Briefing by OMB Director Peter Orszag and Chair of the Council of Economic Advisers Christina Romer
11:32 A.M. EST
DIRECTOR ORSZAG: Good morning. Thank you for joining us. I'm Peter Orszag, Director of the Office of Management and Budget. I'll give a brief overview and then I will turn it over to my colleague, Christy Romer, who is the Chair of the Council of Economic Advisers, to describe in a bit more detail the economics behind the fiscal year 2011 budget, which we are releasing this morning.
That fiscal year 2011 budget focuses on three things: job creation, middle class security, and putting the nation back on a path to fiscal sustainability. Before turning to the details of the budget let me just give a little bit of context and background.
We just came through a year in which a second Great Depression was averted. At the end of 2008, real GDP was declining by more than 5 percent on an annualized basis. At the end of 2009, it was increasing by more than 5 percent on an annualized basis. Although real GDP in the economy is now expanding, the employment market remains too weak. The unemployment rate is 10 percent and there are now 7 million fewer jobs than in December 2007.
That's why this budget includes important investments to spur job creation now, including the jobs and wages tax credit that the President spoke about last week, and including key investments in the drivers of longer-term economic growth -- education, innovation, and moving toward a clean energy future.
Now, let's also do a little bit of background and context on the budget. In January 2009, the situation that was apparent at that point involved two key features that are still the case. One was a significant increase in spending from 2008 to 2009, and the second was significant out-year deficits. Both of those were already apparent before the administration took office.
In particular, on the first case, in January 2009, several weeks before the administration took office, the Congressional Budget Office issued an economic and budget outlook. That economic and budget outlook showed an increase in spending as a share of the economy from 20.9 percent in fiscal year 2008 to 24.9 percent in 2009. The reality actually came in slightly lower than that, 24.7 [percent]. But the point was in a slightly different mix -- less mandatory spending, more discretionary spending, the point was that significant increase in spending as a share of the economy was already apparent at the end of 2008 and in early 2009.
Second, we also faced not only a 2009 deficit that was in excess of $1.3 trillion, but a medium-term deficit in excess of $8 trillion. And that came from two primary sources. The first was a set of policies -- the 2001 and 2003 tax cuts and the Medicare prescription drug benefit -- that had not been paid for -- that amounts to almost $6 trillion with added interest costs over the next decade because those policies were not offset.
And second, the effects of the economic downturn amounted to about $2.5 trillion because when the economy weakens, tax revenue declines and certain types of spending automatically increase. Those automatic stabilizers again added about $2.5 trillion to the projected deficit over the decade.
Now, that is an explanation of the situation in which we found ourselves and in which we continue to find ourselves, but it does not explain the path forward. So what in particular are we doing to bring the deficit down from roughly 10 percent of the economy in 2009? Several things.
The first step is to make sure you don't dig the hole deeper. We are particularly pleased that the Senate has now joined the House in embracing a proposal that the administration embraces, so-called statutory pay-as-you-go legislation. That is to embed in law the common sense principle that any new proposals or new tax cuts need to be offset so that they don't cause a deterioration in the budget deficit. If we had lived by this simple principle over the past several years, we would be facing out-year deficits that would be roughly 2 percent of the economy, and debt as a share of the economy would be declining rather than rising.
Second, the economic recovery, which will ultimately take hold, will help to reduce the deficit from about 10 percent of the economy down to about 5 percent of the economy by 2015, because tax revenue will recover and those automatic stabilizers on the spending side will also decline.
Our goal is roughly 3 percent of the economy, which would balance the budget, excluding interest payments on the debt. To get from 5 [percent] to 3 [percent], we have a series of proposals. The first is that we put forward specific steps to reduce the deficit over the next decade by $1.2 trillion, which would move us from 5 percent of the economy in 2015 to 4 percent. These steps include measures such as the financial services fee, which raises $90 billion over a decade, helps to repay taxpayers for the full cost of TARP, and also by imposing the tax on our largest financial institutions, helps to discourage the leverage that was partly the cause of the financial meltdown that we have experienced.
Second, we allow the 2001 and 2003 tax cuts to expire for those with incomes above $250,000 in 2011 and thereafter, as scheduled under the legislation. That reduces the deficit by almost $700 billion over the next decade.
Third, as part of our effort to move towards a clean energy future, we eliminate fossil fuel subsidies, which reduces the deficit by about $40 billion over the next decade.
