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

Partial transcript of Q&A with Sen. Tim Kaine (D-Virginia) 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. Tim Kaine (D-Virginia):
Just quickly by way of introduction, there’s a lot of food for thought in this that Sen. Toomey’s comments about, you know, does the ACA dis-incentivize work. The way I look at it, the federal government’s been dis-incentivizing work for a long time…through tax policy…We used to tax investment income at a rate significantly higher than salary and wages. Then they reached a rough equivalence, and now we’ve decided to tax work much heavier than we tax investment income. So, if we’re going to look at what dis-incentivizes work, we need to tackle the tax expenditure issue. That’s my editorial comment.

Questions that I want to ask to make sure I understand your report deal with revenue as a percentage of GDP and spending as a percentage of GDP.

Dr. Elmendorf, as I read the report – and this page 79 and 80 – on revenue as a percentage of GDP, the 10-year average you project from 2014 to 2024 is about 18.1%. It varies over the 10-year but that’s the average.

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

Sen. Tim Kaine (D-Virginia):
The 40-year average going back essentially to the start of Medicaid and Medicare 40 years is 17.9%. So the next 10 years we’re projecting to be somewhat higher. But in the five times when we’ve had a balanced budget, the average of revenue to GDP is between 19% to 20%. Is that correct?

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

Sen. Tim Kaine (D-Virginia):
For the record, I would like to ask you to submit an answer to this question later and that is if over the next 10 years instead of an 18.1% revenue to GDP, we had a 19.5% or whatever the average is of the five years when we balanced it…what would that do to the deficit projections over the next 10 years and what would it do to the projections of annual interest payments over the next 10 years. Now, I know that involves some assumptions that you could just up it to 19.5% without having crosswind economic effects, but I would just like to know mathematically. Because I believe what we have is not just a spending problem but a revenue problem, I would like to know mathematically if we had revenue at 19.5% of GDP what would that do to deficit projections and interest expense over the 2014-24 period.

Douglas Elmendorf, Director of the Congressional Budget Office:
We’ll provide you that answer, Senator.

Sen. Tim Kaine (D-Virginia):
Similarly on spending, which is pages 49 to 50 in your report, you project from 2014 to 2024 that spending will go from 20.8% of GDP to 22.4%, and the components of that are also interesting – Social Security from 4.9% to 5.6%, major health programs – Medicare especially – from 4.8% to 6.1%, other mandatory programs dropping from 2.5% to 2.2%, discretionary program really dropping from 6.4% to 5.2%, interest payments going up as a percentage of GDP from 1.3% to 3.3%.

For the record, I would like to ask you to calculate where tax expenditures fit in this component. In your section in the CBO report on spending, you don’t have tax expenditures, you would consider that more on the revenue side. But based on the work that we’ve done in this committee and the chairwoman’s opening statement that the tax expenditures are virtually larger than any programmatic line item and they are every bit as much “entitlements” as other entitlement programs.

Unlike the budget that we battle every year to how much we put into Pell Grants, so often these tax expenditures get into codes and we just let them go forever. I would be interested over the course of 2014-2024 in what is the projection of tax expenditures as a percentage of GDP and how that would change over the 10-year period. I know that involves some assumptions too…but obviously you built some of that into your revenue projections anyway. I’d like to see the magnitude of tax expenditures as a percentage of GDP as a follow-up question for the record, if that’s okay?

Douglas Elmendorf, Director of the Congressional Budget Office:
We’re happy to do so, Senator. I have to say we have a discussion of tax expenditures in the revenue chapter of the report. We note there that the 12 largest tax expenditures which are about three-quarters of the total…would total about 6.5% of GDP over the coming decade.

Sen. Tim Kaine (D-Virginia):
So, if the 12 largest or 6.5% of GDP in three-quarters, then you’re probably talking about a total of like 9% to 9.5% of GDP if you put all the tax expenditures.

Douglas Elmendorf, Director of the Congressional Budget Office:
I think that’s right. We’ve not projected all of that over the entire decade which is why we’ve put it that way. There’s a widespread consensus among analysts that tax expenditures have the same types of effects on the budget and on the economy as many types of direct federal spending and thus should be viewed comparably by analysts and by policymakers.

Sen. Tim Kaine (D-Virginia):
They cost money but they can also kind of warp market behavior. Well, I would love that answer with all of the tax expenditures added in. But just – if I’m doing the math right – the 12 largest at 6.5%, three-quarters of the total and so the actual total is closer to 9.5%, I mean that is significantly larger than Social Security, significantly larger than Medicare and other health programs, and almost double of what the discretionary budget would be over the next years. So I would just ask you to submit that answer for the record.

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

###

Learn More:

Leave a Reply

Your email address will not be published.