CONCURRENT RESOLUTION ON THE BUDGET FISCAL YEAR 2012

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by  Committee on the Budget

S. HRG. 112–498
CONCURRENT RESOLUTION ON THE
BUDGET FISCAL YEAR 2012
HEARINGS
BEFORETHE
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED TWELTH CONGRESS
FIRST SESSION
January 7, 2011–THE U.S. ECONOMIC OUTLOOK: CHALLENGES FOR
MONETARY AND FISCAL POLICY
January 27, 2011–THE BUDGET AND ECONOMIC OUTLOOK: FISCAL
YEARS 2011–2021
February 1, 2011–THE U.S. ECONOMIC OUTLOOK
February 2, 2011–TAX REFORM: A NECESSARY COMPONENT FOR
RESTORING FISCAL RESPONSIBILITY
February 3, 2011–CHALLENGES FOR THE U.S. ECONOMIC RECOVERY
February 15, 2011–THE PRESIDENT’S FISCAL YEAR 2012 BUDGET
PROPOSAL
February 17, 2011–THE PRESIDENT’S FISCAL YEAR 2012 BUDGET AND
REVENUE PROPOSALS
March 1, 2011 09THE PRESIDENT’S FISCAL YEAR 2012 EDUCATION
BUDGET
March 2, 2011 09THE PRESIDENT’S FISCAL YEAR 2012 BUDGET
REQUEST FOR THE DEPARTMENT OF ENERGY
March 3, 2011–THE PRESIDENT’S FISCAL YEAR 2012 BUDGET
REQUEST FOR THE U.S. DEPARMENT OF TRANSPORTATION
March 8, 2011–THE REPORT OF THE NATIONAL COMMISSION ON
FISCAL RESPONSIBILTY AND REFORM
March 9, 2011–DISTRIBUTION AND EFFICIENCY OF SPENDING IN
THE TAX CODE
March 10, 2011–THE PRESIDENT’S FISCAL YEAR 2012 DEFENSE AND
INTERNATIONAL AFFAIRS BUDGET
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S. HRG. 112–498
CONCURRENT RESOLUTION ON THE
BUDGET FISCAL YEAR 2012
HEARINGS
BEFORETHE
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED TWELTH CONGRESS
FIRST SESSION
January 7, 2011–THE U.S. ECONOMIC OUTLOOK: CHALLENGES FOR
MONETARY AND FISCAL POLICY
January 27, 2011–THE BUDGET AND ECONOMIC OUTLOOK: FISCAL
YEARS 2011–2021
February 1, 2011–THE U.S. ECONOMIC OUTLOOK
February 2, 2011–TAX REFORM: A NECESSARY COMPONENT FOR
RESTORING FISCAL RESPONSIBILITY
February 3, 2011–CHALLENGES FOR THE U.S. ECONOMIC RECOVERY
February 15, 2011–THE PRESIDENT’S FISCAL YEAR 2012 BUDGET
PROPOSAL
February 17, 2011–THE PRESIDENT’S FISCAL YEAR 2012 BUDGET AND
REVENUE PROPOSALS
March 1, 2011–THE PRESIDENT’S FISCAL YEAR 2012 EDUCATION
BUDGET
March 2, 2011–THE PRESIDENT’S FISCAL YEAR 2012 BUDGET
REQUEST FOR THE DEPARTMENT OF ENERGY
March 3, 2011–THE PRESIDENT’S FISCAL YEAR 2012 BUDGET
REQUEST FOR THE U.S. DEPARMENT OF TRANSPORTATION
March 8, 2011–THE REPORT OF THE NATIONAL COMMISSION ON
FISCAL RESPONSIBILTY AND REFORM
March 9, 2011–DISTRIBUTION AND EFFICIENCY OF SPENDING IN
THE TAX CODE
March 10, 2011–THE PRESIDENT’S FISCAL YEAR 2012 DEFENSE AND
INTERNATIONAL AFFAIRS BUDGET
U.S. GOVERNMENT PRINTING OFFICE
68–184pdf WASHINGTON : 2011
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Printed for the use of the Committee on the Budget
COMMITTEE ON THE BUDGET
KENT CONRAD, NORTH DAKOTA, CHAIRMAN
PATTY MURRAY, WASHINGTON JEFF SESSIONS, ALABAMA
RON WYDEN, OREGON CHARLES E. GRASSLEY, IOWA
BILL NELSON, FLORIDA MICHAEL ENZI, WYOMING
DEBBIE STABENOW, MICHIGAN MIKE CRAPO, IDAHO
BENJAMIN CARDIN, MARYLAND JOHN CORNYN, TEXAS
BERNARD SANDERS, VERMONT LINDSEY O. GRAHAM, SOUTH CAROLINA
SHELDON WHITEHOUSE, RHODE ISLAND JOHN THUNE, SOUTH DAKOTA
MARK R. WARNER, VIRGINIA ROB PORTMAN, OHIO
JEFF MERKLEY, OREGON PAT TOOMEY, PENNSYLVANIA
MARK BEGICH, ALASKA RON JOHNSON, WISCONSIN
CHISTOPHER A. COONS, DELAWARE KELLY AYOTTE, NEW HAMPSHIRE
MARY ANN NAYLOR, Majority Staff Director
MARCUS PEACOCK, Minority Staff Director
(II)
C O N T E N T S
HEARINGS
Page
January 7, 2011–The U.S. Economic Outlook: Challenges for Monetary and
Fiscal Policy .......................................................................................................... 1
January 27, 2011–The Budget and Economic Outlook: Fiscal Years 2011–
2021 ....................................................................................................................... 83
February 1, 2011–The U.S. Economic Outlook ..................................................... 157
February 2, 2011–Tax Reform: A Necessary Component for Restoring Fiscal
Responsibility ....................................................................................................... 265
February 3, 2011–Challenges for the U.S. Economic Recovery ........................... 363
February 15, 2011–The President’s Fiscal Year 2012 Budget Proposal ............. 461
February 17, 2011–The President’s Fiscal Year 2012 Budget and Revenue
Proposals ............................................................................................................... 639
March 1, 2011–The President’s Fiscal Year 2012 Education Budget .................. 719
March 2, 2011–The President’s Fiscal Year 2012 Budget Request for the
Department of Energy ......................................................................................... 831
March 3, 2011–The President’s Fiscal Year 2012 Budget Request for the
U.S. Department of Transportation .................................................................... 949
March 8, 2011–The Report of the National Commission on Fiscal Responsi-
bility and Reform ................................................................................................. 1005
