insist on taking money from haro working americans not to take the deficit but to fuel his ongoing spending. the failure of serious solutions represents a stunning dereliction of duty. a stunn i'm not going to give up home.og i'm committed to working with my colleagues across the aisle wherever consensus can be reached. some of us have been working on common ground, there's growing . bipartisan support for reforms that are needed. but it cannot happen with the president standing to outside looking in.his it's my hope that this hearing can shed light on why this is occurring. we see a debt crisis coming, we know our president is making ret promises that cannot be kept. it's time to be honest. both parties got us into this e mess, but this is the fourth es budget from this president witht a trillion dollar deficit each year, obviously a breaking of ei that promise and no credible solution to deal with our debt, to deal with this great threat to our economy and tomorrow's future to our kids. instead we get the politics, smoke and mirrors, accounting ts tricks and budget gimmicks.r if we are going to save this a country from a debt crisis and give our kids a better future, we have to have leadership, i'm disappointed that we are not getting this from the presidenth with that, i look forward to questions and i yield to the to ranking member. >> thank you, mr. chairman. and mr. zients, i want to add ms word of welcome. sa after your testimony in the senate yesterday, you are already battle tested. welcome to the job and thank yoy for jumping into the breech as the chairman said, and i believl you have gotten off to a very good start. sometimes we are all guilty of selective quoting.q i'll point out that the "new york times" editorial's headline was responsible budget and this is a responsible budget and it turns the corner in terms of deficits and job creation. it's important to remind he everyone that when the presiden took office, that he inherited the worst economy since the great depression. that is not an execution, it's a historical fact. you can see the red was in the t last administration where we were losing jobs rapidly. when the president was sworn in, the economy was contract at a rate that we now know was 8.9% of gdp, contracting at almost 9% of gdp, 800,000 jobs were lost in 2009 at the time that the president put his hand on the e bible and was sworn in. where are we today? with the passage of the recoverv act, and with the efforts to save the auto industry and other measures that have been taken we have added 3.7 million private sector jobs over the last two years an. 257,000 just last month. we all remember -- we all recognize that we have a long way to go, too many americans are still out of work and hurting economically and we havk turned the corner and have to build on it. but we should not go back to the same policies that got us in ir that mess in the first place. f now the fastest and most effective way to reduce the deficit is to put americans back to work.and in and in fact, the congressional budgets of recently estimated th that we could cut the deficit bd 1/3 if our economy were in fulld recovery. how do we do it? pass the payroll tax cut extension and we begin by making sure the millions americans that are out of work and unemployed t through no fault of their own e continue to get support. elem that helps their families and the whole neighborhood and th economy around them. but the president's jobs plan that he submitted in september i includes other elements that arn just sitting in this house of in representatives.ve and has not moved. it includes $50 billion for immediate infrastructure broad investment, putting people back to work helping to expand broad band and building roads and bridges and it contains a long-term plan for ture d infrastructure development. it stands in great contrast, i'll say, to the infrastructure bill that we are taking up on eo the floor of the house this week which doesn't begin to do the job in which a former republican congressman, ray lahoud, called the worst transportation bill hd has seen while in 35 years of public service. that does not get the job done as we nurture the recovery, we have to support the economy growing in a steady and predictable way.t this budget lowers the deficit e as a share of the economy until it is under 3% of gdp and it stabilizes the debt as a percen of the economy. the president does this not by slashing defense and domestic investments as would happen under the sequester but by taking a balanced approach. is h the question is not whether we reduce the deficit. the question is how do we reduce the deficit and the president's approach is the balanced proach approach. w it's the frame work from the bipartisan commissions, it adopts the very -- the cuts tha we made in discretionary t spending. it cuts mandatory spending. and it does something else.limb it eliminates the special interest tax rates and ask inte wealthy americans to go back to paying that same top rate that was in force during the clinton administration. if they take a lopsided approach and further slash invests in tru education, in science and they research and infrastructure and they do slash the social safetyn net in that they cut $700 