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

Partial transcript of Q&A with Sen. Rob Portman (R-Ohio) 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. Rob Portman (R-Ohio):
…I want to focus on three things. One, of course, is what the real problem is in the deficit, and I think your new report only emphasizes what we already knew. Second is what can we do on growth. And then third is what is the impact of Obamacare on growth.

In terms of the deficits, this was a discouraging report for me because it shows things are getting even worse. If you could just give me a series of yes or no answers, that’d be great.

Am I correct that in the past 50 years federal revenues have averaged just under 18% of GDP?

Douglas Elmendorf, Director of the Congressional Budget Office:
Senator, we average for 40 years, and we say it’s been about 17.5%.

Sen. Rob Portman (R-Ohio):
Less than 18% over the last 40 years. Over the next decade, you’re projecting that it will average more than 18% of GDP. Is that right?

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

Sen. Rob Portman (R-Ohio):
And you’re saying it’ll keep rising thereafter?

Douglas Elmendorf, Director of the Congressional Budget Office:
Under current law, yes.

Sen. Rob Portman (R-Ohio):
Okay. So the notion that we talked about, you know, that we need more revenue, we’re above the historical average based on your projections over the next 10 years and continuing to grow.

How about discretionary spending? What we call other mandatory spending. Are those falling as a percentage of the economy over the long-term?

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, under current law, Senator, and the projections [interrupted]…

Sen. Rob Portman (R-Ohio):
So what’s left? Discretionary spending is what we appropriate here every year. The mandatory part of the budget – Social Security, health entitlements – 7.8% of GDP in 2005, now 9.7% of GDP on their way to 13.7% of GDP in the next 20 years. Is that correct?

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

Sen. Rob Portman (R-Ohio):
And you projected health entitlements alone are going to go up over 100% – more than double – 115% over the next 10 years, now is that right?

Douglas Elmendorf, Director of the Congressional Budget Office:
…The major health care programs we project to rise from 4.8% of GDP this year to 6.1% in 2024…[interrupted]

Sen. Rob Portman (R-Ohio):
In nominal terms…In nominal terms you go 115% over the next 10 years.

Douglas Elmendorf, Director of the Congressional Budget Office:
Um, I take your word for it, Senator.

Sen. Rob Portman (R-Ohio):
Okay. Steeper rising national debt and its resulting interest costs are mostly the result of what? Borrowing for what specific programs?

Douglas Elmendorf, Director of the Congressional Budget Office:
Well, the borrowing is for the gap between spending and revenue…But part of the budget which is [interrupted]

Sen. Rob Portman (R-Ohio):
Right. We just talked about the fact…

Douglas Elmendorf, Director of the Congressional Budget Office:
…growing most substantially is spending for Social Security and the major health care programs.

Sen. Rob Portman (R-Ohio):
Okay. So we have identified what the focus ought to be. We’re heading toward record high tax revenues revenues over the decade, nearly record low discretionary spending, falling other mandatory spending, so we’re talking about these important programs but unsustainable in their current form – health care entitlements, Social Security, and the resulting net interest costs.

Douglas Elmendorf, Director of the Congressional Budget Office:
It’s a striking shift in the composition of government spending towards those few large programs you’ve highlighted, Senator, yes, and away from other things.

Sen. Rob Portman (R-Ohio):
So my next question is how do you solve that? Obviously we need reforms. Again, incredibly important programs but we’ve heard a lot about a balanced solution which basically is to make the next generation pay the cost for our generation as opposed to reforming these programs. So that is very clear in your report. This is the problem. We’ve got to address it, and if we don’t we will face consequences. You talked a little earlier including the possibility of a fiscal crisis.

Second, the economy. I found it depressing, actually, what you put on your report. I’m not saying you’re wrong. I’m saying that you’re asking us to accept a new normal, and that new normal is not 4% to 5% growth, it’s 2% growth. In fact, what you tell us is that in this new baseline, you pared back your economic growth assumptions, which by the way have always been more optimistic than what’s actually happened in the last several years and so I understand why you did it. 2.5% over the next decade. Decelerating to just 2% in 2024. $1.4 trillion less tax revenue therefore over the next decade.

