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Walker, David M., Comptroller General of the United States
Wesbury, Brian S., Chief Economist, Griffin, Kubik, Stephens and Thompson,
Inc.

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144

Weston, Josh S., Former CEO, ADP Inc., and Co-chair, Tail to Tooth Commission, Business Executives for National Security

Wolfowitz, Paul, Deputy Secretary, United States Department of Defense

556 345

ADDITIONAL MATERIALS AND CHARTS SUBMITTED

Questions and answers-Committee members to witnesses, written:

Chairman Greenspan

116

Director Daniels

228

Secretary O'Neill

308

Secretary Thompson

422

BUDGET AND ECONOMIC OUTLOOK

WEDNESDAY, JANUARY 23, 2002

U.S. SENATE,

COMMITTEE ON THE BUDGET,

Washington, DC.

The committee met, pursuant to notice, at 10:02 a.m., in room SD-608, Dirksen Senate Office Building, Hon. Kent Conrad (chairman of the committee) presiding.

Present: Senators Conrad, Hollings, Sarbanes, Murray, Feingold, Johnson, Byrd, Nelson, Stabenow, Clinton, Corzine, Domenici, Grassley, Gramm, Snowe, Smith, Allard, and Hagel.

Staff present: Mary Ann Naylor, staff director; and Jim Horney, deputy staff director.

For the minority: G. William Hoagland, staff director; and Cheri Reidy, senior analyst for budget review/revenues and Bob Stein, chief economist.

OPENING STATEMENT OF CHAIRMAN CONRAD Chairman CONRAD. The hearing will come to order.

First, I want to thank Director Crippen for being here today. We certainly appreciate the extraordinary efforts that you and your staff have made given the shortness of time between when Congress left town and the need to reassess our fiscal condition. We appreciate very much the efforts that you have extended as well as your excellent staff.

As I look at the numbers, I'm reminded of the phrase "What a difference a year makes." It really is quite startling.

Last year, as we convened, we were told that we could expect surpluses of $5.6 trillion over the period of 2002 through 2011. Now we see that that has been dramatically reduced to $1.6 trillion, a $4 trillion deterioration in projected surpluses.

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I want to be quick to point out that you warned us very clearly of the uncertainty of those forecasts. We have the fan chart that we discussed so many times last year, which you prepared, which showed the dramatic uncertainty of any 10-year forecast. And what we now see, the red line shows the new forecast in relationship to that fan forecast, which showed the range of estimates, what might happen. And what we now see is for the next several years we are actually at the bottom of the range.

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There were some of my colleagues who told me that the $5.6 trillion of projected surpluses was understated. I remember many of my colleagues, some of them on this committee, who told me repeatedly, Oh, don't worry, there is going to be actually more money, that these forecasts are understated. Well, unfortunately, history has proved them wrong.

Many of us repeated the warnings that you gave us last year. I remember showing that chart of uncertainty over and over in this committee and on the floor. But, unfortunately, the President told us and told the American people that we could have it all. He told us that we could have a massive tax cut that he proposed, that we could have a big defense buildup, that we could save every penny of the Social Security and Medicare Trust Funds and still be able to pay down the maximum amount of our debt. Unfortunately, he was wrong, and he was wrong by a country mile.

The consequences of those mistakes are enormous for the Nation. So how did it happen? Well, the biggest reason for the disappearance of the some $4 trillion of projected surpluses was the tax cut. Our analysis of your numbers shows that some 42 percent of the reduction is from the tax cut; 23 percent are economic changes; 18 percent is other legislation, largely spending as a result of the attack on September 11th; and 17 percent, technical changes.

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So the biggest factor in the 10-year change is the tax cut. That is the tax cut itself, and, of course, the additional interest cost associated with the tax cut.

If we are to look at just this year, we see a dramatic reduction from $313 billion of projected surplus to a $21 billion deficit, a very dramatic change in our short-term circumstance. And when we look at the reasons for that reduction, it is different than the 10year analysis. The biggest reason for the reduction this year are the economic changes. They account for 44 percent of the change; 28 percent is because of technical changes, things like capital gains realizations and growth in Medicare and Medicaid spending; other legislation, largely spending associated with the attack of September 11th, is 15 percent; and the tax cut is 13 percent.

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