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PUBLIC POLICY UPDATE January 28, 2011 HEARING SUMMARIES Senate Budget Committee The Budget and Economic Outlook:

PUBLIC POLICY UPDATE January 28, 2011

HEARING SUMMARIES

Senate Budget Committee The Budget and Economic Outlook: Fiscal Years 2011-2021 January 27, 2011

Witness List:

Dr. Douglas W. Elmendorf – Director, Congressional Budget Office

Chairman Kent Conrad (D-SD) opened the proceedings by stating that the Congressional Budget Office’s (CBO) new report on the U.S. budget and economic outlook for the fiscal years 2011 through 2021 is both sobering and a flashing red light. Government spending as a share of national income is at its highest point in 60 years. Similarly, revenue is at its lowest point over this same time period. He stated this path is clearly unsustainable. The CBO Report shows that the Federal deficit will reach $1 trillion by the end of 2012 and continue to rise with the retirement of the baby-boomer generation. Most economists agree that public debt levels over 90 percent of GDP severely elevate the risk of a bond crisis. The public debt of the United States is approaching 100 percent of GDP. Rating agencies like S&P could downgrade bond ratings. Sen. Conrad believes that the question is not of economic wherewithal but of political will. Steps must be taken immediately to establish a plan to incrementally lower the deficit. Groups like the President’s Fiscal Commission, though unpopular, will be necessary. The solution will require a combination of reductions in discretionary and nondiscretionary spending with holistic tax reform. Dramatic cuts in discretionary spending will be unsustainably draconian.

Ranking Member Jeff Sessions (R-AL) added that he believes public debt is approaching dangerous levels. The interest on U.S. debt alone totals more than $750 billion. He echoed the warnings of former Federal Reserve Chairman Alan Greenspan that the chances of a crisis in the bond market were “50-50.” It is up to the leadership of the U.S. government to decide whether to begin controlling the deficit before or after this crisis.

Sen. Mike Crapo (R-ID) agreed with Conrad that the time to act on the impending debt crisis is now. He quoted the Chairman of the Joint Chiefs of Staff in saying that the Federal deficit is the greatest threat to U.S. national security. He also agreed that, as with the President’s Fiscal Commission, all options should be on the table. This included reductions in discretionary spending, entitlement programs, defense, and tax reform. This plan must be implemented over years and will require the participation and intense focus of future presidential administrations and Congresses alike.

Dr. Douglas W. Elmendorf testified that the economic and budgetary issues facing the U.S. in the coming decade are daunting. Federal revenues have been and will continue to be well short of the government’s sending levels. This fact combined with anemic growth in the aftermath of the recent recession could put the U.S. at risk for a debt crisis similar to what is currently taking place in some European Union countries.

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Elmendorf further stated that discretionary spending accounted for a much smaller percentage of the Federal deficit and debt than what is popularly believed. Most of the spending by the U.S. government is non-discretionary, with entitlement programs such as Medicare and Social Security as well as defense spending.

Elmendorf also testified that a permanent extension of current policies that are set to expire in a few years could potentially double the Federal debt. Permanently extending Bush era tax cuts, the Alternative Minimum Tax, Medicare payments to doctors, and various other tax breaks have been projected to increase the Federal debt up to $12 trillion by the end of the decade.

Elmendorf concluded that uncertainty and delay now will only result in much more dramatic and damaging correction measures in the future. Change must be enacted soon because the current path is unsustainable. The real challenge is to make these spending and tax reforms gradual in the short term so as to minimize economic disruption.

Questioning:

Conrad noted that the word “unsustainable” was being thrown around a lot. He asked the witness what he meant by its uses. Elmendorf answered that the burden of interest can make the debt harder to pay off. It can snowball and create a situation where the amount of money owed skyrockets. This cycle feeds itself as investors, wary of a debt crisis, will charge higher interest rates on government securities to mitigate the additional risk they take on. Elmendorf stated that it was unclear where this tipping point can be found.

