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tv   Congressional Budget Office Dir. Swagel Testifies on 2023 Budget Request  CSPAN  June 8, 2022 7:44am-10:01am EDT

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>> democratic senator chris murphy on the senate floor may 24th, 2022, shortly after the shooting in rob elementary school texas. telling reporters at the capitol our job is not to send thoughts and prayers, our job is to pass laws but there are people in congress whose job it is to send prayers, these people other congress chaplains. in this episode of c-span's weekly we hear what senate and house chaplains told congress in their prayers when students and teachers were killed in mass school shootings. >> bless the family of all whose lives were so terribly cut short with peace and consolation. help them, help us all to have hope in a time of great does all asian. >> reporter: you can find the weekly on c-span now, free mobile apps or wherever you get your podcasts.
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>> congressional budget office director philip xi jinping testified on his agency's updated budget report and provide an economic outlook for the country. the budget committee hearing is about 2 hours and 15 minutes. >> good morning and welcome to the budget committee hearing on congressional budget office budget and economic output. at the outset i ask unanimous consent the chair be authorized to declare recess at any time. without objection so ordered. before i welcome our witness i will go over some housekeeping matters. we are meeting virtually, before we begin i want to remind members participating in this proceeding to keep your camera on at all times even if you are not under recognition by the chair. members may not participate in one proceeding, if you choose to participate in a different proceeding please turn your
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camera off. members are responsible for middle microphones, this will help prevent feedback and other technical issues. remember to unmute your self when you seek recognition. know that the chair may mute participants microphones when they are not under recognition for the purpose of eliminating inadvertent background noise. we are not permitted to unmute members, explicitly requesting persistence. it is not unusual, i will ask if you would like staff to unmute you if you indicate approval by nodding, will not unmute your microphone under any other conditions. i would like to remind members we have established an email inbox to bidding documents before and during. we have distributed that email address to your staff which now i will introduce our witnesses. this morning we will hear from
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doctor philip xi jinping, director of the congressional budget office and yields myself 5 minutes. good morning. i want to thank doctor philip xi jinping, director of the congressional budget office for appearing before the committee today to testify on the budget and economic outlook known as the cbo baseline. your agency is an ostensible partner to god. to the house budget committee and in particular i want to thank you dedicated staff for their hard work on this report. for holding this committee hearing, since congress, the fiscal year 2022 appropriation bills until march, cbo needed the final funding levels to finish the outlook.
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today's hearing as an opportunity to examine projections for the next decade as congress begins the 23 budget appropriations trust. the new outlook was the one published after president biden took office, one thing is clear, the american rescue plan delivered critical life-saving and life-changing relief the changed the course of the pandemic, rescued our economy at helped american families and small business stay afloat. the american rescue plan helped the historic recovery, the most equitable in recent memory and contributed to the largest job loath ever. the percentage of people receiving unemployment insurance has fallen below 1% for the first time in more than 50 years. the employment rate is down to 2.6%, a level that prior to the rescue plan, projected we would not reach during the entire decade.
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now cbo is projecting the unemployment rate will drop even further into thousand 23, 2.9%, the lowest rate the country has seen in 70 years. small businesses which account for half of all american jobs, americans submitted 5. 4 million applications for businesses in 2,020 one, the most in recorded history, small businesses created more jobs than ever before. the rescue plan nearly doubled our gdp growth in 2021. as result the us was the first major advanced economy in the world to come back above pre-pandemic levels of gdp. master economic growth boosted hiring and wages, empowered record deficit reduction. cbo projects we are on track to see the deficit shrink 1.7 trillion from 2.8 trillion in 2021 to 1.1 trillion this year. all of these indications are
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evidence of the same truth. our economy is outpacing what cbo projected. rescue plan laid the foundation for american's unprecedented recovery in economic resilience and we are in a better place, we made incredible progress, inflation is the new challenge. i will reiterate what was across the ideological spectrum. international supply chain bottlenecks, higher energy costs due to russia's more in ukraine the primary drivers of inflation. these are global problems which is why inflation is a global issue. inflation in the uk is at a 40 year high last week. 38 member countries are averaging an inflation rate of 9%. clearly this inflation is not unique to the united states but the american rescue plan is. american families and state and
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local governments, facing new challenges in a position of economic strength, it is necessary, the federal reserve and best position to tackle immediate inflation concern, congress can and must do everything it can to lower costs overall. healthcare housing or childcare have been rising for decades. they passed legislation to lower prescription drug prices, cut childcare costs, expand access to higher education, with excessive price hikes. the monthly costs substantially, i look forward to this today to director xi jinping. this is an important year-end important time for the future of the nation.
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on solutions that will deliver relief to american families and build a stronger, more equitable and resilient economy. with that i would like to yield to mr. smith, for the opening statement. >> thank you, mr. chairman. my opening statement couldn't be any more different than the comments you just may. the budget act economic outlook released by the congressional budget office yesterday shows the impact of one party democrat rule in washington over the past year and it is not a pretty picture. in short american fiscal health is getting worse. when we compare it to cbo's baseline you can see just how much the nation's budgetary and
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economic outlook has deteriorated, has happened first. cbo predicted the government would spend 61 trillion over the next several years. now they say it could be $72 trillion. when biden entered office cbo predicted the government would run up just over $12 trillion in deficits over the next ten years. now they say it will be close to $16 trillion. when biden entered office cbo predicted the government would spend $4.6 trillion on interest payments, now they say it would be over 8 trillion. when biden entered office cbo predicted the average interest rate would be 2.
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5% over the next ten years. now they say it would be 3.5%. there prediction for this year is nearly doubled from 1.3% to 2.4%. the inflation forecast for 2022-2023 combined is 64% higher than what cbo predicted when biden entered office and that might be overly optimistic. cbo projects inflation to be 4.7%, it increased by 4% in 2,022. also perhaps overly optimistic, cbo's economic growth predictions, real gdp growth is projected to be 3. one% this one% this year. gdp declined by 1.4% in the
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first quarter of 2,022. under every metric president biden has worsened the balance sheet of the federal government. the for our country and the fiscal health of american families so how did we get your? democrats passed their $2 trillion american rescue plan even though the economy was on its way to recovery, democrats promised it would create 4 million jobs. instead job creation was smaller in 2021 then cbo projected it would be before the passage of the $2 trillion plan. what did create was the highest increase in 40 years while spending federal tax dollars on such things as $70 million on a golf course in florida, $4 million to build beach parking lot in south carolina, $2 million to plant trees in new york, $400 billion to pay people to stay at home and not go to work and yet things could have been even worse.
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the washington democrats billback broke agenda would have added $5 trillion in new spending, $3 trillion in new debt according to cbo but there's a silver lining in the baseline, thanks to the republican tax cut and jobs act, the tax burden on families, job creators, fell while federal revenues have grown. this year revenues for corporations and individual taxpayers is up, far exceeding what cbo projected the federal government would collect, revenues of 39% over last year are on pace to be the largest share of gdp in american history. of current forecasts hold, revenues could very well end it being more than a trillion and a half above what cbo predicted for 2022 after passage of the jobs act. the story this tells is of one
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party democrat ruling washington. after one year we have trillions more in spending, explosion of new debt, record inflation, supply chain crisis, the highest gas prices ever recorded and now a baby formula shortage, this is the legacy of president biden's first year in office, i yield back, mr. chairman. >> i think the gentleman from his opening statement, in the interest of time many other members wish to make a statement, left their written statements for the record, two in the email box, we established receiving documents for committee proceedings and distributed that email to staff. i hold the record open to the end of the day to nominate members without written statements. i want to thank doctor xi jinping for being here this morning. the committee has received your written statement and it will be made part of the formal hearing record. you have 5 minutes to give your remarks and begin when you are
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ready. >> thank you, members of the committee, for inviting me to testify on the budget and economic outlook. cbo's projections, the federal budget deficit in 2022 is $1 trillion. the shortfall represents substantial reduction from deficits the past two years as federal spending in response to the coronavirus pandemic wanes and the current economic stanchion continues. by our projections we have the assumption current laws governing federal taxes and spending generally remain unchanged. federal deficits remain large by historical standards and increased over the next decade. for 2023-32 the annual shortfall averages one. $6 trillion. the projected deficit of $2 trillion in 2032 at the end of the budget window would equal 6.1% of gdp at well above the
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average. 23% gdp over the next 10 years, rising interest rates, the cost to double in the percentage of gdp by 2032. at the time the population and rising cost of healthcare increase mandatory expenses. in 2022, revenues and projections reached their highest level of gdp in two decades. they then declined in the next few years but remain above long-term outrage through 2022. the fastest revenue over that period, federal debt initially dips to 96% gdp in 2023 and rises after that. in our projections the debt ratio is 5% gdp in 2032, the highest level ever and rises to 185% of gdp in 2052 at the end
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of our 30-year long-term. we aim for our projections to follow the range of likely outcomes and considerable uncertainty in part because of the ongoing pandemic and otherworldly events like invasion of ukraine and china. the deficit is $118 billion less than we projected last july in the most recent update before this one. .. updates other than this one. revenues are 10% higher than we previously projected. 2022 to 20 31. it is more than last summer. millions of enacted legislation accounts for most of that increase. the other changes that those projected revenues and, therefore, reduce deficits those are mostly offset economic changes that increase outlays
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take before interest payments and social security payments. let me now turn briefly to the economy. the pace of inflation since the middle of last year has been the fastest and for decades. elevated inflation persists in 2022 because the combination of strong demand and restrained supply. in response to federal reserve tighten monetary policy and interest rates rise rapidly. gdp adjusted for inflation grows by 3.1% this year and unemployment rate averages 3.8% 3.8% in our projections. after 2022 economic growth slows inflationary pressure increases pics of you has published a great deal of information yesterday about a new projections. those are all work on light cbo website. without again thank you. i am happy to answer any questions. >> thank you, director swagel, for your opening remarks. we will now begin our
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question-and-answer session. as were we might members can submit written questions the editor later in writing. those questions and responses will be made part of the formal hearing record. any members who wish to split question for the record may do so by sending them electronically to the email inbox we've established within seven days of the hearing. now we will begin our questioning. i now recognize the gentleman from new york, mr. jeffries, for five minutes. >> thank you, judge work continued leadership and director swagel thank you for your presence and for the work that you do. i want to associate myself with the comets of chairman yarmuth when he made clear the american rescue plan rescue the economy at aan time when it was on the brink of collapse. and put us into position to achieve some of the significant economic growth measures that have occurred at this particular point in time as well as the
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record unemployment. ii just route -- to increase --p about 17%. >> that is right. revenues will reach slightly under 20%. from previous projections. >> we have seen approximately 3 million jobs created since president biden took office, is that correct? >> since the beginning of 2021.
