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S. HRG. 110–162. Vol. I CONCURRENT RESOLUTION ON THE BUDGET FOR FISCAL YEAR 2008 HEARINGS BEFORETHE COMMITTEE ON THE BUDGET UNITED STATES SENATE ONE HUNDRED TENTH CONGRESS FIRST SESSION January 11, 2007—THE LONG-TERM BUDGET OUTLOOK January 18, 2007—THE LONG-TERM ECONOMIC AND BUDGET CHALLENGES January 23, 2007—THE GROWING TAX GAP AND STRATEGIES FOR REDUCING IT January 25, 2007—THE CBO BUDGET AND ECONOMIC OUTLOOK January 30, 2007—DEFINING OUR LONG-TERM FISCAL CHALLENGES January 31, 2007—EXPLORING SOLUTIONS TO OUR LONG-TERM FISCAL CHALLENGES ( Volume I of II Printed for the use of the Committee on the Budget VerDate 0ct 09 2002 14:12 Oct 26, 2007 Jkt 000000 PO 00000 Frm 00001 Fmt 6011 Sfmt 6011 C:\DOCS\34649.TXT SBUD1 PsN: TISH C O N C U R R E N T R E S O L U T I O N O VN O T L H U ME EB U I D G E T F O R F I S C A L Y E A R 2 0 0 8 VerDate 0ct 09 2002 14:12 Oct 26, 2007 Jkt 000000 PO 00000 Frm 00002 Fmt 6019 Sfmt 6019 C:\DOCS\34649.TXT SBUD1 PsN: TISH S. HRG. 110–162, Vol. I CONCURRENT RESOLUTION ON THE BUDGET FOR FISCAL YEAR 2008 HEARINGS BEFORETHE COMMITTEE ON THE BUDGET UNITED STATES SENATE ONE HUNDRED TENTH CONGRESS FIRST SESSION January 11, 2007—THE LONG-TERM BUDGET OUTLOOK January 18, 2007—THE LONG-TERM ECONOMIC AND BUDGET CHALLENGES January 23, 2007—THE GROWING TAX GAP AND STRATEGIES FOR REDUCING IT January 25, 2007—THE CBO BUDGET AND ECONOMIC OUTLOOK January 30, 2007—DEFINING OUR LONG-TERM FISCAL CHALLENGES January 31, 2007—EXPLORING SOLUTIONS TO OUR LONG-TERM FISCAL CHALLENGES ( U.S. GOVERNMENT PRINTING OFFICE 34–649pdf WASHINGTON : 2007 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate 0ct 09 2002 14:12 Oct 26, 2007 Jkt 000000 PO 00000 Frm 00003 Fmt 5011 Sfmt 6011 C:\DOCS\34649.TXT SBUD1 PsN: TISH COMMITTEE ON THE BUDGET KENT CONRAD, North Dakota, Chairman PATTY MURRAY, Washington JUDD GREGG, New Hampshire RON WYDEN, Oregon PETE V. DOMENICI, New Mexico RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa ROBERT C. BYRD, West Virginia WAYNE ALLARD, Colorado BILL NELSON, Florida MICHAEL ENZI, Wyoming DEBBIE STABENOW, Michigan JEFF SESSIONS, Alabama ROBERT MENENDEZ, New Jersey JIM BUNNING, Kentucky FRANK R. LAUTENBERG, New Jersey MIKE CRAPO, Idaho BENJAMIN L. CARDIN, Maryland JOHN ENSIGN, Neveda BERNARD SANDERS, Vermont JOHN CORNYN, Texas SHELDON WHITEHOUSE, Rhode Island LINDSEY O. GRAHAM, South Carolina MARY ANN NAYLOR, Majority Staff Director SCOTT B. GUDES, Minority Staff Director (II) VerDate 0ct 09 2002 14:12 Oct 26, 2007 Jkt 000000 PO 00000 Frm 00004 Fmt 0486 Sfmt 0486 C:\DOCS\34649.TXT SBUD1 PsN: TISH C O N T E N T S HEARINGS Page January 11, 2007—The Long-term Budget Outlook ............................................. 1 January 18, 2007—Long-term Economic and Budget Challenges ....................... 79 January 23, 2007—The Growing Tax Gap and Strategies for Reducing It ........ 131 January 25, 2007—The CBO Budget and Economic Outlook .............................. 209 January 30, 2007—Defining Our Long-term Fiscal Challenges .......................... 257 January 31, 2007—Exploring Solution to Our Long-term Fiscal Challenges..... 337 STATEMENTS BY COMMITTEE MEMBERS Chairman Conrad.......................................................................1, 79, 131, 209, 257,337 Ranking Member Gregg............................................................9, 91, 138, 217, 264, 415 Senator Grassley ...................................................................................................... 69 Senator Allard .......................................................................................................... 