[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
THE PRESIDENT'S FISCAL YEAR 2010 BUDGET
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, MARCH 3, 2009
__________
Serial No. 111-4
__________
Printed for the use of the Committee on the Budget
Available on the Internet:
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COMMITTEE ON THE BUDGET
JOHN M. SPRATT, Jr., South Carolina, Chairman
ALLYSON Y. SCHWARTZ, Pennsylvania PAUL RYAN, Wisconsin,
MARCY KAPTUR, Ohio Ranking Minority Member
XAVIER BECERRA, California JEB HENSARLING, Texas
LLOYD DOGGETT, Texas SCOTT GARRETT, New Jersey
EARL BLUMENAUER, Oregon MARIO DIAZ-BALART, Florida
MARION BERRY, Arkansas MICHAEL K. SIMPSON, Idaho
ALLEN BOYD, Florida PATRICK T. McHENRY, North Carolina
JAMES P. McGOVERN, Massachusetts CONNIE MACK, Florida
NIKI TSONGAS, Massachusetts JOHN CAMPBELL, California
BOB ETHERIDGE, North Carolina JIM JORDAN, Ohio
BETTY McCOLLUM, Minnesota CYNTHIA M. LUMMIS, Wyoming
CHARLIE MELANCON, Louisiana STEVE AUSTRIA, Ohio
JOHN A. YARMUTH, Kentucky ROBERT B. ADERHOLT, Alabama
ROBERT E. ANDREWS, New Jersey DEVIN NUNES, California
ROSA L. DeLAURO, Connecticut, GREGG HARPER, Mississippi
CHET EDWARDS, Texas [Vacant]
ROBERT C. ``BOBBY'' SCOTT, Virginia
JAMES R. LANGEVIN, Rhode Island
RICK LARSEN, Washington
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
GERALD E. CONNOLLY, Virginia
KURT SCHRADER, Oregon
Professional Staff
Thomas S. Kahn, Staff Director and Chief Counsel
Austin Smythe, Minority Staff Director
C O N T E N T S
Page
Hearing held in Washington, DC, March 3, 2009.................... 1
Statement of:
Hon. John M. Spratt, Jr., Chairman, House Committee on the
Budget..................................................... 1
Hon. Paul Ryan, ranking minority member, House Committee on
the Budget................................................. 2
Prepared statement of.................................... 3
Hon. Peter R. Orszag, Director, Office of Management and
Budget..................................................... 4
Prepared statement of.................................... 7
Responses to questions submitted from:
Mr. Blumenauer....................................... 66
Mr. Etheridge........................................ 69
Mr. Langevin......................................... 70
Mrs. Lummis.......................................... 72
Mr. McHenry.......................................... 73
Mr. Ryan............................................. 77
THE PRESIDENT'S FISCAL YEAR 2010 BUDGET
----------
TUESDAY, MARCH 3, 2009
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 11:05 a.m., in Room
210, Cannon House Office Building, Hon. John Spratt [chairman
of the committee] presiding.
Present: Representatives Spratt, Schwartz, Kaptur, Becerra,
Doggett, Blumenauer, Berry, Boyd, McGovern, Tsongas, Etheridge,
McCollum, Melancon, Yarmuth, DeLauro, Scott, Langevin, Larsen,
Bishop, Moore, Schrader, Ryan, Hensarling, Garrett, Diaz-
Balart, Lummis, Austria, Nunes, and Harper.
Chairman Spratt. I will call the committee to order.
The committee convenes today to consider the
administration's request for a budget for the fiscal year 2010.
President Bush has left President Obama an economy in crisis
and a budget in deficit. Spending will overtake revenues by an
unprecedented $1.3 trillion during this fiscal year alone.
President Obama has responded with a budget which shows that he
is not flinching or stalling but meeting the challenge head-on.
The President has recognized that we have not one but two
deficits. The first is an economy clicking on four cylinders,
running at 6.8 percent, or $1 trillion below its full
potential. To move our economy closer to its potential, the
President has signed into law a package of stimulus measures
totaling $787 billion--trillion--billion. Excuse me. We are in
the stratosphere.
He then turned to the budgets and, at the White House
summit, stated his determination to cut the deficit by half by
2013. It is almost impossible to balance a budget when the
economy is in recession; even harder when we do what we must to
make the economy better because it frequently makes the deficit
worse, at least for the short run.
But here is the stark reality that confronts us this
morning. The deficit that President Bush left behind will
constitute 12.3 percent of GDP. To be fair, if you simply take
measures that are solely contributable and are confined to the
Bush administration, it is 9 percent of the GDP. In any event,
it is a substantial number.
And here is President Obama's response: Over the next 4
years, under his budget, the deficit will be pared down to 3.1
percent, or 3 percent, of GDP in the year 2013. That is an
ambitious goal. President Obama's budget slices the deficit by
more than half, to $533 billion, in 5 years.
But it is not so committed to deficit reduction that it
overlooks other compelling needs. It takes on topics, indeed,
that have been ignored by earlier budgets as too tough to
tackle--climate change, health care for the 46 million who are
uninsured--and it slows down defense spending and fixes the
alternative minimum tax.
Now, critics will single out instances where additional
revenue is raised, for example by allowing certain concessions
for upper-bracket taxpayers to expire at the end of 2010. The
biggest picture will show that this budget leaves in place the
middle-income tax cuts adopted in 2001 and 2003, the 10 percent
bracket, the child tax credit, and marriage penalty relief. The
budget indexes the alternative minimum tax to keep it from
burdening middle-income taxpayers for whom it was never
intended. It extends the estate tax at 2009 levels. And it
helps working families by renewing Make Work Pay.
More detail is needed before we can write a budget
resolution. And, in that connection, it is important to note
that some of the President's initiatives must be implemented
via reserve funds yet to be funded. So this is just the
beginning, but it is a bold beginning for the 2010 budget
process.
Many in Congress, myself included, are pleased to see the
deficit decline through 2013, but we want to see it declining
thereafter. So this is not, by any means, the end of the
process. In the weeks ahead, I hope we can improve the budget
in this and many other ways.
Now, before going further with our testimony from Mr.
Orszag, let me turn to Mr. Ryan for any statement he wishes to
make.
Mr. Ryan. Thank you, Chairman. And thank you for this
hearing. I look forward to having a number of these hearings on
this budget.
What a week we just had last week. Let's go through it for
a second. On Monday, we had the Fiscal Responsibility Summit.
On Tuesday, we witnessed a very eloquent, ambitious, and even
inspiring speech by the President of the United States, echoing
those themes of fiscal responsibility. And on Wednesday,
Congress passed a bloated $410 billion spending bill with 9,000
earmarks. And on Thursday, we received the mother of all
budgets, a truly sweeping transformation of a Federal
Government the likes of which we have not seen since the New
Deal.
Finally, on Saturday, the President threw down the
gauntlet. Rather than echoing the theme of changing the tone in
Washington or bringing people together to forge a bipartisan
compromise, he essentially said, you are either with me or you
are against me. He claimed opponents of this transformative
budget are, quote, ``tools of special interests and the
powerful.''
This is not changing the tone of Washington or forging a
compromise. This is staking out an ideological conquest. It is
playing the oldest political trick in the book, which is, if
someone disagrees with you, impugn their motives, don't debate
the facts, destroy their credibility, and win the argument by
default. This power play strikes me as an incredible gamble
with the U.S. economy and with those principles that built this
country.
Now, the facts surrounding this budget are disturbing. It
proposes to bring the size of our government to its largest
level ever since World War II. It doubles the national debt in
8 years. During a recession it seeks to impose a $1.4 trillion
tax in our economy--on work, on savings, investment, energy, on
manufacturing. Even with the rosiest of economic assumptions,
this budget never even comes close to achieving a balanced
budget during the time we have an insolvency that goes
permanently for Medicare and Social Security.
But what is most distressing about this budget is that it
takes a decidedly ideological turn away from the principles
that built this country and built this economy toward the type
of governing system we see in Europe that provides the kind of
economic and social stagnation we have not seen here in
America.
You know, I was asked this past weekend, what can
Republicans do about this? Candidly, Republicans, we don't have
the votes to really do anything about this. So I guess the
question will become this year, will all Democrats march in
lockstep with this vision, with this type of transformation?
Our goal, our role, our job in the minority is to give the
American people the facts, is to give the American people the
truth, is to give the American people a good, vigorous, and
civilized debate over this budget and to offer them a real
choice in alternative, how we would do things differently. And
that is exactly what we intend to do while we have this
vigorous debate and while we ask the tough questions.
Thank you, Mr. Chairman.
Chairman Spratt. Thank you, Mr. Ryan.
Our witness this morning is no stranger to this committee.
He served ably and well as the director of the Congressional
Budget Office before moving on to bigger things as the director
of the Office of Management and Budget.
Dr. Orszag, Peter, welcome to the hearing today. Before you
begin, let me attend to a few housekeeping details.
I would ask unanimous consent that all members be allowed
to submit an opening statement for the record at this point.
[The prepared statement of Mr. Ryan follows:]
Prepared Statement of Hon. Paul Ryan, Ranking Member, Committee on the
Budget
Transcribed from Mr. Ryan's handwritten pre-hearing notes.
What a week we've just had.
On Monday, we had the bipartisan ``fiscal responsibility
summit.''
On Tuesday, we witnessed an eloquent, ambitious, and even
inspiring speech by the President repeating the theme of fiscal
responsibility.
Then on Wednesday, Congress passed a bloated $410 billion
spending bill with 9,000 earmarks.
And on Thursday, we received the mother of all budgets, a
truly sweeping transformation of the federal government, the likes of
which we have not seen since the New Deal.
Finally, on Saturday, the President threw down the
gauntlet. Rather than echoing the campaign theme of ``changing the tone
in Washington * * *'' or bringing people together to forge bi-partisan
compromise, he essentially said, ``You're either with me or against
me.'' He claimed opponents of this transformative budget are ``tools of
special interests and the powerful.''
This is not changing the tone or forging compromise * * *
this is staking out an ideological conquest.
It's playing the oldest political trick in the book * * *
which is, if someone disagrees with you, impugn their motives. Don't
debate the facts. Destroy their credibility. Win the argument by
default.
This power play strikes me as an incredible gamble with the U.S.
economy and with the ideals that built this country.
The facts that surround this budget are disturbing.
Increases government to its largest level since WWII.
Doubles the national debt in eight years.
Adds $1.4 trillion in new taxes on work, saving,
investing, energy, and manufacturing.
Even with the rosiest of economic assumptions, this budget
never even comes close to achieving a balanced budget--all while
Medicare and Social Security go permanently insolvent.
But what is most disturbing about this budget is that it takes a
decidedly ideological turn away from the principles that built this
country and economy, and toward the type of governing system we see in
Europe that provides the kind of economic and social stagnation we have
not seen here before.
I was asked this past weekend what we Republicans can do about
this. Candidly, we don't, by ourselves, have the votes to stop this. So
the question is, are all the Democrats in Congress going to march lock-
step in favor of this? Is this the kind of change Americans want?
Chairman Spratt. Mr. Orszag, we welcome you to the
committee today. The written testimony of all witnesses will be
made part of the record, and you may summarize yours. But you
are the only witness today, so take your time and walk us
slowly through it so that we can get the major points.
Thank you for coming. We look forward to what you have to
say.
STATEMENT OF PETER ORSZAG, DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET
Mr. Orszag. Thank you, Chairman Spratt, Mr. Ryan, members
of the committee. I come before you at a time of great
consequence, both for our economy and for our fiscal future.
When the President took office on January 20th, he inherited an
economic crisis more severe than any since the Great
Depression.
Over the past 13 months, 3.5 million jobs have been lost,
the greatest number since World War II. In December and January
alone, 1.2 million jobs were lost. The economy contracted at
more than 6 percent on an annualized basis in the fourth
quarter of last year. And trillions of dollars in wealth have
been destroyed, harming workers and families on the verge of
retirement.
Why has this happened? A central cause was the collapse in
credit and capital markets, itself fueled by inadequate
oversight, insufficient disclosure, distorted incentives, and
excessive conflicts of interest.
But the roots do run deeper. We have lived through an era
of irresponsibility in which we have failed to address deep
problems in energy, education, and health care, and in which
the primary theory of the case was that the only determinant of
economic performance was the marginal tax rate on the wealthy
and that the way to promote market competition was to channel
significant subsidies to corporations.
The result is a pair of trillion-dollar deficits. The first
is the output gap, shown in my first slide, the gap between how
much the economy could produce each year and how much it is
producing each year--$1 trillion a year, both this year and
next year. The purpose of Recovery Act was to start filling in
that hole, jump-starting the economy and returning us to a path
of economic growth.
The second deficit is the budget deficit. And, as the next
slide shows, under the policies that we are inheriting, we face
trillion-dollar deficits out over time. And let me just pause
and recognize that the influence of the economic crisis itself,
over this year and next year combined, amounts to $2 trillion
for the budget deficit. That comes from $600 billion that
reflects a weaker economy, which drives down revenue and drives
up spending on things like unemployment insurance; $650 billion
in the steps that have been necessary so far and that may
become necessary to address instability in our financial
markets; and the $787 billion Recovery Act, which, as I already
noted, was intended to start filling in that output gap.
Looking forward, we must change course. If we don't adopt
the policies that are in this budget, the budget deficit over
the next decade will be $2 trillion higher and we will not have
addressed problems in our energy market, in our educational
system, and in our health care system.
So let me be a little bit more specific about the budget.
First, the budget starts by giving an honest depiction of
where we stand. We do not play the budget games that have been
embodied in previous budgets, in which you assume that the
Nation will never again face a hurricane or disaster; in which
you assume that the alternative minimum tax will gradually
overwhelm the Tax Code; in which you assume that Medicare
physician payments will be reduced by 20 percent and yet
Medicare beneficiaries will still somehow have the opportunity
to see their doctors; in which you assume that the cost of a
war will immediately disappear. All in, the budget includes
$2.7 trillion in costs over the next decade that would have
been excluded from previous budgets. That sets a high bar, but
it is an honest bar.
With the scope of the problem recognized, the budget then
starts the hard process of reducing those deficits, as the next
chart shows. In particular, we cut the deficit in half by the
end of President's first term. Where does that deficit
reduction come from? It comes from four sources.
First, eventually the economy will recover, and that does
help to reduce the budget deficit. Second, winding down the war
will reduce costs. Third, we do seek after 2011 to restore some
balance to the Tax Code, and that brings in additional revenue.
And, finally, we take a variety of steps to improve the
efficiency of government, for example, by eliminating
unwarranted subsidies to middlemen on educational loans and by
improving program integrity so that the right person gets the
right benefit at the right time. Those two steps alone reduce
the deficit by $100 billion over the next decade.
Contrary to the analysis of many pundits, this budget is
not a big-spending budget. Unlike what has occurred in the
past, we pay for our initiatives in energy, in education, and
in health care. Furthermore, if you look at non-defense
discretionary spending--that is the basic operations of the
government--relative to the economy, which is shown on the next
slide, that spending, non-defense discretionary spending, as a
share of the economy is projected to be 4.1 percent of the
economy this year. Under our budget, it would average 3.6
percent over the next decade. And by the end of the budget
window, it would reach 3.1 percent of GDP, the lowest since the
data begin in 1962. This is simply not a big-spending
budgeting.
We do, however, reorient our priorities towards long-term
economic efficiency and productivity in energy, education, and
especially in health care.
First, on energy: The budget includes $15 billion a year in
investments to reduce our dependence on foreign oil and improve
energy efficiency. To finance that along with tax relief in a
fiscally responsible manner, the budget proposes a market-
friendly cap-and-trade program on greenhouse gas emissions,
which will not only raise revenue but also help to address a
key threat to our planet.
In education, the budget invests substantial resources in
early education, since all of the evidence suggests that that
has significant payoff, and also works to improve college
access, both by providing more solid funding for the Pell Grant
Program, continuing the American Opportunity college tax
credit, and simplifying the application process so that more
students can aspire to college and not face unwarranted
obstacles in obtaining assistance to attend college.
Finally, let me turn to health care. As the next slide
shows, and as you have probably seen me repeat over and over
again, health care is the key to our fiscal future. I think
that chart illustrates it. The light blue area of the curve is
Medicare and Medicaid. It is obvious from that graph that the
thing driving our long-term fiscal issue is the rate at which
health care costs grow.
Health care costs, though, are not only a fiscal issue,
they also affect workers, reducing workers' take-home pay
already to a degree that I think is under-appreciated and
unnecessarily large, and also imposes burdens on State
governments. For example, rising health care costs are crowding
out State support for higher education, which, in turn, is
raising tuition and forcing painful cutbacks at public
universities.
The Recovery Act starts the process of health care reform,
and there are very substantial opportunities to reduce health
care costs without harming health outcomes. I want to turn to
the next slide, which illustrates that point.
We have very substantial variation in how much health care
costs across different parts of the United States, with the
darker areas of the country having much higher cost per
beneficiary than the lighter areas, for reasons that one cannot
explain based on the severity of the conditions facing patients
in those areas or the cost of building a hospital or the
salaries for doctors. Rather, what varies is the intensity of
treatment for the same type of condition across different parts
of the United States.
And the kicker is that the more-intense, higher-cost
approaches don't seem to generate better outcomes than the
less-intrusive, less-costly approaches. Researchers at
Dartmouth College suggest that as much as $700 billion a year
in health care costs could be eliminated from the system
without harming health outcomes if we could move the parts of
the country where medicine is practiced in the higher-cost ways
towards the practice norms in the lower-cost areas of the
country.
The Recovery Act starts the process that will be necessary
to capture that opportunity and invests heavily in health
information technology; in comparative effectiveness, which
measures what works and what doesn't; and in prevention and
wellness.
The budget built upon that by creating a $634 billion
reserve fund as a downpayment on further health care reform,
half of which comes from efficiencies in the health system
itself, including moving to a competitive bidding process for
the private plans--Medicare Advantage plans--that cover
Medicare beneficiaries and that, the evidence suggests, costs
Medicare $1,000 more per beneficiary than covering those same
beneficiaries under the traditional Medicare system.
Now, some say that health reform is a luxury we can't
afford now. As I have been saying for a long time, I say that
reducing costs and improving quality in health care is a
necessity that we need to act upon this year. None of this is
going to be easy, whether it is in education, in energy, in
health care, responsibly reducing the deficit in an honest way
over the medium term. But, as the country music singer Toby
Keith once put it, ``There ain't no right way to do the wrong
thing.'' And this budget reflects that notion. In being honest
and reducing our medium-term deficit by $2 trillion and
investing in education and energy and in moving toward a more
efficient health care system with lower costs and higher
quality, I hope you will all work with us to do the right
thing.
Thank you very much, Mr. Chairman.
[The prepared statement of Peter Orszag follows:]
Prepared Statement of Hon. Peter R. Orszag, Director, Office of
Management and Budget
Chairman Spratt, Ranking Member Ryan, and Members of the Committee,
thank you for giving me the opportunity to discuss the President's
Fiscal Year 2010 Budget.
executive summary
My full written statement delves into the details, but before we
turn to those specifics let me step back and provide a broader overview
of where we stand and where we need to go.
When the President took office on January 20th of this year, his
Administration inherited an economic crisis unlike any we have seen
since the Great Depression. Over three and a half million jobs were
lost over the past 13 months, more than at any time since World War II.
In December 2008 and January 2009 alone, nearly 1.2 million people lost
their jobs. Manufacturing employment has hit a 60-year low. Our capital
markets are virtually frozen, making it difficult for businesses to
grow and for families to borrow money to afford a home or college
education for their kids. Trillions of dollars in wealth have been
wiped out, leaving many families with little or nothing as they
approach their retirement years.
A central cause of this economic crisis has been a meltdown in our
credit and capital markets--one fueled by years of inadequate
oversight, insufficient disclosure, and excessive conflicts of interest
among market gatekeepers. But the problems in our markets are not the
only cause of the current crisis. The roots run deeper.
We have arrived at this point because of an era of profound
irresponsibility--in which we threw fiscal caution to the wind and ran
up trillions of dollars in debt * * * in which the tax code was used to
exacerbate income and wealth disparities, not mitigate them * * * and
in which we failed to confront the deep, systemic problems that over
time have only become a larger drag on our economic growth--from the
rising costs of health care to the state of our schools, from how we
power our economy to our crumbling infrastructure.
The result is a pair of twin deficits, each in the range of $1
trillion per year. The first trillion dollar deficit is the gap between
how much the economy has the potential to produce and how much it is
actually producing each year. This output gap of roughly $1 trillion in
2009 would represent nearly 7 percent of the estimated potential output
of the economy. This gap is why it was so necessary that Congress
passed the American Recovery and Reinvestment Act, in order to start
filling this hole, to put Americans back to work, and to jumpstart the
economy.
The other trillion-dollar deficit is the budget deficits we are
inheriting. Over the last eight years, our national debt nearly
doubled. The record surplus that was inherited by the previous
Administration turned into a post-war record budget deficit. So let's
be clear: the Obama Administration was faced with a $1.3 trillion
deficit when we walked in the door.
We project that the deficit for the current fiscal year, including
the recovery and stability plans, will be $1.75 trillion, or 12.3
percent of GDP. Of that, $1.3 trillion, or 9.2 percent of GDP, was
already in place when we assumed office.
The President is determined to cut this $1.3 trillion deficit by at
least half in four years. This would bring the deficit down to $533
billion by fiscal year 2013. More importantly, it would reduce the
deficit to about 3 percent of GDP.
The economic crisis we faced when taking office has made our fiscal
situation, dramatically and quickly, much worse--raising the budget
deficit we are inheriting by a total of about $2 trillion for this year
and next year.
The weak economy, by reducing revenue collected and
expanding the budget's automatic stabilizers (such as unemployment
insurance), expands the deficit by more than $600 billion.
Because of problems in financial markets, the costs of
stabilization may amount to $650 billion or more--including the
placeholder should additional efforts prove necessary to address the
crisis we have inherited.
To combat the recession, we had to act--through the $787
billion Recovery Act--to jumpstart job creation and growth.
Without the change in policies contained in the budget, our budget
deficits would be another $2 trillion bigger over the next decade--and
we wouldn't have begun to make the investments in American-made,
alternative energy; better education; and more efficient and higher
quality health care that are crucial to long-term economic and fiscal
sustainability.
Let me be clear: there are two paths that our country can take. We
can continue the policies of the past--dig an even deeper fiscal hole
and once more put off the critical investments needed for long-term
economic growth. Or we can reduce the deficit by $2 trillion over the
next decade, cut the deficit inherited by this Administration in half
by the end of the President's first term, and make needed investments
in clean energy, affordable health care, and world-class schools.
In his budget overview, the President laid out his way forward for
our nation.
It begins with presenting an honest budget--one that is
straightforward with the American people about the fiscal challenges we
face. That's why we include the likely future costs of the wars in Iraq
and Afghanistan and other possible overseas military operations, the
cost of fixing the AMT each year, and reimbursements to Medicare
physicians. We offer a 10-year rather than a five-year look into our
fiscal situation, and we budget for the possibility that there may be a
hurricane, earthquake, flood, or other disaster sometime over the next
decade.
This honesty comes at a cost--$2.7 trillion or more over 10 years
on our bottom line. But it's critical to begin tackling our fiscal
challenges.
With the scope of the problem recognized, the President's budget
reduces our medium-term deficits to a sustainable level through both
spending restraint and rebalancing of our tax code. And it addresses
health care, the key to our longer-term fiscal future.
Broadly speaking, the medium-term deficit reduction comes from
responsibly winding down the war in Iraq and reforms to the defense
acquisition and procurement system; restoring balance to the tax code
by returning to the pre-2001 tax rates for families making more than a
quarter of a million dollars a year (while giving 95 percent of working
families a tax cut), closing loopholes, and eliminating subsidies to
special interests; and improving the efficiency of government.
Contrary to the instant analysis of many pundits, this is a budget
that entails substantial spending restraint. Unlike what's occurred in
the past, we make sure that we pay for new initiatives. And the budget
reduces non-defense discretionary spending--that is, the spending
appropriated each year outside of defense--to its lowest level as a
share of GDP since data began to be collected in 1962.
Let me underscore this last point. The average level of non-defense
discretionary spending between 1969 and 2008 was 3.8 percent of GDP. In
2009, such spending is estimated to represent 4.1 percent of GDP.
The President's budget proposes a gradual reduction of this non-
defense discretionary spending as a share of economy. Spending averages
3.6 percent of GDP over the next decade and declines to 3.1 percent by
the end of the 10-year budget window.
Over the longer term, however, the single most important step we
could take to put the nation back on a path to fiscal responsibility is
to address rising health care costs. As I have said before, health care
is the key to our fiscal future. We cannot afford inaction.
That's why in the Recovery Act the President began the process that
will rein in health care costs with significant investments toward
computerizing America's health care records, accelerating comparative
effectiveness research, and scaling up prevention and wellness
programs. All of these will help move us toward a health system with
lower costs and higher quality.
In this budget, the President builds on these investments with a
major commitment of $634 billion over 10 years to serve as a down
payment for comprehensive health care reform. This reserve fund is
financed half through walking back (to Reagan Administration levels)
the itemized tax deductions allowed for families with incomes more than
a quarter of a million dollars, and roughly half through efficiencies
and savings from Medicare and Medicaid.
We must act now to begin the process of bending the curve on health
care costs, and over time, realizing substantial savings for our
nation--and improvements in health care quality and outcomes.
Health care is just one of three critical areas that for too long
have been neglected and are deserving of significant investment now in
order to create economic growth in years to come. The others are clean
energy and education--and this budget makes significant investments in
both.
The budget invests $15 billion a year to reduce our dependence on
foreign oil and improve energy efficiency. It finances those
investments, along with tax relief for consumers, through a market-
based cap-and-trade system to reduce greenhouse gas emissions.
The budget also makes important investments in our most precious
resource--our people--through a major new commitment to early childhood
education, scaling up innovative new programs in our schools, and in
improving college access for all our children. We can save almost $50
billion over the next decade by ending inefficient subsidies for
student loan lenders. The budget would also invest in making college
more accessible, by making the $2500 American Opportunity Tax Cut
permanent, increasing the size of Pell Grants and putting the program
on more solid footing, and simplifying the application process. These
steps will help us reach the President's goal of having the United
States lead the world in the proportion of college graduates by 2020.
Some may say that now is not the time to make these investments--
that our fiscal and economic situation is too precarious. I share their
concern about the fiscal health of our nation--and the President does
as well. As he has said repeatedly, part of our long-term economic
security is how we handle these deep, fiscal challenges--and we are
already taking aggressive action to meet that challenge.
. But the bottom line is that that we simply cannot afford to stay
on the course that we've been on. If we do not begin to address the
high costs of health care, our families will continue to be squeezed,
our businesses will have trouble competing, and our nation will remain
on an unsustainable fiscal path. If we do not invest in education and
clean energy, our prospects for long-term economic growth will be
diminished. And if we do not make government more efficient, we will
continue to waste the precious resources we do have.
It'll take time to work through the challenges we have inherited--
and change doesn't come easy. But as in most difficulties in life, we
must adapt, adjust, and overcome. I am confident that if we confront
our problems honestly and take responsibility for our future, our
nation will rebuild, recover, and emerge stronger than ever.
a pair of trillion dollar inherited deficits
I come before the Committee at a time of great peril for our
economy and for our nation's fiscal future. The new Administration has
inherited an economic crisis unlike any we have seen in our lifetimes.
Our economy is in a deep recession, which threatens to be more severe
than any since the Great Depression. More than three and a half million
jobs were lost over the past 13 months, more than at any time since
World War II. In addition, another 8.8 million Americans are under-
employed. Manufacturing employment has hit a 60-year low. Our capital
markets are virtually frozen, making it difficult for businesses to
grow and for families to borrow money to afford a home, car, or college
education for their kids. Trillions of dollars of wealth have been
wiped out, leaving many workers with little or nothing as they approach
retirement.
The result of this bleak economic picture, as well as the misplaced
policy priorities of previous years, is a pair of twin deficits, each
in the range of $1 trillion per year. The first trillion dollar deficit
is the gap between how much the economy has the potential to produce
and how much it is actually producing each year. This output gap of
roughly $1 trillion in 2009 would represent nearly 7 percent of the
estimated potential output of the economy. This gap is why it was so
necessary that Congress passed the American Recovery and Reinvestment
Act, to start filling this hole and jumpstart the economy through
fiscal stimulus that increases short-term demand for goods and
services.
Because fiscal stimulus boosts aggregate demand through increases
in government spending or reductions in taxes, such policies raise
budget deficits in the short term. That effect is desirable because it
reflects the delivery of increased aggregate demand to the economy.
Contemporaneous changes elsewhere in the Budget--tax increases or
reductions in spending--designed to offset these short-term deficit
effects would be counterproductive, because they would reduce or
eliminate the stimulative effect. During an economic downturn, the key
to economic growth is the demand for the goods and services the economy
could produce with existing capacity--and in that situation, temporary
increases in the deficit are necessary to put the economy back on
track.