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>> are we to understand there were a .3 million jobs created? that is a record in american history. in terms of a president administration. >> yes. that would be the most jobs created in a single year. 2121, the first year. >> the number of people relying on unemployment benefits has dropped to the lowest level since 1970. >> the number of people collecting unemployment benefits has dropped very substantially. the rebound and the strong, very tight labor market -- the outcome like you just missed it. -- like you just mentioned.
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the rebound from the pandemic has led to a surge in inflation. the economy locked down and a huge number has been created. i do not know the number offhand. >> and i correct that the first year president biden deficit --?
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in the first year? >> as projected. >> what is the projected deficit reduction that we are in? >> it has fallen. 1.8 trillion dollars lower. last year about $2.8 trillion to project -- to a reduction this year of 1.8 trillion. >> thank you for your testimony. we certainly have issues we have to deal with. as you have indicated, result from an increase in demand. that happens when you have a --
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economy and supply-chain constraints. which happens when you have an economy that shuts down as and as all -- as a result of -- pandemic. we will continue to work on the issues as it relates to the formula shortage. i was shocked that so many of my republican colleagues voted against the appropriation legislation. for the life of me, i cannot figure out the doom and gloom that is going to be painted by so my republican colleagues. thank you for your testimony and presenting the facts in straightforward fashion. i yield back. rep. yarmuth: i yield 10 minutes to gentleman ranking member. >> thank you mr. chairman. for the record, directly -- director if you can give me the senses as quickly as possible. i want to hit on the deficit
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reduction that was just before you and the joke of the comet. i want you to clarify. is it true that the fiscal year 2021 deficit was 517 billion higher than where the congressional budget office projected for the 2021 year? bidens 21 8 trillion deficit in 2021 was the second highest in the history of america. is that correct? >> yes, emergency spending during the american rescue plan drove the deficit last year. that is correct. >> biden claims fiscal year
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2022, 1 and a half trillion dollars in deficit reaction is only because last year his inflationary to trillion dollar american rescue plan drove government spending to 30.5% of gdp. 10% higher than the historic average. his latest fiscal year 2023 budget for covid annual deficit averaging 1.6 trillion a year. director, in february 2020 one, your baseline showed 61 trillion in government spilled -- government spending over the next 10 years. you now say we will be 72 trillion, correct? >> that is correct. over the next 10 years. >> ok, that is 11 trillion higher, correct? >> yes. >> in february 2021, your baseline showed 7 trillion --
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you now say it will be close to 16 trillion, is that correct? >> yes. that is correct. >> so three and half trillion more in deficit. in february 20 21, you said the first interest rate hike would not come until 2024, correct? >> and our projection. a year ago, that is correct. >> of course, now we have seen the fed already increase rates twice in the last six months. in february 2021, you said the government will spend 4.6 trillion on into statements over the next 10 years. you now say it will be over 8 trillion, correct? >> that is correct. debt has gone up as well. based on every indicator, we are looking at the administrator telling the american people, your baseline protects -- projects inflation to be four
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point 7%. but inflation has already increased by almost 4% in 2020 two. making it highly likely we exceed 4.7%. was 4.7 accident -- 4.7 percent inflation, we could not exceed the totaldr. swagel: at the very beginning of march. as you said, inflation has turned out to be higher before we forecasted. we see this in food prices and energy prices. some of it relates to the russian invasion of ukraine. rep. smith: before the russian invasion of ukraine inflation was up 7.5%? dr. swagel: yes. rep. smith: given that inflation
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continues to hover around a 40 year high, not to mention inflation has gone up 11% since president biden came into office, knowing what you know now, how would that affect your objections? -- projections? dr. swagel: the current quarter we are in is coming around our projections. inflation is higher than we anticipated. the fed's hiking probably as a result has been higher and we saw the impact of that on financial markets. rep. smith: do you expect that 4.7% to be much lower?
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the rest of the year we are going to be at 1%? dr. swagel: to meet our forecast. rep. smith: if you think we are going to be at 1% the rest of the year, i have some oceanfront property in arizona to sell you. let me ask you about your economic growth projections. but just as the economy will grow at 3.1% this year. but given that the roast -- most recent gdp showed a decline, knowing what you know now, how would the current dismal economic numbers affect your projections? dr. swagel: again, once we had that baseline, we do not redo our forecast. the first quarter had negative gdp growth.
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some of that we see unwinding with inventories. the outlook for the gear -- year is based on people coming back to the labor force. that is supporting the rebound we see in part. rep. smith: your future year inflation projections are relatively mild compared to where we are currently. 8.3% and 11% since biden took office. what is the long-term damage to the u.s. budget and economic
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outlook? dr. swagel: inflation has a number of effects on the economy . the key risk is interest rates. as the debt level has gone up, higher interest rates translate into that. you see that over 10 years, it is more than double and in our projection. that is a fiscal risk. high inflation comes through high interest rates and high payments to service the u.s. debt. rep. smith: i am concerned about the proposals you selected. for starters, a lot of them seem targeted at tax relief republicans.
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in europe alternative assumption, you do incorporate that the majority does not view us temporary pandemic policies and they want to continue the student loan payment moratorium indefinitely, canceling student loan debt altogether, a permanent extension of the child tax credit revision, and continuation of the affordable care act subsidies that are set to expire. dr. swagel: thank you for the question. i know this is important to you. we are continuing to work on some of these issues. we have done some work for you and for senator graham on these expiring provisions.
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what we have in the report is chapter five in the report is the alternative scenarios. we followed the practice in the past of looking at revisions -- provisions that have been in place for several years and continue. the challenge for us was pandemic related provisions that will expire. we did not extend them in the baseline. the alternative positions, we did not send those either because they are not in current law. it is analysis that we can do to insert those sorts of questions. rep. smith: thank you, mr. chairman.
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mr. chairman, you are still on mute. >> i yield five minutes to the gentlewoman from california. >> thank you very much, mr. chairman. i want to remind my colleagues that this pandemic has taken over one million lives. i shudder to think of what would have happened had we not passed the american rescue plan. they saved lives and livelihoods. so we cannot forget that. let me thank our director for being here and let me go right
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into the questions. the department of defense, i have legislation that would require them to pass an audit. how does their failure to pass an audit complicate budget spending? how much spending unaccounted for? why should we add more money to the defense top line in the meantime if it cannot be audited and there is no accountability? what sort of accountability should we consider to get dod to pass an audit? what can we do? it is long overdue. dod might pay $1 trillion over the next year's.
