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

Partial transcript of Q&A with Rep. Tom Rice (R-South Carolina) 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. Tom Rice (R-South Carolina):
…I’m trying to add up these outlays in this figure 3.1. What percentage of total spending…excuse me, what is the percentage of total spending as a percentage of GDP in 2024 based on your projections?

Douglas Elmendorf, Director of the Congressional Budget Office:
In 2024, we think the total government – federal outlays will be 22.4% of GDP.

Rep. Tom Rice (R-South Carolina):
And how does that relate to the average over the last 30 years?

Douglas Elmendorf, Director of the Congressional Budget Office:
That’s about 2% higher than the average of the last 40 years, which is the comparison we tend to use.

Rep. Tom Rice (R-South Carolina):
And looking at your revenues, I see that you’re projecting – you say that from 1974 until now, the average revenue is 17.4% and that you’re projecting that we’ll be above that beginning next year and throughout the rest of the period.

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

Rep. Tom Rice (R-South Carolina):
And in the end, it looks like it’s going to be about – what is that – 18.5%?

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes. So I think revenues will be about 1% of GDP above the historical average. Roughly.

Rep. Tom Rice (R-South Carolina):
So, at what point – I know economists speculate about at what point revenue as a percent of GDP is a drag on the economy. You know, if you collect too much, it begins to drag on the economy. What is that percentage?

Douglas Elmendorf, Director of the Congressional Budget Office:
There’s no tipping point that economists are aware of, Congressman. I also think that the amount – and in part because the effect depends an awful lot on how the tax code is structured. So it’s not just the total amount of revenues that’s raised. It is also or even more so the way the revenue was raised. And so this has to do with the nature of the tax code and the particular incentives and disincentives created by the provisions of the tax code.

Rep. Tom Rice (R-South Carolina):
So you don’t know of any level – it could 50% of GDP and it would still be not a drag on the economy?

Douglas Elmendorf, Director of the Congressional Budget Office:
Well there are – I didn’t say that. What I want to say is there’s no magic number. The higher the tax rates are, all else equal, the more that distorts people’s behavior, and if you’re taxing work and saving, then the more that will reduce the amount of work and saving all else equal.

As you know, the amount of debt that we have, which depends on deficits, which depends on the gap between revenues and outlays, also affect economic growth over time. So have to be careful about what else is equal in these calculations.

But leaving aside that, when you have taxes of a certain level, the higher those tax rates are, the more that will tend to distort behavior, also the more revenue you might raise, which could reduce deficits and have beneficial effects.

But in our analysis, we take on board the effect of higher tax rates on the economy. But there’s no number you go beyond where it’s a problem. It’s a problem from zero and it becomes an increasing problem as you work your way up.

###

Learn More:

Leave a Reply

Your email address will not be published.