As the economy recovers, however, the effect of deficits on the
economy reverses. At that point, the key to economic growth switches
from boosting demand for goods and services (so existing capacity is
fully used) to increasing the rate at which we expand the capacity for
producing goods and services. Large budget deficits become harmful in
this situation because they entail some combination of reduced funds
available to finance domestic investment or increased borrowing from
abroad to finance that domestic investment. Either way, budget deficits
reduce future national income--either because the nation does not have
as much productivity-enhancing capital in the future or because we owe
larger liabilities to foreign creditors. In the extreme, sustained
deficits could seriously harm the economy. Large deficits would also
limit our maneuvering room to handle crises in the future.
This brings me to the second trillion dollar deficit that the new
Administration is inheriting. Under current policies, we face fiscal
deficits of almost $1 trillion a year on average over the coming
decade. OMB projects that the baseline deficit for FY 2009 will be
about $1.5 trillion, or 10.6 percent of GDP. Over the ten-year budget
window, from FY 2010 to FY 2019, aggregate baseline budget deficits
will total nearly $9.0 trillion and average almost 5 percent of GDP.
Over longer periods of time, the deficit reaches even higher shares of
GDP primarily because of rising health care costs.
Over the medium to long term, the nation is thus on an
unsustainable fiscal course. We need to act, both to address the
dramatic shortfall in national output in the near term and to tackle
the medium- and long-term deficits that would ultimately become a drain
on the nation's potential for economic growth. The Recovery Act that
Congress passed a few weeks ago was a bold and important first step
toward addressing the first of the twin deficits we inherited. I will
spend the remainder of my time today talking about the Administration's
plans, detailed in the President's Budget, for dealing with the second
of these inherited deficits, along with a few of the key investments
the Budget would make in the nation's economic future.
return to honest budgeting
The first step in addressing our nation's fiscal problems is to be
honest about them. Too often in the past several years, budget tricks
were used to make the government's books seem stronger than they
actually were. If this Budget used the gimmicks employed in recent
budgets, it would show a bottom line that would appear about $2.7
trillion better over ten years. Instead, the Budget acknowledges
additional deficits of about $230 billion, or about 1.3 percent of GDP,
in 2013 alone--deficits that previous budgets would have simply
pretended didn't exist. Appearances can be deceiving, and omitting
likely future costs is an accounting trick, not reality.
Unless we are straightforward about the scope and scale of our
nation's medium- and long-term fiscal problems, we cannot hope to reach
agreement on a plan for solving them. As a result, the President's
Budget returns the Nation to an honest budget footing by recognizing,
rather than omitting, an array of future Federal government costs.
Among these are:\1\
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\1\ The following cost estimates include interest expenditures; in
addition, the estimate for the AMT policy assumes extension of the 2001
and 2003 tax cuts.
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Including the likely future costs of overseas contingency
operations. Our Budget includes funding over ten years for overseas
contingency operations, raising projected deficits by about $580
billion over the next ten years compared to the treatment in prior
budgets. These prior budgets generally did not assume any funding for
overseas contingency operations in the out-years. We include estimated
costs of these operations in the out-years to be fiscally conservative,
but they do not reflect any specific policy decisions. Several strategy
reviews are underway that will inform out-year costs, and it would be
premature at this time to prejudge those reviews.
Indexing fully the alternative minimum tax for inflation
rather than assuming that AMT relief will suddenly expire. Our Budget
includes an AMT fix in all years, raising projected deficits by about
$1.4 trillion over the coming decade. In contrast, past budgets have
generally included AMT fixes for only the current year. Almost everyone
agrees, however, that policymakers will not allow the AMT to take over
the tax over time, and our Budget reflects that reality rather than
pretending it does not exist.
Incorporating reimbursements to Medicare physicians,
without assuming deep and sudden cuts in those payments. Our Budget
includes the Administration's best estimate of future SGR relief given
the agreed-to fixes for Medicare physician reimbursement in past years.
As a result, projected deficits are about $400 billion higher over the
next ten years than they would otherwise be. In contrast, past budgets
accounted for no SGR relief in any years. (Although our Budget baseline
reflects our best estimate of future SGR relief given past policy
actions on SGR, as discussed below we are not asserting that this
should be the future policy and we recognize that we need to move
toward a system in which doctors face stronger incentives for providing
high-quality care rather than simply more care.)
Recognizing the statistical likelihood of Federal costs
for natural disasters instead of assuming that there will be no such
costs. Our Budget accounts for the statistical probability of Federal
government costs for future disasters, raising our projected deficits
by more than $270 billion over the coming decade. Recent budgets
generally did not assume that there would be such costs over the budget
window.
Offering a ten-year rather than five-year look into our
fiscal situation. Our Budget uses a ten-year budget window. With the
baby boom generation moving into retirement, slowly at first but more
rapidly as the years pass, the costs of Medicare and Social Security
will increase with time. For that reason, a ten-year view of the budget
gives a better sense of the effect of the budget on the long-term
fiscal picture than a five-year view. Recent budgets employed only a
five-year budget window.
the long-term fiscal gap and health care
The principal driver of our nation's long-term budget problem is
rising health care costs. If costs per enrollee in our two main Federal
health care programs, Medicare and Medicaid, grow at the same rate as
they have for the past 40 years, those two programs will increase from
about 5 percent of GDP today to about 20 percent by 2050. (As the
Congressional Budget Office (CBO) and others have noted, there are
reasons to expect cost growth to slow in the future relative to the
past even in the absence of policy changes. But the point remains that
reasonable projections of health care cost growth under current
policies shows that they are the central cause of the nation's long-
term fiscal imbalance.) Many of the other factors that will play a role
in determining future fiscal conditions--including the actuarial
deficit in Social Security--pale by comparison over the long term with
the impact of cost growth in the Federal government health insurance
programs. Health care is the key to our nation's fiscal future, and
health care reform is entitlement reform.
The Administration has signaled its understanding of health care's
centrality to our nation's fiscal future through its actions in its
first weeks and through the submission of this Budget. Two weeks ago,
the President signed the American Recovery and Reinvestment Act, which
devotes resources now to develop the infrastructure for lowering health
spending in the long run, including key investments in computerizing
medical records, comparative effectiveness research, and prevention and
wellness interventions.
To build on these steps, the President's Budget sets aside a
reserve fund of more than $630 billion over 10 years dedicated to
financing reforms to the American health care system. While a very
large amount of money and a major commitment, the Administration
recognizes that $630 billion is not sufficient to fully fund
comprehensive reform. But this is a first crucial step in that effort,
and we are committed to working with Congress to find additional
resources to devote to health care reform. The Administration will
explore all serious ideas that, in a fiscally responsible manner,
achieve the common goals of constraining costs, expanding access, and
improving quality.
Although reforming health care is the key to our nation's fiscal
future, other programs--including Social Security--do contribute to our
long-term deficit. The long-term shortfall in Social Security, though,
is modest relative to the possible effect of health care on the budget.
As I just mentioned, if costs per enrollee in Medicare and Medicaid,
grow at the same rate as they have in the last four decades, the costs
associated with these two programs would increase by 15 percentage
points of GDP--rising from 5 percent of GDP today to about 20 percent
by 2050. By comparison, the cost of Social Security benefits is
expected to increase by 1.5 percentage points of GDP over this same
period, according to the Social Security actuaries, and the system,
without any changes, is expected to be able to pay full benefits
through 2041. After we reform health care, the Administration looks
forward to working with Congress to strengthen Social Security's
finances.
health care reserve fund
The $630 billion reserve fund is financed roughly 50-50 between a
combination of re-balancing the tax code so that the wealthiest pay
more and specific health care savings in three areas: promoting
efficiency and accountability, aligning incentives toward quality, and
encouraging shared responsibility.
Lowering health care costs and expanding health insurance coverage
will require additional revenue. The Budget includes a proposal to
limit the tax rate at which high-income taxpayers can take itemized
deductions to 28 percent. The initial reserve fund would be about half
funded through this provision, which would raise $318 billion over 10
years. In the health reform policy discussions that have taken place
over the past few years, a wide range of other revenue options have
been discussed--and these options are all worthy of serious discussion
as the Administration works with Congress to enact health care reform.
On the savings side, the Budget proposes health savings for the
reserve fund that would total $316 billion over 10 years, which would
simultaneously help to improve the quality and efficiency of health
care without negatively affecting the care Americans receive. These
savings include:
Reducing Medicare overpayments to private insurers through
competitive payments. Under current law, Medicare pays Medicare
Advantage plans 14 percent more on average than what Medicare spends
for beneficiaries enrolled in the traditional fee-for-service program.
This is because the current system bases payments on administratively
determined benchmarks that are set well above the cost of providing
fee-for-service Medicare benefits. Medicare pays roughly $1,000 per
beneficiary more each year as a result, and MedPAC estimates that the
Federal government pays $1.30 for each $1.00 increase in Medicare
Advantage supplementary benefits. Even with these subsidies, the
evidence suggests that Medicare Advantage does not provide better
quality of care.
The Budget would replace the current mechanism used to establish
payments with a new competitive system in which payments would be based
upon an average of plans' bids submitted to Medicare. The
Administration's proposal would better align plan payments with the
actual cost of coverage. This would allow the market, not Medicare, to
set the reimbursement limits. This is similar to the process used for
establishing payments for the Medicare Part D drug benefit. Our
proposal would save taxpayers more than $175 billion over 10 years as
well as reduce Part B premiums.
Reducing drug prices. The Budget would accelerate access
to affordable generic biologic drugs through the establishment of a
workable regulatory, scientific, and legal pathway for generic versions
of biologic drugs. To retain incentives for the research and
development of breakthrough products, a period of exclusivity would be
guaranteed for the original innovator product, which is generally
consistent with the principles in the Hatch-Waxman law for traditional
products. Brand biologic manufacturers would also be prohibited from
reformulating existing products into new products to restart the
exclusivity process, a process known as ever-greening. Furthermore, the
Administration would prevent drug companies from blocking generic drugs
from consumers by prohibiting anticompetitive agreements and collusion
between brand name and generic drug manufacturers intended to keep
generic drugs off the market.
In addition, the Budget would bring down the drug costs of Medicaid
by increasing the Medicaid drug rebate for brand-name drugs from 15.1
percent to 22.1 percent of the Average Manufacturer Price, applying the
additional rebate to new drug formulations, and allowing states to
collect rebates on drugs provided through Medicaid managed care
organizations.
Improving Medicare and Medicaid payment accuracy. The
Government Accountability Office (GAO) has labeled Medicare as ``high-
risk'' due to the billions of dollars lost to overpayments and fraud
each year. The Budget proposes $311 million in FY 2010 for program
integrity activities for the Centers for Medicare and Medicaid Services
(CMS) initially targeted to remedy the vulnerabilities in Medicare and
Medicaid, including Medicare Advantage (MA) and the prescription drug
benefit (Part D). CMS will be able to respond more rapidly to emerging
program integrity vulnerabilities across these programs through an
increased capacity to identify excessive payments and new processes for
identifying and correcting problems. With this additional funding, CMS
will be better able to minimize inappropriate payments, close
loopholes, and provide better value for program expenditures to
beneficiaries and taxpayers.
Improving care after hospitalizations and reducing
hospital readmission rates. Nearly 18 percent of hospitalizations of
Medicare beneficiaries result in the readmission of patients who have
been discharged from the hospital within the last 30 days. Sometimes
such readmissions cannot be prevented, but many are avoidable. Under
the policy in the Budget, hospitals would receive bundled payments that
cover not just hospitalization, but care from certain post-acute
providers for the 30 days after hospitalization, and hospitals with
high rates of readmission would be paid less if patients are re-
admitted to the hospital within that 30-day period. This combination of
incentives and penalties should lead to better care after a hospital
stay and result in fewer readmissions--saving roughly $26 billion of
wasted money over 10 years.
Expanding the Hospital Quality Improvement Program. The
health care system tends to pay for the quantity of services delivered,
not their quality. Experts have recommended that hospitals and doctors
be paid based on delivering high quality care, or what is called ``pay
for performance.'' The Budget proposes to link a portion of Medicare
payments for acute inpatient hospital services to hospitals'
performance on specific quality measures. This program would improve
the quality of care delivered to Medicare beneficiaries and is
estimated to save more than $12 billion over 10 years.
long-term containment of health care costs
By identifying specific health savings for the health care reserve
fund, the Administration is making a down payment on expanding health
care coverage to all Americans and also on containing the growth in
health care costs required to restore long-run balance to the nation's
fiscal outlook.
Yet there are additional steps that can be taken to address the
fundamental inefficiencies of our nation's health care system. Across
the country, health care costs vary substantially from region to
region, and yet higher-cost areas do not generate better health
outcomes than lower-cost areas. Even among our Nation's leading medical
centers, costs vary significantly--with costs at some centers twice as
high as others--but higher-cost centers do not achieve higher quality
than lower-cost centers. Some researchers believe health care costs
could be reduced by a stunning 30 percent--or about $700 billion a
year--without harming quality if we moved as a Nation toward the proven
and successful practices adopted by lower-cost areas and hospitals.
Capturing this opportunity would help to boost family take-home pay
and put the Nation on a sounder fiscal path. It will require expanding
the use of health information technology, more aggressively studying
what works and what doesn't, promoting prevention and healthy living,
and experimenting with different payment systems to health care
providers.
The Administration is committed to bringing about these reforms in
order to slow health-care cost growth over the long run and has already
initiated many of them through the Recovery Act, including
computerizing America's health records in five years, developing and
disseminating information on effective medical interventions, investing
in prevention and wellness, and reforming the physician payment system
to improve quality and efficiency.
medium-term deficit reduction
The health care reforms I have described will reduce the growth of
health care costs over time, and thus address the most important
contributor to the Nation's long-term fiscal shortfall. These changes
will take time, however. In the meanwhile, we also need to begin making
the hard choices that will, as the economy recovers, reduce deficits in
the medium term.
Without using the gimmicks of previous budget proposals, the Budget
cuts in half, by the end of the President's first term, the deficit
this Administration inherited when it took office. Over the next four
years, the deficit would fall to about three percent of GDP under the
Administration's policies and remain stable through the remainder of
the coming decade. The Budget reaches this path by proposing policies
that pare back deficits by a total of $2.0 trillion over the next ten
years. This brings us to a sustainable and realistic fiscal course for
the coming decade.
The Budget features four main deficit reduction mechanisms:
First, economic recovery, aided substantially by the
Recovery Act, will help to reduce deficits by automatically dampening
spending in safety net programs and raising revenues.
Second, the Budget would return fairness to the tax system
by closing tax loopholes, eliminating subsidies for special interests,
enhancing enforcement, and returning to the pre-2001 tax rates for
high-income families making more than $250,000 per year.
Third, the Budget reflects savings from responsibly
redeploying our military forces engaged in overseas contingency
operations, as well as reforms that would allow us to get more for the
money spent on defending the nation.
Finally, the Budget includes significant spending
constraints and puts the nation on a path to reducing non-defense
discretionary spending as a share of GDP. The average level of NDD
spending between 1969 and 2008 was 3.8 percent of GDP. In contrast, the
President's Budget proposes a gradual reduction in NDD spending as a
share of the economy. Such spending averages 3.6 percent of GDP from
2010 to 2019 and declines to 3.1 percent by the end of the budget
window--the lowest since the government began collecting the data in
1962.
These measures facilitate some key investments in productivity-
enhancing areas like education and infrastructure (discussed later in
this testimony) while also producing a net deficit reduction of $2
trillion over the next decade.
I will now discuss a number of these sources of deficit reduction
in greater detail.
returning fairness to the tax system
The Budget returns fairness and balance to the tax system. While
providing tax cuts to 95 percent of working families, the Budget raises
additional revenue from the corporations and individuals most able to
pay.
After year upon year of tax reductions that disproportionately
benefited the wealthiest Americans, we have been left with a tax system
that is insufficient to meet national needs. Under current policies,
even after the economy recovers, revenue would be below its 1990s
average--despite rising health care costs and other new burdens the
government faces. After the end of the recession, the Budget therefore
raises revenue to a level that, as a share of GDP, is still lower than
in the latter half of the 1990s. The Budget includes the following
revenue proposals:
Allowing the 2001 and 2003 tax cuts to expire for high-
income Americans. The Budget proposes allowing most of the 2001 and
2003 tax cuts to expire in 2011, as scheduled, for couples making more
than $250,000 and individuals making more than $200,000 per year.
Additional revenues gained would be devoted to deficit reduction. These
tax cuts were both unaffordable and unfair at the time they were
enacted, and remain so today. This Budget would simply return the
marginal tax rates for these wealthiest Americans to what they were
prior to 2001. Altogether, allowing these tax cuts to expire would
reduce the deficit by about $750 billion over the next ten years
relative to current policy.
Eliminating tax subsidies for corporations and high-income
individuals. The current tax system is undermined by subsidies that
benefit only narrow and often well-heeled interest groups. The
President's Budget would eliminate a range of such subsidies. The
Budget proposes to do away with tax subsidies for oil and gas companies
described further below and to no longer allow the managers of private
equity and other partnerships to enjoy a low capital gains rate on part
of their labor income--instead, treating their compensation like other
forms of compensation. Further, the Budget lays the groundwork for
reforming our tax code so multinational corporations pay taxes more
like domestic companies, rather than being able to defer taxation of
profits earned by their subsidiaries.
Closing tax loopholes for oil and gas companies. The
Budget proposes the elimination, starting in 2011, of an array of tax
advantages for domestic oil and gas producers. Although the
Administration supports the responsible production of oil and natural
gas as part of a comprehensive energy strategy, excessive government
subsidies distort market signals and slow the transition of the economy
from fossil fuels to clean, renewable sources of energy. (To take just
one example, the Administration proposes to repeal the expensing of
intangible drilling costs such as labor, chemicals, and grease. Under
the existing provision, if $80,000 of a $100,000 investment in an oil
well were spent on intangible drilling costs, that $80,000 could be
immediately written off by a producer, rather than amortized over the
life of the asset, as would be the rule for the costs of labor and
materials used to build a factory, for example.)
Enhancing enforcement. According to the latest estimate,
the net tax gap--the gap between what corporations and individuals owe
under the tax law and what they paid either voluntarily or as a result
of enforcement actions--stands at nearly 3 percent of GDP. To give a
sense for the magnitude of this number: This is nearly five times what
the Federal government spends each year on veterans and about equal to
what it currently spends on Medicare. We can and must do better than
this.
This Budget proposes measures that would enhance enforcement,
making more corporations and individuals pay the taxes they already owe
under current law. For instance, the Budget would attack sham tax
transactions by codifying the principle that corporations and
individuals cannot avoid paying taxes by engaging in transactions for
no other reason than to lower their tax liability. It would also
require increased reporting of rental payments to the IRS so this
income is properly reported by the recipient. Furthermore, the Budget
proposes targeting tax havens and expanding international tax
enforcement efforts--efforts that, while still in the planning stages,
are expected to raise considerable revenues over time.
Redeploying Military Forces Engaged in Overseas Contingency
Operations and Restraining Growth of Other Defense Spending
As we look to the challenges facing our nation, it is imperative
that we invest our defense dollars effectively and wisely.
The Budget reflects savings from two sources in the defense budget:
Redeployment of military forces engaged in overseas
contingency operations. The Budget funds the Administration's strategy
to increase our troop levels in Afghanistan and to responsibly remove
combat brigades from Iraq. Under this strategy, the costs of operations
in the two countries combined are expected to fall. Under the
President's Budget, as troop levels decrease, the combined cost of Iraq
and Afghanistan operations would decrease by about $50 billion in 2009
and $65 billion in 2010, compared with the 2008 level of $187 billion
(adjusted for inflation). Beginning in 2011, the Budget reflects a
placeholder cost of about $50 billion per year, which is included to be
responsible but does not reflect any specific policy decisions. Several
strategy reviews are underway that will inform out-year costs, and it
would be premature at this time to prejudge those reviews.
Restraining growth of other defense spending while
maintaining key priorities. For FY 2010, the Budget requests $533.7
billion for the Department of Defense (DoD), an increase of $20.4
billion, or 4 percent, from the 2009 enacted level of $513.3 billion
(excluding $7.4 billion from the Recovery Act). This growth is greater
than the post-Cold War average of 2.9 percent but less than the nearly
7 percent annual growth over the last eight years.
This level of growth maintains a strong Defense Department,
allowing DoD to address the President's highest priorities. These
priorities including increasing the size of the Army and Marine Corps,
giving a 2.9 percent pay raise to our men and women in uniform,
improving DoD facilities (especially military housing), and improving
the medical treatment of wounded service members. Taking into account
the importance of managing defense priorities in a cost-efficient
manner, the Budget also emphasizes acquisition reform. The
Administration will work to set realistic requirements and incorporate
``best practices'' to control the cost growth and schedule slippage of
DoD's weapons programs.
line-by-line review of the budget
The Administration believes that we should be investing taxpayer
dollars in efforts and programs with proven records of success and
reallocating or eliminating programs that do not work or whose benefits
are not worth their cost. To this end, the Administration has begun an
exhaustive line-by-line review of the Federal budget, starting with one
of its most important lines--health care. The first stage of this line-
by-line review will be reflected in the spring release of the full FY
2010 Budget and will continue in subsequent years. However, the
Administration has already identified a number of policies to drive
savings. These include:
Increasing Federal government health savings, as specified
earlier in my testimony.
Phasing out and eliminating certain inefficient
agriculture subsidies, such as direct payments to high-revenue crop
producers and storage subsidies for cotton producers. These measures
would cut deficits by about $19 billion over the next ten years.
Eliminating subsidies to banks participating in the
student loan program. As I discuss in greater detail later in my
testimony, banks that make government-guaranteed loans are entitled to
subsidies that are set by Congress. In the Budget, we propose to
eliminate these subsidies while providing a more stable source of
financing for student loans. This reduces deficits by another $60
billion over the next ten years.
Reducing erroneous payments in Federal programs and
increasing tax enforcement by investing in ``program integrity.'' The
Budget also makes significant investments in activities to ensure that
taxpayer dollars are spent correctly, expanding oversight of the
largest benefit programs and increasing investments in tax compliance.
These efforts are expected to reduce deficits by about $64 billion over
the coming decade.
Targeting other inefficient or ineffective programs. The
Budget not only focuses on ``big dollar'' initiatives. It also
recognizes that, even if relatively small amounts of money are at stake
compared to the scale of the Federal budget, taxpayers' funds should be
used wisely. The Budget, for instance, proposes eliminating small,
ineffective HUD programs and increasing collection of delinquent tax
from Federal contractors.
This list gives a flavor of the program eliminations and
investments in efficiency included in the Budget. We expect to propose
further such measures as we move forward with our intensive review of
Federal government programs.
reforming how government works
The President's Budget also begins the process of reforming how
government works, increasing efficiency, transparency, and simplicity.
The initiatives both protect taxpayer dollars and, also, make it easier
for the American people to interact with their government. This reform
process is not one that can be completed overnight, and the
Administration will continue to develop new ways to make government
work better for the people. The Budget is a starting point and an
important step forward.
improve administrative performance
Reforming how government works is not only a question of cutting
and eliminating ineffective programs, but also making worthwhile
programs work better by improving performance. For decades, the
argument in Washington has been between those who say that government
is the cause of every problem and those who say it is the answer. What
has become clear over the past eight years, especially in light of the
Federal government's response to Hurricane Katrina, is that what really
bothers Americans is bad government--government that does not do its
job effectively and efficiently.
To make government more effective, the Administration will
undertake a number of initiatives. These include:
Streamlining government procurement. The Administration
will implement the GAO's recommendations to reduce erroneous Federal
payments, reduce procurement costs with purchase cards, and implement
better management of surplus Federal property.
Reforming Federal contracting and acquisition. The
Administration will take several steps to make sure that taxpayers get
the best deal possible for government expenditures. We will review the
use of sole source, cost-type contracts; improve the quality of the
acquisition workforce; and use technology to create transparency around
contracting. We will review acquisition programs that are on the GAO
high-risk list for being over-budget and prone to abuse. The
Administration also will clarify what is inherently a governmental
function and what is a commercial one; critical government functions
will not be performed by the private sector.
Enforcing standards in addition to measuring performance.
The Administration will fundamentally reconfigure the Program
Assessment Rating Tool (PART). We will engage the public, Congress, and
outside experts in the development of an open performance measurement
process that improves results and outcomes for Federal government
programs while reducing waste and inefficiency. The Administration will
develop goals Americans care about and that are based on congressional
intent and feedback from the people served by government programs.
Programs will not be measured in isolation, but assessed in the context
of other programs that are serving the same population or meeting
similar goals. I will ask each major agency to identify a limited set
of high priority goals over the next few months that will serve as the
basis for the President's meetings with cabinet officers to review
their progress toward meeting performance improvement targets. We will
also identify opportunities to engage the public, stakeholders, and
Congress in this effort.
Improving program integrity. With hundreds of billions of
dollars being spent in programs such as Medicare, Medicaid, and Social
Security, it is important that they are run efficiently and
effectively. For every $1 spent to combat health care fraud, for
example, evidence suggests that the government recoups $1.60. The
Administration will expand oversight activities in our largest benefit
programs--so that the right payment is made to the right person or
provider at the right time--and increasing investments in tax
compliance and enforcement activities. We expect these investments to
save a total of $48.5 billion over the next ten years in these areas.
Cutting the government's electricity bills. The Federal
government is the largest energy consumer in the world. Making
substantial investments to reduce the government's energy consumption
can spur job creation while delivering long-term government savings
through lower energy bills. The Budget will build upon the more than
$11 billion provided for building modernization in the Recovery Act to
achieve the Administration's 25 percent energy efficiency improvement
goal by 2013.
education
While aiming to make government work better overall, the Budget
also focuses its reforms on certain priority areas. When it comes to
education policy, the Budget seeks to increase efficiency, simplicity,
and transparency through a number of initiatives including:
Eliminating government-created subsidies for banks in the
student loan program and shifting savings to students. Right now, banks
that make government-guaranteed loans are entitled to subsidies set
through the political process. Because of turmoil in the financial
markets, the bank-based program has needed additional government
supports over the last year, and even so, lender instability has forced
thousands of students to change lenders abruptly. Meanwhile, last year
more than 800 schools enrolled in the direct loan program, and nearly
half made direct loans last year, all without significant disruption.
Student satisfaction with direct loans is high, while cost to taxpayers
is low, because the program uses competitively selected, private
providers to service loans. The Budget would originate all loans in the
direct loan program beginning in the 2010-11 school year. Analysis by
CBO, GAO, and OMB shows this approach would save taxpayers large sums
of money; by our estimates, it would save more than $4 billion a year.
Making it easier to apply for student aid. To apply for
student aid, students must complete a complicated form. Our plan, while
still in development, would considerably simplify the process through
such measures as streamlining the form itself and/or using tax data to
automatically populate the form with an applicant's answers. This is
not merely a question of saving time, but also encouraging more
eligible students to participate in the program.
Increasing transparency of the Pell program. In addition
to increasing the maximum Pell award to $5,550 for the 2010-11 school
year, the President's Budget makes the program's funding more
transparent by converting the program from a discretionary to a
mandatory program. This would end the dishonest practice of
``backfilling'' billions of dollars in Pell shortfalls each year and
provide certainty to families about the level of Pell Grant funding
available each year.
Preparing and rewarding effective teachers and principals.
Building on the investments in the Recovery Act, the Administration
will invest in efforts to strengthen and increase transparency around
results for teacher and principal preparation programs, including
programs in schools of education, alternative certification programs,
and teacher and principal residency programs. The Budget supports
additional investments in state and local efforts, developed in
consultation with teachers and other stakeholders, to implement systems
that reward strong teacher performance and help less effective teachers
improve or, if they do not, exit the classroom.
Determining what works. The Budget also increases funding
for rigorous evaluation as a first step toward doubling the Department
of Education's support for education research. The Department would use
this funding to conduct rigorous evaluations of approaches to improve
student learning and achievement with a focus on evaluating and scaling
up promising innovative practices while improving or ending programs
that are ineffective.
making it easier to save
To make government programs more effective, the President's Budget
also looks beyond the traditional mechanisms. The Budget seeks to
harness new insights into human behavior in designing government
programs.
Thus, to encourage greater saving, the Budget not only expands
financial incentives for low- to middle-income Americans to save more,
which it does by making the Saver's Credit refundable and thus
available to a much wider population; it also requires that employers
automatically enroll their employees in some form of savings vehicle
when they start work--either a workplace pension plan or, if the
employer does not offer such a plan, a direct-deposit IRA. Employees
can then elect not to participate if they so choose. Extensive research
has shown that merely changing the default from non-participation to
participation in a retirement plan can dramatically increase
participation rates, despite the fact that workers can voluntarily stop
saving. Experts estimate that, for workers generally, participation
rates could about double as a result of automatic enrollment and that
the effect is even larger for those with lower incomes.