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can you talk a little bit about that? dr. swagel: i would be glad to talk about that. we aim for our baseline that we provided yesterday to inform policymakers and when the information we get from the executive branch is imperfect, it means our basement is as informative as it -- baseline is as informative as it should be. better information from dod would help us. in terms of the defense budget going forward, we do not recommend policy, but we have things that would help policymakers look at different choices. for defense, we put a tool online on different structures
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that you can go through. we are nothing to do this or do that, but you can see how much money is saved by different choices. >> it has failed to pass an audit. if a business fails to pass an audit, there are penalties. agencies have penalties. people have penalties. why does the defense department get away with unaccounted spending? it boggles my mind. there was no accountability there. i know you cannot suggest policies, but tell me how inappropriate it is for our budgeting process to go forward without a clear picture? we need to know.
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otherwise it is not the good mechanism for us to make forecasts or for us to make decisions on our spending if we let agencies run amok with the resources that we appropriate. dr. swagel: most of the national security spending is appropriations. we support the appropriations committees as they take up the fiscal year 2023 appropriations. imperfect information means we are not able to support them in the way we need to. rep. smith: so what do you do? what would your suggestions be? dr. swagel: it is a difficult question for us. we provide information to the budget committees to enforce the
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budget rules and it is more gao that does the auditing. and they would put forth policy recommendations. they are the ones who would go out and tell you how the situation can be improved. rep. smith: it is a shame that you guys are not working together. but in terms of the baseline dealing with inflation, how does the pentagon's budget assumptions fit in to that in terms of the cbo's baseline? dr. swagel: fiscal spending has an impact on inflation. decline in spending will alleviate some of the inflationary pressures going forward, but the inflation
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affects military spending, the military is the largest purchaser of jet fuel so energy costs take a step down as well. >> the gentlewoman's time is expired. i yield five minutes to the gentleman from california. >> i find it astonishing that the chairman would call the so-called american rescue plan as a success. even democrats were saying it was irresponsible. americans are paying for it everywhere they spend money. i have seen a report saying it
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is costing average families $5,000. before the letdowns come out that took a wrecking ball to the economy. we had the fastest wage growth in 40 years and it was working class families gaining the most. the gap between rich and poor was narrowing. her energy independent for the first time in her lifetime. inflation was around 1%. interest rates were at all-time lows. that did not happen by accident. the republican tax cuts produced one of the biggest economic expansions in history. we ended up taking more revenues after the tax cuts that we receive for them. all you had to do was continue those policies that produced this prosperity and instead you did the opposite.
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you spent trillions of dollars we do not have. you started with president biden transition away from fossil fuels. you admitted to our country an impoverished population the size of west virginia that american taxpayers have to support. and you have the audacity to tell us the economy is doing great? you cannot spend the economy. everybody knows how the economy is doing because they are living it every day. that is why it makes the rigging question so devastating to your party. argue better off now than you were four years ago? according to our calculations
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28% is the growth in population and inflation combined over the last 10 years. 76% is the growth in revenues. they are growing at three times the rate of inflation and population. 89% is the increase in spending. there were only three ways to pay for it. taxes come but personal taxes decrease the purchasing power of families. business taxes are passed through to consumers. second way is to borrow from capital markets but this reduces the capital bowl -- capital available.
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the third way is to borrow from ourselves, too many dollars chasing too few goods. excessive spending is driving all three grants on the economy. am i missing anything? dr. swagel: i think you have bit. the inflation we are seeing is the culmination of demand, much of it driven by fiscal policy. combined with supply constraints and those are driving inflation. >> let's talk about inflation. a .3% as i understand it. -- 8.3% as i understand it.
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dr. swagel: it means nominal wages are up, but real wages are down for most americans. it is a challenge for families and a challenge for the economy. >> is it true that there are too many dollars chasing too few goods? dr. swagel: we have very strong demand and serious constraints on supply and those dollars chasing an adequate supply which leads to higher inflation. >> thank you. >> i now yield five minutes to the gentlewoman from california. >> thank you for being with us today. i made it my mission for years
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to lower the cost of prescription drugs. it is unconscionable that americans pay the highest prices in the world for the same drugs. people with diabetes have to pay triple the cost of insulin compared to those living in canada. seniors are struggling to afford their medications. when the house passed the budget reconciliation bill, it included provisions to lower prescription drug costs and it penalized drugmakers for hiking prices faster than inflation. the cbo estimated these provisions would end up with billions of savings and reduce
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the federal deficit. can you explain how these provisions would not only reduce federal spending but also lower prescription drugs for americans? dr. swagel: of course. the provisions would set up a system of negotiation. the secretary would have leverage in the form of cash. we did substantial modeling for them. we find it would lower drug prices. the lower drug prices would have many effects, people would take more medicine and save money on doctors and hospitals. the lower drug prices would save money for the federal government because the cost of health insurance would be lower.
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lowering drug prices would make people healthier and save money for the federal government. >> i would like to ask about paid family leave. the u.s. is the only country among 41 nations that does not mandate any paid leave for new parents. democrats in the house tried to rectify that by passing a national paid family and medical leave program. your analysis of the proposal found important things. first, having access to family and medical leave could improve health for some workers. second, while some employers might reduce their policies -- leave policies, that is not a bad thing for workers.
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employees would still get paid leave and you found that employers would increase pay or provide other benefits to attract workers. could you expand on how a federal paid family leave program might help increase pay for workers? dr. swagel: that is right. we have done a lot of work on this. paid leave what effect workers in the fiscal situation. that might lead some people to come back into the labor market. people who are taking care of family members about the availability of paid leave would make it possible to come back into the labor market. for people who are already working, it would give them flexibility. there would be lots of different
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economic effects. we had that as costing $200 billion over 12 years. there would be a fiscal cost and there would be implications for families and for the economy. >> one of the drivers is the agent of the population. how what immigration reform help? dr. swagel: the aging of the population becomes a important driver both for social security and medicare. immigrants make substantial contributions to the u.s. economy.
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they tend to pay into the trust fund supporting social security and medicare. they boost growth, innovation, our society in other ways. increased immigration has many effects on the economy and the fiscal trajectory. >> thank you. >> i yield five minutes to the gentleman from wisconsin. >> thank you. our forefathers did not come here to copy europe. i always run into people who came here from england, germany, europe. everybody wants to come here and i would suggest that we have a
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better government. i would like to talk a little bit about the overall levels of spending and the effect on two bills, the american rescue plan and the bipartisan infrastructure bill. i think we already saw, i would even argue the cares act. in your tenure deficit projections, how much is the legislation enacted so far by this congress affected them, including the american rescue plan and at infrastructure framework?
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dr. swagel: a report goes through and shows the impact of the major legislation. the early pandemic legislation contributed over $2 trillion to the deficit last year. you can see in their the american rescue plan also was over $1 trillion in 2021. and 400 billion this year. overall, the legislation enacted has increased spending by $3.4 trillion. 2.4 trillion dollars was since july 2021.
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that would not include build back better since that is not part of the current law. >> there have been a lot of actions in the biden administration. i think it encourages people not to work. you made the assumption in your presentation that unemployment is going down because the pandemic is ending. do you think part of the reason unemployment is going down is because of excessively high unemployment benefits are gone? dr. swagel: that is certainly part of it. one of the things we see today,
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a year ago, there was 1.1 million people who were still out of the labor market who without a year and would be back. >> what do you attribute that to? dr. swagel: the effects of unemployment insurance. it is also health concerns, childcare. the government has not given clear guidance to childcare providers. >> since january 20 21, the biden administration has spent hundreds of billions of dollars without congressional approval through various executive action. includes higher snap benefits,
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student loan repayment moratoriums, cbo's budget provides information and how much the deficit has increased. dr. swagel: we try to provide as much information as we can. some of this is in the baseline. you mentioned the snap benefits. roughly 225 billion. there are other executive actions that we cannot quantify.
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we cannot pinpoint in the budget. there is not enough specifics of 50 -- specific t. >> thank you very much. >> you have five inch to the gentlewoman. -- minutes for the gentlewoman. >> morning. i was having technical difficulties. thank you for holding today's hearing on the congressional budget offices budget and economic outlook. i would like to extend my gratitude to your swagel -- dr.
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swagel -- the release of this important test report will help us begin the conversational -- conversation addressing fiscal issues. -- recently announced that they are predicting an abnormal hurricane season. the virgin islands is recovering from hurricane irma and maria. could you tell me how are climate related disasters expected -- to economic -- that economic outlook? dr. swagel: look at the effects of lack -- climate over time, affecting the economy and situations both to the effects on the agricultural and construction and -- wildfires
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which is important now and hurricanes. they have measurable impact and reduce revenues over the forecast. >> thank you for that. we hear a lot of discussion surrounding inflation. it's is something that congress cannot ignore, although we recognize that this is a global issue. prices for groceries, housing, and gas and other forms of energy ours -- are rising. the house recently passed the bill with no republican support to lower gas pricing -- prices like -- i was and senate both past versions of the bipartisan u.s. competitiveness bill that will strengthen supply chains and american cross -- cost for consumers.