March 9, 2011–Distribution and Efficiency of Spending in the Tax Code .......... 1075
March 10, 2011–The President’s Fiscal Year 2012 Defense and International
Affairs Budget ...................................................................................................... 1173
STATEMENTS BY COMMITTEE MEMBERS
Chairman Conrad....... 1, 83, 157, 265, 363, 461, 639, 719, 831, 949, 1005, 1075, 1173
Ranking Member Sessions..........11, 117, 169, 274, 398, 468, 648, 696, 728, 838, 895,
958, 993, 1013, 1084, 1183
Senator Crapo .......................................................................................................... 91
Senator Thune......................................................................................................353, 995
Senator Wyden ......................................................................................................... 998
WITNESSES
Roseanne Altshuler, PhD., Professor, Rutgers University...............................303, 306
Honorable Ben S. Bernanke, Chairman, Board of Governors of the Federal
Reserve System.....................................................................................................14, 20
Richard Berner, PhD., Managing Director, Co-Head of Global Economics,
and Chief U.S. Economist, Morgan Stanley...................................................171, 175
Honorable Erskine Bowles, Co-Chair, National Commission on Fiscal Respon-
sibility and Reform ............................................................................................... 1037
Honorable Steven Chu, PhD., Secretary, U.S. Department of Energy............841, 844
Honorable Arne Duncan, Secretary, U.S. Department of Education: Accom-
panied by Thomas Skelly, Acting Chief Financial Officer, U.S. Department
of Education..............................................................................................733, 738, 766
Chris Edwards, Director of Tax Policy Studies, CATO Institute.....................430, 433
Douglas W. Elmendorf, Director, Congressional Budget Office...........................93, 97
Honorable Timothy F. Geithner, Secretary, U.S. Department of the Treas-
ury......................................................................................................................650, 653
Robert Greenstein, Executive Director, Center on Budget and Policy Prior-
ities................................................................................................................1087, 1090
Scott Hodge, President, Tax Foundation........................................................1110, 1113
iii
Page
Simon Johnson, Senior Fellow, Peterson Institute for Internation Econoics
and Roanld A. Kurtz Proffesor of Entrepreneurship, Sloan School of
Manangement, Massachusetts Institute of Technology................................183, 186
Honorable Ray LaHood, Secretary, U.S. Department of Transportation........959, 961
Honorable Jacob J. Lew, Director, U.S. Office of Management and Budg-
et........................................................................................................................ 470, 474
Lawrence B. Lindsey, PhD., Professor, Rutgers University............................. 315, 318
Honorable William J. Lynn, III, Deputy Secretary of Deense, U.S. Depart-
ment of Defense............................................................................................1193, 1196
David Malpass, President, Encima Global......................................................... 194, 201
Donald B. Marron, PhD., Director, Urban-Brookings Tax Policy Center, and
Visiting Professor, Georgetown Public Policy Institute.................................290, 292
Robert S. McIntyre, Director, Citizens for Tax Justice................................. 1100, 1102
Honorable Thomas R. Nides, Deputy Secretary of State for Management
and Resources, U.S. Department of State..................................................1185, 1188
Raymond C. Scheppah, Executive Director, National Governors Associa-
tion.....................................................................................................................416, 420
Honorable Alan Simpson, Co-Chair, National Commission on Fiscal Responsi-
bility and Reform.......................................................................................... 1015, 1019
C. Eugene Steuerle, PhD., Institute Fellow and Richard B. Fisher Chair,
The Urban Institute.........................................................................................276, 278
Till Von Wachter, Phd., Associate Professor of Economics, Columbia Univer-
sity..................................................................................................................... 398, 402
Mark Zandi, PhD., Chief Economist, Moody’s Analytics..................................372, 378
QUESTIONS AND ANSWERS
Questions and Answers.........63, 148, 259, 357, 528, 696, 813, 895, 1001, 1069, 1162,
1226
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THE U.S. ECONOMIC OUTLOOK: CHALLENGES
FOR MONETARY AND FISCAL POLICY
FRIDAY, JANUARY 7, 2011
UNITED STATES SENATE,
COMMITTEE ON THE BUDGET,
Washington, D.C.
