Van Hollen Questions CBO Director on Economic Impact of Infrastructure Spending, Payroll Tax Holiday, Defense Sequester

Oct 26, 2011 Issues:

Washington, DC – Maryland Congressman Chris Van Hollen, Ranking Member of the House Budget Committee and member of the Joint Select Committee on Deficit Reduction (JSCDR), questioned Congressional Budget Office Director Doug Elmendorf at today’s JSCDR hearing on “Discretionary Outlays, Security and Non-Security.” A transcript of the exchange is below, and the video is here.

REP. CHRIS VAN HOLLEN: Thank you, Dr. Elmendorf, for your testimony. Just to be clear, if the Congress was to take action to repeal the defense portion of the sequester, all things being equal, that would make the deficit worse, correct?

DR. DOUG ELMENDORF, DIRECTOR, CONGRESSIONAL BUDGET OFFICE: Yes. 

VAN HOLLEN: Thank you. Let me just go back to, I think, sort of the overall theme which is that as a share of GDP, under current law non-defense discretionary spending is shrinking dramatically over the next 20 years, is that not the case?

ELMENDORF: Yes, that’s right, Congressman.

VAN HOLLEN: In fact, it goes to below three percent in your chart figure six which is a percent of the economy is about the lowest level since the Eisenhower administration. Now, there have been many questions that relate to the level of non-defense discretionary spending during the 2007-2008 period which was a component of the Recovery Act. Just to be clear, in your response to Senator Kerry’s question I think you indicated very clearly that that spending as part of the overall affordable care act actually helped the economy from getting worse, correct?

ELMENDORF: I think you mean the Recovery Act in 2009 and 2010 this year?

VAN HOLLEN: That’s correct.

ELMENDORF: And we believe those cuts in taxes and increases in government spending through that act increased output and employment relative to what would have occurred otherwise.

VAN HOLLEN: That’s right. And as we look forward in this committee – and received a letter from you – I think the calculation of the Congressional Budget Office is that about a little over one-third of the current deficit that we face is a result of the fact that the economy is not at full employment, is that right? 

ELMENDORF: Yes, Congressman. 

VAN HOLLEN: So even though we prevented things from getting a lot worse more quickly, clearly, we have a long way to go. And I wanted to follow up on a remark you made with respect to infrastructure spending where you said, “Many analysts think – the country should spend more in the area of infrastructure.” CBO, I know, has looked at infrastructure investments. Do you believe that is an effective way to try and boost job growth especially given the fact that we have over 14% unemployment in the construction sector? 

ELMENDORF: Yes, Congressman. We think a variety of government spending programs have increased, or government tax revenues if reduced, would spur economic activity in the next few years.

VAN HOLLEN: And I know CBO has also analyzed different forms of investment to see which would be more effective. There are a lot of folks out there who are unemployed through no fault of their own who are continuing to look for work. As I looked at your analyses, one of the most effective ways to boost consumer demand which, of course, is a big soft spot would be to extend support for people who are out of work through no fault of their own; is that right?

ELMENDORF: Yes, Congressman. 

VAN HOLLEN: Thank you. And another issue that is looming on the horizon is as of the beginning of next year, the current payroll tax holiday, which is in effect for all working Americans, will lapse unless the Congress takes action. And if that were to lapse and that would mean working people had less disposable income especially at this point in time, that would also dampen demand in the economy, would it not? 

ELMENDORF: Yes, Congressman. 

VAN HOLLEN: And all that damping of demand would mean less economic growth and fewer jobs, would it not?

ELMENDORF: Yes. 

VAN HOLLEN: Thank you. A lot of ground has obviously been covered here. I would just want to pick up on the question, or comment really, that Congressman Upton made and I think we’re all very aware of the fact that the clock is ticking here. And in my view, we have to accomplish an awful lot in a very short period of time especially given your constraints. And I really hope that this committee is able to complete its mission and come up with a package that serves two purposes. One is to try and get the economy moving again and get people back to work and you’ve described some ways that could be done in response to questions. And as you’ve also indicated that can also help reduce the deficit over a period of time because the sooner you get people back to work the more the economy gets back into gear, the more revenue that will come in. Secondly, we need to act to put in place a long-term credible deficit reduction plan that does that in a steady way without harming current jobs and economic growth and we need to do it – I believe – in a balanced way like every other bipartisan group that has looked at this challenge recently. And so I hope we can complete that mission – as you’ve indicated in your testimony today and before – in that long-term picture there’s two big components. One there is no doubt we have to get a grip on the increasing costs as a result of the baby boom retirement, rising health care. No doubt about it. And there are smart ways to do it and then there are ways that I think would impose a lot of unnecessary pain on Americans. But we need to reform the health care system so that we focus more on the value of care than the volume of care, more on quality than quality and then we have to deal with the revenue issue. And we all know that in the past decade, when folks at the top were paying a little more, the economy performed just fine. Twenty million jobs were created. The economy was booming. And so it seems to me that this is a time for shared responsibility to address our country’s needs and I think your testimony made that very clear. So, thank you, Dr. Elmendorf, and thank you Madame Chairman and Mister Chairman.