The Bush Tax Cut and The Democratic Plan Had a Balanced Approach So that is where we are. Obviously this leaves us with a very substantial challenge. And I think we are up to that. We certainly have dealt with fiscal difficulties before, and we have got somebody here as the ranking member of this committee who has deep experience and who we will be looking to for his wise advice as we proceed. Senator Domenici. OPENING STATEMENT OF SENATOR DOMENICI Senator DOMENICI. Well, thank you very much, Mr. Chairman and fellow Senators. I think it is a testimonial to the U.S. Senate that so many Senators are present today. For an opening hearing, frequently Senators don't assume that it is necessary that they be here. But I think this hearing, if we do it right, kind of sets the stage as to where and how we are going to proceed with the resources of the people of this great Nation in a very, very difficult and arduous time. Let me just tell you why I think current issues are difficult. First of all, we have at the same time, for all of us as Senators and our President, a war and a recession. There may be a few people in the U.S. Senate that think we shouldn't be in that war. I haven't heard from any yet, so I am going to assume that one thing that is very, very unique is that we are in a war. Now, either of those two events occurring in the United States give rise to some very exceptional concerns. If you are in a war, you most likely don't follow budgetary rules in terms of expenditures and the like that you would if you were not in a war. So if you are going to talk about the fact that we should not have deficits, re member that normally it is pretty difficult to conduct a war and not have some deficits. The second thing we have is a recession. I am so grateful to the people of the United States from what I see in most polls, Senator Gramm. The American people see right through the argument that our President is responsible for this recession, when an whelming percentage of the American people believe that recessions occur from time to time and we have now got one. And for all of the talk about our President being the person, the primary motivator of this because of tax cuts, we can continue to talk about it. But I think we ought to move to another subject if we want to talk about anything that is politically relevant to the American people. So the important thing is to take a good look as to where we are right now and what we ought to think about in terms of our governing responsibility. One thing I want to remind those who listened to the arguments of my good friend, the Chairman, is that he moves back and forth between 1 year and 10 years. So it would seem to me that everybody ought to understand we have to produce a 1-year budget here in terms of a binding budget. Whether we produce a 5-year one accompanying it or a 10-year one-it is my understanding the Administration is probably going to produce a 5-year budget this year. I hope that is the case. In any event, let me borrow a few words to tell you what I think is not the case. On January the 4th, the majority leader, Senator Daschle, said that "Tax cuts enacted on a bipartisan basis last year caused the surplus to disappear and made the recession worse." This is not only ridiculous, but it also sets us off on a highly partisan path when on that issue we need not have a partisan situation. The facts do not support the majority leader's position, and the American people apparently have not bought the majority leader's position. These are the comments of political, not economic, advisers. Remember that the economy is measured by quarterly rates of growth. Industrial production and other factors actually began to decline in the summer of 2000. That is before this President was in office. There was no question about it. And everybody was looking at it right smack in the face deciding to do what they could and what they should. Whatever the President wanted, he tried to do. Nonetheless, we were looking at a recession. It continued on and eventually reached a full definitional recession just a little less than 1 year ago. Then about a week ago, another Senator, Senator Kennedy, whom I consider a friend, said that "We should repeal elements of last year's tax cut law and spend the increased taxes on more government." I say to my friend, the Chairman of this committee, as we begin the process of crafting a budget for the upcoming year, if your leadership and the Democratic Caucus are going to insist on tax increases, then we will have a very, very long year in the budget trenches. We do not have a lot of time. Our legislative time is short because it is an election year. And I fear that if the majority pursues such an agenda of tax increases, then even if you could pass such a resolution out of this committee or out of the Senate, you would probably fail to get an agreement with your House Budget Committee counterparts, and we would go through a very lengthy and arduous debate, which would conclude, I believe, with no achievement at all. So I still believe in the process that we are involved in, and I still believe it is the best mechanism we have to set fiscal policy. The policy priorities before the country at this time seem very clear to me. Let me suggest that we are probably going to be engaged in a debate on priorities like we have never had before. First, we are going to have to say what is our highest priority in terms of spending money even if it is money that puts us in deficit. And I believe I will propose and I think if you propose it, you will win; if I do, I will win-that the highest priority is the war and the military needs of our country. If that has to go up anything like 9 or 10 percent or 12 percent, I believe that we will have to do that. Second, homeland defense will be the second priority, and I have no way of judging what that will cost, Mr. Chairman, but I believe the President will submit a homeland defense proposal. And so I think the Number 1 and Number 2 proposals will be set forth in that way for us. Then the third you alluded to very clearly, and that is to do something about the slow growth of the economy by passing very soon an economic stimulus package. I hope we do that and do it seriously. I am glad to hear that the majority leader has suggested that we do something and do it quickly. He wasn't in that frame of mind at the end of the first session of this Congress. Whatever, he now seems to say let's do something. What I have seen is his current proposal does not seem to me to be adequate, but maybe he has some other political strategy, Mr. Chairman, that I am not aware of