Transcript: Q&A w/ Sen. Angus King on the CBO’s 2014-2024 budget & economic outlook

Partial transcript of Q&A with Sen. Angus King (I-Maine) on the Congressional Budget Office’s (CBO) 2014-2024 federal budget and economic outlook. The Senate Budget Committee hearing was held on Feb. 11, 2014:

Sen. Angus King (I-Maine):
…What’s the lag time in terms of the increase in interest rates and effects on interest charges? In other words, if all of our debt today was locked in 10 years at 2% and interest rate changed next year would have no effect, as I see it. I’m just trying to understand what components of the debt are locked in and what are short-term. Because I’m concerned about this interest rate increase and the impact on the budget and the crowding out of other priorities, but there’s a time lag thing here isn’t there?

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, there is, Senator, and in our estimates of the effects on the budget of having interest rates that are just 1% throughout the coming decade, we take explicit account of the phenomenon you’re describing, which is that the government will sell some new debt next year and that will incur the high interest rates right away, other debt will not roll over for the 9, 10 years, and some debts will not mature at all within the 10-year budget window.

Sen. Angus King (I-Maine):
So, it wouldn’t be accurate to take $17 trillion and say if interest rates go up next week 1%, then you take 1% of $17 trillion. That’s not the way…

Douglas Elmendorf, Director of the Congressional Budget Office:
That doesn’t work. What we published in as an appendix in the outlook itself is a rule of thumb for you and your colleagues to use but that rule of thumb takes into account the phenomenon you’re describing.

Sen. Angus King (I-Maine):
…All this talk about the effect of the Affordable Care Act on people’s employment decisions – I believe that in the long-run probably the most lasting and important effect of the Affordable Care Act will be the very subject that we’ve talked about which is the virtual elimination or certainly the significant reduction of job lock, because it’s going to free people to start new businesses. That’s where the dynamism comes in the country, and I know people – and I’m sure every one in this room knows people – who’ve said, “I’ve got a great idea but I can’t leave my job because I’ve got a sick child and I can’t lose my insurance.” So this idea that somehow we’re discouraging people from work, we’re actually liberating people to follow the American principle of self-determination and creativity and innovation, and I think that’s a hidden benefit, frankly, of the Affordable Care Act that I’m not sure people really calculated. I realize that’s hard to calculate in economic terms but I believe that that is going to be very significant. And the idea that somehow the Affordable Care Act by taking away the linkage between employment and health insurance is something we should discourage, we want everyone to work – you know, pensions, Social Security – why not everybody work until they’re 100. I mean, that just doesn’t make sense to me. We want people working because they need to, they want to, they want to provide for their families and they want to be creative about it.

…Are tax expenditures expenditures just like Head Start or Pell Grants?

Douglas Elmendorf, Director of the Congressional Budget Office:
As you know, Senator, they’re recorded in different ways in the budget, but there’s a widespread consensus among analysts that tax expenditures have very similar sorts of effects to direct federal spending and thus should be viewed similarly to direct federal spending by both analysts and policymakers.

Sen. Angus King (I-Maine):
And I recommend for my colleagues page 89 on in the report a very good analysis of tax expenditures and really you say they’re almost like entitlements because if you’re legally qualified, you’d get them, and they aren’t examined very often, and they just go on forever. Correct?

Douglas Elmendorf, Director of the Congressional Budget Office:
That’s right, Senator.

Sen. Angus King (I-Maine):
It just strikes me that we’re talking around here about how we pay for things and it’s always it’s okay to pay for it by taking away some benefit that the disabled get or somebody else, but to say that you can’t look at tax expenditures ’cause that’s revenues is really a misunderstanding of the fact that the two are really virtually identical.

Douglas Elmendorf, Director of the Congressional Budget Office:
I want to mention, Senator, we’ve done – we issued a report last year that looked more in-depth at tax expenditures, including the distribution of tax expenditures and also their economic effects. If people are interested in that topic, we’re happy to send you that report.

Sen. Angus King (I-Maine):
I haven’t seen that report but I’m guessing that tax expenditures tend to go more heavily to people with higher income?

Douglas Elmendorf, Director of the Congressional Budget Office:
Well, the different expenditures are quite different. So, the Earned Income Tax Credit induces some tax expenditures that are obviously toward the lower end of the income distribution. But the state and local income tax deductions tend to work for the higher end of distribution. We will make sure you have that on your desk today, Senator.

Sen. Angus King (I-Maine):
Fine. I’ll have one more question for the record, but the final question is not fixing infrastructure is debt, is it not?

Douglas Elmendorf, Director of the Congressional Budget Office:
Well, it’s a different sort of future commitment. [interrupted]

Sen. Angus King (I-Maine):
But it has to be paid eventually.

Douglas Elmendorf, Director of the Congressional Budget Office:
We think we will ultimately repair the bridge or expand the highway, that not doing it now – putting it off – is putting a burden on the future in a way that is similar to the burden of doing something and borrowing to pay for it.

Sen. Angus King (I-Maine):
Carefully parsed, but I would take your answer as a yes.

Douglas Elmendorf, Director of the Congressional Budget Office:
Senator, I would like to close by noting that although you kindly referred to me as indispensable, as you and your colleagues understand, it is my colleagues who are indispensable. If I have good answers for your questions, it’s because of the things they’ve taught me but they also taught me to be careful…

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