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Hearing Of The Senate Republican Budget Committee - The Concurrent Resolution On The Budget For FY 2011


Location: Washington, DC

Thank you, Senator Conrad, for those kind words and let me reciprocate by saying it's
been a pleasure to work with you and with members of your team on your side of the
aisle over the years.
It's a difficult issue, the budget of the United States, because we are charged with the
responsibility of having a fiscally responsible nation and in the past we have not been
fiscally responsible, and in the future, it doesn't look like we're going to be. I do not
underestimate your commitment, or not respect your immense commitment, to doing
something about the debt which is saddling this nation and which will unfortunately
strangle this nation if we don't do something about it. You were the one who came up
with the term, "the debt is the threat,' and it still is, and it's very accurate summation of
the problem.
On this budget, however, I'd have to say it is lacking, unfortunately. I wish it were more
aggressive on the issue of the debt, especially the out-year debt. It is, for lack of a better
word, a budget that kicks the can down the road. More spending, more deficits, more
debt, and less prosperity, inevitably, for our children as a result of that.

And why do I say that? Well, as much as you put it in a context of being a budget that
brings the deficit down, in relationship to GDP, and does better than the President's
request, in relationship to deficits as a percent of GDP, it really doesn't do a whole lot.
If you back out the AMT language, and you back out the estate tax language, what you
are left with really is a $4 billion dollar cut in foreign operations, and an adjustment to the
Pell Grant situation, which affects discretionary versus mandatory. Other than that,
there's no significant difference that I can find. And of course we've all seen what
happens with AMT, and I suspect we'll see what happens with the estate tax, when you
get past the two years. You're simply not going to find it's paid for, and therefore these
numbers will not close, as a result of that action, in the way that you're hoping that they

Spending remains, as you mention, very, very high, historically high -- 22 percent of
GDP. Under your numbers, I suspect that it will be higher because of the influence of the
health care bill and emergency bills, which we know we're not going to get our revenues
up to that level, so we know we're going to have this deficit. And it's a structural
problem which we really need to address. I'm concerned about a lot of elements of this
For example, the Pay-Go issue. The only remaining mechanism we have is budgetary
Senate Pay-Go vis-a-vis the AMT and the doctor's fix, and now that's going to be
eliminated under this bill, so we're going to track the statutory language, and the statutory
language was specifically structured so the AMT and the doctor's fix are not addressed.
And so there are no Pay-Go requirements on those outside of the two years, for the AMT,
and the whole five years for the doctor's fix.
As I mentioned, this discretionary cut in here is simply a $4 billion cut relative to foreign
operations next year. There is an adjustment, and I respect the way you did it relative to
Pell Grants. As we know, Pell Grants were moved into the mandatory accounts by the
President. They shouldn't have been. They should have stayed on the discretionary side,
but at least you don't give the Appropriations Committee credit for that, so you reduce
the appropriated accounts by that. But you still have the $5.5 billion expenditure, so I
don't think that can be scored as a reduction.
The real issue here, when we get down to the bottom lines is this: we are on an
unsustainable path. This year, our percent of interest payments as a part of income, will
be 10 percent. In 2014, it will be about 15-20 percent, or somewhere in that range. In
2020, it will definitely be at 20 percent. Those numbers mean that our debt will be
downgraded. We're on a course to have a junk bond government. And this budget
doesn't do anything to significantly adjust that.
You can't run deficits at these levels, and expect that you aren't going to end up with the
world looking at our debt and saying, "They can't pay it back, or if they're going to pay it
back, they are going to pay a huge premium.' And the assumption in this budget is that
we're going to maintain an interest rate level which is fairly favorable to us right now.
It's favorable to us because the world economy is flat, recession is worldwide, and
therefore, we're able to sell debt at a fairly cheap price. That's not going to continue. Our
debt prices are going to go up. And the assumption here that it won't is, I think, flawed,
and it means that the numbers go up significantly as a result of that.
We know where the money is that's causing this. It's primarily on the entitlement
accounts. Regrettably, and this may be old ground but it needs to be mentioned again,
regrettably when the health care bill was passed, it took trillions of dollars that should
have been used to stabilize our debt situation and the Medicare situation, and moved
them over to create a new entitlement. And that shouldn't have happened. And it's
going to aggravate, dramatically, our capacity to address this as we move forward, either
through the Fiscal Commission, or if we do it in regular order, because it will be hard to
find the funds to straighten this out.

