Hearing of House Committee on the Budget House of Representatives - Social Security: Defining the Problem

HEARING OF HOUSE COMMITTEE ON THE BUDGET HOUSE OF REPRESENTATIVES - SOCIAL SECURITY: DEFINING THE PROBLEM

February 9, 2005

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Mr. Case. Thank you, Mr. Chairman.

Gentlemen, Social Security is the big picture, and so are a number of the other issues. I am going to go a step above that and talk about something that I raised with

Mr. Bolten yesterday: debt over the long term.

What I want to engage you in is getting straight in my mind where we stand with the debt of this country. Under the budget as submitted by the President, as I understand it, the total debt of our country today is roughly $7.6 trillion; is that about right, a little bit above the $7.3 trillion it was a few months ago?

Mr. Holtz-Eakin. That presumably includes debt held in trust funds?

Mr. Case. Yes, all debt; debt subject to the debt ceiling that we have voted on a number of times, total debt. The President's budget projection, which only goes out 5 years, projects the debt is going to go to $11.1 trillion in 5 years. Now, I just want to be sure that I have got straight what I am being told by everybody.

That is that when we talk about that debt, when we talk about the President saying he wants to halve the budget deficit within 5 years, we are still talking about the accumulation of greater debt every single year; is that right? I mean we are not halving the budget, but halving the deficit. We have still got a deficit of somewhere between $200 and $300 billion a year. That is adding up, right?

Mr. Holtz-Eakin. Yes.

Mr. Case. Fueling a higher debt. That does not include, as I understand, any additional spending, because that is what it is. Spending for either outright expenditures having to do with the Iraq-Afghanistan war or whatever costs there are, short term, long term, permanent or temporary, of converting Social Security or to repair the alternative minimum tax or increased debt service for that matter. Is that your understanding?

Mr. Holtz-Eakin. We will do a complete analysis. As you know, my understanding is there is recognition in there--the potential $80 billion supplemental for 2005 but nothing past that in Iraq.

Mr. Case. Now, if we added up all of those assumptions, do you have any quarrel with the estimate by my ranking member that the total amount would be somewhere in the range of $2 trillion additional to that debt?

Mr. Holtz-Eakin. I am always loath to certify numbers on the fly, but we have done calculations similar to that in our January budget outlook, and I would be happy to work with you on that if you want me.

Mr. Case. Is that in the range?

Mr. Holtz-Eakin. Sounds about right, but I don't know the pieces.

Mr. Case. Now, let me cover the next 5 years. I have been told, and I believe, that it gets a lot worse a lot faster after that first 5 years, unless we do something now or next year or sometime in the near future. Does that generically ring true to you?

Mr. Holtz-Eakin. Oh, yes; generically these are the good times. The outyears with Medicare, Medicaid, Social Security, rising costs in the budget, are all far more daunting than what we are seeing right now.

Mr. Case. For example, that debt number of $11.1 trillion does not include the potential extension of tax cuts that under current law sunset prior to the end of that budget cycle, is that right?

Mr. Holtz-Eakin. That is true. I would add that in our 2003 long-term budget outlook, we showed paths going out to 2050 for the budget, with and without the tax cuts, and alternative scenarios.

The troubling fact is it is very unlikely that current law, fiscal policy is sustainable with or without the tax cuts over the long term, and that to attempt to maintain the levels of spending committed at the moment would be quite damaging.

Mr. Case. I guess what I am trying to get at is, OK, we have got the President somehow saying that somehow it is cool and good, and it is OK, manageable, sustainable, that we see our total Federal debt run up 60 percent in the next 5 years, an increase to 60 percent, but it is actually a lot worse than that. We can add on $2 trillion more debt unless we have a wild increase in income somehow or a $2 trillion reduction in offsetting expenses somewhere else.

We also have the potential at least of a much greater deficit arising, and debt, if we extend the reduction in revenue arising from the tax cut extension, right?

Mr. Walker. That is right.

The bottom line is that we face large and growing structural deficits due primarily to known demographic trends and rising health care costs; and it is not just on the revenue side, it is also on the spending side.

There are a number of spending items--for example, the new Medicare prescription drug bill is going to cost a tremendous amount of money. The related costs will escalate beyond the 5-year horizon.

To help let us take last year. Last year the unified budget had a deficit of $412 billion, so the Government had to borrow that. But the Government also borrowed the $151 billion Social Security surplus and the $4 billion in surpluses elsewhere.

So the ``on-budget,'' largely non-Social Security budget deficit was much bigger, and that is one reason why you have a difference between debt held by the public, trust fund debt, and total debt. When we have trust fund surpluses the Government spends it all on operating expenses and replaces the excess cash with IOUs. That affects the total number for the debt ceiling, but it is not shown as a liability on the financial statements of the U.S. Government.

Mr. Case. I am afraid my time has expired. I was just getting going. Thank you.

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