Budget, Congressional Office director keith hall talks about the cdos task of making spending projections on legislation introduced by congress. This was part of a recent congress hosted by Boston College in washington. Its 45 minutes. Good afternoon. I thought what i would do is talk to little bit about cbo and the role cbo place. Nick said a little bit about the role of research for us. And then talk about one of our favorite subjects at cbo, the longterm budget outlook. Not trying to depress you too much, but the longterm budget outlook is a depressing topic. Created byl, cbo was congress in 1974. We were set up to be an objective and impartial agency that is strictly nonpartisan, and we provide analysis of budgetary and economic issues. The director, towards that goal, the director is appointed jointly by the speaker of the house, and the president pro tem of the senate. Es, has about 235 employe hired solely on the basis of congressional competence, and without regard to political affiliation. Most have advanced degrees, 80 of our folks at an advanced degree, a phd or masters degree. We have a lot of expertise. One of the things you can do when youre at cbo, you cant offer opinions on policy issues because we are worried about the appearance of impartiality, and we are worried about being able to work impartially and objectively in our work. Goal,t goal, towards that we do a number of things to try to ensure that we are nonpartisan and objective. Experts,lot of outside for example when we are looking at legislation, we always ask the committee, Congressional Committee what research do you want us to look at, which data do you want us to look at. Then we start with what i would like to think of as our due diligence. We talked to outside experts, we use our own expertise, and we come to our own conclusions and use our own data to provide estimates. Something, it has extensive internal review. Its never just a Single Person or small group. It has extensively reviewed for our analytical work. We actually send things out to external professionals to where we would be elected a journal. And we try very hard to get a variety of opinions on things. We send it to a variety of folks folks. We tried to clearly present, reveal sometimes we will publish our literature review on certain topics. We try to document our models as well as we can. We do a fair amount of presentation on our models. We even write working papers describing our analysis. Ill give you, for example, a couple years ago we did analysis, what would happen if the aca was fully repealed, and we did for the first time a dynamic analysis, what with the effect beyond gdp growth, be on gdp growth, and have that feedback into the effect. That involved a fairly complicated labor market model. We publish the labor market model and explain how we arrived at our results. And we have a panel of economic advisers that meets twice a year, and its their first panel. To get on our website we can see whos involved in it. They are willing to talk to us about things during panel meetings. But we now have their phone numbers. We use them to help us not only comment on things, to connect on researchers around. We have a panel of health advisers, a similar panel that meets once a year to talk about Health Care Issues and are modeling of healthcare. And our role is, we are really part of the budget process. Fact, the budget process starts with the cbo publication. In late january, we produced our economic and budget forecast, 10year budget forecast. On thecomes a baseline budget over the next 10 years that we then used to analyze new legislation, how would legislation affect this tenyear budget forecast, how would it impact things. We update that in the spring, we update that often in the summer. We update the Economic Forecast beneath it. We also produce longterm budget projections, which ill be talking about in a minute. We take our tenyear budget and Economic Forecast and extend that out 30 years. We want to make sure theres an understanding of things. And we produced reduced cost estimates. When we get new legislation, well estimate the budgetary effects off that baseline. If you look at it slightly, you think of health care, but last year we produced 676 different cost estimates on things. Some of them are really easy, admittedly a change in the name of Federal Building is not that hrad. Hard. But health care is really hard. We have a lot of topics to cover. Analysis ofide an the present budget. I think thats the most recent big report we produced. Not only do you get the president s budget and the president S Executive Branch analysis of the likely impact of that budget over the next 10 years, we do an independent analysis of that. We do scorekeeping for active legislation, help Congress Keep track of things. And we provide analytical reports. Can be a lot of things. One thing comes to mind, for example, because it was heavily involved in a lot of analysis of research, we produced an analysis of the likely impact of minimum wage, when the proposal was Something Like 10 minimum wage. That was a really challenging thing for us because theres so much literature on that. Involved a lot of reading of the literature. Theres so much literature on their that the quality is not the same. Accounting, but it was going through and seeing what the best literature is. Thats always a challenge. Outlook, asm budget is where i turn really pessimistic for you. When we are doing our projection, what were doing, were telling congress that under current law, this is where we see the budget heading over the next 10 years. And one of the things thats been clear for a long time is that if current laws governing taxes and spending dont change, a condition the federal budget the condition of the federal budget will worsen over the next 10 years pretty significantly. Particular, growth in federal spending will continue to outpace growth in federal revenue. Evening will outpace it to larger federal deficits. Right now the deficit is roughly three does 3 of gdp. In 10 years it will be about 5 of gdp. In 30 years it will be about 10 of gdp. Put that in perspective. Is aboutnary spending 5 of gdp. All of Discretionary Spending. We are talking about a deficit that is now getting quite large. Youll see a nice graphical view here of