that accompanies his four-point "stimulus" proposal. Nonetheless, we are going to spend in terms of our third priority on incentives to build back the American economy. There is no doubt in my mind that the fourth priority then will be the rest of government, and, frankly, I believe there will be money for some increases in the rest of government. But I do believe that we can't do everything, and we will have a significant deficit, the way I look at it, this year, this coming year, the year we are going to be budgeting. The choice is between having deficit and providing money for those priorities or trying to not have a deficit. If we choose not to have a decifit, we are not accepting those priorities that we must spend more money this coming year than we spent this year by a substantial amount and that we need an economic stimulus of a significant amount. That is how I see the set-up for this committee. I see members now on this committee that I have grown to know, even though we haven't been meeting on a regular basis because there was not anything to do. But I compliment a number of you on both sides of the aisle because you have expressed yourself with reference to the economy and how you help the economy in ways, a number of you, that I am very proud to be associated with. Clearly, on the Democrat side, there are some new Senators that are very informed and prepared on the American economy and what is the best thing to do. I know one of our new members who comes from the State of New Jersey and sits at the last seat surely understands the economy in ways that we ought to all be proud to have when a newcomer joins this committee. So, with that, I am prepared, we are prepared. We have a lot of people interested on our side in helping, sitting down and getting our work done, Mr. Chairman. I believe you when you say we have got to work and work as quickly as we can. And I think you are implicitly saying to us this is not going to be a process where anybody tries to sneak anything over on anybody. This is going to be a rather forthright one. I think we all know what the problems and the issues are, and I thank you for calling an early meeting. I also thank Mr. Crippen and his staff for preparing it, and surely from our standpoint, having been without an office for so long, Mr. Chairman, I believe it is imperative that we thank all of your staff and mine for the wonderful work that they have done in getting us here and getting us into our other offices. I notice all the staff are kind of excited, Mr. Chairman. I didn't think they loved their work so much, but they do. Maybe it is that they love their work if we do it in the right building or something. But, in any event, I think they are ready to go, and when you have all that put together, I think we have a year when we can get our job done. Thank you very much. Chairman CONRAD. I thank the Senator from New Mexico, and we will go to Mr. Crippen. I want to, before we do that, just indicate the rules of the committee, just to remind people. We will proceed based on the longstanding rules of this committee. Before the gavel, we go in seniority order. After the gavel, it is order of arrival. On our side, Senator Hollings will be first. On the Republican side, Senator Grassley will be first, followed by Senator Gramm. On our side, Senator Čorzine will follow Senator Hollings. With that, I want to again assure the ranking member, this Senator, as Chairman of the Budget Committee, has no intention of proposing a tax increase at a time of economic downturn. I don't think that would be wise. I do think it is critical that we think now about how we are going to restore the integrity of the trust funds now that we see, based on the budget plan that is in place, the law that is in place, that we are going to be taking over $1 trillion from Social Security and Medicare Trust Funds to pay for the previously enacted tax cut and for other government expenditures. With that, again, welcome, Mr. Crippen, and please proceed. STATEMENT OF DAN L. CRIPPEN, DIRECTOR, Mr. CRIPPEN. Mr. Chairman, Senator Domenici, members of the committee, I appreciate the opportunity to represent CBO this morning in presenting our current assessment of the economic and budget outlook. As you suggested, Mr. Chairman, what little I know today certainly is a product of hard work of a lot of folks, some of whom are here today as my colleagues. I might say that I am here today to reveal what appears to be the worst-kept secret in Washington, and that is probably saying something: that is, that our surplus estimates of a year ago have been, shall we say, diminished somewhat. As you said, Mr. Chairman, a year makes a lot of difference. I have heard it said that a year can be an eternity in the field of politics. This year proves it is also true in the pursuit of economics. As you are all aware, the results we present today are our current best estimate of the economics for the next 10 years and the associated budget outlook, with no change in policy; that is, no increased spending for the war on terrorism or homeland spending, homeland defense, no additional spending for farm programs, no additional reduction in taxes or other stimulus legislation beyond that already in law, no renewals of expiring tax provisions, including last year's tax cut, which is set to expire in 2010. So this, Mr. Chairman, as you know, is a policy-neutral, current-law baseline as best as we can tell it. These first two charts that Melissa will put up attempt to illustrate, both graphically and numerically, as you have seen in the testimony that we submitted, what has happened to the projected surpluses and why our projections have changed so dramatically [see Figures 1 and 2, attached]. As you said in your opening remarks, Mr. Chairman, the outlook for surpluses over the next 10 years has gone from $5.6 trillion to $1.6 trillion over the comparable period of 2002 to 2011, a reduction of $4 trillion in only a year. The primary causes of that decline, the diminished performance of the economy and the passage of legislation, vary in importance over the next 10 years. In the near term, the biggest change since last January is indeed due to the economy. Instead of the 3.4 percent real growth in gross domestic product (GDP) we forecasted a year ago, similar at the time to most other forecasters, we now expect GDP to grow by less than 1 percent this year. As a result of that change in economic circumstances and the mostly related technical adjustments associated with it, the balance for our current fiscal year will be something like $240 billion less than we forecast a year ago. |