fiscal policies and wasteful and unactable spending america is faced with a mammoth debt of $20 trillion and a sluggish economy that's holding it back. this year alone overspending is projected to be 559 billion and will continue to grow over the next ten years to 1,408 million, 1.4 trillion in 2027. it's a 9,426 billion budget hole over the ten years. gross national debt will hit 30 trillion in ten years outpacing our projected economic growth. as congress considers our country's budget over the next decade we must look beyond the annual appropriations process. almost 70% of federal spending is already on auto pilot and that portion is growing rapidly. cbo reports states that 70% of the total increase over the next ten years is from social security, medicare and net interest on america's debt. social security taxes will stop paying for benefits by 2019 which will result in a one in trillion for 2027. medicare will be in the red by 2020. in less than 20 years automatic spending will consume all the taxes and revenues the federal government collects. while many entitlement programs have dedicated revenues to pay for benefits the dollar is coming in cannot keep pace with the tsunami of baby boom retirementments that are just now beginning. about 10,000 boomers reach 65 each day. mandatory spending used to mean there was a dedicated stream of money sufficient to cover the cost of the program without dipping into the general fund. i have a chart up there that shows how we're doing on that score. the blue bars on the chart are the upward climb of the mandatory spending. the yellow bars show the slow growth of the dedicated taxes and fees. and the red line shows the short fall between the two. dedicated taxes and fees currently are paying for less than half of total mandatory spending ago more of our workforce becomes eligible to retire, the short falls of benefits paid will only increase. where does the growing difference come from? it either has to be stolen from the future or taken from the present which means that even less can be done under the regular budget. the problem is that congress is not regularly reviewing automatic spending programs like social security and medicare. our government makes promises to pay for these programs without identifying a source of revenue that will ensure their sustainability. congress is also not successfully providing oversight over the 30% of government spending controlled through the annual appropriations process. we've only completed appropriations on time four times in the past 40 years. continuing resolutions and omnibus funding bills have become too commonplace and they ignore congress's constitutional duty to carefully consider how taxpayer dollars are spent. and spend timely. last month cbo provided another example spending without oversight as it released its annual report on unauthorized and expired programs. by the end of fiscal year of 2017 there could be 73 authorizations that will have expired that will likely continue being funded regardless. this adds up to 649 billion for one year. we need to get to work and review these programs before allocating additional dollars. over the past eight years little has been done to relieve the pressure of our debt on america's economy and a good deal more to make it worse. we're left today with enormous debt and little evidence that we're prepared at all for the troubling future cbo has been warning against for decades and does again in this publication. i look forward to our conversation today about the true drivers of overspending and your thoughts dr. hall on what actions congress could take to foster a stronger u.s. economy. senator sanders. >> thank you very much mr. chairman and thanks for calling the hearing and dr. hall thanks very much for being with us. memories are sometimes short and the senator talked about the deficit and the debt which can clearly are very serious problems but neglected to mention one of the key -- some of the key reasons as to why we have the deficit neglected to mention, in fact, that the deficit now what is one-third of what it was when president bush left office, dr. hall that about right? when obama left office. >> deficit or debt? >> the deficit is now about one-third of what it was when president obama first came in i believe, roughly correct? >>. >> it's a rough estimate we have made significant progress but when we talk about the debt, we might want to remember that we went into a war in iraq that some of us voted against, some of us voted for. that we gave huge tax breaks to the wealthiest people in the country that added to the debt and we passed the medicare part d prescription drug program but we forgot to tell the pharmaceutical industry that we wanted to negotiate prices with them. all of those factors helped raise the deficit and the accumulated national debt. what is always interesting about hearings like this, it's kind of like somebody saying that the operation was a success but the patient died. we talk about the budget in the abstract without talking about the reality of life in america today. so what do we forget about? we get about that during the last 30 years there's been a massive transfer of wealth. that what we have seen is trillions of dollars flowing from the hands of the middle class into the top 1% that we now have more income and wealth than any other major country on earth. so we talk about the deficit without talking about the fact that we are today the richest country in the history of the world. the richest country. we're not a poor country. we are the richest country. problem is top 1% of one tenth owns as much wealth as the bottom 90%. 43 million people living in poverty. it's only the debt and the deficit and we're not even talking about how we got there. second of all, if you listen clearly to what my friend chairman enzy says, he is a friend a honest man what he is saying basically we got to cut social security, we got to cut medicaid. now number one, i would hope that my republican colleagues would respect the words of president trump when he ran for office when he said exactly the office. you did not campaign on that but he did and maybe we might want to have our president keep his campaign promises to the american people. but second of all, is cutting social security whether it is raising the retirement age, cutting back benefits is that the only solution to the social security crisis. dr. hall, i introduce legislation which got verified by the social security administration which said that if you lift the cap that in the midst of massive income and wealth in inequality. if you lift the tax on taxable income from people making $250,000 a year or more, if you do that, in fact, you can extend the life of social security for 50 years. nobody but the top 2% would pay a nickel more in taxes and you can expand benefits. i know you don't have those numbers in front of you but does that sound consistent? >> yes, it does. >> so you got an alternative and the question is do we have the guts to tell the billionaire class who are doing phenomenally well that they're going to have to pay more in taxes so that we can expend and expand social security or do we do as what much of my republican friends want to do and that is cut social security benefits, benefits for the disabled, benefits for disabled veterans? so i think there is a lot of need to broaden the discussion we're currently having. thank you very much, mr. chairman. >> thank you. i hope that you didn't interpret my remarks as saying that we ought to cut things. >> i did interpret it. >> i