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what can congress take to mitigate the effects of inflation? my side of the aisle is working to do that and are trying to work in a bipartisan. what are suggestions you have to do that? dr. swagel: i will preface what i say. we provide analysis and not policy recommendation. i will give you examples of supply constraints that are affecting inflation and be aware that this is not me saying you should do that. i am answering the question. >> smart. dr. swagel: you don't provide -- we don't tell members what they should do. the supply constraints and affecting the economy and the labor market is international. one is tariffs and we have a write up of that in the work that -- or two that tariffs are
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raising the price of many products. anything with steel and aluminum. infant formula. the cdp, until recently, was bragging of keeping out in front formula -- infant formula. we talked about the immigration before, have i mentioned childcare? i am speaking on behalf of cbo employees getting clear guidance on childcare in the pandemic. the owners will be helpful. this energy transportation -- the jones act raises costs for transporting goods and services and energy as part of that. cdo wouldn't say what to do but
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anything on my desk the supply side would help reduce -- anything on the supply side would help reduce inflation? >> thank you so much. i want to yield back and thank you again, chairman for holding this hearing and thinking so much to the witness for answering the question is -- questions and being the policy advisor, letting us know what policy is for those issues. >> they gentlemen -- the gentlewoman euros back. i'm welcome -- recognize the chairman for -- from pennsylvania for five minutes. >> i want to conquer the comments with representative mcclintock -- when they talked about the health of this economy and i can tell you that that is not will make constituents are experiencing. they are experiencing massive
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price increases at the pump and making tough decisions about whether they can buy gas or buy food. they are deferring retirement. i don't know if i've ever felt the comments that were so out of touch with what might constituents are feeling and that is why democrats are in big trouble with the upcoming election. mr. swagel, the arguments that you concurred with in regards to two -- two ukraine causing the inflation but you admitted the inflation was 7.2% before ukraine started. how -- tell us how you can reconcile those two statements? dr. swagel: it is an important question. inflation was high before the invasion of ukraine. >> it was not caused by ukraine.
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dr. swagel: inflation was high. the ukraine shop was a global shock and we see inflation around the world go up. >> inflation here was not caused by ukraine. you concurred with that. dr. swagel: absolutely. >> of the things you said you talked about the classic economic formula and i am not an economist but you increased demand and decrease supply, you will have inflation. what are you talking about when you say increased demand? dr. swagel: we think of that as things as standing by families and household. >> joins the dollars inserted to the economy democrat spending, that increase -- cost inflation. that is the guess part of it?
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>> is both. dr. swagel: the american -- > the american rescue plan because the issues we are seeing now. most of economist i talk to that it was -- agree it was the primary factor that cost inflation. dr. swagel: i sort of agree with that. >> it is important that we come to the understanding what has caused some of the economic situations the democrats -- situations. the democrats talk about reducing deficits in the budget. it is pretty bizarre when you look at the numbers. they are estimating a $1.6
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trillion in average federal deficits over the next decade. is that right? dr. swagel: yes. >> do you know what the average was in the 10 years prior to covid. dr. swagel: don't have it offhand. >> it was a hundred -- 829 billion average. not even looking at any numbers going down, they are doubling in the 10 years coming up compared to the 10 years prior to covid. before covid, the deficit was less -- how to the cap -- how could that democrats credibly say that they could reduce the deficit in a -- anyway? it is because they spent trillions of dollars more and now they claim they are reducing
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deficits. and makes no sense. how concerned are you with our debt to gdp. can you give us a history in where we are -- dr. swagel: act to gdp ratio is just under 100% this year. >> how does that compare to historical average? dr. swagel: it is right up there near we were at peak, when we are -- were paying for or want to create -- aim for world war ii. -- the service costs more than double. it goes to 3.3% gdp to do the annual servicing and the rates are pretty moderate. >> is why this budget is so irresponsible and i thank you
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for pointing that out. >> i recognize the gentleman from california for five minutes. >> thank you mr. chairman, dr. swagel, thank you for being here. this like that -- despite the have it that covid reads on the economy, the economy is pretty strong. her testimony notes that the size of the labeler force -- labor force, which in early 2022, remain one million people to load the pre-pandemic level, is expected to increase. what is driving the recovery in the labor force participation rate? dr. swagel: it is a mix. it has to be unlocked part of that is the reopening of the economy and the scientific process with the virus. the strong labor market and were
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raising raises -- rising wages. it is pushing people who need more income to come back in. >> i assume that will serve to address some of the plot -- supply issues in the labor market. dr. swagel: that is part of why we have inflation moderating over the next couple of years. >> you estimate inflation will remain elevated for 2022 and this -- the federal reserve will heighten inflation and i command the fan is doing that will we have to confirm the consequence of rising rates. help start an inflation working group. so i can find solutions to ease inflation and the effect of inflation on families. you mentioned immigration and tariffs colleagues on the other
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i'll -- and my colleagues on the other i'll --aisle taxes -- i am happy to work with my colleagues on anything they want to do. with fair taxes to combat on trump terrace and to do what immigration would stay left the building on. don't hear from the other side of the aisle is what they want to do about this. based on the current correction -- traditionally -- true -- can you describe how payments will rise substantially and how that compares to previous outlooks? dr. swagel: just rates rise with higher interest rates and increased debt and the challenge
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is that the debt level has gone up by so much that even a pretty modest increased interest rate will have an outside effect. it is not immediate. we are not finding the u.s. debt with thirty-day t-bills. place 6% gdp -- 50 average was 2% so we are a law the average -- just as interest rates remain moderate and that is the challenge we are going up. the debt is going up but also because interest rates are going up and interest rates are projected to go up, kind of moderately. it is interesting -- that interest payments, the challenge there will get even sharper. >> turned about continuing to
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spend more and that on the future of our children. are there budget consequences? dr. swagel: absolutely, choice that you highlighted, that is the choice. since amherst -- alexander hamilton, that is part of the country. it means that policymakers must put in place more -- it is rising interest rates and debt payments pose a challenge and a choice for policymakers. >> i appreciate this hearing. i will say to my colleagues on the other i'll that i am interested in the deficit. i would like them to work with us on immigration, the truck tariffs and the tax system that funds a government in the way that is good with physical health as well as for our children. >> are you five minutes to the gentleman -- healed five minutes
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of the gentleman. >> i want to build off any talking about the deficit. we have the 2020 one deficit, the second highest in american history, with $517 billion over cbo's evident -- estimate but the biting administration wants to tout deficit reduction. seriously, do you think we are stupid? dr. swagel: i think i should answer that question. -- i don't think i should answer that question. >> it is ridiculous. we have to $.78 trillion deficit that has been almost three times the average trillion dollar end year average debt and they are saying it is a deficit
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reduction. it baffles me that someone could think that our saviors. let me ask you this. what was the largest contributor to the deficit growth between last year's possession and this year's? dr. swagel: some new legislation that was enacted with investment infrastructure cap act and the fy 22 probations that were passed earlier this year. new spending, some of that shows up this year. that was offset by increased revenues and the pandemic related spending that fell away. that is why the debt has fallen from 20 trillion last year to one trillion this year. a combination of the pandemic spending falling away and increased revenue. >> has the administration and
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the democratically controlled congress, have they taken any steps to stabilize the debt or deal with the dramatic disparity that we are witnessing right now between our growing spending and the revenues that fail to cover that spending? dr. swagel: fiscal trajectory is challenging. i think that is the message. we released yesterday that choices need to be made. maybe not even five end of the 10 years but the trajectory is challenging. >> all know that inflation that has gone -- we all know that inflation has gone up every month since the president was in office. i guess you could make the argument that the -- it went down a couple tens of a point in
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one month. i can guarantee it will go up this month. this president went in office, the inflation rate was 1.7%. we are at a .3%. -- 8.3%. we have a spending problem. how much do you think we need to reduce the deficit to stall inflation? dr. swagel: some of that is in the works with the production and the falling off of pandemic related spending and the amount of contractionary impulses that is needed to reduce inflation will depend on the fat's efforts and on the supply constraints falling away. i can't give you a single number of what needs to be done -- it depends on the >> what happens with the supply side?