This is the type of innovation the Administration is committed to
applying more generally. Without expanding financial incentives,
imposing penalties, or otherwise constraining people's options,
programs can still encourage desired behaviors. Increasing saving rates
is just one such application.
making key investments
The Budget also expands Federal investment in certain key
priorities. This goes hand-in-hand with making government work better
for all Americans. Making government work better requires not only
reducing or eliminating failing programs and increasing programmatic
efficiency and simplicity but also enhancing programs that do work and
deserve additional resources.
Many of these investments will increase economic growth by building
the Nation's capital stock, both physical and human, and spurring
technological innovation. Government investment is key to long-term
economic growth, and this investment has, in recent years, been
critically low in a number of respects. In addition to making these
investments, the Budget also provides more resources to deserving
populations, such as our nation's veterans.
education
I have described how our proposals would reform education policy by
increasing efficiency, simplicity, and transparency. The Budget goes
beyond this by investing resources in programs that expand opportunity
and increase quality.
Investing in early childhood education. We know that a
dollar invested in early education will pay off handsomely as these
children get older. That is why the Administration is proposing to help
states strengthen their early education programs. The Budget would
broaden the reach of these programs and boost their quality,
encouraging new investment, a seamless delivery of services, and better
information for parents about program options and quality. In addition,
through funds from the Recovery Act and this Budget, the Administration
will double the number of children served by the Early Head Start
program and expand Head Start, both of which have proven to be
successful with younger children. Finally, the Department of Health and
Human Services will begin a major new effort to ramp up the Nurse-Home
Visitation program. Rigorous research has shown that a well-structured
program can have large and measurable impacts in helping at-risk
expectant and new parents give their children a healthy start in life.
Expanding higher education opportunities. Because the
Administration is committed to making college affordable for all
Americans, the Budget, in addition to making the Pell program
mandatory, builds on the Recovery Act by supporting a $5,550 Pell Grant
maximum award in the 2010-2011 school year. The Budget would also index
the Pell grant award to the Consumer Price Index plus 1 percent in
order to account for inflation in this sector. Along with expansion of
the Pell program, the Recovery Act created a new $2,500 American
Opportunity Tax Credit, making college tax incentives partially
refundable for the first time. As a result, many high school seniors
who receive no tax incentives under the current system will, for the
first time, receive a tax cut to make college affordable. The Budget
proposes to make this tax cut permanent.
Helping at-risk students complete college. It is not
enough for our nation to enroll more students in college; we also need
to graduate more students from college. A few states and institutions
have begun to experiment with these approaches, but there is much more
they can do. The Budget includes a new five-year, $2.5 billion Access
and Completion Incentive Fund to support innovative state efforts to
help low-income students succeed and complete their college education.
The program will include a rigorous evaluation component to ensure that
we learn from what works.
infrastructure
Today, too many of our nation's railways, highways, bridges,
airports, and neighborhood streets are aging and congested due to lack
of investment and strategic long-term planning. In the short term,
modernizing our infrastructure would create new jobs and provide a
boost to the economy. In the longer term, infrastructure investment
would provide our nation a foundation for long-term economic growth.
The Budget proposals include:
Establishing a National Infrastructure Bank. The Budget
proposes to expand and enhance existing Federal infrastructure
investments through a National Infrastructure Bank designed to deliver
financial resources to priority infrastructure projects of significant
national or regional economic benefit. The mission of this entity will
be to not only provide direct Federal investment but also to help
foster coordination through State, municipal, and private co-investment
in our nation's most challenging infrastructure needs.
Investing in our nation's roads, bridges, and mass
transit. The President is committed to instituting accountability for
the $35.9 billion provided in the Recovery Act and to responsibly
reauthorizing the nation's highway and mass transit programs. Further,
our surface transportation system must generate the best investments to
reduce congestion and improve safety. To do so, the Administration will
emphasize the use of economic analysis and performance measurement in
transportation planning. This will ensure that taxpayer dollars are
better targeted and spent.
Improving and modernizing air traffic control. Because of
an outdated air-traffic control system and over-scheduling at airports
already operating at full capacity, an ordinary trip to a business
meeting or to visit family can become marred by long delays. The Budget
provides $800 million for the Next Generation Air Transportation System
(NextGen) in the Federal Aviation Administration, a long-term effort to
improve the efficiency, safety, and capacity of the air traffic control
system.
Maintaining rural access to the aviation system. The
Administration is committed to maintaining small communities' access to
the National Airspace System. The Budget provides a $55 million
increase over the 2009 level to fulfill current program requirements as
demand for subsidized commercial air service increases. However, the
program that delivers this subsidy is not efficiently designed. Through
the budget process, the Administration intends to work with the
Congress to develop a more sustainable program model that will fulfill
its commitment while enhancing convenience for travelers and improving
cost effectiveness.
Expanding access to broadband. As a country, we have made
significant public investments so that, regardless of economic status
or location, Americans have access to telephone service and
electricity. The Recovery Act does the same for broadband, and our
Budget would expand upon these efforts. The Recovery Act includes $7.2
billion for broadband expansion and the Budget includes $1.3 billion in
USDA loans and grants for the Department of Agriculture to increase
broadband capacity and improve telecommunication service as well as
education and health opportunities in rural areas.
science
Like investments in physical infrastructure, investments in
scientific knowledge also increase productivity and economic growth.
The Budget proposes:
Doubling funding for key basic research agencies. The
President's Budget would double funding over 10 years for three key
basic research agencies: the National Science Foundation, the
Department of Energy's Office of Science, and the Department of
Commerce's National Institute of Standards and Technology. The Recovery
Act includes a $5 billion investment in these agencies, which is an
almost 50 percent increase for these programs over 2008 and represents
a significant down payment toward the President's plan to double
funding. This initiative will help fund cutting edge research done by
universities, government laboratories, and private industry. It is
especially important for the government to fund such activities since
basic research tends to have positive spillover effects that flow
across the economy.
Increasing funding for research into cutting edge
technologies. The Budget also increases support for promising but
exploratory and high-risk research proposals that could fundamentally
improve our understanding of climate, revolutionize fields of science,
and lead to radically new technologies. Such research includes
interdisciplinary work like that conducted by researchers at Cornell
University, who have developed a tiny nanotechnology particle that
could ultimately both deliver a drug to a specific cell and monitor the
cell's response to the drug; a therapeutic combination that would
revolutionize medicine. In addition, the Budget funds cutting-edge,
fundamental research to help transform the nation's air transportation
system, increase airspace capacity and mobility, enhance aviation
safety, and improve aircraft performance while reducing noise,
emissions, and fuel consumption.
energy
The Budget lays the groundwork for an agenda that would transform
our nation's energy consumption. As we have known for many years now,
the United States' dependence on oil and other fossil fuels undermines
the country's national security, and a growing wealth of scientific
evidence also suggests that this dependence is contributing to global
warming, jeopardizing our economy and our entire planet.
As a down payment on an energy-independent, clean-energy economy,
this Budget proposes:
Funding vital investments in a clean energy future
totaling $150 billion over 10 years, starting in FY 2012. To finance
these investments in a fiscally responsible manner, while also
providing tax relief to consumers, the Administration proposes a
market-friendly cap-and-trade program to reduce greenhouse gas
emissions.
Beginning a comprehensive approach to transform our energy
supply and slow global warming. The Administration is developing a
comprehensive energy and climate change plan to invest in clean energy,
end our dependence on oil, and address the global climate crisis. The
Administration plans to work expeditiously with key stakeholders and
Congress to develop an economy-wide emissions reduction program to
reduce greenhouse gas emissions approximately 14 percent below 2005
levels by 2020, and approximately 83 percent below 2005 levels by 2050.
This program will be implemented through a cap-and-trade system.
Building on the Recovery Act's investments in a new
economy that is powered by clean and secure energy. The Budget will
build on the Recovery Act's investments by significantly increasing
funding for basic research and transformational science to accelerate
solutions to our Nation's most pressing problems. The Budget also
supports the transition to a low-carbon economy through increased
support of the development and deployment of clean-energy technologies
such as solar, biomass, geothermal, wind, and low-carbon emission coal
power, and it builds on the $11 billion provided in the Recovery Act
for smart grid technologies, transmission system expansion and
upgrades, and other investments to modernize and enhance the electric
transmission infrastructure to improve energy efficiency and
reliability.
Creating a New Energy innovation fund. The Budget includes
funds for HUD to drive the creation of an energy-efficient housing
market--including the ``retrofitting'' of older, inefficient housing--
and catalyze private lending for this purpose in the residential
sector. Partnering with the Department of Energy on this initiative,
HUD will contribute to the Administration's broader effort to combat
global warming, jumpstart the creation of a clean-technology economy,
and reduce utility bills.
veterans
While investing for the future, the Budget also devotes more
resources to deserving populations, such as our nation's veterans. The
Budget expands support for our nation's veterans by:
Increasing funding for Veterans Affairs (VA) by $25
billion over the next five years. The President's Budget increases
funding for VA by $25 billion over the next five years in order to
honor our nation's veterans and expand the services they receive. Some
of these funds will be used to transform the VA into a 21st-century
organization, including investments in information technology that
directly benefit veterans in the areas of both health care and
benefits.
Dramatically increasing funding for VA health care. The
President's Budget provides VA medical care with the resources it needs
to provide 5.5 million veterans with timely and high quality care.
Restoring health care eligibility for modest-income
veterans. For the first time since January 2003, the President's Budget
restores eligibility for VA health care to non-disabled veterans
earning modest incomes. By 2013, this initiative will bring over
500,000 additional veterans into the VA health care system while
maintaining high quality and timely care for the lower-income and
disabled veterans who currently rely on VA medical care.
conclusion
The President's Budget strikes a new course for America. It
presents the fiscal path with honesty, and deficits are projected to
fall in half by the end of the President's first term compared to the
deficit inherited by the Administration when it came to office in
January 2009. Altogether, the policies in the Budget would reduce the
deficit by $2 trillion over the next 10 years, begin to address the key
contributor to the nation's long-term fiscal short-fall by proposing
health savings measures that could help ``bend the curve'' on long-term
health costs, begin the process of reforms to improve how government
works, and, finally, make key investments that would provide much-
needed jobs now and boost long-term economic growth
The country faces grave challenges, both in terms of its short-term
economic health and its long-term fiscal future, and working our way
out of these difficulties will not happen overnight. The policies
proposed in this Budget and those enacted last month in the Recovery
Act represent an important first step on the path back toward economic
and fiscal health. I look forward to working with you in the weeks and
months ahead to continue the process of addressing the challenges
facing our nation.
Chairman Spratt. Thank you, Director Orszag.
There are several--well, many significant features to the
budget request you brought before us, but none more salient
than the one you just discussed, namely health care.
This budget creates a health care reserve fund and calls
for funding of $634 billion over 10 years. Will that amount of
money cover the cost of the proposal that the administration
has in mind?
Mr. Orszag. Mr. Chairman, as we described, the health
reserve fund is a downpayment, a very significant downpayment,
on funding a health care reform.
Chairman Spratt. Is that 50 percent? 60 percent?
Mr. Orszag. It is likely to be the majority of the cost,
but whether it is 50, 60, 70 will depend on the details
whatever is finally done. And you will hear more about this on
Thursday when we hold our health summit, and you will hear more
about it as we move through the legislative process.
But we are trying to avoid the mistakes of the past, in
which, you know, we came to Congress--or an administration came
to Congress and said, ``Here is the health plan.'' We want to
work with you in an interactive way to get health care reform
done this year, and we are putting a significant downpayment on
the table to get that process started.
Chairman Spratt. Will that include possibly some revenues
from auctioning of emission limits and cap and trade?
Mr. Orszag. The budget does propose that, but that is, sort
of, in the energy area. In health care, we do have a revenue
proposal which would return the tax break for itemized
deductions for the top--it will affect 1.2 percent of
taxpayers--return that tax break to the level that existed at
the end of the Reagan administration after 2011, and with the
revenue dedicated to health reform.
Chairman Spratt. Can you outline the basic outlines of the
health care proposal the administration will send us? Or is it
too early to do so?
Mr. Orszag. Well, the budget includes key principles on the
health reform. But, again, you are going to hear more about
this on Thursday. We want to work with you interactively. What
we wanted to do in this budget is put some money on the table
to get the process started, and that is what we did.
Chairman Spratt. The stimulus bill contained a very
significant item, over $19 billion as I recall, for information
technology. That is a substantial sum of money. When you were
at CBO, CBO wrote a critical analysis of a number of
information technology claims to astounding sums of money and
debunked many of these.
Do you think HI, health information technology is a source
of real revenues that will pay dividends and help fund the cost
of health care in the future?
Mr. Orszag. Health information technology is necessary but
not sufficient by itself to move to a more efficient health
care system.
So, remember that map that I put up with huge variation
across the United States in how health care is practiced. If
you look across regions of the United States, you see this. If
you look across hospitals within a region, you see this. If you
look across doctors within a hospital, you see this. You see
very substantial variation in health care practices, with the
higher-cost approaches not backed by specific evidence that
they work any better than less-costly approaches. And health
information technology is one of the key ways that we need to
flesh out and get the information necessary for doctors to
figure out how to practice in a more efficient way.
Let me give you two examples. If you look in the last 6
months of life for Medicare beneficiaries, if you look at two
of our leading medical centers, at one of them the average cost
is $25,000 a year; at another, $50,000 a year; and the quality
indicators, if anything, suggest that the quality is better at
the $25,000ayear medical center. All that we seem to be getting
in exchange for $25,000 a year now--that is your taxpayer
dollars--is more tests, more visits to specialists, more days
in the hospital, none of which seem to actually help, other
than raising costs.
In addition, if you look within a hospital, it has been
demonstrated that if you sit doctors down and say, do you
realize, two groups of doctors, that you are practicing
medicine in much different ways, they will often evolve towards
the less-intrusive, less-costly approach, but they often lack
the data to do that. Most of the data that we have today are
based on insurance claims. That tells you what happens to a
patient but not what the result is. Health information
technology will help you figure out both what is done to a
patient and what the result is, so that medical professionals
can figure out more effective ways of practicing medicine.
Chairman Spratt. Now, let me turn to defense spending. You
showed us what non-defense discretionary will do, namely come
down as a percentage of GDP over the next several years. What
happens to defense spending over that period of time, the other
half of discretionary spending?
Mr. Orszag. Defense spending also declines as a share of
GDP. In 2009, it is projected to be 4.9 percent of GDP. And, on
average over the next decade, it is 3.6 percent of GDP.
Secretary Gates has stated that it is time for the Defense
Department to begin the process of reorienting its priorities
and, in particular, redesigning the procurement and acquisition
system to become more efficient. And I am deferring to his
judgment in terms of how he does that. But he believes that
this budget is a healthy budget for the Defense Department,
both in terms of the funding for the troops and in terms of
providing the beginning point for starting to turn the ship
towards a more effective, especially, procurement and
acquisition system.
Chairman Spratt. Our analysis shows--and I am not sure we
have the chart ready at hand--but analysis shows that defense
spending over the next 10 years, under your budget, keeps pace
with inflation and then some, barely above--there we go. The
blue bar being the President's budget, and the red bar being
current services, which would be existing defense adjusted,
basically, for inflation and other changes.
Mr. Orszag. Yes.
Chairman Spratt. Basically, the President is just a bit
ahead of current services, just a bit ahead of inflation.
Mr. Orszag. That is correct for the base defense budget.
Chairman Spratt. But we are fixing the level of expenditure
at a pretty high level historically.
Mr. Orszag. There has been a very significant increase in
the defense budget. And this budget, the President's budget,
starts the process of improving efficiency in the Defense
Department, again, especially in the procurement area.
Chairman Spratt. Now, for supplementals, you are doing away
with supplementals, but don't have any numbers for the out-
years other than the $50 billion plug that you put in the
budget after next year.
When do you expect to refine that forecast so you can give
us the actual numbers that fit into the $50 billion plug?
Mr. Orszag. Well, first, let's step back and realize there
will be a supplemental submitted this month for this fiscal
year on military operations. In the budget, you have details on
that; it will be slightly in access of $75 billion.
As you go out over time, as you noted, we have in 2011 and
thereafter a $50 billion placeholder for overseas contingency
operations. You have already started to see some of the policy
announcements coming out from the administration on troop
levels, both in Iraq and in Afghanistan and other areas. It
will be ongoing policy development that is done to back up what
the out-year costs may be.
Again, maybe I should have said this at the beginning. We
have had 5 weeks in office. The budget process normally takes 5
to 6 months. So we are taking our best guess or best shot at a
variety of things, and there is going to be a lot more detail
to come with the full budget in April.
Chairman Spratt. Along that line, and one last question
from me, at least in the outline of the budget which we have
here, the blue book, there is not a lot of attention given to
the long-run sustainability of the major entitlements,
particularly Medicare and Social Security.
What is the administration's position on those with respect
to this budget? Are you looking upon it as something that has
to be done outside this budget, separately and independently
from it?
Mr. Orszag. I would take a slightly different view, Mr.
Chairman. Again, as the chart that I put up shows, the key to
our fiscal future, the key entitlement problem is health care.
And this budget is going--we want to get health care reform
done this year. And, in doing so, we want to do it in a way
that will help to reduce the long-term growth rate in health
care costs.
Health care reform is entitlement reform. If we bend the
curve on health care cost growth, it is the single most
important thing we can do to get our long-term entitlements
under control. So, to my mind, given that graph that I put up
with the rising Medicare and Medicaid costs, it makes sense to
start with health care, which is what we want to do.
And then, as my testimony points out, after we have dealt
with the key to our fiscal future, Social Security also does
face an actuarial deficit, and it would be desirable to address
that problem after we have dealt with the bigger one, which you
can see in this graph is Medicare and Medicaid.
Chairman Spratt. Thanks very much.
Mr. Ryan?
Mr. Ryan. Thank you, Chairman.
As you noticed, I have a few, couple criticisms with this
budget.
Mr. Orszag. I did notice.
Mr. Ryan. But let me first start with a couple compliments.
Number one, I am glad to see we are finally putting the AMT
in the budget, in the baseline. And you ought to be commended
for that.
Number two, I am glad to see you are putting a means test
on the Part D benefit. That is something we have put in our
Republican budgets. You did, and I want to compliment you for
that.
And, number three, I am glad to see it sounds like you guys
are serious about agriculture reform. It is time we stop
subsidizing very large interests in agriculture, in my opinion,
and I think a lot of us are going to agree with that.
So those are the good parts I see in this budget, and I
just want to make sure we establish that there are a few things
that we like.
Mr. Orszag. I appreciate that, Mr. Ryan, I do.
Mr. Ryan. I want to talk about the economic assumptions in
this budget. Looking at your--you see it here, but looking at
your Table S-8 in your budget, the Blue Chip consensus forecast
is about a percentage point lower, meaning your economic
assumptions over the first 5 years are about a full percentage
point higher than the Blue Chip forecast. Your inflation rate
is about half a percentage point lower over the next 5 years
than the Blue Chip.
Now, have you run the numbers to show what the deficits
would look like if the Blue Chip consensus forecasts prevailed?
I mean, obviously, I hope your forecasts prevail, but they seem
to be much higher than anyone is forecasting, CBO or the Blue
Chips. Have you run those numbers and shown what the deficit
impact would be if those prevailed?
Mr. Orszag. Well, I am glad that you asked this question,
because let's compare ourselves to CBO, you know, an
independent arbiter. The CBO analysis was done before the
Recovery Act was enacted. CBO yesterday released a letter on
the macroeconomic effects of the Recovery Act. If you add in
their estimated impact from the Recovery Act to their baseline
forecast, which excluded the Recovery Act, you wind up with a
forecast that is right in line with the administration's. They
have a high and low impact from the Recovery Act, and we are
right in the middle of it.
Now, since both of those forecasts were done, the incoming
data suggest a more negative economic outlook----
Mr. Ryan. That was exactly my next question.
Mr. Orszag. Fair enough. But we have a process here where
the assumptions are locked down at a point in time, and, you
know, incoming data can wind up being slightly better or
slightly more negative than what was assumed when the
assumptions were locked in.
I just wanted to point out we are consistent with CBO once
the Recovery Act is included in the analysis.
Mr. Ryan. But you won't recalibrate those assumptions given
the last period of time of economic turmoil, you are going to
stick with these current assumptions, is that correct?
Mr. Orszag. As you know, the budget process is based on a
set of assumptions that are locked down. I don't think it is
productive for us to be chasing our tail, in no small part
because we are going to get a lot of different data over the
next few weeks and months. And we can obviously reassess the
situation at the appropriate time in the process, at least for
the mid-session review if not before.
Mr. Ryan. Yeah, I think it is important to point out that
the numbers in this budget are staggeringly high. If these
scenarios in this baseline don't play themselves out, then they
will be even higher. And that is just something I think we all
ought to keep our minds on.
I want to talk to you about--you know, the media has talked
about all this savings you have achieved, the $2 trillion in
savings. Isn't about $1.6 trillion in savings in BA from the
fact that you had these inflated war costs, where you assume
surge level spending in the war for 10 years, inflate those,
and then because of the inevitable drawdown that would have
occurred under either administration's plan, you call that
savings? Isn't that where the bulk of the savings come from?
And then isn't the rest of that savings not actual spending
cuts but tax increases?
Mr. Orszag. Well, let me break that down into two parts.
First, with regard to the savings on the war, the
traditional way of reflecting discretionary spending is to take
a base level and project that out over time, which is exactly
what we have done----
Mr. Ryan. Okay, can I ask you just right there?
Mr. Orszag. Sure.
Mr. Ryan. But the base level you are projecting over time
is the surge levels, correct?
Mr. Orszag. It is the level from 2008.
Mr. Ryan. The surge.
Mr. Orszag. Correct, the last full year of funding that has
been provided.
Mr. Ryan. So you assume in your budget that we were going
to have the surge for 10 years, even though a surge, by
definition, is up, then back down, you assume we are going to
be at the surge level in Iraq for 10 years. Is that correct?
Mr. Orszag. That is the traditional way in which budget
projections have been done. I would also say I think it is--if
you just look at a simpler way of looking at it, we are going
to spend $140 billion this year on the war. The President is
going to walk that down or end things more quickly than I think
would have been the case if he hadn't won the election, and
that saves money.
But let me also point out, that is not the only source of
savings in the budget. The gross savings are much larger than
$2 trillion. We have, as I already mentioned, $50 billion in
program integrity savings, $50 billion in savings from
eliminating subsidies on educational loans, the middlemen in
educational loans. In the health care area, we have $175
billion in Medicare Advantage subsidy reductions.
So you can go through the budget and add up all the gross
savings, and then some of those are plowed back into different
areas, including education, energy, and health care.
Mr. Ryan. So, to go back, $1.6 trillion of these savings is
because you are saying, ``We are not going to have a surge for
10 years; we are going to ramp it down''?
Mr. Orszag. About a trillion and a half dollars is because
the war ends more quickly under this budget than we think the
alternative would have been.
Mr. Ryan. Than 10 years of surges.
Discretionary spending--can you bring up the chart, Jose,
that your non-defense discretionary as a share of GDP, please?
And this is something we have been battling, no matter what
administration, no matter what budget, this is something we are
always dealing with.
I notice you show a pretty precipitous drop in non-defense
discretionary as a percent of GDP. In 2010, the request here
for the VA is a 10 percentage point increase and then, in 2011,
a 2.2 percent increase. In HUD, an 18 percent increase for this
fiscal year, this upcoming fiscal year, and a .2 percent
increase the next year. Transportation, a 2.8 percent increase
in their budget, and then followed by a negative 11.5 percent
decrease. Labor, 4.7 percent increase, followed by, in 2011, a
.8 percent increase.
The Environmental Protection Agency in the stimulus package
received an increase of 92 percent in its budget. In fiscal
year 2010, you are proposing an additional 35 percent increase.
And in fiscal year 2011, you want a 1 percent increase. And I
am assuming this does not include cap-and-trade administrative
costs, because that hasn't been, sort of, implemented
yesterday.
Do you think it is realistic--and, you know, we have seen
all of these different administrations--do you think it is
realistic that you are going to have these incredible double-
digit increases in these agency budgets and then you are going
to have these incredible decreases the following year?
Mr. Orszag. Well, it is not decreases, but slower growth.
But I think the answer is yes, because--here is the context.
From our perspective, there have been key areas that have been
underinvested in or starved of resources. We need some
reprioritization. But then, once that is accomplished, it will
be sustainable to have slower growth rates.
So this budget is not based--those NDD numbers are not
based on just kind of making the numbers up in the out-years.
It is programatically based. So, for example, in 2019 we build
into the Commerce Department additional funding because we know
the next census will be coming up.
So I think this is a very important question. We think
there is some reorienting of priorities that is necessary, and
some reinvestment, and then we think it will be sustainable to
perpetuate that over time.
Mr. Ryan. Yeah, I think the problem around here is the most
permanent thing is a temporary increase. And that is what
Congress ends up usually doing with these budgets. And we will
join you in helping you restrain the growth of these programs,
because I think you are going to have a hard task at hand. I
recall the last administration was deeply criticized for doing
the same kinds of things.
Then, I don't want to take up all of the time, but this is
obviously what all administrations start with. They give us a
blueprint, sort of a ``CliffsNotes'' version of the budget. You
only had 5 weeks, so we understand that. You are going to bring
the big, full budget in April some time.
Mr. Orszag. Correct.
Mr. Ryan. But I am assuming we are going to have a markup
in this committee on the budget before April. So that means
there are lots of questions that we would like to get answers
to before we start moving a budget resolution going to the
floor.
So, in the interest of time, I have some questions I would
like to submit to you for the record to get more details to
what you are planning on rolling out in April so that we can
make better decisions when this committee begins to mark up the
budget resolution. And if you could respond to me on these in a
prompt way before we actually consider our budget resolution, I
sure would appreciate that.
Chairman Spratt. Without objection, so ordered.
Mr. Ryan. Thank you. I yield back.
Chairman Spratt. Ms. Schwartz.
Ms. Schwartz. Thank you, Mr. Chairman. And thank you for
this first hearing on the budget.
And, Peter Orszag, welcome back. We saw a good bit of you
over the last few years. And congratulations on your new
position and your new challenges for this administration.
We certainly appreciate how well you have laid out the
crisis, both economically in this Nation and the fiscal demands
and situation that this country faces and the President and you
face, all of us face. And I think you have made clear that this
is a very different kind of budget. It is more honest in laying
out our expectations for the future and makes very clear that
we need to move towards fiscal balance, recognizing that that
is going to be hard to do. And it is very clear about the
investments that we have to make if we are going to be
economically competitive and certainly if we are going to be
able to grow in the future and meet that fiscal balance.
I did want to follow up specifically on health care. The
Chairman [JF1]did very well, but it is a very big part of--as
you said, health care is key to the financial future, in terms
of meeting our obligations as a Nation and meeting our budget
goals. But it is also very important to families and to
businesses. I hear a great deal about the cost of health care,
the fact that it has risen in the last 8 years about 75 percent
for businesses covering health benefits. It means a lot more of
those costs passed along to employees. And of course I hear
from families who are deeply worried about the costs, both the
cost-sharing and the bankruptcies it often causes when they
don't have full coverage.
I wanted to ask you to flesh out a little bit further both
some of what we already have set out in the economic recovery
package. We did major work--I want to congratulate all of us,
at least on this side of the aisle; we did not get the
bipartisan support we would have liked, even though I think
there is a good bit of agreement on the other side--on health
IT in particular, that we ought to be making this kind of very
significant investment, and what that can mean for us moving
forward in terms of improving quality and saving lives and
saving dollars.
Could you flesh out two things? One is, what additional
policy changes, reforms do you think that we need to be making,
not only to affect Medicare/Medicaid but also that could have
an effect in the private sector, on cost in the private sector?
And I am talking about the comparative effectiveness.
We have gotten a good start, in terms of the $1 billion you
have set aside. There are a lot of questions about how that is
going to really improve quality. Payment reform, physician
decision support, and really the kind of savings going forward.
These raise some questions and concerns; I wonder if you could
flesh that out for us. Basically, I am talking about what else
might you be encouraging us to do so that we can actually see
the kind of improvement in quality and savings?
And secondly, if you could also speak to, if we don't do
this, what effect it might have on our economic competitiveness
and on our budget if we, in fact, don't tackle health care
costs going forward.
Mr. Orszag. Well, let me start with that question. Again,
remind yourself of that graph with Medicare and Medicaid just
rising, rising nonstop over time. If we don't act to reduce the
growth rate in health care costs, nothing else from a fiscal
perspective is going to save us from a fiscal crisis
eventually. Those rising costs of health care are going to
become so burdensome, not just for the Federal Government but
also for State government and for workers, that we simply have
to start the hard process of bending the curve on health care
costs.
The Recovery Act takes an important step. As you already
mentioned, health information technology, so that we have more
data. Not only that--let me just also stop for a second since
we shouldn't get lost in the policy details, and also realize
that, as patients--I mean, I am looking forward to a world in
which I don't have to fill out medical forms over and over
again every time I go to a new doctor, because it is a nuisance
that none of us needs.
But in addition to that, it leads to a more efficient
health care system in which errors are reduced and higher
quality is produced. Comparative effectiveness is about
measuring what works, evaluating what works and what doesn't,
and then having medical professionals evaluate ways of changing
practices so that we get the stuff that does work and not the
stuff that doesn't.