left the option of everything out there. >> well, i did interpret it that way. >> which would include what you suggest. >> then i tell you, i say this sin seller, if the chairman wants to say that he believes we should not cut social security i would love to hear him say it. >> i have tried to keep from cutting social security benefits. >> then you have an ally in me. i would hope that we can do that but it's important for you and others to say we will not cut social security benefits. i would hope you can say that. >> and the longer we wait, the less likely we are to be able to make that promise. >> i've just introduced an idea that dr. hall has confirmed is accurate and if we go the approach that i suggested you don't have to cut social security benefits. >> appreciate that. thank you for your remarks. our witness this morning is dr. keith hall, the ninth director of the congressional budget office. the cbo serves an instrumental role for the budget committees. the agency provides necessary information important to assessing the budget impact from both the administration and congress. as well cbo continually exams the state of the economy and the budget to keep us apprised of the fiscal context in which we operate. dr. hall has served as the director of cbo since april 2015. he has over 25 years of experience in various government positions including serving as the chief economist and director of economics at the international trade commission, chief economist for the white house council on economic advisors and chief economist for the department of commerce. dr. hall is also served in academia with george mason university and the university of arkansas. this morning dr. hall will be talking with us about cb o's latest baseline which is their outlook on the economy and the federal budget over the next ten years as it sits now. we look forward to receiving your testimony, dr. hall. we all want to understand the reasons for ballooning deficits and the implications to our standard of living on national debt that's expected to grow by almost $10 trillion over the next ten years. welcome, dr. hall. please begin. >> thank you. chairman, ranking members sanders and members of the committee. thank you for inviting me to testify about the budget offices most recent analysis for the budget and economy. i would discuss a few highlights of our updated budget and economic projections which were releetsed last week. after my brief remarks i will be happy to take your questions. the economic forecast that underlies cbo budget projection indicates that in real terms gross domestic product will expand on an average annual pace of 2.1% over the next two laws if current laws remain unchanged after rising last year of an annual rate of 1.8%. we expect that growth to boost employment, virtually removing the slack in the economy and drop the unemployment rate to 4.4% by the end of 2018. further ahead according to cb o's projections gdp will expand at an annual average rate of 1.9% over the second half of the coming decade. that growth rate remains a significant slowdown from the average over the 1980s and 1990s and the early 2000s. as slack diminishes over the next two years we expect the rate of inflation to rise to the federal reserves goal of 2% and to stay there on average. we also anticipate that the federal reserve will steadily raise the target for the federal funds rate and that interest rates over the next few years will be significantly higher than they are now. cb o's current economic projections different a bit from those it publiced in august of 2016. the agency now expects gdp in 2016 to be modestly lower than it projected last summer. it also expects lower interest rates in the next five years but projekts a higher rate of labor force participation throughout the next decade than it projected in august. in fiscal year 2016 for the first time since 2009 the federal budget deficit increased in relationship to gdp. over the next ten years if current laws remain generally unchanged budget deficits will follow an upward trajectory. the result of three main trends. first strong growth in spending for retirement and health care programs targeted to older people especially social security and medicare. second, rising interest payments on the government's debt and third modest growth in revenue collections. by the end of the period the accumulating deficits would drive up debt held by the public from its already high level. moreover three decades from now if current laws remain in place, that debt would be nearly twice as high as it is now and it would reach a higher percentage of gdp than any previously recorded. such high and rising debt would have series negative consequences for the budget and nation including an increased risk of a financial crisis. our estimate of the deficit for 2017 is lower than our august estimate primarily because we now expect lower mandatory spending. the current projection of the cumulative deficit for the 2017 to 2026 period however is about the same as 2026 period is the as we published in august. i'm asked often specifically and medicaid and health insurance purchased by the affordable care act markets. they were prepared before the new administration took office and do not incorporate any effects of executive orders or other actions taken by that administration. an average of 12 million people under-age 65 will have health insurance in any given month in 2017 as a result of expansion of ma medicaid. the estimate this year, 9 million people per month on average will receive subsidies through the non-group coverage purchased through the marketpla marketplaces. an estimated 1 million people are projected to be covered by unsubsidized coverage through the marketplace and estimate there will be 27 million uncovered. public spending made by will be $70 billion and marketplaces 4$5 billion. for the 20182017 period if current laws remain in place those two costs would total 1.9 trilli trillion. the baseline is not intended for a forecast of what will happen rather a neutral benchmark policymakers can use to assess potential effects of policy decisi decisions. the projections are predicated on assumptions of general tax and spending generally remain is in place for the entire projection period. even if that occurs and no changes in-laws before the end of that period it still would not be possible to predict budgetary and economic outcomes precisely because of many other factors uncertain. our goal is to construct budget and economic projections that fall in possible outcomes given fiscal policy and body of current law andcono ec availability and other economic data. i would be happy to answer your questions. >> thank you, dr. hall. we will turn to questions and let me take a minute to explain the process to committee members. each member has five minutes for questions beginning with myself and senator sanders and following the two of us i'll alternate questions between the republicans and minority and all others in attendance when the hearing began will be recognized in order of senator aiority and arriving after the hearing it will be after they arrive. i want to thank you for your testimony. i do have a few questions. cbo projects 50% of the growth and outlays over the next decade will be from social security and medicare. in the past, congress has balanced a budget using a surplus in these programs. now, we'll need to do it while paying for the deficits. congress has had many opportunities to reform mandatory spending. cbo has been telling us for decades the demographics