And then in addition to all of that, we have a three-year freeze on non-security discretionary spending, which will reduce the deficit by $250 billion. Now, let me be very clear about this freeze. First, it is not across the board. Some agencies and programs are going up, and other agencies and programs are going down. In particular, we're investing an additional $3 billion in education, because that's one of the keys to future economic prosperity, even while we're reforming those programs -- for example, taking 38 existing, duplicative programs, consolidating them into 11, and putting more emphasis on results rather than just funding.
Second, we are investing significantly in research and development, including more than $61 billion in fiscal year 2011, which is up 6 percent, because research and development and innovation are also key drivers of economic activity.
And third, we are investing in clean energy -- more than $6 billion to move towards the energy sources of the future, working in concert with elimination of fossil fuel subsidies so that we can become the world's leader in green energy.
All of these together move the deficit in 2015 to roughly 4 percent of the economy, which as I've said is above where we'd like to be. To get the rest of the way there will require a bipartisan process, which is why we are calling for a bipartisan fiscal commission tasked not only with addressing our long-term fiscal imbalance, but also producing plans that will balance the budget, excluding interest payments on the debt, by 2015.
Finally, let me note that that all has to do with deficit over the next decade, making key investments in job creation today, reducing the deficit by $1.2 trillion over the next decade, while investing in education, innovation, and clean energy.
In addition to that set of challenges, we also face a long-term fiscal gap, which is driven primarily by health care costs. And one of the reasons why the administration has been so focused on comprehensive health reform legislation is that it would not only reduce the deficit over the next decade, but perhaps as importantly or even more importantly put in place the infrastructure and the policies that will help to constrain costs and improve quality in the decades thereafter. And unless we do that, we will continue to face a very substantial long-term fiscal gap.
Thank you. And with that I'll turn it over to Christy to go through our economic assumptions.
DR. ROMER: Well, thank you. As Peter suggested, I'm going to take just a few minutes to summarize the key economic assumptions underlying the fiscal 2011 budget.
As you may know, the Council of Economic Advisers takes the lead in a process that includes the Office of Management and Budget and the Department of Treasury to produce the administration forecast that goes into all of the budget projections. Our forecast was finalized back in mid-November, on November 17th, and so is based on data through the middle of November.
Now, I should say right up front as the professional forecasters in each of our offices who contribute to the forecast frequently say, we are economists and not soothsayers and all forecasts have to be understood to be subject to substantial margins of error. And I would say, particularly in the wake of a severe downturn such as we have been through, usual patterns surely provide less guidance than in more ordinary times. But we have certainly attempted to base the budget projections on our best estimate of what lies ahead.
All right, well, first let me talk about our forecast for real GDP growth. And in this discussion I'm going to focus on fourth quarter to fourth quarter percent changes, because I find these the most straightforward to interpret and to compare. So the administration forecast growth of 3 percent in 2010, followed by growth of 4.3 percent in both 2011 and 2012.
Now, our estimate of growth in 2010 is virtually identical to the consensus of private forecasters surveyed by the Blue Chip Economic Indicators and is right smack in the middle of the central tendency of the Federal Reserve's Federal Open Market Committee forecast that was released back in November. Our medium-term forecasts are also within the range of the other forecasts, but I think here it's true there is substantial variation across the different forecasts.
Now, as actually shown in chart 2-5 of the Analytical Perspectives Volume, our average annual GDP growth projection for the five years after the GDP trough is 3.8 percent, similar to the 4.2 percent historical average during recoveries.
Now, the forecast that the Congressional Budget Office released last week was considerably more pessimistic about both 2010 and 2011 than either of the administration forecasts or the Blue Chip consensus. And, actually as CBO noted in its release, they're required to make forecasts under the assumption that none of the Recovery Act provisions are extended; there's no new jobs bill enacted. And all of the 2001 and 2003 tax cuts expire at the end of the year.
CBO's report was careful to explain that under the assumption that some of these policies will be extended, its forecast would have looked much more similar to other forecasts.
All right, well, for the unemployment rate, the administration projects that we will end 2010 with an unemployment rate at approximately 9.8 percent. By the fourth quarter of 2011, it's projected to be 8.9 percent. And by the fourth quarter or 2012, 7.9 percent. These estimates are again in the range of other forecasts, both for the short and the medium run.
