you do . We use that in our cost estimates. There is good cooperation at the tech level. You have been on the job eight months now . Phillip eight months. Do you like it . Phillip it is interesting and fun. Only economists could say that. The people at cbo are fantastic. The economic knowledge, Institutional Knowledge is incredible, and the issues are endlessly interesting. Didnted me before, i answer this directly but i meant to, members of congress can disagree with us. Sometimes the challenge and my responsibility is to explain it. If a member says this is wrong or a staffer says this is wrong, can you explain it . I have to be able to explain it in a way that is sensible. If i cant explain it im not doing my job. How many opinions have you changed . Phillip it is not that i am trying to change opinions. Im trying to explain, here is how we say, oh i understand why you say it that way now. Phillip it happens. I will not name members, but you are welcome to. Phillip there are some answers, not that it is complex but thinking through all of the ways the economy interacts with the budget. We do a lot of work on health help health care for example. There are provisions that would affect drug prices. That has a budgetary impact. The federal government subsidizes insurance premiums through the tax code. Everything comes back to the tax code. The employersponsored insurance is taxdeductible, then tax premiums through the Affordable Care act. Anything that changes drug prices can change insurance premiums and affects the fiscal situation. So just setting that out. Im not trying to change anyones opinion, im just giving the analysis of, here are the steps, here is how it works. I was going to get back to a point rich raised earlier which is that several democrats running for president in this cycle are campaigning on a medicare for all plan. If one of those candidates were to win, i am curious if cbo is equipped to and if it is harder to analyze plans that were not talking about billiondollar changes, but tens of trillions of dollars over 10 years. How does that change the way you approach analyzing a plan that is that large and consequential . Phillip it is exactly the right question with these policies. We have to start with humility that the range of humility it changes the whole economy. It will be large. Before i arrived, the cbo put out a report on singlepayer health care and my colleagues testified at the house budget committee. We started building the analytic capacity to analyze those sorts of programs. We are looking very broadly. There are ways to expand Insurance Coverage because we realize there is substantial congressional interest in expanding coverage. Whether all the way to universal coverage or building on the a singlepayer system, or the Affordable Care act, the administration has put forward an hra rule, looking at how that will affect the health care system. We are building capacity in all of these ways, to be ready if in 2021, whatever direction policy goes, we are hoping to be ready. I am sure you hear a balanced budget should be a goal. Is that a worthy goal and what are the levers one could pull, if that is something worth doing . Phillip in some sense, the cbo, we dont say what the goals are because that intrinsically involves value judgment. So we want to avoid analysis. A balanced budget would be 1 we could say, here are the economic effects of moves towards a balanced budget. And i certainly do that. One of the points i make is that, people talk about pay go. A move towards pay go would be a move toward fiscal adjustment but pay go by itself, it makes the problem worse. It makes it harder because the things being used to pay for our no longer available to address the existing imbalance. Go as takingof pay away the low hanging fruit, the decisions are more difficult. How do you help members think about the tradeoff between the benefit they could provide to the public now, whether use whether it is health care, versus whatever the future cost might be if we ran into the sort of deficit problem he talked about at the top . How do you help members thinking about that . The potential benefits of a fiscal stimulus, taxcut or whatnot . If you can do that in less than two minutes. Phillip i will hit the high points. It is difficult because these tradeoffs between today, the potential immediate benefits of the things you talked about, we do our best. So our first focus is the cost. We know members dont want to know what it costs but what are the benefits. We try to set that out as much as we can. How many people will be insured, how many people will take advantage of paid family leave, and so on. Things we try to set out and try not to make a value judgment. It will tell them they cost as much as we can, they have to decide the tradeoff. The longer term is harder. At what point will this fiscal imbalance pose a threat . We know it is out there. It is not in our tenyear horizon. We dont see it there but it is out there somewhere and we can tell policymakers to be cognizant of it, but we dont know exactly when that will come. We started by talking about your report on debt and deficit. It came in at the end of were january. You surprised that debt merited no mention in the state of the Union Address . Phillip you know, no. There is a sense in which we support the congress and we are so focused on the policy of the congress that we dont do the analysis of what the president is doing, the campaign and we focus on what the Congress Says would you have liked him to have mentioned it . Phillip it is not for me to have an opinion on that. Cbo director, phillip swagel. Thank you for being our newsmaker this week. Now we continue with the roundtable portion with rich rubin, Jim Tankersley of the new york times. We started and ended that discussion with director swagel on debt and deficit. You have covered handwringing on two capitol hill over your careers when it comes to debt and deficit issues. How much handwringing did that latest report by cbo cause . Get was a rehandwringing of all of the handwringing that has been done. Nothing has changed. We have deficits. In the longterm fixture is, the debt curve goes like this. In some ways it is reaffirming on capitol hill what everybody has already known, and what members have sort of the prioritized. Members have made the decision in recent years to emphasize tax cuts now, spending now and either make the implicit or explicit decision that those future issues would be dealt with in the future. Jim during the tail end of president obamas two terms, there was sort of an agreement between democrats and republicans that no one really liked that held down spending growth on areas republicans to grow and areas democrats wanted to grow. Now we have the opposite consensus where they have just agreed to spend what everybody wants on those programs and also republicans past their tax cuts. Pastor tax cuts. Those two combined with the underlying demographic driver of larger debts over time are really sort of yielding this explosion of handwringing on one hand and inaction on the other. It has never been a greater divide i think in washington between the amount of people amount of time people spend talking about the deficit and talking about reducing it. That is interesting compared to a few years ago. Richard it is a reflection of the economic reality. If you asked with their be a bad Economic Situation the consensus would have been yes. The reality has been different. The reality has been in part what changed the policy. You see now people talk about, even the democrats on the campaign trail are trying to align spending proposals with tax proposals so they would not make projected deficits worse. There has not been a emphasis beyond that on deficit reduction. Host what did you think about his answer to the cbos role in the policy proposals on the campaign trail . It is like playing basketball. You have to get to the spot where the ball is going to be. That is essentially what they are trying to do for 2021. They have to see is out there on the campaign trail and know they have that analytic capacity in place. As we have seen in 2009 and 2017, new president s and new majorities come in and they are ready to go and push through policies in weeks or months. Has topartisan plumbing be ready for that. If the president is reelected, he has indicated he will push for a second tax cut measure. There will be modeling on that. There will presumably be second term initiatives, although we not have seen as many of those as from his potential rivals in the democratic side. I think it was important what the director got at with the scope of the possible changes if a democrat is elected, it will be unlike anything they have had to estimate before. His words about needing to have humility in those models is important, particularly since cbo is seen as the final word on things. For the final word, anything he brought up surprise you in what you have heard from him in the past and what you have heard today . It did strike me when we were talking about measures to boost the u. S. Economy over time, that he singled out immigration policy as a way to bring workers and in. In response to the treasury secretary saying he thought tax cuts were going to pay for themselves, the director says no, we think they will pay for about 20 . It is a divide between the rosie rosie forecast and the estimates from the administration. Thanks so much for being on newsmakers this week. Thank you. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] seasonng this election the candidates be the talking points are only revealed over time. But since you cant be everywhere, there is suspense. Our campaign 2020 programming first from all other political coverage for one reason it is cspan. 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