will make these programs unsustainable. i have proposed a slugs to congreto -- solution to congress built our annual budget does not allow congress to address social security under the budget. the tools to balance the budget are limited especially as more of the growth is automatic. does it make sense to you the budget continues to be balanced as one pot? >> i think the last concept commission from '67 emphasized all federal spending and rece t receipts should be included in the budget. i think the quote is something like different competing budgets confuse the public and congressional understanding and impede decision making. so we certainly -- i think we certainly support the idea of a budget concepts commission and we certainly support the idea of producing estimates like we do, as if it's a unified budget for you. >> i appreciate that, because i've looked at some of the revenues coming in and find with social security, we're about 12% short on what we're paying out each month. and under medicare, it looks like we're about 56% short. we'll have to look at those things evidently under a commission concept since we're limited on what we can do under budget. unless we make some reform changes and i think we've talked about that in committee in a bipartisan way. i've proposed to long-term debt gdp process and the committee and provide both goals for the congress and the president. if baseline projections do not comply, we would need to submit a plan to bring current projections back into compliance. in 30 years, cbo projects our debt is almost 150% to gdp. taking into account our impact of aging population, what's a realistic target for long-term debt to gdp? how much deficit reduction is necessary to maintain our debt to gdp ratio currently? >> we've certainly been consistent lly saying and we're still saying the path of a debt hitting 150% in 30 years and maybe as importantly, it's ri rising. if we extend it from 30 years to 35 years it gets larger, to 40 years it gets larger. it's on an unsustainable path. we believe that. one of the difficulties for us is the idea is how much is too much is difficult to define. we do know as the debt grows and it's already at a very high level it increases the risk to the financial markets and risk to the economy. it's hard to pick a number. in some respects, it's like any other organization that puts up debt. it's hard to say how much debt is too much. the united states is somewhat unique in its ability to sustain debt but certainly we're on a path that's very very difficult. we certainly would support the idea of helping you use a target and support you in what sort of changes you would need to hit that target. >> i think that will be helpful and we'll do research to see what other countries do in order to have some kind of a con strait in deficit or revenues. some have argues about a weak period of economic growth and i think we need to lay out the consequences in growth with r e rising debt. one of the consequence is lawmakers would have less flexibility to use tax and fu funding policies to respond to unexpected challenges. what kinds of policies can congress implement that would improve our deficit and gdp growth simultaneously? >> that's an important question. right now, we see the economy, although it's modestly growing and we think it will be modestly growing the next two years, that will eliminate all the slack in the economy. in terms of stimulus, stimulus might help us speed that along. but what would really help in terms of long run deficit would be to focus on the supply side of the economy, focus on things that affect the labor supply, affect productive, affect innovation, things like that. almost any sort of increase in spending or decline in taxes gives you some demand stimulus. i think the important thing is the longer run impacts on the supply side of the economy. >> thank you. my time is expired. senator van hollen. >> thank you, mr. chairman. dr. hall, it's great to see you. i want to echo the comments of the chairman thanking you and those at cbo for your great work. we talked a little bit about economic growth and impact on defic deficits. there's practical things we can do to both increase economic growth as well as decrease the deficit. there's been a lot of talk lately about reducing immigration to the united states. i think it's important to remind our colleagues, cbo did an analysis of the bipartisan immigration reform bill that passed the senate a couple years back, isn't that right? >> that's correct. >> if i have my facts right, the economic impact report you did in june 2013 indicated that that immigration reform bill would increase economic growth in 2023 by 3.3% beyond what would be otherwise anticipated, is that right? >> that's correct. >> it would continue to grow in 2033, be 5.4% greater in that year than otherwise anticipated? >> yes. >> so -- and i remind my colleagues that was a piece of legislation that dramatically increased border security, almost $20 billion was invested. in a letter you sent to senator leahy july 3rd, 2013, you indicated the net impact after you take the money for additional border security, because of economic growth you would actually reduce the deficit over that period of time by 1$135 billion. do you recall that finding? >> i don't, but that sounds right. >> more economic growth, more weduction in the def -- reduction in the deficit. in addition you found it would improve the long-term solvency in social security. do you recall that as well? >> i don't but that -- >> more people. i hope in the heated rhetoric around immigration, this was a bipartisan bill which would increase economic growth, reduce the deficit and improve the s t softsoft solvency of social security. cbo recently issued a report january 17th about impact of repealing portions of the affordable care act. you looked at the 2015 reconciliation bill that passed congress and went to the president. do you recall that? >> i do. >> one of the findings in that report, as i understand it, the number of people uninsured would increase by 18 million in the first year of the new plan if we adopted that reconciliation? >> that's correct. >> is that right? >> the premiums in the non-group market would increase 20% to 25% in the first year, relative to current law, is that right? >> that's correct. >> to translate, that means if you were to adopt the reconciliation bill, the republican appeal of the affordable care act that went to president obama which he vetoed, we would immediately see prem m premiums go up further, 20 to 25% in the individual market and you would see 18 million people becoming uninsured in the first year of the plan. we heard over the years it's repeal and replace. we're all still waiting for the replace to at least make sure those 18 million continue to have access to affordable care and that they don't see their premiums go up even more than they have. in my last minute, i wanted to ask you a question about tax ex spend ditures and other mandato programs because the chairman referred to mandatory expenditures. i don't see it in your budget but when you released your analysis to the press, you indicated expenditures were the greatest of mandatory spending higher than we spend on social security on an annual basis and higher than we spend on made care, is that right? >> that's true. >> that means according to cbo, all those tax across and tax breaks, when you add them all up in the tax code that exceeds the amount we spend on an annual basis in social security? >> that's correct. >> one of the things senator sanders is