med billion from medicaid that goese to help people like the vulnerable seniors in nursing homes and they do ask seniors on medicare to carry the entire mea risk of rising health care costs. that is their choice. but that is not a balanced and approach.e and i think what we see here in the president's budget is a pr responsible approach that takes that balanced approach to dealing with a very serious problem. with that, mr. chairman, i thant you for the opportunity. >> my pleasure. mr. zients, the table is yours. >> thank you, thank you mr. chairman and members of the committee. thanks for having me here today to present the 2013 budget. as the chairman said before i joined omb three years ago and i feel i'm in a good position today to talk about the president's budget.toda but before that, i spent more than 20 years in the private sector and had not been involves in government at all before. and one thing i found helpful was to boil things down to a few graphics. so if it's okay i thought i would use my minutes walking ned through the highlights of the te budget using, i hope, these two screens. i'll cover four topics, first the policy baseline, and the key elements of deficit reduction e and the investments of the area that is important to aggravated burglary -- that is important to jobs and growth and how it puts us on a sustainable path. let's start with the baseline. we believe we have a baseline that reflects current policy.exo in essence this is business as as usual. the baseline includes the extension of the 2001 and 2003 p tax cuts, estate and gift taxes. second, the permanent extension of a and t and sgr, we believe this presentation is more honest than patching these year after h year. enforcement of the bca caps and joint committee sequester and accounting for future disaster costs rather than ignoring them. the baseline results in annual deficit of 4.7% of gdp at the end of the budget window in 2022. this is where we start before our policies take effect. let me turn to our deficit resie reduction policies. last april the president put te forward a framework to achieve more than $4 trillion in deficit reduction. he maintained the $4 trillion i his proposals to the joint this committee last september. this year's budget is very similar to the september proposal. with the addition of a year to the budget window, so as you can say to the far right in that to green bar, this budget includes $5 trillion of deficit reduction. let me walk you through the key elements. i will walk from left to right across the blue bars. you start on the far left, you'll see $676 billion in savings from the appropriation bill enacted last year, including the 2011 appropriations in april and the1 oko in 2012 savings. next, over a trillion dollars i discretionary spending, and next, $362 billion in reductions from medicaid, medicare and other health programs. that will make these programs more effective and more efficient. $272 billion in savings from reforming, in such areas at agriculture and federal and civil retirement and the pbgc, these are the net costs of newman tore initiatives. the next category is $1.5 trillion of revenue, for deficit reduction. including the expiring of the tax cut for high earners and ths elimination of unfair tax breaks.on sec it's a net number as we further cut taxes for the middle class and small businesses.he next, $617 billion in net savings from capping oko and investing in a six-year service transportation reauthorization. capping oko closes the back doo, on security spending. fund and then their other net saving of $141 billion, these include disaster adjustments, program integrity and general fund transfers for transportation that are no longer necessary. as a result of the proposals, debt service decreased by $800 r billion. in that pink bar next to the green bar. there are $176 billion in investments in short-term job t initiatives. so it cuts the other way. these are investments. ini these are job initiatives not et spent in 2012.ar i want to be clear that we r do not count the sequester in our total deficit reduction.repc we believe it is bad policy ande we propose that it be replaced by this larger more balanced package of deficit reduction. but be clear, the sequester is e still in place, the president believes it's an important to enforce balanced debt reduction. even as we achieve the deficit reduction we continue to make i key investments in priority enfo areas. these are short-term measures for job growth totaling $354 billion and tax breaks for the o middle class and small businesses amounting to $352 ing billion and continued investment in our long-term priorities including education and job training for american workers. d innovation in r and d, and clean energy and infrastructure, and we abide by tight spending caps and we make hard trade offs.nt's let me now pull it all togethero for you.3% i compared the adjusted baseline that i talked about in the first slide with the results of the president's policies. as you can see in 2022, deficit. from the president's policies are below 3% of gdp, compared to 4.7% in the baseline. furthermore, debt as a percent of the baseline is stabilized from 2018 on. the president's budget replaces the sequester with a