And then, finally, you already mentioned incentives. Right
now we have a health care system that pays for more care rather
than better care. And it is not surprising that what we get is
more care. What we want is better care. And the budget includes
a variety of proposals, from bonus-eligible organizations, to
incentives to reduce readmission rates, to incentives for
hospitals to improve quality, and so on and so on and so on,
that will start to reorient the payment system towards
efficiency and quality and not towards just higher costs.
Ms. Schwartz. Well, thank you. I think we are going to be
seeing a lot more of that fleshing out. But you make a very,
very important point--and my time is up--but that this is
actually intended to create efficiencies but improve quality,
and not, in fact, limit access to care but improve that
quality. And that will save lives and save money.
Thank you.
Chairman Spratt. Thank you, Ms. Schwartz.
Mr. Hensarling is next.
Let me tell everyone the clock is not working. So when you
get down to 4 minutes and you have 1 minute to go, I will tap
the gavel. When you have 5 minutes, I will rap the gavel.
Mr. Hensarling?
Mr. Hensarling. Thank you, Mr. Chairman.
Welcome back, Dr. Orszag.
Since Congress has come under Democrat control, they have
recently achieved a trifecta of trillions. We have a trillion-
dollar government stimulus bill that includes a fleet of cars
for government employees, more money for the National Endowment
for Arts, more subsidies to Amtrak. Then we had about 2 weeks
later, less than 2 weeks later, a trillion-dollar
appropriations bill, first time in our Nation's history,
complete with thousands of pork-barrel projects, including
lobster research protection for mouse habitat. Now we have a
trillion-dollar budget deficit to boot. On top of that, now, we
have the Democrat administration proposing a budget with red
ink as far as the eye can see.
Two questions, Dr. Orszag, to make sure I have my facts
right. At 27 percent of GDP, would this be the largest peace-
time budget in our Nation's history?
Mr. Orszag. The budget that we are inheriting, yes, for
peace time, that is correct.
Mr. Hensarling. Oh, I am sorry, are you inheriting this
budget, or are you proposing this budget?
Mr. Orszag. The 27 percent is for a year in which we are in
the midst of a severe recession and includes the steps that
have been necessary to address the downturn.
Mr. Hensarling. Well, I am just looking for a simple--so
the answer is yes.
Mr. Orszag. Yes.
Mr. Hensarling. Thank you. Also, with this budget, would
this double the national debt in 8 years? Is that true?
Mr. Orszag. Under current policies, the debt increase would
be even larger. We reduce the deficit, but there still is a
significant----
Mr. Hensarling. But is it true that, in 8 years, that the
debt would be doubled under this budget?
Mr. Orszag. Yes. But, again, the debt increase is less than
if we fail to act.
Mr. Ryan. Could I ask one?
Mr. Hensarling. I would be happy to yield to the ranking
member.
Mr. Ryan. Is that if you include the surge that lasts for
10 years?
Mr. Orszag. That is if you include the traditional way of
doing baselines, yes.
Mr. Ryan. Okay.
Mr. Hensarling. You said earlier in your testimony that you
wanted to avoid the mistakes of the past. Let me read you a
quote from one of our former Secretaries of Treasury. Quote,
``We are spending more than we have ever spent before, and it
does not work. We have never made good on our promises. And
after 8 years of this administration, we have just as much
unemployment as when we started and an enormous debt to boot.''
You probably recognize the quote. It was President Roosevelt's
Treasury Secretary, Henry Morgenthau, and that quote was given
in 1939.
I have no doubt, Dr. Orszag, that you have also studied
carefully the lessons of Japan that had a similar real estate
bubble that burst, and I am sure you have studied their lost
decade.
Recently, the New York Times, not exactly a bastion of
conservative thought, wrote about the experience, where it
talks about, ``Japan accumulated the largest public debt in the
developed world while failing to generate a convincing
recovery''--this coming from the New York Times. Quote, ``This
has led many to conclude that spending did little more than
sink Japan deeply into debt, leaving an enormous tax burden for
future generations. Among ordinary Japanese the spending is
widely disparaged for having turned this nation into a public-
works-based welfare state and making regional economies
dependent on Tokyo for jobs'' unquote.
My question is, given our own history, given the Japanese
history, what historical precedent is the administration basing
its budget on and its belief that they can borrow and spend our
way into national prosperity?
Mr. Orszag. Well, let me take the Japanese example. I think
the lesson from the Japanese example is that the failure to
deal aggressively and up front with problems in the financial
system ultimately proved to be a big mistake, in which the lost
decade occurred.
I am going to defer to Secretary Geithner and the other
members of the administration's economics team in terms of how
to address problems in the financial market, but I know that
they are motivated by a desire to avoid that mistake. So I
think the key to avoiding that outcome to is to get at the nub
of the problem that occurred in Japan, which was the, sort of,
rope-a-dope strategy on the banking and financial market
problems.
Mr. Hensarling. Okay. Let's move on to taxes in the limited
time I have left. Is it not true that, under this budget, we
are looking at a $636 billion tax increase that would be a tax
on carbon-based energy used by almost everyone in our Nation,
and a tax on small businesses since the overwhelming majority
of small businesses pay tax at the top two individual rates?
And, if so, how is this going to help the family budget? How is
it going to help create jobs?
Mr. Orszag. Let's talk about small businesses. The budget
proposes some tax changes starting in 2011 that will affect the
top 3 percent of small-business owners. The rest will not be
affected. And, in fact, many of them will receive a net tax cut
through other provisions in the budget, including a zero
percent capital gains rate on qualified stock owned in small
businesses.
But I think more important than any of that, the problem
facing most small businesses today is the lack of economic
activity and the lack of access to credit. The most important
thing we could do to get small businesses back on their feet is
get the economy moving again and get credit flowing. The budget
includes $28 billion in loan guarantees to help small
businesses, including through the so-called 7(a) program that
has been very effective in the past. I think that is the key to
getting them back on their feet----
Chairman Spratt. The gentleman's time has expired.
Mrs. Kaptur?
Mrs. Kaptur. Thank you, Mr. Chairman.
I would like to begin by saying to my colleague from Texas
that there isn't a single Member on this side of the aisle that
belongs to the Democrat Party. We belong to the Democratic
Party. So the party you were referring to doesn't even exist.
And I would just appreciate the courtesy, when you refer to our
party, if you are referring to the Democratic Party, to refer
to it as such. We wouldn't say Republic Party in the instance
of the party that you belong to. And I think that that really
was unnecessary.
Mr. Hensarling. Would the gentlelady yield?
Mrs. Kaptur. Not on my time. You will have to wait. But I
think the gentleman heard the message.
I would like to thank Director Orszag, Dr. Orszag for being
here today, and say that America's needs your razor-sharp mind,
and we are really happy to have you in the position that you
are in.
May I ask you, did the Bush administration, in its 8 years
in office, ever produce a balanced budget that was submitted to
this Congress?
Mr. Orszag. No.
Mrs. Kaptur. No, it did not. And may I ask you, of the
enormous debt that we are facing, do you have the numbers with
you or could you provide to the record how much of that deficit
is due to unpaid war costs in Iraq and Afghanistan and also
money for Wall Street bailouts that was not paid for?
Mr. Orszag. Yeah, we can provide you with that in writing.
Mrs. Kaptur. All right. Would you say that those together
constitute over a trillion dollars at this point?
Mr. Orszag. Again, it depends how you do the accounting,
but the cost of the war in Iraq is close to that figure by
itself.
Mrs. Kaptur. I thank the gentleman very much, and we will
appreciate those figures for the record.
Let me move to the topic of the frozen credit lines, which
you referenced on the first page of your testimony, in the
banking system of this country.
I am very concerned about the lack of involvement at full
measure of the Federal Deposit Insurance Corporation and the
Securities and Exchange Commission in helping to resolve this
serious credit crunch problem. Through TARP, which adds to our
deficit every day, the U.S. Treasury has replaced less than
half of the capital that mark-to-market accounting has
destroyed across our banking system.
Do you have the ability, as the Director of the Budget
Office, to convene at the executive level the FDIC, the SEC,
the Treasury, and the Fed to conduct an overarching policy
discussion of mark-to-market accounting and its contribution to
the financial crisis that we are facing?
Mr. Orszag. Congresswoman, I think that question is
probably best directed to Secretary Geithner, and that would be
the appropriate official with whom to have that conversation.
Ms. Kaptur. I will ask him that tomorrow, but I am hoping
in your role, as you look at the budgets for these different
agencies, such as FDIC and SEC, that you might play an
important role understanding how these accounting practices
work, and we can't possibly, through the taxpayers, keep
dumping all of this money into Treasury without dealing with
the accounting side of the ledger.
I thank the gentleman very much.
Let me also ask you, the enormous challenge to our country
to change the psychology of debt to one of savings, every
American family has to participate in this. Could you as a
leader in the new administration convene principals in the
administration to look at the U.S. savings bond campaign in a
manner that would create an effort in very small denominations,
even down to postage-stamp-sized denominations, selling them
like stamps, to involve large numbers of the American people?
We have to change an entire psychology of the Nation. I am just
suggesting that to you. These bond campaigns occur every year.
I know who manages them inside the government over at Treasury.
But I think in your role, with your intelligence, you could
really have an influence within that administration, and I ask
you to consider that.
Mr. Orszag. Thank you. Let me touch upon savings for a
minute. One of the provisions that has not gotten very much
attention in the budget is something that I think maybe we can
all work together on to get done very quickly.
The evidence strongly suggests that the best way of getting
Americans to save for retirement is to make it easy and simple
so that they are automatically enrolled in a 401(k) but have an
opportunity to opt out.
Most of us with kids or busy lives, we don't want to be
handed a big binder by our employer who says wade through this
and get back to me if you want to sign up. I would prefer, and
I think most Americans prefer, to know that if they don't take
action, something good is happening anyway. And if they want to
wade through the binder, great. And then they can make their
own decisions. But most of us are too busy with other things to
spend the time doing this. The evidence suggests that has a big
impact.
You all have already moved to make automatic enrollment
opt-out 401(k)s more prevalent among companies, and that has
occurred over the past several years. The budget includes a
proposal to move towards universal accounts outside of Social
Security by creating an automatic IRA at those firms that don't
offer a 401(k) plan.
The point would be that, whenever someone went to work at a
new employer, the worker would be automatically enrolled in
some form of savings vehicle unless they opted out. The
evidence strongly suggests that is a very effective way of
getting people to save, and I am hoping we can get that done
soon.
Ms. Kaptur. I would just ask for the record if you could
please provide an estimate of how many homes you expect to be
foreclosed this year in the United States, and whether that
number is above or below last year's number, and where in your
analysis do you account for the trillion dollar trade deficit
and how that impacts on GDP?
Thank you, Mr. Chairman.
Chairman Spratt. Thank you, Ms. Kaptur.
Mr. Garrett.
Mr. Garrett. Thank you, Mr. Chairman.
Thank you, Director, and thank you for being here. Again, I
join my colleagues for complimenting you for enacting some of
the reforms that we have supported in the past such as the AMT
patch and the so-called doc fix in the baseline. While I
certainly don't agree with all of the decisions you and the
administration made on accounting aspects, I do agree with
those that you made there.
I do have a few questions about some of the accounting
methods that you have had going forward. And to give you an
idea what I am talking about, I am referring back to the other
day with what the Department of the Treasury and the Fed has
done with regard to AIG.
Under the latest bailout, the Treasury Department will set
up a new $30 billion fund that AIG can draw down from as needed
in exchange for preferred stock for the Federal Government.
Treasury will also exchange $40 billion in the preferred shares
it already has received in AIG for new shares that ``more
closely resemble common equity,'' similar to what the
administration did on Friday with respect to Citigroup.
Both of these moves greatly increase the risk to taxpayers
if the institutions fail. As I am sure you are aware, preferred
shares usually are the first in line to be paid when a company
liquidates, but these common shares will be last in line. And
these shares will not pay a dividend as well, which in the past
would be compared to the interest that we were getting. So,
without this dividend or interest payments and with the
substantial increase in risk to the taxpayers, these outlays by
the Treasury Department appear to be less and less like a loan
and more and more like a direct outlay.
Furthermore, it was announced that the Federal Reserve will
reduce a $60 billion credit facility in exchange for taking a
preferred interest in AIG's subsidiaries, such as American Life
and American International Insurance Company, Limited.
The Fed's exposure to AIG now totals something like $93
billion, and this could put it in line for sizable losses
should the value of those stakes deteriorate. This is just one
of many, many unusual acts, for the Federal Reserve's
terminology, they do during exigent circumstances, enacted by
the Treasury Department and the Federal Reserve over the last
year and a half.
For example, back on February 18, a week ago, Secretary
Geithner announced plans to double the size of U.S. funding
commitments to the GSEs Fannie and Freddie to $400 billion. And
in March of this year, the Federal Reserve set up a special
limited liability corporation to hold the portfolio of J.P.
Morgan, which was too risky for them to take in its fire-sale
prices.
I refer you also to what is happening in Britain. The
British government there has just announced that they intend to
classify Lloyd's of London and the Royal Bank of Scotland as
public corporations. Their liabilities now will be assumed of
$1.5 trillion pounds, and that will be added to the taxpayers'
balance sheet. This reclassification will more than double the
British national debt.
So in the budget document here, it says that the budget
supports the administration's new financial stability plan as
well as the management of the TARP, emphasizing effective
transparent accounting programs. In addition, it says that the
President's budget includes $250 billion contingent reserves
for further efforts to stabilize the financial system, which
would support the $700 billion in asset purchases.
So while I appreciate your desire to make some accounting
corrections to anticipate future policies that could be enacted
to stabilize the financial sector, my question is, do you feel
that the OMB has done enough to accurately account for all of
the actions taken by both the Federal Reserve and the Treasury
Department in your baseline? And secondly, as the Fed continues
to take risky actions under their and 13-3 exigent
circumstances charter, is there any way for us to account for
this in the budget?
Mr. Orszag. Again, I think what we need to do is separate
Treasury activities from Federal Reserve activities just given
the way the Federal budget works.
The Federal Reserve's activities are reflected in the
Federal budget only through the transmission of net profits
from Federal Reserve back to the Federal Government. So a lot
of what is happening there is not reflected in the Federal
budget, and that has always been the case.
Mr. Garrett. And if you want an honest budget, shouldn't
that be on the line?
Mr. Orszag. There are complicated issues in bringing the
Federal Reserve's full balance sheet.
Mr. Garrett. Complications aside, should it be included?
Mr. Orszag. I don't know that I would say it should or
shouldn't be included. I think I can understand the motivation
for looking both at the budget and the Federal Reserve's
activities combined.
But focusing just on what is covered by the Federal budget,
this document does reflect, you mentioned AIG. As you know,
that is covered under the existing TARP legislation that is
embodied in the budget.
Another way of putting the same point, we are hearing about
large numbers, and there are very large numbers that are
involved in the financial stabilization effort, even the part
covered by the Federal budget. If you include the placeholder
that we hope is not necessary to stabilize financial markets
but nonetheless is incorporated to be responsible in the
budget, there is something like $2 trillion in purchases of
financial assets that is reflected in these numbers.
As you know, the way the budget is done, it is on a net-
subsidy basis, so the number that shows up in the budget is
smaller than that. But the gross value of financial asset
purchases that is consistent with the numbers in this budget is
something like $2 trillion. Obviously a substantial sum.
Mr. Garrett. And so should we be able to move towards the
British system to include the entire risk that is assumed by
these, not just the numbers that you are saying are out there?
Mr. Orszag. Again, there is some attempt to incorporate
risk in the Federal budget already, but it is a partial
reflection. So, across a whole variety of areas, the treatment
of risk in the Federal budget I think is an important topic. It
is not just with regard to financial market transactions but
also with regard to a whole variety of other proposals.
This came up with regard to Social Security several years
ago and how risk was reflected in the budget there. It comes up
in area after area, and I would say the treatment of risk in
the budget is somewhat inconsistent, and that is an area that
would be beneficial to move towards a more coherent or
consistent system of treating risk in the Federal budget. It is
not currently the case, and that is going to be difficult work,
and it will take time to do.
Chairman Spratt. The gentleman's time has expired.
Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman.
Dr. Orszag, good to see you again. Congratulations on your
appointment.
We are hearing quite a bit about this deficit and the long-
term debt, much of which the President has indicated he came
into office having to live with. We all inherit things from our
families and otherwise, and we make the best we can with that,
and I appreciate that the President is trying to make due with
the fact that, and I don't think he wanted to come into office
facing a $1.4 trillion deficit and trillions of dollars of
added debt over the next several years.
Be that as it may, we appreciate very much that he has come
out with an honest budget that really does give Americans a
chance to understand how the government will be collecting
revenues and spending the taxpayer money that it collects.
On health care reform, I appreciate that the President in
his budget articulates a vision for how we will reform a very
broken system where we have some of the best technology and
some of the best care, and perhaps the best trained
professionals, but we still have close to 50 million people
without health care. I am wondering if you can give me a sense,
I believe you dedicate about $634 billion for health care
reform?
Mr. Orszag. That is correct.
Mr. Becerra. I don't recall seeing that where we, in a
budget presented by a President, had that much money ready to
invest in real meaningful health care reform. Can you give us a
comparison, say for example, of the cost of the Iraq war? How
much have we spent, more or less, on financing the cost of the
Iraq war over the last 5 or so years?
Mr. Orszag. I would have to get back to you with an exact
number, but I believe the cumulative cost is now in the range
of a trillion dollars.
Mr. Becerra. So we could do health care reforms to provide
universal coverage, make it far more cost-effective for people
with insurance to be able to send their families to a decent
doctor or hospital for far less than the cost, than what we
have paid so far in our involvement in the Iraq war?
Mr. Orszag. Well, I would say a couple of things.
One is, clearly, there is a time dimension to this. But
more importantly, I do want to make clear the $634 billion is
historic and substantial, but it is also only a down payment.
More is necessary to reform the system, to bring down the cost
and improve quality.
Mr. Becerra. If you take into account the trillion dollars
you estimate for the Iraq war so far, plus the money we will
continue to spend, even if we are successful as the President
hopes to bring that war to a close, we will have spent
significant moneys that could have been used to take us a long
ways toward resolving this health care crisis that Americans
face day in and day out.
AMT relief. Do you have a sense of how much it would cost
over the next several years, 10-year window, to try to provide
relief to the Americans who never believed that they would fall
within the jaws of the alternative minimum tax?
Mr. Orszag. The budget includes $576 billion in such
relief.
Mr. Becerra. And didn't the President, when taking office,
have to live with a financial bailout for the financial
services industry totaling $700 billion?
Mr. Orszag. Yes.
Again, coming back to the point that I made earlier, if you
look at the situation that the President inherited along with
the steps that have been necessary to address it, so the impact
of the weaker economy on revenue, the imperative for a recovery
act to jump start the economy, and the need for financial
stabilization efforts, the total impact on the deficit for this
year and next year combined is $2 trillion.
Mr. Becerra. So if we look at what we did in the past and
realize that had we had different policies and done things
differently, we could have planned better for this country and
its people. There are many things we could do, including, for
example, our small business community. More than 91 percent of
small businesses have income of less than $250,000. If I recall
correct, with the different initiatives and proposals you have,
small business men and women and their employees are likely to
receive tax cuts under the President's policies and budget that
you have proposed?
Mr. Orszag. That is correct.
I want to come back to the point I made earlier, which is,
in addition to that, and I started and ran a small business,
the most important thing for small businesses is economic
growth and access to credit. That is what we are focused on
doing over the next year or two. The recovery act is intended
to get the economy moving again. There are proposals as both
the financial stabilization efforts and in this budget to get
credit flowing again to small businesses so that they can play
the role in our economy that they traditionally have played.
Mr. Becerra. I appreciate your being here.
I yield back the balance of my time.
Chairman Spratt. Mr. Harper.
Mr. Harper. Thank you, Mr. Chairman.
Congratulations and good luck in your job. I know it is
going to be a lot of fun, isn't it?
Mr. Orszag. Everything is relative.
Mr. Harper. That is right.
In the President's speech last week, he started out by
saying we had gone to a new high level of importing foreign
oil, and he said we pay a high price for our dependence on oil;
he did not say on foreign oil. Are you anticipating that we are
getting away from, in this budget, from going after our
existing supply of fossil fuels that we do have available? Is
there anything in this budget that calls for increased domestic
supply of oil and gas that you see?
Mr. Orszag. The way I would put it is, given the dependence
on foreign oil that exists, we can either try to heavily
subsidize and promote to sort of beyond what the market would
otherwise produce domestic production, or we can try to move
towards a cleaner energy future in which overall dependence on
oil is reduced and that has the very significant benefit of
also reducing our dependence on foreign oil. The budget chooses
that latter course because I think that is the more sustainable
path to choose.
Mr. Harper. When we talk about the economy and the activity
that you talked about, in my State, when the gas prices hit $4
a gallon, it killed the small businesses. I don't know how we
can endure another episode of that, and we have done nothing to
try to increase that supply. So if we have another great
fluctuation in the price at the pump, it is going to be very
hard to sustain that.
One thing that I noticed also in the President's speech and
a question I had as I looked at the summary here, I didn't see
any mention of nuclear energy. I saw some discussion about what
to do with nuclear waste, but nothing about nuclear energy. And
of course, that is not considered a renewable, although it is
extremely clean. What does the President's budget call for
regarding the use of nuclear power?
Mr. Orszag. Well, as you noted, there are proposals in
there with regard to the end part of the nuclear fuel cycle. I
guess what I would say is we are going to have a legislative
debate over climate change. Clearly, one of the things that is
affected by whether carbon emissions has a price associated
with it or not is nuclear power, and that discussion will occur
as we move forward on climate change legislation.
Mr. Harper. From a global warming perspective, nuclear
would be good, would it not?
Mr. Orszag. The evidence suggests that nuclear energy has
lower carbon emissions than, for example, coal-fired power
plants.
Mr. Harper. We had a protest yesterday, and I understand
some people couldn't get here because of winter weather, for
the global warming protest, which is always of some interest
there. But aren't the citizens ultimately going to be the ones
who pay the cost of the cap-and-trade system?
Mr. Orszag. Ultimately, one of the things that will happen
as part of a cap-and-trade system will be higher energy prices
which will be borne throughout the economy.
I want to back up and say two things. One is, we have
significant investments in energy efficiency which will help
mitigate any upward pressure on energy prices. If we actually
get the battery technology in place, if we actually build the
electricity superhighway so that wind from North Dakota can
reach Chicago, all of the energy price effects are
substantially dampened.
Secondly, we do have compensation that is included in the
budget through the Tax Code for middle- and moderate-income
families. The vast majority of families all in are going to be
substantially better off under this budget than without it.
Mr. Harper. And I know our time is almost up. One final
question dealing with the national defense. Of course, in the
news was the fact that the President indicated he was willing
to talk about removing missile defense as some part of
components talking with Russia in working with Iran. Does this
budget call for any continued development of the missile
defense system, or is that now off the table?
Mr. Orszag. Again, I am going to defer to both Secretary
Gates and Secretary Chu with regard to a variety of our Defense
and related programs. I think you will be hearing more from
them on those topics.
Mr. Harper. Thank you for your time.
Thank you, Mr. Chairman.
Chairman Spratt. Mr. Doggett.
Mr. Doggett. Thank you, Mr. Chairman.
And thank you, Dr. Orszag, for your excellent testimony and
your important work on this budget.
Like President Obama's address to the Nation last week,
your presentation on the budget recognizes that we cannot
postpone resolving the dual challenges of both the health care
crisis and the global warming energy challenge, nor can we
expect the American people to share in the burden of climbing
out of the giant hole in which failed Republican policies have
placed our country unless there is greater tax fairness.
On this latter point, I appreciate your specifically
including codification of the economic substance doctrine to
void transactions that no fool would engage in except to dodge
taxes. It is a proposal Republicans have blocked consistently
since I first introduced it in 1999.
Your budget outline also refers generally to the thriving
business of international tax evasion. I would just ask, as you
prepare your more complete budget document, that you consider,
as Senator Levin and I have asked you, to include the Stop Tax
Haven Abuse Act that he, Congresswoman DeLauro, and a number of
members of this committee, and last year when I introduced it,
Rahm Emanuel and, over in the Senate, a Senator named Obama
joined as cosponsors of it.
Mr. Orszag. So you think that would mean favorable reviews
within the administration?
Mr. Doggett. The new evidence out is over 80 percent of our
largest corporations use tax haven subsidiaries, and I think it
is long past time to try to stop some of this offshore tax
abuse, especially from those who turn to the government for
bailouts with taxpayer dollars at the same time they have
dozens of offshore companies.
But let me turn to the issue you were just discussing about
global warming because I believe that the vote we will take on
this budget resolution will be the first major test of our
commitment here in Congress to support President Obama in
implementing an effective cap-and-trade or cap-and-invest
system to place a price on carbon pollution and transition to
an economy that is both more energy-independent and more
carbon-independent.
Like the hearing that you participated in over in the Ways
and Means Committee with us last September, we had another
hearing on this subject in Ways and Means last week. And,
unfortunately, the Republican reaction ranged from many old-
fashioned globalwarming deniers to those who aggressively
attack any role for government regulation.
I would like you to explain, if you would, why you and our
President recommend auctioning 100 percent of pollution
allowances rather than just giving away pollute-free cards to
the polluters. I believe the revenues that you have included,
and I think it is conservative, it is kind of, the bottom end
of the revenues through 2019 in this budget outline is about
$650 billion. How is it that the American people are better
served by auctioning the revenue instead of just returning the
value to the polluters who created the problem?
Mr. Orszag. The reason is, if you didn't auction the
permit, it would represent the largest corporate welfare
program that has ever been enacted in the history of the United
States. In particular, all of the evidence suggests that what
would occur is that corporate profits would increase by
approximately the value of the permits. So whatever that is,
$600 billion, $800 billion, whatever the value is, would go in
a sense almost directly into corporate profits rather than
being available to fund energy-efficiency investments and to
provide a cushion or some compensation to American households.
That is why the President, I think, has made absolutely the
right choice in saying that the permits should be auctioned.
Mr. Doggett. In that regard, we learn from the misadventure
and experience of the Europeans who did give away many of those
permits, and the revenues that you get from auctioning off
those permits and then letting the free market set the price
for carbon market reliance, those revenues, $650 billion or
more, are a very essential part of your budget proposal; are
they not?
Mr. Orszag. They play an important role. There are lots of
pieces to the budget, and I want to come back. We need to move
to a clean energy future, and we need to do it in a fiscally
responsible way. This is a way to do it.
Mr. Doggett. Thank you.
Chairman Spratt. Mrs. Lummis.
Mrs. Lummis. Thank you, Mr. Chairman.
Dr. Orszag, we heard such good things about you when we
were looking at the new CBO appointee and what big shoes that
person had to fill.
Mr. Orszag. He is doing a good job.
Mrs. Lummis. It is a pleasure to meet you.
My first question is about the cumulative effect of the
stimulus and the budget and now the proposed budget. The
President has acknowledged the need for program elimination and
reductions after a line-by-line Federal budget analysis, but I
am looking at it from the perspective of someone who has been
voting on these bills that have been coming before us. And
since he took office, he has helped enact a $787 billion
stimulus bill, and then he now appears to be willing to sign
the $410 billion omnibus appropriations bill that had something
like 8,500 earmarks. And his budget proposes to increase
nondefense spending by over 9 percent.
My first question is this: Did he consider freezing
spending for his first budget so we, as Congress and the
President, could go shoulder to shoulder with the American
people who are trying to make ends meet and are trying to
hopefully use the stimulus package that passed to recover the
economy, why would we want to raise discretionary spending in
this budget after we just passed a $1.1 trillion stimulus
package that by itself should have been able to stimulate
economic growth?
Mr. Orszag. Let's come back to nondefense discretionary
spending. The graph I put up shows over time this budget does
reduce nondefense discretionary spending to the lowest share of
GDP, to the lowest share of the economy on record, by the end
of the budget window.
As I said earlier, there are certain areas that require
some reprioritization, and that is what is occurring. I will
give you an example. One of the problems that we have that has
occurred over the past several years, if you look at government
contracting and procurement, the contracts have more than
doubled, acquisitions have more than doubled over the last 8
years. The number of contract officers has stayed flat. The
result has been significant cost overruns and problems in
administering those contracts. We need to address that problem.
Once you start to address that problem, you don't need to keep
growing thereafter. This is a one-time fix that is necessary.
And that is why, that is one reflection; it is a little
microcosm of what we are trying to do in this budget, address
some of the problems that have arisen and then put us on a path
to a sustainable spending level. And again, that graph shows
you, this is not a big spending budget.
Mrs. Lummis. Did the President consider freezing spending
for this very first budget in order to give you all time to
incorporate the big spending that we have been doing in the
last 2 months into the American recovery effort? The question
is, did he consider, did he consider freezing spending?
Mr. Orszag. I am not positive, I don't remember whether
that proposal was discussed with the President or not.