what the story is great you see revenues are increasing over time. They start at a level thats higher than the 50 year average. Revenues are ready already at a historically high level. In spending, which is high relative to historical levels, and increasing faster than revenues are. And heres the most depressing graph ive got for you. Here is the accumulating debt. Right now the debt is 75 of gdp. One of the things youll notice is in 2007, it was at a high level, about 35 of gdp, and it doubled in about 5 years. Years. One of the things we are benefiting from right now is low Interest Rates. The the next 10 years, biggest impact is going to be from Rising Interest Rates to more normal levels, and we will see a big increase in the debt from 75 of gdp to about 90 of gdp. If you look at the alltime acord, after world war ii, little over 100 of gdp. Under current law we will blow that away. Were going to get up to Something Like 150 of gdp. Is, how surestion are we of this, whats a level of uncertainty in this. One of the things we do is we look at the key variables like Interest Rates and productivity, and see how much they varied historically over the past 50 years, and vary those going forward. A debt do that, we get in 30 years the range is between 85 of gdp and 244 of gdp. Do, we offer 150 , we think its just as likely to be higher than that than it is lower than that. We try to offer the median value there. Particular, federal spending is projected to rise noticeably from Social Security, Major Health Care programs, and interest in the governments debt. Socialst two things, security, Major Health Care programs, those rises are dominated by an aging population, as yo uguyu guys wod know. This is a problem that weve seen coming for decades. Its coming. One of the things thats going to be important about this, a component of federal spending, is if you look at the relative categories of spending, Major Health Care programs, spending on that as a percentage of gdp growing over the next 30 years. Social security is growing significantly. And, net interest is growing pretty significantly. As you see, just hang off the interest on the debt is heading up there, like 6 or 7 . I would like to point out again right now, total Discretionary Spending, defense and n ondefense is 5 of gdp. You are looking at net interest being a much bigger component then Discretionary Spending eventually than Discretionary Spending eventually. Also, it is this continued accumulation of debt from the aging population. One category is not increasing. Other spending. Everything outside of this is decreasing as a share of gdp. In fact, after the end of 30 years, other noninterest Discretionary Spending and other nonDiscretionary Spending will be at its slowest level in 70 years. So when you hear talk about investment in infrastructure under current law, thats actually declining over time. Different sort of a crowding out there. Federal revenues were also increased under current law. They wont increase as much as spending. The only category thats going to increase over the next 30 years is individual income tax. Everything else is going to decline under current law as a share of gdp. The primary increase in individual income tax is real bracket. The fact that real incomes tend to grow faster than gdp, and again you have to sort of imagine its under current law. Congressaw mens that doesnt give in and change tax brackets as an increase of Discretionary Spending, doesnt increase infrastructure psending. Spending. We dont have any of that happening. Theres one aspect of this which is not current law. That is the trust funds. Congress asked us when we do this work to not assume the trust funds just run out of money, but that the government continues to pay all the benefits, full benefits going fo rward. One of the things youre going to see, this is a really good graph on that. Projections and Social Security and outlays. Goes upthe dark line, to a certain point, then suddenly goes down. Those are the trust funds running out. So under our forecast at 150 of line thats the dash outweighs scheduled benefits. And then for some reason, congress didnt make any changes. Then we flip to where outlays with payable benefits, we would only be able to pay about 70 . Our numbers concurred to the trustees numbers. They are a little bit different. We have lower revenue than they do going forward. We are 6 lower. We have higher costs than they do, 7 higher cost. Because we update our tenyear forecast, maybe three times a year, we update a longrun forecast once a year, so we do make changes based on what we see happening in the near term as well as the longterm. We see that under current law the combined trust funds would be exhausted in 2030. Think the trustees have it in 2034. A little bit of minor differences. Whiche the itrust fund, would be exhausted in 2023. The oafi one, in 2031. So again, we are a little bit different. Here we see the exhaustion of the combined trust funds. Forecast. N our here you see our 75 a year actuarial balance. We see the balance is now about 1. 5 of gdp. Just adjusted hat, it used to be 1. 6 . I will tell you why we changed that. We have been doing a lot of thinking about labor force participation. Thats been a challenging thing because we have a real change in labor force participation. Weve done a fair amount of work raking it out by age and demographic to understand that better. Of whats happened with the Great Recession as we have that permanent loss of labor force going forward. Sure you allm probably know, cohort analysis of the Labor Participation is really important. The baby boomers are hanging in there better than anybody has in the past in terms of labor force participation. Everybody else is lagging behind baby boomers. You have the younger cohorts, they are at a lower labor force boomersation than baby were at their age. Incomeond thing is inequality. Theres been a trend of rising income in it already inequality that has an impact of course on the texmex and Social Security. One of our big differences is t they assume that they the income inequality is flat and it will go on flat from now on at this current level. Withoutsome revenues ing income equality inequality. As they said, our two changed projections is our labor force participation. We just raised that a little bit. Also, a rejection could share earnings for Social Security has changed. Those things have both been added a little bit to the 75 year balance. That has worked against it do things. Productivity is a hard thing to project. Lower projected Interest Rates, primarily, we are seeing the Federal Reserve changing the pattern of Interest Rate changes. Once it will be longterm Interest Rates, it will be hard to project area change in demographics, that has not been terribly significant. We reject the larger deficits and Social Security finances and will do the trustees. They see the 75 year balance should be negative 1 of gdp. That is have a Percentage Points more than ours. A lot of that is gdp growth. A projected shortfall between income and cost. That is a little bit different. It is about 1. 