Now, our projections of the unemployment rate reflect the particularly severe toll that this recession has taken on the labor market and on American workers. To counteract the painfully high rate of unemployment and to accelerate the recovery of the labor market, the President has called for a number of targeted actions to jumpstart private sector job creation. And among these is the small business jobs and wage tax credit that he announced just last week.
Finally, let me say a word about the inflation rate. Here I'm going to focus on -- it's measured using the GDP price index. We project that inflation will be 1 percent over the four quarters of 2010, 1.4 percent over 2011, and 1.7 percent over 2012. I'd say that these projections are lower than those of some forecasters, and higher than others. The low levels of projected inflation reflect the effects of continued high levels of slack in the economy. Under these conditions we see little risk of noticeably increased inflation. At the same time inflationary expectations appear to be quite well anchored, and so we do not project rapid declines in inflation or deflation.
The administration anticipates that the inflation rate will level off at about 1.8 percent, squarely within the Federal Reserve's long-run projection range of 1.7 [percent] to 2 percent.
Well, there's certainly no question that the past year has been an incredibly difficult one for the American economy and for the American people. Because of the actions taken over the past year, the trajectory of the economy is greatly improved. As Peter mentioned, real GDP expanded strongly in the fourth quarter of 2009, and shows every sign of continuing to grow steadily.
However, as our forecast makes clear, the path back to full employment will take time and continued vigilance. The President is committed to taking every responsible action to accelerate job creation and speed recovery.
DIRECTOR ORSZAG: Okay, I think we will now open it up to questions. There are wireless microphones for folks asking questions, and I see lots of hands up over here, so why don't we start right there.
Q A real quick one. The assumptions you had were frozen from November 17th?
DR. ROMER: Yes.
Q So did those -- that didn’t include the fourth quarter, the 5.7 number that we got on Friday?
DR. ROMER: Absolutely not.
Q Okay. And then you -- is that when you decided that you would have $100 billion in stimulus funds that are -- job funds -- excuse me, my mistake; I don't know why anyone would make that mistake -- $100 billion that is driving your forecast for your 3 percent growth, or not -- you're not getting towards the House's version of $154 billion? Or what's the placeholder there?
DR. ROMER: So Peter can certainly -- the placeholder in the --
DIRECTOR ORSZAG: I'll do the placeholder.
DR. ROMER: You want to do the placeholder?
DIRECTOR ORSZAG: But just to answer the question about locking down --
DR. ROMER: So, yes, we certainly locked it down before we got the fourth quarter GDP number. So I think if that's the question, yes.
DIRECTOR ORSZAG: And then quickly on the placeholder, we have $100 billion in a jobs package that includes $33 billion or so for the new jobs and wages tax credit that the President talked about to spur small business hiring and increases in wages. And there will be other components forthcoming.
Q So that placeholder did influence the modeling that Dr. Romer has?
DIRECTOR ORSZAG: We anticipated that there would be some additional job activity in doing the economic assumptions, yes.
Q And it wouldn’t vary it that much whether or not that number is $100 billion or $154 billion or closer to the Senate's version --
DIRECTOR ORSZAG: Well, I also think you're comparing -- just let me answer the question more directly. The House had $155 billion; that's not completely apples to apples with regard to our $100 billion placeholder. So be careful about jumping to conclusions about relative magnitudes there.
Q But the assumption that you guys have does include additional jobs money in the range of $100 billion?
DIRECTOR ORSZAG: Yes.
Q Do any of the projections in the budget either for 2011 or in the outlying years assume that -- since you locked this down on the 17th, assume that some version of health care reform or even incremental health care reform, such as IT, would be signed into law?
DIRECTOR ORSZAG: We took a very simple approach in which -- since both the House and Senate had passed legislation, we took the average of the two. And you'll see in the tables the net deficit impact from taking the average of the House and Senate legislation.
So I would note, for example, that's just slightly north over 10 years of $100 billion in deficit reduction. So it's a very small share of the more than $1.2 trillion in deficit reduction that's contained in the budget.
And I further note that $1.2 trillion does not include the impact of winding down the wars in Iraq and Afghanistan. If you included that, you're well north of $2 trillion in deficit reduction.
Q Thank you. My question is for Dr. Romer. Can you explain a little bit about what's driving your optimism on GDP? You seem to be a little bit further than consensus on GDP, but in line with consensus on unemployment.