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>> let me ask you something, inflation was at 7% in 2021 and it was at 8.3% over the last 12 months and it's running at 11% pace so far this year. the last time we experienced this kind of inflation, the effective interest rate on the debt was 10.8%, how does that limit our ability to reduce our debt? >> you know, it's an important challenge that as interest rates go up, given the increase in the debt level, that means that net interest outlays will rise the budget and the economy. and so, we have a pretty moderate increase in interest rates and that already has a pretty substantial rise in spending to service to death. >> to debt. >> and correct me if i'm long we had an increase by the federal reserve wii resulted in
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29 billion dollars interest. an increase of 29 billion dollars interest just like that. >> right. >> and don't think that the interest rate isn't going up again. it's probably going to go up two or three more times at that rate and how much is that going to cost us? >> right. and we have-- i'm sorry, i'm ott of time, but it's like-- what's it going to take? what's it going to take to get people's attention? what's going on? >> is that a rhetorical question? >> no, no, it's a real question and maybe you could follow up in writing for me. tell me what it's going to take because i really need to know. mr. chairman, i appreciate your indulgence and i'll yield back. >> recognize the gentleman from pennsylvania, mr. boyle for five minutes. >> thank you, mr. chairman, i know instead of getting into the partisan food fight and
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score points, i'm going to use someone as esteemed as you perhaps for better person. i'm struck, mr. swagel, whenever i'm with yellow colleagues of mine, parliamentarians around the world and especially in europe. obviously, right now the russian invasion and attack on ukraine is paramount, but a close second to that is every one of my colleagues is speaking about the inflation going on in their country. it's pretty much a world-wide issue so hardly something we're dealing with in the u.s. so, i was wondering if you could take a step back and maybe give us the lay of the land internationally and especially in other western democracies, at what inflation looks like for those countries. >> okay. no, very good. i can speak to that. and in that effect, the u.s. because the condition of foreign countries affects us both, you know, both china there, and what it does to our
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supply side and demands for other exports. some are suffering with the same as we are and i talked about earlier, that ukraine really to find food and energy and europe is much more affected by the negative effects of the energy shock there. so inflation is a reason for all countries, you know, for the u.s.-- and the u.s. is first. it looks like we had something din last year, a combination of the supply issues in the u.s. and the demand of the u.s., and go first. and so that, you know, that's a factor and more recently all countries are facing similar challenges together. >> my belgian colleagues tell me theirs is over 8%, french parliamentarian pegged it at 7 1/2. so, obviously, this is a challenge worldwide. do you think one of the lessons coming out of covid is, well, you'll see that this is a bit of a leading question, but something i've been pushing for
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for a number of years now is to increase domestic manufacturing, both for economic reasons, but also in terms of our national security. do you believe now that coming out of the covid experience, the argument for that is strengthened and maybe you could even talk about some other critical parts of our supply chain that we now realize are really at risk and covid helped expose that? >> right. i could talk about a couple of dimensions and of course, there's many dimensions to this. it's almost the closer it gets, the more dimensions you are. and so, we've seen the supply chain issues that have bedevilled the u.s. economy from the pandemic. and items in the u.s., those supply chains have been more resilient, but even there, the issues with labor supply have affected the u.s. i think we all understand now
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the impact of some of the critical supply chains like in medicine and, you know, other critical issues, relying on foreign countries is difficult. not every foreign country is the same so there's an important discussion to be had there with trade alliances. and with the formula, where there's ample supplies, global supplies of safe and nutritious formula. it's the u.s. that introduces that, we have inflicted the problem on ourselves. so, it's a-- it's sort of a-- it's just a different wrinkle on the supply chain. it's coming out of the pandemic, i think we all understand we need to focus on this more, an impact on families. >> yeah, one thing in speaking to stevenson, he believes that inflation is going to be a challenge for the rest of the year, beginning to come down next spring and once it drops,
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dropping precipitously, you talked about this way back in the beginning and i was wondering if you could offer your thoughts on that timetable, where you agree, disagree. >> yeah, so, we have that supply issues facing the country generally waning over the course of this year. i talked earlier about the labor supply, that's one. we see some of the trade supply issues and the swaying -- situations at some of the u.s. ports, the chinese lockdowns don't seem to be affecting it too much. and then inflationary pressures will diminish over the course of the year and ever course, as we discussed a couple times, the, you know, demand side, pressures driving inflation will diminish as well both from what the fed is doing and from fiscal policy, the pandemic spending falling away. >> well said. thank you, it's always a pleasure to be with you. thank you. >> gentleman's time has
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expired. recognize the gentleman from virginia for five minutes. >> thank you, mr. chairman. i want to thank director swagel for being here as well. despite the last update of inflation being 8.3%, the new baseline project rate of only 5.1% in this quarter. i think that everyone with prefer if inflation were only 5.1%, obviously, however, cbo is underestimating the level of inflation. we all know the assessment of our fiscal future is sensitive to inflation, you have inflation going down over the next year quite a bit. can you talk about if inflation does stay at the rate that we're seeing now, the impact that that would have on families, particularly, you know, those who are working on fixed incomes? >> oh, absolutely. the inflation we've seen
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already, it means that family incomes don't go as far. wages are up, nominal wages are up and prices are up by more. so most americans over the past year have seen their real take home pay go down. and if that continues, as you say, that would continue to pose an important challenge for families. >> now, we're expecting federal deficits to exceed $2 trillion by 2031 and 2032 going on in perpetuity. the president's budget does nothing to address these deficits going forward. does nothing to move us towards fiscal responsibility or balance in any way. and this represents a huge crowding out of private investment and economic growth. how would you say that that, these recurring deficits are going to impact the fiscal futures for american families as well? >> oh, it's through the mechanism that you've highlighted is an important
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one, that the deficit over time, as it gets harder, crowds out private spending, private investment and at least the higher interest rates that affect american businesses and american families and affect job creation and productivity. you know, again, this is-- and our forecast, it's not a crisis, we don't have recession in our forecast, but it's more like a slow undermining of the-- this foundation of success for the american economy. >> and cbo is also expecting to hold the debt to roughly $2 trillion for the next three years. this would also contribute to that crowding out of private investment. the last time that that promise to reduce the holing of federal debt only off loaded about 750 billion leaving 300% larger than before the 2008 financial crisis. do you think that the fed will reduce its assets by that much and stop facilitating massive federal deficit? >> in our economics forecast we
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have the-- as you said, reducing, you know, the holdings, going from quantitative easing to quantitative tightening and that is pushing up long-term interest rates and it's in by design that it's trying to reduce demand in economy to reduce inflationary pressures, but that, you know, that is has an impact, impact on families and businesses, of course, the challenge as said is getting that right and reducing inflation without, you know, excessive negative effects on families and businesses. >> you know, the government is repositioning and implementing more of this pseudo socialist ideology that the current administration and the current congressional leadership is promoting. government right now spends $4 on wealth redistribution for every dollar it spends on
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government services. this uptick represents a decades long shift of the government moving closer to this pseudo socialist dystopia to the left. does cbo have a position on the trend and of the government redistributing wealth as opposed to supporting economic growth? >> okay. i would say that the-- this is the transfers that you're pointing to are part of the physical challenge. as we go out further. we have debt to gdp going to 110% by the end of the 10-window and that's driven by mandatory spending by social security and medicare. cbo doesn't have a position on what the right spending is, how much or for what, but it's just a budget arithmetic that the fiscal challenge is driven by mandatory spending. >> and does budget do anything
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to address this increase in mandatory spending? >> no, our projection is current law. the current law has this very challenging fiscal trajectory. >> and that's the greatest tragedy of this administration. thank you, i'll yield back. >> the gentleman's time expired. now i recognize the gentleman from iowa for five minutes. >> thank you, chairman, and ranking member smith. i want to thank dr. swagel, director swagel for many here. >> my question is on pages 31 and 32 of your analysis the provisions of the 2017 tax act including expiration of many, the end of 2025 and phase out of bonus depreciation by the end of 2026 is projected to temporary slow down the economic growth, that's a real concern to me.
