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First, the January 2001 projection was for a $313 billion surplus. The legislative changes and I will just package them into four items-tax law-by that, I mean an actual tax change that reduced taxes-and my number is $38 billion for the year that we are in, for the year that everybody is complaining about and concerned about. So the tax impact in that year was $38 billion. Is that correct or close to correct?
Mr. CRIPPEN. I believe so, yes.
Senator DOMENICI. Then, we had a defense appropriation and a non-defense appropriation, which were $33 billion and $11 billion, respectively.
Mr. CRIPPEN. Right.
Senator DOMENICI. Then, we got the giant of all giants, which we had nothing to do with, which the American people have kind of rightly understood, as I read what they are saying in the polls, and I would call that "recession," but let us be more specific and say "economic changes and technical changes." And I get two very giant numbers there -$148 billion and $94 billion.
Let me say, then, that 100 percent of the changes amounted to the following. The changes in the tax law by a tax cut measure were 12 percent. And I would just like to repeat that for those who keep saying that it is the tax cut that affected the reduction in our surplus-for the year that we are in, it was $38 billion, or a 12 percent impact.
Then, in the appropriated accounts, the defense appropriations and non-defense combined were $44 billion, which my number says 14 percent, Director Crippen.
And then, if I take those two giant ones that came with the recession, the so-called economic changes which you have explained in numbers went from 3-plus in growth to negative growth.
Mr. CRIPPEN. Yes.
Senator DOMENICI. That total number there is $148 billion plus $94 billion, so that is $242 billion.
Now let us just take those in percentages so everybody will get it, and you see if you think these are right. The total changes in the surplus were as follows: 12 percent from the tax law changes, that is, tax cuts; 14 percent from increased appropriations, that is, we spent more money on both defense and non-defense, and that number is 14 percent. So, we have 12 and 14. And then, the big ticket item that indeed changed everything, and that is the question of how long will it last-that is, how long before we get out of a recession-and that total was 72 percent of the reduction or diminution in the surplus.
Are we close to right, Mr. Director?
Mr. CRIPPEN. Yes, your numbers are right on.
Senator DOMENICI. OK. That means that the projections will yield a $21 billion negative, in the red, under these projections and these events that have occurred and that are rather easy to project we are not going to miss these very far. Is that pretty close to right, that last statement?
Mr. CRIPPEN. I hesitate to say we are not going to miss them by very far-I would like to think that is right, yes.
Changes in CBO's Baseline Projections of the Surplus Since January 2001
Senator DOMENICI. All right. I did this and did it slow. I think we will carry around a little chart so that when people give their speeches and say the Republican tax cut is what caused the recession and destroyed the surplus, I would like to put that up and each time say, well, what was it that brought the surplus to a negative number? I can go to these and say that as of this date, the neutral, independent body, the Congressional Budget office saysand right off, I want to repeat again, changes in the economy-that means you predicted 3.4 percent growth, but it turned out there was a negative growth, it got into a recession-and that one and the things that go with it were 72 percent of the loss of this surplus.
Now, there are people who really genuinely think we could have avoided that. I hear our Chairman say it, and I want to say that I look forward to working with him. But I really have seen nobody put forth a plan that would say that if we had followed this plan, we would never have had this problem.
Look, we had 10 years without a recession, and most people assumed we would have one at some time. I think there were a few of us-and I will put myself at the front of the line-who actually thought, Dr. Crippen-and in those moments, I did not call you and ask you to rid my brain of such a stupid thought-but I actually used to think that maybe we would not have the typical American downturn, and maybe it was gone forever-but I never said it publicly; whenever I said it, I said, of course, that is a pipedream, and it will come sooner or later. It came.
Now let me ask four or five specific questions. One, just for background, in the most recent budget resolution, the one prepared last year by the Republicans, we added $73.5 billion for agriculture.
That was on top of a current policy agriculture baseline that totaled $96.5 billion. Thus, the conjunction with the existing baseline at that time, the aggregate support totaled $170 billion over 10 years. Am I right so far?
Mr. CRIPPEN. So far.
Senator DOMENICI. Question: What is the total amount of your most recent agriculture baseline?
Mr. CRIPPEN. It is very close to those numbers, at about $100 billion.
Senator DOMENICI, OK. And Director Crippen, using the most recent baseline, what would be the cost of the current pending farm bill, Senate Bill 1731, that Majority Leader Daschle and Senators Harkin and Conrad have proposed to the Senate?
Mr. CRIPPEN. Senator, we have not priced the bill yet against the new baseline. We are, as you know, as of today just finalizing that baseline. I would guess, given the outlook for commodity prices, that it may well increase a little over what we said before, but that is only a guess.
Senator DOMENICI, OK. Now, Director Crippen, with the higher total cost of agriculture, having that in mind, and lowered budget surpluses over the next 10 years, what would be the total Medicare and Social Security dollars spent should 1731 pass the Senate?
Mr. CRIPPEN. I would like to avoid that question, but I am sure you will not let me. The
Senator DOMENICI, Fine. You can avoid it.
Mr. CRIPPEN [continuing]. No, no. It is impossible to tell in some ways. You cannot trace dollars. They are all fungible. The point is that we are going to have deficits, so whatever surpluses exist in those trust funds will effectively be spent for something.
Senator DOMENICI, That answer is good enough for me. It just means that whatever we attempt to apply it to directly, we will have difficulty proving that it came out of Medicare or Social Security, and I think that is what you are saying.
Congress enacted a $40 billion emergency supplemental to respond to the terrorist attacks. Of that, $20 billion counted as budget authority in 2001; the other $20 billion counted as budget authority in 2002, How does CBO treat the $20 billion in 2002 emergency appropriations in this baseline that we are speaking to?