DR. ROMER: So I think the first thing to say is, as you pointed out, we're smack equal to the consensus in 2010. For 2011, we are again within the range, say, that the FOMC put out in their November forecast. We are a little bit higher than the consensus. I think -- I do want to come back to historical experience, because certainly one of the things that I mentioned is coming out of past recessions, average growth in the five years after the GDP trough has been some 4.2 percent. We are actually over that same five-year period. Our forecast has 3.8 percent, so we're certainly being, I think, very true to history, if anything, erring on slightly below the historical average.
So we think, based on what we're doing, the policies in place, what we see happening, we think this a reasonable, honest forecast.
Q I remember last year, I think in this same room, you gave a forecast on unemployment that was a little bit more optimistic than some others were saying, and you indicated then that you had information or data that others weren't looking at. Are you -- do you have data or information that is driving your GDP forecast that others aren't looking at?
DR. ROMER: Certainly. Let me talk some about last year. Certainly last year one of the things I was talking very much about is that we certainly had, we thought, better assumptions about what the policies that we would put in place would be. I think the first thing to do is to acknowledge that like many forecasters, certainly our unemployment forecast for last year was lower than has turned out to be, and that certainly I think reflects in large part just how, as I mentioned before, how severe this recession has been on the labor market in particular. Now, I'll say, one of the things that is also true, the behavior of unemployment has been usual, given the behavior of GDP.
The last thing I actually I just have to -- I can't help, since we've been pulling the numbers on this -- when we got the fourth quarter number for GDP, we now know what actual GDP change was from the end of 2008 to the end of 2009 -- it was 0.1, one-tenth of a percent. Last year we had -- our forecast was for it to grow three-tenths of a percent. So we in fact were, on the GDP forecast, I think remarkably accurate.
Just to give you some context, the blue chip, at the same time, was minus 1.5 percent.
DIRECTOR ORSZAG: That's an economic version of "Told you so." (Laughter.) Let's go over there.
Q So the budget identifies the high priority performance goals that agencies submitted, but it doesn't say whether or not those goals will lead to an increase in funding for the agencies. Can you talk about whether you are proposing additional funding in the areas that agencies identified as important?
DIRECTOR ORSZAG: Yes, the high-performance goals, which are new this year, were fed into the budget process and will continue to play a key role. We're integrating those goals with funding streams to make sure -- and holding agencies accountable for progress on the goals. So yes, the goals will -- are and will be reflected over time in funding for each agency.
Q I'm just curious about what you read into the fact that you're raising taxes to the tune of nearly a trillion dollars on upper-income families -- you have a lot of tax increases on multi-national corporations -- and yet you -- you are doing some spending cuts, and yet you don't get the budget down to below 4 percent of GDP. Does that tell you -- what does that tell you mathematically about the ability of President Obama to keep his pledge not to raise taxes on families under $250,000? What is the commission's instructions on taxes below $250,000? And I'm also curious, you've got a debt burden of 77 percent of GDP by the end of this -- by the end of the decade. Do you think the United States can handle that without courting a financial crisis?
DIRECTOR ORSZAG: Well, first, one of the reasons why -- let me start with the first question. I think what that reflects actually is the depth of the medium-term deficits that, as I mentioned, reflected the environment that we faced even at the beginning of last year. You have to remember $5.8 trillion, because the 2001, 2003 tax cuts and the Medicare prescription drug benefit were not subjected to PAYGO, we're now saying they have to be subjected to PAYGO; $2.5 trillion, because of the economic downturn -- we're taking steps to try to mitigate the economic downturn.
We do face a substantial medium-term deficit problem. And what we have said is we put forward proposals to get us part of the way there. The commission will have to get us the rest of the way there. We have been very clear about our stance on taxes, and frankly, on other spending proposals also. The commission hasn't even been yet named. Let's let it do its work and see what it can come up with.
Q So is that open? I mean, all things on the table --
DIRECTOR ORSZAG: Again, we have been clear on our position on taxes, but we have to let the commission -- it hasn't even been formed yet. Let's let it do its work.
Q Could you just clarify once and for all when the pledge to cut the deficit in half, are you taking -- my memory is that it was a nominal number, that you'd be, like, half of $1.3 trillion, the number you said was the deficit on the date the President took office. So does that mean $650 billion by fiscal year 2013? And, if so, you haven't hit that in this budget, you're over that.
DIRECTOR ORSZAG: That projected deficit was 9.2 percent of the economy in 2009. We hit 4.2 percent by 2013, so we're cutting the deficit more than in half as a share of the economy, which as you know is the way economists typically evaluate deficits.
