Hearing of the House Budget Committee on Economic Outlook and Other Issues - Transcript

HEADLINE: HEARING OF THE HOUSE BUDGET COMMITTEE

SUBJECT: ECONOMIC OUTLOOK AND CURRENT FISCAL ISSUES

CHAIRED BY: REP. JIM NUSSLE (R-IA)

LOCATION: 210 CANNON HOUSE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN

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REP. NUSSLE: Good morning and welcome to this hearing of the House Budget Committee. Today we have with us the very distinguished chairman of the Federal Reserve, Alan Greenspan, to discuss again with our committee the economic outlook and the federal budget.

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REP. ROBERT SCOTT (D-VA): Thank you. And thank you, Mr. Chairman, for your testimony.

This chart shows what happens when you're willing to make the rough choices. As you'll remember, the tough choices in '93 resulted in some politically unpopular results. Although we eliminated the deficit and went into surplus, it had political consequences on those of us that voted in favor of the green. You've indicated that you need to make the tough choices, and I appreciate that, and also that you need to make the choices on both sides, both on taxes and on spending, you just can't make tough choices on one.

You've talked about the debt and deficit in terms of the GDP. It seems to me that the GDP would be a measure of capacity to deal with the deficit and the debt, but a more accurate figure for fiscal responsibility ought to be how much of your budget is paid for with borrowed money. We're right now spending a higher portion of our budget with borrowed money than any time since World War II. Does that speak to fiscal responsibility?

MR. GREENSPAN: Well, it's a measure of lack of fiscal responsibility.

REP. SCOTT: Thank you.

Your testimony outlines things we can do to reduce the Social Security-the next slide-on Social Security. We have a Social Security surplus for a purpose. I mean, several years ago somebody noticed that we're going to be running into the red, and we are overtaxing Social Security so that we can deal with the upcoming deficit. This isn't like a road tax trust fund, where you decide not to build roads this year, you know, you deal with it, you continue taking the money. These are liabilities that are real.

Now, we have been told what the top 1 percent got out of the 2001 tax cut would have been sufficient, if put into the Social Security trust fund, to build up the trust fund enough so that we could have paid Social Security benefits for 75 years without reducing benefits. Your testimony suggests that if we give them a tax cut, as we did, we have to deal with it by increasing the age, adjusting COLAs, possibly privatizing for those younger retirees, as if our choice was we've got to cut taxes and then we'll scramble the best we can to try to deal with Social Security in the future.

Could we have made a different choice?

MR. GREENSPAN: Well, my recommendations are recommendations I've been making for 20 years. They're technical, in the following sense. The intent of the Congress is to hold Social Security benefits to the cost of living. The problem is, is that the indexes we've been using to adjust for the cost of living are technically deficient.

They are being improved upon by the Bureau of Labor Statistics to try to eliminate these biases. And I'm merely suggesting that if the intent of the Congress is to be met, that a far better index is available to do that.

With respect to the issue of indexing longevity, that's merely the question of addressing the fact that the average age that-let's say the proportion of the population over 65 is going to continue to increase indefinitely.

REP. R. SCOTT: Well, yeah, but that's a choice we make. We can improve-what you're suggesting is rather than maintaining Social Security at the present means we're actually improving it, and we had a choice, we could improve Social Security, essentially, through the back door, increasing benefits, or we can give a tax cut to the top 1 percent and have to-we have a choice. We made-I don't know what choice you would have made, but Congress made the choice that we're going to reduce the-have to deal with the COLAs, increase age, and everything else.

Let me see if I can get in another quick question. Tax cuts with borrowed money --

REP. SHAYS: (Off mike) -- be quick.

REP. R. SCOTT: Tax cuts with borrowed money. What effect does the fact that we're borrowing money to fund the tax cuts have on their ability to create jobs?

MR. GREENSPAN: I don't think there's a relationship there. The deficit does what it does, and the tax cuts do what they do. And I think that to relate them, in my judgment, is not necessarily appropriate.

I do think that, one, deficits are something we should endeavor to avoid. But if we allow the tax burden to rise, we're going to have problems with our revenue base. So the choices are basically how do you run fiscal affairs, and I think that requires that you look at both receipts and expenditures in the context of deficits. And I don't know, other than to look at the budget process, how one makes those judgments.

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