5 . It is about four percentage point smaller. Different projections of factors that influence things, taxable earnings. See lower Interest Rates. We have slower Economic Growth. We see potential Economic Growth settling in at about 1. 8 or 1. 9 of gdp. From if you want to see a simple recipe, look at productivity, labor force growth. We just adjusted our forecast on immigration. Well see immigration thank you very much. Then we see the productivity returning to a somewhat normal level. Not at the very high level that existed at one point. Our use of research and data, we look at a broad range of evidence. We look at studies, Historical Data from federal programs, announced awe federal program to see if they are behaving the way we forecast and adjust our for test. We do read a lot of research. One of the things we started to do lately which i really liked his we started to look at some of the areas where we dont know inh about what will happen things, we think there is a gap in research. We start to put up occasional ks and we talk about this is something that we talk about with our Economic Advisory panel. We have some research where we would be really helpful. We often conduct our own original research. These are our analytical papers. Make them on top that congress is interested in. In the challenges is our research papers, we never make recommendations. Up a number of options and policy proposals related to a topic and we will do announcements on those proposals. As the classic econ 101. If you do this, this is a likely result. We were very hard on that. Sometimes you specialized data. Our longterm models are estimated using survey data. We do a lot of work like that. This is supposed to encourage you to do this. We have estimated things like marital transitions. Of workerstics claiming benefits at various ages. This is the spot i was thinking of. Earnings inequality and participation is still very important to us. What has happened with that, especially the health care changes. You trying to forecast states behavior. I didnt give you the really hard sell on the longterm budget outlook. I made it easy for you. Do you all have any questions you want to ask. They need a lot of instruction. Wife so do i. If you have questions, come up to the microphone and save you are. There is a whole school of economists that feel that when you resent that tower of red ink that you are only presenting half of the country past Balance Sheet and that there is an equal assets onte level of the other side of the Balance Sheet in the private sector. As thelook at that debt countrys you could say that apple stock prices are depressing because they will never be able to sell enough products over enough time to justify came back everybody. That is probably not a good comparison. A number of people have not this ointed out that is looks bad because you are looking at half of it. Every year, we update this, it gets worse. It is at a very highlevel and it is going up at a very fast rate. Assets, welooking at are looking at the government possibility to pay. A lot of people give us a hard dont have the continued obligations of the government beyond 30 years. We give you a snapshot there but there are obligations that go beyond that that are not in there as well. The topic i wanted to ask you about was immigration, both legal and illegal. I realize youre probably involved in assessing costs for bills such as reduction of Legal Immigration that has been in the past press. A lot of immigration is affected by policy, i assume it is caught up in only the projections or the tenure, the 30 year, what do you see as the next economic effects for both legal and ilLegal Immigration in general . I can give you some idea of what we have done in respect to immigration. The last two years, under the previous administration, i am expanding immigration. We did some analysis of the likely impact of that. We can get some idea of increasing immigration levels. We havent done anything about ideally changing it. We have the announcement of president obamas. My name is david hart. I do tax returns for individuals. My question relates to the Affordable Care act replacement. In the most recent analysis, you have indicated that 22 Million People will lose their health care. How many of these people will no longer buy Health Insurance because the individual mandate will be eliminated and the employer mandate for small employers will be eliminated also . Our analysis of that 22 million is against the baseline. We are not saying 22 million we are saying it will drop 22 million from its production projection increase from the aca. We would say there is a dropping coverage. These are necessarily people losing coverage. That is one of the things that is important. We dont know on that. The reason for that is when you and the aca, the repeal death were gone replaced, a number of things are changing as you reduce the mandate. The right exercise would have had time toavent do a lot of playing with this. The right exercise would have been what the effect would have them with and without the mandate. That one i just dont know. In the first couple years of our estimates, we have covers dropping by about 15 million. That really drop is primarily from the mandate. That doesnt mean that those people would not lose wouldnt drop out later if the mandate was still in place. Exercise in our Budget Options where we look at the effect of under current law, what if you eliminated the mandate russian mark we