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Hearing of the Senate Budget Committee - CBO Budget and Economic Outlook: An Update

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Location: Washington, DC

Federal News Service

HEADLINE: HEARING OF THE SENATE BUDGET COMMITTEE
 
SUBJECT: CBO BUDGET AND ECONOMIC OUTLOOK: AN UPDATE
 
CHAIRED BY: SENATOR DON NICKLES (R-OK)
 
LOCATION: 608 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES:
 
DOUGLAS HOLTZ-EAKIN, DIRECTOR, CONGRESSIONAL BUDGET OFFICE

SEN. DEBBIE STABENOW (D-MI): Thank you, Mr. Chairman, and thank you for your presentation, Mr. Director. First, a few observations. When we look at where we're going, I would share Senator Corzine's reaction in looking at these numbers of tremendous, tremendous concern, about where we're going and if we factor in decisions that will be made by this Congress, we're looking at huge, huge budget deficits, and I know it's your job to report that, not to create it but it is of great, great concern.

And it seems to me we have two basic questions we're debating. One is how to create jobs, and one is to how to balance the budget and do deficits matter? I think it's self evident, Mr. Chairman, that we've lost 3 million private sector jobs in the last 2-and-a-half years, that's not debatable, those are real numbers, which say to me that we should be looking at a different way to create jobs. And in my state the unemployment number's going up, not down which is of deep concern to me.

And in terms of balancing the budget, I was there in '97 when we balanced the budget, I was a proud member of the House to vote for that, first time in 30 years, we're bringing deficits down which I think helped, certainly the private sector. But now we're looking at these huge deficits again and we debate, do they matter? And there's a lot of ways to spin it, but just to share with the colleagues and putting this in perspective, it might correct that the projected interest on the public debt for 2003, this year is $322 billion in my understanding. $322 billion a year, that's one year, which is almost as much as the 10 year cost of a Medicare prescription drug plan.

So in one year, we're talking about interest that's almost as much as that, it's almost 10 times what we spend on homeland security, and I'm very concerned representing the largest border crossing in Northern America in Detroit, that there has been proposals to actually cut back 30 border inspectors right now, when we have deep concern about what's happening there. And so, we're talking about one year's interest payments, costing more than 10 times our homeland security costs, and it's almost as big as the entire non-defense discretionary budget. Wouldn't you agree with me, we're looking at about $391 billion for most of homeland security, education, health care, environmental protection, basically everything non-defense, non- defense discretionary.

So, you're looking at a one year interest payment, that almost is as much as the entire non-defense discretionary budget, we could wipe that out basically and not touch this deficit. So this is a big number, this is a huge number and I am deeply concerned about where we are right now, and the amount of money that we are putting out in interest, compared to other critical needs that people have, or just balancing the budget for the future, for the 2008 number that you're talking about. And I would say one other comment, and that is when Senator Conrad spoke about the $200 billion owed in unpaid taxes by people who are not following the law and not playing by the rules like the majority of Americans, that's basically half of the entire discretionary budget, non-defense discretionary budget, if people were just following the law.

And so, Mr. Chairman, I would hope that we would look for those numbers and find in fact, what has happened from people who are avoiding paying their taxes and following the law. That's more of a statement, I'm going to switch to—because I really—as you're reporting the numbers you're not determining the numbers. But I know people in the state of Michigan are deeply concerned about the money going out in interest that could be going out to fund their child's education, or health care, or more homeland security at the border, or police and fire folks to answer 911.

MR. HOLTZ-EAKIN: If I could clarify one thing on the numbers. The number for net interest payments by the government to debt held in the hands of the public would be $157 billion, the $322 billion is a gross interest cost which includes intra-governmental transfers among holdings within various funds.

SEN. STABENOW: Social security, it's—basically what we're looking at, no matter how you spin the numbers, is a huge amount of money going out on interest, at a time when we are struggling to meet homeland security needs, and to meet other critical needs, and if we also put down the contacts that Senator Conrad has had, and other chart that shows that 96 percent of the spending that we're talking about right now in the last two-and-a-half years has been defense, homeland security, or rebuilding the sites that were attacked on 9/11, 96 percent. So, no matter how you look at those numbers, this is a question of limiting our ability to respond to job creation efforts or to meet other needs.

I'd like though to ask one other question, on a different topic and get your response to that. There's been a growing concern about the currency, intervention of foreign countries such as Japan and China and this is of particular concern to leading manufacturing states such as mine and Michigan. These aggressive economic distortions are hurting our economy, they're hurting working families, recently I joined with several colleagues in writing to the administration about this issue. If our manufacturing sector and our economy as a whole are to thrive, we need currency markets that reflect the true value of currencies.

The manipulation—this manipulation's giving Chinese and Japanese workers unfair advantages over American workers. I'm just—I'm disappointed that Treasury Secretary Snow has been thus far while in China, unable to convince China to allow its currency to float freely.

But my question to you is, could you comment on how foreign currency manipulation stymies economic growth here in America and what impact on our own economy there might be if Japan and China stopped what I believe, is clearly an unfair trade practice?

MR. HOLTZ-EAKIN: Well, the question raises a number of very hard economic issues. From the point of the economic growth both in our projection, and more generally one of the key features of the outlook at the moment is that the United States is one of the few countries that has any substantial prospects for rapid economic growth, to the extent that there is more rapid economic growth abroad in Japan, China or elsewhere. That would have the most direct impact on our ability to both grow faster and to export more, probably outweighing the particulars of currency values, certainly in the near term.

With respect to the impacts of distorting relative prices, no economists would favor providing misleading price signals through currency intervention or otherwise, it's best if companies face the appropriate incentives to produce products and consumers face the appropriate incentives to purchase them. The issues—the degree to which empirically it's been a successful strategy on a sustained basis actually intervening currency markets, and there's a great dispute about that among economists.

Finally, with respect to China, magnitudes matter, and at this point while the flow of Chinese goods has increased in recent years, it still represents—manufacturing imports from China represent about 2 percent of U.S. manufacturers shipments, so the degree that we would quantitatively see dramatic differences in manufacturing a broader economic growth from that particular quarter is open to question.

SEN. STABENOW: Well, they're growing about 8 percent a year, and so when you look at what's happening with China --

MR. HOLTZ-EAKIN: It's certainly grown rapidly in recent years.

SEN. STABENOW: Absolutely, thank you.

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