balanced approach to deficit reduction, with $2.50 in spending cuts for every dollar of revenue increases.budget we have made tough choices and we all need to work together toe maintain this balanced approach. in closing, as a business glo person, and now omb acting director i believe the president's budget makes the right investments to make us mak more competitive in the global marketplace. and achieving declining deficits is critical. this is good for business, good for the middle class and good >> for america. i would be happy to take a question. >> thank you, mr. zients. thans we will do great if our answers are not so long. th and we do not filibuster here iw the house. i think they are going to bringt me a powerpoint in a second here. that is fast.om thanks. so, let's put aside the fact c that we are using different tenure windows to get from the o $4 trillion claim to the $5 trillion claim.th this is confusing enough, so let's go to the $4 trillion te claim. there's a difference in tenure windows and we all agree on that.that so you are saying that the in policy changes in the budget reduce the deficit by $4 trillion, correct?br >> right. >> so bring up figure two -- there it is. let's walk through that. using your numbers.he these are not cbo numbers, these are omb numbers. clai to make the $4 trillion claim d stick that the budget does this. the top bar, the blue bar claimb credit for the budget control ls act. $2.3 trillion. this is a law that was already passed. i don't know how one can claim y that this budget achieves thesec things when this is something that congress passed already. i would add to that, congress passed this over the president', initial objections. the he wanted a tax increase of they debt limit and only because of this house majority did we get the bca. so, let's take away that claim e because that is not in your budget.aim you cannot claim you're achieving this when it's a law that is already passed. and now let's go to the war 're gimmick.t or people call this oko. which is let's claim savings one money that is never going to be spent or requested and claim ity saves us $850 billion. saving i don't know what part of the wn private sector you come from, ie we are saying we are saving money that we were never going to request or spend, i don't know how you can say you are saving money.saving and now the doc fix, nobody doc wants to see this cut occur.eret but we cannot just assume it away. end o it's here, it's happening, it f happens at the end of the month. so we are just assuming that is, they are not going to get cut and that is, you know, $430 billion in your numbers. and then let's take off the les interest savings that you are attributing all these claims and here is what we are left with. we are left with a budget that has only $400 billion in a aref deficit reduction over a 10-year window. if you strip out the accounting tricks and budget gimmicks, it's a budget that spends $47 trillion with a net deficit reduction of $400 billion. so i just don't understand how you can claim anything other bl than this. let's go to figure number one.iu let me ask you this. how much does the debt increase under your budget? >> can i respond to the run you just did? >> sure. >> you keep building on top and it will be difficult. >> let's go back to figure two. >> thank you. i think we all agree that the $2.3 trillion, it's hard to reae from here, came from the bca ann we have been talking ly about consistently about a minimum of $4 trillion of a deficit reduction. we started the race months ago so taking credit for the savings makes sense. second, on oko, very importantl closes the back door -- door >> can i get you there, why do t you count the stimulus spending and the increase in domestic spending?unt the >> i'm sorry?in >> if you are going to count things that happen in the past, why only count the things that benefit -- nt >> as part of the budgets -- >> it's not in the numbers. >> so the bca, this summer, thas counts towards the $4 trillion deficit reduction we have been t talking about all along and secondly, on oko, we are closind the back door to spending by capping oko. cbo scores it as savings, and s it's this president that is onsl responsible for the draw down in getting the troops our of iraq t and draw down in afghanistan. i don't know how you are cutting the chart here but you have left off $1.5 trillion of revenue that needs to be raised. revenue that is part of balanced deficit reduction. the president proposes that. >> this is the spending side of the ledger. >> and then on the spending side, i'm not sure how you are cutting it.ent there are $360 billion of mandatory savings and other programs. the ppcg, the federal retirement and agriculture programs. further savings there and you dn have debt service from bringing down the spending.methin >> so we net things out. that is what balance sheets do. when you net it all out. say not claiming credit for something somebody else did or n congress and president did achiv before, you cannot say this es budget has policy changes whichn achieves a result that was achieved before, it's not th res achieved in this budget.pe with respect to war, we passed supplemental to fund wars. if we're pulling out by some