newspapers, the headline of the story, definite panel offers painful program for the u.s. what's in the proposal? >> well, what the co-chairman of the bipartisan fiscal commission has proposed, five basic recommendations. the first is cuts totally $2 million. they also call for a major overhaul of the tax system, reduce rates, simplify the code, and some fixes to farm subsidies. the big issue is going to be proposed cuts and changes to the social security. that's what we are seeing a lot of reaction to today. >> they also make other specific cuts, such as reducing congressional and white house spending by 15%. can you talk about that? what are some of the other cuts? >> yeah, they actually make 58. some of them are the white house budgets, cutting the federal work force by 10%. reducing printing cost, slowing foreign aide growth, even things like earmarks and cutting founding to the smithsonian and allowing them to have fees to make up for it. >> how much do you think will be enacted? >> they estimate it would cut $200 billion. it calls for deficit reduction through 2020. that would reduce the share of the definite for the gross domestic product below the threshold, put will below 2% of gdp by 2015. in your story, dirk durbin is says some of the cuts inspire him and some he hates like the holy water. some has been the reaction to the proposal. >> we're seeing what the bipartisan panel has recommended. on the left you are hearing people like house speaker nancy pelosi says it's unacceptable, the afl-cio are saying the commission is demanding people drop dead. and you are tax reformers say this is unacceptable. they see it as a backdrop tax increase. it's the social security that's raising the red flag. they don't want to see any changes to particularly workers who are going to be essentially in their retirement raised age to 68 by 2050. >> you write that it's unclear where the recommends will even get beyond the drawing board. what needs to have to get the proposal before congress? >> this panel has 18 members. most of them are members of congress. there are some outside members as well. 14 of the 18 panels would need to agree on a final fix, final set of proposals. the senator majority leader, harry reid has said they would hope to consider it on the lame-duck session. in hopes of some of the panel, it's unlikely at this point that's going to happen. >> mike memoli writes for "los angeles times" and "chicago tribune." appreciate your time. >> thank you. >> right now we will see some of the hearings, they heard from ben bernanke, as well as two former heads of the budget office. this is just under three hours. >> thank you for your presence and thank you for your participation. we'll go forward. we're going to turn it to my good colleague. i can't imagine the thrill that we had when joe biden called in january and said, al, the president and i have a tremendous deal for you. [laughter] >> i thought why do i answer the phone for joe after 30 years, i do. this is serious business. and the minute we hit it the shriek went up, ah, there they are. we are stalking horses. we are stalks horses for our grandchildren. your the administrator, i do the color. go ahead. >> i tell you what, you will never have a better column man. >> chairman bernanke, thank you for joining us this morning. we are delighted to have you, we are honored to have you. few have played such an important role. you certainly had some forward looking statements about the fiscal crisis. we are all expecting if we don't make some pretty dramatic moves. thank you for coming. we look forward to hearing what you have to say. >> thank you. good morning. i appreciate the opportunity. i am pleased to be here today for the first meeting on the national commission on fiscal responsibility and reform. the president has assigned chairman bowles, chairman simpson, and their colleagues the very substantial task of charting a path of fiscal sustainability for the united states. the deliberations of the commissions are especially timely, because some of the fundamental sources are no longer long-term fiscal imbalances, and no longer distant forests. the task of developing implementing sustainable fiscal policies is daunting, but meeting this challenge is absolutely essential. history makes clear that the failure to achieve fiscal sustainability will, over time, sap the nation's economic vitally, reduce our living standards, and greatly increase the risk of the economic and financial instability. our nation's fiscal position has deteriorated the appreciably since the onset of the recession and the financial crisis. the exceptional increase in the deficit has in large part reflected the effects of the weak economy on tax revenues and spending. along with the costs of policy actions taken to ease the recession and steady financial markets, as the economy and financial markets continue to recover, and as the actions taken to provide economic stimulus and promote financial stability are phased out. the budget deficit should narrow over the next few years. however, even after the economic and financial condition have returned to normal, in the absence of the further policy actions, the federal budget appears to set to remain on an unsustainable path. a variety of projections that extrapolate current policies and make plausible assumptions about the future evolution of our economy show of truckture budget gap that is both large relative to the size of the economy and increasing over time. mover, as debts and deficits grow, so will the associated interest payment, an obligation that in turn further increase projected deficits. unfortunately, we cannot grow our way out of this problem. no credible forecast suggests that future rates of growth of the u.s. economy will be sufficient to close these deficits without significant changes to our fiscal policies. among the primary forces putting upward pressure in the deficit are rapidly rising health care costs and the aging of u.s. population. federal spending of the medicare and mid cay has increased substantially as a share of our national income over the past several decades and will continue to rise. at this point, the recent legislation on the federal health care spending are in certain in part because they depend importantly on implementation. we do know that continued increases in health care cost at the rates seen in recent decades would put enormous pressures on the federal budget in comes heres. the controlling health care while still providing high quality care to those who need it will be critical, not only for budgetary, but maintaining the