Let me just talk about it for a second. As one example,
take the defense budget, which came up earlier, the budget
includes a 2.9 percent increase in pay for our soldiers and
other military personnel. If you have a flat-line, zero-growth,
either you are not going to finance their health care or you
are not going to provide them a pay raise, or it is going to be
implausible that you are going to turn the ship so quickly that
you can get all of the necessary funding out of procurement and
other parts of the Defense budget. That is just one example. It
is the kind of thing that I think it would be nice if it
worked, but especially after years in which problems have
arisen, it is not the standard that the Defense budget, for
example, should be held to.
Mrs. Lummis. Mr. Chairman, I am going to mention something
that I am tremendously concerned about in this budget, and then
go on to another question. That is the abandoned mine land
moneys. You are proposing that you change the law in this
budget that was passed in 2006 to ensure that States that
produce coal receive their abandoned mine land dollars over a
15-year period, and now you are using this budget to reverse
the law. And I am curious about what your justification is for
doing that?
Mr. Orszag. And I was actually just confirming you were
from either Wyoming or Montana.
This is the kind of thing that I think as you go through
the budget, there is not a single line in the budget that
doesn't have some backer or someone who cares a lot about that
line. We can talk specifically about the abandoned mine land
payment system.
There was a program put in place to clean up abandoned
mines. As part of legislation a couple of years ago, it was
decided that we would provide payments to States for cleaning
up mines even after they had finished cleaning up their mines.
So what we are proposing is that we would no longer
continue providing funding for cleaning up mines after the
mines have been cleaned up. And that is what that provision
does.
I understand nothing is easy in this life. But if we want
an example of what is involved in changing the course of our
budget, that is an example.
Mrs. Lummis. One more question, Mr. Chairman.
Speaking of changing the course of our budget, the
President as a candidate went over and over and over his
commitment to end pork barrel spending, and yet he is going to
sign a bill that has 8,500 earmarks, when he said he was
opposed to earmarks. So when can we expect him to put out an
earmark policy, and what will it look like?
Mr. Orszag. Let me comment on that because I know that this
has received a lot of attention. Are the level of earmarks in
the omnibus bill larger than the President would like? Yes. Are
they reduced relative to the peak in 2006? Yes. Does the
President want to reduce them further and move towards a more
transparent system for earmarks? Yes.
I think you will be seeing in the very near future a
statement of principle from the President on working with the
Congress on how to address earmarks.
But we also face this question that this was a deal that
was done by basically the past Congress, and unless we are
going to, you know, up-end the government and not continue to
provide FBI protection and homeland security protection and
what have you, we do need to move past this. I know I have been
criticized for saying, but this was a deal done last year. This
is last year's business. Does it contain more provisions like
that beyond what the President would like? Yes. But we need to
move on. Part of moving on will be to move to a new system in
which earmarks are yet more transparent. There has been
progress that has made, but yet more transparent and further
reduced.
Mrs. Lummis. Thank you.
I yield back the balance of my time.
Chairman Spratt. Mr. Blumenauer.
Mr. Blumenauer. Thank you, Mr. Chairman.
Mr. Orszag, I appreciate your point. We have, I think, a
quarter of the earmarks, as opposed to what the Republicans had
when they were in charge. I think putting that in perspective
is important.
I agree with my friend, Mr. Ryan. There are areas of
agreement. I think it is important to acknowledge them. I agree
with him about the point about agriculture reform. There are a
number of people who have been working on this for a number of
years. You have identified items in this budget, and if we
could have gotten an up-or-down vote on the floor last time,
that probably would have been enacted into law, for example,
agreeing with President Bush in a bipartisan group to take it
down to a quarter million dollars a year. What I would like is
your assistance in framing for us what the impact is going to
be on the typical farmer in America, not rich sugar and rice
farmers on a large basis, but focus on the average farmer and
the benefits that they are going to get from health care, from
energy, from the opportunity for the tax cuts. The vast
majority of farmers don't get a half million dollars a year,
but they are going to be getting tax cuts. If you could help us
frame a picture of that, would that be possible?
Mr. Orszag. Absolutely. Under Secretary Vilsack's
leadership, the budget includes substantial benefits for family
farms, not only with regard to micro-enterprise provisions, not
only with regard to moving towards green farming, not only with
regard to a dramatic expansion in rural broadband.
Mr. Blumenauer. I would like your help in bringing it
forward. Could you help us frame this in terms of how many
farmers there are, how many would be affected, how many would
get benefits from the tax health care and energy? I think it
would help us move forward.
I just want to note one area of transportation, and this is
not your area, I know. But we are going to have, the chairman
indicated, a hearing on transportation. The budget, as I think
Mr. Ryan pointed out, drives off the cliff because of the
structural deficit in the Highway Trust Fund going forward. We
are going to have a hearing on Transportation. I wonder if we
can work with you to have the appropriate people in the
administration who could be a part of the discussion with us.
We have a large and growing consensus out in the real world,
from the chamber to organized labor, environmentalists, local
government, a whole array of businesses, that we need to put
more resources in the transportation trust fund. Would you be
able to work with us to get a team to help us flesh out how the
administration would work with us on solving that problem?
Mr. Orszag. There is really only one answer to that
question, right? Yes.
Mr. Blumenauer. Super.
I would like to conclude on the area of Medicare reform,
because I deeply appreciated what you put on the graph, that
there are lots of opportunities in this proposed budget for
reform that aren't Draconian, that just take a little bit away
from coal mines that have already been cleaned up, for Heaven's
sake, and go to parts of the country where they aren't, or
reducing burdens on some.
I want to focus on Medicare for a second because you have
identified, it is a huge opportunity for savings, and your past
research, I think, has been terrific. I have actually got some
legislation introduced modeled on some of your prior research
in this area. You soft-pedaled one point that it looks like, in
some cases, there are actually negative results correlated to
all of these tests. With that as the context, is it possible,
as we are looking at Medicare Advantage, that we could consider
one reform alternative that had people competing for what is
the national average right now or for the national average for
Medicare, and use that to allow people to compete with
standards and performance-based measures so you don't penalize
States like Wisconsin or Oregon, and you help encourage people
to change their practices? Could we consider that as an
alternative?
Mr. Orszag. I would never want to be accused of soft
pedaling anything, so let me first say that, in many cases, the
more intensive approaches are not only more costly but actually
harmful to health.
With regard to Medicare Advantage, we think the proposal we
have, which is competitive bidding with the benchmarks being
set based on bids in the local area, is a preferable way. But
we can talk to you.
Mr. Blumenauer. But doesn't that wire in these
extraordinarily high-cost areas? Why couldn't, if it is
Medicare Advantage, which was supposed to provide lower cost,
why can't we move towards more of a national?
Mr. Orszag. Actually, we believe that the competitive
bidding process will lead to the largest cost reductions in
Medicare Advantage, precisely in those high-cost areas, like
Florida.
Mr. Blumenauer. Can't we superimpose the two?
Mr. Orszag. There are lots of ways of doing this. We have
put forward a proposal that we think works well.
Chairman Spratt. Mr. Diaz-Balart.
Mr. Diaz-Balart. Thank you, Mr. Chairman.
Thank you. Good to see you, sir.
This is the largest budget ever submitted and the largest
share as a share of the economy since World War II. I would
like to know how you developed this. The President has been
talking about transparency and openness, and so I am going to
ask you a series of questions, and I may have to ask some more
in writing.
Mr. Orszag. Let me preface this by saying that, obviously,
the discussions we had with the President, I am going to not
fully answer just to protect our internal discussions. But go
ahead.
Mr. Diaz-Balart. Well, I just wanted to know if you
personally met with people outside the government to develop
proposals that are reflected in this budget, and who those
individuals would be?
Mr. Orszag. To my knowledge, I did not personally meet with
outside representatives while this budget was being discussed.
But we can get a fuller answer to make sure----
Mr. Diaz-Balart. E-mails, correspondence, phone calls?
Mr. Orszag. I don't live entirely inside a bubble, so
inevitably people contact me through e-mail and other means as
budget proposals are being developed.
Mr. Diaz-Balart. I ask this because, in the budget itself,
the President states, quote, that it is no coincidence that the
policy failures of the past 8 years have been accompanied by
unprecedented government secrecy and unprecedented access by
lobbyists and the well-connected. The New York Times recently
reminded us that now, according to them, quote, liberal groups
are flexing new muscle in lobbying wars. So there is no secret
that, on the right and left, there are interest groups that
want to have input.
The President himself in this budget said that was
horrible, and he has talked about transparency and openness.
That is why I am asking these questions. I think it is
important that we follow the President's own words, and that is
why I am asking these questions, because he is the one who has
been talking about transparency and openness.
Yes, I would like to know, e-mails, faxes, any other
contacts you have had from interest groups; will you provide
those for us?
Mr. Orszag. As you know, there is a long history of
discussion between the Congress and the White House as to a
balance between transparency and also not revealing--we would
not want the internal discussions with, especially the
President, to be undermined in terms of their frankness from--
well, period.
Mr. Diaz-Balart. You are starting to sound a lot like the
previous administration, I just I would mention that, which is
not necessarily a bad thing.
Mr. Orszag. I didn't intend to, and I hope that is not the
case.
Mr. Diaz-Balart. Well, you clearly are.
Mr. Orszag. Let me just say, in terms of transparency, we
are taking several steps to improve transparency. And I will
give you one example. When I was CBO director, folks did like
the fact that I had a blog to be able to talk about what we
were doing. I have started a blog at OMB, and you will see a
lot of output on that blog so we can provide more transparency
about what we are doing.
Mr. Diaz-Balart. I understand your concern about contacts
between staff and the President. How about, did the President
meet or call or e-mail anyone outside regarding this budget
proposal?
Mr. Orszag. Again, I understand the road you are trying to
take me down here. I am going to just, if you want to submit
questions in writing, we will get the appropriate White House
Counsel and other ethics officers to provide the answers.
Mr. Diaz-Balart. Well, again, and I am not trying to put
you on the spot, but the reason is that I am actually reading
from the President's own words in this budget that was
submitted where he talks about that.
Mr. Orszag. I think this administration is happy to be held
to a historic level of transparency and accountability. And
again, given the questions you are asking, I don't want to make
a mistake with regard to the law or existing procedures. So I
will defer to answering in writing.
Mr. Diaz-Balart. And I understand that, and that is right.
But, again, since the President has talked about a historic
level of transparency, let me ask, did those White House
staffers consult with or receive input from any outside
interest groups before giving you instructions regarding this
budget?
Mr. Orszag. I guess we are going to play this game for a
couple of more minutes.
Chairman Spratt. Would the gentleman suspend? I think the
witness has stated his position and stated it correctly, and
stands thereon. I think you are just harassing the witness by
continuing to pursue this line of inquiry.
Mr. Diaz-Balart. Thank you, Mr. Chairman.
Let me just clarify something. I am not trying to do that.
The witness right now just said that they are trying to have
unprecedented transparency. I just want to see what that means.
What does unprecedented transparency mean? Does it mean the
same standards that the previous administration used, or
different standards? What I am hearing right now, Mr. Chairman,
and I understand what he is saying, it is basically the same
standards that the previous administration used, and I just
wanted to see if there is any difference.
I have not heard any difference, Mr. Chairman.
Mr. Orszag. I think you will see a difference. But again, I
will defer to the appropriate officials to get back to you in
writing.
Chairman Spratt. The gentleman yields back.
Mr. Boyd.
Mr. Boyd. Thank you, Mr. Chairman.
I appreciate you ending that line of questioning. My dear
friend from Florida, and I agree with so many things that have
been said here in complimenting Director Orszag about the
budget, particularly in the fact that, for the first time in
many, many years, the first time maybe in 8 years, we have been
presented an honest budget, and Mr. Ryan and others have
acknowledged that and shown their gratitude to the director.
Mr. Ryan. Only in a few places.
Mr. Boyd. And what do I mean by that?
Simply, I mean that the administration has brought us a
budget which accounts for all of the spending that the
government is going to be doing, including the war costs,
including the AMT, including the Medicare doc fix, those things
which we traditionally over the last 8 years around here said,
no, that is not really going to happen; we will deal with it
later. And I am quite confident that Mr. Ryan and his
colleagues are very happy they don't have to defend that system
any more. So I want to join them in complimenting you, Mr.
Orszag, for what you have done.
It is difficult for me to believe that we sit here today
looking back where we were 8 years ago. Eight years ago, we
asked the President to do three things. Remember where we were
8 years ago. Surpluses as far as the eye could see. Number one,
pay down debt; number two, reform broken entitlement programs;
and number three, reduce taxes in a way that would as much as
possible ensure the economic prosperity and continued growth of
the middle class of this Nation.
Number one, we didn't pay down any debt; we doubled the
debt. Number two, we didn't reform broken entitlement programs.
We have expanded entitlement programs in a way that makes them
more broken. And number three, even though we reduced taxes, we
didn't do it in a way that would expand economic prosperity and
actually narrowed the middle class rather than expand it. So
the policies we have been dealing with over the last 8 years
have gotten it all wrong, and this team is trying to fix it.
Now I want to ask you a very simple question, one that we
have actually had some discussion about before, and I am sorry
that Mr. Blumenauer went right before me and banged about
agriculture.
Mr. Orszag, how do you answer those that say a health care
reform initiative should save money in the long run and not be
an additional cost to the Treasury?
Number two is, are you aware that taking on too many issues
in this budget reform, in this economic recovery plan, might
sink the whole ship?
Softballs, Mr. Orszag.
Mr. Orszag. Let me deal with the second question first. It
is unfortunately the case that too many problems have been
left. We have not addressed the problems in our education
system. We have not addressed the need to move to clean energy.
We have not addressed the huge inefficiencies in our health
care system which drive up costs for American workers and for
the Federal Government and for State governments.
So, would I like it if we didn't have so many things that
need to be done? Sure. But that is not the situation that we
face. Given what we do face, what is the alternative rather
than trying to address these key problems?
Now, with regard to health care, the proposals that you see
both in the recovery act and in the budget will reduce health
care costs over the long term. And not only that, but we are
committed to a self-financing health care reform so it doesn't
add to the budget deficit even over the next 5 or 10 years
while those investments are bearing fruit and the curve is
being bent.
But I think we need to remember, the rate at which health
care costs grow, the power of compound interest is so strong
that that becomes a dominant force. Just as an example, health
care costs have grown a little bit more than 2 percentage
points per year faster than income per capita over the last
four decades. If that were reduced to 1 percentage point
faster, still a significant amount, but from 2 percent to 1
percent a year, go out 50 years, health care expenses are 20
percent lower as a share of GDP, 20 percent of GDP lower than
at the 2 percent growth rate. That is the whole ball game. That
is the entire size of the Federal Government today just in
reduced health care expenditures out after 50 years. That is
what we have to keep our eye on because, again, and I know I
keep repeating myself, but that is the key to our fiscal
future.
Mr. Boyd. Okay, I like that answer, 50 years at 2 percent a
year, that, pretty soon you take the whole gross domestic
product for health care.
But the thing I wanted to say to you is that, in the end,
this is a political process here in the House of
Representatives and the Senate. And you need to be careful
about taking on too many issues because we really do want to
pass a budget, and we want to pass a good budget, and we think
you have the basis for a good one, but it probably needs some
tweaks.
Thank you. I yield back.
Chairman Spratt. The gentleman's time has expired.
Mr. McGovern.
Mr. McGovern. Thank you, Mr. Chairman.
And, Director Orszag, congratulations. You have inherited a
mess: The worst economy in my life time and the biggest debt in
the history of the United States of America, so you have a
tough job ahead of you.
I want to say, for the record, I have confidence in you and
the new President and the team he has put together to help dig
us out of this ditch that the previous administration got us
into. I think the budget you presented here today reflects the
priorities that I think most people of the United States want
the Federal Government to advocate. I wish you success, and I
do have confidence in this administration.
I want to talk about an issue that doesn't get talked about
a lot, and that is the issue of hunger, which is getting worse
in this country and around the world. Currently, in the United
States, one in every eight Americans struggle with some form of
hunger or food insecurity, as the Bush administration relabeled
it. That is 12.2 percent of our people. This big figures
include close to 700,000 children. I should add that this
hunger issue adds significantly to our health care costs. And
if we want to get health care costs under control, we need to
deal with the issue of food and nutrition for all of our
people.
Globally, nearly 1 billion people suffer from hunger and
malnutrition. And of these, over 400 million are children. I
was glad and proud to see President Obama has made room for
hunger on his plate of priorities. He has stated that he will
eliminate child hunger in America by 2015, and he will work
with the international community and provide the necessary
resources to cut global hunger in half by 2015.
Like the President, I believe this is doable. I also
believe it requires a White House led government-wide
comprehensive strategy on hunger and food security to make
achieving these goals a reality. Most of our domestic hunger
programs, especially those focused on children, fall under the
USDA and Health and Human Services. Addressing global hunger
and food security is not a simple matter either. Here programs
are spread throughout a number of agencies and jurisdictions,
including the Departments of Agriculture, State, Treasury,
Energy and Labor and agencies, such as USAID, the Millennium
Challenge Corporation, the Peace Corps and USTR.
I think this is one of the moral challenges of our time,
and I will be honest with you that, as a United States
Congressman, I am ashamed that there are so many people in our
country, 35 million plus, who don't get enough to eat, and we
are the richest, most prosperous country in the world. We need
to do something about this.
Can you please tell me and the committee more specifically
how the President's fiscal year 2010 budget and his 5- and 10-
year projected budgets will achieve these goals?
Mr. Orszag. Yes, and I think you have identified a very
important issue. First, let's start with what has already
happened. The recovery act, for example, includes a significant
increase in food stamp benefits or SNAP, the program has been
renamed, but to help reduce the cost of purchasing food for
moderate- and low-income households.
In addition to that, the budget includes $1 billion
annually for the Women, Infant and Children Program so that
program can serve 9.8 million women and infants and provide
needed nutrition to them and also to support the child
nutrition programs that are part of this budget, including the
school lunch program and other initiatives.
One of the things that I know we are very interested in
doing is moving towards not just providing adequate funding but
also healthier options as part of those programs so that we are
addressing, as you mentioned, not only the need for calories
but the need for nutrition, which was the underlying rationale
for those programs in the first place.
Mr. McGovern. As I mentioned, the programs that actually
respond to the issue of hunger and food insecurity fall under
the jurisdiction of many different committees. What I am
concerned about is there is a lack of coordination. I would
urge very strongly that somebody in the White House be
appointed or be charged with coordinating the different
agencies to respond more effectively to domestic hunger and
also to global hunger. I think this is a national security
issue, one that I think we can play a very positive role in.
But it is not just about funding this program and that
program, but it is about coordinating all of the different
agencies and departments. I really think there needs to be a
point person in the administration to do this.
Mr. Orszag. I would just add, in addition to the nutrition
side, better integration of our food safety efforts would also
be warranted and is something that the administration is
looking into with the split responsibility between FDA and the
Department of Agriculture for food safety.
Mr. McGovern. The President's goal of ending childhood
hunger by 2015 is a laudable goal, and is a good benchmark. I
want to make sure that we reach that goal. I think it is going
to require that the budget responds to try to move us in that
direction, but I think there needs to be a coordinated effort
and a comprehensive plan. I don't know what the plan is. I
expect it will be developed. You have only been in office for a
few weeks, but I think this is the moral challenge of our time,
and I appreciate all of your work.
Chairman Spratt. Ms. Tsongas.
Ms. Tsongas. Thank you, Mr. Chairman.
Thank you, Dr. Orszag.
I have to say that I applaud our new President for
presenting us with a budget that does focus on the challenges
of health care, education, and energy independence, and global
warming. As I go about my district, there is a commonsense
understanding that these are the great failures of the past
decade in not looking at these and beginning to put in place
forward-looking approaches to them.
But I would like to ask you about individual savings. I
think it is great what you have included in the budget really
beginning to look at ways to encourage people to save in
retirement. But as we know, retirement savings are only one
piece of the pie. And especially for those who have been
dependent upon home equity to borrow against the value of their
homes in the case of a personal emergency, that no longer is a
resource. I am wondering if the administration is looking at
ways to encourage individual savings aside from retirement?
Mr. Orszag. I think there are a variety of discussions
going on, some focused on financial education, which is one
mechanism that people have put forward to encourage saving. We
have already discussed retirement saving. So the short answer
is, yes, I think a lot of that activity is focused in the
Treasury Department because at least part of the answer
involves the Tax Code. Part of the effort is surrounding the
Department of Education and financial education efforts. And I
know this is something that the Vice President feels strongly
about, and it has already come up frankly in our first task
force meeting of the Middle Class Task Force. It was one of the
topics that was discussed.
Ms. Tsongas. It is an issue of low- to middle-income
families. I represent three cities where the average income is
well below the norm and where much of the subprime lending
crisis originated. We see what happens when we don't put in
place incentives to encourage savings so that people can begin
to get a head start.
Mr. Orszag. Let me raise another topic which is included in
the budget, which is one of the things that doesn't make a lot
of sense to my mind. We encourage saving on the one hand, and
for people who do save, if a crisis like we are currently
facing comes along and they need assistance under food stamps
or other means-tested benefit programs, we have very outdated
asset tests that apply. We basically are saying, please, go
save, and then we hit you over the head if you do, should you
ever need assistance in the future in ways that even
conservative economists have identified as being a very high,
implicit tax on savings.
The budget includes a set of proposals to start modernizing
those asset tests so we are achieving a better balance between
targeting the benefits on those who most need them but not
discouraging people so much from saving in the first place.
Ms. Tsongas. I welcome hearing that, and I look forward to
reading the particulars. Thank you very much.
Chairman Spratt. Ms. McCollum.
Ms. McCollum. Thank you, Mr. Chairman.
I am going to quote President Obama here: Government has
failed to fully confront the deep systematic problems that year
after year have only become a larger and larger drag on our
economy. From the rising cost of health care to the state of
our schools, to the need to revolutionize how we power our
economy, to our crumbling infrastructure, policymakers in
Washington have chosen temporary fixes over lasting solutions.
It goes on to say that the time has come to usher in a new
era, and I will conclude with this: To lay a new foundation of
growth upon which we can renew the promise of America.
So we have heard some discussions about the recent past and
our failures to really build a strong economy. Look at where we
are today. So we don't want Congress and this administration to
repeat the mistakes in the future. Can you maybe contrast three
or four major choices or decisions that took place in putting
this budget together that, when you looked at the past 8 years,
that contributed to the financial nightmare we find ourselves
in? What are some of the lessons learned in the Obama
administration in putting this budget together that you would
like to share with Congress so we don't repeat the mistakes in
the future but instead take $1 and invest it wisely to benefit
a child, a community, or our country to make it stronger,
healthier and more prosperous?
Mr. Orszag. Let me highlight three. The first is, previous
budgets would present a picture of the future that was
unrealistic because they excluded lots of things that everyone
in this room knew were going to happen. I have ticked through
the list, but again, excluded the alternative minimum tax, let
it take over the Tax Code when everyone know that wouldn't
happen; assumed that Medicare physician payments would be
reduced by 20 percent when, year after year, Congress would act
to prevent that from occurring.
So one choice that was made was, we are not going to do
that, even if the reported number is higher, the deficit is
higher, and I could make the deficit look a lot smaller by
playing those games. The President decided and I fully support
this, let's be grown-ups here and be real about the situation
that we face and start working our way out of it. So that was
the first choice.
The second choice was to take a variety of inefficient
subsidies and eliminate them. Subsidies to Medicare Advantage
plans that are overpaid by 14 percent relative to traditional
Medicare, according to estimates from CBO and GAO and MedPAC
and others; subsidies to middlemen on education loans that add
$50 billion in cost without helping students at all; and you
can keep going down the list. So I think there are a series of
changes that were targeted at eliminating inefficient
subsidies.
Finally, I would again focus on health care. Previous
budgets did not put on the table a significant down payment and
a focus on health care like the President has done that will
help bend the curve on health care costs over the long term and
thereby make working families better off because their take-
home pay will go up. Right now, it is burdened by the weight of
health care costs, and also address the key to our fiscal
future. I think that is the single most important thing we can
do to put the Nation on a sounder long-term fiscal path and
also help working families and State governments.
Ms. McCollum. Could you point out how, by investing a
dollar in education or investing a dollar in IT technology, how
we are going to see fruits of that?
Mr. Orszag. Sure. Let me give a few examples across a
variety of areas. Let's take the government's own operations.
There is credible evidence that shows investing a dollar in
combatting health care fraud, that is making sure that, under
Medicare, money only goes to the providers that should receive
it, saves $1.60 in health care costs. We have underinvested in
program integrity. This budget corrects course and saves $50
billion in erroneous payments that would otherwise have
occurred.
Actually, I think that might be, perhaps, the most
compelling example. But you can keep going down the list. In
early education, the evidence is very clear that high-quality
early education programs help to produce better life outcomes
for individuals who go through those programs but also helps to
reduce crime and other things that as a society have costs.
In health information technology, we have already
discussed, that is one of the key--necessary but not
sufficient. By itself, it won't solve the problem, but it is a
key step on the road to a more efficient health care system.
The analogy people have drawn is it is like plugging the
toaster into the wall. By itself, the toast doesn't come out
just because you plug the toaster in; you also have to put the
bread in and press the button down and what have you. But if
you don't plug the toaster in, you are not going to get any
toast out of the toaster.
Chairman Spratt. Mr. Edwards of Texas?
Mr. Edwards. Thank you, Mr. Chairman.
Dr. Orszag, if I could borrow on the words of my colleague,
Mr. Hensarling, I think what the administration has inherited
is a trifecta: a trifecta that is the result of 8 years of
Republican, trickle-down, deregulation ideology that led to,
first, the largest deficits in American history; the second-to-
the-worst job loss since World War II; and, thirdly, to
potentially the largest, longest, deepest recession we have had
since the 1930s.
I salute you and President Obama for putting together a
budget that is honest in its assumptions and, once again, tries
to show real respect to American middle-class working families
that have lost, I believe, between $1,000 and $2,000 a year in
real income over the last 8 years under the policies of our
Republican colleagues.
I would ask American citizens who watch these debates to
just take into account that some of the loudest, most
vociferous critics to the Obama proposals were the architects
of the disastrous economic trifecta that has hurt millions and
millions and millions of American working families, senior
citizens who have lost their savings, families wondering how
they will make their next mortgage payment because they have
just lost their jobs.
I also want, as chairman of the appropriations committee
that funds veterans, I want to salute President Obama for
something that the press has paid very little attention to. In
this budget, President Obama proposes the largest increase in
veterans' health care and benefits funding ever proposed by any
President--the largest ever.
For far too long, we have had administrations who have paid
respects, genuine respects, to our veterans on Veterans' Day
and Memorial Day, but yet did not fully respect them with their
budget proposals. I salute President Obama for keeping his
promise to those who have kept their promise to serve our
Nation.
And because of the $25 billion increase over the baseline
over the next 5 years proposed by the President, more veterans
will receive VA care, including a lot of middle-income veterans
and lower-income veterans who have been locked out of our VA
hospitals because of the previous administration's arbitrary
cap on income eligibility for VA care. The 5.5 million veterans
receiving care every year are going to get better care, better
quality care, with shorter waiting times for physicians
appointments.
And I could go on and on, but the bottom line is this
budget shows a historic level of respect to America's past
service men and women. And I think that deserves the attention
of the American people. I know there are 25 million veterans
and there are millions of dependents who will greatly respect
the President's initiative in this area.
The one question I would like to ask is this. I was very
critical of Republican budgets over the last decade because
they assumed constant economic growth with no potential
recession over a 10-year timeline, and then they followed
policies based on those unrealistic assumptions.
What is the policy of the President if either Congress
refuses to bring about the savings proposed by the President or
economic growth doesn't meet the projected growth, I think 2.6
percent for the last 4 or 5 years in the decade proposed? Will
you adjust spending downward, or will the spending be committed
and we will just increase the deficit in that case?
Mr. Orszag. Well, again, I think in those out-year
projections, the assumptions are actually lower than the Blue
Chip economic growth forecast. So the whole point of putting
together--addressing the long-term challenges that we face is
to generate that economic growth. And that is the whole point
of the budget.
Mr. Edwards. If those numbers turn out for 2010, 2011, or
2012 even in the short run, turn out to be a little optimistic,
because nobody can predict the future with absolute certainly--
the Republicans certainly didn't. They projected balanced
budgets for the next decade.
Mr. Orszag. Right. We could wind up being too high, we
could wind up being too low. There is significant uncertainty.
Of course we will revisit things as the world evolves. And, you
know, we will have a budget next year and we will have one
thereafter. And part of the policymaking process is to readjust
to reality as it occurs, and that is what we will do.
Mr. Edwards. Great. Thank you.
Chairman Spratt. Now Mr. Etheridge, then comes Mr. Scott,
and after that Mr. Langevin if he is here, Mr. Larson if he
returns, Ms. DeLauro of Connecticut, and Mr. Melancon.
Now Mr. Etheridge.
Mr. Etheridge. Thank you, Mr. Chairman.