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looking at the economic growth rate you project after 2025, do you your projections consider the damage to the economic growth and opportunity that would accompany an increase in the federal tax burden from the expiration of these tax and job cuts? could you answer that? >> oh, yes, we do. so, we have, in the 2018 analysis showed the impact to the 2017 tax act in boosting economic growth and investments and growth and the exper ration of the provision, we have that as reducing growth, that economic growth and job creation, that's in our baseline. >> okay. so that's very significant. if those go away, the tax cuts go away this could be a significant reduction in economic growth, is that fair to say? >> that -- there's a slowdown. in our baseline, we have assumed that the fed would react to it and cut interest rates so that's why the
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baseline is some sort of modest slowdown because we're anticipating that the fed would react to it. that the fed would see coming and react to it in part, but there would be an economic impact. >> i'm glad you said that, there would be a true economic impact. i want to transition on the forecast on our trust funds, set to expire in the next several years. we've got real problems and i understand the cbo is required by law to make full payments after they expire. however on page 127 of your report, it notes all active trust funds including social security, medicare part a and trust funds to ultimately increase the debt by $14 trillion the next years. director swagel can you explain to the committee the seriousness not mitigating spending costs of these programs and the catastrophic effects that could exist if we don't start looking at these
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programs and how to fund them as we move forward? >> absolutely. and it's the trust funds that represent the fiscal challenge, not being over the horizon, but really right in front of us. and the trust funds and some of our accounting devices that redeem the special purpose bond and the trust funds that the treasury has to arrange revenue just in the same way as it does fund any other spending. so that table is b-2 on page 127 as you mentioned and that shows the deficit impacts of the trust funds over the next 10 years and is nearly 13 trillion, nearly 14 trillion dollars. >> this is serious to me the administration or the majority party are not looking at this. it's something that we've got to get our arms around. it was stated yesterday that the u.s. economy contracted 1.5% on annualized basis in the first quarter of this year. the downgrade revision of the
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gdp to me is very concerning. and it was noted that the contraction was partially attributed to the u.s. spending more on imports, with us reducing u.s. exports on domestic goods. the administration has cleared showed that trade is not priority, it's not filled a lot of the trade positions and in that sense has not affected any unilateral or bilateral trade deals. can you explain how critical trade is as we move forward? >> absolutely. and trade is a critical part of our economy, as you said, you know, it's an important factor in what happened in the first quarter. we see some of that unwinding over the rest of the year. we expect a big growth in other countries that should boost our exports, but over time, trained as a critical factor in the u.s. in supporting growth, in needing to lower inflation and
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also boosting productivity. larger markets mean, you know, through trade, help american firms whereas a greater variety for american households, boosts the choice and lowers prices. >> absolutely. and i appreciate, director, what you're saying. trade is so critical and again, it doesn't seem like this administration has a handle on it, doesn't care about it. doesn't fill positions, is not doing any bilateral, unilateral trade deals, i'm so disappointed there. thank you and i'll yield back. >> the gentleman's time expired and recognizing the gentleman from virginia for five minutes. >> thank you, mr. chairman. thank you for your testimony, director swagel. thanks for your appearance today. i find it interesting, if not surprising, that not many of our majority want to participate today and defend the disastrous recommendation of this administration, let alone the budget, which exacerbate the problems that we have. it's interesting, the only
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calls for bipartisanship that i've heard from democrats in my first term is this hearing and when they hear about the disaster that they've created economically. director swagel, if democrats were trying to ruin the economy, they were trying to do that, what would they have done differently on spending, on energy, paying people not to work, growing the welfare state, firing people for not getting vaccines, closing or making it hard for businesses to operate, suspending rent and student loan payment and continuing other covid mandates, so forth. what might you do differently if you were trying to ruin the economy in the past year and a half? >> in our baseline, you can see the effects of the supply challenges that are facing the economy, and with the labor participation, people not coming back, you know, in part that's because of-- health reasons. anything that would get people to come back into the labor
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force, that would support greater supplies and stronger economy with lower inflation. >> yeah, i just can't imagine you'd do anything differently if you were trying to ruin the economy than what they've dop the past year and a half. do you think that the americans can afford the build back bankrupt plan? or said differently, how much more if they were passing the unprecedented $5 trillion worth of spending last fall. >> you know, cbo won't evaluate the merits or demerits of policies. we won't tell members what to do. the deficit reduction we've seen this year is under current law, so if there's additional spending, that would go in the other direction of deficit reduction and that could have implications for inflation as well that i think has been widely understood that, you know, that the lowered deficit means some fiscal constraints and that's reducing inflations along with the actions of the
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fed and the additional spending in other direction and details matter, but for speaking, that would have on inflation as well. >> thanks for bringing up the debt. the administration is claiming deficit reduction, the trillion dollars or so, but as you know, they're not going to stop with the spending. the democratic majority they're going to try to get the build back bankrupt plan for peace meal or what have you. and last year, an abnormally high number under the disastrous american rescue plan. do you think it's physically responsible to overspend by a trillion dollars, even over what they've projected right now? >> the deficit is large under current law and that has important economic steps, right, that's at least higher interest rates and higher inflation, and that would, you know, a wider deficit would make those challenges even greater. >> during the state of the
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union, the president said that to combat inflation, businesses should just lower their costs, demonstrating i think a fiscal or economic illiteracy there. and accused them of price gouging, key members of the administration said that. do you hold the view that businesses are kind of too dumb to understand that they should be trying every day to lower their costs and they don't really do that or do you think that they don't understand that they compete by the lowest costs possible. do you think look at the view expressed by the president and some in the administration? >> our baseline rejection assumes that business-- the assumptions that businesses are doing their best. they're trying to lower costs, trying 0 sell more and help their customers. so, we don't have price gouging in our baseline. >> thank you, i wouldn't think that you would and i appreciate the answer on that. >> do you think that-- can you confirm that overspending doesn't contribute to inflation in your view?
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>> you have to go what i said before. it's a myth, it's together, it's substantial demand, including for fiscal policy, together with supply constraints. >> and let me stop you for a second the president's budget proposed a massive increase on spending the next 10 years admitted. what's that going to do with prices going forward? i'll let you finish with that. >> and at the clock, i'll be quick. we had inflation coming down on our forecast and we had fiscal constraints with the actions ever the fed and supply challenges waning. deviations from that would feed into higher inflation. we haven't yet on the president's budget, we will have that later in the summer. >> well, we look forward to that analysis. but thank you, sir. thank you, mr. chairman, i'll yield back. >> the gentleman's time expired. welcome the gentle woman from
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texas, ms. jackson lee for five minutes. unmute, please. >> i did it again as they say. let me-- mr. chairman-- >> i've done it once during the hearing myself. >> i did here so i feel i'm in good company. let me thank you for this hearing, as well, thank the director, dr. swagel. let me indicate to my colleague, i'm actually in the middle of a memorial for uvalde, we're all overwhelmed here in texas so it's not that you live in uvalde, it's that you live in texas and we're all broken and we know that the nation is praying for these families. i thank you for yielding to me at this time. dr. swagel, i'm going to ask one answer questions so that i can get an overview of the direction in way i wish to go. first of all, let me ask the
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question, in your economic life have you seen the economic impact of a-- of the pandemic? have you been through did have we been through in the last 50 years, sort of wars, a pandemic of this sort where the economy was practically shut down? >> the pandemic is unprecedented in our lifetimes. >> so we're looking at an economy that is now in the midst of or in the aftermath of an unprecedented moment in history, and an economic unprecedented moment. is that not-- yes or no? >> i think that's fair to say, absolutely. >> and then is the economy performing better than previously assumed in comparison to-- as relates to the baseline in comparison to the february 2021 baseline? >> yes, the output is higher and the unemployment rate is lower than what cbo previously
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had in our last updates. >> and that was before -- that baseline was before the american rescue plan? >> that's correct. and so project on growth, employment, now are you assessing that they are more positive? >> yes, as we have stronger economic growth. we have increased employment. there's also higher inflation, so, you see the picture is complex, but the american rescue plan certainly contributed to stronger growth and stronger employment. >> and have we had more jobs created in the last year? my understanding is 8.3 million jobs created since president biden took office. >> so, yes, that the rebound for the pandemic over the last year has meant, again, unprecedented number. unprecedented increase in employment in the u.s. economy. >> let me quickly move to history, one tax cuts that came
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after president clinton and now the tax cut done under president trump. does that create an increased deficit in spite of the attitude of my republican friends. does that trump cut in particular create a deficit? >> yes, the cbo analysis from 2018 goes into the fiscal and economic impact of the 2017 tax act and we have that as increasing the deficit. >> the good news is that in 2022, we expect a trillion dollar deficit down from 2.8 million in 2021. >> that's right. down from 2.8 million and a decrease from the deficit last year to the current year. >> in spite of inflation we're concerned about from my families, my working families,
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we're not ignoring it, the economy is moving along. what is your assessment? >> so we have continued rae recovery from the pandemic, that growth is strong with the labor market this year. >> let me just ask an employment question and that is, wooef jobs. let me mix this with have you given assessment -- let me ask, i would like assessment of a comprehensive immigration program. meaning legislation congress would have to plan for, access to citizenship, green cards, et cetera. have you had that analysis -- i'm asking that said analysis on infusion into the economy and employment. would it impact employment negatively. do we have jobs in the united states now? >> it's an important question. the cbo did a fiscal analysis
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for the integration provisions in the build back better act. that was narrow relevance to your question as we focus on the fiscal impacts. it's been some time that they have the wider impact of the immigration to the economy and the jobs and mixing the entrepreneurship and innovation. that's something that we can do, we haven't done it for a while though. >> are you saying it would have a positive impact? i didn't get your point. >> it would, yes. and immigrants contribute to the economy both economically, fiscally through, you know, inhe no evaluation of entrepreneurship, and their children make contributions and their grandchildren and those are affected. >> so president biden, managed to survived a historic moment
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we never expected to be. dr. swagel and my time closes, dr. swagel. >> it's been unprecedented moment. i'm solid agreement with you. >> the gentle woman's time expired. now recognizing the gentle woman from iowa for five minutes. >> thank you, mr. chairman, for holding this hearing today and i apologize if you're hearing some banging. we're finally having work done on our house two years after a major storm. director, thank you so much for the work you do. the cbo provides such important rules for us as members of congress with the legislation that we're considering. with the run away spending out of this congress, combined with the historically expensive propoals from the bide administration, you've had your work cut out. under this administration the costs are on the rise and our debt surpassed $30 trillion. interest rates are rising.