broader economy as well. the aging of the u.s. population will also strain the social security program has the number of individuals expected to be working and paying taxes into >> no laws are more basic than the laws of arithmetic. revenues must be sufficient to sustain that spending in the long run. at the same time, economic vital vitality is enhanced when the economic position is inheritable. the u.s. tax code does not satisfy these criteria and is in need of reform. i suspect it's too much to ask the commission to review the tax code in detail. but the full picture will require attention to the strengths and weaknesses of the current system of raising revenue. the ultimate goal of commissions effort should be to put us on a path of sustainability. one widely accepted criteria is the ratio of federal debt held by the publish to national income remain stable or perhaps even decline in the longer term. this goal can be achieved by bringing spending of the exclusive interest payments roughly into line. unfortunately, most projections suggest that we are far from the goal. without significant changes to current policy, the ratio of federal debt to national income will continue to rise sharply. thus the reality is the congress, administration, and the american people will have to choose among making modifications to entitlement such as medicare and social security, restraining >> postponing those choices and failing to put the nation's finances on a sustainable trajectory will do great damage to the economy. i'd like to sincerely thank the members for the willingness to serve and urge them to demonstrate that serious, well intentioned citizens can come together to craft credible and sustainable solutions to our budgetary challenges. thank you, mr. chairman. >> thank you. we appreciate you taking your time out of what we know is a busy day and give us your thoughts. >> thank you very much. >> thank you. >> we're now going to hear from peter orszag who's the director of the management and budget. he's a guy that lives in a town that likes to hear yes, he also has to say no. peter, thank you for coming. thank you very much member bowles, simpson, and members of the commission. thank you for inviting me to testify and thank you for your service on the commission. the president formed the commission because it believes it begins with bipartisan action. if we allow to not take action, it will threaten our economy and the living standards our people enjoy. sustained long-term deficits will increase our reliance on creditors from abroad were reduce investment in our labels, and weakness confidence in the federal government credit worthiness. easily put, it maybe easier to ignore long term problems, but we will pay a severe price if we do so. with that in mind, the task before you is critical and considerable. the administration looks forward to working with you in seeking the solution. first, we need to address the short term. as an economic across the political spectrum has said, when the economy is weak, the reductions in taxes are precisely what one needs to do to boost economic growth and job creation. the key is incoming goods and services that firms could produce with capacity, and those moves that is additional spending and lower taxes help to fill in this so-called gdp gap. that's why it was necessary to enact the recovery act in the beginning of last year and additional measures since then to increase the short term demand for goods and services and encourage job creation. this is clear from the data the recovery act has played a role in rescuing us from a second great depression. as the economy recovers, however, deficits switch from being beneficial to harmful. the focus must therefore shift to producing medium term and long term budget deficits. under the current policies, our deficits amount to 5% of gdp, much higher than would be prudent for sustainable. exacerbating the problems are the long-term trends that we face as the combination of rising health care cost and an aging population will if historical trends continue drive up the cost in the federal government's three main programs, medicare, medicaid, and social security. what will happen if we fail to address these medium and long-term deficits? large budget deficits have some combination of two affects. first they can elevate interest rates economy wide, not only raising rates on mortgages and credit cards, but also discouraging private investment and thereby robbing future workers of enhancing capital that will make them better off. second, large deficits could require increased borrowing from abroad which will mortgage the future income to foreign creditors. either way budget deficits reduce the national income either because the nation does not have as much productivity, or because we owe a larger liabilities to foreign creditors. to put this in more tangible terms, if we take no action, anyone needing access to credit from entrepreneurs to invest in their businesses to families seeks to finance the purchase of a home will eventually have to compete with growing demand from the federal government for sparse capital and the nation as a whole will wind up poorer for it. urn stainable budget deficits could also generate adverse affects on the economy that are both larger and more sudden than the gradual crowding out of capital and borrowing. although the interest rates on government debt remain low, debts projected part into the future could cause the market to rapidly lose confidence producing a spike in interest rates and fundamentally disrupting economic activity more broadly. the best way to minimize the probability of such a crisis is to act ahead of time. recognizing the future -- the fiscal future that we face, the administration has taken action to address both medium and long-term deficits. we work with the congress to enact statutory pay as you go legislation to make sure we don't make the problem worse. it includes more deficit reduction than imposed in the administration budget in more than a decade. by 2015, it would cut from 5% to 4% of gdp. or by about $230 billion in that year alone. further more, the comprehensive health insurance reform legislation that was just enacted represents the first serious effort to address the forces underlying rising health care cost. and it's projected to reduce future deficits by more than $1 trillion over the next two decades. in addition to those measures, the president created this commission because the only way to solve the remainder of our fiscal challenge is to do so in a bipartisan fashion. as you know, the commission