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Budget Hearing on Foreign Holdings of U.S. Debt

Posted on by Jesse Lee

The Budget Committee is currently holding a hearing, “Foreign Holdings of U.S. Debt: Is Our Economy Vulnerable?”

Watch the hearing live >>

Dr. Peter R. Orszag, Director of the Congressional Budget Office, gives opening testimony:

Dr. Orszag:
“Economists generally agree that the current account deficit is unsustainable, because the nation’s indebtedness to the rest of the world will grow faster than its income, and foreign investors will not continue to be willing to purchase U.S. claims indefinitely, as their portfolios become more and more concentrated in such assets.”

Rep. Chet Edwards (TX-17) questions the Director of the Congressional Budget Office on the impact of Republican policies on the deficit:

Rep. Edwards:
“I find it interesting that we’re holding this hearing today on the impact of foreign-held US national debt and on the same day on the front page of the Washington Post there is the third part of a four part series talking about how behind the scenes it was Vice President Cheney who was the architect of the Bush economic policies that led to the largest deficits in American history. My hope is today’s hearing will debunk Mr. Cheney’s flat-out wrong statement, or declaration that deficits don’t matter.”

Extended transcript of the above exchange:

Rep. Edwards: “I find it interesting that we’re holding this hearing today on the impact of foreign-held US national debt and on the same day on the front page of the Washington Post there is the third part of a four part series talking about how behind the scenes it was Vice President Cheney who was the architect of the Bush economic policies that led to the largest deficits in American history. My hope is today’s hearing will debunk Mr. Cheney’s flat-out wrong statement, or declaration that deficits don’t matter. I think while we disagree on the origins of the deficit, I would hope there would be bipartisan agreement that deficits do matter, that Vice President Cheney, the architect of the Bush economic policy, was dead wrong in his declaration. [Republican Rep. Paul Ryan] talked a little bit, Mr. Orszag about the basis of the deficit. He made a statement, I wrote it down – tax relief isn’t the reason for deficit. Let me ask you a question: based on your analysis for fiscal year 2007, what percent of this year’s deficits is the result of the tax cuts passed since 2001?”

Dr. Orszag: “I’m going to have to give you the exact number later, and it depends how you do the accounting, but the revenue effect of the 2001 and 2003 tax legislation is roughly one and a half percent of GDP, which is about the size of the federal deficit today.”

Rep. Edwards: “So put that in lay terms, had we not had the tax cuts passed since 2001, according to CBO analysis, the deficit would be how much smaller?”

Dr. Orszag: “If you just do a simple accounting exercise that takes that estimated revenue effect from the Joint Committee on Taxation and compare it to today’s deficit, it would roughly eliminate the deficit.”

Rep. Xavier Becerra (CA-31) questions the Director of the Congressional Budget Office on whether the United States has ever given out tax cuts to the wealthy during a time of war:

Rep. Becerra:
“In our 230 year history… have we ever faced a similar circumstance while we’ve been at war while we’ve also at the same time cut the taxes on the wealthiest Americans in this country?”
Dr. Orszag:
“I do not believe that’s the case. I actually think we may have had a previous exchange on a similar topic, I asked CBO staff to look into whether there’d ever been a revenue reduction during a time of war. If my memory serves me correctly there was an engagement with Mexico in the late 19th Century in which we also reduced a tariff rate at approximately the same time. And that was the only time in history that the CBO staff could uncover.”
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