Q Okay. And then the second one is on the three-year freeze, when you had said would be held for that share of non-security spending to $447 billion, I was looking on Table S-4 -- I don't see that figure; it's some others. Can you sort of reconcile that?
DIRECTOR ORSZAG: Sure. If you look actually at the bottom of Table S-4, at the very bottom on page 152, it says "Memorandum funding for appropriated programs, non-security," and you see the $447 [billion] in 2010. And then we actually are below that in 2011 at $441 [billion]. And then you continue the freeze -- $446 [billion], $446 [billion] in 2012 and 2013.
And let me actually pause on this because there's been some misconception too. What's clear from that table is that you see in 2009 there is a bump up in spending in that category because of the Recovery Act, which again was necessary to -- a key part of moving from minus 5 percent to more than plus 5 percent on economic activity.
As you can see, our freeze is not off of that higher base. Instead, it is off of the base in 2010, which excludes the Recovery Act. So the argument that we sort of raised prices before putting something on sale is misleading. We are going off of a base that excludes that bump up.
Q What would you say to federal employees who are slated to get an increase, but significantly lower than the increase in previous years? And also, the budget calls for the hiring of several hundred thousand workers over the next four years. In what areas or agencies do you think those people will be hired in?
DIRECTOR ORSZAG: Sure. First, federal employees will get a 1.4 percent increase in their salaries, which frankly I think to a lot of Americans sounds pretty good. It reflects a formula that is used to compute wage and salary increases, and is lower than it's been in the past because inflation is lower than it's been in the past, and so follows from that observation.
With regard to expansions in federal personnel, they have over the past couple years been disproportionately in the Department of Defense, the Department of Homeland Security, the Department of Veterans Affairs. Some areas where we are expanding the workforce include the acquisition workforce. We have $500 billion -- north of $500 billion in federal contracts. Over the past eight or nine years those contracts have doubled in size. The acquisition workforce has stayed constant. It's not too hard to figure out that oversight of those contracts has not kept pace with what it should be.
So we are investing in a variety of things to try to improve oversight of what the federal government buys, including cracking down on no-bid contracts, trying to bulk up on bulk purchases of goods and services, and also expanding the acquisition workforce so that we have better oversight of those contracts.
Q Both Speaker Pelosi and Minority Leader Boehner are saying that the Pentagon should be included in the spending freeze and there is a great deal of waste in contracting. Why is defense off the table?
DIRECTOR ORSZAG: Well, we need to remember, first, defense is not off the table in terms of fiscal constraint, but in terms of inclusion in the freeze -- we're at war and we need to make sure that we adequately fund our troops while we are at war. That having been said, there is significant constraint that's being imposed under Secretary Gates' leadership. I'll give a couple examples.
Last year at this time, we had proposed canceling the F-22 fighter jet. I think most of the people in the room at that time -- which, by the way, was a different room, but that's okay -- at the time thought that that was completely unrealistic, would never happen. We succeeded in not only canceling that, but also the presidential helicopter.
This year Secretary Gates has made it very clear that he doesn’t think additional purchases of C-17 cargo aircraft or other programs -- for example, the alternative engine for the F-35 fighter jet -- are militarily necessary and that we could do a better job by canceling those programs.
We are going to be pursuing those kinds of efficiencies in the defense budget even while making sure that our troops in the field are adequately funded.
Q And does the decision not to go to the moon not send the message to our rivals that we've given up?
DIRECTOR ORSZAG: Not at all. Let me be clear about what is happening at NASA. The Constellation program, which is over budget and behind schedule, was intended to do what we've already done, which is return a man or woman to the moon. We believe in the future of human space flight. We believe that NASA can inspire Americans and lead to scientific advances. So we do have actually a small budget increase for NASA. What we're saying is let's redirect that towards longer-range R&D, advanced robotics, research and development, and find those new technologies that will actually allow us to go further in space and not just repeat what we've already done, especially in a program that is behind schedule and over-budget.
Q Thanks, Peter. I had a question on the bipartisan tax panel. In your past life I think you were -- your institution certainly was involved in that, and they called for -- they were looking at two sacred cows: mortgage interest deductions and employer-provided health care. Some of that's addressed a little bit in the health care bill. But looking forward, as you start this bipartisan process, is something as sacred as that on the table?