The Committee met, pursuant to notice, at 9:31 a.m., in Room
SH–216, Hart Senate Office Building, Hon. Kent Conrad, Chair-
man of the Committee, presiding.
Present: Senators Conrad, Wyden, Stabenow, Warner, Merkley,
Manchin, Sessions, Enzi, and Cornyn.
Staff Present: Mary Ann Naylor, Majority Staff Director; and
Marcus Peacock, Minority Staff Director.
OPENING STATEMENT OF CHAIRMAN CONRAD
Chairman CONRAD. The Committee will come to order.
I want to welcome everyone to the Budget Committee this morn-
ing. I especially want to welcome Senator Sessions.
Senator Sessions has not formally been recognized as Ranking
Member of the Budget Committee, but that is just a formality. He
will be as soon as the organizing resolution is adopted, and so I in-
tend to treat Senator Sessions as the Ranking Member here today,
and I think that is the appropriate thing to do.
I very much welcome Senator Sessions as my partner on this
Committee. He has considerable knowledge of the budget and the
budget process, and I very much look forward to working with him
as we confront the significant challenges facing the country.
I also want to welcome Federal Reserve Chairman Ben Bernanke
back to the Budget Committee. This is Chairman Bernanke’s third
appearance here, and we have always benefitted by his wise coun-
sel. I believe that when the history of this period is written, you
will be one of the heroes of the piece in averting what could have
been a financial collapse.
I was in the meetings with the former Secretary of the Treasury
and with you when you warned us of how serious the financial cir-
cumstances were in late 2008. Those moments will be forever riv-
eted in my memory, I am sure in yours as well. I personally believe
you and then Secretary of the Treasury Hank Paulson, followed by
this administration, have taken steps that were critically important
to averting a financial collapse, not only here but globally as well.
Still, our Nation faces very serious challenges. We know we are
on an unsustainable course with the budget, borrowing about 40
cents of every dollar that we spend. Clearly, that cannot continue
for very long.
(1)
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On the other hand, we also face a fragile economy. With one in
every six workers in this country either unemployed or under-
employed, that requires our immediate attention as well. My own
belief is that we need to put in place a plan this year to get our
fiscal house back in order, and that plan needs to be phased in over
a period of time along the lines of what the Fiscal Commission pro-
posed.
I think we also understand where we have come. This has been
an extraordinary period in the country’s economic history. I would
like to just go over a brief history of what we have experienced.
I personally believe the Federal response did avert what could
have been a financial collapse. I believe it was that serious. In the
meetings that I was in with then Secretary of the Treasury Hank
Paulson and you, Mr. Chairman, the risks were very clear. We
have seen some progress made—in fact, important progress made.
Private sector job growth has returned, although not as much as
we would have liked. We heard the numbers this morning, some-
thing over 100,000 jobs created in the private sector, a dramatic
improvement of where we were back in January of 2009 when we
were losing 800,000 private sector jobs a month. Now we have had
12 consecutive months of private sector job growth.
Now, in economic growth the pattern is the same, although actu-
ally somewhat better. In the fourth quarter of 2008, the economy
actually contracted, actually shrunk by 6.8 percent. More recently,
in the third quarter of 2010, we saw a positive growth of 2.6 per-
cent—again, a dramatic improvement, while not as strong as we
would hope. We have now had five consecutive quarters of growth.
3
We have also seen a dramatic rebound in the stock market. After
falling to a low of just about 6,500 in March of 2009, the Dow is
now over 11,500. And two of the most respected economists in the
country—Mark Zandi, who was a consultant to the McCain Cam-
paign, and Alan Blinder, the former Deputy Chairman of the Fed-
eral Reserve—did an analysis that measured the impact of Federal
actions—the TARP and stimulus—and also included the Fed’s mon-
etary policy actions, and they concluded as follows: ‘‘We find that
its effects on real GDP, jobs, and inflation are huge and probably
averted what could have been called ‘Great Depression 2.0.’ When
all is said and done, the financial and fiscal policies will have cost
4
taxpayers a substantial sum, but not nearly as much as most had
feared and not nearly as much as if policymakers had not acted at
all. If the comprehensive policy responses saved the economy from
another depression, as we estimate, they were well worth the cost.’’