pointing out we can actually do a lot when it comes to improve the solvency of social security through reducing some tax expenditures in his proposal to raise the cap. i would just say i also believe cbo recently found in your options report that if you raised the -- forever you apply the same payroll tax to income over 250,0$250,000 we currentlyy to 125,0$125,000, that would al increase the solvency of social security until i believe around 2044, thereabouts, is that right? >> that sounds about right. >> when we're considering options, mr. chairman, there are options we can apply that do not require cutting social security benefits. that's a very practical one that's been put into the mix. i thank you, dr. hall, thank you, mr. chairman and look forward to working with you. >> thank you. senator purdue. >> thank you. here we are again. two years in, nothing's changed. i want to correct the record, mr. chairman. we hear these superficial conversations about growth. two ways to grow gdp, you can grow your population or grow your productivity. that's it. >> yes. >> of course if you say in a world of flat innovation and flat technology, we can grow our population. the answer is, of course, more immigration. we're immigrating more people, twice, a little more than 2 1/2 times than our 100 year average, yet in the last eight years this economy has grown on a per capital basis 0.61%, the weakest recovery in history the lowest economic growth of any president in u.s. history. my concern, mr. chairman, we're not talking about the real issues. i applaud you for having this hearing and the cbo what you're doing to remind us again you reminded us of last year, this is not sustainable. we know the 200 pound gorillas in the room are social security and medicare. i want to sed the record straight, mr. chairman and dr. hall. i for one have never called for cutting social security. you do not have to cut social security benefit for people on social security to solve this. every year that goes by the solution gets harder and more difficult and painful for people 50, 100 years from now. to oversimplify this, i want to get at a couple things. dr. hall, if we were to -- social security, there are only a few levers. some people say four, some people say five, basically, you can change the age, look at means testing, you can look at the inflator embedded in there, incorrect, and you can also talk about the revenue formula. beyond that, if we were to, for example on the debt that we have, and i like to look at the public debt because i happen to think the debt we owe social security and medicare trust funds is real debt and we'll eventually have to pay the piper there. you talk about the interest rate going up, i think with the assumption it would be at the higher level of 2 1/2 to 3% during the life of this. >> that's right. >> what would happen if interest rates went to the 30 year average of 5 1/2% on public debt and debt owed to mainly social security trust fund? >> higher interest rates would have a significant effect on our forecast and would actually pretty significantly raise our estimate of the budget deficit. because we have such a large and growing debt raising that interest rate has a really big impact on the net interest payments. >> the last few years, we've seen the annual deficity not the debt, the annual deficit decline, i would say fairly significa significantly. the budget we're operating under right now, under the past three or four years, that performance projected out of the next 10 years as i look at it we move right back to 1 trilli$1 trillil deficits within a short period of time, is that correct? >> that's correct. >> somewhere we will add if we don't do anything from our baseline budget what we're talking about we will add another 9 1/2 trilli$1/2 trilli total debt, is that fair? >> yes. >> when i look at the solution? can we grow our way out of it. if everything else was constant and all we did was grow the economy can we solve that 30 trillion problem? >> the short answer is no. >> if we were to tax the top 3% earners in this country, the e ones demonized by certain members of the other side of the aisle, if we were to take their entire in come over the next 20, 30 years, would that solve the debt crisis? >> i would have to look at the numbers. >> we have run the numbers. we would not. a single faceted attempt to solve social security and the debt crisis is really very naive in my opinion as a business guy. i look at this, we have several areas of opportunity. one thing i think we all agree with, there are opportunities. the budget process is broken, we know that. i won't have time to lay out all the problems with that. in the last 42 years since the '74 budget, it took that commission four years to write the budget act and only worked four times in 42 years. over those 42 years we've only appropriated 2 1/2 appropriation bills a year, i want everybody to listen to this. it's been 42 years. that's only one area we can use to help arrest this run away government spending. 2.4 trillion we spent in 2000 and spent 4.8 trillion last year, constant dollars. we have to look at spending and we have to save social security and medicare over the long-term and makes it viable for our kids and grandkids and guest at the spiralling driver for healthcare cost and inflation. i'm running out of time but i will hold the other questions for a second round. thank you. >> thank you. senator keen. >> thank you, mr. chairman. welcome, dr. hall, nice to have you here. appreciate your comments, senator perdue. senator perdue, in maine we have a saying that summarizes exactly what you were talking about. there's rarely a silver bullet, often silver buckshot. it takes multiple approaches to solve a problem of these magnitu magnitudes. there is no single solution. dr. hall, in listening to your testimony and reading it, it seems underlying a lot of your assumptions is demographics in a couple ways, demographics of baby boomers retiring, a big bulge in the population, more people going onto medicare, i think 10,000 of people a day are signing up for medicare, and the demographics of not replacing those people in the workforce, which you note on page 4 is the significant drag in the economy is labor supply, is that correct? >> that's correct. >> i would disagree with senator perdue if the demographics congress can repeal a lot of things but one of them we can't repeal is the law of demographics. if we're at replacement or below and in maine we're below repl e replacement in terms of our birthrate. the only solution is immigration, isn't it? the other people have to come from somewhere. >> i don't know if that's the only solution but increasing the labor supply has an impact on reven revenues. there are other sorts of impact depending what kind of immigration you have? >> i'm not saying unlimited or open the borders or anything else. but to say we can close our borders an stop having people come to this country and maintain continued economic growth doesn't square with economic principles. >> well, certainly we do need a continuing growth in the labor force. that's the simple recipe, you have to have your labor force growing and productive growing? >> i can tell you as i talk to people in maine around the state i do every weekend. the number one thing is finding qualified workers. the important word is qualified speaking to education and training and improved job training is a big part of this. that is the problem that we're seeing. a couple comments about where the budget has been going. what we're seeing, basically, is