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CBO Agrees With Toomey: "Impossible To Prove" Stimulus Created Jobs

SEN. TOOMEY: I know it is your view that the recent huge increase in spending and the corresponding big deficits have generated more economic growth and more job creation that we would have had in the absence of those things. But surely you’d agree, that that essentially asks for a comparison to a counterfactual, and as such, it’s completely impossible to prove?

DR. DOUGLAS ELMENDORF, director of the CBO: Yes, that’s right, senator.

TOOMEY: I would just urge us to consider that there is another theory here which is that government cannot really create demand on balance. It can substitute public demand for private demand, but that it’s illusory to think that government can simply step in and make up for what is perceived to be a shortfall of private sector demand. And by the way, I would suggest that there are governments such as Greece and Italy and Portugal and Spain who’ve created a lot of demand domestically through their excessive spending, and it’s not working out so well for them. I wanted to follow up on something. I might have misunderstood this, but I thought I heard someone suggest that non-defense discretionary spending has been essentially flat for about the last decade. And I think we’ve touched on this in various ways, but I just want to be very clear. In fact, by any reasonable measure, non-defense discretionary spending has grown dramatically, I would say. The numbers I have are, in 2000, we spent about $284 billion in non-defense discretionary spending. In 2010, we spent $550 billion. We’ve had a slight reduction in 2011. But this is growing, obviously in nominal terms; it’s growing in inflation-adjusted terms; it’s growing faster than inflation plus population growth; it’s growing faster than GDP, in fact. Isn’t that true?

ELMENDORF: I think that’s correct about outlays, senator. And I do show that in one of the figures. The issue, though, worth pointing to is that funding, meaning the new budget authority that Congress is providing for non-defense discretionary purposes, is actually now back down already in fiscal year 2011, as a share of GDP, to roughly what it was over the preceding few decades. And you can see that in figure six of the testimony. Now, you’re right in terms of nominal dollars or in terms of real inflation-adjusted dollars, it is certainly up. As a share of GDP though, there is a sharp distinction between the level of outlays in 2011 which depended on previous years’ funding and the level of funding in 2011 which is the jumping off point for future discussions of appropriations.

TOOMEY: My point is over this 10-year period, we’ve seen huge growth in non-defense discretionary spending. The last point I’d just like to ask is, I think it’s your view but I like to ask, is it your view that if we were to pursue revenue neutral tax reform, that would have the effect of broadening the base upon which taxes are applied and lowering marginal rates, that it is true both with respect to such corporate reform or individual reform that that would have a pro-growth effect on the economy, which of course would in turn generates more income for the government?

ELMENDORF: Yes, that’s right. Again, the amount would depend on the specifics of the proposal.

TOOMEY: Absolutely. But to the extent that we pursued that, we would be generating economic growth, therefore jobs and revenue for the Treasury?

ELMENDORF: Yes, senator.

TOOMEY: Great, thanks very much.

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