New york city who is helping us to h great and educated guide fr teachers speeded you canan finih watching this if you go to our website at cspan. Org. We will live there to take your life to a conference on federal spending and debt. Current debt, which is around 100 of gdp is at a level we havent seen since world war ii and is a growing cause of concern. Tackling this problem presents a variety of challenges. Today were fortunate to have a group of very smart and accomplished people who are going to share their insights. Well get to hear a variety of perspectives. To do this, we have a mix of panels, discussions and speakers. Well hear about the economic and fiscal challenges caused by the debt. The impact of debt on invests and consumers, the roles played by Social Security. Approaches for analysting fiscal policies and finally a discussion of potential policy options. And a number of dimensions of the debt challenge. For our first panel we have two distinguished speakers, arguably the two best economists to address the challenges around the fiscal policy and Debt Reduction. The robert d burch, and burch center for Public Policy and finance and alan has been deputy chief of staff for joint committee on taxation and has been advisor to several Government Agencies and institutions. A distinguished fellow of the American Economic position having previously served as an executive Committee Member and vicepresident of that association and as editor of its journal of Economic Perspectives and American Economic journal, Economic Policy. Alan is also past president of the National Tax Association from which he received the Daniel M Holland medal. Phil swagel is the budget Director Office since june of 2019. Served as assistant secretary for Economic Policy at the Treasury Department where he with as responsible for developing a wide economic issues, including policies relating to the financial crisis and the troubled asset relief program. He has served as chief of staff and senior economist council of economic advisors and at the reserve board and International Monitor fund and previously a professor at the university of Marylands School of Public Policy and a visiting color of the American Enterprise institute and what that, i leave it to you two. Thank you. All right. Susan, thank you so much. Thanks to ai and brookings and wharton and for arranging this and devon, thank you. We should turn this into a fiscal summit and solve the problem with the group in the room. All right. So, i have a couple of slides, which, okay, good i can see them there and these are on the cbo website. Im going to go through the slides pretty quickly just to sit some of the highlights and then talk broadly at the end about some thoughts on deficit reduction. And then ill you know, i think alan and i are going to hope to leave lots of time for discussion and questions. Okay. So theres a sense and this is, you know, the usual slides from cbo. So this one shows the deficit, the y axis as issue as percent of gdp, and so, theres some things that, you know, are known and familiar and that the deficit is wide and the next slide will be debt and that will also be familiar. I just want to take on some highlights here which is that the deficit is wide, even though the economy is doing reasonably well and thats unusual. Were past the pandemic and the fiscal response in the pandemic is mostly behind us and there are still outlays going out, of course, but the emergency 2020 fiscal response is largely behind us and yet, the deficit is still wide. This is a case before the pandemic and you can see before the spike, in 2019 we had a structural deficit. The economy was wrong, people throughout the Income Distribution were seeing rising incomes and we had a structural deficit. So, thats, you know, thats both familiar, but is just different. Its different than the large deficits weve had in the past. You know, the other thing you can see in the chart is the, you know, rising share of net interest outlays in the deficit. And you know, one could say, well, the Interest Rates have come up a bit, but in the future, the Interest Rates could go back down and thats not a problem and we all know about sort of r minus g challenges. And the challenge is that r minus g will help some, you know, if that goes in the right direction to help with moderate primary deficit, but the primary deficit is no longer moderate and its not set to be moderate out into the future. Now, the numbers here are based on our february, 2024 budget and economic outlook. We are working now on the Spring Update. The spring goes through june 20th so im pretty confident it will be spring, but late spring and so there will be new numbers and im going to talk about some. Fiscal numbers in things that are, you know, already public. So im not going to go into the analysis we havent finished, but i think the bottom line is that the next update is going to show a wider deficit and there are things that we know already that make it that the fiscal situation is probably worse than it looks. And this is already, you know, its already pretty difficult, but its probably worse than you know, its more difficult, worse than it looks. The second chart again is familiar showing the debt to gdp ratio, going off to infinity. You know, i promise it doesnt get better if you go past 30 years and you know, we have now what we begin to call the 250 problem. Which is what some point, right, the debt to gdp ratio can get to a high enough value that you kind of have to look at it and think really, is that like is it meaningful at that point and weve decided to our y axis at 50 gdp. This didnt have it, but a few negative shocks and then you can get a worse debt to gdp ratio and of course, you can imagine negative shocks to the numerator, the denominator, the debt being worse and gdp lower and then you really face the 250 problem. Of course, theres more debt and higher Interest Rates than these that were more vulnerable to further shocks. And so, cbo published an update to our rules of thumb work book. Theres an excellent spread sheet on our website and you can basically use that to say what if i make changes to the baseline and generally the economics so i did that and you can show that 50 basis points of higher Interest Rates so if the yield on the 10year treasury is 50 basis points higher than what cbo had in our last forecast, from december of last year, and it comes out to an increase in the deficit of more than 1. 