And thank you, Dr. Orszag, for being here to discuss the
2010 budget. And I appreciate your efforts and your staff and
the administration to really put out, I think, a clear view of
our current economy and not try to hide the costs of those
policies and have them omitted from the budget. I think it is
critical to have that, because to budget is to govern, and we
certainly have to do that.
Let me ask a question, though. Having served as a former
State superintendent of schools, there is an issue in here I
have a question about, because I do believe education is a key
in the foundation for the future growth. And I am pleased that
this budget really invests in that high priority of education.
But I am concerned about the proposal to end the Federal
Family Education Loan Program and to have all those loans
originate through the Federal Direct Loan Program. And for the
past 4 years, the College Education Foundation of North
Carolina has assisted over a half-million North Carolina
students and families with college loans.
Could you comment on the eliminated savings the budget has
associated with these through that program? And is the
Department of Education ready to scale up to deal with these
programs?
And the budget assumes a $4 billion to $6 billion savings--
which, directed costs might be expected to increase the deficit
by, my numbers say, $100 billion. How are these savings
calculated? And is OMB assuming these savings on the basis of
current low interest, and might this change in the future?
Mr. Orszag. Well, let me first say all of the estimates
from OMB, from the Congressional Budget Office, from elsewhere
suggest that the direct lending program is a more efficient
system than providing subsidies, basically, to middlemen in the
education loan process. Now, let me also say----
Mr. Etheridge. But North Carolina is a nonprofit run by----
Mr. Orszag. I understand that, and there are obviously some
more efficient and less efficient intermediaries. But as part
of this expanded direct lending program, there would be
substantial opportunities for both private-sector entities and
others to service the loans, which is part of our proposal.
So this is an area where the current system contains an
inefficiency. We are trying to move towards a more efficient
system, and there would still be activity for servicers to
service the direct loans.
You had also asked about the ability of the Federal
Government to ramp up, and that is something that we had
considered and evaluated. And the short answer is I am
confident that the Federal Government could ramp up the direct
lending program in a timely and effective manner under this
proposal.
Mr. Etheridge. I look forward to talking to you more on
that, because I know how ours works, and that would be moving
those jobs to North Carolina and Washington, and I am not so
sure that is efficient.
Mr. Orszag. No, we won't be doing that. No, no, right.
Mr. Etheridge. Okay. But I would like to talk with you
about it.
Let me move to another one, if I may, because I am excited
about the investment that this budget has in health care,
because I think that is a critical area that everyone is
affected by. And the President needs to seriously think about
making some real reform in this critical sector of our economy.
And I appreciate his bold call for curing cancer and other
serious diseases that the administration is emphasizing and the
money that is being placed in as investment in health research
at NIH and through the SIRB and other initiatives as part of
keeping America globally connected and competitive.
Can you discuss the mixture, though, of public and private
scientific investments in the President's budget and how such
research will create jobs, public and private sector, and puts
the Nation on a sounder foot financially? Because I think this
is a critical piece as we move forward.
Mr. Orszag. And now we are outside of health care, we are
talking about science writ large?
Mr. Etheridge. Absolutely. Which will reflect on health
care at some point.
Mr. Orszag. Absolutely.
The Recovery Act included historic investments in science.
The budget builds on that with significant investment in with
the National Science Foundation, in other parts of our
scientific community, because we need to remain at the
forefront of scientific knowledge if we are going to have a
high-performance economy.
So the evidence strongly suggests that, by having the
Federal Government focus not just on basic research but some
aspects of applied research, there are very significant
spillover effects that help boost economic performance. So,
even when the research is done or funded through the National
Science Foundation and done at a university, the impact and the
benefits spill over into the economy. And, for example, you do
have significant growth clusters that arise around research
universities, which is one manifestation, but the effects, the
evidence suggests, are even broader than that. And
technological progress is one of the keys to our long-term
economic performance, which is why we are investing in science,
not only in the Recovery Act but in the budget.
Mr. Etheridge. I couldn't agree more. And you can look at
spots in North Carolina and around the country where that is
absolutely true.
Thank you, Mr. Chairman. I yield back.
Chairman Spratt. Thank you, Mr. Etheridge.
Mr. Scott of Virginia?
Mr. Scott. Thank you, Mr. Chairman.
Dr. Orszag, thank you for coming.
And you have been faced with the, kind of, national debate
with two competing theories, economic theories, one of which
was put into effect in 1993 and one in 2001. And the debate
sounds like you ought to receive these with equal credibility,
when, in fact, the 1993 plan created record numbers of jobs,
median income up substantially, Dow Jones Industrial Average
more than tripled. If we had kept going at the rate we were
going, we would have paid off the entire debt held by the
public by last year.
On the other hand, the 2001 budget went into effect, the
worst job performance since the Great Depression, median income
went down when adjusted for inflation while health care costs,
college tuition, and housing costs actually went up. The Dow
Jones Industrial average was worse than it started. And we
overspent the budget by eliminating $5 trillion of surplus and
overspending it by another $3 trillion or $4 trillion,
overspending the budget by $9 trillion.
Now, the Republicans want some credit for this, because
they took over the House and Senate in 1995. But you will
remember that their contribution to the economic theory was
producing budgets that President Clinton vetoed and refused to
sign. In fact, the government closed down because he kept he
kept vetoing their budgets.
Now, you are faced with this. Now, do you think that the
1993 theory--what is in this budget that is closer to the 1993
budget than the 2001 budget?
Mr. Orszag. Oh, this budget is clearly more spiritually
aligned with the 1993 budget than anything resembling the 2001
budget. But I would also say that it goes beyond what was done
in the 1990s in many key areas.
But I think what you are really getting at is a very
important point, which is there are two theories of the case
here. A theory of the case, that the only thing that drives
economic performance is the top marginal tax rate or the top
two marginal tax rates that affect a very small share of people
and that the way we are going to get markets to work well is
funneling lots of subsidies to corporations, has been tested.
It does not work.
Mr. Scott. Thank you.
Now, you also mentioned honesty in budgeting. When the 2001
and 2003 tax cuts passed, the AMT was not mentioned, when
everybody knew that we would adjust it every year. Is it true
that about two-thirds of the total cost of those tax cuts was
in the annual fixing of the AMT?
Mr. Orszag. It is an important interaction, so it is a very
large share. Exactly what the share is depends on how you do
the calculation, but a very significant share.
And, in a sense, to be more precise about that, the cost of
the 2001 and 2003 tax legislation was artificially reduced, or
made to look low, by assuming that the AMT gradually took back
a growing share of those tax cuts. That is not what is done in
this budget, and that is a very significant change.
Mr. Scott. Now, you have a placeholder for over $600
billion in health care. What can we expect with that?
Mr. Orszag. What you can expect from that is not only
efficiency improvements on the provider side but also funding
to get overall health care reform done this year, which is what
we want to do.
Mr. Scott. Now, interest on the national debt--had we paid
off the national debt, we would have, by 2013, in fact not only
paid off the debt held by the public but also restored the
money to the trust funds. How much money are we going to spend
every year in interest on the national debt going out, which
would have been zero?
Mr. Orszag. You know, you always ask me that question,
which is why I frantically--yes, it would have been zero. With
the policy path that we are on, without the budget
interventions, total net interest is almost $5 trillion over
the next 10 years.
Mr. Scott. And for about one-tenth of that, you are going
to make profound changes in health care.
Mr. Orszag. We believe that the health care system could be
made much more efficient and that we need to do that this year,
yes.
Mr. Scott. Now, we have heard complaints about earmarks.
Compared to earmarks when the Republicans had total control 2
years ago, isn't it true that the number of earmarks in this
bill and the bill we just passed, the omnibus appropriations,
the number is substantially lower than anything that passed
when the Republicans had total control of Congress and the
White House?
Mr. Orszag. Yes. In particular, the number has been reduced
from something like 15,000 to something like 8,000 or 9,000--
still higher than the President would like, but a significant
reduction.
Mr. Scott. Thank you, Mr. Chairman.
Chairman Spratt. Thank you, Mr. Scott.
Mr. Schrader?
Mr. Schrader. Thank you, Mr. Chairman.
A series of, hopefully, quick questions.
The Blue Chip forecast that was alluded to earlier, did it
take into account the beneficial effects of the Recovery and
Reinvestment Act, do you know?
Mr. Orszag. The long-term one, no. The short-term one, to
varying degrees. But, again, I think the folks who pay the most
attention to lining up with our fiscal year projections and
what have you is the Congressional Budget Office. And on that
basis, at the time the forecasts were locked in, we are right
in line with them once the Recovery Act is included in the
analysis.
Mr. Schrader. A lot has been made over this is the largest
peacetime budget, maybe, in recent American history or for
quite a while. How many other administrations have had the
vision to take on health care independence, if you will, energy
independence, and education for the 21st century besides
President Obama?
Mr. Orszag. I think it is clear that this is a bold and new
direction for the country.
Mr. Schrader. And I assume that the administration feels
this is the direction the people want to go.
Mr. Orszag. The direction people want to go and the
direction we need to go if we are going to have the future that
all of us desire.
Mr. Schrader. A lot has been made over tax increases or
revenue increases in this budget. Isn't it true that, if you
balance out of the tax breaks, the efficiencies, that we are
actually getting to almost a $2 trillion reduction in revenues
on the American taxpayer?
Mr. Orszag. There is a tax reduction for 95 percent of
working families in this budget.
Mr. Schrader. And the AMT and numerous others, I believe.
Mr. Orszag. And we make sure that the AMT does not take
over the Tax Code. And we continue the middle-class tax
provisions that were provided as part of the 2001 and 2003
legislation.
Mr. Schrader. I am surprised at some of my Republican
colleagues' dismissal of some of the business-friendly aspects
of this budget, particularly in the small-business arena. Could
you elaborate on what is in this budget and what was in the
Recovery Act that is going to really free up--you alluded to it
a little bit before, the credit markets and small businesses
recovery?
Mr. Orszag. Yeah, let me--again, most small businesses now
are struggling because of a collapse in demand for their
products and because they are having trouble getting credit
from their banks. The key thing that we can do over the next 6
months, a year, to get small business back on its feet is to
get the economy back on its feet and to get credit flowing to
those small businesses. The budget includes $28 billion in loan
guarantees, the majority of which is provided through a well-
known and effective program to get credit to small businesses.
The Recovery Act was intended to get the economy back on
its feet. So, in addition to that, there are a variety of other
targeted provisions--for example, a zero capital gains rate on
stocks that are held in qualified small businesses for more
than 5 years, zero percent capital gains rate.
But I think, rather than getting focused on the wrong
thing, the right thing to focus on with regard to small
business is getting economic growth back on track and getting
credit flowing.
Mr. Schrader. Last but not least, not a lot has been made
of the performance outcome reporting that has been suggested in
this budget, and a chief performance officer. I think that is
huge.
Has there been discussion about getting away from counting
inputs and outputs and reports and all that stuff that gets in
the way of good use of some of the taxpayer dollars at our
local State and private enterprise level and maybe going to a
more performance-based criteria?
I guess I would urge the administration to go down that
road vigorously, work with States that are already doing this
and, frankly, some of the congressional delegation that might
be interested in pursuing that. That really is exciting.
Mr. Orszag. Absolutely. And I, again, just want to
emphasize, the way that the Federal Government has measured
performance has been focused on, as you put it, inputs,
processes. To take the tax gap, $350 billion, the performance
metric system that we have, the PART system, focuses on the
audit rate, if you will, on how many audits are done. Well,
that is great, but that is an input. What we really care about
it getting the tax gap down.
So, rather than saying our target is to get the tax gap
down to some dollar value or some percentage of GDP or
something like that--and there are many mechanisms for doing
that--we focus just on input. That needs to change, and we will
be adopting a new system. It is going to take some time to
develop the new system, but we are going to adopt a new system
that will be based not only on consultation with you but with
the agencies, and it will be more outcome-focused.
Mr. Schrader. Thank you very much. I yield my time.
Chairman Spratt. I thank the gentleman.
Ms. DeLauro of Connecticut?
Ms. DeLauro. Thank you very much, Mr. Chairman.
Thank you, Dr. Orszag. I am looking around, and it is Mr.
Schrader and myself, so my apologies for popping in and out.
But let me just say thank you to you for your honesty, for
your clarity, and for your candor in this budget. And I think
it is a remarkable document which demonstrates a clear
commitment to priorities, but it also demonstrates a clear
commitment to values and to what are the issues that are most
pressing on the people of this Nation and how we try to address
them.
I will make just a very quick thank-you to the President
and to yourself with regard to the child tax credit, not only
part of the recovery program and changing the income level from
$12,000 to $3,000, but now a permanent part of this budget. I
think that will go a long way, as a refundable tax credit can
do, to really assist families.
I am going to move to an area that you have heard me talk
about for a long time, and that is infrastructure. The budget
proposes to expand, enhance existing Federal infrastructure
investments through a national infrastructure bank that will
deliver financial resources to priority infrastructure
projects, those that are of significant national or regional
economic benefit.
What you propose is $5 billion in each of the next 5 years,
as I understand it, for a total of $25 billion for the bank and
another $25.2 billion over the following 5 years through fiscal
year 2019.
I am going to be introducing legislation very shortly which
would create an infrastructure bank very, very much like the
European investment banks. It has a similar amount of money,
authorized annually for appropriation. The bank would function
like a development bank: make loans, loan guarantees, issue
bonds, purchase, pool, and sell infrastructure securities on
the global market, leverage investment and so on.
Now, when the President was then Senator Obama, he
supported an effort which was a bit different which created an
entity that would similarly depoliticize the process and focus
on projects of national interest, but not necessarily have all
of these functions. Just the authority to prioritize funding
for projects and to issue bonds, that was the limit.
At this juncture, can you provide any further detail as to
how you envision the structure of this entity and, critically,
what financial and other functions it will have?
What we are going to try to do in the legislation that I am
going to propose is fund transportation, environment, energy,
telecommunications projects. And so, a further question is how
you define ``infrastructure'' in your vision of the bank.
Mr. Orszag. Well, let me first say one of the motivations
for an infrastructure bank reflects a concern about the way we
select infrastructure projects currently and whether they are
based on efficiency and, sort of, what will most benefit the
economy. I think we need to be moving more towards that type of
selection process, which a bank will help do.
As I said before, there is going to be a lot more details
coming from us in April in the full budget. I know that you
have been very focused on this topic; I know Senator Dodd, your
colleague from Connecticut, has been. There is a lot of
congressional interest. So I would, at this point, just say we
look forward to working with you to flesh out the details as we
move into the full budget in April and as you move forward with
the legislative process.
Ms. DeLauro. I thank you for that, and I will look forward
to working with you and fleshing out the details.
Given at least the success that I understand that has come
through the European development banks, is that I would hope
that that is the kind of a model that we are looking at, which
we would absolutely be creating a bank in which we can do that,
which gets you to both processes, which is to depoliticize the
way in which the projects are determined and what the common
good is or the public interest is, as well as allowing for
there to be really a critical public-private partnership.
Mr. Orszag. I remember one weekend spending the weekend
reading a binder on the European investment bank because of
your references to it, so thank you for that.
Ms. DeLauro. Thank you.
I have a quick 16 seconds. Early childhood education, we
did $142 billion in the reinvestment and the recovery package.
Just tell me, with the current budget, what kind of commitment
are we going to be able to keep in serving all eligible
children in this regard and to look to those kids and their
providers or those programs and providers to meet the
standards, the standards that were laid out in the recovery
package.
Mr. Orszag. In early education?
Ms. DeLauro. In early education, yes.
Mr. Orszag. Yeah, again, the President's budget includes
very significant increases, puts us on a--doubles Early Head
Start. There are significant investments in early education
because the evidence suggests it works.
Ms. DeLauro. Thanks very much. Thank you, Dr. Orszag.
Thank you, Mr. Chairman.
Chairman Spratt. Mr. Langevin?
Mr. Langevin. Thank you, Mr. Chairman.
Director, thank you for being here. I know you have a tough
job on your hands, and we appreciate the job you are doing and
also the credentials that you bring to the new post.
I am particularly pleased, first of all, by the way that
President Obama has made health care reform such a priority.
And he is going to tackle it now looking forward to the future.
And, really, it is one of the key components of how we are
going to truly balance the budget and fix the economy for the
long term, helping us to be competitive.
Let me just say this, Dr. Orszag. The President's budget
obviously sets forth a very ambitious policy agenda while
simultaneously adhering to an honest and sobering accounting
standard that realizes incredible fiscal challenges. And it has
become clear that, in order to rebuild our economy, we are
going to have to make significant investments and keep
priorities like energy, education, and health care while
sacrificing in some other areas.
One of the priorities that he highlighted in the budget
outline is a reserve fund of more than $630 billion over 10
years to finance health care reform, which I mentioned.
Certainly, as a strong advocate for health care reform, I am
very interested in hearing more about this initiative, in
particular.
And so my question is, it is stated that the reserve fund
will be financed in part by new revenue and in part by savings
proposals that promote efficiency and accountability. So, on
this point, can you please elaborate on that for me, and what
specific budgetary and policy changes need to be made to fully
fund this reserve?
Mr. Orszag. Okay, first, let's just again point out we want
to get health care reform done this year. And the reason we
want to that is, not only to put the Nation on a sounder fiscal
path, since health care costs are the key driver of our long-
term fiscal gap, but also to help working families, because
their take-home pay is being reduced by excessively large
health care costs and State governments that are facing
problems financing their health programs and are having to
starve other parts of their budget in order to finance health
care.
The budget puts down $634 billion as a significant
downpayment on getting health care reform done this year. It is
split roughly half and half, half additional revenue and half
savings in Medicare and Medicaid that are focused on making
those programs more efficient.
So, as one example, $177 billion in moving to a competitive
bidding program for the private insurance firms that offer
Medicare coverage. Currently, they are paid $1,000 more per
beneficiary than covering the same beneficiary under
traditional Medicare because of artificial rules that were
written to provide them those excessive payments. What we are
saying is, bid for the business, and that is what you will get
paid; it saves $177 billion.
Similarly, there are changes in--almost 20 percent, I think
it is 18 percent of patients are readmitted to a hospital
within 30 days after being discharged. We are trying to provide
incentives to reduce that. MedPAC and other experts have
suggested significant efficiency improvements could come from
better management of patients after they are discharged from a
hospital to avoid those readmissions.
And, by the way, it is not only a cost thing, but who wants
to, you know, get admitted to a hospital, go through all of
that, get discharged, and then have to wind up back in the
hospital? If you can avoid that, it is not only a cost-saver,
but it also makes people's lives better off. So we are trying
to provide stronger incentives to hospitals to do a better job
of avoiding the need for readmission.
So we can continue this conversation, but, basically, I
have given you some flavor for the types of things that are
already in that significant downpayment. And we want to work
with the Congress to provide the full health reform package and
get it done this year.
Mr. Langevin. And so, the new account that you are setting
up, that is going to be a set-aside in the sense as a
downpayment that we could draw on to achieve a form of
universal health care just as a starting point?
Mr. Orszag. Yes. Correct.
Mr. Langevin. Okay. And can you tell me, at this point, is
it the President's vision that the health care reform that we
hope to achieve would be mandatory-type universal health care,
where we would include everybody, as opposed to doing this
piecemeal?
You know, I want to be on record as saying that I believe
the only way to truly achieve universal health care is to have
it mandatory, that everyone has to be in the system. It is not
necessarily a one-size-fits-all, but everyone has to be in the
system.
So can you give me, kind of, a glimpse into where you are
going?
Mr. Orszag. Well, I think the goal is to move toward
universal coverage. And I don't want to--there are lots of ways
of doing that. You are going to see more details on Thursday at
the health summit, and you are going to see more forthcoming
thereafter. But I think we are all clear that the goal is to
move towards universal coverage.
Mr. Langevin. Okay. One of the things that I have also
looked at and--two things I would hope you look at. First, one
of the things that I have tried to do to achieve universal
health care and move the debate forward is introduce a bill
that achieves universal health care by using the Federal
Employees Health Benefit Program as a template. Again, it is
not a big government-run program, but it is government-
negotiated. And what it does is it has the Federal Government
negotiating this variety of different health care plans for the
almost 9 million Federal employees, dependents, and retirees. I
think it is an outstanding model for getting us closer to
universal health care.
The other thing that I would hope you would look at as we
move in this direction is looking at places like the New
America Foundation that have estimated that we already spend
about $80 billion to $120 billion each year--each year--on
uncompensated care. Obviously, that is a big gap between
whether it is $80 billion or $120 billion, but it a significant
pool of money that we are, again, already spending on the
uninsured; we are just spending it in the most inefficient way
possible. And we can get closer to universal health care and
achieve better outcomes and lower costs by spending that money
up front and more wisely.
I don't know if you had any comment on that, on
uncompensated care and how we are spending it right now.
Mr. Orszag. Clearly, one of the issues involved in the
existing health care system is that there is a lot of cost-
shifting that occurs from--like a game of hot potato, and
uncompensated care is one manifestation of that phenomenon.
Moving to a more efficient health care system will mitigate
that. And that is one of the benefits of getting health reform
done.
Mr. Langevin. Is that my time?
Chairman Spratt. Go ahead if you have one more question,
please.
Mr. Langevin. President Obama's reserve fund, obviously it
represents, as you talked about, the beginning of a long-term
path to reform. And I guess what I would like to do is, I would
appreciate it if you could highlight some of the other maybe
immediate funding investments made in the President's budget to
address health care for 2010. Specifically, I want to talk
about community health centers and the role that they play over
the short term, providing health care access to the uninsured
and underinsured. And also, how will their role in funding
change as we move toward a system of universal health care?
And, by the way, I am a big supporter of primary care,
particularly primary care physicians. And I hope, as you look
at overall health care reform, in addition to health centers,
that we also put more money into incentivizing doctors or
people going through medical school to go into primary care.
The statistics are very clear that, in those regions that have
predominantly primary care versus specialty care, you get
better outcomes and lower costs. And the reverse is true if you
have a high percentage of specialty care versus primary care
docs.
So health centers and then primary care, if you could
comment on those.
Mr. Orszag. Again, I agree with your reading of the
literature on primary care physicians. And that map that I put
up with significant variation in health care costs is highly
correlated with the ratio of specialists and primary care
physicians, with a higher ratio, generating higher costs
without, apparently, better outcomes.
With regard to community health centers, as you know, there
was a very substantial investment made as part of the Recovery
Act in community health centers. The evidence suggests they do
provide quality care, especially to populations that have
trouble getting access to other parts of the health care
system.
And that raises a broader concern. We have heard a lot of
about income inequality in the United States. There is also a
degree of inequality in health outcomes that is growing over
time. So, for example, if you look at life expectancy, the gap
between better-educated and less-educated families or people in
life expectancy has been growing very rapidly. Part of that has
to do with health behavior; part of it has to do with access to
health care.
Mr. Langevin. Very good. Well, thank you for that. And, you
know, I think the health centers have been a real godsend in
the sense of meeting a demand for health care that is out there
that we are not getting anywhere else.
And, anyway, thank you for your answers, and I look forward
to working with you on all these issues.
Mr. Orszag. Absolutely.
Mr. Langevin. Thank you, Mr. Chairman.
Chairman Spratt. Mrs. Moore?
Ms. Moore. Thank you so much, Dr. Orszag.
I am very impressed with the President's effort to cut the
budget deficit in half within 5 years. But I am concerned about
that, because balancing the budget as a primary budget outcome
can somehow ignore other sorts of things that we need to do.
I am reminded of FDR's pledge to balance the budget when he
was running against Herbert Hoover, and then, of course, when
he got into office, he had to initiate the New Deal. And even
though the budget deficit was 100 percent of GDP at the end of
1945, after a war, after the depression, our economy was
stronger, because we, in fact, had made the investments, used
deficit spending as an investment. So I am concerned.
I say all that to say, number one, I am concerned about the
complete absence of any discussion of there being a safety net
outside of health care benefits and this temporary increase in
food stamps. And I am also concerned that you didn't mention at
all how we are going to deal with the trade deficit. As long as
we have a trade deficit, isn't it inevitable that we are going
to have a budget deficit?
Mr. Orszag. Well, let me deal with those in turn.
This budget includes very important investments, not only
in health care, not only in education, but in a safety net,
including--we discussed earlier some of the nutrition programs,
for example, the WIC Program, which is a very important program
for moderate- and low-income mothers and infants to provide
with them nutritious food and other related materials and
healthy nutrition--I am just repeating myself. Sorry. It is
already becoming a long hearing.
Secondly, the budget perpetuates or continues very
important changes that were made as part of the Recovery Act
that will provide significant assistance to low- and moderate-
income working families. For example, the child tax credit that
Representative DeLauro mentioned----
Ms. Moore. I just want to interrupt, because I don't have
much time. That is the whole point: You have to be working in
order for this to benefit you. You know, those women, for
example, who used to receive AFDC, I mean, if you are
unemployed, if you are one of the people who doesn't qualify
for unemployment compensation, those are the people that I am
worried about.
Mr. Orszag. Okay, and, again, even on unemployment
insurance, one of the important things that occurred in the
Recovery Act and that we proposed as part of the budget is to
expand eligibility for unemployment insurance. The rules were
written on unemployment insurance 70 or 80 years ago in a
different era. And, as a result of outdated rules, lots of
workers are excluded from being eligible for unemployment
insurance when they should be eligible. So, as a result, fewer
than half of unemployed workers receive unemployment insurance.
We are trying to rectify part of those problems. And the
Recovery Act started us on that road; the budget will follow up
on that.
Ms. Moore. Okay. And then the other part: How do we get to
cutting the budget deficit in half without dealing with the
trade deficit?
Mr. Orszag. Well, one of the reasons that we have to get
the budget deficit down over time is precisely because, if we
don't, we will continue to borrow from foreigners to a degree
that is not sustainable.
So one of the effects of moving towards a reduced budget
deficit and then also increasing household saving, like through
the automatic IRA, is that gradually the trade deficit will
improve.
Ms. Moore. Okay. Well, thank you.
I yield back 29 seconds.
Chairman Spratt. Mr. Director, well done. You not only get
an A for presentation but for endurance and forbearance, as
well. Well done, indeed, and we look forward to working with
you in the weeks ahead.
Mr. Orszag. Thank you very much, Mr. Chairman.
Chairman Spratt. Thank you.
One final housekeeping detail: I would ask unanimous
consent that all members who were unable to present questions
today be allowed 7 days in which to file questions for the
record. So ordered.
[Questions submitted and their responses follow:]
Director Orszag's Responses to Questions for the Record From
Representative Blumenauer
1. energy and climate change
Dr. Orszag, I was pleased to see the FY 2010 budget assume revenues
from comprehensive climate change legislation. Your summary document
reads that the program will be implemented through a cap and trade
system which will include 100% auction to ``ensure that the biggest
polluters do not enjoy windfall profits,'' and that a majority of the
auction revenues will be spent on ``investments in a clean energy
future'' and ``returned to the people.'' Can you elaborate on why the
administration favors a cap and trade approach and do you have any more
details on how the administration envisions spending the revenues?
(a) Would you agree that transportation, which accounts for \1/3\
of our nation's greenhouse gas emissions, should be a part of this
legislation and a focus of some this investment? (b) There has been
some concern expressed about fluctuation of allowance prices in a cap
and trade program. Has the administration thought about mechanisms to
provide price certainty to the economy? (c) Can you provide more
detailed information which shows the projected revenues on a year by
year basis?
response
(a) The Administration believes a market-based approach such as cap
and trade will promote energy security and mitigate climate change
while spurring competitiveness. The Environmental Protection Agency's
acid rain program provides strong evidence that the market can serve as
an effective mechanism to achieve impressive environmental protection
at lower costs than initially anticipated. While a climate policy will
present additional challenges and opportunities, the Administration
believes these same principles will hold true. Revenues from the cap
and trade program will be devoted to the Making Work Pay tax credit as
well as essential clean energy investments. Our best estimates for
these commitments are detailed in the Budget, and any additional
revenues will be returned to the American people to help with the
transition to a clean energy future. For example, $15 billion per year
over ten years will be targeted to help transition to a clean energy
economy, including investments to develop technologies such as wind
power and solar power, advanced biofuels, low carbon emission coal
technologies, and more fuel-efficient cars and trucks built in America.
We look forward to working in a collaborative spirit to identify an
appropriate resource allotment to achieve the desired goals.
Reducing our reliance on oil and achieving energy security will
require American industry to develop more fuel efficient cars and
trucks and increased use of public transportation. The Administration
plans to incorporate the transportation sector into its comprehensive
strategy for America's clean energy future, including increasing fuel
efficiency standards to 35 mpg by 2020, consistent with the Energy
Independence and Security Act of 2007. As part of a comprehensive clean
energy policy, we will also invest in a full suite of technologies to
advance automotive energy efficiency, develop technologies to support
plug-in hybrids, and develop the next generation of biofuels.
Furthermore, most cap and trade proposals have included transportation
under the cap by requiring allowances to distribute fuels that produce
greenhouse gas emissions.
