Transcript: Q&A w/ Rep. James Lankford on the CBO’s 2014 budget & economic outlook

Partial transcript of Q&A with Rep. James Lankford on the Congressional Budget Office’s (CBO) 2014 federal budget and economic outlook. The House Budget Committee hearing was held on Feb. 5, 2014:

Rep. James Lankford (R-Oklahoma):
…There’s been some conversations about discretionary spending. Obviously, there’s been a lot of conversations about discretionary spending. Is it CBO’s conclusion that there is no additional waste in government and that government is running as efficient as it can possibly run? And so there is no additional places in the discretionary area where we can deal with wasteful spending?

Douglas Elmendorf, Director of the Congressional Budget Office:
No, Congressman. That’s not our view. In fact, in our volume of budget options in the fall, we provided the Congress with dozens of options for cutting back on discretionary programs if you would choose to go that direction. But we also noted that while I think the entire set of options we gave you would all be needed – and maybe more than that in order to meet the caps that already in place because the caps are such that the current set of programs, there won’t be enough money to continue the current set of programs and services under those caps. So, even under current law, you and your colleagues would need to take advantage of a wide range of cutback and programs in order to meet the caps if you choose.

Rep. James Lankford (R-Oklahoma):
The cutbacks would be in programs and services? Those cutback would be in reducing duplication and trying to deal with some of the inefficiencies and the inappropriate payments and all that?

Douglas Elmendorf, Director of the Congressional Budget Office:
Well, Congressman, that would depend on, I think, what the Congress does and also on people’s interpretation. In my experience, programs that some members view are waste are programs other members view as important. It’s not place to judge that.

Rep. James Lankford (R-Oklahoma):
I’ve noticed that as well, actually.

Let me mention a couple of things on interests. Last year, once we get the 10-year window – we got 2023 – you estimated that the interest payment alone at $857 billion. That interest payment now that you’re estimating in 2023 is $819 billion. So we’ve actually made some “gain” at that point.

But I’m also looking as I look at the amount of interests that we pay versus the increase in the deficit each year that number is strikingly similar many years.

Now, some years the interest payment increase is higher than the deficit, and some years it’s a little bit different. But if I track just the increase and how much interest we’re paying, it’s very similar in numbers to actually the increase in our deficit every single year.

So this seems to be a problem that is driven primarily right now – obviously there are other factors as well – by an increase in interest rates going up as well.

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes.

Rep. James Lankford (R-Oklahoma):
…From 2017 to 2018, there’s an increase in interest payments of $89 billion. At that same time, there’s an increase in deficit spending of $74 billion. So if the interest rate wasn’t accelerating, obviously we would make progress in our deficit. But we’re not. It’s increasing. If you go between 2018 and 2019, it’s an increase of $76 billion in interest payment but $97 billion in deficit spending. So it swings in each direction. Can we talk a little bit about the interest?

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, Congress. You’re right if one wants to isolate the interest piece that all the rest of government spending and revenues – the gap between them would actually be fairly, fairly stable in dollar terms over the coming decade – in one sense one can attribute the rising deficits to rising interest payments. [Overlapping audio]

Rep. James Lankford (R-Oklahoma):
But what do you estimate the rising interest payment? Why is that interest payment accelerating at this point?

Douglas Elmendorf, Director of the Congressional Budget Office:
Interest payments are rising partly because of rising debt but even more so because of rising interest rates. Interest rates, as you know, have been unusually low over the past half dozen years, and we expect, as financial markets expect, those rates to return to more typical levels. So interest rate on the 10-year Treasury note will be rising from 2% something to I think 5%, and that causes a very sharp rise in the interest payments that the government will have to make.

Rep. James Lankford (R-Oklahoma):
To the point that 10 years from now our interest-only payment is $880 billion.

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes in that 10th year in 2024. Yes, Congressman.

Rep. James Lankford (R-Oklahoma):
So this concept of at some point getting to a primary balance and we’re just going to try to get to a balance except for interest payments, we’re basically saying we’re going to try to balance except for around that last trillion.

Douglas Elmendorf, Director of the Congressional Budget Office:
As you know, we’re not specifying that goal. But yes, you’re right. The interest payments will be very, very large.

Rep. James Lankford (R-Oklahoma):
I want to make a comment that’s not related to this. It’s related to CBO’s scoring and its structure.

Each year when we go through budget negotiations and conversations, there is a scoring issue dealing with changes in mandatory programs – CHIPs – where we take money that is existing in a fund, move it to the next year’s fund, count that as savings. Would you consider that – I know CBO officially considers that savings. Would you consider a change in mandatory program or an account to be an actual savings?

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, Congressman. We think that if you in an appropriations bill make a change in mandatory program so the government pays out less in that year, that is a real savings.

You’re right that the budgetary treatment here is very complicated and that these things can look – and that next year we tend to focus on what you’ve done in appropriations and make the change in mandatory spending part of our mandatory spending projections.

But I don’t think we believe there is anything that is fake about those changes in mandatory programs. If you really have made a change in law that cuts spending in that area, then that’s what we’re recording when we give you an estimate.

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