127 WITNESSES Bernanke, Ben S., Hon.; Chairman, Board of Governors of the Federal Re- serve System.........................................................................................................93, 98 Bixby, Robert L.; Executive Director, The Concord Coalition..........................347, 351 Brostek, Michael; Director of Tax Issues, Government Accountability Of- fice......................................................................................................................150, 153 Butler, Stuart M., Dr.; Vice President for Domestic and Economic Policy Studies, The Heritage Foundation..................................................................401, 404 Furman, Jason, Dr.; Director, The Hamilton Project at the The Brookings Institute.............................................................................................................388, 392 Greenstein, Robert; Founder and Executive Director, Center on Budgt and Policy Priorities.................................................................................................266, 271 McIntyre, Robert S.; Director, Citizens for Tax Justice....................................140, 143 Minarik, Joseph J., Dr.; Sr. Vice President and Director of Research, Com- mittee for Economic Development...................................................................377, 381 Orszag, Peter R., Dr.; Director, Congressional Budget Office..........................218, 222 Reischauer, Robert D., Dr.; President Urban Institute....................................284, 287 Satagaj, John; Sm. Business Legislative Counsel, Small Business Tax Comliance & Fairness Coalition......................................................................177, 180 Steuerle, Eugene, Dr.; Senior Fellow, Urban Institute.....................................296, 299 Walker, David M., Hon.; Comptroller General of the United State.....................12, 23 QUESTIONS AND ANSWERS Questions and Answers.................................................................72, 128, 206, 253, 433 ADDITIONAL MATERIALS AND CHARTS SUBMITTED Testimony, charts, and graphics submitted .......................................................... 64 iii VerDate Mar 04 2003 13:17 Nov 01, 2007 Jkt 000000 PO 00000 Frm 00001 Fmt 0486 Sfmt 0486 C:\SENBUD\1.TXT APPS25 PsN: DICKT VerDate 0ct 09 2002 14:12 Oct 26, 2007 Jkt 000000 PO 00000 Frm 00006 Fmt 0486 Sfmt 0486 C:\DOCS\34649.TXT SBUD1 PsN: TISH HEARING ON: LONG-TERM BUDGET OUTLOOK THURSDAY, JANUARY 11, 2007 U.S. SENATE, COMMITTEE ON THE BUDGET, Washington, DC. The committee met, pursuant to notice, at 10:34 a.m., in room SD–608, Dirksen Senate Office Building, Hon. Judd Gregg, chairman of the committee, presiding. Present: Senators Gregg, Domenici, Grassley, Allard, Graham, Conrad, Murray, Cardin, Sanders, and Whitehouse. Staff present: Scott Gudes, Majority Staff Director and Mary Naylor, Staff Director for the Minority. Chairman GREGG. Let me call this hearing to order, which is— I am sure some people are saying, what is he doing that for, he is not in charge any more? They are saying, what is he doing that for? Due to the vagaries of the Senate’s arcane rules, I technically am still chairman, I guess. But that is obviously a technical point. I look forward to working with Chairman Conrad. We have had a very good, strong relationship. I very much appreciate his and his staff’s extraordinarily cooperative and positive approach during my tenure as chairman. I intend, and our staff intends, to take the exact same approach and really use his example as our template as to how we will proceed. So at this time I will yield to Senator Conrad as chairman and relinquish my chairmanship, even if it is only technical. OPENING STATEMENT OF SENATOR KENT CONRAD Senator CONRAD [presiding]. I thank my colleague. I thank Sen- ator Gregg very much for the way he has conducted this committee. Senator Gregg has been an exemplary chairman. He has conducted this committee professionally and with good humor and with fairness. He gives us all a good example of how committees should be chaired in the U.S. Senate. He has also graced this committee with outstanding staff. We have had just a very good, very positive working relationship on this committee and we intend to continue it. Senator Gregg and I have had lengthy discussions about the enormous fiscal challenges facing