And this is not the first time this has happened. Since President Obama took office you have consistently come out with decreases in projected economic growth. Those have translated just in this President’s term to more than $2.2 trillion in reduced tax revenue when you take those projections out to 2024. Remember this is all about the bad economy since the President took office.

So, earlier you talked about this but economic growth obviously is key…Economic growth through tax reform – would that make sense – lowering the rate, broadening the base?

Douglas Elmendorf, Director of the Congressional Budget Office:
That would be good for the economy, Senator, but…[interrupted]

Sen. Rob Portman (R-Ohio):
How about trade?

Douglas Elmendorf, Director of the Congressional Budget Office:
That depends on the specifics of the reform.

Sen. Rob Portman (R-Ohio):
Yeah. Would trade be good for the economy?

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, it probably would be, Senator…

Sen. Rob Portman (R-Ohio):
How about long-term debt reduction?

Douglas Elmendorf, Director of the Congressional Budget Office:
That would be good for the economy…[interrupted]

Sen. Rob Portman (R-Ohio):
How about more domestic energy production?

Douglas Elmendorf, Director of the Congressional Budget Office:
I think that would be good for the economy as well but…[interrupted]

Sen. Rob Portman (R-Ohio):
This is what’s frustrating is we’ve got these things you know would work and we know would work and if we would just do them we could both deal with the spending side and the growth side.

On Obamacare, just quickly, I appreciate that you looked at the work of Casey Mulligan and others…There’s been a lot of talk about this today. People are leaving the workforce because it’s a sharp cliff. I would say to my colleagues on the other side who said this is all about moms who want to stay at home with their kids and it’s all about people starting new businesses or even working in your family businesses. I mean, when you’re working, you’re working. You’re not out of the workforce first. But tell us the demographic of this group that’s likely to drop out. What do you know about them?

Douglas Elmendorf, Director of the Congressional Budget Office:
The attributes of the group? So, the biggest effects, as we wrote Senator, are primarily on people of lower income because they are the ones who are receiving the subsidies through the Affordable Care Act. The existence of the subsidies and the withdrawal as people’s income rises it reduces the incentive to work.

Sen. Rob Portman (R-Ohio):
As Mulligan said, about 50% in effect tax or penalty on work because of this cliff. But tell us who these folks are. Do you think it is primarily people who are likely to retire early or moms who want to stay home with their kids? Who is it?

I ask you this because when you look at the labor participation rate which is already at 1970s level, it’s a record low for men right now; it’s a record low for working men. And here we are taking this labor participation rate even lower – fewer people working which is bad for economy, bad for growth, bad for prosperity. When you look at this data that we know out there and the early indications are this tends to be single men, they tend to be childless, and my concern is we’re going to be even exacerbate further this already record level. What do you think about that?

Douglas Elmendorf, Director of the Congressional Budget Office:
So, Senator, the subsidies in the Affordable Care Act affect a broad range of types of people, and we did not do this analysis in a way that lets us isolate the effects of particular – [interrupted]

Sen. Rob Portman (R-Ohio):
Could you look at the Brooking study on that and look at whatever else you think is appropriate and get back to me on that as to who you think is really going to be affected here? We talked about the fact that these are people who you want to get on that ladder of opportunity, that income ladder and going up the ladder, and this takes them off the ladder, reduces their Social Security benefits, as you know, because their lifetime earnings are going to be reduced. It takes them out of this possibility of being able to achieve their dreams for themselves and their families because they lose the dignity and self-respect and the opportunity that comes with work. And that’s my concern is that – I know you and I disagree on some of the Obamacare impacts on the labor demand side – I think a trillion dollars in new taxes does have an effect on workers. I think also the 50 person limit and the part-time to 30 hours does have an effect. We may disagree on some of that. But this data is really concerning because it exacerbates an already terrible problem we have, and you don’t have to do it. You can solve these health care problems without that stiff cliff, and that’s one of the differences maybe between the two sides here is that there are ways to do it including through the tax code that have been talked about where you wouldn’t have that 50% penalty and still be able to address many of the problems on pre-existing conditions and other issues that have been raised today.

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