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your baseline projection based in february of last year was 2% average inflation and as you know, we're well past that today. and democrats continue to say the solution to this is to spend more money and grow government. well, president biden wants us to spend another 4.9 trillion on the build back better agenda. build back broke, and the out of control spending is why we're seeing the numbers in front of us today. i've held a town hall in each of the 20 counties that i represent in iowa and there was a common theme across northeast iowa, it's that rising costs are the number one concern that i hear from my constituents here in iowa. families are truly struggling to make ends meet and we have to get our fiscal house in order. you know, working moms that have to choose right now between filling up their tank and putting food on the table, the restaurant owner who is seeing the chicken wings rise in price, double in price and they have to pass that onto
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their customers. restaurants are a mixed income and worried about making rent and those folks have been left behind by what's happening with our economy, which is again, a director result of the decisions made my the majority party in congress and the president in the white house. when omb director young testified in front of this committee on the president's budget, i asked her last year, were they thinking inflation would be transitory and answered yes, they weren't considering the impact of inflation. i i asked this year how they're projecting 2.3% inflation in the year and beyond. and they believed it was transient and didn't need to be looked at longer term. clearly it's not gone away. your baseline says that will continue into 2023. what does cbo account for here as far as inflation goes that the administration has formed. >> ours is based on current
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law, fiscal action which would put additional upward pressure on inflation. that's the thing that we don't have. >> so, you know, when you talk about that this is a miscalculation, if small business had a budget this way they would be out of business so when i look at this miscalculation by omb, it really does affect their ability to make accurate projections so that's a huge concern for me, so, i would ask you, what measures of the economic outlook does inflation impact the most? >> okay. no, it's an important question. so the three measures, first, is on the spending side, there's, you know, both-- what we call the primary gap, the spending on-- everything the federal government spends on and the social security benefits, i talk about jet fuel for the military, you know, home-- home health care aides, the things that the government
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directly and indirectly spends on and inflation raises the cost of that. inflation raises the cost of the net income payment as well. the government services its debt. higher inflation, for the higher rates for the federal government. inflation does mean revenue because tax nominal income and translates into higher revenues. and the net shows that the interest rates are the danger. the higher inflation leads to worsening deficit because of the higher interest rates and higher interest payments. >> because of the changes in fluctuation in the economy, they have in he is spends impacted your projections with your last baseline. can you kind of delve into that, how that's changed? >> okay, absolutely. it's compared to-- i'm seeing that over the 10-year outlook. the 10-year outlook has gone
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from, it's just over 12 trillion to over-- it's 14 1/2 trillion and the revenue has gone up. so this is again looking at 10 years. we see revenue, you know, going up by more than three, 3.4, initial 3.4 trillion dollars. its outlet by more. part of that is legislation, part is the economic facts such as high inflation and that's what's driving the increased deficits going from 12 trillion to 14 1/2 trillion over the 10-# year horizon. >> all right, thank you, director and i see i'm out of time. mr. chairman, i yield back, thank you. >> the gentle woman's time expired. recognizing the gentleman from texas for five minutes. >> thank you, mr. chairman. and director swagel, thank you for being here today. thank you for talking to me earlier this year. in fact, the chairman mentioned that the budget that we have
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before us, subject to this hearing a late. three months is probably significantly late in anyone else's book. would you tell us again why, why the delay for the cbo baseline this year. >> okay. and it's three different pieces to it. one was that we normally would have done an update in january. the-- there are people who would have done that were busy with the analysis on build back better and between the two priorities, we could not-- we could not do the updates in january. >> and may i just interrupt you there? >> no, please, please. >> it seems like that that would be-- if you were trying to properly price and project the cost of those-- of a major spending bill, major spending reconciliation bill. you would at least want to have
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your baseline set or you would at least prioritize the continued work onseting the baseline before you proceeded with another massive spending project if you were truly concerned about the effect of-- or the bugetary impacts of what you were doing. would i be wrong to make that sort of assumption? >> of course, the way this information would be helpful and we try to be as helpful as we can to policy makers, but that build back better, that's a first of three components to the delay that we face. i can go to the other two quickly. >> can you quickly? >> very quickly. the second is a fiscalier, 2022 precipitation that those were delayed as well and then the third is the president's budget, that that was delayed and as we get information on last year's actual spending when the president releases the budget. and so, those three components pushed our baseline, our
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economic update back. >> so two on the white house and one on the congress that kept you from being able to do your job. but when we spoke earlier in the year, it's suggested to me that the strength of the economy going into the pandemic was much stronger than you had anticipated. did i understand that correctly? >> that is correct, that economy in early 2021 as compared to the forecast that we put out in early 2021, the economy was stronger, that people were coming back into the labor marked and the impact of the fiscal policies have been undertaken, i think is more impactful than we understood at the time. >> and to be clear this is fiscal 2021, so starting october 1st of 2020. >> that's right, the act that was enacteded end of 2020, had
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more economic impact payments, rebate checks and unemployment insurance and some of the other things. >> another thing you related to me is that the amount of tax collections were stronger than you had anticipated. and it looks like from your report that you're delivering a statement today that that has continued, is that correct? >> that's correct, it continues to be the case. the economy is stronger. there are some timing shifts that the pandemic, delays and taxes we're seeing that come back now. even beyond that-- >> and when you report a reduction deficit. is that largely because of the income tax collections were stronger than what you'd anticipated? >> you know, it's a mix that compared to our previous analysis. >> how much of that makes -- was increased tax revenues?
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we were all told that this was a trillion dollar give away to the millionaires and billionaires according to chairman sanders. so what's the deal here? >> so you know, if you compare the projection that we made for 2022, right. so we're saying it's a trillion dollars and we previously thought 1.2 trillion and the revenue mix is 400 billion than we thought. >> that's an important number, 400 billion stronger, that's pretty significant. look, do you stress test this stuff? we require banks to stress test their predictions or balance sheets. does any of your modeling stress test what's happening with the economy with the spending of the biden administration? >> no, absolutely. something that we think about. i think about what, what could go wrong. and we've done some of this
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work and we had recent work that we did for senator crapo and the finance committee on what effects, physical effects of higher inflation, we look at two scenarios. we continue to do some of that, what is the effects of the economy and the situation. i'm hoping we have more for that. >> i well, i hope to follow up on that. >> the gentleman's time expired and now recognize the gentleman from california for five minutes. >> thank you, mr. chairman. mr. swagel, i'd like to talk about alternative policy solutions that you have examined in the outlook and how those fit into the long-term battingry and economic outlook that the cbo issued a few months ago. in long-term outlook if i'm recalling directly, you expressed some grave concerns that by the end of the forecast period on the path that we were
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on, that net interest outlays would exceed 8% of gdp, would consume over half of all tax revenue and that if interest rates increased m response to inflation, that would get much worse and that sometime between now and then, something would have to be done to get the deficit under control. have i got that right? >> no, that's right. the fiscal challenge now, the further we go out it's more challenging. we'll have another update on that at the 30-year horizon i'm hoping in july. it will get more difficult, honestly. >> okay, so in this outlook that we're discussing in this hearing, you examine a couple of different policy alternatives and you analyze their impacts on the deficit and you've got a table the ones that increase the deficit and can you tell me which of those
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policy snare yes actually have a result in a shrining-- decline deficit over the course of the periodments we did alternative scenarios, some with higher spending. some with lower spending, and some with the lower spending freezes appropriations at the current level and that reduces the deficit. you know, we look just as, in that, that was just at precipitations which were not the biggest part of the challenge. >> yeah, discretionary spending i think you call it. >> yeah. >> if i'm reading it right, although it reduced the deficit over the baseline it did not over the-- >> that's correct. >> let me ask again, which of these absolute bases, which of the scenarios you've laid out actually reduce the deficit on
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an absolute basis? >> there are two reports, one we'll have by later at the end of the year. and the infrastructure and jobs act, by the budget rules, that gets extended out through the window, there's a box on page 77 of the reports, it's box 3-4. and if that doesn't get suspended that would be enough to reduce the budget deficit. >> not on an absolute basis. that means that change, if i'm understanding right would not result in the budget sfit decreasing overtime instead of increasing. >> that's correct. >> and the crux of what i'm asking here is why are we not examining policy alternatives that result in an overall design in deficit instead of an increase if, as you say, we
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should be concerned about this increase in deficit? >> i agree, it's a grave concern and we'll have that for you later this year. probably december we will have a new addition of our budget office's volume that goes through a wide range of policies and we'll go through the policies that change the course of the river and make an impact on the deficit. >> okay, wish that every outlook you gave us with the policy alternatives would include those alternatives just to illustrate the gravity of the problem and the magnitude of the changes that are going to be required to affect, you know, that trajectory. >> along those lines, lets me mention something that the congressman mentioned, the trust funds, and the declining balances in the trust funds and
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125, 126, the outlook, and that that mandatory would continue regardless of the balance in the trust funds, but say on the previous page that the governor has no legal authority to continue to expand anything when the balance of the trust funds is exhausted, other than the revenue coming in. so those two statements or intentioned and i'm wondering, why do we do it that way. we're contradicting ourselves in the span of one page. >> no, i agree, there's a tension there and we're following the budget rules and it's tables b-1 and around the chapter that you showed, it's trying to provide that information and it's the deficit control act that requires us to do it that way. and so we're trying to provide as complete information as we can to follow the law and provide additional information to show the impact of that tension that you mentioned. >> i would encourage you to do that in the future.
