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

Partial transcript of Q&A with Sen. Pat Toomey (R-Pennsylvania) 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. Pat Toomey (R-Pennsylvania):
…I do have to say I am shocked – have been since last week – not by your analysis that suggests that if you increase incentives to leave the workforce some people will in fact leave the workforce. That’s not shocking. That’s not revolutionary. What’s shocking to me is my colleagues suggesting that this is a great thing, that it’s somehow a good thing to diminish the incentives to work.

I don’t know how we got to the place in America where work has become a terrible thing that we must unshackle people from the misery of having to be productive and from actually supporting their family.

And I don’t know how it’s lost on so many people in this town that work is a source of dignity, and it is the way that people get ahead. And it has always been the source of advancement in our society.

I’m not asking you to comment on that. I think you’d probably rather not.

But I do want to be clear: Your analysis about the effects – the results from the incentives of Obamacare – your analysis says we will have a smaller workforce as a result. Correct?

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

Sen. Pat Toomey (R-Pennsylvania):
And a smaller workforce means a smaller economy.

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, those are our estimates.

Sen. Pat Toomey (R-Pennsylvania):
So your analysis is that as a result of this phenomenon, we have less total output, and I think it’s very clear that that means less opportunity, less prosperity. One of the things that’s really disturbing about your projections is how meager the economic growth forecast is. For most recent decades, I’m not sure exactly what the timeframe I have here – actually about the last 60 years or so even including the Great Recession average real GDP growth has been over 3%. You are projecting that starting from next year forward, it just gradually declines every year, every single year, until we get to about 2%, which is well below our historical average and what that means is just fewer people working, fewer people getting raises, fewer people advancing and a lower standard of living. Isn’t that what that means to have a 2% GDP growth instead of a 3% GDP growth?

Douglas Elmendorf, Director of the Congressional Budget Office:
So let me just be clear here that the thing that growth slows throughout the decade is of the potential output. We think there’ll be some recovery of actual output up toward potential as we proceed with the recovery. But then potential output growth – you’re right, Senator – I think will be much lower in the future than in the past. The most significant part of that is the demographic change. It’s the retirement of the baby boomers. But there are other factors as well.

Sen. Pat Toomey (R-Pennsylvania):
Well, there are. In fact, you knew very well the demographics of the aging population last year. That hasn’t changed in the last year. Demographics are very immutable. But yet, you’ve reduced your forecast for the actual size of our GDP. In fact, you reduced it so much between last year and this year, it’s $1 trillion, which is a hard number to – roughly $1 trillion in 2024 – it’s a hard number to wrap your brain around. So one way to think about it – that is the total economic output of Pennsylvania, West Virginia, Delaware, and Maryland combined. That’s how much you have diminished in your forecast of economic growth in 2024.

So, could you share with us the main reason that you think our economy is going to be so much smaller now than you thought a year ago?

Douglas Elmendorf, Director of the Congressional Budget Office:
So there are a large collection of factors, Senator. Part of it was that the national incomes data were revised last summer, and that affected our view of how much output had grown in the past. It affected our view of what productivity growth is likely to be going forward. There were new data that changed our view of how much the labor force had grown in the past. So a lot of factors. We also did, as we discussed, a revaluation – a very intensive examination of the effects of the Affordable Care Act. So it’s a collection of things. It turned out the revisions were largely in one direction but we do think our current projection is the best one that we can give you at this point in time, recognizing tremendous uncertainties…

Sen. Pat Toomey (R-Pennsylvania):
But a significant contributing factor is the decline in the total workforce participation rate, isn’t that?

Douglas Elmendorf, Director of the Congressional Budget Office:
That’s absolutely right. If you look at the – the most significant factor explaining why growth will be slower in the future relative to the past is the slower growth of labor force, and it is partly the retirement of the baby boomers; it is partly the big increase in women’s participation in the labor force in the ’70s and ’80s won’t be repeated.

Sen. Pat Toomey (R-Pennsylvania):
Right, but you knew that last year. I’m talking about the difference from this year…

I would just suggest that since the Great Recession, we’ve been in this great experiment with virtually in some ways completely unprecedented governmental policies – massive expansion in regulatory burdens imposed on the economy, huge tax increases, massive surge in spending, which has since declined somewhat but is projected to grow again, completely unprecedented monetary policy. And I would just suggest that the data that’s coming in is indicating this isn’t working so well and the forecast is for it to get worse. I hope we’ll get off this path…

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