has charged with coming up with recommendations not only to address our long-term fiscal imbalance, but also to reduce the projected deficit of 2015 to 3% of the economy. that would stabilize the debt to gdp ratio. achieving both the medium term and long-term goal will require significant changes in policy that build on what we have done already. the options to further reduce the deficit may not be particular, -- popular, but they are necessary. success will require a commitment from both parties to engage in constructive, honest dialogue, recognizing there's no easy way forward, accept through bipartisan cooperation. and in that spirit, i look toward to working with you in the weeks and months ahead, and i, along with the rest of the administration, again, thank you for your service. >> thank you. thank you, peter. >> we are now going to hear from rudolph penner and robert reischauer. rudy was head from 1983 to 1987, and rob reischauer directed from 1997 to 1999. >> thank you. i'd like to thank you for the opportunity to testify. the commission faces a formidable task. the budget is on a ruinous task. getting off of the path is more than what people are used to. the arithmetic is fairly simple. three programs, social security, medicare, and medicaid, and now the new health spending. just those three programs constitute more than 40% of spending in a normal year. and all are growing faster than the economy, or tax revenues. the overall tax burden on the other hand, has been remarkably constant for the past 50 years. if you combine rapidly growing programs with constant taxes, obviously, you mean and imply the growing deficit for spending for other programs grows as it is in the past. as the deficit increases, the national debt grows faster and faster. interest on the debt becomes a budget problem in itself. the debt eventually explodes. but the market for our debt would obviously collapse long before an actual explosion occurs. now because of the pick elness financial markets, it's difficult to predict when the crisis might hit the united states. if one examines crises in other countries, they have been set off in different circumstances and different places. my prepared testimony refers to sweden, australia, ireland, and greece that were set off in a variety of ways. similarly, it's difficult to point to a single fiscal indicator that signals that a crisis is eminent. the crises described above occurred with a wide variety of debt to gdp pay ratios. i think investors look at a wide variety of variables to try to determine how serious the country is about fixing it's fiscal problem. as i travel abroad, i'm pleased to see that foreigners are often more optimistic than americans about our ability to fix things up, or to quote winston churchill, you can count on americans to do the right thing after they have tried everything else. even if we avoid a crisis for a good long time, the large deficits projected in the future will drain away domestic saving that could be better used in the investment in the united states. many committees have warned of the budget-related crisis and describe the harm down by large deficits. recently john palmer, syracuse university professor and i co-chaired by the national academy of science and public administration. the membership of the committee, like this one, spanned a wide range of ideology. the committee report has the usual diagnosis of budget problem and warning about potential crisis if we do not change policy. however, i think our report is unique in it's contains unique policy options to obtain fiscal stability. first we green fiscal stability has chairman bernanke did, as achieving a stable debt-gdp ratio. we go further and think that a prudent ratio would be 60% of gd. my prepared statement rationalized that. i'll be glad to go into more details in later if you'd like. our policies were grouped in packages. in one, the committee asked what spending restrain would be necessary while avoiding significant tax increases. at the other extreme, the committee looked at what taxes would be necessary while other programs grew as determined by current law. and the two middle paths were also delineated. in the package that avoided any increase in the tax burden, the rate of growth to social security benefit was held to the level that could be financed by current payroll taxes. that requires increasing retirement age, reducing indexes for the more aflaunt, and switching to a different measure of the cpi, that's expected to grow more slowly in terms of making adjustments from year to year. when you look at options like that for social security, it's very important to differentiate an absolute reduction in the purchasing power of benefits compared to today's level from a reduction in the rate of growth of benefits. although the package that we put forward in this option seems severe, it would more than maintain the purchasing power of today's level of benefits for all of the most aflaunt. the rate of growth of health spending and the low spending option had to be held to that caused only by the aging of population. that's to say all over causes of excess health cost growth have to be wiped out. a long list of health options appears in our health chapter, probably involve using every one of them to achieve our target. the brand new health plan, of course, adds to the federal health budgets, raises the tax burden, and changes the medicare and medicaid spending from that used in our committee's baseline. it contains some uncertain cost containment options. but not enough in my view to fundamentally alter the long run budget problem caused by growing health costs. indeed, the addition of significant health cost to the budget make it is even more urgent to adopt rigid control. my own view, not that of the academy's committee that we will never reliability control the cost of medicare and medicaid. so long as they have open-ended budgets. medicare law defines the population and specified the treatment they can be given while excluding very few treatments. then the government pays for the cost of anyone who comes in the door. the total cost can only be controlled indirectly, and it's difficult to forest. in contrast, the universal coverage system of conda and -- canada and the united kingdom are limited. the budgets that go with the fixed budget are anything but transparent. a different approach, one more meanable would use the voucher system to provide medicare, similar to one suggested by mr. ryan. it would be used by elderly and disabled to buy insurance, and it would vary with income. it might or not might vary wi