the entire discretionary budget being crowded out by entitlement growth and tax expenditure growth, tax expenditures in the '60s were 4 1/2% of gdp and now they're 8%. defend spending in 1967 was 8.5, 5.2 in '91, 4.i think 4.7 in 2010, and it's 3.2 today. in other words, a steady decline. even a significant decline, almost 25% since 2010, and also since 2010 we've had china's build-up of its military, north korea's nuclear weapons, isis, syria, ukraine, crimea, all of those have occurred and yet we're still on this steady downward trend in terms of defense spending. those figures sound consistent with what you're saying? >> yes, i think they do. >> academic spedomestic spendin '91 and down to 3.3. both defense and non-defense discretionary are at a low point for the last 70 years. what bothers me a lot of the debate about the budget here is about head start slots and aircraft, when the real growth is basically in healthcare costs, which is driving medicare, medicaid and those expenditures. i think that's something we need to be talking about. let me ask a more general economic question. a lot of people have been talking about 4% gdp growth. is that realistic in a mature economy? a developing economy can have those very high growth rates and 4% is what we had. do you see any combination of policies that would get us to 4% gdp growth? >> if we're talking about the short term, basic stimulus, we could accelerate the ill lim nation of the output gap the next two years, we could accelerate that. having anything lasting we need to worry about the supply side of things. to give you some idea -- >> you say the supply side of things, you're talking about the supply side of labor force and productive? >> that's right. labor force, capital stock, innovation, those sorts of things. i wanted to couch this a little bit. right now, over the next 10 years we're seeing a labor force grow at about a half a percentage point a year and seeing labor force productive grow at 1.3% a year. that adds up to 1.8% gdp. that is our forecast for potential gdp. if you want to get potential gdp up, you have to raise -- >> one of those two items. >> one of those two things or both. that's right. >> i am out of time but hopefully, mr. chairman, we'll have additional time for questions. >> certainly, we don't want to pass up an opportunity like this with an expert. along the same lines that senator keen is asking about, do you have any projections what our unemployment is and actual unemployment. senator sanders usually puts this in his speech. >> i don't have it handy. in some respects, the unemployment rate is being misleading because it is already below what we think is potential full employment. the reason it is below because there where so many people still out of the labor force. we still think they're a good million and a half people out of the labor force. you could take the current unemployment right now and add about a million and a half into the unemployment and gives you some number of some idea how short we are of full employment. >> which goes back to senator king's comment his employers were having trouble finding qualified employees. from my time in business, that was always a problem and i go to a lot of businesses in wyoming when i'm there on the weekend and ask them what kind of decisions they have to make and how long in advance they have to make them and what are some of the biggest problems? the biggest problem there is qualified employees, too. we've got some training programs and we need to take a look at those and see if they're actually effective. we had a question earlier about increase in interest payments. the largest increase in spending is a projected tripling of interest payments in your document, almost doubling rift to gdp. that's with the interest rates remain low. do you have an effect on it if the interest rates move to the historic average? >> we have good rules of thumb to give you some idea. if interest rates are 1 percentage point higher per year for the next 10 years, that adds something like 1.6 trilli$1.6 t the deficit. that almost doubles it. it's a really significant increase going forward. on something related, at the end of 10 years we anticipate just the net interest payments will hit something like 2.7% of gdp. that's a really high number. it's because the debt is so high, you raise that, you really raise the forecast, i think. >> i went to one of our bond sales and was surprised how fast they got snapped up and found out some people are actually betting -- bidding a negative interest rate at the moment because they have so much confidence in our government that they will get their money back even though they had to pay a little bit for us to keep that secure. the interest rate depends a lot on how much people think we are secure, i assume and how much debt we've got per person, a lot worse off than greece. >> that's right. one of the things we anticipate that would happen if the deficit continues to grow it would put pressure on the interest rate and raise the interest rate and increase the cost of our exi existing debt let alone new debt. >> changing in the last congress, cbo and the joint committee on tax produced dynamic cost estimates for major legislation including tax propos proposals. how would comprehensive tax reform affect gdp growth? how can we make our tax system more efficient so it is not impeded by the tax growth? >> any sort of estimate i want to tip my hat to the committee on taxation. they're doing the scoring on that. there are certainly things in the tax code we can do that would impact the efficiency of taxes. and would maybe impact productive going forward if it helps eliminate some misallocation of resources created by the tax code now. that is one of those sources of policy choices that would impact potentially long run growth in the economy. >> tell me a little bit more about misallocation of resources. >> a lot of it is the impact on capital, capital investment. for example, doing something like reducing taxes on the capital stock would potentially help productive and help long term growth. doing something to increase the tax base. right now, there are lots of things that cause the tax base to decline over time, like offshoring sort of behavior, that sort of thing. those would all potentially help productive and help the long run growth. >> thank you. senator van hollen. >> thank you, mr. chairman, dr. hall, thank you for your testimony. just when we talk about the aging of the population and the immutable law of demographics, we talk about immigration, i just think when we talk about this in the budget context, it's important to remember no matter what we do in the budget, those costs are growing to grow in aggregate for the country and for the people. in other words, healthcare costs will grow, the costs of long term healthcare will grow, and so really the debate here is how much of that cost should be shouldered by the average american and how much should be shouldered by trying to shore up things like social security, medicare and other things. isn't that one way to look at it? >> yes. >> so it's either someone's p paying for this at the end of the day, and the question is how we as a society decide to allocate those costs, and whether or not we should ask folks at the very high income scale for example to pay more payroll taxes because if they don't, the costs are going to go up to seniors who are on retirement and social security. it's not that there aren't other things we can do but that has to be a major part of this conversation. in terms