Sen. Kent Conrad Holds a Hearing On the Fiscal Year 2008 Budget Request

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Sen. Kent Conrad Holds a Hearing On the Fiscal Year 2008 Budget Request

U.S. SENATE BUDGET COMMITTEE HOLDS A HEARING ON THE FISCAL YEAR 2008 BUDGET REQUEST

FEBRUARY 8, 2007

SPEAKERS: SEN. KENT CONRAD, D-N.D. CHAIRMAN SEN. PATTY MURRAY, D-WASH. SEN. RON WYDEN, D-ORE. SEN. RUSS FEINGOLD, D-WIS. SEN. TIM JOHNSON, D-S.D. SEN. ROBERT C. BYRD, D-W.VA. SEN. BILL NELSON, D-FLA. SEN. DEBBIE STABENOW, D-MICH. SEN. ROBERT MENENDEZ, D-N.J. SEN. BENJAMIN L. CARDIN, D-MD. SEN. SHELDON WHITEHOUSE, D-R.I.

SEN. BERNARD SANDERS, I-VT.

SEN. JUDD GREGG, R-N.H. RANKING MEMBER SEN. PETE V. DOMENICI, R-N.M. SEN. CHARLES E. GRASSLEY, R-IOWA SEN. WAYNE ALLARD, R-COLO. SEN. MICHAEL B. ENZI, R-WYO. SEN. JEFF SESSIONS, R-ALA. SEN. JIM BUNNING, R-KY. SEN. MICHAEL D. CRAPO, R-IDAHO SEN. JOHN ENSIGN, R-NEV. SEN. JOHN CORNYN, R-TEXAS SEN. LINDSEY GRAHAM, R-S.C.

WITNESSES: SECRETARY OF TREASURY HENRY M. PAULSON JR.

[*] CONRAD: Hearing will come to order. We apologize for being somewhat tardy in beginning this hearing. We try to start these hearings on time this every morning, and I think we've succeeded every morning, but we wanted to have an informal discussion with the secretary and see if we couldn't have a constructive discussion about things and a way forward.

And I want to welcome the secretary to the committee and say that we have enjoyed our discussions with him since he's come into this office, and we see him as a very constructive player and want to acknowledge that publicly.

Let me just being by talking about the revenue. The secretary of the treasury, of course, has the preeminent responsibility in the administration on the revenue side of the equation. Let me just talk about -- you saw this the other day in the Finance Committee.

It's true that we have had good revenue growth the last several years, but if one looks back on a comparison basis to 2000, and these are real revenues, adjusted for inflation, you see it took until 2006 to get back to the revenue we had in 2000. Let's go to the next slide, if we can.

On the other hand, spending has gone up by 40 percent, and the result of this combination, revenue down, spending up, has been to explode the deficit and the debt. Let's go to that next.

We can see we have had an increase of the debt from $5.8 trillion at the end of the first year of this administration to $9 trillion projected at the end of this year, which is exactly what you would expect. If you can't pay your bills in the first place and you cut revenue and raise spending, the imbalances grow.

Let's go to the next slide if we could. One of the results of this is we have become increasingly dependent on what I call the kindness of strangers. We are increasingly borrowing this money from abroad. As this chart shows, it took 42 presidents 224 years to run up $1 trillion of U.S. debt held abroad. That has now more than doubled in just the last six years. Let's go to the next.

Now, this chart shows if you make the president's tax cuts permanent, at the very time the trust funds go cash negative, the cost of the tax cuts explode and it takes us right over a cliff, that is if we extend these tax cuts without paying for them.

I like tax cuts as much as anyone, and I've been a great beneficiary of these tax cuts personally, but we face a situation with this demographic change that we face demographic change that's going to require us to do a lot of things we'd prefer not doing. And that means that we've got to have savings out of the entitlements. I believe as part of a package it means we're also going to have to find more revenue.

Let me be swift to say, I think the first place we ought to look for revenue is not a tax increase. The first place we ought to look is this burgeoning tax gap, $350 billion a year. Let's go to the next slide.

This chart shows what happens if the tax cuts are extended without paying for them, without offsetting them, and the debt in the out years explodes. And every single witness before this committee has acknowledged we've got a very serious long-term problem and an unsustainable budget condition. Let's go to the next. This is the question of whether tax cuts pay for themselves.

We've heard a lot of discussion from people that suggest that tax cuts pay for themselves, perhaps more than pay for themselves. This is the chairman of the Federal Reserve saying: I don't thi...

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