Conrad also asked what the stimulative effects of tax cuts were in the short and long terms. Elmendorf answered that in the short term, tax cuts could promote economic growth through the encouragement of work and saving. However, if the reduced revenue implicit in tax cuts is not met with commensurate spending reductions then it could instigate the crowding-out phenomenon. In this case, government borrowing crowds out private borrowers, resulting in increased interest rates and economic downturn.

Crapo cited studies showing the increased risk of a bond crisis with high percentages of debt to GDP and asked the Director’s opinion on the U.S.’s situation. Elmendorf responded that this situation is unfamiliar territory in the developed world. Results in other countries have not been good but the uniqueness of the U.S. might grant some wiggle room. However, low U.S. savings rates require reliance on foreign investors.

Sen. Ron Wyden (D-OR) asked the Director about the implications of a temporary tax structure, how a process of Continuing Resolutions affected the economy. Elmendorf answered that this uncertain tax structure damaged the economy as families and businesses cannot plan ahead farther than a couple years. A permanent tax structure would allow economic growth through informed and reasoned planning.

Sen. Joe Manchin (D-WV) asked about the effect of a Balanced Budget Amendment. The Director responded that such an amendment would be effective for guiding the decisions of Congress as long as deficit reduction is the goal. However, it would eliminate many of the automatic stabilizers – such as tax reductions and stimulus spending – that kick in during economic hardship. This would obviously have a subversive effect on the economy.

Sen. Rob Portman (R-OH) and Sen. John Thune (R-SD) both asked what the odds of a debt crisis were in the opinion of the Director and what he believed to be the greatest danger in the

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near future. Elmendorf stated that giving odds on a crisis was difficult due to the fluid nature of policy and investor perception of them. However, the odds will increase over time if action is not taken. He testified that the greatest danger in the future was the retirement of the baby-boomer generation coupled with the costs of healthcare.

Conrad concluded that this debt must be serviced and action must be taken soon to develop a plan to do so. It may be up to the Budget Committee to show leadership in not only generating proposals but also garnering the input of the White House and other congressional leaders.

House Committee on Foreign Affairs The United Nations: Urgent Problems that need Congressional Action January 25, 2011

Witness List:

Mr. Brett Schaefer, Heritage Foundation

Mr. Robert Appleton, Former Chairman of the UN Procurement Task Force

Ms. Claudia Rossett, Foundation for Defense of Democracies

Mr. Hillel C. Neuer, Executive Director UN Watch

Mr. Peter Yeo, Vice President of Public Policy and Public Affairs at UN Foundation

Mr. Mark Quarterman, Senior adviser and Director at the Center for Strategic and International Studies

Chairwoman Ileana Ros-Lehtinen (R-FL) commenced the hearing by commending the ideals of the UN but stating that the UN is not advancing U.S. interests, upholding U.S. values, or being responsible stewards of U.S. taxpayer dollars. The U.S. paid more than $6 billion to the UN in FY2009, 20 percent of the UN budget, but the money went to UNDP, a UN program that she criticized as unethical and not using funds as allocated, and to support efforts to condemn Israel. Ros-Lehtinen argued that the U.S. should be putting conditions of reform on U.S. contributions and should withdraw from the UN Human Rights Council. She also urged that Congress should re-introduce legislation that puts conditions on our contributions, calls for sweeping reform and makes UN funding voluntary for member states. She said that UN programs need to be looked at one-by-one as some have merit, but those that have merit can’t justify the ones that employ terrorists or are run by communist regimes.

Ranking Member Howard L. Berman (D- CA) acknowledged that UN flaws are flagrant but emphasized that it would be wrong to ignore the essential role the UN plays in supporting U.S. national security interests abroad. The UN peacekeeping budget has increased because it keeps U.S. soldiers out of conflicts in places such as Haiti. Instead of withholding dues, the U.S. should work with allies to engage the UN in a reform agenda. The UN should streamline the secretariat, work to promote ethics and encourage cooperation between UN agencies because there has been progress made through these means in the past.