of productive, we talked about different levers, obviously there are productive gains through the private sector. we talked, you and i in the past, about the different kinds of federal investments. some federal investments can make a greater impact on innovation and potentially productive than others. if you were looking at discretionary spending options and investments, have you done any analysis from cbo, which could most impact in a positive way productive? >> we don't have a lot on that because frankly the literature is very thin on the impact of different kinds of investment. one of the things that's really clear, different kinds of federal investment have really different effects but we don't know that much how the different kinds differ on things. >> is that something that is -- could be determined through analysis, you think? is that something -- for example, investing in education. >> right. >> and which we believe increases productivity, if you have a more educated workforce. is there a way for cbo to do that kind of analysis? the research analysis and investment helped innovation, darpa and the internet, a lot of those things began at least with federal investment, not that the private sector doesn't quickly come in with a lot of its own. is that something cbo could undertake as a guide to the congress we might want to look at? >> i'm happy to get that question out because we have in fact doing some work on that. we're very close for example of putting out a little blog post, talking about what we see and the evidence on the effects of something like education on productivity and some of those good things. it's generally pretty positive. one of the issues with education is how much lag there is before it has an effect. we do talk about the evidence in there and have something coming out very soon on that. >> good. i look forward to seeing it. thank you. >> senator king. >> thank you. a couple of different questions. i think i remember there was a report several years ago, the overall analysis, i think by the cbo of the deficit impact of the affordable care act was positive, it would reduce the deficit over a 10 year period something like a trillion. have you done any recently analysis what a full repeal including repeal of all the taxes and fees that support the subsi subsidies, what a full repeal would mean in terms of its economic effect on the -- >> we in fact did that last -- june of last year or june of 2015. i think it was maybe 2015. we did do an estimate of the full repeal and had the dynamic analysis. >> could you give us a summary of what you found? was it a net or negative or positive? >> it was a positive. the exercise was if you eliminate the aca, it would actually have a negative impact to make the deficit worse on the whole. >> that's important. if you eliminate the aca, it would make the deficit grow, is that correct? >> that's right. >> if you could supply that study, i'd appreciate it. >> stll. >> number two, with regard to investments, i've always thought, looking historically the g.i. bill was probably the best single investment the united states government ever made in terms of economic growth after world war ii. that may be a model for us. vice president cheney once famously said reagan proved deficits don't matter. do deficits matter? >> we think they do. i think our deficit is at a high level and the debt is at a high level and i think it's already having an effect. it does create a drag on the economy and drag on growth. >> i agree with you. my problem is deficits around here seem to matter sometimes and then not others. it seems to me if we could establish a consensus deficits are a problem, are a drag on the economy and do ultimately have to be paid back, that we could then start to move torpced soluti solutions. -- move towards solutions. i think they do matter and i hope we can establish that kind of consensus. we've got two levels of debt. so-called public debt and senator perdue mentioned the social security debt we owe. why aren't they the same? i think frankly the picture is worse than it looks because we don't count social security as part of the debt. most people want checks in the mail, not ious. >> actually in our numbers we include the debt together. our debt held by the public does include that, why we focus on that because we think that's the important number for the economy. >> the other issue is how do we -- to get back to my silver buckshot image, there is no single solution, we have to have economic growth and control of spending in a variety of areas, but there may be a question again because of the demographics, we are in a moment of a huge increase in demand on our social security and medicare. maybe we have to talk about where revenues are, revenues historically for 50 years have been 17.4% of gdp. for 50 years we didn't have 10,000 people a day signing up for medicare. do you see what i mean? >> yes. >> there needs to be adjustment of thinking about revenues to adjust to the realty of the demographic tidal wave we're fa facing. would you agree? >> that's right. i have to say the growth in revenues are historically at a high level. >> by about .4 of a percent. >> they're projected to grow. we're at a high level in reve e revenues and even higher in spe spending. it's this race in both things. >> spending growth is in the social securitied a medicare, not in the -- not in discreti discretionary defense and pell grants and those areas. i think it should be clear -- we need to make it clear those are actually declining. >> that's right they are as a shared of gdp they are declining. >> do you know of any economic studies or evidence tax cuts stimulate economic growth? that's a the logical position around here. i, in my own research, haven't been able to find the data to support it. the evidence from the bush tax cuts didn't seem to stimulate significant tax cuts in the middle of the last decade. in the state of kansas, they've gone through this giant economic experience it doesn't seem to be working. you don't have to answer now. if there is economic data on that, i'd like to see it. >> there is research on that and we do think tax cuts stimulate the economy and increase growth. one of the big questions is how much. >> i can see a tax cut from president kennedy, when it was 90%, down to 35. the question i have is going from 35 to 28 or 31, kind of marginal change, does that have the kind of effect that frankly many people represent? >> we do think it has an effect -- i'd be happy to give you some of the literature we've written up about it and be happy to come by and talk about it and talk our way through what we think the evidence is. >> i think that's important. that is a principle that drives a lot of the debate around here and we ought to get to the data that underlies it. thank you. i appreciate it. >> chairman, can i ask a question? so there's noist understanding on the revenue level in aggregate terms absolute dollar amount but in percentage of gdp we're like in the 2,000s, 2001, 19% of gdp so not a higher percent of gdp today? >> it's higher than the average of the last 50 years but it's been higher before. >> thank you. i wanted to clarify. >> senator boseman. >> thank you, mr. chairman -- senator boozman. >> thank you. i apologize for sneaking out. we have a hearing on public works going on at the same time. thank you for being here. congress has become increasingly relying on short term resolut n resolutions to fund the government. can you talk briefly about the impact crs have in the long-term and also efficiency of government