the country and our desire that we enter into a process to be able to address those issues and to do it this year. Obviously, whether or not that goes forward is at a higher pay grade than ours. It involves the President of the United States. It involves the leadership of both the House and the Senate. But I think it is fair to say that we are prepared to work (1) VerDate 0ct 09 2002 14:12 Oct 26, 2007 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\34649.TXT SBUD1 PsN: TISH 2 in good faith to try to find solutions to these vexing long-term issues that, I believe, fundamentally threaten the long-term economic security of the country if they are not addressed. Senator Gregg has repeatedly demonstrated that he is serious about this. So I very much look forward to the opportunity to work with him and others of our colleagues to try to address these issues. I also want to take this moment to thank and welcome the new members of this committee. I see Senator Whitehouse is here. We are delighted to have you. Sheldon, let me just say to you that when I started on this committee that is where I was. Chairman GREGG. No, you were behind the screen. Senator CONRAD. I was behind the screen. I also want to welcome Senator Ben Cardin of Maryland, who served on the Ways and Means Committee and is deeply knowl- edgeable. We are delighted to have him as a member. Senator Sanders of Vermont as well. I also should indicate that Senator Lautenberg, the former dis- tinguished ranking member of this committee, has agreed to temporarily serve in Senator Johnson’s spot pending Senator Johnson’s recovery. Let me say that all of our colleagues are hoping and praying for Senator Johnson’s full and swift recovery. We have been delighted by the reports of recent days of Senator Johnson’s progress and we eagerly await his return. But we so thank Senator Lautenberg for his willingness, as a former ranking member of this committee, to come back to temporarily serve in Senator Johnson’s slot. With that, I want to commend you, Mr. Walker. You are the head of the General Accounting Office. You could sit in your office and issue reports and nobody could fault you for that. But really these circumstances demand more and you are giving more. I want to publicly thank you. We do not have to agree on every single thing, every statement you have made. I have had a number of members of the press closely quizzing me in the last 24 hours, do I agree with this Walker statement, that Walker statement. That is not the point. I agree with the overall message that you are at- tempting to deliver to the Nation they we are on an unsustainable course and it has simply got to be changed. Before I go further I want to again thank Senator Gregg for his assistance in organizing this hearing, because we could not have proceeded without him as he is still chairman of this committee in a formal sense. Again, I deeply appreciate the way he has cooper- ated so we could have this hearing. Since 2001, the Nation has undergone a dramatic budget deterio- ration. We all know the pattern; record deficits. But more impor- tantly, the debt is going up more rapidly than the size of the deficits. This is a point that I think is too often lost. Last year the def- icit was $248 billion, but the debt increased by $546 billion. I think this is a point that has too often been lost. VerDate 0ct 09 2002 14:12 Oct 26, 2007 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\DOCS\34649.TXT SBUD1 PsN: TISH 3 VerDate 0ct 09 2002 14:12 Oct 26, 2007 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\34649.TXT SBUD1 PsN: TISH 34649.400 4 We are facing a wall of debt. At the end of 2001 the gross debt of the country was $5.82 trillion. At the end of 2006 that had mushroomed to $8.5 trillion. And if we continue on the President’s course we will have the debt soar to $11.6 trillion by 2011. VerDate 0ct 09 2002 14:12 Oct 26, 2007 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 C:\DOCS\34649.TXT SBUD1 PsN: TISH 34649.401