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i see my time expired. please, in the previous outlook, you made it plain, just attracting is not going to be to solve this problem and regardless of your political party and we have to look at the trust funds and what to do as our balances are exhausted. and as uncomfortable as that conversation might be please include those scenarios. mr. chairman, i'll yield back. >> gentlemen's time has expired. and now from new york. >> thank you, mr. chairman, i do have to shake my head there's been a lot of celebration of a trillion dollar deficit. i want to say i'm not celebrating the trillion dollar deficit which is one of the
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highest deficits we've ever had. only in washington. i wanted to first ask you, if we talk about the issue of inflation and multitude of impact it has. you know, we talk about the fact that the fed is now in an effort to combat inflation, has begun raising interest rates and expectations, they will continue to do so. so, you-- the cbo projects that a net interest team on the debt will be the 8.1 trillion over 10 years and that would be 1.9 trillion higher than previously or due to the increase in inflation that's projected. that in my mind is, you know, money that especially wasted because we have to -- we have
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to pay because the rate of inflation increase. i wonder, as we talk about inflation and certainly, our priority as representatives is the price that our citizens are incurring when they go to the park, when they go to the grocery store, et cetera. what is the delta, if you have one, on increased costs of running our government and the government buying everything due to this inflation that if inflation was at its previous levels several years ago, we wouldn't have had. >> it's an important one and the u.s. government buys a good range of services to pay salaries, it buys jet fuel. it baste everything and so that has an important impact on spending. there's a revenue the tax code
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that that's going on. >> inflation has an important impact on the government. we haven't done-- we haven't looked at just that in isolation. you know, we've looked at the net of all of these things. >> just like on the-- you know, certainly related to the two things of inflation and the interest rate increase. given the most recent economic data, what do you feel the likelihood of recession is later this year and next year? >> okay. so, we don't have a recession in our projection that, you know, today that is a challenge that demand is too strong relative to supply. it's about supply and demand, but we have very high demand. as the fed tightens, we've seen it happen in the markets, and of course the possibility of recession. you know, we don't have that in our projection and we try to be in the middle of range of
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possibilities and so certainly, you know, at one side. it is the possibility. >> thank you. thank you, mr. chairman, i yield back. the gentleman yields back and thousand -- now it's up to me and i yield myself 10 minutes for questions and comments and first of all, once again, dr. swagel. thank you for being here and for your responsiveness and the information. one thing that i think may be important to have as a part of the record is for you to briefly explain what this forecast, what this outlook is used for. why it's important and also, i kind of inferred a sense that some members, particularly on the republican side, think that you work for democrats because there were some pronounce and maybe the pronouns were used accidentally, but talk just in
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general about this process why it's important and what its purpose is. >> now, thank you. so we've served the congress. we work for both chambers and both sides, we're nonpartisan. and we work through the budget committee for the chair and the ranking members for the jurisdiction. and the update-- once the budget committee adopts the work of baseline, provides foundation for the policy makers to look at fiscal policy, whether on spending or revenue. and that's why we do it the way we do it and try to look ahead under current law as best we can so you have an evaluation on which to evaluate fiscal policy. >> and i know you constantly mention, give disclaimers about the uncertainties of these projections. i remember several years when jim geitner was secretary and
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appeared before the committee and i think paul ryan was chairman at that point. he was showing these starts going out to , and i asked the secretary how reliable given the piece of changes. and that they're involved in the world economy. how do you think that 30, 40 years are how reliable. and he said i don't think that projections going out five years are reliable. >> and 10 years, i know you have to do it, but would you agree there's a great variation and the possibility related to, relative to your projections at this point? >> absolutely. and you said, as secretary geitner said, the difficulty, it grows as we go out over time. but, and we understand that, we know that many of you, even
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are, you know, nominal dollars in your 10, dollar to your one. we do it because that's useful to congress, but of course, policy makers understand 10 years ago is now different. and what we do, we keep the baseline constant just so that you have a constant benchmark. as i said before, we know our inflation forecast is too low. right? we locked in in the beginning of march, subsequently events showed it was higher. we're still going to take the baseline and constant. so this is a consistent benchmark to evaluate all proposals. >> both sides, both chambers, this is at the key of what we do, is to be consistent so that, you know, you and your colleagues can evaluate the merits or not. >> thank you. i want to talk about inflation for a little bit. because we hear the numbers, 8.3%, the most recent one, your projections this year a little
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bit lower than that. and the comment made, you know, it's a $5,000 tax increase for the average family. well, it really depends on what the average family does and what it's composed of. does the impact of inflation on a family of six or eight, is different from the impact on a family of two. food prices are different. if you've been-- at one point, i knows-- i know, the inflation rate with used cars and growth. and if you're not buying a car, that portion of the inflation rate doesn't affect you. so it's really kind of individual circumstances that are going to determine the impact of increased prices on everyone. now, we know everybody eats and food prices are up and we have to respond to these as we can, but we generallylize because that's what we do. but one of the questions, you know, i know, for instance,
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everybody is saying the price of eggs is going up. well, they had to kill five million hens due to the avian flu. that's not anybody's policy. that's an unfortunate result of nature that impacted the price of egg. when the pandemic started lumber manufacturers stopped producing lumber because they thought there wouldn't be a demand for it. well, it turns out there was a huge demand for it and they weren't supplying it, the price of lumber went up five or six times and now come back down to a third of its highest level. all of these components make it difficult to, not just to figure out what happened to cause inflation, but also, to deal with it. because a lot of it, the actual marketplace and the decisions that producers made, the shipment of computer chips and so forth, impacted a lot. republicans want to say that
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the american rescue plan was largely responsible for this. my question is, have you done any analysis to what extent the american rescue plan contributed to inflation? you said it was a factor. and, but have you done any analysis to what extent it was a factor? >> no, so we haven't. we haven't tried to parcel that out. between the mix of demand, you know, the strong demand and strong, you know, not strong, the opposite of strong, the supply impediment and it's both and that's why the challenge of so many things going on changes in the economy and the labor market, you know, from health and scientific reasons, with the virus and we just have not disentangled that. at some point in the future people will go back and disentangle that. >> well, some have. i think that moody's analytics said it was 1/2 of a percent or a 1/3 of a percent. and team in san francisco,
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similar, goldman sachs less than 1%. and you know, larry summers predicted that-- is now taking credit for prae predicting the inflation rate from the american rescue plan and he said a third would be moderate, a third would be not. he tried to cover his bases totally at the time and now taking credit for it. but there are not a lot of economists who are saying that it's the lion's share of the inflation that we're seeing now. and what people tend to forget is now about 25% of the american rescue plan was essentially a tax cut. it was $1400 checks to almost every citizen in the country. in every congressional district on average there was by the
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federal government 900 million of disposable income. i think we can argue whether that was justified or not or whether it was neither or not, but i don't think that many of the million, hundreds of millions of americans who got that $1400 check sent it back. they were grateful for it and i think you can make a strong case that that had a large -- played a large role in helping the economy recover, saving businesses all over the country and saving lives. now and the other thing i would say is that-- >> we're going to leave the last few minutes of this program to keep our over 40-year commitment to live gavel to gavel coverage of congress. the u.s. senate is about to come in for legislative business. at 11:30 a.m. eastern lawmakers will vote on the confirmation on several of the president's nominees, including lisa gomez to be assistant labor
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secretary. they'll also continue work on a bill to expand access to va benefits for veterans exposed to toxic substances. live coverage of the senate here on c-span2. the president pro tempore: the senate will come to order. the chaplain, dr. barry black, will lead the senate in prayer. the chaplain: let us pray. eternal god, robed with honor and majesty, we praise you for the marvelous things you have done throughout our nation's history. lord, thoughts about your mighty deeds continue to fill us with joy.


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