(b) We are evaluating several cost-containment mechanisms including
price ceilings and floors, greenhouse gas offset provisions, and
banking and borrowing of carbon credits. All of these issues must be
carefully considered when drafting legislation and upon implementation
may require periodic review to make sure the program is working as
intended. A properly designed system can provide more certainty than we
have today.
(c) Tables S-2 and S-6 of the budget show the estimated year-by-
year climate revenues dedicated to Making Work Pay and an investment in
clean energy technologies, totaling about $79 billion in the first
year. These estimates are placeholders until legislation is more fully
developed, but they are conservative projections of the amount of
revenue likely to be available. We developed these estimates by
considering various analyses of climate bills proposed in the 110th
Congress and updates to underlying assumptions in these models. As the
details of the cap and trade legislation take shape, we will work to
further update the models and revenue projections.
2. medicare geographic cost variation
As a representative from Oregon, a low-spending Medicare state that
has high quality health outcomes, I am acutely aware that in order to
fully address our health care crisis and reign in our unsustainable
national health costs, we need to address the wild geographic
variations in health care spending. These ``culture of care''
differences lead to over-treatment of patients in certain regions
through longer hospital stays, greater numbers of procedures, and more
doctors visits. Yet this increased spending fails to achieve higher
quality outcomes or longer lives. If fact, according to researchers at
the Dartmouth Atlas for Health Care lower spending regions often
produce better quality care and better patient outcomes. In your time
at the CBO, you studied these geographic cost variations and became
exceedingly well versed in these problems. I think we can agree that we
need all communities to practice medicine like we do in Portland and
Minneapolis--how do you propose that we bend the curve in this
direction? How will both your Medicare Advantage competitive bidding
proposal and your traditional Medicare payment proposals address these
geographic variations in spending and create incentives to promote
quality of care as opposed to quantity of care?
response
The first step toward addressing geographic variations in spending
is to encourage the efficient delivery of care and to better align
payments with the costs of efficient providers. For example, Medicare
Advantage (MA) plans are currently paid, on average, about 114 percent
of the amount a beneficiary would cost in traditional fee-for-service
(FFS), which allows plans to be less cost efficient than they would be
if they were paid closer to Medicare FFS levels. Some Medicare
Advantage plan types have shown they can deliver care below the cost of
traditional fee-for-service. MedPAC estimates that in plan year 2009,
HMO bids averaged 98 percent of FFS spending. The Budget's Medicare
Advantage competitive bidding proposal would allow local market
competition to set the rate for MA plan payment. This will reward
efficient plans and allow them to offer enhanced benefits to attract
enrollees. Inefficient plans will have incentives to become more
efficient through better care coordination, appropriate utilization
management, and adherence to evidence-based care guidelines. As plans
increase their efficiency and quality, they may encourage improved and
more consistent patterns of practice among a broad range of providers,
which may also help to drive a reduction in geographic variations in
costs over time.
Research indicates that geographic variations in spending are
driven in large part by differences in professional norms and by the
supply of certain providers and services. High-cost areas tend to have
greater use of specialty providers and more intensive services, even
though it may not result in better quality of care on average. Examples
of other Budget proposals that should help reduce geographic variations
in spending include bundled payments for acute hospital and post-acute
care settings, as well as addressing financial conflicts of interest in
physician-owned specialty hospitals. Bundled payments would help
encourage hospitals to follow cost-effective practice patterns and
provide care in the most clinically appropriate setting. The proposal
on physician-owned hospitals would help prevent supply-driven
utilization of services (for instance, MedPAC found that physician-
owned hospitals increase the rate of cardiac surgeries) by prohibiting
new physician-owned hospitals from seeking reimbursement for services
furnished to Medicare patients that had been referred to the hospital
by a physician owner.
3. medicare advantage quality standards
I'd like to highlight your proposal to encourage hospitals serving
Medicare beneficiaries to reduce readmission rates, underscoring the
importance of proper discharge protocols and care coordination after a
hospital admission.
Health plans in Oregon, including our Medicare Advantage plans,
have been focused on this effort for years and it is one of the reasons
why Oregon has a more efficient health care system that spends less
money, yet provides high quality care.
While MA plans in Oregon have created programs to better manage
diseases and coordinate care, I know that not all MA plans nationwide
have made this a priority. If done correctly, Medicare Advantage plans
can provide the framework and financial incentives for better quality
and delivery of health care services, while containing costs. What role
do you see for the Medicare Advantage program in raising quality
standards and how can we do a better job of holding plans accountable?
(list of quality standards attached)
Examples of Quality Initiatives Adopted by Oregon Medicare
Advantage Plans:
1) Reduce unnecessary congestive heart failure admissions. MA plans
should be required to have a disease management program for congestive
heart failure with measured outcomes. This is the chronic condition
which has been consistently measured to be able to be impacted with a
disease management program. (PHP)
2) Reduce acute coronary syndrome and stroke admissions to acute
care facilities. MA plans should track and have in place a system to
improve HEDIS measurements in cholesterol measurement after
cardiovascular event. The system can be a disease management program,
physician outcome transparency, pay for performance, and or a center of
excellence in addition to educational materials. (PHP)
3) Reduce admissions to acute care facilities due to diabetes. MA
plans should track and have in place a system to improve HEDIS
measurements for cholesterol and hemoglobin A1C measurements in
diabetes. The system can be a disease management program, physician
outcome transparency, pay for performance, and or a center of
excellence in addition to educational materials. (PHP)
4) Reduce barriers to medication adherence. Monthly cost of drugs
is a barrier to adherence. Generic drugs are 10% of the cost of brand
drugs. MA plans should create systems of care to cause generic
percentage of drugs to be above 75%. (PHP)
5) Reduce later-stage colon and breast cancer. MA plans should be
required to do HEDIS measurements for screening for colorectal cancer
and breast cancer. MA plans will have systems in place to improve these
measurements. The system can be an outreach program, physician outcome
transparency, or pay for performance in addition to educational
materials. (PHP)
6) Improved quality in ambulatory surgery. MA plans should be
required to measure and improve quality in cataract surgery and
colonoscopy procedures. MA plans will create systems of care to measure
for example visual acuity and functional status prior to cataract
surgery and give feedback to physicians and similarly measure
colonoscopy procedures that meet gastroenterology society criteria for
indication. MA plans will further have systems to improve outcomes with
transparency, pay for performance or other quality measures. These two
procedures are the major drivers of cost in the ambulatory surgery
area. (PHP)
7) Reduce the percentage of smokers. MA plans should have in place
systems of care to reduce smoking prevalence. This can include
outreach, pay for performance, medication availability, stop smoking
class availability in addition to educational materials. (PHP)
8) Reduce admissions for pneumonia. MA plans should have systems in
place to reduce admissions for pneumonia. Strategies can include
increasing influenza and pneumococcal vaccine utilization. Also, HEDIS
measurement of spirometry in members with chronic obstructive pulmonary
disease and correct medication for asthma should be measured. MA plans
will create systems to improve these measured outcomes. They can
include disease management, physician outcome transparency, or pay for
performance in addition to educational materials. (PHP)
response
CMS continues to explore ways to hold all providers accountable for
quality, including MA plans. The Budget includes several proposals to
advance Medicare's transformation from quantity-based to quality-based
payments. This includes payment incentives for hospitals to improve the
quality of care and for physicians to coordinate care and provide
services that help prevent illnesses. These proposals will encourage
hospitals and physicians to provide high quality care by linking
Medicare payments to providers' adherence to evidence-based processes
of care and patient outcomes.
The Budget's MA competitive bidding proposal should help to improve
quality in the MA program by incentivizing plans to offer efficient and
high-quality care. Plans that can reduce their bids compared to other
plans will be able to offer additional benefits to attract
beneficiaries. Plans that effectively implement high-quality care
programs like care coordination and disease management should be able
to reduce their bids and attract more beneficiaries. In addition, CMS
is implementing the Medicare Improvements for Patients and Providers
Act provisions that require PFFS and MSA plans to have quality
improvement plans and to report on quality data (as is already required
for other types of MA plans).
4. defense energy efficiency and environmental responsibility
The Department of Defense is both the largest manager of
infrastructure in the world and likely the largest energy user in the
world. The legacy of this dominance is millions of acres of US lands
that lay contaminated with unexploded ordnance and munitions
constituents, and, according to a recent Defense Science Board report,
a Department lacking a comprehensive strategy for energy, to the
detriment of the military's short and long-term mission to protect.
Would you agree that a greater emphasis on the full cost of energy
requirements and environmental use should be a priority for the
Administration? What changes will we see in this Defense budget to
ensure that energy efficiency and environmental responsibility are both
adequately invested in and properly valued?
response
The Department of Defense (DoD) is in the process of developing its
2010 budget, so details on funding are not available at this time.
However, energy efficiency and environmental responsibility are key
Administration priorities and will guide resource allocation.
Regarding environmental contamination due to unexploded ordnance,
the Department has implemented the Military Munitions Response Program.
To date, the Department has identified over 3,500 munitions response
sites across the United States and currently estimates that the cost to
complete munitions response at all sites is about $19 billion. The
Department plans to complete inspections of all these sites by the end
of FY 2010.
The Department has made significant strides in identifying and
funding opportunities for increasing energy efficiency. It has
increased investment in energy initiatives from $440 million in fiscal
year 2006 to approximately $1 billion in fiscal year 2009. The
Department is developing and procuring technologies that make good
business sense both financially and operationally. It has also expanded
programs such as the Energy Conservation Investment Program, which
competitively awards funds for energy-saving construction projects.
Finally, the Department has made recognizing the full cost of
energy a central part of its strategic energy plan.
5. millennium development goals
President Obama has expressed great interest in returning to the
Millennium Development Goals and doubling U.S. foreign assistance. His
Budget includes a 9.5% increase over FY09 levels for the State
Department and International programs and lists funding for key
programs that advance U.S. foreign policy goals, including helping the
world's weakest states to ``reduce poverty, combat global health
threats, develop markets, govern peacefully, and expand democracy
worldwide.'' Securing clean water and sanitation is a key cross-cutting
requirement to achieving each of these objectives; each dollar invested
yields up to $34 in return. It is also a MDG commitment; in 2005 the US
agreed to halve by 2015 the proportion of people without access to
clean water and sanitation. How will the administration include an
international investment in clean water, through the Water for the Poor
Act or otherwise, in a full Budget, and to what extent will the
Administration's budget reflect our commitment to the MDGs?
response
The President has embraced the Millennium Development Goals to,
among other things, cut global poverty in half by 2015. The
Administration is committed to elevating development in U.S. foreign
policy, and the FY 2010 International Affairs budget request of $51.7
billion puts the United States squarely on a path to doubling foreign
assistance. I urge Congress to fully fund the President's Budget, which
will support the U.S. commitment to achieving the Millennium
Development Goals. Clean water and sanitation programs, another key
element of the MDGs, are an important component of the U.S. development
toolbox. The details of the FY 2010 Budget are being developed and we
look forward to providing additional information, including planned
investments in clean water and foreign assistance, when the full FY
2010 Budget is transmitted.
Director Orszag's Responses to Questions for the Record From
Representative Etheridge
savings from elimination of ffel
As the former Superintendant of Schools in North Carolina, I
believe that education is the key to success and the foundation for our
future. I am pleased that this budget makes education a high priority,
because I truly believe that the best investment we can make in our
future is to give more children access to a better education. I am
pleased to see that the administration's budget expands access to
higher learning, invests in early childhood education, and increases
spending for child nutrition and school meals initiatives.
However, I am concerned about the President's proposal to end the
Federal Family Education Loan Program and to have all loans originate
through the Federal Direct Loan Program. For the past 40 years, the
College Foundation of North Carolina has assisted over 550,000 NC
students and families with college loans with one of the nation's
lowest default rates. Dr. Orszag, could you comment on estimated
savings in the budget associated with the elimination of the Federal
Family Education Loan program? Is the Department of Education ready to
scale up the Direct Loan program to cover all post-secondary student
loans? The budget assumes a $4 to $6 billion savings while directs
costs might be expected to increase the deficit by $100 billion. How
are these savings calculated? Is OMB assuming these savings on the
basis of the current low interest rates that might change in the
future?
response
In developing Federal Family Education Loan (FFEL) savings
estimates, the Administration accounted for the program's sensitivity
to changes in interest rates, as well as the probability that interest
rates could fluctuate in future years. The approach we took is similar
to the approach taken by the Congressional Budget Office in its FFEL
estimates. Our savings estimates, therefore, are robust to almost any
realistic set of interest rate assumptions; even if Treasury rates and
Commercial Paper rates return to their historical average, eliminating
FFEL subsidies and ramping up the DL Direct Loan (DL) program will
continue to generate savings for taxpayers.
The Department of Education has been enhancing its servicing
capabilities, both in response to the Budget policy and to support the
FFEL loan purchase programs established last summer. The Budget
proposal will maintain competition because the Department of Education
will begin using multiple contractors to service DL loans. This will
maintain competition between servicers, which will help students and
families benefit from improved customer service and technological
advances in loan servicing.
Director Orszag's Responses to Questions for the Record From
Representative Langevin
savings from health reform
Dr. Orszag, the President's budget sets forth a very ambitious
policy agenda, while simultaneously adhering to an honest and sobering
accounting standard that realizes incredible fiscal challenges. It has
become clear that in order to rebuild our economy, we are going to have
to make significant investments in key priorities like energy,
education and health care while sacrificing in some others. One of the
priorities highlighted in the budget outline is a reserve fund of more
than $630 billion over 10 years to finance health care reform. As a
strong advocate for health care reform, I am very interested in hearing
more about this initiative.
Many policy experts agree that investing in the health of our
citizenry now will yield tremendous savings later. In other words, by
increasing quality and efficiency in our health system today through
innovations in health information technology and early access to
preventative care, we can ultimately reduce health expenditures over
the long term, but it is often difficult to account for these savings
under the House ``pay as you go'' rules: 1. To what degree are savings
from these investments currently incorporated into the budgetary
outlook?
2. If they are not incorporated, why not?
3. Can we expect unrealized budgetary savings not incorporated into
current health care modeling?
response
The Administration understands that reforming health care is
critical to our nation's fiscal future. As a first step toward reform,
the President signed into law the American Recovery and Reinvestment
Act (ARRA). The ARRA will help curb health care spending by investing
in computerized health care records, accelerating comparative
effectiveness research, and scaling up prevention and wellness
programs.
The President's Budget builds on the ARRA and commits $634 billion
over ten years in a budget-neutral health reform reserve fund as a down
payment on comprehensive health care reform. First, the Budget proposes
changing the tax code by reducing itemized deduction rate for families
with incomes over $250,000, which is expected to save $318 billion over
ten years. Second, the Budget estimates $316 billion in savings over
ten years in the Medicare and Medicaid programs. These savings result
from promoting efficiency and accountability, aligning incentives
toward quality, and encouraging shared responsibility.
The Medicare and Medicaid savings are included in the Budget
projections and represent the Administration's best current estimate of
the costs and savings of the Budget proposals. The independent
actuaries at the Department of Health and Human Services have made
projections, based on their in-depth program and industry knowledge,
sound evidence and research, and up-to-date program data. These
proposals include the following:
Reducing Medicare Overpayments to Private Insurers through
Competitive Payments. Under current law, Medicare overpays Medicare
Advantage plans by 14 percent more on average than what Medicare spends
for beneficiaries enrolled in the traditional fee-for- service program.
The Administration believes it's time to stop this waste and will
replace the current mechanism to establish payments with a competitive
system in which payments would be based upon an average of plans' bids
submitted to Medicare. This would allow the market, not Medicare, to
set the reimbursement limits, and save taxpayers more than $175 billion
over ten years, as well as reduce Part B premiums.
Reducing Drug Prices. Prescription drug costs are high and
rising, causing too many Americans to skip doses, split pills, or not
take needed medication altogether. The Administration will accelerate
access to make affordable generic biologic drugs available through the
establishment of a workable regulatory, scientific, and legal pathway
for generic versions of biologic drugs. To retain incentives for
research and development for the innovation of breakthrough products, a
period of exclusivity would be guaranteed for the original innovator
product, which is generally consistent with the principles in the
Hatch-Waxman law for traditional products. Additionally, brand biologic
manufacturers would be prohibited from reformulating existing products
into new products to restart the exclusivity process, a process known
as ``ever-greening.'' The Administration will prevent drug companies
from blocking generic drugs from consumers by prohibiting
anticompetitive agreements and collusion between brand name and generic
drug manufacturers intended to keep generic drugs off the market.
Finally, the Budget will bring down the drug costs of Medicaid by
increasing the Medicaid drug rebate for brand-name drugs from 15.1
percent to 22.1 percent of the Average Manufacturer Price, apply the
additional rebate to new drug formulations, and allow States to collect
rebates on drugs provided through Medicaid managed care organizations.
All the savings would be devoted to the health care reserve fund.
Improving Medicare and Medicaid Payment Accuracy. The
Government Accountability Office has labeled Medicare as ``high risk''
due to billions of dollars lost to overpayments and fraud each year.
The Centers for Medicare and Medicaid Services (CMS) will address
vulnerabilities presented by Medicare and Medicaid, including Medicare
Advantage and the prescription drug benefit (Part D). CMS will be able
to respond more rapidly to emerging program integrity vulnerabilities
across these programs through an increased capacity to identify
excessive payments and new processes for identifying and correcting
problems.
Improving Care after Hospitalizations and Reduce Hospital
Readmission Rates. Nearly 18 percent of hospitalization of Medicare
beneficiaries resulted in the readmission of patients who had been
discharged in the hospital within the last 30 days. Sometimes the
readmission could not have been prevented, but many of these
readmissions are avoidable. To improve this situation, hospitals will
receive bundled payments that cover not just the hospitalization, but
care from certain post-acute providers the 30 days after the
hospitalization, and hospitals with high rates of readmission will be
paid less if patients are re-admitted to the hospital within the same
30-day period. This combination of incentives and penalties should lead
to better care after a hospital stay and result in fewer readmissions--
saving roughly $26 billion of wasted money over ten years.
Expanding the Hospital Quality Improvement Program. The
health care system tends to pay for quantity of services not quality.
Experts have recommended that hospitals and doctors be paid based on
delivering high quality care, or what is called ``pay for
performance.'' The President's Budget will link a portion of Medicare
payments for acute in-patient hospital services to hospitals'
performance on specific quality measures. This program will improve the
quality of care delivered to Medicare beneficiaries, saving more than
$12 billion over ten years.
Reforming the Physician Payment System to Improve Quality
and Efficiency. The Administration believes that the current physician
payment system, while it has served to limit spending to a degree,
should be reformed to give physicians incentives to improve quality and
efficiency. Thus, while the baseline reflects our best estimate of what
the Congress has done in recent years, we are not suggesting that
should be the future policy. As part of health care reform, the
Administration would support comprehensive, fiscally responsible
reforms to the payment formula. The Administration believes Medicare
and the country need to move toward a system in which doctors face
better incentives for high-quality care rather than simply more care.
Estimating future budget expenditures is a highly uncertain
undertaking. It is very difficult to pinpoint specific out-year
savings, since so little research has been done quantifying cost
savings from such efforts. Some policy changes may only begin to
produce significant savings outside the ten-year budget window.
Therefore, when considering the merits of various policy proposals,
Congress may also want to consider not only mid-term (ten-year) effects
but also the potential for long-term savings.
The Administration believes that health care reform should be
deficit-neutral over the short- and medium-term, and should ``bend the
curve'' on health care costs over the long term. I believe we are doing
the things considered to be the most promising for bending the curve on
health care costs over the long term--such as investing in health IT,
comparative effectiveness research, changes in incentives, and
prevention and wellness efforts. We must continue and build on this
effort.
Director Orszag's Responses to Questions for the Record From
Representative Lummis
1. cap and trade--price assumptions
President Barack Obama's Fiscal Year 2009 budget blueprint
estimates $646 billion in ``climate revenues'' under his proposed cap
and trade system. What price per metric ton of carbon emissions
underlies these revenue projections? How do these prices compare with
current prices in the European Union's carbon trading system?
response
The estimates in the Budget are placeholders that provide
conservative projections of the amount of revenue that would be
available under a cap and trade program based on a 100 percent auction
of allowances. We developed these estimates by considering various
analyses of climate bills proposed in the 110th Congress and updates to
underlying assumptions in these models. As the details of the cap and
trade program take shape, we will work to update the models and revenue
projections and make firm cost-per-ton estimates. By applying relevant
budget scoring assumptions, we estimated that the cap and trade
revenues would at a minimum offset the Making Work Pay tax credit as
well as provide $15 billion per year investment in clean energy
technologies.
In designing this program, we have learned from the European Union
Emissions Trading Scheme (EU-ETS). As the Government Accountability
Office reported, the EU over-allocated carbon credits to the point
where supply exceeded the cap and led to a collapse of carbon permit
prices (GAO-09-151). The GAO report also indicates the EU-ETS lacked
reliable emissions data at the start of the program, creating
uncertainty in the reductions achieved. By creating a robust emissions
inventory and avoiding over-allocation of credits to particular
industries, we can learn from the experience of the EU and create a
strong carbon trading market.
2. cap and trade--effect on industries
Will these revenues be collected from all industrial emitters? What
evidence is there that the affected industries, other than electricity
generators, can either absorb or recover these additional costs?
response
A viable program to reduce greenhouse gas emissions must cover a
sufficient percent of large emitters, including some industrial sectors
for which measurable, verifiable reductions can be accurately recorded.
While it is not practical to cover all industrial emission sources, we
strive to reach the right balance to lead the world with a strong
program as well as consider practical limitations. We have already
begun to consult stakeholders on this issue through EPA's rulemaking
process for the development of the mandatory greenhouse gas reporting
rule.
While there will be some additional costs to industrial sectors, a
cap and trade system enables entities that lead their competition in
effective emissions reduction to gain market share. Furthermore, the
policy should provide targeted measures to address impacts on energy-
intensive industries. We look forward to working with Congress as these
issues are considered in the legislation.
3. cap and trade--protection of domestic industries
How does the Administration plan to protect domestic businesses
that will be forced to purchase carbon allowances--particularly smaller
businesses in need of these allowances--from their foreign competitors
who will not have to shoulder the financial burden of the carbon
mandates in the President's cap and trade plan?
response
Ensuring that domestic industries remain competitive is an
essential component of the policy. First, only entities emitting above
a particular emissions threshold will be included in the program; we
intend to incorporate the largest emitters while excluding small
businesses whenever possible. Second, the cap and trade system would
offer flexibility to domestic businesses to meet their obligations by
purchasing auctioned credits, trading in the domestic carbon market, or
perhaps offsetting emissions through investment in verifiable emission-
reduction projects. The policy would not require domestic businesses to
purchase allowances from their foreign competitors. Furthermore, the
United States will aggressively engage our major trading partners to
insure they commit to significant, measurable and verifiable
contributions to combat climate change.
Director Orszag's Responses to Questions for the Record From
Representative McHenry
1. transparency of federal spending
During the Presidential campaign President Obama routinely stated
that he would restore fiscal discipline to Washington and you yourself
said, ``you would work with Congress to provide greater transparency
and accountability''. Within the stimulus bill and the omnibus there
were 11,297 earmarks at a cost of 25.6 billion to the American
taxpayer. Do you believe during an era of new responsibility, as the
President's budget and his address to the nation has outlined, that
this type of spending that so open to waste and abuse can continue? And
in order to create greater transparency in federal spending, as you and
the President have promised to the American people, do you think it is
important to create a specific website/office outside of the prevue of
Congress and the White House but maintained by the Federal Government,
to allow the American public to track every federal dollar spent, with
the exception of classified projects?
response
The Federal Funding Accountability and Transparency Act of 2006
required the Executive Branch to establish a website to track awards
made by Federal agencies. As a result of this law, OMB developed the
USASpending.gov website, which makes available information on Federal
spending in a searchable format. Visitors to the site may search the
spending database by State, awardee, Congressional district and other
criteria.
In addition, the Administration is currently working with the
Oversight Board established by the American Recovery and Reinvestment
Act to develop the capability to report at the subaward level for all
Recovery Act funding. Once this capability is established for Recovery
Act funding, we intend to expand it to cover all Federal funding.
These efforts, once completed, will significantly expand the
information available to all citizens on how Federal funds are spent.
2. funding for 2010 census
As you know, the Census Bureau has required additional funding to
stay on-schedule for execution of the 2010 Decennial Census. The recent
stimulus bill contained an additional $1 billion for Bureau
communications, and the House-passed version of the FY 09 Omnibus
Appropriations bill contained $3.1 billion more for the census. What
sort of funding can we expect to see for the Census Bureau in the 2010
Budget, and to what operations do you see the majority of funding
allocated? Do you see this as being enough to meet the Bureau's goals
of producing a full and accurate count?
response
The decennial census is the largest peacetime mobilization the
Federal Government undertakes and is a priority of this Administration.
The 2010 Budget provides approximately $7 billion for the Census
Bureau, an increase of $4 billion from the level provided in the 2009
Omnibus Appropriations Act. Including Recovery Act funds, nearly $8
billion will be available in 2010. We are particularly aware of the
challenges of counting harder-to-reach groups, and the 2010 Budget
provides all the resources necessary for a successful and accurate
Census count in 2010.
Funding is provided to open hundreds of local census offices, mail
out millions of forms, hire half a million temporary workers to visit
non-responding households, and implement a nationwide advertising
campaign. Significant funds are also provided for partnership and
outreach activities, which will be focused on increasing the response
rate of historically undercounted communities and groups.
3. impact of cap and trade on jobs and households
The President has outlined in his initiative to implement a Cap and
Tax system beginning in 2012 on American families and businesses. You,
yourself have provided testimony before this committee that a 15-
percent reduction in emissions would result in a $680 to 2,180
reductions in household income. Do you know the affect this new policy
will have on Americans who are on fixed incomes when it comes time to
pay their heating and electric bills? And has the administration taken
into affect the number of jobs that will be lost once this policy is
implemented and do you have an estimate of the number of job losses?
response
We will not allow struggling Americans to become overburdened with
their electric and heating bills. We believe a market-based approach
will spur American ingenuity and entrepreneurship to find the least
expensive means to bring clean energy sources online. The program will
invest $15 billion per year for ten years to develop clean energy
technologies and to increase efficient use of energy; revenues will
also finance the Making Work Pay tax credit. Any additional revenues
will be returned to the public--especially to vulnerable families,
communities, and business--to help them transition to a clean energy
future. Furthermore, through the Recovery Act we are already making a
significant down payment to weatherize homes that will help keep energy
bills affordable for low- and fixed-income families.
A strategy to promote energy security and tackle global warming is
critical to create new jobs and bolster the long-term viability of the
economy. It is a major step to promote a stable, diverse and resilient
energy supply while also taking crucial steps to avoid the most
devastating effects of climate change. To help create the next
generation of workers in the emerging fields of clean energy
technology, a cap and trade policy should promote the creation of new
jobs, and new and expanded job training programs.
As climate change legislation evolves, the Environmental Protection
Agency, the Department of Energy, and others will analyze the projected
impact on GDP, consumption, and net jobs. We will be working with
Congress to mitigate any adverse impacts.
4. health care reform--prevention and early detection
Can you share with us the type of prevention and early-detection
strategies the Administration would like to see as part of
comprehensive healthcare reform?
response
The Administration supports evidence-based prevention and early-
detection strategies that will lead to a more efficient health care
system, expanded coverage, improved quality, and reduced costs. The
Recovery Act provides $1 billion for an historic effort to improve
prevention and wellness by dramatically expanding community-based
interventions proven to reduce chronic diseases. Prevention and early-
detection strategies could support effective workplace and community
physical activity programs targeted to high-risk populations. We look
forward to working with Congress to determine the specific types of
prevention and early-detection strategies that should be part of
comprehensive healthcare reform.
5. health care reform--chronic disease
I was wondering if you could share with the Committee the
Administration's vision for addressing the rising prevalence of chronic
disease--as spending on chronic conditions now accounts for 75% of U.S.
health care spending.
response
The Administration's vision for addressing the rising prevalence of
chronic disease is to invest in public health measures proven to reduce
cost drivers in our system--such as obesity, sedentary lifestyles, and
smoking--as well as guarantee access to proven preventive treatments.
The Recovery Act provides $1 billion for an historic effort to improve
prevention and wellness by dramatically expanding community-based
interventions proven to reduce chronic diseases. As we work with
Congress on health reform over the coming year, the prevention of
chronic disease will certainly be part of the discussion.
6. health care reform--limit on patient costs
What are your thoughts about how to ensure that more insurance
plans include a total annual limit on patient costs, and to help lower
income patients in particular?
response
The Administration looks forward to developing a health reform
approach through an open and inclusive process that explores all
serious ideas that achieve the common goals of constraining costs,
expanding coverage, and improving quality. Limiting costs Americans
face for health care is a priority of this Administration.