DIRECTOR ORSZAG: Well, look, again, as I said before, we've put forward the proposals that we favor both on the revenue side of the budget and the spending side of the budget. The commission is not yet even formed and I think one of the important principles here is we have to respect the work of the commission and let it do its work. And that's what we intend to do.
Q Some advocates of the fiscal commission, while pleased that you all are going in that direction, would like to see more from the administration in terms of starting to talk about the tough choices that are going to be necessary. Was there any consideration when you put the budget together to either paying for some of the extension of policies, like the AMT or the Bush tax cuts, or not permanently extending them?
DIRECTOR ORSZAG: Well, again, we have $1.2 trillion in deficit reduction contained in this budget and a lot of painful choices that are -- that have already been put on the table and that we've already discussed some of them. So is more necessary? Sure. But we think that to get the rest of the way there and get the medium-term deficit down to where it needs to be requires a bipartisan process and that's what we're pursuing.
Q Hi, Peter. About the mortgage deduction and the charitable deduction, last year when that was proposed for this year, 2011, it seemed as though even among some Democrats on the Hill that there was considerable resistance to that idea, especially in a slow mortgage market or a slow housing market. Are you confident that you can get enough support in Congress for that? It seems as though that's one of the sacred cows that we've been talking about.
DIRECTOR ORSZAG: Well, again, let's be clear about what we're proposing. We're proposing to limit itemized deductions for the top -- under the top 5 percent of taxpayers back to the rate that applied when Ronald Reagan was President. So I think it's important to put in context.
Now, there's going to be lots of questions about the political economy of what can get enacted and what can't. And I would just again return to the point that last year many people were skeptical that we would succeed in getting a lot of the terminations and reductions that we had put forward at that point. We're going to fight for the things that we put forward because we believe we need additional job creation now and significant deficit reduction in the outyears, and I think that that reflects the priorities that not only the President has put forward but that make most sense for the economy as a whole.
Q Have there been conversations with the Hill on that specific provision?
DIRECTOR ORSZAG: There have been conversations with the Hill on lots of topics, not surprisingly.
Q An hour ago the President spoke about nation being at war. Can you give us a sense of your war spending, how much increase has been this year? And does it also include any common sense budgetary cut to which the President spoke about?
DIRECTOR ORSZAG: Yes. Even war spending is subjected to the same scrutiny that the base defense budget and other spending is. For fiscal year 2011 we have put forward a proposal for $160 billion to finance the wars in Iraq and Afghanistan. And that's roughly level with the -- all-in costs for 2010.
Q Peter, you talked yesterday about a glide path. Can you discuss sort of the challenge of trying to turn the tap off in a gradual way so as not to kick the legs out from the recovery?
DIRECTOR ORSZAG: Yes. So as I mentioned, we face two substantial challenges: a jobs deficit, more than 7 million lost jobs since December 2007; and a fiscal deficit with large outyear deficits, 5 percent of the economy, even after the economy has recovered. One of the challenges is we need to get those deficits down in the future so that we don't choke off economic activity and job creation. But we don't -- we want to make sure we don't do that too quickly or we will repeat the mistakes of 1937. Remember what happened then -- when the economy was beginning to recover, the nation moved to consolidate the deficit too quickly, and you threw the economy back into recession. We don't want to do that.
So what we're seeking is a fairly smooth path from roughly 10 percent of the economy today down to those levels that, say, at 4 percent of the economy by 2015, put us within shooting range of a fiscally sustainable path. And as I said, more will be necessary, which is why we're creating a fiscal commission.
But we don't want to act too rapidly to bring down the deficit because that would exacerbate the jobs deficit. And so we're trying to find this balanced approach in which we have a smooth glide path from 10 percent down to a more sustainable level, and I think that's what's reflected in this budget.
Q Thanks, Peter. Two quick questions. One, the President on Friday said he's read Paul Ryan's -- the President on Friday said he's read Paul Ryan's budget proposal. Wondered -- I'm assuming you've read it -- wanted to know if that's the case. Wanted to know in your words what you think is the biggest difference between your plan, your vision, or your way forward and his? And second, could you answer Jonathan's question about the sustainability of the debt?
DIRECTOR ORSZAG: First, as I said -- let me answer that first -- one of the reasons we are creating a fiscal commission is to get the deficit over the medium term down to a level that it has a stable debt-to-GDP ratio. And that is important. It also would be reflected in a balanced budget, excluding interest payments on the debt. So, that's the first point.