This bill, of course, doesn't address Social Security, because we can't as a committee, but
that is the other major entitlement account that needs to be addressed. Both Social
Security and Medicare go into negative cash flow in the term of this budget. For the last
20 years, we've used the Social Security funds and the Medicare funds to fund the
general operation of the government, rather than borrowing from the public. We can't do
that again. We can't do it this year on Social Security. We won't be able to do it next
year on Medicare. We won't be able to do it over the five-year period on a net basis.
So we're going to actually have to borrow now to fund Social Security payments. We're
going to have to borrow to pay for Medicare. And we're going to have to borrow to pay
for the general operation of the government. And that's why our debt is at such risk. And
that's why this nation is on an unsustainable path. And regrettably, this budget does not
address any of those issues in a substantive way.

On our side of the aisle, we're going to offer a series of amendments that will try to
correct that, and I'm sure they'll be roundly received with enthusiasm and energy. We'll
offer things such as the amendment from Senator Sessions, who is much more aggressive
on the freeze than this budget is; proposals on how we protect Medicare accounts;
proposals on how we affect a more aggressive way of disciplining ourselves on
emergency spending, and a whole series of proposals in this area.
We will also have, if we have time -- we'll offer it here if we're not on the floor -- a
reconciliation instruction that is real. The reconciliation instruction in this bill is
dangerous. Now I know it's not this Chairman's intention, and he's made it very clear to
me that he will protect this reconciliation instruction if he can. But you have to
remember this is a $2 billion reconciliation instruction. We did a $2 billion reconciliation
instruction last year and the Congress used it to spend $2.6 trillion. $2.6 trillion was
spent on the auspices of a $2 billion reconciliation instruction. I don't know what the $2
billion reconciliation instruction means. To me, regrettably, it means that opportunity has
been put on the table again to dramatically increase the size of the government using the
reconciliation vehicle to accomplish that. The Chairman has represented to me that that
will not occur at least in the area of cap and trade, that would be the one that would be
most logical when you look at the area in front of us, but there are other places where I

If we are going to do a reconciliation instruction, we ought to do a robust reconciliation
instruction, and it ought to have protection which we as a committee pass, and which was
accepted by the Senate two years ago, which is that any reconciliation instruction should
have no more than 20 percent of the instruction spent on new programs, so that 80
percent of any reconciliation instruction would have to go to debt reduction. And
obviously we will offer that amendment from our side again because I think it's the only
way to protect from the type of event that happened last year which so exploded the size
of the government. So I am concerned about the reconciliation instruction as much as I
give confidence to the Chairman, and I understand the Chairman's intention is not to use
it in that way. But there are other committees that will be doing the reconciling.
I do want to respect and acknowledge that the language on how the fiscal commission
reports is good language, that the Pell language, as I said, is the right way to handle the
Pell language, that the war costs are accounted for, which is very appropriate, and they
are built into the budget, and the unemployment extension, should it occur, is also
accounted for. That's good budgeting.
So we have very serious reservations, and they just come down to the bottom line. The
bottom line is very simple. (See attached chart.) This chart is off the President's budget
but as I said, the difference is how you score AMT and the estate tax in the third through
the fifth years. The gap is there. We do not close it, it continues to expand. And what's
most disturbing about this gap is that we're looking at a projected revenue which exceeds
the historic base of our revenue as a nation. Up to almost 20 percent of GDP and still the
gap grows. And so it is not a revenue issue, in a historical context. It is a spending issue.
And until we're willing to step up on the spending side of the ledger, we're absolutely
guaranteeing that we're passing onto our kids a nation which will be less prosperous and
where their standard of living will be less than ours.

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