7. health care reform--incentives for patient compliance
Given the prevalence of chronic conditions among Medicare
beneficiaries, and the benefits of engaging patients more actively in
their own care, what are your thoughts about how to measure and reward
health plans and providers for efforts to improve patient adherence to
the treatments their doctors' recommend?
response
We need to improve care coordination and patient adherence to
treatments. More than two-thirds of Medicare spending is for
beneficiaries with five or more chronic conditions. Medicare patients
with chronic diseases such as diabetes, congestive heart failure, renal
failure may receive uncoordinated care from multiple physicians and
providers at the same time. Encouraging providers to better coordinate
care and help patients manage their conditions and follow treatment
plans is needed to both improve the quality of care and reduce growth
in health care spending.
The Budget includes proposals to incentivize physicians and
providers to better coordinate care and to invest in patient adherence
efforts. For example, the Budget includes a proposal that would
strengthen incentives for Medicare providers, such as physicians, to
form voluntary groups who would work together to better manage and
coordinate care for Medicare beneficiaries. These provider groups could
receive bonus payments if they improve the quality of care for patients
and produce savings for the Medicare program.
Additional payment system reform will also improve care
coordination. We need to better integrate the current fragmented fee-
for-service system to create quality and efficiency incentives for a
broad array of services and providers. As a starting point, the Budget
includes proposals to reduce payments to hospitals in certain cases
when patients are readmitted within 30 days and to link a portion of
payments to performance on quality measures. Hospitals that have high-
quality care; better communication with patients and post-acute care
providers; and better discharge planning, coordination, and follow up
(which would include ensuring patient compliance with treatment plans)
will have lower readmission rates and higher scores on quality
measures. Under these proposals, higher payments would go to hospitals
with lower readmission rates and higher-quality care, which will save
Medicare billions of dollars over ten years.
There are many other approaches that may reward efforts to improve
patient compliance with doctors' treatment plans, including medical
homes, disease management organizations, and community networks or
teams to coordinate care. The Department of Health and Human Services
is beginning to test these concepts and will make recommendations in
developing future options for modernizing Medicare's payment systems. I
look forward to continuing to work with you, other members of Congress,
and other policymakers to consider all options in this area.
8. satisfaction with medicare part d
According to opinion polls, some 85% to 90% of those enrolled in
Medicare Part D are quite happy with it. Is this your understanding as
well? Sir, what do you think is driving this high rate of satisfaction?
response
Opinion polls from groups such as AARP, Medicare Today, the
Medicare Rx Education Network and the Wall Street Journal online
indicate that beneficiaries generally are satisfied with Medicare Part
D. For example, the December 2007 Wall Street Journal Poll showed that
overall 87 percent of beneficiaries were satisfied with their Medicare
prescription drug coverage.
In each of the polls cited above, the results suggest particularly
high satisfaction rates with certain aspects of the program. For
example, the October 2007 Medicare Today survey showed that 94 percent
of beneficiaries consider their plans convenient to use. The Medicare
Today poll also found that 91 percent of those surveyed reported they
were enrolled in plans with good customer service. The November 2007
Medicare Rx Education Network, in turn, found that 87 percent of those
surveyed were satisfied with the number of drugs covered by their plan.
The poll also showed that 95 percent were satisfied in their ability to
have their prescriptions filled.
To keep satisfaction rates high, the Administration continues to
look for ways to improve the Part D program for beneficiaries. For
example, we are evaluating methods to make information on the different
types of plans available more understandable to beneficiaries. These
changes will help beneficiaries to choose the most cost-effective plans
that provide access to the medications they need.
9. increasing medicaid drug rebate
Do you believe that increasing Medicaid rebates is likely to
further increase cost-shifting and prescription drug costs for private
payers? If so, do you still think it's a good idea to increase Medicaid
rebates?
response
The Budget includes a proposal to increase the basic drug rebate
for brand-name drugs from 15.1 percent to 22.1 percent of the Average
Manufacturer Price, which may help reduce the effects of existing price
control-like mechanisms in the prescription drug market. Because the
rebate amount is based in part off of the lowest price of a drug
offered to any private purchaser, non-profit or government entity with
certain statutory exceptions--a provision known as ``best price''--drug
manufacturers do not currently have an incentive to offer lower drug
pricing in the private market because it increases their rebate
obligation. Increasing the flat rebate percentage to 22 percent could
mitigate the impact of best price by triggering that part of the rebate
formula less often. This may actually encourage drug manufacturers to
offer lower drug prices.
10. comparative effectiveness research and access to care
There's been a lot of discussion about comparative effectiveness
research in recent weeks. I believe this type of research holds real
value for patients, and real dangers as well. In particular, I'm very
concerned that this could lead to centralized value judgments about who
should and shouldn't get access to medically beneficial care. We've
seen this happen in other countries like the U.K., where patients with
breast cancer, kidney cancer, Alzheimer's and many other serious
diseases are denied access to beneficial treatment options that are
widely available in this country. Do you share these concerns? What
steps can we take to ensure this research achieves the goal articulated
by President Obama--improving patient and provider decision-making--
while avoiding these types of blunt, centralized access restrictions?
response
I agree that this research holds real value for patients, and
understand your concerns about its use. Current efforts at the Federal
level--including the $1.1 billion included in the Recovery Act--are
focused on increasing the quantity of comparative effectiveness
research produced, in order to enhance medical decision-making by
patients and physicians. As research and medicine progress and more
studies become available showing what works best for people with
different genetic markers, patients should be better able to obtain
individually-tailored treatments that maximize the likelihood of
positive health outcomes. For example, pharmacogenomics is a field of
research that studies how different people respond to the same drug
based on their genetic makeup. Such research recognizes that what works
best for one group of people may not be what works best for another
group. More research comparing the effectiveness of different
treatments for different groups of people should eventually lead to
higher-quality health care.
There are a variety of ways that private insurers can use
comparative effectiveness research findings in coverage or
reimbursement decisions. These approaches include mechanisms that are
more refined than a simple on-off switch--for example, health insurers
might reimburse providers at enhanced rates for treatments that are
found to be more effective than others, but still provide reimbursement
for other less-effective options. Insurers may also pay bonuses to
providers who consistently deliver care that adheres to recognized
clinical guidelines. In the future, if Congress were to decide to
incorporate comparative effectiveness research into coverage or
reimbursement decisions in public health insurance programs, there are
a variety of ways this could be done to avoid blunt restrictions that
block access.
Director Orszag's Responses to Questions for the Record From
Representative Ryan
1. discretionary outyears
The previous Administration did not provide account level detail
for discretionary accounts beyond the budget year. Some Members of
Congress and the Washington Post viewed this as hiding key details
about the President's budget. In the interest of transparency and long-
term budgeting, please provide account level detail through 2019.
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. The full details of the Budget are under development, and
information on the discretionary outyears will be provided as part of
that transmittal.
2. federal employment levels
Please provide the federal employment levels for FY 2008, 2009, and
2010. These are traditionally part of the budget submission.
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. The full details of the Budget are under development, and
information on federal employment will be provided as part of that
transmittal.
3. employment and unemployment assumptions
What are your employment and unemployment assumptions used in the
budget? Please provide your estimate of the impact that the stimulus
bill had upon these assumptions.
response
As described in Table S-8 of the FY 2010 Budget, the Administration
assumes that the unemployment rate will average 8.1 percent in 2009 and
decline from there as the economy recovers. Over the next four years,
it declines steadily and levels off at 5.0 percent in 2014. The Chair
of the Council of Economic Advisers has estimated that the American
Recovery and Reinvestment Act will add approximately three and half
million jobs to the U.S. workforce by the end of 2010. This estimate is
reflected in the Administration's forecast.
4. concurrent receipt proposal
Please explain your concurrent receipt proposal for DoD and VA.
Does your proposal do away with the phase-in of concurrent receipt?
response
No. This proposal expands concurrent receipt to a previously
ineligible population--veterans who are medically retired from DoD with
fewer than 20 years of service. The proposal phases in concurrent
receipt of VA disability and DoD retirement benefits for this group of
veterans over a five-year period.
5. financing for surface transportation
In your budget, how much surface transportation funding comes from
the dedicated user taxes that have funded this program since its
inception in 1956? How much comes from appropriations of general
revenue? How much comes from non-traditional financing mechanisms?
response
The FY 2010 Budget presents baseline funding levels for surface
transportation programs and does not include information about funding
sources. The Administration recognizes that current law receipts are
not sufficient to fund current law spending and looks forward to
working with Congress to developing a sustainable surface
transportation funding system--one that responds to our nation's
changing needs.
6. budgetary treatment of imf quota increase
Your budget contains a proposal to increase the United States'
quota subscription to the International Monetary Fund, but in a
reversal of long-standing budgeting practices, you do not include any
budget authority associated with this increase. Why did you not show
budget authority from the increase in the quota to the IMF? Does the
increase and the use of this authority impact the debt held by the
public? If so, what is that impact?
response
The proposal to increase the United States' quota subscription to
the International Monetary Fund represents an exchange of financial
assets. This is consistent with the budgetary treatment recommended by
the Presidential Commission on Budgetary Concepts in 1967, and with the
guidance contained in section 20(h) of Circular A-11. We note that
quota subscriptions have never resulted in any outlays. We believe the
prior practice of scoring IMF quota increases as budget authority is
incorrect.
7. earmark tracking
Two years ago, OMB established a database to track congressional
earmarks. The President's budget discusses earmarks and calls for
greater transparency in earmarks and the President stated his pride in
the fact that the stimulus bill was earmark-free.
Will you retain OMB's current definition of an earmark? If not, how
do you define an earmark? When will you update the earmarks.omb.gov
website? What changes do you plan to implement? Will you update the
database to include earmarks in the FY2009 appropriations bills? If
not, how many earmarks were in the FY 2009 enacted bills and the House-
passed omnibus bill and what was the cost of these earmarks?
response
The President's FY 2010 Budget states that the Administration will
continue to maintain a searchable website of earmarks and sponsors. OMB
is currently reviewing www.earmarks.omb.gov to determine how to proceed
with tracking and posting earmarks in ways that improve transparency.
OMB will post earmarks from FY 2009 appropriations bills on the website
upon completion of this review.
8. earmarks executive order
Last year, President Bush signed Executive Order 13457, which
directs that ``the head of each agency shall take all necessary steps
to ensure that * * * agency decisions to commit, obligate, or expend
funds for any earmark are based on the text of laws, and in particular,
are not based on language in any report of a committee of Congress,
joint explanatory statement of a committee of conference of the
Congress, statement of managers concerning a bill in the Congress, or
any other non-statutory statement or indication of views of the
Congress, or a House, committee, Member, officer, or staff thereof;''
Is this executive order still in effect?
Do you plan to modify it or repeal it? If so, how will it be
modified and how will the Administration determine the level of
earmarks and their cost in legislation?
response
Until the President rescinds or modifies the Executive Order, it is
still in effect. The Administration will work with Congress to increase
the efficiency and transparency of earmarks. We are currently reviewing
all the Executive Orders issued by the previous Administration and have
not yet made a decision as to Executive Order 13457.
9. administrative paygo
Is this Administration still abiding by previous OMB Director
Bolten's memorandum requiring agency administrative actions that affect
mandatory spending to comply with pay-go? Has the Administration made
any changes to the baseline for the purposes of Administrative pay-go?
If so, what are those changes and what is the budgetary impact of those
changes? Please provide an account of all administrative actions
affecting levels of mandatory spending that have been implemented since
January 20, 2009, or which are assumed in your budget.
response
The Administration supports requiring agency administrative actions
that affect mandatory spending to comply with Administrative PAYGO. The
Administration plans to implement Administrative PAYGO relative to the
President's 2010 Budget. Administrative changes relative to the 2010
Budget would generally, therefore, require budget neutrality (except in
cases where it is appropriate to waive Administrative PAYGO in
accordance with established procedures).
The details of the FY 2010 Budget are being developed and when the
full Budget is transmitted to Congress, the Current Services Estimates
chapter of Analytical Perspectives will provide information on the
budgetary impact of regulations and other important baseline
assumptions.
10. proposed program reductions and terminations
Please provide a list of proposed program terminations and
reductions included in the President's budget and the savings relative
to the FY 2009 estimated level.
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. While the full details of the Budget are under
development, the Administration has identified cuts and savings that
include: eliminating the Resource Conservation and Development program
in the Department of Agriculture; reforming the Market Access program
in the Department of Agriculture by reducing program funding for
overseas brand promotion and minimizing the benefits that large for-
profit entities may indirectly gain as members of trade associations;
reducing Direct Payments to Farmers with sales revenue of more than
$500,000 annually; increasing collection of delinquent taxes from
Federal Contractors by streamlining administrative processes;
eliminating small, ineffective Housing and Urban Development programs
like the American Dream Downpayment Initiative and the Community
Development Loan Guarantee program and reforming others like the Rural
Housing and Economic Development program so that it is not duplicative
of similar Department of Agriculture programs; and eliminating
education programs with records of low performance.
11. proposed program increases and new programs
Please provide a list of new programs and program increases
included in the President's budget and the increase in BA and outlays
relative to the FY 2009 estimate level.
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. While the full details of the Budget are under
development, the Administration has identified several program
increases and new programs that include: a doubling of funding for
cancer research at the National Institutes of Health and basic research
at the National Science Foundation; climate change research and
development to invest in clean energy, end our addiction to oil,
address the global climate crisis, and create new American jobs that
cannot be outsourced; a National Infrastructure Bank that expands and
enhances existing Federal infrastructure investments and is designed to
deliver financial resources to priority infrastructure projects of
significant national or regional economic benefit; a nursing home
visitation program to support first-time mothers; creation of the
College Access and Completion Fund to support State efforts to help
low-income students complete their college education; and a change to
the extended unemployment insurance benefits trigger to make benefits
available more quickly to long-term unemployed workers.
12. proposed discretionary changes in mandatory programs (chimps)
Does the budget assume any changes in mandatory proposals (MSAVERS
or CHIMPS) as discretionary offsets? If so, please provide a list as
well as expected BA and outlay savings. Please provide the impact of
``rebasing'' levels for mandatory savings scored as discretionary
spending in FY 2009 and a comparison of discretionary BA and outlays
for FY 2009-2019 with and without rebasing.
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. The full details of the Budget are under development, and
information on any proposed discretionary changes to mandatory programs
will be provided as part of the full FY 2010 Budget.
13. proposed advance appropriations
For programs where a request for advance appropriations will be
made, please provide a list of the programs and the amount of the
request.
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. The full details of the Budget are under development, and
information on advance appropriations will be provided as part of the
full Budget submission.
14. projections of highway trust fund
Please provide revenue and spending projections for the Highway
Trust Fund (both Highway and Mass Transit Accounts).
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. The full details of the Budget are under development, and
information on spending projections for the Highway Trust Fund will be
provided as part of the full Budget transmittal.
15. cap and trade proposal
Will the President be submitting specific legislation on cap and
trade to Congress? What agency will be responsible for administering
this program? How much do you estimate will be needed for
administrative costs? How many federal employees and contractor
employees will be required? Has the Administration modeled the economic
impact on GDP and jobs of its cap and trade proposal? If so, what is
the impact on GDP and jobs? In table S-2, $120 billion of climate
revenues are devoted to ``climate policy (clean energy technologies).''
However, these revenues are also dedicated to deficit reduction in this
table. Are the revenues double-counted?
response
As we have seen through the various draft bills in the 110th
Congress, developing energy security and cap and trade legislation is a
complex undertaking that will produce the strongest result if it is
informed by a wide group of stakeholders and experts. The
Administration will work with Congress in developing the legislation to
make it as effective as possible.
The level of resources needed to administer the cap and trade
program will depend on the complexity of the legislation. Until the
legislation has been drafted, it is difficult to predict the exact
administrative costs, or the most appropriate agency to administer the
components of the program. In working with Congress to develop
legislation, we will weigh the benefits of various measures to design a
program that is manageable, effective, transparent, and provides
protections against market manipulation.
A strategy to promote energy security and tackle global warming is
critical to create new jobs and bolster the long-term viability of the
economy. This is a major step to promote a stable, diverse and
resilient energy supply while also taking crucial steps to avoid the
most devastating effects of climate change. To help create the next
generation of workers in the emerging fields of clean energy
technology, a cap and trade policy should promote the creation of new
jobs, and new and expanded job training programs. As you are aware, the
Environmental Protection Agency, the Department of Energy and the
Congressional Budget Office analyzed several climate policy proposals
in the 110th Congress and specifically modeled economic impacts such as
GDP. As the details of the policy take shape through our work with
Congress, we will use these modeling results and other information to
inform the most effective and balanced approach.
The FY 2010 President's Budget proposes that revenues from the
cap--and-trade permit auction be devoted to the Making Work Pay tax
credit and to investments to help America transition to a clean energy
future. The budget tables (S-7) show $15 billion per year in budget
authority beginning in 2012 devoted to ``Climate Policy (Clean Energy
Technologies);'' this investment will be paid for by cap and trade
revenues. Table S-2 captures this discretionary spending under the
category ``other appropriated programs.'' Thus, the presentation in the
budget does not double count the revenue because it shows the cap and
trade revenues and the associated offsetting spending.
16. impacts of proposal to eliminate ffelp
This budget projects $47.5 billion in savings over 10 years by
eliminating the private capital-based Federal Family Education Loan
Program (FFELP) and using low-interest Treasury borrowing for all
federal student loans. How much would the Treasury need to issue in
additional debt for FY 2010-2019 to finance these new direct loans in
lieu of the guarantee program? What are the risks associated with
issuing the additional debt and is that accounted for in the scoring?
If Treasury rates return to their historical average rates by 2011, how
much less will the savings be from the conversion to direct loans?
response
As our estimate shows, the proposal in the FY 2010 Budget to issue
all student loans directly from the Department of Education produces
savings that reduce the deficit in both the short and long term. To the
extent that bondholders are mostly concerned about the deficit and the
long-term ability of the U.S. to repay debt, the risks associated with
additional debt likely generate additional savings rather than costs
(although those savings have not been scored). Issuing student loans
directly eliminates the basis risk associated with the Federal Family
Education Loan (FFEL) program--the risk that the spread of the rate at
which the Administration compensates lenders over the Treasury's cost
of borrowing will widen. While eliminating that basis risk is an
additional benefit of switching to direct loans, we did not score it as
savings. The Administration was careful in developing FFEL savings
estimates to account for the program's sensitivity to changes in
interest rates, as well as the probability that interest rates could
fluctuate in future years. The approach we took is similar to the
approach taken by the Congressional Budget Office in its FFEL
estimates. Our savings estimates therefore are robust to almost any
realistic set of interest rate assumptions; even if Treasury rates and
Commercial Paper rates return to their historical average, eliminating
FFEL subsidies and ramping up the DL program will continue to generate
savings for taxpayers.
17. yucca mountain and strategy for nuclear waste storage
The budget contains a statement that says, ``The Yucca Mountain
program will be scaled back to those costs necessary to answer
inquiries from the Nuclear Regulatory Commission, while the
Administration devises a new strategy toward nuclear waste disposal.''
Does the new strategy propose to abandon Yucca Mountain as the primary
repository of our nation's nuclear waste? Will the Administration's
Yucca Mountain proposal hinder efforts to build additional civilian
nuclear plants?
The courts have ruled that the federal government has a clear and
binding obligation to accept this waste or to compensate facilities for
failure to take this waste. How does the Administration plan on
handling the government's nuclear waste storage liabilities if Yucca
Mountain is abandoned? Will the government provide alternative storage
facilities? If so, where? What is the projected cost of failing to meet
the government's liabilities or to fund alternative storage facility
arrangements?
Does the Administration support the construction of new civilian
nuclear power plants? If so, how many new plants are projected to be
built during the next 10 years under the Administration's policies?
If the Nuclear Regulatory Commission grants a license to the
Department of Energy to build the Yucca Mountain facility, will the
Administration request the necessary funding to complete the project?
response
The Administration does not believe Yucca Mountain is a workable
option. The Department is proceeding with the licensing process to
provide insights to future licensing proceedings regardless of the
future nuclear waste disposition alternative. All Departmental efforts
for the Yucca Mountain repository that do not directly support this
licensing effort, such as further facility design and detailed
engineering, are being terminated, with DOE's focus solely on the
licensing process with the Nuclear Regulatory Commission (NRC). The
Administration understands that nuclear power is an important part of
our energy mix and intends to devise a policy using the best available
science to address this issue. The steps to revisit the direction the
nation should take regarding the long-term disposal of the nation's
spent nuclear fuel and high-level waste do not impact efforts to build
additional civilian nuclear plants.
The government continues to have a binding contractual obligation
to accept the Nation's commercial spent nuclear fuel and high-level
waste. This continuing obligation will certainly be among the issues
raised during efforts to develop a new strategy for nuclear waste,
which may include new alternative storage facilities or technologies.
18. social security trust fund projections
Last year, the actuaries projected Social Security would run a cash
deficit in 2017. Does the budget assume that Social Security will run a
cash deficit earlier? Based on the budget's projections, does the date
Social Security becomes insolvent change? What are Social Security's
unfunded obligations (75 year and infinite horizon) under the budget's
assumptions?
response
The Administration relies on the Social Security Administration's
Office of the Actuary for long-range Social Security solvency
projections. The intermediate projections in the 2008 Report of the
Board of Trustees of the Social Security Trust Funds have the Social
Security cost rate declining slightly in 2008 and then increasing up to
the 2007 level within the next two years. It would then begin to
increase rapidly and first exceed the income rate in 2017, producing
cash flow deficits thereafter. Cash-flow deficits are projected to be
less than trust fund interest earnings until 2027. Redemption of trust
fund assets will allow continuation of full benefit payments on a
timely basis until 2041, when the trust funds will become exhausted.
The actuarial imbalance over the 75-year valuation period was 1.7
percent of taxable payroll or 0.6 percent of GDP as of January 1, 2008.
There is uncertainty around these estimates, and the 2008 Trustees
Report presents confidence intervals for the point estimates above
based on a stochastic analysis of key variables. The projected
actuarial balance under intermediate assumptions over 75 years is -1.7
percent of taxable payroll, and the 95 percent confidence interval
based on the stochastic analysis is between -3.52 percent and -0.28
percent of taxable payroll. The projected date when cash deficits begin
is 2017, and a 95 percent confidence interval under the stochastic
analysis is from 2013 to 2021. Similarly, the 95 percent confidence
interval for the date of trust fund exhaustion (2041 under intermediate
estimates) is from 2033 to 2070. The 2009 Trustees Report, which is due
out later in the spring, will reflect updated economic assumptions. The
new report will project the cash flows and the actuarial balance of the
Trust Funds over the next 75 years.
19. medicare trust fund projections
How much of a cash deficit does the Hospital Insurance Fund (Part A
of Medicare) run in 2009? The actuaries projected insolvency by 2019
for Part A. How do the budget's assumptions affect this insolvency
date? Does the CMS actuary concur with these insolvency estimates? What
is Medicare's combined unfunded obligations under the budget's
assumptions (75 year and infinite horizon)?
response
The official projection of the status of the Hospital Insurance
(HI) Trust Fund is provided every spring in the Medicare Trustees'
Report. The Centers for Medicare and Medicaid Services actuaries
contribute to this report and attest to the actuarial soundness of its
projections. For the 2008 report, the Trustees projected that the HI
Trust Fund would be exhausted by 2019 under intermediate assumptions.
The Trustees projected a 75-year actuarial imbalance of about 1.6
percent of GDP for the HI Trust Fund. Put another way, payments from
the Fund would have to be reduced or the income increased in an amount
equivalent to 3.54 percent of taxable payroll to keep the fund solvent
over the 75-year projection. The Trustees noted in the Report that,
because Medicare Parts B and D have automatic general revenue financing
provisions, there is no actuarial imbalance for these parts of the
program, although the general revenue financing represents a draw on
other Federal budget resources.
Total Medicare expenditures are expected to grow from 3.2 percent
of GDP in 2007 to 10.8 percent of GDP in 2082 under the Trustees'
intermediate assumptions. The Trustees will be producing the 2009
report shortly, which will have updated projections on the 2009 HI
trust fund cash flows and other information on program financing. The
proposals in the President's Budget are estimated to extend the
solvency of the HI Trust Fund by about two years.
20. data for major trust funds
Please provide data for major trust funds traditionally provided by
the analytical perspectives volume, including the Social Security trust
funds, Medicare trust funds, highway and transit funds, and airport
funds (similar to table 22-4).
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. The full details of the Budget are under development, and
information on government trust funds (including information similar to
what was published last year in Analytical Perspectives Table 22-4)
will be provided with the full President's Budget.
21. aviation taxes and fees and 25% paygo offset
The 25% revenue offset rule applies to aviation excise taxes. Does
it apply to the budget's proposed aviation fees? If not, please provide
estimates of gross baseline revenues for aviation taxes, net revenues
(with 25% offset), and the fee collections from the budget's new fee.
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. The full details of the Budget are under development, and
information on aviation taxes and fees will be provided as part of the
full Budget transmittal.
22. data on gross obligations
Please provide data for gross and net outlays to the public that
are traditionally provided in the analytical perspectives volume.
response
As discussed in the Analytical Perspectives chapter, ``Outlays to
the Public, Net and Gross,'' accompanying the FY 2009 Budget, the data
by agency are imprecise estimates of each agency's transactions with
the public, and the level of imprecision varies by agency. These data
are not exact because they include payments by each agency to other
agencies, net of collections of payments received from other agencies.
These payments and collections between agencies net to zero at the
total Government level, but not at the individual agency level. We
would, therefore, caution against using the data, except at the
government-wide level.
23. data on current and proposed user charges
Please provide data on current user charges and fees and proposed
new or increased user charges that are traditionally provided in the
analytical perspectives volume.
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. The full details of the Budget are under development, and
information on new user charges and increases in existing user charges
that the Administration is proposing will be provided with that
transmittal.
24. funding levels for overseas contingency operations
Please provide BA and outlay levels for FY 2008-2019 for the BEA
baseline, current policy baseline, and the budget's proposed levels.
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. The full details of the Budget are under development, and
information on funding levels for overseas contingency operations (OCO)
will be provided as part of that transmittal.
However, the FY 2010 overview provides information on the detail
being sought. The outlay levels for 2009 through 2019 for the BEA
Baseline and the Current Policy Baseline can be found on Table S-5 on
page 121 on the lines identified as such. The policy outlay level can
be constructed by adding the delta found on Table S-2 on page 115. The
policy BA levels are provided through 2019 on Table S-7 on page 131.
Although only the levels through 2014 are displayed, the footnote
explains that $50 billion is the placeholder for 2011 and beyond. The
Current Policy BA level can be calculated by adding the BA delta for
OCO funding found at the bottom of Table S-2 on page 116.
25. data on non-emergency outyear ba by agency
Please provide non-emergency out-year levels (FY 2015-2019) by
agency.
response
The FY 2010 Budget transmitted to the Congress on February 26 was
an overview. The full details of the Budget are under development, and
information on agency totals for 2015 through 2019 will be provided as
part of that transmittal.
26. federal agency energy savings
The budget shows $16.3 billion in savings for reduced energy
consumption in federal buildings. How much will the energy efficiency
investments that will produce these savings cost, and how does the
Administration plan on verifying the actual savings achieved?
response
The budget item for Function 920 of $16.3 billion includes, but is
not limited to, reduced energy consumption in federal buildings. The
Recovery Act contains more than $11 billion for modernizations, new
construction, and/or repair and restoration of Federal buildings, with
a focus on high-performance green federal buildings and energy
efficiency measures, and billions of dollars more for other investments
in Federal facilities and the purchase of advanced vehicle fleets. We
expect to agencies to track these investments and their energy savings
through the mechanisms agencies currently use to track energy
management investments and performance under Executive Order 13423 and
Recovery.gov.
Additional information on Federal energy efficiency investments and
performance is available on the website of the Department of Energy's
Federal Energy Management Program: http://www1.eere.energy.gov/femp/
regulations/facility--reports.html.
27. budget transactions with fannie mae and freddie mac
The Administration appears to keep Fannie and Freddie off-budget.
Please provide data showing the transactions between the federal budget
and Fannie and Freddie for FY 2008-2019 and indicate whether these
transactions are recorded on a cash basis, a Federal Credit Reform Act
(FCRA) basis, or a TARP-modified FCRA basis.
response
The operating budgets of Fannie Mae and Freddie Mac are not
presented in the FY 2010 Budget. However, financial assistance provided
by Treasury to the GSEs is fully recorded on-budget.
The FY 2010 Budget includes the ultimate face value (liquidation
preference) of the Senior Preferred Stock Purchase Agreements with
Fannie Mae and Freddie Mac, estimated at $173 billion (displayed in
Table S-9). This includes $2 billion in preferred stock issued in 2008
when the agreements were signed, plus an estimated $171 billion in
payments to the GSEs from FY 2009 to FY 2011. This program is recorded
in the Budget on a cash basis.
The Budget also incorporates the estimated subsidy cost of Treasury
purchases of GSE mortgage-backed securities ($1.8 billion in negative
subsidy receipts through January 2009), and the estimated subsidy cost
of the GSE liquidity facility in Treasury (there has been no lending
activity to date). Both of these programs are recorded on a standard
Federal Credit Reform Act basis.
[Whereupon, at 1:44 p.m., the committee was adjourned.]