found that 15 Million People would drop coverage. I have a question on the Social Security projections. Having that benefit anyone declined help to that. Lets the reason we assume this is that Congress Told us to assume that benefits are paid. There is an ultimate scenario where we have the benefits not being paid. If you look at our longterm now youeep in mind, have a problem that people dont get the benefits. We do it both ways to get an idea. I am a retired federal employee from health and human services. Click i believe the primary way to do that is to reduce tobacco. Companiestobacco responsible for providing health care to tobacco users and their family. That is one thing. Passing that has been explored. About making the population healthier to reduce health care costs. But increase health, reduce health care. What is your opinion about that . That is sometimes a big issue with us, trying to figure out this matching tradeoff and Something Like that. It is difficult to analyze. Proposal, toerious dissolving like you are suggesting, we would do an analysis of it. We do our best. I cant predict what the answer would be. One more question before this question. You have those Major Health Programs going up and up. After 30 years, what percent of gdp will go to help her . Was it looks like at 809 of gdp. Right now, it is about 6 . Has cbs ever done a projection of a hypothetical tax increase . We havent had a tax increase since clinton and wherever it was. Do you ever look at the effect of a possible tax increase or do you have to wait for a proposal of congress . Answer, when his we do talk cost estimates, we are required to go to the joint committee to get the tax estimate. It is a common misunderstanding for people. We get the estimate and put it into one of our arts and send it out like it is ours. We wouldnt be doing that work. I dont know that we have done anything like that lately. We would look at proposals and do research on Something Like that, tax increases are less likely because of the joint committee on taxation. They would be more interested in that topic and different taxes. Works we have lots of detail on spending and extending increases under current law. It would be useful to know what sort of tax you would need to keep things level or balance the budget or whatever. That is the effect of tax changes that are probably going to be adventurous coming powered. Im curious if you would share a little bit more, if youre seeking very big macro issues. Your expectations that Interest Rates will return to historical norms what drives that . There is a lot of thinking about this extended. For periods of time. Declineng powers client, wages have been flat for a very long time. They are recovering for a massive recession, it was white slow. What is it that is going to change that is going to return us to the historical picture . It is just a historical level. Bad, weting to get expect community Interest Rates. Have 80 boomers that will be retiring and withdrawing savings. That will likely have an impact on Interest Rates in the long run. A couple often things, a couple of pages on why we think is a straight are likely to go up. I will not do it justice. We do see that. I know that there are some people that think Interest Rates dont have to come fill up. If Interest Rates dont go up, it is because the economy is in trouble. We are likely to have a big drop in gdp growth. It is a doubleedged thing. Us a ballparkive figure about the accuracy of the projections that you make in the past . How accurate are your figures . We compare it to bluechip, we compared to and the. We do as good as anybody. Which is what . Latestre working on our one. We are as good as anybody is the apostle on. There is a reason why that is important. Especially lately. When you are projecting the future on anything that is hard and sometimes, it is really hard. If you look at how well you do compared to projection, in some respects, it is not fair. How do you do compared to what other people forecast . That is why i am saying it is an Economic Forecast. If they took the Insurance Office that helps the Insurance Companies out of the health care thing, took away insurance profit and cost, how would that . Ffect the cost it depends on what is in the details. For us to think through the estimates, it is part of it. They have legislation, theyre making changes. It is a due diligence. Theyre very careful about understanding the changes, they reach out and talk to experts. The details really matter in the sort of thing. When we make that the last question . I have a prediction question. There are conditional forecasts that under current law what would happen. It is never the case. How do you think the cbs should be evaluated . I think we should be evaluated we are trying to do more. Early last year, we look at how we have done on revenues. That is complicated because you have to take into account changes and law. We did that and we are working on our outlays. That will be coming up soon. The tricky part is that whenever we update things, we have to figure out why did the law change, how did the economy change, the middle is technical, that is maybe sometimes an error. You dont have these things will be implemented. Ink it is right, it is really an issue right now. At some point, once we see what is going to change, we will have to change our baseline based on the empty different and implementation. That is tricky for us. Thank you so much, i really appreciate it. [applause] james is taking is over. Dont mess with him. Go crazy between now and 1 00. Cspans washington journal, live every day with news and policy issues that impact you. Morning, seeday even more of the heritage foundation. They discussed the u. S. Economy. And Government Accountability office cause johnson talks about the cost of combating isis. Be sure to watch washington journal but at 7 00 a. M. Eastern on monday morning. Join the discussion. Monday night, on the communicators, we are at the black hat conference in las vegas. The hospitals are impacted almost daily. The banks are getting whacked almost daily. We will not eliminate this. We have to learn to live with it. Millennials what the flu viruses, we never eradicated. We isolate ourselves. There is hygienic measures that we take in the physical world