6 trillion dollar over the next 10 years. So it gives you an indication of the sensitivity that we have and so the risk of worse fiscal outcome. Im going to talk a lot about dollars so when i said 1. 6 trillion dollars over 10 years and my charts are in share to gdp makes sense, but policy makers think in terms of nominal dollars. Ill try to speak both languages. All right. Let me briefly diverge into good news, which is, you know, not always what people get from cbo these days. So, this is a chart that shows the change in the 10year deficit outlook from the prior baseline, from the 2023 baseline through what we put out in february of 2024. So, from may 23 to february of 24 and you can see that the 10year deficit went down and theres a variety of changes in there. The biggest improvements came about because of the fiscal responsibilitiability responsibility act and the cap in spending and subsequent legislation and crs and appropriations that essentially have emboied those caps with certain judgments and we make no assumption about what a future congress will do. By statute theres a rule projecting spending forward. Using that mechanical rule. 2. 6 trillion, and so the fra was 2. 5 of that. Now, there are other changes, the last line is the technical changes and a large part of that is reestimated costs of the green tax provisions in the 2022 rec sill reconciliation bill. And it looks like those costs are going to be much higher than was originally estimated so this is offset some of the bugetary improvements, but on net, from baseline to baseline, theres an improvement. Now, whats not in here and ill have a whole list of things that are not in the projections, but you can see one already thats not in here and thats that we recently enacted a security supplemental. 95 billion dollars to ukraine, taiwan and israel. Thats not in here because that was enacted after the february 24 numbers were locked down. And so, its 95 billion added to the 24 deficit, but by statute that will be projected forward into the future and rise will inflation. So, just mechanically we know that the next baseline update that we publish in june, will show a wider deficit of course, up to future congresses to turn that into to decide whether to turn that into actual spending. Good. But anyway, this is the good news slide. So, well see if i can come back to the good news. Okay. Actually, im sorry, this is also some fiscal good news. So this shows the labor force, again, comparing our may 23 baseline to the february 24 baseline and it was a democratic projections and Economic Projections are at the foundation of the budget baseline and this shows had an important change that we made in the demographic projections and theres a chance to the past, so the past is not what we thought it was, because we realized in doing the work on the demographic updates toward the end of last year, we realize theres a disconnect between the numbers from dhs, the department of homeland security, on the number of immigrants who are released into the interior of the United States, those numbers seem to be disconnected from the population statistics that we get from the census. And you know, not a criticism of census, they do a great job, now, its a difficult thing when things are changing so quickly and for sure theyll get there. So this is not a criticism at all of census, but the demographic updates of the surge in immigration has a huge impact on the Economic Projections, and therefore, on the fiscal projections and this is just one view of it, looking for the change in the labor force. Theres over five million additional workers in the horizon the 10year budget window. I should say in our projections we have a surge of immigration going from 2022, when it started through 2026. We actually dont know when its going to end, so you know, whats the base is of saying 2026 was a little bit of were really not sure, you know, because there are many factors behind the surge, conditions here and conditions in the source countries. Regulatory decisions, policy decisions, social media. Lots of, you know, lots of things and its something were just going to have to keep watching and keep our eye on and see how long the immigration surge goes. Now, theres many impacts with immigration and what we have in our budget baseline is a relatively narrow view of immigration, its the cbo view. Right . The cbo, our job is the federal budget. So, theres, of course, enormous impacts on the state and local governments from the surge in immigration and thats not in here. Its not in this chart and its not in our bugetary statistics because were certainly aware, socially and politically important, if you live in denver and you know, the local government or local city groups are very important to you and i want to start by saying its not in here. And the other thing thats not in here, its not in here meaning the slides im going to show, impacts on immigration on Discretionary Spending, things like the border patrol, for example, is funded by Discretionary Spending so theres no cbo doesnt have a view about what a future congress will do in terms