Senate Budget Committee Holds Hearing on Budget and Economic Outlook

CRAPO:

Thank you very much, Mr. Chairman.

And, Mr. Anderson, I just have a question at the outset with regard to the first chart you showed called the budget outlook where you projected potential surplus and deficit over the next 10 years.

ANDERSON:

Yes.

CRAPO:

As I understood your testimony and that chart, we see a significant increase in revenues in the out years, primarily as a result of the expiration of the tax act of 2001. Is that correct?

ANDERSON:

Starting in 2011, correct.

CRAPO:

I realize it's not what you do in terms of you have to focus on current law, and currently that law is projected to expire. But have you done any projections as to what this chart would look like if we assumed that the tax act is continued and not allowed to expire?

ANDERSON:

Yes.

CRAPO:

Well first of all, I'd like to ask if you'd make those charts available. But secondly, what does that tell us if we make the assumption that the tax cuts are made permanent?

ANDERSON:

If the tax cuts are made permanent, the surpluses in the out years are not eliminated, but they are greatly reduced.

CRAPO:

There are still surpluses?

ANDERSON:

There are still surpluses, small surpluses in the out years. One of the points I made is that in this time period or whatever the as a percentage of GDP, the level of deficits or surpluses is relatively small. They don't really climb to a significant level until one reaches 2011, 12 and 13. If one extended the tax cuts in 2011, 12 and 13, you would still have surpluses, but as a percentage of GDP, they'd be very, very small.

CRAPO:

All right. Thank you. And I want to focus now on the spending side of the equation for the next budget year. And as I understand your testimony—well actually, let's look back at the current year for a moment. If I understand your testimony correctly, outlays grew by about eight percent in 2003. Is that correct?

ANDERSON:

Right.

CRAPO:

Do you know how that's broken out among mandatory spending versus discretionary?

ANDERSON:

It's on page something of our document here. I'll tell you what it is in just a second.

CRAPO:

All right. Well, the question I have is—and again, looking at your testimony, it appears that you are projecting a 5.5 percent increase in outlays for this coming budget year. Do I read that correctly?

ANDERSON:

That's correct. I believe that's correct.

CRAPO:

Well again, I'll kind of read from some of the statistics I get here, and you can correct me if I'm reading them wrong. But I understand that you are taking into consideration net interest costs falling during that period. But if you take out the interest factor, the actual increase in outlays is about 6.7 percent for the coming year.

ANDERSON:

I believe that's correct.

CRAPO:

And the growth in the economy, do you know what we expect the economy's growth to be for that year (ph)?

ANDERSON:

That's ...

CRAPO:

Two point five percent?

ANDERSON:

For calendar year 2003.

CRAPO:

So what you are projecting is that Congress is going to be outspending the growth in the economy by more than double in the coming budget year.

ANDERSON:

I think it's 2.5 for 2003. And I think the figures you are quoting were between 2003 and 2004.

CRAPO:

Oh, OK.

ANDERSON:

Yes, and it's 3.6 for 2004.

CRAPO:

OK. So it's somewhere in the neighborhood of about a double of the economy.

ANDERSON:

Right.

CRAPO:

Can you tell me what's fueling the rise in spending there in your projections?

ANDERSON:

It is entirely in the entitlement area. That is, discretionary spending is growing at about or a little bit lower than the rate of the economy. But in the entitlement area, particularly in the health area, Medicare and Medicaid and other federal health benefits are increasing at rates significantly greater than the size of the economy.

CRAPO:

So if we're concerned about the rate of growth of spending on the spending side of the budget, it's the entitlement area, and particularly the healthcare area of entitlements that we must talk (ph) about?

ANDERSON:

It is. However, our (ph) baseline for discretionary spending assumes current law, which is right now at about a $750 billion budget authority level for 2003 and then just inflation. As we've talked about before, we don't have estimates in there for a war or additional anti-terrorism expenditures or whatever new discretionary expenditures may come out. Under that scenario, you're exactly right.

CRAPO:

So what you're telling me is that under the budget act, you are required to assume that discretionary spending remains stable?

ANDERSON:

At inflation, that is correct.

CRAPO:

At inflation.

ANDERSON:

Right.

CRAPO:

Regardless of what you would see with regard to congressional actions. And I understand that. If I could just ask one more question, I know that you've previously been asked about the potential cost of a war and that you've provided that information to the budget committee before. But could you briefly tell us whether you have any evaluations as to what the potential cost of a war with Iraq would entail?

ANDERSON:

In late September, we did some estimates and broke them out in several different categories. The categories we broke them out was the cost to get the men and materials and troops and ships over to the Middle East. So, the deployment costs.

Then we had a cost per month for combat, particularly the cost for the first month and for subsequent months. And then we had a cost for redeployment to take the materials and men back. And then we broke all that down by whether one looks at what we call the heavy air where we had much more concentration on an air conflict versus a heavy ground conflict. What we didn't do was a how many months the conflict was going to last.

CRAPO:

So you've broken it out on a monthly cost basis?

ANDERSON:

On a monthly basis. After we did all that, then we also took a look at some historical occupation costs and gave figures on a monthly cost there. So I have these figures here, but the purpose of them was to take a look at past figures in our current knowledge and provide you with the information so that if you make a judgment of how long you think the war is going to last and how long the occupation was going to last, then you'd have some broad senses of what the cost would be.

CRAPO:

And I know we've got those numbers, but if you could submit those again, I would appreciate that.

ANDERSON:

Right (ph).

CRAPO:

I believe my time has expired.

NICKLES:

Senator Crapo, thank you very much.