in general with the agencies? >> sure. i suppose in my mind one of the things with the crs constantly, there's no plan there. there's no effort to plan on what you're going to do over the next 10 years or something like that. it winds up being perhaps very short run thinking. with respect to affecting the government, i can drawback on my experience. >> it affects your agency? >> it affects our agency. i spent some time heading t ini bureau of labor statistics and i know what it's like for an agency not to know what their budget is going to be and getting halfway through the fiscal year to know if you have any money to finish the year out. that makes it hard to have as efficient a government as we should have. >> right. very good. 2027, discretionary spending will be at the lowest level as a percentage of gdp it has been since 1962, despite this both deficits and the overall debt are expected to increase dramatically. is it correct then to say congress's current approach to reducing the deficit, only reducing directionary spendin i is sustainable in the long-term? >> that will be very difficult. i can give you a good example. right now in 10 years we craft the deficit is 1.4 trilli$1.4 t. total discretionary spending in 10 years is 1.5 trilli$1.5 tril. it's essentially, if you did it with discretionary spending both defense and non-defense you'd wipe out all the discretionary spending to balance the budget. >> one final thing, is there a risk of inflation rising past the 2% target set by the federal reserve? if that happens -- you can evaluate the risk. if so, what impact would it have on the national debt? also, that triggering interest rate rise, what impact would that have on the national debt? >> we already anticipate the fed is going to raise the federal funds rate to try to keep inflation under control. that's a big part of our forecast, that interest rates are going to rise. >> what does a 1%, half percent rise cost? >> about a 1% rise in interest rates over the 10 year period, it comes out to, something like 1.6 trilli$1.6 trillion, which y big number. that interest rate is one of the more important things. >> traditionally the service of the debt is so much higher. what is it today? 2% for something like that? >> yes. >> historically, like, 5, 6%. that's not an imaginary scenario, that's something that has a very real chance of coming back up where we will increase 2 or 3%, which would cause what kind of troubles? >> it's certainly going to raise the debt service, net interest and we will start seeing the net interest payment a big chunk of the federal budget. it will do a lot of things, not only restricting your flexibility to do things with the budget but also those rising interest rates affect the economy. it probably crowds out private investment, probably don't get as much capital stock and probably don't have the productive growth we'd like to have in terms of long run growth. >> thank you, mr. chairman. thank you. >> senator whitehouse. >> thank you, chairman, welcome back, doctor, good to see you. >> thank you. >> with a new congress and a new administration, i wanted to just briefly review the bidding with you on some of the issues that we've talked about in the past. the first is whether you still believe tax expenditures remain a form of federal spending? >> i -- i don't want to make a judgment on that. but tax expenditures are a very large number. they do dwarf a lot of categories of federal spending. >> a tax expenditure of a dollar has the same effect on the debt and deficit as direct spending of a dollar? >> right. right. this is -- well -- >> all things being equal being understood. >> yes. >> second, do you continue to believe that reform of the delivery system in healthcare has promised to reduce healthcare costs on a going forward basis? >> we certainly think that about some of the reforms that have happened as part of the aca. we still -- it's very hard to forecast. we still see health costs continuing to grow faster than gdp does. it will continue to take a bigger and bigger share of the pie. >> adjusted for the demographic change? for incorporating the demographic change? >> even adjusted for the demographic change we still see expenditure per person or per patient being one of the growing parts of the budget. >> i think it's a great place for us to continue to work on because i'm seeing primary care provider groups in rhode island that have declared themselves accountable care organizations within the program that the aca set up who are changing the way they do business and changing the way they're paid by different pay ors and the result has been happier customers, better served patients and a lower cost per capita of their patient network. and there have been very significant share in savings between the federal government and these practices. i think this is the leading edge because they are kind of cutting edge providers who have worked hard to do this. the fact they're already seeing significant results, big numbers by rhode island standards i think gives us some confidence. last september i asked you what cbo was doing to study how the aca has affected federal health spe spending, and you replied we're going to be getting data and looking at real data. since september to now, give us an update where you are on that project. >> sure. obviously we are getting data. to adjust our estimates of the spe spending. i think right now, our current estimate is that that spending on the medicare expansion is about $70 billion. i think on the subsidies about $56 billion. we are -- we've actually been pretty accurate in our forecast on those things. >> i think we were talking more about this graph, i think is yours, that shows the adjusted forecast federal spend iing. cbo has repeatedly dropped the forecast since the aca was passed and the question was, to what extent has that reduced forecast of federal spending in the out years been connected to programs contained within the affordable care act. >> i see. >> it shows 3.3 trilli$3.3 trilt savings in the 2018-2027 window, vis-a-vis the 2010 projection. if i could make a question for the record, to get an update where you are in terms of evaluating that connection, that would be helpful. the last question is that climate change portends outyear costs for the federal government that ought to be budgeted, does it not? >> we've certainly just recently put out a report on the likely impact of climate change on hurricane frequency and sea levels and what that means for the federal budget and recommendations what you all can look at to impact that. it's looking 30 years ahead and a lot of the impact is perhaps beyond 30 years. we have estimates of that. i don't have them handy. >> mr. chairman, we just got the updated report from noaa on the anticipated sea level rise for rhode island by the end of this century and they raised it from 6 feet to 9 feet, and while it makes a shorter drive to the beach for somebody in wyoming, it's a very deadly serious matter for rhode island, and i hope we can look forward to a day we can have a sober and sensible discussion about that here in congress. thank you, sir. >> we have a little bit of room yet in wyoming for a few additional people if they want to move to higher ground. >> interestingly, the majority leader's home state did a study that showed that kentucky might actually expect an influx of population from people fleeing battered coasts as a result of climate change. even kentucky sees it coming, they just see it in a different light. >> in light of climate change, wyoming has