Mr. Brett Schaefer stated that there has been a lack of UN reform in the past 60 years. This can be attributed to the fact that many countries have no stake in management of funds at the UN because they pay only thousands and not billions of dollars; however, these countries have voting power and can block reform attempts. While the Obama administration is not enthusiastic about UN reform, it can be done without their support through budget measures in Congress. Schaefer recommended that major contributors should have more say in allocation and should be able to review mandates. He recommended that the U.S. withhold funding for the UN Human Rights Council until its membership structure is changed and that the U.S. must use its contributions as a tool since reform has been promised but not realized.

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In questioning, Schaefer pointed out the need for membership criteria for the Human Rights Council to keep violators off the Council. He advocated for instituting competitive elections for representatives and separating funding for the Council from the general budget to allow it to be withheld.

Ms. Claudia Rossett began by stating that the UN is under no censure and works across borders, which invites exploitation. The U.S. is sustaining a harmful system and needs to engage in in-depth investigation of UN programs. The U.S. should use its assessed bas leverage to require the release of information that is otherwise not public record.

In questioning, Rossett stated that the UN doesn’t keep record of the overall general budget, so no accurate number can be given. She also noted that the UN has no definition as terrorist and therefore cannot check employees for possible ties to terrorist organizations.

Mr. Hillel C. Neuer condemned the UN Human Rights Council by stating that 57 percent of its members fail to meet democracy standards set by Human Rights Watch, its members turn a blind eye to the world’s worst abuses, the Council demonizes Israel 70 percent of the time, and the Council has become a group that human rights abusers use to protect themselves. However, while the Council has fatal flaws, the U.S. should pay full UN assessed dues due to the merit of other UN activities.

In questioning Neuer stated that out of 47 members, 30 vote as a block and reject resolutions unfavorable to them. To counter this, members representing democratic states must propose resolutions on human rights offenders even if they will probably be blocked.

Mr. Peter Yeo began by stating that the U.S. needs the UN to promote a more stable and prosperous world. The UN serves a near perfect purpose of promoting U.S. interests abroad. There have been UN internal reforms to support ethics and promote an effective workforce. The Human Rights Council, while flawed, is helped by U.S. membership as it lends credibility and an often opposing viewpoint. Unpaid dues undermine the UN. The U.S. must pay dues on time and in full and then engage with the UN to advance reform.

Mr. Mark Quarterman stated that the UN is a force-multiplier and influence-multiplier for the U.S. abroad. The UN allows cost-sharing. It reduces the need to deploy U.S. troops. The UN is able to engage those the U.S. cannot or will not talk to and the UN’s legitimacy allows it to do things the U.S. cannot. The U.S. does the most to steer the UN and holds a powerful voice in the Security Council, in part due to funding a large part of its budget. The U.S. should ensure contributions are used efficiently but not withhold funds.

Mr. Robert Appleton outlined the successes in oversight and prosecuting individuals accused of wrongdoing within the UN but stated that leveraging U.S. contributions is the only tool that will bring about reform at the UN.

Rep. Christopher H. Smith (R- NJ) spoke on the human right abuses taking place in China such as forced abortions and forced sterilizations. The UN takes no action and is complacent on these human rights violations.

Rep. Albio Sires (D- NJ) stated that the good acts of the UN are overshadowed by the weaknesses and shortfalls, and said that the Human Rights Council doesn’t need reform; it should be thrown out.

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Rep. Dana Rohrabacher (R-CA) stated that China pays only 10 percent of its assessed contributions, which is unfair and that the U.S. shouldn’t put up with that. The UN should be a prime target for a funding cut to bring down the deficit.

Rep. Steve Chabot (R-OH) stated that the U.S. shouldn’t give a penny to UN until the Human Rights Council is disbanded and reformed.