I would note, however, that for right now in 2010, private borrowing has collapsed; long-term interest rates on federal securities -- so the 10-year interest rate remains below 4 percent. And the reason that that has happened is, in a sense, the U.S. Treasury is basically the last borrower left standing. In the severe economic downturn that we have been experiencing, that is exactly what should happen, because it helps to bolster the economy in the short run. The issue is that as you go out over time and private borrowing picks up, you want to make sure that you're getting ahead of the fiscal deficit problem, so that you're not substantially crowding out private activity. So that's with regard to the first point.
Now, with regard to Representative Ryan -- I have a lot of respect for Mr. Ryan and I have read the plan that he put forward -- it is worthy to delve into that for a moment, because it provides a contrast. His plan succeeds in addressing our long-term fiscal problem, which is a significant accomplishment. But let's examine how he does that. He takes the Medicare program, and for those 55 and below turns it into a voucher program, so that individuals are on their own in the health care market. And the voucher does not keep pace with health care costs over time.
So it is not surprising that if you shift dramatically, both in terms of risk and expected cost, obligations from the federal government onto individuals, you can reduce the projected cost. He introduces individual accounts, privatization into Social Security. He has significant changes to the tax code that would provide large tax benefits to upper-income households, while shifting the burden onto middle and lower-income households. He eliminates the tax preference that currently exists for employer-sponsored insurance.
So it is worthy of pausing. He has put forward an interesting plan. There are many aspects of that that are worthy of further discussion and debate, but it is a dramatically different approach in which much more risk is loaded onto individuals and in which the Medicare program in particular is dramatically changed from its current structure.
Q The President was supposed to receive tax reform recommendations in December and that was delayed indefinitely. Is there a possibility that that could be folded into the fiscal commission's review, or is it just on the back burner?
DIRECTOR ORSZAG: I would imagine that it will be folded into the fiscal commission. I would imagine that -- again, the commission will be examining a variety of things, including tax reform.
Q I have a question about your assumptions for economic recovery. I was wondering if you can give a dollar value for the improvement in the economy and how that will affect the deficit -- the 10 percent down to 5 percent -- do you have a dollar figure for that?
DIRECTOR ORSZAG: Sure. I mean, there are various ways of calibrating that, but again, to repeat, economic recovery moves the fiscal deficit from 10 percent of the economy to 5 percent of the economy. Just to scale it for the sake of argument, the economy is roughly $15 trillion, so a 5 percent improvement would be about $750 billion.
Q And can you also -- to follow up on the question about the federal labor force, some jobs are going to be created and some are taken away. Can you give us any sense of scale of the number of jobs at stake?
DIRECTOR ORSZAG: I'm sorry, with regard to what?
Q The federal labor force, the changes in the government hiring.
DIRECTOR ORSZAG: I don't have a set of projections. We could perhaps get back to you with the underlying assumptions. There has been an increase in the federal workforce over the past few years, which has been in the areas that I mentioned earlier -- the Department of Defense, the Department of Homeland Security, the Department of Veterans Affairs, for example.
I think this -- we'll have time for one more question, so why don't we make this the last one.
Q I'm wondering, Mr. Orszag, if this budget is reflective at this point of any of Mr. Zients' efforts to improve performance management within the federal government? And if not, when would you hope to see -- start to see the results of his efforts in performance management?
DIRECTOR ORSZAG: It absolutely does reflect the work of Jeff Zients -- who, by the way is the nation's first chief performance officer and also the deputy director for management at OMB -- in a variety of ways. The federal government is going to spend nearly $80 billion on information technology. There are huge improvements that can be made and that are being made in the management of those IT investments, including, for example, a simple measure -- the It dashboard, where you can go online, click on individual IT projects, see whether they're behind schedule or not. It's already leading -- for example, the Department of Veterans Affairs, it led them to cancel some IT projects that were just being poorly managed. One example.
I already mentioned acquisition and reform of our acquisition workforce in contracting. That's another thing that the performance team has been working a lot on. Federal personnel and hiring, that team is working with the Office of Personnel Management to simplify and streamline the hiring process and also provide easier checkpoints so that those applying for federal jobs can check online to see what's happening.
So in area after area after area you see the work that has already begun in improving government performance, feeding into the federal budget.
So I think with that, I just want to thank everyone. If you have questions or first -- additional details, the President said available on budget.gov. And I think our press folks are available if you have additional questions after this.
Thank you very much.
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July 29, 2014
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