been completely under water three times. >> you sympathize with what i see coming? >> absolutely, yes. it would be easier to get sailing lessons there. i've been there and done that. i'm going to change the topic pretty dramatically in my questions, because we're dealing with some pension deficits in the private sector that are huge. we required the private sector to do city council investments to keep ahead of that. to do substantial investments to keep ahead of that. that prompted me to worry how states are handling their pensions and led me to worry how the federal government is han e handling its pensions. what kind of resources do we have to handle the pensions. at the last hearing i was at i was shocked to here and i don't know if it's accurate but imagine it's pretty close. one-third of our federal workforce will retire by 2020. what kind of assets do we have to set aside to fund our pension plans? >> i don't have that information in front of me, but we have actually been doing some work on foreca forecasting, looking at that. we can follow up and see what we can get you on that. >> have any idea where that pension money comes from now? >> i presume it's part of spe spending. >> part of general fund? >> yes. >> we have no money set aside for pensions? >> i'm sorry. i see where you're going. we don't have any money set aside, that's right. >> part of the deficit problem we have will be when one-third of the federal workforce retires and expects their pensions. >> that's correct. >> that's probably another pension crisis we better be figuring on. did you have more questions, senator king? >> just one more. i'd be interest eed and maybe ts has to be done for the record, what your estimates or assumptions are built into these projections of healthcare inflation. i noticed for example medicare adjusted for october 1st was about a 5% increase last year. the general economy was inflation was 1 1/2%. what i'm interested in is the sensitivity and the projections to various estimates of healthcare inflation. my impression is of all these things we're talking about, one of the most important factors in growth of the federal deficit is healthcare inflation. if that could be held for example to half of 5%, through a variety of changes, that would be a significant -- that would improve these numbers considerably, isn't that so? >> yes, i think it would have september a noticeable effect. i'd be happy to follow up and tell you what our forecast is and give you some idea. >> a range. >> sure. >> starting with your similar interest rate assumption to 5, 6, whatever you're using. i think it points to an underlying issue that we really need to be talking about. with all the debate of the affordable care act and issue surrounding it, we're not really talking about the underlying cost of healthcare, which is going to be a driver of our economic stress both in our federal budget and our household budg budgets. regardless who's paying of what the insurance mechanism is. i'm concerned we haven't really focused sufficient attention on that in delivery mechanisms, how the system can be made because we are, as you know, paying about twice per capita for healthcare as any other developed country in the world and that is an underlying problem, it seems to me, we need to address. >> we'd be happy to follow up. thank you. >> thank you, mr. chairman. >> senator bozeman, do you have any additional questions? >> no, sir, thank you. >> i have one additional one i see. it's often said the longer we wait to reform social security the more difficult it will be. in 2015, congress had an opportunity to reform the disability program. instead we punted and transferred money from the retirement program and postponed reform. the latest cbo estimate shows the disability trust fund will be exhausted in 2023. can you give us a sense how much more difficult it will be to reform social security if we wait until 2023? >> it would be a lot harder. this is one of the recurring themes, i think, of our entire report, social security, disability. these are problems we've seen coming for decades and they're getting closer now. absolutely the quicker we do something the better. if we look at achieving a 75 year solvency for the social security trust funds, right now that would require a 33% reduction in benefits. if we wait six years, something like that, that goes up to 38%. it goes up about 5 percentage points every six years, something like that. there is a real cost to waiting the longer we wait the bigger the cut in benefits and increase in taxes that we need. >> thank you. in conjunction with senator sanders, we'll have some additional questions on the levers on social security. i invite senator bozeman and senator king to be a part of that. it's information we really need to gather quickly. thank you very much for being willing to do this and for your answers, and for the conciseness of your answers. now, if anybody has additional questions, those are dubai 6:00 p.m. today with a hard copy delivered to the committee in 624. we'd ask that you respond to those as quickly as possible. with no further business, this meeting is adjourned. >> thank you. c-span's "washington journal" live every day with news and policy issues that impact you. coming up thursday morning, a look at supreme court nominee neil gorsuch's records an religious liberty and major 1st amendment cases currently before the considerate with hannah smith, senior counsel to the beckett fund for religious liberty. then democratic congressman steve cohen from tennessee will discuss his proposed legislation to overturn president trump's executive order which restricts travel by immigrants from seven muslim majority countries. representative cohen will also talk about the legality of the president's order. be sure to watch c-span's "washington journal" live at 7:00 a.m. eastern thursday morning. join the discussion. this weekend on "american history tv" on c-span3, saturday evening at 6:00 eastern on "the civil war" author and historian harold holzer on abraham lincoln's views on immigration andest esfforts to court the g americans early in his career. >> one in ten joined the military as soon as they arrived. by lincoln's optimistic calculation, the result with black enlistment factored in and even with the dead wounded captured and missing, subtracted, was a net gain for the military and for the country at large. >> then at 8:00 in "lectures in histo history" charles mckinney describes efforts to end segregation during world war ii. >> the new deal also creates spaces for african-americans and southern african-americans in particular to start to push for civil and economic rights. civil and economic rights. it gives them, again, to use roger wilkens' phrase, human space to push for and inspire for that inclusion into the mainstream of american life. >> sunday afternoon at 4:00 on "real america," the 1958 united states information agency film "communist propaganda." >> what do the communists have to say concerning our air force? >> the american saber jet accidentally dropped some rockets over florida. this report gives us every ground for questionable the possibility of accidents in general. since it claims that approximately 70% of the officers and enlisted men of the air force are psychoneurotic. >> at 6:00 on "american artifacts" the museum of the american revolution is scheduled to open this spring in philadelphia. see a preview of the artifacts discovered during its construction. >> when we got them pasted together, we see it says "success to the triphena" so what's the