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

Partial transcript of Q&A with Rep. John Campbell (R-California) 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. John Campbell (R-California):
…If there’s one good thing I hear from both sides this morning, it’s no one is saying “It’s great that the deficit is increasing and that it’s going to get to $1 trillion.” So, everyone is interested in reducing the deficit. That is a good thing.

Let’s talk for a second about taxes – that side of it.

There were a bunch of tax increases in 2013. Those are reflected in this projection.

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

Rep. John Campbell (R-California):
Also, 2014 there’s about 60 tax credits and deductions and so forth that expired. Have you included those in this as well?

Douglas Elmendorf, Director of the Congressional Budget Office:
No. So, the provisions that have expired – as you know, we follow current law in the basic projections. But we do provide some alternative policy scenarios for your use, one of which extends all of the expiring tax credits.

Rep. John Campbell (R-California):
Right, but in the summary table 1, you have assumed they expire.

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, that’s right.

Rep. John Campbell (R-California):
Okay. So, what I’m getting at is there were tax increases in 2013, there are tax increases in 2014, and I think there’s even some in 2015 that are all reflected in this, which is why revenues go from 16.7% of GDP last year to somewhere between 18% and 18.4%…

Douglas Elmendorf, Director of the Congressional Budget Office:
So, there are two key factors. You have one of them, Congressman, which is the changes in tax provisions. And the other is the strengthening of the economy, which pulls in more revenues as a share of GDP.

Rep. John Campbell (R-California):
Okay. But a number of tax increases from 2013, 2014 are included in this. So we’ve had tax increases…

[On 4 factors driving up the deficit as indicated by Elmendorf in his opening statement]

One was interest on the debt. Two reasons for that – interest rates are not expected to stay at these historically low levels but the other is that the deficit itself obviously feeds more debt, which feeds more interest.

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

Rep. John Campbell (R-California):
So the best cure for that is to eliminate the deficit, correct?

Douglas Elmendorf, Director of the Congressional Budget Office:
I mean, all other considerations aside, Congressman, yes, a smaller deficit would lead to less interest payments.

Rep. John Campbell (R-California):
Okay. Then you talked about the cost of medical care going up generally and how that’s affecting the various medical programs – Medicare, Medicaid, et cetera. So you’re still projecting that the cost of medical care are going to go up. I’m trying to balance that against the argument that Obamacare is reducing the cost curve on…

Douglas Elmendorf, Director of the Congressional Budget Office:
Well, Congressman, there’s been a very pronounced slowdown in the rate of growth of health care cost per person in both federal programs and the private sector over the past half dozen years or more. And we have taken significant lesson from that and have lowered our projections for the federal programs going forward. But we have not lowered them so much as to have no more growth left – that would be really quite an extraordinary turn of events. What role the Affordable Care Act has played in this slowing of health care costs is, I think, quite unclear to analysts at this point.

Rep. John Campbell (R-California):
Okay. So, you’re basically saying that there are conditions out there before Obamacare, after it, whatever, that increased health care costs, and you expect those conditions independent of government action to continue to some degree?

Douglas Elmendorf, Director of the Congressional Budget Office:
Exactly. Not at the rate we thought before but at a positive…

Rep. John Campbell (R-California):
Okay. That gets to a similar thing. You mentioned the aging of the population, which is obviously something that – guess what – we here in Congress unfortunately cannot control. And those two factors – [medical] costs and aging – are what is driving up the cost of so many of the major entitlement program. So if we’re going to get this deficit under control, we’ve got to do something about those, don’t we?

Douglas Elmendorf, Director of the Congressional Budget Office:
Well, Congressman, you either need to cut back on some of those large programs or raise revenues to a larger share of GDP or some combination of those two policies.

Rep. John Campbell (R-California):
We just did raise revenues as a share of GDP.

Douglas Elmendorf, Director of the Congressional Budget Office:
To some extent, yes.

Rep. John Campbell (R-California):
Okay. Then the last thing you mentioned was driving things was Obamacare. So, that’s driving things on the cost side. I understand there’s tax increases that were involved with it but it’s driving a lot of additional costs as well.

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, the expansion of Medicaid and the institution of subsidies – these tax credits to be provided through exchanges – are part of what’s pushing up federal health care spending.

Rep. John Campbell (R-California):
And then won’t the 2.5 million full-time equivalent job loss – whatever that is – 2 million – doesn’t that retard revenues as well because that’s people that aren’t working, aren’t making money, aren’t paying taxes.

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, relative to not having those effects, that lowers tax revenue. Revenue is still rising, of course. I just mean that relative to what would have happened without that effect that reduction in employment, reduction in GDP implies a reduction in tax revenue.

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