Hearing of the Senate Budget Committee CBO Budget and Economic Outlook for 2005-2014

HEARING OF THE SENATE BUDGET COMMITTEE CBO BUDGET AND ECONOMIC OUTLOOK FOR 2005-2014

January 27, 2004 Tuesday

CHAIRED BY: SENATOR DON NICKLES (R-OK)

LOCATION: 608 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: CBO DIRECTOR DOUGLAS HOLTZ-EAKIN

SEN. MICHAEL ENZI (R-WY): (Off mike) -- particularly thank you for being here and the difficulty of your job. It always occurs to me that making these predictions is very difficult, but only when we're talking about the future. And I can see from the material that I've been through why it's easy to miss on the projections, whether you're the director of CBO or the president of the United States or one of the senators or even somebody from the House or somebody from the public. It just-so many interacting things.

I think I saw some information-well, first of all, I'd like to ask that my entire-that I have a statement that become a part of the record.

SEN. NICKLES: Certainly.

SEN. ENZI: And I noticed that CBO kind of isolated some things and said that the economy in technical put about 40 percent into the deficit, and spending increases 37 percent, and the tax cuts 23 percent. Is that a figure from --

MR. HOLTZ-EAKIN: That's an historical analysis. I mean, we've done a variety of --

SEN. ENZI: That's 2002 to 2011 was actually the baseline that you were doing that on. And I appreciate Senator Conrad's chart that shows where the bulk of this spending came from-the war, national security and then the bailouts we did, you know, to take care of the damages that were done as a result of September 11th. And I think we also had some that we did for all of the states who were having some difficulties.

And I think that you said that in your projections, you continued about an $87 billion expense through each of the years?

MR. HOLTZ-EAKIN: That's correct.

SEN. ENZI: Okay.

Now, there are a lot of things that we can't do anything about. Spending, we can, I think. The average rate of increased spending for the last six years was 6.9 percent when you take all of those things into consideration. I think that is unsustainable. We have to continually and fully support the troops in Iraq and Afghanistan and all the other places in the world. There are certain domestic priorities that we're going to have to fund. But we have still have to look at the areas of spending.

And people say, "Well, that's a pretty small part of what there is out there." But that's all that we can work with, so that's what we have to work with. And I'm reminded of that old phrase, "A billion here and a billion there, and pretty quick it runs into money." We're not very good at cutting anything. We're not even good at slightly reducing things. What we go into particularly in an election year-and this is a presidential election year so I think it might even be worse-is we go into a phase of trying to outbid each other on every program that comes along.

Now, business out there isn't given the same options that we're given. They have a revenue that they project, and they budget against that, and somehow they have to make it come out. And I've gotten to look at some of those private business budget plans and am amazed at the minute detail that they go into, making extremely small cuts but realizing that the extremely small cuts add up to something much bigger that actually helps them to balance or get close to or to follow their business plan.

And so I'm going to encourage everybody to look for ineffective programs that we can reduce. I'm not going to even suggest "eliminate," because I know that's an impossibility. There's a huge constituency out there for every program that we've developed, and those people are making some money out of the program and they will spend some money to make sure that we don't eliminate their program. But we should be able to take a look at and at least reduce some of the ones that are out there.

When we're debating our economic policies-I mentioned that from 2002 to 2011, that we had the 40-percent drop in the economy. Do you think that the tax cuts have had a positive side on the economy? It appears to be reflected in your numbers.

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SEN. ENZI: I think you also mentioned that during the year, there was a tremendous increase, at least in the third quarter. Now, that wouldn't be reflected through all of your projections; you're not allowed to do that, are you?

MR. HOLTZ-EAKIN: We did, in fact, include the information from the third quarter in our projections for the entire period. The fourth quarter data had not yet been released, and we had to project that in doing our forecast.

SEN. ENZI: I guess the point that I'm trying to make is that if we increase the gross domestic product, everything looks a lot better. Taxes probably come in a little bit higher.

So I appreciate all the effort that you put into those numbers. I recognize the difficulty of predicting, and you've been a tremendous help.

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