of providing resources to, you know, to agencies funded by Discretionary Spending. Again, thats not in the budget baseline, if the immigration surge results in Discretionary Spending in the future and that will be additional costs and well tally them when Congress Enacts it. First, of course, its the macro and its the gdp gdp impact and of course, the surge of immigration means a larger labor force and thats whats shown in the chart and that contributes to gdp. Our initial tally that we did for the february baseline was about a 7 trillion impact on gdp nominal gdp over the budget window. And that translated, according to our models, into about a trillion dollars of additional revenues, again, over the budget window. Some of the outlay impacts are in you know, were already in the budget baseline and anything through the tax code, theres a delay in most immigrants and eligibility for many of the federal benefits, but thanks to the tax code is a new immigrant coming through the surge, such as someone who comes in through humanitarian parole they generally have Work Authorization within a work and many get it at six months and many soon thereafter. So someone who gets, say a frl benefit through the tax code, whether its the tax benefit for employer sponsored insurance or you know, a tax credit, theyre in the baseline already that he have woo got. Many immigrants have a multiyear period before theyre eligible for certain benefits. For example, medicaid, theres generally a fiveyear waiting period for many coming in through the surge before theyre eligible for medicaid benefits. Theres certain emergency ones sooner, but that varies by the type of immigrant, which program they come in and which benefit. Thats the work that were doing now and that im hopeful that were going to, you know, have in the spring baseline and put out lots of material with that, is what are the outlay implications of the surge of benefits. The surge of immigration. The outlay impacts of the surge of immigration, and just to say a little about cbo process, well, if you think about it, what are the whats the cost, you know, the cost of medicaid to an immigrant seven years from now or an immigrant who arrives in 2022, six years after. So in 2028, four years from now . Right know that we have to know whats the income of that immigrant because medicaid is means tested and you have to know which state are they in because the eligibility for medicaid by expansion and nonexpansion states and Affordable Care act. Thats the work were doing is making projections from today Going Forward, or from 2022 Going Forward, from the surge Going Forward of the income impacts and so its distributional impacts of the surge of immigration. Were working as well on the productivity impacts and some of the immigrants will Start Companies and this hell learn, theyll contribute knowledge, theyll have patents and effects on longterm gdp. Were looking at that, and looking at the impacts on gdp and on inflation, of course, immigration affects supply and demand. It affects labor supply and demand. Immigrants buy things and the immigration surge helped to loosen the tight labor market, but contributed to demand. Were looking at the balance between those two. All right. Just a few last remarks and then i will lets see, good, turn it over to alan. This slide is from our longterm budget outlook and it shows changes in the competition of outlays over the next 30 years. So this is from 2024 to 2054. And the top chart in a sense is a mirror of the first chart i showed on deficits, and the net interest outlay and this is the same thing over the 30 years. Over the 30year horizon, the increasing shares of overall federal outlays is projected to the net interest outlays. And i say before, more interest outlays in our calculations, its about the increase, its not just here, but the dollar increase over the 10year budget window is twothirds from higher rates and one third from more debt. Good. Okay. And then the talk and again, familiar. Familiar from my first chart and new, the rise in new interest outlays and a period Interest Rates were low and policy makers just did not worry as much about the flow costs, you know, the carrying costs of the debt. You know, then the bottom of the chart shows the rising share of mandatory spending in outlays. And again, i think this is familiar, its but its worthwhile to see and you can see at the very bottom, the Major Health Care programs, a lots of that is medicare, medicaid, there are subsidies for the Affordable Care act and other things in there, and represents the aging in the population and strong growth in health care. And then Social Security. Social security, of course, you know, the bulk of the increase and the share of gdp in the next 10 years and then it moderates and then the increase there over the 30year horizon is smaller. Okay. I have a couple of other charts on actually one last word on this chart and then im going to skip back to my first chart and just make some general remarks and turn it over to alan. This looks at population growth and this is again from our demographic outlook and the point i wanted to make is that that orange spike, you can see the immigration surge through 2026 and from 2040 on, the net population growth in the u. S. Is projected to be entirely from immigrants. And given the fertility rates, you know, we projected its around 1. 6 now and we promminged to go up somewhat and still remains so much lower than it was before the financial crisis, so, okay. Im going to skip over my last chart its on the website about about gdp. And well close with a few broad points. So my term of art for the budget situation is daunting. And theres a sense in which its yet more difficult than we show in our bugetary projections and im going to tick through