date certain, which everybody now agrees on, it's not a surprise, it's a flaw in the baseline that they assume we are going to be at a full war for ten more years it -- it doee not work to cut us off. please do not interrupt.mentals, we pass supplementals. this budget has a increased spending and of taxes and that is how you result with the $400 billion in deficit reduction. these are your numbers -- these are your numbers that we are using.lt let me ask it a different way. how much does this add to the debt?oes th what's theis nominal amount of money does this add to the debt? >> it's debt as a percentage of gdp. >> but how much actual money is added to the debt? >> let's pull it from one of the tables.zes let me have my team gather thate while i answer the question the right way, which is to think of the debt as a percentage of gdp and this budget stabilizes debt as a percentage of gdp which is important for maintaining the investment environment that we all want which is making americ the right place to invest. m let me circle back to oko. i think we all agree that the cbo, i think we would all agree that the cbo is the referee and i want to make it clear that cbo scores oko as savings. >> so, if we assume we are going to be at war for ten years in bt the baseline, because that is what the law requires cbo does by the way. ir and all of a sudden we are going to have a pull out from iraq anf afghan before ten years is over, this money is all of a sudden a spending cut, it's savings?ngs? >> savings relative to the baseline according to the cbo. it importantly closes the back b door on discretionary spending. >> if this is how we measure udt reality heaven help us. i'll use your budget and your chart, bring up figure one. i have your number for you. n so we will get into it if you want.o it you are adding $11.4 trillion to the debt, excuse me, the $11.4 baseline adds that to the debt.e that means if we do not do anything, we sit still, we add $11.4 trillion to the debt. your budget adds $11.2 trillion to the debt. how on earth do you claim incr this budget achufs -- achieves deficit reduction when your own numbers show instead of increasing the debt by 78% it increases it by 76%? >> two points that i would make. one, it's important that we are starting with an honest base with -- with an honest baseline- the idea that we patch it year over year is not a reality.. you have to start with the right baseline of where we are and we do that. it's better that we face into the wind and know where we are. secondly, a lot of this is inherited. it's inherited from an administration that passed a tax cut that was unpaid for and a part-d medicare unpaid for, two wars unpaid for. and then we walked in as congressman vanhollen said to an economic situation that was the great recession. >> if they were unpaid for how do you claim savings for them? >> they were unpaid for at the time and we are capping oko and getting the savings. cbo scores it a savings. >> i think you see my point. if had this -- we agree the baselines are messed up around here.e m that is not, that is not a source of contention. but if the baselines are messed up as you say and we agree, you cannot have your cake and eat it too. if you add this all up, net it all out, it's a $1.5 trillion. these are your numbers, $1.5 trillion in net spend increases and a tax increase and that is resulting of a $400 billion of deficit reduction over a ten-year period. and look, i know we love to go back and bash the last administration, this is your onh fourth budget, it's not as if the president came in office a month ago.of this is his fourth budget, a ast repudiation of cutting the deficit in half of his last year of his first term. of his term. i don't know how you can run away from your own numbers. >> i want to go to the bottom line. and the bottom line here is more than $4 trillion in deficit is reduction.reduct the bottom line here is that we get the deficit as a percentage o of gdp below 3%, and we get to stabilize debt as a percentage gdp. do we have more work ahead? absolutely. this reaches an important d milestone. >> i want to give chris his timn and ask one last question. prohi you claim to want to give ipad i more tools to consider quote value based benefit design changes. but you also prohibit ipad from changing costs for arrangement d of beneficiaries, if you are ve saying that but ipad now will have the power to design, valueo based benefit design changes, what does that mean?s that >> at the end of the day, we put forward in the budget more than $360 billion of health care savings. what they are based on is what i've seen in the private sector and i know you've seen, and there's a doc in the room, roo there's tremendous variation in, how health care is delivered and there's not a great comparative about the cost and how effective it is. we need to decrease variation and care, driving towards best practices, having the same productivity that other sectors have enjoyed. down that means you drive down costs increase quality at the same time. we are driving toward more productive, efficient, and effective care for our seniors and we need to continue to do that. >> we are going to give ipad ti more power to value how that is achieved?