Mr. CRIPPEN. In this baseline, Senator, we add the $20 billion, all of it, into the baseline and then inflate it for the future, just as we do other budget authority.
Senator DOMENICI. All right.
On railroad retirement, if there were not directed scorekeeping— and the Chairman and 1 voted not to direct the scorekeeping, not to tell them how to count it if CBO had done scored the bill in the typical manner instead of a manner that worked in behalf of the bill, what would that have cost the budget baseline this year? Mr. CRIPPEN. It would have increased the deficit by about $15 billion.
Senator DOMENICI. So for those of us who said that, including the Chairman, we were correct on the floor when we said that.
Mr. CRIPPEN, Oh, absolutely. You agreed with us, so you could not help but be correct.
Senator DOMENICI. OK. I have one on Medicare and Social Security, but I will save it for another time. Thank you, I have nothing further.
Chairman CONRAD. Can I just followup on the point that Senator Domenici made? The former Chairman is exactly right with respect to this year's effect of the tax cut, and I pointed that out in my statement. But I think we also have to look at the 10 years, and the 10-year effect is this. The biggest impact in the reduction of the surplus over the 10 years is the tax cut and the associated interest cost. The next biggest is the economic changes, as pointed out in the CBO analysis. That is 23 percent. The next biggest is the legislation, largely the spending that was passed as a result of the attack on the United States on September 11. And the fourth biggest is the technical changes.
But in fairness, I think it is absolutely correct to say that for this year, the biggest impact, the biggest reason, is the recession; but over the 10 years, the biggest reason is the tax cut and the associated interest costs.
Senator DOMENICI. Senator Nelson, would you yield for 30 seconds?
Senator NELSON. Of course.
Senator DOMENICI. Let me state for the record something that I did not say. We have heard a lot of negative talk because we have gone from a 330 surplus in this period of time, with the recession and other things, to negative numbers. Frankly, I would not want to let this event pass us by without saying that this is one Senator who has the greatest confidence in the American economy. We are besieged at this point by many things out of our control, not the least of which is a world economy led by Japan, and they are all taking a nosedive. It is very hard for us to stay positive in terms of numbers with those kinds of things. But I do believe that it is just a matter of time that this giant machine will come back to life and lead the world again. I am hopeful that we will be on the right track so that we do not impede that growth by our actions, and that means that we mean a stimulus package. The Chairman and I agree on that. We surely think that somebody ought to be looking at it in reality from the standpoint of doing some good-and I hope it is not political; I hope it is for doing some good.
Chairman CONRAD. You bet.
Senator NELSON. Thank you, Mr. Chairman.
In Florida, we have an expression: “There is more than one way to skin a cat."
Senator SARBANES. We have that expression in Maryland, too. Senator NELSON. I am glad to hear that. It is an American expression.
Senator DOMENICI. Ours is a rabbit.
Senator NELSON. You, Senator Domenici, have skinned the cat showing the most favorable light in the point that you are trying to make with regard to the first year, that the tax cut has only a minimal effect on changing a revenue surplus situation to a deficit situation.
The Chairman has pointed out that over the decade-long period, the tax cut has an even greater effect, and we are still talking about whether we use the tax numbers that the Chairman is using plus the additional debt service as a result of the tax cut, or whether you just take the straight tax cut and you lump the whole debt service in your numbers later on as a result of tax cut and spending increases.
The fact is that the tax cut is getting awfully close, as I read your testimony, to what we said earlier this year in this committee, that this was not going to be what it was being sold as, as a tax cut of $1.35 trillion over 10 years; but instead was going to be closer to a $2 trillion tax cut over 10 years given the fact that in the 10th year, the tax cut evaporates, and obviously, a future Congress is not going to allow that to happen, but a future Congress is going to keep that tax cut in place in the 10th year.
So, looking at your figures and given the fact that in response to Senator Stabenow, you said that if the tax cut were continued for the 10th year like it is for years one through nine, there would be an additional deficit result of several hundred billion. That is what you said, is it not, Dr. Crippen?
Mr. CRIPPEN. For the two years, that is right.
Senator NELSON. OK. Then, if you take the Chairman's numbers and your numbers that the tax cut is worth $1.275 billion, and if you add the Chairman's increased debt service as a result-the Chairman's figure is about $389 billion-you are getting a tax cut in the range, rounded, of about $1.7 trillion-specifically, $1.683 trillion.
Mr. CRIPPEN. I certainly cannot take exception to your total. I would say one thing only, and that is that we have changed the 10year period, obviously, from when we were talking about 1.2 trillion or 1.3 trillion last year to whatever we are talking about now; we have added a very expensive year or a big number year and dropped a small number year.
Second, while it is certainly true that these actions-reduced revenues and increased spending-will increase debt-service costs, I think it is not fair to conclude that that is a tax cut. That is to say, the effect of the legislation will be to reduce revenues and increase interest costs-that is certainly true-but I think that that interest cost is not going to anyone who is receiving a lower tax bill. Am I making any sense?
Senator NELSON. Yes, you make sense, but it is a consequence of lessened revenue, so when we are looking at the question of surplus or deficit, it is a consequence of lessened revenue.
Mr. CRIPPEN. Absolutely.
Senator NELSON. So if the Chairman's figures are correct, somewhere around $1.6 to $1.7 trillion of revenue consequence, and then-a future Congress is not going to let the tax cut evaporate in the 10th year; it is going to continue it-and you said that that is worth several hundred billion dollars' worth in the 10th year, then, Mr. Chairman, you are right at $2 trillion, which is what we said instead of it being $1.35 trillion, you are going to use up the surplus because the tax cut in effect is going to be about $2 trillion over 10 years.