Upcoming Hearings

Hearing: Iraq: The Transition to a Civilian Mission Committee: U.S. Senate Committee on Foreign Relations Witnesses: The Honorable James F. Jeffery, Ambassador to Iraq, Department of State; General Lloyd James Austin III, Commanding General, United States Forces – Iraq When: Tuesday, February 1, 10:00 am Where: 419 Dirksen Senate Office Building Contact: (202) 224-6225

Hearing: The Budget and Economic Outlook: Fiscal Years 2011-2021 Committee: The Senate Budget Committee Witnesses: Richard Berner, managing director, co-head of global economics, and chief U.S. economist for Morgan Stanley; Simon Johnson, senior fellow at the Peterson Institute for International Economics and professor of entrepreneurship at MIT's Sloan School of Management; and David Malpass, president of Encima Global When: Tuesday, February 1, 10:00 am Where: 608 Dirksen Senate Office Building Contact: (202) 224-0642

ARTICLES AND REPORTS

Disclaimer: Articles linked in the Update are intended to provide a dashboard view of newsworthy and topical issues from popular news outlets that will be of interest to readers of the Update. The articles are an information sharing vehicle rather than an advocacy tool. They are in no way representative of the views of InterAction or the U.S. NGO community as a whole.

New York Times

Jan. 24: Pakistan: Short Training for Women Workers Goes Far in Saving Newborns’ Lives A new study suggests that “lady health workers,” as Pakistan calls them – women trained as part of a government program to give care to poor people in rural areas – can make a difference in saving the lives of newborns. The areas where the women were assigned to work had 21 percent fewer stillbirths and 15 percent fewer newborn deaths than in other areas. That success was achieved even though the health workers generally had only 10th-grade educations and one extra week of training for the project.

Jan. 25: G.O.P. Renews Call to Tie UN Funding to U.S. Goals Republican members of Congress on Tuesday used their newly won control of the House to advocate that the United States hinge its hefty support for the United Nations budget to more tangible efforts by the organization to root out corruption and advance American foreign policy goals. The House foreign affairs committee held an initial briefing to debate whether the

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administration should withhold the money for certain branches of the world body that members said worked against American interests. They focused much of their attention on the Geneva- based Human Rights Council, which repeatedly condemns Israeli rule over the Palestinians while generally ignoring abuses committed by member states like Iran, Zimbabwe and Saudi Arabia.

Washington Post

Jan. 25: USAID Leader Outlines his Change in Strategy "This agency is no longer satisfied with writing big checks to big contractors and calling it development." Shah said development funders and practitioners need to understand that, unlike commercial businesses, "We have no interest in our own growth and our own perpetuity. We must seek to do our work in a way that allows us to be replaced over time by efficient local governments, by thriving civil societies and by a vibrant private sector." He said reform of USAID contracting will mean accelerated "funding to local [nongovernmental organizations] and local entrepreneurs, change agents who have the cultural knowledge and in-country expertise to ensure assistance leads to real local institutions and lasting, durable growth."

Foreign Policy

Jan. 25: Berman Stands Up For Foreign Aid Funding House Foreign Affairs Committee ranking member Howard Berman (D-CA) is supporting calls from the Obama administration to keep State and foreign aid funding out of the hands of GOP budget slashers in Congress. The budget resolution "sends a very damaging message that the Congress will not stand up to protect those programs that are absolutely essential to jobs and the economy," Berman said. "It also rejects a key principle that military leaders and presidents of both parties have clearly recognized: Foreign assistance and diplomacy are essential to United States national security." Berman made a case for the role of U.S. economic and diplomatic capabilities in winning the war on terror. He also noted that Defense Secretary Robert Gates, Joint Chiefs

Chairman Adm. Mike Mullen, and ISAF commander Gen. David Petraeus have all come out in favor of increasing funding for foreign operations.

Huffington Post

Jan. 25: The Failure of Mediation Efforts in Lebanon and Ivory Coast Last week, two international mediators declared an impasse and walked away from the conflicts they were assigned to mediate. In Lebanon, Saudi Foreign Minister Prince Saud al-Faisal attempted to mediate a serious conflict between Lebanese Prime Minister Saad al Hariri and Hezbollah. In the Ivory Coast, Kenyan Prime Minister Raila Odinga mediated the continuing crisis caused by the presidential election between Alassane Ouattara and Laurent Gbagbo. The problem is that we can longer afford leave mediation in the hands of diplomats. The solution is to recognize the problem then try alternatives. There are many deeply experienced mediators in the world and many more young people are training in mediation. The diplomatic community can solve the problem of mediation expertise by reaching out and calling in an expert.

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